英賽德 (INCY) 2006 Q4 法說會逐字稿

Greetings, ladies and gentlemen and welcome to the Incyte Corporation fourth-quarter and year-end 2006 financial results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Pamela Murphy, Vice President of Investor Relations and Communications for Incyte. Thank you, Ms. Murphy. You may begin.

Thank you. Good morning. 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. We will begin with an update from Paul on the progress in our drug development program and Dave will follow with an overview of Incyte's fourth-quarter and year-end financial results and 2007 financial guidance. We will 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 program 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-Q for the period ended September 30, 2006 and from time to time in our SEC documents. Paul?

Good morning, everyone. We are continuing to make really very solid progress advancing the pipeline. I'm going to begin with an update on our HIV and diabetes programs. As some of you probably know, we recently announced the positive early Phase IIa results for our lead CCR5 antagonist, for HIV Incyte 9471, as well as for Incyte 13739, which is our lead 11-beta hydroxysteroid dehydrogenase 1 inhibitor for type 2 diabetes.

After describing those two programs, I will briefly describe our two new Janus kinase programs, which we believe have significant therapeutic potential as treatment for chronic inflammatory conditions, myeloproliferative disorders and certain cancers. And then I will conclude with a brief update on our CCR2 antagonist for multiple sclerosis, Incyte 8696 and our sheddase inhibitor for solid tumors, Incyte 7839.

For Incyte 9471, we announced that in the first seven HIV patients we treated, the compound was very well-tolerated and achieved a 1.9 log viral load drop at day 14. Just to remind you, this is a 14 day placebo-controlled trial and this first cohort will involve at least 20 patients.

Importantly and consistent with the long 60 hour half-life of the compound, the viral replication continued to be suppressed well after the last dose with a nadir in viral load reduction of 2.1 log at day 20, six days after the last dose.

The available data on Pfizer's CCR5 antagonist, maraviroc, which could well be approved later this year, suggests it to be a potent and well-tolerated compound in both treatment experience and treatment-naive HIV patients. However, the available data also indicates that unless maraviroc is boosted with ritonavir, it must be taken twice a day. So we believe there is room for a CCR5 antagonist with better pharmacokinetic properties that could be dosed once daily without ritonavir.

Given the association of ritonavir with hyperlipidemia, atherosclerosis and cardiovascular disease and the fact that most first-line and some second-line therapies don't require the use of ritonavir, we believe this is a significant advantage for 9471.

Assuming it remains safe, 9471 could well be positioned as the preferred CCR5 antagonist for first and second-line regimens on its own and potentially as a component of fixed-dose combinations. It should also be a useful agent in treatment-experienced patients, the majority of whom have the potential to benefit from CCR5 antagonism.

Additionally, given 9471's long half-life, 60 hours, compared to maraviroc's, which is 16 hours, 9471 should also have the advantage of providing more forgiveness for noncompliance.

Over the next several months, we plan to complete Phase IIa, finishing the current cohort and evaluating a few additional doses. Our intention is to present the full data from this study at an HIV medical meeting later this year. We will also be carrying out a series of required drug interaction studies after which we plan to start Phase IIb probably in the fourth quarter of the year.

We have a follow-on CCR5 antagonist, Incyte 15050, and we have completed the single-dose escalation Phase I trial. While the PK profile of 15050 looks as attractive as that of 9471, given how well 9471 is performing and with all the other programs we have underway, we currently don't plan to progress 15050 beyond this initial Phase I trial.

I'm going to turn now to the HSD1 inhibitor program, hydroxysteroid dehydrogenase program. People and companies have for a significant period of time now been searching for insulin sensitizers that can demonstrate the level of glycemic control that is seen with glitazones, but without the side effect profile that accompanies that class of drugs. And the potential for inhibiting the HSD1 enzyme may well offer that alternative for insulin sensitization.

For Incyte 13739, our lead 11-beta HSD1 inhibitor, we've completed a 10-day multiple-dose escalation Phase I trial. Compound was very well-tolerated. We also announced positive clinical results from a Phase IIa in which a single dose of 13739 completely inhibited HSD1 activity in both adipose tissue and liver in six obese insulin-resistant individuals. It inhibited it completely and for 24 hours after a single dose.

