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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark one)

For the fiscal year ended December 31, 2003

OR

Commission File Number 000-30347

CURIS, INC.

(Exact Name of Registrant as Specified in Its Charter)

61 Moulton Street

Cambridge, Massachusetts 02138

(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:    

None

Securities registered pursuant to Section 12(g) of the Act:    

Common Stock, $0.01 par value per share

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.    Yes x    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 an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes x    No ¨

As of June 30, 2003, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $106,073,000 based on the closing sale price of the registrant’s common stock on The NASDAQ National Market on such date.

As of February 23, 2004, there were 41,359,136 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 June 2, 2004, 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, 2003 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

This annual report on Form 10-K contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of Curis to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of revenue, expenses, earnings or losses from operations, or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning product research, development and commercialization timelines; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include risks that are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Affect Future Results” and elsewhere in this annual report and that are otherwise described from time to time in our Securities and Exchange Commission reports filed after this report.

The forward-looking statements included in this annual report represent our estimates as of the 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.

ITEM 1.    BUSINESS

Our Company

We are a therapeutic drug development company principally focused on the discovery, development and future commercialization of products that modulate key regulatory signaling pathways controlling the repair and regeneration of human tissues and organs. Our product development approach involves using small molecules, proteins or antibodies to modulate these regulatory signaling pathways, for example, to increase the pathway signals when they are insufficient or to decrease them when they are excessive. We have successfully used this product development approach to produce multiple compounds for several different disease indications. For example, we have developed several promising preclinical product candidates in the fields of kidney disease, cancer, neurological disorders, cardiovascular disease and hair growth regulation.

Regulatory signaling pathways, also referred to as signaling pathways, are prominent regulators of specific tissue and organ formation during prenatal development and are used by the body throughout life to repair and regulate human tissue. We are developing our product candidate programs around several major signaling pathways including the Hedgehog and Bone Morphogenetic Protein pathways. We have substantial intellectual property rights in these signaling pathways, which we believe will enable us to have a technological and competitive advantage in developing therapeutic products based upon these pathways. In addition, we intend to expand our technology offerings and associated intellectual property portfolio through in-licensing arrangements and the acquisition of complimentary technologies, including additional signaling pathways.

Our research programs are conducted both internally and through strategic alliances and collaborations. We currently have strategic collaborations with Ortho Biotech, Genentech and Wyeth. Our strategic alliances and collaborations generally provide for our research, development and commercialization programs to be funded by our collaborators and provide us with the opportunity to receive additional payments if specified milestones are achieved, as well as royalty payments upon the successful commercialization of any products based upon the collaboration. In some cases, we have retained development and commercialization rights in areas where we believe we can attain the greatest potential long-term value through the application of our own internal resources. We believe that our approach allows us to augment our development capabilities and capacities through collaborations with leading pharmaceuticals companies and also provides us with the opportunity to discover and develop products while reducing our internal product development costs and related risks.

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In the future, we plan to continue to seek corporate partners for the further development and commercialization of some of our technologies. Even though we are seeking partners to help develop some of our technologies, we expect to select at least one program that we will develop further on our own.

Regulatory Signaling Pathways Background

Regulatory signaling pathways are the means by which tissues and organs exchange instructional messages that regulate specific biological functions. Early in prenatal development, the instructional messages that direct the formation of tissues and organs are controlled by master pathways, including the Hedgehog and Bone Morphogenetic pathways, which act by initiating cascades of other pathways required for tissue formation and regulation. Later in life, the body uses these master pathways to repair damage and regenerate tissues. For example, in damaged nerve tissue, we have demonstrated in preclinical models that activation of the Hedgehog pathway promotes repair and regeneration of nerve function, in part, by inducing the activation of a cascade of secondary signaling pathways that promote the growth of new cells and blood vessels.

The ability to activate certain signaling pathways is of great interest to biotechnology and pharmaceutical companies as many diseases and disorders are now known to be associated with insufficient or damaged signaling pathways. For example, one of the most successful biotechnology-derived drugs is a formulation of a signaling protein called erythropoietin. Erythropoietin is made in the kidney and controls a pathway that instructs the bone marrow to make new red blood cells. In dialysis patients with end-stage kidney disease, in which their kidneys have mostly or completely stopped functioning, the kidneys are unable to make erythropoietin,. These patients therefore develop severe anemia, a critical medical condition caused by a lack of sufficient red blood cells. Administration of erythropoietin restores normal levels of red blood cells thus alleviating the patient’s anemia. The erythropoietin market for dialysis patients in the U.S. is estimated to be over $2 billion annually.

