Exelixis Inc (EXEL) 2003 Q2 法說會逐字稿

Good afternoon. My name is Adrian and I will be your conference facilitator today. At this time I would like to welcome everyone to the Exelixis second quarter 2003 financial results and outlook 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 period. Ms. Jane Green, you may begin your conference.

Good afternoon and Thank you for joining the Exelixis management team on our second quarter 2003 financial results conference call. Present during this call are George Scangos, President and CEO; Geoff Duyk, CSO and President of R&D and Christine Wall (ph) Senior Director of Finance and Interim CFO.

Following this introduction George will provide perspective on the quarter, Christine will review the company's financial performance for the quarter and provide guidance for the third quarter of 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 the formal remarks. These statements are only predictions that are based upon our current expectations.

Forward-looking statements involve risks and uncertainties. Our actual results in 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, develop from research efforts under collaborative agreements, the rate of growth if any, and licensing contract revenues, the timing and level of expenses associated with the growth of proprietary programs, the ability to successfully identify and develop compounds against proprietary cancer targets, the amount and timing of investments in manufacturing and clinical development of our rebeccamycin analogue, which is currently in Phase 2 clinical studies and the timing of the filing for and investment in our proprietary small molecule IND's. These and other risk factors are discussed under risk factors in our quarterly report on form 10-Q and other SEC reports.

We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto, or any change in events, conditions or circumstances on which any statements are based. Now I'll turn the call over to George Scangos.

Thanks, Jane. I'm happy to report that we have a successful second quarter. Our revenue was right in line with our expectations and we exceeded our goals with respect to managing our expenses. Importantly, all of our internal and collaborative research and development programs made significant progress during the quarter. Toward the end of the quarter we completed a follow on public offering raising about $75 million and significantly strengthening our balance sheet. With these additional funds we're continuing to build and advance a pipeline of interesting clinical compounds and we'll talk a little more about those later on in the call.

At the same time, we continue to fulfill our obligations under our existing collaborations and our partners are all happy with us and we continue to manage our spending, since the company is in very good financial shape and good shape technically, and I believe we're making significant progress towards achieving the goals we've laid out for ourselves this year and in subsequent years. So I'll talk more about detail about each of those later on. But now I'll turn the call over to Christine Wall who will review our financial performance for the quarter and update our guidance.

Thanks, George. I'll start with an overview of our financial performance for the second quarter of 2003, which, overall, exceeded our expectations and then update guidance.

As in the past, we are reporting results both on a GAAP and non-GAAP basis. Non-GAAP results exclude non-cash charges, discontinued operations and our second quarter 2003 gains from insurance settlements, references to non-cash charges include stock compensation expense and amortization of intangibles.

For the second quarter 2003, on a GAAP basis, we reported a net loss of $23.4 million, or 39 cents per share. This compares to a net loss of $23.9 million or 43 cents per share in the second quarter of 2002. For the second quarter 2003, we reported a non-GAAP net loss of $23.9 million or 40 cents per share. This compared to a non-GAAP net loss of approximately $22.1 million or 39 cents per share in the second quarter of 2002. At June 30th, 2003, cash, restricted cash, cash equivalents and short-term investments totaled approximately $238 million, compared to $222 million at December 31st, 2002. Note that the June 30th balance includes $66.4 million of net proceeds from our fall and public offering which we completed in June of this year.

Revenue for the quarter ended June 30th, 2003, was approximately $13 million compared to $9.9 million for the same period in 2002. The increase from 2002 to 2003 was driven primarily by revenue from our corporate collaboration with GlaxoSmithKline.

Research and Development expenses for the second quarter 2003 was $32.5 million, including stock compensation expense of $200,000, compared to $29.3 million, including stock compensation expense of $500,000 for the corresponding period of 2002. The increase in the quarter from the 2002 level was driven primarily by an increase in personnel and activities, relating to advancing our clinical and pre-clinical development program.

