Curis Inc (CRIS) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2007 Curis earnings conference call. My name is Nicole 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 this conference. (OPERATOR INSTRUCTIONS)

I would now like to turn the call over to Mr. Mike Gray. Please proceed.

Okay, thanks. Good morning and thank you for joining us. I'm Mike Gray, chief Operating and Chief Financial Officer for Curis. Welcome to our second-quarter 2007 conference call.

Before we begin, I would like to remind you that this conference call may contain statements about our 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 the following -- both our and our collaborators' abilities to successfully research, develop, and obtain regulatory approvals for and commercialize products based upon our technologies, including, without limitation, future products based upon our Targeted Cancer Drug Development Platform; our and our collaborators' abilities to obtain and maintain necessary proprietary protection for our technologies and product candidates; competitive pressures; our ability to maintain our current Hedgehog antagonist and Wnt collaborations with Genentech and our Hedgehog agonist collaboration with Wyeth, and to enter into additional collaborations on favorable terms; our ability to raise additional funds in the near term to finance our operation; and other factors, including those described in our quarterly report on Form 10-Q for the quarter ended March 31, 2007 and other reports that we periodically file with the SEC.

The forward-looking statements included in this conference call represent our views as of today, July 31, 2007. We anticipate that subsequent events and developments will cause our view to change 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.

A telephone replay of today's conference call will be available through August 14, 2007 at 5 PM Eastern daylight time, and information about how to access the telephone replay is available on our Website at www.curis.com.

I'd now like to introduce Dan Passeri, our President and CEO. Dan will begin our call with a discussion of our second-quarter business highlights, and then I will return to review our financial results for the three- six-month periods ended June 30, 2007. Dan.

Thanks, Mike, and good morning. The second quarter of 2007 was a quarter of mixed results for Curis. We continue to be enthusiastic with the progress of our transition from a discovery-based company to a development-focused, small molecule cancer company, and with the progress being made on our core small molecule targeted cancer programs within our Targeted Cancer Drug Development Platform. We're working diligently towards achieving our goal of filing an IND for our lead compound, CUDC-101, in the first quarter of 2008.

In addition to our internal efforts, we established a clinical advisory board during the second quarter which consists of leading oncologists with expertise in targeted cancer therapies, as well as their administration in clinical settings. And we also engaged consultants knowledgeable in cancer drug development to support our IND-enabling activities and to assist in the design of clinical protocols for the initial stages of clinical development. We believe that this approach provides us with access to the broad range of knowledge and expertise needed to advance CUDC-101 into clinical testing in cost-effective manner, assuming favorable results in our pre-IND studies.

In addition to CUDC-101, we continue to progress other targeted small molecule drug candidates, and expect to select a second development candidate from the Targeted Cancer Drug Development Platform by the end of 2007. And assuming that subsequent IND-enabling preclinical studies are successful, expect to file an IND application with the FDA for the second development candidate in the second half of 2008. In addition, we anticipate that we will select at least one additional development candidate from this platform in 2008.

If we are able to achieve these objectives, we believe that we will have significantly advanced our goal of creating a robust proprietary pipeline of targeted small molecule cancer drug candidates.

In addition to our efforts on our proprietary assets, we continue to remain optimistic about our Hedgehog-based assets on the collaboration with Genentech and Wyeth. While we've made significant strides in our internal program and we believe in our programs under development with Genentech and Wyeth, the second quarter of 2007 also included disappointments on two of our partnered programs.

First, in May, Procter & Gamble notified us that it decided to terminate our September 2005 collaboration agreement that was focused on developing topically-applied Hedgehog agonist for hair growth regulation. Procter & Gamble noted that it believed that the Hedgehog agonist compounds under development pursuant to the collaboration, while providing promising preclinical efficacy, did not demonstrate an acceptable safety profile. We believe that tolerance for toxicity for this indication was very low since, unlike stroke or cancer, male pattern baldness is not a life-threatening medical condition.

Pursuant to the collaboration agreement, the agreement will terminate six months from the notice of termination on November 9, 2007. We currently expect that we will continue to focus our resources on our core targeted cancer programs, and that we would therefore not seek to develop additional Hedgehog agonists for use in hair growth.

In addition, also in May, Ortho Biotech Products notified us that it would cease its development efforts on the BMP-7 program, and provided us with written notice that it intends to terminate our November 2002 license agreement. Pursuant to the license agreement, the agreement will terminate 90 days from this notice, on August 16th, 2007. On the termination date, the licenses granted by Curis to Ortho Biotech Products will terminate.

