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Curis (NASDAQ:CRIS) is a biotechnology company developing proprietary targeted molecules with a market capitalization of ~$350 million.

The company currently has four (4) programs in its pipeline. Vismodegib, a first-in-class hedgehog-pathway inhibitor, which is partnered with Genentech-Roche (OTCQX:RHHBY), and was recently FDA approved for marketing in advance BCC and metastatic BCC (under the trade name Erivedge). CUDC-101, a proprietary novel compound designed to inhibit HDAC, EGFR, and Her2. Debio-0932, a Heat Shock Protein 90 (Hsp90) compound, being developed by Swiss pharmaceutical, Debiopharm. Finally, CUDC-907, a proprietary compound designed to inhibit HDAC and PI3K networks.

For purposes of this writing, we are going to focus on the novel compound Vismodegib and upcoming data in the pancreatic indication. We are confident that upcoming data being conducted by Roche and investigators in several pancreatic cancer studies could provide possibly 150-200% upside to Curis shares in the next several months.

Biotech investing is a sophisticated process and involves gathering as much anecdotal and real-life evidence of efficacy in a drug to develop a thesis. We feel through various public cancer forums and journals as well as recent investigator dissertations, we have been provided with enough anecdotal evidence where we are highly confident in the outcome of these trials.

Background on Vismodegib

Vismodegib (GDC-0449/Erivedge) is the first drug targeting the Hedgehog signaling pathway to gain FDA approval. The substance acts as a cyclopamine-competitive antagonist of the smoothened receptor (SMO), which is part of the hedgehog signaling pathway. SMO inhibition causes the transcription factors GLI1 and GLI2 to remain inactive, which prevents the expression of tumor mediating genes within the hedgehog pathway. This pathway is pathogenetically relevant in more than 90% of basal-cell carcinomas.

In the drug's pivotal Phase II trial called ERIVANCE, Vismodegib enrolled 104 patients with advanced BCC (basal cell carcinoma), including 71 with locally advanced BCC and 33 with metastatic BCC. The primary endpoint of the trial showed an overall response rate of 43 percent in the laBCC cohort, and 30 percent in mBCC, as assessed by independent review. Study investigators assessed the overall response rate for laBCC and mBCC at 60 percent and 46 percent, respectively (secondary endpoint). The median duration of progression-free survival by independent review for both metastatic and locally advanced BCC patients was 9.5 months.

Curis partner Roche conservatively estimates there are ~14,000 patients in the U.S. with advanced BCC. ~8,000 additional patients in Europe and Australia (Roche has filed for marketing approval with the EMA). ~4,000+ patients with BCNS (basal cell nevus syndrome or Gorlin's Syndrome). At a cost of $7,500 USD per month (10 month schedule) this would represent at least a $1 billion/year drug for Roche in just this indication alone for this specific patient set. The FDA granted Erivedge a highly favorable and broad label, so we have some confidence that the drug could also be used in a small percentage of operable BCC cases. This would dramatically enhance the market opportunity and revenues for Erivedge. According to Curis' 10-K, the company is "entitled to a mid-to-high single digit royalty, which escalates within this range with increasing product sales." We feel going forward, this will provide Curis with large upside to their cash flow, potentially annualized at $100 million in just the BCC indication alone.

Vismodegib and Pancreatic Cancer

Pancreatic cancer is the fourth most common cause of cancer death across the globe. Pancreatic cancer often has a poor prognosis: for all stages combined, the 1- and 5-year relative survival rates are 25% and 6%, respectively; for local disease the 5-year survival is approximately 20% while the median survival for locally advanced and for metastatic disease, which collectively represent over 80% of individuals, is about 10 and 6 months respectively.

Without getting into several pages of details, pancreatic cancer is one of the toughest cancers to fight because of what researchers have discovered in recent years: the cancer's "stroma". The stroma is analogous to the shell of a walnut. It is this unusually tough stroma surrounding pancreatic tumors that is responsible for the disease's poor prognosis. Not only is it almost entirely impenetrable to chemotherapeutic agents, but it also becomes enmeshed with white blood cells that prevent the immune system from launching its own attack on the cancer.

Gemcitabine [marketed as Gemzar by Eli Lilly & Co. (NYSE:LLY)] is a nucleoside analog used as chemotherapy. It is the standard first line therapy for pancreatic cancer. Over the years, gemcitabine based chemotherapy combinations were studied for the treatment of pancreatic cancer, but none of these combination chemotherapies showed any significant benefit over single agent gemcitabine in the treatment of pancreatic cancer. We feel, based on our anecdotal evidence, this is about to change.

