Insmed Inc (INSM) 2005 Q4 法說會逐字稿

[OPERATOR INSTRUCTIONS]

Welcome to Insmed's fourth quarter and year end financial review conference call.

At this time I would like to turn the conference over to Baxter Phillips for opening remarks and introductions. Please go ahead, sir.

Thank you, Kevin. Thank you, again, and good afternoon, ladies and gentlemen. Thank you all for participating in today's 2005 fourth quarter and year end conference call. Today after market closed we released our financial results for the fourth quarter and year end 2005. Concurrently we posted this release on our website at www.insmed.com. In this call we will be presenting Insmed's results for the fourth quarter and year end of 2005, along with the current review of the Company. Before we begin, let me remind you that during the call, certain matters we will discuss today consist of forward-looking statements relating to, among other things, our expectations concerning the results of our clinical trials for iPlex, approvability of iPlex for indications beyond severe IGF deficiency, financing plans, future, financial and business performance, operating plans, goals and objectives of management and plans to utilize the protein manufacturing facility that we leased in Boulder, Colorado.

Listeners are cautioned that these statements are neither promises nor guarantees, but are subject to risk and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements. In particular, the risks and uncertainties include, among other things, risks that product candidates may fail in clinical trials or may not be successfully marketed, our ability to successfully enroll patients in our clinical trials, our ability to manufacture sufficient quantities of product candidate for our clinical and commercial production needs at our protein manufacturing facility, Insmed therapeutic proteins. The Company may lack financial resources to complete development of product candidates, and may not be able to raise additional financing on commercially reasonable terms. Competing products may be more successful. Required regulatory approval may not be received on a timely basis or at all and those other risk factors contained in our most recent press release announcing our recent results and in our periodic reports filed to the SEC, including, but not limited to, our annual report on Form 10K. For the year ended December 31, 2004, and subsequent forms 10-Q. We undertake no obligation to update or revise the information provided in this call, whether as the result of new information, future events or otherwise.

It is now my pleasure to introduce to you the participants in today's call: Dr. Geoffrey Allan, President and Chief Executive Officer; of Insmed, Kenneth Addie, Chief Medical Officer; Ronald Gunn, Chief Operating Officer; Thomas Coyer, Senior Vice President, of Insmed Therapeutic Proteins; Kevin Tully, Chief Financial Officer; and Philip Young, Chief Business Officer. It's now my pleasure to turn the call over to Geoff Allan for opening remarks.

Thank you, Baxter. Good afternoon, ladies and gentlemen. 2005 was an exciting and challenging year for the Company, highlighted by the FDA approval of iPlex and the granting of orphan exclusivity for the treatment of children with severe primary IGF-1 deficiency. With that major milestone successfully behind us we now enter a very exciting growth period for the Company. During this year, Insmed will make a transition from an R&D company focused on drug development to a fully integrated biotechnology company, prepared to launch its first product. The key to a successful 2006 for Insmed will rely on our ability to execute on a focused strategy designed to maximize our capabilities in commercialization, manufacturing and [clinical] development.

Our business strategy is very simple. We intend to capitalize on the therapeutic opportunities presented by iPlex, by commercializing it in its approved indication in the United States and extending the use of iPlex in other indications and other geographic markets. We will launch iPlex commercially in the second quarter of 2006, with our own specialty sales force. We are currently building the sales and marketing force to target approximately 400 U.S. based pediatric Endocrinologists who we estimate treat the substantial majority of the children with severe primary IGFD. We will continue to invest in our manufacturing capabilities. We have a fully operational FDA approved manufacturing facility in Boulder, Colorado, capable of producing commercial quantities of drug for several years to come. We will continue to develop iPlex in non-growth disorder indications. We have initiated clinical studies and several clinical conditions, myotonic muscular dystrophy, HIV-associated adipose redistribution syndrome and extreme insulin resistance. We will expand the severe primary IGFD indication to other growth disorders related to IGF-1 deficiency. There are a number of growth disorders related to IGF-1 deficiency other than severe primary IGFD, which may permit us to expand the U.S. market for iPlex from 6000 children to approximately 30,000 children. We will establish a commercialization strategy for iPlex outside of the United States. In addition to pursuing approval for iPlex outside of the United States, we will either build our own European sales and market team or explore European partnering opportunities. We will continue to develop our oncology portfolio. We will continue to conduct clinical studies of our candidates, INSM A-team and recombinant [IGFBP-3] for the treatment of cancer and evaluate opportunities to initiate Phase II clinical studies for these products.

