Curis Inc (CRIS) 2005 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the second quarter, 2005 Curis earnings conference call. My name is Audrey and I will be your coordinator for today. At this time all participants are in a 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, press star followed by 0 and an operator will be happy to assist you. As a reminder, ladies and gentlemen, this call is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Mike Gray, Chief Financial Officer. You may proceed, Mr. Gray.

Good morning and thank you for joining us. And welcome to Curis's second quarter 2005 conference call. Before we begin, I would like to remind you that this conference call may contain statements about Curis's future expectations, plans and prospects that constitute forward-looking statements for purposes of the Safe Harbor Provisions and 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 various important factors including risks relating to both our and our collaborators abilities to successfully research, obtain regulatory approvals for, develop and commercialize products based upon our technologies, including with respect to our lead product candidates for the treatment of basal cell carcinoma, our ability to obtain and maintain proprietary protection for our technologies and candidates, competitive pressures, our ability to maintain strategic collaborations in licensing agreements, including with Cannon (ph) Tech Wyeth's and Ortho Biotech, our ability to raise funds to finance our operations, including our obligations under our co-development arrangement with Genentech and those described in our quarterly report on Form 10-Q for the quarter ended June 30th, 2005 and other reports that we file with the SEC.

The forward-looking statements included in this conference call represent our views as of today, August 9th, 2005. We anticipate subsequent events and developments will cause our views to change. While we may elect to update these forward-looking statements in the future, we specifically disclaim any obligation to do so. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this conference call.

A telephone replay of it today's conference call will be available through August 23rd, 2005 at 5:00 p.m. Eastern Daylight Time and information about how to access the telephone replay is available on our website at www.curis.com. I would now like to introduce Dan Passeri, Curis's President and CEO. Dan will begin our call with a discussion of our second quarter operational highlights and then I will return to review our financial results for this past quarter and the six month period ended June 30th, 2005. Dan?

Thanks, Mike. I'm pleased to report that we've made significant progress with our collaborator Genentech with the second quarter of 2005. Progress includes the following, Genentech initiated a phase one clinical trial with topical Hedgehog antagonist candidates for our basal cell carcinoma. We are co-developing this product candidate with Genentech and will share in U.S. development costs and any future net profits, if any. We entered into a new collaboration with Genentech related to the discovery and development of small molecule modulators of another signaling pathway and Genentech extended and expanded its funding of our scientists to support their work under the Hedgehog antagonist program for solid tumor cancers. This extension provides research support through December of this year with an option to further extend the funding through June 2006. Our basal cell carcinoma product candidate currently in phase one clinical trials is a topical antagonist of the Hedgehog signaling pathway.

The antagonist was discovered by Curis and is being co-developed through a development collaboration between Genentech and Curis. The phase one studies being conducted by Genentech and is a double-blinded randomized placebo controlled study that will seek to enroll approximately 66 subjects with a single or multiple basal cell carcinoma. The study's being conducted at approximately 10 investigational sites in the U.S. The primary outcomes measured in this trial are safety and tolerability of a multi-dose regimen of the Hedgehog antagonist. Under the terms of the co-development option, Curis and Genentech will share in U.S. development costs and any future net profits or losses derived from U.S. sales of the basal cell carcinoma product. In markets outside of the U.S. we're entitled to milestone payments assuming the achievement of certain development, clinical and regulatory approval objectives and we're also entitled to royalties on any future sales.

In April of this year, we announced our second collaboration with Genentech. This collaboration involves the discovery and development of small molecule pathway modulators. Although we've not disclosed the pathway, we can tell you that the pathway is a key regulator of tissue formation and repair and its abnormal activation is associated with certain cancers. Under the terms of this new collaboration, Genentech has paid us an upfront license fee of $3 million and is committed to pay us up to an additional $6 million over a two-year period to support Curis research dedicated to the collaboration. Genentech's also agreed to make additional cash payments to us that are contingent upon the successful achievement of certain developmental clinical and drug approval milestones and to pass a royalty on the net product sales if product candidates derived from the collaboration are successfully developed. The total potential cash payments to Curis from the transaction could exceed 140 million if two products are commercialized in two indications each. In addition, we're entitled to royalties on potential net product sales. Under this agreement, we've also reserved the right to use small molecule modulators in the pathways that are discovered as a result of the collaboration for x-vivo cell therapy and research purposes except in the areas of oncology and hema -- hematopoiesis.

