Arrowhead Pharmaceuticals Inc (ARWR) 2010 Q2 法說會逐字稿

Greetings and welcome to the Arrowhead Research second quarter fiscal 2010 conference call. At this time, all participants under a listen-only mode. A brief question-and-answer session will follow the presentation. (Operator instructions) As a reminder this conference is being recorded, It is now my pleasure to introduce your host, Ms. Kristen McNally. Investor Relations for Arrowhead Research . Thank you, Ms. McNally, you may now begin.

Thank you operator. Good afternoon, everyone. Thank you for joining us to discuss Arrowhead's financial results for the fiscal 2010 second quarter ended March 31, 2010. With us today from management, our President and CEO Dr. Christopher Anzalone and Chief Financial Officer Ken Myszkowski. Management will provide a brief overview of the quarter and will then open up the call to your questions. Also on the call for participation in the Q&A session is John Miller from Unidym, and Dr. Thomas Schluep from Calando. Before we begin, I would like to remind you that comments made during today's call may contain forward-looking statements within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934.

All statements other than statements of historical fact, including without limitation those with respect to Arrowhead's goals, plans and strategies are forward-looking statements. Without limiting the generality of the foregoing words such as may, will, expect, believe, anticipate, intend, could, estimate, or continue, or the negative or other variations thereof, or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of Arrowhead's future financial performance, trends in its businesses or other characterizations of future events or circumstances are forward-looking statements.

Forward-looking statements represent management's current expectations and are inherently uncertain. You should also refer to the discussions under the risk factors in Arrowhead's annual report on Form 10-K and the quarterly reports on Form 10-Q for additional matters to be considered in this regard. Thus, actual results may differ materially. Arrowhead undertakes no duty to update any of today's forward-looking statements discussed on today's call. With that said, I would like to turn the call over to Dr. Christopher Anzalone, President and CEO of the Company. Chris?

Thank you, Kristen. Good afternoon, everyone. Thank you for joining us on our call today. The fiscal 2010 second quarter marked continued steady progress at Arrowhead and we now have some considerable accomplishments under our belt. As with every quarter, I view progress in the context of our ongoing conversation with our shareholders. We are judged and ultimately valued based on three simple endpoints, one our commitment to articulating our goals to shareholders and two, our ability to accomplish those goals and three, the economic value of those goals. I believe last quarter was important for us particularly when viewed in this light. We said that it was our goal to be first Company to demonstrate effective systemic siRNA delivery and gene silencing via RNA interference in humans, and we accomplished both of these.

In March, we announced some preliminary data from Calando's Phase I physical trial that we believe underscore our leadership in SiRNA delivery. This is an exciting milestone for our Company and for the broader industry that has potentially significant economic and therapeutic matter and ramifications. We said that Unidym would continue to secure high-quality partners to advance sales of CNT films and that we would begin market entry in touch screens by the end of calendar year 2009. We have done both of these and I believe the potential value is considerable. We are aligned with some of the world's leading companies in our target markets and we have a product that's commercial ready for some of these initial markets.

As we rollout our product lines we believe that our materials are unique for disruptive technology. In many respects, they are technically superior to incumbent materials and also cost competitive. We have said that our intention is to become the leading nanotechnology Company. We are accomplishing this through progress at our subsidiaries and by expanding our mindshare with new additions to our advisory boards.

We are now working closely with Nobel Laureate Dr. Lee Hartwell and Former FDA Commissioner Dr. Andy von Eschenbach, which significantly expands our abilities in nanomedicine, our key focus going forward. We said that we will decrease our burn rate and make our cost structure more flexible. We have done that without significantly compromising our ability to build long-term value.

We continue to achieve operational efficiencies, reducing our operating expenses by 58% year-over-year to $2.3 million. We are now operating at a consistently lean and efficient level. Importantly, this particular accomplishment is reflective -- reflected directly in our bottom line. Our net loss for the period improved to $2.1 million, or $0.03 per share, compared with the net loss of $5.3 million or $0.12 per share for the same period last year. I hope that these points provide more evidence that as a Company we do what we say we are going to do and that these accomplishments are worthwhile from a value creation standpoint.