Based on the ability to fully inhibit HSD1 in these tissues, which are major contributors to the body's control of blood glucose levels, we are moving 13739 into a one-month Phase IIa trial in type 2 diabetics. In this trial, we plan to use a sensitive technique to measure the ability of 13739 to improve the body's response to insulin. The method is called a two-step insulin clamp in which two different levels of insulin are evaluated to quantify the insulin-sensitizing effects of a drug.

The first step uses a low level of insulin that enables the detection of compound-specific effects on hepatic glucose production and the second step uses a much higher insulin infusion level that allows us to measure compound-specific effects on peripheral glucose uptake. And because type 2 diabetic patients are characterized by impaired insulin sensitivity in both the liver and in the periphery, HSD1 inhibition offers the potential to positively impact these key components of glucose control.

Importantly, the published positive results seen with this technique using short-term glitazone therapy, i.e. decreasing hepatic glucose production, as well as increasing peripheral glucose uptake, have proven predictive of long-term improvements in glycemic control. So being able to properly carry out this two-step clamp with positive results would give us a high degree of confidence that in the longer-term studies, we would see long-term improvements in glycemic control.

We are on track to begin this trial this quarter, which means we should have top-line results around the middle of the year. In parallel with moving 13739 forward, we are also advancing a backup compound and as we do in all of our programs, we have created a large portfolio of proprietary HSD1 compounds with excellent potency and selectivity. We believe this approach increases both the probability of success at the overall program, as well as its value to prospective alliance partners. While this is a program we are likely to partner at some stage, we have the resources to advance 13739 into Phase IIb and beyond.

Now moving to our Janus kinase program, there are three known JAK enzymes, JAK1, 2 and 3, as well as an enzyme called TYK2. The JAK-STAT pathways are the primary mechanism through which a number of growth factors and pro-inflammatory cytokine signal. These pathways are activated with a given growth factor or cytokine binds to its receptor allowing formation of a signaling complex.

There are recent and highly convincing clinical data suggesting that blocking signaling through the JAK2 pathway has therapeutic potential in inflammatory diseases. Additionally, there is strong genetic, as well as early clinical evidence, suggesting that blocking signaling through the JAK2 pathway may provide therapeutic benefits in myeloproliferative diseases, such as polycythemia vera, essential thrombocytopenia and myeloid metaplasia. We have identified a range of potent moderately selective oral JAK 2 inhibitors from several different chemical scaffolds. We plan to file an IND this month and one next month and expect to begin clinical trials in the first half of this year. At least one and possibly more of these trials have the potential to provide proof of concept results before year-end.

Now for Incyte 8696 our lead CCR2 antagonist we intend to pursue multiple sclerosis as our first indication. As you may recall this is the program we partnered with Pfizer. We retain the rights to two indications, MS and lupus nephritis and other autoimmune nephritities. We filed the IND for 8696 in December and expect to begin Phase I in healthy volunteers in the first half of the year.

For our sheddase inhibitor compound, Incyte 7839, which targets the epidermal growth factor receptor signaling pathways, we are continuing to enroll refractory cancer patients with solid tumors in a multiple-dose escalation Phase Ib/IIa study. I hope to share biomarker results in preliminary data on treatment response rates from this trial in the first half of the year. Once we have determined the maximum tolerated dose in this study, our plan this year is to initiate Phase II trials in breast cancer patients, possibly one other solid tumor type.

In addition to these five programs, we also have several very interesting preclinical programs that we expect to progress into IND-enabling studies during 2007. And we are fortunate that we are in a strong financial position to move our programs forward and I am going to turn the meeting over to Dave Hastings now who will review the numbers in further detail.

Thanks, Paul and good morning, everybody. I will start today with a brief overview of our year-end financial results and then I will provide guidance for 2007. Our ending cash at December 31, 2006 was approximately $330 million. During 2006, we used approximately $88 million in cash in line with our guidance of the use of between $85 million and $90 million. This use of cash excludes certain items that we noted in detail in this morning's press release.

