Company Quick10K Filing
Quick10K
Curis
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$1.89 33 $63
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-06 Earnings, Exhibits
8-K 2019-05-23 Shareholder Rights, Officers, Amend Bylaw, Shareholder Vote, Exhibits
8-K 2019-05-14 Earnings, Exhibits
8-K 2019-03-26 Earnings, Exhibits
8-K 2018-12-27
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-09-24 Officers
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-05-29 Shareholder Rights, Amend Bylaw, Exhibits
8-K 2018-05-22 Other Events, Exhibits
8-K 2018-05-18 Officers, Other Events, Exhibits
8-K 2018-05-15 Shareholder Rights, Officers, Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-03-21 Officers
8-K 2018-01-02
ACH Aluminum Corp of China 5,770
CWH Camping World Holdings 1,060
INWK Innerworkings 175
TANH Tantech Holdings 44
CEI Camber Energy 6
QMCI Quotemedia 0
TOAD TOA Distribution Systems 0
ACCA Acacia Diversified Holdings 0
PGEC Prestige Capital 0
SCA Syncora Holdings 0
CRIS 2019-06-30
Part I-Financial Information
Item 1. Unaudited Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii-Other Information
Item 1A. Risk Factors
Item 6. Exhibits
EX-3.1 cris-6302019x10qexx31.htm
EX-31.1 cris-6302019x10qexx311.htm
EX-31.2 cris-6302019x10qexx312.htm
EX-32.1 cris-6302019x10qexx321.htm
EX-32.2 cris-6302019x10qexx322.htm

Curis Earnings 2019-06-30

CRIS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 cris-6302019x10q.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q 
(Mark one)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission File Number: 000-30347 
 
CURIS, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
04-3505116
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
4 Maguire Road
Lexington, Massachusetts
 
02421
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (617) 503-6500
 
 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, Par Value $0.01 per share
 
CRIS
 
Nasdaq Global Market
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.    ý  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ý  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer ¨
Accelerated filer  ¨
Non-accelerated filer  x
Smaller reporting company    x
 
 
 
Emerging growth company    ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    ý  No
As of August 5, 2019, there were 33,202,871 shares of the registrant’s common stock, par value $0.01 per share, outstanding.



CURIS, INC. AND SUBSIDIARIES QUARTERLY REPORT ON FORM 10-Q
Table of Contents
 
 
 
Page
Number
PART I.
FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
 
 
 
 
Item 1A.
 
 
 
Item 6.
 
 


2


PART I—FINANCIAL INFORMATION
Item 1.
UNAUDITED FINANCIAL STATEMENTS

CURIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

 
June 30,
2019
 
December 31,
2018
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
27,219

 
$
23,636

Investments
8,099

 
634

Short term investment – restricted
153

 

Accounts receivable
2,134

 
2,864

Prepaid expenses and other current assets
819

 
827

Total current assets
38,424

 
27,961

Property and equipment, net
234

 
267

Operating lease right-of-use asset
598

 

Long-term investment – restricted

 
153

Goodwill
8,982

 
8,982

Other assets
2

 
2

Total assets
$
48,240

 
$
37,365

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
2,163

 
$
2,909

Accrued liabilities
1,573

 
3,457

Operating lease liability
646

 

Current portion of long-term debt, net

 
6,884

Total current liabilities
4,382

 
13,250

Long-term debt, net

 
28,600

Liability related to the sale of future royalties, net
64,127

 

Other long-term liabilities

 
11

Total liabilities
68,509

 
41,861

Stockholders’ Equity:
 
 
 
Common stock, $0.01 par value—101,250,000 shares authorized; 33,202,871 shares issued and outstanding at June 30, 2019; 67,500,000 shares authorized; 33,159,253 shares issued and outstanding at December 31, 2018
332

 
332

Additional paid-in capital
981,336

 
980,012

Accumulated deficit
(1,001,937
)
 
(984,840
)
Total stockholders’ equity
(20,269
)
 
(4,496
)
Total liabilities and stockholders’ equity
$
48,240

 
$
37,365

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3


CURIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
(Unaudited)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Royalties
$
2,142

 
$
2,394

 
$
4,279

 
$
4,868

Contra revenue
(48
)
 
(36
)
 
(418
)
 
(42
)
Total revenues
2,094

 
2,358

 
3,861

 
4,826

Costs and expenses:
 
 
 
 
 
 
 
Cost of royalty revenues
89

 
134

 
197

 
263

Research and development
5,620

 
6,451

 
9,694

 
14,717

General and administrative
2,526

 
3,633

 
5,669

 
7,614

Total costs and expenses
8,235

 
10,218

 
15,560

 
22,594

Loss from operations
(6,141
)
 
(7,860
)
 
(11,699
)
 
(17,768
)
Other (expense) income:
 
 
 
 
 
 
 
Loss on debt extinguishment

 

 
(3,495
)
 

Interest income
235

 
189

 
343

 
375

Non-cash imputed interest expense related to the sale of future royalties
(1,287
)
 

 
(1,417
)
 

Interest expense
(20
)
 
(993
)
 
(829
)
 
(2,018
)
Total other expense, net
(1,072
)
 
(804
)
 
(5,398
)
 
(1,643
)
Net loss
$
(7,213
)
 
$
(8,664
)
 
$
(17,097
)
 
$
(19,411
)
Net loss per common share (basic and diluted)
$
(0.22
)
 
$
(0.26
)
 
$
(0.52
)
 
$
(0.59
)
Weighted average common shares (basic and diluted)
33,154,566

 
33,135,391

 
33,158,222

 
33,094,772

Net loss
$
(7,213
)
 
$
(8,664
)
 
$
(17,097
)
 
$
(19,411
)
Other comprehensive loss, net of tax:
 
 
 
 
 
 
 
Unrealized gain on marketable securities

 
5

 

 
1

Comprehensive loss
$
(7,213
)
 
$
(8,659
)
 
$
(17,097
)
 
$
(19,410
)
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

4


CURIS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except share data)
 
Common Stock
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
December 31, 2018
33,159,253

 
$
332

 
$
980,012

 
$

 
$
(984,840
)
 
$

 
$
(4,496
)
Recognition of employee stock-based compensation

 

 
651

 

 

 

 
651

Sales of restricted stock awards
(8,473
)
 

 

 

 

 

 

Net loss

 

 

 

 
(9,884
)
 

 
(9,884
)
March 31, 2019
33,150,780

 
$
332

 
$
980,663

 
$

 
$
(994,724
)
 
$

 
$
(13,729
)
Issuance of stock under the Employee Stock Purchase Plan
52,091

 

 
42

 

 

 

 
42

Recognition of employee stock-based compensation

 

 
631

 

 

 

 
631

Net loss

 

 

 

 
(7,213
)
 

 
(7,213
)
June 30, 2019
33,202,871

 
$
332

 
$
981,336

 
$

 
$
(1,001,937
)
 
$

 
$
(20,269
)

 
Common Stock
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
December 31, 2017
33,075,949

 
$
331

 
$
977,453

 
$
(1,524
)
 
$
(952,265
)
 
$
(2
)
 
$
23,993

Issuances of common stock under grant of restricted stock awards
294,250

 
3

 
(3
)
 

 

 

 

Recognition of employee stock-based compensation

 

 
1,226

 

 

 

 
1,226

Retirement of Treasury Stock
(244,569
)
 
(3
)
 
(1,521
)
 
1,524

 

 

 

Other comprehensive loss

 

 

 

 

 
(4
)
 
(4
)
Net loss

 

 

 

 
(10,747
)
 

 
(10,747
)
March 31, 2018
33,125,630

 
$
331

 
$
977,155

 
$

 
$
(963,012
)
 
$
(6
)
 
$
14,468

Issuance of stock under the Employee Stock Purchase Plan
55,516

 
1

 
111

 

 

 

 
112

Recognition of employee stock-based compensation

 

 
1,189

 

 

 

 
1,189

Other comprehensive gain

 

 

 

 

 
5

 
5

Net loss

 

 

 

 
(8,664
)
 

 
(8,664
)
June 30, 2018
33,181,146

 
$
332

 
$
978,455

 
$

 
$
(971,676
)
 
$
(1
)
 
$
7,110

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5


CURIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
Six Months Ended
June 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net loss
$
(17,097
)
 
$
(19,411
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
67

 
99

Non-cash lease expense
448

 

Stock-based compensation expense
1,282

 
2,415

Amortization of debt issuance costs
8

 
16

Non-cash imputed interest expense related to the sale of future royalties
1,417

 

Non-cash interest income on investments
(48
)
 
(128
)
Non-cash interest expense on operating lease liability
36

 

Loss on extinguishment of debt
3,495

 

Loss on disposal of fixed assets
7

 

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
730

 
568

Prepaid expenses, and other assets
8

 
213

Accounts payable and accrued and other liabilities
(2,579
)
 
(674
)
Operating lease liability
(498
)
 

Total adjustments
4,373

 
2,509

Net cash used in operating activities
(12,724
)
 
(16,902
)
Cash flows from investing activities:
 
 
 
Purchase of investments
(8,017
)
 
(20,932
)
Sales and maturities of investments
600

 
33,050

Expenditures for property and equipment
(41
)
 
(77
)
Net cash (used in) provided by investing activities
(7,458
)
 
12,041

Cash flows from financing activities:
 
 
 
Proceeds from royalty interest purchase agreement with Oberland Capital Management, LLC
65,000

 

Payment of issuance costs on royalty interest purchase agreement
(584
)
 

Proceeds from issuance of common stock under the Company's share-based compensation plan.
42

 
112

Payment of liability of future royalties
(1,706
)
 

Payment on termination of credit agreement with HealthCare Royalty Partners, III, L.P.
(37,162
)
 

Payments on Curis Royalty’s debt
(1,825
)
 
(3,074
)
Net cash provided by/(used in) financing activities
23,765

 
(2,962
)
Net increase (decrease) in cash and cash equivalents
3,583

 
(7,823
)
Cash and cash equivalents, beginning of period
23,636

 
38,288

Cash and cash equivalents, end of period
$
27,219

 
$
30,465

Non-cash items:
 
 
 
Property and equipment purchases in accounts payable
$

 
$
8

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6


CURIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
 
1.
Nature of Business
Curis, Inc. is a biotechnology company focused on the development of first-in-class and innovative therapeutics for the treatment of cancer. As used throughout these Condensed Consolidated Financial Statements, the term “the Company” refers to the business of Curis, Inc. and its wholly-owned subsidiaries, except where the context otherwise requires, and the term “Curis” refers to Curis, Inc.
The Company conducts its research and development programs both internally and through strategic collaborations. The Company’s clinical stage drug candidates are fimepinostat, CA-4948, and CA-170:

Fimepinostat is currently being explored in clinical studies in patients with MYC-altered diffuse large B-cell lymphoma (“DLBCL”) and solid tumors and has been granted Orphan Drug Designation and Fast Track Designation for the treatment of DLBCL by the U.S. Food and Drug Administration, (“FDA”) in April 2015 and May 2018, respectively. The Company has begun enrollment in a Phase 1 combination study with venetoclax in DLBCL patients, including patients with translocations in both MYC and the BCL2 gene, also referred to as double-hit lymphoma, or high grade B-cell lymphoma (“HGBL”) . The Company expects to report initial clinical data from this combination study in the second half of 2019.

CA-4948 is being tested in a dose escalating clinical trial in patients with non-Hodgkin lymphomas, including those with myeloid differentiation primary response 88, or MYD88, alterations. The Company is currently planning to initiate a separate Phase 1 trial for acute myeloid leukemia (“AML”) and myelodysplastic syndromes (“MDS”) patients.

CA-170 is currently undergoing testing in a clinical study in patients with mesothelioma. The Company announced in May 2019 that it had completed its target enrollment of these patients and expects to report initial clinical data from this study with respect to mesothelioma in the second half of 2019.
The Company’s pipeline also includes CA-327, which is a pre-Investigational New Drug (“IND”) stage oncology drug candidate. The Company is party to a collaboration with F. Hoffmann-La Roche Ltd (“Roche”), and Genentech Inc. (“Genentech”), a member of the Roche Group, under which Roche and Genentech are commercializing ErivedgeTM (vismodegib), a first-in-class orally-administered small molecule Hedgehog signaling pathway inhibitor. Erivedge is approved for the treatment of advanced basal cell carcinoma (“BCC”).
In January 2015, and as amended in September 2016, the Company entered into a collaboration, option and license agreement focused on immuno-oncology and selected precision oncology targets with Aurigene Discovery Technologies Limited (“Aurigene”).
The collaboration with Aurigene comprises multiple programs, and the Company has the option to exclusively license each program, including data, intellectual property and compounds associated therewith, once a development candidate is nominated within such program. In October 2015, the Company exercised options to license two programs under this collaboration. The first licensed program is in the immuno-oncology field and the Company has named CA-170, an orally-available small molecule antagonist of two immune checkpoints, V-domain Ig suppressor of T-cell activation (“VISTA”) and programmed death ligand-1 (“PDL1”), as the development candidate from this program. The second licensed program is in the precision oncology field and the Company has named CA-4948, an orally-available small molecule inhibitor of Interleukin-1 receptor-associated kinase 4 (“IRAK4”) as the development candidate. In October 2016, the Company exercised its option to license a third program in the collaboration, and designated CA-327, a distinct orally available small molecule antagonist of two immune checkpoints PDL1 and T-cell immunoglobulin and mucin domain containing protein-3 (“TIM3”) as the development candidate from this program. In March 2018, the Company exercised its option to license a fourth program, which is an immuno-oncology program.
The Company operates in a single reportable segment, which is the research and development of innovative cancer therapeutics. The Company expects that any products that are successfully developed and commercialized would be used in the healthcare industry and would be regulated in the United States by the FDA and in overseas markets by similar regulatory authorities.
The Company is subject to risks common to companies in the biotechnology industry as well as risks that are specific to the Company’s business, including, but not limited to: the Company’s ability to advance and expand its research and development programs; the Company’s reliance on Aurigene to successfully discover and preclinically develop drug candidates

7


under the parties’ collaboration agreement; the Company’s reliance on Roche and Genentech to successfully commercialize Erivedge in the approved indication of advanced BCC and to progress its clinical development in indications other than BCC; the Company’s ability to obtain adequate financing to fund its operations; the ability of the Company and its wholly-owned subsidiary, Curis Royalty, LLC (“Curis Royalty”), to satisfy the terms of the royalty interest purchase agreement (the “Oberland Purchase Agreement”) with entities managed by Oberland Capital Management, LLC (“Purchasers”); the Company’s ability to obtain and maintain necessary intellectual property protection; development by the Company’s competitors of new or better technological innovations; the Company's dependence on key personnel; the Company’s ability to comply with regulatory requirements; the Company's ability to obtain and maintain applicable regulatory approvals and commercialize any approved product candidates, and the Company’s ability to execute on its overall business strategies.
The Company’s future operating results will largely depend on the progress of drug candidates currently in its development pipeline and the magnitude of payments that it may receive and make under its current and potential future collaborations. The results of the Company’s operations have varied and will likely continue to vary significantly from year to year and quarter to quarter and depend on a number of factors, including, but not limited to: the timing, outcome and cost of the Company’s preclinical studies and clinical trials for its drug candidates; Aurigene’s ability to successfully discover and develop preclinical programs under the Company’s collaboration with Aurigene, as well as the Company’s decision to exclusively license and further develop programs under this collaboration; Roche and Genentech’s ability to successfully commercialize Erivedge; and positive results in Roche and Genentech’s ongoing clinical trials.
The Company has incurred losses and negative cash flows from operations since its inception. As of June 30, 2019, the Company had an accumulated deficit of approximately $1.0 billion, and for the six months ended June 30, 2019, the Company incurred a loss of $17.1 million and used $12.7 million of cash in operations. The Company expects to continue to generate operating losses in the foreseeable future. The Company anticipates that its $35.3 million of existing cash, cash equivalents and investments at June 30, 2019 will be sufficient to fund its operating expenses and capital requirements, based upon its current operating plan, for at least the next twelve months from the issuance date of these financial statements. The Company will need to raise additional capital or incur indebtedness to continue to fund its operations in the future. The Company’s ability to raise additional funds will depend, among other factors, on financial, economic and market conditions, many of which are outside of its control and it may be unable to raise financing when needed, or on terms favorable to the Company. If necessary funds are not available, the Company may have to delay, reduce the scope of, or eliminate some of its development programs, potentially delaying the time to market for or preventing the marketing of any of its product candidates.
2.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements of the Company have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. These statements, however, are condensed and do not include all disclosures required by accounting principles generally accepted in the U.S. (“GAAP”), 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, 2018 as filed with the Securities and Exchange Commission (“SEC”), on March 26, 2019.
In the opinion of the Company, the unaudited financial statements contain all adjustments (all of which were considered normal and recurring) necessary for a fair statement of the Company’s financial position at June 30, 2019; the results of operations for the three and six-month periods ended June 30, 2019 and 2018; stockholders' equity for the three and six-month periods ended June 30, 2019 and 2018 and the cash flows for the six-month periods ended June 30, 2019 and 2018. The Condensed Consolidated Balance Sheet at December 31, 2018 was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements.
The preparation of the Company’s Condensed Consolidated Financial Statements in conformity with GAAP 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 performance obligations under the Company’s collaboration agreements; the estimated repayment term of the Company’s debt and related short- and long-term classification; the fair value of the Company’s debt; the collectability of receivables; the carrying value of property and equipment and intangible assets; and the assumptions used in the Company’s valuation of stock-based compensation and the value of certain investments and 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.
Reclassifications and Revision
Certain prior period amounts have been reclassified to conform with the current period presentation. Reclassifications had no material impact on previously reported results of operations, financial position or cash flows.
A revision was made to the Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2019 to correctly reflect the prepayment fees associated with the termination of the credit agreement with HealthCare Royalty

