Curis Management Discusses Q4 2012 Results - Earnings Call Transcript

| About: Curis, Inc. (CRIS)

Curis (NASDAQ:CRIS)

Q4 2012 Earnings Call

February 20, 2013 9:00 am ET

Executives

Michael P. Gray - Chief Financial Officer, Principal Accounting Officer and Secretary

Daniel R. Passeri - Chief Executive Officer and Director

Ali Fattaey - President and Chief Operating Officer

Analysts

Edward A. Tenthoff - Piper Jaffray Companies, Research Division

Simos Simeonidis - Cowen and Company, LLC, Research Division

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

Boris Peaker - Oppenheimer & Co. Inc., Research Division

Brian Klein - Stifel, Nicolaus & Co., Inc., Research Division

Gene Mack - Brean Capital LLC, Research Division

Operator

Good morning, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Curis Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I will now turn the call over to Mike Gray, Curis' Chief Financial Officer. Please proceed.

Michael P. Gray

All right. Thanks, Ben. Good morning and thanks, as always, for joining us. During today's call, we'll provide you an update on corporate plans and developments, and also discuss our fourth quarter and year-end 2012 financial results.

Before we begin, as always, I'd like to advise you this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements relating to our and our collaborator, Genentech's, expectations concerning the commercialization of and market opportunity for Erivedge; the timing and outcome of ongoing regulatory reviews for Erivedge; and the timing and potential outcome of ongoing clinical studies of Erivedge; our plans and expectations for advancing CUDC-427, CUDC-907 and CUDC-101; and the potential therapeutic benefits of these development candidates; our and collaborator, Debiopharm's, expectations regarding the advancement of Debio 0932 in presently ongoing clinical trials as well as into additional clinical trials in the future; and estimates of our 2013 year-end cash position, as well as estimates regarding the period of time in which our available capital resources can fund our currently planned operations; also, estimates of our 2013 research and development and general and administrative expenses.

Actual results may differ materially from those indicated by forward-looking statements in this conference call as a result of various important factors including those risk factors described in our quarterly report on Form 10-Q for the quarter ended September 30, 2012, and in other filings that we periodically make with the SEC. And we encourage you to review these risk factors carefully. We caution you that we are making these forward-looking statements only as of today, and that we may not update any of these statements even if events and developments subsequent to the date of this call cause these estimates and expectations to change.

Okay. With that, I'd like to now introduce Dan Passeri, Curis' Chief Executive Officer, who will provide brief introductory remarks. Following this remarks, Ali Fattaey, our newly appointed President and Chief Operating Officer, and Dan will provide an update on our pipeline. I'll then return to review our financial results for the fourth quarter and year-end 2012, and we'll then open the call for any questions. We are asking today that you please limit your questions to 1 or 2 since we've had a number of people in the Q&A during recent calls.

With that, Dan?

Daniel R. Passeri

Yes. Thanks, Mike. Good morning, and thanks for joining us today.

2012 and the beginning of 2013 have been an important period for Curis, marked by several key achievements in our proprietary pipeline of targeted cancer drug candidates, including the in-licensing the exclusive worldwide rights from our partner, Genentech, to an antagonist of IAP proteins now referred to as CUDC-427; initiating Phase I clinical testing of our dual PI3 kinase and HDAC inhibitor; designated CUDC-907; Genentech's U.S. launch and continued positive trajectory of Hedgehog pathway inhibitor, Erivedge, for advanced basal cell carcinoma; securing $30 million, an important nondilutive capital for further advancing our pipeline of drug candidates; and enhancing our depth and capacity by bringing on Dr. Ali Fattaey as our President and Chief Operating Officer.

Clearly, this has been an eventful and productive period for us, and I'll now cover these initiatives in further detail.

First, we're very pleased that Ali has decided to join our team. Ali brings to Curis over 20 years of experience and depth in developing molecularly targeted cancer drug candidates, including his work with Nexavar and palbociclib, an inhibitor of CDK 4 and 6, during his 8 years at Onyx Pharmaceuticals and his most recent work on telatinib and other drug candidates and development while President and CEO of ACT Biotech.

Working with our Chief Medical Officer, Dr. Maurizio Voi, Ali will have a fundamental role in helping to guide and further advance our overall strategic goals, as well as in helping oversee our research and development operations.

Next, our strategic initiatives, including our partnering and financing activities, have placed Curis in a solid position to advance our proprietary assets into later stages of clinical development.

In particular, we will focus on our internally developed candidates, including CUDC-427 and CUDC-907. With regards to financing our strategy, the combination of meaningful revenues in 2012, combined with our completion of a $30 million Erivedge secured debt transaction, have allowed us -- provided us with nearly $59 million year-end capital that we currently estimate provides us with adequate -- with an adequate runway to fund operating plans into mid-2015.

We believe this financial strength will be further enhanced and augmented by potential milestones in 2013, including those for the potential of Erivedge approvals in Europe and Australia the first half of this year. Also, we're eligible to retain any Erivedge royalty revenue that exceeds $1 million per quarter in 2013.

