kura-10q_20180930.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 September 30, 2018

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 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  

As of the close of business on October 31, 2018, the registrant had 38,036,952 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 September 30, 2018 (unaudited) and December 31, 2017

1

 

 

 

 

Condensed Statements of Operations and Comprehensive Loss – Three and Nine Months Ended September 30, 2018 and 2017 (unaudited)

2

 

 

 

 

Condensed Statements of Cash Flows – Nine Months Ended September 30, 2018 and 2017 (unaudited)

3

 

 

 

 

Notes to Condensed Financial Statements (unaudited)

4

 

 

 

 

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

11

 

 

 

 

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 5. Other Information

52

 

 

 

 

Item 6. Exhibits

53

 

 

Signatures

54

 

 

 

 


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KURA ONCOLOGY, INC.

Condensed Balance Sheets

(In thousands, except par value data) 

 

 

 

 

September 30,

2018

 

 

December 31,

2017 (1)

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,568

 

 

$

11,433

 

Short-term investments

 

 

166,855

 

 

 

81,712

 

Accounts receivable, related party

 

 

232

 

 

 

216

 

Prepaid expenses and other current assets

 

 

2,737

 

 

 

1,280

 

Total current assets

 

 

190,392

 

 

 

94,641

 

Property and equipment, net

 

 

 

 

 

10

 

Other long-term assets

 

 

1,108

 

 

 

1,200

 

Total assets

 

$

191,500

 

 

$

95,851

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

9,817

 

 

$

8,284

 

Accounts payable and accrued expenses, related party

 

 

254

 

 

 

216

 

Current portion of long-term debt, net

 

 

2,834

 

 

 

1,531

 

Total current liabilities

 

 

12,905

 

 

 

10,031

 

Long-term debt, net

 

 

3,432

 

 

 

5,567

 

Other long-term liabilities

 

 

556

 

 

 

388

 

Total liabilities

 

 

16,893

 

 

 

15,986

 

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;

     38,017 and 30,217 shares issued as of September 30, 2018 and

     December 31, 2017, respectively; and 38,014 and 29,424 shares

     outstanding as of September 30, 2018 and December 31, 2017,

     respectively; excluding 3 and 793 shares subject to repurchase

     as of September 30, 2018 and December 31, 2017, respectively

 

 

4

 

 

 

3

 

Additional paid-in capital

 

 

308,366

 

 

 

169,201

 

Accumulated other comprehensive loss

 

 

(123

)

 

 

(49

)

Accumulated deficit

 

 

(133,640

)

 

 

(89,290

)

Total stockholders' equity

 

 

174,607

 

 

 

79,865

 

Total liabilities and stockholders' equity

 

$

191,500

 

 

$

95,851

 

(1)

The balance sheet data at December 31, 2017 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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

11,480

 

 

$

6,808

 

 

$

33,846

 

 

$

17,186

 

Research and development, related party

 

 

181

 

 

 

334

 

 

 

857

 

 

 

1,121

 

General and administrative

 

 

4,251

 

 

 

2,313

 

 

 

11,353

 

 

 

6,605

 

General and administrative, related party

 

 

70

 

 

 

44

 

 

 

193

 

 

 

170

 

Total operating expenses

 

 

15,982

 

 

 

9,499

 

 

 

46,249

 

 

 

25,082

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fee income, related party

 

 

180

 

 

 

195

 

 

 

555

 

 

 

585

 

Interest income

 

 

1,047

 

 

 

197

 

 

 

2,121

 

 

 

449

 

Interest expense

 

 

(252

)

 

 

(226

)

 

 

(777

)

 

 

(638

)

Total other income

 

 

975

 

 

 

166

 

 

 

1,899

 

 

 

396

 

Net Loss

 

$

(15,007

)

 

$

(9,333

)

 

$

(44,350

)

 

$

(24,686

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.40

)

 

$

(0.38

)

 

$

(1.30

)

 

$

(1.16

)

Weighted average number of shares

     used in computing net loss per share,

     basic and diluted

 

 

37,789

 

 

 

24,344

 

 

 

34,218

 

 

 

21,217

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(15,007

)

 

$

(9,333

)

 

$

(44,350

)

 

$

(24,686

)

Other comprehensive income (loss)

 

 

(30

)

 

 

8

 

 

 

(74

)

 

 

4

 

Comprehensive Loss

 

$

(15,037

)

 

$

(9,325

)

 

$

(44,424

)

 

$

(24,682

)

 See accompanying notes to unaudited condensed financial statements.

