Exelixis Inc (EXEL) 2002 Q4 法說會逐字稿

Good afternoon. My name is Renita and I will be your conference facilitator today. At this time, I would like to welcome everyone to the fourth quarter and year-end 2002 results. All lines have by placed on mute to prevent any background noise. Aft speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad. If you would like to withdraw your question, press the pound key.

Thank you. I will now turn the call over to Ms. Jane Green, Vice President of Corporate Communications. Ma'am, you may begin your conference.

Hello, everyone, and thanks for joining the Exelixis management team on our fourth quarter and year-end 2002 financial results conference call. Participating in this call are George Scangos, Glen Sato, and Jeff Duyk. Following this introduction, George will provide a brief perspective on the quarter and our performance for the year, Glen will review the company's financial performance for the quarter and provide guidance for 2003, and then George will provide additional commentary. Then we'll open up the call for questions.

Please be advised that the following discussion contains certain statements that are forward-looking including, without limitation, answers to questions at the end of formal remarks. These are only predictions and based upon our current expectations. Our actual results and the timing of events could differ materially from those anticipated in our forward-looking statements as a result of many factors. These include our ability to enter into new collaborations, continue existing collaborations, and receive milestones and royalties derived from future products, developed from research efforts under collaborative agreements, the rate of growth, if any, (inaudible) and contract revenues, timing and level of expenses associated with the growth of proprietary programs, the ability successfully to identify and develop compounds against proprietary targets, the amount and timing of investments in manufacturing and clinical development with our (inaudible) analog, currently in phase two clinical studies, and the timing of the filing for and investment in a proprietary small molecule IND. These and other risk factors are discussed in our quarterly report on Form 10-Q and elsewhere in Exelixis' annual report on Form 10-K for the year ended December 31, 2001 and other SEC reports. We expressly disclaim any obligation to release publicly any revision to any forward-looking statements contained herein or any change in events, conditions or circumstances on which any such statements are based.

Now I'll turn the call over to George Scangos.

Before we get into the numbers, just let me thank everybody for calling in, and I'll just make a brief comment before we move on.

I don't have to tell anybody that 2002 probably was one of the most challenging years in the history of biotech. Financing was difficult, corporate partnerships were harder to establish, drug discovery isn't getting any cheaper. I think everybody, management teams, boards, invest investors all are demanding more, and at the same time are more concerned than ever about cash management. So those are the general challenges that Exelixis and all companies are facing right now. I'm not complaining about those. That's the way the world is and, in fact, there are some positive aspects to an environment like that because it enables strong companies that actually execute to distinguish themselves. I think 2002 was a great year for Exelixis, and it was a year in which I believe that we did distinguish our self. We made some significant progress in our clinical, preclinical drug discovery programs, strengthened our agriculture business, signed three important collaborations, and as Glen will tell new a few minutes, we did all that and at the same time depleted our bank account by less than $6 million.

So the establishment of our collaboration with GFK clearly was a major highlight of the year. Collaboration boosted our financial position, which certainly will allow us to be more aggressive as we move our projects forward this collaboration also validated our strategy to build an integrated capability to move projects from target through phase two and was a demonstration of the quality of the programs that we've established. We've been extremely fortunate in our corporate partnerships and we're confident that our relationship with GFK will prove to be as productive and as collaborative as our relationship with BMS. BMS has been and continues to be a great partner and our work together is contributing significantly to our pipeline and hopefully to theirs as well.

Today we have an emerge progress (ph) duct pipeline and a strategy for building and sustaining the company that will enable us, we believe, to manage the risks, take advantage of the opportunities and rewards in this difficult environment. We're in a strong position as we enter 2003, and I want to take the opportunity now to give credit to for that to all of the employees of Exelixis whose extraordinary efforts in 2002 made all of this possible. We certainly face additional challenges now as we move forward into 2003, and we've set ambitious goals for ourselves.

