施貴寶 (BMY) 2008 Q3 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to ZymoGenetics' third-quarter 2008 financial results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Susan Specht, Director of Corporate Communications for ZymoGenetics. Thank you, Ms. Specht, you may begin.

Good morning, everyone. I would like to welcome you to our third-quarter conference call. We do have slides for this call available on the webcast and on the homepage of our website.

Before we begin, I need to remind you that we will be making forward-looking statements as part of our prepared remarks and in answering your questions. These statements are subject to many risks and uncertainties that could cause actual outcomes to be much different than we predict. Please look at our SEC filings including our Form 10-K for more information. And now, I'll turn the call over to our CEO, Bruce Carter.

Good morning and welcome to our quarterly conference call. Doug Williams, our President and Chief Scientific Officer, is going to update you on the exciting data we're getting with Interferon lambda. So I will spend more time on this than unusual because we believe it is important to understand the significance of our results for an asset which is becoming important.

We will also update you on the progress of the Interleukin 21 and the atacicept programs. And after that, I will update you on the RECOTHROM sales. Jim Johnson, our Chief Financial Officer, will then provide a financial update.

And then after some concluding comments from myself, we will take your questions. Mike Dwyer, our Head of Sales and Marketing, will join us for the question-and-answer session. And now, over to you, Doug.

Thanks, Bruce. I'm going to spend some time this morning reviewing some of the data that we presented at the AASLD meeting in San Francisco late yesterday afternoon. This is data from the ongoing Phase Ib trial of Interferon lambda in Hepatitis C patients.

There are 14 slides that I'll be reviewing, and if you tuned in via webcast, they should be available to you on your computer screen already. If you're listening over the phone, you can go to the Company's website, www.ZymoGenetics.com and find them on the homepage. Following our review of that information, I will also update results from ongoing activities with IL-21 and the atacicept program.

As a preamble to the slide review, I would say the results we're seeing so far on the PEG-Interferon lambda Phase Ib study have clearly met or exceeded our expectations. The results to date are consistent with our target product profile of better tolerability and antiviral activity at least as good as PEGylated Interferon-alpha. We believe this product profile will allow interfere Atlanta PEG-Interferon lambda to become the preferred interferon in any combination regimens that emerge. And the high degree of antiviral activity and improved tolerability that we are seeing will allow more flexibility in ultimately creating cocktails of agents which will benefit patients.

Our first slide is the forward-looking statement. Slide number 2 delineate the study endpoints, the patient population, and the entry criteria for patients coming onto study. We are treating genotype 1 patients who have relapsed after treatment with standard of care. We chose this population based on extensive consultation with our key opinion leaders and FDA. Our primary efficacy endpoint in the study was to achieve at least one log decrease in HCV RNA.

The next slide depicts the Phase Ib study doses and schedules in part 1 and part 2 of the study. Part 1 being single agent therapy and part 2 being the ribavirin combination. At the AASLD meeting yesterday, we reported results from the first three single-agent cohorts for a total of 18 patients. The first three cohorts are complete and we're currently enrolling patients in two other dosing cohorts, one at the 3 microgram per kilo weekly dose and the other at the 1.5 microgram per kilogram weekly dose in combination with ribavirin.

On slide 4 is the mean viral load reduction in each of the three cohorts in the table at the top of the slide, and then a graphic depiction of the percentage of patients in each cohort achieving a 2 log or greater decrease in HCV RNA. All three completed cohorts exceeded our 1 log threshold defining success with evidence of both dose and schedule dependency. Patients treated weekly with 1.5 micrograms per kilogram of PEG-Interferon lambda as a single agent showed a mean decrease of viral load of 3.6 logs with all patients achieving a greater than 2 log reduction in HCV RNA.

The kinetics of antiviral activity with weekly dosing at the 1.5 microgram dose is shown on the next slide. Three patients experienced more than 4 logs reduction in HCV RNA in the weekly dosing cohort. With each successive weekly dose, the level of viral RNA is further reduced, suggesting that continued dosing beyond four weeks may result in more pronounced antiviral effects. Let me remind you that the observed antiviral activity with PEG-Interferon lambda is as a single agent in these cohorts.

The next four slides depict our safety observations in the study and speak to the excellent tolerability we've seen with this agent thus far.

