Curis Inc (CRIS) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to to the Q3 2006 Curis earnings conference call. My name is Tony and I'll be your coordinator for today. [OPERATOR INSTRUCTIONS]

I'd now like to turn the call over to Mr. Mike Gray. Please proceed, sir.

Okay, thanks. Good morning. Thanks for joining us. I'm Mike Gray, CFO of Curis. Welcome to our third quarter 2006 conference call. Before we begin I'd like to remind you that this conference call may contain statements about Curis's future expectations, plans and prospects that constitute forward-looking looking statements pursuant to 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 and obtain regulatory approvals for develop and commercialize our product candidates based upon our technologies; 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 on our quarterly report on Form 10-Q for the quarter ended September 30, 2006, which we filed this morning, and the other reports that we periodically file with the SEC.

Forward-looking statements included in this conference call represent our views as of today, November 9, 2006. We anticipate that subsequent events and developments could cause our views to change. While we may elect to update these forward lacking statements in the future, we specifically disclaim any obligation to do so. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this conference call. A telephone replay of today's conference call will be available through November 23, 2006 at 5:00 p.m., and information on how to access the telephone replay is available on our website at www.curis.com.

I'd now like to turn the call over to Dan Passeri, Curis' President and Chief Executive Officer. Dan will begin his section of the call with a discussion of our third quarter operating highlights and then I'll return to review our financial results for the past quarter and nine month period ended September 30. Dan?

Thanks, Mike, and good morning. I'd like to begin by providing an update on Curis's continuing efforts to transition itself into a Company that is focused on the development of later stage, preclinical and, ultimately, clinical stage product candidates. We initiated this transition during the second quarter of this year and are continuing effort to evolve to the next stage of our corporate development. We are seeking to create a broad portfolio of later stage, preclinical and, ultimately, clinical development assets to maximize our capacity and competency in drug development.

First, in September 2006, we announced that we had initiated several new preclinical programs, seeking to develop several classes of new, proprietary, small molecule drug candidates, each of which is being designed to target multiple distinct molecular pathways. Unlike other inhibitors, which target either single or multiple closely related tyrosine kinase receptors, we're seeking to drug candidates as single molecules that target multiple distinct molecular pathways that are important in the regulation of certain cancers. We believe these inhibitors have the potential to provide anti-tumor activity across a broad rage of solid tumor and hematologic cancers. These pharmaceutical agents are being designed to combine at least two functional groups, or pharmacophore's, resulting in novel, small molecule drugs capable of binding at least two distinct and validated targets. These multi targeted small molecules have been shown in preclinical research to have enhanced target binding activity when compared to the activities of validated drugs, upon which the functional groups are based.

In preclinical testing the multi-targeted small molecules have demonstrated superior activity over combinations of separate molecules containing the individual functional groups and associated therapeutic activities. We believe that the data we have generated to date supports the premise that these novel multi-targeting, single molecule agents may provide synergistic efficacy, could require lower dosing concentrations and may possess, as a result, reduced toxicity profiles. We believe that multi-targeted small molecules are novel and we have filed several patent applications in connection with this program. These new drug programs are currently in various stages of preclinical testing. We expect to progress several classes of compounds simultaneously through preclinical development. Early preclinical test results, including in vivo cancer growth models, have demonstrated promising initial results. Assuming continued success with preclinical development, we expect to select a lead clinical candidate during the first half of 2007 and to file an associated IND by the end of '07 or early 2008 for the first of these multi-targeted inhibitors.

Our new cancer programs require significant resources for compound synthesis and medicinal chemistry. In an effort to support these chemistry needs, earlier in 2006, we entered an agreement with a Chinese-based third-party chemistry provider. We currently have approximately 20 chemists supporting this program. Overall, scientific leadership, program management, and in vivo biological studies will continue to be conducted in the U.S., where the Company has an established infrastructure. Our third-party chemists in China are currently working with our U.S.-based scientists to provide a virtual 24/7 drug discovery and development operation, which we believe may result in enhanced capacity, greater productivity and new cost efficiencies. Based on the current terms of our agreement with the third-party chemistry provider, we anticipate that our chemistry costs will be reduced by approximately 75% compared to outsourcing chemistry with traditional western chemists and providers.. This decreased cost, in turn, can provide us with the opportunity to develop a greater number of drug programs.

