By Jake King
On the morning of July 15, Curis announced that the European Commission granted the conditional approval of Erivedge (vismodegib) for the treatment of adult patients with symptomatic metastatic basal cell carcinoma (BCC) or locally advanced BCC inappropriate for surgery or radiotherapy. The approval resulted in a $6M milestone to Curis from Roche (OTCQX:RHHBY)/Genentech. PropThink's premium subscribers received the following report during the week of July 7.
Early last year, Erivedge (vismodegib) received FDA approval as the first therapy for advanced BCC, a relatively benevolent and slow-growing form of skin cancer that proved vulnerable to this Hedgehog Pathway inhibitor. Shares of developer Curis, Inc. (CRIS) rallied significantly into the approval and the second half of 2012, but have languished in the interim as sales figures have failed to impress, and development of Curis' -- at the time -- most promising pipeline candidate CUDC-101 stalled. For much of 2012, it appeared as if Erivedge would be the driving force behind Curis, but investors have caught on to the fact that Erivedge isn't likely to be a key part of the investment thesis for Curis, as royalties from partner Genentech (Roche) are simply too minute to benefit the top line materially. Investors should be focusing on two promising pipeline assets at Curis, with Erivedge offering a somewhat unremarkable backdrop to what we consider a development-centric story.
Curis' lead candidates CUDC-907 and CUDC-427 -- a PI3K/HDAC inhibitor and IAP inhibitor, respectively -- hold potential as differentiated targeted cancer therapies, and ongoing Phase I trials will offer a better picture of their clinical potential this year. Of particular note is the valuation disparity between Curis and other companies exploring the PI3K pathway such as Infinity Pharmaceuticals (INFI), which carries an $800M market capitalization based almost exclusively on its Phase I/II Pi3K inhibitor IPI-145. Curis, valued by the markets at less than $300M, is a bargain-basement story next to Infinity. Full results for -907, expected before year\s-end, should narrow that valuation gap if -907 proves efficacious and safe.
Curis expects to initiate mid-stage trials with these two lead candidates shortly, with a goal of expanding their application into multiple indications that have already evidenced activity. In addition, Erivedge should again pique investor interest as a potentially market-expanding Phase II trial reads out in the second half of 2013, and the drug receives approval from European regulators in the third quarter. At less than a $280M enterprise value, Curis offers a four-asset oncology pipeline backed by an already commercialized cancer treatment and two years in cash. While early-stage, we see these differentiated cancer therapies as a worthwhile addition to an oncology portfolio.
CUDC-907 Targets a Hot Pathway With a Differentiated Approach
Our interest in Curis derives primarily from CUDC-907, an HDAC (Histone Deacetylase) and PI3K (Phosphatidylinositide 3-kinase) inhibitor of the alpha/delta isoforms currently being tested in hematologic cancers, which Curis also plans to roll into a solid tumor trial yet this year. Pharmacyclics (PCYC), Gilead (GILD), and Infinity Pharmaceuticals have all laid the groundwork in the last year for what a compelling treatment for blood cancers is worth to the markets. Pharmacyclics' ($6.5B market cap) Ibrutinib targets just one of the signaling pathways (the Bruton tyrosine kinase) in B-Cell malignancies like chronic lymphocytic leukemia (CLL) and multiple myeloa (MM), while Gilead's ($85B) idelalisib and Infinity's ($800M) IPI-145 both target the PI3 kinase, like CUDC-907.
PI3K inhibitors have produced consistent efficacy in hematologic cancers, and mutations in the PI3K pathway are also frequent in breast cancer, causing resistance to HER-2 targeted therapies like Roche's Herceptin. Gilead recently released updated results demonstrating idelalisib's (the leading PI3K inhibitor in development) capabilities in indolent non-Hodgkin Lymphoma (iNHL): an overall response rate of 53.6% (n=67; 95% CI: 44.5, 62.6) with five complete responses (4%), 60 partial responses (48%), two minor responses, and 46 patients with stable disease (36.8%). Idelalisib generated a complete response rate of 19% and an overall response rate of 97% when combined with rituximab in treatment-naive older patients with chronic lymphocytic leukemia.
And Infinity, at the meeting of the American Society for Clinical Oncology 2013, presented updated results from its Phase I lymphoma trial for IPI-145, demonstrating particular efficacy in iNHL (indolent non-Hodgkin Lymphoma), where 13 of 19 patients (68%) responded to the drug, with three complete responses and ten partial responses. Clearly, the PI3K space has begun to crowd in the last two years -- see TG Therapeutics (TGTX) for yet another example -- but -907's capabilities as a dual inhibitor of both PI3K and HDAC suggest that it may offer a differentiated and potentially more effective cancer therapy than the existing competition.
