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CRIS > SEC Filings for CRIS > Form 10-Q on 8-Aug-2013All Recent SEC Filings

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Form 10-Q for CURIS INC


8-Aug-2013

Quarterly Report


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes appearing elsewhere in this report.

Overview

We are an oncology-focused drug development company seeking to develop and commercialize novel drug candidates for the treatment of human cancers. We conduct our research and development programs both internally and through strategic collaborations. Erivedge® is the first and only approved medicine for the treatment of advanced basal cell carcinoma, and was developed and is being commercialized by Roche and Genentech under a collaboration agreement between Curis and Genentech. We are also leveraging our experience in targeting signaling pathways to develop clinical-stage targeted drug candidates: CUDC-427, a small molecule IAP inhibitor, and CUDC-907, a dual PI3K and HDAC inhibitor. Our licensee Debiopharm is advancing the clinical development of the HSP90 inhibitor, Debio 0932.

Erivedge®

Erivedge® (vismodegib) capsule. Our most advanced drug is a first-in-class orally-administered small molecule Hedgehog pathway inhibitor developed under collaboration with Genentech. Pursuant to this collaboration, Genentech and Roche are responsible for clinical development, and Genentech (in the U.S.), Roche (outside the U.S., excluding Japan) and Chugai (in Japan) are responsible for commercialization of Erivedge.

In January 2012, based on the results of the Phase 2 pivotal ERIVANCE BCC clinical study, the U.S. Food and Drug Administration, or FDA, approved Erivedge for treatment of adults with basal cell carcinoma, or BCC, that has spread to other parts of the body or that has come back after surgery or that their healthcare provider decides cannot be treated with surgery or radiation. We refer to this indication as advanced BCC. The ERIVANCE BCC study enrolled 104 advanced BCC patients (71 had locally advanced and 33 had metastatic disease) from 31 study centers in the US, Australia and Europe. The study showed that Erivedge substantially shrank tumors or healed visible lesions, as defined by objective response rate, in 42.9 percent of patients with locally advanced and 30.3 percent of patients with metastatic BCC as assessed by independent review. The most common adverse events included muscle spasms, hair loss, altered taste sensation, fatigue and weight loss. Serious adverse events (SAEs) were observed in 26 patients (25 percent), however of these only four patients (4 percent) had SAEs that were considered to be related to treatment with Erivedge. Fatal events were reported in seven patients (7 percent) although none were considered by investigators to be related to treatment with Erivedge. In all cases, patients had other pre-existing diseases or symptoms that were related to their presumed cause of death.

In May 2013, Australia's Therapeutic Goods Administration, or TGA, approved Erivedge, resulting in a $4,000,000 milestone payment to us. In July 2013, the European Commission granted conditional approval for the marketing of Erivedge in all 28 European Union member states. This conditional approval makes Erivedge the first licensed treatment in Europe for advanced BCC and also resulted in a $6,000,000 milestone payment to us from Genentech. A conditional marketing authorization is granted to medicinal products with a positive benefit/risk assessment that satisfy an unmet medical need and whose availability would result in a significant public health benefit. Under the provisions of the conditional approval, Roche is expected to provide additional data on Erivedge in advanced BCC from the ongoing global safety study, known as STEVIE, which is an international, single-arm, open-label multicenter trial in patients with advanced forms of BCC. An interim analysis from STEVIE presented at the American Society of Clinical Oncology's, or ASCO, 2013 Annual Conference confirmed a similar safety profile to that observed in the ERIVANCE BCC study.

In addition to the United States, Australia and European Union, Erivedge is also approved in Canada, Ecuador, Israel, Mexico, South Korea and Switzerland. Roche has also filed several new drug applications for marketing registration with health agencies in other territories. Erivedge's regulatory approvals and Roche's submissions in other territories are based on positive clinical data from the ERIVANCE BCC study.

