Brickell Biotech Inc (BBI) 2006 Q1 法說會逐字稿

Good day and welcome, ladies and gentlemen, to the Vical Incorporated Financial Results Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the Company, we will open the conference up for questions and answers from the invited participants after the presentation.

I will now turn the conference over to Mr. Alan Engbring, Executive Director of Investor Relations. Please go ahead, sir.

Thank you, Alan. Hello and welcome to our First Quarter 2006 Financial Results Conference Call. Participating on the call, today, are Mr. Vijay Samant, our President and Chief Executive Officer; Ms. Jill Church, our Chief Financial Officer, and Dr. David Kaslow, our Chief Scientific Officer.

I will begin with a brief note concerning projections and forecasts. This call includes forward-looking statements, including financial expectations and projections of progress in our research and development programs that are subject to risks and uncertainties that could cause actual results to differ materially from those projected, including the risks set forth in Vical's annual report on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission as well as the specific risks and uncertainties noted in Vical's news release on first quarter 2006 financial results. These forward-looking statements represent the Company's judgment as of today. The Company disclaims, however, any intent or obligation to update these forward-looking statements.

Now, I would like to introduce Vical's President and Chief Executive Officer, Mr. Vijay Samant.

Thank you, Alan, and welcome to all our participants. In our call today, we're going to focus on our pandemic flu vaccine data that was issued out this morning. We'll also review recent events, and provide an update on key product development programs. But before we begin, I want Jill Church, our Chief Financial Officer, to provide you the financial results for the first quarter of 2006. Jill?

Thank you, Vijay, and good morning. We reported revenues of $5.6 million for the first quarter of 2006 compared with $2.7 million in the first quarter of 2005. The increase in revenues was primarily a result of our initial shipments to NIH, under the $12.1 million production order for HIV vaccines placed last year for a large Phase II trial. We expect to ship the balance of that order during the remainder of the year.

Our net loss for the first quarter of 2006 was $4.5 million, or $0.16 per share, compared with $7.6 million, or $0.32 per share, in the first quarter of 2005. We ended the first quarter with $57 million in cash, cash equivalents, and marketable securities. And I'll just note here that our cash burn in the first quarter was notably higher than our net loss in large part because of the shipments of HIV vaccines to the NIH occurred late in the first quarter and we had not yet received payment at quarter-end.

For the full-year 2006, we continue to project an adjusted net loss of $22 million to $26 million, excluding an estimated $2 million to $3 million for non-cash stock-based compensation expense. Please refer to our news release this morning, which has been posted to our website, for details.

I will now turn the call back to Vijay.

Thank you, Jill. We presented some very exciting flu data, this morning, preclinical data, and it is all-animal data. There is so much data that we put out today, I wanted to take a minute and really lay out some of the key conclusions, and David Kaslow will go systematically through all our experiments as to how we picked the conserved strains and what the logic behind our strategy of this vaccine development program is. It's a very interesting story.

I think what all of you know, what some of the audience who listen to this call on a daily basis, our platform or our DNA vaccine is not based on chicken eggs. We make it by simple E.coli fermentation with a couple of purification steps. Our ability to make large quantities of flu vaccine in a short period time is remarkable. In addition, there are abundant fermentation facilities around in the US, which can be utilized to make this flu vaccine.

The other thing is this vaccine can be stored frozen. We have five-year data, frozen data, on some of our other product development programs. So from a stockpiling perspective, if a need arose, this is the perfect construct to be suited to do that. So with that introduction, let me just summarize the key points of our data that we announced this morning. Okay.

In March, we announced that our Vaxfectin-based DNA vaccine provided 100% protection against lethal challenges with H3N2 and H1N1 strains of human flu virus. Now, these are two different viruses and both were used in the challenge, and they gave 100% protection.

Today, we announced that our Vaxfectin-based DNA vaccine provided 100% protection against lethal challenges with the hard Vietnam strain. This is a really hard strain of H5N1 avian virus, and we got 100% protection in both mice and ferrets.

But more importantly -- and listen to this very carefully -- when we used NP and M2 consensus sequences selected from the human flu strains circulating between '90 and 2000, we got 88% protection against challenge with lethal Vietnam strain. Let me explain to you what this consensus strain means.