Looking at our subsidiaries in a bit more detail, I would like to highlight our major activities during the quarter and provide updates on what our next steps will be with an eye toward driving our businesses to its -- driving our business, rather, to its next stage of growth. Last time we spoke, it was my great pleasure to discuss with you our exciting Calando data from the CALAA-01 trial with our proprietary RONDEL delivery system.

As a brief review, these data which were published in "Nature" article demonstrated the first proof of concept for silencing the gene, via iRNA, in humans, and the first proof of targeted delivery vehicle accumulating in a tumor in humans. Specifically the data demonstrated one, detection of RONDEL particles inside tumor cells, demonstrating that RONDEL is capable of shuttling siRNA into tumors after being infused into the bloodstream of patients. Two, presence of RONDEL inside tumors in a dose dependent manner meaning that as the dose was escalated, an increasing part of nanoparticles reached the intended target.

Three, decreased levels of target mRNA decreased in tumors after treatment. Four, decreased levels of target protein after treatment. And five, proof that RONDEL is capable of enabling RNAi in humans. In short, these data demonstrated that our drug and delivery system have achieved what no other system has, solving the long standing, systemic delivery problem associated with RNAi. We believe that our data represents a significant step for the broader field of RNAi interference towards translating the science into viable medical treatments.

As we have said in the past, we believe that the first Company to demonstrate effective delivery and definitive gene silencing, via RNAi, in humans would hold a lot of value. We believe these findings indicate that Calando has created significant value for itself, Arrowhead, and the broader industry and we are working to realize that value now. In line with our business model, of working with early stage nanotechnology companies to unlock the value of their technologies while maintaining a low overhead cost structure. We are continuing to seek opportunities that will allow us to best monetize Calando's important assets. We are currently evaluating the many options in front of us.

These range from an all-out sale of Calando, to series of partnerships. With respect to the latter, many possibilities exist, including partnering on an indication by indication basis and partnering on a specific target by target basis and partnering on a geographic basis. We are committed to finding a strategy to maximize shareholder value, enable us to work with leading companies, and provide us with significant exposure to long-term upside potential as drugs reach the market. Our ultimate strategy need not rely solely on partners or acquirers at this time and may include retaining some targets or fields for further development in-house.

Having only announced the pivotal data in late March, we are still evaluating these options. We are currently engaged in various discussions that will enable us to make the most informed decision and allow us to ultimately pursue what we believe is the right deal to capture the most value for our Company and our shareholders. Partnering in this program will be among the next important steps for our Company and we look forward to keeping you updated on our progress. We will be making announcements on this front as material news transpires. In the meantime, we are continuing our Phase I trial and will report on the results when it is completed. Our current expectation is that the trial will be completed by the end of the calendar year.

Looking at Unidym, in February, we secured a joint agreement with Wise Power, a publicly traded Korean company. Under this agreement, Wise Power will co-develop and locally market Unidym's proprietary film and electronic ink products in Korea. CNT-enabled touch sensitive MP4 players, based on Unidym's principal CNT films, were displayed at a 75th China Electronics Fair in April. Reception to the product was encouraging, and having our technology demonstrated in type sensitive MP4 players marks the launch of efforts to introduce our films in China, a very important market for us. Our model with this subsidiary has been to introduce Unidym's CNTs for large market applications in certain target markets where we believe we can gain most traction.

Establishing a local presence in target markets through joint ventures, such as the one with Wise Power, is one of our strategies to gain entry into these geographies. This continues and we expect to launch additional partnerships in 2010, as we rollout product lines. With more touch panels being made in China than anywhere else in the world, China represents one of the largest markets for our transparent conductive films. We are heavily looking to China as this serves as the hub of the electronic industry.

Most business in China is conducted through local entities, with increasing barriers for US or other international companies to establish themselves without a Chinese partner. This fits in line with our strategy for Unidym as we continue to hold strong -- excuse me, partnerships with Asian-based industry leaders like Samsung and our garnering additional interest from electric technology companies with the goal to enter new joint development agreements to further advance this technology and gain market traction. With our less mature minority investments, Nanotope and Leonardo Biosystems, our goals and timeframe remain the same. These earlier stage companies represent compelling opportunities and we continue to expect that they will add significant value to us going forward.