Our BMP-7 program, which is partnered with Ortho Biotech, is similar to erythropoietin in several respects. BMP-7 is also a signaling protein made in the kidney that regulates several important tissue repair and maintenance pathways. Dialysis patients develop several other serious complications in addition to severe anemia, including bone diseases and blood vessel calcification resulting in life-threatening cardiovascular complications. In preclinical models, administration of BMP-7 has been shown to prevent the bone and blood vessel complications that are associated with chronic kidney disease. Preclinical studies also suggest that BMP-7 may delay progression of kidney disease, delay the need for dialysis and stabilize kidney function for dialysis patients. If successfully developed, we estimate that the market size for BMP-7 in dialysis patients may approximate the market size for erythropoietin in dialysis patients.

There is also significant pharmaceutical interest in the inhibition of abnormally or inappropriately activated signaling pathways which have been implicated in certain cancers. For instance, Novartis Inc.’s Gleevec^® is a small molecule drug that inhibits a signaling pathway that is abnormally expressed in certain cancers. Gleevec^® is among the first signaling pathway inhibitors to be approved by the FDA and is Novartis’ second largest-selling drug with estimated annual worldwide sales of more than $1 billion.

Abnormal expression of the Hedgehog signaling pathway has been shown to be associated with certain cancers, including basal cell carcinoma, small cell lung cancer and pancreatic cancer. We have also developed small molecule Hedgehog pathway inhibitors and Hedgehog blocking antibodies. Our Hedgehog pathway inhibitors and antibodies, which are partnered with Genentech, have been demonstrated to slow or halt the growth of these cancers in preclinical models of tumor growth. Because the Hedgehog signaling pathway appears to control the expression of tissue growth factors and blood vessel growth factors, we believe that our pathway inhibitors may be applicable to a broad array of cancers.

We believe that our focus on developing drugs based primarily on the master signaling pathways will give us a competitive advantage over similar efforts by other biotechnology and pharmaceutical companies. Our approach has already enabled us to develop a diverse portfolio of preclinical product candidates in several

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important therapeutic areas including kidney disease, cancer, neurological disorders, cardiovascular disease and hair growth regulation.

Our Strategy

Our goal is to become the leading therapeutic drug development company focusing on regulatory signaling pathways. Our strategy to accomplish this goal includes the following:

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Product Development Programs

We are developing product candidates in several important medical fields where there is substantial unmet therapeutic need. These product development initiatives, described in the chart below, are being pursued using our internal resources or through partnering and licensing arrangements with pharmaceutical or biotechnology firms that are able to dedicate additional resources and clinical development expertise. These product development initiatives are derived primarily from our substantial intellectual property portfolio in key regulatory signaling pathways.

Most of our programs are in various stages of preclinical drug development. In the table below, the term early preclinical means we are seeking to obtain initial demonstrations of therapeutic efficacy in preclinical models of human disease, mid preclinical means we are seeking to obtain multiple demonstrations of efficacy in preclinical models of human disease, and late preclinical means we are seeking to obtain both multiple demonstrations of efficacy in preclinical models of human disease and relevant toxicology and safety data required for an investigational new drug application, or IND, filing with the FDA seeking to commence a phase I clinical trial to assess safety in humans.

BMP-7 Program

BMP-7 is a signaling protein that is synthesized in the kidney and has been implicated in the maintenance of the normal health of the kidney, the skeleton, and the vascular system. Prior to November 2002, we had been developing BMP-7 as a therapeutic compound to halt the progression of chronic kidney failure and to prevent skeletal and vascular complications that are associated with chronic kidney disease.

During 2003, several academic researchers published reports concluding that BMP-7 may be an effective therapy for chronic kidney disease. These reports, from the Beth Israel Deaconess Medical Center, the Harvard Medical School and the Washington University School of Medicine, have demonstrated the potential of using BMP-7 as a potential treatment to both halt the progression and reverse the effects of chronic progressive kidney disease. These reports are published in Nature Medicine 2003 July 9(7): 964-8 and The Journal of the American Society of Nephrology 2003 June 14(6): 1559-67.

