Curis Inc (CRIS) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2006 Curis earnings conference call. (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, Mr. Michael Gray, Chief Financial Officer of Curis.

Good morning, and thank you for joining us. I'm Mike Gray, CFO of Curis. Welcome to the second quarter '06 Curis conference call.

Before we begin I'd 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 provision 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, as well as our other preclinical programs, 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, and those factors described in our quarterly report on Form 10-Q and other reports that we file with the SEC. The forward-looking statements included in this conference call represent our views as of today, July 27, '06. 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 August 10, 2006 at 5 PM, 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 CEO. Dan will begin our call with a discussion of our second-quarter operating highlights, and then I will return to review our financial results for this past quarter and the six-month period ended June 30, '06.

Thanks, Mike. I'd like to first address the recent announcement that Curis and Genentech have halted enrollment in the basal cell carcinoma Phase I clinical trial, and have made a decision not to move forward with the Phase I molecule in its current formulation.

This Phase I trial was very ambitious, and was specifically designed for looking for hints of efficacy. As previously announced, preliminary data from segments one and two revealed no significant safety concerns in four weeks of topical treatment. Although histological clearance was observed in two subjects in segment one of this Phase I trial, this clinical activity was far less than anticipated.

The Phase I clinical trial also included a third segment, which was a pharmacodynamic marker segment to evaluate biologic activity of the molecule. The recent results from segment three of the study show that the formulation did not down-regulate the targeted pharmacodynamic marker in this tumor, suggesting a possibility that the drug candidate may not be adequately penetrating human skin.

Genentech and Curis are in the process of reviewing all the file data from the trial and will report to you on the file decision as appropriate. We believe that we have several scenarios open to us with respect to the basal cell carcinoma program, and we look forward to providing our shareholders with program updates when a scenario is selected.

Currently -- concurrently, we are reviewing potential costs to Curis of these development scenarios, and are evaluating whether to continue bearing co-development costs for the BCC program, assuming it continues. Should Genentech continue developing BCC candidates as we opt out -- and if we opt out of co-development, we are entitled to cash payments upon the achievement of certain clinical development objectives, as well as royalties on future sales, should any occur.

It's important to note that the Hedgehog antagonist program currently partnered with Genentech for the systemic treatment of cancers is an entirely different drug development program with different drug candidates. Pursuant to that collaboration, Genentech is currently conducting preclinical studies that may support an IND application for one or more drug candidates. As this systemic Hedgehog antagonist 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. Genentech will be required to make a milestone payment to Curis [if the trial is an] IND for a drug candidate. This IND timeline is our estimate, and Genentech has the primary responsibility for determining if and when human clinical trials will begin.

This quarter, we also initiated a new strategic plan to focus more on later-stage preclinical, and ultimately clinical drug development, and minimize our earlier-stage, specifically discovery-stage, research. This new forward direction represents the next phase of Curis' continuing strategy to mitigate risk by seeking to both create and acquire a broad portfolio of later development stage assets and maximize the Company's capacity and competencies in drug development.

In addition to seeking to further our internal development candidates, Curis will continue to evaluate in-licensing opportunities that have the potential to augment the Company's proprietary later-stage preclinical pipeline.

As part of this transition, we have appointed one of our board members, Dr. Joseph Davie, as acting Chief Scientific Officer. Dr. Davey has also agreed to take on the new position as Chair of our Scientific Advisory Board, where he will seek to rebuild the Scientific Advisory Board so that it is comprised of scientific leaders with more development-stage expertise. Dr. Davey has served on the Curis board since July 2003. From 1993 to 2000, he was Senior Vice President of Research at BioGen, now BioGen Idec.

In addition to changes in scientific leadership, and in order to better focus our efforts on later-stage development opportunities, we have determined that we will cease discovery efforts around our spinal muscular atrophy, or SMA, program. This discovery-stage program is majority-funded by the SMA Foundation, although Curis has borne some costs related to this program over the grant period. We expect that this program will conclude in the coming weeks.

I'd like to now update you on our systematically administered Hedgehog agonist program for the treatment of neurological disorders, currently under development with Wyeth. This program continues to make progress through preclinical development. Wyeth and Curis are continuing to advance a prioritized 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 backup compound classes.