8


Partners, III, L.P. This correction reduced the net cash used in operating activities and reduced the net cash provided by financing activities for the three months ended March 31, 2019 by $3.4 million, from the amounts previously reported. The revision to the Condensed Consolidated Statement of Cash Flows noted above represents an error that is not deemed to be material to the prior period Condensed Consolidated Financial Statements.
3.
Revenue Recognition
The Company’s business strategy includes entering into collaborative license and development agreements with biotechnology and pharmaceutical companies for the development and commercialization of the Company’s drug candidates. The terms of the agreements typically include non-refundable license fees, funding of research and development, payments based upon achievement of clinical development and regulatory objectives, and royalties on product sales.
License Fees and Multiple Element Arrangements
If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-front fees allocated to the license at such time as the license is transferred to the licensee and the licensee is able to use, and benefit from, the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligations to determine whether the combined performance obligations are satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
If the Company is involved in a steering committee as part of a multiple element arrangement, the Company assesses whether its involvement constitutes a performance obligation or a right to participate. Steering committee services that are not inconsequential or perfunctory and that are determined to be performance obligations are combined with other research services or performance obligations required under an arrangement, if any, in determining the level of effort required in an arrangement and the period over which the Company expects to complete its aggregate performance obligations.
Appropriate methods of measuring progress include output methods and input methods. In determining the appropriate method for measuring progress, the Company considers the nature of service that the Company promises to transfer to the customer. When the Company decides on a method of measurement, the Company will apply that single method of measuring progress for each performance obligation satisfied over time and will apply that method consistently to similar performance obligations and in similar circumstances.
If the Company cannot reasonably measure its progress toward complete satisfaction of a performance obligation because it lacks reliable information that would be required to apply an appropriate method of measuring progress, but the Company can reasonably estimate when the performance obligation ceases or the remaining obligations become inconsequential and perfunctory, then revenue is not recognized until the Company can reasonably estimate when the performance obligation ceases or becomes inconsequential. Revenue is then recognized over the remaining estimated period of performance.
Significant management judgment is required in determining the level of effort required under an arrangement and the period over which the Company is expected to complete its performance obligations under an arrangement.
Contingent Research Milestone Payments
Under the Financial Accounting Standards Board (“FASB”), Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), there is a constraint on the amount of variable consideration included in the transaction price in that either all, or a portion, of an amount of variable consideration should be included in the transaction price. The variable consideration amount should be included only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The assessment of whether variable consideration should be constrained is largely a qualitative one that has two elements: the likelihood of a change in estimate, and the magnitude thereof. Variable consideration is not constrained if the potential reversal of cumulative revenue recognized is not significant, for example.
If the consideration in a contract includes a variable amount, a company will estimate the amount of consideration in exchange for transfer of promised goods or services. The consideration also can vary if a company’s entitlement to the consideration is contingent on the occurrence or nonoccurrence of a future event. The Company considers contingent research milestone payments to fall under the scope of variable consideration, which should be estimated for revenue recognition purposes at the inception of the contract and reassessed ongoing at the end of each reporting period.
The Company assesses whether contingent research milestones should be considered variable consideration that should be constrained and thus not part of the transaction price. This includes an assessment of the probability that all or some of the

9


milestones revenue could be reversed when the uncertainty around whether or not the achievement of each milestone is resolved, and the amount of reversal could be significant.
GAAP provides factors to consider when assessing whether variable consideration should be constrained. All of the factors should be considered, and no factor is determinative. The Company considers all relevant factors.
Reimbursement of Costs
Reimbursement of research and development costs by third party collaborators is recognized as revenue over time provided the Company has determined that it transfers control (i.e. performs the services) of a service over time and, therefore, satisfies a performance obligation according to the provisions outlined in ASC 606-10-25-27, Revenue Recognition.
Royalty Revenue
Since the first quarter of 2012, the Company has recognized royalty revenues related to Genentech’s and Roche’s sales of Erivedge. For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). The Company expects to continue recognizing royalty revenue from Genentech’s sales of Erivedge in the U.S. and in other markets where Genentech and Roche successfully obtain marketing approval, if any (see Note 4). However, a portion of Erivedge royalties will be paid to the Purchasers under the Oberland Purchase Agreement (see Note 9). Contra revenue includes amounts related to the reimbursement of patent related research and development costs and amounts related to potential adjustments in countries where the Company's royalties are subject to reductions.
Summary
During the six months ended June 30, 2019 and 2018, total gross revenues were 100% from the Company’s collaboration with Genentech.
4.
Research and Development Collaborations
 
(a)
Genentech
In June 2003, the Company licensed its proprietary Hedgehog pathway technologies to Genentech for human therapeutic use. The primary focus of the collaborative research plan has been to develop molecules that inhibit the Hedgehog pathway for the treatment of various cancers. The collaboration is currently focused on the development of Erivedge, which is being commercialized by Genentech in the U.S. and by Genentech’s parent company, Roche, in several other countries for the treatment of advanced BCC. Pursuant to the agreement, the Company is eligible to receive up to an aggregate of $115.0 million in contingent cash milestone payments, exclusive of royalty payments, in connection with the development of Erivedge or another small molecule Hedgehog pathway inhibitor, assuming the successful achievement by Genentech and Roche of specified clinical development and regulatory objectives. Of this amount, the Company has received $59.0 million in cash milestone payments as of June 30, 2019.
In addition to these payments and pursuant to the collaboration agreement, the Company is entitled to a royalty on net sales of Erivedge that ranges from 5% to 7.5%. The royalty rate applicable to Erivedge may be decreased by 2% on a country-by-country basis in certain specified circumstances, including when a competing product that binds to the same molecular target as Erivedge is approved by the applicable regulatory authority in another country, and is being sold in such country, by a third party for use in the same indication as Erivedge, or, when there is no issued intellectual property covering Erivedge in a territory in which sales are recorded. In 2015, the FDA and the European Medicine Agency’s Committee for Medicinal Products for Human Use, approved another Hedgehog signaling pathway inhibitor, Odomzo® (“sonidegib”), which is marketed by Sun Pharmaceutical Industries Ltd., for use in locally advanced BCC. Beginning in the fourth quarter of 2015, Genentech applied the 2% royalty reduction on U.S. sales of Erivedge as a result of the first commercial sale of Odomzo® in the U.S. and the Company anticipates that Genentech will reduce by 2% royalties on net sales of Erivedge outside of the United States on a country-by-country basis to the extent that sonidegib is approved by the applicable country's regulatory authority and is being sold in such country. However, pursuant to the Oberland Purchase Agreement, Curis has retained its rights with respect to the 2% of royalties that are subject to such reduction in countries where such reduction has not occurred, subject to the terms and conditions of the Oberland Purchase Agreement.
In March 2017, the Company and Curis Royalty entered into a new credit agreement with HealthCare Royalty Partners III, L.P. (“HealthCare Royalty”), for the purpose of refinancing and terminating its prior loan from BioPharma Secured Debt Fund II Sub, S. à r. l., a Luxembourg limited liability company managed by Pharmakon Advisors (“BioPharma-II”) . Accordingly, HealthCare Royalty made a $45.0 million loan at an annual interest rate of 9.95% to Curis Royalty, which was used in part to pay off $18.4 million in remaining loan obligations to BioPharma-II under the prior loan, with the residual

10


proceeds of $26.6 million distributed to the Company as sole equity member of Curis Royalty. The final maturity date of the loan was the earlier of such date that the principal is paid in full, or Curis Royalty's right to receive royalties under the collaboration agreement with Genentech is terminated. On March 22, 2019, in connection with entering into the Oberland Purchase Agreement, the Company and Curis Royalty terminated, and repaid in full all amounts outstanding under, the loan with HealthCare Royalty.
The Company has identified the following performance obligations related to the Genentech collaboration:
1.
To grant the license for its Hedgehog antagonist programs and to provide service on both a steering committee and co-development committee. This performance obligation has been satisfied and only contingent royalty revenue remains to be recognized in the future.
2.
To provide reimbursable research and development services. This performance obligation has been satisfied and no revenue remains to be recognized in the future.
The Company recognized $2.1 million and $2.4 million in royalty revenue under the Genentech collaboration during the three months ended June 30, 2019 and 2018, respectively and $4.3 million and $4.9 million during the six months ended June 30, 2019 and 2018, respectively. The Company also recorded costs of royalty revenues within the costs and expenses section of its Condensed Consolidated Statements of Operations and Comprehensive Loss of $0.1 million and $0.1 million, during the three months ended June 30, 2019 and 2018, respectively, and $0.2 million and $0.3 million during the six months ended June 30, 2019 and 2018, respectively. Cost of royalty revenues comprises 5% of the royalties earned by Curis Royalty with respect to Erivedge outside Australia, and 2% direct net sales in Australia (subject to decrease on expiration of the patent in April 2019 to 5% of the royalty payments that Curis Royalty receives from Genentech, through February 2022), that the Company is obligated to pay to university licensors.
As further discussed in Note 9, a portion of royalty revenues received from Genentech on net sales of Erivedge will be paid to the Purchasers pursuant to the Oberland Purchase Agreement.
The Company recorded immaterial research and development revenue during the three and six months ended June 30, 2019 and 2018 related to expenses incurred by the Company on behalf of Genentech that were paid by the Company and for which Genentech is obligated to reimburse the Company.
Genentech incurred expenses of $0.1 million during the three and six months ended June 30, 2019. Genentech incurred expenses of an immaterial amount during the three months ended June 30, 2018, and incurred expenses of $0.1 million for the six months ended June 30, 2018. Under this collaboration, the Company is obligated to reimburse Genentech, and the Company records contra-revenues which have been netted against research and development revenues in its Condensed Consolidated Statements of Operations and Comprehensive Loss. The Company will continue to recognize revenue for expense reimbursement as such reimbursable expenses are incurred, provided that the provisions of the ASC 606 are met.
The Company recorded a receivable from Genentech under this collaboration, comprised primarily of Erivedge royalties earned in the first half of 2019 and 2018, respectively. The receivable recorded in the Company's current assets section of its Condensed Consolidated Balance Sheets amounted to $2.1 million and $2.5 million as of June 30, 2019 and 2018, respectively.

(b)
Aurigene
In January 2015, the Company entered into an exclusive collaboration agreement with Aurigene for the discovery, development and commercialization of small molecule compounds in the areas of immuno-oncology and selected precision oncology targets. Under the collaboration agreement, Aurigene granted the Company an option to obtain exclusive, royalty-bearing licenses to relevant Aurigene technology to develop, manufacture and commercialize products containing certain of such compounds anywhere in the world, except for India and Russia, which are territories retained by Aurigene.
In connection with the collaboration agreement, the Company issued to Aurigene 3,424,026 shares of its common stock valued at $24.3 million in partial consideration for the rights granted to the Company under the collaboration agreement, which the Company recognized as expense during the year ended December 31, 2015. The shares were issued pursuant to a stock purchase agreement with Aurigene dated January 18, 2015.
In September 2016, the Company and Aurigene entered into an amendment to the collaboration agreement. Under the terms of the amendment, in exchange for the issuance by the Company to Aurigene of 2,041,666 shares of its common stock, Aurigene waived payment of up to a total of $24.5 million in potential milestones and other payments associated with the first four programs in the collaboration that may have become due from the Company under the collaboration agreement. To the extent any of these waived milestones or other payments are not payable by the Company, for example in the event one or more of the milestone events do not occur, the Company will have the right to deduct the unused waived amount from any one or more of the milestone payment obligations tied to achievement of commercial milestone events. The amendment also provides that, in the event supplemental program activities are performed by Aurigene, the Company will provide up to $2.0 million of

11


additional funding for each of the third and fourth licensed program. The shares were issued pursuant to a stock purchase agreement with Aurigene dated September 7, 2016.
As of June 30, 2019, the Company has exercised its option to license the following four programs under the collaboration:
1.
IRAK4 Program - a precision oncology program of small molecule inhibitors of IRAK4. The development candidate is CA-4948, an orally available small molecule inhibitor of IRAK4.
2.
PD1/VISTA Program - an immuno-oncology program of small molecule antagonists of PD1 and VISTA immune checkpoint pathways. The development candidate is CA-170, an orally available small molecule antagonist of VISTA and PDL1.
3.
PD1/TIM3 Program - an immuno-oncology program of small molecule antagonists of PD1 and TIM3 immune checkpoint pathways. The development candidate is CA-327, an orally available small molecule antagonist of PDL1 and TIM3.
4.
In March 2018, the Company exercised its option to license a fourth program, which is an immuno-oncology program.

For each of the Company's licensed programs (as described above) the Company is obligated to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize at least one product in each of the U.S., specified countries in the European Union and Japan, and Aurigene is obligated to use commercially reasonable efforts to perform its obligations under the development plan for such licensed program in an expeditious manner.
Subject to specified exceptions, Aurigene and the Company agreed to collaborate exclusively with each other on the discovery, research, development and commercialization of programs and compounds within immuno-oncology for an initial period of approximately two years from the effective date of the collaboration agreement. At the Company's option, and subject to specified conditions, it may extend such exclusivity for up to three additional one year periods by paying to Aurigene additional exclusivity option fees on an annual basis. The Company exercised the first one-year exclusivity option in the first quarter of 2017. The fee for this exclusivity option exercise was $7.5 million, which the Company paid in two equal installments in the first and third quarters of 2017. The Company elected not to further exercise its exclusivity option and thus did not make the $10.0 million payment required for this additional exclusivity in 2018. As a result of the Company’s election to not further exercise its exclusivity option, Curis is no longer operating under broad immuno-oncology exclusivity with Aurigene. In 2019, the Company elected not to further exercise its exclusivity option related to the IRAK4 and PD1/VISTA programs and did not make the $2.0 million payment required for this continued exclusivity.
Since January 2015, the Company has paid $14.5 million in research payments and has waived $19.5 million in milestone payments under the terms of the 2016 amendment.
For each of the IRAK4, PD1/VISTA,PD1/TIM3 programs, and the fourth immuno-oncology program: the Company has remaining unpaid or unwaived payment obligations of $42.5 million per program, related to regulatory approval and commercial sales milestones, plus specified additional payments for approvals for additional indications, if any.
In addition to the collaboration agreement, in June 2017, the Company entered into a master development and manufacturing agreement with Aurigene for the supply of drug substance and drug product. The Company incurred expenses related to Aurigene of $0.6 million for each of the six month periods ended June 30, 2019 and June 30, 2018 respectively.
5.
Fair Value of Financial Instruments
The Company has adopted the provisions of the FASB Codification Topic 820, Fair Value Measurements and Disclosures. Topic 820 provides a framework for measuring fair value under GAAP and requires expanded disclosures regarding fair value measurements. GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.
GAAP requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. GAAP also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

12


Level 1
Quoted prices in active markets for identical assets or liabilities.
 
 
Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
 
Level 3
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
In accordance with the fair value hierarchy, the following table shows the fair value as of June 30, 2019 and December 31, 2018 of those financial assets and liabilities that are measured at fair value on a recurring basis, according to the valuation techniques the Company used to determine their fair value. No financial assets or liabilities are measured at fair value on a nonrecurring basis at June 30, 2019 and 2018.
 
