Annual Report 2013
Curis
is
an oncology-focused drug development
company seeking to develop novel drug candidates for
the treatment of human cancers. Curis is seeking to
further the development of its pipeline of proprietary
targeted cancer drug candidates, including CUDC-907, a
dual HDAC and PI3K inhibitor, and CUDC-427, a small
molecule antagonist of IAP proteins. Erivedge® is the
first and only FDA-approved medicine for the treatment
of advanced basal cell carcinoma and is being
commercialized
and
developed
by Roche
and
Genentech, a member of the Roche Group, under a
collaboration agreement between Curis and Genentech.
Curis also has a collaboration with Debiopharm, a
Swiss-based biopharmaceutical group of companies for
the development of Debio 0932, an oral Hsp90 inhibitor.
Dear Curis Stockholders,
We are pleased to report that 2013 was a significant year for Curis, as we continued to focus on our mission of
growing Curis into a leading biotechnology company focused on developing novel drug candidates for the
treatment of human cancers. During 2013, we advanced our proprietary pipeline by initiating clinical trials of our
HDAC and PI3K inhibitor, CUDC-907, and our IAP antagonist, CUDC-427. We expect to continue advancing
these studies and to further investigate both drug candidates in specific cancer types in 2014.
We are also encouraged by the progress being made with our two partnered programs: Erivedge®, a first-in-class
drug approved for the treatment of advanced basal cell carcinoma, or BCC, that is being commercialized by
Roche and our collaborator Genentech, a member of the Roche Group, and Debio 0932, a second generation oral
HSP90 inhibitor that is being developed by Debiopharm. Notably, in 2013 Roche initiated a Phase 1b/2 study of
Erivedge in patients with relapsed or refractory acute myeloid leukemia, or AML, and myelodysplastic
syndrome, or MDS. We believe that the initiation of this study demonstrates Roche’s commitment to the
continued development of Erivedge for treatment of cancers other than advanced BCC. For Debio 0932, in
addition to the ongoing Phase 1/2 clinical trial in non-small cell lung cancer, or NSCLC, Debiopharm also
initiated a study in 2013 to investigate Debio 0932 in patients with renal cell carcinoma, or RCC.
Our balance sheet continues to be strong and we ended the year with approximately $69 million in cash, cash
equivalents and investments. We earned revenues of $15 million in 2013, comprised of approximately $14
million in milestone and royalty revenues from Genentech/ Roche related to Erivedge® and $1 million from the
Leukemia and Lymphoma Society for the achievement of CUDC-907 clinical development objectives. We
expect our existing capital to provide the requisite funding for our planned operations into 2016, including
supporting the presently ongoing clinical trials and the initiation of additional planned studies for CUDC-907 and
CUDC-427. Importantly, this capital projection does not include any potential payments that we may be eligible
to receive under our agreements with our partners.
CUDC-907: Dual HDAC and PI3K Inhibitor
CUDC-907 is an orally-administered, first-in-class small molecule drug candidate that was designed by Curis
scientists as a dual inhibitor of class I and II HDAC and certain isoforms of PI3K (primarily alpha, delta and
beta) enzymes. Based on CUDC-907’s preclinical properties, we believe this drug candidate has the potential to
provide significant benefit in certain human cancers. In 2013, we initiated a Phase 1 dose escalation clinical
study with CUDC-907 in patients with relapsed or refractory lymphoma or multiple myeloma. While the study is
still ongoing, we presented interim data from 13 treated patients at the 2013 Annual Meeting of the American
Society of Hematology, where we reported that one patient with mixed follicular lymphoma/diffuse large B cell
lymphoma achieved a partial response and seven other patients met the criteria for stable disease, including one
patient with multiple myeloma who has continued to maintain stable disease for over one year. In this Phase 1
study, the side effect profile of CUDC-907 appears to be consistent with its expected mechanism of action. We
find these early clinical observations to be very encouraging. We plan to complete the dose-escalation portion of
this study around the middle of 2014 and initiate enrollment in an expansion phase of this study in patients with
select malignancies in the second half of 2014. In addition to CUDC-907’s analysis in hematologic malignancies,
we are also assessing the potential use of CUDC-907 in patients with solid tumors.
CUDC-427: Antagonist of IAP Proteins
CUDC-427 is an orally-administered, small molecule drug candidate that is designed to promote cancer cell
death by antagonizing inhibitor of apoptosis, or IAP, proteins. The IAP proteins and other anti-apoptotic factors
are frequently used by cancer cells to evade cell death in response to a variety of signals, including those
provided by anti-cancer agents such as chemotherapy, or other naturally occurring inflammatory and immune
signals. IAP antagonists such as CUDC-427 are designed to counteract the effects of IAP proteins, thus shifting
the balance away from cancer cell survival to promote apoptosis in these cells. Curis licensed the exclusive rights
for the worldwide development and commercialization of CUDC-427 from Genentech in 2012.
Genentech conducted the first Phase 1 dose escalation trial of CUDC-427 in patients with advanced solid tumors
and lymphomas. Based upon its mechanism of action, CUDC-427 is most likely to demonstrate clinical benefit
when used in combination with other anti-cancer agents. However, in this study, CUDC-427 demonstrated
encouraging signs of single-agent clinical activity, including unconfirmed complete responses in two patients,
one with ovarian cancer and another with mucosa-associated lymphoid tissue, or MALT lymphoma.
Additionally, four other patients had stable disease lasting for at least three months. The maximum tolerated
dose, or MTD, of CUDC-427 was not determined in this trial and the side effect profile of CUDC-427 appeared
favorable.
To further build upon these early findings, we initiated a clinical trial of CUDC-427 in order to determine the
MTD and the recommended Phase 2 dose of CUDC-427 administered as a single agent in patients with advanced
solid tumors or lymphomas. However, in November 2013, the FDA placed the study on partial clinical hold
following the death of a cancer patient on the study who progressed to liver failure approximately one month
after the discontinuation of CUDC-427 dosing. While liver enzyme elevations have previously been reported in
patients receiving CUDC-427, no other patients in this study or the prior Phase 1 CUDC-427 trial had
experienced a serious adverse event of this nature. In February 2014, we responded to FDA’s request for
additional data and analysis and also submitted an amendment to the current study protocol. In March, the FDA
lifted the partial clinical hold and we expect to re-initiate enrollment in the single agent clinical trial with an
amended protocol. We also plan to start additional studies with CUDC-427 in combination with other therapies
in select cancer types such as HER-2 negative breast cancer.
Erivedge®: Commercial-Stage Hedgehog Pathway Inhibitor
Erivedge, a first-in-class Hedgehog pathway inhibitor that is being developed under our collaboration with
Genentech, became the first and only approved medicine for the treatment of advanced BCC when in 2012 it was
approved and launched in the United States. In 2013, Erivedge was approved in several other territories outside
the U.S., including the European Union and Australia, among others. Roche continues to focus its efforts in
commercializing Erivedge with approvals obtained in several countries worldwide thus far. We are entitled to
royalty revenues from worldwide sales of Erivedge. Roche’s efforts have resulted in steady growth of Erivedge
sales, demonstrating significant quarter-over-quarter increase in our royalty revenues. We believe that approval
of Erivedge in additional markets will increase patient access to the drug thus increasing market size and value of
this important breakthrough medicine.
In 2013, Roche initiated a Phase 1b/2 trial in patients with AML and MDS. Results from this study could
determine whether Erivedge can be further studied in late-stage clinical trials for potential use beyond BCC, and
lead to further revenue potential.
Debio 0932: Oral HSP90 Inhibitor
Debio 0932 is our orally available small molecule heat shock protein 90, or HSP90 inhibitor, which we licensed
to Debiopharm in August 2009. Debiopharm made significant advancements with this molecule in 2013,
including progress in the ongoing Phase 1b/2 study in which Debio 0932 is being tested in combination with
first- or second-line chemotherapy agents in patients with advanced NSCLC. Debiopharm expects to determine
the recommended Phase 2 dose of Debio 0932 in combination with various chemotherapy regimens and plans to
initiate a randomized, double-blind, placebo-controlled Phase 2 portion of this NSCLC study in the second half
of this year. We are entitled to receive milestone payments upon Debiopharm’s treatment of the fifth patient in a
Phase 2 clinical trial.
In October 2013, Debiopharm also initiated a Phase 1 dose escalation study of Debio 0932 in combination with
everolimus, an inhibitor of mammalian target of rapamycin, or mTOR, in patients with advanced or metastatic
RCC. We look forward to data from this study to better understand the potential of this drug candidate in various
cancers.
** ** **
We continue to remain committed to further the growth and evolution of Curis by effectively executing our
strategic plans with the objective of creating and maintaining significant value for our stockholders. We have
effectively overcome challenges and achieved significant progress during the past year and look forward to
continued advancement and potential value creation in the years ahead.
As always, we thank our stockholders for their continued support, our Board of Directors and our other advisors
for their expert guidance, and Curis employees for their continued loyalty, hard work and dedication.
Sincerely,
Sincerely,
Daniel R. Passeri
Chief Executive Officer
Curis, Inc.
Ali Fattaey, Ph.D.
President and Chief Operating Officer
Curis, Inc.
form-10k
Curis 2013
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
FORM 10-K
ACT OF 1934
For the fiscal year ended December 31, 2013
OR
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 000-30347
CURIS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
04-3505116
(I.R.S. Employer
Identification No.)
4 Maguire Road
Lexington, Massachusetts 02421
(Address of principal executive offices) (Zip Code)
617-503-6500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.01 par value per share
Name of Each Exchange on Which Registered
NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if
Act. Yes ‘ No È
the registrant
is a well-known seasoned issuer, as defined in Rule 405 of
the Securities
Indicate by check mark if the registrant
Act. Yes ‘ No È
is not required to file reports pursuant
to Section 13 or Section 15(d) of the
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. È Yes ‘ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). È Yes ‘ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer ‘
Non-accelerated filer ‘
(Do not check if a smaller reporting company)
Accelerated filer È
Smaller reporting company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant (without admitting that any
person whose shares are not included in such calculation is an affiliate) based on the last reported sale price of the common stock on
June 30, 2013 was approximately $182,906,000.
As of March 6, 2014, there were 85,948,078 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the registrant’s proxy statement for the annual meeting of stockholders scheduled to be held on May 21, 2014,
which are to be filed with the Commission not later than 120 days after the close of the Registrant’s fiscal year ended December 31, 2013
pursuant to Regulation 14A, have been incorporated by reference in Item 5 of Part II and Items 10-14 of Part III of this Annual Report on
Form 10-K.
CURIS, INC.
TABLE OF CONTENTS
Form 10-K
PART I
ITEM 1.
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2.
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3.
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4. MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERS
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . . . . . . .
ITEM 6.
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . .
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . .
1
25
51
51
51
51
52
54
56
80
81
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
114
ITEM 9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
114
ITEM 9B. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
114
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . . . . . .
115
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
115
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
115
115
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
115
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . .
116
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
117
PART IV
PART I
including without
This annual report on Form 10-K contains forward-looking statements that involve risks and uncertainties,
as well as assumptions that, if they never materialize or prove incorrect, could cause Curis’ financial, operating
and business results to differ materially from those expressed or implied by such forward-looking statements. All
statements other than statements of historical
fact are statements that could be deemed forward-looking
limitation any expectations of revenue, expenses, earnings or losses from
statements,
operations, or other financial results; statements with respect
to the plans, strategies and objectives of
management for future operations; statements concerning product research, development and commercialization
plans, timelines and anticipated results; statements of expectation or belief; and statements of assumptions
underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include risks that are
described in “Item 1A-Risk Factors” and elsewhere in this annual report and that are otherwise described from
time to time in our Securities and Exchange Commission reports filed after this report.
The forward-looking statements included in this annual report represent our estimates as of the filing date
of this annual report. We specifically disclaim any obligation to update these forward-looking statements in the
future. These forward-looking statements should not be relied upon as representing our estimates or views as of
any date subsequent to the date of this annual report.
Unless otherwise indicated, or unless the context of the discussion requires otherwise, we use the terms
“we,” “us,” “our” and similar references to refer to Curis, Inc. and its subsidiaries, on a consolidated basis. We
use the terms “Curis” to refer to Curis, Inc. on a stand-alone basis.
ITEM 1.
BUSINESS
Overview
We are an oncology-focused company seeking to develop and commercialize next generation targeted small
molecule drug candidates for cancer treatment. Our primary investment is focused on the development of our
proprietary targeted cancer drug candidates, including CUDC-907, an oral, small molecule drug candidate that is
designed to inhibit histone deacetylase or HDAC and phosphatidylinositol-3-kinase, or PI3K enzymes and
CUDC-427, an oral, small molecule drug candidate, which is designed to promote cancer cell death by
antagonizing inhibitor of apoptosis, or IAP proteins. Our collaborators F. Hoffmann-La Roche Ltd, or Roche, and
Genentech Inc., or Genentech, a member of the Roche Group, are commercializing and continuing the further
development of Erivedge® (vismodegib), a first-in-class orally-administered small molecule Hedgehog pathway
inhibitor, and our licensee Debiopharm S.A., or Debiopharm, is conducting clinical studies of Debio 0932, a
small molecule inhibitor of heat shock protein 90, or HSP90.
In January 2013, we initiated a phase 1 clinical study of CUDC-907 in patients with relapsed or refractory
lymphomas or multiple myeloma. The dose-escalation phase of this study is ongoing and we expect to initiate the
expansion phase in select malignancies later in 2014 after establishing the recommended dose and schedule. This
program is partially supported under a collaboration with The Leukemia & Lymphoma Society, or LLS.
In 2012, we licensed from Genentech the exclusive, worldwide rights for
the development and
commercialization of CUDC-427. 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 previously conducted a phase 1 study in patients with advanced and refractory solid tumors and
lymphomas where CUDC-427 was administered at escalating once daily doses for two weeks, followed by a one
week rest period in 21-day cycles until disease progression or treatment discontinuation for any other reason. In
July 2013, we initiated a single-agent, phase 1 dose escalation trial of CUDC-427 in patients with advanced and
refractory solid tumors and lymphomas using twice-daily dosing with no rest period in 21-day cycles. In
November 2013, we received written notification from the United States Food and Drug Administration, or FDA,
1
that the phase 1 study of CUDC-427 was placed on partial clinical hold following the report of death of a patient
who progressed to liver failure approximately one month following the discontinuation of CUDC-427 dosing.
Under this partial clinical hold, new patients may not be enrolled in the study until we provide the FDA with
requested additional data and analysis on patients treated with CUDC-427 and a proposed protocol amendment is
submitted to and accepted by the FDA. In February 2014, we responded to FDA’s request for additional data and
analysis and also submitted an amendment to the current study protocol. If the partial clinical hold is lifted by the
FDA, we expect to re-initiate enrollment in the phase 1 trial and also expect to initiate additional studies with
CUDC-427, including a clinical trial in combination with capecitabine in HER-2 negative breast cancer patients.
Additionally, and subject to the lifting of the partial clinical hold by the FDA, CUDC-427 may be further
explored in selected patients with known alterations in certain genetic markers such as MALT lymphoma and
other cancer indications.
Erivedge is the first and only FDA approved medicine for the treatment of metastatic or locally advanced
basal cell carcinoma, or BCC, and is being developed and commercialized by Roche and Genentech under a
collaboration agreement between Curis and Genentech. In January 2012, the FDA approved the Erivedge capsule
for treatment of adults with 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. In May 2013, Australia’s Therapeutic Goods Administration, or TGA, approved Erivedge and in
July 2013, the European Commission granted conditional approval for the marketing of Erivedge in all 28
European Union member states. A conditional marketing authorization is granted to medicinal products with a
positive benefit/risk assessment that satisfy an unmet medical need and whose availability results in a significant
public health benefit. Erivedge’s approval in the United States, Europe, Australia and several other countries and
Roche’s regulatory submissions in regards to Erivedge in other territories are based on positive clinical data from
ERIVANCE BCC/SHH4476g, a pivotal phase 2 study of Erivedge in patients with advanced BCC. 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 confirmed a safety
profile similar to that observed in previous studies of Erivedge in BCC patients. In addition, Genentech recently
completed evaluation of Erivedge in a phase 2 study to treat less severe forms, or operable, BCC, and expects to
present the results from this trial at the American Association of Dermatology’s Annual Meeting in March 2014.
Roche has also initiated a randomized, placebo controlled phase 2 study to investigate the efficacy of 12 weeks of
Erivedge treatment (versus placebo) prior to surgery in previously untreated BCC patients. In October 2013
Roche also initiated a phase 1b/2 clinical trial of Erivedge in patients with relapsed/refractory acute myelogenous
leukemia, or AML, and relapsed/refractory high-risk myelodysplastic syndrome, or MDS. Third-party
investigators are also conducting several additional clinical trials with Erivedge.
We are also party to a license agreement with Debiopharm pursuant to which Debiopharm is developing
Debio 0932. Debiopharm completed a phase 1b expansion study of Debio 0932 in patients with advanced solid
tumors and expects to present data from this study at a medical conference in 2014. Debiopharm is also currently
testing Debio 0932 in a phase 1/2 clinical trial (HALO study) in patients with advanced non-small cell lung
cancer, or NSCLC, in combination with standard-of-care chemotherapy regimens in the front and second line
settings. In October, 2013, Debiopharm also initiated a phase 1/2 study of Debio 0932 in combination with
everolimus in patients with advanced metastatic renal cell carcinoma, or RCC.
Product Development Programs
We are developing drug candidates designed to treat cancer. Our product development initiatives, described
in the chart below, are being pursued using our internal resources or through our collaboration with Genentech,
under our license agreement with Debiopharm and our agreement with LLS. We believe that our collaborators
provide significant additional resources and clinical development expertise to our programs.
2
Our development programs, both internal and under collaboration, are summarized in the following table:
Drug candidate
Primary Disease
Collaborator/Licensee
Status
Dual HDAC and PI3K Inhibitor
- CUDC-907
Antagonist of IAP Proteins
- CUDC-427
Advanced lymphomas and
multiple myeloma
Advanced solid tumor &
lymphomas including potential
expansion cohort of ovarian and
fallopian tube derived cancers
Internal development/LLS
Phase 1
Internal development
Hedgehog Pathway Inhibitor
- Erivedge®
Advanced BCC
Genentech (Roche)
Phase 1*—partial clinical
hold since November 5,
2013
Approved in US, EU,
Australia and others;
Regulatory submissions/
approvals pending in
certain other territories
Completed Phase 2
Phase 2
Phase 1b/2
- Erivedge®
- Erivedge®
- Erivedge®
HSP90 Inhibitor
- Debio 0932
- Debio 0932
Operable Nodular BCC
Operable BCC
Relapsed/Refractory AML and
High Risk MDS
Genentech (Roche)
Genentech (Roche)
Roche
Advanced NSCLC
Advanced RCC
Debiopharm
Debiopharm
Phase 1/2
Phase 1/2
*
A first Phase 1 clinical trial was conducted by Genentech in advance solid tumors and lymphomas prior to Curis’ acquisition of CUDC-
427. Curis initiated a Phase 1 trial in 2013 which is currently on FDA clinical hold.
Since our inception in 2000, substantially all of our revenues have been derived from collaborations and
other agreements with third parties. For the years ended December 31, 2013, 2012 and 2011, milestone and
royalty payments from Genentech accounted for $14,233,000, or 95%, $15,893,000, or 94%, and $14,388,000, or
97%, respectively, of our revenue, all of which was related to the development and commercialization of
Erivedge.
Our Proprietary Drug Candidates
Human cancers have genetic alterations in components of multiple, intersecting signaling pathways, or
networks, that are selected over several generations of cell division and support survival, growth, and invasion of
the cancer cell. These genetic alterations afford the cancer cell a malignant phenotype, which results in the
formation and maintenance of a tumor. We are developing drug candidates that are designed and discovered
internally or acquired through license, which target a number of critical components and pathways altered in
different human cancers.
CUDC-907. CUDC-907 is an orally bioavailable, small molecule drug candidate designed to inhibit
primarily class I and IIB HDAC enzymes and PI3K alpha, delta and beta isoforms. It is known that the PI3K
pathway plays an important role in cancer cell initiation, growth, proliferation, and survival, and that the PI3
kinases are frequently activated through mutations or by receptor tyrosine kinases in many cancer types. While
targeting certain of the specific isoforms of PI3K alone has demonstrated clinical activity in certain cancers such
as indolent non-Hodgkin’s lymphoma, drug resistance often emerges in part due to the activation of other
survival/ growth pathways within the cancer environment. HDAC inhibitors on the other hand, can affect a
number of cell functions by regulating both histone and non-histone substrates. We believe it may be possible to
address at least some of the limitations of targeting the PI3K pathway by disrupting multiple survival pathways
through simultaneous inhibition of HDAC. Additionally, HDAC inhibitors such as romidepsin or IstodaxTM and
vorinostat or ZolinzaTM are approved for the treatment of certain hematologic malignancies, including cutaneous
T-cell lymphoma and/ or peripheral cutaneous t-cell lymphoma, and a number of PI3K inhibitors are in clinical
3
development for various hematologic and solid tumor indications. For example, PI3K-delta subtype specific
inhibitors have demonstrated clinical benefit for patients with certain types of lymphomas and PI3K-alpha
specific inhibitors as well as pan-PI3K inhibitors are being studied in multiple clinical trials in patients with solid
tumors. Concurrent inhibition of HDAC and PI3K has demonstrated synergistic effect in certain preclinical
cancer models in hematological and other cancers. Specifically, CUDC-907 has shown potent antitumor activity
in a variety of hematologic tumor models including non-Hodgkin’s lymphoma and multiple myeloma.
In January 2013, we treated the first subject in a phase 1 clinical trial in patients with advanced lymphoma
or multiple myeloma. The phase 1 clinical trial is designed as a standard dose escalation study in which CUDC-
907 is orally administered to patients with relapsed or refractory lymphoma or multiple myeloma. The primary
objectives of the trial are to determine the maximum tolerated dose, and recommended phase 2 dose for CUDC-
907 administration. The secondary objectives of this study are to assess safety and tolerability, to assess
pharmacokinetics, to evaluate biomarker activity and to assess preliminary anti-cancer activity of CUDC-907 in
this patient population. In the absence of dose limiting toxicity, each patient will receive CUDC-907 orally once
daily for a minimum of 21 days (1 cycle), and may continue to receive additional cycles of treatment until
disease progression or other treatment discontinuation criteria are met. In July 2013, we submitted an amendment
to the protocol of the ongoing phase 1 study to include two additional dosing schedules, wherein oral CUDC-907
is administered either two times per week or three times per week. Additionally, exploratory biomarkers will be
assessed for the activity of CUDC-907.
We presented interim data from this study at the Annual Meeting of the American Society of Hematology
on 13 safety evaluable patients who received regimens at doses of 30 mg (n=7) or 60 mg (n=3) once daily, or 60
mg two times per week (n=3). Dose limiting toxicities, or DLTs of Grade 3 diarrhea and Grade 4 hyperglycemia
were both reported in one patient at the 60 mg once daily dose. In addition to these events, one other treatment-
related serious adverse event of Grade 3 epistaxis (30 mg once daily, n=1), was also reported with the daily
schedule. To date, the most frequent Grade 3 or 4 adverse events reported in two or more patients include
thrombocytopenia, diarrhea and neutropenia. These toxicities limited the ability to dose escalate beyond 60 mg
using the once daily dosing schedule. Data presented suggest that the intermittent dosing is better tolerated than
once daily dosing and dose escalation continues in both the two times per week and three times per week dose
groups.
Out of the 13 safety evaluable patients, 11 were evaluable for response assessment per protocol. One patient
with mixed follicular lymphoma/diffuse large B cell lymphoma achieved a partial response, or PR, consisting of
70% reduction in a single target lesion observed at the 30 mg once daily dose level. Seven other patients have
met criteria for stable disease, including four with stable disease lasting at least four cycles of treatment. One of
the patients with stable disease is a multiple myeloma patient and has remained on study since initial treatment in
January 2013.
Preliminary pharmacokinetic analysis shows low CUDC-907 plasma levels as compared to its metabolite
species, M1 (minimal PI3K inhibitory activity and no HDAC inhibitory activity) and M2 (significant PI3K
inhibitory activity and no HDAC activity). This is consistent with animal studies that demonstrated higher levels
of CUDC-907 in tissues as compared to plasma. Additional pharmacokinetic and pharmacodynamic analyses are
ongoing. We expect to complete the dose-escalation phase in the middle of 2014 and initiate enrollment in the
expansion cohort(s) in patients with select malignancies in the second half of 2014. In addition to our ongoing
phase 1 clinical study in advanced lymphomas and multiple myeloma patients, we are conducting preclinical
studies with CUDC-907 in solid tumor models and currently anticipate that we will initiate additional studies
using CUDC-907 monotherapy or in combination with other anti-cancer agents in patients with solid tumors later
in 2014.
We are party to an agreement with The Leukemia & Lymphoma Society, or LLS, pursuant to which LLS
will, upon achievement of specified milestones, provide up to $4,000,000 in payments to support our ongoing
4
development of CUDC-907. Through December 31, 2013, we have earned an aggregate of $1,650,000 in
milestone payments under the terms of the agreement with LLS. We will be obligated to make contingent
payments in the future, including potential royalty payments, upon our successful entry into a partnering
agreement for CUDC-907 or upon the achievement of regulatory and commercial objectives, with such future
payments capped at 2.5 times the milestone payments that we receive from LLS under this agreement. If clinical
development of CUDC-907 does not continue to meet its clinical safety endpoints in future clinical trials in the
defined field or fails to obtain necessary regulatory approvals, all funding provided by LLS will be considered a
non-repayable grant.
The agreement with LLS will remain in effect until the completion of the defined milestones, unless the
agreement earlier terminates or expires in accordance with the provisions of this agreement, including safety
issues related to the administration of CUDC-907, failure to obtain or maintain regulatory approvals for clinical
trials, and breach by either party.
CUDC-427.
In 2012, we licensed from Genentech the exclusive, worldwide rights for the development
and commercialization of CUDC-427, an oral, small molecule Smac mimetic that is designed to promote cancer
cell death by antagonizing IAP proteins. IAP proteins are a family of functionally and structurally related
proteins that promote cancer cell survival by inhibiting programmed cell death, also known as apoptosis, which is
a normal process inherent in every cell. Using IAP proteins and other anti-apoptotic factors, cancer cells evade
apoptosis 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 tumor
necrosis factor, or TNF, family of factors. 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.
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 receive milestone payments upon the first commercial sale of CUDC-427 in certain territories and a tiered
single digit royalty on net sales of CUDC-427, if any. The license agreement will continue to be in effect until
expiration of all royalty payment obligations with respect to any product, unless terminated early by either party
as described below. Upon expiration of the agreement, the Company’s license will become royalty-free, fully
paid-up, irrevocable and perpetual.
Prior to our licensing agreement, Genentech had completed enrollment in a phase 1 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 in 21-day cycles until disease
progression or treatment discontinuation for any other reason. In this study, patients were enrolled across 11 dose
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, or MALT, lymphoma. Additionally, one patient experienced a mixed
response and four patients (one patient each with breast cancer, sarcoma, small cell lung cancer and Kaposi’s
sarcoma) had stable disease for at least three months, including one patient who continued to receive CUDC-427
for more than 10 months. The maximum tolerated dose of CUDC-427 was not determined in this study, although
plasma concentrations in the order of pre-clinically predicted ED90 were reached. ED90 refers to the dose that
leads to 90% of the maximal response. Three deaths were reported on that study, none of which was considered
related to the study drug: two patients died due to progression of breast cancer and one patient died due to
pneumonia. Adverse events, or 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 doses). Biomarker analyses of tumor samples (obtained from two patients) and peripheral blood
cells (obtained from all patients) showed changes that were consistent with CUDC-427’s mechanism of action.
5
During the third quarter of 2013, the first patient was treated in our open-label, multicenter phase 1 study of
CUDC-427 in patients with relapsed/refractory solid tumors or lymphoma. The study is designed to determine
the maximum tolerated dose and the recommended phase 2 dose of CUDC-427 administered as a single agent
using a continuous, twice-daily treatment schedule in 21-day cycles. Upon determination of the recommended
dose, the trial is designed to enroll up to an additional 12 patients in the expansion cohort of a particular cancer
type, for example, in ovarian and fallopian tube cancers. 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. In November 2013, the FDA placed this phase 1 study on partial clinical hold following the
failure approximately one month following the
report of death of a patient who progressed to liver
discontinuation of CUDC-427 dosing.
This event occurred in one patient with breast cancer metastatic to the liver, lungs, bone and ovaries who
developed evidence of liver injury related to liver function, including increases in serum levels of liver enzymes
(ie, ALT and AST) and total bilirubin. Unlike prior clinical experience with CUDC-427, this patient’s liver
enzymes did not recover in response to stopping CUDC-427 treatment and the patient died of liver failure
approximately one month following the discontinuation of CUDC-427 dosing. While elevations in liver enzyme
levels have previously occurred in patients receiving CUDC-427, no other patients in this or the prior phase 1
CUDC-427 trial have experienced a serious adverse event of this nature.
A clinical hold, including a partial clinical hold, involves the FDA (1) requiring additional information and/
or data, (2) reviewing the additional information and/or data, and (3) after the review, informing the sponsor
whether or not they can proceed. A partial clinical hold is defined as a delay or suspension of only part of the
clinical work requested under the IND (e.g., a specific protocol or part of a protocol is not allowed to proceed;
however, other protocols or parts of the protocol are allowed to proceed under the IND). Under the partial
clinical hold described above, new patients may not be enrolled in the study until Curis provides the FDA with
requested additional data and analysis of patients treated with CUDC-427. Additionally, a proposed protocol
amendment must be submitted to and accepted by the FDA. No patients are currently being treated with CUDC-
427 as all other patients previously enrolled on this study have discontinued dosing due to disease progression or
patient or physician discretion during the ordinary course of the study.
In February 2014, we responded to the FDA’s request for additional data and analysis and also submitted an
amendment to the current study protocol. If the partial clinical hold is lifted by the FDA, we expect to re-initiate
enrollment in the phase 1 trial and also expect to initiate additional studies with CUDC-427.
Both Curis and Genentech may terminate the license agreement prior to expiration in the event of the
uncured material breach of the agreement by the other party. In addition, we may terminate the license agreement
prior to expiration for any reason upon 90 days’ prior written notice to Genentech. Upon any termination of the
license agreement, the license granted to us will terminate and revert to Genentech. If Genentech terminates the
license agreement for an uncured material breach by us, or if we terminate the agreement for any reason other
than uncured material breach by Genentech, Genentech will be entitled to certain licenses and other rights with
respect to products existing as of the date of termination, and we may, under specified circumstances, be
obligated to supply products to Genentech for a limited period after termination.
CUDC-101.
In April 2013, we determined that we would discontinue enrolling patients in our phase 1
expansion trial of the intravenous formulation of CUDC-101, a drug candidate that was designed to target HDAC
enzymes and epidermal growth factor receptor, and that the future development of CUDC-101 would be
dependent on our ability to successfully develop an oral formulation of CUDC-101. Our efforts to develop an
effective oral formulation with improved bioavailability have not resulted in significant improvements when
compared to the intravenous formulation of CUDC-101. As a result, while we continue to explore possible
collaboration or other mechanisms to further advance this molecule, at this time we no longer plan to make
material investments in this program.
6
Our Collaborations
Genentech
Erivedge. The Hedgehog pathway is normally active during embryonic development and regulates tissue
and organ formation by directly promoting cell division in specific cell types, and by activating other secondary
signaling pathways that control the synthesis of growth promoting and angiogenic (blood vessel-forming) factors.
Unregulated activation of the Hedgehog pathway is believed to play a central role in allowing the proliferation
and survival of cancer cells and leading to formation and maintenance of certain cancers, including BCC and
medulloblastoma as well as colorectal, ovarian, pancreatic, small cell lung and breast cancers, among others.
Erivedge, which is also referred to as vismodegib, GDC-0449 and RG3616, is an orally bioavailable small
molecule which is designed to selectively inhibit the Hedgehog signaling pathway by targeting a protein called
Smoothened. Genetic mutations that lead to unregulated activation of Hedgehog signaling are found in BCC and
medulloblastomas. Aberrant signaling in the Hedgehog pathway is implicated in over 90% of BCC cases. Many
other cancers have abnormal Hedgehog signaling that is not linked to Hedgehog pathway mutations.
Erivedge is FDA-approved for adults with advanced forms of BCC and is being developed in various cancer
indications under a collaboration agreement with Genentech. Genentech and Roche are responsible for the
clinical development and commercialization of Erivedge and it is currently marketed and sold in the U.S.
Erivedge is also approved for use in the European Union, Australia, Canada, Israel, Mexico and several other
countries and Roche has begun selling Erivedge in several territories outside of the U.S. It is also under
regulatory review in multiple other territories worldwide.
In 2013, Genentech and Roche completed a phase 2 clinical trial of Erivedge in operable BCC. Genentech
and Roche expect to present results from this study at the American Academy of Dermatology’s Annual Meeting
in March 2014. In October, 2013, Roche initiated a phase 1b/2 clinical trial of Erivedge in patients with relapsed/
refractory AML and relapsed/refractory high-risk MDS. In addition, Erivedge is currently being tested in
multiple clinical trials for the treatment of other cancers under collaborative agreements between Genentech and
either third-party investigators or the U.S. National Cancer Institute, or NCI.
Advanced BCC.
In January 2012, Erivedge was approved by the FDA as the first and only FDA-approved
medicine for adults with advanced forms of BCC. Pursuant to the terms of our collaboration agreement, we are
entitled to receive royalties on net sales of Erivedge that range from 5% to high single digits, and which escalate
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 November 2012, in connection with a $30,000,000 loan made by BioPharma Secured Debt Fund II Sub,
S.à r.l., or BioPharma-II, a Luxembourg limited liability company managed by Pharmakon Advisors to our
subsidiary Curis Royalty, LLC, or Curis Royalty, we transferred to Curis Royalty our rights to receive (i) royalty
payments on the commercial sales of Erivedge owed by Genentech under our collaboration agreement,
(ii) certain other royalty-related payments, if any, including amounts owed by Genentech with respect to the
underpayment of royalties and accrued interest on payments which are not timely made by Genentech pursuant to
the collaboration agreement and (iii) any payments made by Genentech to Curis pursuant to Genentech’s
indemnification obligations under the collaboration agreement.
The loan from BioPharma-II, which bears interest at an annual rate of 12.25% will be repaid by Curis
Royalty from the proceeds of the royalty and royalty-related payments that it receives from time to time from
Genentech. Quarterly royalty and royalty-related payments from Genentech will first be applied to pay (i) escrow
fees payable by Curis pursuant to an escrow agreement between Curis, Curis Royalty, BioPharma-II and Boston
7
Private Bank and Trust Company, (ii) Curis’ royalty obligations to university licensors, as described below,
(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 Curis enforcing its right to indemnification under the collaboration agreement with
Genentech. Remaining amounts, subject to caps of $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. Curis Royalty will be entitled to
receive and distribute to Curis remaining royalty and royalty-related amounts in excess of the foregoing caps, if
any. In 2016, there are no caps to the amounts Curis Royalty will be required to make to BioPharma-II. In
addition, if Erivedge royalties are insufficient to pay the accrued interest on the outstanding loan, the unpaid
interest outstanding will be added to the principal on a quarterly basis. As a result, we will continue to record
royalty revenue from Genentech but expect the majority, if not all, of such revenues, subject to the above caps,
will be used to pay down the loan received from BioPharma-II until it is repaid in full. As of December 31, 2013,
the balance of principal plus accrued interest on the loan to Curis Royalty, gross of issuance costs, was
$31,013,000. We currently estimate that the loan will be fully repaid in the first half of 2017. However, the actual
repayment period could vary materially from our estimate to the extent that royalty payments we receive are
lower than our current estimates, which could arise due to factors beyond our control, such as due to competitive
factors, decreased market acceptance, a failure by Genentech and/or Roche to obtain required regulatory
approvals, and other factors described under “Part I, Item 1A—Risk Factors.”
We are also obligated to make payments to university licensors on royalties that we earn in all territories
(except 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 sales of Erivedge in Australia, we will be obligated to make payments to university
licenses of 2% of Roche’s direct net sales in Australia until expiration of the patent in 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.
In May 2013, Australia’s TGA approved Erivedge. 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. A conditional marketing
authorization is granted to medicinal products with a positive benefit/risk assessment that satisfy an unmet
medical need and whose availability results 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. An interim analysis from STEVIE confirmed a similar safety
profile to that observed in the pivotal ERIVANCE BCC study.
Operable BCC. Genentech also conducted a separate phase 2 clinical trial of Erivedge in patients with
operable nodular BCC, which is a less severe form of the disease. This phase 2 trial is the first study in patients
with operable BCC lesions and aims to assess whether Erivedge can achieve complete clearance of tumor as
measured by histological examination. This is an important first step in determining the efficacy of Erivedge in
less severe forms of BCC that are generally effectively treated surgically. This trial was designed to test different
durations of treatment with Erivedge in patients with operable nodular BCC. The study was conducted in the
U.S. and was designed as an open label trial enrolling approximately 75 patients in three cohorts. Patients in the
first and second cohorts received a 150 mg daily oral dose of Erivedge for 12 weeks. Patients in the third cohort
received daily doses of Erivedge using the following administration regimen: eight weeks of treatment, four
weeks of drug holiday, and eight weeks of treatment. The primary outcome measure for the first and third cohorts
is the rate of complete histological clearance of the target nodular BCC lesions at the time of tumor excision
(which may occur up to 12 or 20 weeks, respectively, following initiation of Erivedge treatment). The primary
outcome measure for the second cohort is the rate of durable complete clearance of target nodular BCC lesions at
the time of excision (which may occur up to 36 weeks following initiation of treatment).
The first cohort evaluated the safety and efficacy of 12 weeks of 150 mg daily dosing of Erivedge in 24
patients with newly diagnosed operable nodular BCC. Patients then underwent Mohs surgery with independent
8
pathology review. Histologically confirmed complete clearance was reported in 10 patients (42%) and clinical
complete and partial responses were reported for 23 patients (96%). The most frequent adverse events were
similar to those observed in previous studies with Erivedge and included muscle spasms (79%), ageusia/
dysgeusia (79%), alopecia (38%), fatigue (21%) and nausea (21%). Most adverse events were of lower severity,
or Grade 1 to 2 on a scale of 1 to 5; seven patients (29%) reported Grade 3 adverse events, including four patients
with muscle spasms. No serious adverse events were reported. Eight patients (33%) discontinued the study,
including two (8%) due to adverse events. This study is now complete, and Genentech and Roche expect to
present results of this trial at the American Academy of Dermatology Annual Meeting in March 2014.
Other Erivedge Clinical Trials.
trials being conducted directly by
Genentech and Roche, Erivedge is also currently being tested in trials under collaborative agreements between
Genentech and either third-party investigators or the NCI.
In addition to the BCC clinical
In October 2013, Roche initiated a phase 1b/2 clinical trial in patients with relapsed/refractory AML and
relapsed/refractory high-risk MDS. In contrast to BCC, these two clinical conditions are driven by mechanisms
that are not linked to mutations in the Hedgehog pathway. This phase 1b/2 study is designed to investigate the
safety and efficacy of Erivedge in these patients. According to Roche, the open-label, non-randomized study is
expected to enroll approximately 60 patients into two cohorts. Patients in Cohort 1 will receive 150 milligrams of
Erivedge alone once daily, and patients in Cohort 2 will receive the same dose of Erivedge once daily in
combination with the standard dose of cytarabine administered for 10 days. The primary endpoint of the trial is
the overall response rate after eight weeks of treatment. The secondary endpoints include overall response rate at
any time during treatment, duration of response, overall survival, and safety and pharmacokinetics of the study
drug(s).
Genentech Collaboration Agreement. Under the terms of our collaboration agreement with Genentech, we
granted Genentech an exclusive, global, royalty-bearing license, with the right to sublicense, to make, use, sell
and import molecules capable of inhibiting the Hedgehog pathway (including small molecules, proteins and
antibodies) for human therapeutic applications, including cancer therapy. Genentech subsequently granted a
sublicense to Roche for non-U.S. rights to Erivedge. In February 2010, Chugai Pharmaceutical Co., Ltd., or
Chugai, exercised its right of first refusal for the development and commercialization of Erivedge in Japan
pursuant to an existing agreement between Roche and Chugai.
Genentech and Roche have primary responsibility for worldwide clinical development, regulatory affairs,
manufacturing and supply, formulation and sales and marketing. We are eligible to receive up to $115,000,000 in
contingent cash payments for the development of Erivedge or another small molecule, assuming the successful
achievement by Genentech and Roche of specified clinical development and regulatory objectives, of which we
have received $56,000,000 to date. We are also eligible to receive royalties on sales of any Hedgehog pathway
inhibitor products that are successfully commercialized by Genentech and Roche. Future royalty payments
related to Erivedge will service the outstanding debt and accrued interest owed by Curis Royalty to BioPharma-
II, up to the quarterly caps for 2014 and 2015, and until the debt is fully repaid thereafter.
Unless terminated earlier,
the agreement will expire six months after the later of the expiration of
Genentech’s obligation to pay royalties to us under the agreement or such time as no activities have occurred
under the agreement for a period of twelve months. The agreement may be terminated earlier by either party for
cause upon sixty days prior written notice. In addition, Genentech may terminate the agreement, either in whole
or in part, without cause, upon six months prior written notice. In the event of any termination where specific
license grants survive, we will continue to have the right to receive clinical development and regulatory approval
milestones and royalties on product sales for such licensed compound, if any. If we terminate the agreement for
cause or Genentech terminates the agreement without cause, all licenses granted to Genentech automatically
terminate and revert to us. In addition, Genentech has agreed that it will no longer conduct any development or
commercialization activities on any compounds identified during the course of the agreement for so long as such
compounds continue to be covered by valid patent claims.
