Curis, Inc.
CURIS INC (Form: 10-Q, Received: 10/29/2009 15:27:40)
Table of Contents

 

 

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 SEPTEMBER 30, 2009

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 of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

45 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

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).     ¨   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):

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   x

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 October 26, 2009, there were 66,568,005 shares of the registrant’s common stock outstanding.

 

 

 


Table of Contents

CURIS, INC. AND SUBSIDIARIES QUARTERLY REPORT ON FORM 10-Q

INDEX

 

          Page
Number
PART I. FINANCIAL INFORMATION   

Item 1.

  

Unaudited Financial Statements

  
  

Condensed Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008

   3
  

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2009 and 2008

   4
  

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008

   5
  

Notes to Condensed Consolidated Financial Statements

   6

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   14

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

   27

Item 4.

  

Controls and Procedures

   27
PART II. OTHER INFORMATION   

Item 1A.

  

Risk Factors

   28

Item 6.

  

Exhibits

   43

SIGNATURE

   44

 

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Table of Contents
Item 1. FINANCIAL STATEMENTS

CURIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

     September 30,
2009
    December 31,
2008
 
ASSETS     

Current Assets:

    

Cash and cash equivalents

   $ 6,803,801      $ 10,158,795   

Marketable securities

     20,411,153        18,694,200   

Accounts receivable

     226,979        107,341   

Prepaid expenses and other current assets

     432,027        373,373   
                

Total current assets

     27,873,960        29,333,709   
                

Property and equipment, net

     889,597        1,448,176   

Long-term investment—restricted

     216,002        210,007   

Goodwill

     8,982,000        8,982,000   

Other assets

     7,980        7,980   
                
   $ 37,969,539      $ 39,981,872   
                
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current Liabilities:

    

Accounts payable

   $ 1,287,653      $ 1,961,439   

Accrued liabilities

     751,082        624,462   

Deferred revenue

     1,458,334        —     
                

Total current liabilities

     3,497,069        2,585,901   

Other long-term liabilities

     42,843        171,375   
                

Total liabilities

     3,539,912        2,757,276   
                

Commitments

    

Stockholders’ Equity:

    

Common stock, $0.01 par value—125,000,000 shares authorized; 66,514,255 shares outstanding at September 30, 2009 and 63,653,698 shares outstanding at December 31, 2008

     675,620        647,014   

Additional paid-in capital

     749,736,303        745,360,736   

Treasury stock (at cost, 1,047,707 shares)

     (891,274     (891,274

Deferred compensation

     (16,843     (12,550

Accumulated deficit

     (715,087,459     (707,970,836

Accumulated other comprehensive income

     13,280        91,506   
                

Total stockholders’ equity

     34,429,627        37,224,596   
                
   $ 37,969,539      $ 39,981,872   
                

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)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2009     2008     2009     2008  

REVENUES:

        

License fees

   $ 666,666      $ —        $ 6,666,666      $ 4,852,518   

Research and development contracts

     98,647        86,721        199,037        409,596   
                                

Total revenues

     765,313        86,721        6,865,703        5,262,114   
                                

COSTS AND EXPENSES:

        

Research and development

     2,295,997        3,000,266        7,493,123        9,676,761   

General and administrative

     2,566,475        1,861,971        6,691,403        6,402,274   
                                

Total costs and expenses

     4,862,472        4,862,237        14,184,526        16,079,035   
                                

Loss from operations

     (4,097,159     (4,775,516     (7,318,823     (10,816,921
                                

OTHER INCOME (EXPENSE):

        

Interest income

     36,863        203,210        202,200        844,319   

Other income (expense)

     —          855        —          9,782   

Interest expense

     —          —          —          (3,854
                                

Total other income, net

     36,863        204,065        202,200        850,247   
                                

Net loss

   $ (4,060,296   $ (4,571,451   $ (7,116,623   $ (9,966,674
                                

Net loss per common share (basic and diluted)

   $ (0.06   $ (0.07   $ (0.11   $ (0.16
                                

Weighted average common shares (basic and diluted)

     66,270,778        63,435,070        64,516,816        63,339,767   
                                

Net loss

   $ (4,060,296   $ (4,571,451   $ (7,116,623   $ (9,966,674

Unrealized gain (loss) on marketable securities

     (6,199     18,447        (78,226     (62,530
                                

Comprehensive loss

   $ (4,066,495   $ (4,553,004   $ (7,194,849   $ (10,029,204
                                

See accompanying notes to unaudited condensed consolidated financial statements.

 

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CURIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

     Nine Months Ended
September 30,
 
     2009     2008  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net loss

   $ (7,116,623   $ (9,966,674

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation and amortization

     566,050        762,916   

Stock-based compensation expense

     1,484,748        1,774,031   

Changes in current assets and liabilities:

    

Accounts receivable

     (119,638     154,250   

Prepaid expenses and other assets

     (58,654     (92,369

Accounts payable and accrued liabilities

     (675,698     (1,965,992

Deferred revenue

     1,458,334        (1,852,518
                

Total adjustments

     2,655,142        (1,219,682
                

Net cash used in operating activities

     (4,461,481     (11,186,356
                

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Purchase of marketable securities

     (28,843,925     (27,328,912

Sale of marketable securities

     27,048,746        26,767,978   

Increase in restricted cash

     (5,995     —     

Purchases of property and equipment

     (7,471     (60,547
                

Net cash used in investing activities

     (1,808,645     (621,481
                

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Proceeds from issuance of common stock, net of issuance costs

     2,915,132        180,501   

Repayments of notes payable

     —          (401,213
                

Net cash provided by (used in) financing activities

     2,915,132        (220,712
                

NET DECREASE IN CASH AND CASH EQUIVALENTS

     (3,354,994     (12,028,549

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     10,158,795        17,396,599   
                

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 6,803,801      $ 5,368,050   
                

See accompanying notes to unaudited condensed consolidated financial statements.

 

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CURIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Nature of Business

Curis, Inc. (the “Company” or “Curis”) is a drug discovery and development company that is committed to leveraging its innovative signaling pathway drug technologies in seeking to develop next generation targeted cancer therapies. In expanding the Company’s drug development efforts with respect to these targeted cancer programs, Curis is building upon its past experiences in targeting signaling pathways, including the Hedgehog pathway. Curis seeks to conduct research programs both internally and through strategic collaborations.

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 agencies.

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, development by its competitors of new or better technological innovations, dependence on key personnel, its ability to protect proprietary technology, its ability to successfully advance discovery and preclinical stage drug candidates in its internally funded programs, unproven technologies and drug development approaches, reliance on its corporate collaborator Genentech and its licensee Debiopharm S.A., a Swiss corporation, (“Debiopharm”), to successfully research, develop and commercialize products based on the Company’s technologies, its ability to comply with FDA, or foreign equivalent, government regulations and approval requirements as well as its ability to execute on its business strategies and obtain adequate financing to fund its operations through corporate collaborations, sales of equity or otherwise.

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 research and development pipeline. The results of the Company’s operations will vary significantly from year to year and quarter to quarter and depend on, among other factors, the timing of its entry into new collaborations, if any, the timing of the receipt of payments from new or existing collaborators and the cost and outcome of any preclinical development or clinical trials then being conducted. The Company anticipates that existing capital resources at September 30, 2009 should enable it to maintain current and planned operations through the fourth quarter of 2010. The Company’s ability to continue funding its planned operations beyond 2010 is dependent upon, among other things, anticipated near-term payments from its licensee Debiopharm, which include a payment upon the acceptance by regulatory authorities of Debiopharm’s application to begin a phase I clinical trial and upon Debiopharm’s treatment of the fifth patient in the first phase I clinical trial; payments that it may receive from Genentech upon the achievement of development and regulatory approval objectives, if any; its ability to manage its expenses; and its ability to raise additional funds through equity, debt, entry into new collaborations or other sources of financing.

2. Basis of Presentation

The accompanying 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 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, 2008, as filed with the Securities and Exchange Commission on February 26, 2009.

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 September 30, 2009 and the results of operations and cash flows for the three- and nine-month periods ended September 30, 2009 and 2008. The preparation of the Company’s Consolidated Financial Statements in conformity with accounting principles generally accepted in the U.S. 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 revenue recognition, the collectibility of receivables, the carrying value of property and equipment and intangible assets, and the value of certain investments and liabilities. 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.

 

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CURIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

 

3. Revenue Recognition

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 product candidates. The terms of the agreements may provide for the Company’s licensees and collaborators to agree to make non-refundable license fees, 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 on Form 10-K, as previously filed with the Securities and Exchange Commission on February 26, 2009.

Amounts received prior to satisfying the above revenue recognition criteria would be recorded as deferred revenue in the accompanying Consolidated Balance Sheets. Amounts not expected to be recognized during the twelve-month period ended September 30, 2010 would be classified as long-term deferred revenue. As of September 30, 2009, the Company had $1,458,000 in short-term deferred revenue primarily related to its license agreement with Debiopharm (see Note 5).

4. Genentech, Inc. Hedgehog Pathway Inhibitor Collaboration

In March 2009 and in May 2008, the Company received payments of $6,000,000 and $3,000,000, respectively, from Genentech under the parties’ June 2003 Hedgehog pathway inhibitor collaboration for the achievement of certain clinical development objectives related to GDC-0449, which is the lead drug candidate in development under this collaboration. The Company has recorded these amounts as revenue within “License Fees” in the Revenues section of its Consolidated Statement of Operations for the nine months ended September 30, 2009 and 2008, respectively, because the Company has no ongoing material performance obligations under the collaboration.

5. Debiopharm License Agreement

(i) Agreement Summary

In August 2009, the Company entered into a license agreement with Debiopharm, pursuant to which Curis has granted to Debiopharm a worldwide, exclusive royalty-bearing license, with the right to grant sublicenses and to develop, manufacture, market and sell any product containing Curis’ Hsp90 inhibitor technology, including its lead Hsp90 compound under development, CUDC-305, which Debiopharm has since renamed Debio 0932. Debiopharm will assume all future development responsibility and incur all future costs related to the development, registration and commercialization of products under the agreement.

Pursuant to the terms of the agreement, the Company has agreed to use its reasonable commercial efforts to transfer to Debiopharm know how, information and materials necessary for Debiopharm to continue the development of products in accordance with the development plan outlined in the agreement for a specified period of time. Furthermore, at no cost to Debiopharm, the Company will provide a reasonable amount of technical, scientific and intellectual property support to the development plan, as requested by Debiopharm, during the first six months of the agreement.

Pursuant to the terms of the agreement, Debiopharm has agreed to undertake reasonable commercial efforts to implement the development plan in the timeframes described in the agreement in order to develop, register and commercialize the product in specified markets and will be solely responsible for all the costs relating thereto. Debiopharm will retain final decision making authority on all development, commercialization, marketing, manufacturing and regulatory matters relating to the product.

As consideration for the exclusive license rights provided in the agreement, and subject to the terms of the agreement, Debiopharm has agreed to pay the Company up to an aggregate of $90 million comprised of the following:

 

   

a $2,000,000 up-front license fee which the Company received in September 2009 upon the transfer to Debiopharm certain information specified in the agreement ;

 

   

a payment upon the first regulatory approval in a major market country of an open IND or CTA to initiate human clinical trials;

 

   

a payment upon the administration of Debio 0932 in the 5th patient in the first phase I clinical trial; and

 

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CURIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

 

   

additional contingent payments assuming the successful achievement of additional specified clinical development and regulatory approval objectives.

In addition, Debiopharm will pay the Company:

 

   

a specified percentage of all sublicensing payments received by Debiopharm and its affiliates from sublicensees;

 

   

a specified percentage of royalties Debiopharm and its affiliates receive from sublicensees; and

 

   

a specified percentage of royalties on net sales of products by Debiopharm or its affiliates.

The agreement is effective as of August 5, 2009, and unless terminated earlier will expire, on a country-by-country basis, on the later of (i) the expiration of the last-to-expire valid claim of the Company’s patents and joint patents relating to the products, and (ii) the 10 th anniversary of the first commercial sale of the product in such country. Pursuant to the agreement, either party can terminate the agreement upon notice under prescribed circumstances, and the agreement specifies the consequences to each party for such early termination.

Curis and Debiopharm have the right to terminate the agreement on short notice under specified circumstances.

(ii) Accounting Summary

The Company considered its arrangement with Debiopharm to be a revenue arrangement with multiple deliverables, or performance obligations. The Company’s substantive performance obligations under this collaboration included an exclusive license to its Hsp90 inhibitor technologies, a reasonable amount of technical, scientific and intellectual property support to the development plan, as requested by Debiopharm, during the first six months of the agreement and participation on a steering committee for which the Company received a $2,000,000 up-front, nonrefundable license fee. The Company applied the provisions of FASB Codification Topic 605-25, Revenue Recognition, Multiple Element Arrangements to determine whether the performance obligations under this collaboration could be accounted for separately or as a single unit or multiple units of accounting. The Company determined that these performance obligations represented a single unit of accounting, since, initially, the license does not have stand-alone value to Debiopharm without its technical expertise and steering committee participation during the initial six-month period. In addition, objective and reliable evidence of the fair value of the Company’s technical support and steering committee participation could not be determined.

The Company will also provide clinical materials to Debiopharm, if and when requested, for which the Company will receive additional consideration. The Company has determined that this deliverable is a separate unit of accounting from the license and related support, and consideration received would be recognized as revenue in accordance with our revenue policy.

The Company’s ongoing substantive performance obligations for the single unit of accounting under this collaboration consist of support to Debiopharm during the initial six months of the agreement and participation on a joint steering committee. The joint steering committee is comprised of four members, two from each company. Debiopharm retains final decision making authority on all development, commercialization, marketing, manufacturing and regulatory matters relating to any products. The joint steering committee’s function is limited to facilitation of the collaboration, including providing a contractual mechanism of information exchange related to the products being developed. The joint steering committee has no authority to make changes to the development plan, which can only be revised by Debiopharm upon advance notice to the Company. The Company has determined that its joint steering committee obligation is participatory for the initial six-month period in which it is also required to provide technical support. The Company’s main contribution during this time is to support Debiopharm’s preparation of the clinical trial application filing with regulatory authorities, which is expected to be filed in the fourth quarter of 2009. After January 2010, substantially all activities around the implementation and management of the development plan become the sole responsibility of Debiopharm, at which time, the Company believes that its role on the joint steering committee becomes protective and inconsequential or perfunctory. The Company has therefore estimated that its participation on the joint steering committee should only factor into the performance period as it relates to the six-month period in which the Company has a participatory role. Because the Company estimates that its level of effort would be consistent over the six-month term of the arrangement, the Company is accounting for the arrangement under the proportional performance method.

The $2,000,000 up-front fee is being recognized ratably as the research and joint steering committee services are being provided over the estimated six-month performance period, through January 2010, at a rate of $333,000 per month. During the three and nine months ended September 30, 2009, the Company recorded revenue of $667,000 related to the Company’s efforts under the Debiopharm arrangement, all of which was recorded in “License Fees” in the Company’s Revenues section of its Consolidated Statement of Operations.

 

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CURIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

 

The Company believes that contingent payments tied to preclinical, clinical development and drug approval objectives under this collaboration would not constitute substantive milestones since the successful achievement of these objectives would not meet each of the criteria set forth in the Company’s revenue recognition policy related to substantive milestones. Accordingly, the Company would recognize such contingent payments as revenue at the time the contingent payment is earned in an amount equal to the percentage of the performance period completed when the contingent payment is earned, multiplied by the total amount of the contingent payment. The remaining portion of the contingent payment would be recognized over the remaining performance period using the proportional performance method. For any contingent payments received by the Company subsequent to the conclusion of the performance period, the Company would have no future deliverables under the agreement, and the Company expects that it would record any such contingent payments as revenue in “License Fees” in the Company’s Revenues section of its Consolidated Statement of Operations when the milestones are met and payable.

6. Fair Value Measurements

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

 

Level 1

  

Quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets include cash and cash equivalents, investments in marketable securities, and a long-term restricted investment. As of September 30, 2009, the Company held cash equivalents and marketable securities of $5,272,000 and $20,411,000, respectively. The Company’s marketable securities are investments with original maturities of greater than three months from the date of purchase, but less than twelve months from the balance sheet date, and consist of commercial paper and government obligations. These amounts are invested directly in commercial paper of financial institutions and corporations with A-/Aa3 or better long-term ratings and A-1/P-1 short term debt ratings, U.S. Treasury securities and U.S. Treasury money market funds.

 

The long-term restricted investment of $216,000 as of September 30, 2009 was solely comprised of a certificate of deposit.

Level 2

   Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company has no Level 2 assets or liabilities at September 30, 2009.

Level 3

   Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company has no Level 3 assets or liabilities at September 30, 2009.

 

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CURIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

 

7. Accrued Liabilities

Accrued liabilities consist of the following:

 

     September 30,
2009
   December 31,
2008

Accrued compensation

   $ 216,000    $ 111,000

Professional fees

     143,000      137,000

Facility-related costs

     244,000      262,000

Other

     148,000      114,000
             

Total

   $ 751,000    $ 624,000
             

8 . Accounting for Stock-Based Compensation

As of September 30, 2009, the Company had three shareholder-approved, share-based compensation plans: the 2000 Stock Incentive Plan (the 2000 Plan), the 2000 Director Stock Option Plan (the 2000 Director Plan) and the 2000 Employee Stock Purchase Plan (the ESPP). For a complete discussion of the Company’s share-based compensation plans, see Note 5 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, as previously filed with the Securities and Exchange Commission on February 26, 2009.

During the nine months ended September 30, 2009, the Company’s board of directors granted options to purchase 1,160,000 shares of the Company’s common stock to officers and employees of the Company under the 2000 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 date.

During the nine months ended September 30, 2009, the Company’s board of directors also granted options to its non-employee directors to purchase 175,000 shares of common stock under the 2000 Plan and options to purchase 45,000 shares of common stock under the 2000 Director Plan. All of these options were fully vested on the grant date and bear exercise prices that are equal to the closing market price of the Company’s common stock on the NASDAQ Global Market for the grant date.

Employee and Director Grants

In determining the fair value of stock options, the Company generally uses the Black-Scholes option pricing model. The Company calculated the value of employee options awarded during the nine months ended September 30, 2009 and 2008 using the Black-Scholes valuation model based on the assumptions noted in the following table:

 

     For the nine months
ended September 30,
 
     2009     2008  

Expected term (years) - Employees

   6      6   

Expected term (years) - Directors

   6      7   

Risk-free interest rate

   2.1-2.6   3.0-3.4

Volatility

   67-82   84-93

Dividends

   None      None   

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, accordingly, the expense that is to be recognized over the life of the option. In determining the expense recorded in the Company’s Consolidated Statements of Operations, the Company has applied an estimated forfeiture rate to the remaining unvested awards based on historical experience, as adjusted. This estimate is evaluated quarterly and the forfeiture rate is adjusted as necessary. If the actual number of forfeitures differs from management’s estimates, additional adjustments to compensation expense may be required in future periods.

The aggregate intrinsic value of options outstanding at September 30, 2009 was $7,294,000, of which $3,839,000 related to exercisable options. The weighted average grant-date fair values of stock options granted during the nine months ended September 30, 2009 and 2008 were $1.18 and $1.08 per share, respectively. As of September 30, 2009, there was approximately $2,487,000, including the impact of estimated forfeitures, of unrecognized compensation cost related to unvested employee and director stock option awards outstanding under the 2000 Plan and 2000 Director

 

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CURIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

 

Plan that is expected to be recognized as expense over a weighted average period of 2.74 years. The intrinsic value of employee stock options exercised during the nine months ended September 30, 2009 and 2008 was $79,000 and $37,000, respectively. The total grant date fair values of stock options that vested in the nine months ended September 30, 2009 and 2008 were $1,270,000 and $1,678,000, respectively.

During the nine-month periods ended September 30, 2009 and 2008, the Company recorded compensation expense related to its ESPP and calculated the fair value of shares expected to be purchased under the ESPP using the Black-Scholes model based on the following assumptions:

 

     For the nine months ended
September 30,
 
     2009     2008  

Compensation expense recognized under ESPP

   $ 59,000      $ 41,000   

Expected term

     6 months        6 months   

Risk-free interest rate

     0 – 0.3     1.9 – 3.3

Volatility

     70 – 86     64 - 75

Dividends

     None        None   

Stock-based compensation for employees, including expense related to the ESPP, for the three and nine months ended September 30, 2009 and 2008 was calculated using the above assumptions and has been included in the Company’s results of operations. The Company recorded $438,000 and $1,412,000 in compensation expense for the three and nine months ended September 30, 2009, respectively, and $498,000 and $1,737,000 in compensation expense for the three and nine months ended September 30, 2008, respectively, related to employee stock-based compensation. No income tax benefit has been recorded as the Company has recorded a full valuation allowance and management has concluded that it is not likely that the net deferred tax asset will be realized.

Non-Employee Grants

The Company has historically granted stock options to consultants for services. These options were issued at or above their fair market value on the date of grant and have various vesting dates from date of grant, ranging from 3.5 months to 4 years. Should the Company or the consultant terminate the consulting agreement, any unvested options will be cancelled. Options issued to non-employees are marked-to-market until they vest, which means that as the Company’s stock price fluctuates, the related expense either increases or decreases. The Company recognized expense of $31,000 and $73,000 related to non-employee stock options for the three and nine months ended September 30, 2009, respectively. The Company reversed expense of $4,000 related to non-employee stock options for the three months ended September 30, 2008 as a result of a decline in the Company’s stock price during the period. The Company recognized expense of $37,000 related to non-employee stock options for the nine months ended September 30, 2008. As of September 30, 2009, the Company had recorded $17,000 in deferred compensation related to unvested non-employee options.

Total Stock-Based Compensation Expense

For the three and nine months ended September 30, 2009 and 2008, 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 and Comprehensive Loss:

 

     For the three months ended
September 30,
   For the nine months ended
September 30,
     2009    2008    2009    2008

Research and development expenses

   $ 188,000    $ 185,000    $ 526,000    $ 582,000

General and administrative expenses

     281,000      309,000      959,000      1,192,000
                           

Total stock-based compensation expense

   $ 469,000    $ 494,000    $ 1,485,000    $ 1,774,000
                           

 

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CURIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

 

The table below summarizes options outstanding and exercisable under the 2000 Plan and the 2000 Director Plan at September 30, 2009:

 

     Options Outstanding    Options Exercisable

Exercise Price Range

   Number of
Shares
   Weighted
Average
Remaining
Contractual
Life (in years)
   Weighted
Average
Exercise Price
per Share
   Number of
Shares
   Weighted
Average
Exercise Price
per Share

$ 0.56 - $ 1.09

   2,028,125    8.33    $ 1.00    802,144    $ 0.96

   1.20 - 1.39

   2,203,721    7.57      1.38    1,101,060      1.38

   1.43 - 1.57

   2,826,095    6.41      1.50    1,976,344      1.52

   1.67 - 3.75

   2,042,671    4.24      2.57    1,866,483      2.61

   3.85 - 5.26

   1,925,002    4.19      4.25    1,910,564      4.26

   5.37 - 29.26

   475,321    1.37      11.86    475,321      11.86
                  
   11,500,935    6.00    $ 2.47    8,131,916    $ 2.94
                            

9. Basic and Diluted Loss Per Common Share

Basic and diluted net losses per share were determined by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is the same as basic net loss per common share for all periods presented, as the effect of the potential common stock equivalents is antidilutive due to the Company’s net loss position for all periods presented. Antidilutive securities consist of stock options, warrants and shares issuable under the Company’s 2000 Employee Stock Purchase Plan; all of which are weighted based on the number of days outstanding during the respective reporting period. Antidilutive securities as of September 30, 2009 and 2008, respectively, are as follows.

 

     For the nine months ended
September 30,
     2009    2008

Weighted average stock options outstanding

   9,884,172    9,527,896

Weighted average warrants outstanding

   4,502,540    6,210,615

Shares issuable under ESPP

   4,567    26,430
         

Total antidilutive securities

   14,391,279    15,764,941
         

On July 7, 2009, a warrant holder exercised two warrants to purchase an aggregate of 2,632,198 shares of the Company’s common stock at a purchase price of $1.02 per share, providing approximately $2,700,000 in cash proceeds to the Company. These warrants were originally issued in connection with the Company’s August 2007 private placement.

10. Related Party Transactions

Pursuant to a scientific advisory and consulting agreement dated September 14, 2006 with Joseph M. Davie, Ph.D., M.D., a member of the Company’s Board of Directors, the Company incurred $6,000 and $19,000 in related consulting expenses in its Consolidated Statement of Operations for each of the three- and nine-month periods ended September 30, 2009 and 2008, respectively. The consulting agreement extends through September 2011, unless terminated earlier in accordance with its terms.

11. New Accounting Pronouncements

In October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements, (“ ASU 2009-13”). ASU 2009-13, amends existing revenue recognition accounting pronouncements that are currently within the scope of FASB Codification Subtopic 605-25 (previously included within EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables , or EITF 00-21). The consensus to EITF Issue No. 08-01, Revenue Arrangements with Multiple Deliverables , or EITF 08-01, provides accounting principles and application guidance on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead

 

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CURIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

 

provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. EITF 00-21 previously required that the fair value of the undelivered item be the price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. This was difficult to determine when the product was not individually sold because of its unique features. Under EITF 00-21, if the fair value of all of the elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined. This new approach is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company will have to evaluate the impact of this standard on future revenue arrangements that the Company may enter into.

12. Subsequent Events

The Company has evaluated all subsequent events through October 29, 2009, which represents the filing date of this Form 10-Q with the Securities and Exchange Commission, to ensure that this Form 10-Q includes appropriate disclosure of events both recognized in the financial statements as of September 30, 2009, and events which occurred subsequent to September 30, 2009 but were not recognized in the financial statements. As of October 29, 2009, there were no subsequent events which required recognition or disclosure.

 

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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 a drug discovery and development company that is committed to leveraging our innovative signaling pathway drug technologies in seeking to develop next generation targeted cancer therapies. In expanding our drug development efforts with respect to these targeted cancer programs, we are building upon our past experience in targeting signaling pathways, including the Hedgehog pathway. We seek to conduct research programs both internally and through strategic collaborations.

Our most advanced program is our Hedgehog pathway inhibitor program under collaboration with Genentech, Inc., a wholly-owned member of the Roche Group. The lead drug candidate being developed under this program is GDC-0449, a first-in-class orally-administered small molecule Hedgehog pathway inhibitor. Genentech and Roche are responsible for the clinical development and commercialization of GDC-0449. We are eligible to receive up to $115 million in contingent cash payments under the collaboration for the development of GDC-0449 or another small molecule, assuming the successful achievement by Genentech and Roche of specified clinical development and regulatory objectives, of which we have received $18 million to date. In addition to these payments, we are also eligible for a royalty on sales of any Hedgehog pathway inhibitor products that are successfully commercialized by Genentech and Roche. For GDC-0449, we are entitled to a mid- to high-single digit royalty, which escalates within this range with increasing product sales. In certain specified circumstances, the royalty rate applicable to GDC-0449 may be decreased to a low- to mid-single digit royalty.

