施貴寶 (BMY) 2009 Q1 法說會逐字稿

Greetings and welcome to the ZymoGenetics first quarter 2009 financial results conference call. (Operator instructions) 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 afternoon, everyone. Welcome to ZymoGenetics first quarter 2009 conference call. Before we begin, I'd like 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 the Form 10-K, for more information.

And now I'll turn the call over to our CEO, Doug Williams.

Thanks, Susan. And thank you all for joining us on the call today. In addition to Susan, I'm joined by Steven Zaruby, President; Jim Johnson, CFO; and Nicole Onetto, our CMO.

I'd like to start today by giving you our perspectives regarding the restructuring that we announced last week in the context of our business priorities for the year. After that, Steven will provide an update on our RECOTHROM business activities. I'll provide a status report on the Interferon lambda and IL-21 development programs, and then Jim will wrap up with a review of our financial performance for the quarter. After that, we'll open it up for questions.

Since the beginning of the year, we've been focused on achieving three important strategic aims for ZymoGenetics. First is continuing to build on the RECOTHROM momentum from fourth quarter 2008 and achieving our sales guidance of between $25 million and $35 million for the year.

Second, working with our partner, Bristol-Myers Squibb to complete our Phase 1b Interferon lambda study in HCV. And to initiate Phase 2 testing by year end.

And finally, to reduce our cash consumption through a combination of cost savings and licensing transactions. We're making progress on all of these strategic initiatives.

Last Wednesday, we announced that we had implemented a corporate restructuring that included a reduction in our workforce by 161 employees or approximately one-third of our staff. It was a difficult decision, but one that we believe was necessary. With this restructuring, we'll be able to conserve the financial resources that we've built up over the past year and we believe avoid the need to raise additional capital to sustain our operations.

We expect that our annual operating expenses will be reduced by approximately $30 million per year. Furthermore, with some of our pipeline decisions, we expect that additional licensing transactions are possible in 2009 and 2010, which will generate additional value to ZymoGenetics.

The restructuring will not impact the level of effort or resources being devoted to RECOTHROM commercial activities. Nor to the Interferon lambda program with Bristol-Myers Squibb. What it will do is create greater focus in research and early development where we will discontinue our work on new oncology research programs. We will focus the remaining research efforts on selected immunology programs, which is the core strength of the Company.

We've also reduced internal development and manufacturing infrastructure, allowing us to substantially reduce our fixed costs. These actions are consistent with our partnering strategy where our goal is to seek collaborations designed to access a partner's late stage development and commercial expertise while maintaining rights for ZymoGenetics to participate in the commercialization upside in the US when it makes sense to do so.

Consistent with our strategy to focus on immunology, we also announced yesterday a pre-clinical pipeline deal with Seattle Life Sciences. In exchange for licensing rights to eight pre-clinical stage assets, we will be entitled to eventual milestones and royalties on product sales as well as an equity interest in SLS in connection with venture funding. The assets included in this transaction were not being actively pursued because they were outside of our area of focus.

Through transactions such as these, we can unlock value from our extensive patent estate without committing our own capital to do so.

I'll now ask Steven to update you on RECOTHROM activities for the quarter and beyond. Steven?

Thanks, Doug. Good afternoon, everyone. We have continued to make progress in the market with RECOTHROM and have recorded first quarter net sales of $4.5 million. In parallel, purchases by hospital accounts from wholesalers during the quarter were significantly greater than in the previous quarter and in line with our plan.

Net sales in the first quarter 2009 and fourth quarter 2008 were impacted by wholesaler stocking patterns. As we discussed in our fourth quarter call, we estimated that wholesales inventories at year-end were approximately $800,000 higher than what would normally be expected.

Wholesaler inventories came back in line during the first quarter and thus, our first quarter reported net sales were negatively impacted. Effectively, $800,000 of our first quarter hospital demand was shifted into our fourth quarter reported sales. If one were to adjust for wholesaler stocking in the fourth quarter, then our reported net sales would have increased from $3.9 million in Q4 2008 to $5.3 million in Q1 2009. This reflects a healthy 36% increase from quarter to quarter.