During the third quarter, we also bolstered our scientific infrastructure and capacity by naming Dr. Changgeng Qian to the position of Vice President, discovery and preclinical development. Dr. Qian joined Curis in 2001, bringing over 25 years of academic and industrial experience in drug discovery, including pharmacokinetics, drug metabolism, efficacy evaluation, experimental disease model development and drug safety assessment. He has played a key role in the discovery of several anti-inflammation, anti-cancer and central nervous system drug candidates at CytoMed, LeukoSite, and Millennium Pharmaceuticals. Dr. Qian has also been an invaluable asset to Curis, both in his guidance surrounding our programs under collaboration and in his leadership over the new internal multi-targeted inhibitor programs.

We also added three new members to our scientific advisory board during the third quarter. They are: Dr. Stu Aaronson, Chairman, Department of Oncological Sciences at the Mount Sinai Medical Center in New York City; Dr. George Vande Woude, Director, Van Andel Research Institute and former Deputy DIrector of the National Cancer Institute; and Dr. Ken Pienta, Chair, Translational Medicine Committee of the Southwest Oncology Group These advisors bring a broad understanding of oncology to Curis, and we believe that their ongoing support and guidance of our new and existing cancer programs will be of great importance. We expect to continue building our internal capacities. We are actively seeking a chief scientific officer and expect to begin building a small clinical development group in the near future.

I'd like to now briefly update you on the status of our development programs under collaboration, beginning with our Hedgehog antagonist collaboration with Genentech . In October, 2006, Genentech filed an IND with the Food and Drug Administration to initiate Phase I clinical testing of a systemically administered small molecule Hedgehog antagonist for the treatment of cancer. The Phase I trial is designed to be an open label study of a systemic Hedgehog Antagonist in patients with locally advanced or metastatic cancers that are refractory to standard therapy, all for whom no standard therapies exist. The primary objectives of the Phase I trial are to evaluate the safety and tolerability of the escalating doses of the Phase I molecule, and to establish the maximum tolerable dose and dose limiting toxicity. The trial is is expected to enroll approximately 50 patients spread across several dose-escalating cohorts.

The successful completion and the timed completion of the Phase I trial will be dependent upon, among other things, patient enrollment rate, as well as the number of patients that will ultimately need to be treated to achieve the Phase I trial objectives. Under the terms of the June 2003 collaboration agreement, Genentech paid us $3 million after the IND filing application. Should this small molecule drug candidate successfully continue its development into subsequent stages of clinical testing and regulatory approval, we would be eligible for additional cash payments. We also have the right to receive royalties on any product sales. Published preclinical data demonstrate that many cancers including, among others, small cell lung, colorectal, prostate and breast cancer, express high levels of Hedgehog signaling. We are hopeful that our Hedgehog antagonist technologies will one day provide an effective cancer treatment in a variety of cancers.

I'd like to now update you on our Hedgehog antagonist program for the treatment of neurological disorders, particularly stroke, under development with Wyeth. This program continues to make progress through preclinical development. Wyeth and Curis are continuing to advance and prioritize Hedgehog antagonist compound class in late preclinical testing. Curis scientists have also screened additional compounds to increase the likelihood of successfully generating back-up compound classes. Recently, as part of our regularly scheduled steering committee meeting with Wyeth, we evaluated our most advanced compound in our lead series of Hedgehog antagonist compound. We continue to see very promising neuroprotection efficacy data when the antagonist is administered up to six to seven hours post-systemic event.

Although the intended treatment regimen would be an acute, that is single dose administered post-systemic event, there is a regulatory requirement that we test the Hedgehog antagonist in preclinical models for 14 consecutive days. These studies have demonstrated that prolonged activation of the Hedgehog pathway resulted in some unwanted systemic toxicities. Now, Curis and Wyeth have been working over the past several months towards eliminating these unwanted systemic effects. While we have made significant progress towards this goal, to date we have not been successful at totally eliminating these effects. Curis and Wyeth continue to work towards finding the most effective compound and/or treatment regimen as a way of [forwardly] identifying a clinical candidate. We are hopeful that a lead clinical candidate will be selected during 2007.