In April we also amended our first agreement with Genentech to extend Genentech's funding of our research efforts through December of 2005 on the Hedgehog antagonist technologies for the systemic treatment of solid tumors. Genentech will pay us up to $2 million to support the further development of this program. Genentech also has the option to further extend this funding by an incremental six month period through June 2006. We feel that the extended funding demonstrates recognition of the valuable contribution that our scientists have made in advancing this sys -- systemic Hedgehog antagonist drug candidates towards clinical testing. As this program continues to progress, it's our estimation that Genentech will file an IND in 2006 for a compound for the systemic treatment of a solid tumor indication. Upon filing of an IND covered under this program, Curis would receive a cash milestone payment. This IND timeline is our estimate and Genentech has the primary responsibility for determining if and when even clinical trials will begin.

I'd like now turn to our Hedgehog agonist collaboration with Wyeth. Under our agreement with Wyeth, we estimate that Wyeth could select a lead development compound in 2005 and file and IND in 2006 for a compound for the treatment of stroke. Both the selection of lead development candidate and the dosing of the first patient in a phase one clinical trial would result in a cash milestone payment to Curis. Similar to our estimates under our collaboration with Genentech it's important to note that our expectations regarding the Wyeth collaboration are based upon Curis's internal estimates. Wyeth has the respo -- primary responsibility for determining if and when human clinical trials will begin.

In the second quarter, we adjusted our clinical timeline estimates related to our BMP 7 program with Johnson & Johnson. Earlier in 2005, J&J moved primary development responsibility of this program from Ortho Biotech products to Centocor, another one of J&J's subsidiaries. Under this new agreement, Curis and Centocor expect to establish a cross-company clinical team to share information on the development and progress of the BMP 7 program. The transfer of the BMP 7 program to Centocor was primarily to address manufacturing requirements in the complexities of the protein. With this transition of the BMP 7 program we're anticipating an IND filing no sooner than 2007.

This past quarter has seen substantial progress in our Company. Through our co-development collaboration with Genentech, Curis has begun the transition to a Company with products and clinical trials. We anticipate having as many as two more programs in the clinic in 2006 and continuing the advancement that was made in our relationships with our partners. For the remainder of the year, we anticipate reporting to you on a collaboration for our hair growth program and progress in both our clinical and pre-clinical development programs including selection of lead development candidates for our oncology and neurology programs. Curis is continuing to evolve according to plan and will remain focused on capitalizing on our expertise in signaling pathways in significant novel therapeutics for significant diseases. I'd now like to turn the call back over to Mike.

Thanks, Dan. I'll begin my remarks by reviewing our financial results for the second quarter 2005 and then I'll turn to the year to date period ended June 30th, 2005. For the second quarter of 2005 we reported a net loss of $4.7 million or $0.10 per share as compared to a net loss of $4.3 million also cents per share for the prior year period. Gross revenues, which are those revenues generated under your ongoing collaborations with Genentech and Wyeth as well as our grant with the Spinal Muscular Atrophy, or SMA Foundation, were $3.1 million for the second quarter of 2005 as compared to $1.1 million for the same period in the prior year, an increase of $2 million. Our gross revenues for the second quarter of 2005 were as follows: Genentech, $1.8 million, Wyeth, $650,000, and the SMA Foundation, $630,000. By comparison, our gross revenues for the same period in 2004 were as follows: Genentech, $480,000 and Wyeth, 4 -- $640,000. There were no revenues related to the SMA Foundation in the prior period as this grant was not received until September of last year. As these numbers indicate we experienced significant growth in our gross revenues when comparing the second quarter of 2005 to the same period in 2004. In addition to our gross revenues, we recorded $1.6 million as contra revenue in connection with costs incurred during the second quarter of 2005 for our co-development of the basal cell carcinoma product candidate with Genentech. The total of our gross in contra revenues resulted in net revenues of $1.5 million for the second quarter of 2005 as compared to net revenues of $1.1 million for the same period of 2004. An increase of $400,000.

I'd like to just briefly comment on the accounting treatment related to the co -- contra revenue line item. We followed the applicable accounting rules which are outlined in emerging issues task force number 0109 in accounting for our co-development costs. This rule deals with accounting for payments made from a vendor to a customer and the rule is very broad. As long as the vendor customer relationships exists, the rule applies. In our case the rule is applicable since Curis, as a vendor, sold to Genentech, our customer, a broad license to our Hedgehog antagonist technologies in June of 2003. This rule states that any payments made from a vendor to a customer must generally be treated as contra revenue. Our co-development payments therefore are recorded as contra revenue so long as the cumulative revenues recorded, combined with probable future revenues under our collaborations with Genentech exceed the co -- the cumulative co-development costs. Since our cumulative co-development costs of $4.9 million are less than the total cumulative revenues, which are $5.6 million, they're recorded under our Genentech collaborations, we have recorded the entire $4.9 million as contra revenue. Going forward we plan to continue to record contra revenues against future revenues recognized. We expect that any co-development costs in excess of these future revenues will be offset first against amounts recorded against our balance sheet as deferred revenue related to Genentech and once deferred revenue has been reduced to zero, then to R&D expense.