Slide 6 summarizes our observed clinical adverse events. Important to note is the absence of any treatment-related fever in patients treated with interfere Interferon lambda. There were no discontinuation and all events were grade one or two in severity.

Slide 7 shows all of the adverse events thought to be possibly related to study drug in tabular form. These observed events were of grade one or two and are sporadic in nature.

Slide 8 highlights the complete absence of any hematologic laboratory abnormalities following Interferon lambda administration. A well-documented effect of Interferon alpha administration is suppression of bone marrow progenitors leading to anemia, neutropenia, and thrombocytopenia, frequently resulting in dose interruptions during HCV therapy.

No changes in red cell, neutrophil or platelet counts were seen in any patient treated with Interferon lambda at any dose or schedule tested.

Slide 9 shows that we had two patients who had transient, reversible grade 3 increases in liver enzyme levels. These elevations were rapidly reversible, had no clinical consequences, did not lead to treatment discontinuation and are consistent with observations with single agent Interferon alpha.

The next several slides attempt put our data into perspective, with published data from 28-day dosing studies of Interferon alpha for the treatment of HCV. There is limited single agent data published with Interferon alpha in this context, but there are studies published which we feel provide an interesting basis for comparison. We focus only on studies which match the duration of dosing in our Phase Ib study in genotype 1 HCV-infected patients. Obviously this is not a head-to-head comparison, but we believe it is illustrative of the relative safety and efficacy of Interferon lambda versus Interferon alpha containing regimens during 28 days of treatment.

On slide 11, there's a comparison of our Phase Ib efficacy results with published studies. We are comparing our single-agent weekly dosing cohort in relapsed patients to data from treatment with ribavirin plus Interferon alpha in either relapsed or naive genotype 1 infected patients. Note that the patients in all three studies are well matched for baseline viral load levels. As you can see with respect to mean maximum HCV RNA decreases, our 3.6 log reduction with Interferon lambda is greater than the reported decreases in the other two studies. Furthermore, all the patients treated with single-agent Interferon lambda achieved a greater than 2 log reduction of viral load. Thus, I believe we are being quite conservative in saying that our data on efficacy suggests we're at least as good as Interferon alpha in reducing viral load.

We also compared our safety results to those of other approved Interferon alpha drugs and conclude that PEG-Interferon lambda safety profile was very favorable.

On slide 12, you see a striking difference with no significant suppression of blood cells with Interferon lambda compared to substantial reductions in hemoglobin of more than 2 grams per deciliter, neutrophils and platelets after four weeks with PEG-Inte'ron and ribavirin. The absence of hematologic suppression with Interferon lambda at doses with robust antiviral activity should be a significant advantage when choosing future combinations of agents for treatment of HCV.

Slide 13 illustrates the difference in published results with Interferon alpha plus ribavirin versus Interferon lambda as far as clinical adverse events. The numbers clearly speak for themselves with respect to the observed tolerability with Interferon lambda versus the poor relative tolerability of Interferon alpha plus ribavirin. We consider this a very encouraging sign with respect to our target product profile for Interferon lambda as it relates to tolerability for patients. Head-to-head comparative studies will be needed to further validate these observations.

We're very pleased with the data we've generated so far. Thus far, as highlighted on my final slide, we've confirmed that we have a molecule with potent antiviral activity with extremely good tolerability. Compared to publish data, we can say that we appear at least as good as Interferon alpha on the efficacy front, the better tolerability after 28 days of dosing.

Looking ahead, we have moved into Part II of the current Phase Ib study and are treating patients with PEG-Interferon lambda dosed weekly in combination with ribavirin.

We are also amending the Phase Ib protocol to treat naive patients with PEG-Interferon lambda and ribavirin. We anticipate starting a Phase II clinical trial in genotype 1 treatment naive HCV infected patients in mid 2009. We've been consulting with FDA and key opinion leaders to design this study. We anticipate this will be a 400 to 500-patient noninferiority head-to-head study with PEG-Interferon lambda and PEG-Interferon alpha, each combined with ribavirin over a 48-week treatment period with SVR as the primary endpoint. Several other studies, including genotype 2/3 infected patients, are also in the planning stages.

We believe that interferon will continue to be the backbone of Hepatitis C treatment for the foreseeable future. PEG-Interferon lambda with its promise of a much improved tolerability profile has the potential to be the interferon of choice for combination with direct antivirals in development against a variety of HCV targets.