Now I'd like to introduce Ali and ask him to provide further detail on our internal drug candidates. And then I'll follow up with a summary of our partnered programs. Ali will start with an overview of CUDC-427, which is our IAP antagonist program. We're very pleased that we're able to acquire the rights to CUDC-427 from our partner, Genentech, which adds depth to our current pipeline of proprietary targeted anticancer agents particularly and that is a program close to Phase II clinical development. And then Ali will also provide an update on CUDC-907, which is our PI3 kinase/HDAC oral inhibitor. So with this, I'll turn it over to Ali.

Ali Fattaey

Thank you very much, Dan, and good morning. I'm very excited to join the Curis team and working with Dan, Mike and Maurizio in this very exciting year for Curis to advance our programs and our company's goal.

In joining the company, I will initially spend most of my efforts working with our Chief Medical Officer, Maurizio, and focus on our clinical drug candidates. And we'll be working with the teams to establish and execute the development plan and regulatory path for each one of our drug candidates.

I'll start with CUDC-427. And as Dan indicated, it's an IAP antagonist that we recently in-licensed from our partner, Genentech. This drug is particularly interesting to me, first, because it is a new class of targeted anticancer drug. It works by a different mechanism that in our industry, by and large, we've focused on, namely tyrosine kinase -- receptor tyrosine kinase as in components of their pathway. CUDC-427 works really by a different mechanism. Secondly, we should note that evasion from programmed cell death or apoptosis is a hallmark characteristic of all human cancers and is also a fundamental mechanism for developing resistance to current treatment regimens and anticancer therapy that are used.

Now CUDC-427 targets this particular trait, the evasion of apoptosis in cancer cells, and it does this by antagonizing the inhibitors of apoptosis or IAP proteins within tumor cells.

The IAPs function really to regulate both the intrinsic signals for apoptosis induction in cells and also some of the IAP proteins are components of extrinsic signaling pathways, namely those of the tumor necrosis factor or TNF family of receptors. By antagonizing the IAP proteins within cells, CUDC-427 interferes with these pathways, the intrinsic and extrinsic signaling pathways for apoptosis induction. And this really provides us with the basis for using the drug candidate, particularly in combination with other anticancer agents.

As a brief introduction, IAP proteins are a family of functionally and structurally related proteins. And it includes the X-linked IAP, or XIAP, to cellular IAPs, referred to as cIAP 1 and cIAP 2, and the melanoma IAP, or ML-IAP. CUDC-427 antagonizes the function of all of these 4 IAP proteins.

And consistent with the role of the IAPs in cancer development, we do find course mutations, amplifications, chromosomal translocations and other alterations at the IAP gene in a number of solid tumor and hematologic malignancies. We also find increased IAP expression that's been associated with an unfavorable prognosis and a poor outcome for patients in a number of cancer settings.

With that introduction, moving on to CUDC-427 as a drug, CUDC-427 is administered orally and that's important. It works as a monomer to antagonize IAP. This differentiates it from other molecules in this class that work as dimers. The current consensus developing in the field with the clinical experience in this category of molecules is that the oral monomer inhibitors of IAP appear to be better tolerated in the clinic than those have worked as dimers, and it's also obviously administered as an oral agent as opposed to being administered as an intravenous treatment regimen.

Oral dosing using a daily schedule of administration is also likely to give us a much greater flexibility when we combine CUDC-427 with other anticancer agents for different cancer indications.

As a reminder, in 2012, Genentech completed a Phase I clinical trial of CUDC-427, in which 42 patients with either solid tumors or lymphomas received the drug as a daily oral dose as a single agent, and they received the drug for the first 2 weeks of the 21-day cycle and these treatment cycles were repeated until disease progression or study discontinuation for any other reason.

The primary endpoints of it are as expected for a Phase I trial and it was primarily evaluating the safety, tolerability, pharmacokinetics and determining the maximum tolerated dose, as well as a potential recommended dose for further clinical studies, all of which, we are currently evaluating.

Secondary endpoints of the Genentech-sponsored trial of CUDC-427 included preliminary assessment of antitumor activity and the evaluation of the pharmacodynamic markers for this drug.

I should note also that Genentech plans to -- Genentech and investigators conducting this trial plan to present the full-study results at a medical meeting by midyear this year.

Now with regards to our plans for CUDC-427 as an antagonist of IAP protein, we believe that the ability of CUDC-427 to work in combination and in concert with other anticancer agents such as chemotherapy is likely to provide us the most effective treatment for patients, provide us the opportunity to develop the drug candidates in the broadest range of different human cancer indications and also likely to give us the fastest regulatory path to its approval as a new anticancer drug.

It's now well documented that IAP antagonists synergize and work in concert with a number of different chemotherapy and other targeted anticancer agents as well. Now while we evaluate all the available data from our partner, Genentech, and the Genentech-sponsored study and as we finalize our clinical development plans, we are preparing for development of CUDC-427 in Phase II clinical studies in combination with other anticancer agents. And we are also exploring the therapeutic potential of single-agent CUDC-427 in selected cancer patient populations that may have specific genetic alterations.

Our trials will also incorporate plans to evaluate each patient enrolled in these studies to help us identify subpopulation of patients that may be particularly sensitive to CUDC-427 effect. And we look forward to elaborating on all of these trials and our clinical plans and indications and the combination therapies that will be used for the trials in our studies closer to the time that the results of the Genentech-sponsored Phase I clinical study results will be presented again by Genentech and their investigators at a meeting in the middle of this year.

