Arrowhead Pharmaceuticals Inc (ARWR) 2010 Q4 法說會逐字稿

Greetings, and welcome to the Arrowhead Research Corporation fiscal 2010 year-end conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Brandi Floberg, Investor Relations counsel. Thank you. Ms. Floberg, you may begin.

Thank you, Operator. Good afternoon, everyone, and thank you for joining us today to discuss Arrowhead's results for fiscal 2010 year-end and fourth quarter ended September 30, 2010.

With us today from management are 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 the call up to your questions. Also on the call for participation in the Q&A section is Dr. Thomas Schluep from Calando, and Dr. Mark Tilley from Unidym.

Before we begin, I would like to remind you that comments made during today's call may contain certain 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 business, 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 Risk Factors in Arrowhead's Annual Report on Form 10-K for additional matters to be considered in this regard, thus actual results may differ materially. Arrowhead undertakes no duty to update any of the forward-looking statements discussed on today's call.

With that said, I'd like to turn the call over to Dr. Christopher Anzalone, President and CEO of the Company. Chris?

Thanks, Brandi. Good afternoon, everyone, and thank you for joining us on our call today. Fiscal 2010 was a pivotal year for our Company from both scientific and corporate standpoints. We are a much different company now than when I spoke with you a year ago, and we have achieved a number of important strategic and operational goals designed to accelerate our broader objectives of assembling a leading portfolio of nanomedicine companies. So what has changed?

First and foremost, we reported first-ever clinical data approving systemic delivery of SiRNA in humans and gene silencing via RNAi. As we have discussed in the past, these breakthrough data are important to both the RNA industry and to our Company. Positive gene silencing data are of no value, however, unless coupled with a well-tolerated therapeutic. We reported positive interim safety data from Calando's Phase 1 clinical trial at the 2010 American Society of Clinical Oncology meeting, or ASCO.

We have achieved -- I'm sorry -- we have expanded the breadth of our nanomedicine portfolio by creating a new subsidiary, Ablaris Therapeutics, to address the large obesity market's opportunity in securing outside capital for its initial funding by increasing our ownership position in our subsidiaries and by initiating partnerships and operations with our earlier-stage opportunities. We have established new partnerships for Unidym; we have decreased Arrowhead's capital requirements for Unidym by bringing in non-dilutive outside capital into the subsidiary; we have expanded our leadership with key additions to our Board; and we have improved our balance sheet, reduced our costs, and streamlined our operations.

That said, at the end of September, we introduced an aggressive list of goals for the remainder of the calendar year. We knew when we introduced this road map that our rapid and diligent actions would be critical to meeting our objectives. We had 13 goals to accomplish in only three months. We have accomplished the vast majority of these goals and I'm proud of their achievements. However, there were two key accomplishments that we have not yet achieved, so I'd like to start with those.

It was our goal to complete enrolling patients in Calando's Phase 1 clinical trial and to complete at first partnership, and we are still working on these. I actually believe that the circumstances surrounding the need to extend our time horizon on these goals may ultimately be a positive for our mid- and long-term value proposition. Allow me to explain.

Calando's Phase 1 trial has been running for over two years now at two different sites. It is a dose escalation trial, whose primary objectives are to determine the safety profile and dosing parameters of Calando's lead candidate, CALAA-01. As you know, interim data were published at the 2010 ASCO meeting and in the scientific journal, Nature, reporting their early safety profile and positive delivery results, respectively.

We have reached dose levels where we can see targeted RNA and protein silencing via RNAi, but have still not determined the Maximum Tolerated Dose, or MTD. While we are hoping to complete enrolling patients by the end of 2010, I think the fact that we are still recruiting patients is a positive sign. Our delivery system, RONDEL, has been very well-tolerated and we are still trying to determine what the MTD is. We are generating more data and have taken more tumor biopsies before and during treatment to increase our gene silencing data set by number of patients and by dose levels received.

Our shareholders may be disappointed that completion of the Phase 1 may be pushed back a bit, but we hope that you understand the value of continuing to accrue patients, and to generate broader data and continue in our search for the MTD.

Our other major goal for Calando over the past few months of the year was to complete a first corporate partnership, and I understand that many of our shareholders are focused on this. I am also keenly focused on this objective. Calando is our most advanced subsidiary, is a cornerstone of our nanomedicine portfolio, and our strategy for this program has not changed. Similarly, our confidence in the technology and its ability to accomplish in the clinic what we believe no other delivery system has been able to do, have only strengthened.

We are engaged in active discussions with a number of potential partners. There remains a tremendous appetite for RNAi and a solution for the great limiting factor in its therapeutic use -- systemic delivery. However, the landscape for RNAi partnering has shifted. I believe that part of this change is related to the maturing of RNAi as a field. Silencing target genes through RNAi has been widely recognized as potentially revolutionary across virtually every indication and disease state. This promise caused pharmaceutical companies, large and small, to focus significant resources on acquiring and developing technologies that could enable them to someday compete in the therapeutic RNAi space.

