Curis, Inc. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016; comparisons are to the corresponding 2015 periods. Curis is a cancer-focused biotechnology company with an early-stage development pipeline. Erivedge is commercialized by Genentech/Roche; substantially all Curis revenue is collaboration-related or royalty revenue.
Financial results
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $1.8 million | $2.0 million | $5.2 million | $5.8 million |
| Research and development expense | $6.8 million | $4.0 million | $22.4 million | $14.7 million |
| In-process R&D expense | $18.0 million | — | $18.0 million | $24.3 million |
| General and administrative expense | $4.7 million | $2.8 million | $11.7 million | $9.7 million |
| Net loss | $28.3 million | $5.5 million | $49.1 million | $45.5 million |
| Net loss per share, basic and diluted | $0.21 | $0.04 | $0.38 | $0.37 |
| Cash used in operating activities | Not presented quarterly | $26.4 million | $19.0 million |
At September 30, 2016, cash and cash equivalents were $20.7 million and investments were $32.7 million, totaling $53.4 million in cash and investments. Current assets were $56.6 million and current liabilities $12.5 million. Total liabilities were $28.3 million. The balance sheet reported debt, net, of $20.9 million; the filing states gross principal and accrued interest owed under the royalty-backed loan totaled $21.3 million. The loan bears 12.25% interest and is non-recourse to Curis, with Erivedge royalty rights pledged to repayment.
Material changes and unusual items
- Q3 revenue fell 14%; nine-month revenue fell 11%, primarily because Erivedge royalties declined. Royalty revenue was $1.8 million in Q3 and $5.4 million for nine months, versus $2.3 million and $6.0 million, respectively, in 2015.
- R&D expense rose 69% in Q3 and 53% for nine months, reflecting increased CUDC-907 clinical activity, the start of its Phase 2 study, and costs for Aurigene programs, including CA-170.
- In September, Curis issued Aurigene 10,208,333 common shares in exchange for waiver of up to $24.5 million of potential milestone and other payments. Curis recorded $18.0 million of in-process R&D expense based on the shares’ stated value. The share issuance was noncash but materially increased shares outstanding.
- Q3 G&A increased 69%, including higher personnel, stock-based compensation, and intellectual-property legal costs. The quarter also included $0.6 million of additional stock-based compensation related to an option-term modification for departing director Daniel Passeri.
- In nine-month cash flows, investing activities provided $16.1 million, mainly from net investment maturities and sales; financing activities used $2.1 million, including $3.2 million of debt principal repayments. In the comparable 2015 period, financing activities provided $62.0 million, largely from a public stock offering.
Pipeline, outlook and risks
Curis’s lead candidate, CUDC-907, was in Phase 2 testing for relapsed or refractory diffuse large B-cell lymphoma and Phase 1 testing in solid tumors. CA-170 had entered Phase 1 after FDA acceptance of its IND. CA-4948 remained in preclinical development. In October 2016, after the reporting date, Curis licensed a third Aurigene program and designated CA-327 as its development candidate.
Management expected existing capital at September 30 to fund current and planned operations into the second half of 2017. Curis anticipated needing additional financing, collaboration proceeds, or other funding thereafter; it warned that financing might be unavailable or dilutive and that it could have to delay, reduce, or terminate development work. The company did not expect profitability in the foreseeable future. Management identified clinical progress and results, financing, Aurigene’s performance, and Genentech/Roche’s Erivedge commercialization as important drivers.
Key risks include continuing losses and cash burn; dependence on external financing and collaborators; early-stage clinical and preclinical uncertainty; and Erivedge competition. Novartis’s competing sonidegib had led Genentech to reduce the U.S. Erivedge royalty rate, affecting royalty revenue and potentially the repayment pace of the royalty-backed loan. The filing also notes that lower royalties could extend loan repayment and that future royalty revenue is expected to be applied to that debt for the foreseeable future.
Important facts for investors to verify
- Whether cash burn and development spending remain consistent with the stated runway into the second half of 2017, and what financing Curis obtains afterward.
- Clinical progress, enrollment, safety, and efficacy data for CUDC-907 and CA-170, and development timelines for CA-4948 and CA-327.
- Erivedge sales, royalty rates and receipts, including the effect of sonidegib competition, and the remaining repayment schedule for the BioPharma-II loan.
- The final terms and dilution effects of the Aurigene share issuance and waived payments, including anticipated $7.5 million exclusivity-fee installments in the first and third quarters of 2017 if Curis extends exclusivity.
- Share-count changes: 139,994,430 shares were outstanding at September 30, 2016; 140,549,019 were reported outstanding as of October 31, 2016.