Curis, Inc. (CRIS) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Curis Incorporated Q1 2015 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your -- the first speaker for today, Mani Mohindru, Senior Vice President of Corporate Strategy and Investor Relations. You have the floor.

Thank you, operator. Good morning, everyone, and thank you for joining us. During today's call, we'll provide you with an update on corporate developments and plans and also discuss our first quarter 2015 financial results. Before we begin, I'd like to advise you that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements relating to our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management; the potential therapeutic benefits and our plans to develop our proprietary drug candidates, including CUDC-907, CUDC-427 and CUDC-305; progress and programs under collaboration with Aurigene, as well as our expectation of our partners Genentech and Roche's continued development in commercialization of Erivedge in various territories. Actual results may differ materially from those indicated by forward-looking statements in this conference call as a result of various important factors, including those risk factors described in our annual report on Form 10-K for the year ended December 31, 2014, and in other filings that we periodically make with the SEC, and we encourage you to review these risk factors carefully. We caution you that we're making these forward-looking statements only as of today, and that we may not update any of these statements even if events and developments subsequent to the date of this call cause these estimates and expectations to change. I'd now like to introduce Ali Fattaey, our President and CEO, who will provide an update on our company and our various programs, including CUDC-907, PDL-1 and IRAK4 Inhibitor programs under our collaboration with Aurigene as well as our partnered program, Erivedge. Following Ali's remarks, Mike Gray, our Chief Financial and Chief Business Officer, will review our financial results for the first quarter 2015, after which we will open the call for questions. [Operator Instructions] Ali?

