英賽德 (INCY) 2006 Q1 法說會逐字稿

Good morning; my name is Jackie and I will be your conference facilitator today. At this time I would like to welcome everyone to the Incyte first-quarter 2006 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 Pam Murphy, Vice President of Investor Relations and Corporate Communications. Ma'am, you may begin your conference.

Good morning and thank you all for joining us. With me today are Paul Friedman, Incyte's President and Chief Executive Officer; Dave Hastings, our Executive Vice President and Chief Financial Officer; and Rich Levy, Senior Vice President of Development. We'll begin today's call with an update from Paul on progress in our drug development program and Dave will follow with a brief overview on Incyte's first-quarter financial results. We'll then open up the call for Q&A.

Before beginning I'd like to remind you that some of the statements made during the call today, including statements regarding our plans and expectations for our drug discovery and development programs, and our financial results and 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 10-K for the year ended December 31, 2005 and from time to time in our SEC reports. Paul?

Thanks, Pam. Good morning, everyone. Today we announced that we've filed two new INDs since our last conference call and it's our objective to submit three and possibly four more by the end of this year or very early in 2007. Of the two new INDs, the first is for an oral CCR5 inhibitor which we're developing as a treatment for HIV. The second IND is for a novel oral inhibitor of 11-beta hydroxysteroid dehydrogenase type 1 or more simply 11beta-HSD1 for treating Type II diabetes and related diseases.

Our CCR5 inhibitor, Incyte 9471, is a very potent compound, it has excellent pharmacokinetic properties consistent with convenient low-dose once-a-day therapy and it has the potential for incorporation into fixed dose combination products. Unlike other CCR5 inhibitors in development, 9471 will cover mutations that occur with existing HIV treatment. We expect to complete a Phase I trial in healthy volunteers this summer and initiate a short Phase IIa study involving treatment experienced patients sometime this fall. This means we could have topline safety and efficacy data in HIV patients by year-end.

In parallel with the development of 9471, a compound whose profile we believe is highly competitive when compared to the profiles of other CCR5 antagonists in development, we are moving a second compound from this program forward. So far acknowledging is early stage, that is we have not yet completed IND enabling studies. This second compound appears to have an even better profile than 9471. We continue to believe that CCR5 antagonists represent an important new class of drugs in the armamentarium against HIV.

The second IND that we just filed is for the 11beta-HSD1 inhibitor Incyte 13739. As many of you I'm sure know, the enzyme 11beta-HSD1 converts the biologically inactive steroid cortisone into the potent biologically active hormone cortisol. And cortisol antagonizes the effects of insulin by increasing glucose production in the liver and by inhibiting the uptake and disposable of glucose in muscle and in adipose tissues.

Recently published data suggests that the 11beta-HSD1 mediated production of cortisol within these metabolically important tissues may play a key role in regulating insulin resistance in Type II diabetes. Therefore, by selectively inhibiting human 11beta-HSD1 and reducing the level of cortisol within key metabolic tissues, Incyte 13739 may offer a new approach to treating Type II diabetes and allied conditions such as dyslipidemia, atherosclerosis and coronary heart disease.

Our Phase I program scheduled to begin in June will, in addition to determining the safety, tolerability and pharmacokinetics of the compound in healthy volunteers, the usual parameters that one measures in Phase I -- will in addition be designed to confirm that 13739 inhibits 11beta-HSD1 activity in adipose tissue which has a particularly critical role in insulin resistance. Provided that the compound is safe we expect to initiate a one-month Phase IIa study in Type II diabetic patients later this year which will allow us to evaluate the effect of this compound on glucose production in insulin sensitivity and we hope to have topline data from this study early next year.

Moving over to our inflammation portfolio. As you may recall, in our deal with Pfizer for our CCR2 antagonist program, we retained exclusive worldwide rights along with certain compounds for two indications, multiple sclerosis, and the second one is, for competitive reasons, we've not yet disclosed. I do plan to disclose that indication later this year.

Both MS as well as the second indication are appropriate for us to develop and commercialize on our own, at least in the United States. Our lead compound for these indications -- for both these indications is Incyte 8696 and we expect to file an IND for this compound in the fourth quarter of this year. If the Phase I trials are successful, which we expect they will be given -- will be the case given our prior experience with these compounds, we plan to begin Phase II trials in multiple sclerosis patients in mid 2007.

