CURIS INC - Quarter Report: 2013 June (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

FOR THE QUARTERLY PERIOD ENDED June 30, 2013

OR

Commission File Number: 000-30347

CURIS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Registrant’s Telephone Number, Including Area Code: (617) 503-6500

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

As of August 1, 2013, there were 81,694,938 shares of the registrant’s common stock outstanding.

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CURIS, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

INDEX

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CURIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

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CURIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

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CURIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

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CURIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Curis, Inc. (the “Company” or “Curis”) is an oncology-focused drug development company seeking to develop and commercialize novel drug candidates for the treatment of human cancers. Curis conducts research and development programs both internally and through strategic collaborations. Erivedge^® is the first and only approved medicine for the treatment of advanced basal cell carcinoma, and is being commercialized by F. Hoffmann-La Roche Ltd, or Roche, and Genentech Inc., or Genentech, a member of the Roche Group, under a collaboration agreement between Curis and Genentech (see Notes 4(a) and 14). Curis is also leveraging its experience in targeting signaling pathways to develop clinical-stage targeted cancer programs CUDC-427, a small molecule IAP inhibitor, and CUDC-907, a dual PI3K and HDAC inhibitor. Curis licensee Debiopharm S.A., or Debiopharm, is progressing the clinical development of HSP90 inhibitor, Debio 0932.

The Company operates in a single reportable segment, which is the research and development of innovative cancer therapeutics. The Company expects that any successful products would be used in the health care industry and would be regulated in the United States by the U.S. Food and Drug Administration, or 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 risk factors that are specific to the Company’s business, including, but not limited to: the Company’s reliance on Genentech and Roche to successfully commercialize Erivedge where it is currently approved, and to seek approval for Erivedge in additional territories; the Company’s ability to advance and expand its research and development programs; the Company’s ability to obtain adequate financing to fund its operations; the Company’s ability to satisfy the terms of its loan agreement with BioPharma Secured Debt Fund II Sub, S.à r.l., a Luxembourg limited liability company managed by Pharmakon Advisors, or BioPharma-II; its ability to obtain and maintain necessary intellectual property protection; development by its competitors of new or better technological innovations; dependence on key personnel; its ability to comply with regulatory requirements; and its ability to execute on its overall business strategies.

The Company’s future operating results will largely depend on the magnitude of payments from its current and potential future corporate collaborators and the progress of drug candidates currently in its development pipeline. The results of the Company’s operations will vary significantly from year to year and quarter to quarter and depend on, a number of factors, including, but not limited to: Genentech’s ability to successfully obtain regulatory approvals and scale-up the commercialization of Erivedge in advanced BCC; positive results in Genentech’s ongoing phase II clinical trial in patients with operable BCC; the timing, outcome and cost of the Company’s planned clinical trials for its drug candidates and its ongoing preclinical efforts to advance an oral formulation of CUDC-101 into clinical testing as well as other potential research and development programs; and the Company’s ability to successfully enter into one or more material licenses or collaboration agreements for its proprietary drug candidates.

The Company anticipates that existing cash, cash equivalents, marketable securities, investments and working capital at June 30, 2013 should enable it to maintain current and planned operations into the second half of 2015. The Company’s ability to continue funding its planned operations beyond this period is dependent upon, among other things, the success of its collaborations with Genentech, Debiopharm and the Leukemia & Lymphoma Society, or LLS, including its receipt of additional contingent cash payments under these collaborations; its ability to control expenses and its ability to raise additional funds through equity or debt financings, new collaborations or other sources of financing. The Company may not be able to successfully enter into or continue any corporate collaborations and the timing, amount and

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likelihood of the Company receiving payments under such collaborations is highly uncertain. If the Company is unable to obtain adequate financing, the Company may be required to reduce or delay spending on its research and/or development programs.

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 United States of America, or 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, 2012, or the Annual Report, as filed with the Securities and Exchange Commission on March 13, 2013.

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, 2013, the results of operations and cash flows for the three- and six-month periods ended June 30, 2013 and 2012 and the cash flows for the six-month periods ended June 30, 2013 and 2012. In the fourth quarter of 2012, the Company determined that its previously filed 2012 Forms 10-Q contained an error within the statements of cash flows. More specifically, in its Form 10-Q filed with the quarter ended June 30, 2012, the proceeds from the settlement of stock option exercises totaling $375,661 were incorrectly presented as cash flows from operating activities when such amount should have been classified as cash flows from financing activities for the six -month period ending June 30, 2012 in the statements of cash flows. The Company determined that the effect of the error was not material and therefore did not restate its Form 10-Q filed with the quarter ended June 30, 2012, or any of its other Forms 10-Q filed in 2012. The Company has properly reflected the adjustment in its statement of cash flows for the six months ended June 30, 2012 in this Form 10-Q. The “as previously reported” and “as adjusted” numbers are presented as follows:

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; the assumptions used in the Company’s valuation of stock-based compensation and the value of certain investments and liabilities, including our long-term warrant liability. 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.

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. Pursuant to the terms of these agreements, the Company and its licensees and collaborators may agree to make non-refundable license fee payments, research and development funding payments, contingent cash payments based upon achievement of clinical development and regulatory objectives, and royalties on product sales if any products are successfully commercialized. For a complete discussion of the Company’s revenue recognition policy, see Note 2(c) included in its Annual Report.

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In January 2012, the FDA approved Genentech’s new drug application for the Erivedge capsule. As a result of the FDA’s approval of Erivedge in this indication, the Company earned a $10,000,000 milestone payment from Genentech and receives royalties on net sales of the product. In May 2012, Roche submitted an application for marketing registration for Erivedge to Australia’s Therapeutic Goods Administration, or TGA, and as a result, the Company earned a $4,000,000 milestone payment. In May 2013, the TGA approved the sale of Erivedge in Australia resulting in an additional milestone payment of $4,000,000. The Company is eligible to receive up to an aggregate of $115,000,000 in contingent cash payments, exclusive of royalty payments, under the collaboration for 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 aggregate amount, the Company has received $50,000,000 as of June 30, 2013 (see Note 14). The Company recognized milestone payments of $4,000,000 in each of the three months ended June 30, 2013 and 2012, and $14,000,000 in the six months ended June 30, 2012 as license revenue in its Condensed Consolidated Statement of Operations and Comprehensive Loss as the Company does not have any further substantive performance obligations under the collaboration.

