Geron Corp (GERN) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Geron first-quarter 2007 earnings conference call. My name is Onika and I will be the operator for today. At this time, all participants are in a listen-only mode. We will conduct a question and answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes. At this time, I will now like to turn the call over to Mr. David Greenwood, Executive Vice President, Chief Financial Officer. Please proceed, sir.

Good morning and welcome to the Geron earnings call. I am David Greenwood. With me is Tom Okarma, President and CEO, connecting to the call from London. This is an earnings-related conference call and we will begin with a summary of the operating results for the quarter. I will follow that with a discussion of P&L and balance sheet line items impacted by our reclassification of warrants in the 2006 10-K and the reinstatement of equity accounting treatment on March 31. Our agenda then includes an overview of recent operating highlights at the Company and a summary of our operating plans for the remainder of the year. Following that presentation by Tom, we will have a general question/answer session.

First two informational items, in the event forward-looking statements are made during this call, please understand the comments are made subject to the safe harbor provisions of the Securities and Litigation Reform Act of 1995. Any forward-looking statement involves uncertainty and we refer you to the risk factors detailed in our filings with the SEC.

Secondly, all participants as mentioned are currently in listen-only mode. The lines will open for the Q&A and the call will be available for webcast replay until May 30. Please go to our website for information.

As you can see on the condensed income statement attached to this morning's announcement or Friday afternoon's announcement, revenues for the first quarter were up over the comparable 2006 period, but royalty and license fee income amounts to less than $1 million a quarter.

Other cash inflows to the Company during the quarter included $15 million proceeds from the exercise of a warrant held by an investor and $2.8 million of interest income. We ended the quarter with $222 million cash on the balance sheet.

First-quarter R&D expenses increased $3.8 million period-over-period. Included in that Q1 number is $2.6 million of non-cash expense related to stock options. The G&A line item increased $2 million period-to-period, which includes $1.7 million of non-cash expense related to stock options. The remainder reflects ever increasing costs of compliance. I currently estimate our net cash burn for 2007 at approximately $40 million and with three quarters to run, that means we should end the year with approximately $190 million cash.

In our last conference call on March 16, I explained that we were restating historical numbers in the 10-K to comply with new guidance from the SEC, which called for warrants attached to the sales of stock to be treated as a debt obligation rather than an equity instrument.

I also mentioned on the call that we were processing simple amendatory language to the warrant documentation that would satisfy both our auditors and the agency as to the intent of the parties, meaning ourselves and the holders of the warrants, that the warrants are to be settled in stock under our effective shelf registration statement and not in cash. That has been accomplished for all of the large warrants in question, which means we have in large part reversed the reclassification and accounted for the warrants as equity on the quarter-end balance sheet. You see the impact in the liabilities and equity accounts. It is a swing of $35 million.

Having said that, we are still required to account for the warrants as debt during the quarter up to the date of the amendment. You, therefore, see a large number, $14.8 million, as an unrealized gain on the income statement, which amounts to the change in Black-Scholes evaluation of the warrants in question from 12/31/06 to March 13, the date the amendments were signed. This is of course a non-cash item.

Finally, you will note a below-the-line item labeled Deemed Dividend on Derivatives. This represents the Black-Scholes value of a warrant issued to investors in February. It too is a one-time non-cash item.

And let me just finish by saying it is my sincere hope that we will not be revisiting this topic of warrants accounting again on future earnings calls. That is my summary. We can obviously drill down on the numbers in the Q&A. At this point, I will turn it over to Tom Okarma.

Thank you, David and good morning, everyone. I will focus my comments on three publications that occurred over the beginning part of '07 and then turn to a brief summary of the important milestones for the rest of '07.

First, in January, we published in stem cells and development a very important paper on the OPC1 product, the oligodendrocyte cells for spinal cord injury, that indicated a second mechanism of action. You will recall that we have published previously that one of the main reasons the spinal cord injured animals respond with dramatic improvement in locomotion after injecting the OPC1 cells is that we see exuberant myelination or reinsulation of the damaged nerves by the injected OPC1 cells that are injected into the site of the injury in the animal.

Also though, we notice when the animals are later sacrificed and the cords are examined histologically that in addition to a myelination, we see new nerve growth sprouting and what appears to be improved survival of some of the neurons that were in fact damaged by the injury and the resulting inflammation. So it has got second observation that we published on in January.

