英賽德 (INCY) 2007 Q4 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Incyte Corporation fourth-quarter and year-end 2007 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, VP Investor Relations and Communications. Thank you, you may begin.

Good morning, and thank you for joining us. With me today are Paul Friedman, Incyte's President and Chief Executive Officer and Dave Hastings, Executive Vice President and Chief Financial Officer. Rich Levy, Senior Vice President of Development is also with us. During today's call Paul will begin with a review of the progress we've made in our clinical programs as well as key objectives for 2008. Dave will follow with a discussion of Incyte's fourth quarter and year end financial results and provide you with our 2008 financial guidance. We will then open up the call for Q&A.

Before beginning I would 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, as well as the potential efficacy of our compounds 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 period ended September 30, 2007. And from time to time in our SEC documents.

Good morning, everyone. At the beginning of last year I was optimistic about prospects for 2007, and I shared that optimism with you on a number of calls. Optimism I think was justified based on the resounding success we've had in multiple proof of concept trials across a broad spectrum of clinical programs. Because of this success we expect to have as many as 15 Phase II trials underway in 2008. Some of these will complete this year, and some will extend into 2009. While success in any one of these programs has the potential to transform Incyte from a clinical stage company into a successful commercial one, the JAK inhibitor program is our top priority.

It not only offers the potential for a rapid development and approval path in myelofibrosis, it also affords multiple other opportunities for development in the other myeloproliferative diseases, as well as other liquid and solid cancers, and in chronic inflammatory conditions, as well.

After first reviewing the JAK program I will then follow with updates and key objectives in our other clinical programs, HSD1, HM74a, sheddase CCR5 and CCR2. Our most advanced JAK inhibitor program is in myelofibrosis, which is a life-threatening disease with no effective or approved therapies. And we believe this indication will qualify for expedited review and approval.

Additionally, because myelofibrosis patients, as well as the other myeloproliferative disease polycythemia vera and essential thrombocythemia are treated by a well-defined and highly concentrated community of physicians. These are indications that we can develop and commercialize on our own. Although many of you may know a fair amount about myelofibrosis, I want to briefly review this disease for those who may not be as familiar with the underlying biology or the needs of these patients.

Recently a genetic alteration valine-to-phenylalanine mutation at positions 617 in the kinase enzyme JAK2, which is one of four JAK family members has been identified in the large excess of cells that are clonally expanded in these patients. There is compelling data indicating that this mutation is causally linked with all three of the myeloproliferative diseases.

Advanced myelofibrosis patients suffer from splenomegaly, large spleens, which can be a major source of morbidity, as well as a serious detriment to quality of life. The massive spleens in these patients displace and compress other organs in the abdomen like the stomach, causing a variety of symptoms including pain and early satiety. Additionally, the increased levels of inflammatory cytokines, which contribute significantly to the malaise, fatigue and loss in the overall quality of life in these patients are thought to be produced by the cells in the enlarged spleen.

The striking responses seen in the initial 11 myelofibrosis patients in our ongoing Phase II trial with Incyte 18424, our lead JAK inhibitor, were recently presented at ASH by Srdan Verstovsek, our investigator at M.D. Anderson. We've now enrolled an additional 21 patients and continue to see remarkable and unprecedented effects highlighted by dramatic durable decreases in spleen size in all of the patients. In addition to the reduction in spleen size, these patients have experienced a profoundly positive improvement in their quality of life with an increase in energy levels and a return to normal daily activities. They can once again lie flat without shortness of breath. Their appetites improve, and patients many of whom were cachectic because of the early satiety caused by the enlarged spleens compressing their stomachs, these patients are gaining weight.

The current 25 milligram twice daily dosing continues to be very well-tolerated with the initial patients now on drug out past six months. We are currently exploring lower BID doses and even once daily doses to define the best starting dose for our registration study, and by the end of March we should have over 60 patients enrolled in this Phase II study. And we expect to finalize dose selection within the next couple of months. We intend to meet with the FDA to define requirements for approval and discuss the potential for an expedited regulatory path. And provided we can reach consensus on these requirements, which we hope to do in the first half of the year, we intend to initiate our registration trial in the second half.

In parallel with our myelofibrosis development program we intend to begin Phase II trials in patients with other myeloproliferative diseases, specifically more advanced polycythemia vera and essential thrombocythemia. These trials are expected to begin around the middle of the year. And as you may have seen in the press release this morning, we are also beginning Phase II trials this month in multiple myeloma and hormone refractory prostate cancer patients as their strong validating data implicating JAK signaling in both of these malignancies.