Pursuant to agreements by and between the Company and two university licensors, the Company has made certain payments to such licensors in connection with its receipt of milestone payments from Genentech. During the three and six months ended June 30, 2013, the Company recorded research and development expenses of $200,000 related to payments the Company made to its licensors upon the Company’s receipt of a $4,000,000 milestone payment from Genentech upon Australian TGA approval of Erivedge. During the three and six months ended June 30, 2012, the Company recorded research and development expenses of $650,000 and $2,114,000, respectively. Of these amounts, during the three months ended June 30, 2012, the Company recorded research and development expenses of $650,000 related to payments the Company made to its licensors in connection with (i) Roche’s filing in 2009 of an investigational new drug application in Australia and (ii) the Company’s receipt of the $4,000,000 milestone from Roche upon its application to the Australian TGA for marketing registration of Erivedge in Australia. In addition, during the six months ended June 30, 2012, the Company recorded research and development expense of (i) $964,000 related to the fair value of a one-time issuance of an aggregate of 200,000 shares of the Company’s common stock in connection with FDA approval of Erivedge and (ii) $500,000 related to the Company’s receipt of the $10,000,000 milestone payment from Genentech in the first quarter of 2012.

The Company recognized royalty revenues from Genentech’s net sales of Erivedge of $805,312 and $252,750 during the three months ended June 30, 2013 and 2012, respectively, and $1,469,712 and $523,372 during the six months ended June 30, 2013 and 2012, respectively. The Company recorded cost of royalty revenues within the costs and expenses section of its Condensed Consolidated Statements of Operations and Comprehensive Loss of $40,265 and $12,637 during the three months ended June 30, 2013 and 2012, respectively, and $73,485 and $126,168 during the six months ended June 30, 2013 and 2012, respectively. For each of these periods, the cost of royalty revenue amounts are comprised of 5% of the Erivedge royalties earned by the Company that it is obligated to pay to university licensors. In addition, during the six months ended June 30, 2012, the Company recorded an additional expense of $100,000 due to a one-time cash payment to a university licensor upon the first commercial sale of Erivedge.

In November 2011, the Company entered into an agreement under which LLS agreed to support the Company’s ongoing development of CUDC-907 for patients with relapsed or refractory lymphoma and multiple myeloma. The agreement was amended in May 2013 as it related to timing of certain milestone payments, but the aggregate funding was unchanged. Under the agreement, LLS will make milestone payments up to $4,000,000 that are contingent upon the Company’s achievement of specified clinical development objectives with CUDC-907. The Company earned milestone payments under the LLS agreement totaling $550,000 and $650,000 during the three and six month periods ended June 30, 2013, respectively, related to the progress of the ongoing phase I clinical trial of CUDC-907. Additional milestone payments may be earned assuming CUDC-907 continues to progress through the phase I clinical trial. Through June 30, 2013, the Company has received payments in the aggregate of $1,650,000 under its agreement with LLS.

The Company continues to apply the provisions of Accounting Standards Codification, or ASC, 605-28, Revenue Recognition, Milestone Method to determine whether the revenue earned under this agreement should be accounted for as substantive milestones. In determining whether the milestones in this arrangement are substantive, the Company considered whether uncertainty exists as to: (i) the achievement of the milestone event at the inception of the arrangement; (ii) whether the achievement of the milestone involves substantive effort and can only be achieved based in whole or part on the performance or the occurrence of a specific outcome resulting from the Company’s performance; (iii) whether the amount of the milestone payment appears reasonable either in relation to the effort expected to be expended or to the projected enhancement of the value of the delivered items; (iv) whether there is any future performance required to earn the milestone; and (v) whether the consideration is reasonable relative to all deliverables and payment terms in the arrangement. When a substantive milestone is achieved, the accounting guidance permits recognition of revenue related to the milestone payment in its entirety. The Company determined that the milestones achieved in the first half of 2013 under the LLS agreement were substantive and recorded the related revenue of $550,000 and $650,000 during the three and six month periods ended June 30, 2013, respectively.

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Under certain conditions associated with the successful partnering and/or commercialization of CUDC-907 in the specified indications, the Company may be obligated to make payments, including royalties, to LLS up to a maximum of $10,000,000. This obligation is limited to 2.5 times the amount the Company receives from LLS, and, as of June 30, 2013, the maximum obligation, assuming that CUDC-907 successfully progresses through future clinical trials, would be $4,125,000. If CUDC-907 does not continue to meet its clinical safety endpoints in future clinical trials in the defined field or fails to obtain necessary regulatory approvals, all funding provided to the Company by LLS will be considered a non-refundable grant. As of June 30, 2013, the Company has not recorded an obligation to repay any of the funds received from LLS because the contingent repayment obligation depends solely on the successful results of the continued development of CUDC-907, which are not probable at June 30, 2013 as this program remains in the very early stages of clinical development.

The Company discloses fair value measurements based on a framework outlined by GAAP which requires expanded disclosures regarding fair value measurements. GAAP also 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.

The Financial Accounting Standards Board Codification Topic 820, Fair Value Measurements and Disclosures, 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:

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In accordance with the fair value hierarchy, the following table shows the fair value as of June 30, 2013 and December 31, 2012 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, 2013 and December 31, 2012.

The following table rolls forward the fair value of the Company’s warrant liability, the fair value of which is determined by Level 3 inputs for the six months ended June 30, 2013 and 2012:

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The amortized cost, unrealized losses and fair value of marketable securities available-for-sale as of June 30, 2013 with maturity dates ranging between one and twelve months and with a weighted average maturity of 4.6 months are as follows:

The amortized cost, unrealized gains and fair value of marketable securities available-for-sale as of December 31, 2012, with maturity dates ranging between one and twelve months and with a weighted average maturity of 5.2 months are as follows:

As of December 31, 2012, the Company recorded long-term investments of $3,162,025 on its Consolidated Balance Sheet. This amount was comprised of corporate debt securities with maturities ranging from March 2014 to May 2014 and with amortized cost totaling $3,161,848, plus unrealized net gains of $177.

In December 2012, the Company, through its wholly-owned subsidiary, Curis Royalty, entered into a $30,000,000 debt transaction with BioPharma-II at an annual interest rate of 12.25% collateralized with certain future Erivedge royalty and royalty-related payment streams. The loan constitutes an obligation of Curis Royalty and is intended to be non-recourse to the Company. Under the terms of the loan, quarterly royalty payments from Genentech will first be applied to pay (i) escrow fees payable by the Company pursuant to an escrow agreement between Curis, Curis Royalty, BioPharma-II and Boston Private Bank and Trust Company, (ii) the Company’s royalty obligations to academic institutions, (iii) certain expenses incurred by BioPharma-II 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 with Genentech. Remaining amounts, subject to caps of $1,000,000 per quarter in 2013, $2,000,000 per quarter in 2014 and $3,000,000 per quarter in 2015, will be applied first, to pay interest and second, principal on the loan. The Company will be entitled to receive the remaining amounts above the caps, if any, and remains entitled to receive any contingent payments upon achievement of clinical development objectives. The Company retains its right to royalty payments related to sales of Erivedge following repayment of the loan.

