BioCryst Pharmaceuticals Inc (BCRX) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the BioCryst first quarter 2011 conference call.

At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time. (Operator Instructions). As a reminder, today's conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Rob Bennett, Executive Director, Investor Relations. Please go ahead.

Thank you. Good morning and welcome to BioCryst's First Quarter 2011 Corporate Update and Financial Results Conference Call. Today's press release and accompanying slides for this call are available on our website at www.BioCryst.com.

At this time, all participants are in a listen-only mode. Later we will open up the call for your questions and instructions for queuing up will be provided at that time.

Joining me on the call today are Jon Stonehouse, Chief Executive Officer of BioCryst; Dr. Bill Sheridan, our Chief Medical Officer; and Stuart Grant, Chief Financial Officer. Before I begin I'll read a formal statement as shown on slide two regarding risk factors associated with today's call. Today's comments call will contain forward-looking statements including statements regarding future results, unaudited and forward-looking information, and Company performance or achievements. These statements are subject to known and unknown risks and uncertainties which may cause our actual results, performance or achievements to be materially different from any future results, performance expressed or implied in this presentation.

You should not place undue reliance on the forward-looking statements. For additional information including important risk factors, please refer to BioCryst documents filed with the SEC which can be found on our Company website. With that, I will turn the call over to Jon.

Thank you Rob. Good morning and thanks to everyone for joining us today. During the first quarter BioCryst delivered results in three important areas. First, we obtained from HHS/BARDA a contract modification for $55 million in additional funding for IV Peramivir development. The funding from this contract modification supports more clinical site locations to achieve our planned enrollment and conclude the Phase 3 clinical program and filing for US approval by the end of 2013 or sooner, depending on the incidence and severity of upcoming flu seasons.

Second, we made good progress with enrollment in our ongoing clinical programs for Peramivir and BCX-4208. Although this northern hemisphere influenza season appears to be lower than average prevalence season, we are pleased with the number of patients we enrolled to the ongoing Phase 3 study. And we're preparing for enrollment in the upcoming Southern Hemisphere season.

The Phase 2b BCX-4208 add-on study initiated this past December in patients who were not responding adequately to allopurinol alone is progressing as planned. And we still anticipate reporting topline results before the end of 2011.

Third, we added $23 million in cash to our balance sheet by borrowing against future RAPIACTA royalties from Japan, providing us with greater financial flexibility as additional cash extends our runway. More importantly, it enables us to leverage the future value of the royalty stream to invest in our pipeline now.

As mentioned in today's press release we plan to step up R&D investment by about $5 million this year, which will be primarily used to augment our BCX-4208 gout program, building an even more robust Phase 2 program and to activate another preclinical development program for a BioCryst-discovered molecule we're very excited about -- BCX-5191 as a potential treatment for hepatitis C.

Last week's positive panel recommendations for two protease inhibitors are expected to lead -- to a leap forward in hepatitis C treatment. But opportunities remains for other mechanisms that might one day lead to safer and more effective treatments.

Recent clinical data presented at EASL, the European liver meeting, clinically validates the potential for targeting nucleoside hepatitis C polymerase inhibitors. These inhibitors are attractive because of a lower chance of selection of resistance and strong efficacy. Bill will give you some more insight into our new plans for both BCX-5191 and BCX-4208 during his clinical overview.

Before we move on to the financial and clinical updates, I want to make a few comments about two changes to our Board of Directors announced Monday. First I want to thank Dr. Beth Seidenberg of Kleiner Perkins Caufield and Byers for her positive contributions as a BioCryst board member since 2005. We have benefited significantly from Beth's development experience, her broad network as well as our assistance in recruiting talented leaders into BioCryst.

Early in her tenure on the Board, Beth recognized the opportunity to change our strategic direction, expand our capabilities and to unlock the potential of both the pipeline and the discovery capability. Now that we're on a clearly defined path forward, she is moving on to new challenges.

