Curis, Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. Curis is a clinical-stage oncology biotechnology company. Erivedge is commercialized by Genentech/Roche for advanced basal cell carcinoma; Curis’s other principal programs are in clinical or preclinical development.
Financial performance and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $2.1 million | $1.7 million | $4.2 million | $3.4 million |
| Research and development expense | $11.3 million | $8.8 million | $24.8 million | $15.7 million |
| General and administrative expense | $3.8 million | $3.4 million | $7.4 million | $7.1 million |
| Loss from operations | $(13.1) million | $(10.7) million | $(28.2) million | $(19.5) million |
| Net loss | $(14.1) million | $(11.3) million | $(29.8) million | $(20.7) million |
| Net loss per share, basic and diluted | $(0.10) | $(0.09) | $(0.21) | $(0.16) |
Revenue was primarily Erivedge royalties: $2.1 million in Q2, up 14%, and $4.3 million for the first half, up 20%. Research and development revenue was negative in both periods after reimbursements and related costs. The filing does not present a meaningful product gross margin; Curis does not expect direct product sales revenue for several years, if ever.
At June 30, cash and cash equivalents were $26.7 million and investments were $24.4 million, or approximately $51.0 million combined. Current assets were $54.4 million versus current liabilities of $14.6 million. Stockholders’ equity was $9.2 million, down from $29.3 million at year-end 2016; accumulated deficit was $928.8 million.
First-half operating cash use was $24.4 million, compared with $18.8 million in 2016. Investing activities used $6.0 million; financing activities provided $31.0 million, including a $45.0 million royalty-backed loan and $6.2 million of net ATM proceeds, offset in part by repayment of the prior loan. Cash increased by $0.6 million to $26.7 million over the half-year.
Debt at June 30 included $3.9 million current and $40.0 million long-term, net of issuance costs; the filing also reports $44.3 million outstanding including accrued interest. The HealthCare Royalty Partners loan bears 9.95% interest and is repaid from Erivedge royalties. Management’s estimated total debt payments are $60.4 million, including estimated interest, and depend on future royalties.
Material changes versus the prior comparable period
- First-half net loss widened 44% to $29.8 million, while total revenue rose 23% to $4.2 million.
- First-half R&D expense rose 58%, primarily reflecting higher CUDC-907 and CA-170 clinical costs, increased personnel and stock compensation, and a $3.75 million Aurigene exclusivity installment.
- In March, Curis refinanced the former BioPharma-II loan with a $45.0 million HealthCare Royalty loan at a lower stated rate, 9.95% versus 12.25%. The proceeds paid off approximately $18.4 million of the former loan; $26.6 million was distributed to Curis.
- Shares outstanding were 143.9 million at July 28, 2017, compared with 141.1 million at December 31, 2016. The company reported 2.1 million shares sold through its Cowen ATM facility during the first half for $6.2 million net.
Outlook, management commentary and risks
- Management said existing cash, cash equivalents and investments should fund planned operations into 2018. To maintain resources for 12 months from filing, Curis may need additional financing through its $30.0 million ATM facility or other sources; absent financing, it expects to reduce or delay R&D and operating spending. Additional capital may be unavailable or dilutive.
- CUDC-907 Phase 2 interim results: 7 of 44 intent-to-treat patients had confirmed durable objective responses, including 3 complete responses; all 7 responders had MYC-altered disease, with no responses among 12 MYC-negative patients. Management said the data were encouraging but insufficient to support a request for accelerated approval, and was assessing a separate registration-enabling trial rather than enrolling more patients in the existing Phase 2 study.
- CA-170 is in Phase 1. Curis expected to file an IND for CA-4948 in Q3 2017 and for CA-327 in Q1 2018. The company’s near-term development focus includes these programs and CUDC-907.
- Erivedge royalties increased but are subject to competition from sonidegib, which has already reduced the U.S. royalty rate. Curis expects all Erivedge royalties to be applied to repayment of the HealthCare Royalty loan for the foreseeable future, limiting their availability for operations.
- Key risks include continuing losses and cash burn, uncertain access to financing, clinical and regulatory failure or delay, dependence on Aurigene and Genentech/Roche, royalty variability, debt repayment and covenant/default risks, competition, and potential dilution.
Important facts for investors to verify
- Whether Curis obtained sufficient financing after the filing and whether spending reductions became necessary; reported runway was only into 2018.
- Actual CUDC-907 trial design and subsequent data, particularly in MYC-altered DLBCL, and progress of the anticipated CA-4948 and CA-327 IND filings.
- Erivedge sales, royalty rates and receipts, and the pace of principal and interest repayment under the royalty-backed loan.
- ATM usage and dilution: the filing reports $6.2 million of first-half net proceeds, but a later risk-factor passage says no sales had occurred under the facility as of June 30, 2017. Reconcile this apparent inconsistency.
- Actual debt repayment versus management’s royalty-based estimates, including the distinction between balance-sheet debt net of issuance costs and the reported $44.3 million balance including accrued interest.