Thank you, Mani, and thanks to the conference call and webcast participants for joining us this morning. This first quarter for Curis was a transformative period and reflects the strategy we've been building towards as an oncology therapeutics business focused on development and eventual commercialization of innovative and effective drugs for cancer patients. The past quarter was highlighted by our entry into broad and exclusive collaboration with Aurigene for the discovery, development and commercialization of small molecule drug candidates in the areas of immuno-oncology and precision oncology. The first 2 molecules within this collaboration that we expect to take into the clinic are an oral small molecule PD-L1 antagonist, designed to disrupt PD-1, PD-L1 immune checkpoint receptor ligand interaction and result in activation of T-cells for cancer immunotherapy, and the second molecule is an inhibitor of Interleukin-1 receptor associated kinase, or IRAK4, that is intended for treatment of certain hematologic malignancies. In addition to these, the Aurigene collaboration is expected to generate a pipeline of novel drug candidates in the coming years. Our partner, Aurigene, has made significant progress in advancing the lead immuno-oncology programs and is expanding efforts to address additional immune checkpoint targets with small molecule antagonist. Aurigene is also advancing compounds under the IRAK4 program, and we expect to exercise options to exclusively license these first 2 programs in the near future. We are also pleased to have recently received orphan drug designation for CUDC-907, which is our Dual HDAC PI3 Kinase Inhibitor for the treatment of diffuse Large B-cell lymphoma or DLBCL, which represents a disease of significant unmet need, especially in the relapse refractory setting. We continue to make progress in the clinical development of CUDC-907, both in expansion stage of the Phase I trial for hematologic malignancies, which is focused on patients with DLBCL, as well as the ongoing Phase I trial in patients with solid tumors. We look forward to presenting the Phase I dose escalation results of CUDC-907 as well as available data from the expansion stage in the hematologic malignancies at the ASCO Annual Meeting later this month. We're also planning a Phase II study in DLBCL for later this year that I'll elaborate on. Organizationally, we have also grown our capabilities and staff significantly in the areas of project leadership, clinical development and operations project management, regulatory data management and translational sciences. This is all -- this level of growth is all consistent with our expectations and commitment to advance development of our key drug candidates in the clinic. Lastly, during the first quarter of 2015, we brought in approximately $65 million in proceeds from a public offering of shares of our common stock, which we expect will provide the company with cash to fund our planned operations into 2017, the period in which we expect to achieve multiple milestones across our key programs. Regarding CUDC-907, we will be presenting the results from the Phase I hematologic cancer trial at the upcoming ASCO Annual Meeting on May 31, which will include majority of the data from the dose escalation stage of the trial as well as available data from the expansion stage of the trial, which is still ongoing. In addition to ASCO, we will also be presenting these results at the Congress of European Hematology Association in Vienna, Austria, and at the International Conference on Malignant Lymphoma in Lugano, Switzerland, both in June of this year. In the CUDC-907 Phase I trial in patients with relapsed and refractory lymphoma and multiple myeloma, we've previously reported that over 40 patients had been treated in the dose escalation stage in which we evaluated CUDC-907 at escalating doses using various treatment schedules. And I want to point out that since we will be presenting the Phase I data at ASCO, I will only reiterate what we have mentioned thus far: The safety profile of CUDC-907 remains consistent with what we have reported previously, with diarrhea, thrombocytopenia and fatigue being the most frequent side effects, and diarrhea and hypoglycemia identified as a dose-limiting toxicities. Using the optimized dosing schedule of administration of either 60-milligram dose of CUDC-907 given on a schedule of 5 days on, 2 days off, or 120-milligram dose of CUDC-907 given 3 times per week, adverse events have been manageable and consistent with CUDC-907's known mechanism of action. Additionally, pharmacodynamic analysis has shown HDAC and PI3 kinase enzyme modulation using patient's peripheral blood mononuclear cells or PBMCs as tissue resources. Among the 8 disease evaluable patients with Diffuse Large B-cell Lymphoma that have been treated in the dose escalation stage of the trial, we reported that 7 patients had experienced tumor shrinkages, including 1 patient with a complete response, 3 patients with objective partial responses and 3 patients with stable disease as their best response. In general, patients with objective responses had received higher or more intense dosing schedules. We are continuing to enroll in the expansion phase of the study and expect to enroll up to 12 patients with DLBCL in the monotherapy expansion phase of the study. In addition, we are planning for a Phase II study in the relapsed refractory DLBCL population. There are 2 general registration path or trial designs that we are evaluating currently. One is a single-arm monotherapy study with the objective response rate as the endpoint and the second is the randomized combination therapy study with PFS or overall survival as the end points. There are a number of variables that will inform our eventual decision, including, first and foremost, the combined dose escalation and expansion stage results in DLBCL patients; discussion with our key investigators and advisors regarding the merits and feasibility of each path; and finally, formal discussions with the regulatory authorities regarding our data, designs and plans. To expedite and enable a possible combination therapy path, we have recently opened an independent arm in the ongoing Phase I trial to enroll patients with DLBCL for treatment with CUDC-907 in combination with standard dose of rituximab. We are encouraged by the single-agent activity in patients with relapsed refractory DLBCL observed to date, and we look forward to evaluating additional data from the monotherapy expansion as well as the rituximab combination arms to further define the regulatory path for CUDC-907 in treating relapsed refractory DLBCL patients. In addition to the ongoing study in hematologic malignancies, we also continue to enroll a second independent Phase I trial testing CUDC-907 in patients with relapsed or advanced solid tumors. This includes patients with HER2-negative/hormone receptor positive breast cancer for those patients with midline carcinoma with NUT rearrangements or NMC tumors. No results to report on -- from this ongoing study as of yet, and we look forward to providing further updates from this study during the second half of this year. I'd now like to discuss our newly established collaboration with our Aurigene colleagues. This is a collaboration, of course, that we are very excited about. And as we have stated previously, this is a multiyear relationship focused on the discovery, development and commercialization of small molecule drug candidates in the areas of immuno-oncology and precision oncology. Both Curis and Aurigene teams are currently fully engaged with advancing molecules from multiple programs in the collaboration, and we expect to exercise options under this collaboration to exclusively license drug candidates in the near future. Let me now focus in greater detail on the immuno-oncology efforts in the collaboration. And I also want to mention that we have an updated corporate