These activities included initiating the Phase 1 trial of XL 784. Advancing the new series of development candidates led by XL 647 and XL 999 into preclinical testing and advancing other preclinical programs in anticipation filing additional IND applications. Manufacturing of those compounds to support preclinical studies and expanding our development capabilities to support an expanding clinical pipeline.

General administrative expenses for the second quarter of 2003 -- totaled approximately $4.7 million including a net reversal of previously recorded stock compensation expense of $27,000. This compared to G&A expense of $4.9 million including a stock compensation expense of $300,000 for the second quarter of 2002.

Relative to our Cologne-based Artemis pharmaceuticals subsidiary we've made substantial progress towards completing the transaction and split out Artemis to form an independent company.

We are continuing to work on this transaction, and fully intend to get it done. We'll keep you informed as we make additional progress. With respect to financial expectations for the third quarter of 2003, compared to the second quarter, we expect the revenues will remain relatively flat, largely due to an increase in compound deliveries under our (inaudible) chem collaboration, offset by the impact of the conclusion of our PDL collaboration.

We expect our operating expenses, excluding non-cash charges, to increase by 5% or less as we continue to actively manage expenses while focusing our efforts on advancing preclinical and clinical programs.

With respect to guidance for the full year of 2003, with continued emphasis on cost containment, we're confident that we can meet our expense guidance for the year. With respect to cash burn for the year, we believe that our goal to establish one to two new collaborations in 2003 are achievable and should enable us to meet our cash burn guidance for the year.

The timing for completing any potential new collaboration and the recording of revenue rapidly from them will, however, impact our ability to meet our revenue targets for the year. We believe a target of 15% to 20% growth is reasonable.

To ensure that we're operating in a fiscally responsible manner we've been conducting a thorough review of all of our programs, functions and staffing with a goal of focusing investment on high-value activities that will advance our business objectives. We intend to operate as efficiently as possible, staff appropriately in all areas of the company, and continue to use our resources efficiently so that we can achieve our financial goals. We plan to maintain a high level of [inaudible] vigilance in all areas of the company. George will address this theme further in his remarks and now I'd like to turn the call back to him.

Thanks, Christine. So let's review what we have accomplished in the second quarter of 2003 in terms of progress towards our clinical, strategic, and financial goals and then our outlook for the second half of 2003. So in terms of XL119, the rebeccamycin analogue we continue to be encouraged by its potential as a treatment for bile duct tumors and are planning for the initiation of phase-3 trials, and this indication is on track.

As many of you know, early in the quarter, data were presented at (inaudible) phase-2 trial from thirty available patients with bile duct tumors, patients were treated with XL 119 showed encouraging results relative to overall survival and progression free survival. Data from the phase-2 trial in 36 patients with non-small cell lung cancer, also were presented and also showed encouraging results relative to survival as well.

We intend to develop XL119 as a substantial treatment for bile duct tumors. We're currently in the final stages of discussion with the FDA concerning design of the phase-3 trial. In July following a suggestion from the FDA, we submitted a special protocol assessment to the agency. We anticipate by the fall that the FDA and we will have an agreed-upon protocol for phase-3 trial and then following completion of that process we can undertake steps such as contracting the centers, getting RRB approvals and things of that nature to begin initiation of the trial.

The probability of the compound is of course still dependent upon our demonstrating statistically significant efficacy and appropriate safety. Based on the discussions thus far we believe the trial will likely include a survival-based end point, enroll a few hundred patients and will include a comparator arm. We will be in a better position to discuss the trial design when we complete the discussions with the FDA about the protocol.

One interesting, an encouragement development actually from AFCO was the interest expressed from other pharmaceutical companies and so collaborating on the development of XL119 the NCI as well continues to be extremely supportive of seeing this compound fully developed and has expressed interest in participating in the phase 3 program.