We also have a new inflammation program directed against a different target for which we've selected a lead development candidate. Now if this candidate makes it through preclinical testing I'll describe the target and potential indications later this year and would anticipate filing an IND in the fourth quarter or very early in 2007.

Oncology is a key therapeutic area for us and it's one in which we expect to be fully integrated. We have two programs, the most advanced involves inhibitors of an enzymatic activity called sheddase. Our lead compound Incyte 7839 is now in a Phase I/II dose escalating trial in refractory cancer patients with a range of solid tumors. Over the next few months our objective with this study is to establish the maximum tolerated dose for the compound and the selected dose for use in at least one and possibly more Phase II studies that would start later this year and on into the early part of next year. In these trials we expect to focus on specific solid tumor types such as breast, non small cell lung and/or colon cancer.

Sheddase inhibition represents a new way to target the four known human epidermal growth factor receptor, or EGFR signaling pathways, that play a key role in the growth of breast cancer and other solid tumors. Herceptin, Erbitux and Tarceva each target a single EGFR pathway and have already established themselves as effective cancer therapy. (technical difficulty). And we see this as further confirmation of the value of inhibiting more than one of these pathways, GSK's dual tyrosine kinase inhibitor has demonstrated positive results in a Phase III clinical trial in women with advanced or metastatic breast cancer who had documented HER2 overexpression, but whose disease progressed following treatment with Herceptin as well as other cancer therapies.

To repeat -- our oral sheddase inhibitors inhibit signaling through all four EGFR receptors. And these EGFR receptors are also referred to as HER1, HER2, HER3 and HER4, just to make it even a little more complicated to follow. In animal models the sheddase inhibitors are both effective as monotherapy and are complementary to the activity of other cancer therapies including Herceptin, HER1 tyrosine kinase inhibitors and cytotoxic agents.

There are two articles in the June edition of the journal Cancer Biology & Therapy authored by Incyte scientists which support the potential therapeutic value of blocking HER2 extracellular domain or ECD shedding with a selective sheddase inhibitor. In these articles we identify the enzyme responsible for HER2 ECD shedding in human breast cancer cell lines and we show in multiple in vivo studies that selective sheddase inhibitors, including our clinical compound Incyte 7839, both potentiate the activity of Herceptin and in combination with low doses of Herceptin increased sensitivity to chemotherapy in these breast cancer cell lines. Importantly, these articles also report that similar results are seen in in vivo, in breast cancer xenograph models.

Now at ASCO in June there are going to be a couple of abstracts that highlight how a selected sheddase inhibitor like Incyte 7839 could be effective in breast cancer patients who don't respond to Herceptin. There's a session entitled HER2 Directed Therapy for Breast Cancer Beyond Trastuzumab that includes an oral presentation demonstrating that changes in HER2 ECD levels following Herceptin administration are predictive of clinical benefit. Data that we'll be showing at ASCO from our Phase I trial in healthy volunteers demonstrates that Incyte 7839 was able to reduce ECD levels in a dose dependent manner even in these normal individuals.

Now our second oncology program is in preclinical development and addresses a different target. We've selected a novel proprietary oral compound to progress into clinical development. If it succeeds in preclinical testing, again, I'll disclose the target and potential indications later this year and we anticipate an IND filing either by year-end or very early in 2007.

To conclude, despite our recent setback with DFC, I'm confident that our continued productivity will lead to significant advancement and expansion of our clinical pipeline. And I believe this progress will become increasingly visible over the next 12 to 18 months. And now I'm going to turn the call over to Dave Hastings who's going to take you through our financial results and after that we'll open the call up for a Q&A session. Dave?

Thanks, Paul, and good morning, everybody. As usual, I'll start by reviewing our cash position. We ended the first quarter with $372.4 million cash and investments and our cash use from operations this quarter was $24.3 million. There were several other factors that impacted our cash during the quarter. We received a total of $50 million from our CCR2 collaborative research and license agreement with Pfizer; $40 million was received as a non-refundable upfront payment and the other $10 million was received through the purchase of an interest free seven-year convertible subordinated note which converts into our common stock at a premium.

In addition, we recorded a $1.7 million increase to our cash and investments as a result of the increased market value of a publicly held strategic investment. All of this activity is excluded from our cash use guidance which is focused on cash used in operations which is our key financial metric.