Upon the closing of the transaction, the Company transferred to Curis Royalty, pursuant to a purchase and sale agreement between Curis and Curis Royalty, the right to receive Erivedge royalty and royalty-related payments due from Genentech as defined in the credit agreement, and BioPharma-II loaned to Curis Royalty $30,000,000 that, together with accrued interest, will be repaid by Curis Royalty quarterly from the proceeds of these Erivedge royalty and royalty-related payments. The final maturity date of the loan will be the earlier of the date when the principal is paid in full and the termination of Curis Royalty’s right to receive royalties under the collaboration agreement with Genentech. At any time after January 1, 2017, Curis Royalty may, subject to certain limitations, prepay the outstanding principal of the loan in whole or in part, at a price equal to 105% of the outstanding principal on the loan, plus accrued but unpaid interest. The obligations of Curis Royalty under the credit agreement to repay the loan may be accelerated upon the occurrence of an event of default as defined in the credit agreement.

Curis Royalty made payments toward its debt obligations of $531,877 on March 6, 2013 and $631,191 on May 31, 2013. Each of these payments represented only a portion of the interest accrued through each payment date. As a result, the shortfall in the unpaid but accrued interest totaling $582,062

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was added to the principal portion of the debt. As of June 30, 2013, the Company recorded short- and long-term debt of $1,367,618 and $29,029,095, respectively (net of issuance costs of $53,470 and $131,879, respectively), and at December 31, 2012 recorded long-term debt of $29,838,925 (net of issuance costs of $161,075), related to the loan. In addition, the Company recorded related accrued interest on the debt of $312,192 and $204,167 within its accrued liabilities section of its Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012, respectively. Because repayment of the loan is contingent upon the level of Erivedge royalties received, subject to certain quarterly caps, the repayment term may be shortened or extended depending on the actual level of Erivedge royalties. In addition, if Erivedge royalties are insufficient to pay the accrued interest on the outstanding loan, as was the case during the three and six months ended June 30, 2013, the unpaid interest outstanding will be added to the principal on a quarterly basis. Currently, the Company estimates that the debt will be repaid through early 2017.

At June 30, 2013, the fair value of the principal portion of the debt is estimated as $31,520,000. Due to the assumptions required in estimating future Erivedge royalties and the expected repayment period, determining the fair value of the debt required application of Level 3 inputs.

The Company incurred debt issuance costs totaling $421,715 in connection with this Erivedge royalty financing transaction, of which $215,000 related to expenses that the Company paid on behalf of BioPharma-II and the remaining $206,715 were incurred directly by the Company. The debt issuance costs incurred directly by the Company were capitalized as assets and those costs paid on behalf of BioPharma-II have been netted against the debt and accrued interest in the Company’s Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012 as detailed in the following table:

All issuance costs are being amortized over the estimated term of the debt using the straight-line method which approximates the effective interest method. For the three and six months ended June 30, 2013, the Company recognized interest expense related to the loan with BioPharma-II of $957,742 and $1,905,544, respectively. The assumptions used in determining the expected repayment term of the debt and amortization period of the issuance costs requires management to make estimates that could impact the Company’s short- and long-term classification of these costs, as well as the period over which these costs will be amortized.

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On January 27, 2010, the Company completed a registered direct offering of 6,449,288 units with each unit consisting of (i) one share of the Company’s common stock and (ii) one warrant to purchase 0.25 of one share of common stock at a purchase price of $2.52 per unit. The Company received net proceeds from the sale of the units, after deducting offering expenses, of approximately $14,942,000.

In connection with this offering, the Company issued warrants to purchase an aggregate of 1,612,322 shares of common stock. As of June 30, 2013, warrants to purchase 238,805 shares of the Company’s common stock have been exercised and warrants to purchase 1,373,517 shares of common stock remain outstanding. The warrants have an initial exercise price of $3.55 per share and a five-year term. The warrants contain anti-dilution adjustment provisions that will result in a decrease in the price and an increase in the number of shares of common stock issuable upon exercise of such warrants in the event of certain issuances of common stock by the Company at prices below $3.55 per share.

Due to the warrant terms, the warrants are deemed to be a liability and, therefore, the fair value of the warrants was recorded as a liability in the Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012. The Company has estimated the fair value of the warrants using a Black-Scholes option pricing model with updated assumptions at each reporting date as detailed in the following table:

The warrants are revalued at each reporting period and the resulting change in fair value of the warrant liability will be recognized in the Consolidated Statement of Operations and Comprehensive Loss. The Company recorded other income of $333,141 and $634,401 for the three and six months ended June 30, 2013, respectively, as a result of a change in the fair value of the warrant liability that was primarily due to decreases in each of the model inputs during the respective reporting periods. The Company recorded other expense of approximately $495,341 and $487,400 for the three and six months ended June 30, 2012, respectively, due to changes in fair value of the warrant liability, primarily related to an increase in the Company’s stock price. During the six months ended June 30, 2012, as a result of the exercise of warrants to purchase 212,500 shares of the Company’s common stock, the warrant liability decreased $543,646 with an offsetting increase to additional paid-in-capital.

The Company’s 2000 Stock Incentive Plan and the Amended and Restated 2010 Plan generally allows participants to purchase common stock upon the exercise of a stock option by delivery of shares of Company common stock held directly by the participant, with such shares of common stock valued at the closing price on NASDAQ on the date of exercise. During the three months ended June 30, 2013, the Chief Executive Officer, the Chief Financial Officer and one member of the Company’s board of directors exercised stock options by remitting shares of Curis common stock held by the respective executive officer or director to the Company. The Company accounted for the value of the common stock remitted to the Company in satisfaction of the exercise price as treasury stock under the cost method. These option holders remitted an aggregate of 175,139 shares during the three months ended June 30, 2013 with an aggregate value equal to $632,755.

Accrued liabilities consist of the following:

On March 7, 2013, the Company’s Board of Directors elected Kenneth J. Pienta, M.D., to serve as a class I director until the 2015 Annual Meeting of Stockholders and thereafter until his successor is duly elected and qualified. In addition, Dr. Pienta has served as a member of the Company’s Scientific Advisory Board since September 2006 and as its Chairman since June 2007, pursuant to the terms of a Scientific Advisory Board Agreement, or the SAB agreement, effective September 13, 2006, as amended from time to time, by and between Dr. Pienta and the Company. Pursuant to the SAB agreement, Dr. Pienta receives compensation in the amount of $50,000 per year, payable in equal quarterly installments. In addition, pursuant to the terms of a consulting agreement dated June 11, 2011, as amended from time to time, by and between the Company and Dr. Pienta, Dr. Pienta served as a consultant to the Company in the areas of corporate strategy and business development. The Company and Dr. Pienta terminated the consulting agreement in connection with his election as a member of the Board of Directors in March 2013. Pursuant to the terms of the SAB agreement and the consulting agreement, the Company recognized expenses of $12,500 and $47,258 during the three and six months ended June 30, 2013, respectively, as it relates to services provided by Dr. Pienta.

