Curis Inc (CRIS) 2006 Q1 法說會逐字稿

Good day and welcome to the Curis, Inc. first quarter 2005 earnings conference call hosted by Dan Passeri. [OPERATOR INSTRUCTIONS] At this time, I'd like to turn the presentation over to your host for today's call, Mr. Mike Gray.

Good morning and thank you for joining us. I'm Mike Gray, Chief Financial Officer of Curis. Welcome to our first quarter of 2006 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 collaborators’ abilities 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 BCC or basal cell carcinoma. Our ability to obtain and maintain proprietary competitive pressures, our ability to maintain strategic collaborations and licensing agreements including with Genentech, Wyeth, P&G and Ortho Biotech, Centercor. 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 March 31, 2006 and other reports that we file with the SEC.

The forward-looking statements included in this conference call represent our views as of today May 9, 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 May 23, 2006 at 5 p.m. Information about how to access the telephone replay is available on our website at www.curis.com. I would like to now introduce Dan Passeri, Curis' President and CEO. Dan will begin our call with a discussion of our first quarter operational highlights and then I will return to review our financial results for this past quarter ended March 31, 2006. Dan.

Thanks, Mike. I'd like to begin my remarks by expressing our frustration and disappointment regarding Curis' stock performance over the last several months. Our January update on our Phase I basal cell carcinoma clinical trial on the co-development with Genentech resulted in decline of our stock price from $3.92 per share prior to our Phase I BCC trial update to $2.61 immediately following this update and has unfortunately continued to decline to its current level. We believe the main reason for our stock price decline has been the uncertainty surrounding our basal cell carcinoma program.

In January, 2006, we provided a status update on our BCC Phase I program focused on the Hedgehog pathway. Our Phase I study of the topically applied small molecule antagonist of the Hedgehog pathway, NBCC is ongoing. The study is enrolling approximately a total of 60 patients over three segments as follows. Segment 1 is a dose escalation segment in which patients randomize to receive treatment at one of four dose levels. Segment 2 is a treatment expansion segment in which additional patients are treated at the highest dosage from the dose escalation segment. And segment 3 is a Pharmacodynamic segment just to evaluate the biological activity of the drug candidate being tested.

As previously announced, preliminary data from segments 1 and 2 revealed no significant safety concerns and demonstrated some signs of clinical activity whereby clinical activity is defined as complete clearance of the treated BCC lesion. Unfortunately there was less clinical activity observed than anticipated. That is fewer patients than anticipated showed complete clearance. Having data from all three segments will help provide the information necessary to determine the activity of the molecule as well as the validity of the target. Final data from all three segments is planned to be unblinded and analyzed in late 2006.

We had originally anticipated that data would be available in June, 2006. Earlier today Curis announced that Genentech has extended funding to support Curis personnel performing research services through December 2006 with an option to extend further research funding through June 11, 2007 if both parties agree. It is currently expected that Curis personnel would support the two companies’ ongoing research in the systemic Hedgehog antagonist program and the development of xenograph models for use in other Genentech programs. Under the terms of the amendment that extends funding, these researchers could also support efforts on other collaborative programs between the two companies. I'd like to stress to our existing shareholders that, in addition to our hedgehog antagonist program for BCC, Curis possesses several other programs in our drug candidate portfolio.

These programs include a systemically administered Hedgehog antagonist program for treating solid tumors under collaboration with Genentech, a discovery and development initiative for small molecule antagonist as well as agonist of another signaling pathway that is implicated in certain cancers also under collaboration with Genentech. A topically applied small molecule Hedgehog agonist for hair growth regulation under development with Proctor and Gamble. A systemically administered Hedgehog agonist for the treatment of neurological disorders including stroke which is under development with Wyeth and a BMP which stands for bone morphogenic protein program for kidney and other disorders currently under development with Centercor.

In addition to the programs that we have developed in other collaborations, we have retained rights in our BMP small molecule agonist and spinal muscular atrophy, small molecule discovery program under collaborations with Centercor and SMA foundation respectively. We've also retained rights to local delivery of Hedgehog agonist for cardiovascular indications under which Wyeth would have a first option for negotiation if we choose to partner that program.