 

 

 

2


KURA ONCOLOGY, INC.

Condensed Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

Operating Activities

 

 

 

 

 

 

 

 

Net loss

 

$

(44,350

)

 

$

(24,686

)

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

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

6,938

 

 

 

3,099

 

Non-cash interest expense

 

 

167

 

 

 

62

 

Depreciation expense

 

 

10

 

 

 

23

 

Amortization of premium and accretion of discounts on marketable securities

 

 

(1,299

)

 

 

(73

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, related party

 

 

(16

)

 

 

86

 

Prepaid expenses and other current assets

 

 

(1,282

)

 

 

(184

)

Other long-term assets

 

 

(355

)

 

 

(205

)

Accounts payable and accrued expenses

 

 

1,537

 

 

 

1,173

 

Accounts payable and accrued expenses, related party

 

 

38

 

 

 

(428

)

Other long-term liabilities

 

 

168

 

 

 

166

 

Net cash used in operating activities

 

 

(38,444

)

 

 

(20,967

)

 

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(203,461

)

 

 

(79,254

)

Maturities of marketable securities

 

 

119,543

 

 

 

59,927

 

Net cash used in investing activities

 

 

(83,918

)

 

 

(19,327

)

 

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net

 

 

132,170

 

 

 

53,683

 

Proceeds from exercise of stock options

 

 

327

 

 

 

222

 

Repayment of long-term debt

 

 

(1,000

)

 

 

 

Net cash provided by financing activities

 

 

131,497

 

 

 

53,905

 

Net increase in cash and cash equivalents

 

 

9,135

 

 

 

13,611

 

Cash and cash equivalents at beginning of period

 

 

11,433

 

 

 

9,725

 

Cash and cash equivalents at end of period

 

$

20,568

 

 

$

23,336

 

See accompanying notes to unaudited condensed financial statements.

3


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, and we intend to pair them with molecular or cellular diagnostics to identify those patients most likely to respond to treatment. We intend 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, 2017, as filed with the Securities and Exchange Commission on March 12, 2018, from which we derived our balance sheet as of December 31, 2017. 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 loss consists of unrealized gains and losses on marketable securities and foreign currency translation adjustments.

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 share equivalents outstanding for the period determined using the treasury-stock method. Dilutive common stock equivalents are comprised of unvested restricted stock awards, outstanding stock options, 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, unvested restricted stock awards, outstanding stock options, 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.

4


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 and Nine Months Ended

 

 

September 30,

 

 

2018

 

 

2017

 

Stock options

 

3,302

 

 

 

2,171

 

Unvested restricted stock awards

 

3

 

 

 

1,091

 

Warrants

 

34

 

 

 

34

 

Employee stock purchase plan rights

 

4

 

 

 

 

Total

 

3,343

 

 

 

3,296

 

 

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 requires lessees to recognize a right-to-use asset and a lease obligation for all leases. Additional qualitative and quantitative disclosures, including significant judgments made by management, will be required. ASU 2016-02 is required to be adopted at the earliest period presented using a modified retrospective approach. In July 2018, the FASB issued ASU 2018-11 to provide another transition method for adoption of the new lease standard by recognizing a cumulative-effect adjustment to the opening balance sheet of retained earnings in the period of adoption. We plan to adopt the lease standard using this alternative transition method on January 1, 2019. We are in the process of evaluating existing leases and the effect the new lease standard will have on our unaudited condensed financial statements and related disclosure and will recognize a right-to-use asset and lease obligation for all leases with terms greater than 12 months on our unaudited condensed financial statements.