We've put all the strains between '90 and 2000 on a virtual blackboard and then picked the common denominator or the most common nucleoproteins and the common M2s. And then we used that in a vaccine, and then we showed cross-protection against the hard Vietnam strain.

This is a major breakthrough, because we have clearly shown cross-protection against the Vietnam strain and could have potentially paved the pathway to the development of a cross-protective multiyear endemic flu vaccine. Again, that's a long-term goal. The short-term goal is really pandemic flu.

With that introduction, I would like David Kaslow and our Chief Scientific Officer to discuss our vaccine approach to pandemic flu in detail of our recently completed animal studies. David?

Thank you, Vijay. To set the stage for presenting our vaccine approach for pandemic flu, what I'd like to do first is to review with you the H1, H3, and H5 flu challenge models we used; then describe a series of experiments that led us to select our lead product profile; and then provide you with a detailed summary of our recently completed animal studies conducted in collaboration with Dr. Richard Webby, at St. Jude's Research Hospital, that demonstrated that Vaxfectin-formulated DNA vaccines elicit high-level protection in both mice and ferrets.

In an effort to identify the optimal composition of adjuvants and plasmas in coding conserved influenza virus proteins to provide cross-strain protection, we developed two influenza challenge models, here at Vical, and collaborated with St. Jude's in Memphis on a third challenge model.

Here, at Vical, we used mouse-adapted human H1 and human H3 influenza virus, while at St. Jude's they used a highly virulent Vietnam H5 influenza virus. In all of the studies I'll mention today, animals were vaccinated intramuscularly on days 0 and 21 and then given a lethal challenge on day 42. The most definitive endpoint one can use in these studies is survival. Therefore, our primary endpoint was quite simple, counting feet up or down for 21 days after challenge.

We also measured total body weight for each mouse over the same 21 day observation period. To assure that the results of these studies were definitive, we used a statistically appropriate sample size, typically 12 to 16 mice per group. We tested individually and in combination plasmids encoding the major targets of protective immunity, including hemaglutinin or HA, matrix protein 1 or M1, matrix protein 2 or M2. Segment 7, which combines M1 and M2 and nuclear protein or NP. The M1, M2 and NP were codon optimized and we develop a consensus sequence based on the genotypes of H1 and H3 influenza strains that circulated in humans between 1990 and 2000, as Vijay described.

We also tested four different DNA vaccine delivery systems. The conventional phosphate-buffered saline or PBS, poloxamer CRL-1005, and two different cationic lipid adjuvants, DMRIE-DOPE and Vaxfectin.

The gold standard for providing high-level protection is perfectly matched HA, that is when the vaccine contains exactly the same hemaglutinin surface glycoprotein, let's say, H3 as does the challenge virus, then complete survival against the lethal challenges is expected. The issue of course is that if there is not a match between the HA, let's say H1 in the vaccine and let's say H3 influenza in the challenge strain then none of the animals survive. We used H1 and H3 encoding plasmids as the positive and negative controls in our in-house studies.

Our first goal was to identify the optimal composition of plasmids encoding conserved influenza virus proteins to provide high-level protection, equal to that obtained with a matched HA vaccine. To do so, we vaccinated mice with high doses of each of the plasmids encoding these conserved influenza proteins either singly or in pairs. We then challenged these animals with a lethal dose of H3 virus. The results were quite striking, individual plasmids encoding conserved influenza virus proteins provided anywhere from 0% to 25% survival. However, combinations of plasmids that encoded either NP or M2 provided statistically significant survival. And the best combination, NP plus M2 provided complete survival equal to that of the perfectly matched HA vaccine.

Now having identified NP plus M2 as the best combinations of plasmids encoding conserved influenza virus proteins, we next thought to determine the best delivery system. In order to do so we reduced the dose of total plasmid in the vaccine fivefold and then formulated the vaccine either in PBS, poloxamer or two different cationic lipids.

We again challenged the animals with the same lethal dose of H3 virus. We found that either of the cationic lipid formulations of NP plus M2 provided high level and statistically superior protection against a lethal challenge when compared either to mismatched HA or to PBS or poloxamer formulated NP plus M2.

Now to determine if one of the cationic lipid formulations was better than the other, we again dropped the dose of total plasmid DNA. In this particular study we used either 5 micrograms or 2 micrograms of plasmid DNA, both of which are very low doses of DNA in mice. And formulated each dose either with the cationic lipid DMRIE-DOPE or cationic lipid Vaxfectin.