CUDC-907 targets cancers by inhibiting both the PI 3-kinase and HDAC, the first single-molecule drug to take this approach. Preclinical research has suggested that PI3K inhibitors work synergistically when paired with HDAC inhibitors. Gilead tested idelalisib in combination with two separate HDAC inhibitors, panobinostat and vorinostat, against DLBCL, MCL and Burkitt lymphoma cell lines, presenting the findings at ASH 2012:
Combined treatment resulted in a synergistic inhibition of proliferation in all tested cells and induced a significant increase of caspase-dependent apoptosis in SU-DHL-6/16 cells. For example, in SU-DHL-6 cells co-treatment of 0.1 μM GS-1101 [idelalisib] with 2.5 nM LBH589 [panobinostat] induced 62% increase of apoptotic population in comparison to the untreated sample, while GS-1101 alone induced 13% increase and LBH589 induced 11% increase. Moreover, substituting [vorinostat] for [panobinostat] suggests that the synergy between GS-1101 and [panobinostat] is a class effect between HDAC inhibitors and GS-1101, rather than specific to [panobinostat].
And when compared to Genentech's PI3K inhibitor GDC-0941 + vorinostat, -907 demonstrated a much stronger ability to slow tumor growth in xenograft tumor models.
In addition, -907 is a pan-PI3K inhibitor, hitting all PI3K isoforms but primarily alpha, delta, and beta, with weak inhibition of PI3K-gamma. Recall that IPI-145 has come under scrutiny due to safety issues spotlighted after ASCO 2013, leading some to conclude that -145's strong PI3K-gamma inhibition may induce toxicity. If gamma proves the limiting factor, which is yet unclear, -907 may not face the same issues due to its low gamma-inhibition. Of course, adding HDAC inhibition may generate more tolerability/safety issues for CUDC-907, but this remains to be seen, as the HDAC/PI3K combination has yet to be extensively tested in humans. This is where Curis steps in with its ongoing Phase I trial.
Curis is currently enrolling relapsed/refractory lymphoma and multiple myeloma patients in a Phase I open-label dose-escalation study with a goal of identifying -907's maximum tolerated dose (MTD). The first three-patient cohort was dosed at 30mg in January, and subsequent cohorts (the second is fully enrolled) will be dosed at twice the previous until a MTD is identified. Curis said at the beginning of the month that three patients had been enrolled in the second dose cohort (60mg), and the company expects to have the trial finished and data presented by the end of 2013. Recall that the trial is open-label, meaning that Curis will likely be presenting material updates from the trial whenever and wherever it has a chance, but the American Society of Hematology 2013 meeting in early December obviously presents a compelling venue for a key update.
Curis could potentially have data from a 120mg dose cohort before the Aug. 8 abstract submission date, but the company believes that they are already seeing clinical activity in the first dose cohort -- one multiple myeloma patient has reached seven cycles of treatment and patients only proceed if the treating physician believes the patient is receiving a benefit from the drug; one first-cohort B-cell lymphoma patient is in cycle four. Curis believes that these indications -- diffuse large b-cell lymphoma and multiple myeloma -- are the most attractive indications for -907 but plans to initiate a Phase I trial of -907 in solid tumors (likely breast cancer) before the end of the year.
Simply put, when looking at CRIS as an investment, -907's closest proxy may be Infinity Pharma, which is valued at $800M based almost exclusively on its Phase I PI3K inhibitor IPI-145. Curis will be in a similar development position with CUDC-907 by the end of the year and is valued at just $300M, $280M on an EV basis. The valuation disparity is made even more compelling by Curis' pipeline backdrop and the fact that news out of INFI, both positive or negative, may have a beneficial effect on CRIS. Essentially, in the same way that Threshold Pharmaceuticals (THLD) served as a derivative play of sorts on Ziopharm Oncoloy (ZIOP) in April (read more), Curis can benefit incrementally from either positive or negative updates regarding IPI-145's safety. In the case that IPI-145's safety profile continues downhill as data matures, the read-through on Curis is that -907 won't have the same effect due to its low inhibition of PI3K-gamma. Transversely, continuing quality data on IPI-145 validates the PI3K class as a whole. In fact, positive results from any of the PI3 kinase inhibitors in development will offer validation of -907, and the addition of HDAC inhibition suggests improved durability of response and a differentiated tact.
CUDC-427 Development Progresses in the Second Half
Curis in-licensed CUDC-427, formerly GDC-0917, from Genentech in November of 2012 following completion of the drug's first Phase I trial. -427 antagonizes Inhibitor of Apoptosis (IAP) proteins. Apoptosis is a physiological cell suicide program that's critical to the development and maintenance of healthy tissues. Disregulation of cell death pathways often occur in cancer. When IAPs are overexpressed or overactive cells no longer die in a normal programmed fashion. By utilizing IAP proteins, cancer cells thus evade apoptosis, including responses to anti-cancer therapies like chemotherapy and immune signals transmitted through members of the tumor necrosis factor (TNF). IAP inhibitors like -427 are designed to counteract the effects of IAP proteins, allowing apoptosis to proceed more effectively. The thesis is that IAP inhibitors in combination with TNF-inducing chemotherapeutic agents may accelerate cancer cell death. The chart below demonstrates the growth-inhibiting capabilities of CUDC-427 as a monotherapy, juxtaposed against chemotherapeutic combination treatments in a number of cancers.
