Cue Biopharma, Inc. — 2018 Third-Quarter Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Cue is a preclinical biopharmaceutical company developing Immuno-STAT biologics for cancer, autoimmune disorders and chronic infectious diseases. It had no commercially approved products.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Collaboration revenue | $449,000 | None | $812,000 | None |
| R&D expense | $10.313 million | $4.002 million | $21.721 million | $9.881 million |
| General and administrative expense | $2.895 million | $1.030 million | $6.821 million | $2.914 million |
| Operating loss | $12.759 million | $5.032 million | $27.730 million | $12.795 million |
| Net loss | $12.559 million | $5.032 million | $27.359 million | $12.795 million |
| Basic and diluted loss per share | $0.62 | $0.47 | $1.36 | $1.20 |
- At September 30, cash and cash equivalents were $15.842 million and marketable securities were $23.339 million, totaling $39.181 million. Current assets were $40.611 million; current liabilities were $4.585 million. Total liabilities were $5.178 million, and stockholders’ equity was $39.404 million. No borrowings or debt are reported in the provided financial statements.
- Net cash used in operating activities was $22.513 million for the first nine months, versus $10.296 million in 2017. Investing activities used $25.041 million, primarily for marketable-security purchases of $23.307 million and equipment purchases of $1.734 million. Financing activities provided $12,000. Cash, cash equivalents and restricted cash declined by $47.542 million; purchases of marketable securities shifted funds from cash into investments.
- Operating margins were negative given the company’s development-stage operations and limited collaboration revenue; gross margin is not separately presented. Stock-based compensation was $5.163 million for the nine-month period.
Material changes and developments
- Nine-month operating expenses more than doubled year over year. Management attributed the increase primarily to company growth and expanded development activity; R&D costs included higher research and laboratory spending, compensation and facility costs.
- Revenue arose from the Merck collaboration, compared with none in the prior-year period. The $2.5 million Merck upfront payment is recognized over time as the company performs its combined license and R&D obligation; $1.688 million remained in research and development contract liabilities at quarter-end.
- Property and equipment, net, increased to $2.869 million from $1.691 million at year-end 2017. Common shares outstanding were 20,133,266 at September 30, 2018, compared with 19,459,194 at December 31, 2017.
Outlook, risks and unusual items
- Management stated that available cash, cash equivalents and marketable securities were expected to fund operations for at least 12 months from the financial statements’ issuance date. It also said future viability depends on obtaining additional capital; financing may require equity dilution, debt obligations or concessions in collaboration arrangements.
- At the time of the filing, management planned to file an IND for CUE-101 in Q1 2019 and begin its first clinical trial, potentially yielding initial data in late 2019. Plans also included selecting CUE-102 by year-end 2018, advancing CUE-102 IND-support activities in the second half of 2019, selecting CUE-103 in the first half of 2019, and pursuing a Merck collaboration proof-of-mechanism milestone by year-end 2019. These are forward-looking plans, not reported achievements.
- On November 6, 2018, after quarter-end, Cue entered an oncology collaboration with LG Chem. LG Chem agreed to make a $5 million equity investment and pay a $5 million nonrefundable upfront fee. Cue may also receive up to $400 million in research, development, regulatory and sales milestones, plus tiered single-digit royalties. The agreement grants specified Asian-territory rights, with an option relating to an additional oncology program.
- Lease commitments totaled $11.708 million at September 30, 2018, including $4.235 million due in less than one year. The company prepaid portions of rent for its expanded Cambridge facilities. It expected adoption of lease accounting requirements in 2019 to result in recognition of right-of-use assets and lease liabilities.
- Key risks include clinical and regulatory uncertainty, the need for additional financing, dependence on collaborators and licensors, and the possibility that product candidates will not become commercially viable. Merck may terminate its agreement on 30 days’ notice. The filing reported no material legal proceedings and no material change to previously disclosed risk factors. Management stated disclosure controls were effective.
Investor verification points
- Confirm cash burn, investment maturities and whether the stated 12-month runway remains adequate as R&D and facility spending increase.
- Track CUE-101 IND submission and trial commencement, and distinguish projected milestones from completed clinical or regulatory events.
- Review Merck program progress, collaboration revenue recognition, milestone conditions and any effect of the agreement’s research restrictions.
- Verify completion and terms of the post-quarter LG Chem equity investment and upfront payment, including territory, options and milestone provisions.
- Assess lease obligations, future financing needs and potential dilution; note that collaboration milestone and royalty proceeds are contingent and were not recognized as of September 30.