Celldex Therapeutics Inc (CLDX) 2005 Q4 法說會逐字稿

Good afternoon.

My name is Chanel, and I will be your conference operator today.

At this time, I would like to welcome everyone to the CuraGen Q4 and year-end 2005 financial results conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

[OPERATOR INSTRUCTIONS]

Mr. Schulman, you may begin your conference.

Thanks, Chanel.

Thank you, good evening, everyone.

Welcome to CuraGen Corporation's fourth quarter and year-end 2005 results conference call.

Participating on this call are Patrick Zenner, Interim Chief Executive Officer and chairman of CuraGen, Tim Shannon, Executive Vice President of Research and Development and Chief Medical Officer, Dave Wurzer, Executive Vice President and Chief Financial Officer, and Chris McLeod, President and Chief Executive Officer of 454 Life Sciences.

This conference call is being webcast over the internet and is available CuraGen's website at www.curagen.com.

This evening we will have a short presentation followed by a Q&A session.

Please note that certain remarks that we may make about future expectations, plans, and prospects for CuraGen and 454 Life Sciences during this call constitute forward-looking statements for the purposes of the Safe Harbor Provision under the Private Securities Litigation Reform Act of 1995.

Our actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those that are discussed on our quarterly report on form 10-Q filed with the SEC on November 4, 2005 and our other periodic SEC filings which are on file with the SEC.

Please refer to these filings for a description of those factors.

I would now like the turn the call over to Pat Zenner, CuraGen's Interim CEO and Chairman, who will provide a few comments on 2005 and the outlook for 2006, followed by a review of the 2005 results and 2006 guidance by Dave Wurzer, a few brief comments on the pipeline from Tim, and finally, an update on 454 Life Sciences from Chris McLeod.

Pat?

Thank you, Glenn, and good evening, everyone, we appreciate you joining us as we report our fourth quarter and year-end results for CuraGen and 454 Life Sciences.

I am pleased to be joined by the rest of the executive team, who will provide you with an update of the accomplishments made at both CuraGen and our majority-owned subsidiary, 454 Life Sciences.

It has been a great pleasure working with the senior management teams at CuraGen and 454 to further advance the company's goals, and I am delighted to report that we have achieved and even exceeded many of the goals we established for ourselves in 2005, and we look forward to building upon the momentum in the year to come.

In the past year we worked diligently and reduced our near-term convertible debt by nearly half from $130 million to approximately $66 million.

We managed our cash burn down to a level that we believe will help ensure and fund the development of our most promising assets, and believe we have the resources necessary to continue advancing this portfolio and generate additional value for the company.

Both CuraGen and 454 Life Sciences achieved significant milestones in 2005.

At CuraGen, we successfully focused our time and resources onto our most advanced the oncology assets, namely velafermin, PXD101 and CR011.

We completed our well-controlled Phase II trial on velafermin ahead of schedule with results which we believe support the notion that a single dose of velafermin can reduce the incidence of oral mucositis.

We expanded our PXD101 program and are currently evaluating this exciting HDAC inhibitor in multiple Phase I-B and Phase II trials.

And we made the necessary investments to bring CR011 into clinical trials in the coming months.

We also revised our agreement with Bayer for the development of BAY 76-7171 whereby Bayer will fund the development and commercialization of this product with CuraGen receiving tiered royalties on future product sales.

I am very excited about the prospects of CuraGen's oncology pipeline, as it continues to generate data over the next 18 months and our ability to focus resources to bring these products to the next level of value generation.

Our majority-owned subsidiary, 454 Life Sciences, also achieved success in 2005. 454 launched their next-generation sequencing technology, signed a five-year worldwide agreement with Roche for the promotion and distribution and sale of the 454 Life Sciences instrument systems and reagents, and achieved approximately $19 million in milestones under that agreement, and ended 2005 with a total of 20 instruments placed with researchers worldwide.

Before the turning of the call back over to Dave for a review of the 2005 financial results and guidance for 2006, I would like to comment on the search for our permanent CEO.

During the search process, we've met with a number of extremely qualified individuals interested in leading CuraGen, and we are now working closely with a small number of finalists in order to ensure that the appropriate person is brought on board in the near future.