Click to enlarge image.
A 42-patient Phase I Genentech trial in a wide variety of cancers demonstrated across 11 cohorts (patients received GDC-0917 at doses ranging between 5 mg and 600 mg daily) that the drug was safe and well tolerated. Unconfirmed complete responses were observed in one ovarian cancer patient and one patient with MALT lymphoma, and stable disease occurred in four other patients. Interestingly, Genentech never identified a MTD in the trial, but plasma concentrations of pre-clinically defined IC90 (dose of a therapeutic agent that inhibits 90% of a particular function) were reached at 600mg. The trial evidenced that -427 may have potential as a monotherapy in MALT lymphoma and BRCA1 ovarian cancer, but the current focus is on a planned Phase II trial evaluating -427 in combination with Xeloda (capecitabine) in HER2 negative breast cancer.
As of its latest investor presentation, management is guiding for initiation of the Phase II HER2- trial in the third quarter of this year; the initiation of a Phase I monotherapy study in ovarian & fallopian tube-derived cancer trial yet this July; and a Phase II trial of 427 as a monotherapy in aggressive and indolent MALT lymphoma before the end of this year. Although the company has been discussing the breast cancer trial for some time, this more aggressive approach, testing -427 as a monotherapy in two new indications, may be attributable to the company's February 2013 hire, Dr. Ali Fattaey as President and COO. Dr. Fattaey worked at Onyx Pharmaceuticals (ONXX) in the late 90's, a fellow oncology company known for its robust pipeline and quality development history.
Putting Curis in Context
Curis and Genentech (which was, of course, acquired by Roche in 2009) entered into a development collaboration in 2003 for a number of Hedgehog pathway inhibitors, of which Erivedge (vismodegib) emerged as the leading small molecule candidate. Positive pivotal trial results for Erivedge emerged in mid-2011 -- Erivedge shrank lesions in 43% of patients with locally advanced BCC and 30% in patients with metastatic BCC -- and the drug was subsequently approved by the FDA in January 2012 as the first therapeutic treatment for patients with advanced/metastatic BCC who are not candidates for surgery or radiation. On April 23, 2013, the European Medicines Agency's (EMA) Committee for Medicinal Products for Human Use (OTCQB:CHMP) recommended that Erivedge receive conditional approval for use in patients with advanced basal cell carcinoma, and Curis and Roche now await a final conditional approval decision from the EMA. Curis/Roche estimate the advanced BCC population who cannot undergo surgery at 40,000 patients between the U.S. and Europe, small considering that 2.8M Americans are diagnosed with BCC annually. But what makes it a particularly unremarkable asset for Curis is the small royalties that the company receives on Erivedge sales.
In the three quarters that Erivedge was on the market in 2012, the product generated $30.6M for Roche, of which Curis saw just 5%, or $1.53M. In the first quarter of 2013, net sales of Erivedge were $13.3M, a 20% increase over Q4 2012, but still nothing to crow about at Curis -- the company booked revenue of $660,000 for the product.
But a Phase II trial that could double the market opportunity for Erivedge is ongoing and will read out in the second half of the year. Roche is testing Erivedge in a 74-patient operable BCC study. Those results may support a supplemental New Drug Application with the FDA that could expand the market into BCC patients who are eligible for operation for use as a neo-adjuvant. Roche estimates that population at 55,000 patients between the U.S. and E.U. And while we don't see Erivedge as a key value driver for Curis based on its commercial prospects and Curis' small royalties, two catalysts for the product could put eyes back on Curis this year, and a milestone payment in relation will strengthen the company's cash position in a material way.
- The EMA should make a decision on Erivedge's conditional approval in BCC before the end of July, which we expect will be positive. That event will result in a $6M milestone payment to Curis.
- The Phase II operable BCC results will be available in October. The event could lead to incremental royalty gains for Curis.
Again, while Erivedge offers a backdrop to Curis' pipeline story, we don't see it as a particularly valuable asset. Curis entered into a $30M loan facility in December last year with BioPharma Secured Debt Fund II, under which Curis will apply its quarterly royalty payments from Genentech to pay down the outstanding principal and interest. Erivedge royalties won't be doing anything for the bottom line for quite some time. At $75,000 for a standard 10-month treatment, if Roche can capture 10% of the estimated 95,000-patient addressable population (sales of $712M), Curis might see royalties someday of $35M annually, enough to temper its cash burn but not an EPS driver for the development-centric company. Nevertheless, Erivedge offers an interesting and arguably free backstop to Curis' developing portfolio.