Finally, we believe that CUDC-427 is entering a very exciting emerging field, where competing molecules are also in early stages of clinical development. And CUDC-427 will provide us with an opportunity to be a leader in this very promising anticancer treatment field.

Now I'd like to move on to CUDC-907, which is our proprietary PI3 kinase and HDAC inhibitor in one molecule.

We believe that CUDC-4 -- I apologize, CUDC-907 may be able to overcome some of the potential limitations of single-target PI3 kinase inhibitors that are in development at the moment by concomitantly inhibiting the cellular HDAC activity in one molecule. Again, I'd like to point out that, Maurizio, our Chief Medical Officer's team have done an excellent job of starting the first clinical trial of this drug candidate and the investigators have begun dosing advanced lymphoma and multiple myeloma patients with an oral formulation of CUDC-907 in this Phase I clinical study. The Phase I clinical trial is designed as a standard dose escalation study in which CUDC-907 is orally administered to patients. And the primary objective of the study, of course, being a Phase I is the safety, determining the safety, tolerability, the maximum tolerated dose and potentially the recommended Phase II dose for further development of CUDC-907. The secondary objectives of this study, as we've indicated, are to assess pharmacokinetics of the drug and evaluate biomarkers of activity and also to assess preliminary anticancer activity of CUDC-907 in this patient population of lymphoma and multiple myeloma patients.

To date, 2 patients have been treated at one of our trial centers with a third patient expected to initiate dosing as of today, and again, congratulations to Dr. Voi for the rapid enrollment of patients in this trial. And this would conclude the -- or completes the enrollment in the first cohort of patients in this study. 2 additional leading clinical centers have also been recruited by Dr. Voi and are expected to initiate patient enrollment shortly in this trial.

As we've noted before, in preclinical studies, CUDC-907 has demonstrated very potent anti-proliferative activity and based on these results, we are very optimistic that CUDC-907 as a single-agent drug candidate targeting both PI3 kinase and HDAC has the potential to provide improved clinical benefit in cancer patients. As we know, the PI3 kinase space has attracted a lot of attention in recent months, and we are pleased to be enrolling patients in this trial and look forward to discussing further details from this trial as data become available from the study. CUDC-907 is being developed in collaboration with the Leukemia & Lymphoma Society, under which LLS, the society, will support our ongoing clinical development of CUDC-907. Under the agreement, LLS will fund approximately 50% of our direct clinical costs for 907 through Phase Ib or Phase IIa clinical testing for total potential funding of up to $4 million. To date, we have recognized $1.1 million in milestone payments from LLS in recent months as a result of advancing CUDC-907 to IND filing in beginning the Phase I clinical trial. And of course, this represents an important capital to support our continued development of this molecule, and we thank the Leukemia and Lymphoma Society for their commitment to this drug candidate.

Finally, we look forward to providing updates as this molecule, 907, progresses further in its ongoing Phase I clinical study. And as I indicated, I'm very pleased to join the company and we have a very exciting year with our clinical programs going forward.

At this point, I would like to point back to Dan, who'll provide more update on our partnered programs.

Daniel R. Passeri

Okay. Thanks, Ali. I'd like to now turn to our partnered programs including Erivedge, which is a commercial stage product for the treatment of advanced BCC and Debio 0932, which is an oral Hsp90 inhibitor in development for treatment of non-small cell lung cancer.

Erivedge is first-in-class Hedgehog Pathway Inhibitor, which received FDA approval during the first quarter of 2012 for the treatment of adults with the type of basal cell carcinoma, or BCC, that has spread to other parts of the body, that is metastatic, or that has come back after surgery or that their health care provider decides cannot be treated with surgery or radiation. And we believe that third category gives physicians discretion and is very important on a going forward basis.

We refer to these categories of disease as advanced BCC. Under our collaboration agreement with Genentech and Roche, they're commercializing Erivedge in advanced BCC worldwide and are also working on a continued clinical development. The uptake of Erivedge continues to be positive with sustained growth since the U.S. launch in February of 2012. Roche recorded net sales of approximately CHF 28.8 million or approximately USD 30.6 million during 2012.

Erivedge net sales were USD 11.2 million in the fourth quarter, demonstrating strong 26% sequential growth over the USD 8.9 million in net sales in the third quarter based upon the early market launch metrics and Roche's estimates of a potential target population of approximately 28,000 in the U.S. alone with an additional 12,000 in the top 5 EU countries. We continue to believe that the advanced BCC market represents a significant value for our shareholders, and we anticipate Erivedge's continued growth in coming quarters. Roche is also working to secure approval of Erivedge in several other territories, including Europe and Australia among others.

We're eligible to receive additional milestone payments upon regulatory approvals for Erivedge and advanced BCC in Europe and Australia, as well as royalty revenues in all territories in which Erivedge is sold. Roche has indicated that it currently anticipates possible European approval by the EMA during the first half of 2013, and we estimate that potential regulatory approval in Australia will occur also during the first half of 2013.