More importantly however, is an analysis of what is actually happening at the hospital level. We have a view of this activity using data provided to us by the major wholesalers about hospital purchases on a weekly basis. This information is not publicly available, but I can tell you that it shows that the volume of hospital purchases in the first quarter of 2009 increased by 45% over the volume purchased in the fourth quarter of 2008. This is a robust level of growth that was driven by increases in the number of hospitals ordering and increased size and frequency of orders placed by existing hospital accounts.

You will recall that on October 1st of last year, we instituted a new discounting structure through group purchasing organizations. No significant changes have been made since then and we believe that the current pricing structure is competitive or reflecting the advantages of our product. Our net pricing has trended down in Q1 as additional accounts have taken advantage of the new discount schedule.

Based on what we are seeing in the market so far this year, we remain confident in the annual sales guidance we provided in February of $25 million to $35 million net.

Since the beginning of January of this year, we have revisited every strategic and tactical element of the RECOTHROM brand. It has been my position that no aspect of the brand, including but not limited to personnel, positioning, pricing, or presentation, is beyond scrutiny or challenge. As a result, we have instituted several strategic and tactical changes within the brand with more expected to follow over the remainder of the year.

I believe that the result of these and many other initiatives will be an improved market presentation for human recombinant Thrombin, which has inherent advantages over competing products. I remain confident in the RECOTHROM brand's potential and look forward to its continued growth in the marketplace.

Taking a longer-term view, we have been reexamining the potential of various line extension opportunities as a way of broadening the RECOTHROM franchise. From an investment perspective, we have concluded that in certain cases, the time and expense required to conduct clinical trials and to complete a full line extension development program is not justified by the potential revenue opportunity.

In other cases, however, we are still evaluating options that show commercial promise. Beyond this, we also continue to identify and evaluate in licensing or acquisition candidates that could support our long-term strategy for the expansion of our surgical commercial franchise.

Thanks, Steven. Let me now turn your attention to activities in our development pipeline. And specifically our progress during the last quarter within Interferon lambda and IL-21.

Early in Q1, we announced a very significant partnership with Bristol-Myers Squibb to develop and commercialize Interferon lambda. We've received -- we've reviewed the structure and economics of the transaction in previous conference calls and I will not review all those details again, except to point out that we received the initial $105 million under the agreement in Q1 and anticipate receiving another $95 million of license fees associated with Phase 2 study initiation before year end.

Interferon lambda is the most differentiated Interferon under development. It is a unique protein distinct from Interferon alpha and all other Interferon molecules in development. It's signaled through a unique receptor complex on a more restricted set of cells than the ubiquitously expressed receptor for Interferon alpha. That creates the real possibility of a better-tolerated and safer Interferon that retains the potent antiviral and immune mediated mechanisms important for eradication of HCV.

This profile may also allow for easier use in combinations with the numerous direct antiviral drugs undergoing clinical testing. We see Interferon lambda becoming the Interferon of choice in combination regimens with STAT-Cs and certainly the current front-runners, such as Telaprevir are achieving the higher SVR rates because they are combined with ribavirin and a pegylated Interferon. We are not competing with the STAT-C drugs, but plan to become an integral part of the emerging combination strategy of multiple drugs to combat HCV.

We recently presented an update to our ongoing Phase 1b dose ranging study in relapsed HCV patients at the EASL meeting in Copenhagen. We have continued parallel enrollment of patients into both a single-agent and ribavirin containing combination cohort, and can conclude the following.

From an efficacy perspective, we continue to see impressive antiviral activity at all doses tested with a mean of at least three logs of viral load reduction at all weekly doses tested, with or without ribavirin.

