What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-06 compared with 2020-05-04 · 81 added, 78 removed, 156 unchanged (50% of the section changed)

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We plan to advance our product candidates through a combination of internal development and strategic partnerships while maintaining 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 presently have two key product candidates in clinical trials, tipifarnib and KO-539.

Tipifarnib is a potent, selective and orally bioavailable inhibitor of farnesyl transferase that has been 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.

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On December 16, 2019, we reported that the FDA granted Fast Track Designation to tipifarnib for the treatment of patients with HRAS mutant HNSCC after progression on platinum therapy.

On May 4 , 2020, w e announced that we intend to amend AIM-HN to enable enrollment of patients with any HRAS mutation in order to assess the potential for clinical benefit in the overall HRAS mutant HNSCC population .

As result, we anticipate AIM-HN will ultimately be designed to enroll additional evaluable HNSCC patients .

Our expected amendments to AIM-HN would not change the primary outcome measure of objective response rate in patients with high HRAS mutant variant allele frequency .

As a result of the COVID-19 pandemic and the anticipated additional patients in the trial , we anticipate we will face delays in our timelines and milestones for the AIM-HN trial and, accordingly, are unable to reasonably forecast at this time when our AIM-HN trial will become fully enrolled.

Our second product candidate is KO-539, a potent, selective, reversible and oral small molecule inhibitor of the mixed-lineage leukemia 1, or MLL1, gene (now renamed Lysine K-specific MethylTransferase 2A, or KMT2A), or menin-KMT2A(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 nucleophosmin 1, or NPM1.

On May 29, 2020, we announced updated clinical data for our RUN-HN study presented at the American Society of Clinical Oncology Virtual Scientific Program, including data collected as part of the trial showing a median overall survival of 15.4 months, a median progression

free survival of 5.9 months and an objective response rate of 50% observed in recurrent/metastatic HRAS mutant HNSCC among the 18 patients on the RUN-HN study who were evaluable for efficacy.

On July 6, 2020, we amended the AIM-HN trial protocol to enable enrollment of patients with any HRAS mutation in order to assess the potential for clinical benefit in the overall HRAS mutant HNSCC population.

While these amendments do not change the primary outcome measure of objective response rate in patients with high HRAS mutant variant allele frequency, AIM-HN will require an increased number of evaluable HNSCC patients.

As a result of the COVID-19 pandemic and the additional patients required for the trial, we anticipate we will face delays in our timelines and milestones for the AIM-HN trial and, accordingly, are unable to reasonably forecast at this time when our AIM-HN trial will become fully enrolled.

In addition to studying tipifarnib in recurrent or metastatic HRAS mutant HNSCC as a monotherapy, we are also examining the potential use of tipifarnib in combination with other oncology therapies to address larger patient populations and pursue earlier lines of therapy.

In particular, we have been developing pre-clinical data to support the potential for using tipifarnib in HNSCC patients whose tumors overexpress the HRAS gene in combination with a PI3 kinase alpha inhibitor.

Our second product candidate, KO-539, is a potent, selective, reversible and oral small molecule inhibitor of the mixed-lineage leukemia 1, or MLL1, gene (now renamed Lysine K-specific MethylTransferase 2A, or KMT2A), or menin-KMT2A, 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 KMT2A gene as well as those with oncogenic driver mutations in genes such as nucleophosmin 1, or NPM1.

The novel mechanism of action targets epigenetic dysregulation and removes a key block to cellular differentiation to drive anti-tumor activity.

We believe KO-539 has the potential to address approximately 35% of acute myeloid leukemia, or AML, including NPM1-mutant AML and KMT2A(MLL)-rearranged AML.

In the pediatric population, KMT2A(MLL)-rearranged leukemias make up approximately 10% of acute leukemias in all age groups and in the case of infant leukemias, the incidence of KMT2A(MLL) rearrangements is 70–80%.

These pediatric leukemia sub-types portend a poorer prognosis and five-year survival rate than other sub-types and therefore represent significant unmet medical needs given the lack of curative therapeutic options.