While we are disappointed that Ortho Biotech Products has elected to terminate the license, we have also been disappointed with the progress on this program since the license agreement was executed in November 2002. We continue to believe that there is significant published preclinical evidence that supports the potential of using the BMP-7 protein as a possible therapy for kidney disease and related diseases, including vascular calcification and renal osteodystrophy. Based on the preclinical scientific data, I believe that there is potential for strong patient demand. We are seeking to license this program to another third party.

I'd like to now discuss each of our development programs, beginning with our Hedgehog-based programs under collaboration with Genentech and Wyeth, followed by remarks around our lead development candidate, CUDC-101, and other drug programs that we're seeking to develop.

I'll begin with our Hedgehog antagonist program under collaboration with Genentech. In January 2007, Genentech initiated a Phase I clinical trial of the systemically administered Hedgehog antagonist small molecule for the treatment of cancer. The Phase I trial is designed as an open-label study of a systemic Hedgehog antagonist in adult patients with locally advanced or metastatic cancers that have relapsed after first- and second-line therapy, or for whom no clinically beneficial therapy exists.

The primary objectives of the Phase I trial are to evaluate the safety and tolerability of escalating doses of the Phase I molecule to establish the maximum tolerated dose and dose-limiting toxicities, and to characterize the pharmacokinetic and pharmacodynamic properties of the drug candidate. The trial is expected to enroll approximately 50 patients, spread across several dose-escalating cohorts.

We received a $3 million payment from Genentech in October 2006 in connection with Genentech's IND filing for the trial. Should this drug candidate successfully continue its development into subsequent stages of clinical testing and regulatory approval, Curis would be eligible to receive additional cash payments. We look forward to providing updates on the progress of this program in the future.

Under our systemically-administered Hedgehog agonist collaboration with Wyeth, we're continuing our efforts in the stroke program to search for additional small molecule Hedgehog agonists with improved toxicity profiles. We are currently working with Wyeth to make progress on new Hedgehog agonist compounds. We anticipate providing further updates regarding our development timing, assuming that our efforts to identify additional agonists are successful.

In addition to the small molecule Hedgehog agonist work being done in stroke, earlier this year, Wyeth began testing the Hedgehog protein in cardiovascular disease models. If Wyeth's preclinical Hedgehog protein studies are successful and if Wyeth successfully advances the development and commercialization of a systemic Hedgehog protein for cardiovascular disease, we would be eligible to receive cash payments that are contingent upon the achievement of certain preclinical and clinical development objectives, as well as royalties on future net product sales that escalate with increasing sales.

We're pleased with the addition of this preclinical cardiovascular program, since we believe that its future development, if successful, has the potential to bring significant value to Curis. Overall, our January 2004 transaction with Wyeth includes potential contingent cash payments that has milestone payments to Curis of more than $170 million, assuming at least two products are successfully developed and commercialized. The cardiovascular program potentially provides us with the second development program that would be eligible for such payments under this agreement.

We're hopeful that the Hedgehog protein program will progress further in preclinical and ultimately into clinical development, and that we will be able to provide updates on this program in the near future.

I will now review our proprietary Targeted Cancer Drug Development Platform. We're using this platform to seek to develop a number of promising new small molecule drug candidates, each of which is specifically designed to inhibit distinct, validated cancer targets or pathways. We are currently seeking to develop a number of multitarget inhibitor drug programs that combine various targets, including EGFR, Her2, HSP90 and Bcr-Abl, and others with non-kinase Target A.

We've determined that we will not disclose the identity of Target A for proprietary reasons until later this fall. This is because we filed a broad series of patents in September 2006 which gives us a one-year provisional period on these original patent filings, which ends in September 2007. We currently anticipate that we will disclose the identity of Target A shortly after such provisional period lapses.

We believe we've effectively pursued our patent position to gain strong proprietary protection. Our patent filings include a broad omnibus application that covers the drug design concept itself that is the basis of our Targeted Cancer Drug Development Platform, as well as a series of species filings relating to specific classes of compounds, which we believe will constitute novel compositions from a patentability standpoint. We continue to aggressively file additional patent applications covering new compositions, which we believe will bolster our earlier patent filings.

I will now turn to our efforts with respect to our lead candidate, CUDC-101, Curis's first internally generated drug candidate, selected in March 2007 from this platform. CUDC-101 is a multitarget small molecule that is designed to inhibit three clinically validated cancer targets. First, the epidermal growth factor receptor, EGFR, Her2 and the undisclosed Target A. We believe that this particular multitarget inhibition profile constitutes a promising approach, and that by engaging more key cancer targets than a typical chemotherapeutic or targeted cancer drug may be more efficacious and have therapeutic advantages over existing treatments against multiple cancers.

