Achieve Life Sciences Inc (ACHV) 2004 Q3 法說會逐字稿

At this time, I would like to welcome everyone to the Sonus Pharmaceuticals' Third Quarter 2004 Conference Call.

(OPERATOR INSTRUCTIONS.)

Thank you. Miss Dull, you may begin your conference.

Welcome to Sonus Pharmaceuticals' 2004 Third Quarter Conference Call. I'm Pamela Dull, Director of Investor Relations. To begin the call, we issued two news releases after the market closed today regarding our financial results and corporate progress for the third quarter, as well as our proposed acquisition of Syntem, a drug discovery and development company. If you need copies of these press releases, please contact us at our Investor Relations department and copies will be sent to you. You can also access the news releases on our website at www.sonuspharma.com.

I'd like to remind everyone that some of the statements made today may include predictions, estimates, and other information that might be considered forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from our predictions and estimates as a result of various risk factors, including those identified in our Form 10-K for the year ended December 31st, 2003, our Form 10-Q for the quarter ended June 30, 2004, and other SEC filings, all of which can be accessed on our website.

With that, I'll turn the call over to Mike Martino, President and CEO of Sonus.

Good afternoon everyone, and thank you for joining our conference call. With Pam and me on today's call are Dr. Michael Stewart, our Chief Medical Officer, and Dr. Neile Grayson, Vice President of Corporate Development. I'm also pleased to introduce Alan Fuhrman, our Chief Financial Officer, who I'm delighted to say has hit the ground running since joining Sonus in September.

Our discussion today will focus on two key messages. First, with regard to our most important corporate priority, I am pleased to report that we are making good progress with our lead product candidate, Tocosol Paclitaxel. Specifically, we have opened discussions with FDA about our proposal for pivotal phase III testing of the product, and partnering discussions for the product are very active and advancing.

Second, based on this strong foundation with Tocosol Paclitaxel, and our belief in its potential for commercial success, we are very pleased to announce that we have entered into a definitive stock purchase agreement to acquire Syntem, a privately held company based in Nimes, France, which is about a one-hour drive west of Marseilles. We believe this transaction will increase long-term shareholder value by adding complementary technologies and capabilities that expand our drug development pipeline, and strengthen our drug discovery engine in the multibillion-dollar markets for oncology and pain management.

So, our agenda for today's call will be as follows. First, Alan will review third quarter financials. Second, Michael Stewart will update our progress with Tocosol Paclitaxel, and I'll provide an update on partnering discussions for that product. Then we'll shift gears and talk about Syntem. I'll provide the strategic rationale for the acquisition, Neile will discuss the products and technology, and Alan will discuss the terms and the financial implications, as well as our financial outlook going forward. Then I'll summarize key messages, and open the line for questions.

So, let's get going. Again, I'd like to welcome Alan to Sonus, and turn the call over to him.

It's a pleasure to be here with all of you today, and it's an exciting time to be joining Sonus. I hope to have an opportunity to meet with many of you in person over the next few weeks, and I look forward to working with Pam and Mike to keep you apprised of our corporate developments as we move ahead.

Turning to our financial results. We reported a net loss of 3.6 million, or 17 cents per share, for the third quarter 2004. That's compared to a net loss of 2.5 million, or 15 cents per share, for the third quarter of last year. Now, for the nine months ended September 30th, 2004, the Company reported a net loss of 11 million, or 55 cents per share, compared with a net loss of 7.9 million, or 53 cents per share, for the same period in 2003. The higher net loss for the third quarter, and for our year-to-date financial results, reflected planned increases in research and development spending, primarily for Tocosol Paclitaxel clinical development, and to a lesser extent, for our research programs and corporate development initiatives.

At the end of the quarter we had 25 million in cash. As anticipated, our financial results to date reflect a year-to-date of approximately 1.2 million per month on average, reflecting continued investment in the clinical and regulatory development of Tocosol Paclitaxel, and work to bring forward additional product candidates. Later in the presentation I'll discuss the financial impact of the Syntem acquisition, as well as our financing aids for 2005.

I would now like to provide you with a brief update on our Sarbanes-Oxley Section 404 progress. Over the past quarter we have put considerable effort into assessing the effectiveness of our internal control. We have nearly completed the documentation, and internal testing phases related to all of our significant processes, and our external auditors, Ernst & Young, have also completed most of their interim audit procedures. This work will be subject to a final year-end audit, and a separate audit opinion regarding the effectiveness of our internal controls will be included in our 10-K for the year ended 12-31-2004. Bottom line, to date we have no significant deficiencies or material weaknesses that have been identified.

That completes a quick snapshot of our financial results for the third quarter. And now I'd like to turn the call over to Michael Stewart to provide an update on our progress with Tocosol Paclitaxel.

Michael B. Stewart, M.D.: As Mike mentioned, we and the FDA have begun the process of reaching agreement on the remainder of the clinical and non-clinical work that will result in submission of a 505(b)(2) NDA for Tocosol Paclitaxel. We've submitted data from all work done to this point, including the results of the clinical pharmacology comparative study of Tocosol Paclitaxel and Taxol, that was conducted earlier this year, and our proposal for the ensuing phase III clinical trial to serve as the basis of approval for the NDA. We requested, and FDA has confirmed, a face-to-face end-of-phase-II meeting to discuss the results of all work performed to date on Tocosol Paclitaxel, and our proposal for a phase III trial.

With regard to the clinical pharmacology study, it would be premature now to comment on the specific results in advance of our FDA discussion. However, we believe the data are compelling, and I'm pleased to say that the study investigators are planning to submit the results for presentation at the ASCO annual meeting in May 2005. Until now, understandings of the clinical pharmacology of paclitaxel were based on studies using Taxol, and the effects of its toxic solubilizer, cremophor, could not be fully characterized. In analyzing our data, we've learned not only a great deal about Tocosol Paclitaxel, but a lot about Taxol as well.

With regard to our FDA submission, we have proposed to conduct a single pivotal phase III trial to gain marketing approval of Tocosol Paclitaxel. In addition, agreement about the full content of the FDA dossier must be reached with the FDA. As is the usual case following an end-of-phase-II meeting, final written agreement and approval on all points of our pivotal program will occur after further exchange of written documents. We hope to be able to finalize agreement with the FDA on the study protocol by year-end. We, of course, will keep you informed as material developments occur.

In planning the phase III clinical program, we believe it will also be in our best interest to pursue the special protocol assessment process. In fact, the FDA has recently encouraged sponsors to apply for SPA agreement. Obtaining an SPA agreement adds time to the trial startup period, but it helps to minimize uncertainty in the approval process, and can substantially reduce review time once the NDA is submitted. We intend to discuss an SPA with the agency after reaching agreements on the final study design.

We currently are targeting initiation of phase III testing in the second quarter of 2005, and have already begun talking with clinical investigators and contract research organizations to conduct the program. Regarding how this impacts our NDA submission target date, our original guidance had been that it could occur late next year, or early in 2006. We now believe that it will not be possible for the NDA to be submitted by the end of next year. The revised estimated timing for submission will be determined once we have reached final agreement with the FDA on the phase III program.

