UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 000-30347
----------------------------------
CURIS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 04-3505116
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
61 MOULTON STREET, CAMBRIDGE, MASSACHUSETTS 02138
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (617) 503-6500
----------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [_] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of July 31, 2001, there were 32,216,261 shares of the Registrant's Common
Stock, $0.01 par value per share, and there were 1,000 shares of the
Registrant's Series A Convertible Exchangeable Preferred Stock, $0.01 par value
per share, outstanding.
CURIS, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of
June 30, 2001 and December 31, 2000 3
Consolidated Statements of Operations and
Comprehensive Loss for the three-and six-month
periods ended June 30, 2001 and 2000 4
Consolidated Statements of Cash Flows for the
six-months ended June 30, 2001 and 2000 5
Notes to Unaudited Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 17
Item 4. Submission of Matters To a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit Index 19
2
ITEM 1. FINANCIAL STATEMENTS
CURIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, December 31,
2001 2000
------------------------- -------------------------
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 42,426,951 $ 52,414,312
Marketable securities 15,532,310 22,654,393
Marketable securities - Restricted 1,016,242 729,905
Other current assets 8,601,143 1,278,873
------------------------- -------------------------
Total current assets 67,576,646 77,077,483
------------------------- -------------------------
PROPERTY, PLANT AND EQUIPMENT - net 8,680,986 7,866,591
------------------------- -------------------------
OTHER ASSETS:
Intangible assets, net (Note 4) 85,498,343 97,145,664
Other assets 4,906,105 592,252
------------------------- -------------------------
Total other assets 90,404,448 97,737,916
------------------------- -------------------------
$ 166,662,080 $ 182,681,990
========================= =========================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Debt and lease obligations, current portion $ 2,016,391 $ 1,971,609
Accounts payable 2,284,726 2,187,824
Accrued liabilities 5,496,807 5,553,641
Deferred revenue 835,005 -
------------------------- -------------------------
Total current liabilities 10,632,929 9,713,074
------------------------- -------------------------
DEBT AND LEASE OBLIGATIONS, net of current portion 5,623,145 4,155,150
------------------------- -------------------------
DEFERRED REVENUE, net of current portion 11,310,529 -
------------------------- -------------------------
COMMITMENTS (Note 5)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 5,000,000
shares authorized, none issued and outstanding
Common stock, $0.01 par value, 125,000,000
shares authorized, 31,633,202 and 31,383,585
shares issued and outstanding at June 30, 2001
and December 31, 2000, respectively 316,332 313,836
Additional paid-in capital 661,856,564 662,339,492
Notes receivable (1,247,142) (1,204,596)
Deferred compensation (13,797,220) (22,893,619)
Accumulated deficit (509,029,885) (471,945,648)
Accumulated other comprehensive income 996,828 2,204,301
------------------------- -------------------------
Total stockholders' equity 139,095,477 168,813,766
------------------------- -------------------------
$ 166,662,080 $ 182,681,990
========================= =========================
See accompanying notes to unaudited consolidated financial statements
3
CURIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------------------
2001 2000 2001 2000
---------------------------------------------------------------------
REVENUES:
Research and development revenues $ 202,638 $ 7,471 $ 451,803 $ 677,858
----------------- ----------- ------------ -----------
COSTS AND EXPENSES (A):
Research and development 7,893,163 1,910,895 16,001,870 3,984,233
General and administrative 2,672,291 1,083,207 5,254,682 2,595,826
Stock-based compensation 3,667,670 -- 7,499,109 3,139,478
Amortization of intangible assets 5,823,660 76,411 11,647,321 118,172
----------------- ----------- ------------ -----------
Total costs and expenses 20,056,784 3,070,513 40,402,982 9,837,709
----------------- ----------- ------------ -----------
Net loss from operations (19,854,146) (3,063,042) (39,951,179) (9,159,851)
----------------- ----------- ------------ -----------
OTHER INCOME (EXPENSE):
Interest and other income 737,291 590,046 3,231,211 888,942
Interest expense (160,153) (41,020) (364,269) (84,655)
----------------- ----------- ------------ -----------
Total other income, net 577,138 549,026 2,866,942 804,287
----------------- ----------- ------------ -----------
NET LOSS $(19,277,008) $(2,514,016) $(37,084,237) $(8,355,564)
BASIC AND DILUTED NET LOSS PER COMMON
SHARE $(0.61) $(0.22) $(1.18) $(0.73)
================= =========== ============ ===========
WEIGHTED AVERAGE COMMON SHARES FOR
BASIC AND DILUTED NET LOSS
COMPUTATION 31,560,390 11,471,672 31,497,604 11,369,372
================= =========== ============ ===========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
NET LOSS $(19,277,008) $(2,514,016) $(37,084,237) $(8,355,564)
================= =========== ============ ===========
UNREALIZED GAIN ON MARKETABLE
SECURITIES 3,589 12,660 73,156 9,403
UNREALIZED GAIN (LOSS) ON MARKETABLE
SECURITIES-RESTRICTED 604,415 5,216,200 286,337 5,216,200
----------------- ----------- ------------ -----------
COMPREHENSIVE INCOME (LOSS) $(18,669,004) $ 2,714,844 $(36,724,744) $(3,129,961)
================= =========== ============ ===========
(A) The following summarizes the
departmental allocation of the
stock-based compensation charge:
Research and development $ 2,342,858 $ - $ 4,750,224 $ -
General and administrative 1,324,812 - 2,748,885 3,139,478
----------------- ----------- ------------ -----------
Total stock-based
compensation $ 3,667,670 $ - $ 7,499,109 $ 3,139,478
================= =========== ============ ===========
See accompanying notes to unaudited consolidated financial statements
4
CURIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six-Month Period Ended
June 30,
-----------------------------------------------------------
2001 2000
------------------------- ------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(37,084,237) $(8,355,564)
------------------------- ------------------------
Adjustments to reconcile net loss to net cash used:
Depreciation and amortization 1,281,888 389,801
Stock-based compensation expense 7,499,109 3,139,478
Gain on disposal of assets - (305,396)
Amortization of lease discount 12,244 -
Reorganization expense adjustment - 39,141
Issuance of common stock in lieu of cash for license fee 98,003 -
Non-cash interest on notes payable 10,831 -
Interest on notes receivable (42,546) -
Amortization of intangible assets 11,647,321 118,172
Changes in current assets and liabilities:
Other current assets (7,322,270) (320,065)
Deferred merger costs - (1,697,366)
Accounts payable and accrued liabilities 31,155 (634,991)
Deferred contract revenue 12,145,534 (661,279)
------------------------- ------------------------
Total adjustments 25,361,269 67,495
------------------------- ------------------------
Net cash used for operating activities (11,722,968) (8,288,069)
------------------------- ------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (13,650,051) -
Sale of marketable securities, net 19,278,324 15,658,733
Increase in other assets (4,313,853) 3,370
Expenditures for property, plant and equipment (1,226,274) (16,462)
Proceeds from sale of assets related to merger - 200,000
Expenditures for patents - (489,102)
------------------------- ------------------------
Net cash provided by investing activities 88,146 15,356,539
------------------------- ------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 442,284 3,853,445
Proceeds from exercise of warrants - 307,561
Issuance of notes payable 2,000,000 -
Repayment of notes payable (83,800) -
Repayments of obligations under capital leases (711,023) (429,480)
------------------------- ------------------------
Net cash provided by financing activities 1,647,461 3,731,526
------------------------- ------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,987,361) 10,799,996
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 52,414,312 2,751,069
------------------------- ------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 42,426,951 $13,551,065
========================= ========================
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Property and equipment purchased under line of credit $ 870,009 $ -
========================= ========================
Payment of notes payable by issuance of common stock $ 310,200 $ -
========================= ========================
Notes payable for exercise of stock options $ - $ 1,131,380
========================= ========================
See accompanying notes to unaudited consolidated financial statements
5
CURIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Operations - Curis, Inc. (the "Company"), incorporated on February 14, 2000
and formed to effect the merger discussed below in Note 2, focuses its
efforts in the area of regenerative medicine and uses its functional genomics
and developmental biology expertise to (i) activate cellular development
pathways to promote repair and promote normal tissue and organ function and
(ii) inhibit abnormal growth pathways to treat certain types of cancer. The
Company has identified product leads from its experience in working with
protein factors, cell therapies, biomaterials, tissue engineering and small
molecules.
2. Merger - On July 31, 2000 (the "Merger Date"), Creative BioMolecules, Inc., a
Delaware corporation ("Creative"), Ontogeny, Inc., a Delaware corporation
("Ontogeny"), and Reprogenesis, Inc., a Texas corporation ("Reprogenesis"),
merged (the "Merger") with and into the Company, pursuant to an Agreement and
Plan of Merger dated as of February 14, 2000 (the "Merger Agreement"). On
July 31, 2000, the Company, as the surviving company of the Merger, assumed
the rights and obligations of Creative, Ontogeny and Reprogenesis.
Immediately after the Merger, the Company was owned approximately 43% by the
former stockholders of Creative, 38% by the former stockholders of Ontogeny
and 19% by the former stockholders of Reprogenesis. Consequently, for
accounting purposes, the Company is deemed to be the successor to Creative,
and the historical financial statements of Creative have become the
historical financial statements of the Company. The Merger has been accounted
for as a purchase of Ontogeny and Reprogenesis in accordance with Accounting
Principles Board (APB) Opinion No. 16, Accounting for Business Combinations,
and accordingly, Ontogeny's and Reprogenesis' operating results prior to the
Merger Date are not included in the accompanying financial statements.
In accordance with APB No. 16, the purchase price for Ontogeny and
Reprogenesis has been allocated to the assets and liabilities of Ontogeny and
Reprogenesis based on their fair values. The aggregate purchase price based
on the fair market value of Creative common stock was $300,731,000 and
$149,000,000 for Ontogeny and Reprogenesis, respectively, including the value
of the outstanding options and warrants exchanged for options and warrants to
purchase the Company's common stock and the transaction costs related to the
Merger.
The purchase price of Ontogeny and Reprogenesis was allocated to the assets
acquired based upon an independent appraisal which used proven valuation
tools and techniques. Significant portions of the purchase price were
identified as intangible assets which included in-process research and
development ("IPR&D") of $294,800,000 and assembled workforce of $500,000.
The excess of the purchase price over the fair value of identified tangible
and intangible net assets of $105,477,000 has been allocated to goodwill.
Intangible assets are being amortized over their estimated useful lives of 4
to 5 years. The fair value of the IPR&D relating to current in-process
research and development projects was recorded as an expense as of the Merger
Date.
Unaudited pro forma operating results for the three- and six-month periods
ended June 30, 2000, assuming the Merger occurred at January 1, 2000 are
approximately as follows:
Three Months Ended Six Months Ended
(Actual) (Pro forma) (Actual) (Pro forma)
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
-----------------------------------------------------------------------------------------------------
Revenues $ 203,000 $ 960,000 $ 451,000 $ 2,610,000
Net Loss $(19,277,000) $(22,087,000) $(37,084,000) $(53,043,000)
Net Loss per share $ (0.61) $ (0.85) $ (1.18) $ (2.05)
6
For purposes of these pro forma operating results, the IPR&D was assumed to
have been written off prior to the pro forma periods, so that the operating
results presented only include recurring costs.