Multiple myeloma, a hematological malignancy of plasma cells has been closely tied to interleukin 6 stimulated JAK signaling in both human and rodent studies. In multiple myeloma patient's interleukin 6 and soluble interleukin 6 receptor, which actively functions as an agonist of interleukin 6 signaling are elevated, and they are associated with poor prognosis. The link between the interleukin 6 receptor mediated JAK signaling and multiple myeloma is supported by rodent studies that demonstrate interleukin 6 is necessary and sufficient for producing plasma cell malignancy. So selective inhibition of JAK kinase activity in multiple myeloma patients may well provide clinical benefit.

Inappropriate JAK signaling is also likely to play a role in some solid tumors. Prostate cancer is the most common malignancy in males, the second leading cause of cancer deaths in the United States. While most patients with metastatic disease initially respond well to androgen ablation, many progress to hormone independence. A number of studies suggest that the development of refractory disease is related to cell signaling through interleukin 6, as well as the growth factor prolactin, which also signals through JAK-STAT Pathways. And we believe inhibition of JAK signaling by 424 could be a benefit in these refractory patients. I hope to be able to share topline results from these two trials later on in the year.

Moving to inflammation, we have completed oral Phase I trials in healthy volunteers in whom 424 was very well-tolerated at doses up to 25 milligram twice a day and 100 milligrams once daily. We are currently conducting a placebo-controlled, dose-ranging, 28-day Phase II study in rheumatoid arthritis patients, poorly controlled on a background DMARD containing regimen of primarily methotrexate. In early January we described preliminary efficacy results from this trial that involved a small number of patients who were receiving 15 milligrams of 424 twice a day for 28 days. Three of the four patients achieved ACR50, and two of those actually met ACR90 criteria. Although these results are from a small number of patients, it is important to realize that while some patients on biologics, such as the anti-TNF, can attain ACR90, this level of effectiveness with the anti-TNF is usually seen in patients with early rheumatoid arthritis. And then only after prolonged therapy.

Importantly, we've seen no adverse effects in these patients at the initial 15 milligram twice daily dose. We are in the process of completing this first cohort of patients after which we plan to evaluate several alternative doses in parallel, including lower BID doses and a once-a-day dose. Our goal is to present results from this trial at the EULAR meeting in June. We plan to begin a six-month Phase IIb RA trial in the second half of the year. This trial will include a three-month interim analysis that could be used to support an end of Phase II meeting with the FDA, which would then allow us to begin plans for the Phase III program.

Moving to psoriasis, an oral 28-day Phase IIa trial in patients with advanced disease is scheduled to begin late in the first half of this year. As some of you know, Pfizer's oral pan-Jak inhibitor has shown positive effects in these patients, and we fully expect that 424 will also prove to be beneficial in this setting, especially considering the excellent results we've already seen in our Phase II trial with topical 424.

With regard to the topical psoriasis program, we are close to completing the Phase IIa dose-ranging trial in mild to moderate psoriatic patients, thus far 424 has been extremely well-tolerated with no adverse affects in any dose. And we've seen rapid and sustained improvements in the primary endpoints with efficacy comparable to the potent topical steroid, Diprolene, although I should note that the potency comparison involves a relatively small number of patients at this point.

We are about one-third of the way through a required subtotal inunction safety study in which each day for a month the compound is applied topically to cover up to 20% of the subject's total body surface, which exceeds the exposure levels you'd see in the majority of mild to moderate psoriatic patients. No local or systemic side effects have been seen in this ongoing study. If 424 doesn't produce any of the troublesome skin atrophy seen with steroids or any of the redness, scaling and peeling associated with topical retinoids, which we've not seen with 424 or nor would we expect to, this indication could prove to be a significant commercial opportunity. At this time we appear to be the only company with a topical JAK inhibitor in clinical development.

Lastly on JAK, we are advancing a structurally distinct follow on molecule, Incyte 28050 into Phase I which is expected to begin in the second half of the year.

Now moving to our two metabolic programs for Type II diabetes, HSD1 and HM74a. I previously described the positive topline results from the Phase II, 28-day two-step clamp study for our lead HSD1 inhibitor, Incyte 13739 in which we saw improvements in six different measures of glucose control and cardiovascular risk, fasting plasma glucose, clamp measure liver glucose production and clamp measured peripheral glucose uptake, LDL and total cholesterol and triglycerides. We expect to present the full dataset from this study at the ADA meeting in June.

We now intend to move ahead with the Phase IIb study and remain on track to start it in the March/April timeframe. This is a dose-ranging study with once-a-day 739 given in combination with metformin in patients with poorly controlled hyperglycemia. In addition to measuring hemoglobin A1c we will assess multiple cardiovascular risk factors, which considering the 28-day study results we already have, could differentiate 739 from the glitazones and establish a positive cardiovascular risk modifying profile for the compound. The follow on compound, Incyte 20817, is expected to begin Phase I also in the March/April timeframe.

For our other metabolic disease program, which I described for the first time in January, we are in a 10-day dose escalation Phase I trial in healthy volunteers, with an HM74a agonist Incyte 19602 levels rapidly improves glycemic control. While approved HM74a agonist can reduce circulating free fatty acid levels, they do not maintain the suppression throughout the day. In fact, because of the 15 minute half-life of niacin, free fatty acid levels rebound above baseline as niacin levels fall. In addition, niacin and its congeners, such as Niaspan, produce cutaneous flushing which limits use of these agents. I should note that these agents are approved for in use to increase high-density HDL cholesterol.

Because of their short half-lives and the free fatty acid rebound I just mentioned, they can't be used to treat diabetes. By contrast, in our completed single-dose and ongoing multi-dose trial we've demonstrated that 602 reduces free fatty acid levels without rebound at the end of the 24-hour dosing interval, and does not produce the flushing seen with niacin and its derivatives. The results demonstrate that 602 has the potential to overcome the two major limitations of niacin and Niaspan and could well be a useful treatment in Type II diabetes.

Assuming the compound continues to be well-tolerated, we plan to begin a one month Phase IIa trial in the second quarter. As this mechanism of lowering free fatty acids should provide rapid improvement in glycemic control, we believe this one month trial has the potential to provide proof of concept for 19602 as a treatment for Type II diabetes. Finally, on the metabolism programs because they address primary care indications, our intention remains to establish strategic partnerships for both the HSD1 and the HM74a programs.

Now moving to our sheddase inhibitor for solid tumors, we reported at the San Antonio Breast Cancer Symposium that Incyte 7839 gave stable disease in four or five HER2 positive breast cancer patients in Phase I, and it is now in a Phase II trial for this indication in combination with Herceptin. A second Phase II trial is scheduled to begin later this year evaluating 7839 as monotherapy. Results from these two trials are expected in the second half and early into 2009.

With respect to our lead CCR5 antagonist, 9471, we will initiate two Phase IIb trials in treatment experienced HIV patients beginning in the middle of the year. We continue to believe that the impressive antiviral potency seen with 9471, its ability to be taken as once-a-day therapy without ritonavir boosting as well as its potential to be formulated and combined with other once daily antiviral therapies, have the potential to be clinically relevant, competitive advantages over other CCR5 antagonists. And because this is our only HIV program it is also one we would consider partnering.

Our CCR2 antagonist for multiple sclerosis is in Phase I development, and here again given the longtime development timelines for multiple sclerosis drugs and because we have so many Phase II trials planned and already underway this, too, is a program we would consider partnering. Lastly, we also have two discovery stage oncology programs that look promising; both have lead compounds in preclinical development and we expect to file IND's for both programs later this year.

I'm now going to turn the call over to Dave who will review our fourth quarter results and '08 financial guidance. As you would expect given the clinical success we achieved in 2007, and the fact that we have advanced so many of our programs into Phase II development, we've increased our clinical development budget in 2008. If we are able to form any of the partnerships I alluded to earlier, our net cash use for the year will decrease from the guidance that Dave will describe to you now.

Thanks, Paul, and good morning, everybody. I will start with a brief overview of our year end financial results and then I will provide financial guidance for 2008. Our ending cash at December 31, 2007 was approximately $257 million. During 2007 we used approximately $94 million in cash, in line with our guidance which was a use of 88 to $95 million. This use of cash excludes certain items that we noted in detail in this morning's press release.

From an operating perspective our R&D expense totaled $32.6 million for the fourth quarter and $104.9 million for the year which reflects our continued investment in our growing and expanding clinical pipeline. As a reminder, we expect that our R&D expense will vary from quarter to quarter depending on the timing of our clinical development activities.

