Exelixis Inc (EXEL) 2004 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Exelixis fourth-quarter earnings conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation.

It is now my pleasure to introduce your host, Mr. Charles Butler. Sir, the floor is yours.

Good afternoon, and thank you for joining the Exelixis management team on our fourth-quarter and year-end 2004 financial results conference call. Participating in today's call are George Scangos, President and Chief Executive Officer; and Frank Karbe, Chief Financial Officer. Following his introduction, George will give a brief recap of the past year and a perspective on 2005, Frank will review the Company's financial performance for both the fourth quarter and full year 2004, and then George will provide additional comments and an outlook for the year ahead, after which we will open the call for questions. But first, allow me to make our disclosure statement regarding forward-looking statements in today's call.

Please note the following discussions contain certain statements that are forward-looking, including answers to questions at the end of the formal remarks. These statements are only predictions, and are based upon our current expectations. Forward-looking statements involve risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in our forward-looking statements as a result of these risks and uncertainties, which include our ability to enter into new collaborations and continue existing collaborations and receive milestones and royalties derived from future products developed for research efforts under collaborative agreements; our estimated future license and contract revenues, as well as expenses; our estimated future balances of cash, cash equivalents, short-term investments and restricted cash; the potential failure of our product candidates to demonstrate safety and efficacy in clinical testing, our ability to file IND applications and initiate clinical trials at the referenced times; our ability the Phase III clinical trial of XL119, sufficient to achieve FDA approval; plans to progress XL784 in its clinical development; our ability to conduct the Phase I clinical trial of XL647, 999 or 880, sufficient to achieve a positive completion; our ability to successfully advance and develop additional compounds including XL820, 840, 844 and 184; and our ability to develop drug candidates and/or INDs as part of the metabolism program.

These and other risk factors are discussed under risk factors in our quarterly report for the quarter ended September 30, 2004 and other SEC reports. We expressly disclaim any obligation or undertaking to release publicly any update or revisions to any forward-looking statements.

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

Thanks, Charles. Good afternoon, everybody. I think 2004 was actually a great year for Exelixis. We advanced our pipeline substantially, and we matured as an organization. I think it was a year in which we moved from a company with potential to a company with a pipeline. I think we exceeded our clinical objectives and we accomplished our aggressive strategic goals for the year.

Today, XL119 is in Phase III trials for bile duct cancer, XL784 is slated to begin a Phase I/II trial to explore its potential in renal failure in the next few months, XL647 and 999 are both in Phase I trials, and we expect to initiate the Phase I trial for XL880 soon. In addition, XL844, 820 and 184 are scheduled for IND filing in the first half of this year, and we will bring several metabolism and oncology compounds into preclinical development this year to fuel our IND pipeline in 2006 and beyond.

Some of these projects came through our acquisition of X-Ceptor, and potentially may provide improved therapies for major metabolic and cardiovascular diseases. We amended our relationship with GSK and clarified that relationship. We restructured and consolidated our research and discovery organization, resulting in significant cost savings and efficiencies, which allowed us to expand our development group without significantly increasing costs as our compounds advance in development. We accomplished a lot in 2004, and I think moving forward into 2005, we expect continued clinical/preclinical business progress, while controlling our costs and cash burn to ensure the future success of the Company.

I'll expand on each of these points a bit later in the call, but first I want to turn the call over to Frank to discuss our numbers for the quarter and for the year. Frank?

Thanks, George. 2004 was a solid year for Exelixis in all respects. From a financial perspective, we maintained a high level of fiscal responsibility, managing our expenses while significantly increasing our clinical activity. We met our financial objectives for the year, despite coming in slightly below our guidance on cash and operating expenses. Overall, we have tightened our financial management and laid the foundation for expanding our clinical development activities and to reduce our net cash burn in 2005.

