Arrowhead Pharmaceuticals Inc (ARWR) 2011 Q1 法說會逐字稿

Greetings and welcome to the Arrowhead Research Corp first-quarter 2011 conference call. At this time all participants are in a listen-only mode. A 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, Kristen McNally, Investor Relations for Arrowhead Research Corp. Thank you, Ms. McNally, you may begin.

Thank you, operator. Good afternoon, everyone, and thank you for joining us today to discuss Arrowhead's results for its fiscal 2011 first quarter ended December 31, 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 we will then open up the call to your questions. Also on the call for participation in the Q&A session is Dr. Thomas Schluep from Calando.

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 the 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 and the Company's 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 the 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?

Thanks, Kristin. Good afternoon, everyone, and thanks for joining us on our call today. Having spoken with you on our year-end call just two short months ago I would like to spend some time talking about where we are as a company today, what we have done to get here and why, as well as some of our objectives going forward.

With the sale of Unidym last month Arrowhead completed its transition from a diversified nanotechnology company to a focused nanomedicine company. This is more evolutionary than revolutionary in that we have been working toward this goal for some time and it represents a move to optimize our business model rather than to drastically change it. Nevertheless, it is an important achievement for us operationally, strategically, and financially.

It enables us to maximize efficiencies of our model by creating broad synergies among our businesses that are now all focused in a single industry. We have the opportunity to assemble highly specialized resources from which all of our businesses may benefit. This means building out a focused team with expertise in a single industry and building centralized infrastructure that is specialized for all of our businesses.

This is a process of optimizing a model that is built on capital efficiency and effectively squeezing more efficiencies out of it. The result is that our businesses will operate as a single enterprise and, therefore, be more cost effective and potentially operate at a higher level than if they were disparate, independent entities.

From a strategic standpoint, the Unidym transaction provides a more straightforward, cohesive, and understandable story for potential partners in the investment community. We believe that this is a critical step toward expanding our shareholder base to include more institutions. As a focused nanomedicine company, we now fit more neatly into established investment criteria categories.

Bringing our stories to new investors is a priority and I am beginning a systematic and long-term process towards this next week when I present at the BIO CEO Conference in New York.

Of course, from a financial standpoint, the Unidym transaction was also important. Wisepower, a publicly-traded electronics company based in Seoul, Korea, paid approximately $5 million in stock and bonds as an upfront consideration for Unidym. The value of this has since appreciated to approximately $6 million and, if we choose, we can begin to get liquid throughout 2011.

In addition, there is an earn-out worth up to $140 million that is triggered as Unidym hits certain revenue milestones. Given Wisepower's current business and experienced management team, it is well positioned to help Unidym penetrate its target markets and optimize its manufacturing and distribution capabilities.

The structure of the transaction enables Arrowhead to participate in Unidym's upside as its business grows. This was a critical component of any transaction because we continue to see substantial value in Unidym and are optimistic about its traction with large potential customers such as Samsung Electronics.

As important as our upside potential from the Unidym sale is the elimination of our downside exposure. Because of its relative maturity as a business, Unidym represented a significant cost center for Arrowhead. Removing that cost burden significantly reduces our burn rate and therefore enables us to allocate more resources to other programs and increase our runway. We currently have sufficient resources to fund operations for well over a year.

So now with the strength in the balance sheet, a tighter focus as an integrated nanomedicine company, and increase operational efficiency where do we go from here? Our value proposition starts with our most mature business, Calando Pharmaceuticals. We are diligently working to complete our Phase I trial, which we believe is a clear value point.

Calando's RONDEL delivery system has been very well tolerated and we continue to search for a maximum tolerated dose of our first clinical candidate, CALAA-01. Every time we treat a new patient we add to our dataset and, we believe, increase the value of Calando's platform and decrease risk for a potential partner. Therefore, in order to maximize the rate at which we are able to treat new patients and accelerate the trial, we plan to add a third clinical site. This process is underway and we believe we will have a third site running over the next couple of months.

As I have said in the past, establishing a partnership remains a key focus and we continue to maintain open dialogues with potential partners. The partnering requirements for RNAi have changed to more closely align with how big pharma has historically evaluated other therapeutic classes. Many companies now seem more inclined to pay more for a derisked therapeutic platform with proven clinical results than to save money by partnering or acquiring newer technology with less clinical data.