As we mentioned on our call on April 3rd, we have reduced our cash guidance for the year from a use of 98 to $105 million to a use of between 88 to $95 million. This new guidance remains unchanged and, as always, we exclude the in license or purchase of products, the repurchase of any of our 5.5% convertible subordinated notes, any funds received from the Pfizer collaboration, and any activity related to our strategic investments.

In terms of our 5.5% convertible subordinated notes, our balance stands at approximately $92 million and we have not made any repurchases so far this year. As we've mentioned in the past, we may use cash to repurchase these notes, particularly as our opportunities to do so for less than par. It's important to note that even assuming we use all cash to redeem these notes, our total cash runway now extends into early 2009. Importantly, this financial strength allows us to continue the necessary investments in our discovery and development pipeline.

Another area I'd like to discuss this morning is our R&D expense which totaled $24.8 million for the quarter. During our April 3rd call, we reduced our R&D guidance from a range of 92 to $98 million to a range of 82 to $88 million. Included in this guidance was a non-cash expense of between 5 and $6 million related to the impact of expensing share-based payments including employee stock options. Also included in the R&D expense for the quarter was approximately $5.5 million in costs related to DFC program which will not recur as a result of the program's termination. Approximately $1.4 million of these costs were directly related to the termination of the program.

As we have noted in the past, our R&D expense can and will vary from quarter to quarter depending on the timing of our clinical activities. The final area I'd like to highlight this morning is the sale of a portion of a strategic investment in a publicly held company during the first quarter. The resulting gain of $5.5 million from that sale is recorded an interest and other income. That concludes my remarks and I will now turn the call back to Paul.

Operator, could you please now open the call for questions?

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

Good morning. I guess can you go through what you're hearing on the competitive side for CCR2? Any update on Merck, Millennium or possibly J&J?

Not much. We haven't heard anything about any trials that Merck has completed. We know that Millennium is in the midst of a number of trials with their antibody -- I believe one in multiple sclerosis and they're doing a pilot study in athero and they're either about to begin or they've begun a study in scleroderma. The study that they did in RA has never been publicly presented and it's a little bit difficult to figure out what happened there.

They reported positive pharmacodynamic results in the study. We don't know what the patient population was, whether it was all [comers], whether it was people who had failed biologicals and we don't know the length of the study. We do believe it was either four or six weeks and that there were very few people in the study in that there were joint biopsies that were taken.

So we don't know what was meant by positive pharmacodynamic results. We do know that they made a decision to focus their efforts in CCR2 on the three programs that I mentioned earlier and not to proceed in RA. They knew that both Pfizer and presumably Merck were going to have small molecules and that it may have tipped their decision-making because of that competition with small molecules to the other indications. But it's like reading tea leaves to try to figure out why they did certain things and what actually happened in that RA trial. And other than that, we don't really have any useful competitive data.

Regarding Pfizer, do we have public information of where they're going with their program, what indication?

Pfizer, like most of these big companies, tends to be very restricted in what they say about their pipelines and what their studies are particularly before they get into Phase III. And the deal that we have with them does not give us the liberty to discuss indications, timeliness or trial design and that information would have to come from them at this point.

What I can say is that since disclosure of the agreement in January we've been highly active in transitioning the relative activities to Pfizer. That phase has been completed. Now that they are in full direction of the program based on committees that we sit on, it's clear that they're as committed to the mechanism and to the platform that we generated as we thought they would be. The program is moving forward on multiple fronts.

We are not, however, going to us assume -- it is possible, but we're not going to assume that we'll receive development milestones in this what you'd call transitional year. We do have the option to access another $10 million from the sale of the additional convertible subordinated note to Pfizer at the time we filed the IND for 8696, our MS CCR2 compound, and those notes will bear no interest and are convertible into our common stock at a premium. That's really about all I can say based on the agreement that we have with them.

And regarding your sheddase inhibitor, I would assume Genentech would have some interest in this mechanism. Any discussions there or at what point do you think you'd have the data where it would make this possible, thus collaborating?

Well, we've heard that they may have internally -- or their competitive intelligence says they may have a program of their own. But it certainly would make some sense to assume that they would be interested in a program like ours. We're not in a position to publicly disclose what kind of conversations we've had with whom, but I think the supposition that a Genentech would be interested in this mechanism and potentially this program I think is a pretty well reasoned one.

I would say this that it's a significant therapeutic focus for us, the oncology area, and we do plan to take 7839 farther along before we'd considered a partnership. As we said, or as I've said, we expect to determine a dose and move into at least one and probably more than one Phase II trials in specific tumor types either later this -- certainly one of those studies later this year and possibly at least one more early in '07.

