10-Q 1 kura-10q_20190331.htm 10-Q kura-10q_20190331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From ________ To ________

Commission file number: 001-37620

 

KURA ONCOLOGY, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

61-1547851

(State or Other Jurisdiction of
Incorporation or Organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

3033 Science Park Road, Suite 220, San Diego, CA

 

92121

(Address of Principal Executive Offices)

 

(Zip Code)

(858) 500-8800

(Registrant’s Telephone Number, Including Area Code)

 

 

 

(Former Name, Former Address or Former Fiscal Year If Changed Since Last Report)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

 

KURA

 

The Nasdaq Global Select Market

As of the close of business on May 3, 2019, the registrant had 38,184,547 shares of Common Stock ($0.0001 par value) outstanding.

 


 

 

KURA ONCOLOGY, INC.

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

Condensed Balance Sheets − As of March 31, 2019 (unaudited) and December 31, 2018

1

 

 

 

 

Condensed Statements of Operations and Comprehensive Loss – Three months ended March 31, 2019 and 2018 (unaudited)

2

 

 

 

 

Condensed Statements of Stockholders’ Equity – Three Months Ended March 31, 2019 and 2018 (unaudited)

3

 

 

 

 

Condensed Statements of Cash Flows – Three Months Ended March 31, 2019 and 2018 (unaudited)

4

 

 

 

 

Notes to Condensed Financial Statements (unaudited)

5

 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

12

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

18

 

 

 

 

Item 4. Controls and Procedures

18

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1. Legal Proceedings

19

 

 

 

 

Item 1A. Risk Factors

19

 

 

 

 

Item 6. Exhibits

52

 

 

Signatures

53

 

 

 

 


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KURA ONCOLOGY, INC.

Condensed Balance Sheets

(In thousands, except par value data) 

 

 

 

 

March 31,

2019

 

 

December 31,

2018 (1)

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,778

 

 

$

16,119

 

Short-term investments

 

 

147,747

 

 

 

162,866

 

Accounts receivable, related party

 

 

179

 

 

 

224

 

Prepaid expenses and other current assets

 

 

1,882

 

 

 

1,988

 

Total current assets

 

 

167,586

 

 

 

181,197

 

Other long-term assets

 

 

1,772

 

 

 

1,166

 

Other long-term assets, related party

 

 

259

 

 

 

16

 

Total assets

 

$

169,617

 

 

$

182,379

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

11,782

 

 

$

13,385

 

Accounts payable and accrued expenses, related party

 

 

361

 

 

 

230

 

Total current liabilities

 

 

12,143

 

 

 

13,615

 

Long-term debt, net

 

 

7,500

 

 

 

7,500

 

Other long-term liabilities

 

 

385

 

 

 

279

 

Other long-term liabilities, related party

 

 

24

 

 

 

 

Total liabilities

 

 

20,052

 

 

 

21,394

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000 shares authorized; no shares

     issued and outstanding

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000 shares authorized;

     38,169 and 38,148 shares issued and outstanding as of

     March 31, 2019 and December 31, 2018, respectively

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

313,220

 

 

 

310,849

 

Accumulated other comprehensive income (loss)

 

 

18

 

 

 

(131

)

Accumulated deficit

 

 

(163,677

)

 

 

(149,737

)

Total stockholders' equity

 

 

149,565

 

 

 

160,985

 

Total liabilities and stockholders' equity

 

$

169,617

 

 

$

182,379

 

(1)

The balance sheet data at December 31, 2018 has been derived from audited financial statements at that date. It does not include, however, all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements.

See accompanying notes to unaudited condensed financial statements.

 

1


KURA ONCOLOGY, INC.

Condensed Statements of Operations and Comprehensive Loss

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Operating Expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

10,329

 

 

$

11,267

 

Research and development, related party

 

 

53

 

 

 

299

 

General and administrative

 

 

4,482

 

 

 

3,366

 

General and administrative, related party

 

 

87

 

 

 

59

 

Total operating expenses

 

 

14,951

 

 

 

14,991

 

Other Income (Expense):

 

 

 

 

 

 

 

 

Management fee income, related party

 

 

126

 

 

 

195

 

Interest income

 

 

1,030

 

 

 

450

 

Interest expense

 

 

(145

)

 

 

(258

)

Total other income

 

 

1,011

 

 

 

387

 

Net Loss

 

$

(13,940

)

 

$

(14,604

)

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.37

)

 

$

(0.46

)

Weighted average number of shares used in

     computing net loss per share, basic and diluted

 

 

38,168

 

 

 

31,829

 

 

 

 

 

 

 

 

 

 

Comprehensive Loss:

 

 

 

 

 

 

 

 

Net loss

 

$

(13,940

)

 

$

(14,604

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities

 

 

149

 

 

 

(19

)

Comprehensive Loss

 

$

(13,791

)

 

$

(14,623

)

 

 See accompanying notes to unaudited condensed financial statements.