Quoted Prices in
Active Markets
(Level 1)
 
Other Observable
Inputs (Level 2)
 
Unobservable
Inputs (Level 3)
 
Fair Value
As of June 30, 2019:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
17,936

 
$

 
$

 
$
17,936

Corporate commercial paper, bonds and notes

 
7,835

 

 
7,835

Municipal bonds

 
120

 

 
120

Short-term investments:

 

 

 

Corporate commercial paper, bonds and notes

 
8,099

 

 
8,099

Total assets at fair value
$
17,936

 
$
16,054

 
$

 
$
33,990


 
Quoted Prices in
Active Markets
(Level 1)
 
Other Observable
Inputs (Level 2)
 
Unobservable
Inputs (Level 3)
 
Fair Value
As of December 31, 2018:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
18,180

 
$

 
$

 
$
18,180

Corporate commercial paper, stock, bonds and notes

 
2,199

 

 
2,199

Municipal bonds

 
135

 

 
135

Short-term investments:

 

 

 

Corporate commercial paper, stock, bonds and notes

 
634

 

 
634

Total assets at fair value
$
18,180

 
$
2,968

 
$

 
$
21,148

No investments held at June 30, 2019 were transferred between levels.
Fair Value of Financial Liabilities
As of June 30, 2019, the fair value of the liability related to the sale of future royalties is based on the Company's current estimates of future royalties expected to be paid to the Purchasers over the life of the Oberland Purchase Agreement, which are considered Level 3 (See Note 9, “Liability related to the Sale of Future Royalties”).
6.
Investments
Cash equivalents are highly liquid investments purchased with original maturities of three months or less. All other liquid investments are classified as marketable securities. The Company’s short-term investments are marketable securities with original maturities of greater than three months from the date of purchase, but less than twelve months from the balance sheet date, and the Company's long-term investments are marketable securities with original maturities of greater than twelve months from the balance sheet date. Marketable securities consist of commercial paper, corporate bonds and notes, and government obligations. All of the Company’s investments have been designated available-for-sale and are stated at fair value with any unrealized holding gains or losses included as a component of stockholders’ equity and any realized gains and losses recorded in the statement of operations in the period during which the securities are sold.

13


Unrealized gains and temporary losses on investments are included in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity. Realized gains and losses, dividends and interest income are included in other income (expense). Any premium or discount arising at purchase is amortized and/or accreted to interest income.
The amortized cost, unrealized gains and losses and fair value of investments available-for-sale as of June 30, 2019 were as follows:
 
Amortized
Cost
 
Unrealized
Gain
 
Unrealized
Loss
 
Fair Value
Corporate commercial paper, bonds and notes – short-term
$
8,099

 
$

 
$

 
$
8,099

Total investments
$
8,099

 
$

 
$

 
$
8,099

Short-term investments have maturities ranging from one to twelve months with a weighted-average maturity of 0.3 years at June 30, 2019.
The amortized cost, unrealized gains and losses and fair value of investments available-for-sale as of December 31, 2018 were as follows: 
 
Amortized
Cost
 
Unrealized
Gain
 
Unrealized
Loss
 
Fair Value
Corporate bonds and notes – short-term
$
634

 
$

 
$

 
$
634

Total investments
$
634

 
$

 
$

 
$
634

Short-term investments have maturities ranging from one to twelve months with a weighted-average maturity of 0.1 years at December 31, 2018.
As of June 30, 2019, the Company did not have any debt securities in an unrealized loss position.
7.
Debt

(a)
HealthCare Royalty Partners III
On March 6, 2017, the Company and Curis Royalty entered into a credit agreement, referred to herein as the credit agreement, with HealthCare Royalty for the purpose of refinancing Curis Royalty’s financing arrangement with BioPharma-II, referred to herein as the prior loan. On March 22, 2017, the Company's prior credit agreement with BioPharma-II was terminated in its entirety.
Pursuant to the credit agreement, HealthCare Royalty made a $45.0 million loan at an interest rate of 9.95% to Curis Royalty, which was used to pay off $18.4 million in remaining loan obligations to BioPharma-II under the prior loan. The remaining proceeds of $26.6 million were distributed to Curis as sole equity holder of Curis Royalty.
Under the terms of the credit agreement with HealthCare Royalty, quarterly Erivedge royalty and royalty-related payments from Genentech were to be first applied to pay, collectively: (i) escrow fees payable by the Company pursuant to an escrow agreement, (ii) the Company’s royalty obligations to academic institutions, (iii) certain expenses incurred by HealthCare Royalty in connection with the credit agreement and related transaction documents, including enforcement of its rights in the case of an event of default under the credit agreement and (iv) expenses incurred by the Company enforcing its right to indemnification under the collaboration agreement. Subsequently, remaining amounts were to be applied first, to pay interest and second, to pay principal on the loan. If royalties owed under the Genentech collaboration agreement were insufficient to pay the accrued interest on the outstanding loan, the unpaid interest outstanding would be added to the loan principal on a quarterly basis. On March 22, 2019, the Company and Curis Royalty terminated, and repaid all amounts outstanding under, the credit agreement, consisting of approximately $33.8 million in remaining loan principal and approximately $3.4 million in accrued and unpaid interest and prepayment fees. The $3.4 million in accrued and unpaid interest and prepayment fees along with the remaining deferred issuance costs of $0.1 million were recorded as a loss on debt extinguishment.

(b)
Debt Payments to HealthCare Royalty Partners III
During the six months ended June 30, 2019 Curis Royalty made payments totaling $39.9 million, of which $35.6 million was applied to the principal, with the remainder applied to prepayment fees and accrued interest. The Company repaid all outstanding debt and related accrued interest during the first quarter of 2019. During the six months ended June 30, 2018 Curis Royalty made payments totaling $5.1 million, of which $3.1 was applied to the principal, with the remainder applied to accrued interest.

14


At December 31, 2018, the Company recorded short-and long-term debt of $6.9 million and $28.6 million, respectively, and accrued interest of $0.2 million in the Company’s Condensed Consolidated Balance Sheets.
For the six months ended June 30, 2019 and 2018, the Company recognized interest expense related to its debt of $0.8 million and $2.0 million, respectively, in the Condensed Consolidated Statement of Operations and Comprehensive Loss.
8.
Accrued Liabilities
Accrued liabilities consisted of the following:
 
June 30,
2019
 
December 31,
2018
Accrued compensation
$
1,110

 
$
2,774

Professional fees
248

 
233

Accrued interest on debt (Note 7)

 
165

Other
215

 
285

Total
$
1,573

 
$
3,457

 
9.
Liability Related to the Sale of Future Royalties

On March 22, 2019, the Company and Curis Royalty entered into the Oberland Purchase Agreement pursuant to which the Company sold to the Purchasers a portion of its rights to receive royalties from Genentech on potential net sales of Erivedge.
As upfront consideration for the purchase of the royalty rights, at closing the Purchasers paid to Curis Royalty $65.0 million less certain transaction expenses. Curis Royalty will also be entitled to receive up to approximately $70.7 million in milestone payments based on sales of Erivedge as follows: (i) $17.2 million if the Purchasers and Curis Royalty receive aggregate royalty payments pursuant to the Oberland Purchase Agreement in excess of $18.0 million during the calendar year 2021, subject to certain exceptions and (ii) $53.5 million if the Purchasers receive payments pursuant to the Oberland Purchase Agreement in excess of $117.0 million on or prior to December 31, 2026.
Concurrently with the closing of the Oberland Purchase Agreement, Curis Royalty used a portion of the proceeds to terminate and repay the loan with Healthcare Royalty. In connection with such termination, Curis Royalty paid approximately $37.2 million to satisfy its remaining loan obligations to HealthCare Royalty, including approximately $33.8 million in principal balance on the loan and $3.4 million in accrued and unpaid interest and prepayment fees. Curis Royalty also used a portion of the proceeds to pay transaction costs of approximately $0.3 million, resulting in net proceeds of approximately $27.5 million.
The Oberland Purchase Agreement provides that after the occurrence of an event of default as defined under the security agreement by Curis Royalty, the Purchasers shall have the option, for a period of 180 days, to require Curis Royalty to repurchase a portion of certain royalty and royalty-related payments, excluding a portion of non-U.S. royalties retained by Curis Royalty, referred to as the Purchased Receivables, at a price, referred to as the Put/Call Price, equal to a percentage, beginning at a low triple digit percentage and increasing over time up to a low-mid triple digit percentage of the sum of the upfront purchase price and any portion of the milestone payments paid in a lump sum by the Purchasers, if any, minus certain payments previously received by the Purchasers with respect to the Purchased Receivables. Additionally, Curis Royalty shall have the option at any time to repurchase the Purchased Receivables at the Put/Call Price as of the date of such repurchase.
As a result of our obligation to pay future royalties to Oberland, we recorded the proceeds from this transaction as a liability on our Condensed Consolidated Balance Sheet that will be accounted for using the interest method over the estimated life of the Oberland Purchase Agreement. As a result, we impute interest on the transaction and record non-cash imputed interest expense at the estimated interest rate. Our estimate of the interest rate under the agreement is based on the amount of royalty payments expected to be received by Oberland over the life of the arrangement. We periodically assess the expected royalty payments to Curis Royalty from Genentech using a combination of historical results and forecasts from market data sources. To the extent such payments are greater or less than our initial estimates or the timing of such payments is materially different than our original estimates, we will adjust the amortization of the liability.
The Company determined the fair value of the liability related to the sale of future royalties at the time of the Oberland Purchase Agreement to be $65.0 million, with an effective annual non-cash imputed interest rate of 7.8%. The Company incurred $0.6 million of transaction costs in connection with the agreement. These transaction costs will be amortized to non-cash imputed interest expense over the estimated term of the Oberland Purchase Agreement.

15


The following table shows the activity with respect to the liability related to the sale of future royalties during the six months ended June 30, 2019.
Liability related to the sale of future royalties at March 22, 2019
$
65,000

Capitalized Issuance Costs
(584
)
Non-cash imputed interest expense recognized for the six months ended June 30, 2019
1,417

Less: Payment to Oberland Capital, LLC
(1,706
)
Carrying value of liability related to the sale of future royalties at June 30, 2019
$
64,127

10.
Lease
Leased assets represent the Company's right to use an underlying asset for the expected lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. These assets and related lease liabilities are recognized at the commencement date based on the present value of lease payments over the expected lease term, including any contractually specified annual rent increases. When determinable, the Company uses the rate implicit in the lease to determine the present value of lease payments. If a lease agreement does not contain an implicit rate in the agreement, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
The Company is party to a lease agreement with the Trustees of Lexington Office Realty Trust pursuant to which the Company leases 24,529 square feet of property that is used for office, research and laboratory space located at 4 Maguire Road in Lexington, Massachusetts.
The term of the 4 Maguire Road lease agreement commenced on December 1, 2010, and was set to expire in February 2018. The Company had the option to extend the term for one additional five-year period upon the Company’s written notice to the lessor at least one year and no more than 18 months in advance of the extension. On November 1, 2017, the Company entered into a second amendment to the lease agreement pursuant to which the Company agreed to extend the lease for an additional two-year period. The term of the lease amendment commenced on March 1, 2018, and expires on February 29, 2020. The amendment provides for no option to extend the term beyond the two-year period, nor does it provide an option for early termination of the lease.
The total cash obligations for the base rent over the initial term of the lease agreement and the extended term of the lease agreement were approximately $4.4 million and $2.0 million, respectively. In addition to the base rent, the Company is also responsible for its share of operating expenses and real estate taxes, in accordance with the terms of the lease agreement. The Company has provided a security deposit to the lessor in the form of an irrevocable letter of credit in the original amount of $0.3 million. The original deposit has been reduced throughout the lease term since its inception to $0.2 million during each of 2019 and 2018, respectively, in accordance with the terms of the lease. These amounts have been classified as restricted investments in the Company’s Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018.
The Company’s remaining lease commitments for all leased facilities with an initial or remaining term of at least one year are as follows as of June 30, 2019.
Year Ending December 31,
 
2019
$
503

2020
168

Total minimum payments
671

Less: Present value adjustments
(25
)
Total operating lease liability
$
646

The Company’s remaining lease commitments for all leased facilities with an initial or remaining term of at least one year were as follows as of December 31, 2018.
Year Ending December 31,
 
2019
$
1,002

2020
168

Total minimum payments
$
1,170

Operating cost for all leases was $0.5 million for the six month periods ended June 30, 2019 and 2018.

16


11.
Stock Plans and Stock Based Compensation
As of June 30, 2019, the Company had two stockholder-approved, share-based compensation plans: (i)  the Amended and Restated 2010 Employee Stock Purchase Plan (“ESPP”), adopted by the Company's board of directors in April 2017 and approved by stockholders in June 2017, and (ii) the Third Amended and Restated 2010 Stock Incentive Plan, (“2010 Plan”). New employees are typically issued options as an inducement equity award under Nasdaq Listing Rule 5635(c)(4) outside of the 2010 Plan.
The Third Amended and Restated 2010 Stock Incentive Plan
The 2010 Plan permits the granting of incentive and non-qualified stock options and stock awards to employees, officers, directors, and consultants of the Company and its subsidiaries at prices determined by the Company’s Board of Directors. On May 23, 2019 the Company's stockholders approved an amendment to the Company's Third Amended and Restated 2010 Stock Incentive Plan to reserve an additional 4,700,000 shares of common stock for issuance under the 2010 Plan. The Company can issue up to 10,890,000 shares of its common stock pursuant to awards granted under the 2010 Plan. Options become exercisable as determined by the Board of Directors and expire up to 10 years from the date of grant. The 2010 Plan uses a “fungible share” concept under which each share of stock subject to awards granted as options and stock appreciation rights, will cause one share per share under the award to be removed from the available share pool, while each share of stock subject to awards granted as restricted stock, restricted stock units, other stock-based awards or performance awards where the price charged for the award is less than 100% of the fair market value of the Company’s common stock will cause 1.3 shares per share under the award to be removed from the available share pool. As of June 30, 2019 the Company had only granted options to purchase shares of the Company’s common stock with an exercise price equal to the closing market price of the Company’s common stock on the Nasdaq Global Market on the grant date. As of June 30, 2019, 4,815,447 shares remained available for grant under the 2010 Plan.
During the six months ended June 30, 2019, the Company’s board of directors granted options to purchase a total of 3,512,865 shares of the Company’s common stock to employees and directors of the Company, under the 2010 Plan or in the form of inducement awards pursuant to Nasdaq Marketplace Rules. Of these options, options to purchase 2,792,865 shares were granted to employees and vest as to 25% of the shares underlying the award after the first year and as to an additional 6.25% of the shares underlying the award in each subsequent quarter, based upon continued employment over a four-year period, and are exercisable at a price equal to the closing price of the Company’s common stock on the Nasdaq Global Market on the grant dates.
Additionally, the Company’s board of directors authorized a grant of options to purchase 1,502,867 shares of the Company’s common stock to its officers in January 2019. Such stock options have an exercise price equal to $1.16 per share, the closing price of the Company’s common stock on the Nasdaq Global Market on the date of grant, and will vest and become exercisable as to 25% of the shares underlying the award after the first year and as to an additional 6.25% of the shares underlying the award in each subsequent quarter, based upon continued employment over a four-year period.
During the first quarter of 2019, the Company’s board of directors granted options to its non-employee directors to purchase 720,000 shares of common stock under the 2010 Plan, which will vest and become exercisable in one year from the date of grant. These options were granted at an exercise price of $1.16 per share, which equals the closing market price of the Company’s common stock on the Nasdaq Global Market on the grant date. No additional non-employee grants were made in the current quarter.
Nonstatutory Inducement Grants
For certain new employees the Company issues options as an inducement equity award under Nasdaq Listing Rule 5635(c)(4) outside of the 2010 Plan. Each option will vest as to 25% of the shares underlying the option on the first anniversary of the grant date, and as to an additional 6.25% of the shares underlying the option on each successive three-month period thereafter. During the six months ended June 30, 2019, the Company’s board of directors granted options to purchase 180,000 shares of common stock as inducement equity awards. These options were granted at a weighted average exercise price of $1.95 which is based on the closing market price of the Company’s common stock on the Nasdaq Global Market on the grant date.
Employee and Director Grants
Vesting Tied to Service Conditions
In determining the fair value of stock options, the Company generally uses the Black-Scholes option pricing model. The Black-Scholes option pricing model employs the following key assumptions for employee and director options awarded during the six months ended June 30, 2019 and 2018 based on the assumptions noted in the following table:

17


 
Six Months Ended
June 30,
 
2019
 
2018
Expected term (years)  employees and officers
5.5
 
5.5
Expected term (years) – directors
5.5
 
6.25
Risk-free interest rate
2.3-2.6%
 
2.5-2.8%
Expected Volatility
75.8-78.7%
 
66.0-72.0%
Expected Dividends
None
 
None
The expected volatility is based on the annualized daily historical volatility of the Company’s stock price for a time period consistent with the expected term of each grant. Management believes that the historical volatility of the Company’s stock price best represents the future volatility of the stock price.
The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for the expected term of the respective grant. The Company has not historically paid cash dividends, and does not expect to pay cash dividends in the foreseeable future.
The expected terms and stock price volatility utilized in the calculation involve management’s best estimates at that time, both of which impact the fair value of the option calculated under the Black-Scholes methodology and, ultimately, the expense that will be recognized over the life of the option. GAAP also requires that the Company recognize compensation expense for only the portion of options that are expected to vest. Therefore, management calculated an estimated annual pre-vesting forfeiture rate that is derived from historical employee termination behavior since the inception of the Company, as adjusted. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.
A summary of stock option activity under the 2010 Plan, the 2000 Stock Incentive Plan, the 2000 Director Stock Option Plan and nonstatutory inducement awards is summarized as follows:
 
Number of
Shares
 
Weighted
Average
Exercise
Price per
Share
 
Weighted
Average
Remaining Contractual Life
 
Aggregate Intrinsic Value
Outstanding, December 31, 2018
3,714,394

 
$
7.68

 
 
 
 
Granted
3,512,865

 
1.20

 
 
 
 
Exercised

 

 
 
 
 
Canceled
(1,286,446
)
 
7.76

 
 
 
 
Outstanding, June 30, 2019
5,940,813

 
$
3.83

 
8.42
 
$
2,279

Exercisable at June 30, 2019
1,368,172

 
$
10.41

 
5.37
 
$
1

Vested and unvested expected to vest at June 30, 2019
5,118,711

 
$
4.21

 
8.26
 
$
1,844

The weighted average grant-date fair values of the stock options granted during the six months ended June 30, 2019 and 2018 were $0.79 and $1.73, respectively. As of June 30, 2019, there was approximately $4.0 million of unrecognized compensation cost related to unvested employee stock option awards outstanding, net of the impact of estimated forfeitures that is expected to be recognized as expense over a weighted-average period of 2.73 years. There were no options exercised during the six months ended June 30, 2019 and June 30, 2018.
The following table presents a summary of outstanding restricted stock awards (“RSAs”) under the 2010 Plan as of June 30, 2019:
 
Number of
Shares
 
Weighted
Average
Grant Date Fair Value
Outstanding, December 31, 2018
226,250

 
$
3.45

Awarded

 

Vested
(195,313
)
 
3.45

Forfeited

 

Outstanding, June 30, 2019
30,937

 
$
3.45

As of June 30, 2019, there were 30,937 shares outstanding covered by RSAs that are expected to vest. The weighted average fair value of these shares of restricted stock was $3.45 per share and the aggregate fair value of these shares of

18


restricted stock was approximately $0.1 million. As of June 30, 2019, there were approximately $0.1 million of unrecognized compensation costs, net of estimated forfeitures, related to RSAs granted to officers, which are expected to be recognized as expense over a remaining weighted average period of 2.56 years.
Second Amended and Restated 2010 Employee Stock Purchase Plan
The Company has reserved 2,000,000 of its shares of common stock for issuance under the ESPP. Eligible employees may purchase shares of the Company’s common stock at 85% of the lower closing market price of the common stock at the beginning of the enrollment period or ending date of the any purchase period within a two-year enrollment period, as defined. The Company has four six-month purchase periods per each two-year enrollment period. If, within any one of the four purchase periods in an enrollment period, the purchase period ending stock price is lower than the stock price at the beginning of the enrollment period, the two-year enrollment resets at the new lower stock price. This aspect of the plan was amended in 2017. Prior to 2017, the plan included two six-month purchase periods per year with no defined enrollment period. As of June 30, 2019, 283,144 shares were issued under the ESPP, of which 52,091 were issued during the quarter ended June 30, 2019. As of June 30, 2019, there were 1,716,856 shares available for future purchase under the ESPP.
The Company recorded an immaterial amount in compensation expense for the three and six months ended June 30, 2019 and $0.1 million for the three and six months ended June 30, 2018 related to its ESPP.
Stock-Based Compensation Expense
The Company recorded a total of $0.6 million and $1.3 million, respectively, in compensation expense for the three and six months ended June 30, 2019 and $1.2 million and $2.4 million, respectively, for the three and six months ended June 30, 2018 related to employee and director stock option grants. The total fair values of vested stock options for each of the six months ended June 30, 2019 and 2018 was $3.4 million and $1.8 million, respectively.
Total Stock-Based Compensation Expense
For the three and six months ended June 30, 2019 and 2018, the Company recorded stock-based compensation expense to the following line items in its costs and expenses section of the Condensed Consolidated Statements of Operations and Comprehensive Loss, including expense related to its ESPP:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Research and development expenses
$
123

 
$
436

 
$
299

 
$
849

General and administrative expenses
508

 
753

 
983

 
1,566

Total stock-based compensation expense
$
631

 
$
1,189

 
$
1,282

 
$
2,415

12.
Accumulated Other Comprehensive Loss
The Company had an immaterial balance of accumulated other comprehensive income as of June 30, 2019 and December 31, 2018.
The following table summarizes the changes in accumulated other comprehensive income (loss) as of June 30, 2018.
 
Unrealized Losses
and Gain on
Securities Available-for-Sale
Balance, as of December 31, 2017
$
(2
)
Unrealized gain on marketable securities
1

Net current period other comprehensive income
1

Balance, as of June 30, 2018
$
(1
)
13.
Common Stock
(a)
Reverse Stock Split
On May 29, 2018 (“Effective Date”), the Company filed a Certificate of Amendment to the Company’s Restated Certificate of Incorporation with the Secretary of State of the State of Delaware (“Certificate of Amendment”), which effected,

19


as of 5:00 p.m. Eastern Time on the Effective Date, a 1-for-5 reverse stock split (“Reverse Stock Split”) of the Company’s issued and outstanding common stock, $0.01 par value per share.
As a result of the Reverse Stock Split, every five shares of common stock issued and outstanding was converted into one share of common stock. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who would have otherwise been entitled to a fractional share of common stock were instead entitled to receive a proportional cash payment.
The Reverse Stock Split proportionately reduced the number of authorized shares of common stock. The Reverse Stock Split did not change the par value of the common stock or the authorized number of shares of preferred stock of the Company. All outstanding stock options were adjusted as a result of the Reverse Stock Split, as required by the terms of such stock options
(b)
2015 Sales Agreement with Cowen and Company, LLC
On July 2, 2015, the Company entered into a sales agreement with Cowen and Company, LLC (“Cowen”), pursuant to which the Company may sell from time to time up to $30.0 million of the Company’s common stock through an “at-the-market” equity offering program under which Cowen will act as sales agent. Subject to the terms and conditions of the sales agreement, Cowen may sell the common stock by methods deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, including sales made directly on the Nasdaq Global Market, on any other existing trading market for the common stock or to or through a market maker other than on an exchange. In addition, with the Company’s prior written approval, Cowen may also sell the common stock by any other method permitted by law, including in negotiated transactions. Cowen will use its commercially reasonable efforts consistent with its normal trading and sales practices and applicable state and federal laws, rules and regulations and the rules of the Nasdaq Global Market to sell on the Company’s behalf all of the shares requested to be sold by the Company. The Company has no obligation to sell any of the common stock under the sales agreement. Either the Company or Cowen may at any time suspend solicitations and offers under the sales agreement upon notice to the other party. The sales agreement may be terminated at any time by either the Company or Cowen upon written notice to the other party as specified in the sales agreement. The aggregate compensation payable to Cowen shall be 3% of the gross sales price of the common stock sold by Cowen pursuant to the sales agreement. Each party has agreed in the sales agreement to provide indemnification and contribution against certain liabilities, including liabilities under the Securities Act, subject to the terms of the sales agreement. The shares sold under the sales agreement, have been issued and sold pursuant to the universal shelf registration statement on Form S-3, filed with the Securities and Exchange Commission on July 2, 2015. The remaining shares that may be sold under the sales agreement are expected to be issued and sold, if at all, pursuant to the currently effective universal shelf registration statement on Form S-3, filed with the Securities and Exchange Commission on May 3, 2018. The Company did not sell shares of common stock under this sales agreement during the quarter ended June 30, 2019.
As of June 30, 2019, the Company has sold an aggregate of 420,796 shares of common stock pursuant to this sales agreement, for net proceeds of $6.2 million.
(c)
Treasury Stock Retirement
Since 2002, the Company has repurchased 244,569 shares of common stock at a total cost of $1.5 million. The shares were repurchased through a combination of a repurchase program of up to $3.0 million approved by the Board of Directors in 2002 and through employee purchases of common stock upon the exercise of stock options by remittance of shares of Company stock. The Company accounts for its common stock repurchases as treasury stock under the cost method.
In March 2018, the Company retired all 244,569 shares of common stock at a total cost of $1.5 million. This was a non-cash transaction and thus only affected the classifications within the stockholders' equity section of the Company's Condensed Consolidated Balance Sheet.
(d)
2018 Charter Amendment
On May 15, 2018, the Company's stockholders approved an increase to the number of authorized shares of its common stock from 45,000,000 shares to 67,500,000 shares.
(e)
2019 Charter Amendment
On May 23, 2019, the Company's stockholders approved an increase to the number of authorized shares of its common stock from 67,500,000 shares to 101,250,000 shares.

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14.
Loss Per Common Share
Basic and diluted loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is the same as basic net loss per common share for the three months ended June 30, 2019 and 2018, because the effect of the potential common stock equivalents would be antidilutive due to the Company’s net loss position for these periods. Antidilutive securities consist of stock options outstanding of 5,940,813 and 4,069,712 as of June 30, 2019 and 2018, respectively.
15.
Related Party Transactions
(a)
Agreement with Head of Research and Development - Robert E. Martell, M.D., Ph.D.
On October, 17, 2018, the Company entered into an exclusive option and license agreement with Epi-Cure Pharmaceuticals, Inc., (“Epi-Cure”) a privately held early-stage biotechnology company. Robert E. Martell, M.D., Ph.D., the Company’s Head of Research and Development and a former director of the Company, is a founder of Epi-Cure, was formerly an officer and director of Epi-Cure, and is currently a holder of a convertible promissory note to Epi-Cure. Under the terms of the option and license agreement, Epi-Cure has granted Curis an exclusive option to certain program compounds that may arise during the initial research and development period, and any extension thereof. Upon execution of the option and license agreement, the Company paid Epi-Cure an upfront payment of $0.1 million for legal and consulting costs incurred by Epi-Cure in connection with the transaction.
Under the terms of the agreement, Epi-Cure will have primary responsibility for conducting research and development activities and Curis will be responsible for funding up to $0.5 million of the research and development program costs and expenses during the initial research and development period. After the end of the initial research and development period, Curis has sixty days to elect to exercise its option to license the program compounds. If the Company makes this election it will make a $2.0 million license fee payment and will be responsible for the development and commercialization of products that may result from the collaboration. Curis will also make cash payments to Epi-Cure subject to successful achievement of certain patent, development, regulatory, and commercial milestones, up to $63.0 million and will also pay Epi-Cure mid-single digit royalties on net product sales if product candidates derived from this collaboration are successfully developed.
Epi-Cure has retained the right to opt in to co-develop and share in profits upon initiation of a Phase 2 clinical study, in which event Curis will share in any development costs and profits on a 50/50 basis. Epi-Cure also has the right to opt-out of co-development/co-profit in which case they will receive royalty payments in lieu of profit-sharing.
Each party has the right to terminate the agreement for uncured material breach by the other party. Curis has the right to terminate the agreement for its convenience upon 60 days prior written notice. The agreement also sets forth customary terms regarding each party’s intellectual property ownership rights, representations and warranties, indemnification obligations, confidentiality rights and obligations, patent prosecution, and maintenance and defense rights and obligations.
For the six months ended June 30, 2019, Curis paid and expensed $0.1 million of fees related to this agreement.
(b)
Agreement with David Tuck, M.D.
On May 24, 2018, the Company announced that David Tuck, M.D., its Chief Medical Officer, provided notice of his intention to retire from the Company, effective as of August 31, 2018. Dr. Tuck subsequently determined to retire on August 3, 2018. The Company and Dr. Tuck entered into a letter agreement on August 1, 2018 (“Letter Agreement”) pursuant to which Dr. Tuck agreed to provide the Company with specified advisory services commencing on August 4, 2018 and extending until May 3, 2019, subject to earlier termination (“Advisory Period”). In consideration for Dr. Tuck’s advisory services, the Company agreed to (i) pay him a monthly retainer of $35,000 during the Advisory Period and (ii) reimburse him for any pre-approved reasonable, documented out-of-pocket expenses relating to his advisory services. In addition, the Company and Dr. Tuck agreed to amend his stock option agreements such that his outstanding options ceased to vest as of his date of resignation on August 3, 2018. The Letter Agreement may be terminated (i) at any time upon the mutual written consent of the parties, (ii) at any time by the Company immediately upon Dr. Tuck’s breach or threatened breach of the terms of his Invention, Non-Disclosure and Non-Competition Agreement with the Company, or (iii) by the Company at any time upon Dr. Tuck’s material breach of the terms of the Letter Agreement and failure to cure such breach within five days after written notice from the Company. In the event of termination of the Letter Agreement, Dr. Tuck will be entitled to payment for services performed and expenses paid or incurred prior to the effective date of termination that have not previously been paid. The Letter Agreement also contains other customary terms and conditions relating to his advisory service.
While the Company may utilize Dr. Tuck's consulting services in the future, the Company deemed the services to be a reduced level of service and not substantive. Under ASC 450, Contingencies, when an employee terminates and enters into a consulting agreement and the services to be provided are not deemed substantive, the transaction should be accounted for as a severance arrangement with no future service requirement. Based on this guidance, the Company recognized $0.3 million of expense during 2018, which represented the total obligation under the Letter Agreement.

21


16.
New Accounting Pronouncements
Recently Issued and Adopted
In February 2016, the FASB issued Accounting Standard Update (“ASU”) No. 2016-02, Leases. In addition, the FASB recently issued ASU No. 2018-10 and ASU No. 2018-11, both of which are further clarifying amendments to ASU No. 2016-02. The standard requires organizations that lease assets to recognize on the balance sheet assets or liabilities, as applicable, for the rights and obligations created by those leases. Additionally, the guidance modifies current guidance for lessor accounting and leveraged leases. This new standard was effective for the Company as of January 1, 2019.
The Company elected to adopt the new standard using the modified retrospective method and, accordingly, has not recast comparative periods presented in its unaudited Condensed Consolidated Financial Statements. The Company elected the package of transition practical expedients for its existing leases and therefore it did not reassess the following: lease classification for existing leases, whether any existing contracts contained leases, if any initial direct costs were incurred and whether any existing land easements should be accounted for as leases. As permitted by the new standard, the Company elected as accounting policy elections to not recognize assets and related lease liabilities for leases with terms of twelve months or less. The Company elected the available practical expedients and updated internal controls to enable the preparation of financial information on adoption.
The Company adopted this standard as of January 1, 2019, which had an impact on its Condensed Consolidated Balance Sheets as of January 1, 2019 and June 30, 2019, with the recognition of an operating lease right-of-use asset in the amount of $1.0 million and $0.6 million, respectively, and the recognition of operating lease liabilities of $1.1 million and $0.6 million, respectively. The new standard did not have a significant impact on the Company's Condensed Consolidated Statements of Operations for any period.
Recently Issued, Not Yet Adopted
In August 2018, the FASB issued ASU No.2018-13, Fair Value Measurement, which modified the disclosure requirements for fair value measurement under ASC 820. The standard will be effective for annual reporting periods and interim periods within those annual periods, beginning after December 15, 2019, and early adoption is permitted. The Company is currently evaluating the effects of this standard and does not expect that adoption of this standard will have a material impact on its Condensed Consolidated Financial Statements.
Item 2. 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and the related notes appearing elsewhere in this report. Some of the information contained in this discussion and analysis and set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. You should review the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, or Form 10-Q, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. As used throughout this report, the terms “the Company,” “we,” “us,” and “our” refer to the business of Curis, Inc. and its wholly owned subsidiaries, except where the context otherwise requires, and the term “Curis” refers to Curis, Inc.
Overview
We are a biotechnology company focused on the development of first-in-class and innovative therapeutics for the treatment of cancer. Our clinical stage drug candidates are:

Fimepinostat is currently being explored in clinical studies in patients with MYC-altered diffuse large B-cell lymphoma (“DLBCL”) and solid tumors and has been granted Orphan Drug Designation and Fast Track Designation for the treatment of DLBCL by the U.S. Food and Drug Administration, (“FDA”) in April 2015 and May 2018, respectively. We have begun enrollment in a Phase 1 combination study with venetoclax in DLBCL patients, including patients with translocations in both MYC and the BCL2 gene, also referred to as double-hit lymphoma, or high grade B-cell lymphoma (“HGBL”). We expect to report initial clinical data from this combination study in the second half of 2019.