With that, I would like the turn over the call to Dave Wurzer, our Executive Vice President and Chief Financial Officer.

Dave?

Thanks, Pat and good evening, everyone.

The fourth quarter and year-end 2005 financial results are detailed in today's press release.

For 2005, CuraGen's consolidated net loss was $73.2 million or $1.41 per share, compared to a net loss of $90.4 million or $1.81 per share in 2004.

Net operating cash burn for 2005 was approximately $61 million, excluding net cash of approximately $41 million used to repurchase some of our 2007 convertible debt.

Because we carefully managed our expenses during 2005, and as a result, strong revenues generated by 454, our net operating cash burn for 2005 of $61 million was below our previous cash burn guidance of $65 to $70 million.

CuraGen ended 2005 with $226.5 million in cash and investments.

In 2005, we opportunistically repurchased $63.8 million face value of our outstanding 2007 convertible debt, and as Pat mentioned, reduced our near term debt obligation by nearly half.

As a result, CuraGen currently has outstanding subordinated convertible debt of $66.2 million, due February 2007, and $110 million, due February 2011.

Consolidated revenues for 2005 were $23.5 million, which exceeded our guidance of $17 to $19 million, and this positive variance is related primarily to 454's sales performance in the fourth quarter of 2005.

It should be noted that the full year results we're reporting today include an immaterial adjustment to the previously reported third quarter revenues of 454 Life Sciences, totaling $546,000, which was related to the timing of milestone revenue recognition under the Roche agreement.

This adjustment, while not significant to CuraGen, could potentially be material to 454 Life Sciences on a stand-alone basis, and therefore this adjustment will result in the filing of an amended form 10-Q for Q3 2005 sometime in the next few weeks.

You will also note on our consolidated statement of operations that we recognized approximately $1.5 million in restructuring charges in the fourth quarter, related to write-offs for lease agreements on the space we previously occupied in New Haven, Connecticut.

This is part of our continued cost containment efforts.

Turning to guidance for 2006, CuraGen's consolidated net loss for 2006 is projected to range from $70 to $75 million.

We anticipate our R&D spending will be in the $65 to $75 million range, which is approximately the same level as we spent in 2005.

General and administrative expenses will increase over 2005 levels to approximately $23 million, with the increase primarily related to the supporting of growth at 454.

Cash burn for 2006 is anticipated to approximate $70 to $75 million, of which $7 to $15 million will be at 454 Life Sciences as they continue to invest in their next-generation sequencing technologies.

And with that, I would like to turn it over to Tim for an update on the pipeline.

Tim?

Thank you, Dave and good evening, everyone.

I will make just a few brief remarks on the progress made in 2005, as we will be having separate conference call on February 21 in order to review the Phase II results and velafermin, to discuss the clinical development fast forward for this model protein, and to provide an update on a pipeline of oncology and non-oncology therapeutics.

I am very pleased with the progress the CuraGen team made in 2005, as we achieved all the milestones we have put out in front of us, ending the year with two exciting oncology products in Phase II, velafermin and PXD101.

In December, we announced that we completed our Phase II randomized double-blind study of velafermin for the prevention of oral mucositis in patients receiving high-dose chemotherapy with or without radiation prior to bone marrow transplantation.

Analysis of the results suggested a single dose of velafermin at 0.03 mg/kg, the lowest dose evaluated in this trial, reduced the incidence of grade 3 or 4 oral mucositis to 18%, compared to a placebo incidence of 35%, or a 50% relative reduction.

However, the primary analysis of this study, which looks for a dose-responsive trend across doses, did not reach the statistical significance.

We are very encouraged by these results and believe they are consistent with the product profile we're trying to deliver to the market, namely a single dose of velafermin that substantially reduces mucositis in a relatively broad population of patients at risk of mucositis.

The data from this study are going to be presented in an oral presentation by Dr. Michael Schuster at the 2006 Bone Marrow Transplantations Tandem Meetings in Hawaii on Saturday February 18th.

As I mentioned earlier, we look forward to sharing our enthusiasm about this data and the opportunity it represents when we host a conference call on Tuesday, February 21 to review the Phase II results.

