CRIS: Curis, Inc Analysis and Research Report

2018-09-10 - by Asif , Contributing Analyst - 86 views

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Overview

Curis is a biotechnology company seeking to develop and commercialize innovative and effective drug candidates for the treatment of human cancers. The company's clinical stage drug candidates are:

  • Fimepinostat (CUDC-907), for which its Phase 2 study in patients with relapsed refractory DLBCL including those with MYC alterations is ongoing, was granted Orphan Drug Designation in April 2015 and Fast Track Designation in May 2018 by the U.S. FDA. Curis is currently in ongoing discussions with the U.S. FDA that the company anticipate will facilitate its determination of the most appropriate regulatory path;
  • CA-170, for which Curis is currently conducting a Phase 1 study in patients with advanced solid tumors and lymphomas; and
  • CA-4948, for which, in January 2018 the company initiated a Phase 1 study in patients with advanced non-Hodgkin lymphomas including those with MYD88 alterations.

The company's pipeline also includes CA-327, which is a pre-Investigational New Drug, or IND, stage oncology drug candidate. The company continue work to enable the filing of an IND application with the FDA for clinical testing of CA-327 in 2018. In March 2018, the company exercised its option to license a fourth program, which is an immuno-oncology program, from its collaboration partner Aurigene.

In addition, Curis is party to a collaboration with F. Hoffmann-La Roche Ltd, or Roche, and Genentech Inc., or Genentech, a member of the Roche Group, under which Roche and Genentech are commercializing Erivedge, a first-in-class orally-administered small molecule Hedgehog signaling pathway inhibitor. Erivedge® (vismodegib) is approved for the treatment of advanced BCC.

Finally, on January 18, 2015, the company entered into a collaboration agreement with Aurigene, a specialized, discovery-stage biotechnology company and wholly-owned subsidiary of Dr. Reddy’s Laboratories for the discovery, development and commercialization of small molecule compounds in the areas of immune-oncology and precision oncology, which the company refer to as the Aurigene agreement, which was amended in September 2016. As of June 30, 2018, Curis has licensed four programs under the Aurigene collaboration.

  1. IRAK4 Program - a precision oncology program of small molecule inhibitors of IRAK4. The development candidate is CA-4948.
  2. PD1/VISTA Program - an immuno-oncology program of small molecule antagonists of PD1 and VISTA immune checkpoint pathways. The development candidate is CA-170.
  3. PD1/TIM3 Program - an immuno-oncology program of small molecule antagonists of PD1 and TIM3 immune checkpoint pathways. The development candidate is CA-327.
  4. In March 2018, the company exercised its option to license a fourth program, which is an immuno-oncology program.

Based on its clinical development plans for its pipeline, the company intend to predominantly focus its available resources on the continued development of fimepinostat, as well as CA-170, CA-4948 and CA-327 in collaboration with Aurigene in the near term.

Collaborations and License Agreements

For additional information regarding its collaboration and license agreements, refer to Note 4, Research and Development Collaborations, in the accompanying Notes to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Form 10-Q and Items 7 and 8 of its Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the Securities and Exchange Commission on March 8, 2018.

Liquidity

Since its inception, Curis has funded its operations primarily through private and public placements of its equity securities, license fees, contingent cash payments, research and development funding from its corporate collaborators, debt financings and the monetization of certain royalty rights. Curis has never been profitable on an annual basis and have an accumulated deficit of $971.7 million as of June 30, 2018.

The company will need to generate significant revenues to achieve profitability, and do not expect to achieve profitability in the foreseeable future, if at all.

The company anticipate that its existing cash, cash equivalents and investments at June 30, 2018 should enable it to maintain its planned operations into the second half of 2019. In order to ensure adequate cash resources for 12 months from the issuance date of the financial statements included in this Form 10-Q, the company will reduce or delay spending on its research and development programs and operating expenses to the extent Curis is unable to raise additional capital through its current at-the-market sale agreement with Cowen or other potential financing.

Key Drivers

The company believe that near-term key drivers to its success will include:

  • Its ability to successfully plan, finance and complete clinical trials for fimepinostat, CA-170, and CA-4948, and that these clinical trials generate favorable data;
  • Its and Aurigene’s ability to complete preclinical development and IND-enabling studies for CA-327 and a fourth immuno-oncology program, and for it to then finance and complete planned Phase 1 clinical trials for this development candidate;
  • Aurigene’s ability to advance additional preclinical immuno-oncology, and precision oncology drug candidates, and its ability to license these programs from Aurigene and further progress them clinically;
  • Genentech and Roche’s ability to continue to successfully commercialize Erivedge in advanced BCC in the United States and in other global territories; and
  • Its ability to raise additional financing through its at-the-market sale facility with Cowen or other potential financing.

