Kura Oncology, Inc. — Form 10-Q Summary
Business context and reporting period
Kura Oncology is a clinical-stage biopharmaceutical company developing precision cancer medicines and related molecular or cellular diagnostics. The filing covers the quarter and six months ended June 30, 2018. The company had no approved products and no product-sales revenue.
- Lead program: tipifarnib, including development in HRAS-mutant head and neck squamous cell carcinoma (HNSCC) and hematologic malignancies.
- Other programs: KO-947 in a Phase 1 trial and KO-539 in preclinical development.
- Common shares outstanding as of August 3, 2018: 37.98 million.
Financial results and key metrics
| ($ in thousands, except per-share data) | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | 11,476 | 5,652 | 23,042 | 11,165 |
| General and administrative expense | 3,800 | 2,278 | 7,225 | 4,418 |
| Other income, net | 537 | 110 | 924 | 230 |
| Net loss | (14,739) | (7,820) | (29,343) | (15,353) |
| Net loss per share | (0.45) | (0.40) | (0.91) | (0.78) |
| Operating cash flow | Not separately provided | Not separately provided | (25,443) | (14,732) |
Margins are not meaningful because the company generated no product revenue. The six-month operating loss was approximately $30.3 million, before other income, and share-based compensation was $4.4 million.
- Cash and cash equivalents at June 30, 2018: $17.7 million.
- Short-term investments: $108.2 million; total cash, cash equivalents and short-term investments: $125.9 million.
- Total assets: $129.6 million; accumulated deficit: $118.6 million.
- Total debt, net of discounts and issuance costs: approximately $7.0 million, comprising $2.8 million current and $4.2 million long-term.
- Net cash used in investing activities was $25.9 million, primarily reflecting purchases of marketable securities.
- Net cash provided by financing activities was $57.5 million, primarily from the January 2018 ATM equity issuance.
Material changes versus the prior comparable period
- Q2 research and development expense increased $5.8 million, or approximately 103%, primarily due to higher tipifarnib clinical-development, companion-diagnostic and manufacturing costs.
- Six-month research and development expense increased $11.9 million, or approximately 106%; tipifarnib external development expense increased $9.3 million.
- Q2 general and administrative expense increased $1.5 million, driven by higher share-based compensation, professional fees and patent costs.
- Q2 net loss increased $6.9 million, or approximately 88%; six-month net loss increased $14.0 million, or approximately 91%.
- Six-month operating cash usage increased $10.7 million to $25.4 million.
- January 2018 ATM sales generated approximately $57.7 million of net proceeds from 3.14 million shares. The ATM facility was terminated in July 2018.
- After quarter-end, the company sold 4.6 million shares in a public offering for approximately $74.5 million of net proceeds.
- Debt repayment began in June 2018 after the interest-only period ended; the term loan matures November 1, 2020.
Guidance, outlook, commentary and risks
- Management expects existing cash, cash equivalents and short-term investments, including the subsequent July offering proceeds, to fund current operations through 2021. This is not a guarantee and excludes potentially accelerated spending on additional development activities.
- The company expected to initiate the global registration-directed AIM-HN/SEQ-HN Phase 2 trial of tipifarnib in HRAS-mutant HNSCC by the end of 2018. The planned trial was expected to include at least 59 patients in AIM-HN, approximately 100 sites worldwide and about two years of enrollment.
- Management expected KO-947 Phase 1 data in 2019 and anticipated continued increases in research and development and general and administrative expenses.
- Janssen declined in June 2018 to exercise its first right to negotiate an exclusive license back for tipifarnib.
- Key risks include clinical-trial failure or delay, slower enrollment of biomarker-defined patients, inability to validate or obtain approval for companion diagnostics, safety concerns, manufacturing and third-party contractor dependence, regulatory uncertainty, limited patent protection for tipifarnib, and the need for additional capital.
- The composition-of-matter patents for tipifarnib had expired in the United States and Europe in 2016; the company relies on method-of-use patents and regulatory exclusivity for protection.
- The company reported no material legal proceedings and no off-balance-sheet arrangements. Disclosure controls were considered effective as of June 30, 2018.
Most important facts for investors to verify
- Whether the planned AIM-HN trial commenced on schedule, enrolled adequately and produced results supporting regulatory approval.
- Whether tipifarnib’s clinical activity is replicated under independent radiological review and in the larger registration-directed trial.
- Actual cash runway relative to the stated 2021 expectation, particularly as clinical spending increases.
- Terms, covenants, repayment schedule and potential default risks under the term loan.
- Progress and regulatory status of the HRAS companion diagnostic.
- Additional equity issuance, dilution and future financing requirements.
- Validity, enforceability and remaining commercial value of tipifarnib’s method-of-use patents and other intellectual-property rights.