Curis Inc

Annual Report 2014

Curis is a biotechnology company focused on the

development and commercialization of innovative drug

candidates for the treatment of human cancers. Curis’

lead proprietary drug candidate is CUDC-907, a dual

HDAC and PI3K inhibitor. Curis is also engaged in a

broad collaboration with Aurigene in the areas of

immuno-oncology and precision oncology, with lead

oral, small molecule programs focused on modulating

the PD-1/ PD-L1 pathway and inhibiting the IRAK4

kinase,

respectively. Curis’ pipeline also includes

CUDC-427, a small molecule antagonist of

IAP

proteins, and CUDC-305, an oral HSP90 inhibitor. Curis

is a party to a collaboration with Genentech, a member

of the Roche Group, under which Genentech and Roche
are developing and commercializing Erivedge® for the
treatment of advanced basal cell carcinoma.

Dear Curis Stockholders,

We are pleased to report that 2014 was a significant year for Curis, as we focused on the company’s growth and
advancement of our proprietary pipeline, with the mission of transforming Curis into a next-generation
biotechnology company focused on the development and eventual commercialization of novel and effective
drugs for the treatment of human cancers. During 2014, our dual HDAC and PI3K inhibitor, CUDC-907 showed
encouraging evidence of clinical activity in the form of objective responses in patients with relapsed/ refractory
diffuse large B-cell lymphoma, or DLBCL. As a result, we advanced CUDC-907 into an expansion phase of the
ongoing Phase 1 trial in patients with relapsed/ refractory DLBCL, and aim to initiate a Phase 2 registration-
directed trial in patients with DLBCL later this year. We initiated a second trial in 2014 in which we are testing
CUDC-907 for the treatment of patients with hormone receptor-positive breast cancer or NUT midline
carcinoma, or NMC. Additionally, we have grown our team and pipeline significantly. We secured a multi-year,
exclusive partnership with Aurigene, a wholly owned subsidiary of Dr. Reddy’s Laboratories (NYSE: RDY), to
discover, develop and commercialize small molecule drug candidates in the fields of immuno-oncology and
precision oncology. The first two drug candidates in this partnership are an oral small molecule that modulates
the programmed cell death-1, or PD-1 pathway intended for cancer immunotherapy, and an oral small molecule
that inhibits interleukin-1 receptor-associated kinase 4, or IRAK4, for treatment of B-cell malignancies including
Waldenstro¨m’s macroglobulinemia. We expect to file Investigational New Drug, or IND applications for both of
these drug candidates later this year. We also regained full rights to our oral HSP90 inhibitor drug candidate,
CUDC-305, from our partner Debiopharm after their decision to discontinue its development in lung cancer. In
close collaboration with expert investigators, we expect to pursue further development of CUDC-305 for
treatment of patients with myeloproliferative neoplasms such as systemic mastocytosis. Finally, we re-
established the clinical safety and our ability to continue clinical development of our oral antagonist of inhibitor
of apoptosis, or IAP proteins, CUDC-427.

We are encouraged by the progress being made with our partnered program Erivedge®, a first-in-class drug
approved for the treatment of advanced basal cell carcinoma that is being commercialized by Roche and our
collaborator Genentech, a member of the Roche Group. Roche reported that Erivedge generated worldwide net
sales of approximately $136 million in 2014, an increase of approximately 70% as compared to 2013. In 2014,
Roche and Genentech also filed an IND to begin evaluating the use of Erivedge for the treatment of patients with
idiopathic pulmonary fibrosis, the first potential non-oncology use for Erivedge.

Our balance sheet continues to be strong, having ended 2014 with approximately $51 million in cash, cash
equivalents and investments and raising approximately $65 million in net proceeds from a public offering that we
completed in the first quarter of 2015. We earned revenues of approximately $10 million in 2014, predominantly
from royalty and milestone revenues from Genentech/ Roche related to Erivedge®. We expect our existing
capital to provide the requisite funding for our planned operations at least through 2016, including supporting the
presently ongoing and planned clinical trials.

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 enzymes (primarily alpha, delta
and beta). In 2013, we initiated a first-in-human 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 reported
on an interim analysis of the patients with DLBCL enrolled in the dose-escalation phase of the trial which
showed that 4 out of the 8 disease evaluable patients experienced an objective response, including one patient
with an unconfirmed complete response. We expect to present updated data from the dose escalation phase as
well as the interim data from the ongoing expansion phase of this trial at the American Society of Clinical
Oncology’s annual meeting, which occurs from May 29 to June 2, 2015. Based on the encouraging single agent
activity of CUDC-907 in patients with DLBCL, we plan to initiate a registration-enabling, randomized Phase 2
study with CUDC-907 in patients with DLBCL later this year. We are also pleased to report that the U.S. Food
and Drug Administration or FDA recently granted orphan drug designation to CUDC-907 for the treatment of
DLBCL.

During the fourth quarter of 2014, we also initiated a second Phase 1 clinical trial with CUDC-907 in patients
with advanced or relapsed solid tumors, including those with hormone receptor positive (HR+)/ HER2-negative
breast cancer or midline carcinoma with certain NUT gene rearrangements.

Curis: Aurigene Collaboration in Immuno-Oncology and Precision Oncology

In January, 2015, we entered into a collaboration agreement with Aurigene that is focused on immuno-oncology
and selected precision oncology targets. The agreement provides for inclusion of multiple programs, with Curis
having the option to exclusively license compounds once a development candidate is nominated within each
respective program. Under the collaboration, for each licensed drug candidate, Aurigene is responsible for
conducting all discovery and preclinical activities, including IND-enabling studies and providing Phase 1 clinical
trial supply and Curis is responsible for all clinical development, regulatory and commercialization efforts
worldwide, excluding India and Russia. Aurigene has a long and well-established track record of generating
targeted small molecule drug candidates with bio-pharmaceutical collaborators and we have significantly
expanded our drug development capabilities as we advance our proprietary drug candidates in currently ongoing
clinical studies. As a result, we believe that we are well-positioned to advance compounds from this collaboration
into clinical development.

The first two programs under the collaboration are focused on developing an oral, small molecule antagonist of
PD-1/ PD-L1 interactions in the immuno-oncology field and an orally-available small molecule inhibitor of
IRAK4 in the precision oncology field. Addressing immune checkpoint pathways is now a well validated
strategy to treat human cancers and the ability to target PD-1/ PD-L1 and other immune checkpoints with orally
available small molecule drugs has the potential to be a distinct and major advancement for patients. Recent
studies have also shown that alterations of the MYD88 gene lead to dysregulation of its downstream target
IRAK4 in a number of hematologic malignancies, including Waldenstro¨m’s Macroglobulinemia and a subset of
diffuse large B-cell lymphomas, making IRAK4 an attractive precision oncology target for the treatment of these
cancers.

We are pleased to partner with Aurigene in seeking to discover, develop and commercialize small molecule drug
candidates generated from Aurigene’s novel technology and we believe that this collaboration represents a
potential transformation for Curis that positions the company for continued growth in the development and
eventual commercialization of cancer drugs. The multi-year nature of this collaboration means that the parties
have the potential to generate a steady pipeline of novel drug candidates in the coming years.

Erivedge®: Commercial-Stage Hedgehog Pathway Inhibitor

Erivedge, a first-in-class Hedgehog pathway inhibitor that is being developed and commercialized under our
collaboration with Genentech, a member of the Roche Group, became the first available medicine for the
treatment of advanced BCC when it was approved in 2012 and subsequently launched in the United States.
Roche continues to focus its efforts in commercializing Erivedge worldwide, with approvals obtained in several
countries worldwide thus far, including the European Union and Australia, among others. We receive royalty
revenues from worldwide sales of Erivedge and the steady growth of Erivedge sales have resulted in significant
year-over-year increase in our royalty revenues. For 2014, we reported royalty revenues of approximately $6.8
million as compared to $3.9 million for 2013. 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 addition to its commercialization in advanced BCC, this year we expect to see Genentech and /or
Roche initiate additional clinical trials to evaluate Erivedge for treatment of patients with fibrotic diseases such
as idiopathic pulmonary fibrosis.

Other Proprietary Programs

Our pipeline also includes CUDC-427, an oral, small molecule drug candidate that is designed to promote cancer
cell death by antagonizing inhibitor of apoptosis, or IAP, proteins. Curis licensed the exclusive rights for the
worldwide development and commercialization of CUDC-427 from Genentech in 2012. We have completed a

2

monotherapy dose escalation Phase 1 trial where CUDC-427 appears to be reasonably safe and well tolerated.
We expect to extend enrollment at the recommended dose of CUDC-427 to expand the safety database and to
evaluate the drug candidate’s potential activity in patients with lymphomas including mucosa associated
lymphoid tissue, or MALT, lymphoma.

CUDC-305 is our orally available small molecule Heat Shock Protein 90, or HSP90 inhibitor. In February, 2015
we regained the full rights to this molecule from Debiopharm. We are exploring the potential for further
evaluation of CUDC-305 in select oncology indications such as systemic mastocytosis and glioblastoma
multiforme in close collaboration with key investigators.

** ** **

We continue to remain committed to further the growth and transformation of Curis by effectively executing our
strategic plans with the objective of creating and maintaining significant value for our stockholders. We have
achieved significant progress during the past year and look forward to continued advancement and potential
value creation in 2015 and 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, our employees for their continued loyalty, hard work and dedication as well as our
patients and their families for their important contribution by participating in our clinical studies.

Sincerely,

Ali Fattaey, Ph.D
President and Chief Executive Officer
Curis, Inc.

3

form-10k

Curis 2014

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, 2014

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, 2014 was approximately $120,126,000.

As of February 18, 2015, there were 103,178,454 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 27, 2015,
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, 2014
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

35

64

64

64

64

65

67

69

96

97

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

134

ITEM 9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

134

ITEM 9B. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

134

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . . . . . .

135

ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

135

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

135

135

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

135

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . .

136

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

137

PART IV

Cautionary Note Regarding Forward-Looking Statements

PART I

including without

This annual report on Form 10-K contains forward-looking statements within the meaning of the U.S.
Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. All statements other than
statements of historical fact contained in this report are statements that could be deemed forward-looking
statements,
limitation any expectations of revenue, expenses, earnings or losses from
to the plans, strategies and objectives of
operations, or other financial results; statements with respect
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. Without limiting the foregoing, the words “anticipates”, “believes”, “could”,
“estimates”, “expects”, “intends”, “may”, “plans”, “seeks” and other similar language, whether in the
negative or affirmative, are intended to identify forward-looking statements, although not all forward looking
statements contain these identifying words. Because forward-looking statements relate to the future, they are
subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual
results could differ materially from those anticipated in these forward-looking statements as a result of various
factors. These statements involve known and unknown risks, uncertainties and other factors that may cause our
actual results, performance or achievements to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. We therefore caution you against relying
on any of these forward-looking statements. Important factors that could cause actual results to differ materially
from those in these forward-looking statements are discussed, among other places, in Item 1A., “Risk Factors”
of Part I and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” of Part II of this report and 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 a biotechnology company seeking to develop and commercialize innovative drug candidates for the
treatment of human cancers. Our most advanced drug candidate is CUDC-907, an orally-available, small
molecule inhibitor of histone deacetylase, or HDAC, and phosphatidylinositol-3-kinase, or PI3K enzymes, which
has completed the dose escalation stage of a first-in-man Phase 1 clinical study in patients with relapsed,
refractory lymphoma or multiple myeloma. In addition, we recently entered into an exclusive, multi-year
collaboration agreement focused on immuno-oncology and selected precision oncology targets with Aurigene
Discovery Technologies Limited, or Aurigene, a specialized, discovery stage biotechnology company and
wholly-owned subsidiary of Dr. Reddy’s Laboratories that is developing novel therapies to treat cancer and
inflammatory diseases. We expect to exercise our options during the first half of 2015 to obtain two exclusive
licenses under this collaboration including for drug candidates that target an orally-available small molecule
antagonist of programmed death ligand-1, or PD-L1, an immune checkpoint target, and an orally-available small
molecule inhibitor of Interleukin-1 receptor-associated kinase 4, or IRAK4 kinase. Our proprietary pipeline also

1

includes CUDC-427, an orally-available, small molecule antagonist of inhibitor of apoptosis, or IAP proteins,
which has recently completed dose escalation in a Phase 1 clinical trial in patients with solid tumors or
lymphoma. We also recently regained rights to our Heat Shock Protein 90, or HSP90, inhibitor Debio 0932 from
Debiopharm International S.A., or Debiopharm. We have redesignated this drug candidate as CUDC-305 and are
evaluating initiating clinical studies with CUDC-305 in 2015. Our collaborators F. Hoffmann-La Roche Ltd, or
Roche, and Genentech Inc., or Genentech, a member of the Roche Group, are commercializing Erivedge®
(vismodegib), a first-in-class orally-administered small molecule Hedgehog pathway inhibitor, in advanced basal
cell carcinoma, or BCC. Roche and Genentech are also continuing Erivedge’s clinical development in less severe
forms of BCC as well as planned development in other non-oncology indications.

CUDC-907.

In January 2013, we initiated a Phase 1 clinical study of CUDC-907 in patients with relapsed
or refractory lymphomas or multiple myeloma. In the fourth quarter of 2014, we established the recommended
Phase 2 dose and schedules of administration for further development of CUDC-907, and initiated enrollment of
patients primarily with diffuse large B-cell lymphoma, or DLBCL, or multiple myeloma in the expansion stage
of the Phase 1 study. A preliminary analysis of the eight heavily pre-treated subjects with relapsed, refractory
DLBCL disease enrolled in the dose escalation phase showed that three patients have experienced confirmed
partial responses and one patient achieved a complete response leading to that patient undergoing an autologous
stem cell transplantation. We expect to present the available data from the Phase 1 study at a medical conference
in 2015 and anticipate that we will initiate a Phase 2, registration-directed, randomized study of CUDC-907 in
patients with relapsed, refractory DLBCL during the second half of 2015 in order to assess the drug candidate’s
efficacy in this indication. Development of CUDC-907 in hematological malignancies is partially supported
under a collaboration with The Leukemia & Lymphoma Society, or LLS.

In the fourth quarter of 2014, we initiated a separate Phase 1 trial to investigate CUDC-907 in patients with
advanced solid tumors, including those with hormone receptor positive breast cancer or with NUT midline
carcinoma.

Aurigene.

In January 2015, we entered into an exclusive, multi-year collaboration with Aurigene that is
focused on discovery, development and commercialization of drug candidates in the fields of immuno-oncology
and precision oncology. As part of the agreement, Aurigene has granted to us the option to exclusively license
multiple compounds, including the designated development candidates discovered using their small molecule
technology that address molecular targets within the scope of the collaboration. Within the collaboration,
Aurigene is responsible for conducting all discovery and preclinical activities, including IND-enabling studies
and providing Phase 1 clinical trial supply of the investigational agent, and we are responsible for all clinical
development, regulatory and commercialization efforts worldwide, excluding India and Russia, for each
candidate for which we exercise an option to obtain a license. We will also make specified payments to
Aurigene, including option exercise fees, pre-IND milestones for the first four programs, as well as milestone
payments and royalties on any products we successfully commercialize under the collaboration. The lead
compounds under the collaboration are orally-available small molecule antagonists of PD-L1 immune checkpoint
target and orally-available small molecule inhibitors of IRAK4 kinase in the precision oncology field. We expect
to exercise our options to obtain exclusive licenses to compounds directed at these two targets in the first half of
2015 and to file IND applications for a development candidate from each program later in 2015. Because
Aurigene is primarily responsible for preclinical development of all program compounds, we expect that a
substantial majority of our costs in 2015 related to PD-L1 and IRAK4 will be related to option exercise fees and
preclinical milestones. For each of these first two programs, we are obligated to pay Aurigene $3,000,000 upon
option exercise, $3,000,000 upon acceptance of an IND, and $4,000,000 upon our dosing of the fifth patient in
the related Phase 1 study.

CUDC-427.

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
research, development, manufacturing and commercialization activities related to
responsibility for all

2

CUDC-427. Genentech previously conducted a Phase 1 study in patients with advanced and refractory solid
tumors or lymphoma 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 or lymphoma a using twice-daily treatment schedule 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, that the Phase 1 trial 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. In February 2014, we responded to the FDA’s requests for additional
information and also submitted an amendment to the trial protocol. In March 2014, the FDA completed its
review of our complete response submission and determined that it was safe to proceed under the IND and lifted
the partial clinical hold on the Phase 1 trial of CUDC-427. In the fourth quarter of 2014, we completed the dose
escalation stage of a Curis-sponsored Phase 1 study in which consecutive cohorts of patients according to the
standard 3+3 design were treated with CUDC-427 at dose levels of 100, 200 and 300 mg daily. We have
established 300 mg daily dose given on a 14 days “on”, 7 days ‘off” schedule as the recommended dose and
schedule for further development of CUDC-427 and we expect to enroll patients with lymphoma, including those
with DLBCL or mucosa associated lymphoid tissue, or MALT, lymphoma in an expansion cohort later in 2015.

CUDC-305. We have recently regained the worldwide development and commercialization rights to
Debio 0932 from Debiopharm. During the fourth quarter of 2014, Debiopharm determined that it would not
advance Debio 0932 to the Phase 2 stage of the HALO, or HSP90 inhibition And Lung cancer Outcomes, study.
Debiopharm determined that the results from the Phase 1 portion of the HALO study were inconclusive although
safety observations were generally consistent with the previously observed side effects of Debio 0932 and/or the
respective chemotherapeutic regimens administered in the trial. In February 2015, we entered into a termination
to which Debiopharm has returned to us all future
and transition agreement with Debiopharm pursuant
development and commercialization rights to Debio 0932, which we have redesignated as CUDC-305. While we
do not plan to continue to investigate CUDC-305 in non-small cell lung cancer, we are evaluating initiating
clinical studies with CUDC-305 in 2015, including trials in patients with systemic mastocytosis and glioblastoma
multiforme, either in company-sponsored or investigator sponsored studies.

Erivedge. Erivedge is the first and only FDA approved medicine for 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 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, collectively considered 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. Erivedge’s approvals in the United States, Europe, Australia and several
other countries are based on positive clinical data from the ERIVANCE BCC/SHH4476g trial, a pivotal Phase 2
study of Erivedge in patients with advanced BCC. Under the provisions of the conditional approval in Europe,
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. The STEVIE trial has completed enrollment of approximately 1,200 patients and interim analyses
from the study confirmed a safety profile similar to that observed in previous studies of Erivedge in BCC
patients. Roche and Genentech are also continuing Erivedge’s clinical development in less severe forms of BCC
as well as its potential development in other non-oncology indications.

3

Product Development Programs

We are seeking to develop and commercialize innovative drug candidates to treat cancer. Our product
development initiatives, described in the table below, are being pursued using our internal resources or through
our collaborations.

Drug Candidate

Primary Disease

Collaborator/Licensee

Status

Dual HDAC and PI3K Inhibitor

- CUDC-907

Advanced lymphomas and
multiple myeloma

HER 2-/ ER+ or PR+ breast
cancer and NUT midline
carcinoma

Internal development/LLS

Phase 1

Internal development

Phase 1

Aurigene Immuno-Oncology

- PD-L1 antagonist

Cancers

Aurigene

Aurigene Precision Oncology

- IRAK4 Inhibitor

Hematological cancers

Aurigene

Preclinical*

Preclinical*

Antagonist of IAP Proteins

- CUDC-427

HSP90 Inhibitor
- CUDC-305

Advanced solid tumor &
lymphomas

Internal development

Phase 1

Cancers

Internal development

Regained global rights in
February 2015; evaluating
initiating clinical studies in 2015,
including in systemic
mastocytosis and glioblastoma
multiforme

Approved in US, Australia and
others and conditional approval
in the EU; regulatory submissions
made in certain other territories

Phase 2

Phase 2; patient enrollment
currently suspended to allow for
protocol amendment

Hedgehog Pathway Inhibitor

- Erivedge

Advanced BCC

Genentech (Roche)

- Erivedge

- Erivedge

Preceding excision and/or
multiple BCC
Idiopathic Pulmonary
Fibrosis

Roche

Roche

* We have an option to exclusively license molecules under the terms of our agreement with Aurigene.

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, 2014, 2013 and 2012, milestone and
royalty payments from Genentech accounted for $9,796,000, or 100%, $14,233,000, or 95%, and $15,893,000, or
94%, respectively, of our revenue, all of which was related to the development and commercialization of
Erivedge.

Our Proprietary Drug Candidates

Human cancers are driven by genetic alterations in specific genes whose products support survival, growth,
invasion and evasion from immune surveillance of the cancer cells. These genetic alterations afford the cancer
cell a malignant phenotype, which results in the formation and maintenance of a tumor. We are focused on
development and commercialization of drug candidates that are designed to address molecular targets that are
altered in human cancers or modulate systems of the human body such as certain immune cells for effective
recognition and clearance of cancer cells.

4

CUDC-907. We are developing CUDC-907, 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 kinase enzymes, including 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-promoting pathways within the cancer environment. Inhibitors of HDAC
enzymes can affect a number of cell functions by regulating the acetylation of both histone and non-histone
substrates and in preclinical models of human cancer, have been shown to synergize with kinase inhibitors to
potentially address some of these resistance mechanisms. HDAC inhibitors such as romidepsin or IstodaxTM,
vorinostat or ZolinzaTM, and belinostat or BeleodaqTM are approved for the treatment of certain hematologic
malignancies, including cutaneous T-cell lymphoma and/ or peripheral T-cell lymphoma. One PI3K inhibitor,
idelalisib or ZydeligTM is approved for the treatment of chronic lymphocytic leukemia, follicular B-cell non-
Hodgkin lymphoma and small lymphocytic lymphoma. Other selective PI3K inhibitors as well as pan-PI3K
inhibitors are being studied in multiple clinical trials in patients with hematologic malignancies or solid tumors.
Concurrent inhibition of HDAC and PI3K has demonstrated synergistic effect in certain preclinical cancer models
in hematological and other cancers. We have shown in preclinical models that CUDC-907 is a potent inhibitor of
three isoforms of PI3K enzymes: alpha, delta and beta. Additionally, we have also shown in preclinical models that
by inhibiting HDAC enzymes, CUDC-907 can effectively modulate the RAF-MEK-MAPK and cause the
suppression of STAT signaling pathways. In addition to its in vitro effects, 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 relapsed/refractory
lymphoma or multiple myeloma. The ongoing Phase 1 clinical trial is designed as a standard dose escalation
study in which CUDC-907 is orally administered to patients enrolled in consecutive cohorts. 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 at the
respective dose schedule 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. Additionally, exploratory
biomarkers will be assessed for the activity of CUDC-907.