I'll now turn to our collaboration with Procter & Gamble. Our collaboration with Procter & Gamble is currently focused on the potential development of a topical Hedgehog agonist for hair growth disorders, such as male pattern 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 upon the achievement of two preclinical development objectives. In the first quarter of '06, we achieved the first preclinical development objective under this collaboration and received a $1 million cash payment. We are hopeful that our preclinical work with P&G will continue to progress well and that we'll achieve the second preclinical development objective by the first half of 2007, triggering the remaining $1.8 million cash payment.

In addition to the programs discussed above, we believe that we're continuing to make progress in our research program, and it's focused on another signaling pathway with Genentech and our BMP agonist screening efforts with Centocor.

I would 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 of '06, and then I will turn to the year-to-date period ending June 30, '06.

For the second quarter of 2006, we reported a net loss of $3.9 million, or $0.08 per share, as compared to a net loss of $4.9 million, or $0.10 per share for the prior year period.

Gross revenues, which are those revenues generated under our ongoing collaborations with Genentech, Wyeth, Procter & Gamble and Centocor, as well as our grant with the SMA Foundation, were $3.1 million for the second quarter of 2006, as compared to $2.8 million for the same period in the prior year, an increase of $300,000.

Our gross revenues for the second quarter of 2006 by collaborator were as follows. Genentech, $1.5 million; Wyeth, $690,000; P&G, $390,000; Centocor, $100,000; and the SMA Foundation, $420,000. By comparison, our gross revenues for the same period in 2005 were as follows. Genentech, $1.5 million; Wyeth, $650,000; and the SMA foundation, $630,000.

In addition to our gross revenues, we recorded $550,000 as contra-revenue in connection with costs incurred during the second quarter of 2006 for the co-development of our BCC product candidate with Genentech, as compared to $1.6 million during the same period in 2005.

The total of our gross in contra-revenue resulted in net revenues of $2.6 million for the second quarter of 2006, as compared to net revenues of $1.2 million for the same period in 2005, an increase of $1.4 million.

I'd like to now turn to operating expenses. Operating expenses for the second quarter of 2006 were $6.8 million, as compared to $6.3 million for the second quarter of 2005, an increase of $500,000.

The changes in our R&D and general and administrative expense categories are as follows.

Research and development expenses were $3.8 million for the second quarter of 2006, as compared to $3.7 million for the same period in the prior year, an increase of $100,000. This increase is primarily attributable to an increase in stock-based compensation expense, $150,000.

Our spending in research remained consistent from period to period due to the reallocation of resources to various programs and decreases in outside services.

Our spending on various discovery programs increased by $830,000, from $890,000 for the three months ended June 30, '05 to $1.7 million for the same period in '06. This is primarily due to increases in spending on funded discovery research with Genentech and Centocor.

Lastly, we incurred approximately $400,000 during the second quarter of 2006 for new cancer programs that we initiated during the second quarter of '06.

G&A expenses were $3 million for the second quarter of 2006, as compared to $2.6 million for the same period in the prior year, an increase of $400,000. The increase was attributed to $880,000 in stock-based comp expense, all of which related to costs recorded as stock-based comp during the second quarter of '06 under our adoption of FAS 123R. The Company will not report stock-based comp expense under FAS 123R for any years prior to '06.

Offsetting the increase in stock-based compensation, the second quarter also reflected a $500,000 decrease in occupancy costs, related to a $500,000 charge for an estimated loss on a facility operating lease that we recorded in the second quarter of '05.

I'll now turn to the financial results for the six-month period ended June 30, 2006. For the first half of '06 we reported a net loss of $8 million, or $0.16 per share, as compared to a net loss of $10.2 million, or $0.21 per share for the prior year period.

Gross revenues generated under our ongoing collaborations with Genentech, Wyeth, P&G and Centocor, as well as our grant with the SMA Foundation, were $6 million for the first six months of 2006, as compared to $5.3 million for the same period in the prior year, an increase of $700,000.

Our gross revenues for the first half of 2006 by collaborator were as follows. Genentech, $3.1 million; Wyeth, $1.4 million; P&G, $480,000; Centocor, $200,000; and the SMA Foundation, $860,000. By comparison, our gross revenues for the same period in 2005 were as follows. Genentech, $2.5 million; Wyeth, $1.6 million; and the SMA Foundation, $1.2 million.