Genentech and Roche are currently conducting three clinical trials of GDC-0449, including a pivotal phase II trial in advanced basal cell carcinoma, or BCC, that was initiated in February 2009. In addition, phase II clinical trials in metastatic colorectal cancer and in advanced ovarian cancer were initiated in 2008.

In the pivotal Phase II clinical trial of GDC-0449, approximately 100 patients with locally advanced or metastatic BCC will be evaluated in a global trial. This trial represents a significant development milestone for GDC-0449 in locally advanced and metastatic BCC and builds upon the encouraging phase I safety and efficacy data demonstrated by the drug, which was highlighted in a September 2009 New England Journal of Medicine article published by the phase I study investigators. This article reported data on 33 advanced basal cell carcinoma patients that were treated in the phase I clinical trial. Of these patients, 18, or 55%, responded to GDC-0449 including 2 complete responses and 16 partial responses. Of the remaining 15 patients, 11 patients had stable disease as a best response and 4 patients had progressive disease. At the time of the data cut-off for the article, the median time on study and the median duration of response for these patients was 9.8 and 8.8 months, respectively, with 19 patients still on study.

GDC-0449 has also demonstrated good tolerability in the phase I patients, with no dose limiting toxicity and no Grade 5, or fatal, adverse events observed. There also were no Grade 4, or life threatening, adverse events observed related to the study drug. There were several Grade 3, or severe, and Grade 2, or moderate, adverse events observed. GDC-0449 demonstrated a favorable pharmacokinetic and pharmacodynamic profile with a median steady-state plasma concentration of 16.1 micromolar. The median time to reach this steady-state level was 14 days. Dose escalation from 150 mg to 270 mg did not result in higher total plasma concentrations of GDC-0449 and as a result, Genentech has selected a daily dose of 150 mg for the ongoing Phase II clinical trials.

In July 2009, Roche provided an update on the program in which it stated that GDC-0449 was one of 10 new molecular entities that are currently enrolling patients in registrational studies within Roche. Pending a successful outcome of the ongoing pivotal study, Roche projects that regulatory submissions for GDC-0449 in advanced basal cell carcinoma could occur in 2011. As such, we believe that advanced basal cell carcinoma represents a potential opportunity that could enable first market entry for a compound that inhibits the Hedgehog signaling pathway.

GDC-0449 also is undergoing phase II clinical testing in colorectal and advanced ovarian cancer indications. Genentech has indicated that if the proof-of-concept data from the colorectal or ovarian cancer trials are positive, Genentech and Roche could consider a rapid expansion of development for the compound in several additional potential cancer indications. Genentech previously indicated that these data are expected in 2010. In July 2009, Roche provided further updates on this program including that the GDC-0449 Phase II clinical trial in metastatic colorectal cancer completed enrollment during the second quarter of 2009.

 

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In addition to the ongoing clinical trials that Genentech and Roche are conducting, Genentech and the National Cancer Institute, or NCI, entered into a collaborative relationship that allows the NCI to study GDC-0449 in additional potential cancer indications. Under this arrangement with NCI, third-party investigators began enrolling patients in a phase I clinical trial that is designed to evaluate dose and safety of GDC-0449 in young patients with medulloblastoma and a phase II trial to test the molecule in adult medulloblastoma patients. A phase I clinical trial in pancreatic cancer patients and a randomized phase II clinical trial in small cell lung cancer patients were also initiated and additional phase II studies are planned to begin, including trials in glioblastoma multiforme and advanced stomach or gastroesophageal junction cancer patients under this NCI arrangement. In addition, an investigator-sponsored study evaluating GDC-0449 in patients with basal cell nevus (Gorlin) syndrome has been initiated.

Our internal drug development efforts are focused on our proprietary targeted cancer programs that target multiple signaling pathways. We believe that this approach of targeting multiple nodes in various signaling pathway networks may provide a better therapeutic effect than many of the targeted cancer drugs currently marketed or in development.

Our lead candidate from these programs is CUDC-101, a small molecule that is currently in a dose escalating phase I clinical trial and is designed to target histone deacetylase, or HDAC, epidermal growth factor receptor, or EGFR and human epidermal growth factor receptor 2, or Her2. We have treated 20 patients to-date in this study and estimate that we will establish our maximum tolerated dose and complete this dose escalation study during the fourth quarter of 2009 or in early 2010.

In addition to our CUDC-101 development efforts, we have spent the last several months progressing CUDC-305, an Hsp90 inhibitor, towards an investigational new drug, or IND, filing while simultaneously seeking to enter into a corporate collaboration for the clinical development of this molecule. In August 2009, we granted a worldwide, exclusive royalty-bearing license to our Hsp90 inhibitor technology, including CUDC-305 to Debiopharm S.A., a Swiss corporation, or Debipharm. Debiopharm has since renamed this candidate Debio 0932 and will assume all future development responsibility and incur all future costs related to the development, registration and commercialization of products under the agreement. As part of the consideration under the agreement, Debiopharm paid us an up-front license fee of $2,000,000, and we are eligible to receive up to an additional $88,000,000 if specified clinical development and regulatory approval objectives are met. Included in these future payments are payments for near-term objectives including for acceptance by a regulatory authority of a clinical trial application, or CTA, or IND, filing by Debiopharm as well as payments for Debiopharm’s treatment of the fifth patient in the corresponding phase I clinical trial. We expect that Debiopharm will file the CTA during the fourth quarter and that the phase I clinical trial will begin early in 2010. In addition, we are eligible to receive royalties if any products under the license agreement are successfully developed and commercialized. The license agreement also provides certain provisions for termination as it relates to both parties.

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 and debt financings and the monetization of certain royalty rights. We have never been profitable and have an accumulated deficit of $715,087,000 as of September 30, 2009. We expect to incur significant operating losses for the next several years as we devote substantially all of our resources to our research and development programs. We will need to generate significant revenues to achieve profitability and do not expect to achieve profitability in the foreseeable future, if at all. We believe that near term key drivers to our success will include:

 

   

Genentech’s ability to continue to successfully advance its clinical trials for GDC-0449;

 

   

Debiopharm’s ability to file a CTA for Debio 0932, the subsequent acceptance by regulatory authorities of such CTA filing, Debiopharm’s initiation of phase I clinical testing and ultimately its advancement of Debio 0932 into later stages of clinical development;

 

   

our ability to continue to successfully enroll and treat patients in our phase I clinical trial for CUDC-101;

 

   

our ability to successfully enter into a material license or collaboration agreement for CUDC-101 or other of our proprietary drug candidates; and

 

   

our ability to advance the preclinical development of other small molecule cancer drug candidates that we are developing under our proprietary pipeline of targeted cancer programs.

 

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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 based upon our proprietary technologies.

Our Research and Development Programs under Collaboration

We are currently a party to a June 2003 collaboration with Genentech relating to our Hedgehog pathway inhibitor technologies, an April 2005 collaboration with Genentech relating to the Wnt signaling pathway, and an August 2009 license agreement with Debiopharm relating to our Hsp90 inhibitor technology. 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 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 research funding and we do not expect to receive such funding in the future from Genentech or Debiopharm under our current agreements with these parties. We currently expect to incur only nominal research and development costs under our collaborations with Genentech related to the maintenance of licenses. We also expect to incur general and administrative costs associated with our share of intellectual property costs under our collaboration of the Hedgehog pathway inhibitor program. We do not expect to incur any material costs related to our Hsp90 technologies subsequent to our entry into a license agreement with Debiopharm for these technologies.

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 September 30, 2009 should enable us to maintain our current and planned operations through the fourth quarter of 2010. Our ability to continue funding our planned operations beyond 2010 is dependent upon the anticipated near-term payments from our licensee Debiopharm, which include a payment upon the acceptance by regulatory authorities of Debiopharm’s application to begin a phase I clinical trial and a payment upon Debiopharm’s treatment of the fifth patient in the first phase I clinical trial. We expect that Debiopharm will file an application with regulatory authorities to begin phase I clinical testing for Debio 0932 in the fourth quarter of 2009 and, pending acceptance by regulatory authorities, that these payments may be received in early 2010. Our ability to fund our operations beyond 2010 is also dependent on payments that we may receive from Genentech 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 expect that our expenses associated with the clinical development of CUDC-101 will increase, resulting in an overall increase in our research and development expenses for future periods as compared to prior years.

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.”

Revenue. We do not expect to generate any revenue from our sale of products for several years, if ever. Substantially all of our gross revenues to date have been derived from license fees, research and development payments, contingent cash payments on the achievement of development objectives and other amounts that we have received from our strategic collaborators and licensees.

We currently receive no research funding for our programs under our collaborations with Genentech and Debiopharm and we do not expect to receive such funding in the future under these collaborations. Accordingly, 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 development objectives, if any are met, under new collaborations or our existing collaborations with Genentech and Debiopharm, 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 can not be assured, nor can we predict the timing of any such arrangements or payments, as the case may be.

Research and Development. Research and development expense consists of costs incurred to discover, research and develop our drug candidates. These expenses consist primarily of salaries and related expenses for personnel including stock-based compensation expense as well as outside service costs including clinical research organizations and medicinal chemistry. Research and development expenses also include the costs of supplies and reagents, consulting, and occupancy

 

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and depreciation charges. We expense research and development costs as incurred. We are currently incurring only nominal research and development expenses under our Hedgehog Pathway Inhibitor collaboration with Genentech related to the maintenance of third-party licenses. For each contingent payment, if any, received under the Hedgehog Pathway Inhibitor collaboration, we would be obligated to make payments to such third-party licensors and recognize the related expense. Our research and development programs, both internal and under collaboration, are summarized in the following table:

 

Product Candidate

  

Primary Indication

  

Collaborator/Licensee

  

Status

Hedgehog Pathway Inhibitor         

- GDC-0449

   Advanced basal cell carcinoma    Genentech    Pivotal Phase II

- GDC-0449

   Metastatic colorectal cancer    Genentech    Phase II

- GDC-0449

   Advanced ovarian cancer    Genentech    Phase II

Targeted cancer programs

        

- CUDC-101 (HDAC, EGFR, Her2 inhibitor)

   Cancer    Internal development    Phase I

- Debio 0932 (formerly CUDC-305) (Hsp90 inhibitor)

   Cancer    Debiopharm    Development candidate

- Other targeted cancer programs

   Cancer    Internal development    Preclinical

In the chart above, “Pivotal Phase II” means that Genentech is currently treating human patients in a pivotal phase II clinical trial, the primary objective of which is a therapeutic response in human patients. The endpoints of this clinical trial, if positive, may serve as the basis for a future NDA submission by Genentech. “Phase II” means that Genentech is currently treating human patients in a phase II clinical trial, the primary objective of which is a therapeutic response (i.e., for the metastatic colorectal cancer trial, progression-free survival from randomization to disease progression or death). “Phase I” means that we are currently treating human patients in a phase I clinical trial, the principal purpose of which is to evaluate the safety and tolerability of the compound being tested. “Development candidate” means that from our testing in several preclinical models of human disease of various compounds from a particular compound class, we or our collaborator or licensee has selected a single lead candidate for potential future clinical development and are seeking to complete and summarize in writing the relevant safety, toxicology, and other studies required to submit an IND application with the FDA, or foreign equivalent, seeking to commence a phase I clinical trial. “Preclinical” means we are seeking to obtain evidence of therapeutic efficacy and safety in preclinical models of human disease of one or more compounds within a particular class of drug candidates.

Because of the early stages of development of these programs, our ability and that of our collaborator and licensee to successfully complete preclinical and clinical studies 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:

 

   

the scope, quality of data, rate of progress and cost of clinical trials and other research and development activities undertaken by us or our collaborators;

 

   

the results of future preclinical and clinical trials;

 

   

the cost and timing of regulatory approvals;

 

   

the cost and timing of establishing sales, marketing and distribution capabilities;

 

   

the cost of establishing clinical and commercial supplies of our drug candidates and any products that we may develop;

 

   

the effect of competing technological and market developments; and

 

   

the cost and effectiveness of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

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.

 

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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 below in “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 our Hedgehog pathway inhibitor collaboration with Genentech, a portion of which is reimbursed by Genentech 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 include the carrying value of property and equipment and intangible assets, revenue recognition, the collectability of receivables and the value of certain investments and liabilities. 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. 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, 2008, which is on file with the Securities and Exchange Commission, or SEC.

While there have been no material changes to these critical accounting policies at September 30, 2009, significant management judgment was required in determining the level of effort required under our Debiopharm arrangement and the period over which we are expected to complete our performance obligations. In addition, we are involved in a steering committee under this arrangement and we assessed that our involvement constitutes a performance obligation for the estimated performance period, after which our continued involvement then becomes a protective right and is no longer an obligation. The steering committee services that are not inconsequential or perfunctory and that are determined to be performance obligations are combined with the other performance obligations required under the arrangement in determining the level of effort required in the arrangement and the period over which we expect to complete our aggregate performance obligations.

Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized during the twelve-month period ended September 30, 2009 are classified as long-term deferred revenue. As of September 30, 2009, we had short-term deferred revenue of $1,458,000, primarily related to the Debiopharm license agreement.

Although we follow detailed guidelines in measuring revenue, certain judgments affect the application of our revenue policy. For example, in connection with our existing collaboration agreements, we have recorded on our balance sheet short-term deferred revenue based on our best estimate of when such revenue will be recognized. Short-term deferred revenue consists of amounts that are expected to be recognized as revenue by September 30, 2010. Amounts that we expect will not be recognized prior to September 30, 2010 would be classified as long-term deferred revenue. However, this estimate is based on our current estimated performance period under our Debiopharm agreement as of September 30, 2009. If this estimate should change in the future, we may recognize a different amount of deferred revenue over the twelve-month period from October 1, 2009 through September 30, 2010.

Recently Issued Accounting Standards

In October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements, (“ ASU 2009-13”). ASU 2009-13, amends existing revenue recognition accounting pronouncements that are currently within the scope of FASB Codification Subtopic 605-25 (previously included within EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables , or EITF 00-21). The consensus to EITF Issue No. 08-01, Revenue Arrangements with Multiple Deliverables , or EITF 08-01, provides accounting principles and application guidance on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. EITF 00-21 previously required that the fair value of the undelivered item be the price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. This was difficult to determine when the product was not individually sold because of its unique

 

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features. Under EITF 00-21, if the fair value of all of the elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined. This new approach is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We will have to evaluate the impact of this standard on future revenue arrangements that we may enter into.

 

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Results of Operations

Three-Month Periods Ended September 30, 2009 and September 30, 2008

Revenues. Total revenues are summarized as follows:

 

     For the Three Months Ended
September 30,
   Percentage
Increase/
(Decrease)
 
     2009    2008   
     (unaudited)    (unaudited)       

REVENUES:

        

Research and development contracts

        

Genentech

   $ 89,000    $ 46,000    93

Wyeth

     —        33,000    (100 %) 

Other

     9,000      8,000    13
                

Subtotal

     98,000      87,000    13

License fees

        

Debiopharm

     667,000      —      100
                

Subtotal

     667,000      —      100

Total revenues

   $ 765,000    $ 87,000    779
                

Total revenues increased by $678,000, or 779%, to $765,000 for the three months ended September 30, 2009 as compared to $87,000 for the same period in the prior year as a result of the increase in license fee revenue recognized under our August 2009 license agreement with Debiopharm. We expect that we will recognize the up-front license fee of $2,000,000 over a six-moth period through January 2010.

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

 

     For the Three Months Ended
September 30,
   Percentage
Increase/
(Decrease)
 

Research and Development Program

   2009    2008   

Hedgehog pathway inhibitor

   $ 48,000    $ 48,000    —  

CUDC-101 (HDAC, EGFR, Her2 inhibitor)

     513,000      645,000    (20 %) 

CUDC-305 (Hsp90 inhibitor)

     286,000      1,144,000    (75 %) 

Other targeted cancer programs

     1,261,000      847,000    49

Other targeted programs

     —        131,000    (100 %) 

Stock-based compensation

     188,000      185,000    2
                

Total research and development expense

   $ 2,296,000    $ 3,000,000    (23 %) 
                

Our research and development expenses decreased by $704,000, or 23%, to $2,296,000 for the three months ended September 30, 2009 as compared to $3,000,000 for the same period in the prior year. The decrease is primarily attributable to lower spending of $858,000 on our CUDC-305 program as a result of licensing the program to Debiopharm on August 5, 2009. All future costs associated with this program will be assumed by Debiopharm. In addition, our spending relating to CUDC-101 decreased by $132,000 when compared to the same prior year period as we continue to enroll patients in the phase I clinical trial. Offsetting these decreases, we increased spending on other targeted programs by $283,000 as we aim to select additional preclinical candidates for future development. We expect that will incur a majority of our ongoing research and development expenses to further develop CUDC-101 and our targeted cancer programs.

 

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General and Administrative Expenses. General and administrative expenses are summarized as follows:

 

     For the Three Months Ended
September 30,
   Percentage
Increase/
(Decrease)
 
     2009    2008   
     (unaudited)    (unaudited)       

Personnel

   $ 485,000    $ 332,000    46

Occupancy and depreciation

     90,000      98,000    (8 %) 

Legal services

     728,000      552,000    32

Consulting and professional services

     739,000      297,000    149

Insurance costs

     70,000      85,000    (18 %) 

Other general and administrative expenses

     173,000      190,000    (9 %) 

Stock-based compensation

     281,000      308,000    (9 %) 
                

Total general and administrative expenses

   $ 2,566,000    $ 1,862,000    38
                

General and administrative expenses increased by $704,000, or 38%, to $2,566,000 for the three months ended September 30, 2009 as compared to $1,862,000 for the same period in the prior year. This increase was primarily due to increased spending for consulting and legal services as well as for personnel costs. Consulting services increased $442,000 as a result of business development efforts used to facilitate the licensing agreement with Debiopharm and legal services increased $176,000 during the three months ended September 30, 2009 as compared to the same period in the prior year, due to costs associated with various corporate matters. Personnel costs increased $153,000 for the three months ended September 30, 2009 as compared to the prior year period primarily due to amounts expensed for employee and officer bonuses during the first six months of 2008 that we determined would not be paid, resulting in a reversal of $200,000 in related expense in the third quarter of 2008. We have not accrued any amounts for bonuses during 2009.

 

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Nine-Month Periods Ended September 30, 2009 and September 30, 2008

Revenues. Total revenues are summarized as follows:

 

     For the Nine Months Ended
September 30
   Percentage
Increase/
(Decrease)
 
     2009    2008   
     (unaudited)    (unaudited)       

REVENUES:

        

Research and development contracts

        

Genentech

   $ 186,000    $ 182,000    2

Wyeth

     —        196,000    (100 %) 

Other

     13,000      32,000    (59 %) 
                

Subtotal

     199,000      410,000    (51 %) 

License fees

        

Genentech

     6,000,000      3,000,000    100

Debiopharm

     667,000      —      100

Wyeth

     —        102,000    (100 %) 

Stryker

     —        1,750,000    (100 %) 
                

Subtotal

     6,667,000      4,852,000    37
                

Total revenues

   $ 6,866,000    $ 5,262,000    30
                

Total revenues increased by $1,604,000, or 30%, to $6,866,000 for the nine months ended September 30, 2009 as compared to $5,262,000 for the same period in the prior year. Research and development contracts decreased $211,000 as research funding concluded under our Hedgehog agonist collaboration with Wyeth in February 2008. We currently receive no research funding for our programs under past or current collaborations. We expect that our future research and development contract revenues under our current collaborations with Genentech will be limited to expenses that we incur on behalf of Genentech for which Genentech is obligated to reimburse us.

Offsetting the decrease in research and development contract revenue, our license revenues increased by $1,815,000 to $6,667,000 for the nine months ended September 30, 2009 from $4,852,000 for the same period in 2008. The increase is primarily due to $6,000,000 in license revenue recognized upon the achievement of a certain development objective under our June 2003 collaboration with Genentech during the nine months ended September 30, 2009, compared to $3,000,000 recognized during the same prior year period. In addition, we recognized $667,000 under our August 2009 license agreement with Debiopharm related to our Hsp90 technology. These increases in license fee revenues were offset in part by a decrease of $1,750,000 in license revenue recognized from the sale and assignment of our remaining bone morphogenetic protein assets to Stryker Corporation during the first quarter of 2008.

 

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

 

     For the Nine Months Ended
September 30,
   Percentage
Increase/
(Decrease)
 

Research and Development Program

   2009    2008   

Hedgehog pathway inhibitor

   $ 447,000    $ 259,000    73

CUDC-101 (HDAC, EGFR, Her2 inhibitor)

     1,158,000      3,417,000    (66 %) 

CUDC-305 (Hsp90 inhibitor)

     2,022,000      1,144,000    77

Other targeted cancer programs

     3,340,000      3,536,000    (6 %) 

Other targeted programs

     —        416,000    (100 %) 

Hedgehog agonist

     —        199,000    (100 %) 

Discovery research

     —        124,000    (100 %) 

Stock-based compensation

     526,000      582,000    (10 %) 
                

Total research and development expense

   $ 7,493,000    $ 9,677,000    (23 %) 
                

Our research and development expenses decreased by $2,184,000, or 23%, to $7,493,000 for the nine months ended September 30, 2009 as compared to $9,677,000 for the same period in the prior year. The decrease in research and development expenses was primarily the result of a $2,259,000 decrease in spending related to CUDC-101 when compared to the same prior year period. We incurred significant consulting and outside costs during the nine months ended September 30, 2008 as we prepared and filed the IND application for CUDC-101. Costs incurred during the nine months ended September 30, 2009 were primarily comprised of costs associated with the enrollment and support of our ongoing Phase I trial.

This decrease is also due to our implementation of a plan to decrease spending in various research and development expense areas, particularly preclinical research in areas other than in our targeted cancer programs. Spending reductions included decreases in contract medicinal chemistry and biology work that was being performed in China, and in personnel and occupancy costs. In addition, our Hedgehog agonist program under collaboration with Wyeth concluded in February 2008. As a result of these decreases we incurred no expenses in our other targeted programs, Hedgehog agonist or discovery research programs during the nine months ended September 30, 2009 as compared to $739,000 during the same period in 2009.

Offsetting these decreases was an increase of $878,000 in spending relating to our CUDC-305 program from the prior year period. We selected CUDC-305 as a development candidate in July 2008 and licensed it to Debiopharm in August 2009. Debiopharm has assumed all future costs related to this program.

We expect that a majority of our research and development expenses for the foreseeable future will be incurred in support of our efforts to advance CUDC-101 and our other targeted cancer programs.

During the nine months ended September 30, 2009, we also incurred expenses of $447,000 related to our Hedgehog pathway inhibitor program as compared to $259,000 during the same period in the prior year, an increase of $188,000. We paid $300,000 in sublicense payments relating to the $6,000,000 we received from Genentech for the achievement of a clinical development objective during the nine months ended September 30, 2009, as compared to sublicense payments of $150,000 for the prior year period. We expect that future sublicense payment obligations related to our Hedgehog pathway inhibitor program will continue to fluctuate in relation to future payments under this collaboration.

 

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General and Administrative Expenses. General and administrative expenses are summarized as follows:

 

     For the Nine Months Ended
September 30,
   Percentage
Increase/
(Decrease)
 
     2009    2008   
     (unaudited)    (unaudited)       

Personnel

   $ 1,495,000    $ 1,780,000    (16 %) 

Occupancy and depreciation

     267,000      287,000    (7 %) 

Legal services

     1,971,000      1,247,000    58

Consulting and professional services

     1,281,000      893,000    43

Insurance costs

     220,000      279,000    (21 %) 

Other general and administrative expenses

     498,000      724,000    (31 %) 

Stock-based compensation

     959,000      1,192,000    (20 %) 
                

Total general and administrative expenses

   $ 6,691,000    $ 6,402,000    5
                

General and administrative expenses increased by $289,000, or 5%, to $6,691,000 for the nine months ended September 30, 2009 as compared to $6,402,000 for the same period in the prior year. This increase was primarily due to increased spending for consulting and legal services. Fees for legal services increased $724,000 during the nine months ended September 30, 2009 as compared to the same period in the prior year primarily due to costs associated with various corporate matters and costs associated with foreign patent applications. Consulting services increased $388,000 primarily as the result of business development efforts used to facilitate the licensing agreement with Debiopharm.

Offsetting these increases, personnel costs decreased $285,000 due to pay decreases for executive officers implemented in the fourth quarter of 2008. In addition, other general and administrative costs decreased by $226,000 as a result of lower travel costs and stock-based compensation decreased by $233,000 as a result of a decline in the grant date fair values of stock options expensed, and related expense, awarded in the first nine months of 2009 compared to the prior year period.

Liquidity and Capital Resources

We have financed our operations primarily through receipt of license fees, contingent cash payments and research and development funding from our collaborators and licensors, the private and public placement of our equity securities, debt financings and the monetization of certain royalty rights.

At September 30, 2009, our principal sources of liquidity consisted of cash, cash equivalents, and marketable securities of $27,215,000, excluding restricted long-term investments of $216,000. Our cash and cash equivalents are highly liquid investments with a maturity of three months or less at date of purchase and consist of time deposits and investments in money market funds with commercial banks and financial institutions, short-term commercial paper, and government obligations. We maintain cash balances with financial institutions in excess of insured limits. While as of the date of this filing, we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents or marketable securities since September 30, 2009, no assurance can be given that further deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or marketable securities or our ability to meet our financing objectives. Further dislocations in the credit market may adversely impact the value and/or liquidity of marketable securities owned by us.

The use of our cash flows for operations has primarily consisted of salaries and wages for our employees, facility and facility-related costs for our office and laboratory, fees paid in connection with preclinical studies, laboratory supplies, consulting fees and legal fees. During 2008, we began incurring clinical costs associated with our phase I clinical trial of CUDC-101. We expect that costs associated with clinical studies will increase in future periods assuming that CUDC-101 advances into further stages of clinical testing and other of our targeted cancer drug candidates reach clinical trials.

To date, the primary source of our cash flows from operations has been payments received from our collaborators and licensors. As a result of the conclusion of all research funding commitments under our past and current collaborations, the majority of our research and development effort and expense has shifted from such programs to our targeted cancer programs, particularly CUDC-101 and CUDC-305 until it was licensed to Debiopharm in August 2009. We believe that our research and development expenses will increase in future periods in connection with our plans to continue phase I clinical testing of CUDC-101 and with our plans to select an additional development candidate from our targeted cancer programs in 2010.

 

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In general, our only source of cash flows from operations for the foreseeable future is expected to be from:

 

   

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 development objectives, if any are met, under new collaborations or our existing collaborations with Genentech; and

 

   

royalty payments that are contingent upon the successful commercialization of any products based upon such collaborations.

