CURIS, INC. The following discussion of our financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and the related notes appearing elsewhere in this report. Some of the information contained in this discussion and analysis and set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements, based on current expectations and related to future events and our future financial and operational performance, that involve risks and uncertainties. You should review the discussion above under the heading "Risk Factor Summary," the risk factors detailed further in Item 1A, "Risk Factors" of Part I of our Annual Report on Form 10-K for the year endedDecember 31, 2020 , and, if applicable, those included under Part II, Item 1A of this Quarterly Report on Form 10-Q, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. As used throughout this report, the terms "the Company," "we," "us," and "our" refer to the business ofCuris, Inc. and its wholly owned subsidiaries, except where the context otherwise requires, and the term "Curis" refers toCuris, Inc. 24 -------------------------------------------------------------------------------- Table of Contents Overview We are a biotechnology company focused on the development of first-in-class and innovative therapeutics for the treatment of cancer. We conduct our research and development programs both internally and through strategic collaborations. Our clinical stage drug candidates are: •CA-4948, an orally-available small molecule inhibitor of Interleukin-1 receptor-associated kinase 4, or IRAK4, which is currently undergoing testing in a Phase 1/2 open-label dose escalating clinical trial in patients with non-Hodgkin lymphomas, including those with Myeloid Differentiation Primary Response Protein 88, or MYD88 alterations. We reported preliminary clinical data from the study inDecember 2020 . The trial was amended to include a combination study of CA-4948 and ibrutinib, a BTK inhibitor, in patients with non-Hodgkin lymphomas for which we enrolled the first patient inFebruary 2021 . We expect to provide initial data from the combination study in the first half of 2022. We are also conducting a separate Phase 1/2 open-label, single arm dose escalating and expansion trial in patients with acute myeloid leukemia, or AML, and myelodysplastic syndromes, or MDS, and announced preliminary clinical data from this study inDecember 2020 . The study was amended inApril 2021 to include dose escalation cohorts of CA-4948 in combination with azacitidine or venetoclax. InApril 2021 , CA-4948 was granted Orphan Drug Designation for the treatment of AML and MDS by theU.S. Food and Drug Administration , or FDA. InJune 2021 , we reported updated preliminary clinical data from the Phase 1/2 study in patients with AML or MDS and announced the recommended Phase 2 dose for monotherapy dose expansion. •CI-8993, a monoclonal antibody designed to antagonize the V-domain Ig suppressor of T cell activation, or VISTA signaling pathway. InJune 2020 , we announced the FDA had cleared our Investigational New Drug, or IND, application for CI-8993. InSeptember 2020 , we began enrollment in our Phase 1 trial of CI-8993 in patients with solid tumors. We have an option to license CI-8993 fromImmuNext, Inc. , or ImmuNext. Our pipeline also includes the following: •Fimepinostat, a small molecule that potently inhibits the activity of histone deacetylase, or HDAC, and phosphotidyl-inositol 3 kinase, or PI3 kinase enzymes, which has been granted Orphan Drug Designation and Fast Track Designation for the treatment of diffuse large B-cell lymphoma, or DLBCL, by the FDA inApril 2015 andMay 2018 , respectively. In 2019, we began enrollment in a Phase 1 combination study with venetoclax in DLBCL patients, including patients with translocations in both MYC and the BCL2 gene, also referred to as double-hit lymphoma, or high-grade B-cell lymphoma, or HGBL. We reported preliminary clinical data from this combination study inDecember 2019 . InMarch 2020 , we announced that although we observed no significant drug-drug interaction in our Phase 1 study of fimepinostat in combination with venetoclax, we did not see an efficacy signal that would warrant continuation of the study. Accordingly, no further patients will be enrolled in this study. We are currently evaluating future studies for fimepinostat. •CA-170, a small molecule antagonist of VISTA and PDL1, for which we announced initial data from a clinical study in patients with mesothelioma in conjunction with theSociety of Immunotherapy of Cancer conference inNovember 2019 . Based on this data, no further patients will be enrolled in the study. We are currently evaluating future studies for CA-170. •CA-327, a small molecule antagonist of PDL1 and TIM3, which is a pre-IND, stage oncology drug candidate. We are party to a collaboration withGenentech Inc. , orGenentech , a member of the Roche Group, under whichF. Hoffmann-La Roche Ltd , or Roche andGenentech are commercializing Erivedge® (vismodegib), a first-in-class orally administered small molecule Hedgehog signaling pathway antagonist. Erivedge is approved for the treatment of advanced basal cell carcinoma, or BCC. InJanuary 2015 , we entered into an exclusive collaboration agreement focused on immuno-oncology and selected precision oncology targets withAurigene Discovery Technologies Limited , orAurigene , which was amended inSeptember 2016 andFebruary 2020 . As ofJune 30, 2021 , we have licensed four programs under theAurigene 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.InMarch 2018 , we exercised our option to license a fourth program, which is an immuno-oncology program. 25 -------------------------------------------------------------------------------- Table of Contents In addition, we are party to an option and license agreement with ImmuNext. Pursuant to the terms of the option and license agreement, we have an option, exercisable for a specified period as set forth in the option and license agreement, to obtain an exclusive license to develop and commercialize certain VISTA antagonizing compounds, including ImmuNext's lead compound, CI-8993, and products containing these compounds in the field of oncology. Based on our clinical development plans for our pipeline, we intend to predominantly focus our available resources on the continued development of CA-4948, in collaboration withAurigene , and CI-8993, in collaboration with ImmuNext, in the near term. Liquidity Since our inception, we have funded our operations primarily through private and public placements of our equity securities, license fees, contingent cash payments, research and development funding from our corporate collaborators, debt financings and the monetization of certain royalty rights. We have never been profitable on an annual basis and have an accumulated deficit of$1.1 billion as ofJune 30, 2021 . For