We continue to see growing interest in Interferon lambda from potential partners. Interferon lambda. We currently own the worldwide rights for this molecule. Although we do not have a stated timetable for completion of a PEG-Interferon lambda collaboration, we believe that a strong collaborator will be important to maximizing the value of this promising asset.

Let me now move on to update you on Interleukin 21. In late October at the EORTC-NCI meeting in Geneva, we presented interim results from our Phase II clinical trial evaluating the combination of IL-21 and Nexavar in second and third-line metastatic renal cell cancer. We presented safety data on 32 patients and tumor response on the first 18 patients and all data presented summarized the results of an independent review of all the CT scans available.

As far as the safety results, adverse events were generally grade 1 or 2 and consistent with the known toxicities of IL-21 and Nexavar when administered as single agents.

On the efficacy front, we were pleased to observe a 17% confirmed overall response with 13 part -- excuse me, with three partial responses in this population of heavily pretreated patients.

In addition, two patients have had an unconfirmed response and more follow-up is needed to obtain confirmation of these responses. Overall, 16 of the 18 evaluable patients experienced tumor shrinkage. We've prospectively defined success in this study as an overall response rate of at least 15%. The single agent Nexavar objective response rate was 2% in Phase III, leading to registration in advanced renal cell cancer.

The preliminary tumor response results in our combination Phase II study suggests that the addition of IL-21 to Nexavar is associated with a higher response rate. We expect to have [followed] results, including progression-free survival data in the first half of 2009.

We are also running a Phase II clinical trial testing IL-21 as a single agent in metastatic melanoma, where we are continuing to enroll and treat patients. The trial is being conducted by the National Cancer Institute of Canada. We expect to have final data on both objective response and progression free survival by midyear 2009.

Our plan is to complete these studies and identify a licensing partner to conduct registrational studies for this drug if the data continues to support the positive trends emerging from our Phase I and ongoing Phase II studies.

Last week, it was announced that Merck Serono discontinued the atacicept lupus nephritis Phase II/III study because of an apparent increased risk for severe infection. This study combined MMF or CellCept, corticosteroids and atacicept in patients with lupus nephritis.

We very carefully reviewed the data from this study as well as from our previous Phase I studies and the ongoing Phase II and Phase II/III studies. We believe along with Merck Serono and our investigators, that this observed apparent increase in infections is unique to the combination of atacicept with MMF in patients with lupus nephritis. There have been no indications of increased infection risk in the other ongoing atacicept trials with over 400 patients having been randomized and treated for up to six months in the ongoing studies and a Phase I experience of 185 subjects. Other atacicept Phase II trials in RA and MS, as well as the ongoing general lupus Phase II/III study are continuing as planned. We still expect to see top-line data in rheumatoid arthritis in the second half of next year, as planned.

Merck Serono remains committed to the development of this drug in multiple indications and we believe that atacicept holds great promise in auto immune diseases.

That completes my remarks, and I will now turn it back over to Bruce.

Thank you, Doug. I'll update you now on RECOTHROM sales. Net sales for the third quarter were $1.8 million versus $1.4 million in the second quarter, a 27% increase. If we discount the wholesale pipeline filling in quarter two, the quarter-on-quarter increase in sales is nearly fourfold. Nevertheless, sales are still low and our focus is and must be to grow sales as quickly as possible.

Year-to-date through September, 177 P&T committees have made a decision about RECOTHROM. 59 have made RECOTHROM the sole thrombin on the formulary. 52 have added RECOTHROM to the formulary and thus have more than one thrombin product. So 63% of committees have had a positive outcome. 66 committees had declined to add RECOTHROM up to the end of September, which is approximately 37%.

We have now been on the market for most of this year. What have we learned that will help us convince customers to buy our product? We have learned that there is a limited awareness of and ability to properly diagnose bovine-immune mediated coagulopathies from surgeons, nurses, and pharmacists. So we must focus on making customers aware of the occurrence and consequences of bovine-immune mediated coagulopathies.

Second, we have to highlight the advantages of our Recombinant product, RECOTHROM.

