Cue Biopharma, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; balance-sheet comparisons are with December 31, 2017. Amounts are in U.S. dollars; financial statement amounts below are in millions unless otherwise noted.
Business context and financial performance
Cue Biopharma is a preclinical biopharmaceutical company developing immune-modulating biologics for cancer and autoimmune diseases. It had no commercially approved products and reported no revenue for either Q1 2018 or Q1 2017.
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $5.819 | $2.461 |
| General and administrative expense | $1.703 | $0.889 |
| Total operating expenses | $7.522 | $3.350 |
| Net loss | $7.523 | $3.350 |
| Basic and diluted loss per share | $0.37 | $0.31 |
| Cash used in operating activities | $9.759 | $3.464 |
| Cash used in investing activities | $0.673 | $0.556 |
Margins are not meaningful because the company had no revenue. R&D expense increased approximately 136% and G&A expense approximately 92% year over year, which management attributed primarily to company growth and expanded activity. Net loss more than doubled. Weighted-average shares were 20.064 million versus 10.636 million.
Liquidity, balance sheet, and cash flow
- Cash and cash equivalents were $53.102 million at March 31, down from $63.534 million at year-end; cash plus the $50,000 certificate of deposit totaled $53.152 million.
- Total assets were $59.326 million and total liabilities $4.084 million. The filing reports no debt balance; liabilities were primarily operating and accrued obligations.
- Operating cash use was higher than net loss, reflecting working-capital movements and a $1.074 million lease deposit, among other items. Capital expenditures were $0.673 million.
- Management believed cash on hand would fund projected operations for at least 12 months from issuance of the financial statements. The company has recurring losses and negative operating cash flows and expects to need additional financing before reaching sustainable revenue and profitability.
Material developments, outlook, and risks
- Development and spending: The company continued preclinical development, including work on lead cancer candidate CUE-101. It incurred $1.2 million in direct costs under its Catalent development and manufacturing agreement during the quarter and estimated an additional $3.2 million for 2018.
- Merck collaboration: Merck paid a nonrefundable $2.5 million upfront payment under the autoimmune research collaboration. Cue recorded approximately $191,000 of related direct costs in Q1 as an offset to R&D costs. Potential milestone payments are contingent: up to $101 million for research and development, $120 million for regulatory milestones, and $150 million for commercial milestones, plus single-digit tiered royalties if specified conditions are met. The first $2.7 million of milestone payments received must fund contract research. Merck may terminate on 30 days’ notice.
- Facilities and commitments: Future minimum lease payments totaled $12.561 million, including $2.595 million due within one year. A new Cambridge laboratory and office lease runs through April 2021; stated monthly rent is approximately $297,000 for the first 18 months and $388,000 thereafter.
- Outlook: Management expected R&D and G&A spending to increase as development and operations expand. Future financing may involve equity, debt, or collaboration and licensing arrangements; the filing cautions that financing may not be available on acceptable terms, and equity funding could dilute shareholders.
- Key risks and contingencies: Product candidates remain preclinical, with substantial development, clinical, regulatory, funding, intellectual-property, and commercialization risks. No material change to previously disclosed risk factors was reported. The company disclosed no material legal proceedings. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Cash runway against actual quarterly operating cash use and the stated minimum 12-month funding horizon.
- Progress, timing, and remaining costs for CUE-101 and the Catalent work intended to support an IND filing and Phase 1 trial.
- Whether Merck collaboration research reaches proof of mechanism and any milestone or royalty conditions; the stated maximum payments are contingent, not assured.
- Lease obligations and facility costs, and the effect of adopting lease accounting requirements in 2019.
- Potential dilution from future fundraising and equity awards; Q1 stock-based compensation was $1.158 million, and 4.009 million potential shares from options and warrants were excluded from diluted loss per share as anti-dilutive.