We believe KO-539 has the potential to address approximately 35% of acute myeloid leukemia, or AML, including NPM1-mutant AML and KMT2A-rearranged AML.

In the pediatric population, KMT2A-rearranged leukemias make up approximately 10% of acute leukemias in all age groups and in the case of infant leukemias, the frequency of KMT2A rearrangements is 70–80%.

These pediatric leukemia sub-types portend a poorer prognosis and five-year survival rate that is lower than other leukemia sub-types and therefore represent significant unmet medical needs given the lack of curative therapeutic options.

In April 2020, a competitor reported that its menin-KMT2A inhibitor showed potential anti-tumor activity in KMT2A-rearranged AML.

We received orphan drug designation for KO-539 for the treatment of acute myeloid leukemia, or AML, from the FDA in July 2019.

We initiated our Phase 1/2A clinical trial of KO-539 in relapsed or refractory AML in September 2019 and are actively recruiting at multiple sites in the U.S.

and France with the anticipation of expanding worldwide.

Our menin-MLL Phase 1/2A clinical trial, which we call the Kura Oncology Menin-MLL Trial, or KOMET-001, has an accelerated design and will determine a recommended Phase 2 dosing, or RP2D, using a modified toxicity probability interval, or MTPI, model.

We are seeking to achieve a RP2D for KO-539 with the potential to enrich in NPM1-mutant AML and MLL-rearranged genetically defined subgroups by the end of 2020.

We have issued and pending composition of matter patents in the United States and other major markets, which are anticipated to provide protection to at least 2036.

We initiated our Phase 1/2A clinical trial of KO-539 in relapsed or refractory AML in September 2019 and are actively recruiting at multiple sites in the United States and France with the anticipation of expanding to additional sites in the United States, France and other countries during the expansion phase of the study.

Our menin-KMT2A Phase 1/2A clinical trial, which we call the K ura O ncology ME nin-KMT2A T rial, or KOMET-001, has an accelerated design and will determine a recommended Phase 2 dose and schedule, or RP2D, using a modified toxicity probability interval, or MTPI, model.

We are seeking to achieve a RP2D for KO-539 with the potential to enrich in NPM1-mutant AML and KMT2A-rearranged genetically defined subgroups by the end of 2020.

Other Clinical Developments

On May 4, 2020, we announced the suspension and termination of certain development activities due to a pipeline prioritization review.

On May 4, 2020, we announced the suspension and termination of certain development activities due to a strategic review.

These changes included suspension of the initiation of a planned registration directed study for tipifarnib in T-cell lymphoma, suspension of a planned Phase 2 clinical trial for tipifarnib in pancreatic cancer and termination of our KO-947 extracellular signal related kinase, or ERK, inhibitor program.

The COVID-19 Pandemic

The novel coronavirus pandemic, COVID-19, has resulted in significant governmental measures being implemented to control the spread of the virus, including quarantines, travel restrictions and business interruptions and shutdowns.

These precautions may continue to disrupt our business operations and prospects.

Since early March 2020, we have taken temporary precautionary measures intended to help minimize the risk of COVID-19 to our employees and their families, including temporarily requiring all employees to work remotely.

We have suspended non-essential travel worldwide for our employees and prohibited employee attendance at in-person gatherings.

In addition, we have experienced, and expect to continue to experience, patient screening and enrollment at a slower pace at many of our clinical trial sites than what was projected when the trials began.

Some of our clinical sites have experienced challenges in conducting trial activities while they focus critical resources on caring for COVID-19 patients and due to facility restrictions, quarantines, travel restrictions, remote work requirements and other precautions.

To manage the COVID-19 impact on our business, we developed a comprehensive

COVID-19 contingency plan designed to work closely with our third-party contractors and investigators to ensure our ongoing clinical trials proceed safely and efficiently.

As a result of these efforts, we continue to accrue patients for our clinical trials , but we expect the disruption caused by and the challenges associated with COVID-19 to continue for the foreseeable future.