Genentech also evaluated Erivedge in a single-arm three cohort phase II clinical trial to treat less severe forms of BCC. Data from this study are expected in to be presented at a medical meeting. In addition, Roche has recently initiated a randomized, placebo controlled phase II study to investigate the efficacy of Erivedge treatment (versus placebo) prior to surgery in previously untreated BCC.

Outside of BCC, Roche is also initiating a phase Ib/II trial in patients with relapsed/ refractory acute myelogenous leukemia (AML) and relapsed/refractory high-risk myelodysplastic syndrome (MDS). In contrast to BCC, these two clinical conditions are driven by mechanisms that are not linked to mutations in the hedgehog pathway. Additionally, third-party investigators are also conducting clinical trials with Erivedge in BCC as well as in several other cancers.

Pursuant to the terms of our collaboration agreement with Genentech, we are entitled to a royalty on net sales of Erivedge that ranges from the mid-to-high single digits, and which escalates within this range with increasing product sales. The royalty rate applicable to Erivedge may be decreased to a low-to-mid single digit royalty in certain specified circumstances, including when a competing product that binds to the same molecular target as Erivedge is approved by the applicable regulatory authority and is being sold in such country by a third party for use in the same indication as Erivedge or when there is no issued intellectual property covering Erivedge in a territory in which sales are recorded.

In December 2012, we, through our wholly-owned subsidiary Curis Royalty, entered into a $30,000,000 debt transaction with BioPharma-II at an annual interest rate of 12.25% collateralized with certain future Erivedge royalty and royalty-related payment streams. The loan constitutes an obligation of Curis Royalty and is intended to be non-recourse to us. Under the terms of the loan, quarterly royalty payments from Genentech will first be applied to pay
(i) escrow fees payable by us pursuant to an escrow agreement between Curis, Curis Royalty, BioPharma-II and Boston Private Bank and Trust Company, (ii) our royalty obligations to academic institutions, (iii) certain expenses incurred by BioPharma-II in connection with the credit agreement and related transaction documents, including enforcement of its rights in the case of an event of default under the credit agreement and (iv) expenses incurred by us enforcing our right to indemnification under the collaboration agreement with Genentech. Remaining amounts, subject to caps of $1,000,000 per quarter in 2013, $2,000,000 per quarter in 2014 and $3,000,000 per quarter in 2015, will be applied first, to pay interest and second, principal on the loan. We will be entitled to receive the remaining amounts above the caps, if any, and remain entitled to receive any contingent payments upon achievement of clinical development objectives. We retain the right to royalty payments related to sales of Erivedge following repayment of the loan.


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Upon the closing of the transaction, we transferred to Curis Royalty, pursuant to a purchase and sale agreement between us and Curis Royalty, the right to receive Erivedge royalty and royalty-related payments due from Genentech as defined in the credit agreement, and BioPharma-II loaned to Curis Royalty $30,000,000 that, together with accrued interest, will be repaid by Curis Royalty quarterly from the proceeds of these Erivedge royalty and royalty-related payments. The final maturity date of the loan will be the earlier of the date when the principal is paid in full and the termination of Curis Royalty's right to receive royalties under the collaboration agreement with Genentech. At any time after January 1, 2017, Curis Royalty may, subject to certain limitations, prepay the outstanding principal of the loan in whole or in part, at a price equal to 105% of the outstanding principal on the loan, plus accrued but unpaid interest. The obligations of Curis Royalty under the credit agreement to repay the loan may be accelerated upon the occurrence of an event of default as defined in the credit agreement. During 2013, Curis Royalty began making payments to BioPharma-II upon receipt of the Erivedge royalties. The amounts paid were less than the interest accrued through the repayment dates resulting in a total of $582,000 being added to the outstanding principal. As of June 30, 2013, we owed a total of $30,894,000, gross of issuance costs, to BioPharma-II comprised of principal and accrued interest.

