Curis Inc (CRIS) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the year-end fourth-quarter 2004 Curis earnings conference call. My name is Raika (ph), and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder, ladies and gentlemen, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's conference, Mr. Marc Charette, Vice President of Corporate Communications. Please proceed, sir.

Good morning, and thank you for joining us. This is Marc Charette, Curis's Vice President of Corporate Communications. Welcome to Curis's fourth-quarter and year-end 2004 conference call. Before we begin, I would like to remind you that any remarks that we may make about future expectations, plans, and 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 these forward-looking statements as a result of several, various important factors, including those that are discussed in Curis's most recent annual reform on Form 10-K, quarterly report on Form 10-Q, and any subsequent report filed with the Securities and Exchange Commission. Information discussed on today's call reflects our expectations as of today, February 15, 2005. Subsequent events may cause these expectations to change. We caution you that, although we may update these expectations as result of changed information or circumstance, we disclaiming any obligation to do so. 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 will be available through March 1, 2005 up to 5 PM Eastern standard time. And information about how to access the telephone replay is available on our website at www.curis.com.

On the call today, is Dan Passeri, President and Chief Executive Officer of Curis, who will discuss our 2004 operational highlights, and Mike Gray, our Chief Financial Officer, who will review our fourth-quarter and year-end financial results. I will now turn the call over to Dan.

Yes, thanks, Marc. Welcome to our fourth-quarter and year-end conference call. We're very pleased that those of you listening could join us.

2004 was a tremendously important year for Curis. Several of the year's highlights include -- a broad corporation with Wyeth Pharmaceuticals relating to our Hedgehog agonist technologies; a $5.4 million, 3-year grant from the Spinal Muscular Atrophy Foundation; a successful financing totaling nearly $90 million in net proceeds; an increase in funding under our collaboration with Genentech; successful reversion of several Hedgehog agonist compounds from Wyeth Pharmaceuticals for use in our hair growth program; several patent issuances; and encouraging third-party scientific developments that support our preclinical programs in cancer, kidney disease, neurological disorders and cardiovascular disease.

Also during 2004, our various partner in-license programs have continued to progress. And we've advanced our internal programs based on our proprietary knowledge of signaling pathways. As many of you are aware, we have programs in cancer, kidney disease, neurological disorders, hair growth, and cardiovascular disease, in addition to our discovery research efforts.

I will now briefly review recent development for each of our programs and, where applicable, the corresponding partnerships.

I'll begin with our Hedgehog antagonist program for the topical treatment of skin cancer under a collaboration with Genentech. On February 1, 2005, we announced that we had exercised our U.S. co-development option with Genentech to develop a therapeutic project for the topical treatment of basal cell carcinoma, or BCC. We believe that this represents a substantial commercial opportunities for Curis. It is estimated that approximately 800,000 to 1 million new cases of BCC occur annually in the U.S. We believe that the primary advantage of this program over currently available therapeutic approaches, namely surgery, is the fact that the majority of BCCs occur in cosmetically sensitive regions, such as the face. We believe that the use of our Hedgehog antagonist should eradicate the lesion while causing minimal to no scarring.

The co-development structure of our BCC program is significant to Curis in many ways. First, it represents a substantial revenue potential for the Company, assuming a product is successfully developed. Second, this our first product candidate to advance to clinical testing since our 2002 corporate restructuring. Third, we believe it provides further validation of the underlying science of our BCC product candidate by a very well-regarded biopharmaceutical company such as Genentech. And lastly, it will enable us to gain important insights into the clinical trial process, which could benefit the further development of our other internal programs.

Under the terms of the codevelopment option, we will assist Genentech in filing an Investigational New Drug application with the Food and Drug Administration, or FDA. And Curis and Genentech will share equally in U.S. development costs and in a commensurate amount of any future net profits or losses derived from U.S. sales of this product candidate. Assuming the acceptance of the IND application by the FDA and the successful advancement of the BCC product through Phase I and Phase II clinical trials, we anticipate completing Phase II clinical trials in mid 2007. By exercising codevelopment and an equal cautionary option, we expect to incur approximately $20 million in development expenses through Phase II clinical trials, a portion of which will be booked in the first quarter of 2005.

Next, I'd like to discuss our progress we've made with our Hedgehog antagonist program for the systemic treatment of cancer, also under collaboration with Genentech. In December, we were pleased that Genentech doubled its research funding commitment for the second year of this program. We feel that the incremental funding demonstrates the importance of our scientists' contribution to this program's further development. We believe that this program is progressing well, and it is our installation that an IND may be filed in 2006 for a cancer compound for the systemic treatment of a solid tumor indication. It's important to note that this is solely our estimate, and that Genentech has the sole control and responsibility for determining if and when human clinical trials will be initiated. We receive a cash milestone payment for an IND filing covered under this program.