3. Basis of Presentation - The accompanying consolidated financial statements of
the Company have been prepared in accordance with accounting principles
generally accepted in the United States applicable to interim periods. These
statements, however, are condensed and do not include all disclosures
required by accounting principles generally accepted in the United States for
complete financial statements and should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 2000, as
filed with the Securities and Exchange Commission on March 30, 2001.
In the opinion of the Company, the unaudited financial statements contain all
adjustments (all of which were considered normal and recurring) necessary to
present fairly the Company's financial position at June 30, 2001 and the
results of operations and cash flows for the three- and six-month periods
ended June 30, 2001 and 2000. The preparation of the Company's consolidated
financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts and disclosure of certain assets
and liabilities at the balance sheet date. Such estimates include the
carrying value of property and equipment and intangible assets and the value
of certain liabilities. Actual results may differ from such estimates.
These interim results are not necessarily indicative of results for a full
year and are subject to year-end adjustments and an independent audit.
4. Intangible Assets - Intangible assets consisted of approximately the
following as of June 30, 2001 and December 31, 2000:
June 30, December 31,
2001 2000
------------ ------------
Goodwill $105,477,000 $105,477,000
Patents 1,297,000 1,297,000
Assembled workforce 500,000 500,000
------------ ------------
107,274,000 107,274,000
Less: accumulated amortization (21,776,000) (10,128,000)
------------ ------------
$ 85,498,000 $ 97,146,000
============ ============
Goodwill totaling $105,477,000 and assembled workforce of $500,000 are being
amortized over their estimated useful lives of 4 to 5 years. Accumulated
amortization as of June 30, 2001 was $21,198,000 and $92,000 for goodwill and
assembled workforce, respectively. The Company has capitalized certain costs
associated with the successful filing of patent applications and has included
them as a component of other assets in the accompanying consolidated balance
sheet. Patent costs of $1,297,000 are being amortized over their estimated
useful lives, not to exceed 17 years. Accumulated amortization relating to
patent costs was $486,000 as of June 30, 2001.
7
5. Long-Term Debt, Capital Lease Obligations and Operating Leases -
(i) Long-term debt and capital lease obligations consisted of
approximately the following at June 30, 2001 and December 31, 2000:
June 30, December 31,
2001 2000
-----------------------------------
Notes payable to a financing agency for fixed asset purchases $ 2,639,000 $ 1,946,000
Notes payable to Genetics Institute for technology purchases
payable in the Company's common stock - 394,000
Convertible subordinated notes payable to Becton
Dickinson, net of $266,000 discount at June 30, 2001 1,734,000 -
Obligations under capital leases, net of $ 60,000
discount at June 30, 2001 3,266,000 3,787,000
----------- -----------
7,639,000 6,127,000
Less current portion (2,016,000) (1,972,000)
----------- -----------
Total long-term debt and capital lease obligations $ 5,623,000 $ 4,155,000
=========== ===========
On May 31, 2001 the Company issued 60,000 shares of Common Stock valued at
$310,000 and paid cash totaling $195,000 to repay in full all notes payable
due to Genetics Institute for technology purchases, including accrued
interest of $111,000.
On June 27, 2001, the Company received $2,000,000 from Becton Dickinson under
a convertible subordinated note payable in connection with the exercise of an
option to negotiate a collaboration agreement. The note is repayable, at the
option of the Company, in either cash or upon issuance of the Company's
common stock at any time up to its maturity date of June 26, 2006. The note
bears interest at 7%, which is below the fair market interest rate which the
Company estimates to be 11%. The difference between the market interest rate
of 11% and the coupon interest rate of 7% is being amortized as interest
expense over the remaining term of the note.
(ii) Future minimum operating lease payments for the respective periods
ended December 31 are approximately as follows:
Operating Leases
--------------------- ----------------
Q3 - Q4 2001 $ 928,000
2002 1,956,000
2003 2,020,000
2004 2,004,000
2005 2,002,000
Thereafter 2,659,000
-----------
Total minimum lease payments $11,569,000
===========
6. License Agreements - Effective January 5, 2001, the Company entered into a
license and collaboration agreement with Aegera Therapeutics Inc. ("Aegera")
granting the Company an exclusive worldwide license to Aegera's skin-derived,
adult stem cell technologies. The agreement also provides for a three-year
research collaboration in which the Company will fund 6 full-time equivalent
researchers per year at Aegera dedicated to the agreement. In consideration
for the technology license, the Company paid a $100,000 up-front license fee,
purchased 125,000 shares of Aegera common stock for a total cost of $250,000
and issued to Aegera 10,667 shares of the Company's common stock, which had a
market
8
value of approximately $98,000, to Aegera during the first quarter of 2001.
The Company recorded the $100,000 payment and fair value of the Company's
common stock issued to Aegera as an expense in the accompanying statement of
operations. The estimated fair value of 125,000 shares of Aegera common stock
purchased has been recorded as an other asset in the accompanying balance
sheet. In addition, under the terms of the agreement, the Company will likely
be required to make various milestone and royalty related payments.
7. Micromet Collaboration - On June 29, 2001, the Company entered into a
purchase and sale agreement with Micromet, AG ("Micromet"), a German
corporation, pursuant to which the Company assigned its single-chain-
polypeptide technology to Micromet in exchange for $8,000,000 in cash, 3,003
shares of Micromet common stock valued as of June 30, 2001 at approximately
$686,000 and a convertible promissory note of EUR 4,068,348 (approximately
$3,459,000 at June 30, 2001). The convertible promissory note bears interest
at 7% and is due the earlier of (i) the closing date for an initial public
offering of Micromet's shares or (ii) June 30, 2005. Upon reaching maturity,
the Company has the option to receive either cash or shares of Micromet
common stock.