Finally, let me give you just a brief update on the phase IIb bladder and breast cancer studies that we're conducting in parallel with the 505(b)(2) strategy. Late last year we initiated a trial of Tocosol Paclitaxel in the treatment of inoperable or metastatic urothelial transitional cell carcinomas, which are mostly bladder cancers. You may also recall that since there are limited treatment alternatives for this disease, we applied for, and the FDA granted, fast-track designation for our development program in this indication.

We began the study with some of the most respected U.S. investigators in the field, including key opinion leaders at the Cleveland Clinic, the University of Pennsylvania, the University of Maryland, the Swedish Medical Center, and the Fred Hutchinson Cancer Research Center. Enrollment in these sites in the U.S. has proved to be as challenging as we told you it might be, because the population of advanced bladder cancer patients is small, and standard treatment practice for these patients in the U.S. is, frankly, not very consistent.

To complete enrollment in this study, we will be opening European sites as we also stated in our last conference call, in Spain and the U.K. We expect study sites in these countries to contribute meaningfully to study enrollment in early 2005, and we look forward to reporting response rate and time to progression data as they mature.

The third component -- I'm sorry -- the third component of our regulatory strategy includes a program to expand our knowledge and experience with Tocosol Paclitaxel in approved indications for taxane-based chemotherapies. With the positive results from our phase IIa studies that used Tocosol Paclitaxel in the second-line treatment of late-stage cancers, we decided to test it as first-line treatment in metastatic breast cancer.

As mentioned in our last update, we initiated a phase IIb study in breast cancer, and we are pleased that patient enrollment is progressing quite rapidly. Over half of the projected patients have already successfully qualified for enrollment. We expect to complete study enrollment of approximately 45 patients before year-end, and to have initial response data in the first quarter of 2005.

With that, I'll turn the call back to Mike.

I know that many of you are interested in our progress on the timing related to a corporate partner for Tocosol Paclitaxel. I can tell you that discussions are gaining momentum, and in at least one case, are at the stage of discussing substantive terms. We are working diligently to structure a relationship that allows us to maximize the value of Tocosol Paclitaxel, to deliver the highest possible return for our shareholders. We believe the clinical data to date suggests that Tocosol Paclitaxel is a differentiable product with solid advantages.

Our discussions to date are with potential partners that share this view, and therefore assign the appropriate importance and urgency to successfully completing the clinical and the regulatory development of Tocosol Paclitaxel in a way that optimizes its market introduction. The list of potential partners includes multinational pharmaceutical companies, specialty drug, and branded generic drug companies. We believe that these discussions will soon converge on a deal, as we finalize agreement with the FDA on the phase III program.

While the timing is aggressive, based on the nature of our discussions to date, we believe that getting to an agreement in principle with the right partner on the right terms is achievable in 2004. And I want to assure you that we are working hard to accomplish that objective. At the same time, I want to be very clear that leveraging Tocosol Paclitaxel to maximize shareholder value has always been our ultimate objective. And if, in our judgment, sliding the timeline into the first part of 2005 puts us in a better position to achieve that, we will do so. In other words, and again to be very clear, we are not going to give up on significant deal points just to get a deal done by a specific time on the calendar.

Before turning to the proposed acquisition then, I want to reiterate our confidence in the progress that we continue to make on the development of Tocosol Paclitaxel, which continues to be our top priority. Specifically, we believe we are on track over the next 3 to 6 months to reach agreement with a corporate partner; reach agreement with the FDA on the phase III program, and initiate pivotal phase III testing of the product.

Now let's discuss our announced intention to acquire Syntem. Given our progress with the development of Tocosol Paclitaxel, we believe this is the right opportunity, and the right time, to undertake this acquisition. As we have communicated in the past, we have actively been seeking ways to diversify Sonus into a multi-product company, through both internal R&D and through external in-licensing and acquisition. Internally, we continue to make good progress with the development of alternative camptothecin-based compounds, and still expect to move one of those product candidates into the clinic in 2005.

During the past year, we have also evaluated a significant number of potential business development opportunities that would allow us to further leverage our capabilities and assets. We believe that the acquisition of Syntem is an outstanding opportunity that will result in a stronger company, and contribute to increased shareholder value in three ways, as follows. First, expands and diversifies our product pipeline with the addition of three compounds for pain management that are in preclinical testing, two of which could enter the clinic next year. In addition, several earlier-stage compounds may provide other clinical product opportunities in cancer treatment.

Second, it brings a proven proprietary platform in peptide chemistry that complements our Tocosol drug delivery platform, and enhances our ability to develop drugs for oncology and pain management that are more convenient to use, safer, and more effective than drugs formulated with alternative technologies. And third, it strengthens our organization, and intellectual capacity, with the addition of System's people, scientific expertise, and collaborative European networks. Simply stated, enhanced shareholder value from this acquisition can be attributed to three key areas -- pipeline, platform, people.

Now I'd like to turn the call over to Neile Grayson to elaborate on each of these points.

Neile A. Grayson, Ph.D.: First we'll talk about the expansion of our preclinical product pipeline. The Syntem acquisition immediately adds three preclinical compounds that are currently designated Syn1002, Syn1003, and Syn1001, for treating inflammatory neuropathic and chronic pain, which are multibillion-dollar worldwide market opportunities. We believe that Syn1002 and Syn1003 should be ready for clinical trials next year. Syn1001, in an earlier stage of development, may be ready for clinical trials in 2006.

Syn1002 is a non-opioid peptide analgesic that would compete in the pain management market currently dominated by COX-2 inhibitors such as Celebrex and Bextra, without the potential side effects of this class of compounds. An expensive body of preclinical work indicates that this molecule is extremely potent at low doses, and very tolerable at high doses. It is believed to work by reducing pro-inflammatory cytokine production. This property has been independently demonstrated in animal models of inflammatory and neuropathic pain.

A number of companies are currently working in the competitive space of pain management, and several are also developing peptide drug candidates. A recurring problem with these other peptide candidates, unlike Syn1002, is their lack of in vivo stability, which precludes their use orally, and which has limited them to administration by direct injection into the spinal fluid for treatment of severe chronic pain. In contrast, Syn1002 is currently administered preclinically by intravenous or SubQ injection, and has the potential for self and oral administration.

Syn1003 is a novel opioid entity that exhibits an increased potency, faster onset of action, and binding to both mu and kappa opioid receptors. This non-peptide analgesic is an outgrowth of prior research at Syntem. In preclinical studies to date, Syn1003 shows good analgesic effects and exhibits fewer side effects with respect to dependence and respiratory depression. The initial development objective is for management of acute and chronic peripheral pain.

Syn1001 is another novel opioid construct with faster onset, longer duration of action, greater potency, and enhanced central nervous system uptake, as compared to currently marketing opioids. Preclinical evaluation of this compound has been extensive, including opioid and non-opioid receptor binding, in vivo analgesic effect in models of acute inflammatory and neuropathic pain, and GLP toxicology. A first-generation version of Syn1001 is currently completing phase I clinical trial, and the data are being analyzed.

Based on available information, Sonus and Syntem management believe there is an opportunity to reengineer the current molecule to improve its pharmacologic profile and commercial potential, and we expect this improved second-generation of the drug to be ready for the clinic in 2006. Syntem is also evaluating additional compounds in the discovery and preclinical stages of development for their potential use in oncology applications, including treatment of solid tumors. These products will complement and expand Sonus' oncology portfolio, which currently includes Tocosol Paclitaxel, camptothecin derivatives, and novel platinum compounds.