Now turning to our 2008 financial guidance. In terms of cash, we expect to use between 128 and $138 million in 2008. The increased use of cash versus 2007 is a result of our expanding pipeline. This guidance includes the use of approximately $5.4 million for net lease related costs in our closed California facilities and does not include any funds we could receive from either the Pfizer collaboration or any other future partnerships.

We expect our 2008 revenue to be in the range of 3 to $3.5 million, again this guidance excludes any milestones from the Pfizer collaboration or any other revenue recognized from any other future collaboration.

We expect R&D expense to range from 138 to $145 million in 2008 including a non-cash expense of 12 to $13 million related to the impact of expensing stock options. As I've previously mentioned in the cash guidance the increased R&D expense in 2008 versus 2007 is directly related to the success of our clinical programs and a substantial increase in the number of Phase II trials we plan to conduct in 2008.

We expect selling, general and administrative expenses to be in the range of 16 to $17 million in 2008 including a non-cash expense of 4 to $5 million related to the impact of expensing stock options. As a reminder, the impact of expensing stock options is dependent on the level of options issued, as well as the market price and other judgmental assumptions used in estimating the fair value of such instruments.

In terms of other income expenses, we expect interest income to be in the range of 8 to $10 million in 2008; while interest expense is expected to be approximately $25 million. The $25 million includes a non-cash expense of $10 million primarily related to the amortization of the original issue discount on our 3.5% convertible senior notes.

So as Paul previously mentioned, we are in a strong financial position to continue investing in our expanding pipeline, and we believe that this increased investment will provide a strong return to shareholder value. With that, I will turn the call back over to Paul.

Thanks, Dave. So we've already taken a fair amount of time this morning and we covered a lot so I am just going to move right into the question period, please.

(OPERATOR INSTRUCTIONS) Richard Smith, JPMorgan.

Good morning and congratulations on the progress so far. Just a quick question JAK2 and myelofibrosis. Can you just give us a sense of how much patient data you think you will need to have when you go to the FDA, with respect to the number of patients also length of treatment? And any sense on sort of the kind of endpoints that they might suggest you use in a pivotal trial? Thanks.

As I may have mentioned this last time, but we have had several meetings with experts in the field. And the consensus has been that endpoints either sustained and profound reductions in spleen size, which we have pretty much across the board, with or without quality of life improvement where we have dramatic and remarkable changes are thought to be very, very important improvements in the status of these patients by our experts. So we are hoping, and I would say optimistic that when we meet with the FDA that they will agree with that general premise. The devil is always in the details, and I think we already have enough patient data to safely go to them and begin to discuss in detail how we would do a registration trial.

Do you think -- you might have just mentioned this -- reduction in splenomegaly as part of the sort of confident endpoint or do you think that is sufficient on its own?

I will answer this, and then if I haven't completely answered it Rich can either correct me or add to what I'm saying. I think it could well be the primary endpoint and quality of life could be a secondary endpoint, or they could be coprimary endpoints. What would you say, Rich?

Yes, I mean we don't -- we are pretty comfortable that even if what we think we are going to hear from FDA is not exactly right that any changes that they may make would be something that we are equally comfortable with doing. So if it is purely spleen, that's fine. If it is spleen plus other things, that should be fine, too. We don't by any means expect to get into anything like a survival endpoint for initial approval. There is plenty of precedent for drugs that are having even just improvements on cell counts and nothing has reduced spleens, nothing has reduced symptoms like this drug is doing. And we believe that the FDA is likely to appreciate that. And we should have more to be able to say after we meet with them.

Thank you. And just one quick question on the two other trials in multiple myeloma and prostate cancer. Can you give us a sense of the dose you might be using in those trials?

We are starting at the similar dose range to what has already been shown to be safe and effective, and then there is individual modifications that are allowed based on safety and tolerability in case those patient populations do anything different. But we are not looking at it from the perspective of starting from square one and trying to just escalate up since we have a fair amount of data already in myelofibrosis and the drug has been well-tolerated at up to 25 milligrams as BID.

Thank you very much.

Thomas Wei, Piper Jaffray.

Also on the JAK2 inhibitor I'm curious if you can give us anymore details on what the safety profile has looked like as you enrolled more patients, followed more patients out in both of those settings. Have there been any more cases of (inaudible) suppression or any other noteworthy adverse events, any discontinuations?