We believe that the breadth of our portfolio combined with our financial position, Curis had approximately $43 million on hand at March 31, 2006, gives us the opportunity to extract value from our existing assets as well as potentially bring in new assets into the Curis pipeline. We believe that many of our assets will continue to advance in preclinical studies and that certain of our assets have the potential to yield meaningful near term milestones for our shareholders. For example, we continue to expect that Genentech will file an IND in 2006 for a compound for the systemic treatment of solid tumor indication. Upon filing of an IND covered under this program, Curis would receive a cash milestone payment. This IND time line is our estimate. Genentech has the primary responsibility for determining if and when human clinical trials will begin.

Also, under our hair growth collaboration with Proctor & Gamble, in addition to the $1 million cash payment that we received during the first quarter from Procter & Gamble for the achievement of a preclinical development objective, we are entitled to receive a second cash payment in the amount of 1.8 million if we successfully achieve the second preclinical objective. Based upon the current status of this program, we believe that we have the potential to hit this milestone in late 2006 or early 2007. Under this collaboration, we have an option to co-develop the drug candidate through Phase II clinical trials should an IND application be filed with the FDA. We can exercise this co-development option at either a 20% or a 50% level, either of which would result in a corresponding increase in our royalty rate on potential future sales of a drug candidate. We also expect that our other drug development programs will continue to progress in 2006.

I'd like to now briefly review certain of our programs. Among the significant accomplishments during the first quarter was the presentation of preclinical data in animal models of pancreatic and small cell lung cancer. The presentation at the AACR describes the use of a Hedgehog antagonist in small cell lung and pancreatic cancers, diseases that both have very low survival rates. For these studies, researchers used a primary tumor xenograph model whereby a human tumor is grown and expanded directly in recipient mice. Treatment with a small molecule Hedgehog antagonist inhibited the rate of tumor growth in most xenograph models of both cancers.

As mentioned earlier, 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 solid tumor indication. Upon filing an IND covered under this program, Curis would receive a cash milestone payment. Again, we'd like to emphasize that this IND time line is our estimate and Genentech has the primary responsibility for determining if and when human clinical trials will begin. At the AACR meeting, Curis also presented two posters on the hedgehog pathway and its role into other cancers, namely basal cell carcinoma currently in a Phase One clinical trial co-development with Genentech and medulloblastoma which would fall under the solid tumor program partnered with Genentech.

I'll now turn to our collaboration with Procter & Gamble. Our collaboration with P&G is currently focused on the potential development of a topical Hedgehog agonist for hair growth disorders such as male pattern and baldness and female hair loss. As part of the initial agreement signed in September of 2005, P&G agreed to pay us up to $2.8 million in preclinical milestones. As I previously indicated, in the first quarter of 2006, we achieved the first preclinical development objective under this collaboration and received a $1 million cash payment. In addition, our systemically administered Hedgehog agonist program for the treatment of neurological disorders currently under development with Wyeth continues to make progress through preclinical development. Wyeth and Curis are continuing to advance to prioritize Hedgehog agonist compound class in late preclinical testing.

Curis scientists have also screened additional compounds and expect to continue to screen compounds to increase the likelihood of successfully generating back-up compound classes. In addition to the programs discussed above, we believe we are continuing to make progress in our research program that is focused on another signaling pathway with Genentech, as well as our BMP agonist screening efforts with Centercor and our small molecule discovery efforts with the SMA foundation. I'd now like to turn the call back over to Mike.

For the first quarter of 2006, we reported a net loss of $4 million or $0.08 per share as compared to a net loss of $5.4 million or $0.11 per share for the prior year period. Gross revenues, which are those revenues generated under our ongoing collaborations, including our collaborations with Genentech, Wyeth, and P&G as well as our grant with the spinal muscular atrophy or SMA foundation were $2.9 million for the first quarter of 2006 as compared to $2.5 million for the same period in the prior year, an increase of $400,000.

Our gross revenues for the first quarter of 2006 were as follows. Genentech, $1.5 million. Wyeth, $674,000. P&G $89,000. The SMA foundation $444,000. Revenues from other sources were $112,000. By comparison our gross revenues for the same period in 2005 were as follows. Genentech $979,000. Wyeth $925,000. And the SMA foundation $588,000.