 

 

 

2


KURA ONCOLOGY, INC.

Condensed Statements of Stockholders’ Equity

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2018

 

38,148

 

 

$

4

 

 

$

310,849

 

 

$

(131

)

 

$

(149,737

)

 

$

160,985

 

Share-based compensation expense

 

 

 

 

 

 

 

2,269

 

 

 

 

 

 

 

 

 

2,269

 

Issuance of common stock from exercise of options

 

21

 

 

 

 

 

 

102

 

 

 

 

 

 

 

 

 

102

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

149

 

 

 

 

 

 

149

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,940

)

 

 

(13,940

)

Balance at March 31, 2019

 

38,169

 

 

$

4

 

 

$

313,220

 

 

$

18

 

 

$

(163,677

)

 

$

149,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2017

 

29,424

 

 

$

3

 

 

$

169,201

 

 

$

(49

)

 

$

(89,290

)

 

$

79,865

 

Issuance of common stock, net of offering costs

 

3,137

 

 

 

 

 

 

57,378

 

 

 

 

 

 

 

 

 

57,378

 

Share-based compensation expense

 

 

 

 

 

 

 

2,179

 

 

 

 

 

 

 

 

 

2,179

 

Restricted stock awards vested

 

295

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

(19

)

 

 

 

 

 

(19

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,604

)

 

 

(14,604

)

Balance at March 31, 2018

 

32,856

 

 

$

3

 

 

$

228,759

 

 

$

(68

)

 

$

(103,894

)

 

$

124,800

 

 

See accompanying notes to unaudited condensed financial statements.

3


KURA ONCOLOGY, INC.

Condensed Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Operating Activities

 

 

 

 

 

 

 

 

Net loss

 

$

(13,940

)

 

$

(14,604

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

2,269

 

 

 

2,179

 

Non-cash interest expense

 

 

 

 

 

57

 

Depreciation expense

 

 

 

 

 

5

 

Amortization of premium and accretion of discount on marketable securities, net

 

 

(540

)

 

 

(275

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, related party

 

 

45

 

 

 

(41

)

Prepaid expenses and other current assets

 

 

146

 

 

 

(624

)

Other long-term assets

 

 

(239

)

 

 

(163

)

Other long-term assets, related party

 

 

57

 

 

 

 

Accounts payable and accrued expenses

 

 

(1,920

)

 

 

440

 

Accounts payable and accrued expenses, related party

 

 

(145

)

 

 

117

 

Other long-term liabilities

 

 

16

 

 

 

58

 

Net cash used in operating activities

 

 

(14,251

)

 

 

(12,851

)

 

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

 

Maturities and sales of marketable securities

 

 

66,656

 

 

 

46,493

 

Purchases of marketable securities

 

 

(50,848

)

 

 

(76,207

)

Net cash provided by (used in) investing activities

 

 

15,808

 

 

 

(29,714

)

 

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net

 

 

 

 

 

57,650

 

Proceeds from exercise of stock options

 

 

102

 

 

 

 

Net cash provided by financing activities

 

 

102

 

 

 

57,650

 

Net increase in cash and cash equivalents

 

 

1,659

 

 

 

15,085

 

Cash and cash equivalents at beginning of period

 

 

16,119

 

 

 

11,433

 

Cash and cash equivalents at end of period

 

$

17,778

 

 

$

26,518

 

See accompanying notes to unaudited condensed financial statements.

 

4


KURA ONCOLOGY, INC.

Notes to Unaudited Condensed Financial Statements

 

1. Organization and Basis of Presentation

The Company

Kura Oncology, Inc. is a clinical-stage biopharmaceutical company committed to realizing the promise of precision medicines for the treatment of cancer. Our pipeline consists of small molecule product candidates that target cancer signaling pathways where there is a strong scientific and clinical rationale to improve outcomes, and we intend to pair them with molecular or cellular diagnostics to identify those patients most likely to respond to treatment. We plan to advance our product candidates through a combination of internal development and strategic partnerships and maintain significant development and commercial rights.

References in these Notes to Unaudited Condensed Financial Statements to the “Company,” “we,” “our” or “us,” refer to Kura Oncology, Inc.