Net loss and operating expenses were in line with our expectations as we continued to invest in our emerging pipeline. Our R&D expense totaled $23.6 million for the quarter and $87.6 million for the year. We expect that our R&D expense will vary from quarter to quarter depending on the timing of our clinical development activities.

Now for our 2007 financial guidance. In terms of cash, we expect to use between $88 million and $95 million in 2007, which includes the use of approximately $5.4 million for net lease-related costs in our closed California facilities. This guidance excludes the in-license or purchase of products and any funds received from our collaboration with Pfizer.

We expect our 2007 revenue to be in the range of $22 million to $25 million. Included in this guidance is approximately $22 million of revenue under our collaborative research and license agreement with Pfizer.

We expect R&D expense to be in the range of $88 million to $95 million in 2007, including a non-cash expense of $6 million to $7 million related to the impact of expensing share-based payments, including employee stock options.

We expect selling, general and administrative expense to be in the range of $14 million to $16 million in 2007, including a non-cash expense of $3 million to $4 million related to the impact of expensing share-based payments, including employee stock options.

The impact of expensing share-based payments, including employee stock options, is dependent upon a level of share-based payments issued, as well as the market price and other judgmental assumptions used at estimating the fair value of such instruments.

In terms of other income expenses, we expect interest income to be in the range of $11 million to $12 million in 2007, while interest expense is expected to be approximately $24 million, including a non-cash expense of $10 million primarily related to the amortization of the original issued discount on our 3.5% convertible senior notes.

With the refinancing of our 5.5% convertible notes completed in 2006, I believe we are in a strong financial position. Importantly, our current cash runway extends into early 2010 and provides us with the resources to support and continue to build our clinical pipeline.

That concludes my review of our 2006 financial results and 2007 guidance. I will now turn the call over to Paul.

Thanks, Dave. So during 2007, I strongly believe that our pipeline will become even more attractive and before opening the call to Q&A, I want to briefly reiterate the following. For our CCR5 antagonist, Incyte 9471, we hope to present the final viral load reduction and safety data from the Phase IIa trial at an HIV medical meeting later this year. We also plan to initiate a Phase IIb study before year-end. We also plan to present the full results from the fat biopsy study with Incyte 13739, our most advanced HSD1 compound.

In addition, with multiple Phase I and Phase II trials underway, we have the potential for a number of additional proof-of-concept results this year, including data from the one-month clamp study in type 2 diabetics with 13739, proof-of-concept data for one or more of our new JAK2 programs and biomarker data and preliminary data on treatment response rates for the sheddase inhibitor, 7839. 2007 is going to be a very important year for each of these programs and I look forward to keeping you informed of our progress.

So I would ask the operator now to please open the call for Q&A.

(OPERATOR INSTRUCTIONS). Thomas Wei, Piper Jaffray.

I wanted to ask a couple of questions on the CCR5 inhibitor. Do you have any updates on subsequent patients who have completed dosing in the trial and just maybe generally do the viral load reductions look comparable, anything pop up on the safety side?

Yes. We do and the reason we haven't presented them is that we are trying to preserve a dataset for scientific presentation as I am sure you understand. The data looked the same. We are getting very good viral load reductions and there is nothing that has deviated from the first seven patients. Safety profile looks gratifyingly benign at this point, but as you well know, it is only a 14-day trial and it is a small number of patients.

It is true because of the long half-life that the compound is on board for a month, but we still have to treat more patients for longer periods of time to feel completely comfortable, but up to this point, safety is very, very good.

Can you remind us again what the does is that has been tested so far?

200 milligrams once a day.

And the additional doses that you are going to study, will that go up or down?

Both. We are going to look at a higher one and a lower one.

And then just lastly, when we look at the numbers here numerically from the first seven patients, it does seem as though you might be getting more than what some of the other CCR5 inhibitors have shown. Is that just the vagaries of small patient numbers or is there a reason to believe that your drug is actually more efficacious than other CCR5 inhibitors?