The BMP-7 program for renal disease was licensed to Ortho Biotech products in November 2007. We expect that Ortho Biotech could file an IND in late 2005 or early 2006 for a kidney disease indication. Similar to our other collaborations, we will receive a cash milestone payment if the FDA accepts an IND covered under this program. I want to stress that the IND filing timeline is our internal estimate, and that the timing and decision to file an IND is solely in Ortho Biotech's control.

Because kidney disease patients currently have very limited treatment options, we believe there is great potential for this therapeutic product candidate. In addition to the $3.5 million payment that we receive upon signing the license agreement, Ortho Biotech is obligated to make clinical development milestone payments if development objectives are achieved, including a $30 million cash payment upon the NDA approval of a kidney disease product. And we also have the right to receive attractive royalties on potential future product sales.

Our Hedgehog agonist program for neurological disorders is under collaboration with Wyeth Pharmaceuticals. This collaboration began in February 2004, when Curis entered into an agreement with Wyeth to license its Hedgehog pathway agonist technologies. This collaboration provides for the development and potential commercialization of pharmaceutical products for neurological and other prior disorders. To date, the collaboration has focused on generating preclinical data for potential product candidate for the treatment of stroke.

Under the terms of this agreement, Curis received an upfront payment of $3 million, including $1.5 million paid for approximately 315,000 shares of our common stock. And we will receive up to 2 years of research and development support. This support is currently being paid at a rate of $2 million per year.

Wyeth has also agreed to make development milestone payments that could reach up to $170 million, assuming that specified research and development objectives are achieved for 2 product candidates. And we will also receive product royalties upon successful commercialization of the product. Based on our assessment of the program, we estimate that Wyeth could file an IND in 2006 for a compound for the treatment of stroke. Wyeth, however, has sole responsibility for determining if and when human clinical trials will begin. We will receive a cash milestone payment upon first patient treatment in a clinical trial covered by such an IND.

Our internal Hedgehog agonist program for hair growth regulation has also continued to progress. Under the terms of our collaboration with Wyeth, we retain the right to use Hedgehog small molecule agonist in our hair growth program subject to the requirement that Wyeth must first determine that such compounds are less suitable for systemic use in Wyeth's neurological disorders program, and thus, available for further development in our hair growth program. In December, Wyeth made several small molecule Hedgehog agonists available to Curis for use in our hair growth program.

We will either seek a collaborative partner for this program or elect to develop it internally, in which case we hope to select a lead development compound in 2005. If we elect to develop this program internally, we expect that we could file an IND in 2006 for the treatment of either female hair thinning or male-pattern baldness. Now, the decision, however, further development internally or seek a collaborator will be based on an ongoing analysis of factors, including weighing of commercial benefits, including future revenue potential, against development risks, such as clinical trial complexity and the associated costs.

Also under the Wyeth agreement, Curis retained the right of Hedgehog antagonist for local administration for cardiovascular repair. Presently, Wyeth has reverted to Hedgehog nucleic acid for proof of principal studies. Under our Hedgehog agonist for cardiovascular disease program, data were presented in November at the American Heart Association's annual meeting documenting the potentially beneficial effects of Hedgehog pathway stimulation for increasing blood flow to damaged heart muscles and promoting improved cardiac function following both acute and chronic myocardial ischemia in preclinical models of heart disease.

The data presented was generated by St. Elizabeth's Medical Center in Boston, Massachusetts. We are currently seeking to replicate these data. And pending successful replication, we will seek a collaborator for these technologies in 2005. We need to note that Wyeth has a right of first negotiation to obtain an exclusive license to our cardiovascular disease program. If Wyeth declines this option, or if we are unable to reach an agreement with Wyeth on terms within a contractually specified period, we are free to seek another collaborator for this program.

In September, we were awarded a $5.4 million, 3-year grant by the Spinal Muscular Atrophy Foundation to support the company's efforts in identifying small molecule drugs to treat spinal muscular atrophy, or SMA. SMA is a genetic motor neuron disease caused by progressive degeneration of nerve cells in the spinal cord and brain stem, leading to muscle weakness, respiratory complications, and premature death. The SMA Foundation estimates that there are currently 25 to 55,000 patients suffering from SMA in the U.S., Europe, and Japan. Our SMA research will utilize Curis's proprietary technologies to develop and refine motor neuron assays, and then use these assays to screen for potential drug candidates to treat SMA and other motor neuron disorders. We believe that we were chosen by the SMA Foundation because of our proprietary expertise on signaling pathways and the promise of our discovery platform to find a viable treatment for this serious disease. We believe that our unique 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.

