英賽德 (INCY) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen. My name is Elsa and I will be your conference facilitator today. At this time, I would like to welcome everyone to Incyte's fourth-quarter and year-end 2005 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS).

It is now my pleasure to turn the floor over to your host, Pam Murphy. Ma'am, you may begin your conference.

Welcome and thank you for joining us. During today's conference call, Paul Friedman, President and CEO of Incyte, will describe recent accomplishments in our three core therapeutic areas -- HIV, inflammation and cancer -- as well as a new program in diabetes. Dave Hastings, Incyte's Executive Vice President and Chief Financial Officer, will follow Paul and review our 2005 financial results and 2006 financial guidance. After Dave's remarks, we will open up the call for Q&A.

Before beginning, I'd like to remind you that some of the statements made during this call, including statements regarding our plans and expectations for our drug discovery and development program and our financial guidance, are forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties that may cause our actual results to differ materially, including those described in our most recent Form 10-Q and for the quarter ended September 30, 2005, and from time to time in our SEC reports.

I will now turn the call over to Paul.

Thanks, Pam. Good morning, everyone. The last several months have been productive. We moved DFC forward into its second Phase IIb trial and we established the CCR2 collaboration with Pfizer. DFC and nucleoside analog reverse transcriptase inhibitor, or NRTI, for HIV is our most advanced compound. As many of you may recall, the FDA asked that we conduct a second Phase IIb trial prior to Phase III.

This trial, Study 204, has now been initiated and will include 250 treatment-experienced patients who are failing their current regimens. The study is designed to provide a head-to-head comparison and a one-to-one randomization of treatment with DFC in the absence of 3TC to treatment with 3TC, both in the context of an optimized background regiment.

We will utilize over 100 clinical sites to maximize speed of improvement. The primary end point will be the percent of patients who achieve at least a 1 log or greater drop in viral load at the end of 24 weeks. And our goal is to have this study fully enrolled by the middle of '06, which would mean that we would have 24-week results in the first half of next year and would expect to move into Phase III in the second half of '07.

Our discussions with the FDA indicate that the agency may require only one Phase III trial for approval if Study 204 yields positive results. And under the best-case scenario, our NDA submission could occur in the first half of '09.

The results from our prior Phase IIb Study 203 support our belief that Study 204 should demonstrate that a DFC-containing regimen is virologically superior to a 3TC-containing regimen and that DFC is well-tolerated in the absence of ddI, the use of which continues to decrease.

We also expect that it will confirm DFC's ability to cover HIV virus that's become resistant to existing NRTI. Here, I'd like to particularly highlight the results of a recent analysis of Study 203 showing that DFC does not lose efficacy again virus with the M41L and/or the L210W mutations, that in studies with tenofovir reduced tenofovir's anti-viral activity from a 0.6 log viral drop to about only a 0.2 log drop.

Importantly, these mutations occur in about 2/3 of the treatment-experienced patient population that have developed resistance to NRTIs. We have not altered either our assessment of DFC's therapeutic or its commercial value. We believe that the unique resistance profile of DFC, together with the fact that the compound continues to be generally well-tolerated when used without ddI, supports its projected role in the treatment of HIV-experienced patients and our resulting forecast of 250 to $500 million in annual DFC sales.

Our second HIV compound, Incyte 9471, is a very potent oral CCR5 antagonist which has completed IND-enabling studies. The compound has excellence pharmacokinetic properties consistent with a low-dose, once-daily regimen, which would provide both patient convenience and ease of incorporation into fixed-dose regimens. Provided the FDA accepts the IND, we expect to begin Phase I in healthy volunteers in the first half of this year, probably in the May timeframe.

HIV is a focused specialty market. You can access it with a relatively small sales force. And we intend to keep the rights of our HIV compounds in the U.S. and to commercialize them ourselves. We may seek a partner in Europe.

A second therapeutic area in which many of you know we focus is inflammation. With respect to our CCR2 antagonists, which are the basis of the collaboration with Pfizer that we formed in 2005 and which was described in considerable detail in our last conference call, most of you know that we have retained exclusive worldwide rights along with certain compounds to two indications -- multiple sclerosis and a second one that at present for competitive reasons we are not disclosing.