Nanotope's regenerative medicine technology fits perfectly into our model and exhibits many of the key characteristics we look for in new opportunities. It is the broad and customizable platform that can be used to regenerate multiple tissue types. In the past, we have discussed exciting animal data, showing that we can regenerate spinal cord tissue reverse paralysis associated with spinal cord injury. Accelerate wound healing, enable bone regeneration and other active programs. Nanotope is moving forward and results were recently published demonstrating cartilage regeneration in animal models.

Needless to say, this is one more very attractive market that Nanotope has the opportunity to address as development continues. Such a flexible and broad system gives us multiple shots on goal and therefore, enables us to partner with potential products relatively early in their development. This provides an opportunity to work with best-in-class companies for each potential product, and helps keep our burn rate low as partners assume development in clinical trial costs.

We believe Nanotope is well positioned to execute a partnership in 2010. Leonardo is the next generation drug development -- I'm sorry, drug delivery company that is also a good example of the types of companies we are interested in building. It has a very low cost structure, due to its close partnership with the laboratory of Dr. Mauro Ferrari, one of the best funded scientist in the country and one of the best known nano-cancer experts in the world. Leonardo is based on paradigm shifting technology and fits in well with what we are doing with Calando.

Before I turn the call over to Ken, I would like to extend a warm welcome to our newest Advisory Board member, who we added to our team in April, Nobel Laureate Dr. Lee Hartwell and Former FDA Commissioner and and National Cancer Institute Director, Dr. Andrew von Eschenbach. Under Dr. von Eschenbach's leadership, many new programs were designed to strengthen the FDA, including the establishment of nanotechnology initiative. He brings us unique and comprehensive perspective on medicine, with a deep understanding of science, the regulatory pathway, and healthcare delivery systems. His active involvement at Arrowhead will be very powerful as we increase our focus on nanomedicine.

Similarly, Dr. Hartwell is one of the great scientific thought leaders of our time and we are honored to have him as part of our team. His commitment to improving patient outcomes and reducing healthcare costs through improved molecular diagnostics is an excellent fit for Arrowhead. We expect that he will play a large role in our strategic focus and helping us to extend our scientific reach as the President of the Fred Hutchinson Cancer Research Center in Seattle, Washington. We are delighted to have attracted such renowned members of the scientific medical and regulatory communities. Their interest in Arrowhead and our prospects further validates the focus and the accomplishments of the Company.

We are eager to gain their guidance and insight as we continue to meet our goals and set new ones that put us on a firm growth path, both with our current opportunities and those we are evaluating to augment our long-term growth objectives. I would like to turn the call over to our new CFO, Ken Myszkowski, for a brief review of our financial performance for the quarter. Ken?

Thanks, Chris, and good afternoon, everyone. As we reported earlier today, our net loss for fiscal 2010 second quarter was $2.1 million, or $0.03 per share on 62.9 million weighted average shares outstanding. This compares with the net loss of $5.3 million, or $0.12 per share, based on 42.9 million weighted average shares outstanding, for the quarter ended March 31, 2009. On a consolidated basis for the six months ended March 31, 2010, net cash used in operating activities totaled $3.4 million, compared with $11.3 million in the prior period.

For the quarter ended March 31, 2010, revenues were $157,000 and consisted primarily of Unidym sales of CNT and inks. his compares with $236,000 of revenue in the quarter ended March 31, 2009, which included $118,000 in revenue from grants and $88,000 from the sale and delivery of carbon nanotubes by Unidym. Our total operating expenses for the quarter ended March 31, 2010, decreased by 58% to $2.3 million, from $5.4 million during the quarter ended March 31, 2009. This considerable reduction in operating expenses was realized across each of our line items, as a result of measures undertaken during 2009, to streamline our businesses and better align our cost structure with our capital resources.