Over 40 patients with relapsed/ refractory lymphomas or multiple myeloma have been enrolled in the dose
escalation and expansion phases of this Phase 1 clinical trial of CUDC-907. To date, diarrhea and hyperglycemia
have been the only dose limiting toxicities reported in the trial. Other frequent side effects include fatigue,
gastrointestinal and hematologic side effects such as diarrhea and thrombocytopenia and these side effects are
consistent with CUDC-907’s mechanism of action of inhibiting HDAC or PI3K activities. Although the trial is still
ongoing, a preliminary evaluation of the eight heavily pre-treated patients with DLBCL enrolled in the dose
escalation phase showed that three patients have experienced confirmed partial responses and one patient achieved a
complete response leading to that patient undergoing an autologous stem cell transplantation procedure. Long-term
stable disease has been observed within this trial, including one patient with multiple myeloma who has remained in
the study for nearly two years. We expect to present data from this study at a medical conference in 2015.

In October 2014, we initiated enrollment of patients in expansion cohorts in the ongoing Phase 1 study to be
treated at the recommended dose and schedule of administration. In the expansion cohorts, patients are treated with
either a 120 mg dose of CUDC-907 administered three times per week, or a 60 mg dose administered on a 5 days
“on”, 2 days “off” treatment schedule. Both of these doses and regimens were well tolerated with minimal dose
interruptions or reductions in the dose escalation phase of the trial, and equate to approximately a 300mg dose of
CUDC-907 per week of administration. The expansion phase of the trial is expected to enroll up to 12 patients in
each cohort with either relapsed or refractory DLBCL or multiple myeloma. These indications were selected for the
expansion cohorts based on evidence of clinical benefit in the dose escalation phase of the trial.

5

We anticipate that we will initiate a Phase 2, registration-directed, randomized study of CUDC-907 in
patients with relapsed, refractory DLBCL during the second half of 2015 to assess the drug candidate’s efficacy
in this indication.

In addition to the trial in patients with relapsed/refractory lymphomas and multiple myeloma, we are also
investigating CUDC-907 in a separate Phase 1 trial in patients with advanced solid tumors including those with
hormone receptor positive breast cancer or with NUT midline carcinoma. The primary objective of this study is
to determine the safety and tolerability of orally-administered CUDC-907 in these disease settings. The
secondary objectives are to assess the pharmacokinetics, establish the maximum tolerated dose/biologically
effective dose, recommended Phase 2 dose, evaluate biomarkers of activity and identify any preliminary anti-
cancer activity of CUDC-907.

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
development of CUDC-907. Through December 31, 2014, 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 its terms, including termination due to 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 two patients, including one patient with ovarian cancer and another with
mucosa-associated lymphoid tissue, or MALT, lymphoma. Additionally, one patient experienced a mixed

6

response and four patients (one patient each with breast cancer, sarcoma, small cell lung cancer and Kaposi’s
sarcoma) had stable disease lasting 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 dose levels). 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.

During the third quarter of 2013, the first patient was treated in our open-label, multicenter Phase 1 trial of
CUDC-427 in patients with relapsed/refractory solid tumors or lymphoma. The trial was originally 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 was designed to enroll up to an additional 12 patients in the expansion cohort of a
particular cancer type. The secondary objectives of the study were 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 trial on partial clinical hold following the death of a patient who progressed to liver
failure approximately one month following the discontinuation of CUDC-427 dosing. In February 2014, we
responded to the FDA’s requests for additional information and also submitted an amendment to the trial
protocol. In March 2014, the FDA completed its review of our complete response submission and determined
that it was safe to proceed under the IND and lifted the partial clinical hold on the single agent Phase 1 trial for
CUDC-427 in patients with advanced relapsed/refractory solid tumors or lymphoma.

We re-initiated patient treatment in the Phase 1 trial under an amended protocol in June 2014. Under the
amended protocol, the trial is designed to determine the safety and recommended Phase 2 dose of CUDC-427
administered once daily on a 14 days “on”, 7 days “off” schedule in 21-day cycles in patients with advanced and/
or refractory solid tumors or lymphoma. The secondary objectives of the study are to assess CUDC-427’s
tolerability, pharmacokinetics, exploratory biomarkers of activity and preliminary anti-cancer activity. Patients
have been enrolled in the dose escalation portion of this study in consecutive cohorts according to the standard
3+3 design at dose levels of 100, 200 and 300 mg daily. Enrollment in the dose escalation portion of this study is
now complete and the recommended Phase 2 dose has been determined as 300 mg daily given on a 14 days “on”,
7 days “off” schedule. Thus far, no significant side effects or new safety issues have been identified in the study
subsequent to re-initiation. We expect to initiate an expansion phase of the study later in 2015 that will enroll
patients with lymphomas, including patients with DLBCL and mucosa associated lymphoid tissue, or MALT
lymphoma.

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-305. CUDC-305 is an oral HSP90 inhibitor that was discovered by us and previously licensed to
Debiopharm, which was developing it in advanced lung cancer as Debio 0932. HSP90 is a member of a class of
folding,
proteins

called molecular

fundamental

chaperones

proper

play

role

that

the

in

a

7

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 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 completed Phase 1
testing of this drug candidate and in August 2012, Debiopharm initiated the HALO, or HSP90 inhibition And
Lung cancer Outcomes, Phase 1/2 clinical trial of Debio 0932 in combination with various chemotherapy
regimens in patients with stage IIIb or IV non-small cell lung cancer, or NSCLC, without known epidermal
growth factor receptor, or EGFR, mutations. The primary objective of this trial was to analyze the effect of
adding Debio 0932 to combination chemotherapy with cisplatin/pemetrexed or cisplatin/ gemcitabine on the rate
of progression-free survival at six months in first-line therapy of patients in this trial population. Debiopharm
reviewed data from the Phase 1 portion of the HALO study and determined that the results from the Phase 1
portion of the HALO study were inconclusive although safety observations were generally consistent with the
previously observed side effects of Debio 0932 and/or the respective chemotherapeutic regimens administered in
the trial.

In February 2015, we entered into a termination and transition agreement, which we refer to as the transition
agreement, with Debiopharm to terminate our August 2009 license agreement, effective February 5, 2015. We
have redesignated the molecule CUDC-305. While we do not plan to continue to investigate CUDC-305 in non-
small cell lung cancer, we are evaluating initiating clinical studies with CUDC-305 in 2015 and are exploring the
potential
including in systemic mastocytosis and glioblastoma
the molecule in other indications,
multiforme, either in company-sponsored or investigator sponsored studies.

to test

Under the terms of the transition agreement, the licenses and all other rights granted by us related to CUDC-
305 have been terminated and reverted to Curis effective as of the termination date. Debiopharm ceased
enrollment in all clinical trials as of the termination date. In addition, we exercised our right, pursuant to the
license agreement, to obtain a non-exclusive, worldwide, royalty-bearing license, with the right to sublicense,
under other intellectual property rights of Debiopharm to develop, make, have made, use, sell, offer for sale, have
sold and import CUDC-305, and Debiopharm will transfer to us the U.S. investigational new drug application
related to CUDC-305. Debiopharm also assigned its sole patent application related to CUDC-305 to us.

Under the terms of the transition agreement, Debiopharm will transition ongoing CUDC-305 development
and manufacturing activities to us and will make available all necessary information generated by or on behalf of
Debiopharm to pursue the manufacturing of CUDC-305.

We paid $750,000 to Debiopharm shortly after the termination date, primarily in consideration for
Debiopharm providing drug product for use in our future clinical studies. In addition, we have agreed to make
each of the following contingent one-time payments to Debiopharm: (i) $3,000,000 within 30 days after the first
dosing of the first patient in the first Phase 3 clinical trial of CUDC-305; and (ii) $10,000,000 within 30 days
after receipt of the first marketing approval for CUDC-305 in the U.S. or any specified major European market
(whichever occurs first). We have also agreed to pay to Debiopharm royalties at a rate of 3% of net sales by us
(excluding sales by our third party sublicensees) of products containing CUDC-305 and to pay Debiopharm the
following percentages of amounts that we receive from third party sublicensees: (i) 10% of any royalties that we
receive from third party sublicensees based on such sublicensees’ net sales of products containing CUDC-305;
and (ii)15% of any non-royalty sublicense payments that we receive from third party sublicensees, provided that
the maximum aggregate amount payable by us to Debiopharm with respect to non-royalty sublicense payments is
$20,000,000, unless such sublicense payments are attributable to our grant to a third party sublicensee of a
license or sublicense to develop or commercialize a topical formulation of CUDC-305 for local, non-systemic
delivery for the treatment of psoriasis, in which case there is no such maximum aggregate.

8

Our Collaborations

Aurigene Agreement

Collaboration Overview.

In January 2015, we entered into a collaboration agreement with Aurigene for
the discovery, development and commercialization of small molecule compounds in the areas of immuno-
oncology and precision oncology. Under the collaboration agreement, Aurigene granted us an option to obtain
exclusive,
relevant Aurigene technology to develop, manufacture and
commercialize products containing certain of such compounds.

royalty-bearing licenses under

The lead compounds under our collaboration agreement are directed at developing orally available small

molecules that will target the modulation of the PD-L1 pathway and IRAK4 kinase, respectively.

As part of the immuno-oncology collaboration, Aurigene is developing oral small molecule antagonists of
PD-L1, a molecule expressed on the surface of tumor cells that is involved in inhibiting the T cells from
generating an anti-tumor response. Certain tumors express PD-L1, a cell surface molecule that binds to PD-1, a
receptor on the surface of T cells that inhibits the T cells infiltrating the tumor microenvironment. It has been
previously shown that modulation of the PD-1 mediated inhibitory signaling in T cells by either anti-PD-1
antibodies or anti-PD-L1 antibodies can lead to activation of T-cells that mediate anti-tumor effects in the tumor
tissues. Preliminary data generated by Aurigene demonstrate that in in vitro studies, such small molecule PD-L1
antagonists can induce effective T cell proliferation and IFN-
(Interferon-gamma) production (a cytokine that is
produced by activated T cells and is a marker of T cell activation) by T cells that are specifically suppressed by
PD-L1 in culture. In addition, such small molecules also appear to have efficacy similar to anti-PD1 antibodies in
some in vivo tumor models, including IFN- production and inhibition of tumor growth. The left panel in the
chart below shows amount of IFN-
in the blood after treatment with increasing doses of PD-L1 antagonist in a
syngeneic colon cancer model in mice. The effect on IFN- production is similar to J43, a known anti-mouse
PD1 antibody with anti-tumor activity. The right panel shows the anti-tumor effects, as measured by decrease in
tumor volume, in a colon cancer model in mice after treatment with an oral antagonist of PD-L1 (to the far right)
as compared to treatment with vehicle alone (control, to the far left). The anti-tumor effect of the oral PD-L1
antagonist is similar to that seen with a known anti-PD1 antibody (in the middle) in this mouse model.

For the modulation of IRAK4 pathway, Aurigene is developing specific inhibitors to IRAK4 kinase and has
generated preliminary in vivo and in vitro data with certain lead molecules in development. Some of the
properties of the compounds in development include oral bioavailability, half maximal inhibitory concentrations
or IC50 in the nanomolar range in biochemical assays, selectivity to IRAK4 in a wide panel of kinase inhibitory
assays as well as modulation of phosphorylation of IRAK1, an enzyme that is phosphorylated by IRAK4 in the
pathway. The left panel below shows the percent inhibition of phosphorylation of IRAK1 with increasing
concentrations of an IRAK4 inhibitor in a cell based assay. In addition, such compounds also appear to have anti-
tumor activity in in vivo DLBCL tumor models with activating mutations in MYD88, a key adaptor protein

9

directly upstream of IRAK4 in the IRAK signaling pathway. As an example, the right panel below shows
reduction in tumor size after treatment with two different doses of an IRAK4 inhibitor (versus treatment with
vehicle/ control alone) in a DLBCL mouse model with MYD88 mutations. The anti-tumor activity of the IRAK
inhibitor in this model is similar to ibrutinib or ImbruvicaTM, a BTK inhibitor approved for Waldenstrom’s
Macroglobulinemia and Chronic Lymphocytic Leukemia. Sustained signaling through the MYD88-IRAK
pathway mediated by activating mutations in MYD88 is necessary for the pathogenesis and survival of tumor
cells in cancers such as Waldenstrom’s Macroglobulinemia and in a subset of Activated B cell or ABC type of
DLBCL (ABC-DLBCL). Hence, suppression of IRAK signaling using inhibitors of IRAK4 appears to be a
promising therapeutic approach for the treatment of such malignancies.

We anticipate that at least two additional programs will be selected within two years of the effective date of
the Collaboration Agreement, and our goal is to have the collaboration’s steering committee recommend as many
additional programs as feasible, in order for Aurigene to initiate or continue the relevant preclinical activities for
each.

For each program, Aurigene has granted us an exclusive option, exercisable within 90 days after Aurigene
delivers the relevant data regarding a development candidate, to obtain an exclusive, royalty-bearing license to
develop, manufacture and commercialize compounds from such program, including the development candidate
and products containing such compounds, anywhere in the world with the exception of India and Russia. Upon
exercise of the option for a particular program, Aurigene will grant us the royalty-bearing license described
above for such program, and we will grant Aurigene an exclusive, royalty-free, fully paid license under our
relevant technology to develop, manufacture and commercialize compounds from such program and products
containing such compounds in India and Russia.

For each program with respect to which we exercise the option to license (as described above), we are
obligated to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize at
least one product in each of the U.S., specified countries in the European Union, and Japan, and Aurigene is
obligated to use commercially reasonable efforts to perform its obligations under the development plan for such
licensed program in an expeditious manner.

Subject to specified exceptions, Aurigene and we have agreed to work exclusively with each other on the
discovery, research, development and commercialization of programs and compounds within immuno-oncology
for approximately two years from the effective date of the collaboration agreement. At our option, and subject to
specified conditions, we may extend such exclusivity for up to three additional one year periods by paying to
Aurigene exclusivity option fees on an annual basis.

In addition, beyond the up-to five years of exclusivity described above, and subject to specified exceptions,
Aurigene and we have agreed to work exclusively with each other on each program for which there are ongoing
activities in research or development, or for which we have exercised our option to exclusively license (as
described above) and we or our affiliates or sublicensees are actively developing or commercializing a compound

10

or product from such program in a major market, subject to our payment of an annual exclusivity fee on a
program-by-program basis.

For each product that may be commercialized, we have granted Aurigene the right, subject to certain
conditions, to nominate one global supplier of drug substance or drug product to provide up to 50% of the total
requirements in our territory.

Up-front Equity Issuance.

In connection with the collaboration agreement, we issued to Aurigene
17,120,131 shares of our common stock in partial consideration for the rights granted to us under the
collaboration agreement. The shares were issued pursuant to a stock purchase agreement with Aurigene dated
January 18, 2015.

Research Payments, Option Exercise Fees and Milestone Payments. We have agreed to make the

following research, option exercise fees and milestone payments to Aurigene:

•

•

•

for the first two programs: up to $52.5 million per program, including up to $10 million for an option
exercise fee, a preclinical milestone and development milestones, as well as specified approval and
commercial milestones, plus specified additional payments for approvals for additional indications, if
any;

for the third and fourth programs: up to $50 million per program, including up to $7.5 million for
research fees, an option exercise fee, a preclinical milestone and development milestones, as well as
specified approval and commercial milestones, plus specified additional payments for approvals for
additional indications, if any; and

for any program thereafter: up to $140.5 million per program, including up to a total of $53 million for
research fees, an option exercise fee, a preclinical milestone and development milestones, as well as
specified filing, approval and commercial milestones, plus specified additional payments for approvals
for additional indications, if any.

Royalties on Net Sales by Curis. We have agreed to pay Aurigene tiered royalties on our and our affiliates’
annual net sales of products at percentage rates ranging from the high single digits up to 10%, subject to specified
reductions.

Amounts that we Receive from Sublicensees. We have agreed to make the following payments to Aurigene

upon our entry into sublicense agreements on any program(s):

• with respect to amounts that we and our affiliates receive from sublicensees with respect to the grant of
a sublicense of a licensed program in the U.S. or the European Union, a declining percentage of non-
royalty sublicense revenues that is dependent on the stage of the most advanced product for such
licensed program at the time the sublicense is granted, including for example 25% of such amounts
following our initiation of Phase 2 clinical study and 15% of such amounts after initiation of the first
pivotal study. This sharing will also extend to royalties that we receive from sublicensees, subject to
minimum royalty percentage rates that we are obligated to pay to Aurigene, which generally range from
mid-to-high single-digit royalty percentage rates up to 10%;

• with respect to sublicensing revenues we and our affiliates receive from sublicensees with respect to the
grant of a sublicense of a licensed program in Asia, 50% of such sublicensing revenues, including both
non-royalty sublicensee revenues and royalties that we receive from sublicensees; and

• with respect to non-royalty sublicensing revenues we and our affiliates receive from sublicensees with
respect to the grant of a sublicense of a licensed program outside of the U.S., the European Union and
Asia, a percentage of such non-royalty sublicense revenues ranging from 30% to 50%. We are also
obligated to share 50% of royalties that we receive from sublicensees that we receive in these territories.

11

Our royalty payment obligations (including with respect to royalties on sales by sublicensees) under the
Collaboration Agreement with respect to a product in a country will expire on a product-by-product and country-
by-country basis on the later of (i) expiration of the last-to-expire valid claim of the Aurigene patents covering
the manufacture, use or sale of such product in such country and (ii) 10 years from the first commercial sale of
such product in such country.

Term and Termination. The term of the collaboration agreement begins upon signing and, unless earlier
terminated, will expire upon either: (i) 90 days after the completion by Aurigene of its obligations under all
research plans if we have not exercised the option with respect to at least one program by such time; or
(ii) expiration of the last-to-expire royalty term for any and all products. Upon expiration (but not on earlier
termination) of the collaboration agreement, all
licenses granted by Aurigene to us that were in effect
immediately prior to such expiration shall survive on a non-exclusive, royalty-free, fully paid, irrevocable,
perpetual basis.

The collaboration agreement may be terminated, either in its entirety or with respect to a particular program,
by either Aurigene or us for uncured material breach by the other party, other than an uncured material breach by
the other party of its diligence obligations with respect to a program or licensed program. If an uncured material
breach other than a diligence breach relates to a particular program or licensed program, the non-breaching party
may terminate the collaboration agreement only with respect to that program or licensed program. However, after
initiation of the first pivotal clinical trial of a product for a licensed program, Aurigene may not terminate the
collaboration agreement with respect to such licensed program for an uncured non diligence breach by us, except
in the case of our uncured material breach of our payment obligations with respect to such licensed program, but
Aurigene may pursue any and all remedies that may be available to it at law or in equity as a result of such
breach. Similarly, after initiation of the first pivotal clinical trial of a product for a licensed program, we may not
terminate the collaboration agreement with respect to the license we have granted Aurigene for the its territory or
India and Russia for such licensed program for an uncured non diligence breach by Aurigene, but we may pursue
any and all remedies that may be available to us at law or in equity as a result of such breach.

On a program-by-program basis, we may terminate the collaboration agreement as it relates to a program or
licensed program for an uncured diligence breach by Aurigene with respect to such program or licensed program,
and Aurigene may terminate the collaboration agreement as it relates to a licensed program for an uncured
Diligence Breach by us with respect to such licensed program.

In addition, we may terminate the collaboration agreement in its entirety or as it relates to a particular
program or licensed program or on a country-by-country basis, for any reason or for no reason at any time upon
60 days’ prior written notice to Aurigene.

In the event of termination of the collaboration agreement in its entirety before we have exercised the option
for any program, or termination of the collaboration agreement as it relates to any program prior to exercise of
the option for such program, all rights and licenses granted by either Aurigene or us to the other party with
respect to such program under the collaboration agreement (including the option for such program) will
automatically terminate.

If the royalty term with respect to a product for any licensed program in any country has expired on or
before any termination of the collaboration agreement in its entirety or as to such licensed program, the license
granted by Aurigene to us with respect to such product in such country, as well as the corresponding license
granted to Aurigene in its territory, shall survive such termination of the Collaboration Agreement.

Solely in the event of termination of the collaboration agreement by Aurigene for our uncured breach, or our
termination of the collaboration agreement for convenience, the following will apply to any program that was a
licensed program immediately prior to such termination:

•

our license with respect to any licensed program that is not a terminated program (defined below), either
in our entire territory or in countries within our territory outside of the terminated region (defined

12

below), as applicable, shall continue in full force and effect, subject to all terms and conditions of the
collaboration agreement, including our payment obligations;

•

our license with respect to any terminated program, either in our entire territory or in the terminated
region, as applicable, shall terminate and revert to Aurigene;

• we will grant Aurigene a perpetual, royalty-free (except for pass-through royalties and milestone
payments payable by us under licenses to third party patent rights with respect to products developed or
commercialized by or on behalf of Aurigene) license, with the right to sublicense, under our relevant
patent rights and other technology solely to develop, manufacture and commercialize compounds and
products for any terminated program, either in our entire territory or in the terminated region, as
applicable. The foregoing license will be non-exclusive with respect to our patent rights and exclusive
with respect to our other technology;

• we will grant to Aurigene a right of first negotiation, exercisable within 90 days after termination, to
obtain an exclusive, royalty-bearing license, with the right to sublicense, under our relevant patent rights
solely to develop, manufacture and commercialize compounds and products for any terminated
program, either in our entire territory or in the terminated region, as applicable, upon commercially
reasonable terms and conditions to be negotiated in good faith by the parties;

• we will perform other specified activities and actions reasonably necessary for Aurigene to develop,
manufacture and commercialize compounds and products for any terminated program, either in our
entire territory or in the terminated region, as applicable; and

•

the applicable license to Aurigene will survive termination.