GDC-0449/Vismodegib Trials in Pancreatic Cancer

Through a collaboration with the NCI (National Cancer Institute), Genentech-Roche has been very rationale in their broad approach testing Vismodegib in several indications. Currently, the Vismodegib program has twenty-five (25) active trials indicated on clinicaltrials.gov. Six (6) of these trials are specifically for the pancreatic indication.

Hedgehog Inhibitors for Metastatic Adenocarcinoma of the Pancreas
Sponsor: Sidney Kimmel Cancer Center
Collaborators: Stand Up To Cancer, Genentech, Celgene
Purpose: This is an open-label, single arm, multi-center, Phase II trial to evaluate the progression free survival in patients with metastatic adenocarcinoma of the pancreas treated with a hedgehog inhibitor (GDC-0449) in combination with chemotherapy (gemcitabine and nab-Paclitaxel).

Hedgehog Inhibition for Pancreatic Ductal Adenocarcinoma in the Preoperative Setting
Sponsor: Cambridge University Hospitals NHS Foundation
Collaborators: Roche Pharma, Genentech
Purpose: This clinical trial is looking at the effect of a new drug called GDC-0449 in patients with cancer of the pancreas. Laboratory studies have shown that this drug blocks a process in pancreatic cells thought to be involved in cancer development and spread. This process is called the 'Hedgehog signalling pathway'. As yet, it is unclear whether blocking hedgehog signalling will directly affect the tumour cells themselves or the surrounding normal tissue. Understanding this distinction will help improve treatment strategies for pancreatic cancer. Patients will be offered to participate in this research study if they have localised pancreatic cancer that can be removed by surgery. In the period between diagnosis and surgery the investigators do not normally treat patients, however in this trial the investigators will ask patients to take GDC-0449 during the approximately two weeks until the day of surgery. All patients that enter this study will have undergone a diagnostic biopsy of the pancreatic tumour and the investigators will collect a second sample of the tumour at surgery. The main question of this study is whether the investigators can detect a change in hedgehog signalling in the normal tumour surrounding tissue. Furthermore the investigators will look very carefully whether this treatment is safe for patients. All problems before and after surgery will be carefully documented and the investigators have defined strict rules to stop the study if the investigators observe serious problems.

Cancer Stem Cells and Inhibition of Hedgehog Pathway Signaling in Advanced Pancreas Cancer: A Pilot Study of GDC-0449 in Combination With Gemcitabine
Sponsor: University of Michigan Cancer Center
Collaborator: NCI
Purpose: A primary reason for ultimate resistance to therapy is due to existence of cancer stem cells in a pancreatic cancer which are resistant to chemotherapy leading to treatment failure and death. Treatment with GDC-0449 to target the stem cell compartment will be combined with gemcitabine to target the remaining tumor cell compartment. This two-pronged approach reflects the recognition that tumors are composed of heterogeneous cells and a meaningful improvement in outcome in pancreatic cancer hinges on effectively targeting all tumor cells. Treatment with GDC-0449 will inhibit the sonic hedgehog pathway signaling in cancer stem cells and the downstream effects in the tumor microenvironment will enhance efficacy of treatment with gemcitabine and improve progression free survival and overall survival in pancreatic cancer.

Sirolimus and Vismodegib in Treating Patients With Solid Tumors or Pancreatic Cancer That is Metastatic or Cannot Be Removed By Surgery
Sponsor: Mayo Clinic
Purpose: This phase I trial studies the side effects and the best dose of sirolimus when given together with vismodegib in treating patients with solid tumors or pancreatic cancer that is metastatic or cannot be removed by surgery. Sirolimus and vismodegib may stop the growth of tumor cells by blocking some of the enzymes needed for cell growth

GDC-0449 and Erlotinib Hydrochloride With or Without Gemcitabine Hydrochloride in Treating Patients With Metastatic Pancreatic Cancer or Solid Tumors That Cannot Be Removed by Surgery
Sponsor: Mayo Clinic
Collaborator: NCI
Rationale: Drugs used in chemotherapy, such as GDC-0449 and gemcitabine hydrochloride, work in different ways to stop the growth of tumor cells, either by killing the cells or by stopping them from dividing. Erlotinib hydrochloride may stop the growth of tumor cells by blocking some of the enzymes needed for cell growth. Giving GDC-0449 together with erlotinib hydrochloride with or without gemcitabine hydrochloride may kill more tumor cells.

