Neurocrine Biosciences Inc (NBIX) 2002 Q4 法說會逐字稿

Good day. All listeners in the conference line in a listen only mode. At this time, I would like to turn the program over to your host, Mr. Gary Lyons, President and CEO. Please go ahead.

Thank you and welcome every one. Thanks for joining us this morning. Purpose of the call is obviously to review fourth quarter and full year 2002 earnings results. In addition, as we become accustomed to doing in our quarterly calls, I will provide an update on the status of our various clinical programs, obviously focusing on Indiplon more so than other projects. So, I am now -- I'm in New York at the Merrill Lynch conference we are presenting here later today. So, in San Diego participating in the call is Paul Hawran, Chief Financial Officer. From Chicago, Henry Pan, our Chief Medical Officer, Mike Genson, General Counsel, Tom Mitchell, Senior Director of Marketing and Tim Coplen, our Controller. So, I think we have everybody on board necessary to review the results as well as to handle any questions, which you might have. So, the agenda will be for Paul first to review financial results. I will comment on the development and then we will open the call up to Q&A. So with that Paul would you kindly review results.

Sure. Good morning and once again thank you for joining us for our year-end review. As you know, we completed a significant collaboration with Pfizer Pharmaceuticals in December of 2002. We are currently awaiting approval on Hart Scott and accordingly any revenues associated with the Pfizer collaboration will not be recognized until approval is received, which we expect to occur in the first quarter of this year. All costs, however, to be funded by Pfizer including development expenses will be retroactive to the date of the agreement. As reported, the company has incurred a net loss of $94.5m or $3.10 per share for the year ending December 31st 2002. Revenues for the year were $18m as compared to $41.2m in 2001. The primary reason for the decrease was due to the achievement of two milestones, which were recognized in 2001 totaling $21m, one milestone related to our collaboration agreement with Glaxo SmithKline for about $15m while the other milestone under the collaboration agreement with Taisho for about $5.5m. Sponsored research and development for the year also decreased due to the ending of the Taisho collaboration but that was partially offset by an increase in our sponsored research activities with Glaxo SmithKline. Total operating expenses increased from $85m to $122m. The increase is substantially attributable to research and development activities, which increased $34m over 2001 activity. The majority of our expenses increase related to development expenses for our clinical trial primarily Indiplon, which increased by $32m over the prior year. This increase was a result of initiating 22 new trials in 2002. An increase in patient in Rome in clinical trials by over 300%, including enrolling approximately 2300 in phase III trials in 2002. General and administrative expenses increased by about $1.8m and that was related primarily to support R& D functions and increased marketing related activities. Other income increased by about $2m and primarily consist of investment income that increased as a result of fire average cash and investment balances off set by lower interest rates. We had previously given guidance that we would incur a loss of approximately $85m in 2002. The actual loss was greater due,primarily to two reasons. First antiphon development expenses where higher by approximately $4m due to the cost associated with additional advertising program that where designed to haste patient enrollment and retention which would ensure timely completion of our phase III trails. As we have noticed previously,-- well future Indiplon development cost will be paid by Pfizer with the expectation of $15m which will be paid by Neurocrine quarterly over 2003. Secondly due to the advertising that had occurred as I mentioned previously reenrollment was actually higher than we had expected and our cost are based on enrolment and with approximately $3m of additional enrolment. We also would like to provide some guidance for 2003. Indiplon has provided a strategic opportunity for us to realize our goal of becoming a fully integrated pharmaceutical company. Over the next two years we will build an infrastructure supported largely by Pfizer to commercialize Neurocrine products. Also during the next two years we will be aggressively seeking to build our product pipeline both from internal research and en-licensing opportunities. In 2003 we expect to incur loss of between $40m to $45m. We expect revenues to be unusually high at approximately $130m which will largely include approximately $75m of sponsored development which will be paid by Pfizer and recognize this part of the Pfizer,-- and also additional income from the Pfizer collaboration upfront fees. Total operating expenses are expected to be approximately $180m of which approximately $90m relates to the Indiplon development program. Although we expect to incrementally increase development cost related to our other developments programs. Our guidance does not include cost associated with en-licensing a product opportunity where the on going development cost associated with such opportunity. We also expect to record approximately $10m other income largely reflecting interest income. We expect to end 2003 with approximately $275m in cash and short-term investments and with that I will turn it over to Gary Lyons.