Third, we've been listening to the pharmacists concerns about their budgets and we have responded to their concerns with a new pricing strategy. What are we doing to educate the market with respect bovine immune bovine-immune mediated coagulopathies? Well, we recently sponsored a webinar in which surgeons discussed recent cases that they had experienced this year where they had to deal with this issue. The webinar's educational objective was to create an awareness of the clinical presentation of coagulopathies and to demonstrate the overall impact and consequences to patients and to the hospital's use of resources. It highlighted three cases from this year showing that this is a current problem.

We're also convening a consensus panel of expert hematologists, surgeons, and pharmacists and this consensus panel will evaluate the scientific evidence and other information available in the area of postoperative bleeding, identifying gaps in the scientific literature and education of health care professionals and we'll recommend actions to close these gaps.

What are we doing to demonstrate some of the advantages of our product? We will present data from our Phase IIIb trial at the American Society of Hematology in December. This was a 200-patient study using RECOTHROM in patients undergoing repeat final or vascular surgery. Enough patients having a high likelihood of prior exposure to bovine thrombin and as such, an increased risk of having pre-existing antibodies to bovine thrombin.

The primary objective of this study was to demonstrate that RECOTHROM can be given safely to patients with pre-existing antibodies to bovine thrombin and I would remind you again that the [backdrops falling] on bovine thrombin says patients with antibodies to bovine thrombin preparations should not be reexposed to these products.

The third way to influence purchases is, of course, price. And most of the declines that we had through the end of the fourth quarter are related to pricing. We listened to our customers' concerns and responded. At the beginning of October, with an enhanced discounting program that allows conversion to RECOTHROM while at the same time being budget neutral to these hospitals.

The new pricing has only been in place since the beginning of October, but we are beginning to see it effect. We have seen hospitals where we had been approved for an addition to the formulary switching to full conversion. But we are very pleased to see hospitals which had previously declined RECOTHROM converting fully to RECOTHROM on the formulary.

We believe that fourth-quarter net sales will be in the region of $3 million, a 60% increase on the third quarter, and thus, 2008 sales will be in the region of $7 million.

We are facing challenges with a long hospital sales cycle and pricing concerns. However, we believe that a Recombinant protein is better than a protein from human or cow blood. We believe RECOTHROM is best in class with a strong label and product profile. And we believe that with our new pricing strategy, we are seeing increased traction in the marketplace. The process has taken longer than we had projected, but we believe RECOTHROM will be the market leader in the coming years. And now Jim will update you on our finances.

Thanks, Bruce. Our results for the third quarter showed improvements in revenues, expenses, operating loss, and net loss when compared to the prior year. This trend reflects the added effect of RECOTHROM sales and the implementation of cost reductions. We expect this trend to continue in upcoming quarters. Revenues were $11.9 million for the quarter compared to $8.5 million a year ago. Revenues for the quarter consisted of $8.5 million of collaboration and license revenue, $1.8 million of RECOTHROM net sales and $1.6 million of royalties.

Collaboration and license revenue included $4.4 million under our Recombinant thrombin collaboration with Bayer, $2.8 million under agreements of Merck Serono and $1.3 million as a milestone payment from BioMimetic Pharmaceuticals relating to Recombinant PDGF.

During the quarter, we announced that we earned a $5 million milestone payment from Bayer related to be MMA filing for RECOTHROM and that milestone will be received in the fourth quarter, and like other revenues from that collaboration, will be deferred and recognized over the five-year collaboration period using a percentage of completion method.

There are several important points to make regarding the $1.8 million of RECOTHROM net sales. This is the first quarter without any impact of wholesale or channel [fill] related to product launch. We had the launch of the 20,000 unit vial in Q2 and a 5,000 unit vial in the first quarter.

Excluding the impact of the Q2 launch, sales in the third quarter were over 3 times higher, reflecting significantly higher end-user demand. Effective October 1st, we increased the level of discounts offered to hospitals to make RECOTHROM purchases budget neutral. This happened too late to have any impact on third-quarter sales volume, but we're seeing positive responses from the field so far this quarter.

At September 30, we did, however, accrue the incremental discounts on any product held by the wholesalers at the end of the quarter. Our cost of product sales reflected only the packaging and distribution costs incurred after FDA approval. Most of the cost of manufacturing this product were previously expensed to R&D in 2007. And in addition, cost of product sales for the quarter includes $400,000 for inventory we currently do not expect to sell before its expiration date.