Now, I'd like to move on to discuss the broadening of our drug discovery capabilities. Syntem provides a proprietary and complementary technology platform that includes two distinct components -- expertise in peptide chemistry and biochemistry, and a validated drug discovery process. System's peptide technology provides a series of proprietary rationally designed peptides that are either active on their own, or can be linked with conjugates to active drugs to improve their delivery in the body. In the conjugated form, these peptides enhance transport of active drugs across complex cell membranes, such as the blood-brain barrier, and brings them to some selected organs and tissues.

System's technology of using peptides to transport drugs across membranes has been named Peptrans. We believe that Peptrans may also provide complementary benefits to our Tocosol delivery technology platform. Composition-of-matter patents related to System's technology and drug candidates have issued in Europe. Counterpart applications have been filed in the United States, Europe, Japan, Canada, and Australia.

The second component of System's technology platform is called Actimap, which is a proprietary computational process for designing and optimizing new peptides, and/or drug candidates. Syntem already has an extensive library of peptides under evaluation. Syntem has demonstrated the ability of Actimap to discover and optimize drug candidates through the discovery and design of a peptide for SangStat, which is now part of Genzyme. This peptide is being developed by Procter & Gamble, and has successfully completed phase II clinical trials for treatment of inflammatory bowel disease.

Syntem also brings two product candidates that are already partnered with small European biotech companies. Probiodrug, a German company, is working with Syntem on a project for multiple sclerosis, and a private Swedish-American company is also working with Syntem on a project for the treatment of ALS, or Lou Gehrig's disease.

Finally, let's talk about the strengthening of our organization through the Syntem acquisition. The acquisition will also bring important new expertise and resources to Sonus through the addition of System's scientists, and their network of collaborators. It is worthwhile to note that the respective capabilities of Syntem and Sonus are quite complementary, with very little overlap. Syntem brings a well-integrated team of scientist managers, who have established disciplined processes for decision analysis, decision making, resource utilization, and tracking outcomes, focused on early discovery through preclinical proof-of-concept testing.

They have 38 employees, over half of whom hold doctoral degrees. Syntem is headed by Dr. Michel Kaczorek, who has 24 years of experience in the biotechnic/biotechnology industry, including founding Syntem in 1995. Dr. Kaczorek was in charge of R&D at Pasteur Vaccins, now Pasteur Merieux. He is also one of the cofounders of Proteine Performance. Upon completion of the acquisition, we anticipate that Dr. Kaczorek will join the Sonus board of directors, and will become our Chief Science and Technology Officer, reporting to Mike Martino. In addition, Dr. Kaczorek will continue to manage the day-to-day operations of the Syntem facilities in France. Dr. Kaczorek has built a talented management team who brings significant experience from organizations like Eli Lilly, France's National Science Research Centre, Pierre Fabre Medicament, Hybridon, and Oxford Molecular.

Syntem has a long-standing and valuable network of expert collaborators and consultants, ranging from academic scientists to experienced pharmaceutical industry veterans at prominent institutions in Europe, the U.S., and around the world. In addition, Syntem has a top-tier Pan-European institutional investor base that includes Apax Partners, Banexi Ventures Partners of Paris, BankInvest, Lombard Odie, and 3i. Finally, the acquisition establishes a presence for Sonus in Europe that will provide an important asset to us as we begin phase III clinical testing for Tocosol Paclitaxel.

I will now turn the call over to Alan Fuhrman to discuss the financial terms of the transaction and the timeline for approval.

Under the terms of the agreement, Sonus will acquire all of the outstanding capital stock of Syntem from its shareholders. The purchase price will be payable in shares of common stock of Sonus, and will be based upon the average closing price for the 20 consecutive trading days ending two days before the closing date. The shares issuable in connection with the transaction are payable in three installments. The initial issuance of Sonus shares at closing will consist of approximately $10 million of Sonus common stock. The second and third installments, having a current value of approximately $10 million each, are conditional upon product candidates of Syntem reaching phase I clinical trials.

The number of shares issuable to shareholders of Syntem is subject to both upper and lower collars, such that the aggregate number of shares issuable will not exceed 29 percent, or be less than 26 percent, of the fully diluted shares of common stock of Sonus, should both milestones be achieved. As an example, based on yesterday's closing price of $2.65, the initial issuance of shares at the closing would result in System's shareholders owning approximately 3.9 million shares, or 15 percent, of the outstanding fully diluted shares of Sonus.

If both the contingency milestones are reached, the shareholders of Syntem would be issued additional shares, such that the total consideration for the transaction, including the initial payment, would be between 7.6 million shares and 8.9 million shares. The transaction has been approved by 100 percent of System's shareholders, and was unanimously approved by Sonus' board of directors. It is subject to a number of customary closing conditions, including the approval of the issuance of shares by Sonus shareholders, and the transaction is anticipated to close in the first quarter of 2005.

As far as a timeline of activities to closing the transaction, we will file a proxy statement with the SEC sometime later this month. Depending on whether or not we receive SEC review, and the timing of such review, we expect to mail the proxy statement to shareholders near the end of the calendar year, and to hold a special Sonus' shareholders meeting approximately one month after that to vote on the acquisition.

Now, looking at the balance sheet. As of September 30th, 2004, on a pro forma basis, the combined entities had cash and cash equivalent of approximately 32 million. For the nine months ended September 30th, 2004, our combined pro forma burn rate was approximately 1.8 million per month, and would fund our current operations for almost two years. Our financial strategy going forward will depend on the outcome of our discussions with the FDA, and the structure of a corporate partnership for Tocosol Paclitaxel.

In 2005, we anticipate our burn rate will increase as we enter phase III trials with Tocosol Paclitaxel, and as camptothecin and Syn1002 move into the clinic. As we gain additional clarity on our pivotal trials program, and the corporate partnership, we'll be able to provide additional guidance for 2005 financial needs, and our plans for addressing them.

With that, I'd like to turn the call back over to Mike.

Thanks Alan. I want to emphasize our view that this acquisition builds upon the foundation that we have established with Tocosol Paclitaxel, and significantly expands our footprint as a pharmaceutical development company. The combination of Sonus and Syntem will result in a stronger company, with a broader product pipeline, expanded drug discovery and development capabilities, and increased scientific expertise and resources, all of which we believe will enhance long-term value for our shareholders.

This is a milestone step in our ongoing effort to build a company that can generate sustainable value over the long term, with multiple product opportunities. It reaffirms our confidence in our current product development pipeline, and positions us to take advantage of additional opportunities for future success.

To wrap up our prepared comments, I'd like to mention that over the next several weeks, we will be on the East and West coast to meet with investors to discuss our progress with Tocosol Paclitaxel, and the acquisition of Syntem. I'm very pleased that Dr. Kaczorek will be joining us for the meetings on the East coast. We will also be presenting at two investor conferences, starting with the RBC Dain Rauscher Conference in Seattle tomorrow -- that's Thursday, November 4th, at 9:20 a.m. Pacific Time, as well as the Granite Financial Healthcare Conference on November 18th in San Diego. Our presentations at both of these conferences will be broadcast on the Internet, and can be accessed on our website.

That completes our prepared remarks, and we'd be pleased to answer any questions. Nikki (ph), could you please open the line for the first question?

(OPERATOR INSTRUCTIONS.)

Randy Salek (ph).