At that time, we will discuss the specific details regarding the next steps in the clinical development plan for velafermin.

With respect to PXD101, our HDAC inhibitor, we've expanded the program and are evaluating PXD101 in five proof-of-concept trials, including PXD101 as a single-agent treatment for multiple myeloma and T-cell lymphomas, and in combination regimens for ovarian and colorectal cancers, as well as with Velcade in multiple myeloma.

Preliminary results from our PXD101 program will be available beginning around the mid-part of it year and continuing into 2007.

Our third potential oncology product, CR011, is an antibody-drug conjugate that will be studied for as a treatment for metastatic melanoma and is being prepared to enter the clinic during the first half of this year.

This antibody-drug conjugate targets GPNMB, a protein expressed on the surface of melanoma cells.

During 2005, we reported an excellent preclinical result in animal models of melanoma, making us excited to evaluate CR011 in clinical trials beginning this year.

As part of our focus on oncology, throughout 2005 we took several steps to ensure the we have the necessary resources to advance our oncology portfolio forward.

In 2005, we completed Phase I for CR002, a fully-human monoclonal antibody for kidney inflammation that came from our collaboration with Abgenix.

The Phase I healthy male volunteer study demonstrated CR002 was well-tolerated at all doses evaluated with no serious adverse events reported.

Furthermore, CR002 exhibited linear pharmacokinetics across all dose levels, had a terminal half-life of approximately one month, and bound its intended target, PDGFD, for periods of time in excess of 21 days.

Given the safety and tolerability profile, the long half-life, and pharmacodynamic properties, we feel this is the variation antibody to evaluate further in studies as a potential treatment for kidney inflammation associated with diseases like diabetic necropathy and IgA nephropathy.

We are actively working to identify a partner with the necessary resources and expertise to bring this therapeutic forward.

We also announced in December that we revised the terms of our development agreement with Bayer for BAY 76-7171, formerly referred to as CT052, a small molecule for type II diabetes Going forward, Bayer will fund all future development and commercialization costs for this program, with CuraGen to receive tiered royalties on future product sales.

We remain excited about this compound, and the revised terms retain future upside for CuraGen without diverting resources away from the oncology products we are focused and whose development we control.

In summary, I am very pleased with our progress in 2005 as we continue to meet and exceed our stated goals and milestones.

On February 21, we will further discuss our excitement regarding the Phase II data on velafermin, by reviewing the data presented at the Bone Marrow Transplantation Tandem Meeting and provide details on the clinical program for velafermin.

I will now turn the call over to Chris McLeod, who will update you on 454 Life Sciences.

Chris?

Thank you, Tim.

I am pleased to be on here today to review the progress made by 454 Life Sciences in 2005 and our expectations for 2006.

Our mission at 454 Life Sciences is to transform the practice of life sciences by providing affordable and accessible sequencing-based solutions.

With the commercialization of our next-generation sequencing technology, we believe that we have taken the first steps towards realizing our goal.

In February 2005, we sold our first Genome Sequencer 20 System and over the course of the subsequent quarters, have sold instruments to both genome centers and non-genome centers, including the Broad Institute, Penn State, Washington University, and the Venter Institute.

Our sequencing technology has been peer reviewed and published in the journal Nature.

We were honored to be recognized by the Wall Street Journal in their second Global Technology Innovation Awards, when they awarded us gold medals as winner in the Biotech Medical category and the overall winner from over 700 entries in twelve categories.

In 2005, we also signed an exclusive five-year worldwide distribution, promotion, and sales agreement with Roche.

Over the months that followed, 454 was able to achieve not only the precommercialization milestones, but also the milestones necessary for the commercial launch of our products and reagents by Roche Applied Science.

Because of these accomplishments we, achieved $19 million in milestones, which are being recognized as revenue, ratably, over the life of the agreement beginning in October of last year.

We were flattered by the comment made by Volker Pfahlert, head of Roche Applied Science, when he stated that the Genome Sequencer 20 was one of Roche's most successful product launches.

And their sales efforts in the fourth quarter helped to double the number of instruments being used by customers, bringing the total 2005 installed base to 20 instrument systems.