However, sincerely as in the past, I believe we have the right mix of assets, strategies, talent and attitude to deliver another great year. And fortunately as Glen can now describe for you, we're also in a strong financial position to get the job done – Glen.

Thanks, George. I'll follow up on George's comments with an overview of our financial performance for 2002, provide details of the quarter and the year, and end with our outlook for 2003, including guidance for the first quarter of the year.

Last year as we said was a year of strong performance. Our better than expected results reflect not only the solid advances of the company but also in the area of financial management. The guidance we provided at the beginning of 2002 with respect to revenue, cash burn and year-end cash balances was predicated on completing some corporate aligns. We exceeded our expectations with respect to cash burn and cash balances largely due to two factors, the collaboration we established with GSQ in the fourth quarter. With careful planning, we were able to continue to invest aggressively in advancing our development programs including ensuring manufacturing (inaudible), performing IND enabling studies for our IND candidate, XL 784 as well as advancing our earlier stage programs to meet our development goals and partner obligations.

In addition, we initiated a restructuring in the fourth quarter to position ourselves for 2003 and beyond. There is no question that it takes a tremendous amount of resources to support the broad range of activities in which we are engaged, but we believe that depth and breath are critical to our ability to build a well stocked pipeline and sustainable business over the long term. We will continue to focus on advancing our pipeline and monetizing our assets to meet our internal development goals as well as to fulfill our partner obligations.

Let me now review the specifics of our quarterly and annual performance. As in the past, we are reporting results both including and excluding non-cash charges, discontinued operations and the restructuring charge. As a reminder, references to non-cash charges include stock compensation expense, amortization of goodwill and intangibles, and process R&D and impairment of goodwill. For the fourth quarter, we reported a pro forma net loss of approximately $19.5 million, or 34 cents per share, exclude ago restructuring charge of $708,000 and $317,000 of non-cash charges. This compares to a pro forma net loss of approximately $12.7 million, or 26 cents per share in the fourth quarter of 2001. Including non-cash charges and the restructuring charge under GAAP, we reported a net loss of $20.8 million or 36 cents per share for the fourth quarter of 2002 compared to a net loss of $18.3 million or 38 cents per share in the fourth quarter 2001.

For the year ended December 31, 2002, we reported a pro forma net loss of approximately $81 million or $1.43 per share excluding discontinued operations, the restructuring charge and non-cash charges for the year ended December 31, 2001, the comparable pro forma net loss way approximately $49.4 million, or $1.06 per share. Under GAAP, the restructuring charge and non-cash charges we reported a net loss of $86.1 million or $1.52 per share for 2002, compared to a net loss of $71.2 million or $1.53 per share in 2001. Our cash burn for the year was $39.3 million. At December 31, 2002, cash, restricted cash, cash equivalents and short-term investments totaled approximately $222 million compared to $227.7 million at December 31, 2001. Four the quarter ended December 31, 2002, total revenues were approximately $12.5 million compared to $12.8 million for the same period of 2001. This slight decrease in revenues from 2001 levels was driven primarily by the absence of revenue from our Pharmacia relationship due to the February 2002 conclusion of that collaboration. This decrease was largely offset by revenue from new collaborations with GlaxoSmithKline and from increasing compound deliveries under three of our chemistry collaborations, specifically those with Cytokinetics, Scios and Schering-Plough.

Total revenues were approximately $44.3 million compared to $41 million for 2001. The increase from 2001 levels was predominantly due to our revenues under our collaborations with GFK, Bristol-Myers Squibb and Protein Design Labs as well as chemistry collaborations with Cytokinetics, Scios, Elan. Research and development expenses for the fourth quarter of 2002 were $27.5 million excluding stock compensation expense of $200,000. This compared to $21.8 million excluding stock compensation expense of $1.1 million for the corresponding period of period of 2001. R&D expenses for 2002 totaled approximately $110.5 million, excluding stock compensation expense of $1.6 million compared to $77.7 million excluding stock compensation expense of $5 million for 2001. The increase in both the quarter and full year was driven primarily by personnel costs and supporting new collaborative arrangements and our internal proprietary research efforts, license expenses.