presentation on our website and would encourage you to refer to it for additional details. As an introduction, over the last several years, perhaps the most exciting treatment strategy that has emerged in our field is the possibility of employing and activating the immune system against the patient's tumor. One of these strategies that has demonstrated excellent and amazing clinical benefit is exemplified by the recently approved drugs ipilimumab, nivolumab and pembrolizumab, and is based on targeting and destructing the interactions between the inhibitory receptors, such as CTLA-4 and PD-1 that are expressed on the surface of T-cells, and their cognate ligand, such as CD80 or CD86 and PD-L1 or PD-L2 on the surface of other immune cells or tumors cells. This strategy results in the activation of T-cells, which then go on to build and generate an effective immune response directed at the patient's tumor cells. Because of the expression of these receptors and their respective ligands on the surface of cells and because of the technical ability to regenerate therapeutic agents directed at these molecules, thus far only monoclonal antibodies that target either the receptor or the ligand have been employed. What we believe sets our collaborator Aurigene's approach to part is their relatively bold attempt to target and disrupt the same receptor ligand interactions with small molecules that are designed and can be administered orally and yet result in the same potent activation of T-cells as well as antitumor activity that are, thus far, seen in the pre-clinical setting. Now PD-L1, PD-1 is only the first receptor ligand interaction that our colleagues at Aurigene have attempted to address, and the initial lead molecules that binds to PD-L1 and effectively disrupt the PD-L1, PD-1 interaction is currently expected to advance into the GLP toxicology studies in preparation for IND filing by Curis this year. One of the key properties of the PD-L1 targeting molecules is their ability to selectively induce proliferation of human T-cells and result in production of interfering gamma in culture. The same results are also seen in the mouse T-cell setting. Additionally, although the former IND-enabling toxicity studies are yet to be conducted, thus far, the safety profile of these molecules has been excellent and devoid of any activity against other enzymes, receptors in other categories of proteins, and the preliminary EnVivo safety profile has been clean as well. When the lead small molecules are administered orally in animals bearing syngeneic mouse tumor models that expressed PD-L1, they demonstrate effective anti-cancer activity in multiple tumor models, such as colon cancer and melanoma models, that is very similar to that demonstrated by using a reference anti-PD-1 antibody in these same models. We believe that this is a very important proof of concept for these molecules and the ability to disrupt immune checkpoints using small molecules. Some of the supporting preclinical data can be found in our most recent corporate slide presentation, as I mentioned, and we also expect to present more detailed data at an appropriate scientific meeting. We believe that Aurigene's approach is unique, not only because it is a small molecule targeting -- not only because it is a small molecule that targets what is currently being addressed with antibody molecules, but also because it provides the opportunity to adjust the dose and schedule of administration of the therapeutic, both for monotherapy and hopefully, in the near future, for potential combination therapy regimens. Also importantly, this same chemical strategy and approach is being used by our colleagues at Aurigene to generate molecules that target other immune checkpoint receptor ligand interactions, and hence, this provides the opportunity for us for a pipeline of small molecule drug candidates that have the potential to be used on their own in different cancer settings or be used in combination with one another in the same cancer setting or possibly use with other treatment strategies, including some of Curis' other proprietary drug candidate, as narrated in the combination setting. Aurigene is currently working to optimize additional small molecules that target immune checkpoint pathways other than those involved in the PD-1, PD-L1 interactions. Now the second part of our collaboration with Aurigene is also consistent with our focus to develop small molecules that target genetic alteration in hematologic malignancies. As we discussed earlier, CUDC-907 represents our lead drug candidate in this area. As part of the Aurigene partnership, the second molecule in our collaboration with them is a kinase inhibitor that targets the Interleukin-1 receptor associated kinase or IRAK4 enzyme. IRAK4 is an important transducer of signals through the toll-like receptors and interleukin receptors, such as Interleukin-1 as part of the innate immune signaling pathways which control diverse cellular processes, including inflammation, apoptosis and cellular differentiation. Our interest in IRAK4 stems from the observation of high rate of genetic alterations in the adapter gene, MYD88, in B-cell malignancies including the ABC or activated B-cell sub-type of the DLBCL as well as in patients with Waldenström's Macroglobulinemia. Now MYD88 is an adapter protein that connects toll-like receptors and interleukin receptors with IRAK4 and results in IRAK4 activation. Our colleagues at Aurigene recently presented the properties of small molecule IRAK4 inhibitors at the AACR conference that was held in Philadelphia last month. And we draw your attention to post [ph] briefly our colleagues Aurigene reports it, that lead IRAK4 molecules have been identified that potently and selectively inhibit the kinase in biochemical assays and inhibit proliferation of DLBCL cell lines, in particular, those cell lines that harbor the MYD88 gene mutation in culture or when the same cells are grown as xenografts in mice. Consistent with IRAK4's role in B-cell signaling, these inhibitors are also highly active in B-cell-driven inflammatory disease models in EnVivo. We expect to select the development candidate in the near term to take into IND-supporting studies, and we would initiate clinical development in specific heme malignancies early next year. We believe this collaboration is a unique opportunity for us to align complementary expertise with Aurigene predominantly focusing in the preclinical settings and Curis focusing in the development and commercialization disciplines of this relationship. We are each committed to bringing considerable resources in this fairly competitively field and intent to do this in a very cost-effective manner. I'd now like to turn to Erivedge, which is being developed and commercialized globally by Genentech and Roche under our collaboration. Roche continues to concentrate on the global commercialization of Erivedge for the treatment of advanced BCC in key territories worldwide. We recorded royalty revenues of approximately $1.67 million for the first quarter of this year as compared with $1.28 million for the first quarter of 2014, which represents a year-over-year increase of approximately 30%. Approximately 70% of Erivedge sales for the first quarter of this year were derived in the U.S., with the remaining sales being generated outside of the U.S. Outside of oncology, Roche continues to indicate an interest in investigating Erivedge in idiopathic pulmonary fibrosis and potentially using an amended protocol to incorporate Esbriet or pirfenidone, the new standard of care for IPF into the trial design. Roche has stated that the first patient could be treated in this study is pending in anticipation of the trial design amendment to incorporate the new standard of care, Esbriet. I would now like to turn the call over to a Mike Gray for his discussion of our financial results. After which, we will open the call for questions.