For purposes of the foregoing, “terminated program” means: (i) in the case of termination of the
collaboration agreement in its entirety by Aurigene for our uncured non diligence breach, any program that was a
licensed program immediately prior to such termination, but excluding, except in the case of our uncured
material breach of our payment obligations with respect to such licensed program, any such licensed program for
which initiation of the first pivotal clinical trial of a product has occurred prior to such termination; (ii) in the
case of any termination of the collaboration agreement as to a particular licensed program by Aurigene either for
our uncured non diligence breach (to the extent termination as to such licensed program is permitted) or our
uncured diligence breach, such licensed program; (iii) in the case of our termination of the collaboration
agreement in its entirety for convenience, any program that was a licensed program immediately prior to such
termination; or (iv) in the case of our termination of the collaboration agreement as to a particular licensed
program for convenience, such licensed program; provided, however, that, in the case of the preceding clauses
(iii) and (iv), if our termination of the collaboration agreement in its entirety or as to a particular licensed
program for convenience was with respect only to a particular country or subset of countries within the entire
the applicable licensed program(s) shall be considered
territory (as applicable, a “terminated region”),
“terminated program(s)” only in the terminated region but shall remain licensed program(s) in the rest of our
territory.

Genentech Hedgehog Pathway Collaboration Agreement

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

13

Smoothened. In January 2012, Erivedge was approved by the FDA as the first and only FDA-approved medicine
for adults with advanced forms of BCC. Genetic mutations that lead to unregulated activation of Hedgehog
signaling are found in BCC and medulloblastoma. 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 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.

Roche has indicated that it expects to re-initiate a Phase 2 study of Erivedge in idiopathic pulmonary
fibrosis and Erivedge is also currently being tested in 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.

Pursuant to the terms of our collaboration agreement, we are entitled to receive royalties on net sales of
Erivedge that range from 5% to 7.5% based on worldwide annual net sales ranging from less than $150 million to
$600 million. The royalty rate applicable to Erivedge may be decreased by 2% (such that the applicable royalty
rate will range between 3% to 5.5%) 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 are aware of one competing
Hedgehog pathway inhibitor that is currently the subject of applications for marketing approval in the United
States and European Union. We cannot predict whether or when this competing drug candidate will be approved,
although we believe that such review process typically takes up to one year or more, subject to extension. If this
molecule is approved and commercialized, the royalty rate for sales in the applicable territory would decline and
would likely increase our estimated repayment period of the loan made by BioPharma Secured Debt Fund II Sub,
S.à r.l., or BioPharma-II.

In November 2012, in connection with a $30,000,000 loan made by 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
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 $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 pay to BioPharma-II. In addition, if Erivedge royalties are

14

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, 2014, the balance of principal plus
accrued interest on the loan to Curis Royalty, gross of issuance costs, was $28,699,000. We currently estimate
that the loan will be fully repaid in 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 successfully commercialize Erivedge in territories where it has received regulatory
approval, and other factors described under “Part I, Item 1A—Risk Factors.” For example, as described above,
the royalty rate applicable to Erivedge may be decreased 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.

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.

Roche is also conducting additional exploratory studies in patients with less severe forms of basal cell
carcinoma. In 2013, Roche initiated a randomized, double-blind, regimen-controlled, Phase 2 clinical study
assessing the efficacy and safety of two different Erivedge regimens in approximately 220 patients with multiple
BCC lesions. Over the course of the 72 week study, one subset of patients is receiving oral treatment once daily
on a repeating intermittent schedule of Erivedge for 12 weeks followed by placebo for eight weeks. A second
subset of patients is receiving oral treatment once daily for an initial period of 24 weeks, followed by a repeating
intermittent schedule of placebo for eight weeks placebo followed by Erivedge for eight weeks. The primary
endpoint is the relative percentage reduction from baseline in the number of clinically evident basal cell
carcinomas at week 73 in the two regimens. In addition, in 2013, Roche initiated a randomized, double-blind,
placebo-controlled study to assess the efficacy and safety of Erivedge with surgery in approximately 75 patients
with BCC. Patients have been randomized to receive oral daily doses of either Erivedge or placebo for 12 weeks
prior to Mohs micrographic surgery. The primary outcome is the percent change in surgical defect area post-
study drug.

In addition to the BCC clinical 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 June 2014, Roche filed an IND application with the FDA to initiate a multicenter, Phase 2 clinical study
of Erivedge in patients with idiopathic pulmonary fibrosis, or IPF. IPF is a chronic, debilitating lung disease with
unknown cause that occurs in adults and has very poor prognosis. The disease is characterized by thickening or

15

scarring of lung tissue (fibrosis) over time, resulting in decreased oxygen supply to the brain and other organs.
The IPF Phase 2 trial is the first clinical study sponsored by Roche in a non-oncology indication and this IND
filing resulted in a $3,000,000 cash milestone payment to us. Although the Phase 2 study was opened, no patients
were enrolled in the study and in August 2014, enrollment in this study was suspended by Roche pending
potential revisions to the study protocol. Roche has indicated that it intends to re-initiate this study.

In October 2013, Roche initiated a Phase 1b/2 clinical trial to investigate the safety and efficacy of Erivedge
in patients with relapsed/refractory acute myelogenous leukemia, or AML, and relapsed/refractory high-risk
myelodysplastic syndrome, or MDS. Based on a review of the Erivedge monotherapy cohort from this trial,
Roche determined that the monotherapy responses with Erivedge did not meet the pre-specified efficacy
threshold and the study is closed for further enrollment. No new side effects or other safety issues were identified
in this study.

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 $59,000,000 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 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.

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.

16

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, our 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.

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., as of December 31, 2014, we have 94 issued or allowed patents expiring on various dates
between 2015 and 2033 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.

As of December 31, 2014, we have 65 issued U.S. patents or allowed U.S.
applications expiring on various dates between 2015 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.

17

Targeted Drug Candidates. We have exclusively licensed worldwide rights from Genentech covering the
IAP inhibitor CUDC-427, which includes 3 issued U.S. patents that expire between 2025 and 2033 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 covering CUDC-427, as of December 31, 2014, we have 22 issued or
allowed U.S. patents which expire on various dates between 2027 and 2032, 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.

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

As of December 31, 2014, our research and development group consisted of 21 employees, including
oncologists, molecular biologists, cell biologists, chemists, pharmacologists and other clinical or scientific
disciplines who seek to identify and develop new applications for our existing proprietary portfolio.

For the years ended December 31, 2014, 2013 and 2012, we incurred expenses of $13,659,000, $12,927,000
respectively on company-sponsored research and development activities. We had no
and $15,492,000,
collaborator-sponsored research and development expense for the years ended December 31, 2014, 2013 and
2012.

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,

18

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:

•

•

•

•

•

•

•

•

•

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 allows human clinical trials to begin unless the FDA objects
within 30 days;

approval by an independent institutional review board, or IRB, representing each clinical site before
each clinical trial may be initiated;

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;

satisfactory review of the NDA 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 can include in vitro and animal studies to assess the potential for adverse events and, in
some cases, to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal
regulations and requirements, including GLP regulations. Other studies include laboratory evaluation of the
purity, stability and physical form of the manufactured drug substance or active pharmaceutical ingredient and
the physical properties, stability and reproducibility of the formulated drug or drug product. An IND sponsor
must submit the results of the preclinical tests, together with manufacturing information, analytical data, any
available clinical data or literature and plans for clinical studies, among other things, to the FDA as part of an
IND. Some preclinical testing, such as longer-term toxicity testing, animal tests of reproductive adverse events
and carcinogenicity, may continue after the IND is submitted.

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. As a

19

result, submission of an IND may not result in the FDA allowing clinical trials to commence. Following
commencement of a clinical trial under an IND, the FDA may place a clinical hold on that trial. A clinical hold is
an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing
investigation. A partial clinical hold is a delay or suspension of only part of the clinical work requested under the
IND. For example, a specific protocol or part of a protocol is not allowed to proceed, while other protocols may
do so. No more than 30 days after imposition of a clinical hold or partial clinical hold, the FDA will provide the
sponsor a written explanation of the basis for the hold. Following issuance of a clinical hold or partial clinical
hold, an investigation may only resume after the FDA has notified the sponsor that the investigation may
proceed. The FDA will base that determination on information provided by the sponsor correcting the
deficiencies previously cited or otherwise satisfying the FDA that the investigation can proceed.

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.

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, or NIH, for public dissemination on its ClinicalTrials.gov website.

Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:

Phase 1: The product candidate 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.

Phase 2: The product candidate 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 product candidate is administered to an expanded patient population, generally at
geographically dispersed 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.

in well-controlled clinical

trial sites,

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 in late-stage clinical trials to assure compliance with GCP and the
integrity of the clinical data submitted.

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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 $554,600 per establishment. These fees are typically increased
annually.

Under certain circumstances, the FDA will waive the application fee for the first human drug application that a
small business, defined as a company with less than 500 employees, or its affiliate submits for review. An
affiliate is defined as a business entity that has a relationship with a second business entity if one business entity
controls, or has the power to control, the other business entity, or a third party controls, or has the power to
control, both entities.

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 may 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.

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.

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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
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

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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.

The product may also be subject to official lot release, meaning that the manufacturer is required to perform
certain tests on each lot of the product before it is released for distribution. If the product is subject to official
release, the manufacturer must submit samples of each lot, together with a release protocol showing a summary
of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot, to
the FDA. The FDA may in addition perform certain confirmatory tests on lots of some products before releasing
the lots for distribution. Finally, the FDA will conduct laboratory research related to the safety and effectiveness
of drug products.

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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.

Abbreviated New Drug Applications for Generic Drugs

In 1984, with passage of the Hatch-Waxman Amendments to the FDCA, Congress authorized the FDA to
approve generic drugs that are the same as drugs previously approved by the FDA under the NDA provisions of

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the statute. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application,
or ANDA, to the agency. In support of such applications, a generic manufacturer may rely on the preclinical and
clinical testing previously conducted for a drug product previously approved under an NDA, known as the
reference listed drug, or RLD. To reference that information, however, the ANDA applicant must demonstrate,
and the FDA must conclude, that the generic drug does, in fact, perform in the same way as the RLD it purports
to copy.

Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical
to the RLD with respect to the active ingredients, the route of administration, the dosage form, and the strength of
the drug. At the same time, the FDA must also determine that the generic drug is “bioequivalent” to the innovator
drug. Under the statute, a generic drug is bioequivalent to a RLD if “the rate and extent of absorption of the
generic drug do not show a significant difference from the rate and extent of absorption of the reference listed
drug. . . .”

Upon approval of an ANDA, the FDA indicates that the generic product is “therapeutically equivalent” to
the RLD and it assigns a therapeutic equivalence rating to the approved generic drug in its publication “Approved
Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians
and pharmacists consider the therapeutic equivalence A rating to mean that a generic drug is fully substitutable
for the RLD. In addition, by operation of certain state laws and numerous health insurance programs, the FDA’s
designation of a therapeutic equivalence rating often results in substitution of the generic drug without the
knowledge or consent of either the prescribing physician or patient.

Under the Hatch-Waxman Amendments, the FDA may not approve an ANDA until any applicable period of
non-patent exclusivity for the RLD has expired. The FDCA provides a period of five years of data exclusivity for
new drug containing a new chemical entity. For the purposes of this provision, a new chemical entity is a drug
that contains no active moiety that has been previously approved by FDA in any other NDA. An active moiety is
the molecule or ion responsible for the physiological or pharmacological action of the drug substance. In cases
where such NCE exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of
five years unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may
submit its application four years following the original product approval.

The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or
more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or
for the applicant and are essential to the approval of the application. This three-year exclusivity period often
protects changes to a previously approved drug product, such as a new dosage form, route of administration,
combination or indication. Three year exclusivity would be available for a drug product that contains a
previously approved active moiety, provided the statutory requirement for a new clinical investigation is
satisfied. Unlike five year NCE exclusivity, an award of three year exclusivity does not block FDA from
accepting ANDAs seeking approval for generic versions of the drug as of the date of approval of the original
drug product

Hatch-Waxman Patent Certification and the 30 Month Stay

Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each
patent with claims that cover the applicant’s product or a method of using the product. Each of the patents listed
by the NDA sponsor is published in the Orange Book. When an ANDA applicant files its application with the
FDA, the applicant is required to certify to the FDA concerning any patents listed for the reference product in the
Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval.

Specifically, the applicant must certify with respect to each patent that:

•

the required patent information has not been filed;

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•

•

•

the listed patent has expired;

the listed patent has not expired, but will expire on a particular date and approval is sought after patent
expiration; or

the listed patent is invalid, unenforceable or will not be infringed by the new product.

A certification that the new product will not infringe the already approved product’s listed patents or that
such patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not
challenge the listed patents or indicate that it is not seeking approval of a patented method of use, the ANDA
application will not be approved until all the listed patents claiming the referenced product have expired.

If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send
notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for
filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the
notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the
receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the
earlier of 30 months, expiration of the patent, settlement of the lawsuit or a decision in the infringement case that
is favorable to the ANDA applicant.

To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved
product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in
the Orange Book to the same extent that an ANDA applicant would. As a result, approval of a 505(b)(2) NDA
can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent
exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the
in the case of a Paragraph IV certification and subsequent patent
referenced product has expired, and,
infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case
that is favorable to the Section 505(b)(2) applicant.

Pediatric Studies and Exclusivity

Under the Pediatric Research Equity Act of 2003, a NDA or supplement thereto must contain data that are
adequate to assess the safety and effectiveness of the drug product for the claimed indications in all relevant
pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the
product is safe and effective. With enactment of the Food and Drug Administration Safety and Innovation Act, or
FDASIA, in 2012, sponsors must also submit pediatric study plans prior to the assessment data. Those plans must
contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study
objectives and design, any deferral or waiver requests, and other information required by regulation. The
applicant, the FDA, and the FDA’s internal review committee must then review the information submitted,
consult with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the
plan at any time.

The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some
or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the
pediatric data requirements. Additional requirements and procedures relating to deferral requests and requests for
extension of deferrals are contained in FDASIA. Unless otherwise required by regulation, the pediatric data
requirements do not apply to products with orphan designation.

Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted,
provides for the attachment of an additional six months of marketing protection to the term of any existing
regulatory exclusivity, including the non-patent and orphan exclusivity. This six-month exclusivity may be
granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such
data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the

26

clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of
requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever
statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months.
This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot
accept or approve another application.

Patent Term Restoration and Extension

A patent claiming a new drug product may be eligible for a limited patent term extension under the Drug
Price Competition and Patent Term Restoration Act of 1984 (commonly referred to as the Hatch-Waxman
Amendments). Those Amendments permit 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 ultimate approval. 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. The U.S. Patent and Trademark Office reviews and approves the
application for any patent term extension or restoration in consultation with the FDA.

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 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.

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.

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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.

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

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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.

Pharmaceutical Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA
and other government authorities. Sales of products will depend, in part, on the extent to which the costs of the
products will be covered by third-party payors, including government health programs in the United States such
as Medicare and Medicaid, commercial health insurers and managed care organizations, provide coverage, and
establish adequate reimbursement levels for, such products. The process for determining whether a payor will
provide coverage for a product may be separate from the process for setting the price or reimbursement rate that
the payor will pay for the product once coverage is approved. Third-party payors are increasingly challenging the
prices charged for medical products and services and imposing controls to manage costs. Third-party payors may
limit coverage to specific products on an approved list, or formulary, which might not include all of the approved
products for a particular indication.

In order to secure coverage and reimbursement for any product that might be approved for sale, a company
may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and
cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatory
approvals. A payor’s decision to provide coverage for a drug product does not
imply that an adequate
reimbursement rate will be approved. Third-party reimbursement may not be sufficient to maintain price levels
high enough to realize an appropriate return on our investment in product development.

The containment of healthcare costs also has become a priority of federal, state and foreign governments
and the prices of drugs have been a focus in this effort. Governments have shown significant interest in
implementing cost-containment programs,
restrictions on reimbursement and
requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and
adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our
net revenue and results.

including price controls,

Outside the United States, ensuring adequate coverage and payment for our product candidates will face
challenges. Pricing of prescription pharmaceuticals is subject to governmental control in many countries. Pricing
negotiations with governmental authorities can extend well beyond the receipt of regulatory marketing approval
for a product and may require us to conduct a clinical trial that compares the cost effectiveness of our product
candidates or products to other available therapies. The conduct of such a clinical trial could be expensive and
result in delays in our commercialization efforts.

As a result, the marketability of any product which receives regulatory approval for commercial sale may
suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition,
an increasing emphasis on managed care in the United States has increased and will continue to increase the
pressure on drug pricing. Coverage policies, third-party reimbursement rates and drug pricing regulation may
change at any time. In particular, the Patient Protection and Affordable Care Act, as amended by the Health Care
and Education Affordability Reconciliation Act, contains provisions that may reduce the profitability of drug
products, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid
rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and
annual fees based on pharmaceutical companies’ share of sales to federal health care programs. Even if favorable

29

coverage and reimbursement status is attained for one or more products that receive regulatory approval, less
favorable coverage policies and reimbursement rates may be implemented in the future.

In the European Union, pricing and reimbursement schemes vary widely from country to country. Some
countries provide that drug products may be marketed only after a reimbursement price has been agreed. Some
countries may require the completion of additional studies that compare the cost-effectiveness of a particular
product candidate to currently available therapies. For example, the European Union provides options for its
member states to restrict the range of drug products for which their national health insurance systems provide
reimbursement and to control the prices of medicinal products for human use. European Union member states
may approve a specific price for a drug product or it may instead adopt a system of direct or indirect controls on
the profitability of the company placing the drug product on the market. Other member states allow companies to
fix their own prices for drug products, but monitor and control company profits. The downward pressure on
health care costs in general, particularly prescription drugs, has become intense. As a result, increasingly high
barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from
low-priced markets exert competitive pressure that may reduce pricing within a country. Any country that has
price controls or reimbursement limitations for drug products may not allow favorable reimbursement and
pricing arrangements for any of our products.

Healthcare Law and Regulation

Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and
prescription of drug products that are granted marketing approval. Arrangements with third-party payors and
customers are subject 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
our products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare
laws and regulations, include the following:

•

•

•

the federal healthcare Anti-Kickback Statute prohibits, among other things, persons and entities from
knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly,
in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or
recommendation of, any good or service, for which payment may be made, in whole or in part, under a
federal healthcare program such as Medicare and Medicaid;

the federal civil and criminal false claims laws, including the civil False Claims Act, which imposes and
civil monetary penalties, and provides for civil whistleblower or qui tam actions, against laws, which
prohibit individuals or entities from, among other things, knowingly presenting, or causing to be
presented, to the federal government, 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 provides for
federal criminal and civil liability for laws that prohibit, among other things, knowingly and willingly
executing, or attempting to execute, 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 and
its implementing regulations, also imposes obligations, including mandatory contractual terms, with
respect
to safeguarding the privacy, security and transmission of individually identifiable health
information;

•

•

the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering
up a material fact or making any materially false statement in connection with the delivery of or
payment for healthcare benefits, items or services;

the federal transparency requirements under the Patient Protection and Affordable Care Act, as amended
by the Health Care and Education Affordability Reconciliation Act, or the Affordable Care Act, which

30

requires certain manufacturers of drugs, devices, biologics and medical supplies to report to the
Department of Health and Human Services information related to payments and other transfers of value
to physicians and teaching hospitals and physician ownership and investment interests; and

•

analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws,
which may apply to healthcare items or services that are reimbursed by non-governmental third-party
payors, including private insurers.

Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary
compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition
to requiring drug manufacturers to report information related to payments to physicians and other health care
providers or marketing expenditures. State and foreign laws also govern the privacy and security of health
information in some circumstances, many of which differ from each other in significant ways and often are not
preempted by HIPAA, thus complicating compliance efforts.

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,
human therapeutics that target signaling pathways to treat cancers, is intense. Our competitors include large
that are
pharmaceutical and biopharmaceutical companies, as well as specialized biotechnology firms,
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, IstodaxTM (romidepsin), which is produced by Celgene Corporation and
BeleodaqTM (belinostat) which is produced by Spectrum Pharmaceuticals. In addition,
there are several
companies testing novel HDAC inhibitors in clinical trials, including among others, Novartis International AG
(panobinostat), Mirati Therapeutics (mocetinostat), Syndax Pharmaceuticals, Inc. (entinostat), MEI Pharma, Inc.
(pracinostat), 4SC AG (resminostat and 4SC-202), Acetylon Pharmaceuticals, Inc. (ricolinostat), Italfarmaco
S.p.A. (givinostat), 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.
There is currently only one approved isoform specific PI3K inhibitor on the market- ZydeligTM (idelalisib),
which is marketed by Gilead Sciences, Inc. Some of the other companies developing PI3K inhibitors include
Novartis (BKM120/ buparlisib, BYL719), Bayer AG (copanlisib/ BAY 80-6946), Genentech/ Roche (pictilisib,
GDC-0941), Infinity Pharmaceuticals, Inc. (duvelisib, IPI-145), Takeda Pharmaceutical Company Limited
(MLN1117), GlaxoSmithKline plc (GSK2636771), Pfizer Inc. (PF-05212384), Sanofi (SAR245409), TG
Therapeutics, Inc. (TGR-1202), Incyte Corporation (INCB40093), Zenyaku Kogyo Co., Ltd (ZSTK474) and
Verastem, Inc. (VS-5584).

Potential Programs Under Aurigene Collaboration. We expect that in the first half of 2015 we will
exercise options to obtain exclusive licenses to at least two programs under our collaboration agreement with
Aurigene, including programs that target the inhibition of IRAK4 and the interactions between PD-1 and PD-L1
for the treatment of human cancers. We are aware of at least two other companies that are developing IRAK4
inhibitors for oncology indications: Nimbus Discovery and TG Therapeutics. In addition, there are two approved
drugs on the market that target PD-1/ PD-L1 interactions (Bristol-Myers Squibb’s Opdivo™ and Merck & Co.’s
Keytruda™) and a number of drug candidates in various stages of development that target similar interactions

31

such as Roche’s MPDL3280A, Merck KGaA’s MSB0010718C (collaborator: Pfizer), AstraZeneca/
MedImmune’s MEDI4736 and MEDI0680, Curetech/ Medivation’s pidilizumab and others.

CUDC-427: 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).

CUDC-305: 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), Novartis
International AG (AUY922), Samus Therapeutics, Inc. (PU-H71) and Synta Pharmaceuticals Corp (ganetespib).

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 (sonidegib, or LDE225). Other Hedgehog pathway
inhibitors are in earlier stages of clinical development. Novartis announced in 2014 that sonidegib had met the
primary endpoint in a pivotal trial in patients with advanced basal cell carcinoma and Novartis subsequently filed
for regulatory approvals in the United States and European Union. 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.

Many 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 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.

32

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 internal 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, 2014, we had 35 full-time employees, of whom 10 hold a Ph.D. or other advanced
scientific or medical degree. Of our employees, 21 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.

