Kura Oncology, Inc. — Q1 2018 Form 10-Q Summary
Business context and reporting period
Kura Oncology is a clinical-stage biopharmaceutical company developing precision oncology medicines for genetically defined cancers. The filing covers the three months ended March 31, 2018, and was filed May 8, 2018. The company had no approved products and no product sales revenue.
- Lead program: Tipifarnib, an oral farnesyl transferase inhibitor, was being evaluated in multiple solid-tumor and hematologic indications.
- Other programs: KO-947 was in a Phase 1 trial, while KO-539 remained in preclinical development.
- Shares outstanding: 33.4 million as of May 4, 2018.
Financial condition and operating results
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Product revenue | $0 | $0 | No change |
| Research and development expense | $11.6 million | $5.5 million | +$6.1 million |
| General and administrative expense | $3.4 million | $2.1 million | +$1.3 million |
| Total operating expenses | $15.0 million | $7.7 million | +$7.3 million |
| Other income, net | $0.4 million | $0.1 million | +$0.3 million |
| Net loss | $14.6 million | $7.5 million | +$7.1 million loss |
| Basic and diluted loss per share | $0.46 | $0.39 | Higher loss per share |
| Net cash used in operating activities | $12.9 million | $8.6 million | +$4.2 million use |
Operating margins and revenue-based profitability metrics are not meaningful because the company generated no product revenue and remained loss-making. Share-based compensation expense was $2.2 million, compared with $0.9 million in the prior-year quarter.
- Cash, cash equivalents and short-term investments: $138.2 million at March 31, 2018, consisting of $26.5 million of cash and cash equivalents and $111.7 million of short-term investments.
- Total assets: $141.5 million; total liabilities: $16.7 million; accumulated deficit: $103.9 million.
- Debt: The company had a $7.5 million term loan. Net debt reported on the balance sheet was approximately $7.2 million, including current and long-term portions.
- Liquidity: Management stated that existing cash, cash equivalents and short-term investments were expected to fund current operations into the first half of 2020, although additional financing could be required earlier for expanded development activities.
Material changes versus the prior comparable period
- Research and development expense more than doubled, primarily because of increased tipifarnib clinical development, companion-diagnostic activities and manufacturing costs. Tipifarnib-related external research and development expense rose to $7.1 million from $2.3 million.
- General and administrative expense increased due to higher share-based compensation, personnel costs and patent-related costs.
- Net loss increased to $14.6 million from $7.5 million, and operating cash burn increased to $12.9 million from $8.6 million.
- In January 2018, the company sold 3.1 million common shares through its at-the-market facility for approximately $57.7 million in net proceeds.
- In March 2018, the ATM facility was expanded from a maximum aggregate offering price of $100 million to $160 million. Approximately $100.7 million remained available as of May 4, 2018.
- Cash and investments increased substantially from approximately $93.1 million at December 31, 2017 to $138.2 million at March 31, 2018, primarily reflecting the equity financing.
Guidance, outlook, commentary and risks
- Following positive Phase 2 data in HRAS-mutant head and neck squamous cell carcinoma, management planned to initiate the global, registration-directed AIM-HN Phase 2 trial in the second half of 2018 and conduct the SEQ-HN screening and outcomes study.
- The ongoing RUN-HN study had produced five confirmed partial responses among the first six evaluable patients reported by management, but the filing cautions that investigator-assessed results may not be replicated in AIM-HN, particularly after independent radiology review.
- Management expected research and development and general and administrative expenses to increase as clinical development and supporting activities expand.
- The company expects continuing significant losses and does not know when, or whether, it will generate product revenue.
- Key risks include clinical-trial delays or failure, slow enrollment of biomarker-selected patients, inability to validate or obtain approval for companion diagnostics, regulatory rejection, adverse safety findings, manufacturing or third-party contractor problems, intellectual-property challenges, and the need for additional capital.
- The term loan requires interest-only payments through May 1, 2018, followed by 30 monthly principal-and-interest payments beginning June 1, 2018. The loan is secured by substantially all assets other than intellectual property and contains restrictive covenants.
- Related-party transactions included management fee income and research and development services involving Araxes Pharma and Wellspring Biosciences, entities associated with the chief executive officer.
- No material legal proceedings or off-balance-sheet arrangements were reported. Management concluded that disclosure controls and procedures were effective as of March 31, 2018.
Important facts for investors to verify
- Whether AIM-HN and other planned trials began on schedule and met enrollment, efficacy and safety objectives.
- Whether tipifarnib’s clinical activity is confirmed using independent radiology review and supports an FDA filing or accelerated approval pathway.
- The status, validation and regulatory approval path of the required HRAS companion diagnostic.
- The pace of cash burn relative to the stated first-half-2020 liquidity runway and any additional equity or debt financing.
- Compliance with term-loan covenants and the effect of principal repayments beginning in June 2018.
- Potential dilution from the remaining ATM capacity, stock options, warrants and other equity awards.
- Intellectual-property protection for tipifarnib, including reliance on method-of-use patents after expiration of composition-of-matter patents.