In addition to the lead advanced BCC indication, Genentech is also conducting a separate Phase II clinical trial of Erivedge in patients with operable nodular BCC, which is a less severe form of the disease and accounts for a significant percentage of the approximately 2 million cases of BCC diagnosed annually just in the U.S. We believe positive data from this ongoing Phase II study will allow expansion of the potential market for use in those cases where a patient would benefit from using Erivedge prior to surgery to improve the therapeutic outcome. It's believed that this poor surgical candidate category represents approximately 2% of the total BCC population, which would represent potentially an additional 40,000 patients annually that would be in the U.S. alone.

As such, we believe that this ongoing study represents a very significant market expansion potential for Erivedge. This Phase II trial is the first study to assess the ability of Erivedge to provide complete histological clearance of a tumor, an important first step in determining the efficacy of Erivedge in less severe forms of BCC, where BCC lesions are generally treated surgically. This trial is designed to test Erivedge as a single-agent therapy in a 3-cohort trial of approximately 75 patients, again, with operable nodular BCC in a US-based open label trial. Genentech reported data from the first cohort of this ongoing Phase II earlier in 2012, including safety and efficacy of 12 weeks of daily 150-milligram dosing of Erivedge in 24 patients with newly diagnosed nodular operable BCC. In this cohort, pathologically confirmed complete histological clearance was reported in 10 patients or 42% of the cohort while clinical complete or partial responses were recorded in 23 patients or 96% of patients treated.

The most frequent adverse events, or AEs, were similar to those observed in previous studies with Erivedge and included muscle spasms, alteration or loss of the sensation of taste, alopecia, fatigue and nausea. Most AEs were grade 1 or 2. Grade 3 AEs were reported in 7 patients, including 4 patients with muscle spasm. No serious AEs were reported. 8 patients discontinued from the study, including 2 due to AEs. Cohorts 2 and 3 are fully enrolled and full study results are expected in the first half of 2013 and we clearly look forward to providing you with those data updates when they become available. In addition to the operable BCC study being conducted by Genentech, multiple trials in other cancers are ongoing by third-party investigators, including exploring Erivedge in basal cell nevus syndrome, or Gorlin Syndrome. That's a category of patients where they're born with 1 copy of the 2 already mutated so they're subject to ongoing multiple BCC throughout life; medulloblastoma, which is a childhood brain cancer; sarcoma; glioblastoma multiforme; as well as in pancreatic, small cell lung, breast, prostate cancers among others. And again, we look forward to providing you with any updates as data becomes available.

I'm now going to switch to Debio 0932, which is an orally available small molecule inhibitor of Hsp90 and is being developed by our licensee, Debiopharm. Debiopharm completed the dose escalation portion of a Phase I clinical trial of Debio 0932 in late 2011, presented data from the study at an annual meeting of the American Society of Clinical Oncology in June of 2012.

In August, Debiopharm began treating patients in a Phase I/II clinical trial of Debio 0932 in combination with chemotherapy regimens in patients with advanced non-small cell lung cancer. The HALO study or Hsp90 inhibition and lung cancer outcome study has a Phase I/II clinical trial of the safety and efficacy of Debio 0932 in combination with standard of care agents in first- and second-line therapy of patients with advanced non-small cell lung cancer. In early August, Debiopharm initiated the Phase I portion of this clinical trial. Phase I portion is designed to determine the recommended Phase II dose of Debio 0932 in combination with various chemotherapy regimens in patients with Stage 3b or Stage 4 non-small cell lung cancer with disease that is characterized as wild-type EGFR. Debio 0932 will be administered in this study in combination with cisplatin/pemetrexed and cisplatin/gemcitabine in treatment-naive patients and with docetaxel in previously treated patients. Once a recommended Phase II dose of Debio 0932 in combination with each of these 3 chemotherapy regimens described above has been identified, the randomized double-blind, placebo-controlled Phase II portion of this study is expected to begin where approximately 140 eligible patients will be randomized to receive chemotherapy with either placebo or Debio 0932. The primary objective of the Phase II study is to determine the efficacy of Debio 0932 in combination with chemotherapy. We'll be eligible for our next milestone payment under this license agreement with Debiopharm when they treat the fifth patient in the Phase II clinical trial, which we currently expect to commence sometime in 2014.

In addition to this study, Debiopharm has completed a Phase Ib study of Debio 0932 in 30 patients, including patients with non-small cell lung cancer, and we'll present this data at a medical conference in the second half of 2013.

Lastly, Debiopharm is expanding its development efforts around this molecule by planning to initiate a Phase I/II study in patients with renal cell carcinoma in the second half of this year.

Overall, we think Curis has made tremendous advances over the past year in both the strategic and operational areas and in advancing our highly promising drug candidates through clinical development.

We believe we are very well poised for 2013 being even more important period of our corporate evolution and we're hopeful that the promise of our pipeline will begin to demonstrate significant value and growth potential for our shareholders. And we obviously look forward to updating you on progress as data emerges. I'd now -- I'd like to turn the call over to Mike for financial discussions. And then following Mike's remarks, we'll open the call for questions. Mike?

Michael P. Gray

Okay. Thanks, Dan and Ali. For the year ended December 31, 2012, we reported a net loss of $16.4 million, or $0.21 per basic and fully diluted share, as compared to a net loss of $9.9 million, or $0.13 per basic and fully diluted share, for the year ended December 31, 2011. For the fourth quarter of 2012, we reported a net loss of $12.4 million, or $0.16 per share on both the basic and fully diluted basis, as compared to net income of $6.1 million, or $0.08 per basic share and $0.07 per fully diluted share for the same period in 2011.

