Cue Biopharma, Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. Cue is a preclinical biopharmaceutical company developing Immuno-STAT biologics for cancer and autoimmune diseases. It had no commercially approved products and was dependent on external capital and collaboration funding.
Financial performance and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Collaboration revenue | $0.172m | — | $0.363m | — |
| Research and development expense | $5.414m | $3.417m | $11.409m | $5.879m |
| General and administrative expense | $2.230m | $0.996m | $3.933m | $1.884m |
| Total operating expenses | $7.644m | $4.413m | $15.342m | $7.763m |
| Operating loss | $(7.472)m | $(4.413)m | $(14.979)m | $(7.763)m |
| Net loss | $(7.300)m | $(4.413)m | $(14.808)m | $(7.763)m |
| Basic and diluted loss per share | $(0.36) | $(0.41) | $(0.74) | $(0.73) |
Amounts are in U.S. dollars; financial statement figures are unaudited. The company reported no meaningful gross-margin measure. Interest income was $0.170m in Q2 and in the six-month period, compared with none in 2017.
- Cash and liquidity: Cash and cash equivalents were $45.736m at June 30, 2018, down from $63.534m at December 31, 2017. Cash, cash equivalents and restricted cash totaled $45.936m. Management said existing cash was expected to fund operations for at least 12 months from issuance of the filing.
- Cash flow: Six-month operating cash use was $16.215m, versus $6.620m in 2017; investing cash use was $1.433m versus $0.978m. Cash and restricted cash decreased by $17.648m. Investing outflows mainly funded laboratory and office equipment.
- Balance sheet: Total assets were $53.114m; liabilities were $3.882m and stockholders’ equity was $49.232m. The filing does not disclose interest-bearing debt. Operating lease commitments totaled $10.218m, including $1.517m due within one year.
Changes, outlook and risks
- Compared with the first half of 2017, revenue began to be recognized under the Merck collaboration, while operating expenses nearly doubled, led by higher R&D spending and company growth. The six-month net loss increased to $14.808m from $7.763m.
- Merck paid a nonrefundable $2.5m upfront fee under its autoimmune research collaboration. Cue may qualify for up to $101m in research and development milestones, $120m in regulatory milestones and $150m in commercial milestones, plus tiered royalties; these amounts are contingent and not assured. The first $2.7m of milestone payments must fund contract research. Merck may terminate on 30 days’ notice.
- On July 12, 2018, after quarter-end, Cue announced generation of the first product candidate under the Merck program. The related autoimmune-research forbearance period runs no later than December 14, 2019; additional restrictions apply to indications being developed by Merck.
- Cue expected R&D and G&A costs to rise as development and operations expand. It estimated an additional $3.2m of Catalent costs during 2018 for CUE-101 development and manufacturing work supporting preparation of a U.S. IND and potential Phase 1 trial.
- Management said future operations would require additional capital through equity, debt, collaborations or licensing. Failure to obtain adequate financing could require reduced or discontinued operations; equity financing could dilute shareholders. Product development, clinical and regulatory outcomes, intellectual property, competition, and reliance on partners are key risks.
- No material legal proceedings were reported. Management reported disclosure controls were effective as of June 30, 2018, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Reconcile collaboration revenue: the financial statements and Note 7 report $0.172m for Q2 and $0.363m for the first half, while a later MD&A passage states $0.596m for the six-month period. The filing text does not explain this inconsistency.
- Assess the company’s cash runway against its $16.215m first-half operating cash use, expected spending increases, and management’s 12-month runway statement.
- Track CUE-101 IND-enabling work, anticipated Catalent spending, and subsequent clinical and regulatory progress.
- Evaluate the contingent nature of Merck milestone and royalty economics, the collaboration’s termination rights, and restrictions on Cue’s autoimmune programs.
- Consider the $10.218m lease commitment and potential future financing needs and dilution.