Basis of Presentation

The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as filed with the Securities and Exchange Commission on March 5, 2019, from which we derived our balance sheet as of December 31, 2018. The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying unaudited condensed financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying unaudited condensed financial statements reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of our management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

The preparation of the unaudited condensed financial statements in accordance with GAAP requires our management to make estimates and assumptions that affect the amounts reported on our unaudited condensed financial statements and accompanying notes. The amounts reported could differ under different estimates and assumptions. On an ongoing basis, we evaluate our estimates and judgments, which are based on historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from management’s estimates.

 

 

2. Summary of Significant Accounting Policies

Comprehensive Loss

Comprehensive loss is defined as the change in equity during the period from transactions and other events and non-owner sources. For the periods presented, accumulated other comprehensive income (loss) consists of unrealized gains and losses on marketable securities and foreign currency.

Net Loss per Share

Net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common shares and common stock equivalents outstanding for the period determined using the treasury-stock method. Dilutive common stock equivalents are comprised of outstanding stock options, unvested restricted stock awards, outstanding warrants and employee stock purchase plan rights.

For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the antidilutive effect of the securities. Because of our net loss, outstanding stock options, unvested restricted stock awards, outstanding warrants and employee stock purchase plan rights are excluded from the calculation of diluted net loss per common share for the periods presented, due to the anti-dilutive effect of the securities.

5


The following table summarizes the number of potentially dilutive securities that were excluded from our calculation of diluted net loss per share, in thousands:

 

 

Three Months Ended March 31,

 

 

2019

 

 

2018

 

Stock options

 

4,333

 

 

 

3,011

 

Unvested restricted stock awards

 

 

 

 

498

 

Warrant

 

34

 

 

 

34

 

Employee stock purchase plan rights

 

16

 

 

 

 

Total

 

4,383

 

 

 

3,543

 

 

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-02, Leases (Topic 842), which amended prior accounting standards for leases. ASU 2016-02 requires lessees to recognize right-of-use, or ROU, assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. Subsequently, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. ASU 2018-11 provides entities another option for transition, allowing entities to not apply the new standard in the comparative periods they present in the financial statements in the year of adoption. We adopted the new lease standard on January 1, 2019, using the alternative modified transition method provided by ASU 2018-11 and did not retrospectively apply to prior periods. We elected the “package of practical expedients” permitted under the transition which allows us not to reassess our historical assessment of whether existing contracts are or contain a lease and the classification of existing lease arrangements, and to calculate the present value of the fixed payments without performing an allocation of lease and non-lease components. As a result of the adoption of the new standard, we recognized operating lease ROU assets and operating lease liabilities of $0.6 million on our unaudited condensed balance sheet as of January 1, 2019. ROU assets are recorded in Other Long-Term Assets and Other Long-Term Assets, Related Party on our unaudited condensed balance sheets. Current and non-current lease liabilities are recorded in Accounts Payable and Accrued Expenses and Accounts Payable and Accrued Expenses, Related Party and Other Long-Term Liabilities and Other Long-Term Liabilities, Related Party, respectively, on our unaudited condensed balance sheets. The adoption of the new lease standard had no impact on our accumulated deficit. The adoption of the new lease standard did not have a material impact on our results of operations and cash flows. See Note 6, Leases, for further details.

In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting (Topic 718), which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The new guidance is intended to simplify aspects of share-based compensation issued to nonemployees by aligning the accounting for share-based payment awards issued to employees and nonemployees as it relates to measurement date and impact of performance conditions. This standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those annual periods. We adopted ASU 2018-07 on January 1, 2019. The adoption of ASU 2018-07 did not have a material impact on our unaudited condensed financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets and certain other instruments. For trade receivables and other instruments, entities will be required to use a new forward-looking expected loss model that generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those years, with early adoption permitted only as of annual reporting periods beginning after December 15, 2018. We are currently evaluating the timing and impact of the adoption of ASU 2016-13 on our unaudited condensed financial statements or related financial statement disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The new guidance modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently evaluating the timing and impact of the adoption of ASU 2018-13 on our unaudited condensed financial statements or related financial statement disclosures.

 

6


3. Investments

We invest in available-for-sale securities consisting of money market funds, U.S. Treasury securities, corporate debt securities and commercial paper. Available-for-sale securities are classified as part of either cash and cash equivalents or short-term investments on our unaudited condensed balance sheets.