Let me now turn to the numbers in more detail. I will start with an overview of our financial performance for the fourth quarter and the full year '04, and I will then give you an outlook on 2005. As usual, we are reporting results both on a GAAP and non-GAAP basis. Non-GAAP results exclude restructuring expense, loss from discontinued operations and non-cash charges for stock compensation, in-process R&D as well as amortization of intangibles. A reconciliation of GAAP results to non-GAAP results is contained in our press release announcing our 2004 fourth-quarter and year-end results, which is posted on our website at www.Exelixis.com.

Let's begin with net loss. For the quarter ended December 31, 2004 our net loss under generally accepted accounting principles was approximately 51.9 million or 70 cents per share, compared to a GAAP net loss of 23.3 million or 33 cents per share for the fourth quarter '03. Q4 '04 includes a $26 million charge for in-process research and development related to the acquisition of X-Ceptor, which closed in October '04. Non-GAAP net loss was approximately 25.6 million or 35 cents per share, compared to approximately 22.6 million or 32 cents per share for the fourth quarter of '03.

For the year ended December 31, 2004, our net loss under GAAP was approximately 137.2 million or $1.89 per share, compared to a GAAP net loss of 94.8 million or $1.45 per share for the full year 2003. Again, 2004 includes the 26 million charge related to the X-Ceptor acquisition. Non-GAAP net loss was approximately 107.8 million or $1.49 per share for the full year 2004, compared to approximately 93 million or $1.42 per share for '03.

Cash, cash equivalents, short-term investments and restricted cash at December 31, 2004 totaled approximately 171.2 million, compared to 241.9 million at the end of 2003. We would have met our cash guidance for year end 2004 of 180 million if the amendment to our GSK collaboration had been signed in December 2004, as originally anticipated.

Let's turn to revenues. For the quarter and year ended December 31, 2004, revenues totaled 15.7 million and 52.9 million, respectively., compared to 13.8 million and 51.5 million, respectively, for the same periods of '03. The increases were driven by a significant increase in the annual R&D funding from GSK, by milestone payments earned at our Bristol-Myers Squibb collaboration, R&D funding from our Sankyo collaboration, which we acquired as part of the X-Ceptor transaction, and an increase in revenues from compound deliveries under our combinatorial chemistry collaborations.

These increases were offset by a decrease in revenues, as a result of the successful conclusion of our collaboration with Protein Design Labs in May 2003, and the upfront payments from our Bristol-Myers Squibb collaboration being fully amortized in July '04.

Let's turn to research and development. Research and development expenses for the quarter ended December 31, 2004 were 35 million, compared to 32.6 million for the same quarter 2003. For the year ended December 31, 2004, R&D expenses totaled 137.7 million, compared to 126.6 million for the year ended December 31, 2003. Both the quarter-over-quarter and year-over-year increases in 2004 were driven primarily by the expansion of our development operations and activities associated with advancing our clinical and preclinical programs.

Included in these numbers are year-over-year decreases in personnel expenses, lab supplies and certain G&A expenses, primarily due to the consolidation of our research and discovery organizations in June 2004 and the successful implementation of various cost savings initiatives. The restructuring alone resulted in cost savings of about 10 million on a fully annualized basis, and contribute significantly to our ability to continue to ramp up clinical development without significantly increasing our overall cost base in 2005.

R&D expenses for both the fourth quarter and the full year '04 were slightly lower than our guidance, primarily due to lower expenses for lab supplies as a result of tighter expense controls, particularly in Q4, and the slower ramp-up in the initial phase of the XL199 trial. The trial is now on track, and enrollment is in line with our original projections.

Let's turn to general and administrative expenses. G&A expenses for the fourth quarter and full year 2004 were 5.5 million and 20.9 million, respectively, compared to 4.2 million and 18.6 million, respectively, for the equivalent periods of '03. The increases are primarily driven by facilities expenses, staffing costs to support our research and development activities, and legal and accounting fees.