 

 

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 September 30, 2018

 

 

Maturities

(years)

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

1 or less

 

$

9,482

 

 

$

 

 

$

 

 

$

9,482

 

Commercial paper

1 or less

 

 

4,998

 

 

 

 

 

 

 

 

 

4,998

 

Total cash equivalents

 

 

 

14,480

 

 

 

 

 

 

 

 

 

14,480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

1 or less

 

 

64,415

 

 

 

 

 

 

 

 

 

64,415

 

Corporate debt securities

2 or less

 

 

52,843

 

 

 

 

 

 

(25

)

 

 

52,818

 

U.S. Treasury securities

1 or less

 

 

49,722

 

 

 

 

 

 

(100

)

 

 

49,622

 

Total short-term investments

 

 

 

166,980

 

 

 

 

 

 

(125

)

 

 

166,855

 

Total

 

 

$

181,460

 

 

$

 

 

$

(125

)

 

$

181,335

 

 

5


 

 

 

As of December 31, 2017

 

 

Maturities

(years)

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

1 or less

 

$

5,848

 

 

$

 

 

$

 

 

$

5,848

 

Commercial paper

1 or less

 

 

2,993

 

 

 

 

 

 

 

 

 

2,993

 

Total cash equivalents

 

 

 

8,841

 

 

 

 

 

 

 

 

 

8,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

1 or less

 

 

50,929

 

 

 

 

 

 

 

 

 

50,929

 

Corporate debt securities

1 or less

 

 

7,903

 

 

 

 

 

 

(7

)

 

 

7,896

 

U.S. Treasury securities

2 or less

 

 

22,929

 

 

 

 

 

 

(42

)

 

 

22,887

 

Total short-term investments

 

 

 

81,761

 

 

 

 

 

 

(49

)

 

 

81,712

 

Total

 

 

$

90,602

 

 

$

 

 

$

(49

)

 

$

90,553

 

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 September 30, 2018, $161.9 million of our short-term investments had maturities less than one year, and $5.0 million had maturities between one to two years. There were no realized gains or losses for the three and nine months ended September 30, 2018. As of September 30, 2018, $102.4 million of our marketable securities were in gross unrealized loss positions, all of which had been in such position for less than 12 months. We reviewed our marketable securities as of September 30, 2018 and determined that the unrealized losses were not considered to be other-than-temporary based upon (i) the financial strength of the issuing institution and (ii) the fact that all securities have been in an unrealized loss position for less than 12 months. In addition, we do not intend to sell these securities and it is not more likely than not that we will be required to sell these securities before the recovery of their amortized cost basis. As of September 30, 2018, we did not recognize any such impairment in our unaudited condensed financial statements.

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.

6


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 September 30, 2018

 

 

 

Balance

 

 

Level 1

 

 

Level 2

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

9,482

 

 

$

9,482

 

 

$

 

Commercial paper

 

 

4,998

 

 

 

 

 

4,998

 

Total cash equivalents

 

 

14,480

 

 

 

9,482

 

 

 

4,998

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

64,415

 

 

 

 

 

 

64,415

 

Corporate debt securities

 

 

52,818

 

 

 

 

 

52,818

 

U.S. Treasury securities

 

 

49,622

 

 

 

49,622

 

 

 

 

Total short-term investments

 

 

166,855

 

 

 

49,622

 

 

 

117,233

 

Total

 

$

181,335

 

 

$

59,104

 

 

$

122,231

 

 

 

 

As of December 31, 2017

 

 

 

Balance

 

 

Level 1

 

 

Level 2

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

5,848

 

 

$

5,848

 

 

$

 

Commercial paper

 

 

2,993

 

 

 

 

 

 

2,993

 

Total cash equivalents

 

 

8,841

 

 

 

5,848

 

 

 

2,993

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

50,929

 

 

 

 

 

 

50,929

 

Corporate debt securities

 

 

7,896

 

 

 

 

 

 

7,896

 

U.S. Treasury securities

 

 

22,887

 

 

 

22,887

 

 

 

 

Total short-term investments

 

 

81,712

 

 

 

22,887

 

 

 

58,825

 

Total

 

$

90,553

 

 

$

28,735

 

 

$

61,818

 

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.