9
Debiopharm
Debio 0932. HSP90 is a member of a class of proteins called molecular chaperones that play a
fundamental role in the proper folding, stabilization and degradation of other cellular proteins under normal or
stressful conditions. HSP90, in particular, has become an attractive therapeutic target for the treatment of cancer
because it stabilizes cellular proteins involved in various aspects of cancer cell growth and survival. In preclinical
studies, Debio 0932 achieved tumor regressions in acute myelogenous leukemia, breast, NSCLC, glioblastoma,
gastric and colon cancer models.
In August 2009, we granted a worldwide, exclusive royalty-bearing license to develop, manufacture, market
and sell our HSP90 inhibitor technology, including Debio 0932, to Debiopharm. Debiopharm has assumed all
development responsibility for Debio 0932 and Debiopharm or a Debiopharm licensee will incur all costs related
to the development, registration and commercialization of products under the agreement.
In April 2010, Debiopharm initiated a phase 1 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 1 study. In this portion of the study, Debio 0932 was tested in 50 patients, including 22
patients who received Debio 0932 every other day and 28 patients who received daily dosing. Debio 0932 was
generally well tolerated in this study, with most adverse events classified as Grade 1 or 2, or mild to moderate
severity, with no apparent dose or schedule relationship. In addition, no ocular or cardiac toxicities were
observed and no consistent changes in hematology or biochemistry parameters were seen. The most common
adverse events included asthenia, constipation, decreased appetite, diarrhea, nausea, and vomiting. Anti-tumor
activity was assessed in 45 of the 50 patients enrolled in this study, including a partial response observed in a
patient with NSCLC and in one patient with breast cancer. Stable disease was observed in 12 patients and disease
progression was observed in the remaining 31 patients evaluable for efficacy evaluation.
In 2012, Debiopharm advanced Debio 0932 into the phase 1b expansion portion of the monotherapy study,
which has now been completed and enrolled approximately 30 patients with advanced solid tumors, including
NSCLC. Debiopharm has stated that it expects to report data from this study at a medical conference in 2014.
In August 2012, Debiopharm initiated the HALO study. This study is a phase 1/2 clinical trial testing the
safety and efficacy of Debio 0932 in combination with standard of care first- or second-line chemotherapy agents
in patients with advanced, stage 3b or 4 NSCLC that is characterized as wild-type EGFR. The phase 1 portion of
this trial is designed to determine the recommended phase 2 dose of Debio 0932 when given in combination with
cisplatin/pemetrexed or cisplatin/gemcitabine in treatment-naive patients (i.e., first-line), or with docetaxel in
previously treated patients (i.e., second-line). Assuming the phase 1 trial is completed successfully and the
recommended phase 2 dose(s) of Debio 0932 is identified, Debiopharm expects to conduct a randomized, double-
blind, placebo-controlled phase 2 portion of this study where eligible patients will be randomized to receive
chemotherapy in combination with either placebo or Debio 0932.
In October 2013, Debiopharm initiated an open-label, multicenter phase 1 dose-finding study of Debio
0932, in combination with everolimus, an inhibitor of mammalian target of rapamycin, or mTOR, in patients
with advanced or metastatic RCC who have been previously treated with a VEGF-directed tyrosine kinase
inhibitor. This dose escalation study is designed to determine the safety and maximum tolerated dose of Debio
0932 in combination with everolimus,
in previously treated patients with advanced/metastatic RCC. The
pharmacokinetic profiles and any potential drug-drug interactions between the two agents will also be assessed.
The trial also includes an expansion cohort of 25 patients with metastatic clear cell RCC.
Pursuant to the terms of our agreement with Debiopharm, in addition of funds received to date, we are
eligible to receive up to an additional $77,000,000 if specified clinical development and regulatory approval
objectives are met. We will receive a milestone payment if and when Debiopharm treats its fifth patient in a
phase 2 clinical trial. We currently anticipate that phase 2 testing could commence in 2014 for the NSCLC study.
We are also eligible to receive royalties if any products under the license agreement are successfully
10
developed and commercialized. Subject to specified exceptions, we are entitled to a high single digit to low
double digit royalty for net sales of Debio 0932 that are made directly by Debiopharm, escalating within this
range with increasing product sales. We are entitled to a share of any royalties that Debiopharm receives from a
sublicensee.
The agreement is effective as of August 5, 2009, and unless terminated earlier will expire, on a country-by-
country basis, on the later of (i) the expiration of the last-to-expire valid claim of the Curis patents and joint
patents relating to the products, and (ii) the 10th anniversary of the first commercial sale of the product in such
country. Debiopharm may terminate the agreement prior to its expiration at any time for any scientific, technical,
administrative or commercial reasons upon 90 days prior written notice to us. If Debiopharm is permanently
enjoined from exercising its license under the agreement pursuant to a patent infringement action brought by a
third party, or if neither Debiopharm nor we undertake the defense or settlement of a third party suit alleging
then Debiopharm may terminate the
infringement within the six-month period after notice of such suit,
agreement in the country where such suit was filed upon thirty days’ prior written notice to us. If Debiopharm
does not correct a failure using reasonable commercial efforts as set forth in the agreement, we may terminate the
agreement on thirty days’ written notice to Debiopharm unless Debiopharm cures such failure before the end of
such thirty day period. Either party may terminate the agreement prior to its expiration subject to certain
conditions, upon 90 days (or 45 days in the case of failure to make payment of amounts due under the agreement)
prior written notice to the other party in the event of the material breach of any term or condition of the
agreement by the other party, unless the breaching party has cured such breach by the end of the applicable cure
period; and immediately upon written notice to the other party if the other party or its affiliate directly, or through
assistance granted to a third party, challenges, whether as a claim, a cross-claim, counterclaim, or defense, the
validity or enforceability of any of such party’s patents before any court, arbitrator, or other tribunal or
administrative agency in any jurisdiction.
Corporate Information
We were organized as a Delaware corporation in February 2000. We began our operations in July 2000
upon the completion of the merger of Creative BioMolecules, Inc., Ontogeny, Inc. and Reprogenesis, Inc. Our
principal executive office is located at 4 Maguire Road, Lexington, MA 02421 and our telephone number is
(617) 503-6500.
Curis™ is our trademark and Erivedge® is a trademark of Genentech. This annual report on Form 10-K may
also contain trademarks and trade names of others.
Website Access to Reports
We maintain a website with the address www.curis.com. We are not including the information contained in
our website as part of, or incorporating it by reference into, this annual report on Form 10-K. Our website address
is included in this annual report on Form 10-K as an inactive textual reference only. We make available free of
charge through our website our annual reports on Form 10-K, our quarterly reports on Form 10-Q, current reports
on Form 8-K and any such amendments to those reports as soon as reasonably practicable after we electronically
file such material with, or furnish such material to, the Securities and Exchange Commission, or the SEC. The
SEC maintains a website, www.sec.gov, that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC. The public may read and copy any materials
we file with the Securities and Exchange Commission at the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. The public may obtain information on the operation of the public reference room by
calling 1-800-SEC-0330. In addition, we provide paper copies of our filings free of charge upon request. We also
make available on our website our corporate governance guidelines, the charters for our audit committee,
compensation committee and nominating and corporate governance committee, and our code of business conduct
and ethics, and such information is available in print to any stockholder of Curis who requests it.
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Intellectual Property
Our policy is to obtain and enforce the patents and proprietary technology rights that are key to our business.
We intend to continue to file U.S. and foreign patent applications to protect technology, inventions and
improvements that are considered important to the development of our business. We will be able to protect our
proprietary technologies from unauthorized use by third parties only to the extent that our proprietary rights are
covered by valid and enforceable patents or are effectively maintained as trade secrets.
In the U.S., we have 97 issued or allowed patents expiring on various dates between 2014 and 2031 as well
as numerous pending patent applications. We have foreign counterpart patent filings for most of our U.S. issued
patents and patent applications. These patents and patent applications are directed to various inventions including
compositions of matter, methods of making and using these compositions for multiple applications, methods for
drug screening and discovery, developmental biological processes, and patents which relate to our proprietary
technologies.
Hedgehog Pathway. We have 73 issued U.S. patents or allowed U.S. applications expiring on various
dates between 2014 and 2031, which relate to the Hedgehog pathway. Our patents and patent applications cover
proteins, nucleic acids, antibodies, and certain small molecule agonists and inhibitors of the Hedgehog pathway,
drug screening and discovery methods, methods of protein manufacturing, as well as methods of using the
aforementioned proteins, nucleic acids, antibodies or small molecules to activate or inhibit the Hedgehog
pathway for a variety of therapeutic indications or diagnostic uses. In addition, we have filed foreign patent
applications corresponding to many of the aforementioned U.S. filings that could provide additional patent
protection for products that activate or inhibit the Hedgehog pathway.
Our academic and research institution collaborators have certain rights to publish data and information
regarding their discoveries to which we have rights. While we believe that the prepublication access to the data
developed by our collaborators pursuant to our collaboration agreements will be sufficient to permit us to apply
for patent protection in the areas in which we are interested in pursuing further research, there is considerable
pressure on such institutions to rapidly publish discoveries arising from their efforts. This may affect our ability
to obtain patent protection in the areas in which we may have an interest. In addition, these collaboration
agreements typically contain provisions that provide us with, at a minimum, an option to license the institution’s
rights to intellectual property arising from the collaboration.
Targeted Drug Candidates. We have exclusively licensed worldwide rights from Genentech covering the
IAP inhibitor CUDC-427, which includes two issued U.S. patents that expire in 2025 as well as an allowed
application. The portfolio consists of a broad filing which cover a genus of compounds which embrace CUDC-
427 and their methods of use thereof, as well as a narrow filing which specifically covers CUDC-427, as well as
pharmaceutical compositions and methods of use thereof. The exclusively licensed portfolio also includes rights
to foreign filings corresponding to the aforementioned U.S. filings.
In addition to the licensed patents covered CUDC-427, we have 18 issued or allowed U.S. patents which
expire on various dates between 2027 and 2030, and several U.S. and foreign utility patent applications directed
to our targeted inhibitor classes of novel small molecules, as well as U.S. and foreign patent applications which
generically claim the platform concept itself. Our patents and patent applications cover compositions of matter,
methods of manufacturing these molecules, formulations, and methods of using these molecules to treat a variety
of therapeutic indications. We intend to continue to file additional U.S. and foreign applications as the programs
progress.
We are party to various license agreements that give us rights to commercialize various technologies,
particularly our Hedgehog pathway technologies, and to use technologies in our research and development
processes. The consideration payable in exchange for these licenses includes up-front fees, issuances of shares of
common stock, annual royalties, milestone payments and royalties on net sales by our sub-licensees and us. The
licensors may terminate these agreements if we fail to meet certain diligence requirements, fail to make payments
or otherwise commit a material breach that is not cured after notice.
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In addition, we depend upon trade secrets, know-how and continuing technological advances to develop and
maintain our competitive position. To maintain the confidentiality of trade secrets and proprietary information,
we require our employees, scientific advisors, consultants and collaborators, upon commencement of a
relationship with us, to execute confidentiality agreements and, in the case of parties other than our research and
development collaborators, to agree to assign their inventions to us. These agreements are designed to protect our
proprietary information and to grant us ownership of technologies that are developed in connection with their
relationship to us.
Research and Development Program
We have a research group that seeks to identify and develop new therapeutic products and applications
thereof for our existing proprietary portfolio and seeks to identify novel compounds able to modulate additional
molecular targets that may have therapeutic potential. As of December 31, 2013, our research and development
including oncologists, molecular biologists, cell biologists, chemists,
group consisted of 19 employees,
pharmacologists and other clinical or scientific disciplines.
The amounts spent on company-sponsored research and development activities for the years ended
December 31, 2013, 2012 and 2011 were $12,927,000, $15,492,000 and $13,693,000, respectively. We had no
collaborator-sponsored research and development expense for the years ended December 31, 2013, 2012 and
2011.
Government Regulation
Government authorities in the United States, at the federal, state and local level, and in other countries and
jurisdictions, including the European Union, extensively regulate, among other things, the research, development,
labeling, advertising,
testing, manufacture, quality control, approval, packaging, storage,
promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of
pharmaceutical products. The processes for obtaining regulatory approvals in the United States and in foreign
countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other
regulatory authorities, require the expenditure of substantial time and financial resources.
recordkeeping,
Review and Approval of Drugs in the United States
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA,
and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance
with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial
time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the
product development process, approval process or after approval may subject an applicant and/or sponsor to a
variety of administrative or judicial sanctions, including refusal by the FDA to approve pending applications,
withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters,
product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines,
refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and
penalties brought by the FDA and the Department of Justice or DOJ or other governmental entities.
An applicant seeking approval to market and distribute a new drug product in the United States must
typically undertake the following:
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•
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completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the
FDA’s good laboratory practice, or GLP, regulations;
submission to the FDA of an IND, which must take effect before human clinical trials may begin;
approval by an independent institutional review board, or IRB, representing each clinical site before
each clinical trial may be initiated;
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performance of adequate and well-controlled human clinical trials in accordance with good clinical
practices, or GCP, to establish the safety and efficacy of the proposed drug product for each indication;
preparation and submission to the FDA of a new drug application, or NDA;
review of the product by an FDA advisory committee, where appropriate or if applicable;
satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at
which the product, or components thereof, are produced to assess compliance with current Good
Manufacturing Practices, or cGMP, requirements and to assure that the facilities, methods and controls
are adequate to preserve the product’s identity, strength, quality and purity;
payment of user fees and securing FDA approval of the NDA; and
compliance with any post-approval requirements, including Risk Evaluation and Mitigation Strategies,
or REMS, and post-approval studies required by the FDA.
Preclinical Studies
Preclinical studies include laboratory evaluation of the purity and stability of the manufactured drug
substance or active pharmaceutical ingredient and the formulated drug or drug product, as well as in vitro and
animal studies to assess the safety and activity of the drug for initial testing in humans and to establish a rationale
for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements,
together with manufacturing information,
including GLP regulations. The results of the preclinical
analytical data, any available clinical data or literature and plans for clinical studies, among other things, are
submitted to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of reproductive
adverse events and carcinogenicity, may continue after the IND is submitted.
tests,
Human Clinical Studies in Support of an NDA
Clinical
trials involve the administration of the investigational product to human subjects under the
supervision of qualified investigators in accordance with GCP requirements, which include, among other things,
the requirement that all research subjects provide their informed consent in writing before their participation in
any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the
objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be
evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the
FDA as part of the IND. An IND automatically becomes effective 30 days after receipt by the FDA, unless
before that time the FDA raises concerns or questions related to a proposed clinical trial and places the trial on
clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the
clinical trial can begin.
In addition, an IRB representing each institution participating in the clinical trial must review and approve
the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review
and reapprove the study at least annually. The IRB must review and approve, among other things, the study
protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance
with FDA regulations. Information about certain clinical trials must be submitted within specific timeframes to
the National Institutes of Health for public dissemination on their ClinicalTrials.gov website.
Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:
Phase 1: The drug is initially introduced into healthy human subjects or patients with the target disease (e.g.
cancer) or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and,
if possible, to gain an early indication of its effectiveness and to determine optimal dosage.
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Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and
safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine
dosage tolerance and optimal dosage.
Phase 3: The drug is administered to an expanded patient population, generally at geographically dispersed
clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy
and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide
adequate information for the labeling of the product.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and
more frequently if serious adverse events occur. Phase 1, Phase 2 and Phase 3 clinical trials may not be
completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend
or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are
being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical
trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with
the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. The FDA
will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical
data submitted.
Submission of an NDA to the FDA
Assuming successful completion of required clinical testing and other requirements, the results of the
preclinical and clinical studies,
together with detailed information relating to the product’s chemistry,
manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of a new drug
application, or NDA, requesting approval to market the drug product for one or more indications. Under federal
law, the submission of most NDAs is additionally subject to an application user fee, currently exceeding $2.1
million, and the sponsor of an approved NDA is also subject to annual product and establishment user fees,
currently exceeding $104,000 per product and $554,000 per establishment. These fees are typically increased
annually.
The FDA conducts a preliminary review of an NDA within 60 days of its receipt and informs the sponsor by
the 74th day after the FDA’s receipt of the submission to determine whether the application is sufficiently
complete to permit substantive review. The FDA may request additional information rather than accept an NDA
for filing. In this event, the application must be resubmitted with the additional information. The resubmitted
application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for
filing, the FDA begins an in-depth substantive review. The FDA has agreed to specified performance goals in the
review process of NDAs. Most such applications are meant to be reviewed within ten months from the date of
filing, and most applications for “priority review” products are meant to be reviewed within six months of filing.
The review process may be extended by the FDA for three additional months to consider new information or
clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the
original submission.
Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is or
will be manufactured. These pre-approval inspections cover all facilities associated with an NDA submission,
including drug component manufacturing (such as Active Pharmaceutical Ingredients), finished drug product
manufacturing, and control testing laboratories. The FDA will not approve an application unless it determines
that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to
assure consistent production of the product within required specifications. Additionally, before approving an
NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.
The FDA also may require submission of a REMS plan to mitigate any identified or suspected serious risks.
The REMS plan could include medication guides, physician communication plans, assessment plans, and elements
to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools.
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The FDA is required to refer an application for a novel drug to an advisory committee or explain why such
referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians
and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application
should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory
committee, but it considers such recommendations carefully when making decisions.
Fast Track, Breakthrough Therapy and Priority Review Designations
The FDA is authorized to designate certain products for expedited review if they are intended to address an
unmet medical need in the treatment of a serious or life-threatening disease or condition. These programs are fast
track designation, breakthrough therapy designation and priority review designation.
Specifically, the FDA may designate a product for fast track review if it is intended, whether alone or in
combination with one or more other drugs, for the treatment of a serious or life-threatening disease or condition,
and it demonstrates the potential to address unmet medical needs for such a disease or condition. For fast track
products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a
fast track product’s NDA before the application is complete. This rolling review may be available if the FDA
determines, after preliminary evaluation of clinical data submitted by the sponsor, that a fast track product may
be effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the
remaining information and the sponsor must pay applicable user fees. However, the FDA’s time period goal for
reviewing a fast track application does not begin until the last section of the NDA is submitted. In addition, the
fast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer
supported by data emerging in the clinical trial process.
Second, in 2012, Congress enacted the Food and Drug Administration Safety and Improvement Act, or
FDASIA. This law established a new regulatory scheme allowing for expedited review of products designated as
“breakthrough therapies.” A product may be designated as a breakthrough therapy if it is intended, either alone or
in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and
preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing
therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in
clinical development. The FDA may take certain actions with respect to breakthrough therapies, including
holding meetings with the sponsor throughout the development process; providing timely advice to the product
sponsor regarding development and approval; involving more senior staff in the review process; assigning a
cross-disciplinary project lead for the review team; and taking other steps to design the clinical trials in an
efficient manner.
Third, the FDA may designate a product for priority review if it is a drug that treats a serious condition and,
if approved, would provide a significant improvement in safety or effectiveness. The FDA determines, on a case-
by-case basis, whether the proposed drug represents a significant improvement when compared with other
available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the
treatment of a condition, elimination or substantial reduction of a treatment-limiting drug reaction, documented
enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety
and effectiveness in a new subpopulation. A priority designation is intended to direct overall attention and
resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing
application from ten months to six months.
Accelerated Approval Pathway
The FDA may grant accelerated approval to a drug for a serious or life-threatening condition that provides
meaningful therapeutic advantage to patients over existing treatments based upon a determination that the drug
has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant
accelerated approval for such a condition when the product has an effect on an intermediate clinical endpoint that
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can be measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably
likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the
severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Drugs granted
accelerated approval must meet the same statutory standards for safety and effectiveness as those granted
traditional approval.
For the purposes of accelerated approval, a surrogate endpoint
is a marker, such as a laboratory
measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is
not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly
than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is
considered reasonably likely to predict the clinical benefit of a drug, such as an effect on IMM. The FDA has
limited experience with accelerated approvals based on intermediate clinical endpoints, but has indicated that
such endpoints generally may support accelerated approval where the therapeutic effect measured by the
endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the
therapeutic effect is reasonably likely to predict the ultimate clinical benefit of a drug.
The accelerated approval pathway is most often used in settings in which the course of a disease is long and
an extended period of time is required to measure the intended clinical benefit of a drug, even if the effect on the
surrogate or intermediate clinical endpoint occurs rapidly. Thus, accelerated approval has been used extensively
in the development and approval of drugs for treatment of a variety of cancers in which the goal of therapy is
generally to improve survival or decrease morbidity and the duration of the typical disease course requires
lengthy and sometimes large trials to demonstrate a clinical or survival benefit.
The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent
manner, additional post-approval confirmatory studies to verify and describe the drug’s clinical benefit. As a
result, a drug candidate approved on this basis is subject to rigorous post-marketing compliance requirements,
including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint.
Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies,
would allow the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for
drug candidates approved under accelerated regulations are subject to prior review by the FDA.
The FDA’s Decision on an NDA
On the basis of the FDA’s evaluation of the NDA and accompanying information, including the results of
the inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter.
An approval letter authorizes commercial marketing of the product with specific prescribing information for
specific indications. A complete response letter generally outlines the deficiencies in the submission and may
require substantial additional testing or information in order for the FDA to reconsider the application. If and
when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA
will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months
depending on the type of information included. Even with submission of this additional information, the FDA
ultimately may decide that the application does not satisfy the regulatory criteria for approval.
If the FDA approves a product, it may limit the approved indications for use for the product, require that
contraindications, warnings or precautions be included in the product labeling, require that post-approval studies,
including Phase 4 clinical trials, be conducted to further assess the drug’s safety after approval, require testing
and surveillance programs to monitor the product after commercialization, or impose other conditions, including
distribution restrictions or other risk management mechanisms, including REMS, which can materially affect the
potential market and profitability of the product. The FDA may prevent or limit further marketing of a product
based on the results of post-market studies or surveillance programs. After approval, many types of changes to
the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are
subject to further testing requirements and FDA review and approval.
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Post-Approval Requirements
Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing
regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting,
product sampling and distribution, advertising and promotion and reporting of adverse experiences with the
product. After approval, most changes to the approved product, such as adding new indications or other labeling
claims, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for
any marketed products and the establishments at which such products are manufactured, as well as new
application fees for supplemental applications with clinical data.
In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved
drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic
unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes
to the manufacturing process are strictly regulated and often require prior FDA approval before being
implemented. FDA regulations also require investigation and correction of any deviations from cGMP and
impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the
sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the
area of production and quality control to maintain cGMP compliance.
is granted,
Once an approval
the FDA may withdraw the approval
if compliance with regulatory
requirements and standards is not maintained or if problems occur after the product reaches the market. Later
discovery of previously unknown problems with a product, including adverse events of unanticipated severity or
frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in
revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical
trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other
potential consequences include, among other things:
•
•
•
•
•
restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from
the market or product recalls;
fines, warning letters or holds on post-approval clinical trials;
refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or
revocation of product license approvals;
product seizure or detention, or refusal to permit the import or export of products; or
injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the
market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the
approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion
of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to
significant liability.
In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug
Marketing Act, or PDMA, which regulates the distribution of drugs and drug samples at the federal level, and
sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and
state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to
ensure accountability in distribution.
Orphan Designation and Exclusivity
Under the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug” if it is intended to
treat a rare disease or condition (generally meaning that it affects fewer than 200,000 individuals in the United
States, or more in cases in which there is no reasonable expectation that the cost of developing and making a drug
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product available in the United States for treatment of the disease or condition will be recovered from sales of the
product). A company must request orphan product designation before submitting a NDA. If the request is
granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan product
designation does not convey any advantage in or shorten the duration of the regulatory review and approval
process.
If a product with orphan status receives the first FDA approval for the disease or condition for which it has
such designation, the product will be entitled to orphan product exclusivity. Orphan product exclusivity means
that the FDA may not approve any other applications for the same product for the same indication for seven
years, except in certain limited circumstances. Competitors may receive approval of different products for the
indication for which the orphan product has exclusivity and may obtain approval for the same product but for a
different indication. If a drug or drug product designated as an orphan product ultimately receives marketing
approval for an indication broader than what was designated in its orphan product application, it may not be
entitled to exclusivity.
Patent Term Restoration and Extension
A patent claiming a new drug product may be eligible for a limited patent term extension under the Hatch-
Waxman Act, which permits a patent restoration of up to five years for patent term lost during product
development and the FDA regulatory review. The restoration period granted is typically one-half the time
between the effective date of an IND and the submission date of a NDA, plus the time between the submission
date of a NDA and the ultimate approval date. Patent term restoration cannot be used to extend the remaining
term of a patent past a total of 14 years from the product’s approval date. Only one patent applicable to an
approved drug product is eligible for the extension, and the application for the extension must be submitted prior
to the expiration of the patent in question. A patent that covers multiple drugs for which approval is sought can
only be extended in connection with one of the approvals. The USPTO reviews and approves the application for
any patent term extension or restoration in consultation with the FDA.
Review and Approval of Drug Products in the European Union
In order to market any product outside of the United States, a company must also comply with numerous
and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy
and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of
drug products. Whether or not it obtains FDA approval for a product, the company would need to obtain the
necessary approvals by the comparable foreign regulatory authorities before it can commence clinical trials or
marketing of the product in those countries or jurisdictions. The approval process ultimately varies between
countries and jurisdictions and can involve additional product testing and additional administrative review
periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer
than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure
regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or
jurisdiction may negatively impact the regulatory process in others.
Pursuant to the European Clinical Trials Directive, a system for the approval of clinical trials in the
European Union has been implemented through national legislation of the member states. Under this system, an
applicant must obtain approval from the competent national authority of a European Union member state in
which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical trial after a
competent ethics committee has issued a favorable opinion. Clinical trial application must be accompanied by an
investigational medicinal product dossier with supporting information prescribed by the European Clinical Trials
Directive and corresponding national laws of the member states and further detailed in applicable guidance
documents.
To obtain marketing approval of a drug under European Union regulatory systems, an applicant must submit
a marketing authorization application, or MAA, either under a centralized or decentralized procedure.
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The centralized procedure provides for the grant of a single marketing authorization by the European
Commission that is valid for all European Union member states. The centralized procedure is compulsory for
specific products, including for medicines produced by certain biotechnological processes, products designated
as orphan medicinal products, advanced therapy products and products with a new active substance indicated for
the treatment of certain diseases. For products with a new active substance indicated for the treatment of other
diseases and products that are highly innovative or for which a centralized process is in the interest of patients,
the centralized procedure may be optional.
Under the centralized procedure, the Committee for Medicinal Products for Human Use, or the CHMP,
established at the European Medicines Agency, or EMA, is responsible for conducting the initial assessment of a
drug. The CHMP is also responsible for several post-authorization and maintenance activities, such as the
assessment of modifications or extensions to an existing marketing authorization. Under the centralized
procedure in the European Union, the maximum timeframe for the evaluation of an MAA is 210 days, excluding
clock stops, when additional information or written or oral explanation is to be provided by the applicant in
response to questions of the CHMP. Accelerated evaluation might be granted by the CHMP in exceptional cases,
when a medicinal product is of major interest from the point of view of public health and in particular from the
viewpoint of therapeutic innovation. In this circumstance, the EMA ensures that the opinion of the CHMP is
given within 150 days.
The decentralized procedure is available to applicants who wish to market a product in various European
Union member states where such product has not received marketing approval in any European Union member
states before. The decentralized procedure provides for approval by one or more other, or concerned, member
states of an assessment of an application performed by one member state designated by the applicant, known as
the reference member state. Under this procedure, an applicant submits an application based on identical dossiers
and related materials, including a draft summary of product characteristics, and draft labeling and package
leaflet, to the reference member state and concerned member states. The reference member state prepares a draft
assessment report and drafts of the related materials within 210 days after receipt of a valid application. Within
90 days of receiving the reference member state’s assessment report and related materials, each concerned
member state must decide whether to approve the assessment report and related materials.
If a member state cannot approve the assessment report and related materials on the grounds of potential
serious risk to public health, the disputed points are subject to a dispute resolution mechanism and may
eventually be referred to the European Commission, whose decision is binding on all member states.
Data and Market Exclusivity in the European Union
In the European Union, new chemical entities qualify for eight years of data exclusivity upon marketing
authorization and an additional two years of market exclusivity. This data exclusivity, if granted, prevents
regulatory authorities in the European Union from referencing the innovator’s data to assess a generic
(abbreviated) application for eight years, after which generic marketing authorization can be submitted, and the
innovator’s data may be referenced, but not approved for two years. The overall ten-year period will be extended
to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization
holder obtains an authorization for one or more new therapeutic indications which, during the scientific
evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing
therapies. Even if a compound is considered to be a new chemical entity and the sponsor is able to gain the
prescribed period of data exclusivity, another company nevertheless could also market another version of the
drug if such company can complete a full MAA with a complete database of pharmaceutical test, pre-clinical
tests and clinical trials and obtain marketing approval of its product.
Competition
Our drug candidates, if approved, will compete with existing and new products being developed by others
for treatment of the same indications. Competition in the development of human therapeutics and, in particular,
20
human therapeutics that target signaling pathways to treat cancers, is intense. Our competitors include large
pharmaceutical and biopharmaceutical companies, as well as specialized biotechnology firms,
that are
developing cancer therapies in the same indications as we are.
There are several companies developing drug candidates that target the same molecular targets and signaling
pathways, and in some cases the same cancer indications, that are being pursued by us and our collaborators. We
believe our primary competitors by molecular target as are as follows:
CUDC-907: We are not aware of other molecules in clinical testing that are designed as one chemical
entity to target both PI3K and HDAC. However, there are commercially-available drugs that individually target
HDAC. For example, commercially available HDAC inhibitors include ZolinzaTM (vorinostat), which is
produced by Merck & Company, and IstodaxTM (romidepsin), which is produced by Celgene Corporation. In
addition, there are several companies testing novel HDAC inhibitors in clinical trials, including among others,
Novartis International AG (panobinostat), Mirati Therapeutics (mocetinostat), Syndax Pharmacuticals, Inc.
(entinostat), MEI Pharma, Inc. (pracinostat), 4SC AG (resminostat and 4SC-202), Acetylon Pharmaceuticals, Inc.
(ricolinostat),
(belinostat), EnVivo
Pharmaceuticals (ENP-0334) and Celleron Therapeutics (CXD101). There are multiple companies testing
various PI3K inhibitors- both isoform specific and pan-PI3K inhibitors, which are in various stages of clinical
development. Some of these companies include Gilead Sciences, Inc. (idelalisib, GS-9020), Novartis (BKM120/
buparlisib, BYL719), Bayer AG (copanlisib/ BAY 80-6946), Genentech/ Roche (GDC-0941, GDC-0032),
Infinity Pharmaceuticals
(PX-866), Takeda
Pharmaceutical Company Limited (MLN1117), GlaxoSmithKline plc (GSK2636771), Pfizer Inc. (PF-05212384,
PF-04691502), Sanofi (SAR245409), TG Therapeutics, Inc. (TGR-1202), Incyte Corporation (INCB040093),
Zenyaku Kogyo Co., Ltd (ZSTK474) and Verastem, Inc. (VS-5584).
Inc (IPI-145), Wilex AG (WX-037), Oncothyreon Inc.
(givinostat), Spectrum Pharmaceuticals,
Italfarmaco S.p.A.
Inc.
CUDC-427:
In addition of Curis, we are aware of several other companies developing antagonists of IAP
proteins including, among others, Debiopharm SA (Debio 1143), Novartis AG (LCL161) and TetraLogic
Pharmaceuticals, Inc. (birinapant).
Erivedge. We are aware of several biotechnology and pharmaceutical companies that have drug
development programs relating to compounds that modulate the Hedgehog pathway. We believe that there are
currently at
least five other companies that have advanced Hedgehog pathway inhibitors into clinical
development: Eli Lilly and Company (LY2940680), Exelixis, Inc./Bristol-Myers Squibb Company (BMS-
833923 or XL139)); Pfizer Inc. (PF-04449913 ) and Novartis (LDE225), which recently announced that its
Hedgehog inhibitor met the primary endpoint in a pivotal trial in patients with advanced basal cell carcinoma.
Other Hedgehog pathway inhibitors are in earlier stages of clinical development. Under the terms of our
collaboration agreement with Genentech, our royalty would be reduced in any country where another drug that
binds to the same molecular target receives regulatory approval for the same indication as Erivedge and is
subsequently commercialized in that country.
Debio-0932: Several companies are investigating HSP90 inhibitors in clinical testing, including, among
others, Astex Therapeutics Ltd. (AT13387), Daiichi Sankyo Inc. (DS-2248), Esanex, Inc. (SNX-5422), Kyowa
Hakko Kirin Co, Ltd. (KW-2478), Novartis International AG (AUY922), Samus Therapeutics, Inc. (PU-H71)
and Synta Pharmaceuticals Corp (ganetespib).
Many of the competing companies have financial, marketing and human resource capacities that are
substantially greater than our own, which may provide these competitors with significant advantages over us.
Others have extensive experience in undertaking clinical trials, in obtaining regulatory approval to market
products, in manufacturing products on a large scale and in effectively promoting products to healthcare
providers, health plans and consumers which may enhance their competitive position relative to ours. In addition
to competing with pharmaceutical and biotechnology companies, the products that we are developing would also
compete with those being developed by academic and research institutions, government agencies and other
21
public organizations. Any of these organizations may discover new therapies, seek patent protection or establish
collaborative arrangements for products and technologies that are competitive with our products and
technologies.
The technologies underlying the development of human therapeutic products are expected to continue to
undergo rapid and significant advancement and unpredictable changes. Accordingly, our technological and
commercial success will be based, among other things, on our ability to develop proprietary positions in key
scientific areas and efficiently evaluate potential product opportunities.
The timing of a product’s introduction may be a major factor in determining eventual commercial success
and profitability. Early entry may have important advantages in gaining product acceptance and market share.
Accordingly, we believe the relative speed with which we or any current or future collaborator(s) can complete
preclinical and clinical testing, obtain regulatory approvals, and supply commercial quantities of a product will
have an important impact on our competitive position, both in the U.S. and abroad. Other companies may
succeed in developing similar products that are introduced earlier, are more effective, or are produced and
marketed more effectively, or at a minimum obtain a portion of the market share. For example, our competitors
may discover, characterize and develop important targeted cancer molecules before we do, which could have a
material adverse effect on any of our related research programs. If research and development by others renders
any of our products obsolete or noncompetitive, then our potential for success and profitability may be adversely
affected.
For certain of our programs, we rely on, or intend to rely on, strategic collaborators for support in our
research programs and for preclinical evaluation and clinical development of our potential products and
manufacturing and marketing of any products. Our strategic collaborators may conduct multiple product
development efforts within each disease area that is the subject of our strategic collaboration with them. Our
strategic collaboration agreements may not restrict the strategic collaborator from pursuing competing internal
development efforts. Any of our drug candidates, therefore, may be subject to competition with a drug candidate
under development by a strategic collaborator.
Manufacturing
We have no experience or capabilities in manufacturing. We currently rely on collaborators or
subcontractors, and we have no plans to develop our own manufacturing capability. Instead, we plan to continue
to rely on corporate collaborators or subcontractors to manufacture products. If any of our current or planned
collaborators or subcontractors encounters regulatory compliance problems or enforcement actions for their own
or a collaborative product, it could have a material adverse effect on our business prospects.
Sales and Marketing
We have no sales, marketing or distribution experience or infrastructure and we have no current plans to
develop such capabilities. We currently plan to rely on corporate collaborators for product sales, marketing and
distribution.
Employees
As of December 31, 2013, we had 33 full-time employees, of whom 7 hold a Ph.D. or other advanced
scientific or medical degree. Of our employees, 19 are currently involved in research and development. None of
our employees is a party to a collective bargaining agreement, and we consider our relations with our employees
to be good.
22
Executive Officers of the Registrant
Our executive officers are as follows:
Name
Age
Position
Daniel R. Passeri, MSc., J.D.
. .
Ali Fattaey, Ph.D . . . . . . . . . . . .
Michael P. Gray . . . . . . . . . . . . .
Jaye Viner, M.D, MPH . . . . . . .
53
49
43
57
Chief Executive Officer
President and Chief Operating Officer
Chief Financial Officer
Chief Medical Officer and Executive Vice President
Daniel R. Passeri, MSc., J.D.
. . Mr. Passeri has served as our Chief Executive Officer and as a director since
September 2001 and additionally held the title of President from September
2001 to February 2013. From November 2000 to September 2001,
Mr. Passeri served as our Senior Vice President, Corporate Development and
Strategic Planning. From March 1997 to November 2000, Mr. Passeri was
employed by GeneLogic Inc., a biotechnology company, most recently as
Senior Vice President, Corporate Development and Strategic Planning. From
February 1995 to March 1997, Mr. Passeri was employed by Boehringer
Mannheim, a pharmaceutical, biotechnology and diagnostic company, as
Director of Technology Management. Mr. Passeri
is a graduate of the
National Law Center at George Washington University, with a J.D., of the
Imperial College of Science, Technology and Medicine at the University of
London, with an M.Sc. in biotechnology, and of Northeastern University,
with a B.S. in biology.
Ali Fattaey, Ph.D . . . . . . . . . . . .
From February 2013, Dr. Fattaey has served as our President and Chief
Operating Officer. From 2011 until February 2013, Dr. Fattaey served as the
President and Chief Executive Officer of ACT Biotech, Inc., a biotechnology
company. Dr. Fattaey served as ACT Biotech’s Chief Operating and Scientific
Officer from 2008 until 2010. From June 2006 until January 2008, Dr. Fattaey
served the Director of Science and Technology at the Melanoma Therapeutics
Foundation, a non-profit organization. From January 2005 until June 2006, Dr.
Fattaey was a strategic consultant for pharmaceutical and biotechnology
companies. Dr. Fattaey was previously employed at Sagres Discovery as its
Chief Scientific Officer
from November 2001 until April 2004 and
subsequently as the Senior Vice President of Discovery Research at Chiron
Corporation following Chiron’s acquisition of Sagres Discovery. Dr. Fattaey
was employed by Onyx Pharmaceuticals from January 1994 until June 2001,
most recently as its Vice President of Discovery Research. Dr. Fattaey
received his Ph.D. in microbiology from Kansas State University in 1989 and
was a Research Fellow in Medicine at Harvard Medical School, Massachusetts
General Hospital Cancer Center.
Michael P. Gray . . . . . . . . . . . . . Mr. Gray has served as our Chief Financial Officer since December 2006 and
additionally held the title of Chief Operating Officer from December 2006 to
February 2013. From December 2003 until December 2006, Mr. Gray served
as our Vice President of Finance and Chief Financial Officer and served as our
Senior Director of Finance and Controller from August 2000 until December
2003. From January 1998 to July 2000, Mr. Gray was Controller at
Reprogenesis,
Inc., a predecessor biotechnology company. Mr. Gray
previously served as an audit professional for the accounting and consulting
firm of Ernst & Young, LLP. Mr. Gray is a certified public accountant, holds
an M.B.A. from the F.W. Olin Graduate School of Business at Babson
College, and has a B.S. in accounting from Bryant College.
23
Name
Age
Position
Jaye Viner, M.D, MPH . . . . . . .
Dr. Viner has served as our Chief Medical Officer since August 2013. From
April 2009 until April 2012, Dr. Viner served as a Medical Director at
Millennium: The Takeda Oncology Company, a biotechnology company.
From April 2012 until August 2013, Dr. Viner served as an Associate
Director, Clinical Development—Oncology
at MedImmune, LLC.
(AstraZeneca). From 1995 until March 2009, Dr. Viner held senior
leadership positions at
the National Cancer Institute and the National
Institutes of Health, including Deputy and Acting Director of the Office of
Centers, Training and Resources, and Chief of the Gastrointestinal and Other
Cancers Research Group in the Division of Cancer Prevention. Dr. Viner
received her medical degree from the University of Virginia School of
Medicine and her master’s degree in Public Health from Johns Hopkins
University Bloomberg School of Public Health.
24
ITEM 1A. RISK FACTORS
RISKS RELATING TO OUR FINANCIAL RESULTS AND NEED FOR FINANCING
We have incurred substantial losses, expect to continue to incur substantial losses for the foreseeable
future and may never generate significant revenue or achieve profitability.
As of December 31, 2013, we had an accumulated deficit of approximately $760,827,000. We have incurred
net losses of $12,322,000, $16,417,000 and $9,859,000 for the years ended December 31, 2013, 2012 and 2011,
respectively. Other than Erivedge, which was developed and is being commercialized by our collaborators Roche
and Genentech, we have not successfully commercialized any products to date, either alone or in collaboration
with others.
We have historically derived a substantial portion of our operating cash flow from the research funding,
milestone payments and royalty revenues under collaboration agreements with third parties. We expect that our
only source of cash flows from operations for the foreseeable future will be:
•
•
•
up-front license payments and research and development funding that we may receive if we are able to
successfully enter into new collaboration agreements for our technologies under development;
contingent cash payments that we may receive for the achievement of development objectives under any
new collaborations or our existing collaborations with Genentech, Debiopharm and LLS; and
royalty payments that are contingent upon the successful commercialization of products based upon
these collaborations.