Let me now turn to the outlook for 2005. We will suspend our practice of providing quarterly guidance. However, we will continue to provide guidance on an annual basis for revenues, operating expenses and cash balance. With respect to financial expectations for the full year 2005 as compared to 2004, we anticipate that revenues in 2005 will increase by about 50 to 60 percent, to a range of approximately 80 to 85 million. This increase is primarily due to expected milestones under our amended GSK collaboration, an increase in the annual R&D funding from GSK as of October 2004, as well as additional revenue from certain business development activities.

We expect operating expenses, excluding acquired in-process research and development, stock-based compensation and other non-cash charges, to increase by about 7 to 12 percent to a range of approximately 170 to 178 million. The increase in operating expense is primarily related to the ongoing advancement and expansion of our clinical development activities and corresponding increases in our general and administrative infrastructure.

Our cash, cash equivalents, short-term investments and restricted cash balance at the end of 2005 are expected to exceed $100 million. With approximately 180 million in cash at the beginning of the year, an expectation of a significantly reduced net cash burn in 2005 and several opportunities that could provide upside to these numbers, I feel very comfortable with our financial position, as we head into another exciting year for Exelixis.

With that, I would like to turn the call back over to George.

Thanks, Frank. Let me just make a few comments here. As I said at the beginning of the call, 2004, I think, was an exciting year for Exelixis. When all is said and sudden done, the most important aspect of 2004 -- it was the year in which our pipeline of compounds reached a new level of maturity. As a result of the three INDs we filed in '04 and the excellent work in our drug discovery and development groups, we now have five compounds in clinical development and another three in preclinical development. I think it would be difficult to identify another organization, regardless of size, that generated such a deep, high-quality pipeline in such a short period of time, and we are very proud of our accomplishments to date. Importantly, we expect our productivity to continue. We plan to file an additional three INDs in the first half of this year, so by midyear we could have eight compounds in clinical development. We'll bring another three to five compounds into preclinical development this year, with the intent of filing INDs on those compounds in 2006.

As a result of the amendment and clarification of our collaboration with GSK, I hope that it is now transparent that this is our pipeline, not GSK's pipeline. Not all of the compounds in our pipeline are part of the GSK agreement; and, of those that are, GSK has the right to choose two to three under very favorable economics to Exelixis. The remainder of the pipeline is wholly owned by us.

Today, XL119 is in a multinational Phase III trial for the treatment of bile duct tumors. The trial is progressing well, and is on track. XL784 is on track for a phase I/II program in renal failure this year. The XL647 and 999 Phase I trials are actively enrolling patients, and the XL880 Phase I trial will begin shortly. XL844, 184 and 820 all are on track for IND submission within the next few months. Behind those, we have six advance to lead optimization projects, including three that derived from our X-Ceptor acquisition, that we believe can lead to INDs next year.

So the bottom line is that we had a great 2004; we think that 2005 will be even better. Within the next few months, we'll file three INDs, bring several more compounds into preclinical development, and we may finish Phase I trials for 647 and 999.

On the financial side, we feel quite comfortable. Our projections for this year, I think you heard from Frank, are conservative, and we have included in our revenue only those sources about which we are very confident. We are in a number of additional discussions, and are optimistic that at least some of them will be concluded successfully, as well.

Notably, Exelixis has an exclusive license to an extensive patent portfolio covering key components of the major ligands and receptors of the Notch pathway. Recent discoveries point to Notch modulation as a very attractive therapeutic route for the treatment of several types of cancer, and potentially other indications, as well. There's substantial interests in Notch now, and Exelixis is extremely well positioned in this area.

Additionally, as we anticipated, there has been substantial interest among pharma companies in the LXR, FXR and MR programs that we acquired from X-Ceptor, and those discussions are underway. We are exploring additional opportunities in cancer, as well, that fall outside of our GSK and BMS collaborations.

We are exploring opportunities to offset some of the clinical development costs for our more advanced compounds -- 119, 784, 647 and 999 -- and notably will receive a substantial increase in the milestone payments from GSK for compounds financed through third parties, making the cost of financing vehicles more attractive to Exelixis.