We recognized $1,470,000 of royalty revenue from Genentech's net sales of Erivedge during the six months ended June 30, 2013 and an aggregate of $2,999,000 in royalty revenues since Erivedge was approved, which was calculated as 5% of Genentech's net sales of Erivedge. As indicated above, we expect to continue to record royalty revenue from sales of Erivedge, but some or all of such revenues will service the loan that Curis Royalty received from BioPharma-II, subject to the quarterly caps. We recorded cost of royalty revenues of $73,000 and $250,000, respectively, during these same periods.

We are also obligated to make payments to university licensors on royalties that we earn in all territories other than Australia in an amount that is equal to 5% of the royalty payments that we receive from Genentech for a period of 10 years from the first commercial sale of Erivedge, which occurred in February 2012. For royalties that we earn from Roche's potential future sales of Erivedge in Australia, we will be obligated to make payments to university licensors in an amount that is equal to 2% of Roche's direct net sales in Australia until April 2019, after which the amount will decrease to 5% of the royalty payments that we receive from Genentech for the remainder of the period ending 10 years from the first commercial sale of Erivedge, or February 2022.

Targeted Cancer Drug Candidates

CUDC-427. IAP proteins are a family of functionally and structurally related proteins that promote cancer cell survival by inhibiting programmed cell death, a process also referred to as apoptosis. Using IAP proteins and other anti-apoptotic factors, cancer cells evade cell death in response to a variety of signals, including those provided by anti-cancer agents such as chemotherapy, or naturally occurring inflammatory and immune signals transmitted through members of the tumor necrosis factor, or TNF family. Evasion from apoptosis is a fundamental mechanism whereby human cancers develop resistance to standard anti-cancer treatments. IAP inhibitors such as CUDC-427 are designed to counteract the effects of IAP proteins, thus shifting the balance away from cancer cell survival and allowing apoptosis to proceed.

In November 2012, we licensed from Genentech the exclusive, worldwide rights for the manufacture, development and commercialization of a small molecule Smac mimetic drug candidate, CUDC-427, that is designed to promote cancer cell death by antagonizing IAP proteins. Under the terms of the license agreement, we have the sole right and responsibility for all research, development, manufacturing and commercialization activities related to CUDC-427. Genentech will be entitled to milestone payments upon the first commercial sale of CUDC-427 in certain territories and a tiered low-to-mid single-digit royalty on net sales of CUDC-427, if any.

Prior to our licensing agreement, Genentech had completed enrollment in a phase I clinical trial of CUDC-427 (previously GDC-0917), in which 42 patients with refractory solid tumors or lymphoma received daily oral doses of CUDC-427 for two weeks, followed by a one week rest period until disease progression or study discontinuation for any other reason. Results of this phase I study were presented during an oral session at the ASCO 2013 Annual Conference in June 2013. In this study, patients were enrolled across 11 cohorts and received CUDC-427 monotherapy at doses ranging from 5 mg to 600 mg daily. Unconfirmed complete responses were reported in 2 patients, including one patient with ovarian cancer and another with mucosa-associated lymphoid tissue (MALT) lymphoma. Additionally, one patient experienced a mixed response and four patients (one patient each with breast cancer, sarcoma, small cell lung cancer and Kapsoi's sarcoma) had stable disease for greater than or equal to three months, including a patient on study for greater than 10 months. The maximum tolerated dose, or MTD, of CUDC-427 has not been determined, although plasma concentrations in the order of preclinically predicted ED90 were reached. ED90 refers to the dose that leads to 90% of the maximal response. There were three deaths reported during the study: two due to progression of breast cancer and one patient died due to pneumonia. Adverse events (AEs) that resulted in treatment discontinuation were Grade 3 fatigue (one patient), Grade 2 QTc prolongation (one patient), Grade 2 drug hypersensitivity (one patient), Grade 2 pneumonitis (one patient), and Grade 3 pruritus/Grade 2 rash (one patient). Other treatment related AEs that were equal to or greater than Grade 3 in severity in more than one patient were elevated levels of liver enzymes (two patients at 450 and 600 mg dose). Biomarker analyses of the tumor samples (two patients) and peripheral blood cells (all patients) showed changes that were consistent with CUDC-427's mechanism of action.