These data suggest that BMP-7 may be similar in some respects to erythropoietin, believed to be one of the most successful biotechnology-derived drugs. Erythropoietin is a signaling protein that is made in the kidney. It is secreted into the blood system and controls the process that instructs bone marrow to make new red blood cells. In dialysis patients with end-stage kidney disease, in which their kidneys have mostly or completely stopped functioning, the kidneys are unable to make erythropoietin. These patients therefore develop severe anemia, a critical medical condition caused by a lack of sufficient red blood cells. Administration of erythropoietin restores normal levels of red blood cells thus alleviating the patient’s severe anemia. Dialysis patients develop several other serious complications in addition to severe anemia, including bone disease and severe blood vessel calcification resulting in life-threatening cardiovascular complications. The preclinical demonstration that BMP-7 prevents the bone and blood vessel complications that are associated with chronic

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kidney disease suggests that the market size for BMP-7 in dialysis patients may approximate the market size for erythropoietin in dialysis patients, which is currently estimated to be over $2 billion in the U.S.

In November 2002, we entered into an agreement with Ortho Biotech for the continued development of this kidney disease product candidate. Ortho Biotech is a pharmaceutical company with broad expertise in protein-based therapeutic drug development and has an established presence in the kidney disease marketplace. Ortho Biotech will assume all future costs and responsibility for BMP-based product development, and we will receive clinical milestone payments and royalties on product sales if clinical evaluations of any BMP-based products are successful. Ortho Biotech has sole responsibility for deciding if and when human clinical trials of BMP-7 will begin.

Hedgehog Small Molecule and Antibody Antagonist Cancer Programs

The Hedgehog signaling pathway controls the development and growth of many kinds of tissues in the body by activating other secondary pathways that control the synthesis of growth factors and angiogenic factors. The growth factors stimulate new tissue formation, and the angiogenic factors stimulate new blood vessel growth to nourish the newly formed tissue.

Several years ago, our scientists and scientists at independent academic and medical research laboratories discovered that certain cancers, such as basal cell carcinoma, are expressing abnormally high concentrations of Hedgehog protein, thereby creating local environments favorable to the rapid growth of cancerous tissue. Furthermore, in 2003, several academic researchers published reports that also noted the link between abnormal expression of the Hedgehog signaling pathway and the malignant growth of other tumors, including small cell lung cancer and certain tumors of the gastrointestinal tract. These reports, from the Johns Hopkins University School of Medicine, University of California, San Francisco, Massachusetts General Hospital, and the Harvard Medical School were published in Nature 2003 October 23 425(6960): 846-51 and 851-6.

Our preclinical evidence indicates that inhibition of the Hedgehog pathway, in cells where it is being abnormally activated, results in the selective and specific death of the tumor cells while conferring no harm to adjacent normal cells. This selectivity contrasts with more traditional cancer treatments that often kill both cancer cells and normal cells. We believe that the ability to selectively kill cancer cells while leaving healthy cells intact represents the next generation of cancer treatments that are in development.

In June 2003, we established a collaboration with Genentech for the continued development of these anti-cancer drug candidates. Genentech is a pharmaceutical company with broad expertise in the development of cancer therapeutics. Except for the co-development option described below, Genentech will assume all future responsibility for the clinical development of the Hedgehog small molecule and antibody antagonists as cancer drugs for solid tumors. We will receive clinical milestone payments and royalties on product sales if clinical evaluations of any Hedgehog antagonist and antibody technology-based products are successful. We have retained a co-development option in the field of basal cell carcinoma, a type of skin cancer.

Hedgehog Small Molecule Agonist Neurological Disorders Programs

The Hedgehog signaling pathway is essential for the formation of normal nerves in the central and peripheral nervous systems. Our scientists and academic collaborators have shown that treatment with a Hedgehog protein accelerates the restoration of nerve function in models of nerve trauma and disease. This finding suggests that the Hedgehog pathway may have a potential therapeutic effect in treating certain human neurological disorders. During 2003, our scientists and several academic researchers presented reports concluding that activation of the Hedgehog pathway promotes improved recovery from stroke, Parkinson’s disease, and spinal cord injury. In addition to findings reported by us, reports were also made by researchers at the Université Victor Segalen in France, the University of Manchester in the United Kingdom, the Toronto Western Research Institute in Canada, the California Institute of Technology in Pasadena, California, and at Case

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Western Reserve University. The stroke data were presented by our scientists at the 2003 Society for Neuroscience conference, the Parkinson’s data were published in the FASEB Journal 2003 December 17(15): 2337-8, and the spinal cord injury data were presented at the 2003 meeting of the North American Spine Society.

