Curis, Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Curis is a clinical-stage biotechnology company developing cancer therapies. Its only marketed-product royalty stream is from Erivedge, commercialized by Genentech and Roche. Financial statement amounts below are in millions unless stated otherwise.
Financial performance and position
- Q3 revenue: $2.85 million, up 16% from $2.44 million in Q3 2017. Royalties were $2.78 million; substantially all revenue came from the Genentech collaboration.
- Q3 net loss: $7.22 million, or $0.22 per share, compared with $15.46 million, or $0.53 per share, a year earlier. Operating loss was $6.42 million.
- Nine-month results: Revenue was $7.67 million versus $6.64 million; net loss was $26.63 million versus $45.29 million. Loss per share was $0.80 versus $1.57.
- Expenses: Q3 R&D was $4.98 million, down 63% year over year; nine-month R&D was $19.70 million, down 48%. Q3 G&A rose 21% to $4.13 million; nine-month G&A rose 9% to $11.74 million. The filing attributes much of the R&D decline to lower clinical/manufacturing costs and the absence of 2017 Aurigene exclusivity-option payments.
- Cash flow: Net cash used in operations was $25.13 million for the first nine months, versus $40.85 million in 2017. Investing activities provided $16.72 million, primarily from net investment maturities; financing activities used $4.32 million, mainly for debt principal payments. Cash and cash equivalents declined $12.73 million to $25.56 million.
- Liquidity: Cash, cash equivalents and investments totaled $30.83 million at September 30, down from $60.23 million at December 31, 2017. Current assets were $34.82 million and current liabilities $13.23 million. Accumulated deficit was $978.9 million; stockholders’ equity was $0.78 million, compared with $23.99 million at year-end 2017.
- Debt: Balance-sheet debt, net, totaled $37.15 million ($6.93 million current and $30.22 million long term); gross debt and accrued interest were reported as $37.5 million. The 9.95% HealthCare Royalty loan is repaid from Erivedge royalties, which Curis expects will service the loan for the foreseeable future.
Material changes and developments
- Erivedge royalties increased 15% in Q3 and 14% for the first nine months year over year, reflecting higher reported sales by Genentech and Roche. However, royalties are pledged to debt service and are not currently a meaningful source of available operating cash.
- Curis reduced or reallocated spending from preclinical work toward clinical development. Management estimated this would reduce quarterly cash burn from approximately $11 million to $8 million; this is an expectation, not reported actual quarterly cash burn.
- Curis chose not to extend broad immuno-oncology exclusivity with Aurigene, avoiding a $10 million 2018 payment. It retained program-specific exclusivity options for the IRAK4 and PD1/VISTA programs.
- A 1-for-5 reverse stock split became effective May 29, 2018. The filing restates share and per-share data accordingly. Shares outstanding were 33,113,146 as of October 26, 2018.
Outlook, risks and unusual items
- Cash runway and financing: Management expected available cash and investments at September 30 to support planned operations into Q3 2019. If additional financing is unavailable, spending reductions or delays—including to R&D and clinical trials—were expected to extend operations into Q1 2020. The company cautioned that financing may not be available on acceptable terms and that programs could be delayed, reduced or eliminated.
- Clinical plans: Curis planned a fimepinostat/venetoclax combination study in double-hit lymphoma to begin enrolling in the first half of 2019, with initial data expected in the second half of 2019. Initial CA-4948 data were expected around mid-2019. Mesothelioma enrollment in the CA-170 study was planned for the first half of 2019, with initial data expected in the second half of 2019. These are forward-looking plans and timelines.
- Key risks: Drug candidates remain early-stage and may fail to show safety or efficacy; clinical timelines, enrollment and costs are uncertain. Curis depends on Aurigene for discovery/preclinical work and Genentech/Roche for Erivedge commercialization. Competing product Odomzo has reduced the applicable U.S. Erivedge royalty rate, and competition or weaker sales could further reduce royalties and impair debt repayment.
- Other notable items: Curis recognized $0.3 million of expense related to the former Chief Medical Officer’s advisory agreement following his retirement. The filing reported no off-balance-sheet arrangements and management concluded disclosure controls were effective.
Investor verification points
- Confirm actual cash burn, financing progress and updated runway against the Q1 2020 contingency plan.
- Track clinical enrollment, safety and data timing for fimepinostat, CA-4948 and CA-170; compare reported progress with the stated 2019 milestones.
- Review Erivedge sales and royalty rates, the effect of Odomzo competition, and the HealthCare Royalty loan balance and repayment assumptions.
- Assess whether the announced shift to clinical programs and lower targeted quarterly cash burn is being achieved without material trial delays.
- Monitor the company’s very limited reported stockholders’ equity, potential dilution from equity financing, and any changes in debt classification or liquidity.