Preclinical outsourcing costs for both molecules and other work necessary to prepare for IND filings for these and our other compounds. On the G&A front, expenses for the fourth quarter of 2002 totaled approximately $4.9 million excluding a reversal of stock (inaudible) expense of $50,000 due to our lower stock price. This compares to $4.1 million excluding stock compensation expense of $400,000 for the fourth quarter of 2001. G&A expenses for 2002 totaled approximately 17.9 million, excluding stock compensation expense of $900,000, compared to $16.8 million excluding stock compensation expense of $2.4 million for 2001. The increase in both periods was driven by costs associated with additional personnel and facilities to support expansion in our R&D operation.

As we previously discuss in our third quarter conference call, during the fourth quarter, we implemented a restructuring plan that resulted in a reduction in force of 8% of our North American operations. We record a restructuring charge of $708,000, comprised mainly of involuntary termination benefits. The purpose of the restructuring was to position ourselves for 2003, and we believe the restructuring was accomplished smooth lay and consistent with the goal of focusing resources on our existing development programs. Again, as we discussed in last quarter's conference call, we anticipate splitting off the cologne-based pharmaceuticals business in the first quarter of 2003, or shortly thereafter. We are making progress in seeking independent funding for this enterprise and are hopeful of consummating the transaction shortly.

Let me now give some guidance for 2003. We anticipate that we will experience an increase in projected cash burn over 2002 consistent with our evolution as a drug discovery company and progress towards bringing compounds into clinical development. Expenses will be principally driven by investment and expanding our drug discovery operation as well as scaling up clinical development programs including completion of manufacturing and initiation of our next development steps for the Rebeccamysin analog (ph). Advancing XL 784 into phase one clinical trials and advancing our other development pipeline programs to fulfillment of our obligations to GFK and for our own benefit. Assuming the formation of one or two new collaborations during the year, continuation of existing collaboration and anticipated milestones from these corporate collaborations, we anticipate that revenues for the year will increase in the range of 30 to 40% above 2002 levels, and our operating expenses excluding non-cash charges will increase in the range of 18 to 25%.

For 2003, our anticipated cash burn is expected to be in the range of 80 to $84 million, including approximately 13 to $18 million in capital expenditures worldwide. We expect to end 2003 with cash balances in excess of $165 million, excluding any amounts drawn down under our existing loan facility with GFK. Stock compensation expense for the year is anticipated to total approximately $1 million. With respect to financial guidance for the first quarter of 2003, we expect our revenues to remain relatively flat as compared to the fourth quarter of 2002, and our operating expenses excluding non-cash charges to be increased by 12 to 19% from fourth quarter 2002 levels. The increase in operating expenses is due principally to the timing of certain clinical and development expenses that we did not incur in the fourth quarter of 2002, but will incur in early 2003.

Let me now turn the call back over to George.

OK. Thanks, Glen. Let's review in a little more detail what we did accomplish in 2002, and what we intend to do in 2003 to keep the momentum going.

For 2002, we accomplished all our major goals for the year. We signed three new corporate alliances, we advanced (inaudible), and we solved what were potential manufacturing problems. We advanced XL 784. We believe we'll meet our 2003 goal of filing that IND by the end of this quarter. We moved several interesting programs into IND-enabling studies, anticipation of future INDs and we met and more often than not exceeded the goals of our existing corporate partners. As has been described, we exceeded our financial goals in terms of cash and burn for the year.

Here's a bit more color on those achievements. In terms of corporate partnerships, at the beginning of the year, we established chemistry collaboration with Merck for the production of custom designed screening libraries. This was our fifth deal in two years and these are great deals for us because we get paid to create novel structures for our partners and offset the cost of expanding the depth and diversity of our own screening libraries which now total close to 3 million compounds.