Our scientists have developed a series of small molecule Hedgehog agonists that, in preclinical models, have shown to be capable of activating the Hedgehog pathway. Many of these small molecule Hedgehog agonists are orally available and can cross the blood brain barrier, a protective barrier formed by blood vessels and brain tissue that prevents most substances in the blood from entering brain tissue. Small molecules that cross this blood brain barrier can reach and treat damaged brain tissue, therefore making them attractive product development candidates.

We believe that the positive effects of the Hedgehog agonists in neuronal disease models are due to neuroprotection that is induced by activation of the Hedgehog signaling pathway. Neuroprotection is the prevention of the progressive death of cells in the brain caused by disease or injury. In addition, we also know that activation of the Hedgehog pathway results in an increased proliferation of brain stem cells. We are currently exploring the possibility that this may enable to develop drugs that can promote the replacement of brain cells lost as a result of injury or disease.

In January 2004, we entered into a collaboration agreement with Wyeth Pharmaceuticals to continue the development of these promising drug candidates for the treatment of neurological disorders and other potential indications. Wyeth is one of the world’s largest research-driven pharmaceutical companies with broad expertise in the development of drugs to treat neurological disorders and other diseases. Under the terms of the collaboration, Wyeth paid us an up-front license fee and is obligated to provide two years of research funding. In addition, if clinical evaluations of any Hedgehog agonist technology-based products are successful, Wyeth is obligated to pay us clinical milestone payments and royalties on product sales.

Wyeth has agreed to assume all future responsibility for clinical development of the Hedgehog small molecule and protein agonists as systemic treatments for neurological and other disorders. As part of the agreement, we have retained development and licensing options for certain therapeutic applications of Hedgehog agonist technologies, including those applications that qualify as orphan drug indications, topical applications for hair growth, local delivery applications for treatment of cardiovascular disease, and use of the technology with stem cells.

Hedgehog Agonist Cardiovascular Disease Program

In November 2003, researchers from the St. Elizabeth’s Medical Center in Boston, Massachusetts presented data at the annual Scientific Sessions of the American Heart Association demonstrating that localized activation of the Hedgehog signaling pathway, several hours after heart injury, can significantly improve heart function and reduce overall heart damage in a model of myocardial infarction, or heart attack.

Our scientists and our academics collaborators are currently conducting additional studies to evaluate the therapeutic potential of using locally-delivered Hedgehog agonists that activate the Hedgehog pathway to promote recovery from cardiovascular disease. Wyeth has a first right of negotiation to license our Hedgehog pathway technologies in the field of cardiovascular disease.

Hedgehog Small Molecule Agonist and Antagonist Hair Growth Regulation Program

Several years ago, our scientists and other researchers demonstrated that activation of the Hedgehog pathway can stimulate rapid hair re-growth in models of hair loss, including hair loss as a result of chemotherapy treatment. These latter results were published in the Journal of the National Cancer Institute 2001 Dec 19 93(24): 1858-64.

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More recently, our scientists have demonstrated that our small molecule Hedgehog agonists can induce hair re-growth in animal models. We are currently evaluating the therapeutic potential of small molecule Hedgehog agonists to promote hair re-growth in preclinical models of hair loss. We are also evaluating the potential of Hedgehog pathway antagonists to block hair growth.

PPY Peptide Obesity License

PYY is a gut peptide that has been shown to suppress appetite and reduce food intake in animals and humans. Several years ago, our scientists working in the field of diabetes filed patent applications on the potential utility of using PYY as a treatment for certain metabolic disorders, including obesity.

In December 2002, we licensed our PYY patent applications to Amylin Pharmaceuticals for in-vivo therapeutic uses in exchange for an up-front fee, milestone payments upon the achievement of specified development objectives, and royalties on potential future product sales. Amylin has extensive development experience with our similar gut peptides.

In December 2003, Amylin filed an investigational new drug application with the FDA on PYY for an obesity indication and has indicated that it expects to initiate clinical testing in the first quarter of 2004. Amylin has responsibility for all expenses related to further development of the PYY compound.

Strategic Alliances And License Agreements

Our strategy for development and commercialization of products depends upon successful strategic alliances with third parties. We use strategic alliances as a means to provide us with the requisite capital, as well as the necessary preclinical and clinical development and manufacturing and marketing capabilities to commercialize product candidates produced by our discovery and preclinical programs. In evaluating possible strategic alliances, we consider the following criteria:

Since inception, substantially all of our revenue has been derived from our collaborations and other agreements with third parties.