In the longer term, a key driver to its success will be its ability, and the ability of any current or future collaborator or licensee, to successfully develop and commercialize its current and any future additional drug candidates.

Financial Operations Overview

General

The company's future operating results will largely depend on the progress of drug candidates currently in its research and development pipeline. The results of its operations will vary significantly from year to year and quarter to quarter and depend on, among other factors, the cost and outcome of any preclinical development or clinical trials then being conducted.

Debt

In December 2012, its wholly-owned subsidiary, Curis Royalty LLC, or Curis Royalty, entered into a $30.0 million credit agreement with BioPharma II, a Luxembourg limited liability company managed by Pharmakon Advisors, at an annual interest rate of 12.25% collateralized with certain future Erivedge royalty and royalty-related payment streams.

In connection with the loan, the company transferred to Curis Royalty its right to receive certain royalty and royalty-related payments from Genentech. The loan and accrued interest was an obligation of Curis Royalty, with no recourse to it, to be repaid using the royalty and royalty-related payments from Genentech. To secure repayment of the loan, Curis Royalty granted a first priority lien and security interest (subject only to permitted liens) to BioPharma-II in all of its assets and all real, intangible and personal property, including all of its right, title and interest in and to the royalty and royalty-related payments. Under the terms of the loan, quarterly royalty payments received by Curis Royalty from Genentech were first applied to pay: (i) escrow fees payable by it pursuant to an escrow agreement between it, Curis Royalty, BioPharma-II and Boston Private Bank and Trust Company, (ii) its royalty obligations to university licensors, (iii) certain expenses incurred by BioPharma-II in connection with the credit agreement and related transaction documents, including enforcement of its rights in the case of an event of default under the credit agreement and (iv) expenses incurred by it enforcing its right to indemnification under the collaboration agreement with Genentech. Subsequent remaining amounts were applied first, to pay interest and second, principal on the loan. The company remained entitled to receive any contingent payments upon achievement of clinical development objectives. There were no caps to the amounts Curis Royalty would be required to make to BioPharma-II. Curis Royalty retained the right to royalty payments related to sales of Erivedge following repayment of the loan.

In March 2017, the company and Curis Royalty, entered into a new credit agreement, referred to as the credit agreement, with HealthCare Royalty Partners III, L.P., or HealthCare Royalty, a Delaware limited partnership managed by Healthcare Royalty Management, LLC, for the purpose of refinancing the prior loan from BioPharma-II. On the effective date of the credit agreement with Healthcare Royalty, the credit agreement with BioPharma-II was terminated in its entirety.

Also in March 2017, HealthCare Royalty made a $45.0 million loan at an annual interest rate of 9.95% to Curis Royalty, which was used to pay off the approximate $18.4 million in remaining loan obligations to Biopharma-II under the prior loan. The remaining proceeds of the loan of $26.6 million were distributed to it as sole equity holder of Curis Royalty.

The loan from HealthCare Royalty will be repaid from certain royalty and royalty-related payments owed by Genentech under the Genentech collaboration agreement, the rights to which were transferred from Curis to Curis Royalty pursuant to a purchase and sale agreement in 2012, in connection with the prior credit agreement. Under the terms of the credit agreement, quarterly royalty and royalty-related payments from Genentech will first be applied to pay: (i) escrow fees payable by it pursuant to an escrow agreement, (ii) its royalty obligations to academic institutions, (iii) certain expenses incurred by HealthCare Royalty in connection with the credit agreement and related transaction documents, including enforcement of its rights in the case of an event of default under the credit agreement, and (iv) expenses incurred by it enforcing its right to indemnification under the collaboration agreement. Subsequently, remaining amounts will be applied first, to pay interest and second, to pay principal on the loan. If Erivedge royalties are insufficient to pay the accrued interest on the outstanding loan, the unpaid interest outstanding will be added to the loan principal on a quarterly basis.

The final maturity date of the loan will be the earlier of such date as the principal is paid in full, or Curis Royalty’s rights to receive royalties under the collaboration agreement with Genentech terminate. At any time before the third anniversary of the closing date, Curis Royalty may, subject to certain limitations, prepay the outstanding principal of the loan in whole or in part, at a prepayment premium equal to the amount of interest that would have accrued from the date of prepayment through and including the third anniversary of the closing date. Thereafter, any voluntary prepayments during the following periods are to be made at the following prepayment prices (calculated as a percentage of the principal amount prepaid):

  • 105%, after the third anniversary of the closing date through and including the fourth anniversary of the closing date;
  • 102.5%, after the fourth anniversary of the closing date through and including the fifth anniversary of the closing date;
  • 101%, after the fifth anniversary of the closing date through and including the sixth anniversary of the closing date; and
  • 100%, after the sixth anniversary of the closing date.

