Curis, Inc. — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. Curis is a clinical-stage cancer drug discovery and development company; it reports one operating segment and has no marketed products.
Financial performance and liquidity
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $147,000 | $3.242 million | $674,000 | $15.899 million |
| Research and development expense | $3.042 million | $3.009 million | $9.245 million | $7.721 million |
| General and administrative expense | $1.921 million | $1.999 million | $6.196 million | $8.206 million |
| Operating loss | $4.816 million | $1.765 million | $14.768 million | $27,000 |
| Net loss (income) | $4.207 million loss | $1.515 million loss | $15.921 million loss | $1.171 million income |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $13.251 million used | $2.090 million provided |
- Revenue and operating margins are not representative of recurring product sales: Curis reported no product sales, and revenue principally reflects collaboration payments and reimbursements. No meaningful positive operating margin was reported.
- The 2010 comparison benefited from $11.333 million of Debiopharm license milestones and a $4 million Micromet settlement; these items did not recur in 2011.
- At September 30, 2011, cash and cash equivalents were $11.884 million and marketable securities were $16.474 million, totaling $28.358 million of unrestricted liquid resources. This compares with $40.380 million at December 31, 2010. Current liabilities were $3.480 million; total liabilities were $6.461 million, including a $2.839 million warrant liability. The filing reports no borrowings.
- Cash flow from investing activities was $15.828 million provided, primarily reflecting net sales of marketable securities; financing activities provided $1.481 million. The nine-month net increase in cash was $4.058 million.
- Accumulated deficit was $738.150 million. Management estimated that resources at quarter-end could fund current and planned operations into Q4 2012, subject to spending, collaboration receipts, and financing assumptions.
Material changes and unusual items
- Nine-month revenue fell 96% year over year, while R&D expense rose 20%, principally due to spending on CUDC-101 and the CUDC-907 program selected in January 2011. G&A expense declined 24%, mainly because 2010 included Micromet-related legal costs and executive bonuses.
- Nine-month results included a $1.235 million noncash expense from revaluing warrants; Q3 2011 included a $587,000 noncash gain. The warrant liability is valued using a Level 3 model and changes with assumptions including Curis’s stock price.
- Curis entered an at-the-market equity sales agreement permitting up to $20 million of stock sales. Through September 30, it had sold 65,527 shares for $262,000 gross proceeds; reported net proceeds were approximately $139,000. The agreement carries a 3% sales commission and potential dilution.
Pipeline, outlook, and principal risks
- Genentech submitted an FDA NDA in September 2011 for vismodegib in advanced basal cell carcinoma (BCC). Curis expected an FDA response in early November; if the NDA is accepted for filing, Curis expects an $8 million milestone in Q4 2011. FDA approval could trigger another milestone and royalties. European filing timing remained dependent on discussions with the EMA.
- In the pivotal Phase II BCC study, independent review reported response rates of 43% for locally advanced and 30% for metastatic BCC. Common adverse events included muscle spasms, hair loss, altered taste, weight loss, fatigue, nausea, reduced appetite, and diarrhea. Approval and commercial success were not assured.
- Curis was developing CUDC-101 internally, including an ongoing Phase I expansion, a newly initiated Phase I study in HPV-negative head and neck cancer with cisplatin and radiation, and an oral formulation targeted for a Phase I study in the first half of 2012, subject to development progress. The company expected to file an IND for CUDC-907 in the first half of 2012, subject to completion of preclinical and formulation work.
- Debiopharm was advancing Debio 0932, with a Phase I expansion study in particular tumor types planned for early 2012. Curis said it was not receiving, and did not expect to receive, research funding under its current Genentech and Debiopharm agreements.
- Management expects continued operating losses and cash use, with no profitability expected in the foreseeable future, if ever. Runway depends on controlling expenses, collaborator milestones and royalties, new collaborations, and access to equity or debt financing. If funding is unavailable, Curis may have to delay, reduce, or terminate programs.
- Key risks include clinical and regulatory failure or delay, reliance on Genentech and Debiopharm, difficulty partnering internal programs, competition, intellectual-property and manufacturing risks, and potentially dilutive financing. Management reported disclosure controls were effective at the reasonable-assurance level and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether the FDA accepted Genentech’s vismodegib NDA for filing, whether the expected $8 million milestone was earned and received, and subsequent approval or review timing.
- Current cash burn and whether the stated runway into Q4 2012 remains achievable without uncertain milestones or additional financing.
- Clinical progress, safety, and funding needs for CUDC-101 and CUDC-907, and whether the stated 2012 study and IND timelines were met.
- Debiopharm’s progress with Debio 0932 and the timing and conditions of any future collaboration payments.
- Potential share dilution from the ATM facility, outstanding options and warrants, and changes in the warrant liability’s valuation.