Curis Inc (CRIS) 2005 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2005 Curis earnings conference call. [OPERATOR INSTRUCTIONS] I would like to turn the presentation over to your host for today's call, Mr. Michael Gray, Chief Financial Officer. Please proceed, sir.

Good morning, and thank you for joining us. I'm Mike Gray, Chief Financial Officer of Curis. Welcome to Curis's year-end and fourth 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 the purposes of 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 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, the treatment of basal cell carcinoma; our ability to obtain and maintain proprietary protections 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/Centocor; our ability to raise additional funds to finance our operations, including our obligations under our co-development 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 of as of today, February 14, 2006. 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 February 28th, 2006, at 5:00 p.m. 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's President and Chief Executive Officer. Dan will begin our call with a discussion of our fourth quarter operational highlights, and then I will return to review our financial results for this past quarter and the year-end as of December 31, 2005. Dan?

Thanks, Mike. I would like to begin my remarks by reviewing the details of an update on our clinical trial with Genentech for basal cell carcinoma. The Phase I clinical trial is a double blind, randomized, placebo-controlled study that's expected to enroll approximately sixty patients was a single or multiple basal cell carcinoma. The primary objective of the Phase I clinical trial was to obtain data about the safety and tolerability of a four-week regimen of the drug candidate. In addition, we are evaluating the clinical activity of the drug candidate, where "activity" is defined as the complete eradication of the treated basal cell carcinoma lesion, and is determined by clinical and microscopic examinations of the lesions. As of January 23, 2006, twenty-nine of the Phase I clinical trial patients had participated in a dose- escalation segment in which seven patients were randomized to receive treatment in one of four dose levels. The dose-escalation segment of the Phase I clinical trial was recently completed, and the preliminary data has been reviewed by internal Genentech data review board.

Preliminary data from the dose-escalation segment suggests that the drug candidate appears likely to be safe, well tolerated, and has shown signs of activity. However, there has been less clinical activity observed to date than anticipated. Based on these data, the internal data review board recommended that we temporarily suspend further enrollment in the second segment of the trial in which additional patients were to be treated at the highest dose level from the dose escalation segment. The Companies will determine whether to re-open enrollment in this segment based on secondary administrative analysis that will occur at a later date. The internal data review board also recommended that a third segment of the trial that is evaluating biological activity using a pharmacodynamic end point be enrolled as planned. This third segment, among other things, may shed light on the extent to which the active compound in the drug candidate as formulated is penetrating the patient's skin.

We expect to have final results from the clinical Phase I trial during the first half of 2006. When the final results are obtained, we will determine, with Genentech, whether this drug candidate shall proceed to Phase II clinical trials. Should this drug candidate not progress into Phase II clinical trials, we will evaluate various criteria, including data from the biological activity segment of the trial and, with Genentech, determine the alternatives for the basal cell carcinoma programs. Possible scenarios include, but are not limited to, the following: extending the duration of treatment regimen of the existing drug candidate as currently formulated; developing a new topical formulation of the existing drug candidate; selecting a new drug candidate; negotiating the return of the compounds to Curis for further development, or terminating the basal cell carcinoma drug program.

In addition to the basal cell carcinoma program, our Hedgehog antagonist collaboration with Genentech is also focusing on developing systemic treatments for other solid tumor cancers. Among the significant accomplishments during the fourth quarter were two events under the systemic Hedgehog antagonist program with Genentech. In October we announced that Genentech had 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 in 2005 Genentech elected to extend funding of this Hedgehog antagonist collaboration. Under these extensions, Genentech is committed to pay Curis up to an additional $3.25 million, of which $2 million was paid in December to support Curis personnel and additional third-party resources dedicated to developing Curis's Hedgehog antagonist technologies for the treatment of solid tumor cancers for the period of June 2005 through June 2006.

As the solid tumor program continues to progress, we estimate that Genentech will file an IND in 2006 for a compound for the systemic treatment of solid tumor cancer indication. FDA acceptance of an IND covered under this program would result in cash milestone payments to Curis. This IND time line is our estimate; Genentech has the sole responsibility for determining if and when human clinical trials will begin. In November 2005, we exercised -- Wyeth exercised its option under our 2004 collaboration agreement to extend funding of our scientists for the continued development of therapeutic applications of the Hedgehog agonist with the primary focus on neurological disorders. By exercising the option, Wyeth extended the research term by one year through February 9, 2007. We are continuing to conduct preclinical research for the selection of a lead development compound for the treatment of stroke. We continue to work with Wyeth towards achieving the objective of identifying and selecting a lead clinical candidate that meets both the efficacy and toxicity profiles required for clinical development.