The obligations of Curis Royalty under the credit agreement to repay the loan may be accelerated upon the occurrence of an event of default as defined in the credit agreement. As of June 30, 2018, the outstanding principal and interest due under the loan is $38.8 million.

Revenue

The company do not expect to generate any revenues from its direct sale of products for several years, if ever. Substantially all of its revenues to date have been derived from license fees, research and development payments, and other amounts that Curis has received from its strategic collaborators and licensees, including royalty payments. Since the first quarter of 2012, Curis has recognized royalty revenues related to Genentech’s sales of Erivedge and the company expect to continue to recognize royalty revenue in future quarters from Genentech’s sales of Erivedge in the U.S. and Roche’s sales of Erivedge outside of the U.S. However, the company expect that all of such royalty revenues will be used by its wholly-owned subsidiary, Curis Royalty, to pay principal and interest under the loan that Curis Royalty received from HealthCare Royalty, until such time as the loan is fully repaid. The company currently estimate that all Erivedge royalties will be applied to the loan from HealthCare Royalty for the foreseeable future. The repayment period is highly uncertain and could vary materially to the extent that royalty payments received are higher or lower than its current estimates, which could arise due to factors beyond its control, such as the sale of competing products that result in a lowering of the royalty rates Curis is entitled to receive, decreased market acceptance, a failure by Genentech and/or Roche to obtain required regulatory approvals, and other factors described under “Part II, Item 1A—Risk Factors.”

The company could receive additional milestone payments from Genentech, provided that contractually-specified development and regulatory objectives are met. The company's only source of revenues and/or cash flows from operations for the foreseeable future will be royalty payments that are contingent upon the continued commercialization of Erivedge under this collaboration, and contingent cash payments for the achievement of clinical, development and regulatory objectives, if any, are met, under its existing collaboration with Genentech. The company's receipt of additional payments under its existing collaboration with Genentech cannot be assured, nor can the company predict the timing of any such payments, as the case may be.

Cost of Royalty Revenues

Cost of royalty revenues consists of all expenses incurred that are associated with royalty revenues that the company record as revenues in its consolidated statements of operations and comprehensive loss. These costs currently consist of payments Curis is obligated to make to university licensors on royalties that Curis Royalty receives from Genentech on net sales of Erivedge. In all territories other than Australia, its obligation is equal to 5% of the royalty payments that the company receive from Genentech for a period of 10 years from the first commercial sale of Erivedge, which occurred in February 2012. In addition, for royalties that Curis Royalty receives from Roche’s sales of Erivedge in Australia, the company will be obligated to make payments to university licensors of 2% of Roche’s direct net sales in Australia until expiration of the patent in April 2019. After April 2019, the amount Curis is obligated to pay will decrease to 5% of the royalty payments that Curis Royalty receives from Genentech through February 2022.

Research and Development

Research and development expense consists of costs incurred to develop its drug candidates. These expenses consist primarily of: salaries and related expenses for personnel, including stock-based compensation expense, costs of conducting clinical trials, including amounts paid to clinical centers, clinical research organizations and consultants, among others, other outside service costs including costs of contract manufacturing, sublicense payments, the costs of supplies and reagents, consulting, and occupancy and depreciation charges. Research and development expenses also include certain payments that the company make to Aurigene under its collaboration agreement, including, for example, option exercise fees and milestone payments. The company expense research and development costs as incurred. Curis is currently incurring research and development costs under its Hedgehog signaling pathway inhibitor collaboration with Genentech related to the maintenance of third-party licenses to certain background technologies. In addition, the company record research and development expense for payments that Curis is obligated to make to certain third-party university licensors upon its receipt of payments from Genentech related to the achievement of clinical development and regulatory objectives under its collaboration agreement.

The following graphic outlines the current status of its programs:

The company's programs are in early stages of clinical or preclinical development. Therefore, its ability and that of its collaborators and licensees to successfully complete preclinical studies and clinical trials of these drug candidates, as appropriate, and the timing of completion of such programs, is highly uncertain.

There are numerous risks and uncertainties associated with developing drugs which may affect its and its collaborators’ future results, including:

  • the scope, quality of data, rate of progress and cost of clinical trials and other research and development activities undertaken by it or its collaborators;
  • the results of future preclinical studies and clinical trials;
  • the cost and timing of regulatory approvals and maintaining compliance with regulatory requirements;
  • the cost and timing of establishing sales, marketing and distribution capabilities;
  • the cost of establishing clinical and commercial supplies of its drug candidates and any products that the company may develop;
  • the effect of competing technological and market developments; and
  • the cost and effectiveness of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

The company cannot reasonably estimate or know the nature, timing and estimated costs of the efforts necessary to complete the development of, or the period in which, material net cash inflows are expected to commence from any of its drug candidates. Any failure to complete the development of its drug candidates in a timely manner could have a material adverse effect on its operations, financial position and liquidity.


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