While the RNAi landscape may have shifted, the revolutionary power of this new class of therapeutics and the great limiting factor of its adoption, effective systemic delivery, have not. Therefore we remain extraordinarily bullish on Calando's potential value to medicine, partner companies, and the broader RNAi field. We are still the first company to demonstrate proven siRNA delivery and gene silencing via RNAi in humans and we believe have the most advanced platform to deliver siRNA across organ systems.

To further build our value proposition we created a new, relatively later-stage subsidiary that could enter the clinic in the near term. Ablaris Therapeutics was launched in December to address the large and underserved obesity market. As I have discussed in the past, Ablaris' technology consists of a series of unique proprietary peptides that specifically target and kill blood vessels supplying white fat tissue. Deprived of nutrition the fat cells die and are broken down by the body.

This technology has demonstrated rapid and dramatic weight loss in multiple rodent and non-human primate species across many studies conducted by independent research groups over six years. For instance, obese rats have been shown to lose approximately 30% of their body weight in only 28 days. It has been shown that weight loss is due to the combination of the elimination of fat tissue as well as appetite suppression.

Needless to say, we are very excited about these preclinical results and the unique mode of action that has been proposed. Because the system is not designed to directly alter brain chemistry or even get into the central nervous system, we are very hopeful that it will demonstrate an acceptable safety profile when we move into the clinic.

We expect to initiate a Phase I trial with Ablaris this year. Importantly, manufacturing and packaging of Ablaris' lead drug candidate has already been completed and we will incur no direct costs associated with preparing for our Phase I clinical trial or running the trial.

Looking to Nanotope, Smith & Nephew and is advancing its cartilage regeneration program as part of the partnership we announced in October. While we are not at liberty to discuss S&N's trials at this time, they are assuming all preclinical and clinic trial costs and Nanotope stands to receive up to $26.55 million in milestone payments plus sales royalties. Based on S&N's preclinical progress, we expect that Nanotope will begin receiving modest milestone payments this year.

While we are excited about the cartilage regeneration program and the valuable S&N partnership to pursue it, this is not the only market Nanotope will address. Nanotope's technology platform may be customized to support the regeneration of many diverse tissues.

Target markets for these compounds include the reversal of paralysis associated with spinal cord injury, advanced wound healing, bone regeneration, and a treatment of peripheral artery disease. Each of these areas represents a large medical need in which a customized technology like Nanotope's may be highly desirable. Based on this flexible platform and Nanotope's other product candidates, we are pursuing additional commercial partnerships for this program this year.

Our smallest position is in our earliest stage subsidiary, Leonardo Biosystems. While still early and our holdings modest, Leonardo is making progress as a next-generation drug delivery company. This company is scaling its manufacturing of particles to further its research and we will continue to keep an eye on it progress.

All of our holdings are now aligned within a single focus. Today we have two businesses that are in or near clinical development, one partner technology platform in preclinical development, and an emerging oncology drug delivery play. By converging our interests into a dynamic nanomedicine enterprise we are a stronger collective company that has maintained the ability to address diverse opportunities with the flexibility of a capital efficient structure.

Leveraging this exclusive focus to develop new therapies based on leading nanoengineered science, we believe we can best extract the value of these technologies and increase the value we create for each of our companies and our shareholders. I would now like to turn the call over to our CFO, Ken Myszkowski, to review our financials for the period. Ken?

Thanks, Chris, and good afternoon, everyone. As we reported earlier today, our net loss attributable to Arrowhead for fiscal 2011 first quarter was $1.4 million or $0.02 per share based on 71.8 million weighted average shares outstanding. This compares with a net loss of $1.5 million or $0.03 per share based on 58.6 million weighted average shares outstanding for the quarter ended December 31, 2009.

On a consolidated basis, net cash used in operating activities for the fiscal 2011 first quarter totaled $1.4 million compared with $1.6 million in the prior-year period. For the quarter ended December 31, 2010, revenues were $5 million and included $4.5 million related to three agreements with Samsun, $296,000 in revenue from Calando primarily as a result of grant revenue, and recurring revenue from Unidym's sales of CNTs and inks. This compares with $148,000 in revenue for the quarter ended December 31, 2009, which consisted primarily of Unidym sales of CNTs and inks.