In addition, on June 29, 2001, the Company entered into a letter of intent
with Micromet pursuant to which the parties agreed to enter into a target
research and license agreement and a product development agreement. It is
intended that these agreements will provide the Company with royalties on
Micromet's product revenues, if any, arising out of the assigned technology,
joint ownership of future product discoveries, if any, arising out of the
collaboration, and access by Curis to Micromet's proprietary single cell
analysis of gene expression technology. In addition, it is intended that the
product development agreement will require the Company to jointly fund
research for potential targets through the proof of principle stage. The
Company will also have the right, but not the obligation, to jointly or
solely fund the development of targets from the proof of principle stage
through the completion of Phase I Clinical Trials. Lastly, the Company will
be obligated to pay milestones to Micromet upon the attainment of certain
development goals.
As of June 30, 2001, the Company has recorded the $8,000,000 as a component
of other current assets in the accompanying consolidated balance sheet. The
Company received full payment of the $8,000,000 on July 2, 2001. The
convertible promissory note and estimated value of the Micromet common stock
have been recorded as a component of other assets in the accompanying balance
sheet due to the long-term nature of the underlying instruments. The Company
will recognize the value of all consideration received from Micromet as a
component of revenue over its estimated performance period. No revenue has
been recognized under this arrangement as of June 30, 2001.
8. New Accounting Standards - In June 1998, the Financial Accounting Standards
Board (FASB) released SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133 establishes standards for reporting and
accounting for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. It requires an
entity to recognize all derivatives as either assets or liabilities in its
balance sheet and measure those instruments at fair value. Pursuant to SFAS
No. 137, Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133, SFAS No.133 is
effective for all quarters of fiscal years beginning after June 15, 2000. The
adoption of SFAS No. 133 in the first quarter of fiscal 2001 did not have any
impact on the Company's reported consolidated financial statements.
On June 30, 2001, the FASB issued SFAS No. 141, Accounting for Business
Combinations and SFAS No. 142, Accounting for Goodwill and Other Intangible
Assets. SFAS No. 141 requires that all business combinations initiated after
June 30, 2001 be accounted for under the purchase method. Upon adoption of
SFAS 142, goodwill will no longer be subject to amortization over its
estimated useful life. Rather, goodwill will be subject to at least an
annual assessment of impairment by applying a fair-value based test. Upon
adoption of SFAS 142 on January 1, 2002, the Company will cease amortization
of its existing goodwill thereby reducing its operating expenses by
approximately $11,500,000 annually. The Company has not yet assessed the
impairment, if any, that would be recognized utilizing a fair-value based
goodwill impairment test.
9
9. Subsequent Event - In July 2001, the Company and Elan International Services
("EIS") formed Curis Newco, Ltd. ("Newco"), an entity that is committed to
the research and development of molecules that stimulate the hedgehog (Hh)
signaling pathway. This pathway had previously been shown to play a role in
the development of the central and peripheral nervous systems. At the time
Newco was formed, EIS purchased 546,448 shares of the Company's common stock
for $4,000,000, or $7.32 per share, and received a warrant to purchase up to
50,000 shares of the Company's common stock at $10.46 per share. The warrant
is exercisable for five years. Also, EIS purchased 1,000 shares of the
Company's newly created Series A convertible exchangeable preferred stock
("Series A Preferred Stock") for proceeds of $12,015,000. The Series A
Preferred Stock is, at EIS's option, convertible into the Company's common
stock at $14.12 per share or exchangeable for non-voting preference shares of
Newco ("Newco Preference Shares"), originally issued to the Company and
representing 30.1% of the aggregate outstanding shares of Newco ("Aggregate
Newco Shares"). The Company used the $12,015,000 in proceeds of the Series A
Preferred Stock sale to purchase 80.1% of the Aggregate Newco Shares. This
purchase consisted of 100% of the voting common shares of Newco ("Newco
Common Shares") and 60.2% of the Newco Preference Shares, which represent 50%
and 30.1%, respectively, of the Aggregate Newco Shares. In addition, EIS
contributed $2,985,000 to purchase 39.8% of the Newco Preference Shares,
which represents 19.9% of the Aggregate Newco Shares. Newco used the
aggregate proceeds to pay $15,000,000 million to Neuralab Limited, an
affiliate of EIS, for a non-exclusive license giving Newco rights to use an
important animal model, a mouse strain that develops many of the features of
human neurodegenerative diseases.
Newco was formed by issuing Newco Common Shares and Newco Preference Shares
valued at $15,000,000 to the Company and EIS. The Company owns 100% of the
outstanding Newco Common Shares, which represents 100% of the outstanding
voting Newco Shares. The Newco Preference shares are non-voting and are
convertible, at the option of the holder thereof, into voting Newco Common
Shares at any time after July 18, 2003. While EIS currently does not own any
Newco Common Shares and is unable to convert any of its Newco Preference
Shares into Newco Common Shares until July 18, 2003, it has retained
significant minority investor rights that the Company considers to be
"participating rights" as defined in Emerging Issues Task Force (EITF) Issue
96-16 Investors' Accounting for an Investee When the Investor Has a Majority
of the Voting Interest but the Minority Shareholder Has Certain Approval or
Veto Rights. EIS's participating rights prevent the Company from exercising
sole control over Newco with respect to certain enumerated actions related to
the technology licensed from Neuralab Limited. Accordingly, the Company will
not consolidate the financial statements of Newco but instead will account
for its investment in Newco under the equity method of accounting.