Our team is excited to have Dr. Peder Jensen join the BioCryst Board. He has an outstanding record of getting clinical compounds to the finish line in the global pharmaceutical arena at Schering Plough as well as at other biotech companies in a wide range of therapeutic areas. We expect that his contributions to the Board will support our goal of building an enduring, successful biopharmaceutical Company.

With that I will turn it over to Stuart to cover our financials.

Thanks. Good morning everybody. Let me provide some additional color regarding the financial results for the first quarter of 2011. And I will include details regarding our cash position under a revised cash use guidance for the full year.

Quarter one R&D expenses were $12.9 million and that is down $12 million from last year's quarter. And that is mainly due to year-on-year reductions in Peramivir and Forodesine development program costs, offset by increased spending on the BCX-4208 gout and preclinical programs. R&D costs in last year's Q1 included a one-off $6.3 million for Peramivir active pharmaceutical ingredients manufacturing costs for product delivered to Shionogi and Green Cross Corporation.

First quarter 2011 revenues were $5.4 million. First quarter 2010 revenues of $26.1 million included two large one-time inbound payments -- a $7 million milestone payment from Shionogi and $6.4 million related to the payment for Peramivir API sold to our partners.

Collaboration revenue associated with the Peramivir HHS contract decreased by $6 million for the recent quarter as compared to last year, due primarily to the completion of various clinical studies including the Phase 3 Peramivir safety study for which we reported results in January.

At the end of 2010 we estimated expenses for the Peramivir Phase 3 safety study 303 and the associated revenues we expected to see from HHS/BARDA. That was based on expected cost per patient estimates from initial recruitment in the study. Our accruals took into account that study conducted during the influenza pandemic and enrolled much sicker patients than expected when the study was originally designed. So it was therefore assumed subjects would be more expensive to treat.

The actual per patient costs we received [from our CRO] late in Q1 were below previous estimates. Revisions to reflect lower actual study costs resulted in Q1 2011 reductions of $3 million for Peramivir R&D expenses and $3.6 million for collaboration revenues. The impact on net income for the quarter was $0.6 million and around $0.01 per share.

During Q1 Shionogi booked RAPIACTA sales for which we anticipate a royalty payment during Q2 of just under $1 million. We do not plan to recognize revenue until we fully understand Shionogi's position regarding product returns. The royalty payment from Shionogi will follow in Q2, about 41 days after the quarter Q1 end.

The Japanese flu season was the weakest since 2005/2006 and included a short two-week spike in late January/early February. Shionogi is on track with RAPIACTA's launched in terms of their marketshare goals.

We ended Q1 with a strong cash position of $76.2 million following the addition of $23 million in net proceeds from the transaction to monetize a portion of future RAPIACTA payments from Shionogi. Net operating cash use for the quarter was unusually high at $11.3 million due to the timing of the receipt of certain payments from HHS and other one-time events, such as the completion of the headquarters transition to Durham during Q1. We expect lower cash use in Q2.

The operating cash burn also excludes an additional $1.9 million in cash used as hedge collateral to support our potential hedge obligations related to the royalty transaction described more in our 10-K filing.

G&A costs were similar to last year's quarter. Now that the headquarters transition is complete, we do expect some benefit from future operating efficiencies.

Lastly, we are increasing our outlook for the full-year 2011 operating cash use to approximately $35 million compared to the prior estimate of $30 million. This reflects the impact of the $5 million incremental R&D investment primarily in our BCX-4208 gout program and our BCX-5191 hepatitis C development program that we have talked about today.

Let me hand over the call to Bill to provide a development program update.

Thanks Stuart. Firstly regarding Peramivir, our Phase 3 program is progressing in accordance with the revised HHS/BARDA contract which we announced in February. As agreed upon with FDA and HHS/BARDA, the primary analysis population for the ongoing efficacy study 301 will consist of the group of subjects who have not been treated with another neuraminidase as standard of care. We need to recruit 160 non-neuraminidase inhibitor subjects in order to maintain 90% statistical power for the primary efficacy analysis.

We are preparing to activate approximately 45 additional investigator sites in preparation for influenza seasons that are coming up, mainly in countries which have historically had low usage rates in neuraminidase inhibitors. These additions bring the total number of sites in this study to approximately 265.