Turning to our balance sheet, as of May 31, 2010, we had cash and cash equivalents of $2.6 million, compared with $2.2 million as of September 30, 2009. Our increase in cash includes $3.2 million in gross proceeds from a private placement of approximately 5.1 million units which we completed in December. With that brief overview, I will now turn the call back to Chris for concluding remarks.

Thanks, Ken. Notwithstanding our business and technical progress as well as our ongoing drive to increase our operating efficiencies, ensuring proper liquidity continues to be a focus for us. In the past, we have said publicly that we have the financial resources to take us through the end of the fiscal year and we stand by that. However, we clearly need to have an eye on keeping the Company capitalized to continue to build and extract value from our assets.

Toward that end, we have a number of viable options. They include but are not limited to the following, one, capital derived from the exercise of outstanding warrants. There are a number of in the money warrants currently outstanding and some of those have been exercised. We expect this to continue as a non-insignificant source of capital. Two, outside capital invested directly into our subsidiaries. We believe both Calando and Unidym are attractive investment communities and we would consider bringing capital directly into them. Three, partnership or some other type of liquidity event at our subsidiaries. Four, increasing revenue contributions from Unidym as it penetrates the touch panel market and five, raising capital directly into Arrowhead.

We are confident that Arrowhead will continue to have the capital necessary to continue to build on its accomplishments. With Calando we have achieved significant attention from the scientific investment communities, based on our data demonstrating RNAi in humans. We will continue to enroll new patients in this clinical trial to build this drug and delivery system's safety and tolerability profile, while simultaneously evaluating and determining the right partner and opportunity for these exciting assets. With Unidym, we have made an entry into the touch panel market and are gaining initial traction with modest revenue contribution.

We look to continue to drive our market presence through joint development agreements with key partners in Asia where there remains a great deal of opportunity. We plan to ramp our efforts, with the earlier stage subsidiaries, Nanotope and Leonardo, by establishing a commercial partnering agreement this calendar year and continued development of the platforms. New opportunities in nanomedicine also represent significant growth opportunities for our Company, as we look to build a robust portfolio of subsidiaries where we can develop and monetize the value of innovative nanotechnologies.

Our important milestone achievements have put us on a firm growth trajectory. It is my hope that the market appreciates the potential value of our initiatives and sees that we do what we say we will do. Our overall value proposition has become more tangible in the last few months and we are continuing to build on that momentum. We believe that the culmination of our recent achievements and near-term opportunities provide an attractive investment opportunity with declining associated risk.

We have made considerable progress and our stock price has reflected some of this. Our share price has increased by almost 400% since our 52-week low and we are certainly proud of this performance. However, our job is not finished and we are not yet satisfied. There's much left to accomplish and we are focused on building value every day. These are, indeed, exciting times for us. Thank you for your attention and your continued support. I will now open the call for questions. Operator?

Thank you. (Operator instructions) One moment, please, while we poll for questions. Our first question is coming from the line of Mr. Don Hutchinson with Safe Harbor Financial Group. Your line is now open and you may proceed with your question.

Thank you. I have three questions, actually. One, I would like to know what our percentage of ownership of Nanotope is? The second would be, I would like to know more specifically what the actual duties and perhaps any ideas about compensation arrangements for the Scientific Advisory Board? And also, if you could run down the exact competitive advantages of the transparent film? That would be of great help to me.

Okay. Thank you very much. With respect to Nanotope, we own about 22% of Nanotope right now. Ken, is that right?

That's right.

With respect to the Scientific Advisory Board, that's a great question and I appreciate that. We haven't gotten into the compensation of the members but let's talk a little bit about what they do. This is not a SAB for the sake of having an SAB. It's not one that we have just for a bunch of names on our website. It's an active SAB. We interact with them on a regular basis. In fact, we interacted as a group just this last week, and I interact with the members on a very regular basis.

The idea there is -- first, to help to broaden our opportunities. These are some of the greatest thought leaders in science right now. And it is our hope that they can help to focus our initiatives in areas that we think are going to be significant in nanomedicine going forward. Second, their role is to help our current subsidiaries. Not only will they be helping to us develop new ones but our existing subsidiaries, they will hopefully open some doors for us, and help us to run those more efficiently and with a broader view. So your question about our CNT films, I can hand that over to John Miller to address that.

