Via Facsimile and U.S. Mail
Mail Stop 6010
August 22, 2005
Mr. Michael P. Gray
Vice President of Finance and
Chief Financial Officer
Curis, Inc.
61 Moulton Street
Cambridge, MA 02138
Re: Curis, Inc.
Form 10-K for Fiscal Year Ended December 31, 2004
Form 10-Q for Quarter Ended March 31, 2005
File No. 000-30347
Dear Mr. Gray:
We have reviewed the above referenced filings and your June
20,
2005 response to our letter dated June 7, 2005, as well as, our
teleconference calls on August 9, 2005 and August 18, 2005, and
have
the following comments. In our comments, we ask you to provide us
with information so we may better understand your disclosure.
After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the year ended December 31, 2003
Genentech Collaboration Accounting
1. We have evaluated your June 20, 2005 response 3 as it relates
to
your policy of charging the excess of costs incurred over
cumulative
revenues recognized against deferred revenue. The effect of this
policy appears to be to accelerate the timing of revenue
recognition
such that incurred costs have no impact on the income statement in
the period in which they are incurred. It does not appear that
the
income characterization guidance in EITF 01-9 provides a basis for
changing the timing of revenue recognition. Please advise.
2. In our telephone conferences on August 9, 2005 and August 18,
2005, you indicated that you recognize the $4 million in
maintenance
fees over the performance period. Please help us understand why
each
of the maintenance fees does not represent a substantive
milestone.
3. Please analyze for us why it is appropriate to treat the
December
2004 amendment as an arrangement separate and apart from the June
2003 arrangement rather than as a modification of the June 2003
arrangement. We understand from our telephone conferences on
August
9, 2005 and August 18, 2005 that the December 2004 amendment was
not
contemplated at the time the June 2003 arrangement was entered
into
and therefore given the time elapsed between the June 2003
arrangement and its amendment you do not believe that the
presumption
in EITF 00-21, paragraph 2 has been met. However, we also note
that
the December 2004 amendment appears to change the rate per full
time
equivalent implicit in the June 2003 arrangement through the
acceleration of the $2 million cash payment originally due in June
2005. That is, the December 2004 amendment appears to modify the
June 2003 arrangement rather than provide for incremental
services.
In these circumstances, it is unclear why the December 2004
amendment
is accounted for as a unit of accounting separate and apart from
the
June 2003 single unit of accounting. In addition, please clarify
to
us what role the joint steering committee has in the additional
eight
full-time equivalents provided in the December 2004 amendment.
4. In our telephone conferences on August 9, 2005 and August 18,
2005
you indicated that you recognized the right to receive $4 million
in
maintenance fees as a financial asset on the date the June 2003
agreement was signed. You indicated that you believed these fees
represented deferred payments contingent solely on the expiration
of
time because the contract did not explicitly link these fees to
any
particular performance under the contract. You also indicated
that
if Curis failed to provide the services specified in the June 2003
arrangement that Curis would not be entitled to the $4 million
maintenance fee notwithstanding the absence of an explicit link
between these performance provisions and the $4 million in
maintenance fees. Under these circumstances, it is unclear why
you
believe the right to receive $4 million maintenance fees
represents a
financial asset on the date the June 2003 agreement was signed.
Please advise.
5. We note from your disclosures on page 70 of your December 31,
2004
Form 10-K that you sold 1,323,835 shares of common stock to
Genentech
for $3.5 million on June 11, 2003 as partial consideration for the
rights and licenses granted to Genentech under the Collaboration
Agreement. We also understand from our telephone conference on
August 9, 2005 that the $2.644 purchase price of the common stock
sold to Genentech was based on the average closing share price for
30
trading days preceding June 11, 2003, which you believe
approximates
fair value. Since the common stock was issued as part of a
transaction to sell goods or services to Genentech, it appears
that
such issuance should be measured and recognized in accordance with
EITF 96-18 and classified in accordance with EITF 01-9. Please
give
us your analysis of both the requirement under EITF 96-
18/Statement
123 to use the quoted market price of the common stock if the
common
stock is more reliably measurable and the discussion prior to
example
4 in EITF 01-9, Exhibit 01-9B. In your analysis, please reconcile
the value you attributed to the common stock with the quoted
market
price of the common stock on the EITF 96-18 measurement date. If
you
believe the difference between the $3.5 million value you
attributed
to the common stock and the fair value of that common stock
determined using the quoted marked price of a share of the common
stock on the 96-18 measurement date is not material please provide
us
your SAB 99 analysis. In this regard, the apparent absence of any
disclosure about an identifiable benefit, as that term is used in
EITF 01-9, appears to suggest that the common stock issued
represents
a sales incentive. It also appears that the common stock is more
reliably measurable than the sales incentive given, but it appears
that the $3.5 million fair value is not based on the quoted market
price of the common stock on the EITF 96-18 measurement date.