So we have an ambitious and exciting set of goals and opportunities this year. We'll certainly advance our pipeline of compounds aggressively, and the same time are optimistic that we can increase our cash balance through partnering activities and by monetizing in our existing assets.

I would like to take a moment to discuss our strategy, which I know is different from most other biotech companies. Rather than in-license or internally generate one or two compounds, we have embarked on a strategy to discover and develop many high-quality compounds. This deep, high-quality pipeline maximizes our chances of success for several reasons. Most simply, we have more shots on goal (ph).

However, if that were the only benefit, the strategy would be questionable. Our strategy goes substantially beyond that. There are ample data to show that the success rates for Phase II and III development are much lower in small companies than in large ones, and I think it's interesting to consider why that is the case. I believe it's largely due to three factors.

First, small companies often don't have the resources or expertise to fully characterize their molecules prior to moving them into the clinic. As a result, the compounds may lack key features necessary for ultimate success. In contrast, the compounds in Exelixis' pipeline had been extensively characterized, and we believe that they are very high quality.

Second, I think small companies often push forward compounds with marginal data, because it's all they have. Larger companies with a pipeline of compounds can stop development of marginal compounds and put their resources behind more promising projects.

At Exelixis, we're committed to putting our resources behind compounds that are truly worthy of advancement. Because we have a large and diverse pipeline, we can make the hard decisions. Some of the compounds in our pipeline, like all pipelines, will fail. However, we are enthusiastic about the compounds, and we believe that any compound in our pipeline has a good chance of success. So having a large pipeline increases the quality of those compounds that move forward, because they will be the ones with the best data, the best opportunity of success, not simply because they are the ones we happen to have. Thus, we not only have more shots, we have better shots.

I think, third, small companies often can afford only a limited Phase II program, and so enter Phase III with insufficient data to properly design pivotal trials. We're committed to fully explore the potential of our compounds and to conduct sophisticated, thorough Phase II and III programs. That is one reason why we are exploring financing vehicles for some of our compounds. Bringing in nonequity financing will give us the resources to move all of our compounds forward aggressively and correctly.

Clinical financing vehicles are not the only solution to our admittedly nice-to-have problem, however. That is where our partnering strategy comes in. As you know, preclinical development and Phase I studies are relatively inexpensive; it's the later stages of clinical development where the big expenses occur. By partnering some of our compounds with GSK, we expect to receive meaningful milestones relatively early in clinical development, at the same time retaining substantial interest in the compounds once they reach the market. The milestones we receive will help pay for the cost of development of other compounds. Additional partnerships for other compounds where Exelixis will again retain substantial marketing rights, while receiving near-term cash and limiting late stage development costs, will further address our ability to finance those compounds in which we retain sole ownership.

Thus, we envision a large pipeline of compounds, some of which are partnered with GSK, some of which will be partnered with other companies and some of which will be Exelixis proprietary compounds. Up-front and milestone payments from partnered compounds will help pay for development of proprietary compounds. Clinical financing vehicles will help, as well. Putting all of this together, we are confident that we can aggressively move this pipeline of compounds forward, while carefully managing our costs.

You'll see the first signs of the strategy this year, when our cash utilization actually decreases, even as our compounds move further into development. At Exelixis, we're moving with the speed of a small biotech company, but generating compounds and moving them forward with the quality and sophistication of large pharma companies. I know that from the outside of the Company, it is difficult to assess the true quality of our pipeline, and our business strategy is admittedly more complicated than most. However, I am confident that time will show the wisdom of our approach.

At Exelixis, we're trying to build a company that will take its place among the leaders in our industry. As we sit here today, I can say that I think we have a good chance of achieving our goal. We have the requisite technical capabilities, the right people and the resources. Most importantly, some people and some organizations just get things done -- that is, they execute. At Exelixis, we pride ourselves on the execution that has gotten us this far, and we are confident that it will continue into the future.

