XNAS:CRIS Curis Inc Quarterly Report 10-Q Filing - 3/31/2012

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Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark one)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2012

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   04-3505116

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

4 Maguire Road

Lexington, Massachusetts

  02421
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s Telephone Number, Including Area Code: (617) 503-6500

 

 

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.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, 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).    x  Yes    ¨  No

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. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

As of May 2, 2012, there were 79,013,330 shares of the registrant’s common stock outstanding.

 

 

 


Table of Contents

CURIS, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

INDEX

 

         Page
Number
 

PART I.

 

FINANCIAL INFORMATION

  

Item 1.

 

Unaudited Financial Statements

  
 

Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011

     3   
 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March  31, 2012 and 2011

     4   
 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011

     5   
 

Notes to Condensed Consolidated Financial Statements

     6   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     15   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     26   

Item 4.

 

Controls and Procedures

     26   

PART II.

 

OTHER INFORMATION

  

Item 1A.

 

Risk Factors

     27   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     45   

Item 6.

 

Exhibits

     45   

SIGNATURE

     46   

 

2


Table of Contents

PART I—FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

CURIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

     March 31,
2012
    December 31,
2011
 
ASSETS     

Current Assets:

    

Cash and cash equivalents

   $ 14,687,247      $ 15,119,730   

Marketable securities

     30,352,199        22,597,845   

Accounts receivable

     339,802        42,067   

Prepaid expenses and other current assets

     351,333        743,799   
  

 

 

   

 

 

 

Total current assets

     45,730,581        38,503,441   
  

 

 

   

 

 

 

Property and equipment, net

     435,858        455,730   

Long-term investment – restricted

     194,282        235,914   

Goodwill

     8,982,000        8,982,000   

Other assets

     2,980        2,980   
  

 

 

   

 

 

 

Total assets

   $ 55,345,701      $ 48,180,065   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current Liabilities:

    

Accounts payable

   $ 2,636,240      $ 2,364,437   

Accrued liabilities

     1,132,083        1,422,107   
  

 

 

   

 

 

 

Total current liabilities

     3,768,323        3,786,544   

Warrants

     3,809,581        4,361,168   

Other long-term liabilities

     169,093        156,396   
  

 

 

   

 

 

 

Total liabilities

     7,746,997        8,304,108   
  

 

 

   

 

 

 

Commitments

    

Stockholders’ Equity:

    

Common stock, $0.01 par value – 125,000,000 shares authorized; 79,728,447 shares issued and 78,680,740 shares outstanding at March 31, 2012; and 78,165,360 shares issued and 77,117,653 shares outstanding at December 31, 2011

     797,284        781,654   

Additional paid-in capital

     777,502,097        772,039,254   

Treasury stock (at cost, 1,047,707 shares)

     (891,274     (891,274

Accumulated deficit

     (729,861,905     (732,087,642

Accumulated other comprehensive income

     52,502        33,965   
  

 

 

   

 

 

 

Total stockholders’ equity

     47,598,704        39,875,957   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 55,345,701      $ 48,180,065   
  

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

3


Table of Contents

CURIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

 

     Three Months Ended
March 31,
 
     2012      2011  

Revenues:

     

Research and development

   $ 85,630       $ 133,538   

Royalties

     270,622         —     

License fees

     10,000,000         —     
  

 

 

    

 

 

 

Total Revenues

     10,356,252         133,538   
  

 

 

    

 

 

 

Costs and Expenses:

     

Cost of royalty revenues

     113,531         —     

Research and development

     5,241,949         3,058,499   

General and administrative

     2,801,077         2,407,349   
  

 

 

    

 

 

 

Total costs and expenses

     8,156,557         5,465,848   
  

 

 

    

 

 

 

Income (loss) from operations

     2,199,695         (5,332,310
  

 

 

    

 

 

 

Other Income (Expense):

     

Interest income

     18,101         33,569   

Change in fair value of warrant liability

     7,941         (1,501,410
  

 

 

    

 

 

 

Total other income (expense), net

     26,042         (1,467,841
  

 

 

    

 

 

 

Net income (loss)

   $ 2,225,737       $ (6,800,151
  

 

 

    

 

 

 

Basic net income (loss) per common share

   $ 0.03       $ (0.09
  

 

 

    

 

 

 

Diluted net income (loss) per common share

   $ 0.03       $ (0.09
  

 

 

    

 

 

 

Basic weighted average common shares

     77,556,366         75,825,801   
  

 

 

    

 

 

 

Diluted weighted average common shares

     83,336,695         75,825,801   
  

 

 

    

 

 

 

Total comprehensive income (loss)