Our ability to enter into new collaborations and our receipt of additional payments under our existing collaborations with Genentech and Debiopharm can not be assured, nor can we predict the timing of any such arrangements or payments, as the case may be.

Net cash used in operating activities was $4,461,000 for the nine-month period ended September 30, 2009 as compared to $11,186,000 for the nine-month period ended September 30, 2008. Cash used in operating activities during the nine-month period ended September 30, 2009 was primarily the result of our net loss for the period of $7,117,000. In addition, changes in certain operating assets and liabilities decreased operating cash during the nine-month period ended September 30, 2009, including a decrease of $676,000 in our accounts payable and accrued liabilities and an increase of $120,000 in our accounts receivables. Offsetting these decreases were an increase in our deferred revenue of $1,458,000 as a result of our August 2009 license agreement with Debiopharm and noncash items, including stock-based compensation expense of $1,485,000 and depreciation expense of $566,000.

Cash used in operating activities during the nine-month period ended September 30, 2008 was primarily the result of our net loss of $9,967,000. In addition, changes in certain operating assets and liabilities affected operating cash during the nine-month period ended September 30, 2008, including a decrease in deferred revenue of $1,853,000 as a result of the recognition of the $1,750,000 license fee that we received in December 2007 under our BMP transaction with Stryker Corporation and a decrease of $1,967,000 in our accounts payable and accrued liabilities. Offsetting these decreases were noncash items stock-based compensation expense of $1,774,000 and depreciation of $763,000.

We expect to continue to use cash in operations as we continue to seek to advance our targeted cancer drug programs through preclinical testing and clinical development. In addition, in the future we may owe royalties and other contingent payments to our licensors based on the achievement of developmental milestones, product sales and other specified objectives.

Investing activities used cash of $1,809,000 for the nine-month period ended September 30, 2009 as compared to $621,000 in the nine-month period ended September 30, 2008. Cash used by investing activities resulted principally from $1,795,000 in net investment purchases for the nine months ended September 30, 2009 and $561,000 in net investment purchases for the nine months ended September 30, 2008.

Financing activities provided cash of approximately $2,915,000 for the nine-month period ended September 30, 2009, resulting principally from the exercise of two warrants for an aggregate of 2,632,198 shares of common stock under our August 2007 private placement providing approximately $2,700,000 in proceeds. The remaining cash was provided by the exercise of stock options and purchases of common stock under our employee stock purchase plan. Financing activities used cash of approximately $221,000 for the nine-month period ended September 30, 2008, resulting from repayment of $401,000 on our notes with the Boston Private Bank & Trust Company. This decrease in cash was offset by cash received of $181,000 upon the exercise of stock options and purchases under our employee stock purchase plan.

We anticipate that existing capital resources at September 30, 2009 should fund our current and planned operations through the fourth quarter of 2010. We expect to incur substantial additional research and development and other costs, including costs related to preclinical studies and clinical trials, for the foreseeable future. Our ability to continue funding planned operations beyond 2010 is dependent upon, among other things, the anticipated near-term payments from our licensee Debiopharm, which include a payment upon the acceptance by regulatory authorities of Debiopharm’s application to begin a phase I clinical trial and payment upon Debiopharm’s treatment of the fifth patient in the first phase I clinical trial. We expect that Debiopharm will file an application with regulatory authorities to begin phase I clinical testing for Debio 0932 in the fourth quarter of 2009 and, pending acceptance by regulatory authorities, that these payments may be received in early 2010. Our ability to fund our operations beyond 2010 is also dependent on receipt of further payments under our collaborations with Genentech, our ability to manage our expenses and our ability to raise additional funds through corporate collaborations, equity or debt financings, or from other sources of financing. We are seeking additional collaborative arrangements and also anticipate that we will seek to raise funds through one or more financing transactions, if conditions permit. If the current equity and credit markets deteriorate further, or do not improve, it may make our ability to successfully

 

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raise debt or equity financing more difficult, more costly, and the terms of any such transaction could result in significant dilution for our existing shareholders. Failure to secure additional financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may experience a failure of its business, which could directly affect our ability to attain our operating goals. See “Part II, Item 1A—Risk Factors,” for a further discussion of certain risks and uncertainties that could affect our liquidity, capital requirements and ability to raise additional capital.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as of September 30, 2009.

Inflation

We believe that inflation has not had a significant impact on our revenue and results of operations since inception.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to the information provided under Item 7A “Quantitative and Qualitative Disclosures About Market Risk” set forth in our Annual Report on form 10-K for the year ended December 31, 2008.

 

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls & Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2009. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2009, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II—OTHER INFORMATION

 

Item 1A. Risk Factors

You should carefully consider the following risk factors, in addition to other information included in this quarterly report on Form 10-Q and in other documents we file with the SEC, in evaluating Curis and our business. If any of the following risks occur, our business, financial condition and operating results could be materially adversely affected. The following risk factors restate and supersede the risk factors previously disclosed in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2008.

RISKS RELATING TO OUR FINANCIAL RESULTS AND NEED FOR FINANCING

We have incurred substantial losses, we expect to continue to incur substantial losses for the foreseeable future and we may never generate significant revenue or achieve profitability.

As of September 30, 2009, we had an accumulated deficit of approximately $715,087,000. We have not successfully commercialized any products to date, either alone or in collaboration with others. If we are not able to successfully commercialize any products, whether alone or with a collaborator, we will not achieve profitability. All of our drug candidates are in early stages of development. For the foreseeable future, we will need to spend significant capital in an effort to develop products that we can commercialize and we expect to incur substantial operating losses for the foreseeable future. Our failure to become and remain profitable would be likely to depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our research and development programs or continue our operations.

We may not be able to generate substantial revenue from existing or future collaborations.

We have historically derived a substantial portion of our revenue from the research funding portion of our collaboration agreements. However, we have no current source of research funding revenue. We expect that our only source of cash flows from operations for the foreseeable future will be:

 

   

up-front license payments and research and development funding that we may receive if we are able to successfully enter into new collaboration agreements;

 

   

contingent cash payments that we may receive for the achievement of development objectives under any new collaborations or our existing collaborations with Genentech; and

 

   

royalty payments that are contingent upon the successful commercialization of products based upon these collaborations.

We may not be able to successfully enter into or continue any corporate collaborations and the timing, amount and likelihood of us receiving payments under such collaborations is highly uncertain. As a result, we cannot assure you that we will attain any further revenue under any collaborations or licensing arrangements.

We will require substantial additional capital, which is likely to be difficult to obtain.

We will require substantial funds to continue our research and development programs and to fulfill our planned operating goals. In particular, our currently planned operating and capital requirements include the need for working capital to support our research and development activities for CUDC-101 and other small molecules that we are seeking to develop from our pipeline of targeted cancer programs, and to fund our general and administrative costs and expenses.

We anticipate that existing cash, cash equivalents, marketable securities and working capital at September 30, 2009 should enable us to maintain current and planned operations through the fourth quarter of 2010. Our future capital requirements, however, may vary from what we currently expect. There are a number of factors that may adversely affect our planned future capital requirements and accelerate our need for additional financing, many of which are outside our control, including the following:

 

   

unanticipated costs in our research and development programs;

 

   

the timing and cost of obtaining regulatory approvals for our drug candidates;

 

   

the timing, receipt and amount of payments, if any, from current and potential future collaborators;

 

   

the timing and amount of payments due to licensors of patent rights and technology used in our drug candidates;

 

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the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims and other patent-related costs, including litigation costs and technology license fees; and

 

   

unexpected losses in our cash investments or an inability to otherwise liquidate our cash investments due to unfavorable conditions in the capital markets.

We may seek additional funding through public or private financings of debt or equity. The market for emerging life science stocks in general, and the market for our common stock in particular, are highly volatile. Due to this and various other factors, including the currently adverse general market conditions and the early-stage status of our development pipeline, additional funding may not be available to us on acceptable terms, if at all. In addition, the terms of such a financing may be dilutive or otherwise adversely affect other rights of our stockholders. We also expect to seek additional funds through arrangements with collaborators, licensees or other third parties. These arrangements would generally require us to relinquish or encumber rights to some of our technologies or drug candidates, and we may not be able to enter into such arrangements on acceptable terms, if at all. If we are unable to obtain additional funding on a timely basis, whether through sales of debt or equity or through third party collaboration or license arrangements, we may be required to curtail or terminate some or all of our development programs, including some or all of our drug candidates.

We may face fluctuations in our operating results from period to period, which may result in a drop in our stock price.

Our operating results have fluctuated significantly from period to period in the past and may rise or fall significantly from period to period in the future as a result of many factors, including:

 

   

the cost of research and development that we engage in;

 

   

a failure to successfully complete preclinical studies and clinical trials in a timely manner or at all, resulting in a delay in receiving, or a failure to receive, the required regulatory approvals to commercialize our drug candidates;

 

   

the timing, receipt and amount of payments, if any, from current and potential future collaborators;

 

   

the entry into, or termination of, collaboration agreements;

 

   

the scope, duration and effectiveness of our collaborative arrangements;

 

   

the costs involved in prosecuting, maintaining and enforcing patent claims;

 

   

the ability to operate without infringing upon the proprietary rights of others;

 

   

costs to comply with changes in government regulations;

 

   

changes in management and reductions or additions of personnel;

 

   

general and industry-specific adverse economic conditions that may affect, among other things, our and our collaborators’ operations and financial results;

 

   

revenue recognition policies;

 

   

changes in accounting estimates, policies or principles; and

 

   

the introduction of competitive products and technologies by third parties.

Due to fluctuations in our operating results, quarterly comparisons of our financial results may not necessarily be meaningful, and investors should not rely upon such results as an indication of our future performance. In addition, investors may react adversely if our reported operating results are less favorable than in a prior period or are less favorable than those anticipated by investors or the financial community, which may result in a drop of our stock price.

Unstable market and economic conditions may have serious adverse consequences on our business.

Our general business strategy may be adversely affected by the recent economic downturn and volatile business environment and continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate further, or do not improve, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.

 

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At September 30, 2009, we had $27,215,000 of cash, cash equivalents and marketable securities consisting of cash, money market, commercial paper, corporate debt securities, and government obligations. While as of the date of this filing, we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents or marketable securities since September 30, 2009, no assurance can be given that further deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or marketable securities or our ability to meet our financing objectives. Further dislocations in the credit market may adversely impact the value and/or liquidity of marketable securities owned by us.

There is a possibility that our stock price may decline, due in part to the volatility of the stock market and the general economic downturn.

RISKS RELATING TO THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS

We depend on our Hedgehog pathway inhibitor collaborative relationship with Genentech and our Hsp90 license agreement with Debiopharm. If Genentech and/or Debiopharm fails or delays in developing or commercializing drug candidates based upon our technologies, our business prospects and operating results would suffer and our stock price would likely decline.

We currently have two collaborations with Genentech pursuant to which we have granted to Genentech exclusive rights to develop and commercialize products based upon our technologies in defined fields of use, including GDC-0449, an orally-administered small molecule pathway inhibitor of the hedgehog signaling pathway. Genentech is currently testing GDC-0449 in two phase II clinical trials and a pivotal phase II trial in advanced basal cell carcinoma. In addition, we entered into a license agreement with Debiopharm in August 2009 related to our Hsp90 technologies. Our collaborations with Genentech and our license agreement with Debiopharm are our only current collaborations, and these collaborations may not be scientifically or commercially successful due to a number of factors, including the following:

 

   

Genentech and Debiopharm each have significant discretion in determining the efforts and resources that it will apply to each collaboration. The timing and amount of any cash payments related to future royalties and the achievement of development objectives that we may receive under such collaborative arrangements will depend on, among other things, Genentech’s and Debiopharm’s efforts, allocation of resources and successful development and commercialization of our drug candidates under the respective agreement.

 

   

Our strategic collaboration agreements with Genentech and our license agreement with Debiopharm permit Genentech and Debiopharm wide discretion in deciding which drug candidates to advance through the clinical trial process. It is possible for Genentech or Debiopharm to reject drug candidates at any point in the research, development and clinical trial process, without triggering a termination of the collaboration or license agreement, as applicable. In the event of any such decision, our business and prospects may be adversely affected due to our inability to progress drug candidates ourselves.

 

   

Genentech and Debiopharm may develop and commercialize, either alone or with others, products that are similar to or competitive with the drug candidates that are the subject of its collaborations with us.

 

   

Genentech or Debiopharm may change the focus of its development and commercialization efforts or pursue higher-priority programs. Our ability to successfully commercialize drug candidates under collaboration with Genentech or Debiopharm could be limited if Genentech or Debiopharm decreases or fails to increase spending related to such drug candidates.

 

   

Genentech or Debiopharm may enter into one or more transactions with third parties, including a merger, consolidation, reorganization, sale of substantial assets, sale of substantial stock or change of control. For example, during the first quarter of 2009, Roche Holdings Ltd. completed its acquisition of Genentech. This merger with Roche could divert the attention of Genentech’s management and adversely affect Genentech’s ability to retain and motivate key personnel who are important to the continued development of the programs under our collaboration. In addition, the third-party could determine to reprioritize Genentech’s or Debiopharm’s development programs such that Genentech or Debiopharm ceases to diligently pursue the development of our programs; and/or cause the respective collaborations with us to terminate.

 

   

Genentech or Debiopharm may, under specified circumstances, terminate the respective collaborations with us on short notice and for circumstances outside of our control, which could make it difficult for us to attract new collaborators or adversely affect how we are perceived in the scientific and financial communities.

 

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If Genentech or Debiopharm fails to successfully develop and commercialize our drug candidates under collaboration, we may not be able to develop and commercialize these candidates independently or successfully enter into one or more alternative collaborations, in which event our financial condition, results of operations and stock price may be adversely affected.

We may not be successful in establishing additional strategic collaborations, which could adversely affect our ability to develop and commercialize products.

Our current strategy is to seek corporate collaborators or licensees for the further development and commercialization of one or more drug candidates under our targeted cancer drug programs. For example, in August 2009 we entered into a license agreement with Debiopharm for our Hsp90 technologies and expect that in the future we will seek to enter into corporate collaborations for CUDC-101 or another drug candidate from these programs. We do not currently have the experience, resources or capacity to advance these programs into later stages of clinical development or commercialization. As such, our success will depend, in part, on our ability to enter into one or more such collaborations. We face significant competition in seeking appropriate collaborators and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a collaboration or other alternative arrangements for CUDC-101 or any future programs because our research and development pipeline may be insufficient, our programs may be deemed to be at too early of a stage of development for collaborative effort and/or third parties may not view our drug candidates and programs as having the requisite potential to demonstrate safety and efficacy. Even if we are successful in our efforts to establish new collaborations, the terms that we agree upon may not be favorable to us. If we are not able to successfully enter into one or more collaborations or licensing arrangements for CUDC-101 or any future programs, the clinical development of these programs could be significantly delayed and our future prospects may be adversely affected and our stock price could decline.

The therapeutic efficacy of drug candidates under our targeted cancer programs is unproven in humans, and we may not be able to successfully develop and commercialize CUDC-101 or any other future drug candidates that we may select from this program.

Our internal drug development efforts are focused on our proprietary targeted cancer programs. These programs focus on the development of single agent drug candidates targeting one or more molecular components within signaling pathways associated with certain cancers. We are also seeking to develop proprietary single agent, single target drug candidates for cancer indications. We have currently selected two drug candidates from this program for further development: CUDC-101, which is designed to simultaneously inhibit HDAC, EGFR and Her2, and CUDC-305 (renamed Debio 0932), an orally available, synthetic small molecule inhibitor of Hsp90 that was licensed to Debiopharm in August 2009. In August 2008, we treated the first patient in a phase I trial of CUDC-101.

CUDC-101 is a novel compound and their potential benefit as therapeutic cancer drugs is unproven. These drug candidates may not prove to be effective inhibitors of the validated cancer targets they are being designed to act against and may not demonstrate in patients any or all of the pharmacological benefits that we believe they may possess or that may have been demonstrated in preclinical trials. Moreover, there is a risk that these drug candidates may interact with human biological systems in unforeseen, ineffective or harmful ways. As a result of these and other risks described herein that are inherent in the development of novel therapeutic agents, we may never successfully develop, enter into third party licensing or collaboration transactions with respect to, or successfully commercialize CUDC-101 or any other drug candidates under our targeted cancer drug development platform, in which case we will not achieve profitability and the value of our stock will decline.

If preclinical studies and clinical trials of our drug candidates are not successful then our future profitability and success could be adversely affected.

In order to obtain regulatory approval for the commercial sale of our drug candidates, we and any current or potential future collaborators will be required to complete extensive preclinical studies as well as clinical trials in humans to demonstrate to the FDA and foreign regulatory authorities that our drug candidates are safe and effective. For example, our lead product candidate, GDC-0449, is currently being tested by our collaborator, Genentech, in a pivotal phase II clinical trial in advanced basal cell carcinoma and two phase II clinical trials in other cancer indications. In addition, we are currently treating patients in a phase I clinical trial of CUDC-101, the lead drug candidate from our pipeline of proprietary targeted cancer programs.

 

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Development, including preclinical and clinical testing, is a long, expensive and uncertain process. Accordingly, preclinical testing and clinical trials of our drug candidates under development may not be successful. We, Genentech, Debiopharm and any future collaborators could experience delays or failures in preclinical testing or clinical trials of any of our drug candidates for a number of reasons including, for example:

 

   

preclinical studies or clinical trials may produce negative, inconsistent or inconclusive results, and we or any collaborators may decide, or regulators may require us, to conduct additional preclinical studies or clinical trials or terminate testing for a particular product candidate;

 

   

the results from preclinical studies and early clinical trials may not be statistically significant or predictive of results that will be obtained from expanded, advanced clinical trials;

 

   

we may encounter difficulties or delays in manufacturing sufficient quantities of the product candidate used in any preclinical study or clinical trial;

 

   

the timing and completion of clinical trials of our drug candidates depend on, among other factors, the number of patients required to be enrolled in the clinical trials and the rate at which those patients are enrolled, and any increase in the required number of patients, decrease in recruitment rates or difficulties retaining study participants may result in increased costs, program delays or program termination;

 

   

our products under development may not be effective in treating any of our targeted cancer indications or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may prevent or limit their commercial use;

 

   

institutional review boards or regulators, including the FDA, or foreign equivalent, or any collaborators may hold, suspend or terminate our clinical research or the clinical trials of our drug candidates for various reasons, including failure to achieve established success criteria, noncompliance with regulatory requirements or if, in their opinion, the participating subjects are being exposed to unacceptable health risks; and

 

   

we, along with any of our current or potential future collaborators and subcontractors, may not employ, in any capacity, persons who have been debarred under the FDA’s Application Integrity Policy, or similar policy under foreign regulatory authorities. Employment of such a debarred person may result in delays in FDA’s or foreign equivalent’s review or approval of our products, or the rejection of data developed with the involvement of such person(s).

If the preclinical studies and/or clinical trials for any of our drug candidates that we, Genentech, Debiopharm, and any future collaborators pursue are not successful, then our ability to successfully develop and commercialize products on the basis of the respective technologies will be materially adversely affected, our reputation and our ability to raise additional capital will be materially impaired and the value of an investment in our stock price is likely to decline.

We expect to rely primarily on third parties for the performance and management of later-stage clinical trials and if such third parties fail to perform then we will not be able to successfully develop and commercialize drug candidates and grow our business.

We have very limited experience in conducting later-stage clinical trials. We expect to rely primarily on third parties to conduct at least our later-stage clinical trials and provide services in connection with such clinical trials. For example, we have granted development and commercialization rights to Genentech under our existing collaboration agreements with Genentech and we expect that any future collaboration partners may similarly be fully responsible for conducting at least the later-stage clinical trials of drug candidates. In the near term, we expect to rely primarily on third parties such as consultants, contract research organizations and other similar entities to complete IND-enabling preclinical studies, create and submit IND applications, enroll qualified subjects, conduct our clinical trials and provide services in connection with such clinical trials. Our reliance on these third parties for clinical development activities will reduce our control over these activities. These third parties may not complete activities on schedule, or may not conduct our clinical trials in accordance with the trial design. In addition, the FDA, or foreign equivalent, requires us to comply with certain standards, referred to as good clinical practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. If any of the third party contractors on whom we may in the future rely do not comply with good clinical practices or other applicable regulatory requirements, we may not be able to use the data and reported results from the trial. Any failure by a third party to conduct our clinical trials as planned or in accordance with regulatory requirements could delay or otherwise adversely affect our efforts to obtain regulatory approvals for and commercialize our drug candidates.

 

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If we and our current and potential future collaborative partners do not obtain necessary regulatory approvals, then our business will be unsuccessful and the market price of our common stock could substantially decline.

We, Genentech, Debiopharm, and any potential future collaborative partners will be required to obtain regulatory approval in order to successfully advance our drug candidates through the clinic and prior to marketing and selling such products. The process of obtaining FDA, or foreign equivalent, and other required regulatory approvals is expensive and the time required for these approvals is uncertain and typically takes a number of years, depending on the complexity and novelty of the product. With respect to our internal programs, we have limited experience in filing and prosecuting applications to obtain marketing approval.

Any regulatory approval to market a product may be subject to limitations on the indicated uses for which we, or our collaborative partners, may market the product. These limitations may restrict the size of the market for the product and affect reimbursement by third-party payors. In addition, regulatory agencies may not grant approvals on a timely basis or may revoke or significantly modify previously granted approvals.

We are subject to, and our current and potential future collaborative partners are, or will be, subject to, numerous foreign regulatory requirements governing the manufacturing and marketing of our potential future products outside of the United States. The approval procedure varies among countries, additional testing may be required in some jurisdictions, and the time required to obtain foreign approvals often differs from that required to obtain FDA, or foreign equivalent, approvals. Moreover, approval by the FDA, or foreign equivalent, does not ensure approval by regulatory authorities in other countries, and vice versa.

In addition, regulatory agencies may change existing requirements or adopt new requirements or policies. We and any collaborative partners may be slow to adapt or may not be able to adapt to these changes or new requirements.

As a result of these factors, we and any collaborators may not successfully begin or complete clinical trials and/or obtain regulatory approval to market and sell our drug candidates in the time periods estimated, if at all. Moreover, if we or any collaborators incur costs and delays in development programs or fail to successfully develop and commercialize products based upon our technologies, we may not become profitable and our stock price could decline.

Recently enacted legislation may make it more difficult and costly for us to obtain regulatory approval of our drug candidates and to produce, market and distribute products after approval.

On September 27, 2007, the President of the United States signed the Food and Drug Administration Amendments Act of 2007, or the FDAAA. The FDAAA grants a variety of new powers to the FDA, many of which are aimed at improving the safety of drug products before and after approval. Under the FDAAA, companies that violate the new law are subject to substantial civil monetary penalties. While we expect the FDAAA to have a substantial effect on the pharmaceutical industry, the extent of that effect is not yet known. As the FDA issues regulations, guidance and interpretations relating to the new legislation, the impact on the industry, as well as our business, will become clearer. The new requirements and other changes that the FDAAA imposes may make it more difficult, and likely more costly, to obtain approval of new pharmaceutical products and to produce, market and distribute products after approval.

Even if marketing approval is obtained, any products we or any current or potential future collaborators develop will be subject to ongoing regulatory oversight, which may affect the successful commercialization of such products.

Even if we or any current or potential future collaborators obtain regulatory approval of a product candidate, the approval may be subject to limitations on the indicated uses for which the product is marketed or require costly post-marketing follow-up studies. After marketing approval for any product is obtained, the manufacturer and the manufacturing facilities for that product will be subject to continual review and periodic inspections by the FDA, or foreign equivalent, and other regulatory agencies. The subsequent discovery of previously unknown problems with the product, or with the manufacturer or facility, may result in restrictions on the product or manufacturer, including withdrawal of the product from the market.

If there is a failure to comply with applicable regulatory requirements, we or any collaborator may be subject to fines, refusal to approve pending applications or supplements, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions, refusal to permit the import or export of our products and criminal prosecution.

 

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We, Genentech and Debiopharm are, and any potential future collaborators will be, subject to governmental regulations in connection with the research, development and commercialization of our drug candidates in addition to those imposed by the FDA, or foreign equivalent. We and any such collaborators may not be able to comply with these regulations, which could subject us, or such collaborators, to penalties and otherwise result in the limitation of our or such collaborators’ operations.

In addition to regulations imposed by the FDA, or foreign equivalent, we, our current collaborators, Genentech and Debipharm, and any potential future collaborators are subject to regulation under, among other laws, the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Research Conservation and Recovery Act, as well as regulations administered by the Nuclear Regulatory Commission, national restrictions on technology transfer, import, export and customs regulations and certain other local, state or federal regulations. From time to time, other federal agencies and congressional committees have indicated an interest in implementing further regulation of pharmaceutical and biotechnology applications. We are not able to predict whether any such regulations will be adopted or whether, if adopted, such regulations will apply to our business, or whether we or our collaborators would be able to comply with any applicable regulations.

Our research and development activities involve the controlled use of hazardous materials and chemicals. Although we believe that our safety procedures for handling and disposing of such materials comply with all applicable laws and regulations, we cannot completely eliminate the risk of accidental contamination or injury caused by these materials.

If we or any of our current and planned collaborators fail to achieve market acceptance for our products under development, our future revenue and ability to achieve profitability may be adversely affected.

Our future products, if any are successfully developed, may not gain commercial acceptance among physicians, patients and third-party payors, even if necessary marketing approvals have been obtained. We believe that recommendations and endorsements by physicians will be essential for market acceptance of any products we successfully develop. If we are not able to obtain market acceptance for such products, our expected revenues from sales of these products would be adversely affected and our business may not be successful.

RISKS RELATED TO OUR BUSINESS, INDUSTRY, STRATEGY AND OPERATIONS

We, our current collaborators, Genentech and Debiopharm, and any potential future collaborators, may not achieve projected research and development goals in the time frames that we or they announce, which could have an adverse impact on our business and could cause our stock price to decline.

We set goals for, and make public statements regarding, the timing of certain accomplishments, such as the commencement and completion of preclinical studies, initiation and completion of clinical trials, and other developments and milestones under our proprietary programs and those programs being developed under collaboration agreements. Genentech and Debiopharm have also made public statements regarding their expectations for the clinical development and potential commercial launch of GDC-0449 and Debio 0932, respectively, and may in the future make additional statements about their goals and expectations for these collaborations with us. The actual timing of these events can vary dramatically due to a number of factors such as delays or failures in our and our current and potential future collaborators’ preclinical studies or clinical trials, the amount of time, effort and resources committed to our programs by us and our current and potential future collaborators and the uncertainties inherent in the regulatory approval process. As a result, there can be no assurance that our or our current and potential future collaborators’ preclinical studies and clinical trials will advance or be completed in the time frames we or they announce or expect, that we or our current and potential future collaborators will make regulatory submissions or receive regulatory approvals as planned or that we or our current and potential future collaborators will be able to adhere to our current schedule for the achievement of key milestones under any of our internal or collaborative programs. If we or any collaborators fail to achieve one or more of these milestones as planned, our business could be materially adversely affected and the price of our common stock could decline.