The performance advantages of CNT film versus the incumbent technology, indium tin oxide, depends on the touch panel application and also the particular geography. In the China market, where we are currently doing a lot of work, the primary advantage would be a lower cost structure. The Chinese customers are primarily interested in driving down the cost of the transparent conductive films that they use in their touch panels. Because the CNT solution is a solution-based wet coating process. It coats about 50 times faster than ITO is coated on a PET, the cost structure can be substantially lower.

In other markets, higher-end markets, Japan and the United States, the primary advantage of the CNT film is durability. We've had customers demonstrate that whereas a high quality ITO, when exposed to a [jabbing] pen test, can survive maybe one million cycles, whereas the CNT films can survive greater than ten million cycles. So, for certain applications that require higher durability or where the customer wants to provide a longer warranty on the product or for unique designs like a curve touch panel, the CNT film has substantial mechanical benefits.

Thanks, John.

Thank you. Our next question is coming from the line of Mr. Todd Aldrich, a Private Investor. Your line is now open. You may proceed with your question.

Hi, Chris, how are you?

Hi, Todd, I'm great. How are you?

I'm doing well. I actually had two questions and one potential third follow-up. Given the potential partner interest, as it would relate to the intensity around the initial review of the data that came out in "Nature." Does it seem like the interest, in general, is correlated to the watershed event, just to use some people's words about that data in terms of this potential interest at current? And then my second question is, it seemed to me in looking at the date, initially, that there was somewhat of a predictive, or formulaic model, that would basically say, a dose escalation would -- may predict a certain outcome?

And that seemed with the data we got, there was a high correlation. So, having said that and looking at a potential Phase II relative to Phase I, could one argue if you were to move to a Phase II that you are likely to see just more robust or more statistically significant data given what's already been revealed?

Yes, thanks very much for the questions. Let me address the first one first. With respect to interest in Calando. Yes, I think there's an awful lot of interest because right now we are the only game in town in terms of showing definitively that we can silence genes via RNAi and we can effectively deliver siRNA systemically. So, while large companies are certainly testing dozens and in some cases literally hundreds of delivery strategies, right now we are the only ones that have improved the concept in humans. So as one can imagine, there's significant interest because of that.

Now, science is a great thing, and I don't know how long we will keep that lead. I assume that science will continue to move forward and five years from now, there may be multiple ways to deliver siRNA but right now we are the only ones so I think we have clear first mover advantage. And also I think that potential partners realize the flexibility of this platform. Now, this is an oncology trial and our drug CALAA-01 is right now being used in this Phase I trial against solid tumors. However, we think it's a very flexible system that will allow us to use other targeting molecules fairly easily, such that we can get into non-cancer indications. And so when we look at this, we look at this in a few different ways.

One, as the drug CALAA-01, we think it's a good drug. Secondly, as a broader system, RONDEL, we think that the data is beginning to show that we can deliver siRNA effectively in cancer and third, as we modify and optimize the RONDEL further, we think we can get into non-cancer markets. Now, with respect to a Phase II -- so here's where we are. We are in this dose escalating trial, and we have not seen, as we have mentioned in the past publicly. We have not seen any SAEs, any drug-related SAEs yet. So it's quite well tolerated and we are at dose levels, as the paper showed, where we can start to see some activity, whereby we see RNA knock down and see protein knocked down.

It's unclear how high we go with this. This is not like a traditional cancer drug. In traditional cancer, therapeutics are poisonous and you put in as much poison as you can without killing the host, and that's the dose that you use. It's not clear to me that we are ever going to find that maximum tolerated dose or MTD. It may be that as we continue to escalate, we will see a maximum RNA in protein knockdown and we would not have to go any higher. So it's unclear. It's unclear right now what dose we are going to use for a Phase II. And certainly it's unclear precisely what type of cancer we would go after in a Phase II and so we'll just have to wait and see on that.