We're highly encouraged by the preclinical data generated to date, and have demonstrated what we believe may be competitive advantages over currently marketed drugs. Preclinical in vitro experiments have established higher potency of both Target A and EGFR inhibition by CUDC-101, and similar activity against Her2 compared to the existing drugs that inhibit the respective targets individually.

CUDC-101 has shown higher potency in a number of in vitro enzyme, proliferation and apoptosis assays compared to combinations of the individual known agents. As reported by third parties, these individual drugs have demonstrated synergy when used in combination.

Curis researchers have also established in vivo efficacy in preclinical xenograft models against a broad range of tumor types. Preliminary preclinical toxicology testing has shown CUDC-101 to be well-tolerated. Based on these observations, we believe that CUDC-101 has the potential to offer therapeutic benefit in several solid tumor types.

We have been actively working toward our goal of filing an IND for CUDC-101 by the end of the first quarter 2008 to commence clinical trials in man, and the manufacturing of CUDC-101 under good manufacturing practices. Formulation studies and other IND preparatory studies are currently underway. Formal toxicology testing is planned for the second half of 2007.

While we seek to advance CUDC-101 toward clinical testing, we're also continuing to seek to advance other drug candidates in our Targeted Cancer Drug Development Platform. Currently, the more advanced of these programs include a multitarget inhibitor that is designed to inhibit Bcr-Abl and the same targeted Target A in CUDC-101, another multitarget inhibitor that seeks to inhibit HSP90 and Target A, as well as a single targeted molecule that is designed to block HSP90. We're hopeful that we can advance at least one additional compound in development -- as a development candidate status in late 2007.

We anticipate that the preclinical development and regulatory competencies established to progress CUDC-101 can be leveraged to move forward such other potential future candidates from our Targeted Cancer Drug Development Platform to IND application filing and, potentially, into human clinical testing, to ultimately create a broad portfolio of later-stage preclinical and clinical development programs.

While we're preparing for an IND filing for CUDC-101, we're also concurrently engaged in discussions with multiple companies regarding a potential collaboration. And we remain optimistic we will be able to consummate a collaboration for CUDC-101 during the second half of 2007 or early 2008; and our objective is that Curis would retain a substantial role in development.

I'm pleased with the progress that we've made to date and of the efforts of the Curis employees, who have worked extremely hard and diligently to progress our Targeted Cancer Drug Development Platform programs in a highly effective and efficient manner. I look forward to providing future updates on CUDC-101 and our Targeted Cancer Drug Development Platform, as well as our programs under collaboration with Genentech and Wyeth.

I will now turn the call back over to Mike. Mike?

Okay, thanks. For the second quarter of 2007, we reported a net loss of $4 million, or $0.08 per share, as compared to a net loss of $3.9 million, or $0.08 per share, for the prior-year period. Net revenues were $1.2 million for the second quarter of 2007, which compared to $2.5 million for the second quarter of 2006, a decrease of $1.3 million. The decrease in our net revenues was primarily the result of a decrease in our research funding revenues that was in part offset by an increase in our license fee revenues and a decrease in contra-revenues.

Operating expenses for the second quarter of 2007 were $5.4 million, as compared to $6.8 million for the second quarter of 2006, a decrease of $1.4 million. The changes in our research and development and general and administrative operating expense categories are as follows. R&D expenses were $3 million for the second quarter of 2007, as compared to $3.8 million for the same period in the prior year, a decrease of $800,000.

Overall spending decreased as research funding for a majority of our research programs under collaboration concluded during either late 2006 or in the first quarter of 2007. We reallocated certain of these resources to our internal Targeted Cancer Drug Development Platform programs. As the result, spending on these internal cancer programs accounted for $2 million, or 67% of our second-quarter 2007 R&D expense. Our R&D expense also included stock-based compensation of $87,000 and $229,000 for the second quarters of 2007 and 2006, respectively.

G&A expenses were $2.4 million for the second quarter of 2007, as compared to $3 million for the same period in the prior year, a decrease of $600,000. The decrease in G&A expenses was due to decrease in several areas, most notably in occupancy costs, which decreased by $248,000 as a result of proceeds received under a settlement agreement entered into with a former subtenant that had defaulted on a sublease of our 61 Moulton Street facility. In addition, our lease on our 61 Moulton Street facility expired on April 30, 2007, and we do not expect to incur any future material costs related to this facility.