5. Accounts Payable and Accrued Liabilities

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

 

 

 

September 30, 2018

 

 

December 31, 2017

 

Accounts payable

 

$

1,838

 

 

$

1,248

 

Accrued research and development expenses

 

 

5,312

 

 

 

3,852

 

Accrued compensation and benefits

 

 

2,080

 

 

 

2,345

 

Other accrued expenses

 

 

587

 

 

 

839

 

Total accounts payable and accrued expenses

 

$

9,817

 

 

$

8,284

 

 


7


6. Stockholders’ Equity

In January 2018, we sold an aggregate of 3,136,722 shares of our common stock under our at-the-market issuance sales agreement with Cowen and Company, LLC, or ATM facility, at a weighted average price per share of $18.85 for net proceeds of approximately $57.7 million. In March 2018, we amended the ATM facility to increase the maximum aggregate offering price under the ATM facility from up to $100.0 million to up to $160.0 million, which amount included the shares of our common stock previously sold under the ATM facility for gross proceeds of approximately $59.3 million. In July 2018, we terminated the ATM facility.

In July 2018, we completed a public offering in which we sold an aggregate of 4,600,000 shares of common stock at a price of $16.75 per share. Net proceeds from the public offering, after deducting underwriting discounts, commissions and offering expenses, were approximately $74.5 million.

7. Equity Incentive Plan

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Research and development

 

$

1,227

 

 

$

770

 

 

$

4,035

 

 

$

2,036

 

General and administrative

 

 

1,296

 

 

 

405

 

 

 

2,903

 

 

 

1,063

 

Total share-based compensation expense

 

$

2,523

 

 

$

1,175

 

 

$

6,938

 

 

$

3,099

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee

 

$

29

 

 

$

33

 

 

$

95

 

 

$

99

 

Nonemployee

 

 

823

 

 

 

514

 

 

 

2,623

 

 

 

1,342

 

Total

 

$

852

 

 

$

547

 

 

$

2,718

 

 

$

1,441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee

 

$

1,571

 

 

$

576

 

 

$

4,000

 

 

$

1,566

 

Nonemployee

 

 

87

 

 

 

52

 

 

 

201

 

 

 

92

 

Total

 

$

1,658

 

 

$

628

 

 

$

4,201

 

 

$

1,658

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock purchase plan:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee

 

$

13

 

 

$

 

 

$

19

 

 

$

 

Total

 

$

13

 

 

$

 

 

$

19

 

 

$

 

Pursuant to our 2015 Employee Stock Purchase Plan, we commenced the first purchase period in the second quarter of 2018. As of September 30, 2018, unrecognized compensation costs related to employee stock options was approximately $18.0 million, which is expected to be recognized over a weighted average period of approximately 2.8 years. As of September 30, 2018, there was no remaining unrecognized compensation costs related to employee restricted stock awards.

8


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 transactions with Araxes for the three and nine months ended September 30, 2018 and 2017:

 

Asset Purchase Agreement

Under our asset purchase agreement with Araxes, in the nine months ended September 30, 2017, we paid a milestone payment of $0.2 million to Araxes following dosing of the first patient in the first KO-947 Phase 1 clinical trial in April 2017.

 

Facility Sublease

We subleased office space in La Jolla, California from Wellspring Biosciences, Inc., or Wellspring, a wholly owned subsidiary of Araxes pursuant to a sublease agreement that expired in June 2017. In December 2016, we entered into a new sublease agreement with Wellspring for office space in San Diego, California, or New Sublease. The New Sublease will expire on October 31, 2019. For both the three months ended September 30, 2018 and 2017, rent expense, including operating costs, related to our subleases was approximately $0.1 million. For the nine months ended September 30, 2018 and 2017, rent expense, including operating costs, related to our subleases was approximately $0.2 million and $0.1 million, respectively.

