Curis, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. Financial statements are unaudited. Curis is an oncology-focused drug-development company; it relies on collaborators for Erivedge commercialization and has no direct product sales.
Financial performance and liquidity
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $871,435 | $10,356,252 |
| Operating income (loss) | ($4,357,364) | $2,199,695 |
| Net income (loss) | ($4,962,294) | $2,225,737 |
| Net cash from (used in) operations | ($4,328,086) | $3,937,496 |
| Cash and cash equivalents, period-end | $9,718,974 | $14,687,247 |
- Revenue was primarily Erivedge royalties of $664,400 and a $100,000 CUDC-907 milestone from the Leukemia & Lymphoma Society (LLS). Q1 2012 included a one-time $10 million Genentech milestone for FDA approval of Erivedge.
- R&D expense fell 50% to $2.63 million; G&A expense fell 8% to $2.57 million. The filing does not present a conventional gross or operating margin measure; reported revenue is small and milestone-dependent.
- At March 31, cash, cash equivalents and investments totaled $54.19 million, excluding $180,364 of restricted investments. Current assets were $51.68 million and current liabilities $3.63 million.
- Balance-sheet debt, net of issuance costs, was $30.14 million, including $314,027 current and $29.82 million long-term. The $30 million royalty-secured loan carries 12.25% annual interest. Curis reported $258,065 accrued interest and $335,832 of unpaid interest added to principal; management stated gross debt and accrued interest totaled approximately $30.594 million.
- Accumulated deficit was $753.47 million. The company reported a decrease in cash and cash equivalents of $3.03 million for the quarter.
Changes, outlook and management commentary
- The year-over-year revenue decline reflects the absence of the prior-year Erivedge FDA-approval milestone. Erivedge royalties increased to $664,400 from $270,622, while net loss replaced prior-year net income.
- Curis said existing cash, cash equivalents, marketable securities, investments and working capital should fund current and planned operations into mid-2015. Additional funding may be needed thereafter; financing, collaboration payments and future royalty levels are uncertain.
- Most Erivedge royalty proceeds are applied to the BioPharma-II loan, subject to quarterly caps through 2015; royalties thereafter are applied until repayment. Management estimated repayment in early 2017, dependent on sales and royalties. Curis retains royalties after repayment and may receive amounts above the applicable caps.
- In April 2013, the European Medicines Agency’s CHMP recommended conditional approval of Erivedge; a European Commission decision was pending. Approval would trigger a $6 million Genentech milestone, less a 5% payment to university licensors. Australian and other-market approvals were also pending.
- Pipeline updates: CUDC-427 had completed a Phase I study under Genentech before Curis licensed it; Curis planned further studies in 2013. CUDC-907 entered Phase I and was recruiting for its next dose cohort; a solid-tumor Phase I study was expected in the second half of 2013. Debiopharm was advancing Debio 0932. Curis discontinued enrollment in an intravenous CUDC-101 head-and-neck study and was exploring an oral formulation after low bioavailability in an initial oral study.
- Key risks include continued operating losses, dependence on Genentech/Roche and other collaborators, clinical and regulatory uncertainty, the high-interest royalty-secured debt, and the possibility that additional financing may be unavailable on acceptable terms. The filing reports no off-balance-sheet arrangements and says disclosure controls were effective.
- Q1 2012 cash-flow statements had a non-material classification error: $375,661 of option-exercise proceeds was moved from operating to financing activities in this filing; prior filings were not restated.
Important facts for investors to verify
- Whether Erivedge receives European and Australian approvals, and whether commercial sales translate into milestones and royalties sufficient to service the loan.
- The debt’s repayment mechanics, quarterly royalty caps, accrued-interest treatment and exposure to default or acceleration provisions.
- Progress, safety, enrollment and funding needs for CUDC-427 and CUDC-907, and the feasibility of an improved oral CUDC-101 formulation.
- Whether the stated mid-2015 cash runway remains achievable as clinical spending, royalty receipts and collaboration milestones change.
- The dilution and share supply that could result from outstanding options and warrants or future equity financing.