The following tables summarize, by major security type, our investments that are measured at fair value on a recurring basis, in thousands:

 

 

 

 

As of March 31, 2019

 

 

Maturities

(years)

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

1 or less

 

$

13,590

 

 

$

 

 

$

 

 

$

13,590

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

2 or less

 

 

84,066

 

 

 

45

 

 

 

(12

)

 

 

84,099

 

U.S. Treasury securities

1 or less

 

 

44,763

 

 

 

11

 

 

 

(26

)

 

 

44,748

 

Commercial paper

1 or less

 

 

18,900

 

 

 

 

 

 

 

 

 

18,900

 

Total short-term investments

 

 

 

147,729

 

 

 

56

 

 

 

(38

)

 

 

147,747

 

Total

 

 

$

161,319

 

 

$

56

 

 

$

(38

)

 

$

161,337

 

 

 

 

 

As of December 31, 2018

 

 

Maturities

(years)

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

1 or less

 

$

8,508

 

 

$

 

 

$

 

 

$

8,508

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

1 or less

 

 

56,779

 

 

 

6

 

 

 

(77

)

 

 

56,708

 

U.S. Treasury securities

1 or less

 

 

39,780

 

 

 

 

 

 

(57

)

 

 

39,723

 

Commercial paper

1 or less

 

 

66,435

 

 

 

 

 

 

 

 

 

66,435

 

Total short-term investments

 

 

 

162,994

 

 

 

6

 

 

 

(134

)

 

 

162,866

 

Total

 

 

$

171,502

 

 

$

6

 

 

$

(134

)

 

$

171,374

 

The available-for-sale investments are classified as current assets, even though the stated maturity date may be one year or more beyond the current balance sheet date, which reflects management’s intention to use the proceeds from sales of these securities to fund our operations, as necessary. As of March 31, 2019, $142.8 million of our short-term investments had maturities less than one year, and $5.0 million had maturities between one to two years. Realized gains and losses were de minimus for the three months ended March 31, 2019. As of March 31, 2019, $55.1 million of our marketable securities were in immaterial gross unrealized loss positions.

At each reporting date, we perform an evaluation of our marketable securities to determine if any unrealized losses are other-than-temporary. Factors considered in determining whether a loss is other-than-temporary include (i) the financial strength of the issuing institution, (ii) the length of time and extent for which fair value has been less than the cost basis and (iii) our intent and ability to hold our investments in unrealized loss positions until their amortized cost basis has been recovered. Based on our evaluation, we determined that our unrealized losses were not other-than-temporary at March 31, 2019 and December 31, 2018.

7


4. Fair Value Measurements

As a basis for considering assumptions that market participants would use in pricing an asset or liability, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and

Level 3 - Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

Available-for-sale marketable securities consist of U.S. Treasury securities, which were measured at fair value using Level 1 inputs, and corporate debt securities and commercial paper, which were measured at fair value using Level 2 inputs. We determine the fair value of Level 2 related securities with the aid of valuations provided by third parties using proprietary valuation models and analytical tools. These valuation models and analytical tools use market pricing or prices for similar instruments that are both objective and publicly available, including matrix pricing or reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids and/or offers. We validate the fair values of Level 2 financial instruments by comparing these fair values to a third-party pricing source. No transfers between levels have occurred during the periods presented.

The following tables summarize, by major security type, our cash equivalents and short-term investments that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy, in thousands:

 

 

 

As of March 31, 2019

 

 

 

Balance

 

 

Level 1

 

 

Level 2

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

13,590

 

 

$

13,590

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

84,099

 

 

 

 

 

84,099

 

U.S. Treasury securities

 

 

44,748

 

 

 

44,748

 

 

 

 

Commercial paper

 

 

18,900

 

 

 

 

 

 

18,900

 

Total short-term investments

 

 

147,747

 

 

 

44,748

 

 

 

102,999

 

Total

 

$

161,337

 

 

$

58,338

 

 

$

102,999

 

 

 

 

 

As of December 31, 2018

 

 

 

Balance

 

 

Level 1

 

 

Level 2

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

8,508

 

 

$

8,508

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

56,708

 

 

 

 

 

 

56,708

 

U.S. Treasury securities

 

 

39,723

 

 

 

39,723

 

 

 

 

Commercial paper

 

 

66,435

 

 

 

 

 

 

66,435

 

Total short-term investments

 

 

162,866

 

 

 

39,723

 

 

 

123,143

 

Total

 

$

171,374

 

 

$

48,231

 

 

$

123,143

 

We believe that our term loan facility bears interest at a rate that approximates prevailing market rates for instruments with similar characteristics and, accordingly, the carrying value of the term loan facility approximates fair value. The fair value of our term loan facility is determined using Level 2 inputs in the fair value hierarchy.