the six months endedJune 30, 2021 , we incurred a net loss of$20.8 million and used$19.8 million of cash in operations. We expect that our$160.7 million cash, cash equivalents and investments as ofJune 30, 2021 should enable us to maintain our planned operations into 2024. We have based this assessment on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. We will need to generate significant revenues to achieve profitability, and do not expect to achieve profitability in the foreseeable future, if at all. If sufficient funds are not available, we will have to delay, reduce the scope of, or eliminate some of our research and development programs, including related clinical trials and operating expenses, potentially delaying the time to market for or preventing the marketing of any of our product candidates, which could adversely affect our business prospects and our ability to continue our operations, and would have a negative impact on our financial condition and ability to pursue our business strategies. In addition, we may seek to engage in one or more strategic alternatives, such as a strategic partnership with one or more parties, the licensing, sale or divestiture of some of our assets or proprietary technologies or the sale of our company, but there can be no assurance that we would be able to enter into such a transaction or transactions on a timely basis or on terms favorable to us, or at all. COVID-19 Pandemic The COVID-19 pandemic has spread worldwide, causing many governments to implement measures to slow the spread of the outbreak through quarantines, strict travel restrictions, heightened border scrutiny, and other measures. The outbreak and government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce. While the COVID-19 pandemic has had adverse effects on our business and we expect the outbreak to have an adverse effect on our business, financial conditions and results of operations in the future, we are unable to predict the extent or nature of the future progression of the COVID-19 pandemic or its effects on our business and operations at this time. We have enrolled, and will seek to enroll, cancer patients in clinical trials at sites located both inthe United States and internationally. Many of our clinical trial sites have imposed restrictions as a result of the COVID-19 pandemic, which have had and may continue to have a negative impact on our ability to conduct our clinical trials. We have encountered and may continue to face difficulties recruiting and retaining patients in our ongoing and planned clinical trials to the extent patients are affected by the virus or are fearful of visiting or traveling to our clinical trial sites because of the outbreak. In addition, we do not currently know the duration or to what degree medical facilities, including our clinical trial sites, will continue to be impacted by the pandemic. For example, all of our clinical trial sites for our ongoing Phase 1/2 clinical trial for CA-4948 in patients with non-Hodgkin lymphomas, including those with MYD88 alterations, are at large academic research hospitals that have imposed restrictions on entry which have in some instances prohibited, and in other instances may potentially prohibit in the future, clinical trial monitors and patients from entering the trial sites. We are actively working with our clinical trial sites to follow FDA guidelines for conducting clinical trials during the COVID-19 pandemic, including performing remote monitoring to the extent possible and arranging for the shipment of medicine directly from the clinical trial site to patients who are enrolled in our trials, if required; however, there is no assurance such arrangements will be successful. As a result, further enrollment in our ongoing clinical trial for CA-4948 in patients with non-Hodgkin lymphomas, including those with MYD88 alterations, has been delayed and may continue to be delayed and patients currently enrolled in the trial may cease treatment due to the restrictions described above or fear of visiting or inability to visit our trial sites. As a result, enrollment in this trial has been slower than expected and the timeline of this trial has been delayed and may continue to be delayed. In addition, inJuly 2020 , we commenced enrollment in our Phase 1 clinical trial of CA-4948 in patients with AML and MDS. Clinical trial sites for this study have also imposed and may continue to impose restrictions similar to those described above. As a result, we may not be able to enroll this trial on our planned timeline, which would cause a delay in the overall timeline for this trial. Similarly, enrollment in and the overall timeline of our combination study of CA-4948 and ibrutinib, for which we commenced enrollment inFebruary 2021 , and our Phase 1 clinical trial for CI-8993, for which we commenced enrollment inSeptember 2020 , have 26 -------------------------------------------------------------------------------- Table of Contents been delayed and may continue to be delayed due to the factors discussed above. To the extent clinical trial sites are slowed down or closed to enrollment in our ongoing and planned clinical trials, this could also have a material adverse impact on our clinical trial plans and timelines. These restrictions may also impact our ability to collect patient data in a timely fashion. In addition, we do not know whether and to what extent potential exposure to COVID-19 of patients in our clinical trials could impact the efficacy of CA-4948 or CI-8993. The response to the COVID-19 pandemic may redirect resources of regulators in a way that would adversely impact our ability to progress regulatory approvals. In addition, we may face impediments to regulatory meetings and approvals relating to our clinical trials due to measures intended to limit in-person interactions. We and our collaborators, third-party contract manufacturers, contract research organizations and clinical sites may experience delays or disruptions in supply and release of product candidates and/or procuring items that are essential for our research and development activities, including, for example, raw materials used in the manufacturing of our product candidates, basic medical and laboratory supplies used in our clinical trials or preclinical studies or animals that are used for preclinical testing, in each case, for which there may be shortages because of ongoing efforts to address the outbreak. While we believe that we currently have sufficient supply of our product candidates to continue our ongoing clinical trials, some of our product candidates, or materials contained therein, come from facilities located in areas impacted by COVID-19, includingIndia ,China , andEurope . In addition, any disruptions could impact the supply, manufacturing or distribution of Erivedge, and sales of Erivedge may be