The Company may provide additional funding to Newco as needed in relation to
its ownership interest in Newco. On July 18, 2001, the Company entered into
an $8,010,000 subordinated convertible promissory note agreement (the "Note
Agreement") with Elan Pharma International Limited ("EPIL"). The Note
Agreement bears interest at 8% per annum through July 18, 2005 and 6% per
annum thereafter, compounded and payable semi-annually. Under the terms of
the Note Agreement, EPIL has the option to convert all or any portion of the
outstanding principal amount into the Company's common stock under certain
circumstances at any time after July 18, 2003, at a per share price of $8.63,
subject to adjustment under certain circumstances, as defined. The borrowings
under the Note Agreement are restricted for the Company's funding of Newco.
The Company will immediately expense its $12,105,000 investment in Newco
because the technical feasibility of using the contributed and licensed
technology has not been established and Newco has no alternative future use
of the technologies.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Merger - On July 31, 2000 (the "Merger Date"), Creative BioMolecules, Inc., a
Delaware corporation ("Creative"), Ontogeny, Inc., a Delaware corporation
("Ontogeny"), and Reprogenesis, Inc., a Texas corporation ("Reprogenesis"),
merged (the "Merger") with and into the Company, pursuant to an Agreement and
Plan of Merger dated as of February 14, 2000 (the "Merger Agreement"). On July
31, 2000, the Company, as the surviving company of the Merger, assumed the
rights and obligations of Creative, Ontogeny and Reprogenesis. Immediately after
the Merger, the Company was owned approximately 43% by the former stockholders
of Creative, 38% by the former stockholders of Ontogeny and 19% by the former
stockholders of Reprogenesis. Consequently, for accounting purposes, the Company
is deemed to be the successor to Creative, and the historical financial
statements of Creative have become the historical financial statements of the
Company. The Merger has been accounted for as a purchase of Ontogeny and
Reprogenesis in accordance with Accounting Principles Board (APB) Opinion No.
16, Accounting for Business Combinations, and accordingly, Ontogeny's and
Reprogenesis' operating results prior to the Merger Date are not included in the
accompanying financial statements.
In accordance with APB No. 16, the purchase price for Ontogeny and Reprogenesis
has been allocated to the assets and liabilities of Ontogeny and Reprogenesis
based on their fair values. The aggregate purchase price based on the fair
market value of Creative common stock was $300,731,000 and $149,000,000 for
Ontogeny and Reprogenesis, respectively, including the value of the outstanding
options and warrants exchanged for options and warrants to purchase the
Company's common stock and the transaction costs related to the Merger.
The purchase price of Ontogeny and Reprogenesis was allocated to the assets
acquired based upon an independent appraisal which used proven valuation tools
and techniques. Significant portions of the purchase price were identified as
intangible assets which included in-process research and development ("IPR&D")
of $294,800,000 and assembled workforce of $500,000. The excess of the purchase
price over the fair value of identified tangible and intangible net assets of
$105,477,000 has been allocated to goodwill. Intangible assets are being
amortized over their estimated useful lives of 4 to 5 years. The fair value of
the IPR&D relating to current in-process research and development projects was
recorded as an expense as of the Merger Date .
Unaudited pro forma operating results for the three- and six-month periods ended
June 30, 2000, assuming the Merger occurred at January 1, 2000 are approximately
as follows:
Three Months Ended Six Months Ended
(Actual) (Pro forma) (Actual) (Pro forma)
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------
Revenues $ 203,000 $ 960,000 $ 451,000 $ 2,610,000
Net Loss $(19,277,000) $(22,087,000) $(37,084,000) $(55,043,000)
Net Loss per share $ (0.61) $ (0.85) $ (1.18) $ (2.05)
For purposes of these pro forma operating results, the IPR&D was assumed to have
been written off prior to the pro forma periods, so that the operating results
presented only include recurring costs.
Operating results for the three- and six-month periods ended June 30, 2001
include the operating expenses of the Company which includes operating costs of
the combined companies as a result of the Merger. Operating expenses for the
three- and six-month periods ended June 30, 2000 include the operating expenses
of Creative but do not include the operating expenses of Ontogeny or
Reprogenesis for such periods. Accordingly, comparisons of operating results
between the 2001 and the 2000 periods may not prove to be meaningful.
11
RESULTS OF OPERATIONS
THREE-MONTH PERIODS ENDED JUNE 30, 2001 AND JUNE 30, 2000
Revenues
Total revenues increased to $203,000 for the three-month period ended June 30,
2001 from $7,000 for the three-month period ended June 30, 2000. The increase in
revenues was primarily the result of revenue earned by the Company under two
National Institute of Standards and Technology (NIST) grants.
OPERATING EXPENSES
Research and development expenses increased 313% to $7,893,000 for the three-
month period ended June 30, 2001 from $1,911,000 for the three-month period
ended June 30, 2000. The increase was primarily due to the impact of the Merger.
Research and development expenses for the three-month period ended June 30, 2001
include the costs of 107 employees involved in research and development totaling
$2,300,000, outside services including clinical trials, medicinal chemistry,
consulting and sponsored research collaborations of $2,419,000, occupancy and
depreciation charges of $1,079,000, lab and clinical trial manufacturing
supplies of $1,003,000 and legal fees associated with the Company's intellectual
property of $736,000.
General and administrative expenses increased 147% to $2,672,000 for the three-
month period ended June 30, 2001 from $1,083,000 for the three-month period
ended June 30, 2000. The increase was primarily due to the impact of the
Merger. General and administrative expenses for the three-month period ended
June 30, 2001 include the costs of 34 employees totaling $928,000, professional
service fees and other outside services including legal costs and consultants of
$854,000, occupancy and depreciation charges of $384,000 and corporate taxes of
$115,000.