Because it was a new field, it was necessarily focused on early-stage technologies. This ran counter to the way the pharmaceutical industry has traditionally viewed technologies, in that significant clinical data has historically been a critical trigger point; and now it feels as though potential partners and acquirers have raised the bar, and that substantial clinical data are required for executing large deals. Therefore, RNAi as a field appears to be maturing and is increasingly viewed through the same lens as other therapeutic classes.

A corollary of this is that many delivery strategies that generated some promising preclinical data have proved to be inconsistent, nonscalable, or non-reproducible. In light of so many failures, major pharmaceutical companies appear to have become more risk-averse when it comes to RNAi. Potential partners and acquirers seem much more focused on derisking a proposed transaction by relying more heavily on clinical data than on limiting financial outlays.

Simply put, we are finding that companies may rather pay more for a platform with proven clinical results, and pay less for a technology and assume the risk that it may not translate well into the clinic. This has meant that we missed our goal of executing a corporate partnership by year's end, but we believe it could actually be a value driver for us in the mid- and long-term.

A shift in emphasis toward clinical data and essentially raising the bar for getting large deals done, have drastically reduced the universe of our competition in delivery. There are only a very limited number of delivery technologies that are in the clinic now, and to our knowledge, Calando remains the only company to report successful delivery in humans.

It has always been our goal to do one or a series of deals with RONDEL -- with the RONDEL platform that would provide our shareholders with the type of upside that our investment in and development of Calando's powerful technology warrants. With strong clinical results, Calando has progressed to a more advanced stage in SiRNA delivery, outpacing a shrinking peer group with data that, by comparison, are quite early.

It is unfortunate that the right deal that properly values Calando's technology has not been completed yet. And it is with no comfort that I report to our shareholders that we missed this goal. However, my greater responsibility to you is to ensure that we extract the maximum value from that which we have built. We need to keep our eye on the real prize, which is the right set of deals, and we are now better positioned for achieving this, given the change in landscape of the field. We continue to believe that our progress on the effectiveness of systemic delivery of SiRNA has a potential to permanently alter the landscape of RNAi therapeutics.

Our Phase 1 trial is ongoing and RONDEL continues to be well-tolerated. Every day that we treat patients, we are potentially increasing the value of this platform. With the collection of more quality data, the Calando opportunity becomes increasingly compelling to potential partners, and our discussions with them continue.

In addition to the Calando goals, we set out 11 other goals in September that we were working toward by the end of the year. They are the following -- one, to execute a new corporate partnership at Unidym. We accomplished this with the Samsung partnership we recently announced. Two, make Unidym financially independent. We achieved this with the Samsung deal. Unidym accounts for a significant portion of Arrowhead's burn, so the upfront proceeds from the Samsung deal have a substantial positive effect on our liquidity.

Three, a move towards spinning Unidym out or selling the Company. We indeed move toward this event. We have made exceptional progress and I am optimistic that we can execute on a transaction in the near-term.

Four, complete a series -- I'm sorry -- four, complete a first commercial partnership for Nanotope. We accomplished this with Nanotope's partnership with Smith & Nephew in cartilage regeneration.

Five, consolidate Arrowhead's ownership position in Nanotope. We are working with Nanotope right now on the mechanics of increasing Arrowhead's position in the Company.

Six, execute a license agreement with MD Anderson Cancer Center for the anti-obesity technology. We accomplished this and announced it earlier this week.

Seven, work with the FDA toward filing an IND for the anti-obesity technology. This is accomplished, and we believe a lead compound from the anti-obesity platform will be in the clinic in 2011.

Eight, launch a new nanomedicine subsidiary. This was accomplished when we launched Ablaris to commercialize the anti-obesity platform.

Nine, begin operations at Leonardo Biosystems outside the lab of Dr. Mauro Ferrari. This is accomplished, and Leonardo now has facilities in Houston, Texas.

Ten, reemerge as a focused nanomedicine company. This is a multi-step process and we are very close to completing this transition. Unidym's sale will represent the final step.

Eleven, expand Arrowhead's Board of Directors to increase our expertise in nanomedicine. We accomplish this with the additions of Drs. Douglass Given and Mauro Ferrari.

Each of these accomplishments helped to lay additional foundation for our long-term growth, as we have talked extensively in the past about the value of our model and maximizing our opportunities of success or increasing our shots on goal. We have multiple subsidiaries all working in different areas to decrease our risk profile and maximize our upside potential.

