Geron Corp (GERN) 2006 Q1 法說會逐字稿

Good day ladies and gentlemen. Thank you for standing by, and welcome to the Geron First Quarter 2006 Earnings Conference Call. My name is Carlo, and I'll be your coordinator for today's presentation. (OPERATOR INSTRUCTIONS) It is now my pleasure to turn the presentation over to your host for today's conference, David Greenwood, Executive Vice President and Chief Financial Officer. Please proceed, sir.

Good morning, and welcome to the Geron earnings call. I am David Greenwood, CFO. With me is Tom Okarma, President and CEO. This is an earnings-related conference call, so we will begin with a review of the numbers. Our agenda then includes an overview of recent operating highlights of the Company and a brief summary of our operating plans for 2006. Following that presentation by Tom, we will have a question-and-answer session.

Two informational items to begin. In the event any forward-looking statements are made during this call, please understand those comments are made subject to the "safe harbor" provisions of the Litigation Reform Act. Any forward-looking statement including with respect to development and commercialization of our products involves uncertainty and risks, and actual results may differ. We refer you to our Risk Factors in our filings with the SEC.

Secondly, as Carlo noted, all participants are currently in a listen mode, and the lines will open for the Q&A. This call is also available for replay until May 22, accessible by webcast, and our website, geron.com, has information.

To our financial results. As you see on the condensed P&L attached to this morning's announcements, reported revenues for the first quarter were up substantially from the comparable 2005 period. Our revenues are driven principally by what amounts are recognized in any period from completed licensing transactions in development fields we have closed. In the last year, you will recall we created two companies. We entered into a major collaboration with a pharmaceutical company and executed a number of licensing arrangements. So, we will continue to recognize revenues associated with these transactions over the expected life of the underlying business arrangements.

Other cash inflows to the Company during the quarter included $2 million of interest income. So we end the quarter with $184 million cash on the balance sheet. R&D expenses increased substantially in Q1 '06 over Q1 '05 from 6.5 to almost 9.5 million, which is reflective of the substantial investment we are making in building the development side of the organization. Total expenses increased just under 10%, from 10.4 to 11.4 million. Of course, the new expense item for this quarter and going forward is an accounting for stock options. We have seen some extraordinarily large numbers reported from the technology sector. Our numbers are very different. Our total historical cost for equity-based compensation that we will be expensing over the coming quarters amounts to $6.5 million. In the first quarter we expensed 742,000, which is allocated into the R&D and G&A expense line items. Obviously, this is a non-cash item.

Our gross cash burn for operations in '06 will be higher than the 41 million level in 2005, as we fund additional clinical trials. The exact size of that increase will depend on timing of initiation of trials, number of sites, patient enrollment, and other related variables.

So, that's a quick summary of the numbers, and at this point I will turn it over to Tom Okarma.

Thanks, David, and good morning, everyone. Thank you for joining us. My comments today will be focused upon the major highlights of the first quarter. I'll try to provide a little color about their content, and provide some commentary on their significance.

First starting with the cancer platform and our telomerase inhibitor drug 163L, in April of this year we announced the initiation of our second Phase I trial of the drug. This protocol focusing on solid tumors taking place at the University of Chicago Cancer Research Center under the direction of Dr. Mark Ratain. The endpoints are similar to those of the ongoing CLO trial, which includes safety and tolerability, the definition of dose limiting tox, if any; defining the maximum tolerated dose, and extensive data on pharmacokinetics, and some on pharmacodynamics, as well as, of course, subjective tumor responses. This protocol also has a second arm, a second phase, which will examine the safety and tolerability of infusing the drug intravenously once per week over shorter and shorter infusion times in order to increase the convenience to both physicians and patients. So, obviously, the significance of this announcement is that it extends the spectrum of tumor types that we are investigating with this compound.

You may recall I've announced that we have added a third site at Cornell in New York City in our ongoing CLO trial, and there will be an additional large site coming onboard in that trial as well. So, we're trying to cast our net both deeply and broadly as we explore the clinical utility of our telomerase inhibitor drug.