   $ 2,244,274       $ (6,794,684
  

 

 

    

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

CURIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

     Three Months Ended
March 31,
 
     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income/(loss)

   $ 2,225,737      $ (6,800,151
  

 

 

   

 

 

 

Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:

    

Depreciation and amortization

     30,380        21,020   

Stock-based compensation expense

     1,022,676        677,713   

Issuance of common stock to licensees

     964,000        —     

Change in fair value of warrant liability

     (7,941     1,501,410   

Non-cash interest (income)/expense

     (58,858     102,602   

Net gain on sale of assets

     —          (31,225

Changes in operating assets and liabilities:

    

Accounts receivable

     (297,735     10,358   

Prepaid expenses and other assets

     440,422        37,690   

Accounts payable and accrued liabilities

     (5,524     (147,790
  

 

 

   

 

 

 

Total adjustments

     2,087,420        2,171,778   
  

 

 

   

 

 

 

Net cash provided by/(used in) operating activities

     4,313,157        (4,628,373
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Purchase of marketable securities

     (21,742,568     (18,864,743

Sale of marketable securities

     14,065,609        25,972,812   

Purchases of property and equipment

     (10,508     (39,588

Proceeds from sale of assets

     —          31,225   

Decrease in restricted cash

     41,632        219,458   
  

 

 

   

 

 

 

Net cash (used in)/provided by investing activities

     (7,645,835     7,319,164   
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Proceeds from issuance of common stock under the Company’s share-based compensation plans and warrant exercises

     2,900,195        601,905   
  

 

 

   

 

 

 

Net cash provided by financing activities

     2,900,195        601,905   
  

 

 

   

 

 

 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

     (432,483     3,292,696   

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     15,119,730        7,826,549   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 14,687,247      $ 11,119,245   
  

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5


Table of Contents

CURIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

1. Nature of Business

Curis, Inc. (the “Company” or “Curis”) is a drug discovery and development company that is committed to leveraging its innovative signaling pathway drug technologies in seeking to develop next generation network-targeted cancer therapies. Curis is building upon its past experiences in targeting signaling pathways, including the Hedgehog signaling pathway, in its efforts to develop network-targeted cancer therapies. Curis conducts research and development programs both internally and through strategic collaborations.

The Company operates in a single reportable segment, which is the research and development of innovative cancer therapeutics. The Company expects that any successful products would be used in the health care industry and would be regulated in the United States by the U.S. Food and Drug Administration, or FDA, and in overseas markets by similar regulatory agencies. In January 2012, the Erivedge™ capsule was approved by the FDA and became commercially available in February 2012 (see Note 4).

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to: development by its competitors of new or better technological innovations; dependence on key personnel; its ability to protect proprietary technology; its ability to successfully advance discovery, preclinical and clinical stage drug candidates in its internally funded programs; unproven technologies and drug development approaches; reliance on corporate collaborators and licensees to successfully research, develop and commercialize products based on its technologies; its ability to comply with FDA regulations and approval requirements; its ability to execute on its business strategies; and its ability to obtain adequate financing to fund its operations.

The Company’s future operating results will largely depend on the magnitude of payments from its current and potential future corporate collaborators and the progress of drug candidates currently in its research and development pipeline. The results of the Company’s operations will vary significantly from year to year and quarter to quarter and depend on, among other factors, the timing of its entry into new collaborations, if any, the timing of the receipt of payments from new or existing collaborators and the cost and outcome of any preclinical development or clinical trials then being conducted. The Company anticipates that existing capital resources at March 31, 2012 should enable the Company to maintain its current and planned operations into the first half of 2014. The Company’s ability to continue funding its planned operations into and beyond the first half of 2014 is dependent upon, among other things, the success of its collaborations with Genentech and Debiopharm and receipt of additional 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 enter into or continue any corporate collaborations and the timing, amount and likelihood of the Company receiving payments under such collaborations is highly uncertain. As a result, the Company cannot assure that it will attain any further revenue under any collaborations or licensing arrangements. 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. Basis of Presentation

The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. These statements, however, are condensed and do not include all disclosures required by accounting principles generally accepted in the United States of America for complete financial statements and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission on February 29, 2012.

In the opinion of the Company, the unaudited financial statements contain all adjustments (all of which were considered normal and recurring) necessary for a fair statement of the Company’s financial position at March 31, 2012 and the results of operations and cash flows for the three-month periods ended March 31, 2012 and 2011. The preparation of the Company’s Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts and disclosure of certain assets and liabilities at the balance sheet date. Such estimates include revenue recognition, the collectibility of receivables, the carrying value of property and equipment and intangible assets, management assumptions used in its calculations of stock-based compensation expense, and the value of certain investments and liabilities, including the value of its warrant liability. Actual results may differ from such estimates.