In addition to our gross revenues, we recorded $1.4 million as contra-revenue in connection with costs incurred during the first half of '06 for the co-development of our BCC product candidate with Genentech, as compared to $4.9 million during the same period in 2005.

Contra-revenues for the first half of '05 were significantly higher than the same period in '06, primarily due to significant preclinical costs that had been incurred by Genentech prior to our election to exercise our co-development option in January '05. Upon our decision to exercise this co-development option, 50% of such costs were payable by us in the first quarter of '05. In addition, we experienced a decrease in Phase I activity in the second quarter of 2006 as compared to the same period in 2005.

The total of our gross and contra-revenues resulted in net revenues of $4.6 million for the first half of 2006, as compared to net revenues of $430,000 for the same period in '05, an increase of $4.2 million.

Operating expenses for the first half of 2006 were $13.2 million, as compared to $11.1 million for the six months ended June 30, 2005, an increase of $2.1 million. Of this increase, $1.8 million was attributed to stock-based compensation expense.

Research and development expenses were $7.3 million for the six-month period ending June 30, 2006, as compared to $6.7 million for the same period in the prior year, an increase of $600,000.

G&A costs were $5.8 million for the first half of 2006, as compared to $4.3 million for the same period in the prior year, an increase of $1.5 million dollars.

Lastly, as of June 30, 2006, cash, cash equivalents, marketable securities and investments were $41.8 million, and there were approximately 49.1 million shares of our common stock outstanding.

I'd like to now turn the call back to Dan for some closing remarks.

Thanks, Mike. Although the Phase I trial for the basal cell carcinoma has not provided the significant clinical clearance that we had hoped, and as a result has been halted, we continue to believe that the Hedgehog pathway plays an important role in tumor biology, and we are optimistic about our systemic Hedgehog antagonist program with Genentech, and with our other remaining Hedgehog-based programs currently in development.

We also feel confident that we continue to evolve as a company and remain committed to building a balanced business model, utilizing a pragmatic approach to developing a portfolio of promising assets, while also gaining valuable experience and enhancing our competencies through our partnerships and collaborations. We look forward to reporting to you in the coming months on our progress in the solid tumor program with Genentech, as well as our other drug programs.

I'd like to thank everyone for joining us on today's call. We'll now open the call up for questions. Operator?

(OPERATOR INSTRUCTIONS). John Sullivan, Leerink Swann.

Can you talk a little bit about -- you have mentioned that your new strategy includes seeking in-licensing opportunities for more developed drug candidates or programs. Can you talk about whether you're making any progress in those -- in discussions or in that strategy? And secondly, can you talk about the sort of molecules or programs or disease states that might be of interest under that strategy?

Sure. Good question. Just to paraphrase a two-pronged question, the first is to elaborate on any progress we have made on the prospects of in-licensing to bolster the portfolio; and the second is if I can clarify sort of categories, if there's any focus area.

So on the first part of the question, in terms of progress, this is an ongoing effort. We've actually looked at a large number of opportunities. We're going to be opportunistic. The most important criteria is the quality of the science. I'd like to just underscore that it's really a sort of sub-component to our overall strategy of building out our portfolio. So we're building it out through some internally developed proprietary programs, and we're also evaluating several opportunities from external sources.

Regarding progress, I'd say we've narrowed the list down to several attractive alternatives that we are continuing to conduct due diligence on. And as you can appreciate, the most important component of the decision to bring something in is making sure that it meets your diligence requirements, and scientific quality to bring it into your pipeline. So where we are right now is we've gone through sort of the first and second prong of looking at these assets carefully.

In terms of categories, we're trying to align them with our own internal competencies, and to define where those competencies lie. The past few years we've really developed, I think, a high level of proficiency in late-stage preclinical development, in terms of what is required for a lead candidate for bringing a drug into the clinic.

And in terms of disease indications, we're going to be opportunistic, but we have a -- I wouldn't say an exclusive focus, but a primary focus in oncology. We also have a neuro capacity in terms of disease models, oncology being the most advanced and the most depth; then followed by neurology because of our Wyeth relationship. But we're going to be opportunistic as well. I wouldn't narrow it down to just those two areas, but those are the primary areas we're looking at.