Turning to the vaccine, in mid-February we announced that Cambrex will be our GMP manufacturer of GRNVAC1, our telomerase vaccine. This is important, because Cambrex's expertise and scalable production capabilities will clearly enhance the execution of further studies of the vaccine under our own IND, which is scheduled for submission in the second half of this year.

Now, the significance of this is the following. The ongoing optimization trials at Duke are remarkable for having validated our boost strategy -- that is, our ability to maintain high levels of specific anti-telomerase immunity without toxicity by biweekly intradermal injections of the vaccine. Therefore, the ability to reliably manufacture sufficient cells for 20 to 30 injections for every blood draw to generate the vaccine is an important element of the program as we begin to undertake multicenter trials under our own IND later this year.

Also relevant to the vaccine program, in February we also announced a licensed development and supply agreement with a company on the East Coast called MaxCyte. This agreement is to develop a closed system manufacturing process of the vaccine that will significantly reduce clean room requirements for the manufacturing and therefore have a major impact on cost of goods.

Now, the significance here is that one of the reasons we see and have published, as you know, robust anti-telomerase immune responses is that the vaccine is composed of living antigen-presenting cells that carry a very heavy payload of the telomerase antigen to the patients lymph nodes, which in turn, turns on the anti-telomerase immune response. The MaxCyte system allows for efficient telomerase antigen loading of these live antigen-presenting cells in a scalable, sterile and closed system.

Also relevant to the vaccine, but also to our entire embryonic stem cell program is our March 27 announcement of a worldwide exclusive license and research agreement under the University of Oxford's filed patent for the scalable method of deriving dendritic cells, the same cells we use in the vaccine, from human embryonic stem cells, our second platform. The pioneering work of Professor Herman Waldmann and Paul Fairchild at Oxford have demonstrated the scalable derivation of functional dendritic cells that we believe will first become the ultimate source of dendritic cells in our cancer vaccine program and, second, become the way by which we prevent a new rejection of therapeutic replacement cells derived from embryonic stem cells for all of our therapeutic applications.

The significance here for the vaccine is that we think this platform will generate ultimately a low cost, scalable, and nonpatient-derived vaccinating cell that we expect to work at least as well as the current autologous method, but with greatly reduced cost and greatly reduced manufacturing complexity. This would ultimately be analogous to the manufacturing of a plasmid or viral vector delivery system.

The significance to the embryonic stem cell program really can't be overestimated. The Oxford group has demonstrated that murine bone marrow derived in and towards dendritic cells lead to antigen-specific tolerance. This is an important critical finding to auger well for our program to prevent a new rejection of the therapeutic cells derived from embryonic stem cells without the use of nuclear transfer or immune suppressive agents.

So, the idea here is that every embryonic stem cell line we have, and I think our lines total now about 18, can produce both the immature dendritic cell, as well as all of the therapeutic cell types. So, the notion is we give a patient a small dose of immature dendritic cells made from embryonic stem cell line A, followed by a therapeutic cell from the same line, to which the immature DC has created a state of tolerance. This, in theory, allows us to completely avoid nuclear transfer, to eliminate the use of immunosuppressive drugs, and to achieve stable graft survival. And this approach, of course, is only possible with embryonic stem cells because of their inherent capabilities of plural potentiality and scalable cell production.

Turning now to some specific examples that advance the ball on our stem cell side. In February we announced the presentation of the molecular mechanisms of cardiac disease and regeneration in Santa Fe, New Mexico, by one of our collaborators at the University of Washington, Charles Murray, who showed the survival of embryonic stem cell-derived cardiomyocites injected into infarcted rat hearts, and most importantly, that those surviving hESC-derived heart muscle cells prevented the onset of infarct-induced congestive heart failure.