I want to thank you all for your attention, and to thank all of the investors who have supported Exelixis. I want to assure you that we are doing everything in our power to aggressively move the Company forward and to justify your faith in us.

I think this point, we will thank you all for your attention and open up the call for questions.

(OPERATOR INSTRUCTIONS). David Witzke, SunTrust Robinson Humphrey.

Congrats on a productive year. I guess, first, can you give us an overview of expected timing of the Phase I trial results for 647, 999 and 880? And will the 880 trial design be similar to the 647 and 999 studies?

Yes. Look, it's difficult to project exactly the timing of those trials. You know, they keep going, in a dose escalating fashion, until we see dose-limiting tox. And we, of course, don't know when that will happen. We haven't seen it yet, but we have been through several cohorts, and I think we all feel that it would be surprising, given the rate of dose escalation, to go throughout this year without concluding those trials. But it's hard to know exactly when that will happen.

In terms of the 880 design, it's exactly the same as the 647 design. It is a dose-escalating, single and multidose trial. Patients are given a single dose, there is a washout period. That same cohort of patients is then given five sequential daily doses, and there's a washout period. And then they are eligible to continue their five doses every two weeks until they progress.

In the 647 and 999 it's reasonable, kind of late second half, you would expect potential topline data?

Again, maybe before that. It's hard, really, to speculate. We'll go until we see dose-limiting tox.

Understood. And finally, your Chk 1 & 2 inhibitor, 844 -- where is that? Is that in preclinical?

That's in preclinical development. It's slated for an IND filing in the first half of this year.

Eric Schmidt, SG Cowen.

So it sounds, George, in terms of the timing, that there's probably not going to be any data at ASCO meeting? I assume you would have had to submit abstracts for that already?

There has been an abstract on 647 submitted to ASCO.

In terms of the financial guidance, Frank, can you -- I know you are not giving any quarterly guidance, but can you give us some thought on when the larger milestones from Glaxo are going to hit -- first half of the year, second half of the year?

Yes. We expect to receive the GSK milestones in the first half of this year.

And in terms of the future outlook beyond '05 for revenues -- I know you are not in the business of projecting out more than 12 months, but do you view 2005 as sort of a lumpy year, a bolus year, a year in which we are going to see potentially peak partnership revenues? Or do you think that we might see growth even off of these levels in the future?

That's a good question, Eric. I think that lumpiness that you allude to comes from the fact that we have $35 million in milestone payments that we anticipate receiving this year, leading (ph) to the question of what equivalent milestone payments or upfront payments might we receive in 2006. Of course, there are additional and larger milestones, as our compounds move forward under the GSK agreement. We can't project exactly when we will get those. We will get those when the compounds get to proof of concept. 2006 is the first year in which we could get those data, but there is no guarantee that we will reach proof of concept in 2006. We have additional partnerships under which we're in discussions that could generate upfront payments and milestones, as well.

So it's a little difficult to project, but our general strategy of offsetting our costs through partnering and through receiving milestones, I think, will continue beyond 2005.

And just last question. It sounds like the INDs that are being targeted for '06 are all via the X-Ceptor acquisition in the nuclear hormone receptor space, I assume. Does that mean you are essentially mined out in kinases or, at least for the time being, you have got enough going on in the clinic that you don't feel the need to regenerate with additional preclinical programs?

No. I'm sorry; maybe we were not clear. I think we have six leadoff projects going on now, all of which are on track, moving to preclinical development this year, 2005. Three of them stem from the X-Ceptor acquisition; three of them are internal cancer projects. And so, because we know there will be some attrition, we are not projecting we're going to file six INDs next year, but we believe that's the basis for several INDs next year. And right now, it's 50/50 internal cancer and what we have acquired from X-Ceptor.

Karen Buchkovich, JPMorgan.

I would like to ask further questions about the GSK milestones and total revenues for 2005. Will you get the milestone from GSK as a lump sum payment, or will it be amortized?