I guess my question is, just stepping back from a potential partner point of view and maybe relative to the Company's view, and that is the need to go further based on what is and how statistically significant that is. I guess what I was trying to get at is it seemed to me based on the data -- there was given the predictive model that seemed to be in place. That, in fact, the escalation, again what the model said you should see is exactly or pretty much near what you did see. Therefore, the need to do a larger trial while more data is obviously better. I guess, I'm just wondering if one could argue that given the statistically significance of the model itself, that you could argue that you are likely to see more activity and more statistical significance with the larger population set.

Yes, I think that's right. And I think that we should bifurcate what our endpoints are, right. One endpoint is the efficacy of the drug, CALAA-01. In order to show the efficacy of the drug, we really have dose an awful lot of patients. Because, as has been shown in most cancers, there's fairly wide interpatient variation with how a tumor responds to a certain drug and so, to get over all of that noise, you have to dose a lot of your patients. So the bar for showing that is effective is relatively high. There's just no substitute for a lot of patients.

Now to your thought of predictive value in escalating, I think that, that is important for showing the efficacy of the RONDEL as a delivery system. What I mean by that is that I think we would expect relatively low interpatient variation for RONDEL getting into tumor cells as an endpoint, not shrinking tumors necessarily but getting into cells. Now we believe that -- the variation we will see for endpoint among patients is going to be quite a bit lower. So I guess to answer your question, if I understand your question correctly, is it depends on what we are looking for. If we are looking for efficacy of CALAA-01 as a drug, we have to dose a lot of patients. If we are looking for efficacy in RONDEL's ability to get into cells and deliver effective siRNA, I think we will acquire a smaller number of patients.

Okay. And just one follow-up, as far as ASCO is concerned, what might we learn in terms of the data coming out there relative to the interim data so far? Would it be possibly just full of toxicity data, in terms of the outcomes there?

Thomas, you can address that?

Yes, this is Thomas here. We will present basically the clinical trial update which will include the patient population characteristics and also an overview of what side effects we're seeing to date, which has not been presented today. So that's the new aspect of what is going to be presented in ASCO.

Thank you.

Thank you. (Operator instructions) Our next question comes from the line of Mr. Bruce Watts with Watts Associates. Your line is now open. You may proceed with your question.

Yes. Hello and first, let me offer a compliment. I think that your information in responding to questions -- and there haven't been many yet, is particularly articulate and informative to shareholders and that's very, very helpful. A couple of questions. One, would you consider using a peptide ligand technology in any way? nd would you potentially deliver via a nano-encapsulation your drug to a tumor or elsewhere to treat whatever you were treating in a patient's body? And I'm talking about a low-level microwave directed type system where you activate the medication, the drug when it's right on the tumor or other problem? And secondly, when you look back, say, two years, three years, five years down the road, how do you expect to describe the Company. In a sense -- even though it's a couple of areas so far, in a sense, you are a mini-conglomerate, if you will. Is that simply coincidental, where you have been opportunistic, which is just fine, or is it a deliberate design?

Thanks very much, Bruce. Let me start with your last question first, with respect to structure. So the word "conglomerate" has become a bit of a bad word over the years.

Well, it's an old word.

Yes. So I think there is significant value, I think, in our structure. We see an awful lot of operating efficiencies by centralizing key management responsibilities at the level of the parent and then to use those people to work with all of our subsidiaries. That was what Arrowhead saw when it was first formed and that's what we continue to see now. And I think that there's two sides to that coin. One is efficiency. I think we can do these jobs more cheaply in the structure than if we had, say, six disparate independent companies.

The other side of that coin is not just efficiency but is how well we do that job. Many of these companies couldn't afford to bring in a senior person to do some of these jobs because either they are a small company, and they just don't have the capital to bring in somebody that senior. Or because they just don't have enough work to keep that person busy. By centralizing these responsibilities, we can get over that. We can bring in, we think very high, very experienced people and we can keep them busy because they can work on all the subsidiaries.

