Business context and reporting period
Curis, Inc. is a cancer drug discovery and development company. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2012. Its lead commercial program, Erivedge (vismodegib), is developed and sold by Genentech/Roche; Curis also funds internal programs including CUDC-101 and CUDC-907 and licenses Debio 0932 to Debiopharm.
Financial and operating performance
| Metric | Three months ended June 30, 2012 | Six months ended June 30, 2012 |
|---|---|---|
| Revenue | $4.35 million | $14.71 million |
| Operating loss | $2.43 million | $0.23 million |
| Net loss | $2.89 million ($0.04 per share) | $0.66 million ($0.01 per share) |
| Research and development expense | $4.50 million | $9.74 million |
| General and administrative expense | $2.26 million | $5.07 million |
| Operating cash flow | Not separately presented for the quarter | $2.70 million provided |
- Revenue included $4.0 million in second-quarter Genentech milestone revenue for Roche’s Australian marketing-registration filing. First-half license revenue was $14.0 million: $10.0 million for U.S. FDA approval of Erivedge and $4.0 million for the Australian filing. Erivedge royalties were $253,000 in Q2 and $523,000 in the first half.
- At June 30, cash and cash equivalents were $12.09 million and marketable securities were $32.62 million, or $44.71 million combined, excluding $194,000 of restricted investment. Current assets were $45.42 million versus current liabilities of $3.49 million. The filing reports no interest-bearing debt; total liabilities of $7.97 million included a $4.30 million warrant liability.
- Cash and cash equivalents fell $3.03 million during the first half, despite positive operating cash flow, as investing activities used $9.91 million and financing activities provided $4.17 million. Operating cash flow benefited materially from Genentech milestone and royalty receipts.
Material changes versus the prior comparable period
- Q2 revenue rose from $393,000 to $4.35 million, while net loss narrowed from $4.91 million to $2.89 million. First-half revenue increased from $526,000 to $14.71 million and net loss narrowed from $11.71 million to $661,000, chiefly reflecting Erivedge milestones and initial royalties.
- First-half R&D expense increased 57% to $9.74 million, including $2.11 million of Erivedge-related obligations to university licensors and higher CUDC-907 and CUDC-101 development spending. First-half G&A increased 19% to $5.07 million, principally from higher stock-based compensation and personnel costs.
- First-half operating cash flow improved from $8.83 million used in 2011 to $2.70 million provided in 2012. Stock-based compensation was $2.03 million for the first half, versus $1.04 million a year earlier.
- Shares outstanding were 79.53 million at June 30, up from 77.12 million at December 31, 2011. The filing reports 79.62 million shares outstanding as of August 2, 2012.
Outlook, commentary, risks and unusual items
- Management said available capital at June 30, 2012 was expected to support current and planned operations into the first half of 2014. Curis expects continued losses and says additional funding will be required; future runway depends on collaboration payments, expense control and access to financing.
- Roche expected potential European approval of Erivedge in the second half of 2012 or first half of 2013. Curis could earn further milestones on approvals in Europe and Australia and royalties on sales, but timing, approvals and commercial uptake are uncertain.
- Curis expected to seek an IND and begin a Phase I study of oral CUDC-101 in the second half of 2012 and an IND and Phase I study of CUDC-907 in the second half of 2012, subject to successful preclinical and formulation work. A Phase II CUDC-101 head-and-neck cancer study was estimated to begin in the first half of 2013. These are expectations, not assured outcomes.
- Key risks include dependence on Genentech/Roche for Erivedge development and commercialization, uncertain royalty income, clinical and regulatory failure or delay, reliance on collaborators, need for additional capital and potential dilution, competition, and patent and manufacturing risks. The filing cautions that interim results are not necessarily indicative of full-year results.
- Unusual items include the Level 3 warrant liability, revalued each period and generating $495,000 of Q2 other expense and $487,000 for the first half. Curis also recorded $964,000 of stock issued to university licensors following FDA approval and identified an immaterial $100,000 out-of-period R&D expense related to a 2009 Australian investigational filing.
- A related-party agreement licensed CU-906 and CU-908 in China, Macau, Taiwan and Hong Kong to a company founded and owned by Curis’s former senior vice president. Curis agreed to provide up to $400,000 for specified CU-908 preclinical work; no expense had been incurred under the agreement by June 30. A $137,500 severance accrual for the former executive was recorded.
- Management reported effective disclosure controls as of June 30 and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether Erivedge sales, approvals in additional territories and resulting royalties or milestones develop enough to support Curis’s forecast runway.
- Whether the stated first-half 2014 operating runway remains achievable given continuing development costs and the absence of current research funding under the Genentech and Debiopharm agreements.
- Progress and actual timing of the CUDC-101 and CUDC-907 INDs and clinical programs, and whether LLS funding milestones for CUDC-907 are achieved.
- Potential dilution from future financing, options, warrants and the company’s available at-the-market equity program; also monitor the valuation effects of the warrant liability.
- Terms, execution and any resulting costs or conflicts from the related-party GBMT license and the obligations to university licensors.