A question on the acquisition. What kind of capabilities do you think that this provides you? And why was the -- there a necessity to make this acquisition now? I mean, it just seems like you have a lot on your plate, so this must have been pretty important, or exciting. Or it must have indicated your confidence in, you know, what's going on with the FDA and your partner negotiations. Guess I don't quite understand the timing and the capabilities that it provides the company.

Let me summarize a few points, and then I'll turn it over to other members of the team to add their perspective.

Sure.

First, I want to reemphasize that this acquisition very much emphasizes the confidence we have in our current programs with Tocosol Paclitaxel. Second, we believe that a key element of generating sustainable long-term value for shareholders will be a function of our ability to generate a continual stream of new drugs to enter the clinic, and ultimately to be commercialized and partnered, or to be marketed on our own. We believe that the combination, number one, gives us a significantly broader current pipeline. With -- where we could go from Tocosol Paclitaxel in advanced trials, and camptothecin in phase I trials, to a pipeline with two additional products in phase I trials within one year of closing the transaction, and the potential for one or more additional products in the clinic in the year following that. So, it significantly broadens our pipeline.

Is there a burn there?

I'll turn that over to Alan to address that in a moment.

Guess the question is -- I guess you don't make that acquisition until the first quarter, and that should be after you have a partner, so I would think that, you know, what is your contingency plan in case the partnership negotiations drag on?

Well, again, I'll let Alan give you his perspectives on that in just a moment.

Okay.

Let me quickly add that in terms of capabilities, I would really view this as follows. What Syntem has demonstrated is an outstanding management team with very efficient and effective processes focused on drug development from discovery through preclinical proof-of-concept. And along the way they've utilized the Acti-map technology to really give them a very efficient and effective way to optimize molecular structure of drug compounds.

What we bring to that is focus and capability from the GLP preclinical-stage through clinical and regulatory. We think we also bring significant capabilities in formulation and optimization of formulations. And we think we bring the overall management of a public company that brings significant value to the shareholders of Syntem.

In terms of why do it today? Well, we have been evaluating opportunities to diversify our portfolio for a long time. And I can only tell you that in the past year since Neile has joined us we have evaluated a significant number of opportunities, several of which we have taken to advanced stages of discussion. This one excited us from the very beginning. And sometime on these things you just have to do them when they're ready to be done.

Our progress with Tocosol Paclitaxel gives us the confidence that we can do this now, and that we have the management capacity to number one, continue to focus on Tocosol Paclitaxel as our most important priority, move that through FDA, and get a partnership done on that. And number two, to get this deal done, and to provide the synergies necessary to move the two additional products into the clinic in a very short period of time.

Now, that's my perspective, Randy. I'd like to ask Neile and Michael if they have any additional perspectives on the pipeline, or the synergies that they've seen. Because we really have all been very actively involved in this. And then we'll turn it over to Alan to discuss the financial questions.

Michael?

Michael B. Stewart, M.D.: Well, just very briefly because I think you stated it very well, Mike. I think that the two things that are the most impressive about Syntem are one, not just their pipeline that they've developed and the things they've brought forward, and what that means scientifically. That's very exciting. But in particular, their management team are extremely talented. They have an operating culture which is very similar to ours, and it just -- as we have gone -- as Mike mentioned, we've looked at a lot of opportunities. We've looked at a lot of things. And given where we are with our own programs and our need to diversify to become more than a one-product company, this is just an excellent fit. And I think everybody here is very excited about the future.

Thank you, Michael. Neile?

Neile A. Grayson, Ph.D.: I think both Mike and Michael have covered the salient points. And I just would like to add that we've been looking at opportunities, as everyone has stated, for a while. This is definitely the best fit, and the product opportunities are the most exciting, and they allow us to expand in a related area from the one that we're currently focused on, which is oncology.

Okay. And now the difficult question goes to Alan.

Well, if I look at what historically as of Q3, our burn has been 1.2 million per month, and their burn has been approximately $600,000 per month. The things that are going to substantially change that, as I mentioned earlier, will be as we get into pivotal trials, and as Neile talked about the timeline on their two other products, Syn1002 and Syn1003, and our camptothecin product, most of those -- the increased clinical costs for that will start to hit us later next year. Not right up front. We do have some ongoing breast and bladder studies that are in our up-front 2005 spend.

But if you look at that, and if you look at our cash balance of 32 million combined, I would say that the addition of Syntem does not alter the timing of when we need to raise money ourselves. So, I think with our combined cash, with the status of the programs that are going to come into the queue next year, I think again, timing-wise, it was as good a time as any to do it, given the other factors.

And I might add that while it doesn't change the profile of when we need to add cash, it provides significant opportunities to support the financability of the company, and those opportunities near-term are in the form of two additional products that we really believe will be ready to enter the clinic in the second half of next year.

When you say enter the clinic, would that be phase I?

That would be phase I studies.

Okay.

Now again, these are pain management products, so please keep in mind that phase I studies for this category of products would be in healthy volunteers. As such, they would be much less complicated studies in all likelihood, than the phase I studies that we have conducted, for example, for Tocosol Paclitaxel, which has to be tested in late-stage patients.

So, again, these are pain management types of products?

Well, those are the products that are nearest -- are the furthest through preclinical development, and the most ready to enter the clinic. There is also a portfolio of development-stage oncology products that we're very excited about. We'd love to talk about those, but we agree with Syntem management that we need more data as the basis for doing so. Nonetheless, longer term we are really quite excited about the potential to significantly expand our oncology portfolio with some very differentiated products.

And is there differentiation in these pain management products?

Well, I'd ask Neile to -- Neile could go into the details on that, Randy, and we'd be happy to meet with you next week to go into the details when we're on the East coast. Essentially the summary of the benefits that we see are better activity with lower doses, better tolerability. Because potentially of the wider therapeutic windows, we think that gives us the maximum flexibility around the formatting of the drug, as Neile said, we -- certainly we have the data to support IV administration. We're very optimistic that it could support other administration routes as well. We have to generate the data to support that.

Okay. And last question. I don't want to take up too much time. It sounds like you're in the stage with partners where by the time you hear from the FDA and resolve everything, you'll be ready to very quickly enter into an agreement with a partner. You won't then begin negotiations, so I imagine your discussions are focused around the contingencies, is that correct?

I would -- I would characterize it as follows -- that we are in advanced stages with several potential partners, including with at least one at the point of discussing substantive terms. And I think my belief that we could still get to at least an agreement in principle in 2004 is based on the status of those discussions. So, I think it is correct to say that we will not have to begin negotiations from square one when we have clarity from FDA.

At the same time, I want to emphasize that what is driving us is agreement on terms that we consider essential to supporting appropriate shareholder value on this. And the timing of this will be driven by agreement on those terms, first and foremost, and less by the calendar.

Matt Kaplan.

Interesting transaction. Let's go over first Tocosol Paclitaxel, and just get an update with respect to when do you think -- I guess this is a question for Dr. Stewart -- when do you think best-case scenario that this product could get to market?

Michael B. Stewart, M.D.: Well, Matt, I think that as I said, the estimate that we're -- the revised guidance that we'll give will depend very much on the agreement we reach with the FDA. And I think that that really is where I need to be. That I'm pleased with what we've seen in the development of this product -- this product over the last two years. I continue to be very pleased and optimistic about where we'll be able to go with it.