In addition to our gross revenues, we recorded $826,000 as contra revenue in connection with costs incurred during the first quarter of 2006 for our co-development of the basal cell carcinoma product candidate with Genentech. Our co-development costs in the prior year period were $3.3 million. Contra revenues for the first quarter of '05 were significantly higher than the same period in '06 due to significant preclinical costs that had been incurred by Genentech prior to our election to exercise our co-development option in January, '05. Going forward, we plan to continue to record contra-revenues first against both the cumulative revenues recognized and any probable future revenues under both of our collaborations with Genentech and then to R&D expense. The total of our gross and contra revenues resulted in net revenues of $2 million for the first quarter of 2006 as compared to net revenues of a negative $813,000 for the same period in 2005, it’s an increase of about $2.8 million.

I'd like to now turn to operating expenses. Operating expenses for the first quarter of 2006 were $6.4 million as compared to $4.8 million for the first quarter of 2005, an increase of $1.6 million. Approximately $830,000 of this increase was due to stock-based compensation expense related to our adaption of FAS 123R share-based payments during the first quarter of 2006. We have elected to apply the modified perspective application transition method of reporting stock based compensation costs covered under FAS 123R and we expect to record compensation costs for all share-based payments covered under FAS123R only in 2006 and future years. We will not record compensation expense under FAS 123R for years prior to 2006.

The changes in our R&D and G&A operating expense categories are as follows. R&D expenses were $3.5 million for the first quarter of 2006 as compared to $3.1 million for the same period in the prior year, an increase of $400,000. This increase was principally due to an increase of approximately $300,000 in stock based compensation expense allocable to R&D. The increase to stock based comp expense is principally attributed to costs recorded as stock based comp during the first quarter of 2006 under our adoption of FAS 123R. Our spending on our research and development programs as a whole remain reasonably consistent with that of the prior-year period.

G&A expenses were $2.9 million for the first quarter of 2006 as compared to $1.7 million for the same period in the prior year, an increase of $1.2 million. This increase was principally due to $508,000 in stock based compensation expense allocable to G&A cost nearly all of which was attributed to costs recorded as stock based comp during the first quarter of 2006 under FAS 123R. In addition to the increase in stock based comp expense, G&A costs in the first quarter of 2006 also reflect a $321,000 increase in our patent expenses and a $179,000 increase in professional service expenses attributed to our recently completed SEC review. Our collaborators reimburse a majority of our patent costs.

Other income for the first quarter of 2006 was $302,000 compared to other income of $200,000 for the same period in 2005, an increase of about $100,000. Other income in each period was principally due to interest income of 374,000 and $259,000 recorded in the quarters ending March 31, '06 and '05 respectively offset by interest expense of 72 and $82,000 in these same respective periods. As of March 31, 2006, cash, cash equivalents, and marketable securities were $43 million, and there were approximately 49 million shares of our common stock outstanding. Thanks. I'll now turn the call over to Dan for some closing remarks. Dan?

Yes. Thanks, Mike. During the course of the year, we look forward to continued progress in our programs, particularly our anticipation that Genentech will file an IND for the systemic treatment of solid tumor cancer indications later in 2006. In addition, we look forward to more information coming out on the BCC clinical trial and the co-development with Genentech so we can provide further clarification to our shareholders. We expect to complete the remaining portion of the current Phase One trial which will look for Pharmacodynamic activity in treated lesions by year end 2006. At that time, we plan to communicate our findings, including the most appropriate course of action, based on the data reported. We look forward to reporting to you throughout the remainder of the year on this and all of our ongoing programs. I'd like to thank everyone for joining us on today's call, and we'll now open the call up for questions. Operator?

[OPERATOR INSTRUCTIONS] Our first question comes from the line of Leah Hartman.

Good morning, gentlemen. It's Leah Hartman from CRT Capital Group. Just wanted to--.

Hello.

Hello?

I'm sorry, Leah. Please proceed with your question, ma'am.

It's Leah Hartman, CRT Capital Group. I wanted to just clarify for my understanding you'll be looking for the end of the year -- sorry. 2006 data release, and it's post that data release that you anticipate having an announcement with respect to additional funding for the '07 timeframe? Just looking about the public announcement timeframe.

Yes. That's correct.

Okay. I didn't know if, as you share the data, there might be an interim announcement in the third quarter.

No.

Okay. So we're looking for the data release. Are there additional presentations at conferences that you're expected to be present at this year?

Yes. There's a possibility of that.

Nothing publicly available yet?

No.

All right. Well, we find it very interesting. We wish you good luck this year.