I think it is too soon to answer that with any degree of certainty. I think what we are seeing for sure is a prolonged antiviral effect and at this 200 milligram dose, the steady state trough concentration when we stop at day 14 is quite high with respect to the concentration when it is shut down, viral replication and cell culture. So in that respect, I think we are -- we have a distinct advantage -- if you -- it seems to me that if you completely -- if you have enough CCR5 antagonist on board at a given time to shut down replication, what you are going to be seeing is just a drop in viral load based on viral replicative kinetics and so it is hard to answer the question.

The data -- look -- depending on how you cut it, we may have -- look -- we may have a modestly better effect on potency. We certainly have an advantage with respect to the QD dosing, once a day dosing, and with respect to -- because of the long half-life, the forgiveness that you'd have if you miss a dose. But although the data suggests an increase, potential increase in potency, I don't think we have enough data to firmly state that.

Eun Yang, Jefferies.

Thanks very much. One question to David. On the R&D expense guidance, $88 million to $95 million, it looks like there is no growth from fourth quarter last year sequentially. Is that how you see R&D spending? Would it be per quarter for that this year?

We don't normally give R&D expense guidance by quarter, but that is right.

Okay. A couple of questions for Paul. Pfizer recently announced that they had expanded access to their CCR5 program internationally. Do you think that that might impact the patient recruitment rate for your Phase IIb trial planned in the second half of this year?

No, because what we think will happen is they will get approval. Their advisory committee meeting I think is April 24. They have accelerated -- they have been granted the accelerated approval process. So they will be past the expanded access portion on the market by that time period, the time we start Phase IIb. I will let Rich Levy who is here expand on that question about expanded access.

What Paul is talking about is actually timelines in the U.S. We expect that they'd probably be approved in Europe as well around the end of the year. But we haven't actually finalized the designs of our studies. Although we are pretty close and it may very well be for example that we'd actually compare directly to maraviroc in those studies so that there would not be a choice of just taking an approved drug or not being able to take that. You actually might get randomized to get that anyway. So I don't think that is going to be an issue.

Okay. And the last question is you have two programs for the two classes of drugs for inflammatory disorder indications between JAK and the CCR2 inhibitors they are developing. How do you compare the two programs in terms of risk as well as the potential?

Well, I think for CCR2, the indications, multiple sclerosis and lupus, the preclinical data and the associative clinical data are reasonably compelling, but there is no clinical proof-of-concept for that at this point.

By contrast, as I talked about actually at the JPMorgan meeting, Pfizer with a modestly selective JAK3 inhibitor oral compound, which at the levels that they -- at the doses that they use, inhibited JAK2, showed very pronounced efficacy in rheumatoid arthritis and in psoriasis.

When you couple those data with the data with the Centocor monoclonal -- is it 1275 -- and with Actemra, the anti-IL-6 receptor monoclonal. Both of those monoclonals take out -- first of all, they have very good data in psoriasis and in RA as well. If you couple those data with monoclonal antibodies, which specifically block JAK2 pathways then you really have a pretty reassuring clinical set of data that proves the concept that JAK2 inhibition should work in inflammation. So if you had to place your bets and say which is more likely to work, I think you would have to go with JAK2.

The caveat there is that the program is earlier. We do have a fair amount of experience with CCR2 antagonists. We know the safety profile better and 8696 resembles in many ways in that regard some of the compounds that we've studied earlier and we know less about the JAK2 inhibitors and we know nothing about their safety profile in humans.

But looking at the data again that Pfizer had and the doses that they use and the doses that we think we need to show efficacy with our moderately JAK2 selective compounds, there looks to be a reasonable therapeutic window. I think we are cautiously but reasonably optimistic about that JAK2 program as well even from that standpoint.

Richard Smith, JPMorgan.

I know you haven't gone through the --.

Richard, we can barely hear you.

Can you hear me now?

A little better. Yes.

A little better? Okay. Just with the --.

Much better.

Okay. With the HIV compound for the Phase IIb, have you said yet whether it is treatment-naive or treatment-experienced patients or are you still working on the details?

Well, Rich could answer that. I will let him answer that.

So we have not said, but I am willing to share the following. The first study that we are likely to start is likely to be in treatment-experienced patients simply because we want to see the results of the maraviroc studies in naive patients first before we go into naives and we don't expect to be able to see those results until probably late third quarter of this year at the earliest.