Our current strategic alliances are described below.

Ortho Biotech, a subsidiary of Johnson & Johnson

In November 2002, we licensed our broad BMP technology portfolio to Ortho Biotech on an exclusive, worldwide royalty-bearing basis, for all non-orthopedic and non-dental therapeutic applications in exchange for a $3.5 million up-front fee, a series of cash milestones if specified clinical research objectives and regulatory approvals are achieved, including a $30 million milestone payment upon U.S. regulatory approval of a product for the treatment of kidney disease, and a royalty on potential future product sales. If the program progresses successfully through clinical development, we are entitled to receive additional milestone payments for the kidney disease related product candidate and milestone payments for the first neurology product candidate. Initial target indications include the systemic use of BMP-7 for the prevention of bone and blood vessel complications associated with chronic kidney disease and treatments to promote recovery following stroke and brain injury.

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Genentech

In June 2003, we licensed our novel small molecule and antibody inhibitors of the Hedgehog signaling pathway to Genentech on an exclusive worldwide royalty-bearing basis for applications in cancer therapy. Under the terms of the agreement, Genentech paid us an upfront license fee of $5 million, purchased 1,323,835 shares of our common stock at a price of $2.644 per share for aggregate proceeds of $3.5 million, and is also obligated to pay us a total of $4 million in maintenance fees by July 2005. Genentech is also obligated to make cash payments to us upon the successful achievement of clinical development and drug approval milestones. In addition, Genentech will pay a royalty on potential future net product sales, which increases with increasing sales volume. We have retained the right to co-develop products in the field of basal cell carcinoma, in which event we will share in any profits related to the basal cell carcinoma program in a percentage that is equal to our co-development cost sharing contribution.

Wyeth Pharmaceuticals, a division of Wyeth

In January 2004, we entered into an agreement to license our Hedgehog proteins and novel small molecule Hedgehog pathway agonists to Wyeth on an exclusive worldwide, royalty-bearing basis for the development and commercialization of pharmaceutical products for the therapeutic applications in treatment of neurological disorders, including neurodegenerative diseases and neuropathies. Under the terms of the agreement, Wyeth Pharmaceuticals paid us a license fee of $1.5 million and purchased 315,524 shares of our common stock at a price of $4.754 per share for an aggregate purchase price of $1.5 million. Wyeth will provide research funding for a minimum of two years. In addition, Wyeth is obligated to make cash payments to us upon the successful achievement of clinical development and drug approval milestones and is obligated to pay a royalty on net product sales, if any, that escalates with increasing sales volume. Excluding product royalties, the transaction has a potential value to us of more than $170 million, assuming at least two products are successfully developed and commercialized.

Amylin Pharmaceuticals

In December 2002, we granted Amylin Pharmaceuticals an exclusive worldwide, royalty-bearing license to our PYY patent applications for use in the research, development and commercialization of products in exchange for an up-front fee, milestone payments upon the achievement of specified development objectives, and royalties on potential future product sales, if any. PYY is a gut peptide that has been shown in animals and humans to suppress appetite and reduce food intake. Amylin has exclusive responsibility for expenses related to further development of the PYY compound.

Intellectual Property

Our policy is to prosecute and enforce the patents and proprietary technology rights that are key to our business. We intend to continue to file United States 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.

We have 164 issued patents and 121 pending patent applications in the United States expiring on various dates between 2007 and 2021 and have foreign counterpart patent filings for most of these patents and patent applications. These patents and patent applications are directed to compositions of matter, methods of making and using these compositions, methods of repairing, replacing, augmenting and creating tissue for multiple applications, methods for drug screening and discovery, developmental biological processes, and patents relating to our proprietary technologies.

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Hedgehog Pathway.    We have 38 issued U.S. patents and 5 allowed U.S. applications expiring on various dates between 2015 and 2021, which relate to the Hedgehog pathway. These patents and patent applications cover proteins, nucleic acids, antibodies, and certain small molecule agonists and antagonists 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.

Bone Morphogenetic Pathway.    We have 107 issued U.S. patents and 3 allowed U.S. applications expiring on various dates between 2007 and 2021, which relate to the BMP pathway. These patents and patent applications cover certain BMP proteins, nucleic acids, antibodies, drug screening and discovery methods, methods of protein manufacturing, as well as methods of using these BMP proteins, nucleic acids or antibodies 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 BMP-related products.