But at some point it may make sense to seek a partner. Genentech would be an excellent partner for this particular mechanism, that's for sure. But depending where the studies lead us will tell us whether in fact we do need a partnership and if so what kind of partnership and it's just too early to speculate.

Thank you.

Eun Yang, Jefferies.

Two questions on sheddase inhibitor. One, given the Glaxo success with their dual tyrosine kinase inhibitor, I'm just wondering if there's anything that you can provide us with some potential advantages or anything relative activity in the animal models? That's the number one question. And secondly, for the pivotal study for sheddase inhibitor going forward, would that be similar to what JSK has done or is it going to be compared to Herceptin or Herceptin refractory patients? Thanks.

I'll answer the last question first. It's too early for me to tell you what the pivotal trials are going to look like because that's why we do the Phase II studies in specific solid tumor types to figure out where we should go in Phase III. So I can't answer the second question that you had. With respect to the first question, we've not yet done either xenograph or cell culture studies with the GSK dual inhibitor.

What I can tell you is that when -- just to go back for a second. When you activate the HERs -- HER1, HER2, HER3, HER4 -- they either are activated by clipping the outside of the receptor, in the case of HER2, or being activated by ligand. And when that happens the monomeric forms of these receptors dimerized and it's the dimers that signal to the cell to proliferate and to resist apoptosis.

You can get either homodimers like a HER1/HER1 or is HER2/HER2, or you can get heterodimers HER1/HER2, HER2/HER3, HER1/HER3. And the most aggressive of the dimeric forms include HER3. And you can demonstrate that signaling is still occurring through HER3 with the GSK dual kinase inhibitor which takes out 1 and 2. So you can see that logically we would have an advantage over the dual inhibitor and one would speculate that just as we've seen when we've added our mechanism to Herceptin or to chemotherapeutic agents or to Iressa or Tarceva, we in fact potentiate the activity of the other agent and you would think that you would see that here as well.

So on paper it looks like we would have distinct advantages and be complementary to their compound as we have been to other compounds. But we have not done the experiments yet.

Okay, thanks.

Thomas Wei, Piper Jaffray.

I had a question on the CCR5 inhibitor and a question on R&D. For the CCR5 inhibitor, you had mentioned hope for a fixed dose combination pill; is that something that you're actually actively exploring at this point? And would your hope be to outlicense that asset to somebody who could develop it that way?

From the properties of the compound, the physical chemical properties, and from the anticipated dose there's good reason to believe that compound could be combined in fixed dose with a variety of current and soon to arrive HIV medications. We have not at this very early point in development done anything to look into that or to anticipate what would happen from a commercialization standpoint with a company with whom we might combine -- with a company whose drug we might combine 9471 and/or the backup compound. It's just too early to do that. But there's every reason to believe, based on the milligram per day intake and the physical chemical properties of the compounds, that they would be perfectly amenable to multiple types of fixed dose combination.

Do you think that 10 or 14 day monotherapy data is the right degree of data to have in hand, or would we need to see longer-term dosing data before you sought a partner?

It's not clear we'll seek a partner at this point. It really depends on the emerging potential for the class, for the emerging profile of one or both of our compounds and the developments in the competitive landscape in the area in general. So we haven't made that decision yet either.

And just one last question. Do we know how that drug is likely to be metabolized in humans?

We do know. We have not publicly revealed that. There's nothing unusual about its metabolism, I would just say that. It would be metabolized by the CYP system in the way that you would expect most drugs are.

Does that mean that when you talk about once daily dosing, does that imply that -- are you able to achieve that through ritonavir boosting, is that the (technical difficulty)? Does the drug itself right now have PK characteristics that would lead you to believe that it could be once daily by itself?

We think that it has the potential to be once daily by itself and that you could, if you had to, ritonavir boost. But the PK characteristics that we currently seek for both compounds would argue that without that, should the data that we have in mammalian culture work and in animals up through the chimp would argue that without boosting we should get a reasonably flat profile and with a modest total milligram per day dose have a once-a-day compound.

All right, thanks very much.

Maneesh Jain, Thomas Weisel.

This is actually Andrew in for Maneesh. Thanks for taking my question. I wanted to just check -- have you specified when we might see the sheddase trial -- just later this year?

When we might report on the current Phase Ib/II trial?

When we would move forward with more -- the specific trials in individual indications?