In addition, each subsidiary is based on a platform technology rather than a single product or drug candidate. This is designed to further broaden our risk management and provide a maximum upside potential. Of course, this is an ongoing process, but I believe we have been largely successful at this over the past year. Our challenge now is to do this in such a way that the investment community may better understand us and properly value our assets.

This is a process of focusing our business while retaining a commitment to diversification within a single vertical. We have made significant strides toward this but we are not yet there. Let us now discuss how our accomplishments in 2010 and our plans for 2011 will help to maximize our value by continuing to push our growth strategy, but also provide a more focused and cohesive story for the investment community.

As we have said in the past, we believe we will increase shareholder value as we increase institutional ownership of our stock and attract analyst coverage. We have an aggressive plan for this in 2011, and a key component is to focus on a single vertical, that of nanomedicine. We continue to see a lot of value in Unidym, but focusing our business solely on nanomedicine is important for maximizing our operational efficiencies and simplifying our value proposition. Towards these ends, we have been working hard to move Unidym toward financial independence and to position it for a sale.

Throughout 2010, we made progress within Unidym's target markets, helping drive value and moving Unidym toward a sale. Notably, this included the partnership with Samsung. This is an important deal for a number of reasons. First, it brought in non-dilutive capital, enabling Unidym to repay Arrowhead nearly $1 million in intercompany debt and providing Unidym with operating capital. These have a real effect on Arrowhead's liquidity and allow us to focus our resources on our nanomedicine portfolio.

Second, it provides Samsung with a clear path through Unidym's large patent estate and, therefore, the ability to bring products to market. We view this as an important opportunity with a potential customer. Should Samsung need to source high-quality CNT materials for such products, Unidym hopes to leverage its deep experience in this area to compete as a potential supplier.

Third, Samsung is an innovator and we hope it will help to open new markets and customers for Unidym. Should other companies move to incorporate CNTs into electronic devices, Unidym will be well-positioned to sell licenses to its patents and supply CNT materials in those markets.

And fourth, it includes a patent enforcement alliance whereby Samsung will underwrite Unidym's patent enforcement against third-party infringers. This will substantially enhance Unidym's ability to protect its patent state, improving Unidym's ability to execute high-quality licenses and supply agreements.

With the Samsung deal behind us and Unidym, at least for now, financially independent, we are focused on finding a sale that would make sense for an acquirer and also provide Arrowhead with upside exposure. Because we are just now starting to break into target markets, we believe the best way for us to extract maximum value from Unidym is via a structured sale, with a modest upfront component and a large earnout, triggered by revenue milestones.

We are comfortable taking risks alongside the right acquirer because we believe in the technology and have confidence in Unidym's traction in target markets. Such a structure would make a transaction easier for an acquirer to justify, because it would not include substantial initial outlays, but would also enable Arrowhead to extract significant value over time, as Unidym's technology is adopted on a wider scale and as revenue grows.

We believe this is a positive for all parties and would trigger Arrowhead's transition into a focused nanomedicine company with interest in a single vertical. At that time, we will have a far simpler, more cohesive story to bring to analysts and institutional investors. I plan to reach out aggressively to the investment community and am confident that our value proposition will fit more neatly into established frameworks than it does now.

Throughout 2010, we developed our nanomedicine business and we believe they are at a stage where their value proposition can support the Company. The timing of this maturation is important and dovetails well with our broader plans to better focus our business. Of course, Calando is a cornerstone and, as discussed earlier, 2010 was an important year. We are now focused on continuing to generate clinical data to further derisk the platform in the eyes of partners and, therefore, increase its value. We are also now developing a plan for a Phase 2 clinical trial for CALAA-01 as well as exploring new targets for follow-on clinical candidates using the RONDEL delivery system.

Finally, we are working on relatively minor modifications to broaden RONDEL's applicability. RONDEL is such a robust and scalable system that we see tremendous value in demonstrating that it may be customized to meet the needs of a broad array of RNAi targets and indications.

We have worked hard to develop our earlier stage company as well in an effort to increase our shots on goal, as discussed earlier, and present a broader value proposition. We see Nanotope as a very important part of our growth strategy due to the power and breadth of its technology in the markets it is addressing. In October, Nanotope announced its first commercial partnership with global orthopedic leader, Smith & Nephew.

There's a fairly narrow alliance with a subset -- oh, I'm sorry -- for a subset of Nanotope technology to be used to develop a cartilage regeneration product. Through this partnership, Nanotope stands to gain up to $26.6 million in milestone payments plus sales royalties. We believe that Smith & Nephew is an ideal partner for a cartilage product because it has deep domain expertise, extensive regulatory experience in orthopedics, and well-established distribution channels.

Smith & Nephew has been moving very quickly, and we expect that Nanotope could receive modest milestone payments in 2011. Smith & Nephew will conduct and assume all costs associated with preclinical tests required to support clinical trials. It will purchase preclinical material from Nanotope and it will assume all clinical trial costs.