We may not be able to successfully enter into or continue any corporate collaborations and the timing,
amount and likelihood of us receiving payments under such collaborations is highly uncertain. Our wholly-
owned subsidiary Curis Royalty, received a $30,000,000 loan pursuant to a credit agreement entered into by and
among Curis, Curis Royalty and BioPharma-II. In connection with the loan, we transferred to Curis Royalty our
right to certain future royalty and royalty-related payments on commercial sales of Erivedge by Genentech. The
loan and accrued interest will be repaid by Curis Royalty from the proceeds of the royalty and royalty-related
payments that it receives from time to time from Genentech. Curis Royalty will be entitled to receive and
distribute to Curis only those royalty amounts, if any, in excess of the amounts it is required to remit each quarter
to BioPharma-II. As a result, for the foreseeable future, we will only receive royalties under our collaboration
agreement with Genentech to the extent net sales are generated at a level sufficient to derive royalties in excess
of Curis Royalty’s obligation to remit such royalties to BioPharma-II in repayment of the loan.
To become and remain profitable, we must develop and eventually commercialize one or more drug
candidates with significant market potential. This will require us to be successful in a range of challenging
activities, including completing preclinical testing and clinical trials of our drug candidates, obtaining marketing
approval for these drug candidates, manufacturing, marketing and selling those drugs for which we may obtain
marketing approval and satisfying any post-marketing requirements. We may never succeed in these activities
and, even if we do, may never generate revenues that are significant or large enough to achieve profitability. We
are currently only in early clinical testing for our most advanced drug candidates. For the foreseeable future, we
will need to spend significant capital in an effort to develop and commercialize products and we expect to incur
substantial operating losses. Our failure to become and remain profitable would, among other things, depress the
market price of our common stock and could impair our ability to raise capital, expand our business, diversify
our research and development programs or continue our operations.
We will require substantial additional capital, which may be difficult to obtain.
We will require substantial funds to continue our research and development programs and to fulfill our
planned operating goals. In particular, our currently planned operating and capital requirements include the need
25
for substantial working capital to support our research and development activities for CUDC-427, if the FDA’s
partial clinical hold is lifted, CUDC-907, and other drug candidates that we may seek to develop in the future and
to fund our general and administrative costs and expenses.
We anticipate that existing cash, cash equivalents, marketable securities, investments and working capital at
December 31, 2013 should enable us to maintain current and planned operations into 2016. Our future capital
requirements, however, may vary from what we currently expect. There are a number of factors that may affect
our planned future capital requirements and accelerate our need for additional working capital, many of which
are outside our control, including the following:
•
•
•
•
•
•
•
unanticipated costs in our research and development programs;
the timing and cost of obtaining regulatory approvals for our drug candidates;
the timing, receipt and amount of payments, if any, from current and potential future collaborators;
the timing and amount of payments due to licensors of patent rights and technology used in our drug
candidates;
the costs of commercialization activities for any of our product candidates that receive marketing
approval, to the extent such costs are not the responsibility of one of our collaborators, including the
costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities
unplanned costs to prepare, file, prosecute, maintain and enforce patent claims and other patent-related
costs, including litigation costs and technology license fees; and
unexpected losses in our cash investments or an inability to otherwise liquidate our cash investments
due to unfavorable conditions in the capital markets.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to
relinquish rights to our technologies or drug candidates.
Identifying potential drug candidates and conducting preclinical
trials is a time-
consuming, expensive and uncertain process that takes years to complete, and we may never generate the
necessary data or results required to obtain marketing approval and achieve product sales. In addition, our drug
candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived
from sales of drug candidates that we do not expect to be commercially available for many years, if at all.
Accordingly, we will need to continue to rely on additional financing to achieve our business objectives.
Adequate additional financing may not be available to us on acceptable terms, or at all.
testing and clinical
We may seek additional funding through public or private financings of debt or equity. For example, in July
2013 we entered into a Sales Agreement with Cowen and Company, LLC, or Cowen, pursuant to which, from
time to time, we may offer and sell up to $30,000,000 of common stock registered pursuant to our universal shelf
registration statement through Cowen in one or more “at the market” or other specified offerings, from which we
have received gross proceeds of approximately $16,900,000 as of December 31, 2013. The market for emerging
life science stocks in general, and the market for our common stock in particular, are highly volatile. Due to this
and various other factors, including potentially adverse general market conditions and the early stage of our
internal development pipeline, additional funding may not be available to us on acceptable terms, if at all, and we
may not be able to sell shares under the arrangement with Cowen at favorable prices, if at all. In addition, the
terms of any potential financing may be dilutive or otherwise adversely affect other rights of our stockholders.
We also expect to seek additional funds through arrangements with collaborators, licensees or other third parties.
These arrangements would generally require us to relinquish or encumber rights to some of our technologies or
drug candidates, and we may not be able to enter into such arrangements on acceptable terms, if at all.
26
If we are unable to obtain such additional funding on a timely basis, whether through payments under
existing or future collaborations or license agreement or sales of debt or equity, we may be required to:
•
•
delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for one
or more of our drug candidates; or
delay, limit, reduce or terminate our establishment of sales and marketing capabilities, either internally
or through third parties, or other activities that may be necessary to commercialize our drug candidates.
We transferred and encumbered certain royalty and royalty-related payments on the commercial sales of
Erivedge in connection with our credit agreement with BioPharma-II and, as a result, we could lose all
rights to future royalty and royalty-related payments.
In December 2012, our wholly-owned subsidiary, Curis Royalty, received a $30,000,000 loan pursuant to a
credit agreement with BioPharma-II. In connection with the loan, we transferred to Curis Royalty our right to
receive certain future royalty and royalty-related payments on the commercial sales of Erivedge that we receive
from Genentech. The loan and accrued interest will be repaid by Curis Royalty using such royalty and royalty-
related payments. To secure repayment of the loan, Curis Royalty granted a first priority lien and security interest
(subject only to permitted liens) to BioPharma-II in all of its assets and all real, intangible and personal property,
including all of its right, title and interest in and to the royalty and royalty-related payments. The loan constitutes
an obligation of Curis Royalty, and is intended to be non-recourse to Curis.
Per the terms of the credit agreement, neither Curis nor Curis Royalty guaranteed any level of future royalty
or royalty-related payments or the value of such payments as collateral to the loan. However, in certain
circumstances, the obligations of Curis Royalty under the credit agreement to repay the loan may be accelerated,
including:
•
•
•
•
•
•
•
•
•
if any payment of principal is not made within three days of when such payment is due and payable or
otherwise made in accordance with the terms of the credit agreement;
if any representations or warranties made in the credit agreement or any other transaction document
proves to be incorrect or misleading in any material respect when made;
if there occurs a default in the performance of affirmative and negative covenants set forth in the credit
agreement or under certain ancillary transaction documents;
the failure by Genentech to pay material amounts owed under the collaboration agreement with
Genentech because of an actual breach or default by Curis under the collaboration agreement;
a material breach or default by Curis Royalty under certain ancillary transaction documents, in each
case, which breach or default is not cured within 30 days after written demand thereof by BioPharma-II;
the voluntary or involuntary commencement of bankruptcy proceedings by either Curis or Curis Royalty
and other insolvency related defaults;
any materially adverse effect on the binding nature of any of the transaction documents or the
Genentech collaboration agreement;
if any person shall be designated as an independent director of Curis Royalty other than in accordance
with its limited liability company operating agreement; or
if Curis shall at any time cease to own, of record and beneficially, 100% of the equity interests in Curis
Royalty.
If any of the above were to occur, Curis Royalty may not have sufficient funds to pay the accelerated
obligation and BioPharma-II could foreclose on the secured royalty and royalty-related payment stream. In such
an event, we could lose our right to royalty and royalty-related payments not transferred to BioPharma-II,
including those we would otherwise be entitled to receive if, or when, Curis Royalty satisfied its obligations to
BioPharma-II under the credit agreement.
27
Fluctuations in our quarterly and annual operating results could adversely affect the price of our common
stock.
Our quarterly and annual operating results may fluctuate significantly. Some of the factors that may cause
our operating results to fluctuate on a period-to-period basis include:
•
•
•
•
•
•
•
the status of, and level of expenses incurred in connection with, our preclinical and clinical development
programs, including development costs relating to CUDC-427, if the FDA’s partial clinical hold is
lifted, and CUDC-907;
any intellectual property infringement lawsuit or other litigation in which we may become involved;
the implementation of restructuring and cost-savings strategies;
the occurrence of an event of default under the credit agreement by and among Curis, Curis Royalty and
BioPharma II;
any changes in the fair value of our warrant liability;
the implementation or
agreements with third parties, and non-recurring revenue or expenses under any such agreement; and
licensing, manufacturing or other material
termination of collaboration,
compliance with regulatory requirements.
Unstable market and economic conditions may have serious adverse consequences on our business,
financial condition and stock price.
Our general business strategy and prospects may be adversely affected by the uncertain economic
conditions, volatile business environment and continued unpredictable and unstable market conditions, both
domestically and abroad. If equity and credit markets are unfavorable, it may make future debt or equity
financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely
manner and on favorable terms could have a material adverse effect on our growth strategy, financial
performance and stock price and could require us to delay or abandon research and development plans.
At December 31, 2013, we had $68,906,000 of cash, cash equivalents, marketable securities and long-term
investments consisting of cash, money market, commercial paper, corporate debt securities, and government
obligations. While as of the date of this filing, we are not aware of any downgrades, material losses, or other
significant deterioration in the fair value of our cash equivalents or marketable securities since December 31,
2013, no assurance can be given that a deterioration in conditions of the global credit and financial markets
would not negatively impact our current portfolio of cash equivalents or marketable securities or our ability to
meet our financing objectives. Further dislocations in the credit market may adversely impact the value and
liquidity of marketable securities owned by us.
There is a possibility that our stock price may decline due to the volatility of the stock market in recent
years.
RISKS RELATING TO THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS
We are reliant on Genentech and/or Roche for the successful development and commercialization of
Erivedge. If Genentech does not successfully commercialize Erivedge for advanced BCC, or develop
Erivedge for other indications, our future prospects may be substantially harmed.
In January 2012, Erivedge was approved by the FDA as the first and only FDA-approved medicine for
people with advanced BCC. Erivedge has also been approved in a number of foreign countries. Genentech and/or
Roche have filed regulatory submissions in additional territories seeking approval to commercialize Erivedge for
this same indication. Genentech and Roche are also conducting a phase 2 clinical trial of Erivedge in operable
28
nodular BCC, a phase 1b/2 trial in relapsed/ refractory AML and MDS, and Erivedge is currently being tested in
other cancers under collaborative agreements between Genentech and either third-party investigators or the NCI.
Our levels of revenue in each period and our near-term prospects substantially depend upon Genentech’s ability
to successfully develop and commercialize Erivedge in one or more additional indications and to demonstrate its
safety and efficacy, as well as its superiority over existing therapies and standards of care. The development and
commercialization of Erivedge could be unsuccessful if:
•
Erivedge for the treatment of advanced BCC is no longer accepted as safe, efficacious, cost-effective,
and preferable to current therapies in the medical community and by third-party payors;
• Genentech and/or Roche fails to continue to apply the necessary financial resources and expertise to
manufacturing, marketing and selling Erivedge for advanced BCC and to regulatory approvals for this
indication outside of the U.S.;
• Genentech and/or Roche do not continue to develop and implement effective marketing, sales and
distribution strategies and operations, for development and commercialization of Erivedge for advanced
BCC;
• Genentech and/or Roche do not continue to develop, validate and maintain a commercially viable
manufacturing process for Erivedge that is compliant with current good manufacturing practices;
• Genentech and/or Roche do not successfully obtain third party reimbursement and generate commercial
demand that results in sales of Erivedge for advanced BCC in any geographic areas where requisite
approvals have been, or may be, obtained;
• we or Genentech and/or Roche encounter any third party patent interference or patent infringement
claims with respect to Erivedge;
• Genentech and/or Roche do not comply with any and all regulatory and legal requirements applicable to
•
•
•
the sale of Erivedge for advanced BCC;
competing products are approved for the same indications as Erivedge;
new safety risks are identified; and/or
Erivedge does not demonstrate acceptable safety and efficacy in current or future clinical trials, or
otherwise does not meet applicable regulatory standards for approval in indications other than advanced
BCC.
In addition, pursuant to the terms of our credit agreement with BioPharma-II, for the foreseeable future we
will only retain royalty revenue under our collaboration agreement with Genentech to the extent that Genentech
and Roche successfully commercialize Erivedge in the advanced BCC indication such that net sales are generated
at a level sufficient to derive royalties in excess of the obligation of our wholly-owned subsidiary, Curis Royalty,
to remit such royalties to BioPharma-II.
The FDA has placed a partial clinical hold on CUDC-427, one of our lead compounds under development.
Our business may be adversely affected if the partial clinical hold cannot be resolved or if such regulatory
concerns lead to more burdensome preclinical or clinical studies that cause significant delays in developing
our drug candidates.
In November 2012, we licensed from Genentech the exclusive, worldwide rights for the manufacture,
development and commercialization of CUDC-427. On November 5, 2013, we received written notification from
the FDA that our phase 1 study of CUDC-427 has been placed on partial clinical hold following the report of
death of a patient who progressed to liver failure approximately one month following the discontinuation of
CUDC-427 dosing. Under this partial clinical hold, new patients may not be enrolled in the study until we
provide the FDA with requested additional data and analysis on patients treated with CUDC-427 and a proposed
protocol amendment is submitted to and accepted by the FDA. In February 2014, we responded to the FDA’s
request for additional data and analysis and also submitted an amendment to the current study protocol.
29
We cannot assure you that the FDA will lift the partial clinical hold and allow us to pursue further development of
CUDC-427. If the FDA fails to lift the partial clinical hold, our development timelines and our business would be
adversely affected and our stock price may decline. Further, even if the FDA lifts the partial clinical hold, or if the FDA
or other regulatory agencies continue to express safety concerns after the hold is lifted, future preclinical or clinical
studies involving CUDC-427 may be more burdensome or include additional preclinical or clinical endpoints that are
difficult to meet. In such instances, our progress in the development of CUDC-427 may be significantly slowed and the
associated costs may be significantly increased, adversely affecting our business.
The therapeutic efficacy of targeted drug candidates being developed by us and our collaborators is
unproven in humans, and we may not be able to successfully develop and commercialize drug candidates
pursuant to these programs.
Our targeted drug candidates are novel compounds and their potential benefit as therapeutic cancer drugs is
unproven. Our ability to generate revenues from these drug candidates, which we do not expect will occur in the
short term, if ever, will depend heavily on their successful development and commercialization, which is subject
to many potential risks. For example, our drug candidates may not prove to be effective inhibitors of the cancer
targets they are being designed to act against and may not demonstrate in patients any or all of the
pharmacological benefits that may have been demonstrated in preclinical studies. These drug candidates may
interact with human biological systems in unforeseen, ineffective or harmful ways. For example, on November 5,
2013, we received written notification from the FDA that our phase 1 study of CUDC-427 had been placed on
partial clinical hold following the report of death of a patient who progressed to liver failure approximately one
month following the discontinuation of CUDC-427 dosing. If the FDA determines that it will not lift the partial
clinical hold on CUDC-427, or if any of our other drug candidates are associated with significant side effects or
have characteristics that are unexpected, we may need to delay or abandon their development or limit
development to certain uses or subpopulations in which the undesirable side effects or other characteristics are
less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially
showed promise in early stage testing for treating cancer have later been found to cause side effects that
prevented further development of the compound. As a result of these and other risks described herein that are
inherent in the development of novel therapeutic agents, we may never successfully develop, enter into or
maintain third party licensing or collaboration transactions with respect to, or successfully commercialize drug
candidates, in which case we will not achieve profitability and the value of our stock may decline.
We may expend our limited resources to pursue a particular drug candidate or indication and fail to
capitalize on drug candidates or indications that may be more profitable or for which there is a greater
likelihood of success.
Because we have limited financial and managerial resources, we focus on research programs and drug
candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with
other drug candidates or for other indications that later prove to have greater commercial potential. Our resource
allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market
opportunities. Our spending on current and future proprietary research and development programs and drug
candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate
the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to
that drug candidate through collaboration, licensing or other royalty arrangements in cases in which it would have
been more advantageous for us to retain sole development and commercialization rights to such drug candidate.
We depend on third parties for the development of certain of our programs. If one or more of our
collaborators fails or delays in developing or commercializing drug candidates based upon our
technologies, our business prospects and operating results would suffer and our stock price would likely
decline.
We currently have a collaboration with Genentech pursuant to which we have granted to Genentech
exclusive rights to develop and commercialize products based upon our Hedgehog pathway technologies. In
30
addition, we entered into a license agreement with Debiopharm pursuant to which Debiopharm is developing
Debio 0932, our Hsp90 inhibitor. Our collaboration agreement with Genentech and our license agreement with
Debiopharm are our most significant collaborations, and these collaborations may not be scientifically or
commercially successful due to a number of factors, including the following:
• Genentech and Debiopharm each have significant discretion in determining the efforts and resources
that they will apply to their respective collaboration with us. The timing and amount of any cash
payments that we may receive under such collaborative arrangements will depend on, among other
things, our collaboration partners’ efforts, allocation of resources and successful development and
commercialization of our drug candidates under their respective agreements with us.
• Our agreements with Genentech and Debiopharm each permits the other party wide discretion in
deciding which drug candidates to advance through the clinical trial process. It is possible for Genentech
or Debiopharm to reject drug candidates at any point in the research, development and clinical trial
process, without triggering a termination of the applicable agreement. In the event of any such decision,
our business and prospects may be adversely affected and we may not have the commercial rights or the
resources necessary to advance such programs on our own.
• We have granted clinical development rights to Genentech and Debiopharm, respectively, under our
agreements with each of them. If they fail to allocate sufficient time, attention and resources to clinical
trials of drug candidates under these collaborations, or fail to comply with good clinical practices or
other applicable regulatory requirements for such clinical trials, the successful clinical development and
commercialization of such drug candidates is likely to be adversely affected, as will our ability to
generate revenue from such collaborations.
• Genentech or Debiopharm may develop and commercialize, either alone or with others, products that
are similar to or competitive with the drug candidates that are the subject of its collaboration with us.
For example, Genentech and Debiopharm each are seeking to develop several other cancer drug
therapies.
• Genentech or Debiopharm may change the focus of its development and commercialization efforts or
pursue higher-priority programs. Our ability to successfully commercialize drug candidates under
collaboration with Genentech or Debiopharm could be limited if Genentech or Debiopharm decreases or
fails to increase spending related to such drug candidates.
• Our collaborators may enter into one or more transactions with third parties, including a merger,
consolidation, reorganization, sale of substantial assets, sale of substantial stock or change of control.
Any such transaction could divert the attention of our collaborative partner’s management and adversely
affect its ability to retain and motivate key personnel who are important to the continued development of
the programs under such collaboration. In addition, an acquirer could determine to reprioritize our
collaborator’s development programs such that our collaborator ceases to diligently pursue the
development of our programs, and/or terminates its collaboration with us.
• Genentech is a wholly-owned member of the Roche Group and as such is subject to the risk that Roche
could determine to reprioritize Genentech’s development programs which could reduce Genentech’s
efforts on the development or commercialization of Erivedge or cause Genentech to terminate our
collaboration.
• Genentech or Debiopharm may, under specified circumstances, terminate its collaboration with us on
short notice and for circumstances outside of our control, which could make it difficult for us to attract
new collaborators or adversely affect how we are perceived in the scientific and financial communities.
• Both Genentech and Debiopharm have the first right to maintain or defend our intellectual property
rights under their respective agreements and, although we may have the right to assume the maintenance
and defense of our intellectual property rights if our collaborators do not, our ability to do so may be
compromised by our collaborators’ acts or omissions.
31
• Genentech or Debiopharm may utilize our intellectual property rights in such a way as to invite litigation
that could jeopardize or invalidate our intellectual property rights or expose us to potential liability.
• Genentech or Debiopharm may not comply with all applicable regulatory requirements, may select
clinical investigators who are not qualified or who fail to comply with protocols or applicable regulatory
requirements, or may fail to report safety data in accordance with all applicable regulatory requirements.
•
•
If either Genentech or Debiopharm were to breach or terminate its arrangement with us,
the
development and commercialization of the affected drug candidate could be delayed, curtailed or
terminated because we may not have sufficient financial resources or capabilities to continue
development and commercialization of the drug candidate on our own.
Either Genentech or Debiopharm may not have sufficient resources necessary to advance clinical
development of drug candidates under our collaborations with each of them or may not obtain the
necessary regulatory approvals.
If Genentech or Debiopharm fails to successfully develop and commercialize our drug candidates under
collaboration, we may not be able to develop and commercialize these candidates independently or successfully
enter into one or more alternative collaborations, in which event our financial condition, results of operations and
stock price may be adversely affected.
We may not be successful in establishing additional strategic collaborations, which could adversely affect
our ability to develop and commercialize products.
Our current strategy is to seek corporate collaborators or licensees for the further development and
commercialization of one or more of our targeted drug candidates, generally following our completion of at least phase
1 or phase 2 clinical testing. We do not currently have the resources or capacity to advance these programs into later
stage clinical development (i.e., phase 3) or commercialization on our own. As such, our success will depend, in part,
on our ability to enter into one or more such collaborations. We face significant competition in seeking appropriate
collaborators and a number of recent business combinations among large pharmaceutical companies have resulted in a
reduced number of potential future collaborators. In addition, collaborations are complex and time-consuming to
negotiate and document. Moreover, we may not be successful in our efforts to establish a collaboration or other
alternative arrangements because our research and development pipeline may be insufficient, our programs may be
deemed to be at too early of a stage of development for collaborative effort and/or third parties may not view our drug
candidates and programs as having the requisite potential
to demonstrate safety and efficacy or sufficient
differentiability compared to existing or emerging treatments. We are also restricted under the terms of certain of our
existing collaboration agreements from entering into collaborations regarding or otherwise developing product
candidates that are similar to the product candidates that are subject to those agreements, such as developing product
candidates that inhibit the same molecular target. In addition, collaboration agreements that we enter into in the future
may contain further restrictions on our ability to enter into potential collaborations or to otherwise develop specified
product candidates. Even if we are successful in our efforts to establish new collaborations, the terms that we agree
upon may not be favorable to us and such collaboration agreements may not lead to development or commercialization
of drug candidates in the most efficient manner or at all.
Moreover,
if we fail
to establish and maintain additional strategic partnerships related to our drug
candidates:
•
•
the development of certain of our current or future drug candidates may be terminated or delayed;
our cash expenditures related to development of certain of our current or future drug candidates would
increase significantly and we may need to seek additional financing;
• we may be required to hire additional employees or otherwise develop expertise, such as additional
clinical, regulatory, sales and marketing expertise, for which we have not budgeted;
• we will bear all of the risk related to the development of any such drug candidates; and
•
our future prospects may be adversely affected and our stock price could decline.
32
If preclinical studies and clinical trials of our drug candidates are not successful then our future
profitability and success could be adversely affected.
In order to obtain regulatory approval for the commercial sale of our drug candidates, we and any current or
potential future collaborators will be required to complete extensive preclinical studies as well as clinical trials in
humans to demonstrate to the FDA and foreign regulatory authorities that our drug candidates are safe and
effective for each indication for which approval is sought.
Development,
including preclinical and clinical
is a long, expensive and uncertain process.
Preclinical testing and clinical trials of our drug candidates may not be successful. Many companies in the
pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after
achieving positive results in earlier development, and we cannot be certain that we will not face similar setbacks.
We and our collaborators could experience delays or failures in preclinical testing or clinical trials of any of our
drug candidates for a number of reasons including, for example:
testing,
•
preclinical studies or clinical trials may produce negative, inconsistent or inconclusive results;
• we or any collaborators may decide, or regulators may require us, to conduct additional preclinical
studies or clinical trials or terminate testing for a particular drug candidate;
•
•
the results from preclinical studies and early clinical trials may not be statistically significant or
predictive of results that will be obtained from expanded, advanced clinical trials;
preclinical and clinical data are often susceptible to varying interpretations and analyses and even if we,
or our collaborators, believe that the results of clinical trials for our product candidates to be successful,
regulatory authorities may disagree with our interpretations and analyses.
• we may encounter difficulties or delays in manufacturing sufficient quantities of the drug candidate used
in any preclinical study or clinical trial;
• we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or
clinical trial protocols with prospective trial sites;
•
•
•
the cost of clinical trials of our drug candidates may be greater than we anticipate;
the timing and completion of clinical trials of our drug candidates depend on, among other factors, the
number of patients required to be enrolled in the clinical trials and the rate at which those patients are
enrolled, and any increase in the required number of patients, decrease in recruitment rates or
difficulties retaining study participants may result in increased costs, program delays or program
termination;
our products under development may not be effective in treating cancer or may prove to have
undesirable or unintended side effects, toxicities or other characteristics that may prevent or limit their
commercial use;
• we, our clinical investigators, or our current or potential future collaborators and subcontractors, may
including good clinical practices and
to comply with applicable regulatory requirements,
fail
requirements regarding the disclosure of clinical trial information;
•
institutional review boards, regulators, including the FDA or its foreign equivalents, or any collaborators
may hold, suspend or terminate our clinical research or the clinical trials of our drug candidates for
various reasons, including failure to achieve established success criteria, noncompliance with regulatory
requirements or if, in their opinion, the participating subjects are being exposed to unacceptable health
risks. For example, on November 5, 2013, we received written notification from the FDA that our phase
1 study of CUDC-427 had been placed on partial clinical hold following the report of death of a patient
who progressed to liver failure approximately one month following the discontinuation of CUDC-427
dosing; and
33
• we, along with any of our current or potential future collaborators and subcontractors, may not employ,
in any capacity, persons who have been debarred under the FDA’s Application Integrity Policy, or
similar policy under foreign regulatory authorities, nor may we or any of our current or potential future
collaborators or subcontractors use disqualified clinical investigators or institutions to perform clinical
trials of our drug candidates. Employment or use of such a debarred or disqualified person or institution
may result in delays in FDA’s or foreign equivalent’s review or approval of our products, or the
rejection of data developed with the involvement of such person(s) or institution(s).
If we are required to conduct additional clinical trials or other testing of our drug candidates beyond those
that we currently contemplate, including with respect to CUDC-427 if the FDA lifts its partial clinical hold, if we
are unable to successfully complete clinical trials of our drug candidates or other testing, if the results of these
trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:
•
•
•
•
•
•
•
be delayed in obtaining marketing approval for our drug candidates;
not obtain marketing approval at all;
obtain approval for indications that are not as broad as intended or with labeling that highlights
undesirable safety risks;
have the product removed from the market after obtaining marketing approval;
be subject to additional post-marketing testing requirements;
be subject to restrictions on how the product is distributed or used; or
be unable to obtain reimbursement for use of the product.
If any of the above were to occur, our reputation and our ability to raise additional capital will be materially
impaired and our stock price is likely to decline.
If we experience delays in the enrollment of patients in our clinical trials, our receipt of necessary
regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for our drug candidates if we are unable to locate
and enroll a sufficient number of eligible patients to participate in these trials. Patient enrollment is a significant
factor in the timing of clinical trials, and is affected by many factors, including:
•
•
•
•
•
the size and nature of the patient population;
the severity of the disease under investigation;
the proximity of patients to clinical sites;
the eligibility criteria and design for the trial; and
clinicians’ and patients’ perceptions as to the potential advantages and risks of the drug being studied in
relation to other available therapies, including any new drugs that may be approved for the indications
we are investigating
In addition, many of our competitors have ongoing clinical trials for drug candidates that could be
competitive with our drug candidates. Patients who would otherwise be eligible for our clinical trials may instead
enroll in clinical trials of our competitors’ drug candidates or rely upon treatment with existing therapies that
may preclude them from eligibility for our clinical trials.
Enrollment delays in our clinical trials may result in increased development costs for our drug candidates,
which would cause the value of our stock price to decline, which could limit our ability to obtain additional
financing. Our inability to enroll a sufficient number of patients for any of our current or future clinical trials,
and/or the reporting of adverse events by companies with competing drug candidates, could result in significant
delays or may require us to abandon one or more clinical trials altogether.
34
We rely in part on third parties to conduct clinical trials of our internally-developed drug candidates, and
if such third parties perform inadequately, including failing to meet deadlines for the completion of such
trials, research or testing, then we will not be able to successfully develop and commercialize drug
candidates and grow our business.
For the foreseeable future, we expect to rely substantially on third parties such as consultants, clinical
investigators, contract research organizations and other similar entities to complete certain aspects of our
preclinical testing and clinical trials and provide services in connection with such clinical trials. Except for
remedies available to us under our agreements with such contractors, we cannot control whether or not they
devote sufficient time, skill and resources to our ongoing development programs. Furthermore, these third parties
may also have relationships with other entities, some of which may be our competitors. These third parties may
not complete activities on schedule, or at all, or may not conduct our clinical trials in accordance with the clinical
trial protocol or design. In addition, the FDA and its foreign equivalents require us to comply with certain
standards, referred to as good clinical practices, and applicable regulatory requirements, for conducting,
recording and reporting the results of clinical trials to assure that data and reported results are credible and
accurate and that the rights, integrity and confidentiality of trial participants are protected. Our reliance on third
parties that we do not control does not relieve us of these responsibilities and requirements. If any of the third
party contractors on whom we rely do not comply with good clinical practices or other applicable regulatory
requirements, we may not be able to use the data and reported results from the applicable trial. Any failure by a
third party to conduct our clinical trials as planned or in accordance with regulatory requirements could delay or
otherwise adversely affect our efforts to obtain regulatory approvals for and commercialize our drug candidates.
If we and our collaborative partners do not obtain, or if there are delays in obtaining, necessary regulatory
approvals, then we will not be able to commercialize our drug candidates and our business will be
materially impaired and the market price of our common stock could substantially decline.
We and our collaborators will be required to obtain regulatory approval in order to successfully advance
drug candidates through the clinic and prior to marketing and selling such products. We have limited experience
in filing and prosecuting applications to obtain marketing approval. The process of obtaining required regulatory
approvals is expensive and the time required for these approvals is uncertain and typically takes a number of
years, depending on the type, complexity and novelty of the product. During the course of this process, the FDA
or a foreign equivalent may determine that a drug candidate is not effective, or is only moderately effective, or
has undesirable or unintended side effects, toxicities, safety profile or other characteristics that preclude our
obtaining marketing approval. For example, on November 5, 2013, we received written notification from the
FDA that our phase 1 study of CUDC-427 has been placed on partial clinical hold following the report of death
of a patient who progressed to liver failure approximately one month following the discontinuation of CUDC-427
dosing. We cannot guarantee when or if the FDA will lift the partial clinical hold and allow us to pursue further
development of CUDC-427. With respect to our internal programs, we have limited experience in filing and
prosecuting applications to obtain marketing approval.
Any regulatory approval to market a product may be subject to limitations on the approved indicated uses
for which we or our collaborative partners may market the product, to labeling that highlights undesirable safety
risks, or to distribution and use restrictions or other requirements under a Risk Evaluation and Mitigation
Strategy, or REMS. These limitations may restrict
the size of the market for the product and affect
reimbursement by third-party payors. In addition, regulatory agencies may not grant approvals on a timely basis
or may revoke or significantly modify previously granted approvals.
We and our collaborators are subject
to numerous foreign regulatory requirements governing the
manufacturing and marketing of potential future products outside of the U.S. The approval procedure varies
among countries, additional testing may be required in some jurisdictions, and the time required to obtain foreign
approvals often differs from that required to obtain FDA approvals. Moreover, approval by the FDA or a foreign
equivalent does not ensure approval by regulatory authorities in other countries, and vice versa.
35
In addition, regulatory agencies may change existing requirements or adopt new requirements or policies. We and
any collaborative partners may be slow to adapt or may not be able to adapt to these changes or new requirements.
As a result of these factors, we and any collaborators may not successfully begin or complete clinical trials
and/or obtain regulatory approval to market and sell drug candidates in the time periods estimated, if at all.
Moreover, if we or any collaborators incur costs and delays in development programs or fail to successfully
develop and commercialize products based upon our technologies, our ability to generate revenues will be
materially impaired and our stock price could decline.
Any product candidate for which we obtain marketing approval could be subject to post-marketing
restrictions or withdrawal from the market and we may be subject to substantial penalties if we fail to
comply with regulatory requirements or if we experience unanticipated problems with such products.
Even if we or any collaborators obtain regulatory approval of a drug candidate, such product, along with the
manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such
product, will be subject to continual requirements of and review by the FDA and other regulatory authorities.
These requirements include submissions of safety and other post-marketing information and reports, registration
and listing requirements, cGMP requirements relating to manufacturing, quality control, quality assurance and
corresponding maintenance of records and documents, requirements regarding the distribution of samples to
physicians and recordkeeping.
The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance
to monitor the safety or efficacy of the product, including the requirement to implement a risk evaluation and
mitigation strategy. The FDA closely regulates the post-approval marketing and promotion of products to ensure
products are marketed only for the approved indications and in accordance with the provisions of the approved
labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and
if we do not market our products for their approved indications, we may be subject to enforcement action for,
among other things, off-label marketing. Violations of the Federal Food, Drug, and Cosmetic Act relating to the
promotion or manufacturing of prescription products may lead to investigations by the FDA, Department of
Justice, and state Attorneys General alleging violations of federal and state healthcare fraud and abuse laws, as
well as state consumer protection laws.
In addition, later discovery of previously unknown adverse events or other problems with our products,
manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various
results, including:
•
•
•
•
restrictions on such products, manufacturers or manufacturing processes;
restrictions on the labeling or marketing of a product;
restrictions on product distribution or use;
requirements to conduct post-marketing studies or clinical trials;
• warning letters;
• withdrawal of the products from the market;
•
•
•
•
•
•
•
refusal to approve pending applications or supplements to approved applications that we submit
recall of products;
fines, restitution or disgorgement of profits or revenue;
suspension or withdrawal of regulatory approvals;
refusal to permit the import or export of our products;
product seizure; or
injunctions or the imposition of civil or criminal penalties.
36
Our current and future relationships with customers and third-party payors in the U.S. and elsewhere
may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims,
transparency, health information privacy and security, and other healthcare laws and regulations, which
could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm,
administrative burdens, and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors in the U.S. and elsewhere will play a primary role in
the recommendation and prescription of any product candidates for which we obtain marketing approval. Our
future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse
and other healthcare laws and regulations that may constrain the business or financial arrangements and
relationships through which we market, sell and distribute any products for which we obtain marketing approval.
In addition, we may be subject to transparency laws and patient privacy regulation by U.S. federal and state
governments and by governments in foreign jurisdictions in which we conduct our business. The applicable
federal, state, and foreign healthcare laws and regulations that may affect our ability to operate include:
•
•
•
the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and
willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in
kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order
or recommendation of, any good or service, for which payment may be made under a federal healthcare
program such as Medicare and Medicaid;
federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False
Claims Act, which impose criminal and civil penalties, including civil whistleblower or qui tam actions,
against individuals or entities for knowingly presenting, or causing to be presented, to the federal
government, including the Medicare and Medicaid programs, claims for payment that are false or
fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the
federal government;
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes
criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making
false statements relating to healthcare matters;
• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of
2009, and their respective implementing regulations, which imposes obligations, including mandatory
contractual terms, on covered healthcare providers, health plans, and healthcare clearinghouses, as well
as their business associates, with respect to safeguarding the privacy, security and transmission of
individually identifiable health information;
•
•
the federal Open Payments program, which requires manufacturers of drugs, devices, biologics and medical
supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance
Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services, or
CMS, information related to “payments or other transfers of value” made to physicians, and teaching
hospitals with data collection beginning on August 1, 2013, requirements for manufacturers to submit reports
to CMS by March 31, 2014 and the 90th day of each subsequent calendar year, and disclosure of such
information to be made by CMS on a publicly available website beginning in September 2014; and
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws,
which may apply to sales or marketing arrangements and claims involving healthcare items or services
reimbursed by non-governmental third-party payors, including private insurers; state and foreign laws
that require pharmaceutical companies to comply with the pharmaceutical
industry’s voluntary
compliance guidelines and the relevant compliance guidance promulgated by the federal government or
otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require
drug manufacturers to report information related to payments and other transfers of value to physicians
and other healthcare providers or marketing expenditures; and state and foreign laws governing the
privacy and security of health information in certain circumstances, many of which differ from each
other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
37
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare
laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that
our business practices may not comply with current or future statutes, regulations or case law involving
applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation
of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant
civil, criminal and administrative penalties,
imprisonment,
exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, and the
curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities
with whom we expect to do business is found to be not in compliance with applicable laws, it may be subject to
criminal, civil or administrative sanctions,
including exclusions from participation in government funded
healthcare programs.
limitation, damages, fines,
including, without
Governments outside the United States tend to impose strict price controls, which may adversely affect our
revenues, if any.
In some countries, such as the countries of the EU, the pricing of prescription pharmaceuticals is subject to
In these countries, pricing negotiations with governmental authorities can take
governmental control.
considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing
approval in some countries, we, or our collaborators, may be required to conduct a clinical trial that compares the
cost-effectiveness of our product to other available therapies. If reimbursement of our products is unavailable or
limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be materially harmed.
If we or any of our collaborators fail to achieve market acceptance for any approved products, our future
revenue and ability to achieve profitability may be adversely affected.
Our future products, including those developed under collaborations with third parties, may not gain
commercial acceptance among physicians, patients and third-party payors, even if necessary marketing approvals
have been obtained. The degree of market acceptance of our drug candidates, if approved for commercial sale,
will depend on a number of factors, including:
•
•
•
•
•
•
•
•
the prevalence and severity of any side effects;
efficacy and potential advantages compared to alternative treatments;
the price we charge for our drugs;
convenience and ease of administration compared to alternative treatments;
the willingness of the target patient population to try new therapies and of physicians to prescribe these
therapies;
our ability to successfully develop companion diagnostics that effectively identify patient populations
likely to benefit from treatment with our therapeutic products;
the strength of marketing and distribution support; and
sufficient third party coverage or reimbursement.
The potential market opportunities for our product candidates are difficult to precisely estimate. Our
estimates of the potential market opportunities are predicated on many assumptions including industry
knowledge and publications, third party research reports and other surveys. While we believe that our internal
assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our
management, are inherently uncertain and the reasonableness of these assumptions has not been assessed by an
independent source. If any of the assumptions proves to be inaccurate, the actual markets for our product
candidates could be smaller than our estimates of the potential market opportunities.
38
RISKS RELATED TO OUR BUSINESS, INDUSTRY, STRATEGY AND OPERATIONS
We and our collaborators may not achieve projected research and development goals in the time frames
that we or they announce, which could have an adverse impact on our business and could cause our stock
price to decline.
We set goals for, and make public statements regarding, the timing of certain accomplishments, such as the
commencement and completion of preclinical studies, initiation and completion of clinical trials, and other
developments and milestones under our proprietary programs and those programs being developed under
collaboration agreements. Genentech is a wholly-owned member of the Roche Group, and Roche has also made
public statements regarding its expectations for the clinical development and potential regulatory approval of
Erivedge in territories other than the U.S., and may in the future make additional statements about its goals and
expectations for this collaboration with us. The actual timing of these events can vary dramatically due to a
number of factors including without limitation delays or failures in our and our current and potential future
collaborators’ preclinical studies or clinical trials, the amount of time, effort and resources committed to our
programs by us and our current and potential future collaborators and the uncertainties inherent in the regulatory
approval process. As a result:
•
our or our current and potential future collaborators’ preclinical studies and clinical trials may not
advance or be completed in the time frames we or they announce or expect. For example, on
November 5, 2013, we received written notification from the FDA that our phase 1 study of CUDC-427
has been placed on partial clinical hold following the report of death of a patient who progressed to liver
failure approximately one month following the discontinuation of CUDC-427 dosing. We cannot
guarantee when or if the FDA will lift the partial clinical hold and allow us to pursue further
development of CUDC-427;
• we or our current and potential future collaborators may not make regulatory submissions or receive
regulatory approvals as planned; and
• we or our current and potential future collaborators may not be able to adhere to our current schedule for
the achievement of key milestones under any of our internal or collaborative programs.
If we or any collaborators fail to achieve the above research and development goals as planned, our business
could be materially adversely affected and the price of our common stock could decline.
We face substantial competition, which may result in our competitors discovering, developing or
commercializing products before or more successfully than we do.
Our drug candidates face competition from existing and new technologies and products being developed by
biotechnology, medical device and pharmaceutical companies, as well as universities and other research
institutions. For example, we are aware of several biotechnology and pharmaceutical companies that have drug
development programs relating to compounds that modulate the Hedgehog pathway. We believe that there are
currently at
least five other companies that have progressed Hedgehog pathway inhibitors into clinical
development: Eli Lilly and Company, Exelixis, Inc. (in co-development with the Bristol-Myers Squibb
Company); Pfizer Inc.; Novartis; and Millennium: The Takeda Oncology Company. Novartis recently announced
that its Hedgehog inhibitor met the primary endpoint in a pivotal trial in patients with advanced basal cell
carcinoma. Under the terms of our collaboration agreement with Genentech, our royalty would be reduced in any
country where another drug that binds to the same molecular target receives regulatory approval for the same
indication as Erivedge and is subsequently commercialized in that country.
In addition, there are several companies developing drug candidates that target the same cancer pathways
that we are targeting or that are testing drug candidates in the same cancer indications that we are testing. For
example, while we are not aware of other molecules in clinical testing that are designed as one chemical entity to
target both PI3K and HDAC, there are commercially-available drugs that individually target HDAC and there are
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multiple companies testing PI3K inhibitors that are in various stages of clinical development. In addition,
Debiopharm, Novartis and TetraLogic are all developing antagonists of IAP proteins and several companies are
investigating HSP90 inhibitors.