Segment Reporting

We are engaged solely in the discovery and development of innovative drug candidates for the treatment of

human cancers. Accordingly, we have determined that we operate in one operating segment.

33

Executive Officers of the Registrant

Our executive officers are as follows:

Name

Age

Position

Ali Fattaey, Ph.D . . . . . . . . . . . .

Michael P. Gray . . . . . . . . . . . . .

Jaye Viner, M.D, MPH . . . . . . .

Ali Fattaey, Ph.D . . . . . . . . . . . .

50

44

58

President and Chief Executive Officer

Chief Financial and Business Officer

Chief Medical Officer and Executive Vice President

Dr. Fattaey has served as our President and Chief Executive Officer and as a
director since June 2014. From February 2013 to June 2014, Dr. Fattaey
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
for pharmaceutical and biotechnology companies.
strategic consultant
Dr. Fattaey was previously employed at Sagres Discovery,
Inc., a
biotechnology company, 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 as our Chief Business Officer since February 2014. Mr. Gray served as
our 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 from August 2000 until
December 2003, served as our Senior Director of Finance and Controller.
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.

Jaye Viner, M.D, MPH . . . . . . .

Dr. Viner has served as our Chief Medical Officer since August 2013. From
April 2012 until August 2013, Dr. Viner served as an Associate Director,
Clinical Development—Oncology at MedImmune, LLC. (AstraZeneca).
From April 2009 until April 2012, Dr. Viner served as a Medical Director at
Millennium: The Takeda Oncology Company, a biotechnology company.
From 1995 until March 2009, Dr. Viner held senior leadership positions at
the National Cancer Institute and the National Institutes of Health, including
the Office of Centers, Training and
Deputy and Acting Director of
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.

34

ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks
described below before buying our common stock. If any of the following risks actually occurs, our business,
financial condition, results of operations and cash flows could be materially adversely affected, the trading price
of our common stock could decline materially and you could lose all or part of your investment.

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.

We have incurred significant losses since our inception. As of December 31, 2014, we had an accumulated deficit
of approximately $779,555,000. 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 current and planned research and development activities for
CUDC-907, CUDC-427, CUDC-305, to fund programs we may license and develop under our collaboration with
Aurigene, which we expect will require substantial additional capital, and to fund our general and administrative costs
and expenses. For example, for each of the first two programs under this collaboration, we expect to exercise options to
obtain exclusive licenses to these two programs in the first half of 2015 and to file IND applications for a development
candidate from each program later in 2015. We are obligated to pay Aurigene $3,000,000 upon option exercise,
$3,000,000 upon acceptance of an IND, and $4,000,000 upon our dosing of the fifth patient in the related Phase 1 study
for each of the first two programs under our collaboration with Aurigene.

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 (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 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.

The royalty rate applicable to Erivedge may be decreased 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 are aware
of one competing Hedgehog pathway inhibitor that is currently the subject of applications for marketing approval
in the United States and European Union. We cannot predict whether or when this competing drug candidate will
be approved, although we believe that such review process typically takes up to one year or more, subject to
extension. If this molecule is approved and commercialized, the royalty rate for sales in the applicable territory
would decline and would likely increase our estimated repayment period of the loan made by 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. We currently estimate that all royalties that we receive
from Genentech will be remitted to BioPharma-II until the loan is fully repaid.

35

To become and remain profitable, we, either alone or with collaborators, 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. Other than Erivedge, which is being commercialized by Genentech and
Roche, our most advanced drug candidates are currently only in early clinical testing.

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 for
substantial working capital to support our research and development activities for CUDC-907, CUDC-427, CUDC-
305 and other drug candidates that we may seek to develop in the future and to fund our general and administrative
costs and expenses. Moreover, under the collaboration, license and option agreement with Aurigene, we are required
to make milestone, royalty and option fee payments for discovery, research and preclinical development programs
that will be performed by Aurigene, which will impose significant potential financial obligations on us. For example,
for each of the first two programs under this collaboration, we expect to exercise options to obtain exclusive licenses
to these two programs in the first half of 2015 and to file IND applications for a development candidate from each
program later in 2015. We are obligated to pay Aurigene $3,000,000 upon option exercise, $3,000,000 upon
acceptance of an IND, and $4,000,000 upon our dosing of the fifth patient in the related Phase I study for each of the
first two programs under this collaboration. We expect our expenses to substantially increase in connection with these
ongoing activities. Accordingly, we will need to obtain substantial additional funding in connection with our
continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to
delay, reduce or eliminate our research and development programs or future commercialization efforts.

We anticipate that existing cash, cash equivalents, investments and working capital at December 31, 2014
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 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 option exercise fees, milestone payments, royalties and other payments due to
licensors, including Aurigene, for patent rights and technology used in our drug development programs;

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, defend 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.

36

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to
relinquish rights to our technologies or drug candidates.

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
development status of a majority of our drug candidates 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.

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.

Under 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
prove 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;

37

•

•

•

•

•

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.

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:

•

•

•

•

•

•

•

•

payments we may be required to make to collaborators such as Aurigene to exercise license rights and
satisfy milestones and royalty obligations;

the status of, and level of expenses incurred in connection with, our preclinical and clinical development
programs, including development costs relating to CUDC-907, CUDC-427, and CUDC-305;

fluctuations in sales of Erivedge and related royalty payments including fluctuations resulting from the
impact of future sales of competing products;

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;

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 is likely to 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.

38

At December 31, 2014, we had $50,539,000 of cash, cash equivalents and investments consisting of cash,
money market, commercial paper, corporate debt securities, and government obligations. Any deterioration in
conditions of the global credit and financial markets could negatively impact our current portfolio of cash
equivalents and marketable securities and 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 depend heavily on the success of our most advanced product candidates. All of our product candidates
are still in early clinical development. Clinical trials of our product candidates may not be successful. If we
are unable to commercialize our product candidates or experience significant delays in doing so, our
business will be materially harmed.

We have invested a significant portion of our efforts and financial resources on our most advanced product
candidates, CUDC-907, CUDC-427 and CUDC-305. We have not commenced clinical trials for any other
product candidates. In addition, under our agreement with Aurigene, we have the option to license from Aurigene
specified drug development programs and we expect to exercise our right to license two such programs in the
first half of 2015 and to file IND applications for a development candidate from each program in 2015. Our
ability to generate product revenues, which we do not expect will occur for many years, if ever, will depend
heavily on the successful development and eventual commercialization of our product candidates. The success of
our product candidates will depend on many factors, including the following:

•

successful enrollment in, and completion of, clinical trials;

• Aurigene’s ability to successfully discover and preclinically develop drug candidates under the parties’

collaboration agreement;

receipt of marketing approvals from applicable regulatory authorities;

establishing commercial manufacturing capabilities or making arrangements with third-party
manufacturers;

obtaining and maintaining patent and trade secret protection and non-patent exclusivity for our
medicines;

launching commercial sales of the medicines, if and when approved, whether alone or in collaboration
with others;

acceptance of the medicines, if and when approved, by patients, the medical community and third-party
payors;

effectively competing with other therapies;

continuing acceptable safety profile for the medicines following approval;

enforcing and defending intellectual property rights and claims; and

achieving desirable medicinal properties for the intended indications.

•

•

•

•

•

•

•

•

•

If we do not achieve one or more of these factors in a timely manner or at all, we could experience
significant delays or an inability to successfully commercialize our most advanced product candidates which
would materially harm our business.

39

We are reliant on Genentech and Roche for the successful development and commercialization of
Erivedge. If Genentech and Roche do 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 over 50 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 Phase 2 clinical trials of Erivedge in patients with
less severe forms of BCC 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 fail 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 Roche do not obtain full approval to commercialize Erivedge in the EU based upon the

results of the STEVIE trial;

• 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, derivation, inter partes

review, post-grant review, reexamination 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
expect that all royalties that Curis Royalty receives under our collaboration agreement with Genentech will be
remitted to BioPharma-II in repayment of our loan until the loan is fully repaid.

The therapeutic efficacy of our drug candidates is unproven in humans, and we may not be able to
successfully develop and commercialize drug candidates pursuant to these programs.

Our drug candidates are novel chemical entities 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

40

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
molecular 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. If the FDA determines that
any of our 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. In addition, in connection with our collaboration with Aurigene, we are seeking to
discover, develop and commercialize small molecule antagonists for immuno-oncology targets such as immune
checkpoints proteins like programmed death ligand-1 or PD-L1 protein and precision oncology targets, and such
efforts may not prove to be successful. As such, outside of our collaboration with Aurigene, we are not aware of
immune checkpoint protein interactions in late preclinical or clinical
any small molecules that
development and we may never be able to successfully develop such drug candidates. Moreover, many drug
candidates 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 or their removal from the market. As a result of
these and other risks described herein that are inherent in the development and commercialization 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.

target

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 believe may have the best potential in certain specific indications. As a result, we may forego
or delay pursuit of certain opportunities with our 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 research and, as applicable, development of certain programs. If one or
more of our collaborators fails or delays in developing or, as applicable, 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
addition, we entered into a collaboration, license and option agreement with Aurigene pursuant to which
Aurigene may develop various immuno-oncology, selected precision oncology and other potential targets which
we will have the option to license and advance into clinical trials. Collaborations involving our product
candidates, including our collaborations with Aurigene and Genentech, pose the following risks to us:

• Our collaborators each have significant discretion in determining the efforts and resources that they will
apply to their respective collaboration with us. If a collaborator fails to allocate sufficient time, attention
and resources to its collaboration with us, the successful development and commercialization of drug
candidates under such collaboration is likely to be adversely affected. For example, we are dependent on

41

Aurigene to successfully discover and advance preclinical programs from which we may exercise our
option to license drug candidates for future development.

• Our collaborators 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/ Roche is involved in the commercialization of many cancer medicines and is seeking to
develop several other cancer drug therapies, and Aurigene has other active cancer-focused discovery
programs and has also entered into license agreements with other companies that are focused on cancer
therapies.

• Our collaborators may change the focus of their development and commercialization efforts or pursue

higher-priority programs.

• 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.

• Our collaborators may, under specified circumstances, terminate their collaborations 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, biotech, pharma and financial
communities.

• Our collaborators 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.

•

If any of our collaborators were to breach or terminate its arrangement with us, the development and
commercialization of the affected drug candidate or program could be delayed, curtailed or terminated.

In addition, our collaboration agreement with Genentech has resulted in the approval in the United States,
European Union and several other countries of Erivedge for the treatment of advanced BCC. The commercial
success of Erivedge in this patient population is dependent on continued investment by Genentech and Roche and
development and market approvals in indications other than in BCC will require significant investments from
Genentech and Roche. The success of either the further development or commercialization of Erivedge in
advanced BCC and potentially in additional indications is dependent on a number of factors, including the
following:

• Genentech is a wholly-owned member of the Roche Group and as such is subject to the risk that Roche
could determine to re-prioritize Genentech’s commercial or development programs which could reduce
Genentech’s efforts on the development or commercialization of Erivedge or cause Genentech to
terminate our collaboration.

• Genentech has the first right to maintain or defend intellectual property rights associated with the drug
candidate under its agreement and, although we may have the right to assume the maintenance and
defense of our intellectual property rights if Genentech does not, our ability to do so may be
compromised by Genentech’s acts or omissions.

We may not be successful in establishing additional strategic collaborations, which could adversely affect
our ability to develop and commercialize products.

We intend to seek corporate collaborators or licensees for the further development and commercialization of
one or more of our drug candidates in one or more geographic territories outside of the United States. We do not
currently have the resources or capacity to advance these programs into later stage clinical development (i.e.,

42

Phase 3) or commercialization on our own, but we are seeking to build such a capacity to enable Curis to retain
development and commercial rights to most of our programs in at the least the United States. Our success will
depend, in part, on either our ability to build such capacity or our ability to enter into one or more collaborations for
our drug candidates. We face significant competition in seeking appropriate collaborators and a number of recent
business combinations in the biotechnology and pharmaceutical industry may continue to result 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 sufficiently
differentiated 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 collaborations 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 have to 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.

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;

43

•

preclinical and early 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 trial 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; and

• 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, 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.

44

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, including for the additional clinical trials of CUDC-907, may result
in increased development costs for our drug candidates, which could cause the value of our stock price to decline.
Moreover, 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.

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. Despite having
contractual 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.

45

If we or Genentech and/ or Roche 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 Genentech and/or Roche 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. 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 Genentech and/or Roche 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.

In addition, regulatory agencies may change existing requirements or adopt new requirements or policies.
We and Genentech and/or Roche 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 Genentech and/or Roche 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 Genentech and/or Roche incur costs and delay 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

46

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.

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;

47

•

•

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, requirements for manufacturers to submit reports to CMS on the
90th day of each 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.

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
governmental control.
In these countries, pricing negotiations with governmental authorities can take
considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing

48

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 such as Aurigene,
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.

We may not receive Fast Track designation for our product candidates from the FDA, or Fast Track
designation may not actually lead to a faster development or regulatory review or approval process.

We intend to seek Fast Track designation for some or all of our product candidates. Fast track designation
provides increased opportunities for sponsor meetings with the FDA during preclinical and clinical development,
in addition to the potential for rolling review once a marketing application is filed. A new drug or biologic is
eligible for Fast Track designation if it is intended to treat a serious or life-threatening disease or condition and
the drug demonstrates the potential to address unmet medical needs for the disease or condition. The FDA has
broad discretion whether or not to grant this designation, and even if we believe a particular product candidate is
eligible for this designation, we cannot assure you that the FDA will grant it. Even if our product candidates
receive Fast Track designation, we may not experience a faster development process, review or approval
compared to conventional FDA procedures. The FDA may withdraw Fast Track designation if it believes that the
designation is no longer supported by data from our clinical development program.

49

RISKS RELATING TO OUR BUSINESS, INDUSTRY, STRATEGY AND OPERATIONS

We and our collaborators may not achieve projected research, development, commercialization and
marketing 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, commercialization and marketing of
Erivedge, and may in the future make additional statements about its goals and expectations for Erivedge and/or
its 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 and
commercialization 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;

• we or our current and potential future collaborators may not make regulatory submissions, receive

regulatory approvals or commercialize approved products 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 research, development and commercialization 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.; and Novartis. In February 2014, Novartis announced that its Hedgehog pathway inhibitor
met the primary endpoint in a pivotal Phase 2 trial in patients with advanced basal cell carcinoma and is currently
the subject of applications for marketing approvals in the United States and European Union. 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 molecular targets
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 or PI3K and
there are multiple companies testing HDAC or 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.

50

We also expect that we will exercise options to obtain exclusive licenses to at least two programs under our
collaboration agreement with Aurigene, including programs that target IRAK4 and the interactions between PD-1
and PD-L1 for the treatment of human cancers. We are aware of at least two other companies that are developing
IRAK4 inhibitors for oncology indications: Nimbus Discovery and TG Therapeutics (in-licensed an IRAK4
inhibitor from Ligand Pharmaceuticals). In addition, there are two approved drugs on the market that target
PD-1/ PD-L1 interactions (Bristol-Myer Squibb’s OpdivoTM and Merck & Co.’s KeytrudaTM) and a number of
drug candidates in various stages of development
the similar interactions such as Roche’s
MPDL3280A, Merck KGaA’s MSB0010718C (collaborator: Pfizer), AstraZeneca/ MedImmune’s MEDI4736
and MEDI0680, Curetech/ Medivation’s pidilizumab and others.

target

that

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 biotechnology, 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:

•

•

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;

•

•

•

•

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

51

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
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:

•

•

•

•

•

•

•

•

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.

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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.

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
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 this report.

Our business and operations would suffer in the event of system failures.

Despite the implementation of security measures, our internal computer systems and those of our current
and any future collaborators and other contractors or consultant 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 or those of our collaboration
partners could result in a material disruption of our product development programs or those of our collaboration
partners. To the extent that any disruption or security breach results in a loss or damage to our data or

53

applications, or inappropriate disclosure of confidential or proprietary information, we may incur liability and the
further development of our drug candidates may be delayed. If a natural disaster, power outage or other event
occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical
infrastructure (such as the manufacturing facilities of our third-party contract manufacturers) or that otherwise
disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a
substantial period of time. The disaster recovery and business continuity plans we have in place currently are
limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur
substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans,
which, particularly when taken together with our lack of earthquake insurance, could have a material adverse
effect on our business.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

Under Section 382 of the Internal Revenue Code of 1986, as amended, if a company undergoes an
“ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a
three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-
change tax attributes (such as research tax credits) to offset its post-change taxable income or taxes may be
limited. Changes in our stock ownership, some of which are outside of our control, may have resulted or could in
the future result in an ownership change. The changes of ownership will result in net operating loss and research
and development credit carryforwards that we expect to expire unutilized. If additional limitations were to apply,
utilization of a portion of our net operating loss and tax credit carryforwards could be further limited in future
periods and a portion of the carryforwards could expire before being available to reduce future income tax
liabilities.

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:

•

•

•

•

obtain patents to protect our technologies and discoveries;

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

54

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 on or after March 16, 2013 (with the exception of certain
applications claiming priority to applications filed prior to March 16, 2013, such as 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 U.S. Patent & Trademark
Office and U.S. 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.

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:

•

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;

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•

•

•

•

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.

Any patent litigation or other proceeding, even if resolved favorably, will likely incur substantial costs and
be 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 Asia 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 vary, 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.

In addition, we collaborate with Aurigene, an Indian company, in the development of new therapeutic
compounds. Some or all of the intellectual property arising from this collaboration may be developed by
Aurigene’s employees, consultants, and third-party contractors, and we license Aurigene’s rights in this
intellectual property. Accordingly, our rights depend in part on Aurigene’s contracts with its employees and
contractors and Aurigene’s ability to protect its trade secrets and other confidential information in India.
Enforcement of intellectual property rights and confidentiality protections in India 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 or Aurigene might need to resort to litigation to protect our trade secrets and confidential information. The
experience and capabilities of Indian courts in handling intellectual property litigation vary, 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.

56

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. Similarly, our agreement with Aurigene requires Aurigene to
enter into such agreements with its employees, consultants, and other third-party contractors. 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, including our agreement with Aurigene,
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 drug candidates, and if these third parties do not successfully
formulate or manufacture these drug candidates, our business will be harmed.

We have no internal manufacturing experience or manufacturing capabilities and we lack the resources and
the capability to manufacture any of our product candidates on a clinical or commercial scale. In order to
continue to develop drug candidates, apply for regulatory approvals, and commercialize products, we or any
collaborators must be able to manufacture drug candidates 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.

57

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
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 contract manufacturers,
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.

Any contamination in our manufacturing process, shortages of raw materials or failure of any of our key
suppliers to deliver necessary components could result in delays in our clinical development or marketing
schedules.

Any contamination could materially adversely affect our ability to produce product candidates on schedule
and could, therefore, harm our results of operations and cause reputational damage. A material shortage,

58

contamination, recall or restriction on the use of biologically derived substances in the manufacture of our
product candidates could adversely impact or disrupt the commercial manufacturing or the production of clinical
material, which could materially and adversely affect our development timelines and our business, financial
condition, results of operations and prospects.

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 or capabilities. 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, we have granted Genentech the exclusive rights to distribute certain products
resulting from such collaboration, and Genentech is currently commercializing Erivedge. We may have to enter
into additional marketing and/or sales arrangements in the future and we may not be able to enter into these
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 and sell products that are not already subject to 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;

•

•

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:

•

•

•

•

•

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.

59

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
drugs,
to cover our costs and may not be made permanent.
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.

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:

•

•

•

•

•

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;

60

•

•

•

•

•

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
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 RELATING TO OUR COMMON STOCK

If we fail to meet the requirements for continued listing on the NASDAQ Global Market, our common
stock could be delisted from trading, which would adversely affect the liquidity of our common stock and
our ability to raise additional capital.

Our common stock is currently listed for quotation on the NASDAQ Global Market. We are required to
meet specified financial requirements in order to maintain our listing on the NASDAQ Global Market. One such
requirement is that we maintain a minimum bid price of at least $1.00 per share for our common stock. Although
we currently comply with the minimum bid requirement, our bid price has remained relatively low and has fallen
within a range of $1.00 to $2.00 per share for several consecutive recent months of trading. Our bid price could
fall below $1.00 per share in the future. If our bid price falls below $1.00 per share for 30 consecutive business
days, we will receive a deficiency notice from NASDAQ advising us that we have 180 days to regain compliance
by maintaining a minimum bid price of at least $1.00 for a minimum of ten consecutive business days. Under
certain circumstances, NASDAQ could require that the minimum bid price exceed $1.00 for more than ten
consecutive days before determining that a company complies. If in the future we fail to satisfy the NASDAQ
Global Market’s continued listing requirements, we may transfer to the NASDAQ Capital Market, which
generally has lower financial requirements for initial listing, to avoid delisting, or, if we fail to meet its listing
requirements, the OTC Bulletin Board. Any potential delisting of our common stock from the NASDAQ Global
Market would make it more difficult for our stockholders to sell our stock in the public market and would likely
result in decreased liquidity and increased volatility for our common stock.

61

Our stock price may fluctuate significantly and the market price of our common stock could drop below
the price paid by our investors.

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 $1.09 per share for the
period January 1, 2012 through February 18, 2015. 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:

•

announcements regarding new technologies and/or drug candidates by us or our competitors;

• market conditions in the biotechnology and pharmaceutical sectors;

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

rumors relating to us or our collaborators or competitors;

litigation or public concern about the safety of our drug candidates;

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;

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

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

62

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.

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 through Cowen, acting
as agent, up to $30,000,000 of the registered common stock that was on this shelf registration statement pursuant
to one or more “at the market” offerings. We have received gross proceeds of approximately $16,900,000 as of
December 31, 2014 through such sales. 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.

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 January 31, 2015, we believe that our directors, executive officers and principal stockholders, together
with their affiliates, owned, in the aggregate, approximately 38.3% 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.

63

If securities analysts publish negative evaluations of our stock, the price of our stock could decline.

If one or more of the analysts covering our business downgrade their evaluations of our stock, the price of
our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the
market for our stock, which in turn could cause our stock price to decline.

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.

64

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERS

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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, 2013

First Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year ended December 31, 2014

First Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Curis
Common Stock

High

Low

$3.68
$4.50
$4.63
$4.74

$3.40
$2.99
$2.06
$1.53

$2.66
$2.96
$3.20
$2.44

$2.56
$1.60
$1.35
$1.09

Holders. On February 23, 2015, the last reported sale price of our common stock per share on the
NASDAQ Global Market was $3.15 and there were 230 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.