We view this partnership as a window into how we build companies and partner with them to create additional value, and defray development risks and costs. An alliance of this sort is both financially and strategically beneficial to Arrowhead, as it maintains our model of a low burn rate without compromising our ability to build long-term value. We continue to explore opportunities for additional partnerships to leverage Nanotope's regenerative medicine platform across multiple indications to further develop and monetize these assets.

With Leonardo Biosystems, we set up operations in Houston, Texas, outside of Dr. Ferrari's lab, and raised outside capital. In July, Leonardo secured $2.5 million in financing in the Texas Emerging Technology Fund. We view this as an important validation of the technology and we will continue to seek additional outside funds.

As we reported on Monday, we completed an agreement with MD Anderson Cancer Center to license a platform anti-obesity technology, and launched a new subsidiary, Ablaris Therapeutics, to commercialize it. There are a number of important components to this move. First, it is potentially a very powerful technology. It has been shown to dramatically decrease body weight in extensive preclinical studies. The technology is designed to specifically kill blood vessels that supply a white fat tissue, and therefore, cause targeted fat to be removed by the body.

Published data in high-quality peer reviewed scientific journals have reported weight loss of almost one-third of study animals' body weight in approximately one month of treatment, and a weight loss was due to a combination of fat destruction and appetite suppression. The technology has been validated by the multiple labs across five species, including three species of non-human primates over seven years.

Second, this platform is relatively advanced. The inventors of the technology, Dr. Wadih Arap and Dr. Renata Pasqualini, have been working closely with the FDA toward an IND filing. The manufacture and packaging of the Ablaris lead candidate is complete with sufficient quantities for a Phase 1 clinical trial. FDA-required toxicity trials are nearly complete and we expect a Phase 1 trial can begin in 2011.

Third, Ablaris provides very compelling economics for Arrowhead. We have brought in sufficient outside capital directly into Ablaris to fund the initial license payments and operating expenses. Ablaris will incur no direct costs associated with preparing for our Phase 1 clinical trial or running the trial. Arrowhead plans to invest an initial $500,000 into Ablaris, and with its founder stock in the Company, will own approximately 55% of the subsidiary.

Fourth, Ablaris will be directing the compelling market in obesity and obesity-related metabolic conditions. We believe that Ablaris adds significant value to our Company and it fits quite well with the rest of our nanomedicine portfolio. We are very pleased with our work with MD Anderson on this project and believe that we have substantial upside exposure with manageable cost exposure.

One of our corporate goals in line with becoming a more focused nanomedicine company was to expand our Board of Directors and Scientific Advisory Board. During the year, we made two distinguished appointments to our Scientific Advisory Board, with Nobel Laureate, Dr. Lee Hartwell, and the former FDA Commissioner, Dr. Andrew von Eschenbach.

Through the additions of Dr. Mauro Ferrari and Dr. Douglass Given to our Board of Directors, we now have six members on our Board. We also made three additions to the Boards of our subsidiaries with the appointments of Dr. Mostafa Analoui and Dr. Bruce D. Given to the Board of Calando, and Dr. Malcolm Gillis to the Board of Unidym. These appointments significantly expand our already-expert group of industry nanotechnology leaders, and we believe that our advisory team is best-in-class.

With these key thought leaders, exciting partnerships, a significantly strengthened balance sheet, and a diverse yet powerful portfolio of evolving technologies designed to address large existing market opportunities in multiple indications, we feel well-equipped to grow our Company.

I would now like to turn the call over to our CFO, Ken Myszkowski, to review our financials for the period. Ken?

Thank you, Chris, and good afternoon, everyone. As we reported earlier today, our net loss attributable to Arrowhead for the year ended September 30, 2010 was $5.8 million, or $0.09 per share based on 64.3 million weighted average shares outstanding. This compares with a net loss of $19.3 million or $0.43 per share based on 45.2 million weighted average shares outstanding for the year ended September 30, 2009.

For the quarter, our net loss attributable to Arrowhead was $2 million, or $0.03 per share based on 71.1 million weighted average shares outstanding. This compares with a net loss of $3.5 million, or $0.06 per share based on 51.5 million weighted average shares outstanding for the quarter ended September 30, 2009.

On a consolidated basis for the year ended September 30, 2010, net cash used in operating activities totaled $7.7 million compared with $15.1 million in the prior-year period. For the 2010 fiscal year, revenues were $620,000 and consisted primarily of Unidym sales of CNTs [and inks]. This compares with $3.8 million in the 2009 fiscal year, which included $2.4 million related to revenue from a license agreement between Calando and Cerulean Pharma; $203,000 in revenue from grants; $503,000 from license fees applicable to Unidym technology; and $602,000 from the sale and delivery of carbon nanotubes to third parties.