Assuming average influenza seasons, we're confident that we can have Phase 3 data and file an NDA with the FDA prior to the December 2013 end date on the development contract. Higher prevalence of influenza, or higher than average hospitalization rates, could enable us to reach our target sooner.

Now turning to BCX-4208, our gout program continues to advance well according to plan. Enrollment is strong in study 203, which evaluates the affect of adding low daily doses of BCX-4208 or placebo to a standard daily dose of 300 mg allopurinol, in gout subjects are not adequately responding to allopurinol alone. Drug administration continues for 12 weeks for primary efficacy and safety analyses.

As Jon mentioned we're boosting our investment in the BCX-4208 gout program to study immune function with vaccine challenge, add a study in gout patients with moderate renal impairment and perform an ADME study to confirm the lack of BCX-4208 metabolism in humans. We plan to amend the Phase 2b study 203 to extend treatment to six months and we remain on track to report six-month treatment data before the end of 2011. The primary efficacy analysis time point for this study remains unchanged at 12 weeks.

These additional investments and evaluations will make the Phase 2 data package more robust without affecting our development timelines and are intended to enable end of Phase 2 discussions with regulators during the first half of 2012. We will provide our next program update on May 26 from EULAR in London, where two posters describing BCX-4208 efficacy and safety are scheduled to be presented.

Next, I'm pleased to introduce the second preclinical compound that we have advanced into development in the last year, BCX-5191. BCX-5191 is a potent, novel, nucleoside hepatitis C viral RNA polymerase inhibitor discovered at BioCryst, which has already advanced through significant preclinical studies. BCX-5191 is a non-phosphorylated nucleoside analog, a class of compounds that works by being incorporated as a triphosphate nucleotide form into the elongating RNA strand, causing chain termination.

BCX-5191 shows excellent preclinical activity in the replicon assay, high specificity with no cytotoxicity, good oral bioavailability, rapid and efficient conversion to the triphosphate nucleotide and a long triphosphate nucleotide half-life in human hepatocytes. These preclinical scientific features suggest the potential for once a day dosing, high potency, high selectivity and consequently a good therapeutic index.

We have solid intellectual property for BCX-5191 with a long runway. We are now scaling up drug substance production to support completion of IND-enabling safety and pharmacology studies with a goal of filing an IND in 2012.

Last but certainly not least, the BCX-4161 plasma kallikrein inhibitor program for hereditary angioedema is making steady progress in preclinical development. Our studies for BCX-4161 are currently focused on advancing the formulation and scaling up drug supply with a goal of starting preclinical safety studies in 2011.

That concludes my update on our clinical and preclinical programs. With that, we will take your questions.

(Operator Instructions) Charles Duncan, JMP Securities.

Hi, guys. Thank you for taking the question, and congratulations on a nice quarter of progress.

My first question is on 4208. Bill or Jon, I am wondering if you can perhaps -- first of all, you rattled off a bunch of changes to the program that seem pretty standard. But they may be pretty meaningful. Can you help us understand the six-month and the ADME, renal and vaccine challenge additions?

Why don't I list off the key components of work that we're doing and data we expect have over the course of this year? So the first and probably the most recognizable is our three-month efficacy and safety study of 250 subjects to study 203. So that one is one we started in December. We expect to have, as Bill said, results topline safety and efficacy later this year.

That is a study that shows longer-term treatment. All the studies up to this point were three weeks. This is a three-month study and a very important one to determine safety and efficacy in this population that is not controlled on allopurinol.

An amendment that we're going to make to that study is one that will test the immunocompetence of these patients after being treated for three months with BCX-4208. And this is important to determine whether or not -- and this is the vaccine challenge piece that Bill was referring to -- to determine whether or not the immune system is confident enough to produce antibodies when an antigen is presented. So that will be an important part of determining the competence of a patient's immune system.

We also have the six-month data. So as Bill said, we're going to amend 203 to continue on patients after they completed their three months and continue on. And we will have data from a subset of patients, 50 to 100, where they will have been treated for six months. What we're looking for there is primarily safety and adverse events, looking in particular to see if there's any increase or difference in infection rates.

