Kura Oncology, Inc. — Q2 2019 Form 10-Q Summary
Business context and reporting period
Kura Oncology is a clinical-stage precision oncology company with no approved products or product sales. Its pipeline included tipifarnib, KO-947 and KO-539. The filing covers the quarter and six months ended June 30, 2019; financial statements are unaudited.
Financial condition and key metrics
| Metric | Three months ended June 30, 2019 | Six months ended June 30, 2019 | Comparable 2018 period |
|---|---|---|---|
| Product revenue | $0 | $0 | $0 |
| Research and development expense | $11.4 million | $21.8 million | $11.5 million and $23.0 million |
| General and administrative expense | $4.5 million | $9.0 million | $3.8 million and $7.2 million |
| Other income, net | $0.9 million | $2.0 million | $0.5 million and $0.9 million |
| Net loss | $14.9 million | $28.9 million | $14.7 million and $29.3 million |
| Basic and diluted loss per share | $0.38 | $0.75 | $0.45 and $0.91 |
| Net cash used in operating activities | Not separately provided | $28.7 million | $25.4 million |
Gross and operating margins are not meaningful because the company has no product revenue. The six-month net loss declined by $0.5 million year over year, while quarterly net loss increased by $0.2 million. At June 30, 2019, cash and cash equivalents were $122.1 million, short-term investments were $139.3 million, and total cash, cash equivalents and short-term investments were approximately $261.4 million.
Total assets were $265.7 million and stockholders’ equity was $246.6 million. Long-term debt was $7.5 million, with no principal repayment during the six months. The Silicon Valley Bank facility permits up to an additional $12.5 million of borrowings through May 1, 2020, subject to its terms. The company reported no off-balance-sheet arrangements.
Material changes versus the prior comparable period
- Quarterly research and development expense was essentially flat, down $0.04 million; six-month expense declined $1.2 million, primarily due to lower tipifarnib and KO-539 costs and lower share-based compensation, partly offset by higher personnel and KO-947 costs.
- General and administrative expense increased $0.7 million in the quarter and $1.8 million year to date, driven mainly by higher personnel and share-based compensation costs.
- Interest income increased $0.4 million in the quarter and $1.0 million year to date because of substantially higher cash and investment balances.
- Operating cash use increased $3.2 million year to date to $28.7 million, primarily due to payments of accounts payable and accrued expenses.
- Investing activities provided $24.7 million year to date, compared with $25.9 million used in 2018, reflecting higher maturities and sales of marketable securities.
- In June 2019, Kura sold 6.785 million shares at $17.00 per share and received approximately $108.1 million in net proceeds. Shares outstanding increased to 45.189 million at June 30, 2019 from 38.148 million at December 31, 2018.
- The company adopted the new lease accounting standard on January 1, 2019, recognizing approximately $0.6 million of operating lease assets and liabilities at adoption; the impact on earnings and cash flows was not material.
Guidance, outlook, commentary and risks
- Management stated that existing cash, cash equivalents and short-term investments were expected to fund operating expenses and capital requirements into the second half of 2021 based on current plans.
- Management expected research and development and general and administrative expenses to increase as clinical development expands.
- Additional data from the tipifarnib HRAS-mutant head and neck cancer trial and the CMML cohort were expected in the second half of 2019. The KO-947 Phase 1 dose-escalation portion was expected to be completed in the second half of 2019, and a KO-539 Phase 1 AML trial was expected to begin in that period.
- The company had not sold shares under its $75.0 million at-the-market facility as of the filing and stated that substantial additional financing would eventually be required.
- Key risks include continued losses, dependence on future equity or debt financing, dilution, debt covenants and security interests, clinical-trial enrollment and results, regulatory approval, companion-diagnostic development, third-party manufacturing and intellectual-property protection.
- Tipifarnib remains dependent on successful registration-directed trials and an approved companion diagnostic for HRAS-mutant head and neck cancer. The company cautioned that prior or interim clinical results may not predict later results.
- The company had 47 full-time and four part-time employees, no approved products, no product revenue and no assurance that it will achieve profitability.
Important facts for investors to verify
- Progress, enrollment, efficacy and safety results for AIM-HN, SEQ-HN and other tipifarnib studies.
- Regulatory status and timing for the KO-539 and KO-947 programs and related clinical milestones.
- Cash burn, investment balances and whether the stated runway into the second half of 2021 remains valid as trial spending increases.
- Future use of the $75.0 million ATM facility, additional equity issuance and resulting dilution.
- Terms, interest rate, covenants and collateral associated with the $7.5 million term loan and any additional borrowing.
- Development and regulatory approval of companion diagnostics, particularly for HRAS-mutant head and neck cancer.
- Patent coverage, licensing obligations and potential competition for tipifarnib, whose composition-of-matter patents had expired in the United States and Europe.