For the quarter ended September 30, 2010, revenues were $181,000 compared with $187,000 in the fourth quarter of 2009. Our total operating expenses for the year ended September 30, 2010 decreased by $13.9 million or 60% to $9.4 million from $23.3 million during the year ended September 30, 2009. This significant reduction in operating expenses was a result of measures we undertook in 2009 to streamline our businesses and better align our cost structure with our capital resources.

Our total operating expenses for the quarter ended September 30, 2010 decreased by 31% to $2.5 million from $3.7 million during the quarter ended September 30, 2009. The reduction in operating expenses was partially due to the non-recurrence of a 2009 non-cash charge related to in-process research and development of $631,000 and a balance from the 2009 cost reduction program, which was largely completed by September 30, 2009.

Turning to our balance sheet, we considerably improved our cash position. At September 30, 2010, we had cash and cash equivalents of $6.8 million compared with $2 million at September 30, 2009. Our increase in cash in our cash balance included $8.7 million from our registered direct offering of 6.6 million shares of common stock and warrants to purchase 3.3 million shares, which we completed in June; and $3.2 million from the private placement of approximately 5.1 million units, which was completed in December of 2009.

With that brief overview, I will now turn the call over to Chris for concluding remarks.

Thank you, Ken. I'm pleased to be able to conclude this calendar year with a report of significant progress across our growth initiatives and substantial momentum toward continued execution as we enter 2011.

To briefly recap some of our recent achievements, I said that we would end Arrowhead's capital responsibility with Unidym, and we did that; I said that we would execute an additional partnership with Unidym, and we did that; I said that we would move Unidym toward a sale or spin-out, and we are doing that. With Nanotope, I said that we would enter into our first corporate partnership and consolidate our ownership position in Nanotope; we have completed the former and are in the process of accomplishing the latter.

With Ablaris, I said that we would complete the technology license with MD Anderson, start a majority owned subsidiary, and work with the FDA toward an IND. We have done all of these. With Leonardo, I said that we would begin operations outside of Dr. Mauro Ferrari's lab, and we've done that.

The motivation behind all of Arrowhead's recent corporate developments is our intention to streamline our operations into a focused, dynamic, and efficient nanomedicine company. Each of the aforementioned steps speaks to this goal, as does enhancing our Board. With those recent accomplishments in mind, there remains additional work to be done. Simplifying our structure and strategic direction are imperative to maximizing the value that Arrowhead offers to the industry and investors alike.

Establishing ourselves as a pure play in the nanomedicine space will enable greater understanding of our mission and access to a better -- I'm sorry -- to a broader audience of investors and industry analysts. We believe this will enable new efficiencies, broaden awareness of our Company, and gain us additional access to a larger base of constituents within the professional and investment community.

As we navigate fiscal 2011, we will continue to build our organization and progress our subsidiaries with the following key objectives as the foundation for creating additional value. One, complete the Phase 1 trial with CALAA-01. Two, complete a corporate partnership with Calando. Three, raise additional outside capital for Leonardo. Four, begin treating patients with Ablaris' lead candidate; and five, continued to advance our earlier-stage portfolio of companies, Nanotope and Leonardo, through our current and toward new corporate partnerships.

Our current portfolio of companies represents an excellent example of technologies and platforms that provide exciting and innovative potential. We believe that through our leadership, we can build on the foundations provided by the core science to create additional value for each of these companies, for Arrowhead, and for our investors.

With that overview, I'd like to open the call up to your questions. Operator?

(Operator Instructions). [David Block], Piacente Group.

Congratulations on the progress you've made this year. It seems like you've accomplished quite a bit. I was wondering if you could tell us a little bit more about the new subsidiary and the competitive landscape? Looking at some of the recent headlines on the anti-obesity market, I think it was earlier this month, Orexigen got FDA approval to commercialize their drug. Just wanted to get a sense of your thoughts on how the Ablaris technology compares to Orexigen.

Sure. So, first, more broadly. This is a space that we've been interested in for some time -- obesity and metabolism is really an attractive set of markets. However, we have been -- we've been quite careful about the platforms on which we would build a company, because it's been a very difficult regulatory pathway, as multiple companies have shown.

Now, Orexigen seems to have possibly broken through. We certainly applaud them. They have not been approved by the FDA yet, but they were -- they got approval from an FDA committee that looks promising. Their technology is fundamentally different than ours, as is, I think, most other competing obesity technology. Theirs, I think, showed in their Phase 3 -- and I could be wrong about this -- but off the top of my head, I think that they showed something around 4% or 4.5% body weight loss -- placebo-adjusted body weight loss over about a year. And there are some cardiovascular concerns.

