Collaboration Agreements


(a)	Genentech, Inc.

In June 2003, the Company licensed its proprietary Hedgehog pathway technologies to Genentech for human therapeutic use. The primary focus of the collaborative research plan has been to develop molecules that inhibit the Hedgehog pathway for the treatment of various cancers. The collaboration is currently focused on the development of Erivedge, which is being commercialized by Genentech in the United States and by Genentech’s parent company, Roche, in several other countries for the treatment of advanced BCC. Pursuant to the agreement, the Company is eligible to receive up to an aggregate of $115.0 million in contingent cash milestone payments, exclusive of royalty payments, in connection with 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. Of this amount, the Company has received $59.0 million as of September 30, 2016.

In addition to these payments and pursuant to the agreement, the Company is entitled to a royalty on net sales of Erivedge that ranges from 5% to 7.5%. The royalty rate applicable to Erivedge may be decreased by 2% on a country-by-country basis in certain specified circumstances, including when a competing product that binds to the same molecular target as Erivedge is approved by the applicable regulatory authority in another country, and is being sold in such country, by a third party for use in the same indication as Erivedge, or, when there is no issued intellectual property covering Erivedge in a territory in which sales are recorded. In 2015, the FDA and the European Medicine Agency’s Committee for Medicinal Products for Human Use, or CHMP, approved another Hedgehog signaling pathway inhibitor, Odomzo^® (sonidegib), which is marketed by Novartis, for use in locally advanced BCC. Beginning in the fourth quarter of 2015, Genentech applied the 2% royalty reduction on United States sales of Erivedge as a result of the first commercial sale of sonidegib in the United States.

In December 2012, Curis formed a wholly owned subsidiary, Curis Royalty, which received a $30.0 million loan at an annual interest rate of 12.25% pursuant to a credit agreement between Curis Royalty and BioPharma-II (see Note 7). In connection with the loan, Curis transferred to Curis Royalty its right to receive royalty and royalty-related payments on the commercial sales of Erivedge that it receives from Genentech. The loan and accrued interest is being repaid by Curis Royalty using such royalty and royalty-related payments. The loan constitutes an obligation of Curis Royalty and is non-recourse to Curis.

The Company recognized $1.8 million and $2.3 million in royalty revenue under the Genentech collaboration during the three months ended September 30, 2016 and 2015, respectively, and $5.4 million and $6.0 million during the nine months ended September 30, 2016 and 2015, respectively. The Company recorded costs of royalty revenues within the costs and expenses section of its condensed consolidated statements of operations and comprehensive loss of $0.1 million and $0.1 million during the three months ended September 30, 2016 and 2015, respectively, and $0.3 million and $0.3 million during the nine months ended September 30, 2016 and 2015, respectively. For each of these periods, these amounts are comprised of 5% of the royalties earned by Curis Royalty that the Company is obligated to pay to university licensors. As further discussed in Note 7, the Company expects that all royalty revenues received by Curis Royalty from Genentech on net sales of Erivedge will be used by Curis Royalty to pay principal and interest under the loan that Curis Royalty received from BioPharma-II, subject to specified quarterly caps, until such time as the loan is fully repaid.

The Company recorded research and development revenue of $0.1 million and $0.1 million during the three months ended September 30, 2016 and 2015, respectively, and research and development revenue of $0.2 million and $0.2 million during the nine months ended September 30, 2016 and 2015, respectively, related to expenses incurred by the Company on behalf of Genentech that were paid by the Company and for which Genentech is obligated to reimburse the Company.

Genentech incurred expenses of $0.1 million and $0.3 million during the three months ended September 30, 2016 and 2015, respectively, and expenses of $0.4 million and $0.4 million during the nine months ended September 30, 2016 and 2015, respectively, under this collaboration, for which the Company is obligated to reimburse to Genentech, and which the Company has recorded as contra-revenues in its condensed consolidated statements of operations and comprehensive loss.


(b)	Aurigene Agreement

In January 2015, the Company entered into an exclusive collaboration agreement with Aurigene for the discovery, development and commercialization of small molecule compounds in the areas of immuno-oncology and selected precision oncology targets. Under the collaboration agreement, Aurigene granted the Company an option to obtain exclusive, royalty-bearing licenses to relevant Aurigene technology to develop, manufacture and commercialize products containing certain of such compounds.

For each program, Aurigene has granted the Company an exclusive option, exercisable within 90 days after Aurigene delivers the relevant data regarding a development candidate, to obtain an exclusive, royalty-bearing license to develop, manufacture and commercialize compounds from such program, including the development candidate and products containing such compounds, anywhere in the world, except for India and Russia. For the development, manufacture, and commercialization of compounds from a particular program and products containing such compounds in India and Russia, Aurigene will grant the Company the royalty-bearing license described above for such program, and the Company will grant Aurigene an exclusive, royalty-free, fully paid license under the Company’s relevant technology upon exercise of the relevant option.

During 2015, the Company exercised options to license the first two programs under this collaboration, resulting in an aggregate one-time payment of $6.0 million (comprised of a $3.0 million option exercise fee for each program) by the Company to Aurigene. Effective October 2015, the Company agreed to make additional payments to Aurigene totaling up to $2.0 million for supplemental research, development and/or manufacturing activities in support of these two programs. The Company incurred and recognized $1.0 million of such costs in the three months ended December 31, 2015, which was paid in the three months ended March 31, 2016. The remaining $1.0 million was incurred and recognized in the three months ended March 31, 2016 and paid in the three months ended June 30, 2016.

Also in 2015, the Company selected a preclinical program for potential further development within the immuno-oncology part of the collaboration resulting in a one-time $2.0 million payment. In October 2016, the Company licensed the program and designated CA-327 as the development candidate as described in Note 1, resulting in a one-time $1.5 million payment.

The Company anticipates that it will select additional programs under this collaboration in the future, and the Company intends to have the collaboration’s steering committee recommend such additional programs in order for Aurigene to initiate or continue the relevant preclinical activities described in each program’s written plan.

For each option to license (as described above) exercised by the Company, the Company is obligated to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize at least one product in each of the United States, specified countries in the European Union, and Japan, and Aurigene is obligated to use commercially reasonable efforts to perform its obligations under the development plan for such licensed program in an expeditious manner.

Subject to specified exceptions, Aurigene and the Company have agreed to collaborate exclusively with each other on the discovery, research, development and commercialization of programs and compounds within immuno-oncology for an initial period of approximately two years from the effective date of the collaboration agreement. At the Company’s option, and subject to specified conditions, it may extend such exclusivity for up to three additional one-year periods by paying to Aurigene exclusivity option fees on an annual basis. The first of such option fees will be $7.5 million, to be paid in two equal installments, and the Company currently estimates that these payments will be due in the first and third quarters of 2017.

In addition, beyond the up-to five years of exclusivity described above, and subject to specified exceptions and payment by the Company of an annual exclusivity fee on a program-by-program basis, Aurigene and the Company have agreed to collaborate exclusively with each other on each program for which there are ongoing activities in research or development, or for which the Company has exercised its option to acquire an exclusive license (as described above) and the Company or its affiliates or sublicensees are actively developing or commercializing a compound or product from such program in a major market.

For each product that may be commercialized, the Company has granted Aurigene the right, subject to certain conditions, to nominate one global drug substance or drug product supplier to provide up to 50% of the total requirements in the Company’s territory.

Research Payments, Option Exercise Fees and Milestone Payments. The Company has agreed to make the following research, option exercise fees and milestone payments to Aurigene:

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for the PD1/VISTA and IRAK4 programs: up to $52.5 million per program, comprised of: $3.0 million for each option exercise, $3.0 million upon acceptance of each IND filing, $4.0 million upon dosing of the fifth patient in the Company’s first Phase 1 clinical trial in each program, as well as specified approval and commercial milestones, plus specified additional payments for approvals for additional indications, if any. Effective October 2015, the Company agreed to make additional payments to Aurigene totaling up to $2.0 million for supplemental research, development and/or manufacturing activities in support of these two programs. During the three months ended September 30, 2016, the Company recognized and paid $3.0 million to Aurigene upon the acceptance of the IND filing for CA-170, a PDL1/VISTA antagonist. Since the inception of the agreement through September 30, 2016, the Company has incurred costs totaling $11.0 million related to these programs under the collaboration;

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for the third and fourth programs: up to $50.0 million per program, comprised of: $2.0 million for a program selection fee, $3.0 million for an option exercise, $2.5 million upon acceptance of an IND filing, as well as development, approval and commercial milestones, plus specified additional payments for approvals for additional indications, if any. Since the inception of the agreement through September 30, 2016, the Company has made payments to Aurigene totaling $2.0 million related to the third program under this collaboration; and

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for any program thereafter: up to $140.5 million per program, comprised of: up to a total of $53.0 million for research fees, an option exercise fee, a preclinical milestone and development milestones, as well as specified filing, approval and commercial milestones, plus specified additional payments for approvals for additional indications, if any. As of September 30, 2016, no payments have been made to Aurigene related to such programs under the collaboration.

Amendment to Collaboration Agreement. On September 7, 2016, the Company and Aurigene entered into an amendment to the January 2015 collaboration agreement. Under the terms of the amendment, in exchange for the issuance by the Company to Aurigene of 10,208,333 shares of its common stock, Aurigene waived payment of up to a total of $24.5 million in milestones and other payments from the Company that may become due under the 2015 collaboration agreement. The following milestones and other payments have been waived:


•	$1.0 million payment for extended exclusivity related to the IRAK4 program;


•	$3.0 million payment upon acceptance of IND filing related to the IRAK4 program;


•	$4.0 million payment upon dosing of the fifth patient in the Company's Phase 1 clinical trial for the IRAK4 program;


•	$1.0 million payment for extended exclusivity related to the PD1/VISTA program;


•	$4.0 million payment upon dosing of the fifth patient in the Company's Phase 1 clinical trial for the PD1/VISTA program;


•	$1.5 million, or 50%, of the payment related to the option exercise payment of the third program;


•	$2.5 million payment upon acceptance of IND filing related to the third program;


•	$2.0 million payment for program selection fee of the fourth program;


•	$3.0 million payment for option exercise of the fourth program;


•	$2.5 million payment upon acceptance of IND filing related to the fourth program;

To the extent any of these milestone or other payments described above would not otherwise be payable by Curis, e.g. in the event one or more of the listed milestone events do not occur, the Company will have the right to deduct the unused waiver amount from any one or more of the milestone payment obligations tied to achievement of commercial milestone events. The amendment also provides that upon exercise the option for the third and fourth programs, the Company will provide up to $2.0 million of additional funding for each such licensed program provided that supplemental program activities are performed by Aurigene.

Accounting Summary. Under the terms of this amendment, the value of common stock issued to Aurigene equaled $18.0 million based on the closing share price of the Company’s common stock of $1.76 per share on September 6, 2016, which was the last closing price prior to execution of the amendment. As a result, the Company recognized in-process research and development expense of $18.0 million within its condensed consolidated statement of operations and comprehensive loss for the three and nine months ended September 30, 2016 in recognition of the fact that any compounds that have been and may be licensed from Aurigene are in clinical or preclinical development and will require substantial development, regulatory and marketing approval efforts in order to reach technological feasibility.