So we're pursuing these conversations to see if a collaborative strategy makes sense for the compound and for the company. We'd like to develop and register this compound as expeditiously as possible. If we can offset some of the development costs, retain significant value in the compound and ensure a sound development plan leading to registration, that would represent significant upside for the company, we could then reallocate some resources into advancing other compounds in our pipeline.

During the process of exploring these partnering options, at the same time, we are working with the FDA to reach agreement relative to initiating the phase 3 program.

XL784, you know in mid-June we initiated the phase 1 trial for 784. It's expected to enroll up to 72 healthy subjects and in a dose escalating study, intended to explore the safety pharmacokinetic and pharmacodynamic merits of the compound following oral administration. Trial is progressing and several cohorts of patients have been dosed. The trials should be completed this year.

Concurrent with the phase 1 trial we're exploring the therapeutic utility of the compound in areas outside of cancer, including renal and cardiovascular disease. The mechanism of action of the compound and experiments performed with various animal models suggest that the compound could have activity in preventing complications associated with hypertensive renal and heart disease. XL784 may therefore represent an interesting opportunity, which will be able to better quantify once we understand in more detail its safety profile and potential therapeutic utility. And we'll be in a better position to determine the next development thus following the Phase 1 completion probably around year-end or beginning of 2004. We're excited about the two compounds that could be the subject of our next IND. These are XL647 and XL999, both compounds are orally active or detained inhibitors and have demonstrated potent antitumor activity in multiple [inaudible] model Both compounds are in toxicology testing and assuming a favorable outcome both 647 and 999 will be our next IND.

Behind these two development candidates are several additional programs advancing rapidly towards preclinical development status. We're pleased with the productivity and the quality of this pipeline. We think it's really cranked into high gear now. We believe the drug engine is really being productive and we're on track to reach our goal of advancing multiple programs into clinical development. In terms of our strategic goals, you know, I think we've been creative in the past in structuring corporate alliances that have brought us cash, validation, assets and have strengthened our balance sheet, and we believe we'll continue to do interesting transactions. And that our goal of establishing one or two collaborations that bring an additional funding this year is realistic, feasible. We're currently engaged in several discussions that span discovery and development and represent different opportunities in licensing, out licensing, divestiture of assets, acquisition of assets, etc. A lot of different transactions and discussions at the moment.

From our point of view the partnering environment is changing. We've heard from a number of pharmaceutical companies that while the focus is still on products and not technology, that because of the pressures that they are under on their own P&L's they're interested in P&L structures and that often means deals that include equity or debt. And our criteria for structuring collaborations reflect what is of greatest value to us, no leveraging and strengthening our discovery development assets, getting full value from our deliverables and avoiding dilutive or burdensome of financial structures. So we're being careful to, as we select our next collaboration, to ensure they're in the best long-term interest of the company. And frankly one of the benefits of doing the offering that we did is that our cash position is shored up and it just strengthens our ability to be selective and negotiate from a position of strength.

We are firmly of the belief that fulfilling our obligations to our current partners is as important as establishing new collaborations. I can say that all of our current partners are pleased with our performance. We've recently met with our largest partners GSK, BMS and BIRS, all of whom are very happy with the progress with us. We've exceeded the goals with these relationships and ongoing discussions with these partners are friendly, collaborative and mutually supportive. We just announced the extension of our mechanism of action collaboration with Dow Agrosciences, which has a goal of developing safer and more safer herbicides and we're happy to have the opportunity to build on the productivity of that collaboration. So we're happy with the way things are going in all of our relationships and I firmly believe that our partners will say the same.

