Kura Oncology, Inc. — Fiscal 2018 Form 10-K Summary
Business context and reporting period
Kura Oncology is a clinical-stage biopharmaceutical company developing precision oncology medicines and companion diagnostics. The filing covers the fiscal year ended December 31, 2018; it is an annual report rather than a standalone fourth-quarter filing. Kura had no approved products and generated no product revenue.
- Lead program: Tipifarnib, an oral farnesyl transferase inhibitor, primarily targeted to HRAS-mutant head and neck squamous cell carcinoma (HNSCC) and other biomarker-selected cancers.
- Other programs: KO-947, an ERK inhibitor in Phase 1; and KO-539, a menin-MLL inhibitor whose IND had been cleared, with Phase 1 AML initiation expected in the second quarter of 2019.
- Employees: 43 full-time and three part-time employees at December 31, 2018.
Financial performance and liquidity
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Product revenue | $0 | $0 | No product revenue |
| Research and development expense | $46.8 million | $26.4 million | +$20.4 million |
| General and administrative expense | $16.1 million | $9.7 million | +$6.4 million |
| Other income, net | $2.4 million | $0.6 million | +$1.8 million |
| Net loss | $60.4 million | $35.4 million | Loss increased $25.0 million |
| Net loss per share | $1.72 | $1.52 | Higher loss per share |
| Net cash used in operating activities | $48.7 million | $28.4 million | Use increased $20.2 million |
| Net cash used in investing activities | $79.3 million | $23.4 million | Use increased $55.9 million |
| Net cash provided by financing activities | $132.6 million | $53.6 million | +$79.1 million |
- Tipifarnib-related R&D expense was $27.8 million, up $14.9 million, primarily due to registration-directed trial start-up, other clinical development, companion diagnostic activities and manufacturing.
- KO-539-related R&D expense increased to $3.9 million from $2.2 million, primarily due to IND-enabling studies. KO-947-related expense was broadly unchanged at $3.1 million.
- Share-based compensation increased to $8.7 million from $4.5 million.
- Cash, cash equivalents and short-term investments totaled $179.0 million at December 31, 2018, including $16.1 million of cash and cash equivalents and $162.9 million of short-term investments.
- Accumulated deficit was $149.7 million. Kura reported negative operating cash flow and expects continuing losses.
- Management stated that existing liquidity, including available term-loan proceeds, was expected to fund current operations into 2021, but significant additional financing will be required.
Debt, financing and capitalization
- In 2018, Kura raised approximately $57.4 million net through its ATM facility and $74.5 million net through a July public offering. The ATM facility was terminated in July 2018.
- In November 2018, Kura borrowed $7.5 million under a Silicon Valley Bank term-loan facility and repaid its prior debt facility. Up to an additional $12.5 million was available through May 1, 2020, subject to the agreement’s terms.
- The term loan bears interest at the greater of 5.50% or prime plus 0.25%; the rate was 5.75% at December 31, 2018. Maturity is May 1, 2023, with interest-only payments through November 2020 and principal amortization thereafter.
- The debt is secured by substantially all assets other than intellectual property, and includes restrictive covenants, events of default and a final payment equal to 7.75% of amounts drawn.
- Shares outstanding increased to 38.1 million at December 31, 2018 from 29.4 million at December 31, 2017, reflecting equity financing and other issuances.
Material operating and development changes
- Kura initiated the global AIM-HN registration-directed trial for HRAS-mutant HNSCC in November 2018. The trial is designed to enroll at least 59 previously platinum-treated patients and is expected to take approximately two years to fully enroll.
- In the earlier HRAS-mutant HNSCC Phase 2 study, 17 patients had been enrolled by September 7, 2018; nine of 11 evaluable patients had tumor reductions, and five had confirmed partial responses, with three responses lasting more than 17 months at the data cutoff.
- In the PTCL Phase 2 study, 13 evaluable AITL patients produced six objective responses, representing a 46% objective response rate. The company reported a potential association between CXCL12 expression and clinical benefit.
- Kura modified the other HRAS-mutant squamous cell carcinoma study to require a minimum HRAS mutant allele frequency and adopted a 600 mg twice-daily starting dose.
- Janssen declined in June 2018 to exercise its first right to negotiate an exclusive license back for tipifarnib.
- Kura received U.S. patents during 2018 covering tipifarnib treatment of HRAS-mutant HNSCC, CXCL12-expressing PTCL or AML, and AITL. The original tipifarnib composition-of-matter patents had expired in the United States and Europe in 2016.
Guidance, outlook, risks and unusual items
- Management expects R&D expenses to increase as tipifarnib and KO-947 clinical programs continue and KO-539 advances into clinical development. General and administrative expenses are also expected to increase.
- Expected 2019 milestones included additional tipifarnib data in HRAS-mutant tumors in the second half of 2019, additional PTCL data in mid-2019, KO-947 dose-escalation data in 2019, and initiation of KO-539 Phase 1 testing in the second quarter of 2019.
- There is no assurance that AIM-HN will replicate the earlier Phase 2 results. The registration trial uses a lower starting dose and independent radiologic review, which may produce different response rates from investigator-assessed results.
- FDA approval of tipifarnib for HRAS-mutant HNSCC is expected to require an approved companion diagnostic. Diagnostic development, validation, reimbursement and patient screening remain material execution risks.
- Clinical trials face risks involving enrollment of small biomarker-defined populations, safety, efficacy, protocol changes, regulatory review, manufacturing and third-party contractors.
- Kura has no commercial manufacturing, sales or distribution infrastructure and relies on third parties for clinical and potential commercial manufacturing.
- The company expects to require additional capital. Future equity financing could dilute shareholders; debt financing could impose additional restrictions.
- Unusual 2018 items included a $0.5 million loss on extinguishment of debt and $2.4 million of increased interest income compared with 2017.
- No material legal proceedings were reported. Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2018.
Investor verification checklist
- Verify current cash runway, quarterly cash burn and whether additional equity or debt financing has occurred after the filing date.
- Track AIM-HN enrollment, independent-review response rates, safety, durability and the status of the required companion diagnostic.
- Assess whether CXCL12 biomarkers are prospectively validated in PTCL, CMML, AML or other indications.
- Review the timing and results of KO-947 and KO-539 clinical trials and any changes to development priorities.
- Review term-loan covenants, collateral, maturity obligations, final payment and availability of the remaining $12.5 million.
- Evaluate patent life and enforceability for tipifarnib, particularly because composition-of-matter protection has expired and the company relies substantially on method-of-use patents and regulatory exclusivity.
- Consider dilution from outstanding options, warrants, equity plans and future capital raises.