As a follow-up question, shifting to your more primary thrust, which is development of your own assets, you had talked about de-emphasizing your discovery efforts. So, are you saying that there are molecules or programs that are between basic discovery and the clinic that will be the source of -- that will be the source of some candidates in your proprietary efforts?

It's premature for me to disclose publicly what we're working on. We're hoping we can do so shortly. But we have developed what we consider to be a potential platform approach, which is beyond the discovery phase, and sort of in the pipeline towards a -- developing drug candidates. It's in the -- and I can tell you that those programs are focusing in the oncology area.

Thanks very much. And lastly, the change in the Spinal Muscular Atrophy Foundation program sounds like it makes sense given the deemphasis of discovery. Is there any ongoing intellectual property that comes out of that, or any ongoing asset of the Company that comes out of that work?

There's potentially some IP on some hits that we've derived. What we've really deemphasized are these stem cell-based screening programs. We just felt it was too early, and too much basic research still had to be done before that was ripe for a public company. So in terms of the SMA program, we have some chemical hits, we have looked at preparing some patent applications on that, and we're looking at strategic alternatives for positioning that program.

(OPERATOR INSTRUCTIONS). John Sullivan, Leerink Swann.

Just a quick follow-up. In your legacy discovery programs, you have developed not only some molecules, but also some assays and some expertise in regulatory pathways that would perhaps be of interest to the life science tools industry as kits and reagents. Do you think there's any asset that's monetizable to Curis from licensing out some of those assays, and would you consider that?

That's a good question. In terms of the stem cell assays, we've positioned those with the academic environment. Because we think there's a lot of value that could come out of these basic research programs to shed insight on where those pathways may have clinical relevance.

In terms of our tangible assets that we've developed, we don't want to make them readily available through licensing for reagent supply quite yet. We're waiting for drug candidates to be further developed, because that could result in fostering more competition.

[Dore Steinberg], private investor.

Just a little more clarity on the potential [through] in-licensing. And I want to be clear -- it's more likely that if you do in-license a compound, it would be in the late preclinical stage as opposed to already in human trial?

That's a very good question. That's an affirmative answer to that, and there's a couple of reasons. The primary reason is we feel we've developed, very systematically through our partnerships with companies like Genentech and Wyeth, a very sort of robust and deep understanding of the complexity of late-stage preclinical development in selecting a lead, which is -- in reality, it's substantively more robust than what a typical small biotech does.

And that, in theory at least -- but certainly in practice when you look at the statistics, it should increase your probability of success in the clinic if you do that thoroughly. So our assessment is that we're probably likely to find more valuable opportunities without overpaying for preclinical assets that we can add substantial value to before it goes into the clinic. We could probably get more assets as a result of this.

And the other side of it is by in-licensing something that's already in the clinic, the cast has been dyed, you can't change the clinical trial without a lot of backpedaling and difficult repositioning. So we feel in terms of the risk profile right now, we're probably going to find more value in the late preclinical stage. We have evaluated clinical assets. We'll continue to do so, but our criteria are going to be much more stringent for pulling something in that's in the clinic.

Are you prepared to give any kind of timeline, whether it be six months, 12 months, or just a ballpark in terms of when you might in-license something?

What I'd like to actually state is our primary focus is our internal programs right now. We actually have several compounds we're looking at. Again, it's premature for me to make any public statements. We're trying to build a body of data that we're very confident in. But the data is looking promising so far. And again, it's in the oncology field. That's been our primary focus, trying to put our priority on those programs. In terms of -- and we will make an announcement of the progress on that hopefully within six months. But at, certainly, 6 to 12 months, we intend to make announcements about building out the pipeline, both internal and in-licensed.

(OPERATOR INSTRUCTIONS). John Sullivan.

What is the headcount at the Company today, and how does that stand relative to, for example, the end of last year?

It's about -- right now it's about 60, and the headcount last year was 65 to 70.

Fair enough. Thank you.

At this time there are no more questions in queue. I would like to turn the call back over to Mr. Passeri for closing remarks.

I want to thank the listeners for being patient with us this morning, and we look forward to providing you with further updates. And we're hoping to clarify the transition we're making for the next coming months at the next earnings call. Thank you very much for your time.

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