We face substantial competition, which may result in our competitors discovering, developing or commercializing products before or more successfully than we do.

Our drug candidates face competition from existing and new technologies and products being developed by biotechnology, medical device and pharmaceutical companies, as well as universities and other research institutions. For example, research in the Hedgehog signaling pathway is increasingly competitive. We are developing Hedgehog-based therapies under our collaborations with Genentech in the field of cancer. Competitors may discover, characterize and develop Hedgehog pathway inhibitor drug candidates before we do or may compete with us in the same market sector.

In addition, our small molecule targeted cancer drug development candidates, which are focused primarily on clinically validated cancer targets, face significant competition from marketed drugs and drugs under development that seek to inhibit the same targets as our drug candidates.

 

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Many of our competitors have substantially greater capital resources, research and development staffs and facilities, and more extensive experience, than we have. As a result, efforts by other life science, medical device and pharmaceutical companies could render our programs or products uneconomical or result in therapies superior to those that we develop alone or with a collaborator.

For those programs that we have selected for internal development, we face competition from companies that are more experienced in product development and commercialization, obtaining regulatory approvals and product manufacturing. Other smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. As a result, any of these companies may be more successful in obtaining collaboration agreements or other monetary support, approval and commercialization of their products and/or may develop competing products more rapidly and/or at a lower cost. For those programs that are subject to a collaboration agreement, competitors may have greater expertise in discovery, research and development, manufacturing, preclinical and clinical testing, obtaining regulatory approvals and marketing than our collaborators and, consequently, may discover, develop and commercialize products that render our products non-competitive or obsolete.

We expect competition to intensify in cancer generally and, specifically, in targeted approaches to develop potential cancer therapies as technical advances in the field are made and become more widely known. If we are not able to compete effectively, then we may not be able, either alone or with others, to advance the development and commercialization of our drug candidates, which would adversely affect our ability to grow our business and become profitable.

The trend towards consolidation in the pharmaceutical and biotechnology industries may adversely affect us.

There is a trend towards consolidation in the pharmaceutical and biotechnology industries. This consolidation trend may result in the remaining companies having greater financial resources and discovery technological capabilities, thus intensifying competition in these industries. This trend may also result in fewer potential collaborators or licensees for our therapeutic product candidates. Also, if a consolidating company is already doing business with our competitors, we may lose existing licensees or collaborators as a result of such consolidation.

This trend may adversely affect our ability to enter into agreements for the development and commercialization of our product candidates, and as a result may harm our business.

We could be exposed to significant monetary damages and business harm if we are unable to obtain or maintain adequate product liability insurance at acceptable costs or otherwise protect ourselves against potential product liability claims.

Product liability claims inherent in the process of researching, developing and commercializing human health care products could expose us to significant liabilities and prevent or interfere with the development or commercialization of our drug candidates. Regardless of their merit or eventual outcome, product liability claims would require us to spend significant time, money and other resources to defend such claims, could result in decreased demand for our future products or result in reputational harm and could result in the payment of a significant damage award. We currently have product liability insurance for our phase I clinical trial of CUDC-101. However, this insurance is subject to deductibles and coverage limitations and may not be adequate in scope to protect us in the event of a successful product liability claim. If any of our drug candidates advance in clinical trials and/or are approved for marketing, we may seek additional insurance coverage. Product liability insurance is expensive and may be difficult to procure. As such, it is possible that we will not be able to obtain product liability insurance on acceptable terms, if at all, or that our product liability insurance coverage will prove to be inadequate to protect us from all potential claims, which may harm our business.

If we are not able to attract and retain key management and scientific personnel and advisors, we may not successfully develop our drug candidates or achieve our other business objectives.

We depend upon our senior management and scientific staff, including Daniel R. Passeri, our President and Chief Executive Officer, Michael P. Gray, our Chief Operating Officer and Chief Financial Officer, and Changgeng Qian, Ph.D., M.D., our Vice President, Discovery and Preclinical Development. The loss of the service of any of the key members of our senior management may significantly delay or prevent the achievement of product development and other business objectives. Our officers can terminate their employment with us at any time, although we are not aware of any present intention of any of these individuals to leave our company. Replacing key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to research, develop and successfully commercialize products in our areas of core competency. We do not maintain key man life insurance on any of these executive officers.

 

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Our ability to operate successfully will depend on our ability to attract and retain qualified personnel, consultants and advisors. We face intense competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities, governmental entities and other research institutions. We may be unable to attract and retain these individuals, and our failure to do so would have an adverse effect on our business.

While we have no current plans, in the future, we may seek to acquire complementary businesses and technologies in the future or otherwise seek to expand our operations to grow our business, which may divert management resources and adversely affect our financial condition and operating results.

We may seek to expand our operations in the future, including without limitation through internal growth and/or the acquisition of businesses and technologies that we believe are a strategic complement to our business model. We may not be able to identify suitable acquisition candidates or expansion strategies and successfully complete such acquisitions or successfully execute any such other expansion strategies. We may never realize the anticipated benefits of any efforts to expand our business. Furthermore, the expansion of our business, either through internal growth or through acquisitions, poses significant risks to our existing operations, financial condition and operating results, including:

 

   

a diversion of management from our existing operations;

 

   

increased operating complexity of our business, requiring greater personnel and resources;

 

   

significant additional cash expenditures to expand our operations and acquire and integrate new businesses and technologies;

 

   

incurrence of debt, other liabilities and contingent liabilities; and

 

   

dilutive stock issuances.

Any business that we conduct in China will expose us to the risk of adverse changes in political, legal and economic policies of the Chinese government, which changes could impede our preclinical efforts in China and materially and adversely affect the development of our Targeted Cancer Programs.

We currently engage medicinal chemists in Shanghai, China, pursuant to a contract research agreement with a medicinal chemistry provider in Shanghai. In addition, we have a subsidiary in China, Curis Shanghai, which is currently licensed but is not operational.

Conducting business in China exposes us to a variety of risks and uncertainties that are unique to China. The economy of China has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the Chinese government. In addition, the Chinese government continues to play a significant role in regulating industrial development. It also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Efforts by the Chinese government to slow the pace of growth of the Chinese economy could result in interruptions of our development efforts in China. If our research and development efforts in China are delayed due to such interruptions, we may not realize the reductions in costs anticipated from engaging chemists in China. We would also have to consider moving our chemistry and/or biology research that is currently conducted in China to U.S. or European providers, thereby either increasing our overall costs for such services or reducing the total number of chemists and or/biologists that we could engage.

In addition, the Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential value. In 1979, the Chinese government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. Accordingly, we cannot predict the effect of future developments in the Chinese legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. Our business could be materially harmed by any changes in the political, legal or economic climate in China or the inability to enforce applicable Chinese laws and regulations.

If the estimates we make and the assumptions on which we rely in preparing our financial statements prove inaccurate, our actual results may vary significantly.

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, the amounts of charges taken by us and related disclosure. Such

 

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estimates and judgments include the carrying value of our property, equipment and intangible assets, revenue recognition and the value of certain liabilities. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. However, these estimates and judgments, or the assumptions underlying them, may change over time. Accordingly, our actual financial results may vary significantly from the estimates contained in our financial statements.

For a further discussion of the estimates and judgments that we make and the critical accounting policies that affect these estimates and judgments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” elsewhere in this quarterly report on Form 10-Q and as included in our annual report on Form 10-K, as previously filed with the SEC on February 26, 2009.

Compliance with changing regulation of corporate governance and public disclosure as well as potential new accounting pronouncements is likely to impact our future financial position or results of operations.

Changing laws, regulations and standards relating to corporate governance and public disclosure, new SEC regulations and NASDAQ Global Market rules are creating uncertainty for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. In addition, future changes in financial accounting standards may cause adverse, unexpected revenue fluctuations and affect our financial position or results of operations. New accounting pronouncements and varying interpretations of pronouncements have occurred with frequency in the past and may occur again in the future and as a result we may be required to make changes in our accounting policies.

Our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and management time related to compliance activities. We expect these efforts to require the continued commitment of significant resources. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed and we might be subject to sanctions or investigation by regulatory authorities, such as the SEC. Any such action could adversely affect our financial results and the market price of our common stock.

Failure to maintain effective internal controls in accordance with section 404 of the Sarbanes-Oxley act could have a material adverse effect on our business and stock price.

Section 404 of the Sarbanes-Oxley Act of 2002 requires management’s annual review and evaluation of our internal controls, and attestations of the effectiveness of our internal controls by our independent auditors. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of section 404 of the Sarbanes-Oxley Act, as such standards are modified, supplemented or amended from time to time, could have a material adverse effect on our business, operating results and stock price.

RISKS RELATING TO OUR INTELLECTUAL PROPERTY

If we or any of our licensees or assignees breach any of the agreements under which we license or transfer intellectual property to others, we could be deprived of important intellectual property rights and future revenue.

We are a party to intellectual property out-licenses, collaborations and agreements that are important to our business, including our June 2003 and April 2005 collaboration agreements with Genentech, our December 2007 assignment agreement with Stryker Corporation and our August 2009 license agreement with Debiopharm, and we expect to enter into similar agreements with third parties in the future. Under these agreements, we generally license or transfer intellectual property to third parties and impose various research, development, commercialization, sublicensing, royalty, indemnification, insurance, and other obligations on them. If a third party breaches its responsibilities under these agreements, we generally retain the right to terminate the agreement, and to bring a legal action in court or in arbitration. In the event of breach, we may need to enforce our rights under these agreements by resorting to arbitration or litigation. During the period of arbitration or litigation, we may be unable to effectively use, assign or license the relevant intellectual property rights and may be deprived of current or future revenues that are associated with such intellectual property.

 

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We may not be able to obtain patent protection for our technologies and the patent protection we do obtain may not be sufficient to stop our competitors from using similar technology.

The patent positions of pharmaceutical and life science companies, including ours, are generally uncertain and involve complex legal, scientific and factual questions. The procedures and standards that the United States Patent and Trademark Office and various foreign intellectual property offices use to grant patents, and the standards that courts use to interpret patents, are not always applied predictably or uniformly and may be changed in a significant way and are expected to continue to change. Consequently, the level of protection, if any, that will be obtained and provided by our patents if we attempt to enforce them, and they are challenged, is uncertain. The long-term success of our business depends in significant part on our ability to:

 

   

obtain patents to protect our technologies and discoveries;

 

   

protect trade secrets from disclosure to third-party competitors;

 

   

operate without infringing upon the proprietary rights of others; and

 

   

prevent others from infringing on our proprietary rights.

Patents may not issue from any of the patent applications that we own or license. If patents do issue, the type and extent of patent claims issued to us may not be sufficient to protect our technology from exploitation by our competitors. In addition, issued patents that we own or license may be challenged, invalidated or circumvented. Our patents also may not afford us protection against competitors with similar technology. Because patent applications in the United States and abroad are maintained in secrecy until 18 months after filing, it is possible that third parties have filed or maintained patent applications for technology used by us or covered by our pending patent applications without our knowledge.

We may not have rights under patents that may cover one or more of our drug candidates. In some cases, these patents may be owned or controlled by third-party competitors and may prevent or impair our ability to exploit our technology. As a result, we or our current or potential future collaborative partners may be required to obtain licenses under third-party patents to develop and commercialize some of our drug candidates. If we are unable to secure licenses to such patented technology on acceptable terms, we or our collaborative partners may not be able to develop and commercialize the affected product candidate or candidates.

We may become involved in expensive and unpredictable litigation, and in particular, patent litigation or other intellectual property proceedings, which could result in liability for damages or stop our development and commercialization efforts.

Substantial, complex or extended litigation could cause us to incur large expenditures and distract our management, and could result in significant monetary or equitable judgments against us. For example, lawsuits by employees, licensors, licensees, suppliers, distributors, stockholders, or competitors could be very costly and substantially disrupt our business. Disputes from time to time with such companies or individuals are not uncommon, and we cannot assure that we will always be able to resolve such disputes out of court or on terms favorable to us. Any claims, with or without merit, and regardless of whether we prevail in the dispute, would be time-consuming, could result in costly litigation and the diversion of technical and management personnel.

In recent years, there have been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and life science industries. We may become a party to patent litigation or other proceedings regarding intellectual property rights.

Situations that may give rise to patent litigation or other disputes over the use of our intellectual property include:

 

   

initiation of litigation or other proceedings against third parties to enforce our patent rights, to seek to invalidate the patents held by these third parties or to obtain a judgment that our drug candidates do not infringe the third parties’ patents;

 

   

participation in interference proceedings to determine the priority of invention if our competitors file U.S. patent applications that claim technology also claimed by us;

 

   

initiation of foreign opposition proceedings by third parties that seek to limit or eliminate the scope of our patent protection in a foreign jurisdiction;

 

   

initiation of litigation by third parties claiming that our processes or drug candidates or the intended use of our drug candidates infringe their patent or other intellectual property rights; and

 

   

initiation of litigation by us or third parties seeking to enforce contract rights relating to intellectual property that may be important to our business.

 

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The costs associated with any patent litigation or other proceeding, even if resolved favorably, will likely be substantial. Some of our competitors may be able to sustain the cost of such litigation or other proceedings more effectively than we can because of their substantially greater financial resources. If a patent litigation or other intellectual property proceeding is resolved unfavorably, we or any collaborative partners may be enjoined from manufacturing or selling our products and services without a license from the other party and be held liable for significant damages. Moreover, we may not be able to obtain required licenses on commercially acceptable terms or any terms at all. In addition, we could be held liable for lost profits if we are found to have infringed a valid patent, or liable for treble damages if we are found to have willfully infringed a valid patent. Litigation results are highly unpredictable and we or any collaborative partners may not prevail in any patent litigation or other proceeding in which we may become involved. Any changes in, or unexpected interpretations of the patent laws may adversely affect our ability to enforce our patent position. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could damage our ability to compete in the marketplace.

Our commercial success will depend in part on our ability to obtain and maintain protection of our intellectual property, which covers inventions which may have been subject to chemistry or biology related work performed by contract research organizations in China.

We rely on trade secrets, proprietary know-how and other non-patentable technology, which we seek to protect through agreements containing non-disclosure and intellectual property assignment provisions with the chemists and biologists we have engaged in China. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets, proprietary know-how and other non-patentable technology will not otherwise become known to, or be independently developed by, our competitors.

Implementation and enforcement of Chinese intellectual property-related laws has historically been inconsistent and damages assessed fail to reflect the true value of the infringed technology and its market. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other countries. Policing unauthorized use of proprietary technology is difficult and expensive, and we might need to resort to litigation to enforce or defend patents issued to us or to determine the enforceability, scope and validity of our proprietary rights or those of others. The experience and capabilities of Chinese courts in handling intellectual property litigation varies, and outcomes are unpredictable. Further, such litigation may require significant expenditure of cash and management efforts and could harm our business, financial condition and results of operations. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, prospects and reputation.

If we are unable to keep our trade secrets confidential, our technology and proprietary information may be used by others to compete against us.

We rely significantly upon proprietary technology, information, processes and know-how that are not subject to patent protection. We seek to protect this information through confidentiality and intellectual property license or assignment provisions in agreements with our employees, consultants and other third-party contractors as well as through other security measures. The confidentiality and intellectual property provisions of our agreements and security measures may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently developed by competitors.

RISKS RELATING TO MANUFACTURING AND SALES

We will depend on collaborators and third-party manufacturers to produce most, if not all, of our products under development, and if these third parties do not successfully formulate or manufacture these products, our business will be harmed.

We have no manufacturing experience or manufacturing capabilities. In order to continue to develop drug candidates, apply for regulatory approvals, and commercialize our products under development, we or any collaborators must be able to manufacture products in adequate clinical and commercial quantities, in compliance with regulatory requirements, including those related to quality control and quality assurance, at acceptable costs and in a timely manner. The manufacture of our drug candidates may be complex, difficult to accomplish and difficult to scale-up when large-scale production is required. Manufacture may be subject to delays, inefficiencies and poor or low yields of quality products. The cost of manufacturing some of our products may make them prohibitively expensive. If supplies of any of our drug candidates or related materials become unavailable or are not delivered on a timely basis or at all, or are contaminated or otherwise lost, certain preclinical studies and/or clinical trials by us and any collaborators could be seriously delayed. This is due to the fact that such materials are time-consuming to manufacture and cannot be readily obtained from third-party sources.

 

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To the extent that we or any collaborators seek to enter into manufacturing arrangements with third parties, we and such collaborators will depend upon these third parties to perform their obligations in a timely and effective manner and in accordance with government regulations. Contract manufacturers may breach their manufacturing agreements because of factors beyond our control or may terminate or fail to renew a manufacturing agreement based on their own business priorities at a time that is costly or inconvenient for us.

Any contract manufacturers with which we enter into manufacturing arrangements will be subject to ongoing periodic, unannounced inspection by the FDA, or foreign equivalent, and corresponding state and foreign agencies or their designees to ensure strict compliance with current good manufacturing practices and other governmental regulations and corresponding foreign standards. Any failure by our contract manufacturers, any collaborators or us to comply with applicable regulations could result in sanctions being imposed, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our drug candidates, delays, suspension or withdrawal of approvals, seizures or recalls of drug candidates, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business. If we need to change manufacturers, the FDA and corresponding foreign regulatory agencies must approve any new manufacturers in advance. This would involve testing and pre-approval inspections to ensure compliance with FDA and foreign regulations and standards.

If third-party manufacturers fail to perform their obligations, our competitive position and ability to generate revenue may be adversely affected in a number of ways, including;

 

   

we and any collaborators may not be able to initiate or continue certain preclinical and/or clinical trials of products that are under development;

 

   

we and any collaborators may be delayed in submitting applications for regulatory approvals for our drug candidates; and

 

   

we and any collaborators may not be able to meet commercial demands for any approved products.

We have no sales or marketing experience and, as such, will depend significantly on third parties who may not successfully sell our products.

We have no sales, marketing or product distribution experience. If we receive required regulatory approvals, we plan to rely primarily on sales, marketing and distribution arrangements with third parties, including our collaborative partners. For example, as part of our agreements with Genentech, we have granted Genentech the exclusive rights to distribute certain products resulting from such collaborations, if any are ever successfully developed. We may have to enter into additional marketing arrangements in the future and we may not be able to enter into these additional arrangements on terms that are favorable to us, if at all. In addition, we may have limited or no control over the sales, marketing and distribution activities of these third parties and sales through these third parties could be less profitable to us than direct sales. These third parties could sell competing products and may devote insufficient sales efforts to our products. Our future revenues will be materially dependent upon the success of the efforts of these third parties.

We may seek to independently market products that are not already subject to marketing agreements with other parties. If we determine to perform sales, marketing and distribution functions ourselves, we could face a number of additional risks, including:

 

   

we may not be able to attract and build a significant and skilled marketing staff or sales force;

 

   

the cost of establishing a marketing staff or sales force may not be justifiable in light of the revenues generated by any particular product; and

 

   

our direct sales and marketing efforts may not be successful.

Even if we successfully commercialize any products under development, either alone or in collaboration, we face uncertainty with respect to coverage, pricing, third-party reimbursements and healthcare reform, all of which could affect our future profitability.

Our ability to collect significant royalties from our products may depend on our ability, and the ability of any current or potential future collaboration partners or customers, to obtain adequate levels of coverage for our products and reimbursement from third-party payers such as:

 

   

government health administration authorities;

 

   

private health insurers;

 

   

health maintenance organizations;

 

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pharmacy benefit management companies; and

 

   

other healthcare-related organizations.

Third-party payers may deny coverage or offer inadequate levels of reimbursement if they determine that a prescribed product has not received appropriate clearances from the FDA, or foreign equivalent, or other government regulators, is not used in accordance with cost-effective treatment methods as determined by the third-party payer, or is experimental, unnecessary or inappropriate. If third-party payers deny coverage or offer inadequate levels of reimbursement, we or any collaborators may not be able to market our products effectively. We also face the risk that we will have to offer our products at prices lower than anticipated as a result of the current trend in the United States towards managed healthcare through health maintenance organizations. Currently, third-party payers are increasingly challenging the prices charged for medical products and services. Prices could be driven down by health maintenance organizations that control or significantly influence purchases of healthcare services and products. Existing U.S. laws, such as the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or future legislation to reform healthcare or reduce government insurance programs could also adversely affect prices of our approved products, if any. The cost-containment measures that healthcare providers are instituting and the results of potential healthcare reforms may prevent us from maintaining prices for our products that are sufficient for us to realize profits and may otherwise significantly harm our business, financial condition and operating results. In addition, to the extent that our products are marketed outside of the United States, foreign government pricing controls and other regulations may prevent us from maintaining prices for our products that are sufficient for us to realize profits and may otherwise significantly harm our business, financial condition and operating results.

Recent proposed legislation may permit re-importation of drugs from foreign countries into the United States, including foreign countries where the drugs are sold at lower prices than in the United States, which could force us to lower the prices at which we sell our products, if approved, and impair our ability to derive revenue from these products.

Legislation has been introduced in the U.S. Congress that, if enacted, would permit more widespread re-importation of drugs from foreign countries into the United States. This could include re-importation from foreign countries where the drugs are sold at lower prices than in the United States. Such legislation, or similar regulatory changes, could lead to a decrease in the price we receive for any approved products, which, in turn, could impair our ability to generate revenue. Alternatively, in response to legislation such as this, we might elect not to seek approval for or market our products in foreign jurisdictions in order to minimize the risk of re-importation, which could also reduce the revenue we generate from our product sales.

RISKS RELATED TO OUR COMMON STOCK

If we fail to meet the requirements for continued listing on the NASDAQ Global Market, our common stock could be delisted from trading, which would adversely affect the liquidity of our common stock and our ability to raise additional capital.

Our common stock is currently listed for quotation on the NASDAQ Global Market. We are required to meet specified financial requirements in order to maintain our listing on the NASDAQ Global Market. One such requirement is that we maintain a minimum closing bid price of at least $1.00 per share for our common stock. Our common stock has recently closed at prices that are below the minimum bid price requirement. If our stock price falls below $1.00 per share for 30 consecutive business days, we will receive a deficiency notice from NASDAQ advising us that we have 180 days to regain compliance by maintaining a minimum bid price of at least $1.00 for a minimum of ten consecutive business days. Under certain circumstances, NASDAQ could require that the minimum bid price exceed $1.00 for more than ten consecutive days before determining that a company complies with its continued listing standards. If in the future we fail to satisfy the NASDAQ Global Market’s continued listing requirements, our common stock could be delisted from the NASDAQ Global Market, in which case we may transfer to the NASDAQ Capital Market, which generally has lower financial requirements for initial listing or, if we fail to meet its listing requirements, the OTC Bulletin Board. Any potential delisting of our common stock from the NASDAQ Global Market would make it more difficult for our stockholders to sell our stock in the public market and would likely result in decreased liquidity and increased volatility for our common stock.

Our stock price may fluctuate significantly and the market price of our common stock could drop below the price paid.

The trading price of our common stock has been volatile and may continue to be volatile in the future. For example, our stock traded within a range of a high price of $2.61 and a low price of $0.68 per share for the period January 1, 2008 through October 26, 2009. The stock market, particularly in recent years, has experienced significant volatility with respect to pharmaceutical- and biotechnology-based company stocks. Prices for our stock will be determined in the marketplace and may be influenced by many factors, including:

 

   

announcements regarding new technologies by us or our competitors;

 

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market conditions in the biotechnology and pharmaceutical sectors;

 

   

rumors relating to us or our competitors;

 

   

litigation or public concern about the safety of our potential products;

 

   

actual or anticipated variations in our quarterly operating results and any subsequent restatement of such results;

 

   

actual or anticipated changes to our research and development plans;

 

   

deviations in our operating results from the estimates of securities analysts;

 

   

entering into new collaboration agreements or termination of existing collaboration agreements;

 

   

adverse results or delays in clinical trials being conducted by us or any collaborators;

 

   

any intellectual property or other lawsuits involving us;

 

   

third-party sales of large blocks of our common stock;

 

   

sales of our common stock by our executive officers, directors or significant stockholders;

 

   

equity sales by us of our common stock to fund our operations;

 

   

the loss of any of our key scientific or management personnel;

 

   

FDA or international regulatory actions; and

 

   

general economic and market conditions, including recent adverse changes in the domestic and international financial markets.

While we cannot predict the individual effect that these factors may have on the price of our common stock, these factors, either individually or in the aggregate, could result in significant variations in price during any given period of time. Moreover, in the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources.

The limited liquidity for our common stock could affect an investor’s ability to sell our shares at a satisfactory price and makes the trading price of our common stock more volatile.

Our common stock is relatively illiquid. As of September 30, 2009, we had approximately 66.5 million shares of common stock outstanding. The average daily trading volume in the common stock during the prior 50 trading days ending on September 30, 2009 was 664,000 shares. A more active public market for our common stock, may not develop, which would continue to adversely affect the trading price and liquidity of the common stock. Moreover, a thin trading market for the common stock causes the market price for the common stock to fluctuate significantly more than the stock market as a whole. Without a large float, our common stock is less liquid than the stock of companies with broader public ownership and, as a result, the trading prices of our common stock may be more volatile.

Future sales of shares of our common stock, including upon the exercise of currently outstanding options and warrants or pursuant to our universal shelf registration statement could negatively affect our stock price.

Most of our outstanding common stock can be traded without restriction at any time. As such, sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell such shares, could reduce the market price of our common stock. In addition, we have a significant number of shares that are subject to outstanding options and warrants. The exercise of these options and warrants and the subsequent sale of the underlying common stock could cause a further decline in our stock price. These sales also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

We currently have the ability to offer and sell common stock, preferred stock and warrants under a currently effective universal shelf registration statement. Sales of substantial amounts of shares of our common stock or other securities under our universal shelf registration statement could lower the market price of our common stock and impair our ability to raise capital through the sale of equity securities. In the future, we may issue additional options, warrants or other derivative securities convertible into our common stock.

 

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We do not intend to pay dividends on our common stock, and any return to investors will come, if at all, only from potential increases in the price of our common stock.

At the present time, we intend to use available funds to finance our operations. Accordingly, while payment of dividends rests within the discretion of our board of directors, no common stock dividends have been declared or paid by us and we have no intention of paying any common stock dividends in the foreseeable future.

Insiders have substantial control over us and could delay or prevent a change in corporate control.

As of September 30, 2009, we believe that our directors, executive officers and principal stockholders, together with their affiliates, owned, in the aggregate, approximately 32% of our outstanding common stock. As a result, these stockholders, if acting together, may have the ability to determine the outcome of matters submitted to our stockholders for approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these persons, if acting together, will have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership may harm the market price of our common stock by:

 

   

delaying, deferring or preventing a change in control of our company;

 

   

impeding a merger, consolidation, takeover or other business combination involving our company; or

 

   

discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company.