CA-4948 is being tested in a dose escalating clinical trial in patients with non-Hodgkin lymphomas, including those with myeloid differentiation primary response 88, or MYD88, alterations. We are currently planning to initiate a separate Phase 1 trial for acute myeloid leukemia (“AML”) and myelodysplastic syndromes (“MDS”) patients.

22


CA-170 is currently undergoing testing in a clinical study in patients with mesothelioma. We announced in May 2019 that we had completed our target enrollment of these patients and we expect to report initial clinical data from this study with respect to mesothelioma in the second half of 2019.
Our pipeline also includes CA-327, which is a pre-Investigational New Drug (“IND”), stage oncology drug candidate.
In addition, we are party to a collaboration with F. Hoffmann-La Roche Ltd (“Roche”), and Genentech Inc. (“Genentech”), a member of the Roche Group, under which Roche and Genentech are commercializing ErivedgeTM (vismodegib), a first-in-class orally-administered small molecule Hedgehog signaling pathway inhibitor. Erivedge is approved for the treatment of advanced basal cell carcinoma (“BCC”).
Finally, on January 18, 2015, we entered into a collaboration agreement with Aurigene Discovery Technologies Limited (“Aurigene”), a specialized, discovery-stage biotechnology company and wholly-owned subsidiary of Dr. Reddy’s Laboratories for the discovery, development and commercialization of small molecule compounds in the areas of immuno-oncology and precision oncology, which we refer to as the Aurigene agreement, which was amended in September 2016. As of June 30, 2019, we have licensed four programs under the Aurigene collaboration.
1.
IRAK4 Program - a precision oncology program of small molecule inhibitors of IRAK4. The development candidate is CA-4948, an orally available small molecule inhibitor of IRAK4.
2.
PD1/VISTA Program - an immuno-oncology program of small molecule antagonists of PD1 and VISTA immune checkpoint pathways. The development candidate is CA-170, an orally available small molecule antagonist of VISTA and PDL1.
3.
PD1/TIM3 Program - an immuno-oncology program of small molecule antagonists of PD1 and TIM3 immune checkpoint pathways. The development candidate is CA-327, an orally available small molecule antagonist of PDL1 and TIM3.
4.
In March 2018, we exercised our option to license a fourth program, which is an immuno-oncology program.
Based on our clinical development plans for our pipeline, we intend to predominantly focus our available resources on the continued development of fimepinostat, as well as CA-4948 and CA-170 in collaboration with Aurigene in the near term.
Our Collaborations and License Agreements
For information regarding our collaboration and license agreements, refer to Note 4, Research and Development Collaborations, in the accompanying Notes to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Form 10-Q and Items 7 and 8 of our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission, (“SEC”) on March 26, 2019.
Liquidity
Since our inception, we have funded our operations primarily through private and public placements of our equity securities, license fees, contingent cash payments, research and development funding from our corporate collaborators, debt financings and the monetization of certain royalty rights. We have never been profitable on an annual basis and have an accumulated deficit of $1.0 billion as of June 30, 2019. For the quarter ended June 30, 2019 we incurred a loss of $17.1 million and used $12.7 million of cash in operations. We expect that our cash, cash equivalents and short-term investments as of June 30, 2019 should enable us to maintain our planned operations into the second half of 2020.  
We will need to generate significant revenues to achieve profitability, and do not expect to achieve profitability in the foreseeable future, if at all. For a further discussion of our liquidity and funding requirements and related risks and uncertainties, see “Liquidity and Capital Resources - Funding Requirements.”
Key Drivers
We believe that near-term key drivers to our success will include:

our ability to successfully plan, finance and complete current and planned clinical trials for fimepinostat, CA-4948 and CA-170 as well as for such clinical trials to generate favorable data;
Aurigene’s ability to advance additional preclinical immuno-oncology, and precision oncology drug candidates, and our ability to license these programs from Aurigene and further progress them clinically;
Genentech and Roche’s ability to continue to successfully commercialize Erivedge in advanced BCC in the United States and in other global territories; and

23


our ability to raise the substantial additional financing required to fund our operations through our at-the-market sale facility with Cowen and Company, LLC (“Cowen”) or other potential financing.
In the longer term, a key driver to our success will be our ability, and the ability of any current or future collaborator or licensee, to successfully develop and commercialize additional drug candidates.
Financial Operations Overview

General.    Our future operating results will largely depend on the progress of drug candidates currently in our research and development pipeline. The results of our operations will vary significantly from year to year and quarter to quarter and depend on, among other factors, the cost and outcome of any preclinical development or clinical trials then being conducted. For a discussion of our liquidity and funding requirements, see “Liquidity” and “Liquidity and Capital Resources - Funding Requirements.”
Debt.    In December 2012, our wholly-owned subsidiary, Curis Royalty LLC (“Curis Royalty”), entered into a $30 million credit agreement with BioPharma Secured Debt Fund II Sub, S. à r. l., a Luxembourg limited liability company managed by Pharmakon Advisors (“BioPharma-II”), at an annual interest rate of 12.25% collateralized with certain future Erivedge royalty and royalty-related payment streams.

In connection with the loan, we transferred to Curis Royalty our right to receive royalty and royalty-related payments from Genentech. The loan and accrued interest was an obligation of Curis Royalty, with no recourse to us, to be repaid using the royalty and royalty-related payments from Genentech. To secure repayment of the loan, Curis Royalty granted a first priority lien and security interest (subject only to permitted liens) to BioPharma-II in all of its assets and all real, intangible and personal property, including all of its right, title and interest in and to the royalty and royalty-related payments. Under the terms of the credit agreement, quarterly royalty and royalty-related payments received by Curis Royalty from Genentech were first applied to pay interest and second, principal on the loan from BioPharma-II. As a result of the loan received from BioPharma-II, we continued to record royalty revenue from Genentech but expected such revenues would have been used to pay down such loan until it was repaid in full. Curis Royalty retained the right to royalty payments related to sales of Erivedge following repayment of the loan.

In March 2017, we and Curis Royalty, entered into a new credit agreement, referred to as the credit agreement, with HealthCare Royalty Partners III L.P. (“HealthCare Royalty”), a Delaware limited partnership managed by Healthcare Royalty Management, LLC, for the purpose of refinancing the prior loan from BioPharma-II. On the effective date of the credit agreement with Healthcare Royalty, the prior loan was terminated in its entirety.

Pursuant to the credit agreement, HealthCare Royalty made a $45.0 million loan at an annual interest rate of 9.95% to Curis Royalty, which was used to pay off the approximate $18.4 million in remaining loan obligations to BioPharma-II under the prior loan. The remaining proceeds of the loan of $26.6 million were distributed to us as sole equity holder of Curis Royalty. On March 22, 2019, we terminated the credit agreement, and repaid in full all amounts outstanding under the loan with HealthCare Royalty.
In connection with the termination and repayment in full of the loan with HealthCare Royalty, on March 22, 2019 we and Curis Royalty entered into a royalty interest purchase agreement (the “Oberland Purchase Agreement”) with TPC Investments I LP and TPC Investments II LP, referred to as the Purchasers, each of which is a Delaware limited partnership managed by Oberland Capital Management, LLC, and Lind SA LLC, referred to as the Agent, a Delaware limited liability company managed by Oberland Capital Management, LLC, as collateral agent for the Purchasers, pursuant to which we sold to the Purchasers a portion of our rights to receive royalties and royalty-related payments from Genentech on potential net sales of Erivedge. Upon closing of the Oberland Purchase Agreement, Curis Royalty received an upfront purchase price of $65.0 million from the Purchasers, approximately $33.8 million of which was used to pay off the remaining loan principal to HealthCare Royalty, and $3.7 million of which was used to pay transaction costs, including $3.4 million to HealthCare Royalty in accrued and unpaid interest and prepayment fees under the loan, resulting in net proceeds of approximately $27.5 million. Curis Royalty will also be entitled to receive milestone payments of (i) $17.2 million if the Purchasers and Curis Royalty receive aggregate royalty payments pursuant to the Oberland Purchase Agreement in excess of $18.0 million during the calendar year 2021, subject to certain exceptions, and (ii) $53.5 million if the Purchasers receive payments pursuant to the Oberland Purchase Agreement in excess of $117.0 million on or prior to December 31, 2026, which milestone payments may each be paid, at the option of the Purchasers, in a lump sum in cash or out of the Purchaser’s portion of future payments under the Oberland Purchase Agreement. For further discussion please refer to Note 9, Liability Related to the Sale of Future Royalties, in the accompanying Notes to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Form 10-Q.

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Revenue.    We do not expect to generate any revenues from our direct sale of products for several years, if ever. Substantially all of our revenues to date have been derived from license fees, research and development payments, and other amounts that we have received from our strategic collaborators and licensees, including royalty payments. Since the first quarter of 2012, we have recognized royalty revenues related to Genentech’s sales of Erivedge and we expect to continue to recognize royalty revenue in future quarters from Genentech’s sales of Erivedge in the U.S. and Roche’s sales of Erivedge outside of the U.S. However, a portion of our royalty and royalty-related revenues under our collaboration with Genentech will be paid to the Purchasers, pursuant to the Oberland Purchase Agreement. The Oberland Purchase Agreement will terminate upon the earlier to occur of (i) the date on which Curis Royalty’s rights to receive a portion of certain royalty and royalty-related payments, excluding a portion of non-U.S. royalties retained by Curis Royalty, referred to as the Purchased Receivables, owed by Genentech under the Genentech collaboration agreement have terminated in their entirety and (ii) the date on which payment in full of the put/call price is received by the Purchasers pursuant to the Purchasers’ exercise of their put option or Curis Royalty’s exercise of its call right as described in Note 9, Liability Related to the Sale of Future Royalties, in the accompanying Notes to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Form 10-Q.
We could receive additional milestone payments from Genentech, provided that contractually-specified development and regulatory objectives are met. Also, we could receive milestone payments from the Purchasers, provided that contractually-specified royalty payment amounts are met within applicable time periods. Our only source of revenues and/or cash flows from operations for the foreseeable future will be royalty payments that are contingent upon the continued commercialization of Erivedge under our existing collaboration with Genentech, and contingent cash payments for the achievement of clinical, development and regulatory objectives, if any, that are met under such collaboration. Our receipt of additional payments under our existing collaboration with Genentech cannot be assured, nor can we predict the timing of any such payments, as the case may be.
Cost of Royalty Revenues.    Cost of royalty revenues consists of all expenses incurred that are associated with royalty revenues that we record as revenues in our Condensed Consolidated Statements of Operations and Comprehensive Loss. These costs currently consist of payments we are obligated to make to university licensors on royalties that Curis Royalty receives from Genentech on net sales of Erivedge. In all territories other than Australia, our obligation is equal to 5% of the royalty payments that we receive from Genentech for a period of 10 years from the first commercial sale of Erivedge, which occurred in February, 2012 in the U.S. In addition, for royalties that Curis Royalty receives from Roche’s sales of Erivedge in Australia, we were obligated to make payments to university licensors of 2% of Roche’s direct net sales in Australia until expiration of the patent in April, 2019. Following April, 2019, the amount we are obligated to pay has decreased to 5% of the royalty payments that Curis Royalty receives from Genentech.
Research and Development.    Research and development expense consists of costs incurred to develop our drug candidates. These expenses consist primarily of:

salaries and related expenses for personnel, including stock-based compensation expense;
costs of conducting clinical trials, including amounts paid to clinical centers, clinical research organizations and consultants, among others;
other outside service costs, including costs of contract manufacturing;
sublicense payments;
the costs of supplies and reagents;
occupancy and depreciation charges;
certain payments that we make to Aurigene under our collaboration agreement, including, for example, option exercise fees and milestone payments; and
payments that we are obligated to make to certain third party university licensors upon our receipt of payments from Genentech related to the achievement of clinical development and regulatory objectives under our collaboration agreement.

25


The following graphic outlines the current status of our programs:
pipeline20190806highres.jpg
We expense research and development costs as incurred. We are currently incurring research and development costs under our Hedgehog signaling pathway inhibitor collaboration with Genentech related to the maintenance of third party licenses to certain background technologies.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will increase substantially over the next several years as we conduct our clinical trials of fimepinostat, CA-4948 and CA-170; prepare regulatory filings for our product candidates; continue to develop additional product candidates; and potentially advance our product candidates into later stages of clinical development.
The successful development and commercialization of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:

the scope, quality of data, rate of progress and cost of clinical trials and other research and development activities undertaken by us or our collaborators;
the results of future preclinical studies and clinical trials;
the cost and timing of regulatory approvals and maintaining compliance with regulatory requirements;
the cost and timing of establishing sales, marketing and distribution capabilities;
the cost of establishing clinical and commercial supplies of our drug candidates and any products that we may develop;
the effect of competing technological and market developments; and
the cost and effectiveness of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.
Any changes in the outcome of any of these variables with respect to the development of our product candidates could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the

26


FDA or another regulatory authority were to delay our clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time to complete clinical development of that product candidate. We may never obtain regulatory approval for any of our product candidates. Drug commercialization will take several years and millions of dollars in development costs.
A further discussion of some of the risks and uncertainties associated with completing our research and development programs on schedule, or at all, and some consequences of failing to do so, are set forth under “Part II, Item 1A—Risk Factors.”
General and Administrative.    General and administrative expense consists primarily of salaries, stock-based compensation expense and other related costs for personnel in executive, finance, accounting, business development, legal, information technology, corporate communications and human resource functions. Other costs include facility costs not otherwise included in research and development expense, insurance, and professional fees for legal, patent and accounting services. Patent costs include certain patents covered under collaborations, a portion of which is reimbursed by collaborators and a portion of which is borne by us.
Critical Accounting Policies and Estimates
The preparation of our Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the U.S. requires that we make estimates and assumptions that affect the reported amounts and disclosure of certain assets and liabilities at our balance sheet date. Such estimates and judgments include the carrying value of property and equipment and intangible assets, revenue recognition, the value of certain liabilities, debt classification and stock-based compensation. We base our estimates on historical experience and on various other factors that we believe to be appropriate under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We set forth our critical accounting policies and estimates in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on March 26, 2019.
Results of Operations
Three and Six Months Ended June 30, 2019 and June 30, 2018

The following table summarizes our results of operations for the three and six months ended June 30, 2019 and 2018:
 
For the Three Months Ended
June 30,
 
Percentage
Increase/
(Decrease)
 
For the Six Months Ended
June 30,
 
Percentage
Increase/
(Decrease)
 
2019
 
2018
 
 
2019
 
2018
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Revenues
$
2,094

 
$
2,358

 
(11
)%
 
$
3,861

 
$
4,826

 
(20
)%
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of royalty revenues
89

 
134

 
(34
)%
 
197

 
263

 
(25
)%
Research and development
5,620

 
6,451

 
(13
)%
 
9,694

 
14,717

 
(34
)%
General and administrative
2,526

 
3,633

 
(30
)%
 
5,669

 
7,614

 
(26
)%
Other expense, net
1,072

 
804

 
33
 %
 
5,398

 
1,643

 
>100 %

Net loss
$
(7,213
)
 
$
(8,664
)
 
(17
)%
 
$
(17,097
)
 
$
(19,411
)
 
(12
)%
Revenues. Total revenues are summarized as follows:

27


 
For the Three Months Ended
June 30,
 
Percentage
Increase/
(Decrease)
 
For the Six Months Ended
June 30,
 
Percentage
Increase/
(Decrease)
 
2019
 
2018
 
 
2019
 
2018
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Royalties
$
2,142

 
$
2,394

 
(11
)%
 
$
4,279

 
$
4,868

 
(12
)%
Contra revenue
(48
)
 
(36
)
 
(33
)%
 
(418
)
 
(42
)
 
<(100)%

Total revenues
$
2,094

 
$
2,358

 
(11
)%
 
$
3,861

 
$
4,826

 
(20
)%
Total revenues decreased by $0.3 million to $2.1 million for the three months ended June 30, 2019 as compared to $2.4 million for the same period in 2018, primarily related to royalty reductions arising from Genentech and Roche’s net sales of Erivedge during the three months ended June 30, 2019 as compared to the prior year period.
Total revenues decreased by $1.0 million to $3.9 million for the six months ended June 30, 2019 as compared to $4.8 million for the same period in 2018, primarily related to royalty reductions arising from Genentech and Roche’s net sales of Erivedge during the six months ended June 30, 2019 as compared to the prior year period.
Cost of Royalty Revenues. Cost of royalty revenues remained unchanged at $0.1 million for the three months ended June 30, 2019 as compared to the same period in 2018. Cost of royalty revenues decreased to $0.2 million from $0.3 million for the six months ended June 30, 2019 as compared to the same period in 2018. We are obligated to make payments to two university licensors on royalties that Curis Royalty earns from Genentech on net sales of Erivedge.
Research and Development Expenses. The following table summarizes our research and development expenses incurred during the periods indicated: 
 
For the Three Months Ended
June 30,
 
Percentage
Increase/
(Decrease)
 
For the Six Months Ended
June 30,
 
Percentage
Increase/
(Decrease)
 
2019
 
2018
 
 
2019
 
2018
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Direct research and development expenses
$
3,578

 
$
2,673

 
34
 %
 
$
5,759

 
$
6,844

 
(16
)%
Employee-related expenses
1,465

 
3,238

 
(55
)%
 
3,067

 
6,711

 
(54
)%
Facilities, depreciation and other expenses
577

 
540

 
7
 %
 
868

 
1,162

 
(25
)%
Total research and development expenses
$
5,620

 
$
6,451

 
(13
)%
 
$
9,694

 
$
14,717

 
(34
)%

Research and development expenses were $5.6 million for the three months ended June 30, 2019, as compared to $6.5 million in the same period in 2018, a decrease of $0.8 million, or 13%. Direct research and development expenses increased by $0.9 million for the three months ended June 30, 2019 as compared to the same period in 2018, primarily due to increased costs related to clinical activities for CA-4948 offset by lower costs related to CA-170. Employee related expenses decreased by approximately $1.8 million primarily related to lower personnel costs and stock-based compensation expense.