Again, Rich can correct me if I -- all we've seen is we've seen a few patients, a handful I would say of patients who have had reversible thrombocythemia, which would be, which is not terribly surprising since thrombopoietin signals through JAK2, and myelofibrosis patients, especially advanced myelofibrosis patients have quite compromised bone marrow. So we are actually gratified that the incidence has been as low as it has been. And even in some of those patients we've dose adjusted, and they have been able to come back on drug. Other than that we've seen nothing else. It is pretty -- it has been quite clean except for that almost predicted side effect.

I have nothing to add to that.

And in the RA trial it sounds like you've enrolled some further patients. Have you seen the same sort of responses as you did in the first four?

The issue there was the -- over the holidays we did not screen or enroll anyone in the first cohort, and we only picked up again at the end of the second week in January. So we have more patients in, but they are not -- they haven't completed the month yet.

All right. Thank you.

Annabel Samimy, UBS.

Thanks for taking my call. Just on the RA again, how many patients again were you expecting to enroll in that first cohort, and when you get to three-month timepoint and you said that that could facilitate discussions with the FDA, you obviously were going to have to wait until the sixth month until you start any Phase III's on that, looking at the safety, right?

Yes, so let me just clarify. We're doing a one month study now. The first cohort is a total of 16 patients, of which I believe as of earlier in the week 12 were on drug and there were about five or six in screening. So we should be finished enrolling that pretty soon and move on to a number of other doses, as Paul said, lower BID doses and a once-a-day dose. All those will be done in parallel, and that should all be done by the first half of the year.

Then in the second half of the year we would plan to start a Phase IIb study. It is a six-month study with a three-month interim analysis. When we go to the FDA it will be at the time that all the patients in the study have completed the full three months, but many of them because they don't all come in at the same time will have completed six months of therapy. So we are hopeful that -- and then perhaps you would tend to (inaudible) safety update or an efficacy safety update when the six months are done just before we start the registration study. So finishing up IIa in the first half of the year, IIb starting second half and then we think we can go from there to registration trials.

The doses you are using in the RA trial are clearly lower than in myeloproliferative disorders. Would RA patients have a different safety or side effect reaction to these doses than an MPD patient? Could you draw any kind of links to the safety that you are seeing in the MPD patients?

Sure. Actually the drug would probably be less well-tolerated in a particular dose in myelofibrosis patients than in RA patients because their bone marrow already is sick. And so you add this drug and so the reason that we are at lower doses in RA is that you don't higher doses. We started at 15 milligrams twice a day, saw two ACR90s out of the first four patients, we are going down from there. But that is not to say that we've seen any toxicity, any bone marrow affects whatsoever in any of the patients on a 15 milligram BID dose.

We are trying to explore a range to determine what the range should be in the IIb study; we are not trying to pick one dose yet the IIb study would include at least three dose levels, possibly more but we haven't made those decisions until we see all the data.

And you envision psoriasis would be the similar doses as RA?

We envisioned that we would start at the same places, and we will see what the efficacy is. And if it has to be higher we think we have room to go up. It may be that it could be even lower still; we just don't know. We do know obviously with the topical where you are not getting systemic levels but you're getting reasonably high concentrations right in the skin where you put it on that the drug is effective in psoriasis. So I suspect the dose levels in psoriasis in RA will be fairly similar, but we will let the data speak for itself.

One more question for David, if I may. The pipeline is looking great and it's very impressive and rapidly expanding but I have to ask the question, is your current cash position sufficient for the next couple years? If I remember correctly, I think in the past you had mentioned that you have cash until about 2010, say for example no partnerships are available. Are you still targeting 2010 as that time that you have enough cash? Or is partnership really becoming a much greater priority at this point because your pipeline is just exploding?

Well, I think that from a recapitalization perspective it is highly dependent on the partnership variable. I think when you start looking out into '09 as well it gets more difficult to predict in terms of what the burn rate will look like depending on the partnership and how the pipeline is progressing. So I think we are actually in a pretty strong position from a cash perspective and with the partnership opportunities in front of us we do have leverage there. So I think we are comfortable at this point, Annabel.

Okay, thank you.

Katherine Kim, Banc of America Securities.

Thanks for taking my questions. On the JAK2, how many patients do you have on drug right now, and how many will you have by presentation at ASCO?