Thanks Paul. Let me finish our prepared remarks by reviewing status and development programs focusing on Indiplon and as stated in the press release, we all realize we have 8 phase three clinical trials that are part of our overall clinical program, five immediate release and three modified release trials. Now the first of those trials for 593 patients transient studies obviously completed. We published and presented results on the study, previously it was a most successful study. So that one is fully complete. I should point out since there are some questions related to expenses being a little higher than expected. Let me remind you that this study actually over enrolled 100 patients and by so doing we incur higher expenses than plan, but it's the prudent thing to do since over enrollment increases the power of the studies and ensures us the results that we want to see.

Our second study, which is, I think called the rebound Insomnia study 35 day treatment is also complete and the press release it indicates, we have treated 200 patients, last patient, last visit is already occurred. This study was planned to enroll 165, so again we have over enrolled and for that reason incur slightly higher expenses associated with the study, but do feel again that's a prudent thing to do. We expect to release results on this top line data probably early April, again few weeks later than planned because of the excess enrolment.

The next study is the one-year safety study. This is two doses given in the outpatient setting to 12 month. FDA requirement is that we have 100 patients who complete 12 months of therapy. This study has fully enrolled some time ago, we now are expecting last patient, last visit in the spring. There have been over 50 patients in completed years worth of therapy. So we are very close to satisfying FDA requirements on the study and also pleased to announce that we have seen no differences in side effects, adverse events in this study than in any other study. So again speaking to the safety of this compound.

The next long-term treatment study 600 patients. This study is enrolling very nicely. We now have passed the 500 patient mark, have approximately 100 more patients to go and expect to wrap up enrollment in this study in the next, probably in the next four weeks or so. The last study for immediate release is 360 patients study in the elderly. This study is now 50% or more enrolled. It's enrolling very nicely. The programs that we've put in place to ensure enrollment and retention appear to be paying off. We have a number of programs, one of which we funded in the fourth quarter resulting in some excess expense. It has dramatically improved patient screenings and we think translates into the nice enrollment that we have been seeing. And the modified release program, again the first study is the long-term study of 600 patients. This is a sleep maintenance study, this study has enrolled extremely well, 600 patients we are now over two third's enrolled. This study started after the IR long term study, but has caught up nicely, so I think this one will complete also in the next four weeks or so and then obviously we will call the patients for the three and six month periods required in the study.

The remaining two studies are 35-day elderly and a third study involving 220 patients, both sleep maintenance studies, both elderly, and again the programs put in place are advertising programs meant to outreached patients to increase referrals to centers and as a way of ensuring that we meet our enrolment target. So, these studies are both earlier and recruitment but are trending certainly in the right direction with a previous experience with elderly studies and these studies are tracking as our studies have in the past. So overall this program remains in very good shape. One change I would like to point out is in the past, that is prior to Pfizer, when we completed a study, we went right to top line data to settle out as to crunch the data, get results out a little quicker. From now on, our focus would be on the NDA. So we would take about four weeks longer to get results, but the results we get will be adequate for the NDA. We don't now want to go through two-step process and waste time. So, it feels more prudent to delay a few weeks to the full data, then to try to take short cuts as we did in the past. So all is well of the things related to Insomnia, pre-clinical is obviously done. This is an electronic submission which is being prepared now, the CMC section manufacturing has been complete and we have qualification lots on stability at two locations and have met all of the time lines in that regards.

Moving on to GnRH, we have started dosing, have almost completed the first coverd and a one-week dosing trial with GnRH Small Molecule Antagonist. This is a follow on from our single phase single dosing study and which we will be looking at after general luteinizing hormone suppression following chronic administration of the drug, that is dosing daily over one week. This study is expected to complete in the next several months with data reported perhaps around mid-year. In addition, we have an advanced pre-clinical candidate that we now are undergoing GOP toxicology studies for and we expect to put that compound into phase I in early third quarter. This back-up compound, we think, has different characteristics than the clinical compound and then it's our goal to pick what we think is the best compound to go forward into phase II to extend the clinical compound and then it's our goal to pick what we think is the best compound to go forward into phase II. On the CRF front, our primary focus this year is on back-up compounds to our existing phase I compound. We do have a compound that is now going through pre-clinical development at GSK, so called 583. This molecule assuming all goes well is expected to begin human clinical trials later this year and behind that there are two other compounds that serve as, we call, back-up or follow-on compounds, again compounds that have different characteristics than the existing compounds in hand.

