Curis Inc (CRIS) 2004 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2004 Curis earnings conference call. My name is Kelly and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of this conference. If at any time during the call you require assistance, please press, * followed by 0, and the coordinator will be happy to assist you. I would now like to turn the presentation over to your host of today's call, Mr. Mark Sharette, VP of corporate communications. Please proceed, sir.

Good afternoon and thank you for joining us. This is Mark Sharette, Curis' VP of corporate communications. Welcome to Curis' third quarter 2004 conference call. Before we begin, I would like to remind you that any remarks that we make about future expectations, plans or prospects for Curis constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors including those discussed in Curis' most recent annual report on Form 10(K), quarterly report on Form 10(Q), or any subsequent report filed with the Securities and Exchange Commission which contains a risk factor section. Information discussed on today's call is time sensitive and is accurate only as of today, October 26, 2004. Any redistribution retransmission or rebroadcast of this call in any form without the express written consent of Curis is prohibited. A telephone replay of today's conference call will be available through 5:00 o'clock eastern time on November 9, 2004. Information about how to access the telephone replay is available on our web site at www.curis.com. On the call today is Daniel Passeri, President and Chief Executive Officer of Curis who will discuss the operational highlights of the past quarter. And Michael Gray, our Chief Financial Officer, who will review our third quarter financial results. Dan?