negatively impacted by a decrease in new prescriptions as a result of a decline in patient medical visits due to the COVID-19 pandemic, which has had and could continue to have a negative impact on the amount and timing of any royalty revenue we may receive fromGenentech related to Erivedge. There is no guarantee that the COVID-19 pandemic, or any potential future outbreak, would not impact our supply chain, which could have a material adverse impact on our clinical trial plans and business operations. We experienced delays in closing down our clinical trial sites related to our fimepinostat and CA-170 trials due to restrictions on non-essential workers imposed at those sites in response to COVID-19, which delayed the winding down of these trials. Any negative impact that the COVID-19 pandemic has on the ability of our suppliers to provide materials for our product candidates or on recruiting or retaining patients in our clinical trials could cause costly delays to clinical trial activities, which could adversely affect our ability to obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses, and have a material adverse effect on our financial results. Additionally, the pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could impact our ability to raise additional funds and has also impacted, and may continue to impact, the volatility of our stock price and trading in our stock. Moreover, the pandemic has significantly impacted economies worldwide, which could result in adverse effects on our business and operations. We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business and it has had and may continue to have an adverse effect on our business, financial condition, results of operations, and prospects.Key Drivers We believe that near term key drivers to our success will include: •our ability to successfully plan, finance and complete current and planned clinical trials for CA-4948 and CI-8993, as well as for such clinical trials to generate favorable data; and •our ability to raise additional financing, when required, to fund operations. In the longer term, a key driver to our success will be our ability, and the ability of any current or future collaborator or licensee, to successfully develop and commercialize drug candidates. Our Collaborations and License Agreements For information regarding our collaboration and license agreements, refer to Note 9, Research and Development Collaborations, in the accompanying Notes to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q and Note 11, Research and Development Collaborations, in Item 8 of our Annual Report on Form 10-K for the year endedDecember 31, 2020 as filed with theSecurities and Exchange Commission , orSEC , onMarch 16, 2021 . Financial Operations Overview 27
-------------------------------------------------------------------------------- Table of Contents General. Our future operating results will largely depend on the progress of drug candidates currently in our research and development pipeline. The results of our 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. For a discussion of our liquidity and funding requirements, see "Liquidity" and "Liquidity and Capital Resources - Funding Requirements". Liability Related to the Sale of Future Royalties. In connection with the termination and repayment in full of our prior loan withHealthCare Royalty Partners ,III, L.P. , or HealthCare Royalty, we and Curis Royalty entered into the royalty interest purchase agreement, or Oberland Purchase Agreement, with entities managed byOberland Capital Management, LLC , or the Purchasers. Upon closing of the Oberland Purchase Agreement, Curis Royalty received an upfront purchase price of$65.0 million from the Purchasers, approximately$33.8 million of which was used to pay off the remaining loan principal to HealthCare Royalty, and$3.7 million of which was used to pay transaction costs, including$3.4 million to HealthCare Royalty in accrued and unpaid interest and prepayment fees under the loan, resulting in net proceeds of$27.5 million . Curis Royalty will also be entitled to receive milestone payments of (i)$17.2 million if the Purchasers and Curis Royalty receive aggregate royalty payments pursuant to the Oberland Purchase Agreement in excess of$18.0 million during the calendar year 2021, subject to certain exceptions, and (ii)$53.5 million if the Purchasers receive payments pursuant to the Oberland Purchase Agreement in excess of$117.0 million on or prior toDecember 31, 2026 , which milestone payments may each be paid, at the option of the Purchasers, in a lump sum in cash or out of the Purchaser's portion of future payments under the Oberland Purchase Agreement. For a discussion of the Oberland Purchase Agreement, see "Liquidity and Capital Resources - Royalty Interest Purchase Agreement". Revenue. We do not expect to generate any revenues from our direct sale of products for several years, if ever. Substantially all of our revenues to date have been derived from license fees, research and development payments, and other amounts that we have received from our strategic collaborators and licensees, including royalty payments. Since the first quarter of 2012, we have recognized royalty revenues related toGenentech's sales of Erivedge and we expect to continue to recognize royalty revenue in future quarters fromGenentech's sales of Erivedge in theU.S. and Roche's sales of Erivedge outside of theU.S. However, a portion of our royalty and royalty-related revenues under our collaboration withGenentech will be paid to the Purchasers, pursuant to the Oberland Purchase Agreement. The Oberland Purchase Agreement will terminate upon the earlier to occur of (i) the date on which Curis Royalty's rights to receive the Purchased Receivables owed byGenentech under theGenentech collaboration agreement have terminated in their entirety and (ii) the date on which payment in full of the put/call price is received by the Purchasers pursuant to the Purchasers' exercise of their put option or Curis Royalty's exercise of its call right. For additional information regarding the terms and termination provisions of this agreement, see Note 8, Liability Related to the Sale of Future Royalties, in the accompanying Notes to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q. We could receive additional milestone payments fromGenentech , provided that contractually specified development and regulatory objectives are met. Also, we could receive milestone payments from the Purchasers, provided that contractually specified royalty payment amounts are met within applicable time periods. Our 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 our collaboration withGenentech , and contingent cash payments for the achievement of clinical, development and regulatory objectives, if any, that are met, under our collaboration withGenentech . Our