Curis Inc (CRIS) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2005 Curis earnings conference call. My name is Nica, 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 today's conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Mike Gray, Chief Financial Officer. Please proceed, sir.

Good morning and thank you for joining us. I am Mike Gray, Chief Financial Officer of Curis. Welcome to Curis' third-quarter 2005 conference call. Before we begin I would like to remind you that this conference call may contain statements about Curis' future expectations, plans and prospects that constitute forward-looking statements for purposes of the Safe Harbor provisions of 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 collaborator's ability to successfully research, obtain regulatory approvals for, develop and commercialize products based upon our technologies, including with respect to our lead product candidate for the treatment of basal cell carcinoma, our ability to obtain and maintain proprietary protection for our technologies and product candidates, competitive pressures, our ability to maintain strategic collaborations and licensing agreements, including with Genentech, Wyeth, Procter & Gamble and Ortho Biotech. Our ability to raise additional funds to finance our operations, including our obligations under our codevelopment arrangement with Genentech, and those factors described in our quarterly report on form 10-Q for the quarter ended September 30, 2005 and other reports that we filed with the SEC.

The forward-looking statements included in this conference call represent our views as of today, November 14, 2005. We anticipate that 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.

The telephone replay of today's conference call will be available through November 28, 2005 at 5 PM Eastern standard 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' President and Chief Executive Officer. Dan will begin our call with a discussion of our third-quarter operational highlights, and I will return to review our financial results for this past quarter and the nine-month period ended September 30, 2005. Dan.

Thanks, Mike. Among our significant events during the third quarter was the signing of our agreement with Procter & Gamble to develop a Hedgehog agonist for hair growth. Under the terms of the agreement we granted P&G an exclusive worldwide royalty bearing license for the topical, dermatological use of Curis' Hedgehog agonist technology. In order to preserve greater potential upside for our shareholders we retained an option to codevelop a development candidate from IND filing through Phase II of clinical trials.

Curis also continues to retain rights to certain nonsystemic applications of the Hedgehog agonist technology specifically for local cardiovascular and ex vivo use. During the process of licensing this program, we looked at several different potential collaborators and determined that P&G was the best choice to develop our hair growth program given its solid track record of creating market leading hair and skincare products and its expertise in skin biology and associated pharmaceutical development.

Our codevelopment option with P&G furthers our strategy of collaborating with leading pharmaceutical and biotech companies to build a diverse and growing portfolio of attractive drug candidates, while also providing us with access to world leading clinical skills to drug development. Under this agreement P&G paid Curis a $500,000 initial payment and has agreed to pay us up to $2.8 million in preclinical milestones contingent upon achievements of certain preclinical goals. P&G has also agreed to make cash payments to Curis assuming successful completion of certain clinical development and drug approval milestones.

As a development candidate derived from the collaborations successfully commercialized, P&G has agreed to pay a royalty on net product sales. At the time that P&G files an IND application with the U.S. Food in Drug Administration under the collaboration, Curis will have the option to codevelop a product candidate through Phases I and II of clinical development. If we exercise our codevelopment option we will be entitled to a higher royalty percentage on net product sales of any successfully codevelopment products although Curis would then forgo two early preclinical -- that would be clinical milestone payments from P&G. Assuming that the collaboration continues for its full-term with at least one product commercialized by P&G worldwide in two indications and developed directly by P&G on a global basis, Curis has the right to receive more than 100 million in milestone payments. Such milestones will be payable, if at all, whether Curis elected to codevelopment the candidate or not.

During the third quarter we also announced the publication of data supporting our hair growth program in the Journal of Investigational Dermatology. The results of the study demonstrate that a topically applied small molecule agonist of the Hedgehog signaling pathway can stimulate the transition of hair follicles from the resting to the growth stage of the hair cycle. In this preclinical study the Hedgehog agonist induced hair growth and caused no detectable short or long-term changes in the skin.

In addition to our new collaboration with P&G, we continued our progress in our collaboration with Genentech for our topical Hedgehog antagonist candidate for basal cell carcinoma, the most common form of cancer. The antagonist was discovered by Curis and is being codeveloped through a development collaboration between Genentech and Curis. The Phase I study is being conducted by Genentech and is a double-blinded randomized placebo-controlled study that will seek to enroll approximately 66 patients with a single or multiple basal cell carcinoma. The study is being conducted at approximately 10 investigational sites in the U.S. The primary outcomes measures in this trial are the safety and our tolerability of a multi-dose regiment of the Hedgehog antagonist. Curis expects to announce results of this program during the first half of 2006.