We have anti-takeover defenses that could delay or prevent an acquisition that our stockholders may consider favorable and the market price of our common stock may be lower as a result.

Provisions of our certificate of incorporation, our bylaws and Delaware law may have the effect of deterring unsolicited takeovers or delaying or preventing changes in control of our management, including transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interest. For example, we have divided our board of directors into three classes that serve staggered three-year terms, we may issue shares of our authorized “blank check” preferred stock and our stockholders are limited in their ability to call special stockholder meetings.

In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. These provisions could discourage, delay or prevent a change in control transaction.

 

Item 6. EXHIBITS

The exhibits filed herewith or incorporated by reference are set forth on the exhibit index attached hereto.

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  CURIS, INC.
Dated: October 29, 2009   By:  

/ S /    M ICHAEL P. G RAY        

   

Michael P. Gray

Chief Operating Officer and Chief Financial Officer

(Principal Financial and Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibit

Number

 

Description

10.1 †

  License Agreement, dated August 5, 2009, by and between Curis, Inc. and Debipharm S.A.

31.1

  Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act

31.2

  Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act

32.1

  Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350

32.2

  Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350

 

Confidential treatment has been requested as to certain portions, which portions have been separately filed with the Securities and Exchange Commission.

 

45

Exhibit 10.1

Confidential Materials omitted and filed separately with the

Securities and Exchange Commission. Asterisks denote omissions.

EXECUTION VERSION

LICENSE AGREEMENT

This Agreement is made and entered into on August 5, 2009 (the “Effective Date” ) by and

Between

DEBIOPHARM S.A. , a Swiss corporation having its principal place of business at Forum «après-demain» , Chemin Messidor 5-7, 1006 Lausanne, Switzerland ( “Debiopharm” ),

On the one hand,

And

CURIS, INC. , a corporation established under the laws of the State of Delaware, USA, having its principal place of business at 45 Moulton Street, Cambridge, MA 02138, United States of America ( “Curis” ),

On the other hand;

WITNESSETH:

WHEREAS, Debiopharm is a pharmaceutical company active in the research and development, the registration and the commercialization of pharmaceutical products, as well as in the acquisition and granting of licenses and other proprietary rights related to such products;

WHEREAS, Curis is a drug development company developing innovative signaling pathway drug technologies to seek to create new medicines, primarily in the field of oncology;

WHEREAS, Curis wishes to license out to Debiopharm all the proprietary rights in and to the compound known as “CUDC-305”;

WHEREAS, Debiopharm wishes to obtain from Curis a license to such compound known as “CUDC-305” in order to develop, manufacture and commercialize Products (as hereinafter defined);

WHEREAS, both Debiopharm and Curis wish to enter into this Agreement which provides Debiopharm with an exclusive license to the Compound (as hereinafter defined) to develop and commercialize Products (as hereinafter defined) in the Field of Use (as hereinafter defined) and in the Territory (as hereinafter defined), under the terms and conditions set forth below;

NOW, THEREFORE, in consideration of the foregoing and the covenants and obligations set forth in this Agreement, Debiopharm and Curis agree as follows:

 

1 DEFINITIONS AND INTERPRETATIONS

Terms, when used with initial capital letters, shall have the meanings set forth below or at their first use when used in this Agreement:

 

“Affiliate(s)”:    shall mean any corporation or other business entity controlled by, controlling, or under common control with or by Debiopharm or

 

 

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   Curis. For this purpose, “control” means direct or indirect beneficial ownership of at least fifty percent (50%) of the voting stock of a corporation or other business entity.
“Agreement”:    shall mean this license agreement.
“API”:    shall mean an active pharmaceutical ingredient.
“Backup Compound(s)”:    shall mean all Hsp90 Inhibitors [**], as well as their prodrugs and metabolites, and all isomers, esters, salts, hydrates, solvates, and polymorphs thereof.
“Change of Control Transaction”:    shall have the meaning ascribed to this term in paragraph (a) of Article 19.
“Combination Product”:    shall mean a Product combining a Compound together with another API.
“Compound”:    shall mean CUDC-305 as described in Exhibit 1, any prodrug or metabolite of CUDC-305, any isomer, ester, salt, hydrate, solvate, or polymorph of CUDC-305, including any Backup Compound.
“Confidential Information”:    shall mean any information of a confidential or proprietary nature disclosed by a Party or its Affiliates (the “Disclosing Party”) to the other Party or its Affiliates (the “Receiving Party”), including, but not limited to, each Party’s or its Affiliates’ invention disclosures, proprietary materials, data, know-how, technologies, trade secrets, and/or manufacturing, marketing, personnel and other business information and plans (including, without limitation, the opinions and advice of each Party’s respective in-house and outside counsel with respect to intellectual property matters), whether in oral, written, graphic or electronic form. Information shall not be deemed “Confidential Information” hereunder, and the Receiving Party shall have no obligation with respect to any information that the Receiving Party can demonstrate by competent evidence:
  

(i)     

   is known by the Receiving Party prior to disclosure by the Disclosing Party, as evidenced by internal records or documentation of the Receiving Party; or
   (ii)    is in the public domain or subsequently enters the public domain without any breach of this Agreement by the Receiving Party; or
   (iii)    is received by the Receiving Party from an independent Third Party with the lawful right to disclose; or
   (iv)    was independently developed by the Receiving Party (or its Affiliates’) employees or contractors without the use of or reference to Confidential Information of the Disclosing Party, as evidenced by the Receiving Party’s written records.

 

 

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“Control” or “Controlled”:    shall mean, with respect to any information, patent rights or other intellectual property rights, possession by an entity of the ability (whether by ownership, license or otherwise) to grant access to, to grant use of, or to grant a license or a sublicense of or under such information, patent rights or intellectual property rights.
“CTA”:    shall mean a clinical trial application.
“Curis Intellectual Property Rights”:    shall mean all Curis Patents and Curis Know-How.
“Curis Know-How”:    shall mean any and all technical information, test and development data and results, formulations, processes, ideas, protocols, regulatory files, pre-clinical and clinical data (including, without limitation, Data) and the like relating to the use or development of the Compound or the Product in the Field of Use, which is conceived, reduced to practice and Controlled by Curis: (a) on or prior to the Effective Date; (b) during the six- (6-) month period following the Effective Date; (c) [**]; (d) in the course of Curis’ participation on the JSC; (e) in the course of any preclinical studies undertaken by Curis in accordance with Section 3.1.3, and (f) as the need arises and as may be mutually agreed by the Parties after the Effective Date, during the Term; and which, in each case, is provided to Debiopharm under this Agreement.
“Curis Patent(s)”:    shall mean any and all of the patents and patent applications Controlled by Curis or its Affiliates (which, for purposes of this definition, shall be limited to Affiliates that are controlled by Curis within the meaning of the definition of Affiliate) on the Effective Date and during the Term, that claim the manufacture, use, sale, offer for sale or import of the Compound or the Product as specified in Exhibit 2, together with any and all patents issued on any such applications as well as any divisional, continuation, continuation-in-part to the extent that claims are directed toward the subject matter specifically described in patent applications listed in Exhibit 2, substitution applications, re-issue, re-examination, renewal and extended patents (including supplementary protection certificates (SPC)) of any of the foregoing. Curis Patents shall exclude the Joint Patents.
“Data”:    shall mean any and all scientific and research data, technical data, test and development data, pre-clinical and clinical data (including pharmacological, biological, chemical, biochemical, toxicological, pre-clinical and clinical test data, analytical and quality control data, stability data, results of studies, patient lists), formulations, processes, protocols, regulatory files and the like which are developed by either Party in connection with the Compound or the Product.

 

 

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“Debiopharm Intellectual Property Rights”:    shall mean all Debiopharm Patents and Debiopharm Know-How.
“Debiopharm Know-How”:    shall mean any and all technical information, test and development data and results, formulations, processes, ideas, protocols, regulatory files, preclinical and clinical data (including, without limitation, Data) and the like relating to the use or development of the Compound or the Product, which is secret, non-patented and which is conceived or reduced to practice by Debiopharm (or third parties which will have assigned such know-how to Debiopharm) during the Term.
“Debiopharm Patent(s)”:    shall mean any and all patents and patent applications for any invention relating to the use of the Compound, the Product, or any process which uses the Compound or the Product, conceived and reduced to practice by Debiopharm (or third parties which will have assigned their rights to Debiopharm) during the Term, that claim the manufacture, use, sale, offer for sale or import of the Compound or the Product, together with any and all patents issued on any such applications as well as any divisional, continuation, continuation-in-part, substitution applications, re-issue, re-examination, renewal and extended patents (including supplementary protection certificates (SPC)) of any of the foregoing.
“Development Plan”:    shall mean plans for development of Products as outlined in Exhibit 3.
“EMEA”:    shall mean the European Medicines Agency, or any successor agency thereto.
“FDA”:    shall mean the United States Food and Drug Administration, or a successor federal agency thereto.
“Field of Use”:    shall mean the use of Products in all human and veterinary fields.
“First Commercial Sale”:    shall mean the first commercial sale by Debiopharm, its Affiliates and/or Sublicensees to a Third Party of a Product for value in any country in the Territory following receipt of approval to market such Product from the relevant Regulatory Authority in the applicable country.
“Generic Product”:    shall mean, with respect to a Product in a given country, a product being sold by Third Party(ies) in such country that (a) has received marketing approval from the applicable Regulatory Authority in such country, (b) contains the same API as the Compound contained in such Product, and (c) is not covered by a valid Curis Patent or Joint Patent in such country.

 

 

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“Hsp90 Inhibitor”:    shall mean a compound that binds to, and selectively and specifically inhibits, Hsp90.
“IND”:    shall mean an “Investigational New Drug” application – i.e., an application filed with the FDA and any application filed with any other Regulatory Authorities to obtain permission to commence human clinical trials for a pharmaceutical product in a country or group of countries.
“IND/CTA Approval Milestone”:    shall have the meaning ascribed to this term in Section 6.3.
“IND/CTA Filing Conditions”:    shall have the meaning ascribed to this term in Section 3.2.5(a).
“IND/CTA Filing Deadline”:    shall have the meaning ascribed to this term in Section 3.2.5(a).
“Indication”:    means any indication for which (a) a Product is developed pursuant to an IND or CTA (or if no such filing is required, pursuant to the applicable clinical trial protocol), (b) an NDA for a Product is submitted, or (c) an NDA for a Product is approved by a Regulatory Authority. Any distinct Indication must include new clinical trial data. Any change in tumor type is considered as a new Indication. For instance, the passage from ovarian cancer to breast cancer is considered as a new Indication. However a change in the line of treatment or a passage from metastatic to adjuvant setting within the same tumor type will not be considered as a new Indication. For instance, the indication metastatic Colo-Rectal Cancer (CRC) replacing second line metastatic CRC is not a new Indication. Also the addition of adjuvant treatment of CRC is not considered as a new Indication in this example. Variations such as change in regimen or combination with other anticancer drugs or change in formulation within the same tumor type are also not considered as a new Indication.
“Inventions”:    shall have the meaning ascribed to this term in Section 7.1.2.
“Joint Inventions”:    shall have the meaning ascribed to this term in Section 7.1.2.
“Joint Patents”:    shall mean any and all patents and patent applications claiming any Joint Invention, together with any and all patents issued on any such applications as well as any divisional, continuation, continuation-in-part, substitution applications, re-issue, re-examination, renewal and extended patents (including supplementary protection certificates (SPC)) of any of the foregoing.
“JSC”:    shall mean the joint steering committee created by the Parties according to Section 4.1.

 

 

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“Major Market(s)”:    shall mean any of the following countries or groups of countries:
   (i)    the United States of America;
   (ii)    Canada;
   (iii)    France, Germany, Italy, Spain, and the United Kingdom (each, a “Major European Market” ); and
   (iv)    Japan or China (each, a “Major Asian Market” ).
“Milestone(s)”:    shall have the meaning ascribed to this term in Section 6.3.
“NDA”:    shall mean a “New Drug Application” (as more fully defined in 21 C.F.R. 314.5 et seq. ) filed with the FDA or the equivalent application filed with any other Regulatory Authority to obtain marketing approval for a Product in a country or jurisdiction in the Territory.
“Net Sales”:    shall mean, with respect to a Product, the gross amounts billed or invoiced either (a) by Debiopharm or (b) its Affiliates, in each case, for sales of Products to Third Parties (excluding sales of Products to Sublicensees for resale), less the following items, as allocable to such Products (if not previously deducted in calculating the amount invoiced):
   (i)    deductions for returns (including allowances actually given for spoiled, damaged, out-dated, rejected, returned Product sold, withdrawals and recalls),
   (ii)    rebates (price reductions, including Medicaid, rebates to social and welfare systems and similar types of rebates e.g. chargebacks, government mandated rebates) actually allowed or paid,
   (iii)    volume (quantity) discounts or other discounts granted at the time of invoicing, and
   (iv)    value added or sales taxes and other taxes directly linked to and included in the gross sales amount,
   it being specified that disposal of Product for, or use of Product in, clinical or pre-clinical trials, or distribution of Product as free samples (such samples to be in quantities common in the industry for this type of pharmaceutical products) shall not give rise to any deemed sale under this definition.
   No deductions shall be made for commissions to any person on Debiopharm’s or an Affiliate’s payroll or for the cost of collection.

 

 

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   For purposes of calculating Net Sales, if a Combination Product is sold by Debiopharm or its Affiliates, the Net Sales of such Combination Product shall be determined by multiplying the Net Sales (as defined above in this definition of “Net Sales”) of the Combination Product by the fraction, A/(A+B) where A is the weighted (by sales volume) average sale price of the Product when sold separately in finished form and B is the weighted (by sales volume) average sale price of the other product(s) sold separately in finished form. In the event that such weighted average sale price cannot be determined for both the Product and the other product(s) in combination, Net Sales for purposes of determining royalty payments shall be agreed in good faith by the Parties based on the relative value contributed by each component.
“Party”:    shall mean either Debiopharm or Curis, as the context requires, or both Debiopharm and Curis when used in the plural form “Parties” .
“Patent(s)”:    shall mean the Curis Patents, Debiopharm Patents and/or Joint Patents.
“Phase I Study”:    shall mean a clinical study consistent with U.S. 21 CFR paragraph 312.21 (a) or any foreign counterpart of it. In oncology development, any possible expansion of a Phase I Study in specific indications under a phase I protocol, which might follow the dose escalation phase, is considered as the same Phase I Study.
“Phase II Study”:    shall mean a clinical study consistent with U.S. 21 CFR paragraph 312.21 (b) or any foreign counterpart of it.
“Phase III Study”:    shall mean those tests and studies in humans as described in the U.S. 21 CFR paragraph 312.21 (c) or any foreign counterpart of it.
“Product(s)”:    shall mean any product containing the Compound, whether or not as the sole active ingredient, in any dosage form and formulation and for all present and future Indications.
“Reasonable Commercial Efforts”:    shall mean the efforts required in order to carry out a task or objective in a diligent and sustained manner without undue interruption, pause or delay, which level is at least commensurate with the level of efforts that a pharmaceutical company would devote to a product of similar potential and having similar commercial and scientific advantages and disadvantages as compared to the Product hereunder. Reasonable Commercial Efforts requires (without limitation) that the Party exerting such efforts (i) promptly assign responsibility for its obligations to

 

 

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   specific employee(s) or contractor(s) who are held accountable for progress and monitor such progress, on an ongoing basis, (ii) set and continue to seek to achieve specific and meaningful objectives for carrying out such obligations, and (iii) consistently make and implement decisions and allocate resources designed to advance progress with respect to such objectives, in each case in a commercially reasonable manner.
“Regulatory Authority”:    means the relevant governmental or other authority responsible in any particular jurisdiction for regulation, licensing, evaluation and supervision of Products in the Field of Use, including without limitation the FDA and the EMEA.
“Royalties”:    shall mean the royalties to be paid by Debiopharm to Curis (a) on the basis of Net Sales or (b) on the basis of Sublicensee Royalties, as applicable.
“Royalty Term”:    shall mean, on a country-by-country basis, the period beginning upon the First Commercial Sale of a Product in a country of the Territory and ending upon the later of: (a) expiration of the last-to-expire valid claim of the Curis Patents and the Joint Patents, which valid claim covers the composition of matter, or any method of manufacture or use, of the Product (or the Compound contained therein) in such country; and (b) the tenth (10th) anniversary of the First Commercial Sale of the Product in such country.
“Sublicensee(s)”:    shall mean any Third Party to whom Debiopharm, or any of its Affiliates, has sublicensed any of Debiopharm’s rights under the license granted to Debiopharm pursuant to Section 2.1.
“Sublicensee Royalties”:    shall mean all royalties paid by any Sublicensee to Debiopharm or any of its Affiliates with respect to sales of Products by such Sublicensee or its further sublicensees.
“Sublicensing Payments”:    shall mean consideration in any form received by Debiopharm or any of its Affiliates in connection with a grant to any Third Party(ies) of a sublicense or other right, license, privilege or immunity to develop, have developed, make, have made, use, sell, have sold, distribute, import or export Products, but excluding Sublicensee Royalties. Sublicensing Payments shall include, without limitation:
   (i) any upfront or license signing fee;
   (ii) any license maintenance fee;
   (iii) any milestone payments (including, without limitation development, regulatory and sales-based milestone payments);
   (iv) the portion of any minimum royalty payment received by Debiopharm or any of its Affiliates in excess of Sublicensee Royalties received;

 

 

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   (v) if a Sublicensee issues equity or debt securities to Debiopharm or its Affiliate in connection with a sublicense grant, the fair market value of such securities issued to Debiopharm or its Affiliate (such fair market value to be determined by agreement of Debiopharm and Curis or by an independent appraiser mutually agreeable to Debiopharm and Curis), net of any cash consideration paid by Debiopharm or its Affiliate for such securities;
   (vi) any distribution or joint marketing fee;
   (vii) research and development funding in excess of Debiopharm’s or its Affiliates’ actual cost of performing such research and development (calculated on a fully-burdened basis in accordance with Debiopharm’s or its Affiliate’s project- or activity-based accounting practices, as applied consistently throughout its accounting system); and
   (viii) if Debiopharm or its Affiliate sells equity or debt securities to a Sublicensee in connection with a sublicense grant, any consideration received by Debiopharm or its Affiliate for such securities to the extent such consideration exceeds the fair market value of such securities (such fair market value to be determined by agreement of Debiopharm and Curis or by an independent appraiser mutually agreeable to Debiopharm and Curis).
“Technology Transfer Plan”:    shall have the meaning ascribed to this term in Section 3.1.1.
“Term”:    shall have the meaning ascribed to this term in Section 11.1.
“Territory”:    shall mean the entire world.
“Third Party”:    shall mean any entity other than Debiopharm or Curis or an Affiliate of Debiopharm or Curis.
“Third Party Intellectual Property Rights”:    shall have the meaning ascribed to this term in Section 7.1.2.
“Third Party Other Patent Licenses”:    shall have the meaning ascribed to this term in Sections 6.5.2 and 6.5.3.
“Third Party Patent Licenses”:    shall have the meaning ascribed to this term in Sections 6.5.2 and 6.5.3.
“Up-front Fee”:    shall have the meaning ascribed to this term in Section 6.2.

 

 

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2 LICENSE

 

2.1 Subject to the terms and conditions of this Agreement, Curis grants to Debiopharm a sole and exclusive license (even as to Curis) in and to the Compound and the Product under the Curis Intellectual Property Rights and Curis’ interest in the Joint Patents, to develop, have developed, use, have used, sell, have sold, offer for sale, make, have made, manufacture, have manufactured, register, have registered, commercialize and have commercialized the Compound and Products, in any Indication in the Field of Use, in the Territory. For avoidance of doubt, Curis does not grant to Debiopharm any right or license with respect to any API other than the Compound.

 

2.2 The license granted to Debiopharm by Curis under Section 2.1 includes the right for Debiopharm to grant sublicenses to its Affiliates and to Third Parties for the development, manufacture, sale and/or commercialization of the Compound and the Product. All sublicenses granted by Debiopharm shall be subject to the terms and conditions of this Agreement, and Debiopharm shall enter into a written sublicense agreement with each Sublicensee which will contain terms and conditions fully consistent with the terms and conditions contained in this Agreement. Debiopharm shall provide to Curis a true and complete copy of each Commercial Sublicense Agreement entered into by Debiopharm or any of its Affiliates and any Sublicensee, and of each amendment to any such Commercial Sublicense Agreement, in each case, within thirty (30) days after execution of such Commercial Sublicense Agreement or amendment, provided that Debiopharm may redact from such copy any sensitive or proprietary information that is not necessary to ascertain Debiopharm’s, its Affiliate’s or a Sublicensee’s compliance with the terms and conditions of this Agreement (including, without limitation, Debiopharm’s payment and reporting obligations hereunder). For the purpose of this Section 2.2, the term “Commercial Sublicense Agreement” shall mean any agreement executed by Debiopharm or any of its Affiliates under which any of Debiopharm’s rights under the license granted to Debiopharm pursuant to Section 2.1 are sublicensed; provided, however, that the term Commercial Sublicense Agreement shall exclude any agreement between Debiopharm or its Affiliate and a Third Party service provider under which a sublicense is granted to such Third Party for the sole purpose of enabling such Third Party to perform contract services on behalf of Debiopharm or its Affiliate ( e.g. , contract research or development organizations, clinical sites performing clinical trials, universities and scientific institutes, and contract manufacturing organizations). In addition, Debiopharm shall notify Curis in writing of the termination of any Commercial Sublicense Agreement within thirty (30) days after such termination. If Debiopharm determines that there is a reasonable likelihood of its execution of a Commercial Sublicense Agreement or an amendment to, or termination of, an existing Commercial Sublicense Agreement, Debiopharm shall use reasonable efforts to provide notice thereof to Curis, which notice shall be provided solely for Curis’ information and planning purposes. No sublicense hereunder shall limit or affect the obligations of Debiopharm under this Agreement, and Debiopharm shall remain fully responsible for each Affiliate’s or Sublicensee’s compliance with the applicable terms and conditions of this Agreement.

 

2.3 Except as expressly provided in this Agreement, no license or other right is or shall be created or granted hereunder by implication, estoppel or otherwise.

 

 

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3 DEVELOPMENT PLAN

 

3.1. Obligations of Curis

 

3.1.1 As soon as possible after the Effective Date, Curis shall use its Reasonable Commercial Efforts to transfer, at no costs to Debiopharm, all Curis Know-How that is necessary for Debiopharm to continue the development of the Compound and the Products in accordance with the Development Plan. Without limiting the generality of the foregoing, Curis shall use Reasonable Commercial Efforts to transfer the information and materials set forth in the technology transfer plan attached hereto as Exhibit 4 (the “Technology Transfer Plan” ) on the timeline set forth in the Technology Transfer Plan. Curis shall supply Debiopharm at costs, as indicated in this Section 3.1.1, as soon as possible, but in any event within thirty (30) days, with the amount of Compound [**] for use in clinical studies that is requested by Debiopharm. Curis has an available stock of Compound (GMP quality) of [**]. For the avoidance of doubt, Debiopharm shall not be under any obligation to purchase any quantity of the available stock of Compound held by Curis. Curis shall also provide compound stability data to Debiopharm as such data is received [**]. Stability data developed prior to the Effective Date shall be communicated to Debiopharm free of charge, and Curis shall invoice Debiopharm quarterly at cost for stability data developed during the Term. In addition, Curis shall provide samples of Compound intermediate and non-GLP Compound to Debiopharm as requested by Debiopharm during the first six (6) months following the Effective Date, provided such Compound intermediate or non-GLP Compound are available. Curis will invoice Debiopharm for such Compound intermediate and/or non-GLP Compound at an amount equal to its cost. Curis shall have no obligation to procure or supply any quantities of Compound [**] beyond the quantities specified in the preceding sentence. Curis will invoice Debiopharm for Compound [**] requested by Debiopharm and shipped to Debiopharm by Curis. Payment shall be made [**]. Debiopharm shall review such data as is needed [**] thereof. Subject to Debiopharm’s right to [**] of such Compound [**] as set forth above, Debiopharm shall make payment on Curis’ invoices under this Section 3.1.1 within forty-five (45) days of invoice.

 

3.1.2 At no cost to Debiopharm, Curis shall provide a reasonable amount of technical, scientific and intellectual property support to the Development Plan, as requested by Debiopharm, during the six- (6-) month period beginning on the Effective Date.

 

3.1.3 During the period beginning on the Effective Date and ending upon filing of the first IND or CTA for the Compound or the Product in a Major Market, and if requested in writing by Debiopharm, Curis shall perform the preclinical study(ies) as set forth in the Technology Transfer Plan and shall engage contract service providers and/or outside consultants as reasonably necessary in connection with such studies. Debiopharm shall reimburse Curis for the cost of these studies (including fees and costs paid to such service providers and consultants). Curis shall provide an original invoice for such costs to Debiopharm, who shall pay within forty-five (45) days of receipt of such invoice.

 

3.2 Obligations of Debiopharm

 

3.2.1

Debiopharm shall undertake Reasonable Commercial Efforts to develop, register and commercialize the Product in the Field of Use in the Major Markets and in such other markets as Debiopharm deems commercially reasonable. From and after the Effective Date, Debiopharm shall be solely responsible for all the costs relating to the

 

 

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development, registration and commercialization of the Product in the Field of Use. Debiopharm shall solely assume the managing and the financing of the Development Plan, with the objective of verifying the safety, potency and efficacy of the Product and, if the results of clinical development are positive, filing applications for NDA approval in an expeditious manner, within the limits of the demands of the Regulatory Authorities and consistent with Reasonable Commercial Efforts, as more fully described below in this Section 3.2. Debiopharm shall retain final decision making authority on all development, commercialization, marketing, manufacturing and regulatory matters relating to the Product; provided, however, that Debiopharm shall (i) provide Curis the opportunity to review and comment on protocols for clinical trials of which Debiopharm or its Affiliate will be the sponsor and proposed labeling for the Product in each country of the Territory, in each case, reasonably in advance of submission by Debiopharm or any of its Affiliates (but, for the avoidance of doubt, not Sublicensees) to the applicable Regulatory Authority of any such clinical trial protocol or any regulatory filing regarding Product labeling, and (ii) consider Curis’s comments with respect to such clinical trial protocols and Product labeling in good faith.

 

3.2.2 Debiopharm shall conduct the Development Plan in accordance with all applicable laws, rules and regulations, and current good manufacturing practice (cGMP), current good laboratory practice (cGLP) and current good clinical practice (cGCP), where applicable.

