UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 000-30347
CURIS, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware (State or Other Jurisdiction of Incorporation or Organization) |
04-3505116 (I.R.S. Employer Identification No.) | |
| 61 Moulton Street Cambridge, Massachusetts (Address of Principal Executive Offices) |
02138 (Zip Code) | |
Registrant’s Telephone Number, Including Area Code: (617) 503-6500
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12(b)-2 of the Exchange Act). x Yes ¨ No
As of April 23, 2004, there were 41,439,983 shares of the Registrant’s common stock outstanding.
QUARTERLY REPORT ON FORM 10-Q
INDEX
CURIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 19,708,935 | $ | 27,734,548 | ||||
| Cash equivalents—restricted |
190,688 | 190,661 | ||||||
| Marketable securities |
13,854,066 | 7,413,703 | ||||||
| Accounts receivable |
2,337,215 | 2,184,973 | ||||||
| Prepaid expenses and other current assets |
925,943 | 1,202,993 | ||||||
| Total current assets |
37,016,847 | 38,726,878 | ||||||
| Property and Equipment, net |
2,283,753 | 2,500,703 | ||||||
| Other Assets: |
||||||||
| Long-term investments |
4,611,929 | 2,389,742 | ||||||
| Goodwill, net |
8,982,000 | 8,982,000 | ||||||
| Other intangible assets, net (Note 5) |
158,426 | 177,193 | ||||||
| Long-term notes receivable |
2,000,000 | 2,000,000 | ||||||
| Deposits and other assets |
1,045,783 | 959,974 | ||||||
| Total other assets |
16,798,138 | 14,508,909 | ||||||
| $ | 56,098,738 | $ | 55,736,490 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current Liabilities: |
||||||||
| Debt and lease obligations, current portion |
$ | 12,617 | $ | 322,884 | ||||
| Accounts payable |
657,987 | 456,860 | ||||||
| Accrued liabilities |
2,871,519 | 2,427,783 | ||||||
| Deferred revenue, current portion |
1,541,379 | 1,241,379 | ||||||
| Total current liabilities |
5,083,502 | 4,448,906 | ||||||
| Convertible notes payable |
5,427,551 | 5,333,733 | ||||||
| Deferred revenue, net of current portion |
7,936,260 | 7,088,638 | ||||||
| Total liabilities |
18,447,313 | 16,871,277 | ||||||
| Commitments |
||||||||
| Stockholders’ Equity: |
||||||||
| Common stock, $0.01 par value— |
424,610 | 416,088 | ||||||
| Additional paid-in capital |
692,059,674 | 689,489,382 | ||||||
| Notes receivable |
(110,368 | ) | (110,368 | ) | ||||
| Treasury stock (at cost, 1,047,707 shares at March 31, 2004 and December 31, 2003) |
(891,274 | ) | (891,274 | ) | ||||
| Deferred compensation |
(724,942 | ) | (963,931 | ) | ||||
| Accumulated deficit |
(653,106,254 | ) | (649,068,435 | ) | ||||
| Accumulated other comprehensive income |
(21 | ) | (6,249 | ) | ||||
| Total stockholders’ equity |
37,651,425 | 38,865,213 | ||||||
| $ | 56,098,738 | $ | 55,736,490 | |||||
See accompanying notes to unaudited consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| REVENUES: |
||||||||
| Collaboration revenues |
$ | 855,805 | $ | 435,358 | ||||
| Total revenues |
855,805 | 435,358 | ||||||
| COSTS AND EXPENSES: |
||||||||
| Research and development |
2,807,835 | 2,739,798 | ||||||
| General and administrative |
1,915,149 | 1,708,275 | ||||||
| Stock-based compensation (A) |
301,701 | 263,866 | ||||||
| Amortization of intangible assets |
18,768 | 18,771 | ||||||
| Total costs and expenses |
5,043,453 | 4,730,710 | ||||||
| Loss from operations |
(4,187,648 | ) | (4,295,352 | ) | ||||
| OTHER INCOME (EXPENSE): |
||||||||
| Interest income |
107,331 | 107,134 | ||||||
| Other income |
153,845 | 127,772 | ||||||
| Interest expense |
(111,347 | ) | (229,358 | ) | ||||
| Total other income |
149,829 | 5,548 | ||||||
| Net loss |
$ | (4,037,819 | ) | $ | (4,289,804 | ) | ||
| Accretion of preferred stock dividend |
— | (180,225 | ) | |||||
| Net loss applicable to common stockholders |
$ | (4,037,819 | ) | $ | (4,470,029 | ) | ||
| Net loss per common share (basic and diluted) |
$ | (0.10 | ) | $ | (0.14 | ) | ||
| Weighted average common shares (basic and diluted) |
41,105,756 | 31,731,009 | ||||||
| Net loss |
$ | (4,037,819 | ) | $ | (4,289,804 | ) | ||
| Unrealized gain (loss) on marketable securities |
6,228 | (14,645 | ) | |||||
| Comprehensive loss |
$ | (4,031,591 | ) | $ | (4,304,449 | ) | ||
| (A) The following summarizes the departmental allocation of the stock-based compensation charge: |
||||||||
| Research and development |
$ | 211,114 | $ | 185,925 | ||||
| General and administrative |
90,587 | 77,941 | ||||||
| Total stock-based compensation |
$ | 301,701 | $ | 263,866 | ||||
See accompanying notes to unaudited consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: Net loss |
$ | (4,037,819 | ) | $ | (4,289,804 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities- |
||||||||
| Depreciation and amortization |
301,935 | 395,181 | ||||||
| Stock-based compensation expense |
301,701 | 263,866 | ||||||
| Non-cash interest expense on notes payable |
103,518 | 145,776 | ||||||
| Amortization of intangible assets |
18,768 | 18,771 | ||||||