And then we also, in terms of differentiation -- so that is all around safety and efficacy. And then what is also important when you're bringing a new drug to market, especially from a payer perspective, is do you have any differentiating qualities? And so one of the areas that we believe we have differentiation is in drug/drug interactions.

These patients are polypharmacy. They're on statins, antihypertensives, diabetes medication. And so we are going to -- we believe that they're -- and the information we have thus far is the drug is not metabolized, doesn't interfere with cytochrome P450, isn't taken up by transporters. But we're going to do an ADME study to show that there is a lack of metabolism of the drug, so we will have data that reinforces our belief that there aren't drug/drug interactions -- problems with BCX-4208 and patients treated for gout.

And then lastly, as Bill mentioned, an important study because this is a big part of the population is renal impairment study looking at moderately impaired, renally impaired patients; important from a safety and efficacy standpoint and a point of differentiation. So that whole package we believe is very robust and will give us a good sense of the safety, efficacy and differentiation of this molecule.

It sounds like a pretty rigorous program that should inform well for Phase 3 next year. But that said, one of the questions about the mechanism of the drug has always been around safety longer-term use, not only in terms of lymphocyte counts but also functional impact, if you will.

Can you share with us, maybe drawing on past experience with the drug in other indications, why do you think early signs of safety have some predictive value for longer-term safety in terms of not only lymphocyte counts or functionality, or the immune system competence?

Sure. We have a six-week exposure experience from a previous study in psoriasis patients using doses of 20 mg per day and 120 mg per day. And that was a relatively small-scale study with about 66 or so patients. Nevertheless, the trajectory of the lymphocyte counts in that study suggested that we should see a plateau after about four weeks.

So that is an important element in the three-month study that is currently ongoing. And we expect to see a plateau and we will continue to follow however many patients agree to rollover into the six-month extension for longer-term and confirm that we continue to see stability of the effect on lymphocytes.

So, just thinking through these steps, the drug gets on board. You get drug exposure. There is a pharmacodynamic effect which works its way through the lymphocyte proliferation system until a steady-state is reached. So we will see a steady-state. And we anticipate that in that timeframe.

The other elements there that are very important, and we started to set the frame for those type of analyses with our EULAR posters, is that when you look at the toxicity grading scales, there are toxicity grading scales for CD4 cells and for a total lymphocyte count. That's important, to think in those terms. The percentage [falls] are really not that relevant; what counts is what do people believe is a toxicity.

So we will report the three-week studies on that safety abstract at EULAR. So I think we're pretty confident we will see a plateau and be able to articulate the immune function and the infections as John has already described. And we do not anticipate any issues.

Thanks for the added color on 4208. One quick question on the HCV candidate that you highlight today. What do you think is the key competitive advantage? This is not an under -- it seems like at least there are several candidates being looked at in this indication.

What do you -- is it really potency to call it phosphorylation? Or is it selectivity? Why do you think that your platform is going to be good at coming up with a candidate versus others?

The set of data we have is pretty compelling that we have a potent, effective and potentially safe compound, to the extent that that is judge-able using replicon assays in the types of studies that I mentioned already. But that is the full suite of testing that is possible in the field of hepatitis C.

This compound has -- the key things in there that give us confidence are that it gets converted to the (technical difficulty) that needs to be incorporated into the RNA strand quickly, at high levels. And those levels stay around for a long time in human liver cells on the laboratory bench, so that is a very important finding and that predicts good therapeutic index.

These nucleoside analogs in general, and for viral RNA polymerase inhibitors, have a habit of not being very specific. So the specificity that were seeing and the lack of cytotoxicity is the second important element. So the landscape in hepatitis, although it looks crowded at first blush, is a lot of work on other mechanisms of action which really aren't relevant when you talk about nucleoside analogs.

And, yes, there is competition there. But it is certainly not at the same crowded space level in late preclinical or early clinical -- the other mechanisms to us. So we believe we have a very competitive compound. There's a chance of differentiation around administration, safety and efficacy and a combined ability if necessary. And we look forward to being (technical difficulty) the wave of new drugs that will revolutionize hepatitis C care.