 

3.2.3 The Development Plan will be updated from time to time in accordance herewith and such updates shall be attached hereto as Exhibit 3. The Development Plan indicates in reasonable details Debiopharm’s plans for the development of Product in the Field of Use, including regulatory and registration strategy consistent with Reasonable Commercial Efforts. Without limiting the generality of any of the foregoing obligations in this Section 3.2.3, Debiopharm shall use Reasonable Commercial Efforts to implement the Development Plan within the timelines described therein. Debiopharm may reasonably revise and amend the Development Plan from time to time upon as much advance notice to Curis as is practicable under the circumstances, so long as such amended Development Plan meets the criteria described above but in particular in the event the assumptions described therein are not met; provided, however, that at Curis’ request, the Parties shall promptly convene a special JSC meeting at which Debiopharm will present its rationale for such amendment and, if Curis in good faith believes such amendment is inadvisable for scientific, clinical or regulatory reasons, Curis may present its position to Debiopharm, which Debiopharm agrees to consider in good faith. Notwithstanding any of the foregoing, nothing in this Agreement shall be construed as a representation or warranty by Debiopharm as to a successful outcome of the development of the Product and/or issuance of regulatory approvals and/or commercialization in any country.

 

3.2.4 If at any time Debiopharm definitively and formally suspends its research or development efforts for the Product, or definitively and formally makes an internal determination to suspend research and development of the Product, for a period exceeding sixty (60) days, Debiopharm shall notify Curis giving reasons and a statement of its intended actions.

 

3.2.5 (a) Subject to [**] (the preceding clauses (i) through (iii), collectively, the “IND/CTA Filing Conditions” ), Debiopharm shall file an IND or CTA for the Compound or the Product in a Major Market by the date that is [**] months after delivery by Curis of all of the aforementioned items (the “IND/CTA Filing Deadline” ), unless Debiopharm can demonstrate that extending the date to [**] months after such delivery is reasonable and appropriate as a result of circumstances beyond Debiopharm’s reasonable control.

 

 

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(b) If the IND/CTA Filing Conditions are met and Debiopharm fails to file an IND or CTA in a Major Market on or before the applicable IND/CTA Filing Deadline (other than for reasons beyond the reasonable control of Debiopharm, such as the requirements of the applicable Regulatory Authority), Curis may terminate this Agreement in accordance with Section 12.3.

(c) In any event, Debiopharm shall use Reasonable Commercial Efforts to file an IND or CTA in a Major Market as promptly as practicable after the Effective Date. Curis acknowledges that the approval (either written or tacit) of any Regulatory Authority of any such IND or CTA is not within Debiopharm’s control.

 

3.2.6 In addition to its obligation under Section 3.2.5, Debiopharm shall be obligated to make Reasonable Commercial Efforts to develop itself or through Affiliates, subcontractors and/or Sublicensees at least one (1) Compound. Factors to consider as Reasonable Commercial Efforts shall be as follows: [**]. If Curis considers that Debiopharm has failed to exercise Reasonable Commercial Efforts, then Curis shall notify Debiopharm in writing within thirty (30) days of appearance of such potential failure thereof stating in reasonable detail the particular alleged failure.

(a) If Debiopharm disagrees with Curis’s claim that Debiopharm has failed to exercise Reasonable Commercial Efforts, Debiopharm shall so notify Curis in writing within thirty (30) days after receipt of Curis’s notice, in which event the Parties shall promptly refer the matter to a Third Party expert in drug development, completely unaffiliated and independent of the Parties and jointly selected by the Parties, to determine whether a failure by Debiopharm to use Reasonable Commercial Efforts occurred, or if the related problem was due to some other cause. Neither Party shall unreasonably withhold or delay its approval of such expert. The Parties shall initially share equally the fees and costs of such expert, but promptly after such expert makes a determination regarding the matter, the non-prevailing Party shall reimburse the prevailing Party for the share of such fees and costs borne by the prevailing Party. Should it be determined by the expert that such failure resulted from Debiopharm’s failure to use Reasonable Commercial Efforts to perform its obligations and tasks assigned to it under the Development Plan, then the expert shall determine what corrective action by Debiopharm would best meet the standard of Reasonable Commercial Efforts and a timeframe for the completion of such corrective action by Debiopharm. The determination of such expert shall be final and binding on the Parties.

(b) If Debiopharm does not correct such alleged failure either: (i) within ninety (90) days after notice of such alleged failure from Curis; or (ii) if Debiopharm disputes Curis’s allegation of failure to use Reasonable Commercial Efforts in accordance with the preceding paragraph (a), within the period specified by the expert; then, in each case, Curis shall have the right to terminate this Agreement in accordance with Section 12.4.

 

3.2.7 Debiopharm shall maintain complete and accurate records of all work, including research, development, clinical, manufacturing and commercialization activities with respect to the Product conducted by Debiopharm under this Agreement, together with all results, data and developments made or generated in connection with any of the foregoing. Such records shall fully and properly reflect all work done and results achieved in the performance of this Agreement in sufficient detail and in good scientific manner appropriate for patent and regulatory purposes.

 

 

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3.2.8 During the Term, Debiopharm shall keep Curis regularly informed in reasonable detail regarding Debiopharm’s worldwide Product development. The detailed minutes of the JSC shall constitute the written progress report summarizing the status of the Product development, clinical trial progress, regulatory approval and commercialization. In addition, throughout the Term, Debiopharm shall notify Curis promptly of the occurrence of the following by a Product: (i) initiation of any Phase II Study in a Major Market; (ii) initiation of any Phase III Study in a Major Market; (iii) NDA filing in any Major Market; (iv) NDA approval in any Major Market; and (v) First Commercial Sale in any Major Market. Debiopharm shall also respond to reasonable ( i.e. , not unduly frequent or burdensome) informal requests from Curis for additional information regarding the development of the Product from time to time.

 

3.2.9 Curis agrees that the results of the Development Plan cannot be accurately predicted, that Debiopharm’s obligation with respect to the Development Plan is not an obligation to obtain a particular result and that Debiopharm does not warrant or guarantee that the Development Plan will yield any useful or anticipated results.

 

4 JOINT STEERING COMMITTEE

 

4.1 The JSC shall be comprised of a minimum of four (4) committee members, which shall consist of two (2) representatives nominated by each Party. Representatives will include persons having knowledge in the areas of responsibility of the JSC. The Parties may mutually agree to change the total number of representatives on the JSC, provided that the Parties always have an equal number of representatives. Each Party may replace any of its JSC representatives at any time upon written notice to the other Party. The JSC may invite non-members to participate in the discussions and meetings of the JSC, including experts bound by appropriate confidentiality obligations. The JSC shall continue to exist and meet during the Term or until the Parties mutually agree that it should disband. Each Party shall be responsible for all travel and related costs for such Party’s representatives and guests to attend meetings of, and otherwise participate on, the JSC.

 

4.2 The JSC shall meet at least [**] during the first year of the Term and [**] thereafter at times established by the Parties. Each Party shall also have the right to request additional meetings of the JSC for good reason. Meetings will be in-person, at either of the Parties’ offices or be held by videoconference or teleconference. In the event that a JSC member of a Party cannot attend a meeting, such Party shall have the right to nominate another representative of that Party to attend the meeting.

 

4.3 Throughout the Term, the JSC shall function to facilitate the collaboration and relationship of the Parties under this Agreement, and facilitate the communication and exchange of information related to research and development of Products. In addition, for so long as the JSC is in existence, Curis shall provide reasonable technical and scientific support to the Development Plan through its participation on the JSC.

 

4.4

The JSC does not have any authority beyond the matters set forth above in this Article 4, and cannot in any way amend or modify the terms or provisions of this Agreement, either directly or indirectly through changes to the Development Plan. Debiopharm shall have

 

 

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the sole and final right to take decisions with regard to the development of the Product, including “Go” and “No Go” decisions, which decisions shall be made in good faith and consistent with the objectives and intentions of this Agreement.

 

4.5 Debiopharm shall circulate a draft of the minutes of each meeting to all members of the JSC for comments within fifteen (15) days after such meeting. Such minutes shall summarize the status of the Product development, clinical trial progress, regulatory approval and commercialization and shall provide a description, in reasonable detail, of the discussions at the meeting, a list of any actions or determinations approved by the JSC at such meeting, and a description of any issues within the JSC that were not resolved at such meeting. Curis shall promptly provide to Debiopharm any comments Curis may have regarding the draft minutes, and the Parties shall discuss the same in good faith and use all reasonable efforts to finalize the minutes no later than thirty (30) days after such JSC meeting. All final JSC minutes must be signed by both Parties.

 

5 MANUFACTURE, RELEASE AND SUPPLY OF THE PRODUCT

 

5.1 Debiopharm shall have the exclusive right (even as to Curis) to manufacture, or have manufactured the Compound and the Product according to the terms and conditions of this Agreement. Debiopharm will, at its own discretion, execute manufacturing and supply agreements with contractors and determine the sites for the manufacture, release and supply of the Compound and the Product.

 

6 CONSIDERATION

 

6.1 As consideration for the exclusive license rights provided in Section 2.1, Debiopharm shall pay to Curis the amounts set forth in this Article 6.

 

6.2 Up-front Fee

Debiopharm shall pay a non-refundable up-front fee of Two Million United States Dollars (US$2,000,000) (the “Up-front Fee” ). Upon signature of this Agreement, Curis shall provide an original invoice for the Up-front Fee to Debiopharm, who shall pay within thirty (30) days of receipt of such invoice, provided that all documents listed in section (a)(i) of the Technology Transfer Plan have been delivered to Debiopharm by Curis.

 

6.3 Milestones

Debiopharm shall pay the non-refundable milestones set forth in this Section 6.3 ( “Milestone(s)” ), for each of the following milestone events, whether such milestone event is achieved by Debiopharm, its Affiliates, its Sublicensees or any Third Party acting on behalf of Debiopharm, its Affiliates or its Sublicensees. Milestones shall be paid only once regardless of how many times a Product achieves the corresponding milestone event, and no payment shall be due for any milestone event which is not achieved, except as provided in the last sentence of this Section 6.3.

 

 

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Payment to Curis

in United States
Dollars

 

Early Milestones

 

    

 

Upon the first approval (either written or tacit) by a Regulatory Authority in a Major Market for an open IND or CTA application permitting the initiation of human clinical trials (the “IND/CTA Approval Milestone” ):

   US$[**]

 

Upon the administration of the 5 th patient in the 1 st Phase I Study, anywhere in the Territory:

   US$[**]

 

Advanced Milestones

 

    

 

Upon the administration of the 5 th patient in the 1 st Phase II Study in the 1 st Indication, anywhere in the Territory:

   US$[**]

 

Upon the administration of the 5 th patient in the 1 st Phase II Study in the 2 nd Indication, anywhere in the Territory:

   US$[**]

 

Upon the administration of the 5 th patient in the 1 st Phase II Study in the 3 rd Indication, anywhere in the Territory:

   US$[**]

 

Upon the administration of the 5 th patient in the 1 st Phase III Study in the 1 st Indication, anywhere in the Territory:

   US$[**]

 

Upon the administration of the 5 th patient in the 1 st Phase III Study in the 2 nd Indication, anywhere in the Territory:

   US$[**]

 

Upon the administration of the 5 th patient in the 1 st Phase III Study in the 3 rd Indication, anywhere in the Territory:

   US$[**]

 

Acceptance of NDA by the FDA:

   US$[**]

 

Acceptance of NDA in the first Major European Market:

   US$[**]

 

Acceptance of NDA in the first Major Asian Market:

   US$[**]

 

First marketing approval in the United States of America:

   US$[**]

 

First marketing approval in the first Major European Market:

   US$[**]

 

First marketing approval in the first Major Asian Market:

 

  

US$[**]

 

Debiopharm shall provide Curis with written notice within ten (10) working days of the occurrence of any of the foregoing milestone events and the relevant Milestone is payable by Debiopharm to Curis within thirty (30) days of receipt of a corresponding invoice issued by Curis. If Debiopharm determines that there is a reasonable likelihood of a particular Milestone being achieved on or about a particular date, Debiopharm shall

 

 

Page 16 of 45


use reasonable efforts to provide advance notice thereof to Curis, which notice shall be provided solely for Curis’ planning purposes and shall not be construed as a representation, warranty or covenant by Debiopharm that such Milestone will occur when anticipated or at all. Furthermore, in the event that a given milestone event is realized and becomes payable but any milestone event(s) that constitutes a prior step was never realized and was never paid to Curis, such prior milestone event(s) shall automatically be deemed to have occurred and become due and payable together with such occurring milestone event.

 

6.4 Credit Against Sublicensing Payments

The Milestones shall be credited towards the sharing of the Sublicensing Payments due by Debiopharm to Curis in accordance with Section 6.5.1, but only if and to the extent that, at the time that such Sublicensing Payment(s) is (are) received by Debiopharm and such sharing of Sublicensing Payment(s) is payable to Curis, the aggregate share of Sublicensing Payments actually payable to Curis exceeds the aggregate of the Milestones actually paid to Curis in accordance with Section 6.3.

For avoidance of doubt, Milestones received by Curis from Debiopharm are never creditable against Royalties outlined in Sections 6.5.2 and 6.5.3.

 

6.5 Revenue Sharing

 

6.5.1 Sublicensing Payments

Debiopharm shall pay to Curis [**] percent ([**]%) of all Sublicensing Payments received by Debiopharm and its Affiliates from Sublicensees subject to the credits made in accordance with Section 6.4. Such payments shall be made to Curis within forty-five (45) days as of receipt by Debiopharm of the related Sublicensing Payments.

 

6.5.2 Royalties on Sublicensee Royalties

Debiopharm shall pay Curis Royalties on the Sublicensee Royalties Debiopharm and its Affiliates receive from Sublicensees during the applicable Royalty Term for each country as follows:

 

Annual Net Sales by Sublicensees in the Territory   

Royalties (to be paid

by Debiopharm)

Annual Net Sales by Sublicensees below US$[**]:   

 

[**]% of Sublicensee Royalties received

Annual Net Sales of Sublicensees between US$[**] and US$[**]:   

 

[**]% of Sublicensee Royalties received

Annual Net Sales of Sublicensees above US$[**]:   

 

[**]% of Sublicensee Royalties received

Royalties shall be payable on a country-by-country basis until expiration of the applicable Royalty Term for each country.

 

 

Page 17 of 45


  (a) Third Party Patents.

(i) If Debiopharm reasonably determines, upon the advice of outside patent counsel, that it must obtain one or more licenses under issued patents of Third Parties that, in the absence of such license(s), would be infringed by the development, manufacture, use, sale or import of the Compound per se contained in a Product in a country ( “Third Party Patent Licenses” ), then the royalties actually paid by Debiopharm or its Affiliate under such Third Party Patent Licenses in such country shall be deducted from the Royalties due to Curis with respect to Sublicensee Royalties in such country; provided that in no event shall any such Royalties due to Curis with respect to such country be reduced by more than [**] percent ([**]%) as a result of such deductions; and provided, further, that no such deduction shall be available to Debiopharm with respect to royalties paid under such Third Party Patent Licenses to the extent that the Sublicensee is obligated (A) to reimburse Debiopharm or its Affiliates for such royalties or (B) to pay such royalties directly to the applicable Third Party(ies) under such Third Party Patent Licenses – i.e. , Debiopharm or its Affiliate shall not be entitled to deduct such Third Party royalties against Royalties due Curis to the extent that Debiopharm or its Affiliate is not liable for, or Debiopharm or its Affiliate recovers, or has the right to recover, such Third Party royalties from a Sublicensee.

(ii) If Debiopharm reasonably determines to secure a license from a Third Party other than for the Compound per se ( “Third Party Other Patent Licenses” ), then [**] percent ([**]%) of the royalties actually paid by Debiopharm or its Affiliate under such Third Party Other Patent Licenses in such country shall be deducted from the Royalties due to Curis with respect to Sublicensee Royalties in such country; provided that in no event shall any Royalties due to Curis with respect to such country be reduced by more than [**] percent ([**]%) as a result of such deductions; and provided, further, that no such deduction shall be available to Debiopharm with respect to royalties paid under such Third Party Other Patent Licenses to the extent that the Sublicensee is obligated (A) to reimburse Debiopharm or its Affiliate for such royalties or (B) to pay such royalties directly to the applicable Third Party(ies) under such Third Party Other Patent Licenses – i.e. , Debiopharm shall not be entitled to deduct such Third Party royalties against Royalties due to Curis to the extent that Debiopharm or its Affiliate is not liable for, or Debiopharm or its Affiliate recovers, or has the right to recover, such Third Party royalties from a Sublicensee.

(iii) Notwithstanding the foregoing, in no event shall any and all applicable royalty reductions pursuant to subparagraphs (i) and (ii) above, in the aggregate, reduce the payments that would otherwise be due to Curis with respect to Sublicensee Royalties in any country for any calendar quarter by more than [**] percent ([**]%).

 

  (b) Generic Competition.

On a country-by-country basis, if at any time with respect to a Product being sold by a Sublicensee in a given country (i) one or more Third Parties is selling Generic Products in such country, and (ii) Generic Market Penetration (defined below) in such country equals or exceeds the applicable percentage set forth below, then the applicable royalty rate above shall be reduced by the corresponding percentage set forth below in such country in each subsequent calendar quarter of the Royalty Term for such Product in such country. For purposes of this Section 6.5.2(b), the “Generic Market Penetration” in a country shall be calculated using the formula [**]. For purposes of the foregoing calculation, the [**] shall be determined by [**] (it being understood that if, in calculating [**].

 

 

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Generic Market Penetration   

Percentage reduction in

Royalties

 

Greater than [**]% but less than [**]%

  

 

[**]%

 

Equal to or greater than [**]%

  

 

[**]%

 

6.5.3 Royalties on Net Sales

Subject to Section 6.7.1(a), In the event that Debiopharm and/or its Affiliates make direct sales of the Product, i.e. , without involvement of a Sublicensee, Debiopharm shall pay to Curis Royalties calculated on Net Sales as follows:

 

Annual Net Sales by Debiopharm and its Affiliates in the Territory   

Royalties (to be paid

by Debiopharm)

 

Annual Net Sales by Debiopharm and/or its Affiliates below US$[**]:

  

 

[**]% of Net Sales

 

Annual Net Sales by Debiopharm and/or its Affiliates between US$[**] and US$[**]:

  

 

[**]% of Net Sales

 

Annual Net Sales by Debiopharm and/or its Affiliates above US$[**]:

  

 

[**]% of Net Sales

 

  (a) Third Party Patents.

(i) If Debiopharm reasonably determines, upon the advice of outside patent counsel, that it must obtain one or more licenses under issued patents of Third Parties that, in the absence of such license(s), would be infringed by the development, manufacture, use, sale or import of the Compound per se contained in a Product in a country ( “Third Party Patent Licenses” ), then the royalties actually paid by Debiopharm or its Affiliate under such Third Party Patent Licenses in such country shall be deducted from the Royalties due to Curis with respect to Net Sales of such Product in such country; provided that in no event shall the Royalties due to Curis with respect to Net Sales of such Product in such country be reduced by more than [**] percent ([**]%) as a result of such deductions.

(ii) If Debiopharm reasonably determines to secure a license from a Third Party other than for the Compound per se ( “Third Party Other Patent Licenses” ), then [**] percent ([**]%) of the royalties actually paid by Debiopharm or its Affiliate under such Third Party Other Patent Licenses in such country shall be deducted against the Royalties due to Curis with respect to such country; provided that in no event shall any such Royalties due to Curis with respect to such country be reduced by more than [**] percent ([**]%) as a result of such credits.

 

 

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(iii) Notwithstanding the foregoing, in no event shall any and all applicable royalty reductions pursuant to subparagraphs (i) and (ii) above, in the aggregate, reduce the Royalties that would otherwise be due to Curis in any country for any calendar quarter by more than [**] percent ([**]%).

 

  (b) Generic Competition.

On a country-by-country basis, if at any time with respect to a Product being sold by a Debiopharm or its Affiliate in a given country (i) one or more Third Parties is selling Generic Products in such country, and (ii) Generic Market Penetration (defined below) in such country equals or exceeds the applicable percentage set forth below, then the applicable royalty rate above shall be reduced by the corresponding percentage set forth below in such country in each subsequent calendar quarter of the Royalty Term for such Product in such country. For purposes of this Section 6.5.3(b), the “Generic Market Penetration” in a country shall be calculated using the formula [**]. For purposes of the foregoing calculation, [**] shall be determined by [**].

 

Generic Market Penetration   

Percentage reduction in

Royalties

 

Greater than [**]% but less than [**]%

  

 

[**]%

 

Equal to or greater than [**]%

  

 

[**]%

 

  (c) No Payment Reduction Below Zero.

Notwithstanding any other provision of this Agreement to the contrary, under no circumstances shall any and all deductions and reductions available to Debiopharm under this Section 6.5.3, in the aggregate, result in any payment being due by Curis to Debiopharm.

 

6.5.4 Substantial Change in Pricing Profile

The Parties recognize the high importance of competitive cost of finished products to determine the marketability and profitability of the Product in the environment of increasing pressure on price for future medication. If during the development of the Product, but not prior to the initiation of the first Phase III clinical trial anywhere in the Territory, Debiopharm believes in good faith that the cost of goods sold of the Product will be non-competitive compared to then-marketed small molecule cancer products, the parties agree to [**]

[**] will have the right to refer this issue to the JSC for further discussion. The JSC will discuss in good faith Debiopharm’s [**] in both cases exploring in detail the rationale for [**]. If the JSC determines that [**], the JSC will discuss in good faith and, if the Parties’ respective JSC representatives mutually agree that it is appropriate, will submit to the Parties a proposal to [**]. Provided that Debiopharm has provided [**], the JSC shall submit such proposal within [**] after the date Debiopharm refers the matter to the JSC. In no event shall any such [**]. For clarity, this Section 6.5.4 will in no way impact the [**].

 

 

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The Parties will examine the JSC’s proposal in good faith and either accept it and agree to the JSC’s recommended [**], or, if one Party does not agree with the proposal, will enter into further discussions. If one or both of the Parties do not agree with the proposal, then the Parties agree to negotiate in good faith for [**] days from the date that either Curis or Debiopharm notified the other Party that it did not accept the JSC proposal. Should the Parties not find an agreement within the aforementioned period of [**] days, this issue will be referred to the chief executive officer of each Party, who will discuss in good faith and endeavor to find an agreement. Should the chief executive officers of the Parties fail to reach an agreement within [**] days as of the date this matter has been referred to them, the Parties will appoint at Debiopharm’s expense three independent and neutral arbitrators, whose decision on the [**] will be binding on the Parties. The arbitrators will review and consider the data provided by Debiopharm to Curis pursuant to this Section 6.5.4 regarding [**] and determine if such amounts are reasonable, taking into account whether and to what extent the difference between the [**]. If the arbitrators determine that [**] are not reasonable, the Parties will ask the arbitrators to determine [**]. If such recalculation results in [**], then no reduction will be made to any of the [**]. For the avoidance of doubt, in no event will there be [**].

 

6.6 Copies of Third Party License Agreements

Debiopharm shall provide to Curis a true and complete copy of each Third Party Patent License and Third Party Other Patent License, and of each amendment to any such agreement, in each case, within thirty (30) days after execution of such agreement or amendment, provided that Debiopharm may redact from such copy any sensitive or proprietary information that is not necessary to ascertain Debiopharm’s, its Affiliate’s or the applicable Sublicensee’s compliance with the terms and conditions of this Agreement (including, without limitation, Debiopharm’s payment and reporting obligations hereunder).

 

6.7 Payments

 

6.7.1 Timing of Royalty Payments and Sharing of Sublicensing Payments.

(a) Royalties on Net Sales shall be paid by Debiopharm to Curis quarterly within forty-five (45) days after the end of calendar quarter in which such Net Sales are made (as determined by the date of invoice or billing).

(b) Royalties on Sublicensee Royalties shall be paid by Debiopharm to Curis quarterly within forty-five (45) days after such Sublicensee Royalties are received by Debiopharm or its Affiliate. If such Sublicensee Royalties are significantly overdue, then upon Curis’ request, the Parties agree to discuss the matter in good faith.

(c) Curis’s share of Sublicensing Payments shall be paid by Debiopharm to Curis within forty-five (45) days after such Sublicensing Payments are received by Debiopharm or its Affiliate.

 

6.7.2

All payments to Curis hereunder shall be made using the bank details provided by Curis. The payments of Royalties and sharing of Sublicensing Payments shall be made in United States Dollars. If payments of Sublicensee Royalties, Net Sales, or Sublicensing Payments are made in another currency than the United States Dollar, Debiopharm shall convert them into United Sates Dollars for the purpose of the calculation of Royalties

 

 

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and sharing of Sublicensing Payments by applying the average interbank exchange rate as published on www.oanda.com for the last day of each month within the calendar quarter for which payment to Curis is due. All costs associated with making payments to Curis, including the cost of wire transfers, shall be paid by Debiopharm and shall not be deducted from the payments to Curis.

 

6.7.3 Debiopharm shall (and shall require its Affiliates to) prepare and maintain complete and accurate books and records regarding Net Sales (including gross sales and applicable deductions from gross sales), Sublicensee Royalties, royalties paid to Third Parties under Third Party Patent Licenses and Third Party Other Patent Licenses, Sublicensing Payments and Royalties due hereunder for a period of at least two (2) calendar years after the end of the calendar year in which such activities occurred. Curis shall have the right to have such books and records inspected by an independent certified auditor selected by Curis and accepted by Debiopharm, whose acceptance shall not be unreasonably withheld, to confirm Net Sales (including gross sales and applicable deductions from gross sales), Sublicensee Royalties, royalties paid to Third Parties under Third Party Patent Licenses and Third Party Other Patent Licenses, Sublicensing Payments and Royalties due hereunder, for a period covering not more than the preceding two (2) calendar years. Such auditor will execute a reasonable written confidentiality agreement with Debiopharm and will disclose to Curis only such information as is reasonably necessary to provide Curis with information regarding any actual discrepancies between the amounts reported or paid and the amounts payable under this Agreement. Such auditor will send a copy of its report to Debiopharm within fifteen (15) days of delivery of such report to Curis. Such report will include the methodology and calculations used to determine the results. Prompt adjustments shall be made by the Parties to reflect the results of such audit. Records to be available under an inspection shall include all relevant documents pertaining to payments specified above, including all relevant documents received by Debiopharm from Sublicensees. The appointed auditor shall have the right to interview selected staff and copy relevant documents. Such right may be exercised by Curis only once per calendar year. Curis shall bear the fees and expenses of such inspection, provided that, if an underpayment of more than five percent (5%) of the payments due for any calendar year is discovered in any inspection, then Debiopharm shall bear all fees and expenses of that inspection within forty-five (45) days after receipt of invoice from Curis, and shall pay to Curis within forty-five (45) days after receipt of the auditor’s report the deficiency not previously paid, plus accrued interest on the underpayment at the floating rate of LIBOR [**] (as quoted in The Wall Street Journal or its successor on the day after the payment is due) calculated from the due date to the date paid in full.