Assuming that those results look good, meaning that maraviroc twice daily is not inferior to efavirenz in combination with two nucleosides, we would likely also start a study in naive subjects and that study probably would not be able to start until early 2008 given the timing of when we'd get the final results or at least a public presentation of the results of maraviroc.

Thanks. And with the HSD 11-beta program, are we likely to see data at ADA? Is that the next big meeting?

We have submitted an abstract to ADA. We are optimistic that it will be accepted for presentation.

And maybe describe the current licensing environment for that. Is there a lot of interest and who else is working in this environment?

Well, there is a lot of interest out there. I would tell you that. But it is, to us, an extremely valuable program and unless we get a very good offer at this stage, we are not prepared to license that at this point. We have unsolicited gotten a lot of interest.

In terms of other companies that we think might be working in the area, you can tell from the discussions with some of the companies we have talked to that they have programs, but their programs haven't gone swimmingly or at least they are behind where we are. We know obviously that Amgen Biovitrum has a program and we know that the first compound didn't work, but it, in fact, was not potent enough and didn't distribute into fat well enough to have really had a chance to prove the concept.

Their second compound, we don't know precisely what they have seen in the clinic, but I think they have stated that they have had encouraging pharmacodynamic results.

I personally think that Pfizer has a program and I think that Merck has a program. We don't know exactly where they are. I don't think they are -- they would be much -- at a much different stage of development than where we are right now and there may be others.

Annabel Samimy.

Thanks for taking my call. I have a couple of quick questions on the HSD-1. You feel pretty confident that the insulin clamp study has some good proven predictive qualities for glycemic control. Is there anything that we can gather from the fat biopsy study that would give you comfort that the insulin clamp study is going to go well?

What the fat biopsy says is that we have profound on-target effects and that the compound that we have can test the hypothesis. The study -- that was at single dose and we have 10 days of multiple-dose safety data, which has been quite good in normal volunteers. This study will go longer to get the readouts. So there is always a chance that you'd get a safety issue before you got to the end of the study. We don't have any reason to think that, but as we sit here and think of bad outcomes, that could happen.

Assuming that doesn't happen and we have run the study to the end, if you look at results in animals and in animal models of hyperglycemia, like the diet-induced obesity and I think it is the obob but I may be wrong about that. Where you are inhibiting the enzyme, you do see improved insulin sensitivity. So if you put all that together and the study is technically run well, we should see positive results. That is what I think.

The magnitude of the results I don't know because it has never been done in humans before, but I think this compound is among the first, if not the first, to be one that will enable us to answer the question. But I would think given all the caveats I just laid out for you that if we get to the end with the dose that we are going to use, we should see effects on improvement in insulin sensitivity.

What kind of side effects could you come up with with full inhibition of that enzyme?

Well, we may not inhibit it fully, but if you look at knockout animals, they look pretty good typically. There was a theoretical concern that you might affect the hypothalamic pituitary adrenal axis, the HPA axis, but neither in animals nor so far in humans is there any indication that that is affected in a negative way.

Beyond that, from a mechanism-based standpoint, I don't think there should be much in a study of relatively short duration or even long duration. But I think for this particular study, I don't think it will be on-target effects, which will prevent us from getting to the end. I think it will be -- and we have no, again, no reason to think that we would see any of this, but as you sit in your office thinking of horrible things that could happen, you come up with the usual suspects. Like you could have your ALTs go up or you get an arrhythmia, those kinds of things, things that you couldn't predict, but just show up.

So there is nothing that you could potentially predict that you are seeing?

No, no, no. Nothing.

I guess that's where I was driving --.

No. No. Nothing. I don't want to imply that.

Alright. Just moving on to the CCR5. Just on the advisory panel that is coming up on the 24th, what are some of the issues you think are still of major concern for physicians for the advisers that are on the panel and for the FDA for that matter?

I will let Rich answer that.