Now, the significance here, this is the second Geron published animal study that shows it's not only durable survival of the embryonic stem cell derived cardiac muscle cells in an infarct zone, but also that those cells resulted in significant improvement in cardiac performance. So, in this example, the model closely mimics the pathophysiology of a human heart attack by, in the case of the animal model, ligating and then releasing the coronary artery, which produces a reversible ischemic and reperfusion injury that is very close to the analogy of a human heart attack. The echocardiography that we then applied to these animals four weeks after injecting the cells after the infarct, shows that the size of the left ventricle at both the end of systole and diastole with significantly smaller than the size of the ventricles in the control animals, and in this model, cardiac enlargement is a proxy for heart failure.

So, these results demonstrate that the cells prevented the onset of congestive heart failure after the myocardial infarction. Of course, this is precisely the intent of therapy when it becomes a move into the human scenario.

We also announced some significant news on the islet front, islets for diabetes in January. Our Senior Director of Cell Therapy Research, Anish Majumdar, presented new data on a scalable method of producing embryonic stem cell-derived insulin and glucagon-secreting islet cells. What's important here is that in addition to producing the appropriate set of islet hormones, the cells expressed the correct set of genetic markers that clearly identified them as human islets. You may recall that this week, on Wednesday, we announced the granting of the U.S. patent that covers these very methods to produce the hESC-derived functioning islets.

Previously we've shown in animal evidence of in vivo activity of prior preps of less pure populations of islets. Those data showed that injecting these cells extended the survival of a diabetic animal, and we could detect significant amounts of human insulin in the animal's bloodstream. So, we're hopeful that later this year we'll have evidence for the significant impact of hyperglycemia in the same animal models by the transplantation of these more purified and more potent islet cell preps.

So, clearly, as you know, the proof of concept of using cell therapy to treat insulin-requiring diabetes has been demonstrated by the co-called Edmonton Protocol, the injection of homogenates of multiple cadaveric pancreata into the livers of type 1 insulin-requiring diabetics. And as you probably also know, the problems with that approach are the absence of tissue availability, the dramatic heterogeneity from prep to prep, and therefore the potency of each transplant between patients. So, obviously, a scalable and reliable source of pure, freshly manufactured living islets would extend the Edmonton proof of concept to a mainstream therapy for diabetes.

Lastly, we also announced progress on our telomerase activator program. In early February, our collaborator at UCLA, Dr. Rita Effros, presented at the Gordon Conference data that shows our small molecule telomerase activators had significant functional restorative activity on the important lymphocytes in AIDS patients which senescence, or age, as the patients traversed from being HIV-positive to having disease. So, we showed in that presentation that these drugs do three things that are important -- they restore the proliferative capacity of HIV-restricted CDA-positive cytotoxic T cells to antigen stimulation by virus. The drug increased significantly the production of gamma interferon by these cells when stimulated with AIDS antigens.

Thirdly, and most importantly, in an in vitro assay, the drugs improved the ability of these cells to inhibit viral production infected CD4 cells.

Now, all of these parameters are impaired in the natural state of the progression of the disease. We now know that the dominant pathophysiology of HIV disease progression is the telomere mediated senescence of these very CD8-positive T cells, which had been holding the viral progression in check, but which because of continual proliferation and the absence of telomerase, senesce. We published last year in the Journal of Immunology that telomerase gene transfer into those cells restores their anti-HIV function, and the significance of this February's announcement on the drug demonstrates that our drug activators duplicate the effects of telomerase gene transfer. So, we're therefore developing with our partners in Hong Kong this compound as an oral agent to potentially postpone or prevent the progression of HIV disease.

So, those are my view of the significance of the main events of the first quarter, and we're now ready to turn the conference over to Q&A.

Thank you, sir. (OPERATOR INSTRUCTIONS) sir, our first question is from the line of Joel Sendek with Lazard Capital Markets.

Hi. I have two questions. First on your HIV program. I'm wondering if you could tell us what differentiates the two compounds you're looking to choose to go into the clinic, and when you might see that clinical trial start? Thanks.