R&D expense totaled $30.2 million for the quarter, which was about 13% lower than in 2007. Expense for the quarter included approximately $5 million of Merck Serono collaboration costs that we're not required to pay. And instead of reversing this expense, the accounting rules require us to record it as deferred revenue and recognize it together with all other deferred revenue we have related to Merck Serono collaborations over the remaining 14 months of our obligations under the various agreements.

SG&A expense for the quarter was $15, about 10% higher than in the third quarter of 2007. Most of the increase was related to the launch of RECOTHROM and legal fees related to the BMS litigation.

We recorded $4.9 million of stock-based compensation expense for the quarter. $3.1 million was included in R&D expense and $1.8 million was classified as SG&A.

In August, we sold a parcel of land near our headquarters building and we netted $11.7 million from the sale, and we recorded a gain of $7 million. And that gain reduced our net loss or our loss per share for the quarter by $0.10 to $0.42 per share.

We ended the quarter with $81 million of cash and investments. We have carried out an extensive review of all of our investments and we concluded that one asset-backed security needed to be written down due to credit downgrade. We took a loss of $400,000 on this security during the quarter, which is about 16% of its par value. We believe that the values of all other securities are fully recoverable and we project that over 90% of the principal amounts will be received within the next 12 months.

Looking forward, we have two significant cash receipts coming to us in the fourth quarter. $21 million from our license of IG-fusion patents to Bristol-Myers Squibb, and $5 million from Bayer related to the RECOTHROM European regulatory filing.

In addition, we have access to $100 million in committed funding under our agreement with Deerfield. We have requested the first $25 million draw under the facility to be received this quarter. We expect to end the year with approximately $75 million to $80 million of cash and investments, assuming we don't request any additional draws from Deerfield.

Over the past year, we have focused on mobilizing cash and reducing our cash usage. We've taken a number of steps, including workforce reduction in early 2008, restructuring of our collaboration with Merck Serono, selling land and settling the Bristol-Myers Squibb litigation.

We are continuing to focus intensely on this issue, and in the coming months, we expect to take steps that will generate additional cost savings and bring additional funding into the Company. For example, we're dialing down our purchases of RECOTHROM inventory. We expect to generate further operating expense reductions and we have a number of active partnering discussions ongoing for PEG-Interferon lambda and other preclinical pipeline candidates.

At this point in time with the cash we have on hand, with the committed funding from Deerfield and with the steps we expect to take in partnering and expense reduction, we believe we will have adequate funding to see the Company into 2010.

So with that, I'll turn things back over to Bruce for some closer remarks.

Thank you, Jim. We are very conscious of the economic conditions that surround us. As the Wall Street Journal said last week, companies without cast or access that can generate cash, are in jeopardy. We have both, but we have to be careful how much money we spend.

That's why we licensed atacicept rather than continue to spend our own money on this project. That's why we previously licensed Factor 13 to Novo Nordisk. Which actually is in Phase III trials for acquired Factor 13 deficiencies and begins a Phase II trial to prevent blood loss in association with cardiac surgery next year.

The problem of course is that once we license a product candidate, investors forget about it as an asset that will generate value.

Another two of our product candidates that are also currently in clinical trials are out licensed. FGF-18 for osteoarthritis and an Interleukin 20 antagonist for inflammatory diseases. These are ways to avoid costs.

We were also take steps to decrease our operating expenses. We also intend to increase the cash coming into the Company. You just heard from Jim. We received $11.7 million by selling land, and we received $21 million from Bristol-Myers for a patent license.

And we have in Interferon lambda one of the more desirable assets in the biotechnology industry. We believe that a partnership on Interferon lambda can bring in significant amounts of cash while retaining a significant share in the value of the asset. We've also other assets, as you heard, that are in partnership discussions. Our historic objective has been to have at least two years cash. We relaxed that objective prior to the launch of RECOTHROM but now our objective is to balance our revenues and our expenses to insure that we keep at least a two-year cushion of cash and cash equivalents, and we are very focused on this.

And now, before we turn to questions, I should just say that we are postponing the Analyst Day meeting which normally we have in December to the spring because we believe that at that point in time, we will be able to provide more meaningful content for investors and analysts.

And with that, we're ready to entertain questions.

(Operator Instructions). Han Li, Stanford Group Company.

Good morning, everyone. First, quick question for Doug on the Interleukin lambda. Can you give a sense, the Phase II study you're going to start in mid next year, what's the dosing on that study? Is it going to be fixed or what's the regiment, is it a Q1 week or Q2 week?