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As of June 30, 2013, the Company had two shareholder-approved, share-based compensation plans: the Amended and Restated 2010 Stock Incentive Plan, or the Amended and Restated 2010 Plan, adopted by the Board of Directors in March 2013 and approved by shareholders in May 2013 and the 2010 Employee Stock Purchase Plan adopted by the Board of Directors in April 2010 and approved by shareholders in June 2010. The Company can issue up to 9,000,000 shares of its common stock pursuant to awards granted under the Amended and Restated 2010 Plan. As of June 30, 2013, 3,692,251 shares remained available for grant under the Amended and Restated 2010 Plan.

The Amended and Restated 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. Options become exercisable as determined by the Board of Directors and expire up to 10 years from the date of grant. The Amended and Restated 2010 Plan uses a “fungible share” concept under which each share of stock subject to awards granted as options and stock appreciation rights (“SARs”), 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.

In the first quarter of 2010, the Company’s 2000 Stock Incentive Plan expired in accordance with its terms and its 2000 Director Stock Option Plan has no available shares remaining under the plan. No additional awards will be made under these plans, although all outstanding awards under these plans will remain in effect until they are exercised or they expire in accordance with their terms. For a complete discussion of the Company’s share-based compensation plans, see Note 5, “Stock Plans and Stock Based Compensation” in the notes to the Company’s consolidated financial statements included in Item 8 of Part II of the Company’s Annual Report.

During the six months ended June 30, 2013, the Company’s board of directors granted options to purchase 1,376,000 shares of the Company’s common stock to officers and employees of the Company under the Amended and Restated 2010 Plan. These options vest over a four-year period and bear exercise prices that are equal to the closing market price of the Company’s common stock on the NASDAQ Global Market on the grant dates.

During the six months ended June 30, 2013, the Company’s board of directors also granted options to its non-employee directors to purchase 260,000 shares of common stock under the Amended and Restated 2010 Plan. Of these, 235,000 options will vest monthly over a one-year period and 25,000 options will vest over a four-year period. All options granted to non-employee directors during the six months ended June 30, 2013 bear exercise prices that are equal to the closing market price of the Company’s common stock on the NASDAQ Global Market on the grant dates.

Employee and Director Grants

In determining the fair value of stock options, the Company uses the Black-Scholes option pricing model. The Company calculated the Black-Scholes value of employee and director options awarded during the six months ended June 30, 2013 and 2012 based on the assumptions noted in the following table:

The expected volatility is based on the annualized daily historical volatility of the Company’s stock price through the end of the reporting period 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 volatility of the stock price. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the respective grant. The Company does not anticipate declaring dividends in the foreseeable future.

The stock price volatility and expected terms 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

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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.

The aggregate intrinsic value of employee options outstanding at June 30, 2013 was $8,064,000, of which $7,634,000 related to exercisable options. The weighted average grant-date fair values of stock options granted during the six months ended June 30, 2013 and 2012 were $2.14 and $2.99, respectively. As of June 30, 2013, there was approximately $5,747,000, net of the impact of estimated forfeitures, of unrecognized compensation cost related to unvested employee stock option awards outstanding under the Company’s 2000 Stock Incentive Plan and the Amended and Restated 2010 Plan that is expected to be recognized as expense over a weighted average period of 2.75 years. The intrinsic values of employee stock options exercised during the six months ended June 30, 2013 and 2012 were $1,598,000 and $5,779,000, respectively. The total fair values of vested stock options for the six months ended June 30, 2013 and 2012 were $1,808,000 and $1,228,000, respectively.

The Company recorded $751,702 and $1,396,027 in compensation expense for the three and six months ended June 30, 2013, respectively, and $833,497 and $1,649,725 in compensation expense for the three and six months ended June 30, 2012, respectively, related to employee and director stock option grants.

Non-Employee Grants

Pursuant to the Company’s stock plans, the Company has periodically granted stock options and unrestricted stock awards to consultants for services at the closing market price of the Company’s common stock on the NASDAQ Global Market on the grant date. During the six month ended June 30, 2013, the Company issued options to purchase a total of 500,000 shares of common stock to consultants. These options were issued pursuant to the Amended and Restated 2010 Plan at exercise prices equal to the closing market price of the Company’s common stock on the NASDAQ Global Market on the grant date. Should the Company terminate any of its consulting agreements, the unvested options underlying the agreements would also be cancelled. Unvested non-employee options are marked-to-market, which means that as the Company’s stock price fluctuates, the related expense either increases or decreases. The Company recognized expense related to non-employee stock options of $164,269 and $180,510, for the three and six months ended June 30, 2013, respectively, and expense of $174,245 and $380,693 for the three and six months ended June 30, 2012, respectively.

Total Stock-Based Compensation Expense

For the three and six months ended June 30, 2013 and 2012, the Company recorded employee and non-employee stock-based compensation expense to the following line items in its Costs and Expenses section of the Consolidated Statements of Operations, including expense related to its 2010 Employee Stock Purchase Plan:

The table below summarizes options outstanding and exercisable at June 30, 2013:

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The following table summarizes the changes in accumulated other comprehensive income (loss) as of June 30, 2013:

The above amounts do not reflect a tax effect as the Company expects to retain a net loss position for 2013.

The Company applies ASC Topic 260—Earnings per Share, which establishes standards for computing and presenting earnings per share. Basic and diluted loss per common share is computed using the weighted-average number of shares outstanding during the period. Diluted net loss per common share is the same as basic net loss per common share for the three and six months ended June 30, 2013 and 2012, as the effect of the potential common stock equivalents is antidilutive due to the Company’s net loss position for these periods. Antidilutive securities consist of stock options and warrants outstanding as of the respective reporting period as follows:

2013 Sales Agreement

On July 3, 2013, the Company entered into a sales agreement with Cowen and Company, LLC, pursuant to sell from time to time up to $30,000,000 of the Company’s common stock through an “at-the-market” equity offering program under which Cowen and Company, LLC, or 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. In addition, the Company has agreed to reimburse a portion of the expenses of Cowen in connection with the offering up to a maximum of $40,000. 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. Common stock will be issued pursuant to the Company’s currently-effective shelf registration statement on Form S-3.

Erivedge Milestone

In July 2013, Roche announced that it has received conditional marketing approval for Erivedge from the European Commission for the treatment of advanced BCC. The European Commission’s decision will be applicable to all 28 European Union member states. As a result of this conditional approval, the Company earned a $6,000,000 milestone payment from Genentech, a member of the Roche Group and will be obligated to pay $300,000 to its university licensors upon receipt of such payment. The Company will continue to be entitled to receive royalties on future sales of Erivedge. Roche is solely responsible for commercializing Erivedge in the European Union.

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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.

Overview

We are an oncology-focused drug development company seeking to develop and commercialize novel drug candidates for the treatment of human cancers. We conduct our research and development programs both internally and through strategic collaborations. Erivedge® is the first and only approved medicine for the treatment of advanced basal cell carcinoma, and was developed and is being commercialized by Roche and Genentech under a collaboration agreement between Curis and Genentech. We are also leveraging our experience in targeting signaling pathways to develop clinical-stage targeted drug candidates: CUDC-427, a small molecule IAP inhibitor, and CUDC-907, a dual PI3K and HDAC inhibitor. Our licensee Debiopharm is advancing the clinical development of the HSP90 inhibitor, Debio 0932.

