Cue Biopharma, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Cue is a clinical-stage biotechnology company developing its Immuno-STAT platform. It had no product-sale revenue; reported revenue came from collaborations. Financial amounts below are in U.S. dollars unless stated otherwise.
Key financial metrics
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Collaboration revenue | $1.055 million | $0.172 million | $1.425 million | $0.363 million |
| Operating expenses | $10.286 million | $7.644 million | $22.084 million | $15.342 million |
| Net loss | $9.522 million | $7.300 million | $20.791 million | $14.808 million |
| Loss per share, basic and diluted | $0.46 | $0.36 | $1.00 | $0.74 |
- Cash and liquidity: At June 30, cash and cash equivalents were $24.261 million and short-term marketable securities were $3.995 million, totaling $28.256 million. Restricted cash was an additional $0.200 million. Management said available cash, cash equivalents and marketable securities should fund operations for at least 12 months from issuance of the financial statements.
- Cash flow: The financial statements report $15.151 million used in operating activities in the first half of 2019, $14.608 million provided by investing activities, and $4.004 million provided by financing activities. Ending cash, cash equivalents and restricted cash was $24.461 million.
- Balance sheet: Total assets were $41.756 million; total liabilities $21.475 million; and stockholders’ equity $20.281 million. There was no borrowing debt reported. Operating lease liabilities totaled $7.823 million, including $4.036 million current; future minimum lease payments were $8.292 million before a $0.469 million present-value discount.
- Margins: The filing does not provide a meaningful product gross margin; revenue was collaboration-based and operating losses continued.
Material changes versus the prior comparable period
- First-half collaboration revenue rose to $1.425 million from $0.363 million, while operating expenses increased to $22.084 million from $15.342 million. The first-half net loss widened to $20.791 million from $14.808 million.
- Research and development expense increased to $15.220 million from $11.409 million for the first half; general and administrative expense rose to $6.864 million from $3.933 million. Management attributed increases primarily to company growth and expanded activities and expected both expense categories to rise as development and operations expand.
- Cash and marketable securities totaled $28.256 million at June 30, down from $39.213 million at December 31, 2018. Cash and cash equivalents increased, while short-term investments declined, including through $14.5 million of investment redemptions.
- In June 2019, Cue began a $30 million at-the-market equity program. It sold 524,074 shares for approximately $3.7 million net through June 30; by the report’s issuance date it had sold 1,790,615 shares for approximately $13.2 million net, excluding estimated transaction expenses.
- Adoption of lease accounting standard ASC 842 in January 2019 added right-of-use assets and lease liabilities to the balance sheet; prior periods were not adjusted, limiting balance-sheet comparability.
Outlook, management commentary and risks
- The FDA accepted the investigational new drug application for lead candidate CUE-101 in May 2019. Management planned to initiate clinical trials in the third quarter of 2019.
- LG Chem paid a $2.5 million milestone in May following FDA acceptance of the CUE-101 IND. Cue reported the payment as a contract liability pending performance of its obligations; approximately $413,000 was recognized as income tax expense. LG Chem collaboration revenue was approximately $725,000 in Q2 and the first half of 2019. Merck collaboration revenue was approximately $330,000 in Q2 and $700,000 in the first half.
- LG Chem’s agreement includes potential additional research, development, regulatory and sales milestones of up to $400 million, plus tiered royalties; these are contingent and not assured revenue. The Merck agreement also provides for contingent milestones and royalties.
- Cue expects to require additional capital until it can generate sustainable revenue and positive operating cash flow. Management cited equity or debt financing and collaboration arrangements as possible sources, with no assurance financing will be available on acceptable terms. Equity issuance may dilute shareholders.
- Key risks include clinical and regulatory uncertainty, possible delays or unfavorable trial results and safety issues, reliance on collaborators and licensors, and the need to raise capital. The filing reported no material change to previously disclosed risk factors, no material legal proceedings, and effective disclosure controls as of June 30, 2019.
Important facts for investors to verify
- Cash-flow discrepancy: The cash-flow statement reports first-half operating cash use of $15.151 million and a $3.461 million increase in cash, cash equivalents and restricted cash. The MD&A cash-flow table instead reports $15.001 million used and a $3.611 million increase. Reconcile these figures against the filing’s underlying statements.
- Confirm subsequent ATM sales and share-count dilution: the filing reports approximately $13.2 million net proceeds through issuance, versus $3.7 million through June 30.
- Track whether CUE-101 trials began as planned and any resulting clinical, safety or regulatory disclosures.
- Assess the pace of operating cash use, collaboration-related contract liabilities and lease obligations against management’s stated 12-month runway.
- Distinguish contingent collaboration milestones and royalties from recognized revenue and cash already received.