葛蘭素史克 (GSK) 2004 Q3 法說會逐字稿

Welcome to the ID Biomedical Corporation's third quarter results conference call. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. [Caller instructions.] I would like to remind everyone that this conference call is being recorded on Tuesday, November 16, 2004 at 11:00 am Eastern Time. I will now turn the conference over to Mr. Dean Linden, Manager of Corporate Communications. Please go ahead sir. Good morning.

Thank you all for joining to us discuss ID Biomedical's quarter ending September 30, 2004. and also thanks for your patience as we had a bit of a delay last night with the numbers and I know it made for a late night for some of you. I am joined this morning by Dr. Tony Holler, ID Biomedical's Chief Executive, Todd Patrick, the Company's President, and Richard Bear, VP of Finance and Administration. This morning we'll begin with a report on the Company's third quarter financials. Tony will then take us through a general overview of the Company's activities during the quarter. And finally Todd will update the Company's business development activities. In a moment I will turn the call over to Richard. However, first I need to make a brief comment regarding forward-looking statements. The information in this conference call contains so-called forward-looking statements. These include statements regarding ID Biomedical's expectations and plans relating to the integration of the vaccine business acquired from Shire. Statements about ID Biomedical's expectations, beliefs, intentions or strategies for the future which may be indicated by words or phrases such as anticipate, expect, intend, plan, will, we believe, ID Biomedical believes, management believes and similar language. All forward-looking statements are based on ID Biomedical's current expectation and are subject to risks and uncertainties and to assumptions made.

Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include: the Company's ability to successfully integrate the Shire vaccine business, the Company's ability to successfully complete preclinical and clinical development of its products, the Company's ability to manufacture and sell its products including flu viral, the seasonality of the flu vaccine business and related fluctuations in Company's revenues from quarter to quarter, decisions and the timing of decisions made by the health regulatory agencies regarding approval of its products for human testing, the Company's ability to enter into distribution agreements for its products and to complete and maintain corporate alliances relating to the development and commercialization of its technology and product, market acceptance of its technology and products and the competitive environment and impact of technological change and other risks detailed in the Company's filings with Securities and Exchange Commission. ID Biomedical bases its forward-looking statements on information currently available and assumes no obligation to update them. With that I will turn the call over to Richard Bear to report on the third quarter financials.

Thank you Dean. The Company's third quarter results from operations include the activities of the acquired Shire business for the period September 10, 2004 through September 30, 2004. The Company recorded a net loss of 7.6 million or 18 cents a share for the 3 months ended September 30, 2004, compared to a net loss of 8.6 million, or 24 cents a share, for the 3 months ended September 30, 2003. The net loss for 9 months ended September 30, 2004, was 29.3 million or 70 cents per share compared to a net loss of 18.6 million or 54 cents per share for the same period in 2003. Revenue is comprised of product sales from our 2 marketed products, flu viral and NeisVac-C . Also included in revenue is research and development contract revenue, deferred licensing revenue and other revenue. For the 3 months ended September 30, 2004, the Company's revenue totaled 17.4 compared to 2.1 million for the 3 months ended September 30, 2003. Revenue for the 9 months ended September 30, 2004, was 21.7 million compared to 5.3 million for the same period in 2003. Product sales revenue in the amount of 13.6 million was recorded for the 3 and 9 months ended September 30, 2004 compared to 0 for the same period in 2003. Product sales increased as a result of the Shire acquisition.

Research and development contract revenue in the amount of 2.9 million was recorded for the 3 months - - 2.9 million was recorded for the 3 months ended September 30, 2004, compared to 1.4 million for the same period in 2003. Research and development contract revenue for the 9 months ended September 30, 2004, was 5.8 million compared to 3.3 million for the same period in 2003. Research and development contract revenue includes 2.8 million in revenue recognized as a result of Shire funding facility for funding to support the development of pipeline vaccine candidates from Shire. Cost of product sales which includes the expenses related to production and distribution of flu viral and distribution of NeisVac-C was 7.2 million for the 3 and 9 months ended September 30 2004. Net research and development expenses increased 2 million or 28% to 9.1 million for the 3 months ended September 30, 2004, compared to the 3 months ended September 30, 2003. Net research and development expenses for the 9 months ended September 30, 2004, increased 59% to 26.9 million compared to the same period in 2003.