Legal costs also decreased by nearly $200,000, due to decreased patent costs and corporate legal fees that we had incurred in the prior-year second quarter associated with the formation of our Chinese subsidiary. Our G&A expense includes stock-based compensation of $796,000 and $884,000 for the second quarters of 2007 and 2006, respectively.

Net revenues for six months ended June 30, 2007 were $3.6 million, as compared to $4.6 million for the same period in 2006, a decrease of $1 million. The decrease in net revenues was primarily the result of, again, a decrease in research funding revenues, offset in part by an increase in license fee revenues and a decrease in contra-revenues.

Operating expenses were $11.7 million and $13.2 million for the six-month periods ended June 30, 2007 and 2006, respectively, resulting in a decrease of $1.5 million. R&D expenses were $6.3 million for the six months ended June 30, 2007, as compared to $7.3 million for the same period in the prior year, a decrease of $1 million. G&A expenses were $5.3 million for the six months ended June 30, 2007, which compared to $5.8 million for the same period in the prior year, a decrease of $500,000.

As of June 30, 2007 cash, cash equivalents and marketable securities were $30.2 million and there were approximately 49.5 million shares of our common stock outstanding.

That concludes my remarks. I will now turn the call back to Dan for some closing comments.

I'd like to thank everyone for joining us on today's call, and I look forward to updating you in the future. I will now open the call up for questions.

(OPERATOR INSTRUCTIONS) John Sullivan with Leerink Swann.

Thank you very much. Hey, guys, good morning. Can you just catch us up -- how do think investors should think about the development program, CUDC-101, and the program more broadly as a platform that could have broader appeal to partners or in business combinations? The Hedgehog assets were always thought of as a very specific platform, I think to many. And should we be thinking of the intellectual property underlying CUDC-101, and more broadly, underlying this approach, as something that potential development partners would view as a platform asset? How do you think we should think of that?

Sure. Thanks for the question, John. Broadly speaking, the attributes of this approach, we believe give us a real competitive advantage. So unlike what a lot of companies are doing, which are following on the prototype drugs and coming out with sort of modified "me-toos," trying to carve out an IP space -- which, by the way, is becoming extremely crowded -- our scientists have specifically designed these drug candidates that are quite novel in their design, and target more than one validated target.

And the reason this represents a potential platform is the following. The growing trend in oncology has been designing these specifically focused drugs that hit validated targets, such as EGFR Her2. And what has emerged is this synergy one achieves when you use more than one of these compounds in combination.

The problem is many of them end up with not just synergy and efficacy, but you end up with increased toxicity. Case in point is EGFR inhibitors have gastrointestinal toxicity and rash. And when you use them in combination with other drugs -- for instance, the Target A inhibitor or another kinase inhibitor, you tend to exacerbate the toxicity.

What we have found is with this single agent, we have what appears to be a greater therapeutic window. We're achieving synergy because we have one molecule hitting these targets simultaneously. We have aligned pharmacokinetics and lower toxicity with higher potency. So we think we have a real advantage in that we're doing combination therapy in a single agent, and it gives us a very broad IP space.

As a platform, we think this lends itself to a number of targets. So right now, what we have is EGFR Her2 and a Target A inhibitor -- that is the lead. And behind that, we have HSP90 Target A, the Bcr-Abl -- and those are for hematological cancers. And we have a series of other combinations that we have in development for targeting solid tumors. So this is a platform approach that, if successful with the first one, we should end up with a very broad appeal.

I will say that the companies we have been talking to have been very intrigued by this concept and this novel approach.

Okay, thanks very much for that. And then separately, can you comment on your recent experience? You have moved some of your R&D efforts to China or allowing those efforts to be conducted in China. Can you just talk about your recent experience with that and talk about how you are protecting your intellectual property with R&D being conducted around the world?

Yes. So what we have offshore, John, is specifically the medicinal chemistry, and it has been extremely productive for us. It has dramatically decreased our cost of performing those functions. More importantly, it's enhanced our productivity because of the time difference; so we basically have a 24/7 operational capacity.

And we're protecting our IP in that all of the drug design is being done here in Cambridge. Our scientists here are defining the targets that we are going after, designing the drugs, identifying the medicinal chemistry derivatives and then sending the instructions over to China. China is basically doing the synthesis, sending the compounds back to Cambridge, where we are doing all of the biological testing. So any structured activity relationship which is elucidated with in vitro/in vivo studies is done here in Cambridge, and that is really where the core information resides for the intellectual property.

Thanks very much.

(OPERATOR INSTRUCTIONS) [Dan Deluth] with [ASB Advisers].

Thanks very much for taking my questions. I actually had three questions. First, could you discuss a little bit the status of the second non-Hedgehog partnership or collaboration that you had in place with Genentech?