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.

Issuer Purchases of Equity Securities. None.

65

Performance Graph. The graph below compares the cumulative total stockholder return on our common
stock for the period from December 31, 2009 through December 31, 2014, 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, 2009 in our common stock and in each of the
indices and, in each case, assumes reinvestment of all dividends.

This graph is not deemed to be “filed” with the SEC or subject to the liabilities of Section 18 of the
Exchange Act, and should not be deemed to be incorporated by reference into any of our prior or subsequent
filings under the Securities Act or the Exchange Act.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Curis, Inc., the NASDAQ Composite Index, the NASDAQ Pharmaceutical Index,
and the NASDAQ Biotechnology Index

$400

$350

$300

$250

$200

$150

$100

$50

$0

12/09

12/10

12/11

12/12

12/13

12/14

Curis, Inc.

NASDAQ Composite

NASDAQ Pharmaceutical 

NASDAQ Biotechnology 

*$100 invested on 12/31/09 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.

CURIS INC.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NASDAQ COMPOSITE INDEX . . . . . . . . . . . . . . . . . .
NASDAQ PHARMACEUTICAL INDEX . . . . . . . . . . .
NASDAQ BIOTECHNOLOGY INDEX . . . . . . . . . . . .

100.00
100.00
100.00
100.00

60.92
117.61
104.24
106.73

144.00
118.70
117.69
122.40

105.54
139.00
161.80
166.72

86.77
196.83
271.53
286.55

46.15
223.74
349.75
379.71

12/31/09

12/31/10

12/31/11

12/31/12

12/31/13

12/31/14

66

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,

2014

2013

2012

2011

2010

(in thousands, except per share data)

Consolidated Statement of Operations Data:
Revenues:

License fees(1) . . . . . . . . . . . . . . . . . . . . . . . .
Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development, net (2) . . . . . . . .

$

Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Costs and expenses:

Cost of royalty revenues . . . . . . . . . . . . . . . .
Research and development. . . . . . . . . . . . . . .
In-process research and development. . . . . . .
General and administrative. . . . . . . . . . . . . . .

Total costs and expenses . . . . . . . . . . . . . . . . . . . .

3,000
6,757
86

9,843

340
13,659
—
11,707

25,706

$ 10,000
3,942
1,060

$ 14,000
1,530
1,442

$ 14,300
—
463

$ 15,656
—
344

15,002

16,972

14,763

16,000

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

Loss from operations . . . . . . . . . . . . . . . . . . . . . . .

(15,863)

(9,416)

(18,620)

(7,203)

(5,638)

Other income (expense):

Interest and other income . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of warrants . . . . . . . . . .

Total other income (expenses), net . . . . . . . .

165
(3,748)
717

(2,866)

165
(3,842)
771

(2,906)

150
(204)
2,257

2,203

100
—
(2,756)

(2,656)

627
—
576

1,203

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (18,729) $ (12,322) $ (16,417) $

(9,859) $

(4,435)

Basic and diluted net loss per common share . . . .

$

(0.22) $

(0.15) $

(0.21) $

(0.13) $

(0.06)

Weighted average common shares (basic and

diluted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

85,975

82,339

79,059

76,352

74,959

(in thousands)
As of December 31,

2014

2013

2012

2011

2010

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 . . . . . . . . . . . . . . . . . . .

$ 50,539
42,148
166
62,614
22,763
(779,555)
29,784

$ 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

(1) During the years ended December 31, 2014, 2013, 2012 and 2011, we recognized $3,000,000, $10,000,000,
$14,000,000 and $14,000,000 of revenue for cash payments that we earned during each of 2014, 2013, 2012

67

and 2011, respectively, under our June 2003 Hedgehog pathway inhibitor collaboration 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,

2014

2013

2012

2011

2010

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . .
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent payments . . . . . . . . . . . . . . . . . .

$22,589
—
174

$27,945
717
197

$29,839
1,488
195

$ — $ —
1,605
4,361
51
157

Total long-term obligations . . . . . . . . . . . . . . .

$22,763

$28,859

$31,522

$4,518

$1,656

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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 report. 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 a biotechnology company seeking to develop and commercialize innovative drug candidates for the
treatment of human cancers. Our most advanced drug candidate is CUDC-907, an orally-available, small
molecule inhibitor of histone deacetylase, or HDAC, and phosphatidylinositol-3-kinase, or PI3K enzymes, which
has completed dose escalation stage of a first-in-man Phase 1 clinical study in patients with relapsed, refractory
lymphoma or multiple myeloma. In addition, we recently entered into an exclusive collaboration agreement
focused on immuno-oncology and selected precision oncology targets with Aurigene Discovery Technologies
Limited, or Aurigene, a specialized, discovery stage biotechnology company and wholly-owned subsidiary of
Dr. Reddy’s Laboratories that is developing novel therapies to treat cancer and inflammatory diseases. We expect
to exercise our options during the first half of 2015 to obtain two exclusive licenses under this collaboration
including for drug candidates that target an orally-available small molecule antagonist of programmed death
ligand-1, or PD-L1 immune checkpoint target, and an orally-available small molecule inhibitor of Interleukin-1
receptor-associated kinase 4, or IRAK4 kinase. Our proprietary pipeline also includes CUDC-427, an orally-
available, small molecule antagonist inhibitor of apoptosis, or IAP proteins, which has recently completed dose
escalation in a Phase 1 clinical trial in patients with solid tumors or lymphoma. We also recently regained rights
to our Heat Shock Protein 90, or HSP90, inhibitor Debio 0932 from Debiopharm International S.A., or
Debiopharm. We have redesignated this drug candidate as CUDC-305 and are evaluating initiating clinical
studies with CUDC-305 in 2015. Our collaborators F. Hoffmann-La Roche Ltd, or Roche, and Genentech Inc., or
Genentech, a member of the Roche Group, are commercializing Erivedge® (vismodegib), a first-in-class orally-
administered small molecule Hedgehog pathway inhibitor, in advanced basal cell carcinoma, or BCC. Roche and
Genentech are also continuing Erivedge’s clinical development in less severe forms of BCC as well as planned
development in other non-oncology indications.

CUDC-907.

In January 2013, we initiated a Phase 1 clinical study of CUDC-907 in patients with relapsed
or refractory lymphomas or multiple myeloma. In the fourth quarter of 2014, we established the recommended
Phase 2 dose and schedules of administration for further development of CUDC-907and initiated enrollment of
patients with diffuse large B-cell lymphoma, or DLBCL, or multiple myeloma in the expansion stage of the
Phase 1 study. A preliminary analysis of the eight heavily pre-treated subjects with relapsed, refractory DLBCL
disease enrolled in the dose escalation phase showed that three patients have experienced confirmed partial
responses and one patient achieved a complete response leading to that patient undergoing an to autologous stem
cell transplantation. We expect to present the available data from the Phase 1 study at a medical conference in
2015 and anticipate that we will initiate a Phase 2, registration-directed, randomized study of CUDC-907 in
patients with relapsed, refractory DLBCL during the second half of 2015 in order to assess the drug candidate’s
efficacy in this indication. Development of CUDC-907 in hematological malignancies is partially supported
under a collaboration with The Leukemia & Lymphoma Society, or LLS.

In the fourth quarter of 2014, we initiated a separate Phase 1 trial to investigate CUDC-907 in patients with
advanced solid tumors, including those with hormone receptor positive breast cancer or with NUT midline
carcinoma.

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Aurigene.

In January 2015, we entered into an exclusive, multi-year collaboration with Aurigene that is
focused on discovery, development and commercialization of drug candidates in the fields of immuno-oncology
and precision oncology. As part of the agreement, Aurigene has granted to us the option to exclusively license
multiple compounds including the designated development candidates discovered using their small molecule
technology that address molecular targets within the scope of the collaboration. Within the collaboration,
Aurigene is responsible for conducting all discovery and preclinical activities, including IND-enabling studies
and providing Phase 1 clinical trial supply of the investigational agent, and we are responsible for all clinical
development, regulatory and commercialization efforts worldwide, excluding India and Russia, for each
candidate for which we exercise an option to obtain a license. We will also make specified payments to
Aurigene, including option exercise fees, pre-IND milestones for the first four programs, as well as milestone
payments and royalties on any products we successfully commercialize under the collaboration. The lead
compounds under the collaboration are orally-available small molecule antagonists of PD-L1 immune checkpoint
target and orally-available small molecule inhibitors of IRAK4 kinase in the precision oncology field. We expect
to exercise options to obtain exclusive licenses to compounds directed at these targets in the first half of 2015 and
to file IND applications for a development candidate from each program later in 2015. Because Aurigene is
primarily responsible for preclinical development of all program compounds, we expect that a substantial
majority of our costs in 2015 related to PD-L1 and IRAK4 will be related to option exercise fees and preclinical
milestones. For the first two programs, we are obligated to pay Aurigene $3,000,000 upon option exercise,
$3,000,000 upon acceptance of an IND, and $4,000,000 upon our dosing of the fifth patient in the related Phase 1
study.

CUDC-427.

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 or
lymphoma 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 or lymphoma using twice-daily treatment schedule 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, that the Phase 1 trial 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. In February 2014, we responded to the FDA’s requests for additional information and also submitted an
amendment to the trial protocol. In March 2014, the FDA completed its review of our complete response
submission and determined that it was safe to proceed under the IND and lifted the partial clinical hold on the
Phase 1 trial of CUDC-427. In the fourth quarter of 2014, we completed the dose escalation stage of a Curis-
sponsored Phase 1 study in which consecutive cohorts of patients according to the standard 3+3 design were
treated with CUDC-427 at dose levels of 100, 200 and 300 mg daily. We have established 300 mg daily dose
given on a 14 days “on”, 7 days ‘off” schedule as the recommended dose and schedule for further development
of CUDC-427 and we expect to enroll patients with lymphoma, including those with DLBCL and mucosa
associated lymphoid tissue, or MALT, lymphoma in an expansion cohort later in 2015.

CUDC-305. We have recently regained the worldwide development and commercialization rights to
Debio 0932 from Debiopharm. During the fourth quarter of 2014, Debiopharm determined that it would not
advance Debio 0932 to the Phase 2 stage of the HALO, or HSP90 inhibition And Lung cancer Outcomes, study.
Debiopharm determined that the results from the Phase 1 portion of the HALO study were inconclusive although
safety observations were generally consistent with the previously observed side effects of Debio 0932 and/or the
respective chemotherapeutic regimens administered in the trial. In February 2015, we entered into a termination
and transition agreement with Debiopharm pursuant
to which Debiopharm has returned to us all future
development and commercialization rights to Debio 0932, which we have redesignated as CUDC-305. While we
do not plan to continue to investigate CUDC-305 in non-small cell lung cancer, we are evaluating initiating

70

clinical studies with CUDC-305 in 2015, including trials in patients with systemic mastocytosis and glioblastoma
multiforme, either in company-sponsored or investigator sponsored studies.

Erivedge. 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
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, collectively considered 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. Erivedge’s approval in the United States, Europe, Australia and several other
countries are based on positive clinical data from the ERIVANCE BCC/SHH4476g trial, a pivotal Phase 2 study
of Erivedge in patients with advanced BCC. Under the provisions of the conditional approval in Europe, 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. The STEVIE trial has completed enrollment of approximately 1,200 patients and interim analyses from the
study confirmed a safety profile similar to that observed in previous studies of Erivedge in BCC patients. Roche
and Genentech are also continuing Erivedge’s clinical development in less severe forms of BCC as well as
pursuing its potential development in other non-oncology indications.

Our Collaborations and License Agreements

Our current collaborations and license agreements are summarized as follows:

Aurigene

Collaboration Overview. On January 18, 2015, we entered into a collaboration agreement with Aurigene
for the discovery, development and commercialization of small molecule compounds in the areas of immuno-
oncology and precision oncology. Under the collaboration agreement, Aurigene granted us option to obtain
exclusive,
relevant Aurigene technology to develop, manufacture and
commercialize products containing certain of such compounds.

royalty-bearing licenses under

The lead compounds under our collaboration agreement are directed at developing orally available small

molecules that will target the modulation of the PD-L1 pathway and IRAK4 kinase, respectively.

For each program, Aurigene has granted us an exclusive option, exercisable within 90 days after Aurigene
delivers the relevant data regarding a development candidate, to obtain an exclusive, royalty-bearing license to
develop, manufacture and commercialize compounds from such program, including the development candidate
and products containing such compounds, anywhere in the world with the exception of India and Russia. Upon
exercise of the option for a particular program, Aurigene will grant us the royalty-bearing license described
above for such program, and we will grant Aurigene an exclusive, royalty-free, fully paid license under our
relevant technology to develop, manufacture and commercialize compounds from such program and products
containing such compounds in India and Russia.

Up-front Equity Issuance.

In connection with the collaboration agreement, we issued to Aurigene
17,120,131 shares of our common stock in partial consideration for the rights granted to us under the
collaboration agreement. The shares were issued pursuant to a stock purchase agreement with Aurigene dated
January 18, 2015.

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Research Payments, Option Exercise Fees and Milestone Payments. We have agreed to make the

following research, option exercise fees and milestone payments to Aurigene:

•

•

•

for the first two programs: up to $52.5 million per program, including up to $10 million for an option
exercise fee, a preclinical milestone and development milestones, as well as specified approval and
commercial milestones, plus specified additional payments for approvals for additional indications, if
any;

for the third and fourth programs: up to $50 million per program, including up to $7.5 million for
research fees, an option exercise fee, a preclinical milestone and development milestones, as well as
specified approval and commercial milestones, plus specified additional payments for approvals for
additional indications, if any; and

for any program thereafter: up to $140.5 million per program, including up to a total of $53 million for
research fees, an option exercise fee, a preclinical milestone and development milestones, as well as
specified filing, approval and commercial milestones, plus specified additional payments for approvals
for additional indications, if any.

Royalties on Net Sales by Curis. We have agreed to pay Aurigene tiered royalties on our and our affiliates’
annual net sales of products at percentage rates ranging from the high single digits up to 10%, subject to specified
reductions.

Amounts that we Receive from Sublicensees. We have agreed to make the following payments to Aurigene

upon our entry into sublicense agreements on any program(s):

• with respect to amounts that we and our affiliates receive from sublicensees with respect to the grant of
a sublicense of a licensed program in the U.S. or the European Union, a declining percentage of non-
royalty sublicense revenues that is dependent on the stage of the most advanced product for such
licensed program at the time the sublicense is granted, including for example 25% of such amounts
following our initiation of Phase 2 clinical study and 15% of such amounts after initiation of the first
pivotal study. This sharing will also extend to royalties that we receive from sublicensees, subject to
minimum royalty percentage rates that we are obligated to pay to Aurigene, which generally range from
mid-to-high single-digit royalty percentage rates up to 10%;

• with respect to sublicensing revenues we and our affiliates receive from sublicensees with respect to the
grant of a sublicense of a licensed program in Asia, 50% of such sublicensing revenues, including both
non-royalty sublicensee revenues and royalties that we receive from sublicensees; and

• with respect to non-royalty sublicensing revenues we and our affiliates receive from sublicensees with
respect to the grant of a sublicense of a licensed program outside of the U.S., the European Union and
Asia, a percentage of such non-royalty sublicense revenues ranging from 30% to 50%. We are also
obligated to share 50% of royalties that we receive from sublicensees that we receive in these territories.

Our royalty payment obligations (including with respect to royalties on sales by sublicensees) under the
Collaboration Agreement with respect to a product in a country will expire on a product-by-product and country-
by-country basis on the later of (i) expiration of the last-to-expire valid claim of the Aurigene patents covering
the manufacture, use or sale of such product in such country and (ii) 10 years from the first commercial sale of
such product in such country.

For additional

information regarding the terms and termination provisions of this agreement, see

“Business—Collaborations—Aurigene Agreement.”

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Genentech

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 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 $59,000,000 to date. Pursuant to the terms of
our collaboration agreement with Genentech, we are also entitled to a royalty on net sales of Erivedge. The
royalty rate escalates from 5% to 7.5% based on worldwide annual net sales ranging from less than $150 million
to $600 million. The royalty rate applicable to Erivedge may be decreased by 2% (such that the applicable
royalty rate will range between 3% to 5.5%) 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
$6,757,000 and $3,942,000 in such revenue for sales of Erivedge during the years ended December 31, 2014 and
2013, respectively. 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 Curis. As of
December 31, 2014, Curis Royalty owed a total of $28,699,000, gross, to BioPharma-II comprised of principal
and accrued interest. Future royalty payments related to Erivedge will service the outstanding debt and accrued
interest to BioPharma-II, up to the quarterly caps for 2015, and until the debt is fully repaid thereafter.

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. This obligation is for a period of 10 years from the first commercial sale of Erivedge,
which occurred in February 2012. For royalties that Curis Royalty earns from Roche’s sales of Erivedge in
Australia, we are obligated to make payments to university licensors of 2% of Roche’s direct net sales in
Australia until expiration of the Australian patent in April 2019, after which the amount will decrease to 5% of
the royalty payments that Curis Royalty receives from Genentech for the remainder of the period ending 10 years
from the first commercial sale of Erivedge, or February 2022. Cost of royalty revenues were $340,000 during the
year ended December 31, 2014. We have incurred an aggregate of $713,000 to university licensors upon receipt
of royalties since Erivedge was approved, including a one-time milestone payment to a university licensor of
$100,000 on the first commercial sale of Erivedge in 2012.

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.

73

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.

Debiopharm

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 completed Phase 1
testing of this drug candidate and in August 2012, Debiopharm initiated the HALO, or HSP90 inhibition And
Lung cancer Outcomes, Phase 1/2 clinical trial of Debio 0932 in combination with various chemotherapy
regimens in patients with stage IIIb or IV non-small cell lung cancer, or NSCLC, without known epidermal
growth factor receptor, or EGFR, mutations. The primary objective of this trial was to analyze the effect of
adding Debio 0932 to combination chemotherapy with cisplatin/pemetrexed or cisplatin/ gemcitabine on the rate
of progression-free survival at 6 months in first-line therapy of patients in this trial population. Debiopharm
reviewed data from the Phase 1 portion of the HALO study and determined that the results from the Phase 1
portion of the HALO study were inconclusive although safety observations were generally consistent with the
previously observed side effects of Debio 0932 and/or the respective chemotherapeutic regimens administered in
the trial.

In February 2015, we entered into a termination and transition agreement, which we refer to as the transition
agreement, with Debiopharm to terminate our August 2009 license agreement, effective February 5, 2015. We
have redesignated the molecule CUDC-305. While we do not plan to continue to investigate CUDC-305 in non-
small cell lung cancer, we are evaluating initiating clinical studies with CUDC-305 in 2015 and we are exploring
the potential to test the molecule in other indications, including in systemic mastocytosis and glioblastoma
multiforme, either in company-sponsored or investigator sponsored studies. Under the terms of the transition
agreement, the licenses and all other rights granted by us related to CUDC-305 have been terminated and
reverted to Curis effective as of the termination date. Debiopharm ceased enrollment in all clinical trials as of the
termination date. In addition, we exercised our right, pursuant to the license agreement, to obtain a non-
exclusive, worldwide, royalty-bearing license, with the right to sublicense, under other intellectual property
rights of Debiopharm to develop, make, have made, use, sell, offer for sale, have sold and import CUDC-305,
and Debiopharm will transfer to us the U.S. investigational new drug application related to CUDC-305.
Debiopharm also assigned its sole patent application related to CUDC-305 to us.

Under the terms of the transition agreement, Debiopharm will transition ongoing CUDC-305 development
and manufacturing activities to us and will make available all necessary information generated by or on behalf of
Debiopharm to pursue the manufacturing of CUDC-305.

We paid $750,000 to Debiopharm shortly after the termination date, primarily in consideration for
Debiopharm providing drug product for use in our future clinical studies. In addition, we have agreed to make
each of the following contingent one-time payments to Debiopharm: (i) $3,000,000 within 30 days after the first
dosing of the first patient in the first Phase 3 clinical trial of CUDC-305; and (ii) $10,000,000 within 30 days
after receipt of the first marketing approval for CUDC-305 in the U.S. or any specified major European market
(whichever occurs first). We have also agreed to pay to Debiopharm royalties at a rate of 3% of net sales by us
(excluding sales by our third party sublicensees) of products containing CUDC-305 and to pay Debiopharm the

74

following percentages of amounts that we receive from third party sublicensees: (i) 10% of any royalties that we
receive from third party sublicensees based on such sublicensees’ net sales of products containing CUDC-305;
and (ii)15% of any non-royalty sublicense payments that we receive from third party sublicensees, provided that
the maximum aggregate amount payable by us to Debiopharm with respect to non-royalty sublicense payments is
$20,000,000, unless such sublicense payments are attributable to our grant to a third party sublicensee of a
license or sublicense to develop or commercialize a topical formulation of CUDC-305 for local, non-systemic
delivery for the treatment of psoriasis, in which case there is no such maximum aggregate.

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 $779,555,000 as of December 31, 2014.

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,
2014 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 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.

Key Drivers

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

• Genentech and Roche’s ability to successfully commercialize Erivedge in advanced BCC in the

United States and in other global territories, respectively;

•

our ability to successfully plan, finance and complete current and planned clinical trials for CUDC-907,
CUDC-427 and CUDC-305 as well as obtain promising results from these trials; and

• Aurigene’s ability to advance its preclinical immuno-oncology and precision oncology drug candidates

toward clinical testing and our ability to progress these programs clinically.

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.

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, 2014 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.

75

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
$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
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 Erivedge royalties. As of December 31, 2014, the outstanding
principal and interest due under the loan is $28,699,000.

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, 2014, milestone and royalty payments from Genentech
accounted for $9,796,000, or approximately 100%, 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 the sale of competing products that result in a lowering of the
royalty rates we are entitled to receive, 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 and LLS, provided the respective
programs meet contractually-specified development and regulatory objectives. In June 2014, Roche filed an IND
application with the FDA to initiate a Phase 2 clinical study of Erivedge in patients with IPF, which represents
the first clinical study by Roche in a non-oncology indication and resulted in a $3,000,000 cash milestone
payment to us, which was received in July 2014. Although the Phase 2 study was opened, no patients were
enrolled in the study and in August 2014 enrollment in this study was suspended by Roche pending additional
changes in the study protocol. We received milestone payments from Genentech totaling $10,000,000 during the

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year ended December 31, 2013 for the achievement of development objectives related to market approvals of
Erivedge. 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 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 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 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.