We plan to continue the clinical development of CUDC-427 and expect to investigate the efficacy and safety of CUDC-427 in combination and mono-therapy clinical studies, including a phase Ib/II trial using CUDC-427 in combination with capecitabine in HER2-negative breast cancer patients, and monotherapy trials in ovarian and fallopian tube cancers, as well as in aggressive and indolent lymphomas such as MALT lymphomas. We recently initiated a phase I dose escalation trial in patients with advanced and refractory solid tumors or lymphomas where oral CUDC-427 is being administered as a single agent twice-daily on a continuous dosing schedule for a 21-day cycle. This trial is expected to enroll three to six patients at each dose level and also includes an expansion cohort, which is expected to primarily enroll patients with ovarian and fallopian tube cancers. The primary objective of the study is to determine the MTD and recommended phase II dose of oral CUDC-427 as a single agent based on this regimen. The secondary objectives of the study are to assess CUDC-427's safety and tolerability, pharmacokinetics, exploratory biomarkers of activity and preliminary anti-cancer activity.

CUDC-907. CUDC-907 is an orally bioavailable drug candidate designed to predominantly inhibit certain isoforms of phosphatidylinositol-3-kinase, or PI3K (mainly PI3K- alpha, delta and beta) and select classes of histone deacetylase, or HDAC enzymes (Classes I and IIB primarily). In January 2013, we treated the first subject in a phase I clinical trial in patients with advanced lymphoma and multiple myeloma. The study is designed to assess the safety (including the MTD), pharmacokinetics, and anti-cancer activity of CUDC-907. Analysis of drug pharmacokinetics and pharmacodynamics from these patients' blood samples is currently ongoing. In July 2013, we submitted an amendment to the protocol of the ongoing Phase I study to include two additional dosing regimens, wherein oral CUDC-907 will be administered either two times per week (twice weekly regimen) or three times per week (thrice weekly regimen). Additionally, exploratory biomarkers will be assessed in the blood and tissue specimens for the activity of CUDC-907.


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In November 2011, we entered into an agreement with The Leukemia & Lymphoma Society, or LLS, under which LLS is expected to provide up to $4,000,000 in milestone payments to support our ongoing development of CUDC-907. As of June 30, 2013, we have earned $1,650,000 in milestone payments under our agreement with LLS. Under certain conditions associated with the successful partnering and/or commercialization of CUDC-907 in the specified indications, we may be obligated to make payments, including royalties, to LLS up to a maximum of $10,000,000. This obligation is limited to 2.5 times the amount we receive from LLS, and, as of June 30, 2013, the maximum obligation, assuming that CUDC-907 successfully progresses through future clinical trials, would be $4,125,000.Our scientists are also conducting ongoing preclinical studies of CUDC-907 in solid tumor cancers and we are currently planning a phase I study in patients with solid tumors.

Debio 0932. In August 2009, we granted a worldwide, exclusive royalty-bearing license to develop, manufacture, market and sell our heat shock protein 90, or HSP90, inhibitor technology, including Debio 0932, to Debiopharm. Debiopharm has assumed all future development responsibility for Debio 0932 and Debiopharm or a Debiopharm licensee will incur all future costs related to the development, registration and commercialization of products under the agreement.

In April 2010, Debiopharm initiated a phase I clinical trial to evaluate the safety of Debio 0932 in patients with advanced solid tumors. In 2011, Debiopharm successfully advanced Debio 0932 through the dose escalation portion of this phase I study and determined 1000 mg daily to be the recommended dose for further development. In the beginning of 2012, Debiopharm advanced Debio 0932 into the phase Ib expansion portion of the study at this 1000 mg daily dose level. The primary objectives of the phase Ib portion of the study were to further assess the safety profile, pharmacokinetics and pharmacodynamics of Debio 0932 at the 1000 mg daily dose and to make a preliminary assessment of its anti-tumor activity. Debiopharm completed the phase Ib expansion portion of the study, enrolling approximately 30 patients with advanced solid tumors, including patients with non-small cell lung cancer, of NSCLC. We expect Debiopharm to report data from this study in the near future.