We again challenged the animals with the same lethal dose of H3 virus and we found at a p value of 0.2 that Vaxfectin formulated NP plus M2 provided statistically superior protection against lethal challenge when compared either to mismatched HA or to DMRIE-DOPE formulated NP plus M2. Two 5 microgram doses of Vaxfectin formulated NP plus M2 given on day 0 and 21 provided 84% protection against lethal H3 challenge.

We next wanted to determine how well this optimized composition of plasmids and formulations protected against a different strain of influenza. To do so, we vaccinated animals with Vaxfectin formulated NP plus M2 at doses from 2 to 60 micrograms of total plasmids. As in previous experiment we vaccinated control mice with either H1 or H3 hemaglutinin plasmids. In prior experiments, mice vaccinated with H3 and challenged with H3 had 100% survival and those vaccinated with H3 had 0% survival.

In this study, in which animals were challenged with H1 virus not H3 virus, we observed, as expected, just the opposite; that is that H1 vaccinated animals challenged with H1 all survived where as none of the mice vaccinated with the H3 hemaglutinin and challenged with H1 survived. In striking contrast, the mice vaccinated with H3, we found that Vaxfectin formulated NP plus M2 provided 100% protection demonstrating the power of this optimized vaccine to provide cross-strain protection. These and other studies were presented at the Keystone Symposium, "Advances in Influenza Research from Birds to Bench to Bedside."

Next I want to turn to the studies conducted in the BSL-3 facility at St. Jude's in collaboration with Dr. Richard Webby and to be presented at the US Public Health Service Professional Conference in Denver, Colorado tomorrow morning.

Since we don't know whether or not the next pandemic flu will jump directly from birds to humans carrying the avian NP and M2 as it did in the 1918 pandemic or whether it will re-assort and pick up the human influenza virus NP and M2, as it did in 1957 and 1968, we decided to test vaccines for both; that is, we made and tested a vaccine based on the Vietnam strain of H5N1 avian flu encoding the avian version of NP plus M2. And alternatively, we used the same human consensus NP plus M2 as in the previous studies I just reviewed. We also wanted to test how well a Vaxfectin-formulated matched H5 DNA vaccine worked against a lethal challenge in mice and ferrets.

So what we did was to vaccinate mice before on days 0 and 21 and challenge them a with a lethal dose of the hot Vietnam strain of H5N1 on day 42. Again, our primary endpoint was survival. We also measured total body weight for each of the mice over a three-week observation period. There were seven groups of 16 mice each in the study. Our positive control was an inactivated whole H5N1 virus made by St. Jude's, which gave 100% protection and our negative control, consisting of blank plasmid formulated with Vaxfectin, provided 0% protection.

Three of the test groups received H5 plasmid. One of these groups got H5 DNA vaccine alone and Vaxfectin. And the other two groups were vaccinated with H5 plus NP plus M2, either the matched avian or the consensus human forms of NP plus M2. In all three of these H5 test groups, 100% of the mice survived challenge and did so with little to no weight loss.

The striking results came from the last two groups. One of these groups was vaccinated with just the matched avian NP plus M2 vaccine and Vaxfectin, no H5, the other group with just the consensus human NP and M2 DNA vaccine and Vaxfectin. Again, no H5. In both groups, there was high level, 87.5%, survival. And although there was measurable weight loss, all of the surviving animals began regaining weight by day 11.

This study confirms our previous observations that Vaxfectin-formulated NP plus M2 DNA vaccines can provide high-level protective immunity; this time, against a highly pathogenic avian flu. This study also documents that a Vaxfectin-formulated trivalent, H5, NP, M2 DNA vaccine can provide highly protective immunity, including against weight loss.

Now what about an animal model that more closely mimics human influenza? In parallel to the mouse study, we also conducted a pilot ferret study to evaluate the ability of Vaxfectin-formulated three-component, H5, NP plus M2 DNA vaccine to provide protective immunity, including against weight loss and against a hot Vietnam strain of H5N1.