Stock-based compensation was $3,668,000 for the three-month period ended June
30, 2001. There was no stock-based compensation for the three-month period
ended June 30, 2000. The increase was primarily due to $2,631,000 of
amortization expense related to prepaid compensation resulting from the Merger
which is being amortized over the vesting period of the underlying options
through August 1, 2001. Additionally, on August 18, 2000, the Company issued
3,474,006 options to employees of the Company with an exercise price below
market value resulting in deferred compensation of $18,233,000 which is being
amortized over the four-year vesting period of the shares beginning on August 1,
2000. The total expense included in the three-month period ended June 30, 2001
related to these options was $1,058,000.
Amortization of intangible assets was $5,824,000 for three-month period ended
June 30, 2001 as compared to $76,000 for the three-month period ended June 30,
2000. The increase was principally due to the amortization of goodwill and
assembled workforce incurred as a result of the Merger totaling $5,778,000 and
$25,000, respectively, in the three months ended June 30, 2001.
OTHER INCOME (EXPENSES)
Interest and other income for the three-month period ended June 30, 2001 was
approximately $737,000 compared to approximately $590,000 for the same period in
2000, an increase of $147,000 or 25%. The increase in interest income for the
three-month period resulted primarily from a higher available investment balance
as compared to the prior year as a result of the Merger and proceeds received
from a private placement of equity securities which was completed in December
2000.
Interest expense for the three-month period ended June 30, 2001 was $160,000
compared to $41,000 for the same period in 2000, an increase of $119,000 or
290%. The increase in interest expense resulted primarily from the
consolidation into the Company of the outstanding lease obligations of the
Ontogeny and Reprogenesis at the time of the Merger and a line of credit
received in December 2000 for the purchase of equipment and leasehold
improvements.
12
NET LOSS
As a result of the foregoing, the Company incurred a net loss of $19,277,000 and
for the three-month period ended June 30, 2001 compared to a net loss of
$2,514,000 for the three-month period ended June 30, 2000.
SIX-MONTH PERIODS ENDED JUNE 30, 2001 AND JUNE 30, 2000
Total revenues decreased 33% to $452,000 for the six-month period ended June 30,
2001 from $678,000 for the six-month period ended June 30, 2000. The decrease
in revenues was primarily the result of license revenue of $661,000 from Stryker
recognized in 2000 offset in part by revenues of $448,000 earned by the Company
under two NIST grants.
OPERATING EXPENSES
Research and development expenses increased 302% to $16,002,000 for the six-
month period ended June 30, 2001 from $3,984,000 for the six-month period ended
June 30, 2000. The increase was primarily due to the impact of the Merger.
Research and development expenses for the six-month period ended June 30, 2001
include the costs of 107 employees involved in research and development totaling
$4,600,000, outside services including clinical trials, medicinal chemistry,
consultants and sponsored research collaborations of $5,500,000, occupancy and
depreciation charges of $2,198,000, lab and clinical trial manufacturing
supplies of $1,876,000 and legal fees associated with the Company's intellectual
property of $1,085,000.
General and administrative expenses increased 102% to $5,255,000 for the six-
month period ended June 30, 2001 from $2,596,000 for the six-month period ended
June 30, 2000. The increase was primarily due to the impact of the Merger.
General and administrative expenses for the six-month period ended June 30, 2001
include the costs of 34 employees totaling $1,854,000, professional service fees
including legal costs and consultants of $1,533,000, occupancy and depreciation
charges of $752,000 and corporate taxes of $294,000.
Stock-based compensation increased to $7,499,000 for the six-month period ended
June 30, 2001 from $3,139,000 for the six-month period ended June 30, 2000. The
increase was primarily due to $5,444,000 of amortization expense related to
prepaid compensation resulting from the Merger which is being amortized over the
vesting period of the underlying options through August 1, 2001. Additionally,
on August 18, 2000, the Company issued 3,474,006 options to employees of the
Company with an exercise price below market value resulting in deferred
compensation of $18,233,000 which is being amortized over the four-year vesting
period of the shares beginning on August 1, 2000. The total expense included in
the six-month period ended June 30, 2001 related to these options is $2,049,000.
Stock-based compensation for the six-month period ended June 30, 2000 was the
result of a one-time non-cash charge of $3,139,000 that was recorded on February
8, 2000 related to the acceleration of certain stock options and the extension
of the exercise period for options held by Creative's executive officers and
outside directors.
Amortization of intangible assets was $11,647,000 for six-month period ended
June 30, 2001 as compared to $118,000 for the six-month period ended June 30,
2000. The increase was principally due to the amortization of goodwill and
assembled workforce incurred as a result of the Merger totaling $11,557,000 and
$50,000, respectively, in the six months ended June 30, 2001.
OTHER INCOME (EXPENSES)
For the six-months ended June 30, 2001, interest and other income was $3,231,000
compared to $889,000 for the six months ended June 30, 2000, an increase of
$2,342,000. The increase in interest income for the six-month period resulted
primarily from a $1,466,000 gain on the sale of marketable securities in the
six-month period ended June 30, 2001. Additionally, the Company had a higher
average available investment balance as compared to the prior year as a result
of the Merger and proceeds received from a private placement of equity
securities which was completed in December 2000.
13
For the six months ended June 30, 2001, interest expense was $364,000 compared
to $85,000 for the six months ended June 30, 2000, an increase of $279,000 or
328%. The increase in interest expense resulted primarily from the
consolidation into the Company of the outstanding lease obligations of Ontogeny
and Reprogenesis at the time of the merger and a line of credit received in
December 2000 for the purchase of equipment and leasehold improvements.