I would now like to pass this call to the management team, who will elaborate more specifically on our strategy. Phil, can you kickoff with the commercialization program.

Certainly. Thank you, Geoff.

2005 was a great year for Insmed and I'm looking forward to the remainder of 2006, as we launch iPlex. For the next few minutes, I'd like to update you on some of our strategic and tactical plans as we prepare to launch iPlex. In order to successfully launch iPlex, we began building a commercial team the week after approval. Everyone hired to date has had significant success in specialty biopharmaceutical markets. In fact, the majority of the commercial team we have assembled has direct experience selling, managing, and marketing to the pediatric endocrine specialty audience. As we continue to hire additional personnel, we will maintain our focus and only bring in the talent and expertise that compliments the group we now have on board.

During the month of January, we hired a vice president of sales and marketing, a national sales director, vice president of managed markets, and over the first weeks of February, we have been able to add a vice president of medical communications, our first group of sales professionals and national account managers for the managed markets. Let me highlight the impressive backgrounds of our first wave of new hires, beginning with our vice president of sales and marketing and through the most recently hired area sales managers, we have the following history of successful execution in the specialty biopharmaceutical marketplace. First, we have an average of 17 years directly selling and/or managing sales, marketing, clinical and managed care. Combined, we have a total of 29 product launches. Eighty percent of the team has previous experience in the growth hormone and pediatric endocrine markets. Specifically, they have managed, they have sold, they have run sales training, sales management, managed care, clinical development, phase 4 registries. In fact, several of the key managers and sales professionals worked with me at Genentech where we were responsible for the growth and development of the initial short stature market for growth hormone.

The initial group of sales staff, our training and reacquainting themselves with the pediatric endocrine market and their territories. The managed care team is working to establish iPlex and the formularies of the key payors around the country. Over the next few months we anticipate continuing the hiring process and expect to be fully staffed in the summer. In addition to the Insmed personnel, we have established commercial collaborations with top quality vendors. We have initiated work with an advertising agency to finalize product branding and launch material. We are working with the medical communications company to host advisory meetings and planned symposia and market research is under way. In addition, we have entered into a contract with a special distributor that is fully equipped to distribute iPlex directly to the patients.

Now I'd like to take a few moments to highlight some key points and a launch strategy in planning. When we launch in the second quarter, all prescriptions for iPlex will be initiated by a phone call, fax, or e-mail to a single point of contact. Physicians, nurses, payors and patients will be able to access the entire support system by contacting this one central support number. We call this program plex point. Through plex point, we will ensure timely fulfillment of all prescriptions, appropriate compliance follow-up and support, as well as assistance to any patient's families needing help in coordinating payment or working with their insurance company. The plex point system has been designed with a service focus to allow every patient easy access to iPlex. It's our goal to make plex point the leader in providing single point of contact services throughout the specialty pharmaceutical marketplace. While we're on the subject of distribution and patient service, iPlex is no more difficult to distribute than many other specialty pharmaceutical products. Once a prescription for iPlex has been received at the plex point center, iPlex will be packed and shipped on dry ice overnight to arrive at the patient's home at a time that is convenient for the family. Once the family receives the product they will store the small vials in their home freezer. There is no requirement for the families to purchase special freezers to store iPlex. As noted in the package insert for iPlex, household freezers work just fine. However, we are always striving to improve our product offering. As such, we are in the process of developing a room temperature, stable multiuse formulation, which should be available early next year. And since family and patient compliance, patient convenience is so important in today's complex] world, iPlex is once a day dosing schedule fits in perfectly with what patients and families demand from chronic treatment with an injectable drug. The dosing is really quite simple, the vial is removed from the freezer, allowed to come to room temperature, which only takes a matter of minutes. Then the appropriate dose is drawn up and the injection is given. Preferably families can take the vial out of the freezer, place it on the counter, eat dinner, then give the injection. No real difference in the process than if the drug is kept in other storage conditions. This is really very analogous to the way a growth hormone is dosed.