We've selected a lead compound for development in MS and anticipate completing IND-enabling studies, in particular animal toxicology studies, by about midyear. Should these studies allow it, we would begin Phase I in the second half of 2006, with our goal of beginning Phase II trials in multiple sclerosis somewhere in mid-2007.

We believe that the Pfizer alliance is a very good example of our overall pipeline strategy. We were able to secure a favorable deal with a strong partner for a program with a breadth of primary care indications which were beyond our capabilities, while we retained unencumbered rights to pursue compounds in specialty indications well-matched to our current and projected capabilities.

And we also have a development candidate for a second inflammation program distinct from CCR2 antagonist. If the program makes it through preclinical testing, which we would expect to occur later this year, at that time, I'll describe the target and indication.

A third area of focus for us is oncology, and we currently have two programs, the most advanced of which involves inhibitors of an enzymatic activity called sheddase. Our lead compound, Incyte 7839, is in Phase I/II dose-escalating trials in patients with a range of solid tumors, and it is expected to move into Phase II study focused on specific tumor types later this year.

Sheddase inhibition represents a new way to target the human epidermal growth factor receptor, or EGFR, signaling pathways, which play a key role in the growth of breast cancer and other solid tumors. Herceptin, Erbitux and Tarceva target certain HER pathways and have already established themselves as effective cancer therapies.

Our sheddase inhibitors, our oral sheddase inhibitors, target the EGFR pathway in a distinct fashion and are quite effective as monotherapy in animal models. They also have the potential, again, as we have shown in animal models, to complement the activity of other cancer therapies, for example, when used in combination with herceptin in breast cancer.

Our second oncology program, which is preclinical, addresses a target distinct from sheddase. We have selected an orally bioavailable compound for clinical development, so we have a good lead compound. If it succeeds in preclinical testing, which is projected to occur late this, year, again, at that time I will disclose the target and potential indications.

Oncology is a significant focus for us, and this is an area in which we expect to be fully integrated, at least in the United States.

Now lastly, as the Type 2 diabetes program I mentioned to you in earlier calls and presentations is now reaching the IND stage, it is now appropriate for me to disclose the target and describe its therapeutic rationale. While diabetes is outside of our three core focus areas, we do remain an opportunistic organization. And when I describe the target, I think you will agree that this program represents a significant opportunity for us with the potential for a major partnership and an appropriate value creation point.

As with CCR2, this program offered an opportunity to leverage our medicinal chemistry expertise to create a broad platform of highly attractive compounds for a target of great interest. That target is 11-beta hydroxysteroid dehydrogenase type 1, more commonly called HSD1.

We have generated a diverse portfolio of selective orally available inhibitors in this enzyme. Our lead compound, Incyte 13739, is expected to begin Phase I testing in the first half of this year.

As you may be aware, in humans, the human HSD1 enzyme converts the biologically inactive steroid cortisone into the potent biologically active hormone cortisol. Cortisol elevates blood glucose levels by increasing glucose production in the liver, as well as by inhabiting the uptake in disposable glucose in muscle and adipose tissue, essentially acting as an antagonist to the normal action of insulin. It is believed to significantly contribute to insulin resistance in Type 2 diabetes.

By selectively inhibiting human HSD1 and reducing the level of cortisol within key metabolic tissues, 13739 may offer a new approach to treating Type 2 diabetes and allied conditions such as dyslipidemia, atherosclerosis and coronary heart disease.

Preclinical studies strongly support the role of HSD1 in local cortisol production, leading to insulin resistance in diabetes. For example, in the mouse adipose-specific -- tissue-specific overexpression of HSD1, this overproduction produces a phenotype closely resembling human Type 2 diabetes, including obesity, insulin-resistance diabetes, hyperlipidemia, as well as high blood pressure.

Conversely, the loss of HSD1 in adipose tissue is sufficient to avoid weight gain on high-fat diets, to improve insulin sensitivity, to correct dyslipidemia and to reduce the degree of atherosclerosis in mice.

We have shown that small molecule inhibitors of HSD1 can significantly improved insulin sensitivity and normalize fasting blood glucose levels in obese hyperglycemic mice. Based on this evidence, we believe that a selective orally available inhibitor of HSD1, like 13739, has the potential to become an important new approach for treating Type 2 diabetes, as well as the frequent co-morbidities of dyslipidemia and atherosclerosis. Again, we expect to be in Phase I testing of 13739 in the first half of the year.