 

Management Fees

Effective April 2018, we amended our management services agreement with Araxes. Under the amendment, Araxes pays us a fixed fee of $60,000 per month for management services, which is reduced from the fixed fee of $65,000 per month. 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 $367,000, 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 September 30, 2018 and 2017, we recorded reimbursements of approximately $0.1 million in each period, and for the nine months ended September 30, 2018 and 2017, we recorded reimbursements of approximately $0.2 million and $0.3 million, respectively, 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 September 30, 2018 and December 31, 2017, approximately $0.2 million 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 September 30, 2018 and 2017, we recognized approximately $0.2 million and $0.3 million, respectively, and for the nine months ended September 30, 2018 and 2017, we recognized approximately $0.9 million and $1.0 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 September 30, 2018 and December 31, 2017, approximately $0.2 million in both periods 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.

        


9


9. Subsequent Event

On November 1, 2018, we entered into a loan and security agreement, or the Loan Agreement, with Silicon Valley Bank, or the Lender, providing for up to $20.0 million in a series of term loans. Upon entering into the Loan Agreement, we borrowed $7.5 million from the Lender, or Term A Loan, the proceeds of which, in part, were used to pay off the existing debt under the Loan and Security Agreement with Oxford Finance LLC and Silicon Valley Bank dated April 27, 2016, as amended in May 2017 and October 2017. We plan to use the remaining proceeds from the Term A Loan to provide additional funding for our development programs and for general business purposes. Under the terms of the Loan Agreement, we may, at our sole discretion, borrow from the Lender up to an additional $12.5 million at any time between November 1, 2018 and May 1, 2020, or Term B Loan, and together with Term A Loan, the Term Loans.

All of the Term Loans will be due on the scheduled maturity date of May 1, 2023, or Maturity Date. Repayment of the Term Loans will be interest only through November 30, 2020, followed by 30 equal monthly payments of principal plus accrued interest commencing on December 1, 2020. The per annum interest rate for any outstanding Term Loans is the greater of (i) 5.50% and (ii) the sum of (a) the prime rate reported in The Wall Street Journal plus (b) 0.25%. In addition, a final payment of 7.75% of the amounts of the Term Loans drawn will be due on the earlier of the Maturity Date, acceleration of any Term Loans, or prepayment of the Term Loans. If we elect to prepay the Term Loans, a prepayment fee equal to 1%, 2% or 3% of the then outstanding principal balance will also be due, depending upon when the prepayment occurs. We are subject to customary affirmative and restrictive covenants under the term loan facility. Our obligations under the Loan Agreement are secured by a first priority security interest in substantially all of our current and future assets, other than our intellectual property. We have also agreed not to encumber our intellectual property assets, except as permitted by the Loan Agreement.

 

10


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, 2017 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, 2017 filed with the Securities and Exchange Commission, or SEC, on March 12, 2018.

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 the “Company,” “we,” “us” and “our” refer to Kura Oncology, Inc., a Delaware corporation incorporated in the State of Delaware in August 2014.

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, and we intend to pair them with molecular or cellular diagnostics to identify those patients most likely to respond to treatment. We intend 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 carcinomas, or HNSCC, that carry mutations in the HRAS gene. In September 2017, we announced that our Phase 2 clinical trial of tipifarnib in patients with HRAS mutant HNSCC achieved its primary efficacy endpoint prior to the completion of enrollment. The clinical trial protocol required four confirmed partial responses, or PRs, per Response Evaluation Criteria in Solid Tumors version 1.1, or RECIST 1.1, criteria, out of 18 patients to meet its primary endpoint. Four PRs were observed among the first six evaluable HNSCC patients enrolled in the clinical trial. Updated data from the Phase 2 clinical trial were presented at the European Society for Medical Oncology, or ESMO, 2018 Congress in October 2018, showing that as of the September 7, 2018 clinical data cutoff date, 17 patients with HRAS mutant HNSCC were enrolled in the ongoing Phase 2 clinical trial. Tumor size reductions were observed in nine of 11 evaluable patients, with five confirmed PRs, including three patients with durable responses lasting more than 17 months. A sixth patient achieved a confirmed PR after the data cutoff. Four patients had stable disease, including two patients who experienced prolonged disease stabilization lasting more than six months. One patient experienced progressive disease as best response.