Because of our current limitations on getting flu-free ferrets and access to BSL-3 facilities, we were limited to two groups of six ferrets each. One group was vaccinated on days 0 and 21 with Vaxfectin-formulated trivalent, H5 plus NP plus M2 DNA vaccine. And the other group received Vaxfectin-formulated blank plasmid. Both groups were internasally challenged with a 5,000 times the egg infectious dose 50 of lethal H5N1.

Although the sample size is relatively small, the results were clear. 0% of the six ferrets in the blank plasmid arm survived and all had profound weight loss, whereas in striking contrast, 100% of the Vaxfectin-formulated trivalent H5 plus NP plus M2 DNA vaccinated survived challenge and none experienced any significant weight loss. Clearly, additional ferret studies are planned duplicating some of the mouse data, including those to look at animals vaccinated with just Vaxfectin-formulated NP plus M2 DNA and with vaccinated animals challenged with other highly pathogenic avian strains of influenza.

I 'd like to end by thanking the flu vaccine teams here at Vical and Dr. Richard Webby and his team at St. Jude's for conducting a spectacular series of experiments, demonstrating high level cross strain protection against both, seasonal and highly pathogenic avian flu strains.

And with that, I'll turn it back to you, Vijay.

Terrific overview, David. Thank you. As -- we continue to work towards completing these preclinical studies rapidly. And as you know, those studies are being funded by the National Institute of Health. Without that, all those data that we presented today would not have been possible. And that's under the Biodefense Challenge Grant. We also look forward to providing an update on future ferret studies that David mentioned. Our goal is to move this program into the clinic in humans as soon as possible with US government funding.

Let me just now take a few minutes and go through briefly on our corporate collaborations. Our licensee Sanofi-Aventis presented encouraging data in March at the 55th Annual Scientific Session of the American College of Cardiology in Atlanta, Georgia. Sanofi's angiogenesis product candidate, NV1FGF, using Vical's patented technology to deliver DNA encoding FGF1, a human protein that promotes the growth of blood vessel. A Phase 2b study of NV1FGF, demonstrated improvement in amputation-free survival in patients with Critical Limb Ischemia, an advanced stage of peripheral arterial disease or PAD in which blockage of blood flow to the leg often results in amputation.

In a presentation to the analysts in Feb, Sanofi-Aventis announced plans to begin a Phase 3 randomized double-blind placebo-controlled trial of NV1FGF in the fourth quarter of 2006. The trial is designed to enroll patients with Critical Limb Ischemia with a goal of preventing major amputation or death. Sanofi-Aventis projected submission for regulatory approval of the product as early as 2009.

Our second angiogenesis partner is the Japanese company, AnGes MG is conducting several trials in the US and in Japan with its HGF angiogenesis treatment using Vical's platform. AnGes announced in Feb of this year that the US double-blind placebo-controlled Phase 2 trial in 100 patients had been unblinded and that the preliminary analysis revealed no critical safety issues and suggested efficacy. AnGes has announced plans to advance to a Phase 3 US trial after further detailed data analysis are complete. The data are expected to be available within the next few months. AnGes is in ongoing Phase 3 trial in Japan for 200 PAD patients. This is pivotal efficacy trial, and the partner for that trial is Daiichi Pharmaceutical, which has projected a launch of this product in Japan in 2007.

Among our additional corporate collaborators, Merck is progressing its 30-patient dose escalation Phase 1 clinical trial of a cancer vaccine encoding HER-2 and CEA. This trial is being conducted in Italy and United States. And the trial is actively enrolling in a variety of cancer patient types.

Our animal's health collaboration with Novartis Aqua Health is generating ongoing royalty revenues from sales of the salmon vaccine that was approved in Canada last year. It's the world's first commercialized DNA vaccine. Our partners at Merial continue to advance towards the goal of getting a conditional US approval of their melanoma vaccine for dogs, which is based on Vical's technology. This is again the companion animal segment, a much larger market segment than the traditional animal's health vaccine.

Quick update on the NIH collaborations. We have several programs at various staged of development with the NIH and the Vaccine Research Center. Let me comment on three of those. We announced in Feb that that the NIH-designed Ebola vaccine candidates based on Vical's patented technology was safe and well tolerated introduced both antibody and T-cell Ebola specific responses. All 90 healthy volunteers have received the full three doses.

I just want to remind everybody, this is the only Ebola vaccine in human trials. And we started the trial, David, almost 18 months ago.