Han, it's likely to be weekly dosing based on what we have seen thus far. As you are aware from the slides that I showed, we have not yet completed our dose escalation, and so I'm not yet certain that we have identified the final dose or the most optimal dose for the molecule at this point in time.

If I had to look at it today, I would say the 1.5 microgram dose on a weekly basis would be the dose that we would move forward on.

The question of whether we move to flat dosing or whether we stick with per-kilogram dosing is a question that we haven't answered yet.

I think in Phase I, what we want to do is to establish a very clear relationship between exposure and efficacy and/or toxicity. And so we are approaching the Phase I study in a very straightforward manner to understand the drug first, and then we will make the decision on whether flat dosing is appropriate and acceptable for the drug once we know more about it. But you have to know your drug a little bit better before you simply pick a flat dose and go forward with it. And that's the way the Phase I has been designed.

Okay. On the safety front, have you monitored the immunogenicity of the Interleukin lambda?

We have. I don't believe we have that data available yet, but certainly with every recombinant protein that you take into the clinic, that is part and parcel of the safety assessment that you would do.

So will we hear an update on immunogenicity in upcoming quarters or --?

Yes, we will. I would suspect that the [Easel] meetings where we have the ribavirin data will be able to provide you more color on the immunogenicity results as well.

Okay. And those potential partnerships, are you -- I know you are in discussions, but let's say by upcoming mid '09, if there's no partner signed up, are you going to take the program along into Phase II?

We're planning for Phase II as if there is no partner. At the same time, we're having very active partnering discussions. So I think our goal would be not to slow this program down in any way, shape, or form given the competitive nature of the marketplace. If we achieve a partnership that has appropriate economics around it, then certainly we would find a way to transition those responsibilities in an orderly fashion, but our goal is not to allow this asset to slow down in anyway. So we are planning as if we are running the study right now.

One last question on RECOTHROM. You mentioned in the call that there is a discount program and that trying to give the hospital budget neutral. Can you elaborate on that? Is it like a case-by-case? Or this is more widespread?

I think it's widespread.

Assuming that they're matching the bovine thrombin price.

Well, everything tends to be a moving target. What we've said to the pharmacies is if you're concerned about your budget, then we can actually figure out a price so that we do not cause a hole in your budget.

Right. Thank you.

David Miller, Biotech Stock Research.

Good morning and thanks for taking my questions. Some of them have already been answered, but can you go through -- first on RECOTHROM, can you go through and refresh our memory on the trials of design for the Phase IIIb trial?

Yes. It was a head-to-head comparison with bovine thrombin in four different surgical populations. It was -- oh the IIIb, I'm sorry.

Yes, again, it was sort of a close approximation I guess of the Phase III study in terms of the patient populations we were looking at. These were patients that were having repeat surgeries and the reason we chose that population is because they had a high likelihood of having prior exposure to bovine thrombin as part of their treatment. So we were trying to enrich for a population of patients that had a higher likelihood of having a pre-existing antibovine thrombin antibody floating around in the circulation.

The question we were asking was whether or not it was then safe to administer RECOTHROM to those patients, because, as you recall, there is a specific warning in the King labeling for thrombin JMI that says don't reexpose patients who have got a pre-existing antibody to bovine thrombin.

So the study was really set up to ask the safety question of whether we could administer the Recombinant protein to patients who may already have an antibovine thrombin antibody and do that in a safe and efficacious manner. And that's the data that we'll report at the ASH meeting coming up in December.

Okay, but it's still head-to-head, correct?

No, in this case, this was all of the patients received RECOTHROM, but they were selected for the likelihood of having previously been exposed to bovine thrombin.

Right. And did you look for the bovine thrombin antibody in these patients?

Absolutely. So we know what their status was coming into the study and we know what happened after they were exposed to RECOTHROM.

Okay. And the Phase II trial that you described for interferon lambda, you talked about a mid 2009 start. Can you give us some idea of when the data from that trial would be expected?

I think it's likely that the data would -- I mean if you think about it, it's going to be about two years I think for that data to mature, assuming that there is no sort of interim look at the data at say an earlier time point.