We also take pride in the fact that we have had repeat sales to existing customers.

Recently, the NCBI adopted the 454 standard flow gram format, which enables researchers who are generating data on the Genome Sequencer 20 to submit their sequencing data directly into the NCBI trace archive. 454 is committed to working with the academic community, and we hope that the data generated with our system and placed into the public domain will help facilitate research into genomics and throughout the life sciences field.

With respect to 2005 results, sales of 454 Life Sciences technology exceeded our expectations and previously provided guidance.

In the fourth quarter of 2005, 454 recognized $7.3 million in revenue for instrument systems, proprietary reagents, fee for service sales, and royalties, and an additional $900,000 in grant revenue.

In 2005, our first year of commercial sales, we recorded a total of $18.7 million in revenues, which includes product sales, contract sequencing services, grant revenue, and a small portion of the milestones received in 2005.

For 2006, we expect to have continued growth at our measurement services center providing fee for service sequencing and the sale of instruments and reagents by Roche Applied Science.

We recently announced the hiring of Katherine Webster as Vice President of Measurement Services Center Sales, who has extensive management in sales experience to help us grow our fee for service sequencing business.

We anticipate strong revenue growth in 2006 across all components of our business, including sales of instruments, reagents and fee for service sequencing, and therefore are providing guidance for 2006 revenues to be in the range of $30 to $35 million.

We will continue to invest in developing our technology in specific applications of it.

Hence the guidance of $7 to $15 million cash burn.

With the milestones received under the Roche agreement we will have sufficient capital for that level of spending.

At 454 Life Sciences, we also look forward to introducing new applications in software for our Genome Sequencer 20 System.

By mid-year 2006, we expect to release an Ultra Deep Sequencing application, which will enable high-resolution sequencing of targeted genes with the capability of analyzing 200,000 or more unique DNA fragments during a single run on our PicoTiterPlate.

Ultra deep sequencing will allow for analysis of genetic variation within viral samples, such as HIV, or from a complex mixture of cells, such as from tumors.

Also around midyear, we plan to release enhanced features for our Whole Genome Sequencing applications, including support for paired-end reads, and software for the de novo assembly of genomes as large as one billion bases.

I am pleased with 454's ability to execute over the past year, which was made possible by the contributions of all of our employees.

In 2006, we believe we will continue to grow revenue,s both through fee for service sequencing at our Measurement Services Center, and through the sale of instrument systems and reagents by Roche.

We look forward to rolling out new enhancements to our technology, as well as new applications, and I look forward to providing updates throughout 2006 on the progress we make.

I now pass it back to Pat for some closing remarks.

Thanks, Chris.

In summary, CuraGen and 454 hit significant milestones in 2005.

As you've heard, CuraGen continues to focus and bring its oncology pipeline through development, including its two advanced clinical products, velafermin and PXD101.

We are also continuing to carefully manage our cash use to fund our most promising programs, and as Dave detailed, we proactively address the debt on our balance sheet in 2005.

We also feel that there is significant value in our portfolio of earlier-stage products and continue to evaluate ways to advance these earlier assets through development without diverting resources from our advanced programs in proof-of-concept studies. 454 Life Sciences made extraordinary progress and we are very optimistic about their potential to change the sequencing technology landscape.

I want to thank all of you for listening this evening, and we'll now open it for questions.

[OPERATOR INSTRUCTIONS]

Your first question is from the line of William Ho from Piper Jaffray.

Hi there, thanks for taking my call.

The first question is just in regards to your guidance for revenues and expenses, does that include any potential milestones paid out to TopoTarget, or receive future milestones from Roche, and what kind of milestones could we expect to see this year?

Do you want to handle that, please?

Yeah, at this point, while we have not broken out when we-- at what points we would receive additional milestones from Roche, I do want to point out that, because of the way we are handling the accounting for the milestones, it won't have significant impact on the revenue as it gets amortized over the full life of that contract.

And how about with TopoTarget?

Are you accounting for any potential payments or what's the next break point where you might have a payment?

What we have-- what's been given in the guidance, their numbers consistent with what we think we'll need to progress the PXD011 program through the next stage of the milestones that we've presented to you, so again the numbers are consistent with the work we need to do to deliver the clinical milestones behind the studies that you know of.