Thanks, Joel. The two compounds, which their names and structure, of course, we have not yet disclosed, are chemically related and both come from highly purified extracts of the particular traditional Chinese medicine that is their source. We have been doing a great deal of head-to-head comparisons between the so-called PAT1 and PAT2 compounds, and actually have now made our choice for the lead compound for PAT2. This is significant because we've now created a significant dossier of pre-clinical in vitro work that helps us understand the pharmacokinetic parameters in vitro that distinguish the two compounds, and that we now will be able to move more expeditiously, as we're only now studying one drug as we move into more formal pre-IND studies over in Hong Kong.

Your second question, when we will see an IND submitted, certainly not this year, and, of course, that timing is contingent upon continued in vitro activity, and our continued ability to source and scale up the manufacture of the compound, which we expect to be able to prevail on, but there obviously are a number of variables between now and that filing. So, guidance would probably be the second half of next year before the IND would be filed, and we are still trying to determine whether that would be exclusively a U.S. IND, or whether we would also be looking at additional trial sites in Asia.

Okay. Thanks a lot.

And, sir, we have a question from the line of Mark Monane with Needham & Company.

Thanks for the thorough review of the program, Tom.

You're welcome, Mark. How are you?

Thank you. Nice California day we're having here in New York. I have a couple of questions on each program, 163, 163L. There is a lot of fascination now with drugs for cancer, speaking about cell cycle inhibition. Could you outline what you think the proposed mechanism of action is and how it fits into the cell cycle, and therefore how it might combine with other drugs in the future?

Okay. I think the more dominant element of 163's mechanism is the fact that we now have data that we have shared that this drug is the only compound yet shown to have dramatic impact on the cancer stem cell. The stem cell in cancers is the cell that is rare and is quiescent, but is telomerase-positive. The reason this is important in the context of your question is because the stem cells are actually outside of the cell cycle. They do not divide as rapidly as the cells that make up the bulk of the tumor. And so the significance of 163L inhibiting the cancer stem cell is that the mechanism of action is more broad than simply interrupting cells that are cycling. And that mechanism is twofold -- one, an irreversible inhibition of the enzyme telomerase, which clearly impacts the cell's ability to continue to divide. Remember that cancer cells have short telomeres, and it only takes one short telomere in each cell below the critical set point to drive that tumor cell into a ptosis, which is why all cancer cells are so critically dependent upon continued expression of telomerase, which is why we see rapid effects in vitro on driving these cells with this drug to a ptosis.

The second mechanism of action, again because the cancer cell's telomere is short, is that the drug, because it binds so tightly to the enzyme, prevents telomerase from binding to the telomere, therefore uncapping the telomere, which exposes the shortened telomere -- it exposes the single-stranded DNA region no longer being protected by that protein cap of telomerase, and that is another danger signal that immediately leads to a ptosis.

So, the long explanation, getting back to your question on mechanism in cell cycle, is that while we certainly have impacts on proliferating tumor cells on cell cycle progression, the mechanism of this drug is not limited to inhibiting the cell cycle.

That was very helpful. Thanks for going over that with me. One more question. Can you update us, please, on the current status of the GRNVAC program. We know that there has been some data in hormone refractory prostate cancer. What do you feel is the next step and target for that program? And then, please, while you're at it, about the progress of the IND for the spinal cord injury program.

Okay. As you recall, we had been doing about four different parallel optimization trials all under the investigator IND at Duke to study various tweaks to the manufacturing and administration of the vaccine to optimize the magnitude and durability of the ImmunoSPOT, and lastly, we've also begun looking at hematologic malignancies, malignances other than hormone refractory prostate cancer. So, I'll give my answer in sort of those two groups.