At four weeks with the 3-microgram single-agent dose of Interferon lambda, half of the treated patients achieved undetectable levels of virus, which corresponds to a rapid viral response, or RVR, a significant predictor of achiever SVR status.

We are also exploring lower Interferon lambda doses, due to the anti-viral potency of this drug in order to define the entire dose range for Phase 2 dose selection and to maximize our therapeutic index.

In terms of safety, we have seen minimal constitutional symptoms at all doses, with no treatment related fevers. We've observed no decrease of neutrophil, platelet, or red cell levels with single agent Interferon lambda treatment and no apparent potentiation of ribavirin-induced anemia has been observed at the doses tested.

Reversible dose dependent elevations of AST, ALT, and bilirubin were observed in some patients as reported for other pegylated Interferons. The current protocol did not allow for dose modifications of Interferon lambda and like Pegasus, we anticipate that dose modifications will allow us to manage these patients through these transient and reversible changes in liver function tests. We're confident that the results from this study will provide the necessary information on the dose range and therapeutic window for Interferon lambda and support moving this agent into Phase 2 testing. We currently expect Phase 2 dosing to be initiated later this year.

Shifting now to IL-21. We have two data presentations coming up in the next few months. If you recall that IL-21 is a cytokine discovered at ZymoGenetics that activates specific effector cells of the immune system and is being tested as a treatment for renal cell carcinoma and melanoma.

We have presented data previously showing that IL-21 is tolerable for outpatient dosing and has antitumor activity in these two tumor types.

Oh May 13th, we will be presenting our interim data on single-agent IL-21 in metastatic melanoma patients at the 7th World Congress on Melanoma in Vienna. The recent disappointing news on Nexavar and melanoma highlights the ongoing need for effective treatments in this disease.

We believe the interim data on IL-21 confirms the tolerability of this agent at appropriate doses and provides encouraging activity data, which will need further confirmation in larger randomized studies. We expect to complete patient enrollment for the study by year-end.

We will also be presenting our final data on our Phase 2 combination study of Nexavar plus IL-21 in advanced renal cell carcinoma at ASCO on May 31st. This presentation will include final data on both response rate and progression free survival. We anticipate partnering this program late this year or early in 2010 and now have worldwide rights to this molecule after reacquiring ex-North American rights from Novo Nordisk late last year. We believe that the data from these two studies, our strong IP portfolio for IL-21, and the worldwide rights to this novel molecule will generate substantial interest.

With that, I'll turn it over to Jim for a review of our Q1 financial performance.

Thank you, Doug. Our net loss for the first quarter was in line with our expectations and substantially lower than first quarter of 2008. Improvement resulted from significantly higher revenues and reduced R&D expense. Revenues for the quarter increased to $24.8 million up from $13.5 million a year ago.

There were two major items responsible for the increase. Revenue recognized under our Interferon lambda collaboration with Bristol-Myers Squibb and higher RECOTHROM product sales.

As we discussed in last quarter's call, revenue under the Bristol-Myers Squibb agreement is determined using the percentage of completion method. Revenue is recognized proportionally based on the costs we incur each period, compared to our total expected costs. In the first quarter of 2009, our expenses under the agreement were $4.1 million and we recognized $8.9 million of related revenue.

We recorded net RECOTHROM product sales of $4.5 million for the quarter, compared to $1 million in the first quarter of 2008. As Steven indicated in his comments, this number was impacted significantly by the change in wholesaler inventories over the course of the quarter. By March 31, wholesaler inventories had declined to three to four weeks of trailing sales, which is what we consider to be a normal level.

Therefore, we don't expect second quarter sales to be materially impacted by wholesaler inventory changes. And our reported net sales should generally reflect the underlying demand from hospital accounts.

R&D expense decreased by 37% from the first quarter of 2008 to $24.7 million. This is a reflection of our continued efforts to reduce the Company's cost structure. The most significant factor driving this trend was the restructuring of our [tacky] sub collaboration of Merck Serono, which occurred in the third quarter of last year. Personnel costs also declined as a result of a reduction in head count that took place in February of 2008.