Okay.

And one other question just in regards to your overall business, and then, if you look at the two sides of the business, it looks like there is some kind of value compression especially if you look at kind of comps out there.

I am wondering what you are looking at to unlock that, or what your options?

Will, this is Dave Wurzer.

Certainly we're focused on the fact that we have really, two distinct businesses at this point in time, and we will look to do the right thing as it relates to, as you put it, unlocking the value of 454 within CuraGen, and we certainly have a number of alternatives that we can look to in terms of unlocking that value and we will continue to evaluate that, and the issues are ones of timing and as you'd point out, valuation, and comparable valuation, and importantly the progress that we're making at 454 and the continued quarterly progress, and we're very confident with that progress, and along with that progress then comes the opportunity for us to, as you put it, unlock the value.

So we're confident we'll be able to do that as we look forward.

It is a high priority, Will, that the board and the management of the company have in looking at those options at this juncture.

And one final question, I may have missed this.

Where are you with the CEO search?

We have a number of qualified candidates that, Will, that we have seen.

We are in the final stages of discussions with a few finalists at this point in time, and I can't give you any specific date on which we will reach a conclusion or decision, but we've got a very strong senior management team who continues to focus on delivering results and we hope to have a candidate finalized in the next-- near future.

Thank you.

Your next question is from the line of David Wood with America's Growth.

Alright, thanks for taking my call.

I guess I have a follow up to Will's question regarding the CEO search.

Can you give us a sense of what sort of qualities you're looking for in this person in terms of experience or what they--what you're looking for them to do once they sign on, and the second question I guess is for Chris.

If you could describe to us how -- I don't really understand how a pitch is made to someone who has say, a competing instrument say, an ABI sequencer.

How is-- what's the sales pitch to that customer to get them to switch to the 454/Roche's product?

Thanks.

Let me address the CEO profile.

We've been searching for an experienced pharmaceutical or biotechnology executive who has had broad-based operational experience, business development experience, and drug development experience, to work with a very confident senior management team, as you can see and hear all the time with the folks who are leading the discussions tonight and these functions, and as I said, we've interviewed a number of very competent individuals and are down to the finalists now and hope to make a decision in the not too distant future.

And, Dave, in terms of the pitch we make, it is a very simple pitch.

We feel that with the 454 system, we can significantly increase the throughput of a researcher's sequencing efforts and significantly reduce the cost of that effort.

We do that by the way we have miniaturized the sequencing of DNA, doing 200,000 simultaneous reactions on our proprietary PicoTiterPlate, and in a single five-hour run we will generate over 20 million bases.

Likewise, we eliminate a lot of the bottleneck experienced by large centers in the sample preparation.

No longer do they have to invest millions of dollars in extensive robotics and infrastructure to prepare the DNA for sequencing.

With our approach, it is a very simple one-person one-afternoon preparation, so we're selling speed, convenience, and cost.

Is there any concern among scientists who've been using say, an ABI instrument in one form or the other over the last several years, and then generating your instrument, is there any concern of consistency of data, in terms of using a legacy system for several years and then now using the 454 system?

None whatsoever, in that, when you look at the output ultimately the data is four bases.

Yeah.

So any data they have generated certainly can be integrated with our data and vice versa, so it's really a seamless transaction for them.

And one last question if I can, in terms of your experience so far, as well as your partner in talking to a potential customers, what's-- what are their biggest objections when you when they first learn about the technology?

Are there certain things in which you need more-- they need to be convinced of more than other areas?

Well, I think in terms of the early adopters were-- certainly the large genome centers and they were experienced with handling the large volumes of data our system can generate.

I think as we go and expand the market for sequencing into a lot of other academic research institutions, they're not necessarily equipped to handle the large volume of data that we'll generate, so we've invested a lot of effort this year in developing sophisticated bioinformatics to help them with the processing of the data and the analysis.

Okay, great, thank you.

Your next question is from Jason Stankowski with Clayton Capital.

Hi.

I had a question, mainly, I think, for Chris on the 454 side.