Yes.

The data was presented to the American Society of Microbiology and Biodefense Research Meeting in Washington, DC. The Phase 1 placebo control dose escalation study was the first human trial as I mentioned. The DNA vaccine used in this trial incorporated genetic material encoding core and surface proteins from two strains of Ebola. It was manufactured here at Vical.

We have secured a nonexclusive license from the NIH to proprietary gene sequences used in this vaccine, giving us the opportunity to participate in its commercialization. This vaccine has the potential to be approved under the FDA's Animal Rule, which requires immunogenicity in two animals and safety and immunogencity in human. And it may be eligible for a part of the $350 million allocation for Ebola under project BioShield initiated of the Department of Homeland Security and HHS.

The NIH just completed initial Phase 1 testing of its DNA vaccine for protection against -- humans against West Nile virus and the data are scheduled to be present in late May or early June at the Annual Meeting of the American Society of Gene Therapy. Data from the NIH's Phase 1 trial of its DNA vaccine against SARS, could be available by the end of the year. So all these programs have moved substantially in this last six months from their early inception.

In addition to the planned launch Phase 2 HIV vaccine trial, which is in several thousand patients for which we are currently shipping product. NIH started in multinational Phase 2 HIV vaccine trial last October. I think it's in two African countries and the United States. It's actively enrolling about 480 healthy volunteers. DNA vaccines, by the way, continued to be a key component in a number of active HIV vaccine development programs and are really the cornerstone of Vaccine Research Center's vaccine development effort. I think almost 80% of their programs are based on DNA vaccine.

Finally, I'd like to conclude our comments by thanking everyone who was able to join us last month in New York for our first ever Analyst Day. We're pleased with the participation and we believe our guest speakers Dr. Mark Schleiss from the University of Minnesota and Dr. Andy Pavia from the University of Utah provided terrific overviews of CMV and pandemic influenza diseases. For those of us, who could not join us, the archived webcast including all those slides are all available on the Vical's website. Am I right Alan?

Correct. Yes.

So this concludes our prepared comments. Operator, we are now ready to open the call to questions from our invited participants.

Thanks you Mr. Samant.

[OPERATOR INSTRUCTIONS]

And we'll go to George Fulop with Needham and Company.

Thank you for taking my question, and exciting news today. Can you elaborate on when do you think you might be able to begin human testing of the DNA vaccine for pandemic flu?

And alternatively, can you elaborate, where are you in the timeline in comparison to the recognition of the SARS virus and the entry into clinic 18 months later, where is the comparison point?

Excellent question. So let me just jog your memory and David correct me if I'm wrong, if I'm erroneous here. But we were able to make the SARS construct almost six to eight weeks after the genome was published and we were in the clinic after about 16 months after that, okay.

All I can tell you is other than predicting the exact date, we are much more advanced with the flu program simply because the consensus plasmids are already made and we are in the process of getting a lot of preclinical data. We have tested it in the animals. The formulation work is all being done. We know how to make it, we have the cell banks all set up. So we're way ahead. I think rather than predicting time, our goal is to get it into humans as soon as possible. And I think it all depends on government funding, how quickly we can get the funding.

Just a, kind of, talking on the issue of the funding because that will be a follow-up question. We have sufficient monies assuming the milestones in the $3 million grant are met by the data that we put out today. We have not heard formally from the NIH to that. But we should hear from them very shortly. We have sufficient monies to complete preclinical work to file an IND.

The only monies we're looking for is to do the actual human trial, and there are two pathways of doing it. One, the trials can be conducted through the NIH's vaccine trial evaluation unit, that's a longer pathway or they could provide us funding and we could do the trials on our own and that could be the shorter pathway. So we are pursuing both pathways and we are in active discussions in advance of this data release with the NIH. That is all I can tell at this stage.

And what about the potential for partnerships bonds, would that be another viable alternative?

Absolutely. And you know, I think, at this point, the data is pretty exciting but I think, if you know the history of vaccine development at Vical, this is how this technology was first really tested in humans early on, in what David -- the mid 90s with Margaret Liu and others. We have come full circle and we have - the platform is optimized, the formulation is optimized. We understand the immunogenes better. So I think we want to get the human data before we rush into partnering this program.

Well, thank you, again.