Selling, general, and administration expense for the quarter was maintained at roughly the same level as for Q1 2008, reflecting our continuing commitment to building RECOTHROM sales. We recorded $4 million of stock based compensation expense for the quarter. $2.4 million of that was reflected as R&D expense, and $1.6 million was included in SG&A.

We ended the quarter with $152.6 million of cash and investments. And we also have $75 million remaining under our Deerfield line of credit that is available to us between now and January 2010 and is not repayable until June 2013.

Considered together with the $95 million of milestone payments that we expect to receive from Bristol-Myers Squibb later this year, we believe that our financial position is strong.

We've improved the outlook further as a result of the corporate restructuring announced last week. For the remainder of 2009, we expect expense savings of about $2.5 million per month or $20 million in total. However, this will be offset by severance costs currently estimated at $8.5 million, all of which will hit in the second quarter. Therefore, the net effect on a quarterly basis will be increased expense of approximately $4 million in Q2 followed by an expense reduction of approximately $7.5 million per quarter in quarters three and four.

Approximately 80% to 85% of the reduction will be in research and development expense, and 15% to 20% in SG&A expense.

Over the longer-term, our annual expenses should be lower by at least $30 million per year, which will have a major beneficial impact on our future cash flows and profit and loss statements.

Since early 2008, we've taken several important steps to bring our costs down and improve our cash outlook. These include head count reductions, restructuring our [tacky] sub collaboration with Merck Serono, and entering into the Bristol-Myers Squibb transaction.

Taken together with the expected increasing trend in RECOTHROM sales, we expect to see continued improvement in the Company's bottom line.

So, with that, we're now ready to take your questions. Operator?

Thank you. (Operator instructions) Our first question is from the line of Edward Tenthoff with Piper Jaffray. Please go ahead.

Great. Thank you very much. I just had two quick questions. Firstly, Doug, just back from EASL, definitely pleased to see the great efficacy with Interferon lambda and that unique mechanism starting to bear out. I was intrigued by the liver abnormalities that we saw, and I know that you said that they were reversible. Can you tell us, was the bilirubin direct or indirect increases? And now when you go forward at those reduced levels, are you trying to find kind of that proper therapeutic window? Or do you think you could actually go forward at the 3-microgram per K dose?

It's an interesting question. I think with respect to the 3-microgram dose, obviously the efficacy was quite intriguing there with half of the patients essentially achieving an RVR. So, I think that in the context of being able to look at that dose and potentially be able to come up with a dose reduction mechanism, we're still considering that. So, we haven't abandoned that dose and I think that because of the study design we were unable to do what is sort of the traditional method of dealing with changes in liver enzymes, which is to dose reduce the patients. If you look at the Pegasus package insert, it's called out quite specifically in terms of how you do that. So, that's obviously something that we'll be exploring.

I think that examining the lower doses provides us with a lot of insight in terms of what doses we could reduce to, still maintaining a robust antiviral response. And so, I think all that you are seeing transpire in the Phase 1b study is really setting us up to be able to choose the appropriate doses. I won't rule out 3 micrograms at this point. And certainly to define the lower-end of that dose range where we begin to see the antiviral effects start to taper off.

So, the goal here is really to provide information on the therapeutic index of this drug across as broad a range as possible. And to be able to use that in designing the Phase 2 study, which ultimately will sort of define the final doses that we go forward with into the registrational studies.

Perfect. And a little bit more on IL -- on Interferon lambda. From the proof data we've seen, even though we may not fully understand the mechanism of ribavirin benefit in HCV patients, we have seen that if you take -- get rid of the ribavirin, you certainly take a hit on the potency with the Interferon. What can you tell us about ribavirin with Interferon lambda? Is it going to be necessary or do we have the potential maybe to spare ribavirin with this immunomodulatory approach?