I'll now turn to our collaboration with Procter & Gamble, which is involved in hair growth regulation. Our collaboration with Procter & Gamble is currently focused on the potential development of a topical Hedgehog antagonist for hair growth disorders, such as male pattern baldness and female hair loss. As part of the initial agreement signed in September, 2005, Procter & Gamble agreed to pay us up to $2.8 million upon achievement of two preclinical development objectives. In the first quarter of 2006 we achieved the first preclinical development objective under this collaboration and received a $1 million cash payment. We continue to remain hopeful that our preclinical work with P & G will continue to progress well and that we will achieve the second preclinical development objective in the first half of 2007, which is selection of a lead candidate, triggering the remaining $1.8 million cash payment. In addition to the programs discussed above, we believe that we are continuing to make progress in our research program that is focused on another signaling pathway with Genentech and our BMP antagonist screening efforts with Centocor.

I'd now like to turn the call back over to Mike. Mike?

Thanks, Jim. I'll begin my remarks by reviewing our financial results for the third quarter of '06 and then turn to the year-to-date period ending September 30. The third quarter 2006 we reported a net loss of $1.5 million or $0.03 per share as compared to a net loss of $3.3 million or $0.07 per share to the prior year period. Gross revenues were $4.6 million for the third quarter 2006 as compared to $2.9 million for the same period in the prior year, an increase of $1.7 million. This increase is primarily due to the recording of $2.3 million in license revenue, as part of a settlement agreement with Micromet, a former collaborator of ours. This increase was partially offset by decreases in revenues recorded under our collaborative relationships. Such revenues decreased by approximately $500,000 to $2.3 million during the third quarter 2006 from $2.8 million during the same period in 2005.

In addition to our gross revenues, we recorded $355,000 as contra-revenue in connection with costs incurred during third quarter 2006 for our co-development of the BCC, or basal cell carcinoma, product candidate with Genentech, as compared to $820,000 during the same period 2005. The decrease in contra-revenues reported under the BCC co-development arrangement was due to our election to cease participation in co-development, which we made -- which decision we made on August 31, '06. As a result of this election, we do not expect to incur any further costs related to the BCC program. The total of our gross and contra-revenues resulted in net revenues of $4.3 million for the third quarter of 2006 as compared to net revenues of $2.1 million for the same period in 2005, an increase of $2.2 million.

I'd like now to turn to operating expenses. Operating expenses expenses for the 2006 were $6 million as compared to $5.5 million for the third quarter 2005, an increase of $500,000. Changes in our research and development and general and administrative operating expense categories are as follows: R&D expenses were consistent at $3.7 million for the third quarters of '06 and '05. Spending in research remained consistent from period to period due to the reallocation of resources among various programs, specifically spending increases related to our new internal program, which focuses on multi-targeted inhibitors of validated cancer pathways were offset by decreases in spending in our other research programs. G & A expenses were $2.3 million for the third quarter of 2006 as compared to $1.8 million for the same period in the prior year, an increase of $500,000. This increase was primarily attributable to $640,000 in stock-based compensation expense, all of which related to costs recorded as stock-based comp during third quarter of '06 under our adoption of FAS 123[R). We will not record comp expense under FAS 123(R) for years prior to 2006.

Now I'll turn to financial results for the nine month period ending September 30, 2006. For the first nine months of 2006 we reported a net loss of $9.5 million or $0.19 per share, as compared to a net loss of $13.5 million or $0.28 per share for the prior year period. Gross revenues were $10.6 million for the first nine months of 2006, as compared to $8.2 million for the same period in the prior year, an increase of $2.4 million. The increase in gross revenues is principally attributable to our settlement with Micromet, as I mentioned earlier. In addition to our gross revenues we recorded $1.7 million as contra-revenue in connection with costs incurred during the first nine months of 2006 for our co-development of the BCC product candidate with Genentech as compared to $5.7 million during the same period in 2005. As mentioned earlier in August 2006, we opted out of our co-development arrangement and we do not expect to incur co-development costs for the BCC product candidate after August of this year. The total of our gross and contra-revenues resulted in net revenues of $8.9 million for the first nine months of 2006 as compared to net revenues of $2.5 million for the same period 2005, an increase of $6.4 million.