We have decided to file for approval for iPlex in the European union now that we have FDA approval. And we've decided to take the additional time to thoroughly evaluate our global product strategy. An opportunity to maintain worldwide rights to iPlex provides us the ability to increase the overall value of the product. Should the EMEA application be successful, we will be in the strongest position to either continue negotiations with European and global companies or be positioned to build a European presence for the commercialization of iPlex. All of our plans are progressing and we will launch iPlex in the second quarter and we plan to have our sales, marketing and medical teams at the important medical conferences during that quarter.

To support the medical communication effort, we have submitted seven abstracts for presentation at the Lawson Wilkins Pediatric Endocrine meeting or the Endocrine Society meeting, or the European Society of Pediatrics meeting. In addition, we have been invited to give a podium presentation highlighting the data from our pivotal program at the Lawson Wilkins Pediatric Endocrine Society meeting. All of the planning and progress directed towards the launch of iPlex is moving ahead according to plan. We believe that iPlex's positive attributes once a day dosing, along with our demonstrated efficacy and safety profile in treating children with severe primary IGFD will translate into significant market uptake. I look forward to updating you as we progress with our launch throughout the remainer of 2006 and 20007. With that, I'll turn the call over to Tom for an update on manufacturing. Tom?

Thank you, Phil, and greetings, to everyone from Boulder, Colorado. What I want to do is give a brief update and overview on our manufacturing program for iPlex.

As I'm sure all of you know by now, Insmed acquired a biopharmaceutical manufacturing facility in Boulder from Baxter Healthcare in the spring of 2004, which we now call Insmed therapeutic proteins or ITP. This strategic acquisition was made primarily to provide Insmed with direct control over the manufacturing of drug substance to ensure adequate supply for clinical trials in commercial launch. By the fourth quarter of 2004, we had staffed up, recommissioned the facility and were successfully manufacturing iPlex under GMC conditions in support of our clinical trial program. Our ability to rapidly staff up and produce clinical and commercial product is a testimony to the quality of the employees we've been able to hire at ITP. In order to run at maximum capacity, we've instituted a 24/7 operation dedicated to the manufacture of iPlex.

We currently have over 60 employees and that number will grow to nearly 100 by year end. In order to make all this function smoothly, we've hired a very experienced management team that's proven itself over many years in specialty biopharmaceutical manufacturing. Currently, the ITP management team has over ten years of direct experience on average in our Boulder facility, and over 15 years experience on average in the biopharmaceutical industry. In 2005, our team was able to continue enhancing the production capability from ITP. Also, in the summer of 2005, we were inspected by the FDA as part of the NDA approval process and were subsequently approved as a commercial manufacturing site for iPlex drug substance. This was clearly a very significant milestone for Insmed and the Boulder site. So over the past few months, we've been actively manufacturing iPlex drug substance to support our upcoming product launch in Q2 of this year. Additionally, we began work on the development of an improved shelf stable non-frozen formulation, which we expect to have completed by the end of this year.

In addition to supporting launch, our other major objectives for 2006, and beyond will be to continue to enhance our manufacturing capacity to meet the anticipated annual increases in market demand. This will be achieved through the same type of successful planning and execution that's allowed to us make such tremendous progress in a short period of time since we acquired the facility. We believe that as a result of the successful implementation of these plans, the ITP facility will have adequate capacity to meet an annual market demand worth several hundred million dollars. In summary, we believe that the strategic acquisition of ITP is proven to be a very good decision and that now we've established Insmed as a fully integrated company with complete control over the manufacturing supply. I'm also very proud of the fact that the Insmed manufacturing team has exceeded our primary objectives to date and I look forward to the opportunities that lie ahead for us in the manufacturing program to support the growth of iPlex as a commercial franchise. Now let me pass the presentation over to Ken for an update on the clinical program. Ken?