11


In addition, the ongoing Phase 2 clinical trial enrolled six patients in an additional cohort of other HRAS mutant squamous cell carcinomas, or SCC. One of the two evaluable patients in this cohort achieved a confirmed PR and the second evaluable patient experienced prolonged disease stabilization lasting more than six months. Four patients were not evaluable as of the data cutoff date, including two patients who were pending initial efficacy assessments. Adverse events were consistent with the known safety profile of tipifarnib and were managed by dose delays and reductions.

The preliminary data presented at ESMO also indicated a significant association between the allele frequency of HRAS mutations and a patient’s best response to tipifarnib. Of the 13 HNSCC and SCC patients with a tumor HRAS mutant allele frequency greater than 20%, six achieved PRs, one achieved an unconfirmed PR and is ongoing, and two experienced disease stabilization greater than six months. No meaningful clinical benefit was observed in the seven patients with an allele frequency less than 20%.

Based on the positive results observed to date in our ongoing Phase 2 clinical trial, or the RUN-HN trial, and following feedback from the United States Food and Drug Administration, or the FDA, and other regulatory authorities, we have initiated a global, registration-directed clinical trial of tipifarnib in patients with HRAS mutant HNSCC. The registration-directed clinical trial includes two cohorts: the first, which we have named AIM-HN, is designed to enroll at least 59 patients with recurrent or metastatic HRAS mutant HNSCC. The second cohort, which we have named SEQ-HN, is a non-interventional screening and outcomes study designed to characterize the natural history of patients with recurrent or metastatic HNSCC with HRAS mutations and to facilitate the identification of patients with HRAS mutations for potential enrollment into AIM-HN. 

Based on the reported data from our Phase 2 clinical trial, we are introducing a minimum tumor HRAS mutant allele frequency of 20% and will use 600mg orally twice daily as the starting dose in our AIM-HN registration-directed study. We anticipate that the trial will be conducted at approximately 100 clinical sites worldwide and take approximately two years to enroll. We are also implementing these modifications in our ongoing Phase 2 trial.

In addition to the Kura sponsored trials in patients with HRAS mutant solid tumors, an investigator-sponsored clinical trial of tipifarnib in patients with HRAS mutant urothelial carcinomas, and another investigator-sponsored clinical trial of tipifarnib in patients with HRAS mutant lung squamous cell carcinoma are ongoing.

In addition to our tipifarnib development program in solid tumors, we have identified potential biomarkers of activity for tipifarnib in hematologic malignancies, including: peripheral T-cell lymphomas, or PTCL, and the PTCL subtype angioimmunoblastic T-cell lymphoma, or AITL; myelodysplastic syndromes, or MDS; acute myeloid leukemia, or AML; and chronic myelomonocytic leukemia, or CMML. These potential biomarkers include CXCL12 pathway biomarkers and markers of bone marrow homing. We continue to conduct our ongoing Phase 2 clinical trials with the goal of confirming the clinical activity of tipifarnib in these hematologic malignancies, validating our biomarker hypotheses and optimizing dose and schedule for each disease to build a data package supporting advancement to future pivotal studies. We anticipate presenting updated data from our ongoing PTCL trial at the American Society of Hematology meeting in December 2018 and data from other hematologic indications in 2019. In May 2018, we were issued a U.S. patent directed to the use of tipifarnib in patients with CXCL12-expressing PTCL and AML. The patent has an expiration date of November 2037, excluding any possible patent term extension.