During the fourth quarter, we announced the expansion of our relationship with Centocor, a subsidiary of Johnson & Johnson. Under a new agreement, they will screen for small molecule agonist that mimic the bioactivity of BMP-7protein and activate the BMP pathway. Centocor and Curis will each fund two FTE's for the screening effort, which is expected to last fifteen months. Curis will own any small molecule BMP agonist compounds that are discovered as part of this screening; however, Centocor will have an exclusive option to negotiate a new collaboration and exclusive license agreement for the further development of the small molecule compounds. Curis is free to negotiate with other parties if Centocor and Curis cannot reach mutually acceptable terms for the separate BMP small molecule collaboration. In addition to the new collaboration, Ortho Biotech previously transferred responsibility for further development of the BMP-7 protein program to Centocor. The BMP-7 protein development is the subject of an earlier licensing agreement entered into in November 2002 between Curis and Ortho Biotech, another subsidiary of Johnson & Johnson.

In October, we announced preclinical data in our cardiovascular program with the publication of data in "Nature Medicine," showing that stimulating the Hedgehog signalling pathway was effective in treatment of preclinical models of both acute and chronic ischemic heart disease. Myocardial ischemia, the interruption of blood flow and oxygen to heart muscles, is the leading cause of heart attacks. In the U.S. approximately 1.1 million individuals experienced new and recurrent myocardial infarctions each year, and of these about 40% eventually develop congestive heart failure, a form of chronic heart disease. Wyeth has first negotiation to obtain an exclusive license to these cardiovascular applications. If Wyeth declines to exercise its options or we are unable to reach an agreement with Wyeth on terms within the contractually specified period, we are free to seek another collaborator for this program. In the event Wyeth declines to exercise its option, it will actively explore other licensing opportunities for this program.

In addition to the program's discussed above, we believe that we are continuing to make progress in our research with the SMA Foundation and our second Genentech research program that is focused on another undisclosed signalling pathway. I would like to now turn the call back over to Mike. Mike?

Thanks, Dan. I'll begin my remarks by reviewing our financial results for the fourth quarter of 2005, and I'll then turn to the year-to-date period ending December 31, 2005. For the fourth quarter of 2005, we reported a net loss of $934,000, or $0.02 per share, as compared to a net loss of $1.7 million, or $0.04 per share, for the prior-year period. Gross revenues, which are those revenues generated under ongoing collaborations, including our collaborations with Genentech, Wyeth, and Procter & Gamble, as well as our grant with spinal muscular atrophy, or SMA Foundation, were $3.6 million for the fourth quarter of 2005, as compared to $1.5 million for the same period in the prior year, an increase of $1.1 million.

Our gross revenues for the fourth quarter 2005 was as follows: Genentech, $2.2 million; Wyeth, $650,000; the SMA Foundation, $530,000; and Procter & Gamble, $280,000. By comparison, our gross revenues for the same period in 2004 were as follows: Genentech, $270,000; Wyeth, $800,000; and the SMA Foundation, $410,000. In addition to our gross revenues, we recorded $976,000 as [contra] revenue in connection with costs incurred during the fourth quarter 2005 for co-development of the basal cell carcinoma product candidate under development with Genentech. There were no co-development cost in the prior year, since we began this co-development arrangement in 2005. Going forward, we plan to continue to record contra revenues first against both the cumulative revenues recognized and the probable future revenues under both of our collaborations with Genentech, and then to research and development expense. The [inaudible] of our gross and contra revenues resulted in net revenues of $2.7 million for the first quarter of 2005, as compared to net revenues of $1.5 million for the same period in 2004, an increase of $1.2 million.

I would like to now turn to operating expenses. Operating expenses for the fourth quarter of 2005 were $5.3 million, as compared to $4.6 million for the fourth quarter of 2004, an increase of $700,000. The changes in our research and development and general and administrative expenses are as follows. Research and development expenses were $3.4 million for the fourth quarter 2005, as compared to $3.3 million for the same period in the prior year, an increase of $100,000, or 3%. The spending on our R&D program remained reasonably consistent with that of the prior-year period. D&A expenses were $1.9 million for the first quarter 2005, as compared to $1.3 million for the same period in the prior year, an increase of $600,000, or 46%.

This increase was principally due to a gain of $450,000 that we recorded during the fourth quarter of 2004 in the settlement of notes receivable from former officers of the predecessor company. These notes were previously written down in 2003. Other income for the fourth quarter of 2005 was $1.7 million, as compared to other income of $1.5 million for the same period in 2004, an increase of $200,000. Other income in each period was principally due to gains recorded on payments relating to a note receivable received from Micromet, a former collaborator. We recorded $1.5 million and $1.3 million, respectively, as other income related to these payments for the quarters ended December 31, 2005, and 2004. This note had been previously written off during fourth quarter 2003.