Now that model, that operating efficiency model increases exponentially as you focus your subsidiaries in one or two areas. As you can see and as we alluded to in this call, as well as in prior calls, we are increasingly focusing on nanomedicine. We are doing that because we see great value in using nanotechnology for next generation therapeutics. We see great value in shrinking components down, shrinking devices down to the level of the cell and then interacting at the level of the cell. We think that there's truly a paradigm shifting therapeutics that we can enable by that.

Calando is a great example, Nanotope is a great example, and Leonardo is a great example. So, we see relatively in the near-term, relatively big opportunities in nanomedicine, so we are interested in that going forward. Second, as we bring in -- as we develop new subsidiaries in they are within a single vertical, we can build Arrowhead, the parent, in a more focused manner to serve those focused subsidiaries. So I think our structure is a sound one now and I think it's increasingly sound as we focus more and more on nanomedicine.

And with respect to your follow-on question, about -- is there some grand strategy here or are we just doing these in an opportunistic fashion? The idea is that there should be a grand strategy, in fact our Scientific Advisory Board is helping us to develop that. I think that two years from now, one year from now, when you look at our subsidiaries, I think that you should not look at them as a number of disparate, independent companies, but companies that are somehow interlinked with one another, and can add value to each other.

I think that once we make that step, then this model really, really starts to hum and we are on the road to do that. Now, nothing that I just said should be inferred to diminish the value of Unidym. Unidym is a very valuable asset for us and we continue to devote resources to it, even though it's not nanomedicine. But we look at future opportunities more in the line of nanomedicine. Now, to --

Right.

And now to address your other two questions. Your first one had to do with using a peptide ligand. If I understand you correctly, are you talking about peptide ligands as the targeting agent for RONDEL?

Yes.

Yes. The answer is yes, we would be interested in doing that. We haven't generated any data using peptide using small peptides but we believe that our system will enable that and it's something that we would be interested in pursuing. We think that that's certainly a -- I think an example of the flexibility of our system.

Then, finally your middle question with respect to delivering drugs that then could be activated remotely. That's not something we are focused on right now. Calando is, I think, a very focused RNAi delivery company and so we are looking at delivering nucleotides. At some point, could that deliver some type of other agent that could be remotely activated? It's potentially possible, but it's not in our focus right now.

One more question, if I may. You have indicated that you feel financially secure. Is that because the people who surround the company, put it that way, if you will, are prepared to fund you in the, say, intermediate term, if necessary? Or is it because you have assurance from outside sources, be it venture capitalists or investment bankers who would raise money for you? Or some outside funding that would provide you with that assurance?

I feel comfortable with our financial situation, notwithstanding the fact that we are sitting on a ton of cash because I think that we are in a strong position with our subsidiaries with the market. And we have enough options that this is not one of the ten things that cause me to lose sleep at night.

Good. Thank you.

Thanks very much, Bruce.

Thank you. Our next question comes from the line of Mr. Todd Aldrich. Your line is now open. You may proceed with your question.

Todd, you are back for more?

Chris, if I may, I did have just a follow-up. On the note of capital efficiency, an increase patient population at trial, in terms of potential more dosing, is that figured? Or was that figured into your capital plans prior, meaning the current funds you have? Are you able to fund that? And then I have one more if you may.

The answer is yes. We -- a year ago, as you may recall, we decided that we really -- apparently, due to capital constraints that we are going to make Calando a virtual company. We thought we could do that and we -- I continue to think it was the right decision, because it was a relatively and is a relatively mature technology. And we had a robust R&D program going on at that point but we didn't think that that created a lot of near-term value.

We thought, I think rightfully so, that the big value driver there was just our clinical trial. And so, by making this a virtual Company and focusing our resources primarily or almost exclusively on the clinical trial, we can do this very cheaply. It's not a terribly expensive Phase I and so the cost of dosing new patients is not terribly high.

And as far as cycling through a specific patient population at a specific dose escalation, I guess my sense is, in looking at how that protocol unfolds. It's about roughly six weeks, maybe eight weeks. I would assume that the ability to mine that data for gene protein knockdown. And just evidence of the transport system is inside the cellular wall and the tissue is probably something that can be done almost immediately. Is that observation correct?

