Curis, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Curis is a clinical-stage biotechnology company developing cancer therapeutics. Its reported revenue was entirely associated with the Genentech collaboration and Erivedge royalties.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $2.1 million | $2.4 million | $3.9 million | $4.8 million |
| Research and development | $5.6 million | $6.5 million | $9.7 million | $14.7 million |
| General and administrative | $2.5 million | $3.6 million | $5.7 million | $7.6 million |
| Operating loss | $6.1 million | $7.9 million | $11.7 million | $17.8 million |
| Net loss | $7.2 million | $8.7 million | $17.1 million | $19.4 million |
| Basic and diluted loss per share | $0.22 | $0.26 | $0.52 | $0.59 |
- Q2 revenue declined 11%; six-month revenue declined 20%, principally due to lower Erivedge royalties. Royalties were $2.1 million for Q2 and $4.3 million for the six-month period.
- R&D and G&A fell year over year, reflecting lower employee-related and stock-based compensation costs, as well as changes in program spending. Q2 direct R&D costs rose, primarily from CA-4948 clinical activity.
- Six-month operating cash use was $12.7 million, versus $16.9 million in 2018. Cash and cash equivalents were $27.2 million; investments were $8.1 million. Management reported $35.3 million in cash, cash equivalents and investments, excluding restricted investments.
- Curis reported no outstanding long-term debt at June 30, 2019, following repayment of its HealthCare Royalty loan. It recorded a $64.1 million liability for the sale of future royalties. Total liabilities were $68.5 million, and stockholders’ equity was negative $20.3 million.
Material changes and financing
- In March 2019, Curis received $65.0 million upfront from Oberland for a portion of its future Erivedge royalty rights. After repayment of approximately $37.2 million to HealthCare Royalty and transaction costs, net proceeds were approximately $27.5 million. The agreement is accounted for as a liability, with non-cash imputed interest expense; $1.4 million was recorded in the first half of 2019.
- Curis may receive up to approximately $70.7 million in additional Oberland milestone payments, subject to specified royalty-payment thresholds and timing conditions. The transaction also includes security interests and default-related repurchase provisions.
- Six-month results included a $3.5 million loss on extinguishment of debt, largely from prepayment fees and accrued interest. This contributed to higher other expense despite lower operating losses.
- The company revised its Q1 2019 cash flow presentation to correct classification of $3.4 million of prepayment fees between operating and financing activities. It stated the error was not material to the prior-period financial statements.
Outlook, risks and notable items
- Management expects existing cash, cash equivalents and investments to fund planned operations into the second half of 2020; additional capital or debt will be needed thereafter. Curis expects continued operating losses and does not expect profitability in the foreseeable future.
- Curis expects R&D spending to increase as it advances fimepinostat, CA-4948 and CA-170. It expected initial data from the fimepinostat/venetoclax combination study and the CA-170 mesothelioma study in the second half of 2019. A separate CA-4948 Phase 1 trial for AML and MDS was being planned.
- Key risks include clinical and regulatory failure or delay, reliance on Aurigene and Genentech/Roche, dependence on Erivedge royalties, competition from sonidegib (which has reduced applicable royalty rates), and the need to secure additional financing. A default under the Oberland arrangements could jeopardize retained royalty rights and trigger costly remedies.
- Curis adopted lease accounting in 2019, recording a $0.6 million right-of-use asset and $0.6 million lease liability at quarter-end. Management said the adoption did not significantly affect operations. Disclosure controls were assessed as effective.
Investor verification points
- Confirm the scope and timing of remaining Erivedge royalties transferred to Oberland, the royalty cash flows Curis retains, and the conditions for milestone payments or default remedies.
- Track cash burn against the stated runway and assess the timing, availability and potential dilution or cost of future financing.
- Verify subsequent clinical updates for fimepinostat, CA-4948 and CA-170, including enrollment, safety and efficacy results, and any changes to trial plans.
- Monitor Erivedge sales and royalty trends, including competitive effects and country-specific royalty reductions.
- Assess whether reduced operating expenses are sustainable as clinical programs advance and R&D spending is expected to rise.