Many of our competitors have substantially greater capital resources, research and development staffs and
facilities, and more extensive experience than we have. As a result, efforts by other life science, medical device
and pharmaceutical companies could render our programs or products uneconomical or result in therapies
superior to those that we develop alone or with a collaborator. For those programs that we have selected for
internal development, we face competition from companies that are more experienced in product development
and commercialization, obtaining regulatory approvals and product manufacturing. Mergers and acquisitions in
the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a
smaller number of our competitors. Other smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and established companies. These third parties
compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical
trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or
necessary for, our programs. As a result, any of these companies may be more successful
in obtaining
collaboration agreements or other monetary support, approval and commercialization of their products and/or
may develop competing products more rapidly and/or at a lower cost.
If we are not able to compete effectively, then we may not be able, either alone or with others, to advance
the development and commercialization of our drug candidates, which would adversely affect our ability to grow
our business and become profitable.
Product liability lawsuits against us could divert our resources, cause us to incur substantial liabilities and
limit commercialization of any products that we may develop.
Product liability claims are inherent in the process of researching, developing and commercializing human
health care products and could expose us to significant liabilities and prevent or interfere with the development
or commercialization of our drug candidates. Any such product liability claims may include allegations of defects
in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict
liability or a breach of warranties. Regardless of their merit or eventual outcome, product liability claims would
require us to spend significant time, money and other resources to defend such claims, could result in
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decreased demand for our product candidates or products that we may develop;
injury to our reputation and significant negative media attention;
• withdrawal of clinical trial participants;
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significant costs to defend resulting litigation;
substantial monetary awards to trial participants or patients;
reduced resources of our management to pursue our business strategy; and
the inability to commercialize any products that we may develop
Although we currently have product liability insurance for our clinical trials, this insurance is subject to
deductibles and coverage limitations and may not be adequate in scope to protect us in the event of a successful
product liability claim. Product liability insurance is expensive and may be difficult to retain. As such, it is
possible that we will not be able to retain product liability insurance on acceptable terms, if at all, or that our
product liability insurance coverage will prove to be inadequate to protect us from all potential claims.
If we are not able to attract and retain key management and scientific personnel and advisors, we may not
successfully develop our drug candidates or achieve our other business objectives.
We depend upon our senior management team. The loss of the service of any of the key members of our
senior management may significantly delay or prevent the achievement of product development and other
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business objectives. Our officers all serve pursuant to “at will” employment arrangements and can terminate their
employment with us at any time. We do not maintain key man life insurance on any of these officers. Replacing
key employees may be difficult and may take an extended period of time because of the limited number of
individuals in our industry with the breadth of skills and experience required to research, develop and
successfully commercialize products in our areas of core competency.
Our ability to operate successfully will depend on our ability to attract and retain qualified personnel,
consultants and advisors. We face intense competition for qualified individuals from numerous pharmaceutical
and biotechnology companies, universities, governmental entities and other research institutions. We may be
unable to attract and retain these individuals, and our failure to do so would have an adverse effect on our
business.
We may seek to acquire complementary businesses and technologies or otherwise seek to expand our
operations to grow our business, which may divert management resources and adversely affect our
financial condition and operating results.
We may seek to expand our operations, including without limitation through internal growth and/or the
acquisition of businesses and technologies that we believe are a strategic complement to our business model. We
may not be able to identify suitable acquisition candidates or expansion strategies and successfully complete such
acquisitions or successfully execute any such other expansion strategies. We may never realize the anticipated
benefits of any efforts to expand our business. Furthermore, the expansion of our business, either through internal
growth or through acquisitions, poses significant risks to our existing operations, financial condition and
operating results, including:
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a diversion of management from our existing operations;
increased operating complexity of our business, requiring greater personnel and resources;
significant additional cash expenditures to expand our operations and acquire and integrate new
businesses and technologies;
unanticipated expenses and potential delays related to integration of the operations, technology and
other resources of any acquired companies;
uncertainty related to the value, benefits or legitimacy of intellectual property or technologies acquired;
retaining and assimilating key personnel and the potential
employees;
impairment of relationships with our
incurrence of debt, other liabilities and contingent liabilities, including potentially unknown contingent
liabilities; and
dilutive stock issuances.
Any business that we conduct in China will expose us to risks resulting from adverse changes in political,
legal and economic policies of the Chinese government, which could impede our efforts in China and
materially and adversely affect the development of our targeted cancer drug candidates.
We have a subsidiary in China, Curis Shanghai, which is currently licensed to conduct business but is not
operational.
Conducting business in China exposes us to a variety of risks and uncertainties that are unique to China. The
economy of China has been transitioning from a planned economy to a more market-oriented economy. Although
in recent years the Chinese government has implemented measures emphasizing the utilization of market forces
for economic reform, the reduction of state ownership of productive assets and the establishment of sound
corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by
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the Chinese government. In addition, the Chinese government continues to play a significant role in regulating
industrial development. It also exercises significant control over China’s economic growth through the allocation
of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and
providing preferential treatment to particular industries or companies. Recent evidence of a slowdown in the pace
of growth of the Chinese economy could result in interruptions of our development efforts in China. If our
research and development efforts in China are delayed due to such interruptions, we may not realize the
reductions in costs anticipated from doing business in China. We would also have to consider moving our
chemistry and/or biology research that is currently conducted by contract research organizations in China to U.S.
or European providers, thereby potentially either increasing our overall costs for such services or reducing the
total number of chemists and or/biologists that we could engage. In addition, we cannot predict the effect of
future developments in the Chinese legal system, including the promulgation of new laws, changes to existing
laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. Our
business could be materially harmed by any changes in the political, legal or economic climate in China or the
inability to enforce applicable Chinese laws and regulations.
If the estimates we make and the assumptions on which we rely in preparing our financial statements
prove inaccurate, our actual results may vary significantly.
Our financial statements have been prepared in accordance with generally accepted accounting principles, or
GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the
reported amounts of our assets, liabilities, revenues and expenses, the amounts of charges taken by us and related
disclosure. Such estimates and judgments include the carrying value of our property, equipment and intangible
assets, revenue recognition, the value of certain liabilities, including the fair value of our warrant liability, the
repayment term of our loan with BioPharma-II and stock-based compensation expense. We base our estimates
and judgments on historical experience and on various other assumptions that we believe to be reasonable under
the circumstances. However, these estimates and judgments, or the assumptions underlying them, may change
over time. Accordingly, our actual financial results may vary significantly from the estimates contained in our
financial statements.
For a further discussion of the estimates and judgments that we make and the critical accounting policies
that affect these estimates and judgments, see “Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Critical Accounting Policies and Estimates” set forth in our Annual Report.
Our business and operations would suffer in the event of system failures.
Despite the implementation of security measures, our internal computer systems are vulnerable to damage
from computer viruses, unauthorized access, natural disasters,
terrorism, war and telecommunication and
electrical failures. Any system failure, accident or security breach that causes interruptions in our operations
could result in a material disruption of our product development programs. To the extent that any disruption or
security breach results in a loss or damage to our data or applications, or inappropriate disclosure of confidential
or proprietary information, we may incur liability and the further development of our drug candidates may be
delayed.
RISKS RELATING TO OUR INTELLECTUAL PROPERTY
We may not be able to obtain and maintain patent protection for our technologies and products, our
licensors may not be able to obtain and maintain patent protection for the technology or products that we
license from them and the patent protection we or they do obtain may not be sufficient to stop our
competitors from using similar technology.
The long-term success of our business depends in significant part on our ability to:
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obtain patents to protect our technologies and discoveries;
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protect trade secrets from disclosure to third-party competitors;
operate without infringing upon the proprietary rights of others; and
prevent others from infringing on our proprietary rights.
The patent positions of pharmaceutical and life science companies, including ours, are generally uncertain
and involve complex legal, scientific and factual questions. The laws, procedures and standards that the U.S.
Patent and Trademark Office and various foreign intellectual property offices use to grant patents, and the
standards that courts use to interpret patents, are not always applied predictably or uniformly and have changed
in significant ways and are expected to continue to change. In addition, the laws of foreign countries may not
protect our rights to the same extent or in the same manner as the laws of the U.S. For example, European patent
law restricts the patentability of methods of treatment of the human body more than U.S. law does. Consequently,
the level of protection, if any, that will be obtained and provided by our patents if we attempt to enforce them,
and they are challenged, is uncertain.
Patents may not issue from any of the patent applications that we own or license. If patents do issue, the type
and extent of patent claims issued to us may not be sufficient to protect our technology from exploitation by our
competitors. Our patents also may not afford us protection against competitors with similar technology. Assuming
the other requirements for patentability are met, currently, the first to file a patent application is generally entitled to
the patent. Prior to March 16, 2013, in the United States, patent applications were subject to a “first to invent” rule
of law. Applications filed subsequent to March 16, 2013 (with the exception of certain continuations and
divisionals) are subject to a “first to file” rule of law. Publications of discoveries in the scientific literature often lag
behind the actual discoveries, and patent applications in the U.S. and other jurisdictions are typically not published
until 18 months after filing, or in some cases not at all. Additionally, how the United States Patent & Trademark
Office and US courts will interpret the new laws remains significantly uncertain at this time. We cannot be certain
that any existing or future application will be subject to the “first to file” or “first to invent” rule of law, that we
were the first to make the inventions claimed in our existing patents or pending patent applications subject to the
prior laws, or that we were the first to file for patent protection of such inventions subject to the new laws.
We may not have rights under patents that may cover one or more of our drug candidates. In some cases,
these patents may be owned or controlled by third-party competitors and may prevent or impair our ability to
exploit our technology. As a result, we or our current or potential future collaborative partners may be required to
obtain licenses under third-party patents to develop and commercialize some of our drug candidates. If we are
unable to secure licenses to such patented technology on acceptable terms, we or our collaborative partners may
not be able to develop and commercialize the affected drug candidate or candidates.
It is also possible that we will fail to identify patentable aspects of our research and development output
before it is too late to obtain patent protection. Moreover, in some circumstances, we do not have the right to
control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering
technology or products that we license from third parties and are reliant on our licensors. For example, we do not
control the prosecution of certain patent rights licensed to us under our IAP agreement with Genentech.
Therefore, we cannot be certain that these patents and applications will be prosecuted and enforced in a manner
consistent with the best interests of our business.
in loss of exclusivity or in patent claims being narrowed,
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our
owned and licensed patents may be challenged in the courts or patent offices in the U.S. and abroad. Such
challenges may result
invalidated or held
unenforceable, which could limit our ability to stop others from using or commercializing similar or identical
technology and products, or limit the duration of the patent protection of our technology and products. Given the
amount of time required for the development, testing and regulatory review of new drug candidates, patents
protecting such candidates might expire before or shortly after such candidates are commercialized. As a result,
our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from
commercializing products similar or identical to ours.
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We may become involved in expensive and unpredictable patent litigation or other contentious intellectual
property proceedings, which could result in liability for damages or require us to cease our development
and commercialization efforts.
There are substantial litigation and other adversarial opposition proceedings regarding patent and other
intellectual property rights in the pharmaceutical and life science industries. We may become a party to patent
litigation or other proceedings regarding intellectual property rights.
Situations that may give rise to patent litigation or other disputes over the use of our intellectual property
include:
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initiation of litigation or other proceedings against third parties to enforce our patent rights, to seek to
invalidate the patents held by these third parties or to obtain a judgment that our drug candidates do not
infringe the third parties’ patents;
participation in interference and/or derivation proceedings to determine the priority of invention if our
competitors file U.S. patent applications that claim technology also claimed by us;
initiation of opposition, reexamination, post grant review or inter partes review proceedings by third
parties that seek to limit or eliminate the scope of our patent protection;
initiation of litigation by third parties claiming that our processes or drug candidates or the intended use
of our drug candidates infringes their patent or other intellectual property rights; and
initiation of litigation by us or third parties seeking to enforce contract rights relating to intellectual
property that may be important to our business.
The costs associated with any patent litigation or other proceeding, even if resolved favorably, will likely be
substantial and a distraction to management. Some of our competitors may be able to sustain the cost of such
litigation or other proceedings more effectively than we can because of their substantially greater financial
resources. In addition, our collaborators and licensors may have rights to file and prosecute claims of
infringement of certain of our intellectual property and we are reliant on them. If a patent litigation or other
intellectual property proceeding is resolved unfavorably, we or any collaborative partners may be enjoined from
manufacturing or selling our future products without a license from the other party and be held liable for
significant damages. Moreover, we may not be able to obtain required licenses on commercially acceptable terms
or any terms at all. In addition, we could be held liable for lost profits if we are found to have infringed a valid
patent, or liable for treble damages if we are found to have willfully infringed a valid patent. Litigation results are
highly unpredictable and we or any collaborative partner may not prevail in any patent litigation or other
proceeding in which we may become involved. Any changes in, or unexpected interpretations of the patent laws
may adversely affect our ability to enforce our patent position. Uncertainties resulting from the initiation and
continuation of patent litigation or other proceedings could damage our ability to compete in the marketplace.
We face risks relating to the enforcement of our intellectual property rights in China that could adversely
affect our business.
We have historically conducted synthetic chemistry work through a contract research agreement with a
medicinal chemistry provider in China. We seek to protect our intellectual property rights under this arrangement
through, among other things, non-disclosure and assignment of invention covenants. Enforcement of intellectual
property rights and confidentiality protections in China may not be as effective as in the U.S. or other countries.
Policing unauthorized use of proprietary technology is difficult and expensive, and we might need to resort to
litigation to enforce or defend patents issued to us or to determine the enforceability, scope and validity of our
proprietary rights or those of others. The experience and capabilities of Chinese courts in handling intellectual
property litigation varies, and outcomes are unpredictable. Further, such litigation may require significant
expenditure of cash and management efforts and could harm our business, financial condition and results of
operations. An adverse determination in any such litigation will impair our intellectual property rights and may
harm our business, prospects and reputation.
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If we are unable to keep our trade secrets confidential, our technology and proprietary information may
be used by others to compete against us.
We rely significantly on trade secrets, including unpatented know-how, technology and other proprietary
information, to maintain our competitive position. We seek to protect this information through confidentiality
and intellectual property license or assignment provisions in agreements with our employees, consultants and
other third-party contractors, including our contract research agreement with a medicinal chemistry provider in
China, as well as through other security measures. The confidentiality and intellectual property provisions of our
agreements and security measures may be breached, and we may not have adequate remedies for any such
breach. In addition, our trade secrets may otherwise become known or be independently developed by
competitors.
If we fail to comply with our obligations in the agreements under which we license rights to technology
from third parties, we could lose license rights that are important to our business.
We are party to agreements that provide for licenses to us of intellectual property or sharing of rights to
intellectual property that is important to our business, and we may enter into additional agreements in the future
that provide licenses to us of valuable technology. These licenses impose, and future licenses may impose,
various commercialization, milestone and other obligations on us, including the obligation to terminate our use of
patented subject matter under certain contingencies. If a licensor becomes entitled to, and exercises, termination
rights under a license, we would lose valuable rights and could lose our ability to develop our products. We may
need to license other intellectual property to commercialize future products. Our business may suffer if any
current or future licenses terminate, if the licensors fail to abide by the terms of the license or fail to prevent
infringement by third parties, if the licensed patents or other rights are found to be invalid or if we are unable to
enter into necessary licenses on acceptable terms.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of
their former employers.
As is common in the biotechnology and pharmaceutical
industry, we employ individuals who were
previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential
competitors. Although no claims against us are currently pending, we may be subject to claims that these
employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information
of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful
in defending against these claims, litigation could result in substantial costs and be a distraction to management.
RISKS RELATING TO MANUFACTURING AND SALES
We depend on third parties to produce our products under development, and if these third parties do not
successfully formulate or manufacture these drug candidates, our business will be harmed.
We have no manufacturing experience or manufacturing capabilities. In order to continue to develop drug
candidates, apply for regulatory approvals, and commercialize our products under development, we or any
collaborators must be able to manufacture products in adequate clinical and commercial quantities, in compliance
with regulatory requirements, including those related to quality control and quality assurance, at acceptable costs
and in a timely manner. The manufacture of our drug candidates may be complex, difficult to accomplish and
difficult to scale-up when large-scale production is required. Manufacture may be subject to delays, inefficiencies
and poor or low yields of quality products. The cost of manufacturing some of our drug candidates may make
them prohibitively expensive.
To the extent that we or any collaborators seek to enter into manufacturing arrangements with third parties,
we and such collaborators will depend upon these third parties to perform their obligations in a timely and
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effective manner and in accordance with government regulations. Contract manufacturers may breach their
manufacturing agreements because of factors beyond our and our collaborators’ control or may terminate or fail
to renew a manufacturing agreement based on their own business priorities at a time that is costly or inconvenient
for us and our collaborators.
Any contract manufacturers with whom we or our collaborators enter into manufacturing arrangements will
be subject to ongoing periodic, unannounced inspection by the FDA and corresponding state and foreign
agencies or their designees to ensure strict compliance with current good manufacturing practices and other
governmental regulations and corresponding foreign standards. Any failure by our or our collaborators’ contract
manufacturers, any collaborators, or us to comply with applicable regulations could result in sanctions being
imposed, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval
of drug candidates, delays, suspension or withdrawal of approvals, imposition of clinical holds, seizures or
recalls of drug candidates, operating restrictions and criminal prosecutions, any of which could significantly and
adversely affect our business. If we or a collaborator need to change manufacturers, the FDA and corresponding
foreign regulatory agencies must approve any new manufacturers in advance. This would involve testing and pre-
approval inspections to ensure compliance with FDA and foreign regulations and standards.
If third-party manufacturers fail to perform their obligations, our competitive position and ability to generate
revenue may be adversely affected in a number of ways, including;
• we and any collaborators may not be able to initiate or continue certain preclinical and/or clinical trials
of products that are under development;
• we and any collaborators may be delayed in submitting applications for regulatory approvals for our
drug candidates; and
• we and any collaborators may not be able to meet commercial demands for any approved products.
Because we rely on a limited number of suppliers for the raw materials used in our drug candidates, any
delay or interruption in the supply of such raw materials could lead to delays in the manufacture and
supply of our drug candidates.
We rely on third parties to supply certain raw materials necessary to produce our drug candidates for
preclinical studies and clinical trials. There are a small number of suppliers for certain raw materials that we use
to manufacture our drug candidates. We purchase these materials from our suppliers on a purchase order basis
and do not have long-term supply agreements in place. Such suppliers may not sell these raw materials to us at
the times we need them or on commercially reasonable terms, or delivery of these raw materials may be delayed
or interrupted. Although we generally do not begin a preclinical study or clinical trial unless we believe we have
a sufficient supply of a drug candidate to complete such study or trial, any significant delay in the supply of raw
materials for our drug candidates for an ongoing clinical trial due to the need to replace a third-party supplier
could considerably delay completion of certain preclinical studies and/or clinical trials. Moreover, if we were
unable to purchase raw materials after regulatory approval had been obtained for our drug candidates, the
commercial launch of our drug candidates would be delayed or there would be a shortage in supply, which would
impair our ability to generate revenues from the sale of our drug candidates.
We have no sales or marketing experience and, as such, plan to depend significantly on third parties who
may not successfully market and sell any products we develop.
We have no sales, marketing or product distribution experience. If we receive required regulatory approvals
to commercialize any of our drug candidates, we plan to rely primarily on sales, marketing and distribution
arrangements with third parties, including our collaborative partners. For example, as part of our agreements with
Genentech and Debiopharm, we have granted Genentech and Debiopharm the exclusive rights to distribute
certain products resulting from such collaborations, and Genentech is currently commercializing Erivedge. We
may have to enter into additional marketing arrangements in the future and we may not be able to enter into these
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additional arrangements on terms that are favorable to us, if at all. In addition, we may have limited or no control
over the sales, marketing and distribution activities of these third parties and sales through these third parties
could be less profitable to us than direct sales. These third parties could sell competing products and may devote
insufficient sales efforts to our products. Our future revenues will be materially dependent upon the success of
the efforts of these third parties.
We may seek to independently market products that are not already subject to marketing agreements with
other parties. If we determine to perform sales, marketing and distribution functions ourselves, we could face a
number of additional risks, including:
• we may not be able to attract and build a significant and skilled marketing staff or sales force;
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the cost of establishing a marketing staff or sales force may not be justifiable in light of the revenues
generated by any particular product; and
our direct sales and marketing efforts may not be successful.
Even if we successfully commercialize any products under development, either alone or in collaboration,
we face uncertainty with respect to pricing, third-party reimbursement and healthcare reform, all of
which could adversely affect the commercial success of our drug candidates.
Our ability to collect significant revenues from sales of our products, if commercialized successfully, may
depend on our ability, and the ability of any current or potential future collaboration partners or customers, to
obtain adequate levels of coverage and reimbursement for such products from third-party payers such as:
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government health administration authorities;
private health insurers;
health maintenance organizations;
pharmacy benefit management companies; and
other healthcare-related organizations.
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Third party payers are
increasingly challenging the prices charged for medical products and services. Government authorities and third-
party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular
medications. We cannot be sure that reimbursement will be available for any product that we commercialize and,
if reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the
price of, any drug candidate for which we obtain marketing approval. If reimbursement is not available or is
available only to limited levels, we may not be able to successfully commercialize any drug candidate for which
we obtain marketing approval.
if applicable, may also not be sufficient
There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may
be more limited than the purposes for which the drug is approved by the FDA or a foreign equivalent. Moreover,
eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our
costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new
to cover our costs and may not be made permanent.
drugs,
Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may
be based on reimbursement levels already set for lower cost drugs, and may be incorporated into existing
payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by
government healthcare programs or private payors and by any future relaxation of laws that presently restrict
imports of drugs from countries where they may be sold at lower prices than in the US. Third-party payors often
rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our
inability to promptly obtain coverage and profitable payment rates from both government-funded and private
payors for any approved products that we develop could have a material adverse effect on our operating results,
our ability to raise capital needed to commercialize products and our overall financial condition.
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In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory
changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of
any product candidate that we develop, restrict or regulate post-approval activities and affect our ability to
profitably sell profitably or commercialize any product candidate for which we obtain marketing approval or that
we may in-license. The pharmaceutical industry has been a particular focus of these efforts and has been
significantly affected by legislative initiatives. Current laws, as well as other healthcare reform measures that
may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure
on the price that we receive for any approved product.
In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the
MMA, changed the way Medicare covers and pays for pharmaceutical products. Cost reduction initiatives and
other provisions of this legislation could limit coverage of and reduce the price that we receive for any approved
products. While the MMA applies only to product benefits for Medicare beneficiaries, private payors often
follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore,
any reduction in reimbursement that results from the MMA or other healthcare reform measures may result in a
similar reduction in payments from private payors.
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as
amended by the Health Care and Education Affordability Reconciliation Act, or collectively PPACA. Among the
provisions of PPACA of importance to our potential products are the following:
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an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription
drugs and biologic agents, apportioned among these entities according to their market share in certain
government healthcare programs;
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate
Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs,
respectively;
expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback
Statute, new government investigative powers, and enhanced penalties for noncompliance;
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50%
point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during
their coverage gap period, as a condition for a manufacturer’s outpatient drugs to be covered under
Medicare Part D;
extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are
enrolled in Medicaid managed care organizations;
expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer
Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for
certain individuals with income at or below 133% of the federal poverty level beginning in 2014,
thereby potentially increasing a manufacturer’s Medicaid rebate liability;
expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing
program;
the new requirements under the federal Open Payments program and its implementing regulations;
a new requirement to annually report product samples that manufacturers and distributors provide to
physicians; and
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct
comparative clinical effectiveness research, along with funding for such research.
In addition, other legislative changes have been proposed and adopted since PPACA was enacted. These
changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went
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into effect in April 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act
of 2012, which, among other things, reduced Medicare payments to several types of providers, and increased the
statute of limitations period for the government to recover overpayments to providers from three to five years.
These new laws may result in additional reductions in Medicare and other healthcare funding.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict
sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative
changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what
the impact of such changes on the marketing approvals of our product candidates, if any, or in-licensed products,
if any, may be.
RISKS RELATED TO OUR COMMON STOCK
Our stock price may fluctuate significantly and the market price of our common stock could drop below
the price paid.
The trading price of our common stock has been volatile and is likely to continue to be volatile in the future.
For example, our stock traded within a range of a high price of $5.65 and a low price of $1.97 per share for the
period January 1, 2011 through March 6, 2014. The stock market, particularly in recent years, has experienced
significant volatility with respect to pharmaceutical and biotechnology company stocks. Prices for our stock will
be determined in the marketplace and may be influenced by many factors, including:
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announcements regarding new technologies by us or our competitors;
• market conditions in the biotechnology and pharmaceutical sectors;
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•
•
•
•
•
•
•
•
•
•
•
•
•
•
rumors relating to us or our collaborators or competitors;
litigation or public concern about the safety of our potential products;
actual or anticipated variations in our quarterly operating results and any subsequent restatement of such
results;
the amount and timing of any royalty revenue we receive from Genentech related to Erivedge;
actual or anticipated changes to our research and development plans;
deviations in our operating results from the estimates of securities analysts;
entering into new collaboration agreements or termination of existing collaboration agreements;
adverse results or delays in clinical trials being conducted by us or any collaborators;
any intellectual property or other lawsuits involving us;
third-party sales of large blocks of our common stock;
sales of our common stock by our executive officers, directors or significant stockholders;
equity sales by us of our common stock to fund our operations;
the loss of any of our key scientific or management personnel;
FDA or international regulatory actions, such as matters related to the partial clinical hold placed on
CUDC-427 by the FDA;
the limited trading volume in our common stock; and
general economic and market conditions,
international financial markets.
including recent adverse changes in the domestic and
49
While we cannot predict the individual effect that these factors may have on the price of our common stock,
these factors, either individually or in the aggregate, could result in significant variations in price during any
given period of time.
In the past, securities class action litigation has often been instituted against companies following periods of
volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s
attention and resources.
Future sales of shares of our common stock, including shares issued upon the exercise of currently
outstanding options and warrants or pursuant to our universal shelf registration statement could result in
dilution to our stockholders and negatively affect our stock price.
Most of our outstanding common stock can be traded without restriction at any time. As such, sales of a
substantial number of shares of our common stock in the public market could occur at any time. These sales, or the
perception in the market that the holders of a large number of shares intend to sell such shares, could reduce the market
price of our common stock. In addition, we have a significant number of shares that are subject to outstanding options
and warrants and in the future we may issue additional options, warrants or other derivative securities convertible into
our common stock. The exercise of any such options, warrants or other derivative securities, and the subsequent sale of
the underlying common stock could cause a further decline in our stock price. These sales also might make it difficult
for us to sell equity securities in the future at a time and at a price that we deem appropriate.
Furthermore, as of December 31, 2013, we have outstanding warrants to purchase 1,373,517 shares of our
common stock that contain antidilution adjustment provisions that will result in a decrease in the price and an
increase in the number of shares of common stock issuable upon exercise of such warrants in the event of certain
issuances of common stock by us at prices below $3.55 per share. To the extent that we are required to adjust the
price and number of shares underlying these warrants as a result of this antidilution clause, and thereafter such
warrants are exercised, additional shares of our common stock will be issued that will be eligible for resale in the
public market, which could result in added dilution to our security holders and could also have an adverse effect
on the market price of our common stock.
We currently have on file with the SEC a “universal” shelf registration statement which allows us to offer
and sell registered common stock, preferred stock and warrants from time to time pursuant to one or more
offerings at prices and terms to be determined at the time of sale. For example, in July 2013 we entered into a
sales agreement with Cowen pursuant to which, from time to time, we may offer and sell up to $30,000,000 of
the common stock that was registered on this shelf registration statement through Cowen pursuant to one or more
“at the market” offerings from which we have received gross proceeds of approximately $16,900,000 as of
December 31, 2013. In addition, with our prior written approval, Cowen may also sell these shares of common
stock by any other method permitted by law, including in privately negotiated transactions. Sales of substantial
amounts of shares of our common stock or other securities under this registration statement could lower the
market price of our common stock and impair our ability to raise capital through the sale of equity securities.
If we are not able to maintain effective internal controls under Section 404 of the Sarbanes-Oxley Act, our
business and stock price could be adversely affected.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us, on an annual basis, to review and evaluate our
internal controls, and requires our independent auditors to attest to the effectiveness of our internal controls. Any
failure by us to maintain the effectiveness of our internal controls in accordance with the requirements of
Section 404 of the Sarbanes-Oxley Act, as such requirements exist today or may be modified, supplemented or
amended in the future, could have a material adverse effect on our business, operating results and stock price.
50
We do not intend to pay dividends on our common stock, and any return to investors will come, if at all,
only from potential increases in the price of our common stock.
At the present time, we intend to use available funds to finance our operations. Accordingly, while payment
of dividends rests within the discretion of our board of directors, no common stock dividends have been declared
or paid by us and we have no intention of paying any common stock dividends in the foreseeable future.
Insiders have substantial influence over us and could delay or prevent a change in corporate control.
As of December 31, 2013, we believe that our directors, executive officers and principal stockholders, together
with their affiliates, owned, in the aggregate, approximately 31% of our outstanding common stock. As a result, these
stockholders, if acting together, will be able to exert influence over the management and affairs of our company and
over matters requiring stockholder approval, including the election of directors and approval of significant corporate
transactions. This concentration of ownership could harm the market price of our common stock by:
•
•
•
delaying, deferring or preventing a change in control of our company;
impeding a merger, consolidation, takeover or other business combination involving our company; or
entrenching our management or the board of directors.
We have anti-takeover defenses that could delay or prevent an acquisition that our stockholders may
consider favorable or prevent attempts by our stockholders to replace or remove our current management
and the market price of our common stock may be lower as a result.
Provisions of our certificate of incorporation, our bylaws and Delaware law may have the effect of deterring
unsolicited takeovers or delaying or preventing changes in control of our management, including transactions in
which our stockholders might otherwise receive a premium for their shares over then current market prices. In
addition, these provisions may limit the ability of stockholders to approve transactions that they may deem to be
in their best interest. For example, we have divided our board of directors into three classes that serve staggered
three-year terms, we may issue shares of our authorized “blank check” preferred stock and our stockholders are
limited in their ability to call special stockholder meetings.
In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which prohibits a publicly-held Delaware corporation from engaging in a business
combination with an interested stockholder, generally a person which together with its affiliates owns, or within
the last three years has owned, 15% of our voting stock, for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the business combination is approved in
a prescribed manner. These provisions could discourage, delay or prevent a change in control transaction.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
We currently lease a facility for our administrative, research and development requirements located at 4
Maguire Road in Lexington, Massachusetts consisting of 24,529 square feet pursuant to a lease that expires
February 2018. We believe that our existing facility will be suitable and adequate to meet our needs for the
foreseeable future.
ITEM 3.
LEGAL PROCEEDINGS
We are currently not a party to any material legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
51
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERS
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) Market Information. Our common stock is traded on the NASDAQ Global Market under the trading
symbol “CRIS.” The following table sets forth, for the fiscal periods indicated, the high and low sales prices per
share of our common stock as reported on the NASDAQ Global Market:
Year ended December 31, 2012
First Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2013
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curis
Common Stock
High
Low
$5.65
$5.49
$5.51
$4.27
$3.68
$4.50
$4.63
$4.74
$4.20
$4.40
$3.83
$2.98
$2.66
$2.96
$3.20
$2.44
(b) Holders. On March 6, 2014, the last reported sale price of our common stock on the NASDAQ Global
Market was $2.95 and there were 238 holders of record of our common stock. The number of record holders may
not be representative of the number of beneficial owners because many of the shares of our common stock are
held by depositories, brokers or other nominees.
(c) Dividends. We have never declared or paid any cash dividends on our common stock. We currently
intend to retain earnings, if any, to support our business strategy and do not anticipate paying cash dividends in
the foreseeable future. Payment of future dividends, if any, will be at the sole discretion of our board of directors
after taking into account various factors, including our financial condition, operating results, capital requirements
and any plans for expansion.
(d) Issuer Purchases of Equity Securities. We did not make any purchases of our common stock during the
three months ended December 31, 2013.
52
(e) Performance Graph. The graph below compares the cumulative total stockholder return on our
common stock for the period from December 31, 2008 through December 31, 2013, with the cumulative total
return on (i) NASDAQ Pharmaceutical Index, (ii) NASDAQ Composite Index and (iii) NASDAQ Biotechnology
Index. The comparison assumes investment of $100 on December 31, 2008 in our common stock and in each of
the indices and, in each case, assumes reinvestment of all dividends.
$700
$600
$500
$400
$300
$200
$100
$0
12/08
12/09
12/10
12/11
12/12
12/13
Curis, Inc.
NASDAQ Composite
NASDAQ Pharmaceutical
NASDAQ Biotechnology
CURIS INC.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NASDAQ COMPOSITE INDEX . . . . . . . . . . . . . . . . . .
NASDAQ PHARMACEUTICAL INDEX . . . . . . . . . . .
NASDAQ BIOTECHNOLOGY INDEX . . . . . . . . . . . .
100.00
100.00
100.00
100.00
433.33
144.88
104.90
104.67
264.00
170.58
109.55
112.89
624.00
171.30
125.16
127.04
457.33
199.99
172.74
169.50
376.00
283.39
284.56
288.38
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
53
ITEM 6.
SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below have been derived from our consolidated financial
statements. These historical results are not necessarily indicative of results to be expected for any future period.
You should read the data set forth below in conjunction with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and the consolidated financial statements and related notes
included elsewhere in this report.
Year Ended December 31,
2013
2012
2011
2010
2009
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Revenues:
License and maintenance fees(1) . . . . . . . . . .
Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development(2) . . . . . . . . . . . .
$ 10,000
3,942
1,060
$ 14,000
1,530
1,442
$ 14,300
—
463
$ 15,656
—
344
$
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,002
16,972
14,763
16,000
Costs and expenses:
Cost of royalty revenues . . . . . . . . . . . . . . . .
Research and development. . . . . . . . . . . . . . .
In-process research and development. . . . . . .
General and administrative. . . . . . . . . . . . . . .
Total costs and expenses . . . . . . . . . . . . . . . . . . . .
198
12,927
—
11,293
24,418
176
15,493
9,500
10,423
35,592
—
13,693
—
8,273
21,966
—
11,373
—
10,265
21,638
7,809
—
781
8,590
—
9,933
—
8,702
18,635
Loss from operations . . . . . . . . . . . . . . . . . . . . . . .
(9,416)
(18,620)
(7,203)
(5,638)
(10,045)
Other income (expense):
Interest and other income . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of warrants . . . . . . . . . .
Total other income (expenses), net . . . . . . . .
165
(3,842)
771
(2,906)
150
(204)
2,257
2,203
100
—
(2,756)
(2,656)
627
—
576
1,203
222
—
—
222
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (12,322) $ (16,417) $
(9,859) $
(4,435) $
(9,823)
Basic and diluted net loss per common share . . . .
$
(0.15) $
(0.21) $
(0.13) $
(0.06) $
(0.15)
Weighted average common shares (basic and
diluted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
82,339
79,059
76,352
74,959
65,061
(in thousands)
As of December 31,
2013
2012
2011
2010
2009
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment—restricted . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term obligations(3) . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . .
$ 68,906
53,607
180
80,591
28,859
(760,827)
45,174
$ 58,701
52,873
194
69,768
31,522
(748,505)
34,267
$ 37,718
34,717
236
48,180
4,518
(732,088)
39,876
$ 40,380
37,608
497
50,649
1,656
(722,229)
45,518
$ 25,035
23,347
216
36,099
—
(717,793)
33,052
(1) During the years ended December 31, 2013, 2012, 2011 and 2009, we recognized $10,000,000,
$14,000,000, $14,000,000 and $6,000,000 of revenue for cash payments that we earned during each of
2013, 2012, 2011 and 2009, respectively, under our June 2003 Hedgehog pathway inhibitor collaboration
54
with Genentech. During the year ended December 31, 2010, we recognized $11,000,000 of revenue for cash
payments that we earned under our August 2009 license agreement with Debiopharm, and we also
recognized $4,000,000 in settlement proceeds from Micromet pursuant to the settlement agreement that we
entered into in February 2010 to resolve a contract claim we filed related to our June 2001 agreement with
Micromet.
(2) During the years ended December 31, 2013 and 2012, we recognized $650,000 and $1,000,000,
respectively, of research and development revenue for milestones that we earned under our November 2011
agreement with LLS.
(3) Long-term obligations are comprised of the following:
(in thousands)
As of December 31,
2013
2012
2011
2010
Long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent payments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27,945
717
197
$29,839
1,488
195
$ — $ —
1,605
4,361
51
157
Total long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . .
$28,859
$31,522
$4,518
$1,656
55
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations should be read
together with “Selected Financial Data,” and our financial statements and accompanying notes appearing
elsewhere in this annual report on Form 10-K. This discussion contains forward-looking statements, based on
current expectations and related to future events and our future financial performance, that involve risks and
uncertainties. Our actual results may differ materially from those anticipated in these forward-looking
statements as a result of many important factors, including those set forth under Item 1A, “Risk Factors” and
elsewhere in this report.
Overview
We are an oncology-focused drug development company seeking to develop novel, targeted drug candidates
for the treatment of human cancers. We conduct our research and development programs both internally and
through strategic collaborations. Internally, we are leveraging our experience in targeting signaling pathways in
seeking to develop targeted drug candidates including CUDC-427 and CUDC-907. Our collaborators Genentech
and Roche are commercializing Erivedge and our licensee Debiopharm is advancing the clinical development of
Debio 0932.
On November 5, 2013, we received written notification from the FDA that our Phase 1 study of CUDC-427
has been placed on partial clinical hold following the report of death of a patient who progressed to liver failure
approximately one month following the discontinuation of CUDC-427 dosing. Under this partial clinical hold,
new patients may not be enrolled in the study until we provide the FDA with requested additional data and
analysis on patients treated with CUDC-427 and a proposed protocol amendment is submitted to and accepted by
the FDA. In February 2014, we responded to FDA’s request for additional data and analysis and also submitted
an amendment to the current study protocol. If the partial clinical hold is lifted by the FDA, we expect to re-
initiate enrollment in the phase 1 trial and also expect to initiate additional studies with CUDC-427.
Proprietary Drug Candidates
CUDC-907. CUDC-907 is an orally bioavailable drug candidate designed to predominantly inhibit select
classes of HDAC enzymes (primarily Classes I and IIB) and certain isoforms of PI3K (mainly PI3K- alpha, delta
and beta). In January 2013, we initiated a phase 1 clinical trial in patients with advanced lymphoma or multiple
myeloma. This first-in-human study is designed to assess the safety (including the maximum tolerated dose),
pharmacokinetics, and anti-cancer activity of CUDC-907. In July 2013, we amended the protocol of the ongoing
phase 1 study to include two additional dosing regimens, wherein oral CUDC-907 will be administered either
two times per week or three times per week. Additionally, exploratory biomarkers will be assessed for the
activity of CUDC-907.
We expect to complete the dose-escalation phase of this phase 1 study in the middle of 2014 and initiate
enrollment in the expansion cohort(s) in patients with select malignancies in the second half of 2014. In addition
to our ongoing phase 1 clinical study in advanced lymphomas and multiple myeloma patients, we are conducting
preclinical studies with CUDC-907 in solid tumor models and expect that we will initiate additional studies using
CUDC-907 in in patients with solid tumors later in 2014. In November 2011, we entered into an agreement with
the Leukemia and Lymphoma Society, or LLS, relating to the development of CUDC-907.
CUDC-427.
In 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.
56
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 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.
Prior to our license, Genentech had completed enrollment
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.
in a phase 1 clinical
In July, 2013, we initiated an open label, multicenter phase 1 study of CUDC-427 in patients with advanced
and refractory solid tumors or lymphomas. The study was designed to determine the maximum tolerated dose
and recommended phase 2 dose of CUDC-427 administered as a single agent using a continuous, twice-daily
treatment schedule. On November 5, 2013, we received written notification from the FDA that this phase 1 study
of CUDC-427 had been placed on partial clinical hold following the report of death of a patient who progressed
to liver failure approximately one month following the discontinuation of CUDC-427 dosing. Under this partial
clinical hold, new patients may not be enrolled in the study until we provide the FDA with requested additional
data and analysis on patients treated with CUDC-427 and a proposed protocol amendment is submitted to and
accepted by the FDA. In February 2014, we responded to the FDA’s requests for additional information and also
submitted an amendment to the current protocol. If the partial clinical hold is lifted by the FDA, we expect to re-
initiate enrollment in the phase 1 trial and also expect to initiate additional studies with CUDC-427, including a
clinical trial in combination with capecitabine in HER-2 negative breast cancer patients. Additionally, we
anticipate testing CUDC-427 in selected patients with known alterations in certain genetic markers such as
MALT lymphoma and other cancer indications, subject to FDA removing the partial clinical hold.
CUDC-101.
In April 2013, we determined that we would discontinue enrolling patients in our phase 1
expansion trial of the intravenous formulation of CUDC-101, a drug candidate that was designed to target
epidermal growth factor receptor and HDAC enzymes, and that the future development of CUDC-101 would be
dependent on our ability to successfully develop an oral formulation of CUDC-101. Our efforts to develop an
effective oral formulation with improved bioavailability have not resulted in significant improvements when
compared to the intravenous formulation of CUDC-101. As a result, while we continue to explore possible
collaboration or other mechanisms to further advance this molecule, at this time we no longer plan to make
material investments in this program.
Our Collaborations
Erivedge® (vismodegib) capsule. Erivedge is a first-in-class orally-administered small molecule Hedgehog
pathway inhibitor developed under collaboration with Genentech. Erivedge was discovered by Genentech and
jointly validated by Genentech and Curis through a series of preclinical studies. 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. We are eligible
to receive cash payments upon the successful achievement of specified clinical development and regulatory
approval milestones, as well as royalties related to commercial sales of Erivedge.