And then secondly, around the partnering discussions you have for the proprietary program, how important is the intellectual property -- I wouldn't say issue -- but resolution of the program? Are potential partners interested in understanding whether the concept is patentable and something that can be robustly defended?

And then lastly, regarding the same program, are you finding that the partners are interested in not only one compound but in the program as a whole? And do you feel that you'll be able to carve out separate arrangements for each compound? Thanks very much.

Thank you, Dan. So I will take those in order. On the first question, it was requesting if we could provide a status update on the second relationship we have with Genentech, which is around the Wnt pathway.

The status of our relationship with Genentech on that is we set up cell-based assays for identifying antagonists for the Wnt pathway. We succeeded in that endeavor. We have since then turned the compounds over to Genentech, so they are basically in their pipeline and it's their responsibility. We don't have a continuing collaboration around that. And we really can't provide any further clarification, other than we succeeded in identifying a potential hit -- well, it was a hit -- and they were doing some medicinal chemistry on it. We really don't have any further update on that program.

The reason is that Genentech had a broad interest in that pathway, and we designed a relationship so that our obligation was to identify chemical compounds and hand them doff to them.

And then to the extent that something materializes from that, you have some downstream --?

Yes, that is exactly right. Milestones, and we do have (technical difficulty) to go on that -- milestones and royalty.

Thank you.

Okay, regarding partnering discussions. The intellectual property is quite relevant. That is actually what, I think, the companies are very intrigued by, is the fact that this concept appears novel and it appears to be patentable. This is a composition of matter which has active moieties on it which address more than one target. So it does appear to be a patentable subject matter from a composition standpoint.

In terms of freedom to operate, that is an ongoing analysis, as you know. What's attractive about this is it could potentially give us a free space to carve out on the composition of matter standpoint, as well as steering clear of combination patents that have been filed by a number of companies, since we're not actually combining different drugs to treat a patient -- it's one drug with these active moieties. So I would imagine as we progress through due diligence, that is going to be a very important issue.

Thank you.

Okay. I also just wanted to underscore with the IP, that when we filed it back in September 2006, we engaged two separate law firms -- one to actually prepare the patent filing for filing with the patent office, working with our scientists on preparing the prosecution file.

And prior to submitting it to the patent office for filing of the provisional, we engaged another firm to take a look at the potential application to try to poke holes in it, to basically play a role of adverse counsel. And that process actually went quite well and we felt that we were able to buttress the initial filing with some proactive concepts that this attorney came up with. So we feel very strongly about our IP position.

Then the final question is if the companies we're engaged in discussions are interested in only the lead compound or the platform. And the short of that is there is definite interest in the platform itself. And for us, the balance is that we would only consider a platform relationship if we were able to consummate a transaction which allowed us to retain significant upside and a significant role, i.e. possible codevelopment, etc.

So our objective with this, Dan, is not to license the way we did with Genentech. That was a strategy we put in place at that state of our corporate development; we're a much different company now with a much more established and developed set of competencies. So our objective is to retain a much greater role in the progress and development of these drug candidates. So whether it is for a specific lead or a broader relationship with the platform is really contingent on the deal structure.

Thanks very much.

Okay, thank you.

John Sullivan with Leerink Swann.

You may not be able to get into this from an intellectual property standpoint, but the FDA has approved therapeutics that mediate multiple targets, specifically multikinase targets come to my mind, drugs like Sutent, that block several proteins.

From an IP standpoint can you say how your approach is different from that?

Yes, John. So early in the development of targeted therapy, most companies were trying to find highly specific inhibitors, i.e. targeting isoforms of these various targets. And then we have experienced with Gleevec, for instance, where having a little wobble room in the inhibitor, where it's actually binding to more than one --either an isoform, so you end up with pan inhibitor, or more than one kinase -- it actually showed that you had greater efficacy. So there has been a shift in the thinking.

Our inhibitor is different in that it is not a dirty kinase, which has just wobble room and it's binding to more than one kinase; it is actually specifically designed to bind to, let's say, kinases, but the Target A is a non-kinase. So it has been specifically designed to bind to Target A as well as other targets which may be kinases, such as EGFR Her2.

And there is evidence in the literature and we've developed data in-house showing that there appears to be synergy when Target A is engaged and these other targets are engaged.

Thank you very much.

And I show no further questions at this time. I'd like to turn the call back over to Mr. Dan Passeri. Please proceed.

Again, we would like to thank everyone for joining us today, and we look forward to providing you with updates in the future. And thank you very much for your attention.

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