I'd like to now turn to operating expenses. Operating expenses for the second quarter of 2005 were $6.4 million as compared to $5.5 million for the second quarter of 2004, an increase of $900,000. The changes in our research and development and general and administrative operating expense categories are as follows: Research and development expenses were $3.7 million for the second quarter of 2005 as compared to $2.8 million for the same period in the prior year. An increase of $900,000. This increase was primarily attributable to an increase in spending related to our SMA program. This increase was partially offset by modest decreases in spending on our other research programs. A majority of our SMA research program costs are funded under a grant from the SMA Foundation.

General and administrative expenses were $2.6 million for the second quarter of 2005 as compared to $2.2 million for the same period in the prior year. An increase of $400,000. This increase was attributable to a $500,000 charge on lost sublease income offset in part by decreases in most other administrative cost categories including reductions in legal, consulting and professional service expenses.

I'll now turn to the financial results for the six-month period ending June 30th, 2005. For the first half of 2005 we reported a net loss of $9.8 million or $0.20 per share as compared to a net loss of $8.3 million also $0.20 per share for the prior year period. Gross revenues generated under our ongoing collaborations with Genentech and Wyeth as well as our grant with the SMA Foundation were $5.9 million for the first six months of 2005 as compared to $2 million for the same period in the prior year. An increase of $3.9 million. Our gross revenues for the first half of 2005 were follows: Genentech, $3.1 million, Wyeth, $1.6 million and the SMA Foundation, $1.2 million. By comparison our gross revenues for the same period in 2004 were as follows: Genentech, $950,000 and Wyeth, $980,000. Again as these numbers indicate we experienced significant growth in our gross revenues when comparing the six -- first six months of 2005 to the same period in 2004.

In addition to our gross revenues we recorded $4.9 million as contra revenue in connection with costs incurred during the first half of 2005 for our co-development of the basal cell carcinoma product candidate with Genentech. The total of our gross and contra revenues resulted in net revenues of $1 million for the first half of 2005 as compared to net revenues of $2 million for the same period of 2004, a decrease of $1 million. Operating expenses for the first half of 2005 were $11.2 million as compared to $10.5 million for the six month ended June 30th, 2004. An increase of $700,000. Research and development expenses were $6.8 million for the six month period ended June 30th, 2005 as compared to $5.6 million for the same period in the prior year. An increase of $1.2 million. General and administrative expenses were $4.3 million for the first half of 2005 as compared to $4.2 million for the same period in the prior year. An increase of $100,000. As of June 30th, 2005, cash, cash equivalents and marketable securities were $48.5 million and there were approximately 48.1 million shares in common stock outstanding.

I'd like to conclude by providing some financial guidance for 2005. First we believe that existing cash, cash equivalents and marketable securities together with contractually defined cash payments that we expect to receive from our collaborations with Genentech and Wyeth as well as from our research grant with the SMA Foundation will be sufficient to support our current operating plans into mid-2007. This assumes that we enter into no additional collaborations and we do not reach any development milestones in our existing collaborations. We expect to end 2005 with cash, cash equivalents, marketable securities and investments of between 36 and $39 million. Further assuming that our current collaborations continue through the remainder of 2005, we expect our gross revenues stemming solely from our existing collaborators and excluding any future development milestones will range from 11 to $13 million. We expect that 2005 costs for our basal cell carcinoma product candidate will be in the range of 8.5 to $9 million and that all of these costs will be recorded as contra revenue.

I'd also like to reiterate earlier statements that we expect our equal share of the basal cell carcinoma co-development costs to approximate $20 million through phase two clinical trials which we project to be completed in mid-2007, assuming the successful completion of our phase one clinical trial. Lastly, we expect that our 2005 research and development expenses will be between 13 and $15 million and that our general and administrative expenses will range from 8 to $9 million. Thanks and I'll now turn the call back over to Dan for some closing remarks.

Thanks, Mike. With the beginning of what we believe is the first human trial involving a Hedgehog antagonist, we believe that we're beginning to see real validation of our core expertise in regulatory signaling pathways. Since the majorities of our programs in research and development are based on the Hedgehog and other important regulatory signaling pathways, we view this clinical trial as a significant achievement for our Company. We look forward to reporting back to you on a progress of the trial and continuing to update you on other programs, those being developed with our collaborators and those that we're developing internally. I'd like to thank everyone for joining us on today's call and we'll now open the call up for questions. Operator?