receipt of additional payments under our collaboration withGenentech cannot be assured, nor can we 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 we record as revenues in our Condensed Consolidated Statements of Operations and Comprehensive Loss. These costs currently consist of payments we are obligated to make to university licensors on royalties that Curis Royalty receives fromGenentech on net sales of Erivedge. In all territories other thanAustralia , our obligation is equal to 5% of the royalty payments that we receive fromGenentech for a period of 10 years from the first commercial sale of Erivedge, which occurred inFebruary 2012 in theU.S. Research and Development. Research and development expense consists of costs incurred to develop our 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; 28 -------------------------------------------------------------------------------- Table of Contents •sublicense payments; •the costs of supplies and reagents; •occupancy and depreciation charges; •certain payments that we make under our collaboration agreements, including, for example, semi-annual payments, option exercise fees and milestone payments; •payments that we are obligated to make to certain third-party university licensors upon our receipt of payments fromGenentech related to the achievement of clinical development and regulatory objectives under our collaboration agreement; and •internal and external costs of complying with the requirements of the FDA or another regulatory authority. We expense research and development costs as incurred. We are currently incurring research and development costs under our Hedgehog signaling pathway antagonist collaboration withGenentech related to the maintenance of third-party licenses to certain background technologies. Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will increase substantially over the next several years as we conduct our clinical trials of CA-4948 and CI-8993; prepare regulatory filings for our product candidates; continue to develop additional product candidates; and potentially advance our product candidates into later stages of clinical development. The successful development and commercialization of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of: •our ability to successfully enroll our current and future clinical trials and our ability to initiate future clinical trials, which has been and may continue to be negatively impacted by the COVID-19 pandemic and responsive measures relating thereto; •the scope, quality of data, rate of progress and cost of clinical trials and other research and development activities undertaken by us or our 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 our drug candidates and any products that we 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. Any changes in the outcome of any of these variables with respect to the development of our product candidates could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA or another regulatory authority were to delay our clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time to complete clinical development of that product candidate. We may never obtain regulatory approval for any of our product candidates. If we do obtain regulatory approval for our product candidates, drug commercialization will take several years and millions of dollars in development costs. A further discussion of some of the risks and uncertainties associated with completing our research and development programs on schedule, or at all, and some consequences of failing to do so, are set forth under Item 1A, "Risk Factors" of Part I of our Annual Report on Form 10-K for the year endedDecember 31, 2020 . General and Administrative. General and administrative expense consists primarily of salaries, stock-based compensation expense and other related costs for personnel in executive, finance, accounting, business development, legal, information technology, corporate communications and human resource functions. Other costs include facility costs not otherwise included 29 -------------------------------------------------------------------------------- Table of Contents in research and development expense, insurance, and professional fees for legal, patent and accounting services. Patent costs include certain patents covered under collaborations, a portion of which is reimbursed by collaborators and a portion of which is borne by us. Critical Accounting Policies and Estimates The preparation of our consolidated financial statements in conformity with accounting principles generally accepted inthe United States requires that we make estimates and assumptions that affect the reported amounts and disclosure of certain assets and liabilities at our balance sheet date. Such estimates and judgments include the carrying value of property and equipment and intangible assets, revenue recognition, the value of certain liabilities, debt classification and stock-based compensation. We base our estimates on historical experience and on various other factors that we believe to be appropriate under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. During the six months endedJune 30, 2021 , there were no material changes to our critical accounting policies and estimates as reported in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , which was filed with theSEC onMarch 16, 2021 . Results of Operations Three and Six Months EndedJune 30, 2021 andJune 30, 2020
The following table summarizes our results of operations for the three and six
months ended
For the Three Months Ended Percentage For the Six Months Ended Percentage
June 30, Increase June 30, Increase
2021 2020 (Decrease) 2021 2020 (Decrease)
(in thousands) (in thousands)
Revenues, net: $ 2,286 $ 2,360 (3) % $ 4,475 $ 5,068 (12) %
Costs and expenses:
Cost of royalty revenues 116 122 (5) % 225 247 (9) %
Research and development 8,753 5,282 66 % 15,510 12,754 22 %
General and administrative 4,067 2,386 70 % 8,190 5,980 37 %
Other expense, net 188 1,278 (85) % 1,315 2,504 (47) %
Net loss $ (10,838) $ (6,708) 62 % $ (20,765) $ (16,417) 26 %
Revenues. Total revenues are summarized as follows:
For the Three Months Ended Percentage For the Six Months Ended Percentage
June 30, Increase June 30, Increase
2021 2020 (Decrease) 2021 2020 (Decrease)
(in thousands) (in thousands)
Revenues, net:
Royalties $ 2,348 $ 2,446 (4) % $ 4,535 $ 4,961 (9) %
Other revenue 1 - 100 % 1 211 (100) %
Contra revenue, net (63) (86) (27) % (61) (104) (41) %
Total revenues, net $ 2,286 $ 2,360 (3) % $ 4,475 $ 5,068 (12) %
Total revenues, net of $2.3 million decreased by 3% for the three months ended
June 30, 2021 as compared to the same period in 2020. The decrease is driven by
decreased royalty revenues arising from Genentech and Roche's net sales of
Erivedge during the current year period as compared to the prior year period.