A long story made short, what we discovered is that the OPC1 cells secrete a rather broad family of neurotrophic factors, soluble proteins, that are produced at physiological levels by these cells, all of which have tropic effects on neurons in the spinal cord. These factors range from several TGF-betas to active Na to VEGF and HGF.

So this is an important second mechanism that really completes the story of what we observe in this animal model of spinal cord injury, namely dramatic restoration of neural function due to these two mechanisms of action; the remyelination by the cells and the secretion in vivo of these numerous neurotrophic factors that increase spouting and enhance neural survival during the injury.

As you know, we are completing our IND-enabling studies for an IND submission for what we think will be the world's first embryonic stem cell trial at the end of this year.

Secondly, turning to 163L, our telomerase inhibitor drug, in February, we published a paper in cancer research on 163L effect in lung cancer in both in vitro and in vivo systems. And here, we explored the fact that 163L appears to have activity on tumor cells that is in addition to an independent from inhibition of telomerase and these effects are altering the adhesion of the tumor cell both in vitro and in vivo, which results in a dramatic reduction in the metastatic potential of the lung cancer cells when injected into the animal.

The paper describes classic structure activity relationships of this effect and among the findings, the effects require the five prime lipid attachment. They are dependent upon our unique thiophosphoramidate chemistry and it also requires a G-triplet motif in the oligo sequence. So this may be a very important additional mechanism of this drug that impacts the progression of cancer in vivo.

As you know, 163L is currently in two Phase I/II trials; one in CLL and another one in solid tumors. We expect to begin two more trials this year with the drug; one in multiple myeloma and the second in lung cancer. The rationale for the multiple myeloma study is both synergy with known multiple myeloma agents that are approved for use today, as well as dramatic evidence that 163L in addition to killing the mature myeloma cells also has rapid antagonistic activity on the myeloma stem cell. Stem cells being thought to be tumor chemotherapy resistant cells, which are responsible for relapse.

So the hope is that this drug either alone or in combination not only will result in significant remissions in myeloma, but may in fact wind up curing the disease because of its effect on the myeloma stem cell.

The rationale for lung cancer is in part the work that I described a moment ago on altering metastatic potential and also demonstrated synergy in lung cancer between 163L and various cytotoxic drugs.

The most important upcoming milestone on 163L will occur in the summer when we will be presenting the data thus far achieved as we begin to enter the so-called therapeutic dose cohorts in the trials, which is doses which we believe we will see activity. That will be presented by one of our investigators at the Pan Pacific Lymphoma Conference.

Lastly, we very recently published a paper of work that was done actually here in the UK where I am currently in our wholly-owned subsidiary, Geron Bio-Med. In Geron Bio-Med, we are focusing on three cell types; chonrocytes or cells that make cartilage; osteoblasts, cells that make bone and hepatocytes, or liver cells.

The paper on April 19 in cloning and stem cells describe the hepatocyte work and shows that these liver cells in fact contain multiple markers that indicate their maturity and their ability to function as a bonafide representative of human hepatic metabolism for use in various drug discovery applications.

As you may know, the definition of hepatic metabolism and hepatic toxicity is a major bottleneck currently worldwide in drug discovery having to rely mostly on animal models, which are not predictive. This adds significantly to the costs of drug development and to its failure rate. The use of tissue culture, liver cells from cadavers is also fraught with a great deal of variability as individual cadaveric livers vary widely in their metabolic function.

So having established the potential utility of these cells in vitro, the next step here is to do limited beta testing where we will be collaborating with a group that has the capacity to expose these cells to various drugs whose hepatocyte metabolism is known and we can, therefore, make direct comparisons between ourselves and the database that this potential partner has derived.

Lastly, I will turn to the two 2007 milestones. I have already mentioned with regard to 163L, the Pan Pacific Lymphoma Conference where we will be describing the early results in our therapeutic dose cohorts. New here, as I mentioned, we will also be initiating the non-small cell lung cancer study and the multiple myeloma study on 163L. We would hope to have most of the CLL and solid tumor data ready in a reportable fashion for the end of your presentation at the ASH meeting in December.

Turning to the vaccine, we are in the final stages of optimizing the manufacturing changes for these dendritic cells required by the switch from prostate cancer data that we have already published to AML, which is the current target and we expect to initiate that study midyear in '07 as well and would also expect to present interim data from the AML trial at the same ASH meeting at the end of the year.

We are working very hard on the telomerase activation TAT0002 program and pretty much on track to file the IND for the first application, HIV/AIDS, by end of this year, very beginning of '08. Similarly, we are on track to file the IND for the spinal cord injury program by end of year and by midyear, we hope to have large animal data proof-of-concept for our cardiomyocyte application.

Interestingly, there will be several full-length peer-reviewed manuscripts coming out in the next months that document proof-of-concept of the cardiomyocytes in a rodent animal model of infarction, as well as manuscripts that describe completely the method of differentiating eyelet-like cells that produce all three of the major eyelet; insulin, somatotropin and glucagon. With that, I think we will open to Q&A.

(OPERATOR INSTRUCTIONS). Joel Sendek, Lazard Capital Markets.

Thanks. A couple of questions. First, on the cash burn, I am wondering if the $40 million that you mentioned, is that gross or is that net of the warrant exercise?

That is net, Joel.

And then on the timing -- Tom, did you say midyear for the start of the lung and myeloma trials?

That's right.

And can you remind us again -- the lung, is that a combo study with carbotax or is that by itself?

That's correct. There will be arms of both the drug by itself and in combination. You are exactly right, Joel.

Okay. Is there -- will you start one before the other, the lung versus the myeloma or pretty much at the same time? Then can you give us a feel for how big those trials will be?

Well, they are independent trials meaning they are all at different medical centers, so they will have an individual [kinetic] for initiating the sites and getting contracts done and enrolling patients. They will both be relatively small studies, meaning 50 patients or less and the main advantage, of course, is that we will not have to begin at low doses the way we have had to with the other studies in CLL and solid tumors. So we are planning to roll into those protocols with regard to starting doses, the information that we have collected to date in the other longer running studies.

Okay, great. Thanks a lot.

Mark Monane, Needham.

Thank you. Good morning. I guess good afternoon to you over there. Thanks for reviewing the status of the programs with us. A couple of questions and that is can you go over -- your drugs are tested independently or single agents in the testing because the FDA likes that to see what the independent activity is, but can you comment on 163, which drugs that you know of that are currently in use today that might be ideal candidates for combination? There is a variety of choices in CLL and multiple myeloma and non-small cell lung cancer. Can you help us think about this issue?

Right. Well, the -- first of all, Mark, it's a good question and a lot of that work is ongoing. So I think the first honest part of the answer is that we are just beginning to scratch the surface of possible synergies and additivity.

Having said that, we have demonstrated and published in myeloma models substantial synergy between 163L and Velcade and that appears to be a solid finding. In lung cancer, synergy between carboplatin and gemcitabine. Although there are other experiments ongoing to try to broaden that horizon.

What we have tried to do in thinking about this, Mark, to speak to your more generic element of your question is to try to think mechanistically about what drugs would be likely to have synergy and these tend to be drugs that induce DNA damage because we know that 163L indirectly reduces the ability of the cell to repair DNA damage. So is at least the theory.

That makes sense. That was -- that had a lot of face validity. A second question has to do with the hepatocyte program. I was especially intrigued with the program as an opportunity for drug testing or drug development as safety has become a big concern for the FDA and for doctors and patients. Could you comment on the status of that program in terms of collaborations? I noticed you made a recent announcement concerning one collaboration. Can you talk about where we are with that program -- where you are with that program?

Historically, the hepatocytes were first arrived in Menlo Park at Geron. Once we established the Geron Bio-Med operation in Edinburgh, transferred the hepatocyte program there initially to The Roslyn and more recently as the Roslyn has moved away from embryonic stem cell work to the University of Edinburgh and during that time in Edinburgh, the technology underwent significant improvements. We learned how to increase yield and the maturity usefulness of this hepatocyte that we were deriving from human embryonic stem cells culminating in the data that was just recently published.

Now I don't think that is the end of the maturation story. I think that we will continue working on proved methods to continue to improve the maturity of the hepatocyte populations, but the significance of the paper is that we have demonstrated a critical mass of inducible P450 enzymes that we think will make the current platform useful and for predicting drug tox and for elucidating how the liver metabolizes drugs in development. Obviously the fact that these hepatocytes are still a little bit immature says a lot about their potential utility as [admeat] reagents for the pediatric marketplace.

So the next step literally, as I mentioned earlier in a collaboration that we have not yet announced publicly, is to really kick these cells hard with an extensive panel of agents whose hepatic metabolism is known and to make direct comparisons between both animal and human metabolic patterns of metabolism of these drugs versus those that we demonstrate with the current configuration of [EOC] hepatocytes in vitro.

So we would hope by year's end to demonstrate that these cells in their current configuration have utility for classes A, B, C drugs in their development.

That was helpful. Thanks for gathering that information. I have other questions, but I will defer to my colleagues for now and get back in the queue. Thank you.

(OPERATOR INSTRUCTIONS). Ren Benjamin, Rodman & Renshaw.

Good morning and thanks for taking the questions. So you had mentioned that there is synergy between GRN163L and Velcade, so can we assume that that is the agent of choice in the trial that is going to start in the second or third quarter of this year?

No, the multiple myeloma trial, Ren, we don't yet contemplate a combination arm. This is first 163L alone and that is primarily because of what the documented dual activity of the drug in both mature myeloma cells and the myeloma stem cells. I will remind you that at the end of last year, we extended the work on the myeloma stem cell from myeloma stem cell lines to actual myeloma samples that were removed from the bone marrow of myeloma patients. Those cells then being separated into stem cell compartment and mature and in those data, we demonstrated that only three days of incubation with 163L really knocks down the myeloma stem cell. So we want to fully vet the activity of 163L as a single agent in myeloma before we add possible combinations.

Okay, great. And is the timing -- am I thinking about the timing correctly as somewhere around the second or third quarter of this year?

Yes, we are saying midyear for the initiation of both. They are really quite neck and neck in terms of initiation.

Okay. And then regarding the cancer stem cell, there seems to be -- the existence of the cancer stem cell doesn't seem to be in debate, but I guess finding and characterizing the cancer stem cell does seem to be in debate. And so could you shed some light regarding -- are you sure that the stem -- cancer stem cells that you're looking at in the myeloma lines are in fact the real ones or how do you know that those are the cells that you are in fact affecting?

Right. Good question. I agree -- I would agree with you that in most major tumor types the notion of there being tumor stem cells is no longer debated and the nature of the stem cell is actually defined by the ability to transfer the tumor from one animal to another and have the transferred tumor when it grows show the identical genotype with the tumor from which it was derived. So that is the operational definition. And you are right. In some solid tumors, the actual surface markers or genetic signature of the tumor stem cell like in breast or colon is not fully identified.

In contrast that in the stem cells in liquid tumors are much better investigated in part because they are liquid to start with and it makes flow cytometric analysis a lot easier. So that really is the significance of the 163L data in myeloma stem cells because we are quite sure that we have isolated the initiating cell from myeloma and do understand the surface markers that enable us to by flow cytometry isolate a pure population of tumor stem cells. So that is really the rationale behind moving into the myeloma opportunity because the definition to your question of the myeloma stem cell is quite robust.

Okay. Can you give us an update, as much as you can, as to how the trial is progressing, how the CLL trial is progressing? I know there will be an update at the Pan Pacific I think conference -- Pan Pacific Lymphoma Conference, but is there anything else that you might be able to add on this conference call?

Well, I can tell you that we are proceeding well. We have now experienced well over 150 doses, including several patients who have had extended dosing beyond the two full week cycle protocol. In addition, we have had no dose-limiting toxicities or serious adverse events thus far, including patients who are now entering the so-called therapeutic dose cohorts.

The real interesting activity or information about the drug will, of course, be its activity and that we are going to reserve for the presentation in June, which will be an important milestone in the development of this drug.

Okay. Can you -- switching gears slightly, can you tell us how the IND-enabling studies for the stem cell program is proceeding? How far along are you and what more needs to be done?

Well, we are quite far along. Many of the studies are completed. The ones that are ongoing are really various derivatives of studies designed to reassure ourselves that we are not generating tumors in these animals. So the FDA rightly is very concerned about so-called teratomas, these benign growth, that some of the academics find in many other animals. We actually don't find that, but that is a function of the degree of purity that we are able to generate in our scaled-up manufacturing capacity.

So the -- those studies are staggered, so they actually began over two years ago and FDA and we agree that these animals need to be followed for at least a year after injecting the OPC1 cells, so these animals and various groups after a year of life are sacrificed and then their spinal cords are histologically examined for the presence of the OPC1 cell and hopefully the absence of any teratomas.

So there will be several hundred animals by the third quarter this year that will have been studied in this regard. It includes groups of animals in which we deliberately spike the OPC1 cell with moving undifferentiated embryonic stem cells so that we can create a relief spec for the agency that says what the minimum number of embryonic stem cells must be to contaminate OPCs to cause a teratoma.

So all this is designed to be able to give the agency, patients and our clinical trial physicians a very hard number about the statistical likelihood of there being any untoward growth in the human trials. So that is really the last hurdle and it is simply a matter of the passage of time to allow us to finish the analysis of the animals that still carry the OPC1s in their spinal cord.

Okay, great. And then basically, like you said, that would be the last hurdle. Do you then have to file an IND and then await the standard 30 days or have you already -- have you already been -- have you already been working with the agency and you should be able to sort of smoothly transition into a trial?

Well, I hope the answer is yes and yes. We have had multiple face-to-face meetings with the agency, so we have agreement on the scope and content of the IND. However, until it is submitted, there is no guarantee of going forward. So yes, there is the usual 30-day minimum during which the FDA reviews the application and this will be a very extensive IND. I mean our IND for 163L was a monster. This is going to be twice as large and I would remind you that it not only will contain the IND-type information having to do with the CMC section of manufacturing cells and all of the tox and distribution and teratoma work we spoke about earlier, but also we have had to invent a device for the injection of the cells under highly-controlled conditions so that we can fill the volume of the lesion, which obviously varies from subject to subject, with the cells.

So in addition to the IND part of the application, there will be an IDE, a device application, that describes the work we have done to qualify the device that we have invented. So once the IND/IDE combination is filed, then we begin instructing the neurosurgeons on the clinical trial group and we've now selected a short list of neuro trauma centers and their physicians to begin the trial. But you can't begin to negotiate contracts. You can't go through IOB or escrow committees at each site until and unless you get the FDA green light. So the guidance is we are on track to file by year's end, but we will not be announcing the filing of the IND. What we will be announcing in early '08 we hope is the actual initiation of the study.

Got it. One last question. The vaccine trial that is supposed to start in AML, I know you provided a very quick update, but can you give us a little bit more -- some more details around what else is needed to get that trial up and running?

Virtually nothing. We just need one or two more prototype runs from AML volunteers. These are not patients who are going to get the vaccine, but simply AML patients who undergo the blood draw and the processing. What we learned is that the dendritic cells from AML patients are somewhat different from the dendritic cells in patients with prostate cancer that we had previously studied at Duke. So we needed to make some specification tweaks to be sure that what we are injecting into the skin of the AML patients has the same potency and reproducible product specs as the dendritic cells that we use in the Phase I /II studies in prostate cancer.

Again, to make a point that I have tried to make over and over, we have real immunology here. What we have demonstrated in the prostate cancer trials is really robust and reproducible cellular immune responses to the vaccine that generate killer T-cells that kill the patient's tumor. And this occurs reproducibly throughout the patient population. It is not anecdotal and it is not one out of ten patients. This is completely different from the majority of the more advanced cancer vaccine programs that are now being -- one of which is now in front of the agency.

So we felt it was incumbent upon us to be sure before we started the AML trial that we have regained or will recapture and replicate rather the same robust immunology that we saw in the prostate cancer application because we think this is what we will need to demonstrable evidence of antitumor activity, which, as I have said before, is very hard to determine in prostate cancer that you don't have an easily sampable tumor mass.

Whereas in AML, you do either by [PCL] analysis of bone marrow or by the fact that AML patients after consolidation, particularly the older ones, always undergo relapse. So the time to relapse is another important primary outcome of the trial. So the rationale to segue from prostate cancer to AML was to have a near-term, hard data point that this vaccine approach in contrast to all others that we know of has a demonstrable antitumor effect that you can measure in the bone marrow patients with AML.

Okay. And just one last question. Regarding those cells -- I understand you are making the tweaks right now, can you remind us -- in the previous studies, you had tested several different, I don't want to call it formulations, but you had looked at several different ways to sort of boost the activity. Have you settled on one and just remind me have you settled on one and which is it?

Yes, we have. I would call them additives or adjuvants that we use and there were a variety of them. We did not substantially or in a uniform way improve upon the base technique. The base technique, if you remember, is the proprietary production of mature activated dendritic cells made from blood, which are electroporated or loaded electrically with a construct, a plasmid that contains the full messenger RNA for the protein component of telomerase, flanked with a LAMP sequence that forces the dendritic cells to process the antigen in both Class 1 and Class 2 pathways. That mechanism is unique to us and to this approach. And that is in fact how the vaccine is manufactured and that is its' basics.