Late in the year, we established a very interesting alliance with Renessen to use a proprietary plant technology that could identify so I and canola. Renessen is a joint venture between Monsanto and Cargil, leading processing and Distribution Company. So potential here is to participate commercially in high value products. We have, of course, talked a lot in past announcements about the terms and scope of the landmark relationship we established with GFK in October, and I won't review that in detail here. However there are a couple points. This collaboration will enable us to achieve more in terms of building up our infrastructure, I think produce more in terms of advancing promising compounds, and retain more of the value of our pipeline than we could have achieved on our own at this stage of our development. It's been our goal to advance our company to the stage where we can deliver a multiple phase two compound.

Ultimately, we want to have a pipeline of our own products that we'll bring to market, but the reality is you have to get there in stages. Phase 2A, the point will deliver compounds to GFK, is the sweet spot where the handoff to big pharma makes operational and financial sense right now. So we think this is a great deal for us and we're very happy to be working with a partner of the quality and capabilities of GFK. Based on our initial joint meetings, we're confident of a cooperative collaboration. During 2002, our relationships with BM S & P DL also made significant progress. Our cancer collaboration with BMS has proceeded extraordinarily well. As you know, we and BMS share the targets that are identified in this collaboration. Both companies, I believe, have been extremely pleased with the quantity and quality of targets that have been generated.

Importantly, we've worked together well to advance these targets for the benefit of both companies. We are pleased to be working with BMS in this field and they have been truly an excellent partner. As you know, PBL and Exelixis have a cooperation to develop antibodies against certain cancer targets, also moving forward. PDL has also been a good partner and we're optimistic that this will lead to antibodies in the clinic in the future. Any external communications about our joint projects from these companies will come from them when they're ready, so we can't comment right now on the status of specific research programs within their organization. 2002 was a great year for us in terms of our clinical programs because our pipeline really began to fill out.

Our most advanced clinical program is the Rebeccamysin analog, which we refer to internally as XL 119, and that's the cancer compound that we end licensed from BMS. And it has been the subject of a number of exploratory phase two trials in broad range of tumors carried out by the NCI. At the beginning of February, 1 of the NCI investigators presented encouraging preliminary safety and response data from the ongoing study in upper GI tumors at the ICACT meeting in Paris. He noted that in one cohort of 20 patients, the median follow-up was 12.5 months. There were two instances of partial response and seven instances of stable disease representing a 45% non-progression rate.

In a disease in which patients progress quickly and usually die within six months of diagnosis, these results are striking. The study is continuing and we anticipate that additional data will be presented later in 2003. 400 patients have been given the compound and the safety profile remains acceptable. Based on these results, we believe and the investigators believe that the compound deserves further development, especially as there's currently no therapy for these rapidly progressing tumors. We anticipate discussing developments with the FDA in the near term. Drug substance to be used in these trials has been manufactured by third party suppliers.

We expect that the supply of compound will be sufficient to start our planned clinical trials as well as any additional phase two trials that the NCI may decide to initiate. So the Rebeccamycin (ph) clinical plan is on track and we hope to be able to share more information about next steps with you in the next couple of months. Our IND for XL 784 is on track. It's the first small molecule compound developed from our own proprietary drug discovery platform. Target against which XL 784 was directed was discovered in our angiogenesis program and later developed in other human systems and cells. Compound has demonstrated antitumor activity as well as anti-(inaudible) activity and we're continuing to explore the potential of this compound.

We're currently completing regulatory toxicology studies and if the safety profile continues to look acceptable, we expect to file an IND late this quarter. Our clinical plans include initiating phase one first and man safety studies to be conducted in healthy volunteers while we consider to explore their (inaudible) at this therapeutic utility in cardiovascular disease. We also have multiple other programs.

We're really excited about this collection of compounds and their potential for the treatment of cancer as well as other prolivetive diseases. We know some of these molecules will continue to generate exciting data while others will not. That's why it's important to move several projects forward simultaneously. We're confident that interesting quality INDs will result. As we continue to gather data and have further discussions with GSK, we'll be able to more precisely time our next INDs, however, at this point it's safe to say we believe it's like likely this will occur within a six-month window toward the end of the year.