In January 2012, the FDA approved Erivedge for treatment of adults with 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. In May 2013, Australia’s TGA approved Erivedge and in July 2013 the European
Commission granted conditional approval for the marketing of Erivedge in all 28 European Union member
states. A conditional marketing authorization is granted to medicinal products with a positive benefit/risk
57
assessment that satisfy an unmet medical need and whose availability results in a significant public health
benefit. In addition to the United States, Australia and European Union, Erivedge is approved in several other
countries and 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.
In addition to the lead indication of advanced BCC, Genentech evaluated Erivedge in a single-arm, three
cohort phase 2 clinical trial to treat less advanced forms of BCC. Roche expects to present data from this study at
the American Academy of Dermatology Annual Meeting in March 2014. Roche has also initiated a randomized,
placebo controlled phase 2 study to investigate the efficacy of 12 weeks of Erivedge treatment (versus placebo)
prior to surgery in previously untreated BCC. The primary endpoint of this study is the percentage change in
BCC tumor area following 12 weeks of Erivedge or placebo therapy.
In October 2013 Roche also initiated a phase 1b/2 clinical trial to investigate the safety and efficacy of
Erivedge in patients with relapsed/refractory AML, and relapsed/refractory high-risk MDS. In contrast to BCC,
these two clinical conditions are driven by mechanisms that are not linked to mutations in the Hedgehog
pathway. In addition to Genentech/ Roche sponsored studies, several third-party investigators are also conducting
clinical trials with Erivedge.
Pursuant to the terms of our collaboration agreement with Genentech, we are entitled to a royalty on net
sales of Erivedge that ranges from 5% to high single digits of global Erivedge sales, 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.
We recognized $3,942,000 of royalty revenue from Genentech’s net sales of Erivedge during the year ended
December 31, 2013 and have recognized an aggregate of $5,472,000 in royalty revenues since Erivedge was
approved. As discussed below, royalty payments related to Erivedge service the outstanding debt and accrued
interest of Curis Royalty owed to BioPharma-II, up to the quarterly caps for 2014 and 2015, and until the debt is
fully repaid thereafter.
In December 2012, our wholly-owned subsidiary, Curis Royalty, received a $30,000,000 loan from
BioPharma-II. In connection with the loan, we transferred to Curis Royalty our right to receive certain future
royalty and royalty-related payments on the commercial sales of Erivedge that we may receive from Genentech.
The loan and accrued interest will be repaid by Curis Royalty using such royalty and royalty-related payments.
The loan constitutes an obligation of Curis Royalty, and is intended to be non-recourse to us. As of December 31,
2013, Curis Royalty owed a total of $31,013,000, gross, to BioPharma-II comprised of principal and accrued
interest.
We are also obligated to make payments to university licensors on royalties that Curis Royalty earns in all
territories other than Australia in an amount that is equal to 5% of the royalty payments that Curis Royalty
receives 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 in from Roche’s sales of Erivedge in Australia, we will be obligated to
make payments to university licenses of 2% of Roche’s direct net sales in Australia until expiration of the patent
in 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. We recorded cost of royalty revenues of $198,000 during the year ended December 31, 2013 and
have recorded an aggregate of $374,000 in cost of royalty revenues since Erivedge was approved.
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Debio 0932
In August 2009, we granted a worldwide, exclusive royalty-bearing license to develop, manufacture, market
and sell our 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 1 clinical trial to evaluate the safety of Debio 0932 given orally
to patients with advanced solid tumors. In 2011, Debiopharm successfully advanced Debio 0932 through the dose
escalation portion of this phase 1 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 1b expansion portion
of the study at this 1000 mg daily dose level. The primary objectives of this study were to further assess the
safety profile, pharmacokinetics and pharmacodynamics of Debio 0932 at the oral 1000 mg daily dose and to
make a preliminary assessment of its anti-tumor activity. Debiopharm completed the phase 1b expansion portion
of the study, enrolling approximately 30 patients with advanced solid tumors, including patients with NSCLC.
In August 2012, Debiopharm initiated the HALO phase 1/2 clinical 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 1 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 2 dose of Debio 0932 in combination with the chemotherapy
regimen(s) has been identified, Debiopharm expects to initiate the randomized, double-blind, placebo-controlled
phase 2 portion of the study. The phase 2 portion of the HALO trial is expected to enroll eligible patients with
NSCLC, who will be randomized to receive standard of care chemotherapy treatment in combination with either
Debio 0932 or placebo. The primary objective of this study is to compare the effect of adding Debio 0932 to
combination chemotherapy with cisplatin/pemetrexed and cisplatin/gemcitabine on the rate of progression-free
survival at 6 months in first-line therapy of patients in this study population. Under our agreement with
Debiopharm, we are eligible for our next milestone payment when Debiopharm treats its fifth patient in a phase 2
clinical trial, which we expect could occur in 2014. We have received $13,000,000 in milestone payments to-date
from Debiopharm under this collaboration.
In October 2013, Debiopharm initiated an open-label, multicenter phase 1 dose-finding study of Debio
0932, in combination with everolimus, an inhibitor of mTOR, in patients with advanced or metastatic renal cell
carcinoma, or RCC, who have been previously treated with a VEGF-directed tyrosine kinase inhibitor. This dose
escalation study is designed to determine the safety and maximum tolerated dose of Debio 0932.
Liquidity
Since our inception, we have funded our operations primarily through license fees, contingent cash
payments, research and development funding from our corporate collaborators, 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 $760,827,000 as of December 31, 2013.
We will need to generate significant revenues to achieve profitability and do not expect to achieve
profitability in the foreseeable future, if at all. We anticipate that existing capital resources as of December 31,
2013 should enable us to maintain current and planned operations into 2016. 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.
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Key Drivers
We believe that near term key drivers to our success will include:
• Genentech’s ability to successfully commercialize Erivedge in advanced BCC;
• Genentech’s effective use of results from the ongoing phase 2 clinical trial of Erivedge in patients with
operable BCC, and positive results from the Erivedge clinical trial in AML and MDS patients;
•
our ability to successfully plan, finance and complete current and planned clinical trials for CUDC-907
and CUDC-427, subject to the FDA removing the partial clinical hold; and
• Debiopharm’s ability to advance Debio 0932 into later stages of clinical development.
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 develop and commercialize additional product candidates.
Our current collaboration and license agreements are summarized as follows:
Genentech Hedgehog Pathway Inhibitor Collaboration. Under the terms of our collaboration agreement
with Genentech, we granted Genentech an exclusive, global, royalty-bearing license, with the right to sublicense,
to make, use, sell and import small molecule and antibody Hedgehog pathway inhibitors. The lead drug candidate
being developed under this program is Erivedge. Genentech subsequently granted a sublicense to Roche for non-
U.S. rights to GDC-0449, other than in Japan where such rights are held by Chugai. Genentech and Roche have
primary responsibility for worldwide clinical development, regulatory affairs, manufacturing and supply,
formulation and sales and marketing. We are eligible to receive cash payments for regulatory filing and approval
objectives achieved and future royalties on products developed outside of the U.S., if any.
We are eligible to receive up to $115,000,000 in contingent cash payments for the development of Erivedge
or another small molecule, assuming the successful achievement by Genentech and Roche of specified clinical
development and regulatory objectives, of which we have received $56,000,000 as of December 31, 2013. We
are also eligible to receive royalties on sales of any Hedgehog pathway inhibitor products that are successfully
commercialized by Genentech and Roche, for which we recognized $3,942,000 and $1,530,000 in such revenue
for sales of Erivedge during the years ended December 31, 2013 and 2012, respectively. Future royalty payments
related to Erivedge will service the outstanding debt and accrued interest to BioPharma-II, up to the quarterly
caps for 2014 and 2015, and until the debt is fully repaid thereafter.
Genentech IAP Inhibitor License Agreement.
In November 2012, we licensed from Genentech the
exclusive, worldwide rights for the development and commercialization of CUDC-427, a small molecule 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. During the fourth quarter of 2012, we incurred expenses of $9,500,000
representing an up-front license payment and technology transfer costs payable to Genentech. In addition,
Genentech is entitled to receive milestone payments upon the first commercial sale of CUDC-427 in certain
territories and tiered single-digit royalties on net sales of CUDC-427.
The Leukemia & Lymphoma Society Agreement.
In November 2011, we entered into an agreement with
LLS, under which LLS will provide approximately 50% of the direct costs of the development of CUDC-907, up
to $4,000,000, through milestone payments upon our achievement of specified development objectives, in
patients with relapsed or refractory lymphomas and multiple myeloma. During the years ended December 31,
2013 and 2012, we earned milestone payments of $650,000 and $1,000,000, respectively, under the terms of the
agreement with LLS. We will be obligated to make future contingent payments, including potential royalty
payments under our agreement with LLS upon our successful entry into a partnering agreement for CUDC-907
or upon the achievement of regulatory and commercial objectives, with such future payments capped at 2.5 times
the milestone payments that we receive from LLS under this agreement.
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Debiopharm HSP90 Collaboration.
In August 2009, we granted a worldwide, exclusive royalty-bearing
license to our HSP90 inhibitor technology to Debiopharm. The lead molecule under this license collaboration
was designated Debio 0932 by Debiopharm. Debiopharm has assumed all future development responsibility and
costs related to the development, registration and commercialization of products under the agreement. As part of
the consideration under the agreement, Debiopharm paid us an up-front license fee of $2,000,000, and we
received $11,000,000 during 2010 in payments upon Debiopharm’s successful achievement of clinical and
regulatory objectives, including the approval from French regulatory authorities of Debiopharm’s clinical trial
application to begin phase 1 clinical trials and the treatment of the fifth patient in these trials. We are eligible to
receive up to an additional $77,000,000 if specified clinical development and regulatory approval objectives are
met. We are also eligible to receive royalties if any products under the license agreement are successfully
developed and commercialized. Subject to specified exceptions, we are entitled to a high single-digit to low
double-digit royalty for net sales of Debio 0932 that are made directly by Debiopharm, escalating within this
range with increasing product sales. We are entitled to a share of royalties that Debiopharm receives from a
sublicensee.
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 capital resources as of
December 31, 2013 should enable us to maintain current and planned operations into 2016.
Debt.
In December 2012, 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.
In connection with the loan, we transferred to Curis Royalty our right to receive certain future royalty and
royalty-related payments on the commercial sales of Erivedge that we may receive from Genentech. The loan and
accrued interest will be repaid by Curis Royalty using such royalty and royalty-related payments. To secure
repayment of the loan, Curis Royalty granted a first priority lien and security interest (subject only to permitted
liens) to BioPharma-II in all of its assets and all real, intangible and personal property, including all of its right,
title and interest in and to the royalty and royalty-related payments. 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
received by Curis Royalty 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
$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. Curis Royalty will be entitled to receive the remaining amounts above the caps, if
any, and we remain entitled to receive any contingent payments upon achievement of clinical development
objectives. In 2016, there are no caps to the amounts Curis Royalty will be required to make to BioPharma-II.
Curis Royalty retains the right to royalty payments related to sales of Erivedge following repayment of the loan.
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
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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 through
December 31, 2013 were less than the interest accrued through the repayment dates resulting in a total of
$714,000 being added to the outstanding principal. As of December 31, 2013, Curis Royalty owed a total of
$31,013,000, gross, to BioPharma-II comprised of principal and accrued interest.
Revenue. We do not expect to generate any revenues from our direct sale of products for several years, if
ever. Substantially all of our revenues to date have been derived from license fees, research and development
payments, and other amounts that we have received from our strategic collaborators and licensees, including
royalty payments. For the year ended December 31, 2013, milestone and royalty payments from Genentech
accounted for $14,233,000, or 95%, of our total revenue, all of which related to the development and
commercialization of Erivedge. Since the first quarter of 2012, we have recognized royalty revenues related to
Genentech’s sales of Erivedge in the U.S. We expect to continue to recognize royalty revenue in future quarters
from Genentech’s sales of Erivedge in the U.S. and in other markets where Genentech and Roche successfully
obtain marketing approval, if any. However, we expect that all of such royalty revenues will be used by our
wholly-owned subsidiary, Curis Royalty, to pay principal and interest under the loan that Curis Royalty received
from BioPharma II, subject to quarterly caps, until such time as the loan is fully repaid. We currently estimate
that the debt will be repaid in the first half of 2017. However, the actual repayment period could vary materially
from our estimate to the extent that royalty payments we receive are lower than our current estimates, which
could arise due to factors beyond our control, such as due to competitive factors, decreased market acceptance, a
failure by Genentech and/or Roche to obtain required regulatory approvals, and other factors described under
“Part I, Item 1A—Risk Factors.”
We could receive additional milestone payments from Genentech, Debiopharm, and LLS, provided the
respective programs meet contractually-specified development and regulatory objectives. In May 2013, Erivedge
was approved for marketing registration by Australia’s TGA for the treatment of adult patients with metastatic or
locally advanced BCC. The Australian approval resulted in a $4,000,000 milestone payment to us in the second
quarter of 2013. Additionally,
in July 2013, Erivedge received conditional approval from the European
Commission for the marketing of Erivedge in all 28 European Union member states. As a result of this
conditional approval, we earned a $6,000,000 milestone payment from Genentech, which was received in the
third quarter of 2013. Erivedge is also currently being reviewed for potential marketing approval by health
authorities in several additional territories.
Our only source of revenues and/or cash flows from operations for the foreseeable future will be up-front
license payments and funded research and development
that we may receive under new collaboration
agreements, if any, contingent cash payments for the achievement of clinical, development and regulatory
objectives, if any are met, under new collaborations or our existing collaborations with Genentech, Debiopharm,
and LLS and royalty payments that are contingent upon the successful commercialization of any products based
upon these collaborations. Our ability to enter into new collaborations and our receipt of additional payments
under our existing collaborations with Genentech, Debiopharm, and LLS cannot be assured, nor can we predict
the timing of any such arrangements or payments, as the case may be.
Cost of Royalty Revenues. Cost of royalty revenues consists of all expenses incurred that are associated
with royalty revenues that we record in the Revenues section of our Consolidated Statements of Operations and
Comprehensive Loss. These costs currently consist of payments we are obligated to make to university licensors
on royalties that we earn from Genentech on net sales of Erivedge. In all territories other than Australia, our
obligation 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 in from
Roche’s sales of Erivedge in Australia, we will be obligated to make payments to university licenses of 2% of
Roche’s direct net sales in Australia until expiration of the patent in 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.
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Research and Development. Research and development expense consists of costs incurred to discover,
research and develop our drug candidates. These expenses consist primarily of: (1) salaries and related expenses
for personnel including stock-based compensation expense; (2) outside service costs including, clinical research
organizations and medicinal chemistry; (3) sublicense payments; and (4) the costs of supplies and reagents,
consulting, and occupancy and depreciation charges. We expense research and development costs as incurred.
We are currently incurring research and development expenses under our Hedgehog pathway inhibitor
collaboration with Genentech related to the maintenance of third-party licenses to certain background
technologies. In addition, we record research and development expense for payments that we are obligated to
make to certain third-party university licensors upon our earning payments from Genentech related to the
achievement of clinical development and regulatory objectives under our Hedgehog pathway inhibitor
collaboration.
Our commercial and clinical-stage development programs, both internal and under collaboration, are
summarized in the following table:
Drug candidate
Primary Disease
Collaborator/Licensee
Status
Dual HDAC and PI3K Inhibitor
- CUDC-907
Antagonist of IAP Proteins
- CUDC-427
Advanced lymphomas and
multiple myeloma
Internal development/LLS
Phase 1
Advanced solid tumor &
lymphomas including potential
expansion cohort of ovarian and
fallopian tube derived cancers
Internal development
Phase 1*—partial clinical hold
since November 5, 2013
Hedgehog Pathway Inhibitor
- Erivedge
Advanced BCC
Genentech (Roche)
Approved in US, EU, Australia
and others; Regulatory
submissions/ approvals pending
in certain other territories
Completed Phase 2
Phase 2
Phase 1b/2
- Erivedge
- Erivedge
- Erivedge
HSP90 Inhibitor
- Debio 0932
- Debio 0932
Operable Nodular BCC
Operable BCC
Relapsed/Refractory AML and
High Risk MDS
Genentech (Roche)
Genentech (Roche)
Roche
Advanced NSCLC
Advanced renal cell carcinoma
Debiopharm
Debiopharm
Phase 1-2
Phase 1
A first Phase 1 clinical trial was conducted by Genentech in advance solid tumors and lymphomas prior to Curis’ acquisition of CUDC-427.
Curis initiated a Phase 1 trial in 2015 which is currently on FDA clinical hold.
Because of the early stages of development of most of our programs other than Erivedge in advanced BCC,
our ability and that of our collaborators and licensees to successfully complete preclinical studies and clinical
trials of these drug candidates, and the timing of completion of such programs, is highly uncertain.
There are numerous other risks and uncertainties associated with developing drugs which may affect our and
our collaborators’ future results, including:
•
•
•
•
•
the scope, quality of data, rate of progress and cost of clinical trials and other research and development
activities undertaken by us or our collaborators;
the results of future preclinical studies and clinical trials;
the cost and timing of regulatory approvals and maintaining compliance with regulatory requirements;
the cost and timing of establishing sales, marketing and distribution capabilities;
the cost of establishing clinical and commercial supplies of our drug candidates and any products that
we may develop;
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•
•
the effect of competing technological and market developments; and
the cost and effectiveness of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights.
We cannot reasonably estimate or know the nature, timing and estimated costs of the efforts necessary to
complete the development of, or the period in which material net cash inflows are expected to commence from
any of our drug candidates. Any failure to complete the development of our drug candidates in a timely manner
could have a material adverse effect on our operations, financial position and liquidity.
A further discussion of some of the risks and uncertainties associated with completing our research and
development programs on schedule, or at all, and some consequences of failing to do so, are set forth under “Part
I, Item 1A—Risk Factors.”
In-process Research and Development. We recognized in-process research and development expenses of
$9,500,000 during the year ended December 31, 2012 for to the one-time license and technology transfer fees
related to the licensing of CUDC-427 from Genentech.
General and Administrative. General and administrative expense consists primarily of salaries, stock-
based compensation expense and other related costs for personnel in executive, finance, accounting, business
development, legal, information technology, corporate communications and human resource functions. Other
insurance, and
costs include facility costs not otherwise included in research and development expense,
professional fees for legal, patent and accounting services. Patent costs include certain patents covered under
collaborations, a portion of which is reimbursed by collaborators and a portion of which is borne by us. We
expect that our general and administration expenses will increase in future periods related to an increase in
employee-related costs.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires that we make estimates and assumptions that affect the reported amounts
and disclosure of certain assets and liabilities at our balance sheet date. Such estimates and judgments include the
carrying value of property and equipment and intangible assets, revenue recognition, the value of certain
liabilities, including our warrant liability, and stock-based compensation. We base our estimates on historical
experience and on various other factors that we believe to be appropriate under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions.
While our significant accounting policies are more fully described in our consolidated financial statements,
we believe that the following accounting policies are critical to understanding the judgments and estimates we
use in preparing our financial statements:
Revenue Recognition
Our business strategy includes entering into strategic license and development agreements with
biotechnology and pharmaceutical companies for the development and commercialization of our drug candidates.
The terms of the agreements typically include non-refundable license fees, funding of research and development,
payments based upon achievement of clinical development milestones and royalties on product sales. We follow
the provisions of the Financial Accounting Standards Board, or FASB, Codification Topic 605, Revenue
Recognition.
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License Fees and Multiple Element Arrangements.
In January 2011, we adopted a new U.S. GAAP
accounting standard which amends existing revenue recognition accounting guidance to provide accounting
principles and application guidance on whether multiple deliverables exist, how the arrangement should be
separated, and the consideration allocated. This new guidance eliminates the requirement to establish objective
evidence of fair value of undelivered products and services and instead provides for separate revenue recognition
based upon management’s estimate of the selling price for an undelivered item when there is no vendor-specific
objective evidence or third-party evidence to determine the fair value of that undelivered item. The new standard
was implemented on a prospective basis for new or materially modified arrangements beginning in 2011.
For multiple element arrangements, including license agreements, entered into prior to January 1, 2010,
guidance required that the fair value of the undelivered item be the price of the item either sold in a separate
transaction between unrelated third parties or the price charged for each item when the item is sold separately by
the vendor. This was difficult to determine when the product was not individually sold because of its unique
features. Under this guidance, if the fair value of all of the undelivered elements in the arrangement was not
determinable, then revenue was deferred until all of the items were delivered or fair value was determined.
Non-refundable license fees are recognized as revenue when we have a contractual right to receive such
payment, the contract price is fixed or determinable, the collection of the resulting receivable is reasonably
assured and we have no further performance obligations under the license agreement. Multiple element
arrangements, such as license and development arrangements are analyzed to determine whether the deliverables,
which often include a license and performance obligations such as research and steering committee services, can
be separated or whether they must be accounted for as a single unit of accounting in accordance with U.S.
generally accepted accounting principles, or GAAP. We recognize up-front license payments as revenue upon
delivery of the license only if the license has stand-alone value. If the license is considered to not have stand-
alone value, the arrangement would then be accounted for as a single unit of accounting and the license payments
and payments for performance obligations are recognized as revenue over the estimated period of when the
performance obligations are performed.
Whenever we determine that an arrangement should be accounted for as a single unit of accounting, we
must determine the period over which the performance obligations will be performed and revenue will be
recognized. Revenue will be recognized using either a relative performance or straight-line method. We
recognize revenue using the relative performance method provided that we can reasonably estimate the level of
effort required to complete our performance obligations under an arrangement and such performance obligations
are provided on a best-efforts basis. Direct labor hours or full-time equivalents are typically used as the measure
of performance. Revenue recognized under the relative performance method would be determined by multiplying
the total payments under the contract, excluding royalties and payments contingent upon achievement of
substantive milestones, by the ratio of level of effort incurred to date to estimated total level of effort required to
complete our performance obligations under the arrangement. Revenue is limited to the lesser of the cumulative
amount of payments received or the cumulative amount of revenue earned, as determined using the relative
performance method, as of each reporting period.
If we cannot reasonably estimate the level of effort required to complete our performance obligations under
an arrangement, the performance obligations are provided on a best-efforts basis and we can reasonably estimate
when the performance obligation ceases or becomes inconsequential,
then the total payments under the
arrangement, excluding royalties and payments contingent upon achievement of substantive milestones, would be
recognized as revenue on a straight-line basis over the period we expect
to complete our performance
obligations. Revenue is limited to the lesser of the cumulative amount of payments received or the cumulative
amount of revenue earned, as determined using the straight-line basis, as of the period ending date.
If we cannot reasonably estimate when our performance obligation either ceases or becomes inconsequential
and perfunctory, then revenue is deferred until we can reasonably estimate when the performance obligation
ceases or becomes inconsequential and perfunctory. Revenue is then recognized over the remaining estimated
period of performance.
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In addition, if we are involved in a steering committee as part of a multiple element arrangement, we assess
whether our involvement constitutes a performance obligation or a right to participate. Steering committee
services that are not inconsequential or perfunctory and that are determined to be performance obligations are
combined with other research services or performance obligations required under an arrangement, if any, in
determining the level of effort required in an arrangement and the period over which we expect to complete our
aggregate performance obligations.
Substantive Milestone Payments. Our collaboration agreements may also contain substantive milestone
payments. Collaboration agreements that contain substantive milestone payments are recognized upon
achievement of the milestone only if:
•
such milestone is commensurate with either of the following:
a)
b)
our performance to achieve the milestone (for example, the achievement of the milestone involves
a degree of risk and was not reasonably assured at the inception of the arrangement); or
the enhancement of the value of the deliverable as a result of a specific outcome resulting from
our performance to achieve the milestone (or substantive effort on our part is involved in
achieving the milestone);
•
•
such milestone relates solely to past performance; and
the amount of the milestone payment is reasonable relative to all deliverables and payment terms in the
arrangement.
Determination as to whether a payment meets the aforementioned conditions involves management’s
judgment. If any of these conditions are not met, the resulting payment would not be considered a substantive
milestone, and the resulting payment would be considered part of the consideration for the single unit of
accounting and be recognized as revenue as such performance obligations are performed under either the relative
performance or straight-line methods, as applicable, and in accordance with these policies as described above. In
addition, the determination that one such payment was not a substantive milestone could prevent us from
concluding that subsequent milestone payments were substantive milestones and, as a result, any additional
milestone payments could also be considered part of the consideration for the single unit of accounting and
would be recognized as revenue as such performance obligations are performed under either the relative
performance or straight-line methods, as applicable. Milestones that are tied to regulatory approval are not
considered probable of being achieved until such approval
is received. Milestones tied to counter-party
performance are not included in our revenue model until the performance conditions are met.
Reimbursement of Costs. Reimbursement of research and development costs by third party collaborators
are recognized as revenue provided the provisions of the FASB Codification Topic 605-45, Revenue Recognition,
Principal Agent Consideration, are met, the amounts are determinable, and collection of the related receivable is
reasonably assured.
Royalty Revenue. Since the first quarter of 2012, we have recognized royalty revenues related to
Genentech’s sales of Erivedge in the U.S. We expect to recognize royalty revenue in future quarters from
Genentech’s sales of Erivedge in the U.S. and in other markets where Genentech and Roche successfully obtain
marketing approval, if any. However, Erivedge royalties we earn will service Curis Royalty’s debt to BioPharma-
II, and only amounts in excess of certain quarterly repayment caps, if any, will be available to us for use in
operations. Royalty revenue is recognized upon the sale of the related products, provided that the royalty
amounts are fixed or determinable, collection of the related receivable is reasonably assured and we have no
remaining performance obligations under the arrangement. If royalties are received when we have remaining
performance obligations, we expect to attribute the royalty payments to the services being provided under the
arrangement and therefore recognize such royalty payments as such performance obligations are performed
under either the relative performance or straight line methods, as applicable, and in accordance with these
policies as described above.
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Deferred Revenue. Amounts received prior to satisfying the above revenue recognition criteria are
recorded as deferred revenue in the accompanying consolidated balance sheets. Significant judgments are
required in the application of revenue recognition guidance. For example, in connection with our existing and
former collaboration agreements, we have historically recorded on our balance sheet short- and long-term
deferred revenue based on our best estimate of when such revenue would be recognized. Short-term deferred
revenue would consist of amounts that are expected to be recognized as revenue, or applied against future co-
development costs, within the next fiscal year. Amounts that we expect will not be recognized in the next fiscal
year would be classified as long-term deferred revenue. However, this estimate would be based on our operating
plan as of the balance sheet date and on our estimated performance periods under the collaboration in which we
have recorded deferred revenues. If our operating plan or our estimated performance period would change, we
could recognize a different amount of deferred revenue over the reporting period.
With respect to each of the foregoing areas of revenue recognition, we exercise significant judgment in
determining whether an arrangement contains multiple elements, and, if so, how much revenue is allocable to
each element. In addition, we exercise our judgment in determining when our significant obligations have been
met under such agreements and the specific time periods over which we recognized revenue, such as non-
refundable, up-front license fees. To the extent that actual facts and circumstances differ from our initial
judgments, our revenue recognition with respect to such transactions would change accordingly and any such
change could affect our reported financial results.
Stock-based Compensation
We account for stock-based compensation transactions be accounted for using a grant-date fair-value-based
method under FASB Codification Topic 718, Compensation—Stock Compensation.
We have recorded employee and director stock-based compensation expense of $2,651,000, $3,269,000 and
$1,642,000 for the years ended December 31, 2013, 2012 and 2011, respectively. We estimate that we will record
approximately $2,950,000, in stock-based compensation expense in 2014. We have granted and expect that we
may grant additional options in 2014 that could increase the amount of stock-based compensation ultimately
recognized. The amount of the incremental employee stock-based compensation expense attributable to 2014
employee stock options to be granted will depend primarily on the number of stock options granted, the fair
market value of our common stock at the respective grant dates, and the specific terms of the stock options.
We measure compensation cost for share-based compensation at fair value, including estimated forfeitures,
and recognize the expense as compensation expense over the period that the recipient is required to provide
service in exchange for the award, which generally is the vesting period. We use the Black-Scholes option
pricing model to measure the fair value of stock options. This model requires significant estimates related to the
award’s expected life and future stock price volatility of the underlying equity security. In determining the
amount of expense to be recorded, we also are required to estimate forfeiture rates for awards, based on the
probability that employees will complete the required service period. We estimate the forfeiture rate based on
historical experience. If actual forfeitures differ significantly from our estimates, additional adjustments to
compensation expense may be required in future periods. Ultimately, the actual expense recognized over the
vesting period will only be for those shares that vest.
Fair Value Measurements
We have adopted the provisions of the FASB Codification Topic 820, Fair Value Measurements and
Disclosures. Topic 820 provides a framework for measuring fair value under GAAP and requires expanded
disclosures regarding fair value measurements. GAAP defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants on the measurement date. Market
participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to
transact, and (iv) willing to transact.
67
GAAP requires the use of valuation techniques that are consistent with the market approach, the income
approach and/or the cost approach. The market approach uses prices and other relevant information generated by
market transactions involving identical or comparable assets and liabilities. The income approach uses valuation
techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted
basis. The cost approach is based on the amount that currently would be required to replace the service capacity
of an asset (replacement cost). Valuation techniques should be consistently applied. GAAP also establishes a fair
value hierarchy which requires an entity to maximize the use of observable inputs, where available, and minimize
the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may
be used to measure fair value:
Level 1
Quoted prices in active markets for identical assets or liabilities.
Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data for substantially the full term of the assets or
liabilities.
Level 3
Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
Our cash equivalents, marketable securities and long-term investments have been classified as either Level 1
or Level 2 assets. We do not hold any asset-backed or auction rate securities. Short-term accounts receivable and
realizable value, which
accounts payable are reflected in the consolidated financial statements at net
approximates fair value due to the short-term nature of these instruments.
In 2010, we completed a registered direct offering in which we issued warrants to purchase shares of our
common stock, and the warrants were deemed to be a liability. We estimate the fair value of the warrants using a
Black-Scholes option pricing model under various probability-weighted outcomes which take into consideration
the protective, but limited, cash-settlement feature of the warrants. In using this model, the fair value is
determined by applying Level 3 inputs, which have included assumptions around the estimated future stock price
of our common stock and varying probabilities that certain events will occur. Significant increases or decreases
in any of these assumptions would materially impact the fair value of the warrants and our financial statements.
The warrants will be revalued each reporting period with updated assumptions, and the resulting change in fair
value of the warrant liability will be recognized in our financial statements.
While we believe our valuation methodologies are appropriate and consistent with other market participants,
the use of different methodologies or assumptions to determine the fair value of certain financial instruments
could result in a different estimate of fair value at the reporting date.
Long-lived Assets
Long-lived assets consist primarily of property and equipment, debt issuance costs and goodwill. Property
and equipment is stated at cost and depreciated over the estimated useful lives of the related assets using the
straight-line method. Determining the economic lives of property and equipment requires us to make significant
judgments that can materially impact our operating results. If it were determined that the carrying value of our
other long-lived assets might not be recoverable based upon the existence of one or more indicators of
impairment, we would measure an impairment based on application of the FASB Codification Topic 360-10-05,
Impairment or Disposal of Long-Lived Assets.
Debt issuance costs are stated at cost and amortized over the estimated term of the debt using the straight-
line method. Assumptions used in determining the term of the debt requires us to make significant judgments that
would impact our operating results; however, we do not believe adjustments to the term of the debt and related
amortization period would have a material impact on our financial statements.
68
We evaluate our goodwill for impairment at least annually or more frequently if an indicator of potential
impairment exists. In performing our evaluations of impairment, we determine fair value using widely accepted
valuation techniques, including discounted cash flows. These calculations contain uncertainties as they require us
to make assumptions related to future cash flows, projected useful lives of assets and the appropriate discount
rate to reflect the risk inherent in future cash flows. We must also make assumptions regarding industry
economic factors and the profitability of future business strategies. If actual results are not consistent with our
estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to a
material impairment charge. As a single reporting unit, we completed our annual goodwill impairment tests in
December 2013, 2012 and 2011, and determined that as of those dates our fair value exceeded the carrying value
of our net assets. Accordingly, no goodwill impairment was recognized in 2013, 2012 and 2011.
Our discussion of our critical accounting policies is not intended to be a comprehensive discussion of all of
our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically
in their
dictated by generally accepted accounting principles, with no need for management’s judgment
application. There are also areas in which management’s judgment in selecting any available alternative would
not produce a materially different result.
Results of Operations (all amounts rounded to the nearest thousand)
Years Ended December 31, 2013 and 2012
Revenues
Total revenues are summarized as follows:
For the Year Ended
December 31,
2013
2012
Percentage
Increase/
(Decrease)
Revenues:
Research and development
Genentech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LLS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
291,000
650,000
119,000
Subtotal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,060,000
$
363,000
1,000,000
79,000
1,442,000
License fees from Genentech . . . . . . . . . . . . . . . . . . . . . .
Royalty revenues from Genentech . . . . . . . . . . . . . . . . . .
10,000,000
3,942,000
14,000,000
1,530,000
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,002,000
$16,972,000
(20%)
(35%)
51%
(26%)
(29%)
158%
(12%)
Total revenues were $15,002,000 and $16,972,000 for the years ended December 31, 2013 and 2012,
respectively. The decrease in 2013 total revenues of $1,970,000, or 12%, as compared to the prior year was due
to a decrease in license fee revenues from Genentech, offset by an increase in royalty revenues from Genentech
and Roche’s net sales of Erivedge. Our license fee revenues of $14,000,000 for the year ended December 31,
2012 are related to payments we received from Genentech upon FDA approval of Erivedge and Roche’s filing
for marketing registration in Australia. Our license fee revenues of $10,000,000 for the year ended December 31,
2013 are related to payments we received from Genentech upon marketing approvals of Erivedge in Europe and
Australia. In addition, the revenues recognized under our agreement with LLS for achievement of clinical
development objectives related to our phase 1 clinical trial of CUDC-907 decreased by $350,000 for the year
ended December 31, 2013.
Royalty revenues from Genentech and Roche’s net sales of Erivedge during the year ended December 31,
2013 increased by $2,412,000, or 158%, as compared to the year ended December 31, 2012. We expect that all
Erivedge royalty revenues will be used by Curis Royalty to pay principal and interest under the loan that Curis
Royalty received from BioPharma II, subject to quarterly caps, until such time as the loan is fully repaid.
69
All potential future contingent payments under our agreements with Genentech and Debiopharm are tied to
clinical and regulatory milestones, which are unpredictable in terms of both timing and whether such milestone
will be achieved at all. If Debiopharm progresses Debio 0932 into phase II clinical testing, we will be entitled to
payments upon treatment of the fifth patient in up to three phase 2 clinical trials. Research and development
revenues, excluding those earned under our LLS agreement, are limited to expenses that we incur under our
collaborations, primarily Genentech, for which our collaborators are obligated to reimburse us.
Cost of Royalty Revenues. Cost of royalty revenues were $198,000 and $176,000 for the year ended
December 31, 2013 and 2012, respectively. The increase in cost of royalty revenues during 2013 was due to an
increase in payments to our university licensors during 2013 resulting from an increase in royalty revenues from
Genentech and Roche’s net sales of Erivedge. Cost of royalty revenues for the year ended December 31, 2012
also included a $100,000 one-time cash payment paid to a university licensor upon the first commercial sale of
Erivedge.
Operating Expenses
Research and development expenses are summarized as follows:
Research and Development Program
CUDC-907 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CUDC-427 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CUDC-101 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Erivedge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debio 0932 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other discovery research programs . . . . . . . . . . . . . . . . . .
Sublicense fees incurred on development and regulatory
milestones under our Genentech collaboration . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . .
For the Year
Ended December 31,
2013
2012
$ 4,424,000
5,078,000
1,310,000
158,000
36,000
542,000
$ 4,046,000
11,000
4,497,000
151,000
57,000
3,541,000
500,000
879,000
2,114,000
1,075,000
Total research and development expenses . . . . . . . . .
$12,927,000
$15,492,000
Percentage
Increase/
(Decrease)
9%
46,064%
(71%)
5%
(37%)
(85%)
(76%)
(18%)
(17%)
Total research and development expenses were $12,927,000 for the year ended December 31, 2013 as
compared to $15,492,000 for 2012. Our research and development expenses decreased by $2,565,000, or 17%,
for the year ended December 31, 2013, as compared to the prior year primarily due to decreases in spending on
CUDC-101, our discovery research programs and Erivedge-related payments to sublicensors, offset in part by
increased spending on CUDC-427 that was exclusively licensed from Genentech in November 2012.
Spending related to our CUDC-101 and discovery research programs decreased by $6,186,000 during the
year ended December 31, 2013 as compared to 2012, primarily due to our decisions to discontinue clinical
development of CUDC-101 while continuing to research oral formulations of this molecule and to allocate our
internal resources, primarily personnel, to our clinical development programs, CUDC-907 and CUDC-427.
In addition, sublicense fees decreased by $1,614,000 during the year ended December 31, 2013 as compared
to the prior year, primarily resulting from one-time sublicense fees and the one-time issuance to a university
licensor of an aggregate of 200,000 shares of our common stock in connection with Erivedge’s FDA approval,
Roche’s NDA filing in Australia and our receipt of related milestone payments during the year ended
December 31, 2012.
Stock-based compensation also decreased $196,000 during the year ended December 31, 2013 from the
prior year, primarily related to a decrease in the expense recognized on unvested non-employee stock options that
are marked-to-market at each quarterly reporting period. Fluctuations in our stock price will result in fluctuations
in the related expense.
70
We expect that a majority of our research and development expenses for the foreseeable future will be
incurred in support of our efforts to advance CUDC-907 and, if the FDA lifts the partial clinical hold,
CUDC-427. In addition, we will be obligated to pay sublicense fees for any milestone payments we may receive
upon achievement of specified regulatory objectives and royalty payments on net sales of Erivedge in the U.S.
We will also be obligated to pay Genentech milestone payments upon the first commercial sale of CUDC-427 in
certain territories and royalties on net sales of CUDC-427, if any. We will also be obligated to pay LLS up to 2.5
times the amount of funding that we have received from LLS in support of our development of CUDC-907
should CUDC-907 be partnered or commercialized on or after completion of a phase 2a trial. As of
December 31, 2013, we have received $1,650,000 under our agreement with LLS, which would result in a
maximum payment to LLS of $4,125,000. If our developments efforts are successful, we anticipate that we
would receive additional payments from LLS and that our corresponding potential obligation would increase
accordingly.
We recorded in-process research and development expenses of $9,500,000 for the year ended December 31,
2012 which represents the one-time up-front license payment and technology transfer costs payable to Genentech
upon exclusively licensing CUDC-427 in November 2012.
General and administrative expenses are summarized as follows:
For the Year Ended
December 31,
2013
2012
Percentage
Increase/
(Decrease)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Personnel
Occupancy and depreciation . . . . . . . . . . . . . . . . . . . . . . .
Legal services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consulting and professional services . . . . . . . . . . . . . . . . .
Insurance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other general and administrative expenses . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,491,000
353,000
2,496,000
1,548,000
330,000
953,000
2,123,000
$ 2,538,000
515,000
2,521,000
1,233,000
268,000
799,000
2,549,000
Total general and administrative expenses . . . . . . . .
$11,294,000
$10,423,000
38%
(31%)
(1%)
26%
23%
19%
(17%)
8%
General and administrative expenses were $11,294,000 and $10,423,000 for the years ended December 31,
2013 and 2012, respectively. General and administrative expenses increased in 2013, primarily due to an increase
in personnel costs and an increase in professional services, including audit fees and business development
consulting services. In addition, other general and administrative spending increased $154,000 over the prior year
period, which is comprised of travel, banking and listing fees and other operating expenses.
Offsetting these increases, stock-based compensation expense decreased $426,000 from the prior year as a
result of a decrease in the grant-date fair value of options issued during the year ended December 31, 2013 as
compared to the prior year.
Change in fair value of warrant liability.
In connection with our January 2010 registered direct offering,
we issued warrants to purchase an aggregate of 1,612,322 shares of common stock which became exercisable as
of the closing of the transaction. The warrants have an initial exercise price of $3.55 per share and have a five
year term, and the fair value of the warrants is recorded as a long-term liability. The fair value of the warrants
was estimated using a Black-Scholes option pricing model. The warrants are revalued each reporting period, with
updated assumptions and the resulting gains and losses recorded as the change in fair value of warrant liability in
the income statement. Expected volatilities used in the models were based on our historical volatility
commensurate with the term of the warrants.
We recorded the fair value of the warrants at December 31, 2013 as $717,000 using this model with the
following assumptions: expected volatility of 65%, risk free interest rate of 0.2%, expected life of 1.1 years and
no dividends. We recorded the fair value of the warrants at December 31, 2012 as $1,488,000 using this model
71
with the following assumptions: expected volatility of 58%, risk free interest rate of 0.3%, expected life of 2.1
years and no dividends. We recorded other income of $771,000 and $2,257,000 for the years ended
December 31, 2013 and 2012, respectively, related to changes in the assumptions used in the valuation of the
warrants,
including changes in our stock price, during the respective periods. During the year ended
December 31, 2012, warrants to purchase 237,301 shares of our common stock were exercised.
Other Expense (Income)
For the years ended December 31, 2013 and 2012, interest expense was $3,842,000 and $204,000,
respectively. The increase in 2013 was related to an increase in the interest accrued on Curis Royalty’s
outstanding debt with BioPharma-II. Curis Royalty’s debt with the BioPharma-II was not incurred until the
December 2012.