6. See your revenue recognition policy in Note 1. Please clarify
in
your disclosure:
* How you distinguish between milestones and services in a single
unit of accounting.
* What "the remainder" is.
* How your accounting on the Genentech arrangement for the $4
million
maintenance fees ratably over the performance period reconciles
with
your accounting policy disclosure in Note 1 that indicates you
recognize such fees based on expected total labor hours for the
service.
7. In Note 1, you state that you assess proportional performance
of
services in some circumstances based on the ratio of costs
incurred
to date to total costs to be incurred under the related contract.
Please help us understand why you believe cost is an output
measure.
If cost is an input measure, please help us understand by
reference
to specific authoritative literature why you believe use of an
input
measure to assess proportional performance for a service contract
is
appropriate.
Disclosures
8. Based on our telephone conferences on August 9, 2005 and August
18, 2005 we believe additional disclosures are necessary to
provide
better transparency into your business. Please provide us the
following information in disclosure-type format to help us
evaluate
the adequacy of your disclosure:
* Separately present royalty revenue and license fee revenue on
the
face of the Consolidated Statement of Operations and Comprehensive
Loss.
* Disclose your accounting policy for characterizing in the income
statement sales incentives and other consideration given to your
customers. Refer to EITF 01-9.
* Ensure that the material facts of and accounting for each of the
collaborations disclosed in Note 4 are disclosed. For example, in
telephone conferences with us, you indicated that the $4 million
maintenance fees were recorded as financial assets on June 11,
2003.
You also indicated that in exchange for the exercise of the co-
development option, you gave up your right to certain US
milestones.
We are unable to locate disclosure to this effect in Note 4.
* Clarify why you believe it is appropriate in the Genentech
agreement to record the revenue over the period of the steering
committee services instead of the research and development period.
Clarify your obligations under the steering committee and the
composition of the steering committee.
* Clarify the reasons no accounting treatment was given to the
option
exercised in the June 2003 agreement. In this regard, we note
that
only Curis could exercise the option and that there was no
deliverable under EITF 00-21.
* For each collaboration agreement disclosed in Note 4, please
disclose the following:
* Whether the arrangement represents a single unit of accounting
or
multiple unit of accounting. If it is a single unit of
accounting,
identify the unique attributes of the collaboration that support
this
conclusion. If there are multiple units of accounting, identify
them. For each collaboration, ensure that it is clear from the
disclosure in Notes 1 and 4 how you are accounting for each unit
of
accounting.
* What the performance period is and how it was determined.
* Whether the milestones are substantive or whether they are
recognized proportionally.
* Whether consideration was given to the collaborator and if so,
how
you accounted for and characterized this consideration in the
income
statement.
Please provide to us your revised disclosures.
* * * *
Please respond to the comments within 10 business days
or
tell us when you will provide us with a response. Please furnish
a
letter that keys your responses to our comments and provides
requested information. Detailed letters greatly facilitate our
review. Please file your letter on EDGAR under the form type
label
CORRESP.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings to be certain that the
filing includes all information required under the Securities and
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
You may contact Joseph Roesler, Staff Accountant, at (202)
551-
3628 or Mary Mast, Senior Accountant, at (202) 551-3613 if you
have
questions regarding the comments. In this regard, do not hesitate
to
contact me, at (202) 551-3679.
Sincerely,
For Jim B. Rosenberg
Senior Assistant Chief
Accountant
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Michael P. Gray
Curis, Inc.
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