Alnylam Pharmaceuticals Inc (ALNY) 2007 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Alnylam Pharmaceuticals Conference Call to discuss the third quarter 2007 financial results. There will be a question and answer session to follow. Be advised that this call is being taped by Alnylam's request. I would now like to turn the call over to Alnylam. Please proceed.

Good afternoon. I'm Cynthia Clayton, Director of Investor Relations and Corporate Communications. With me today from Alnylam are John Maraganore, our President and Chief Executive Officer; Barry Greene, our Chief Operating Officer; Akshay Vaishnaw, our Vice President, Clinical Research; Patty Allen, our Vice President, Finance; and Jason Rhodes, our Vice President, Business Development.

Before we begin, let me remind you that various statements we make concerning our future expectations, plans, prospects, including without limitation, statements related to clinical development plans for ALN-RSV01, ALN-VSP01, ALN-PCS01 and our other product candidates, the filing of an IND for ALN-VSP01 and ALN-PCS01 and our other product candidates.

Projections for the amount and sufficiency of cash, cash equivalents and marketable securities, future payments to be received by collaborators in the government and our alliance-based revenue guidance for 2007, constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including risks related to our approach to discover and develop novel drugs which is unproven and may never lead to marketable products; our ability to fund and the results of further preclinical and clinical trials; obtaining, maintaining and protecting intellectual property utilized by our products.

Our ability to enforce our patents against infringers and to defend our patent portfolio against challenges from third parties; our ability to obtain additional funding to support our business activities; our dependence on third parties for development, manufacture, marketing, sales and distribution of products; the successful development of our product candidates, all of which are in early stages of development.

Obtaining regulatory approval for products; competition from others using technology similar to ours and others developing products for similar uses; a dependence on collaborators and our short operating history, as well as those risks more fully discussed in the Risk Factor section of our most recent report on Form 10-Q on file with the Securities and Exchange Commission.

In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. We do not assume any obligation to update any forward-looking statements.

During today's call, John will make some introductory comments. Akshay will provide an R&D update, Patty will review our financials and guidance. Barry will summarize our business highlights and review our 2007 goals and we will then open the call for questions.

I will now turn the call over to John.

Thanks, Cynthia, and good afternoon, everyone. Thanks for joining us on our third quarter 2007 earnings call. As we discuss our results for the quarter, I'd like to start by saying that we have never been better positioned to create a leading biopharmaceutical company and our team is passionate about, and committed to, that objective.

Indeed, we are leading the industry with the advancement of RNAi therapeutics as a whole new class of drugs where the potential impact for patients is enormous. We are leading this space from every single dimension possible for a biotechnology company, Science, pipeline, IP and business execution. And, our outstanding financial results at this stage of our company are actually unparalleled from a historical perspective in the industry.

Turning to our more recent period, we had a tremendously productive quarter with successful execution of multiple business objectives resulting in a very solid financial profile. These efforts were matched by continued success in our scientific efforts. The major business events for the quarter were a broad, strategic collaboration with Roche and the formation of Regulus, our microRNA joint venture with Isis. These strategic alliances are representative of our leadership position in the entire field.

On the pipeline front, we are committed to developing our programs in a high quality and data-driven manner. Most importantly, we are advancing ALN-RSV01 for the treatment of RSV infection toward human proof of concept and we are conducting IND enabling studies for our first systemic delivery programs.

Our RSV Phase II study is progressing very well, with enrollment on track for completion this year and top line results now planned in the early part of the first quarter of 2008. Another key area of focus is on our new systemic RNAi programs. We remain encouraged by these results that we have seen to date, but we must advance these programs in a high quality manner and we now expect to file an IND for our first systemic RNAi therapeutic program in 2008.

Very importantly, we are in an excellent financial position and we expect to end this year with greater than $435 million in cash, providing us a multi-year runway to build our business. Importantly, our business development success now allows us to significantly increase our revenue guidance for the year as Patty will discuss shortly.