Thank you. (OPERATOR INSTRUCTIONS) Your first question comes from the line of Jonathan Ashcroft of Brean Murray. You may proceed.

Thanks. Hi, Dan and Mike. Good morning.

Yes, morning, John.

I was wondering, beyond hair growth, what unpartnered intellectual property stands out in your patent portfolio?

Yes, so right now, what we have remaining in our portfolio that is unpartnered, obviously as you -- as you articulated, the hair growth which is a topical application, there's also some early preliminary data that it may have applications for-- for wound healing. There's also a retained right that we have under the agonist program with Wyeth for local administration for cardiovascular repair. This is primarily based on data that was generated at St. Elizabeth's Hospital and we're in the process of trying to validate and replicate that data and if that data replicates, we will probably seek a partner for the cardiovascular indications. We also have the SMA project, spinal muscular atrophy. That is in a screening mode right now. We're looking for small molecule modulators of a pathway implicated in spinal muscular atrophy and again that program is covered under a grant from the SMA Foundation. And then finally we have additional small molecule screens that are in play that we haven't disclosed yet.

Are you going forward at all with that psoriasis pursuit which you were left with -- with your last Genentech deal?

So that the psoriasis application that you're alluding to, there was some scientific data published that the Hedgehog pathway may be implicated in psoriasis where the antagonist may play a potential therapeutic role. That will be covered under the topical applications that we have under co-development with -- with Genentech, so the first indication that we're focusing on is obviously basal cell carcinoma but we will be coordinating with Genentech on possible expansion of therapeutic applications.

Does it make sense that this -- does it make sense that the same product would treat both or would it be a modified --

It's too early for me to comment on that. It's possible it would be the same, only a different formulation.

Okay. Is it fair to ask how many phase one patients have been dosed or is that not going to be disclosed?

We can't disclose it at this time.

Thanks a lot.

Okay, thank you.

And your next question comes from the line of John Sullivan with Leerink Swann. You may proceed.

Hey, guys, good morning.

Good morning, John.

A couple of quick questions, and -- and -- and perhaps questions that -- where you can't fully answer. But are -- in -- in -- in the phase one study, can you say in sites that you -- that you alluded to are -- are up and running?

We believe they are.

Okay, fair enough. And -- and -- and can you just reiterate what -- what you think a likely timeline is for this -- for this trial?

I think what we've conveyed is the -- you talking about the phase one?

Yes, I'm sorry, the phase one Genentech trial.

First -- first half of 2006.

For -- for the -- for --

That's what's been publicly stated, the final data.

Okay, fair enough. Can -- can you just talk for a second about the -- the BMP 7 shift within J&J from -- from Ortho to Centocor? Does that change your economic agreement in any way with J&J?

No, it doesn't change the -- the economics of the relationship. What it -- what it does is delay the anticipated timing of an IND. And just to clarify, John, that was the shift over to Centocor was primarily based on the complexity of the manufacturing of the protein. It's a complex protein and they spent a significant amount of time and effort looking at the versions of the protein that one can manufacture and what they wanted to do is look at a manufacturing protocol that was very robust where they could have as close to homogeneity as possible because of the -- the prospects of immunogenicity. As you know, they had experience with their Epo products with renal patients in Europe where some immunogenicity was -- was shown, so they wanted to look at that very aggressive in the pre-clinical stage rather than being surprised in the clinic. And that's basically what's -- what's prompted the -- the delays in the transfer.

Were you -- were you of the opinion that -- that -- that there will always be a shift from Ortho to Centocor as -- as kind of an -- as part of an actual progression or not?

No, under the initial relationship, Ortho had primarily responsibility. I think they were -- they were probably turning to Centocor for advice and assistance on the manufacturing. I think internally they decided it was more effective and efficient to transfer the whole program over to Centocor.

Okay. Fair enough. And -- and -- and then my last question regarding the -- re -- regarding the Wyeth partnership, you -- you talked about your -- your impression being a lead -- a lead molecule being selected in 2005 and a -- and an IND filing, again your impression in 2006. Have you -- have you disclosed -- did you deliver both small molecule and biel -- and biologic -- small molecule and protein lead candidates to -- to Wyeth within the context of this agreement?

Yes. It basically covers Hedgehog agonists including both the -- the proteins -- biologicals and -- and small molecules.

Okay. Thanks very much, guys.

Okay. Thank you, John.

As a reminder, ladies and gentlemen, if you wish to ask a question, it is star 1. I would now like to turn the call back over to the speakers.

Okay. Thank you very much for your time and attention. And we look forward to next quarter's conference call and giving you further status updates on our continued progression on the various programs. Thank you again.

Ladies and gentlemen, this does conclude your session. At this time you may disconnect and have a great day.