For the years ended December 31, 2013 and 2012,
interest
income was $165,000 and $150,000,
respectively.
Net Loss Applicable to Common Stockholders
As a result of the foregoing, we incurred a net loss applicable to common stockholders of $12,322,000 for
the year ended December 31, 2013, as compared to $16,417,000 for the year ended December 31, 2012.
Results of Operations (all amounts rounded to the nearest thousand)
Years Ended December 31, 2012 and 2011
Revenues
Total revenues are summarized as follows:
For the Year Ended
December 31,
2012
2011
Percentage
Increase/
(Decrease)
Revenues:
Research and development
Genentech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LLS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
363,000
1,000,000
79,000
1,442,000
$
388,000
—
75,000
463,000
License fees
Genentech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,000,000
—
14,000,000
300,000
Subtotal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,000,000
14,300,000
Royalty revenues from Genentech . . . . . . . . . . . . . . . . . .
1,530,000
—
Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16,972,000
$14,763,000
(6%)
100%
5%
211%
—%
(100%)
(2%)
100%
15%
Total revenues were $16,972,000 and $14,763,000 for the years ended December 31, 2012 and 2011,
respectively. The increase in total revenues in 2012 as compared to the prior year was due to royalty revenues of
$1,530,000 from sales of Erivedge during 2012. Erivedge was approved by the FDA for commercial sale in
January 2012. In addition, we recognized revenues totaling $1,000,000 under our agreement with LLS related to
the achievement of clinical development objectives during 2012.
72
Our license fee revenues of $14,000,000 for the year ended December 31, 2012 were related to payments we
received from Genentech upon FDA approval of Erivedge and Roche’s filing for marketing registration in
Australia. During the year ended December 31, 2011, we recognized $14,000,000 in license revenue upon FDA
and EMA acceptances of Genentech’s NDA and MAA filings for Erivedge.
Cost of Royalty Revenues. Cost of royalty revenues of $176,000 for the year ended December 31, 2012
includes a $100,000 one-time cash payment paid to a university licensor upon the first commercial sale of
Erivedge and $76,000 paid to two university licensors, which represents 5% of the royalties that we earned with
respect to Erivedge. We did not have cost of royalty revenues for the year ended December 31, 2011.
Operating Expenses
Research and development expenses are summarized as follows:
Research and Development Program
For the Year
Ended December 31,
2012
2011
Percentage
Increase/
(Decrease)
CUDC-907 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CUDC-427 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CUDC-101 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Erivedge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debio 0932 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other discovery research programs . . . . . . . . . . . . . . . . . .
Sublicense fees incurred on development and regulatory
milestones under our Genentech collaboration . . . . . . .
Other sublicense fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (gain)/loss on disposition of assets . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,046,000
11,000
4,497,000
151,000
57,000
3,541,000
$ 3,201,000
—
4,289,000
192,000
45,000
4,604,000
2,114,000
—
—
1,075,000
700,000
15,000
(77,000)
724,000
Total research and development expenses . . . . . . . . .
$15,492,000
$13,693,000
26%
100%
5%
(21%)
27%
(23%)
202%
(100%)
(100%)
48%
13%
Total research and development expenses were $15,492,000 for the year ended December 31, 2012, as
compared to $13,693,000 for 2011. The increase in research and development expenses during 2012 was
primarily due to a $1,414,000 increase in sublicense fees paid during 2012 to universities as a result of the receipt
of contingent payments from Genentech for the achievement of regulatory objectives related to Erivedge,
including a one-time issuance of an aggregate of 200,000 shares of our common stock to two university licensors
with a fair value of $964,000, as well as a $450,000 expense specific to development objectives achieved
pursuant to Roche’s NDA filing in Australia.
Spending on our CUDC-907 program increased $845,000 for the year ended December 31, 2012 over the
prior year primarily related to costs for additional IND-enabling toxicology studies that were completed during
2012, formulation development and clinical trial costs.
Spending related to our CUDC-101 programs increased $208,000 over the prior year as a result of an
increase in employee-related expenses as more resources were allocated to the various CUDC-101 development
programs, including the phase 1 clinical trial in head and neck cancer patients and the phase I clinical trial with
an oral formulation of CUDC-101 that was halted in November 2012. These increases were offset by decreased
spending during 2012 on our CUDC-101 phase 1b trial, as the last patient on trial was treated in October 2011.
Further offsetting these increases, spending on our other discovery research programs decreased $1,063,000
during 2012 as compared to 2011 as our internal resources were primarily allocated to CUDC-101 and CUDC-
907.
Stock-based compensation also increased $351,000 during the year ended December 31, 2012 from the prior
year, primarily related to an increase in the number of and the expense recognized on unvested non-employee
stock options that are marked-to-market at each quarterly reporting period.
73
We recorded in-process research and development expenses of $9,500,000 for the year ended December 31,
2012, which represent the one-time up-front license payment and technology transfer costs payable to Genentech
upon exclusively licensing CUDC-427 in November 2012.
General and administrative expenses are summarized as follows:
For the Year Ended
December 31,
2012
2011
Percentage
Increase/
(Decrease)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Personnel
Occupancy and depreciation . . . . . . . . . . . . . . . . . . . . . . . .
Legal services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consulting and professional services . . . . . . . . . . . . . . . . . .
Insurance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other general and administrative expenses . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,538,000
515,000
2,521,000
1,233,000
268,000
799,000
2,549,000
$2,472,000
480,000
2,137,000
1,110,000
248,000
777,000
1,048,000
Total general and administrative expenses . . . . . . . . .
$10,423,000
$8,272,000
3%
7%
18%
11%
8%
3%
143%
26%
General and administrative expenses were $10,423,000 and $8,272,000 for the years ended December 31,
2012 and 2011, respectively. The increase was primarily due to an increase in stock-based compensation of
$1,501,000 as a result of an increase in the number of and grant-date fair value of options granted to our directors
and officers during 2012 as compared to 2011. In addition, legal fees increased $384,000 from the prior year due
to increased costs associated with various corporate matters as well as patent-related costs, including foreign
patent filing costs. Consulting and professional service costs increased $123,000 over the prior year primarily
related to business development efforts. Finally, personnel costs increased $66,000 due to an increase in
executive officers’ compensation when compared to the prior year.
Change in fair value of warrant liability. As a result of revaluing the warrants issued in January 2010, we
recorded other income of $2,257,000 and a charge of $2,756,000 for the years ended December 31, 2012 and
2011, respectively, due to the change in the fair value of the warrant liability which was primarily related to the
change in our stock price during the respective periods. During the years ended December 31, 2012 and 2011,
warrants to purchase 237,301 and 1,504 shares of our common stock were exercised, respectively.
Other Expense (Income)
For the year ended December 31, 2012, interest expense was $204,000 related to accrued interest on the
BioPharma II debt transaction. We did not have debt during the year ended December 31, 2011.
For the year ended December 31, 2012, interest income was $150,000 as compared to $100,000 for the year
ended December 31, 2011, an increase of $50,000, or 50%, due to higher investment balances throughout 2012
as compared to 2011.
Net Loss Applicable to Common Stockholders
As a result of the foregoing, we incurred a net loss applicable to common stockholders of $16,417,000 for
the year ended December 31, 2012, as compared to $9,859,000 for the year ended December 31, 2011.
Liquidity and Capital Resources
Sources of Liquidity
We have financed our operations primarily through license fees, contingent cash payments and research and
development funding from our collaborators and licensors, the private and public placement of our equity
securities, debt financings and the monetization of certain royalty rights.
74
In December 2012, our wholly-owned subsidiary, Curis Royalty, received a $30,000,000 loan at an annual
interest rate of 12.25% pursuant to a credit agreement with BioPharma-II. In connection with the loan, we
transferred to Curis Royalty our right to receive certain future royalty and royalty-related payments on the
commercial sales of Erivedge that we may receive from Genentech. The loan and accrued interest will be repaid
by Curis Royalty using such royalty and royalty-related payments. The loan constitutes an obligation of Curis
Royalty, and is intended to be non-recourse to us. 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. Payments to BioPharma-II through December 31, 2013 totaled
$2,928,000 and covered only a portion of the interest accrued on the loan. As a result, $714,000 of the unpaid and
accrued interest through December 31, 2013 has been capitalized and added to the principal portion of the loan.
As of December 31, 2013, Curis Royalty owed a total of $31,013,000, gross of issuance costs, to BioPharma-II
comprised of principal and accrued interest.
For the years ended December 31, 2013 and 2012, we received aggregate milestone payments totaling
$24,000,000 under our collaboration with Genentech. In addition, we received royalty revenues during 2012 in
connection with Genentech’s net sales of Erivedge. Royalty revenues earned subsequent to December 2012 are
being used to repay Curis Royalty’s outstanding principal and interest under the loan due to BioPharma-II,
subject to specified quarterly caps. Curis Royalty will be entitled to receive and distribute to Curis remaining
royalty and royalty-related amounts in excess of the foregoing caps, if any. We also remain entitled to receive
any contingent payments upon achievement of clinical development objectives and royalty payments related to
sales of Erivedge following repayment of the loan. Upon earning any such payments, as well as on royalties that
are earned in any territory other than Australia, we are required to make payments to certain university licensors
totaling 5% of these amounts. For royalties that we earn in from Roche’s sales of Erivedge in Australia, we will
be obligated to make payments to university licenses of 2% of Roche’s direct net sales in Australia until
expiration of the patent in 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.
In July 2013, we entered into a sales agreement with Cowen and Company, LLC, or Cowen, pursuant to
which we may sell from time to time up to $30,000,000 of our common stock through an “at-the-market” equity
offering program under which Cowen will act as sales agent. Subject to the terms and conditions of the sales
agreement, Cowen may sell the common stock by methods deemed to be an “at-the-market” offering as defined
in Rule 415 promulgated under the Securities Act of 1933, as amended, including sales made directly on the
NASDAQ Global Market, on any other existing trading market for the common stock or to or through a market
maker other than on an exchange. The aggregate compensation payable to Cowen shall be 3% of the gross sales
price of the common stock sold by Cowen pursuant to the sales agreement. Through December 31, 2013, we
have sold 3,850,206 shares of common stock pursuant to this sales agreement for proceeds of $16,246,000, net of
all issuance costs.
At December 31, 2013, our principal sources of liquidity consisted of cash, cash equivalents, and
investments of $68,906,000, excluding our restricted investments of $180,000. Our cash and cash equivalents are
highly liquid investments with a maturity of three months or less at date of purchase and consist of investments
in money market funds with commercial banks and financial institutions, short-term commercial paper, and
government obligations. We maintain cash balances with financial institutions in excess of insured limits.
Cash Flows
The use of our cash flows for operations has primarily consisted of salaries and wages for our employees,
facility and facility-related costs for our office and laboratory, fees paid in connection with preclinical and
clinical studies, laboratory supplies, consulting fees and legal fees. We expect that costs associated with clinical
studies will increase in future periods.
75
Net cash used in operating activities was $9,540,000 during the year ended December 31, 2013, primarily
the result of our net loss for the period of $12,322,000, offset by non-cash charges totaling $3,286,000 consisting
of stock-based compensation, changes in the fair value of our warrant liability, non-cash interest expense and
depreciation and amortization. Changes in certain operating assets and liabilities had offsetting impacts on
operating cash during the year ended December 31, 2013, and an increase of $569,000 in our accounts
receivable, primarily related to quarterly royalties earned on the sale of Erivedge, also decreased operating cash.
During the year ended December 31, 2013, we received $14,883,000 in milestone and royalty payments under
our collaborations with Genentech and LLS. Offsetting these cash receipts, we incurred operating and other
expenses of $27,324,000.
Cash used in operating activities of $15,193,000 for the year ended December 31, 2012 was primarily the
result of our net loss for the period of $16,417,000, offset by non-cash charges totaling $2,028,000 consisting of
stock-based compensation, changes in the fair value of our warrant liability, non-cash interest expense, the
issuance of common stock to licensees and depreciation. We received $15,530,000 in milestone and royalty
payments from Genentech as well as $1,000,000 in milestone payments from LLS during 2012. Offsetting these
cash receipts, we incurred operating and other expenses of $33,389,000 for the year ended December 31, 2012,
of which $9,500,000 relates to one-time charges for the license of CUDC-427 from Genentech. Changes in
certain operating assets and liabilities had offsetting impacts on operating cash during the year ended
December 31, 2012. Finally, an increase of $866,000 in our accounts receivable, primarily related to quarterly
royalties earned on the sale of Erivedge, decreased operating cash.
We expect to continue to use cash in operations as we seek to advance our targeted cancer drug candidates.
In addition, in the future we may owe royalties and other contingent payments to our licensors based on the
achievement of developmental milestones, product sales and other specified objectives.
Investing activities used cash of $13,618,000 and $23,003,000 for years ended December 31, 2013 and
2012, respectively, resulting primarily from net investment activity from purchases and sales or maturities of
investments for the respective periods. The increase in investments during the years ended December 31, 2013
and 2012 was the result of increases in cash receipts. In addition, during the years ended December 31, 2013 and
2012, we reduced our restricted investments, resulting in an increase in our available cash for the periods of
$14,000 and $42,000, respectively. These increases in cash were offset by purchases of research equipment
totaling $153,000 and $105,000 during the years ended December 31, 2013 and 2012, respectively.
Financing activities provided cash of $20,001,000 and $35,825,000 for the years ended December 31, 2013
and 2012, respectively. We received $16,246,000 in net proceeds from sales of common stock under our sales
agreement with Cowen for the year ended December 31, 2013. We also received proceeds of $4,016,000 from
the exercise of stock options during the year ended December 31, 2013. These proceeds were offset by the
payment of debt issuance costs of $261,000 related to Curis Royalty’s financing transaction with BioPharma-II.
Cash provided from financing activities during the year ended December 31, 2012 was primarily related to
the debt financing transaction with BioPharma-II, that provided proceeds of $30,000,000, marginally offset by
related issuance costs of $160,000. The exercise of stock options and warrants and purchases of common stock
under our employee stock purchase plan provided additional cash of $5,106,000 for the year ended December 31,
2012. We also received $879,000 in net proceeds from sales of common stock under our prior “at-the-market”
sales agreement with McNicoll, Lewis & Vlak, LLC for the year ended December 31, 2012.
Funding Requirements
We have incurred significant losses since our inception. As of December 31, 2013, we had an accumulated
deficit of approximately $760,827,000. We will require substantial funds to continue our research and
development programs and to fulfill our planned operating goals. In particular, our currently planned operating
and capital requirements include the need for working capital to support our research and development activities
for CUDC-427 and CUDC-907, and to fund our general and administrative costs and expenses.
76
We have historically derived a substantial portion of our operating cash flow from the research funding
portion of collaboration agreements with third parties. However, we have no current research funding revenue
under these agreements. Our ability to generate cash flow to operate our business will depend, in part, on royalty
payments from the commercial sale of Erivedge and the ability of Erivedge to be approved for commercial sale
in other countries, which would result in us becoming eligible to receive additional milestone payments as well
as royalties on any future sales (subject to Curis Royalty’s obligation to remit certain royalties to BioPharma-II).
We expect that our only source of cash flows from operations for the foreseeable future will be:
•
•
•
up-front license payments and research and development funding that we may receive if we are able to
successfully enter into new collaboration agreements;
contingent cash payments that we may receive for the achievement of development objectives under any
new collaborations or our existing collaborations with Genentech, Debiopharm and LLS; and
royalty payments that are contingent upon the successful commercialization of products based upon
these collaborations, including royalties on sales of Erivedge in advanced BCC by Genentech, subject to
Curis Royalty’s obligation to remit certain royalties to BioPharma-II.
We may not be able to successfully enter into or continue any corporate collaborations and the timing,
amount and likelihood of us receiving payments under such collaborations is highly uncertain. In addition, for the
foreseeable future, we will only receive royalties under our collaboration agreement with Genentech to the extent
net sales are generated at a level sufficient to derive royalties in excess of Curis Royalty’s obligation to remit
such royalties to BioPharma-II in repayment of the loan.
To become and remain profitable, we must develop and eventually commercialize one or more drug
candidates with significant market potential. This will require us to be successful in a range of challenging
activities, including completing preclinical testing and clinical trials of our drug candidates, obtaining marketing
approval for these drug candidates, manufacturing, marketing and selling those drugs for which we may obtain
marketing approval and satisfying any post-marketing requirements. We may never succeed in these activities
and, even if we do, may never generate revenues that are significant or large enough to achieve profitability. We
are currently only in early clinical testing for our most advanced drug candidates.
For the foreseeable future, we will need to spend significant capital
to develop and
commercialize products and we expect to incur substantial operating losses. Our failure to become and remain
profitable would, among other things, depress the market price of our common stock and could impair our ability
to raise capital, expand our business, diversify our research and development programs or continue our
operations.
in an effort
We anticipate that existing cash, cash equivalents, marketable securities, investments and working capital at
December 31, 2013, should enable us to maintain current and planned operations into 2016. Our future capital
requirements, however, may vary from what we currently expect. There are a number of factors that may
adversely affect our planned future capital requirements and accelerate our need for additional financing, many
of which are outside our control, including the following:
•
•
•
•
•
•
unanticipated costs in our research and development programs;
the timing and cost of obtaining regulatory approvals for our drug candidates and maintaining
compliance with regulatory requirements;
the timing, receipt and amount of payments, if any, from current and potential future collaborators;
the timing and amount of payments due to licensors of patent rights and technology used in our drug
candidates;
unplanned costs to prepare, file, prosecute, maintain and enforce patent claims and other patent-related
costs, including litigation costs and technology license fees; and
unexpected losses in our cash investments or an inability to otherwise liquidate our cash investments
due to unfavorable conditions in the capital markets.
77
We may seek additional funding through public or private financings of debt or equity. The market for
emerging life science stocks in general, and the market for our common stock in particular, are highly volatile.
Due to this and various other factors, including potentially adverse general market conditions and the early-stage
status of our internal development pipeline and the early stage of the commercial U.S. launch of Erivedge,
additional funding may not be available to us on acceptable terms, if at all. In addition, the terms of any potential
financing may be dilutive or otherwise adversely affect other rights of our stockholders.
We also expect to seek additional funds through arrangements with collaborators, licensees or other third
parties. These arrangements would generally require us to relinquish or encumber rights to some of our
technologies or drug candidates, and we may not be able to enter into such arrangements on acceptable terms, if
at all.
We anticipate that we will require additional funding. If we are unable to obtain such additional funding on
a timely basis, whether through payments under existing or future collaborations or license agreement or sales of
debt or equity, we may be required to:
•
•
delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for one
or more of our drug candidates; or
delay, limit, reduce or prevent us from establishing sales and marketing capabilities, either internally or
through third parties, or other activities that may be necessary to commercialize our drug candidates.
Contractual Obligations
As of December 31, 2013 we had contractual obligations and other commitments, including Curis Royalty’s
credit agreement with BioPharma-II, an operating lease related to our facility, research services agreements,
consulting agreements, and license agreements, as follows:
Debt obligations under credit agreement(1) . . . . . . . .
Operating lease obligations(2) . . . . . . . . . . . . . . . . . . .
Outside service obligations(3) . . . . . . . . . . . . . . . . . . .
Licensing obligations(4) . . . . . . . . . . . . . . . . . . . . . . .
Total
$39,841
2,713
490
182
$6,479
627
356
173
Total future obligations . . . . . . . . . . . . . . . . . . . .
$43,226
$7,635
$26,656
1,327
134
9
$28,126
$6,706
759
—
—
$7,465
$—
—
—
—
$—
Payment Due By Period (amounts in 000’s)
Less than
One Year
One to
Three Years
Three to
Five Years
More than
Five Years
(1) As of December 31, 2013, the outstanding balance, including interest, of the debt was $31,013,000. The
above amounts reflect management’s estimates of repayments, including accrued interest payments, based
on the terms of Curis Royalty’s credit facility with BioPharma-II and assumptions of future Erivedge
royalties as of December 31, 2013. If future royalties are lower or higher than these assumptions, the
increase or decrease, respectively, and related debt payments will fluctuate
repayment period will
accordingly.
(2) We are party to a lease agreement with the Trustees of Lexington Office Realty Trust pursuant to which we
lease 24,529 square feet of property for office, research and laboratory space located at 4 Maguire Road in
Lexington, Massachusetts. The term of the lease agreement commenced on December 1, 2010, and expires
in February 2018. The total remaining cash obligation for the base rent over the initial term of the lease
agreement is approximately $2,713,000. In addition to the base rent, we are responsible for our share of
operating expenses and real estate taxes, in accordance with the terms of the lease agreement. Amounts
include contractual rent payments and exclude any impact of an early termination payment as defined in the
agreement.
78
(3) Outside service obligations consist of agreements we have with outside labs, consultants and various other
service organizations. Obligations to clinical
research organizations, medical centers and hospitals
conducting our clinical trials are included in our financial statements for costs incurred as of December 31,
2013. Our obligations under these types of arrangements are limited to actual costs incurred for services
performed and do not include any contingent or milestone payments.
(4) Licensing obligations include only obligations that are known to us as of December 31, 2013. In the future,
we may owe royalties and other contingent payments to our licensors based on the achievement of
developmental milestones, product sales and specified other objectives. For example, contingent payments
to sublicensors related to future development milestones would total $2,950,000, or 5%, if all of the
$59,000,000 in remaining milestones under our June 2003 Genentech collaboration are achieved. These
future obligations are not reflected in the table above as these payments are contingent upon achievement of
developmental and commercial milestones, the likelihood of which cannot be reasonably estimated at this
time.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as of December 31, 2013.
Inflation
We believe that inflation has not had a significant impact on our revenue and results of operations since
inception.
New Accounting Pronouncements
In July 2013,
the FASB issued an accounting standards update clarifying the presentation of an
unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward
exists. The updated guidance requires the netting of unrecognized tax benefits against a deferred tax asset for a
loss or other carryforward when settlement of the liability for an unrecognized tax benefit in this manner is
available. The update is effective prospectively for reporting periods beginning after December 15, 2013, and
early adoption and retrospective adoption are permitted. The adoption of this guidance is not expected to have an
impact on the Company’s consolidated financial statements.
79
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our current cash balances in excess of operating requirements are invested in cash equivalents, short-term
marketable securities, which consist of time deposits and investments in money market funds with commercial
banks and financial institutions, short-term commercial paper, and government obligations with an average
maturity of less than one year, and long-term investments. All marketable securities and long-term investments
are considered available for sale. The primary objective of our cash investment activities is to preserve principal
while at the same time maximizing the income we receive from our invested cash without significantly
increasing risk of loss. This objective may be adversely affected by the ongoing economic downturn and volatile
business environment and continued unpredictable and unstable market conditions.
Our marketable securities and long-term investments are subject to interest rate risk and will fall in value if
market interest rates increase. While as of the date of this filing, we are not aware of any downgrades, material
losses, or other significant deterioration in the fair value of our cash equivalents, marketable securities or long-
term investments since December 31, 2013, no assurance can be given that further deterioration in conditions of
the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or
marketable securities or our ability to meet our financing objectives. Further dislocations in the credit market
may adversely impact the value and/or liquidity of marketable securities and long-term investments owned by us.
To help manage this risk, we limit our investments to investment grade securities and deposits are with
investment grade financial institutions. We believe that the realization of losses due to changes in credit spreads
is unlikely as we currently have the ability to hold our investments for a sufficient period of time to recover the
fair value of the investment and there is sufficient evidence to indicate that the fair value of the investment is
recoverable. We do not use derivative financial instruments in our investment portfolio. We do not believe that a
10% change in interest rate percentages would have a material impact on the fair value of our investment
portfolio or our interest income.
80
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is defined in Rules 13a-15(f) or 15d-15(f) promulgated under
the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, our
principal executive and principal financial officers and effected by our board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that
transactions and dispositions of our assets;
in reasonable detail accurately and fairly reflect
the
provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorizations of management and our
directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of evaluations of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of
December 31, 2013. In making this assessment our management used the criteria established in Internal
Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, or COSO.
Based on our assessment, management concluded that, as of December 31, 2013, our internal control over
financial reporting is effective based on the criteria established in Internal Control—Integrated Framework
issued by COSO.
The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited
by PricewaterhouseCoopers LLP, an independent registered public accounting firm, who has issued an attestation
report on our internal control over financial reporting which appears herein.
81
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Curis, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of
operations and comprehensive loss, stockholders’ equity and cash flows present fairly, in all material respects,
the financial position of Curis, Inc. and its subsidiaries at December 31, 2013 and December 31, 2012, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2013
in conformity with accounting principles generally accepted in the United States of America. Also in our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued by
the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). The Company’s
management is responsible for these financial statements, for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
Management’s Annual Report on Internal Control over Financial Reporting appearing under 9A. Our
responsibility is to express opinions on these financial statements and on the Company’s internal control over
financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
internal control over financial reporting may not prevent or detect
Because of its inherent
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
limitations,
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
March 13, 2014
82
CURIS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
2013
2012
Current Assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investment—restricted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . .
$
9,591,487
48,588,135
13,877
1,477,188
495,260
$ 12,747,709
42,791,689
13,877
908,064
390,564
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60,165,947
56,851,903
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investment—restricted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
445,655
10,726,685
166,487
8,982,000
104,034
434,168
3,162,025
180,405
8,982,000
157,848
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 80,590,808
$ 69,768,349
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,036,864
1,911,479
2,610,174
6,558,517
27,945,186
716,786
196,734
$
2,504,270
1,474,556
—
3,978,826
29,838,925
1,488,179
194,921
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35,417,223
35,500,851
Commitments (Note 8)
Stockholders’ Equity:
Common stock, $0.01 par value—225,000,000 and 125,000,000 shares
authorized at December 31, 2013 and 2012, respectively; 87,081,862
shares issued and 85,859,016 shares outstanding at December 31, 2013;
and 81,065,488 shares issued and 80,017,781 shares outstanding at
December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock (at cost, 1,222,846 shares and 1,047,707 shares at
870,819
806,660,340
810,655
782,837,507
December 31, 2013 and 2012, respectively)
. . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive (loss)/income . . . . . . . . . . . . . . . . . . . .
(1,524,029)
(760,826,561)
(6,984)
(891,274)
(748,504,549)
15,159
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,173,585
34,267,498
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . .
$ 80,590,808
$ 69,768,349
The accompanying notes are an integral part of these consolidated financial statements.
83
CURIS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss
Years Ended December 31,
2013
2012
2011
Revenues:
License fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 10,000,000
3,942,136
1,059,896
$ 14,000,000
1,529,644
1,442,347
$14,300,000
—
462,580
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,002,032
16,971,991
14,762,580
Costs and Expenses:
Cost of royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In-process research and development . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . .
197,796
12,926,834
—
11,293,811
176,482
15,492,302
9,500,000
10,423,014
—
13,692,659
—
8,272,424
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
24,418,441
35,591,798
21,965,083
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9,416,409)
(18,619,807)
(7,202,503)
Other Income (Expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of warrant liability . . . . . . . . . . . . . . . . . .
164,650
(3,841,646)
771,393
149,937
(204,167)
2,257,130
100,034
—
(2,756,426)
Total other (expense) income . . . . . . . . . . . . . . . . . . . . . .
(2,905,603)
2,202,900
(2,656,392)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(12,322,012) $(16,416,907) $ (9,858,895)
Net Loss per Common Share (Basic and Diluted) . . . . . . . . . . . . . .
$
(0.15) $
(0.21) $
(0.13)
Weighted Average Common Shares (Basic and Diluted) . . . . . . . .
82,339,493
79,059,153
76,351,856
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax:
$(12,322,012) $(16,416,907) $ (9,858,895)
Unrealized loss on marketable securities . . . . . . . . . . . . . . . . .
(22,143)
(18,806)
(11,397)
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(12,344,155) $(16,435,713) $ (9,870,292)
The accompanying notes are an integral part of these consolidated financial statements.
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T
CURIS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31,
2013
2012
2011
$(12,322,012) $(16,416,907) $ (9,858,895)
107,396
1,772,111
—
2,756,426
—
246,122
—
(77,068)
50,304
24,111
416,196
5,295,598
(4,563,297)
Cash Flows from Operating Activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . .
Issuance of common stock to licensees . . . . . . . . . . . . . . . . . .
Change in fair value of warrant liability . . . . . . . . . . . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . .
Non-cash interest (income)/expense . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash interest on debt
Gain on sale of fixed assets and equipment
. . . . . . . . . . . . . .
Changes in operating assets and liabilities:
141,522
3,002,241
—
(771,393)
104,842
95,197
713,968
—
126,537
3,623,911
964,000
(2,257,130)
5,769
(434,763)
—
—
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . .
Accounts payable and accrued and other liabilities . . . .
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in operating activities . . . . . . . . . . . .
(569,124)
(116,639)
181,821
2,782,435
(9,539,577)
(865,997)
40,959
20,316
1,223,602
(15,193,305)
Cash Flows from Investing Activities:
Purchases of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales/maturities of investments . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in restricted cash/investments . . . . . . . . . . . . . . . . .
Expenditures for property and equipment . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of equipment
(65,827,658)
52,349,212
13,918
(153,009)
—
(69,153,956)
46,214,044
41,632
(104,975)
—
(42,136,949)
51,834,854
261,090
(260,405)
77,068
Net cash (used in)/provided by investing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13,617,537)
(23,003,255)
9,775,658
Cash Flows from Financing Activities:
Proceeds from issuance of common stock associated with
offerings, net of issuance costs (see Note 9) . . . . . . . . . . . .
16,245,984
879,080
288,817
Proceeds from issuance of common stock under the
Company’s share-based compensation plans and warrant
exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from debt
Net cash provided by financing activities . . . . . . . .
Net (decrease)/increase in cash and cash equivalents . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . .
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . .
4,016,383
(261,475)
5,105,699
(160,240)
— 30,000,000
35,824,539
(2,372,021)
15,119,730
$ 12,747,709
1,792,003
—
—
2,080,820
7,293,181
7,826,549
$ 15,119,730
20,000,892
(3,156,222)
12,747,709
$ 9,591,487
Supplemental cash flow data:
Cash paid for interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,913,999
Non-cash items:
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable for issuances of common stock . . . . . . . . . . . . . .
Unpaid debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
— $
— $
—
—
632,755
— $
14,366
— $
261,475
$
$
375,661
—
The accompanying notes are an integral part of these consolidated financial statements.
86
CURIS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) OPERATIONS
Curis, Inc. is an oncology-focused drug development company seeking to develop novel, targeted drug
candidates for the treatment of human cancers. As used throughout these consolidated financial
statements, the term “the Company” refers to the business of Curis, Inc. and its wholly owned
subsidiaries, except where the context otherwise requires, and the term “Curis” refers to Curis, Inc.
The Company conducts its research and development programs both internally and through strategic
collaborations. The Company is leveraging its experience in targeting signaling pathways in seeking to
develop targeted drug candidates including CUDC-427, a small molecule antagonist of the inhibitor of
apoptosis, or IAP, proteins, which is currently subject to a U.S. Food and Drug Administration, or
FDA, partial clinical hold, and CUDC-907, a dual histone deacetylase, or HDAC, and phosphoinostide-
3 kinase, or PI3K, inhibitor. Erivedge®, the first and only approved medicine for the treatment of
advanced basal cell carcinoma, or BCC, is being commercialized by F. Hoffmann-La Roche Ltd, or
Roche, and Genentech Inc., or Genentech, a member of the Roche Group, under a collaboration
agreement between Curis and Genentech. The Company’s licensee Debiopharm is advancing the
clinical development of the heat shock protein 90, or HSP90, inhibitor, Debio 0932.
The Company operates in a single reportable segment, which is the research and development of
innovative cancer therapeutics. The Company expects that any products that are successfully developed
and commercialized would be used in the health care industry and would be regulated in the United
States by the FDA and in overseas markets by similar regulatory authorities.
The Company is subject to risks common to companies in the biotechnology industry as well as risk
factors that are specific to the Company’s business, including, but not limited to: the Company’s
reliance on Genentech and Roche to successfully commercialize Erivedge; the Company’s ability to
advance and expand its research and development programs, including whether the FDA lifts the
partial clinical hold placed on CUDC-427; the Company’s ability to obtain adequate financing to fund
its operations; the ability of the Company’s wholly owned subsidiary, Curis Royalty, LLC, or Curis
Royalty, to satisfy the terms of its loan agreement with BioPharma Secured Debt Fund II Sub, S.à r.l., a
Luxembourg limited liability company managed by Pharmakon Advisors, or BioPharma-II;
the
Company’s ability to obtain and maintain necessary intellectual property protection; development by
the Company’s competitors of new or better technological innovations; dependence on key personnel;
the Company’s ability to comply with regulatory requirements; and the Company’s ability to execute
on its overall business strategies.
The Company’s future operating results will largely depend on the magnitude of payments from its
current and potential future corporate collaborators and the progress of drug candidates currently in its
development pipeline. The results of the Company’s operations will vary significantly from year to
year and quarter to quarter and depend on, a number of factors, including, but not limited to: Roche and
Genentech’s ability to successfully commercialize Erivedge; positive results in Genentech’s ongoing
clinical trials; the timing, outcome and cost of the Company’s preclinical studies and clinical trials for
its drug candidates; whether or not the FDA removes the partial clinical hold on CUDC-427; and the
Company’s ability to successfully enter into one or more material licenses or collaboration agreements
for its proprietary drug candidates.
The Company anticipates that existing cash, cash equivalents and investments at December 31, 2013
should enable it to maintain current and planned operations for the foreseeable future. The Company’s
ability to continue funding its planned operations beyond this period is dependent upon, among other
things, the success of its collaborations with Genentech, Debiopharm and the Leukemia & Lymphoma
these
Society, or LLS,
collaborations; its ability to control expenses and its ability to raise additional funds through equity or
including its receipt of additional contingent cash payments under
87
debt financings, new collaborations or other sources of financing. The Company may not be able to
successfully raise additional funds or enter into or continue any corporate collaborations and the
timing, amount and likelihood of the Company receiving payments under such collaborations is highly
uncertain. If the Company is unable to obtain adequate financing, the Company may be required to
reduce or delay spending on its research and/or development programs.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) USE OF ESTIMATES
The preparation of the Company’s consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and
assumptions that affect the reported amounts and disclosure of revenue, expenses and certain assets and
liabilities at the balance sheet date. Such estimates include revenue recognition, including estimates of
the performance obligations under the Company’s collaboration agreements; the estimated repayment
term of the Company’s debt and related short- and long-term classification; the collectibility of
receivables; the carrying value of property and equipment and intangible assets; the assumptions used
in the Company’s valuation of stock-based compensation and the value of certain investments and
liabilities, including our warrant liability. Actual results may differ from such estimates.
(b) CONSOLIDATION
The accompanying consolidated financial statements include the Company and its wholly owned
subsidiaries, Curis Royalty (see Note 7), Curis Securities Corporation, Inc. and Curis Pharmaceuticals
(Shanghai) Co., Ltd., or Curis Shanghai. The Company has eliminated all intercompany transactions in
each of the years ended December 31, 2013, 2012 and 2011.
(c) REVENUE RECOGNITION
The Company’s business strategy includes entering into collaborative license and development
agreements with biotechnology and pharmaceutical
and
commercialization of the Company’s drug candidates. The terms of the agreements typically include
non-refundable license fees, funding of research and development, payments based upon achievement
of clinical development and regulatory objectives, and royalties on product sales. The Company
follows the provisions of the Financial Accounting Standards Board, or FASB, Codification Topic 605,
Revenue Recognition.
the development
companies
for
License Fees and Multiple Element Arrangements
In January 2011, the Company adopted a new U.S. generally accepted accounting principles, or GAAP,
accounting standard on a prospective basis which amends existing revenue recognition accounting
guidance to provide accounting principles and application guidance on whether multiple deliverables
exist, how the arrangement should be separated, and the consideration allocated. This new guidance
eliminates the requirement to establish objective evidence of fair value of undelivered products and
services and instead provides for separate revenue recognition based upon management’s best estimate
of the selling price for an undelivered item when there is no vendor-specific objective evidence or
third-party evidence to determine the fair value of the undelivered item.
For multiple element arrangements, including license agreements, entered into prior to January 1, 2010,
guidance required that the fair value of the undelivered item be the price of the item either sold in a
separate transaction between unrelated third parties or the price charged for each item when the item is
sold separately by the vendor. This was difficult to determine when the product was not individually
sold because of its unique features. Under this guidance, if the fair value of all of the undelivered
elements in the arrangement was not determinable, then revenue was deferred until all of the items
were delivered or fair value was determined.
88
Non-refundable license fees are recognized as revenue when the Company has a contractual right to
receive such payment, the contract price is fixed or determinable, the collection of the resulting
receivable is reasonably assured and the Company has no further performance obligations under the
license agreement. Multiple element arrangements, such as license and development arrangements are
analyzed to determine whether the deliverables, which often include a license and performance
obligations such as research and steering committee services, can be separated or whether they must be
accounted for as a single unit of accounting in accordance with GAAP. The Company recognizes up-
front license payments as revenue upon delivery of the license only if the license has stand-alone value.
If the license is considered to not have stand-alone value, the arrangement would then be accounted for
as a single unit of accounting and the license payments and payments for performance obligations are
recognized as revenue over the estimated period of when the performance obligations are performed.
If the Company is involved in a steering committee as part of a multiple element arrangement, the
to
Company assesses whether its involvement constitutes a performance obligation or a right
participate. Steering committee services that are determined to be performance obligations are
combined with other research services or performance obligations required under an arrangement, if
any, in determining the level of effort required in an arrangement and the period over which the
Company expects to complete its aggregate performance obligations.
Whenever the Company determines that an arrangement should be accounted for as a single unit of
accounting, it must determine the period over which the performance obligations will be performed and
revenue will be recognized. Revenue will be recognized using either a relative performance or straight-
line method. The Company recognizes revenue using the relative performance method provided that
the Company can reasonably estimate the level of effort required to complete its performance
obligations under an arrangement and such performance obligations are provided on a best-efforts
basis. Direct labor hours or full-time equivalents are typically used as the measure of performance.
Revenue recognized under the relative performance method would be determined by multiplying the
total payments under the contract, excluding royalties and payments contingent upon achievement of
substantive milestones, by the ratio of level of effort incurred to date to estimated total level of effort
required to complete the Company’s performance obligations under the arrangement. Revenue is
limited to the lesser of the cumulative amount of payments received or the cumulative amount of
revenue earned, as determined using the relative performance method, as of each reporting period.
If the Company cannot reasonably estimate the level of effort required to complete its performance
obligations under an arrangement, the performance obligations are provided on a best-efforts basis and the
Company can reasonably estimate when the performance obligation ceases or the remaining obligations
become inconsequential and perfunctory, then the total payments under the arrangement, excluding royalties
and payments contingent upon achievement of substantive milestones, would be recognized as revenue on a
straight-line basis over the period the Company expects to complete its performance obligations. Revenue is
limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue
earned, as determined using the straight-line basis, as of the period ending date.
If the Company cannot reasonably estimate when its performance obligation either ceases or becomes
inconsequential and perfunctory, then revenue is deferred until the Company can reasonably estimate
when the performance obligation ceases or becomes inconsequential. Revenue is then recognized over
the remaining estimated period of performance.
Significant management judgment is required in determining the level of effort required under an
arrangement and the period over which the Company is expected to complete its performance
obligations under an arrangement.
Substantive Milestone Payments
In April 2010, the FASB issued guidance on the milestone method for revenue recognition purposes.
Previously, definitive guidance on when the use of the milestone method was appropriate did not exist.
89
This guidance provides a framework of the criteria that should be met for determining whether the
milestone method of revenue recognition is appropriate.
Collaboration agreements
achievement of the milestone only if:
that contain substantive milestone payments are recognized upon
•
such milestone is commensurate with either of the following:
a)
b)
the Company’s performance to achieve the milestone (for example, the achievement of the
milestone involves a degree of risk and was not reasonably assured at the inception of the
arrangement); or
the enhancement of the value of the deliverable as a result of a specific outcome resulting
from the Company’s performance to achieve the milestone (or substantive Company effort is
involved in achieving the milestone);
•
•
such milestone relates solely to past performance; and
the amount of the milestone payment is reasonable relative to all deliverables and payment
terms in the arrangement.
Determination as to whether a payment meets the aforementioned conditions involves management’s
judgment. If any of these conditions are not met, the resulting payment would not be considered a
substantive milestone, and the resulting payment would be recognized as revenue as performance
obligations are performed under either the relative performance or straight-line methods, as applicable,
and in accordance with these policies as described above. In addition, the determination that one such
payment was not a substantive milestone could prevent the Company from concluding that subsequent
milestone payments were substantive milestones and, as a result, any additional milestone payments
could also be considered part of the consideration for the single unit of accounting and would be
recognized as revenue as such performance obligations are performed under either the relative
performance or straight-line methods, as applicable. Milestones that are tied to regulatory approval are
not considered probable of being achieved until such approval is received. Milestones tied to counter-
party performance are not included in the Company’s revenue model until the performance conditions
are met.
Reimbursement of Costs
Reimbursement of research and development costs by third party collaborators is recognized as
revenue provided the Company has determined that it is acting primarily as a principal in the
transaction according to the provisions outlined in the FASB Codification Topic 605-45, Revenue
Recognition, Principal Agent Considerations, the amounts are determinable and collection of the
related receivable is reasonably assured.
Royalty Revenue
Since the first quarter of 2012, the Company has recognized royalty revenues related to Genentech’s
and Roche’s sales of Erivedge. The Company expects to recognize royalty revenue in future quarters
from Genentech’s sales of Erivedge in the U.S. and in other markets where Genentech and Roche
successfully obtain marketing approval, if any (see Notes 3(a) and 7). However, Erivedge royalties will
service Curis Royalty’s debt
to BioPharma-II, and only amounts in excess of certain quarterly
repayment caps, if any, will be available to the Company for use in operations.