Research and development expenses were $9.7 million for the six months ended June 30, 2019, as compared to $14.7 million in the same period in 2018, a decrease of $5.0 million, or 34%. Direct research and development expenses decreased by $1.1 million for the six months ended June 30, 2019 as compared to the same period in 2018, primarily due to decreased costs related to clinical activities and manufacturing for CA-170. Employee related expenses decreased by approximately $3.6 million primarily related to lower personnel costs and stock-based compensation expense.
We expect that a majority of our research and development expenses for the foreseeable future will be incurred in connection with our efforts to advance our programs, including clinical and preclinical development costs, option exercise fees, and potential milestone payments upon achievement of certain milestones.

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General and Administrative Expenses. General and administrative expenses are summarized as follows:
 
For the Three Months Ended
June 30,
 
Percentage
Increase/
(Decrease)
 
For the Six Months Ended
June 30,
 
Percentage
Increase/
(Decrease)
 
2019
 
2018
 
 
2019
 
2018
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Personnel
$
988

 
$
1,166

 
(15
)%
 
$
2,023

 
$
2,492

 
(19
)%
Legal services
389

 
719

 
(46
)%
 
976

 
1,460

 
(33
)%
Professional and consulting services
405

 
566

 
(28
)%
 
858

 
1,158

 
(26
)%
Insurance costs
106

 
98

 
8
 %
 
210

 
202

 
4
 %
Stock-based compensation
508

 
753

 
(33
)%
 
983

 
1,566

 
(37
)%
Other general and administrative expenses
130

 
331

 
(61
)%
 
619

 
736

 
(16
)%
Total general and administrative expenses
$
2,526

 
$
3,633

 
(30
)%
 
$
5,669

 
$
7,614

 
(26
)%
General and administrative expenses were $2.5 million for the three months ended June 30, 2019, as compared to $3.6 million in the same period in 2018, a decrease of $1.1 million, or 30%. The decrease in general administrative expense was driven primarily by lower personnel, legal services and stock-based compensation during the period.
General and administrative expenses were $5.7 million for the six months ended June 30, 2019, as compared to $7.6 million in the same period in 2018, a decrease of $1.9 million, or 26%. The decrease in general administrative expense was driven primarily by lower legal and consulting services, lower personnel and stock-based compensation expenses.
Other Expense. Interest income was consistent at $0.2 million for the three months ended June 30, 2019 and 2018, respectively. Non-cash imputed interest expense related to future royalty payments was $1.3 million for the three months ended June 30, 2019. For the three months ended June 30, 2018 interest expense was $1.0 million related to interest accrued on Curis Royalty’s debt obligations.
For the six months ended June 30, 2019, loss on extinguishment of debt was $3.5 million with $3.4 million due to payment of a pre-payment fee due to HealthCare Royalty and $0.1 million related to the remaining deferred issuance costs. Interest income was $0.3 million and $0.4 million for the six months ended June 30, 2019 and 2018, respectively. Non-cash imputed interest expense related to the future royalty payments was $1.4 million for the six months ended June 30, 2019. For the six months ended June 30, 2019 and 2018, interest expense was $0.8 million and $2.0 million, respectively, primarily related to interest accrued on Curis Royalty’s debt obligations.
Liquidity and Capital Resources
We have financed our operations primarily through private and public placements of our equity securities, license fees, contingent cash payments and research and development funding from our corporate collaborators, debt financings, and the monetization of certain royalty rights.
Placement of Equity Securities
On July 2, 2015, we entered into a sales agreement with Cowen and Company (“Cowen”), pursuant to which we may sell from time to time up to $30.0 million of our common stock through an “at-the-market” equity offering program, under which Cowen will act as sales agent. Subject to the terms and conditions of the sales agreement, Cowen may sell the common stock by methods deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, including sales made directly on the Nasdaq Global Market, on any other existing trading market for the common stock, or to or through a market maker other than on an exchange. We are not obligated to sell any of the common stock under this sales agreement. Either Cowen or we may at any time suspend solicitations and offers under the sales agreement upon notice to the other party. The sales agreement may be terminated at any time by either party upon written notice to the other party, in the manner specified in the sales agreement. The aggregate compensation payable to Cowen will be 3% of the gross sales price of the common stock sold pursuant to the sales agreement. The shares sold under the sales agreement have been issued and sold pursuant to the universal shelf registration statement on Form S-3, filed with the Securities and Exchange Commission on July 2, 2015. The remaining shares that may be sold under the sales agreement are expected to be issued and sold, if at all, pursuant to the currently effective universal shelf registration statement on Form S-3, filed with the Securities and Exchange Commission on May 3, 2018. We did not sell shares of common stock under this sales agreement during the quarter ended June 30, 2019. As of June 30, 2019, we have sold an aggregate of 420,796 shares of common stock pursuant to this sales agreement, for net proceeds of $6.2 million.


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Debt Financing
In December 2012, our wholly-owned subsidiary, Curis Royalty, received a $30.0 million loan, at an annual interest rate of 12.25%, pursuant to a credit agreement with BioPharma-II. In connection with the loan, we transferred to Curis Royalty our right to receive certain future royalty and royalty-related payments on the commercial sales of Erivedge that we may receive from Genentech. The loan and accrued interest was repaid by Curis Royalty using such royalty and royalty-related payments. The loan constituted an obligation of Curis Royalty, and was non-recourse to us. The final maturity date of the loan was the earlier of such date that the principal was paid in full, or Curis Royalty’s right to receive royalties under the collaboration agreement with Genentech was terminated.
In March 2017, we and Curis Royalty entered into a credit agreement with HealthCare Royalty for the purpose of refinancing our and Curis Royalty’s existing credit agreement with BioPharma-II. On the effective date of the credit agreement with Healthcare Royalty, the prior loan was terminated in its entirety. Pursuant to the credit agreement, HealthCare Royalty made a $45.0 million loan at an annual interest rate of 9.95% to Curis Royalty, which was used to pay off the $18.4 million in remaining loan obligations to BioPharma-II under the prior loan. The residual proceeds of the loan were distributed to us as sole equity member of Curis Royalty. The final maturity date of the loan was the earlier of such date that the principal is paid in full, or Curis Royalty's right to receive royalties under the collaboration agreement with Genentech is terminated.
Payments to HealthCare Royalty for the six months ended June 30, 2019 totaled $39.9 million, of which $35.6 million was applied to the principal, and the remainder satisfying interest obligations. On March 22, 2019, in connection with our and Curis Royalty’s entry into the Oberland Purchase Agreement, we terminated the credit agreement, and repaid all amounts outstanding under the loan with HealthCare Royalty.
In March 2019, we and Curis Royalty entered into the Oberland Purchase Agreement with the Purchasers and Lind SA, LLC, as collateral agent for the Purchasers, pursuant to which we sold to the Purchasers a portion of our rights to receive royalties from Genentech on potential net sales of Erivedge. As upfront consideration for the purchase of the royalty rights, at closing the Purchasers paid to Curis Royalty $65.0 million less certain transaction expenses. Curis Royalty is also entitled to receive up to approximately $70.7 million in milestone payments based on sales of Erivedge as follows: (i) $17.2 million if the Purchasers and Curis Royalty receive aggregate royalty payments pursuant to the Oberland Purchase Agreement in excess of $18.0 million during the calendar year 2021, subject to certain exceptions and (ii) $53.5 million if the Purchasers receive payments pursuant to the Oberland Purchase Agreement in excess of $117.0 million on or prior to December 31, 2026. We determined the fair value of the liability related to the sale of future royalties at the time of the agreement to be $65.0 million, with an effective annual non-cash interest rate of 7.8%. We incurred $0.6 million of transaction costs in connection with the agreement which will be amortized to non-cash imputed interest expense over the estimated term of agreement.
Milestone Payments and Monetization of Royalty Rights
We have received aggregate milestone payments totaling $59.0 million under our collaboration with Genentech since 2012. In addition, we began receiving royalty revenues in 2012 in connection with Genentech’s sales of Erivedge in the U.S. and Roche’s sales of Erivedge outside of the U.S. Erivedge royalty revenues received after December 2012 were used to repay Curis Royalty’s outstanding principal and interest under the loans due to BioPharma-II and HealthCare Royalty. A portion of Erivedge royalty and royalty-related revenue payments will be paid to the Purchasers pursuant to the Oberland Purchase Agreement. We also remain entitled to receive any contingent payments upon achievement of clinical development objectives and royalty payments related to sales of Erivedge pursuant to our collaboration agreement with Genentech and certain contingent payments upon achievement of contractually-specified royalty revenue payment amounts related to sales of Erivedge pursuant to the Oberland Purchase Agreement. Upon receipt of any such payments, as well as on royalties received in any territory other than Australia, we are required to make payments to certain university licensors totaling 5% of these amounts. In addition, for royalties that Curis Royalty receives from Roche’s sales of Erivedge in Australia, we were obligated to make payments to university licensors of 2% of Roche’s direct net sales in Australia until the expiration of the patent in April 2019. Following April 2019, the amount we are obligated to pay has decreased to 5% of the royalty payments that Curis Royalty receives from Genentech.
At June 30, 2019, our principal sources of liquidity consisted of cash, cash equivalents, and investments of $35.3 million, excluding our restricted investments of $0.2 million. Our cash and cash equivalents are highly liquid investments with a maturity of three months or less at date of purchase, and consist of investments in money market funds with commercial banks and financial institutions, as well as short-term commercial paper and government obligations. We maintain cash balances with financial institutions in excess of insured limits.
Cash Flows
Cash flows for operations have primarily been used for salaries and wages for our employees, facility and facility-related costs for our office and laboratory, fees paid in connection with preclinical and clinical studies, laboratory supplies, consulting fees and legal fees. We expect that costs associated with clinical studies will increase in future periods.

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Net cash used in operating activities of $12.7 million during the six months ended June 30, 2019 was primarily the result of our net loss for the period of $17.1 million, offset by non-cash charges consisting of stock-based compensation, amortization of debt issuance costs, non-cash lease expense, depreciation, and non-cash imputed interest, totaling $3.2 million. Operating lease liability decreased $0.5 million.. Accounts payable and accrued and other liabilities decreased $2.6 million, and accounts receivable decreased $0.7 million related to a decrease in Erivedge royalties.
    
Net cash used in operating activities of $16.9 million during the six months ended June 30, 2018 was primarily the result of our net loss for the period of $19.4 million, offset by non-cash charges consisting of stock-based compensation, non-cash interest expense, amortization of debt issuance costs and depreciation totaling $2.4 million. In addition, accounts payable and accrued liabilities decreased $0.7 million, and accounts receivable decreased $0.6 million related to a decrease in Erivedge royalties.
We expect to continue to use cash in operations as we seek to advance our drug candidates and our programs under our collaboration agreement with Aurigene. In addition, in the future we may owe royalties and other contingent payments to our licensors based on the achievement of developmental milestones, product sales and other specified objectives.
Investing activities used cash of $7.5 million and provided cash of $12.0 million for the six months ended June 30, 2019 and 2018, respectively, resulting primarily from net investment activity from purchases and sales or maturities of investments for the respective periods.
Financing activities provided cash of $23.8 million for the six months ended June 30, 2019. We made principal payments on Curis Royalty's loan to HealthCare Royalty of $35.6 million, and received $65.0 million in proceeds from the sale of future royalties to the Purchasers.
Financing activities used cash of $3.0 million for the six months ended June 30, 2018 as a result of principal payments on Curis Royalty's loan from HealthCare Royalty of $3.1 million.
Funding Requirements
We have incurred significant losses since our inception. As of June 30, 2019, we had an accumulated deficit of approximately $1.0 billion. We will require substantial funds to continue our research and development programs and to fulfill our planned operating goals. In particular, our currently planned operating and capital requirements include the need for working capital to support our research and development activities for fimepinostat, CA-4948, CA-170 and other programs under our collaboration with Aurigene, and to fund our general and administrative costs and expenses. We anticipate that our existing cash, cash equivalents and investments at June 30, 2019 should enable us to maintain our planned operations into the second half of 2020.We will need to raise additional capital or incur indebtedness to continue to fund our operations in the future. Our ability to raise additional funds will depend on financial, economic and market conditions, many of which are outside of our control, and we may be unable to raise financing when needed, or on terms favorable to us. If necessary funds are not available, we may have to delay, reduce the scope of, or eliminate some of our development programs, potentially delaying the time to market for, or preventing the marketing of, any of our product candidates, which could adversely affect our business prospects, and we may be unable to continue our operations. Factors that may affect our planned future capital requirements and accelerate our need for additional working capital include the following:

unanticipated costs in our research and development programs;
the timing and cost of obtaining regulatory approvals for our drug candidates and maintaining compliance with regulatory requirements;
the timing and amount of option exercise fees, milestone payments, royalties and other payments, including payments due to licensors, including Aurigene, for patent rights and technology used in our drug development programs;
the costs of commercialization activities for any of our drug candidates that receive marketing approval, to the extent such costs are our responsibility, including the costs and timing of establishing drug sales, marketing, distribution and manufacturing capabilities;
unplanned costs to prepare, file, prosecute, defend and enforce patent claims and other patent-related costs, including litigation costs and technology license fees; and
unexpected losses in our cash investments or an inability to otherwise liquidate our cash investments due to unfavorable conditions in the capital markets.