That concludes my review of our discovery and development programs, and I'll now turn the floor over to Dave to review our financial results.

Thank you, Paul, and good morning, everybody. This morning, I will briefly review our financial results for the fourth quarter and year ended 2005, and then provide financial guidance for 2006. Now, our financial results for the quarter and the year.

Our ending cash at December 31, 2005, was approximately 345 million. During 2005, the Company used approximately 104 million in cash, in line with our revised guidance of 100 to 105 million. As you recall, we have reduced our 2005 cash guidance from a use of 120 to 130 million to a range of 100 to 105 million in our Q3 call.

Our cash used of 104 million excludes 35.8 million used to retire a portion of our 5.5% convertible subordinated notes, 5 million used in the purchase of common stock in connection with the exercise of a [technical difficulty] right by a strategic investee, 5.7 million in proceeds received from the sale of a prior strategic investment, and a $14.1 million increase in cash and short-term investments resulting from a reclassification of a strategic investment from long-term assets.

As we stated in our press release this morning, we have received 50 million in cash from Pfizer as part of our collaborative research and license agreement. 40 million was received in January 2006 as an upfront payment and 10 million was received at a purchase of a convertible subordinated note by Pfizer in February 2006. As a result, we start 2006 with approximately 395 million in cash and short-term investments.

Our net loss and operating expenses for the fourth quarter and full year 2005 were in line with our expectations. As always, the biggest variable in our operating results was our R&D spending, which was 23.9 million for the quarter and 95.6 million for the year. We expect that our R&D spending will fluctuate from quarter to quarter, depending on the timing of our clinical development expenditures.

Now turning to our 2006 financial guidance, in terms of cash, we expect to use between 98 and 105 million in 2006. This guidance includes the use of about 6 million for net lease-related costs in our closed California facilities. Excluded from this guidance is any possible end license or purchase of products in clinical development, the repurchase of any of our 5.5% convertible subordinated notes, any activity related to our strategic investments and any funds received from Pfizer.

We expect our 2006 revenue to be in the range of 20 to 25 million. Included in this guidance is approximately 20 million of revenue as a result of the upfront payment receive from Pfizer in January 2006. We will record this nonrefundable payment as revenue ratably over a 24-month period. We expect our research and development expense to range from 92 to 98 million in 2006, including a non-cash charge of 5 to 6 million related to the impact of expensing share-based payments, including employee stock options.

We expect our selling, general and administrative expense to range from 15 to 16 million in 2006, including a noncash charge of 2 to 3 million related to the impact of expensing share-based payments, including employee stock options. The impact of expensing share-based payments, including stock options, is dependent upon the level of share-based payments issued, as well as their market price and other judgmental assumptions used in estimating the fair value of such instruments.

In terms of other income expenses, we expect our interest income to range from 8 to 9 million in 2006, while interest expense is expected to approximate 16 million. Our guidance does not include any potential adjustments related to our strategic investments, nor does it include the impact of any potential repurchase of our 5.5% convertible subordinated notes, which may occur throughout the year.

I believe we begin 2006 in a strong financial position to continue our investments in are growing pipeline. That concludes my review of our financial results and 2006 guidance. And I now turn the call over to Paul.

Thanks, Dave. Operator, would you please open the call for questions now?

(OPERATOR INSTRUCTIONS). David Witzke, Banc of America.

Paul, I wonder if you can provide an update on the rate of grade 4 hyperlipasemia in the 01-901 extension study? Has it changed? And have you seen any overt pancreatitis?

We have -- in Study 901, the incidence of grade 4 hyperlipasemia is around 3%. So that's fine. What we have seen, as I've said before -- I would be shocked if we did not see some pancreatitis going forward because the rate across all studies of clinical pancreatitis in HIV patients is around 2.5%.

There is one individual who has very high triglyceride levels, which are a known risk factor for pancreatitis, who developed what sounds like clinical pancreatitis in Study 901, was hospitalized for a couple of days, but fully recovered and is doing fine. Whether or not that is due to our drug or the high triglycerides, I don't know, but we have about 100 patients, pushing 100 patients that have been out over year.