Thank you, Tom.

With the approval of iPlex for severe primary [IF-static in phone line] deficiency, the clinical group is preparing to provide support for the upcoming U.S. launch of iPlex for this indication. This will involve a variety of educational programs, symposium and one on one meetings with doctors, nurses, payors and patient [support groups-static in phone line] the results of our studies will be made available in a number of ways that will illustrate the benefits and [risks] of iPlex therapy in this population, one that is unresponsive to growth hormone treatment. There are several advantages to iPlex as a therapeutic, starting with the physiologic way in which the [IF-1]is delivered. That is bound [IGFBP-3] as a stable complex from the moment it is injected. As a [pediatric endocrinologist] who has witnessed many injections in children, I can attest that the administration of iPlex is relatively straightforward, with once daily dosing that can be administered at any time of day. [There is the simpliest-static in phone line] use the smallest possible needles and there are no special meal requirements, besides maintaining a regular diet and not skipping meals. Moving forward, we have over the past year announced three Phase II programs in new indications that illustrate the range of possible uses for iPlex. The ongoing studies include those in myotonic muscular dystrophy, extreme insulin resistance and HIV-associated adipose redistribution syndrome, also known as AIDS lipodystrophy. Each of these indications has insulin resistance as a major component for which iPlex can prove beneficial. In addition to improving body composition, in particular, fat distribution and muscle mass, we plan to present data from each of these studies as they become available throughout the year.

Information from patients with extreme insulin resistance treated with iPlex has been submitted as an abstract to an upcoming international [meting]. This year we also plan to expand our program of studies in children with [short stature]. Clearly there's been great anticipation in advance of the availability of iPlex amongst pediatric endocrinologists, as we have received many proposals for [growth related] studies using iPlex. The difficulty has been choosing among many good potential [follow---]. Being a once-daily injection, iPlex is similar in many respects to growth hormone in terms of expected patient compliance. However, we believe that there are many patients for whom growth hormone is not a good first story, due to growth hormone resistance or other reasons, such as insulin resistance or glucose intolerance. Although in the past, having had no alternative, growth hormone has been tried in many such patients and for so many years the results of growth hormone have often been disappointing.

Our goal is to demonstrate that the growth promoting effects of iPlex will provide the needed catch-up growth in a variety of short stature conditions. In some situations, growth hormone will continue to be the indicated and preferred treatment, whereas we believe there are several other indications where iPlex will become the treatment of choice. A [proto]-typical example of this has recently come to life, which is children who have primary IGF deficiency associated with Noonan syndrome, one of the most common genetic disorders associated with growth failure. With an incidence of approximately 1 in 2000 and a total patient population of 30,000 children in the United States, it is more common than growth hormone deficiencies or Turner syndrome, with which it shares many common features. In addition to decreased IGF-1 levels the majority of patients with Noonan syndrome are below the normal range for height and will achieve below normal adult height if left untreated. One of the exciting findings of recent years has been the identification of a genetic defect in Noonan's syndrome that effects the protein in the growth hormone receptor pathways, causing a form of growth hormone resistance in primary IGF-1 deficiencies. This explains why children with this defect have relatively poor responses to growth hormones. One of the studies we will initiate this year is a Phase II study in subjects with low IGF-1 levels associated with Noonan's syndrome. Our hope is to demonstrate a superior response in this patient population, as compared to what has been reported for GH. If we are successful, we believe iPlex will eventually become the first line therapy in these children.