Gemcitabine Hydrochloride With or Without GDC-0449 in Treating Patients With Recurrent or Metastatic Pancreatic Cancer
Sponsor: University of Chicago
Collaborator: NCI
Rationale: Drugs used in chemotherapy, such as gemcitabine hydrochloride, work in different ways to stop the growth of tumor cells, either by killing the cells or by stopping them from dividing. GDC-0449 may slow the growth of tumor cells. It is not yet known whether giving gemcitabine hydrochloride together with GDC-0449 is more effective than gemcitabine hydrochloride alone in treating patients with pancreatic cancer.

We would like to focus on two of these particular studies in which we evolve our thesis that Vismodegib will likely demonstrate striking results when combined with other chemotherapeutic agents.

1. The University of Michigan study ("Cancer Stem Cells and Inhibition of Hedgehog Pathway Signaling in Advanced Pancreas Cancer: A Pilot Study of GDC-0449 in Combination With Gemcitabine").

According to a recent dissertation we discovered, published by Joseph Scott Dosch as a Dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy, and titled "EXAMINING THE ROLE OF HEDGEHOG SIGNALING IN THE PANCREATIC TUMOR MICROENVIORNMENT", "over-expression of the Hh pathway ligands, Sonic and Indian Hedgehog was identified in about 70% of human pancreatic cancer cases as well as in the majority of pancreatic cancer cell lines." (For the purposes of this note, we have kept the science of hedgehog down to a minimum - however, we strongly urge you to read this entire dissertation for a full background into the biology and rationale of trial designs involving the hedgehog signaling pathway).

From this dissertation, we found an absolute unique insight into a clinical trial in which Vismodegib (GDC-0449) and Gemcitabine are used in combination to treat patients with metastatic pancreatic ductal adenocarcinoma. According to the paper:

Recently, a Phase I clinical trial (UMCC 2010.003) has been initiated at the University of Michigan Medical Center for the treatment of patients with metastatic pancreatic ductal adenocarcinoma with GDC-0449, a Smoothened antagonist and potent Hh pathway inhibitor developed by Genentech. The plan for this study is to include 25 patients with metastatic disease. The primary endpoint is to assess the biological effects of Hh inhibition on cancer stem cells and Hh signaling with secondary endpoints examining clinical outcome parameters. All patients in this trial will have core biopsies taken before treatment with GDC-0449 to establish a baseline of Hh pathway activity. Patients will then undergo a first cycle of GDC-0449 monotherapy for two weeks, following which another core biopsy will be taken to assess Hh-regulated changes in the tumor. Cycle 2 will then administer Gemcitabine infusion 3 times a week for 28 days. CT scans will be used to assess response at 8 week intervals.

Preliminary results of this trial have demonstrated some exiting results and important correlations with our xenograft study. Five patients have been evaluated for a response to GDC-0449 pre-treatment followed by gemcitabine treatment and have confirmed a partial response in 3 out of 5 patients. CT scans of patients following GDC-0449 treatment alone revealed very little change in the amount and size of metastases, which correlates with our xenograft study that demonstrated very little change in tumor volume with HhAntag treatment. However, following a treatment cycle with both gemcitabine and GDC-0449 a significant reduction in the metastatic liver lesions of several patients was observed (Figure 4.5 A). In addition, a reduction in CA-19-9 levels, a serum marker used diagnostically in pancreatic cancer, following the GDC-0449 and gemcitabine treatment cycle (Figure 4.5 B) has been observed. Additionally, histological changes with increased vacuolated structures in tumor cells of one patient following GDC-0449 treatment, consistent with our findings following treatment of orthotopic tumors in mice with HhAntag (Chapter 2, Figure 2.6).

While this clinical trial is still in the early stages, the results are encouraging that targeting paracrine Hh signaling in pancreatic cancer patients may be a viable therapeutic strategy. As treatment has resulted in variable response in patients, it will be important to identify what parameters correlate with success, whether that may be levels of Hh ligands, expression of cancer stem cell markers, or the expression of certain Hh target genes in the tumor stroma. In the future, we hope to test inhibition of Hh signaling in a model of established liver metastases. This model may help us understand how Hh signaling of tumor cells in metastatic sites affects other organ microenvironments.