We'll go next to Navdeep Jaikaria with Rodman and Renshaw.

Hi. Good morning, Vijay. Congratulations. Just a quick question. Can you hear me?

Yes. Sure.

Okay. Sorry. So what are the next steps, if you can map us -- map those out for us for the development of the pandemic flu, obviously outstanding data, human studies you alluded to, but any timelines that you can give us at this point in time? And what if the NIH funding doesn't come through?

Well, first of all, as I mentioned to you that we have sufficient funds in the current grant that we got from them to do all the preclinical studies to file the IND. And we are moving in that direction progressively, okay. I'm confident and you know, but I could be proven wrong, but I am fairly confident given the quality of the data that we have, that funding from the government will come because, I think, they're looking for avenues to come with a much more cross-protective vaccine.

The other- so, I'm not come and tell you what exact the timeline is, as to when we get into humans. But all I'll tell you in the next three to six months, we should provide you an update or sooner than that as soon as we have it all mapped out after we have our discussion with the FDA. But I think, one important element that we need to point out that's missed in here is, we have three opportunities also in parallel to our own programs to pursue something else and which we didn't elaborate on because in the interest of time.

One is Vaxfectin in David's analysis has shown is a damn good adjuvant and we have been lacking damn good adjuvant. You know alum is the only adjuvant approved here in this country and so Vaxfectin alone can be an adjuvant, could be dose sparing in the conventional H5 that's being made by the government, so that's one pathway.

The second pathway would be is to take Vaxfectin encoding an H5 plasmid, my god, now you've got a dose sparing strategy along with the ability to prime the immune system and the early -- some of the earliest studies, by Margaret Liu and others shown that when you encode a hemaglutininin adjuvant to a plasmid the antibody response that you get through a plasmid is much more diverse than which you get with the single protein injection or a sub unit injection, so you can prime it so that's another dose sparing strategy.

Now superimposed on the third pathway would be is to use the three components, along with Vaxfectin as the primer and use the stockpiled H5 vaccine on influenza. Now, you've got priming plus cross protection with the adjuvancy so those are three pathways also we're discussing with the government. Besides doing our own program on our own. So we've just got to sort this out in the next three months but our goal is to at least move these two modalities, one or two of these modalities forward rapidly with the resources we have internally. We're confident that we should get money, it remains to be seen.

Thanks so much.

We'll take our question form Eric Schmidt with Cowen & Company.

Good morning. Vijay, maybe you could just update us on what you understand the regulatory pathway for pandemic flu influenza vaccine once you our successful in getting funding?

It's an excellent question. And the landscape or the regulatory pathway is going to evolve -- the landscape currently is a pretty muddled landscape where the FDA basically has said that if you come with a new modality -- if you come with a completely new modality, not the conventional subunit vaccine, then you have to do preclinical studies as well as human -- extended human clinical studies, okay.

But I think, all that could change if this cross protection data continues to hold up in our future ferret studies where we maybe able to dose small challenge studies with H1, H3 strains in some of the established centers and really come up with a regulatory pathways. So the FDA is looking for companies like us to come up with proposals. But the current pathway, which is published, and David correct me, if I'm wrong -- which is a much more longer pathway. And I think, we believe that if we can propose a pathway based on our data and some suggestive studies, we should be able to short circuit those. So those discussions have not happened yet but will happen in the near future.

And do you envision the human studies to be of two injections as well as you have tested animals?

We don't know. The answer could be one injection, could be two injections. As you know as David mentioned, we really went down and showed immunogenicity in mice at what -- 2 microgram level. That's like a homeopathic dose level, okay.

I mean, it's -- that's absolutely that 2 micrograms in mice is nothing. So we got pretty good immunogenicity. I'm comparing it even, there are people who argue that it's blank plasmid with the CPG motifs and Vaxfectine is doing the thing. But we always use that as control this time. And we found that that control doesn't work. So it's the encoded genes which are doing the job. So the answer is, I don't know. But the goal is to use a single injection if we can away with but if not two injections.

Yes. That's fair. Thanks. And last question just on the CMV vaccine. Is it too early to get an update on how that trial enrolling?