It will be in the fourth quarter. That's what we think; the first of the Phase II trials.

Okay. And has your strategy vis-a-vis partnering changed at all?

Well, what we've said -- you're asking that I assume because of the DFC.

Yes. In general across all programs, has your attitude towards partnering changed in any way?

Let's just go through that historically and then answer it. The CCR2 program, whether DFC succeeded or did not succeed, had to be partnered to a large company to be able to competitively look at the types of primary care opportunities that the mechanism allowed for -- athero, diabetes. We simply would not have been able to do that.

So we believe that -- and we have retained two indications in that partnering that we can handle, and we think that we did the right thing there for the Company. We are pretty confident about that. What we've said going forward is we would have from our discovery engine the generation of compounds and programs that would have different profiles; that we would have those that could be developed in specialty areas where we could take the programs through ourselves, through development, and become integrated to commercialize the products, at least in the United States. And programs like that would be an oncology program, potentially the CCR5 program. I wouldn't call these niche products, I'd call these specialty areas where a company our size can become capable without building up huge infrastructure to develop and market such entities.

At the same time, we are opportunistic, and if out of our programs come interesting compounds where the indications, the therapeutic areas, involve large primary care efforts, we have said that we would take those compounds through to an appropriate value creation point and then partner them. An appropriate value creation point is -- to some degree, it is not fixed in stone, either temporally or for a given program. It really depends on what our company looks like at the time, which including our cash balance, where the stocked price is, including what else we have on our plate, including what the competition is and whether it makes sense to take the entity through one more stage of development before seeking a partner, or alternatively to look earlier.

So there are a lot of moving parts that have to be evaluated even in programs where the decision has been made that it ultimately will be partnered. So that it is a long answer, but it is fairly complicated. But at the end of the day, it is the same strategy that we laid out the first time we talked about it, and we really haven't deviated from it at all.

Thank you very much. The final question is on the cash burn rate. Would we see that accelerating as we get more programs up and running the second half of the year?

Yes and no. I think if you look at the R&D expense for the first quarter it included $5.5 million of DFC costs which won't recur. So the burn rate actually for the rest of the year will sort of tamp down so it will be within our revised guidance of 88 to $95 million.

Great. Thanks very much for taking my questions.

Annabel Samimy, UBS.

I have a couple questions. The first is on the sheddase inhibitor. In your dose escalating studies have you started seeing any kind of therapeutically effective dose as of yet? I know you haven't reached maximum tolerated dose, but have you started identifying a therapeutic window? And on CCR2, is there anything specific about your new CCR2 that is different from the one that was licensed to Pfizer that makes it more suitable for CNS indications?

On sheddase -- we haven't talked about this. I will say this -- I'll say this in a general way. We've seen -- if you think about the way these dose escalation studies are done, they're done on relatively small numbers of patients. The classic way and the way we're proceeding is that you enter patients at a certain dose, and these are people who are very, very advanced; they've failed pretty much everything. When you have three people who make it through one month of therapy you then can move to the next dose.

You could see that, if you think about that, we haven't had 50 people on the drug. We've had a small number of people as we've moved up in dose. Having said that, we have seen a couple of instances where you would view the results as potentially interesting, but they're anecdotal, they're not controlled studies. And we just don't -- you wouldn't bet the ranch on results at this stage. You just have to see after more people get into the study if we can pick out something that looks like a believable trend.

Just on that point, how many cohorts have you gone through in terms of escalating?

We haven't gotten into that, but we're doing two cohorts. We probably have to get through a third to be able to look at starting the Phase II study. That will not end the dose escalating study because, even if we reach our maximum tolerated dose, we would then do an expansion at the maximum tolerated dose just to get more patient experience. But we probably have to go to one dose higher prior to initiating those Phase II studies. So we're on track to do what we said we were going to do in that program.

Okay, great. And then on the CCR2?

Yes. So 8696 -- you really don't need anything specifically different about a CCR2 compound to go after multiple sclerosis. Because you're trying to prevent monocytes from exiting the bloodstream, that's where the therapeutic effect occurs if it's going to work. Therefore that is not in the central nervous system, so you don't need a compound that can "penetrate the CNS to be effective", it just has to be in the blood.

So 8696 -- on balance it's more similar to the compounds that belong to Pfizer than different. It has its own individual physical chemical characteristics, but there's nothing distinctly different about it either from a physical chemical, a pharmacokinetic, a potency or a selectivity standpoint.