We will receive the payment as a lump sum payment, but the revenue recognition will be over time. And the way that works is we amortize milestone payments over the lifetime of the agreement. Now, the GSK agreement was signed in October 2002 as a six-year deal. If you assume for a second that we are to get the $35 million in October of '05, that would be at the midyear point. We would then recognize immediately 50 percent of the milestone as revenue, and the remainder would be amortized over the remaining term of the agreement. But we do receive the full payment in cash the moment that we achieve the milestone.

Do you expect the 30 million milestone and the 5 million to be paid at the same time?

We don't necessarily expect them to be paid at the same time, but we do expect to achieve both of them in the first half of 2005.

And then to receive payment closer to 3Q?

No, we would receive payment immediately after achieving the milestone.

Okay, I'm sorry. I misunderstood; I thought you said October '05.

No, I was just using an example to explain the math, how it works. To be clear, we expect to receive the milestones, both the 30 and the $5 million, in the first half of 2005. And we will recognize revenue for that part of the term that has already elapsed up to this point.

And your total increase in revenues for the year is somewhere between like 26 and 32 million, so something is decreasing a little bit? In other words, the GSK milestones alone are greater than that. Can you just comment on Genoptera revenues for 2004 and 2005, and then also GSK R&D funding -- not the milestones but the R&D funding?

Karen, I think you're confusing cash and revenues, because the cash payment of $35 million we get this year. We do not recognize the $35 million of revenue this year.

Oh, right, it's (multiple speakers). Okay. I'm sorry, it's 50 percent. Okay.

Can you comment on Genoptera revenues for '04 and '05?

Yes. What is it you want to know about it?

What percentage of revenues were they?

In 2004, Genoptera contributed about 30 percent, a little less than 30 percent to our overall revenues. We expect that percentage to decrease in 2005, primarily as a result of our overall increase in revenues.

So the actual amount will be relatively the same?

Yes.

And R&D funding from GSK -- is that ramping up a bit in '05?

Yes. The annual R&D funding that we receive from GSK has increased with the beginning of the third year of the collaboration -- that is, as of October 2004.

And can you make a comment on your total committed funding for 2006 and beyond?

I don't think we're prepared, at this point, to discuss our revenues for 2006. There are a lot of events that could occur between now and then.

Well, no, just what is committed, what is -- not predictions, just what is already signed or part of the deal.

No, I don't think we want to comment on that.

Bret Holley, CIBC World Markets.

I've got a question on the proof of concept comment I think you made, George, about 2006 really being the first year that you think you could possibly get to proof of concept with one of the compounds, or several of the compounds. And just if we could get some color on what proof of concept really will constitute? Obviously, you are not going to reveal precisely it's 15 percent response rate or 10 percent response rate, but what general guidelines? Are you looking for response in a single solid tumor or multiple solid tumors? And what are going to be the standards by which you and Glaxo use to move the compounds forward into Phase II's in specific solid tumor settings?

Sure. That's actually a very good question. It's one we've had a lot of discussions about, because proof of concept is a loosely defined concept. And what we mean by proof of concept is exposure of enough humans to rule out any -- let's say, major chances of unacceptable toxicity and to generate signs of biological activity of the compound, and a demonstration that it's probably working through the mechanism that we think it's working. And that differs on a compound-by-compound basis. And we are currently having a series of discussions with GSK, because it will differ from compound to compound. I'm sorry I can't be more specific than that, but it's very complicated, and it's subject to a lot of discussions we're having with GSK right now.

So, on the kind of biological proof of concept front, are you going to focus on tumors where there's demonstrable over-expression or over-activity of certain receptor targets and kinases, or are you actually genotyping patients? Are you planning to genotype patients to stratify in Phase II?

Yes, you can -- for example, if you look at lung tumors and you want to enrich for patients with EGF receptor mutations, you can do that either by genotyping, but you could achieve largely the same goal by patient inclusion criteria -- smokers and nonsmokers, you know, and females and so on. And so we are contemplating a number of trials with different designs, some of which will have patient inclusion criteria like those, and some of which will be more traditional types of trials.