Well, I think of what -- as you know the first point when we're going to tell you where we are is the 20 pair enrollment study where we reach 20 because that's when we have the data management safety board review and that's going to be really the pivotal point in terms of making sure looking at safety. Because it's an important patient population and we are not there yet, as soon as that occurs, we'll provide you an update.

Thanks a lot.

We'll take our next question from May-Kin Ho with Goldman Sachs.

Hi, Vijay. Can you talk a bit about how many patients or people do you expect to be required in terms of the exposure with the FDA for the pandemic vaccine obviously for the other vaccine development so far is tens and thousands of people before the FDA feels comfortable. And this is a new modality.

Secondly, can you discuss a little bit about manufacturability looks likes in the ferrets? You you require 3 proteins, so what is the implication for cost of good?

I think the draft guidance first of all for H5 for conventional subunit vaccines, I don't think they required 10, 000. It's a very small immunogenicity studyin 100 or 200 people. Really showing immunogenicity in pre-clinical data in 100, 200 patients study. So the subunit vaccine, that's why everybody, Chiron, Glaxo and Aventis are not being asked to do a lot.

With the new modality, obviously, you may be right, will require several thousand patients and that's the discussion that hasn't occurred so I can't comment on it. Your second question in terms of manufacturability, we already -- the beauty of our platform making is the fermentation conditions when we make plasmid sdon't change -- our purification conditions don't change. So whether we can make a plasmid encoding NP or make a plasmid encoding M2 or H5 we can make them in sequence in any order.

This is not like the B strain, the hemaglutinin from B strain is hard to grow.. It's a very generic manufacturing and if large quantities are needed beyond the clinical studies, we can go and contract it with a number of contract manufacturers such as Lonza and others who are well versed in fermentation. Because there is -- all we need to provide them is the conditions for purification, which is really the [inaudible] step in the chromatographic column that we use.

And the formulation of Vaxfectin, we have scaled up. We have made GMP large, it's our proprietary know-how to make it, it is patented and we are pretty excited because we are -- been testing this in a variety of constructs with a lot of investigators. We are getting great data. So I think, not a problem from a manufacturing perspective and in cost of goods sold either.

And I noticed that for the mice study, the strains that are used for challenge are mice adapted. What does is due to the virus and how analogous would that be to what we are being exposed in the environment and same question in terms of ferrets.

I will answer that and I'll let David pick up from there. First of all the only mouse adapted strains were the H1, H3 strains. The Vietnam strain was a live hard strain. So there was no - we can adapt I,t so both the ferrets in mice in those pivotal studies when they were given NP plus M2 and with and without H5 and the ferrets with H5 were subjected to Vietnam strain, which is not a mouse adapted strain. The H1, H3 are mouse adapted strains -- David, you want to comment on that?

Yes, we pathogen through mice. One to get them to be virulent. The other thing is to realize these are anesthetized mice. So they're really getting not necessarily a nasal challenge, but a deep lung challenge because that just goes right down in their lungs. This is a very virulent challenge. But you are right to point out that these have been adapted through mice. Whereas ferrets, it's a direct challenge. These are not ferret "adapted" challenge. This is human virus, hot human virus.

Thank you.

We'll go next to [Len Jaffe] with [Stockdot] Partners.

Thank you very much. I was wondering if you could discuss the competitive landscape as it relates to pandemic flu vaccines. And the reason I ask is, and correct me if I'm wrong, that if one were to use a live, or attenuated vaccine there could be an issue in patients who are vaccinated, subsequently, who are exposed to the virus and there was some sort of recombination or mutation. And where do you see this overall in terms of demanding that it not be live or attenuated? Am I correct with that assumption?

Yes. From a competitive landscape we keep an eye on what is going competitively. But I think to our knowledge, in terms of using NP plus M2, the value of NP plus M2 has been talked about. I think with the first time we have shown now with this hard Vietnam challenge that we can provide cross protection.

Our mentor Dr. Maurice Solomon, God bless his soul, who passed away last year, who really taught me and David [little bit] about influenza was always worried about live, attenuated strains particular internasal because he was always worried about reassortment taking place.

This is not talking about pandemic vaccine but even conventional vaccine. And he was always worried that widespread use will give an opportunity for reassortment just like the pig is for the reassortment from the pandemic flu. Now the fears are not borne out. However the vaccine has not been widely used. But that remains. I -- most of what we know of the competition, people are using all kinds of different things. We have not seen any ferret data coming out from anybody.

