Curis(CRIS) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Unaudited Financial Statements This section presents Curis, Inc.'s unaudited condensed consolidated financial statements, reporting a $9.7 million net loss for the quarter and highlighting going concern uncertainty Condensed Consolidated Balance Sheets Total assets decreased to $26.7 million, liabilities to $67.0 million, and stockholders' deficit increased to $40.3 million as of March 31, 2020 Condensed Consolidated Balance Sheets (in thousands) | | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $12,532 | $15,430 | | Total current assets | $16,509 | $25,003 | | Total assets | $26,706 | $35,107 | | Liabilities and Stockholders' Deficit | | | | Total current liabilities | $5,986 | $6,541 | | Liability related to the sale of future royalties, net | $60,989 | $62,477 | | Total liabilities | $66,975 | $69,018 | | Total stockholders' deficit | $(40,269) | $(33,911) | | Total liabilities and stockholders' deficit | $26,706 | $35,107 | Condensed Consolidated Statements of Operations and Comprehensive Loss Net revenues increased to $2.7 million, but a net loss of $9.7 million was reported for Q1 2020, primarily due to higher R&D expenses Condensed Consolidated Statements of Operations (in thousands) | | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Total revenues, net | $2,709 | $1,767 | | Research and development | $7,473 | $4,074 | | General and administrative | $3,593 | $3,143 | | Total costs and expenses | $11,191 | $7,325 | | Loss from operations | $(8,482) | $(5,558) | | Net loss | $(9,709) | $(9,884) | | Net loss per common share (basic and diluted) | $(0.28) | $(0.30) | Condensed Consolidated Statements of Stockholders' Deficit Stockholders' deficit increased to $40.3 million due to a $9.7 million net loss, partially offset by $2.7 million from stock issuance - The increase in stockholders' deficit during Q1 2020 was mainly due to the $9.7 million net loss[18] - The company issued 3,340,516 shares in connection with the Aspire Capital agreement, which contributed $2.7 million to equity[18] Condensed Consolidated Statements of Cash Flows Net cash used in operations was $9.0 million, with a net decrease of $2.9 million in cash and equivalents for the quarter Condensed Consolidated Statements of Cash Flows (in thousands) | | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(9,016) | $(7,233) | | Net cash provided by investing activities | $4,841 | $600 | | Net cash provided by financing activities | $1,277 | $25,763 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(2,898) | $19,130 | | Cash, cash equivalents and restricted cash, end of period | $13,501 | $42,919 | Notes to Condensed Consolidated Financial Statements Notes detail business operations, accounting policies, collaborations, and financial instruments, highlighting cancer therapeutics, COVID-19 impact, and going concern warning - The company is a biotechnology firm focused on cancer therapeutics, with key clinical-stage candidates being CA-4948, CI-8993, and fimepinostat[27] - The company concluded it does not have sufficient cash to support operations for the next 12 months, raising substantial doubt about its ability to continue as a going concern. Cash, cash equivalents, and investments of $12.5 million as of March 31, 2020, are expected to fund operations only into the third quarter of 2020[30] - The COVID-19 pandemic has caused slower than expected enrollment in clinical trials for CA-4948 and may delay the initiation of the trial for CI-8993[32] - In March 2019, the company sold a portion of its Erivedge royalty rights to Oberland Capital for $65.0 million upfront, recording it as a liability. The carrying value of this liability was $61.0 million as of March 31, 2020[68] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operations, and liquidity, highlighting going concern risk, COVID-19 impact, increased revenues and R&D expenses, and financing strategies Overview and COVID-19 Impact The company focuses on cancer therapeutics, with COVID-19 impacting clinical trial enrollment, initiation, site closures, and future fundraising efforts - The company intends to predominantly focus its available resources on the continued development of CA-4948 and CI-8993[106] - The COVID-19 pandemic has caused slower than expected enrollment in the CA-4948 trial and may delay the planned Phase 1 trial for CI-8993[111] - Sales of Erivedge may be negatively impacted by a decrease in new prescriptions due to a decline in patient medical visits during the COVID-19 pandemic, which could affect royalty revenue[112] Results of Operations Q1 2020 saw net revenues increase 53% to $2.7 million, but R&D expenses rose 83% to $7.5 million, leading to a net loss Comparison of Results for the Three Months Ended March 31 (in thousands) | | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Revenues, net | $2,709 | $1,767 | 53% | | Royalties | $2,515 | $2,137 | 18% | | Costs and expenses | | | | | Research and development | $7,473 | $4,074 | 83% | | General and administrative | $3,593 | $3,143 | 14% | | Other expense, net | $1,227 | $4,326 | (72)% | | Net loss | $(9,709) | $(9,884) | (2)% | - The increase in R&D expenses was primarily due to $1.4 million of in-license expenses from the ImmuNext agreement and increased costs for clinical activities, consulting, and CRO services[141] Liquidity and Capital Resources The company faces going concern doubt with cash for operations only into Q3 2020, pursuing financing through Aspire Capital, JonesTrading, and a PPP loan - The company has concluded