10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

    x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2012

OR

    ¨     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to         .

Commission File Number: 000-30347

CURIS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	04-3505116
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
4 Maguire Road Lexington, Massachusetts	02421
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code: (617) 503-6500

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

As of October 30, 2012, there were 79,960,906 shares of the registrant’s common stock outstanding.

CURIS, INC. AND SUBSIDIARIES QUARTERLY REPORT ON FORM 10-Q

INDEX

		Page Number
PART I.	FINANCIAL INFORMATION
Item 1.	Unaudited Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011		3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2012 and 2011		4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September  30, 2012 and 2011		5
	Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		30
Item 4.	Controls and Procedures		30
PART II.	OTHER INFORMATION
Item 1A.	Risk Factors		31
Item 6.	Exhibits		50
SIGNATURE			51

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Item 1. FINANCIAL STATEMENTS

CURIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

	September 30, 2012			December 31, 2011
ASSETS
Current Assets:
Cash and cash equivalents	$	7,809,408		$	15,119,730
Investments		33,325,782			22,597,845
Accounts receivable		548,392			42,067
Prepaid expenses and other current assets		498,067			743,799
Total current assets		42,181,649			38,503,441
Property and equipment, net		461,591			455,730
Long-term investments		751,960			—
Long-term investment – restricted		194,282			235,914
Goodwill		8,982,000			8,982,000
Other assets		2,980			2,980
Total assets	$	52,574,462		$	48,180,065
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	2,690,855		$	2,364,437
Accrued liabilities		1,290,855			1,422,107
Total current liabilities		3,981,710			3,786,544
Warrants		2,690,930			4,361,168
Other long-term liabilities		186,312			156,396
Total liabilities		6,858,952			8,304,108
Commitments
Stockholders’ Equity:
Common stock, $0.01 par value—125,000,000 shares authorized; 80,998,363 shares issued and 79,950,656 shares outstanding at September 30, 2012; and 78,165,360 shares issued and 77,117,653 shares outstanding at December 31, 2011		809,984			781,654
Additional paid-in capital		781,906,444			772,039,254
Treasury stock (at cost, 1,047,707 shares)		(891,274	)		(891,274	)
Accumulated deficit		(736,133,361	)		(732,087,642	)
Accumulated other comprehensive income		23,717			33,965
Total stockholders’ equity		45,715,510			39,875,957
Total liabilities and stockholders’ equity	$	52,574,462		$	48,180,065

See accompanying notes to unaudited condensed consolidated financial statements.

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CURIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
REVENUES:
License fees	$	—		$	—		$	14,000,000		$	300,000
Royalties		446,402			—			969,774			—
Research and development		131,357			147,122			315,811			373,527
Total revenues		577,759			147,122			15,285,585			673,527
COSTS AND EXPENSES:
Cost of royalty revenues		22,320			—			148,489			—
Research and development		3,042,498			3,042,251			12,784,902			9,244,800
General and administrative		2,473,853			1,921,206			7,539,516			6,196,337
Total costs and expenses		5,538,671			4,963,457			20,472,907			15,441,137
Loss from operations		(4,960,912	)		(4,816,335	)		(5,187,322	)		(14,767,610	)
OTHER INCOME/(EXPENSE):
Interest income		34,129			22,596			87,224			81,506
Change in fair value of warrant liability		1,541,779			587,184			1,054,379			(1,234,666	)
Total other income/(expense)		1,575,908			609,780			1,141,603			(1,153,160	)
Net loss	$	(3,385,004	)	$	(4,206,555	)	$	(4,045,719	)	$	(15,920,770	)
Net loss per common share (basic and diluted)	$	(0.04	)	$	(0.05	)	$	(0.05	)	$	(0.21	)
Weighted average common shares (basic and diluted)		79,639,433			76,543,074			78,752,687			76,251,709
Total comprehensive loss	$	(3,401,010	)	$	(4,217,532	)	$	(4,055,967	)	$	(15,943,405	)

See accompanying notes to unaudited condensed consolidated financial statements.

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CURIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine Months Ended September 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(4,045,719	)	$	(15,920,770	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		91,383			76,753
Stock-based compensation expense		2,838,311			1,351,500
Issuance of common stock to licensees		964,000			—
Change in fair value of warrant liability		(1,054,379	)		1,234,666
Non-cash interest (income)/expense		(225,468	)		299,653
Net gain on sale of assets		—			(59,651	)
Changes in current assets and liabilities:
Accounts receivable		(506,325	)		(44,942	)
Prepaid expenses and other assets		288,922			(283,747	)
Accounts payable and accrued liabilities		170,004			95,145
Total adjustments		2,566,448			2,669,377
Net cash used in operating activities		(1,479,271	)		(13,251,393	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities		(43,206,032	)		(32,236,817	)
Sale of marketable securities		32,691,355			47,993,617
Decrease in restricted cash		41,632			261,090
Purchase of long-term investments		(750,000	)		—
Proceeds from sale of assets		—			59,651
Purchases of property and equipment		(42,166	)		(249,501	)
Net cash (used in)/provided by investing activities		(11,265,211	)		15,828,040
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under the Company’s share-based compensation plans and warrant exercises		4,590,132			1,341,984
Proceeds from issuance of common stock under the Company’s ATM Agreement, net of issuance costs of $27,356 and $123,374, respectively		844,028			139,073
Net cash provided by financing activities		5,434,160			1,481,057
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS		(7,310,322	)		4,057,704
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		15,119,730			7,826,549
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	7,809,408		$	11,884,253

See accompanying notes to unaudited condensed consolidated financial statements.

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CURIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Nature of Business

Curis, Inc. (the “Company” or “Curis”) is a drug discovery and development company that is committed to leveraging its innovative signaling pathway drug technologies in seeking to develop next generation network-targeted cancer therapies. Curis is building upon its past experiences in targeting signaling pathways, including the Hedgehog signaling pathway, in its efforts to develop network-targeted cancer therapies. Curis conducts research and development programs both internally and through strategic collaborations.

The Company operates in a single reportable segment, which is the research and development of innovative cancer therapeutics. The Company expects that any successful products would be used in the health care industry and would be regulated in the United States, or the U.S., by the U.S. Food and Drug Administration, or FDA, and in overseas markets by similar regulatory agencies. In January 2012, the FDA approved the Erivedge™ capsule for the treatment of adults with basal cell carcinoma, or BCC, that has spread to other parts of the body or that has come back after surgery or that their healthcare provider decides cannot be treated with surgery or radiation. Erivedge is being developed and commercialized by F. Hoffmann-La Roche Ltd, or Roche, and Genentech Inc., or Genentech, a member of the Roche Group, under a collaboration agreement between the Company and Genentech (see Note 4).

The Company is subject to risks common to companies in the biotechnology industry as well as risk factors that are specific to the Company’s business, including, but not limited to: the Company’s reliance on Genentech and Roche to successfully commercialize Erivedge in the U.S. market and to seek approval for Erivedge in territories outside of the U.S. in the lead indication of advanced BCC; the Company’s ability to advance its research and development programs, including those programs developed directly by the Company and those that are being developed by its collaborators and licensees; the potential for the Company to expand its research and development programs, either through internal discovery or through the licensing or acquisition of third-party programs; the Company’s ability to obtain adequate financing to fund its operations; its ability to obtain and maintain intellectual property protection for its proprietary technology; development by its competitors of new or better technological innovations; dependence on key personnel and the Company’s ability to attract and retain such key personnel; ; its ability to comply with FDA regulations and approval requirements; and its ability to execute on its overall business strategies.

The Company’s future operating results will largely depend on the magnitude of payments from its current and potential future corporate collaborators and the progress of drug candidates currently in its research and development pipeline. The results of the Company’s operations will vary significantly from year to year and quarter to quarter and depend on, a number of factors, including, but not limited to: Genentech’s ability to successfully scale-up the commercialization of Erivedge in advanced BCC in the U.S.; Genentech’s and/or Roche’s receipt of approval to commercialize Erivedge in advanced BCC in Europe and other territories as well as its ability to successfully launch and commercialize Erivedge in these markets; positive results in Genentech’s ongoing phase II clinical trial in patients with operable BCC; the timing, outcome and cost of the Company’s planned clinical trials for CUDC-101, CUDC-907 and other potential research and development programs; and the Company’s ability to successfully enter into one or more material licenses or collaboration agreements for its proprietary drug candidates.

The Company anticipates that existing capital resources at September 30, 2012 should enable the Company to maintain its current and planned operations into the first half of 2014. The Company’s ability to continue funding its planned operations into and beyond the first half of 2014 is dependent upon, among other things, the success of its collaborations with Genentech, including its receipt of meaningful royalty revenue for sales of Erivedge, and Debiopharm S.A., or Debiopharm, and receipt of additional cash payments under these collaborations, its ability to control expenses and its ability to raise additional funds through equity or debt financings, new collaborations or other sources of financing. The Company may not be able to successfully enter into or continue any corporate collaborations and the timing, amount and likelihood of the Company receiving payments under such collaborations is highly uncertain. As a result, the Company may not be able to attain any further revenue under any collaborations or licensing arrangements. If the Company is unable to obtain adequate financing, the Company may be required to reduce or delay spending on its research and/or development programs.

2. Basis of Presentation

The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. These statements, however, are

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condensed and do not include all disclosures required by generally accepted accounting principles, or GAAP, in the U.S. for complete financial statements and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission on February 29, 2012.

In the opinion of the Company, the unaudited financial statements contain all adjustments (all of which were considered normal and recurring) necessary for a fair statement of the Company’s financial position at September 30, 2012 and the results of operations and cash flows for the nine-month periods ended September 30, 2012 and 2011. The preparation of the Company’s Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosure of certain assets and liabilities at the balance sheet date. Such estimates include revenue recognition, the collectability of receivables, the carrying value of property and equipment and intangible assets, management assumptions used in its calculations of stock-based compensation expense, and the value of certain investments and liabilities, including the value of its warrant liability. Actual results may differ from such estimates.

These interim results are not necessarily indicative of results to be expected for a full year or subsequent interim periods.

3. Revenue Recognition

The Company’s business strategy includes entering into collaborative license and development agreements with biotechnology and pharmaceutical companies for the development and commercialization of the Company’s product candidates. The terms of these agreements may provide for the Company’s licensees and collaborators to agree to make non-refundable license fee payments, research and development funding payments, contingent cash payments based upon achievement of clinical development and regulatory objectives, and royalties on product sales if any products are successfully commercialized. For a complete discussion of the Company’s revenue recognition policy, see Note 2(c) included in its annual report on Form 10-K, as previously filed with the Securities and Exchange Commission on February 29, 2012.

4. Collaboration Agreements

(a) Genentech June 2003 Collaboration

In January 2012, the FDA approved Genentech’s new drug application for the Erivedge capsule for the treatment of adults with BCC that has spread to other parts of the body or that has come back after surgery or that their healthcare provider decides cannot be treated with surgery or radiation. Erivedge is being developed and commercialized by Roche and Genentech, a member of the Roche Group, under a collaboration agreement between the Company and Genentech. As a result of the FDA’s approval of Erivedge in this indication, the Company earned a $10,000,000 milestone payment from Genentech and is also entitled to receive royalties on future sales of the product. In May 2012, Roche announced that it has submitted an application for marketing registration for Erivedge to Australia’s Therapeutic Goods Administration, or TGA, and as a result of the acceptance of the application by Australia’s TGA, the Company earned an additional $4,000,000 milestone payment. The Company is eligible to receive up to an aggregate of $115,000,000 in contingent cash payments under the collaboration for the development of Erivedge or another small molecule Hedgehog pathway inhibitor, assuming the successful achievement by Genentech and Roche of specified clinical development and regulatory objectives. As of September 30, 2012, the Company has received $46,000,000 in the aggregate since the inception of the agreement.

Pursuant to the milestone payments above, the Company recognized $14,000,000 as license revenue in its Condensed Consolidated Statement of Operations for the nine months ended September 30, 2012, as the Company does not have any further substantive performance obligations under the collaboration. The Company did not recognize license revenue under this collaboration during the three and nine months ended September 30, 2011.

In connection with the receipt of milestone payments from Genentech, the Company recorded research and development expenses of $2,114,000 during the nine months ended September 30, 2012, which represents the Company’s obligations to university licensors. Of this amount, the Company recognized expense of $964,000, which represents the fair value of a one-time issuance of an aggregate of 200,000 shares of the Company’s common stock in March 2012 to two university licensors in connection with the FDA-approval of Erivedge in January 2012. In

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addition, the Company recorded research and development expenses of $550,000 for obligations the Company incurred in connection with Roche’s application to the TGA for marketing registration of Erivedge in Australia and the related $4,000,000 milestone that the Company received, and an additional $100,000 in research and development expense that represents an immaterial out-of-period expense associated with Roche’s filing in 2009 of an investigational new drug application in Australia. The remaining expense recognized of $500,000 relates to the Company’s receipt of the $10,000,000 milestone payment associated with the FDA’s U.S. approval of Erivedge in January 2012.

The Company also recognized $446,402 and $969,774 in royalty revenue from Genentech’s net sales of Erivedge during the three and nine months ended September 30, 2012, respectively. The Company recorded cost of royalty revenues within the costs and expenses section of its Condensed Consolidated Statements of Operations of $22,320 and $148,489 during these same periods, which represents 5% of the royalties earned by the Company with respect to Erivedge that the Company is obligated to pay to two university licensors plus a one-time cash payment of $100,000 paid to a university licensor upon the first commercial sale of Erivedge for the nine months ended September 30, 2012.

(b) The Leukemia & Lymphoma Society Agreement

In November 2011, the Company entered into an agreement with The Leukemia & Lymphoma Society, or LLS, under which LLS will support the Company’s ongoing development of CUDC-907 for patients with relapsed or refractory lymphomas or multiple myeloma. Under the agreement, LLS will fund approximately 50% of the direct costs of the development of CUDC-907, up to $4,000,000, through milestone payments upon the Company’s achievement of specified research and development objectives. Under certain conditions associated with the successful partnering and/or commercialization of CUDC-907 in these indications, the Company may be obligated to make payments to LLS up to a maximum of $10,000,000. As of September 30, 2012, the Company had not received any payments or recorded any revenue under this agreement. In October 2012, the Company achieved the first two milestones under the agreement upon its filing of an investigational new drug application, or IND, with the FDA for CUDC-907. As a result, the Company earned $750,000 in milestone payments. Additional milestone payments may be earned assuming the Company progresses CUDC-907 into Phase I clinical development.

5. Fair Value Measurements

The Company discloses fair value measurements based on a framework outlined by GAAP which requires expanded disclosures regarding fair value measurements. GAAP also defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.

The Financial Accounting Standards Board, or FASB, Codification Topic 820, Fair Value Measurements and Disclosures, requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. GAAP also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1	Quoted prices in active markets for identical assets or liabilities.
Level 2	Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company’s warrant liability was valued using a probability-weighted Black-Scholes model, discussed further in Note 7, and is therefore classified as Level 3.

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In accordance with the fair value hierarchy, the following table shows the fair value as of September 30, 2012 and December 31, 2011 of those financial assets and liabilities that are measured at fair value on a recurring basis, according to the valuation techniques the Company used to determine their fair value. No financial assets or liabilities are measured at fair value on a nonrecurring basis at September 30, 2012 and December 31, 2011.

	Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Fair Value
As of September 30, 2012:
Cash equivalents
Money market funds	$	2,694,487	$	—	$	—	$	2,694,487
Municipal bonds		—		1,825,000		—		1,825,000
Short- and long-term investments
Corporate commercial paper, bonds and notes		9,001,665		24,324,117		—		33,325,782
US government obligations		—		751,960		—		751,960
Total assets at fair value	$	11,696,152	$	26,901,077	$	—	$	38,597,229
Warrants		—		—		2,690,930		2,690,930
Total liabilities at fair value	$	—	$	—	$	2,690,930	$	2,690,930
As of December 31, 2011:
Cash equivalents
Money market funds	$	5,366,747	$	—	$	—	$	5,366,747
Municipal bonds		2,375,000		—		—		2,375,000
Short-term investments
US government obligations		—		3,808,704		—		3,808,704
Corporate commercial paper, stock, bonds and notes		7,365,841		11,423,300		—		18,789,141
Total assets at fair value	$	15,107,588	$	15,232,004	$	—	$	30,339,592
Warrants		—		—		4,361,168		4,361,168
Total liabilities at fair value	$	—	$	—	$	4,361,168	$	4,361,168

The following table rolls forward the fair value of the Company’s warrant liability, the fair value of which is determined by Level 3 inputs for the nine months ended September 30, 2011 and 2012:

Balance at December 31, 2010	$	1,604,742
Change in fair value		1,234,666
Balance at September 30, 2011	$	2,839,408
Balance at December 31, 2011	$	4,361,168
Warrants exercised		(615,859	)
Change in fair value		(1,054,379	)
Balance at September 30, 2012	$	2,690,930

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6. Investments

The amortized cost, unrealized losses and fair value of marketable securities available-for-sale as of September 30, 2012, with maturity dates ranging between one and twelve months and with a weighted average maturity of 4.4 months are as follows:

	Amortized Cost		Unrealized Loss			Fair Value
Corporate bonds and notes	$	33,334,510	$	(8,728	)	$	33,325,782
Total marketable securities	$	33,334,510	$	(8,728	)	$	33,325,782

As of September 30, 2012, the Company recorded a long-term investment of $751,960 on its Condensed Consolidated Balance Sheet. This amount is comprised of a U.S. government obligation with a maturity date of November 2013 and with amortized cost totaling $752,053, less unrealized losses of $93.

The amortized cost, unrealized gains and fair value of marketable securities available-for-sale as of December 31, 2011, with maturity dates ranging between one and twelve months and with a weighted average maturity of 3.7 months are as follows:

	Amortized Cost		Unrealized Gain		Fair Value
U.S. Government obligations	$	3,808,641	$	63	$	3,808,704
Corporate bonds, notes and stock		18,787,778		1,363		18,789,141
Total marketable securities	$	22,596,419	$	1,426	$	22,597,845

7. Common Stock and Warrant Liability

2010 Registered Direct Offering

On January 27, 2010, the Company completed a registered direct offering of 6,449,288 units with each unit consisting of (i) one share of the Company’s common stock and (ii) one warrant to purchase 0.25 of one share of common stock, at a purchase price of $2.52 per unit. The Company received net proceeds from the sale of the units, after deducting offering expenses, of approximately $14,942,000.

In connection with this offering, the Company issued warrants to purchase an aggregate of 1,612,322 shares of common stock. As of September 30, 2012, warrants to purchase 238,805 shares of the Company’s common stock have been exercised. The warrants have an initial exercise price of $3.55 per share and a five-year term. The warrants contain antidilution adjustment provisions that will result in a decrease in the price and an increase in the number of shares of common stock issuable upon exercise of such warrants in the event of certain issuances of common stock by the Company at prices below $3.55 per share. The warrants also included a cash-settlement option in the event of a change of control that expired on January 27, 2012. Due to the terms, the warrants are classified as a liability and, therefore, the fair value of the warrants was recorded as a liability in the Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011.

The Company has estimated the fair value of the warrants using a Black-Scholes option pricing model under various probability-weighted outcomes which take into consideration the protective, but limited, cash-settlement feature of the warrants, with updated assumptions at each reporting date. The Company estimated that the fair value of the warrants at September 30, 2012 was $2,690,930, using the following assumptions: expected volatility of 74%, risk free interest rate of 0.3%, expected life of 2.3 years, and no dividends. The Company estimated that the fair value of the warrants at September 30, 2011 was $2,839,408 using this same model with the following assumptions assigned to the varying outcomes: expected volatility of 80%, risk free interest rates ranging from 0.4% to 0.5%, expected lives of three years, and no dividends. The warrants are revalued at each reporting period and the resulting change in fair value of the warrant liability is recognized in the Consolidated Statement of Operations.

The Company recorded other income of approximately $1,541,779 and $1,054,379 for the three and nine months ended September 30, 2012, respectively, due to changes in fair value of the warrant liability which was primarily due to a decrease in the Company’s stock price during the current year periods. During the nine months ended September 30, 2012, as a result of the exercise of warrants to purchase 237,301 shares of the Company’s

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common stock, the warrant liability decreased by $615,859 with an offsetting increase to additional paid-in-capital. The Company recorded other income of $587,184 and other expense of $1,234,666 for the three and nine months ended September 30, 2011, respectively, as a result of a change in the fair value of the warrant liability that was primarily due to changes in the Company’s stock price during those periods.

2011 At Market Issuance Sales Agreement

On June 13, 2011, the Company entered into an At Market Issuance Sales Agreement, or ATM Agreement, with McNicoll, Lewis & Vlak, LLC, or MLV, pursuant to which the Company may issue and sell from time to time through MLV, shares of its common stock with an aggregate offering price of up to $20,000,000. Upon delivery of a placement notice and subject to the terms and conditions of the ATM Agreement, MLV may sell the common stock by methods deemed to be an “at-the-market” offering as defined in Rule 415 of the Securities Act of 1933, or the Securities Act. With the Company’s prior written approval, MLV may also sell the common stock by any other method permitted by law, including in privately negotiated transactions. The Company or MLV may suspend or terminate the offering of common stock upon notice and subject to other conditions. MLV will act as sales agent on a commercially reasonable best efforts basis consistent with its normal trading and sales practices and applicable state and federal law, rules and regulations and the rules of NASDAQ. The Company will pay MLV a commission equal to 3.0% of the gross sales price per share sold. The Company has agreed to provide indemnification and contribution to MLV against certain civil liabilities, including liabilities under the Securities Act. During the nine months ended September 30, 2012 and 2011, the Company sold 210,879 and 65,527 shares of common stock, respectively, under the ATM Agreement resulting in gross proceeds of $906,436 and $262,447, respectively. Total offering expenses incurred, including MLV’s commission, related to the ATM Agreement through September 30, 2012 and 2011 were approximately $27,356 and $123,374, respectively, which offset the gross proceeds.

8. Accrued Liabilities

Accrued liabilities consist of the following:

	September 30, 2012		December 31, 2011
Accrued compensation	$	953,248	$	1,065,570
Professional fees		187,750		190,500
Other		149,857		166,037
Total	$	1,290,855	$	1,422,107

9. Related Party Transaction

License Agreement

Effective on February 24, 2012, the Company entered into a Drug Development Partnership and License Agreement for CU-906 and CU-908 (the “License Agreement”) with Guangzhou BeBetter Medicine Technology Company Ltd., or GBMT, a company organized under the laws of the People’s Republic of China. Dr. Changgeng Qian, the Company’s former Senior Vice President, Discovery and Preclinical Development, is the founder, owner, and legal representative of GBMT.

Pursuant to the License Agreement, the Company has granted to GBMT an exclusive royalty-free license, with the right to grant sublicenses subject to certain conditions, to develop, manufacture, market and sell any product containing CU-906 or CU-908 in China, Macau, Taiwan and Hong Kong, or the GBMT Territory. The Company does not currently intend to internally develop these compounds. In addition, the Company has granted to GBMT a non-exclusive, royalty-free manufacturing license, with the right to grant sublicenses subject to certain conditions, to manufacture CU-906 or CU-908 or any product containing CU-906 or CU-908 outside of the GBMT Territory solely to import the compounds or products into the GBMT Territory. Pursuant to the terms of the License Agreement, the Company has retained rights, including the right to grant sublicenses, to develop, manufacture, market and sell any product containing CU-906 or CU-908 worldwide excluding the GBMT Territory. The Company also has certain specified rights to any GBMT technology developed under the License Agreement as well as certain specified rights to GBMT’s interest in joint technology developed under the License Agreement. Furthermore, the Company has a right of first negotiation to obtain a license to CU-906 or CU-908 for the GBMT Territory from GBMT.

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The Company has agreed to transfer to GBMT know how, information and materials necessary for GBMT to continue the development of products in accordance with the development plan outlined in the License Agreement and has agreed not to assert certain Company patents against GBMT, its affiliates or sublicensee so that such party may manufacture, market and sell any product containing CU-906 or CU-908 in the GBMT Territory. Furthermore, the Company will provide GBMT with up to $400,000 in financial support for specified CU-908 pre-clinical activities related to enabling the filing by the Company of an IND with the FDA, provided that GBMT completes such CU-908 IND-enabling activities in accordance with specified criteria and delivers a U.S. IND package for CU-908 to the Company within prescribed timeframes as specified in the License Agreement. All costs incurred under the License Agreement will be expensed as incurred. As of September 30, 2012, the Company had not incurred any expenses under the License Agreement.

GBMT will assume all future development responsibility and incur all future costs related to the development, registration and commercialization of products in the GBMT Territory under the License Agreement. Pursuant to the terms of the License Agreement, GBMT has agreed to undertake reasonable commercial efforts, and to use qualified third party service providers approved by the Company, to implement the development plan in the timeframes described in the License Agreement in order to develop, register and commercialize the products in the GBMT Territory and will be solely responsible for all the costs relating thereto. The Company and GBMT must agree to any changes to the development plan and such revised development plan is subject to review and approval by a joint steering committee.

Unless terminated earlier in accordance with its terms, the License Agreement will expire on the later of (i) the expiration of the last-to-expire valid claim of the Company patents and the Company non-assert patents relating to the products, and (ii) such time as none of GBMT, its affiliates or sublicensees is commercializing any compound or product in the GBMT Territory. Either party can terminate the License Agreement with notice under prescribed circumstances, and the License Agreement specifies the consequences to each party for such early termination.

The License Agreement also sets forth customary terms regarding each party’s intellectual property ownership rights, representations and warranties, indemnification obligations, confidentiality rights and obligations, and patent prosecution, maintenance, enforcement and defense rights and obligations.

Severance Agreement

On February 16, 2012, the Company and Dr. Qian entered into a severance agreement that became binding and effective on February 24, 2012. The severance agreement provides that, in exchange for execution and nonrevocation of a general release of claims in favor of the Company, Dr. Qian will be provided certain severance benefits, including a lump-sum payment equivalent to one-half times his base annual salary rate in effect as of his termination date. This payment was made in August 2012. As a result, the Company recognized expenses of $137,500 related to Dr. Qian’s severance during the nine months ended September 30, 2012 in the research and development line item of the Company’s Condensed Consolidated Statement of Operations. The severance agreement also provides for the engagement of Dr. Qian as a consultant pursuant to the terms of a consulting agreement.

10. Accounting for Stock-Based Compensation

As of September 30, 2012, the Company had two shareholder-approved, share-based compensation plans: the 2010 Stock Incentive Plan and the 2010 Employee Stock Purchase Plan. These plans were adopted by the board of directors in April 2010 and approved by shareholders in June 2010. In the first quarter of 2010, the Company’s 2000 Stock Incentive Plan expired in accordance with its terms and its 2000 Director Stock Option Plan had no available shares remaining under the plan. No additional awards will be made under these plans, although all outstanding awards under these plans will remain in effect until they are exercised or they expire in accordance with their terms. For a complete discussion of the Company’s share-based compensation plans, see Note 5 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as previously filed with the Securities and Exchange Commission on February 29, 2012.

During the nine months ended September 30, 2012, the Company’s board of directors granted options to purchase 1,182,000 shares of the Company’s common stock to officers and employees of the Company under the 2010 Stock Incentive Plan. These options vest over a four-year period and bear exercise prices that are equal to the closing market price of the Company’s common stock on the NASDAQ Global Market on the grant date.

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During the nine months ended September 30, 2012, the Company’s board of directors also granted options to its non-employee directors to purchase 470,000 shares of common stock under the 2010 Stock Incentive Plan. These options will vest monthly over a one-year period and bear exercise prices that are equal to the closing market price of the Company’s common stock on the NASDAQ Global Market on the grant date.

Employee and Director Grants

In determining the fair value of stock options, the Company uses the Black-Scholes option pricing model. The Company calculated the Black-Scholes value of employee and director options awarded during the nine months ended September 30, 2012 and 2011 based on the assumptions noted in the following table:

	For the nine months ended September 30,
	2012	2011
Expected term (years) - Employees	6	6
Expected term (years) - Directors	6	6
Risk-free interest rate	1.0-1.2%	1.2-2.5%
Volatility	74-76%	73-75%
Dividends	None	None

The expected volatility is based on the annualized daily historical volatility of the Company’s stock price through the grant date for a time period consistent with the expected term of a grant. Management believes that the historical volatility of the Company’s stock price best represents the volatility of the stock price. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The Company does not anticipate declaring dividends in the foreseeable future.

The stock price volatility and expected terms utilized in the calculation involve management’s best estimates at that time, both of which impact the fair value of the option calculated under the Black-Scholes methodology and, ultimately, the expense that will be recognized over the life of the option. GAAP also requires that the Company recognize compensation expense for only the portion of options that are expected to vest. Therefore, management calculated an estimated annual pre-vesting forfeiture rate that is derived from historical employee termination behavior since the inception of the Company, as adjusted. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.

The aggregate intrinsic value of employee options outstanding at September 30, 2012 was $17,145,000, of which $15,184,000 related to exercisable options. The weighted average grant-date fair values of stock options granted during the nine months ended September 30, 2012 and 2011 were $2.99 and $1.45, respectively. As of September 30, 2012, there was approximately $4,897,000, net of the impact of estimated forfeitures, of unrecognized compensation cost related to unvested employee and director stock option awards outstanding under the 2000 and 2010 Stock Incentive Plans that is expected to be recognized as expense over a weighted average period of 2.53 years. The intrinsic values of employee stock options exercised during the nine months ended September 30, 2012 and 2011 were $6,370,000 and $835,000, respectively. The total fair values of vested stock options for the nine months ended September 30, 2012 and 2011 were $1,761,000 and $1,218,000, respectively.

The Company recorded $822,575 and $2,472,299 in compensation expense for the three and nine months ended September 30, 2012, respectively, and the Company recorded $299,202 and $1,310,940 in compensation expense for the three and nine months ended September 30, 2011, respectively, related to employee and director stock option grants.

Non-Employee Grants

The Company has periodically granted stock options and unrestricted stock awards to consultants for services, pursuant to the Company’s stock plans at the fair market value on the respective dates of grant. Should the Company terminate any of its consulting agreements, the unvested options underlying the agreements would also be cancelled. The Company reversed expense of $14,681 and recognized expense of $366,013 related to non-employee stock options for the three and nine months ended September 30, 2012, respectively. The Company recognized expense of $12,739 and $40,560 for the three and nine months ended September 30, 2011, respectively.

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Total Stock-Based Compensation Expense

For the three and nine months ended September 30, 2012 and 2011, the Company recorded employee and non-employee stock-based compensation expense to the following line items in its Costs and Expenses section of the Consolidated Statements of Operations:

	For the three months ended September 30,				For the nine months ended September 30,
	2012		2011		2012		2011
Research and development expenses	$	158,638	$	134,816	$	923,648	$	478,676
General and administrative expenses		649,256		177,125		1,914,663		872,824
Total stock-based compensation expense	$	807,894	$	311,941	$	2,838,311	$	1,351,500

The table below summarizes options outstanding and exercisable at September 30, 2012:

	Options Outstanding						Options Exercisable
Exercise Price Range	Number of Shares		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price per Share		Number of Shares		Weighted Average Exercise Price per Share
$ 0.79 - $ 1.39		2,571,622		4.96	$	1.19		2,465,681	$	1.19
1.43 - 2.15		2,605,168		5.32		1.73		2,106,038		1.63
2.27 - 3.76		2,414,232		4.75		2.75		1,631,041		2.53
3.98 - 4.52		2,184,614		7.59		4.38		875,945		4.18
4.56 - 5.60		720,000		1.62		4.74		712,000		4.74
		10,495,636		5.32	$	2.59		7,790,705	$	2.25

11. Loss Per Common Share

The Company applies ASC Topic 260 - Earnings per Share, which establishes standards for computing and presenting earnings per share. Basic and diluted loss per common share is computed using the weighted-average number of shares outstanding during the period. Diluted net loss per common share is the same as basic net loss per common share for the three and nine months ended September 30, 2012 and 2011, as the effect of the potential common stock equivalents is antidilutive due to the Company’s net loss position for these periods. Antidilutive securities consist of stock options and warrants outstanding as of the respective reporting period as follows:

	For the three and nine months ended September 30, 2012		For the three and nine months ended September 30, 2011
Stock options outstanding		10,495,636		11,485,114
Warrants outstanding		1,373,315		1,610,818
Total antidilutive securities		11,868,951		13,095,932

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes appearing elsewhere in this report.

Overview

We are a drug discovery and development company that is committed to leveraging our innovative signaling pathway drug technologies in seeking to develop next generation network-targeted cancer therapies. We are building upon our experience in modulating signaling pathways, including the Hedgehog signaling pathway, in our effort to develop network-targeted cancer therapies. We conduct our research and development programs both internally and through strategic collaborations.

Our research and development programs include Erivedge™, a first-in-class orally-administered small molecule Hedgehog pathway inhibitor that is being developed under collaboration with Genentech, Inc., or Genentech, a member of the Roche Group. In January 2012, the U.S. Food and Drug Administration, or FDA, approved Genentech’s new drug application, or NDA, for the Erivedge capsule for the treatment of adults with basal cell carcinoma, or BCC, that has spread to other parts of the body or that has come back after surgery or that their healthcare provider decides cannot be treated with surgery or radiation. We refer to this indication as advanced BCC. In addition, Genentech is testing Erivedge in less severe forms of BCC and third-party investigators are conducting clinical trials with Erivedge in BCC as well as in several other cancers.

Our lead proprietary drug candidate is CUDC-101, a first-in-class small molecule compound designed to simultaneously target epidermal growth factor receptor, or EGFR, human epidermal growth factor receptor 2, or HER2, and histone deacetylase, or HDAC, all of which are validated cancer targets. The intravenous formulation of CUDC-101 is currently the subject of a phase I clinical trial in locally advanced head and neck cancer patients along with the current standard-of-care of cisplatin, a chemotherapeutic drug, and radiation. We also recently initiated a phase I clinical trial of an oral formulation of CUDC-101 in patients with advanced solid tumor cancers.

We are also developing CUDC-907, an orally bioavailable, small molecule that is designed to inhibit phosphatidylinositol-3-kinase, or PI3K, and HDAC. In November 2011, we entered into an agreement with The Leukemia & Lymphoma Society, or LLS, under which LLS will provide a portion of the funding for the development of CUDC-907 in patients with relapsed or refractory lymphoma and multiple myeloma and we recently filed an investigational new drug application, or IND, with the FDA seeking approval to advance CUDC-907 into phase I clinical testing.

Pursuant to our August 2009 license agreement with Debiopharm S.A., or Debiopharm, a Swiss pharmaceutical development company, is developing heat shock protein 90, or Hsp90, molecule Debio 0932. Debio 0932 is currently being tested in a phase Ib clinical study in advanced solid cancers as well as in a phase I/II clinical trial in patients with advanced non-small cell lung cancer, or NSCLC.

Hedgehog Pathway Inhibitor Program (Erivedge™)

Erivedge™ (vismodegib) capsule. Our most advanced program is our Hedgehog pathway inhibitor program under collaboration with Genentech. Pursuant to this collaboration, Genentech and F. Hoffmann-La Roche Ltd, or Roche, are responsible for clinical development, and Genentech (in the United States, or U.S.), Roche (outside the U.S., excluding Japan) and Chugai Pharmaceuticals Co., Ltd. (in Japan) are responsible for commercialization of Erivedge. The lead drug candidate being developed under this program under this collaboration is Erivedge. Erivedge is designed to selectively inhibit signaling in the Hedgehog pathway by targeting a protein called Smoothened. The Hedgehog signaling pathway plays an important role in regulating proper growth and development in the early stages of life and becomes less active in adults. However, mutations in the pathway that reactivate Hedgehog signaling are seen in certain cancers, including BCC. Abnormal signaling in the Hedgehog pathway is implicated in over 90% of BCC cases.

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As a result of the FDA’s approval of Erivedge in advanced BCC, we earned a $10,000,000 payment from Genentech in March 2012. During the three months ended March 31, 2012, we recognized the $10,000,000 milestone payment as license revenue. In addition, we recorded research and development expenses related to the FDA’s approval of Erivedge of $1,464,000 during the three months ended March 31, 2012 which represents our obligations to university licensors. Of this amount, $964,000 represents the fair value of a one-time issuance of an aggregate of 200,000 shares of our common stock to two university licensors in connection with the FDA approval of Erivedge. The remaining $500,000 represents sublicense fees we paid to these same university licensors upon our receipt of the $10,000,000 milestone payment in the first quarter of 2012.

We are entitled to a royalty on net sales of Erivedge that ranges from the mid-to-high single digits, which escalates within this range with increasing product sales. In certain specified circumstances, the royalty rate applicable to Erivedge may be decreased to a low-to-mid single digit royalty, including when a competing product that binds to the same molecular target as Erivedge is approved by the applicable regulatory authority and is being sold in such country by a third party for use in the same indication as Erivedge. We are obligated to make payments to university licensors on royalties that we earn in all territories other than Australia in an amount that is equal to 5% of the royalty payments that we receive from Genentech for a period of 10 years from the first commercial sale of Erivedge, which occurred in February 2012. For royalties that we earn from Roche’s potential future sales of Erivedge in Australia, we will be obligated to make payments to university licensors in an amount that is equal to 2% of Roche’s direct net sales in Australia until expiration of the patent in April 2019, after which the amount will decrease to 5% of the royalty payments that we receive from Genentech for the remainder of the period ending 10 years from the first commercial sale of Erivedge, or February 2022. We recognized $970,000 of royalty revenue from Genentech’s net sales of Erivedge during the nine months ended September 30, 2012, including $446,000 during the third quarter, which amounts were calculated at 5% of net sales. We recorded cost of royalty revenues of $148,000 during this same period, including a $100,000 one-time cash payment paid to a university licensor upon the first commercial sale of Erivedge and $48,000 paid to two university licensors, which represents 5% of the royalties that we earned with respect to Erivedge during the nine months ended September 30, 2012.

In May 2012, we earned a $4,000,000 milestone payment in connection with Roche’s filing of an application for marketing registration for Erivedge with Australia’s Therapeutic Goods Administration, or TGA, which we recognized as license revenue during the three months ended June 30, 2012. In addition, we recorded research and development expenses for this period of $650,000 which represents our obligations to university licensors. Of this amount, $450,000 represents cash milestones specific to the Australian territory and the remaining $200,000 represents sublicense fees totaling 5% of the $4,000,000 milestone payment that we received.

During the fourth quarter of 2011, Roche submitted a Marketing Authorization Application, or MAA, for Erivedge to the European Medicines Agency, or EMA, for which we earned a $6,000,000 milestone payment. Roche has indicated that it anticipates potential EMA approval for Erivedge during the fourth quarter of 2012 or the first half of 2013. Roche has also filed new drug applications in 2012 for marketing registration with Canadian, Israeli, Mexican and Swiss health agencies seeking approval for Erivedge in advanced BCC. Erivedge’s FDA approval and Roche’s regulatory submissions in regards to Erivedge in Europe, Australia, and other territories are based on positive clinical data from ERIVANCE BCC/SHH4476g, a pivotal phase II study of Erivedge in patients with advanced BCC. We will receive additional milestone payments if Erivedge receives EMA or TGA marketing authorization and will be obligated to make payments to university licensors that total 5% of each of these milestone payments that we receive.

Genentech is also conducting a separate phase II clinical trial of Erivedge in patients with operable nodular BCC, which is a less severe form of the disease and accounts for a significant percentage of the approximately two million BCCs diagnosed annually in the U.S. This phase II trial is the first study to assess the ability of Erivedge to provide complete histological clearance of tumor, an important first step in determining the efficacy of Erivedge in less severe forms of BCC, where BCC lesions are generally treated surgically. This trial is designed to test Erivedge as a single-agent therapy in approximately 75 patients with operable nodular BCC in a U.S.-based, open label, three-cohort clinical trial. Patients in the first and second cohorts completed treatment and received a 150 mg daily oral dose of Erivedge for 12 weeks, while patients in the third cohort receive 16 weeks of daily dosing, with two eight-week dosing cycles surrounding a four-week period in which patients will not receive Erivedge. The primary outcome measure for the first and third cohorts is the rate of complete

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histological clearance of the target nodular BCC lesions at the time of tumor excision (which may occur up to 12 or 20 weeks, respectively, following initiation of treatment) while the primary outcome measure for the second cohort is the rate of durable complete clearance of target nodular BCC lesions at the time of excision (which may occur up to 36 weeks following initiation of treatment).