Let me know turn the call over first to Akshay to summarize our R&D progress. Akshay?

Thanks, John. We have indeed been very productive on the R&D front. There has been substantial progress with our pipeline programs and we've continued to publish breakthrough research in top-tier peer review journals. These advancements attest to the strength of our platform to deliver RNAi therapeutics for the treatment of major unmet medical needs.

I'll briefly go through some of our developments and scientific highlights. Let me begin first with an update on ALN-RSV01, our RNAi therapeutic for the treatment of RSV. We're currently conducting two clinical trails, a Phase I inhalational study and a Phase II experimental infection model study. Our Phase I inhalational study has progressed well. We've completed accrual and we plan to present these data in a scientific form by the end of the year.

Turning to our Phase II RSV study, this also continues to make good progress. This trial is evaluating ALN-RSV01 in experimentally infected adults and provides the opportunity for proof of concept via the demonstration of ALN-RSV01's anti-viral activity. Now as you may recall, this is a randomized double-blind placebo-controlled study designed to evaluate the safety and anti-viral activity of intranasally-delivered ALN-RSV01, administered to approximately 90 healthy adult volunteers experimentally inoculated with RSV.

When we started this effort, we knew it would be a significant challenge; however, we're gratified our ability to rise to the task, particularly since this is Alnylam's first Phase II study and our largest, most complex clinical study to date involving multiple sensors. The trial was initiated in June of this year, and we are extremely pleased to report the pace of accrual, with 74 of the planned 88 subjects now enrolled and treated in the trial.

Therefore, we are on track to complete accrual this year and we now expect to present results in the early part of the first quarter of 2008. We will, of course, apply the findings from this study to guide the design of the next Phase II study in naturally infected adult patients, which we expect to initiate in the first half of 2008.

Now as John mentioned, we continued to make progress in enabling the delivery of systemic RNAi therapeutics. For example, we recently presented non-human primate data for one of our systemic programs with an RNAi therapeutic that targets PCSK9 as a treatment for hypercholesterolemia.

These data are really quite exciting, particularly since PCSK9 has been, and continues to be, an undrugable target by conventional methods. And our effort marks the first time ever, to our knowledge, that a drug-targeting PCSK9 was evaluated in non-human primates.

These data, which were presented in an October scientific meeting, demonstrated that our RNAi therapeutics showed very significant and durable reductions in LDL, or bad cholesterol. Specifically, our RNAi therapeutics successfully reduced levels of LDL cholesterol by approximately 50% with effects that lasted weeks after a single administration.

Our other systemic RNAi development program is ALN-VSP01 in development for the treatment of liver cancers and potentially other solid tumors. This is our first RNAi therapeutic program in cancer, the first of what we believe to be a broader pipeline of cancer therapies in the future.

Our systemic RNAi programs are in full development, including GLP toxicology studies. As we indicated last quarter, these efforts need to progress in a thoughtful and data-driven manner and we're now expecting our first IND from these efforts to emerge in 2008.

In our preclinical programs, we continue to make excellent progress with other ongoing partnered and proprietary programs. While I won't walk through each of these today, I do want to call your attention to a recent publication in PNAS on our Huntington's disease program.

Our study there demonstrated that infecting an RNAi therapeutic with a clinically relevant formation provides a therapeutic and meaningful benefit in a mouse model with Huntington's disease. This is a solid step forward in our efforts to develop an RNAi therapeutic in this indication.

Our robust scientific discovery efforts also yielded key publications on the delivery and safety of RNAi therapeutics. The publication in Nature Biotechnology, on the in vivo mechanisms for systemic delivery of RNAi therapeutics, extends our knowledge and an understanding of how to enhance delivery.

This research may lead to the design and optimization of siRNA conjugates that can facilitate simple, selective and efficient delivery of RNAi therapeutics for multiple clinical applications. Another publication in Nature on the in vivo efficacy and safety of RNAi therapeutics revealed new research showing that RNAi efficacy can be achieved without disruption of the endogenous microRNA pathway.