It's an interesting question. I think at this point, I would agree with your characterization that at least in the prove study it seemed to suggest pretty clearly that pulling ribavirin out had a definite negative impact on achieving SCR, which obviously is something that you don't want to do.

I think at this point, the best that we can say with lambda is that you administer the two drugs safely, that there's no interaction from a PK perspective between the two drugs, which is a good thing. But I think it remains to be seen as to whether or not you can pull out ribavirin from the regimen as you being to add in maybe a second direct antiviral or a third direct antiviral. That -- those types of questions will undoubtedly be addressed later on in the development process.

But I think for now, we're pursuing what I characterize as a more traditional approach. And that is to retain ribavirin as part of the two-drug combinations that we'll move forward into Phase 2 with. So, since nobody quite knows how ribavirin works, there's some speculation that there is an immune component to it. I think it's an interesting, but as yet open question that is going to require some time and some additional study to resolve.

Great. And I will hop back in the queue. Thanks.

Thank you. Our next question is from the line of Marshall Urist with Morgan Stanley. Please go ahead.

Yes. Hey, guys. Good afternoon. Just to take these things in order, the first thing is just one the kind of plans going forward within the Interferon lambda agreement, could you take us just through, let's say the next 12 months in terms of what data we're going to see? The rest of Phase 1b and then also potentially how you guys are thinking about what we might hear once the Phase 2b gets started.

Yes, we're trying to wrap up the Phase 1B study. Obviously we're not going to be exploring doses forever here. I think we've got a pretty good handle on the range of doses that are -- that we're going to want to explore. So, you can expect to see the sort of final data sets coming out of that, including some data in naive patients that we expect to gather here over the next few months.

So, possibly at AASLV we'll have to determine whether or not we have enough incremental data to warrant an abstract there, but likely there. And then, as far as the initiation of the Phase 2 study, I think we'll be able to provide more information on the exact study design once we have passed through all of the regulatory discussions, and finalized the study, and begun dosing.

We'll have to coordinate those activities with our partner, obviously. But within the next 12 months, you can expect sort of the wrap up deal on the Phase 1b and the initiation of the Phase 2. And at that point, we'll have a lot more information on the actual study design elements.

Okay, great. And are you guys clear right now in terms of are going to be able to talk about sort of RVR data, EVR data from that study? Or is that something we're going to have to wait until the end of the study to get data? I'm talking about Phase 2b, sorry. Just to be clear.

Again, we'll give you more clarity about those issues at the time we actually present the final study design and begin initiating patient dosing.

Okay, got you. And then, switching over to RECOTHROM. Just wanted to get a sense in terms of what drove kind of the dynamics in the quarter. I know you guys aren't giving sort of P&T updates, which is understandable. But just can we sense of share at accounts that you guys had heading into the quarter versus kind of new account adds, and how that played out over the first quarter?

I think we've been trying to avoid, as you pointed out, getting down into the weeds with some of the metrics, which admittedly may or may not be really relevant to translating into hospital demand. I think what we've continued to see is an increase in P&T committee meetings. We've seen an increase in letter of commitment, which are a step in the process toward sales.

I think where we've begun to see more traction, and that's really a function of I think Steven's effort over the last few months with the sales team, is in converting those letter of commitment into actual ongoing sales in those accounts. And that's really been a major are of focus for us and is probably attributable in large part to that increase in actual hospital demand that Steven alluded to.

I think all of that translates to essentially a continuing level of comfort on our part for the guidance we put out for the year. We're still guiding towards the $25 million to $35 million number, but I think we're seeing better execution, if you will, in the individual hospital accounts that's leading to that increase in demand.

Okay. Got you. And then the last question. Would just be around your major competitor in this space, and how have they reacted to your new pricing hall of fame? Are you seeing sort of another round of discounting above -- after you guys initiated it in your pricing policy or have things been sort of stable on that front?

I think it's been fairly stable.