Total revenues, net of $4.5 million decreased by 12% for the six months ended
June 30, 2021 as compared to the same period in 2020. The decrease was primarily
due to the inclusion of a milestone payment from an out-licensed technology that
occurred in the first quarter of 2020 for which there was no such amount in
2021.
Cost of Royalty Revenues. Cost of royalty revenues decreased by 5% and 9% for
the three and six months ended June 30, 2021 as compared to the same period in
2020, respectively, which is consistent with the decrease in royalty revenue. We
are
30
--------------------------------------------------------------------------------
Table of Contents
obligated to make payments to two university licensors on royalties that Curis
Royalty earns from Genentech on net sales of Erivedge.
Research and Development Expenses. The following table summarizes our research
and development expenses incurred during the periods indicated:
For the Three Months Ended Percentage For the Six Months Ended Percentage
June 30, Increase June 30, Increase
2021 2020 (Decrease) 2021 2020 (Decrease)
(in thousands) (in thousands)
Direct research and development
$ 9,741 $ 8,619 expenses 64 % 13 % Employee related expenses 2,788 1,434 94 % 4,851 3,180 53 % Facilities, depreciation and other 492 512 918 955 expenses (4) % (4) % Total research and development expenses$ 8,753 $ 5,282 66 %$ 15,510 $ 12,754 22 % Research and development expenses were$8.8 million for the three months endedJune 30, 2021 as compared to$5.3 million in the same period in 2020, an increase of approximately$3.5 million , or 66%. Direct research and development expenses increased by$2.1 million for the three months endedJune 30, 2021 as compared to the same period in 2020. The increase in direct research and development expenses for the quarter is primarily attributable to increased clinical and manufacturing costs for our programs. Additionally, employee related costs increased by$1.4 million , primarily attributable to increased stock compensation and personnel costs as a result of additional headcount. Research and development expenses were$15.5 million for the six months endedJune 30, 2021 as compared to$12.8 million in the same period in 2020, an increase of approximately$2.8 million , or 22%. Direct research and development expenses increased by$1.1 million for the six months endedJune 30, 2021 as compared to the same period in 2020. The increase in direct research and development expenses for the quarter is primarily attributable to increased clinical and manufacturing costs for our programs. The increase in costs is offset by the upfront license fee expense from our option and license agreement with ImmuNext that occurred during the first quarter of 2020. Additionally, employee related costs increased by$1.7 million , primarily attributable to increased stock compensation and personnel costs as a result of additional headcount. We expect that a majority of our research and development expenses for the foreseeable future will be incurred in connection with our efforts to advance our programs, including clinical and preclinical development costs, manufacturing, option exercise fees, and potential milestone payments upon achievement of certain milestones. General and Administrative Expenses. General and administrative expenses are summarized as follows: For the Three Months Ended Percentage For the Six Months Ended Percentage June 30, Increase June 30, Increase 2021 2020 (Decrease) 2021 2020 (Decrease) (in thousands) (in thousands) Personnel$ 1,336 $ 992 35 %$ 2,514 $ 2,108 19 % Occupancy and depreciation 153 222 (31) % 299 345 (13) % Legal services 568 233 >100 % 1,433 1,415 1 % Professional and consulting services 751 257 >100 % 1,508 645 >100 % Insurance costs 149 114 31 % 303 220 38 % Stock-based compensation 835 400 >100 % 1,596 855 87 % Other general and administrative expenses 276 168 64 % 537 392 37 % Total general and administrative expenses$ 4,068 $ 2,386 70 %$ 8,190 $ 5,980 37 % General and administrative expenses were$4.1 million for the three months endedJune 30, 2021 , as compared to$2.4 million in the same period in 2020, an increase of$1.7 million , or 70%. The increase in general administrative expense was driven primarily by higher costs for stock-based compensation, personnel, professional and consulting services, and legal services during the three months endedJune 30, 2021 . General and administrative expenses were$8.2 million for the six months endedJune 30, 2021 , as compared to$6.0 million in the same period in 2020, an increase of$2.2 million , or 37%. The increase in general administrative expense was 31 -------------------------------------------------------------------------------- Table of Contents driven primarily by higher costs for stock-based compensation, personnel, and professional and consulting services costs during the six months endedJune 30, 2021 . Other Expense. Other expense decreased by$1.1 million , or 85% for the three months endedJune 30, 2021 as compared to the same period in 2020 primarily due to the forgiveness of the PPP Loan. See "Liquidity and Capital Resources - Debt Financing" for further discussion. The remaining net other expense for the three months endedJune 30, 2021 andJune 30, 2020 primarily consisted of imputed interest expense related to future royalty payments. Other expense decreased by$1.2 million , or 47% for the six months endedJune 30, 2021 as compared to the same period in 2020 primarily due to the forgiveness of the PPP Loan. The remaining net other expense for the six months endedJune 30, 2021 andJune 30, 2020 primarily consisted of imputed interest expense related to future royalty payments. Liquidity and Capital Resources We have financed our operations primarily through private and public placements of our equity securities, license fees, contingent cash payments and research and development funding from our corporate collaborators, debt financings, and the monetization of certain royalty rights. See "Funding Requirements" and Note 1 to the Condensed Consolidated Financial Statements