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 limitations on publication of 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 publish discoveries arising from their efforts. Any such publication could 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.

We are party to various license agreements that give us rights to commercialize various 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 running 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 with us.

Research Program

We have a research group that seeks to identify and develop new therapeutic applications for our existing patent portfolio and seeks to identify new signaling pathways that may have therapeutic potential. Our research group, working closely with our business development group, also strives to identify external technologies that might provide in-licensing opportunities, consistent with our broad interest in regenerative signaling pathways. As of December 31, 2003, our research group consists of 43 employees, consisting of molecular biologists, cell biologists, pharmacologists and other scientific disciplines.

During the years ended December, 2003, 2002 and 2001, we estimate that our total company-sponsored research and development expenses were approximately $10.8 million, $8.7 million and $26.3 million,

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respectively, and that our collaborator-sponsored research and development expenses were approximately $2.6 million, $5.3 million and $2.7 million, respectively.

Regulatory Matters

FDA Requirements for New Drug Compounds

The research, testing, manufacture and marketing of drug products are extensively regulated by numerous governmental authorities in the United States and other countries. In the United States, drugs are subject to rigorous regulation by the FDA. The Federal Food, Drug, and Cosmetic Act, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, labeling, promotion and marketing and distribution of pharmaceutical products. Failure to comply with applicable regulatory requirements may subject a company to a variety of administrative or judicially-imposed sanctions and/or the inability to obtain or maintain required approvals or to market approved drug products.

The steps ordinarily required before a new pharmaceutical product may be marketed in the United States include preclinical laboratory tests, animal tests and formulation studies, the submission to the FDA of a notice of claimed investigational exemption or an investigational new drug application, which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically takes several years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease. Government regulation may delay or prevent marketing of potential products for a considerable period of time and impose costly procedures upon a manufacturer’s activities. Success in early stage clinical trials does not assure success in later stage clinical trials. Data obtained from clinical activities is not always conclusive and may be susceptible to varying interpretations that could delay, limit or prevent regulatory approval. Even if a product receives regulatory approval, later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market.

Preclinical tests include laboratory evaluation of product chemistry and formulation, as well as animal trials to assess the potential safety and efficacy of the product. The conduct of the preclinical tests and formulation of compounds for testing must comply with federal regulations and requirements. The results of preclinical testing are submitted to the FDA as part of an investigational new drug application.

Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted in compliance with federal regulations and requirements, under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. subjects must be submitted to the FDA as part of the investigational new drug application. The study protocol and informed consent information for patients in clinical trials must be submitted to institutional review boards for approval.

Clinical trials to support new drug applications for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In phase I, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics and pharmacological actions and safety, including side effects associated with increasing doses. Phase II usually involves trials in a limited patient population, to determine dosage tolerance and optimum dosage, identify possible adverse effects and safety risks, and provide preliminary support for the efficacy of the drug in the indication being studied. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in phase II evaluations, phase III trials are undertaken to further evaluate clinical efficacy and to further test for safety within an expanded patient population, typically at geographically dispersed clinical trial sites. Phase I, phase II or phase III testing of any product candidates may not be completed successfully within any specified time period, if at all.

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After successful completion of the required clinical testing, generally a new drug application is prepared and submitted to the FDA. FDA approval of the new drug application is required before marketing of the product may begin in the United States. The new drug application must include the results of extensive clinical and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and controls.

If FDA evaluations of the new drug application and the manufacturing facilities are favorable, the FDA may issue an approval letter, or, in some cases, an approvable letter followed by an approval letter. An approvable letter generally contains a statement of specific conditions that must be met in order to secure final approval of the new drug application. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of new drug application approval, the FDA may require post approval testing and surveillance to monitor the drug’s safety or efficacy and may impose other conditions, including labeling restrictions which can materially impact the potential market and profitability of the drug. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

Once the new drug application is approved, a product will be subject to certain post-approval requirements, including requirements for adverse event reporting and submission of periodic reports. Additionally, the FDA also strictly regulates the promotional claims that may be made about prescription drug products. In particular, the FDA requires substantiation of any claims of superiority of one product over another including, in many cases, requirements that such claims be proven by adequate and well controlled head-to-head clinical trials.