It depends on how you define almost immediately. We are hopeful that the next number of the patients that we treat will be biopsiable and we can interrogate those tumors as we did with the patients that were presented in the "Nature" paper. So to the extent that that is true, and we can get tumor samples. We will interrogate those as quickly as we can. We -- it's not -- there's not a very set amount of time that any patient will be treated, however, because we will generally treat these patients until they progress. So it's difficult to have a hard stop on when we are done treating patients and therefore, when our data collection will be finished.

It seems to me too, just my own observation, that the potential interest, just given where the industry is, was probably fairly intense irregardless of maybe doing more patients. But, again, the more patients, probably the better from a data standpoint. And the reason I ask that is, it seems the efficacy data which you guys have shown, was something that other companies that have been acquired for sums we can all read about, they had not proven any of that. So while efficacy obviously is important, it seems that you guys have done that to a degree. It seems to me just proving delivery, meaning transport is really probably as big a deal as anything.

I mean, I recently came across a paper, actually, an interview from a major pharma company and somebody who is in a very senior position in R&D had commented that if they could just move the probability needle just slightly. I think it was just 10%, that the cost savings just for doing that, given the amount you have to invest in any new platform was at least $100 million plus. I guess my observation, it seems just proving delivery, irregardless of efficacy is probably as big of a deal as anything given where the current industry is. Thank you.

I appreciate that question. Thank you. So our job for whomever partner we end up choosing or set of partners, our job is to derisk this proposition. And the way we derisk it is to dose more and more patients. I think that we have significantly derisked it, compared to really any other delivery system that's out there, just by virtue of showing this proof of concept and with the handful of patients that we have shown that for.

But as we continue to dose the patients and as we increase our dose and hopefully as we continue to see the delivery consistently. I think that we will increasingly derisk this proposition and as you point out, the more we can do that, the more valuable this asset becomes.

Now, with respect to efficacy, again, I think you were right about, that showing effective delivery, showing gene knockdown and protein knockdown, that's the big value driver. Clinical efficacy, a la tumor shrinkage, or some other outcome is important to us, because we think CALAA-01 is a good drug and we think we will see that, but showing that is, I think, less of a big value driver than just showing the delivery.

And the reason is because, if we show that we can effectively deliver this one sequence, we should be able to deliver any number of sequences. And so for a potential partner, they look at this not as one drug but any number of drugs. So we are committed to both, of course, but we think that the value proposition of showing efficacy of delivery, versus clinical efficacy, are just fundamentally different.

And Chris, if I have it right and I don't mean to take up too much time on the call, but I think this point is an important one from where I sit. And I just want to make sure I have it right. Obviously efficacy would require probably a much higher patient population to make that statistically significant. However, given what you guys have already shown, given the formulaic or predictive model, there seems to be likely a very low patient variation. So I think one could possibly argue that given what you have already shown, there's a very good chance or a high probability that you would prove delivery still, but in a more robust fashion with more patients. But that has essentially already been proven to an extent.

Well, those are strong words. We have very good data on a small sample size and data, I think that tells a good story, because of differences that we see as we increase the dose. It's good data, but, let's be clear that biology is a funny thing, and we increase the value of this tremendously as we dose more patients. And also, let me also be clear that we have not reported on the clinical efficacy, we have not reported on tumor shrinkage or cytostatic responses. We have only reported on the delivery.

As you point out, to really show clinical efficacy, we need to get into a deep Phase II most likely or a Phase III even, just because traditionally you see see fairly high interpatient variation for how tumors respond to various drugs. I would just be careful with that side of the equation. Now, I'm not backing away from that. I think CALAA-01 is a great drug and I think we will see that. I think we just need to be patient because, again, the bar for showing clinical efficacy of that drug is quite a bit higher, I think than the bar for showing efficacy of RONDEL as a delivery platform.

Okay. That's actually very helpful. Thanks for the clarification.

Thank you. At this time, there are no further questions in the queue. I would like to turn the floor back over to management for any closing comments.

Thank you very much for the call and I will speak with you next quarter.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you very much for your participation. Have a wonderful afternoon.