Of course, our recent scientific publications continue a track record at Alnylam of commitment to scientific excellence and broad industry leadership on the important effort to translate the science of RNAi into a whole new class of innovative medicines. We're setting a standard here that others have yet to meet and that we're only motivated to exceed. And we think you'll continue to be pleased by this progress in the months to come.

In summary and overall, we've made great progress on the scientific and development fronts. And I'll now turn the call over to Patty to review financials and other guidance. Patty?

Thanks, Akshay. And good afternoon, everyone. I'll refer you to our press reviews issued this afternoon for a detailed review of our third quarter 2007 results. Our financial profile strengthened considerably this period. The proceeds of the Roche transaction significantly bolstered our cash position, which now stands at $468 million. In addition, as a result of our partnering efforts, we have doubled our quarterly revenues over the prior year level. Further, our success in forming alliances allows us to significantly increase our guidance for 2007 revenue.

Our GAAP net loss for the quarter was $52.8 million, or $1.35 per share. To be clear, excluding charges related to our Roche alliance, our net loss was completely in line with management's expectations for Q3.

It's important to understand that included in our GAAP net loss were a number of unique deal-related expenses including the $27.5 million license fees due to our licensors as a result of our Roche alliance, primarily to Isis, increased stock-based compensation expense totaling $7.9 million, and $5.3 million in income tax expense related to the sale of our German operations to Roche.

We reported revenues of $16.3 million in the third quarter. This includes $6.4 million related to the amortization of the initial total of $278 million of deferred revenues from our deal with Roche, which closed in August. The Roche revenues are being recognized over a five-year period on a straight line basis.

Beginning in the fourth quarter, we will begin to see the first full quarter of revenues relating to our Roche alliance. Although this amounts to $14 million in revenues for Q4, we will be reducing our Q4 revenues by approximately $3 million for the cost paid for the Roche Kulmbach employees that we are still contracting in Germany.

We expect that the cost for these employees will decrease significantly in the first half of 2008 and by June of 2008, our transition services with Roche Kulmbach will be completed, and we would expect to then report approximately $14 million in revenues from our Roche alliance each quarter going forward.

During the third quarter, we also recorded the remaining $3.5 million in deferred revenue related to the termination of our Merck collaboration this past quarter. The remaining $6.4 million of revenue for the quarter include revenues from our partners including Novartis, the NIH, Biogen Idec and revenues from our Interferex, research reagent and services licensees.

Looking ahead to Q4, we are expecting to record approximately $16 million in total GAAP revenues. Turning to R&D expenses, they were $59.6 million in Q3, which included $5.7 million in stock-based compensation. The increase in R&D expenses over historical levels was primarily related to the $27.5 million of license fees we incurred during the quarter related to the Roche transaction, primarily to Isis.

In addition, we recorded greater than $7 million in expenses related to our efforts to enhance delivery, including our agreements with Tekmira and MIT. Although quarterly amounts may vary, you can expect to continue to see this type of investment in our delivery efforts in the future.

Stock-based compensation was also higher this quarter at $5.7 million, which was due to the higher stock price, as well as charges incurred as a result of the sale of our Kulmbach operations to Roche. We also continue to see an increase in our R&D investments as our programs mature. We realized the full quarter impact of conducting a Phase II trial for RSV, as well as our progress with our preclinical programs for PCSK9 and liver cancer.

G&A expenses were $8 million, which included $2.3 million in stock-based compensation. In addition to higher stock-based compensation over prior quarters, the increase also relates to higher professional fees incurred as a result of increased business activities, primarily in connection with our Roche and Regulus transactions.

Let me know turn to the financial implications of Regulus Therapeutics, our microRNA therapeutic joint venture with Isis. As a reminder, Alnylam is funding the first $10 million of losses of Regulus to balance the investment from Isis, and thereafter, Isis now (inaudible) a share in the funding of Regulus.

