Curis, Inc. — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014. Unaudited consolidated results. Curis is an oncology-focused biotechnology company developing drug candidates and relies on collaborators for Erivedge commercialization and other partnered programs.
Financial results and liquidity
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Total revenue | $4.80 million | $5.40 million | $6.09 million | $6.28 million |
| Operating loss | $1.54 million | $0.71 million | $6.30 million | $5.06 million |
| Net loss | $1.90 million | $1.29 million | $7.46 million | $6.26 million |
| Net loss per share, basic and diluted | $(0.02) | $(0.02) | $(0.09) | $(0.08) |
| Operating cash used | — | — | $10.04 million | $4.30 million |
- Q2 royalty revenue rose 127% to $1.82 million; six-month royalty revenue rose 112% to $3.11 million, reflecting Erivedge sales. License revenue was $3.00 million in 2014 versus $4.00 million in 2013. Six-month 2014 R&D revenue was negative $26,000, including reimbursements owed to Genentech.
- At June 30, cash and cash equivalents were $10.16 million and investments were $48.87 million, or approximately $59.03 million combined, excluding restricted investments. Accounts receivable was $4.84 million, including the $3.00 million Genentech milestone received in July.
- Total assets were $73.90 million; current liabilities were $9.93 million. Debt, net of issuance costs, totaled $29.87 million, including $5.50 million current. The subsidiary’s $30 million loan bears 12.25% interest and is secured by Erivedge royalty-related rights; it is intended to be non-recourse to Curis. Management estimated repayment in the first half of 2017, subject to royalty performance.
- Six-month investing activities provided $10.34 million, primarily reflecting net investment maturities and sales; financing activities provided $0.26 million. The company reported an accumulated deficit of $768.29 million and said it had never been profitable.
Material changes and operating developments
- Revenue declined 11% in Q2 and 3% for the first half year over year. Higher Erivedge royalties partly offset lower license fees and the absence of 2013 LLS milestone revenue.
- R&D expense increased 5% in Q2 and 12% for the first half, mainly from increased CUDC-907 and CUDC-427 development spending. Curis had discontinued investment in CUDC-101 clinical development and redirected resources to those programs.
- Six-month operating cash use more than doubled year over year, primarily reflecting the net loss, repayment of capitalized debt interest and a $3.37 million increase in receivables, partly tied to the milestone collected in July.
- Curis reported 86,004,857 common shares outstanding as of August 1, 2014. Through June 30, it had sold 3.85 million shares under its at-the-market program for $16.25 million net, with up to $30 million authorized under the agreement.
Outlook, commentary and risks
- Management expected existing cash, cash equivalents and investments at June 30 to fund current and planned operations into 2016. Continued funding depends on expense control, collaboration or milestone receipts, royalties and/or additional financing; the company cautioned that financing may not be available on acceptable terms and that development spending could be reduced or delayed.
- Curis expected to complete CUDC-907 dose escalation in the second half of 2014 and begin expansion cohorts later in the year. It restarted the CUDC-427 Phase 1 trial in June under an amended dosing protocol after the FDA lifted a partial clinical hold in March; combination studies were anticipated later in 2014 or early 2015.
- Roche’s June 2014 Erivedge IND filing for an idiopathic pulmonary fibrosis study generated a $3 million milestone. Roche expected to begin enrollment later in 2014; the milestone was received in July. Erivedge royalties are generally applied to Curis Royalty’s loan obligations, subject to contractual caps.
- Debiopharm continued evaluating Debio 0932 in lung cancer studies but decided not to advance its combination program in renal cell carcinoma. Curis said it was not receiving research funding under its existing Genentech, Debiopharm or LLS agreements.
- Key risks include early-stage clinical uncertainty, dependence on collaborators, financing needs, possible dilution, competition, regulatory and patient-enrollment delays, and the possibility that Erivedge royalties or other contingent payments fall short of expectations. The filing also notes that the 2010 warrants are a liability valued using Level 3 assumptions; a noncash fair-value gain reduced reported expense.
- Daniel R. Passeri resigned as CEO on June 2, 2014, became vice chairman, and entered a consulting agreement. Management concluded disclosure controls were effective as of June 30 and reported no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Verify Erivedge sales, royalty growth, the timing and amount of future milestones, and how royalties are applied to the BioPharma-II debt.
- Track cash burn, receivable collection, available ATM capacity, and whether the stated runway into 2016 remains supportable.
- Monitor CUDC-907 and CUDC-427 trial progress, safety findings, enrollment and timing against management’s stated plans.
- Review the loan’s repayment assumptions, interest accrual, quarterly payment caps and default provisions, including the risk that lower royalties extend repayment.
- Assess dilution and potential warrant share adjustments; the filing reports 1,373,517 warrants outstanding with a $3.55 initial exercise price and January 2015 expiration.