Curis, Inc. — Q2 2015 Form 10-Q
Business context and reporting period. Curis is a clinical-stage biotechnology company focused on cancer therapeutics. This unaudited report covers the quarter and six months ended June 30, 2015. Its lead proprietary candidate, CUDC-907, was in Phase 1 studies; Erivedge, commercialized by Roche and Genentech, was Curis’s principal source of revenue.
Financial performance and liquidity
| Metric | Three months ended June 30, 2015 | Six months ended June 30, 2015 | Comparable 2014 period |
|---|---|---|---|
| Total revenue | $2.08 million | $3.74 million | $4.80 million / $6.09 million |
| Operating loss | $7.37 million | $38.39 million | $1.54 million / $6.30 million |
| Net loss | $8.13 million | $39.98 million | $1.90 million / $7.46 million |
| Net loss per share | $0.06 | $0.34 | $0.02 / $0.09 |
| Net cash used in operations | Not separately provided | $14.55 million | $10.04 million |
- Revenue was predominantly Erivedge royalties: $2.03 million for Q2 and $3.70 million for the first half. No license-fee revenue was recorded in 2015.
- Research and development expense was $5.94 million in Q2 and $10.66 million for the first half. General and administrative expense was $3.41 million and $6.94 million, respectively. The filing does not present a meaningful product operating margin; Curis reported operating losses.
- First-half loss included a $24.35 million in-process R&D charge related to the Aurigene collaboration, substantially reflecting the value of shares issued as consideration. This was a major driver of the year-over-year increase in reported loss.
- At June 30, cash and cash equivalents were $31.49 million and investments were $67.70 million, or approximately $99.19 million combined, excluding $0.15 million of restricted investments. Management said these resources were expected to fund current and planned operations into 2017.
- Long-term debt was reported at $21.79 million and current debt at $4.85 million, net of issuance costs; accrued interest was $0.29 million. Curis Royalty’s loan bears 12.25% interest and is intended to be repaid from Erivedge royalties. Curis estimated repayment in 2019, but the timing depends on royalty receipts.
- First-half financing cash flow was $63.14 million, mainly from $64.62 million net proceeds from a public stock offering; investing activities used $24.85 million. First-half net cash increased $23.74 million.
Material changes versus prior comparable periods
- Revenue fell 57% in Q2 and 39% in the first half, principally because the 2014 periods included a $3.0 million Genentech milestone payment for an Erivedge idiopathic pulmonary fibrosis IND filing. Erivedge royalties increased 12% in Q2 and 19% in the first half year over year.
- R&D expense rose 78% in Q2 and 65% in the first half, reflecting increased CUDC-907 development and Aurigene preclinical program costs, including a $2.0 million payment for selecting a third program. G&A expense increased 17% in Q2 and 21% in the first half, in part due to legal, professional and stock-based compensation costs.
- Curis issued 25.09 million shares in its March public offering and 17.12 million shares to Aurigene under the collaboration. Shares outstanding at June 30 were 128.39 million, compared with 86.03 million at December 31, 2014.
Outlook, management commentary, risks and unusual items
- Management prioritized CUDC-907 and Aurigene programs, and did not expect to initiate new Curis-funded clinical trials for CUDC-427 or CUDC-305; it was seeking partners for those candidates.
- Curis expected to exercise options for at least two Aurigene programs and anticipated IND filings in late 2015 or early 2016. The collaboration entails option, research, milestone and potential royalty payments; future obligations depend on program progress and licensing decisions.
- Interim CUDC-907 Phase 1 data included two complete and four partial responses among 10 response-evaluable patients with relapsed/refractory DLBCL, and one partial response among 12 response-evaluable Hodgkin lymphoma patients. Four dose-limiting toxicities were reported. These are early, limited clinical data and do not establish efficacy.
- Odomzo (sonidegib), a competing Hedgehog pathway inhibitor, received a positive EU committee opinion in June 2015 and U.S. FDA approval in July 2015. Curis was evaluating whether competition could reduce its Erivedge royalty rate; lower royalties could also extend loan repayment. Erivedge royalties were generally being applied to the subsidiary’s loan obligations.
- After quarter-end, Curis amended its LLS agreement: LLS would provide advisory services but no longer owe further CUDC-907 development milestone funding; Curis agreed to make up to $1.65 million in future payments tied to specified objectives. Also after quarter-end, Curis entered into a Cowen at-the-market sales agreement allowing up to $30 million of stock sales; sales are optional and would dilute shareholders if made.
- Key risks include continued operating losses and dependence on future financing or collaboration payments; clinical, regulatory and enrollment uncertainty; reliance on Roche/Genentech and Aurigene; potential competition affecting Erivedge royalties; and dilution or restrictive terms from future capital raising. Curis reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether cash, investments, operating costs and potential Aurigene milestones remain consistent with management’s stated runway into 2017.
- Progress, safety and efficacy in CUDC-907 trials, and whether anticipated Aurigene option exercises and IND filings occur on schedule and within expected costs.
- Erivedge sales, royalty receipts, the effect of Odomzo on royalty rates, and the resulting repayment schedule for the 12.25% loan.
- Any use of the $30 million ATM facility, further share issuance, and the resulting dilution.
- Terms and conditions of future LLS payments and any new partnering or financing arrangements for CUDC-427, CUDC-305 or other programs.