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 contract manufacturing; (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 collaboration agreement.

77

Drug Candidate

Primary Disease

Collaborator/Licensee

Status

Dual HDAC and PI3K Inhibitor

- CUDC-907

Advanced lymphomas and
multiple myeloma

HER 2-/ ER+ or PR+ breast
cancer and NUT midline
carcinoma

Internal development/LLS

Phase 1

Internal development

Phase 1

Aurigene Immuno-Oncology

- PD-L1 antagonist

Cancers

Aurigene

Aurigene Precision Oncology

-

IRAK4 Inhibitor

Hematological cancers

Aurigene

Preclinical*

Preclinical*

Antagonist of IAP Proteins

- CUDC-427

HSP90 Inhibitor
- CUDC-305

Advanced solid tumor &
lymphomas

Internal development

Phase 1

Cancers

Internal development

Regained global rights in
February 2015; evaluating
initiating clinical studies in
2015, including in systemic
mastocytosis and glioblastoma
multiforme

Approved in US, Australia and
others and conditional approval
in the EU; regulatory
submissions made in certain
other territories

Phase 2

Phase 2; patient enrollment
currently suspended to allow for
protocol amendment

Hedgehog Pathway Inhibitor

- Erivedge

Advanced BCC

Genentech (Roche)

- Erivedge

- Erivedge

Preceding excision and multiple
BCC
Idiopathic Pulmonary Fibrosis

Roche

Roche

* We have an option to exclusively license molecules under the terms of our agreement with Aurigene.

With the exception of Erivedge in advanced BCC, our programs are in early stages of development.
Therefore, 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;

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.

78

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
including our warrant liability, debt classification and stock-based compensation. We base our
liabilities,
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.

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

79

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.

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 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
to complete our performance
recognized as revenue on a straight-line basis over the period we expect
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.

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.

80

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 is
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 based on contractual terms,
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.

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

81

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 $3,141,000, $2,651,000 and
$3,269,000 for the years ended December 31, 2014, 2013 and 2012, respectively. We estimate that we will record
approximately $3,250,000, in stock-based compensation expense in 2015. We have granted and expect that we
may grant additional options in 2015 that could increase the amount of stock-based compensation ultimately
recognized. The amount of the incremental employee stock-based compensation expense attributable to 2015
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.

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

82

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 and short- 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 accounts
payable are reflected in the consolidated financial statements at net realizable value, which 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 were 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. All warrants outstanding at
December 31, 2014 expired unexercised in January 2015 pursuant to the terms of the warrant agreements and
will not have a financial statement impact in subsequent reporting periods.

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.

83

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 2014, 2013 and 2012, 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 2014, 2013 and 2012.

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
dictated by generally accepted accounting principles, with no need for management’s judgment
in their
application. There are also areas in which management’s judgment in selecting any available alternative would
not produce a materially different result.

Debt Classification

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 between Curis Royalty and 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 final maturity date of the loan will be the earlier of the date when the principal is paid in full or 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.

Because the repayment of the term loan is contingent upon the level of Erivedge royalties received, the
short- and long-term classification is based on our best estimate of the timing of amounts to be repaid. 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. We currently estimate that the loan will be repaid
in 2017. However, the actual repayment period could vary materially from our estimate to the extent that royalty
payments Curis Royalty receives are lower than our current estimates, which could arise due to factors beyond
our control, such as due to competitive factors, decreased market acceptance or a failure by Genentech and/or
Roche to successfully commercialize Erivedge in territories where it has received regulatory approval. For
example, Curis Royalty is currently entitled to a royalty on net sales of Erivedge that ranges from 5% to 7.5%
based on worldwide annual net sales ranging from less than $150 million to $600 million. The royalty rate
applicable to Erivedge may be decreased by 2% (such that the applicable royalty rate will range between 3% to
5.5%) 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. We are aware of one competing Hedgehog pathway inhibitor
that is currently the subject of applications for marketing approval in the United States and European Union. We
cannot predict whether or when this competing drug candidate will be approved, although we believe that such
review process typically takes up to one year or more, subject to extension. If this molecule is approved and
commercialized, the royalty rate for sales in the applicable territory would decline and would likely increase our
estimated repayment period.

84

Results of Operations (all amounts rounded to the nearest thousand)

Years Ended December 31, 2014 and 2013

Revenues

Total revenues are summarized as follows:

For the Year Ended
December 31,

2014

2013

Percentage
Increase/
(Decrease)

REVENUES:
Royalty revenues from Genentech . . . . . . . . . . . . . . . . . . . .
Research and development, net . . . . . . . . . . . . . . . . . . . . . .
License fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$6,757,000
86,000
3,000,000

$ 3,942,000
1,060,000
10,000,000

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$9,843,000

$15,002,000

71%
(92%)
(70%)

(34%)

Total revenues decreased by $5,159,000, or 34%, to $9,843,000 for the year ended December 31, 2014 as
compared to $15,002,000 for the year ended December 31, 2013. During the year ended December 31, 2014, we
received a payment of $3,000,000 from Genentech in connection with Genentech’s June 2014 filing of an IND
application to initiate a Phase 2 clinical study of Erivedge in patients with idiopathic pulmonary fibrosis. 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, we recognized
research and development revenues of $650,000 under our agreement with LLS associated with our development
of CUDC-907 during the year ended December 31, 2013. We did not receive any such payments from LLS
during the year ended December 31, 2014. Offsetting these decreases, royalty revenues recognized from
Genentech and Roche’s net sales of Erivedge increased by $2,815,000, or 71%, to $6,757,000 for the year ended
December 31, 2014 as compared to $3,942,000 for the year ended December 31, 2013.

All potential future revenues under our current collaboration agreements with Genentech and LLS are either
(i) contingent payments based on the achievement of clinical and regulatory objective milestones or (ii) royalties
on future net sales made by Genentech and Roche.

Cost of Royalty Revenues. Cost of royalty revenues increased to $340,000 from $198,000 for the years
ended December 31, 2014 and 2013, respectively, as a result of an increase in Erivedge royalties. We are
obligated to make payments to two university licensors on royalties that Curis Royalty earns from Genentech on
net sales of Erivedge.

Operating Expenses

Research and development expenses are summarized as follows:

Research and Development Program

For the Year
Ended December 31,

2014

2013

Percentage
Increase/
(Decrease)

CUDC-907 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CUDC-427 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CUDC-101 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Erivedge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CUDC-305 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discovery research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sublicense fees under Genentech collaboration . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . .

$ 7,154,000
4,504,000
629,000
157,000
31,000
363,000
150,000
671,000

$ 4,424,000
5,078,000
1,310,000
158,000
36,000
542,000
500,000
879,000

Total research and development expenses . . . . . . . . .

$13,659,000

$12,927,000

62%
(11%)
(52%)
(1%)
(14%)
(33%)
(70%)
(24%)

6%

85

Total research and development expenses increased $732,000, or 6%, for the year ended December 31, 2014
as compared to the prior year, primarily related to increased spending on CUDC-907 offset by decreased
spending on other development programs and discovery research. Spending on CUDC-907 increased $2,730,000,
or 62%, during the year ended December 31, 2014 as compared to the prior year related to our ongoing Phase 1
clinical trial of CUDC-907 as well as initial expenses related to a second Phase 1 clinical trial of CUDC-907 in
solid tumors, which began enrolling patients in the fourth quarter of 2014.

Increased spending on CUDC-907 was offset by decreased spending on CUDC-427 of $574,000 during the year
ended December 31, 2014, as a result of the re-initiation of this Phase 1 clinical trial in June 2014 that continues to
enroll patients. Spending related to our CUDC-101 and discovery research programs also decreased by $860,000
during the year ended December 31, 2014 as compared to 2013, primarily due to the completion of our Phase 1 trial of
CUDC-101 in head and neck cancers in 2013 and continued research efforts for an oral formulation of this molecule in
2014. Other internal resources allocated to CUDC-101 in the prior year, primarily personnel, were rea-allocated to our
CUDC-907 and CUDC-427 clinical development programs, during the year ended December 31, 2014.

Finally, sublicense fees that we incurred related to third party obligations on milestone payments we
received from Genentech decreased by $350,000 from the prior year and stock-based compensation decreased by
$208,000 related to 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.

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 CUDC-427, and any development programs
resulting from our collaboration with Aurigene. In addition, we will be obligated to pay Aurigene milestone
payments upon achievement of specified preclinical and development objectives in certain territories and
royalties on net sales of drug candidates resulting from that collaboration, if any. For example, for each of the
first two programs under this collaboration, we expect to exercise options to obtain exclusive licenses to these
two programs in the first half of 2015 and to file IND applications for a development candidate from each
program later in 2015. We are obligated to pay Aurigene $3,000,000 upon option exercise, $3,000,000 upon
acceptance of an IND, and $4,000,000 upon our dosing of the fifth patient in the related Phase 1 study for each of
the first two programs under our collaboration with Aurigene. . 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, 2014, 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.

General and administrative expenses are summarized as follows:

For the Year Ended
December 31,

2014

2013

Percentage
Increase/
(Decrease)

Personnel
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy and depreciation . . . . . . . . . . . . . . . . . . . . . . .
Legal services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consulting and professional services . . . . . . . . . . . . . . . . .
Insurance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other general and administrative expenses . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3,852,000
367,000
1,740,000
2,023,000
360,000
976,000
2,389,000

$ 3,491,000
353,000
2,496,000
1,548,000
330,000
953,000
2,123,000

Total general and administrative expenses . . . . . . . .

$11,707,000

$11,294,000

10%
4%
(30%)
31%
9%
2%
13%

4%

86

General and administrative expenses increased by $413,000, or 4%, during the year ended December 31,
2014 as compared to the prior year, primarily due to an increase in personnel costs of $361,000 related to an
increase in the number of administrative employees. We also recorded an increase in consulting and professional
services, including audit-related expenses, of $475,000. Stock-based compensation also increased $266,000 as a
result of an increase in the number of options granted during the year ended December 31, 2014 as compared to
the prior year.

Partially offsetting these increases, legal fees decreased $756,000 from the prior year due to decreased
spending on patent costs which includes fees related to foreign patent filings and various other corporate matters.

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 had an initial exercise price of $3.55 per share and had a five year
term, and the fair value of the warrants was recorded as a long-term liability. The fair value of the warrants was
estimated using a Black-Scholes option pricing model. The warrants were 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. All of the outstanding warrants at December 31, 2014 expired
unexercised on January 27, 2015 in accordance with the warrant terms.

We estimated that the warrants had a fair value of zero at December 31, 2014 due to decreases in the
remaining term and our common stock price using this Black-Scholes option pricing model with the following
assumptions: expected volatility of 82%, risk free interest rate of 0%, expected life of 0.1 years and no dividends.
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 other income of $717,000 and $771,000 for the years ended December 31, 2014 and
2013, respectively, related to changes in the assumptions used in the valuation of the warrants, including changes
in our stock price, during the respective periods.

Other Expense (Income)

For the years ended December 31, 2014 and 2013, interest expense was $3,748,000 and $3,842,000,
respectively. The decrease in interest expense was related to a lower principal balance throughout 2014 on Curis
Royalty’s outstanding debt with BioPharma-II.

For the years ended December 31, 2014 and 2013, interest income was $165,000 each year, respectively.

Net Loss Applicable to Common Stockholders

As a result of the foregoing, we incurred a net loss applicable to common stockholders of $18,729,000 for

the year ended December 31, 2014, as compared to $12,322,000 for the year ended December 31, 2013.

87

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:
Royalty revenues from Genentech . . . . . . . . . . . . . . . . . . .
Research and development, net . . . . . . . . . . . . . . . . . . . . .
License fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3,942,000
1,060,000
10,000,000

$ 1,530,000
1,442,000
14,000,000

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$15,002,000

$16,972,000

158%
(26%)
(29%)

(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.

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CUDC-305 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discovery research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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%)

88

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.

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.

89

Change in Fair Value of Warrant Liability. As a result of revaluing the warrants issued in January 2010,
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.

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.

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 or the termination of Curis Royalty’s right to receive royalties under the
collaboration agreement with Genentech. Payments to BioPharma-II through December 31, 2014 totaled
$8,901,000, of which $1,587,000 has been applied to the principal portion of the debt with the remainder paying
interest. As of December 31, 2014, Curis Royalty owed a total of $28,699,000, gross of issuance costs, to
BioPharma-II comprised of principal and accrued interest.

Since 2012, we received aggregate milestone payments totaling $27,000,000 under our collaboration with
Genentech. In addition, we began receiving royalty revenues in 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 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.

90

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, 2014, 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, 2014, our principal sources of liquidity consisted of cash, cash equivalents, and
investments of $50,539,000, excluding our restricted investments of $166,000. 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, as well as 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.

Net cash used in operating activities was $16,813,000 during the year ended December 31, 2014, primarily
the result of our net loss for the period of $18,729,000 and repayments of capitalized interest on our debt of
$714,000. These decreases in cash were offset by non-cash charges consisting of stock-based compensation,
changes in the fair value of our warrant liability, non-cash interest expense and depreciation which totaled
$2,755,000. Changes in certain operating assets and liabilities had offsetting impacts on operating cash during the
year ended December 31, 2014. During the year ended December 31, 2014, we received $9,757,000 in milestone
and royalty payments under our collaborations with Genentech. Offsetting these cash receipts, we incurred
operating and other expenses of $28,572,000.

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.

We expect to continue to use cash in operations as we seek to advance our drug candidates and at least two
programs under our collaboration agreement with Aurigene. 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 provided cash of $16,273,000 and used cash of $13,618,000 for years ended
December 31, 2014 and 2013, respectively, resulting primarily from net investment activity from purchases and
sales or maturities of investments for the respective periods. The decrease in investments during the year ended
December 31, 2014 was the result of the need for cash to fund our operations, and the increase in investments

91

during the year ended December 31, 2013 was the result of increases in cash receipts. In addition, during the
years ended December 31, 2014 and 2013, we reduced our restricted investments, resulting in an increase in our
available cash for the periods of $14,000 in each respective period. These increases in cash were offset by
purchases of research equipment totaling $92,000 and $153,000 during the years ended December 31, 2014 and
2013, respectively.

Financing activities used cash of $1,304,000 for the year ended December 31, 2014 as a result of principal
payments on Curis Royalty’s loan with BioPharma-II of $1,587,000, offset by $283,000 in proceeds from the
exercise of stock options. Financing activities provided cash of $20,001,000 for the year ended December 31,
2013. 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.

Funding Requirements

We have incurred significant losses since our inception. As of December 31, 2014, we had an accumulated
deficit of approximately $779,555,000. 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-907, CUDC-427, CUDC-305, and to fund our general and administrative costs and expenses.

In addition, in January 2015, we entered into an exclusive collaboration agreement focused on immuno-
oncology and selected precision oncology targets with Aurigene. The collaboration provides for inclusion of
multiple programs, and we have the option to exclusively license compounds once a development candidate is
nominated within each respective program. The first two programs under the collaboration are an orally-available
small molecule antagonist of programmed death ligand-1 (PD-L1) in the immuno-oncology field and an orally-
available small molecule inhibitor of Interleukin-1 receptor-associated kinase 4 (IRAK4) in the precision
oncology field. We expect to exercise our options to obtain exclusive licenses to both programs and file IND
applications for a development candidate from each in 2015. Developing programs under our collaboration with
Aurigene will require substantial additional capital. For example, for each of the first two programs under this
collaboration, we expect to exercise options to obtain exclusive licenses to these two programs in the first half of
2015 and to file IND applications for a development candidate from each program later in 2015. We are
obligated to pay Aurigene $3,000,000 upon option exercise, $3,000,000 upon acceptance of an IND, and
$4,000,000 upon our dosing of the fifth patient in the related Phase 1 study for each of the first two programs
under our collaboration with Aurigene.

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 (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 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.

92

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. We currently estimate that all royalties that we receive
from Genentech will be remitted to BioPharma-II until the loan is fully repaid.

To become and remain profitable, we, either alone or with collaborators, 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. Other than Erivedge, which is being commercialized by Genentech and
Roche, our most advanced drug candidates are currently only in early clinical testing.

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, 2014, 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 option exercise fees, milestone payments, royalties and other payments due to
licensors, including Aurigene, for patent rights and technology used in our drug development programs;

unplanned costs to prepare, file, prosecute, defend 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.

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
development status of a majority of our drug candidates 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.

93

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, 2014 we had contractual obligations and other commitments as follows:

Debt obligations under credit agreement(1) . . . . . . . .
Operating lease obligations(2) . . . . . . . . . . . . . . . . . . .
Outside service obligations(3) . . . . . . . . . . . . . . . . . . .
Licensing obligations(4) . . . . . . . . . . . . . . . . . . . . . . .

Total

$35,098
2,086
1,021
91

$ 9,150
651
731
91

$25,948
1,376
290
—

Total future obligations . . . . . . . . . . . . . . . . . . . .

$38,296

$10,623

$27,614

$—
59
—
—

$59

$—
—
—
—

$—

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, 2014, the outstanding balance, including interest, on the debt was $28,699,000. 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, 2014. If future royalties are lower or higher than these assumptions, the
repayment period will
increase or decrease, respectively, and related debt payments will fluctuate
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 $2,086,000. 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.

(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,
2014. 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, 2014. 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 $2,800,000, or 5%, if all of the
$56,000,000 in remaining milestones under our June 2003 Genentech collaboration are achieved. These
future obligations, and those related to Aurigene and Debiopharm, 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.

94

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as of December 31, 2014.

Inflation

We believe that inflation has not had a significant impact on our revenue and results of operations since

inception.

New Accounting Pronouncements

In May 2014, the FASB issued guidance codified in ASC 606, Revenue Recognition—Revenue from
Contracts with Customers , which amends the guidance in former ASC 605, Revenue Recognition, and is
effective for public companies for fiscal years beginning after December 15, 2016. We are currently evaluating
the impact of the provisions of ASC 606.

In August 2014, the FASB issued an accounting standards update, Disclosures of Uncertainties about an
Entity’s Ability to Continue as a Going Concern, which is included in ASC 205, Presentation of Financial
Statements. This update provides an explicit requirement for management to assess an entity’s ability to continue
as a going concern, and to provide related footnote disclosure in certain circumstances. The guidance will be
effective for fiscal years beginning after December 15, 2016, and applied prospectively; early adoption is also
permitted. We do not expect adoption of this guidance to have a material impact on our financial condition or
results of operations.

95

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, 2014, 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.

96

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, 2014. In making this assessment our management used the criteria established in Internal
Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, or COSO.

Based on our assessment, management concluded that, as of December 31, 2014, our internal control over
financial reporting is effective based on the criteria established in Internal Control—Integrated Framework
(2013) issued by COSO.

The effectiveness of our internal control over financial reporting as of December 31, 2014 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.

97

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, 2014 and December 31, 2013, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2014
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, 2014, based on criteria established in Internal Control—Integrated Framework (2013) 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.

Because of its inherent
internal control over financial reporting may not prevent or detect
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
February 24, 2015

98

CURIS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31,

2014

2013

Current Assets:

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investment—restricted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . .

$

7,747,411
42,002,782
13,877
1,960,995
489,844

$

9,591,487
48,588,135
13,877
1,477,188
495,260

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

52,214,909

60,165,947

Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investment—restricted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

407,738
788,768
152,610
8,982,000
67,544

445,655
10,726,685
166,487
8,982,000
104,034

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 62,613,569

$ 80,590,808

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,349,183
2,007,699
5,709,985

10,066,867
22,589,058
—
174,018

$

2,036,864
1,911,479
2,610,174

6,558,517
27,945,186
716,786
196,734

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

32,829,943

35,417,223

Commitments (Note 8)
Stockholders’ Equity:

Common stock, $0.01 par value—225,000,000 shares authorized at

December 31, 2014 and 2013, respectively; 87,253,657 shares issued
and 86,030,811 shares outstanding at December 31, 2014;
87,081,862 shares issued and 85,859,016 shares outstanding at
December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock (at cost, 1,222,846 shares at December 31, 2014 and 2013,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .

872,537
810,001,410

870,819
806,660,340

(1,524,029)
(779,555,295)
(10,997)

(1,524,029)
(760,826,561)
(6,984)

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29,783,626

45,173,585

Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . .

$ 62,613,569

$ 80,590,808

The accompanying notes are an integral part of these consolidated financial statements.

99

CURIS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Loss

Years Ended December 31,

2014

2013

2012

Revenues:

License fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development, net . . . . . . . . . . . . . . . . . . . . . . . .

$ 3,000,000
6,757,023
86,458

$ 10,000,000
3,942,136
1,059,896

$ 14,000,000
1,529,644
1,442,347

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9,843,481

15,002,032

16,971,991

Costs and Expenses:

Cost of royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development
. . . . . . . . . . . . . . . . . . . . . . . . . . .
In-process research and development . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . .

339,578
13,659,398
—
11,706,754

197,796
12,926,834
—
11,293,811

176,482
15,492,302
9,500,000
10,423,014

Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . .

25,705,730

24,418,441

35,591,798

Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(15,862,249)

(9,416,409)

(18,619,807)

Other Income (Expense):

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of warrant liability . . . . . . . . . . . . . . . . .

165,103
(3,748,374)
716,786

164,650
(3,841,646)
771,393

149,937
(204,167)
2,257,130

Total other (expense) income . . . . . . . . . . . . . . . . . . . . .

(2,866,485)

(2,905,603)

2,202,900

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(18,728,734) $(12,322,012) $(16,416,907)

Net Loss per Common Share (Basic and Diluted) . . . . . . . . . . . . .

$

(0.22) $

(0.15) $

(0.21)

Weighted Average Common Shares (Basic and Diluted) . . . . . . . .

85,974,535

82,339,493

79,059,153

Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax:

$(18,728,734) $(12,322,012) $(16,416,907)

Unrealized loss on marketable securities . . . . . . . . . . . . . . . .

(4,013)

(22,143)

(18,806)

Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(18,732,747) $(12,344,155) $(16,435,713)

The accompanying notes are an integral part of these consolidated financial statements.

100

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T

CURIS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:

Years Ended December 31,

2014

2013

2012

$(18,728,734) $(12,322,012) $(16,416,907)

155,083
3,059,989
—
(716,786)
89,120
169,652
(713,968)
(1,750)

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 . . . . . . . . . . . .