At AACR, our investigator, Johannes Vieweg, presented the story on the imiquimod protocol. This was an attempt by us to reduce the complexity of the in vitro manufacturing of the vaccine by about a 24-36 hour step and injecting the immature antigen-loaded dendritic cells into the skin under the application of imiquimod cream, which generates an inflammatory reaction in skin that frankly mimicked what we were doing in vitro to mature and activate the dendritic cells. The data he showed that once again at a particular dose of imiquimod, we were able to generate pretty substantial immune responses, CDA T cells against telomerase, and once again demonstrated flat line PSA in patients whose PSA is expected to double every two to three months. But the magnitude of the immune response was no better and in fact in most case slightly less than what we had achieved with fully activated DCs, and there really was no advantage to this shortened manufacturing step. We've abandoned that protocol.

On the more positive side, the data on the boost is really quite interesting. We've presented this at various investor conferences. We have now shown that we can wait up to at least nine months after priming these patients with the first six injections, and nine months later a single boost of the same vaccine that we had used to prime these patients brings their anti-telomerase T cell response right back up to peak, and we can maintain that peak response while using boost every other week. We may even be able to go to every three or four weeks. That's work that we will actually explore on our own.

So, what that means is from a single blood draw upfront, we make enough vaccine now for between 20 and 30 injections, which will form first the prime to generate the initial immune response, but then we have a long number -- a large number of boost injections already made and stored frozen to administer on a less frequent basis to patients to maintain their anti-telomerase immune response and thereby, we think, create an immune environment that will have impact on tumor progression. And that, of course, is the object of the exercise.

So, we are -- oh, I'm sorry -- on the hematologic malignancy side, we have demonstrated that even with patients that have active hematologic cancer, tumor cells floating in their bloodstream, we can in fact make the vaccine and the patients do in fact respond immunologically to the vaccine. So, we have now validated the concept of the vaccine in a second tumor type.

So, we're bringing all this data in, in the context of our own IND preparation, and all of the Duke data, and there is something about nearly 80 patients now altogether from all of the various trials, will be collated and used as the foundation for our own studies. We are still debating as to what disease type or types will be included in this IND. It may be hematologic malignancies, it may be others, we're still making that decision. We obviously have a broad swath of opportunities here, because not only our work, but a variety of papers published by academics have once again demonstrated -- like the case of the drug, this vaccine has broad anti-tumor activity. So, our challenge and the power of this platform is to determine what is the shortest route to approval for a vaccine that could have activity to a broad range of cancers.

Then, lastly, the spinal cord IND, we continue to be on track for fourth quarter IND submission. The animal studies continue to be positive, although there are still quite a few months left for some of the long-term tox studies, but so far they are going really well, and we remain on track for that milestone.

Got it. Thank you very much for the INS information, Tom.

You're welcome, Mark.

Your next question is from the line of Steve Brozak.

Good morning, gentlemen. Just two quick questions. You've given specific insight in terms of your development with Merck, but now is the general tenor of things going with them. Obviously, it's a large pharma and I'm kind of curious about the spirit, and then I'll follow-up with one question about hepatic cells.

Hi, Steve. Thank you for that. I can tell you that I have been -- my expectations for the relationship have been exceeded, I went into this relationship with pretty high expectations. Not only are they extremely competent in performing under our license, they are aggressive and they are collaborative. So, this is truly a collaboration that is managed jointly by the currently formatted Joint Research Committee, and we are meeting very frequently going over protocols and data, and this is genuinely a collaboration, and we are extremely pleased with the progress they are making both on their plasmid construct and their adenovirus construct. I'm obviously not able to give you more details on their specific progress, but I can certainly tell you that it has exceeded our expectations. And the significance of that, of course, gives us additional options for commercializing our telomerase dendritic platform. So, the take-home message, Steve, is that it really couldn't be going better.

Great. And last question, on the liver cell side. And thoughts, progress, anything you want to share with us?