Recently we announced that Genentech has selected a lead candidate for the solid tumor program, a small molecule antagonist of the Hedgehog pathway. This represented a significant achievement for Curis in 2005. We also announced that for the second time this year, Genentech has elected to extend funding of the cancer therapeutic development collaboration that is ongoing between the two companies. An additional $1.25 million will be provided to support Curis personnel dedicated to Curis' Hedgehog antagonist technologies for the treatment of solid tumor cancers for the period of December 2005 through June, 2006.

As the solid tumor program continues to progress, it is our estimation that Genentech will file an IND in 2006 for a compound for the systemic treatment of a solid tumor indication. Upon filing an IND covered under this program Curis would receive a cash milestone payment. This IND timeline is our estimate based upon the information known to us at this time. Genentech has the primary responsibility for determining if and when human clinical trials will begin.

I would like to now turn to our Hedgehog agonist collaboration with Wyeth. The program continues to make promising progress as we conduct preclinical research towards the selection of a lead development compound for the treatment of stroke and possibly other neurological disorders. On to the collaboration we have generated promising preclinical data demonstrating significant neuro protection with a series of small molecule compounds but to date we have not yet identified a compound with an acceptable toxicology profile. We continue to work with Wyeth toward achieving the objective of identifying and selecting a lead clinical candidate that meets both the efficacy and toxicity profiles required for clinical development. Program is presently assessing the therapeutic efficacy and potential toxicity of the systemic therapy.

In addition to the programs we have with our corporate partners, we continue to make progress in our research with the SMA Foundation, our cardiovascular program and our other research programs including our program focused on another signaling pathway that is under collaboration with Genentech. I would like to now turn the call back over to Mike.

Thanks, Dan. I will begin my remarks by reviewing our financial results for the third quarter of 2005. I will then turn to the year-to-date period ending September 30, 2005. In the third quarter of 2005 we reported a net loss of $3.6 million or $0.08 per share as compared to a net loss of $3.9 million or $0.09 per share for the prior year period.

Gross revenues, which are those revenues generated under our ongoing collaborations with Genentech, Wyeth and P&G, as well as our grant with the spinal muscular atrophy or SMA Foundation were $2.6 million for the third quarter of 2005, as compared to $1.5 million for the same period in the prior year, an increase of $1.1 million.

Our growth revenues for the third quarter of 2005 were as follows. Genentech, $1.8 million; Wyeth, $585,000; the SMA Foundation, $205,000; and Procter & Gamble, $10,000. By comparison our gross revenues for the same period in 2004 were as follows. Genentech, $611,000; Wyeth, $736,000; and the SMA Foundation, $139,000. Included in our gross revenues are $419,000 and $41,000 in adjustments to reduce revenues previously recorded under our Genentech Hedgehog antagonist and Wyeth Hedgehog agonist collaborations, respectively. I will discuss these in more detail later in the call.

In addition to our gross revenues, we recorded $820,000 as contra-revenues in connection with costs incurred during the third quarter of 2005 for our codevelopment of the basal cell carcinoma product candidate with Genentech. The total of our gross and contra-revenues resulted in net revenues of $1.8 million for the third quarter of 2005 as compared to net revenues of $1.5 million for the same period in 2004, an increase of $300,000. Going forward we plan to continue to record contra-r revenues first against both the cumulative revenues recognized and any probable future revenues under both of our collaborations with Genentech and then to research and development expenses. I'd like to now turn to operating expenses.

Operating expenses for the third quarter of 2005 were $5.7 million as compared to $5.4 million for the third quarter of 2004, an increase of $300,000. The changes in our research and development, general and administrative operating expense categories are as follows. Research and development expenses were $3.8 million for the third quarter of 2005 as compared to $3.3 million for the same period in the prior year, an increase of $500,000 or 15%. This increase was primarily attributable to an increase in spending related to our SMA program. The majority of our SMA program costs were funded under a grant from the SMA Foundation.

General and administrative expenses were $1.8 million for the third quarter of 2005 as compared to $2.1 million for the same period in the prior year. A decrease of $300,000 or 14%. The decrease was primarily due to decreases in legal, consulting and professional service expenses.

I will turn to the financial results for the nine-month period ending September 30, 2005 during which we reported a net loss of $13.4 million or $0.28 per share as compared to a net loss of $12.2 million or $0.30 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 and the new agreement with P&G, were $8.4 million for the first nine months of 2005 as compared to $3.4 million for the same period in the prior year, an increase of $5 million. Our gross revenues for the first nine months of 2005 were as follows. Genentech, $4.8 million; Wyeth, $2.2 million; the SMA Foundation, $1.4 million; and P&G, $10,000. By comparison our gross revenues for the same period in 2004 were as follows. Genentech, $1.6 million; Wyeth, $1.7 million; and the SMA Foundation, $139,000.