What we're talking about is something really fundamentally different. What we have seen in animal studies is substantially more weight loss and more rapid. Second, it is focused on the vascular that feeds fat. So what we're talking about here is looking to ablate the capillaries that feed white fat tissue and thereby ablating or killing those fat cells.

What multiple groups now have shown is that the weight loss that we have seen -- and with some studies, it's been as much as one-third of the animal's body weight in about 28 days -- what we've seen is that body weight loss is due to a combination of fat destruction as well as appetite suppression. There appears to be a very elegant feedback loop between the fat or the removed fat and the brain to cause this appetite depression.

So we're really excited about, really, the power of the data that has been shown so far. And we're also really excited about the mode of action, because we think that because it's not a CNS drug, a Central Nervous System drug, that we may not run into some of the regulatory problems that other drugs have.

Great. Thanks very much. And again, congratulations on the tremendous progress you're making.

Donald Hutchinson, Safe Harbor Financial Management.

I have two questions. One, I would like to know the exact -- well, the differences in mechanism, maybe potential for multiple use, competitive position of RONDEL versus liquid nanoparticles; and also I'd like to know, other than raising money and moving, what is Leonardo actually up to these days?

Sure. Let me address the Leonardo question first. Leonardo is really growing outside of Dr. Ferrari's lab at this point. They have generated some really exciting data out of Dr. Ferrari's lab in SiRNA delivery as well as in delivering small molecule drugs. And what they've shown is very good targeting. They've shown sustained release, so it's been quite exciting.

The process now is to make the manufacturing of these particles a bit more systematic. So Leonardo is really focused on making those particles a bit more consistently and optimizing those processes. And they're making good progress so far. Their burn rate is quite low and they're doing it with a lot of leverage by working in close contact with Dr. Ferrari's lab. So we're certainly quite pleased with them.

And I think, also, that we see a lot of exciting opportunities to work with Leonardo and Calando together. I think there's some possible synergies with those two companies as well as possible synergies between Ablaris and Leonardo. So we'll see how those play out over time.

Now, with respect to RONDEL -- so, let me deal with that in a little bit of a broader way. There are dozens -- hundreds of delivery strategies for SiRNA, and many of them have been tested by large pharmaceutical companies, and the vast majority of them have shown to be inconsistent or have failed. Liquid nanoparticles is one of the whole cadre of really early-year stage particles -- earlier stage delivery strategies.

So what we are more looking at, especially given the changing landscape of RNAi, is those later-stage technologies that are actually in the clinic now or just about to be in the clinic. I don't believe that any liquid nanoparticles that I'm aware of are close to the clinic. Given what we've seen with discussions with potential partners and acquirers, particularly over the last few months, is, as I mentioned in my statement, a risk-aversion in the RNAi space. They're really looking for more clinical data, and it appears that they would really -- they would rather pay more for a derisked platform rather than pay less for something that they have to take a risk on.

So, when I look at our key competitors, there's really only a handful of them. We look at some classes of liposomes, at least in the near- to mid-term, for partnering competition.

I think I misspoke when I said liquid; what I meant was lipid.

So, the lipid -- the liposomes that are in the clinic now are interesting. Sirna, now Merck, has a lot of experience with that class of molecules and they had a very difficult time making them non-toxic. These are positively charged liposomes.

Now, some companies have asserted that they have solved this, that they can make them non-toxic. And that may be the case; we'll have to wait and see -- we'll have to see how those clinical data bear out. I think, ultimately, even if they can get over that hurdle, they have a localization problem. I have not seen data to suggest that they could be used for anything but liver conditions. These particles are cleared by the liver and so they could be used potentially for liver conditions.

What is really exciting about RONDEL is that it seems to be workable across organ systems. Now, we don't believe it gets into the CNS, but beyond that, we think that we can customize it to get into virtually every organ system. So we view ours as something that has proven usability. We have data showing that this works. We have data showing that our particles get to where we want them to go; deliver functional SiRNA; decrease targets RNA; decrease target proteins. So, we are the only ones who have shown that.

And we also have something that we can use, we think, broad-based, not only oncology but for other indications and across multiple organ systems. And we just -- we don't see evidence that other particles are as far along as we are now. Science is a great thing, and I assume that we won't be there alone forever; but for right now, we are. And given the change in landscape and what larger acquirers or partners are looking for, I just think that we are in an enviable position.

I am not happy with the fact that we did not execute a partnership by the end of this year. We were shooting for that goal and we thought we were going to be able to hit it, but because of the change of landscape, we did not. Having said that, I am quite comfortable with our position in the competitive landscape, and I am quite comfortable in our position, given the data that we continue to produce in the clinic.

Thank you.

[Brian Danielle], private investor.