Erivedge®

Erivedge® (vismodegib) capsule. Our most advanced drug is a first-in-class orally-administered small molecule Hedgehog pathway inhibitor developed under collaboration with Genentech. Pursuant to this collaboration, Genentech and Roche are responsible for clinical development, and Genentech (in the U.S.), Roche (outside the U.S., excluding Japan) and Chugai (in Japan) are responsible for commercialization of Erivedge.

In January 2012, based on the results of the Phase 2 pivotal ERIVANCE BCC clinical study, the U.S. Food and Drug Administration, or FDA, approved Erivedge for treatment of adults with basal cell carcinoma, or BCC, that has spread to other parts of the body or that has come back after surgery or that their healthcare provider decides cannot be treated with surgery or radiation. We refer to this indication as advanced BCC. The ERIVANCE BCC study enrolled 104 advanced BCC patients (71 had locally advanced and 33 had metastatic disease) from 31 study centers in the US, Australia and Europe. The study showed that Erivedge substantially shrank tumors or healed visible lesions, as defined by objective response rate, in 42.9 percent of patients with locally advanced and 30.3 percent of patients with metastatic BCC as assessed by independent review. The most common adverse events included muscle spasms, hair loss, altered taste sensation, fatigue and weight loss. Serious adverse events (SAEs) were observed in 26 patients (25 percent), however of these only four patients (4 percent) had SAEs that were considered to be related to treatment with Erivedge. Fatal events were reported in seven patients (7 percent) although none were considered by investigators to be related to treatment with Erivedge. In all cases, patients had other pre-existing diseases or symptoms that were related to their presumed cause of death.

In May 2013, Australia’s Therapeutic Goods Administration, or TGA, approved Erivedge, resulting in a $4,000,000 milestone payment to us. In July 2013, the European Commission granted conditional approval for the marketing of Erivedge in all 28 European Union member states. This conditional approval makes Erivedge the first licensed treatment in Europe for advanced BCC and also resulted in a $6,000,000 milestone payment to us from Genentech. A conditional marketing authorization is granted to medicinal products with a positive benefit/risk assessment that satisfy an unmet medical need and whose availability would result in a significant public health benefit. Under the provisions of the conditional approval, Roche is expected to provide additional data on Erivedge in advanced BCC from the ongoing global safety study, known as STEVIE, which is an international, single-arm, open-label multicenter trial in patients with advanced forms of BCC. An interim analysis from STEVIE presented at the American Society of Clinical Oncology’s, or ASCO, 2013 Annual Conference confirmed a similar safety profile to that observed in the ERIVANCE BCC study.

In addition to the United States, Australia and European Union, Erivedge is also approved in Canada, Ecuador, Israel, Mexico, South Korea and Switzerland. Roche has also filed several new drug applications for marketing registration with health agencies in other territories. Erivedge’s regulatory approvals and Roche’s submissions in other territories are based on positive clinical data from the ERIVANCE BCC study.

Genentech also evaluated Erivedge in a single-arm three cohort phase II clinical trial to treat less severe forms of BCC. Data from this study are expected in to be presented at a medical meeting. In addition, Roche has recently initiated a randomized, placebo controlled phase II study to investigate the efficacy of Erivedge treatment (versus placebo) prior to surgery in previously untreated BCC.

Outside of BCC, Roche is also initiating a phase Ib/II trial in patients with relapsed/ refractory acute myelogenous leukemia (AML) and relapsed/refractory high-risk myelodysplastic syndrome (MDS). In contrast to BCC, these two clinical conditions are driven by mechanisms that are not linked to mutations in the hedgehog pathway. Additionally, third-party investigators are also conducting clinical trials with Erivedge in BCC as well as in several other cancers.

Pursuant to the terms of our collaboration agreement with Genentech, we are entitled to a royalty on net sales of Erivedge that ranges from the mid-to-high single digits, and which escalates within this range with increasing product sales. The royalty rate applicable to Erivedge may be decreased to a low-to-mid single digit royalty 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 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 December 2012, we, through our wholly-owned subsidiary Curis Royalty, entered into a $30,000,000 debt transaction with BioPharma-II at an annual interest rate of 12.25% collateralized with certain future Erivedge royalty and royalty-related payment streams. The loan constitutes an obligation of Curis Royalty and is intended to be non-recourse to us. Under the terms of the loan, quarterly royalty payments from Genentech will first be applied to pay (i) escrow fees payable by us pursuant to an escrow agreement between Curis, Curis Royalty, BioPharma-II and Boston Private Bank and Trust Company, (ii) our royalty obligations to academic institutions, (iii) certain expenses incurred by BioPharma-II 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 us enforcing our right to indemnification under the collaboration agreement with Genentech. Remaining amounts, subject to caps of $1,000,000 per quarter in 2013, $2,000,000 per quarter in 2014 and $3,000,000 per quarter in 2015, will be applied first, to pay interest and second, principal on the loan. We will be entitled to receive the remaining amounts above the caps, if any, and remain entitled to receive any contingent payments upon achievement of clinical development objectives. We retain the right to royalty payments related to sales of Erivedge following repayment of the loan.

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Upon the closing of the transaction, we transferred to Curis Royalty, pursuant to a purchase and sale agreement between us and Curis Royalty, the right to receive Erivedge royalty and royalty-related payments due from Genentech as defined in the credit agreement, and BioPharma-II loaned to Curis Royalty $30,000,000 that, together with accrued interest, will be repaid by Curis Royalty quarterly from the proceeds of these Erivedge royalty and royalty-related payments. The final maturity date of the loan will be the earlier of the date when the principal is paid in full and the termination of Curis Royalty’s right to receive royalties under the collaboration agreement with Genentech. At any time after January 1, 2017, Curis Royalty may, subject to certain limitations, prepay the outstanding principal of the loan in whole or in part, at a price equal to 105% of the outstanding principal on the loan, plus accrued but unpaid interest. The obligations of Curis Royalty under the credit agreement to repay the loan may be accelerated upon the occurrence of an event of default as defined in the credit agreement. During 2013, Curis Royalty began making payments to BioPharma-II upon receipt of the Erivedge royalties. The amounts paid were less than the interest accrued through the repayment dates resulting in a total of $582,000 being added to the outstanding principal. As of June 30, 2013, we owed a total of $30,894,000, gross of issuance costs, to BioPharma-II comprised of principal and accrued interest.

