Kura Oncology, Inc. — Q3 2019 Form 10-Q Summary
Business context and reporting period
Kura Oncology is a clinical-stage biopharmaceutical company developing precision cancer medicines and related molecular diagnostics. The filing covers the quarter and nine months ended September 30, 2019, and was filed November 5, 2019. The company had no approved products and no product sales revenue.
- Lead program: Tipifarnib, evaluated in HRAS-mutant head and neck squamous cell carcinoma (HNSCC), peripheral T-cell lymphoma, acute myeloid leukemia, chronic myelomonocytic leukemia and other potential indications.
- Other programs: KO-947, an ERK inhibitor in Phase 1, and KO-539, a menin-MLL inhibitor that entered a Phase 1 AML trial in September 2019.
- Shares outstanding: 45.3 million as of November 1, 2019.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Product revenue | None | None | None | None |
| Research and development expense | $12.5 million | $11.7 million | $34.4 million | $34.7 million |
| General and administrative expense | $5.1 million | $4.3 million | $14.2 million | $11.5 million |
| Other income, net | $1.3 million | $1.0 million | $3.2 million | $1.9 million |
| Net loss | $16.4 million | $15.0 million | $45.3 million | $44.4 million |
| Basic and diluted loss per share | $0.36 | $0.40 | $1.11 | $1.30 |
| Net cash used in operating activities | Not disclosed quarterly | Not disclosed quarterly | $40.8 million | $38.4 million |
- Cash and investments: Cash, cash equivalents and short-term investments totaled $250.1 million at September 30, 2019, consisting of $54.7 million of cash and cash equivalents and $195.4 million of short-term investments.
- Debt: Long-term debt was $7.5 million. The company could borrow up to an additional $12.5 million under its Silicon Valley Bank facility through May 1, 2020. The facility matures May 1, 2023; interest-only payments continue through November 2020, followed by principal and interest payments.
- Equity financing: A June 2019 public offering of 6.785 million shares generated approximately $108.1 million of net proceeds. The company also had an unused $75.0 million at-the-market facility.
- Operating profile: The company remained loss-making with negative operating cash flow; meaningful profit or operating margins are not applicable because there was no product revenue.
- Accumulated deficit: $195.0 million at September 30, 2019.
Material changes versus the prior comparable period
- Third-quarter net loss increased by $1.4 million, or approximately 9%, primarily because total operating expenses rose by $1.7 million.
- Third-quarter R&D expense increased $0.9 million, driven mainly by higher tipifarnib trial costs and personnel costs, partly offset by lower KO-947, KO-539 and share-based compensation expense.
- Third-quarter G&A expense increased $0.8 million, primarily due to higher personnel and share-based compensation costs.
- Nine-month R&D expense decreased modestly by $0.3 million. Lower tipifarnib and KO-539 costs and lower share-based compensation largely offset higher personnel costs and KO-947 development costs.
- Nine-month G&A expense increased $2.6 million, primarily due to higher personnel and share-based compensation expenses, partly offset by lower professional services costs.
- Interest income increased by $1.3 million for the nine-month period because of the larger investment portfolio, while interest expense declined by $0.3 million.
- Net cash used in operating activities increased $2.4 million to $40.8 million. Net investing cash outflow fell to $31.1 million from $83.9 million because of increased maturities and sales of marketable securities.
- Cash and investments increased substantially from $179.0 million at December 31, 2018 to $250.1 million at September 30, 2019, primarily reflecting the June equity offering.
- The company adopted the new lease standard on January 1, 2019 and recognized approximately $0.6 million of operating lease assets and liabilities at adoption; management reported no material effect on earnings or cash flows.
Guidance, outlook, commentary and risks
- Management expected existing cash, cash equivalents and short-term investments to fund operating and capital requirements into the second half of 2021, based on current plans.
- The company expects R&D expenses to increase as clinical development continues for tipifarnib, KO-947 and KO-539, and expects G&A expenses to increase to support those activities.
- AIM-HN, the registration-directed tipifarnib trial in HRAS-mutant HNSCC, was designed to enroll at least 59 evaluable patients and was expected to take approximately two years to fully enroll.
- In October 2019, after the quarter-end, the company reported preliminary RUN-HN results showing 10 of 18 evaluable patients with confirmed partial responses, representing a 56% objective response rate. The filing cautions that these investigator-assessed results may not predict the independent review and outcomes of AIM-HN.
- The company expected to complete KO-947 dose escalation by the end of 2019 or early 2020 and initiate tumor-specific extension cohorts in 2020. It expected to seek a recommended Phase 2 dose for KO-539 in 2020 and anticipated additional CMML data in 2020.
- Kura expects to require substantial additional financing. Additional equity financing could dilute existing holders, while debt financing could impose restrictive covenants. The company had no committed external funding source other than its existing term loan facility.
- Key risks include failure or delay of clinical trials, difficulty enrolling biomarker-defined patient populations, safety or efficacy concerns, regulatory rejection, the need for an approved companion diagnostic for tipifarnib in HRAS-mutant HNSCC, reliance on third-party manufacturers and clinical research organizations, intellectual-property challenges, competition and reimbursement uncertainty.
- The company reported no material legal proceedings and no off-balance-sheet arrangements. Management concluded that disclosure controls and procedures were effective as of September 30, 2019.
Most important facts for investors to verify
- Whether the reported RUN-HN efficacy translates into successful, independently reviewed results from the AIM-HN registration-directed trial.
- Patient enrollment pace, trial design, safety findings and regulatory interaction for AIM-HN and other tipifarnib studies.
- Cash burn relative to the stated funding runway into the second half of 2021, including the timing and amount of any future capital raises.
- Availability and potential use of the additional $12.5 million under the bank facility and compliance with its covenants.
- Progress and clinical data for KO-947 and KO-539, including the KO-539 Phase 1 AML program.
- Development, validation and regulatory approval prospects for the companion diagnostic required for tipifarnib in HRAS-mutant HNSCC.
- Potential dilution from the unused $75.0 million ATM facility, equity incentive plans, outstanding options and the 33,988-share warrant.