appearing in this Quarterly Report on Form 10-Q for a further discussion of our liquidity. AtJune 30, 2021 , our principal sources of liquidity consisted of cash, cash equivalents and investments of$160.7 million , excluding our restricted cash of$0.8 million . Our cash and cash equivalents are highly liquid investments with a maturity of three months or less at date of purchase. Our short and long-term investments primarily include commercial paper and securities. We maintain cash balances with financial institutions in excess of insured limits. Common Stock Purchase Agreement InFebruary 2020 , we entered into a common stock purchase agreement, or the Agreement, withAspire Capital Fund, LLC , orAspire Capital , for the sale of up to$30.0 million of our common stock. Under the terms of the Agreement,Aspire Capital has committed to purchase such shares of our common stock at our request, from time to time during a 30-month period at prices based on the market price at the time of each sale, subject to specified terms and limitations.Aspire Capital made an initial investment of$3.0 million through the purchase of 2,693,965 shares of the our common stock. In 2020,Aspire Capital subsequently purchased an additional 4,650,000 shares of our common stock for$5.4 million . In addition, as consideration forAspire Capital's obligation under the Agreement, we issued 646,551 shares of common stock toAspire Capital as a commitment fee. We also entered into a registration rights agreement withAspire Capital in connection with our entry into the Agreement in which we agreed to file with theSEC one or more registration statements, as necessary, and to the extent permissible and subject to certain exceptions, to register under the Securities Act, the sale of the shares of our common stock that have been and may be issued toAspire Capital under the Agreement. As ofJune 30, 2021 andDecember 31, 2020 , a total of$21.6 million remained available under the Agreement. We did not sell shares of common stock under this Agreement during the three months endedJune 30, 2021 andJune 30, 2020 . Under the terms of the Agreement, we have the right to sell up to 150,000 shares of common stock per day toAspire Capital , which total may be increased by mutual agreement up to an additional 2,000,000 shares per day. The extent to which we rely onAspire Capital as a source of funding will depend on a number of factors, including the prevailing market price of our common stock and the extent to which we are able to secure working capital from other sources. Pursuant to the Agreement, we will control the timing and amount of the further sale of our common stock toAspire Capital . We plan to use the proceeds for general corporate purposes, including research and development, clinical trial activity and working capital. There are no restrictions on future financings and there are no financial covenants, participation rights, rights of first refusal, or penalties in the Agreement. We have the right to terminate the Agreement at any time without any additional cost or penalty. Equity Offerings InMarch 2020 , we entered into a Capital on Demand™ Sales Agreement withJonesTrading Institutional Services LLC , or JonesTrading, to sell from time to time up to$30.0 million of our common stock through an "at the market offering" program under which JonesTrading acted as sales agent. We terminated this sales agreement effective as ofDecember 9, 2020 . We did not incur any termination penalties as a result of the termination. As of the effective date of the termination of this sales agreement, we had sold an aggregate of 6,298,648 shares of common stock under the sales agreement for aggregate gross proceeds of$8.3 million and net proceeds of$7.9 million , after deducting commissions and offering expenses. The$21.7 million of common stock that remained unsold under this sales agreement at the time of termination is no longer available. 32 -------------------------------------------------------------------------------- Table of Contents InJune 2020 , we entered into a securities purchase agreement with certain institutional investors, pursuant to which we issued and sold, in a registered direct offering, an aggregate of 14,000,000 shares of our common stock at a purchase price per share of$1.25 , for aggregate gross proceeds of$17.5 million , before deducting fees of approximately$1.0 million paid to the placement agent and other offering expenses of approximately$0.5 million paid by us. JonesTrading acted as the exclusive placement agent for the transaction, and we offered the shares pursuant to our universal shelf registration statement on Form S-3, or the 2018 Shelf, which was filed with theSEC onMay 3, 2018 and declared effective by theSEC onMay 17, 2018 (File No. 333-224627), and a prospectus supplement thereunder. InDecember 2020 , we completed an underwritten public offering of 29,500,000 shares of our common stock, including 3,847,826 shares issued and sold upon the exercise in full of the underwriters' option to purchase additional shares, at a public offering price of$5.75 per share, for aggregate gross proceeds of$169.6 million before deducting underwriting discounts and commissions and other offering expenses of$10.2 million . The securities in this transaction were offered pursuant to the 2018 Shelf and an additional registration statement on Form S-3 (File No. 333-251211) filed pursuant to Rule 462(b) which became automatically effective onDecember 9, 2020 , and a prospectus supplement thereunder. InMarch 2021 , we entered into a Sales Agreement withCantor Fitzgerald & Co. , or Cantor, and JonesTrading to sell from time to time up to$100.0 million of our common stock through an "at the market offering" program under which Cantor and JonesTrading act as sales agents. To date, we have not made any sales of common stock pursuant to the sales agreement. The securities in this transaction were offered pursuant to an automatic shelf registration statement of securities on Form S-3ASR (File No. 333-254362) that was filed with theSEC onMarch 16, 2021 . Debt