So if this case would be associated with the drug, and again, I don't know that it is because he has a very compelling alternative explanation, the incidence is very low in the range that I suggested we might see it in multiple previous presentations to you all. And it's certainly at this point below the average of what is seen across many studies. And that's the only individual.

And the rate of the actual rates for hyperlipasemia -- has that changed at all with longer duration?

No, the rate that we are seeing is actually lower than what we saw in the 203 study. So that's actually an encouraging number.

And regarding HSD1, I believe the first Amgen/Biovitrum program was discontinued after a Scandinavian study. I know they've recently expanded this collaboration. I'm not sure if a second compound is in man yet. I guess what is your competitive knowledge on this target -- where people are at? And have we learned anything from the prior human studies?

Yes, so we obviously thought long and hard about what happened with -- I think the compound was called AMG311, which came from Biovitrum, and I think was put through a Phase II interim analysis where the compound was found to be safe, but it was dropped from further development. Not much was said about efficacy, but it was pretty obvious I think by reading the tea leaves and by some of the phraseology in the explanation for why it was dropped that they were not seeing whatever efficacy parameter they were seeking.

And we have had a chance to consider the characteristics of that compound in great detail. And I think it would've been very surprising if the compound would have worked, based on inherent potency of the molecule, as well as tissue distribution.

And I think the very fact that this announcement came a few days ago, expanding their collaboration in a compound now that is either in Phase I or about to go into Phase I suggests that they obviously remain very interested in the target as well, and must have an improved entity. But we've kind of leap-frogged using AMG311 to learn where to go in improving molecules. And I think we have successfully done that.

In terms of the remaining competitive landscape, we believe, although we have no direct evidence -- this is hearsay -- that Merck and Pfizer may have HSD1 programs. I'd be surprised if they don't. I don't know at what level of development or preclinical the compounds are. And I suspect there are other companies that are addressing the target. But our competitive intelligence suggests that they are not there yet.

And then a final question regarding CCR2. What is your take on the Millennium's aborting their antibody for the RA indication? And then the follow-up, kind of Pfizer's view on releasing the Phase IIa data in RA and insulin-resistant obese patients, and when we might have a chance to view that data. Thanks.

Let me answer the second first. My belief at this point is that for competitive reasons, that data may not be released. It may, but my guess is it most likely is not going to be released by Pfizer for competitive reasons.

With respect to Millennium, this is what we believe occurred. Based on what Millennium has said publicly, we believe they were in a study initially on 40 patients with RA. That certainly seems small if it was intended as an efficacy proof of concept study. We also heard that was a one-month study. There were some rumors it might have been six weeks, but it was a short-term study, again, a time period where, with the exception of the [ATNS], agents do not demonstrate their efficacy. You have to do a three-month study.

Well, we don't know the patient population they used in the RA trials, but again, we have heard that the trials enclose all comers, and that synovial biopsies were a part of the trial. So if you consider the combination of an injectable drug, as well as a requirement for synovial biopsies, this set of criteria may well have biased recruitment toward patients who lacked other therapeutic options, for example, anti-TNF failures. This is one of the effects that CCR2 antagonists should be -- to reduce TNF levels. We did not, nor would we have selected an anti-TNF failure population for our initial clinical studies.

Having said all that, in August of '05, they announce that they had completed enrollment for the first three cohorts and that Millennium 1202, which was the entity, appeared to have been well-tolerated, with favorable pharmacokinetic and pharmacodynamic profiles.

So the claim was there was clinical activity. What they did not state was whether the pharmacodynamic parameters were generalized inflammation markers, such as erythrocyte sedimentation rate, ESR, or CRP, C-reactive protein, or one or more rheumatoid arthritis-targeted biomarkers. Also in August, they said they were adding a fourth cohort at a higher dose, but they did not say what the timeline was or if they were spending time on drug.

And then finally -- so they saw activity -- we don't know what the activity was -- in what we think could have been a skewed population, a very small number of individuals. And what is also unknown for us is Millennium's decision -- in their decision is was there a commercial assessment of the opportunity for an injectable. So unless the CCR2 antibody really offered something far better than the anti-TNF biologics, it seems this would become a difficult indication to justify unless they did show clear efficacy in an anti-TNF refractory population.

And if they also knew at that point in time that Merck and now Pfizer were bringing along oral small molecules, I think if you put that all together, that may have influenced their decision. So obviously, in my explanation, there are a lot of surmises, because we don't have all the information.