Total operating expenses for the quarter ended December 31, 2010, were $6 million, an increase of $3.7 million from $2.3 million during the quarter ended December 31, 2009. The increase in operating expenses is primarily due to an increase in licensing fees. This included $2 million in licensing fees paid to the University of Texas M.D. Anderson Cancer Center related to the patent and technology licensing agreement entered into in December of 2010 for Ablaris technology and $1.2 million in license fees recorded by Unidym.

Turning to our balance sheet, as of December 31, 2010, and we had cash and cash equivalents of $5.5 million compared with $6.8 million as of September 30, 2010. The decrease in our cash balance is primarily the result of operational spending at Arrowhead, Calando, and Unidym.

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

Thank you, Ken. Simplifying our structure and strategic direction were imperative to maximizing the value that Arrowhead offers to the industry and investors alike. We have done this and emerged as a pure-play nanomedicine company enabling the clear vision and consequently have broadened our access to a dedicated investment constituency that can now look at a company like ours.

In order to fully capitalize on this and maximize shareholder value we need to strike the right balance of focus and diversification. Clearly, we have made great strides toward the former with the sale of Unidym and our focus on a single industry. However, we want to ensure that we do not sacrifice a level of diversification and the risk mitigation and upside potential that follow.

We believe that our model speaks well to this. We are not a biotech company that relies solely on a single compound or drug candidate for its value. Rather, we have multiple businesses, each focused on a different set of attractive market opportunities.

In addition, each business is built on a platform technology that enables the development of multiple product candidates. You have heard me talk about multiple shots on goal in the past and I believe we have engineered two layers of multiple shots on goal. Finally, we have built a structure that enables us to do this in a cost effective manner.

An important driver of our efficiencies resides in the synergies of our businesses. We do not view our companies as disparate entities, but rather as parts of a larger enterprise. Therefore, each is chosen carefully in terms of their technologies and target markets.

For instance, Nanotope and Ablaris are both built on peptide chemistry though with vastly different applications. A core set of chemists and biologists will be able to work on both programs. Calando and Leonardo Biosystems are addressing oncology markets with different technologies, and these platforms may be combined to create powerful new candidates.

These and other synergies provide an important foundation from which our companies can potentially work together with common technologies, market congruencies, and simplified resources as we continue to make advancements in each of our business areas.

Looking at our catalysts for the year, we expect to make additional progress with each of our subsidiaries by driving clinical and preclinical results or forming partnerships to carry these companies to the next level of success.

With Nanotope, Smith & Nephew continues to progress their preclinical trials. We expect to begin recognizing modest milestone payments from this partnership in 2011. We will also continue to seek additional partnerships to develop this leading technology in other indications beyond cartilage regeneration.

With Calando, as I mentioned, we will be opening a new clinical site to accelerate our Phase I trial with expectations to complete the trial later this year and initiate a partnership thereafter. We will also work to have the trial results published. With Ablaris we will continue to work with the FDA and MD Anderson to advance this technology and move Ablaris' lead drug candidate into the clinic. We believe that we will be treating patients this year.

More broadly, we see our outreach efforts to the investment community as a quite catalyst throughout 2011. I will be interacting with new potential shareholders and analysts on a regular basis beginning next week. We believe that the universe of potential shareholders has increased substantially for us as a focused nanomedicine company.

I consider our current structure and the state of our businesses as a window into what we believe is critical to creating shareholder value. First, we need to be good stewards of your capital. This means maximizing our operational efficiencies to decrease time to market and decrease costs. We are doing that.

Second, it means identifying and pursuing underserved, high-value market opportunities. We are doing that. Third, it means attracting high quality management because there is no strategy like effective execution. We are doing that. Fourth, it means focusing on world-class science. We are doing that.

With that overview I would now like to open the call to your questions. Operator?

(Operator Instructions) [Tom Burchfield].

Thank you. I would -- I am a private investor. I would like to thank Arrowhead management and staff for your efforts. I think you did a good job with Unidym.

I will tell you many of my friends and family and myself own substantial positions in Arrowhead and I only have one easy question. My question is this, is it fair to say that the Calando trial indicates disappointing efficacy?

Thanks very much, Tom, and thanks for your support and your friends and family support as well. No, I would not categorize our results as indicating disappointing efficacy. To the contrary, we are actually quite happy with what we are seeing with the trial so far.

As you know, Tom, a Phase I trial is really geared towards determining safety and determining a dosing regimen. This drug and this platform has shown to be extraordinarily well tolerated and so we have been very happy with the safety.