[Audio Gap] or $0.30 per share on both the basic and fully diluted basis for the first quarter of 2015, as compared to a net loss of $5.6 million, or $0.06 per share, and note that the net loss for the current period includes an in-process research and development charge of $24.3 million related to our issuance of common stock under our collaboration with Aurigene. Revenues for the first quarter of 2015 were $1.7 million as compared to $1.3 million for the same period in 2014. Both periods are comprised solely of royalty revenue from Genentech's and Roche's net sales of Erivedge. Operating expenses were $32.7 million for the first quarter of 2015 as compared to $6 million for the same period -- sorry, for the first quarter of 2015 as compared to the $6 million for the same period in 2014. The majority of the $26.7 million increase in operating expenses q-over-q was attributed to our recording of onetime charge for IP R&D or in-process research and development of $24.3 million, again associated with the issuance of shares to Aurigene under our collaboration. R&D expenses were $4.7 million for the first quarter of 2015 as compared to $3.1 million for the same period in 2014. The increase in R&D expense was primarily due to increase spending on CUDC-907 of $1.3 million related to the ongoing Phase I clinical trials. During the quarter ended March 31, 2015, we also paid Debiopharm $750,000 in connection with the transition agreement entered into between the parties related to CUDC-305, formally Debio 0932. These increases were partially offset by decreased spending on CUDC-427. G&A expenses were $3.5 million for the first quarter of 2015 as compared to $2.8 million for the same period in 2014. The increase was primarily due to an increase in legal, professional and consulting costs related to our Aurigene transaction. Costs associated with our intellectual property and stock-based compensation also increased as compared to the prior-year period. Other expense was $827,000 for the first quarter of 2015, as compared to $811,000 for the same period in 2014. Other expense primarily consisted of $867,000 and $951,000, respectively, and the interest expense related to the loan made by BioPharma II to Curis Royalty, a wholly owned sub of Curis. As of March 31, our cash, cash equivalent and investments totaled $107.2 million, and they were approximately 128.3 million shares of common stock outstanding. Just turning to our expectations for 2015, we expect to end 2015 with cash, cash equivalents and investments of between $65 million and $70 million. This excludes any potential future payments from existing or new collaborators. We expect that 2015 R&D expense will be between $37 million and $42 million, and the G&A expense will be between $12 million and $14 million. This expense expectations include approximately $800,000 and $2.4 million of the estimated 2015 stock-based compensation expense in R&D and G&A, respectively. With that, I'll turn the call back to the operator, and open up for questions.