And Webby is really the guy and Webster are really the two leading thought leaders, who have that hard strain. And I don't know whether it came in David's study. They actually use a whole kill vaccine from the H5N1strain as a positive control and we did very well against that too.

So I'm not worried about the live, attenuated strains I think we really need a quick pathway from the federal government to get the funding so we can move into clinic, including the pathways that I described for dose sparing strategy which could be even major breakthrough as a stop-gap measure assuming H5 comes, okay.

Great. Thank you.

Now we'll go next to [Joy Michelle] with Finvest.

Hi. Thanks for taking my question. Good morning. I know you said the regulatory landscape for the pandemic flu vaccine is still a bit unclear at the moment. But could you elaborate maybe on what you think at a minimum might be required preclinically in terms of preclinical studies before you get into humans?

Preclinical studies, David. Those are pretty straightforward. David could you describe it?

Yes. It's pretty; it's very straightforward currently, particularly if it's a new formulation or a new gene going in. We basically just do a repeat dose study, which is safety toxicology study and a bio-distribution study. And obviously we've all -- and we've already documented the immunogenicity efficacy in preclinical studies. Now, with respect to the bio-distribution study, if there is persistence of DNA at the injection site, they may require us to do an integration study. But it is pretty straightforward and we have done this over and over again.

Five -- 5 or 6 of these in the last four years and not a single IND has been put on hold. We've met all the preclinical requirements. We've done integration studies; we've not seen integration with cationic lipids, without cationic lipid, with Poloxymers. So and we've done at much higher doses than these here.

David Kaslow. Which is right. I mean these days most of our pre IND meetings are not talking about the preclinical studies but more the design of the clinical program.

Clinical program.

We've got a pretty good --

I think we are seeing -- now this is not gene therapy, okay. This is -- DNA vaccine programs are accepted as a modern vaccine technology. There's no -- We know exactly what needs to be done here.

Yes. And the draft guidance has gone out -- there's a new draft guidance, and we anticipate that the final document will be coming out fairly soon that will look very favorably in terms of the preclinical studies that are required for DNA vaccine.

Okay. And do you have to go into any other species that you haven't already done?

No.

Not that we know of.

Not that we know of.

Okay. Great, thank you.

Thanks.

Now, we'll take a follow-up question from Navdeep Jaikaria with Rodman and Renshaw.

Hi. Actually the question was asked but just some more color on the regulatory guidelines. Gleaning through the draft guidelines document there is absolutely no indication as to the number of patients required.

And I was wondering how you thought of several thousand patients safety database. It was post -- those were Phase 4 studies, if we understand correctly. And all you are required to show is immunogenicity and safety in a set of patients which shouldn't be more than a 1000-1500 as per our calculations. Could you comment on that please?

Right. I will take the question first and I will pass on to David. First of all, we'll have to do a study where we do safety and immunogenicity in humans and then probably do a challenge study with an H3, where we take the patients and put them -- healthy volunteers and put them on a holiday and give some of them placebo and the others we give the vaccine and squirt the H3 thing up the nose. And those could be 500, 1000, David, I don't know.

Yes.

Something that's 500 patients and that's really the critical going over point of and that's where you measure shedding and what occurs and symptomatic relief and things of that sort. So the answer is that the guidance document has some specifics but actually you need to decipher them after face to face discussions with the FDA.

I'm glad to send you that section of the guidance document that kind of spells out the safety database.

Right. So it's nowhere close to several thousand patients is all I'm getting at it? A few hundred patients and at the most 1000. It should be very short studies and then you -- the challenge studies you can only do in the face of an epidemic you can't do them for a trial, for approval, right?

Again it is hard to speculate at this stage. But I think we need to have a discussion with the FDA. Two things -- the two important variables are how serious is the threat to pandemic and all the numbers go down. If the farther the threat to pandemic then the regulators can put -- ask you to do a lot more things. But right now with what's going on in the field of pandemic and the strains that are being identified, I think the pressure is on to come up with a new mile step sooner and faster.

Great, thanks.

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Well, thank you all for participating. We hope to see some of you individually at one of our scheduled presentations before the next conference call. Again, thank you.

And ladies and gentlemen that does conclude our conference today. All parties may now disconnect.