Now the boosting strategy is separate from our use of additives that you asked about. We have optimized the boost and the protocol will involve weekly injections into the skin times four or six, then a month rest and then an every other week boost. In prostate cancer, we demonstrated that this generates an anamnestic response upon boosting.

What that means is although it takes six weekly injections and then a week or two of priming before you peak the immune response, even after nine months of no intercurrent therapy, a single boost injection up to 9 months later gives you that peak T-cell response after a single injection. And that again is why we are stating that we have real immunology here. This is not some sort of adjuvant effect. This is a real T-cell immunological recall reaction. Because the efficiency of generating the cells from the blood draw is actually quite good, we have enough aliquots of vaccine from one blood draw with this boost strategy to maintain what we think will be therapeutic levels of anti-telomerase T-cells for many, many months in these patients, thereby extending the duration of action.

Terrific. Thank you very much.

You are welcome.

Mark Monane, Needham.

Thank you very much. A follow-up question on the stem cell program. I remain perplexed about the patent situation and the various letters and contentions being made. Could you refresh us with the state of the union concerning Geron's patents and where we stand?

I think it's really pretty simple. We first believe in the validity of the so-called WARF patents, which are the University of Wisconsin-Madison patent estate currently being challenged in the appeals court. Now you probably read that recently in the first round of that process, the claims were all rejected. That occurs in over 90% of re-examination cases in the very first round.

Holders of the patent are allowed to present their case. The opposition prevails. It is also true in 70% of patent opposition cases that the majority of the claims are ultimately withheld or rather confirmed on the completion of the process. This case can take another couple of years. So we are working with WARF to help them present their case. We did a lot of due diligence on this patent before we licensed it in the first place. We do think it is valid and it will prevail.

However, we, in parallel, have filed our own intellectual property portfolio that gives us protection and freedom to operate here. So even in the worst-case scenario that all of the WARF claims should be withdrawn or found invalidated, our patent estate covering the cell types we have talked about remains intact. It has nothing to do with claims or the validity of the Wisconsin IP.

So our protection and our freedom to operate is a completely independent outcome of the challenge to WARF.

Okay. That was helpful. Thanks again for reviewing that with us.

[Jeff Miller], Geron (sic).

Hi. I am actually not with Geron; I am an individual investor. My question concerns the possibility of an increase in licensing revenue in particular from ViaGen activity.

Yes. ViaGen is a licensee under our -- from our joint venture called stART with Exeter Life Sciences. So what is stART? stART is a 50-50 JV that we formed almost two years ago now with Exeter Life Sciences to outlicense the nonhuman, meaning the animal, use, rights for the cloning, nuclear transfer cloning technology that we acquired in 1999 from the Roslyn and stART is up and running now. It is fully capitalized parenthetically and is a licensing vehicle company. So ViaGen and many others now are licensees from stART and we would anticipate in future periods reporting greater licensing and fee royalty revenues.

Really that is contingent on one political event and that is the release by the FDA of the report that you heard about over the Christmas holidays on the safe use of animal products or food products from cloned animals. And again, this is -- these are from herds produced from cloned animals. Obviously you do not harvest cloned animals. They are very expensive breeding stock and you would keep those animals in stock.

That report is now under the public comment process and which concludes its first round very soon and then goes into a second round of hearings and so on. The process is supposed to conclude by the end of the year and that draft report, which was released just before the end of '06, will be officially published. That is a milestone event. It is a Good Housekeeping Seal of Approval and we do believe it will prompt food production and processing companies to readily adopt the technology.

So is the licensing structured in such a way that a big increase in sales from ViaGen will result in very significant or a big increase in licensing revenue?

Yes, the royalty rates are substantial.

Okay. Thank you.

William Turon, CBT Enterprises.

Dr. Okarma, I wonder if you could explain the differences between our electroporation process and the one Merck has licensed and whether -- what the relationship there is. The second question is can an individual get their telomerase measured through a local lab besides TA Sciences?

Well, first, you are a little confused. What Geron licensed to Merck has nothing to do with dendritic cells or electroporation. It is simply licensing the target, telomerase tumor, for them to target using their technology. Their technology is plasmids and adenoviruses that in their configuration contain the telomerase target, which are used in animals and ultimately in people to try and generate an immune response against telomerase.

