Curis, Inc. — Q1 2014 Form 10-Q
Business context and reporting period. Curis is an oncology-focused drug-development company. This unaudited report covers the three months ended March 31, 2014, compared with Q1 2013; balance-sheet comparisons are against December 31, 2013. Erivedge is commercialized by Genentech and Roche, while Curis is advancing CUDC-907 and CUDC-427 and licenses Debio 0932 to Debiopharm.
Financial highlights
| Metric | Q1 2014 / March 31, 2014 | Comparable period / prior balance date |
|---|---|---|
| Total revenue | $1.285 million | $0.871 million in Q1 2013 |
| Erivedge royalties | $1.288 million | $0.664 million in Q1 2013 |
| Research and development revenue, net | $(3,615) | $207,035 in Q1 2013 |
| Research and development expense | $3.146 million | $2.628 million in Q1 2013 |
| General and administrative expense | $2.827 million | $2.567 million in Q1 2013 |
| Operating loss | $(4.753) million | $(4.357) million in Q1 2013 |
| Net loss | $(5.564) million; $(0.06) per share | $(4.962) million; $(0.06) per share in Q1 2013 |
| Cash used in operating activities | $(5.306) million | $(4.328) million in Q1 2013 |
| Cash and cash equivalents | $7.908 million | $9.591 million at December 31, 2013 |
| Cash, cash equivalents and investments | $63.845 million, excluding restricted investments | Not presented as a comparable aggregate in the filing excerpt |
| Total assets / stockholders’ equity | $75.364 million / $40.538 million | $80.591 million / $45.174 million at December 31, 2013 |
| Debt, net of issuance costs | $30.215 million: $3.392 million current and $26.823 million long-term | $30.555 million at December 31, 2013 |
Curis reported no profit or operating margin; royalty revenue is subject to related royalty costs, and substantially all Erivedge royalty receipts are applied to Curis Royalty’s debt, subject to contractual caps. The loan bears 12.25% annual interest. Q1 interest expense was $0.951 million. The company had an accumulated deficit of $766.390 million.
Material changes versus Q1 2013
- Revenue rose 48%, primarily because Erivedge royalties increased 94%; the increase was partly offset by the absence of a $100,000 LLS milestone recognized in Q1 2013 and a small contra-revenue charge in 2014.
- R&D expense increased 20%, mainly from CUDC-907 and CUDC-427 spending. CUDC-427 expense included costs responding to the FDA clinical hold. Spending on CUDC-101 and discovery research declined.
- G&A expense increased 10%, principally from personnel costs, stock compensation and travel, partly offset by lower legal and consulting costs.
- Net loss increased about 12%, and operating cash use increased about 23%. Basic and diluted loss per share remained $0.06, with a higher weighted-average share count in 2014.
- Cash and cash equivalents declined by $1.684 million from year-end; total assets declined by $5.227 million, while net debt declined modestly.
Outlook, management commentary and risks
- Management expected existing cash, cash equivalents and investments at March 31, 2014 to support current and planned operations into 2016. Continued funding thereafter depends on collaboration or milestone payments, expense control and/or additional financing; the timing and availability of such funding are uncertain.
- Curis expected to complete CUDC-907’s Phase 1 dose-escalation phase around mid-2014, begin expansion cohorts in the second half of 2014, and consider solid-tumor studies later in 2014 or early 2015.
- The FDA lifted the partial clinical hold on CUDC-427 in March 2014. Curis expected to resume its Phase 1 trial in Q2 2014 and planned a combination trial with standard chemotherapy later in 2014. These are expectations, not assured outcomes.
- Erivedge is approved for advanced basal cell carcinoma in the U.S., Australia and other territories, with conditional EU approval. Further commercial growth and potential milestone payments depend on collaborator execution, regulatory outcomes and sales. Curis’s royalty stream is pledged to service the BioPharma-II loan until repayment; management estimated repayment around mid-2017, subject to royalty performance.
- Key risks include continuing losses, dependence on partners and contingent payments, clinical and regulatory uncertainty, competition, financing and dilution risk, and the risk that Erivedge royalties are insufficient to repay the secured loan as expected. Curis reported that it had no off-balance-sheet arrangements and that disclosure controls were effective at the reasonable-assurance level.
Important facts for investors to verify
- Whether CUDC-907 and CUDC-427 meet the stated trial-enrollment and development timelines, and whether any safety or regulatory issues arise.
- Erivedge sales, royalty receipts, additional approvals or milestones, and how much royalty cash is retained by Curis versus applied to the loan.
- Loan balance, interest accrual, quarterly repayment caps, covenant compliance and the assumptions behind the estimated mid-2017 repayment date.
- Actual cash burn and whether the stated runway into 2016 remains supportable as trial costs change; availability and terms of future financing or collaborations.
- Potential dilution: the company had 85,948,078 common shares outstanding as of May 1, 2014, plus outstanding options and 1,373,517 warrants; the filing identifies 12,706,573 total antidilutive securities for Q1 2014.