Clearly we have a lot on our plate for 2003, especially in clinical development. Our challenge so continue to advance multiple programs, and at the same time manage our burn. We believe we can do that and we intend to do that. In 2003, our goals are to advance the Rebeccamycin analog and for one additional compound. We intend to meet all of our partner obligations in pharma and ag and establish additional corporate partnerships. We also intend to meet our financial goals. So we're optimistic about the future, and I don't say that cavalierly. I don't think we're (inaudible). I think we know what it takes and we certainly know what environment we're operating in. These are not easy times.

Nevertheless, we are optimistic because we believe we have a company of very high quality that can withstand difficult times and challenge, make the appropriate decisions, execute and move our projects forward. We have a lot of interesting and diverse things going on inside Exelixis. The fact that we have a choice in what we pursue and the experience to decide which is best among those choices, what to vans and how to advance it is a real critical strength of ex-licks Exelixis. The risk-reward demands a balanced approach which we're taking. So we're realistic, we have great team, and we're optimistic about our ability to build on the successes of 2002 and achieve our goals for 2003.

With that, we'll open up the call for questions and thank you all for your attention.

At this time, please press star, then the number one on your telephone key keypad.

We'll pause for just a moment to compile the Q and A roster.

Your first question comes from Jeff Zekauskas of JP Morgan.

Good afternoon.

Hi, Jeff.

What's the drug or the target that you've got that follows XL 784 in the pipeline?

Those compounds are GFK-related, the next ones that follow that. We have a number of -- I think we said publicly receptor and kinase inhibitors moving forward. Some of them are specific RTK that we've identified. Others, we have deliberately made somewhat more promise queue us so they hit that compound as well as others. We have compounds that are targeting DNA-damaged kinases that are moving forward quite well as well. And all of those are in IND-enables studies and potential -- any one of them could be our potential next IND. Depends on the data that they generate.

The second question, as far as Rebeccamycin goes, is the size of the possible patient population the number of people with advanced bile duct cancer, or is that population limited by people that have normal liver function or good overall performance, and if it is limited, what's the size of the patient population for Rebeccamycin?

Let me give that question to Jeff Duyk, who's sitting here as well.

If we break it down, there are approximately 10,000 patients in the United States, probably a similar number in Europe, with biliary tract tumors. Certainly there's a fraction of patients at the time of presentation who have sufficiently advanced disease that they have compromised liver function and they're not eligible. There's some that present with primarily gallbladder cancel who are initially available for surgery, either direct resection or transplantation. Those patients who are directly resected in general, one assumes they will eventually come back and actually eventually probably be subject to chemotherapy because it's unclear whether you can actually completely surgically resect these tumors short of transplantation. So the majority of those patients who do not have primary gallbladder tumors in the first instance or present with very severe disease, that is distal to the gallbladder, that is probably 75% of the total who would be immediately eligible, who would meet the criteria for this particular antitumor agent. I hope that answers the question.

It does. Just sort of a final question, and this is to Glen Sato. Can you just tell me what the current short and long term debt is that you've got, and how much debt you expect to have at the end of 2003?

The current long-term debt is 55 million, Jeff. I think we'll probably just by virtue of the way the GSK relationship is set up do another drawdown which would be about $20 million next year. That's not in our plans to use those proceeds, but just the way the relationship is set up, it probably makes sense for us to pull that down sometime next year, so we'd add another 20 on top of that.

And the 20 is factored into your cash projection for the end of year 03?

It's explicitly excluded from our year-end cash projections here.

Thank you very much.

Your next question comes from Kuhn-Shen Tsai from Goldman Sachs.

Hi, guys. Couple questions, can you tell me more about what kind of partnerships you plan to set up this year, pharma, ag, what sort of categories? Another question is on manufacturing of your small molecules -- I was wondering if cow tell me more about that. And also on the number of INDs per year. I think previously you talked about two INDs a year, and I guess in 2003, you set that out to be the case. Does that continue Gulf Coast forward as well?