8


5. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following, in thousands:

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Accounts payable

 

$

3,074

 

 

$

3,890

 

Accrued research and development expenses

 

 

5,943

 

 

 

5,550

 

Accrued compensation and benefits

 

 

1,574

 

 

 

3,437

 

Other accrued expenses

 

 

1,191

 

 

 

508

 

Total accounts payable and accrued expenses

 

$

11,782

 

 

$

13,385

 

 

6. Leases

We determine if an arrangement is a lease at inception. For operating leases with an initial term greater than 12 months, we recognize operating lease ROU assets and operating lease liabilities based on the present value of lease payments over the lease term at commencement date. Operating lease ROU assets are comprised of the lease liability plus any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate when we are reasonably certain that the option will be exercised. For our operating leases, we generally cannot determine the interest rate implicit in the lease, in which case we use our incremental borrowing rate as the discount rate for the lease. We estimate our incremental borrowing rate for our operating leases based on what we would normally pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments. Operating lease expense is recognized on a straight-line basis over the lease term.

If a lease is modified, the modified contract is evaluated to determine whether it is or contains a lease. If a lease continues to exist, the lease modification is determined to be a separate contract when the modification grants the lessee an additional right of use that is not included in the original lease and the lease payments increase commensurate with the standalone price for the additional ROU. The lease modification that results in a separate contract will be accounted in the same manner as a new lease. For a modification that is not a separate contract, we reassess the lease classification using the modified terms and conditions and the facts and circumstances as of the effective date of the modification and recognize the amount of the remeasurement of the lease liability for the modified lease as an adjustment to the corresponding ROU asset.  

We have a sublease with a related party for office space in San Diego, California and a lease for office space in Cambridge, Massachusetts, that existed before January 1, 2019 and were classified as operating leases. In March 2019, the sublease was amended to extend the expiration date from October 31, 2019 to April 30, 2020 with the monthly rent increased from approximately $16,000 to approximately $24,000 per month effective November 1, 2019, see Note 8, Related Party Transactions for further details of the sublease. We determined the sublease amendment did not modify the ROU asset and, therefore, was not a separate contract. Accordingly, we reassessed the lease classification and concluded the operating lease classification remained appropriate. The modified lease terms were included in determining the present value of lease payments for the sublease at the modification date. As such, we recognized an adjustment of approximately $0.1 million as an increase to the sublease liability and ROU asset. We do not have any new operating leases nor any finance leases as of March 31, 2019.

Operating lease expense was as follows, in thousands:

 

 

Three Months Ended

 

 

 

March 31, 2019

 

Operating lease cost

 

$

68

 

Operating lease cost, related party

 

 

58

 

Total operating lease costs

 

$

126

 

9


Supplemental cash flow information related to our operating leases was as follows, in thousands:

 

 

Three Months Ended

 

 

 

March 31, 2019

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

Operating cash flows from operating leases

 

$

67

 

Operating cash flows from operating leases, related party

 

 

49

 

Total cash paid for amounts included in the measurement of lease liabilities

 

$

116

 

 

 

 

 

 

ROU assets obtained in exchange for operating lease liabilities

 

$

61

 

ROU assets obtained in exchange for operating lease liabilities, related party

 

 

57

 

Total ROU assets obtained in exchange for operating lease liabilities

 

$

118

 

Supplemental balance sheet information related to our operating leases was as follows, in thousands (except lease term and discount rate):

 

 

March 31, 2019

 

Operating lease ROU assets

 

$

345

 

Operating lease ROU assets, related party

 

 

243

 

Total operating lease ROU assets

 

$

588

 

 

 

 

 

 

Current lease liabilities

 

$

256

 

Current lease liabilities, related party

 

 

228

 

Non-current lease liabilities

 

 

90

 

Non-current lease liabilities, related party

 

 

24

 

Total operating lease liabilities

 

$

598

 

 

 

 

 

 

Weighted-average remaining lease term (in years)

 

1.2

 

Weighted-average discount rate

 

 

6.5

%

Maturities of lease liabilities are as follows, in thousands:

Year Ending December 31,

 

 

 

 

2019 (remaining)

 

$

369

 

2020

 

 

256

 

Total lease payments

 

 

625

 

Less: imputed interest

 

 

(27

)

Total operating lease liabilities

 

$

598

 

 

7. Share-Based Compensation

The following table summarizes share-based compensation expense for all share-based compensation arrangements, in thousands:

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Research and development

 

$

797

 

 

$

1,439

 

General and administrative

 

 

1,472

 

 

 

740

 

Total share-based compensation expense

 

$

2,269

 

 

$

2,179

 

As of March 31, 2019, unrecognized compensation costs related to employee stock options was approximately $26.9 million, which is expected to be recognized over a weighted average period of approximately 3.0 years.