Thomas Wei, Piper Jaffray.

Just to clarify on the comments about hyperlipasemia in the extension study, can you just clarify exactly how many patients have developed grade 4 hyperlipasemia and what the latest onset of that was in dosing so far?

Yes, I'm going to ask Rich Levy, who's here, to address that question. He is more familiar with the study.

I don't have it in front of me and don't remember the actual number, but it's been 3% within Study 901, as opposed to the 5% that we saw in Study 203. So that's going to be in the order of about three to four patients. But I cannot remember exactly the numerator and denominator.

In terms of the longest duration of treatment that anybody was on before they actually developed hyperlipasemia, it was in the eight-month range. It may have been as high as nine, but it wasn't longer than that.

And so far in that study, how many patients actually enrolled and how many are still in the extension?

126 or 127 enrolled, and I think there's somewhere over 100 -- or around 100 still in. But again, I don't have those specific numbers with me today.

That is very helpful, actually. And then I just -- on this question about the FDA making a decision on whether or not you need to do one or two additional Phase III studies, can you just remind me, what did they tell you they need to see from Study 204 in order to go with a single Phase III strategy?

Well, the study is going to need to meet its primary end point, which is statistically significant difference between the treatment arms and the percent of patients with the one log drop at -- one log or greater drop at 24 weeks. So they said -- the words that they used were, if the study is positive, they could require only one additional study. It's not an absolute guarantee.

So it's really an efficacy look. Did they stipulate anything about what you would need to show on hyperlipasemia or safety?

No.

And then just one last question -- do diabetics have abnormal cortisol levels?

They don't have particularly abnormal blood levels of cortisol, but they may have heightened HSD1 activity, which is a local conversion of cortisone to cortisol in the target tissues, and that's where the action of these drugs is supposed to be, not at the adrenal level.

Just one clarification on the question you asked about the second single study. FDA is quite commonly doing that now, where they allow you to do one pivotal. It still requires a minimum number of patients who will be on the dose that you intend to market for the requisite length of time for safety reasons.

So it just simplifies the Phase III program, because you're doing one trial and you have one set of sites in which to do it. But you still -- originally, when we were going to do two trials, I think the studies were going to be about 400-patient trials, 200- to 500-patient trials. This one will probably be in the 600- to 800-patient range. So it makes it easier, but it certainly doesn't get you away from the number of patients you actually have to recruit to register the drug.

Sapna Srivastava, Morgan Stanley.

I had a question on your CCR5 program. Could you just walk us through the competitive positioning of your compound versus the more advanced compounds in the clinic?

And the second question is on your diabetes program. Should we think of partnering the program similar to what you've done with the CCR2 program?

The second question I would answer first. That certainly would be our idea, that we -- this, again, is a primary care market. And it's a program that would best be partnered with a big pharmaceutical company that has interest in this medical area. The question is at which value creation point do you do it, and we're still trying to evaluate that. Until we get it through its early clinical paces, there's no urgency for us to come to a decision about at which value creation point we would look for a partner.

With respect to CCR5, the situation looks to us about like this -- there's a biologic that I don't think will be competitive with the small molecules, if the small molecules work. The Pfizer compound is moving along and is being evaluated both in naive and in treatment-experience patients. It is structurally distinct from our series.

And it is our belief, and there is some evidence for this, that if resistant organisms were to arise through the Pfizer structure or if they were to arise through our structure, the other compounds could cover those resistant mutants. The sharing compound -- of course, they've had problems with their naive study. It looks like they did not dose high enough -- is also ahead of us. The GlaxoSmithKline compound dropped out for liver tox issues.

And when we did our financials, when we came up with this compound and before we came up with some very interesting backup molecules, I might add, we looked at the [NTB] analyses for being third to the clinic with no advantage, or nothing to distinguish us from the other two. And the NTB looked quite good. When you fell to fourth, it did not look too good. So we believe we actually have some potential advantages in this series that we are planning to develop, and --

What are the advantages? Sorry -- besides the [multiple speakers]

I can't get into those right now. Those would be -- put us at a competitive disadvantage. But they are potentially quite significant differences from the lead molecules.