And, Jon, would you agree that this early data that has -- seems like higher than usual predictive value for later clinical success has been picked up by the pharmaceutical partners in this space? Clearly there have been some collaborations done. What is your sense of the demand for these types of programs?

I think it is a really hot space right now. And I think if we can move our molecule through tox, perhaps even through Phase 1, that we have a very attractive asset. That is part of the reason we prioritized it so high and decided to make the investment, is that we think we can create value off of this molecule in the not-too-distant future.

Steve Byrne, BofA Merrill Lynch.

I was just wondering if you have some patients in the 203 study that have already completed the 12 weeks of testing.

Yes. The answer to that is yes, because of the timing of the start of the study. (multiple speakers)

I'm sorry. Those that are completing -- or that are continuing in the extension, are they blinded?

We intend to maintain the blind. However, the primary efficacy analysis remains as written in the protocol and the statistical analysis plan at the 12-week endpoint. So, once all of the randomized patients are through 12 weeks, that is when we will do that analysis.

Okay. But when you report topline results later in the year, you would include those that continued in the extension study?

It will have two sets of reports. The first set will be the originally intended primary analysis, which will be everybody through 12 weeks, as randomized, in typical intent to treat analysis. And the second report will be however many we get through the six-month extension, in a timeframe that is reasonable to collect the data.

And for those patients that continue in the extension, what will be the frequency of monitoring the lymphocyte count?

That's getting into a pretty granular level of detail. We have a safety plan in the study with regular monitoring of lymphocyte counts. There is a -- the same rules we have had throughout the program with regard to study drug discontinuation and the like.

As we've discussed previously, this trial involves several dose levels. It wouldn't be surprising at all in patients on the highest dose level or a proportion of them dropped out as the study unfolds. That's okay. It's quite a useful piece of data to have for regulatory interactions in terms of dose ranging and dose selection for Phase 3.

So this study does have a safety monitoring board and it meets at pre-specified intervals to look at evolving safety data. We don't get to see that. We get advice from the safety monitoring board as to their advice as to whether to continue the study or whether any changes might be indicated. And so far that has gone fine, and we've been advised it's fine to continue the study.

My intention was just to make sure that for those who continue in the extension, you do continue to monitor the lymphocyte count.

Absolutely. You bet.

And then why were -- one of the exclusion criteria in 203 was to exclude those that had creatinine clearance of less than 60 [mils] per minute. Why would you have excluded those originally?

So in general as the programs move from Phase 1 to Phase 2a, 2b and 3, the eligibility criteria are more restrictive early on and more liberal later on, so that you get more information about special patient populations. And patients with renal impairment or hepatic impairment, for example, are in the category of special patient populations.

We were comfortable given the safety data we had earlier on to study people with normal kidney function and mildly impaired kidney function. Now that we have that data, we're comfortable to move to moderate gout patients with moderate kidney impairment. So it's just the next stage in the program.

And as Jon mentioned, it is important data tab about the dosing and safety of the drug. And it would be very helpful in an end of Phase 2 discussion.

And do you expect to report on the vaccine challenge data when you report topline results late the year?

It's a bit early to tell right now, but we intend to have the data by the end of the year. Whether or not we will be in a position to report it out, I'm not clear yet. But we will we may have more confidence about the timing of that at our next quarterly call.

Last one for you, Jon. Part of the motivation to increase the robustness of trial 203, do you think it will strengthen your partnership discussions?

Yes. Absolutely. I think it enhances two things -- the attractiveness of the asset to partners, and also the robustness of the package to take the regulators for an end of Phase 2 discussion to move into phase 3. So those are the two stakeholders that we felt it was important to invest further in this molecule.

Okay, thank you.

Yigal Nochomovitz, Rodman & Renshaw.

Good morning gentlemen. Thank you for taking the questions and congratulations on the continued progress. I'd just like to start with the gout program. Jon and Bill, you mentioned some of the additional studies to improve the robustness of the Phase 2 programs.