Okay, great. Thanks, guys.

Thank you. Your next question is from the line of Jeff Elliott with UBS. Please go ahead.

Great, thanks. I just have a question for you as far as strategic question I guess. You've gotten rid of -- or you're going -- in the process of getting rid of the oncology assets, you want to focus on immunology. You've got a lot of cash in the bank now and you've cut your firm. So, when I look at the Company now, it's RECOTHROM and then (inaudible) an immunology company. So, there seems to be an obvious disconnect between those sort of aspects of the Company. And then potentially a bit of a gap in a pipeline. So, would you consider in licensing or out licensing any of these assets to sort of create a cleaner story? Not for the story's sake, but as a Company?

I think in the short-run, our goal was to continue to focus on building the RECOTHROM business, to look for potentially additional products to get more efficiency out of that franchise.

Over the long-term, I think that we've acknowledged that yes we do have essentially two businesses within this business. It probably used to be three, if you include oncology, and we've narrowed that focus down to two in our belief. I think for the moment we plan to maintain that sort of two-pronged attack into the marketplace. And at this point don't have any intention of essentially splitting the Company in two.

I mean I guess -- maybe I'm reading too much into it, but I got the tone that in terms of the line extensions, you were sort of de-emphasizing that for RECOTHROM. And I know you talked in the past about bringing other products in. Is that something we should still look for?

It is something you should still look for. I think we'll be very smart about what, if anything, we bring in. And I think don't over interpret Steven's comments on the line extensions. I think all you should read into that is that we're -- we perform some additional commercial assessments on some of the presentations that we had considered. Some of those have fallen by the wayside because the path to actually get them approved and the likely market that would be available to us at that point didn't make sense for us to pursue that presentation.

But there are other potential line extension ideas that are still viable and may move forward. So, I think all we've done is reassess at least the front-runner, which at the time was the flowable presentation. We've decided not to pursue that for commercial reasons. We may revisit that, however, if and when the FDA decides to revisit their classification of gelatins, there may be a very rapid path to approval without clinical trials at that point.

So, we haven't closed the door on it, but I think our current assessment, given the current regulatory environment, is that that product didn't make sense in its current iteration.

So, there are other ideas. Some of those may move forward, but they will have to past muster from a commercial assessment perspective.

Okay. And in terms of the preclinical assets that went to Seattle Life Sciences, is that a -- I mean is that a start up company? Like it didn't -- it looks like it was created to take advantage of those assets. Are there former Zymo employees there? Is that part of the restructuring that happened? Or --?

There is an individual that's a former Zymo employee, who knows those compounds and had an interest in them. These are discussions that have been ongoing for a while. And these are assets that were essentially sitting on the shelf at ZymoGenetics.

We'd made the determination that we were not going to pursue them ourselves. And we think this is a great way of potentially unlocking some value in our IP estate and we're going to get milestones, and royalties, and an equity stake in this company. So, I think it's a great way for us to take what I characterize as non-performing assets and potentially creating the opportunity to generate some value there.

Great. And just one financial question. I might have missed this. Did you give any indication on the split between the accelerator of the (inaudible) and the upfront amortization from Bristol?

You're saying in the -- I'm sorry. Just understand your question. You mean the split in collaboration and license revenue?

Yes.

We did say that $8.9 million is related to the Bristol collaboration.

Okay, sorry. I must have missed that. I apologize.

Yes, and then the remainder is basically Merck Serono and also the Bayer collaboration. And there was also a milestone payment received this quarter from Novo Nordisk related to Interleukin 20.

Okay, great. Thanks.

Thank you. Our next question is from the line of Brian Abrahams with Oppenheimer. Please go ahead.

Hi, thanks very much for taking my question. I wanted you to drill down a little bit more on something that Steven had said earlier about pursuing strategic and tactical initiatives to try to improve RECOTHROM's market competitiveness. I was wondering if you could maybe give us a few more details about where your efforts will be focused going forward.