And this proof of concept -- just one last question -- is this really focused on major solid tumors, or is this going to kind of be on a compound-by-compound basis? What makes the most sense for that compound?

Well, it will be on a compound-by-compound basis and what we think makes the most sense, based on what we know about its biochemical properties, its pharmacodynamics, and what we see in the Phase I trial, of course. If you take 647, which it's HER-2 and EGF receptor and VEGF, and you think about what types of tumors you might take that forward in, you can think about renal, you can think about non-small-cell lung, you can think about breast, you can think about colon, you can take about glioblastoma -- all of which are good candidates. And in each of those indications, there's certainly more than one trial you can think about, and you think about the standard third-line, single-agent therapy. You can think about first- or second-line combination trials. You can think about trials, as you said, that would include either genotyping or other patient preselection criteria. And we are going to try and do a diversified program that has some of all of those in it.

(OPERATOR INSTRUCTIONS). Karen Buchkovich, JPMorgan.

I believe there is interim analyses in the bile duct tumor trial. I believe one of them is one-third through the duration of the trial. Any estimates on when that will be?

Yes. I think it would be in '06, not this your.

Have you begun any drug discovery efforts to find Notch regulators? And if so, do you have any leads?

Well, as you may know, Karen, Notch has a family of receptors and ligands, basically. So there's Notch, Jagged, Delta. There are several members of -- there's Notch 1, 2, 3 and 4. None of them have enzymatic activity or known enzymatic activity, so it's actually difficult to make small molecules against them (ph). You can screen in cell-based essays, but those are more cumbersome. But they are prime candidates for modulation through antibodies. So yes, we have begun efforts to generate antibodies, but in this case they are not small molecules.

Can you give us any more detail on the nuclear hormone receptor candidates that came from X-Ceptor as far as the status, specifically what is going on in their development -- I mean, in their discovery/development -- and which one is leading the way?

Yes. There are three of them there -- MR, FXR and LXR. They all have different issues. They are all in line, I think, with -- it's reasonable that we can bring compounds against each of those into development over the course of this year. And they are not meaningfully different in their state of maturity, right now. There are advanced leads in each of those projects. I think there are still some issues that we need to address. The issues for each of those are slightly different, and we can go into it in more detail if you want.

But the compounds are actually looking quite good. If you take LXR, for example, you need to achieve a differential effect in the periphery from the liver. I think we have some compounds that can reach that goal. There are other issues there. These compounds will be given chronically, and so they're SIP (ph) activity, herp (ph) channel activity that has to be whisper clean (ph). And so we're working on those aspects, and we think we have routes to solve the problems that exist with each of those compounds, and really bring what we believe are very high-quality compounds into development over the course of this year. But each of them has different issues.

I've heard you comment in the past on the superiority of the XL784 over ACE inhibitors and angiotensin II inhibitors with respect to pharmacology. Can you just elaborate on that a little bit?

Yes. I think what you're alluding to is some of the data, pharmacological data that we generated in Dahl-S rats -- either salt-sensitive, hypertensive rats that develop renal and cardiac failure. And we did a series of pharmacology experiments where we treated those animals with an ACE antagonist, an ACE antagonist and an ARB blocker with 784 and with all the permutations. And what we saw was that 784 was at least as effective as the combination of ACE and ARB in reducing protein urea and actually reversing protein urea. If we let the animals really develop renal disease and then gave the compounds, we could actually reverse protein urea. And the combination of adding 784 to the ACE and ARB was actually the best regimen of all. And the data were actually quite striking.

(OPERATOR INSTRUCTIONS). Gentlemen, there appear to be no further questions or comments at this time.

Okay. If there are no further questions, then let me thank everybody for your attention and for your support.

Thank you, sir. And thank you, callers. That does conclude today's conference. You may disconnect your lines at this time, and have a wonderful day.