Kura Oncology, Inc. — Form 10-Q Summary
Business context and reporting period
Kura Oncology is a clinical-stage biopharmaceutical company developing targeted small-molecule therapies for solid tumors and blood cancers. The report covers the quarter and nine months ended September 30, 2015. Historical comparisons are limited because Prior Kura was incorporated in August 2014 and completed a reverse merger with Zeta Acquisition Corp. III in March 2015.
- Lead candidate: tipifarnib, being developed for genetically defined cancers and hematologic malignancies.
- Phase 2 tipifarnib trials were initiated in HRAS-mutant solid tumors in May 2015 and peripheral T-cell lymphoma in September 2015.
- KO-947 was in IND-enabling preclinical development; the menin-MLL program remained in lead optimization.
- The company had no approved products and no product revenue.
Financial condition and operating metrics
| Metric | Three months ended September 30, 2015 | Nine months ended September 30, 2015 |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $4.6 million | $12.7 million |
| General and administrative expense | $1.8 million | $4.4 million |
| Management fee income, related party | $0.3 million | $0.9 million |
| Net loss | $6.1 million | $16.2 million |
| Net loss per share | $0.57 | $1.98 |
| Net cash used in operating activities | Not separately provided | $12.3 million |
- September 30, 2015 cash and cash equivalents were $11.2 million; short-term investments were $30.0 million, for total cash, cash equivalents and short-term investments of approximately $41.2 million.
- Total assets were $42.8 million, compared with $1.4 million at December 31, 2014.
- Accumulated deficit was $19.8 million.
- Total liabilities were $5.0 million. Convertible notes payable had been converted into common stock, leaving no convertible notes payable outstanding at September 30, 2015.
- Stockholders’ equity was $37.8 million, compared with a deficit of $3.4 million at December 31, 2014.
- Operating expenses included $1.7 million of share-based compensation for the nine months and a $0.5 million non-cash license fee expense.
Material changes versus the comparable period
The principal comparison is against the period from August 22, 2014 inception through September 30, 2014, rather than a comparable full prior quarter. Expenses increased substantially as the company advanced its clinical programs and became a public operating company.
- Nine-month research and development expense increased to $12.7 million from $3,000.
- Nine-month general and administrative expense increased to $4.4 million from $63,000.
- Nine-month net loss increased to $16.2 million from $66,000.
- Operating cash use increased to $12.3 million from $16,000.
- The company invested $30.1 million in marketable securities and received $47.6 million of net proceeds from common-stock issuance, plus $5.0 million from convertible notes.
- In March 2015, approximately $7.6 million of convertible note principal and accrued interest converted into common stock in connection with the financing.
- The reverse merger and financing materially increased capitalization, cash resources and outstanding shares.
Outlook, commentary, risks and unusual items
- Management expects significant and increasing operating losses for the foreseeable future as clinical development continues and regulatory approvals are pursued.
- Management stated that cash resources, including the subsequent November 2015 public offering, were expected to fund requirements for the next twelve months, but additional financing will be required in the future.
- In November 2015, after the reporting date, the company issued 6.9 million shares at $8.00 per share and received approximately $50.5 million of net proceeds.
- License agreements contain potential development, regulatory and sales milestones of up to $81.7 million, plus tiered royalties ranging from low single digits to low teens. No milestones had been achieved by September 30, 2015.
- A sponsored research agreement with the University of Michigan could require payments of up to $2.0 million if terminated before its second anniversary, other than for the university’s breach.
- The UCSF license included a derivative liability of $464,000 at September 30, 2015; 50% was expected to be payable in December 2015 and the balance in November 2016.
- Key risks include clinical-trial failure or delay, patient-enrollment challenges for genetically defined populations, regulatory non-approval, dependence on third-party manufacturers and CROs, limited intellectual-property protection for tipifarnib, future dilution and the need for additional capital.
- Tipifarnib’s composition-of-matter patents were expected to expire in 2016 in the United States and Europe, increasing reliance on method-of-use patents and regulatory exclusivity.
- The company had no material legal proceedings and no off-balance-sheet arrangements. Management concluded that disclosure controls were effective.
Important facts for investors to verify
- Whether the November 2015 financing proceeds and subsequent share issuance provide sufficient runway relative to projected clinical spending.
- Clinical progress, enrollment, safety and efficacy results for the HRAS-mutant solid-tumor and peripheral T-cell lymphoma trials.
- The timing and cost of the planned lower-risk MDS trial and advancement of KO-947 and the menin-MLL program.
- Future milestone, royalty and derivative-liability obligations under the company’s license agreements.
- The remaining patent term and regulatory-exclusivity strategy for tipifarnib.
- The effect of future equity issuance, stock-option awards and resale activity on dilution and trading liquidity.