Data from the first cohort were published from an abstract in April 2012 in the Journal of Investigative Dermatology and were also presented at the annual meeting of the Society for Investigative Dermatology in May 2012. This first cohort evaluated the safety and efficacy of 12 weeks of daily 150 mg dosing of Erivedge in 24 patients with newly diagnosed nodular, operable BCC. Patients then underwent Mohs surgery with independent pathology review. Pathologically confirmed complete clearance was reported in 10 (42%) patients and clinical complete and partial responses were reported for 23 (96%) patients. The most frequent adverse events were similar to those observed in previous studies with Erivedge and included muscle spasms (79%), ageusia/dysgeusia (79%), alopecia (38%), fatigue (21%) and nausea (21%). Most adverse events were of Grade 1-2 severity; seven patients (29%) reported Grade 3 adverse events, including four patients with muscle spasm. No serious adverse events were reported. Eight (33%) patients discontinued the study, including two (8%) due to adverse events. Cohort two is fully enrolled and accrual to cohort three is ongoing with full study results expected during the first half of 2013.

In addition to the BCC clinical trials being conducted directly by Genentech and Roche, Erivedge is also currently being tested in other cancers in trials under collaborative agreements between Genentech and either third-party investigators or the U.S. National Cancer Institute, or NCI.

Network-Targeted Cancer Programs

Our internal drug development efforts are focused on our network-targeted cancer programs, in which we are seeking to design single novel small molecule drug candidates that inhibit multiple signaling pathways that are believed to play a role in cancer cell proliferation. We refer to this approach as cancer network disruption. We believe that our approach of targeting multiple nodes in cancer signaling pathway networks may provide a better therapeutic effect than many of the cancer drugs currently marketed or in development which are designed to disrupt only one target.

CUDC-101. Our lead candidate from these programs is CUDC-101, a first-in-class small molecule compound designed to simultaneously target EGFR, HER2, and HDAC, all of which are validated cancer targets. A significant amount of our capital resources are focused on the ongoing clinical and preclinical development of this molecule. To date, we have completed two clinical trials with an intravenous formulation of CUDC-101, including a phase I dose escalation clinical trial of CUDC-101 in 25 patients with advanced, refractory solid tumors and a phase I expansion trial that tested CUDC-101 in 46 patients with specific tumor types, including breast, gastric, head and neck, liver and non-small cell lung cancers. The phase I expansion trial was designed as an open-label study in which patients were treated with CUDC-101 at the maximum tolerated dose, or MTD, which was determined in the phase I dose escalation study to be 275 milligrams per meter². The primary objectives of this study were to compare the safety and tolerability of CUDC-101 in subjects with these specific advanced solid tumors when the drug was administered via one-hour intravenous infusion either on a five days per week schedule (one week on/one week off) or on a three days per week schedule (three weeks on/one week off).

In 2011, we initiated a phase I clinical trial of CUDC-101 in patients with locally advanced head and neck cancer patients whose cancer is human papilloma virus, or HPV, negative. In April 2012, we amended the protocol for this trial to allow enrollment of patients with HPV positive head and neck cancer and a prior smoking history. We have treated six patients in this trial as of November 2, 2012. The primary objectives of this study are to evaluate the safety and tolerability of CUDC-101 when administered in combination with the current standard-of-care of cisplatin, a chemotherapeutic drug, and radiation. Upon determination of the MTD and assuming the otherwise successful completion of this phase I trial, we will evaluate the data and determine whether to advance CUDC-101 into a randomized phase II two-arm clinical trial in which head and neck cancer patients will receive cisplatin and radiation plus or minus CUDC-101.

In September 2012, we initiated a phase I clinical trial of an oral formulation of CUDC-101. This study is designed as a standard dose escalation study in which a tablet form of CUDC-101 is orally administered to patients with advanced or refractory solid tumors. The trial is being conducted at two study centers in the U.S. The primary objectives are to determine the MTD and recommended phase II dose, and to assess the bioavailability and pharmacokinetics of orally administered CUDC-101. The secondary objectives of this study are to assess safety and tolerability, to evaluate biomarkers of CUDC-101 activity and to assess preliminary anti-cancer activity. The bioavailability of oral CUDC-101 will also be assessed among patients enrolled in the first 3 dose level cohorts, who will initially receive single, matched intravenous and oral doses of CUDC-101 prior to initiating the twice-daily oral dose escalation portion of the study. In the absence of dose limiting toxicity, each patient will receive oral CUDC-101 twice daily for a minimum of 21 days (1 cycle), and may continue to receive additional cycles of study treatment until disease progression or other treatment discontinuation criteria are met.

CUDC-907. CUDC-907 is an orally bioavailable, small molecule that is designed to inhibit PI3K, and HDAC. We are

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developing CUDC-907 based on published and internally generated data demonstrating that HDAC and PI3K inhibitors have synergistic interaction in certain preclinical cancer models, and based on published observations of clinical activity of such agents in hematological cancers. CUDC-907, with its synergistic mechanism of cancer signaling network disruption, has demonstrated potent preclinical antitumor activity in a variety of hematological tumor models including non-Hodgkin’s lymphoma and multiple myeloma. We believe that CUDC-907 has the potential to possess clinical advantages over single targeted agents. In November 2011, we entered into an agreement with The Leukemia & Lymphoma Society, or LLS, under which LLS will provide a portion of the funding for the development of CUDC-907 in patients with relapsed or refractory lymphoma and multiple myeloma.

In October 2012, we filed an IND with the FDA seeking approval to advance CUDC-907 into phase I clinical testing. As a result, we are due to receive $750,000 in milestone payments during the fourth quarter of 2012 under the terms of the agreement with LLS. The phase I clinical trial is designed as a standard dose escalation study in which CUDC-907 will be orally administered to patients with relapsed or refractory lymphoma or multiple myeloma. The trial will take place at up to four study centers in the U.S. The primary objectives of the trial are to determine the MTD and recommended phase II dose of oral CUDC-907. The secondary objectives of this study are to assess safety and tolerability, to assess pharmacokinetics, to evaluate biomarker activity and to assess preliminary anti-cancer activity of CUDC-907 in this patient population. In the absence of dose limiting toxicity, each patient will receive oral CUDC-907 once daily for a minimum of 21 days (1 cycle), and may continue to receive additional cycles of study treatment until disease progression or other treatment discontinuation criteria are met.

Hsp90 Program

Debio 0932. Our heat shock protein 90, or Hsp90, program is being developed by Debiopharm under an August 2009 license agreement with Debiopharm.

In April 2010, Debiopharm recruited the first patient in a phase I clinical trial to evaluate the safety of Debio 0932 in patients with advanced solid tumors. In 2011, Debiopharm successfully advanced Debio 0932 through the dose escalation portion of this phase I study. Debiopharm presented data from this study at the annual meeting of the American Society of Clinical Oncology in June 2012. In this portion of the study, Debio 0932 was tested in 50 patients, including 22 patients who received Debio 0932 every other day and 28 patients who received daily dosing of Debio 0932. Debio 0932 was generally well tolerated in this study, with most adverse events classified as Grade 1 or 2, or mild to moderate severity, with no apparent dose or schedule relationship. In addition, no ocular or cardiac toxicities were observed and no consistent changes in hematology or biochemistry parameters were seen. The most common adverse events included asthenia, constipation, decreased appetite, diarrhea, nausea, and vomiting. Anti-tumor activity was assessed in 45 of the 50 patients enrolled in this study, including a partial response observed in a patient with Kras-mutated lung cancer. Stable disease was observed in 12 patients and disease progression was observed in the remaining 31 patients.

The recommended dose for further study was determined by Debiopharm to be 1000 mg daily and Debiopharm advanced Debio 0932 into the phase Ib expansion portion of the study in the beginning of 2012 at this dose level. The primary objectives of the phase Ib portion of the study are to further assess the safety profile, pharmacokinetics and pharmacodynamics of Debio 0932 and to make a preliminary assessment of anti-tumor activity. Debiopharm expects that approximately 30 patients with advanced solid tumors will be treated in this portion of the study, including patients with non-small cell lung cancer.

In August 2012, Debiopharm initiated the HSP90 inhibition and lung cancer outcomes study, or HALO, a phase I-II clinical trial of the safety and efficacy of Debio 0932 in combination with standard of care first- and second-line chemotherapy agents in patients with advanced, stage IIIb or IV non-small cell lung cancer, or NSCLC, that is characterized as wild-type EGFR. The phase I portion of this trial is designed to determine the recommended phase II dose of Debio 0932 when given in combination with cisplatin/pemetrexed or cisplatin/gemcitabine in treatment-naive patients, and with docetaxel in previously treated patients. Once the recommended phase II dose of Debio 0932 in combination with each of the three chemotherapy regimens has been identified, the randomized, double-blind, placebo-controlled phase II portion of this study will then begin where approximately 140 eligible patients will be randomized to receive chemotherapy with either placebo or Debio 0932. The primary objective of the phase II study is to determine the efficacy of Debio 0932 in combination with chemotherapy. The Kras mutation status will also be assessed and used as a stratification factor.

We are eligible to receive our next milestone payment under our license agreement with Debiopharm if and when Debiopharm treats its fifth patient in a phase II clinical trial, assuming that Debiopharm advances Debio 0932 into phase II clinical testing. We currently anticipate that phase II testing could commence in 2013.

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Liquidity

Since our inception, we have funded our operations primarily through license fees, contingent cash payments, research and development funding from our corporate collaborators, the private and public placement of our equity securities, debt financings and the monetization of certain royalty rights. We have never been profitable on an annual basis and have an accumulated deficit of $736,133,000 as of September 30, 2012. We expect that we will incur significant operating losses for the next several years as we continue to incur significant costs and expenses as we seek to advance our research and development programs. Although Genentech recently received FDA approval to market Erivedge in the U.S., the level of future sales and the amount of resulting royalty revenue payable to us are both highly uncertain. We will need to generate significant revenues to achieve profitability and do not expect to achieve profitability in the foreseeable future, if at all. As a result of uncertainty in the amounts of future Erivedge royalty revenue, the timing of potential milestone payments under our agreements with Genentech, Debiopharm and LLS and the variability in our operating expenses, we expect that our financial results in the future will be variable. We anticipate that existing capital resources as of September 30, 2012 should enable us to maintain current and planned operations into the first half of 2014. We believe that near term key drivers to our success will include:

• Genentech’s ability to successfully scale up the commercialization of Erivedge in advanced BCC in the U.S.;

• Genentech’s and/or Roche’s receipt of approval to commercialize Erivedge in advanced BCC in Europe and other territories including in Australia, as well as its ability to successfully launch and commercialize Erivedge in these markets;

• positive results in Genentech’s ongoing phase II clinical trial in patients with operable BCC;

• our ability to successfully plan, finance and complete current and planned clinical trials for CUDC-101 and advance CUDC-101 into phase II clinical testing in head and neck cancers;

• our ability to successfully complete the ongoing phase I clinical trial of an oral formulation of CUDC-101 as well as to successfully advance CUDC-907 into phase I clinical testing;

• Debiopharm’s ability to advance Debio 0932 into later stages of clinical development; and

• our ability to successfully enter into one or more material licenses or collaboration agreements for our proprietary drug candidates.

In the longer term, a key driver to our success will be our ability, and the ability of any current or future collaborator or licensee, to successfully commercialize drugs other than Erivedge based upon our proprietary technologies.

Collaboration Agreements

We are currently a party to a collaboration with Genentech relating to our Hedgehog pathway inhibitor technologies, a license agreement with Debiopharm relating to our Hsp90 inhibitor technology and an agreement with LLS related to CUDC-907. Our past and current collaborations have generally provided for research, development and commercialization programs to be wholly or majority-funded by our collaborators and provide us with the opportunity to receive additional contingent cash milestone payments if specified development and regulatory approval objectives are achieved, as well as royalty payments upon the successful commercialization of any products based upon the collaborations. Under our agreement with LLS, LLS will fund approximately 50% of the direct costs of the development of CUDC-907 up to $4,000,000, through milestone payments upon our achievement of specified research and development objectives. In October 2012, we earned $750,000 under our agreement with LLS related to the IND filing for CUDC-907. We are currently not receiving any research funding and we do not expect to receive such funding in the future from Genentech or Debiopharm under our current agreements with these parties. Under our collaboration with Genentech, we currently expect to incur only costs related to the maintenance of licenses, including sublicense payments due upon milestone payments and any royalties we receive, as well as patent-related expenses. As a result of our licensing agreements with various universities, we are also obligated to make payments to these university licensors when we receive certain payments from Genentech. As of September 30, 2012, we have incurred expenses in an aggregate amount of approximately $2,938,000 related to ongoing agreements, of which $2,898,000 relates to payments that we have or will receive from Genentech. As we receive additional milestone payments from Genentech upon European or Australian approval of Erivedge, if achieved, we would be obligated to pay additional sublicense fees to these licensors, as well as fees related to any royalties received from the sale of Erivedge. In addition, we were obligated to issue 200,000 shares of our common stock to certain licensees upon FDA approval of Erivedge that represented $964,000 in expense during the first quarter of 2012. We do not expect to incur any material costs in the foreseeable future related to our Hsp90 technologies under development by Debiopharm.

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Financial Operations Overview

General. Our future operating results will largely depend on the magnitude of payments from our current and potential future corporate collaborators and the progress of drug candidates currently in our research and development pipeline. The results of our operations will vary significantly from year to year and quarter to quarter and depend on, among other factors, the timing of our entry into new collaborations, if any, the timing of the receipt of payments, if any, from new or existing collaborators and the cost and outcome of any preclinical development or clinical trials then being conducted. We anticipate that existing capital resources as of September 30, 2012 should enable us to maintain current and planned operations into the first half of 2014. Our ability to continue funding our planned operations into and beyond the first half of 2014 is dependent on future contingent payments that we may receive from Debiopharm or Genentech upon the achievement of development and regulatory approval objectives, our ability to manage our expenses and our ability to raise additional funds through additional corporate collaborations, equity or debt financings, or from other sources of financing.

A discussion of certain risks and uncertainties that could affect our liquidity, capital requirements and ability to raise additional funds is set forth under “Part II, Item 1A—Risk Factors.”

Revenue. We do not expect to generate any revenues from our direct sale of products for several years, if ever. Substantially all of our revenues to date have been derived from license fees, research and development payments, and other amounts that we have received from our strategic collaborators and licensees. Since the first quarter of 2012, we have recognized royalty revenues related to Genentech’s sales of Erivedge in the U.S. We expect to recognize royalty revenue in future quarters from Genentech’s sales of Erivedge in the U.S. and in other markets where Genentech and Roche successfully obtain marketing approval, if any.

We could receive additional milestone payments from Genentech, Debiopharm, and LLS, provided the respective programs meet contractually-specified development and regulatory objectives. For example, we earned a $10,000,000 milestone payment from Genentech in January 2012 upon FDA approval of Erivedge and a $4,000,000 milestone payment upon Roche’s submission with Australian health authorities seeking to commercialize Erivedge in advanced BCC in Australia. Erivedge is currently being reviewed for potential marketing approval by the EMA in European territories as well as by Australian, Canadian, Israeli, Mexican and Swiss health authorities. We are eligible to receive additional milestone revenue should Erivedge receive approval by the EMA and/or Australian health authorities, and we are also eligible to receive royalties on net sales of Erivedge in all territories where Erivedge is sold.

We currently receive no research funding for our programs under our collaborations with Genentech, Debiopharm, and LLS and we do not expect to receive such funding in the future under these collaborations. Accordingly, our only source of revenues and/or cash flows from operations for the foreseeable future will be up-front license payments and funded research and development that we may receive under new collaboration agreements, if any, contingent cash payments for the achievement of clinical development and regulatory objectives, if any are met, under new collaborations or our existing collaborations with Genentech, Debiopharm, and LLS and royalty payments that are contingent upon the successful commercialization of any products based upon these collaborations. Our ability to enter into new collaborations and our receipt of additional payments under our existing collaborations with Genentech, Debiopharm, and LLS cannot be assured, nor can we predict the timing of any such arrangements or payments, as the case may be.

Cost of Royalty Revenues. Cost of royalty revenues consists of all expenses incurred that are associated with royalty revenues that we record in the Revenues section of our Consolidated Statements of Operations.

Research and Development. Research and development expense consists of costs incurred to discover, research and develop our drug candidates. These expenses consist primarily of: (1) salaries and related expenses for personnel including stock-based compensation expense; (2) outside service costs including clinical research organizations, medicinal chemistry; (3) sublicense payments; and (4) the costs of supplies and reagents, consulting, and occupancy and depreciation charges. We expense research and development costs as incurred. We are currently incurring research and development expenses under our Hedgehog pathway inhibitor collaboration with Genentech related to the maintenance of third-party licenses to certain background technologies. In addition, we record research and development expense for payments that we are obligated to make to certain third-party university licensors upon our earning payments from Genentech related to the achievement of clinical development and regulatory objectives under our Hedgehog pathway inhibitor collaboration

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Our research and development programs, both internal and under collaboration, are summarized in the following table:

Product Candidate	Primary Disease	Collaborator/Licensee	Status
Hedgehog Pathway Inhibitor
- Erivedge (vismodegib)	Advanced BCC	Genentech	FDA approved; Regulatory submissions pending in EU, Australia, and other territories
Erivedge (vismodegib)	Operable Nodular BCC	Genentech	Phase II
Network-targeted Cancer Programs
- CUDC-101 intravenous formulation (EGFR, HER2, HDAC inhibitor)	Cancer	Internal development	Phase I expansion (study completed)
- CUDC-101 intravenous formulation (EGFR, HER2, HDAC inhibitor)	Locally advanced head and neck cancer	Internal development	Phase I in combination with cisplatin and radiotherapy
- CUDC-101 oral formulation (EGFR, HER2, HDAC inhibitor)	Cancer	Internal development	Phase I dose escalation
- CUDC-907 (PI3K, HDAC inhibitor)	Cancer	Internal development/LLS	IND submitted
- Debio 0932 (Hsp90 inhibitor)	Non-small cell lung cancer	Debiopharm	Phase I/II
- Debio 0932 (Hsp90 inhibitor)	Cancer	Debiopharm	Phase Ib

Because of the early stages of development of these programs, our ability and that of our collaborators and licensees to successfully complete preclinical studies and clinical trials of these drug candidates, and the timing of completion of such programs, is highly uncertain. There are numerous risks and uncertainties associated with developing drugs which may affect our and our collaborators’ future results, including:

• the scope, quality of data, rate of progress and cost of clinical trials and other research and development activities undertaken by us or our collaborators;

• the results of future preclinical studies and clinical trials;

• the cost and timing of regulatory approvals;

• the cost and timing of establishing sales, marketing and distribution capabilities;

• the cost of establishing clinical and commercial supplies of our drug candidates and any products that we may develop;

• the effect of competing technological and market developments; and

• the cost and effectiveness of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

We cannot reasonably estimate or know the nature, timing and estimated costs of the efforts necessary to complete the development of, or the period in which material net cash inflows are expected to commence from any of our drug candidates. Any failure to complete the development of our drug candidates in a timely manner could have a material adverse effect on our operations, financial position and liquidity.

A further discussion of some of the risks and uncertainties associated with completing our research and development programs on schedule, or at all, and some consequences of failing to do so, are set forth under “Part II, Item 1A—Risk Factors.”

General and Administrative. General and administrative expense consists primarily of salaries, stock-based compensation expense and other related costs for personnel in executive, finance, accounting, business development, legal, information technology, corporate communications and human resource functions. Other costs include facility costs not

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otherwise included in research and development expense, insurance, and professional fees for legal, patent and accounting services. Patent costs include certain patents covered under collaborations, a portion of which is reimbursed by collaborators and a portion of which is borne by us.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires that we make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Such estimates and judgments include the assumptions underlying the valuation of our warrant liability, carrying value of property and equipment and intangible assets, revenue recognition, the collectability of receivables and the value of certain investments and liabilities. We base our estimates on historical experience and on various other factors that we believe to be appropriate under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes to the probabilities underlying the assumptions used in valuing our warrant liability could materially impact our financial statements. Actual results may differ from these estimates under different assumptions or conditions. We set forth our critical accounting policies and estimates in our Annual Report on Form 10-K for the year ended December 31, 2011, and there have been no material changes to such policies.

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Results of Operations

Three-Month Periods Ended September 30, 2012 and September 30, 2011

Revenues. Total revenues are summarized as follows:

	For the Three Months Ended September 30,				Percentage Increase/ (Decrease)
	2012		2011
	(unaudited)		(unaudited)
REVENUES:
Research and development
Genentech	$	92,000	$	135,000		(32	%)
Other		39,000		12,000		225	%
Subtotal		131,000		147,000		(11	%)
Royalty revenues from Genentech		446,000		—		100	%
Total revenues	$	577,000	$	147,000		293	%

Total revenues increased by $430,000 to $577,000 for the three months ended September 30, 2012 as compared to $147,000 for the same period in the prior year, primarily related to $446,000 of royalty revenues from the net sales of Erivedge by Genentech during the third quarter of 2012. Erivedge was approved by the FDA for commercial sale in January 2012.

All potential future contingent payments under our collaboration agreements are tied to clinical and regulatory objective milestones as well as royalties on future net sales. Research and development revenues are limited to expenses that we incur under our collaborations, primarily Genentech, for which our collaborators are obligated to reimburse us.

Cost of Royalty Revenues. Cost of royalty revenues of $22,000 for the three months ended September 30, 2012 represents the amount we are obligated to pay to two university licensors, which represents 5% of the royalties that we earned with respect to Erivedge during the three months ended September 30, 2012. We did not have cost of royalty revenues for the three months ended September 30, 2011 as Erivedge was approved in January 2012.

Research and Development Expenses. Research and development expenses are summarized as follows:

	For the Three Months Ended September 30,					Percentage Increase/
Research and Development Program	2012		2011			(Decrease)
	(unaudited)		(unaudited)
Hedgehog pathway inhibitor	$	39,000	$	48,000			(19	%)
CUDC-101		1,110,000		901,000			23	%
CUDC-907		936,000		735,000			27	%
Debio 0932		11,000		5,000			120	%
Other network-targeted cancer programs		787,000		1,241,000			(37	%)
Gain on sale of assets		—		(23,000	)		(100	%)
Stock-based compensation		159,000		135,000			18	%
Total research and development expense	$	3,042,000	$	3,042,000			—	%

Our research and development expenses remained consistent at $3,042,000 for the three months ended September 30, 2012 and 2011, respectively, due to offsetting variances within our various programs. Spending on our CUDC-907 program increased $201,000 over the prior year period primarily related to expenses for outside services related to formulation studies. In addition, spending related to our CUDC-101 programs increased $209,000 over the prior year period due to employee-related expenses, as more resources have been allocated to the CUDC-101 programs, including the initiation of a phase I clinical trial with an oral formulation of CUDC-101, the ongoing phase I clinical trial in head and neck cancer patients and a

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biomarker study of CUDC-101 in patients with invasive breast cancer. Offsetting these increases, spending on our other network-targeted cancer programs decreased $454,000 when compared to the prior year period as resources were allocated to our other development programs, as discussed above.

We expect that a majority of our research and development expenses for the foreseeable future will be incurred in support of our efforts to advance CUDC-101, CUDC-907 and our other targeted cancer programs. In addition, we will be obligated to pay additional sublicense fees when we receive milestone payments upon the achievement of certain regulatory objectives as well as for royalty payments that we receive on Genentech or Roche’s net sales of Erivedge.

General and Administrative Expenses. General and administrative expenses are summarized as follows:

	For the Three Months Ended September 30,				Percentage Increase/ (Decrease)
	2012		2011
	(unaudited)		(unaudited)
Personnel	$	581,000	$	612,000		(5	%)
Occupancy and depreciation		126,000		121,000		4	%
Legal services		614,000		540,000		14	%
Consulting and professional services		260,000		247,000		5	%
Insurance costs		74,000		65,000		14	%
Other general and administrative expenses		170,000		159,000		7	%
Stock-based compensation		649,000		177,000		267	%
Total general and administrative expenses	$	2,474,000	$	1,921,000		29	%

General and administrative expenses increased by $553,000, or 29%, to $2,474,000 for the three months ended September 30, 2012 as compared to $1,921,000 for the prior year period. This increase was primarily due to an increase in stock-based compensation of $472,000 from the prior year period as a result of an increase in the number of, and grant-date fair value of, options granted during 2012 compared to the prior year period.

In addition, legal fees increased $74,000 from the prior year period due to increased spending on patent costs, which includes fees related to foreign patent filings, and costs associated with various corporate matters.

Change in fair value of warrant liability. In connection with our January 2010 registered direct offering, we issued warrants to purchase an aggregate of 1,612,322 shares of common stock which became exercisable as of the closing of the transaction. The warrants have an initial exercise price of $3.55 per share and have a five year term, and the fair value of the warrants is recorded as a long-term liability. The fair value of the warrants was estimated using a Black-Scholes option pricing model under various probability-weighted outcomes which take into consideration the protective, but limited, cash-settlement feature for the benefit of the warrant holder that expired on January 27, 2012. The warrants will be revalued each reporting period, with updated assumptions and the resulting gains and losses recorded as the change in fair value of warrant liability in the statement of operations. Expected volatilities used in the models were based on our historical volatility commensurate with the term of the warrants.

We estimated that the fair value of the warrants at September 30, 2012 was $2,691,000 using this model with the following assumptions: expected volatility of 74%, risk free interest rate of 0.3%, expected life of 2.3 years and no dividends. We estimated that the fair value of the warrants at September 30, 2011 was $2,839,000 using this same model with the following assumptions assigned to the varying outcomes: expected volatilities of 80%, risk free interest rates ranging from 0.4% to 0.5%, expected lives of three years and no dividends.

We recorded other income of $1,542,000 and $587,000 for the quarters ended September 30, 2012 and 2011, respectively, due to the change in the fair value of the warrant liability which was primarily related to the change in our stock price during the respective periods. During the quarter ended September 30, 2012, warrants to purchase 24,801 shares of our common stock were exercised.

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Nine-Month Periods Ended September 30, 2012 and September 30, 2011

Revenues. Total revenues are summarized as follows:

	For the Nine Months  Ended September 30				Percentage Increase/ (Decrease)
	2012		2011
	(unaudited)		(unaudited)
REVENUES:
Research and development
Genentech	$	250,000	$	317,000		(21	%)
Other		66,000		57,000		16	%
Subtotal		316,000		374,000		(16	%)
License fees
Genentech		14,000,000		—		100	%
Other		—		300,000		(100	%)
Subtotal		14,000,000		300,000		4,567	%
Royalty revenues from Genentech		970,000		—		100	%
Total revenues	$	15,286,000	$	674,000		2,168	%

Total revenues increased by $14,612,000 to $15,286,000 for the nine months ended September 30, 2012 as compared to $674,000 for the same period in 2011, primarily related to an increase in our license fee revenues of $14,000,000 due to payments we received from Genentech upon FDA approval of Erivedge in January 2012 and Roche’s filing for marketing registration in Australia in May 2012. We recognized license fee revenues of $300,000 under a separate collaboration for the nine months ended September 30, 2011. In addition, we recognized $970,000 of royalty revenues from the net sales of Erivedge during nine-month period ended September 30, 2012.

Cost of Royalty Revenues. Cost of royalty revenues of $148,000 for the nine months ended September 30, 2012 includes a $100,000 one-time cash payment paid to a university licensor upon the first commercial sale of Erivedge and $48,000 paid to two university licensors, which represents 5% of the royalties that we earned with respect to Erivedge during the nine months ended September 30, 2012. We did not have cost of royalty revenues for the nine months ended September 30, 2011 as Erivedge was approved in January 2012.

Research and Development Expenses. Research and development expenses are summarized as follows:

	For the Nine Months Ended September 30,					Percentage Increase/
Research and Development Program	2012		2011			(Decrease)
	(unaudited)		(unaudited)
Hedgehog pathway inhibitor	$	112,000	$	144,000			(22	%)
CUDC-101		3,640,000		3,119,000			17	%
CUDC-907		3,100,000		2,090,000			48	%
Debio 0932		48,000		30,000			60	%
Other network-targeted cancer programs		2,847,000		3,428,000			(17	%)
Sublicense fees incurred on development and regulatory milestones under our Genentech collaboration		2,114,000		—			100	%
Other sublicense fees		—		15,000			(100	%)
Gain on sale of assets		—		(60,000	)		(100	%)
Stock-based compensation		924,000		479,000			93	%
Total research and development expense	$	12,785,000	$	9,245,000			38	%

Our research and development expenses increased by $3,540,000, or 38%, to $12,785,000 for the nine months ended September 30, 2012 as compared to $9,245,000 for the same period in the prior year. We incurred sublicense fees of $2,114,000 to various university licensors in connection with Erivedge’s FDA approval and our receipt of milestone payments during the first half of 2012. Of this amount, $964,000 represents the fair value of a one-time issuance of an aggregate of 200,000 shares of our common stock to two university licensors in connection with the FDA-approval of

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Erivedge. The remaining $1,150,000 represents sublicense fees we paid to these same licensors upon receipt of $14,000,000 in milestone payments, of which payments of $450,000 are specific to milestones achieved pursuant to Roche’s NDA filing in Australia.

In addition, spending on our CUDC-907 program also increased $1,010,000 over the prior year period primarily related to costs for additional IND-enabling toxicology studies that were completed during 2012 as well as formulation development. Spending related to our CUDC-101 programs increased $521,000 over the prior year period as a result of an increase in employee-related expenses as more resources have been allocated to the various development programs, including the initiation of a phase I clinical trial with an oral formulation of CUDC-101, the ongoing phase I clinical trial in head and neck cancer patients and a window study of CUDC-101 in breast cancer patients. These increases were offset by decreased spending on our CUDC-101 Phase Ib trial, as the last patient on trial was treated in October 2011. Further offsetting these increases, spending on our other network-targeted cancer programs decreased $581,000 when compared to the prior year period as resources have been allocated to our development programs.

Stock-based compensation also increased $445,000 from the prior year period primarily related to the expense recognized on unvested non-employee stock options that are marked-to-market at each reporting period, and which increased as our stock price increased over the prior year period.

General and Administrative Expenses. General and administrative expenses are summarized as follows:

	For the Nine Months Ended September 30,				Percentage Increase/ (Decrease)
	2012		2011
	(unaudited)		(unaudited)
Personnel	$	1,889,000	$	1,720,000		10	%
Occupancy and depreciation		389,000		363,000		7	%
Legal services		1,706,000		1,642,000		4	%
Consulting and professional services		873,000		831,000		5	%
Insurance costs		193,000		189,000		2	%
Other general and administrative expenses		575,000		578,000		(1	%)
Stock-based compensation		1,915,000		873,000		119	%
Total general and administrative expenses	$	7,540,000	$	6,196,000		22	%

General and administrative expenses increased by $1,344,000, or 22%, to $7,540,000 for the nine months ended September 30, 2012 as compared to $6,196,000 for the prior year period. This increase was primarily due to an increase in stock-based compensation of $1,042,000 from the prior year period as a result of an increase in the number of and grant-date fair value of options granted during 2012 compared to the prior year period. In addition, personnel costs increased $169,000 primarily due to an increase in the accrual of cash incentive payments for executive officers under short-term incentive programs when compared to the same prior year period. Finally, legal fees increased $64,000 from the prior year period due to increased costs associated with various corporate matters.

Change in fair value of warrant liability. As a result of revaluing the warrants issued in January 2010, we recorded other income of $1,054,000 and other expense of $1,235,000 for the nine months ended September 30, 2012 and 2011, respectively, as a result of the change in the fair value of the warrants, primarily related to the change in our stock price during the respective periods. During the nine months ended September 30, 2012, warrants to purchase 237,301 shares of our common stock were exercised.

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Liquidity and Capital Resources

Sources of Liquidity

We have financed our operations primarily through license fees, contingent cash payments and research and development funding from our collaborators and licensors, the private and public placement of our equity securities, debt financings and the monetization of certain royalty rights. In the first quarter of 2012, we received a milestone payment of $10,000,000 based upon the FDA approval of Erivedge and, in May 2012, we earned a $4,000,000 milestone payment in connection with Roche’s filing of an application for marketing registration in Australia. We also earned royalty revenues of $970,000 in connection with Genentech’s net sales of Erivedge during the nine-month period ended September 30, 2012. In addition, during the fourth quarter of 2011, Roche submitted a MAA for Erivedge to the EMA for which we earned a $6,000,000 milestone payment. Roche has indicated that it anticipates potential EMA approval for Erivedge during the fourth quarter of 2012 or the first half of 2013.

At September 30, 2012, our principal sources of liquidity consisted of cash, cash equivalents and investments of $41,887,000, excluding our restricted investment of $194,000. Our cash and cash equivalents are highly liquid investments with a maturity of three months or less at date of purchase and consist of investments in money market funds with commercial banks and financial institutions, short-term commercial paper, and government obligations. We maintain cash balances with financial institutions in excess of insured limits.

Cash Flows

The use of our cash flows for operations has primarily consisted of salaries and wages for our employees, facility and facility-related costs for our office and laboratory, fees paid in connection with preclinical studies, laboratory supplies, consulting fees and legal fees. During 2008, we began incurring clinical costs associated with our phase I clinical trial of CUDC-101. We expect that costs associated with clinical studies will increase in future periods assuming that CUDC-101 advances into further stages of clinical testing and other of our network-targeted cancer drug candidates, such as CUDC-907, reach clinical trials.

Operating activities used cash of $1,479,000 for the nine-month period ended September 30, 2012, which was primarily the result of the receipt of $14,970,000 in milestone and royalty payments from Genentech during the period. Offsetting the cash receipts, we incurred operating and other expenses of $21,615,000 for the nine months ended September 30, 2012, of which $2,614,000 related to non-cash charges consisting of stock-based compensation, changes in the fair value of our warrant liability, non-cash interest expense, the issuance of common stock to licensees and depreciation. This resulted in a net loss of $4,046,000 for the nine-month period. Changes in certain operating assets and liabilities had offsetting impacts on operating cash during the nine-month period ended September 30, 2012. A decrease of $289,000 in prepaid expenses and other current assets and an increase of $170,000 in our accounts payable and accrued liabilities were offset by an increase of $506,000 in our accounts receivable, primarily related to quarterly royalties earned on the sale of Erivedge.

Operating activities used cash of $13,251,000 for the nine-month period ended September 30, 2011. Net cash used in operating activities during the nine-month period ended September 30, 2011 was primarily the result of our net loss for the period of $15,921,000. In addition, changes in certain operating assets affected operating cash during the nine-month period ended September 30, 2011, including an increase of $284,000 in prepaid expenses primarily related to advance payments made to vendors related to toxicology studies and formulation costs for our programs under development. These decreases were offset by non-cash charges and credits totaling $2,903,000 consisting of stock-based compensation, changes in the fair value of our warrant liability, non-cash interest expense, depreciation and a gain on the sale of assets.

We expect to continue to use cash in operations as we seek to advance our targeted cancer drug programs through preclinical testing and into clinical development. In addition, in the future we may owe royalties and other contingent payments to our licensors based on the achievement of developmental milestones, product sales and other specified objectives.

Investing activities used cash of $11,265,000 for the nine-month period ended September 30, 2012 and provided cash of $15,828,000 for the same period in 2011, resulting primarily from net investment activity for the respective periods. During the nine-month period ended September 30, 2012, we reduced our long-term restricted investment resulting in an increase in our available cash for the period of $42,000. During the nine-month period ended September 30, 2011, the restriction on our short-term investment ended and we reduced our long-term restricted investment resulting in an increase in our available cash for the period of $261,000. This increase in cash was offset by purchases of research equipment totaling $42,000 and $250,000 during the nine-month periods ended September 30, 2012 and 2011, respectively.

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Financing activities provided cash of $5,434,000 and $1,481,000 for the nine-month period ended September 30, 2012 and 2011, respectively, primarily from the exercise of stock options and warrants and purchases of common stock under our employee stock purchase plan. We issued 2,422,124 shares of our common stock related to these exercises and purchases during the nine-month period ended September 30, 2012 compared to 753,993 shares for the prior year period. We also received $844,000 and $139,000 in net proceeds from sales of common stock under our At Market Issuance Sales Agreement, or ATM Agreement, with McNicoll, Lewis & Vlak, LLC, or MLV, for the nine-month period ended September 30, 2012 and 2011, respectively.

Funding Requirements

We have incurred significant losses since our inception. As of September 30, 2012, we had an accumulated deficit of approximately $736,133,000. We will require substantial funds to continue our research and development programs and to fulfill our planned operating goals. In particular, our currently planned operating and capital requirements include the need for working capital to support our research and development activities for CUDC-101, CUDC-907 and other small molecules that we are seeking to develop from our pipeline of network-targeted cancer programs, and to fund our general and administrative costs and expenses.

We have historically derived a substantial portion of our operating cash flow from the research funding portion of collaboration agreements with third parties. However, we have no current research funding revenue under collaboration agreements. Our ability to generate cash flow to operate our business will depend, in part, on royalty payments from the commercial sale of Erivedge and the ability of Erivedge to be approved for commercial sale in other countries, which would result in us becoming eligible to receive additional milestone payments as well as royalties on any future sales. We expect that our only source of cash flows from operations for the foreseeable future will be:

• up-front license payments and research and development funding that we may receive if we are able to successfully enter into new collaboration agreements;

• contingent cash payments that we may receive for the achievement of development objectives under any new collaborations or our existing collaborations with Genentech, Debiopharm and the LLS; and

• royalty payments that are contingent upon the successful commercialization of products based upon these collaborations, including royalties on sales of Erivedge in advanced BCC by Genentech, which is approved in the U.S. and is under review for approval in Europe, Australia and other territories by the respective health authorities in those countries.

We may not be able to successfully enter into or continue any corporate collaborations and the timing, amount and likelihood of us receiving payments under such collaborations is highly uncertain. For example, the amount of future royalty payments that we will receive as a result of Genentech’s U.S. net sales of Erivedge, as well as potential future royalty payments that we may receive on net sales of Erivedge in territories outside of the U.S., to the extent that Genentech successfully obtains marketing approval in such territories, is highly uncertain.

We anticipate that existing cash, cash equivalents, marketable securities and working capital at September 30, 2012, should enable us to maintain current and planned operations into the first half of 2014. Our future capital requirements, however, may vary from what we currently expect. There are a number of factors that may adversely affect our planned future capital requirements and accelerate our need for additional financing, many of which are outside our control, including the following:

• unanticipated costs in our research and development programs;

• the timing and cost of obtaining regulatory approvals for our drug candidates;

• the timing, receipt and amount of payments, if any, from current and potential future collaborators;

• the timing and amount of payments due to licensors of patent rights and technology used in our drug candidates, including the level of any royalty payments from sales of Erivedge;

• unplanned costs to prepare, file, prosecute, maintain and enforce patent claims and other patent-related costs, including litigation costs and technology license fees; and

• unexpected losses in our cash investments or an inability to otherwise liquidate our cash investments due to unfavorable conditions in the capital markets.

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We may seek additional funding through public or private financings of debt or equity. The market for emerging life science stocks in general, and the market for our common stock in particular, are highly volatile. Due to this and various other factors, including potentially adverse general market conditions and the early-stage status of our internal development pipeline and the early stage of the commercial U.S. launch of Erivedge, additional funding may not be available to us on acceptable terms, if at all. In addition, the terms of any potential financing may be dilutive or otherwise adversely affect other rights of our stockholders.

We also expect to seek additional funds through arrangements with collaborators, licensees or other third parties. These arrangements would generally require us to relinquish or encumber rights to some of our technologies or drug candidates, and we may not be able to enter into such arrangements on acceptable terms, if at all.

While we anticipate receiving royalty payments in future periods from sales of Erivedge by Genentech, we anticipate that we will require additional funding. If we are unable to obtain such additional funding on a timely basis, whether through payments under existing or future collaborations or license agreement or sales of debt or equity, we may be required to:

• delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for one or more of our product candidates; or

• delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as of September 30, 2012.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our current cash balances in excess of operating requirements are invested in cash equivalents and short-term marketable securities, which consist of time deposits and investments in money market funds with commercial banks and financial institutions, short-term commercial paper, and government obligations with an average maturity of less than one year. All marketable securities are considered available for sale. The primary objective of our cash investment activities is to preserve principal while at the same time maximizing the income we receive from our invested cash without significantly increasing risk of loss. This objective may be adversely affected by the ongoing economic downturn and volatile business environment and continued unpredictable and unstable market conditions. Our marketable securities are subject to interest rate risk and will fall in value if market interest rates increase. As of the date of this filing, we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents or marketable securities since September 30, 2012, but no assurance can be given that further deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or marketable securities or our ability to meet our financing objectives. Further dislocations in the credit market may adversely impact the value and/or liquidity of marketable securities owned by us. Our investments are investment grade securities, and deposits are with investment grade financial institutions. We believe that the realization of losses due to changes in credit spreads is unlikely as we currently have the ability to hold our investments for a sufficient period of time to recover the fair value of the investment and there is sufficient evidence to indicate that the fair value of the investment is recoverable. We do not use derivative financial instruments in our investment portfolio. We do not believe that a 10% change in interest rate percentages would have a material impact on the fair value of our investment portfolio or our interest income.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls & Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2012. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2012, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1A. Risk Factors

You should carefully consider the following risk factors, in addition to other information included in this quarterly report on Form 10-Q and in other documents we file with the SEC, in evaluating Curis and our business. If any of the following risks occur, our business, financial condition and operating results could be materially adversely affected. The following risk factors include material changes to, and restate and supersede, the risk factors previously disclosed in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2011.