We have capitalized the initial $10 million cash investment on our balance sheet. On our income statement, you will notice a line item related to our share of the losses in the joint venture. In the third quarter, this was $100,000 non-cash loss. In the fourth quarter, which would represent the first full quarter of the joint venture, we expect a non-cash GAAP loss to be greater, but still increasing over time into 2008 as Regulus activities increase.

I'd like to spend a little bit of time talking about income taxes as this is a new line item for us. In the third quarter, we sold our German operations to Roche in August for $15 million, and as a result, we incurred $5.2 million of non-cash tax expense. We expect to pay approximately $3 million of this amount as a cash payment in early 2008 to the German tax authorities.

We do not expect to incur any significant income tax expenses during the fourth quarter of 2007, as we are deferring a significant portion of the Roche revenues until 2008. For GAAP purposes, we will incur quarterly state and federal income taxes during 2008 as a result of this tax deferral of the Roche revenues.

We have a favorable federal tax strategy, and while we expect to make quarterly state cash tax payments in 2008, we will not pay federal income taxes until the first quarter of 2009. We will provide additional guidance on the expected amounts of state and federal income taxes at the beginning of 2008.

At September 30, 2007, we had 40.6 million shares outstanding, which include the 1.975 million shares issued to Roche in August. We are also pleased to report today that we have sublet 22,000 square feet of lab space in our current location here in Cambridge. This will allow us ample space to expand our capabilities here in Cambridge in light of the sale of our German operations to Roche.

Let me conclude with an update on our guidance for the year. We continue to expect that we will end 2007 with over $435 million in cash and we are increasing our alliance-based revenue goal to greater than $45 million from $25 million for the year. The achievement of this goal is not dependent on any new alliances. We believe that our strong financial position affords us very significant resources to further advance our proprietary and partnered RNAi therapeutic programs as we build our business.

And now, Barry will review our business highlights from the quarter and an update on our goals. Barry?

Thanks, Patty. We've had an extremely strong quarter related to business execution. First, we formed a major alliance with Roche, the largest drug discovery alliance in biotech history and the largest partnership on RNAi therapeutics to date. As you are aware, the Roche deal closed in August. Since we've talked about the specifics of the Roche deal in previous calls, we won't go into any of the detailed terms on this call.

Clearly, this alliance represents the continued validation of RNAi as a transformative technology for the discovery of innovative medicines. Importantly for us, this still provides us with very significant non-dilutive cash to advance our proprietary pipeline and is structured as a non-exclusive license. So this same deal can be reproduced with other parties to create yet further value for Alnylam.

Now, the second major event was the launch of Regulus Therapeutics with Isis. Regulus is a joint venture focused on the discovery, development and commercialization of microRNA therapeutics, a potential new class of drugs to treat the pathways of human disease.

This deal combines the strengths and assets of both companies, Isis and Alnylam, our technologies, know-how, intellectual property, with very strong leadership from a scientific advisory board that is chaired by Nobel Laureate David Baltimore and includes the key pioneers in the microRNA field.

Most importantly, Regulus expands the scope of Alnylam's efforts to include work on an exciting new frontier for pharmaceutical research on microRNA therapeutics. By combined forces with Isis, we at Alnylam believe that together we have created the microRNA therapeutics company.

Also during the quarter, we restated and advanced our Medtronic collaboration with focused execution on Huntington's disease program. We revised the terms of this collaboration and formed a new agreement that is ostensibly a 50/50 co-development profit share alliance for the U.S. market, thereby ensuring significant upside for Alnylam as this exciting program advances.

Now, also this quarter, we chose to terminate our collaboration with Merck. Over the last year, Merck chose to be a competitor and to actually oppose our issued European patents for which we had granted them a license. We found this to be an unacceptable foundation for a partnership.

Accordingly, to protect our intellectual property and the breakthrough discoveries that we're making every day, we have chosen to distance ourselves from Merck and deny them access to our intellectual property and know-how. We wish Merck the best of luck, but to be clear, we believe anyone developing and commercializing RNA therapeutics will need a license to Alnylam intellectual property.