Okay, great. That's all. Thanks.

Vinny Jindal, ThinkEquity.

I just had two quick questions on the CCR5 program. First of all, I noticed that there's a lot of literature implicating the chemokine receptor CCR5 in a variety of autoimmune diseases. Given your expertise in CCR5 small molecule drugs and in autoimmune inflammatory conditions with CCR2, is there any intent to take the program in that direction at all?

Well, that's very interesting and obviously we see that information as well. There are some areas where you could evaluate a CCR5 antagonism mechanism in autoimmune disease, in organ rejection, and we do look at that. We've done some experiments and it's just not ready for prime time, as it were, to talk about that. But it's a very interesting question. And you can see we have two compounds; so one of those is hopefully going to be the one that will move ahead in HIV and then there will be a second compound.

Got you. And then on the CCR5 HIV trial, how are you going to screen and select patients? I know it's kind of a vague question, but clearly it's better to get patients that are further along and have more unmet medical needs to target accelerated approval, yet it's also beneficial to look at earlier patients who have CCR5 predominate as the genotype virus. Can you just talk a little bit about your thoughts for enrollment for the Phase I, but more acutely the Phase II?

Yes, I'm going to ask Rich Levy, our head of development, to answer that.

So first, we're actually going to start off in non- infected healthy volunteers to get up to the top level doses before we start going into patients to that we don't need to expose patients to doses of the drug that may not been fully effective and therefore try to minimize the risk to subjects of either developing resistance to our drug or potentially to other drugs that they might be taking along with it.

It is our intention to look both at naive patients as well as at treatment experienced patients. But the timing in which we do that has not been fully determined yet. Our current thinking is that we'd likely start on off, once we've established the top level doses in treatment experienced patients who are failing a current regiment for the short-term and then follow that once we actually demonstrate effect there of the potential to use it in the naive.

But that may change subject to how the field moves along and how we gain additional information from the experience of others that we may have an opportunity to learn before we actually get there later this year, including from the upcoming meeting at the end of May.

Thanks for taking my questions.

Caroline Stewart, Morgan Joseph.

Good morning. I guess I'll ask about the HSD1 program. You mentioned before that in the study you'll be taking biopsies. Do you know where you'll be taking the biopsies from whether it be peripheral fat versus visceral fat?

It's going to be peripheral fat. We recognize that peripheral and visceral have different characteristics, but in this instance the penetration of the drug into fat should be -- should partition the same into visceral or peripheral. And actually at a recent meeting there was some discussion -- some informal discussion amongst people who are working in the area about whether doing peripheral could give you a wrong answer. And I think the overwhelming and very confident conclusion was that peripheral fat will give you the same answer as visceral fat.

The drug is going to be there, you're going to take the biopsy, 11beta-HSD1 is going to be there and you're going to determine the level of inhibition. And there is absolutely no reason to believe that you wouldn't get the same level of inhibition in visceral fat. And in fact, in animals you can show that you get inhibition in peripheral or visceral fat to the same degree.

Okay. If it turns out that your drug works kind of in the same -- I mean if it takes a while for it to take effect, like glitizones takes three months and you're going to be running a one-month study, what can we really expect to see from a one-month study and does this mean that in terms of partnering purposes you wouldn't partner until you have longer-term data?

So that's I think a really perceptive question. First of all, it's not clear when we would want to seek a partner here. We may retain this for a longer time than just running this one-month study, we may not. Again, we have to see how all the moving parts come together at different points in time when we look at what our options are. But having said that, with respect to the one-month study, there are ways of doing a one-month study which we are going to take advantage of that are quite sensitive and with relatively small numbers of patients at a very high probability of showing you a return toward insulin sensitivity in time periods even shorter than a month.

If we're like the glitizones and many of these mechanisms do take 8 to 12 weeks to begin to (indiscernible) with respect to the maximum efficacy you're going to see, and I would s not begin to say that the one-month study we're going to see maximum effect, but if the studies that we are planning to do -- if the mechanism works then the studies that we are designing are ones that should show a very healthy response toward glucose control and insulin sensitivity within a 28- to 30-day period.

One last question. Do you have any evidence -- do you know if your compound actually enters the brain or not? Because I think the Merck compound actually does. I would think that there might be potential safety issues in that?

