Curious about Curis

It’s nearly impos­si­ble these days not to be per­son­ally touched by can­cer.  The dis­ease has to be on the top of everyone’s list for find­ing new, more effec­tive treatments.

Putting our per­sonal feel­ings aside for the moment we also rec­og­nize that any com­pany field­ing a valu­able new treat­ment in this area will deliver strong invest­ment returns.  How­ever even the best sci­en­tists in the world have dif­fer­ing opin­ions of what may or may not ulti­mately work.  So we have to be care­ful in doing our research and lim­it­ing our risk in this area.

After look­ing for some months we dis­cov­ered one com­pany that we decided to invest in, Curis (NASDAQ: CRIS — $2.40.)  They have focused on the cel­lu­lar sig­nal­ing paths that are the basis of cel­lu­lar devel­op­ment, includ­ing those that make up can­cer tumors.  To say this a com­pli­cated topic is a great under­state­ment but those inter­ested will find weeks of read­ing mate­r­ial online.  (We believe that we can short-circuit this process on Curis but more on that later.)

A very sim­ple anal­ogy for this approach is to dis­rupt the mech­a­nism that can­cer cells rely upon to develop and grow rather than try and destroy the can­cer cells after they come into exis­tence. As described below the results of some Phase I test­ing shows that the ther­apy can be very effec­tive at reduc­ing exist­ing can­cer by inter­fer­ing with the sig­nal­ing path­ways they sus­tain them­selves with.  Of course we are deal­ing with com­plex sys­tems here that are at the bor­der­line of our level of under­stand­ing so the descrip­tion above masks the dif­fi­culty in actu­ally mak­ing this work.

Recent results how­ever have been quite encour­ag­ing.  The stock has moved up recently on some stun­ning results from Phase I trial data where the major­ity of patients showed a pos­i­tive response to treat­ment and side effects were fairly lim­ited (although still present.)  In fact there is a strik­ing exam­ple of a 22 year old patient who had exhausted all treat­ment options, was ema­ci­ated, in con­stant pain and in need of ongo­ing blood trans­fu­sions with tumors spread out through­out his body “some of which could be felt through the skin” the report indi­cates.  After two months the tumors had shrunk, he was pain free, and rid­ing a bicy­cle.   But it an sober­ing reminder about how far we have yet to go the can­cer had devel­oped resis­tance (prob­a­bly through muta­tion) and pro­gressed to the point of killing him only months later.

What does it mean?  Nobody can say for sure.  Sci­en­tists agree that the ther­apy obvi­ously works but will work far bet­ter on patients in sit­u­a­tions where the tumors are not so advanced, have not already been bar­raged with an array of mutation-generating ther­a­pies and where the patient and tumor biol­ogy will lend itself best to block­age of these pathways.

Like many effec­tive can­cer treat­ments this one will not be a “sil­ver bul­let” against the dis­ease, even it makes it through all the approval hur­dles.  How­ever doc­tors and sci­en­tists see can­cer as an adver­sary that will need all meth­ods avail­able to bring it under con­trol.  Being able to “cut the knees out” of the new cell for­ma­tion process while using other treat­ments to kill exist­ing cells makes intu­itive sense.  We’re still learn­ing new things about can­cer.  Sci­en­tists were star­tled to dis­cover that can­cer cir­cu­lates in the blood for as long as a year before it finds a place to “set down” and cause trou­ble in the body.

As we said before we short-circuited some of our due dili­gence here by rely­ing on Genetech/Roche to do it for us.  As can be seen by the slide here Curis has been able to part­ner with them on their lead drug GDC-0449.  All that means to us is that Curis has some­thing of value and if it in fact works, we can be con­fi­dent that it will be developed.

Because Curis remains a very early-stage com­pany and we know hardly any­thing about the mech­a­nism by which can­cer cells will com­pen­sate against this treat­ment, this is a very spec­u­la­tive invest­ment to make.

On the finan­cial side the pic­ture is pretty pos­i­tive. The com­pany has about $29M in cash.  The com­pany burns a few mil­lion each quar­ter but receives mile­stone pay­ments that serve to elim­i­nate fund­ing risk as long as trial results con­tinue to sup­port the devel­op­ment of these ther­a­pies.

The cur­rent mar­ket cap­i­tal­iza­tion using the fully diluted share count is just a shade under $200M.  There is lit­tle or noth­ing to sup­port the val­u­a­tion if the ther­a­pies don’t progress in clin­i­cal tri­als but these lev­els don’t sug­gest that suc­cess is fully baked into the stock yet. Investors should think about this invest­ment as a call option which will become worth­less in one sce­nario but stands to be worth much more if results prove out.

On the cor­po­rate side the com­pany has been in place since 2000 and the senior man­age­ment team looks solid with a long tenure.  The com­pany has kept a low expense pro­file with just 34 employ­ees which is cer­tainly the right approach in devel­op­ing a ther­a­pies where progress has been mea­sured in decades.  Man­age­ment does have a bit of a rep­u­ta­tion for being pro­mo­tional, although to be fair not to an alarm­ing level. This can be seen to some degree from their home­page (http://www.curis.com) which includes a link to their (very good) investor pre­sen­ta­tion front and cen­ter on their homepage. (!)

To add a lit­tle intrigue to our story the com­pany was recently granted an exten­sion of con­fi­den­tial­ity for their 8K filed back in 2003 that cov­ers their agree­ment with Genen­tech.  The agree­ment is very detailed (82 pages) as it stands and high­lights include $9M in licens­ing fees from Genen­tech and a $3.5M invest­ment in the stock (at $2.66/share.)  The specifics around the size of mile­stone pay­ments and roy­alty per­cent­ages are miss­ing however.

Some other mat­ters worth con­sid­er­ing in the short term:  The com­pany is sched­uled to present at an invest­ment con­fer­ence in NYC next week on Sep­tem­ber 9th and it will be web­cast so it’s a good chance to hear man­age­ment speak. Other upcom­ing events include the quar­terly earn­ings call on Octo­ber 26th.  The com­pany also has 540K war­rants expir­ing in Octo­ber that may result in some extra volatil­ity depend­ing upon their exer­cise price and who holds them.

Own­er­ship of the pub­lic shares is con­cen­trated and increas­ingly so as Arn­hold & S. Ble­ichroeder now holds nearly 19% of the shares out­stand­ing after buy­ing up more than four mil­lion shares offered for sale by the Biotech­nol­ogy Value Fund.  The good news is that as a recent buyer ASB may rep­re­sent “strong hands” for the shares but it also means they are likely to know more about devel­op­ments, sooner than the aver­age stock­holder.  Thus if things go wrong in CRIS it will prob­a­bly show up first in the share price. Buyer be very very aware.

[Dis­clo­sure: Research 2.0 holds a long posi­tion of CRIS in their “research prov­ing ground” fund.]