I believe it's clear that our business development activities over the past quarter truly reflect our new strategy to focus on partnerships that bring considerable value to our efforts in advancing our pipeline. These include, first, non-exclusive platform alliances.

We have the opportunity to form other Roche-like deals, additional non-exclusive platform license deals, that fund our business in a very significant manner without dilution of equity, and, importantly, without dilution of resources. Secondly, ex-U.S. pipeline partnerships. We will seek geographic partnerships for our pipeline assets where Alnylam retains ownership of the U.S. product rights.

And, third, strategic 50/50 alliances. Now with the right companies that have unique capabilities, we'll look for additional 50/50 relationships like our Medtronic alliance. These cases are attractive when our partner can add significant value to our efforts, where we have joint decision-making and where we retain a 50% share of the value for the U.S. market opportunity.

Now in addition, we'll continue with Alnylam Biodefense efforts and other private sector, public sector partnerships structured to advance RNAi. These include our recent participation in the $22 million NIH obesity roadmap grant, awarded to UT Southwestern Medical Center for research on obesity and our $38 million Department of Defense grant for the development of RNAi therapeutics for certain biodefense applications.

Now moving on to intellectual property, there were several noteworthy events in the quarter. Most importantly, we received a notice of allowance from the European Union for the Tuschl II patent. This 044 patent broadly covers compositions, methods and uses of siRNAs. This now extends the scope of our exclusively held Tuschl II patent to the world's first, and now the world's second largest pharmaceutical markets.

In sum, we have had a very strong quarter on business execution, and these accomplishments highlight our leadership in the field of RNA therapeutics. From these accomplishments, we're only motivated to do better.

Now let me wrap up with a review of our near-term goals. On the product side, as Akshay mentioned, we expect to present the results of ALN-RSV01 Phase I inhalation trial by the end of this year.

Most importantly, as a key near-term goal for us, the demonstration of human proof of concept for an RNAi therapeutic, and to this end, we are on track for full enrollment of our Phase II study for ALN-RSV01 in experimentally infection adults in December, allowing us to have results presented in the early part of the first quarter of 2008.

Now while our primary pipeline focus is on our RSV program, we also and importantly remain committed to filing an IND for our first systemic RNAi therapeutic program. As we indicated in our last quarterly call, we are very excited about the advances we have made with systemic delivery of RNAi therapeutics.

Our current liposomal formulations for systemic delivery are complex but we've made good progress and our partnership with Tekmira has been extremely helpful here. We're conducting GLP toxicology studies for our lead systemic programs, ALN-PCS01 for hypercholesterolemia, and ALN-VSP01 for liver cancers, but now expect that we'll file our first IND for systemic RNAi therapeutics in 2008.

As we advance our RSV program, and PCS01 and VSP01 programs, we'll also continue to expand our pipeline and we expect one additional development program this year. As our scientific leadership remains a critical part of our overall strategy, we'll also continue our track record of publishing breakthrough research in the world's best scientific journals.

On the business side, we are committed to exploring and pursuing additional partnerships to support our efforts to build a leading biotech company and enable the advancement of our pipeline. We're having excellent discussions with multiple companies and expect that we'll continue to deliver on our solid track record of business development and execution.

As we stated, we have further strengthened our fundamental intellectual property position by obtaining multiple patent issuances and grants in the U.S. and Europe over the course of the year and we are realizing additional near-term value from our IP estate by granting additional new Interferex and research reagent product licenses.

And with our Roche deal, we have vastly exceeded our goal of receiving more than $25 million in alliance-based funding in 2007. As Patty mentioned, we are increasing our revenue guidance to more than $45 million in alliance-based funding for the year.

As always, we'll continue to maintain our solid financial position while executing on our product and business goals, ending the year with greater than $435 million in cash. It's been another exciting quarter and we're thrilled with the year we've had so far in 2007.

At this point, I'd now like to open the call to your questions. Gina, can we take the first question, please?