And also, I know you've talked in the past about educating physicians about making the link between coagulopathies that develop and looking for anti Thrombin antibodies. And I was just wondering what the receptivity among the physician has been to those efforts? Thanks.

We'd prefer not to get into too much detail for obvious reasons about some of the tactical initiatives that Steven currently has underway. I do think that one area that is important is, as you point out, this notion of helping to educate the marketplace to the ongoing nature of coagulopathies that develop and also how to be able to identify those. And that's certainly one part of our strategy for really defining one of the major differentiating characteristics of our drug versus Thrombin JMI.

So, those activities continue. And there are a number of other initiatives that are underway that we'd prefer not to talk about. But I think are all geared towards helping to generate additional traction in the marketplace for RECOTHROM, which we think is the best in class product and really deserves to be the product of choice in the hospitals today.

And is your sense that you're starting to -- are you starting to see increased recognition of the differentiation? Or do you think that that's something that you're really kind of in the process of laying the groundwork for and that will take more time?

I think it's an ongoing effort. I think it's something that we initiated sort of shortly after the launch. And we recognized right from the beginning that it was a process of education that was going to take some time. I think that we are beginning to make progress in that regard and that's going to require continuing efforts in order to really continue to bear fruit.

Okay. And then just a question on lambda. When you look at the dose ranging, I'm wondering, do you and Bristol have a particular goal in mind in terms of where you'd like to be on an RVR basis or on a viral load reduction basis in order to potentially take a dose forward?

So, I think we have a tremendous amount of flexibility, given what we're seeing. Obviously, to see half of the patients in the 3 microgram dose demonstrate an RVR was I won't say surprising, but I guess it was a little surprising, given the definition of our patients and given that by definition, those are patients who didn't achieve an SVR. Since RVR correlates very closely with SVR, the fact that we've actually seen that is quite encouraging.

But we also feel as though even at the lower doses that we are exploring now, to be seeing three logs at least of viral load reduction provides us with a lot of flexibility. If you look back at the little amount of data that's available in the form of publications in the public domain about Interferon alpha and a relapsed population of patients, it's more like a log of viral load reductions.

So, I think we're very encouraged by what we're seeing. We have a lot of flexibility we believe in terms of picking doses that provide us with an acceptable therapeutic index. And that's really the purpose behind the Phase 1b studies is really to sort of define how high we can go, and also to define sort of the break point where we begin to lose the antiviral effects at the lower doses. And I think the study is achieving those aims.

Great, and just one final question on lambda. I'm just wondering if you guys are planning to look at any more comprehensive tolerability scales to more clearly elicit some of the side effect advantages from a tolerability standpoint. Clearly you have some of the hematologic advantages that you've shown already.

Yes, that will be part of our planning for future studies.

Great. Thank you very much for the added information.

Thank you. Our next question is from the line of David Miller with Biotech Stock Research. Please go ahead.

Hey, good afternoon and thanks for taking my questions. The first question I have is in the financial moves and product line moves that you're making, can you give us some sense of how you believe this will affect kind of the productivity of your pipeline in terms of how many more drugs we're going to see new into the clinic over the coming say, 12 to 18 months?

Hi, David. This is Doug. I don't think it will have a major impact on the near-term flow of products into the clinic. I think what we're trying to do through these initiatives is really to reduce the overall level of cash consumption in the Company, to focus in on some of the key assets that are already in the clinic, and obviously that process is going on.

As I mentioned, we've not altered any of our staffing around RECOTHROM. We've not altered any of the staffing devoted to the lambda transaction. IL-21 is proceeding apace and we have a line-up of preclinical candidates that would move into the clinic on schedule over the course of the next couple of years.