Now we've been building to excellent and critical mass getting to the point where we can generate and replenish the clinical pipeline and that's required a significant investment. And today we're beginning to see the pay-off of that investment. In June we completed $75 million follow-on and we were able to successfully complete that offering in part because we have a track record of being successful and meeting our goals. And we intend to maintain that record and build on it. And I think we're kind of at an inflection point for the company, where the true productivity will become evident from outside of the company. We believe that we should invest aggressively in our most valuable programs and to achieve our strategic goals. At the same time, we're committed to operating as efficiently as possible. As Christine mentioned we're finalizing a thorough review of our programs, staffing and expenses. We believe the strategies and the controls that we're implementing should enable us to maximize our productivity, focus resources on high value programs, enable the company to maintain an appropriate level of cash burn to support an expanding clinical pipeline and ensure a highly efficient operation for the next several years.

So in conclusion we believe that overall state of the company is strong and sound and that we're well on our way to building a sustainable pharmaceutical business. And let me mention two additional points about which we feel quite positive before we move to the Q&A session. One is we substantially strengthened our management team with the hiring of Steve James who is SVP of commercial operations. Steve joined us during the second quarter. He's off to a great start and is moving quickly to strengthen our business and corporate development capabilities. We've also made great progress in our search for a new CFO. We've seen some capable candidates. Some of them are actually here. Today we're very confident that we will bring in a first-rate financial executive. So we look forward to making that announcement as soon as the process is completed. So let me thank everyone for their attention and we'll be happy now to take any questions.

At this time I would like to remind everyone, in order to ask a question, please press "*" then the number 1 on your telephone keypad. Again, in order to ask a question, please press "*1" on your telephone keypad. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Eric Schmidt of SG Cowen.

Good afternoon. George or Christine, maybe you could just clarify the 2003 guidance for me. I thought you said you were going to meet your expense guidance and previous cash burn guidance but obviously you've had slightly lower revenues than before. Doesn't that mean that operating expenses have to be lower as well and is there a new level of operating expense? Excuse me, operating expenses have to be lower than before and I think before you were guiding to, from reserves 18% to 25% year-over-year growth?

Yeah. Yes, well, revenues are impacted by timing. So we're confident of establishing the new collaborations, bringing in additional revenues. But how much of that revenue we can recognize this year depends on when we sign them. But it doesn't of course impact the amount of cash that we'll be able to bring in, as long as we sign them this year.

So maybe George you could just remind us what the cash burn guidance is and what the operating expense guidance is?

We have not changed the cash burn guidance, nor the expense guidance for the year.

And the two are respectively what, just so that I have my records straight?

Expense is 18% to 25-% growth over 2002. Cash burn between $80 and $84 million.

Great. Thanks. And then George, could you also talk a little bit about what the right deal might be for rebeccamycin, what makes sense? I understand why you might consider a deal, if you can off-load some of the cost. But is your thinking changed on the size of this product? Is there now enough of a revenue stream to divide two ways? Is that why you're contemplating a partner, or are the deal terms that maybe you're being offered are so substantial that you think it makes economic sense to discuss such a deal now?

Yeah, look, I think the -- we're contemplating a partner for several reasons. One is that we're not only interested in developing this in North America, but also in Europe and Asia. Some of the partners have capabilities in those areas that we don't necessarily have one. I think that would be very attractive to find a partner for the Asian rights who would offset some of the costs and help us to move it forward. And frankly some of these discussions are early, since they all begin, not all, but most began subsequently to the ASCO meeting. So at this point we're kind of getting the lay of the land, seeing what the various options might be, and then we'll make a rational decision going forward. I think this is an interesting product. As time goes on, we get more confident that this compound actually does look like a drug and looks good. So that's apparent to some companies on the outside. I can't tell you anything more than that. I'm not trying to be cute. That's where we are, that's our thinking.

That's helpful. Thank you for taking my questions.

Next question comes from the line of David Witzke of Morgan Stanley.

Li here, David is traveling I'm filling in. We have a couple of questions regarding the rebeccamycin analogue. Could you provide some color on the special product discussion you had with FDA and this could be, the phase 2 trial, is it going to be a combo trial with another chemotherapy, and also you talk about collaboration discussions. Is it including in your guidance on one to two collaborations for the year?

Well, the second one is no. The answer to the second question.

So there's no combination trial.

No, in terms of counting this as one of our two collaborations.

Okay.

You know we have to be careful to disclose too much about an ongoing set of discussions with the FDA. And so I don't want to provide too much insight there. The special protocol is a formal procedure where we and the FDA will agree on a clinical development plan designed to gain registration for the compound. And that assuming that we do that trial and that the compound meets its end point, the expectation is that the drug will then be approved, because we'll have a trial and the FDA by engine trial design. So we're trying to go forward in that mode. That's what the special protocol assessment is. But other than that, I don't think it's appropriate at this point to provide details of that discussion.

Okay. But fast track is also part of the discussion, right?

I'm sorry?

Fast track.

It's part of the discussion. This will be, it's likely that we will do a comparative study with a controller. And this is not likely to be a phase 2 B study. And I said that much is true of us. I think that's true of many companies in discussion with the FDA right now. And it's partly because this drug will be used as primary therapy for these tumors. The drug is used as a secondary or tertiary online treatment. It's easier to get approval based on a phase 2 B study but primary therapy it is not.

I see. Thanks.

Your next question comes from the line of Greg Wade of Pacific Growth Equity.

Good Afternoon Gentleman Can you tell us what the deferred revenue was at the end of Q2 there, to start out with, please?

Hang on just a second. We'll get that out for you.

While you're looking for that, with respect to the rebeccamycin proposed study, which sounds like it will be about 300 patients, can you just help us to understand what the existing approved therapy is for primary bile duct tumors.

Yes There is no approved therapy.

So --- I'm at a loss to understand why the agency is asking you to do a controlled study. If you could also help us to provide a little more color, is this going to be an equivalent study or are you looking for superiority to some other experimental therapy that they're considering to be the standard?

Well, since there is no approved therapy, you can't do an equivalent study because you've got nothing to be equivalent to. And so one of the discussions, frankly centered around what should be the control arm of the trial, be. And since there are no approved therapy there are certain standard therapy precedents that substantial subpopulation of the patients are treated with and there are a couple of alternatives that the patients are commonly given although none of the oncologists we've spoken with say (inaudible) they don't do anything for the patients So I think it's kind of an act of desperation because doctors are trying any way they can to help these guys.

So they're looking for you to demonstrate then, superiority to an experimental therapy or a non-standard regimen?

Yeah, I think it's pretty clear what the natural progression of the disease is. These patients, median survival time post-diagnosis is in the range of four to six months. And we're going to -- I have to show some difference from that.

Greg, This is Geoff. Let me make it clear. It looks like our best judgment is we can't use historical controls. There has to be a comparative group and that comparative group will be treated with something. And that seems to be the direction that the discussions are going. As George said, we really can't disclose any more than that. And we really can't speak to the logic of it at all, just that it is what it is.

What's the rate limiting step then to getting the studies underway?

We have to finish the process with the FDA, bring this to conclusion, get agreement on the trial designs. Then we have to get RIB approval by identifying the centers and then we can start.

This is a formal government process. There's worse to be gained. You submit something there's so many days to reply, etc. etc. So there's a time line. It's like 30 days top. You can't go faster. So that's probably the gating item right now is clarity within our discussions with the FDA and I think we're confident we will have clarity.

Let me say that you don't have to get this kind of concurrence on this design in the trial. We can design a trial and as long as it's responsible and we're not putting patients in jeopardy we can go ahead and do it and then submit the data to the FDA. We also believe that's in the long-term interest of getting this drug approved. We want to make sure we do a trial that will generate data that are of a quality that will allow the agency to approve the drug, assuming that it meets its end points.

OK It sounds like you're making some good progress there with the agency, which is good news.

In response to your first question, deferred revenue at June 30th was $65 million.

I'll just finish up here with a couple of questions. On XL647 and 999, based upon their potential mechanism of action, would those clinical candidates be candidates for the GFK collaboration?