If the FDA’s evaluation of the new drug application submission or manufacturing facilities is not favorable, the FDA may refuse to approve the new drug application or issue a not approvable letter. The not approvable letter outlines the deficiencies in the submission and often requires additional testing or information in order for the FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. With limited exceptions, FDA may withhold approval of a new drug application regardless of prior advice it may have provided or commitments it may have made to the sponsor.

Foreign Regulation of New Drug Compounds

Approval of a product by comparable regulatory authorities may be necessary in foreign countries prior to the commencement of marketing of the product in those countries, whether or not FDA approval has been obtained. The approval procedure varies among countries and can involve requirements for additional testing. The time required may differ from that required for FDA approval. Although there are some procedures for unified filings for some European countries with the sponsorship of the country which first granted marketing approval, in general each country has its own procedures and requirements, many of which are time consuming and expensive. Thus, there can be substantial delays in obtaining required approvals from foreign regulatory authorities after the relevant applications are filed.

In Europe, marketing authorizations may be submitted at a centralized, a decentralized or a national level. The centralized procedure is mandatory for the approval of biotechnology products and provides for the grant of a single marketing authorization which is valid in all European Union member states. As of January 1995, a mutual recognition procedure is available at the request of the applicant for all medicinal products which are not subject to the centralized procedure.

Hazardous Materials

Our research and development processes involve the controlled use of hazardous materials, chemicals and radioactive materials and produce waste products. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous materials and waste products. We do not expect the cost of complying with these laws and regulations to be material.

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Competition

Our product candidates 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 based upon signaling pathways, is intense. Our competitors will include many large pharmaceutical and biopharmaceutical companies, as well as specialized biotechnology and medical device firms.

Many of the companies competing against us have financial, marketing and human resource capacities that are substantially greater than our own, which may provide these competitors significant competitive advantages over us. Others have extensive experience in undertaking clinical trials, in obtaining regulatory approval to market products and in manufacturing products on a large scale, which may enhance their competitive position relative to ours. In addition to competing with pharmaceutical, biotechnology and medical device companies, the products 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 which are competitive with our products and technologies.

The technology underlying the development of human therapeutic products is expected to continue to undergo rapid and significant advancement and change. 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 our collaborative partners or we 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 United States and abroad. Other companies may succeed in developing similar products that are introduced earlier, are more effective, or are produced and marketed more effectively. For example, our competitors may discover, characterize and develop important inducing molecules or genes 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.

We rely on or will rely on our strategic partners for support in our disease research programs and for preclinical evaluation and clinical development of our potential products and manufacturing and marketing of any products. Some of our strategic partners are conducting multiple product development efforts within each disease area that is the subject of our strategic alliance with them. Our strategic alliance agreements may not restrict the strategic partner from pursuing competing internal development efforts. Any of our product candidates, therefore, may be subject to competition with a product candidate under development by a strategic partner.

Manufacturing

We have no experience or capabilities in manufacturing. We have no current plans to develop manufacturing capability and instead plan to rely on our corporate partners or subcontractors to manufacture products.

Sales and Marketing

We have no sales, marketing or distribution experience or infrastructure and we have no current plans to develop a sales, marketing and distribution capability. We plan to rely on our corporate partners for product sales, marketing and distribution.

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Scientific Advisory Board

We have established a scientific advisory board made up of leading scientists and physicians in the field of signaling pathways. Members of our scientific advisory board consult with us on matters relating to our research and development programs, new technologies relevant to our research and development programs and other scientific and technical issues relevant to our business.

The current members of our scientific advisory board are as follows:

Employees

As of December 31, 2003, we had 64 full-time employees, of whom 38 hold Ph.D. or other advanced degrees. Of these employees, 43 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.

ITEM 2.    PROPERTIES

We have three facilities which are located at 25, 45 and 61 Moulton Street in Cambridge, Massachusetts and which consist of 1,526, 35,095 and 17,800 square feet, respectively. All of these facilities are leased until April 2007. Except for 17,280 square feet which we have sublet, we currently use our space to conduct our research and development initiatives and to manage the administrative aspects of our business.

ITEM 3.    LEGAL PROCEEDINGS

We are currently not party to any material legal proceedings.

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ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We did not submit any matter to a vote of security holders during the fourth quarter of the fiscal year covered by this annual report.

EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers are as follows:

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PART II

ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED

STOCKHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a) Market Information.    Our common stock is traded on The NASDAQ National 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 National Market: