Curis, Inc. — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. Although the request identifies 2013 Q4, this filing is an annual report and includes quarterly data for Q4. Filed March 13, 2014.
Business context and reporting period
Curis is an oncology-focused drug development company. Its internal clinical programs were CUDC-907 and CUDC-427; the latter was on partial FDA clinical hold. Roche and Genentech commercialized Erivedge, Curis’s principal source of revenue, while licensee Debiopharm advanced Debio 0932. Curis reported one operating segment: cancer therapeutics research and development.
Financial results and liquidity
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Total revenue | $15.002 million | $16.972 million |
| Operating loss | $9.416 million | $18.620 million |
| Net loss | $12.322 million | $16.417 million |
| Basic and diluted loss per share | $0.15 | $0.21 |
| Net cash used in operating activities | $9.540 million | $15.193 million |
- FY 2013 revenue comprised $10.000 million in license fees, $3.942 million in Erivedge royalties, and $1.060 million in research and development revenue. Genentech milestone and royalty payments represented 95% of total revenue.
- Operating margin was approximately negative 63% of revenue in 2013, versus negative 110% in 2012. Conventional product gross margin is not meaningful for this development-stage business.
- Research and development expense was $12.927 million, down 17%; general and administrative expense was $11.294 million, up 8%. Interest expense rose to $3.842 million from $0.204 million, mainly reflecting the royalty-backed loan.
- At December 31, 2013, cash, cash equivalents and investments totaled $68.906 million; working capital was $53.607 million. Management expected existing resources to fund current and planned operations into 2016.
- Curis Royalty’s Erivedge-backed loan carried 12.25% annual interest. Gross principal plus accrued interest was $31.013 million at year-end; reported current and long-term debt, net of issuance costs, totaled approximately $30.555 million. Repayment was expected in the first half of 2017, subject to royalty levels. Most royalties were directed to debt service.
- Operating cash outflow improved year over year. Financing provided $20.001 million in 2013, including $16.246 million net proceeds from an at-the-market stock offering and $4.016 million from stock-option exercises. Shares outstanding increased during the year.
- Q4 2013 revenue was $1.524 million, operating loss $4.483 million, net loss $4.198 million, and loss per share $0.05.
Material changes versus the prior comparable period
- Revenue fell 12%, principally because license-fee milestones declined by $4.0 million; increased Erivedge royalties partly offset the decrease. The 2013 license fees included $4 million following Australian approval and $6 million following conditional EU approval.
- Operating loss and net loss narrowed, primarily as 2012 included a one-time $9.5 million CUDC-427 license and technology-transfer charge, and 2013 research and development spending was lower. Higher interest expense partly offset the improvement in net loss.
- Erivedge royalties increased 158% to $3.942 million from $1.530 million, but were largely committed to debt repayment under the financing arrangement.
- Research spending shifted toward CUDC-907 and CUDC-427; spending on CUDC-101 and other discovery programs declined. Curis stopped enrolling patients in the CUDC-101 expansion trial and no longer planned material investment in the program.
Outlook, commentary, risks and unusual items
- Management expected to complete CUDC-907 dose escalation around mid-2014 and begin expansion cohorts in the second half of 2014; additional solid-tumor studies were also anticipated later in 2014. Interim results included one partial response and seven cases of stable disease among response-evaluable patients, alongside dose-limiting diarrhea and hyperglycemia at 60 mg once daily.
- The FDA’s partial hold on CUDC-427 followed a patient’s death from liver failure about one month after stopping treatment. Curis submitted requested data and a protocol amendment in February 2014; restarting enrollment and additional trials depended on FDA acceptance and lifting the hold. The outcome and timing were uncertain.
- Erivedge was approved in the U.S., Australia and EU, among other markets. Curis’s royalty stream was pledged to BioPharma-II debt service, and royalty reductions could apply in certain competitive or patent circumstances.
- Debiopharm’s Debio 0932 was in combination studies for NSCLC and renal cell carcinoma; Curis could receive additional milestone payments and royalties if development and commercialization progress.
- Curis had substantial ongoing losses, an accumulated deficit of $760.827 million, and no expectation of near-term profitability. Continued operations depended on cash management, milestones, royalties, potential partnerships, and access to additional financing; financing could dilute shareholders or require rights to be relinquished.
- Other risks include clinical failure or delays, reliance on collaborators, competition, patent and manufacturing dependencies, and volatility in Erivedge royalties and warrant valuation. The 2013 change in warrant fair value produced $0.771 million of other income. No material legal proceedings were reported.
- The independent auditor gave an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- FDA status and any subsequent safety findings for CUDC-427, including the proposed protocol and the implications of the liver-failure event.
- Current cash runway versus actual operating burn, and whether Curis obtained additional financing or partnerships after the filing date.
- Erivedge sales, royalty growth and the timing and terms of repayment of the 12.25% royalty-backed debt.
- Progress, safety, and efficacy data for CUDC-907 and Debio 0932, as well as whether forecast clinical milestones were achieved.
- Share-count changes, remaining capacity under the $30 million ATM agreement, and potential dilution from options and warrants.