So the FDA had a meeting. Actually it was a joint meeting; it wasn't an official advisory panel. It was a different group that met at the very end of May, like May 31 of last year. So the issues that were largely existing at that time were whether you are somehow affecting the immune system in a way that in the long term you might have an increased risk of opportunistic infections that if you develop -- X4 is coming out after you treat the CCR5 tropic virus, that those [varians] were actually more -- potentially more damaging to the immune system based on historical data of when X4 emerges, people tend to do worse.

So since that time, there has been some very interesting presentations of data, both from both Pfizer's maraviroc and from Schering's Vicriviroc showing that in fact what you actually see is this CD4 count as a measure of immunity actually go up even when in the few patients that develop either a dual mix tropic virus or potentially even a virus that appears to be pure X4, meaning that you can't measure the signal from the CCR5 tropic viruses anymore, the CD4 counts are going up. The safety has looked excellent and there isn't a lot of X4 actually emerging.

So I think the data that Pfizer is likely to present is actually going to be reassuring to the committee because they filed and therefore, that shows a degree of confidence that their data will not be held back by those issues that were already identified. But we'll have to wait and see the data. I think their data is based on one-year studies or six-month studies with some degree of long-term follow-up, but it is not going to be five or ten-year follow-up that people would ideally like to know what is going to happen in five or ten years. So I think it may focus more on theoretical issues of just following the drug if people stay on it even longer.

But we have a lot of confidence that their drug will get approved and that is actually a good thing for us because, as we've said, that clears the class and we believe that we will have advantages over maraviroc when our drug eventually gets approved.

Thanks for that detail. One quick last question. I noticed this quarter that there was no specific milestones from Pfizer on the CCR2 program. Is the progress waning there or are they still moving forward full force? Do you have any sense on that and can you give us a little color there?

We can't give as much color as we know and would like to be able to give because of the agreement, but there is, in fact, a lot of interest at Pfizer. They're moving ahead full bore. They have interest in multiple therapeutic areas and we are I think quite confident that we will see at least one milestone this year, possibly a second, but for sure one. And we are actually pretty encouraged as to where they are in their level of enthusiasm for the program.

And just to be clear, the current guidance on revenues doesn't include any kind of milestones right now, correct?

Correct.

Sapna Srivastava, Morgan Stanley.

This is actually Dave [Friedman] calling in for Sapna. I just had a question on the CCR5 program. Earlier you said in response to a question that you are going to wait for Pfizer to do their trial in treatment-naive and then wait and see. Could you just go into the rationale for that and what happens if they have disappointing results in treatment-naive populations? Does that mean that you would not try it in that population or just structure your trial differently or what's the thought behind that?

This is Paul now answering this. I think Pfizer has stated that -- it is obvious you can get to market quicker with the treatment-experienced study that they are doing. They have already stated that they will have an additional supplemental NDA that they will file on naives toward the middle of the year. If the two-nuke CCR5 arm was looking inferior to the Sustiva two-nuke arm, my strong belief would be that the Data Safety Monitoring Board would have stopped the study by now.

So the odds we think are quite high, but they are not 100% until we see the data, that the data is going to be fine. I think what Rich was implying and he can add to this if what I am saying is not true, is that our plan was to start the treatment-experienced group first anyway. Because of all the things we have going on this year, we can't get both studies started on exactly the same day. So we have the luxury of waiting a little bit longer to be able to actually see the Pfizer data to fully convince ourselves that the study went as we strongly suspect it is going before committing to that study.

If when we see the data, it looks fine, we would certainly do the study. If we see the data and it's borderline, we would have to evaluate whether our advantages of once a day 60-hour half-life, perhaps more potent, would still argue for studying naives.

But on balance, we think the odds are very, high we will be doing the naive study because on balance we think the odds are quite high that the Pfizer data is going to look pretty good. I don't know -- do you want to add anything to that, Rich?

I agree with everything Paul said. We are very confident we are going to be able to do the study in naive if more becomes an issue in terms of the timing just in terms of IRB approvals and recruitment to actually have the data in the public domain there. Now if by some small chance their data doesn't look up to the levels that we hope it will, it may simply mean, in worst case scenario, that we'd have to generate a little bit more data potentially in treatment-experienced patients first to convince everyone of the rationale as to why we really should be better and that it is worth trying that, but that is really worst-case scenario. We fully expect that we will be starting a naive patient trial early next year.