We have I think between 30 to 40 patients, Rich -- more than that?

Yes, I think we have about 50 on drug and we might have 60 by the end of the month. And then there is still more room for substantial increases but how many we would actually have at ASCO I am not exactly sure yet.

And how many centers?

This is all being done right now at two centers. The patients are not limited here, they are coming in faster than the centers or we can handle it. I mean they are coming from all over the country, perhaps all over the world trying to get in on our drug. It is not an issue.

And just to continue on that vein, if as we anticipate the FDA works with us to go forward with a registration trial, we believe that that trial or trials will enroll extremely quickly. Because we have people waiting, large numbers of people actually to get on the drug. Assuming we reach some kind of agreement with the FDA we would probably also in parallel would have one of these expanded access kind of programs.

Yes, treatment, different terms are used, treatment protocol, treatment IND expanded access.

Yes, just so that more people can benefit from the drug than just the end that would be in the registration trial. But we have to get the buy-in from the FDA first.

So in terms of clinical responses, we all know about the dramatic spleen reduction but just can you let us know what other things would let's say your experts have told you is been very important and what have you seen so far in your dataset?

Virtually every patient has a very substantial decrease in their spleen size. This occurs very rapidly. Every patient has had improvements in the quality of life. Paul talked about spleen pushing up on the stomach, I think actually the reasons that these people are wasting away is actually more than that.

It is more than that, sure.

They have these cytokines that make them have no appetite just as you get in terminal cancer patients. And when you give our drug that goes away and they just even if they are eating the same amount they are gaining weight. People just have no energy, I mean fatigue is -- 85% of these patients report severe fatigue. We looked in an unofficial kind of way through feedback from our investigators about individual aspects of quality of life, and they are all -- if you look at it on a 10 point scale, they are going from like 8's where 10 is the worst and zero is no symptoms; they are going from like 8 to 2's in a week.

Now the other aspect of this is many of these patients have low counts to start with, and we reported at ASH that there was one patient who required blood transfusions every two to three weeks, and now has gone five months without a blood transfusion. The other patients are not that far out yet. It may be that one of the reasons we are potentially looking at lower doses is that you may get all the benefits without and also start to see some of the counts coming back faster. But we do not think that we need to improve counts in order to get this drug approved because there are other ways of dealing with that. People do get blood transfusions. So what we are offering here we believe is something that no other drug can accomplish which is reducing the spleens and having a marked impact on the patient's quality of life.

And finally, in terms of the duration of response for the spleen size reduction, what is the median duration?

Well, the spleens never come back and so if they stay on the drug their spleens don't shrink and then come back. So the duration is just however long people have been on the drug and some people have been on the drug eight months.

Okay, and then finally just a financial question. I know the guidance doesn't include anything from potential partnership or from Pfizer but are you expecting any milestones from Pfizer this year?

We don't control that, so we would never guide to assume that in our financials we would expect milestones.

Okay, thank you.

(OPERATOR INSTRUCTIONS) Sapna Srivastava, Morgan Stanley.

It's actually Dave calling in for Sapna, just a question. I know you think talked about wanting to hold onto the JAK myelofibrosis indications as on partnered programs; and how are you thinking about all of the other indications with the JAK program? Are you going to be trying to partner out things like RA and psoriasis, or do you think you're going to try and hold onto the whole sort of JAK franchise that you are working to develop? And also obviously it is a little earlier but for the cancer indications, what are you thinking about there as well?

For the entire myeloproliferative disorder arena, which includes P-vera and essential thrombocythemia where the end is actually larger than myelofibrosis, we would and as I mentioned the -- it is a small community of physicians centralized that treat these patients. We certainly would have no intention of looking for any partner for that. I guess it is conceivable that it may be a benefit to us to have a commercial partner in the rest of the world, but even that with a small community may well be one that we think it is one that we can handle ourselves.

With respect to multiple myeloma, I think again that may well -- since we said that what we would envision for ourselves when we grow up is that we would be fully integrated or semi fully integrated in oncology inflammation, something like multiple myeloma would also be a malignancy that we could certainly handle ourselves. Prostate cancer may be a different story, but it is not clear that we couldn't.

With respect to the other oncology -- so beyond that when you talk about sheddase, I think it is too early to know what we would do with sheddase or the two earlier programs. But it is kind of the direction in which we want to mature. So we are not looking to spin those therapeutic indications off to someone else at this point. I think there are a lot of moving parts here and we have to see how it plays out. But that is our thinking right now.

