8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 18, 2006

KOSAN BIOSCIENCES INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation)

000-31633	94-3217016
(Commission File Number)	(IRS Employer Identification No.)

3832 Bay Center Place, Hayward, CA 94545

(Address of principal executive offices, including Zip Code)

Registrant’s telephone number, including area code: (510) 732-8400

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry Into a Material Definitive Agreement.

On December 19, 2006, Kosan Biosciences Incorporated (“Kosan”) entered into an Exclusive License Agreement (the “Agreement”) with Pfizer Inc (“Pfizer”) pursuant to which Kosan granted to Pfizer a worldwide exclusive license to Kosan’s motilin agonist program. The Agreement includes Kosan’s clinical candidate, KOS-2187 and related compounds. Under the terms of the Agreement, Kosan and Pfizer will collaborate on filing of regulatory documents and initiation of a Phase 1 clinical trial of KOS-2187. Pfizer will be responsible for all development, regulatory and commercial activities related to the motilin agonist program. Kosan will receive an upfront payment of $12.5 million and will be eligible to receive up to $250 million for the successful development and commercialization of KOS-2187 for one indication, as well as royalties on worldwide sales. This total value of up to $250 million includes development milestone payments of up to $72.5 million. Should Pfizer elect to develop KOS-2187 for a second indication or to develop other Kosan compounds within the licensed rights, additional development and commercial milestones may be payable to Kosan as well as royalties on worldwide sales of any licensed Kosan product.

On December 20, 2006, Kosan issued a press release announcing the entering into of the Agreement. A copy of the press release is filed as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

1. 2007 Salary and Bonus Information for Certain Officers

On December 18, 2006, the Compensation Committee of Kosan’s Board of Directors approved annual salaries for 2007 and cash bonus targets for 2007 for Kosan’s principal executive officer and principal financial officer. 2007 salary and cash bonus target information for Kosan’s principal executive officer and principal financial officer is set forth on Exhibit 10.45 to this Current Report on Form 8-K, which is incorporated herein by reference.

2. 2007 Executive Officer Cash Bonus Plan

On December 18, 2006, the Compensation Committee approved a 2007 Executive Officer Cash Bonus Plan (the “2007 Bonus Plan”). Pursuant to the 2007 Bonus Plan, the Compensation Committee designated for each of the Company’s executive officers a target cash bonus amount, expressed as a percentage of such named executive officer’s 2007 annual salary.

A summary of the 2007 Bonus Plan is set forth on Exhibit 10.46 to this Current Report on Form 8-K, which is incorporated herein by reference. The target cash bonus amounts for 2007 for the principal executive officer and principal financial officer are set forth on Exhibit 10.45 to this Current Report on Form 8-K, which is incorporated herein by reference.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Number	Description
10.45	Compensation information for certain officers
10.46	Summary of 2007 Executive Officer Cash Bonus Plan
99.1	Press Release entitled “Kosan Announces License of Motilin Agonist Program to Pfizer”

SIGNATURES

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

	KOSAN BIOSCIENCES INCORPORATED
Dated: December 22, 2006	By:	/s/ Margaret A. Horn
		Margaret A. Horn, Senior Vice President, Legal and Corporate Development, General Counsel and Secretary

EXHIBIT INDEX

Number	Description
10.45	Compensation information for certain officers
10.46	Summary of 2007 Executive Officer Cash Bonus Plan
99.1	Press Release entitled “Kosan Announces License of Motilin Agonist Program to Pfizer”

EX-10.45

Exhibit 10.45

COMPENSATION INFORMATION FOR CERTAIN OFFICERS

The table below provides information regarding the 2007 annual base salary and 2007 target cash bonus of the principal executive officer and principal financial officer of Kosan Biosciences Incorporated*.

Executive Officer	2007 Annual Base Salary		2007 Target Cash Bonus**
Robert G. Johnson, Jr., M.D., Ph.D., President and Chief Executive Officer	$	416,000	45	%
Gary S. Titus, Senior Vice President and Chief Financial Officer	$	312,000	35	%

* This table includes all of the named executive officers (as defined under applicable securities laws) of Kosan Biosciences Incorporated

** Target cash bonus is based on 100% achievement of corporate and, if applicable, individual objectives. Actual bonus payments may represent a higher or lower percentage of the officer’s 2007 annual base salary, depending on the extent to which actual performance meets, exceeds or falls short of the specified corporate objectives and applicable individual performance objectives, as determined by the Compensation Committee in its discretion.

