Associate

Restructuring companies are sometimes seen as foundering entities and a reduction in head count can be viewed as a red flag or a sign of trouble within.

Curis Inc. restructured in 2002, more than once, cutting staff and selling off or realigning programs. Some might have wondered if Curis was in trouble.

From the looks of the deal it signed with Genentech Inc., released after the market closed Wednesday, things are fine at Cambridge, Mass.-based Curis. Genentech, seen by most as one of the top oncology companies in the world, agreed to a potential $240 million deal in which it licensed Curis' small-molecule and antibody inhibitors of the Hedgehog signaling pathway for use in cancer.

"This is really a continuation of the focus of the company," Curis CEO and President Daniel Passeri said. "It's a validation of the model that we put in place in February 2002. Certainly it's a validation of the science the company has been conducting." (See BioWorld Today, Feb. 19, 2002.)

Genentech will pay a license fee of $8.5 million - $5 million in cash and another $3.5 million in equity - and $2 million a year for two years. With committed funding of $12.5 million, the deal is tasty enough, but throw in development and approval milestones that push the deal to its potential $240 million ceiling and things get sweeter. Also, Curis would receive royalties on sales, and although exact figures were not disclosed, Passeri told BioWorld Today royalties are "south of double digits, but are solid, respectable royalties."

The deal includes the CUR-61414 program, which Curis has been developing as a treatment for basal cell carcinoma. Lee Rubin, Curis' chief scientific officer, told BioWorld Today a joint steering committee made up equally of Curis and Genentech members will guide the partnership. Curis has done preclinical work that has pointed to different cancers the molecules might be efficacious against. Chemistry work will continue to be done by Curis, Rubin said, but once a lead is identified, Genentech will take over development, though still overseen by the steering committee.

"That is what we think is a great advantage," Rubin said. "We think Genentech is virtually the premier company these days in the oncology area," particularly in the Hedgehog pathway area.

Curis retains a U.S. co-development option in basal cell carcinoma. Genentech retains an option in the hair growth-prevention area. If either option is chosen, the companies would co-fund development and share a percentage of the operating profit.

The Hedgehog protein pathway plays a part in tissue and organ development. It has been shown to be reactivated during the formation and progression of various types of cancer, including small-cell lung cancer, and thus holds promise in that field. Rubin said the development plan for the companies will "consider plans for both antibodies and small molecules in a parallel fashion," as work gets under way.

Curis had cash and investments of $36.5 million at the end of the first quarter. Its net loss applicable to common stockholders for that quarter was about $4.5 million. Passeri said the financial aspects of the deal "takes us solidly into 2005."

Curis' pipeline has its bone morphogenetic protein technology, which includes BMP-7, partnered with Ortho Biotech, a division of Johnson & Johnson, of New Brunswick, N.J. Ortho has rights for all indications except for the repair or regeneration of local musculoskeletal tissue defects and dental defects. Curis hopes to move that into the clinic in 2004. (See BioWorld Today, Dec. 2, 2002.)

It also has a neurological program that it recently got back from Elan Corp. plc, of Dublin, Ireland. Passeri said that was "showing promising preclinical data."

For the deal at hand, though, it comes at an opportune time. Genentech, of South San Francisco, is riding high on the recent success stories on the anti-angiogenesis drug Avastin and its asthma drug, Xolair. It was a bona fide star at the American Society of Clinical Oncology meeting in Chicago. The results and the ASCO conference have helped generate a wave of investor interest in cancer companies. (See BioWorld Today, May 16, 2003; May 20, 2003; and June 3, 2003.)

When asked if he could feel the cancer momentum, Passeri said, "Absolutely."

"The general buzz is from the fact that we are seeing positive results," he said. "The years of hard work are paying off. It's highly encouraging to see these clinical results."

Rubin agreed, saying: "This is perfect timing. The pathway approach is clearly what people are focusing on now and this pathway is one of the most fundamental that is used in growth regulation. It excites people right now and is what was exciting people at ASCO. We are pleased that even as Genentech is being seen as a high flyer, they have recognized what we have done."

Curis' stock (NASDAQ:CRIS) closed Wednesday at $3.77, down 8 cents, before the news was released.