Lastly, our research group continues to make promising progress. We also plan to bolster our pipeline by expanding into other signaling pathways, including the WNT pathway, which is an important target for colon cancer and other disorders. In addition to the progress we made with our programs in 2004, a substantial amount of data was published and presented supporting the importance of the Hedgehog pathway and understanding the progression of disease such as cancer, as well as how this pathway may be beneficial for treating neurological disorders. Curis was also issued 9 U.S. patents during 2004, stregthening our intellectual property position.

2005 is off to a promising start. And we expect that it will also be a successful year for Curis. We look forward to updating you on our progress.

I will now turn the call over to Mike Gray, our Chief Financial Officer. Mike?

Thanks, Dan. I will begin my remarks by reviewing our financial results for the quarter ending December 31, 2004.

For the fourth quarter of 2004, we reported a net loss of $1.7 million, or 4 cents per share, as compared to a net loss of $6.9 million, or 17 cents per share, for the same period in the prior year. The $5.2 million decrease in our net loss was primarily due to a $3.5 million increase in other income, which I'll describe in more detail shortly.

In addition, we recorded a $750,000 increase in revenues, and a $1.1 million decrease in operating expenses for the fourth quarter of 2004, as compared to same period in 2003.

Revenues for the fourth quarter of 2004 were $1.5 million, as compared to $750,000 for the fourth quarter of 2003. The increase in revenues was primarily due to revenues recognized under our collaborations with Wyeth and the Spinal Muscular Atrophy Foundation, both of which were established during 2004, in addition to an increase in revenues recognized under our collaboration with Genentech.

Operating expenses for the fourth quarter of 2004 were $4.6 million as compared to $5.7 million for the fourth quarter 2003, a decrease of $1.1 million. Within operating expenses, research and development spending was $3 million for the fourth quarter of 2004 as compared to $3.7 million for the same period in 2003. The decrease in research and development expenses was principally due to costs incurred in the fourth quarter of 2003 under our cooperation with ES Cell International. This collaboration ended in December 2003, and therefore, no expenses were recorded in 2004.

Also within operating expenses, general and administrative expenses were $1.3 million for the fourth quarter of 2004 as compared to $1.5 million for the same period in 2003, a decrease of $200,000.

The decrease in general and administrative expenses was principally due to $450,000 gain relating to the settlement of notes receivable from 2 former officers of bread sensor company (ph). This gain was partially offset by increases in legal and professional service costs.

Other income for the fourth quarter of 2004 was $1.5 million as compared to other expense of $2 million for the same period in 2003, an increase of $3.5 million. The increase was principally due to a net gain of $1.3 million recorded in the fourth quarter of 2004 related to a payment received on a note from Micromet, a former collaborator. The Micromet note had been written off during the fourth quarter of 2003, resulting in an impairment charge of $1.7 million in that period.

Turning to the full year period, the net loss for the year ended December 31, 2004 was $13.9 million, or 33 cents per share, as compared to $11.9 million, or 33 cents per share, for the year ended December 31, 2003.

Revenues for the fiscal year 2004 were $5 million as compared to $11 million for the prior year. 2004 revenues were primarily derived from our collaborations with Genentech, Wyeth, and the Spinal Muscular Atrophy Foundation. 2003 revenues were primarily derived from $8.6 million in previously deferred revenue that we recognized upon the termination of certain agreements with Micromet and from our collaborations with Genentech and the ES Cell International.

Operating expenses were $20.6 million and $21 million, respectively, for the years ended December 31, 2004 and 2003. Research and development spending of $11.6 billion decreased by $1.1 million from prior year spending of $12.7 million due to the net effect of changes in spending related to our research programs.

General and administrative spending of $7.6 million increased by $1.1 million over prior year spending of $6.5 million, primarily due to expenses associated with technology acquisition evaluations and increases in personnel costs, legal expenses, and professional service fees, as well as costs associated with financing related activities during the first half of 2004. These increases were partially offset by a 450,000 gain relating to the settlement of notes receivable from former officers of a predecessor company.

Other income for the year ended December 31, 2004 was $1.7 million as compared to other expense of $1.7 million for the year ended December 31, 2003, and increase of $3.4 million. The increases was principally due to the net gain of $1.3 million related to a payment in 2004 on a note receivable from Micromet that had been written off in 2003. This writeoff resulted in an impairment charge in 2003 of $1.7 million.

As of December 31, 2004, our cash, cash equivalents, marketable securities, and investments, including long-term investments, were $52.1 million. And there were approximately 47.5 million shares of our common stock outstanding.

Lastly, after year end, on January 7, Elan Pharma International Limited, or EPIL, notified us of its election to convert the entire balance of an outstanding convertible note payable from Curis into shares of our common stock. As of January 7, the outstanding balance of the note payable was $3.3 million, including interest. In accordance with the terms of this note, approximately 331,000 shares of our common stock were issued to EPIL based on a conversion rate of $10 per share. We have no further obligations under this convertible note.

Thanks, and I'll now turn the call back over to Dan.