So again, it's going to be a study that I think you can liken to the Albuferon study in terms of the Phase II study design there with perhaps a couple of doses of interferon lambda versus the standard of care. So I would describe it as a fairly straightforward Phase II study design in terms of its overall design as we envision it right now.

Okay. The financial, the cash through 2010 projection that you have, that assumes that you are running the Phase II trial by yourself and assumes no partnership dollars?

We haven't really given any -- this is Jim, by the way. We haven't given any specifics on that. And just clarify, the guidance was with a number of different actions that we expect to take that we would -- or we believe we could get to the point of two years of cash. That would include cost reductions and partnering transactions.

Okay. Great. Thank you very much.

Jeff Elliott, UBS Securities.

In previous quarters, you had given us an idea of how many P&T committee meetings you had scheduled going forward. Can you give us an update on that?

Yes, I think Mike can give you an update on that. The reason that we didn't this time is that what we find most meaningful is to tell you where we've got physicians so we give you a sense of that. Because when we've previously said, look, these have been scheduled, what we find is that they may be scheduled, but they may not take place, so they get bumped. But here's Mike.

Good morning. Thanks for the question. As Bruce said, we have had 177 meetings actually take place and decisions rendered and Bruce outlined the success rate we've had there. There are approximately 250 meetings still scheduled through October through December of this year.

Okay. In terms of how long it -- can you give us an idea on why it's taking so long to get those meetings? I know you've talked about this in the past. But if I look at run rate per quarter or per month, it looks like it's 25 meetings a month this last quarter, up a bit from maybe 15 to 20 the quarter before that.

If there are, I think you said before about 1,000 accounts or so will get you 80% of the sales, that would take three years based on (technical difficulty) to get through that. Is there a reason to think you can accelerate the pace of those meetings at all?

Yes, I believe that to be true. I think one of the most difficult things is while topical thrombins are incredibly important to ZymoGenetics with RECOTHROM, it's not nearly a high-profile product in many of these hospitals. But as Bruce said, most of these hospitals are facing extreme budgetary pressures on the escalating costs of their drugs inside any given institution in a given group. So they have a tendency to postpone decisions when they may be a bit more costly to them. So when we look back and looked at our declines or postponements, most of them had to do with this budget neutral sort of a concept.

So we've made this kind of I think very positive, proactive step with our initial pricing, and we're seeing some very good impact of it.

While we talked about the top 1200 accounts, one P&T meeting may impact four or five or six accounts. so when we talk about the remaining 250 P&T meetings, that may actually sweep in anywhere between 400 and 500 different hospitals that participate in a group.

Okay. Thanks for the color.

Kevin DeGeeter, Oppenheimer & Company.

Good morning. This is actually Chris Holterhoff in for Kevin. Just a quick question on interferon lambda as we look forward to future developments. Do you think you can file on the combo data that we have right now with ribavirin? Or do you think it's more likely that you might have to run an additional study with something like a protease inhibitor that might be approved at that time?

I think it's really a function of at what point in time the protease inhibitors are approved and what the regulatory climate is at that point in time. Obviously, we're watching what's taking place with the protease inhibitors. And it really will become an issue of timing. I certainly think that it's possible to set up a regulatory process under an SPA, for instance, that could gain new approval. Obviously, you would want to then follow that up with some additional studies in combination with whatever the lead protease inhibitor turns out to be.

I think everybody is sort of handicapping Schering Plough and Vertex as sort of the two lead dogs right now. I think the timing of their approvals is not crystal clear at this point, and it's certainly something we're watching.

But I think there's clearly regulatory paths to approval with lambda, and it will be a stepwise process I think for doing combination studies with whatever additional therapies emerge over the course of the next several years.

Great. Thanks for the added color. Maybe just a quick question for Jim. Your guidance of having cash through 2010, does that include a full drawdown from the Deerfield agreement?

When we look at our available cash resources, we do include that funding. That's not to say that we plan to take the full amount, but in terms of looking at our runway, we include that.

Okay, thanks. And then finally, you talked about looking at your operating expenses going forward. Can you talk maybe a little more specifically about timing as to when you might make a decision to further reduce your cost structure?

No, really, we'd rather sort of -- when we get to the point where we've decided what precisely we're doing, then you will hear from us as you did earlier this year.

Okay, great. I appreciate the questions. Thank you.

Jim Birchenough, Barclays Capital.

