Curis, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; balance-sheet comparisons are with December 31, 2015. Curis is a clinical-stage biotechnology company focused on cancer therapeutics. Its pipeline includes CUDC-907, CA-170 and CA-4948; Erivedge is marketed by Genentech/Roche.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 / prior date |
|---|---|---|
| Total revenue | $1.73 million | $1.66 million; up 4% |
| Net loss | $9.44 million | $31.85 million |
| Loss per share | $0.07 | $0.30 |
| Operating cash used | $7.99 million | $7.76 million |
| Cash and cash equivalents | $14.69 million | $33.09 million at Dec. 31, 2015 |
| Investments | $58.43 million | $49.10 million at Dec. 31, 2015 |
| Debt, net carrying amount | $22.90 million | $24.16 million at Dec. 31, 2015 |
Cash, cash equivalents and investments totaled $73.12 million at quarter-end, excluding $0.15 million of restricted investments. Current assets were $75.80 million versus current liabilities of $11.94 million. The company used $9.29 million in investing activities, mainly reflecting investment purchases and maturities, and $1.12 million in financing activities, primarily debt principal payments.
Royalty revenue from Erivedge was $1.74 million, up 4%. Research and development expense rose 45% to $6.83 million, principally due to CUDC-907 clinical work, including its Phase 2 trial launched in January, and Aurigene program costs. General and administrative expense increased 2% to $3.62 million. Interest expense was $0.74 million.
Changes versus the prior period
- Net loss narrowed substantially, but the comparison is distorted by a $24.35 million in-process R&D charge recorded in Q1 2015 for the Aurigene collaboration; there was no comparable charge in Q1 2016.
- Operating cash use increased modestly, from $7.76 million to $7.99 million, despite the lower reported net loss.
- Cash and cash equivalents fell by $18.40 million from year-end, while short-term investments increased by $9.33 million.
- Weighted-average shares rose to 129.02 million from 107.93 million. The filing reports 129.04 million shares outstanding at March 31 and 129.18 million as of May 2, 2016.
- Curis began applying a 2-percentage-point royalty reduction to U.S. Erivedge sales after competing product sonidegib entered the market in 2015.
Outlook, risks and notable items
- Management expects existing cash, cash equivalents and investments to fund current and planned operations into 2017. Curis does not expect profitability in the foreseeable future and anticipates needing additional financing or collaboration funding; failure to obtain funds could require delaying or reducing development programs.
- Near-term priorities are continued development of CUDC-907, CA-170 and CA-4948. Curis expected to file an IND and begin Phase 1 testing of CA-170 in the first half of 2016; this is a forward-looking target, not a reported achievement in this quarter’s filing.
- Curis may owe Aurigene up to $14 million in aggregate upon specified IND and Phase 1 milestones for CA-170 and CA-4948. A $7.5 million annual exclusivity option fee was estimated to be due in Q1 2017. The company had not exercised its option to license the third, PD-1/TIM-3 program.
- Curis Royalty’s Erivedge royalty-backed loan bears 12.25% annual interest and is non-recourse to Curis. Its debt repayment depends on royalty receipts, which are exposed to competition, sales performance and royalty-rate reductions. Management said all Erivedge royalties were expected to service the loan for the foreseeable future.
- Reported debt was $5.55 million current and $17.35 million long-term, net of issuance costs. Gross outstanding principal and interest was reported as $23.30 million. Quarterly payments to the lender totaled $1.93 million, including $1.19 million applied to principal.
- Management identified clinical and regulatory uncertainty, reliance on Aurigene and Genentech/Roche, financing needs, competition, intellectual-property protection, and third-party manufacturing and trial execution as significant risks. Disclosure controls were judged effective; no material change in internal control over financial reporting was reported, and there were no off-balance-sheet arrangements.
- In Q1 2016, Curis recorded $1 million of Aurigene supplemental program costs, accrued in accounts payable. The company appointed James E. Dentzer as CFO and granted him an inducement option for 1.7 million shares.
Important facts for investors to verify
- Whether the cash runway into 2017 remains achievable given clinical spending, milestone obligations and the pace of operating cash use.
- Progress and clinical data for CUDC-907, and whether CA-170’s stated IND and Phase 1 timing was met; also track CA-4948’s preclinical progress.
- Erivedge sales, the effect of sonidegib on sales and royalty rates, and the resulting pace of repayment of the 12.25% royalty-backed loan.
- Potential financing, dilution and collaboration developments, including the $30 million at-the-market equity program, under which no shares had been sold as of March 31, 2016.
- Future Aurigene option, exclusivity, milestone and royalty commitments, including the estimated $7.5 million exclusivity fee in Q1 2017.