IO4 results, we previously announced the second phase II GBM study was successful, showed improvement at the phase III dose in survival; in the peripheral file we completed that program, this is for solid tumors, saw two patients with stable disease and with the kidney cancer. We are now writing up all the study reports, closing up the study. We will be publishing results for both those studies and putting together a package for out licensing to a company that is focused on cancer. We think now post Pfizer, our full intent will be to focus on longer-term psychiatric market product opportunities and I don't feel this falls within our area of strategic interest. I don't feel the revenue from the product would have a significant impact on our earnings over the short term.

Our APL diabetes program is enrolling nicely. Our phase II trial is over 50% enrolled at this point and we're at late stage discussions with the NIH response. We are at a second phase II trial that would be funded by the agency, we expect to have a final decision from them shortly and if favorable we will launch that study with their support. All phase I trials have been completed and we expect several publications and announcements of the data during the year. On the MS front, we have met with FDA, received their feedback on our Phase II protocol, made some slight modifications to our protocol, and expect to begin dosing patients in the next several months. This will be a multi-center trial involving about 150 patients, placebo-controlled classic phase IIB trial to determine efficacy and we will fully fund this and we will receive some funding from the NIH program. So, overall things are remaining on track. We are proud of the accomplishments in 2002, obviously very pleased with our strong financial performance and cash reserves and we will focus our attention this year in executing Indiplon as well as looking at en-licensing opportunities that can help accelerate our time to commercialization. So with that we would be happy to answer questions.

Very good. At this time, if you would like to ask a question, please press the star and one on your touchtone phone. You may withdraw the question anytime by pressing the pound key. Again to register your entry for a question, please press the star and one on your touchtone phone. We'll go first to the line of Thomas Way with Deutsche Banc. Please go ahead.

Thanks. I have three questions first, now that we have had a chance to see more of the Phase III Estora data from Sepracor . Can you go over how you perceive your data to compare and what you will have to do competitively in the marketplace? And second question, has to do with your view and any details that you can provide about the outlook beyond 2003. How we should be thinking about the chances for profitability or breakeven in '04 based on payments from Pfizer and then lastly, I might have missed this in the prepared comments. Can you reiterate how you are thinking about the NDA submission timeline? Thanks.

Okay, let me handle these and then I will ask the comments of some of our people Henry or Paul for example. Estora, question always comes up and my answer is always the same and that is there had been no head-to-head trials of Indiplon versus Estora. The data that I have seen from Estora is fragmented meaning we haven't seen full study results as we put those out reach of our studies. It tends to be; I think piece meal studies and data put together, which is hard for us to interpret. But I think, we standby our long-term position and that is we view this product as another version of zopiclone, which is long acting, we believe will lead to significant next day sedation. We don't view it as an improvement of Ambien about until full data is available. I guess we just have to wait and see. Obviously in our last call, Pfizer has looked at many en-licensing opportunities, certainly, is looked at all potential sleep compounds and chose Indiplon for some very important reasons. As far as breakeven, I think we look at breakeven as when we will product revenues and when will product revenues drive us to profitability and that has always been 2005, as the first year of commercialization given that we have no expenses associated with commercialization of Indiplon, all proceeds that we received go directly to the bottom line. Now having said that there are some opportunities that perhaps large milestone payments could drive us breakeven sooner, but again that is not the way that we are looking at it. I would rather see as breakeven and be profitable in product sales not on one-time milestones. NDA submission, nothing has changed appreciably, our guidance has been, we expect to file end of this year or perhaps very early next year, press release we said to file within in the next 12 months. I don't think that is a considerable change from what we have been talking about. As you remember from the enrollment numbers I have given you, we are on ahead of schedule. We do now have to meet with Pfizer and have a planning meeting together better handle on overall filing responsibilities and timelines that meeting can take place until after we receive Hart-Scott-Rodino clearance and one fast done, if there is any add on time to the submission that would have to be for very good reason and at that point we would make it known. But as far as all activities related to this program, we remain on track. Any comment from Estora or earnings Henry or Paul?

No, I think you have covered it very well Gary. Thank you.

Thank you, I think covered all the major points.

We'll go next to the line of Jim Birchenough with Lehman Brothers. Please go ahead.

Hi guys. Couple of questions. The first question, this with regards to the time lines on the phase III trial, some with data points were expecting in the third quarter, we are now expecting in the fourth quarter. And I was just trying to get a sense on, you know, whether that, late third quarter to early fourth quarter, whether the difference is just a few weeks or whether there is something more dramatic than that, and then, with regards to the increased spend in the fourth quarter, are you having trouble enrolling patients and having to increase the advertising or is it really this extended time lines more a function of just over enrolling?

It is kind of a combination of both. At times, the two studies that we have completed, as I said is significantly over enrolled that takes another month to analyze data. I think the other change that I try to make clear in the prepared comments was that, in the past we have gone from last patient last visit to top line data in a shorter period of time. From now on, we will skip the top line data and go right to full data. So full data analysis, suitable for NDA submission, will take three to four weeks longer than top line data, so, 90 days versus 60 days, for example. But, none of those things at this point appreciably increase the time line. But again, we have to meet with Pfizer to determine their level of involvement, although we control development, certainly we have to listen to our partner and work with them prudently. And if there are any additional delays or time that needs be added as a results of Pfizer's comments, then we'll seriously consider that. But right now, I consider us to be on schedule. As I mentioned earlier enrollment has gone very nicely. Now the increase in expenses associated with patient enrollment, to be specific, we use a company called MediG (ph) and MediG is a CRO that specializes in advertising, soliciting calls from patients and triaging those for centers. So, we undertook a third or fourth campaign of advertising in December that we expected will pay off nicely in January, February and March. So, rather than wait an extra month, it's been our plan to be proactive and to stimulate enrollment to ensure we meet our time line. At the same time, the same group has a retention program, where we pay fees to patients for successfully completing and staying in studies, which is important. And these activities have been expensive, but these activities were paid off very nicely. And that's evidence by the enrollment numbers in the status enrollment that I gave you.

Okay. And just a follow up question on the phase III program. There is a certain number of studies you are doing them -- are seeking a differentiated label, particularly related to long-term use, you are doing three to six month efficacy study, the 12-month safety study and a specific rebound insomnia study, you know, I have looked at that program at a stores in Estors, trying to seek the same label and they seem to have rolled all that you have done into one study. I am not asking you to characterize whether -- what they have done is sufficient, but just based on your conversations with the FDA, is anything less that what you have done acceptable in terms of getting that long-term label?

No. I don't believe so. Our discussions with FDA have been very clear, I think there is a very clear road map as to what one needs to do to achieve the label that we want. The three and six month long term studies are successful, if we show efficacy at three months at a minimum, then that will constitute long term label. On the sleep maintenance standpoint, it is very clear that wake up to sleep onset and total sleep time are the two end points for that label and the easiest of all is obviously Transient Insomnia, which continue to demonstrate the appropriate end point. So, I think our program is more robust, having eight studies, I think we have spread the best on further studies. We don't have one study that we're depending upon, in every indication we have at least two and this has given us a patient data set of probably close to 6000 patients for submission much larger than Estora, many more studies. So, I think it's just a more comprehensive program overall.

Great. One last question for Paul and that is just related to recognition of both reimbursement of R&D expenses and as well receipt of the 100m upfront payment. How did that get recognized, do you recognize the 100m payment upfront as one lump sum payment or is that spread out overtime? And what's the timing on reimbursement of R&D expenses?

Jim, on the 100m, that will actually be arriving at the company shortly after Hart-Scott-Rodino is satisfied and that will actually be recognized over a period of approximately 24 months and the accrual -- or the recognition period is actually right through to the launch date, which we expect to occur sometime in the first quarter of '05. As far as the reimbursement from Pfizer is concerned, it will be on a monthly basis, they will be submitting invoices to Pfizer and obviously there might be some lag, but as far as our P&L is concerned, we won't be effected by any development expenses outside of the $15m and that would be it.

Okay, great. Thanks very much.

Our next question comes from the line of Mat Geller with CIBC World Markets. Please go ahead.

Yes, Hi. Can you talk a little bit, taking a look at the general picture of these results and giving us perspective on it, which trials do you think are most important in terms of distinguishing Indiplon from other compounds either in late clinical stage development or on the market? How important is the chronic use of trials at Pfizer? And how does Pfizer see the overall picture in terms of the clinical trials relating to the ultimate market for the product?

Let me take a shot at that and then turn it over to Henry. I think the key differentiators are both sleep maintenance and there are three studies that are ongoing that will address that end point. That's the key differentiator since Ambien is not approved for sleep maintenance. Equally important is long-term treatment, simply because Ambien has its short-term restriction, and we have two studies, the two 600-patient studies that are focusing on sleep maintenance. Another key differentiator which Hank McKinnell talked about in our last call announcing the deal was having two formulations and they view that Pfizer views this as a significant advance over Ambien to give physicians flexibility to customize the drug to the patient and the patient's problem. To a lesser extent, another key differentiator, which we haven't talked about here is in the middle of the night dosing which again Pfizer thinks is another key differentiator to label supporting in the middle of the night dose will be supported by ongoing phase 2 trials that are a follow-up from some of our earlier studies. So, I think all of those things together would represent a very comprehensive differentiation platform for this product. And not to mention at the end of the day, you know Pfizer is selling this product and Pfizer is certainly a company capable of expanding market, building markets, and establishing brands.