Yes. We haven't put any of this in the public domain yet, so I'll be just general here. As you know, there are three cell types being developed in Scotland under our wholly-owned subsidiary called Geron Bio-Med, which emanated from our acquisition of Dolly the sheep IT from the Roslin Institute in 1999. Those three cells are chondrycytes for arthritis, osteoblasts for osteoporosis, and liver cells not only for drug tox testing, but potentially also for treating chronic liver disease. So, that goes by way of saying that we have actually come quite a long way on the liver cell program, have confirmed our initial discoveries that we cannot only produce hepatic cell, but that these liver cells do contain a wide spectrum of functionality that are important for liver cell use as an in vitro tox screen, and for potential in vivo use. So, we do expect a presentation on the specifics of this cell at the ISSCR meetings in June in Toronto, where the details of our progress will be presented by our investigators, but I can tell you to look forward to some very positive news on that cell type.

Great, I look forward to it. Thanks.

And, sir, our next question is from the line of Ren Benjamin with Rodman & Renshaw.

Hi, good morning. Thanks for taking my question. Can you give us a sense, please, of the timing of when we might see data from the 163L program? And I may have missed this in your preparatory remarks or when you answered questions, but the vaccine program, what are the trials that are ongoing right now?

Okay. As we have said before, Ren, we hopeful that we will have enough data from both the Phase I solid tumor trial and the Phase I-II CLL trial, to have a meaningful presentation at the EORTC meetings in Prague, and the ASH, which are, I believe November, December, respectively, of this year. Because this is a Geron IND, we're not able to get ahead of our investigators and begin giving short abstracts of these studies as we progress, because we want to wait for a sufficient batch of data so that we can hopefully have our investigators participate in these presentations.

So, clearly, we are investing heavily in these Phase I-II studies because we believe that a large number of good drugs sail in Phase III, because not enough of all of the fundamental questions of how to use the drug were addressed or answered early on. So, because of the importance of this drug clearly to the Company and because of the importance of this drug potentially for cancer in general, we do not want to create that high risk later clinical trial scenario. So we are investing heavily and broadly into very rigorous and highly detailed Phase I-II studies to really define how to use this drug in multiple tumor indications as a single agent before we move into Phase II randomized trials as a single agent or in combination.

On the vaccine, our investigator at Duke is moving to Florida, so the only activities that are going on at the moment are data reduction and some manufacturing validation and transfer work as we demonstrate to the agency that the process originally invented at Duke, as modified by Geron, and as transferred to Cambrex, produced in fact the same product with the same immune responses. So, all of the work that's now being done is strictly in preparation for our own IND submission.

Okay. And so if you look forward, are we going to see the initiation of new trials for the vaccine program in the second half of this year, 2007, and where might we be going with that?

Well, obviously, the trials don't begin until the IND is submitted and the agency concurs with the IND. So, as we said, the IND is scheduled for submission in the second half of this year, and the trials will initiate as soon as the agency gives us authority to proceed, as was the case with 1630 last year.

Okay. And is it safe to assume that it will most likely be prostate cancer, more the advanced studies will be done, or are you looking at other indications as well?

No, it's not safe to make that assumption. We are still in the process of evaluating what the best tumor type or types to move this process forward would be. As you well know, in following the space of prostate cancer vaccination, including companies that are in Phase III trials, prostate cancer is a difficult tumor in which to demonstrate impact on the tumor progression itself. And, as you know, both of the current Phase III vaccine studies have survival as their primary endpoint, and neither of them have demonstrated significant impact on tumor progression. In my opinion, that's both a function of potency of the vaccine, as well as difficulties in demonstrating specific anti-tumor activity in a low volume tumor like prostate cancer. So, bone scans simply show bone reaction to inflammation. So, you can actually create a bone hot spot because of the new metastatic lesion, or a lesion that had been there which is now being resolved by an immune response, and there is not a lot of biopsy material in order to make a direct tissue diagnosis.

So, the sort of secondary endpoint that you hear about are increasing the time to bone pain, for example, which is a pretty soft measure. So, for those reasons and because of the times of progression of the disease, we are seriously looking at other tumor types that might given the potency of our vaccine be better disease indications for our next clinical trial.

Okay, great. What's happening with the adenovirus program?

