Curis, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Curis is a clinical-stage biotechnology company focused on cancer therapeutics; Erivedge is commercialized by Roche and Genentech. Financial statements are unaudited.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Total revenue | $1.66 million | $1.28 million |
| Erivedge royalty revenue | $1.67 million | $1.29 million |
| Research and development expense | $4.72 million | $3.15 million |
| In-process R&D expense | $24.35 million | — |
| General and administrative expense | $3.53 million | $2.83 million |
| Operating loss | $31.02 million | $4.75 million |
| Net loss | $31.85 million | $5.56 million |
| Net loss per share | $0.30 | $0.06 |
| Operating cash used | $7.76 million | $5.31 million |
- Revenue increased 29%, primarily from higher Erivedge royalties. Royalty revenue less related costs was approximately $1.59 million; the filing does not present a conventional operating margin measure.
- The $24.35 million in-process R&D charge largely reflects the value of shares issued to Aurigene for collaboration rights, plus a cash payment. It was a major driver of the reported quarterly loss.
- At March 31, cash and cash equivalents were $23.47 million and investments were $83.69 million, or $107.15 million combined, excluding $0.15 million of restricted long-term investments. Curis reported that these resources were expected to fund current and planned operations into 2017.
- Total liabilities were $31.69 million. Reported debt, net of issuance costs, was $27.38 million, with $0.30 million of related accrued interest separately included in accrued liabilities. Curis Royalty’s gross debt and accrued interest obligation was reported as $27.78 million.
- Cash increased $15.72 million during the quarter. Financing provided $64.06 million, principally from the February public offering; operating activities used $7.76 million and investing activities used $40.58 million, largely reflecting investment purchases.
Material changes and business developments
- Revenue rose 29% year over year, while R&D expense increased 50%, principally from increased CUDC-907 activity and the Debiopharm transition payment for CUDC-305. G&A rose 25%, mainly due to legal, professional and consulting costs related to Aurigene and other business-development work.
- Curis issued 25.09 million shares in a public offering completed March 2, receiving approximately $64.6 million after underwriting discounts and estimated offering expenses. The share issuance substantially increased equity and diluted existing shareholders.
- In January, Curis entered an exclusive discovery and development collaboration with Aurigene covering immuno-oncology and selected precision-oncology programs. Curis issued Aurigene 17.12 million shares valued at approximately $23.97 million and expects to pursue options for PD-L1 and IRAK4 programs.
- Curis regained worldwide development and commercialization rights to CUDC-305 (formerly Debio 0932) from Debiopharm in February. Curis paid $750,000 and accepted potential milestone, royalty and sublicense-sharing obligations. Debiopharm had found the Phase 1 portion of its lung cancer study inconclusive; Curis was evaluating other indications.
- Research expense for CUDC-907 increased as enrollment expanded in Phase 1 studies. The filing describes preliminary results in eight heavily pre-treated DLBCL patients: four confirmed partial responses and one complete response. These early results are not evidence of established efficacy.
Outlook, risks and contingencies
- Management did not provide financial guidance. It expected existing resources to support current and planned operations into 2017, but stated that additional funding would be needed to support continued development and that financing or collaboration proceeds were uncertain.
- Curis expected to exercise options for two Aurigene programs and target IND filings in late 2015 or early 2016. For each of the first two programs, specified payments include $3 million at option exercise, $3 million upon IND acceptance and $4 million when the fifth patient is dosed in the related Phase 1 study. Larger contingent development, approval and commercial payments and royalties may also apply.
- Curis anticipated CUDC-907 combination testing with rituximab in Q2 2015 and a registration-directed Phase 2 study in relapsed/refractory DLBCL in the second half of 2015. The FDA granted orphan drug designation for this indication in April 2015, after quarter-end.
- Curis had never been profitable and reported an accumulated deficit of $811.40 million. Most candidates were in early clinical development, and success depends on clinical results, regulatory approvals, funding, intellectual-property protection and commercialization by partners.
- Erivedge royalties are assigned to Curis Royalty’s 12.25% BioPharma-II loan, subject to quarterly limits; management estimated repayment in 2018. The repayment timing could change with royalty levels. A competing Hedgehog inhibitor under regulatory review could reduce Curis’s royalty rate in affected territories and extend repayment.
- LLS funding for CUDC-907 includes contingent repayment obligations upon successful partnering or commercialization; Curis had not recorded a repayment liability because the triggering outcomes were not considered probable. Curis also disclosed possible Debiopharm milestones of $3 million at the first Phase 3 patient dose and $10 million upon specified marketing approval.
- Management identified risks including continued operating losses, reliance on collaborators, clinical and enrollment uncertainty, competition, potential dilution from future financings, investment-market risk, and the possibility that financing shortfalls could force program reductions or delays. Curis reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether cash, investment maturities and actual operating burn support management’s stated runway into 2017, especially as clinical and Aurigene-related spending grows.
- Progress, enrollment and subsequent data from CUDC-907 trials, and whether planned combination and Phase 2 studies began on schedule.
- Whether Aurigene delivers development candidates and whether Curis exercises the options; confirm associated cash obligations, milestones and potential dilution.
- Erivedge sales, royalty receipts, any competing-product approvals or royalty-rate reductions, and the debt’s actual repayment schedule.
- How Curis prioritizes CUDC-305 and CUDC-427 development, and whether additional funding or partnerships are obtained on acceptable terms.
- Reconcile public-offering proceeds: the filing reports approximately $64.6 million after estimated offering expenses, while the cash-flow statement records approximately $64.86 million of offering proceeds and separately discloses $0.24 million of accrued issuance costs.