Specifically on the vaccine challenge, first of all, could you tell us what vaccine you are going to use? In that respect, how are you going to find a vaccine that these patients haven't seen before to mount it to the antibody response? And will it be all of the patients in the 203 study that are getting the vaccine, or just a subset to explore this additional endpoint of immunogenicity?

Thanks for the question. The typical types of vaccines one would use are commercially available licensed approved vaccines, things like pneumococcal vaccines or tetanus vaccines for example.

In answer to the question with regard to prior exposure, most adults in this country of not have had pneumococcal vaccines, so that's not a problem. (multiple speakers) When you get a tetanus booster you get an immune response. So you're measuring antibody responses to vaccine. And this is a well-characterized methodology that has been done many times.

So we are following -- we're not inventing anything new here. We're following a well trodden path. So that is the answer to the vaccine part of the question. (multiple speakers)

Will it be all the patients or just a subset of the patients that are going to get this additional vaccine challenge?

No, the study was powered around efficacy and safety in general. So the vaccine part of it can be done in a subset perfectly adequately.

Got it. And then on the modest renal impairment, can you speak at all about the design? Is that going to be an add-on approach like the 203? Or will it be a monotherapy study?

So the goal is to have this drug used in combination with allopurinol ultimately. We're working through the details of the design, so you can expect that either some or all of the patients on the study will have concomitant allopurinol. And once we have finalized the design and enrollment has started it will go up on clinicaltrials.gov and all of the details will be there.

Can we expect that one to commence by the end of 2011?

It should be well underway. But right today I'm not making any predictions about when we will have completed that study, because patients with moderate renal impairment are much more difficult to recruit compared to the broader patient populations that we have studied so far. But we will certainly be well underway.

Okay, got it. Just going back to the extension to six months, maybe I had it wrong, but earlier on in my notes I had something regarding a long-term monotherapy study potentially as long as a year. Is that still in the cards? Or is this extension study now the realization of that idea?

It is part of it. Our thinking has evolved to take advantage of rolling patients over who have already had three months' exposure. So that's a very efficient way to get people into a six-month study. And it is cost efficient and time efficient, so that's the third step.

The second step is consideration of longer-term administration. And that will be part of the end of Phase 2 discussions. And the third step is doing this exposure as monotherapy versus exposure as combination therapy.

There will likely be a Phase 3 requirement study monotherapy, even if that is not the label we seek, because it's typically part of drug development standards and add-on therapies. But that is a separate question. So we have no evidence that using the drug in combination with allopurinol, for example, changes its safety profile. So we're comfortable about interpreting the safety in add-on studies.

Okay. And one more question on the extension, how far -- I mean, could you go beyond six months? How much do you have in terms of animal toxicity data to support a [longer date] dosing?

So we will have 12-month preclinical safety. I think a decision about whether to extend it beyond six months will be made later this year.

Okay. If I could switch to the influenza program, do you have any early read on how the Southern Hemisphere flu season is shaping up? You mentioned in your guidance was based on an average season. But do you have any specific information whether it could be above average?

It's too early to make any comments on the Southern Hemisphere season. It's early May. It is way too early.

Okay. If I could just switch to Stuart for a moment, you mentioned the guidance for the cash burn is going to go up a bit. Do you have an assessment as to how that would break down with respect to R&D and SG&A?

No. We haven't broken that out. Some of the SG&A is refunded by the government obviously. So I think on balance it's fair to say the bulk of it is on clinical activity in R&D space.

Okay. And Jon, just to finish up with the Peramivir program, you are guiding for the end of 2013. Is the expectation or the guidance that the NDA will be filed by then? Or is that -- should we be thinking about that timeline as the completion and reporting of the topline data from the Phase 3 program?

So the contract modification states that we would have completion of the Phase 3 program and the filing completed by December 31, 2013. So, that is our current plan.

The enrollment we achieved in the Northern Hemisphere continues to give us confidence that we will meet that plan. And as we've said all along, if we get a stronger than normal flu season in one of the upcoming flu seasons we may be done sooner. But for purposes of not trying to predict flu, we are saying 2013 is when we will file.

