Small biotech Curis couldn't afford to develop entirely new drugs in the U.S. So like many others, it outsourced its R&D to China
When Curis (CRIS) went public eight years ago, it symbolized the unbound optimism of biotechnology. Its stock rose fast, to 25, and it possessed promising technologies. Ever since, Curis has illustrated the risks of investing in biotech startups. There have been heartbreaking setbacks in clinical testing, failed partnerships with Wyeth (WYE) and Procter & Gamble (PG), and collaboration with Genentech (DNA) that has seemingly dragged on forever. Curis's stock has crashed, rebounded, and crashed again, hitting just 91¢ in November.
But the tiny Cambridge (Mass.) biotech has hardly abandoned its dreams of producing blockbuster treatments for everything from colon cancer to neurological diseases. And if it succeeds, Curis could prove to be a valuable case study in the merits of research and development partnerships between the U.S. and China.
For more than two years, Curis has been outsourcing sophisticated chemistry work to Shanghai ChemPartners, a fast-growing contract research organization in an industrial park in Shanghai's Pudong district. The 25 Chinese chemists assigned to Curis help the biotech work on problems around the clock. At $50,000 to $80,000 a year including benefits, they also cost around one-fifth less than U.S.-based scientists performing similar work.
The low-cost Chinese help is pivotal to Curis' two-pronged strategy for success, says CEO Daniel P. Passeri. On the one hand, Curis has its continuing tie-up with Genentech to develop drugs targeting Hedgehog, a complex pathway of proteins and cells believed to influence growth of cancerous tumors in the stomach, pancreas, lungs, and other tissues (BusinessWeek.com, 5/16/05). The project finally is producing promising results. Genentech has reported that several cancer patients taking its Hedgehog drug in clinical trials have shown dramatic improvement. It has recently begun Phase II human trials involving 150 patients. If a commercial drug results, which would still be several years from now, Curis stands to receive hefty milestone payments and royalties if it results in a commercial drug that could be worth hundreds of millions of dollars.
Aiming at Many Targets
At the same time, Curis is trying to develop a broad portfolio of its own cancer drugs, the funding for which is mainly from payments from corporate partners such as P&G and Genentech. Rather than trying to discover new biological targets, Curis is developing single-dose drugs aimed at hitting a number of targets simultaneously. It says it believes it is the only company attacking both the surface and the nucleus of the cell. The goal is to make treatments that are easier to use, more affordable, and more effective not only in attacking cancer cells but also in keeping them from reappearing.
That is where China comes in. These days, it can cost anywhere from $20 million to $100 million to develop a new drug in the U.S. from the time a promising compound is identified in a lab to the point where it is ready for clinical testing and, ultimately, to when it is lucratively licensed to a big pharmaceutical company. Every R&D program requires six to eight full-time chemists, each of whom can cost $350,000 a year in the U.S. including benefits, says Curis CFO Michael Gray. And even then, the odds the drug will ever win Food & Drug Administration approval are about 1 in 10. With such odds, venture capitalists have grown wary of fronting the money for early-stage discovery to small biotechs.
For small companies with limited resources like Curis, that presents a dilemma. Most have to bet their resources on only one or two drug programs and try to rush them into clinical testing, rather than methodically spreading their risks by developing a range of candidates simultaneously. Given the high chances of failure, "it is tantamount to spinning a roulette wheel," says Passeri. "Curis is representative of what is happening in the sector."
Low Costs Mean More Options
By using Chinese medicinal chemists costing so much less than Americans doing similar work, Curis can afford to have 10 drugs aimed at different kinds of cancer in early-stage development. To pull off its strategy, "we needed a dramatic buildup of our chemistry capabilities," says Passeri. "If we did all of this in the U.S., we probably wouldn't be in the business right now."
This fall, it plans to begin human testing on its first single-pill drug, based on a molecule called CUDC-101.
Curis says it had one advantage that made it relatively easy to work with a Chinese company: Its chief scientist, Qian Changgeng, as well as nearly half of its 30 researchers in Cambridge are native Chinese. Indeed, the company's labs in a small office park outside Cambridge might be confused with those of a Chinese company. During a recent visit after lunchtime, a table in the hallway was covered with foil containers of Chinese takeout. And much of the discussion in the labs was in Mandarin. That's not unusual, says Passeri. Chinese immigrant scientists are a mainstay in most U.S. labs. "Go to practically any other biotech, and you'll likely see the same thing," he says.
After a two-week search in 2006, Curis settled on Shanghai ChemPartners, a unit of a larger company, privately held ShangPharma, with 1,200 scientists. Among its major Western clients are Eli Lilly (LLY). Curis also sent staff to Shanghai to train the Chinese chemists. "We really view their scientists as part of our team," says Passeri.
While Curis' Cambridge team focuses on designing new compounds and on biology research, Shanghai ChemPartners handles much of the chemistry. It synthesizes molecules based on Curis' designs, conducts a battery of tests, and sends the data over a shared Web site overnight to Cambridge. The next day, Curis scientists study the data and tweak their designs. Then the process starts over again in Shanghai. "This represents a new, transformational model of how to leverage resources in a cost-effective way and how to work across the Pacific," says ChemPartners CEO Michael Hui. So far, Passeri says the quality of work has been high. "And because we work around the clock, we've been able to accomplish in two years what would have taken us four years in the U.S.," he says.
Resulting from a Merger
It is still far too early, of course, to predict whether Curis or any other small biotech will succeed. Curis has already weathered many setbacks. The company sprang from a 2000 merger between Ontogeny, which owned rights to the Hedgehog technology, and two other small companies. But the following year its chief product, a protein to induce bone growth in fractures that had been shaping up as a big money-maker, failed in testing after limited to approval to market the product in the U.S. and Europe.
Curis then entered into a series of partnerships with larger corporations for treatments based on Hedgehog. In 2006, Genentech halted a trial of a topical cream to treat nonlethal skin cancer. The next year, P&Ge pulled out of potential cure for hair loss. And in March, Wyeth did the same with efforts to develop drugs for stroke and cardiovascular disease.
Curis stock got a bump in January, after Genentech's news that its Hedgehog drug performed well in early human trials after it had already invested more than $100 million in the program.
Now, Curis stock trades at around 1.70. CFO Gray says the company has $33 million in cash, enough to continue work on its propriety drugs at least through 2009. Curis also is exploring expanding its China outsourcing to include biology R&D, where the capabilities of mainland companies are improving fast.
This may all sound threatening to Americans who fear another prized industry could shift offshore. But Passeri views it differently. "The U.S. still has a stranglehold on innovation in biotech. China is augmenting our capabilities," he says. "Companies that do this well will have a tremendous competitive advantage."