As I look at the guidance, the $30 to $35 million and you mention the $19 million of payments from last year being amortized over the life of the Roche contract, and I assume there is probably some for grant money coming in in '06, is it correct to assume that $3.5 to $4 million of that is amortization of the Roche milestone payment, and some factor of other grant payments?

If seems like your math is pretty good.

3 to 5 or something like that, and then my understanding of the agreement, then, is that Roche-- you're actually selling the product to Roche, so if, as some other people have mentioned on the call, people are looking to make comparisons and a lot in the industry has done on a revenue basis, and w Without going into exact gross margins, but a ballpark say 50%, does it really mean you are selling, then, say $30 million or $25 million of product to Roche and Roche is roughly reselling that for -- are they going to go out and initiate sales of roughly $60 or $70 million, is that your guesstimate or plan with them this year?

So, again, we don't control what Roche necessarily can sell at.

But as again, you used-- the gross margin numbers you used are reasonable, and if you do the math as you've done, that's what we are expecting.

Okay.

So they're ramped up and their sales force is in a position to go out and get that type of-- that level of business here in '06, or kind of hitting the ground running, then?

Absolutely.

As I tried to point out, you saw that in Q4 and it was one of the most successful launches they've ever had.

It is a global launch.

We've will already placed instruments in all three of the regions around the world.

So, we're very happy with the effort Roche is putting into the launch.

Okay, one more question, I guess, before I get out of the way.

When you say that they're hitting the ground running and everything, what is the typical or is there a typical sale cycle for this type of machine, is it a twelve month, is it something they started working on at the beginning of your agreement, or can these things sell rather quickly since they're kind of small and not relatively not too high dollar, I guess?

Well, with the instruments' average sales price about $500,000, it does take a little bit of lead time, but clearly we have a pipeline now that we've been building for over a year, and as I said, we've seamlessly integrated with Roche so there was no interruption with that sales process.

Okay.

So you actually had-- you were working on it, obviously, in parallel and they joined at the hip with you so you had a pipeline for them to really hit the ground running with?

That's right, and we've been trying to publicize the system's availability at all conferences and the trade shows for some time, so to the extent that some of that cycle is because people are submitting grants, we know that a lot of the grants have already been submitted, and we certainly are optimistic with our guidance.

Great, appreciate all you're doing and look forward to the Board addressing the unlocking of the value.

Thanks a lot.

Thank you.

Your next question is from Randy Laufman with Imperial Capital.

Hi, thanks for taking my question.

I was wondering if you guys could talk a little bit about the cash burn and the debt overhang coming up, and whether you expect that $65 to $75 million R&D, and also the $70 million or so of cash burn to be the levels going forward beyond 2006?

Sure.

This is Dave Wurzer.

First of all, to answer your last question first, we're not providing any guidance past 2006, so I won't be able to answer that.

As it relates to the debt that's due actually one year from today, February 2nd, 2007, we have stated in the past and we continue to believe that we would look to opportunistically buy back some of that debt before the maturity date.

However, we've not expressed any intent to do so and it would certainly be a function of the appropriate economics.

Assuming we do not buy back between now and 2007, we look to repay the remaining $66 million at that time.

Okay, but assuming the burn rates that was provided today, and then paying that off, it seems like that's going to not leave you with too much cash moving forward these clinical trials.

Are there plans to access more capital in the future?

Well, first of all, certainly would leave us with much more than a year's worth of cash at the end of 2006, and second, yes, we will continue to look for opportunities to bring additional capital in, but also to unlock the value that we have many our 454 asset.

Okay.

Thanks a lot.

Your next question is from John Sullivan with Leerink Swann.

Hey, guys, my questions have been mostly answered, but I was just wondering, can you talk about, in the 454 business, can you talk about the progress that you're making in extending the average read length for your DNA sequencing efforts?

Sure.

So, our average read length right now in the GS20 is approximately 100 bases.

We have shown how, in the development, we've been able to exceed 400 bases, but I think realistically, any new additional read length is going to wait for our next-generation sequencer and we haven't yet announced when that will be.

Have you heard read length as an objection among your current customers and-- or do you feel like it is adequate for the current generation instrument?