it does not have sufficient cash to support operations for the next 12 months, raising substantial doubt about its ability to continue as a going concern[109][116] - In February 2020, Curis entered into a common stock purchase agreement with Aspire Capital for up to $30.0 million, with an initial investment of $3.0 million received[147] - In March 2020, the company entered into an "at-the-market" sales agreement with JonesTrading to sell up to $30.0 million of its common stock. No shares were sold under this agreement during Q1 2020[150] - On April 21, 2020, the company received a $0.9 million unsecured loan under the Paycheck Protection Program (PPP) of the CARES Act[155] Item 3. Quantitative and Qualitative Disclosures About Market Risk Disclosure about market risk is not required as the company qualifies as a smaller reporting company - Disclosure about market risk is not required as the company qualifies as a smaller reporting company[174] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting - Management concluded that as of March 31, 2020, the company's disclosure controls and procedures were effective at the reasonable assurance level[177] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[177] PART II. OTHER INFORMATION Item 1A. Risk Factors This section details significant risks including going concern doubt, capital needs, COVID-19 impacts, reliance on collaborators, clinical development failures, and stock price volatility Risks Relating to Financial Results and Need for Financing Significant financial risks include going concern doubt, the need for substantial additional capital, historical losses, and adverse impacts from royalty agreements and competition - There is substantial doubt about the company's ability to continue as a going concern, with cash on hand as of March 31, 2020, expected to fund operations only into the third quarter of 2020[179] - The company will require substantial additional capital to fund its operations and development programs, and failure to raise it could force delays, reductions, or elimination of programs[180] - The COVID-19 pandemic has caused high volatility in capital markets, which could adversely impact the company's ability to raise additional funds[179][182] - A competing drug, sonidegib (Odomzo®), has led to a reduction in the royalty rate on U.S. sales of Erivedge and is expected to do so in other countries, adversely affecting revenue[191] Risks Relating to the Development and Commercialization of Our Drugs Success depends on early-stage drug candidates, facing risks of clinical trial failures, delays, lack of marketing experience, and potential market acceptance or pricing issues - The company's business depends heavily on the success of its most advanced drug candidates, which are still in early clinical or preclinical development[194] - Clinical trials may fail to demonstrate safety and efficacy, and results from early trials may not be predictive of later-stage trials. For example, the company halted further enrollment in a Phase 1 study of fimepinostat with venetoclax due to a lack of an efficacy signal[196][203] - Delays in patient enrollment, which can be caused by factors like the COVID-19 pandemic and competition for patients, could significantly delay regulatory approvals and increase development costs[202] - The company has no sales, marketing, or distribution experience and plans to rely on third parties, which may not successfully market or sell any drugs it develops[207] Risks Relating to Our Dependence on Third-Parties Curis is highly dependent on third parties for revenue (Genentech/Roche for Erivedge), R&D (Aurigene/ImmuNext), and manufacturing, posing risks to operations and supply chain - The company's near-term prospects depend substantially on Genentech's ability to successfully commercialize Erivedge for advanced BCC[215] - Collaborators like Aurigene and ImmuNext have significant discretion in the efforts and resources they apply, and may prioritize other programs or terminate agreements, adversely affecting development[217] - The company has no internal manufacturing capabilities and relies on third-party manufacturers, which poses risks related to delays, regulatory compliance (cGMP), and supply chain interruptions[221] Risks Relating to Our Common Stock Common stock faces risks including potential Nasdaq delisting, price volatility from future sales, limitations on NOL carryforwards, and anti-takeover provisions - The company received deficiency letters from Nasdaq in April 2020 for failing to meet the minimum Market Value of Listed Securities ($50M) and the minimum bid price ($1.00) requirements, posing a risk of delisting[262] - Future sales of common stock, including through agreements with Aspire Capital and JonesTrading, could result in significant dilution to stockholders and negatively affect the stock price[271][273] - The company's ability to use its net operating loss (NOL) carryforwards could be limited under Section 382 of the Code if an "ownership change" occurs[267] - Insiders, including Aurigene which owns approximately 14.9%, have substantial influence over the company, which could lead to actions not in the best interest of all stockholders[274] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including collaboration, stock purchase, and sales agreements, and officer certifications - Exhibits filed include the Second Amendment to the Aurigene agreement, the Option and License Agreement with ImmuNext, the Common Stock Purchase Agreement with Aspire Capital, and the Sales Agreement with JonesTrading[279]