In inflammation and JAK, for topical psoriasis, at the moment we again have no intention of looking for a partner there. That is a -- I mean we are way ahead there. We are seeing pretty dramatic responses with no toxicity whatsoever. And there is a fairly clear development path there.

With respect to RA, it is conceivable that beyond a Phase IIb or during a Phase IIb study it may make sense for us to look for a partner. At this point we are not planning to do that, but we certainly would -- we continually reevaluate where we are like everybody else. And at this point it is not clear to us that with appropriate market cap appreciation and income from myelofibrosis and the other myeloproliferative diseases that we would not be in a position to grow to a point that we could not handle the inflamm in the JAK program ourselves.

On the other hand, the other programs that I describe progress on today are ones where especially for the metabolism programs there is no question that we are looking for partnerships. And for CCR5 and CCR2 we probably -- we would prefer that if the right kind of deal was available to us.

Richard Smith, JPMorgan.

Just a quick follow-up, on the HM74a program, could you give a sense of the design of the Phase IIa trial? And on the CCR2, is there a possibility that Pfizer would take the additional indications that you've been working on?

I'll answer the latter, and I'll let Rich answer the former. I'd say no for multiple sclerosis. They are not in the area, and it would be like a one-off, which is not something they, I think they probably would not be interested in that. We have to find someone else to partnership there.

In terms of the Phase IIa for the HM74a program, again the theory here is and well-established theory is if lower free fatty acids the glucoses will come down. Now patients with diabetes have elevated free fatty acids relative to the healthy volunteers that we've been studying so far, so it is really a two-part study. The first part is we study a number of doses to make sure it is the dose ranges that are having these really nice effects on free fatty acids that we are seeing in healthy volunteers, are still the right doses to be reducing the free fatty acids the way we want in diabetic patients. And then probably we would go down from about four doses to probably about two doses and then expand with a significant number of additional patients at those two doses, with the emphasis in the second part being to lower fasting plasma glucose, which would be the primary thing that you are looking at in the second part of the study. We are not going to be doing clamps this time. And again, hemoglobin A1c is way too slow to change to be able to look at within one month.

But as Paul indicated, you can see profound decreases in diabetics if you normalize the free fatty acids within a short period of time. So this time a month should be fine to see that whereas we put in the clamp in the HSD1 program because we didn't know whether there be a mechanism where we could see effects within a month or not.

So the one month portion is you're talking about the second part of the trial when you expand the patients at maybe two doses?

Yes, but we expect to do the whole thing this year.

Understood. All right, thank you.

Thomas Wei, Piper Jaffray.

Thanks for taking the follow-up. Also on the HM74a program, can you help quantify for us what you mean by a dramatic reduction in free fatty acid levels? And also the correlation between that and fasting plasma glucose, what sort of relative reductions you need to see to achieve I guess relative to what you are seeing in the healthy volunteers, what would that translate into in terms of an A1c or fasting plasma glucose reduction in diabetics?

Well, the experiments that we described out of Einstein where you infused niacin because of the short half-life, what you're trying to do there is you're not trying to bottom out the free fatty acids, which you can way do with our drug because then you will bring what the patient will then perceive is starvation. And you will have counter regulatory mechanisms come into play, which work against what you are trying to achieve.

So what you are trying to do in diabetics -- and it is hard because the normals that we are looking at now have normal levels of free fatty acid, so what you're going to try to do in the diabetics is to simply bring their free fatty acid levels back into the normal range, which is what was done at Einstein over a 16 hour infusion period. And in that short a timeframe there was a fairly dramatic improvement in glycemic control. I can't calculate for you now what you would expect vis-a-vis hemoglobin A1c, but I think in the -- if this may be right, I don't want to say the wrong thing, but I think if you can decrease fasting plasma glucose by 20 to 30 mg/dL, you get something like 1.5% improvement hemoglobin A1c, or 1% improvement hemoglobin A1c, something like that. And so we have to do the experiments in the diabetics to know. There is nothing we have in the normals vis-a-vis those correlations, which would allow us to answer your question with precision.

Okay, thanks.

Annabel Samimy, UBS.

While we are on the topic just had another question on the HM74a. What other specific processes does this pathway target? Or affect, rather.