Deferred Revenue
Amounts received prior to satisfying the above revenue recognition criteria are recorded as short term
deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be
90
recognized during the year ending December 31, 2014 would be classified as long-term deferred
revenue. As of December 31, 2013 and 2012, the Company had no amounts classified as short-term or
long-term deferred revenue.
Summary
During the years ended December 31, 2013, 2012 and 2011, total gross revenues from the Company’s
collaborators as a percent of total gross revenues of the Company were as follows:
Genentech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LLS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95% 94% 97%
6% —%
4%
Year Ended December 31,
2013
2012
2011
(d) RESEARCH AND DEVELOPMENT
Research and development expense consists of costs incurred to discover, research and develop drug
candidates. These expenses consist primarily of: (1) salaries and related expenses for personnel
including stock-based compensation expense; (2) outside service costs, including clinical research
organizations and medicinal chemistry; (3) sublicense payments; and (4) the costs of supplies and
reagents, consulting, and occupancy and depreciation charges. In addition, the Company incurred in-
process research and development expenses of $9,500,000 during the year ended December 31, 2012,
representing the one-time license and technology transfer fee related to the license of CUDC-427 from
Genentech (see Note 3(b)). The Company expenses research and development costs as incurred.
The Company is currently recognizing cost of royalties on Erivedge royalty revenue earned under the
June 2003 collaboration with Genentech related to obligations to third-party university licensors. The
Company is also incurring research and development expenses under this collaboration related to the
maintenance of these third-party licenses to certain background technologies. In addition, the Company
records research and development expense for obligations to certain third-party university licensors
upon earning payments from Genentech related to the achievement of clinical development and
regulatory objectives under this collaboration.
(e) CASH EQUIVALENTS AND INVESTMENTS
Cash equivalents consist of short-term, highly liquid investments purchased with original maturities of
three months or less. All other liquid investments are classified as marketable securities. The
Company’s short-term investments are marketable securities with original maturities of greater than
three months from the date of purchase, but less than twelve months from the balance sheet date, and
long-term investments are marketable securities with original maturities of greater than twelve months
from the balance sheet. Marketable securities consist of commercial paper, corporate bonds and notes,
and government obligations. All of the Company’s investments have been designated as available-for-
sale and are stated at market value with any unrealized holding gains or losses included as a component
of stockholders’ equity and any realized gains and losses recorded in the statement of operations in the
period the securities are sold.
Unrealized gains and temporary losses on investments are included in accumulated other
comprehensive income (loss) as a separate component of stockholders’ equity. Realized gains and
losses, dividends and interest income are included in other income (expense). Any premium or discount
arising at purchase is amortized and/or accreted to interest income.
91
The amortized cost, unrealized losses and fair value of short-term investments available-for-sale as of
December 31, 2013 with maturity dates ranging between one and twelve months and with a weighted
average maturity of 4.7 months are as follows:
Corporate bonds and notes . . . . . . . . . . . . . . . . .
US government and municipal obligations . . . .
$47,091,593
501,170
Total investments . . . . . . . . . . . . . . . . . . . . . . . .
$47,592,763
$9,036
10
$9,046
$(15,476) $47,085,153
501,180
— $
$(15,476) $47,586,333
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Fair Value
In addition, a certificate of deposit in the amount of $1,001,802 that the Company held as of
December 31, 2013 was included within short-term investments in the consolidated balance sheet but is
excluded from the table above as it was not deemed to be a security.
As of December 31, 2013, the Company also recorded long-term investments of $10,726,685 on its
Consolidated Balance Sheet. This amount is comprised of corporate and government-secured debt
securities with maturities ranging from January 2015 to May 2015 with a weighted average maturity of
14.3 months and with amortized cost totaling $10,727,958, less unrealized net losses of $1,273.
The amortized cost, unrealized gains and fair value of marketable securities available-for-sale as of
December 31, 2012, with maturity dates ranging between one and twelve months and with a weighted
average maturity of 5.2 months are as follows:
Corporate bonds and notes . . . . . . . . . . . . . . . . .
$42,775,952
$15,737
$42,791,689
Total investments . . . . . . . . . . . . . . . . . . . . . . . .
$42,775,952
$15,737
$42,791,689
Amortized
Cost
Unrealized
Gain
Fair Value
As of December 31, 2012,
the Company recorded long-term investments of $3,162,025 on its
Consolidated Balance Sheet. This amount is comprised of corporate debt securities with maturities
ranging from March 2014 to May 2014 and with amortized cost totaling $3,161,848, plus unrealized
net gains of $177.
(f) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company discloses fair value measurements based on a framework outlined by GAAP which
requires expanded disclosures regarding fair value measurements. GAAP also defines fair value as the
exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. Market participants are buyers and sellers in the principal
market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.
92
The FASB Codification Topic 820, Fair Value Measurements and Disclosures, requires the use of
valuation techniques that are consistent with the market approach, the income approach and/or the cost
approach. The market approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets and liabilities. The income approach uses
valuation techniques to convert future amounts, such as cash flows or earnings, to a single present
amount on a discounted basis. The cost approach is based on the amount that currently would be
required to replace the service capacity of an asset (replacement cost). Valuation techniques should be
consistently applied. GAAP also establishes a fair value hierarchy which requires an entity to maximize
the use of observable inputs, where available, and minimize the use of unobservable inputs when
measuring fair value. The standard describes three levels of inputs that may be used to measure fair
value:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair
value of the assets or liabilities. The Company’s warrant liability was valued using a probability-
weighted Black-Scholes model, discussed further in Note 9, and is therefore classified as Level 3.
In accordance with the fair value hierarchy, the following table shows the fair value as of December 31,
2013 and 2012 of those financial assets and liabilities that are measured at fair value on a recurring
basis, according to the valuation techniques the Company used to determine their fair value. No
financial assets or liabilities are measured at fair value on a nonrecurring basis at December 31, 2013
and 2012.
As of December 31, 2013:
Cash equivalents
Money market funds . . . . . . . . . . . . . . . . . . . . .
Corporate commercial paper, bonds and
notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . . . . . . . .
Short- and long-term investments
US government obligations . . . . . . . . . . . . . . . .
Corporate commercial paper, stock, bonds and
Quoted Prices in
Active Markets
(Level 1)
Other
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
Fair Value
$ 5,535,716
$
— $
— $ 5,535,716
—
—
—
1,749,983
1,110,000
1,151,932
—
—
—
1,749,983
1,110,000
1,151,932
notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,176,154
36,984,932
— 57,161,086
Total assets at fair value . . . . . . . . . . . . . . . . . . . . . .
$25,711,870
$40,996,847
$
— $66,708,717
Warrant liability . . . . . . . . . . . . . . . . . . . . . . . . .
—
— 716,786
716,786
Total liabilities at fair value . . . . . . . . . . . . . . . . . . . .
$
— $
— $716,786
$
716,786
The above table excludes a certificate of deposit in the amount of $1,001,802 that the Company held as
of December 31, 2013.
93
As of December 31, 2012:
Cash equivalents
Money market funds . . . . . . . . . . . . . . . . . . . . .
Corporate commercial paper, bonds and
notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . . . . . . . .
Short- and long-term investments
Corporate commercial paper, bonds and
Quoted Prices in
Active Markets
(Level 1)
Other
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
Fair Value
$ 7,597,598
$
— $
— $ 7,597,598
2,263,323
—
1,825,000
—
2,263,323
1,825,000
notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,366,420
32,587,294
— 45,953,714
Total assets at fair value . . . . . . . . . . . . . . . . . . . . . .
$23,227,341
$34,412,294
$
— $57,639,635
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
— 1,448,179
1,448,179
Total liabilities at fair value . . . . . . . . . . . . . . . . . . . .
$
— $
— $1,448,179
$ 1,448,179
The following table rolls forward the fair value of the Company’s warrant liability, the fair value of
which is determined by Level 3 inputs for the years ended December 31, 2013 and 2012:
Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrants exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,361,168
(615,859)
(2,257,130)
Balance at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,488,179
Change in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(771,393)
Balance at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
716,786
(g) LONG-LIVED ASSETS OTHER THAN GOODWILL
Long-lived assets other than goodwill consist of property and equipment. The aggregate balances for
these long-lived assets were $445,655 and $434,168 as of December 31, 2013 and 2012, respectively.
The Company applies the guidance in FASB Codification Topic 360-10-05, Impairment or Disposal of
Long-Lived Assets. If it were determined that the carrying value of the Company’s other long-lived
assets might not be recoverable based upon the existence of one or more indicators of impairment, the
Company would measure an impairment based on the difference between the carrying value and fair
value of the asset. The Company did not recognize any impairment charges for the years ended
December 31, 2013, 2012 or 2011.
Purchased equipment is recorded at cost. The Company does not currently hold any leased equipment.
Depreciation and amortization are provided on the straight-line method over the estimated useful lives
of the related assets or the remaining terms of the leases, whichever is shorter, as follows:
Asset Classification
Estimated Useful Life
Laboratory equipment, computers and software
Leasehold improvements
Office furniture and equipment
3-5 years
Lesser of life of the lease or the
life of the asset
5 years
94
The Company incurred debt issuance costs totaling $421,715 in connection with the Curis Royalty loan
transaction, of which $215,000 related to expenses that the Company paid to third parties on behalf of
BioPharma-II and the remaining $206,715 were incurred directly by the Company. The debt issuance
costs incurred directly by the Company were capitalized as assets and will be amortized over the
estimated term of the debt using the straight-line. Assumptions used in determining the expected
repayment term of the debt and amortization period of the issuance costs requires management to make
estimates that could impact the Company’s short- and long-term classification of the debt issuance
costs, as well as the period over which these costs will be amortized (see Note 7). As of December 31,
2013 and 2012, the Company had recorded short-term debt issuance costs of $51,441 and $49,019,
respectively, and long-term debt issuance costs of $101,055 and $154,868, respectively. These costs
are reported within the prepaid expenses and other current assets and other assets line items,
respectively, in the Company’s Consolidated Balance Sheet at December 31, 2013 and 2012.
(h) GOODWILL
As of December 31, 2013 and 2012, the Company had recorded goodwill of $8,982,000. The Company
applies the guidance in the FASB Codification Topic 350, Intangibles—Goodwill and Other. During
each of December 2013, 2012 and 2011, the Company completed its annual goodwill impairment tests
and determined that the Company represented a single reporting unit and as of those dates the fair value
of the Company exceeded the carrying value of its net assets. Accordingly, no goodwill impairment
was recognized for the years ended December 31, 2013, 2012 and 2011.
(i) TREASURY STOCK
On May 31, 2002, the Company announced that its Board of Directors had approved the repurchase of
up to $3,000,000 of the Company’s common stock. The Company accounts for its common stock
repurchases as treasury stock under the cost method. In 2002, the Company repurchased 1,047,707
shares of its common stock at a cost of $891,274 pursuant to this repurchase program.
The Company’s 2000 Stock Incentive Plan and the Amended and Restated 2010 Plan generally allow
participants to purchase common stock upon the exercise of a stock option by delivery of shares of
Company common stock held directly by the participant, with such shares of common stock valued at
the closing price on the Nasdaq Global Market, or NASDAQ, on the date of exercise. During the year
ended December 31, 2013, certain executive officers and a director exercised stock options by
remitting shares of Curis common stock then held by the respective person. The Company accounted
for the value of the common stock remitted to the Company in satisfaction of the exercise price as
treasury stock under the cost method. These option holders remitted an aggregate of 175,139 shares
during the year ended December 31, 2013 with an aggregate value equal to $632,755.
(j) BASIC AND DILUTED LOSS PER COMMON SHARE
Basic and diluted net losses per share were determined by dividing net loss by the weighted average
number of common shares outstanding during the period. Diluted net loss per common share is the same
as basic net loss per common share for all periods presented, as the effect of the potential common stock
equivalents is antidilutive due to the Company’s net loss position for all periods presented. Antidilutive
securities consist of stock options and warrants outstanding as of the respective reporting period.
Antidilutive securities as of December 31, 2013, 2012 and 2011 consisted of the following:
Stock options outstanding . . . . . . . . . . . . . . . . . .
Warrants outstanding . . . . . . . . . . . . . . . . . . . . . .
10,077,805
1,373,517
10,437,761
1,373,517
11,094,241
1,610,818
Total antidilutive securities . . . . . . . . . . . . . . . . .
11,451,322
11,811,278
12,705,059
As of December 31,
2013
2012
2011
95
(k) STOCK-BASED COMPENSATION
The Company adopted Statement of Financial Accounting Standards, or SFAS, No. 123 (revised 2004),
Share-Based Payment (SFAS 123(R)), which established standards for the accounting of transactions
in which an entity exchanges its equity instruments for goods or services, and is now referred to as the
FASB Codification Topic 718, Compensation—Stock Compensation. Topic 718 focuses primarily on
accounting for transactions in which an entity obtains employee services in share-based payment
transactions. Topic 718 requires that the fair value of such equity instruments be recognized as an
expense in the financial statements as services are performed.
(l) OPERATING LEASES
The Company currently has one facility located at 4 Maguire Road in Lexington, Massachusetts under
a noncancellable operating lease agreement for office and laboratory space. The rent payments for this
facility escalate over the lease term and the Company expenses its obligations under this lease
agreement on a straight-line basis over the term of the lease (see Note 8(a)).
(m) CONCENTRATION OF RISK
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist
principally of cash and cash equivalents, marketable securities and long-term investments. The
Company invests directly in commercial paper of financial institutions and corporations with A-/Aa3
or better long-term ratings and A-1/P-1 short term debt ratings and U.S. Treasury securities. The
Company maintains deposits in federally insured financial institutions in excess of federally insured
limits. Management believes that the Company is not exposed to significant credit risk due to the
financial position of the depository institutions in which those deposits are held. The Company’s credit
risk related to marketable securities and long-term investments is reduced as a result of the Company’s
policy to limit the amount invested in any one issue.
The Company’s accounts receivable at December 31, 2013, represents amounts due from collaborators,
primarily for royalties earned on sales of Erivedge by Genentech and Roche.
The Company relies on third parties to supply certain raw materials necessary to produce its drug
candidates, including CUDC-907 and CUDC-427, for preclinical studies and clinical trials. There are a
small number of suppliers for certain raw materials that the Company uses to manufacture its drug
candidates.
(n) COMPREHENSIVE LOSS
loss and other comprehensive income (loss). Other
Comprehensive loss is comprised of net
comprehensive income (loss) includes unrealized holding gains and losses arising during the period on
available-for-sale securities that are not other-than-temporarily impaired.
(o) NEW ACCOUNTING PRONOUNCEMENTS
In July 2013, the FASB issued an accounting standards update clarifying the presentation of an
unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit
carryforward exists. The updated guidance requires the netting of unrecognized tax benefits against a
deferred tax asset for a loss or other carryforward when settlement of the liability for an unrecognized
tax benefit in this manner is available. The update is effective prospectively for reporting periods
beginning after December 15, 2013, and early adoption and retrospective adoption are permitted. The
adoption of this guidance is not expected to have an impact on the Company’s consolidated financial
statements.
96
(3) RESEARCH AND DEVELOPMENT COLLABORATIONS
(a) GENENTECH, INC. JUNE 2003 COLLABORATION
(i) Agreement Summary
In June 2003, the Company licensed its proprietary Hedgehog pathway technologies to Genentech for
human therapeutic use. The primary focus of the collaborative research plan has been to develop
molecules that inhibit the Hedgehog pathway for the treatment of various cancers. The collaboration is
currently focused on the development of Erivedge. Genentech is currently conducting a phase II
clinical trial with Erivedge in less severe basal cell carcinoma and several additional clinical trials are
ongoing by third parties under collaboration agreements between Genentech and the National Cancer
Institute as well as Genentech and other third-party investigators.
The Company is eligible to receive up to $115,000,000 in contingent cash payments under the
collaboration for the development of Erivedge or another small molecule Hedgehog pathway inhibitor,
assuming the successful achievement by Genentech and Roche of specified clinical development and
regulatory objectives, of which it has received $56,000,000 as of December 31, 2013.
In addition to these payments, the Company’s wholly-owned subsidiary, Curis Royalty, is entitled to a
royalty on net sales of Erivedge that ranges from 5% to high single digits based upon global Erivedge
sales by Roche and Genentech, subject to reduction under specified circumstances. Future royalty
payments related to Erivedge will service the outstanding debt and accrued interest to BioPharma-II, up
to the quarterly caps for 2014 and 2015, and until the debt is fully repaid thereafter (see Note 7).
Unless terminated earlier, the agreement shall expire six months after the later of the expiration of
Genentech’s obligation to pay royalties to the Company under the agreement or such time as no
activities have occurred under the agreement for a period of twelve months.
(ii) Accounting Summary
The Company considers its arrangement with Genentech to be a revenue arrangement with multiple
deliverables. The Company’s deliverables under this collaboration include an exclusive license to its
Hedgehog pathway inhibitor technologies, research and development services for the first two years of
the collaboration, and participation on the joint steering committee. The Company applied the
the FASB Codification Topic 605-25, Revenue Recognition, Multiple Element
provisions of
Arrangement to determine whether the performance obligations under this collaboration could be
accounted for separately or should be accounted for as a single unit of account. The Company
determined that the deliverables, specifically, the license, research and development services and
steering committee participation, represented a single unit of account because the Company believes
that the license, although delivered at the inception of the arrangement, did not have stand-alone value
to Genentech without the Company’s research and development services and steering committee
participation. During 2007, the Company reassessed its participation on the joint steering committee
and concluded that its participation in the joint steering committee had become inconsequential and
perfunctory. As a result, the Company determined that it had no further performance obligations under
this collaboration and consideration received after this date is recognized in the Company’s financial
statements in the period in which it was earned.
The Company received payments from Genentech totaling $10,000,000 during the year ended
December 31, 2013 and $14,000,000 during each of the years ended December 31, 2012 and 2011,
respectively, for the achievement of certain clinical and regulatory development objectives related to
Erivedge described above. The Company has recorded these amounts as revenue within “License Fees”
in the Revenues section of its Consolidated Statement of Operations for the years ended December 31,
2013, 2012 and 2011, respectively.
As a result of its licensing agreements with various universities, the Company is obligated to make
payments to these university licensors when certain payments are received from Genentech. As of
97
December 31, 2013, the Company has incurred aggregate research and development expenses over the
term of this collaboration of $4,214,000 in connection with its receipt of cash payments from
Genentech for research, development and regulatory objectives achieved related to such university
licensing agreements. In connection with the receipt of payments from Genentech, the Company
recorded research and development expenses of $2,114,000 during the year ended December 31, 2012,
which represents the Company’s obligations to these university licensors. Of this amount, the Company
recognized expense of $964,000, which represents the fair value of a one-time issuance of an aggregate
of 200,000 shares of the Company’s common stock in March 2012 to two university licensors in
connection with the FDA-approval of Erivedge in January 2012. In addition, the Company recorded
research and development expenses of $650,000 for obligations the Company incurred in connection
with Roche’s filing in 2009 of an investigational new drug application in Australia and its application
to the Therapeutic Goods Administration, or TGA, for marketing registration of Erivedge in Australia
based on the $4,000,000 milestone that the Company received. The remaining expense recognized of
$500,000 relates to the Company’s receipt of the $10,000,000 milestone payment associated with the
FDA’s U.S. approval of Erivedge in January 2012. During the years ended December 31, 2013 and
2011,
the Company recorded research and development expenses of $500,000 and $700,000,
respectively, representing 5% of the total cash payments received during each year.
In addition, the Company recognized $3,942,136 and $1,529,644 in royalty revenue from Genentech’s
net sales of Erivedge during the year ended December 31, 2013 and 2012, respectively. The Company
also recorded cost of royalty revenues within the costs and expenses section of its Consolidated
Statements of Operations and Comprehensive Loss of $197,796 and $176,482, respectively, during
these same periods, which represents 5% of the royalties earned by Curis Royalty with respect to
Erivedge that the Company is obligated to pay to university licensors. In addition to the 5% obligation,
the Company made a one-time cash payment of $100,000 paid to one university licensor upon the first
commercial sale of Erivedge during the year ended December 31, 2012.
During the years ended December 31, 2013, 2012 and 2011, the Company also recorded “Research and
development” revenue of $291,448, $363,000 and $388,000, respectively, related to expenses incurred
on behalf of Genentech that were paid by the Company and for which Genentech is obligated to
reimburse the Company. The Company will continue to recognize revenue for expense reimbursement
as such reimbursable expenses are incurred, provided that the provisions of the FASB Codification
Topic 605-45 are met.
The Company had recorded $1,455,000, comprised primarily of Erivedge royalties earned in the fourth
quarter of 2013, and $622,000, as of December 31, 2013 and 2012, respectively, as amounts receivable
from Genentech under this collaboration in “Accounts receivable” in the Company’s Current Assets
section of its Consolidated Balance Sheets.
(b)
IAP LICENSE AGREEMENT WITH GENENTECH, INC.
On November 27, 2012, the Company entered into an exclusive license agreement, or the IAP license
agreement, with Genentech, pursuant to which Genentech granted to the Company an exclusive,
worldwide license to develop and commercialize CUDC-427.
Pursuant to the terms of the IAP license agreement, Genentech transferred to the Company know how,
information and materials necessary to continue the development of CUDC-427. Genentech also
assigned its existing investigational new drug application, or IND, for CUDC-427 to the Company.
Under the terms of the agreement, the Company agreed to use commercially reasonable efforts to
develop and commercialize CUDC-427, including to conduct at least one additional phase I clinical
trial of CUDC-427, and unless the results of the additional phase I trial do not provide sufficient
scientific or clinical justification for continued clinical development, to conduct a phase II clinical trial
to inform a decision to start a phase III clinical trial. The Company is solely responsible for all future
costs related to the development, registration and commercialization of products under the agreement.
98
the compound licensed from Genentech is in clinical development and will require
Given that
substantial development, regulatory and marketing approval efforts in order to reach technological
feasibility, the Company recognized in-process research and development expense of $9,500,000
related to the up-front license fee and technology transfer costs within the 2012 Consolidated Statement
of Operations and Comprehensive Loss.
In addition, Genentech is eligible to receive milestone payments upon the first commercial sale of
products containing CUDC-427 in certain territories, and escalating royalties on net sales of products,
which royalties are subject to reduction in certain limited circumstances. On a product-by-product and
country-by-country basis, the term of the Company’s royalty payment obligations will begin on the
first commercial sale of a product in a country and will continue until the later of (i) 10 years after the
first commercial sale of such product in such country and (ii) the date of expiration of Genentech’s
patent rights covering such product in such country. Upon expiration of its royalty payment obligations
with respect to a product in a country, the Company’s license with respect to such product in such
country will become royalty-free and fully paid-up.
The IAP license agreement will continue in effect until expiration of all royalty payment obligations
with respect
to any product, unless terminated early by either party as described below. Upon
expiration of the agreement, the Company’s license will become royalty-free, fully paid-up, irrevocable
and perpetual.
Each of Genentech and the Company may terminate the IAP license agreement prior to expiration in the
event of the uncured material breach of the agreement by the other party. In addition, the Company may
terminate the IAP license agreement prior to expiration for any reason upon 90 days’ prior written notice
to Genentech. Upon any termination of the IAP license agreement, the license granted to the Company
will terminate and revert to Genentech. If Genentech terminates the IAP license agreement for an uncured
material breach by the Company, or if the Company terminates the agreement for any reason other than
uncured material breach by Genentech, Genentech will be entitled to certain licenses and other rights with
respect to products existing as of the date of termination, and the Company may, under specified
circumstances, be obligated to supply products to Genentech for a limited period after termination.
(c) THE LEUKEMIA & LYMPHOMA SOCIETY AGREEMENT
(i) Agreement Summary
In November 2011, the Company entered into an agreement under which The Leukemia & Lymphoma
Society (LLS) agreed to support the Company’s ongoing development of CUDC-907 for patients with
relapsed or refractory lymphoma and multiple myeloma. Under the agreement, LLS will make milestone
payments up to $4,000,000 that are contingent upon the Company’s achievement of specified clinical
development objectives with CUDC-907. Since the inception of the agreement, the Company has
received $1,650,000 from LLS related to milestones achieved under this agreement. Additional milestone
payments may be earned assuming CUDC-907 continues to progress through the phase I clinical trial.
certain
successful
partnering
conditions
the Company’s
associated with
Under
and/or
commercialization of CUDC-907 in the specified indications, the Company may be obligated to make
payments, including royalties, to LLS of up to $10,000,000. This obligation is capped at 2.5 times the
amount the Company receives from LLS, and, as of December 31, 2013, the maximum obligation,
assuming that CUDC-907 successfully progresses through future clinical trials, would be $4,125,000.
If clinical development of CUDC-907 does not continue to meet its clinical safety endpoints in future
clinical trials in the defined field or fails to obtain necessary regulatory approvals, all funding provided
to the Company by LLS will be considered a non-refundable grant. As of December 31, 2013 the
Company has not recorded an obligation to repay any of the funds received from LLS because the
contingent repayment obligation depends solely on the successful results of the continued development
of CUDC-907, which is not probable at December 31, 2013 as this program remains in the very early
stages of clinical development.
99
The LLS agreement also stipulates a “follow-up diligence period” beginning on the date the Company
receives its last milestone payment from LLS and ends on the earlier of (a) five years from that date or
(b) the fulfillment (or termination, as applicable) of Company’s payment obligations as described
above. During the follow-up period, the Company agrees that it will take the appropriate steps as are
commercially reasonable to further the clinical and commercial development of CUDC-907 in the
defined field in at least one major market, provided that the Company reasonably believes that CUDC-
907 is safe and effective in the field as determined by successfully meeting its pre-determined
endpoints in its clinical trials, and further provided that the Company receives necessary regulatory
guidance from agency officials in the applicable major market(s) to continue development and reach
the market for CUDC-907 in the defined field. If the program is successful as defined by the
agreement, and if Curis cannot fund the additional clinical development, the Company agrees to seek to
license CUDC-907 to a third party, either on its own or through LLS, in the defined field in the same
commercially reasonable manner during the remainder of the follow-up period. The Company will be
solely responsible for all costs related to the development, registration and commercialization of
products under the agreement.
The agreement became effective on November 29, 2011 and will remain in effect until the completion
of the defined milestones, unless earlier terminated in accordance with the provisions of the agreement,
including safety issues related to the administration of CUDC-907, failure to obtain or maintain
regulatory approvals for clinical trials, and breach by either party.
(ii) Accounting Summary
The Company considers its agreement with LLS to be a revenue arrangement with multiple
deliverables. The Company’s obligations under this agreement include: (i) conduct the development
program through a phase Ib/IIa clinical trial; (ii) participate on the joint research advisory committee;
and (iii) continue development during a follow-up diligence period of five years, if CUDC-907 is
successful, as described above. The Company determined that the LLS arrangement is an obligation to
perform contractual services and that payments received from LLS should be recognized as revenue
rather than contra-research and development expenses or other income because this arrangement is part
of the Company’s on-going operations as it relates to one of its three internal proprietary programs and
the arrangement is similar to other types of arrangements the Company has entered into historically.
The follow-up diligence period becomes an obligation only if and when CUDC-907 has successful
results from the completion of a phase Ib/IIa study and has received the appropriate regulatory
approvals to proceed with additional clinical testing. The Company initiated a phase I study of CUDC-
907 in December 2012 and treated the first patient with CUDC-907 in January 2013. Since the
Company’s intention would be to continue to develop CUDC-907 upon completion of a successful
program, either internally or through a licensee, it has determined that there is no commercial
substance to the follow-up diligence period, which is also based on the same level of success of the
program. As a result, the Company determined that the follow-up diligence period is a non-substantive
obligation as: (i) this performance obligation is not essential to the current development of CUDC-907
as the Company is only eligible to receive funding if specified clinical development milestones are
achieved; and (ii) any repayment right only exists if the program is successful beyond phase Ib/IIa and
the Company breaches this obligation by choosing not to use reasonable effort to continue developing
CUDC-907, which is not probable at December 31, 2013.
The Company believes that its participation on the joint research advisory committee, which is
comprised of equal representation from Curis and LLS, is tied to its performance to conduct the
research program and is occurring concurrent with the research and development services. The
Company determined that its participation on the joint research advisory committee does not have
stand-alone value and is essential to the development of CUDC-907 since the Company has the sole
responsibility for the development program. The Company determined that the only substantive
deliverables are limited to the research and development services and joint research advisory
committee participation, which represent a single unit of account.
100
The Company applied the provisions of ASC 605-28, Revenue Recognition, Milestone Method to
determine whether the revenue earned under this agreement should be accounted for as substantive
milestones. In determining whether the milestones in this arrangement are substantive, the Company
considered whether uncertainty exists as to: (i) the achievement of the milestone event at the inception
of the arrangement; (ii) the achievement of the milestone involves substantive effort and can only be
achieved based in whole or part on the performance or the occurrence of a specific outcome resulting
from the Company’s performance; (iii) the amount of the milestone payment appears reasonable either
in relation to the effort expected to be expended or to the projected enhancement of the value of the
delivered items; (iv) there is any future performance required to earn the milestone; and (v) the
consideration is reasonable relative to all deliverables and payment terms in the arrangement. When a
substantive milestone is achieved, the accounting guidance permits recognition of revenue related to
the milestone payment in its entirety. The Company determined that the milestones achieved in 2012
and 2013 under the LLS agreement were substantive and recorded the related revenue totaling
$650,000 and $1,000,000 in the years ended December 31, 2013 and 2012, respectively.
(4) STOCK PLANS AND STOCK BASED COMPENSATION
As of December 31, 2013, the Company had two shareholder-approved, share-based compensation
plans: (i) the Amended and Restated 2010 Stock Incentive Plan, or the Amended and Restated 2010
Plan, adopted by the Board of Directors in March 2013 and approved by shareholders in May 2013 and
(ii) the 2010 Employee Stock Purchase Plan, or the ESPP, adopted by the Board of Directors in April
2010 and approved by shareholders in June 2010. In the first quarter of 2010, the Company’s 2000
Stock Incentive Plan expired in accordance with its terms and its 2000 Director Stock Option Plan had
no available shares remaining under the plan. No additional awards will be made under these plans,
although all outstanding awards under these plans will remain in effect until they are exercised or they
expire in accordance with their terms.
The Amended and Restated 2010 Stock Incentive Plan
The Amended and Restated 2010 Plan permits the granting of incentive and non-qualified stock options
and stock awards to employees, officers, directors, and consultants of the Company and its subsidiaries at
prices determined by the Company’s Board of Directors. The Company can issue up to 9,000,000 shares
of its common stock pursuant to awards granted under the Amended and Restated 2010 Plan. Options
become exercisable as determined by the Board of Directors and expire up to 10 years from the date of
grant. The Amended and Restated 2010 Plan uses a “fungible share” concept under which each share of
stock subject to awards granted as options and stock appreciation rights (“SARs”), will cause one share
per share under the award to be removed from the available share pool, while each share of stock subject
to awards granted as restricted stock, restricted stock units, other stock-based awards or performance
awards where the price charged for the award is less than 100% of the fair market value of the Company’s
common stock will cause 1.3 shares per share under the award to be removed from the available share
pool. As of December 31, 2013, the Company had only granted options to purchase shares of the
Company’s common stock with an exercise price equal to the closing market price of the Company’s
common stock on the NASDAQ Global Market on the grant date. As of December 31, 2013, 3,647,503
shares remained available for grant under the Amended and Restated 2010 Plan.
During the year ended December 31, 2013, the Company’s board of directors granted options to
purchase 2,076,000 shares of the Company’s common stock to officers and employees of the Company
under the Amended and Restated 2010 Plan. These options vest over a four-year period.
During the year ended December 31, 2013, the Company’s board of directors also granted options to its
non-employee directors to purchase 260,000 shares of common stock under the Amended and Restated
2010 Plan. Of these, options to purchase 235,000 shares of common stock will vest monthly over a
one-year period and options to purchase 25,000 shares of common stock will vest over a four-year
period.
101
Employee and Director Grants
In determining the fair value of stock options, the Company uses the Black-Scholes option pricing
model. The Black-Scholes option pricing model employs the following key assumptions for employee
option grants issued in each of the following years:
For the Year Ended
December 31,
2013
2012
2011
Expected term (years)—Employees . . . . . . . . . . . . . . . . . . . .
Expected term (years)—Officers and Directors . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.0
7.0
6.0
6.0
6.0
6.0
1.0-2.1% 1.0-1.2% 1.2-2.5%
70-72% 74-76% 73-76%
None
None
None
The expected volatility is based on the annualized daily historical volatility of the Company’s stock
price for a time period consistent with the expected term of each grant. Management believes that the
historical volatility of the Company’s stock price best represents the volatility of the stock price. The
risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected
term of the respective grant. The Company has not historically paid cash dividends, and does not
expect to pay cash dividends in the foreseeable future.
The stock price volatility and expected terms utilized in the calculation involve management’s best
estimates at that time, both of which impact the fair value of the option calculated under the Black-
Scholes methodology and, ultimately, the expense that will be recognized over the life of the option.
GAAP also requires that the Company recognize compensation expense for only the portion of options
that are expected to vest. Therefore, management calculated an estimated annual pre-vesting forfeiture
rate that is derived from historical employee termination behavior since the inception of the Company,
as adjusted. If the actual number of forfeitures differs from those estimated by management, additional
adjustments to compensation expense may be required in future periods.
At December 31, 2013, the aggregate intrinsic value of employee options outstanding was $5,979,000,
of which $5,831,000 related to exercisable options, and the weighted average remaining contractual life
of vested stock options was 4.46 years. The weighted average grant-date fair values of stock options
granted during the years ended December 31, 2013, 2012 and 2011 were $2.27, $2.99 and $1.72 per
share of common stock underlying such stock options, respectively. As of December 31, 2013, there
was approximately $4,987,000,
including the impact of estimated forfeitures, of unrecognized
compensation cost related to unvested employee stock option awards outstanding under the Company’s
2000 Stock Incentive Plan and Amended and Restated 2010 Plan that is expected to be recognized as
expense over a weighted average period of 2.8 years. The intrinsic value of employee stock options
exercised during the years ended December 31, 2013, 2012 and 2011 were $2,091,000, $6,415,000 and
$2,129,000, respectively. The total fair value of vested stock options for the years ended December 31,
2013, 2012 and 2011 were $2,716,000, $2,525,000 and $1,504,000, respectively.
Non-Employee Grants
Pursuant to the Company’s stock plans, the Company has periodically granted stock options and
unrestricted stock awards to consultants for services at the closing market price of the Company’s
common stock on NASDAQ on the grant date. During the year ended December 31, 2013, the
Company issued options to purchase a total of 525,000 shares of common stock to consultants. These
options were issued pursuant to the Amended and Restated 2010 Plan at exercise prices equal to the
closing market price of the Company’s common stock on NASDAQ on the grant date. Should the
Company terminate any of its consulting agreements, the unvested options underlying the agreements
would also be cancelled. Unvested non-employee options are marked-to-market, which means that as
102
the Company’s stock price fluctuates, the related expense either increases or decreases. The Company
recognized expense of $351,089, $355,222 and $130,281 related to non-employee stock options and
stock awards for the years ended December 31, 2013, 2012 and 2011, respectively.
A summary of stock option activity under the Amended and Restated 2010 Plan, the 2000 Stock
Incentive Plan and the 2000 Director Stock Option Plan is summarized as follows:
Weighted
Average
Exercise
Price per
Share
Number of
Shares
Outstanding, December 31, 2012 (8,134,191 exercisable at weighted average price of
$2.30 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,437,761
2,861,000
(2,118,953)
(1,102,003)
$2.59
3.44
2.12
3.90
Outstanding, December 31, 2013 (6,884,869 exercisable at weighted average price of
$2.44 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,077,805
$2.79
Vested and unvested expected to vest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,920,751
$2.78
2010 Employee Stock Purchase Plan
The Company has reserved 500,000 of its shares of common stock for issuance under the ESPP.
Eligible employees may purchase shares of the Company’s common stock at 85% of the lower closing
market price of the common stock at the beginning or ending date of the purchase period, as defined.
The Company has two six-month purchase periods per year. As of December 31, 2013, 268,331 shares
were issued under the ESPP, of which 47,215 were issued during 2013. As of December 31, 2013,
there were 278,884 shares available for future purchase under the ESPP.
For the years ended December 31, 2013, 2012 and 2011, the Company recorded compensation expense
related to its ESPP and calculated the fair value of shares expected to be purchased under the ESPP
using the Black-Scholes models with the following assumptions:
For the Year Ended December 31,
2013
2012
2011
Compensation expense recognized under ESPP . .
Expected term . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
72,833
6 months
$ 40,008
6 months
0.08-0.1% 0.05-0.15%
42-75%
None
42-66%
None
$ 94,529
6 months
0.1-0.2%
75-85%
None
Stock-based compensation for employee and director stock option grants for the years ended
December 31, 2013, 2012 and 2011 of $2,651,152, $3,268,689 and $1,641,830, respectively, was
calculated using the above valuation models and has been included in the Company’s results of
operations.
103
Total Stock-Based Compensation Expense
For the years ended December 31, 2013, 2012 and 2011, the Company recorded employee and non-
employee stock-based compensation expense to the following line items in its Costs and Expenses
section of the Consolidated Statements of Operations and Comprehensive Loss:
For the Year Ended December 31,
2013
2012
2011
Research and development expenses . . . . . . . . .
General and administrative expenses . . . . . . . . .
$ 879,052
2,123,189
$1,075,134
2,548,777
$ 723,634
1,048,477
Total stock-based compensation expense . . . . . .
$3,002,241
$3,623,911
$1,772,111
No income tax benefits have been recorded for the years ended December 31, 2013, 2012 or 2011, as
the Company has recorded a full valuation allowance and management has concluded that it is more
likely than not that the net deferred tax assets will not be realized (see Note 10).
(5) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 31,
2013
2012
Laboratory equipment, computers and software . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Office furniture and equipment
$ 1,941,588
62,621
354,875
$ 2,167,794
62,621
304,590
Less—Accumulated depreciation and amortization . . . . . . . . .
2,359,084
(1,913,429)
2,535,005
(2,100,837)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
445,655
$
434,168
The Company recorded depreciation and amortization expense of $141,522, $126,537 and $107,396 for
the years ended December 31, 2013, 2012 and 2011, respectively.
During the years ended December 31, 2013, 2012 and 2011, the Company identified certain of its fully
depreciated assets no longer being used. As a result, the Company wrote off gross assets and related
accumulated depreciation, totaling $329,000 for the year ended December 31, 2013 and $418,000 for
each of the years ended December 31, 2012 and 2011, respectively.
(6) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest on debt (see Note 7) . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,267,954
166,200
298,935
178,390
$ 999,038
127,500
204,167
143,851
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,911,479
$1,474,556
December 31,
2013
2012
(7) DEBT
In December 2012, Curis’ wholly-owned subsidiary, Curis Royalty, received a $30,000,000 loan at an
annual interest rate of 12.25% pursuant to a credit agreement between Curis Royalty and BioPharma-II.
104
In connection with the loan, Curis transferred to Curis Royalty its right to receive certain future royalty and
royalty-related payments on the commercial sales of Erivedge that it may receive from Genentech. The loan
and accrued interest will be repaid by Curis Royalty using such royalty and royalty-related payments. To
secure repayment of the loan, Curis Royalty granted a first priority lien and security interest (subject only to
permitted liens) to BioPharma-II in all of its assets and all real, intangible and personal property, including
all of its right, title and interest in and to the royalty and royalty-related payments. The loan constitutes an
obligation of Curis Royalty, and is intended to be non-recourse to Curis. Under the terms of the loan,
quarterly royalty payments received by Curis Royalty from Genentech will first be applied to pay (i) escrow
fees payable by Curis pursuant to an escrow agreement between Curis, Curis Royalty, BioPharma-II and
Boston Private Bank and Trust Company, (ii) Curis’ 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 Curis enforcing its 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. Curis Royalty will be entitled to receive the remaining royalty amounts above the caps, if any,
and Curis remains entitled to receive any contingent payments upon achievement of clinical development
objectives. Curis Royalty retains its right to royalty payments related to sales of Erivedge following
repayment of the loan.
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.
Curis Royalty made quarterly interest payments under the loan agreement totaling $2,928,068 during
the year ended December 31, 2013. Each of the quarterly payments represented only a portion of the
interest accrued through each payment date until the fourth quarter of 2013, when such payment
exceeded the interest accrued. As a result, the shortfall in the accrued but unpaid interest totaling
$753,639 was added to the principal portion of the loan, of which $39,671 of the capitalized interest
was repaid during the year ended December 31, 2013. As of December 31, 2013, the Company
recorded short- and long-term debt of $2,610,174 and $27,945,186, respectively (net of unamortized
issuance costs of $53,503 and $105,105, respectively), and at December 31, 2012 recorded long-term
debt of $29,838,925 (net of unamortized issuance costs of $161,075), related to the loan, with such
amounts recorded within the Company’s Consolidated Balance Sheets. In addition, the Company
recorded related accrued interest on the debt of $298,935 and $204,167 as of December 31, 2013 and
2012, respectively, with such amounts included in the Company’s accrued liabilities section of its
Consolidated Balance Sheets. Because the repayment of the term loan is contingent upon the level of
Erivedge royalties received, the repayment term may be shortened or extended depending on the actual
level of Erivedge royalties. In addition, if Erivedge royalties are insufficient to pay the accrued interest
on the outstanding loan, the unpaid interest outstanding will be added to the principal on a quarterly
basis. Currently, Curis management estimates that the loan will be repaid in the first half of 2017.