RISKS RELATING TO THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS

We are reliant on Genentech for the successful development and commercialization of Erivedge. If Genentech does not successfully commercialize Erivedge for advanced BCC, or develop Erivedge for other indications, our future prospects and our ability to finance our operations may be substantially harmed.

In January 2012, Erivedge was approved by the FDA as the first and only FDA-approved medicine for people with advanced forms of BCC. Genentech and/or Roche have also filed an MAA with the EMA as well as regulatory submissions with Australian regulatory authorities and in other territories seeking regulatory approvals of Erivedge in these territories for this same indication. Genentech and Roche are also conducting a phase II clinical trial of Erivedge in operable nodular BCC and Erivedge is currently being tested in other cancers under collaborative agreements between Genentech and either third-party investigators or the NCI. Our near-term prospects substantially depend upon Genentech’s ability to successfully develop and commercialize Erivedge in one or more indications and to demonstrate its safety and efficacy, as well as its superiority over existing therapies and standards of care. Moreover, our ability to finance our company and to generate revenues will depend heavily on the ability of Genentech and Roche to: (i) successfully commercialize Erivedge in the advanced BCC indication such that net sales are generated at a level for which we will derive meaningful royalties from Genentech, (ii) successfully file regulatory submissions for, and obtain approval to sell, Erivedge in Europe and/or other territories for advanced BCC, and (iii) obtain favorable results in ongoing and planned clinical trials of Erivedge in other indications, including the ongoing clinical trial in operable BCC. The development and commercialization of Erivedge could be unsuccessful if:

• Erivedge for the treatment of advanced BCC is not accepted as safe, efficacious, cost-effective, less costly and preferable to current therapies in the medical community and by third-party payors;

• Genentech and/or Roche fails to apply the necessary financial resources and expertise to manufacturing, marketing and selling Erivedge for advanced BCC and to regulatory approvals for this indication outside of the U.S.;

• Genentech and/or Roche does not develop and implement effective marketing, sales and distribution strategies and operations, for development and commercialization of Erivedge for advanced BCC;

• Genentech and/or Roche does not develop, validate and maintain a commercially viable manufacturing process for Erivedge that is compliant with current good manufacturing practices;

• Genentech and/or Roche does not successfully obtain third party reimbursement and generate commercial demand that results in sales of Erivedge for advanced BCC in any geographic areas where requisite approvals have been, or may be, obtained;

• we or Genentech and/or Roche encounter any third party patent interference or patent infringement claims with respect to Erivedge;

• Genentech and/or Roche does not comply with any and all regulatory and legal requirements applicable to the sale of Erivedge for advanced BCC;

• new safety risks are identified after Erivedge is commercially marketed; and/or

• Erivedge does not demonstrate acceptable safety and efficacy in current or future clinical trials, or otherwise does not meet applicable regulatory standards for approval in indications other than advanced BCC.

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The therapeutic efficacy of drug candidates being developed in our network-targeted cancer programs is unproven in humans, and we may not be able to successfully develop and commercialize CUDC-101 or any other future drug candidates that we may select from these programs.

Our drug candidates in our network-targeted cancer program, including CUDC-101, Debio 0932 and CUDC-907, are novel compounds and their potential benefit as therapeutic cancer drugs is unproven. These drug candidates may not prove to be effective inhibitors of the cancer targets they are being designed to act against and may not demonstrate in patients any or all of the pharmacological benefits that may have been demonstrated in preclinical studies. Moreover, there is a risk that these drug candidates may interact with human biological systems in unforeseen, ineffective or harmful ways. As a result of these and other risks described herein that are inherent in the development of novel therapeutic agents, we may never successfully develop, enter into or maintain third party licensing or collaboration transactions with respect to, or successfully commercialize CUDC-101, CUDC-907 or Debio 0932, or any other drug candidates from our network-targeted cancer programs, in which case we will not achieve profitability and the value of our stock may decline.

We depend on third parties for the development of certain of our programs. If one or more of our collaborators fails or delays in developing or commercializing drug candidates based upon our technologies, our business prospects and operating results would suffer and our stock price would likely decline.

We currently have a collaboration with Genentech pursuant to which we have granted to Genentech exclusive rights to develop and commercialize products based upon our Hedgehog pathway technologies. Genentech recently obtained FDA approval to commercialize Erivedge, the sole compound being developed under this collaboration, in advanced BCC. Genentech and Roche are also seeking to obtain regulatory approval for this same indication in the EU, Australia, Canada, Israel, Mexico and Switzerland and are also conducting, both alone and in collaboration, further studies of Erivedge for other indications. In addition, we entered into a license agreement with Debiopharm pursuant to which Debiopharm is testing Debio 0932 in a phase Ib clinical trial in advanced solid tumors. Our collaboration agreement with Genentech and our license agreement with Debiopharm are our most significant collaborations, and these collaborations may not be scientifically or commercially successful due to a number of factors, including the following:

• Genentech and Debiopharm each have significant discretion in determining the efforts and resources that they will apply to their respective collaboration with us. The timing and amount of any cash payments related to royalties and the achievement of development objectives that we may receive under such collaborative arrangements will depend on, among other things, our collaboration partners’ efforts, allocation of resources and successful development and commercialization of our drug candidates under their respective agreements with us. For example, our ability to obtain meaningful amounts of royalty income from sales of Erivedge for advanced BCC will depend in large part upon the degree to which Genentech applies suitable financial and other resources to the manufacture, commercialization and sale of Erivedge for advanced BCC and to obtaining regulatory approvals outside of the U.S.

• Our agreements with Genentech and Debiopharm each permits the other party wide discretion in deciding which drug candidates to advance through the clinical trial process. It is possible for Genentech or Debiopharm to reject drug candidates at any point in the research, development and clinical trial process, without triggering a termination of the applicable agreement. In the event of any such decision, our business and prospects may be adversely affected and we may not have the commercial rights or the resources necessary to advance such programs on our own.

• We have granted clinical development rights to Genentech and Debiopharm, respectively, under our agreements with each of them. If they fail to allocate sufficient time, attention and resources to clinical trials of product candidates under these collaborations, or fail to comply with good clinical practices or other applicable regulatory requirements for such clinical trials, the successful clinical development and commercialization of such product candidates is likely to be adversely affected, as will our ability to generate revenue from such collaborations.

• Genentech or Debiopharm may develop and commercialize, either alone or with others, products that are similar to or competitive with the drug candidates that are the subject of its collaboration with us. For example, Genentech and Debiopharm each are developing several other programs in cancer.

• Genentech or Debiopharm may change the focus of its development and commercialization efforts or pursue higher-priority programs. Our ability to successfully commercialize drug candidates under collaboration with Genentech or Debiopharm could be limited if Genentech or Debiopharm decreases or fails to increase spending related to such drug candidates.

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• Either Genentech or Debiopharm may enter into one or more transactions with third parties, including a merger, consolidation, reorganization, sale of substantial assets, sale of substantial stock or change of control. For example, during the first quarter of 2009, Roche Holdings Ltd. completed its acquisition of Genentech. Any such transaction could divert the attention of our collaborative partner’s management and adversely affect its ability to retain and motivate key personnel who are important to the continued development of the programs under such collaboration. In addition, an acquirer could determine to reprioritize our collaborator’s development programs such that our collaborator ceases to diligently pursue the development of our programs, and/or terminates its collaboration with us.

• Genentech or Debiopharm may, under specified circumstances, terminate its collaboration with us on short notice and for circumstances outside of our control, which could make it difficult for us to attract new collaborators or adversely affect how we are perceived in the scientific and financial communities.

• Both Genentech and Debiopharm have the first right to maintain or defend our intellectual property rights under their respective agreements and, although we may have the right to assume the maintenance and defense of our intellectual property rights if our collaborators do not, our ability to do so may be compromised by our collaborators’ acts or omissions.

• Genentech or Debiopharm may utilize our intellectual property rights in such a way as to invite litigation that could jeopardize or invalidate our intellectual property rights or expose us to potential liability.

• Genentech or Debiopharm may not comply with all applicable regulatory requirements, or fail to report safety data in accordance with all applicable regulatory requirements.

• If either Genentech or Debiopharm were to breach or terminate its arrangement with us, the development and commercialization of the affected product candidate could be delayed, curtailed or terminated because we may not have sufficient financial resources or capabilities to continue development and commercialization of the product candidate on our own.

• Either Genentech or Debiopharm may not have sufficient resources necessary to advance clinical development of product candidates under our collaborations with each of them or may not obtain the necessary regulatory approvals.

If Genentech or Debiopharm fails to successfully develop and commercialize our drug candidates under collaboration, we may not be able to develop and commercialize these candidates independently or successfully enter into one or more alternative collaborations, in which event our financial condition, results of operations and stock price may be adversely affected.

For a further discussion of risks relating specifically to our dependence on Genentech for the successful development and commercialization of Erivedge, see our separate risk factor: “We are reliant on Genentech for the successful development and commercialization of Erivedge. If Genentech does not successfully commercialize Erivedge for advanced BCC, or develop Erivedge for other indications, our future prospects and our ability to finance our operations will be substantially harmed.”

We may not be successful in establishing additional strategic collaborations, which could adversely affect our ability to develop and commercialize products.

Our current strategy is to seek corporate collaborators or licensees for the further development and commercialization of one or more drug candidates under our network-targeted cancer drug programs, generally following our completion of at least phase I clinical testing. For example, while we are not presently seeking to enter into corporate collaborations for CUDC-101, we are likely to seek to partner CUDC-101, CUDC-907 as well as other drug candidates from these programs in the future. We do not currently have the resources or capacity to advance these programs into later stage clinical development (i.e., phase III) or commercialization. As such, our success will depend, in part, on our ability to enter into one or more such collaborations. We face significant competition in seeking appropriate collaborators and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a collaboration or other alternative arrangements for CUDC-101, CUDC-907 or any future programs because our research and development pipeline may be insufficient, our programs may be deemed to be at too early of a stage of development for collaborative effort and/or third parties may not view our drug candidates and programs as having the requisite potential to demonstrate safety and efficacy or sufficient differentiability compared to existing or emerging treatments. Even if we are successful in our efforts to establish new collaborations, the terms that we agree upon may not be favorable to us.

Moreover, if we fail to establish and maintain additional strategic partnerships related to our product candidates:

• the development of certain of our current or future product candidates may be terminated or delayed;

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• our cash expenditures related to development of certain of our current or future product candidates would increase significantly and we may need to seek additional financing;

• we may be required to hire additional employees or otherwise develop expertise, such as additional clinical, regulatory, sales and marketing expertise, for which we have not budgeted;

• we will bear all of the risk related to the development of any such product candidates; and

• our future prospects may be adversely affected and our stock price could decline.

If preclinical studies and clinical trials of our drug candidates are not successful then our future profitability and success could be adversely affected.

In order to obtain regulatory approval for the commercial sale of our drug candidates, we and any current or potential future collaborators will be required to complete extensive preclinical studies as well as clinical trials in humans to demonstrate to the FDA and foreign regulatory authorities that our drug candidates are safe and effective for each indication for which approval is sought.

Development, including preclinical and clinical testing, is a long, expensive and uncertain process. Preclinical testing and clinical trials of our drug candidates may not be successful. We and our collaborators could experience delays or failures in preclinical testing or clinical trials of any of our drug candidates for a number of reasons including, for example:

• preclinical studies or clinical trials may produce negative, inconsistent or inconclusive results, as occurred in Genentech’s phase II clinical trials of Erivedge in colorectal cancer and ovarian cancer, both of which were completed in 2010;

• we or any collaborators may decide, or regulators may require us, to conduct additional preclinical studies or clinical trials or terminate testing for a particular drug candidate;

• the results from preclinical studies and early clinical trials may not be statistically significant or predictive of results that will be obtained from expanded, advanced clinical trials;

• we may encounter difficulties or delays in manufacturing sufficient quantities of the drug candidate used in any preclinical study or clinical trial;

• the timing and completion of clinical trials of our drug candidates depend on, among other factors, the number of patients required to be enrolled in the clinical trials and the rate at which those patients are enrolled, and any increase in the required number of patients, decrease in recruitment rates or difficulties retaining study participants may result in increased costs, program delays or program termination;

• our products under development may not be effective in treating any of our network-targeted cancer indications or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may prevent or limit their commercial use;

• institutional review boards, regulators, including the FDA or its foreign equivalents, or any collaborators may hold, suspend or terminate our clinical research or the clinical trials of our drug candidates for various reasons, including failure to achieve established success criteria, noncompliance with regulatory requirements or if, in their opinion, the participating subjects are being exposed to unacceptable health risks; and

• we, along with any of our current or potential future collaborators and subcontractors, may not employ, in any capacity, persons who have been debarred under the FDA’s Application Integrity Policy, or similar policy under foreign regulatory authorities, nor may we or any of our current or potential future collaborators or subcontractors use disqualified clinical investigators or institutions to perform clinical trials of our drug candidates. Employment or use of such a debarred or disqualified person or institution may result in delays in FDA’s or foreign equivalent’s review or approval of our products, or the rejection of data developed with the involvement of such person(s) or institution(s).

If the preclinical studies and/or clinical trials for any of our drug candidates that we and any collaborators pursue are not successful, then our ability to successfully develop and commercialize products on the basis of the respective technologies will be materially adversely affected, our reputation and our ability to raise additional capital will be materially impaired and our stock price is likely to decline.

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We expect to rely in part on third parties to conduct clinical trials of our internally-developed product candidates, and if such third parties perform inadequately then we will not be able to successfully develop and commercialize drug candidates and grow our business.

We have a limited internal group for overseeing our clinical trials. For the foreseeable future, we expect to rely in part on third parties such as consultants, contract research organizations and other similar entities to complete IND-enabling preclinical studies, assist us in creating and submitting IND applications, enroll qualified subjects, conduct our clinical trials and provide services in connection with such clinical trials. Our reliance on these third parties for clinical development activities will reduce our control over these activities. These third parties may not complete activities on schedule, or at all, or may not conduct our clinical trials in accordance with the clinical trial protocol or design. In addition, the FDA and its foreign equivalents require us to comply with certain standards, referred to as good clinical practices, and applicable regulatory requirements, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. If any of the third party contractors on whom we rely do not comply with good clinical practices or other applicable regulatory requirements, we may not be able to use the data and reported results from the applicable trial. Any failure by a third party to conduct our clinical trials as planned or in accordance with regulatory requirements could delay or otherwise adversely affect our efforts to obtain regulatory approvals for and commercialize our drug candidates.

If we and our collaborative partners do not obtain necessary regulatory approvals, then our business will be unsuccessful and the market price of our common stock could substantially decline.

We and our collaborators will be required to obtain regulatory approval in order to successfully advance drug candidates through the clinic and prior to marketing and selling such products. The process of obtaining required regulatory approvals is expensive and the time required for these approvals is uncertain and typically takes a number of years, depending on the type, complexity and novelty of the product. With respect to our internal programs, we have limited experience in filing and prosecuting applications to obtain marketing approval.

Any regulatory approval to market a product may be subject to limitations on the approved indicated uses for which we or our collaborative partners may market the product or to distribution and use restrictions or other requirements under a Risk Evaluation and Mitigation Strategy, or REMS. These limitations may restrict the size of the market for the product and affect reimbursement by third-party payors. In addition, regulatory agencies may not grant approvals on a timely basis or may revoke or significantly modify previously granted approvals.

We and our collaborators are subject to numerous foreign regulatory requirements governing the manufacturing and marketing of potential future products outside of the U.S. The approval procedure varies among countries, additional testing may be required in some jurisdictions, and the time required to obtain foreign approvals often differs from that required to obtain FDA approvals. Moreover, approval by the FDA or a foreign equivalent does not ensure approval by regulatory authorities in other countries, and vice versa.

In addition, regulatory agencies may change existing requirements or adopt new requirements or policies. We and any collaborative partners may be slow to adapt or may not be able to adapt to these changes or new requirements.

As a result of these factors, we and any collaborators may not successfully begin or complete clinical trials and/or obtain regulatory approval to market and sell drug candidates in the time periods estimated, if at all. Moreover, if we or any collaborators incur costs and delays in development programs or fail to successfully develop and commercialize products based upon our technologies, we may not become profitable and our stock price could decline.

Even if marketing approval is obtained, any products we or any collaborators develop will be subject to ongoing regulatory oversight, which may affect the successful commercialization of such products.

Even if we or any collaborators obtain regulatory approval of a drug candidate, the approval may be subject to limitations on the approved indicated uses for which the product can be marketed, impose restrictions on how the product can be distributed and used pursuant to a REMS, or require costly post-marketing follow-up studies. After marketing approval for any product is obtained, the manufacturer and the manufacturing facilities for that product will be subject to continual review and periodic inspections by the FDA, or its foreign equivalent, and other regulatory agencies. The subsequent discovery of previously unknown problems with the product, or with the manufacturer or facility, or a failure to comply with regulatory requirements, may result in restrictions on the product or manufacturer, including withdrawal of the product from the market, fines, refusal to approve pending applications or supplements, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions, refusal to permit the import or export of our products or those of our collaborators, and criminal prosecution.

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The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our or our collaborators’ product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the U.S. or abroad. If we or our collaborators are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we or they may lose any marketing approvals that have been obtained, which would adversely affect the amount of revenue generated from such products and adversely affect our ability to achieve or sustain profitability.

We and our current collaborators are, and any potential future collaborators will be, subject to governmental regulations in connection with the research, development and commercialization of our drug candidates. We and our collaborators may not be able to comply with these regulations, which could subject us or such collaborators to penalties and result in the imposition of limitations on our or such collaborators’ operations.

In addition to regulations imposed by the FDA or foreign equivalents, we and our current collaborators are, and any potential future collaborators will be, subject to regulation under, among other laws, the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Research Conservation and Recovery Act, as well as regulations administered by the Nuclear Regulatory Commission, national restrictions on technology transfer, import, export and customs regulations and certain other local, state or federal regulations. From time to time, other federal agencies and congressional committees have indicated an interest in implementing further regulation of pharmaceutical and biotechnology companies. We are not able to predict whether any such regulations will be adopted or whether, if adopted, such regulations will apply to our business, or whether we or any collaborators would be able to comply with any applicable regulations.

Our business involves the use of hazardous materials and we must comply with environmental laws and regulations, which can be expensive and restrict how we do business.

Our research and development activities involve the controlled use of hazardous materials and chemicals. Although we believe that our safety procedures for handling and disposing of such materials comply with all applicable laws and regulations, we cannot completely eliminate the risk of accidental contamination or injury caused by these materials. Violation of these laws and regulations could lead to substantial fines and penalties. In the event of an accident, state or federal authorities may curtail our use of these materials and interrupt our business operations. In addition, we could become subject to potentially material liabilities relating to the investigation and cleanup of any contamination, whether currently unknown or caused by future releases.

Our business and operations would suffer in the event of system failures.

Despite the implementation of security measures, our internal computer systems are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Any system failure, accident or security breach that causes interruptions in our operations could result in a material disruption of our product development programs. To the extent that any disruption or security breach results in a loss or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we may incur liability and the further development of our product candidates may be delayed.

If we or any of our collaborators fail to achieve market acceptance for any approved products, our future revenue and ability to achieve profitability may be adversely affected.

Our future products, including those developed under collaborations with third parties, may not gain commercial acceptance among physicians, patients and third-party payors, even if necessary marketing approvals have been obtained. We believe that recommendations and endorsements by physicians will be essential for market acceptance of any products we or our collaborators successfully develop. If we or our collaborators are not able to obtain market acceptance for such products, our expected revenues from sales of these products would be adversely affected and our business may not be successful.

RISKS RELATING TO OUR FINANCIAL RESULTS AND NEED FOR FINANCING

We have incurred substantial losses, expect to continue to incur substantial losses for the foreseeable future and may never generate significant revenue or achieve profitability.

As of September 30, 2012, we had an accumulated deficit of approximately $736,133,000. We have incurred net losses of $9,859,000, $4,435,000 and $9,823,000 for the years ended December 31, 2011, 2010, and 2009, respectively, and a net

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loss of $4,046,000 for the nine months ended September 30, 2012. Other than Erivedge, which was approved by the FDA in January 2012 for the treatment of advanced forms of BCC, we have not successfully commercialized any products to date, either alone or in collaboration with others. We are entitled to royalties on net sales of Erivedge by Genentech. If these royalties are not meaningful or we are not able to successfully commercialize any other products, we will not achieve sustainable profitability. All of our drug candidates other than Erivedge are in early stages of development. For the foreseeable future, we will need to spend significant capital in an effort to develop and commercialize products and we expect to incur substantial operating losses. Our failure to become and remain profitable would, among other things, depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our research and development programs or continue our operations.

We will require substantial additional capital, which may be difficult to obtain.

We will require substantial funds to continue our research and development programs and to fulfill our planned operating goals. In particular, our currently planned operating and capital requirements include the need for substantial working capital to support our research and development activities for CUDC-101, CUDC-907 and other small molecules that we are seeking to develop from our pipeline of network-targeted cancer programs, and to fund our general and administrative costs and expenses.

We have historically derived a substantial portion of our operating cash flow from the research funding portion of collaboration agreements with third parties. However, we have no current research funding revenue under collaboration agreements. Our ability to generate cash flow to operate our business will depend, in part, on royalty payments from the commercial sale of Erivedge and the ability of Erivedge to be approved for commercial sale in other countries, which would result in us becoming eligible to receive additional milestone payments as well as royalties on any future sales. We expect that our only source of cash flows from operations for the foreseeable future will be:

• up-front license payments and research and development funding that we may receive if we are able to successfully enter into new collaboration agreements for our technologies under development;

• contingent cash payments that we may receive for the achievement of development objectives under any new collaborations or our existing collaborations with Genentech, Debiopharm and LLS; and

• royalty payments that are contingent upon the successful commercialization of products based upon these collaborations, including royalties on sales of Erivedge in advanced BCC by Genentech, which is approved in the U.S. and is under review for approval in Europe, Australia and other territories by the respective health authorities.

We may not be able to successfully enter into or continue any corporate collaborations and the timing, amount and likelihood of us receiving payments under such collaborations is highly uncertain. For example, the amount of future royalty payments that we will receive as a result of Genentech’s U.S. net sales of Erivedge, as well as potential future royalty payments that we may receive on net sales of Erivedge in territories outside of the U.S., to the extent that Genentech successfully obtains marketing approval in such territories, is highly uncertain.

We anticipate that existing cash, cash equivalents, marketable securities and working capital at September 30, 2012 should enable us to maintain current and planned operations into the first half of 2014. Our future capital requirements, however, may vary from what we currently expect. There are a number of factors that may affect our planned future capital requirements and accelerate our need for additional working capital, many of which are outside our control, including the following:

• unanticipated costs in our research and development programs;

• the timing and cost of obtaining regulatory approvals for our drug candidates;

• the timing, receipt and amount of payments, if any, from current and potential future collaborators, including the level of any royalty payments from sales of Erivedge;

• the timing and amount of payments due to licensors of patent rights and technology used in our drug candidates, including the level of any royalty payments from sales of Erivedge;

• unplanned costs to prepare, file, prosecute, maintain and enforce patent claims and other patent-related costs, including litigation costs and technology license fees; and

• unexpected losses in our cash investments or an inability to otherwise liquidate our cash investments due to unfavorable conditions in the capital markets.

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We may seek additional funding through public or private financings of debt or equity. The market for emerging life science stocks in general, and the market for our common stock in particular, are highly volatile. Due to this and various other factors, including potentially adverse general market conditions and the early-stage status of our internal development pipeline and the early stage of the commercial U.S. launch of Erivedge, additional funding may not be available to us on acceptable terms, if at all. In addition, the terms of any potential financing may be dilutive or otherwise adversely affect other rights of our stockholders.

We also expect to seek additional funds through arrangements with collaborators, licensees or other third parties. These arrangements would generally require us to relinquish or encumber rights to some of our technologies or drug candidates, and we may not be able to enter into such arrangements on acceptable terms, if at all.

While we anticipate receiving royalty payments in future periods from sales of Erivedge by Genentech, we anticipate that we will require additional funding. If we are unable to obtain such additional funding on a timely basis, whether through payments under existing or future collaborations or license agreement or sales of debt or equity, we may be required to:

• delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for one or more of our product candidates; or

• delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

We may seek additional funding through public or private financings of debt or equity. For example, in June 2011 we entered into the ATM Agreement with MLV pursuant to which, from time to time, we may offer and sell up to $20 million of common stock that was registered pursuant to our universal shelf registration statement through MLV pursuant to one or more “at the market” offerings. In addition, with our prior written approval, MLV may also sell these shares of common stock by any other method permitted by law, including in privately negotiated transactions. The market for emerging life science stocks in general, and the market for our common stock in particular, is highly volatile. Due to this and various other factors, including adverse general market conditions, the early-stage status of our development pipeline and the early stage of the commercial U.S. launch of Erivedge, additional funding may not be available to us on acceptable terms, if at all, and we may not be able to sell additional shares under the arrangement with MLV at favorable prices, if at all. In addition, the terms of any financing may be dilutive or otherwise adversely affect other rights of our stockholders. We also expect to seek additional funds through arrangements with collaborators, licensees or other third parties. These arrangements would generally require us to relinquish or encumber rights to some of our technologies or drug candidates. Moreover, we may not be able to enter into such arrangements on acceptable terms, if at all. If we are unable to obtain additional funding on a timely basis, whether through sales of debt or equity or through third party collaboration or license arrangements, we may be required to curtail or terminate some or all of our development programs.

We may face fluctuations in our operating results from period to period, which may result in a decline in our stock price.

Our operating results have fluctuated significantly from period to period in the past and may rise or fall significantly from period to period in the future as a result of many factors, including:

• the cost of research and development that we engage in;

• a failure to successfully complete preclinical studies and clinical trials in a timely manner or at all, resulting in a delay in receiving, or a failure to receive, the required regulatory approvals to commercialize our drug candidates;

• the timing, receipt and amount of payments, if any, from current and potential future collaborators, including the level of any royalty payments from sales of Erivedge;

• the entry into, or termination of, collaboration agreements;

• the scope, duration and effectiveness of our collaborative arrangements;

• the costs involved in prosecuting, maintaining and enforcing patent claims;

• our ability to operate without infringing upon the proprietary rights of others;

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• costs to comply with changes in government regulations;

• costs related to changes in management and reductions or additions of personnel;

• litigation costs;

• costs and accounting charges associated with financing or borrowing arrangements we may enter into from time to time;

• general and industry-specific adverse economic conditions that may affect, among other things, our and our collaborators’ operations and financial results;

• changes in accounting estimates, policies or principles, including changes in revenue recognition policies; and

• the introduction of competitive products and technologies by third parties.

Due to fluctuations in our operating results, quarterly comparisons of our financial results may not necessarily be meaningful, and investors should not rely upon such results as an indication of our future performance. In addition, investors may react adversely if our reported operating results are less favorable than in a prior period or are less favorable than those anticipated by investors or the financial community, which may result in a decline in our stock price.

Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.

Our general business strategy and prospects may be adversely affected by the unfavorable economic conditions, volatile business environment and continued unpredictable and unstable market conditions, both domestically and abroad. If equity and credit markets are unfavorable, it may make future debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon research and development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.

At September 30, 2012, we had $41,887,000 of cash, cash equivalents, marketable securities and long-term investments consisting of cash, money market, commercial paper, corporate debt securities, and government obligations. While as of the date of this filing, we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents or marketable securities since September 30, 2012, no assurance can be given that further deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or marketable securities or our ability to meet our financing objectives. Further dislocations in the credit market may adversely impact the value and liquidity of marketable securities owned by us.

There is a possibility that our stock price may decline due to the volatility of the stock market and the general economic downturn.

RISKS RELATED TO OUR BUSINESS, INDUSTRY, STRATEGY AND OPERATIONS

We and our collaborators may not achieve projected research and development goals in the time frames that we or they announce, which could have an adverse impact on our business and could cause our stock price to decline.

We set goals for, and make public statements regarding, the timing of certain accomplishments, such as the commencement and completion of preclinical studies, initiation and completion of clinical trials, and other developments and milestones under our proprietary programs and those programs being developed under collaboration agreements. Genentech is a wholly-owned member of the Roche Group and Roche has also made public statements regarding its expectations for the clinical development and potential regulatory approval of Erivedge in territories other than the U.S., and may in the future make additional statements about its goals and expectations for this collaboration with us. The actual timing of these events can vary dramatically due to a number of factors including without limitation delays or failures in our and our current and potential future collaborators’ preclinical studies or clinical trials, the amount of time, effort and resources committed to our programs by us and our current and potential future collaborators and the uncertainties inherent in the regulatory approval process. As a result, our or our current and potential future collaborators’ preclinical studies and clinical trials may not advance or be completed in the time frames we or they announce or expect, we or our current and potential future collaborators may not make regulatory submissions or receive regulatory approvals as planned that we or our current and potential future collaborators may not be able to adhere to our current schedule for the achievement of key milestones under any of our internal or collaborative programs. If we or any collaborators fail to achieve one or more of these milestones as planned, our business could be materially adversely affected and the price of our common stock could decline.

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We face substantial competition, which may result in our competitors discovering, developing or commercializing products before or more successfully than we do.

Our drug candidates face competition from existing and new technologies and products being developed by biotechnology, medical device and pharmaceutical companies, as well as universities and other research institutions. For example, there are several Hedgehog pathway inhibitors presently in clinical development by companies including Bristol-Myers Squibb Company, Infinity Pharmaceuticals, Inc., Millennium Pharmaceuticals, Inc., Novartis International AG and Pfizer Inc. that may compete with Erivedge. Genentech and Roche are currently commercializing Erivedge in advanced BCC and also conducting a phase II trial in less severe forms of BCC. In addition, Erivedge is also currently being tested in other cancers in trials under collaborative agreements between Genentech and either third-party investigators or the NCI. We currently believe that the nearest competitive molecule to Erivedge in clinical development is in phase II clinical testing in locally advanced and metastatic BCC. Competitors may discover, characterize and develop their Hedgehog pathway inhibitor drug candidates and compete with us in the same cancer indications in which Erivedge is currently being studied.

In addition, our small molecule network-targeted cancer drug development candidates, which are focused primarily on validated cancer targets, face significant competition from marketed drugs and drugs under development that seek to inhibit the same targets as our drug candidates. We expect competition to intensify in cancer generally and, specifically, in targeted approaches to develop potential cancer therapies as technical advances in the field are made and become more widely known.

Many of our competitors have substantially greater capital resources, research and development staffs and facilities, and more extensive experience than we have. As a result, efforts by other life science, medical device and pharmaceutical companies could render our programs or products uneconomical or result in therapies superior to those that we develop alone or with a collaborator.

For those programs that we have selected for internal development, we face competition from companies that are more experienced in product development and commercialization, obtaining regulatory approvals and product manufacturing. Other smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. As a result, any of these companies may be more successful in obtaining collaboration agreements or other monetary support, approval and commercialization of their products and/or may develop competing products more rapidly and/or at a lower cost. For those programs that are subject to a collaboration agreement, competitors may have greater expertise in discovery, research and development, manufacturing, preclinical and clinical testing, obtaining regulatory approvals and marketing than our collaborators and, consequently, may discover, develop and commercialize products that render our products non-competitive or obsolete.

If we are not able to compete effectively, then we may not be able, either alone or with others, to advance the development and commercialization of our drug candidates, which would adversely affect our ability to grow our business and become profitable.

The trend towards consolidation in the pharmaceutical and biotechnology industries may adversely affect us.

There is a trend towards consolidation in the pharmaceutical and biotechnology industries. This consolidation trend may result in the remaining companies in these industries having greater financial resources and technological capabilities, thus intensifying competition in these industries. This trend may also result in fewer potential collaborators or licensees for our therapeutic drug candidates. Also, if a consolidating company is already doing business with our competitors, we may lose existing licensees or collaborators as a result of such consolidation. This trend may adversely affect our ability to enter into agreements for the development and commercialization of our drug candidates, and as a result may harm our business.

We could be exposed to significant monetary damages and business harm if we are unable to obtain or maintain adequate product liability insurance at acceptable costs or otherwise protect ourselves against potential product liability claims.

Product liability claims are inherent in the process of researching, developing and commercializing human health care products and could expose us to significant liabilities and prevent or interfere with the development or commercialization of our drug candidates. Regardless of their merit or eventual outcome, product liability claims would require us to spend significant time, money and other resources to defend such claims, could result in decreased demand for our future products or result in reputational harm and could result in the payment of a significant damage award.

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Although we currently have product liability insurance for our clinical trials, this insurance is subject to deductibles and coverage limitations and may not be adequate in scope to protect us in the event of a successful product liability claim. If any of our drug candidates advance in clinical trials and/or are approved for marketing, we may seek additional insurance coverage. Product liability insurance is expensive and may be difficult to procure. As such, it is possible that we will not be able to obtain product liability insurance on acceptable terms, if at all, or that our product liability insurance coverage will prove to be inadequate to protect us from all potential claims, which may harm our business.

If we are not able to attract and retain key management and scientific personnel and advisors, we may not successfully develop our drug candidates or achieve our other business objectives.

We depend upon our senior management, including Daniel R. Passeri, our President and Chief Executive Officer, Maurizio Voi, our Chief Medical and Chief Development Officer, and Michael P. Gray, our Chief Operating Officer and Chief Financial Officer. The loss of the service of any of the key members of our senior management may significantly delay or prevent the achievement of product development and other business objectives. Our officers all serve pursuant to “at will” employment arrangements and can terminate their employment with us at any time. We do not maintain key man life insurance on any of these officers. Replacing key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to research, develop and successfully commercialize products in our areas of core competency.

Our ability to operate successfully will depend on our ability to attract and retain qualified personnel, consultants and advisors. We face intense competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities, governmental entities and other research institutions. We may be unable to attract and retain these individuals, and our failure to do so would have an adverse effect on our business.

We may seek to acquire complementary businesses and technologies or otherwise seek to expand our operations to grow our business, which may divert management resources and adversely affect our financial condition and operating results.

We may seek to expand our operations, including without limitation through internal growth and/or the acquisition of businesses and technologies that we believe are a strategic complement to our business model. We may not be able to identify suitable acquisition candidates or expansion strategies and successfully complete such acquisitions or successfully execute any such other expansion strategies. We may never realize the anticipated benefits of any efforts to expand our business. Furthermore, the expansion of our business, either through internal growth or through acquisitions, poses significant risks to our existing operations, financial condition and operating results, including:

• a diversion of management from our existing operations;

• increased operating complexity of our business, requiring greater personnel and resources;

• significant additional cash expenditures to expand our operations and acquire and integrate new businesses and technologies;

• unanticipated expenses and potential delays related to integration of the operations, technology and other resources of any acquired companies;

• uncertainty related to the value, benefits or legitimacy of intellectual property or technologies acquired;

• retaining and assimilating key personnel and the potential impairment of relationships with our employees;

• incurrence of debt, other liabilities and contingent liabilities, including potentially unknown contingent liabilities; and

• dilutive stock issuances.

Any business that we conduct in China will expose us to risks resulting from adverse changes in political, legal and economic policies of the Chinese government, which could impede our preclinical efforts in China and materially and adversely affect the development of our network-targeted cancer programs.

We currently engage approximately 16 medicinal chemists in China pursuant to a contract research agreement with a medicinal chemistry provider in China. In addition, we have a subsidiary in China, Curis Shanghai, which is currently licensed to conduct business but is not operational.

Conducting business in China exposes us to a variety of risks and uncertainties that are unique to China. The economy of China has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the

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Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the Chinese government. In addition, the Chinese government continues to play a significant role in regulating industrial development. It also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Recent evidence of a slowdown in the pace of growth of the Chinese economy could result in interruptions of our development efforts in China. If our research and development efforts in China are delayed due to such interruptions, we may not realize the reductions in costs anticipated from doing business in China. We would also have to consider moving our chemistry and/or biology research that is currently conducted in China to U.S. or European providers, thereby potentially either increasing our overall costs for such services or reducing the total number of chemists and or/biologists that we could engage. In addition, the Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential value. In 1979, the Chinese government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. Accordingly, we cannot predict the effect of future developments in the Chinese legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. Our business could be materially harmed by any changes in the political, legal or economic climate in China or the inability to enforce applicable Chinese laws and regulations.

If the estimates we make and the assumptions on which we rely in preparing our financial statements prove inaccurate, our actual results may vary significantly.

Our financial statements have been prepared in accordance with generally accepted accounting principles, or GAAP . The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, the amounts of charges taken by us and related disclosure. Such estimates and judgments include the carrying value of our property, equipment and intangible assets, revenue recognition, the value of certain liabilities, including the fair value of our warrant liability, and stock-based compensation expense. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. However, these estimates and judgments, or the assumptions underlying them, may change over time. Accordingly, our actual financial results may vary significantly from the estimates contained in our financial statements.

For a further discussion of the estimates and judgments that we make and the critical accounting policies that affect these estimates and judgments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” elsewhere in this Quarterly Report on Form 10-Q.

Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state health-care fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.

If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions. In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding our business, our results of operations or potential transactions we are considering. Despite our adoption of an Insider Trading Policy, we may not be able to prevent a director, executive or employee from trading in our common stock on the basis of, or while having access to, material, nonpublic information. If a director, executive or employee was to be investigated, or an action was to be brought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and our stock price. Such a claim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks important to the success of our business.

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RISKS RELATING TO OUR INTELLECTUAL PROPERTY

We may not be able to obtain patent protection for our technologies and the patent protection we do obtain may not be sufficient to stop our competitors from using similar technology.

The long-term success of our business depends in significant part on our ability to:

• obtain patents to protect our technologies and discoveries;

• protect trade secrets from disclosure to third-party competitors;

• operate without infringing upon the proprietary rights of others; and

• prevent others from infringing on our proprietary rights.

The patent positions of pharmaceutical and life science companies, including ours, are generally uncertain and involve complex legal, scientific and factual questions. The laws, procedures and standards that the U.S. Patent and Trademark Office and various foreign intellectual property offices use to grant patents, and the standards that courts use to interpret patents, are not always applied predictably or uniformly and have changed in significant ways and are expected to continue to change. Consequently, the level of protection, if any, that will be obtained and provided by our patents if we attempt to enforce them, and they are challenged, is uncertain.

Patents may not issue from any of the patent applications that we own or license. If patents do issue, the type and extent of patent claims issued to us may not be sufficient to protect our technology from exploitation by our competitors. In addition, issued patents that we own or license may be challenged, invalidated or circumvented. Our patents also may not afford us protection against competitors with similar technology. Because patent applications in the U.S. and in many countries abroad are maintained in secrecy until 18 months after filing, it is possible that third parties have filed or maintained patent applications for technology used by us or covered by our pending patent applications without our knowledge. The U.S. Congress passed the Leahy-Smith America Invents Act, or the America Invents Act, which was signed into law in September 2011. The America Invents Act reforms U.S. patent law in part by changing the standard for patent approval from a “first to invent” standard to a “first to file” standard and developing a post-grant review system. This new legislation changes U.S. patent law in a way that may weaken our ability to obtain or maintain patent protection for future inventions in the U.S.

We may not have rights under patents that may cover one or more of our drug candidates. In some cases, these patents may be owned or controlled by third-party competitors and may prevent or impair our ability to exploit our technology. As a result, we or our current or potential future collaborative partners may be required to obtain licenses under third-party patents to develop and commercialize some of our drug candidates. If we are unable to secure licenses to such patented technology on acceptable terms, we or our collaborative partners may not be able to develop and commercialize the affected drug candidate or candidates.

We may become involved in expensive and unpredictable patent litigation or other intellectual property proceedings, which could result in liability for damages or require us to cease our development and commercialization efforts.

There are substantial litigation and other adversarial opposition proceedings regarding patent and other intellectual property rights in the pharmaceutical and life science industries. We may become a party to patent litigation or other proceedings regarding intellectual property rights.

Situations that may give rise to patent litigation or other disputes over the use of our intellectual property include:

• initiation of litigation or other proceedings against third parties to enforce our patent rights, to seek to invalidate the patents held by these third parties or to obtain a judgment that our drug candidates do not infringe the third parties’ patents;

• participation in interference and/or derivation proceedings to determine the priority of invention if our competitors file U.S. patent applications that claim technology also claimed by us;

• initiation of opposition, reexamination, post grant review or inter partes review proceedings by third parties that seek to limit or eliminate the scope of our patent protection;

• initiation of litigation by third parties claiming that our processes or drug candidates or the intended use of our drug candidates infringe their patent or other intellectual property rights; and

• initiation of litigation by us or third parties seeking to enforce contract rights relating to intellectual property that may be important to our business.

