Curis, Inc. — Q1 2012 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2012. Curis is a cancer drug discovery and development company. Its lead partnered product, Erivedge (vismodegib), was FDA-approved for advanced basal cell carcinoma in January 2012 and became commercially available in February. Other programs include CUDC-101, CUDC-907 and Debio 0932.
Key financial results
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Total revenue | $10.36 million | $0.13 million |
| Operating income (loss) | $2.20 million | $(5.33) million |
| Net income (loss) | $2.23 million | $(6.80) million |
| Research and development expense | $5.24 million | $3.06 million |
| General and administrative expense | $2.80 million | $2.41 million |
| Operating cash flow | $4.31 million provided | $4.63 million used |
- Q1 2012 revenue included a $10 million Genentech milestone for FDA approval of Erivedge and $270,622 in Erivedge royalties. The milestone was recognized as license revenue; it is not recurring product revenue.
- R&D expense included $1.464 million of Erivedge-related obligations to university licensors, including $964,000 recognized for 200,000 shares issued and $500,000 in sublicense fees. Royalty revenue costs were $113,531.
- Cash and cash equivalents were $14.69 million and marketable securities were $30.35 million at March 31, 2012, totaling $45.04 million in cash and marketable securities. This excludes $194,282 of restricted investment. Total assets were $55.35 million.
- Total liabilities were $7.75 million, including a $3.81 million warrant liability; current liabilities were $3.77 million. The presented balance sheet reports no interest-bearing debt.
- Cash and cash equivalents declined by $432,483 during the quarter. Investing activities used $7.65 million, principally reflecting net purchases of marketable securities; financing activities provided $2.90 million, primarily from stock-option and warrant exercises.
Material changes versus prior year
- Revenue increased sharply because of the Erivedge FDA-approval milestone and initial royalties; without the $10 million milestone, the reported profit would have been substantially lower.
- R&D expense rose 71%, mainly due to Erivedge licensor obligations and increased CUDC-907 and CUDC-101 program spending. G&A expense rose 16%, primarily from legal and personnel costs.
- The warrant fair-value change was $7,941 of income in Q1 2012, compared with $1.50 million of expense in Q1 2011. The warrant liability is a Level 3 fair-value estimate.
Outlook, commentary and risks
- Management said available capital at March 31, 2012 should support current and planned operations into the first half of 2014. Curis expects significant operating losses for the next several years and anticipates needing additional funding; continued operations depend on collaboration payments, expense control and/or new financing.
- After quarter-end, Roche submitted an Erivedge marketing application in Australia, earning Curis a $4 million milestone in May 2012. Further milestone revenue depends on regulatory approvals, and royalties depend on commercial sales. European review was ongoing; the filing cited potential EMA approval in the second half of 2012 or first half of 2013.
- Management expected to pursue an IND and Phase I study for oral CUDC-101 in the second half of 2012, and an IND and Phase I study for CUDC-907 in the second half of 2012, subject to successful preclinical and formulation work. A CUDC-101 Phase II head-and-neck study was estimated to begin in the first half of 2013, subject to Phase I results.
- For the first cohort of a Phase II Erivedge study in operable nodular BCC, the company reported clinical responses in 23 of 24 patients and pathologically confirmed complete clearance in 10 of 24. Eight patients discontinued, including two due to adverse events; no serious adverse events were reported in that cohort. Results from remaining cohorts were pending.
- Principal risks include reliance on Genentech/Roche to commercialize Erivedge, uncertain royalty and milestone receipts, early-stage clinical and regulatory risks for Curis’s pipeline, the need for additional capital and possible dilution, and dependence on collaborators and third parties. Curis reported no off-balance-sheet arrangements and said disclosure controls were effective.
- A related-party license agreement with Guangzhou BeBetter Medicine Technology, founded and owned by former Curis executive Changgeng Qian, granted China-territory rights to CU-906 and CU-908. Curis may provide up to $400,000 for specified CU-908 preclinical work; no expenses had been incurred under the agreement by March 31, 2012.
Important facts for investors to verify
- Erivedge sales, royalty receipts, market uptake and any reductions in royalty rates under the collaboration terms.
- Timing and outcome of EMA and other regulatory reviews, and whether additional milestone payments are received.
- Cash burn, spending plans and whether management’s first-half-2014 runway estimate remains achievable; financing needs and potential dilution.
- Clinical and regulatory progress for CUDC-101, CUDC-907 and Debio 0932, including whether stated IND and trial timelines are met.
- Terms, governance and deliverables under the related-party GBMT agreement, as well as the valuation assumptions for the Level 3 warrant liability.