Just trying to understand the potential in the 111 centers where you've got a favorable decision. In aggregate, what would be the sales of thrombin products in those centers, just so we get a sense of where this would go if you're ultimately successful.

Do we have that data with us today? Okay. We have that data. Hang on.

Sure. This is Mike Dwyer again. This is based upon the 2007 sales information we have on these accounts. It looks like roughly in those 111 accounts, about $27 million.

And if you go to the -- if you look at the next group that you are targeting, the 250, any sense of -- are those bigger accounts or should we assume that the first accounts you got in front of were the bigger accounts?

I wish that were the case. It's kind of all over the board when we look at these accounts from a decile perspective. As far as early adopters to the slower adopters, they kind of run the gamut of just about everything.

The last 250 accounts basically or 250 P&T meetings that are scheduled, looks like they have a value of -- giving me one second here, about $65 million or so.

Okay, great. And just a question on interferon lambda. It just strikes me that you've got viral loads going down dramatically, but you've got some liver enzyme elevation. So I'm just trying to understand what's behind the liver enzyme elevations. I would have thought with increasing viral loads we wouldn't have seen a spike in liver enzymes. Is there a direct effect of the drug on the liver? Is there greater liver targeting that's explaining both the ALT rises and the greater efficacy?

I think that certainly there is high levels of receptor for this molecule on hepatocytes, and so there's clearly a direct effect on hepatocytes.

I also would say that what we are seeing as far as elevation of liver enzymes is not unusual with interferons in general. It's certainly seen with interferon alpha. I think it's also safe to say that likely when we combine with ribavirin, we will see less in the way of changes in liver enzymes. Again, that's what's been seen with interferon alpha.

So we're not concerned by the changes in liver enzymes. They are transient. They didn't lead to any discontinuations of any of our patients. So again, it's something we expected to see. It's something we've seen. It's something we will continue to monitor, but I would say it's an expected result.

And just finally, in terms of as you're looking at operating expenses going forward if you have to rationalize, can you rank order the programs where you put the greatest priority? And just wondering if interferon lambda is sort of jumping ahead of IL-21 or how should we think about that?

I think clearly in terms of our view of the world, that interferon lambda has sort of risen in status and priority within the organization. We certainly feel that way internally and I think based on the reaction to our data, and the partnering activities we have underway, I think that's been confirmed by outside forces as well. So it's clearly our lead asset in clinical development at this moment in time.

That said, we still think that interleukin 21 based on the data I shared with you has potential in renal cell cancer. And we think that in the appropriate hands, developing that for Phase III could unlock a lot of value in that molecule as well.

So lambda is our top priority, but I think that 21 still has a lot of potential. And clearly despite the market reaction to the atacicept news last week or the week before, I think we're still very bullish on the prospects of that molecule in a broad cross-section of autoimmune diseases. So we think there's a lot of opportunity in the pipeline, but clearly lambda is at the top of the heap.

Great. Thanks for taking the questions.

Paul Li, Brown Advisory.

Actually my question has been answered.

(Operator Instructions). Marshall Urist, Morgan Stanley.

First question on interferon lambda. I was just curious about why the next step would just be in I believe you said treatment naive patients. You know, it seems like relapsers would be an interesting way to go too. Is that just the assumption of marshaling your capital or how are you guys thinking about that?

No, I really have just highlighted the one sort of straightforward Phase II study that is the most fleshed out at this point. We're also in the planning stages for potential studies in genotype 2/3 patients I other what I would call special populations, including treatment failure patients, possibly patients in the peri-transplant arena. So there's a number of ideas that we're considering as far as other courses of development. But what I laid out for you is what I'd characterized as the most trade forward Phase II study focused on the naive population.

Okay, and then given the new strategy around pricing, are you guys prepared to take that forward regardless of what your competitor does? So if they continue to discount, are you prepared to continue to match the formulary budget all the way down?

We have to be very careful. What we actually said was that we would actually be price neutral to their budgets. We do believe that we have a superior product. We do believe that we can command premium. And we do not intend to just chase them down.

So then the strategy here is basically to convert -- to see if you can use this to convert formularies solely to RECOTHROM and then you can control pricing again.

Correct.

Okay, got you. All right, thanks, guys.

There are no further questions at this time. I would like to turn the call back over to management for closing comments.

That ends our call. If you have questions, please contact Mike Fitzpatrick or myself. Thank you.

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