(483,807)
(2,409)
360,866
1,915,990
(16,812,744)

(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 fixed assets . . . . . . . . . . . . . . . . . . . . .
Net cash provided by/(used in) investing

(41,399,246)
57,748,851
13,877
(92,209)
1,750

(65,827,658)
52,349,212
13,918
(153,009)
—

(69,153,956)
46,214,044
41,632
(104,975)
—

activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16,273,023

(13,617,537)

(23,003,255)

Cash Flows from Financing Activities:

Proceeds from issuance of common stock associated with

offerings, net of issuance costs (see Note 9) . . . . . . . . . . . .

Proceeds from issuance of common stock under the

Company’s share-based compensation plans and warrant
exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . .
(Payments)/proceeds from Curis Royalty’s debt

Net cash (used by)/provided by financing

— 16,245,984

879,080

282,799
—
(1,587,154)

4,016,383
(261,475)

5,105,699
(160,240)
— 30,000,000

activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . .
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . .

(1,304,355)
(1,844,076)
9,591,487
$ 7,747,411

20,000,892
(3,156,222)
12,747,709
$ 9,591,487

35,824,539
(2,372,021)
15,119,730
$ 12,747,709

Supplemental cash flow data:
Cash paid for interest

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 4,386,109

$ 2,913,999

Non-cash items:

Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Receivable for issuances of common stock . . . . . . . . . . . . . .

Unpaid debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

$

$

$

—

—

— $

632,755

— $

— $

— $

14,366

— $

261,475

The accompanying notes are an integral part of these consolidated financial statements.

102

CURIS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(1) OPERATIONS

Curis, Inc.
is a biotechnology company seeking to develop and commercialize innovative 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 to develop
drug candidates including CUDC-907, a dual histone deacetylase, or HDAC and phosphoinositide-3
kinase, or PI3K, inhibitor, CUDC-427, a small molecule antagonist of the inhibitor of apoptosis, or
IAP, proteins, and CUDC-305, a Heat Shock Protein 90, or HSP90, 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.

In January 2015, the Company entered into an exclusive collaboration agreement focused on immuno-
oncology and selected precision oncology targets with Aurigene Discovery Technologies Limited, or
Aurigene, a specialized, discovery stage biotechnology company developing novel therapies to treat
cancer and inflammatory diseases. The collaboration provides for inclusion of multiple programs, with
Curis having the option to exclusively license compounds once a development candidate is nominated
within each respective program. The first two programs under the collaboration are orally-available
small molecule antagonists of programmed death ligand-1 (PD-L1) in the immuno-oncology field and
orally-available small molecule inhibitors of Interleukin-1 receptor-associated kinase 4 (IRAK4) in the
precision oncology field.

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 Food and Drug Administration, or 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 in the approved indication of
advanced BCC and to progress it’s clinical development in indications other than BCC; the Company’s
reliance on Aurigene to successfully discover and preclinically develop drug candidates under the
parties’ collaboration agreement, the Company’s ability to advance and expand its research and
development programs; 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 that it
receives and makes under 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;

103

positive results in Genentech’s ongoing clinical trials; Aurigene’s ability to successfully discover and
develop preclinically programs under the Company’s collaboration with Aurigene, as well as the
Company’s decision to exclusively license and further develop programs under this collaboration; the
trials for its drug
timing, outcome and cost of the Company’s preclinical studies and clinical
candidates; and the Company’s ability to successfully enter into one or more material outlicensing or
collaboration agreements for its proprietary drug candidates.

The Company anticipates that existing cash, cash equivalents and investments at December 31, 2014
should enable it to maintain current and planned operations into 2016. 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 and the Leukemia & Lymphoma Society, or LLS,
including its receipt of additional contingent cash payments under these collaborations; its ability to
control expenses and its ability to raise additional funds through equity or 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, 2014, 2013 and 2012.

(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

104

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.

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
Company assesses whether its involvement constitutes a performance obligation or a right
to
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.

105

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.
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. Royalty revenue is recognized upon the sale of the related products
based on contractual terms, provided that the royalty amounts are fixed or determinable, collection of

106

the related receivable is reasonably assured and we have no remaining performance obligations under
the arrangement. If royalties are received when the Company was remaining performance obligations,
it expects to attribute the royalty payments to the services being provided under the arrangement and
therefore to 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. 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
to BioPharma-II, and only amounts in excess of certain quarterly
service Curis Royalty’s debt
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
recognized during the year ending December 31, 2015 would be classified as long-term deferred
revenue. As of December 31, 2014 and 2013, the Company had no amounts classified as short-term or
long-term deferred revenue.

Summary

During the years ended December 31, 2014, 2013 and 2012, total gross revenues from the Company’s
collaborators as a percent of total gross revenues of the Company were as follows:

Genentech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LLS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100% 95% 94%
6%
4%
—%

Year Ended December 31,

2014

2013

2012

(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 recognizes 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

107

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 fair 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.

The amortized cost, unrealized gains and losses and fair value of investments available-for-sale as of
December 31, 2014 are as follows:

Corporate bonds and notes—short-term . . . . . .
Corporate bonds and notes—long-term . . . . . . .

$42,011,286
791,261

Total investments . . . . . . . . . . . . . . . . . . . . . . . .

$42,802,547

$4,883
—

$4,883

$(13,387) $42,002,782
788,768

(2,493)

$(15,880) $42,791,550

Amortized
Cost

Unrealized
Gain

Unrealized
Loss

Fair Value

Short-term investments have maturities ranging from one and twelve months with a weighted average
maturity of 4.1 months. Long-term investments have maturities ranging from January 2016 to May
2016 with a weighted average maturity of 13.8 months.

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.

(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.

108

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,
2014 and 2013 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, 2014
and 2013.

Quoted Prices in
Active Markets
(Level 1)

Other
Observable
Inputs
(Level 2)

Unobservable
Inputs
(Level 3)

Fair Value

$—
—

—

$—

$ 4,419,894
1,090,000

42,791,550

$48,301,444

As of December 31, 2014:
Cash equivalents

Money market funds . . . . . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . . . . . . . . .

Short- and long-term investments

Corporate commercial paper, stock, bonds and

$ 4,419,894

$

—
— 1,090,000

notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

40,091,800

2,699,750

Total assets at fair value . . . . . . . . . . . . . . . . . . . . . . .

$44,511,694

$3,789,750

109

Quoted Prices in
Active Markets
(Level 1)

Other
Observable
Inputs
(Level 2)

Unobservable
Inputs
(Level 3)

Fair Value

As of December 31, 2013:
Cash equivalents

Money market funds . . . . . . . . . . . . . . . . . . . . .
Corporate commercial paper, bonds and notes . . .
Municipal bonds . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,535,716
—
—

$

— $

1,749,983
1,110,000

— $ 5,535,716
1,749,983
—
1,110,000
—

Short- and long-term investments

US government obligations . . . . . . . . . . . . . . . .
Corporate commercial paper, stock, bonds and

—

1,151,932

—

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.

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, 2014 and 2013:

Balance at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,488,179
(771,393)

$ 716,786
(716,786)

Balance at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

—

The remaining 1,373,517 warrants outstanding as of December 31, 2014 expired unexercised in
January 2015.

(g) LONG-LIVED ASSETS OTHER THAN GOODWILL

Long-lived assets other than goodwill consist of property and equipment. The aggregate net balances
for these long-lived assets were $407,738 and $445,655 as of December 31, 2014 and 2013,
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, 2014, 2013 or 2012.

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

110

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,
2014 and 2013, the Company had recorded short-term debt issuance costs of $43,616 and $51,441,
respectively, and long-term debt issuance costs of $64,564 and $101,055, 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, 2014 and 2013.

(h) GOODWILL

As of December 31, 2014 and 2013, 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 2014, 2013 and 2012, 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, 2014, 2013 and 2012.

(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 accounted 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
to $632,755. As of
during the year ended December 31, 2013 with an aggregate value equal
December 31, 2014, the Company had repurchased an aggregate of 1,222,846 shares of its common
stock at a total cost of $1,524,029.

(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

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reporting period. Antidilutive securities as of December 31, 2014, 2013 and 2012 consisted of the
following:

Stock options outstanding . . . . . . . . . . . . . . . . . .
Warrants outstanding . . . . . . . . . . . . . . . . . . . . . .

11,319,619
1,373,517

10,077,805
1,373,517

10,437,761
1,373,517

Total antidilutive securities . . . . . . . . . . . . . . . . .

12,693,136

11,451,322

11,811,278

For the Years Ended December 31,

2014

2013

2012

(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, short- 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
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, 2014, 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

Comprehensive loss is comprised of net
loss and other comprehensive income (loss). Other
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.

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(o) NEW ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued guidance codified in ASC 606, Revenue Recognition—Revenue from
Contracts with Customers , which amends the guidance in former ASC 605, Revenue Recognition, and
is effective for public companies for fiscal years beginning after December 15, 2016. The Company is
currently evaluating the impact of the provisions of ASC 606.
In August 2014, the FASB issued an accounting standards update, Disclosures of Uncertainties about
an Entity’s Ability to Continue as a Going Concern, which is included in ASC 205, Presentation of
Financial Statements. This update provides an explicit requirement for management to assess an
entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain
circumstances. The guidance will be effective for fiscal years beginning after December 15, 2016, and
applied prospectively; early adoption is also permitted. The Company does not expect adoption of this
guidance to have a material impact on its financial condition or results of operations.

(p) SEGMENT REPORTING

The Company is engaged solely in the discovery and development of innovative drug candidates for
the treatment of human cancers. Accordingly, the Company has determined that it operates in one
operating segment.

(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 2 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. The Company has received $59,000,000 in contingent cash payments through
December 31, 2014.
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 7.5% based on worldwide annual net sales
ranging from less than $150 million to $600 million. The royalty rate applicable to Erivedge may be
decreased by 2% (such that the applicable royalty rate will range between 3% to 5.5%) 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. Future royalty payments related to
Erivedge will service the outstanding debt and accrued interest to BioPharma-II, up to the quarterly
caps for 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

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the FASB Codification Topic 605-25, Revenue Recognition, Multiple Element
provisions of
Arrangement to determine whether the performance obligations under this collaboration should 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 contingent payments from Genentech totaling $3,000,000, $10,000,000 and
$14,000,000 during the years ended December 31, 2014, 2013 and 2012, 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, 2014, 2013 and
2012.

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. Through
December 31, 2014, the Company has incurred aggregate research and development expenses over the
term of this collaboration of $4,364,000 related to payments made to these university licensors in
connection with the Company’s 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 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, 2014 and 2013, the Company recorded research and
development expenses of $150,000 and $500,000, respectively, representing 5% of the total cash
payments received during each year.

In addition, the Company recognized $6,757,023, $3,942,136 and $1,529,644 in royalty revenue from
Genentech’s net sales of Erivedge during the year ended December 31, 2014, 2013 and 2012,
respectively. The Company also recorded $339,578, $197,796 and $176,482, respectively, as cost of
royalty revenues within the costs and expenses section of its Consolidated Statements of Operations
and Comprehensive Loss during these same periods. Cost of royalty revenues 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 to one university licensor upon the first commercial sale of Erivedge during the year ended
December 31, 2012.

During the years ended December 31, 2014, 2013 and 2012, the Company also recognized “Research
and development” revenue of $265,047, $291,448 and $363,000, respectively, related to expenses
incurred on behalf of Genentech that were paid by the Company and for which Genentech is obligated

114

to reimburse the Company. During the year ended December 31, 2014, Genentech incurred expenses of
$225,707 under this collaboration which the Company is obligated to reimburse to Genentech, and
which the Company has recorded as contra-revenues which have been net against research and
development revenues in its Consolidated Statements of Operations and Comprehensive Loss. 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 as amounts receivable from Genentech under this collaboration, comprised
primarily of Erivedge royalties earned in the fourth quarters of 2014 and 2013, of $1,958,000 and
$1,455,000, as of December 31, 2014 and 2013, respectively,
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 1 clinical
trial of CUDC-427, and unless the results of the additional Phase 1 trial do not provide sufficient
scientific or clinical justification for continued clinical development, to conduct a Phase 2 clinical trial
to inform a decision to start a Phase 3 clinical trial. The Company is solely responsible for all future
costs related to the development, registration and commercialization of products under the agreement.

Under the terms of the IAP agreement, the Company made a payment of $9,500,000 to Genentech as
an up-front license fee and for technology transfer costs. Given that the compound licensed from
Genentech is in clinical development and will require 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 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

115

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
through
December 31, 2014, 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 1 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, 2014, 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, 2014, 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, 2014 as this program remains in the very early
stages of clinical development.

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.

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(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 1b/2a study and has received the appropriate regulatory
approvals to proceed with additional clinical testing. The Company initiated a Phase 1 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 1b/2a 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, 2014.

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.

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 recognized related revenue totaling $650,000
and $1,000,000 in the years ended December 31, 2013 and 2012, respectively. The Company did not
receive any milestones under this agreement during the year ended December 31, 2014.

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(4) STOCK PLANS AND STOCK BASED COMPENSATION

As of December 31, 2014, 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, 2014, 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, 2014, 1,749,752 shares remained available for grant under the Amended and Restated
2010 Plan.

During the year ended December 31, 2014, the Company’s board of directors granted options to
purchase 2,040,500 shares of the Company’s common stock to officers and employees of the Company
under the 2010 Plan. Of this amount, options to purchase 1,000,500 shares of common stock 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 grant dates. The remaining options to purchase
1,040,000 shares of common stock were issued to the Company’s officers and will vest in tranches
only if the closing sale price of the Company’s common stock is maintained at specified levels for a
period of 60 consecutive trading days prior to the third anniversary of the respective grant dates. If the
specified market conditions are not achieved prior to the third anniversary of the respective grant dates,
any unvested options will be forfeited and such shares will then be available for grant under the 2010
Plan.

During the year ended December 31, 2014, the Company’s board of directors also granted options to its
non-employee directors to purchase 235,000 shares of common stock under the 2010 Plan, which will
vest monthly over a one-year period. All options granted to non-employee directors during the year
ended December 31, 2014 bear exercise prices that are equal to the closing market price of the
Company’s common stock on the NASDAQ Global Market on the grant date.

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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 contained the following weighted average assumptions
for employee option grants issued in each of the following years:

For the Year Ended
December 31,

2014

2013

2012

Expected term (years)—Employees . . . . . . . . . . . . . . . . . . . . .
Expected term (years)—Officers and Directors . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.0
6.0

6.0
6.0
7.0
7.0
1.9% 1.0-2.1% 1.0-1.2%
70-71% 70-72% 74-76%
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.

there was approximately $4,720,000,

At December 31, 2014, the aggregate intrinsic value of employee options outstanding was $659,000, of
which all related to exercisable options, and the weighted average remaining contractual life of vested
stock options was 5.89 years. The weighted average grant-date fair values of stock options granted with
standard vesting terms during the years ended December 31, 2014, 2013 and 2012 were $1.79, $2.27
and $2.99 per share of common stock underlying such stock options, respectively. As of December 31,
2014,
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 2.4 years. The intrinsic value of employee
stock options exercised during the years ended December 31, 2014, 2013 and 2012 were $105,000,
$2,091,000 and $6,145,000, respectively. The total fair value of vested stock options for the years
ended December 31, 2014, 2013 and 2012 were $2,907,000, $2,716,000 and $2,525,000, respectively.

Vesting Tied to Market Conditions

Monte Carlo simulation models were used to value stock options to purchase an aggregate of 1,040,000
shares of common stock granted to the Company’s officers during the year ended December 31, 2014.
Of this amount, options to purchase 640,000 shares of common stock were granted in February 2014
with an exercise price of $3.09 and options to purchase 400,000 shares of common stock were granted
in June 2014 with an exercise price of $1.75 per share that contained specific market conditions. The

119

key assumptions used in these Monte Carlo simulation models and resulting valuations are noted in the
following table:

Market
Condition
Options
Granted
February 18,
2014

Expected life (years)—officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6
1.9%
70%
None
640,000
$1.20

Market
Condition
Options
Granted
June 2,
2014

6
2.1%
65%
None
400,000
$0.34

Based on the above, the Monte Carlo simulation models calculated an aggregate fair value of $905,000,
excluding forfeitures, related to these grants that are being recognized on a straight-line basis over the
estimated vesting periods of the separate tranches. These awards accounted for $392,945 of the
employee stock-based compensation expense recorded by the Company for
the year ended
December 31, 2014.

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
the Company’s stock price fluctuates, the related expense either increases or decreases. The Company
reversed previously recognized expense of $80,866 for the year ended December 31, 2014 and
recognized expense of $351,089 and $355,222 related to non-employee stock options and stock awards
for the years ended December 31, 2013 and 2012, 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, 2013 (6,884,869 exercisable at weighted average price of

$2.44 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,077,805
2,275,500
(114,812)
(918,874)

$2.79
2.65
1.86
4.11

Outstanding, December 31, 2014 (7,534,372 exercisable at weighted average price of

$2.45 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11,319,619

$2.66

Vested and unvested expected to vest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,980,633

$2.66

120

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, 2014, 325,314 shares
were issued under the ESPP, of which 56,983 were issued during 2014. As of December 31, 2014,
there were 174,686 shares available for future purchase under the ESPP.

For the years ended December 31, 2014, 2013 and 2012, 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,

2014

2013

2012

Compensation expense recognized under ESPP . .
Expected term . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

$ 40,008
25,604
6 months
6 months
0.06-0.09% 0.08-0.1% 0.05-0.15%
42-75%
None

72,833
6 months

42-66%
None

55-66%
None

Stock-based compensation for employee and director stock option grants for the years ended December 31,
2014, 2013 and 2012 of $3,140,855, $2,651,152 and $3,268,689, respectively, was calculated using the
above valuation models and has been included in the Company’s results of operations.

Total Stock-Based Compensation Expense

For the years ended December 31, 2014, 2013 and 2012, 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,

2014

2013

2012

Research and development expenses . . . . . . . . .
General and administrative expenses . . . . . . . . .

$ 671,063
2,388,926

$ 879,052
2,123,189

$1,075,134
2,548,777

Total stock-based compensation expense . . . . . .

$3,059,989

$3,002,241

$3,623,911

No income tax benefits have been recorded for the years ended December 31, 2014, 2013 or 2012,
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,

2014

2013

Laboratory equipment, computers and software . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Office furniture and equipment

$ 1,963,017
62,621
311,664

$ 1,941,588
62,621
354,875

Less—Accumulated depreciation and amortization . . . . . . . . .

2,337,302
(1,929,564)

2,359,084
(1,913,429)

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

407,738

$

445,655

121

The Company recorded depreciation and amortization expense of $155,083, $141,522 and $126,537 for
the years ended December 31, 2014, 2013 and 2012, respectively.

During the years ended December 31, 2014, 2013 and 2012, 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 $139,000, $329,000 and $418,000 for the years ended December 31,
2014, 2013 and 2012, respectively.

(6) ACCRUED LIABILITIES

Accrued liabilities consist of the following:

Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest on debt (see Note 7) . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,386,226
122,850
286,075
212,548

$1,267,954
166,200
298,935
178,390

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,007,699

$1,911,479

December 31,

2014

2013

(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.
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 $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
to royalty
upon achievement of clinical development objectives. Curis Royalty retains its right
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 or 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.

122

Payments to BioPharma-II through December 31, 2014 totaled $8,901,330, of which $1,587,154 has
been applied to the principal portion of the debt with the remainder applied to accrued interest,
including interest capitalized and added to the principal portion of the loan during the year ended
December 31, 2013. As of December 31, 2014, the Company recorded short- and long-term debt of
$5,709,985 and $22,589,058, respectively (net of unamortized issuance costs of $38,074 and $75,729,
respectively), and 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), related to the loan, with such amounts recorded within the Company’s Consolidated
Balance Sheets. In addition, the Company recorded accrued interest payable on the debt of $286,075
and $298,935 as of December 31, 2014 and 2013, 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
short- and long-term classification is based on the Company’s best estimate of the timing of amounts to
be repaid and 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 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 the sale of competing products that result in a lowering
of the royalty rates we are entitled to receive, decreased market acceptance or a failure by Genentech
and/or Roche to successfully commercialize Erivedge in territories where it has received regulatory
approval. For example, Curis Royalty is currently entitled to a royalty on net sales of Erivedge that
ranges from 5% to 7.5% based on worldwide annual net sales ranging from less than $150 million to
$600 million. The royalty rate applicable to Erivedge may be decreased by 2% (such that the applicable
royalty rate will range between 3% to 5.5%) 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. The Company is aware of one competing Hedgehog pathway inhibitor that is currently under
regulatory review in the United States and European Union. If this molecule is approved and
commercialized, the royalty rate for sales in the applicable territory would decline and would likely
increase our estimated repayment period.

At December 31, 2014, the fair value of the principal portion of the debt is estimated as $28,710,000.
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.

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

123

netted against the debt and accrued interest in the Company’s Condensed Consolidated Balance Sheets
as of December 31, 2014 and 2013 as detailed in the following table:

Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

Total debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . .

As of
December 31,

2014

43,616
64,564

108,180

$

2013

51,441
101,055

152,496

Debt, current
Debt issue costs, current

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,748,059
(38,074)

2,663,677
(53,503)

Debt, current portion net of issuance costs . . . . . . . . . . .

$ 5,709,985

$ 2,610,174

Debt, long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issue costs, long-term . . . . . . . . . . . . . . . . . . . . . . . . . . .

22,664,787
(75,729)

28,050,291
(105,105)

Debt, net of current portion and issuance costs . . . . . . . .

$22,589,058

$27,945,186

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 years ended December 31, 2014,
2013 and 2012, the Company recognized interest expense related to the loan with BioPharma-II of
$3,748,374, $3,841,646 and $204,167 within the Company’s Consolidated Statement of Operations,
comprised of interest accrued on the outstanding principal of the loan and amortization of debt issuance
costs. 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, and these assumptions currently do not include a reduction in the Company’s forecasted
royalties related to a competing product for the expected repayment term. As noted above, the
Company is aware of one competing Hedgehog pathway inhibitor that is currently under regulatory
review in the United States and European Union. If this molecule is approved and commercialized, the
royalty rate for sales in the applicable territory would decline and would likely increase our estimated
repayment period.

At December 31, 2014, the Company estimates that its future payments of principal on the loan are as
follows:

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter

Principal

$ 5,748,059
10,011,236
12,653,551
—

Total payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28,412,846

Less current portion, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5,748,059)

Total long-term debt obligations, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$22,664,787

124

(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 in
February 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 throughout the lease term since its
inception to $180,364 and $166,487 during 2013 and 2014, respectively, and will continue to be
reduced an additional $13,877 in 2015, 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, 2014 and 2013.