The fourth quarter and full-year 2012 net losses include a onetime expense of $9.5 million pursuant to our November 2012 CUDC-427 license agreement with Genentech. Revenues for the year ended December 31, 2012, were $17 million as compared to $14.8 million in 2011. Revenues for the fourth quarter of 2012 were $1.7 million, as compared to $14.1 million for the same period in 2011. Fourth quarter 2012 revenues primarily consisted of $560,000 that we earned from Genentech's $11.2 million in U.S. net sales of Erivedge during the fourth quarter of 2012, as well as $1 million in milestones that we received under our grant with LLS. We earned $14 million in milestone payments under our collaboration with Genentech and each of the year's ended December 31, 2012 and '11, related to the achievement of regulatory objectives for Erivedge. The increase in revenues 2012 to 2011 is primarily the result of a $1.5 million royalty revenue and $1 million in milestone revenue that we received under our agreement with LLS.

R&D expenses were $15.5 million for the year ended December 31, 2012, as compared to $13.7 million in 2011. R&D expense was $2.7 million for the fourth quarter of 2012 as compared to $4.4 million for same period of 2011.

During the year ended December 2012, we incurred $2.1 million in sublicense expenses related to our obligations to university licensers as compared to $700,000 in the prior year. In addition, our stock-based compensation increased by $350,000 over the prior year.

In-process research and development expense of $9.5 million was recorded for the year ended December 31, 2012, as well as for the fourth quarter 2012 as a result of upfront payments related to our previously mentioned 427 agreement with Genentech. We had no in-process R&D recorded in 2011. G&A expenses were $10.4 million in 2012 as compared to $8.3 million in 2011, and $2.9 million in the fourth quarter of 2012 as compared to $2.1 million for the same period in 2011. The increase was primarily due to increases in stock-based compensation expense of $1.5 million in 2012 versus 2011. Other income was $2.2 million for the year ended December 31, 2012, as compared to other expense of $2.7 million in 2011.

Other income was $1.1 million in the fourth quarter of 2012, compared to $1.5 million for the same period in 2011. The change is primarily the result of the decreases in the fair value of a warrant reliability, which was largely caused by a decline in the market value of our common stock.

As of December 31, 2012, our cash, cash equivalents, marketable securities and investments totaled $58.7 million and there were approximately 80 million shares of our common stock outstanding. Let me just quickly touch on financial guidance for 2013. We expect to end 2013 with cash, cash equivalents and investments of $31 million to $36 million. Just note that this expectation excludes any future milestone payments from existing and new collaborators that we can receive in 2013, including those for the potential approval of Erivedge in Europe and Australia, which we continue to expect approval decisions in the first half of 2013. In addition, under our 2012 Erivedge royalty-secured debt financing transaction, we're entitled to receive Erivedge royalties that exceed $1 million per quarter. The first $1 million is applied to debt repayment. So any royalties in excess of $1 million per quarter would flow back to Curis and our cash expectations exclude these amounts. We expect that 2013 R&D expense will be between $17 million and $20 million, and G&A expense will be between $10 million and $12 million. These estimates include approximately $800,000 and $1.7 million of stock-based compensation expense in research and development and G&A expense, respectively. So that concludes our prepared remarks. I would like to open the call for questions. And just as a reminder, if we could ask to please limit your questions to 1 or 2, I would appreciate it. And then hop in back into the queue. Thanks. Ben?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Edward Tenthoff from Piper Jaffray.

Edward A. Tenthoff - Piper Jaffray Companies, Research Division

Thanks for the thorough update. A lot of moving pieces. And I think a lot of progress that may not be being recognized necessarily in the stock. And my question and I'll ask one and then jump back in the line. Maybe kind of using 4Q as an example and I'm trying to remember how the loan agreement worked in the fourth quarter, and whether or not you had to pay any of the royalties out to pay off the loan in the fourth quarter, or whether the royalties all came to Curis in the fourth quarter?

Daniel R. Passeri

Fourth quarter royalties so that they will go to service to debt, our contract works that we receive royalty payments 60 days after the respective quarter whether the sales are recorded by Genentech and Roche and in turn where we record the royalties. So the royalty for Q4, which is paid in Q1, will service the debt.

Operator

Our next question is from the line of Simos Simeonidis.

Simos Simeonidis - Cowen and Company, LLC, Research Division

This one is for Dan. Dan, assuming positive data from Erivedge in the operable setting or the BCNS Gorlin Syndrome setting, would you and Roche file an sNDA? Or would you need to do additional trials to extend the label?

Daniel R. Passeri

Yes. Thanks, Simos. Yes, it's an important question and I will give you my own opinion of this. And this is based on substance of discussions. We believe the existing label may allow for an expansion because it gives physicians discretion. So if you look at the current language of the label, it has 3 distinct categories connected with ores, so they're distinct and isolated. The third one gives physicians basically the discretion to determine if a patient is amenable for surgery or radiation. So if this is going to be potentially used as a neoadjuvant to use Erivedge prior the surgery for a better therapeutic outcome, we believe it's possible that it is currently covered by that category, where the physician could determine, "I'd rather give this patient Erivedge now, at least shrink the lesion before I do surgery or verify that it's a complete histological clearance." And I think that's really our current reading on the situation.