Finally, Curis' portfolio is rounded out by CUDC-101 and Debio0932. CUDC-101 was designed to inhibit EGFR and HDAC. An I.V. formulation and an oral formulation have proven failures in early trials, and the company has essentially gone back to the drawing board. Although not part of our valuation after these clinical flops, the company should be that much closer to finding the right drug profile if it continues to pursue development. We consider -101 a free call option in the CRIS story, as investors aren't currently paying for what amounts to a pre-clinical asset with a number of failed predecessors. Management, in fact, hasn't mentioned -101 in recent investor presentations.
Debio 0932, meanwhile, is a small molecule inhibitor of Heat Shock Protein 90 (HSP90) being developed by Debiopharm, which licensed the drug from Curis in the summer of 2009. 0932 is currently the subject of an ongoing Phase I/II study in patients with advanced lung cancer. In addition, Debiopharm plans to initiate a Phase I study of Debio 0932 in patients with renal cell carcinoma (RCC) in the second half of 2013. Curis receives milestone payments of up to $77M if specified clinical and regulatory objectives are met and will receive single-double digit royalties on net sales of 0932 if the therapy makes it to market. Given the low expectations for HSP90 inhibitors in lung cancer and that Debiopharma has been notoriously slow in developing the candidate, we also consider 0932 a free call option in the Curis story.
Due to the glacial pace at which development at Curis has moved in the last 10 years, many investors have written the company off until demonstration of clinical progress. But Curis has clearly gotten more aggressive, even in the last month, regarding development, which may be attributable to a few executive additions since February. In June at the Wells Fargo Securities Healthcare Conference, it was still unclear when the company would begin the three long-discussed trials for the IAP inhibitor -427. But less than a month later at the JMP Securities Healthcare Conference, the company said it plans to initiate all three within the next six months, two of which will begin this quarter. See Curis' upcoming catalysts below:
- 427 -- initiate Phase I ovarian & fallopian-derived cancer trial in July
- 427 -- initiate Phase II breast cancer trial in 3Q13
- 427 -- initiate Phase II MALT lymphoma trial in 2H13
- 907 -- complete Phase I hematologic cancer trial in 2H13
- 907 -- initiate Phase 1b solid tumor (breast) trial in 2H13
- Erivedge -- Conditional approval in EU likely 3Q13
- Erivedge -- Phase II oBCC data in October
- Erivedge -- $6M Milestone payment related to Erivedge EU approval
- Likely Phase I -907 lymphoma trial update at ASH, Dec. 7-10
Not including the likely $6M milestone due from Roche on Erivedge's approval in Europe, Curis has cash reserves sufficient for two-plus years of operations. The company ended the first quarter of the year with $49M in cash and equivalents and burns approximately $4M on a quarterly basis. We expect a noteworthy ramp in R&D expenses with the initiation of three to four new trials, hence our estimate that the company has ~8 quarters of operating cash flow on the balance sheet. In addition, Curis entered into a $30M financing arrangement with Cowen on July 3 that allows the company to sell stock incrementally at market prices. And recall that the company's existing $30M debt arrangement is secured by Erivedge royalties. Although it's "raise when you can" in biotech, it appears that shareholders can rest easy without fear of dilution as early-stage studies play out into next year.
Over the last year, investors have become more and more comfortable attributing value to mid-stage oncology candidates, and we expect that as Phase I trials pan out in the next three to nine months at Curis, interest in this changing story will increase. While Curis has been developing drug therapies for over a decade with little to show on the top line, we believe the story is shifting from one of a tired and underwhelming product launch -- Erivedge -- to a development-centric focus on novel approaches to cancer treatment. For a company with capital in the bank and two unique oncology assets, Curis' $280M enterprise value fails to capture the full story.
Additional disclosure: PropThink is a team of editors, analysts, and writers. This article was written by Jake King. We did not receive compensation for this article, and we have no business relationship with any company whose stock is mentioned in this article. Use of PropThink’s research is at your own risk. You should do your own research and due diligence before making any investment decision with respect to securities covered herein. You should assume that as of the publication date of any report or letter, PropThink, LLC and persons or entities with whom it has relationships (collectively referred to as "PropThink") has a position in all stocks (and/or options of the stock) covered herein that is consistent with the position set forth in our research report. Following publication of any report or letter, PropThink intends to continue transacting in the securities covered herein, and we may be long, short, or neutral at any time hereafter regardless of our initial recommendation. To the best of our knowledge and belief, all information contained herein is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable, and not from company insiders or persons who have a relationship with company insiders. Our full disclaimer is available at www.propthink.com/disclaimer.