Thanks, Mark. Welcome to our inaugural quarterly conference call and we are very pleased that you could join us today. As Curis continues to grow, advance and mature we thought it necessary and important to initiate regularly scheduled calls to give our investors a comprehensive review of our progress and performance on a quarter to quarter basis. Curis has made significant progress over the past 18 months and we're now at an important inflexion point in our company's evolution. We have strong corporate collaborations in place with several top tier pharmaceutical company's, have a diverse portfolio of promising programs that address major unmet medical needs, have a solid cash position, a proprietary drug discovery platform based upon our core competency and regulatory ceiling pathways, a sustainable business mode, and near term value building milestones. Our primary areas of focus fall into five therapeutic categories, namely; cancer, kidney disease, neurological disorders, Alopecia, or hair loss, and cardiovascular disease. Curis is dedicated to being a product focus company by addressing critical unmet medical needs and leveraging our expertise in signaling pathways with a present emphasis on the Hedgehog and BMP signaling pathways. From our proprietary knowledge base on these two key signaling pathways we have derived three strategically important collaborations and two very promising internal programs. I will now briefly review each of these programs in the corresponding partnerships. As a general overview we, have established collaborations with Genentech for our Hedgehog Antagonist Technologies, for treating Basal Cell Carcinoma or BCC, and solid tumor cancers, we also have a relationship with Ortho Biotech, a subsidiary of Johnson & Johnson for our BMP 7 technology for treating kidney disease. And lastly we have a partnership with Wyath Pharmaceuticals for our Hedgehog Agonist Technology for treating neurological disorders. Collectively these collaborations provide potential development based milestones to Curis of over $500 million and will pay royalties ranging from 6 to 10% to Curis if any products are successfully developed and approved for sale. We are also developing products in-house for Alopecia and cardiovascular disease. The program with Genentech is the most advanced. We anticipate that Genentech will file an IND for the BCC program by late 2004 or early 2005 and may generate at least one additional IND for a solid tumor compounds by 2006. Genentech has devoted substantial resources to this oncology program and views opportunities for the BCC and solid tumor programs as promising additions to their cancer initiatives. And the last quarter there have been several new publications that have been reported on breast cancer, prostate cancer, and certain forms of brain cancer that may also be potential targets for the products candidates license to Genentech. Under the terms of our collaboration with Genentech we receive an up front payment of $8.5 million in June, 2003, annual maintenance fee payments of 2004 and 2005 that total $4 million, series of clinical development milestone payments and attractive royalties on potential future product sales. Also as part of our agreement with Genentech we have retained the right to co- develop products in the BCC field. Now BCC is the most common form of skin cancer with approximately 1 million new cases diagnosed annually. The product that is the subject of the co-development relationship is a topical formulation of one of our small molecule Hedgehog Antagonists. If we elect to co-develop a BCC product candidate, we will forego development milestones and royalty payments on potential future sales for BCC. Instead we will share in any cost and profits related to the BCC program based on the percentage that is equal to our co-development cost sharing contribution. For example, if we elect to share in 50% of the cost of the program, we will share in 50% of the potential future gross profit. We believe that our co-development option could provide meaningful additional value to our shareholders since we will retain a greater ownership interest in the program that under a typical licensing arrangement. Under the terms of our agreement, Genentech is required to present a co- development plan and budget [INAUDIBLE] for the BCC program at which point we will have 30 days to decide if we will participate in the co-development of the BCC product candidate. We expect to receive the co-development plan and budget sometime during the last quarter of 2004. And to make a formal decision in late '04 or in the first quarter of 2005. We have been in discussions with Genentech over the past several months regarding the development plan and assuming that the final development plan and budget are materially equivalent to our current understanding of the plan and budget we expect that we will exercise the co-development option. If we elect to participate, we will determine the applicable cost sharing percentage. Our current estimate is that the $18.9 million in net proceeds from our registered direct offering completed earlier this month, has provided us with enough cash to reach beyond Phase II efficacy end points in the BCC clinical program. Our collaboration with Ortho Biotech is also progressing well and we expect an IND to be filed in late 2005 for a kidney disease indication. I should stress that the 2005 IND filing timeline is our internal estimate and that the timing and decision to file an IND is solely in Ortho Biotech's control. We are however optimistic that the potential of this therapeutic product candidate as kidney disease patients currently have very limited treatment options. The terms of our license agreement with Ortho Biotech include a $3.5 million up front payment received in November, 2002, a series of clinical development milestone payments including $30 million upon U.S. marketing approvals of a kidney disease product and attractive royalties on potential future product sales. And January, 2004, Curis entered into a collaboration with Wyeth Pharmaceuticals to license our Hedgehog Pathway Agonist Technologies. This collaboration provides for the development and commercialization of pharmaceutical products for neurological disorders such as stroke, spinal cord injury, Parkinson's Disease, ALS, also known as Lou Gehrig's disease and other disorders. We expect that Wyeth will file an IND in 2006, however the timing and indication of any IND is solely under Wyeth's control. Under the terms of this agreement Curis received an up front payment of $3 million at least two years of R&D support which is currently at a rate of $2 million per year and a series of development milestone payments with a potential aggregate value of $170 million, and product royalties upon commercialization of the product. As I mentioned previously we have two internal programs. One focused on hair growth, the other on cardiovascular disease. Both of these programs are based on the same set of technologies that were licensed to Wyeth. We are currently working with Wyeth to select a series of compounds for our further development that will not compete with the compounds that Wyeth will use as part of the neurological disorders program. We anticipate completing this process in late 2004 or early 2005. For the hair growth program we will seek to -- will seek a lead development compound in 2005 with the intension of filing an IND in the first half of 2006 for the treatment of either female hair thinning or male pattern baldness. Our cardiovascular program is focused on developing treatments for acute myocardial infarction, or heart attack and peripheral vascular disease. Data was presented at last year's American Heart Associations annual scientific sessions showing positive results with a Hedgehog Agonist and preclinical heart attack model. Next week at this year's annual scientific sessions additional data will be presented on chronic myocardial infarction. It's our intent with this program to eventually seek a corporate partner because of the complexity and resource requirements of the cardiovascular clinical trials. In line with our goal to leverage our expertise in signaling pathways and continuing to exploit our proprietary drug discovery technology, we signed an agreement with the spinal muscular atrophy foundation this September. Under the terms of this agreement, Curis will receive a $5.4 million three-year grant to support our efforts in identifying small molecule drugs to treat spinal muscular atrophy or SMA. SMA is a genetic motoneuron disease caused by progressive degeneration of nerve cells of the spinal cord and brain stem leading to muscle weakness, respiratory complications and premature death. According to National Institutes of Health, it's the most severe form of the common childhood generic neurological diseases, and is the leading genetic cause of infant death. The SMA Foundation estimates there are currently 25,000 to 55,000 patients suffering from SMA in the U.S, Europe and Japan and the annual market potential for a drug to treat SMA could exceed $500 million. Our SMA research will utilize Curis' proprietary technologies to develop and refine motoneuron assays and then use those assays to screen for potential drug candidates to treat SMA and other motoneuron disorders, and we would control those compounds. Curis's unique ability to direct the differentiation of uncommitted cells into motor neuron's, allows our scientist to screen for drug candidates and exactly the type of cell that is affected by this disease. In achievement that was not possible in the past, we are very pleased to have been chosen by the S M A Foundation because of our proprietary expertise on signaling pathways and the promise of using our discovery platform to find a viable treatment for this serious disorder. We believe that our approach and expertise in this area could open a broad array of clinical and commercial opportunities in other therapeutic areas for Curis in the future. In addition to the progress made in our programs and the SMA Foundation grant, during the third quarter we saw several new third party scientific reports including reports linking abnormal expression of the Hedgehog Pathway to various cancers including breast cancer, prostate cancer and Medgiloglocoma coupled with several reports demonstrating the effectiveness of Hedgehog Pathway Antagonists and blocking the growth of these cancers in preclinical tumor models. Lastly, we have continued to strengthen our intellectual property portfolio. For example, in July, Curis was issued a new patent, entitled neuroprotective methods and reagents which covers claims for treating stroke and other neurological disorders by activation of the Hedgehog Pathway. In summary, we are well poised to transition Curis to the next level of development. We have successfully implemented a corporate development strategy providing a robust pipeline of drug candidates addressing major medical markets. Through an aggressive partnering strategy, we have successfully established a business model, providing us with near term milestone based revenue potential while retaining programs we feel are more aligned with our internal capabilities and capital resources. Thanks for your attention this morning. We look forward to updating you on our progress throughout the quarter. I'd like to now turn the call over to Mike Gray, our Chief Financial Officer. Mike?