EX-10.46

Exhibit 10.46

Summary of 2007 Executive Officer Cash Bonus Plan

Overview and Purpose

This plan (the “2007 Bonus Plan”) was adopted by the Compensation Committee of the Board of Directors (the “Compensation Committee”) of Kosan Biosciences Incorporated (the “Company”) on December 18, 2006 and is designed to offer incentive compensation to the Chief Executive Officer and Senior Vice Presidents of the Company by rewarding achievement of specifically measured corporate goals and, if applicable, individual goals.

Administration

The 2007 Bonus Plan will be administered by the Compensation Committee. The Compensation Committee will be responsible for approving, or recommending to the Board of Directors for approval, any incentive awards to executive officers of the Company, including any incentive awards to the Chief Executive Officer.

Eligibility

The Chief Executive Officer and Senior Vice Presidents of the Company are eligible to participate in the 2007 Bonus Plan.

Corporate and Individual Performance

The Compensation Committee intends to approve in early 2007 the Company’s corporate objectives for 2007. Each participant other than the Chief Executive Officer will also be subject to key individual performance objectives. The 2007 Bonus Plan provides for the payment of cash bonuses to participants if corporate and, other than with respect to the Chief Executive Officer, individual performance criteria are achieved during 2007. The actual bonuses payable for 2007 (if any) will vary depending on the extent to which actual performance meets, exceeds or falls short of the specified corporate objectives and, other than with respect to the Chief Executive Officer, applicable individual performance objectives approved by the Compensation Committee, as determined by the Compensation Committee in its discretion, and on the level of the Company’s then current or anticipated cash reserves. The Company’s Board of Directors or the Compensation Committee reserves the right to modify the corporate or individual performance objectives at any time based on business changes during the year.

Target Cash Bonus Amount

The 2007 Bonus Plan provides a target cash bonus amount for the Chief Executive Officer and each Senior Vice President of the Company, expressed as a percentage of 2007 base salary for each participant.

EX-99.1

Exhibit 99.1

Contact:
Gary S. Titus	Jane Green
Chief Financial Officer	510.731.5335 (office)
510.731.5373	415.652.4819 (mobile)
titus@kosan.com	green@kosan.com

FOR IMMEDIATE RELEASE

KOSAN ANNOUNCES LICENSE OF MOTILIN AGONIST PROGRAM TO PFIZER

Kosan Will Receive Upfront Payment of $12.5 Million; Eligible to Receive Additional

Milestone Payments for Total Deal Value of up to $250 Million

Hayward, CA – December 20, 2006 – Kosan Biosciences Incorporated (Nasdaq: KOSN) today announced the establishment of a worldwide license agreement with Pfizer Inc for Kosan’s motilin agonist program. The agreement includes Kosan’s clinical candidate, KOS-2187 and related compounds. KOS-2187 has demonstrated improved gastric emptying in preclinical studies and may have therapeutic benefit in gastrointestinal diseases such as gastro-esophageal reflux disease (GERD), or diabetic gastroparesis (delayed gastric emptying).

Under the terms of the license agreement, Kosan and Pfizer will collaborate on filing of regulatory documents and initiation of a Phase 1 clinical trial of KOS-2187. Pfizer will be responsible for all development, regulatory and commercial activities related to the motilin agonist program. Kosan will receive an upfront payment of $12.5 million and will be eligible to receive up to $250 million for the successful development and commercialization of KOS-2187 for one indication, as well as royalties on worldwide sales. This total value of up to $250 million includes development milestone payments of up to $72.5 million.

Should Pfizer elect to develop KOS-2187 for a second indication or to develop other Kosan compounds within the licensed rights, additional development and commercial milestones may be payable to Kosan as well as royalties on worldwide sales of any licensed Kosan product.

“We have achieved a major corporate goal by partnering our gastrointestinal-focused motilin agonist program with Pfizer” said Robert G. Johnson, Jr., M.D., Ph.D., President and Chief Executive Officer of Kosan. “Kosan today is focused on advancing novel cancer therapeutics, as evidenced by our advancing Hsp90 inhibitor and epothilone oncology programs which are progressing into later-stage clinical development. Our motilin agonist program is the most promising polyketide-based, non-oncology asset to emerge from our proprietary discovery platform. This agreement with Pfizer further underscores Kosan’s ability to convert technology into valuable product opportunities.”