This is the same -- this is what everyone believes is the receptor for niacin. And so whereas our focus is on diabetes, niacin and Niaspan are used to increase HDL, as Paul said. They also reduce LDL perhaps by itself not as much as the statins, but they add to the effect of the statins. So whereas our preliminary focus is on diabetes, these drugs also have the potential to be used in hyperlipidemia, especially patients with low HDL.

And of course, with niacin and Niaspan one of the things that limits their use is this problematic flushing response that people get. We are not seeing that. So although, again, our emphasis here is on Type II diabetes, a parallel and potentially interesting program would be to look at it for raising HDL. One of the issues with the Pfizer compound was the belief that the HDL that was being created was abnormal. And I think it was fairly well-known that with niacin you are simply increasing the production of normal HDL.

I was just asking to see if with this pathway if there is any potential side effects that may come out of this that aren't expected or could be expected.

What you have here is a long track record of Niaspan and niacin and what they do is they are two -- they have two issues, which is what I described. They have the cutaneous flushing, which is due to a release of prostaglandin stimulated by agonism of the receptor because of probably the short half-life and the rebound. And we don't get that with this agent, so we've gotten rid of that side issue or at least we haven't seen it, and we don't expect to see it. And the other is the free fatty acid rebound, which in and of itself in people without diabetes is probably not a lot of relevance, but it precludes being able to treat diabetics. Because in fact when the free fatty acid rebound because of the short half-life of niacin and Niaspan, you actually get a -- you get a worsening of glycemic control.

So we've designed our molecules to eliminate the two known side effects of agonism of this niacin receptor. So we may get an off target toxicity because of the structure of the compound, none of which we've seen so far. And in fact the doses that we anticipate from what we've done with this so far are very low single digit milligram doses. So off target effects are usually seen or more frequently seen when we are into the hundreds of milligrams a day and we're not going to be anywhere near that. So the potential for this being a very clean compound is very high.

Thank you. That was very helpful.

Soham Pandya, ThinkEquity.

Just one quick question on the JAK2 program. Just curious, do you see a reversion away from the mutant allele back to the wild-type upon therapy, and at what point do you see that occurring?

If you look in either the peripheral blood or in the bone marrow of the person, you can get an estimate of percentage of the cells that are expressing the mutant versus expressing the wild-type JAK. And in many of these patients that percent of the cells that come from the mutated JAK is very high, greater than 95% in many cases. And we see reductions but we don't see it just go from virtually 100% to anywhere close to 0% overnight. And frankly, I don't think you would want to because if all your red cells or whatever being made from cells that have this mutation, you wouldn't want to knock it out altogether. So the percentages are coming down.

No one has completely eliminated it that we've seen so far, and we don't know how low it would go. We are not looking at this drug as a cure for the disease. We are looking at it as a drug that will control the disease and all of the data that we have suggests that we are doing really well with that.

Just remind me does the compound have activity towards the wild-type receptor?

Blood type enzyme, yes, it works against -- it has effectively as the 617 mutant.

Thank you.

At this time I am showing no further questions in queue. I would like to turn the call back over to management for closing remarks.

Well, thank you for your attention today. We are quite excited about the opportunities we have created for ourselves. And as I've said, we are going to make sure that we do not miss a beat on the JAK2 program in particular so that we can get into the registration trial myelofibrosis and move it along and get the positive endpoints that I'm actually pretty confident we are going to get. I will tell you that at this stage of Sustiva's development I knew we had great efficacy, but I was concerned about the CNS toxicity. I thought if we get past that we would get approved. This is kind of an analogy.

Here since we are out past six months in a fair number of patients and the only thing we've seen is thrombocythemia along with this tremendous efficacy I can't say I am supremely confident, but I am pretty optimistic that this is a drug. And if we have a good meeting with the FDA we will, which we are anticipating, we will be back on the horn to talk to everybody soon after that to let you know that. In the meantime, the other programs are also very interesting, and we have worked deciduously to optimize moving these things along in parallel and trying to do it in the most cost-effective way we can.

Our spend is going to go up this year. I think it is warranted for the value that we believe we can create by doing that. And we think it would be a mistake to not take advantage in parallel of everything we have on our plate because of the competitive nature of the drug development business. So we look forward with a lot of optimism to describing what happens over the next few months with these programs. And with that, I will end the call. Thank you again for your time this morning.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.