I think the important message for today's call was that I think it's unlikely, I don't see a way that we can continue to give guidance that we would submit an NDA by the end of next year. But I think it would be most appropriate to come back to you when we do have clear, revised estimates for when that will happen.

And in terms of starting the phase III trial, when do you estimate you could start the phase III trial?

Michael B. Stewart, M.D.: As I mentioned, we're targeting right now doing that in the second quarter.

Okay. How long do you think that--?

Michael B. Stewart, M.D.: We anticipate having -- we, as I mentioned, we want to go through the first agree -- the protocol with the FDA, and then go through the SPA process.

So, let's say the FDA agrees upon your proposal, in terms of one phase III trial. How long do you think that phase III trial would take to do, including enrollment? Would it be 18 months roughly?

Michael B. Stewart, M.D.: Well, I think that the enrollment period is something that we would want to do as aggressively as possible. And, you know, I think typically in cancer you think about the need to have several hundred patients in a phase III. And you try to identify the centers globally that are going to contribute the most to that, and to get that done in as quick a period as you can. Obviously the best way to shorten your overall time is to enroll the bulk of the patients up front, because then while you're finishing up enrollment, the bulk of your patients are moving toward the endpoint. And the overall duration depends on the endpoint that you -- that you use. And that's very central to the discussions we're having with FDA.

Right. And most clinical trials follow kind of a hockey stick enrollment path generally, so if you're -- if you're thinking about an enrollment of, let's say 12 months, and then a treatment period, would it be the best-case scenario, could you complete this trial by the end of '06?

Michael B. Stewart, M.D.: I think that's probably generous. You know, one of the things that everybody tries to avoid is having to straggle at the beginning and then make up at the end. So, the hockey stick approach that most people are trying to use now with proactive patient recruitment is an inverted hockey stick, where the bulk of the patients are enrolled early, and then you -- your efforts to finish enrollment are what brings up the rear.

Okay. Great. And in terms of, I guess -- a question in terms of your discussions with the FDA. From what Mike Martino said during his prepared comments, it sounds like you'll be able to wrap those up and have a definitive agreement with the FDA, not including an SPA, by the end of the year. Is that -- is that accurate?

Michael B. Stewart, M.D.: That's what we're targeting.

Okay. So, at that -- at that point, it's a situation where things could start to converge with a -- with a partner, basically at the end of the year, when you have that finalized agreement in terms of what's going to happen, or what's going to be necessary in the protocol for the phase III? Does that make sense?

Matt, I think that's fair, although I would emphasize again the point that I don't believe, at least based upon where we are in discussions with several potential partners, that that will be necessarily sequential.

Michael B. Stewart, M.D.: No, I think in fact you might remember, Matt, that at the beginning of this year, Mike told you this would be a year of convergence. And I think that that kind of thinking is exactly what we have worked hard on, and it's -- we see stuff coming together. And it's not linear.

So, that convergence -- that point of convergence seems to be continually being pushed out, so it seems as though -- it looks as though it's going to still converge at the end of the year though?

Well, as I said, I continue to be optimistic, and continue to believe that we could have an agreement in principle by the end of the year. However, what will drive that is not the calendar. It will be reaching acceptable terms on what we view as the key elements of a deal.

Right.

You know, the reality, Matt, is that our shareholders -- and I would remind everyone that I'm a significant one of those. In fact, no single shareholder's portfolio is more heavily weighted towards Sonus stock, and no single shareholder is more illiquid in Sonus stock than I am. So, I am fully cognizant of the shareholder value implications of this. And every single member of this management team can say the same thing.

So, the point is that we have 100 percent of the downside on this anyway, and what we are looking for is the deal that gives us the appropriate percentage of the upsides. And we have held firm on that. We believe we will be successful on that. And the timing of a deal will be driven by our ability to get to that point. We're confident that we can get there. I believe that there's a better than 50/50 chance that we can still get there by the end of the year. But what's driving it is the terms, not the calendar.

So, you're far away on exact terms that you agree on as --?

I wouldn't characterize it that way, no. You're putting words in my mouth.

Okay. Great. Well, let's kind of shift over to the Syntem transaction. I guess a number of questions with respect to that. Could you give some more detail on 102 and 103 in terms of what their targets are as peptides, and I guess more of a question for Neile or Dr. Stewart, and what you -- why you're so excited about these two compounds?

Neile A. Grayson, Ph.D.: Sure, Matt. This is Neile. Syn1002, as we stated, is an analgesic, and it does not bind to traditional opioid receptors. And we believe it works by reducing pro-inflammatory cytokine production on the basis of substantial preclinical work that's been generated to date.

Which cytokines are those? That it reduces?

Michael B. Stewart, M.D.: Well, for example, IL6, some of the interferons.

Great.

Neile A. Grayson, Ph.D.: Okay. So--.

Michael B. Stewart, M.D.: (Indiscernible.)

Neile A. Grayson, Ph.D.: Yeah. Okay. So, and one of the reasons why we're so excited about this is because of the competitive space that this could potentially compete in. This is a very large market opportunity. The product is small. It appears to have a fairly good stability in vivo, so it doesn't need to be administered intrathecally. We believe it will cross the blood-brain barrier, so there won't be problems in that regard. And we also believe that because there's such high tolerability, and it's active at such low doses, that there is the potential for self and oral administration.

And what's the size of the peptide?

Neile A. Grayson, Ph.D.: It's less than 10 amino acids.

And that's scheduled, or on target to be in the clinic first half, second half of next year?

Neile A. Grayson, Ph.D.: Next year.

Next year. And 103?

Neile A. Grayson, Ph.D.: Sure, 1003 is different. It's not a peptide. It's a novel opioid compound, and it binds to both mu and kappa opioid receptors, which could have very interesting potential consequences when we start testing it in humans. Because, as you probably are aware, the binding pattern of opioid compounds can be reflected in the resulting dependence and side effects profile of the compound. Okay? It's also -- has very good activity. It has a higher potency and faster onset of action than -- in preclinical testing, than the classical opiates.

And that will be the second compound that goes into clinic, or the first, or in tandem?

Neile A. Grayson, Ph.D.: That should be -- currently we anticipate that it will be the second. Of course, it's still preclinical, and we're waiting for the science to be completed.

And just going back to 1001, you said there's a proof-of-principle study phase I, with a first-generation compound?

Neile A. Grayson, Ph.D.: That's right.

If you go back to 1002, is that using first-generation technology, or second-generation peptide technology? Or is it -- or is it all the same technology, just different products?

Neile A. Grayson, Ph.D.: They're -- Syn1001 is non-opioid, so when we're talking about the first- and second-generation technology, we're referring to part of the construct, not the entire molecule.

Okay. And then with respect to the terms of the transaction, I guess more for Alan, just trying to get a sense in terms of how this was arrived at, in terms of roughly, you know, total, I guess almost 9 million -- let's call it 8 to 9 million shares, or almost 40 percent of Sonus stock for preclinical -- for preclinical pipeline. Just trying to get a sense of how you arrived at the value?

Well, Matt, I think for starters we looked at a number of factors, including comps, the products that are in development, the risks, the market size. And in fact we, you know, had advisors on this -- on this project. And I think when we looked at all the different factors, and came to our conclusions, we felt that the price that we -- that we paid is fair. Now, keep in mind that the 8.9 million only gets put into play after both products, or after two products have reached phase I.