Our second product candidate is KO-947, a potent and selective small molecule inhibitor of extracellular signal related kinase which we are advancing as a potential treatment for patients with tumors that have mutations in, or other dysregulation of, the mitogen-activated protein kinase signaling pathway. Our preclinical data suggest that KO-947 has anti-tumor activity in KRAS- or BRAF-mutant adenocarcinomas as well as squamous cell carcinomas characterized by 11q13 amplifications. Our Phase 1 dose-escalation clinical trial of KO-947 in patients with locally advanced unresectable or metastatic, relapsed and/or refractory, non-hematological malignancies is ongoing, with the goal to assess the safety profile of KO-947 and identify a recommended dose and schedule that would permit KO-947 to be evaluated in a Phase 2 clinical trial in a patient population selected for potential clinical activity based on potential biomarkers we have identified in our preclinical studies. We anticipate having data from the Phase 1 dose-escalation portion of this trial available in 2019.

Our third program is focused on KO-539, a potent and selective small molecule inhibitor of the menin-mixed lineage leukemia, or menin-MLL, protein-protein interaction. Although KO-539 was originally designed as a potential therapy for MLL-rearranged leukemias, we have generated preclinical data that support the potential anti-tumor activity of KO-539 in additional, genetically-defined subsets of acute leukemia, including those with oncogenic driver mutations in NPM1 and DNMT3A. We estimate that, together with the mixed lineage leukemias, these mutations represent approximately half of diagnosed cases of AML. Our goal is to submit an investigational new drug application, or IND, for KO-539 in the first quarter of 2019.

12


Public Offering

In July 2018, we completed a public offering in which we sold an aggregate of 4,600,000 shares of common stock at a price of $16.75 per share. Net proceeds from the public offering, after deducting underwriting discounts, commissions and offering expenses, were approximately $74.5 million.

Loan Facility

In November 2018, we entered into a loan and security agreement, or the Loan Agreement, with Silicon Valley Bank, or the Lender, providing for up to $20.0 million in a series of term loans. Upon entering into the Loan Agreement, we borrowed $7.5 million from the Lender, or Term A Loan, the proceeds of which, in part, were used to pay off the existing debt under the Loan and Security Agreement with Oxford Finance LLC and Silicon Valley Bank dated April 27, 2016, as amended in May 2017 and October 2017, or the Prior Loan Agreement. Under the terms of the Loan Agreement, we may, at our sole discretion, borrow from the Lender up to an additional $12.5 million at any time between November 1, 2018 and May 1, 2020, or Term B Loan, and together with Term A Loan, the Term Loans.

Liquidity Overview

As of September 30, 2018, we had cash, cash equivalents and short-term investments of $187.4 million. In November 2018, after payoff of the Prior Loan Agreement, we received approximately $0.6 million in net proceeds from the Term A Loan. Under the terms of the Loan Agreement, we may, at our sole discretion, borrow from the Lender up to an additional $12.5 million at any time between November 1, 2018 and May 1, 2020. Although we believe that our existing cash, cash equivalents and short-term investments will be sufficient to fund our current operations for at least the next 12 months, we will require significant additional financing in the future to continue to fund our operations. We may seek to obtain additional financing in the future through equity or debt financings, or through collaborations, strategic partnerships or licensing arrangements with other companies. We may not be able to raise additional capital on terms acceptable to us, or at all, and any failure to raise capital as and when needed could compromise our ability to execute on our business plan.

Our accumulated deficit was $133.6 million as of September 30, 2018. We expect to continue to incur significant losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year.

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 September 30, 2018, 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.

13


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 and 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.

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

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

 

 

Three Months Ended

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

2018

 

 

2017

 

 

Change

 

Research and development expenses

 

$

11,661

 

 

$

7,142

 

 

$

4,519

 

 

$

34,703

 

 

$

18,307

 

 

$

16,396

 

General and administrative expenses

 

 

4,321

 

 

 

2,357

 

 

 

1,964

 

 

 

11,546

 

 

 

6,775

 

 

 

4,771

 

Other income, net

 

 

975

 

 

 

166

 

 

 

809

 

 

 

1,899

 

 

 

396

 

 

 

1,503

 

14


Comparison of the Three Months Ended September 30, 2018 and 2017

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

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

External research and development expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Tipifarnib

 

$

6,673

 

 

$

3,722

 

 

$

2,951

 

KO-947