So their program in its purest sense has nothing to do with dendritic cells or electroporation or telomerase RNA, it is simply the target in their hands. What perhaps may have confused you is that there is, as an additional part of the relationship with Merck, a collaboration agreement, which is ongoing and under that agreement, jointly managed by Geron and Merck, we are combining their platform, adenovirus and plasmid, with our platform, dendritic cells, in various ways to see if there is synergy resulting from the combination of the Merck/Geron platforms.

Should we find such synergy and decide to go forward into a clinical environment using both Geron and Merck technologies, that would require the execution of a second deal, namely the licensing by Merck of Geron's dendritic cell program. That has not been priced. And we do not yet know if that is going to materialize. So today, the two clinical applications are separate. Tomorrow, there's a possibility they would be joined.

Now, the second part of the question had to do with measuring telomere length and TA Sciences. Well, that is completely separate. TA Sciences is merely a licensee of ours and what they do with the nutraceutical application is really their concern.

In some of our tumor studies with 163L, we are interested in measuring telomere length for a variety of reasons. We have already published that in CLL, the telomere lengths in the B-cell compartment of the CLL patients are very short compared to their normal peripheral blood cells or cells in their bodies and this is expected, but demonstrates that the tumor population in CLL has shorter telomeres, which should make them to susceptible to inhibition by 163L. You will hear more about that in the Pan Pacific meeting.

We also are interested in trying to subset patients in all of these cancer studies in terms of their likelihood and kinetic self-response to 163L as a function of telomere length of their tumor cells. That is work that is obviously ongoing.

And then thirdly, in some of the tumor types that may take many weeks before we actually see clinical activity, one of the monitors along the way we try to demonstrate that in the presence of 163L, we are shortening the telomeres in the tumor cell, which is indicative of inhibiting the enzyme by the drug in those cancer cells. So while the telomere length is not an independent outcome measure and we have not yet determined that there is any significant prognostic value of determining telomere length up front in these studies, we are measuring it for that possible correlation.

Right. But similar for the public, couldn't go to a lab or like [Quest] or Abbott had and have it measured just for their own knowledge?

Well, I think there are a variety of companies that do offer telomere length measurements. I honestly can't tell you how easy that is to effect. I just don't know.

Okay. Thank you.

[James Otis], Private Investor.

Dr. Okarma, such a pleasure to speak with you. I'm a long-term stockholder. Recent research has shown that idiopathic pulmonary fibrosis is caused by or may be caused by short telomere length, very short telomere length. Since this is something your Company works on very, very a lot, quite a lot, might you be doing any research in IPF in the future with the cause of the shortened telomeres?

Thanks for the question. I am aware of that recent publication and you're quite right. That adds to a growing list of chronic diseases that are characterized at least in part by unusually short telomeres. The largest one also recently described as osteoporosis, that telomere length is actually as good a predictor of bone density as is the typical measurement of bone density.

However, we are not at the present time working on any of these therapeutic opportunities for TAT0002. We are focusing first on HIV/AIDS and that is a matter of focus and burn rate first of all and second, it is because the impact of activating telomerase in HIV subjects that are progressing is really quite dramatic and specific with regard to viral levels and antiviral activity of the patients' T cells.

As you may recall, we have shown that the progression of AIDS from HIV positivity to fight disease is caused by accelerated telomere shortening in a subset of the white blood cells that are specifically induced to fight the HIV virus. And we have shown that incubating those cells with TAT0002 [obligulates] telomerase and restores their antiviral activity.

We have also shown that that effect of TAT0002 can be completely aggregated by coculturing these sells with TAT0002 and 163L, the telomerase inhibitor. So without induction of telomerase, TAT0002 does not give enhanced immune activity of these cells. So we've isolated the cell type, we have a demonstrated mechanism of action and we think that is a near-term disease opportunity where we can get a much better feel for the activity of TAT0002 in a large disease.

Thank you very much, Doctor.

At this time, there are no additional questions in queue. I would now like to turn the call back over to Mr. David Greenwood for closing remarks.

That concludes our call this morning and I thank you for joining us and in particular asking a number of good questions. Have a good day.

Ladies and gentlemen, this concludes the presentation. You may now disconnect. Thank you and have a good day.