Curis, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Curis is a clinical-stage biotechnology company developing cancer therapeutics. Its only reported revenue source was its Genentech collaboration, principally royalties on Erivedge sales.
Financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $2.856m | $2.847m | $6.717m | $7.673m |
| Research and development | $5.147m | $4.983m | $14.840m | $19.700m |
| General and administrative | $2.887m | $4.127m | $8.557m | $11.741m |
| Operating loss | $5.323m | $6.417m | $17.022m | $24.185m |
| Net loss | $6.436m | $7.223m | $23.533m | $26.634m |
| Net loss per share | $0.19 | $0.22 | $0.71 | $0.80 |
| Operating cash used | Not provided for quarter | Not provided for quarter | $20.606m | $25.125m |
Balance sheet at September 30, 2019: Cash and cash equivalents were $21.357m and investments were $6.652m, totaling approximately $28.0m of cash, cash equivalents and investments (excluding restricted investments). Current assets were $32.683m and current liabilities were $4.718m. Total liabilities were $68.262m, including a $63.544m liability related to the sale of future royalties; stockholders’ deficit was $26.018m.
Cash flows and debt: Investing activities used $6.005m and financing activities provided $24.332m in the first nine months. Curis received $65.0m under its March 2019 royalty purchase agreement and used proceeds to repay its HealthCare Royalty debt in full. The agreement’s royalty liability is accounted for using the interest method; Curis recorded $2.721m of imputed interest expense through September 30. No conventional debt remained on the balance sheet at quarter-end.
Changes versus the prior comparable period
- Q3 revenue was essentially flat year over year; nine-month revenue declined 12%, primarily due to Erivedge royalty reductions associated with competition and reductions in additional markets.
- Nine-month R&D expense fell 25%, mainly reflecting lower employee-related costs, while direct R&D costs were broadly stable. Q3 R&D increased 3%, including higher CA-4948 clinical activity.
- Nine-month G&A expense fell 27%, principally due to lower legal, consulting, personnel and stock-based compensation costs.
- Nine-month net loss improved 12%, but included a $3.495m loss on extinguishment of debt and $2.721m of imputed interest on the royalty transaction. Debt interest expense was lower following repayment.
- Cash and investments rose from $24.270m at December 31, 2018 to approximately $28.0m at September 30, 2019, largely reflecting the royalty transaction, despite continued operating cash use.
Outlook, risks and unusual items
- Going concern and financing: Management expected existing cash and investments to support planned operations into the second half of 2020, but concluded available funds were insufficient to support current operations for the 12 months after filing. The filing states that these conditions raise substantial doubt about Curis’s ability to continue as a going concern. Potential funding sources included its Cowen at-the-market facility and other financing; Curis reported no sales under the facility in the first nine months of 2019.
- Pipeline plans: Curis expected initial data from the fimepinostat/venetoclax Phase 1 combination study and further CA-4948 clinical data in Q4 2019. It planned to announce initial CA-170 mesothelioma data at a November 2019 conference; based on that data, it said no further patients would be enrolled in that study and future CA-170 studies were under evaluation.
- Royalty transaction exposure: Oberland acquired rights to a portion of Erivedge royalties for $65.0m upfront, with up to approximately $70.7m in contingent milestone payments. The agreement includes security interests and, following specified defaults, potential acceleration and a purchaser repurchase right at a price above the upfront amount. Future royalty estimates and resulting imputed interest depend on forecasts.
- Business risks: Curis expects continued losses and cash outflows, depends on Erivedge royalties and third-party collaborators, and faces clinical, regulatory, financing and competitive risks. Sonidegib has already reduced Curis’s Erivedge royalty rate in the U.S.; further reductions may apply in other markets.
- Management reported effective disclosure controls as of September 30, 2019. The filing also revised a prior-quarter cash-flow presentation: operating cash used and financing cash provided for Q1 2019 were each reduced by $3.4m; management said the error was not material to the prior-period financial statements.
Important facts for investors to verify
- Whether Curis secured sufficient financing to address the disclosed 12-month funding shortfall and substantial going-concern doubt.
- Actual clinical results and subsequent development decisions for fimepinostat, CA-4948 and CA-170, including the CA-170 study’s enrollment status.
- Erivedge sales, royalty-rate reductions and the amount of royalties retained by Curis after the Oberland transaction.
- The assumptions underlying the $63.544m royalty liability, future imputed interest and contingent milestone eligibility, as well as any defaults or changes in the agreement.
- Potential dilution and remaining availability under the Cowen ATM and other equity financing arrangements.