| Impairment of property and equipment |
— | 280 | ||||||
| Changes in current assets and liabilities: |
||||||||
| Accounts receivable |
(152,242 | ) | — | |||||
| Prepaid expenses and other assets |
191,241 | 95,594 | ||||||
| Accounts payable and accrued liabilities |
644,863 | (397,005 | ) | |||||
| Deferred contract revenue |
1,147,622 | (48,707 | ) | |||||
| Total adjustments |
2,557,406 | 473,756 | ||||||
| Net cash used in operating activities |
(1,480,413 | ) | (3,816,048 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Purchase of marketable securities |
(8,580,091 | ) | (4,800,098 | ) | ||||
| Sale of marketable securities |
2,145,929 | 2,900,389 | ||||||
| Decrease in restricted cash |
— | 224,505 | ||||||
| Purchase of long-term investments |
(3,249,395 | ) | — | |||||
| Sale of long-term investments |
1,027,208 | — | ||||||
| Increase in other assets |
— | 2,500 | ||||||
| Purchases and dispositions of property and equipment |
(84,985 | ) | (11,109 | ) | ||||
| Net cash used in investing activities |
(8,741,334 | ) | (1,683,813 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Proceeds from issuance of common stock |
2,516,101 | — | ||||||
| Purchases of treasury stock |
— | (21,890 | ) | |||||
| Repayments of obligations under capital leases |
(319,967 | ) | (483,446 | ) | ||||
| Net cash provided by (used in) financing activities |
2,196,134 | (505,336 | ) | |||||
| Effect of exchange rates on cash and cash equivalents |
— | (127,499 | ) | |||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS |
(8,025,613 | ) | (6,132,696 | ) | ||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
27,734,548 | 26,920,605 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 19,708,935 | $ | 20,787,909 | ||||
See accompanying notes to unaudited consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| 1. | Nature of Business |
Curis, Inc. (“Curis” or “the Company”) is 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. The Company’s product development approach involves using small molecules, proteins or antibodies to modulate these regulatory signaling pathways. The Company has successfully developed several preclinical product candidates in the fields of kidney disease, cancer, neurological disorders, cardiovascular disease and hair growth regulation.
The Company is subject to risks commensurate with its industry and stage of development including, but not limited to, the development by its competitors of new technological innovations, dependence on key personnel, its ability to protect proprietary technology, its reliance on corporate partners to successfully research, develop and commercialize products based on the Company’s technologies, its ability to comply with government regulations and approval requirements as well as its ability to grow its business and obtain adequate financing to fund this growth.
| 2. | Basis of Presentation |
The accompanying consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. These statements, however, are condensed and do not include all disclosures required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on March 1, 2004.
In the opinion of the Company, the unaudited financial statements contain all adjustments (all of which were considered normal and recurring) necessary to present fairly the Company’s financial position at March 31, 2004 and the results of operations and cash flows for the three-month periods ended March 31, 2004 and 2003. The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and disclosure of certain assets and liabilities at the balance sheet date. Such estimates include the carrying value of property and equipment and intangible assets and the value of certain liabilities. Actual results may differ from such estimates.
These interim results are not necessarily indicative of results to be expected for a full year or subsequent interim periods.
| 3. | Financial Statement Reclassifications |
The Company has reclassified $174,000 for legal costs associated with its patents for the three months ended March 31, 2003 from “Research and development expenses” to “General and administrative expenses” in the Company’s Costs and Expenses section of its Consolidated Statement of Operations and Comprehensive Loss.
| 4. | Wyeth Pharmaceuticals Collaboration |
On January 12, 2004, the Company licensed its Hedgehog proteins and small molecule Hedgehog pathway agonists to Wyeth Pharmaceuticals for therapeutic applications in the treatment of neurological and other disorders. Under the terms of the agreement, Wyeth paid the Company a $1,500,000 license fee and $1,500,000 to purchase 315,524 shares of the Company’s common stock at a purchase price of $4.754 per share. The common stock purchase price was calculated as the 15-day trailing average of the closing price of the Company’s common stock. The $1,500,000 license fee is being recognized as revenue over the estimated development period of the collaboration, which the Company estimates to be five years.
6