Curis, Inc. — Q1 2020 Form 10-Q
Business context and reporting period. Curis is a clinical-stage oncology biotechnology company. This unaudited filing covers the three months ended March 31, 2020, compared with Q1 2019. Its principal commercial revenue source is royalties on Erivedge sales by Genentech/Roche; its development pipeline includes CA-4948, CI-8993, fimepinostat, CA-170 and preclinical CA-327.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Net revenue | $2.709 million | $1.767 million; up 53% |
| Royalty revenue | $2.515 million | $2.137 million; up 18% |
| Research and development expense | $7.473 million | $4.074 million; up 83% |
| General and administrative expense | $3.593 million | $3.143 million; up 14% |
| Operating loss | $8.482 million | $5.558 million |
| Net loss | $9.709 million; $0.28 per share | $9.884 million; $0.30 per share |
| Cash used in operations | $9.016 million | $7.233 million |
| Cash, cash equivalents and investments | $12.538 million at March 31 | $20.543 million at December 31, 2019 |
Gross margin is not separately presented; cost of royalties was $0.125 million. Cash and restricted cash totaled $13.501 million at quarter-end, including $0.969 million restricted. Current assets were $16.509 million and current liabilities $5.986 million. The accumulated deficit was $1.027 billion; stockholders’ deficit was $40.269 million.
Curis had no conventional borrowing outstanding reported at quarter-end, but carried a $60.989 million liability for sold future Erivedge royalties. The liability incurred $1.298 million of imputed interest expense in the quarter, partly offset by $2.786 million in payments to Oberland. The filing reports a subsequent unsecured $0.9 million PPP loan dated April 21, 2020, at 1% interest, potentially forgivable subject to program conditions.
Material changes and operating developments
- Revenue growth reflected higher Erivedge royalties, a $0.211 million milestone payment from previously licensed technology, and less contra revenue. The filing states 92% of Q1 2020 gross revenue came from Genentech.
- R&D spending rose primarily from clinical activity and $1.4 million of ImmuNext-related in-license expense. Legal services drove much of the increase in G&A.
- Net loss improved modestly, while operating cash use increased. Q1 2019 included a $3.495 million debt-extinguishment loss; Q1 2020 instead included $1.298 million of imputed interest on the royalty-sale liability.
- Curis issued 3,340,516 shares in connection with the Aspire Capital agreement and received $3.0 million in cash proceeds; the agreement allows further sales subject to terms and limits. Shares outstanding were 36,582,309 at March 31.
- In March, Curis ended further enrollment in the fimepinostat/venetoclax Phase 1 study after seeing no efficacy signal warranting continuation. No further patients were to be enrolled in the CA-170 mesothelioma study, based on earlier data. Curis said it was evaluating future studies for both programs.
- Curis and Aurigene amended their collaboration in February 2020: Aurigene will fund and conduct a Phase 2b/3 CA-170 study in non-squamous non-small cell lung cancer and receives specified Asian development and commercialization rights.
Outlook, risks and contingencies
- Going concern: Management said the $12.5 million of cash, cash equivalents and investments at March 31 was expected to fund planned operations only into Q3 2020, and was insufficient to support operations for the 12 months after filing. The company disclosed substantial doubt about its ability to continue as a going concern. It expects to seek funding through Aspire, its JonesTrading at-the-market facility, or other financing or strategic alternatives; success and terms are uncertain.
- Clinical priorities and timing: Curis said it intended to focus near-term resources on CA-4948 and CI-8993. It anticipated enrolling the first patient in a CA-4948 AML/MDS trial in Q2 2020 and planned to begin CI-8993 Phase 1a/1b testing in the second half of 2020. These timelines were uncertain.
- COVID-19: Hospital restrictions had slowed CA-4948 trial enrollment and could disrupt planned trial starts, patient participation, monitoring, supply chains and Erivedge prescriptions and royalties. Trial-site closures also delayed winding down fimepinostat and CA-170 studies. Curis warned that the pandemic could impair financing access and materially affect operations.
- Royalty and financing exposure: Erivedge royalties are subject to competition, including sonidegib-related royalty reductions, and a portion of royalty receipts is allocated to Oberland. Defaults under the royalty-purchase agreement could put retained royalty rights and Curis Royalty assets at risk. Equity financing may dilute shareholders.
- Nasdaq: After quarter-end, Curis received notices of noncompliance with the $50 million market-value-of-listed-securities requirement and the $1.00 minimum bid-price requirement, with stated compliance periods extending to October 12 and December 28, 2020, respectively, subject to the disclosed rules.
- Other material uncertainties include early-stage clinical efficacy and safety, dependence on collaborators and contract manufacturers, potential additional development and licensing costs, and the risk that financing shortfalls could force program delays, reductions or discontinuation. The new headquarters lease had approximately $8.3 million of base rent over seven years, with commencement expected in Q2 2020; it was not yet recorded as a lease at March 31.
Most important facts for investors to verify
- Cash burn and the timing and terms of any financing after the stated Q3 2020 cash runway; assess the going-concern disclosure.
- Whether Aspire or JonesTrading equity facilities generated additional proceeds, and the resulting share dilution.
- Progress, enrollment and updated timelines for CA-4948 and CI-8993, including the effects of COVID-19.
- Erivedge sales, royalty receipts, amounts remitted to Oberland, and changes in the royalty liability or related obligations.
- Whether Curis regained Nasdaq market-value and bid-price compliance, and the status or forgiveness of the PPP loan.