This is an important group of concept studies to establish iPlex as a viable therapy for IGF deficiency regardless of the cost. Finally, as mentioned, we have submitted seven abstracts related to iPlex therapy through international meetings this year, the first of which will be a podium presentation regarding our pivotal study in severe primary IGFD, at the Pediatric Academic Society's meeting in San Francisco on May 1. Abstracts from our studies in normal adult volunteers, severe primary IGFD, and extreme insulin resistance have been submitted to subsequent meetings, including the endocrine society and the European society of pediatric endocrinologists. These presentations will highlight some of the remarkable clinical property of iPlex and the progress of our development program. In addition to our iPlex development and commercialization programs, we have an oncology program focused on two compounds, IMSM 18 and rhIGFBP3. These compounds have the potential to treat cancers by targeting growth factors in their receptor. Our small molecule compound, INSM 18 is currently being tested in a Phase I - II clinical study in refractory prostate cancer patients. Our recombinant IGFBP-3 is currently in Phase I testing of safety intolerability in human volunteers. I will end my update here and now ask Kevin to provide an update on the year end financials. Kevin?

Thank you, Ken, and good afternoon, everyone.

For the financial review today, I will begin by giving a brief overview of our results for the 3-month and 12-month period ended December 31, 2005, preparing them with the corresponding periods of 2004. I will then provide some details on the results and finally, I will close with high level guidance for 2006. Overall, from a financial perspective, 2005 was a good year. We were able to move the Company forward on several fronts and at the same time, kept a tight reign on expenses, as we were able to maintain our operational spending at the same level we achieved in 2004, with the main difference year-on-year arising from the accounting treatment of interest expense.

Before I go into the details, I would like to take some time to explain the interest expense relating to the March 2005 financing, as it does have a major impact on our P&L. In fact, our operating loss for 2005 was exactly the same as 2004. It is in the interest expense area where we show the largest single variance prior year. To give you some background as to how this interest expense is calculated, current accounting practice requires us to record the debt from the March 2005, financing on the balance sheet at fair value, taking into account the value of the convertible notes and associated warrants. This involves discounting the value of the debt and deferring the operating costs, meeting the black shields evaluating model and [overcharging this discountl which totals 18.4 million through the P&L over the five-year life of the notes. This item effects the P&L, but has no impact at all on our cash flow.

In the fourth quarter of 2005, a number of the note holders from the March financing decided to exercise their right to convert their notes and warrants into [intimate shares] this decision triggered an acceleration of the debt discount to match the conversion debt of the notes and warrants, resulting in a non-cash interest charge for the fourth quarter and full year of 5.8 million and 13.1 million respectively. The remaining debt discount on the notes and warrants is 5.3 million is currently set to be amortized through February 2010. If, however, the notes and warrants are exercised sooner, then the discount amortization will be accelerated to match the conversion debt. The reason I feel it's important to elaborate on this complex issue is ensure that the readers of our financial statements understand that these interest charges do not utilize our cash reserves and are purely recorded in compliance with current accounting practice.

Moving on to the results themselves, for the fourth quarter ended December 31, 2005, our reported revenues were 24,000, as compared with the 23,000 reported for the fourth quarter 2004. The net loss for the latest quarter was 12.9 million, or $0.27 per share versus a net loss of 5.8 million, or $0.14 per share in the same period of 2004. The 7 million rise in our net loss from the fourth quarter 2004, was due to a 6 million increase in the interest charges I referred to earlier, an increase of 6 million of [naught point-cultural word?] 6 million in R&D expenses, and an increase of [naught point] 6 million in G&A expenses. Vastly offset by a [naught point] 2 million rise in investments income. The rise in the interest charge is due to the acceleration of the debt discounts I explained earlier. The increase in R&D expenses is mainly a result of patent litigation costs incurred in the fourth quarter 2005 and the higher G&A expenses incurred as a result of increased external service costs in support of our business.

As for the full year ending December 31, 2005, revenues were 131,000 as compared with 137,000 for 2004. The net loss for the calendar year 2005, was 40.9 million, or [naught] of $0.84 per share, $0.54 per share, versus a net loss of 27.2 million, or $0.69 per share for the full year 2004. Of the 40.9 million reported loss for 2005, some 13.5 million was due to the net interest expense related to the March financing, leaving an operating loss of 27.4 million for 2005, the same level as the operating loss of 2004. Operating expenses for 2005 were 27.6 million, as compared to the 27.5 million for 2004. As a 1.5 million increase in G&A expenses was mainly offset by 1.4 million reduction in R&D expenses. The rise in the G&A expenses was due to increased costs associated with financing activities, as well as additional service costs in support of our business. The reduced R&D spending was mainly due to the lower cost of development and manufacture of iPlex at our production facility at Boulder, as [compared] to the external [tolling] costs we were incurring to develop and produce the product in 2004. These savings are partially offset by the litigation costs and support of our patent position, which we incurred in 2005.

