Cue Biopharma, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Business context
Cue is a clinical-stage biopharmaceutical company developing engineered biologics that selectively engage T cells. It has no commercial product revenue and remains dependent on collaboration funding and external capital. Management is prioritizing oncology candidates CUE-101 and CUE-102; Ono is funding research on autoimmune candidate CUE-401. The company is also seeking partners or alternative funding for other programs.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Collaboration revenue | $1.382 | $0.026 | $1.570 | $1.026 |
| Research and development expense | $10.650 | $9.592 | $20.041 | $19.675 |
| General and administrative expense | $4.249 | $3.782 | $8.425 | $8.938 |
| Operating loss | $(13.517) | $(13.090) | $(26.896) | $(27.329) |
| Net loss | $(13.185) | $(13.208) | $(26.294) | $(27.463) |
| Loss per share | $(0.29) | $(0.37) | $(0.59) | $(0.81) |
- Ono collaboration revenue drove the increase in Q2 revenue; the company reported no product sales or collaboration milestone or royalty revenue in the periods described.
- Q2 operating loss widened as R&D and G&A costs rose. Net loss was slightly lower, helped by higher interest income. For the first half, net loss improved by $1.169 million year over year.
- R&D expense increased primarily due to laboratory and drug-substance manufacturing costs in Q2, and CUE-101 clinical work and initiation of the CUE-102 Phase 1 trial in the first half. No meaningful commercial gross margin is reported because there are no product sales.
- At June 30, cash and cash equivalents were $52.901 million and marketable securities were $4.988 million, totaling $57.889 million. Cash, cash equivalents and restricted cash increased $1.287 million in the first half, including $20.002 million of investing cash inflow largely from Treasury-security redemptions.
- Operating cash use was $21.204 million in the first half, versus $24.421 million a year earlier. Financing provided $2.489 million, mainly from ATM stock sales and option exercises, compared with $26.265 million in 2022, which included $10 million of loan proceeds and higher ATM proceeds.
- Total current assets were $60.935 million and current liabilities $16.307 million. Total assets were $73.163 million, total liabilities $27.159 million, and stockholders’ equity $46.004 million.
- Debt principal was $10 million; balance-sheet debt, net, was approximately $10.081 million, including the accounting for the final payment and issuance costs. The floating interest rate was 10.5% at June 30. Principal repayment installments began after the interest-only period, with final payment due December 2025.
- There is no reported operating margin trend that is useful for a product business; operating expenses substantially exceed collaboration revenue. Weighted-average shares rose to 44.8 million in Q2 from 35.4 million a year earlier.
Material changes, outlook and risks
- The February 2023 Ono agreement provides a $3 million upfront payment, reimbursement for CUE-401 research costs, and a 24-month option period. If Ono exercises its option, Cue may receive an option payment, up to approximately $220 million in development and commercial milestones, and tiered royalties; Cue retains a 50% U.S. co-development and co-commercialization right. These potential amounts are contingent, not assured revenue.
- Management said existing cash, cash equivalents and marketable securities should fund operations for at least 12 months from issuance of the financial statements, but cautioned that assumptions may prove wrong and additional capital will be needed. The filing gives no formal revenue or earnings guidance.
- Cue registered up to $300 million of securities for potential future offerings and continued its $80 million ATM program. It sold 536,264 ATM shares for net proceeds of about $2.015 million during the first half. Further equity financing could dilute shareholders.
- Liquidity and flexibility are also affected by the loan’s cash covenant: the company must maintain unrestricted, unencumbered cash at the lender equal to the lesser of all company cash or $20 million. The loan is secured by substantially all assets other than intellectual property, which is subject to a negative pledge.
- Clinical results remain preliminary. Cue reported a confirmed partial response and durable stable disease in some CUE-101 monotherapy patients, and a 44% objective response rate among 16 evaluable patients treated at the recommended dose in the combination trial; these are small, early-stage datasets and comparisons with historical trial results are not controlled comparisons. Further analysis was planned for November 2023.
- Key risks include clinical-trial execution and uncertain efficacy or safety, regulatory approval, reliance on third parties for trials and manufacturing, financing needs, competition, intellectual-property protection, and collaboration terms. The company disclosed no material legal proceedings or accrued contingent liabilities. Disclosure controls were assessed as effective at June 30, 2023.
Important facts for investors to verify
- Whether subsequent CUE-101 and CUE-102 trial updates confirm or change the preliminary response, survival, safety and tolerability observations.
- Whether Ono exercises its CUE-401 option and whether research reimbursements and collaboration revenue adequately offset related costs.
- Cash burn, available liquidity and the timing and terms of any additional financing; distinguish cash runway estimates from realized cash use.
- Loan amortization, the 10.5% floating rate, cash covenant compliance and the effect of scheduled debt payments on runway.
- Potential dilution: as of August 1, 2023, 44,959,548 common shares were outstanding; the filing also reports 10,719,846 warrants and 7,104,675 options outstanding at June 30.