Curis, Inc. (CRIS) Q4 2018 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Curis Fourth Quarter and 2018 Year-End Earnings Call. At this point, all participants are in listen-only mode. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note the conference call is being recorded. I would now like to turn the conference over to the Company's Vice President of Finance, Bill Steinkrauss. Please go ahead.

Thank you, operator, and welcome to Curis' fourth quarter and year-end 2018 earnings call. Before we begin, I would encourage everyone to go to the Investors section of the Company's website at www.curis.com to find our fourth quarter and year-end 2018 earnings release and related financial tables. I would like to also remind everyone that during the call, management will be making forward-looking statements which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties, and actual results may differ materially. For additional details, please see our SEC filings. Now, I will turn the call over to our President and Chief Executive Officer, Jim Dentzer.

Thank you, Bill. Good afternoon everyone, and thank you for joining us today for our fourth quarter 2018 earnings call and business update. Joining me today are Bill Steinkrauss, our Vice President of Finance who will provide an overview of our financial results and Bob Martell, our Head of R&D. Bob, Bill and I will be available to answer your questions during the Q&A portion of the call. 2018 was a transformational year for Curis. We initiated the third clinical program, received fast track designation from the FDA, welcomed a new leadership team and just this week announced the transaction with Oberland Capital that raised more cash than our market cap without any dilution. It has been incredible and we're moving full steam ahead to achieve even better things in 2019. As this is a year-end call, I thought, it might be helpful to provide some perspective on Curis' long history of innovation. It began with Erivedge, the first successful inhibitor of the hedgehog pathway, discovered and developed by Curis and our partner Genentech. Over the past four years, we have continued that legacy and built a novel pipeline of three more first-in-class therapeutics. Fimepinostat, our anti-MYC program targets both the genetic transcription and the protein degradation of MYC a classic oncogene that has stymied companies and academic labs for decades. With fimepinostat, Curis is charting new ground. In clinical studies to-date, fimepinostat had shown a 23% ORR, a median duration of response of 13.6 months and provided clear benefit, even in the Double Hit population of DLBCL, the patients with the most challenging prognosis. In our current clinical trial, we are targeting this Double Hit population specifically. By definition, Double Hit Lymphoma patients have a mutation in the MYC gene and a mutation in the BCL2 gene. We are treating these patients with a combination therapy of an anti-MYC drug fimepinostat with an anti-BCL2 drug, venetoclax. We think this is the perfect scientific solution for a perfectly intractable disease. Our second program is CA-4948, which inhibits IRAK4 a critical component of the myddosome in the TLR pathway, which leads downstream to B-cell proliferation. This regulation of this pathway is known to cause cancer yet-to-date there are no approved therapies targeting it. When we inhibit IRAK4 in the lab, we decrease abnormal signaling of the myddosome and decrease malignant B-cell proliferation. Our ongoing clinical study hopes to replicate that effect in patients. At a healthcare conference in December, we disclosed some exciting clinical data while admittedly early and limited the Phase 1 study assay results showed a tight correlation between drug exposure and inhibition of IL-6 cytokine release, which matches exactly what we have seen in both preclinical testing and testing in blood from healthy volunteers. The consistency of these data makes us even more optimistic about the opportunity with this compound. We look forward to reporting more data from this study this summer. Our third program is CA-170, our anti-VISTA program, which we are developing with our partner Aurigene. After several articles were published last year, highlighting the importance of VISTA as an oncology target, we ramped up our internal lab work and initiated a clinical study in mesothelioma a disease characterized by high VISTA expression. We enrolled our first patient a quarter ahead of schedule and expect to fully enroll this study in the first half of this year and report initial data by year end. On last quarter's earnings call, we set an ambitious goal. I'm sure some people thought at the time it was a bit too ambitious. We said we were going to cut our cash burn by 27% and at the same time produce more clinical data more quickly than ever before. We said we would cut our cash burn to $8 million a quarter. Our actual cash burn for Q4 was $6.6. We said we would report initial data in all three studies in 2019. As of today, March 26, I'm pleased to report that all three studies are currently on track or ahead of schedule. Lastly, I know many of you were excited to see our Erivedge transaction with Oberland Capital earlier this week. I leave it to Bill to walk you through the details. But at a high level, we sold part of one our programs and raised more cash than our market cap. With an upfront representing more than half a decade of revenue, we eliminated the downside risk of Erivedge. At the same time, we are splitting the upside of Erivedge 65-35 with Curis getting the 65. It was a transformational transaction for Curis and it ensures that we have sufficient cash to fund all three programs to their value creating catalysts and beyond. Three months ago, we promised to reduce our resources, increase our focus on clinical execution and unlock the significant value we saw at Curis. As we sit here today, everything is on track. We are not yet finished, but we are very proud of our progress so far. With that, I'll turn the call over to Bill for a discussion of our financial results.