Also as you know, with our publication in Nature last year were able to demonstrate that we were doing exactly what we intended to do with this platform, which is to get delivery vehicles into target cells, which is to decrease target mRNA levels, decrease target protein levels. We showed all of those things and so again, to the contrary, we are happy with the trial.

What I am not happy with is how quickly it is progressing. We would always like for these things to move more quickly than they are and that is the case here. That is the reason that we are bringing on a third site.

As I mentioned in the prepared remarks, we think that every new patient that we dose increases the value of this platform and decreases the potential risk to a partner. So by bringing on a third site we think we can dose more patients more quickly.

Thank you very much.

Sure.

[Mark Ariggi], [Ames Capital].

Thank you and thank you for taking my call. Back to Calando, as usual. On last quarter's call management indicated that it was still enrolling patients and they reiterate that today. And they go further by saying they have opened it up at another site.

I know management's strategy has always been to try to keep this information under wraps, but we are reaching a stage of almost three years, or will be at three years very shortly in a few months, on the Phase I study. So can we at least open it up and management add some color on perhaps the number of patients that are enrolled presently in the Phase I study?

I appreciate your question and I appreciate that some may be frustrated with the lack of information after the Nature paper and then after the ASCO presentation in June of last year. However, as I mentioned in the call last quarter, we really don't believe in science by press release.

This is good science, this is good technology and it is our intention to publish these results in a peer-reviewed journal and/or at established conferences. To the extent that we talk about the data prior to those events, we really decrease our ability to do that. And so, again, while I am sensitive to people's hunger for new data, I think they just have to stay tuned and wait till we finish the trial and then look to publish it.

Again, I can tell you this, we are actively seeking to enroll new patients. We are not enrolling as fast as I would like, as evidenced by the fact that we will be bringing on a third site and evidenced by the fact that, as you say, we have been at this for over 2.5 years now. So we think that bringing in a third site is going to help us to wrap this thing up in reasonably short order.

I would also note that the fact that this is -- continues to run is at least somewhat reflective of the safety profile that we have seen with the compound. If we were seeing a lot of toxicities and such, this trial would have ended by now but the fact is we are not. It's a well tolerated drug, at least so far. We are happy with that and so we are looking to enroll more patients and further increase the doses to find that maximum tolerated dose.

Okay. And management indicated last conference call that it was still planning on wrapping up the Phase I within the calendar year, I believe was the comment. Is that still the case?

Yes.

If we were to -- getting back to the number of patients in the Phase I and I understand your response. Is it safe for us to presume that it is an average Phase I grouping based on FDA requirements of Phase I studies? And what I am trying to say is it basically a normal, average, run-of-the-mill development company Phase I study with that type of pool of patients in that study?

I think that is probably fair to say. It's difficult to ensure that you and I and everyone else on this call has the same interpretation of what a reasonably traditional Phase I is, but I think that is reasonable to expect, yes.

Fair enough. Thank you. Lastly, before I turn it over, hopefully management has been kept abreast of the recent announcements at Orexigen and MANKIND regarding their Phase III results. Unfortunately, the FDA cited one or two deficiencies in those studies and the need for additional clinical trials, even though -- I believe it was Orexigen that received pre-approval from an FDA Advisory Board. Actually I believe it was even on their weight loss drug.

Given the fluid, yet conservative dynamics at the FDA, can management provide some granular details on its internal FDA due diligent policy so these type of events hopefully will be avoided regarding the Calando clinical trials?

Sure. I appreciate that question. Although I am not sure -- you mentioned Orexigen, but then you talked about Calando. So let me talk about Orexigen and about the FDA and the weight loss, again because you bring up that name specifically.

So there have been three companies recently that have been -- that have gone in front of the FDA to approve drugs and they have been Orexigen, Vivus, and Arena. All three of those have been denied. And so a reasonable question to us would be why are you going into weight loss when the FDA seems to be fairly tough on these types of technologies.

Here is what I think on that. This is a clear medical need. Obesity is a very large problem that is growing and I think the world is starting to better appreciate the co-morbidities that are associated with obesity.

So this is a medical issue, a real medical issue. It's not simply a cosmetic issue. It's a real medical issue that is becoming worse, and I think the FDA is recognizing that and will continue to have to reckon with that.

Second, the way I look at many of these weight-loss drugs is that most of them are CNS drugs, central nervous system drugs. They are designed to get into the brain and then to decrease appetite. We are not interested in that sort of drug or that sort of compound. The fact of the matter is brain chemistry is quite complicated and the idea of altering that brain chemistry for these kind of purposes is potentially problematic.

What excites us about Ablaris is that it is demonstrating really amazing preclinical results without being a CNS drug. The drug, we do not believe, even gets into the brain or the CNS and it's certainly not designed to do so. So we are hopeful that this new mode of action, or proposed mode of action, is going to shelter us a bit from some of the concerns the FDA has had in the past about weight loss drugs.

Thank you.

Donald Hutchinson, Safe Harbor Financial Management.

Thank you. I did some homework on Wisepower, and correct me if I am wrong here or give us your take on this, but Wisepower looked to me like strictly a licensing company. I don't know whether they manufacture anything. And looking at the stock history, well, it has been less than rewarding would be probably a generous term.

So I was wondering whether -- how you ended up with Wisepower. It doesn't look to me to be the most impressive partnership.

Thanks very much for that question. We actually feel quite good about Wisepower and I will tell you why. So Wisepower is not solely a licensing company. They are in the battery business and battery packaging business.

Here is why they were attractive to us. First, their management team comes from upper management of other high-quality electronics companies in Korea and throughout Asia. That is a big thing for us. As Unidym is making this transition from being an R&D company into being a product manufacturing company it is those kinds of contacts and it's those kinds of market expertise that is critical. So we think they are a big help there.

Second, we believe that Unidym fits well into their business. Right now they are in really a low-margin business and we believe that Unidym offers them the ability to get into a much higher margin, sexier business, if you will. So we think they are quite motivated to spend some resources to take Unidym to the next level, and again we are comfortable that they can do so.

Regarding the agreements that were apparently struck with licensing fees with Samsung, were those outside of the agreement with Wisepower?

Yes, they were.

Are they continuing?

Yes.

For years in the future type outside?

Yes, so view the Samsung deal as follows. That was a license agreement as well as it set the stage for a supply relationship. Samsung has the ability now to use certain classes of carbon nanotubes in electronics devices.

We believe that that was a good partnership for Unidym for a few reasons. First, because it brought in needed capital; that is a good thing. Second, because we think that it suggests that Samsung is serious about getting into electronics with carbon nanotubes, and we believe that they are going to need to source carbon nanotubes at some point. We believe that Unidym makes the best tubes in the world and therefore we may have created a customer.

And third, we thought that was a good agreement because Samsung is a known innovator. And to the extent that they can get into new markets with carbon nanotubes we believe that others will follow, so we believe that the new customers and new license agreements will spawn from that, albeit indirectly.

That relationship survives. In fact, we believe that under Wisepower we have a good chance of even expanding that relationship. Wisepower is Korean-based, they have good contacts within Samsung, and we are, we think, well-positioned to continue to work with Samsung.

I guess my question was is that the royalties or fees that would accrue from those agreements, do those still come directly to Arrowhead or do they go to Unidym?

No, any revenue coming from Samsung or any other company will go into Unidym.

I see.

However, a portion of some of those revenues will come back to Arrowhead via this earn-out. As I mentioned, the Wisepower acquisition of Unidym was in two pieces. One was an upfront fee or an upfront concern of stock and bonds totaling about $5 million, at least at the time of the transaction, and then the second larger pieces $140 million, potentially, of earn-out payments.

Those payments will be triggered by certain revenue milestones, and so every dollar or won that Unidym makes will contribute to those milestone points.

Okay. What does -- one last quickie question, if you don't mind relative to Calando. I actually was unaware that those trials have been going on for three years. My question is that of the folks that were dosed early on, as much as three years ago I guess, are they still being dosed or are they alive or dead?

Thanks for that question. The structure of this trial is a dose escalation. What that means is that we will treat three patients at a certain dose, watch their reactions, and if they tolerate the drug well we can increase the dose for new patients.

So consequently, you start out with a fairly low dose. In fact, quite a bit lower than you think might even be effective, just to make sure that you can leg in to higher doses slowly and you are not putting people at unnecessary risk. So the very early patients were receiving quite a low dose of our drug. There are -- and of the initial patients none of them continue to be on the drug.

The criteria for whether or not a person stays on the drug or not has to do with, among other things, whether or not their disease progresses. So in other words, if the patient gets a very low dose that is ineffective after a certain amount of time, if their disease progresses, they leave the trial.

I see, okay.

Thank you very much.

[Kate Brown], [KCB Capital].

Thanks for taking my question. There has obviously been a lot of buzz around the changing landscape of RNA and most recently being The New York Times article of just a couple of days ago on the topic that actually mentioned Calando in it. Can you talk a little bit more about what all this buzz really means for Calando in terms of actually securing a partnership in 2011?

Hi, Kate. Thanks very much for that question, it's a good one. As I mentioned in the prepared remarks, it does appear that the RNAi landscape has changed a bit, so let's take a look at what has changed.

Novartis has not renewed certain partnerships with Alnylam and others, Roche has announced that they are discontinuing their in-house RNAi R&D efforts, and most recently there has been information that Pfizer may also be decreasing their internal RNAi R&D capabilities. So that is what has changed.

I think that when RNAi first came out there was almost an irrational exuberance, if you will. There was an awful lot of excitement about the promise of this new technology. There was an awful lot of interest in its ability to revolutionize numerous aspects of or numerous indications within medicine because it's a whole new way of treating diseases at the genetic level. And big pharma may have gotten ahead of themselves a bit.

Now I think the pendulum has swung in the opposite direction and I think there may now be more negative thoughts than is warranted.

So these companies talk about discontinuing or scaling back some of their internal R&D programs. That is what has changed. What has not changed is still the revolutionary promise of this new class of drugs. As I mentioned, this is a whole new way of treating virtually any disease state at the genetic level. That potential has not changed.

The other thing that has not changed is the limiting factor to adopting this in a wide scale. That limiting factor is effective delivery of these molecules.

We believe -- we continue to believe that we have an answer for that. We are the first ones to definitively show RNAi in humans. We were the first ones to definitively show systemic delivery of siRNA in humans, and we believe that we are the absolute leaders in delivering siRNA across multiple organ systems in humans. So we still like where we sit within this field and we still believe in this field.

I think that the changes that we have seen just means that we need to generate a bit more clinical data before we can execute the types of partnerships that we think our shareholders deserve. Ultimately, actually, I think that these companies decreasing their internal support of RNAi may actually also benefit us in the long term, because those are a few less companies then that will have internal competitive technologies.

We think that as the field shows its promise the larger pharmaceutical companies will have to come back and buy the technology, and will have to come back and partner the technology. So we think that we are well-positioned to take advantage of that.

Okay, great. Thank you.

[Lee Alper], [Hammock Investors].

Good afternoon. Could you give us a percentage of the partnership or the corporations that you own?

Sure. Ken, you want to handle that?

Sure. As of the end of the year, we owned 70% of Calando, that was increased to 79% with the transaction in January. Ablaris, with the latest transaction in January we own 64%. Nanotope we have a 23% interest and Leonardo a 5% interest.

And with respect to Nanotope, we expect that percentage to increase in the near term.

Okay. On the Wisepower transaction, I am a little confused, probably a lot confused, on exactly what happened. Did you receive $5 million in cash from them that you had to buy securities with or did you receive the securities?

The net effect of that transaction was to receive the securities. There was a structuring component to it, but the net effect was for us to receive securities; $2.5 million of their stock which can be traded over a certain time period and $2.5 million of convertible bonds.

The reason that we structured that second $2.5 million as convertible bonds is to give us some downside protection. While we believe that, particularly with the help of Unidym, Wisepower has a good chance of increasing its stock price, but we wanted to make sure that were protected if that was not the case so that is why that $2.5 million was a bond. Now we can convert that into stock over time as well, if in fact their stock appreciates.

Now with some work that I did it looked like almost after you guys announced the deal their stock almost doubled.

Yes, their stock did appreciate. We don't know what the reason for that was but there certainly was a temporal correlation between the Unidym transaction and that appreciation.

So did you get full benefit of that?

We have not sold a share of our Wisepower stock.

I understand that you haven't sold it, but I mean did you get the price -- assuming what you got it at and what it's worth now, can we say it's almost worth double so it was really $10 million? I don't know -- or how did you come up with your $6 million number?

Our price was stocked -- our stock was priced before that run up. The reason that we say $6 million rather than $10 million is that Wisepower has given back some of those gains. And also keep in mind that half of that $5 million was in convertible bonds and so that makes the calculation a little bit less straightforward.

But the take home message is the same and you are exactly right; we have gotten to take advantage of that appreciation in their stock price. Now we haven't sold any shares yet and there is no -- there certainly is no guarantee that their stock price will stay high, but at least right now our stock is worth more than when the transaction was done.

Do you have any restrictions on when you can sell?

We do have restrictions. We are able to get liquid in that stock over this year.

Okay. You indicated that with the sale of Unidym you would be saving on your burn rate. Can you give us an idea how much that might be?

We haven't separated that out as a line item. I can tell you it is substantial and you will be able to back into about what that is at our next Q. But I can tell you this, it is substantial. It was -- as an entity, it was the largest part of our burn rate.

Okay. And you talk about the potential of $140 million over how many years? What kind of estimates were you looking at when you were doing that?

So the milestone, the earn-out taps out at $140 million. The earn-out period spans 10 years, so depending upon how quickly Unidym can grow their revenues we will see how fast we can start to realize some of those earn-out payments. But the period for that spans 10 years.

Can you give us any color on what to look for to see if it's happening the way you envision it to happen?

Yes, so we have not given that guidance to date. We will certainly keep you abreast of this as Unidym continues to operate. We do have audit rights and so we should be in touch with how Unidym is progressing, and we will keep you up-to-date as much as we can on that.

Okay. And my understanding is that the deal that you struck with Samsung, those numbers would be included within $140 million?

No, no. The capital that came in from Samsung --

No, not the capital but potential future earnings from that.

Sure, yes, yes. So in other words, if we start selling carbon -- if Unidym starts selling carbon nanotubes to Samsung that will be considered as revenue that will be used to determine these earn-out payments, yes.

Okay. And how much of that $140 million would you say would be estimated to be part of the Samsung deal as opposed to the rest of the deal?

You know, we have no way of knowing that. Until they start selling to Samsung and to other companies we just don't know how -- I have no way of knowing what the breakout of the revenue is going to be.

And the deal that you struck with Samsung is that anyway doing with the glass that you would have used for iPads or anything like that?

So the deal with Samsung was a fairly broad-based deal. They did not tell us what applications, if any, they are interested in pursuing right now. Potentially, if they wanted to use the technology that we licensed to them for iPad-type applications they could do so, but again we don't know what their product roadmap looks like with regard to CNTs.

Okay, thank you. Good luck.

Thank you.

(Operator Instructions) [Mark Ariggi].

Thank you again for taking my -- hopefully my last question. Previous question was asked and you or management has been reiterating over and over again that they keep on enrolling people in the Calando study. But in a previous question and answer you guided -- I don't want to put words in management's mount -- but we have lost some of those enrollees for whatever reason, numerous reasons X, Y, Z reasons.

If that is indeed the case, management has been stating that it has been continuing enrolling people. And maybe presumption on my part incorrect, but I was thinking that we were always in the plus column as the study was continuing onward and onward. Now I am questioning that and are we basically been flat all this time or are we positive or are we negative based where we were, say, 2.5 years ago in the number of patients in the study today?

Forgive me, I am not sure how -- I am not sure what you are getting at. The structure of this trial, like other Phase I trials, is this dose escalation. It is certainly not common for a trial, say, two years down the road to still be treating the first patient in the trial. Right?

A patient will come into the trial and will be treated. The patient will stay on drug as long as they are not progressing, among other criteria, and then will come out of a trial once they progress or if they cease to conform to other trial criteria. It is -- I would have been shocked if on day one our first patient at this very, very low dose had stable disease two years later and is still on trial.

So what we are seeing -- so the dynamics of this trial are really no different than any other trial. This is just how these dose escalation trials run.

Okay. So I guess I am just trying to put my hands on it. And if -- again management has stated in the past that it keeps on enrolling patients. I understand your response to my question but it does get a little difficult in trying to figure out from our perspective -- and I know there is a lot of doors and blinds closed during the process.

But I guess I was maybe reading too much into it because management has been saying that they are enrolling but then there are people falling off because of that very reason you stated. Is that a fair summation of what you just said to me?

Yes, yes. And again, that is -- I am sorry that you have got a different impression, but that is traditionally the way these trials run where patients would cycle in and out of the trial as you increase the doses.

Okay. Thank you very much.

You are welcome.

There are no further questions in the queue. I would like to hand the call back over to management for closing comments.

Well, thanks very much for everyone who participated in the call today. We look forward to keeping you up-to-date on our progress and we will see you next quarter.

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