Adam Cutler, JMP Securities.

Thanks for taking my question. It has been a pretty thorough call so most of the questions I had have already been answered. But maybe you can -- I know this is a question that I sometimes get from investors about you. I suspect you get directly from investors as well. But the good news is you have a lot going on in your pipeline and you have got more INDs to be filed this year. So I guess the question is how much is too much? How much do you think you can handle in the clinic at one time and how does that impact your potential partnering strategy?

Well, we planned out 2007 pretty carefully and we believe we can handle all the studies that I have spoken to you about. Beyond 2007, especially if these -- we have two very interesting preclinical programs. If they both make it to IND then we are going to be stretched pretty thin and we are going to have to prioritize more aggressively the programs.

But at this point, we are not exactly a tabula rasa, but we are in need of data from the different programs to be in a position to rationally prioritize what we have. With the proof-of-concept studies that we expect to read out over the year, by the second half of the year, we will be in a much better position to answer the kind of question that you're asking. You are right. I get asked that question all the time.

We obviously are going to reach a point where we can't handle everything that we have. We are fortunate I think to have molecules and targets that are as attractive as what we are discussing today and the two that we are close to doing IND-enabling studies on are just as interesting. But right now for 2007, we are okay and things fall out. I hope that none of these fall out.

But in the second half of the year when we see some of the early results with JAK2 and when we see the 7839 results, when we see the results of the 28-day insulin-sensitization study, when we have more data on CCR5, more cohorts and finish the drug interaction studies and see the naive data from Pfizer's study, I think at that point, we will be able to figure out what we are going to run hard with and what we would more aggressively look to find a partner to help us with.

(OPERATOR INSTRUCTIONS). Chris Holterhoff, ThinkEquity Partners.

Just have a question on the development of the diabetes program. If we do see positive data in the clamp study, maybe you can talk about the design of the Phase IIb study?

Well, it would be obviously a larger study. It is a three-month study and it will look a lot like published studies looking at things like hemoglobin A1C, [tomas] and the usual parameters that one would look at in type 2 diabetics. How you exactly design it with a comparator arm, I think we are still working through that. Is that fair, Rich?

And it also would be dose-ranging.

And be dose-ranging, yes.

Thanks. And on the sheddase inhibitor, if you've disclosed the endpoint for the breast cancer study. Maybe you can talk about how that endpoint gives you comfort in moving the study forward, assuming it does hit the endpoint.

Well, it will hit an endpoint where we will have a maximally tolerated dose. In terms of study design, Rich, do you want to say anything about that?

I think he's actually talking about the next study.

I know, the next studies, right.

Basically the endpoint that we would be looking at -- the first endpoint that we would be looking at would be response rates and the more long-term endpoint that you'd be looking at would be time to progression. If we see positive data based on response rates that are higher than you would see in a control arm then we would move forward even without having the time to progression data necessarily available at that point to start other studies -- to start other studies beyond that, which would be potentially, depending upon what we see, potentially even registration studies because in this therapeutic area, you don't necessarily need to do a separate Phase IIb and a Phase III. But we are jumping a little bit ahead of ourselves at this point.

I would just add that in the last three months, there have been a significant number of publications that have come out that involve clinical material and cell culture and xenograft studies that really reinforce the idea that sheddase inhibition could be a very valuable adjunct to existing therapy for breast cancer in particular.

The point of the studies, the thrust of all these studies is that you want to be able to shut down HER3 and to do that, you can effectively do that by preventing the generation of its ligand heregulin, which comes from a protein precursor and the generation of heregulin is through sheddase enzymatic activity.

So from the data that has come out, we have I think been reinvigorated, vis-a-vis the hypothesis, that sheddase inhibition will be of utility in human malignancy.

There are no further questions at this time. I will now turn the conference back over to management to conclude.

Well, I want to thank everyone for joining us this morning and we look forward to describing to you during the year a series of positive proof-of-concepts in our various programs and with that, I would ask the operator to conclude today's call. Thank you very much.

Thank you, sir. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.