We recognized $1,470,000 of royalty revenue from Genentech’s net sales of Erivedge during the six months ended June 30, 2013 and an aggregate of $2,999,000 in royalty revenues since Erivedge was approved, which was calculated as 5% of Genentech’s net sales of Erivedge. As indicated above, we expect to continue to record royalty revenue from sales of Erivedge, but some or all of such revenues will service the loan that Curis Royalty received from BioPharma-II, subject to the quarterly caps. We recorded cost of royalty revenues of $73,000 and $250,000, respectively, during these same periods.

We are also obligated to make payments to university licensors on royalties that we earn in all territories other than Australia in an amount that 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. For royalties that we earn from Roche’s potential future sales of Erivedge in Australia, we will be obligated to make payments to university licensors in an amount that is equal to 2% of Roche’s direct net sales in Australia until April 2019, after which the amount will decrease to 5% of the royalty payments that we receive from Genentech for the remainder of the period ending 10 years from the first commercial sale of Erivedge, or February 2022.

Targeted Cancer Drug Candidates

CUDC-427. IAP proteins are a family of functionally and structurally related proteins that promote cancer cell survival by inhibiting programmed cell death, a process also referred to as apoptosis. Using IAP proteins and other anti-apoptotic factors, cancer cells evade cell death in response to a variety of signals, including those provided by anti-cancer agents such as chemotherapy, or naturally occurring inflammatory and immune signals transmitted through members of the tumor necrosis factor, or TNF family. Evasion from apoptosis is a fundamental mechanism whereby human cancers develop resistance to standard anti-cancer treatments. IAP inhibitors such as CUDC-427 are designed to counteract the effects of IAP proteins, thus shifting the balance away from cancer cell survival and allowing apoptosis to proceed.

In November 2012, we licensed from Genentech the exclusive, worldwide rights for the manufacture, development and commercialization of a small molecule Smac mimetic drug candidate, CUDC-427, that is designed to promote cancer cell death by antagonizing IAP proteins. Under the terms of the license agreement, we have the sole right and responsibility for all research, development, manufacturing and commercialization activities related to CUDC-427. Genentech will be entitled to milestone payments upon the first commercial sale of CUDC-427 in certain territories and a tiered low-to-mid single-digit royalty on net sales of CUDC-427, if any.

Prior to our licensing agreement, Genentech had completed enrollment in a phase I clinical trial of CUDC-427 (previously GDC-0917), in which 42 patients with refractory solid tumors or lymphoma received daily oral doses of CUDC-427 for two weeks, followed by a one week rest period until disease progression or study discontinuation for any other reason. Results of this phase I study were presented during an oral session at the ASCO 2013 Annual Conference in June 2013. In this study, patients were enrolled across 11 cohorts and received CUDC-427 monotherapy at doses ranging from 5 mg to 600 mg daily. Unconfirmed complete responses were reported in 2 patients, including one patient with ovarian cancer and another with mucosa-associated lymphoid tissue (MALT) lymphoma. Additionally, one patient experienced a mixed response and four patients (one patient each with breast cancer, sarcoma, small cell lung cancer and Kapsoi’s sarcoma) had stable disease for greater than or equal to three months, including a patient on study for greater than 10 months. The maximum tolerated dose, or MTD, of CUDC-427 has not been determined, although plasma concentrations in the order of preclinically predicted ED90 were reached. ED90 refers to the dose that leads to 90% of the maximal response. There were three deaths reported during the study: two due to progression of breast cancer and one patient died due to pneumonia. Adverse events (AEs) that resulted in treatment discontinuation were Grade 3 fatigue (one patient), Grade 2 QTc prolongation (one patient), Grade 2 drug hypersensitivity (one patient), Grade 2 pneumonitis (one patient), and Grade 3 pruritus/Grade 2 rash (one patient). Other treatment related AEs that were equal to or greater than Grade 3 in severity in more than one patient were elevated levels of liver enzymes (two patients at 450 and 600 mg dose). Biomarker analyses of the tumor samples (two patients) and peripheral blood cells (all patients) showed changes that were consistent with CUDC-427’s mechanism of action.

We plan to continue the clinical development of CUDC-427 and expect to investigate the efficacy and safety of CUDC-427 in combination and mono-therapy clinical studies, including a phase Ib/II trial using CUDC-427 in combination with capecitabine in HER2-negative breast cancer patients, and monotherapy trials in ovarian and fallopian tube cancers, as well as in aggressive and indolent lymphomas such as MALT lymphomas. We recently initiated a phase I dose escalation trial in patients with advanced and refractory solid tumors or lymphomas where oral CUDC-427 is being administered as a single agent twice-daily on a continuous dosing schedule for a 21-day cycle. This trial is expected to enroll three to six patients at each dose level and also includes an expansion cohort, which is expected to primarily enroll patients with ovarian and fallopian tube cancers. The primary objective of the study is to determine the MTD and recommended phase II dose of oral CUDC-427 as a single agent based on this regimen. The secondary objectives of the study are to assess CUDC-427’s safety and tolerability, pharmacokinetics, exploratory biomarkers of activity and preliminary anti-cancer activity.

CUDC-907. CUDC-907 is an orally bioavailable drug candidate designed to predominantly inhibit certain isoforms of phosphatidylinositol-3-kinase, or PI3K (mainly PI3K- alpha, delta and beta) and select classes of histone deacetylase, or HDAC enzymes (Classes I and IIB primarily). In January 2013, we treated the first subject in a phase I clinical trial in patients with advanced lymphoma and multiple myeloma. The study is designed to assess the safety (including the MTD), pharmacokinetics, and anti-cancer activity of CUDC-907. Analysis of drug pharmacokinetics and pharmacodynamics from these patients’ blood samples is currently ongoing. In July 2013, we submitted an amendment to the protocol of the ongoing Phase I study to include two additional dosing regimens, wherein oral CUDC-907 will be administered either two times per week (twice weekly regimen) or three times per week (thrice weekly regimen). Additionally, exploratory biomarkers will be assessed in the blood and tissue specimens for the activity of CUDC-907.

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In November 2011, we entered into an agreement with The Leukemia & Lymphoma Society, or LLS, under which LLS is expected to provide up to $4,000,000 in milestone payments to support our ongoing development of CUDC-907. As of June 30, 2013, we have earned $1,650,000 in milestone payments under our agreement with LLS. Under certain conditions associated with the successful partnering and/or commercialization of CUDC-907 in the specified indications, we may be obligated to make payments, including royalties, to LLS up to a maximum of $10,000,000. This obligation is limited to 2.5 times the amount we receive from LLS, and, as of June 30, 2013, the maximum obligation, assuming that CUDC-907 successfully progresses through future clinical trials, would be $4,125,000.Our scientists are also conducting ongoing preclinical studies of CUDC-907 in solid tumor cancers and we are currently planning a phase I study in patients with solid tumors.

Debio 0932. In August 2009, we granted a worldwide, exclusive royalty-bearing license to develop, manufacture, market and sell our heat shock protein 90, or HSP90, inhibitor technology, including Debio 0932, to Debiopharm. Debiopharm has assumed all future development responsibility for Debio 0932 and Debiopharm or a Debiopharm licensee will incur all future costs related to the development, registration and commercialization of products under the agreement.