Can you talk a little about the ultimate -- what you see as the ultimate market for this product. It's very hard to really get any kind of fix whatsoever, not so specifically in numbers, but more conceptually?

So, why don't I ask Tom Joyce who runs marketing at Neurocrine to comment on that?

The market opportunity currently, relatively small proportion of the potential market is being realized and the majority of patients that are suffering Insomnia are either not seeking treatment or if they have seeked treatment are not being treated with medical therapy. We see one of the opportunities is in particularly with the support and help of Pfizer to significantly grow the overall Insomnia market. The other opportunity in the short term is to compete within the currently available therapies. And we think with the differentiating factors that Gary alluded to, we should be able to significantly gain market share.

I think there are two slides that I have in my road show that I will be using today, which I think are pretty telling and they actually come from Pfizer, it was part of their marketing feasibility presentation to us and I think it explains why Pfizer is interested in this product. And the first looks at the prevalence of various CNS disorders, sleep 79m, migraine 28m, depression 24, and schizophrenia 3m. Then the next slide looks at what are sales of these products. Sales for depression is 16b, schizophrenia 8b, epilepsy 6m, migraine 2, sleep 1.7. So, we look at a market that has more than three times the incidents, generating only $1.7b, I think that tells us that there is a very, very significant opportunity here that could be addressed to a variety of routes, through details, through direct advertising, physician education, and the likes.

Thanks a lot, Gary.

Our next question comes from the line of Mike King with Banc of America Securities. Please go ahead.

Thanks for taking my question. Actually, I had a few. I was wondering if Henry could talk about the status of the pre-clinical package and where that stands right now, has it been completed and perhaps talk about any other findings that might have emerged now?

Henry, do you want to do that or should I?

Well, I can do it. I think that the package is in very good shape. As Gary mentioned earlier, the CMC section has already completed the pre-clinical. The rest of the pre-clinical section is being written up as being completed. I think the good news is, I think report says fairly recently we completed the 2-year animal carcinogenicity studies; both studies turned out to be absolutely clean, I think that's the very telling, you know telling piece about our compound. So, I think -- all in all, I think the pre-clinical piece is not something that we are even concerned with. Now we are in the process of completing the package, writing everything up and it will be completed way ahead of schedule.

Okay.

And I think that is something we don't often talk about. For existing approved products, for sopatron in particular, these compounds are not clean in 2-year carcinogenicity studies meaning that at some doses, there has been evidence of various types of cancers that have been significant and in our package the compound was absolutely clean. So, we would expect that will translate into a very clean label. Physicians and obviously FDA are very concerned these days about having clean compounds, particularly when there is a compound on the market as is Ambien and is well accepted, there is probably a reluctance to approve drugs that may not be as clean and I think we are sure that we now have that.

Okay. Another clinical and then I had one or two commercial questions as well. Is there any current plan to study antiphon in conjunction with behavioral therapy?

Henry?

We do have a very full Phase III b program in place and some of these studies will probably include behavioral therapy, but it's not something that we have embarked on currently. We're currently in discussion with Pfizer and obviously some of these things would be put in place very shortly. We have got a very comprehensive Phase III B program.

There have been a lot of questions also about commercial competitors, recent transaction between King and Elon on Sonata and perhaps you can talk about whether that shifts your view, the competitive landscape at all, and in particular with regard to the Sonata, I believe they're calling it XR formulation?

Tom do you want to comment on marketing impact?

Sure. At this point, we don't see the deal with King and Sonata is having a significant impact on our forecasting and the opportunity going forward. At this point, Sonata has demonstrated to be a modest product in the marketplace. Having King's support potentially could help grow the overall market, but we don't see Sonata as being something that is a significant threat in the future.

As in its native state or as XR or both?

Well, both. I won't go into too much detail on the XR, but in its current state it has not demonstrated that the application is enough to satisfy physician and patient needs and as far as in XR, it's -- inherently as a compound it will have some challenges from an efficacy standpoint.

In what sense?

Well, it may be longer acting, but at least the information that we have to date is not sure that in an XR formulation will be any more effective or any more potent a product.