The long-term trends impacting our business from COVID-19 are uncertain and will depend on the continued world-wide progress toward managing this health crisis.

Liquidity Overview

As of March 31, 2020, we had cash, cash equivalents and short-term investments of $216.9 million.

As of June 30, 2020, we had cash, cash equivalents and short-term investments of $338.9 million.

In May 2020, we completed a public offering in which we sold an aggregate of 10,465,000 shares of common stock at a price of $13.75 per share.

Net proceeds from the public offering, after deducting underwriting discounts, commissions and offering expenses, were approximately $134.9 million.

We have a term loan facility with Silicon Valley Bank under which we may, at our sole discretion, borrow up to an additional $12.5 million at any time until November 30, 2020.

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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, 2020, we have no in-licensed technologies that have alternative future uses in research and development projects or otherwise.

As of June 30, 2020, 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.

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Results of Operations

Comparison of the Three Months Ended March 31, 2020 and 2019

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

Three Months Ended March 31,

Three Months Ended

Six Months Ended

Research and development expenses

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Other income, net

Comparison of the Three Months Ended June 30, 2020 and 2019

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,

Three Months Ended

Tipifarnib-related costs

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Total research and development expenses

The increase in KO-539-related research and development expenses was primarily due to the initiation of the Phase 1/2A clinical trial for KO-539 in September 2019.

The increase in tipifarnib-related research and development expenses for the three months ended June 30, 2020 compared to the same period in 2019 was primarily due to increases in costs related to our ongoing AIM-HN pivotal trial and other Phase 2 clinical trials, manufacturing and other preclinical development activities.

The decrease in KO-947-related costs is due to the termination of the ERK inhibitor program.

Personnel costs and other expenses include employee salaries and related expenses, facilities expense and overhead expenses.

The increase in personnel costs and other expenses was to support our registration-directed clinical trial for tipifarnib and the Phase 1/2A clinical trial of KO-539.

The increase in personnel costs and other expenses was to

support our registration-directed clinical trial for tipifarnib and the Phase 1 /2 A clinical trial of KO-539.

We expect our research and development expenses to increase in future periods as we continue clinical development activities for tipifarnib and KO-539.

General and Administrative Expenses .

The increase in general and administrative expenses for the three months ended March 31, 2020 compared to the same period in 2019 was primarily due to increases of $0.9 million in pre-commercial planning expenses, $0.6 million in recruiting fees, $0.6 million in personnel costs and $0.5 million in non-cash share-based compensation expense.

The increase in general and administrative expenses for the three months ended June 30, 2020 compared to the same period in 2019 was primarily due to increases of $0.9 million in professional and legal fees, $0.8 million in pre-commercial planning expenses, $0.7 million in non-cash share-based compensation expense and $0.5 million in personnel costs.

We expect our general and administrative expenses to increase in future periods to support our planned increase in research and development activities.

Comparison of the Six Months Ended June 30, 2020 and 2019

Research and Development Expenses .

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

Six Months Ended

Tipifarnib-related costs

KO-539-related costs

KO-947-related costs

Personnel costs and other expenses

Share-based compensation expense

Total research and development expenses

The increase in tipifarnib-related research and development expenses for the six months ended June 30, 2020 compared to the same period in 2019 was primarily due to increases in costs related to our ongoing pivotal trial and other Phase 2 clinical trials, manufacturing and other preclinical development activities.

The increase in KO-539-related research and development expenses was primarily due to the initiation of the Phase 1/2A clinical trial for KO-539 in September 2019.

The decrease in KO-947-related costs is due to the termination of the ERK inhibitor program.

Personnel costs and other expenses include employee salaries and related expenses, facilities expense and overhead expenses.

The increase in personnel costs and other expenses was to support our registration-directed clinical trial for tipifarnib and the Phase 1/2A clinical trial of KO-539.

General and Administrative Expenses .

The increase in general and administrative expenses for the six months ended June 30, 2020 compared to the same period in 2019 was primarily due to increases of $1.8 million in professional and legal fees, $1.7 million in pre-commercial planning expenses, $1.3 million in non-cash share-based compensation expense and $1.1 million in personnel costs.