In April 2010, Debiopharm initiated a phase I clinical trial to evaluate the safety of Debio 0932 in patients with advanced solid tumors. In 2011, Debiopharm successfully advanced Debio 0932 through the dose escalation portion of this phase I study and determined 1000 mg daily to be the recommended dose for further development. In the beginning of 2012, Debiopharm advanced Debio 0932 into the phase Ib expansion portion of the study at this 1000 mg daily dose level. The primary objectives of the phase Ib portion of the study were to further assess the safety profile, pharmacokinetics and pharmacodynamics of Debio 0932 at the 1000 mg daily dose and to make a preliminary assessment of its anti-tumor activity. Debiopharm completed the phase Ib expansion portion of the study, enrolling approximately 30 patients with advanced solid tumors, including patients with non-small cell lung cancer, of NSCLC. We expect Debiopharm to report data from this study in the near future.

In August 2012, Debiopharm initiated a phase I/II clinical trial, or the HALO trial, of Debio 0932 in combination with various chemotherapy regimens in patients with stage IIIb or IV NSCLC without known EGFR mutations. In the phase I portion of this study, various doses of Debio 0932 are being investigated in combination with either cisplatin/pemetrexed or cisplatin/gemcitabine in treatment-naïve patients, and with docetaxel in previously treated patients. Once a recommended phase II dose of Debio 0932 in combination with each of the 3 chemotherapy regimens has been identified, Debiopharm expects to initiate the randomized, double-blind, placebo-controlled phase II portion of the study. The phase II portion of the HALO trial is expected to enroll approximately 140 eligible NSCLC patients, who will be randomized to chemotherapy treatment in combination with either Debio 0932 or placebo. The primary objective of the phase II study will be to determine the efficacy of Debio 0932 in combination with chemotherapy. Under our agreement with Debiopharm, we are eligible for our next milestone payment when Debiopharm treats its fifth patient in a phase II clinical trial, which we expect could occur in 2014. We have received $13,000,000 to-date from Debiopharm under this collaboration.

Lastly, Debiopharm is also planning to initiate a phase I study of Debio 0932 in patients with renal cell carcinoma in the second half of 2013.

CUDC-101. CUDC-101 is a drug candidate that is designed to target epidermal growth factor receptor, or EGFR, human epidermal growth factor receptor 2, or HER2, and certain HDAC enzymes. In October 2012, we initiated a phase I clinical trial of an oral formulation of CUDC-101 in cancer patients. We subsequently terminated this study as the bioavailability observed in the first cohort of patients was too low to achieve effective drug levels with this formulation. We are currently pursuing the development of alternative formulations that may provide improved oral bioavailability and allow us to progress CUDC-101 towards clinical testing.

We initially developed CUDC-101 as an intravenous formulation and we have completed two clinical trials with this formulation, including a phase I dose escalation clinical trial of CUDC-101 in 25 patients with advanced, refractory solid tumors and a phase I expansion trial that tested CUDC-101 in 46 patients with specific tumor types, including breast, gastric, head and neck, NSCLC or liver cancers. In 2011, we began testing an intravenous formulation of CUDC-101 in a phase I clinical trial in patients with locally advanced squamous cell carcinoma of the head and neck in combination with the current standard-of-care of cisplatin and radiation. In April 2013, we determined that we would discontinue enrolling patients in this study and that the future development of CUDC-101 would be dependent on our ability to successfully develop an oral formulation of CUDC-101. Our decision was based largely on the difficulty in enrolling patients in this trial as well as our desire to direct our available financial resources to the development of CUDC-427 and CUDC-907.

Liquidity

Since our inception, we have funded our operations primarily through license fees, contingent cash payments, research and development funding from our corporate collaborators, the private and public placement of our equity securities, debt financings and the monetization of certain royalty rights. We have never been profitable on an annual basis and have an accumulated deficit of $754,761,000 as of June 30, 2013. We expect that we will incur significant operating losses for the next several years as we seek to advance our research and development programs. Although Genentech and Roche have

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received marketing approvals for Erivedge to treat advanced BCC in various territories, the level of future sales and the amount of resulting royalty revenue payable to us are both highly uncertain. In addition, in December 2012 our wholly-owned subsidiary, Curis Royalty, entered into a $30,000,000 debt financing that is secured by Erivedge royalty revenues and for which up to $4,000,000, $8,000,000 and $12,000,000 of royalty revenues in 2013, 2014 and 2015 are required to be applied to debt repayments. For the years after 2015, all royalty revenues that we receive will be applied to debt repayment until the debt is fully repaid. We currently estimate that the debt will be repaid by early 2017, but the actual timing of repayment will be dependent upon the amount of royalty revenues that we earn on sales of Erivedge.

We will need to generate significant revenues to achieve profitability and do not expect to achieve profitability in the foreseeable future, if at all. As a result of uncertainty in the amounts of future Erivedge royalty revenue and the period that will be required to repay the royalty-secured debt obligation, the timing of potential milestone payments under our agreements with Genentech, Debiopharm and LLS and the variability in our operating expenses, we expect that our financial results in the future will be variable. We anticipate that existing capital resources as of June 30, 2013 should enable us to maintain current and planned operations into the second half of 2015. Our ability to continue funding our planned operations into and beyond this point is dependent on future contingent payments that we may receive from Genentech, Debiopharm, or LLS upon the achievement of development and regulatory approval objectives, our ability to manage our expenses and our ability to raise additional funds through additional corporate collaborations, equity or debt financings, or from other sources of financing.

We believe that near term key drivers to our success will include:

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 commercialize drugs other than Erivedge from our proprietary pipeline.

Collaboration Agreements

We are currently a party to a collaboration with Genentech related to our Hedgehog pathway inhibitor technologies, a license agreement with Debiopharm related to our Hsp90 inhibitor technology and an agreement with LLS related to CUDC-907. Our past and current collaborations have generally provided for research, development and commercialization programs to be wholly or majority-funded by our collaborators and provide us with the opportunity to receive additional contingent cash milestone payments if specified development and regulatory approval objectives are achieved, as well as royalty payments upon the successful commercialization of any products based upon the collaborations. We are currently not receiving any funding for our research activities and we do not expect to receive such funding in the future from Genentech, Debiopharm or LLS under our current agreements with these parties. Under our collaboration with Genentech, we currently expect to incur only costs related to the maintenance of licenses, including sublicense payments due upon milestone payments and any royalties we receive, as well as patent-related expenses. As a result of our licensing agreements with various universities, we are also obligated to make payments to these university licensors when we receive certain payments from Genentech. As of June 30, 2013, we have incurred aggregate expenses over the term of this collaboration of $3,200,000 in connection with royalties and other cash payments received from Genentech. In addition, during 2012 we incurred $964,000 in expense related to the issuance of 200,000 shares of our common stock to such university licensors upon FDA approval of Erivedge. In May and July 2013, we received additional milestone payments from Genentech upon Australian and European Union approval of Erivedge, and, as a result, we are obligated to

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pay additional sublicense and royalty fees to these university licensors. We do not expect to incur any material costs in the foreseeable future related to our Hsp90 technologies under development by Debiopharm.