 

6.7.4 Without limiting any other rights or remedies available to Curis, Debiopharm shall pay Curis interest on any payments that are not paid on or before [**] days from the due date at the floating rate of LIBOR [**] (as quoted in The Wall Street Journal or its successor on the day after the payment is due) calculated from the due date to the date paid in full.

 

6.7.5 In the event Debiopharm fails to pay overdue amounts to Curis within the due date under this Section 6.7, Curis shall have the right to terminate this Agreement upon forty-five (45) days’ prior written notice to Debiopharm pursuant to Section 12.5, unless Debiopharm has cured such failure to pay by the end of such forty-five (45-) day period.

 

6.7.6

Debiopharm shall make payments to Curis under this Agreement withholding any taxes that may be due with respect to such payments to the extent that such withholding is

 

 

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required by applicable law. If any taxes are required to be withheld by Debiopharm, then Debiopharm shall (a) deduct such taxes from the payment made to Curis, (b) timely pay the taxes to the proper taxing authority, and (c) send proof of payment to Curis and certify receipt of such payment by the applicable tax authority within sixty (60) days following such payment.

 

7 INTELLECTUAL PROPERTY

 

7.1 Ownership of Intellectual Property Rights and Inventions

 

7.1.1 The Debiopharm Intellectual Property Rights shall at all times be and remain the sole property of Debiopharm. The Curis Intellectual Property Rights shall at all times be and remain the sole property of Curis.

 

7.1.2 Inventorship of inventions conceived of and reduced to practice pursuant to this Agreement ( “Inventions” ) shall be determined in accordance with the rules of inventorship under United States patent laws. Debiopharm shall solely own all Inventions made solely by one or more Debiopharm employees, and Curis shall solely own all Inventions made solely by one or more Curis employees. All Inventions made jointly by one or more Debiopharm employees and one or more Curis employees ( “Joint Inventions” ) shall be owned jointly by Debiopharm and Curis.

 

7.1.3 In the event that it is legally necessary to obtain a license under one or more Third Party Patents in order for Debiopharm to be able to develop, manufacture, and/or commercialize the Product in one or more countries of the Territory, and Debiopharm is unable to obtain such a license, Debiopharm may, at its election and upon thirty (30) days’ written notice to Curis, either terminate this Agreement in its entirety or terminate this Agreement for the relevant country(ies) of the Territory. If Debiopharm terminates this Agreement in its entirety pursuant to this Section 7.1.3, the consequences of such termination shall be as set forth in Section 13.4. If Debiopharm terminates its license in specified country(ies) of the Territory, the consequences of such termination shall be as set forth in Section 13.2.

 

7.2 Patent Prosecution and Maintenance

 

7.2.1

As from the Effective Date, Debiopharm shall have the first right to prepare, file, prosecute and maintain the Patents using independent counsel selected by Debiopharm and agreed to by Curis, at Debiopharm’s sole expense. With respect to any Patents, Debiopharm shall (a) consult with Curis and keep Curis fully informed of the progress of all patent applications and patents, including all issues relating to the preparation, filing, prosecution and maintenance of such Patents, (b) consult with Curis and keep Curis fully informed about Debiopharm’s patent strategy with respect to such Patents, (c) provide to Curis advance copies of documents relevant to preparation, filing, prosecution and maintenance of such Patents sufficiently in advance of filing to allow Curis a reasonable opportunity to review and comment on such documents, (d) reasonably consider Curis’ comments on such patent filings, and (e) provide Curis with final copies of such documents. Debiopharm agrees to use Reasonable Commercial Efforts to obtain commercially reasonable patent protection in the best interest of Curis and Debiopharm. Debiopharm shall control and shall bear any and all costs regarding the filing, prosecution and maintenance of the Patents in the Territory, including but not limited to filing applications for, and obtaining, patent term extensions, supplemental protection

 

 

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certificates (SPC) and the like relating to the Product and in each country of the Territory where Debiopharm reasonably considers that it is appropriate to do so. If Debiopharm decides to abandon or not maintain any Patent in the Territory, then Debiopharm shall provide Curis with sixty (60) days’ prior written notice of such decision (or such other longer period of time reasonably necessary to allow Curis to assume such responsibilities, at the sole discretion of Debiopharm). In such event, Curis shall have the right, at its option, to control the filing, prosecution and/or maintenance of any such Patent, at its own expense. Curis shall inform Debiopharm of its decision to file, prosecute or maintain a Patent in any country. Should Debiopharm exploit, use or benefit from such a Patent in a country where Curis has filed, prosecuted and/or maintained such Patent at its own expense, Debiopharm shall reimburse Curis for all reasonable costs pertaining to the filing, prosecution and/or maintenance of such Patent in that country upon Debiopharm’s use, exploitation or benefit of such Patent in such country.

 

7.2.2 Each Party agrees to cooperate fully in the preparation, filing, prosecution and maintenance of Patents under this Agreement and in the obtaining and maintenance of any patent extensions, supplementary protection certificates and the like with respect to any Patents. Such cooperation includes, but is not limited to, promptly informing the other Party of any matters coming to such Party’s attention that may affect the preparation, filing, prosecution or maintenance of any Patents.

 

7.3 Patent Infringement

 

7.3.1 Each Party shall promptly notify the other Party in writing of any alleged or threatened infringement of any Patent in any country of the Territory of which it becomes aware. The notifying Party will supply documentation of the infringing activities that are in its possession to the other Party.

 

7.3.2 Debiopharm shall have the first right but not the obligation to bring and control any action or proceeding with respect to infringement of any Patent, at its own expense and by counsel of its own choice, and Curis shall have the right, at its own expense, to be represented in any such action by counsel of its own choice. If Debiopharm fails to bring any such action or proceeding within (a) one hundred twenty (120) days following the notice of alleged infringement or (b) fifteen (15) days before the time limit, if any, set forth in the appropriate laws and regulations for the filing of such actions, whichever comes first, then Curis shall have the right to bring and control any such action at its own expense and by counsel of its own choice, and Debiopharm shall have the right, at its own expense, to be represented in any such action by counsel of its own choice. In the event a Party brings an infringement action in accordance with this Section 7.3.2, the other Party shall cooperate fully, including, if required to bring such action, the furnishing of a power of attorney or being named as a party, in each case, at the expense of the Party bringing such action. Neither Party shall have the right to settle any patent infringement litigation under this Section 7.3.2 without the prior written consent of such other Party, which shall not be unreasonably withheld.

 

7.3.3

Except as otherwise agreed by the Parties in connection with a cost-sharing arrangement, any recovery realized as a result of any action or proceeding described in Section 7.3.2 (whether by way of settlement or otherwise) will be allocated as follows: (a) first, to reimbursement of unreimbursed legal fees and expenses incurred by the Party that brought and controlled such action or proceeding; (b) then, to reimbursement

 

 

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of unreimbursed legal fees and expenses of the other Party in connection with such action or proceeding; and (c) after such reimbursement, any remainder of such recovery will be allocated [**] percent ([**]%) to the Party that brought and controlled such action or proceeding and [**] percent ([**]%) to the other Party.

 

7.4 Infringement of Third Party Patents : Each Party shall promptly notify the other in writing of any allegation by a Third Party that the development, manufacture, use, sale, offer for sale or import of the Compound or any Product pursuant to this Agreement infringes or may infringe such Third Party’s patents. Debiopharm shall have the first right to undertake and control any defense or settlement of any such claim at its own expense (subject to Section 6.5) and by counsel of its own choice, and Curis shall have the right, at its own expense, to be represented in any such defense by counsel of its own choice. If Debiopharm fails to undertake the defense or settlement of any such claim by the earlier of (a) thirty (30) days after receipt of such Third Party’s notice, and (b) twenty (20) days before the deadline, if any, set by such Third Party or by applicable laws, rules and regulations for responding to such claim, Curis shall have the right to undertake and control any defense or settlement of such claim, at its own expense and by counsel of its own choice, and Debiopharm shall have the right, at its own expense, to be represented in any such action by counsel of its own choice. Neither Party shall have the right to settle any Third Party claim under this Section 7.4 in a manner that diminishes the rights or interests of the other Party without the written consent of such other Party (which shall not be unreasonably withheld).

Notwithstanding the foregoing provisions of this Section 7.4, in the event of [**], Curis shall [**] at its own expense [**] and Debiopharm shall have the right, at its own expense, [**]. Curis shall [**] under this Section 7.4 [**] (which shall not be unreasonably withheld). For clarity, this paragraph does not extend or apply to any such [**] with respect to [**] any Sublicensee.

 

7.5 Patent Marking : Debiopharm shall apply, and shall require Sublicensees to apply, the patent marking notices required by the law of the countries where Products are made, sold, used or shipped.

 

7.6 Product Trademarks : Debiopharm shall freely choose, register, use and license any trademark for the Product (excluding any corporate trademark or trade name of Curis) in the Field of Use in the Territory. All associated costs shall be borne by Debiopharm. Such trademarks shall be filed in the name of Debiopharm (or any Third Party, Affiliates or Sublicensees) and shall remain Debiopharm’s property after expiration or termination of this Agreement.

 

8 REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS

 

8.1 Each Party represents, warrants and covenants to the other that:

 

  (i) It is duly organized and validly existing under the laws of its state or country of incorporation, and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof;

 

  (ii) The execution, delivery and performance of this Agreement by it does not conflict with any agreement or instrument, oral or written, to which it is a party or by which it may be bound; and

 

 

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  (iii) It has not granted, and shall not grant, any right to any Third Party which would conflict with the rights granted to the other Party hereunder.

 

8.2 Curis represents and warrants that as of the Effective Date:

 

  (i) All rights pertaining to the Curis Patents are owned by Curis;

 

  (ii) It has not received any written notice from any Third Party claiming that the manufacture, use, sale, or importation of the Compound or Product by Curis prior to the Effective Date infringed any patent owned or controlled by any Third Party; and

 

  (iii) Curis is not a party to any legal action, suit or proceeding relating to the Curis Intellectual Property Rights, and Curis has not received any written communication from any Third Party threatening such action, suit or proceeding; and

 

  (iv) Curis has the right to grant the license to the Compound under the Curis Patents and Curis Know-How provided to Debiopharm in Section 2.1; and

 

  (v) To the best of Curis’s knowledge, the use of the Compound in the Field of Use [**];

 

  (vi) Curis has not granted any license or other right to any Third Party regarding the Compound and/or the Curis Intellectual Property Rights; and

 

  (vii) Curis has not received any grant from or entered into any agreement with the United States government and/or any of its subdivisions or federal governmental bodies, or any governmental bodies outside the United States of America, regarding the Compound and/or the Curis Intellectual Property Rights.

 

8.3 Debiopharm agrees that all of its activities, and the activities of its Affiliates and Sublicensees related to its use of the Curis Patents and Curis Know-How and all development and commercialization of the Product pursuant to this Agreement shall comply with all applicable legal and regulatory requirements. Debiopharm, its Affiliates, and Sublicensees shall not knowingly engage in any activities that use the Curis Patents and/or Curis Know-How in a manner that is outside the scope of the license rights granted to Debiopharm hereunder.

 

8.4 Except as expressly set forth in this Agreement, EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES, OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES.

 

9 INDEMNIFICATION AND INSURANCE

 

9.1

Debiopharm shall indemnify, defend, and hold harmless Curis and its Affiliates and their respective directors, officers, employees and agents (each, a “Curis Indemnitee” ) from and against any and all claims, suits, actions, demands, liabilities, expenses and/or loss, including reasonable legal expense and attorneys’ fees (collectively, “Losses” ), to which any Curis Indemnitee may become subject as a result of any claim, demand,

 

 

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action or other proceeding (each, a “Claim” ) by any Third Party to the extent such Losses arise out of or result from (a) any breach by Debiopharm of its representations, warranties, covenants or obligations in this Agreement or (b) the development, importation, exportation, storage, handling, transportation, distribution, marketing, promotion, manufacture, use, sale or any other disposition of the Compound or any Product by or for Debiopharm, its Affiliates or Sublicensees hereunder, or (c) the death, personal injury, or illness of any person or out of damage to any property related in any way to the rights granted under this Agreement; except, in each case, to the extent such claim is caused by the gross negligence or willful misconduct of Curis.

 

9.2 Curis shall indemnify, defend, and hold harmless Debiopharm and its Affiliates and their respective directors, officers, employees and agents (each, a “Debiopharm Indemnitee” ) from and against any and all Losses to which any Debiopharm Indemnitee may become subject as a result of any Claim by a Third Party to the extent such Losses arise out of or result from (a) any breach by Curis of its representations, warranties, covenants or obligations in this Agreement or (b) the development, importation, exportation, storage, handling, transportation, manufacture, use or other disposition of the Compound or any Product by or for Curis or its Affiliates prior to the Effective Date; except, in each case, to the extent such claim is caused by the gross negligence or willful misconduct of Debiopharm. In addition, Curis shall indemnify, defend and hold harmless Sublicensees from and against any and all Losses to which any Sublicensee may become subject as a result of any claim by a Third Party (other than another Sublicensee) solely to the extent such Losses arise out of or result from Curis’ breach of any representation or warranty set forth in Section 8.2 or breach of the non-competition provisions of Section 14.1. Notwithstanding the foregoing provisions of this Section 9.2 to the contrary, Curis’ obligation to indemnify Debiopharm Indemnitees under this Section 9.2 with respect to Curis’ representation and warranty under Section 8.2(v) is contingent upon Debiopharm’s compliance with its obligations regarding clinical trial protocols and Product labeling under Section 3.2.1; and Curis’ obligation to indemnify Sublicensees with respect to Curis’ representation and warranty under Section 8.2(v) is contingent upon such Sublicensees’ clinical trial protocols and Product labeling complying with restrictions consistent with the Parties’ objectives under Section 3.2.1, which restrictions shall be mutually agreed upon by the Parties in writing prior to Debiopharm’s grant of the first sublicense. For the avoidance of doubt: (i) except as expressly set forth in Section 8.2, Curis makes no representation, and extends no warranty, of any kind with respect to non-infringement of any Third Party patent rights; and (ii) Curis has no obligation to indemnify, defend or hold harmless (A) Debiopharm or any of its Affiliates against any allegation that the development, manufacture, use, sale, offer for sale or import of the Compound or any Product infringes Third Party patent rights, except in the case of Curis’ breach of the representations and warranties expressly set forth in Section 8.2; or (B) any Sublicensee with respect to any matter whatsoever, except in the case of Curis’ breach of the representations and warranties expressly set forth in Section 8.2 or breach of the non-competition provisions of Section 14.1.

 

9.3

For purposes of Sections 9.1 and 9.2, the Curis Indemnitee or Debiopharm Indemnitee (the “Indemnified Party” ) shall give prompt written notice to the other Party (the “Indemnifying Party” ) of any claims, suits or proceedings by Third Parties which may give rise to any claim for which indemnification may be required under Section 9.1 or 9.2; provided, however, that failure to give such notice shall not relieve the Indemnifying Party of its obligation to provide indemnification hereunder except, if and to the extent

 

 

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that such failure materially and adversely affects the ability of the Indemnifying Party to defend the applicable claim, suit or proceeding. The Indemnifying Party shall be entitled to assume the defense and control of any such claim at its own cost and expense; provided, however, that the Indemnified Party shall have the right to be represented by its own counsel at its own cost in such matters. Neither the Indemnifying Party nor the Indemnified Party shall settle or dispose of any such matter in any manner which would adversely affect the rights or interests of the other Party (including the obligation to indemnify hereunder) without the prior written consent of the other Party, which shall not be unreasonably withheld or delayed. Each Party shall reasonably cooperate with the other Party and its counsel in the course of the defense of any such suit, claim or demand, such cooperation to include without limitation using reasonable efforts to provide or make available documents, information and witnesses.

 

9.4 At and during such time as Debiopharm, its Affiliates, or its Sublicensees, begins clinical testing, sale or distribution of Products, Debiopharm shall (and shall require its Affiliates and Sublicensees to) at its sole expense, procure and maintain commercially reasonable insurance policies as would be maintained by similarly situated pharmaceutical companies consistent with the current industry standards for similar products, and compliant with any applicable law or regulation. Such insurance shall (a) provide that the policy is primary and not excess or contributory with regard to other insurance Curis may have, (b) include product liability coverage in amounts no less than [**] United States Dollars (US$[**]) per incident and [**] United States Dollars (US$[**]) annual aggregate, (c) be endorsed to include contractual liability coverage for Debiopharm’s indemnification under Section 9.1, and (d) by virtue of the minimum amount of insurance coverage required under Section 9.4(b), not be construed to create a limit of Debiopharm’s liability with respect to its indemnification under Section 9.1. Upon request, a copy of such insurance policy shall be sent to Curis.

 

9.5 IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, INDIRECT, PUNITIVE OR SPECIAL DAMAGES OF THE OTHER PARTY ARISING OUT OF OR RELATED TO THIS AGREEMENT, HOWEVER CAUSED, UNDER ANY THEORY OF LIABILITY EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; provided, however, that this Section 9.5 shall not be construed to limit either Party’s indemnification obligations with respect to Third Party claims under Sections 9.1 and 9.2.

 

10 CONFIDENTIALITY

 

10.1 Except to the extent expressly authorized by this Agreement or otherwise agreed in writing by the Parties, the Receiving Party shall keep confidential and not publish or otherwise disclose, and shall not use for any purpose other than as expressly provided in this Agreement, any Confidential Information of the Disclosing Party. The Receiving Party shall take the same degree of care that it uses to protect the security and confidentiality of its own confidential and proprietary information of a similar nature and importance (but in any event no less than reasonable care) to ensure that its employees, agents, consultants and other representatives do not make any unauthorized use or disclosure of the Confidential Information. The Receiving Party shall promptly notify the other Party upon discovery of any unauthorized use or disclosure of the Confidential Information.

 

 

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10.2 Subject to Section 10.9, the Receiving Party may disclose Confidential Information as expressly permitted by this Agreement or if and to the extent such disclosure is reasonably necessary in the following instances:

(a) filing or prosecuting Patents as permitted by this Agreement;

(b) obtaining and maintaining regulatory filings for Products such Party has a license or right to develop or commercialize hereunder;

(c) prosecuting or defending litigation;

(d) complying with applicable court orders or governmental regulations;

(e) disclosure to Affiliates, licensees and sublicensees, potential licensees and sublicensees, employees, consultants or agents of the Receiving Party who have a need to know such information in order for the Receiving Party to exercise its rights or fulfill its obligations under this Agreement, provided, in each case, that any such Affiliate, licensee, sublicensee, potential licensee, potential sublicensee, employee, consultant or agent agrees to be bound by terms of confidentiality and non-use no less restrictive than those set forth in this Article 10; and

(f) disclosure to Third Party investors and potential investors on a confidential basis in connection with due diligence or similar investigations by such Third Parties and/or in confidential financing documents, in each case, to the extent reasonably necessary for such Third Party(ies) to make an investment decision with respect to the Receiving Party’s securities, provided, in each case, that any such Third Party agrees to be bound by reasonable obligations of confidentiality and non-use, and that the Receiving Party shall allow the Disclosing Party a reasonable opportunity to review the Confidential Information proposed for disclosure prior to such disclosure.

Notwithstanding the foregoing, in the event the Receiving Party is required to make a disclosure of Confidential Information pursuant to Section 10.2(c) or 10.2(d), the Receiving Party shall, except where impracticable, give reasonable advance notice to the Disclosing Party of such required disclosure and, at the Disclosing Party’s request and expense, cooperate fully with the Disclosing Party’s lawful efforts to contest such required disclosure, to minimize the scope of such required disclosure, and/or to obtain a protective order or other confidential treatment of the Confidential Information required to be disclosed. In any event, the Receiving Party agrees to take all reasonable action to avoid disclosure of Confidential Information hereunder.

 

10.3 The Parties agree that the terms of this Agreement shall be treated as Confidential Information by both Parties.

 

10.4

Debiopharm agrees that Curis may issue a press release upon execution of this Agreement, subject to Debiopharm’s prior review and approval, such approval not to be unreasonably withheld or delayed. The Parties further acknowledge that each Party may desire or be required to issue subsequent press releases or to make other public disclosures relating to this Agreement or its terms. The Parties agree to consult with each other reasonably and in good faith with respect to the text and timing of such press releases or other public disclosures prior to the issuance thereof, provided that a Party may not unreasonably withhold consent to such releases, and that either Party may

 

 

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issue such press releases as it determines, based on advice of counsel, are reasonably necessary to comply with laws or regulations. In addition, following the initial press release announcing this Agreement, each Party shall be free to disclose, without the other Party’s prior written consent, the existence of this Agreement, the identity of the other Party and those terms of this Agreement which have already been publicly disclosed in accordance herewith.

 

10.5 Subject to Section 10.4, Debiopharm shall not use the name “Curis” nor any variation or adaptation thereof, nor any trademark, tradename or other designation owned by Curis or its Affiliates, nor the names of any of its officers, employees or agents, for any purpose without the prior written consent of the other Party in each instance, except that Debiopharm may state that it has licensed from Curis one or more of the patents and/or applications within the Curis Patents, and Debiopharm may use Curis’s logo on Debiopharm’s corporate website and corporate presentation materials for such purpose, subject to Curis’s prior review and approval (not to be unreasonably withheld) of Debiopharm’s proposed use thereof.

 

10.6 Subject to Section 10.4, Curis shall not use the name of “Debiopharm” or its Affiliates nor any variation or adaptation thereof, nor any trademark, tradename or other designation owned by Debiopharm or its Affiliates, nor the names of any of its officers, employees or agents, for any purpose without the prior written consent of the other Party in each instance, except that Curis may state that it has licensed to Debiopharm one or more of the patents and/or applications within the Curis Patents, and Curis may use Debiopharm’s logo on Curis’s corporate website and corporate presentation materials for such purpose, subject to Debiopharm’s prior review and approval (not to be unreasonably withheld) of Curis’s proposed use thereof.

 

10.7 Each Party recognizes that the publication by Debiopharm of Data and other information regarding Compounds and Products, such as by public oral presentation, manuscript or abstract, may be beneficial to both Parties provided such publications are subject to reasonable controls to protect Confidential Information. Accordingly, Curis shall have the right to review and comment on any material proposed for public oral presentation or publication by Debiopharm that includes Data or other results of preclinical or clinical development of the Compound or any Product and/or includes Confidential Information of Curis. Before any such material is submitted for publication, Debiopharm shall deliver a complete copy to Curis at least forty-five (45) days prior to submitting the material to a publisher or initiating any other disclosure. Curis shall review any such material and give its comments to Debiopharm within thirty (30) days of the delivery of such material to Curis. With respect to public oral presentation materials and abstracts, Curis shall make reasonable efforts to expedite review of such materials and abstracts, and shall return such items as soon as practicable to Debiopharm with appropriate comments, if any, but in no event later than thirty (30) days from the date of delivery to Curis. Debiopharm shall comply with Curis’ request to delete references to Curis’s Confidential Information in any such material. In addition, if any such publication contains patentable subject matter, then at Curis’ request, Debiopharm shall either delete the patentable subject matter from such publication or delay any submission for publication or other public disclosure for a period of up to an additional sixty (60) days so that appropriate patent applications may be prepared and filed.

 

10.8

Subject to Section 10.7, Debiopharm and its contractors, including without limitation clinical research organizations, shall have the right to publish results of all clinical trials

 

 

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of the Compound or any Product on Debiopharm’s clinical trial register, and such publication will not be a breach of the confidentiality obligations provided in this Article 10.

 

10.9 The Parties have determined that [**], including, without limitation, [**] as evidenced by this Agreement, and have concluded [**]. Accordingly, the Parties agree as follows:

 

  (a) For purposes of this Section 10.9, [**] shall mean [**].

 

  (b) Debiopharm shall [**].

For clarity, nothing contained in this Section 10.9 is intended to limit, modify or otherwise affect in any way Curis’ obligations or Debiopharm’s rights [**].

 

10.10 All obligations of confidentiality and non-use imposed under this Article 10 shall expire ten (10) years after the effective date of termination or expiration of this Agreement, except that Section 10.9 shall survive termination or expiration of this Agreement indefinitely.

 

11 EXPIRY OF THE AGREEMENT; CONSEQUENCES OF EXPIRY

 

11.1 Unless terminated earlier pursuant to Article 12 or other mutual written agreement, this Agreement shall commence upon the Effective Date and shall expire, on a country-by-country basis on the expiration of the Royalty Term.

 

11.2 Upon expiration of the Royalty Term for a given country, Debiopharm’s license under Section 2.1 with respect to such country shall become fully paid-up, royalty-free, non-exclusive and transferable.

 

12 TERMINATION

 

12.1 Debiopharm Termination Without Cause : Debiopharm may terminate this Agreement at any time for any scientific, technical, administrative or commercial reasons upon ninety (90) days’ prior written notice to Curis.

 

12.2 Debiopharm Termination for Permanent Injunction : In the event Debiopharm is permanently enjoined from exercising its license under this Agreement pursuant to a patent infringement action brought by a Third Party, or if neither Debiopharm nor Curis undertakes the defense or settlement of a Third Party suit alleging infringement for a within the six- (6-) month period after notice of such suit, then Debiopharm may terminate this Agreement in the country where such suit was filed upon thirty (30) days’ prior written notice to Curis. Debiopharm’s termination right under this Section 12.2 shall be exercisable on a country-by-country basis. For the avoidance of doubt, any termination by Debiopharm in accordance with Section 7.1.3 does not fall within the scope of this Section 12.2.

 

12.3

Curis Termination for Debiopharm Failure to File IND/CTA : If the IND/CTA Filing Conditions are met and Debiopharm fails to file an IND or CTA in a Major Market on or before the applicable IND/CTA Filing Deadline under Section 3.2.5 (other than for reasons beyond the reasonable control of Debiopharm, such as the requirements of the applicable Regulatory Authority), Curis may terminate this Agreement on thirty (30) days’

 

 

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written notice to Debiopharm unless Debiopharm makes such filing before the end of such thirty (30) day period. In the event of such termination, Curis shall have no claim against Debiopharm with respect to such failure to file.

 

12.4 Curis Termination for Debiopharm Diligence Failure : If Debiopharm does not correct a failure to use Reasonable Commercial Efforts within the applicable period specified in, or determined in accordance with, Section 3.2.6(b) (a “Diligence Failure” ), Curis shall have the right to terminate this Agreement on thirty (30) days’ written notice to Debiopharm unless Debiopharm cures such Diligence Failure before the end of such thirty (30) day period.