Thanks, guys, for taking my questions. I guess I have two. One, if I'm understanding your goals for 2011 correctly, is it fair to say that you would expect that the clinical data from a completed Phase 1 trial to be sufficient to jump over this higher threshold that Big Pharma is now doing for certain related deals?

And secondly would be, do you -- in terms of the balance sheet, how long do you think you need to go before you need to raise additional capital?

Yes, thanks for those questions. We do believe that we can execute the right kind of partnership in 2011. We think that our clinical data will be quite helpful there. And we are also preparing for a Phase 2 clinical trial. It's still early days for us; we're still determining what the protocol is going to be; we're still determining what the sites are going to be. That will take some time. And we certainly hope to proceed with that Phase 2 with a partner, but that's -- that will be determined in 2011.

With respect to funding, I appreciate that question -- we have enough cash to fund us through 2011, as is shown in our 10-K. We believe we have plenty of cash with our plan to get through '11 and into 2012. And so right now, we don't have any plans to go out and raise money. We think that gives us plenty of runway to do what we need to do with Calando, with Ablaris, particularly now that Ablaris is funded, at least for some period of time, and the other subsidiaries.

Just to clear up one last thing, in terms of talking about 2011 for Calando, getting the Phase 1 trial done and getting a partnership signed, is that fiscal '11 or calendar '11?

You know, we have -- we are not giving very granular guidance right now. What we generally do is, at the annual meeting, we'll give much more granular guidance. So, for right now, assume it's calendar 2011, and then as we go into our annual meeting, we'll hopefully be able to give you some more specific goals and some better -- some more specific timeframes.

Great. I'm sorry -- lastly, when should we expect that annual meeting to be?

We haven't set that yet.

Okay, great. Thank you.

[Mark Ariki].

I think my question has been answered but I'm going to try a different way. Regarding the Phase 1 study, could management add any color on how the increase in the maximum dosage has had on the trial study? Are we seeing benefits or disadvantages? And again, getting back to that timeline, I guess, if we say in the calendar year, that means, I believe we've been -- that would take us into the third year, which seems to be a little bit long. Could you clarify any issues that we might want to be thinking about going forward on that?

Sure. Sure, thanks for that. You know, I can't give you too much more color on what we're seeing in the Phase 1 and I'll tell you why. We don't believe in science by press release; we believe in science by peer-reviewed journal publications. And so we really can't go too much into the data we're seeing right now.

What we anticipate is that once the Phase 1 is done, we will write that up and present it at a meeting or publish it -- and/or publish it in a peer-reviewed journal. And if we start talking about these data as they come out, we lose the ability to do that. And therefore, I think that data loses a lot of its power. So we really can't speak too much to what we're seeing right now.

I can tell you this -- and we are continuing to dose patients. We are -- and we are searching for that maximum tolerated dose. The RONDEL delivery system has been an extraordinarily well-tolerated. And we're just trying to determine how large that therapeutic window is, and we don't know the answer to that right now.

Now, with respect to your question about stretching out the Phase 1 for three years, I'm sensitive to your concern that that will be a long time. I don't think it's going to take that long. We're not really giving granular guidance on when that will be completed, but we don't expect -- we certainly don't expect it will take all of 2011 to enroll the patients.

Now, once the patients are enrolled and once patients are being treated, we have -- we don't have complete control over when that trial is finished, because those patients will stay on drug until they progress. So we don't have a good control over a stopping point for that Phase 1.

[Bill Guten], Equanum Capital Management.

Yes, Chris, you mentioned about the derisking and potential acquirers want to see substantial clinical data. I guess my question is, what does that mean and can you get that data in your existing Phase 1?

I can't give too much guidance on what that means. It's going to mean something different for each company. I can only give you that broad taste -- again, just because the requirements are really different for each company. I can just tell you, though, that as we've been at this, as we've been speaking with companies, particularly over the last few months, we have seen a definite shift in their -- not their appetite, but in their appetite for risk.

And I think we've -- you know, you saw what Novartis has done; you saw what Roche has done. I don't think that that -- that their actions necessarily mean that people are walking away from RNAi. I think it just means that Big Pharma is satisfied to have biotech companies take the risk and then they will acquire the technologies, and will partner the technologies that bear out clinical -- quality clinical data.

So, can we attain the amount of clinical data we need to execute the right kind of deal with our Phase 1? I believe so. But we have to wait and see.

Okay. And then you talked about you are preparing a Phase 2, but you mentioned it with a partner. Are there plans if you require more data, to go a Phase 2 alone or perhaps could a Phase 1b be done?

Sure. So we are talking to companies about possible Phase 2's. There are a number of strategies that we are assessing right now; we're developing some possible protocols, and we're working -- we're talking to possible partners about these. So it's really too early to tell which way we're going to go and whether we will go with a partner or without a partner. It is certainly our preference to go with a partner, if we can see the right terms.