The increase in net research and development expenses in 2004 compared to the same period in 2003 is a result of the Shire acquisition and the cost of advancing our lead products into clinical development. Selling, general and administrative expenses increased 2.7 million for 162%, to 4.4 million for the 3 months ended September 30, 2004, compared to the 3 months ended September 30, 2003. Selling, general and administrative expenses for the 9 months ended September 30, 2004, increased 95% to 9.4 million compared to 4.8 million for the same period in 2003. These increases are a result of the Shire acquisition, stock-based compensation and increases in other general and administrative expenses. Investment and other income includes interest income and foreign exchange gain and losses. Investment and other income decreased 2.8 million resulting in an expense of 2.4 million for the 3 months ended September 30, 2004, compared to income of 0.4 million for the 3 months ended September 30, 2003.

Investment and other income for the 9 months ended September 30, 2004, decreased 3.8 million compared to the same period in 2003. This decrease in investment and other income is directly related to Company's investment in U.S. dollars to satisfy the U.S. dollar obligation of the Shire acquisition. That concludes the financial highlights for the third quarter and for the first 9 months of the year. Full financial statements are available on our website or from Cedar.

Thanks, Richard. I will now call on Tony to give you his report on the Company's activities during the third quarter.

Thanks, Dean. In the third quarter of 2003, we closed the transaction whereby we purchased the vaccine assets of Shire Pharmaceuticals. Both Shire and ID Biomedical had originally hoped to close the acquisition by June 30, 2004. But because the acquisition required approval from a variety of government agencies, this was not possible. One contributing factor was that a federal election was called in early June. And that did not help in achieving our goal of closing by the June 30 date. As most of our shareholders know, or now understand, we acquired some very valuable and strategic assets due to this transaction. First, we acquired a marketed injectable flu vaccine, Fluviral which is marketed in Canada and has what we believe is a clear regulatory path for approval in the U.S.

Recent developments, including Chiron's failure to deliver flu vaccine to the U.S. market this year, highlight what we have been saying since first signing the purchase agreement last April. There is an urgent need for a third manufacturer to supply the U.S. influenza a vaccine market. We believe ID Biomedical is now ideally suited to be a supplier to this most important market. We are a manufacturer based in North America. We have a modern state-of-the-art facility. And we have the capacity to play a meaningful role in the solution for the supply issues facing the U.S. market in the years to come. Our second rationale for this deal is that we acquired a means to manufacture our intranasal product, the FluINsure vaccine. As our shareholders will recall, one of the principal reasons we acquired the Shire vaccine assets was to have our own antigen supply for manufacturing the FluINsure vaccine. Not only do we now have an antigen supply but we also have the facilities and the experienced personnel to complete all manufacturing activities related to FluINsure.

Importantly, both products, Fluviral and FluINsure, are manufactured identically until the final steps of production. This has important implications in terms of cost of goods for our intranasal products and use of capacity for new markets for our flu antigen. We believe that an important barrier to the use of intranasal flu vaccines is price. And our production process has the potential to address this issue. Additionally, because our product is a non-live purified product we believe that it addresses the potential safety and consumer confidence issues which have plagued live products. Additionally, through this acquisition, we acquired land, plant, and equipment. Not only does this allow us to do both scale-up and commercial production of our products, it also provides an opportunity to bolster our financial resources by monetizing these assets. When looking at our post acquisition pipeline I think it is clear that ID Biomedical has one of the most attractive pipelines in the entire vaccine industry.

One of the most important goals for the acquisition was to maintain our strong financial condition after closing. As part of the acquisition, Shire agreed to provide ID Biomedical with a U.S. dollar $100 million for funding facility. This funding facility is paid back to Shire through royalties on new product sales; other than some relatively modest annual minimum payments that begin in 2007. This funding facility, in combination with monies we expect to garner from monetizing the acquired property, should keep ID Biomedical in a strong financial position. During the third quarter we also announced positive results from our field study of FluINsure and our Phase II safety and immunogenicity study of StreptAvax. In August we announced that FluINsure could protect healthy adults from influenza. This result was achieved despite the fact that this 1,365 patient study was carried out during a flu season when a variant strain was a predominant strain circulating in the North American population. And FluINsure, like all other flu vaccines last year, was not designed specifically to protect against this strain. This result speaks to the potential importance of mucosal immunity in protecting people from influenza infection.

Now that we have our own antigen supply and have successfully formulated FluINsure with our new antigen, we must do bridging studies to show that the new formulation is equivalent to the formulation we have used in the 8 previous clinical trials. The first of these studies began this month in Canada where we are immunizing a subset of subjects who were in the 2003 field study. In August, we also announced positive results from our Phase II study of StreptAvax. This study showed the vaccine to be safe and well tolerated. Further, subjects developed strong immune responses to the 26 serotypes targeted by the vaccine. We are currently preparing an application for both Health Canada and the FDA seeking approval to begin testing in a pediatric population. We expect to begin trials in children mid-2005, first in older children, as a step-down to our target population of 4 to 6 year-old children.

In summary, through the acquisition of the Shire vaccine assets and due to the successful clinical development of our lead products, the FluINsure vaccine and the StreptAvax vaccine, we have positioned ID Biomedical to become a global leader in the vaccine industry. ID Biomedical has the capability of taking all of its products from early stage clinical development through to registration. Additionally, we have the expertise and infrastructure to carry out manufacturing from pilot scale to commercial scale production. ID Biomedical is positioned to take advantage of the opportunities in the rapidly growing flu vaccine market. Not only do we have a marketed injectable vaccine. But we also have a promising intranasal vaccine in development that, if successfully licensed, could allow us to address all segments of the flu vaccine market. I would now like the turn the conference call over to Todd Patrick, our President. Who will update you on our progress in monetizing our facilities, our business development activities and where we are with regard to the sale of Fluviral in the U.S. market.

Thank you, Tony. We have been making good progress towards our goal of monetizing the facilities we acquired from Shire. As we have publicly stated: Pur principal goal is to complete at least 1 sale/lease-back transaction this year and our focus is on the Northborough and Laval facilities. As we stated in our Q2 conference call, our strong preference is not to sell the Quebec manufacturing plant even if we were to do a long-term, such as 30 year lease-back of that facility. The reason for this is simply that we think we are better off owning this plant outright. Nothing that has happened over the course of the last 3 months or since our last public disclosure on this topic has changed our opinion on this matter. In fact, with the value of flu vaccine production plants significantly increasing in the last few weeks, we are pleased that we have chosen not to pursue this alternative relative to the St. Foy facility. We may still choose to use this plant, in an asset based financing of some sort, but we will not sell the facility.

With regard to Laval and Northborough we are close to finalizing 2 related transactions covering both facilities with a single purchaser. We expect 1 to close in December and the other in January. Total proceeds from these transactions are estimated at approximately $50 million. Each facility will be subsequently leased by us for minimum of 15 years. With ID Biomedical retaining 3, 5-year options to re-lease the buildings after the expiration of the initial term. With regard to our business development activities: Most of our current efforts are focused on Fluviral and/or FluINsure. The main issue for consideration is the type of arrangement. Although these are both flu products and one could see them going to the same party, each product stage of development is very different. For example, Fluviral is much more advanced than FluINsure. And even before the issue with Chiron and the possibility of an accelerated time to the U.S. market, we believed the ability license Fluviral was within our grasp.

In other words, we did not feel that it was as important to get a co-development partner for Fluviral since the clinical and regulatory path of this product is relatively straightforward and within our own financial means. Thus, for Fluviral it makes more sense, we believe, to focus on product revenues and take on 100% of the regulatory, clinical and manufacturing risk and investment. This may not necessarily be the case with FluINsure. FluINsure is a new product. And the clinical plan will likely require an efficacy study in several thousand people with safety in perhaps tens of thousands of subjects. Although we certainly want to focus on maximizing our long-term revenues for this product as well. We may very well need to take on a development partner to assist us with the clinical investment required to get this product licensed on a worldwide basis. With regard to timing, when we announced the Shire transaction last April, we stated that we thought we could do a deal where either Fluviral or FluINsure or both but at least one of them within 1 to 18 months. We are sticking with that guidance.

In terms of the sale of Fluviral into the U.S. we can confirm that we have filed a drug master file with the U.S. Food and Drug Administration related to 1.2 to 1.2 million doses of vaccine that we have available for the U.S. market. The FDA review process included our sending a significant number of documents to the FDA about our product and manufacturing process. In addition, the FDA requested a physical inspection of our facilities, which was completed last week. It is important to note that we do not know the results of that inspection. The FDA inspectors that were at our facilities do not have the power to make a final decision as to the acceptability of our product. Nor did they share their recommendations with us. We also do not know the exact timetable for such a decision. Although we would expect that we will hear something by the end of the month. We are allowed to bring product into the U.S. this year. We expect it will be accomplished via an investigational new drug application. And the product will be provided to the U.S. Department of Health and Human Services under a purchase commitment by HHS.

For 2005 and beyond, we can confirm that we have been encouraged by the HHS to seek expedited approval from the FDA. Which if granted would allow us to be licensed manufacturer of flu vaccine for the U.S. market as early as next year. We are currently evaluating this possibility. I need to caution that no decision has been made by ID Biomedical as to whether or not to seek expedited approval for our flu vaccine. And even if we do, the FDA, not HHS will be ruling on this matter. If we do seek expedited approval. And if we do obtain such approval from the FDA in time to manufacture next year's flu vaccine, neither one of which can be predicted at this time, then we can confirm that we believe we could be in a position to produce as many as 22 million doses in 2005. The number of doses that could possibly be delivered to the U.S. market depends on many issues that are currently outside of our control and impossible to predict. These include; manufacturing schedules and the timing of decisions by regulators, sourcing of raw materials, in particular eggs, production yields and the many other risks associated with manufacturing.

Even if we do manufacture at our full capacity. And things go smoothly in production, including fill finish and packaging, the number of doses ultimately available for export to the U.S. in 2005 will also be impacted by the size of the Canadian Government's order for next year. Historically, the Canadian Government has ordered between 7 and 8 million doses per year. But they have the contractual right to purchase up to 12 million doses. This means at full capacity, we could supply the U.S. with somewhere between 10 and 15 million doses in 2005. By 2006, we expect to increase our full production capacity to 32 million doses. And as previously stated, we are targeting full capacity to be up to 50 million doses by 2007.

Again, there are a significant number of unknowns and risks associated with reaching these production numbers. Not the least of which is completing the ongoing expansion and validation of our flu vaccine plant in St. Foy, Quebec to meet GMP/FDA regulations. If our expansion and facility validation objectives are not successfully carried out on time, then nothing else will really matter, including whether or not we receive FDA approval. Finally, of course, even if we are to achieve all of our manufacturing and regulatory goals and achieve an accelerated approval, we would still have marketing risk when we enter the U.S. market. Thus, it is not possible for to us predict future revenues at this time.

Thanks, Todd. Bridget, I'd like to open the call up for questions now, if you could.

Thank you, sir. One moment, please. [Caller instructions.] Your first question comes from Philippa Flint from RBC Capital Markets. Please go ahead.

Thanks very much and good morning. A few questions on the acquisition of Shire and how you've accounted for it. You owe an additional about a total 28.5 million of working capital net operating cash from the June 30 to September 10 period. Can you comment on how will you account for that?

Hi, Philippa, Richard. We've accounted for that based on the statements provided by Shire for both net working capital and net operating cash. In the agreement we have the right to review those. And to the extent that there's differences, resolve any differences with Shire. To date we do have some differences with Shire that we're working on resolving. But we have recorded those. Currently at the full amounts provided by Shire any changes to those will reflect adjustment to consideration paid.

So it's already in your Q3?

Yes, it's already included in the purchase price acquisition, yes.

Okay. And then my second question, with the Shire funding facility, there was a note that you expect to draw - - that you will receive, and this was subsequent to the quarter end, 41.6 million, I believe October 1. Can you comment how much of that would go as long-term debt versus R&D contract revenue?

Yes. Roughly 10.9 million U.S. of that, the number I've provided, was Canadian in the MBNA But 10.9 million U.S. or about 40% of that will go to long-term debt.

And under the long-term you mentioned that you're assuming a 10% interest, but that's not interest, that's actually paid, correct?

It's interest that's accrued and capitalized at the end of each year.

Okay. And then is only repaid out of royalties?

Yes.

Okay. And previously, earlier in the year you had given your revenue guidance for '04 of 62 million. Now, I know that was before the various government contracts came. The - - a lot of that was - - or a portion of that was collaborative agreement revenue from Shire. Is that amortized over the next few years?

Yes. The original guidance we had given assumed a certain accounting for the advances for the pipeline as we resolved the Q3 - - as we finalized the Q3 report some of that accounting changed. So although we're still confident on our product sales and other revenue guidance that we provided, the revenue related R&D contracts may be slightly lower than guided. But overall cash will be consistent with what we've guided earlier. If that answers your question.

So - - partly. So the R%D contract revenue is amortized, then, as the work is done?

Yes, it's amortized over the life of the funding facility, 4 years.

Okay. And can you comment at all on burn rate? I know that's not necessarily valid because the quarters are widely varying in terms of when revenue is received. But in terms of expense levels, because Shire was only included a couple of weeks worth.

At this point we're still analyzing - - we're going through our Q5 budgeting which includes a re-forecast of Q4 so I would be able to provide more guidance on burn at that point in time. Right now it would be premature for me to provide guidance on burn.

Thank you very much.

Your next question comes from Eric Lun from TD Securities. Please go ahead.

Good morning. I have a few questions. On financials, in terms of your sales, should we expect Q4 sales to be similar to Q3? Or will some of that spill over to Q1 '05? Also, in terms of the margins, you guys had decent margins of 47%. Quite a bit higher than what Shire reported in their Q3 last year of 19%. Can you comment on what we expect going forward? And then finally on the R&D expenses, it's related to what Philippa had asked. What's the run rate we should expect for Q4 and going forward? Then I have a few more follow-up on the flu for the U.S. But I'll ask that after.

In terms of revenue, approximately half our Fluviral sales were recorded during the third quarter. And the remaining 50% of those were recorded during the fourth quarter. We will see a lift in the fourth quarter sales related to the NeisVac agreement. We do expect overall revenues to be higher in the fourth quarter than they were in the third quarter. In terms of margins; margins that were reflected during Q3 will be consistent in Q4. And as far as we know today will also be consistent going into 2005. In terms of the R&D burn rate, again, it's premature for me to comment on that until we get through our 2005 budgeting process.

Okay. In terms of the flu for next year, for the U.S.,; Todd, can you comment on what exactly the FDA might be looking for in terms of getting that accelerated approval? And also when would you need to order your eggs by to actually meet the manufacturing schedule?

I really can't comment on the accelerated approval process at all. As I mentioned, we just ourselves are evaluating it. And we haven't made any decisions. I think what the FDA in general will be looking at is our production process, our viral load, bioburden. The typical things they look at of a flu vaccine manufacturer, our facilities, our SLP's and quality programs, et cetera. The real issue probably around the accelerated is: Is there a clinical program or not? And to what - - what kind of clinical program is that? And I'm sorry, what was the other part of the question?

I was wondering when would you need to order the eggs by in order to meet that time line?

Eric, we're still evaluating that. I would think that ideally by the end of the year, if we get into January, could we still do it? Probably. If we get into February I think it becomes significantly riskier.

Okay. And just 2 more here. Would IDB only go ahead with a decision if they have a confirmed order? And secondly, in terms of the - - sorry, actually, go ahead with that one. Sorry about that.

Yes, we will only - - our production capacity is increasing anyway, and that really has to do with our requirements under the pandemic agreement that we have with Canada. So we are going to increase our facilities to be able to produce at those production levels irrespective of whether we enter the U.S. market or not. Now, whether we go ahead and crank up production to meet that capacity will really be dependent on whether or not we have a guaranteed order from either the U.S. Government or other purchasers of flu vaccine. And so we will not go to the full capacity without that.

Okay. Thanks a lot.

Your next question comes from Mike Booth from Canaccord Capital. Please go ahead.

Thanks for taking the question. I just have a question on the capacity for flu vaccine. Obviously the target is for 50 million doses. How will that impact on FluINsure doses as well? Does this 50 million include Fluviral and FluINsure or is that just Fluviral?

That's both.

Okay, thank you.

Your next question comes from Sema Sidwani from GMP Securities. Please go ahead.

I was just wondering, I know it's very difficult for you to comment, when do you expect FDA approval for Fluviral? And you also mentioned that the production capacity will be increased to 22 million next year. Is this regardless of whether Fluviral receives FDA approval? My other questions are more housekeeping. Do you maintain your revenue guidance and cash guidance for 2004? And what is your cash position right now and how do you plan to reach 121 million?

Let's start from the back, then. In terms of the cash position the cash position right now as of 9/30 is 100 million. And the way we're going to reach our guidance number is through a sale/lease back transaction that Todd spoke of earlier. Plus during the fourth quarter, we'll have - - we have a significant amount of sales of our Fluviral vaccine and the NeisVac vaccine that we'll collect on. And we'll be also be collecting on some government and receivables that were outstanding as of the end of the - - as of when the deal closed. And we have our Shire funding facility. In terms of revenue, the revenue guidance will depend a little bit on the R&D contract revenue related to the funding facility. But for the most part we should be pretty close to the guidance provided earlier.

Great.

On the question of when the FDA will approve Fluviral we can't predict that. Obviously the FDA is, you know has inspected our facility but there's no way of predicting that. And in terms of the other question, I think Todd answered that. We are expanding our capacity regardless of the situation with the FDA or other jurisdictions.

Okay. Great. Thank you.

Your next question comes from Jeffrey Sue from Ordinance Med. Advisors. Please go ahead

Hi, guys. Thanks for taking my questions. How much of the product sales in the third quarter were Fluviral versus other vaccines?

A significant majority of the revenue during the third quarter was Fluviral.

Fluviral okay. And can you remind us again how much of the Shire loan facility are you guys expecting to draw down over the next 4 years?

100 million.

All the 100 million? Okay. And finally, next year, if you are able to produce 15 million doses for the U.S., how might the gross margin change, if that was the case for 2005?

Again, it's pretty dicey for to us get into a lot of future revenue projections but let's just simply say that flu prices in the U.S. are significantly higher than in Canada. Whether it's a government market or a private market. And so we would expect our gross margin to go up accordingly.

Okay. Thank you.

Your next question comes from Russell Gilbertson from Harris Company. Please go ahead.

Good morning Todd and Tony. And I want to congratulate you on the progress you've made. A few questions. First, FluINsure, when can we expect an open field study, a pivotal open field study of that product?

We're planning open field studies sometime in the 2005/2006 time frame. As you know, we're currently doing these bridging studies so that we can bridge all the data we've collected so far on FluINsure into our new master file. So, you know, that's obviously very important. So we're doing those bridging studies this fall in Canada. In the spring, in the U.S. And that will allow us to go into field studies in the fall '05 and in '06. As you know, if we needed to we could also go to the southern hemisphere for a study.

Sure. But you haven't really firmed up those plans. Now, if you started it in fall of '05 for your first study would that be in adults and then you'd follow up maybe in children in '06? What's your strategy?

Our strategy is to start adults, that's right. Now, we are going to start in '05, safety and immunogenicity studies in children. So next year we're going to start into the childhood group. And our thinking there, Russ, is that there seems to be more clarity on where the markets are for these 2 products. I think the general view now is that the injectable vaccines are, you know, 50-year-old-plus product generally. And that the intranasal product is probably an 18 year and under product, and in between. 18 to 50 is both products. So I think it's very important for the Company to start moving into those pediatric studies. Or even adolescent studies. So that's our strategy moving forward, To continue the work in adults but rapidly move into the pediatric population.

Could you outline your agreement with TPC and what you expect grant revenue to be going forward?

The agreement with TPC is for a potential of up to $80 million in funding. To date, since the inception of this agreement 22.5 million of these contributions have been requested or accrued for. And we've received funding of about 14.1 million. Guidance on the future in terms of the drawdown is, again, premature at this time. We will be utilizing the TPC to the fullest extent.

Good. And the last question I have is regarding your pandemic preparedness. It's my understanding that you're going to be using a cell line for production of that antigen. Could you just give us a little more color on that? And also will you ultimately be using any form of cell line manufacturing for your Fluviral or FluINsure?

Let me clarify that, because what you're talking about, Russ is the NIH grant that we've received for developing our cell culture technology. That is completely separate from our pandemic preparedness contract with the Canadian Government. And it's just as an overview, pandemic preparedness, basically means that we have to produce a pandemic vaccine in eggs. Because there - - you know, cell culture is still at its infancy. There are a couple of facilities in Europe that I guess in the next couple of years will start producing vaccine. But they're producing very small quantities. So our contract with the Canadian government is an egg-based production methodology. And for the foreseeable future, I think you're going to see pandemic preparedness and the intrapandemic vaccines all be egg-based. So does that answer your question, Russ?

Sure. Thanks for clarifying that for me. And thanks for answering my questions.

[Caller instructions.] Your next question is a followup from Mike Booth from Canaccord Capital. Please go ahead.

Couple questions on the distribution agreement, I suppose for Fluviral. If you get an accelerated review, expedited review and the FDA says yes and you come, will you sell it direct to the government or will you require a distribution agreement to do that? And, sorry, I got a little bit confused with your guidance on the timelines for a distribution deal. Can you repeat those or give us a little more clarity on when you think you might a U.S. Fluviral distribution agreement? And I have one more follow-up after that.