Financing InApril 2020 , we entered into a promissory note evidencing an unsecured$0.9 million loan, or the PPP Loan, under the Paycheck Protection Program, or PPP, of the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act as administered by theU.S. Small Business Administration , or the SBA. The PPP Loan was made bySilicon Valley Bank and had a term of 24-months and an interest rate of 1%. Under the terms of the CARES Act and the Paycheck Protection Program Flexibility Act of 2020, PPP Loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP. We applied for such forgiveness in 2020 and received notification inJune 2021 that the SBA has forgiven the PPP Loan in full, including interest accrued on the PPP Loan. During the three months and six months endedJune 30, 2021 , the Company recorded a gain of$0.9 million to Other income (expense), net for extinguishment of the debt. Royalty Interest Purchase Agreement InMarch 2019 , we and Curis Royalty entered into the Oberland Purchase Agreement with the Purchasers. We sold to the Purchasers a portion of our rights to receive royalties fromGenentech on potential net sales of Erivedge. As upfront consideration for the purchase of the royalty rights, at closing the Purchasers paid to Curis Royalty$65.0 million less certain transaction expenses. Curis Royalty will also be entitled to receive up to approximately$70.7 million in milestone payments based on sales of Erivedge as follows: (i)$17.2 million if the Purchasers and Curis Royalty receive aggregate royalty payments pursuant to the Oberland Purchase Agreement in excess of$18.0 million during the calendar year 2021, subject to certain exceptions and (ii)$53.5 million if the Purchasers receive payments pursuant to the Oberland Purchase Agreement in excess of$117.0 million on or prior toDecember 31, 2026 . For further discussion please refer to Note 8, Liability Related to the Sale of Future Royalties. Milestone Payments and Monetization of Royalty Rights We have received aggregate milestone payments totaling$59.0 million under our collaboration withGenentech since 2012. In addition, we began receiving royalty revenues in 2012 in connection withGenentech's sales of Erivedge in theU.S. and Roche's sales of Erivedge outside of theU.S. Erivedge royalty revenues received afterDecember 2012 have been used to repay Curis Royalty's outstanding principal and interest under the loans due to BioPharma-II and HealthCare Royalty. A portion of Erivedge royalty and royalty-related revenue payments will be paid to the Purchasers pursuant to the Oberland Purchase Agreement. We also remain entitled to receive any contingent payments upon achievement of clinical development objectives and royalty payments related to sales of Erivedge pursuant to our collaboration agreement withGenentech and certain contingent payments upon achievement of contractually specified royalty revenue payment amounts related to sales of Erivedge pursuant to the Oberland Purchase Agreement. Upon receipt of any such payments, as well as on royalties received in any territory other thanAustralia , we are required to make payments to certain university licensors totaling 5% of these amounts. In addition, for royalties that Curis Royalty receives from Roche's sales of Erivedge inAustralia , we were obligated to make payments to university licensors of 2% of Roche's direct net sales inAustralia until the expiration of the patent inApril 2019 . AfterApril 2019 , the amount we are obligated to pay inAustralia decreased to 5% of the royalty payments that Curis Royalty receives fromGenentech . 33 -------------------------------------------------------------------------------- Table of Contents Cash Flows Cash flows for operations have primarily been used for salaries and wages for our employees, facility and facility-related costs for our office and laboratory, fees paid in connection with preclinical and clinical studies, laboratory supplies, consulting fees and legal fees. We expect that costs associated with clinical studies will increase in future periods. Net cash used in operating activities of$19.8 million during the six months endedJune 30, 2021 was primarily the result of our net loss for the period of$20.8 million , offset by non-cash charges consisting of stock-based compensation, loan forgiveness, non-cash lease expense, depreciation, and non-cash imputed interest totaling$2.6 million . Accounts payable, accrued expenses and operating lease liability decreased by$2.0 and prepaid expenses and other assets increased by$0.4 million . These changes increased cash utilization. Accounts receivable decreased$0.7 million and reduced cash utilization. We recognized a gain of$0.9 million on the forgiveness of the PPP Loan. Net cash used in operating activities of$14.1 million during the six months endedJune 30, 2020 was primarily the result of our net loss for the period of$16.4 million , offset by non-cash charges consisting of stock-based compensation, amortization of debt issuance costs, non-cash lease expense, depreciation, and non-cash imputed interest totaling$1.6 million . Accounts payable and accrued and other liabilities decreased$0.1 million , and accounts receivable decreased$0.8 million related to a decrease in Erivedge royalties. Prepaid expenses and other assets decreased$0.1 million . We expect to continue to use cash in operations as we seek to advance our drug candidates and our programs under our collaboration agreements withAurigene and ImmuNext. In addition, in the future we may owe royalties and other contingent payments to our licensors based on the achievement of developmental milestones, product sales and other specified objectives. Investing activities used cash of$32.8 million and provided cash of$4.6 million for the six months endedJune 30, 2021 and 2020, respectively, resulting primarily from net investment activity from purchases and sales or maturities of investments for the respective periods. Financing activities used cash of$1.9 million for the six months endedJune 30, 2021 , primarily due to the payment of our liability under