Curis, Inc. — Q3 2012 Form 10-Q
Business context and reporting period. Curis is a clinical-stage cancer drug discovery and development company. This unaudited filing covers the quarter and nine months ended September 30, 2012. Erivedge, developed and commercialized by Genentech/Roche, received U.S. FDA approval in January 2012; Curis’s other principal programs remain in development.
Financial results and liquidity
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Total revenue | $578,000 | $147,000 | $15.286 million | $674,000 |
| Operating loss | $4.961 million | $4.816 million | $5.187 million | $14.768 million |
| Net loss | $3.385 million | $4.207 million | $4.046 million | $15.921 million |
| Basic and diluted loss per share | $0.04 | $0.05 | $0.05 | $0.21 |
- Nine-month revenue included $14.0 million of Genentech license milestones: $10 million following U.S. approval of Erivedge and $4 million following Roche’s Australian marketing-registration filing. Erivedge royalties contributed approximately $970,000 in the nine-month period, including $446,000 in Q3.
- Nine-month research and development expense was $12.785 million, up 38%; general and administrative expense was $7.540 million, up 22%. Q3 R&D was essentially unchanged at $3.042 million; Q3 G&A rose 29% to $2.474 million.
- Operating cash use for the nine months was $1.479 million, versus $13.251 million in 2011. Investing activities used $11.265 million, while financing activities provided $5.434 million. Cash and cash equivalents declined $7.310 million to $7.809 million.
- At September 30, cash, cash equivalents, and investments totaled approximately $41.887 million, excluding $194,000 of restricted investment. Current assets were $42.182 million and current liabilities $3.982 million. Curis reported no debt; liabilities included a $2.691 million warrant liability.
- Accumulated deficit was $736.133 million. No meaningful operating-profit margin is evident: Curis recorded operating losses in both periods despite the milestone-driven revenue increase. Royalty revenue was subject to $148,000 of related costs for the nine months.
Material changes and developments
- Revenue increased sharply year over year for the first nine months, primarily because of the Erivedge milestones and initial royalties; Q3 revenue growth came from royalties, as no Q3 license fees were reported.
- Nine-month net loss narrowed substantially, reflecting the milestone revenue and $1.054 million of noncash warrant fair-value income, partly offset by higher R&D and G&A. The warrant remeasurement produced $1.542 million of other income in Q3 2012. These gains are non-operating and do not represent product operating profitability.
- R&D spending increased on CUDC-907 and CUDC-101. Curis filed an IND for CUDC-907 in October 2012; the filing says this earned $750,000 from the Leukemia & Lymphoma Society, payable in Q4. Curis had initiated a Phase I trial of oral CUDC-101 in September and continued a Phase I combination trial in head and neck cancer.
- Roche’s Erivedge application was under review in Europe and Australia, with other submissions also reported. Roche anticipated potential European approval in Q4 2012 or H1 2013. Curis would be eligible for further milestones if approvals are achieved.
Outlook, risks, and unusual items
- Management expected existing capital resources at September 30, 2012 to fund current and planned operations into the first half of 2014. Curis expected continued operating losses and said additional funding would be required; it may need to raise capital, secure collaborations, or reduce or delay development spending.
- Cash runway and future revenue depend substantially on Genentech/Roche’s Erivedge commercialization, sales and regulatory approvals, and on uncertain milestone and royalty receipts. Curis had no current research-funding revenue under its Genentech or Debiopharm collaborations.
- Key risks include clinical-trial and regulatory failure or delay, reliance on collaborators and third-party manufacturers, competition, uncertain financing availability and potential dilution, intellectual-property challenges, and market acceptance and reimbursement risks.
- Curis recorded $2.114 million in nine-month R&D expenses tied to Genentech milestone obligations to university licensors, including $964,000 fair value for 200,000 shares issued to licensors. A related-party agreement granted an exclusive, royalty-free regional license for CU-906 and CU-908 to a company founded and owned by Curis’s former senior vice president; Curis reported no expenses under the agreement through September 30.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level and no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- Whether Erivedge sales, royalty receipts, and approvals outside the U.S. develop sufficiently to support Curis’s projected runway.
- Whether the expected $750,000 LLS payment was received in Q4 2012 and whether CUDC-907 and CUDC-101 progress clinically as planned.
- Current cash burn, investment liquidity, and financing needs relative to management’s H1 2014 runway estimate; the estimate is conditional and may change.
- The sensitivity of reported earnings to the Level 3 warrant valuation and the extent to which future results depend on nonrecurring milestones or noncash gains.
- The terms, governance, and potential conflicts associated with the related-party CU-906/CU-908 license, and Curis’s future obligations to university licensors.