Simos Simeonidis - Cowen and Company, LLC, Research Division

Yes, great. And my second one for Ali. On 427, are you -- do you have to wait to see the full data presented for 427? Or what is the rate limiting step on deciding what to do next in terms of either the subpopulation to going to a monotherapy or which combinations to decide on because I know you spoke about both solid tumors and hematologic tumors and different combinations with the chemotherapy and targeted agents? Are you still analyzing the data from the Phase I? Can you give us a little more color on what the process is until you decide what to do? And I guess one more thing is with these 2 types of trials, the monotherapy in a specific patient population versus the Phase II in combination happen sequentially or do you have to do the one after the other?

Ali Fattaey

Maybe I'll articulate it this way in terms of the analysis of the data and our plans. We currently hold all of the data that Genentech and the investigators have generated regarding the Phase I clinical data, so that is really not rate-limiting in terms of select and get. But I'll refer back to my comments the way we look at the development plan is a, the types of indications and patient populations to take the drug into and b, more importantly what the regulatory path would be for that in terms of approving it. I think the process is really evaluating those and assessing which one would be the best suited and the fastest path for Curis in terms of developing it. It is not really data, but analyzing the approval path and designing the clinical development plan and the trials, the Phase II trials, based on that. So that's the process that we're currently undergoing. With regards to your question 2 in terms of the combination treatment trials and monotherapy, they're not mutually exclusive and they do not need to be sequentially done. There's really 2 different approaches and likely to be different indications in patient populations. So they can be done at the same time. Obviously, this is all subject to assessment of our budget and the planning around our budget associated with it as well. But the trials can run simultaneously. They're not mutually exclusive. They don't need to be to be sequential.

Operator

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

Unknown Analyst

This is [indiscernible] for Joe. So it's first on Erivedge, if it does get approval in the EU, do you have any thoughts on Roche's commercial strategy there? And then any thoughts on potential pricing compared to the U.S.?

Daniel R. Passeri

Yes. In terms of strategy, we believe at this time, it is consistent with the U.S. strategy. And that is to reach out to physicians that have patients that have no therapeutic alternative at the initial market launch and then expand out from there. Pricing, we haven't had any guidance on to date but just from historical data, we'd expect it to be a bit more conservative than the U.S. But we don't know at this point.

Unknown Analyst

It's very useful. And then also just quickly for the Erivedge clinical data flow. Can you just point to some conferences in 2013 where we might see updates from all the ongoing studies?

Daniel R. Passeri

We believe there'll be some updates at ASCO. The operable BCC data, which I think is an important study, we don't have a specific conference. I know it won't be presented at ASCO. Last year, the first cohort of that 3-cohort study was presented at the Society of Investigative Dermatology, which is in May. But Genentech's, in a call, an update call yesterday, actually did reiterate that expect to have the data available in the first half of this year. So the timing's still fixed. We're trying to sort out exactly where it will be published or presented.

Operator

Our next question, we'll try again from the line of Adnan Butt from RBC Capital Markets.

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

I have 2. First is on the Erivedge royalty. Are those royalties now normalized and that as the quarters progress, we should see that the percentage royalty increasing? There is some confusion on my head based upon the sales number and the reported royalties for the past quarter. And then secondly, on the pipeline compounds of both 907 and 427, so what is the timing of initiating more studies? Is that something that will happen in the first half? And for 907 specifically, is there -- do you find any competition in terms of enrolling given the mechanism of action or do you expect the trial to enroll quickly and have data by -- sometime by the end of this year?

Daniel R. Passeri

Okay. So starting off with question one having to do with the royalty. I think what you're asking is that we see any scale-up or expect to see scale-up from -- we start off at 5% and scale up to high single digit. I think that's what the question is. Is that correct?

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

That's right.

Daniel R. Passeri

So the royalty starts off at 5% and escalates up to high single digit. The only guidance we've given is that there are several tiers to the scale before it reaches high single digit and it reaches the maximum royalty well before $1 billion in annual sales. So it really is going to be based on the ramp-up that we see during 2013, '14 as to what levels we achieve. And right now, I just don't have enough guidance or clarity on that to give you further guidance on when we expect those tiers to be reached.

Michael P. Gray

And I don't know if you're -- you might be having -- if you're trying to recalc to the 5% royalty, you're probably having rounding issues. The actual royalty, it was -- we've just disclosed it's $1.5 million for the year, but it was $1.530 million. I don't know if that changes your math at all.

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

Mike, it probably does.

Michael P. Gray

Okay. All right. On the second question, which is the progress on 907, are we experiencing any competition that's posing difficulty? I think the short answer is we've been extremely pleased with the enrollment rate. Maurizio and his team have been working diligently with the clinical centers. We have 1 open center presently and they've actually done a great job at enrolling patients. So we haven't been concerned from that standpoint. I'd like to just emphasize, I think also a part of it is the positioning of the drug. It's not just another PI3 kinase inhibitor. It has the potential benefit of having synergistic activity of PI3, as well as HDAC. So I think the physicians, the PIs, have expressed real interest in using this drug. And to date, just from the experience of the 1 center, we have enrolled patients actually at a really impressive rate. So I don't think that's going to be an issue going forward, and we look forward as new centers come on to that enrollment rate expanding out. I think 427, if you could repeat the particulars of the question?