We don't know for certain that the Schering compound will make it. I think it has a pretty good chance still to make it. The Pfizer compound probably will make it. So we will be some years behind those compounds, but as I say, third to the market with modest penetration percentages and no obvious advantage, which was the base case scenario, still gives a very attractive NTB.

Maneesh Jain, Thomas Weisel Partners.

Thanks for taking my questions. The first was, in terms of the data flow for 2006, it sounds like you guys have a number of exciting programs out there in the clinic and starting some additional trials. Can you give us a feel for when we might start to see some of the data from these trials? For example, the sheddase program, I think you've mentioned that you'd probably have data in the second half of the year. Is that when we would get to see some of that data as well?

Yes. If the current study -- if the drug is safe enough and makes it through, and if we move into the disease-specific Phase II study, we will have I think some interesting data to present possibly on shedding of the HER2 extracellular domain in volunteers and in patients and possibly, if we're quite lucky, on tumor progression in specific individuals.

But if I can go through the things that I think are going to happen this year, because I agree with your interpretation that there's a lot that is going to happen this year, in the next few months, we will initiate the CCR5 study. We'll certainly have results from that study in the second half of the year. We will initiate the study with the oral diabetes compound in the first half of this year. And we will certainly have data on that compound toward the end of the year, possibly even some surrogate data in obese volunteers.

In the sheddase program, we've just talked about the data that could come out there. And in the two new programs, the new inflammation program as well as the new cancer program, we have what looked like very good compounds where we have run them through our non-GLP shorter-term toxicology tests. And they pass those tests, which we think give our compounds a significantly higher probability of making it through the formal GLP one-month testing.

So by the second half of the year, we will be in a position, I hope, to announce two very interesting new programs. By the second half of the year, assuming the CCR2 lead makes it through safety assessment, we would be entering Phase I trials with that entity.

And the DFC study -- our plan is, as we said, to have it fully enrolled by the middle of the year. We're going to have a data safety monitoring board to evaluate both utility and safety, obviously. And I think if you were watching, and you knew the study was fully enrolled, and was not stopped by the DSMB, and we were getting along toward the end of the year, even though there will not be an announcement of a formal interim analysis, as we did in 203, I think reading the tea leaves would tell you that we don't have a futile study and the drug is remaining safe enough to bring that study to an end.

Go back and look at the data from 203 closely -- I think it would be highly unlikely, nothing is impossible, but highly unlikely that DFC would not be appear to 3TC. So that data would ultimately be available sometime in the April or so timeframe of '07.

But I think well before that, savvy people will be able to figure out what is really happening. And the beauty of that study -- there has to be some beauty in the beast -- the beast means we have to do the study, as opposed to going into Phase III. But the beauty is, if that study is positive, we're basically just going to replicate it on a larger scale in Phase III. So you would know at the end of that study basically that the drug was registered.

So we have -- by the end of this year, if everything that we are trying to get done got done here, and of course nothing ever work that way, we could have five or six entities in the clinic. And for a company our sized that started in April of '02, that's I think pretty magnificent progress.

That is actually a great segue into my next question, which is in 2007, now you're talking about a cancer drug in Phase II, HIV drug in Phase III, a second HIV drug in Phase II, an MS drug in Phase I and diabetes program, and maybe Dave's more apt to answer the question -- how do you guys manage to pay for all this?

If our pipeline progresses as we expect, and assuming we actually paid all cash for the 5.5% notes, our runway is well into 2008 with our current cash balances. Our variable cash used is really tied to the pipeline progress. So it's really our view that if we make those investments, then we will generate sufficient shareholder value and we should be able to raise additional funds at a reasonable cost of capital at that time.

Alex Hittle, A.G. Edwards.

Most of my questions have been already asked, but I was wondering, in your guidance, it appears that the only revenue you have is sort of the allocation of the payment from Pfizer. I am wondering -- are there any additional milestones that you think you are likely to hit over the course of the next year coming out of that partnership?

Well, we have no control over what Pfizer does. So the potential milestones would be if they took the lead compound or any compound -- but I think it would have to be 3284 at this point -- into a Phase IIb study for rheumatoid arthritis. And if there were another indication for which they wanted to start a study, there are other molecules. And we would also hit a milestone if that happened.

So there are ways to at least judge what Pfizer is thinking about the goodness of the molecules and the potential indications. But I think those are the two potential milestones, and they are potential, for 2006.