NET LOSS
As a result of the foregoing, the Company incurred a net loss of $37,084,000 and
for the six-month period ended June 30, 2001 compared to a net loss of
$8,356,000 for the six-month period ended June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, the Company's principal sources of liquidity consisted of
cash, cash equivalents and marketable securities of $58,976,000. The Company
has financed its operations primarily through the sale of its equity securities,
revenues received under agreements with collaborative partners, manufacturing
contracts and the sale by Creative of certain of its OP-1 manufacturing rights
and facilities to Stryker.
Net cash used in operating activities was $11,723,000 for the six-month period
ended June 30, 2001 compared to $8,288,000 for the six-month period ended June
30, 2000. The increase was primarily due to additional costs associated with
the consolidation of the three companies in the Merger offset by both deferred
contract revenue of $12,146,000 for the six-month period ended June 30, 2001 and
deferred merger costs of $1,697,000 incurred during the six-month period ended
June 30, 2000. The Company increased its investment in property, plant and
equipment to $16,079,000 at June 30, 2001 from $13,893,000 at December 31, 2000.
The increase resulted primarily from leasehold improvements incurred to upgrade
the Company's research and development facilities. The Company currently plans
to spend approximately $3,000,000 during the remaining two quarters of 2001 on
leasehold improvements and equipment purchases to upgrade its research and
development facilities.
On October 5, 2000, the Company announced the receipt of its second $2,000,000
grant from NIST to support the development of a new class of biomaterials
designed to enable surgical procedures that augment, repair or regenerate lost
structural tissue or physiological function. The grant period is from January
1, 2001 to December 31, 2003. Previously, Reprogenesis had been awarded a
$2,000,000 grant from NIST to support the development of its cardiovascular
products, Vascugel and Vascuject. The grant period for the first NIST grant is
from November 1, 1999 to October 31, 2002.
On June 27, 2001, the Company received $2,000,000 from Becton Dickinson under a
convertible subordinated note payable in connection with the exercise of an
option to negotiate a collaboration agreement. The note is repayable, at the
option of the Company, in either cash or upon issuance of the Company's common
stock at any time up to its maturity date of June 26, 2006. The note bears
interest at 7%, which is below the fair market interest rate which the Company
estimates to equal 11%. The difference between the market interest rate of 11%
and the coupon interest rate of 7% is being amortized over the remaining term of
the note.
As of June 30, 2001, the Company held 53,571 shares of Exelixis, Inc. common
stock with a fair market value as of that date of approximately $1,016,000,
included in the Company's balance sheet as of June 30, 2001 under the category
"Marketable securities - Restricted." The sale of these shares by the Company
shares is restricted under an agreement between the Company and Exelixis, which
restricts their sale until the one-year holding period has been satisfied on
March 13, 2002. The value of these shares could fluctuate based on the price of
Exelixis common stock and market conditions.
We anticipate that our existing capital resources and amounts to be received
pursuant to the Micromet and Elan transactions should enable us to maintain our
current and planned operations into the second quarter of 2003. Beyond the
second quarter of 2003, we expect to incur substantial additional research and
development and other costs, including costs related to preclinical studies and
clinical trials. The Company's ability to continue funding planned operations
is dependent upon its ability to generate sufficient cash flow from royalties
14
on Stryker products, if approved for commercial sale, from collaborative
arrangements and from additional funds through equity or debt financings, or
from other sources of financing, as may be required. We are seeking additional
collaborative arrangements and also expect to raise funds through one or more
financing transactions, if conditions permit. Over the longer term, because of
the Company's significant long-term capital requirements, we intend to raise
funds through the sale of debt or equity securities when conditions are
favorable, even if the Company does not have an immediate need for additional
capital at such time. There can be no assurance that additional financing will
be available or that, if available, it would be available on favorable terms. In
addition, the sale of additional debt or equity securities could result in
dilution to the Company's stockholders. If OP-1 is not approved for commercial
sale in the United States and the Company does not receive royalties from
Stryker for product sales and/or if substantial additional funding is not
available, the Company's business will be materially and adversely affected.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) released SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes standards for reporting and accounting for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities. It requires an entity to recognize all derivatives as
either assets or liabilities in its balance sheet and measure those instruments
at fair value. Pursuant to SFAS No. 137, Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133, SFAS No.133 is effective for all quarters of fiscal years beginning after
June 15, 2000. The Company adopted this new accounting standard in the first
quarter of fiscal 2001. The adoption of SFAS No. 133 did not have any impact on
the Company's reported consolidated financial statements.
On June 30, 2001, the FASB issued SFAS No. 141, Accounting for Business
Combinations and SFAS No. 142, Accounting for Goodwill and Other Intangible
Assets. SFAS No. 141 requires that all business combinations initiated after
June 30, 2001 be accounted for under the purchase method. Upon adoption of SFAS
142, goodwill will no longer be subject to amortization over its estimated
useful life. Rather, goodwill will be subject to at least an annual assessment
of impairment by applying a fair-value based test. Upon adoption of SFAS 142 on
January 1, 2002, the Company will cease amortization of its existing goodwill
thereby reducing its operating expenses by approximately $11,500,000 annually.
The Company has not yet assessed the impairment, if any, that would be
recognized utilizing a fair-value based goodwill impairment test.
CAUTIONARY FACTORS WITH RESPECT TO FORWARD-LOOKING STATEMENTS
Readers are cautioned that certain statements contained in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations that are not related to historical results are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Statements that are predictive, that depend upon or refer to future
events or conditions, or that include words such as "expects," "anticipates,"
"intends," "plans," "believes," "estimates," "hopes," and similar expressions
constitute forward-looking statements. In addition, any statements concerning
future financial performance (including future revenues, earnings or growth
rates), ongoing business strategies or prospects, and possible future Company
actions are also forward-looking statements.
Forward-looking statements are based on current expectations, projections
and assumptions regarding future events that may not prove to be accurate.
