Kura Oncology, Inc. — Form 10-Q Summary
Business context and reporting period
Kura Oncology is a clinical-stage biopharmaceutical company developing precision cancer medicines and related molecular or cellular diagnostics. The filing covers the unaudited quarter ended March 31, 2019, compared with the quarter ended March 31, 2018. Kura had no approved products and no product revenue.
- Lead candidate: tipifarnib, being evaluated in HRAS-mutant head and neck squamous cell carcinoma and other hematologic and solid-tumor indications.
- Other candidates: KO-947, in a Phase 1 solid-tumor trial, and KO-539, with FDA-cleared IND and a planned Phase 1 AML trial.
Financial condition and key metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Product revenue | $0 | $0 | No change |
| Research and development expense | $10.4 million | $11.6 million | Down $1.2 million |
| General and administrative expense | $4.6 million | $3.4 million | Up $1.1 million |
| Total operating expenses | $15.0 million | $15.0 million | Substantially unchanged |
| Other income, net | $1.0 million | $0.4 million | Up $0.6 million |
| Net loss | $13.9 million | $14.6 million | Improved by $0.7 million |
| Net loss per share | $0.37 | $0.46 | Improved |
| Cash used in operating activities | $14.3 million | $12.9 million | Use increased $1.4 million |
- Cash and cash equivalents were $17.8 million at March 31, 2019, compared with $16.1 million at December 31, 2018.
- Short-term investments were $147.7 million, resulting in cash, cash equivalents and short-term investments of approximately $165.5 million.
- Total assets were $169.6 million and stockholders’ equity was $149.6 million at quarter-end.
- Long-term debt was $7.5 million. The term loan bears interest at the greater of 5.50% or prime plus 0.25%, with maturity on May 1, 2023.
- Operating cash flow was negative; investing activities provided $15.8 million primarily from maturities and sales of marketable securities.
- Share-based compensation expense was $2.3 million, compared with $2.2 million in the prior-year quarter.
Material changes versus the prior comparable period
- R&D spending declined primarily because of lower tipifarnib clinical-development and manufacturing costs, completion of KO-539 IND-enabling activities, and lower R&D share-based compensation. These reductions were partly offset by higher KO-947 costs and personnel expenses.
- G&A expense increased primarily because of higher non-cash share-based compensation and personnel costs.
- Interest income increased by approximately $0.6 million as the company held significant marketable securities.
- Operating cash use increased despite the lower net loss, principally because of higher payments of accounts payable and accrued expenses.
- Financing cash inflow fell sharply because Q1 2018 included approximately $57.7 million of common-stock issuance proceeds; Q1 2019 included only $0.1 million from stock-option exercises.
- Kura adopted the new lease accounting standard on January 1, 2019, recognizing approximately $0.6 million of operating lease right-of-use assets and lease liabilities. The adoption did not materially affect operations or cash flows.
Guidance, outlook, commentary and risks
- Management expects R&D expenses to increase as clinical development continues for tipifarnib, KO-947 and KO-539, and expects G&A expenses to increase to support those activities.
- Additional tipifarnib data from the registration-directed AIM-HN trial were expected in the second half of 2019. Additional data from the PTCL and CMML programs were expected in 2019, KO-947 dose-escalation data were expected in 2019, and the KO-539 Phase 1 trial was expected to begin in mid-2019.
- Management stated that existing cash, investments and available term-loan capacity were expected to fund current operations into 2021, but significant additional financing will be required thereafter or sooner for expanded development activities.
- Kura entered into a $75.0 million at-the-market equity facility in March 2019 but had not sold shares under it as of the filing date.
- The company could borrow up to an additional $12.5 million under its Silicon Valley Bank facility through May 1, 2020, subject to the agreement’s conditions and covenants.
- Key risks include continued operating losses, dependence on tipifarnib, clinical-trial enrollment and outcomes, regulatory approval, companion-diagnostic development, third-party manufacturing and clinical contractors, intellectual-property protection, additional capital requirements and potential stockholder dilution.
- The FDA has indicated that an approved companion diagnostic is required for approval of tipifarnib in HRAS-mutant HNSCC. The filing also cautions that prior positive results may not be replicated in the AIM-HN registration-directed trial.
- The company reported no material legal proceedings and no off-balance-sheet arrangements. Management concluded that disclosure controls and procedures were effective as of March 31, 2019.
Important facts for investors to verify
- Progress, enrollment, efficacy and independent radiologic review results for the AIM-HN trial and related companion diagnostic.
- Timing and results of planned KO-947 and KO-539 clinical programs and additional tipifarnib biomarker data.
- Quarterly operating cash burn and whether the stated “into 2021” cash runway remains valid as clinical spending increases.
- Use of the $75.0 million ATM facility, potential equity dilution and availability of the remaining term-loan capacity.
- Terms, covenants and repayment requirements of the $7.5 million term loan, including the final payment and restrictions on additional debt.
- Patent and regulatory-exclusivity protection for tipifarnib, whose U.S. and European composition-of-matter patents expired in 2016.