However, the actual repayment period could vary materially from the Company’s estimate to the extent
that royalty payments it receives are lower than the Company’s current estimates, which could arise
due to factors beyond the Company’s control, such as due to competitive factors, decreased market
acceptance or a failure by Genentech and/or Roche to obtain required regulatory approvals.
At December 31, 2013, the fair value of the principal portion of the debt is estimated as $30,610,000.
Due to the assumptions required in estimating future Erivedge royalties, the expected repayment period
and weighting of various royalty projection scenarios, determining the fair value of the debt required
application of Level 3 inputs.
105
The Company incurred debt issuance costs totaling $421,715 in connection with this loan transaction,
of which $215,000 related to expenses that the Company paid on behalf of BioPharma-II and the
remaining $206,715 were incurred directly by the Company. The debt issuance costs incurred directly
by the Company were capitalized as assets and those costs paid on behalf of BioPharma-II have been
netted against the debt and accrued interest in the Company’s Condensed Consolidated Balance Sheets
as of December 31, 2013 and 2012 as detailed in the following table:
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31,
2013
51,441
101,055
152,496
$
2012
49,019
154,868
203,887
Accrued liabilities, net against accrued interest
. . . . . . . . . . .
—
(50,984)
Debt, current
Debt issue costs, current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,663,677
(53,503)
Debt, current portion net of issuance costs . . . . . . . . . . .
$ 2,610,174
$
—
—
—
Debt, long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issue costs, long-term . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,050,291
(105,105)
30,000,000
(161,075)
Debt, net of current portion and issuance costs . . . . . . . .
$27,945,186
$29,838,925
All issuance costs are being amortized over the estimated term of the debt using the straight-line
method which approximates the effective interest method. For the year ended December 31, 2013, the
Company recognized interest expense related to the loan with BioPharma-II of $3,841,646 within the
Company’s Consolidated Statement of Operations, comprised of interest accrued on the outstanding
principal of the loan of $3,736,804 and amortization of debt issuance costs of $104,842. For the year
the Company recognized interest expense related to the loan with
ended December 31, 2012,
BioPharma-II of $204,167 within the Company’s Consolidated Statement of Operations. The
assumptions used in determining the expected repayment term of the debt and amortization period of
the issuance costs requires management to make estimates that could impact the short- and long-term
classification of these costs, as well as the period over which these costs will be amortized.
Future payments of principal on the loan will require application of these same assumptions and will be
used to estimate short- and long-term classification of the debt within the Company’s consolidated
balance sheets. At December 31, 2013, the Company estimates that its future payments of principal on
the loan are as follows:
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
Principal
$ 2,663,677
7,504,387
14,076,158
6,469,746
—
Total payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,713,968
Less current portion, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,663,677)
Total long-term debt obligations, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$28,050,291
106
(8) COMMITMENTS
(a) OPERATING LEASES
The Company is party to a lease agreement with the Trustees of Lexington Office Realty Trust
pursuant to which the Company leases 24,529 square feet of property that is used for office, research
and laboratory space located at 4 Maguire Road in Lexington, Massachusetts.
The term of the 4 Maguire Road lease agreement commenced on December 1, 2010, and expires on
January 31, 2018. The Company has the option to extend the term for one additional five-year period
upon the Company’s written notice to the lessor at least one year and no more than 18 months in
advance of the extension.
The total cash obligation for the base rent over the initial term of the lease agreement is approximately
$4,401,000. In addition to the base rent, the Company is also responsible for its share of operating
expenses and real estate taxes, in accordance with the terms of the lease agreement. The Company has
provided a security deposit to the lessor in the form of an irrevocable letter of credit in the original
amount of $277,546. The original deposit has been reduced since the inception of the lease, to
$194,282 during 2012 and to $180,364 during 2013, and will continue to be reduced up to an additional
$13,877 per year in 2014 and 2015, respectively, in accordance with the terms of the lease. These
amounts have been classified as the restricted investments in the Company’s Consolidated Balance
Sheet as of December 31, 2013 and 2012.
The Company’s remaining operating lease commitments for all leased facilities with an initial or
remaining term of at least one year are as follows:
Year Ending December 31,
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
$ 627,000
651,000
676,000
700,000
59,000
—
Total minimum payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,713,000
Rent expense for all operating leases was $614,000 for each of the years ended December 31, 2013,
2012 and 2011, respectively.
(b) LICENSE AGREEMENTS
In exchange for the right to use licensed technology in its research and development efforts, the
Company has entered into various license agreements. These agreements generally stipulate that the
Company pay an annual license fee and is obligated to pay royalties on future revenues, if any,
resulting from use of the underlying licensed technology. Such revenues may include, for example, up-
front
license fees, contingent payments upon collaborators’ achievement of development and
regulatory objectives, and royalties. In addition, some of the agreements commit the Company to make
contractually defined payments upon the attainment of scientific or clinical milestones. During the year
ended December 31, 2012, the Company also issued 200,000 shares of its common stock under
agreements with two of its university licensors resulting in expense of $964,000. The Company
expenses these payments as incurred and expenses royalty payments as related future product sales or
royalty revenues are recorded. The Company accrues expenses for scientific and clinical objectives
over the period that the work required to meet the respective objective is completed, provided that the
Company believes that the achievement of such objective is probable. The Company incurred license
107
fee expenses within the “Research and development” line item of its “Costs and expenses” section of
its Consolidated Statement of Operations for the years ended December 31, 2013, 2012 and 2011, of
$500,000, $2,114,000, and $908,000, respectively. For the years ended December 31, 2013 and 2012,
the Company also recognized $197,796 and $176,482 as cost of royalty revenues in its Consolidated
Statement of Operations related to such obligations (see Note 3(a)).
During the year ended December 31, 2012, pursuant to the IAP license agreement with Genentech, the
Company also recognized expense of $9,500,000 related to the up-front license fee and technology
transfer costs within the in-process research and development expense line item of the Consolidated
Statement of Operations (see Note 3(b)).
(9) COMMON STOCK AND WARRANT LIABILITY
(a) 2013 Sales Agreement with Cowen
On July 3, 2013, the Company entered into a sales agreement with Cowen and Company, LLC, or
Cowen, pursuant to which the Company may sell from time to time up to $30,000,000 of its common
stock through an “at-the-market”, or ATM, equity offering program under which Cowen will act as
sales agent. Subject to the terms and conditions of the sales agreement, Cowen may sell the common
stock by methods deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under
the Securities Act of 1933, as amended, including sales made directly on NASDAQ, on any other
existing trading market for the common stock or to or through a market maker other than on an
exchange. In addition, with the Company’s prior written approval, Cowen may also sell the common
stock by any other method permitted by law, including in negotiated transactions. Cowen will use its
commercially reasonable efforts consistent with its normal trading and sales practices and applicable
state and federal laws, rules and regulations and the rules of NASDAQ to sell on the Company’s behalf
all of the shares requested to be sold by the Company. The Company has no obligation to sell any of
the common stock under the sales agreement. Either the Company or Cowen may at any time suspend
solicitations and offers under the sales agreement upon notice to the other party. The sales agreement
may be terminated at any time by either the Company or Cowen upon written notice to the other party
as specified in the sales agreement. The aggregate compensation payable to Cowen shall be 3% of the
gross sales price of the common stock sold by Cowen pursuant to the sales agreement. In addition, the
Company reimbursed $34,268 of Cowen’s expenses of Cowen in connection with the offering. Each
party has agreed in the sales agreement to provide indemnification and contribution against certain
liabilities, including liabilities under the Securities Act, subject to the terms of the sales agreement.
Common stock will be issued pursuant
to the Company’s currently-effective shelf registration
statement on Form S-3. During the year ended December 31, 2013, the Company sold 3,850,206 shares
of common stock under the sales agreement resulting in gross proceeds of $16,887,036. Total offering
through
expenses
December 31, 2013 were $641,052, which offset the gross proceeds.
related to the sales agreement
including Cowen’s commission,
incurred,
(b) 2011 At Market Issuance Sales Agreement with MLV
On June 13, 2011, the Company entered into an ATM agreement with McNicoll, Lewis & Vlak LLC,
or MLV, pursuant to which the Company could issue and sell from time to time up to $20,000,000 of
its common stock through MLV in at-the-market and other specified forms of sale. The ATM
Agreement terminated in June 2013 in accordance with the terms of the agreement
During the years ended December 31, 2012 and 2011, the Company sold 210,879 and 104,118 shares of
common stock under the ATM agreement resulting in gross proceeds of $906,436 and $416,965,
respectively. Total offering expenses, including MLV’s commission, incurred related to the ATM agreement
for the years ended December 31, 2012 and 2011, were $27,356 and $128,155, respectively, which offset the
gross proceeds.
108
(c) 2010 Registered Direct Offering
On January 27, 2010, the Company completed a registered direct offering of 6,449,288 units with each
unit consisting of (i) one share of the Company’s common stock and (ii) one warrant to purchase
0.25 of one share of common stock at a purchase price of $2.52 per unit. The Company received net
proceeds from the sale of the units, after deducting offering expenses, of approximately $14,942,317
during the year ended December 31, 2010.
In connection with this offering, the Company issued warrants to purchase an aggregate of 1,612,322
shares of common stock. As of December 31, 2013, warrants to purchase 238,805 shares of the
Company’s common stock have been exercised, resulting in outstanding warrants to purchase an
aggregate of 1,373,517 shares of common stock.
The warrants have an initial exercise price of $3.55 per share and a five-year term. The warrants
contain anti-dilution adjustment provisions that will result in a decrease in the price and an increase in
the number of shares of common stock issuable upon exercise of such warrants in the event of certain
issuances of common stock by the Company at prices below $3.55 per share. Due to the original terms,
the warrants were deemed to be a liability and, therefore, the fair value of the warrants was recorded as
a liability in the Consolidated Balance Sheets as of December 31, 2013 and 2012. The Company has
estimated the fair value of the warrants using a Black-Scholes option pricing model under various
probability-weighted outcomes which take into consideration the protective, but
limited, cash-
settlement feature of the warrants, with updated assumptions at each reporting date as detailed in the
following table:
As of December 31,
2013
2012
2011
Fair value of the warrants . . . . . . . . . . . . . . . . . .
Expected term . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 716,786
1.1 years
$ 1,488,179
2.1 years
$4,361,168
3 years
0.16%
65%
None
0.27%
58%
None
0.4%
78%
None
The Company recorded other expense of $2,756,426 for the year ended December 31, 2011 and other
income of $771,393 and $2,257,130 for the years ended December 31, 2013 and 2012, respectively, as
a result of a change in the fair value of the warrant liability that was primarily due to changes in the
Company’s stock price during the respective reporting periods. During the year ended December 31,
2012, as a result of the exercise of warrants to purchase 237,301 shares of the Company’s common
stock, the warrant liability decreased by $615,859 with an offsetting increase to additional paid-in-
capital.
109
(10) INCOME TAXES
For the years ended December 31, 2013, 2012 and 2011, the Company did not record any federal or
state income tax expense given its continued operating losses.
The provision for income taxes for continuing operations was at rates different from the U.S. federal
statutory income tax rate for the following reasons:
Statutory federal income tax rate . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal benefit
. . . . . . . . . . . . . . . . . .
Research and development tax credits . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOL expirations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in valuation allowance . . . . . . . . . . . . . .
For the Year Ended
December 31,
2013
2012
2011
34.0% 34.0% 34.0%
5.1%
5.8%
5.2%
5.4%
8.5%
0.8%
(0.4%)
2.1%
0.8%
—%
(2.5%) —%
—%
—%
2.1%
(17.3%)
(36.0%)
(5.2%)
(1.9%)
(1.7%)
0.1%
(24.9%)
(5.0%)
(43.0%)
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—%
—%
—%
Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between
the financial reporting and tax basis of assets and liabilities using future expected enacted rates. A
valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all
of the deferred tax assets will not be realized.
The principle components of the Company’s deferred tax assets at December 31, 2013 and 2012,
respectively are as follows:
December 31,
2013
2012
Deferred Tax Assets:
Net operating loss carryforwards . . . . . . . . . . . . . . .
Research and development tax credit
carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . .
Capitalized research and development
expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of investments . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other . . . . . . . . . . . . . . . . . . .
Deferred interest expense . . . . . . . . . . . . . . . . . . . . .
$ 72,446,000
$ 67,737,000
11,588,000
3,891,000
10,538,000
490,000
23,711,000
120,000
2,723,000
118,000
307,000
27,269,000
64,000
2,809,000
707,000
—
Total Gross Deferred Tax Asset . . . . . . . . . . . . . . . . . . . .
Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
114,904,000
(114,904,000)
109,614,000
(109,614,000)
Net Deferred Tax Asset
. . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $
—
110
The classification of the above deferred tax assets is as follows:
December 31,
2013
2012
Deferred Tax Assets:
Current deferred tax assets . . . . . . . . . . . . . . . . . . . .
Non-current deferred tax assets . . . . . . . . . . . . . . . .
Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . .
$
35,000
114,869,000
(114,904,000)
$
42,000
109,572,000
(109,614,000)
Net Deferred Tax Asset
. . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $
—
As of December 31, 2013, the Company had federal and state net operating losses, or NOLs, of
$206,688,000 and $43,072,000, respectively, and federal and state research and experimentation credit
carryforwards of approximately $9,320,000 and $3,436,000, respectively, which will expire at various
dates starting in 2018 through 2033. The Company had $10,307,000 of Massachusetts net operating
losses generated in 2008 that expired in 2013. As required by U.S. GAAP, the Company’s management
has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax
assets, and has determined that it is more likely than not that the Company will not recognize the
benefits of the deferred tax assets. Accordingly, a valuation allowance of approximately $114,904,000
has been established at December 31, 2013. The benefit of deductions from the exercise of stock
options is included in the NOL carryforwards. The benefit from these deductions will be recorded as a
credit to additional paid-in capital if and when realized through a reduction of cash taxes.
Utilization of the NOL and research and development, or R&D, credit carryforwards may be subject to
a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to
ownership change limitations that have occurred previously or that could occur in the future. These
ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized
annually to offset future taxable income and tax, respectively. The Company has not completed a study
to assess whether a change of control has occurred or whether there have been multiple changes of
control since the Company’s formation because the Company continues to maintain a full valuation
allowance on its NOL and R&D credit carryforwards. In addition, there could be additional ownership
changes in the future, which may result in additional limitations in the utilization of the carryforward
NOLs and credits, and the Company does not expect to have any taxable income for the foreseeable
future.
An individual tax position must satisfy for some or all of the benefits of that position to be recognized
in a company’s financial statements. At December 31, 2013 and 2012,
the Company had no
unrecognized tax benefits. The Company has not, as yet, conducted a study of its R&D credit
carryforwards. This study may result in an adjustment to the Company’s R&D credit carryforwards,
however, until a study is completed and any adjustment is known, no amounts are being presented as
an uncertain tax position under Topic 740. A full valuation allowance has been provided against the
Company’s R&D credits and, if an adjustment is required, this adjustment would be offset by an
adjustment to the valuation allowance. Thus, there would be no impact to the consolidated balance
sheet or statement of operations if an adjustment were required.
The tax years 1998 through 2013 remain open to examination by major taxing jurisdictions to which
the Company is subject, which are primarily in the U.S., as carryforward attributes generated in years
past may still be adjusted upon examination by the Internal Revenue Service, or IRS, or state tax
authorities if they have or will be used in a future period. The Company is currently not under
examination by the IRS or any other jurisdictions for any tax years. The Company recognizes both
accrued interest and penalties related to unrecognized benefits in income tax expense. The Company
has not recorded any interest and penalties on any unrecognized tax benefits since its inception.
111
(11) RELATED PARTY TRANSACTIONS
(a) Agreement with Director
On March 7, 2013, the Company’s Board of Directors elected Kenneth J. Pienta, M.D., to serve as a
class I director until the 2015 Annual Meeting of Stockholders and thereafter until his successor is duly
elected and qualified. Dr. Pienta has served as a member of the Company’s Scientific Advisory Board
since September 2006 and as its Chairman since June 2007, pursuant to the terms of a Scientific
Advisory Board Agreement, or the SAB agreement, effective September 13, 2006, as amended from
time to time, by and between Dr. Pienta and the Company. Pursuant to the SAB agreement, Dr. Pienta
receives compensation in the amount of $50,000 per year, payable in equal quarterly installments. In
addition, pursuant to the terms of a consulting agreement dated March 1, 2012, as amended from time
to time, by and between the Company and Dr. Pienta, Dr. Pienta served as a consultant to the Company
in the areas of corporate strategy and business development. The Company and Dr. Pienta terminated
the consulting agreement in connection with his election as a member of the Board of Directors in
March 2013. Pursuant to the terms of the SAB agreement and the consulting agreement, the Company
paid cash consideration of $72,258, $190,000 and $193,750 during the years ended December 31,
2013, 2012 and 2011, respectively, as it relates to services provided by Dr. Pienta. In addition, the
Company’s board of directors granted two options to purchase an aggregate of 125,000 shares of the
Company’s common stock to Dr. Pienta in his role on the SAB. These options vest over a four-year
period and bear exercise prices that are equal to the closing market price of the Company’s common
stock on the NASDAQ Global Market on the respective grant dates.
(b) License Agreement with Former Officer
Effective on February 24, 2012, the Company entered into a Drug Development Partnership and
License Agreement for CU-906 and CU-908 with Guangzhou BeBetter Medicine Technology
Company Ltd., or GBMT, a company organized under the laws of the People’s Republic of China.
Dr. Changgeng Qian,
the Company’s former Senior Vice President, Discovery and Preclinical
Development, is the founder, owner, and legal representative of GBMT.
Pursuant to the GMBT license agreement, the Company has granted to GBMT an exclusive royalty-
free license, with the right to grant sublicenses subject to certain conditions, to develop, manufacture,
market and sell any product containing CU-906 or CU-908 in China, Macau, Taiwan and Hong Kong,
which is referred to as the GBMT territory. In addition, the Company has granted to GBMT a non-
exclusive, royalty-free manufacturing license, with the right to grant sublicenses subject to certain
conditions, to manufacture CU-906 or CU-908 or any product containing CU-906 or CU-908 outside of
the GBMT Territory solely to import the compounds or products into the GBMT territory. GBMT has
assumed all
future costs related to the
development, registration and commercialization of products in the GBMT territory under the GMBT
license agreement. Pursuant to the terms of the GMBT license agreement, the Company has retained
rights, including the right to grant sublicenses, to develop, manufacture, market and sell any product
containing CU-906 or CU-908 worldwide excluding the GBMT territory. The Company also has
certain specified rights to any GBMT technology developed under the GMBT license agreement as
well as certain specified rights to GBMT’s interest in joint technology developed under the GMBT
license agreement. Furthermore, the Company has a right of first negotiation to obtain a license to CU-
906 or CU-908 for the GBMT territory from GBMT.
responsibility and will
future development
incur all
The Company will provide GBMT with up to $400,000 in financial support for specified CU-908 pre-
clinical activities related to enabling the filing by the Company of an IND with the FDA, provided that
GBMT completes such CU-908 IND-enabling activities in accordance with specified criteria and
delivers a U.S. IND package for CU-908 to the Company within prescribed timeframes as specified in
the license agreement. All costs incurred under the license agreement will be expensed as incurred.
During the year ended December 31, 2012, the Company had incurred expenses of $133,333 under the
GMBT license agreement reported within the research and development line item of the Company’s
112
Consolidated Statements of Operations and Comprehensive Loss and is reported within the accounts
payable line item of the Company’s Consolidated Balance Sheets as of December 31, 2012. No such
expenses were incurred during the year ended December 31, 2013.
Unless terminated earlier in accordance with its terms, the GMBT license agreement will expire on the
later of (i) the expiration of the last-to-expire valid claim of the Company patents and the Company
non-assert patents relating to the products, and (ii) such time as none of GBMT, its affiliates or
sublicensees is commercializing any compound or product in the GBMT territory. Either party can
terminate the GMBT license agreement with notice under prescribed circumstances, and the GMBT
license agreement specifies the consequences to each party for such early termination.
(12) RETIREMENT SAVINGS PLAN
The Company has a 401(k) retirement savings plan covering substantially all of the Company’s
employees. Matching Company cash contributions are at the discretion of the Board of Directors. For
the years ended December 31, 2013, 2012 and 2011, the Board of Directors authorized matching
contributions of $145,000, $153,000 and $145,000, respectively.
(13) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following are selected quarterly financial data for the years ended December 31, 2013 and 2012:
Quarter Ended
March 31,
2013
June 30,
2013
September 30,
2013
December 31,
2013
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(Loss) income from operations . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss per common share (basic and diluted) . . . . . . . . $
Weighted average common shares (basic and diluted) . .
(4,357,364)
(4,962,294)
871,435 $ 5,404,377 $ 7,202,083 $ 1,524,137
(4,483,217)
(4,198,032)
(0.05)
85,741,278
(706,196)
(1,293,848)
130,368
(1,867,838)
82,456,708
81,128,475
80,096,650
(0.06) $
(0.02) $
(0.02) $
Quarter Ended
March 31,
2012
June 30,
2012
September 30,
2012
December 31,
2012
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,356,252 $ 4,351,574 $
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per common share (basic) . . . . . . . . . . $
Net income (loss) per common share (diluted) . . . . . . . . $
Weighted average common shares (basic) . . . . . . . . . . . .
Weighted average common shares (diluted) . . . . . . . . . .
(2,426,105)
(2,886,452)
77,556,366
83,336,695
79,052,517
79,052,517
2,199,695
2,225,737
(0.04) $
(0.04) $
0.03 $
0.03 $
(4,960,912)
(3,385,004)
577,759 $ 1,686,406
(13,432,485)
(12,371,188)
(0.15)
(0.15)
79,971,888
79,971,888
(0.04) $
(0.04) $
79,639,433
79,639,433
The net loss amount presented above for the quarter ending December 31, 2012 includes revenues of
the Company earned under its agreement with LLS and a one-time charge of
$1,000,000 that
$9,500,000 related to the November 2012 in-license agreement of CUDC-427 from Genentech.
113
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls & Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated
the effectiveness of our disclosure controls and procedures as of December 31, 2013. The term “disclosure
controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls
and other procedures of a company that are designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed by a company in
the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s
management, including its principal executive and principal financial officers, as appropriate to allow timely
decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of December 31, 2013, our chief executive
officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were
effective.
Management’s report on internal control over financial reporting, as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act, is included in Item 8 of this annual report on Form 10-K and is incorporated
herein by reference.
Our management assessed the effectiveness of our internal control over financial reporting as of
December 31, 2013. In making this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in its 1992 Internal Control—Integrated
Framework.
Changes in Internal Control Over Financial Reporting
No changes in our internal control over financial reporting occurred during the fourth quarter of the fiscal
year ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
114
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCE
Information concerning directors that is required by this Item 10 will be set forth in our proxy statement for
our 2014 annual meeting of stockholders under the headings “Directors and Nominees for Director,” “Board
Committees” and “Section 16(a) Beneficial Ownership Reporting Compliance,” which information is
incorporated herein by reference. The information concerning our code of ethics is set forth in our proxy
statement under the heading “Code of Business Conduct and Ethics.” The name, age, and position of each of our
executive officers is set forth under the heading “Executive Officers of the Registrant” in Part I of this Annual
Report on Form 10-K, which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item 11 will be set forth in our proxy statement for our 2014 annual meeting of
stockholders under the headings “Executive and Director Compensation and Related Matters,” “Compensation
Committee Interlocks and Insider Participation” and “Compensation Committee Report” which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Information required by this Item 12 relating to security ownership of certain beneficial owners and
management will be set forth in our 2014 proxy statement under the caption “Security Ownership of Certain
Beneficial Owners and Management” and is incorporated herein by reference. Information required by this
Item 12 relating to securities authorized for issuance under equity compensation plans will be set forth in our
2014 proxy statement under the caption “Executive and Director Compensation and Related Matters—Securities
Authorized for Issuance Under Equity Compensation Plans” and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information required by this Item 13 will be set forth in our proxy statement for our 2014 annual meeting of
stockholders under the headings “Policies and Procedures for Related Person Transactions,” “Determination of
Independence” and “Board Committees,” which information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this Item 14 will be set forth in our proxy statement for our 2014 annual meeting of
stockholders under the heading “Independent Registered Public Accounting Firm’s Fees and Other Matters,”
which information is incorporated herein by reference.
115
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements.
PART IV
Page
number
in this
report
Curis, Inc. and Subsidiaries
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31,
2013, 2012 and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2013, 2012 and
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011 . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
82
83
84
85
86
87
(a)(2) Financial Statement Schedules.
All schedules are omitted because they are not applicable or the required information is shown in the
Financial Statement or Notes thereto.
(a)(3) List of Exhibits. The list of Exhibits filed as a part of this annual report on Form 10-K is set forth on
the Exhibit Index immediately preceding such Exhibits, and is incorporated herein by reference.
116
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
CURIS, INC.
By:
/s/ DANIEL R. PASSERI
Daniel R. Passeri
Chief Executive Officer
Date: March 13, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
March 13, 2014
March 13, 2014
March 13, 2014
March 13, 2014
March 13, 2014
March 13, 2014
March 13, 2014
March 13, 2014
March 13, 2014
/s/ DANIEL R. PASSERI
Daniel R. Passeri
/s/ MICHAEL P. GRAY
Michael P. Gray
Chief Executive Officer and
Director (Principal Executive
Officer)
Chief Financial and Business
Officer (Principal Financial and
Accounting Officer)
/s/ JAMES R. MCNAB, JR.
James R. McNab, Jr.
Chairman of the Board of
Directors
/s/ MARTYN D. GREENACRE
Martyn D. Greenacre
/s/ KENNETH I. KAITIN
Kenneth I. Kaitin
/s/ ROBERT MARTELL
Robert Martell
/s/ KENNETH PIENTA
Kenneth Pienta
/s/ MARC RUBIN
Marc Rubin
/s/ JAMES R. TOBIN
James R. Tobin
Director
Director
Director
Director
Director
Director
117
EXHIBIT INDEX
Exhibit
No.
Description
Incorporated by Reference
Form
SEC Filing
Date
Exhibit
Number
Filed with
this 10-K
3.1
3.2
3.3
3.4
3.5
Articles of Incorporation and By-laws
Restated Certificate of Incorporation of
Curis, Inc.
Amended Certificate of Incorporation of
Curis, Inc.
S-4/A (333-32446)
06/19/00
8-K
06/03/13
Certificate of Designations of Curis, Inc.
S-3 (333-50906)
08/10/01
Amended and Restated By-laws of Curis,
Inc.
Amendment to Amended and Restated By-
laws of Curis, Inc.
Instruments
rights
defining
security holders, including indentures
the
of
S-1 (333-50906)
11/29/00
8-K
09/24/07
3.3
3.1
3.2
3.2
3.1
4.1
Form of Curis Common Stock Certificate
10-K
03/01/04
4.1
#10.1
#10.2
#10.3
#10.4
#10.5
#10.6
#10.7
Material contracts—Management
Contracts and Compensatory Plans
Employment Agreement, dated as of
September 18, 2007, between Curis and
Daniel R. Passeri
to Employment Agreement,
Amendment
to the
dated as of October 27, 2008,
employment agreement dated September
18, 2007, by and between Curis and
Daniel R. Passeri
to Employment Agreement,
Amendment
dated as of December 10, 2010, to the
employment agreement dated September
18, 2007, by and between Curis and
Daniel R. Passeri
Letter Agreement, dated January 18, 2013,
between Curis, Inc. and Daniel R. Passeri
Offer Letter, dated as December 10, 2003,
between Curis and Michael P. Gray
Amendment to Offer Letter, dated as of
October 31, 2006, to the offer letter dated
December 10, 2003, by and between Curis
and Michael P. Gray
Amendment to Offer Letter, dated as of
October 27, 2008, to the offer letter dated
December 10, 2003, by and between Curis
and Michael P. Gray
8-K
09/24/07
10.1
10-Q
10/28/08
10.1
10-K
03/08/11
10.3
8-K
01/18/13
10.1
10-K
03/01/04
10.4
8-K
11/02/06
10.3
10-Q
10/28/08
10.2
Exhibit
No.
#10.8
#10.9
#10.10
#10.11
#10.12
#10.13
#10.14
#10.15
#10.16
#10.17
#10.18
Description
Amendment to Offer Letter, dated as of
to the offer letter
December 10, 2010,
dated December 10, 2003, by and between
Curis and Michael P. Gray
Offer Letter, dated January 11, 2001, by
and between Curis and Mark W. Noel
Amendment to Offer Letter, dated as of
October 31, 2006, to the offer letter dated
January 11, 2001, by and between Curis
and Mark W. Noel
Amendment to Offer Letter, dated as of
October 27, 2008, to the offer letter dated
January 11, 2001, by and between Curis
and Mark W. Noel
Amendment to Offer Letter, dated as of
December 10, 2010,
to the offer letter
dated January 11, 2001, by and between
Curis and Mark W. Noel
Employment Agreement, dated November 7,
2011, by and between Curis and Maurizio
Voi
Employment Agreement, dated February 19,
2013, by and between Curis and Ali Fattaey,
Ph.D.
Employment Agreement, dated August 28,
2013, by and between Curis and Jaye
Viner, M.D.
Agreement for Service as Chairman of the
Board of Directors, between Curis, Inc.
and James McNab, dated as of June 1,
2005
Indemnification Agreement,
Form of
between Curis, Inc. and each member of
the Board of Directors
Scientific Advisory
and Consulting
Agreement dated as of September 13,
2006, as amended from time to time,
between Curis, Inc. and Kenneth J. Pienta,
M.D.
Incorporated by Reference
SEC Filing
Date
Exhibit
Number
Filed with
this 10-K
03/08/11
10.7
Form
10-K
10-K
03/02/07
10.6
8-K
11/02/06
10.4
10-Q
10/28/08
10.4
10-K
03/08/11
10.16
8-K
11/10/11
10.1
8-K
02/22/13
10.1
10-Q
11/12/13
10.2
8-K
06/07/05
10.1
10-K
03/08/11
10.23
8-K
03/11/13
10.1
#10.19
Curis 2000 Stock Incentive Plan
S-4/A (333-32446)
05/31/00
#10.20
Curis 2000 Director Stock Option Plan
S-4/A (333-32446)
05/31/00
#10.21
Curis 2000 Employee Stock Purchase Plan
S-4/A (333-32446)
05/31/00
#10.22
Incentive
Stock Option
Form of
Agreement granted to directors and named
executive officers under Curis’ 2000 Stock
Incentive Plan
10-Q
10/26/04
10.71
10.72
10.73
10.2
Description
Form of Non-statutory Stock Option
Agreement granted to directors and named
executive officers under Curis’ 2000 Stock
Incentive Plan
Incorporated by Reference
SEC Filing
Date
Exhibit
Number
Filed with
this 10-K
10/26/04
10.3
Form
10-Q
Exhibit
No.
#10.23
#10.24
Form of Non-statutory Stock Option
non-employee
Agreement
directors under Curis’ 2000 Director Stock
Option Plan
granted
to
#10.25
Curis 2010 Stock Incentive Plan
#10.26
Curis 2010 Employee Stock Purchase Plan
#10.27
#10.28
#10.29
Incentive
Form of
Stock Option
Agreement granted to directors and named
executive officers under Curis’ 2010 Stock
Incentive Plan
Form of Non-Statutory Stock Option
Agreement granted to directors and named
executive officers under Curis’ 2010 Stock
Incentive Plan
Form of Restricted Stock Agreement
granted to directors and named executive
officers under Curis’ 2010 Stock Incentive
Plan
10-Q
10/26/04
10.4
Def 14A
Def 14A
04/16/10
Exhibit A
04/16/10
Exhibit B
8-K
06/04/10
10.1
8-K
06/04/10
10.2
8-K
06/04/10
10.3
#10.30
Curis Amended and Restated 2010 Stock
Incentive Plan
Def 14A
04/16/13
Exhibit A
Material contracts—Leases
10.31
†10.32
10.33
Lease, dated September 16, 2010, between
Curis, Inc. and the Trustees of Lexington
Office Realty Trust relating to the premises
at
Lexington,
Massachusetts
4 Maguire
Road,
Material contracts—Financing
Agreements
Credit Agreement, dated November 27,
2012, by and between Curis, Curis Royalty
LLC, a wholly-owned subsidiary of Curis
and BioPharma Secured Debt Fund II Sub,
S.à r.l.
Consent and Payment Direction Letter
Agreement, dated November 20, 2012 and
effective
as of December 11, 2012
between Curis, Curis Royalty LLC and
Genentech, Inc.
8-K
9/21/10
10.1
10-K
3/13/2013
10.31
10-K
3/13/2013
10.32
†10.34
Purchase and Sale Agreement, dated as of
December 11, 2012 between Curis and
Curis Royalty
10-K
3/13/2013
10.33
Exhibit
No.
10.35
†10.36
†10.37
†10.38
†10.39
†10.40
10.41
10.42
10.43
10.44
10.45
Description
Escrow Agreement, dated December 11,
2012, by and between Curis, Curis Royalty
LLC, a wholly-owned subsidiary of Curis,
BioPharma Secured Debt Fund II Sub, S.à
liability
r.l.,
a Luxembourg
Pharmakon
company managed
Advisors and Boston Private Bank and
Trust Company
limited
by
Material contracts—License and
Collaboration Agreements
Collaborative Research, Development and
License Agreement, dated June 11, 2003,
between Curis and Genentech, Inc.
License Agreement, dated August 5, 2009,
by and between the Company and
Debiopharm S.A
Definitive Agreement, dated November 29,
2011, by and between Curis and The
Leukemia and Lymphoma Society
Partnership
as
and
Drug Development
of
License Agreement,
February 24, 2012, between Curis and
Guangzhou
Medicine
BeBetter
Technology Co, LTD.
dated
License Agreement, dated November 27,
2012,
and
Genentech, Inc.
between Curis
and
by
Material contracts—Miscellaneous
Placement Agent Agreement,
dated
January 22, 2010, by and among the
Company,
Capital Markets
Corporation and Rodman & Renshaw,
LLC
RBC
Form of Subscription Agreement, dated as
of January 22, 2010, by and among the
Company and the investors named therein
Form of Warrant, dated January 22, 2010,
issued
the Subscription
to
Agreement, dated as of January 22, 2010
pursuant
At Market
Issuance Sales Agreement,
dated June 13, 2011, by and between the
Company and McNicoll, Lewis & Vlak,
LLC
Sales Agreement, dated as of July 3, 2013,
between Curis,
Inc. and Cowen and
Company, LLC
Incorporated by Reference
SEC Filing
Date
Exhibit
Number
Filed with
this 10-K
3/13/2013
10.34
Form
10-K
10-Q
11/06/2012
10.1
10-Q
10/29/09
10.1
10-K
3/13/2013
10.37
10-Q
05/10/2012
10.1
10-K
3/13/2013
10.39
8-K
1/22/10
1.1
8-K
1/22/2010
10.1
8-K
1/22/2010
4.1
8-K
06/13/11
1.1
S-3
07/03/13
1.2
Exhibit
No.
Description
Code of Conduct
Incorporated by Reference
Form
SEC Filing
Date
Exhibit
Number
Filed with
this 10-K
14
Code of Business Conduct and Ethics
10-K
03/08/11
14
21
23.1
31.1
31.2
32.1
32.2
Additional Exhibits
Subsidiaries of Curis
Consent of PricewaterhouseCoopers LLP
of
Certification
the Chief Executive
Officer pursuant to Rule 13a-14(a) of the
Exchange Act/15d-14(a) of the Exchange
Act
Certification of the Chief Financial Officer
the
pursuant
Exchange Act/15d-14(a) of the Exchange
Act
13a-14(a)
to Rule
of
the Chief Executive
Certification
of
to Rule 13a-14(b)/15d-
Officer pursuant
14(b) of the Exchange Act and 18 U.S.C.
Section 1350
Certification of the Chief Financial Officer
pursuant to Rule 13a-14(b)/15d-14(b) of
the Exchange Act and 18 U.S.C. Section
1350
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
Document
101.CAL XBRL Taxonomy Extension Calculation
Linkbase Document
101.DEF XBRL Taxonomy Extension Definition
Linkbase Document
101.LAB XBRL
Taxonomy
Linkbase Document
Extension
Label
101.PRE XBRL Taxonomy Extension Presentation
Linkbase Document
X
X
X
X
X
X
X
X
X
X
X
X
#
†
Indicates management contract or compensatory plan or arrangement.
Confidential treatment has been requested as to certain portions, which portions have been separately filed
with the Securities and Exchange Commission.
STOCKHOLDER INFORMATION
Curis, Inc. and Subsidiaries
OFFICERS
Daniel R. Passeri
Chief Executive Officer
Ali Fattaey, Ph.D.
President and Chief Operating Officer
Michael P. Gray
Chief Financial Officer and Chief Business
Officer, Treasurer and Secretary
Jaye Viner, M.D.
Executive Vice President and Chief Medical
Officer
MARKET INFORMATION
Our common stock has traded on the
NASDAQ Global Market since August 1,
2000. Our trading symbol is “CRIS.” There
were 238 shareholders of record as of
March 6, 2014. The following table sets
forth, for the fiscal periods indicated, the
high and low sales prices per share of our
common stock as reported on the NASDAQ
Global Market:
FY 2013
HIGH LOW
1st Quarter . . . . . . . . . . .
2nd Quarter . . . . . . . . . . .
3rd Quarter . . . . . . . . . . .
4th Quarter . . . . . . . . . . .
$3.68
$4.50
$4.63
$4.74
$2.66
$2.96
$3.20
$2.44
FY 2012
HIGH LOW
1st Quarter . . . . . . . . . . .
2nd Quarter . . . . . . . . . . .
3rd Quarter . . . . . . . . . . .
4th Quarter . . . . . . . . . . .
$5.65
$5.49
$5.51
$4.27
$4.20
$4.40
$3.83
$2.98
CORPORATE HEADQUARTERS
Curis, Inc.
4 Maguire Road
Lexington, MA 02421
P: 617.503.6500
F: 617.503.6501
TRANSFER AGENT
Computershare
250 Royall Street
Canton, MA 02021
Dedicated Phone Number:
(Toll Free) 877.810.2248
www.computershare.com/investor
BOARD OF DIRECTORS
Martyn D. Greenacre
Chairman of the Board,
Life Mist, L.L.C.;
Director, Acusphere, Inc. and Neostem, Inc.
Kenneth I. Kaitin, Ph.D.
Director of the Tufts Center for the
Study of Drug Development; Research
Professor at Tufts University
School of Medicine
Robert E. Martell, M.D., Ph.D.
Chief Medical Officer, Tesaro, Inc.;
Adjunct Associate Professor of Medicine at
the Tufts University School of Medicine
James R. McNab, Jr.
Chairman and Chief Executive Officer,
Palmetto Pharmaceuticals, Inc.
Daniel R. Passeri
Chief Executive Officer,
Curis, Inc.
Kenneth J. Pienta, M.D.
Donald S. Coffey Professor of Urology,
Professor of Oncology, and Pharmacology and
Molecular Sciences at the Johns Hopkins
University School of Medicine
Marc Rubin, M.D.
Executive Chairman,
Titan Pharmaceuticals, Inc.
James R. Tobin
Retired
Former President and Chief Executive
Officer, Boston Scientific Corporation
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
125 High Street
Boston, MA 02110
P: 617.530.5000
www.pwcglobal.com
LEGAL COUNSEL
Wilmer Cutler Pickering
Hale and Dorr LLP
60 State Street
Boston, MA 02109
P: 617.526.6000
www.wilmerhale.com
ANNUAL MEETING
The annual meeting of stockholders
will be held at 10:00 a.m. on
May 21, 2014, at the offices of
Wilmer Cutler Pickering
Hale and Dorr LLP
60 State Street, Boston, MA 02109
SEC FORM 10-K
A copy of our 2013 annual
report on Form 10-K, without exhibits,
is available without charge upon
written request to:
Investor Relations
Curis, Inc.
4 Maguire Road
Lexington, MA 02421
info@curis.com
CAUTIONARY NOTE This Annual Report contains forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995, including statements about Curis’ financial results and expected cash life, the potential effectiveness of its technologies
under development and other information pertaining to its various research and development programs, strategies, plans and prospects. Such
statements may contain the words “believes,” “expects,” “anticipates,” “plans,” “seeks,” “estimates” or similar expressions. These forward-
looking statements are not guarantees of future performance and involve risks and uncertainties that may cause Curis’ actual results to be
materially different from those indicated by such forward-looking statements. Actual results can be affected by a number of important factors
including, among other things: adverse results in Curis’ and its strategic collaborators’ product development programs; difficulties or delays in
obtaining or maintaining required regulatory approvals; Curis’ ability to obtain or maintain required patent and other proprietary intellectual
property protection; changes in or Curis’ inability to execute its business strategy; the risk that Curis does not obtain required additional
funding; unplanned cash requirements; risks relating to Curis’ ability to enter into and maintain important strategic collaborations, including
its ability to maintain its current Hedgehog pathway inhibitor collaboration agreement with Genentech; competitive risks; and other risk
factors described under the caption “Risk Factors” in the accompanying Annual Report on Form 10-K and any subsequent reports filed by
Curis with the Securities and Exchange Commission. In addition, any forward-looking statements represent Curis’ views only as of the date of
this Annual Report and should not be relied upon as representing its views as of any subsequent date. Curis disclaims any intention or
obligation to update any of the forward-looking statements, whether as a result of new information, future events or otherwise.
4 Maguire Road
Lexington, MA 02421
TEL: 617.503.6500
FAX: 617.503.6501
www.curis.com