Gyre Therapeutics Inc (GYRE) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2011 Targacept, Inc., earnings conference call. My name is Jeff and I will be your operator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Alan Musso, Senior Vice President of Finance and Administration and Chief Financial Officer. Please proceed, sir.

Thank you, Jeff, and good afternoon, everyone.

Before we get started, I would like to remind you that our comments today may include forward-looking statements made under the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to future events, plans, expectations, objectives, or financial results or conditions, including, for any of our product candidates, the design, scope, or other details of clinical trials; the timing for initiation or completion of, or availability of, results from clinical trials, or for submission or approval of regulatory filings; target indications or commercial opportunities, as well as any payments we may receive from AstraZeneca; our cash runway; revenues or expenses; or any other matter that is not a historical fact.

Actual results may differ materially from those expressed or implied by any forward-looking statements as a result of many factors, including those described under the heading forward-looking statements in our press release from earlier today or under the heading risk factors in our most recent Form 10-K or in later filings with the SEC. We caution you not to place undue reliance on any forward-looking statement.

Also, any forward-looking statement that we make speaks only as of today and should not be relied upon as representing our views as of any future date. We disclaim any obligation to update any forward-looking statement, except as required by applicable law.

And with that, I'll turn the call over to Don deBethizy, our President and Chief Executive Officer.

Thanks, Alan, and good afternoon, everyone. Dr. David Hosford, Targacept's Vice President of Clinical Development, is also here with us today.

2011 has been a very busy year for us thus far as we focus on quality execution across our pipeline. Obviously, the progress of our lead program is key to our success, so let me start with TC-5214, our Phase III candidate as an adjunct treatment for major depressive disorder.

We continue to work closely with AstraZeneca and its CRO, Quintiles, to drive the Renaissance program, a multi-study global campaign designed to support the filing of a new drug application with the FDA, planned for the second half of 2012.

The mechanisms of action of current antidepressants have been available to patients for years and, in many cases, decades. Yet, as the STAR*D study reminded us, there are still millions suffering from depression who don't get well, leaving a great unmet need for novel mechanisms. If our ongoing pivotal studies affirm our findings from the Phase IIb trial, TC- 5214 can fill this need. We continue to expect to deliver the first topline results from the Renaissance program in the fourth quarter of this year.

In addition to the Renaissance program, enrollment continues in the Phase IIb study of TC-5214 as a switch monotherapy. In this clinical trial, known as the Explorer study, rather than receiving 5214 or placebo in addition to continued antidepressant treatment, patients who do not respond adequately to the initial treatment are switched to receive 5214 or placebo alone. We expect topline results from the switch study to be available in 2012.

Moving now to our programs in cognitive disorders, earlier this week we announced that AstraZeneca would not license TC-5619, a highly selective alpha7 NNR modulator, with the result that we retain the rights to this compound. In our announcement, I said that this outcome presents an opportunity to balance our portfolio and build additional value for Targacept.

I know that some would view that as conventional spin from a shunned biotech CEO. Those people couldn't be more wrong. We see TC-5619 and the alpha7 mechanism itself as having unique potential to treat both the negative and cognitive symptoms of schizophrenia. The value proposition is compelling, if the signals we saw in our Phase II clinical trial are reinforced in the next study.

The obvious question, then, is why didn't AstraZeneca license it? Unfortunately, I'm not able to provide much color. I do know that, as Christer Kohler said, it was a difficult decision for them. We continue to value our relationship with AstraZeneca.

In any case, we are delighted to wholly own TC-5619, and it promises to be prominent in our pipeline going forward. We are currently designing a Phase IIb study to further assess the benefits of 5619 to patients with schizophrenia, which is the indication of primary focus for us at this time. We look forward to announcing our development plans soon.

Beyond 5619, our product candidates for cognitive disorders include the alpha4/beta2 NNR modulator's AZD3480 and AZD1446, which are licensed to AstraZeneca. While we await advancement decisions by AstraZeneca for 1446 in Alzheimer's disease and AZD3480 in ADHD, we are progressing plans to conduct an additional Phase II clinical trial of AZD3480 in Alzheimer's disease.

We plan to interact with applicable European regulatory authorities in the coming months and anticipate initiating a clinical study in mild to moderate Alzheimer's disease in the second half of 2011. We would be responsible for conducting and funding the study, but would be entitled to receive up to $5.7 million in additional payments from AstraZeneca, with the last tranche becoming payable to us upon the first dosing in the U.S. and Europe.

Finally, let me highlight the expansion of our therapeutic focus into inflammatory disorders, a development that underscores both the breadth of potential medical applications for NNR therapeutics and the capability of our drug discovery platform known as Pentad. We initiated two Phase II studies of TC-6987, one in asthma and one in Type II diabetes. We have designed these learning studies to guide the selection of the most appropriate indications for later-stage development of this unpartnered alpha7 NNR modulator, and our goal is to complete them by year-end.

With that, I'll turn the call back over to Alan for our financial results.

Thank you, Don. Targacept ended the first quarter of 2011 with over $230 million in cash and investments.

For the quarter, our net income was $12.6 million, compared to net income of $6.8 million for the first quarter of 2010. The increase was due to higher net operating revenues, resulting primarily from recognition of previously deferred revenue from payments received under collaborations and alliances. In particular, we recognized the remaining $18.4 million of deferred revenue from payments previously received from GlaxoSmithKline as a result of the termination of our alliance agreement.

The higher revenues were partially offset by higher research and development expenses, in particular an additional $6.6 million for our TC-5214 cost-sharing obligation.

In light of the recognition of the remaining deferred revenue from our alliance with GlaxoSmithKline, we are updating our financial guidance. We now expect that our net operating revenues for the year ending December 31, 2011, will be in the range of $95 million to $105 million. We continue to expect our operating expenses will be in the range of $105 million to $115 million, and that our cash, cash equivalents, and investments balance at the end of 2011 will be at least $150 million.

Also, we continue to expect that our current cash resources will be sufficient to meet our operating requirements through at least the end of 2013.

This financial guidance includes both cash and non-cash revenue and expense items, and does not include amounts that we could receive if any milestones are achieved under our agreement with AstraZeneca for TC-5214.

With that, I'll turn the call back to Don.

Thanks, Alan. On a final note, I want to mention how gratified our entire management team was with Targacept's recent ranking as 23rd in The Scientist magazine's Best Places to Work in Industry for 2011. We are one of six companies to have had this distinction over the last five consecutive years, and it's a real testament to the culture fostered by our talented and dedicated employees and the breakthrough science that we do.

And with that, we'll open up the call to any questions.

(Operator Instructions). Kim Lee, Global Hunter Securities.

Just a little more color on the TC-6987 compound and the studies there. Can you remind us what data that you've had to date that gives you confidence that there could be some kind of efficacy signal in both asthma and Type II diabetes?

First of all, I want to start out by saying that this focus on alpha7 for treating inflammatory disorders goes back to a pivotal paper by Kevin Tracey in Nature several years ago now, and we have had interest in this because we've had compounds in our portfolio that had IC50s for TNF alpha and NF-kappaB in the picomolar range.

So with that, it was sort of that background that led us into conducting a number of preclinical studies that Dr. Hosford can tell us about.

Sure. The primary studies were, one, in the db/db mouse. That's relevant to diabetes, and in that study, treatment with 6987 reduced a number of parameters that one would want to see improved in a patient with diabetes, and those would include fasting plasma glucose, the amount of glycosylated hemoglobin, or HbA1C, total cholesterol, and triglyceride levels.

So those data translated into an exposure in the animal that allowed us to predict an appropriate dose to give to people in our diabetes study.

For asthma, the model that we used was the mouse [OL] human model, and in that model there was statistically significant and dramatic improvement in a number of indices, and the improvement was as good as that of dexamethasone, which is a quite potent steroid. And so, again, we translated these efficacious doses from this mouse model into the doses needed in our human asthma study. So, we're quite encouraged and really looking forward to the results later this year.

Great. Thank you for that additional color. And one final question on -- I think it was -- yes, AZD3480 and AZD1446. Should AstraZeneca decide to opt in, can you remind us what the potential milestones are to you?

Yes. For those two molecules, they were actually licensed to AstraZeneca, so there isn't an opt-in required. They're in their evaluation mode about the next steps to go forward in those programs.

And the economics that we receive, in the case of 3480, we have future eligibility for over $100 million in pre-commercialization milestones if it's developed for only one indication. If it's developed for more than one, that number would be higher than that. We get set double-digit royalties on the product sales.

And in the case of 1446, we have also eligibility for milestones and royalties. The rates are a little bit lower in that that was -- came out of a funded preclinical research collaboration, but AstraZeneca does fund all the development and commercialization activities for the contract on both of those.

And should AstraZeneca decide not to further develop, would rights be returned back to you?

No. They have the right to hold onto some of these molecules. We will certainly work through that with them. They've been a great partner with us. So we'll see where all that works out later.

Okay, great. Thank you.

Bret Holley, Oppenheimer.

I'm a little bit confused here. It sounds like you are going to start a new Alzheimer's trial with 3480. But it sounds like it's under your watch. Can you just clarify that for me?

Sure. We've been advocates for 3480 for some time. We -- AstraZeneca got very excited about 3480 again after our first Alzheimer's trial when we had the ADHD results.

They wanted to include the pediatric opportunity, so they did a lot of juvenile tox. They got concerned about the therapeutic index for the pediatric population. That's still in review. And as all of that was going on, we wanted to resurrect 3480 and get it moving forward for Alzheimer's disease.

So, we have been advocating. We've been working closely with AstraZeneca, and as you know, with a licensed compound, for the biotech company to move the compound forward, there are a lot of IND issues and things like that that we needed to get worked out.

So we have gotten all of that worked out. We are in an excellent position now. We've interacted with the FDA, and we are on the verge -- we are interested in doing work in Europe. So we have to make sure we go through the European regulatory authorities after the FDA interaction. So we are just at that place right now.

And AZ has agreed to make payments to us as we progress down that path, and they will -- those payments will offset a large proportion of the cost of doing the trial.

Okay, but then, just to clarify, in effect they've given the compound back to you, at least temporarily. Is that correct?

They haven't given the compound back, but they've allowed us to have enough control over the compound to be able to conduct these trials. David, do you have a comment?

No. I was just prepared to answer details about the trial, if you had them.

I absolutely have them. Sure. I'd love it if you could go through them.

Okay. As Don said, we're going to be looking at some sites in Europe, and so, we're going through the regulatory rounds there.

And it's a 12-month study. It will include donepezil as a positive control, pretty standard enrollment criteria. We'll be looking at patients with mild to moderate disease and looking at standard end points, co-primaries being the ADAS-cog and the CIBIC-Plus for use in the U.S., and in a separate plan, the ADAS-cog and ADCS-ADL for use in Europe.

Okay. And are there any special differences in the patient population that you're planning versus the first Phase II trial that was run by AstraZeneca?

I'm sorry. I didn't hear all your question.

He's asking about whether we -- the patient population is being defined differently than the original.

It is a little bit different. In the first AstraZeneca study, the Sirocco study, the patients had an MMSE score up to 26. Here, ours will have a ceiling of 22, so we are looking at a more greatly affected population.

The ADAS-cog has more sensitivity the more severely affected a patient is, down to at least a point, and so we chose a type of patient who had more sensitivity to the ADAS-cog. And also in analysis of the Sirocco data, AZD3480 had a stronger effect in the more affected patients. So, by reducing the ceiling of the patients in this trial, we do two things. We let the ADAS-cog be more sensitive and we allow AZD3482 show its mettle.

That's very clear. And then, I guess, one last question. I don't mean to hog the questions, but as far 5619 goes, obviously you haven't finalized the trial plans. So I guess the question there is how far would you be willing to go on your own dime with 5619?

We've had a lot of enthusiasm for the data when we presented at the International Congress for Schizophrenia Research. This was ahead of AZ's decision. People were impressed with the data, so there is interest in the compound.