In addition to our gross revenues, we recorded $5.7 million as contra-revenue in connection with costs incurred during the first nine months of 2005 for our codevelopment of the basal cell carcinoma product candidate with Genentech. The total of our gross and contra-revenues resulted in net revenues of $2.8 million for the first nine months of 2005 as compared to net revenues of $3.5 million for the same period in 2004, a decrease of $700,000.

Operating expenses for the first nine months of 2005 were $16.8 million as compared to $16 million for the nine months ended September 30, 2004, an increase of $800,000. Research and development expenses were $10.6 million for the nine-month period ending September 30, 2005 as compared to $9.4 million for the same period in the prior year, an increase of $1.2 million. General and administrative expenses were $6.1 million for the first nine months of 2005 as compared to $6.5 million for the same period in the prior year, a decrease of $400,000.

As of September 30, 2005 cash, cash equivalents and marketable securities were $42.9 million, and there were approximately 48.3 million shares of our common stock outstanding. I would now like to discuss further the adjustments that we made during the third quarter of 2005 to revenues under our Genentech and Wyeth collaborations. In the third quarter of 2005 we recorded an adjustment to correct an error in recording the fair value of shares issued in connection with our collaborations with Genentech and Wyeth. An adjustment was recorded to increase the additional paid in capital at our balance sheet by $1,629,000, a decrease to deferred revenue also on our balance sheet by $1,169,000 and to reverse $460,000 of revenue to correct for accumulative overstatement of license revenues under these collaborations. $419,000 of the $460,000 cumulative adjustment to revenues resulted from a decrease in our licensed revenues under the Genentech collaboration.

On June 11, 2003 in connection with the collaboration agreement Genentech paid us $8.5 million. Under the terms of the agreement $5 million was paid as the upfront license fee and $3.5 million was ascribed to the purchase of shares of our common stock. The price -- the per-share price was based on a contractual negotiated thirty-day trailing average of closing prices prior to the June 11, 2003 transaction date.

Based on this we sold to Genentech approximately 1.3 million shares of our common stock at a price of 2.64 per share, and we allocated $3.5 million to our stockholders' equity accounts. The remaining $5 million in upfront consideration was allocated to our deferred revenue accounts in our balance sheet and was being amortized over the performance period under this collaboration. However, the fair market value of our common stock on June 11 2003 was 3.77 per share as determined by the quoted closing price on the NASDAQ national market.

During third quarter of 2005 we determined that we should have used the quoted closing price on the date of the sale rather than the contractually agreed upon trailing average price prior to the sale. Accordingly, we should have ascribed $4,991,000 in value to the common stock calculated at the $3.77 per share closing price on June 11, multiplied by 1.3 million shares sold to Genentech. The allocated $3.5 million approximately therefore to the license fee.

Consequently to correct this error we recorded a credit of $1,491,000 to additional paid in capital within the equity section of our balance sheet, and we recorded a $1,072,000 reduction in our deferred revenue accounts also on our balance sheet, as we reduced our license revenues by $419,000. $41,000 of the $460,000 adjustment was due to a similar stock adjustment for a sale of stock to Wyeth under our January 2004 collaboration. On January 12, 2004 we entered into a similar collaboration agreement with Wyeth whereby Wyeth agreed to pay us $3 million of which we ascribed $1.5 million to the license fee, $1.5 million to the sale of common stock. Our Wyeth agreement included a similar contractually negotiated trailing average per-share price for the shares acquired by Wyeth. Again the fair value of our common stock on the transaction date 5.19 per share was higher than the contractually agreed price of 4.75 per share.

As a result during the third quarter of 2005 we determined that we should have ascribed $1,638,000 in value to the common stock. Consequently, we recorded a credit of, or an increase of $138,000 to our additional paid in capital accounts with the balance sheet to correct for the understatement and the fair value of the shares issued, a $97,000 reduction in our deferred revenue accounts, to correct for the overstatement of deferred revenue and a $41,000 reduction in license revenues to correct for the cumulative overstatement in revenues.

I'd like to conclude by updating our year end cash guidance. We previously expected to end 2005 cash, cash equivalents, marketable securities and investments of between $36 and $39 million. During the fourth quarter of 2005 we received a $1.5 million payment from a former collaborator. Largely because of this payment we now expect to end 2005 with between $38 and $41 million.

Thanks. I will now turn the call over to Dan for some closing remarks.

We continue to be pleased with the progress that we are making with our collaborators, as well as with our own internal development programs. We believe that the addition of Procter & Gamble to our list of major pharmaceutical partners is a validation, not only of our technology but of our business model which allows us to participate with calculated risk in the clinical trial process. We look forward to continuing to report to you on the progress in all of our programs. I would like to thank everyone for joining us on today's call, and we will now open the call for questions.

