Curis, Inc. — Q3 2017 Form 10-Q
Business context and reporting period. Curis is a clinical-stage oncology biotechnology company. This unaudited quarterly report covers the three and nine months ended September 30, 2017; comparisons are with the same 2016 periods. Erivedge, commercialized by Roche and Genentech, was the source of substantially all reported revenue. Curis reported no revenue from its own product sales.
Key financial metrics
| Metric | Q3 2017 | Nine months 2017 |
|---|---|---|
| Total revenue | $2.44 million | $6.64 million |
| Operating loss | $14.47 million | $42.63 million |
| Net loss | $15.46 million | $45.29 million |
| Net loss per share, basic and diluted | $0.11 | $0.31 |
| Cash used in operating activities | — | $40.85 million |
- Q3 royalties were $2.41 million, versus $1.82 million a year earlier; nine-month royalties were $6.71 million, versus $5.40 million. Research and development revenue, net, was small and negative for the nine-month period.
- Research and development expense was $13.38 million in Q3 and $38.18 million for nine months. General and administrative expense was $3.41 million and $10.76 million, respectively.
- At September 30, cash and cash equivalents were $49.84 million and investments were $19.39 million. Management said these funds were expected to support planned operations into the first half of 2019; additional capital or debt would be needed thereafter. The filing also describes the funds as sufficient for at least 12 months from filing.
- Debt was $42.87 million net on the balance sheet, including $5.12 million current and $37.76 million long-term. The company reported $43.2 million of outstanding principal and interest, gross of issuance costs. The 9.95% HealthCare Royalty loan is repaid from Erivedge royalties.
- Stockholders’ equity was $30.45 million; accumulated deficit was $944.24 million. Common shares outstanding were 163.98 million at November 1, 2017.
Material changes versus the prior comparable period
- Q3 revenue rose 39% and nine-month revenue rose 28%, primarily due to higher Erivedge royalties.
- Research and development expense increased 97% in Q3 and 70% for nine months, driven by Aurigene exclusivity payments and higher clinical-trial, manufacturing, consulting and personnel costs.
- Net loss narrowed to $15.46 million in Q3 from $28.35 million in Q3 2016, and to $45.29 million for nine months from $49.08 million. The prior-year periods included $17.99 million of in-process research and development expense tied to the Aurigene amendment; excluding that unusual comparison item, the loss trend is less favorable than the headline comparison suggests.
- Operating cash use increased to $40.85 million from $26.42 million for the first nine months, in part because 2016 operating cash flow included a noncash stock issuance valued at $17.99 million.
- Curis refinanced its prior royalty-backed loan in March 2017 with a $45 million HealthCare Royalty loan at a lower stated interest rate (9.95% versus 12.25%), repaid the prior lender, and received residual proceeds. The company also raised net proceeds through a September public offering and ATM sales; nine-month net financing proceeds from equity offerings were $41.81 million.
Outlook, commentary and risks
- Pipeline plans: CUDC-907 was in Phase 2 for DLBCL and Phase 1 for MYC-involved solid tumors; management was evaluating interim Phase 2 data to determine its development path. CA-170 was in Phase 1. Curis filed an IND for CA-4948 in Q3 and expected Phase 1 enrollment in Q4 2017. It expected to file a CA-327 IND in the first half of 2018.
- Management planned to focus near-term resources on CUDC-907, CA-170, CA-4948 and CA-327. The filing provides program timing expectations, but no financial earnings or revenue guidance.
- Erivedge royalties are pledged to the HealthCare Royalty loan and, management said, are expected to go toward debt service for the foreseeable future. Repayment timing depends on royalty levels; unpaid interest can be added to principal. Competing product Odomzo has reduced Curis’s U.S. royalty rate and could pressure sales and royalties further.
- Key risks include continued operating losses, uncertain clinical and regulatory outcomes, dependence on Aurigene and Roche/Genentech, reliance on external financing, potential dilution, and the possibility that royalty shortfalls or credit-agreement defaults could impair the royalty stream. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
- After quarter-end, Curis extended its Lexington office and laboratory lease for two years through February 2020, with approximately $2.0 million in base rent plus operating costs and taxes.
Most important facts for investors to verify
- Whether the interim CUDC-907 data support continued development, and whether planned CA-4948 and CA-327 milestones were achieved on schedule.
- Actual cash burn and financing needs against management’s first-half-2019 runway estimate, including potential equity dilution or additional borrowing.
- Erivedge sales, royalty receipts, applicable royalty rates and the resulting pace of HealthCare Royalty debt repayment.
- Clinical-trial spending, Aurigene fees and milestones, and the company’s ability to fund its stated pipeline priorities.
- Whether subsequent filings update debt terms, liquidity, lease obligations or any material clinical, regulatory or collaboration developments.