Liquidity and Capital Resources

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We have devoted our resources to funding research and development programs, including discovery research, preclinical and clinical development activities.

In May 2020, we completed a public offering in which we sold an aggregate of 10,465,000 shares of common stock at a price of $13.75 per share.

Net proceeds from the public offering, after deducting underwriting discounts, commissions and offering expenses, were approximately $134.9 million.

In March 2019, we entered into the 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.

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Under the terms of the loan agreement, we borrowed $7.5 million, or Term A Loan, and we may, at our sole discretion, borrow up to an additional $12.5 million at any time until November 30, 2020, or Term B Loan, and together with Term A Loan, the Term Loans.

In addition, each Term B Loan must be in an amount equal to the lesser of $5.0 million or the amount that is remaining under the Term B Loan.

In addition, each Term B Loan must be in an amount equal to the lesser of $5.0 million or the amount that is

remaining under the Term B Loan.

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 is interest only through November 30, 2020, followed by 30 equal monthly

payments of principal plus accrued interest commencing on December 1, 2020.

Repayment of the Term Loans is 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 the 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%.

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We have incurred operating losses since inception and negative cash flows from operating activities.

As of March 31, 2020, we had an accumulated deficit of $232.1 million.

As of June 30, 2020, we had an accumulated deficit of $252.6 million.

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue and initiate clinical trials of, and seek marketing approval for, our product candidates.

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Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations.

As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability.

There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur.

If equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive.

As a result of the COVID-19 pandemic and actions taken to slow its spread, the global financial markets have experienced volatility and uncertainty.

There can be no assurance that further volatility and uncertainty in the financial markets and declining confidence in economic conditions will not occur.

If financial markets remain volatile and uncertain, and for so long as they do, it may make any necessary capital financing more difficult to obtain, more costly and/or more dilutive.

If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

As of March 31, 2020, we had cash, cash equivalents and short-term investments of $216.9 million.

As of June 30, 2020, we had cash, cash equivalents and short-term investments of $338.9 million.

Based on our current plans, we believe that our existing cash, cash equivalents and short-term investments will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into 2023.

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We do not know when, or if, we will generate any revenue from product sales.

We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one of our current or future product

We do not expect to generate significant revenue

from product sales unless and until we obtain regulatory approval of and commercialize one of our current or future product candidates.

We are subject to all of the risks incident in the development of new therapeutic products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.

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Debt financing, if available, may involve agreements that include increased fixed payment obligations and covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends, selling or licensing intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.

There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur.

If equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive.

As a result of the COVID-19 pandemic and actions taken to slow its spread, the global financial markets have experienced volatility and uncertainty.

There can be no assurance that further volatility and uncertainty in the financial markets and declining confidence in economic conditions will not occur.

If financial markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive.

If we raise additional funds through collaborations, strategic partnerships or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, including our other technologies, future revenue streams or research programs, or grant licenses on terms that may not be favorable to us.

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The following table provides a summary of our net cash flow activities for the periods presented, in thousands:

Three Months Ended March 31,

Six Months Ended

Net cash used in operating activities

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Operating Activities.

The increase in net cash used in operating activities for the three months ended March 31, 2020 compared to the same period in 2019 was primarily due to an increase of $5.3 million in net loss and an increase of $1.6 million in prepaid expenses and other current assets, offset by an increase of $0.9 million in non-cash share based compensation expense.

The increase in net cash used in operating activities for the six months ended June 30, 2020 compared to the same period in 2019 was primarily due to an increase of $10.8 million in net loss, offset by a decrease of $2.8 million in payments of accounts payable and accrued expenses and an increase of $1.2 million in non-cash share based compensation expense.

Investing Activities.

The increase in net cash provided by investing activities for the three months ended March 31, 2020 compared to the same period in 2019 was primarily due to a decrease of $39.6 million in purchases of marketable securities, offset by a decrease of $27.4 million in maturities and sales of marketable securities.