Turning to cash, we ended the year with 18.8 million of cash on hand, which represents a net reduction of 1.8 million from the September 30, 2005. A 6.2 million was utilized upon operating activities, while 4.4 million was raised through the exercise of warrants. For the full year 2005, our cash position improved by 9.6 million from December 31, 2004, due to a combination of 32.6 million raised in the March 2005 financing, 4.6 million raised on the conversion of warrants, and [naught] 0.2 million generated from a reduced letter of credit, while 27.8 million was utilized to support our operating activities. Looking forward to 2006, I'm pleased to report that during the first two months of this year, we received an additional 8.7 million in cash from the conversion of warrants. Our projected cash required to fund operations for 2006 is currently forecast to be in the 45 million to 48 million range, as we implement our commercialization of iPlex in the severe primary IGF-1 deficiency indication. Our plans also call for the raising of additional capital to [un---] our commercialization strategy, support capacity expansion at Boulder and sustain new and ongoing clinical trials. We entered this year in a very strong position. We have a drug approved and on track for commercialization by the end of quarter two of this year. We have approved a production facility with a cost effective plan to meet our drug needs for the next several years, and we have a deep clinical pipeline with multiple indication and product opportunities, which continue to show promise and reaffirm our belief in the science. This concludes my review of the financial results. I will now turn the call back over to Geoff to conclude the presentation.

Okay. Well, thanks, Phil, Ken, Tom, and Kevin for those various updates. Let me close the call by stating that 2005 was a challenging year for the Company and we met that challenge. 2006 will be an equally challenging year. I hope that the well thought out plan that you have heard from the management team today will give you confidence as shareholders that we will meet the challenges of 2006. I would now like to open the call for questions.

(OPERATOR INSTRUCTIONS) First up in the roster is Jason Canter at RBC. Please go ahead.

Oh, thanks for taking the call. And thanks for a lot of good information there. Just to be clear, the strategy for Europe is to wait until you have approval before making a decision on a partner, so in the, in your cash requirements for 2006, we shouldn't be considering the potential for next U.S. partnership?

Thanks for that question, Jason. We plan to file with the EMEA, the European application to seek approval for this drug. That process is ongoing within the Company and we will plan to make that submission sometime between the first and second quarter and we will obviously update you on the progress of that submission. We plan to meet with the EMEA during during that time period. We will continue to have parallel discussions with corporate partners in that respect.

Okay. Thank you.

Next up is Jill Waltlightner at ICMS Management.

Hi. I have a question about clinical trials that you're proposing. Is this going to increase your trial costs significantly, or are you rolling over patients from some trials to the new ones?

I think Kevin's identified the costs that we expect to work with during 2006, and that will include continuation of the clinical trials that we've initiated and the various indications that Dr. [Addie] identified.

Okay.

So that's all taken into consideration with respect to our projected stand in 2006.

Okay. And when and how can we get a closer date on when you expect to launch your product and how we will learn about that?

I'll pass that question on to Phil.

Okay.

Hi, Jill.

Hi.

What we plan to do, as I've mentioned, we're putting everyone in place and putting the sales team through their final training. We'll be rolling out in the second quarter. There are several major pediatric endocrine meetings and we'll be focusing in on those meetings, the Lawson Wilkins pediatric meeting, along with Pediatric Research Society end of April, and the Endocrine Society towards the last week of June. So I would think that the official launch and first commercial sale will take place sometime towards the latter part of the second quarter and of course we'll make an announcement about it when we're ready to go full bore.

Okay. Is the sales force starting to make calls already, or are they waiting for the launch to be complete?