Thanks, Dan. Prior to beginning a review of our financial results for the three and nine-month periods ended September 30, 2004, I would like to reiterate that on October 14, 2004, we completed a registered direct offering which provided net proceeds to Curis of approximately $18.9 million. Under this offering, we sold approximately 5.5 million shares of our common stock together with warrants to purchase .1 share of common stock for each share of common stock purchased at a purchase price of $3.67 per share. The warrants are to purchase an aggregate of 548 thousand shares of common stock and they expire on October 14, 2009 and are exercisable at $4.59 per share. As of September 30, cash and investments were $32.5 million and since we netted $18.9 million in our offering we expect to have between 45 and $47 million in cash and investments on hand as of December 31, 2004. This financing is significant to Curis as it extends our cash run rate well into 2007 and will provide us with the ability to exercise in a meaningful percentage share our co-development option on the BCC program currently underdevelopment with Genentech. I will now provide a brief overview of our financial results for the three and nine-month periods ended September 30, 2004. For the third quarter of 2004 we reported a net loss of $3.9 million or 9 cents per diluted share as compared to net income of $4.5 million or 11 cents per diluted share for the prior year period. The change from reporting net income for the third quarter of 2003 to reporting a net loss in the third quarter of 2004 was due to the -- to our termination during the third quarter of 2003 of research agreements with the a former collaborator. These agreements were not core to our business. Prior to the termination of these research agreements we had recorded $8.6 million in deferred revenue. We immediately recognized this deferred revenue upon the termination of the agreements in the third quarter of '03. Revenues for the third quarter of 2004 were $1.5 million as compared top $9.3 million in the same period of 2003. This decrease was primarily due, again, to the $8.6 million in previously mentioned deferred revenue that we recognized upon the termination of our research agreements with the former collaborator during the third quarter of '03. Revenues for the third quarter of 2004 were primarily derived from our ongoing collaborations with Genentech and Wyeth. In addition we began to record revenues under our $5.4 million grant from the Spinal Muscular Atrophy Foundation that was awarded in September. Operating expenses for the third quarter of 2004 were $5.4 million as compared to $4.8 million for the third quarter of 2003; an increase of $600,000. Within operating expenses we recorded general and administrative expenses of $2.1 million for the third quarter of 2004, as compared to $1.7 million for the same period in the prior year, an increase of $400,000. The increase principally resulted from expenses associated with patent related legal expenses, technology acquisition evaluations, and increases in personnel costs. It's worth noting that approximately $350,000 of our patent related legal expenses are paid by our collaborators, Genentech and Wyeth during this period. Research and development expenses for the third quarter of 2004 were $3 million as compared to $2.8 million for the third quarter of 2003, an increase of $200,000. For the nine-month period ending September 30, 2004, we reported a net loss of $12.2 million or 30 cents per diluted share, versus net loss of $5 million or 14 cents per diluted share for the nine-month period ended September 30, 2003. Revenues for the nine-month period ended September 30, 2004, were $3.5 million as compared to $10.3 million for the same period in 2003. Operating expenses for the nine-month period ended September 30, 2004, were $16 million as compared to $15.3 million for the same period in 2003, an increase of $700,000. Within operating expenses we recorded general and administrative expenses of $6.3 million for the first nine months of 2004, as compared to $5 million for the same period in the prior year, an increase of $1.3 million. Increase principally resulted from expenses associated with various technology acquisition evaluations, increases in patented related legal expenses, and personnel costs and costs associated with the financing of [INAUDIBLE] not completed the during the first half of 2004. Research and development expenses for the nine-month period ended September 30, 2004, were $8.6 million as compared to $9 million for the nine-month period ended September 30, 2003, a decrease of $400,000. I will now turn the call back to Dan for some final remarks.