In August 2012, Debiopharm initiated a phase I/II clinical trial, or the HALO trial, of Debio 0932 in combination with various chemotherapy regimens in patients with stage IIIb or IV NSCLC without known EGFR mutations. In the phase I portion of this study, various doses of Debio 0932 are being investigated in combination with either cisplatin/pemetrexed or cisplatin/gemcitabine in treatment-naïve patients, and with docetaxel in previously treated patients. Once a recommended phase II dose of Debio 0932 in combination with each of the 3 chemotherapy regimens has been identified, Debiopharm expects to initiate the randomized, double-blind, placebo-controlled phase II portion of the study. The phase II portion of the HALO trial is expected to enroll approximately 140 eligible NSCLC patients, who will be randomized to chemotherapy treatment in combination with either Debio 0932 or placebo. The primary objective of the phase II study will be to determine the efficacy of Debio 0932 in combination with chemotherapy. Under our agreement with Debiopharm, we are eligible for our next milestone payment when Debiopharm treats its fifth patient in a phase II clinical trial, which we expect could occur in 2014. We have received $13,000,000 to-date from Debiopharm under this collaboration.

Lastly, Debiopharm is also planning to initiate a phase I study of Debio 0932 in patients with renal cell carcinoma in the second half of 2013.

CUDC-101. CUDC-101 is a drug candidate that is designed to target epidermal growth factor receptor, or EGFR, human epidermal growth factor receptor 2, or HER2, and certain HDAC enzymes. In October 2012, we initiated a phase I clinical trial of an oral formulation of CUDC-101 in cancer patients. We subsequently terminated this study as the bioavailability observed in the first cohort of patients was too low to achieve effective drug levels with this formulation. We are currently pursuing the development of alternative formulations that may provide improved oral bioavailability and allow us to progress CUDC-101 towards clinical testing.

We initially developed CUDC-101 as an intravenous formulation and we have completed two clinical trials with this formulation, including a phase I dose escalation clinical trial of CUDC-101 in 25 patients with advanced, refractory solid tumors and a phase I expansion trial that tested CUDC-101 in 46 patients with specific tumor types, including breast, gastric, head and neck, NSCLC or liver cancers. In 2011, we began testing an intravenous formulation of CUDC-101 in a phase I clinical trial in patients with locally advanced squamous cell carcinoma of the head and neck in combination with the current standard-of-care of cisplatin and radiation. In April 2013, we determined that we would discontinue enrolling patients in this study and that the future development of CUDC-101 would be dependent on our ability to successfully develop an oral formulation of CUDC-101. Our decision was based largely on the difficulty in enrolling patients in this trial as well as our desire to direct our available financial resources to the development of CUDC-427 and CUDC-907.

Liquidity

Since our inception, we have funded our operations primarily through license fees, contingent cash payments, research and development funding from our corporate collaborators, the private and public placement of our equity securities, debt financings and the monetization of certain royalty rights. We have never been profitable on an annual basis and have an accumulated deficit of $754,761,000 as of June 30, 2013. We expect that we will incur significant operating losses for the next several years as we seek to advance our research and development programs. Although Genentech and Roche have


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received marketing approvals for Erivedge to treat advanced BCC in various territories, the level of future sales and the amount of resulting royalty revenue payable to us are both highly uncertain. In addition, in December 2012 our wholly-owned subsidiary, Curis Royalty, entered into a $30,000,000 debt financing that is secured by Erivedge royalty revenues and for which up to $4,000,000, $8,000,000 and $12,000,000 of royalty revenues in 2013, 2014 and 2015 are required to be applied to debt repayments. For the years after 2015, all royalty revenues that we receive will be applied to debt repayment until the debt is fully repaid. We currently estimate that the debt will be repaid by early 2017, but the actual timing of repayment will be dependent upon the amount of royalty revenues that we earn on sales of Erivedge.

