Cue Biopharma, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed March 11, 2020. This is an annual report, not a standalone fourth-quarter report. Cue is a clinical-stage biopharmaceutical company with no product-sales revenue. Its lead candidate, CUE-101, entered a Phase 1 trial in September 2019; other programs were preclinical or discovery-stage.
Financial performance and liquidity
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Collaboration revenue | $3.46 million | $1.14 million | Up approximately 203% |
| Research and development expense | $27.49 million | $28.54 million | Down approximately 3.7% |
| General and administrative expense | $12.74 million | $11.30 million | Up approximately 12.8% |
| Total operating expenses | $40.23 million | $39.84 million | Up approximately 1.0% |
| Operating loss | $(36.77) million | $(38.70) million | Loss narrowed |
| Net loss | $(36.70) million | $(38.98) million | Loss narrowed approximately 5.9% |
| Basic and diluted loss per share | $(1.66) | $(1.94) | Improved |
| Cash used in operating activities | $30.80 million | $26.41 million | Use increased |
| Cash, cash equivalents and marketable securities | $59.41 million | $39.21 million | Up approximately 51.5% |
| Working capital | $49.37 million | $34.39 million | Up approximately 43.5% |
Revenue came from collaboration arrangements, not product sales. Gross margin is not applicable to the reported business model; operating expenses substantially exceeded collaboration revenue. The company reported no debt borrowings. At year-end it had $5.80 million in operating lease liabilities, including $4.45 million current, and $6.04 million in undiscounted future lease payments.
Cash flow from investing activities was positive $3.45 million, principally reflecting redemption of short-term investments, partly offset by purchases of investments. Financing activities provided $50.79 million, mainly from at-the-market equity sales. The company reported total assets of $71.61 million, total liabilities of $17.02 million, stockholders’ equity of $54.58 million, and an accumulated deficit of $108.50 million.
Material changes and notable items
- Collaboration revenue increased primarily due to LG Chem revenue recognized in 2019. The filing attributes approximately $874,000 to Merck and $2.584 million to LG Chem for the year.
- In May 2019, LG Chem paid a $2.5 million milestone after FDA acceptance of the CUE-101 IND. The filing describes the payment as a contract liability pending performance of Cue’s obligations; revenue recognition reflects performance under the collaboration arrangement.
- Cue sold approximately 5.31 million shares through two ATM offerings, generating approximately $49.0 million net of commissions and fees. Year-end shares outstanding increased to 26.56 million from 20.70 million, a material source of dilution.
- Operating cash use rose by approximately $4.39 million year over year despite a narrower net loss. Management cited working-capital movements and ongoing development costs.
- Adoption of lease accounting (ASC 842) in 2019 added a right-of-use asset and lease liabilities to the balance sheet; the company said adoption did not materially affect its results or accumulated deficit.
Outlook, risks and contingencies
Management stated that year-end unrestricted cash, cash equivalents and marketable securities were expected to fund projected operating requirements for at least the next 12 months from issuance of the financial statements, based on current plans. Cue nevertheless expects continuing operating losses and negative operating cash flow and anticipates needing additional capital through equity, debt, collaborations or licensing. It cautioned that such financing may not be available on acceptable terms.
- Management expected R&D spending to increase as clinical development expands; G&A was also expected to rise with growth and public-company costs.
- CUE-101 was in Phase 1 for HPV16-driven recurrent/metastatic head and neck cancer. The company planned a checkpoint-inhibitor combination study in locally advanced disease in the second half of 2020. These were plans, not assurances of execution or success.
- CUE-102 was planned to enter IND-enabling work in 2020 with LG Chem. CUE-200 and CUE-300 remained earlier-stage programs; autoimmune work was being pursued with Merck.
- Merck and LG Chem agreements offer potential milestone and royalty economics, but depend on future development, regulatory and commercial achievements. Partners may terminate agreements; exclusive rights also constrain Cue’s activities in specified indications or territories.
- Clinical, regulatory, manufacturing and financing risks are substantial. Cue had limited operating history, no approved or commercial products, and only one candidate in clinical testing. It relied on third parties, including Catalent as sole-source manufacturer of CUE-101 clinical supply.
- The filing identified possible COVID-19-related disruption to company or partner operations and clinical timelines, with insurance insufficient to cover all significant interruption losses.
- The filing reported no material pending legal proceedings or accrued contingent liabilities. Operating lease obligations totaled $6.04 million; Einstein license milestone and royalty obligations could arise if specified future events occur.
The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2019; the auditor did not attest to internal controls.
Investor facts to verify
- Whether CUE-101 clinical progress, safety, efficacy signals and trial timing subsequently supported the company’s development plans.
- Current cash runway and cash burn, including the impact of later financing, clinical spending and lease commitments.
- How much collaboration revenue and cash funding is recurring or tied to completed performance, versus conditional future milestones and royalties.
- Potential dilution from equity compensation, outstanding options and warrants, and future financing needs.
- Manufacturing continuity and alternative supply options for CUE-101, plus partners’ continued commitment to their programs and territories.