Chasing Blockbuster Drugs, Using Chinese Help

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With such odds, venture capitalists have grown wary of fronting the money for early-stage discovery to small biotechs.

For small companies with limited resources like Curis, that presents a dilemma. Most have to bet their resources on only one or two drug programs and try to rush them into clinical testing, rather than methodically spreading their risks by developing a range of candidates simultaneously. Given the high chances of failure, "it is tantamount to spinning a roulette wheel," says Passeri. "Curis is representative of what is happening in the sector."

Low Costs Mean More Options

By using Chinese medicinal chemists costing so much less than Americans doing similar work, Curis can afford to have 10 drugs aimed at different kinds of cancer in early-stage development. To pull off its strategy, "we needed a dramatic buildup of our chemistry capabilities," says Passeri. "If we did all of this in the U.S., we probably wouldn't be in the business right now."

This fall, it plans to begin human testing on its first single-pill drug, based on a molecule called CUDC-101.

Curis says it had one advantage that made it relatively easy to work with a Chinese company: Its chief scientist, Qian Changgeng, as well as nearly half of its 30 researchers in Cambridge are native Chinese. Indeed, the company's labs in a small office park outside Cambridge might be confused with those of a Chinese company. During a recent visit after lunchtime, a table in the hallway was covered with foil containers of Chinese takeout. And much of the discussion in the labs was in Mandarin. That's not unusual, says Passeri. Chinese immigrant scientists are a mainstay in most U.S. labs. "Go to practically any other biotech, and you'll likely see the same thing," he says.

After a two-week search in 2006, Curis settled on Shanghai ChemPartners, a unit of a larger company, privately held ShangPharma, with 1,200 scientists. Among its major Western clients are Eli Lilly (LLY). Curis also sent staff to Shanghai to train the Chinese chemists. "We really view their scientists as part of our team," says Passeri.

While Curis' Cambridge team focuses on designing new compounds and on biology research, Shanghai Chem­Partners handles much of the chemistry. It synthesizes molecules based on Curis' designs, conducts a battery of tests, and sends the data over a shared Web site overnight to Cambridge. The next day, Curis scientists study the data and tweak their designs. Then the process starts over again in Shanghai. "This represents a new, transformational model of how to leverage resources in a cost-effective way and how to work across the Pacific," says ChemPartners CEO Michael Hui. So far, Passeri says the quality of work has been high. "And because we work around the clock, we've been able to accomplish in two years what would have taken us four years in the U.S.," he says.

Resulting from a Merger

It is still far too early, of course, to predict whether Curis or any other small biotech will succeed. Curis has already weathered many setbacks. The company sprang from a 2000 merger between Onto­geny, which owned rights to the Hedgehog technology, and two other small companies. But the following year its chief product, a protein to induce bone growth in fractures that had been shaping up as a big money-maker, failed in testing after limited to approval to market the product in the U.S. and Europe.

Curis then entered into a series of partnerships with larger corporations for treatments based on Hedgehog. In 2006, Genentech halted a trial of a topical cream to treat nonlethal skin cancer. The next year, P&Ge pulled out of potential cure for hair loss. And in March, Wyeth did the same with efforts to develop drugs for stroke and cardiovascular disease.

Curis stock got a bump in January, after Genentech's news that its Hedgehog drug performed well in early human trials after it had already invested more than $100 million in the program.

Now, Curis stock trades at around 1.70. CFO Gray says the company has $33 million in cash, enough to continue work on its propriety drugs at least through 2009. Curis also is exploring expanding its China outsourcing to include biology R&D, where the capabilities of mainland companies are improving fast.

This may all sound threatening to Americans who fear another prized industry could shift offshore. But Passeri views it differently. "The U.S. still has a stranglehold on innovation in biotech. China is augmenting our capabilities," he says. "Companies that do this well will have a tremendous competitive advantage."

Engardio is an international senior writer for BusinessWeek

With Chi-Chu Tschang in Shanghai