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,

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 651,000
676,000
700,000
59,000

Total minimum payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,086,000

Rent expense for all operating leases was $614,000 for each of the years ended December 31, 2014,
2013 and 2012, respectively. The other long-term liability in the Company’s Consolidated Balance
Sheet as of December 31, 2014 and 2013 represents the accrual for straight-line rent expense.

(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-
license fees, contingent payments upon collaborators’ achievement of development and
front
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
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, 2014, 2013 and 2012, of

125

$417,000, $500,000, and $2,114,000, respectively. For the years ended December 31, 2014, 2013 and
2012, the Company also recognized $339,578, $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
expenses
through
December 31, 2013 were $641,052, which offset the gross proceeds. No common stock was sold under
this sales agreement during the year ended December 31, 2014.

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 year ended December 31, 2012, the Company sold 210,879 shares of common stock under
the ATM agreement resulting in gross proceeds of $906,436. Total offering expenses, including
MLV’s commission, incurred related to the ATM agreement for the year ended December 31, 2012,
were $27,356, which offset the gross proceeds.

126

(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, 2014, 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, all of which expired on January 27, 2015 pursuant to
the terms of the warrants.

The warrants had an initial exercise price of $3.55 per share and a five-year term. The warrants
contained anti-dilution adjustment provisions that could have resulted 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 values of the warrants
were recorded as a liability in the Consolidated Balance Sheets as of December 31, 2014 and 2013. 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,

2014

2013

2012

Fair value of the warrants . . . . . . . . . . . . . . . . . . . .
Expected term . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

— $716,786
1.1 years

0.1 years

$1,488,179
2.1 years

0%
82%

None

0.16%
65%

None

0.27%
58%

None

The Company recorded other income of $716,786, $771,393 and $2,257,130 for the years ended
December 31, 2014, 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.

(10) INCOME TAXES

For the years ended December 31, 2014, 2013 and 2012, the Company did not record any federal or
state income tax expense given its continued operating losses.

127

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 in valuation allowance . . . . . . . . . . . . . . . . . . . . . .

For the Year Ended
December 31,

2014

2013

2012

34.0% 34.0% 34.0%
5.8%
5.2%
4.9%
0.8%
8.5%
3.2%
0.8%
(1.6%)
2.1%
(2.5%) —%
(1.6%)
—%
2.1%
1.3%
(36.0%)
(5.2%)
(2.8%)
(1.7%)
0.1%
0.1%
(5.0%)
(43.0%)
(37.5%)

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, 2014 and 2013,
respectively, are as follows:

December 31,

2014

2013

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 . . . . . . . . . . . . . . . . . . . . .

$ 78,289,000

$ 72,446,000

12,212,000
3,591,000

11,588,000
3,891,000

24,059,000
120,000
3,534,000
114,000
—

23,711,000
120,000
2,723,000
118,000
307,000

Total Gross Deferred Tax Asset . . . . . . . . . . . . . . . . . . . .
Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . .

121,919,000
(121,919,000)

114,904,000
(114,904,000)

Net Deferred Tax Asset

. . . . . . . . . . . . . . . . . . . . . . . . . .

$

— $

—

The classification of the above deferred tax assets is as follows:

December 31,

2014

2013

Deferred Tax Assets:

Current deferred tax assets . . . . . . . . . . . . . . . . . . . .
Non-current deferred tax assets . . . . . . . . . . . . . . . .
Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . .

$

39,000
121,880,000
(121,919,000)

$

35,000
114,869,000
(114,904,000)

Net Deferred Tax Asset

. . . . . . . . . . . . . . . . . . . . . . . . . .

$

— $

—

128

As of December 31, 2014, the Company had federal and state net operating losses, or NOLs, of
$222,620,000 and $49,202,000, respectively, and federal and state research and experimentation credit
carryforwards of approximately $9,807,000 and $3,644,000, respectively, which will expire at various
dates starting in 2019 through 2034. The Company had $9,857,000 of Massachusetts net operating
losses generated in 2009 that expired in 2014. 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 $121,919,000
has been established at December 31, 2014. 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
the Company had no
in a company’s financial statements. At December 31, 2014 and 2013,
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 1999 through 2014 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.

(11) RELATED PARTY TRANSACTIONS

(a) Agreement with Former Officer

On June 2, 2014, Daniel R. Passeri resigned as Chief Executive Officer of the Company. Mr. Passeri
will continue to serve as a Class II director of the Company. On June 2, 2014, the Board of Directors of
the Company elected Mr. Passeri Vice Chairman of the Board. As a non-employee director, Mr. Passeri
will be compensated $100,000 per year plus meeting fees for his participation on the Board of
Directors.

The Company and Mr. Passeri entered into a consulting agreement on June 2, 2014. The agreement is
for an initial term of one year, subject to renewal or earlier termination by the parties. Pursuant to the

129

terms of the consulting agreement, Mr. Passeri has agreed to provide 120 hours per month of
consulting services to the Company on intellectual property, corporate and strategic matters. In
consideration for the services rendered by Mr. Passeri to the Company, the Company has agreed to pay
Mr. Passeri $32,500 per month until June 1, 2015, provided that if at any time during the consultation
period Mr. Passeri obtains full time employment with a third party, then Mr. Passeri and the Company
will negotiate a good faith reduction in the number of hours that Mr. Passeri will consult, and thereafter
Mr. Passeri will be paid an hourly fee, in lieu of the monthly retainer, for services rendered under the
consulting agreement. On December 1, 2014, Mr. Passeri obtained full time employment with a third
party.

From June 2, 2014 until June 1, 2015, the consulting agreement may be terminated at any time by
mutual agreement between the parties. The Company may terminate the consulting agreement
immediately if Mr. Passeri breaches, or threatens to breach the terms of the non-disclosure and non-
competition agreement previously entered into with the Company. Pursuant to the terms of the
consulting agreement,
the Company recognized expenses of $197,833 during the year ended
December 31, 2014, under the consulting agreement.

(b) 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 $50,000, $72,258 and $190,000 during the years ended December 31, 2014,
2013 and 2012, 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.

(c) 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

130

incur all

future development

responsibility and will

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.

The Company provided 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 years ended December 31, 2014 and 2012, the Company had incurred expenses of $266,667
and $133,333, respectively, under the GMBT license agreement reported within the research and
development line item of the Company’s Consolidated Statements of Operations and Comprehensive
Loss. 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, 2014, 2013 and 2012, the Board of Directors authorized matching
contributions of $172,000, $145,000 and $153,000, respectively.

(13) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following are selected quarterly financial data for the years ended December 31, 2014 and 2013:

Quarter Ended

March 31,
2014

June 30,
2014

September 30,
2014

December 31,
2014

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss per common share (basic and diluted)
. . . . .
Weighted average common shares (basic and

$ 1,284,633
(4,753,343)
(5,563,936)

$ 4,801,285
(1,544,787)
(1,895,785)

$ 1,764,864
(4,753,031)
(5,580,143)

$

(0.06) $

(0.02) $

(0.06) $

$ 1,992,699
(4,811,088)
(5,688,870)
(0.07)

diluted)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

85,917,592

85,963,836

86,004,857

86,010,499

131

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from operations . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss per common share (basic and diluted)
. . . . .
Weighted average common shares (basic and

$

$

Quarter Ended

March 31,
2013

June 30,
2013

September 30,
2013

December 31,
2013

871,435
(4,357,364)
(4,962,294)

$ 5,404,377
(706,196)
(1,293,848)

$ 7,202,083
130,368
(1,867,838)

(0.06) $

(0.02) $

(0.02) $

$ 1,524,137
(4,483,217)
(4,198,032)
(0.05)

diluted)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

80,096,650

81,128,475

82,456,708

85,741,278

(14) SUBSEQUENT EVENTS

Collaboration, License and Option Agreement with Aurigene Discovery Technologies, Ltd.

In January 2015, the Company entered into an exclusive collaboration agreement focused on immuno-
oncology and selected precision oncology targets with Aurigene Discovery Technologies, Ltd., or
Aurigene. The collaboration provides for inclusion of multiple programs, with the Company having the
option to exclusively license compounds once a development candidate is nominated within each
respective program. The partnership draws from each company’s respective areas of expertise, with
Aurigene having the responsibility for conducting all discovery and preclinical activities, including
IND-enabling studies and providing Phase 1 clinical
trial supply, and the Company having
responsibility for all clinical development, regulatory and commercialization efforts worldwide,
excluding India and Russia, for each program for which it exercises an option to obtain a license.

The first two programs under the collaboration are an orally-available small molecule antagonist of
programmed death ligand-1 (PD-L1) in the immuno-oncology field and an orally-available small
molecule inhibitor of Interleukin-1 receptor-associated kinase 4 (IRAK4) in the precision oncology
field. The agreement provides that the parties will collaborate exclusively in immuno-oncology for an
initial period of approximately two years, with the option for the Company to extend the broad
immuno-oncology exclusivity.

In connection with the transaction, the Company issued to Aurigene approximately 17,120,131 shares
of its common stock, or 19.9% of its outstanding common stock immediately prior to the transaction, in
partial consideration for the rights granted to Curis under the collaboration agreement. The shares
issued to Aurigene are subject to a lock-up agreement until January 18, 2017, with a portion of the
shares being released from the lock-up in four equal bi-annual installments between now and that date.

In addition, the Company has agreed to make payments to Aurigene as follows:

• for the first two programs: up to $52.5 million per program, including $42.5 million per program for
approval and commercial milestones, plus specified approval milestone payments for additional
indications, if any;

• for the third and fourth programs: up to $50 million per program, including $42.5 million per
program for approval and commercial milestones, plus specified approval milestone payments for
additional indications, if any; and

• for any program thereafter: up to $140.5 million per program, including $87.5 million per program
in approval and commercial milestones, plus specified approval milestone payments for additional
indications, if any.

The Company has agreed to pay Aurigene royalties on any net sales ranging from high single digits to
10% in territories where it successfully commercializes products and will also share in amounts that it
receives from sublicensees depending upon the stage of development of the respective molecule.

132

Termination and Transition Agreement with Debiopharm

On February 6, 2015,
the Company entered into a termination and transition agreement with
Debiopharm International S.A., or Debiopharm to terminate the August 5, 2009 license agreement
between the Company and Debiopharm, under which the Company granted Debiopharm an exclusive,
worldwide license to Debio 0932, a small molecule inhibitor of heat shock protein 90, or HSP90, as
amended. The transition agreement is effective as of February 5, 2015.

Under the terms of the termination and transition agreement, the licenses and all other rights granted by
the Company related to Debio 0932 have been terminated and reverted to the Company effective as of
the termination date. Debiopharm ceased enrollment in all clinical trials as of the termination date. In
addition, the Company exercised its right, pursuant to the license agreement, to obtain a non-exclusive,
worldwide, royalty-bearing license, with the right to sublicense, under intellectual property rights of
Debiopharm to develop, make, have made, use, sell, offer for sale, have sold and import Debio 0932
and any product containing Debio 0932, and Debiopharm will transfer to the Company the U.S.
investigational new drug application related to Debio 0932. Debiopharm also assigned its sole patent
application related to Debio 0932 to the Company.

transition ongoing Debio 0932
Under the terms of the transition agreement, Debiopharm will
development and manufacturing activities to the Company and will
transfer the manufacturing
technology necessary for the manufacture of Debio 0932 and all data generated by or on behalf of
Debiopharm relating to Debio 0932 to the Company.

The Company has agreed to make the following payments to Debiopharm under the terms of the
termination and transition agreement:

Up-front drug product payment. The Company has agreed to pay $750,000 within fifteen (15) days of
the termination date, primarily in consideration for Debiopharm providing Debio 0932 drug product for
use in the Company’s future clinical studies.

Milestone payments. The Company has agreed to make each of the following one-time payments to
Debiopharm:

(i)

$3,000,000 within 30 days after the first dosing of the first patient in the first Phase 3 clinical
trial of Debio 0932; and

(ii) $10,000,000 within 30 days after receipt of the first marketing approval for Debio 0932 in the

United States of America or any specified major European market (whichever occurs first);

Royalties on the Company’s net sales. The Company has agreed to pay to Debiopharm royalties at a
rate of 3% of net sales by the Company (excluding sales by the Company’s third party sublicensees) of
products containing Debio 0932.

Amounts that
Debiopharm the following percentages of amounts that
sublicensees;

the Company receives from sublicensees. The Company has agreed to pay to
the Company receives from third party

(i)

10% of any royalties that the Company receives from third party sublicensees based on such
sublicensees’ net sales of products containing Debio 0932; and

(ii) 15% of any non-royalty sublicense payments that the Company receives from third party
sublicensees, provided that the maximum aggregate amount payable by the Company to
Debiopharm with respect to non-royalty sublicense payments is $20,000,000, unless such
sublicense payments are attributable to the Company’s grant to a third party sublicensee of a
license or sublicense to develop or commercialize a topical formulation of Debio 0932 for
local, non-systemic delivery for the treatment of psoriasis, in which case there is no such
maximum aggregate.

133

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, 2014. 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, 2014, 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, 2014. In making this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in its 2013 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, 2014 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

134

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information concerning directors that is required by this Item 10 will be set forth in our proxy statement for
our 2015 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 2015 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 2015 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
2015 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 2015 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 2015 annual meeting of
stockholders under the heading “Independent Registered Public Accounting Firm’s Fees and Other Matters,”
which information is incorporated herein by reference.

135

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements.

PART IV

Curis, Inc. and Subsidiaries
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2014 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31,

Page
number
in this
report

98
99

2014, 2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2014, 2013 and

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012 . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

101
102
103

(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.

136

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/ ALI FATTAEY
Ali Fattaey
President and Chief Executive Officer

Date: February 24, 2015

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

/s/ ALI FATTAEY
Ali Fattaey

/s/ MICHAEL P. GRAY
Michael P. Gray

President, Chief Executive Officer
and Director (Principal Executive
Officer)

Chief Financial and Business
Officer (Principal Financial and
Accounting Officer)

February 24, 2015

February 24, 2015

/s/ JAMES R. MCNAB, JR.
James R. McNab, Jr.

Chairman of the Board of
Directors

February 24, 2015

/s/ DANIEL R. PASSERI
Daniel R. Passeri

Vice-Chairman of the Board of
Directors

February 24, 2015

/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

137

February 24, 2015

February 24, 2015

February 24, 2015

February 24, 2015

February 24, 2015

February 24, 2015

EXHIBIT INDEX

Exhibit
No.

Description

Form

Incorporated by Reference

SEC Filing
Date

Exhibit
Number

Filed with
this 10-K

3.1

3.2

3.3

3.4

3.5

4.1

#10.1

#10.2

#10.3

#10.4

#10.5

#10.6

#10.7

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 defining the
security holders, including indentures

rights of

S-1 (333-50906)

11/29/00

8-K

09/24/07

3.3

3.1

3.2

3.2

3.1

Form of
Certificate

Curis

Common

Stock

10-K

03/01/04

4.1

Material contracts—Management
Contracts and Compensatory Plans

Consulting Agreement, dated June 2,
2014, by and between Curis, Inc. and
Daniel R. Passeri

Offer Letter, dated as December 10,
2003, by and between Curis, Inc. 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, Inc. 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, Inc. and Michael P. Gray

Amendment to Offer Letter, dated as of
December 10, 2010, to the offer letter
dated December 10, 2003, by and
between Curis, Inc. and Michael P. Gray

Employment Agreement, dated June 2,
2014, by and between Curis, Inc. and Ali
Fattaey, Ph.D.

dated
Employment
August 28, 2013, by and between Curis
and Jaye Viner, M.D.

Agreement,

10-Q

08/07/14

10.2

10-K

03/01/04

10.4

8-K

11/02/06

10.3

10-Q

10/28/08

10.2

10-K

03/08/11

10.7

10-Q

08/07/14

10.1

10-Q

11/12/13

10.2

Exhibit
No.

#10.8

#10.9

#10.10

Description

Agreement for Service as Chairman of
the Board of Directors, by and between
Curis, Inc. and James McNab, dated as
of June 1, 2005

Form of Indemnification Agreement, by
and between Curis, Inc. and each non-
employee director of
the Board of
Directors of Curis, Inc.

and Consulting
Scientific Advisory
Agreement dated as of September 13,
2006, as amended, by and between
Curis, Inc. and Kenneth J. Pienta, M.D.

Incorporated by Reference

SEC Filing
Date

Exhibit
Number

Filed with
this 10-K

06/07/05

10.1

Form

8-K

10-Q

08/07/14

10.3

8-K

03/11/13

10.1

#10.11

Curis 2000 Stock Incentive Plan

S-4/A (333-32446)

05/31/00

#10.12

Curis 2000 Director Stock Option Plan

S-4/A (333-32446)

05/31/00

S-4/A (333-32446)

05/31/00

10.71

10.72

10.73

#10.13

#10.14

#10.15

#10.16

Curis 2000 Employee Stock Purchase
Plan

Incentive

Form of
Stock Option
Agreement granted to directors and
named executive officers under Curis’
2000 Stock Incentive Plan

Form of Non-statutory Stock Option
Agreement granted to directors and
named executive officers under Curis’
2000 Stock Incentive Plan

Form of Non-statutory Stock Option
Agreement granted to non-employee
directors under Curis’ 2000 Director
Stock Option Plan

#10.17

Curis 2010 Stock Incentive Plan

#10.18

#10.19

#10.20

#10.21

Curis 2010 Employee Stock Purchase
Plan

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
2010 Stock
Incentive Plan

under Curis’

10-Q

10/26/04

10.2

10-Q

10/26/04

10.3

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

Exhibit
No.

#10.22

10.23

†10.24

10.25

†10.26

10.27

†10.28

††10.29

†10.30

Description

Form

Incorporated by Reference

SEC Filing
Date

Exhibit
Number

Filed with
this 10-K

Def 14A

04/16/13

Exhibit A

8-K

09/21/10

10.1

Curis Amended and Restated 2010 Stock
Incentive Plan

Material contracts—Leases

Lease, dated September 16, 2010,by and
between Curis, Inc. and the Trustees of
Lexington Office Realty Trust relating to
the premises
at 4 Maguire Road,
Lexington, Massachusetts

Material contracts—Financing
Agreements

10-K

03/13/13

10.31

10-K

03/13/13

10.32

10-K

03/13/13

10.33

10-K

03/13/13

10.34

Credit Agreement, dated November 27,
2012, by and between Curis, Inc., Curis
Royalty
wholly-owned
subsidiary of Curis, Inc. and BioPharma
Secured Debt Fund II Sub, S.à r.l.

LLC,

a

Consent and Payment Direction Letter
Agreement, dated November 20, 2012
and effective as of December 11, 2012
by and between Curis,
Inc., Curis
Royalty LLC and Genentech, Inc.

Purchase and Sale Agreement, dated as
of December 11, 2012 between Curis
and Curis Royalty

a

LLC,

Escrow Agreement, dated December 11,
2012, by and between Curis, Curis
Royalty
wholly-owned
subsidiary of Curis, BioPharma Secured
Debt Fund II Sub, S.à r.l., a Luxembourg
limited liability company managed by
Pharmakon Advisors and Boston Private
Bank and Trust Company

Material contracts—License and
Collaboration Agreements

Collaborative Research, Development
and License Agreement, dated June 11,
2003, by and between Curis, Inc. and
Genentech, Inc.

Termination and Transition Agreement,
dated February 5, 2015, by and between
Curis, Inc. and Debiopharm International
S.A.

Agreement,

dated
Definitive
November 29, 2011, by and between
Curis,
Inc. and The Leukemia and
Lymphoma Society

10-Q

11/06/12

10.1

X

10-K

03/13/13

10.37

Incorporated by Reference

SEC Filing
Date

Exhibit
Number

Filed with
this 10-K

03/13/13

10.39

Form

10-K

S-3

07/03/13

1.2

Exhibit
No.

†10.31

††10.32

10.33

10.34

10.35

Description

License Agreement, dated November 27,
2012, by and between Curis, Inc. and
Genentech, Inc.

Collaboration, License
and Option
Agreement, dated January 18, 2015, by
and between Curis, Inc. and Aurigene
Discovery Technologies Limited

Material contracts—Miscellaneous

Sales Agreement, dated as of July 3,
2013, between Curis, Inc. and Cowen
and Company, LLC

dated
Purchase Agreement,
Stock
January 18, 2015, by and between Curis,
Inc.
Discovery
Aurigene
and
Technologies Limited

Registration Rights Agreement, dated
January 18, 2015, by and between Curis,
Inc.
Discovery
Aurigene
and
Technologies Limited

Code of Conduct

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
LLP

of

PricewaterhouseCoopers

Certification of
the Chief Executive
Officer pursuant to Rule 13a-14(a) of the
Exchange
the
Act/15d-14(a)
Exchange Act

of

Certification of
the Chief Financial
Officer pursuant to Rule 13a-14(a) of the
Exchange
the
Act/15d-14(a)
Exchange Act

of

Certification of
the Chief Executive
Officer pursuant to Rule 13a-14(b)/15d-
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

X

X

X

X

X

X

X

X

X

Exhibit
No.

Description

Form

Incorporated by Reference

SEC Filing
Date

Exhibit
Number

Filed with
this 10-K

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 Extension Label

Linkbase Document

101.PRE XBRL

Taxonomy

Extension

Presentation Linkbase Document

#

†

Indicates management contract or compensatory plan or arrangement.

Confidential treatment has been granted as to certain portions, which portions have been separately filed
with the Securities and Exchange Commission.

†† 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
Ali Fattaey, Ph.D.
President and Chief Executive 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 230 shareholders of record as of
February 23, 2015. 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 2014

HIGH LOW

1st Quarter . . . . . . . . . . .
2nd Quarter . . . . . . . . . . .
3rd Quarter . . . . . . . . . . .
4th Quarter . . . . . . . . . . .

$3.40
$2.99
$2.06
$1.53

$2.56
$1.60
$1.35
$1.09

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

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 27, 2015, 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 2014 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

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

Ali Fattaey, Ph.D.
President and Chief Executive Officer

Martyn D. Greenacre
Chairman of the Board,
Life Mist, L.L.C.;
Director, Neostem, Inc. and Formula
Pharmaceuticals

Kenneth I. Kaitin, Ph.D.
Director of the Tufts Center for the
Study of Drug Development; 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 Officer of Technology Management
and Business Development,
Jackson Laboratory for Genomic Medicine

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

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