the Oberland Purchase Agreement. Financing activities provided cash of$17.8 million for the six months endedJune 30, 2020 , as a result of the proceeds from our registered direct offering inJune 2020 and the issuance of shares toAspire Capital in the first quarter of 2020, offset by the payment of our liability under the Oberland Purchase Agreement. We have historically derived a portion of our operating cash flow from our receipt of milestone payments under collaboration agreements with third parties. However, we cannot predict whether we will receive additional milestone payments under existing or future collaborations. Funding Requirements We have incurred significant losses since our inception. As ofJune 30, 2021 , we had an accumulated deficit of approximately$1.1 billion . We will require substantial funds to continue our research and development programs and to fulfill our planned operating goals. Our planned operating and capital requirements currently include the support of our current and future research and development activities for CA-4948 and CI-8993 as well as development candidates we have and continue to license under our collaborations withAurigene and ImmuNext. We will require substantial additional capital to fund the further development of these programs, as well as to fund our general and administrative costs and expenses. Moreover, our agreements with collaborators impose significant potential financial obligations on us. For example, under our collaboration, license and option agreement withAurigene , we are required to make milestone, royalty and option fee payments for discovery, research and preclinical development programs that will be performed byAurigene , which impose significant potential financial obligations on us. In addition, if we choose to exercise our option under the option and license agreement with ImmuNext, or the ImmuNext Agreement, we will be required to make milestone, royalty, and option fee payments in connection with the development of CI-8993. Based upon our current operating plan, we believe that our existing cash, cash equivalents and investments of$160.7 million as ofJune 30, 2021 , should enable us to fund our operating expenses and capital expenditure requirements into 2024. We have based this assessment on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. We will need to raise additional capital or incur indebtedness to continue to fund our operations in the future. Our ability to raise additional funds will depend on financial, economic and market conditions, many of which are outside of our control, and we may be unable to raise financing when needed, or on terms favorable to us. If necessary funds are not available, we may have to delay, reduce the scope of, or eliminate some of our development programs, potentially delaying the time to market for, or preventing the marketing of, any of our product candidates, which could adversely affect our business prospects, and we may be unable to continue our operations. 34
--------------------------------------------------------------------------------
Table of Contents Furthermore, there are a number of factors that may affect our future capital requirements and further accelerate our need for additional working capital, many of which are outside our control, including the following: •unanticipated costs in our research and development programs; •the timing and cost of obtaining regulatory approvals for our drug candidates and maintaining compliance with regulatory requirements; •payments due to licensors, includingAurigene and ImmuNext if we exercise our option under the ImmuNext Agreement, for patent rights and technology used in our drug development programs; •the costs of commercialization activities for any of our drug candidates that receive marketing approval, to the extent such costs are our responsibility, including the costs and timing of establishing drug sales, marketing, distribution and manufacturing capabilities; •unplanned costs to prepare, file, prosecute, defend and enforce patent claims and other patent-related costs, including litigation costs and technology license fees; •unexpected losses in our cash investments or an inability to otherwise liquidate our cash investments due to unfavorable conditions in the capital markets; and •impacts resulting from the COVID-19 pandemic and responsive actions relating thereto. To become and remain profitable, we, either alone or with collaborators, must develop and eventually commercialize one or more drug candidates with significant market potential. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our drug candidates, obtaining marketing approval for these drug candidates, manufacturing, marketing and selling those drugs for which we may obtain marketing approval and satisfying any post marketing requirements. We may never succeed in these activities and, even if we do, may never generate revenues that are significant or large enough to achieve profitability. Other than Erivedge, which is being commercialized byGenentech and Roche, our most advanced drug candidates are currently only in early clinical testing. For the foreseeable future, we will need to spend significant capital in an effort to develop and commercialize products and we expect to incur substantial operating losses. Our failure to become and remain profitable would, among other things, depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our research and development programs or continue our operations. New Accounting Pronouncements For detailed information regarding recently issued accounting pronouncements and the expected impact on our Condensed Consolidated Financial Statements, see Note 2g, New Accounting Pronouncements, in the accompanying Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I of this Form 10-Q. Contractual Obligations There have been no material changes to our contractual obligations set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Off-Balance Sheet Arrangements We have no off-balance sheet arrangements as ofJune 30, 2021 .
© Edgar Online, source