(OPERATOR INSTRUCTIONS)

And your first question comes from the line of Sapna Srivastava with Morgan, Stanley. You may proceed.

Yes, hi. Just one question on the delaying of the systemic IND. Maybe I missed this. Can you just kind of walk me through what is the reason by your pushing it out from year end 2007 to early, or what time in 2008, and also, have you decided which one are you going with?

Sapna, this is John. Thanks for the question and maybe Akshay can also add some input here as well. These are programs that are the Company's first systemic delivery programs and they use a complex, but very effective, formulation that we've developed together here and also with our colleagues at Tekmira, which are a liposomal-based formulation system.

And these programs have been progressing quite nicely. They currently have been scaled up. We certainly are making this under GLP and GNP conditions and also are currently doing our GLP toxicology studies.

And, very importantly, Sapna, it's very important to us that we advance these programs in a high quality, data-driven way, so we want to make sure that all the data is in hand as it relates to the filing of the INDs so that these programs are going to be successful and not simply rushed forward with the goal of having an IND.

The philosophy here is to be very urgent, but not rushed, on this type of effort because it's important that it's done with a high quality and good manner. So that's really the key issue in terms of the timing of this, Sapna. These are the first systemic delivery programs with a relatively complicated formulation that is going to require some more time. And we'll provide additional guidance at the beginning of 2008 in terms of the specific timing for these programs in terms of the INDs in 2008.

John, is this going to be a couple of months, or can this be several months, or more than a year?

Sapna, it would be too soon for us to say right now. We would like to have the time to really have the dates nailed down and be able to provide that guidance in the first part of 2008.

Okay, thank you.

Thank you, Sapna.

Your next question comes from the line of William Sargent with Banc of America Securities. You may proceed.

Hey, Will.

Hello, John, how are you? Everyone, how are you?

Good.

Thank you for taking my question. Really quickly for the RSV program, I was wondering, kind of similar to the previous question, if you could characterize why the enrollment has gone a little bit slower than expected and if you think this is something that potentially affect the Phase II in naturally infected RSV or it's specific to this Phase II program?

The second part of that question is an excellent question. I'll have Akshay speak to that in just a minute. But for the first part of the question, Will, we're actually thrilled with the execution on that Phase II study.

It's a relatively complex study, as Akshay mentioned in his comments, that requires obviously, enrollment of subjects, prescreening of subjects to ensure that their pre-existing RSV titers, anti-RSV titers are at a certain threshold level. It requires the use of a quarantine to obviously monitor the patients and to look at the effects of the treatment with ANL-RSV01, all of which of course are still blinded.

And we are very much on track for completing the enrollment of this study in December with 74 of the 88 subjects currently enrolled in that study. I think the only slippage there might be about a month from where we thought we might have been when we started the study back in June, but that's actually rather impressive from the standpoint of the timing of that study. So it's progressing very well.

We're quite pleased with it, and when the study's completed with enrollment and the database is locked and the unblinding is performed, we'll obviously be updating people very early in the first quarter of 2008 with the top line results from that study.

Your second question, I'll direct to Akshay to comment on the implications as it relates to the Phase II naturally infected study.

Yes, John, just to restate what you just said about slippage of a few weeks on the first one, I think we're all delighted the way the study has gone and I think we're right on track for execution by the end of the year. We look forward to getting those data in the early part of '08 and I think they dovetail nicely with our plans to initiate that Phase II study in the naturally infected population in the first half and there's really no implication for that, and I think we fully anticipate getting going in that study.

Yes, that study is already in advanced levels of planning, Will, as well, that second Phase II.

Okay. Great. Thanks for taking my question.

Your next question comes from the line of Michael King with Rodman & Renshaw. You may proceed.

Thanks. Good afternoon, everyone.

Hey, Mike.