Well, there's a lot of experience in the team that we brought on board who know the pediatric endocrine community and know the physicians they will be calling on, so they have been introducing themselves and iPlex, as they are going through their territories, making sure they know that iPlex is available.

Okay. Thank you very much.

We have a question now from Shaikeer Basu. Please go ahead.

Thank you for taking my question. Just wondered if you could help me financially, given the cash position of the Company as of December and the upcoming, presumably doubling of the burn rate, given the launch of the product very soon, how you plan to finance the program.

Good morning, Sha

Good afternoon,

Good afternoon, Shaikeer. Thanks for that question.

Well, no, I can't volunteer to work for you for free in April.

How about May?

Or May. That will do.

Let me pass that question on to Kevin Tully.

Yes, I just said we've got a predicted cash burn between 45 and 48. That will start out relatively low and following on from the fourth quarter 2004, and that will build up as we go towards the middle of the year with the commercialization and the capital [border] that we've got planned. So I see that starting out low first quarter, building up to toward the middle of the year, then plateauing out toward the end of the year on a stable base.

Can you remind me how much cash you ended up the year with.

18.8 million at the end of December 2004. And since then we've received 8.7 in from warrants.

I see, okay. And thank you very much. You've been very helpful.

Thank you, Shaikeer.

Thank you.

Actually, I have a follow-up question now from Jason Canter.

Thanks, thanks. Can you give us any update on any of the legal disputes that might be going on over the product?

Thanks for that question, Jason. As you can appreciate, we're not prepared to spend any time really talking about the details of litigation. It's a very active process. We feel very confident that it's being pursued on our side very vigorously and appropriately and that's about as much as we would like to say.

Okay. Is there anything, though, in terms of next steps that, in terms of timing of anything that might be coming up that we should know about?

Well, I think it's clear that the, currently we recognize -- sorry, we understand that the trial will be positioned sometime towards the end of that November date. That could change. The [Hoffman hearing] will be sometime around May or June, but, again, that might change as well. So those dates are relatively fluid, you know, we're still just actively working through the process. We're not-- obviously we're not in control of those dates.

Okay. Thank you.

Thank you.

We'll move on to a question from Michael Brown at ICM.

Hi, guys. Couple of--

Mike, how are you?

All right, thanks. Just a few quick questions for Kevin. The depreciation on your cash flow statement, is that related to that non-cash interest expense?

No, that's relating to some small assets that we've got in place, which are relatively old. We have a really low asset base. I mean right now most of the items are expensed in the depreciation that we see going forward will be based on capitalization, but right now that's on old assets.

Okay. I guess that's why I was asking, because I look at your balance sheet and it doesn't look like they are assets that would account for almost 13 million in depreciation.

That's not the case. The 13 million, that's interest charge you're looking at, right?

Well, on your cash flow statement that you printed, it's listed as depreciation and amoritization and that's why I was asking.

It's amoritization. That's what it is.

Oh, okay. So that's-- it's not depreciation.

It's actually amoritization of the debt discount and that's lumped together in one line.

Okay, great, great. Then restricted cash on the balance sheet, is that related to the Boulder lease?

Yes, it's a restricted line of credit that we have to cover the various lease costs. It was negotiated after the lease.

Okay.

That reduces every year as we pay off a portion of the lease.

Okay, and it will flow through cost of goods sold?

Yes.

Okay, and then you talked about 45 to 48 million in cash required. Are you expecting any revenue this year, and if so, was that included in the cash requirement?

Yes, we are, and that's included in there.

Okay, and now are you prepared at this time to give us some kind of estimate of what kind of revenue run rate you need to be at?

Not at this stage. I I think we would like to get some history behind us before we start talking detail and get comfortable with the commercial launch.

Okay. That's fair enough. Thank you.

Ladies and gentlemen, thank you very much for your participation in the question and answer session today. I'd like now to turn things back to Geoff Alan for additional or closing remarks.

Well, once again, thank you very much for listening to the call this afternoon and we look forward to updating on you our activities at the next call. Thank you.

Thanks.