 

6


Table of Contents

These interim results are not necessarily indicative of results to be expected for a full year or subsequent interim periods.

 

3. Revenue Recognition

The Company’s business strategy includes entering into collaborative license and development agreements with biotechnology and pharmaceutical companies for the development and commercialization of the Company’s product candidates. The terms of these agreements may provide for the Company’s licensees and collaborators to agree to make non-refundable license fee payments, research and development funding payments, contingent cash payments based upon achievement of clinical development and regulatory objectives, and royalties on product sales if any products are successfully commercialized. For a complete discussion of the Company’s revenue recognition policy, see Note 2(c) included in its annual report on Form 10-K, as previously filed with the Securities and Exchange Commission on February 29, 2012.

 

4. Collaboration Agreements

 

  (a) Genentech, Inc. June 2003 Collaboration

In January 2012, the U.S. Food and Drug Administration (“FDA”) approved Genentech’s New Drug Application for the Erivedge capsule for the treatment of adults with basal cell carcinoma 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. Erivedge is being developed and commercialized by Roche and Genentech, a member of the Roche Group, under a collaboration agreement between the Company and Genentech. As a result of the FDA’s approval of Erivedge in this indication, the Company earned a $10,000,000 milestone payment from Genentech and is also entitled to receive royalties on future sales of the product. The Company is eligible to receive up to an aggregate of $115,000,000 in contingent cash payments under the collaboration for the development of Erivedge or another small molecule Hedgehog pathway inhibitor, assuming the successful achievement by Genentech and Roche of specified clinical development and regulatory objectives. Of this aggregate amount, the Company has received $42,000,000 as of March 31, 2012.

During the first quarter of 2012, the Company recognized the $10,000,000 milestone payment as license revenue in its Condensed Consolidated Statement of Comprehensive Income (Loss) for the three months ended March 31, 2012, as the Company does not have any further performance obligations under the collaboration. In addition, the Company recorded research and development expenses related to the FDA’s approval of Erivedge of $1,464,000 during the three months ended March 31, 2012 which represents the Company’s obligations to university licensors. Of this amount, $964,000 represents the fair value of a one-time issuance of an aggregate of 200,000 shares of the Company’s common stock to two university licensors in connection with the FDA-approval of Erivedge. The remaining $500,000 represents sublicense fees the Company paid to these same licensors, upon receipt of the $10,000,000 milestone payment in the first quarter of 2012.

The Company also recognized $270,622 of royalty revenue from Genentech’s net sales of Erivedge during the quarter ended March 31, 2012. The Company recorded costs of royalty revenues within the costs and expenses section of its Condensed Consolidated Statements of Comprehensive Income (Loss) of $113,531, including a $100,000 one-time cash payment paid to a university licensor upon the first commercial sale of Erivedge and $13,531 paid to two university licensors, which represents 5% of the royalties earned by the Company with respect to Erivedge during the first quarter of 2012.

 

  (b) The Leukemia & Lymphoma Society Agreement

In November 2011, the Company entered into an agreement with The Leukemia & Lymphoma Society (LLS) under which LLS will support the Company’s ongoing development of CUDC-907 for patients with B-cell lymphoma and multiple myeloma. Under the agreement, LLS will fund approximately 50% of the direct costs of the development of CUDC-907, up to $4,000,000. Under certain conditions associated with the successful partnering and/or commercialization of CUDC-907 in these indications, the Company may be obligated to make payments to LLS up to a maximum of $10,000,000. The Company has not received any payments under this agreement to date and expects that the first milestone could be achieved in the second half of 2012 as CUDC-907 nears IND filing. Additional milestones would be earned as the Company progresses CUDC-907 into a phase Ia clinical trial.

 

7


Table of Contents
5. Fair Value Measurements

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.

Financial Accounting Standards Board (“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 6, and is therefore classified as Level 3.

 

8


Table of Contents

In accordance with the fair value hierarchy, the following table shows the fair value as of March 31, 2012 and December 31, 2011 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 market value. No financial assets or liabilities are measured at fair value on a nonrecurring basis at March 31, 2012 and December 31, 2011.

 

<
     Quoted Prices in
Active Markets
(Level 1)
     Other
Observable
Inputs (Level 2)
     Unobservable
Inputs (Level 3)
     Fair Value  

As of March 31, 2012:

           

Cash equivalents

     

XNAS:CRIS Curis Inc Quarterly Report 10-Q Filling

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