10


8. Related Party Transactions

Our president and chief executive officer is also the sole managing member of Araxes Pharma LLC, or Araxes, and is a significant stockholder of each of us and Araxes. The following is a summary of related party transactions for the three months ended March 31, 2019 and 2018:

 

Facility Sublease

We sublease office space in San Diego, California from Wellspring Biosciences, Inc., or Wellspring, a wholly owned subsidiary of Araxes. The sublease commenced in June 2017 and would have expired on October 31, 2019. In March 2019, the sublease was amended to extend until April 30, 2020, and the monthly rent increased to approximately $24,000 per month effective November 1, 2019, corresponding to the increase in Wellspring’s monthly rent. For the three months ended March 31, 2019 and 2018, rent expense, including operating costs, related to our sublease was approximately $0.1 million in both periods, as further discussed in Note 6, Leases.          

 

Management Fees

We have a management services agreement with Araxes pursuant to which Araxes pays us monthly fees for management services calculated based on costs incurred by us in the provision of services to Araxes, plus a reasonable mark-up. For the three months ended March 31, 2019 and 2018, we recorded approximately $0.1 million and $0.2 million, respectively, in management fee income. In addition, the agreement allows for Araxes to reimburse us an amount equal to the number of full-time equivalents, or FTE, performing research and development services for Araxes, at an annual FTE rate of approximately $374,000, plus actual expenses as reasonably incurred. The initial term of this agreement expired on December 31, 2015 but, pursuant to the terms of the agreement, renews automatically for additional consecutive one-year periods. The agreement may be terminated by either party with a notice of at least 30 days prior to the expiration of the then-renewal term. For the three months ended March 31, 2019 and 2018, we recorded reimbursements of approximately $0.1 million in both periods for research and development services provided to Araxes, which was recorded as a reduction to research and development expenses on our unaudited condensed statements of operations and comprehensive loss. As of March 31, 2019 and December 31, 2018, approximately $0.2 million in both periods related to management fees and reimbursements of research and development services are included in accounts receivable, related party on our unaudited condensed balance sheets.

 

Services Agreement

We have a services agreement with Wellspring pursuant to which we pay Wellspring for research and development services provided to us in an amount equal to the number of FTE’s performing the services, at an annual FTE rate of $400,000, plus actual expenses as reasonably incurred. The initial term of this services agreement expired on December 31, 2015 but, pursuant to the terms of the agreement, renews automatically for additional consecutive one-year periods. The agreement may be terminated by either party with a notice of at least 30 days prior to the expiration of the then-renewal term. For the three months ended March 31, 2019 and 2018, we recognized approximately $0.1 million and $0.3 million, respectively, from research and development services provided to us under this agreement as research and development expense, related party on our unaudited condensed statements of operations and comprehensive loss. As of March 31, 2019 and December 31, 2018, approximately $0.1 million and $0.2 million, respectively, related to research and development services under this agreement are included in accounts payable and accrued expenses, related party on our unaudited condensed balance sheets.


11


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and related notes included in this Quarterly Report on Form 10-Q, or Quarterly Report, and the audited financial statements and notes thereto as of and for the fiscal year ended December 31, 2018 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the Securities and Exchange Commission, or SEC, on March 5, 2019.

This Quarterly Report includes forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections, that involve a number of risks, uncertainties and assumptions. These forward-looking statements can generally be identified as such because the context of the statement will include words such as “may,” “will,” “intend,” “plan,” “believe,” “anticipate,” “expect,” “estimate,” “predict,” “potential,” “continue,” “likely,” or “opportunity,” the negative of these words or other similar words. Similarly, statements that describe our plans, strategies, intentions, expectations, objectives, goals or prospects and other statements that are not historical facts are also forward-looking statements. For such statements, we claim the protection of the Private Securities Litigation Reform Act of 1995. Readers of this Quarterly Report are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the time this Quarterly Report was filed with the SEC. These forward-looking statements are based largely on our expectations and projections about future events and future trends affecting our business, and are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. These risks and uncertainties include, without limitation, the risk factors identified in our SEC reports, including this Quarterly Report. In addition, past financial or operating performance is not necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate results or future period trends. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. Except as required by law, we undertake no obligation to update publicly or revise our forward-looking statements.

References to “we,” “us” and “our” refer to Kura Oncology, Inc.

Overview

We are a clinical-stage biopharmaceutical company committed to realizing the promise of precision medicines for the treatment of cancer. Our pipeline consists of small molecule product candidates that target cancer signaling pathways where there is a strong scientific and clinical rationale to improve outcomes, and we intend to pair them with molecular or cellular diagnostics to identify those patients most likely to respond to treatment. We plan to advance our product candidates through a combination of internal development and strategic partnerships and maintain significant development and commercial rights.