 

12.5 Termination for Material Breach : Each Party shall have the right to terminate this Agreement upon ninety (90) days’ (or forty-five (45) days’ in the case of failure to make payment of amounts due hereunder) prior written notice to the other Party in the event of the material breach of any term or condition of this Agreement by the other Party, unless the breaching Party has cured such breach by the end of the applicable cure period; provided, however, that:

(a) this Section 12.5 shall not apply to: (i) any failure to file an IND or CTA in a Major Market (in which case, Curis’ termination right shall be as set forth in Section 12.3); or (ii) any Diligence Failure by Debiopharm (in which case, Curis’ termination right shall be as set forth in Section 12.4);

(b) any right to terminate under this Section 12.5 shall be stayed and the cure period shall be stopped in the event that, during any cure period, the Party alleged to have been in material breach shall have initiated dispute resolution in accordance with Article 20 with respect to the alleged breach, which stay and stopping shall last so long as the allegedly breaching Party diligently and in good faith cooperates in the prompt resolution of such dispute resolution proceedings; and

(c) from and after initiation of the first Phase III Study of a Product in a Major Market, except in the case of Debiopharm’s failure to make payments of amounts due hereunder, Curis shall not have the right to terminate this Agreement pursuant to this Section 12.5, and, as Curis’ sole remedy for material breach of this Agreement by Debiopharm that is not cured within sixty (60) days after Curis’ written notice of material breach, Curis shall have the right to seek damages from Debiopharm and/or injunctive relief, in each case, in accordance with Article 20.

 

12.6 Termination for Patent Challenge : Each Party shall have the right to terminate this Agreement immediately upon written notice to the other Party if the other Party or its Affiliate directly, or through assistance granted to a Third Party, challenges, whether as a claim, a cross-claim, counterclaim, or defense, the validity or enforceability of any of such Party’s Patents before any court, arbitrator, or other tribunal or administrative agency in any jurisdiction.

 

13 CONSEQUENCES OF TERMINATION

 

13.1 In the event of (i) termination of this Agreement by Debiopharm pursuant to Section 12.1, or (ii) termination of this Agreement by Curis pursuant to Section 12.3, Section 12.4, Section 12.5 (subject to paragraph (c) thereof) or Section 12.6:

(a) The license granted by Curis to Debiopharm under Section 2.1 shall terminate and revert to Curis on the effective date of termination.

 

 

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(b) Curis shall have the right, exercisable upon written notice by Curis to Debiopharm given within sixty (60) days after the effective date of such termination, to obtain, and effective upon such notice, Debiopharm shall, and it hereby does, grant to Curis, a non-exclusive, worldwide, royalty-bearing license, with the right to sublicense, under Debiopharm Intellectual Property Rights solely to develop, make, have made, use, sell, offer for sale, have sold and import the Compound and Products in the Field of Use, subject to the terms and conditions set forth below in this Section 13.1(b).

(i) Curis will pay to Debiopharm royalties at the rate of [**] percent ([**]%) of Curis Net Sales (defined below) of Products. Royalties on Curis Net Sales will be payable on a country-by-country basis from first commercial sale of a Product in a country of the Territory and ending upon the later of: (a) expiration of the last-to-expire valid claim of the Debiopharm Patents, which valid claim covers the composition of matter, or any method of manufacture or use, of the Product (or the Compound contained therein) in such country; and (b) the tenth (10th) anniversary of first commercial sale of the Product in such country. For purposes of this Section 13.1(b), the definition of “Net Sales” set forth in Article 1 shall apply mutatis mutandis to define the term “Curis Net Sales” .

(ii) Curis shall pay to Debiopharm [**] percent ([**]%) of all Curis Sublicensee Royalties (defined below). For purposes of this Section 13.1(b), “Curis Sublicensee Royalties” shall mean royalties paid by Third Party sublicensees to Curis or any of its Affiliates with respect to sales of Products by such Third Party sublicensees or any of their respective further sublicensees.

(iii) Royalties on Curis Net Sales shall be paid by Curis to Debiopharm quarterly within forty-five (45) days after the end of calendar quarter in which such Curis Net Sales are made (as determined by the date of invoice or billing). Payments on Curis Sublicensee Royalties shall be paid by Curis to Debiopharm quarterly within forty-five (45) days after such Curis Sublicensee Royalties are received by Curis or its Affiliate. If such Curis Sublicensee Royalties are significantly overdue, then upon Debiopharm’s request, the Parties agree to discuss the matter in good faith.

(iv) All payments to Debiopharm hereunder shall be made using the bank details provided by Debiopharm. Royalties on Curis Net Sales and payments on Curis Sublicensee Royalties shall be made in United States Dollars. If payments of Curis Net Sales or Curis Sublicensee Royalties are made in another currency than the United States Dollar, Curis shall convert them into United Sates Dollars for the purpose of the calculation of royalties on Curis Net Sales and payments on Curis Sublicensee Royalties by applying the average interbank exchange rate as published on www.oanda.com for the last day of each month within the calendar quarter for which payment to Debiopharm is due. All costs associated with making payments to Debiopharm, including the cost of wire transfers, shall be paid by Curis and shall not be deducted from the payments to Debiopharm.

(v) Curis shall (and shall require its Affiliates to) prepare and maintain complete and accurate books and records regarding Curis Net Sales (including gross sales and applicable deductions from gross sales), royalties payable with respect

 

 

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thereto, Curis Sublicensee Royalties and payments based thereon for a period of at least two (2) calendar years after the end of the calendar year in which such activities occurred. Debiopharm shall have the right to have such books and records inspected by an independent certified auditor selected by Debiopharm and accepted by Curis, whose acceptance shall not be unreasonably withheld, to confirm Curis Net Sales (including gross sales and applicable deductions from gross sales), royalties payable with respect thereto, Curis Sublicensee Royalties and payments based thereon, for a period covering not more than the preceding two (2) calendar years. Such auditor will execute a reasonable written confidentiality agreement with Curis and will disclose to Debiopharm only such information as is reasonably necessary to provide Debiopharm with information regarding any actual discrepancies between the amounts reported or paid and the amounts payable under this Agreement. Such auditor will send a copy of its report to Curis within fifteen (15) days of delivery of such report to Debiopharm. Such report will include the methodology and calculations used to determine the results. Prompt adjustments shall be made by the Parties to reflect the results of such audit. Records to be available under an inspection shall include all relevant documents pertaining to payments specified above, including all relevant documents received by Curis from Sublicensees. The appointed auditor shall have the right to interview selected staff and copy relevant documents. Such right may be exercised by Debiopharm only once per calendar year. Debiopharm shall bear the fees and expenses of such inspection, provided that, if an underpayment of more than five percent (5%) of the payments due for any calendar year is discovered in any inspection, then Curis shall bear all fees and expenses of that inspection within forty-five (45) days after receipt of invoice from Debiopharm, and shall pay to Debiopharm within forty-five (45) days after receipt of the auditor’s report the deficiency not previously paid, plus accrued interest on the underpayment at the floating rate of LIBOR [**] (as quoted in The Wall Street Journal or its successor on the day after the payment is due) calculated from the due date to the date paid in full.

(vi) Without limiting any other rights or remedies available to Debiopharm, Curis shall pay Debiopharm interest on any payments that are not paid on or before five (5) working days from the due date at the floating rate of LIBOR [**] (as quoted in The Wall Street Journal or its successor on the day after the payment is due) calculated from the due date to the date paid in full.

(vii) In the event Curis fails to pay overdue amounts to Debiopharm by the due date specified in this Section 13.1(b), Debiopharm shall have the right to terminate Curis’ license under Section 13.1(b) upon forty-five (45) days’ prior written notice to Curis, unless Curis has cured such failure to pay by the end of such forty-five (45-) day period.

(viii) Curis shall make payments to Debiopharm under this Agreement withholding any taxes that may be due with respect to such payments to the extent that such withholding is required by applicable law. If any taxes are required to be withheld by Curis, then Curis shall (a) deduct such taxes from the payment made to Debiopharm, (b) timely pay the taxes to the proper taxing authority, and (c) send proof of payment to Debiopharm and certify receipt of such payment by the applicable tax authority within sixty (60) days following such payment.

(c) If Curis chooses to obtain the non-exclusive license under Section 13.1(b), Debiopharm shall (A) transfer to Curis as soon as reasonably

 

 

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practicable all Data and information in Debiopharm’s or its Affiliates’ Control and possession relating to the Compound or Products as may be necessary to enable Curis to practice such license, (B) transfer and assign to Curis all of its right, title and interest in and to all INDs, NDAs, drug dossiers and master files with respect to any and all Products and all regulatory approvals with respect to any and all Products, and (C) take such other actions and execute such other instruments, assignments and documents as may be necessary to effect the transfer of rights under this subparagraph (c) to Curis.

 

13.2 In the event of termination of this Agreement by Debiopharm in a country in the Territory pursuant to Section 7.1.3 or Section 12.2, the license granted by Curis to Debiopharm under Section 2.1 in such country shall terminate and revert to Curis on the effective date of termination, the Territory shall thereafter exclude such country, and this Agreement shall otherwise remain in full force and effect.

 

13.3 Consequences of Termination for Curis’ Material Breach :

For purposes of this Section 13.3, the term “Termination Event” shall mean: (a) in the case of termination of this Agreement by Debiopharm pursuant to Section 12.5, the material breach of this Agreement by Curis that formed the basis for such termination; or (b) in the case of termination of this Agreement pursuant to Section 12.6, the action or activity of Curis that that formed the basis for such termination.

 

13.3.1 Aggravated Termination Event : In the event of termination of this Agreement by Debiopharm pursuant to Section 12.5 or Section 12.6 for an Aggravated Termination Event (defined below), Curis grants to Debiopharm a royalty-free, sole and exclusive license (even as to Curis) in and to the Compound and the Product under the Curis Intellectual Property Rights and Curis’ interest in the Joint Patents, to develop, have developed, use, have used, sell, have sold, offer for sale, make, have made, manufacture, have manufactured, register, have registered, commercialize and have commercialized the Compound and Products, in any Indication in the Field of Use, for the Royalty Term, in the Territory. Upon expiration of the Royalty Term, Section 11.2 shall apply. For purposes of this Section 13.3, an “Aggravated Termination Event” shall mean a Termination Event that is not curable and results in significant negative impact upon Debiopharm’s ability to commercialize Products. By way of example, and not of limitation, a material breach of [**] would each be considered an Aggravated Termination Event. A Termination Event other than the preceding examples may also qualify as an Aggravated Termination Event if the magnitude of the impact of such Termination Event upon Debiopharm’s ability to commercialize Products is substantially equivalent to, or greater than, that of the preceding examples.

 

13.3.2 Other Termination Event : In the event of termination of this Agreement by Debiopharm pursuant to Section 12.5 or Section 12.6 for any Termination Event other than an Aggravated Termination Event:

(a) the license granted by Curis to Debiopharm pursuant to Section 2.1 remain in full force and effect in accordance with its terms, subject to Debiopharm’s compliance with Article 6;

(b) all JSC participation rights of Curis shall terminate and be of no further force or effect;

 

 

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(c) Debiopharm shall have the right to seek damages from Curis in accordance with Article 20; and

(d) pending the outcome of arbitration proceedings pursuant to Article 20, Debiopharm shall have the right to pay all amounts that become due under Article 6 after such termination into an escrow account with a reputable bank, and to the extent the arbitrators award damages to Debiopharm, the arbitrators shall be authorized, in their discretion, (i) to cause the release to Debiopharm of all or any part of the escrowed funds in partial or full satisfaction of such award, and/or (ii) to adjust the amounts payable by Debiopharm to Curis under this Agreement to compensate Debiopharm for damages suffered by Debiopharm as a result of Curis’ material breach.

 

13.4 In the event of termination of this Agreement in its entirety by Debiopharm pursuant to Section 7.1.3, the license granted by Curis to Debiopharm under Section 2.1 shall terminate and revert to Curis on the effective date of termination.

 

13.5 Any termination of this Agreement shall be without prejudice to any rights or obligations which have accrued to any Party prior to such termination. Without limiting the generality of the foregoing, termination of this Agreement shall not preclude either Party from claiming any other damages, compensation or relief that it may be entitled to hereunder.

 

13.6 The license granted to Debiopharm under this Agreement will be deemed a license of rights to intellectual property for purposes of Section 365(n) of the U.S. Bankruptcy Code, and, in the event of Curis’ bankruptcy, Debiopharm will retain and may fully exercise all of its rights and elections under the U.S. Bankruptcy Code.

 

14 NON COMPETITION

 

14.1 Curis agrees not to develop in parallel an Hsp90 Inhibitor (or product containing an Hsp90 Inhibitor) and which is in competition to the Compound or Product because of its ability to bind to, and selectively and specifically inhibit, Hsp90. [**].

 

14.2 Such obligations in favor of Debiopharm under Section 14.1 shall not survive an early termination of this Agreement except in the case of any material breach by Curis, in which case they shall survive for two (2) years after termination of this Agreement.

 

15 SURVIVING PROVISIONS

Sections 6.7, 8.4 and 11.2 and Articles 1, 9, 10, 13, 14 (as set forth in Section 14.2), 15, 16, 18, 19, 20 and 22 shall survive termination or expiration of this Agreement. In addition, if the license granted to Debiopharm under Section 2.1 survives termination as set forth in Section 13.3, Sections 6.3, 6.4, 6.5 and 6.6 shall survive such termination.

 

16 NOTICES

Notices required or permitted to be made or given to either Party hereto pursuant to this Agreement shall be sufficiently made or given on the date of mailing if sent to such Party by certified or registered mail, postage prepaid, addressed to it at its address set forth or to such other address as it shall designate in the course of this Agreement by written notice to the other Party as follows:

If to Curis:

Curis, Inc.

45 Moulton Street

Cambridge, MA 02138

USA

Attention: Chief Executive Officer

 

 

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If to Debiopharm:

Debiopharm S.A.

Forum «après-demain»

Chemin Messidor 5-7

1006 Lausanne

Switzerland

Attention: Director, Legal Affairs

 

17 INDEPENDENT CONTRACTOR

The relationship of Debiopharm and Curis under this Agreement is intended to be that of an independent contractor. Nothing contained in this Agreement is intended or is to be construed so as to constitute the Parties as partners or joint venturers or either Party as an agent or employee of the other. Neither Party has any express or implied right or authority under this Agreement to assume or create any obligations on behalf of or in the name of the other, or to bind the other Party to any contract, agreement or undertaking with any Third Party.

 

18 COMPLETE AGREEMENT

The Parties hereto acknowledge that this Agreement sets forth the entire agreement and understanding of the Parties, and supersedes all prior written or oral agreements or understandings with respect to the subject matter hereof, including material transfer agreements, if any, and that certain “Addendum to the Confidentiality Agreement dated June 18, 2007,” dated and effective as of August 20, 2008 (the “First Addendum” ); but, in any event, excluding :

(a) that certain Confidentiality Agreement between the Parties dated June 18, 2007 (the “Original Confidentiality Agreement” ), which shall remain in full force and effect in accordance with its terms; provided, however, that all “Confidential Information” (as defined by the Original Confidentiality Agreement) of Curis relating to its single targeted Hsp90 Inhibitor programs, including, without limitation, CUDC-305, shall be deemed Confidential Information for purposes of this Agreement; and

(b) that certain “Second Addendum to the Confidentiality Agreement dated June 18, 2007,” dated and effective as of June 11, 2009 (the “Second Addendum” ), which shall remain in full force and effect in accordance with its terms; provided, however, that [**] for purposes of this Agreement.

 

 

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In the event of any conflict between the provisions of this Agreement and the provisions of the Original Confidentiality Agreement or the Second Addendum, this Agreement shall control. No modification of this Agreement shall be deemed to be valid unless in writing and signed by both Parties.

 

19 ASSIGNMENT

Except as expressly provided hereunder, neither this Agreement nor any rights or obligations hereunder may be assigned or otherwise transferred by either Party without the prior written consent of the other Party (which consent shall not be unreasonably withheld); provided, however , that either Party may assign this Agreement and its rights and obligations hereunder without the other Party’s consent:

 

  (a) in connection with the transfer or sale of all or substantially all of the business of such Party to which this Agreement relates to a Third Party, whether by merger, sale of stock, sale of assets or otherwise (each, a “Change of Control Transaction” ), provided that in the event of a Change of Control Transaction in which the acquiring party is a Third Party, intellectual property rights of the acquiring party to such Change of Control Transaction that exist prior to the effective time of such Change of Control Transaction or result from an Acquiror Existing Hsp90 Program (as defined in Section 14.1) shall not be included in the technology licensed hereunder or otherwise subject to this Agreement; or

 

  (b) to an Affiliate, provided that no such assignment to an Affiliate shall relieve the assigning Party of its obligations hereunder.

The rights and obligations of the Parties under this Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties. Any assignment not in accordance with this Agreement shall be void.

 

20 GOVERNING LAW AND DISPUTE RESOLUTION

 

20.1 Except as expressly set forth in Section 20.6, this Agreement shall be governed by the laws of England and Wales.

 

20.2 The Parties agree that, except as set forth in Section 20.6 below, the procedures set forth in Sections 20.3 through 20.5 shall be the exclusive mechanism for resolving any dispute, disagreement, controversy or claim arising under, out of or relating to this Agreement and any subsequent amendments of this Agreement, including, without limitation, its formation, validity, binding effect, interpretation, performance, breach or termination, as well as non contractual claims arising out of the subject matter of this Agreement ( “Dispute” ).

 

20.3 Any Dispute shall be submitted to the appropriate executive officers of the Parties by written notice prior to initiation of any action under Sections 20.4 and 20.5. Such executive officers shall attempt resolution of the Dispute by good faith negotiation for a period of thirty (30) days from written notice of the Dispute by either Party. Each Party shall appoint one executive officer for such negotiation.

 

20.4

If the Parties are unable to resolve a Dispute pursuant to Section 20.3 within sixty (60) days of referring such Dispute to their executive officers, then, upon the written request

 

 

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of either Party to the other Party, the Parties shall submit the Dispute for commercial mediation in accordance with the then-applicable ADR Rules of the International Chamber of Commerce ( “ICC” ). Such mediation will take place in London, England. If there is no agreement as to the selection of such a mediator within twenty (20) days of written request for mediation by either Party or the Dispute is not resolved by the Parties with the assistance of such a mediator within sixty (60) days of the matter being referred to him/her, then the Dispute shall be settled by arbitration as set out in Section 20.5.

 

20.5 If the Dispute is not settled under Section 20.3 and Section 20.4, then, upon the written request of either Party to the other Party, the dispute shall be resolved by arbitration before a panel of three (3) arbitrators with relevant pharmaceutical industry experience in accordance with the then-applicable arbitration rules of the ICC. One arbitrator shall be chosen by Debiopharm and one arbitrator shall be chosen by Curis within fifteen (15) days from such written request for initiation of arbitration. The third arbitrator shall be chosen by mutual agreement of the arbitrators selected by the Parties within fifteen (15) days of the date that the last of the arbitrators selected by the Parties was appointed. The arbitrators shall be instructed to establish a timeline and other parameters for the conduct of discovery and the arbitration hearing that will reasonably expedite resolution of the Dispute. The arbitration proceedings shall take place in London, England, and both the arbitration proceedings and the arbitrators’ ruling shall be in the English language. In making their decision, the arbitrators shall apply the laws of England and Wales. The arbitrators shall, within fifteen (15) calendar days after the conclusion of the arbitration hearing, issue a written award and statement of decision describing the essential findings and conclusions on which the award is based, including the calculation of any damages awarded. The decision or award rendered by the arbitrators shall be final and non-appealable, and judgment may be entered upon it in any court of competent jurisdiction. Each Party shall bear its own attorney’s fees, costs, and disbursements arising out of the arbitration, and shall pay an equal share of the fees and costs of the arbitrators; provided, however, that the arbitrators shall be authorized to determine whether a Party is the prevailing party, and if so, to award to that prevailing party reimbursement for any or all of its reasonable attorneys’ fees, costs and disbursements (including, for example, expert witness fees and expenses, photocopy charges, travel expenses, etc . ), and/or the fees and costs of the ICC and the arbitrators.

 

20.6 Notwithstanding the foregoing provisions of this Article 20, disputes pertaining to the validity, construction, scope, enforceability, infringement or other violations of patents or other proprietary or intellectual property rights shall be resolved solely by a court or patent office of competent jurisdiction, and no such claim shall be subject to mediation or arbitration pursuant to this Article 20. In addition, nothing contained in this Agreement shall deny either Party the right to seek injunctive or other equitable relief from a court of competent jurisdiction in the context of a bona fide emergency or prospective irreparable harm, and such an action may be filed and maintained notwithstanding any ongoing mediation or arbitration proceeding.

 

21 FORCE MAJEURE

 

21.1 Neither Party shall be liable for a failure to comply with a provision herein, if it is prevented from performing the said provision because of force majeure, this notion being defined as an event beyond the control of the Parties and independent from their will including, but not limited to, strikes or other labor trouble, war, insurrection, fire, flood, explosion, discontinuity in supply of power, court order or governmental interference.

 

 

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21.2 Despite the event of force majeure, either Party hereto shall undertake reasonable efforts to comply to the extent possible with its obligations towards the other Party, pursuant to this Agreement.

 

21.3 The Party invoking an event of force majeure shall notify it forthwith to the other Party, and must specify which one or ones of its obligations it is being prevented from complying with, and the nature of force majeure, and must give an estimate of the period during which it is likely that it shall be prevented from complying with the said obligation or obligations.

 

22 MISCELLANEOUS

 

22.1 If any provision of this Agreement should be or become fully or partly invalid or unenforceable for any reason whatsoever or should violate any applicable law, this Agreement is to be considered divisible as to such provision and such provision is to be deemed deleted from this Agreement, and the remainder of this Agreement shall be valid and binding as if such provision were not included therein. There shall be substituted for any such provision deemed to be deleted a suitable provision which, as far as is legally possible, comes nearest to the sense and purpose of the stricken provision.

 

22.2 Failure by any Party to enforce any term or provision of this Agreement in any specific instance or instances hereunder shall not constitute a waiver by such Party of any such term or provision, and such Party may enforce such term or provision in any subsequent instance without any limitation or penalty whatsoever.

 

22.3 This Agreement is neither expressly nor impliedly made for the benefit of any entity other than the Parties.

 

22.4 The headings set forth in this Agreement are for convenience only and do not qualify or affect the terms or conditions of this Agreement. Ambiguities and uncertainties in this Agreement, if any, shall not be interpreted against either Party, irrespective of which Party may be deemed to have caused the ambiguity or uncertainty to exist. This Agreement has been prepared in the English language, and the English language shall control its interpretation. In addition, all notices required or permitted to be given hereunder, and all written, electronic, oral or other communications between the Parties regarding this Agreement shall be in the English language.

 

22.5 No waiver of any right or remedy hereunder shall be effective unless provided in writing executed by the waiving Party.

 

22.6 This Agreement may be executed in two (2) counterparts, each of which shall be deemed an original document, and which shall be deemed one instrument.

 

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives as of the Effective Date.

 

DEBIOPHARM S.A.:     CURIS, INC.:

/s/ Dr. Rolland-Yves Mauvernay

   

/s/ Daniel R. Passeri

Dr. Rolland-Yves Mauvernay     Name:   Daniel R. Passeri
President       Title:   President & CEO
Date:  

    6/08/2009

    Date:  

        August 5, 2009

       

 

EXHIBIT 1:   Compound
EXHIBIT 2:   Curis Patents
EXHIBIT 3:   Development Plan
EXHIBIT 4:   Technology Transfer Plan

 

 

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EXHIBIT 1

Compound

Chemical structure of CUDC-305

2-(6-(Dimethylamino) benzo[d][1,3]dioxol-5-ylthio)-1-(2-(neopenthylamino)ethyl)-1H-imidazo[4,5-c] pyridine-4-amine

LOGO

 

 

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EXHIBIT 2

Curis Patents

 

Patent Application

Number

  Country   Filing   Status

CUDC-305 – Hsp90 inhibition

 

       

[**]

 

 

[**]

 

 

[**]

 

 

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EXHIBIT 3

Development Plan

CUDC-305 DEVELOPMENT up to Phase IIa Study

 

Task   Estimated start   Estimated end
[**]   [**]   [**]
[**]   [**]   [**]
[**]   [**]   [**]
[**]   [**]   [**]
[**]   [**]   [**]
[**]   [**]   [**]
[**]   [**]   [**]
[**]   [**]   [**]
[**]   [**]    

 

 

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EXHIBIT 4

Technology Transfer Plan

Curis’ Responsibilities under the Technology Transfer Plan are as follows:

(a) Transfer of Information. As soon as possible but in any event within 30 days of the Effective Date, Curis shall provide Debiopharm with information existing as of the Effective Date and in Curis’ possession that is reasonably considered to be (whether or not Confidential Information) necessary for the research, development and manufacturing of the Product, without limitation, information relating to the chemical or molecular structure, synthesis route, manufacturing, formulation, preclinical data ( e.g. , PK, ADME and toxicology), records of interactions with regulatory authorities, drafts of regulatory filings, drafts of clinical protocols and reports on the Product within the scope of the licenses granted to Debiopharm under the Agreement (the “Technology Transfer Information” ).

(i) [**]

(b) Transfer of GMP Materials. Curis shall transfer GMP and non-GMP materials as requested by Debiopharm in accordance with Section 3.1.1 of the Agreement.

(c) Curis Support of Development Plan. Curis shall provide a reasonable amount of ongoing support to Debiopharm’s performance of the Development Plan for a period of six (6) months from the Effective Date, in accordance with Section 3.1.2 of the Agreement.

(d) Technology Transfer Management. The Debiopharm employees who are designated by Debiopharm to receive such Technology Transfer Information and materials (each, a “Designated Debiopharm Recipient” ) are [**] ( “Designated Debiopharm Alliance Manager” ) and [**] ( “Designated Debiopharm Project Manager” ). Debiopharm may replace any or all of such Designated Debiopharm Recipients at any time upon prior written notice to the Curis alliance manager ( “Designated Curis Alliance Manager” ). The Designated Curis Alliance Manager shall be [**], Curis, Inc., 45 Moulton Street, Cambridge, MA 02138 USA; [**].

 

 

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Exhibit 31.1

CERTIFICATION

I, Daniel R. Passeri, certify that:

 

  1. I have reviewed this Quarterly Report on Form 10-Q of Curis, Inc.;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 29, 2009

 

/ S /    D ANIEL R. P ASSERI

Daniel R. Passeri

President and Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION

I, Michael P. Gray, certify that:

 

  1. I have reviewed this Quarterly Report on Form 10-Q of Curis, Inc.;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 29, 2009

 

/ S /    M ICHAEL P. G RAY

Michael P. Gray

Chief Operating Officer and

Chief Financial Officer

(Principal Financial and Accounting Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Curis, Inc. (the “Company”) for the period ended September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Daniel R. Passeri, President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: October 29, 2009

 

/ S /    D ANIEL R. P ASSERI

Daniel R. Passeri

President and Chief Executive Officer

(Principal Executive Officer)

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Curis, Inc. (the “Company”) for the period ended September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Michael P. Gray, Vice President of Finance and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: October 29, 2009

 

/ S /    M ICHAEL P. G RAY

Michael P. Gray

Chief Operating Officer and

Chief Financial Officer

(Principal Financial and Accounting Officer)