Yes, Greg, they would fall under the umbrella of GFK and they would have to make their choice following a proof of concept of Phase 2 trial.

Those are all my questions this afternoon.

Thanks.

Your next question comes from the line of Jeff Zekauskas of JP Morgan.

Hi, Good afternoon.

Hi, Jeff.

A couple of questions. In terms of the one or two deals that you hope to sign this year, are they both healthcare deals or might there be an Ag deal? And are the days of the large Ag deals done? Or over?

Well, let's take those one at a time. I think we're in a number of discussions now. Some of those are with pharma companies, some of those are with agricultural companies. You know, I don't think it's the one or two deals, it's the total number of deals we're going to sign. We're just projecting how many we think we're going to get signed this year. So some of the deals that we're currently in discussions with will get signed next year. And so I can't point at this time and say which of those are going to come to any fruition this year. I do not think the days of big Ag deals are over. I think there is opportunity to do additional big deals in that area. And you know I mean I'm sure the reason for your question is the Ag industry finds itself under financial pressures these days. But it's still a big business and companies are struggling with new approaches in the pesticides, especially, and they are very concerned about their competitive position. So I think there is an opportunity here to step [inaudible].

Just secondarily, what role might the NCI play in phase 3 rebeccamycin trials?

Any number of roles, actually. We're in discussion -- they actually have expressed an interest in doing the phase 3 trial and coordinating it and that -so that is one option that we are considering. They certainly would have been involved in the trial. They're very supportive of the drug and very enthusiastic. It could be anything from an advisory role to doing the trial, with our supervision.

I guess when you think of the speed of the trials being completed, or I guess do you think that various alternatives that you might choose would affect the speed of the trials being completed?

They could. And that's one of the things that we're trying to evaluate as we go through this. We want to get this drug approved as soon as possible. We want to make sure that the trial gets done properly. And we obviously want to maintain a big stake in the drug. That's why we brought it in, in the first place. So as we go through those, on the other hand we are cognizant about our cash burn. We have other programs entering the clinic, and for us it's a complicated set of decisions that we have to make. And we -- you can't make them in a vacuum. They're really a set of decisions you make really on the financial parameters of what's on table. We're just -- we're trying to sort through all of that. We're trying to be as candid as we can right now, in our thought process.

Okay. Thank you very much.

As a reminder, in order to ask a question, please press "*1" on your telephone keypad. Your next question comes from the line of Patrick Schnegelsberg (ph) of Mehta Partners (ph).

Thank you for taking my question. A question regarding the rebeccamycin trial. One thing that you mentioned if I understood that correctly that you could be using historical controls or not? To my recollection TBM you may be able to do that. But if you do so with this specific cancer, is this based on an existing database?

To be clear, we will not do the trial based on historical--

Okay.

So prolong during the arm trial.

Very important vigorous scientific issue here. There's been a progressive improvement for survival of this disease due to supportive care. The historical data can be misleading and we certainly looked at that ourselves and from a logic point of view it's important to have a comparative group in similar kinds of institutions at the same stage of disease. I don't think it would be scientifically reasonable to do this with a pure historical control for that reason.

Okay. Thank you.

Your next question comes from the line of Brett Holley of CIBC World Markets.

Hi everyone. I just had a couple questions on the earlier stage compounds, the 784 you're targeting the end of this year, first quarter of 2004 for the completion of that trial. When are we going to see data from that trial? Is there a follow-up time period to that trial?

Well, yeah, I mean that's a good question, because we have not said very much about that compound or target or anything. And that's been very deliberate. And you know I think when -- I think the reasonable approach for us to take is that we will talk about that trial and our plans for further development of the compound together with the target and everything in the first quarter of next year, we'll be prepared to do that.

So that's when we'll hear the data from that trial?

George Scangos Well, data from the phase 1 trial. So it will be kinetic and form of dynamic data and then we'll have the pharmacology data complete from the long-term renal and cardiovascular pharmacology studies that are ongoing right now and based on those data then we can explain the rationale for how we are going to develop the drug.