Yes. So we think the Merck compound probably penetrates a little bit more then maybe they would have liked it do. We have a compound that distributes the way -- as a tissue distribution pattern that is I think what you would be looking for. That is you want a compound that partitions into adipose tissue reasonably well, but does not accumulate or partition very well into the central nervous system. And our animal data would say that that's what we have.

So you can do experiments -- what you worry about when the compound makes it into the brain in substantial quantities is that you will perturb the hypothalamic pituitary axis, the HPA -- adrenal axis. And our data so far that we have in animals would argue that we are not seeing that and we would not anticipate seeing that in humans, but until you do the experiments you can't really say. Interestingly through the grapevine, we've heard that despite the fact that Merck's compound does get into the brain in substantial quantities, that they have not seen perturbation of the HPA axis.

Thank you.

But I've not seen the data, that's just what I've heard. So it is a theoretical concern, but they have said that they're not seeing manifestations of that concern.

Okay, thank you very much.

Soham Pandya, Susquehanna Financial.

Great, thanks for squeezing me in. Just had a couple questions. When you look at the CCR5, the compounds in the clinic, some of these have sort of fallen by the wayside because of toxicity issues. What's your sense here with your compound, your lead compound? Is it in a different chemical class? Obviously some of the efficacy we've seen with these compounds has been sort of directly correlated with receptor occupancy levels. Can you just comment on how you think about that when you go ahead with some of these initial trials that you're going ahead with?

So the toxicities, as I understand them, are as follows -- GSK dropped out because they had some significant hepatotoxicity. And the pattern was one that they didn't have enzyme elevations in a large majority of people. They would just have somebody pop-up with a significant liver toxicity. So that pattern is what's called idiosyncratic. So they dropped out. Their structure is different than ours and is different than Pfizer's and is different than Schering. Schering hasn't reported a significant liver toxicity as far as I know and Pfizer has reported only one patient who had been on at least two other drugs that could have provoked the hepatotoxicity.

In a study as large as the Pfizer study you're going to see a patient who's going to have hepatotoxicity. This is not a class effect. It's an idiosyncratic drug of effect that I think was specific to the GSK lead compound. So as far as I know also, that's the compound that dropped out. And whether Schering ultimately drops out, there are rumors that they may be, it may be for practical reasons and tactical reasons that have nothing to do with the toxicity of their compound. So that's that compound.

Pfizer is swimming along; they're moving right along and we've not heard much from them which is not unusual for Pfizer. But Schering's compound in that program -- there was reported I guess a couple of months ago now -- a higher than expected incident in the treatment experienced patient population who were getting their drug of Epstein-Barr virus associated lymphomas. I don't remember the exact number, but I think they had five or six cases and an arm that only had 70 some people. I think that's right. Is that right?

We think the study was about 100 and we think that it was (indiscernible) locations in the 100 to go is an approximate number.

It's an approximate number -- it's something like that which is more than you would expect of that type of tumor which is a very common tumor in later stage patients. So their data safety monitoring board looked at the data and elected to keep the study going because I believe that when they looked at the data their conclusion was that it beared watching, but they probably concluded that it was more likely a statistical aberrancy of the study and that if you had only four such patients instead of six you would not have taken note of it.

If that were a class effect we would have heard by now from Pfizer. Pfizer has more patients -- similar patient population longer time period in their studies and there's no doubt that when this was announced the Pfizer data safety monitoring board went back I'm sure with a fine tooth comb, went through their data looking for an increased incidence of this type of malignancy. And had they found it we would have heard about it. So I don't think we're going to hear about it. It's conceivable that they're still looking at the data and a week from now they'll announce that they have a high rate as well.

If that were to occur then it would be a class effect and the class would be dead. I think the odds of that are less than 1% at this point. So I think that that's going to turn out to be an oddity of the study and not due to Vicriviroc which is the tongue twister by which Schering-Plough's CCR5 antagonist is referred. Other than that I don't know of any significant toxicities or any significant CCR5 antagonists that have dropped out for toxicity.

To answer the other part of your question, our compound is very potent, has good receptor occupancy, it's very selective for CCR5 and has very potent anti-HIV activity in cell culture.

Okay, great. Thank you very much.

Thank you. I would like to hand the floor over to Dr. Paul Friedman for any closing comments.

I just want to thank you all for joining us again today on the call. '06 should be and I'm sure is going to be a very productive year for us. And as the programs advance throughout the year, I expect that the value of the pipeline is going to become much more apparent to people. And I look forward to keeping you informed of our progress. And with that, operator, that concludes today's call.

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