Curis, Inc. — Q3 2014 Form 10-Q
Business context and period. Curis is an oncology-focused biotechnology company developing drug candidates, with Erivedge commercialized by Roche and Genentech. This unaudited report covers the quarter and nine months ended September 30, 2014; comparisons are with the corresponding 2013 periods.
Financial performance and position
| Metric | Three months ended Sept. 30, 2014 | Three months ended Sept. 30, 2013 | Nine months ended Sept. 30, 2014 | Nine months ended Sept. 30, 2013 |
|---|---|---|---|---|
| Total revenue | $1.765 million | $7.202 million | $7.851 million | $13.478 million |
| Operating loss | $4.753 million | Operating income $0.130 million | $11.051 million | $4.933 million |
| Net loss | $5.580 million | $1.868 million | $13.040 million | $8.124 million |
| Net loss per share | $0.06 | $0.02 | $0.15 | $0.10 |
| Operating cash used | Not separately stated for quarter | Not separately stated for quarter | $12.121 million | $4.027 million |
- Q3 royalty revenue was $1.783 million, up 65%; nine-month royalty revenue was $4.895 million, up 92%. The royalty increase was outweighed by lower milestone and collaboration revenue.
- Q3 research and development expense was $3.705 million and general and administrative expense was $2.723 million. Nine-month amounts were $10.180 million and $8.475 million, respectively. No meaningful consolidated gross margin is presented; royalty revenue cost was $0.089 million for Q3 and $0.246 million for nine months.
- At September 30, cash and cash equivalents were $7.933 million; investments were $48.147 million, including $1.482 million long-term. Restricted investments totaled approximately $0.166 million. Management cited $56.081 million of cash, cash equivalents and investments, excluding restricted investments.
- Total assets were $68.209 million; current assets $57.108 million; current liabilities $9.835 million. Debt, net of issuance costs, was $29.062 million, of which $5.522 million was current; the filing reports approximately $29.5 million gross principal and accrued interest. The 12.25% loan is intended to be repaid from Erivedge royalties and is non-recourse to Curis.
- Cash declined by $1.658 million during the first nine months, ending at $7.933 million. Investing activities provided $11.019 million, principally from net investment sales; financing activities used $0.557 million.
Changes, outlook and notable developments
- Revenue declined 75% in Q3 and 42% for nine months. The principal comparison was the absence of the prior-year $6 million European Erivedge milestone in Q3 2014; nine-month 2014 also lacked the $6 million EU and $4 million Australia milestones recognized in 2013 and the $0.650 million LLS milestone recognized in 2013. Curis did receive a $3 million Genentech milestone in 2014 for an Erivedge IPF IND filing.
- Management expected available resources at September 30 to fund current and planned operations into 2016. The company nevertheless expects continued losses and substantial funding needs; continued operations beyond that runway depend on expense control, collaboration or milestone receipts, royalties, and access to debt or equity financing. No numerical earnings or revenue guidance is provided.
- CUDC-907: the Phase 1 trial had enrolled 40 patients. In a small DLBCL evaluable group, the company reported two confirmed partial responses and one complete response; these are preliminary clinical observations, not evidence of established efficacy. A solid-tumor study was expected to begin in Q4 2014. R&D spending on CUDC-907 increased.
- CUDC-427: the FDA lifted a partial clinical hold in March 2014 after Curis responded to requests for information. The Phase 1 trial restarted in June under an amended once-daily schedule; dose escalation was evaluating the 300 mg cohort.
- Debiopharm decided not to advance Debio 0932 into Phase 2 in the HALO lung cancer study and planned to discontinue Phase 1 and return the rights to Curis. Curis did not plan further NSCLC study but was exploring other indications. Roche suspended enrollment in the Erivedge IPF study pending protocol changes; the Erivedge AML/MDS monotherapy study closed after failing its prespecified efficacy threshold.
- Erivedge royalties are pledged to service the BioPharma-II loan, subject to quarterly payment caps through 2015; management estimated repayment in 2017, but lower-than-expected royalties could extend the term. A $0.717 million nine-month gain from revaluing the warrant liability reduced reported loss; the liability was valued at zero at quarter-end.
- Key risks include clinical and regulatory failure, reliance on Roche/Genentech and uncertain collaboration payments, financing availability, debt and royalty-collateral terms, competition, and potential dilution. The company reported no off-balance-sheet arrangements and said disclosure controls were effective.
Important facts for investors to verify
- Whether Erivedge sales and royalty receipts are sufficient to meet scheduled debt service and management’s estimated 2017 repayment timing.
- Cash burn, operating milestones and whether financing or collaboration proceeds will be needed before the stated runway into 2016.
- Subsequent clinical data, enrollment and safety for CUDC-907 and CUDC-427, including the small sample underlying reported CUDC-907 responses.
- Formal completion of Debiopharm’s license termination and transfer of Debio 0932 rights, and any resulting development costs or plans.
- Progress or further changes in Roche’s Erivedge programs, especially the suspended IPF study and commercial performance underlying royalty revenue.
- Potential dilution from equity financing and outstanding warrants; 86,004,857 common shares were outstanding as of November 4, 2014.