And the one other thing is that if we start the MS trial with our own molecule, they, at our request, would take another 10 million of convertible notes if we wanted them to. So that's the third entity that could occur this year.

And on those converts, has the premium been disclosed?

In our most recently filed 8-K, we did disclose the conversion price, which was 6.84 per share. What we can't disclose is the premium calculation, which will be the same calculation we will use for the second tranche if that gets taken down.

Soham Pandya, Susquehanna.

My question relates to the design of the Study 204. Is this similar to the [COLAY] trial, where the question was sort of whether lamivudine as part of a salvage regimen after failure provides a benefit in those patients that had a lamivudine-containing combination prior? Is that sort of how we should be talking about the enrollment here? The question is sort of do they have lamivudine immediately prior to randomization, either continuing lamivudine or DFC?

I don't really think if it like the COLAY trial. For those who don't know anything about the COLAY trial, it was a study in which people who were failing a regimen were either kept on 3TC or not. And in fact, in that trial, they did not see benefits in terms of viral load or CD4 counts within that study. But our study is quite different.

So first of all, in terms of entry into the study, there's no requirement that people be on 3TC or FTC when they come in. But we expect that approximately 2/3 of the patients will be on 3TC or FTC when they come into the study, based both on our experience in our own 203 study, as well as understanding the frequency with which 3TC or FTC continue to be used in treatment-experienced patients.

So here, you are not comparing 3TC to no 3TC per se; you are comparing 3TC to DFC. So you are actually adding on a different variable. Plus, in this study you're actually re-optimizing the regimen to try to find the best drug.

So it's really -- I wouldn't think of it like COLAY. I would think of it as a fairly standard type of study design in treatment-experienced patients. The only difference from most studies that you might have seen recently where you compare, for example, either to your drug added on versus placebo added on to a best possible regimen, or in some cases where you pick a same member of the same class.

So for example, if you look at the TMC114 studies or the tipranovir studies, similar studies to what we're doing, but there, you had a choice as to which protease inhibitor you were picking. Here, you get the choices of any drugs you want except for 3TC, FTC and essentially ddI because of the interaction that we have with ddI where it causes more hyperlipasemia.

Thomas Wei, Piper Jaffray.

Thanks for the follow-up. I guess just a question on the patient who potentially developed pancreatitis here. I am assuming that they actually stopped taking Reverset. And can you tell us whether or not both their triglyceride levels and their pancreatic enzymes came down in tandem with symptomatic resolutions?

Yes. The patient did stop DFC, actually, about a week before he was diagnosed with pancreatitis because his amylase and lipase were up. And we have data from after everything was resolved where his triglycerides had come down quite a bit with improvement in the pancreatitis and his lipase has come down a lot, but is still not back to the normal level, where his triglycerides now are back to a normal level.

And then just a last question on Study 204. With the targeted enrollment that you've got, do you have a sense as to what the minimum efficacy difference you have with that number of patients, or what the power is of the study?

Yes. So with 125 patients per arm, we have 80%, or actually, I think we have 85% power, which has a 20% difference in the arms, assuming that that 20% is close to that 50%, cut up like a 40/60 sort of number.

In 203, looking at the subgroup of patients that would be eligible for this study, we are seeing differences in terms of the primary efficacy end point in the range of -- it was 71 versus 36, so that's a difference of 35%. And we should have 85% chance of a positive study if the difference were 20%. So we are pretty optimistic.

Thank you. And this time, I would like to turn the floor back over to you for any further or closing comments.

We thank everybody for their attention and for joining us on the call today. As I probably in a very long-winded way answered one of the questions about what was going to happen this year, I think it's pretty obvious that 2006 is an important year for us.

All the years are important, but I think this is the year where if even the majority of what we are trying to do comes to fruition during the year, that it will be what I would like to describe as our breakout year, where our pipeline is suddenly an extremely impressive one. And we have an entity that's nearing the end of the pipeline and has a very high PTS.

So again, if our programs advance as we expect in terms of IND filings and successful outcomes in the clinical trials, the strength and value of the pipeline should become even more apparent. And I look forward to keeping you informed of our progress. And with that, I would ask the operator to conclude today's call.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.

You, too.

Thank you.