We, of course -- this is really a great outcome for us to balance our portfolio with partnered and unpartnered assets. So, our preference right now is to carry it forward through this next trial. We will likely be interacting with prospective partners because we can learn a great deal about our data and about the opportunities, commercial opportunities. And it really depends on how all that goes.

But right now, our preference is to carry it forward because we do have a co-promote in the 5214 arrangement with AstraZeneca. And both of those products are psychiatry products, so whatever we do, it'll be important for us to preserve considerable opportunity for us to interact with psychiatrists to supplement the opportunity we have with 5214.

Alan Carr, Needham & Company.

To continue on 5619, what are your thoughts on the design of this trial and endpoints, and is there a lot of clarity on what sort of endpoints you need here? Do you need to have any discussions with the FDA around that?

Yes and yes. We are -- ever since we saw this data, we've been excited about where this trial is pointing us. And we are quite familiar with Tom Laughren's, the director of the psychiatry division of the FDA, interest in the so-called residual phase of schizophrenia, and the -- and his support and active participation in the development of the science in these areas.

So we're eager to interact with the agency, test our thinking, because we've had a lot of thinking, and what I'd like to do is have David Hosford just share some of the ideas that we have around where the data are guiding us.

Sure. Like Don said, we were really pleased to see positive outcome measures looking at both cognitive function as well as negative symptoms. These together do comprise the residual phase schizophrenia that keep so many patients from regaining either the level of functioning they had before their disease became so apparent or from achieving the type of functionality that they should have, based on their trajectory today, before they really had these symptoms.

And so, we were really encouraged by the results. We think we may flip around the order in which we look at the endpoints in the next trial. We may look at negative symptoms as our primary, and look at cognitive measure and a functionality measure as key secondaries. And we will, of course, go to the FDA, let them see this design, let them comment on it, but we would go with this design in order to look at it, an indication for residual phase schizophrenia.

So, you're leaning towards [2010] first, then. How big a trial does this need to be and what do you think it's going to cost?

Well, we would want it to be of registration quality, so it would need to be powered to show a difference with a two-tailed test at a 0.05 alpha. So it will be somewhat bigger than the trial we've already run.

And relative to the cost, we're still speccing it out, and it will be subject to changes that may come from interactions with the agency. But our initial thinking is that it's probably in the range of a $10 million to $12 million spend.

Okay. Timing on starting something like -- would this be a second half of the year, fourth quarter?

We are not quite sure yet whether we can get it started by the end of the year or not, or the beginning of 2012. We're sorting through that right now and we don't want to really set expectations that specifically. But it'll be in that timeframe, based on estimates right now.

Okay. And then, last question, some minutiae. G&A is up a bit. Is that going to be at that same [pull] for the rest of the year?

A lot of the G&A increase is the stock-based compensation increase charges of stock-based compensation, so I think we'll have to sort of wait and see. We have some of the things that are somewhat seasonal in terms of patent expense and other things, so we'll have to wait and see, but I think the level that we've been operating on, and we sort of keep an eye on trying to sort of maintain a good cost discipline against all areas. So we haven't given specific guidance on the different expense types.

But I think, just philosophically, our preference is to keep our infrastructure as lean as we can, and we have a blended outsourcing model here, so we do a considerable amount of outsourcing of things that are not core to our platform and clinical capability.

So, we are not going to grow that much. We have added some skills into the Company that we have -- that we just have not had inside the Company. We've consistently relied on outside the Company, but we brought a few of those inside now. And we're not expanding very much right now and as we go through the 5214 outcome.

Robyn Karnauskas, Deutsche Bank.

Maybe it's me and hoping that we're already in December already and the year is almost over, but I feel like we're getting close to the Renaissance data, and I'm just -- I guess the question is really for Alan. How are you thinking about controlling what programs move forward and don't go forward ahead of the data, given that the results really will determine how much cash you will have, maybe how much flexibility you will have, to spend on new programs going forward?

Yes, that's really -- let me take it first, Robyn, and then -- I know Alan is -- we've all been actively involved in this.

The first step, of course, has been with this news that we've gotten around 5619, we have taken our portfolio management committee, which is -- which has most of the functions of the Company in it, and have now just gone through the portfolio looking for things that are key to moving valued programs forward, looking both at the possibility of 5214 success in a large way like our Phase IIb results, a more modest way, or a negative outcome. I mean, you've got to plan for all three scenarios. So, we've been looking at that.

I think we have -- hitting 5619 in the schizophrenia trial, getting activity in the ADHD trial, having the enabling work done for the Alzheimer's trial puts us in a place where we have a lot of great choices, and quite a bit different than we thought we would be at it. We thought we might not have this sort of success ahead of the 5214 outcome. So, we are eager to get the 6987 asthma and Type II diabetes trials coming out in the time frame of 5214.

So I think all of those, the 6987 is certainly funded. We are focusing our energy on the schizophrenia trial because that's where we saw the more comprehensive results and where there is such an unmet need that we believe that there will be a pull for this product. And then, as we go down into the portfolio, we still retain -- we are doing some preclinical work. We have our platform, and as you know, we were able to get back some important programs in smoking cessation and Parkinson's disease.

So we will be -- we have -- in our current commitments, we have given guidance of where we are, and I think Alan should speak to that because I think we're in an excellent place to have sufficient cash at the end of the year.

Yes, and as Don mentioned, and actually as you started, we're actually not that far away now from the outcomes on 5214.

So, things that we are progressing, clearly we had done the work with the 5619, the two outcomes that were reported earlier this year in Alzheimer's enabling work. We're now planning to get ready to do an additional Phase II trial in schizophrenia with 5619. But we have the AstraZeneca financial support available to us as we get ready to push 3484 in a trial in Alzheimer's disease, and then we budgeted and have ongoing the work with TC-6987 for both Type II diabetes and asthma learning trials. Then we have another number of other opportunities available to us, and sort of how those sequence and when we would pull the trigger may have some interplay between when we start to see the outcomes on TC-5214.

Juan Sanchez, Ladenburg.

I have a question about the timing of the potential milestone payments coming from AstraZeneca on Phase III success for 5214. Do you have to wait until all the four clinical trials are out to get the potential milestone, or you might get some payments upon success of the first one or two clinical trials?

And the second question would be, what percentage of your current R&D expense relates to your responsibilities with the program with AstraZeneca?

I guess in terms of the milestone disclosure, unfortunately we're not going to be able to give much granularity on that. We can confirm for you that we don't have in our budget for this year any milestone revenue expectations. In fact, as we sort of plan our business, we don't actually put those into our baseline forecasting. But we do have a nice milestone stream, as you know, and would expect that there would be more visibility into that soon.

And I know that you're trying to get a little more granularity around this, but just to be clear, to remind everybody, we have $540 million of milestone payments through the first commercial sale. So, that's -- and there are some -- and those are likely to come out later, as Alan indicated, not in 2011.

And I think your other question was based on how much we're spending for our 5214 cost-share, and that number in the first quarter was about $7.1 million. The program is going to be in a full activity mode throughout the year, so if you would analyze that, that comes into somewhere right around where we expect our costs for that will be this year.

Jon LeCroy, Hapaolim.

My questions are on 5619. So I know you had looked at some preclinical stuff on Alzheimer's for that one. Have you put that on the back burner?

We haven't put it on the back burner yet, but I think it's just as we get prepared to do the schizophrenia trial, I just think it's one that will -- we've just prioritized our activities.

I mean, strategically, obviously, we did this option deal with AstraZeneca. We had gotten payments from them last year of $11 million to help us move ADHD and AD forward in parallel. So, the advantage of having them as a partner is that you could do much broader development than we can do.

But what we want to do is sort through that, get the schizophrenia trial started, and then we'll be looking at the ADHD -- we'll be looking at the ADHD results in the interim, and then thinking about how best to move forward in AD. And then, of course, in the midst of that, we'll start turning over the cards with 5214.