Thanks, Mike. We are very pleased with the progress that Curis has made and remain very optimistic about the path ahead for building Curis into a successful Bio pharmaceuticals business. We are also pleased about the recent successful financing that as this enables Curis will be in a position to potentially exercise the co-development option with Genentech. We believe that Curis' participation in that program could provide a substantial return on our investment for our shareholders. In addition to the BCC co-development opportunity we believe that in the next 12 to 18 months there will be a series of value building milestones that will occur as a result of our established corporate collaborations and progress in our internal programs as well. With that I'd like to thank the members of the audience for your attention and I would like to now open the call up for questions. Operator?

Thank you, sir. Ladies and gentlemen if you wish to ask questions, please press * followed by 1, on your touchtone telephone If your question has been answered or you wish to withdraw your question, press *, followed by 2. Questions will be taken in the order received. Please press. *1 to begin. And we'll hold for just a moment while we collect your questions. Once again, ladies and gentlemen, that's, *1 for questions. Your first question comes from John Sullivan of Leerink Swann. Please proceed, sir.

Hi, guys, good afternoon. I have a couple of questions surrounding the various programs and also some scientific research, some academic research that's recently been published. You put out a press release earlier this week that talked about new reports of positive preclinical results using small molecule Hedgehog inhibitors. This went on at the site for neuroscience meeting in San Diego. Were those your molecules?

Good question. Yes, so the Hedgehog Antagonist studies most of which, in fact I think all of them used Cyclopamine which is a compound under our control, that's a plant derived extract that we have an exclusive license for and on the agonist side for the upcoming neuromeetings those are our compounds that we provided to various external researchers.

And then are those molecules among those licensed to Wyeth within the context of that agreement?

Yes, they fall within the field that Wyeth has licensed from us.

Okay. And have you to date given any indication to investors regarding when you'd expect to see some progress from Wyeth regarding this partnership?

What we've stated in conference calls is that the program is currently looking at various small molecule compounds were working closely with Wyeth to select the series of compounds that could potentially be the lead compounds. So we're in the phase now of doing medicinal chemistry and also were looking at selecting which clinical indication would be focused upon. And that's going to be the bulk of 2005. So the program is earlier than the cancer program. But I think we'd be looking at an '06 filing, some time in '06. I think '05 is going to be primarily looking at the compounds to select for a lead and a lead indication.