“Pfizer believes that the mechanism of action of KOS-2187 and its demonstrated activity as a prokinetic agent are significant indications of its potential as a new approach for the treatment of gastrointestinal diseases,” said James Bristol, Senior Vice President, Pfizer World Wide Discovery Research. “We believe that KOS-2187 is a valuable addition to Pfizer’s GI portfolio.”

About Motilin Agonists

Motilin, a hormone that is secreted by the small intestine, stimulates gastrointestinal motility (movement). Erythromycin, a polyketide best known for its antibiotic activity, is an agonist of the motilin receptor that enhances esophageal motility in GERD patients and accelerates gastric emptying in patients with diabetic

gastroparesis. Kosan has developed potent, non-antibiotic derivatives of erythromycin for the treatment of gastrointestinal motility disorders, and selected KOS-2187 as a clinical candidate. KOS-2187 is a potent, selective motilin receptor agonist that is chemically stable and orally bioavailable and lacks antibiotic activity. In preclinical studies, KOS-2187 showed an improved safety profile relative to erythromycin and accelerated gastric emptying, suggesting that it may provide symptom relief in several gastrointestinal diseases.

Kosan has prepared a clinical trial application (CTA) for filing with the European regulatory authorities to enable first-in-human studies of KOS-2187. Pfizer plans to file the Kosan CTA and initiate clinical trials in early 2007.

About Kosan

Kosan Biosciences is a biotechnology company advancing two new classes of anticancer agents through clinical development – Hsp90 (heat shock protein 90) inhibitors and epothilones. Kosan is leveraging its proprietary discovery platform to generate a pipeline of potentially significant product candidates, primarily in the area of oncology.

Hsp90 inhibitors have a novel mechanism of action targeting multiple pathways involved in cancer cell growth and survival. Kosan’s proprietary formulation of tanespimycin (KOS-953) is currently in Phase 1 and 2 clinical trials, primarily for multiple myeloma in combination with Velcade^® and HER2-positive metastatic breast cancer in combination with Herceptin^®. In addition, intravenous and oral formulations of Kosan’s second-generation Hsp90 inhibitor, alvespimycin (KOS-1022), are being evaluated in Phase 1 clinical trials.

Epothilones inhibit cell division with a mechanism of action similar to taxanes, one of the most successful classes of anti-tumor agents. KOS-862 is currently being studied in a Phase 2 single-agent clinical trial in patients with HER2-positive metastatic breast cancer, as well as a Phase 2 combination trial with Herceptin^®. KOS-1584, a second candidate designed to improve pharmacokinetics, is in Phase 1 clinical trials in patients with solid tumors. Kosan’s epothilone program is partnered with Roche through a global development and commercialization agreement.

For additional information on Kosan Biosciences, please visit the company’s website at www.kosan.com.

This press release contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”). Such forward-looking statements include but are not limited to statements relating to the potential for Kosan to receive milestone payments and royalties from the license agreement with Pfizer; the further development and potential safety and efficacy of Kosan’s product candidates, including without limitation KOS-2187 and other compounds from Kosan’s motilin agonist program; development plans with respect to KOS-2187, including but not limited to plans with respect to the initiation of Phase 1 clinical trials and the timing thereof; and Kosan’s ability to generate future product opportunities from its technology. Any statements contained in this press release that are not statements of historical fact may be deemed to be forward-looking statements. There are a number of important factors that could cause the results of Kosan to differ materially from those indicated by these forward-looking statements, including, among others, risks related to the pre-clinical and clinical development of Kosan’s product candidates, including the risk that studies may not demonstrate safety and efficacy sufficient to initiate clinical trials, continue clinical development, obtain the requisite regulatory approvals or to result in a marketable product; Kosan’s reliance on Pfizer for the potential manufacture, development and commercialization of any compounds from Kosan’s motilin agonist program, including KOS-2187; and other risks detailed from time to time in the Company’s SEC reports, including its Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 and other periodic filings with the SEC. Kosan does not undertake any obligation to update forward-looking statements.

Velcade^® (bortezomib) is a registered trademark of Millennium Pharmaceuticals, Inc.

Herceptin^® (trastuzumab) is a registered trademark of Genentech, Inc.

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