Okay, got it. One final question on the preclinical program, obviously a very interesting asset in the HCV nucleoside analog. But I just want to get a sense from you as to how should we think about the relative prioritization of the HCV compound versus the kallikrein inhibitor, the HAE compound. Are they basically on the same footing? Or is this announcement indication that that one is being given a higher priority or not?

They are both higher priority. And we have put a very big asset into the preclinical studies for our hereditary angioedema compound in the last few months and we're making good progress.

The announcement about the hepatitis C project doesn't change that. It's in fact quite mature in preclinical studies. And we can get on with making the drug and moving it into animal safety studies pretty quickly. So that is a different set of resources, is the way to think about it.

Yes. And I would say it's important to think through what is the strategic value of these assets. So the kallikrein inhibitor, it's clear that's something that we believe can move through quickly through clinical development. As Bill describes it, it is a rifle shot approach and it is something we would take to the market. So, significant value coming back to the organization because you are not getting a royalty for the molecule, so speed and big value.

With regard to the hep C compound, we think there is a real opportunity early in the program development to get value, let's say from a potential partner who might be very interested in this asset. And so those are the differences in the value back to the Company and to shareholders.

I got it. Thanks for the explanation. Congratulations again and we look forward to the gout data towards the end of the year.

Bret Holley, Oppenheimer.

Yes, I just wanted to clarify. The long-term monotherapy study. It seems like there is still a requirement for that, but it sounds like you're going to delay that until it is concurrent with the Phase 3 program. Am I reading that correctly?

Thanks for the question Bret. The monotherapy regulatory requirement is to do with understanding what is the efficacy of the drug when you give it alone at the doses that you combine it with another agent. It has less to do with long-term safety.

So the main long-term safety data in the Phase 3 program will come from the primary efficacy studies, using the drug as an add-on to allopurinol for example. So it can easily be done in -- and the place to do it is in Phase 3 after you have selected your Phase 3 doses.

Okay. And then the six-month duration of dosing, does that include all of the doses in the Phase 2b combo trial? And does it include a placebo crossover after three months?

Correct. Yes, so the simplest thing to do is to roll patients over and that is what we intend to do.

And the placebo patients as well?

That's right.

Okay, all right. Thanks. That clears up my questions.

(Operator Instructions) Joseph Schwartz, Leerink Swan.

Thank you. I thought we would see some more royalties from Shionogi in Japan this quarter based on your previous expectations.

I was wondering if you can give us an order of magnitude a ballpark figure in terms of how much weaker the Japanese flu season was relative to the average for the last decade. I know you said it was the weakest in some time. I'm just wondering, so that way we can engage what this opportunity might translate into in a more normalized environment.

First, I would say that the royalties that we get come 45 days after the quarter. So, flu hit in late January/early February in Japan, so as Stuart said in his remarks, you would expect a royalty payment in the second quarter, first off.

But to set everybody's expectations appropriately, we said this was one of the lightest flu seasons in the past decade -- the lightest since the 2005/2006 season in Japan. Our estimates, looking at previous seasons and this season, is it is less than half of an average season both in intensity and duration. So my view is it is pretty difficult to assess the launch of a drug when there isn't much prevalence of the disease.

So I think it is more important that we look at it over a series of years to get a better sense of how Shionogi is doing and how the drug is being taken up in the market place.

So if it is less than half the intensity and less than half the duration, rough order of magnitude could be a 4x opportunity on a steady-state?

Yes, I mean it all depends on the effectiveness of the launch and the uptake by physicians and all of the things that go in with the launch of a new drug.

It's an early read but that's very helpful color. As far as the 4208 gout program goes, what additional preclinical toxicity exposure would you expect to need before going into your Phase 3 program as you currently envision it?

The current program should be sufficient for that, so we don't anticipate any more requirements to Phase 3. Obviously for a launch, appropriate carcinogenicity studies with a small molecule will be required as part of the preclinical package in the NDA.

Yes, that is probably how I should have phrased it. That would include what sort of exposure again, can you remind me?