We will need to generate significant revenues to achieve profitability and do not expect to achieve profitability in the foreseeable future, if at all. As a result of uncertainty in the amounts of future Erivedge royalty revenue and the period that will be required to repay the royalty-secured debt obligation, the timing of potential milestone payments under our agreements with Genentech, Debiopharm and LLS and the variability in our operating expenses, we expect that our financial results in the future will be variable. We anticipate that existing capital resources as of June 30, 2013 should enable us to maintain current and planned operations into the second half of 2015. Our ability to continue funding our planned operations into and beyond this point is dependent on future contingent payments that we may receive from Genentech, Debiopharm, or LLS upon the achievement of development and regulatory approval objectives, our ability to manage our expenses and our ability to raise additional funds through additional corporate collaborations, equity or debt financings, or from other sources of financing.

We believe that near term key drivers to our success will include:

• Genentech's ability to successfully grow the commercialization of Erivedge in advanced BCC in the U.S. and in other currently approved territories;

• Roche's ability to successfully launch and commercialize Erivedge in advanced BCC in additional territories;

• positive results in Genentech's ongoing phase II clinical trial in patients with operable BCC;

• our ability to successfully plan, finance and complete current and planned clinical trials for CUDC-427 and CUDC-907;

• our ability to advance preclinical efforts to develop an oral formulation of CUDC-101 and to advance this candidate into clinical development;

• Debiopharm's ability to advance Debio 0932 into later stages of clinical development; and

• our ability to successfully enter into one or more material licenses or collaboration agreements for our proprietary drug candidates.

In the longer term, a key driver to our success will be our ability, and the ability of any current or future collaborator or licensee, to successfully commercialize drugs other than Erivedge from our proprietary pipeline.

Collaboration Agreements

We are currently a party to a collaboration with Genentech related to our Hedgehog pathway inhibitor technologies, a license agreement with Debiopharm related to our Hsp90 inhibitor technology and an agreement with LLS related to CUDC-907. Our past and current collaborations have generally provided for research, development and commercialization programs to be wholly or majority-funded by our collaborators and provide us with the opportunity to receive additional contingent cash milestone payments if specified development and regulatory approval objectives are achieved, as well as royalty payments upon the successful commercialization of any products based upon the collaborations. We are currently not receiving any funding for our research activities and we do not expect to receive such funding in the future from Genentech, Debiopharm or LLS under our current agreements with these parties. Under our collaboration with Genentech, we currently expect to incur only costs related to the maintenance of licenses, including sublicense payments due upon milestone payments and any royalties we receive, as well as patent-related expenses. As a result of our licensing agreements with various universities, we are also obligated to make payments to these university licensors when we receive certain payments from Genentech. As of June 30, 2013, we have incurred aggregate expenses over the term of this collaboration of $3,200,000 in connection with royalties and other cash payments received from Genentech. In addition, during 2012 we incurred $964,000 in expense related to the issuance of 200,000 shares of our common stock to such university licensors upon FDA approval of Erivedge. In May and July 2013, we received additional milestone payments from Genentech upon Australian and European Union approval of Erivedge, and, as a result, we are obligated to


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pay additional sublicense and royalty fees to these university licensors. We do not expect to incur any material costs in the foreseeable future related to our Hsp90 technologies under development by Debiopharm.

Financial Operations Overview

General. Our future operating results will largely depend on the magnitude of payments from our current and potential future corporate collaborators and the progress of drug candidates currently in our research and development pipeline. The results of our operations will vary significantly from year to year and quarter to quarter and depend on, among other factors, the timing of our entry into new collaborations, if any, the timing of the receipt of payments, if any, from new or existing collaborators and the cost and outcome of any preclinical development or clinical trials then being conducted. We anticipate that existing . . .

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