Kura Oncology Inc
For the period ended Dec 31, 2024. Filed Feb 28, 2025.
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FY2024 · Filed Feb 28, 2025
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Item 8. Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Kura Oncology, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Kura Oncology, Inc. (the Company) as of December 31, 2024 and 2023, the related statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 28, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Clinical Trial Research and Development Expenses and Accruals
| Description of the Matter | During 2024, the Company incurred $170.0 million for research and development expenses and as of December 31, 2024, the Company accrued $14.3 million for clinical trial research and development expenses. As described in Note 2 of the financial statements, the Company records accruals for estimated costs of research and development activities that include contract services for clinical trials. Clinical trial activities are accrued and expensed based on estimates of the period in which services and efforts are expended by contract research organizations (“CROs”) and other third parties. Estimates are determined by reviewing cost information provided by CROs and other third-party vendors, contractual arrangements with CROs and the scope of work to be performed.Auditing management’s accounting for accrued third-party clinical trial research and development expenses is especially challenging as evaluating the progress or stage of completion of the activities under the Company’s research and development agreements is dependent upon a high volume of data from third-party service providers and internal clinical personnel. |
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| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the accounting for accrued third-party clinical trial research and development expenses. This included management’s assessment of the assumptions and data underlying the accrued third-party clinical trial research and development expenses estimate.To test the completeness of the Company’s accrued third-party clinical trial research and development expenses, among other procedures, we obtained supporting evidence of the research and development activities performed for significant clinical trials. We inspected supporting evidence of clinical trial and project status review between internal personnel and third-party service providers to corroborate the status of significant research and development activities. We performed inquiries with clinical project managers to corroborate the status of significant research and development activities. To test the appropriate measurement of accrued research and development costs, we compared the costs for a sample of transactions against the related invoices and contracts, confirmed amounts incurred to-date with third-party service providers, and performed lookback analyses. We also examined a sample of subsequent payments to evaluate the completeness of the accrued third-party clinical trial research and development expenses. |
Accounting for the Kyowa Kirin collaboration and license agreement
| Description of the Matter | The Company’s collaboration revenues are derived from a collaboration and license agreement with Kyowa Kirin Co., Ltd (“the Collaboration and License Agreement”), which primarily includes licensing intellectual property and providing research and development and other commercialization services. The Company recognized revenue of $53.9 million for the year ended December 31, 2024 and a related contract liability of $278.2 million as of December 31, 2024 related to this agreement. As discussed in Note 2 of the financial statements, the total consideration related to the Collaboration and License Agreement may include many elements such as non-refundable fees at the inception of the arrangement, cost reimbursements, milestone payments and royalties. In some circumstances, management is required to use judgment to determine whether analogies to the revenue accounting literature are appropriate for elements of collaboration arrangements. The Company also develops estimates of the stand-alone selling price for each distinct performance obligation, which involve assumptions that may require significant judgment.Auditing the Company’s revenue recognition for the Collaboration and License Agreement was complex and required the Company to apply significant judgment, including in the assessment of appropriate authoritative guidance, determination of performance obligations, and the estimation of the standalone selling price of each distinct performance obligation. The estimates of the standalone selling price for the performance obligations relating to the license, development and commercialization services reflect management’s assumptions, which included forecasted revenues and expenses, expected development timelines, discount rates and probabilities of technical, regulatory and commercial success. |
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| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s process for the accounting of the Collaboration and License Agreement. For example, we tested management’s controls over the determination of appropriate authoritative guidance related to the identification of each unit of account and the determination of standalone selling price of each distinct performance obligation.To test the accounting for revenue from the Collaboration and License Agreement, our audit procedures included, among others, obtaining and reading the Collaboration and License Agreement and evaluating management's identification of significant terms for completeness, including identification of each unit of account, and evaluating the appropriateness of management’s application of authoritative guidance. To test the estimates of standalone selling price for each distinct performance obligation, our audit procedures included, among others, evaluating management’s estimate of the standalone selling price of each distinct performance obligation. For example, we evaluated forecasted revenues and expenses, expected development timelines and probabilities of technical, regulatory and commercial success by analyzing and comparing the significant assumptions to relevant industry data, comparable companies and the Company’s communication with its collaboration partner. We also involved our valuation professionals to assist in the assessment of the methodologies and discount rates used for each distinct performance obligation. We performed a sensitivity analysis to evaluate the impact that changes in the significant assumptions would have on the estimated standalone selling prices, the allocation of the transaction price, and to revenue recognized during the period. We also tested the completeness and accuracy of the underlying data used in the valuation of the standalone selling prices including the forecasted revenues and expenses. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2015.
San Diego, California
February 28, 2025
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