Yeah, I --first question was partnerships. Look, we're in a lot of discussions. Some of them are in pharma, some are in ag, some are from chemistry, some are for biology, some are for the whole deal. And as we go forward through the year on those discussions mature t will be much clearer which of them first of all are available to us, because as you know, they don't all go forward to fruition, and second of all which of them and what combination of them we think is in our advantage to put together.

So I really -- I'm not trying to dodge the question, but I think it's just too early in the year to speculate on the type of collaborations. Although we're confident about meeting the number of collaborations. The manufacturing of our compounds under GMP and at scale to do both regulatory preclinical studies and clinical studies is done by contract, and Rebeccamycin is now far enough along so that we have two separate contractors that have made it so it's no longer a question of getting it done, so we're very confident about the supply of Rebeccamycin. And 784 as well have been done, and it's in regulatory preclinical studies as we speak right now.

So those two have been done and have not presented any major issue for us. We don't anticipate that the others will as well. And then there was one more question that you had. Oh, the number of INDs. Yeah, I think we intend to get over two a year. And as we go forward and we build our capacity obviously in a prudent way that we would like to get more than that. The issue as you know with two a year is that you're playing statistical games, right, that have you a number of projects moving forward and you know historically what the odds are that each one of them will move into its next stage of development, so what you're really saying is that in an average year, you'll have two.

That means some years you'll have one, some years you'll have three, some years you'll have zero, some years you'll have four and you can draw the curve. So the more you can move forward, the less subject are you to random statistical variation like that, and also the better chance we have. So I think now that we've signed this GSK collaboration and we have additional revenues coming in, our intent is to expand and be able to generate more than two. That takes some time. Even if we were immediately able to expand, we would need some time to see the results of that. But as we go forward, we would like to increase that capacity.

Thank you.

Your next question comes from Michael Chippenhow of BioCentury (ph).

Hi, his is Michael. Just a quick question on the split of the clinical development work and cost on the programs besides Rebeccamycin. What is the intention of how you want to split the work? You said you want to leave it off at phase 2A. What cost is coming afterwards? Do you intend to move forward with the other programs the same split way?

If I understood your question right, our deliverables to GSK are compounds that have reached phase 2A, basically proof of concept. And so that is a defined point in which -- in the contract as which GSK will make a decision as to whether they're interested in these compounds or not. You know, if they are, they take them, we get a big milestone payment, we participate with additional milestones and nice royalties if those go forward. If they don't take them, we own them. For compounds that are outside of the GSK relationship, we have flexibility as to how far we take them. And obviously the further we take them, the more equity we can retain should they ultimately reach the market. And so I think how far we take each of those compounds that are outside of the GSK relationship, we will take on a case-by-case basis. It depends on the financial strength of the company at the time of Exelixis, on the magnitude of the clinical trials that we have to do to get to approval beyond phase 2A, and to some extent on how excited we are about the compounds and in the phase 2A data. So we will make that decision on a case by case.

What's clear is that we don't want to subject Exelixis to very large, you know, and expensive risky phase three trials, that we want to be much more prudent than that, and we think it's probably a better choice for us to find partners for some of our compounds who can take on some of that expense and some of that risk, thereby allowing us to move even more compounds into early stage and up through phase two so that we can generate a much larger portfolio of compounds. Does that make sense? Does that answer your question?

Right. Follow-up question would be how are the clinical costs supposed to be expected for Rebeccamycin going forward?

How is the clinical cost …

What further cost to do you expect, how many more trials?

Well, right now we have the phase two data. We are, you know, soon going to have discussions with the FDA and the future clinical development plan will be largely a result of our discussions with the FDA and that will determine the size of the trial, what the end points are, the type of trial , type of patients, so I think we'll be in a much better position to answer that question in a couple months than we are right now.

Thanks.

Your next question comes from Brett Holly (ph) of CIBC World Markets.