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The costs associated with any patent litigation or other proceeding, even if resolved favorably, will likely be substantial and a distraction to management. Some of our competitors may be able to sustain the cost of such litigation or other proceedings more effectively than we can because of their substantially greater financial resources. If a patent litigation or other intellectual property proceeding is resolved unfavorably, we or any collaborative partners may be enjoined from manufacturing or selling our future products without a license from the other party and be held liable for significant damages. Moreover, we may not be able to obtain required licenses on commercially acceptable terms or any terms at all. In addition, we could be held liable for lost profits if we are found to have infringed a valid patent, or liable for treble damages if we are found to have willfully infringed a valid patent. Litigation results are highly unpredictable and we or any collaborative partner may not prevail in any patent litigation or other proceeding in which we may become involved. Any changes in, or unexpected interpretations of the patent laws may adversely affect our ability to enforce our patent position. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could damage our ability to compete in the marketplace.

We face risks relating to the enforcement of our intellectual property rights in China that could adversely affect our business.

Pursuant to our contract research agreement with a medicinal chemistry provider in China, we currently engage approximately 16 medicinal chemists in China to perform drug discovery research. We seek to protect our intellectual property rights under this arrangement through, among other things, non-disclosure and assignment of invention covenants. Implementation and enforcement of Chinese intellectual property-related laws has historically been inconsistent and damages assessed may fail to reflect the true value of the infringed technology and its market. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the U.S. or other countries. Policing unauthorized use of proprietary technology is difficult and expensive, and we might need to resort to litigation to enforce or defend patents issued to us or to determine the enforceability, scope and validity of our proprietary rights or those of others. The experience and capabilities of Chinese courts in handling intellectual property litigation varies, and outcomes are unpredictable. Further, such litigation may require significant expenditure of cash and management efforts and could harm our business, financial condition and results of operations. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, prospects and reputation.

If we are unable to keep our trade secrets confidential, our technology and proprietary information may be used by others to compete against us.

We rely significantly upon proprietary technology, information, processes and know-how that are not subject to patent protection. We seek to protect this information through confidentiality and intellectual property license or assignment provisions in agreements with our employees, consultants and other third-party contractors, including our contract research agreement with a medicinal chemistry provider in China, as well as through other security measures. The confidentiality and intellectual property provisions of our agreements and security measures may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently developed by competitors.

If we fail to comply with our obligations in the agreements under which we license rights to technology from third parties, we could lose license rights that are important to our business.

We are party to agreements that provide for licenses to us of intellectual property or sharing of rights to intellectual property that is important to our business, and we may enter into additional agreements in the future that provide licenses to us of valuable technology. These licenses impose, and future licenses may impose, various commercialization, milestone and other obligations on us, including the obligation to terminate our use of patented subject matter under certain contingencies. If a licensor becomes entitled to, and exercises, termination rights under a license, we would lose valuable rights and could lose our ability to develop our products. We may need to license other intellectual property to commercialize future products. Our business may suffer if any current or future licenses terminate, if the licensors fail to abide by the terms of the license or fail to prevent infringement by third parties, if the licensed patents or other rights are found to be invalid or if we are unable to enter into necessary licenses on acceptable terms.

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although

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no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

RISKS RELATING TO MANUFACTURING AND SALES

We will depend on our collaborators and third-party manufacturers to produce most, if not all, of our products under development, and if these third parties do not successfully formulate or manufacture these products, our business will be harmed.

We have no manufacturing experience or manufacturing capabilities. In order to continue to develop drug candidates, apply for regulatory approvals, and commercialize our products under development, we or any collaborators must be able to manufacture products in adequate clinical and commercial quantities, in compliance with regulatory requirements, including those related to quality control and quality assurance, at acceptable costs and in a timely manner. The manufacture of our drug candidates may be complex, difficult to accomplish and difficult to scale-up when large-scale production is required. Manufacture may be subject to delays, inefficiencies and poor or low yields of quality products. The cost of manufacturing some of our product candidates may make them prohibitively expensive.

To the extent that we or any collaborators seek to enter into manufacturing arrangements with third parties, we and such collaborators will depend upon these third parties to perform their obligations in a timely and effective manner and in accordance with government regulations. Contract manufacturers may breach their manufacturing agreements because of factors beyond our and our collaborators’ control or may terminate or fail to renew a manufacturing agreement based on their own business priorities at a time that is costly or inconvenient for us and our collaborators.

Any contract manufacturers with whom we or our collaborators enter into manufacturing arrangements will be subject to ongoing periodic, unannounced inspection by the FDA and corresponding state and foreign agencies or their designees to ensure strict compliance with current good manufacturing practices and other governmental regulations and corresponding foreign standards. Any failure by our or our collaborators’ contract manufacturers, any collaborators, or us to comply with applicable regulations could result in sanctions being imposed, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of drug candidates, delays, suspension or withdrawal of approvals, seizures or recalls of drug candidates, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business. If we or a collaborator need to change manufacturers, the FDA and corresponding foreign regulatory agencies must approve any new manufacturers in advance. This would involve testing and pre-approval inspections to ensure compliance with FDA and foreign regulations and standards.

If third-party manufacturers fail to perform their obligations, our competitive position and ability to generate revenue may be adversely affected in a number of ways, including;

• we and any collaborators may not be able to initiate or continue certain preclinical and/or clinical trials of products that are under development;

• we and any collaborators may be delayed in submitting applications for regulatory approvals for our drug candidates; and

• we and any collaborators may not be able to meet commercial demands for any approved products.

Because we rely on a limited number of suppliers for the raw materials used in our product candidates, any delay or interruption in the supply of such raw materials could lead to delays in the manufacture and supply of our product candidates.

We rely on third parties to supply certain raw materials necessary to produce our drug candidates, including CUDC-101, for preclinical studies and clinical trials. There are a small number of suppliers for certain raw materials that we use to manufacture our drug candidates. Such suppliers may not sell these raw materials to us at the times we need them or on commercially reasonable terms, or delivery of these raw materials may be delayed or interrupted. Although we generally do not begin a preclinical study or clinical trial unless we believe we have a sufficient supply of a drug candidate to complete such study or trial, any significant delay in the supply of raw materials for our drug candidates for an ongoing clinical trial due to the need to replace a third-party supplier could considerably delay completion of certain preclinical studies and/or clinical trials. Moreover, if we were unable to purchase raw materials after regulatory approval had been obtained for our drug candidates, the commercial launch of our drug candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of our drug candidates.

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We have no sales or marketing experience and, as such, plan to depend significantly on third parties who may not successfully market and sell any products we develop.

We have no sales, marketing or product distribution experience. If we receive required regulatory approvals, we plan to rely primarily on sales, marketing and distribution arrangements with third parties, including our collaborative partners. For example, as part of our agreements with Genentech and Debiopharm, we have granted Genentech and Debiopharm the exclusive rights to distribute certain products resulting from such collaborations, and Genentech is currently distributing Erivedge as part of its U.S. commercialization rights following FDA approval of Erivedge in February 2012. We may have to enter into additional marketing arrangements in the future and we may not be able to enter into these additional arrangements on terms that are favorable to us, if at all. In addition, we may have limited or no control over the sales, marketing and distribution activities of these third parties and sales through these third parties could be less profitable to us than direct sales. These third parties could sell competing products and may devote insufficient sales efforts to our products. Our future revenues will be materially dependent upon the success of the efforts of these third parties.

We may seek to independently market products that are not already subject to marketing agreements with other parties. If we determine to perform sales, marketing and distribution functions ourselves, we could face a number of additional risks, including:

• we may not be able to attract and build a significant and skilled marketing staff or sales force;

• the cost of establishing a marketing staff or sales force may not be justifiable in light of the revenues generated by any particular product; and

• our direct sales and marketing efforts may not be successful.

Even if we successfully commercialize any products under development, either alone or in collaboration, we face uncertainty with respect to pricing, third-party reimbursement and healthcare reform, all of which could adversely affect the commercial success of our product candidates.

Our ability to collect significant revenues from sales of our products, if commercialized successfully, may depend on our ability, and the ability of any current or potential future collaboration partners or customers, to obtain adequate levels of coverage and reimbursement for such products from third-party payers such as:

• government health administration authorities;

• private health insurers;

• health maintenance organizations;

• pharmacy benefit management companies; and

• other healthcare-related organizations.

Third party payers are increasingly challenging the prices charged for medical products and services. For example, third-party payers may deny coverage or offer inadequate levels of reimbursement if they determine that a prescribed product has not received appropriate clearances from the FDA, or foreign equivalent, or other government regulators, is not used in accordance with cost-effective treatment methods as determined by the third-party payer, or is experimental, unnecessary or inappropriate. Prices could also be driven down by health maintenance organizations that control or significantly influence purchases of healthcare services and products. If third-party payers deny coverage or offer inadequate levels of reimbursement, we or any collaborators may not be able to market our products effectively or we may be required to offer our products at prices lower than anticipated.

In both the U.S. and some foreign jurisdictions, there have been a number of legislative and regulatory proposals and initiatives to change the health care system in ways that could affect our ability to sell our products profitably. Some of these proposed and implemented reforms could result in reduced reimbursement rates for our potential products, which would adversely affect our business strategy, operations and financial results. For example, in March 2010, President Obama signed into law a legislative overhaul of the U.S. healthcare system, known as the Patient Protection and Affordable Care Act of 2010, as amended by the Healthcare and Education Affordability Reconciliation Act of 2010, which we refer to as the PPACA. This legislation may have far reaching consequences for life science companies like us. As a result of this new legislation, substantial changes could be made to the current system for paying for healthcare in the U.S., including changes made in order to extend medical benefits to those who currently lack insurance coverage. Extending coverage to a large population could substantially change the structure of the health insurance system and the methodology for reimbursing medical services, drugs and devices. These structural changes could entail modifications to the existing system of private payors and government programs, such as Medicare and Medicaid, creation of a government-sponsored healthcare insurance

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source, or some combination of both, as well as other changes. Restructuring the coverage of medical care in the U.S. could impact the reimbursement for prescribed drugs, biopharmaceuticals and medical devices. If reimbursement for our approved product candidates, if any, is substantially less that we expect in the future, or rebate obligations associated with them are substantially increased, our business could be materially and adversely impacted. Congress has also proposed a number of legislative initiatives, including possible repeal of the PPACA. In addition, some details regarding the implementation of the PPACA are yet to be determined, and at this time, the full effect that the PPACA would have on our business remains unclear. In addition, the Medicare Prescription Drug Improvement and Modernization Act of 2003, or MPDIMA, reformed the way Medicare will cover and reimburse for pharmaceutical products. This legislation could also decrease the coverage and price that we may receive for our approved product candidates, if any.

The cost-containment measures that healthcare providers are instituting and the results of healthcare reforms such as the PPACA and the MPDIMA may prevent us from maintaining prices for our approved product candidates that are sufficient for us to realize profits and may otherwise significantly harm our business, financial condition and operating results. In addition, to the extent that our approved product candidates, if any, are marketed outside of the U.S., foreign government pricing controls and other regulations may prevent us from maintaining prices for such products that are sufficient for us to realize profits and may otherwise significantly harm our business, financial condition and operating results.

RISKS RELATED TO OUR COMMON STOCK

Our stock price may fluctuate significantly and the market price of our common stock could drop below the price paid.

The trading price of our common stock has been volatile and is likely to continue to be volatile in the future. For example, our stock traded within a range of a high price of $5.65 and a low price of $1.97 per share for the period January 1, 2011 through November 2, 2012. The stock market, particularly in recent years, has experienced significant volatility with respect to pharmaceutical and biotechnology company stocks. Prices for our stock will be determined in the marketplace and may be influenced by many factors, including:

• announcements regarding new technologies by us or our competitors;

• market conditions in the biotechnology and pharmaceutical sectors;

• rumors relating to us or our collaborators or competitors;

• litigation or public concern about the safety of our potential products;

• actual or anticipated variations in our quarterly operating results and any subsequent restatement of such results;

• actual or anticipated changes to our research and development plans;

• deviations in our operating results from the estimates of securities analysts;

• entering into new collaboration agreements or termination of existing collaboration agreements;

• adverse results or delays in clinical trials being conducted by us or any collaborators;

• any intellectual property or other lawsuits involving us;

• third-party sales of large blocks of our common stock;

• sales of our common stock by our executive officers, directors or significant stockholders;

• equity sales by us of our common stock to fund our operations;

• the loss of any of our key scientific or management personnel;

• FDA or international regulatory actions; and

• general economic and market conditions, including recent adverse changes in the domestic and international financial markets.

While we cannot predict the individual effect that these factors may have on the price of our common stock, these factors, either individually or in the aggregate, could result in significant variations in price during any given period of time.

In the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources.

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The limited liquidity for our common stock could affect an investor’s ability to sell our shares at a satisfactory price and makes the trading price of our common stock more volatile.

Our common stock is relatively illiquid. As of September 30, 2012, we had approximately 80.0 million shares of common stock outstanding. The average daily trading volume in our common stock during the prior 90 trading days ending on September 30, 2012 was approximately 484,000 shares. A more active public market for our common stock may not develop, which would continue to adversely affect the trading price and liquidity of our common stock. Moreover, common stock with a thin trading market may experience greater price fluctuation than the stock market as a whole. Without a large float, our common stock is less liquid than the stock of companies with broader public ownership and, as a result, the trading prices of our common stock may be more volatile.

Future sales of shares of our common stock, including shares issued upon the exercise of currently outstanding options and warrants or pursuant to our universal shelf registration statement could result in dilution to our stockholders and negatively affect our stock price.

Most of our outstanding common stock can be traded without restriction at any time. As such, sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell such shares, could reduce the market price of our common stock. In addition, we have a significant number of shares that are subject to outstanding options and warrants and in the future we may issue additional options, warrants or other derivative securities convertible into our common stock. The exercise of any such options, warrants or other derivative securities, and the subsequent sale of the underlying common stock could cause a further decline in our stock price. These sales also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Furthermore, as of September 30, 2012, we have outstanding warrants to purchase 1,373,517 shares of our common stock that contain antidilution adjustment provisions that will result in a decrease in the price and an increase in the number of shares of common stock issuable upon exercise of such warrants in the event of certain issuances of common stock by us at prices below $3.55 per share. For example, assuming that we issued and sold shares of common stock in a public offering at $3.00 per share, these warrants would become exercisable for an aggregate of 1,389,769 shares of our common stock, at an exercise price of $3.51 per share, which is equal to an aggregate of additional 16,252 shares as a result of the adjustment. To the extent that we are required to adjust the price and number of shares underlying these warrants as a result of this antidilution clause, and thereafter such warrants are exercised, additional shares of our common stock will be issued that will be eligible for resale in the public market, which could result in added dilution to our security holders and could also have an adverse effect on the market price of our common stock.

We currently have on file with the SEC a “universal” shelf registration statement which allows us to offer and sell registered common stock, preferred stock and warrants from time to time pursuant to one or more offerings at prices and terms to be determined at the time of sale. For example, in June 2011 we entered into the ATM Agreement with MLV pursuant to which, from time to time, we may offer and sell up to $20 million of the common stock that was registered on this shelf registration statement through MLV pursuant to one or more “at the market” offerings. In addition, with our prior written approval, MLV may also sell these shares of common stock by any other method permitted by law, including in privately negotiated transactions. Sales of substantial amounts of shares of our common stock or other securities under this registration statement could lower the market price of our common stock and impair our ability to raise capital through the sale of equity securities.

Compliance with Section 404 of the Sarbanes-Oxley Act of 2002 requires our management to devote substantial time to compliance initiatives, and if our independent registered public accounting firm is required to provide an attestation report on our internal controls but is unable to provide an unqualified attestation report, our stock price could be adversely affected.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we are required to furnish a report by our management on the effectiveness of our internal control over financial reporting. The internal control report must contain (i) a statement of management’s responsibility for establishing and maintaining adequate internal control over financial reporting, (ii) a statement identifying the framework used by management to conduct the required evaluation of the effectiveness of our internal control over financial reporting and (iii) management’s assessment of the effectiveness of our internal control over financial reporting as of the end of our most recent fiscal year, including a statement as to whether or not internal control over financial reporting is effective.

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To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, hire additional employees for our finance and audit functions, potentially engage outside consultants and adopt a detailed work plan to (i) assess and document the adequacy of internal control over financial reporting, (ii) continue steps to improve control processes where appropriate, (iii) validate through testing that controls are functioning as documented, and (iv) implement a continuous reporting and improvement process for internal control over financial reporting. In addition, in connection with the attestation process by our independent registered public accounting firm, if required, we may encounter problems or delays in completing the implementation of any requested improvements and receiving a favorable attestation. If we cannot favorably assess the effectiveness of our internal control over financial reporting, or if our independent registered public accounting firm is unable to provide an unqualified attestation report on our internal controls, investors could lose confidence in our financial information and our stock price could decline.

If securities or industry analysts do not publish research or reports or publish unfavorable research or reports about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us, our business, our market or our competitors. There are currently nine research analysts that publish research coverage related to Curis. These securities and industry analysts may not maintain such coverage or we may fail to obtain research coverage by additional securities and industry analysts. If we do not maintain such existing coverage, and additional securities or industry analysts do not commence coverage of our company, the trading price for our stock may be negatively impacted. If one or more of the analysts who covers us downgrades our stock, our stock price would likely decline. If one or more of these analysts ceases to cover us or fails to regularly publish reports on us, interest in our stock could decrease, which could cause our stock price or trading volume to decline.

We do not intend to pay dividends on our common stock, and any return to investors will come, if at all, only from potential increases in the price of our common stock.

At the present time, we intend to use available funds to finance our operations. Accordingly, while payment of dividends rests within the discretion of our board of directors, no common stock dividends have been declared or paid by us and we have no intention of paying any common stock dividends in the foreseeable future.

Insiders have substantial influence over us and could delay or prevent a change in corporate control.

As of September 30, 2012, we believe that our directors, executive officers and principal stockholders, together with their affiliates, owned, in the aggregate, approximately 35% of our outstanding common stock. As a result, these stockholders, if acting together, will be able to exert influence over the management and affairs of our company and over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership could harm the market price of our common stock by:

• delaying, deferring or preventing a change in control of our company;

• impeding a merger, consolidation, takeover or other business combination involving our company; or

• discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company.

We have anti-takeover defenses that could delay or prevent an acquisition that our stockholders may consider favorable and the market price of our common stock may be lower as a result.

Provisions of our certificate of incorporation, our bylaws and Delaware law may have the effect of deterring unsolicited takeovers or delaying or preventing changes in control of our management, including transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interest. For example, we have divided our board of directors into three classes that serve staggered three-year terms, we may issue shares of our authorized “blank check” preferred stock and our stockholders are limited in their ability to call special stockholder meetings.

In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. These provisions could discourage, delay or prevent a change in control transaction.

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Item 6. EXHIBITS

The exhibits filed herewith or incorporated by reference are set forth on the exhibit index attached hereto. See exhibit index.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CURIS, INC.
Dated: November 6, 2012	By:	/s/    MICHAEL P. GRAY
		Michael P. Gray Chief Operating Officer and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit Number	Description
†10.1	Collaborative Research, Development and License Agreement, dated June 11, 2003, between Curis and Genentech, Inc.
31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
+101.INS	XBRL Instance Document
+101.SCH	XBRL Taxonomy Extension Schema Document
+101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
+101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
+101.LAB	XBRL Taxonomy Extension Label Linkbase Document
+101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

† Confidential treatment has been requested as to certain portions, which portions have been separately filed with the Securities and Exchange Commission.

+ Furnished, not filed, herewith.

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EX-10.1

Exhibit No. 10.1

Confidential Materials omitted and filed separately with the

Securities and Exchange Commission. Double asterisks denote omissions.

COLLABORATIVE RESEARCH, DEVELOPMENT

AND LICENSE AGREEMENT

By and Between

CURIS, INC.

and

GENENTECH, INC.

Table of Contents

1.	DEFINITIONS		1
2.	CONDUCT OF COLLABORATION; GOVERNANCE		9
	2.1	Objective	9
	2.2	Joint Steering Committee	9
	2.3	Co-Development Steering Committee	10
	2.4	Product Prioritization	11
3.	RESEARCH PROGRAM; DESIGNATION AND DEVELOPMENT OF LEAD PRODUCTS		11
	3.1	Research Plan	11
	3.2	Designation of Lead Products	12
	3.3	Genentech Development and Commercialization Responsibilities	12
4.	CO-DEVELOPMENT OF COLLABORATION PRODUCTS		13
	4.1	Co-Development Plan and Budget	13
	4.2	Collaboration Products	13
	4.3	Sharing of Operating Profits (Losses)	15
	4.4	Co-Development Responsibilities	15
5.	TECHNOLOGY TRANSFER; THIRD PARTY LICENSORS		16
	5.1	Transfer of Materials	16
	5.2	IND Transfer	16
	5.3	Transfer of Data	16
	5.4	Existing License Agreements	16
	5.5	Research Materials	17
6.	CURIS DEVELOPMENT RIGHTS		17
	6.1	Development of Compounds Other Than Lead Products	17
	6.2	Commercialization of Curis Products	19
7.	LICENSE GRANTS		20
	7.1	License Grants to Genentech	20
	7.2	License Grants to Curis	21
	7.3	Retained Rights	22
	7.4	No Implied Licenses	22
8.	FEES AND PAYMENTS		22

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	8.1	Upfront Fee	22
	8.2	Annual License Fee	22
	8.3	Equity Investment	23
	8.4	Milestone Payments	23
	8.5	Royalties Payable by Genentech	25
	8.6	Royalties Payable by Curis	27
	8.7	Payments to Evotec OAI	28
	8.8	Payments to Third Party Licensors	28
9.	PAYMENTS; RECORDS; AUDITS		28
	9.1	Payment; Reports	28
	9.2	Exchange Rate; Manner and Place of Payment	29
	9.3	Late Payments	29
	9.4	Records and Audits	29
	9.5	Withholding of Taxes	29
	9.6	Exchange and Royalty Rate Controls	30
10.	INTELLECTUAL PROPERTY		30
	10.1	Ownership of Technology	30
	10.2	Patent Prosecution	30
	10.3	Cooperation of the Parties	31
	10.4	Infringement by Third Parties	32
	10.5	Infringement of Third Party Rights	33
11.	REPRESENTATIONS AND WARRANTIES		33
	11.1	Mutual Representations and Warranties	33
	11.2	Representations and Warranties of Curis; Covenants of Curis	34
	11.3	Disclaimer Concerning Technology	34
12.	CONFIDENTIALITY; PUBLICATION		35
	12.1	Confidentiality	35
	12.2	Exceptions	35
	12.3	Terms of Agreement	35
	12.4	Authorized Disclosure	35
	12.5	Publications	36
13.	TERM AND TERMINATION		36
	13.1	Term of the Agreement	36

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	13.2	Termination by Genentech	37
	13.3	Termination for Cause	37
	13.4	Effect of Termination or Expiration; Surviving Obligations	37
	13.5	Exercise of Right to Terminate	38
	13.6	Damages; Relief	38
	13.7	Termination of the Harvard Licenses	38
	13.8	Termination of the 1996 Stanford License	39
14.	INDEMNITY		39
	14.1	Indemnification	39
	14.2	Indemnification Procedure	40
15.	GOVERNING LAW; DISPUTE RESOLUTION		40
	15.1	Governing Law	40
	15.2	Disputes	40
	15.3	Arbitration Procedures	42
16.	GENERAL PROVISIONS		42
	16.1	Notices	43
	16.2	Force Majeure	43
	16.3	Entirety of Agreement	43
	16.4	Amendment	43
	16.5	Non-Waiver	43
	16.6	Disclaimer of Agency or Partnership	43
	16.7	Severability	43
	16.8	Assignment; Acquisition	44
	16.9	Headings	44
	16.10	Limitation of Liability	44
	16.11	Compliance with Laws	44
	16.12	Counterparts	44
	16.13	Currency	44
	16.14	Bankruptcy	44
	16.15	Manufacture in United States	45
	16.16	Public Disclosure	45
	16.17	Export	45

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COLLABORATIVE RESEARCH, DEVELOPMENT

AND LICENSE AGREEMENT

THIS COLLABORATIVE RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT (this “Agreement”), entered into as of June 11, 2003 (the “Effective Date”), by and between CURIS, INC., a Delaware corporation (“Curis”), with offices at 61 Moulton Street, Cambridge, Massachusetts 02138, on behalf of itself and its Affiliates, and GENENTECH, INC., a Delaware corporation (“Genentech”), with offices at 1 DNA Way, South San Francisco, California 94080. Curis and Genentech may each be referred to herein individually as a “Party” and collectively as the “Parties.”

W I T N E S S E T H:

WHEREAS, Curis possesses proprietary technologies, including small molecules, antibodies and proteins that may antagonize or inhibit the Hedgehog Pathway (as defined below) for use in research, discovery and development of pharmaceutical products;

WHEREAS, Genentech is engaged in the research, development, marketing, manufacture and sale of pharmaceutical products;

WHEREAS, Genentech desires to have access to Curis’ Hedgehog Pathway assets, and discovery and development capabilities for purposes of discovering and developing human therapeutic products; and

WHEREAS, Curis and Genentech desire to enter into a collaborative relationship for research, discovery and development activities using Curis’ Hedgehog Pathway technologies and for the development and commercialization of human therapeutic products resulting from such activities.

NOW, THEREFORE, in consideration of the foregoing and the covenants and premises contained in this Agreement, the Parties agree as follows:

1. DEFINITIONS. As used herein, the following terms shall have the following meanings:

1.1 “1996 Stanford License” shall have the meaning set forth in the definition of Existing License Agreements.

1.2 “Active R&D” shall mean, with respect to any indication in the Limited Field, that Genentech is engaged in active research and development activities with respect to human pharmaceutical products for use in such indication as reasonably demonstrated by Genentech’s contemporaneously-created written records.

1.3 “Affiliate” shall mean any company or entity controlled by, controlling, or under common control with a Party hereto and shall include any company or entity of which

greater than fifty percent (50%) of the voting stock or participating profit interest of which is owned or controlled, directly or indirectly, by a Party, and any company or entity which owns or controls, directly or indirectly, greater than fifty percent (50%) of the voting stock of a Party. In the case of Genentech, for purposes of this Agreement, the term “Affiliate” shall [**].

1.4 “Antibody Compound” shall have the meaning set forth in the definition of Compound.

1.5 “BCC” shall mean basal cell carcinoma.

1.6 “BCC Cost Sharing Ratio” shall have the meaning set forth in Section 4.2(a).

1.7 “BCC Field” shall mean the treatment of BCC with a formulation that is delivered topically or intralesionally and not via Systemic Delivery.

1.8 “BLA” shall mean a Biologics License Application, filed with the FDA, or the equivalent application or filing in another country, as applicable.

1.9 “Co-Development Budget” shall have the meaning set forth in Section 4.1.

1.10 “Co-Development Plan” shall have the meaning set forth in Section 4.1.

1.11 “Co-Development Steering Committee” or “CSC” shall have the meaning set forth in Section 2.3.

1.12 “Co-Development Territory” shall mean (a) in the case of a Collaboration Product designated pursuant to Section 3.2, the United States of America, including its territories and possessions, and (b) in the case of a Collaboration Product designated pursuant to Section 6.1(a), the Territory.

1.13 “Collaboration” shall mean the programs of collaborative research and development with respect to Compounds under this Agreement.

1.14 “Collaboration Product” shall mean (a) a Lead Product that is designated as a “Collaboration Product” pursuant to Section 3.2, or (b) a Compound that is designated as a “Collaboration Product” pursuant to Section 6.1(a).

1.15 “Compound” shall mean [**].

1.16 “Compound Class” shall mean either (a) Small Molecule Compounds or (b) Antibody Compounds

1.17 “Confidential Information” shall mean all information disclosed by a Party to the other pursuant to this Agreement, including, without limitation, manufacturing, marketing, financial, personnel, scientific and other business information and plans, whether in oral, written, graphic or electronic form; provided, however, that such information, if disclosed in tangible form, shall be marked “Confidential” and, if disclosed orally, shall within thirty (30) days of oral disclosure be summarized in writing, marked “Confidential,” and transmitted to the other Party.

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1.18 “Control” shall mean possession of the ability to grant a license or sublicense without violating (a) any law or governmental regulation applicable to such license or sublicense or (b) the terms of any agreement or other arrangement with any Third Party.

1.19 “Cost Sharing Ratio” shall mean the BCC Cost Sharing Ratio or the Hair Growth Prevention Cost Sharing Ratio, as applicable.

1.20 “Curis Collaboration Patent” shall mean all Joint Patents issued during the Term that solely claim Curis Inventions.

1.21 “Curis Expenses” shall have the meaning provided in Section 6.1(c)(ii).

1.22 “Curis Inventions” shall mean all Inventions having as a named inventor only employees, agents, sublicensees, Affiliates, subcontractors or other designated Third Parties of Curis.

1.23 “Curis Know-How” shall mean, to the extent useful for the purposes of the Collaboration, all tangible or intangible know-how, trade secrets, inventions, (whether or not patentable), data, preclinical results, physical, chemical or biological material and other information and data pertaining to Compounds or Products, or otherwise necessary or useful for the practice of the Curis Patents which are not generally publicly known and are Controlled by Curis as of the Effective Date or during the Term, including any replication or any part of such information or material, but excluding any Curis Patents.

1.24 “Curis Patents” shall mean, to the extent useful for the purposes of the Collaboration and Controlled by Curis as of the Effective Date or during the Term, all foreign and domestic: (a) patents existing as of the Effective Date or issued during the Term; (b) patents issuing from patent applications that are pending as of the Effective Date or during the Term (including provisionals, divisionals, continuations and continuations-in-part of such applications); and (c) substitutions, extensions, reissues, renewals and inventors certificates relating to the foregoing patents, in each case, which pertain to any of the Compounds or Products. The Curis Patents as of the Effective Date are listed on Schedule 1.24 hereto.

1.25 “Curis Product” shall mean any Product designated as a “Curis Product” pursuant to Article 6.

1.26 “Curis Plan” shall have the meaning set forth in Section 6.1(a).

1.27 “Curis Technology” shall mean the Curis Patents and the Curis Know-How.

1.28 “Development Costs” shall have the meaning set forth in Schedule 4.2.

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1.29 “Evotec Agreement” shall mean that certain Service and Secrecy Agreement dated May 1, 2001 between Curis and Evotec OAI, as may be amended from time to time.

1.30 “Evotec Payments” shall have the meaning set forth in Section 8.7.

1.31 “Existing Genentech Patents” shall mean those U.S. Patents set forth on Schedule 1.31 hereto, all foreign counterparts thereof, patents issuing from any of the foregoing (including provisionals, divisionals, continuations and continuations-in-part of such applications); and substitutions, extensions, reissues, renewals and inventors certificates relating to any of the foregoing patents.

1.32 “Existing License Agreements” shall mean (a) the Agreement dated September 26, 1996 among Curis, The Johns Hopkins University and the University of Washington (the “JHU License”), (b) the Exclusive License Agreement dated May 3, 2000 between Curis and The Johns Hopkins University, (c) the License Agreement dated February 9, 1995 between Curis and Harvard, (d) the License Agreement dated February 1, 1997 between Curis and Harvard (together (c) and (d) are referred to herein as the “Harvard Licenses”), (e) the License Agreement dated January 1, 1995 between Curis and the Trustees of Columbia University, (f) the Agreement dated February 12, 1996 between Curis and The Board of Trustees of the Leland Stanford Junior University (the “1996 Stanford License”), and (g) The License Agreement dated November 20, 1997 between Curis and the Board of Trustees of the Leland Stanford Junior University, in each case as may be amended from time to time as permitted by this Agreement.

1.33 “Existing Licensors” shall mean the parties to the Existing License Agreements other than Curis.

1.34 “FDA” shall mean the United States Food and Drug Administration or any successor agency thereto having the administrative authority to regulate the marketing of human pharmaceutical products or biological therapeutic products, delivery systems and devices in the United States of America.

1.35 “FTE” shall mean the equivalent of a full-time scientist’s work time over a twelve (12) month period (including normal vacations, sick days and holidays). The portion of an FTE year devoted by a scientist to a particular activity or program shall be determined by dividing the number of full working days during any twelve (12) month period devoted by such scientist to such activity or program by the total number of working days during such twelve (12) month period.

1.36 “Genentech Inventions” shall mean all Inventions having as a named inventor only employees, agents, sublicensees, Affiliates, subcontractors or other designated Third Parties of Genentech.

1.37 “Genentech Know-How” shall mean, to the extent useful for the purposes of the Collaboration, all tangible or intangible know-how, trade secrets, inventions (whether or not patentable), data, preclinical results, physical, chemical or biological material and other information and data pertaining to Compounds or Products or otherwise necessary or

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useful for the practice of the Genentech Patents, which are not generally publicly known and are Controlled by Genentech during the Term, including any replication or any part of such information or material, but excluding any Genentech Patents.

1.38 “Genentech Patents” shall mean, to the extent Controlled by Genentech as of the Effective Date or during the Term: (a) the Existing Genentech Patents; and (b) all foreign and domestic: (i) Joint Patents issued during the Term that solely claim Genentech Inventions; (ii) Joint Patents issuing from patent applications that are pending during the Term that solely claim Genentech Inventions (including provisionals, divisionals, continuations and continuations-in-part of such applications); and (iii) substitutions, extensions, reissues, renewals and inventors certificates relating to the foregoing patents, in each case, which are necessary to make, have made, use, sell, have sold, offer for sale or import any of the Compounds or Products.

1.39 “Genentech Technology” shall mean the Genentech Patents and Genentech Know-How.

1.40 “Good Laboratory Practices” or “GLP” shall mean current good laboratory practices under FDA rules and regulations.

1.41 “Good Manufacturing Practices” or “GMP” shall mean current good manufacturing practices under FDA rules and regulations.

1.42 “Hair Growth Prevention Cost Sharing Ratio” shall have the meaning set forth in Section 4.2(b).

1.43 “Hair Growth Prevention Field” shall mean any human therapeutic use for the regulation of hair growth.

1.44 “Harvard” shall mean the President and Fellows of Harvard College.

1.45 “Harvard Licenses” shall have the meaning set forth in the definition of Existing License Agreements.

1.46 “Hedgehog Pathway” shall mean either or both (as the case may be) (a) the Hedgehog protein family or (b) the signaling pathway activated by an extracellular ligand of the Hedgehog protein family.

1.47 “IND” shall mean an Investigational New Drug Application filed with the FDA, or the equivalent application or filing necessary to commence human clinical trials in another country, as applicable.

1.48 “Inventions” shall have the meaning set forth in Section 10.1.

1.49 “JHU License” shall have the meaning set forth in the definition of Existing License Agreements.

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1.50 “Joint Invention” shall mean any Invention made jointly by employees or agents of both Curis and Genentech.

1.51 “Joint Patents” shall have the meaning set forth in Section 10.1.

1.52 “Joint Steering Committee” or “JSC” shall mean the committee formed pursuant to Section 2.2.

1.53 “Know-How Product” shall mean any formulation of a Compound, which formulation is not a Valid Claim Product.

1.54 “Lead Product” shall mean any Product that, after reasonable evaluation by the JSC pursuant to Section 3.2 using mutually agreed upon criteria, has been selected by the JSC for clinical development.

1.55 “License Fee” shall have the meaning set forth in Section 8.2.

1.56 “License Field” shall mean [**].

1.57 “Limited Field” shall mean [**].

1.58 “Major Market” shall mean (a) with respect to the License Field, the United States of America, the United Kingdom, Germany, France, Spain, Italy and Japan and (b) with respect to the BCC Field, the United States of America, the United Kingdom, Germany, France, Spain, Italy and Australia.

1.59 “Materials” shall have the meaning set forth in Section 3.1.

1.60 “Milestone Payments” shall have the meaning set forth in Section 8.4.

1.61 “Modified Product” shall mean any Product that either:

(a) does not contain any Compound that was created, developed or in-licensed by Curis, but contains one or more Compounds created, developed or in-licensed (other than from Curis) by Genentech; or

(b) contains a Compound that is [**] a Compound [**] under U.S. patent law, [**].

1.62 “NDA” shall mean a New Drug Application or BLA, as applicable, or an equivalent application filed with the FDA, or the equivalent community application filed in the European Union, or the equivalent application filed as a national application in any other country or regulatory jurisdiction.

1.63 “Net Sales” shall mean, with respect to a given period of time, the gross amount invoiced by a Party and its Affiliates and sublicensees for sales of Lead Products, Collaboration Products or Curis Products, as applicable, during such period, less the following

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deductions from such gross amounts as allocable to such Lead Products, Collaboration Products or Curis Products (if not previously deducted from the amount invoiced) to the extent actually incurred, allowed or taken:

(a) credits or allowances granted for damaged Lead Products, Collaboration Products or Curis Products, as applicable, returns or rejections of Lead Products, Collaboration Products or Curis Products, as applicable, price adjustments and billing errors;

(b) governmental and other rebates (or equivalents thereof) granted to managed health care organizations, pharmacy benefit managers (or equivalents thereof), federal, state/provincial, local and other governments, their agencies and purchasers and reimbursers or to trade customers;

(c) normal and customary trade, and quantity discounts, allowances and credits allowed or paid;

(d) commissions paid to Third Party distributors, brokers or agents (excluding sales personnel, sales representatives and sales agents that are employees or consultants of a Party or its Affiliates or sublicensees) in countries outside the United States in which such commissions are paid by deducting such commissions from the gross sales invoiced for sales to such Third Parties;

(e) transportation costs, including insurance, for outbound freight related to delivery of the product; and

(f) sales taxes, VAT taxes and other taxes directly linked to the sales of the product.

Sales between or among a Party and its Affiliates and sublicensees shall be excluded from the computation of Net Sales, but the subsequent final sales to Third Parties by such Affiliates or sublicensees shall be included with Net Sales; provided however, that if such Affiliates or sublicensees are the end users of such Product, the amount billed therefore shall be deemed to be the amount that would be invoiced to a Third Party in an arm’s-length transaction for the sale of such products.

In the event a Lead Product, Collaboration Product or Curis Product is sold in combination with one or more other active pharmaceutical ingredients (a “Combination”), then Net Sales shall be calculated by multiplying the Net Sales of that Combination by the fraction A/B, where A is the gross selling price of the Product sold separately and B is the gross selling price of the Combination. In the event that no such separate sales are made, Net Sales for royalty determination shall be calculated by multiplying Net Sales of the Combination by the fraction C/(C+D), where C is the fully allocated cost of the Lead Product, Collaboration Product or Curis Product and D is the fully allocated cost of the other active pharmaceutical ingredient(s) in the Combination.

1.64 “Operating Profits (Losses)” shall have the meaning set forth in Schedule 4.2.

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1.65 “Phase I Clinical Trials” shall mean the initial trials in the Territory on a limited number of normal volunteers or patients that are designed to establish that a drug is safe for its intended use and to support its continued testing in Phase II Clinical Trials.

1.66 “Phase II Clinical Trials” shall mean those trials in the Territory on a limited number of patients that are designed to establish the safety and biological activity of a drug for its intended use and to define warnings, precautions and adverse reactions that are associated with the drug in the dosage range to be prescribed.

1.67 “Phase II/III Clinical Trials” shall mean those trials in the Territory designed to address the same matters addressed by a Phase II Clinical Trials as well as to generate additional data related to dosing and the effect of the relevant therapy on a limited number of patients.

1.68 “Phase III Clinical Trials” shall mean those pivotal trials in the Territory of a drug on sufficient numbers of patients to establish the safety and efficacy of such drug for the desired claims and indications.

1.69 “Product” shall mean any Know-How Product or Valid Claim Product.

1.70 “Regulatory Approval” shall mean any and all approvals (including price and reimbursement approvals), licenses, registrations, or authorizations of the United States or European Union or any country, federal, state or local regulatory agency, department, bureau or other government entity that are necessary for the manufacture, use, storage, import, transport and/or sale of a Product in such jurisdiction.

1.71 “Research Plan” shall have the meaning set forth in Section 3.1.

1.72 “Royalty Term” shall mean:

(a) in the case of a Lead Product, the period beginning on the first commercial sale of such Lead Product and ending, on a Compound-by-Compound and country-by-country basis, upon (a) in the case of a Valid Claim Product, the expiration of the last to expire patent containing a Valid Claim in the Curis Patents or Joint Patents (excluding the Genentech Patents) in such country or (b) in the case of a Know-How Product, [**] years from the date of first sale; and

(b) in the case of a Curis Product, the period beginning on the first commercial sale of such Curis Product and ending, on a Compound-by-Compound and country-by-country basis, upon (a) in the case of a Valid Claim Product, the expiration of the last to expire patent containing a Valid Claim in the Genentech Patents or Joint Patents (excluding the Curis Collaboration Patents) in such country or (b) in the case of a Know-How Product, [**] years from the date of first sale.