Our lead product candidate, tipifarnib, is a potent, selective and orally bioavailable inhibitor of farnesyl transferase. Tipifarnib was previously studied in more than 5,000 cancer patients and demonstrated compelling and durable anti-cancer activity in certain patients with a manageable side effect profile. We are currently evaluating tipifarnib in multiple solid tumor and hematologic indications.

Our most advanced solid tumor indication is in patients with head and neck squamous cell carcinoma, or HNSCC, that carry mutations in the HRAS gene. In September 2017, we reported that our ongoing proof-of-concept Phase 2 clinical trial of tipifarnib in patients with HRAS mutant relapsed or refractory HNSCC, or RUN-HN, achieved its primary efficacy endpoint. Following feedback from the U.S. Food and Drug Administration, or the FDA, and other regulatory authorities, we initiated a global, multi-center, open-label, non-comparative registration-directed clinical trial of tipifarnib in HRAS mutant HNSCC in November 2018. The clinical trial has two cohorts: A treatment cohort, which we call AIM-HN, and a non-interventional screening and outcomes cohort, which we call SEQ-HN. AIM-HN is designed to enroll at least 59 evaluable patients with HRAS mutant HNSCC who have received prior platinum-based therapy and is expected to take approximately two years to fully enroll. Following achievement of the primary efficacy endpoint in RUN-HN, we added a cohort to enroll patients having HRAS mutant squamous cell carcinomas, or SCCs, other than HNSCC. We anticipate having additional data from this clinical trial in the second half of 2019.

12


In addition to our tipifarnib development program in HRAS mutant solid tumors, we are evaluating the potential utility of tipifarnib using CXCL12 pathway biomarkers in a number of hematologic and solid tumor indications. In December 2018, we reported preliminary data from our ongoing Phase 2 clinical trial of tipifarnib in patients with relapsed or refractory peripheral T-cell lymphomas, or PTCL. The data showed a significant association between CXCL12 expression and clinical benefit, as well as clinical proof-of-concept in patients with angioimmunoblastic T-cell lymphoma, or AITL, an aggressive form of PTCL often characterized by high levels of CXCL12 expression. Additional data from this clinical trial have been accepted for presentation at the European Hematology Association Annual Congress and the International Conference on Malignant Lymphoma in June 2019.

We are also exploring the utility of CXCL12 pathway biomarkers as a strategy for patient enrichment in patients with relapsed or refractory acute myeloid leukemia, or AML, and chronic myelomonocytic leukemia, or CMML, in an ongoing Phase 2 clinical trial. We anticipate having additional data from the CMML cohort in 2019.

In April 2019, we reported new findings suggesting that gene expression of the exclusively farnesylated proteins RHOE and PRICKLE2 is strongly associated with CXCL12 expression in bone marrow stroma, which may provide a mechanistic rationale for why the CXCL12 pathway is a therapeutic target of tipifarnib and other farnesyl transferase inhibitors. In addition, an analysis of a subset of patients from a previously conducted Phase 2 clinical trial of tipifarnib in patients with relapsed or refractory lymphomas identified pre-treatment tumor CXCL12 expression as a potential biomarker of clinical benefit in patients with diffuse large B-cell lymphoma, or DLBCL, and mycosis fungoides, the most common form of cutaneous T-cell lymphoma, or CTCL.

Additionally, in January 2019, we reported the identification of a potential association between CXCL12 expression and clinical benefit from tipifarnib in patients with pancreatic cancer. We believe these findings support the potential use of tipifarnib in a broader set of hematologic and solid tumor indications, including pancreatic cancer, in which the CXCL12 pathway plays a role in tumor initiation and progression, and we are exploring opportunities for further clinical development in these disease settings.

Our second product candidate is KO-947, a potent and selective small molecule inhibitor of extracellular signal related kinase, or ERK, which we are advancing as a potential treatment for patients with tumors that have dysregulated activity due to mutations or other mechanisms in the mitogen-activated protein kinase, or MAPK, pathway. Our preclinical data suggest that KO-947 has anti-tumor activity in KRAS- or BRAF-mutant adenocarcinomas as well as certain subsets of squamous cell carcinomas. Our Phase 1 clinical trial of KO-947 in patients with solid tumors is ongoing, and we anticipate having data from the dose-escalation portion of the clinical trial in 2019.

Our third product candidate is KO-539, a potent and selective small molecule inhibitor of the menin-mixed lineage leukemia, or menin-MLL, protein-protein interaction. We have generated preclinical data that support the potential anti-tumor activity of KO-539 in genetically defined subsets of acute leukemia, including those with rearrangements or partial tandem duplications in the MLL gene as well as those with oncogenic driver mutations in genes such as NPM1. Our investigational new drug, or IND, application for KO-539 has been cleared by the FDA and we anticipate initiating our Phase 1 clinical trial in relapsed or refractory AML in mid-2019.

