Kura Oncology, Inc. — Fiscal 2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015. The filing does not provide a standalone fourth-quarter income statement; the prior comparable period is August 22, 2014, inception, through December 31, 2014. Kura is a clinical-stage biopharmaceutical company with no approved products or product revenue.
Business context
Kura develops targeted small-molecule cancer therapies intended to be paired with molecular diagnostics. Its lead candidate, tipifarnib, is being evaluated in HRAS-mutant solid tumors, peripheral T-cell lymphoma (PTCL), lower-risk myelodysplastic syndromes (MDS), and an investigator-sponsored urothelial carcinoma study. KO-947, an ERK inhibitor, was in IND-enabling studies, while the menin-MLL program remained in lead optimization.
In March 2015, Kura completed a reverse merger with former shell company Zeta Acquisition Corp. III. Prior Kura is the accounting acquirer, so pre-merger historical financial statements primarily reflect Prior Kura's operations.
Financial performance and position
| Metric | FY 2015 | Prior comparable period |
|---|---|---|
| Product revenue | $0 | $0 |
| Research and development expense | $17.8 million | $2.7 million |
| General and administrative expense | $6.1 million | $1.3 million |
| Other income, net | $1.2 million | $0.3 million |
| Net loss | $22.6 million | $3.7 million |
| Net loss per share | $2.28 | $25.98 |
| Net cash used in operating activities | $17.9 million | $0.8 million |
| Net cash used in investing activities | $70.6 million | $28 thousand |
| Net cash provided by financing activities | $102.9 million | $2.0 million |
No revenue or profit margins were reported; conventional margin analysis is not meaningful for this pre-commercial company. Research and development expense included $8.4 million of outsourced research contracts, $3.2 million of personnel costs, $2.1 million of clinical development costs, $1.9 million of share-based compensation, and $0.9 million of sponsored research.
- Liquidity: Cash, cash equivalents and short-term investments totaled $85.7 million at December 31, 2015, comprising $15.4 million of cash and cash equivalents and $70.3 million of short-term investments.
- Capitalization: The company reported total liabilities of $5.2 million and stockholders' equity of $82.1 million. Convertible notes payable were $0 at year-end following conversions into equity.
- Cash runway: Management believed existing cash resources would fund requirements for the next 12 months, but stated that significant additional financing would be required thereafter.
- Financing: March 2015 private-placement proceeds were approximately $55.8 million net. The November 2015 public offering generated approximately $50.3 million net from 6,883,467 shares sold at $8.00 per share.
- Investments: The company purchased $76.6 million of marketable securities during 2015. The portfolio had an $87 thousand unrealized loss, recorded in other comprehensive loss.
Material changes versus the prior comparable period
- Operating expenses increased substantially as Kura moved from early formation activities into clinical development. R&D expense rose from $2.7 million to $17.8 million, and G&A expense rose from $1.3 million to $6.1 million.
- Net loss increased from $3.7 million to $22.6 million, while operating cash burn increased from $0.8 million to $17.9 million.
- Cash and investments increased from approximately $1.1 million of cash at December 31, 2014 to $85.7 million at December 31, 2015, primarily because of equity financing and note conversions.
- Tipifarnib entered two company-sponsored Phase 2 studies in 2015: HRAS-mutant tumors in May and PTCL in September. An investigator-sponsored HRAS-mutant urothelial carcinoma study began in November.
- The company became publicly traded, listing on NASDAQ under “KURA” in November 2015 after limited OTCQB trading.
- Share-based compensation increased to $2.3 million from $0.2 million, including $1.9 million in R&D and $0.3 million in G&A.
Guidance, outlook, risks and unusual items
- Management planned to initiate a Phase 2 lower-risk MDS trial in the second quarter of 2016, submit a KO-947 IND in the second quarter of 2016, begin KO-947 Phase 1 testing in the second half of 2016, and nominate a menin-MLL development candidate in the second half of 2016.
- Expected topline data timing was the second half of 2016 for the HRAS-mutant solid-tumor study, the first half of 2017 for the lower-risk MDS study, and the second half of 2017 for the PTCL study.
- Kura expected continued losses and increasing expenses for several years and had no committed external source of additional funding.
- Tipifarnib's composition-of-matter patents were expected to expire in 2016 in major markets, increasing reliance on method-of-use patents and regulatory exclusivity. The Janssen license also requires potential regulatory milestones of up to $25 million, sales milestones of up to $50 million, and tiered royalties on future sales.
- Additional licensing and asset-purchase arrangements provide for aggregate development, regulatory and sales milestones of up to approximately $81.7 million, plus royalties. No milestones had been achieved as of December 31, 2015.
- Tipifarnib has previously failed to obtain FDA approval in AML. Future success depends on positive clinical results in biomarker-selected populations, patient enrollment, regulatory approval, and companion-diagnostic development.
- The company relies on third parties for clinical research, manufacturing, diagnostic development and certain intellectual-property rights. Janssen-supplied tipifarnib tablets had a cosmetic surface-coating defect, which management believed did not affect safety or efficacy, but supply sufficiency was not guaranteed.
- The company reported a $232 thousand current derivative liability related to a UCSF indexed milestone, with 50% payable in November 2016. It also had future lease payments of approximately $1.3 million and an obligation to make a final $95 thousand charitable payment in January 2017.
- Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2015. The independent auditor did not audit internal control effectiveness because of the company's emerging-growth-company transition exemption.
Important facts for investors to verify
- Reconcile reported share counts, including 21.37 million shares issued as of March 11, 2016, 18.14 million outstanding excluding shares subject to repurchase at year-end, and the potential dilution from 574 thousand options and unvested restricted shares.
- Confirm the pace of cash burn and whether the reported $85.7 million liquidity supports the planned clinical programs without near-term financing.
- Track enrollment, safety, response rates and topline timing for the HRAS-mutant, PTCL and MDS tipifarnib studies.
- Verify KO-947 IND submission and Phase 1 initiation, as well as progress toward a menin-MLL development candidate.
- Assess the effect of tipifarnib patent expirations, regulatory exclusivity, companion-diagnostic requirements and potential generic competition.
- Review related-party arrangements with Araxes and Wellspring, including $1.2 million of management-fee income and $4.1 million of related-party R&D expense in 2015.
- Evaluate future milestone, royalty, lease, supply and financing obligations, and the possibility of dilution from additional equity or convertible-debt offerings.