Operating expenses for the first nine months of 2006 were $19.2 million as compared to $16.6 million for the first nine months of 2005, an increase of $2.6 million. The increase is attributable to stock-based comp expense under FAS 123(R). R&D expenses were $11 million for the first nine months of 2006 as compared to $10.4 million for the same period in the prior year, an increase of $600,000. G&A expenses were $8.2 million for the first nine months of '06 as compared to $6.1 million for the same period in the prior year, an increase of $2.1 million. At September 30, 2006, cash, cash equivalents and marketable securities were $35.2 million and there were approximately 49.2 million shares of our common stock outstanding. We currently expect that we'll end 2006 with between $34 to $36 million, essentially the same as our September 30 cash balance. If this expectation is met, we expect that our cash, cash equivalents, marketable securities and investments will decrease by only $8 to $10 million from the balances held at December 31, 2005, so over the 2006 year. Managing our cash rate has always been an important aspect of our overall strategy and we're pleased with our anticipated $8 to $10 million 2006 net cash burn.

I'd like to turn it over to Dan now for some closing remarks and then we'll open it up for questions.

Thanks, Mike. Curis has had a challenging year in 2006. The disappointing results and eventual halting of the Phase I clinical trial for the basal cell carcinoma product candidate that we were co-developing with Genentech created a difficult situation for Curis. This was our first Hedgehog-based clinical candidate and our most advanced drug program. I'd like to emphasize, however, that the candidate was a topical formulation for cancer for which there is a very high hurdle for approval, since BCC's are readily treated with surgical excision. We believe that the Phase I trial was halted due to a formulation penetration problem, and in no way calls into question the role of Hedgehog pathway in either basal cell carcinoma or other solid tumors.

Despite this set back, we've also been progressing in many of our other programs. For example, as we previously stated, Genentech recently filed an IND for a systemicly administered Hedgehog antagonist for the treatment of a variety of cancers. We are pleased with Genentech 's continued committment to the Hedgehog antagonist technologies and we believe that Hedgehog-based therapies continue to represent a novel exciting potential cancer therapeutic. In addition, we're very enthusiastic about our new internal multi-targeted cancer pathway drug programs. We believe that these programs may provide Curis and our investors with a series of meaningful development objectives in reasonably near term.

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

[OPERATOR INSTRUCTIONS] Your first question comes from the line of John Sullivan with Leerink Swann. Please proceed.

Hi, guys, this is Isaac in for John. How are you?

Good, Isaac. How are you doing?

Good. Thanks for taking the question. Just on your research headcount now, given your partnership with those guys over in China, how has that changed as a result?

We've held our research headcount here in our Cambridge facility constant. We basically have researches in the, let's say, 40-45 range. China has basically allowed us to dramatically expand our capacity for developing multiple drug candidates without significantly increasing our burn, and we have about 20 chemists dedicated over in the China CRO relationship we have.

Great. Okay, and then assuming that ongoing -- your ongoing programs progress as you hope in '07, can you give a sense of how cash burn might change in '07 versus 06?

Yes. We're still working on our operating plan for finalizing the operating budget for next year, but conservative range with no milestones, just straight burn, would be between $15 and $20 million.

Okay. Great. And then apologies if I missed this, but regarding the cancer program with Genentech , did you talk about a timing for the Phase I? Have any of the patients been treated yet or is there a timing for that? Are there certain things that we're waiting for before that -- the first phase can get --?

Sure. So they have not initiated treatment yet, but we're requested not to disclose -- you know, we haven't disclosed publicly when that will start.

Okay.

You know, it'sa standard time delay.

Isaac, the IND was filed in October so the FDA has the 30-day standard review period before we're even able to start the trial or Genentech's able to start the trial.

Got it. Thanks very much.

[OPERATOR INSTRUCTIONS] Okay, gentlemen, there are currently no questions in queue.

Okay. Thank you very much.

I'd like to thank our shareholders for joining the call and we look forward to continuing to give you updates on our progress and achievements of the intended, anticipated milestones on an ongoing basis. Thank you very much.

Thank you nor your attendance in today's conference. This concludes your presentation. You may now disconnect. Good day.