While we would agree that 3 out of 5 patients is a very small number, the trial is still very young, and 60% of patients showing a response is a very good start. We also believe the trial design is smart, and biomarkers will likely be very useful going forward and will avoid failed trials in this indicated pathway such as Infinity Pharmacueatical's recently failed Phase 2 study (which, we believe, poor patient selection was one of the reasons for the outcome). We also believe there are molecular differences between GDC-0449 and the Infinity compound which we believe are in favor of the efficacy of GDC-0449.

2. Hedgehog Inhibitors for Metastatic Adenocarcinoma of the Pancreas

This is a clinical trial being funded by Genentech, Celgene, and Stand Up To Cancer. Patients are being admitted at Sidney Kimmel Comprehensive Cancer Center at Johns Hopkins, Translational Genomics Research Institute (TGen), and University of Pennsylvania.

The rationale of this trial is similar to the aforementioned trial in that it is a combination of GDC-0449 and Gemcitabine. However, this trial also combines a third drug, Celgene's (NASDAQ:CELG)(NASDAQ:CELGZ) Abraxane (nab-paclitaxel). There is a strong thesis amongst key opinion leaders in oncology that by combining nab-paclitaxel, you can greatly deteriorate the stroma wall of the tumor, allowing chemotheraputic agents such as gemcitabine to kill the cancer cells more efficiently. The rationale for combining GDC-0449 as well, is that not only does GDC-0449 potentially destroy the stroma wall, but hedgehog drugs are thought to also kill cancer stem cells. The strong rationale here is a two pronged approach: (1) destroy the stroma wall allowing for efficient use of chemotheraputic agents, and (2) kill any residual cancer cells through the stem essentially "mopping" up free-floating cells.

It is possible to get an insight into open-label trials such as this via certain areas in the public domain where patients are speaking of their experiences on the drug and drug regimines. We have found ample evidence that indeed this combination is showing efficacy and doctors at John Hopkins continue to recommend patients into this drug combination through these particular forums. Our thesis when it comes to oncology investing has always been to see the hard evidence working in humans and not simply rely on mouse models and executives who clearly have a conflict of interest. We feel we have enough anecdotel evidence from these public sites to take a solid position here that the drug combination is working, and GDC-0449 will be a key ingredient in a major breakthrough for pancreatic cancer.

Even if one was to entirely disagree with our thesis and say the evidence is only anecdotal or too small, we ask ourselves this one very simple question: if the hedgehog compound GDC-0449 is not a possible major breakthrough in pancreatic cancer, why are so many key-opinion leaders in oncology continuing to start new trials with GDC-0449, and continue to enroll patients in these studies? We feel the answer is simple: because it is working, likely.

We urge you to also watch this Stand Up To Cancer video and comments from Dr. Daniel D. Von Hoff, a superstar in treating pancreatic cancer, and one of the Stand Up To Cancer "Dream Team" scientists participating in the GDC-0449 trial.

Valuation

At ~$350 million valuation for Curis, we believe there is possibly 150-200% upside from current levels upon positive results of any of the six (6) pancreatic studies involving GDC-0449 as this will be a tremendous breakthrough and is a major unmet medical need in this horrible disease. We would expect, at the very least, one readout from one of these trials within the next several months, perhaps at ASCO in June, 2012. Again, we think any positive readout is likely to add significant upside to the shares. While Curis is still only "entitled to a mid-to-high single digit royalty" for this indication as well - not only will it provide massive cash flow to Curis, but, we ask ourselves the following question: at what point does Genentech-Roche simply acquire Curis in GDC-0449 continues to be successful in indications other than BCC (such as pancreatic, small-cell lung cancer, esophogeal)? Not only would Roche acquire the remaining royalty assets of GDC-0449 from Curis, but they would also acquire three other oncology assets from Curis' pipeline (most of which are currently in either early or mid-stage trials). Based upon recent acquisitions in the oncology space in the past two years, we feel an acquisition valuation of at least $1-1.5 billion reasonable and feel it could be much higher as time passes. In 2011, for instance, Plexxikon Inc. entered into a merger agreement with Daiichi Sankyo, a Japan-based global pharmaceutical company. The purchase price for Plexxikon was $805 million up-front. Near-term milestone payments associated with the approval of PLX4032 might total an additional $130 million.

Our premise remains that GDC-0449 will be instrumental and a possible blockbuster breakthrough in pancreatic cancer, and Curis is currently highly undervalued.

**We do not make investment recommendations and this is our own thesis for our investment in Curis. Please do you own research.

Disclosure: I am long CRIS.

Disclaimer: We make no recommendations, please do your own due diligence before investing. These are our investment thesis.

Source: Curis: Potential Blockbuster Application In Pancreatic Cancer