Yeah, obviously the problems with Sonata is related to its lack of efficacy and lack of potency. So, our position has been, if you put that into modified or long acting form, it still isn't going to work, that's not the solution. The short half live of Sonata isn't responsible for its lack of success, it's the lack of efficacy, it's not as good a drug as Ambien.

Got you. Okay and then --

So, I guess from a marketing muscle standpoint outside with Pfizer versus King.

Yeah, no question. Just -- and then finally, sort of a broad overview of strategy, Gary, in terms of, you know, can you give us your thoughts on product acquisition or company acquisition strategy en-licensing, what kind of other products are you looking to bring into the Neurocrine fold?

Yeah, that process has been just started as a key goal for the company. The one strategy we have always embarked on will continue and that is looking for interesting early pre-clinical early phase I compounds, that activity will continue, but the new activity will be to focus on marketed products and that is are there products we feel have growth potential that are sold to or could be sold to psychiatrists.

Okay.

So with the 200-person psychiatry sales force selling Zoloft first, Indiplon second gives us a nice opportunity to put more products in those bags, and we have identified a number of opportunities that we will pursue and this could result in an outright product acquisition or maybe a company acquisition to acquire the product and perhaps to get a jump start on a sales marketing infrastructure, so both are being pursued. They involve both biotech companies, specialty pharma companies and we're calling aggressively on our corporate partners to see if there may be assets in their pipeline that fall below their level interest, it could be very interesting for us.

I am sorry, one other, sorry to hold the mike here, but one other question, competitive compound from [Inaudible] , does anybody know anything about it, what is your view of the competitive advantages or disadvantages of that molecule?

Tom, will you handle that?

Yeah, we don't have a lot of data at this point on [Inaudible] , there has not been a significant amount of interest, at least in speaking with our clinical advisors, at this point it's not something that is high on the radar screen.

In terms of what, the clinicians that you spoken with about it?

Yeah, as far as speaking with our advisors -- our clinical advisors in getting their insight into what are potential significant compounds in the future, that's not one that raises considerable interest.

Okay. Thanks very much.

Sure, thanks.

We will go next to line of Mark Augustine with Credit Suisse First Boston, please go ahead.

And I am sorry I just cannot ask possibly more questions after that. My questions has been answered thanks.

We go next being to the line of Carolyn Kepitolin with Morgan Stanley. Please go ahead.

Thanks, I guess I have one question that has not been answered yet. Which is this, looking at the guidance for R&D for this year, which I guess increased about 15m for Indiplon and as mentioned no licensing. Just curious, looks like a step up. What internal programs you are looking to spend lot more on or there is something that expedited or may be on a different track than we had expected. And secondly obviously if you are not planning to be profitable in 2004 requires a big step up spending in that year. Then what are your assumptions are for en-licensing or again stepping up internal developmental program.

Okay, let me start and Paul can add to that. Right now we are supporting two APO programs and the GnRH program ourselves. These are phase I, phase II, and there is lot of step up we can do. I think the expenses that have been reflected are more than sufficient to fund the development of those programs. We expect over the next two years two maybe three compound research that will enter pre-clinical trials. So that will consume some capital, but again face one compound [Inaudible] same kind of hepatitis phase III. So, I think we are in very good shape here if we successfully en-licensing stage compounds, phase II and beyond the [Inaudible] could represent incremental expenses. So there is, I guess would say there is some chance that we are break-even a profitable before antiphon but that would not be our objective. We would rather put the expenses into value creating assets.

And said is that not turning profit wise [Inaudible] has some additional spending from an en licensing product ?

Correct.

Okay.

Yet, unidentified product, products actually.

And is there a particular phase in development you are looking for en-licensing products something you get through your self-force right away or would you be going to look at things earlier stage?

Both, would like to look at late, pre-clinical really phase I compound. But the new strategy is also to look at marketed compounds and to acquire right to those again to diffuse the commercial infrastructure. Another comment on to research, to we will be using some of the new proceeds to expand research modestly perhaps by 20%, this will need for example filling voids where we can add more chemists to presume more projects to add folks to manufacture material in house rather than go outside. Some more discovery biology, but these would be modest increases in head count.

Okay thank you very much.

Paul anything to add to that?

No I think you have covered it. Just want to re-emphasize the fact that although in '04 there is a potential for us to either break even or profitable. That's really not our intention. Our intention is to be profitable in the year of commercial sales.

We will go next to the line of Catharine Kim with UBS. Please go ahead.

