Net revenues for the first quarter of 2005 were ($533,000) as compared to $856,000 for the same period of 2004, a decrease of $1,389,000 or 162%. The decrease in net revenues was due to contra-revenues recorded under our basal cell carcinoma co-development arrangement with Genentech (NYSE: DNA), partially offset by increases in revenues recognized under our collaborations and research grant. Revenues are summarized by type and by corporate collaborator in the following table:

Gross revenues generated under our ongoing collaborations with Genentech and Wyeth (NYSE: WYE), as well as our grant from the Spinal Muscular Atrophy Foundation, were $2,772,000 for the first quarter of 2005 as compared to $856,000 for the same period in prior year, an increase of $1,916,000, or 224%.

As required under accounting rules outlined in Emerging Issues Task Force No. 01-9, we recorded contra-revenue for amounts that we paid to Genentech during the first quarter of 2005 and for amounts that we owed to Genentech as of March 31, 2005 that were paid subsequent to the end of the quarter for the reimbursement of our equal share of costs incurred by Genentech in connection with the co-development of our topical therapeutic basal cell carcinoma product candidate. These contra-revenues offset gross revenues recorded under our collaborations and research grant. Amounts paid by us to Genentech under the co-development arrangement will be recorded as contra-revenue up to the amount of cumulative revenue recognized by us under our collaborations with Genentech. For any co-development costs that are in excess of this cumulative revenue total, we will first record our co-development costs against any remaining Genentech-related deferred revenue on our balance sheet and then record such costs as research and development expenses at the operating expenses section of our statement of operations.

Operating expenses for the first quarter of 2005 were $4,783,000 as compared to $5,043,000 for the first quarter of 2004, a decrease of $260,000, or 5%. The primary changes are as follows:

Research and development: Research and development expenses were $3,116,000 for the first quarter of 2005 as compared to $2,808,000 for the same period in the prior year, an increase of $308,000, or 11%. This increase was primarily attributable to an increase in spending related to our Spinal Muscular Atrophy, or SMA, program. This increase was partially offset by modest decreases in spending on our other programs. Our SMA research program is funded under a grant from the SMA Foundation that we were awarded in September 2004.

General and administrative: General and administrative expenses were $1,698,000 for the first quarter of 2005 as compared to $1,915,000 for the same period in the prior year, a decrease of $217,000, or 11%. This decrease was attributable to decreases in our administrative costs, including reductions in personnel, occupancy and depreciation, insurance, and certain other expenses.

Stock-based compensation: Stock-based compensation expense was ($50,000) for the first quarter of 2005 as compared to $302,000 for the first quarter of 2004, a decrease of $352,000, or 117%. This decrease was primarily attributable to a decrease in stock-based compensation expense recorded on options to purchase common stock that were issued to employees with below fair market value exercise prices in August 2000. These options became fully vested in August 2004. Accordingly, no expense was recorded related to these options for the first quarter of 2005.

As of March 31, 2005, cash, cash equivalents, marketable securities and investments, including long-term investments, were $46,944,000. As of March 31, 2005, there were 47,882,876 shares of common stock outstanding.

2005 Guidance

Regarding Curis' financial outlook for the year 2005, Michael Gray, Vice President of Finance and Chief Financial Officer for Curis commented, "We believe that existing cash, cash equivalents, marketable securities and investments, together with contractually defined cash payments that we expect to receive under our collaborations with Genentech and Wyeth and our research grant with the SMA Foundation, will be sufficient to support our current operating plans into mid-2007. We expect to end 2005 with cash, cash equivalents, marketable securities and investments of between $36,000,000 and $39,000,000, and we will seek to continue to carefully manage our cash consumption. Further, assuming that our current collaborations continue through 2005, we expect that our gross revenues from our existing collaborators will be in a range of $11,000,000 to $13,000,000, excluding any future development milestones. We expect that 2005 costs for our basal cell carcinoma product candidate will be in a range of $8,500,000 to $9,000,000 and that all of these costs will be recorded as contra-revenue. Lastly, we expect that our 2005 research and development expenses will be between $13,000,000 and $15,000,000 and our general and administrative expenses will be in a range of $7,500,000 and $9,000,000."

Recent Developments

Second major collaboration with Genentech: On April 1, 2005, we entered into a second major collaboration with Genentech. This new collaboration, in which we will work exclusively with Genentech, involves the discovery and development of small molecule modulators of an undisclosed signaling pathway that plays an important role in cell proliferation. This pathway is a key regulator of tissue formation and repair, and its abnormal activation is associated with certain cancers.

Under the terms of the new agreement, Genentech has committed to pay us an up-front license fee of $3,000,000 and up to an additional $6,000,000 over the next two years to support research at Curis dedicated to the collaboration. The agreement also provides for Genentech to make cash payments to us contingent upon the successful achievement of certain developmental, clinical, and drug approval milestones. Genentech will also pay a royalty on net product sales if product candidates derived from the collaboration are successfully developed. Assuming that the collaboration continues for its full term and that specified research, development and regulatory approval objectives are achieved, the total potential cash payments to us from the transaction could exceed $140,000,000 (if two products are commercialized in two indications each), excluding royalties on potential net product sales.

Extension of Funding under Hedgehog Collaboration with Genentech: On April 13, 2005, we amended our Hedgehog collaboration agreement with Genentech, which was originally entered into in June 2003, to extend Genentech's funding of the cancer therapeutic development collaboration that is ongoing between the two companies. An additional $2,000,000 payment will be made in December 2005 to support Curis' efforts to continue to develop Hedgehog inhibition technologies for the treatment of solid tumor cancers. Genentech's research and development funding under the collaboration was due to terminate in June 2005. The amended agreement provides for a six-month extension of support for Curis personnel with an option for an additional six-month extension.

For more details and the financial statements go to Curis, Inc.