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

It was regarding both 427 and 907. I think you mentioned conducting additional studies. And my question was on the timing for those, basically.

Daniel R. Passeri

Yes. I think, Ali, if you want to cover what you said your overview of it, but it's consistent with what we've stated before.

Ali Fattaey

Yes, with regards to 427, at about midyear is when we should have most of our plans addressed in terms of, again, the indications, discussions with the investigators and the right path for the drug. So being in February now, it will take us roughly that time. So I think by midyear is when we would be initiating and submitting for the trials for 427. 907, as Dan indicated, is in Phase I currently. First cohort should be completed in terms of enrollment as of today. Clearly, we'll wait to see the results of that before initiating other studies with 907, but we do look towards this year initiating other studies with 907.

Operator

Our next question is from the line of Boris Peaker of Oppenheimer.

Boris Peaker - Oppenheimer & Co. Inc., Research Division

My first question is for Ali. You gave a very good description of 427 and that you're considering monotherapy, as well as combo studies. And I'm curious, mechanistically, is there any particular combination that you think would be more synergistic than perhaps another combination for this compound?

Ali Fattaey

I think with regards to combination, the IAPs in general have shown good activity with a number of different chemotherapeutic agents, as well as targeted therapies. This is I think preclinical setting, but more recently also in the field and some of the clinical studies that are being conducted. In general, looking at the pathway itself that gets targeted and the involvement of tumor necrosis factors, signaling pathways and anything that's synergizes with that should be a very good candidate. In particular, I think for fluoropyrimidine chemotherapy agents such as 5-FU, Xeloda, gemcitabine. All of those molecules, which are fluoropyrimidine, should be very good candidates as a start for CUDC-427. I think in the field, we are seeing some good data also with the taxane in particular, paclitaxel, which I think would be an appropriate one for us to -- and would that's what -- some of the ones that we are evaluating at the moment.

Boris Peaker - Oppenheimer & Co. Inc., Research Division

Right. And in terms of -- you mentioned that there are other combinations have been investigated. What are the key competitors in the IAP space that we should be paying attention to?

Ali Fattaey

I think looking at the profile of this drug, clearly as a monomer antagonist of IAP, it's a very competitive drug and it's also an oral drug candidate that's been given daily for patients. The other oral monotherapy drug that's in clinical development at the moment in similar stage of development would be the Novartis compound. And again, I think we are very competitive in that arena.

Boris Peaker - Oppenheimer & Co. Inc., Research Division

Great. And my last question is for Dan. You've mentioned that Genentech was going to be looking at Gorlin. And I'm just curious, I mean, are they going to try to do a different dosing? Or how are they even going to conduct a study when we had such a strong response in the prior trial? It just seems that it would just be difficult to even blind patients to do treatment?

Daniel R. Passeri

Yes, Boris. I apologize if I suggested that we're going to do a separate Gorlin's trial for a separate label. We believe that the Gorlin's category would also be covered by the present label in the second qualifier, which is that the BCCs recur because these patients have continually recurring BCCs. There is very positive Gorlin's data already present out of Stanford. Erv Epstein did a trial. I think it was placebo-controlled with Gorlin's patients. And the challenge there is where these patients have an ongoing chronic situation is using the drug in a manner that you can ameliorate and manage the AEs. And I think with operable study, the third cohort is very important for addressing that issue. So the third cohort in the ongoing Phase II right now is designed to treat patients for an 8-week period providing them with a 4-week drug holiday then putting them back on drug for an 8-week period. That data would support and kind of buttress the premise that physicians can alter the drug schedule in a manner to reduce and manage the AEs more effectively. And I think that's going to be a very important requisite for expanding into that category.

Operator

Our next question comes from the line of Brian Klein of Stifel, Nicolaus.

Brian Klein - Stifel, Nicolaus & Co., Inc., Research Division

So on 427, can you just remind us again what the safety profile is as a monotherapy? And what you've seen in combination with both the taxanes and the pyrimidines?

Ali Fattaey

I don't think for CUDC-427, the data has not been disclosed. This is some of the work that's been done by the Genentech team. So we have not really disclosed the safety profile of the compound. The combination assessment has also been done preclinically. And the combinations that I indicated are the ones that Genentech has tested as well.

Daniel R. Passeri

Yes. So there's going to be a release of a Phase I data by Genentech in a PI setting in an upcoming conference midyear. So that data will be released there, but the drug appears to be very well tolerated. From what we've seen, we know DLT has been enriched [ph] to date. The MTDX, actually it hasn't been determined yet. So the drug appears to be very well tolerated. But the particulars of the AEs observed haven't been publicly released yet.

Brian Klein - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then maybe just lastly, could you explain mechanistically whether there's an impact of prior chemotherapy on the upregulation of the IAP targets? Or if there's any impact on disease stage?