The decrease in net cash provided by investing activities for the six months ended June 30, 2020 compared to the same period in 2019 was primarily due to a decrease of $22.7 million in maturities and sales of marketable securities and an increase of $1.2 million in purchases of property and equipment, offset by a decrease of $5.1 million in purchases of marketable securities.

Financing Activities.

The increase in net cash provided by financing activities for the three months ended March 31, 2020 compared to the same period in 2019 was due to an increase in proceeds from the exercise of stock options.

The increase in net cash provided by financing activities for the six months ended June 30, 2020 compared to the same period in 2019 was primarily due to increases of $26.8 million in proceeds from sale of common stock and $0.9 million in proceeds from exercise of stock options and purchases under our employee stock purchase plan.

Contractual Obligations

The following is a summary of our significant contractual obligations as of March 31, 2020, in thousands:

Payments Due by Period

Long-term debt, including current portion (1)

Interest payments on long-term debt (2)

Operating leases (3)

______________________

Principal payments on our term loan facility.

Interest payments on our term loan facility.

The per annum interest rate for the 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%.

The interest rate as of March 31, 2020 was 5.50%.

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 or prepayment of the Term Loans.

Future minimum lease payments under our office leases in San Diego, California, Cambridge, Massachusetts and Boston, Massachusetts.

We enter into short-term and cancellable agreements in the normal course of operations with clinical sites and CROs for clinical research studies, professional consultants and various third parties for preclinical research studies, clinical supply manufacturing and other services through purchase orders or other documentation, or that are undocumented except for an invoice.

Such short-term agreements are generally outstanding for periods less than one year and are settled by cash payments upon delivery of goods and services.

The nature of the work being conducted under these agreements is such that, in most cases, the services may be cancelled upon prior notice of 90 days of less.

Payments due upon cancellation generally consist only of payments for services provided and expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation.

These payments are not included in the table of contractual obligations above.

Excluded from the table above are milestone or contractual payment obligations contingent upon the achievement of certain milestones or events if the amount and timing of such obligations are unknown or uncertain.

Our license agreements are cancelable by us with written notice within 180 days or less.

We may be required to pay up to approximately $80.0 million in milestone payments, plus sales royalties, in the event that regulatory and commercial milestones under the in-license agreement are achieved.

During the three months ended June 30, 2020, there were no material changes in contractual obligations from the amounts disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in our Quarterly Report on Form 10-Q for the period ended March 31, 2020.

Off-Balance Sheet Arrangements

As of March 31, 2020, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC.

As of June 30, 2020, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC.

Critical Accounting Policies and Management Estimates

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There have been no material changes to our critical accounting policies and estimates from the information provided in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Management Estimates,” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We hold certain financial instruments for which a change in prevailing interest rates may cause the principal amount of the marketable securities to fluctuate.

Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments.

We invest our excess cash primarily in money market funds, corporate debt securities, U.S.

Treasury securities and commercial paper.

The primary objectives of our investment activities are to ensure liquidity and to preserve principal while at the same time maximizing the income we receive from our marketable securities without significantly increasing risk.

Additionally, we established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity.

For our short-term investments, we do not believe that an increase or decrease in market rates would have a significant impact on the realized values or the unaudited condensed statements of operations and comprehensive loss.

We believe that should a 10.0% change in interest rates were to have occurred on March 31, 2020, this change would not have had a material effect on the fair value of our investment portfolio as of that date.

Any changes would only be realized if we sold the investments prior to maturity.

We are also subject to interest expense fluctuations through our Term Loans, which as of March 31, 2020 bear interest at a rate equal to 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% and are therefore exposed to changes in interest rates through their maturity date of May 2023.

If a 10% change in interest rates were to have occurred on March 31, 2020, this change would not have had a material effect on our interest expense as of that date.

Inflation Risk

Inflation generally affects us by increasing our clinical trial costs.

We do not believe that inflation has had a material effect on our business, financial condition or results of operations during any periods presented herein .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis