Halozyme Therapeutics Inc (HALO) 2007 Q4 法說會逐字稿

Welcome to the Halozyme 2007 fourth quarter pipeline update conference call. At this time, all participants are in a listen-only mode. Following Management's prepared remarks, we'll hold a Q&A session. (OPERATOR INSTRUCTIONS). As a reminder, this conference call is being recorded today, March 14th, 2008.

I would now like to turn the call over to David Ramsay. Please go ahead.

Thank you, and thank you everyone for participating in today's call. Joining me from Halozyme are Jonathan Lim, our President and Chief Executive Officer, and Gregory Frost, Vice President and Chief Scientific Officer. Yesterday afternoon we released our 2007 fourth quarter and full year financial results. If you have not received this news release or if you'd like to be added to our distribution list, please call Alex Schlam at 858-704-8288. This call is also being broadcast live over the internet at www.halozyme.com and a replay of the call will be available on the Company's website for the next 30 days.

Before we begin, let me remind you that during this conference call we will be making forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for forward-looking statements. All statements made during this conference call that are not statements of historical fact constitute forward-looking statements. The matters referred to in forward-looking statements could be affected by the risks and uncertainties of our business. Such risks inherent to the Company's business are described in our filings with the Securities and Exchange Commission as well as in our press releases. The Company's actual results may differ materially from those expressed in or indicated by such forward-looking statements. With that I'd like to now turn the call over to Jonathan Lim.

Thank you, David. Good morning, everyone. I'm very excited to be able to give you an update on the current progress of our proprietary and partnered programs during this first conference call of 2008. Gregory Frost, our Chief Scientific Officer, and I will be reporting on the status of our proprietary programs, and I'll be updating you on our partnered programs with Roche, Baxter Medication Delivery and Baxter BioSciences.

As we close on the first decade since the founding of our Company in 1998, Halozyme has really come into its own as a biotechnology company focused on developing and commercializing meaningful new therapeutic products based on the extracellular matrix which we refer to as the matrix. The matrix is a key structural component found in both normal tissues such as skin and bone, as well as abnormal tissue such as tumors. By expanding on our broad and deep scientific expertise in the matrix, we plan to develop therapeutic and aesthetic drugs within therapeutic areas such as oncology, dermatology and metabolism. One of the key reasons for our success to date has been our decision to pursue paths to value creation in parallel, through both proprietary and partnered programs. In fact our achievements in 2007 have advanced our partnered programs with Baxter and Roche while building a strong foundation for our proprietary programs. These are exciting times for Halozyme. I realize there are some questions regarding the evolution of our strategy from largely a drug delivery partnership driven model to a focus on developing our own therapeutic products.

As we put together our five year strategic plan last year, we came up with a very compelling way to create value for our shareholders. We found that the PH20 hyaluronidase enzyme, the core technology, is proving to be a very compelling multi- functional technology that can be applied in a number of interesting ways. As many of you know, we first began by forming drug delivery partnerships with Baxter and Roche to apply the PH20 technology to their products. The value of these partnerships is significant and will increase over time as Baxter and Roche ramp up development and commercialization of their products with our PH20 technology. As you know, Baxter is mostly focused on fluids as well as small molecules, while Baxter BioSciences and Roche are focused largely on large molecules.

While valuable, rather than building a drug delivery company that is based solely on royalties and fees, our plan is to take our PH20 technology and apply it to the development of our own products in which we have a larger commercial stake and much greater value creation potential. Furthermore, based on our extensive expertise in hyaluronidase and other enzymes and components within the matrix, we believe we can develop and commercialize other matrix-based products that can target major indications in oncology and dermatology as Greg will tell you about more later in this call.

We're delighted to have this opportunity to tell you more about these programs. In 2008, we'll continue to pursue parallel paths to value creation for patients and our shareholders. Our top three priorities for driving value throughout this year are, first, developing a pipeline of proprietary programs and increasing external visibility by presenting clinical and pre-clinical data as they become available. Second, maximizing the value of existing partnerships with Baxter International, Baxter BioSciences and Roche and increasing external visibility regarding the progress of these programs. The third is signing partnerships that help advance Halozyme's overall business objectives.

So now I'm going to talk about the proprietary programs. There are five of these that we're focusing on in 2008 as part of our own proprietary product development portfolio. The first three are based on taking the PH20 enzyme and applying it to existing marketed products to develop new proprietary products. I'll be discussing the status of these programs while Greg will be updating you on our last two proprietary programs, which are new molecular entities targeting the matrix in the fields of oncology and dermatology.

So that first program is one that we are publicly disclosing for the first time on this call. We have initiated and nearly completed an ongoing clinical trial in a therapeutic area that represents a multi-billion dollar market. This Phase I prospective randomized trial is designed to assess the safety, tolerability, pharmacokinetics, and pharmacodynamics of two different marketed therapeutic recombinant proteins when subcutaneously co-injected with and without PH20. It is anticipated that based on the existing pre-clinical study data with three different molecules co-injected with PH20 in more than one animal species, as well as based on several completed clinical trials of therapeutic agents that have been co-injected with PH20 which we've reported previously with morphine and Humira, for instance, we believe that PH20 will favorably alter the absorption parameters of these proteins.

Now, what does this mean? Well if the co-injection is well tolerated and the anticipated alteration in PK and PD is observed, the existing body of clinical knowledge for this particular therapeutic area suggests that the proposed combination product including PH20 may provide a therapeutic strategy that would result in meaningful clinical benefit for patients. The commercial implications are that we could potentially develop a best-in-class therapeutic within an existing multi-billion dollar market. Unblinding of the ongoing clinical trial is planned for the second quarter of this year. If the study findings are positive, Halozyme intends to engage the FDA in discussions of the regulatory pathway for product approval, submit a new IND in this therapeutic area in second quarter of 2008 and initiate a second clinical trial for this indication in the third quarter of this year.

The second program is bisphosphonates plus PH20, so remember this is the second program in which we are taking our PH20 enzyme and co-mixing it with an existing commercial product to develop a proprietary co-formulation. In this case, it's for osteoporosis which also comprises a multi-billion dollar market, with-- including both oral as well as parenteral products. Oral products have widespread usage, but long-term compliance amongst patients is poor, in part due to insufficient efficacy as well as gastrointestinal toxicity and difficult dosing regimens. This leads to more than three quarters of patients discontinuing therapy after three years. Parenterals including the IV administered products, Reclast and Boniva currently marketed by Novartis and Roche, respectively, are attractive targets to explore for converting to subcutaneous usage via formulation with PH20.

Subcutaneous administration of bisphosphonates is attractive because IVs are inconvenient to patients. In addition, general practitioners, who are the primary prescribers of bisphosphonates, have limited capabilities to administer them. Development of subcutaneous bisphosphonates with reasonable dosing schedules is challenging with existing therapies because of injection site reactions, which are potentially mitigated by formulating these parenteral formulations with PH20. Halozyme is exploring the use of both of these products with PH20, and will be presenting pre-clinical data in April at the AACR conference. We're targeting to enter the clinic for at least one of these combinations in the third quarter of this year.

So now I'm going to turn to the third program, which is Chemophase. The Chemophase program, which represents our most advanced proprietary product in clinical development, continues to advance according to plan. Tumor recurrence for patients with non-muscular invasive bladder cancer continues to be a major problem. After TURBT, or transurethral resection of non-muscular invasive bladder cancer, which basically is surgery for removing superficial bladder cancer, followed by currently available intravesical or "in the bladder therapy" patients experience a tumor recurrence rate of about 40% to 85%, of which 50% will recur within the first year. There's a clear need for more effective treatment which creates an opportunity for a therapeutic approach that improves disease-free survival for these patients.

Following the successful completion of the initial Phase I Chemophase clinical trial, which demonstrated the safety of a single administration of a single dose of PH20 with Mitomycin, given intravesically or in the bladder following TURBT, Halozyme initiated and completed enrollment in the ongoing Phase I/IIa trial. This ongoing trial is an open label non-controlled multi-center trial examining the safety and tolerability of intravesical PH20 and Mitomycin C for induction and maintenance therapy following TURBT. Enrollment in this study proceeded in a deliberate step-wise fashion advancing through five successful escalating PH20 dose cohorts with the lowest dose of about 20,000 units and the highest dose of about 800,000 units, with a protocol specified pause for assessing safety before opening enrollment in each next higher cohort. Enrollment was completed in the third quarter of 2007. Each of the five PH20 doses was found to be well-tolerated. And the highest dose, the 800,000 unit dose, was determined to be the maximal tolerated dose within this study design.

For the 12 patients enrolled in this MTD cohort, study drug dosing according to protocol specifications of every three months or until documented tumor recurrence has continued to be well tolerated. Given the success of the ongoing Phase I/IIa trial in determining the MTD, and demonstrating the safety and tolerability of induction and maintenance dosing of Chemophase, we're currently preparing to consult with Regulatory Authorities including an end of Phase II meeting with FDA and scientific advice for the EU in order to determine the optimal regulatory pathway to drug approval. While this advice is being sought, we're planning a small safety study of Chemophase for immediate post-operative or IPOP dosing in order to enable the subsequent pivotal trials to incorporate IPOP dosing along with induction and maintenance.

The reason we're doing this is that by maximizing the exposure to Chemophase in the randomized double-blinded pivotal clinical trials, Halozyme intends to replicate the published findings from a randomized clinical trial with a bovine hyaluronidase combined with Mitomycin that showed clinical benefit in terms of a statistically significant improvement in disease-free survival in this patient population. So with the IPOP trial, it's anticipated that the subsequent pivotal trial for Chemophase will be initiated in the fourth quarter of this year. At this point, I've reported on the three proprietary programs that are based on the native PH20 enzyme. I'm now going to turn the call over to Greg to talk about our proprietary matrix programs in oncology and dermatology, and then I'll return to update you on our partnered programs.

Thanks, Jonathan. Earlier this year, Halozyme nominated to bring its first systemic oncology candidate, PEG rHuPH20 into the clinic for the targeted systemic treatment of solid tumors that accumulate peritumoral hyaluronan. A significant proportion of advanced cancer is readily identifiable by primary tumor biopsy, produce these HA rich halos that can occupy large amounts of the tumor microenvironment. These halos prevent tumor cells from coming in contact with one another and elevate interstitial fluid pressure in tissues such as bone metastases where they may also contribute to chemotherapy resistance as well as bone pain. The ability to eliminate these halos by intravenous hyaluronidase enzyme therapy has historically been limited by the rapid elimination of the enzyme from the bloodstream combined with the rapid turnover of HAN tissues. Halozyme has now demonstrated that these halos can be completely eradicated in prostate carcinoma models in a dose dependent fashion, resulting in an impressive 80% reduction of tumor interstitial fluid pressure following intravenous administration of PEGylated rHuPH20.

Unlike angiogenesis inhibitors such as Avastin that can require days to lower tumor pressure, PEG rHuPH20 rapidly collapses the extracellular matrix to reduce tumor IFP within hours of administration. The effect of this compound appear to be very dependent upon the ability of tumors to produce HA dependent halos and is particularly active in large, bulky tumor lesions that are traditionally resistant to chemotherapy. With a half life nearly 2,000-fold longer than the non-PEGylated enzyme, Halozyme is indeed confident that it has identified the optimal lead candidate for intravenous delivery. Similar pharmacokinetics have been demonstrated in pilot primate models where the agent was found to be very well tolerated at therapeutic doses. If applicable to all cancers that accumulate pericellular HA , this target selective compound could represent a multi-billion dollar opportunity in the U.S. alone to treat currently incurable breast, prostate and pancreatic malignancies.

Based upon positive feedback from our Clinical Oncology Advisory Boards, PEG rHuPH20 is being evaluated pre-clinically in combination with a broadly used chemotherapy agent, Taxatier, initially for the treatment of hormone refractory prostate cancer. Very encouraging efficacy data have emerged that continues to fuel our excitement over this program. Data on the pharmacokinetics and pharmacodynamics of this agent in advanced solid tumors will be presented at the American Association of Cancer Research in San Diego next month. With regulatory guidance, Halozyme intends to complete all IND-enabling activities towards its first in human clinical application of this agent by the end of the year.

Switching to dermatology, Halozyme's new dermatology aesthetic medicine R&D team is comprised of experienced scientists from the biotechnology industry with a core focus to develop derm-based applications that are surrounded by the extracellular matrix. These novel programs leverage our existing knowledge of skin biology and our ability to rapidly develop recombinant proteins for high value programs that can capitalize upon this economically insulated multi-billion dollar therapeutic space. The strategy is to deliver high value, biotechnology derived product offerings with dual aesthetic and therapeutic applications that can be developed in parallel. Several exciting new applications are now under development for the treatment of post-surgical edema, body contouring, scarring, cellulite, as well as dermal fillers, where we believe aberrant extracellular matrix accumulation is a key target to the underlying pathology.

One of the most exciting programs in this group is Halozyme's conditional matrix modifying technology. Proteinaceous materials such as fibrillar collagens and elastin make up the bulk of the matrix in many tissue sections of the skin. However, unlike rapidly regenerating targets, such as hyaluronan, these structural scaffolds are more slowly turned over in the body and must therefore be modified in a tightly controlled fashion when body contouring is the objective. For example, fibrous septae are fibrillar anchors in the skin that contribute to the dimpled appearance of cellulite. Surgical cleavage of these septae has been shown to relieve the dimple-like appearance but is not feasible to apply over large surface areas.

To meet this challenge, Halozyme's dermatology team has created its first recombinant human enzyme that conditionally degrades the proteinaceous components under the skin that form fibrous septae. This recombinant enzyme has a tightly regulated switch such that it is active for only a defined period of time upon entering the body, i.e., within minutes of leaving the syringe. Once switched off, the enzyme is unable to cleave the matrix and becomes an innocuous protein in the body. Halozyme has developed systems to tightly control the time in which the enzyme is active in the body and is actively testing this agent in a number of applications where this temporal regional degradation of matrix could have defined therapeutic benefit.

Halozyme's recombinant enzyme has demonstrated its ability to cleave fibrous septae in a tightly controlled fashion. With the successful validation of the first enzyme of our conditional activating matrix technology platform, we're now expanding our efforts towards additional human matrix modifying enzymes for other therapeutic applications. Pre-clinical data on the dermatologic applications of Halozyme's conditionally activated enzyme will be presented in May at the International Society for Investigative Dermatology. These non-PH20 enzymes represent completely new technology for Halozyme and an ability of our group to leverage protein-based targets in the matrix.

Halozyme's new molecular entity and bioprocess development and manufacturing teams are now establishing high producing cell lines and purification processes for this enzyme using a validated system we developed previously for rHuPH20. The expression system is now achieving pharmaceutically attractive production yields sufficient for cGMP production. Upon successful completion of safety and pharmacology testing in a number of therapeutic models this year, including cellulite, scarring and Dupuytren's Contraction, this process will be transferred to cGMP manufacturing for first in human trials in 2009. And now I'll turn the call back over to Jonathan who will give you an update on our partnered

Thanks, Greg. As most of you know, we have partnerships with Roche and Baxter BioSciences for Enhanze Technology and a partnership with Baxter Medication Delivery for HYLENEX, our FDA approved drug. I'll be updating you on all three partnered programs beginning with Roche. While we have not provided you with much visibility regarding our Roche partnership, I can tell you that Halozyme's Management team is happy with Roche's progress to date. We're devoting significant resources to supporting this important partnership including about four to six full-time equivalents that are dedicated to this project. The relationship is positive, and Roche and Halozyme have given about three to four joint presentations at Alliance Conferences over the last year, which really is a testament to Roche's excitement about this collaboration.

We've been conducting a number of activities to advance the partnership with Roche. This is evidenced by the increased R&D reimbursement received from Roche in the fourth quarter. These activities include implementation of a second generation process that is being scaled up to support Roche as well as Halozyme's internal programs. In addition, pre-clinical and toxicology studies have been conducted with the second generation PH20 such as those presented earlier this week by Dr. Walter Bee, our VP of Pre-Clinical, in which Halozyme found that doses up to 3.6 million units per kilogram which is equivalent to about 1.7 million vials of HYLENEX in a 150 pound person, were well tolerated following either IV or subcutaneous dosing. In addition, daily administration of PH20 for one week was well tolerated via either IV or subcutaneous delivery at a daily bolus dose of 600,000 units per kilogram.

A three-month interim analysis from an ongoing 39 week chronic toxicity study with weekly dosing up to 240,000 units per kilogram revealed no changes in standard toxicity parameters, or in male fertility assessment. We continue to ship our PH20 enzyme to Roche so that they may conduct their pre-clinical and formulation work. So we continue to work collaboratively with Roche and we are hoping to be able to provide additional visibility on this exciting partnership during 2008.

On the Baxter front, I realize there must be questions and some general frustration regarding how long it's taking for us to see HYLENEX sales materialize. Well we share this same frustration and, frankly, have been disappointed by the slow progress that Baxter has made on HYLENEX. However, in our most recent discussions with Baxter to constructively address possible steps to accelerate the HYLENEX opportunity, Baxter reiterated its strong commitment to this program at the very highest levels of its organization. Both Baxter and Halozyme continue to believe that this product has $500 million sales potential. Halozyme is working closely with Baxter's top management to accelerate sales efforts in these various markets. There may be ways to leverage Baxter's channel strength to access multiple markets. The initial areas that Baxter is currently targeting are in the pediatrics, long-term care, and ambulatory surgery centers or ASC market.

So let me talk about pediatrics first. This is a market believed to represent about $170 million peak sales potential. Focus is on completing enrollment of the INFUSE pediatric rehydration study which is designed to assess the clinical utility and safety of HYLENEX in infants and children with dehydration. Patients in this Phase IV ongoing open label study are children two months to 10 years old, with mild to moderate dehydration, which is quantified by one to five on what's known as the Gorelick Scale, requiring parenteral fluids administered in the Emergency Department. So these children receive about 1 mil or 150 units of HYLENEX subcutaneously through a small 24-gauge catheter placed in the thigh or upper back followed by a 20 mil per kilogram subcutaneous bolus infusion of fluid over the first hour. Subsequent subcutaneous maintenance hydration is continued as needed until discharged to home or an alternative treatment is started. Now Baxter is targeting completion of enrollment for this study by the middle of this year. They will then seek publication of the results with launch into this market expected in the first half of of 2009.

The second target market, long-term care, is a market believed to represent more than $200 million peak sales potential. We believe that HYLENEX can offer nursing home clinicians a cost effective and patient friendly alternative to hospitalization by allowing subcutaneous hydration in the nursing home setting. We understand that Baxter is currently seeking to define the health economics of these facilities and is also currently conducting test markets in several states.

The third market, ASC, or Ambulatory Surgery Centers, is a small market representing about $15 million peak sales potential. However, this is a market that may be possible to penetrate in 2008 without additional clinical data. In fact, Baxter already has salespeople in the field that have started to call on ophthalmologists in this setting and Baxter will be scaling up the sales force during this year. Halozyme is encouraged by the strong commitment that Baxter's top management has expressed to accelerate sales efforts for HYLENEX and to push for opportunities in new markets both in the U.S. as well as internationally.

So switching gears to our third partnership, last fall we announced a new collaboration with Baxter BioSciences for the development of subcutaneous GAMMAGARD LIQUID 10% administration using our Enhanze Technology. For patients using GAMMAGARD LIQUID therapy currently administered IV, subcutaneous administration with Enhanze Technology may increase the overall convenience and improve the dispersion of this therapy. Baxter is presenting data from their GAMMAGARD Enhanze Technology Phase I/II clinical trial this weekend at the Quad AI Conference in Philadelphia. As the data are embargoed until presentation we won't be able to comment on the results until after they're presented.

As you know, the third priority within our program is Enhanze Technology. And Enhanze Technology is the idea of taking the PH20 enzyme, large enzyme doses and combining those with large molecule therapies. So we're seeking partnerships on that front and we continue to be in discussions with multiple partners exploring the use of our enzyme with their biologic compounds.

Over the next several months, we'll continue to discuss the progress we're making with our pre-clinical and clinical efforts in our various programs. We're targeting two new INDs this year, one in the second quarter of 2008 and one in the fourth quarter of 2008. As you can tell from the programs that Greg and I have reported on, there's a lot going on here. Halozyme has a unique and exciting business strategy for a small biotechnology company. And unlike most companies that seek to develop one or two products, Halozyme is leveraging its multi-functional core technology in a number of interesting ways, as well as expanding its expertise into other areas of the matrix that should help drive significant value for our shareholders. We believe that it's important to take a portfolio approach to the development of these programs because you can't guarantee the success of any one particular program. But as you can tell from our five proprietary programs and three partnered programs, there's a tremendous amount of activity going on at the Company since we last spoke.

Now we're convinced that success in any combination of these programs will drive significant value. We thank you for all your support and we're looking forward to reporting our progress on these programs in 2008. With that overview, I'll now turn the call over to questions.

(OPERATOR INSTRUCTIONS). Your first question comes from the line of [Andrew Zano] of Roth Capital.

I just had a quick question. Did I miss what you-- the first thing you talked about, the therapeutic area on your first compound, did you mention what that was?

No, we did not. But it's a multi-billion dollar therapeutic area with targeting recombinant proteins.

Okay. Also, looking at the pegylated PH, now I know that typically PEGylation doesn't invoke immune responses and often actually does the opposite. Is there any indication that PEGylation of the hyaluronidase will give rise to an immune response?

No, nothing to date that would suggest that to be the case.

Okay. I was also interested in how you control the activity of the product that's indicated for destroying the cellulite dimples. Can you mention how you control it? I mean I assume that you modify-- do you just modify the enzyme a little bit or what are you doing there?

Andrew, we're going to be revealing more information about this enzyme in the coming months so stay tuned on that front.

Okay. That's-- wait, just sorry, just can you then mention sort of what range you can control? I mean can you control the half life in terms of minutes, seconds, or is that -- ?

We can actually control-- we have for example, variants where we can control it down to having it active for a period of seconds, to a period of less than 10 minutes.

Okay, great. Thank you very much.

You're welcome.

Thank you.

Your next question comes from the line of [Lenan Dee] of Jeffries & Co.

My first question is about Chemophase. You guys mentioned that you want to initiate the (inaudible) trials in the fourth quarter this year. Are we still going to see the Phase I-2 data the first half of this year, can we still expect that?

Yeah, we're still targeting a Q2 rollout of the of data from the Phase I-2a trial.

And just another question on product sales this year. Or I mean this quarter, it came in around $98,000. I was just wondering if that weakness was, was that mostly from HYLENEX weakness or from Cumulase, or can you give a break down of where the sales came from for the two products?

Yeah, it's mostly from, mostly from Cumulase product sales. We had a great third quarter for Cumulase, so we saw a sequential drop from Q3 to Q4 for Cumulase. There wasn't any meaningful sales of HYLENEX in the period. But important to note the year-over-year sales increase of Cumulase was actually quite strong. Cumulase sales-- product sales for the year 2007 was approximately $516,000 for example, compared to $342,000 for 2006. So we saw good year-over-year sales, but there's-- it's a bit lumpy so quarters sequentially could be up or down. But year-over-year it's trending up.

All right, thank you.

Sure.

(OPERATOR INSTRUCTIONS). There are no-- I'm sorry, your next question comes from the line of Tim Bragg of UBS Financial Services.

Hi, guys.

Hi, Tim.

Hi, Tim.

I just wanted to see or get a little more information if I could on this R&D reimbursement number, the $652,000. Jonathan, I think you drilled into it some in your presentation anyway, explaining that most of that seemed to be coming from Roche. Is-- could you talk a little bit about more, is that the case? I mean is most of this-- is most of it because in the press release it said from Baxter and Roche. Are we lead to believe that most of this is coming from the Roche efforts?

It's coming from both of them, Tim, and it's for the research work that we do that our partners ask us to do in support of the collaboration, and it's for a variety of activities, but it's coming from both of them.