Two -- one quick one, and one maybe a little more length. The first one, just for Patty real quick. Just want to be sure that we've got our accounting correct on the sequential increase in G&A the third quarter. Sorry, the second quarter was about $5.3 million. Now you guys are at $8 million. Was that all fees related to Regulus and Roche or was there headcount increase or some other factor in there? And how should we think about fourth quarter G&A numbers?

Right. Hi, Mike. So, yes, we had $8 million in G&A in the quarter. We had $2.3 million of it which related to non-cash stock comp charges for the quarter. So more significant than what we've seen in prior quarters, and then it really is just comprised of deal costs related to our Roche and Regulus transactions. We've been increasing G&A modestly, so no significant increases there, so I think that's the way to think about G&A going forward.

Okay, great. And then, so was headcount the same?

Yes, modest increases. Very modest.

And was some reduction seen from Kulmbach, or was that you're still carrying part of that as a deduction against revenue?

Yes, there were only a couple of G&A employees over in the Kulmbach location. Almost all of the employees in Kulmbach were R&D.

Okay, great. And then, just to come back to Sapna's question about the IND. I don't know if you can give us any more color. What exactly is complex? Is it the lipids themselves? Is it the way you're doing the dispersion or conjugation with the siRNAs or some -- is it getting them to be stable? Can you guys give us some greater insight into exactly what is happening along the pieces of the process?

Yes, Mike, this is John, and maybe Akshay can also contribute here as well. I mean, cationic liposomes, which are the nature of these formulations, are very efficient delivery vehicles, as we've learned and published in multiple different journals.

For delivery of siRNAs to specifically hepatocytes in the liver, and the data we've published have really been very compelling and, obviously, you all have seen that in a very open way, most recently with our PCSK9 program, but also with our work on apoB and other efforts historically in the past.

These are liposomal formulations and as a result, they're a multi-compartment system, and obviously they have some complexity related to the CMC, although we're quite pleased with the progress on the CMC and a lot of that has come from the leadership and efforts at Tekmira, who really have an enormous experience in terms of formulating these types of materials.

The other side of it is, to really perform GLP tox studies that help us understand the therapeutic index for this approach and making sure that we are able to get to the effective levels that we need to get to, at the same time as having the right threshold from an overall safety standpoint.

Certainly, it is widely known in the literature that at higher doses, that these cationic liposomes can stimulate certain responses, and we certainly want to make sure that the therapeutic index is appropriate for the clinical efforts that we plan on engaging in.

We're optimistic about the progress. It's just that there's more work that needs to get done before we're ready to file an IND, and we certainly don't think it's appropriate to be, quote, unquote "rushed into it" without doing things in a thoughtful and appropriate manner, which is just how we are wired as a business.

Amen. But is there some kind of non-linearity to the dose of liposome, or -- I guess I'm just trying to understand what -- ?

Well, the pharmacology is certainly complex.

Okay.

And that's been well described in the literature. But I think it mostly relates to having a really comprehensive and good overall package that we feel is the right package to have behind us as we file this IND.

Okay, thanks. I'll get back in queue.

Okay, thanks, Mike.

(OPERATOR INSTRUCTIONS)

And your next question is from the line of Alan Carr with Needham. You may proceed.

Hi, good afternoon, everyone.

Hi, Alan.

Hi, Alan.

Congratulations on an excellent quarter.

Thank you.

I wanted to go back to the RSV program. I know that, obviously, the experimental section of the study is still underway, but I wonder if we could talk a bit more about this next trial in naturally infected patients. Can you tell us more how that one is -- the scale of that one and the design of that and how the experimental infection study is going to help guide that one?

Let me take part of that question and then turn the rest of it over to Akshay. What we are sharing from an information standpoint is that it is going to be the next Phase II study in the naturally infected population will be an adult population, not a pediatric population, and that was a decision that we made over the last several months as it related to our overall process for advancing this program ultimately toward the pediatric marketplace.

But also reflecting the fact that there is a significant and meaningful adult population that, in some ways, could represent a faster to market, ultimately, opportunity for us that we're certainly looking at more closely, but it's still premature to comment on.