To be clear, these are the current phase one studies are typical growing stage phase 1 distinct those accelerating studies and you know - very stage, [inaudible] everything George said look at the pharmacology of the compound. So as George said this data will be dealt in the end of the year and we'll deal with it appropriately.

Okay. So XL647 and 999, is there one of those that looks like it may enter the clinic this year? I know that your guidance is that you would hope possibly to have an IND by the end of the year?

Yeah, look, I think it's possible that one of them could make it into the IND this year. I think that timing, and again I'm not trying here to be cute or obfuscate or anything. But we're on a time line that could allow us to do that. But on the other hand we have a lot of studies yet to do. And it's not even the schedule slipping, it's things over which we have no control, because they're data driven and could put a little more time into those time lines. But, yes, possible that one of them could enter the clinic this year, 647 is a little bit ahead of 999. So if one of them is going to make it this year it's going to be 647, not 999. But they're not so far apart that they couldn't flip flop at some time or the other. So it's really tight situation point, they are neck and neck in many ways.

Analyst: Okay. Great. Thanks.

Your next question comes from the line of Jeff Zekauskas of JP Morgan.

Hi, this is Karen Zucavich. I have a few more questions on the timing inhibitors Are 647 and 999 from the same chemical series?

No. They're quite different. They're different targets. Different mechanisms of action.

Okay. Are they being synthesized by an outside source?

They're being scaled up by an outside source. We made them internally for our experimental purposes, but to do the large animal chronic tox and clinical trials we need kilograms of the compound. So that's being contracted out.

How does the complexity of the synthesis of those two molecules compare with each other XL784, DEA, Rebeccamycin?

DEA Rebeccamycin is the semi-synthetic natural product. It's a permutation product with a simple one step conjugation. The other two are really standard multiple steps, for organic synthesis which are amenable to scale up and as we mentioned many times before they fit into the developmental ability criteria of GSK which means the synthesis has to be commercially available both in cost and speed and simplicity. So that's the best assurance I can give you, we do not believe, knock on wood, that we'll have any challenges in terms of delivering the product on time to get into the clinic into the end of this year, early next year.

In general, what are the strengths and weaknesses of 647 and 999?

It's too early to tell what the liabilities are from a human biology point of view. I can tell you what the -

Well, even in the animals.

The strength -- look, the strengths of these compounds are that we've designed them to be what are spectrum selective kinase inhibitors. They each inhibit a limited number but more than one kinase and result of that they are extremely potent and have been very effective in a large number of preclinical pharmacology models. So they seem to be, to have the potential to be extremely potent anti-tumor patents and they're orally available. As Geoff said, they're easily manufacturable. They have good salt structures so they have all the characteristics that you'd like drugs to have. What is too early to say is what any potential liabilities will have to do with toxicology because there are no other real liabilities with these compounds. We don't know what they are yet. They're in toxicology right now. So we can't really speak to that. But if they have some liabilities, that's the area we'll find them.

Any information on toxicity in animals?

Sure, we have some. And everything we have so far looks to be acceptable, which is why we're moving them forward. And but the proof of the pudding comes in the GLP tox and in the chronic administration of these compounds, in multiple species. So before we feel comfortable saying anything, we need to have those data. We don't have them yet. But so far so good.

And your comment on the toxicity in animals relative to XL 784. I know it's had very few side effects.

Right. I think it's just too early. It's too early. That's why we're doing the studies. We just don't have the data yet. 784 has been through a complete tox package so we can talk about that. These compounds have not. They're in the middle of it now. So I think it's just too early.

Thank you very much, George and Geoff.

At this time there are no further questions

Okay. If there are no more questions, thanks everybody for your interest and your attention and we'll get back to work.

This concludes today's Exelixis second quarter 2003 financial results and outlook conference call. You may now disconnect.