1.73 “Small Molecule Compound” shall have the meaning set forth in the definition of Compound.

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1.74 “Stock Purchase Agreement” shall mean that certain stock purchase agreement between the Parties to be entered into concurrently herewith, in substantially the form attached hereto as Exhibit A.

1.75 “Systemic Delivery” shall include, but not be limited to, [**] delivery.

1.76 “Term” shall have the meaning set forth in Section 13.1.

1.77 “Territory” shall mean the entire world.

1.78 “Third Party” shall mean any entity other than Curis or Genentech or an Affiliate of Curis or Genentech.

1.79 “Upfront Fee” shall have the meaning set forth in Section 8.1.

1.80 “Valid Claim” shall mean a claim of an unexpired issued patent, which has not been held unenforceable, unpatentable or invalid by a decision of a court or other governmental agency of competent jurisdiction unappealable or unappealed within the time allowed for appeal or which has not been admitted to be invalid or unenforceable through reexamination, reissue, disclaimer, or otherwise.

1.81 “Valid Claim Product” shall mean any formulation of a Compound for which (i) the manufacture, use or sale, but for the licenses granted to Genentech hereunder, would infringe a Valid Claim of the Curis Patents, Genentech Patents (other than Existing Genentech Patent Rights) or Joint Patents or (ii) the method of identification of which or the method of identification of the utility of which is covered by a Valid Claim of the Curis Patents, Genentech Patents (other than Existing Genentech Patent Rights) or Joint Patents.

2. CONDUCT OF COLLABORATION; GOVERNANCE

2.1 Objective. Subject to the terms and conditions of this Agreement, Curis and Genentech shall use commercially reasonable efforts, in accordance with standard industry practice, to conduct collaborative research activities with the goal of developing and commercializing one or more Compounds in the License Field as quickly as reasonably possible.

2.2 Joint Steering Committee. Promptly after the Effective Date, the Parties will form a Joint Steering Committee (the “JSC”) composed of an equal number of employees of each of Curis and Genentech, but in no event to exceed four (4) members from each Party. The JSC shall determine the specific goals for the Collaboration, shall manage the ongoing research conducted under the Collaboration in accordance with the Research Plan, shall monitor the progress and results of such work, and shall oversee and coordinate the development and commercialization of Compounds (other than Collaboration Products); provided, however, that the JSC shall not have decision-making authority with respect to the development and commercialization of Collaboration Products, which shall be governed by the CSC. The presence of at least one (1) representative of each Party shall constitute a quorum for the conduct of any JSC meeting. All decisions of the JSC shall require unanimous approval, with the representatives of each Party collectively having one (1) vote, provided in the event of a deadlock, the issue shall be referred to the Chief Executive Officer of Curis and the Senior Vice

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President of Research of Genentech, or their respective designees, who shall promptly meet and attempt in good faith to resolve such issue within thirty (30) days. If such executives cannot resolve such matter, then Genentech shall have final decision-making authority with regard to decisions regarding the Collaboration (including, without limitation, the JSC’s designation of a Compound as either a Lead Product or Excluded Product); provided, however, that in no event shall Genentech have the right or power to take any of the following actions without the approval of Curis’ representatives on the JSC:

(a) approve the initial Research Plan (an outline of which has been agreed upon by the Parties as of the Effective Date);

(b) amend or modify this Agreement or the Research Plan;

(c) resolve any such matter in a manner that conflicts with the provisions of this Agreement (including, without limitation, the Research Plan);

(d) make any decision with respect to the development or commercialization of Curis Products; or

(e) make any decision with respect to the prosecution, maintenance, defense or enforcement of any Curis Patents.

The JSC shall meet at such frequency as the JSC agrees, except that, until the filing of the first IND for a Lead Product utilizing Systemic Delivery in a Major Market, the JSC shall meet on at least a quarterly basis. Meetings of the JSC, and JSC dispute resolution meetings between Curis’ Chief Executive Officer and Genentech’s Senior Vice President of Research (or their designees), may be conducted by videoconference, teleconference or in person, as agreed by the Parties, and the Parties shall agree upon the time and place of meetings. A reasonable number of additional representatives of a Party may attend meetings of the JSC in a non-voting capacity. The JSC shall exist for so long as either any work is being conducted under the Research Plan or any Compound is being developed or commercialized by Genentech, Curis, or any of their respective Affiliate(s) or sublicensee(s) in any Major Market.

The JSC shall also be responsible for designating one or more representatives of each Party with expertise in patent law (which individuals need not be members of the JSC) to oversee intellectual property matters relating to the Collaboration, subject to the provisions of Article 10, and such patent committee shall coordinate with and report to the JSC.

2.3 Co-Development Steering Committee. Promptly following the JSC’s designation pursuant to Section 3.2 of the first Collaboration Product, the Parties will form a Co-Development Steering Committee (the “CSC”) for such Collaboration Product and any subsequent Collaboration Product(s). The CSC will be composed of an equal number of representatives from both Curis and Genentech. The CSC shall meet within thirty (30) days of such designation of the first Collaboration Product and shall be responsible for managing research and development activities conducted in furtherance of the Co-Development Plan and monitoring the progress and results of such work. The CSC shall also be responsible for creating a finance subcommittee with individuals with expertise in the areas of accounting, financial planning, financing reporting, cost allocations and financial audits (which individuals need not

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be members of the CSC), and such finance committee shall coordinate with and report to the CSC. The presence of at least one (1) representative of each Party shall constitute a quorum for the conduct of any CSC meeting. All decisions of the CSC shall require unanimous approval, with the representatives of each Party collectively having one (1) vote, provided in the event of a deadlock, the issue shall be referred to the Chief Executive Officer of Curis and the Chief Medical Officer of Genentech, or their respective designees, who shall promptly meet and attempt in good faith to resolve such issue within thirty (30) days. If such executives cannot resolve such matter, then Genentech shall have final decision-making authority with regard to decisions regarding the development and the commercialization of Collaboration Products; provided, however, that in no event shall Genentech have the right or power, without the approval of Curis’ representatives on the CSC, to approve any modification, or series of modifications, to any Co-Development Plan or Co-Development Budget, which modification(s) would increase the expenses to be borne by Curis by more than [**] percent ([**]%) of the expenses Curis was obligated to bear in connection with the unmodified Co-Development Plan or Co-Development Budget, as applicable. The CSC shall meet on a quarterly basis or at such other frequency as the CSC agrees. Meetings of the CSC, and CSC dispute resolution meetings between Curis’ Chief Executive Officer and Genentech’s Chief Medical Officer (or their designees), may be conducted by videoconference, teleconference or in person, as agreed by the Parties, and the Parties shall agree upon the time and place of meetings. A reasonable number of additional representatives of a Party may attend meetings of the CSC in a non-voting capacity.

2.4 Product Prioritization. The Parties acknowledge and agree that Genentech (or the JSC as a whole) may, in good faith, prioritize the development of certain Compounds over the development of other Compounds as a result of such factors as product performance, safety and tolerability, dosing convenience, route of administration, ease and expense of manufacturing, regulatory approval prospects, the competitive landscape, economic factors and potential channel conflicts with other Compounds or products. The Parties further acknowledge and agree that (i) for some indications, one Compound Class may have greater utility than the other Compound Class, and (ii) for some indications, the greatest utility may be maintained through the use of Compounds from both Compound Classes. Notwithstanding the foregoing, the Parties will use commercially reasonable efforts to explore the utility and market potential of Compounds from both Compound Classes for indications in the License Field.

3. RESEARCH PROGRAM; DESIGNATION AND DEVELOPMENT OF LEAD PRODUCTS

3.1 Research Plan. Within sixty (60) days following its formation, the JSC will develop and approve a written research plan setting forth the research obligations of each of the Parties under the Collaboration until the filing of the first IND for a Lead Product utilizing Systemic Delivery in a Major Market or the earlier termination of this Agreement in accordance with Article 13 hereof (the “Research Plan”), which will be deemed a part of, and is hereby incorporated by reference in, this Agreement. The Parties anticipate that the Research Plan will include the research responsibilities of Curis set forth in the research program outline agreed upon by the Parties as of the Effective Date. The Research Plan will also include a detailed list of the materials to be provided by Curis to Genentech (the “Materials”), which may include, without limitation, Compound samples, assays, reagents, cell lines and relevant animal models. Curis and Genentech will each conduct research in accordance with the Research Plan, as it may be amended from time to time upon unanimous approval of the JSC, or as reasonably directed by

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the JSC, subject to the provisions of Section 2.2. Curis shall use commercially reasonable and diligent efforts to advance and complete the foregoing research in a timely manner. In furtherance of that obligation, Curis will assign no fewer than 8 FTE’s approved by the JSC (such approval not to be unreasonably withheld or delayed) for a period of no less than 2 years following the Effective Date (unless this Agreement is earlier terminated) to complete the tasks described above. The Parties agree that up to 4 of such FTE’s assigned to the research may be Evotec OAI employees. If and to the extent that Genentech wishes to have more than 4 of such FTE’s be Evotec OAI employees, Genentech shall be responsible for the FTE costs charged by Evotec OAI with respect to the number of Evotec OAI FTE’s that is in excess of 4. Curis shall cause the Evotec Agreement to be renewed until at least April 30, 2005 and during such time shall not, without the prior written consent of Genentech, amend the Evotec Agreement in a manner that would diminish the rights granted to Genentech hereunder or otherwise be detrimental to Genentech.

3.2 Designation of Lead Products. The JSC will assess each Compound and designate, in writing, which will be designated as Lead Products. Any designation of a Lead Product will also specify the indications for which the Parties intend to develop such Lead Product. If the JSC designates any such Lead Product for development in the BCC Field or the Hair Growth Prevention Field, such Lead Product shall be deemed a “Collaboration Product” for purposes of this Agreement. The Parties agree that the JSC shall make Lead Product determinations in a reasonable period of time following presentation to the JSC of data concerning each such Product sufficient to support making such determination. The Parties anticipate that Lead Products will meet, without limitation, the criteria set forth in Schedule 3.2.

3.3 Genentech Development and Commercialization Responsibilities. The following provisions shall apply to the development and commercialization of Lead Products other than Collaboration Products:

(a) Clinical Development Responsibilities. Genentech or its sublicensees will be responsible for the clinical development of such Lead Products and will bear all associated costs. In addition, if required for IND filing, Genentech and/or its sublicensees will be responsible for conducting pharmacokinetics, toxicology or other IND-enabling studies with respect to such Lead Products. Genentech will use commercially reasonable efforts to develop and to obtain Regulatory Approval of such Lead Products in the Major Markets and such other markets as Genentech deems advisable in accordance with generally accepted practices in the pharmaceutical industry.

(b) Regulatory Affairs. Genentech and/or its sublicensee(s) shall be responsible for all interactions with regulatory authorities in the Territory with respect to such Lead Products and will bear the associated costs, and, subject to Genentech’s payment obligations herein, shall own any IND and NDA filings made with respect to such Lead Products. Genentech shall regularly (and on at least a semi-annual basis) provide Curis, via the JSC or CSC, as applicable, with an update describing the progress made to date towards obtaining Regulatory Approval of any such Lead Product(s) and the plans for achieving such Regulatory Approval(s) in the future.

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(c) Manufacturing and Supply. Genentech and/or its sublicensee(s) shall be responsible for, and shall bear all associated costs of, manufacturing all preclinical, clinical and commercial forms of such Lead Products, including the bulk drug substance and finished drug product forms thereof. Genentech shall keep Curis reasonably informed of manufacturing and supply related activity.

(d) Formulation. Genentech and/or its sublicensee(s) shall be responsible for formulating such Lead Products and shall bear all associated costs.

(e) Sales and Marketing. Genentech and/or its sublicensee(s) shall be responsible for all sales and marketing activities, and all other commercialization requirements, related to such Lead Products and shall bear all associated costs. Genentech and/or its sublicensee(s) shall keep Curis reasonably informed of sales and marketing related activity. Genentech and/or its sublicensee(s) shall use commercially reasonable efforts, in accordance with generally accepted practices in the pharmaceutical industry, to maximize Net Sales of Lead Products in each country where such Lead Products have obtained Regulatory Approval for the sale of such Lead Products.

4. CO-DEVELOPMENT OF COLLABORATION PRODUCTS

4.1 Co-Development Plan and Budget. Promptly following the designation of any Collaboration Product, Genentech (in the case of a Collaboration Product to be developed in the BCC Field (a “BCC Product”)) or Curis (in the case of a Collaboration Product to be developed in the Hair Growth Prevention Field (a “Hair Growth Prevention Product”)) shall, with input from the other Party, prepare a comprehensive development plan for such Collaboration Product (a “Co-Development Plan”) designed to generate the preclinical, clinical and regulatory information required for filing a U.S. IND application and a U.S. NDA. The Party that is primarily responsible for preparing a particular Co-Development Plan under the preceding sentence shall be considered the “Proposing Party” for purposes of this Article 4. The Co-Development Plan shall describe in detail the development activities to be performed by each Party with respect to such Collaboration Product, as well as criteria that must be met by the Collaboration Product at each stage of development. For purposes of clarification, upon CSC approval, the Co-Development Plan may include development activities with respect to indications in the License Field that are in addition to the BCC Field or the Hair Growth Prevention Field, as applicable. Each Co-Development Plan shall also include a budget of projected Development Costs for each calendar year with respect to the applicable Collaboration Product (a “Co-Development Budget”). The Co-Development Plan and Co-Development Budget shall be prepared within ninety (90) days of the initial meeting of the CSC with respect to the applicable Collaboration Product (or as otherwise mutually agreed by the Parties). The Co-Development Budget for a Collaboration Product for a given calendar year shall constitute the maximum Development Costs to be incurred by either Party under the Co-Development Plan in such calendar year, unless a modification to such budget is approved by the CSC.

4.2 Collaboration Products.

(a) BCC Products. The Parties agree that BCC Products may be developed in one of two ways pursuant to this Agreement. In Curis’ sole discretion, each BCC

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Product may be (i) re-designated as Lead Product, whereupon it will cease to be a Collaboration Product for purposes of this Agreement and will instead be developed by Genentech in accordance with Article 3 of this Agreement, or (ii) co-developed by the Parties as a Collaboration Product in accordance with this Article 4. Within thirty (30) days of finalization of the applicable Co-Development Plan and Co-Development Budget, Curis will notify Genentech in writing as to which of the preceding development methods Curis has chosen, and if Curis elects to co-develop a BCC Product as described in the preceding clause (ii), such notice shall also specify the percentage (not to exceed fifty percent (50%)) of Development Costs for BCC and any subsequent indications approved by the CSC for such Collaboration Product that Curis will bear (the “BCC Cost Sharing Ratio”). In the event Curis notifies Genentech that a Collaboration Product will be re-designated as a Lead Product, the CSC formed in connection with such Collaboration Product shall be dissolved, unless, and until such time as, another Collaboration Product has been designated. In the event Curis notifies Genentech that a Collaboration Product will be co-developed by the Parties under this Article 4, the CSC shall in good faith further elaborate and refine the Co-Development Plan (as necessary) to describe in detail the manner in which Operating Profits (Losses) (including, without limitation, Development Costs) with respect to such Collaboration Product in the Co-Development Territory will be reported, calculated and shared by the Parties, which description shall include and be consistent with the principles set forth in Schedule 4.2 hereto and shall be completed within sixty (60) days following Curis’ notice of its desire to co-develop such Collaboration Product. Each such further elaborated and refined Co-Development Plan shall be deemed a part of, and is hereby incorporated by reference in, this Agreement.

(b) Hair Growth Prevention Products. The Parties agree that Hair Growth Prevention Products may be developed in one of two ways pursuant to this Agreement. In Genentech’s sole discretion, each Hair Growth Prevention Product may be (i) designated as a Curis Product, whereupon it will cease to be a Collaboration Product for purposes of this Agreement and will instead be developed by Curis in accordance with Article 6 of this Agreement, or (ii) co-developed by the Parties as a Collaboration Product in accordance with this Article 4. Within thirty (30) days of finalization of the applicable Co-Development Plan and Co-Development Budget, Genentech will notify Curis in writing as to which of the preceding development methods Genentech has chosen, and if Genentech elects to co-develop the Hair Growth Prevention Product as described in the preceding clause (ii), such notice shall also specify the percentage (not to exceed [**] percent ([**]%), unless otherwise agreed by Curis) of Development Costs for Hair Growth Prevention and any subsequent indications approved by the CSC for such Collaboration Product that Genentech will bear (the “Hair Growth Prevention Cost Sharing Ratio”). In the event Genentech notifies Curis that a Hair Growth Prevention Product will be designated as a Curis Product, the CSC formed in connection with such Collaboration Product shall be dissolved, unless, and until such time as, another Collaboration Product has been designated. In the event Genentech notifies Curis that a Collaboration Product will be co-developed by the Parties under this Article 4, the CSC shall in good faith further elaborate and refine the Co-Development Plan (as necessary) to describe in detail the manner in which Operating Profits (Losses) (including, without limitation, Development Costs) with respect to such Collaboration Product in the Co-Development Territory (unless otherwise agreed by the Parties) will be reported, calculated and shared by the Parties, which description shall include and be consistent with the principles set forth in Schedule 4.2 hereto and shall be completed within sixty (60) days following Genentech’s notice of its desire to co-develop such Collaboration Product. Each such further elaborated and refined Co-Development Plan shall be deemed a part of, and is hereby incorporated by reference in, this Agreement.

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4.3 Sharing of Operating Profits (Losses).

(a) Except as set forth in Section 4.3(b) below, all Operating Profits (Losses) from each Collaboration Product developed pursuant to this Article 4 will be shared by the Parties in accordance with the applicable Cost Sharing Ratio for such Collaboration Product (e.g., if Curis bears 35% of Development Costs for such Collaboration Product, then Operating Profits (Losses) for such Collaboration Product will be allocated 35% to Curis and 65% to Genentech). The Parties agree to maintain records in sufficient detail to calculate and confirm all elements of Operating Profits (Losses). Except as otherwise provided in Section 4.3(b), the Parties’ obligation to share Operating Profits (Losses) with respect to each Collaboration Product shall continue for so long as the Parties are selling such Collaboration Product in the Co-Development Territory.

(b) On a Collaboration Product-by-Collaboration Product basis, Curis (in the case of a BCC Product) or Genentech (in the case of a Hair Growth Prevention Product) shall have the right to terminate its obligation to fund the percentage of Development Costs determined by the applicable Cost Sharing Ratio for a Collaboration Product at any time, including, but not limited to, in the event such Party is unable to meet its obligation to fund such costs. A Party’s decision to terminate co-development of a Collaboration Product will have no effect on that Party’s right to co-develop (or continue to co-develop) any other Collaboration Product. Effective upon the other Party’s receipt of written notice from the terminating Party that the terminating Party has elected to terminate co-development with respect to a Collaboration Product, such Collaboration Product will be deemed re-designated as a Lead Product (if Curis is the terminating Party) or a Curis Product (if Genentech is the terminating Party) for purposes of this Agreement, including, without limitation, for the purposes of Article 8, and the obligation of the Parties to share Operating Profits (Losses) with respect thereto shall cease; provided, however, that no retroactive milestone payments shall be due to Curis with respect to such former Collaboration Product for any milestones that occurred prior to or within three (3) months following the date that Curis elected to elected to terminate co-development of such Collaboration Product. From and after re-designation of a Collaboration Product as a Lead Product or Curis Product pursuant to this Section 4.3(b), such Lead Product or Curis Product shall no longer be eligible for designation as a Collaboration Product hereunder.

4.4 Co-Development Responsibilities. To the extent that a Collaboration Product will be co-developed by the Parties under this Article 4, the Parties will undertake the applicable Co-Development Plan. The Parties anticipate that each Party will take the lead in the areas of its expertise as directed by the CSC. All activities in connection with the development of such Collaboration Product will be performed in accordance with the Co-Development Plan and Co-Development Budget or as otherwise directed by the CSC. Except as otherwise expressly set forth herein, Genentech shall have the sole and final decision-making authority with respect to development and commercialization of, and the nature and timing of all regulatory filings for, each Collaboration Product.

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5. TECHNOLOGY TRANSFER; THIRD PARTY LICENSORS

5.1 Transfer of Materials. As soon as reasonably practicable following the Effective Date, Curis will provide the Materials to Genentech, at no cost to Genentech. Genentech will use the Materials solely for the Collaboration. Genentech shall not sell, transfer, disclose or otherwise provide access to the Materials, any proprietary Curis method or process embodied therein, or any material that could not have been made but for the foregoing, to any person or entity without the prior written consent of Curis, except that Genentech may allow access to the Materials to its employees, agents, sublicensees, Affiliates or subcontractors for purposes consistent with this Agreement. Genentech will take reasonable steps to ensure that such employees, agents and permitted subcontractors will use the Materials in a manner that is consistent with the terms of this Agreement. Genentech understands that the Materials may have unpredictable and unknown biological and/or chemical properties, and that they are to be used with caution. Genentech will use the Materials in compliance with all applicable laws and regulations. For purposes of clarification, Genentech acknowledges and agrees that Curis shall have the right to retain stocks of the Materials (a) for its own use outside the scope of this Agreement and/or (b) for its internal use in connection with research within the scope of this Agreement.

5.2 IND Transfer. As of the Effective Date, Curis hereby transfers and assigns to Genentech all Curis’ right, title and interest in and to United States IND application entitled “CUR-61414 for the Treatment of Basal Cell Carcinoma.” Within a reasonable period of time following the Effective Date, Curis shall take such actions and execute such documents as may be reasonably required to effectuate such transfer and assignment, at Genentech’s expense. Curis will provide to Genentech copies of all regulatory correspondence related thereto.

5.3 Transfer of Data. As soon as reasonably practicable following the Effective Date, Curis will disclose to Genentech for use in connection with the Collaboration all chemical structures, pre-clinical data and reports (e.g., PK, ADME, toxicology, etc.) on the Compounds, to the extent in the possession and Control of Curis.

5.4 Existing License Agreements. Genentech agrees to use reasonable efforts to assist Curis in complying with Curis’ obligations under the Existing License Agreements, including but not limited to record keeping with respect to Lead Products and Collaboration Products sold, provisions for patent infringement by Third Parties and patent marking requirements. Curis shall be responsible for required communications with the Existing Licensors with respect to diligence obligations under the Existing License Agreements. Curis shall not, without the prior written consent of Genentech, amend any Existing License Agreement in a manner that would diminish the rights granted to Genentech hereunder or otherwise be detrimental to Genentech. Genentech agrees that, to the extent Genentech is a sublicensee of Curis’ rights under the 1996 Stanford License, Genentech shall be subject to the provisions set forth in Articles 8, 9 and 10 of the 1996 Stanford License that apply to Curis, and that to the extent Genentech is a sublicensee of Curis’ rights under the JHU License, Genentech shall be subject to the provisions set forth in Articles 8, 9, 10 and 12 of the JHU License for the benefit of The Johns Hopkins University, the Howard Hughes Medical Institute and the University of Washington.

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5.5 Research Materials. Genentech acknowledges and agrees that the Existing Licensors retain certain rights under the Existing License Agreements. To the extent an Existing Licensor requests, for research purposes, samples of Materials licensed to Curis pursuant to an Existing License Agreement, Genentech agrees to provide such Materials on Curis’ behalf to the Existing Licensor or its designee to the extent that Genentech has sufficient quantities of such Materials and Curis does not. Genentech’s obligation pursuant to this Section 5.5 shall be limited to the provision of reasonable quantities of Materials. Curis agrees to reimburse Genentech for the direct cost of such Materials within ninety (90) days of receipt of written invoice for Materials Genentech has provided pursuant to this Section.

6. CURIS DEVELOPMENT RIGHTS

6.1 Development of Compounds Other Than Lead Products.

(a) In the event that Curis wishes to pursue pre-clinical and clinical development of any Compound other than a Lead Product in one or more indications in the Limited Field, then, provided that human pharmaceutical products for use in such indication(s) are not then the subject of Active R&D by Genentech, Curis, working together with Genentech, may develop and propose to the JSC a development plan (each, a “Curis Plan”) for such Compound for such indication(s). Within [**] days of delivery of such Curis Plan to Genentech in accordance with Section 16.1, Genentech shall notify Curis in writing as to whether Genentech will pursue the development of such Compound as a Lead Product. If Genentech timely provides Curis with written notice of its election to undertake the development of such Compound, such Compound will be designated as a Lead Product and be developed in accordance with the development plan approved by the JSC and this Agreement. Alternatively, if a Curis Plan provides for development of a Compound in the Hair Growth Prevention Field, such Compound may, at Genentech’s option, be developed as a “Collaboration Product” (instead of a Lead Product) for purposes of this Agreement in accordance with the provisions of Article 4.

(b) If Genentech decides not to pursue development of a Compound proposed for development pursuant to Section 6.1(a) as a Lead Product, or fails to respond in writing within such [**] day period, Curis may pursue development of such Compound for the indication(s) set forth in the Curis Plan on its own, whereupon any formulation of such Compound will be deemed a “Curis Product” for purposes of this Agreement. Thereafter, Curis may independently conduct preclinical and clinical development of such Curis Product, or Curis may license a Third Party sublicensee reasonably acceptable to Genentech (such acceptance not to be unreasonably withheld or delayed) to conduct such development according to a development plan and other terms and conditions (including appropriate compensation to Genentech) as are mutually agreed by the Parties, in each case subject to the provisions of this Section 6.1.

(c) With respect to each Curis Product that is designated pursuant to Section 6.1(b) and with respect to which Curis will independently conduct development, the following conditions will apply:

(i) Curis and Genentech will mutually agree on the design of any preclinical studies, Phase I Clinical Trials and Phase II Clinical Trials, and will also agree upon the endpoints for such Phase I Clinical Trials and Phase II Clinical Trials;

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(ii) Subject to Section 6.1(c)(iv) below, Curis shall be responsible for conducting all such preclinical studies, Phase I Clinical Trials and Phase II Clinical Trials and shall bear [**]% of the costs thereof. Curis shall keep complete and accurate written records of the direct historical costs of such preclinical studies, Phase I Clinical Trials and Phase II Clinical Trials (including, but not limited to, cost of drug substance and drug product) actually incurred by Curis with respect to such Curis Product (the “Curis Expenses”);

(iii) Curis will notify Genentech in writing of Curis’ requirements for the manufacture of the drug substance and the drug product for the Phase I Clinical Trials and Phase II Clinical Trials and may also solicit offers from Third Party contract manufacturers for such supply. Genentech shall have the right, but not the obligation, to manufacture such drug substance and drug product, such right to be exercised no later than thirty (30) days from receipt of any such Curis notice by Genentech providing a written proposal to Curis setting forth the financial and other material terms upon which Genentech (or its Affiliate) is willing to manufacture such drug substance and drug product; provided, however, the Parties agree that the price to be paid by Curis to Genentech for any such materials shall be [**] percent ([**]%) of Genentech’s Cost of Goods, except that if the price offered to Curis in a bona fide offer of a reputable Third Party contract manufacturer for the same quantity of drug substance and drug product is less than [**] percent ([**]%) of Genentech’s Cost of Goods, then Curis shall have the right to contract with such Third Party, instead of which Genentech, for such manufacture, unless within [**] days of Genentech’s receipt of such Third Party terms, Genentech agrees to match the price offered by such Third Party. Except to the extent Curis is entitled to contract with such Third Party for such manufacture in accordance with the preceding sentence, Curis and Genentech shall negotiate and enter into a definitive manufacturing agreement on commercially reasonable terms within [**] days of the date Genentech submits its manufacturing proposal to Curis.

(iv) Curis shall keep Genentech regularly and fully informed of the results of such preclinical and clinical development activities. Upon Genentech’s written request, and in any event within thirty (30) days following completion of Phase II Clinical Trials of a Curis Product, Curis shall provide Genentech with written documentation of the Curis Expenses incurred by Curis with respect to such Curis Product. At any time prior to the date that is [**] days after disclosure to Genentech of the results of Phase II Clinical Trials of such Curis Product (the “Exercise Period”), Genentech shall have the right either:

(1) to designate such Curis Product as a Lead Product and assume responsibility for further development and commercialization thereof, in which event Genentech shall provide Curis with written notice thereof and shall pay to Curis [**] percent ([**]%) of the Curis Expenses incurred to date for such Curis Product, in each case prior to the end of the Exercise Period; or

(2) to require that Curis cease all further development of such Curis Product, in which event Genentech shall provide Curis with written notice thereof and shall pay to Curis [**] percent ([**]%) of the Curis Expenses incurred to date for such Curis Product, in each case prior to the end of the Exercise Period.

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(v) Any Curis Product for which Genentech has exercised its right under Section 6.1(c)(iv)(1) and paid Curis [**] percent ([**]%) of the Curis Expenses as set forth above shall, effective upon such payment, be deemed a Lead Product for purposes of this Agreement, except that Genentech shall not be obligated to pay to Curis any milestone payments hereunder with respect to any milestone event that occurred prior to such exercise and payment. Curis shall transfer to Genentech, and Genentech shall have the right to use, all information generated by Curis with respect to such Lead Product for the indication(s) specified in the applicable Curis Plan, and Genentech shall bear all costs of, and shall have exclusive rights and control over, further clinical development, regulatory affairs, and commercialization of such Lead Product in such indication(s) in the Territory in accordance with this Agreement.

(vi) If Genentech exercises its right under Section 6.1(c)(iv)(2) with respect to a Curis Product and pays Curis [**] percent ([**]%) of the Curis Expenses as set forth above shall, then neither Party shall thereafter have any right or license to develop or commercialize such Curis Product.

(vii) If the Exercise Period with respect to a Curis Product expires without Genentech having exercised its right under either Section 6.1(c)(iv)(1) or Section 6.1(c)(iv)(2), then Genentech shall have no further right to cause such Curis Product to be designated a Lead Product or to require that Curis cease development or commercialization of such Curis Product.

6.2 Commercialization of Curis Products. With respect to any Curis Product as to which Genentech has no further development rights hereunder (including, without limitation, an option to designate it as a Lead Product), Curis will be solely responsible for the manufacture, formulation and commercialization of such Curis Product (either itself or through or in collaboration with a Third Party, but subject to the oversight of the JSC) and shall bear all associated costs. Genentech shall have the right, but not the obligation, to manufacture the drug substance and drug product embodied in each Curis Product, such right to be exercised no later than thirty (30) days following Genentech’s final refusal to participate in the development of such Curis Product by Genentech providing a written proposal to Curis setting forth the financial and other material terms upon which Genentech (or its Affiliate) is willing to manufacture such drug substance and drug product; provided, however, the Parties agree that the price to be paid by Curis to Genentech for any such materials shall be [**] percent ([**]%) of Genentech’s Cost of Goods, except that if the price offered to Curis in a bona fide offer of a reputable Third Party contract manufacturer for the same quantity of drug substance and drug product is less than [**] percent ([**]%) of Genentech’s Cost of Goods, then Curis shall have the right to contract with such Third Party, instead of which Genentech, for such manufacture, unless within ten (10) days of Genentech’s receipt of such Third Party terms, Genentech agrees to match the price offered by such Third Party. Except to the extent Curis is entitled to contract with such Third Party for such manufacture in accordance with the preceding sentence, Curis and Genentech shall negotiate and enter into a definitive manufacturing agreement on commercially reasonable terms within ninety (90) days of the date Genentech submits its manufacturing proposal to Curis. For the avoidance of doubt, as between the Parties, except to the extent Genentech has any further rights hereunder

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to develop a Curis Product, Curis shall be responsible for all interactions with regulatory authorities in the Territory with respect to such Curis Product and will bear the associated costs. Curis shall own any IND and NDA filings made with respect to each such Curis Product.

7. LICENSE GRANTS

7.1 License Grants to Genentech.

(a) Research License. Subject to the terms of this Agreement and subject to the rights of Existing Licensors under the Existing License Agreements, Curis hereby grants to Genentech an exclusive, royalty-free, worldwide right and license, during the Term, with the right to sublicense in accordance with Section 7.1(c), under the Curis Technology and Curis’ interest in Joint Patents to perform Genentech’s obligations under the Research Plan.

(b) Development and Commercialization License for Lead Products and Collaboration Products. Subject to the terms of this Agreement and subject to the rights of Existing Licensors under the Existing License Agreements, Curis hereby grants to Genentech an exclusive, royalty-bearing license, during the Term, with the right to sublicense in accordance with Section 7.1(c), under the Curis Technology and Curis’ interest in Joint Patents to make, have made, use, sell, offer for sale, have sold and import Lead Products and Collaboration Products in the License Field in the Territory.

(c) Sublicensing. Genentech’s right to sublicense its rights under Sections 7.1(a) and 7.1(b) [**], to grant further sublicenses. [**], Genentech hereby assumes responsibility [**], as applicable. Genentech [**] granted by Genentech hereunder [**].

(d) Diligence. In the event that Curis in good faith believes that Genentech is not meeting its diligence obligations as set forth in Section 3.3(a) or 3.3(e) (subject to the provisions of Section 2.4), Curis may provide Genentech with written notice thereof. Within [**] days of such notice, Genentech shall do one of the following: (i) provide Curis with reasonably satisfactory evidence that Genentech is meeting such diligence obligations; (ii) provide Curis with reasonably satisfactory evidence that Genentech has commenced activities sufficient to meet such diligence obligations; or (iii) provide Curis with reasonably satisfactory evidence that it is not commercially reasonable for Genentech to pursue development of the applicable Lead Product or other Compound.

(e) Cessation of Development of Antibody Compounds. If, as a result of development decisions made by Genentech or the JSC, no Antibody Compound is under research or development as part of the Collaboration for a period of [**] months or more and:

(i) Curis has presented Genentech with a development plan containing reasonably satisfactory evidence that a given Antibody Compound may have utility for a certain indication;

(ii) the potential market for a product based on that Antibody Compound approved for such indication is not significant enough to warrant development and commercialization of such product by Genentech (as determined solely by Genentech in good faith); and

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(iii) a product based on that Antibody Compound developed for such indication could not reasonably be expected to compete with any Small Molecule Compound (or Product based thereon) then under research, development or commercialization by Genentech pursuant to this Agreement;

then within [**] days of delivery of the development plan described in subsection (i) above, Genentech will either (a) designate such Antibody Compound as a Lead Product and initiate commercially reasonable efforts to develop same or (b) designate such Antibody Compound as a Curis Product and Curis may develop and commercialize such Curis Product in accordance with all of the terms and conditions of the Agreement pertaining to Curis Products, including, without limitation, Section 6.1 and Section 7.2(c).

7.2 License Grants to Curis.

(a) Research License. Subject to the terms of this Agreement, Genentech hereby: (i) grants to Curis a non-exclusive, worldwide, royalty-free license during the Term, [**], under the Genentech Technology, to perform Curis’ obligations under the Research Plan; and (ii) grants back to Curis a non-exclusive, worldwide, royalty-free license during the Term, [**], under the rights licensed to Genentech under Section 7.1(a), to perform Curis’ obligations under the Research Plan.

(b) Development License for Lead Products and Collaboration Products. Subject to the terms of this Agreement, Genentech hereby: (i) grants to Curis a non-exclusive, worldwide, royalty-free license during the Term, [**], under the Genentech Technology, to perform Curis’ development obligations with respect to Lead Products under this Agreement and with respect to Collaboration Products under all applicable Co-Development Plans; and (ii) grants back to Curis a non-exclusive, worldwide, royalty-free license during the Term, [**], under the rights licensed to Genentech under Section 7.1(b), to perform Curis’ development obligations with respect to Lead Products under this Agreement and with respect to Collaboration Products under all applicable Co-Development Plans.

(c) Development and Commercialization License for Curis Products. Subject to the terms of this Agreement (including, without limitation, Section 6.1), Genentech hereby:

(i) grants to Curis an exclusive (except as set forth below), royalty-bearing license during the Term, [**], under the Genentech Technology and Genentech’s interest in the Joint Patents, to develop Curis Products in accordance with the applicable JSC-approved Curis Plan and to make, have made, use, sell, offer for sale, have sold and import such Curis Product in the License Field in the Territory; provided, however, that Curis shall not have any right or license under this Section 7.2(c) with respect to [**]; and

(ii) grants back to Curis an exclusive (except as set forth below), royalty-free license during the Term, [**], under the Curis Technology and the Joint Patents, to develop Curis Products in accordance with the applicable JSC-approved Curis Plan and to make, have made, use, sell, offer for sale, have sold and import such Curis Product in the License Field in the Territory.

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Notwithstanding the foregoing, the license granted under this Section 7.2(c) shall terminate with respect to a Curis Product upon the earlier of (A) designation of such Curis Product as a Lead Product or a Collaboration Product or (B) Genentech’s exercise of its right to require Curis to cease development and commercialization of such Curis Product in accordance with Section 6.1(c)(iv)(2). In addition, the exclusivity of the foregoing license shall be subject to Genentech’s retained rights under the Genentech Technology, the Curis Technology and the Joint Patents to perform its manufacturing rights under any manufacturing agreement entered into by Curis and Genentech in accordance with Section 6.1(c)(iii).

(d) Subcontracting. The Parties agree that Curis shall have the right to subcontract one or more of its obligations under the Research Plan or any Co-Development Plan, provided that Curis shall be responsible for the performance of such subcontractors to the same extent as if Curis were itself performing the subcontracted activity and shall guarantee the compliance of such subcontractors with the provisions of this Agreement, including, without limitation, Sections 12.1 through 12.4.

7.3 Retained Rights. Curis hereby expressly reserves the right to practice, and to grant licenses under, the Curis Technology and the Joint Patents for any and all purposes other than [**]. Genentech hereby expressly reserves the right to practice, and to grant licenses under, the Genentech Technology and the Joint Patents for any and all purposes other than the purposes for which Curis has been granted an exclusive license under Section 7.2.

7.4 No Implied Licenses. No right or license under any intellectual property rights of either Party is granted or shall be granted by implication. All such rights or licenses are or shall be granted only as expressly provided in the terms of this Agreement.

8. FEES AND PAYMENTS

8.1 Upfront Fee. In partial consideration of the rights and licenses granted hereunder with respect to Small Molecule Compounds, Genentech shall pay to Curis a one-time, non-refundable fee (the “Upfront Fee”) of five million dollars ($5,000,000) within thirty (30) days of the Effective Date.

8.2 Annual License Fee. Within thirty (30) days of each of the first and second anniversaries of the Effective Date, provided that Curis has used commercially reasonable efforts to meet its obligations under Section 3.1 during the first or second twelve (12) month period of this Agreement, as applicable, Genentech shall pay to Curis an annual license fee (each a “License Fee”) of two million dollars ($2,000,000), for an aggregate of four million dollars ($4,000,000) in License Fees. Termination of this Agreement by Genentech effective twelve (12) months or more after the Effective Date pursuant to Section 13.2 hereof will not terminate Genentech’s obligation to pay the first License Fee required by this Section 8.2. In addition, if Genentech provides notice to Curis of the termination of this Agreement pursuant to Section 13.2 with one hundred eighty (180) or fewer days remaining in the second twelve (12) month period of this Agreement, Genentech shall pay the second License Fee on or before its scheduled due date.

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8.3 Equity Investment. In partial consideration of the rights and licenses granted hereunder with respect to Antibody Compounds, within thirty (30) days of the Effective Date, Genentech shall purchase three million five hundred thousand dollars ($3,500,000) of Curis common stock, at a price per share equal to the average of the daily closing prices for the Curis common stock for the thirty (30) consecutive trading days immediately preceding the Effective Date, and otherwise on the terms set forth in the Stock Purchase Agreement.

8.4 Milestone Payments. Within thirty (30) days after achievement by Genentech or its sublicensees of each of the following milestones solely with respect to the first Small Molecule Compound or the first Antibody Compound to achieve the first occurrence of each event set forth below for those first Compounds, Genentech shall pay Curis the following non-refundable milestone payments (the “Milestone Payments”):

(a) Small Molecule Compounds.