Thanks, Mike. In closing, we believe that 2004 was a successful year, and that we are well positioned for 2005 and beyond. We believe that the progress that we've made recently and over last 2 years is a validation of our business model. We think that our knowledge surrounding key signaling pathways puts us in the forefront of regenerative medicine.

We have entered into several meaningful corporate collaborations with top-tier biopharmaceutical companies including Genentech, Wyeth, and Ortho Biotech that could provide significant revenue to Curis in future years. In the aggregate, these 3 collaborations could provide us with approximately $500 million in development-based milestones and royalties on potential future product sales ranging from 6 to 10 percent. We believe that the quality of our collaborators underscores the value of these signaling pathways and validates our approach to research and development.

We believe that we are advancing our programs effectively, and that we have provided our shareholders with great potential upside while mitigating our financial risk. We have done this through a combination of drug development strategies, from entering into straight licensing agreements, where we expend no financial resources and may receive development milestones and royalties, to retaining rights under our collaborations, including our co-development option, on our basal cell carcinoma program with Genentech, and are retaining certain rights to our hair growth and cardiovascular programs under our collaboration with Wyeth, to developing our assets using our own internal resources.

Finally, as some of you may be aware, we are presenting on March 1, 2005, at the Leerink Swann and Company/MEDACorp Inaugural Healthcare Conference. Our presentation will be webcast, and we hope that you will have the opportunity to listen to our remarks.

Thanks, again, for joining our call today. And I will now open the call up for questions. Operator?

(OPERATOR INSTRUCTIONS). Isaac Rowe (ph), Leerink Swann.

Quick question on behalf of John Sullivan here regarding the new relationship with Genentech in light of the JV -- just wondering how you guys would characterize -- maybe even more specifically than you have in the past -- how your interactions with Genentech have changed, how your relationship has sort of evolved, and more specifically, regarding the design of the trial and how you guys are working with them in that capacity now?

Sure. Just to clarify, the relationship is not a joint venture. It's a codevelopment.

So we have a broad oncology relationship with Genentech around the Hedgehog antagonist platform. We carved out a specific area for codevelopment, which was using the topical application of antagonist for treating BCC which is a form of skin cancer. Under the codevelopment relationship, we have an equal sharing of costs and potential profit.

Genentech takes the lead on designing the clinical trial. And that was one of the reasons we were very attracted to this approach, is we felt that a company of our size simply doesn't have the internal capacity or competencies to be able to design a broad trial, nor do we have the experience to look at the myriad of issues that one has confront getting through the clinic.

So we are quite pleased to have this type of relationship, where Genentech takes the lead in designing the trial, overseeing and managing the trial, and we, in essence, get to participate through periodic meetings with a clinical development group and participate financially.

Okay, great. And then as a quick follow-up here, I know you mentioned to some degree your interactions with Wyeth of the neuroprotective side of things for the Hedgehog pathway. Wondering if you could talk about whether you guys are advancing an actual drug candidate in this therapeutic area at the moment, and if not, more detail in where are you guys seeing that (ph)?

Sure. During 2004, we spent the majority of the year generating mechanism of action data, proof of principal data on the basic premise of stimulating a Hedgehog pathway as a therapeutic candidate for treating stroke and providing for neuroprotection. We successfully achieved both objectives.

During 2005, we're going to be working closely with Wyeth on identifying the lead candidate. We have several compounds that we're working on now. And for the majority of 2005, I think we'll be focusing on identifying the lead candidate for bringing further toward the clinic.

(OPERATOR INSTRUCTIONS). Jonathan Aschoff, Brean Murray.

The revenues for '05 -- I'm assuming that Genentech will be 100 percent out of that, or will there still be some contribution for other projects that are not BCC related?

Genentech will -- in terms of '05 revenue, Genentech will be involved. We're streamlining the upfront payments of about -- upfront and licensee payments of $9 million over an estimated period of involvement. So about one-eighth of that 9 million will flow through our 2005 revenue number.

In addition -- we touched on this briefly in the call and in our release -- we should see about close to $2 million in additional revenue from Genentech related to an increase in R&D funding for the second year of the collaboration.

Okay. And will Wyeth pretty much stay flat, you think?

I would expect Wyeth to stay flat.

And any other major component for '05?

Well, we don't offer guidance on other revenues. I think Dan has alluded in past presentations and today about the possibility of milestones associated with IND filings under our BMP-7 -- and potentially solid tumor, but most likely BMP-7 program. And our confidentiality section of those agreements prohibit us from really making a statement about that at this time.

(OPERATOR INSTRUCTIONS). At this time, you have no further questions. Ladies and gentlemen, this concludes your question-and-answer session. I would now like to turn the presentation back over to Dan Passeri, President and CEO. Please proceed.

I want to thank listeners for joining us today, and we look forward to further success. We thank you for joining us.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.