Liquidity Overview

As of March 31, 2019, we had cash, cash equivalents and short-term investments of $165.5 million. Under the terms of our loan and security agreement, or the SVB Loan Agreement, with Silicon Valley Bank, or the Lender, we may, at our sole discretion, borrow from the Lender up to an additional $12.5 million at any time until May 1, 2020. In March 2019, we entered into an at-the-market issuance sales agreement with SVB Leerink LLC and Stifel, Nicolaus & Company, Incorporated, or ATM facility, under which we may offer and sell, from time to time, at our sole discretion, shares of our common stock having an aggregate offering price of up to $75.0 million. We have not yet sold any shares of our common stock under the ATM facility. To date, we have not generated any revenues from product sales, and we do not have any approved products. Since our inception, we have funded our operations primarily through equity and debt financings. We anticipate that we will require significant additional financing in the future to continue to fund our operations as discussed more fully below under the heading “Liquidity and Capital Resources.”

13


Financial Operations Overview

Research and Development Expenses

We focus on the research and development of our product programs. Our research and development expenses consist of costs associated with our research and development activities including salaries, benefits, share-based compensation and other personnel costs, clinical trial costs, manufacturing costs for non-commercial products, contract services and research supply, equipment and facility costs. All such costs are charged to research and development expense as incurred. Payments that we make in connection with in-licensed technology for a particular research and development project that have no alternative future uses in other research and development projects or otherwise and therefore, no separate economic values, are expensed as research and development costs at the time such costs are incurred. As of March 31, 2019, we have no in-licensed technologies that have alternative future uses in research and development projects or otherwise.

We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of our product candidates. At this time, due to the inherently unpredictable nature of preclinical and clinical development, we are unable to estimate with any certainty the costs we will incur and the timelines we will require in the continued development of our product candidates and our other pipeline programs. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. Our future research and development expenses will depend on the preclinical and clinical success of each product candidate that we develop, as well as ongoing assessments of the commercial potential of such product candidates. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

Completion of clinical trials may take several years or more, and the length of time generally varies according to the type, complexity, novelty and intended use of a product candidate. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others:

 

per patient clinical trial costs;

 

the number of clinical trials required for approval;

 

the number of sites included in the clinical trials;

 

the length of time required to enroll suitable patients;

 

the number of doses that patients receive;

 

the number of patients that participate in the clinical trials;

 

the drop-out or discontinuation rates of patients;

 

the duration of patient follow-up;

 

potential additional safety monitoring or other studies requested by regulatory agencies;

 

the number and complexity of analyses and tests performed during the clinical trial;

 

the phase of development of the product candidate; and

 

the efficacy and safety profile of the product candidate.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, benefits, share-based compensation and other personnel costs for employees in executive, finance, business development and support functions. Other significant general and administrative expenses include the costs associated with obtaining and maintaining our patent portfolio, professional services for audit, legal, investor and public relations, corporate activities and allocated facilities.

Other Income (Expense)

Other income (expense) consists primarily of management fee income, interest income and interest expense. Management fee income is earned in accordance with the management services agreement, as amended, with Araxes Pharma LLC. Interest expense mainly consists of interest on long-term debt.

14


Income Taxes

We have incurred net losses and have not recorded any U.S. federal or state income tax benefits for the losses as they have been offset by valuation allowances.

Results of Operations

Comparison of the Three Months Ended March 31, 2019 and 2018

The following table sets forth our results of operations for the periods presented, in thousands:

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

2019

 

 

2018

 

 

Change

 

Research and development expenses

 

$

10,382

 

 

$

11,566

 

 

$

(1,184

)

General and administrative expenses

 

 

4,569

 

 

 

3,425

 

 

 

1,144

 

Other income, net

 

 

1,011

 

 

 

387

 

 

 

624

 

Research and Development Expenses. The following table illustrates the components of our research and development expenses for the periods presented, in thousands:

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

2019

 

 

2018

 

 

Change

 

Tipifarnib-related costs

 

$

5,896

 

 

$

7,052

 

 

$

(1,156

)

KO-947-related costs

 

 

980

 

 

 

630

 

 

 

350

 

KO-539-related costs

 

 

353

 

 

 

803

 

 

 

(450

)

Personnel costs and other expenses

 

 

2,356

 

 

 

1,642

 

 

 

714

 

Share-based compensation expense

 

 

797

 

 

 

1,439

 

 

 

(642

)

Total research and development expenses

 

$

10,382

 

 

$

11,566