Curis, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Curis is a clinical-stage biotechnology company developing cancer therapeutics. Its only reported revenue was from the Genentech collaboration and Erivedge royalties; it had no direct product sales.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $1.8 million | $2.5 million |
| Operating loss | $5.6 million | $9.9 million |
| Net loss | $9.9 million | $10.7 million |
| Net loss per share | $0.30 | $0.33 |
| Cash used in operating activities | $10.6 million | $10.0 million |
- Revenue included $2.1 million of Erivedge royalties, offset by $0.4 million of contra revenue, primarily reflecting a higher reserve for potential royalty reductions. Total revenue fell 28% year over year.
- Research and development expense declined 51% to $4.1 million, primarily due to lower clinical/manufacturing costs for fimepinostat and CA-170 and lower personnel and stock-based compensation costs. General and administrative expense declined 21% to $3.1 million.
- Other expense, net, was $4.3 million, including a $3.5 million loss on extinguishment of debt and $0.8 million of interest expense. The debt-extinguishment loss primarily reflected a prepayment fee.
- Cash and cash equivalents were $42.8 million at March 31, 2019; investments were $0.03 million and restricted investments were $0.15 million. The balance sheet reported total liabilities of $69.2 million and a stockholders’ deficit of $13.7 million.
- Curis received $65.0 million upfront from selling a portion of future Erivedge royalties to Oberland. It used proceeds to repay its HealthCare Royalty debt in full, including principal and accrued interest/prepayment fees; the transaction produced approximately $27.5 million in net proceeds after repayment and transaction costs. Curis recorded a $64.5 million net liability related to the royalty sale at quarter-end.
- Management stated that cash, cash equivalents and investments were expected to fund planned operations into the second half of 2020. The filing also says the funds were expected to cover at least the next twelve months from issuance of the financial statements. Curis expects ongoing losses and will need additional capital or debt to continue operations.
Material changes and operating developments
- Curis replaced its royalty-backed HealthCare Royalty loan with the Oberland royalty transaction. No long-term debt remained outstanding at March 31, 2019, but Curis committed a portion of future Erivedge royalties and recorded the associated liability.
- Erivedge royalty revenue declined year over year; the filing cites both the increased reserve for potential royalty reductions and competitive pressure from sonidegib. The royalty rate can also be reduced in certain markets under the collaboration terms.
- Curis adopted the new lease accounting standard on January 1, 2019, recognizing a $0.8 million right-of-use asset and a $0.9 million lease liability at March 31. The adoption did not significantly affect reported operating results.
- Common shares outstanding were 33,150,780 as of May 10, 2019. Curis reported no shares sold under its Cowen at-the-market program during Q1.
Outlook, management commentary and key risks
- Curis planned to begin enrollment in a fimepinostat/venetoclax combination study for double-hit lymphoma in the first half of 2019, with initial data expected in the second half of 2019. Initial CA-4948 clinical data were expected around mid-year 2019; initial CA-170 mesothelioma data were expected in the second half of 2019.
- Management anticipated increased R&D spending as clinical programs advance. Curis said its near-term success depended on clinical progress and favorable data, continued Erivedge commercialization by Genentech/Roche, and access to additional financing.
- Curis had an accumulated deficit of $994.7 million and expected operating losses to continue. Its principal financial risks include the need for further financing, dependence on Erivedge royalties and collaborators, clinical-trial and regulatory uncertainty, and competition.
- The Oberland agreement carries significant default provisions: a default could allow the purchasers to redirect royalty payments, accelerate obligations, require repurchase of purchased receivables at a contractually defined multiple, or enforce liens on Curis Royalty assets and Curis’s equity interest in that subsidiary.
- Other material risks include potential reductions in Erivedge royalties, unsuccessful or delayed trials, manufacturing and enrollment challenges, dependence on Aurigene and third-party contractors, and possible dilution or Nasdaq listing issues.
Important facts for investors to verify
- Whether the planned clinical-trial enrollment and data milestones occurred on schedule, and what the resulting data showed.
- How much Erivedge royalty revenue remains available to Curis after the Oberland transaction, including the effects of sales trends, royalty reductions and any milestone conditions.
- Whether the company’s cash runway and financing assumptions remain consistent with its operating plan and clinical-development costs.
- The terms, remaining capacity and potential dilution associated with future financing, including the Cowen at-the-market facility and equity awards.
- Any changes in the Oberland liability estimate, compliance with the agreement’s covenants, or events that could trigger default remedies.