Curis, Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. This is an annual filing; quarterly figures below identify Q4 where relevant. Curis is a cancer-focused biotechnology company whose pipeline is principally clinical- and preclinical-stage. Its only marketed product-related revenue is from Erivedge royalties earned under the Genentech collaboration.
Financial performance and liquidity
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $7.5 million | $7.9 million |
| Research and development expense | $31.6 million | $26.7 million |
| In-process R&D expense | $18.0 million | $24.3 million |
| General and administrative expense | $15.6 million | $12.9 million |
| Operating loss | $58.0 million | $56.5 million |
| Net loss | $60.4 million | $59.0 million |
| Net loss per share | $0.45 | $0.48 |
| Net cash used in operating activities | $35.8 million | $29.9 million |
| Cash, cash equivalents and investments at year-end | $44.5 million | $82.2 million |
| Working capital at year-end | $34.7 million | $74.7 million |
| Long-term debt, balance-sheet carrying amount | $19.9 million, including current portion | $24.2 million, including current portion |
All 2016 revenue was attributable to Genentech-related collaboration activity; $7.8 million was Erivedge royalty revenue. Royalties were down 3% year over year, and total revenue fell 4%. The reported revenue figure includes negative net R&D revenue, reflecting reimbursed expenses and contra-revenue items. Curis reported no product-sale revenue of its own.
R&D expense rose 18%, primarily from CUDC-907 clinical development and added personnel; G&A rose 21%. The $18.0 million in-process R&D charge was the value of shares issued to Aurigene under a 2016 collaboration amendment. Net loss increased about 2% despite lower in-process R&D expense than in 2015. Cash and investments declined by $37.7 million; operating cash use increased about 20%.
At December 31, Curis had $26.0 million cash and cash equivalents and $18.4 million investments. Management expected existing cash and investments to support planned operations into the second half of 2017. It said additional financing was needed to provide 12 months of resources from filing, and planned to rely on a royalty-debt refinancing and potentially its $30 million at-the-market equity facility or other financing; absent financing, it could reduce or delay spending.
Business and material developments
- CUDC-907: Curis initiated a Phase 2 monotherapy trial in relapsed or refractory DLBCL, including patients with MYC-altered tumors; a separate Phase 1 study is evaluating solid tumors with MYC involvement. In the Phase 1 DLBCL cohort, 8 of 18 response-evaluable patients had objective responses (2 complete, 6 partial). This is early-stage evidence, and the MYC findings were from a retrospective post hoc analysis.
- Aurigene programs: CA-170 entered Phase 1 in 2016 after FDA acceptance of its IND. CA-4948 and CA-327 remained in preclinical/IND-enabling work, with IND submissions anticipated in the second half of 2017. Those are targets, not assured milestones.
- Erivedge: Genentech and Roche continued commercialization in advanced basal cell carcinoma and development in other indications. European authorization changed from conditional to full approval in November 2016. U.S. royalties were reduced by 2 percentage points beginning in Q4 2015 after competing Hedgehog inhibitor sonidegib entered the market.
- Aurigene consideration and dilution: In September 2016, Curis issued 10.2 million shares to Aurigene in exchange for waiver of up to $24.5 million in specified future payments. Curis recognized $18.0 million of in-process R&D expense for the share issuance. Curis had 141.1 million shares outstanding at year-end and 141.9 million as of March 2, 2017.
- Quarterly unusual item: Q4 revenue was $2.4 million and net loss was $11.3 million. The filing identifies a $1.5 million Aurigene milestone payment in Q4 R&D expense. The $18.0 million share-related in-process R&D charge was recorded in Q3, not Q4.
Debt, outlook and principal risks
Curis Royalty’s BioPharma-II loan carried a 12.25% annual rate and was repaid from Erivedge royalty payments. Curis reported $20.2 million of principal and accrued interest outstanding at December 31, 2016; the balance-sheet debt carrying amount was lower because of issuance costs. Management estimated repayment in 2019, but timing depends on royalty receipts and could change. As a subsequent event, Curis and its subsidiary entered a March 6, 2017 agreement for a proposed $45.0 million HealthCare Royalty loan at 9.95%, intended to repay approximately $18.4 million then owed to BioPharma-II and distribute residual proceeds to Curis. Closing was subject to conditions and was expected by March 22, 2017; the filing does not establish that it had closed.
Curis expects continuing losses and substantial cash needs and does not expect profitability in the foreseeable future. Its principal risks include clinical-trial failure or delay, financing availability and potential dilution, reliance on Aurigene and on Genentech/Roche, competition affecting Erivedge royalties, and dependence on third parties for manufacturing and clinical work. The company has no internal manufacturing or commercial sales infrastructure. Erivedge royalty receipts were expected to service royalty-backed debt before providing residual cash to Curis. Contingent Aurigene milestones, royalties and exclusivity fees may also require substantial future payments.
Management and the auditor reported effective internal control over financial reporting; the auditor issued an unqualified opinion on the financial statements. The auditor noted that additional financing would be required to fund planned future operations. Curis reported no material pending legal proceedings.
Investor verification priorities
- Confirm whether the HealthCare Royalty refinancing closed, its final terms, and the net proceeds available to Curis after repayment and transaction costs.
- Track cash burn, financing raised through the ATM or other sources, and any resulting equity dilution; verify how long available funds support operations.
- Review CUDC-907 Phase 2 enrollment, response data, durability, safety and the prespecified MYC analyses; distinguish trial results from retrospective findings.
- Check whether CA-4948 and CA-327 achieved IND submission timelines and whether CA-170 Phase 1 results support further development.
- Monitor Erivedge sales, royalty rates, competing products and the pace of repayment of royalty-backed debt.
- Assess future Aurigene payment obligations and the impact of collaboration-related share issuances on ownership and dilution.