Now is that just entering phase I, or successful completion of phase I?

It's initiation of phase I.

Initiation?

Yes. And so, just to further clarify that, after the initial payment, the remaining balance of the shares that I discussed are payable in two equal installments, based on product one and product two.

Okay.

So, Matt, if I can give you my perspective on this, if you take Alan's numbers and say the up front portion is approximately $10 million in shares--.

Right.

And take into account that that acquires approximately $2 million in cash on the balance sheet at the time of close, effectively we're paying 8 million in shares up front for three products in later-stage clinical development. With two of those having the potential to enter the clinic within 12 months of the close of the transaction, or sooner, and a third entering the clinic within 6 to 18 months. And you look at the comparables, frankly we think this is a terrific value. When you add to that the additional benefits from the technology platforms, the synergies from the technology platforms, and the people, the network that we are acquiring, we think it's an extraordinary value.

As part of our presentation on this to shareholders, we will be prepared to do two things. Again, and I think very importantly and excitingly, Michel Kaczorek will be joining us for the meetings on the East coast, in New York and Boston. And frankly I think there is no more eloquent a spokesperson for the Syntem products than Michel. Secondly, we will be prepared to share with investors our view of the comparables on this, as part of the explanation for why we believe this is a -- not only a very fair transaction for our shareholders, but an outstanding transaction for our shareholders.

Great. Well, congratulations.

David Grubber (ph).

A couple questions. One is, are the conditional payments based on the closing price of the stock at that time?

This is Alan. So, the -- at the close, there's a price, and that price really will set the value. But the -- but it's overridden by the callers. So, in reality the number of shares cannot be greater than 29 percent, or less than 26 percent, should both of the milestones be met. So, in terms of talking about it at close, it's really -- it's a hypothetical future value, but the real value will be determined based on the time we issue those shares.

Okay. So, it's 26 to 29 percent of the share count?

Yes. It's based on -- based on shares.

Okay.

And that's based on total at closing, and our fully diluted cap table at closing.

Okay. Fair enough. And Dr. Stewart, I have a couple questions for you on the -- you know, the Tocosol trial. Originally, you know, we talked about going from a non-inferiority to a superiority claim. Maybe give us an update there. Are we talking about breast versus ovarian cancer? And then, perhaps comment on the dose intensity and density that you're thinking about in this regard?

Michael B. Stewart, M.D.: Well, I think that those are many of the details that we're actively involved in discussing with the FDA, and reaching agreement about. And so I think that I'd be happy to talk offline about all of the issues that surround those concepts, because that's a lengthy discussion. But I think that the details of what we're actually going to do, we're all better served to wait until we have the final agreement with FDA.

Okay. Well, fair enough. In terms of the bladder trial, you started that trial fourth quarter of '03.

Michael B. Stewart, M.D.: Right.

And my understanding is, I think it was 30 to 40 patients. Could you tell us when that trial's completed, when the data will be available? And whether or not you think you need confirmatory phase III data?

Michael B. Stewart, M.D.: Well, obviously, as you may recall even going back to when we announced that we were going to start that trial, because of the indication and for the example --the very reason that FDA gave us fast-track designation, we knew that was going to be a challenging undertaking. The cancer cooperative groups have tried to do studies in this indication for a long time, and have met the -- they were the ones that told us that we were going to have a challenge in doing recruitment. And we're doing that. And I can tell you that the investigators that we got, that's why we went with some of the key people who have been working in this field for a while.

We decided to focus first on U.S. sites, because we're a U.S. company, and most of our investors are U.S.-based. And we decided to put the initial stakes in the ground there, all the while knowing that we were going to very likely be expanding into Europe. And I think that we have undertaken that. Obviously we are -- we're working with European investigators. As you may be aware, the European clinical trials directive that went into force the 1st of May has changed some of the ground rules there for the set-up work you have to do, and that's taken and added a little bit of extra time to it. But we're well on track with that.

I'm just delighted that, you know, if this acquisition goes through that we will have people on the ground in Europe. In addition to the contractors we're already working with, that we'll have our own people on the ground in clinical and regulatory. And so I expect we're going to start seeing, especially time-to-progression data, maturing sometime next year. I think that survival data may take a little longer. Obviously if the drug works, people live longer. So, it takes longer to reach that survival endpoint. But I think that I'm not at all unhappy with the way this is going, other than the fact that it's just real hard to study these patients in the U.S.

So, the time-to-progression data is what, second half '05? And then survival endpoint -- how long do these patients typically live?

Michael B. Stewart, M.D.: Well, it depends on whether or not they get effective therapy. But obviously if you look at some of the work that's been published looking at very toxic regimens, it's not uncommon for median survival to be as long as 14 months -- 13, 14 months. Obviously the -- and unfortunately disease progression occurs before that. And that's one of the reasons why the FDA and other health authorities are willing to look at progression-free survival, or time-to-progression, as a relevant endpoint in considering whether or not a new drug is active.

The discussion about what will be required for -- as the basis for approval, is also something that we are -- we have recognized from the outset, and I think we've said before, we will negotiate with the health authorities. It would be foolish for any health authority to be facing data that suggests they've got an active product, and insisting on a trial that took 10 years to complete. So--.

In an indication like this.

Michael B. Stewart, M.D.: Yes. And I mean, this really -- the FDA has already -- by designating it fast-track they've agreed that this is an unmet medical need, and it's just -- it's an interactive process about getting to what will be the standard for approval.

Okay. And my last question is, Dr. Stewart, could you comment -- I mean, you've talked about the potential phase III trial with Tocosol. What is the level of interest among cancer centers, relative to some other compounds? Because, my guess is -- I mean, there's so many drugs in development at the moment. And you talk about the speed of recruitment and that's a reflection of who's going to do what.

Michael B. Stewart, M.D.: Right. I'll tell you, I've been impressed as I have talked to people in this country and in a number of countries in Western and Eastern Europe, particularly in North America and in Western Europe, where it's often very difficult for people to get new drugs outside of some of the large combination studies the cooperative groups are doing.

There's a lot of interest in this. There's a lot of interest because it's something new. They see the features of the product (indiscernible), the intrinsic features. The fact that it's ready to use. It's a small-volume infusion. There's no special tubing required. You can get it in in 15 minutes to get the patient out there door. I mean, this is the sort of thing that makes this, to them, very, very interesting, in addition to the fact that it works. Or appear to work.

And so, I think that -- I'm not anticipating we're going to have trouble getting people onboard with this at all. The opinion leaders and the advisors I talk to, I tend to approach them with that same thing. What would make you want to do this? And the answers I get are pretty consistent.

Jason Cantor (ph).

I've got a couple of questions as well. Did you happen to say when your meeting with the FDA is scheduled for? And if you could get sort of everything you're asking for, what would trial look like?

David, let me give you -- Jason, let me give you my overview of this and then I'll ask Michael to give his perspective.

The short answer is no, we haven't given the meeting date. And the specific reason for that is that, you know, I think people that are very experienced with this process would tell you that, oftentimes, it's not a single meeting, but it's a process that occurs over a face-to-face meeting and interactions that occur, both before that meeting and after. So, we think what is relevant here is not to focus on a meeting date, but to focus on a time when we think we'll have clarity and be able to give further guidance. And that we've provided. We've said that we're very optimistic and hopeful that we'll be in a position to provide guidance by the end of the year.