Milestone Event for Products Based on Small Molecule Compounds	Payment Amount
Filing of an IND in any Major Market for the treatment or prevention of any human cancer, including, but not limited to, BCC	$	3,000,000
Filing of [**]	$	[**]
First administration of the Compound in a patient enrolled in the first Phase II Clinical Trial for:
BCC	$	3,000,000
First non-BCC solid tumor indication	$	3,000,000
Second non-BCC solid tumor indication	$	3,000,000
First administration of the Compound in a patient enrolled in the first Phase III or Phase II/III Clinical Trial for:
BCC	$	6,000,000
[**]	$	[**]
[**]	$	[**]
First NDA filed and accepted by the FDA or foreign equivalent agency in:
United States	$	8,000,000
Major Market in the European Union	$	6,000,000
[**]	$	[**]
Australia (for BCC only)	$	4,000,000
Approval of an NDA in United States for commercial sale of the Compound for:
BCC	$	10,000,000
[**]	$	[**]
[**]	$	[**]
Approval of [**]
[**]	$	[**]
[**]	$	[**]
[**]	$	[**]
Approval of [**]
[**]	$	[**]
[**]	$	[**]
Approval of [**]	$	[**]

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(b) Antibody Compounds.
Milestone Event for Products Based on Antibody Compounds	Payment Amount
Filing of [**]	$	[**]
Filing of [**]	$	[**]
First [**]
[**]	$	[**]
[**]	$	[**]
[**]	$	[**]
First [**]:
[**]	$	[**]
[**]	$	[**]
[**]	$	[**]
First [**]
[**]	$	[**]
[**]	$	[**]
[**]	$	[**]
[**]	$	[**]
Approval of [**]
[**]	$	[**]
[**]	$	[**]
[**]	$	[**]
Approval of [**]:
[**]	$	[**]
[**]	$	[**]
[**]	$	[**]
Approval of [**]:
[**]	$	[**]
[**]	$	[**]
Approval of [**]	$	[**]

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8.5 Royalties Payable by Genentech.

(a) Royalty Payments on Lead Products.

(i) Except to the extent Section 8.5(a)(ii) applies, Genentech shall pay to Curis the following royalties on worldwide Net Sales of each Lead Product (excluding Collaboration Products and Curis Products), calculated on a Lead Product-by-Lead Product and country-by-country basis:

(1) [**] percent ([**]%) of that portion of worldwide annual Net Sales of a Lead Product that is less than or equal to [**] dollars ($[**]);

(2) [**] percent ([**]%) of that portion of worldwide annual Net Sales of a Lead Product that is in excess of [**] dollars ($[**]) and less than or equal to [**] dollars ($[**]);

(3) [**] percent ([**]%) of that portion of worldwide annual Net Sales of a Lead Product that is in excess of [**]dollars ($[**]) and less than or equal to [**]dollars ($[**]); and

(4) [**] percent ([**]%) of that portion of worldwide annual Net Sales of a Lead Product that is in excess of [**] dollars ($[**]).

(ii) With respect to each Lead Product (excluding Collaboration Products and Curis Products) for the treatment of BCC in a topical formulation (and not for Systemic Delivery), Genentech shall pay to Curis the following royalties on Net Sales of such Lead Product:

(1) [**] percent ([**]%) of that portion of annual Net Sales of such Lead Product in the United States that is less than or equal to [**] dollars ($[**]); and

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(2) [**] percent ([**]%) of that portion of annual Net Sales of such Lead Product in the United States that is greater than [**] dollars ($[**]).

For purposes of clarification, the royalties described in this Section 8.5(a)(ii) are not due with respect to a Collaboration Product which is co-developed by Curis and Genentech unless such Collaboration Product is re-designated as a Lead Product pursuant to Section 4.2 or 4.3(b).

(iii) With respect to Lead Products (excluding Collaboration Products and Curis Products) in a topical formulation (and not for Systemic Delivery) approved for the treatment of BCC in the Territory (regardless of whether such Lead Products are approved and marketed in the United States as Collaboration Products), [**] percent ([**]%) of annual Net Sales of such Lead Products in all countries of the Territory, excluding the United States.

(b) Royalty Payment Reductions. Each of the following royalty reduction mechanisms shall operate independently, and one or more may apply to a Lead Product.

(i) Genentech’s total royalty obligation to Curis with respect to a Lead Product shall be reduced by an amount equal to [**] percent ([**]%) of annual Net Sales of such Lead Product in each country in which either (A) such Lead Product is a Know-How Product or (B) a product (a “Competing Product”) that binds to the same molecular target as such Lead Product has been approved by the applicable regulatory authority and is being sold in such country by a Third Party for use in the same indication as such Lead Product.

(ii) Genentech’s total royalty obligation to Curis with respect to a Lead Product shall be reduced by an amount equal to [**] percent ([**]%) of annual Net Sales of such Lead Product to the extent that such Lead Product is a Modified Product.

(iii) If a license under a Valid Claim of any patent rights of one or more Third Parties is required in order for Genentech to either (i) commercialize a Lead Product, which Valid Claim, but for such license, would be infringed by the practice of the Curis Patents, Genentech Patents or Joint Patents, (ii) commercialize a Lead Product, which Valid Claim, but for such license, would be infringed by the identification of, or the identification of the utility of, such Lead Product or (iii) make, have made, use, sell, have sold, offer for sale or import a Lead Product, which Valid Claim, but for such license, would be infringed by such acts, then in each case (i), (ii) or (iii) above, Genentech may deduct [**] percent ([**]%) of the amount of any royalty payments made to such Third Party(ies) for such license(s) from the royalties payable hereunder with respect to such Lead Product; provided, however, that in no event shall any tier of the royalties that would otherwise be due under Section 8.5(a) with respect to such Lead Product be reduced by more than [**] ([**]) percentage points (e.g., the royalty payable under Section 8.5(a)(i)(1) shall never be less than [**] percent ([**]%) of Net Sales of such Lead Product).

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Notwithstanding the foregoing or any other provision of this Agreement to the contrary, in no event shall all applicable royalty reduction provisions of Sections 8.5(b)(i), 8.5(b)(ii) and 8.5(b)(iii) taken together reduce the royalties that would otherwise be due under Section 8.5(a) by more than [**] percent ([**]%).

(c) Royalty Term. Royalties for sales of each Lead Product in a given country shall be paid for a period equal to the Royalty Term for such Lead Product in such country. Upon expiration of the Royalty Term for a Lead Product in a country, Genentech shall have a fully-paid, royalty free, non-exclusive, perpetual license under the Curis Technology to make, have made, use, sell, offer for sale and import such Lead Product in the License Field in such country.

(d) No Credit. The Parties agree and understand that the Upfront Fee, both License Fees and all Milestone Payments and Evotec Payments due hereunder are in addition to, and shall not be creditable against, any royalty payments due hereunder.

8.6 Royalties Payable by Curis.

(a) Royalty Payments on Curis Products. Curis shall pay to Genentech the applicable royalty set forth below on worldwide Net Sales of each Curis Product, calculated on a Product-by-Product basis:

(i) with respect to any Curis Product that was identified using, or the utility of which was identified using, a Valid Claim of the Genentech Patents, but the manufacture, use or sale of which, but for the licenses granted to Curis hereunder, would not infringe a Valid Claim of the Genentech Patents, [**] percent ([**]%) of annual Net Sales of such Curis Product; and

(ii) with respect to any Curis Product the manufacture, use or sale of which, but for the licenses granted to Curis hereunder, would infringe a Valid Claim of the Genentech Patents, [**] percent ([**]%) of annual Net Sales of such Curis Product.

(b) Royalty Payment Reductions. If a license under a Valid Claim of any patent rights of one or more Third Parties is required in order for Curis to either (i) commercialize a Curis Product, which Valid Claim, but for such license, would be infringed by the practice of the Genentech Patents or Joint Patents, (ii) commercialize a Curis Product, which Valid Claim, but for such license, would be infringed by the identification of, or the identification of the utility of, such Curis Product or (iii) make, have made, use, sell, have sold, offer for sale or import a Curis Product, which Valid Claim, but for such license, would be infringed by such acts, then in each case (i), (ii) or (iii) above, Curis may deduct [**] percent ([**]%) of the amount of any royalty payments made to such Third Party(ies) for such license(s) from the royalties payable hereunder with respect to such Curis Product; provided, however, that in no event shall all deductions permitted by this Section 8.6(b) with respect to a Curis Product reduce the royalties that would otherwise be due under Section 8.6(a) with respect to such Curis Product by more than [**] percent ([**]%).

(c) Royalty Term. Royalties for sales of each Curis Product in a given country shall be paid for a period equal to the Royalty Term for such Curis Product in such

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country. Upon expiration of the Royalty Term for a Curis Product in a country, Curis shall have a fully-paid, royalty free, non-exclusive, perpetual license under the applicable Genentech Patent(s) to make, have made, use, sell, offer for sale and import such Curis Product in the License Field in such country.

8.7 Payments to Evotec OAI. If Curis and Genentech reasonably determine that Curis is obligated to pay milestone payments to Evotec OAI pursuant to the Evotec Agreement (each, an “Evotec Payment”), Genentech will reimburse Curis for such Evotec Payments, not to exceed on a Compound-by-Compound basis:

(a) [**] dollars ($[**]) upon completion of Phase II Clinical Trials for the first indication for a Compound, and [**] dollars ($[**]) upon the earlier to occur of (i) completion of Phase II Clinical Trials for the second indication for such Compound and (ii) twenty-four (24) months after completion of Phase II Clinical Trials for the first indication for such Compound;

(b) [**] dollars ($[**]) upon receipt of marketing approval of such Compound in a Major Market for the first indication, and [**] dollars ($[**]) upon the earlier to occur of (i) receipt of marketing approval of such Compound in a Major Market for the second indication or (ii) twenty-four (24) months after receipt of marketing approval of such Compound in a Major Market for the first indication; and

(c) [**] dollars ($[**]) upon the achievement of [**] dollars ($[**]) in cumulative worldwide Net Sales of a Product based on such Compound.

Curis will bear all costs that may become due under the Evotec Agreement as a result of the transactions and activities contemplated by this Agreement other than (A) those expressly set forth above and (B) to the extent that the JSC approves having more than 4 Evotec OAI FTE’s assigned to performance of the Research Plan in accordance with Section 3.1, the costs charged by Evotec OAI for such number of FTEs in excess of 4.

8.8 Payments to Third Party Licensors. Curis will bear all costs that may become due under the Existing License Agreements as a result of the transactions and activities contemplated by this Agreement, including but not limited to license fees, milestone payments and royalty payments required thereunder. Subject to Section 8.5(b), Genentech shall be solely responsible for all payments that may become due to Third Party licensors of patent rights necessary for the development or commercialization of Lead Products other than payments due under the Existing License Agreements.

9. PAYMENTS; RECORDS; AUDITS

9.1 Payment; Reports. Royalty payments and reports for the sale of Products shall be estimated and reported for each of the first three (3) calendar quarters of each year and reconciled following the last quarter of each year. All estimated and reconciled royalty payments due to a Party under this Agreement shall be paid within sixty (60) days of the end of the applicable calendar quarter. Each payment of royalties shall be accompanied by a report of Net Sales of Products in sufficient detail to permit confirmation of the accuracy of the royalty payment made, including, without limitation, the number of each Product sold, the gross sales

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and Net Sales of each Product in United States dollars, the royalties payable, the exchange rates used and any other information necessary to determine the appropriate amount of royalties due. To the extent annual reconciliation results require a reimbursement by one Party to the other Party, such Party will remit such amounts within thirty (30) days of receipt of the report detailing such reconciliation. Each Party will keep complete and accurate records pertaining to the development of Products and the sale or other disposition of Products in sufficient detail to permit the other Party to confirm the accuracy of all payments due hereunder. Such records shall be retained for at least three (3) years.

9.2 Exchange Rate; Manner and Place of Payment. All payments hereunder shall be payable in United States dollars. With respect to each quarter, for countries other than the United States, whenever conversion of Net Sales from any foreign currency shall be required, such conversion shall be made using the exchange rate in effect on the last day of business for a given calendar quarter in which the Net Sales are made, as published by Reuters. All payments owed under this Agreement shall be made by wire transfer to a bank and account designated in writing by the Party entitled to receive such payment, unless otherwise specified by such Party.

9.3 Late Payments. In the event that any payment, including but not limited to royalties, Milestone Payments, the Upfront Fee, Annual License Fees and Evotec Payments, due hereunder is not made when due, the payment shall accrue interest from the date due at the prime rate plus two (2) percentage points, as published in the Federal Reserve Bulletin H.15 or successor thereto; provided, however, that in no event shall such rate exceed the maximum legal annual interest rate allowed by law. The payment of such interest shall not limit a Party from exercising any other rights it may have as a consequence of the lateness of any payment.

9.4 Records and Audits. On thirty (30) days prior written notice and no more than once per calendar year, Curis and the Existing Licensors, if applicable, on the one hand, and Genentech, on the other hand, shall have the right to have an independent certified public accountant reasonably acceptable to the other Party inspect the books and records of such other Party and its sublicensees, during usual business hours for the sole purpose of verifying the completeness and accuracy of the reports delivered and payments made under this Agreement. Such examination with respect to any fiscal year shall not take place later than three (3) years following the end of such fiscal year, and no fiscal year may be audited more than once. The accountant shall inform the auditing Party (and, if Curis is the auditing Party, the Existing Licensors, if applicable) only if there has been an underpayment or an overpayment, and if so, the amount thereof and whether the books and records have been kept in a manner consistent with good accounting practices. The expense of any such inspection shall be borne by the auditing Party; provided, however, that, if the inspection discloses an underpayment in excess of five percent (5%) (in aggregate or for any twelve (12) month period), then the audited Party shall pay the out-of-pocket costs of such audit. The audited Party will promptly remit to the auditing Party the amount of any underpayments revealed by such audit, plus interest.

9.5 Withholding of Taxes. Any withholding of taxes levied by tax authorities outside the United States on the payments hereunder shall be borne by the Party receiving such payment and deducted by the Party making such payment from the sums otherwise payable by it hereunder for payment to the proper tax authorities. The Parties agree to

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cooperate with each other, in the event a Party claims exemption from such withholding or seeks deductions under any double taxation or other similar treaty or agreement from time to time in force, such cooperation to consist of providing receipts of payment of such withheld tax or other documents reasonably available.

9.6 Exchange and Royalty Rate Controls. If at any time legal restrictions prevent the prompt remittance of part or all royalties with respect to any country where any Product is sold, payment shall be made through such lawful means or methods as the paying Party may determine. When in any country the law or regulations prohibit both the transmittal and deposit of royalties on sales in such a country, royalty payments shall be suspended for as long as such prohibition is in effect, and as soon as such prohibition ceases to be in effect, all royalties that would have been obligated to be transmitted or deposited, but for the prohibition, shall forthwith be deposited or transmitted promptly to the extent allowable, as the case may be. If any royalty rate specified in this Agreement should exceed the permissible rate established in any country, the royalty rate for sales in such country shall be adjusted to the highest legally permissible or government-approved rate.

10. INTELLECTUAL PROPERTY

10.1 Ownership of Technology. Inventorship with respect to inventions conceived and reduced to practice during the Term by either (a) Genentech’s employees, agents, sublicensees, Affiliates, subcontractors or other designated Third Parties, (b) Curis’ employees, agents, sublicensees, Affiliates, subcontractors or other designated Third Parties or (c) both Parties’ employees, agents, sublicensees, Affiliates, subcontractors or other designated Third Parties, in each case (a), (b) or (c), pursuant to work carried out under the Collaboration (collectively, the “Inventions”) shall be jointly owned by Genentech and Curis during the Term of this Agreement. Each Party shall require all of its employees, agents, sublicensees, Affiliates, subcontractors or other designated Third Parties to assign all Inventions invented by them and that are the subject of patent applications, to Genentech and Curis as joint owners. All foreign and domestic patents and patent applications (including provisionals, divisionals, continuations and continuations-in-part thereof) claiming any Invention shall be considered “Joint Patents” for purposes of this Agreement. Except as expressly permitted under the terms of the Agreement, neither Party shall transfer any ownership interest or grant any rights to any Third Party to any Inventions or Joint Patents without the prior written consent of the other Party.

10.2 Patent Prosecution. It is the intention of the Parties to secure broad patent protection for discoveries and inventions made in the course of the Collaboration.

(a) Genentech shall be responsible for the filing, prosecution and maintenance, at Genentech’s sole cost, of all Genentech Patents.

(b) Subject to the rights of the Existing Licensors pursuant to the Existing License Agreements, the Parties shall be jointly responsible for the filing, prosecution, maintenance, enforcement and defense of any Curis Patent licensed to Genentech hereunder that claims any method of use, composition of matter, or method of manufacture of any Compound (other than a Curis Product as to which Genentech has no further development rights hereunder (including, without limitation, an option to designate it as a Lead Product)), excluding the Curis

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Patents described in Section 10.2(c). As promptly as practicable following the Effective Date, the Parties shall mutually agree upon an independent law firm to file, prosecute, maintain, enforce and defend the Curis Patents that are subject to this Section 10.2(b). The Parties agree to instruct the law firm to take and act on the input and instructions of both Parties without prejudice to either Party. The Parties shall share equally in all costs associated with such prosecution, maintenance, enforcement and defense.

(c) Curis shall be solely responsible for the filing, prosecution and maintenance, at Curis’ sole cost, of: (i) any Curis Patent licensed to Curis pursuant to an Existing License Agreement which Curis does not have the sole right to file, prosecute and maintain by the terms of such Existing License Agreement; (ii) all Curis Patents under which any Third Party has been granted a license prior to the Effective Date; (iii) all Curis Patents that claim any composition of matter, method of use or method of manufacture of any compound other than a Compound (regardless of whether any such Curis Patent also claims any method of use, composition of matter, or method of manufacture of any Compound); and (iv) all Curis Patents that claim a Curis Product as to which Genentech has no further development rights hereunder (including, without limitation, an option to designate it as a Lead Product).

(d) The Parties shall be jointly responsible for the filing, prosecution, maintenance, enforcement and defense of Joint Patents using a mutually agreeable independent law firm. The Parties agree to instruct the law firm to take and act on the input and instructions of both Parties without prejudice to either Party. The Parties shall share equally in all costs associated with such prosecution, maintenance, enforcement and defense.

(e) To the extent that a Party is solely responsible for filing, prosecution and maintenance under this Section 10.2 of patent rights that are owned or co-owned by, or subject to a license granted under this Agreement to, such Party shall (i) consider in good faith the requests and suggestions of such other Party with respect to strategies for filing, prosecuting and maintaining such patent rights that are subject to this Section 10.2, and (ii) keep such other Party informed of progress with regard to the filing, prosecution and maintenance of such patent applications and patents. In the event Curis is solely responsible for the filing, prosecution and maintenance of patent applications or patents hereunder that are owned or co-owned by, or are subject to an exclusive license granted under this Agreement, and Curis elects not to do so (other than because Curis has determined in good faith not to file a patent application with respect to an invention but to maintain such invention as a trade secret), it shall inform Genentech at least sixty (60) days before any relevant deadline for filing or other action and transmit all information reasonable and appropriate relating to such patent or patent application, and Genentech shall have the right to file, prosecute and maintain such patent applications and patents at its own expense, in which case Curis shall assign to Genentech its rights in such patent applications and patents.

10.3 Cooperation of the Parties. Each Party agrees to cooperate fully in the preparation, filing, and prosecution of any patent and patent applications related to the Collaboration. Such cooperation includes, but is not limited to:

(a) executing all papers and instruments, or requiring its employees or agents to execute such papers and instruments, so as to effectuate the ownership of patent rights set forth in Section 10.1 above and to enable the owning Party to apply for and to prosecute patent applications in any country; and

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(b) promptly informing the other Party of any matters coming to such Party’s attention that may affect the preparation, filing, prosecution or maintenance of any such patent applications.

10.4 Infringement by Third Parties.

(a) Curis and Genentech shall promptly notify the other in writing of any alleged or threatened infringement of any Curis Patent, Genentech Patent or Joint Patent of which they become aware.

(b) Genentech shall have the first right, but not the obligation, to bring and control any action or proceeding, at its own expense and by counsel of its own choice, with respect to infringement of any Genentech Patent.

(c) The enforcement of any Curis Patent that is subject to the provisions of Section 10.2(b) against any Third Party shall be governed by such Section 10.2(b).

(d) Curis shall have the first right, but not the obligation, to bring and control any action or proceeding with respect to infringements of any Curis Patent other than those subject to Section 10.2(b).

(e) The enforcement of any Joint Patent against any Third Party shall be governed by Section 10.2(d).

(f) The Party not bringing an action under this Section 10.4 shall have the right, at its own expense and by counsel of its own choice, to be represented in any action involving any patent owned solely by such Party or jointly by the Parties. If Curis fails to bring an action or proceeding with respect to a patent that is owned or Controlled by Curis and that is subject to an exclusive license granted under this Agreement to Genentech, Genentech within: (i) sixty (60) days following the notice of alleged infringement; or (ii) ten (10) days before the time limit, if any, set forth in the appropriate laws and regulations for the filing of such actions, whichever comes first, Genentech shall have the right to bring and control any such action at its own expense and by counsel of its own choice, and Curis shall have the right, at its own expense and by counsel of its own choice, to be represented in any such action. In the event a Party brings an infringement action, the other Party shall cooperate fully, including if required to bring such action, the furnishing of a power of attorney. Neither Party shall have the right to settle any patent infringement action under this Section 10.4 in a manner that diminishes the rights or interests of the other Party without the consent of such other Party. Both the right of Genentech to bring infringement actions under this Section 10.4 and the distribution of any recovery received as a result of an action brought pursuant to this Section 10.4 shall be subject to the rights of applicable Existing Licensors under applicable Existing License Agreements. Except as provided in the preceding sentence or otherwise agreed to by the Parties as part of a cost-sharing arrangement, any recovery realized as a result of such litigation, after reimbursement of any litigation expenses of the Parties, shall be: (i) shared equally by the Parties in the case of litigation pursuant to Section 10.4(c) or 10.4(e); or (ii) retained by Genentech, except that any

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portion of such recovery that is attributable to lost sales of a Lead Product or Collaboration Product shall be treated as Net Sales of such Lead Product or Collaboration Product for purposes of this Agreement. If, within ninety (90) days following notice from Curis of evidence of an unabated infringing act of a Third Party with respect to a Genentech Patent and that is subject to an exclusive license granted under this Agreement to Curis, Genentech fails to bring an action or proceeding against such Third Party for such infringing act, then Curis’ total royalty obligation to Genentech with respect to any Curis Product covered by a Valid Claim in such infringed Genentech Patent shall be reduced by an amount equal to [**] percent ([**]%) of annual Net Sales of such Curis Product in each country in the Territory in which such Third Party’s infringing act results in the marketing and sale of an approved pharmaceutical product that directly competes with the Curis Products in question; provided, however, that no royalty due to Genentech with respect to any Curis Product shall be reduced by more than [**] percent ([**]%).

10.5 Infringement of Third Party Rights. Each Party shall promptly notify the other in writing of any allegation by a Third Party that the activity of either of the Parties hereunder infringes or may infringe the intellectual property rights of such Third Party. Genentech shall have the first right but not the obligation to control any defense of any such claim involving alleged infringement of Third Party rights by Genentech’s activities under this Agreement at its own expense and by counsel of its own choice, and Curis shall have the right but not the obligation, at its own expense, to be represented in any such action by counsel of its own choice. If Genentech fails to proceed in a timely fashion with regard to such defense, Curis shall have the right but not the obligation to control any such defense of such claim at its own expense and by counsel of its own choice, and Genentech shall have the right but not the obligation, at its own expense, to be represented in any such action by counsel of its own choice. Curis shall have the first right but not the obligation to control any defense of any such claim involving alleged infringement of Third Party rights by Curis’ activities under this Agreement at its own expense and by counsel of its own choice, and Genentech shall have the right but not the obligation, at its own expense, to be represented in any such action by counsel of its own choice. If Curis fails to proceed in a timely fashion with regard to such defense, Genentech shall have the right but not the obligation to control any such defense of such claim at its own expense and by counsel of its own choice, and Curis shall have the right but not the obligation, at its own expense, to be represented in any such action by counsel of its own choice. Neither Party shall have the right to settle any infringement action under this Section 10.5 in a manner that diminishes the rights or interests of the other Party hereunder without the consent of such Party.

11. REPRESENTATIONS AND WARRANTIES

11.1 Mutual Representations and Warranties. Each Party represents to the other that as of the Effective Date:

(a) Corporate Power. It is duly organized and validly existing under the laws of its state of incorporation or formation, and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof;

(b) Due Authorization. It is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder, and the person or persons executing this Agreement on its behalf has been duly authorized to do so by all requisite corporate action;

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(c) Binding Agreement. This Agreement is legally binding upon it and enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by it do not conflict with, or require the consent of a Third Party (including, without limitation, in the case of Curis any Existing Licensor) under, any agreement, instrument or understanding, oral or written, to which it is a Party or by which it may be bound (other than consents that have been obtained prior to the Effective Date), nor violate any material law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it; and

(d) Grant of Rights; Maintenance of Agreements. It has not granted, and will not grant during the Term, any right to any Third Party which would conflict with the rights granted to the other Party hereunder. It has (or will have at the time performance is due) maintained and will maintain and keep in full force and effect all agreements (including license agreements) and filings (including patent filings) necessary to perform its obligations in accordance with the terms of this Agreement.

11.2 Representations and Warranties of Curis; Covenants of Curis. Curis hereby represents and warrants to Genentech that as of the Effective Date:

(a) Curis has sufficient rights in the Curis Patents listed on Schedule 1.24 to grant the licenses granted to Genentech hereunder;

(b) Curis is not aware of any action, suit or inquiry or investigation instituted by or before any court or governmental agency that questions or threatens the validity of any Curis Patent listed on Schedule 1.24 hereto;

(c) Curis has not received any notice from any Third Party alleging that the practice of any Curis Patent listed on Schedule 1.24 infringes the intellectual property rights of such Third Party; and

(d) Curis has not pledged, assigned or granted any security interest in any Curis Patent listed on Schedule 1.24 hereto to any Third Party. In addition, Curis shall not, during the Term, pledge, assign or grant any security interest in any of the Curis Patents to any Third Party.

11.3 Disclaimer Concerning Technology. EXCEPT AS SPECIFICALLY SET FORTH HEREIN, THE TECHNOLOGY AND INTELLECTUAL PROPERTY RIGHTS PROVIDED BY EACH PARTY AND THE MATERIALS PROVIDED BY CURIS HEREUNDER ARE PROVIDED “AS IS,” AND EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES, OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES. Without limiting the generality of the foregoing, each Party expressly does not warrant (a) the success of any study or test commenced under the Collaboration or (b) the safety or usefulness for any purpose of the technology it provides hereunder.

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12. CONFIDENTIALITY; PUBLICATION

12.1 Confidentiality. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing by the Parties, the Parties agree that, during the Term and for the five (5) year period immediately following the Term, each Party (the “Receiving Party”) shall keep confidential and shall not publish or otherwise disclose and shall not use for any purpose (other than as expressly provided for in this Agreement) any Confidential Information furnished to it by, or otherwise belonging to, the other Party (the “Disclosing Party”) pursuant to this Agreement. Each Party may use Confidential Information of the other Party only to the extent required to accomplish the purposes of this Agreement. The Receiving Party will use at least the same standard of care as it uses to protect proprietary or confidential information of its own to ensure that its employees, agents, consultants and other representatives do not disclose or make any unauthorized use of the Disclosing Party’s Confidential Information. Each Party will promptly notify the other upon discovery of any unauthorized use or disclosure of the other Party’s Confidential Information.

12.2 Exceptions. The obligations of confidentiality and non-use contained in Section 12.1 will not apply to the extent it can be established by the Receiving Party by competent proof that such Confidential Information:

(a) is now, or hereafter becomes, through no act or failure to act on the part of the Receiving Party, generally known or available;

(b) is known by the Receiving Party at the time of receiving such information, other than under confidentiality, as evidenced by its records;

(c) is hereafter furnished to the Receiving Party by a Third Party, as a matter of right and without restriction on disclosure;

(d) is independently developed by the Receiving Party without the aid, application or use of Confidential Information of the Disclosing Party; or

(e) is the subject of a written permission to disclose provided by the Disclosing Party.

12.3 Terms of Agreement. The Parties agree that this Agreement and the terms hereof will be considered Confidential Information of both Parties.

12.4 Authorized Disclosure. Each Party may disclose Confidential Information belonging to the other Party to the extent such disclosure is reasonably necessary in the following instances:

(a) filing or prosecuting patent rights in accordance with this Agreement;

(b) submitting regulatory filings with respect to Products in accordance with this Agreement;

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(c) prosecuting or defending litigation;

(d) complying with applicable court orders or governmental regulations;

(e) complying with reporting requirements under the Existing License Agreements;

(f) conducting pre-clinical or clinical trials of Products in accordance with this Agreement; and

(g) disclosure to bona fide potential sublicensees (to the extent permitted hereunder), or to existing or potential investors and lenders for fundraising or financing efforts or in connection with due diligence or similar investigations by such Third Parties, in each case who agree to be bound by similar terms of confidentiality and non-use at least equivalent in scope to those set forth in this Section 12.

Notwithstanding the foregoing, in the event a Party is required to make a disclosure of the other Party’s Confidential Information pursuant to Section 12.4(c) or 12.4(d), it will provide the other Party with as much prior written notice as reasonably possible and seek (or cooperate with the other Party’s efforts to seek) to secure confidential treatment of such information at least as diligently as such Party would use to protect its own Confidential Information. The Parties will consult with each other on the provisions of this Agreement to be redacted in any filings made by the Parties with the Securities and Exchange Commission or as otherwise required by law.

12.5 Publications. Each Party to this Agreement recognizes that the publication or disclosure of papers, presentations, abstracts or any other written or oral presentations regarding results of and other information regarding the Collaboration may be beneficial to both Parties provided such publications or presentations are subject to reasonable controls to protect Confidential Information. Accordingly, each Party shall have the right to review and approve any paper or presentation proposed for disclosure by the other Party which utilizes data generated from the Collaboration and/or includes Confidential Information of the other Party. Before any such paper or presentation is disclosed, the Party proposing disclosure shall deliver a complete copy to the other Party at least thirty (30) days prior to submitting the paper to a publisher or making the presentation to a Third Party. The JSC (or the other Party if the JSC is no longer in existence) shall review any such paper or presentation and give its comments to the disclosing Party within fifteen (15) days of its receipt of such paper or presentation. The disclosing Party shall comply with the reviewing Party’s request to delete references to Confidential Information of the reviewing Party in any such paper or presentation.

13. TERM AND TERMINATION

13.1 Term of the Agreement. The term of this Agreement (the “Term”) shall commence on the Effective Date and continue until six (6) months after the later to occur of either (i) the expiration of the last Royalty Term for any Product or (ii) such time as no activities under the Collaboration have occurred for a period of twelve (12) consecutive months, unless earlier terminated in accordance with this Article 11.

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13.2 Termination by Genentech. Genentech may terminate this Agreement without cause, effective no earlier than twelve (12) months after the Effective Date upon six (6) months’ prior written notice to Curis of such termination. Genentech may also terminate this Agreement solely with respect to one or more: specific Compound, delivery system for a Compound (i.e., Systemic Delivery or topical delivery) and/or indication for which a Compound may be used and/or the country(ies) in which a Compound may be developed and commercialized. Any such termination is permitted no earlier than twelve (12) months after the Effective Date upon six (6) months’ prior written notice and the Agreement shall thereafter be read and interpreted in light of such termination(s).

13.3 Termination for Cause. Each Party shall have the right to terminate this Agreement upon sixty (60) days’ prior written notice to the other upon the occurrence of either of the following:

(a) Upon or after the bankruptcy, insolvency, dissolution or winding up of the other Party (other than a dissolution or winding up for the purpose of reconstruction or amalgamation); or

(b) Upon or after the breach of any material provision of this Agreement by the other Party if the breaching Party has not cured such breach within the sixty (60) day period following written notice of termination by the non-breaching Party.

13.4 Effect of Termination or Expiration; Surviving Obligations.

(a) Upon termination of this Agreement in its entirety by Genentech pursuant to Section 13.2, or termination of this Agreement by Curis pursuant to Section 13.3:

(i) all licenses granted by Curis to Genentech hereunder shall automatically terminate and revert to Curis;

(ii) all licenses granted by Genentech to Curis under Section 7.2(c) that are in effect as of the date of termination with respect to a Curis Product existing as of such termination date shall survive such termination and remain in full force and effect in accordance with their respective terms for so long as Curis is not in breach of its obligations to Genentech under this Agreement (including, without limitation, its obligations to make royalty payments to Genentech under Section 8.6); and

(iii) from and after such termination, Genentech itself shall not conduct or have conducted, or direct any Affiliate, licensee or sublicensee to engage in, any development or commercialization activities relating to any Compound or Product created or identified, or the utility of which was identified, in the course of the Collaboration, for so long as a given Compound is covered by a Valid Claim in a Curis Patent, Joint Patent or Genentech Patent (excluding the Existing Genentech Patents).

(b) Upon termination of this Agreement by Genentech pursuant to Section 13.3:

(i) all licenses granted by Genentech to Curis hereunder shall automatically terminate and revert to Genentech; and

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(ii) all licenses granted by Curis to Genentech under Sections 7.1(b) that are in effect as of the time of termination shall survive such termination and remain in full force and effect in accordance with their respective terms for so long as Genentech is not in breach of its obligations to Curis under this Agreement (including, without limitation, its obligations under Articles 8 and 9); provided, however, that each Collaboration Product as to which Genentech has a license under Section 7.1(b) as of the effective time of such termination shall thereafter be deemed a Lead Product for purposes of Articles 8 and 9 and shall no longer be subject to sharing of Operating Profits (Losses).

(c) Within thirty (30) days after the expiration of the Agreement, or the earlier termination of the Agreement by any Party for any reason, the Parties hereto shall assign, as required, all issued and pending Joint Patents to each Party in accordance with its relationship to the Invention(s) claimed in each such patent. Accordingly, Genentech shall assign to Curis all of Genentech’s ownership interest in those Joint Patents solely claiming a Curis Invention, Curis shall assign to Genentech all of Curis’ ownership interest in those Joint Patents solely claiming a Genentech Invention and any Joint Patents claiming Joint Inventions or claiming both a Genentech Invention and a Curis invention would remain jointly owned by the Parties.

(d) Expiration or termination of this Agreement shall not relieve either Party of any obligation accruing prior to such expiration or termination. Except as otherwise provided in this Section 13.4, upon expiration or termination of this Agreement, all rights and obligations of the Parties under this Agreement shall terminate, except that the terms of this Section 13.4 (and the provisions referenced herein) and Sections 7.3, 7.4, 11.3, 12.1, 12.2, 12.3, 12.4, 13.5, 13.6, 13.7 and 13.8 and Articles 9, 14, 15 and 16 of this Agreement shall survive expiration or termination of this Agreement. Within thirty (30) days following the expiration or termination of this Agreement, except to the extent and for so long as a Party retains license rights as provided in this Section 13.4, each Party shall deliver to the other Party all embodiments of any and all Confidential Information of the other Party (including all copies thereof) in its possession.

13.5 Exercise of Right to Terminate. The use by either Party hereto of a termination right provided for under this Agreement shall not give rise to the payment of damages or any other form of compensation or relief to the other Party with respect thereto.

13.6 Damages; Relief. Subject to Section 13.5 above, termination of this Agreement shall not preclude either Party from claiming any other damages, compensation or relief that it may be entitled to upon such termination.

13.7 Termination of the Harvard Licenses. In the sole discretion of Harvard, upon the termination of each of the Harvard Licenses, Genentech’s rights and obligations as a sublicensee of Curis under each such Harvard License shall either (a) be terminated or (b) become rights and obligations of Genentech as if Genentech were the direct licensee under each of the Harvard Licenses. Any sublicenses granted by Genentech hereunder, to the extent the sublicense includes rights conveyed by a Harvard License, will contain this right for Harvard.

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13.8 Termination of the 1996 Stanford License. In the event the 1996 Stanford License Agreement is terminated, Genentech’s rights and obligations as a sublicensee of Curis under the 1996 Stanford License shall become rights and obligations of Genentech as if Genentech were the direct licensee under the 1996 Stanford License.

14. INDEMNITY

14.1 Indemnification.

(a) Curis hereby agrees to save, defend and hold Genentech and its Affiliates and their respective directors, officers, employees and agents (each, a “Genentech Indemnitee”) harmless from and against any and all claims, suits, actions, demands, liabilities, expenses and/or loss, including reasonable legal expense and attorneys’ fees (collectively, “Losses”), to which any Genentech Indemnitee may become subject as a result of any claim, demand, action or other proceeding by any Third Party to the extent such Losses arise directly or indirectly out of: (i) the practice by Curis or its sublicensees (other than Genentech) of any license granted hereunder, (ii) the manufacture, use, handling, storage, sale or other disposition of any Curis Product by Curis or its sublicensees (other than Genentech), (iii) the breach by Curis or its sublicensees (other than Genentech) of any warranty, representation, covenant or agreement made by Curis in this Agreement, or (iv) the negligence or willful misconduct of any Curis Indemnitee; except, in each case, to the extent such Losses result from the negligence or willful misconduct of any Genentech Indemnitee or the breach by Genentech of any warranty, representation, covenant or agreement made by Genentech in this Agreement.

(b) Genentech hereby agrees to save, defend and hold Curis and its Affiliates and their respective directors, officers, employees and agents (each, a “Curis Indemnitee”) harmless from and against any and all Losses to which any Curis Indemnitee may become subject as a result of any claim, demand, action or other proceeding by any Third Party to the extent such Losses arise directly or indirectly out of: (i) the practice by Genentech or its sublicensees (other than Curis) of any license granted hereunder, (ii) the manufacture, use, handling, storage, sale or other disposition of any Lead Product or Collaboration Product by Genentech or its sublicensees (other than Curis), (iii) the breach by Genentech or its sublicensees (other than Curis) of any warranty, representation, covenant or agreement made by Genentech in this Agreement, or (iv) the negligence or willful misconduct of any Genentech Indemnitee; except, in each case, to the extent such Losses result from the negligence or willful misconduct of any Curis Indemnitee or the breach by Curis of any warranty, representation, covenant or agreement made by Curis in this Agreement.

14.2 Indemnification Procedure.

(a) Each indemnified Party agrees to give the indemnifying Party written notice, as soon as is practicable, but in any event within thirty (30) days if possible, of any Losses or the discovery of fact upon which such indemnified party intends to base a request for indemnification under Section 14.1(a) or 14.1(b).

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(b) Each Party shall furnish promptly to the other Party copies of all papers and official documents received in respect of any Losses. The indemnified Party shall cooperate with the indemnifying Party, at the indemnifying Party’s expense, in providing witnesses and records necessary in the defense against any Losses.

(c) With respect to any Losses relating solely to the payment of money damages and that will not result in the indemnified Party’s becoming subject to injunctive or other relief, contains an admission of guilt or other responsibility or liability or otherwise adversely affecting the business of the indemnified party in any manner, and as to which the indemnifying Party shall have acknowledged in writing the obligation to indemnify the indemnified Party hereunder, the indemnifying Party shall have the sole right to defend, settle, or otherwise dispose of such claim, on such terms as the indemnifying Party, in its sole discretion, shall deem appropriate.

(d) With respect to all other Losses, the indemnifying Party shall obtain the written consent of the indemnified Party, which shall not be unreasonably withheld, prior to ceasing to defend, settling, or otherwise disposing thereof.

(e) The indemnifying Party shall not be liable for any settlement or other disposition of a Loss by the indemnified Party that is reached without the written consent of the indemnifying Party.

(f) Except as provided above, the costs and expenses, including fees and disbursements of counsel, incurred by any indemnified Party in connection with any claim shall be reimbursed on a Calendar Quarter basis by the indemnifying Party, without prejudice to the indemnifying Party’s right to contest the indemnified Party’s right to indemnification and subject to refund in the event the indemnifying Party is ultimately held not to be obligated to indemnify the indemnified Party.

15. GOVERNING LAW; DISPUTE RESOLUTION

15.1 Governing Law. This Agreement shall be governed by the laws of the State of California as such laws are applied to contracts entered into or to be performed entirely within such state.

15.2 Disputes. The Parties recognize that disputes as to certain matters may from time to time arise which relate to either Party’s rights and obligations hereunder. It is the objective of the Parties to establish procedures to facilitate the resolution of such disputes in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in Section 15.3 if and when such a dispute arises between the Parties.

15.3 Arbitration Procedures.

(a) Discussions Between the Parties. If any claim, dispute, or controversy of any nature arising out of or relating to this Agreement, including, without limitation, any action or claim based on tort, contract or statute, or concerning the interpretation, effect, termination, validity, performance and/or breach of this Agreement, but specifically

40

excluding any claim, dispute or controversy arising with respect to the JSC or a CSC for which the Parties have established a complete dispute resolution mechanism under Sections 2.2 and 2.3, respectively (each, a “Claim”), arises between the Parties and the Parties cannot resolve the dispute within thirty (30) days of a written request by either Party to the other Party, the Parties agree to refer the Claim to the Vice President of Business Development of Genentech and the Chief Executive Officer of Curis, or their respective designees, for resolution. If, after an additional sixty (60) days, such officers or their designees have not succeeded in negotiating a resolution of the dispute, then, upon the written request of either Party, such dispute shall be resolved by final and binding arbitration in accordance with Section 15.3(b).

(b) Arbitration. Claims between the Parties under this Section 15.3(b) shall be finally settled by binding arbitration conducted in the English language in accordance with the Rules of Commercial Arbitration of the American Arbitration Association (“AAA”). The arbitration shall be held in San Francisco, California and shall be conducted by three (3) arbitrators who are knowledgeable in the subject matter at issue in the dispute. One (1) arbitrator will be selected by Curis, one (1) arbitrator will be selected by Genentech, and the third arbitrator will be selected by mutual agreement of the two (2) arbitrators selected by the Parties, provided that if a Party fails to select an arbitrator within thirty (30) days of the request for arbitration, the arbitrator that was to be selected by such Party shall be appointed in accordance with the rules of the AAA. During the period prior to the hearing, each Party shall have the right to conduct up to two (2) depositions and to submit up to twenty (20) document requests to the other Party. The arbitrators may proceed to an award, notwithstanding the failure of either Party to participate in the proceedings. The arbitrators shall, within forty-five (45) calendar days after the conclusion of the arbitration hearing, issue a written award and statement of decision describing the essential findings and conclusions on which the award is based, including the calculation of any damages awarded. The arbitrators shall be authorized to award compensatory damages, but shall NOT be authorized to (i) award non-economic or punitive damages (except to the extent expressly permitted by this Agreement), or (ii) reform, modify or materially change this Agreement or any other agreements contemplated hereunder; provided, however, that the damage limitations described in part (i) of this sentence will not apply if such damages are statutorily imposed. The arbitrators also shall be authorized to grant any temporary, preliminary or permanent equitable remedy or relief that the arbitrators deem just and equitable and within the scope of this Agreement, including, without limitation, an injunction or order for specific performance. The award of the arbitrators shall be the sole and exclusive remedy of the Parties. Judgment on the award rendered by the arbitrators may be enforced in any court having competent jurisdiction thereof, subject only to revocation on grounds of fraud or clear bias on the part of the arbitrators. Notwithstanding anything contained in this Section 15.3(b) to the contrary, each Party shall have the right to institute judicial proceedings against the other Party or anyone acting by, through or under such other Party, in order to enforce the instituting Party’s rights hereunder through specific performance, injunction or similar equitable relief. This Section 15.3(b) shall not apply to any dispute, controversy or claim that concerns (A) the validity, enforceability or infringement of a patent, trademark or copyright; or (B) any antitrust, anti-monopoly or competition law or regulation, whether or not statutory.

(c) Costs and Awards. Each Party shall bear its own attorneys’ fees, costs, and disbursements arising out of the arbitration, and shall pay an equal share of the fees and costs of the arbitrators; provided, however, that the arbitrators shall be authorized to

41

determine whether a party is the prevailing party, and if so, to award to that prevailing party reimbursement for its reasonable attorneys’ fees, costs and disbursements (including, for example, expert witness fees and expenses, photocopy charges and travel expenses), and/or the fees and costs of the arbitrators. Absent the filing of an application to correct or vacate the arbitration award (if permitted by AAA rules), each Party shall fully perform and satisfy the arbitration award within fifteen (15) days of the service of the award.

(d) Waiver and Acknowledgment. By agreeing to this binding arbitration provision, the Parties understand that they are waiving certain rights and protections which may otherwise be available if a Claim between the Parties were determined by litigation in court, including, without limitation, the right to seek or obtain certain types of damages precluded by this provision, the right to a jury trial, certain rights of appeal, and a right to invoke formal rules of procedure and evidence.

16. GENERAL PROVISIONS

16.1 Notices. Any notice to be given under this Agreement must be in writing and delivered either in person, by any method of mail (postage prepaid) requiring return receipt, or by overnight courier or facsimile confirmed thereafter by any of the foregoing, to the Party to be notified at its address(es) given below, or at any address such Party has previously designated by prior written notice to the other. Notice shall be deemed sufficiently given for all purposes upon the earlier of: (a) the date of actual receipt; (b) if mailed, three days after the date of postmark; or (c) if delivered by overnight courier, the next business day the overnight courier regularly makes deliveries.

All notices to Genentech shall be addressed as follows:	Genentech, Inc. 1 DNA Way South San Francisco, CA 94080 Attn: Corporate Secretary Fax: (650) 952-9881
with a copy to:	Genentech, Inc. 1 DNA Way South San Francisco, CA 94080 Attn: Vice President, Business Development Fax: (650) 225-3009
All notices to Curis shall be addressed as follows:	Curis, Inc. 61 Moulton Street Cambridge, Massachusetts 02138 Attn: Chief Executive Officer Fax: (617) 503-6501
with a copy to:	Cooley Godward LLP 4401 Eastgate Mall San Diego, CA 92121 Attn: L. Kay Chandler Fax: (858) 550-6420

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Any Party may, by written notice to the other, designate a new address or fax number to which notices to the Party giving the notice shall thereafter be mailed or faxed.

16.2 Force Majeure. No Party shall be liable for any delay or failure of performance (other than payment obligations) to the extent such delay or failure is caused by circumstances beyond its reasonable control and that by the exercise of due diligence it is unable to prevent, provided that the Party claiming excuse uses its commercially reasonable efforts to overcome the same.

16.3 Entirety of Agreement. This Agreement (including the Research Plan, any and all Co-Development Plans, and the Exhibit and the Schedules hereto) embodies the entire, final and complete agreement and understanding between the Parties and replaces and supersedes all prior discussions and agreements between them with respect to its subject matter, other than the Stock Purchase Agreement and the Registration Rights Agreement referenced therein, which shall continue in full force and effect in accordance with their respective terms. Notwithstanding the foregoing, this Agreement is subject to the terms of the Existing License Agreements, as more fully described herein.

16.4 Amendment. No modification or waiver of any terms or conditions hereof shall be effective unless made in writing and signed by a duly authorized officer of each Party.

16.5 Non-Waiver. The failure of a Party to insist upon strict performance of any provision of this Agreement or to exercise any right arising out of this Agreement shall neither impair that provision or right nor constitute a waiver of that provision or right, in whole or in part, in that instance or in any other instance. Any waiver by a Party of a particular provision or right shall be in writing, shall be as to a particular matter and, if applicable, for a particular period of time and shall be signed by such Party.

16.6 Disclaimer of Agency or Partnership. The Parties are independent contractors and nothing in this Agreement or the performance of the Parties under this Agreement shall constitute (or be deemed to constitute in law or in equity) a partnership, agency, fiduciary, distributorship, employment, or joint venture relationship between the Parties. Neither Party is, or will be deemed to be, the legal representative or agent of the other, nor shall either Party have the right or authority to assume, create, or incur any Third Party liability or obligation of any kind, express or implied, against or in the name of or on behalf of another except as expressly set forth in this Agreement. In addition, neither Party shall be deemed to be a member of a partnership with the other Party for tax or any other purpose.

16.7 Severability. If a court of competent jurisdiction declares any provision of this Agreement invalid or unenforceable, or if any government or other agency having jurisdiction over either Curis or Genentech deems any provision to be contrary to any laws, then that provision shall be severed and the remainder of the Agreement shall continue in full force and effect. To the extent possible, the Parties shall revise such invalidated provision in a manner that will render such provision valid without impairing the Parties’ original intent.

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16.8 Assignment; Acquisition. Except as expressly provided hereunder, neither this Agreement nor any rights or obligations hereunder may be assigned or otherwise transferred by either Party without the prior written consent of the other Party (which consent shall not be unreasonably withheld); provided, however, that either Party may assign this Agreement and its rights and obligations hereunder without the other Party’s consent in connection with the transfer or sale of all or substantially all of the business of such Party to which this Agreement relates to a Third Party, whether by merger, sale of stock, sale of assets or otherwise. In the event of such transaction, however (whether this Agreement is actually assigned or is assumed by the acquiring Party by operation of law (e.g., in the context of a reverse triangular merger), intellectual property rights of the acquiring party to such transaction (if other than one of the Parties to this Agreement) shall not be included in the technology licensed hereunder. The rights and obligations of the Parties under this Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties. Any assignment not in accordance with this Agreement shall be void.

16.9 Headings. The headings contained in this Agreement are inserted for reference only and shall not be deemed a part of the text hereof.

16.10 Limitation of Liability. EXCEPT FOR AMOUNTS PAYABLE UNDER SECTION 4.3 AND ARTICLE 8 AND LIABILITY FOR BREACH OF CONFIDENTIALITY OR FOR INFRINGEMENT OR MISAPPROPRIATION, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES, INCLUDING BUT NOT LIMITED TO LOST PROFITS, ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF THE POSSIBILITY OF SUCH DAMAGES; provided, however, that this Section 16.10 shall not be construed to limit either Party’s indemnification obligations under Article 14.

16.11 Compliance with Laws. In exercising their rights and obligations under this Agreement, the Parties shall comply fully with the requirements of any and all applicable laws, regulations, rules, and orders of any federal, state, or local, whether international or domestic, governmental body having jurisdiction of the exercise of rights under this Agreement.

16.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which shall constitute together the same document.

16.13 Currency. All dollar amounts stated herein are in United States dollars.

16.14 Bankruptcy. All rights and licenses granted under this Agreement will be considered for purposes of Section 365(n) of the Bankruptcy Code, licenses of rights to “intellectual property” as defined under Section 101(56) of the Bankruptcy Code. The Parties agree that a licensee of such rights under this Agreement will retain and may fully exercise all of its rights and elections under the Bankruptcy Code. In the event that a licensor seeks or is

44

involuntarily placed under the protection of the Bankruptcy Code, and the trustee in bankruptcy rejects this Agreement, the licensee hereby elects, pursuant to Section 365(n), to retain all rights granted to it under this Agreement to the extent permitted by law.

16.15 Manufacture in United States. The Parties acknowledge that the Existing License Agreements are subject to Title 35 United States Code Sections 200 through 204. As a result, the Parties agree to take all reasonable action necessary to enable the Existing Licensors to satisfy their obligations to the United States Federal Government in relation thereto.

16.16 Public Disclosure. Neither Party may make any public announcement or issue any press releases disclosing achievement of regulatory, scientific or other milestones regarding the Collaboration without the prior review and written consent of the other Party, provided that Genentech shall not unreasonably withhold or delay its consent to the issuance of a press release disclosing achievement of any milestone event described in Section 8.4. Notwithstanding the foregoing, no disclosure that are required, in the reasonable judgment of a Party, to comply with applicable laws or regulations, no public announcement, news release, public statement or publication relating to the existence of this Agreement, or the terms hereof, will be made without the other Party’s prior written approval, which approval shall not be unreasonably withheld. The Parties agree that they will use reasonable efforts to coordinate the initial announcement or press release relating to the existence of this Agreement so that such initial announcement or press release is made within ten (10) days of the Effective Date.

16.17 Export. The Parties agree not to export, directly or indirectly, any U.S. source technical data acquired from the other Party or any products utilizing such data to countries outside the United States, which export may be in violation of the United States export laws or regulations.

[Remainder of this page intentionally left blank.]

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IN WITNESS WHEREOF, the Parties hereto have duly executed this COLLABORATIVE RESEARCH, DEVELOPMENT AND LICENSE Agreement.

GENENTECH, INC.		CURIS, INC.
By:	/s/ Joseph S. McCracken	By:	/s/ Daniel R. Passeri
Name:	Joseph S. McCracken	Name:	Daniel R. Passeri
Title:	Vice President, Business and Commercial Development	Title:	President and Chief Executive Officer

EXHIBIT A

Stock Purchase Agreement

[Filed separately as Exhibit 10.2 to the Company’s Current Report on Form 8-K

filed on July 10, 2003.]

SCHEDULE 1.24

Curis Patents as of the Effective Date

Application Number	Country	Filing Date	Patent Number	Issue Date
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]

Application Number	Country	Filing Date	Patent Number	Issue Date
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]

Application Number	Country	Filing Date	Patent Number	Issue Date
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]

Application Number	Country	Filing Date	Patent Number	Issue Date
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]

SCHEDULE 1.31

Existing Genentech Patents

U.S. Patent Number	Title
[**]	[**]
[**]	[**]
[**]	[**]
[**]	[**]
[**]	[**]
[**]	[**]
[**]	[**]
[**]	[**]

SCHEDULE 3.2

Lead Product Criteria

1. Demonstration of [**]; or

2. Demonstration of [**].

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SCHEDULE 4.2

Calculation of Operating Profits (Losses)

The Co-Development Plan for a Collaboration Product shall reflect sharing by the Parties of Operating Profits (Losses) with respect to such Collaboration Product in accordance with the Cost Sharing Ratio for such Collaboration Product.

The “Operating Profits (Losses)” for each Collaboration Product will be equal to: (i) Net Sales of such Collaboration Product and Sublicensing Revenues (as defined below), less (ii) Allowable Expenses (as defined below), as more fully described below. All calculations hereunder will be made using, and all defined and undefined terms will be construed in accordance with, U.S. generally accepted accounting principles, consistently applied, and consistent with generally accepted costing methods (including appropriate Allocable Overhead) for similar products in the pharmaceutical industry. Without limiting the foregoing, no cost item will be included more than once in calculating Operating Profits (Losses). In addition, neither Party will be entitled to include in Operating Profits (Losses) any expense incurred by or on behalf of such Party that was in excess of the most recently approved Co-Development Budget, unless such excess amounts were pre-approved or are approved in writing by both Parties.

Frequency of Reporting.

The fiscal year will be a calendar year. Reporting by each Party for revenues and expenses will be performed as follows:

Reporting Event	Frequency	Timing of Submission
Actuals (including draft settlement statements)	Quarterly	Q1-Q3:	+45 days
		Q4:	+45 days
Forecasts (rest of year - by month)	Quarterly	Q1-Q3	+60 days
Settlement payments between the Parties	Quarterly	Quarter end	+60 days
Preliminary budgets (one year)	Annually	September 15
Final combined commercial and development budget (one year - by quarter)	Annually	October 15
Long Range Plan (current year plus 5 years)	Annually	April 15

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Reports of actual results compared to budget will be made by the Parties to the CSC on a quarterly basis. Variances from the total overall budgets, and significant variances in budget line items for costs or revenue line items, will be included in the calculation of Operating Profits and Losses only when approved by the CSC.

Genentech will be responsible for the preparation of consolidated reporting of the Collaboration (including Development Costs and any Operating Profit or Loss), calculation of the sharing and initial determination of the cash settlement (subject to approval by the CSC). Within forty-five (45) days of each quarter end, Genentech will provide the financial representatives from each Party with a statement showing the consolidated results and calculations of the Operating Profit or Loss sharing (or calculation of expenses to be shared) and cash settlement required in a format substantially as depicted above.

Genentech shall record sales in the United States. On a monthly basis, Genentech will supply Curis with each month’s gross sales and Net Sales of Collaboration Products in units and U.S. dollars in the United States. Each such report shall be provided as early as possible, but no later than ten (10) days after the last day of the month in question, and shall provide monthly and year-to-date cumulative figures.

The financial representatives from the Parties will meet as appropriate but at least quarterly to review and approve the following:

• Development Costs

• Costs of Products Sold

• Selling and Marketing expenses

• actual results

• forecasts

• budgets

• inventory levels

• sales returns and allowances

• other financial matters, including each Party’s methodologies for charging costs to the collaboration, for determination of actuals, forecasts, budgets and long range plans and the results of applying such methodologies.

Co-Development Budgets.

Co-Development Budgets will be prepared annually by the Parties.

Co-Development Budgets under this Schedule 4.2 will be supplemented with detailed plans for U.S. clinical trials and drug approval applications as determined by the Parties in accordance with the Agreement. Co-Development Budgets, once approved by the CSC, can only be changed with the approval of the CSC.

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The financial representatives of each Party will be responsible for identifying, analyzing and reporting all significant line item budget variances and all overall, total budget variances. Except as provided otherwise in the Agreement, only the CSC may approve materially unfavorable line item budget variations, and all total budget variations, chargeable to the collaboration during the course of the year.

Payments between the Parties.

Payments to each Party of the agreed upon percentages of Operating Profit or Loss as provided under the applicable Cost Sharing Ratio will be made quarterly, based on actual results within sixty (60) days after the end of each quarter. A report, as approved by the CSC, specifying how each payment was calculated shall also be submitted with each payment to both Parties. Balancing payments by one Party to reimburse the other Party for purposes of the sharing of Operating Loss, including Development Costs, under the Agreement will be approved by the CSC and shall be made within sixty (60) days of receipt of the approved CSC report. In the event any payment is made after the time period specified herein, the paying Party shall increase the amount otherwise due and payable by adding interest thereon, computed at the Prime Rate plus two percent (2%). Genentech will perform the consolidation and settlement calculations for submission to the CSC.

Responsibility for Reporting.

The responsibility for the consolidated reporting of the collaboration to the CSC shall be with Genentech in close cooperation with Curis and the financial representatives of the Parties. This will be the basis for collaboration accounting and determining of payments to the Parties. Genentech shall provide Curis with a copy of the collaboration consolidated reporting and the calculation serving as the basis of determining payments to the Parties. Curis will provide Genentech with financial statements within thirty (30) days after the end of the quarter for its activities in the United States, prepared in accordance with the terms contained in this Schedule 4.2 in order for Genentech to prepare the consolidated reports.

Each Party will keep and maintain complete and accurate records pertaining to Net Sales of Collaboration Products, Sublicensing Revenues and Allowable Expenses in sufficient detail to permit the other Party to confirm the accuracy of the Operating Profits (Losses) subject to sharing by the Parties hereunder. Such records shall be retained for at least three (3) years, and no fiscal year may be audited more than once. Each Party shall have the right, upon reasonable prior written notice to the other Party and no more than once per calendar year, to have an independent certified public accountant reasonably acceptable to the other Party inspect the books and records of the other Party, its Affiliates and sublicensees, during usual business hours for the sole purpose of verifying the accuracy of the Net Sales of Collaboration Products, Sublicensing Revenues and Allowable Expenses reported by the audited Party hereunder. Such examination with respect to any fiscal year shall not take place later than three (3) years following the end of such fiscal year. The accountant shall inform the auditing Party only if there has been an inaccuracy in such reporting, and if so, the amount thereof and whether the

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books and records have been kept in a manner consistent with good accounting practices. The expense of any such inspection shall be borne by the auditing Party; provided, however, that, if the inspection discloses an underreporting of Net Sales or Sublicensing Revenues, or an overreporting of Allowable Expenses, in each case that is in excess of five percent (5%) of Operating Profits (Losses) (in aggregate over no less than a twelve (12) month period), then the audited Party shall pay the out-of-pocket costs of such audit. The Parties will make prompt adjustments to reflect the results of such audit.

1. “Allocable Overhead” shall mean the costs incurred by a Party or for its account which are attributable to a Party’s supervisory services, occupancy costs, payroll and its payroll, information systems, human relations or purchasing functions and which are allocated to company departments based on space occupied or headcount or other activity-based method consistently applied by a Party, or a standard rate if agreed to by the Parties. Allocable Overhead shall not include any costs attributable to general corporate activities, including, by way of example, executive management, investor relations, business development, legal affairs and finance, and shall not duplicate General & Administrative Expenses hereunder.

2. “Allowable Expenses” shall mean the following expenses to the extent incurred with respect to such Collaboration Product: (i) Development Costs; (ii) Cost of Products Sold; (iii) Selling and Marketing Expenses; and (iv) General & Administrative Costs.

3. “Cost of Goods” shall mean, with respect to any bulk Collaboration Product or finished Collaboration Product, but subject to the last sentence of this paragraph 2, the actual fully allocated cost of manufacturing such Collaboration Product (in accordance with cGMP’s) determined in accordance with U.S. generally accepted accounting principles applied consistently throughout the organization of a Party or its Affiliate(s) or sublicensee(s) determining such costs, which includes the direct and indirect cost of any raw materials, packaging materials and labor (including benefits) utilized in such manufacturing (including formulation, filling, finishing, quality assurance, quality control and stability testing, labeling and packaging, as applicable), plus an appropriate share of all factory overhead, both fixed and variable, allocated to the Collaboration Product being manufactured, in accordance with the normal accounting practices for all other products manufactured in the applicable facility. “Cost of Goods” shall exclude any allocation of cost related to idle capacity, unless such excess capacity is specifically reserved for Collaboration Product.

4. “Cost of Products Sold” shall mean the actual cost of bulk Collaboration Products or finished Collaboration Products sold, determined in accordance with U.S. generally accepted accounting principles applied consistently within and throughout all operating units of a Party. “Cost of Products Sold” shall include: (i) in the case of manufacturing services provided by a Party or its Affiliate(s) or sublicensee(s), its Cost of Goods of such bulk Collaboration Products or finished Collaboration Products, (ii) the net cost or credit of any value-added taxes actually paid or utilized by a Party or its Affiliate(s) or sublicensee(s) in respect of the manufacture of the bulk Collaboration Products or finished Collaboration Products, (iii) in the

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case of finished Collaboration Products or bulk Collaboration Products acquired by a Party or its Affiliate(s) or sublicensee(s) from a Third Party, payments made to such Third Party for such acquisition, including the net cost or credit of any value-added taxes actually paid or utilized by the purchaser in respect of such acquisition of such finished products or bulk products, plus reasonable expenses of quality assurance, quality control and transportation of Collaboration Product, and (iv) royalties or other compensation payable to a Third Party with respect to a license under Patents of such Third Party necessary for the manufacture, use, sale, offer for sale or import of Collaboration Products (other than royalties due under the Existing License Agreements).

5. “Development Costs” means costs (including Allocable Overhead directly attributable to the development of such Collaboration Product but excluding other overhead) actually incurred by a Party or for its account after designation of such Collaboration Product and specifically attributable to the development of such Collaboration Product in the Co-Development Territory for use in the BCC Field or Hair Growth Prevention Field, as applicable,. Development Costs will include, but not be limited to: (a) costs of research and development, including costs of studies on the toxicological, pharmacokinetic, metabolic or clinical aspects of such Collaboration Product conducted internally or by individual investigators or consultants; (b) Cost of Goods for Collaboration Product for use in clinical trials in the BCC Field or Hair Growth Prevention Field, as applicable, in the Co-Development Territory; (c) costs of preparing and reviewing data or information for the purpose of submission to the FDA for Regulatory Approval in the BCC Field or Hair Growth Prevention Field, as applicable; (d) fees associated with U.S. regulatory filings or other U.S. governmental requirements related to the Collaboration Product in the BCC Field or Hair Growth Prevention Field, as applicable; and (e) applicable Allocable Overhead, including expenses for data management, statistical designs and studies, document preparation, and other administration expenses associated with clinical testing programs.

6. “Selling and Marketing Expenses” shall mean the costs incurred by Genentech or for its account attributable to the sale, promotion and marketing of Collaboration Product in the Co-Development Territory from and after commercial launch of such Collaboration Product in the Co-Development Territory and shall consist of Selling Expenses, Marketing Management Expenses, Market and Consumer Research Expenses, Advertising Expenses, Professional Promotion Expenses, Education Expenses, Trademark Expenses, each as defined below; provided, however, that to the extent the activities giving rise to any item of Selling and Marketing Expenses relate to, or are conducted for the benefit of, multiple products and/or services and one or more of such products and/or services are not Collaboration Products, then such item of expense shall be allocated on a pro rata basis among such Collaboration Product(s) and other product(s) and/or service(s) based upon net sales of each respective product or service by such operating unit during the most recent quarter:

a) “Selling Expenses” shall include the following costs directly associated with the efforts of field sales representatives with respect to Collaboration Products: field

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sales force (including training expenses directly related to the Collaboration Product); field sales offices; reimbursement (public payors, private payors and others); customer support; home offices; staffs directly involved in the management of and the performance of the selling functions; and payments to Third Parties under contract sales and marketing agreements. The costs of detailing sales calls will be allocated on a weighted average basis based on the proportionate time and effort given to the detailing of Collaboration Products versus product other than a Collaboration Product at an accounting charge rate consistently applied within and across Genentech’s, its Affiliate’s or a Third Party’s operating units and which is no less favorable than the internal charge rate used by Genentech or such Affiliate or Third Party for its own internal cost accounting purposes for products other than a Collaboration Product (excluding internal profit margins and markups).

b) “Marketing Management Expenses” shall include product management and sales promotion management compensation and departmental expenses. This will include, but not be limited to, costs associated with developing overall sales and marketing strategies (e.g., product line or customer segment), including marketing strategies for managed care providers, as well as planning and programs for Collaboration Products.

c) “Market and Consumer Research Expenses” shall include compensation and departmental expenses for market and consumer research personnel and payments to Third Parties related to conducting and monitoring professional and consumer appraisals of existing, new or proposed Collaboration Products, such as market share services (e.g., IMS data), special research testing and focus groups.

d) “Advertising Expenses” shall include all media costs associated with Collaboration Product advertising as follows (whether to professionals, patients or lay consumers): production expense/artwork including set up; design and art work for an advertisement; the cost of securing print space, air time, etc. in newspapers, magazines, trade journals, television, radio, billboards, web sites, etc.

e) “Professional Promotion Expenses” shall include the expenses associated with programs to promote a Collaboration Product directly to the prescriber or end user. This category will include, but not be limited to, expenses associated with promoting Collaboration Products directly to the professional community such as professional samples, professional literature, promotional material costs, patient aids and detailing aids.

f) “Education Expenses” shall include expenses associated with professional education with respect to a Collaboration Product through any means not covered above, including, but not limited to, articles appearing in journals, newspapers, magazines or other media; seminars, scientific exhibits, trade show booths, financial support to professional societies and conventions; and symposia, advisory boards and opinion leader development activities.

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g) “Trademark Expenses” shall mean the fees and expenses paid to outside legal counsel and experts, and filing and maintenance expenses, incurred to establish and maintain trademarks for a Collaboration Product (other than any trademark incorporating or based on a Party’s corporate name or logo).

h) “Distribution Expenses” shall mean the costs, including applicable Allocable Overhead, specifically identifiable to the distribution of a Collaboration Product, including customer services, collection of data about sales to hospitals and other end users, order entry, billing, credit and collection and other such activities.

7. “General & Administrative Expenses” shall mean an amount intended to cover a Party’s general and administrative costs chargeable to the Collaboration, which shall be an amount equal to [**] percent ([**]%) of the sum of Development Costs, Cost of Products Sold, and Selling and Marketing Expenses.

8. “Sublicensing Revenues” shall mean all license fees, milestone payments, royalties, annual maintenance fee or similar payment or consideration paid by a sublicensee to Genentech or its Affiliates solely in consideration for the grant by Genentech or its Affiliates of a sublicense to develop, manufacture and/or commercialize any Collaboration Product (with any of the foregoing consideration received by Genentech or its Affiliates other than in the form of cash to be valued at its fair market value as of the date of receipt); provided, however, that “Sublicensing Revenues” shall in any event exclude payments for equity or debt securities of Genentech or its Affiliates (at its fair market value upon date of receipt) and reasonable payments tied to the provision of goods and/or services by Genentech or its Affiliates to a sublicensee to compensate Genentech or its Affiliates for the provision of such goods and/or services.

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Daniel R. Passeri, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Curis, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2012

/s/ DANIEL R. PASSERI

Daniel R. Passeri

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Michael P. Gray, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Curis, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2012

/s/ MICHAEL P. GRAY

Michael P. Gray

Chief Operating Officer and

Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Curis, Inc. (the “Company”) for the period ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Daniel R. Passeri, President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 6, 2012

/s/ DANIEL R. PASSERI

Daniel R. Passeri

President and Chief Executive Officer

(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Curis, Inc. (the “Company”) for the period ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Michael P. Gray, Vice President of Finance and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 6, 2012

/s/ MICHAEL P. GRAY

Michael P. Gray

Chief Operating Officer and

Chief Financial Officer

(Principal Financial and Accounting Officer)

XML

Accounting for Stock-Based Compensation (Details 2) (USD $)	9 Months Ended
	Sep. 30, 2012
Accounting for Stock-Based Compensation (Options Outstanding And Exercisable)
Options Outstanding, Number of Shares	10,495,636
Options Outstanding, Weighted Average Remaining Contractual Life (in years)	5 years 3 months 26 days
Options Outstanding, Weighted Average Exercise Price per Share	$ 2.59
Options Exercisable, Number of Shares	7,790,705
Options Exercisable, Weighted Average Exercise Price per Share	$ 2.25
$0.79 - $1.39 [Member]
Accounting for Stock-Based Compensation (Options Outstanding And Exercisable)
Options Outstanding, Number of Shares	2,571,622
Options Outstanding, Weighted Average Remaining Contractual Life (in years)	4 years 11 months 16 days
Options Outstanding, Weighted Average Exercise Price per Share	$ 1.19
Options Exercisable, Number of Shares	2,465,681
Options Exercisable, Weighted Average Exercise Price per Share	$ 1.19
1.43 - 2.15 [Member]
Accounting for Stock-Based Compensation (Options Outstanding And Exercisable)
Options Outstanding, Number of Shares	2,605,168
Options Outstanding, Weighted Average Remaining Contractual Life (in years)	5 years 3 months 26 days
Options Outstanding, Weighted Average Exercise Price per Share	$ 1.73
Options Exercisable, Number of Shares	2,106,038
Options Exercisable, Weighted Average Exercise Price per Share	$ 1.63
2.27 - 3.76 [Member]
Accounting for Stock-Based Compensation (Options Outstanding And Exercisable)
Options Outstanding, Number of Shares	2,414,232
Options Outstanding, Weighted Average Remaining Contractual Life (in years)	4 years 9 months
Options Outstanding, Weighted Average Exercise Price per Share	$ 2.75
Options Exercisable, Number of Shares	1,631,041
Options Exercisable, Weighted Average Exercise Price per Share	$ 2.53
3.98 - 4.52 [Member]
Accounting for Stock-Based Compensation (Options Outstanding And Exercisable)
Options Outstanding, Number of Shares	2,184,614
Options Outstanding, Weighted Average Remaining Contractual Life (in years)	7 years 7 months 2 days
Options Outstanding, Weighted Average Exercise Price per Share	$ 4.38
Options Exercisable, Number of Shares	875,945
Options Exercisable, Weighted Average Exercise Price per Share	$ 4.18
4.56 - 5.60 [Member]
Accounting for Stock-Based Compensation (Options Outstanding And Exercisable)
Options Outstanding, Number of Shares	720,000
Options Outstanding, Weighted Average Remaining Contractual Life (in years)	1 year 7 months 13 days
Options Outstanding, Weighted Average Exercise Price per Share	$ 4.74
Options Exercisable, Number of Shares	712,000
Options Exercisable, Weighted Average Exercise Price per Share	$ 4.74

XML

Fair Value Measurements (Details 1) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Fair Value of Warrant Liability
Balance Beginning			$ 4,361,168	$ 1,604,742
Change in fair value of warrant liability	(1,541,779)	(587,184)	(1,054,379)	1,234,666
Change in fair value			(615,859)
Balance Ending	$ 2,690,930	$ 2,839,408	$ 2,690,930	$ 2,839,408

XML

Revenue Recognition

9 Months Ended

Sep. 30, 2012

Revenue Recognition [Abstract]

Revenue Recognition

3. Revenue Recognition

The Company’s business strategy includes entering into collaborative license and development agreements with biotechnology and pharmaceutical companies for the development and commercialization of the Company’s product candidates. The terms of these agreements may provide for the Company’s licensees and collaborators to agree to make non-refundable license fee payments, research and development funding payments, contingent cash payments based upon achievement of clinical development and regulatory objectives, and royalties on product sales if any products are successfully commercialized. For a complete discussion of the Company’s revenue recognition policy, see Note 2(c) included in its annual report on Form 10-K, as previously filed with the Securities and Exchange Commission on February 29, 2012.

XML

Accrued Liabilities (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Accrued liabilities
Accrued compensation	$ 953,248	$ 1,065,570
Professional fees	187,750	190,500
Other	149,857	166,037
Total	$ 1,290,855	$ 1,422,107

XML

Common Stock and Warrant Liability (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Dec. 31, 2010	Jan. 27, 2010
Common Stock and Warrant Liability (Textual) [Abstract]
Estimated risk-free interest rate			0.30%
Aggregate number of shares of stock available to purchase using warrants	1,612,322		1,612,322
Shares of common stock	80,998,363		80,998,363		78,165,360
ATM agreement resulting in gross proceeds	$ 809,984		$ 809,984		$ 781,654
Total offering expenses, including MLVs commission			27,356	123,374
Common Stock and Warrant Liability (Additional Textual) [Abstract]
Issuance of registered direct offering, units							6,449,288
Registered direct offering, no. of common stock per units							1
Registered direct offering, no. of warrants per units							1
Direct offering purchase price per unit							2.52
Proceeds from registered direct offering of units, net of issuance costs			14,942,000
Warrants exercised	238,805		238,805
Exercise price of warrants	3.55		3.55
Term of warrants, years			5 years
Fair value of warrants	2,690,930	2,839,408	2,690,930	2,839,408	4,361,168	1,604,742
Expected volatility			74.00%	80.00%
Expected lives of warrants, years			2 years 3 months 18 days	3 years
Change in fair value of warrant liability	1,541,779	587,184	1,054,379	(1,234,666)
Change in warrants liability			615,859
Common stock, par value	$ 0.01		$ 0.01		$ 0.01
Minimum [Member]
Common Stock and Warrant Liability (Textual) [Abstract]
Estimated risk-free interest rate				0.40%
Maximum [Member]
Common Stock and Warrant Liability (Textual) [Abstract]
Estimated risk-free interest rate				0.50%
Warrants [Member]
Common Stock and Warrant Liability (Textual) [Abstract]
Value of warrant in terms of percentage of stock							0.25
Aggregate number of shares of stock available to purchase using warrants	237,301		237,301
Market Issuance Sales Agreement [Member]
Common Stock and Warrant Liability (Textual) [Abstract]
Common stock aggregate offering price			20,000,000
Common stock commission as percentage of gross sale price per share sold			3.00%
Shares of common stock		65,527		65,527
ATM agreement resulting in gross proceeds		262,447		262,447
Total offering expenses, including MLVs commission				$ 123,374

XML

Related Party Transaction (Details) (USD $)	9 Months Ended
	Sep. 30, 2012
Related Party Transaction (Textual) [Abstract]
Maximum Financial Support to GBMT	$ 400,000
Severance Agreement	The severance agreement provides that Dr. Qian, in exchange for his execution and nonrevocation of a general release of claims in favor of the Company as set forth in the severance agreement, will be provided certain severance benefits, including a lump-sum payment equivalent to one-half times his base annual salary rate in effect as of his termination date to be paid out in August 2012.
Accrued liabilities	$ 137,500

XML

Accounting for Stock-Based Compensation (Details)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Accounting For Stock-Based Compensation (Black-Scholes Option Pricing Model)
Expected term (years)	6 years	6 years
Minimum risk-free interest rate	1.00%	1.20%
Maximum risk-free interest rate	1.20%	2.50%
Minimum volatility	74.00%	73.00%
Maximum volatility	76.00%	75.00%
Dividends
Director [Member]
Accounting For Stock-Based Compensation (Black-Scholes Option Pricing Model)
Expected term (years)	6 years	6 years

XML

Basis of Presentation

9 Months Ended

Sep. 30, 2012

Basis of Presentation [Abstract]

Basis of Presentation

2. Basis of Presentation

The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. These statements, however, are condensed and do not include all disclosures required by generally accepted accounting principles, or GAAP, in the U.S. for complete financial statements and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission on February 29, 2012.

In the opinion of the Company, the unaudited financial statements contain all adjustments (all of which were considered normal and recurring) necessary for a fair statement of the Company’s financial position at September 30, 2012 and the results of operations and cash flows for the nine-month periods ended September 30, 2012 and 2011. The preparation of the Company’s Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosure of certain assets and liabilities at the balance sheet date. Such estimates include revenue recognition, the collectability of receivables, the carrying value of property and equipment and intangible assets, management assumptions used in its calculations of stock-based compensation expense, and the value of certain investments and liabilities, including the value of its warrant liability. Actual results may differ from such estimates.

These interim results are not necessarily indicative of results to be expected for a full year or subsequent interim periods.

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Accounting for Stock-Based Compensation (Details 1) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Accounting for Stock-Based Compensation (Stock Based Compensation Expense)
Total stock-based compensation expense	$ 807,894	$ 311,941	$ 2,838,311	$ 1,351,500
Research and Development Expense [Member]
Accounting for Stock-Based Compensation (Stock Based Compensation Expense)
Total stock-based compensation expense	158,638	134,816	923,648	478,676
General and Administrative Expense [Member]
Accounting for Stock-Based Compensation (Stock Based Compensation Expense)
Total stock-based compensation expense	$ 649,256	$ 177,125	$ 1,914,663	$ 872,824

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Condensed Consolidated Balance Sheets (Unaudited) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Current Assets:
Cash and cash equivalents	$ 7,809,408	$ 15,119,730
Investments	33,325,782	22,597,845
Accounts receivable	548,392	42,067
Prepaid expense and other current assets	498,067	743,799
Total current assets	42,181,649	38,503,441
Property and equipment, net	461,591	455,730
Long-term investments	751,960
Long-term investment - restricted	194,282	235,914
Goodwill	8,982,000	8,982,000
Other assets	2,980	2,980
Total assets	52,574,462	48,180,065
Current Liabilities:
Accounts payable	2,690,855	2,364,437
Accrued liabilities	1,290,855	1,422,107
Total current liabilities	3,981,710	3,786,544
Warrants	2,690,930	4,361,168
Other long-term liabilities	186,312	156,396
Total liabilities	6,858,952	8,304,108
Commitments
Stockholders' Equity:
Common stock, $0.01 par value 125,000,000 shares authorized; 80,998,363 shares issued and 79,950,656 shares outstanding at Sep 30, 2012; and 78,165,360 shares issued and 77,117,653 shares outstanding at December 31, 2011	809,984	781,654
Additional paid-in capital	781,906,444	772,039,254
Treasury stock (at cost, 1,047,707 shares)	(891,274)	(891,274)
Accumulated deficit	(736,133,361)	(732,087,642)
Accumulated other comprehensive income	23,717	33,965
Total stockholders' equity	45,715,510	39,875,957
Total liabilities and stockholders' equity	$ 52,574,462	$ 48,180,065

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Condensed Consolidated Statements of Cash Flows (Parenthetical) (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Condensed Consolidated Statements of Cash Flows [Abstract]
Common stock at market cost issuance	$ 27,356	$ 123,374

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Loss Per Common Share (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Income (Loss) Per Common Share Antidilutive Securities - Stock Options And Warrants
Total antidilutive securities	11,868,951	13,095,932	11,868,951	13,095,932
Stock options outstanding [Member]
Income (Loss) Per Common Share Antidilutive Securities - Stock Options And Warrants
Total antidilutive securities	10,495,636	11,485,114	10,495,636	11,485,114
Warrants outstanding [Member]
Income (Loss) Per Common Share Antidilutive Securities - Stock Options And Warrants
Total antidilutive securities	1,373,315	1,610,818	1,373,315	1,610,818

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Loss Per Common Share (Tables)

9 Months Ended

Sep. 30, 2012

Loss Per Common Share [Abstract]

Antidilutive Securities - Stock Options and Warrants

Antidilutive securities consist of stock options and warrants outstanding as of the respective reporting period as follows:

	For the three and nine months ended September 30, 2012		For the three and nine months ended September 30, 2011
Stock options outstanding		10,495,636		11,485,114
Warrants outstanding		1,373,315		1,610,818
Total antidilutive securities		11,868,951		13,095,932

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Fair Value Measurements (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Dec. 31, 2010
Financial Assets Measured at Fair Value on Recurring Basis
Warrants	$ 2,690,930	$ 4,361,168	$ 2,839,408	$ 1,604,742
Total liabilities at fair value	2,690,930	4,361,168
Fair Value Measurements Recurring [Member]
Financial Assets Measured at Fair Value on Recurring Basis
Total assets at fair value	38,597,229	30,339,592
Warrants	2,690,930	4,361,168
Fair Value Measurements Recurring [Member] | Cash Equivalents [Member]
Financial Assets Measured at Fair Value on Recurring Basis
Money market funds	2,694,487	5,366,747
Municipal bonds	1,825,000	2,375,000
Fair Value Measurements Recurring [Member] | Investments [Member]
Financial Assets Measured at Fair Value on Recurring Basis
Corporate commercial paper, stock, bonds and notes	33,325,782	18,789,141
US government obligations	751,960	3,808,704
Quoted Prices In Active Markets (Level 1) [Member] | Fair Value Measurements Recurring [Member]
Financial Assets Measured at Fair Value on Recurring Basis
Total assets at fair value	11,696,152	15,107,588
Quoted Prices In Active Markets (Level 1) [Member] | Fair Value Measurements Recurring [Member] | Cash Equivalents [Member]
Financial Assets Measured at Fair Value on Recurring Basis
Money market funds	2,694,487	5,366,747
Municipal bonds		2,375,000
Quoted Prices In Active Markets (Level 1) [Member] | Fair Value Measurements Recurring [Member] | Investments [Member]
Financial Assets Measured at Fair Value on Recurring Basis
Corporate commercial paper, stock, bonds and notes	9,001,665	7,365,841
Other Observable Inputs (Level 2) [Member] | Fair Value Measurements Recurring [Member]
Financial Assets Measured at Fair Value on Recurring Basis
Total assets at fair value	26,901,077	15,232,004
Other Observable Inputs (Level 2) [Member] | Fair Value Measurements Recurring [Member] | Cash Equivalents [Member]
Financial Assets Measured at Fair Value on Recurring Basis
Municipal bonds	1,825,000
Other Observable Inputs (Level 2) [Member] | Fair Value Measurements Recurring [Member] | Investments [Member]
Financial Assets Measured at Fair Value on Recurring Basis
Corporate commercial paper, stock, bonds and notes	24,324,117	11,423,300
US government obligations	751,960	3,808,704
Unobservable Inputs (Level 3) [Member]
Financial Assets Measured at Fair Value on Recurring Basis
Total liabilities at fair value	2,690,930	4,361,168
Unobservable Inputs (Level 3) [Member] | Fair Value Measurements Recurring [Member]
Financial Assets Measured at Fair Value on Recurring Basis
Warrants	$ 2,690,930	$ 4,361,168

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Nature of Business

9 Months Ended

Sep. 30, 2012

Nature of Business [Abstract]

Nature of Business

1. Nature of Business

Curis, Inc. (the “Company” or “Curis”) is a drug discovery and development company that is committed to leveraging its innovative signaling pathway drug technologies in seeking to develop next generation network-targeted cancer therapies. Curis is building upon its past experiences in targeting signaling pathways, including the Hedgehog signaling pathway, in its efforts to develop network-targeted cancer therapies. Curis conducts research and development programs both internally and through strategic collaborations.

The Company operates in a single reportable segment, which is the research and development of innovative cancer therapeutics. The Company expects that any successful products would be used in the health care industry and would be regulated in the United States, or the U.S., by the U.S. Food and Drug Administration, or FDA, and in overseas markets by similar regulatory agencies. In January 2012, the FDA approved the Erivedge™ capsule for the treatment of adults with basal cell carcinoma, or BCC, that has spread to other parts of the body or that has come back after surgery or that their healthcare provider decides cannot be treated with surgery or radiation. Erivedge is being developed and commercialized by F. Hoffmann-La Roche Ltd, or Roche, and Genentech Inc., or Genentech, a member of the Roche Group, under a collaboration agreement between the Company and Genentech (see Note 4).

The Company is subject to risks common to companies in the biotechnology industry as well as risk factors that are specific to the Company’s business, including, but not limited to: the Company’s reliance on Genentech and Roche to successfully commercialize Erivedge in the U.S. market and to seek approval for Erivedge in territories outside of the U.S. in the lead indication of advanced BCC; the Company’s ability to advance its research and development programs, including those programs developed directly by the Company and those that are being developed by its collaborators and licensees; the potential for the Company to expand its research and development programs, either through internal discovery or through the licensing or acquisition of third-party programs; the Company’s ability to obtain adequate financing to fund its operations; its ability to obtain and maintain intellectual property protection for its proprietary technology; development by its competitors of new or better technological innovations; dependence on key personnel and the Company’s ability to attract and retain such key personnel; ; its ability to comply with FDA regulations and approval requirements; and its ability to execute on its overall business strategies.

The Company’s future operating results will largely depend on the magnitude of payments from its current and potential future corporate collaborators and the progress of drug candidates currently in its research and development pipeline. The results of the Company’s operations will vary significantly from year to year and quarter to quarter and depend on, a number of factors, including, but not limited to: Genentech’s ability to successfully scale-up the commercialization of Erivedge in advanced BCC in the U.S.; Genentech’s and/or Roche’s receipt of approval to commercialize Erivedge in advanced BCC in Europe and other territories as well as its ability to successfully launch and commercialize Erivedge in these markets; positive results in Genentech’s ongoing phase II clinical trial in patients with operable BCC; the timing, outcome and cost of the Company’s planned clinical trials for CUDC-101, CUDC-907 and other potential research and development programs; and the Company’s ability to successfully enter into one or more material licenses or collaboration agreements for its proprietary drug candidates.

The Company anticipates that existing capital resources at September 30, 2012 should enable the Company to maintain its current and planned operations into the first half of 2014. The Company’s ability to continue funding its planned operations into and beyond the first half of 2014 is dependent upon, among other things, the success of its collaborations with Genentech, including its receipt of meaningful royalty revenue for sales of Erivedge, and Debiopharm S.A., or Debiopharm, and receipt of additional cash payments under these collaborations, its ability to control expenses and its ability to raise additional funds through equity or debt financings, new collaborations or other sources of financing. The Company may not be able to successfully enter into or continue any corporate collaborations and the timing, amount and likelihood of the Company receiving payments under such collaborations is highly uncertain. As a result, the Company may not be able to attain any further revenue under any collaborations or licensing arrangements. If the Company is unable to obtain adequate financing, the Company may be required to reduce or delay spending on its research and/or development programs.

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Condensed Consolidated Balance Sheets (Parenthetical) (Unaudited) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Condensed Consolidated Balance Sheets [Abstract]
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	125,000,000	125,000,000
Common stock, shares issued	80,998,363	78,165,360
Common stock, shares outstanding	79,950,656	77,117,653
Treasury stock, at cost	1,047,707	1,047,707

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Loss Per Common Share

9 Months Ended

Sep. 30, 2012

Loss Per Common Share [Abstract]

Loss Per Common Share

11. Loss Per Common Share

The Company applies ASC Topic 260 - Earnings per Share, which establishes standards for computing and presenting earnings per share. Basic and diluted loss per common share is computed using the weighted-average number of shares outstanding during the period. Diluted net loss per common share is the same as basic net loss per common share for the three and nine months ended September 30, 2012 and 2011, as the effect of the potential common stock equivalents is antidilutive due to the Company’s net loss position for these periods. Antidilutive securities consist of stock options and warrants outstanding as of the respective reporting period as follows:

	For the three and nine months ended September 30, 2012		For the three and nine months ended September 30, 2011
Stock options outstanding		10,495,636		11,485,114
Warrants outstanding		1,373,315		1,610,818
Total antidilutive securities		11,868,951		13,095,932

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Oct. 30, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	CURIS INC
Entity Central Index Key	0001108205
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		79,960,906

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value Measurements [Abstract]

Financial Assets Measured at Fair Value on Recurring Basis

	Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Fair Value
As of September 30, 2012:
Cash equivalents
Money market funds	$	2,694,487	$	—	$	—	$	2,694,487
Municipal bonds		—		1,825,000		—		1,825,000
Short- and long-term investments
Corporate commercial paper, bonds and notes		9,001,665		24,324,117		—		33,325,782
US government obligations		—		751,960		—		751,960
Total assets at fair value	$	11,696,152	$	26,901,077	$	—	$	38,597,229
Warrants		—		—		2,690,930		2,690,930
Total liabilities at fair value	$	—	$	—	$	2,690,930	$	2,690,930
As of December 31, 2011:
Cash equivalents
Money market funds	$	5,366,747	$	—	$	—	$	5,366,747
Municipal bonds		2,375,000		—		—		2,375,000
Short-term investments
US government obligations		—		3,808,704		—		3,808,704
Corporate commercial paper, stock, bonds and notes		7,365,841		11,423,300		—		18,789,141
Total assets at fair value	$	15,107,588	$	15,232,004	$	—	$	30,339,592
Warrants		—		—		4,361,168		4,361,168
Total liabilities at fair value	$	—	$	—	$	4,361,168	$	4,361,168

Fair Value of Warrant Liability

The following table rolls forward the fair value of the Company’s warrant liability, the fair value of which is determined by Level 3 inputs for the nine months ended September 30, 2011 and 2012:

Balance at December 31, 2010	$	1,604,742
Change in fair value		1,234,666
Balance at September 30, 2011	$	2,839,408
Balance at December 31, 2011	$	4,361,168
Warrants exercised		(615,859	)
Change in fair value		(1,054,379	)
Balance at September 30, 2012	$	2,690,930

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Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
REVENUES:
License fees			$ 14,000,000	$ 300,000
Royalties	446,402		969,774
Research and development	131,357	147,122	315,811	373,527
Total revenues	577,759	147,122	15,285,585	673,527
COSTS AND EXPENSES:
Cost of royalty revenues	22,320		148,489
Research and development	3,042,498	3,042,251	12,784,902	9,244,800
General and administrative	2,473,853	1,921,206	7,539,516	6,196,337
Total costs and expenses	5,538,671	4,963,457	20,472,907	15,441,137
Loss from operations	(4,960,912)	(4,816,335)	(5,187,322)	(14,767,610)
OTHER INCOME/(EXPENSE):
Interest income	34,129	22,596	87,224	81,506
Change in fair value of warrant liability	1,541,779	587,184	1,054,379	(1,234,666)
Total other income/(expense)	1,575,908	609,780	1,141,603	(1,153,160)
Net loss	(3,385,004)	(4,206,555)	(4,045,719)	(15,920,770)
Net loss per common share (basic and diluted)	$ (0.04)	$ (0.05)	$ (0.05)	$ (0.21)
Weighted average common shares (basic and diluted)	79,639,433	76,543,074	78,752,687	76,251,709
Total comprehensive loss	$ (3,401,010)	$ (4,217,532)	$ (4,055,967)	$ (15,943,405)

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Investments

9 Months Ended

Sep. 30, 2012

Investments [Abstract]

Investments

6. Investments

The amortized cost, unrealized losses and fair value of marketable securities available-for-sale as of September 30, 2012, with maturity dates ranging between one and twelve months and with a weighted average maturity of 4.4 months are as follows:

	Amortized Cost		Unrealized Loss			Fair Value
Corporate bonds and notes	$	33,334,510	$	(8,728	)	$	33,325,782
Total marketable securities	$	33,334,510	$	(8,728	)	$	33,325,782

As of September 30, 2012, the Company recorded a long-term investment of $751,960 on its Condensed Consolidated Balance Sheet. This amount is comprised of a U.S. government obligation with a maturity date of November 2013 and with amortized cost totaling $752,053, less unrealized losses of $93.

The amortized cost, unrealized gains and fair value of marketable securities available-for-sale as of December 31, 2011, with maturity dates ranging between one and twelve months and with a weighted average maturity of 3.7 months are as follows:

	Amortized Cost		Unrealized Gain		Fair Value
U.S. Government obligations	$	3,808,641	$	63	$	3,808,704
Corporate bonds, notes and stock		18,787,778		1,363		18,789,141
Total marketable securities	$	22,596,419	$	1,426	$	22,597,845

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Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

5. Fair Value Measurements

The Company discloses fair value measurements based on a framework outlined by GAAP which requires expanded disclosures regarding fair value measurements. GAAP also defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.

The Financial Accounting Standards Board, or FASB, Codification Topic 820, Fair Value Measurements and Disclosures, requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. GAAP also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1	Quoted prices in active markets for identical assets or liabilities.
Level 2	Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company’s warrant liability was valued using a probability-weighted Black-Scholes model, discussed further in Note 7, and is therefore classified as Level 3.

In accordance with the fair value hierarchy, the following table shows the fair value as of September 30, 2012 and December 31, 2011 of those financial assets and liabilities that are measured at fair value on a recurring basis, according to the valuation techniques the Company used to determine their fair value. No financial assets or liabilities are measured at fair value on a nonrecurring basis at September 30, 2012 and December 31, 2011.

	Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Fair Value
As of September 30, 2012:
Cash equivalents
Money market funds	$	2,694,487	$	—	$	—	$	2,694,487
Municipal bonds		—		1,825,000		—		1,825,000
Short- and long-term investments
Corporate commercial paper, bonds and notes		9,001,665		24,324,117		—		33,325,782
US government obligations		—		751,960		—		751,960
Total assets at fair value	$	11,696,152	$	26,901,077	$	—	$	38,597,229
Warrants		—		—		2,690,930		2,690,930
Total liabilities at fair value	$	—	$	—	$	2,690,930	$	2,690,930
As of December 31, 2011:
Cash equivalents
Money market funds	$	5,366,747	$	—	$	—	$	5,366,747
Municipal bonds		2,375,000		—		—		2,375,000
Short-term investments
US government obligations		—		3,808,704		—		3,808,704
Corporate commercial paper, stock, bonds and notes		7,365,841		11,423,300		—		18,789,141
Total assets at fair value	$	15,107,588	$	15,232,004	$	—	$	30,339,592
Warrants		—		—		4,361,168		4,361,168
Total liabilities at fair value	$	—	$	—	$	4,361,168	$	4,361,168

The following table rolls forward the fair value of the Company’s warrant liability, the fair value of which is determined by Level 3 inputs for the nine months ended September 30, 2011 and 2012:

Balance at December 31, 2010	$	1,604,742
Change in fair value		1,234,666
Balance at September 30, 2011	$	2,839,408
Balance at December 31, 2011	$	4,361,168
Warrants exercised		(615,859	)
Change in fair value		(1,054,379	)
Balance at September 30, 2012	$	2,690,930

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Collaboration Agreements (Details) (USD $)	3 Months Ended		9 Months Ended		3 Months Ended			9 Months Ended			9 Months Ended		1 Months Ended	9 Months Ended	3 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 University	Sep. 30, 2011	Mar. 31, 2012 Out of Period Adjustment [Member]	Sep. 30, 2012 Genentech Inc [Member]	Sep. 30, 2011 Genentech Inc [Member]	Sep. 30, 2012 Genentech Inc [Member]	Sep. 30, 2011 Genentech Inc [Member]	Mar. 31, 2012 Genentech Inc [Member]	Sep. 30, 2012 Genentech Inc [Member] University Licensors [Member]	Mar. 31, 2012 Genentech Inc [Member] University Licensors [Member]	Sep. 30, 2012 Leukemia and Lymphoma Society [Member] Milestone	Sep. 30, 2012 Leukemia and Lymphoma Society [Member]	Mar. 31, 2012 Roche [Member]	Mar. 31, 2012 FDA's [Member]
Collaboration Agreements (Textual) [Abstract]
Earned milestone payment								$ 10,000,000								$ 10,000,000
Earned an additional milestone payment								4,000,000
Eligibility to receive contingent cash payments under the collaboration						115,000,000		115,000,000
Amount received for specified clinical development and regulatory objectives						46,000,000		46,000,000
Revenue recognized milestone payments as license revenue			14,000,000
Recognized royalty revenue	446,402		969,774			446,402	0	969,774	0
Research and development expenses	3,042,498	3,042,251	12,784,902	9,244,800							2,114,000
Fair value of one-time issuance of common stock						964,000		964,000		964,000
Number of common stock shares issued to university licensors											200,000	200,000
Research and development expenses related to the FDA's approval payments received for Erivedge					100,000						100,000				550,000	500,000
Contribution of fund from LLS amount														4,000,000
Costs of royalty revenues recorded						22,320		148,489
Percentage of royalties earned								5.00%
Number of university licensors in connection with the FDA-approval of Erivedge			2
Percentage of contribution of fund from LLS														50.00%
Company under obligation to make payments														10,000,000
Milestone achieved under agreement with LLS, Numbers													2
Milestone payment received													750,000
Costs of royalty revenues, company obligated to pay to university licensors	22,320		148,489
Revenue recognition received under the agreement													$ 0	$ 0

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Investments (Tables)

9 Months Ended

Sep. 30, 2012

Investments [Abstract]

The amortized cost, unrealized gains and fair value of marketable securities available-for-sale with maturity dates ranging between one and twelve months and with a weighted average maturity

The amortized cost, unrealized losses and fair value of marketable securities available-for-sale as of September 30, 2012, with maturity dates ranging between one and twelve months and with a weighted average maturity of 4.4 months are as follows:

	Amortized Cost		Unrealized Loss			Fair Value
Corporate bonds and notes	$	33,334,510	$	(8,728	)	$	33,325,782
Total marketable securities	$	33,334,510	$	(8,728	)	$	33,325,782

The amortized cost, unrealized gains and fair value of marketable securities available-for-sale as of December 31, 2011, with maturity dates ranging between one and twelve months and with a weighted average maturity of 3.7 months are as follows:

	Amortized Cost		Unrealized Gain		Fair Value
U.S. Government obligations	$	3,808,641	$	63	$	3,808,704
Corporate bonds, notes and stock		18,787,778		1,363		18,789,141
Total marketable securities	$	22,596,419	$	1,426	$	22,597,845

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Related Party Transaction

9 Months Ended

Sep. 30, 2012

Related Party Transaction [Abstract]

Related Party Transaction

9. Related Party Transaction

License Agreement

Effective on February 24, 2012, the Company entered into a Drug Development Partnership and License Agreement for CU-906 and CU-908 (the “License Agreement”) with Guangzhou BeBetter Medicine Technology Company Ltd., or GBMT, a company organized under the laws of the People’s Republic of China. Dr. Changgeng Qian, the Company’s former Senior Vice President, Discovery and Preclinical Development, is the founder, owner, and legal representative of GBMT.

Pursuant to the License Agreement, the Company has granted to GBMT an exclusive royalty-free license, with the right to grant sublicenses subject to certain conditions, to develop, manufacture, market and sell any product containing CU-906 or CU-908 in China, Macau, Taiwan and Hong Kong, or the GBMT Territory. The Company does not currently intend to internally develop these compounds. In addition, the Company has granted to GBMT a non-exclusive, royalty-free manufacturing license, with the right to grant sublicenses subject to certain conditions, to manufacture CU-906 or CU-908 or any product containing CU-906 or CU-908 outside of the GBMT Territory solely to import the compounds or products into the GBMT Territory. Pursuant to the terms of the License Agreement, the Company has retained rights, including the right to grant sublicenses, to develop, manufacture, market and sell any product containing CU-906 or CU-908 worldwide excluding the GBMT Territory. The Company also has certain specified rights to any GBMT technology developed under the License Agreement as well as certain specified rights to GBMT’s interest in joint technology developed under the License Agreement. Furthermore, the Company has a right of first negotiation to obtain a license to CU-906 or CU-908 for the GBMT Territory from GBMT.

The Company has agreed to transfer to GBMT know how, information and materials necessary for GBMT to continue the development of products in accordance with the development plan outlined in the License Agreement and has agreed not to assert certain Company patents against GBMT, its affiliates or sublicensee so that such party may manufacture, market and sell any product containing CU-906 or CU-908 in the GBMT Territory. Furthermore, the Company will provide GBMT with up to $400,000 in financial support for specified CU-908 pre-clinical activities related to enabling the filing by the Company of an IND with the FDA, provided that GBMT completes such CU-908 IND-enabling activities in accordance with specified criteria and delivers a U.S. IND package for CU-908 to the Company within prescribed timeframes as specified in the License Agreement. All costs incurred under the License Agreement will be expensed as incurred. As of September 30, 2012, the Company had not incurred any expenses under the License Agreement.

GBMT will assume all future development responsibility and incur all future costs related to the development, registration and commercialization of products in the GBMT Territory under the License Agreement. Pursuant to the terms of the License Agreement, GBMT has agreed to undertake reasonable commercial efforts, and to use qualified third party service providers approved by the Company, to implement the development plan in the timeframes described in the License Agreement in order to develop, register and commercialize the products in the GBMT Territory and will be solely responsible for all the costs relating thereto. The Company and GBMT must agree to any changes to the development plan and such revised development plan is subject to review and approval by a joint steering committee.

Unless terminated earlier in accordance with its terms, the License Agreement will expire on the later of (i) the expiration of the last-to-expire valid claim of the Company patents and the Company non-assert patents relating to the products, and (ii) such time as none of GBMT, its affiliates or sublicensees is commercializing any compound or product in the GBMT Territory. Either party can terminate the License Agreement with notice under prescribed circumstances, and the License Agreement specifies the consequences to each party for such early termination.

The License Agreement also sets forth customary terms regarding each party’s intellectual property ownership rights, representations and warranties, indemnification obligations, confidentiality rights and obligations, and patent prosecution, maintenance, enforcement and defense rights and obligations.

Severance Agreement

On February 16, 2012, the Company and Dr. Qian entered into a severance agreement that became binding and effective on February 24, 2012. The severance agreement provides that, in exchange for execution and nonrevocation of a general release of claims in favor of the Company, Dr. Qian will be provided certain severance benefits, including a lump-sum payment equivalent to one-half times his base annual salary rate in effect as of his termination date. This payment was made in August 2012. As a result, the Company recognized expenses of $137,500 related to Dr. Qian’s severance during the nine months ended September 30, 2012 in the research and development line item of the Company’s Condensed Consolidated Statement of Operations. The severance agreement also provides for the engagement of Dr. Qian as a consultant pursuant to the terms of a consulting agreement.

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Common Stock and Warrant Liability

9 Months Ended

Sep. 30, 2012

Common Stock and Warrant Liability [Abstract]

Common Stock and Warrant Liability

7. Common Stock and Warrant Liability

2010 Registered Direct Offering

On January 27, 2010, the Company completed a registered direct offering of 6,449,288 units with each unit consisting of (i) one share of the Company’s common stock and (ii) one warrant to purchase 0.25 of one share of common stock, at a purchase price of $2.52 per unit. The Company received net proceeds from the sale of the units, after deducting offering expenses, of approximately $14,942,000.

In connection with this offering, the Company issued warrants to purchase an aggregate of 1,612,322 shares of common stock. As of September 30, 2012, warrants to purchase 238,805 shares of the Company’s common stock have been exercised. The warrants have an initial exercise price of $3.55 per share and a five-year term. The warrants contain antidilution adjustment provisions that will result in a decrease in the price and an increase in the number of shares of common stock issuable upon exercise of such warrants in the event of certain issuances of common stock by the Company at prices below $3.55 per share. The warrants also included a cash-settlement option in the event of a change of control that expired on January 27, 2012. Due to the terms, the warrants are classified as a liability and, therefore, the fair value of the warrants was recorded as a liability in the Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011.

The Company has estimated the fair value of the warrants using a Black-Scholes option pricing model under various probability-weighted outcomes which take into consideration the protective, but limited, cash-settlement feature of the warrants, with updated assumptions at each reporting date. The Company estimated that the fair value of the warrants at September 30, 2012 was $2,690,930, using the following assumptions: expected volatility of 74%, risk free interest rate of 0.3%, expected life of 2.3 years, and no dividends. The Company estimated that the fair value of the warrants at September 30, 2011 was $2,839,408 using this same model with the following assumptions assigned to the varying outcomes: expected volatility of 80%, risk free interest rates ranging from 0.4% to 0.5%, expected lives of three years, and no dividends. The warrants are revalued at each reporting period and the resulting change in fair value of the warrant liability is recognized in the Consolidated Statement of Operations.

The Company recorded other income of approximately $1,541,779 and $1,054,379 for the three and nine months ended September 30, 2012, respectively, due to changes in fair value of the warrant liability which was primarily due to a decrease in the Company’s stock price during the current year periods. During the nine months ended September 30, 2012, as a result of the exercise of warrants to purchase 237,301 shares of the Company’s common stock, the warrant liability decreased by $615,859 with an offsetting increase to additional paid-in-capital. The Company recorded other income of $587,184 and other expense of $1,234,666 for the three and nine months ended September 30, 2011, respectively, as a result of a change in the fair value of the warrant liability that was primarily due to changes in the Company’s stock price during those periods.

2011 At Market Issuance Sales Agreement

On June 13, 2011, the Company entered into an At Market Issuance Sales Agreement, or ATM Agreement, with McNicoll, Lewis & Vlak, LLC, or MLV, pursuant to which the Company may issue and sell from time to time through MLV, shares of its common stock with an aggregate offering price of up to $20,000,000. Upon delivery of a placement notice and subject to the terms and conditions of the ATM Agreement, MLV may sell the common stock by methods deemed to be an “at-the-market” offering as defined in Rule 415 of the Securities Act of 1933, or the Securities Act. With the Company’s prior written approval, MLV may also sell the common stock by any other method permitted by law, including in privately negotiated transactions. The Company or MLV may suspend or terminate the offering of common stock upon notice and subject to other conditions. MLV will act as sales agent on a commercially reasonable best efforts basis consistent with its normal trading and sales practices and applicable state and federal law, rules and regulations and the rules of NASDAQ. The Company will pay MLV a commission equal to 3.0% of the gross sales price per share sold. The Company has agreed to provide indemnification and contribution to MLV against certain civil liabilities, including liabilities under the Securities Act. During the nine months ended September 30, 2012 and 2011, the Company sold 210,879 and 65,527 shares of common stock, respectively, under the ATM Agreement resulting in gross proceeds of $906,436 and $262,447, respectively. Total offering expenses incurred, including MLV’s commission, related to the ATM Agreement through September 30, 2012 and 2011 were approximately $27,356 and $123,374, respectively, which offset the gross proceeds.

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Accrued Liabilities

9 Months Ended

Sep. 30, 2012

Accrued Liabilities [Abstract]

Accrued Liabilities

8. Accrued Liabilities

Accrued liabilities consist of the following:

	September 30, 2012		December 31, 2011
Accrued compensation	$	953,248	$	1,065,570
Professional fees		187,750		190,500
Other		149,857		166,037
Total	$	1,290,855	$	1,422,107

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Accounting for Stock-Based Compensation

9 Months Ended

Sep. 30, 2012

Accounting for Stock-Based Compensation [Abstract]

Accounting for Stock-Based Compensation

10. Accounting for Stock-Based Compensation

As of September 30, 2012, the Company had two shareholder-approved, share-based compensation plans: the 2010 Stock Incentive Plan and the 2010 Employee Stock Purchase Plan. These plans were adopted by the board of directors in April 2010 and approved by shareholders in June 2010. In the first quarter of 2010, the Company’s 2000 Stock Incentive Plan expired in accordance with its terms and its 2000 Director Stock Option Plan had no available shares remaining under the plan. No additional awards will be made under these plans, although all outstanding awards under these plans will remain in effect until they are exercised or they expire in accordance with their terms. For a complete discussion of the Company’s share-based compensation plans, see Note 5 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as previously filed with the Securities and Exchange Commission on February 29, 2012.

During the nine months ended September 30, 2012, the Company’s board of directors granted options to purchase 1,182,000 shares of the Company’s common stock to officers and employees of the Company under the 2010 Stock Incentive Plan. These options vest over a four-year period and bear exercise prices that are equal to the closing market price of the Company’s common stock on the NASDAQ Global Market on the grant date.

During the nine months ended September 30, 2012, the Company’s board of directors also granted options to its non-employee directors to purchase 470,000 shares of common stock under the 2010 Stock Incentive Plan. These options will vest monthly over a one-year period and bear exercise prices that are equal to the closing market price of the Company’s common stock on the NASDAQ Global Market on the grant date.

Employee and Director Grants

In determining the fair value of stock options, the Company uses the Black-Scholes option pricing model. The Company calculated the Black-Scholes value of employee and director options awarded during the nine months ended September 30, 2012 and 2011 based on the assumptions noted in the following table:

	For the nine months ended September 30,
	2012	2011
Expected term (years) - Employees	6	6
Expected term (years) - Directors	6	6
Risk-free interest rate	1.0-1.2%	1.2-2.5%
Volatility	74-76%	73-75%
Dividends	None	None

The expected volatility is based on the annualized daily historical volatility of the Company’s stock price through the grant date for a time period consistent with the expected term of a grant. Management believes that the historical volatility of the Company’s stock price best represents the volatility of the stock price. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The Company does not anticipate declaring dividends in the foreseeable future.

The stock price volatility and expected terms utilized in the calculation involve management’s best estimates at that time, both of which impact the fair value of the option calculated under the Black-Scholes methodology and, ultimately, the expense that will be recognized over the life of the option. GAAP also requires that the Company recognize compensation expense for only the portion of options that are expected to vest. Therefore, management calculated an estimated annual pre-vesting forfeiture rate that is derived from historical employee termination behavior since the inception of the Company, as adjusted. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.

The aggregate intrinsic value of employee options outstanding at September 30, 2012 was $17,145,000, of which $15,184,000 related to exercisable options. The weighted average grant-date fair values of stock options granted during the nine months ended September 30, 2012 and 2011 were $2.99 and $1.45, respectively. As of September 30, 2012, there was approximately $4,897,000, net of the impact of estimated forfeitures, of unrecognized compensation cost related to unvested employee and director stock option awards outstanding under the 2000 and 2010 Stock Incentive Plans that is expected to be recognized as expense over a weighted average period of 2.53 years. The intrinsic values of employee stock options exercised during the nine months ended September 30, 2012 and 2011 were $6,370,000 and $835,000, respectively. The total fair values of vested stock options for the nine months ended September 30, 2012 and 2011 were $1,761,000 and $1,218,000, respectively.

The Company recorded $822,575 and $2,472,299 in compensation expense for the three and nine months ended September 30, 2012, respectively, and the Company recorded $299,202 and $1,310,940 in compensation expense for the three and nine months ended September 30, 2011, respectively, related to employee and director stock option grants.

Non-Employee Grants

The Company has periodically granted stock options and unrestricted stock awards to consultants for services, pursuant to the Company’s stock plans at the fair market value on the respective dates of grant. Should the Company terminate any of its consulting agreements, the unvested options underlying the agreements would also be cancelled. The Company reversed expense of $14,681 and recognized expense of $366,013 related to non-employee stock options for the three and nine months ended September 30, 2012, respectively. The Company recognized expense of $12,739 and $40,560 for the three and nine months ended September 30, 2011, respectively.

Total Stock-Based Compensation Expense

For the three and nine months ended September 30, 2012 and 2011, the Company recorded employee and non-employee stock-based compensation expense to the following line items in its Costs and Expenses section of the Consolidated Statements of Operations:

	For the three months ended September 30,				For the nine months ended September 30,
	2012		2011		2012		2011
Research and development expenses	$	158,638	$	134,816	$	923,648	$	478,676
General and administrative expenses		649,256		177,125		1,914,663		872,824
Total stock-based compensation expense	$	807,894	$	311,941	$	2,838,311	$	1,351,500

The table below summarizes options outstanding and exercisable at September 30, 2012:

	Options Outstanding						Options Exercisable
Exercise Price Range	Number of Shares		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price per Share		Number of Shares		Weighted Average Exercise Price per Share
$ 0.79 - $ 1.39		2,571,622		4.96	$	1.19		2,465,681	$	1.19
1.43 - 2.15		2,605,168		5.32		1.73		2,106,038		1.63
2.27 - 3.76		2,414,232		4.75		2.75		1,631,041		2.53
3.98 - 4.52		2,184,614		7.59		4.38		875,945		4.18
4.56 - 5.60		720,000		1.62		4.74		712,000		4.74
		10,495,636		5.32	$	2.59		7,790,705	$	2.25

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Accounting for Stock-Based Compensation (Details Textual) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 Plan	Sep. 30, 2011
Accounting for Stock-Based Compensation (Textual) [Abstract]
Share-based compensation, number of plans			2
Options granted			1,182,000
Share based compensation arrangement vesting period, years			4 years
Aggregate intrinsic value of employee options outstanding	$ 17,145,000		$ 17,145,000
Intrinsic value of exercisable options	15,184,000		15,184,000
Weighted average grant-date fair values of stock options			$ 2.99	$ 1.45
Unrecognized compensation cost net of estimated forfeitures	4,897,000		4,897,000
Unrecognized compensation cost, weighted average period for recognition, years			2 years 6 months 11 days
Intrinsic values of employee stock options exercised			6,370,000	835,000
Fair values of vested stock options			1,761,000	1,218,000
Compensation expense	822,575	299,202	2,472,299	1,310,940
Non-employee compensation expense	$ 14,681	$ 12,739	$ 366,013	$ 40,560
Non-Employee Directors [Member]
Accounting for Stock-Based Compensation (Textual) [Abstract]
Options granted			470,000
Share based compensation arrangement vesting period, years			1 year

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Accounting for Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2012

Accounting for Stock-Based Compensation [Abstract]

Valuation assumptions used to calculate fair value of employee options awarded

The Company calculated the Black-Scholes value of employee and director options awarded during the nine months ended September 30, 2012 and 2011 based on the assumptions noted in the following table:

	For the nine months ended September 30,
	2012	2011
Expected term (years) - Employees	6	6
Expected term (years) - Directors	6	6
Risk-free interest rate	1.0-1.2%	1.2-2.5%
Volatility	74-76%	73-75%
Dividends	None	None

Employee and non employee share based compensation expense allocation

For the three and nine months ended September 30, 2012 and 2011, the Company recorded employee and non-employee stock-based compensation expense to the following line items in its Costs and Expenses section of the Consolidated Statements of Operations:

	For the three months ended September 30,				For the nine months ended September 30,
	2012		2011		2012		2011
Research and development expenses	$	158,638	$	134,816	$	923,648	$	478,676
General and administrative expenses		649,256		177,125		1,914,663		872,824
Total stock-based compensation expense	$	807,894	$	311,941	$	2,838,311	$	1,351,500

Options outstanding and exercisable under exercise price range

The table below summarizes options outstanding and exercisable at September 30, 2012:

	Options Outstanding						Options Exercisable
Exercise Price Range	Number of Shares		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price per Share		Number of Shares		Weighted Average Exercise Price per Share
$ 0.79 - $ 1.39		2,571,622		4.96	$	1.19		2,465,681	$	1.19
1.43 - 2.15		2,605,168		5.32		1.73		2,106,038		1.63
2.27 - 3.76		2,414,232		4.75		2.75		1,631,041		2.53
3.98 - 4.52		2,184,614		7.59		4.38		875,945		4.18
4.56 - 5.60		720,000		1.62		4.74		712,000		4.74
		10,495,636		5.32	$	2.59		7,790,705	$	2.25

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Investments (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
The amortized cost, unrealized gains and fair value of marketable securities available-for-sale
Amortized Cost	$ 33,334,510	$ 22,596,419
Unrealized Gain	(8,728)	1,426
Fair Value	33,325,782	22,597,845
U. S. Government Obligations [Member]
The amortized cost, unrealized gains and fair value of marketable securities available-for-sale
Amortized Cost		3,808,641
Unrealized Gain		63
Fair Value		3,808,704
Corporate bonds and notes [Member]
The amortized cost, unrealized gains and fair value of marketable securities available-for-sale
Amortized Cost	33,334,510	18,787,778
Unrealized Gain	(8,728)	1,363
Fair Value	$ 33,325,782	$ 18,789,141

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (4,045,719)	$ (15,920,770)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	91,383	76,753
Stock-based compensation expense	2,838,311	1,351,500
Issuance of common stock to licensees	964,000
Change in fair value of warrant liability	(1,054,379)	1,234,666
Non-cash interest (income)/expense	(225,468)	299,653
Net gain on sale of assets		(59,651)
Changes in current assets and liabilities:
Accounts receivable	(506,325)	(44,942)
Prepaid expenses and other assets	288,922	(283,747)
Accounts payable and accrued liabilities	170,004	95,145
Total adjustments	2,566,448	2,669,377
Net cash used in operating activities	(1,479,271)	(13,251,393)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities	(43,206,032)	(32,236,817)
Sale of marketable securities	32,691,355	47,993,617
Decrease in restricted cash	41,632	261,090
Purchase of long-term investments	(750,000)
Proceeds from sale of assets		59,651
Purchases of property and equipment	(42,166)	(249,501)
Net cash (used in)/ provided by investing activities	(11,265,211)	15,828,040
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under the Company's share-based compensation plans and warrant exercises	4,590,132	1,341,984
Proceeds from issuance of common stock under the Company's ATM Agreement, net of issuance costs of $27,356 and $123,374, respectively	844,028	139,073
Net cash provided by financing activities	5,434,160	1,481,057
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS	(7,310,322)	4,057,704
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	15,119,730	7,826,549
CASH AND CASH EQUIVALENTS, END OF PERIOD	$ 7,809,408	$ 11,884,253

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Collaboration Agreements

9 Months Ended

Sep. 30, 2012

Collaboration Agreements [Abstract]

Collaboration Agreements

4. Collaboration Agreements

(a) Genentech June 2003 Collaboration

In January 2012, the FDA approved Genentech’s new drug application for the Erivedge capsule for the treatment of adults with BCC that has spread to other parts of the body or that has come back after surgery or that their healthcare provider decides cannot be treated with surgery or radiation. Erivedge is being developed and commercialized by Roche and Genentech, a member of the Roche Group, under a collaboration agreement between the Company and Genentech. As a result of the FDA’s approval of Erivedge in this indication, the Company earned a $10,000,000 milestone payment from Genentech and is also entitled to receive royalties on future sales of the product. In May 2012, Roche announced that it has submitted an application for marketing registration for Erivedge to Australia’s Therapeutic Goods Administration, or TGA, and as a result of the acceptance of the application by Australia’s TGA, the Company earned an additional $4,000,000 milestone payment. The Company is eligible to receive up to an aggregate of $115,000,000 in contingent cash payments under the collaboration for the development of Erivedge or another small molecule Hedgehog pathway inhibitor, assuming the successful achievement by Genentech and Roche of specified clinical development and regulatory objectives. As of September 30, 2012, the Company has received $46,000,000 in the aggregate since the inception of the agreement.

Pursuant to the milestone payments above, the Company recognized $14,000,000 as license revenue in its Condensed Consolidated Statement of Operations for the nine months ended September 30, 2012, as the Company does not have any further substantive performance obligations under the collaboration. The Company did not recognize license revenue under this collaboration during the three and nine months ended September 30, 2011.

In connection with the receipt of milestone payments from Genentech, the Company recorded research and development expenses of $2,114,000 during the nine months ended September 30, 2012, which represents the Company’s obligations to university licensors. Of this amount, the Company recognized expense of $964,000, which represents the fair value of a one-time issuance of an aggregate of 200,000 shares of the Company’s common stock in March 2012 to two university licensors in connection with the FDA-approval of Erivedge in January 2012. In addition, the Company recorded research and development expenses of $550,000 for obligations the Company incurred in connection with Roche’s application to the TGA for marketing registration of Erivedge in Australia and the related $4,000,000 milestone that the Company received, and an additional $100,000 in research and development expense that represents an immaterial out-of-period expense associated with Roche’s filing in 2009 of an investigational new drug application in Australia. The remaining expense recognized of $500,000 relates to the Company’s receipt of the $10,000,000 milestone payment associated with the FDA’s U.S. approval of Erivedge in January 2012.

The Company also recognized $446,402 and $969,774 in royalty revenue from Genentech’s net sales of Erivedge during the three and nine months ended September 30, 2012, respectively. The Company recorded cost of royalty revenues within the costs and expenses section of its Condensed Consolidated Statements of Operations of $22,320 and $148,489 during these same periods, which represents 5% of the royalties earned by the Company with respect to Erivedge that the Company is obligated to pay to two university licensors plus a one-time cash payment of $100,000 paid to a university licensor upon the first commercial sale of Erivedge for the nine months ended September 30, 2012.

(b) The Leukemia & Lymphoma Society Agreement

In November 2011, the Company entered into an agreement with The Leukemia & Lymphoma Society, or LLS, under which LLS will support the Company’s ongoing development of CUDC-907 for patients with relapsed or refractory lymphomas or multiple myeloma. Under the agreement, LLS will fund approximately 50% of the direct costs of the development of CUDC-907, up to $4,000,000, through milestone payments upon the Company’s achievement of specified research and development objectives. Under certain conditions associated with the successful partnering and/or commercialization of CUDC-907 in these indications, the Company may be obligated to make payments to LLS up to a maximum of $10,000,000. As of September 30, 2012, the Company had not received any payments or recorded any revenue under this agreement. In October 2012, the Company achieved the first two milestones under the agreement upon its filing of an investigational new drug application, or IND, with the FDA for CUDC-907. As a result, the Company earned $750,000 in milestone payments. Additional milestone payments may be earned assuming the Company progresses CUDC-907 into Phase I clinical development.

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Investment (Details Textual) (USD $)	9 Months Ended
	Sep. 30, 2012
Investment (Textual) [Abstract]
Long-term investments	$ 751,960
Investment domestic government maturity description	Nov. 13, 2013
Investment domestic government maturity amortized cost	752,053
Investment domestic government maturity unrealized cost	$ 93

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Accrued Liabilities (Tables)

9 Months Ended

Sep. 30, 2012

Accrued Liabilities [Abstract]

Accrued Liabilities

Accrued liabilities consist of the following:

	September 30, 2012		December 31, 2011
Accrued compensation	$	953,248	$	1,065,570
Professional fees		187,750		190,500
Other		149,857		166,037
Total	$	1,290,855	$	1,422,107