Generally carcinogenicity studies are done over a couple of years and they take quite a bit of time. Once we see the results of our Phase 2 program, that is the time to consider starting those studies.

Great, very helpful. Then on the hepatitis C program, what is it about this agent that has you excited about the potential to maybe perform better in the clinic, relative to how many things look promising preclinically in this area? Given there are so many nukes now in development, what things -- what characteristics does this molecule have that you think you can exploit?

The simplest summary before the details is that it checks every single box it needs to check as an attractive compound. It's got good solubility. It is permeable into cells. It is early bioavailable in preclinical studies, demonstrates no cellular cytotoxicity, gets converted to the active form in the target organ cells in human target organ cells on laboratory bench, and stays in that active form for a long time.

And the -- our short-term preclinical studies have demonstrated good preliminary safety. It obviously needs the full safety pharmacology package. Everything we see about this compound gives us great confidence that it will pass that step.

It is highly active in the relevant and only preclinical efficacy test that there is for this disease, which is the Replicon assay. So every single thing about this molecule so far, it has passed every test with flying colors. So that is not necessarily normal.

Lots of molecules coming to development with one or two or three dings on their scorecard; that is not the case here. It hasn't got a single ding. So that gives us a lot of confidence.

I think when you look at the competitive analysis, I agree there are a lot of things. But most of them haven't advanced. So there are only a small number that have advanced to the next stage.

So I think that it remains to be seen how those molecules will go.

The last comment here is, as I mentioned in another question, we need to move -- that what patients need is safe, effective short-term cures for this disease that are highly reliable and with limited or no toxicity. That is not the case today. So PEG-interferon and ribavirin is a toxic combination that causes hemolytic anemia, neuropsychiatric side effects and systemic side effects.

Everybody wants to get to a point where we can have oral safe therapy. The protease inhibitors don't get us there as a single step, so the nucleoside inhibitors are going to very important. And worldwide, there are 170 million people with hepatitis C.

So if you want to imagine a future, here is a disease that is not transmitted by animals or an insect [vector]. It is only transmitted human to human. And it is a potentially eradicable disease if we had safe, effective short-term cure therapies.

So that is a very, very different situation than we are now in terms of market size. (multiple speakers) Only the tiny minority of patients get treated now.

It sounds intriguing. Are there ICE inhibitory concentration figures that you can share at this point for the various genotypes?

I think we will reserve that for a scientific publication on the molecule. It would certainly have all of those types of figures, yes.

All right. We will stay tuned then, thank you.

Yigal Nochomovitz, Rodman & Renshaw.

Thanks for taking the follow-up. I just -- one additional question for Stuart, if I may. On the prepared remarks, you mentioned that you would not be recognizing the revenue for Shionogi until you had a better understanding of the product return circumstances. Do you have any sense from them as to when that might be clarified from your perspective?

I think we will try and do that during Q2. By then we will also have a full suite of [IMS] data that talks over what the retail experience was in Japan. So I'm hoping by the time we get to the end of the second quarter, we have the cash. We have the IMS data. And we should have clarity on that during the second quarter.

Okay, thank you very much.

I'm showing no further questions at this time. I would like to turn the call back over to Management for any closing remarks.

Okay. Thank you again for joining us on our call today. I think the major takeaways from this quarter's call is -- we are staying the course and continuing to make steady progress towards our goal.

We brought in additional funding through the HHS/BARDA contract and the royalty monetization. We continue to execute effectively against our plans. And our enrollment continues to move forward and we appear to be heading towards hitting our targets.

And then we're making investments that allow us to bring forward to multiple shots on goal and to create value in a timely manner for shareholders. So as I said, we're making steady progress towards our goal.

Just a reminder that we will be presenting at the Bank of America Healthcare Conference on May 10. Our shareholder meeting takes place in Durham, North Carolina on May 12. And we will be presenting data and poster presentations at EULAR on May 26. Thank you for your interest in BioCryst.

Ladies and gentlemen this does conclude today's conference. You may all disconnect and have a wonderful day.