That's a program that Merck is working on, and I think I answered that from Steve's question. The Merck platform is adenovirus and plasmid, and, again, I'm not able to give any details on specific progress of either of those platforms other than, as I mentioned in my answer to Steve's question, to say that it's going swimmingly well.

Okay. And can you finally comment on any presentations -- I know you mentioned EORTC and ASH, but maybe also some stem cell presentations that you may have going forward for the rest of the year?

Well, the big one, of course, is the ISSCR in Toronto end of June, beginning of July, and I think there are 12 or 14 presentations that we will be making. We're also going to actually have a first for Geron, an actual industrial booth at this affair. There will be some significant presentations by us advancing the ball significantly on the cell types that are vying for second position behind spinal cord injury to be put into clinical development.

Perfect. Thank you very much.

(OPERATOR INSTRUCTIONS) Sir, we have a question from the line of Randall Thomas, private investor.

Thank you very much. I don't know if Dr. Earp is on the line today, but I have a couple of IP-related questions. Recently, Pharmexa was issued a U.S. patent for a telomerase peptide vaccine. Can Dr. Earp or Dr. Okarma comment on the patent and also the related product. Does this patent fully protect Pharmexa's Phase III telomerase vaccine in the U.S. and, if not, what is Geron doing about it?

Thanks, Randall. David Earp is not on the call, so I'll take the answer to that. We test released earlier this quarter the fact that Pharmexa is not licensed by Geron for their vaccine program, neither in the U.S. nor in Europe. Our licensee is Merck, period, full stop.

Well, they recently received the U.S. patent just, I think, a couple of weeks ago.

Well, the simple issue there is a patent doesn't mean freedom to operate, so their claims are subordinate to ours.

Have you requested that they take license, or you just said that you're not interested in offering them a license?

Merck is our exclusive telomerase antigen licensee worldwide for cancer vaccine.

All right. Thank you. And given that human embryonic stem cell inventions have been deemed unpatentable in Europe, do you see a significant market for ESC therapies there or not?

Good question. I was recently asked to participate in an EMBO, European Molecular Biology Organization, symposium on the state of affairs in Europe, and the premise to your question is correct. The future for intellectual property of undifferentiated embryonic stem cells is hazy, and that issue has been referred to an advisory body in the European Patent Office, and it will be several years before it is opined upon. There may be opportunities to achieve some patent protection on differentiated cells made from embryonic stem cells, but that, too, is iffy. Frankly, the European theater, ex-UK, I'm talking about the continent, is further clouded by a lot of disagreement from country-to-country about the wisdom and ethics of moving forward with embryonic stem cell-based therapies.

So, for example, in the current framework Program 7, which is the EU equivalent of NIH funding across Europe, there is a block of countries that include Austria, Germany and Italy, and perhaps Spain, who are arguing that no money should be devoted to embryonic stem cells throughout the entire European theater. Now, those countries made that argument in framework 6 and did not prevail, and the conventional wisdom is that they will not prevail again. So, there is going to be funding for embryonic stem cell research in Europe, but it, of course, will not take place in Germany, Austria or Italy.

So, net net, both because of your right question on IP, but also because of cultural issues in several countries in Europe, the opportunity for research, development and ultimately commercialization in Europe is hazy. That is not the case in the UK, where, of course, we have an operating company, and it's not the case in Asia. So, my wishful thinking and perhaps even a prediction, is that once the IP situation becomes clarified, catalyzed perhaps by more work demonstrating the utility clinically of embryonic stem cells perhaps by us in spinal cord injury, even Europe will wake up. So, despite all of the controversy in the United States, we are actually in much, much better shape here, Prop 71 notwithstanding in California, than the European theater.

Thank you very much. If I may just have one last question. Does your TAT joint venture plan to systemically treat patients with oral telomerase activators, and on the basis of some animal studies, is there a risk of doing that with regards to cancer?