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Subject to specified exceptions, we and Aurigene agreed to collaborate exclusively with each other on the discovery, research, development and commercialization of programs and compounds within immuno-oncology for an initial period of approximately two years from the effective date of the collaboration agreement. At our option, and subject to specified conditions, we may extend such exclusivity for up to three additional one-year periods by paying to Aurigene additional exclusivity option fees on an annual basis. We exercised the first one-year exclusivity option in 2017. The fee for this exclusivity option exercise was $7.5 million, which we paid in two equal installments in 2017. We elected not to exercise our exclusivity option in 2018 and did not make the $10.0 million payment required for this additional exclusivity in 2018. As a result of this election to not further exercise our exclusivity option, we no longer operate under the broad immuno-oncology exclusivity with Aurigene. In 2019 we elected not to further exercise our exclusivity option related to the IRAK4 and PD1/VISTA programs and did not make the $2.0 million payment required for this continued exclusivity.
We have historically derived a portion of our operating cash flow from our receipt of milestone payments under collaboration agreements with third parties. However, we cannot predict whether we will receive additional milestone payments under existing or future collaborations.
To become and remain profitable, we, either alone or with collaborators, must develop and eventually commercialize one or more drug candidates with significant market potential. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our drug candidates, obtaining marketing approval for these drug candidates, manufacturing, marketing and selling those drugs for which we may obtain marketing approval and satisfying any post-marketing requirements. We may never succeed in these activities and, even if we do, may never generate revenues that are significant or large enough to achieve profitability. Other than Erivedge, which is being commercialized by Genentech and Roche, our most advanced drug candidates are currently only in early clinical testing.
For the foreseeable future, we will need to spend significant capital in an effort to develop and commercialize products and we expect to incur substantial operating losses. Our failure to become and remain profitable would, among other things, depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our research and development programs or continue our operations.
New Accounting Pronouncements
For detailed information regarding recently issued accounting pronouncements and the expected impact on our Condensed Consolidated Financial Statements, see Note 16, “New Accounting Pronouncements,” in the accompanying Notes to Condensed Consolidated Financial Statements included in Item 1. of Part I of this Form 10-Q.
Contractual Obligations

There have been no material changes to our contractual obligations set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2018.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as of June 30, 2019.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.
Item 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls & Procedures
Our management, with the participation of our chief executive officer, who is also our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) means controls and other procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their

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objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2019, our chief executive officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION 
Item 1A.
RISK FACTORS
You should carefully consider the following risk factors, in addition to other information included in this Form 10-Q and in other documents we file with the SEC, in evaluating Curis and our business. If any of the scenarios described in the following risk factors occur, our business, financial condition and operating results could be materially adversely affected. The following risk factors restate and supersede the risk factors previously disclosed in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018.
RISKS RELATING TO OUR FINANCIAL RESULTS AND NEED FOR FINANCING
We have incurred substantial losses, expect to continue to incur substantial losses for the foreseeable future and may never generate significant revenue or achieve profitability.
We have incurred significant annual net operating losses in every year since our inception. We expect to continue to incur significant and increasing net operating losses for at least the next several years. Our net losses were $17.1 million and $19.4 million for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, we had an accumulated deficit of $1.0 billion. We have not completed the development of any drug candidate on our own. Other than Erivedge®, which is being commercialized and further developed by Genentech and Roche under our June 2003 collaboration with Genentech, we may never have a drug candidate approved for commercialization. We have financed our operations to date primarily through public offerings and private placements of our common stock, other debt financings, and amounts received through various licensing and collaboration agreements. We have devoted substantially all of our financial resources and efforts to research and development and general and administrative expense to support such research and development. Our net losses may fluctuate significantly from quarter to quarter and year to year. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ (deficit) equity and working capital.
We anticipate that our expenses will increase substantially if and as we:
continue to develop and conduct clinical trials with respect to drug candidates;
seek to identify and develop additional drug candidates;
acquire or in-license other drug candidates or technologies;
seek regulatory and marketing approvals for our drug candidates that successfully complete clinical trials, if any;
establish sales, marketing, distribution and other commercial infrastructure in the future to commercialize various drugs for which we may obtain marketing approval, if any;
require the manufacture of larger quantities of drug candidates for clinical development and, potentially, commercialization;
maintain, expand, and protect our intellectual property portfolio;
hire and retain additional personnel, such as clinical, quality control and scientific personnel; and
add equipment and physical infrastructure as may be required to support our research and development programs.
Our ability to become and remain profitable depends on our ability to generate significant revenue. Our only current source of revenues comprises licensing and royalty revenues that we earn under our collaboration with Genentech related to the development and commercialization of Erivedge. In addition, a portion of our royalty and royalty-related revenues under our collaboration with Genentech will be paid to TPC Investments I LP and TPC Investments II LP (“the Purchasers”), pursuant to the royalty interest purchase agreement we and Curis Royalty entered into with the Purchasers and Lind SA LLC (“Agent”), on March 22, 2019 (the “Oberland Purchase Agreement”).
We do not expect to generate significant revenues other than those related to Erivedge unless and until we are, or any collaborator is, able to obtain marketing approval for, and successfully commercialize, one or more of our drug candidates other than Erivedge. Successful commercialization will require achievement of key milestones, including initiating and successfully completing clinical trials of our drug candidates, obtaining marketing approval for these drug candidates, manufacturing, marketing, and selling those drugs for which we, or any of our collaborators, may obtain marketing approval, satisfying any post-marketing requirements and obtaining reimbursement for our drugs from private insurance or government payors. Because of the uncertainties and risks associated with these activities, we are unable to accurately predict the timing and amount of revenues and whether or when we might achieve profitability. We and any collaborators may never succeed in these activities and, even if we do, or any collaborators do, we may never generate revenues that are large enough for us to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability. Our failure to become

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and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our pipeline of drug candidates, or continue our operations and cause a decline in the value of our common stock.
We will require substantial additional capital, which may be difficult to obtain, and if we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our drug development programs or commercialization efforts.
We will require substantial funds to continue our research and development programs and to fulfill our planned operating goals. Our planned operating and capital requirements currently include the support of our current and future research and development activities for fimepinostat, CA-170, and CA-4948 as well as development candidates we have and may continue to license under our collaboration with Aurigene. We will require substantial additional capital to fund the further development of these programs, as well as to fund our general and administrative costs and expenses. Moreover, under our collaboration, license and option agreement with Aurigene, we are required to make milestone, royalty and option fee payments for discovery, research and preclinical development programs that will be performed by Aurigene, which impose significant potential financial obligations on us. The collaboration includes multiple programs, and we have the option to exclusively license compounds once a development candidate is nominated within each respective program.
Based upon our current operating plan, we believe that our existing cash, cash equivalents and short-term investments of $35.3 million as of June 30, 2019 will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2020. We expect that we will need to raise additional capital or incur indebtedness to continue to fund our operations in the future. Our ability to raise additional funds will depend on financial, economic and market conditions, many of which are outside of our control, and we may be unable to raise financing when needed, or on terms favorable to us. If necessary funds are not available, we may have to delay, reduce the scope of, or eliminate some of our development programs, potentially delaying the time to market for, or preventing the marketing of any of our product candidates, which could adversely affect our business prospects, and we may be unable to continue operations.
Furthermore, there are a number of factors that may affect our future capital requirements and further accelerate our need for additional working capital, many of which are outside our control, including the following:
unanticipated costs in our research and development programs;
the timing and cost of obtaining regulatory approvals for our drug candidates and maintaining compliance with regulatory requirements;
the timing and amount of option exercise fees, milestone payments, royalties and other payments, including payments due to licensors, including Aurigene, for patent rights and technology used in our drug development programs;
the costs of commercialization activities for any of our drug candidates that receive marketing approval, to the extent such costs are our responsibility, including the costs and timing of establishing drug sales, marketing, distribution and manufacturing capabilities;
unplanned costs to prepare, file, prosecute, defend and enforce patent claims and other patent-related costs, including litigation costs and technology license fees; and
unexpected losses in our cash investments or an inability to otherwise liquidate our cash investments due to unfavorable conditions in the capital markets.
In connection with the Oberland Purchase Agreement, we transferred and encumbered certain royalty and royalty-related payments on commercial sales of Erivedge, Curis Royalty granted a first priority lien and security interest in all of its assets, including its rights to the Erivedge royalty payments, and we granted the Purchasers a first priority lien and security interest in our equity interest in Curis Royalty. As a result, in the event of a default by us or Curis Royalty we could lose all retained rights to future royalty and royalty-related payments, we could be required to repurchase the Purchased Receivables at a price that is a multiple of the payments we have received, and our ability to enter into future arrangements may be inhibited, all of which could have a material adverse effect on our business, financial condition and stock price.

Pursuant to the Oberland Purchase Agreement, the Purchasers acquired the rights to a portion of certain royalty and royalty-related payments excluding a portion of non-U.S. royalties retained by Curis Royalty, referred to as the Purchased Receivables, owed by Genentech under our collaboration agreement with Genentech. In connection with entering into the Oberland Purchase Agreement, Curis Royalty and the Agent entered into a security agreement and Curis and the Purchasers entered into a pledge agreement.

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Following an event of default under the security agreement entered into between Curis Royalty and the Agent in connection with the transaction, the Agent has the right to stop all allocations of payments that would have otherwise been allocated to Curis Royalty pursuant to the Oberland Purchase Agreement and instead retain all such payments. In addition, the Oberland Purchase Agreement provides that after the occurrence of an event of default by Curis Royalty under the security agreement, as described below, the Purchasers shall have the option, for a period of 180 days, to require Curis Royalty to repurchase the Purchased Receivables at a price, referred to as the Put/Call Price, equal to a percentage, beginning at a low triple digit percentage and increasing over time up to a low-mid triple digit percentage, of the sum of the upfront purchase price and any portion of the milestone payments paid in a lump sum by the Purchasers, if any, minus certain payments previously received by the Purchasers with respect to the Purchased Receivables.

Pursuant to the security agreement, Curis Royalty granted to the Agent a first priority lien and security interest in all of its assets and all real, intangible and personal property, including all of its right, title and interest in and to the Erivedge royalty payments. The security interest secures the obligations of Curis Royalty arising under the Oberland Purchase Agreement, the security agreement or otherwise with respect to the due and prompt payment of (i) an amount equal to the Put/Call Price and (ii) all fees, costs, expenses, indemnities and other payments of Curis Royalty under or in respect of the Oberland Purchase Agreement and the security agreement.

The obligations of Curis Royalty under the Oberland Purchase Agreement may be accelerated upon the occurrence of an event of default under the security agreement (subject to certain cure periods), which events of default include:

any royalty and royalty-related payments to be remitted into a certain Curis Royalty designated account controlled by the Agent pursuant to a control agreement, referred to as the royalty account, into which all royalty and royalty-related payments must be paid by Curis or Curis Royalty are not so remitted in accordance with the Oberland Purchase Agreement;
any representation or warranty made by Curis or Curis Royalty in the Oberland Purchase Agreement or any other transaction document proves to be incorrect or misleading in any material respect when made;
a default by Curis or Curis Royalty in the performance of affirmative and negative covenants set forth in the Oberland Purchase Agreement or any other transaction document;
a default by Curis in the performance or observance of its indemnity obligations under the Oberland Purchase Agreement;
the failure by Genentech to pay material amounts owed under the Genentech collaboration agreement because of an actual breach or default by Curis under the Genentech collaboration agreement;
the failure of the security agreement to create a valid and perfected first priority security interest in any of the collateral;
a material breach or default by Curis under our agreement with Curis Royalty pursuant to which we transferred our rights to the royalty revenues under the Genentech collaboration agreement to Curis Royalty;
the voluntary or involuntary commencement of bankruptcy proceedings by either Curis or Curis Royalty and other insolvency related events;
any materially adverse effect on the binding nature of any of the Oberland Purchase Agreement, Security Agreement, Pledge Agreement or other transaction documents, the Genentech collaboration agreement or our agreement with Curis Royalty;
any person shall be designated as an independent director of Curis Royalty other than in accordance with Curis Royalty’s limited liability company operating agreement; or
Curis shall at any time cease to own, of record and beneficially, 100% of the equity interests in Curis Royalty.
Upon the occurrence and continuance of an event of default under the security agreement, the Agent may exercise its rights and remedies under the security agreement with respect to Curis Royalty and to the collateral pledged thereunder, including, among other things, acceleration of the obligations under the security agreement, the sale or other realization of the collateral and performance of Curis Royalty’s obligations under the purchase and sale agreement. Additionally, Curis granted to the Agent a first priority lien and security interest of Curis’ equity interest in Curis Royalty pursuant to a pledge agreement. Upon the occurrence and continuance of an event of default under the security agreement, the Agent may exercise its rights and remedies under the pledge agreement with respect to the equity interests, including, among other things, the rights to receive distributions and exercise voting rights with respect to the equity interests and to sell or otherwise realize upon the collateral in

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satisfaction of the obligations. The exercise by the Agent of the foregoing rights shall be deemed to constitute an exercise by the Purchasers of their put option under the Oberland Purchase Agreement.

If any of the above events of default were to occur, Curis Royalty may not have sufficient funds to pay the Put/Call price and the Agent could foreclose on the secured royalty and royalty-related payment stream and/or our equity interests in Curis Royalty. In such an event, we could lose our right to royalty and royalty-related payments not transferred to the Purchasers pursuant to the Oberland Purchase Agreement and we could lose our rights in Curis Royalty. In addition, in the event Genentech exercises its set-off rights against royalty payments to Curis Royalty pursuant to our collaboration agreement with Genentech, we may be required to satisfy our royalty-sharing obligations to the Purchasers with amounts from our working capital.  The Oberland Purchase Agreement also contains exculpation and indemnification obligations of Curis and Curis Royalty on behalf of the Agent and the Purchasers. Further, the encumbrance of all of Curis Royalty’s assets, including the right to royalties from sales of Erivedge, and our equity interests in Curis Royalty pursuant to the security agreement and pledge agreement, respectively, may inhibit us from raising additional funds or entering into other strategic arrangements. Any of these consequence of an event of default could have a material adverse effect on our business, financial condition and stock price.
The amount of royalty revenue we received from sales of Erivedge has been adversely affected by a competing drug, and may further be affected in the future.
Pursuant to the terms of our collaboration agreement with Genentech, our subsidiary Curis Royalty is entitled to receive royalties on net sales of Erivedge that range from 5% to 7.5% based upon global Erivedge sales by Roche and Genentech. The royalty rate applicable to Erivedge may be decreased in certain specified circumstances, including when a competing drug product that binds to the same molecular target as Erivedge is approved by the applicable country’s regulatory authority and is being sold in such country by a third party for use in the same indication as Erivedge, or when there is no issued intellectual property covering Erivedge in a territory in which sales are recorded. During the third quarter of 2015, the U.S. Food and Drug Administration, (“FDA”) and the Committee for Medicinal Products for Human Use (“CHMP”), approved an additional Hedgehog signaling pathway inhibitor marketed by Sun Pharmaceutical Industries Ltd., (“Sun Pharmaceutical”), sonidegib (Odomzo®), for the treatment of adults with locally advanced basal cell carcinoma (“BCC”).
Sales of sonidegib (Odomzo®) were first recorded in the U.S. during the fourth quarter of 2015 and, accordingly, Genentech has reduced royalties on its net sales in the U.S. of Erivedge from 5-7.5% to 3-5.5%. Furthermore, we anticipate that Genentech will reduce by 2% royalties on net sales of Erivedge outside of the United States on a country-by-country basis to the extent that sonidegib is approved by the applicable country's regulatory authority and is being sold in such country. We also believe that sales of sonidegib have, and are likely to continue to, adversely affect sales of Erivedge, including those in the U.S. and ex-U.S. countries, which would adversely affect the resulting revenue we may receive from Genentech. A decrease in sales of Erivedge, or in the royalty rate that we receive for sales of Erivedge could adversely affect our operating results.
Fluctuations in our quarterly and annual operating results could adversely affect the price of our common stock.
Our quarterly and annual operating results may fluctuate significantly. Some of the factors that may cause our operating results to fluctuate on a period-to-period basis include:
payments we may be required to make to collaborators such as Aurigene to exercise license rights and satisfy milestones and royalty obligations;
the status of, and level of expenses incurred in connection with, our programs, including development costs relating to fimepinostat, CA-4948 and CA-170, as well as funding programs that we have licensed or may in the future license and develop under our collaboration with Aurigene;
fluctuations in sales of Erivedge and related royalty and milestone payments, including fluctuations resulting from the sales of competing drug products such as sonidegib, which is approved in the U.S. and Europe for the treatment of locally advanced BCC and is now being marketed and sold by Sun Pharmaceutical;
any intellectual property infringement lawsuit or other litigation in which we may become involved;
the implementation of restructuring and cost-savings strategies;
the occurrence of an event of default under the Oberland Purchase Agreement;
the implementation or termination of collaboration, licensing, manufacturing or other material agreements with third parties, and non-recurring revenue or expenses under any such agreement; and
compliance with regulatory requirements.