Actual results may differ materially from those projected or implied in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, dependence on significant
collaborative partners failure or delay in obtaining necessary regulatory
approvals, the ability to protect the Company's intellectual property rights,
the ability to manage future indebtedness and liquidity and the ability to
compete effectively. For a discussion of these and certain other factors, please
refer to Item 1. "Business-Risk Factors" contained in the Company's Post-
Effective Amendment No. 1 on Form S-3 to the Registration Statement on Form S-1
(File No. 333-50906) filed with the Securities and Exchange Commission on August
10, 2001. Please also refer to the Company's other filings with the Securities
and Exchange Commission.
15
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company invests cash balances in excess of operating requirements in short-
term marketable securities, generally corporate debt and government securities
with an average maturity of less than one year. All marketable securities are
considered available for sale. At June 30, 2001, the fair market value of these
securities amounted to approximately $15,566,000 with net unrealized gains of
approximately $34,000 included as a component of stockholders' equity. Because
of the quality of the investment portfolio and the short-term nature of the
marketable securities, the Company does not believe that interest rate
fluctuations would impair the principal amount of the securities. The Company's
investments are investment grade securities and deposits are with investment
grade financial institutions. The Company believes that the realization of
losses due to changes in credit spreads is unlikely as the Company expects to
hold the debt to maturity.
As of June 30, 2001, in addition to the marketable securities discussed above,
the Company held 53,571 shares of the common stock of Exelixis, Inc. which as of
that date had a fair market value of approximately $1,016,000. These shares are
restricted under the terms of an agreement between the Company and Exelixis and
will not be available for sale until the one-year holding period has been
satisfied on March 13, 2002. The value of these shares could fluctuate based on
the price of Exelixis common stock and market conditions.
As of June 30, 2001, the Company held assets denominated in a EUROS on its
balance sheet totaling $4,145,000 in connection with the note issued to Curis by
Micromet. The underlying assets are expected to a have holding period in excess
of one year. The value of these assets could fluctuate based on changes in the
exchange rate between the dollar and EURO. The Company has not entered into any
hedging agreements relating to this risk.
At June 30, 2001, we had approximately $3,985,000 outstanding under fixed-rate
capital leases and term notes which are not subject to fluctuations in interest
rates and approximately $1,964,000 outstanding under a term loan agreement with
an adjustable rate equal to prime.
16
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Only July 18, 2001, the Company issued 1,000 shares of a newly-created Series A
Convertible Exchangeable Preferred Stock ("Preferred Stock") to Elan
International Services, Ltd. The Preferred Stock is entitled to a 6% annual
dividend, payable by the issuance of additional shares of Preferred Stock. In
addition, the Preferred Stock is entitled to a dividend preference with respect
to any dividends declared or distributions payable to holders of the Company's
common stock, and to a liquidation preference with respect to transactions
involving the liquidation, winding up or sale of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on June 14, 2001. The
stockholders elected Douglas A. Melton and Michael Rosenblatt as Class II
Directors of the Company with terms expiring in 2004. The tabulation of votes
with respect to the election of such directors is as follows:
Total Voted For: Total Vote Withheld:
Douglas A. Melton 24,082,371 141,895
Michael Rosenblatt 24,082,371 141,895
In addition, the stockholders approved the appointment of Arthur Andersen LLP as
the Company's independent accountants for the 2001 fiscal year by a vote of
24,129,193 shares in favor, 78,663 shares against, and 16,410 shares abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The exhibits listed in the Exhibit Index immediately
preceding such exhibits are filed as part of or are included in this
Report.
(b) Reports on Form 8-K.
(i) On July 2, 2001, the Company filed a Current Report on Form 8-K
to report under Item 5 (Other Events) that the Company had
entered into a business collaboration with Micromet, AG. No
financial statements were required to be filed with this
Report.
(ii) On July 5, 2001, the Company filed a Current Report on Form 8-K
to report under Item 5 (Other Events) that the Company had
entered into a joint venture with Elan International Services.
No financial statements were required to be filed with this
Report.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed
on its behalf by the undersigned thereunto duly authorized.
CURIS, INC.
Date: August 14, 2001 By: /s/ George A. Eldridge
----------------------
Vice President, Finance and
Chief Financial Officer
18
Exhibit Index
Number Description
------ -----------
3.1 Restated Certificate of Incorporation of Curis, Inc.
(previously filed as an exhibit to the Joint Proxy Statement
Prospectus on Form S-4 of Curis, Inc. (filed on June 19, 2000
(File No. 333-32446)) and incorporated herein by reference).
3.2 Certificate of Designations of Curis, Inc. (previously filed as
an exhibit to the Post-Effective Amendment No. 1 on Form S-3 to
the Registration Statement on Form S-1 of Curis, Inc. (filed
August 10, 2001 (File No. 333-50906)) and incorporated herein
by reference).
3.3 Amended and Restated By-laws of Curis, Inc. (previously filed
as an exhibit to the Registration Statement on Form S-1 of
Curis, Inc. (filed on December 20, 2000 (File No. 333-50906)
and incorporated herein by reference)).
4.1 Registration Rights Agreement, dated as of July 18, 2001, among
Curis, Inc., Elan International Services, Ltd. and Elan Pharma
International Limited.
10.1 Securities Purchase Agreement, dated as of July 18, 2001, among
Curis, Inc., Elan International Services, Ltd. and Elan Pharma
International Limited.
10.2 Agreement for Purchase and Sale of Single-Chain Polypeptide
Business, dated as of June 29, 2001, between Curis, Inc. and
Micromet AG (previously filed as an exhibit to the Current
Report on Form 8-K (filed on July 2, 2001 (File No. 000-30347))
and incorporated herein by reference).
19