Okay. And what's the main cost to do these trials right now? Is it -- was it actual production of the drug or are there significant costs per patient?

The -- so, for the Phase 1 right now, that the drug has been -- was manufactured some time ago and so there are no real forward costs there, other than storage and such. The ongoing costs for the Phase 1 is really on a per patient basis and relates to maintaining the two sites we have up and running. Frankly speaking, they are not great. We're a small company. But the cost of that Phase 1 right now are not really substantial.

Okay. And then related to Unidym, now that the cash burn has been taken off, what kind of was the rough percentage of Unidym's cash burn for Arrowhead? Just so investors can get a better sense of your cash burn rate going forward.

Yes, we've not disclosed that publicly in the past. I think it's fair to say that it is a substantial portion of our burn rate. But we report our financials on a consolidated basis and so we have traditionally not broken out how much Calando and how much Unidym cost specifically. But again, I can tell you that it is a substantial amount. And so it certainly is helped by us.

Okay. And then with the Samsung deal that was done with Unidym, it looks like it was $4.5 million. And you said that Unidym had repaid roughly $1 million back to Arrowhead. But I also recall reading that [Rice] would get certain payments -- is that significant payments or --? I'm just trying to get a sense of how much cash Unidym --.

Yes, you know, Bill, that's a really good question, but unfortunately, we haven't disclosed those numbers publicly. We could probably talk about some of those at the next 10-Q when the next filings come out, but we haven't discussed specifically what those numbers are. We have mentioned that out of $4.5 million, $1 million will come off the top to repay the Arrowhead debt, and there are some other license-related payments to [Rice] as well as [to] other institutions. But we have not -- and again, I apologize, but we have not been specific about what those numbers are.

Yes, I mean, I'm just -- I'm asking these questions because one thing I think investors don't want to see, given all the dilution, is another fundraise. Things seem to be good for the moment, but if any of these things take a long time, guidance would be appreciated on cash burn going forward, whether more needs to go into Calando or possibly even more needs to go into Unidym at a certain point, I think, take longer.

Right. And I appreciate -- I do appreciate your concern and other investors' concern on that. We are not planning a fundraise right now. We are hopeful that we can find the right deal for Unidym while it still has sufficient operating capital.

Okay. And then I recall one of the goals was to eventually increase Arrowhead's holding in Nanotope? (Multiple speakers)

Yes. (multiple speakers) So, we are in the process of doing that. Of course, it's the separate company and we are working through the mechanics of what that's going to entail.

(multiple speakers) Would that likely to be a stock kind of thing or --?

I'm sorry?

Would that likely be a stock/swap kind of thing, or --?

No, we don't expect a stock/swap. What we're talking about is we have lent Nanotope capital over the last year or so, and that capital will be converted into stock. And we also may invest additional cash into Nanotope. And so we are discussing the terms of those types of transactions with Nanotope right now.

Okay. And then my last question is related to Ablaris and that particular deal. I read in the 8-K that $2 million needs to go for a one-time fee?

That's correct.

And that's not coming out of Arrowhead? That's coming out of the money that came in with the deal?

Yes, thank you for bringing that up. That is true. So we have brought in outside capital directly into Ablaris, that is sufficient to fund that one-time license cost as well as to initiate operations at Ablaris.

Now, that $2 million sounds rich, but a lot goes along with it. As I mentioned in the press release and also in the prepared remarks, we are not -- Ablaris is not assuming any of the costs associated with manufacturing this lead compound or packaging it. That sounds mundane, but it's actually quite expensive to manufacture these compounds to be used in the clinical trial. So those costs have already been borne.

Second, the costs associated with preparing an IND will also completely be borne -- all those direct costs. That's also expense that includes fairly extensive toxicity trials under certain conditions that are expensive. Those will all be borne by MD Anderson.

And then, finally, the Phase 1 trial -- this initial Phase 1 trial, we will not assume any direct costs associated with that. So while $2 million upfront sounds like a lot, in the grand scheme of things, it's actually quite a good deal for us, because it includes so much development -- not just the scientific development, but the preclinical and then even the initial clinical studies of this first lead compound.

(multiple speakers) And so it really ends up being quite a good deal for us. We're bringing in sufficient outside capital to cover that. We will invest a small amount of our own capital, $500,000, and that will give us plenty of money to begin operations and even to simultaneously begin work on a follow-on compound -- even, hopefully, as we get into the clinic with the first lead compound.

Right. And that $500,000 comes out basically right away, here in the very near-term?

Yes. Yes, it has not come out yet, but we anticipate it coming out in the near-term.

Okay. I have no further questions.

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

Well, thank you all for joining the call, and I certainly wish everyone a very happy holiday season and safe holiday season. I'll see you in 2011.

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