And in that regard, there are many different populations that one can look at for measuring the activity and measuring the effective dose levels of an anti-viral for RSV in adult populations. They range from bone marrow transplant patients to COPD patients in adults to the elderly to certain sort of co-infection paradigms that one can look at to lung transplant patients.

So there are many different adult populations. We don't want to yet share the specifics but we will soon in terms of which population we're going after. We've certainly decided how we're proceeding internally and we'll look forward to sharing that information in the not-to-distant future.

But let me turn over the rest of that question over to Akshay to comment further about how do we think about the transition between the current Phase II with the experimentally infected adults into the naturally infected study. Akshay?

Yes, so I mean I think this is a really exciting time for this program. We've got some key datasets coming together now. The inhalational study is near completion and we'll have the data by the end of the year and we'll report those. That is a key element in advancing, because it supports safety and probability via the inhalational route of administration.

And in conjunction with that, we thought it was key to get some efficacy data, a little proof of concept and the experimentally infection study gives us a wonderful opportunity, for the first time ever with an RNAi therapeutic, to establish unequivocally, efficacy associated with the drug from this novel class. And we're doing it in a setting where

I think we have a wonderfully designed study to show efficacy in the respiratory system and we have a dose range that we'll be exploring there and the combination of the dose and the fact that there is efficacy in the respiratory system is going to be key to going forward to that naturally infected study that John just talked about.

And as he said, there are a number of great options there, I think, in the adults, I think. So there's a lot of unmet need in adult populations as well. And we'll be getting the details of that study out by the end of the year as well, I anticipate.

So I think the key thing about the experimentally infection study is that it's a wonderfully controlled model where you can very carefully dissect out the efficacy and demonstrate the anti-viral activity of RNAi therapeutic. And to do so with the relevant tissues such as the respiratory epithelium that's involved and we look forward to presenting those data in the early part of 2008.

Are you giving any guidance of how long the naturally infected patient trial will be or how many patients will be in it?

Yes, I think that's all intimately tied up with the study design and once we've made excellent progress with that study design and the target population, I think we'll be getting all of that out in due course.

Okay. And the results from the experimental infection [state] is going to be announced through a press release, or are those going to come at a conference, do you think?

Well, Alan, when those results are unblinded and the analysis is completed internally, will be immediately released because we think it's obviously important to share that result, those results with our investors.

Okay.

And we'll, as we like to do, we'll look for the appropriate peer-reviewed meeting to get full results out so you see everything.

Okay, thanks.

You have a follow up question from the line of William Sargent with Banc of America Securities. You may proceed.

Hey, Will.

Hello, again. Thanks for taking my follow up question. I was wondering if I could probe a little further. So, do you anticipate that by choosing an adult population that you would potentially stagger a pediatric population before approval or how are you thinking about these two separate populations in a commercialization paradigm?

That's an excellent question, which, to be very clear, is going to be driven by our ongoing discussions with the FDA on the prudent way to move forward. And so, we certainly have thought through how we would conduct those, either in a staggered, or in a parallel fashion, and we'll be looking forward to discussions with the agency at the appropriate time to discuss our pediatric study and give further guidance on that when we know more.

Okay, great. And does the selection of an adult RSV population change your thoughts about partnership in this program, moving forward?

No, not at all. And we're quite excited about geographic partnership discussions we're having with our RSV program. Too soon to say exactly what the timing of those would be, and ultimately, we do believe this is a program that is best partnered following the establishment of the appropriate inflection point of value in the program, even in the U.S. market.

Excellent. Thanks again. Congratulations on the quarter.

Thanks.

That concludes the Q&A session. I will now turn the call back over to John Maraganore for a closing statement.

Thanks, Gina. Thanks to everyone for joining us today. As I said earlier, we've really had a tremendously productive quarter and we look forward to updating you in the months to come. And aren't we all happy about the Red Sox? Bye-bye.

Thank you for your participation in today's call. This concludes the presentation. You may now disconnect. Have a great day.