[Operator Instructions] Our first question for the day comes from the line of Adnan Butt from RBC Capital Markets.

Let me start with a question on 907. So in terms of the expansion cohorts, Ali, did I hear you say that the expansion cohort would extend to a combination on as well? And then just broadly, what gives you confidence at this stage that progress to our registration directed Phase II is likely?

Thank you, Adnan, and thanks for your question. I think what I mentioned, hopefully, it was clear. We have the monotherapy expansion arm ongoing that enrolls DLBCL patients, and then we have opened up a separate expansion on that enrolls DLBCL patients that will be treated with CUDC-907 plus rituximab. So data will be available for us to make our decision with regards to a later trial this year from both of those perspectives, both monotherapy and in combination with rituximab. I think I was fairly clear in the context of what variables go into our decision with regards to the Phase II trial later on this year, which we intended to be registration-directed and registration-enabling in that regard. We will look at all of the data that is -- that will be available to us, both as monotherapy and the combination. And frankly, it's really the feasibility of being able to conduct the study as well as our discussions with the FDA that will result at. At this point, we fully intend and expect to initiate that study later on this year based on the data that we've presented thus far.

And Ali, in terms of the data at ASH, do you expect the monotherapy expansion cohort to be updated, right? And I'll get back in line. Sorry, at ASCO.

Yes, thank you. I think at the ASCO presentation, what we intend to present is all of the dose escalation stage of the study across all patients, not just the DLBCL patients of course. And as much of the data that's available and evaluable from the expansion cohort, which would be all monotherapy at this point, would be included in that presentation as well.

Our next questioner comes from the line of Stephanie Mariah [ph] from Oppenheimer. Michelle Gilson - Oppenheimer & Co. Inc., Research Division: This is actually Michelle Gilson in for Chris Marai. And we wondering what you expect to -- when you expect to see first-in-human proof of mechanism data for your oral PD-L1? And then also when you might have data for HED-HED [ph] trials against other PD-L1 and PD-1 therapeutics?

Sure. Thank you, Michelle, and extend our regards to Chris as well when you see him. And regarding the timelines for the PD-L1 antagonists, our first small molecule immuno-oncology drug in collaboration Aurigene, the stage that we are expecting to initiate GLP toxicology studies shortly, potentially in this second quarter of this year. We would then expect to file an IND before the end of this year and initiate clinical testing of the drug candidate shortly after that. If everything goes well, I would expect to have proof-of-concept in initial clinical data in 2016. I don't think we have indicated anything with regards to conducting trials head-to-head against other therapeutics against PD-1 or PD-L1 at this point. We do expect to see clinical data for this in the 2016 timeframe.

Our next questioner comes from the line of Joe Pantginis from Roth Capital Partners.

I guess, my first question, Ali, has to do with IRAK4 compound. Obviously, there's a lot of increasing exposure on this target here. Just looking to see how you look to potentially differentiate the development path for this product. And also, I know you mentioned it briefly in your prepared comments, but do you see any potential in autoimmune types of indications?

Sure. Thank you, Joe. We are actually quite excited about the work that our colleagues and the discovery that our colleagues at Aurigene have made regarding IRAK4. It's been an extended amount of chemistry efforts that they have gone into generating the molecules and optimizing them. The major criteria for us, for the molecule, of course, their potency, their selectivity, which is very important, and also their activity in both of those systems and models, meaning both oncology and anti-inflammatory diseases. I think IRAK4 certainly deserves assessment in that based on its function and based on its regulation in both of those disease areas. With regards to differentiation, I think since none of the drug candidates against IRAK4 that we are aware of have really been in the clinic yet or are in the early stages of clinical testing in people, the real mark comes in the context of their activity in the clinic, and we're fairly confidence with the compounds that we're looking at with regards to their preclinical data. Again, the key factors for us would be, in fact, selectivity and their current activity, which we do see. We would intend to take them into the oncology setting first. That's our first and foremost focus at this stage. We do see the opportunity in the lymphoma setting and in particular, in the Diffuse Large B-cell lymphoma to start with. However, because of the role that IRAK4 plays, I would not be honestly surprised if the potential and the utility of the drug expands beyond or the drug candidate expands beyond just MYD88 mutated DLBCL population. We do look at those, obviously, in the preclinical setting as well and hope to continue presenting data from that regard as well. With regards to inflammatory disease, as I mentioned, the compounds are active in the preclinical setting. I think, in general, IRAK4 inhibitors would be expected to have activity in autoimmune or inflammatory disease setting. At this stage, we don't have plans for initiating studies, but I do think the -- both the compounds and IRAK4 do present a very good opportunity in that direction for us. But for us at this point, our focus is in the oncology setting with the drug candidate.

[Operator Instructions] And it looks of all the questions that we have in the queue, so I'd like to turn the call back over to management for closing remarks.

So I'd like to thank everyone who participated in the call today. I would also like to thank all of our employees in the company that have been working very hard, also thank our colleagues at Aurigene and our collaborators at Genentech for their hard work with respect to our drug candidates. And also, importantly, I'd like to thank the patients and their families for participating in our clinical studies. Thank you.