Thank you, Jim. Now, for an update on our financial results. For the year ended December 31, 2018, we reported a net loss of $32.6 million or $0.98 per basic and fully diluted share as compared to a net loss of $53.3 million or $1.79 per basic and fully diluted share in 2017. For the fourth quarter of 2018, we reported a net loss of $5.9 million or $0.18 per basic and diluted share, as compared to a net loss of $8 million or $0.24 per basic and diluted share for the same prior year period. Revenues for the year ended December 31, 2018 were $10.4 million as compared to $9.9 million in the same period in 2017. Revenues were $2.8 million and $3.3 million for the fourth quarter 2018, 2017 respectively. Revenues for both periods comprised primarily of royalty revenues recorded on Genentech and Roche's net sales of Erivedge. Operating expenses were $39.8 million for the year ended December 31, 2018, as compared to $59.7 million for the same period in 2017. Operating expenses were $7.9 million for the fourth quarter of 2018 as compared to $10.4 million the same period in 2017. Research and development expenses were $24.4 million for the year ended December 31, 2018 as compared to $45.1 million for the same period in 2017. The decrease was primarily related to $7.5 million in aggregate payments made in 2017 to our partner Aurigene for an exclusivity option as well as decreased costs related to clinical activities for CA-170. Employee related expenses decrease over the prior year period primarily due to a reduction in headcount. Research and development expenses were $4.7 million for the fourth quarter of 2018 as compared to $6.9 million for the same period in 2017. The decrease in research and development expense was primarily due to decreased costs related to clinical activities and manufacturing. General and administrative expenses were $14.8 million for the year ended December 31, 2018 as compared to $14.1 million for the same period in 2017. The increase in general administrative expenses was primarily driven by higher legal professional and consulting services partially offset by lower stock based compensation for the period. General and administrative expenses were $3 million for the fourth quarter of 2018 as compared to $3.3 million for the same period in 2017. The decrease in general and administrative expenses was primarily driven by lower stock based compensation for the period. Other expense was $3.2 million for the year ended December 31, 2018 as compared to $3.6 million for the same period in 2017. Other expense was $0.8 million for the fourth quarter of 2018 as compared to $0.9 million for the same period in 2017. Other expense primarily consisted of interest expense related to the debt obligations of Curis Royalty, a wholly owned subsidiary of Curis. As of December 31, 2018 our cash, cash equivalents and investments totaled $24.3 million and there were approximately 33.2 million shares of common stock outstanding. Lastly, I would like to discuss the transaction we announced yesterday with Oberland Capital. We have sold a portion of our Erivedge royalties in exchange for up to $135.7 million of which $65 million was received as an upfront payment and $70.7 million in potential future milestones. This transaction was transformational and achieved five key objectives for Curis. First, we paid off our existing debt and added $30 million in proceeds to the balance sheet before closing and transaction cost. Second, there was no dilution to our shareholders. Third, we eliminated short-term Erivedge risk by taking in $65 million upfront, which is 7.5 times, the portion of 2018 revenue that we sold. Fourth, we retain long-term upside by retaining 65% of all annual revenue over $13.1 million and an additional $70.7 million in potential milestones. And finally, we sold only a portion of the Erivedge revenue stream. Curis has retained certain non-U.S. royalties. These royalties represented $1.8 million of the $10.4 million in 2008 revenue for Curis. In closing, this is a terrific deal for Curis and our shareholders. We look forward to our partnership with Oberland Capital and the continued success of Erivedge. With that, we'll open the call for questions. Operator?