Okay. And then, just a little bit on the 5619 schizophrenia data, was there in something in the data that Astra didn't like, or, I guess, asked a different way, what do you think the data needed to show for them to have licensed it? Or was it not about the data and maybe a pharmacokinetic issue?

There were no issues, really. So I want to make sure that we're very clear about that. There was nothing about the molecule or any sort of glitch that came up that they observed.

We were -- because we're longstanding partners, we had -- they spent a lot of time doing the diligence. We were able to sit down with them afterwards and listen to their view of the data. And they essentially came to the same conclusion we did, is that we had positive signals. It's a highly selective alpha7 compound. It's got great druggability.

But there are limitations in the data in that they need to be replicated. We had designed the trial with the focus on cognitive dysfunction. We hit the Groton Maze Learning Task. We didn't hit all of the CogState cognition batteries. We didn't hit the composite score, but we had enough of a cognitive signal and it was corroborated by the subject Global Improvement score on cognition, so the subjects could tell that they were improving, so that gave us encouragement. It gave AZ encouragement.

AZ had a different view of how to move forward and preferred not to pay the $30 million. It triggers a lot of spend on their part and a lot of commitment.

So, we want to -- we essentially want to move forward in a similar way in that we want to do another Phase II trial. We would prefer it to be a registration-quality trial, and so we think the learning out of this Phase II trial, we didn't hear anything during the due diligence that was different than the way we looked at it. And, so, we were just in a position to be able to go through that option period and AZ decided not to take it forward.

So we're excited about the promising signals in the two trials. We're -- we feel like the highly targeted and selective alpha7 compound is translating into excellent tolerability in the clinic. We have broad applicability across multiple indications, and we have very strong IP with issued patents covering protection through 2029.

So I think we're in a great position. We wholly own it now. I know our scientific teams who sat through all of this diligence are not dissuaded from moving forward.

But I do want to make sure that I dispel any notion that there is anything that was uncovered through that process that was -- that has changed anybody's minds about this. This is a good molecule. We've shown the data at the International Congress for Schizophrenia Research. It is those data that we feel like we could move to the next level with.

And so, we're very excited. We're excited about interacting with Tom Laughren at the psychiatry division. And we are hoping that they can support the kind of trial design that we're -- that we have ambition for.

Okay, so do you think it's a situation where Astra says we're going to -- our budget for nicotine receptor drugs is X and unless something is a massive home run, we're not going to go above that?

You know, I don't really know. All I know is Christer Kohler said in our press release, which was it was a difficult decision.

(Operator Instructions). Ilana Fogelman, LifeTech Research.

I have a few more questions about 5619 in schizophrenia. Can you please confirm that the P value of your primary endpoint was based on an intensive [heat treat] analysis?

I'll let David Hosford talk to you about the details of the Phase II data.

Yes, when the data were analyzed, it was seen that there was a positive skew in the data. In other words, the data were somewhat variable and skewed to the right, skewed toward -- in a way that made normal distribution-based analysis not valid. And so, the data were transformed with a log transformation and analyzed, and using the Hochberg adjustment for multiplicity, the P value was 0.054, which met our predetermined level of significance of less than 0.1.

Were all patients included in the analysis? All randomized patients who received the drug?

It was both tobacco users and non-users.

Yes, it was all patients were included.

Okay. Could you also -- another clarification about the primary endpoint. You chose GMLP, while the growth standard recommended by FDA these days would be MCCB. Could you clarify your choice?

Sure. There were a number of reasons why we chose that particular endpoint. The first is that the Groton Maze is a measure of executive function, which is at the height of all of our cognitive functions. It subsumes a number of others, including memory, attention, some other measures.

So to us, it was a way to look at a cognitive domain that would actually translate into other indications, such as Alzheimer's disease, for example.

A second reason is that we chose to use this particular item from the CogState computerized battery rather than the Matrix because the CogState battery takes about 20 minutes to complete as compared to 45-plus minutes for the Matrix, which is a paper-and-pencil test battery. So, it was less of a burden on sites and on subjects.

And a third reason is that the CogState measure is culturally neutral. It consists of things like playing cards on a computer screen, which the patients simply touch to make their response. And it's culturally neutral, which was important to us when going into sites that predominated in India.

Do you plan to use the GMLT again in your next study?

We are still, of course, in discussion. We'll be talking to the agency.

One final quick question, if I may. How do you explain the better results in smokers as opposed -- given your understanding, wouldn't you have expected the opposite results, given that nicotine receptors in smokers get desensitized?

It's an interesting thing about nicotine. It acts at multiple different subtypes of nicotinic receptors, and it actually works quite a bit better at the alpha4/beta2 type than it does at alpha7. And this is a very highly selective alpha7 compound.

So, one of -- we had a number of hypotheses. None of them is, of course, supported by direct evidence, but one is that maybe nicotine was acting at alpha4/beta2 receptors that were positioned in such a way that they added a little bit of oomph to the alpha7 signal that was acting at different receptors, perhaps on different cells or maybe on the same cells. There are a number of hypotheses you can draw up.

Another important finding, Bob Freedman at the University of Colorado has been working on the alpha7 subtype and its role in schizophrenia for quite some time now, and was instrumental in the National Institutes of Mental Health expert body, the Matrix initiative, concluding that the alpha7 subtype would be the most important target to go after for these residual phase symptoms in schizophrenia.

And he had a paper last year showing that, at autopsy, smoking schizophrenics, tobacco-using schizophrenics, had more functional alpha7 subtypes than schizophrenics that were non-tobacco unit users. So there is some evidence that you could have more functional alpha7 target in the tobacco users than in the non-tobacco users.

We don't know how important that is at this point. We have been debating and trying to take from this learning whether we should do a trial in all comers, whether we should do a trial in tobacco users, and our bias right now is to do it in all comers because there is evidence preclinically that you can actually upregulate the alpha7 subtype with 5619.

So we're trying to learn as much as we can. Often, companies are going in in translational medicine trying to get an idea of dose from imaging of [both] related potentials -- you know, surrogate markers. We didn't take that approach. We wanted to get right into patients, get right into trials where we could do learning. These learning trials were going right to the heart of the matter.

We did increasing dose as we increased time. So the first four weeks, we were -- the patients were on 1 mg. The second four weeks, they were on 5 mg. The last four weeks, they were on 25 mg. So, we entangled time and dose in this trial.

One of the things that we are trying to tease out of these data is whether there could be some divergence in dose around cognition and negative symptoms, but I really think our focus will be on negative symptoms. We will bring cognition along as a secondary endpoint. It's -- you sounded as if there's clarity over what endpoint would be used for cognition in schizophrenia, and there really isn't clarity around that. There's still a lot of -- there is a Matrix agreed-upon test battery, but it's a test battery that was assembled without any real practical compounds in development.

So, we're -- right now, we prefer to focus on [sands] and negative symptoms, bring cognition along as a secondary endpoint, and then continue to understand the cognitive activity of this alpha7 compound because we also picked up cognitive activity in healthy normals, in the multiple ascending dose trial in Phase I, effects on attention, and we picked up effects in the ADHD patients on cognition. So, that's an area the overall cognitive effects seem to be real, and I think we need to better define them as we go through development. David?

Yes, and one more point, just to echo what Don said about the applicability of the Matrix test battery. I don't want to dis the many wonderful folks that designed it, but there's a lot of talk in the community now that it may have been designed in such a way that there is no drug that can hit its hurdle, and a lot of people are turning to looking for other batteries. This is what the people in the field are saying right now.

Ladies and gentlemen, this will conclude the Q&A portion of the call. I'd now like to turn the presentation back over to Dr. deBethizy for closing remarks.

I want to thank everybody for joining us this evening. It's been a very exciting year so far for Targacept. We're looking forward to the 5214 outcomes, and we are very pleased that we were able to move 5619 forward, get two important studies completed, and now get the opportunity to move forward to another level with the compound. So, and we're all waiting to see how 6987 comes out at the end of the year, as well.

So, thanks for paying attention, and we'll look forward to the next update. Take care.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.