Hi. It's Matt Geller from CIBC. Couple of questions. On Rebeccamycin, can you talk a little bit about the timing of the release of the phase two data that you'll be having? And can you give a little more color on it in terms of, you know, what indications, what other indications we may see in the not too distant future for Rebeccamycin, how you're feeling about the compound in terms of the generality of applications, what kind of end points we might see and to what extent you think we'll get a feeling for how effective the compound is and what its potential is?

Yeah. First of all, there has been at least one abstract on Rebeccamycin submitted to AFCO (ph). I don't yet know what form that will be in, but there will be data at AFCO. And as time has gone on, we've gotten more excited by this compound. The fact that we are seeing responses and we are saving stable disease in this type of cancer truly is striking. The investigators who are doing this trial just don't see responses. And these patients have been treated at various centers around the country with other kinds of chemotherapy, with radiation. Nothing works. And the average survival time post diagnosis is six months, give or take.

So the fact that we have patients who've been on the drug for much longer than that, that there have been some responses, both we and the investigators doing the trial and the NCI seem to be very excited about this drug, and believe that it is actually doing something for the patients. Now -- and I think you will see during the course of this year data on a larger number of patients than was presented recently. And, you know, everything we know right now, those data will be consistent with what you've seen so far. In terms of the type of trial that we have to do, you know, this is the kind of indication for which you sometimes can get approval on the basis of a phase 2B study. Which obviously makes the trial much smaller and faster to do than a controlled phase three study. Whether or not that's actually true will be dependent on our discussions with the FDA, and we will have those discussions and until we do, and we won't be in a position to say. And the same is true about the end points. We just have to have those discussions.

So, you know, you and others would love to know the answers to those questions, so would we. They have -- they're important questions, and I just don't want to speculate, and, you know, what we certainly won't do is go ahead with the trial that is unlikely to lead to approval. That makes no sense at all. So we want to make sure that the trial we do, should we reach the end points, will get the drug approved. So we will have that discussion, and we'll …

Thanks a lot.

OK.

Your next question comes from David Witzke of Morgan Stanley.

Yes, thank you. And I hope my questions have not been answered. Had to step out for a minute. One question is, Glen or George, can you give us the distribution of internal versus collaborative R&D investment?

Yeah, I think maybe the best way to look at that is that of the projects we have, you know, moving towards the clinic, probably half are subject to a call by GSK and half are not. All those projects come in out of the BMS relationship are our own with no call, and anything obviously outside the field is our own. So that's about half and half right now. And as we go forward and we have more resources that can change, of course.

And the number of (inaudible) candidates you need with expected attrition to achieve two INDs per year, any input on that would be helpful.

Yeah, I think -- you know, in the industry standards, you know, maybe half the things you take into preclinical development make it to IND status. And, you know, half fall away for a reason, mostly tox at that stage. So, you know, just taking industry standards, you need four to get two. But that factor is influenced by a lot of things and certainly if you're working on known targets, known mechanisms which have compounds of certain classes that have already been through tox and your compound is one of those and you have a somewhat higher chance, you know, if you're working on something completely novel about which very little is known, have you somewhat lower chance, so those industry averages can be adjusted depending on the specifics of your own compound. But the rule of thumb is it would be half.

Looking forward to the 04-05 IND candidates, the type of targets you're moving forward, any color there? I know you've been working on some interesting enzymes involved in deficient crells (ph) and the crell cycle.

Let me turn that over to Jeff Duyk.

I think our predominant focus has been on enzymatic, kinases. The three most mature projects, two of them would be kinases, which would sort of be in the growth and proliferation area, and the other would be something that would have come out of a P53 light pathway, the damaged kinase type of thing. That's the current distribution and as you go into the pipeline, you see exactly what you asked, that is, growth proliferation, inflammation targets.

Very good. Thank you.

There are no further questions at this time. Do you have any closing remarks?

Let me thank everybody for your attention, and I'm looking forward to another good year. So thanks a lot.

Thank you for participating in today's conference call. You may now all disconnect.