I will turn to the financial results for the year ended December 31, 2005, during which we reported a net loss of $14.4 million at $0.30 per share, as compared to a net loss $13.9 million, or $0.33 per share, for the prior-year period. Growth revenues generated were $12.1 million for 2005 as compared to $5 million for the prior year, an increase of $7.1 million. Our gross revenues for 2005 were as follows: Genentech, $7 million; Wyeth, $2.8 million; the SMA Foundation, $2 million; Procter & Gamble, $290,000. By comparison, our gross revenues related to these arrangements in 2004 were as follows: Genentech, $1.8 million; Wyeth, $2.5 million; and the SMA Foundation, $550,000. In addition to our gross revenues, we recorded $6.7 million as contra revenue in connection with costs incurred in 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 $5.5 million for the year 2005, as compared to net revenues $5 million for 2004, an increase of $500,000. Operating expenses for 2005 were $22.2 million, as compared to $20.6 million in 2004, an increase of $1.6 million. R&D expenses were $14 million for 2005, as compared to $12.7 million for the prior year, an increase of $1.3 million. D&A expenses were $8 million for 2005, as compared to $7.8 million for the prior year, and an increase of $200,000. Other income, which, in addition to other incomes -- which in addition to other income includes interest expense and interest income, was $2.4 million in 2005 as compared to $1.7 million in 2004, an increase of $700,000. As noted earlier, we recorded $1.5 million and $1.3 million, respectively, as other income related to payments on a previously written-off note from a former collaborator in 2005 and 2004. The remaining increase in other income was primarily attributed to an increase interest income in 2005 when compared to 2004. As of December 31st, cash, cash equivalents and marketable securities were $44.2 million, and there were approximately 48.3 million shares of our common stock outstanding.

I would like to wrap up my remarks by noting that we are not currently providing financial guidance, due primarily to the uncertainties around our basal cell carcinoma program under co-development with Genentech, but I hope to be able to provide financial guidance at a later point in the year. Thanks. I would like to turn the call over to Dan for a few closing remarks. Dan?

Thank you, Mike. Although we are disappointed in the preliminary data coming out of the basal cell carcinoma clinical trial, we were optimistic that we did see some clinical activity in the treated patients, and that the treated regimen appears to be safe and well tolerated. We expect to finish the remaining portion of the clinical trial, which will look for pharmacodynamic activity in treated lesions, in the first half of 2006. At that time, we plan to communicate our findings, and, with Genentech, make a decision about whether to move forward with a Phase II trial.

We believe the 2006 will be a pivotal year for our company. We expect to complete the Phase I trial for basal cell carcinoma and expect to get valuable data on the activity of the topical Hedgehog antagonist. We continue to expect that Genentech will file an IND for the solid tumor program before the end of the year, and we anticipate achieving one or more preclinical milestones in our collaboration with Procter & Gamble for the hair growth program, where we have an option to co-develop. We look forward to reporting to you throughout the year on these and all of our ongoing programs. I would like to thank everyone for joining us on today's call.

We will now open the call up for questions. Operator?

[OPERATOR INSTRUCTIONS]

Your first question comes from the line of Michael Yee with RBC Capital Markets. Please proceed.

Hey, guys. Thanks. I guess two quick questions. One is could you help me better understand the second administrative analysis? Is data also expected by the first half of '06, and what could really come out of this analysis? Is this just longer follow-up on the patients? And then I guess the other question is do you have other candidates available with a lot of preclinical work done? I guess I'm just trying to understand how quick you could be to move in a second candidate if this first one didn't work.

Thanks, Mike. The first part of the question is just to elaborate on the data analysis that resulted in the press release and the decision to extend the expansion study. So as we articulated, the Phase 1 study is broken out to two segments. The first is a dose escalation segment, where we have four dosages that were looked at. At the maximum dose, it had an expansion segment to that, so that was what we were in the process of evaluating. What I want to underscore is the data that we received from that portion of the study was simply binary; it was looking at is the lesion irritated, does it appear that the compound is safe, and then looking for activity was looking for clearance. So there was no qualifier, other than clearance, or is the lesion still present. And that's the objective of the second segment, which is looking at biological activity in the pharmacodynamic studies.

So the press release basically communicated that Genentech and Curis, after looking at the data, decided to suspend the expansion on the highest dosage, because we felt with the statistics that we were seeing we weren't going to learn anything more about the activity of the compound. We saw that it appears to be safe and well tolerated, and we did see activity but at lower numbers than we had hoped for. So what we now have to do is continue in the second segment, looking at biological activity, to try to assess the amount of penetration of the compound, the amount of activity in the compound, inactivating the pathway, is it inducing apoptosis in the lesion, just not eradicating all of the lesion? So these are questions that we simply don't have enough information to answer yet.

What we need to do is evaluate that data to see if it's possible that the compound is working well and we just need to expand the duration of treatments. And that would be predicated on the majority of lesions, or actually shrinking significantly, but there are still some residual that we feel with an increase in duration would address, or if it appears that we are not penetrating the lesion adequately, we may look at the same compound and reformulating. Regarding the prospects of backup compounds, we do have a portfolio of antagonists that we can consider. It's simply premature to speculate on any of these possible outcomes at this point, because we don't have enough data. So I hope that answers your question, Mike.

Thanks. So you did get up to the highest dose on those fourth doses, and basically there was not activity at that point to continue to enroll?

That's correct.

Thanks.

[OPERATOR INSTRUCTIONS]. At this time, there are no further questions appearing in queue.

Okay. Thank you very much, and we look forward to providing you with further updates. Thank you for your time.

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