Thank you for taking my question. My first question is in the Estora in the elderly trial that they recently released results. They looked at naptime during the day, which actually increased in the truck group. Now I was wondering in your elderly trail are you looking at this barometer?

Henry.

No we are not.

Do you think that with Sepracor that they had requested on this barometer because of the longer past life?

We would have no way of knowing. That does has never come up from FDA or any of our clinical advisors as a valid or important end point may be it's interesting, may be it's a quality of life measurement that is certainly is a measurement to we have ever heard off, that's a pre-requisite for approval. What if we translate into a label or a label advantage.

Okay and then my second question has to do with your lead compound with Glaxo. It's completed two phase I, when do you expect it into phase II?

That's in Glaxo's hands. That compound has been undergoing long-term pre-clinical studies, high-does study long term and results from that should be available soon to determine the next level of development. So our effort has been on new compounds, the compound that I mentioned 583 is our new pre-clinical compound and now we are focusing on follow-on compounds that will have very different characteristics. So, we do the research, we do the early pre-clinical work and then through those over the fence to Glaxo.

Okay. Thank you.

Our next question comes from one Elise Wang with Salomon Smith Barney. Please go ahead.

Hi. Thank you to take my question. I just have a relatively quick one. Did you indicate whether or not you'll be having some of the data presented at upcoming medical meeting and if so what specific studies may we see and which meeting may we see them at?

Yes, good, thanks for reminding me. Tom can you give us how we see the run down.

Sure, we have submitted six abstracts to meeting so far this year. The Phase I and Phase II studies, that the two meetings abstracts have been submitted to the APA meeting which is, will be held in May and the APSs meeting which will be held in June, that is the sleep meeting. Some of the abstract that are included, we have alcohol interaction trials, nighttime PK (ph) trail which help elucidate some of the motive actions for MR formulation, elderly MR transient study as well as and also transient solution study.

Thanks. So, this will be the first real pre-review form, and as we have already said our plan is to present our early studies. Now our Phase II and Phase III next year and the remainder post approval.

Great, thank you very much.

Next we will take a follow up from Jim Birchenough with Lehman Brothers. Please go ahead.

Yeah, hi guys. A couple of more questions, this with regards to the 200 person sales force that Pfizer is going to begin to fund on filing of your NDA. Could you just go over how that quickly that will ramp up?

Yes, the plan will be to begin to put in place now, the infrastructure that supports them. So, we are rounding out market research, and that will be towards the end of year, may be in the third quarter with higher up in the sales arenas, senior sales people. We are talking about perhaps hiring sleep specialists, a medical liaison core group of Ph. D's that would begin as early as the end of the year, and then as always there has been sales candidates identified for rapid simulation as soon as the NDA is filed, and we have a formula for that and I think we will be prepared to bring all reps on board within six months of approval. Now, the wild card here is, of course if we were to do something on the M&A side, acquire a commercial product with commercial infrastructure, and that would get us there quicker, and even if we were break even proposition, I think it would get us well ahead of the curve and then would start to begin being paid for by Pfizer at launch. So those are two scenarios, grow it organically or buy it.

And just with regards to en-licensing into perhaps an existing sales force, what's your agreement with Pfizer in terms of them funding your efforts on Zoloft. What happens if you have a second part out of the bag, what's your thinking on that, they are obviously not going to fund all that?

Well, we have minimum performance criteria. So, whether it's 200 or 150 or 300 people we have to hit a certain level of detail - number of details that are audited through IMF and other sources. So, if we can do that, with fewer people, great, but what we are thinking is that we could perhaps go beyond 200 and have Zoloft number one product and the second product that we hire being - being number two. If we - there are certain incentives for us obviously to be successful with Zoloft, we do get paid not only expense reimbursement but we also make money on sales that exceed Pfizer's plans, so there is true incentive for us to perform with Zoloft as well.

And just one final question and it relates to the competitive landscape. I am just wondering if you can remind us, I can't remember regarding your patent position on Indiplon, what it is, when it extends to and when you see branded competition going away from Ambien and Estora with regards to when their patents expire?

And that's a very good question, probably something I overlooked, and the thing we often lose sight of. Our composition of matter patents extend through mid 2020. So, that is 15-16 years from today and that is huge, so I think in the long-term picture whether the drug is approved in December or January or February, it's kind of irrelevant in the larger scope of life here given the long product life cycle of this product. As I understand [Inaudible] patent expires in the next five years Ambien expires in 2006, October of 2006, so pretty much from that point on, in antiphon will be the only branded product.