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Adnan Butt with Guggenheim Securities. Please go ahead.

First one is on 4948 or just generally, are you able to give enrollment updates at this stage especially for the study that's supposed to read out first?

Yes, actually, I'll defer to Bob.

Yes, I think, Adnan, the dose escalation study has been going on quite well. As you know, we recorded last December an interim update. We proceeded fairly systematically with enrollment and are -- now have enrolled the fourth cohort.

Okay.

And let me add to that. So the, you may recall from our corporate presentation deck that we have five dose levels outlined on there. The fourth cohort dose level is 100 milligrams BID, that's the cohort we're currently enrolling.

So, is it fair to conclude that the drug is proving tolerable to-date? And what dose did you expect to see some anti-tumor activity?

Well, we obviously always are looking at our preclinical models to try to estimate when we'll see that. And as you know, it can be difficult to predict from preclinical models. We believe that we are currently in or very near the range where some activity was seen in the preclinical models. So expect to possibly see some signals, either this or an upcoming dose within the next one to two dose levels, I would say.

Yes, just as a reminder, Adnan, from discussions that we've had in the past. Based in the preclinical work, the concentration level at which we saw responses in the lab would have equated to 400 milligrams or the 200 milligram BID dosing that we have for dose level 5. We're not yet at that cohort, but that would be the level that would be consistent with the area under the curve from our preclinical experiments

So, Jim, what will the initial upgrade entail? In how many patients or does levels will you report on and when will you conclude on that timing?

Yes, I think, what we said in the beginning of the year and we're on track, maybe a little ahead of schedule was that we plan to report data in mid-year. I think, we've consistently said that would be July plus or minus a month. A lot depends on whether or not we can do that. But I would say that given that we're currently enrolling dose level 4, we would anticipate that release would include dose level 5, which would be the next cohort. So, I would say that we're on track for doing just that.

And then, just one on CA-170. How many patients are enrolled? And how certain are you of the timing for that particular study sometime this year to enroll?

As you know, we started enrolling that in the fourth quarter of last year. We are enrolling specific group of mesothelioma patients and our goal for an initial signal seeking effort is to enroll 12 patients on that. In this, we're proceeding on schedule.

Okay. And maybe one for Bill, the prior update of $8 million in cash burn. Does that still hold or are you adjusting that to lower level at this point?

No, I think, we are on track as well I'll defer to go on that, but I think the goal that we had set was that we're going to target an expected burn of $8 million per quarter. Obviously, we were able to achieve more savings, more quickly than we were anticipating. That’s why saw the $6.6 in Q4. I would caution you that’s an average number, the $8 million over the course of the calendar year, because, of course, things are lumpy though the year. Some expenses will hit in Q1, some would hit in Q3. Of course, it depends on when we have manufacturing costs or a lot of things that might cause a given quarter to be lumpy. But, I would say that obviously, the Q4 cash burn level is something that should give you and us optimism that we were able to achieve the cuts that we tried to achieve and in fact have done it more quickly than we anticipated to of course get to an even lower burn level in Q4 than we anticipated.

Yes, this is Bill. I would just add that until we get to the data catalyst points, we continue to expect the $8 million to be our expectation for the remaining quarters in 2019.

This concludes our question-and-answer session. I would like to turn the conference back over to the Company’s President and Chief Executive Officer, James Dentzer, for any closing remarks.

Thank you everyone, and thank you operator. I would like to end today's conference call by thanking the Curis team for their continuous hard work and our partner Aurigene for the productive relationships and shared vision in making a difference in patient care. I would also like to thank our partners Genentech and Roche for the commercialization work that they do with our approved drug Erivedge as well as our investigators for their support and dedication to the development of truly innovative therapeutics. Most importantly, I would like to thank the patients in our clinical studies and their families for being an essential part of the process of developing the new generation of targeted drugs for the treatment of cancer. Thank you everyone.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.