Michael?

Michael B. Stewart, M.D.: Yes, the only thing I would add is that, if I got my holiday and you said what would be the ideal outcome, the ideal outcome would be that the FDA would say, fine, we agree with all of the points we've discussed and go forward with your trial. Don't change a thing and just get going.

Right, but what does that trial look like?

Michael B. Stewart, M.D.: It basically is a head-to-head comparison of Taxol and Tocosol Paclitaxel. And you know, the kinds of things we're talking about right now are details of patient eligibility, finalization of the primary and secondary endpoints, some of the statistical analysis planning. And that's the kind of details that we need to reach full agreement about.

And that would be non-inferiority?

Michael B. Stewart, M.D.: That's not what we have proposed. It is something that other companies do propose and I think it's something that one goes back and forth with. And I try sometimes to keep up with the statisticians about exactly which way you're going to test the data.

So it would be a superiority study?

Michael B. Stewart, M.D.: We'd certainly prefer to wind up with a label for superiority.

Okay. And then, you know, it sounds all very promising that you've got a pretty late-stage partnering discussion. But, as we see with a lot of companies, sometimes they fall through, even if they seem like they're going to happen. Are you guys willing to embark on this phase III study without a partner? And if you had to do that, would that require additional funding, or do you think that you can begin that process on your own?

Well, you know, it's -- it is perhaps dangerous to speculate too much on that point. But, I will share a few thoughts with you. The first is that the financability of this, the level of financability and the timing of that financability, will really be driven by the answers we get from the FDA.

Now, I have stated before and I'll state again that I don't think those answers present risk on whether or not we will get a partner. But clearly, if the answer from FDA is that more extensive clinical trials and, therefore funding, is required, those are probably dollars that we can't hope to get up front. Those are dollars that a partner will invest in the clinical trials.

So, that is the relationship. I think we've been very consistent in terms of saying that there are tradeoffs between up-front dollars and back-end dollars.

Providing if a partner does not materialize at all, do you take this into phase III yourself?

Well, I'm reluctant at this point to go there, because I believe the partner will materialize. And it's a question of appropriate sharing of the up-front investments in clinical trials and the back-end returns on the product.

However, let's take it from the perspective that we really believe that we have outstanding answers from FDA and we can't get the turns that we think are reasonable and appropriate. And then the question becomes, would we consider taking that proposal out to the market as an alternative financing event to a partner? Well, I think the answer is, we've demonstrated our willingness to do that and, while I shouldn't speculate, I think we'd remain willing to consider that alternative.

Now, to the question of whether we could start the trials without a financing or a partner? Technically speaking, the answer is yes. We have the cash to start the trials. The more important point is that we don't have the cash to finish the trials. And that is also a function, by the way, of the clarity of answers we get from FDA related to the number of patients, for example. But philosophically, we believe that one should not start certainly a pivotal trial without the financial wherewithal to complete it. That we are in a pivotal trial, we are making commitments to patients and IRBs. And not having the money to go forward should not, can not be a reason for discontinuing the trial.

So, the short answer, Jason, is that the phase III pivotal trials would require additional money. I continue to be optimistic that that will come from a partner. If we can't get the right terms, we would certainly consider presenting it to investors as an alternative. But, I remain optimistic that we're going to get the partner.

And is the type of partnership where you'd want to retain a certain amount of control in terms of using this as a way to develop your own sales and marketing infrastructure? Or is this something you want to pass off?

Well, I would answer that on two dimensions. The first is, from a development perspective, we really think we have some pretty unique clinical and regulatory capabilities relative, certainly, to this product. So, we would want to maintain at least the level of involvement in ongoing clinical development of the product. And in fact, I think it's conceivable with -- if you look at the potential partners, that in some cases it's reasonable that those partners would take the lead and our role would be limited to participation in a decision body. But, in other cases, I think it's very reasonable to assume that we would take the control on the clinical and regulatory development of the product.

Regarding commercialization, we have said that we would very much like to hold on to co-promotion and co-marketing rights in the U.S. Again, that's a question of trading off investments required to maintain that right against the potential returns we could experience from it.

Thank you.

Thank you, Jason. You know, I want to say, folks, that I really wish we could provide greater details on the discussions with the partners and would ask you to appreciate that negotiating in public is just not something we want to do on that. Therefore, it's very, very difficult for us to go beyond the general discussion we've had regarding the nature of the discussions, the nature of the partnership, and the nature of the potential terms.

I want to emphasize again that I really am pleased that the pace of the discussions is picking up and I remain optimistic that an agreement in principle this year is still doable.

Nickie, could you open the lines for further questions, please?

Mark Monen (ph).

Thanks for taking all the tough questions. One more question concerns the prioritization and going forward on new drugs under development. You have two--.

Mark, I'm sorry, we lost you.

There are two interesting drug delivery technologies here. How will the company decide which technology to bring forward for which agent? Is it done as a joint -- is it done in a joint effort? And how would you characterize the similarities and differences in the different approaches?

Well, let me give -- let me give my reactions to that. And again, I'll ask Neile and Michael to express their views because this has really been a collaborative effort on this end.

I would, number one, emphasize something that -- two points that Michael made earlier. And that is that the Syntem team is already very disciplined in the way they approach project identification, selection, and approaching the ongoing go-no-go decision.

Secondly, I would say that our management philosophies and cultures really couldn't be closer. We share very similar views on how to approach this. Now, that includes the belief on the part of Michel Kaczorek and myself that the primary strategic decisions regarding project identification, selection and resource allocation related to what is done, where it's done, how much dollars are spent on it, and what milestones are defined for making go-no-go decisions, needs to be made centrally. Dr. Kaczorek will join the Sonus senior team. We are working on developing the processes where the project and functional teams at both Syntem and Sonus will have the appropriate input to those decisions. But, those will be centrally made decisions based on all of that input and appropriate scientific debate. So, I think that's a very critical point.

Secondly, looking at the portfolio and based on the due diligence that we and they have already done to date, it is very clear that Tocosol Paclitaxel continues to be our lead product development candidate. I think next I would put Camptothecin and Syn1002 in the same category as products that could enter the clinic sooner rather than later in 2005, closely followed by Syn1003. And of course, Neile has described all of those products and we'll look forward to going into more detail on the Syntem products, including the non-clinical data that's available to date.

Beyond that, we believe that there are some very real opportunities to leverage the two technologies together. And Michelle and I have established for the team the objective of identifying a lead development candidate that will apply the two technologies by the end of our first year together. And we have tasked -- or will task some integration teams with coming back to us with the answers on how we're going to do that. And I would point out that our next integration meetings will occur in early December. So, we're going to try to get a jump on that -- at least as much as we can as two arms-length companies -- prior to the close.

Mark, those are my perspectives. Again, I'd invite Neile and/or Michael to offer theirs.

Michael B. Stewart, M.D.: Well, I'll jump in, that is, because your question makes me think of a comment that Judith Owent (ph) made some years ago. She was a CFO at Merck. In a discussion about portfolio analysis, observed that one has to be actually quite ruthless in analyzing candidates in a portfolio as to whether or not they are meeting their objectives and a proof point. And while that may sound harsh, it's actually completely consistent with good science. You need to be really vigorous in setting out the hurdles that you want things to jump and determining whether or not they do.