Okay. In terms of the guidance, Mike what we're just sticking with is what we said last April. Last April we said 1 to 18 months. I know that's a very big range. But we really feel comfortable with staying with that for now. And, you know, we're working on it. In terms of whether we would sell directly to the government or go through a distributor; we've had some preliminary discussions with Health and Human Services on that. And we've not reached a final decision.

Okay. And lastly and this is, again, just to probably clarify something I got lost in earlier, how much of the Shire loan do you anticipate drawing down during 2004?

During 2004, approximately 50 million U.S. will be drawn down.

And how much of that will be recognized as revenue?

Approximately - - about 30 million of that will go directly to long-term debt because that relates to the flu. The remaining amount will either go into be recognized in the current period or as deferred revenue. The current period revenue at this time, premature to give you guidance on that.

Okay. On those numbers, 50, 30, and 20 were all U.S. dollars?

Yes, sir.

Perfect. Thank you very much.

Your next question is a followup from Eric Lun from TD Securities. Please go ahead.

Thanks for take my question. To questions. One on FluINsure. Tony can you talk about the number of patients you have for that re-immunization study and when results would come out? Also, for StreptAvax you mentioned that you'll be looking at older children first, then younger children later. Is that a separate study or is that a concurrent study?

On FluINsure I believe the number of people being immunized, the target group, is about 300 patients. And you get studies out. The results from that immunization study will be out in the summer. And there we're just - - we're really looking at comparability to the immune immunogenicity and safety of the product that we previously used. The antigen supply has changed. In terms of StreptAvax we're in discussions with the regulators at the present time exactly what that step-down would involve. And they would be separate studies. So you would start with the study in older children or adolescents. And then step down to the under 6-year-old population.

Okay. So if that's the case then I would see that second study in younger children would not start until '06?

Yes. That would be right. The second study in younger children, the target population would not start until '06.

Okay. Great. And in terms of the overall Fluviral in the U.S., can you characterize it for us for next year? What are the probability of you guys actually being able to do this? Is it better than 50%, or can you give us some color on that?

We can't speculate as to what the probability is. I can tell you that we're going down the pathway to get our product into the U.S. market next year. And that pathway requires FDA, you know, regulatory approval for the product. And it also requires that we have a contractual obligation from either - - one of the U.S. government agencies to purchase the vaccine.

Okay. Great. Thanks a lot.

Your next question comes from Canaccord Capital. Please go ahead.

Good morning. I just wanted to confirm and clarify something you might have said earlier with regards to your capacity for next year, 2005. That you could manufacture 22 million doses. I just want to confirm, you said you could do that and would you only do that if you get a contract from the U.S., is that correct?

Yes. Let me just confirm. We will increase capacity irrespective. Because we have to increase capacity in accordance with the pandemic preparedness agreement we have with the Canadian Government. So we will be building out. So we are currently building out our facility. And we will be able to increase our upstream and our downstream and our formulation, fill, finish, packaging capacity. So that's going to happen this year. That's going to happen next year, that's going to happen in '07. Those are going to happen no matter what happens with the U.S. market or any other international market. The only way that we would enter the U.S. market next year is if we can obtain accelerated approval. Which we have no idea whether we will be able to. And if we would have a guaranteed purchase contract with someone. Whether that's the U.S. Government or another party in the flu business. Is that clear?

Yes, okay, that's - - I appreciate that clarification. Are you currently in discussions with other countries as well as the U.S.?

We have small sales to other countries that we've done really just to act as, you know, future markets, potential backups to the U.S. They're really immaterial. We have approval in places such as China, Taiwan, Mexico, certain eastern European countries. At this point it's really not a material part of our business. It may be something down the road.

Okay. And can you just clarify what exactly needs to be done to the facility to scale up to 22 million doses?

It's expanding our - - really our downstream processing and formulation capacity and adding another filling line.

Last question is, can you provide some sort of visibility on your plans for development partner for FluINsure in terms of strategically when would you like to do that?

Really, nothing more that we've already covered.

All right. Thanks.

There are no further questions at this time. Please continue.

Okay. With that, thank you very much. If there's no more questions, thank you for participating in this conference call. And on behalf of the management of ID Biomedical, I'd like to wish you all a very good day.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating, and please disconnect your lines.