Terrific. Let me just shift gears and ask you about the Genentech partnership for the BCC small molecule. Is there anything, as you think about the potential, the degree to which Curis is going to participate or not in this program, is there anything regarding the preclinical data that will, that will change your mind as you look at the actual percentage, that is to say is there a certain preclinical data that will cause you to take a bigger stake in other preclinical data that will cause you to take less but still participate or is it the sort of thing where as long the preclinical data is adequate you're likely to take the same stake as long as it's within a range?

Sure. So to answer that question,the preclinical data is basically completed. We are on a stage now of completing the, well, Genentech is in a stage of completing the IND filing package. They need to get a development plan to us. So we've been in dialogue with them over the past few months. They are finalizing the development plan and what will determine the percentage stake is really the estimates on the cost of the clinical trial. If those costs are consistent with the estimates that we've received to date then we are going to go for a higher percentage.

I understand. Right. So you don't think the preclinical data is polling to change. It may be a function, however, of the costs associated with the program.

That's right, the size of the clinical trial.

Okay. Understood. And then my last question has to do with the program you guys retain the local delivery cardio program?

Yes.

Okay. Are there next steps that investors should be looking for regarding this local delivery cardio program? How will investors know that this program is progressing?

Good question. So the data package that we have to date, the majority of the data has been generated at St. Elizabeth's Hospital. We are in the process now of working with St. Elizabeth's and we are basically trying to replicate that data. Our intent is to develop a preclinical package that puts it in a position that we can find top tier pharma-companies as prospective partners for that. Because of the complexity of the clinical trial and the financial resource requirements for cardiovascular clinical trials our objective is to put that in the hands of a large pharma-, and I think we would be looking at doing that sometime in '05, early '06.

Have pharmaceutical companies shown any interest to date in this program, is that the sort of thing you can talk about or not?

Yeah, I can tell you that we have been approached by several companies and we have had some discussions but I will say that we are obligated to go to Wyeth first before we negotiate any terms with another company. Wyeth has an option of first negotiation for the local administration of the Agonist. So we will obviously respect that before we engage in any formal discussions with another company. But that doesn't fall under the existing relationship with Wyeth. That would be a completely different agreement.

Okay. Thank you very much.

Thanks, John.

And the question comes from Jonathan Ashoff of Brean Murray.

Thanks, a lot. Hey, Dan, I had a question about the Genentech deal. If you take the co-development presenters that you are looking for that you optimally think looks best to what data is telling you, what then triggers the milestones nearest term going forward?

That's a good question because that needs to be clarified. If we opt for co-development on BCC we then would not receive any milestones or royalty. We would be going under the co-development option. If we opt not to co-development, not to go into co-development, we would receive a series of milestones beginning with IND filing and also a royalty if it's approved.

Okay, so pretty much any participation wipes out milestones?

With BCC, [INAUDIBLE] they remain.

Okay, thanks a lot.

Once again, ladies and gentlemen, to ask a question, please press, *1 on your touchtone telephone. We have a follow-up question from John Sullivan of Leerink Swann.

Hi, guys. Just a quick follow up on that local delivery cardio program. Some of the other companies that have been involved over in the past regarding local delivery of material to cardio have partnered up with catheter companies to create a delivery system. Are you guys at that point yet or is that a meaningful kind of, is that a meaningful milestone that we should be looking for as this program progresses?

Yeah, that's a very good point. So the ideal candidates for developing this type of a drug would be those companies that have the delivery capacity and the natural fit would be catheter companies. And there's obviously a couple of leading companies that we are going to be keen to have discussions with.

Thank you.

That concludes our question and answer session. I'll now turn the call back over to Dan Passeri for closing comments.

Again we want to thank the listeners for your participation and the time to explain what we've accomplished over the past quarter and look forward to giving you these updates on a quarter by quarter basis. Thank you again for your time.

Ladies and gentlemen, thank you for participation in today's call. This concludes the presentation. You may now disconnect. Have a good day.