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If the estimates we make and the assumptions on which we rely in preparing our financial statements prove inaccurate, our actual results may vary significantly.
Our financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, the amounts of charges taken by us, and disclosures related thereto. Such estimates and judgments include the carrying value of our property, the value of equipment and intangible assets, revenue recognition, and the value of certain liabilities, the repayment term of our loan from HealthCare Royalty, for periods prior to its termination, and stock-based compensation expense. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. However, these estimates and judgments, and their underlying assumptions, may change over time. Accordingly, our actual financial results may vary significantly from the estimates contained in our financial statements.
For a further discussion of the estimates and judgments that we make and the critical accounting policies that affect these estimates and judgments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” set forth in this report.
RISKS RELATING TO THE DEVELOPMENT AND COMMERCIALIZATION OF OUR DRUGS
The therapeutic efficacy of our drug candidates is unproven in humans, and we may not be able to successfully develop and commercialize drug candidates pursuant to these programs.
Our drug candidates, including fimepinostat, CA-4948 and CA-170, are novel chemical entities and their potential benefit as therapeutic cancer drugs is unproven. Our ability to generate revenues from these drug candidates, which we do not expect will occur in the short term, if ever, will depend heavily on their successful development and commercialization, which is subject to many potential risks. For example, our drug candidates may not prove to be effective inhibitors of the molecular targets they are being designed to act against, and may not demonstrate in patients any or all of the pharmacological benefits that may have been demonstrated in preclinical studies. These drug candidates may interact with human biological systems in unforeseen, ineffective or harmful ways. If the FDA determines that any of our drug candidates are associated with significant side effects or have characteristics that are unexpected, we may need to delay or abandon their development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective.
Moreover, many drug candidates that initially showed promise in early stage testing for treating cancer have later been found to cause side effects that prevented further development of the compound or resulted in their removal from the market. As a result of these and other risks described herein that are inherent in the development and commercialization of novel therapeutic agents, we may not successfully maintain third party licensing or collaboration transactions with respect to, or successfully commercialize, our drug candidates, in which case we will not achieve profitability and the value of our stock may decline.
We depend heavily on the success of our most advanced drug candidates. All of our drug candidates are still in early clinical or preclinical development. Preclinical studies and clinical trials of our drug candidates may not be successful. If we are unable to commercialize our drug candidates or experience significant delays in doing so, our business will be materially harmed.
Our ability to generate drug candidate(s) and/or drug product revenues, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our most advanced drug candidates, including fimepinostat, CA-4948 and CA-170. The success of our drug candidates will depend on many factors, including the following:
successful enrollment in, and completion of, ongoing and future clinical trials of fimepinostat, CA-4948, CA-170 and other compounds that we may develop under our collaboration agreement with Aurigene;
Aurigene’s ability to successfully discover and preclinically develop other drug candidates under the collaboration agreement;
a safety, tolerability and efficacy profile that is satisfactory to the FDA or any comparable foreign regulatory authority for marketing approval;
receipt of requisite marketing approvals from applicable regulatory authorities;
the extent of any required post marketing approval commitments to applicable regulatory authorities;
establishment of supply arrangements with third party raw materials suppliers and manufacturers;

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establishment of arrangements with third party manufacturers to obtain finished drug products that is appropriately packaged for sale;
adequate ongoing availability of raw materials and drug products for clinical development and any commercial sales;
obtaining and maintaining patent, trade secret protection and regulatory exclusivity, both in the U.S. and internationally;
protection of the rights in our intellectual property portfolio;
successful launch of commercial sales following any marketing approval;
a continued acceptable safety profile following any marketing approval;
commercial acceptance by patients, the medical community and third party payors; and
our ability to compete with other therapies.
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully market, commercialize, or distribute our most advanced drug candidate, which would materially harm our business.
If clinical trials of any future drug candidates that we, or any collaborators, may develop fail to satisfactorily demonstrate safety and efficacy to the FDA and other regulators, we, or any collaborators, may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of these drug candidates.
We, and any collaborators, are not permitted to commercialize, market, promote or sell any drug candidate in the U.S. without obtaining marketing approval from the FDA. Foreign regulatory authorities, such as the European Medicines Agency (“EMA”), impose similar requirements. We, and any collaborators, must complete extensive preclinical development and clinical trials to demonstrate the safety and efficacy of our drug candidates in humans before we will be able to obtain these approvals.
Clinical testing is expensive, is difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. The clinical development of our drug candidates is susceptible to the risk of failure inherent at any stage of drug development, including failure to demonstrate a favorable pharmacodynamic and pharmacokinetic profile, efficacy in a clinical trial or across a broad population of patients, the occurrence of adverse events or undesirable side effects that are severe or medically or commercially unacceptable, failure to comply with protocols or applicable regulatory requirements and determination by the FDA or any comparable foreign regulatory authority that a drug candidate may not continue development or is not approvable. It is possible that even if one or more of our drug candidates has a beneficial effect, that effect will not be detected during clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of our clinical trials. Conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect of a drug candidate that is greater than the actual positive effect, if any. Similarly, in our clinical trials we may fail to detect toxicity of or intolerability caused by our drug candidates, or we may mistakenly believe that our drug candidates are toxic or not well tolerated when that is not in fact the case.
Any inability to successfully complete preclinical and clinical development could result in additional costs to us, or any collaborators, and impair our ability to generate revenues from drug sales, regulatory and commercialization milestones and royalties. Moreover, if we, or any collaborators, are required to conduct additional clinical trials or other testing of our drug candidates beyond the trials and testing that we or they contemplate, if we, or they, are unable to successfully complete clinical trials of our drug candidates or other testing, or the results of these trials or tests are unfavorable, uncertain or are only modestly favorable, or there are unacceptable safety concerns associated with our drug candidates, we, or any future collaborators, may:
incur additional unplanned costs;
be delayed in obtaining marketing approval for our drug candidates;
not obtain marketing approval at all;
obtain approval for indications or patient populations that are not as broad as intended or desired;
obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;
be subject to additional post-marketing testing or other requirements; or

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be required to remove the drug from the market after obtaining marketing approval.
Our failure to successfully initiate and complete clinical trials of our drug candidates and to demonstrate the efficacy and safety necessary to obtain regulatory approval to market any of our drug candidates would significantly harm our business.
Adverse events or undesirable side effects caused by, or other unexpected properties of, drug candidates that we develop may be identified during development and could delay or prevent their marketing approval or limit their use.
Adverse events or undesirable side effects caused by, or other unexpected properties of, any drug candidates that we may develop could cause us, any collaborators, an institutional review board or regulatory authorities to interrupt, delay or halt clinical trials of one or more of our drug candidates and could result in a more restrictive label or the delay or denial of marketing approval by the FDA or comparable foreign regulatory authorities. If any of our drug candidates is associated with adverse events or undesirable side effects or has properties that are unexpected, we, or any collaborators, may need to abandon development or limit development of that drug candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in clinical or earlier stage testing have later been found to cause undesirable or unexpected side effects that prevented further development of the compound.
If we, or any collaborators, experience any of a number of possible unforeseen events in connection with clinical trials of our drug candidates, potential clinical development, marketing approval or commercialization of our drug candidates could be delayed or prevented.
We, or any collaborators, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent clinical development, marketing approval or commercialization of our current drug candidates or any future drug candidates that we, or any collaborators, may develop, including:
regulators or institutional review boards may not authorize us, any collaborators or our or their investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
we, or any collaborators, may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
clinical trials of our drug candidates may produce unfavorable or inconclusive results, including with respect to the safety, tolerability, efficacy, or pharmacodynamic and pharmacokinetic profile of the drug candidate;
we, or any collaborators, may decide, or regulators may require us or them, to conduct additional clinical trials or abandon drug development programs;
the number of patients required for clinical trials of our drug candidates may be larger than we, or any collaborators, anticipate, patient enrollment in these clinical trials may be slower than we, or any collaborators, anticipate or participants may drop out of these clinical trials at a higher rate than we, or any collaborators, anticipate;
our estimates of the patient populations available for study may be higher than actual patient numbers and result in our inability to sufficiently enroll our trials;
the cost of planned clinical trials of our drug candidates may be greater than we anticipate;
our third party contractors or those of any collaborators, including those manufacturing our drug candidates or components or ingredients thereof or conducting clinical trials on our behalf or on behalf of any collaborators, may fail to comply with regulatory requirements or meet their contractual obligations to us or any collaborators in a timely manner or at all;
patients that enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial protocol, resulting in the need to drop the patients from the clinical trial, increase the needed enrollment size for the clinical trial or extend the clinical trial’s duration;
we, or any collaborators, may have to delay, suspend or terminate clinical trials of our drug candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the drug candidate such as an unfavorable pharmacodynamic or pharmacokinetic profile;
regulators or institutional review boards may require that we, or any collaborators, or our or their investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or their standards of conduct, a finding that the participants are being exposed to unacceptable health risks, undesirable

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side effects or other unexpected characteristics of the drug candidate or findings of undesirable effects caused by a chemically or mechanistically similar drug or drug candidate;
the FDA or comparable foreign regulatory authorities may disagree with our, or any collaborators’, clinical trial designs or our or their interpretation of data from preclinical studies and clinical trials;
the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or facilities of third party manufacturers with which we, or any collaborators, enter into agreements for clinical and commercial supplies;
the supply or quality of raw materials or manufactured drug candidates or other materials necessary to conduct clinical trials of our drug candidates may be insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply; and
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient to obtain marketing approval.
Drug development costs for us, or any collaborators, will increase if we, or they, experience delays in testing or pursuing marketing approvals and we, or they, may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization of our drug candidates. We do not know whether any preclinical tests or clinical trials will begin as planned, will need to be restructured, or will be completed on schedule or at all. Significant preclinical study or clinical trial delays also could shorten any periods during which we, or any collaborators, may have the exclusive right to commercialize our drug candidates or allow our competitors, or the competitors of any collaborators, to bring drugs to market before we, or any collaborators, do and impair our ability, or the ability of any collaborators, to successfully commercialize our drug candidates and may harm our business and results of operations. In addition, many of the factors that lead to clinical trial delays may ultimately lead to the denial of marketing approval of any of our drug candidates.
If we experience delays in the enrollment of patients in our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for our drug candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials. Patient enrollment is a significant factor in the timing of clinical trials, and is affected by many factors, including:
the size and nature of the patient population;
the severity of the disease under investigation;
the availability of approved therapeutics for the relevant disease;
the proximity of patients to clinical sites;
the eligibility criteria and design for the trial;
efforts to facilitate timely enrollment;
competing clinical trials; and
clinicians’ and patients’ perceptions as to the potential advantages and risks of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.
In addition, many of our competitors have ongoing clinical trials for drug candidates that could be competitive with our drug candidates. Patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ drug candidates or rely upon treatment with existing therapies that may preclude them from eligibility for our clinical trials.
Our inability, or the inability of any future collaborators, to enroll a sufficient number of patients for our, or their, clinical trials could result in significant delays or may require us or them to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials, including for clinical trials of fimepinostat, CA-4948 and CA-170, may result in increased development costs for our drug candidates, which could cause the value of our stock price to decline.
Results of preclinical studies and early clinical trials may not be predictive of results of future late stage clinical trials.
We cannot assure you that we will be able to replicate in human clinical trials the results we observed in animal models. Moreover, the outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of clinical trials do not necessarily predict success in future clinical trials. Many companies in the

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pharmaceutical and biotechnology industries have suffered significant setbacks in late stage clinical trials after achieving positive results in earlier development, and we could face similar setbacks. The design of a clinical trial can determine whether its results will support approval of a drug and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their drug candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the drug candidates. Even if we, or any collaborators, believe that the results of clinical trials for our drug candidates warrant marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of our drug candidates.
In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same drug candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. If we fail to receive positive results in clinical trials of our drug candidates, the development timeline and regulatory approval and commercialization prospects for our most advanced drug candidates, and, correspondingly, our business and financial prospects would be negatively impacted.
Interim, “top-line,” initial, and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available or as additional analyses are conducted, and audit and verification procedures could result in material changes to the final data.
From time to time, we publish interim, “top-line,” initial, or preliminary data from our clinical studies. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Initial, preliminary or “top-line” data also remain subject to audit and verification procedures that may result in the final data being materially different from the data we previously published. As a result, interim, “top-line,” initial, and preliminary data should be viewed with caution until the final data are available. Material adverse changes between such data and final published data could significantly harm our business prospects.
We have never obtained marketing approval for a drug candidate and we may be unable to obtain, or may be delayed in obtaining, marketing approval for any of our current drug candidates or any future drug candidates that we, or any future collaborators, may develop.
We have never obtained marketing approval for a drug candidate. It is possible that the FDA may refuse to accept for substantive review any new drug applications (“NDAs”), that we submit for our drug candidates or may conclude after review of our data that our application is insufficient to obtain marketing approval of our drug candidates. If the FDA does not accept or approve our NDAs for any of our drug candidates, it may require that we conduct additional clinical trials, preclinical studies or manufacturing validation studies and submit that data before it will reconsider our applications. Depending on the extent of these or any other FDA-required trials or studies, approval of any NDA or application that we submit may be delayed by several years, or may require us to expend more resources than we have available. It is also possible that additional trials or studies, if performed and completed, may not be considered sufficient by the FDA to approve our NDAs. Any delay in obtaining, or an inability to obtain, marketing approvals would prevent us from commercializing our drug candidates or any companion diagnostics, generating revenues and achieving and sustaining profitability. If any of these outcomes occur, we may be forced to abandon our development efforts for our drug candidates, which could significantly harm our business.
Even if any drug candidates that we, or any collaborators, may develop receive marketing approval, we or others may later discover that the drug is less effective than previously believed or causes undesirable side effects that were not previously identified, which could compromise our ability, or that of any collaborators, to market the drug.
Clinical trials of any drug candidates we may develop will be conducted in carefully defined subsets of patients who have agreed to enter into clinical trials. Consequently, it is possible that our clinical trials, or those of any collaborator, may indicate an apparent positive effect of a drug candidate that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. If, following approval of a drug candidate, we, or others, discover that the drug is less effective than previously believed or causes undesirable side effects that were not previously identified, any of the following adverse events could occur:
regulatory authorities may withdraw their approval of the drug or seize the drug;
we, or any future collaborators, may be required to recall the drug, change the way the drug is administered or conduct additional clinical trials;
additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular drug;

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we may be subject to fines, injunctions or the imposition of civil or criminal penalties;
regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;
we, or any future collaborators, may be required to create a Medication Guide outlining the risks of the previously unidentified side effects for distribution to patients;
we, or any future collaborators, could be sued and held liable for harm caused to patients;
the drug may become less competitive; and
our reputation may suffer.
Any of these events could harm our business and operations, and could negatively impact our stock price.
Even if our drug candidates receive marketing approval, they may fail to achieve the degree of market acceptance by physicians, patients, third party payors and others in the medical community necessary for commercial success, in which case we may not generate significant revenues or become profitable.
We have never commercialized a drug, and even if one of our drug candidates is approved by the appropriate regulatory authorities for marketing and sale, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third party payors and others in the medical community. Physicians are often reluctant to switch their patients from existing therapies even when new and potentially more effective or convenient treatments enter the market. Further, patients often acclimate to the therapy that they are currently taking and do not want to switch unless their physicians recommend switching drugs or they are required to switch therapies due to lack of reimbursement for existing therapies.
Efforts to educate the medical community and third party payors on the benefits of our drug candidates may require significant resources and may not be successful. If any of our drug candidates is approved but does not achieve an adequate level of market acceptance, we may not generate significant revenues and we may not become profitable. The degree of market acceptance of our drug candidates, if approved for commercial sale, will depend on a number of factors, including:
the efficacy and safety of the drug;
the potential advantages of the drug compared to competitive therapies;
the prevalence and severity of any side effects;
whether the drug is designated under physician treatment guidelines as a first-, second- or third-line therapy;
our ability, or the ability of any future collaborators, to offer the drug for sale at competitive prices;
the drug’s convenience and ease of administration compared to alternative treatments;
the willingness of the target patient population to try, and of physicians to prescribe, the drug and patient adherence to the drug’s dosing regimen once prescribed;
limitations or warnings, including distribution or use restrictions, contained in the drug’s approved labeling;
the strength of sales, marketing and distribution support;
changes in the standard of care for the targeted indications for the drug; and
availability and amount of coverage and reimbursement from government payors, managed care plans and other third party payors.
We may expend our limited resources to pursue a particular drug candidate or indication and fail to capitalize on drug candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we focus on research programs and drug candidates that we believe may have the best potential in certain specific indications. As a result, we may delay or forgo pursuit of certain opportunities with our other drug candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. Our spending on current and future proprietary research and development programs and drug candidates for specific indications may not yield any commercially viable drug candidate