And I think we've been impressed -- we certainly know here that we're pretty good at insisting on that kind of scientific rigor and we've been really impressed about the very talented team of managers in France who do exactly the same thing. And that's one of the reasons why I think we're real optimistic about working together. I would just echo Mike's comments on the two technologies. These are very complimentary technologies. They're not mutually exclusive at all.

Neile A. Grayson, Ph.D.: Okay, I would add just one thing. I think Mike and Michael have very admirably covered most of the main points here. But, I think that we couldn't emphasize enough that one of the precepts that both sides have agreed to beforehand, and we intend to definitely adhere to going forward, is that the best drug goes forward. And that would include measuring the science, the economics -- in other words, the return on investment, and the market for each opportunity as it comes through. And as Michael indicated, the intensity as detached and scientifically appropriate as we can.

I think the crux of the matter, though, is to -- in order to apply that discipline by definition, the more competing projects you have, the better. And so I would really bring us back to the first key driver of this acquisition, which is a significantly broader product pipeline.

David Miller.

Are there any lockups for the holders of Syntem?

There are lockups and I would ask Alan to address those.

Yes. So the first lockup will be the shareholders of Syntem at the close will get approximately $10 million in our stock at that time. That lockup gets released at a quarter -- 25 percent at month 9, 12, 15, and 18. That's after -- both after the 18th month, they could really trade all their stock.

Yes. And the same lockup schedule applies to the BioSun (ph)payments.

So, frankly, I'm just really delighted that -- my interpretation of that is that we have significant private investors who are big-time players in the equity markets for a company that looks like ours in Europe who, number one, have put a significant percentage -- the significant percentage -- of their potential return on this acquisition in milestone payments. And secondly, have further put a significant percentage of each traunch of their payout on this acquisition, subject to pretty healthy lockups. And I think that that is -- that is a terrific indication of their belief in the potential power of this acquisition. It certainly reflects my belief in the power of this acquisition.

If you do a financing and you add shares, or the partnership deal has some kind of an equity component to it, does the 26 to 29 percent collar still hold the same, or is that adjusted?

This is Alan. Provided we do not do that financing in advance of this close, then the collar doesn't apply to the future financings. So, let's just say for example that this closes at June 30th -- or at January 30th, then a funding on February 2nd wouldn't be subject to the collar.

Okay. So, if I understand this correctly, what you are doing is you are getting 7 million in cash, a pipeline of preclinical drugs, a platform in people, the three Ps that you mentioned, for 26 to 29 percent of the Company's outstanding shares right now. Is that accurate?

No, I don't think so.

Okay.

I think the more accurate statement would be that we are getting -- we are getting about 2 million in cash at closing. Perhaps higher. A pipeline, the processes, systems, and the people, for less than 15 percent of the Company at close. And if and when the milestones are achieved of moving additional products into the clinic, then it could go up as high as 29 percent of the Company. But at that point we are a Company with a significantly expanded pipeline of clinical products.

Okay. Okay. No, you had -- I thought, man, I thought read the -- I thought I read the press release correctly. But I understand what you're saying now.

Alan?

Yes, this is Alan. It is -- it is quite complicated, and I apologize if we haven't been able to clear it up better--.

No, no. I understand. It's just that when -- it's just that when Mike said 15 percent, but now I understand that that's for the first traunch of it.

That's only the first traunch.

Okay. Well, then you say in your initial press release that you have 15 million in cash at the end of September 30, and then Alan in your comments you said that after the close of the deal you will have 32 million in cash.

No. What I said is on a pro forma basis at 9/30, combined with them, we have 32 million.

I see. Okay.

Okay?

Yes. Perfect. Will you start this trial -- start enrollment in this trial, without the SPA in place?

Well, Michael?

Michael B. Stewart, M.D.: I think that the reason to go for the SPA, and the reason that we could choose to do that -- but I think that even though getting an SPA adds a little bit of up-front time before you start, the real benefit -- and I think this is one of the reasons FDA has actually been encouraging sponsors to pursue SPA, is that it really locks in what the approvability standard will be of the back-end.

Right.

Michael B. Stewart, M.D.: So that, you know, it can take a few weeks up front to get all the details nailed down, because it's no longer -- an SPA, as you know, is not just okay, do we agree with the study design? It's actually agreeing with all the tactical logistical components of how the study is going to be carried out--.

Exactly.

Michael B. Stewart, M.D.: --And how the data will be analyzed. And so that takes extra time beyond agreement on the design. What you then get on the back end is, you know, you hit the agreed points, and everybody knows. The FDA knows what they've agreed to approve. We know what they've agreed to approve. And you don't spend all of that time getting long-term review.

Okay.

You know, David, again, it's difficult to speculate in this situation without having all the facts. But I think that once the decision is made to seek an SPA, I would think it'd be a significant risk to initiate a study if you had any confidence in that process resulting, in fact, in an SPA. Then it would be a significant risk to initiate a study in advance of having that.

I agree. I'm just checking my answers. The other question I have is that this is related to some of the other questions we've had already. But, I just want to make sure for my clarity, to state it really plainly, get kind of a yes or no answer. You -- can you, or will you --well, maybe not will -- would it be possible for you to sign a partnership deal before you have an -- before you have the final answer from the SPA on what the trial would like? And I'm not talking about an SPA, I'm just talking about, you know, that first step.

Possible, yes. With contingencies related to that answer, probably.

Okay.

And so then it becomes a question of our balancing the risk curve. You know, how much do we have on the downside, versus how much are we getting on the upside? In other words, what's the incentive? If an answer is imminent, what's the incentive to sign in advance of an answer? That is -- that is what we have been balancing, and I'm sure from their perspective that's what partners have been balancing.

Okay. So, it's completely possible like, for example, if we take it out to the SPA, which likely you won't get until sometime in the end of Q1, it's completely possible that you would be able to have the partnership wrapped up before the FDA signs on the bottom line in the special protocol assessment?

I think that's correct.

Okay. I think most of my other questions have been answered.

David Grubber.

Yes, last question. You know, given the likely prolongation of the 505(b)(2) trial, you know, is it feasible that perhaps a filing may be possible on the bladder or the metastatic front-line data?

Michael B. Stewart, M.D.: Well, I think the easiest way to say it is that we're pursuing these things in parallel, and we don't see them as linked, yoked together, in any particular sequence. And the 505(b)(2) necessarily cannot contain the bladder, because Taxol is not approved in bladder. And the fast-track development necessarily doesn't come under 505(b)(2). So, we continue to pursue them in parallel.

So, is it conceivable? Yes, it's conceivable. Is it likely? Well, I would say with pushing out the 505(b)(2) trial, as Michael has explained, it's more likely than it was a year ago, but I think it's one of those situations that's difficult to handicap until we have the clarity we seek from FDA.

Michael B. Stewart, M.D.: I've filed more than one NDA at a time. I can do it again.

At this time there are no further questions.

If there are no further questions, we'd like to thank all of you for joining us today. We think this is a very exciting time for Sonus. And we really look forward over the coming weeks to meeting with many of you in person, and sharing more information, as well as our enthusiasm, in addition to introducing both Alan Fuhrman and Michel Kaczorek to you. So, as always, we appreciate your support. We look forward to keeping you updated on future developments.

This concludes today's conference call. You may now disconnect.