The read length has not been an issue with, certainly with our current customers, or I don't think it is any real type of problem with some of the applications we've released to date.

What we are looking for to is releasing additional applications in the future which could take advantage of that longer read length.

Thanks very much and last question, extending the franchise from the major genome centers to less frequent users, or less traditional users of sequencing, will perhaps require some significant software versatility.

Do you feel like you're standing good stead in that area?

I do.

We've added a lot of personnel in that area over the last year, some of the best in the industry, and we have Gene Meyers on our scientific advisory board, who helped with the software development at Solara when they did the initial human genome project.

We're putting a lot of effort there and we do think we'll make good progress this year.

As I indicated, by mid-year we should have some additional releases out with enhanced software.

Thanks very much.

Congrats on the progress.

Thanks.

Your next question is from Mark Monane with Needham & Company.

Afternoon, thanks for taking my call.

I have two questions.

One has to deal-- deals with the velafermin.

I understand the mechanism of action is presumed to be on FGF, and I know that FGF stimulates growth.

Any paradoxal effect or unintended effect on cancer cell growth when you give FGF in a cancer patient?

Hi, Mark, it's Tim.

Thanks for your question.

So again, we take a stepwise approach to this in development.

It is an important question and we have to deliver different models of data at different times, so this is certainly something we've evaluated extensively in cell lines, as well as animal models in the laboratory, and we have seen nothing that raises concern in terms of that theoretical possibility.

Obviously now, as we are in human development, that is something we will watch closely and will need to watch closely as the product moves through the development.

We took a careful look at palifermin's data, in regard to this, that they provided with the registration, and again there did not seem to be any deleterious consequences with palifermin.

But it's something we'll need to continue to develop data with, as the drug continues to move forward, again I think it is mostly a theoretical concern, and I think it is relatively minimal with our product, particularly given we're talking about a single dose of a growth factor.

I really don't think it should be a concern.

But [inaudible] will be on us to make sure it isn't.

That's a fair answer.

One more question, please.

On the HDAC inhibitors there has been a lot of attention in biotech towards this potential target with two companies recently signed an agreement.

Some companies, Tim, were developing pan-HDAC inhibitors,some were developing specific.

Can you outline for us a strategy for CuraGen and why you made the decision that you did?

So again, the PXD101, which is our Phase II HDAC inhibitor, is a pan-inhibitor, which means it inhibits both class 1 and class 2 HDACs.

To date, the HDACs that have shown activity in terms of tumor response, namely shrinking tumors, have been pan-inhibitors, so for that reason we feel that is a good place to be.

There is a second generation of HDACs evolving, we're also involved in that.

So this looks at specific HDAC inhibition, as you know, as part of our collaboration with TopoTarget, we have access to a library of 800 additional HDAC inhibitors and in fact, we're characterizing that library for specific HDAC inhibitors.

These are positions due to class 1 and class 2 inhibitors and really are different stories as to why those might be advantageous.

I would say the data is still early.

We know that inhibition of both class 1 and class 2 results in very broad changes, in terms of genetic changes, all of which can be beneficial in terms of tumors.

So we think we're in the right place now with the pan-inhibitor.

But again, the risk in strategy again, we do have access to an entire library of HDAC inhibitors, so that if the time comes that data supports the need for a specific inhibitor, we would have the ability to go that route.

Right now, I think that would be premature based on the data I know of.

That makes sense, Tim.

Thanks very much and congratulations on the progress.

Thank you.

There are no further questions at this time.

Are there any closing remarks?

Thank you, everyone on the lines for joining us this evening, and I want to thank our management team, Dave, Chris, and Tim for the recap of 2005 and for our outlook for 2006.

CuraGen continues to focus its resources and manage its cash burn in order to provide the resources to advance its oncology pipeline, including velafermin and PXD101, and 454 had a great first commercial year with 2005 revenues totaling nearly $19 million, and with their partner Roche we anticipate additional revenue growth in 2006.

So, thank you again and thanks for sharing your time with us this evening, and thanks for your questions.

Good night, everyone.

This concludes today's CuraGen Q4 and year-end and 2005 financial results conference call.

You may now disconnect.