(OPERATOR INSTRUCTIONS) John Sullivan, Leerink Swann.

A couple quick questions on the development programs. Dan, can you give us a sense of the assets that P&G has committed to the hair growth program? Is it -- well, can you just give us a sense of the range of assets that they are committing to the program?

You mean their own internal assets?

Yes, their own internal resources.

They have a pretty impressive and significant skin biology group. So we have a joint steering committee just as we do with or other collaborators, and they have scientific members on that steering committee. We will meet on a quarterly basis to go over the formal review of data, but they have a team of scientists that will be working with our scientists on studying the biology and selecting a lead candidate to potentially take into the clinic. So they are committing significant internal resources in terms of scientific staffing, and then on the chemistry side for formulating a topical.

Great. Thank you very much. And secondly also in development programs, can you talk a little bit and maybe you can't, regarding the toxicity hurdle in the Wyeth stroke program? Is that -- are the reasons why that is likely to be a particularly challenging hurdle in a program like this?

Stroke, as an acute indication, is going to have a lower toxicology hurdle than other chronic neurological indications. But one of the things that we have observed is on the systemic oral administration of the agonist over a significant period of time, the molecules are fat soluble, so they are becoming deposited in the fat of the skin and having an effect on the follicle biology. This is in study animals. Bear in mind one of the requirements for an IND filing with the FDA even for an acute therapy, is that you demonstrate nominal toxicity over a two-week exposure. So it is a once-a-day exposure for two weeks. So even though this would be an acute therapeutic, you have a toxicology hurdle that you need to demonstrate to the FDA. So that is something we are working on now in terms of adjusting the molecule structure so that it is achieving its efficacy endpoints within the therapeutic window and minimizing the side effects that we're seeing.

Terrific. And then thirdly, regarding the basal cell carcinoma partnership with Genentech, if this sounds functionally like a Phase I II study, is that fair? What sort of efficacy endpoints are you going to be looking at, if any, regarding the double-blinded Phase I study that is ongoing?

Yes, good question. So the objective of the Phase I is obviously safety and tolerability. But if you look at the way it is designed it is not treating normals looking for toxic exposure. We are treating DCC patients, and if you look at the number of patients and the fact that it is a randomized placebo-controlled, double-blinded study with a significant number where there is a dose escalation with several cohorts, we are looking for hints of efficacy so that we don't going into Phase II, we have more insight on dosing requirements.

Terrific. Thanks very much. And just one question for Mike regarding the financials and the adjustments made, Mike, is the 10-Q being filed in the next day or two?

The 10-Q is going to be filed this morning.

And then a related question, just to make sure there was no effect to cash, there was no functional effect to cash or cash flow from these adjustments, is that fair?

That's correct.

Thanks very much.

David Wood, America's Growth Capital.

Just one question I have was a follow-up on John's question with the Wyeth program. Can you give us a sense of when a molecule is acceptable toxicity can be, if it can be discovered and when do you think you could have some news regarding that?

We are at this point with the data that we have, we are optimistic that we should have a handle on this sometime during '06. I think that is the best I can clarify at this point.

Okay, and the other question I had is regarding the Nature Medicine publication that came out I guess it was a couple of weeks ago with the gene therapy approach, can you give us a better sense of where that program stands? Is it a partnering opportunity, and when do you think that we could get some more visibility into this program going forward?

Good question. As you know, we retain the rights for a local administration of Hedgehog agonist for cardiovascular disease, and that retained right was basically focusing on the work done out of a group at St. Elizabeth. That is the group that published. And what they observed was they are a group that has focused on VEGF, and they were looking for what is inducing VEGF to be up regulated. And they did sort of a serial experiment of ischemia and found that Hedgehog was endogenously upregulated upon ischemia. So that ended studies using a naked D&A plasma coating for Hedgehog where they injected it into the damaged region, and found a reduction in fibrosis and an increase in vascularization. So the underlying biology is really what the program is predicated on. Wyeth has a first right of negotiation on those rights. We're in the process now of talking to some companies. But we have to go to Wyeth first. So we are reviewing the data, partly what was published, some other unpublished data as well, and looking at what alternatives we have. From our perspective I think we are just looking at maximizing the prospects of those rights being exploited. And Wyeth has expressed some interest in looking at the data. So I think over the next two quarters, we should have a better perspective of what path is the most likely for us.

Great. Thank you.

(OPERATOR INSTRUCTIONS) And at this time, gentlemen, I am showing no further questions.

Thank you very much for your time, and we look forward to giving you an update at another quarter.

Once again, ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.