Ali Fattaey

Not in particular with this drug, obviously. In the field, we do see IAP, as I indicated before, a very important mechanism for overcoming resistance to other agents such as chemotherapy. With this agent, in particular, has not been disclosed or studied extensively at this point. But that's clearly an area that we will be looking at. As I indicated, we'll be evaluating each one of the patients that we enroll in our trials for both potential selection markers, as well as biomarkers of activity to pursue exactly what you're describing as well.

Operator

Our next question comes from the line of Gene Mack from Brean Capital.

Gene Mack - Brean Capital LLC, Research Division

2 quick ones. You touched briefly on the IAP landscape, mentioning the Novartis compound and I guess, there's one from Ascenta. I was just wondering both seem to be in Phase I. The Ascenta trial seems to have been going on for quite a bit. Are you anticipating potentially seeing any data from that? Have you got any updates on where either compound might be in terms of starting Phase II? And do you expect that maybe we'll see data from either Novartis compound or the Ascenta compound at ASCO along with what you have from Genentech? And then just on 907, I'm just wondering what DLT is, given the dual combination -- the dual mechanism. What DLTs do you think you might be expecting to run into once you get to the maximum tolerated dose?

Daniel R. Passeri

Okay. So starting with the questions on IAP. The Ascenta compound has been partnered with Debiopharm. So Debiopharm is controlling clinical development. You're right. It has been in Phase I for quite some time. We don't have guidance that's publicly available as to when they expect to be focusing on a Phase II. There has been some publications on various indications with IAPs. Novartis had a presentation recently on a breast cancer study. Was there another indication there as well or is it just...

Ali Fattaey

Breast cancer and potentially ovarian cancer patients. At this time, [indiscernible] breast cancer maybe.

Daniel R. Passeri

Okay. Using IAP in patients that had been refractory to Taxoteres and then using it in combination with the drug that they have become refractory to. And they saw some interesting results, promising. In terms of the indications going forward, there have been some reports of lymphoma being one of the indications with IAP in combination with the Ascenta compound -- I'm sorry, that's a [indiscernible] compound. Yes, that's a heterodimer. And that's right now as far as I can give you details on that. Regarding 907, anticipated in DLTs. I think we don't know what range. Are you asking what dosing range or the DLTs that we expect?

Gene Mack - Brean Capital LLC, Research Division

Yes. I was just wondering what you might -- what you think you might run into once you get to a point where the drugs got its maximum tolerated dose, not necessarily the milligram dose.

Daniel R. Passeri

Okay. So we have -- just based on the mechanism, we're looking at the types of AEs that one would expect, GI and hematological AEs. We just don't have enough guidance right now on where we would expect to see the DLTs emerging, primarily because we don't know what kind of oral absorption bioavailability we're going to be having in humans. I don't know if you want to add anything to that, Ali?

Ali Fattaey

No. The thing is it's clearly a little bit early. And remember this -- the drug, 907, has 2 different modes of activity, PI3 kinase-targeting activity, as well as HDAC. First 3 patients have just been completed enrollment and so we'll wait to see what those look like. I mean, we have run formal toxicology studies in preclinical models as part of the R&D package. But it is very difficult at this point to indicate what are the DLTs we would expect in the clinics.

Operator

Our next question is a follow-up question from the line of Edward Tenthoff of Piper Jaffray.

Edward A. Tenthoff - Piper Jaffray Companies, Research Division

So I'm kind of trying to get a sense and I know that this is sort of more Roche driving the bus here. But trying to get a sense in terms of where they are in terms of duration of therapy. I know that in the publication, we actually saw longer-term duration out to maybe even 12 months if I'm not mistaken. But I'm trying to get a sense of where, what they're telling you in terms of real-world duration? And kind of what you're hearing from Roche in terms of how long docs are actually treating in metastatic conditions with Erivedge?

Daniel R. Passeri

Yes. So what I'm going to be conveying is sort of anecdotal based on conversations, also just based on 1 patient in particular that we're aware of, who happens to have a personal friendship with a board member who had metastatic BCC. It's quite a bell curve. I mean I think it's a [indiscernible]. It was an average time on drug of 13 months. Our median duration was on for 13 months. Patients come off for a number of reasons to go [indiscernible] with the AEs. So once they're off-drug, I believe they are staying off-drug based on the protocol. I think there have been patients that have gone well beyond 1 year. And I don't know if there's any patient still on drug from the pivotal trial. We have not been made aware of it -- of the details of that, Ted. So unfortunately, I can't provide you with clarity. It's a question that we ourselves are awaiting for that clarity and that will come out when the data is released.

Edward A. Tenthoff - Piper Jaffray Companies, Research Division

Okay, okay. I think that would be really helpful to get a sense from [indiscernible]. We'll see what we can to get that too.

Daniel R. Passeri

Yes. And I think the overall use of the drug I think that's why this third cohort and the operable is a really important to show that you can put the patient on a drug holiday, the AEs attenuate or resolve and put the patient back on drug. And I think that's an important component to providing physicians with flexibility on managing the AEs.

Operator

I'm showing no further questions in queue and would like to turn the conference back over to management for any closing remarks.

Daniel R. Passeri

Okay. We really appreciate your attention and interest. And I think we're very well primed for 2013, particularly with our proprietary programs and continued Erivedge revenues coming in. We look forward to providing you with additional updates as they become available. Again, thank you very much for your attention. Have a good day.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect. Have a great rest of the day.

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