In Drug Development, Help Is Crucial

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With only $28 million in the bank at the end of the third quarter and no drugs on the market, any financial help that Curis (NAS: CRIS) can get to develop its drugs is a welcome site.

So it's not surprising that the stock was beating the Dow Jones Industrial Index (INDEX: ^DJI) today after the company announced a partnership with The Leukemia & Lymphoma Society to fund the development of its preclinical compound CUDC-907.

The LLS will contribute approximately 50% of the cost of development of CUDC-907 up to $4 million, which should help Curis finish preclinical studies and start a phase 1a dose escalation study in patients with B-cell lymphoma and multiple myeloma. Assuming the drug looks good in the early trial, there's additional funding available from LLS for phase 1b and phase 2a studies.

If CUDC-907 is a flop, Curis won't be obligated to repay the funds, but this isn't exactly free money. If Curis decides to stop developing CUDC-907 despite positive results, it'll have to make a payment to LLS. That's what happened to Geron (NAS: GERN) after discontinuing its stem-cell program; it had to repay $6.25 million in grant money to the California Institute for Regenerative Medicine.

If CUDC-907 does make it to market, Curis will have to pay milestone payments up to 2.5 times the amount that LLS contributes to the development of the drug. At least some of the payments are tied to the drug's commercial success, so it appears Curis won't be stuck footing a huge bill if the drug is a commercial flop.

Except for the payments -- and who's going to complain about the payments if the drug works? -- there's little downside to these types of deals. Vertex Pharmaceuticals (NAS: VRTX) has a similar deal with the Cystic Fibrosis Foundation, which gives the nonprofit royalties on its cysytic fibrosis drugs in exchange for help developing the drugs. Even larger drugmakers aren't against taking cash if it's the only way to make the financials work out; Johnson & Johnson (NYS: JNJ) took money from Global Alliance for TB Drug Development to help develop its tuberculosis drug.

Giving up some of the upside is secondary to cutting the cash burn rate while Curis waits for its own milestone payments and royalty payments from Roche if vismodegib, which Curis helped develop, makes it to market.

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At the time this article was published Fool contributorBrian Orelliholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Johnson & Johnson.Motley Fool newsletter serviceshave recommended buying shares of Johnson & Johnson and Vertex Pharmaceuticals and creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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