What we're really doing is trying to narrow our overall level of focus and really bring our overall level of spend down from where it has been in the past. And so, we made this strategic decision to move out of oncology research, as one of our what had been three areas of focus. And to be more limiting in the areas that we are pursuing. So, we've really just reduced the overall scope of our activities. We still have pipeline candidates that could move into the clinic. We have assets that we've identified for future licensing activities, which will generate additional capital for us, but also help us to move these forward into later stage clinical testing as well.

All right. On RECOTHROM, can you give us some idea either by a projected date or kind of what you're thinking is about when RECOTHROM is going to be at a net cash flow positive level that's going to be meaningful for the overall operations of the Company? To help fund some of the other things that you have coming up that will hopefully be big sellers in the Company?

I think if you look at the current run rate, we could anticipate sometime in the latter part of next year that we'd begin to generate cash that could be applied for other aspects of the business.

Okay, perfect. Thank you very much.

Thanks. Our next question's from the line of Alex To with Cross Current Research. Please go ahead.

Hi, good afternoon. Since I was in and out on this call, if I ask questions that's already answered, just tell me and I'll listen to the replay. I just -- few very simple questions. On IL-21, what additional work do you need to do that you think it will get you to a licensing stage?

Well, the renal cell study is essentially complete. And we'll be presenting the final data at ASCO at the end of May. We think that that's an important piece of the puzzle.

But we also feel that completing the melanoma study, which we will have interim data on May 13th at the melanoma meetings in Vienna, we should have all of the patients accrued to the study by the end of the year. And we'll have sometime early next year, we'd have response rate and progression free survival data in that population.

Given that melanoma continues to be a very challenging area to have drugs that have demonstrable efficacy, we think there's still a real opportunity there. We're going to begin dialoging obviously with companies probably sometime during or after ASCO. And we believe that the combination of both Phase 2 studies, melanoma and renal cell, will form the basis of an interesting package for those discussions to take place.

So, that's why we've said the likely timing a partnership would be end of this year or early next year.

Okay. And then, accounting question for Jim. Since your collaboration in the licensing revenue line is going to -- possibly will fluctuate a little bit from quarter-to-quarter because of the timing of your recognition on the Bristol agreement. Could you walk us through the next three quarters on the quarter-to-quarter basis? What should we expect? Or is that too much detail?

Well, I don't think I can give you specific numerical guidance. But I can give you a sense of trend I think. If you go back to the guidance we gave for the year, we said that that line item would end up being somewhere in the range of $95 million to $105 million. So, at this point, we have no definitive reason to change that.

I think though that you're right. There will be some quarter-to-quarter fluctuation and I think that first of all, as you know, the lambda program will be gearing up to move into Phase 2 in the second half of the year. So, obviously as those costs increase, the amount of revenue that we recognize, related to that will increase as well. So, clearly that's back-end loaded for the year.

I think generally speaking, everything else is relatively constant. We will, I think, in October of this year, we'll stop recognizing revenue under the Merck Serono agreement. So, that would -- there would be a bit of a fall off in the fourth quarter there, but probably offset or at least largely offset by what's happening with lambda revenue.

There is one other aspect too that the timing of milestone payments that we receive from Bristol related to lambda will also affect the quarter-to-quarter variation a bit. And at this point, we don't have any reason to expect that to be the case, but it's another factor out there that just takes predicting the quarterly revenue numbers very, very difficult even for us.

So, you will have a milestone payment from Bristol initiation of Phase 2, am I correct? So --

There are actually two more milestone payments. One -- well, (inaudible) we will receive both of them by the time Phase 2 starts.

Okay, it's a (inaudible) of initiate your Phase 2 trial before end of the year you will get to make this (inaudible) 105 guidance.

Correct.

Okay, thank you.

Thank you. Our next question is a follow-up from the line of Ted Tenthoff. Please go ahead.

Great. Actually all the rest of my questions have been answered. Thanks.

We have no further questions in the queue at this time. I'd like to turn this back over to management for any closing comments.

Just like to thank everyone for participating in today's call and we'll look forward to providing you with additional information at our next quarterly call.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.