Have your - have your marketing people looked at when Estora comes off patent?

Yeah Tom, I don't know that.

Well, I think the patent situation with Estora is less clear, so it's protection is primarily through Vaxmen hatch.

Looking great. Thanks very much.

Okay.

Our next question comes from line of Mark Shawnbaum (ph) with Piper Jaffray. Please go ahead.

Hi guys. Just, I have a very quick question actually. Can you remind us the two long treatment studies, what are the primary end points, are those at three months or six months or above and what is the primary safety measure that the FDA is primarily interested in and in second, with the GnRH compound, that fact that you have a backup moving into the clinic, should we be reading into that, that there is problem with the, would be a aversion to turn to clinic right now?

Yeah. Let me start with the long-term studies, for the immediate release, the end points are the same for all studies and that is time to sleep onset, Latency to persistent Sleep. So, in this study we are looking at efficacy at the end of month one, month three, and month six. And it reminds you sophistically significant difference from placebo at three months is what is required for long-term label. With the modified release, long-term study, the end point is sleep maintenance measured by total sleep time or wakeup to sleep onset and again, same read retrospective analysis of efficacy versus placebo at month one, three, and six. So, it's simply showing sustained efficacy and there is no reason to believe the product won't perform, I think the challenges outside have simply been in study design, can we enroll an outpatient or have enough patients enrolled at the end of the study given that this is a placebo control trial, [Inaudible] . So, I think it's very global. The other question related to GnRH, now you should read into, what our position is with every program has been a lead compound followed by a backup, followed by a follow on. So, not only do we have a backup that's entering the clinic, we also have a compound behind that, which is going through pre-clinical development. So, with the product like this, we are looking at, we want to find the very best product profile. The one thing that, if based on the single-dose study with GnRH, we would like to see improved its half-life, we saw nice [Inaudible] suppression of 65% for 12 hours. We think we need once-a-day therapy. So, the purpose of the study is to see whether it is giving chronically, we can maintain suppression and if not in, we would either reformulate that drug into a longer acting or PK backup with a better PK profile. So, it's a sort of standard procedure, there will be another compound beyond this follow on.

Great. When you did start enrolling the two, when did you initiate enrollment of long-term treatment studies can you remind us ?

January.

January for both of them, okay. Thank you very much.

Yep.

Again, for questions, please press the star and one on your touchtone phone. We will go next to a follow-up Thomas Way (ph) with Deutsche Banc. Please go ahead.

Thanks for taking my follow up I wanted to find out what can tell us about the number of patients that have been screened for the [Inaudible] upon trials what is ratio of screen patients to those who actually gone enrolled and any insights that you've been able to gain from why those excluded who've been ineligible.

Yes, very difficult, very complex question and it depends screening for example in the Deice advertisers people pick up the phone and call most of those patients we wouldn't qualify, don't really have insomnia so there is a pretty big drop up may be 50% of those you referred on to centers a lot of the screening failures relate to people who claimed to be insomniacs, who on entry criteria in fact sleep very well they don't have a sleep initiation problem to some extent in the elderly for example a lot of these patients run a variety of other concomitant medications just because they're old, so we don't want to enroll patients. We want to enroll homogeneous pure population, we don't want patients who run a number of other drugs that could be sedating or could increase net side effect profiles so I think it depends upon the study, but perhaps 10% of patients that they go through screening ultimately make it in the trail, would that be correct Henry.

Yeah, that's pretty much experience I think with Medij they have screened over a 22,000, 24,000 phone calls and eventually what we ended up with is like a few 100 patients, so think Gary's numbers are correct it's about 10%.

So what we don't want to do is to say let's loose an entry criteria and accelerate enrollment and put patients in who may not have the problem or may have other issues that ultimately we think will containment the data abase and hurt the product, and so we're sticking to our enrolment.

It appears we have no further questions at this time; we're going to turn the call back over to management.

Okay. Well thank you for staying with us longer then expected here, again we're very pleased with 2002 results. I remind you we end the year and go into '03 with $350m in cash to a significant worth projected drawing of about $40m obviously we've sufficient capital to take care of our needs and we also have our commercial infrastructure pre-paid full by fives that which gives us a very nice opportunity to accelerate then, so I think this is going to be an exceptional year for us and we look forward to reporting results as we have today in a quarterly basis and as always if there are any specific calls feel free to give me and Paul a call and we're happy with those individually. Thank you all bye.

That does conclude today's audio conference. You may now disconnect your lines and thank you for participating.