Financial Operations Overview

General. Our future operating results will largely depend on the magnitude of payments from our current and potential future corporate collaborators and 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 timing of our entry into new collaborations, if any, the timing of the receipt of payments, if any, from new or existing collaborators and the cost and outcome of any preclinical development or clinical trials then being conducted. We anticipate that existing capital resources as of June 30, 2013 should enable us to maintain current and planned operations into the second half of 2015.

A discussion of certain risks and uncertainties that could affect our liquidity, capital requirements and ability to raise additional funds is set forth under “Part II, Item 1A—Risk Factors.”

Debt. In December 2012, through our wholly-owned subsidiary Curis Royalty, we entered into a $30,000,000 debt transaction with BioPharma-IIat an annual interest rate of 12.25% collateralized with certain future Erivedge royalty and royalty-related payment streams. For a further discussion of this loan, see “Overview – Erivedge.”

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 in the U.S. We expect to continue to recognize royalty revenue in future quarters from Genentech’s sales of Erivedge in the U.S. and in other markets where Genentech and Roche successfully obtain marketing approval, if any. However, future royalty payments will service the outstanding debt and accrued interest to BioPharma-II, up to the quarterly caps for 2013, 2014 and 2015, and until the debt is fully repaid thereafter. We currently estimate that the debt will be repaid in early 2017.

We could receive additional milestone payments from Genentech, Debiopharm, and LLS, provided the respective programs meet contractually-specified development and regulatory objectives. In May, 2013 Erivedge was approved for marketing registration by Australia’s TGA for the treatment of adult patients with metastatic or locally advanced BCC. The Australian approval resulted in a $4,000,000 milestone payment to us in the second quarter of 2013. Additionally, in July 2013 Erivedge received conditional approval from the European Commission for the marketing of Erivedge in all 28 European Union member states. As a result of this conditional approval, we earned a $6,000,000 milestone payment from Genentech, which will be recognized in the third quarter of 2013. Erivedge is also currently being reviewed for potential marketing approval by health authorities in several additional territories.

Our only source of revenues and/or cash flows from operations for the foreseeable future will be up-front license payments and funded research and development that we may receive under new collaboration agreements, if any, contingent cash payments for the achievement of clinical, development and regulatory objectives, if any are met, under new collaborations or our existing collaborations with Genentech, Debiopharm, and LLS and royalty payments that are contingent upon the successful commercialization of any products based upon these collaborations. Our ability to enter into new collaborations and our receipt of additional payments under our existing collaborations with Genentech, Debiopharm, and LLS cannot be assured, nor can we predict the timing of any such arrangements or payments, as the case may be.

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Cost of Royalty Revenues. Cost of royalty revenues consists of all expenses incurred that are associated with royalty revenues that we record in the Revenues section of our Consolidated Statements of Operations and Comprehensive (Loss)/Income. These costs currently consist of payments we are obligated to make to university licensors on royalties that we earn 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. For royalties that we would earn from Roche’s future sales of Erivedge in Australia, we will be obligated to make payments to university licensors in an amount that is equal to 2% of Roche’s direct net sales in Australia until April 2019, after which the amount will decrease to 5% of the royalty payments that we receive from Genentech for the remainder of the period ending 10 years from the first commercial sale of Erivedge, or February 2022.

Research and Development. Research and development expense consists of costs incurred to discover, research and develop our drug candidates. These expenses consist primarily of: (1) salaries and related expenses for personnel including stock-based compensation expense; (2) outside service costs including, clinical research organizations and medicinal chemistry; (3) sublicense payments; and (4) the costs of supplies and reagents, consulting, and occupancy and depreciation charges. We expense research and development costs as incurred. We are currently incurring research and development expenses under our Hedgehog pathway inhibitor collaboration with Genentech related to the maintenance of third-party licenses to certain background technologies. In addition, we record research and development expense for payments that we are obligated to make to certain third-party university licensors upon our earning payments from Genentech related to the achievement of clinical development and regulatory objectives under our Hedgehog pathway inhibitor collaboration.

Our development programs, both internal and under collaboration, are summarized in the following table:

Because of the early stages of development of these programs, our ability and that of our collaborators and licensees to successfully complete preclinical studies and clinical trials of these drug candidates, and the timing of completion of such programs, is highly uncertain. There are numerous risks and uncertainties associated with developing drugs which may affect our and our collaborators’ future results, including:

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We cannot reasonably estimate or know the nature, timing and estimated costs of the efforts necessary to complete the development of, or the period in which material net cash inflows are expected to commence from any of our drug candidates. Any failure to complete the development of our drug candidates in a timely manner could have a material adverse effect on our operations, financial position and liquidity.

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 consolidated financial statements in conformity with accounting principles generally accepted in the United States requires that we make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Such estimates and judgments the performance obligations under our collaboration agreements; the estimated repayment term of our debt and related short- and long-term classification; the collectability of receivables; the carrying value of property and equipment and intangible assets; the assumptions used in our valuation of stock-based compensation and the value of certain investments and liabilities, including our long-term warrant liability. 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. Changes to the probabilities underlying the assumptions used in valuing our warrant liability could materially impact our financial statements. 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, 2012, or the Annual Report, which was filed with the SEC on March 13, 2013.

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Results of Operations

Three-Month Periods Ended June 30, 2013 and June 30, 2012

Revenues. Total revenues are summarized as follows:

Total revenues increased primarily due to an increase of $552,000 in our royalty revenues earned from Genentech on net sales of Erivedge, which increased to $805,000 during the second quarter of 2013 as compared to $253,000 during the same period in 2012. We also recorded an increase in research and development revenues of $500,000 during the second quarter of 2013 as compared to the same period in 2012, primarily due to $550,000 that we earned under our agreement with LLS related to the achievement of a clinical development objective during the quarter ended June 30, 2013. We are eligible for additional milestone payments of up to $2,350,000 over the term of our agreement with LLS, if our CUDC-907 program continues to successfully meet clinical development objectives.

During the three months ended June 30, 2013 and 2012, we recognized license fee revenues of $4,000,000, respectively, for payments we received from Genentech in connection with Roche’s May 2012 Australian NDA filing and subsequent approval by Australian health authorities in May 2013.

All potential future contingent payments under our collaboration agreements are tied to clinical and regulatory objective milestones as well as royalties on future net sales.

Cost of Royalty Revenues. Cost of royalty revenues increased as a result of an increase in the royalties that we earned with respect to Erivedge during the three months ended June 30, 2013, which we are required to pay to two university licensors.

Research and Development Expenses. Research and development expenses are summarized as follows: