The Hedgehog signaling pathway controls the development and growth of many kinds of tissues in the body by directly promoting cell division in specific cell types, and by activating other secondary signaling pathways that control the synthesis of growth factors and angiogenic factors. The growth factors stimulate new tissue formation, and the angiogenic factors stimulate new blood vessel growth to nourish the newly formed tissue.

Several years ago, our scientists and scientists at independent academic and medical research laboratories discovered that the Hedgehog signaling pathway is activated at very high levels in many, if not all, basal cell carcinomas. In many of these cases, excessive unregulated Hedgehog signaling activity is due to the presence of inactivating mutations in “patched,” or Ptch, a negative regulator of the pathway, or to constitutively activating mutations in “smoothened,” or Smo, an activator of the pathway. Unregulated activation of hedgehog signaling in the outer layer of skin cells leads to increased rates of cell division resulting in tumor formation. Thus, our small molecule Hedgehog signaling antagonists directly target the known mechanism of action underlying the formation of basal cell carcinomas.

Our preclinical evidence indicates that inhibition of the Hedgehog pathway with our Hedgehog antagonists in various models of basal cell carcinoma results in the selective death of tumor cells while sparing adjacent normal cells and maintaining the typical architecture of the skin at the treatment site. In contrast, most basal cell carcinoma patients are treated with surgery, which often results in significant scarring at the treatment site. We believe that the selective action of our Hedgehog antagonists in cancer cells will result in a better cosmetic outcome than that of other basal cell carcinoma treatments, and therefore may represent a significant competitive advantage for our basal cell carcinoma product candidate. In June 2003, we established a collaboration with Genentech for the continued development of our basal cell carcinoma product candidate. Under the terms of the collaboration, we retained a co-development option in the basal cell carcinoma program in the U.S. market that enables us to share in U.S. development costs and future U.S. net profits or losses in this program. On January 28, 2005, we elected to exercise this co-development option and will now share equally in both the U.S. development costs and any future U.S. net profits and/or losses of our basal cell carcinoma product candidate. This co-development right includes basal cell carcinoma and any additional indications for which this product candidate may be developed in the U.S. Genentech has stated that it expects to file an investigational new drug application with the FDA in the first quarter of 2005. Pending FDA approval of this investigational new drug application filing, Genentech will begin enrollment of a Phase I clinical trial for basal cell carcinoma. In addition, in certain international markets, we will receive milestones if specific clinical development objectives are achieved and a royalty on any international sales of the topical Hedgehog antagonist.

An independent third party study published in European Journal of Dermatology 2004 14: 96-104, demonstrated that in a small population of four patients with well established basal cell carcinoma, an inhibitor of the Hedgehog signaling pathway, cyclopamine, selectively induced regression of basal cell carcinoma tumors. The patients showed tumor regression within a few days of treatment with no adverse effects on nearby normal skin cells. Cyclopamine is a plant-derived Hedgehog inhibitor that could potentially be used to treat cancer and other disorders by inhibiting Hedgehog signaling. This technology, including cyclopamine and structurally-related derivatives, is exclusively licensed to us by Johns Hopkins University. We have sublicensed our rights to this cyclopamine intellectual property portfolio to Genentech as part of the 2003 agreement.

STRATEGIC PARTNER