Great question. Answer to your first question is yes, these drugs, we believe, are orally active. We know they're orally active, and that is the plan in terms of how we would use them. You raise a very relevant question on whether, for example, these telomerase activators might hasten the development of malignancy if these patients should carry pre-malignant cells, and that is a major, major focus of all of the pre-clinical IND enabling studies now ongoing. I can tell you that thus far, having exposed in vitro pre-malignant cells to this compound for long periods of time in vitro, we have not seen that occur. What's working in our favor here is that no all cells in the body respond with telomerase activation to these compounds, and that appears -- this data is early and needs much confirmation -- it appears to include at least the pre-malignant lines we have studied. So it's not so easy for pre-malignant cells to actually respond to this drug with telomerase of regulation, which implies that the mechanism of telomerase of regulation in malignant transformation is different from the mechanism of induction of telomerase activity with this drug. And if that's true, that is a good thing.

Thank you for your time.

Sir, you have a question from the line of William Turner with CBT.

Dr. Okarma, I was wondering if you could comment as to the Proposition 71 in New Jersey and all the states in the country that would get into human embryonic stem cell work, and how that would affect Geron, your company and your people? Secondly, I noticed in several of your patents, you use the word "electroporation." I know there are companies that have many patents on it, and you also use the word "pulse." Would that answer with third-party agreements somewhere in the future?

Let me do the second one first, because it's simpler. That is why we -- one of the reasons why we did deal with MaxCyte. They have an FDA master file on their device, and by far the most substantial intellectual property position on electroporation, so we have traversed that bridge before we did the deal.

On your first question on Prop 71, you may have heard that the judge in Alameda a week or so ago ruled in favor of Prop 71 defendants, as expected, demonstrating that both plaintiffs' case had no merit. That is the expected outcome ultimately, although between now and then there will be one, perhaps two, appeals at the State and perhaps even Federal levels. We do not expect the plaintiffs to prevail in either of those appeals, but their tactic is to waste time, which they are, frankly, being successful at doing. We know that there has been some progress in generating what are called bond anticipation funds, sort of promises to repay when the bonds are in fact issued, and that has enabled the Prop 71 folks to distribute significant money for training grants, so there is at least some motion within the state of California, but it is nothing like what is expected to occur once the $300 million becomes available.

So, how does that impact Geron? Well, we certainly will be supportive of Prop 71, with regard to our mountain of intellectual property, and we will try and help them get up the technology curve so that they are not funding reinventing the wheels that we've already in fact reduced to practice. I expect that we'll be in line for some of the money like anyone else, and it would be my intention to try and create some funding for our spinal cord injury program, at least in terms of the partial support for some of the trial sites that we hope to have in the state of California. But we are not planning nor have we acted in any way on this program that implies any dependence upon State or Federal funding. We have progressed this platform to its current status without a dime from the National Institute of Health, and we are fully prepared to continue in that mode, if necessary.

One last question. Nexia Technologies and stART Licensing, how are they progressing?

As you know, that joint venture houses now the world's preeminent intellectual property on genetically modifying animals and cloning animals. There are no claims in that joint venture pertaining to human nuclear transfer, and I think the simplest answer is that we are awaiting the U.S. FDA's decision to place meat and milk from cloned animals into the food supply. That will be one of the major gaining events for what we hope to be a very acted out licensing program of the IP that is housed in that joint venture. In addition, there are anecdotes of progress being made with the genetic modification of animals for the production of pharmaceuticals and nutroceuticals, and animal's plasma and animal's milk, and, of course, all of that IP is contained in this joint venture as well. And when those efforts reach the state of commercialization, we hope to receive knocks on our door.

Thank you. I appreciate the answers.

You're welcome.

And that concludes our question-and-answer portion of today's presentation. I'd like to turn it back over the group for any further comments.

Well, thank you all for joining. We will look forward to having these exchanges at the end of each quarter in the context of our quarterly earnings releases. We appreciate your attendance and your questions. Thanks very much.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes your presentation and you may now disconnect. Good day.