Is that, when you say a variety of activities, so it's not really focused in, it's safe to say not in one specific area or it's pretty well spread?

It's certainly on the research and development side, a combination of things in terms of specific work to support Baxter for HYLENEX and/or GAMMAGUARD and to support Roche, and the work that they're doing for the collaboration, various pre-clinical work perhaps or more importantly the co-formulation work that we do for them. But it's a number of different things that we do to support the partnerships and it's-- I think the way to look at it is a signal that work is ongoing in these collaborations and moving forward.

Okay. Follow-up question if I could. This expected cash burn $40 million to $50 million, is that the first time we've seen that number, that '08 number and is that higher than original projections in line or is that basically the number that we've pretty much expected throughout?

That's the first time we've given definitive 2008 guidance there for '08.

Okay.

Your next question comes from the line of Kevin Degeeter of Oppenheimer.

Hey, good morning, guys.

Good morning, Kevin.

One quick housekeeping item for David here. The $3.5 million from Baxter you're supposed to receive in January, how does that get traded? Is that basically you get the cash from assuming it doesn't flow through the income statement until certain sales (inaudible), just help me understand how that's going to be treated from a modeling perspective?

Sure, and your assumptions correct. So debit cash, credit deferred revenue, and then we'll bring that deferred revenue into the P&L as product sales are recognized.

Okay. And then maybe just one more just general-- I mean there's a question in here and there's an observation which is, the Company continues to make a lot of progress on the internal pipeline, exciting update on Chemophase, moving additional programs into the clinic, and from the investor side, based on the folks I talk to, people want to see another deal. They want-- I mean you look at the performance of the stock, there's a-- they're a sizeable group out there that's skeptical whether or not there's an additional Roche type deal out there. What do you tell those folks? How do you help those of us on the outside get comfortable that there's both a priority on the part of Management to sign additional partnership arrangements and I realize I understand the business development process, you're never there until you're there. But for those who have a skepticism that you can get over the finish line with the deal, help us understand why you are optimistic you will, I realize you're not going to put timeframe on it but just help us address those questions.

Yes, Kevin as I mentioned in our three Corporate priorities the first is advancing our proprietary pipeline. The second is optimizing the value of the existing relationships. And then the third is to continue to seek additional deals. So we haven't taken our eye off of that ball, but there's criteria that we're applying. And the first is that it's got to be-- the partner that we sign has to be an established market leader in their category. Also, we're open to signing deals when the party owns the molecule and when that's the best route for us to be able to explore that particular indication with that molecule. We're also looking for multi-product types of deals that can create significant value. So we have two full-time people that are in the business development area and they are actively pursuing these opportunities. If you look at the allocation of the roughly 95 employees at Halozyme, the lion's share of the organization is focused on priorities one and two, but we haven't lost sight of the fact that priority three is also value creating for shareholders.

I mean, because that's-- it's-- I mean it's a dilemma here if you're an existing shareholders, the market focused on additional validation of the platform, and it's troubling to me that the priorities slipped to what seems to be a pretty distant third. I realize you need to maximize the relationship you have, yes, I mean but help us out. I mean, what in terms of news flow are we going to see? Are we actually going to get an update on Roche, something concrete this year to share your enthusiasm and the fact that arrangement continues to move along aggressively?

Yeah, as I mentioned in my opening remarks we're going to be seeking ways to increase the visibility around the progress of the Roche activities. And I wouldn't characterize the priorities as a distant third, but really these are three priorities that the organization as a whole is pursuing.

Okay, thanks so much.

You're welcome.

(OPERATOR INSTRUCTIONS). There are no further questions at this time.

We've made substantial progress during 2007 and we look forward to making continued progress with Baxter to commercialize HYLENEX and to move GAMMAGUARD forward in the clinic, providing more visibility on the Roche programs, advancing our five proprietary programs, and continuing our active business development efforts for Enhanze Technology during 2008. We look forward to reporting to you again soon on our progress, and thank you for your support as our shareholders and for your participation in today's call. Take care, everyone.

This does conclude today's conference call. You may now disconnect.