Thanks, Leah. Really appreciate it.

Okay.

Thank you, ma'am. Our next question comes from the line of [Dory Steinber].

I have a couple questions. Are there other programs -- I know when you partnered programs in the past, obviously they were all in the preclinic. Are there other programs that are emerging in the preclinic that are partnerable in the next 12 to 18 months or so that you can share with us?

In terms of what I can share, what's been publicly communicated to date, we have retained rights for a -- for the rights for cardiovascular local administration of the Hedgehog agonist. There's promising data that was generated out of Saint Elizabeth hospital, and Wyeth has a first right of negotiation on that, so that's a program that we have started to look at with the intent of determining if we in fact could partner it during '06, early '07. Behind that, we have some proprietary programs that we have not disclosed publicly yet. I'd say they're a bit premature to start talking about partnering efforts.

In terms of IND activity other than the solid tumor program with Genentech, are there internal expectations at the Company for INDs in the next 6 to 12 months?

Yes. I'd say the most promising in terms of the data that's being generated to date and stage of development is obviously the Genentech program for the antagonist on the agonist front. P&G on the topical application. We hit the first preclinical development objective. We're working now with P&G on trying to achieve the second preclinical objective. From achievement of that, we'd be looking at an IND filing within 9 to 12 months after that. As I stated, we could achieve the second preclinical milestone late '06, and then we'd be looking at probably the second half of '07 for an IND filing possibility there at the earliest. And then the systemic application on the Hedgehog agonist for treating neurological disorders under development with Wyeth, we have a preclinical candidate that has generated a large body of promising preclinical data on the efficacy front. We're trying to look at activity of the molecule and potential side effects for extended treatment. Now, stroke's going to be an acute therapy, but we're also looking at possible side effects from chronic administration. We're trying to basically modulate the molecule. So if we can succeed at getting that to a lead selection phase, we'd be looking at a 12-month duration from that for an IND filing.

12-month duration from when?

From the lead selection.

And lead selection could happen sometime in '06?

Yes, could happen in '06.

Now, one last question, Yahoo! is not the most reliable source for information about insider ownership of shares, but Yahoo! shows that you own zero shares directly which I need to know -- you know -- in a public forum whether Yahoo! is correct or not.

Yes. Most of my stock compensation is the form of options.

So can you tell us then -- let's say in the last 12 months, how many shares you've sold?

Yes. Not many, Dory. I don't have the number off the top of my head.

But not many?

It was under a 10-B-51 which is terminated. I didn't renew it.

So you own no shares directly, but you own stock options on a lot of shares is what you're saying.

(multiple speakers). That's right. I have a significant vested interest in the Company's performance.

Well, I mean, I think it's important to get that clarified, because looking at the insider positions, it can be unsettling to see that it shows that you have zero shares and see some insider selling prior to that. So I'm glad to hear your explanation which makes sense to me.

Thanks.

Thank you, Dan.

Our next question comes from the line of Michael Yee with RBC.

Just a quick question. So with the Genentech program, what are your rights if you choose not to move forward at the end of the year? Can you take it forward or repartner it out? What are the different paths that could happen at the end of the year, can you kind of walk us through that? Can Genentech also look at other small molecules against the target? What are the different scenarios that could happen?

Yes, good question. So just to clarify, based on the data that's generated, there are several alternatives basically on a decision tree. One is if the Pharmacodynamic data looks promising, that is that although they did not see complete clearance in the majority of patients that, if they see that the molecule is inducing apoptosis in the majority of lesions and there are small residual microlesions remaining under histological examination, that could result in the decision to go forward into Phase II and just increase the duration of treatment. Could be that there's evidence that it's inducing apoptosis in the periphery but not penetrating. If that's the case, then the decision could be looking at new formulations for better penetration of the compound. The data could suggest that the compound, albeit active, is not the optimum compound, so we could look at looking at a back-up compound with a different formulation. And could be a result of the data that we're not seeing widespread apoptosis and the decision could be a no go. If the decision is a no go, then we would have to further negotiate with Genentech to get the rights back.

Thanks.

Thank you, sir. At this time, we have no further questions on the line.

Okay. Great. Thank you very much for your time. We look forward to providing you with continued updates. Thanks again.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude your presentation, and you may now disconnect. Have a wonderful day. This concludes the conference call.