Neurocrine Biosciences Inc (NBIX) 2006 Q1 法說會逐字稿

Good day. [OPERATOR INSTRUCTIONS] A this time I would like to turn it over to your speaker, Mr. Gary Lyons. Go ahead, please.

Thank you everyone, for joining us for our first quarter '06 earnings call and R&D update. Joining me in San Diego is Paul Hawran, EVP of Finance, Wendell Wierenga, EVP of Research and Development, as well as Elizabeth Foster, Investor Relations, and Claudia Jones, Investor Relations. Before we begin, why don't I ask Claudia to run through Safe Harbor statements. Then I'll provide an outline of the day.

Before we begin, I would like to remind you of Neurocrine's Safe Harbor cautions. Certain statements made in the course of this conference call which state the Company's or management's intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements which are subject to risks and uncertainties. Information concerning factors that could cause actual results to differ materially from those contained in, or implied by, the forward-looking statements is contained in the Company's SEC filings including, but not limited to, the Company's annual report on form 10-K and quarterly reports on form 10-Q.

Copies of these filings may be obtained by visiting the Investor Relations page on the Company's website at www.neurocrine.com. Any forward-looking statements are made only as of today's date, and we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances.

Thank you, Claudia. Again, well done. The agenda for the day will be for Paul to review financial results, projections for the year. I'll make a few comments on Indiplon and where we stand in the review, approval, launch process. Then the bulk of the presentation, and that will be handled by Wendell, who will review our R&D pipeline and our recent announcement on our Phase II endometriosis GnRH trial, which was a very successful trial. So with that, let me turn this over to Paul Hawran.

Great. Thank you, Gary. My comments will be rather brief. But as far as the review of the financial statements for the first quarter, we are reporting a loss of 25 million, or $0.69 a share, as compared to 18 million the previous period -- or the same period last year. As noted in our press release, for the most part on a net-net basis the increase in the net loss is reflective of a 6.8 million charge in this first quarter for FAS 123 of 6.8, or it has an impact of approximately $0.18 per share. Moving on into a little bit of detail on revenues.

We are recording 19.5 million, an increase over the same period last year, primarily a result of additional sponsored development work that we've done with Pfizer as well as the recognition of a full quarter of the sales reimbursement for our sales force from Pfizer of approximately $8.2 million. On the expense side, Research and Development increased modestly from 20 to 27.7. However, that was primarily reflective of a 2.1 million charge for the adoption of FAS 123 within the R&D group. SG&A, similarly on a net-net basis was, actually unchanged from last year. However, we are recording an increase to 19.3 million. However, that's associated with $8 million associated with our sales force, which I mentioned was reimbursed from Pfizer, as well as approximately $4.7 million in the adoption of FAS 123.

As far as moving on to the balance sheet. Our cash remains strong at 264 million as compared to 273 at the end of '05 at December 31, 2005. As far as the rest of the year is concerned, we are reconfirming our guidance that we had provided back in January. And that is that we are expecting to have a break-even year before any royalties associated with the sales of Indiplon. We are expecting to reguide the Street upon the launch of Indiplon, and we'll provide harder numbers at that point in time. So with that, I'll turn that back over to Gary.

Okay. Paul, thank you. Let me provide a brief overview of Indiplon. As you all know, our new PDUFA dates for Indiplon capsules and tablets are May 15 and June 27. Our target has been for combined action for both capsules and tablets on the 15th, and we remained committed to work towards that date. Our correspondence interactions with FDA. I would characterize the data as being routine. All information, all data, all requests, all studies have been submitted to the agency, as well as revised draft language reflecting a combined label, driving study information. So there is really nothing more from Neurocrine that we believe we can submit at this point, and in the next 3 weeks expect an action date on the 15th. And obviously we'll plan two launches as practical and as quickly as possible after that, but under the guidance and direction of Pfizer.

Related to our last -- or one of our original correspondences with the FDA was the issue of DEA scheduling. The FDA has done their part and signed off and agreed with us and recommended schedule for licensing for the product. That has gone to Health and Human Services. The draft for publication, the federal register, we have confirmed has been written and is in final circulation for signature and would expect to appear imminently, which then allows us to pick up time and not have to initiate this process after approval but rather having started this in advance. We -- in our press release -- I won't go into the details, but it had several publications showing selectivity of Indiplon versus other sedative hypnotics indicating a potent product with perhaps some of the less frequent side effects seen with some of these other agents. For those who haven't seen that, this was published in the Journal of Pharmacology and Experimental Therapeutics.

Also, this is a major pre-launch year for us. In the release you see that we will have over 50 data presentations submitted to over 17 different academic congresses or journals. So this will be one of our biggest years for peer review information and journals. Some of the more prominent meetings coming up. The American Psychiatric Association meeting and Association of Sleep Professionals -- Sleep Society are two highlight meetings that will portray and feature some of the more recent data. So we believe things are on track. We've done what we need do and now in the capable hands of the Food and Drug Administration, and are prepared to make this is a very successful product as soon as we secure approval and the required licenses to do so. So with that, I'll turn the rest of the program over to Wendell to discuss R&D.

Thank you very much, Gary. As we've noted earlier in the call. This is a very data intensive year for Neurocrine in terms of Phase II studies, and it's really a pleasure to report today that we have some good news with one of our programs in Phase II. In fact, two programs. Both the Urocortin 2 as well as GnRH But first let me just touch on GnRH We had a 3-month clinical trial ongoing in endometriosis with 56418, our lead compound in this program. This was a study that enrolled 76 patients,treatment for 3 months, two dose groups versus placebo. And it was set up to evaluate, of course, the efficacy and safety of the drug in the actual target patient population. We had generated, previously, data on premenopausal women over a 6-week clinical trial, and that was very encouraging in terms of the estradiol and other pharmacokinetic end points relative to the PK.

So we have just, literally, within the last day gotten the initial results from our endometriosis trial. Very pleased to say that it was a successful study in terms of efficacy end points, as well as on safety. And particularly pleased to say that the completion rate was also very high in this particular study. For example, in the pain scores which are key elements of the combined pelvic signs and systems, we saw a substantial reduction in pain at the end of the study. 21 points at 150 mg versus 5 points for placebo. That is clinically very significant. And we'll be putting out more information on this study very shortly, since it is so new in terms of having the data ourselves. The side effect profile was basically no different between the various cohorts in the study. Again, very encouraging. And I think we mention in our press release, also, that there were no increase in hot flashes or other vasomotor systems for the drug treatment arms of this study, which again, is very encouraging in terms of the degree of suppression of estradiol levels.

So we were hitting basically the right threshold, as well as bandwidth here for the kind of suppression we're looking for for efficacy in endometriosis and then longer term relative to minimizing or to having no bone effects with the same dose level. This, of course, is critical data for us for our now plan to start Phase IIb study where we'll be treating for six months, again patients with endometriosis, and looking specifically at bone marrow density as a key factor in terms of understanding the impact of an oral GnRH antagonist over a 6-month clinical trial. The program also includes studies in males. And we have just finished the completion of dosing for a Phase Ib study in males looking at pharmacokinetics and testosterone. We'll have that data very shortly. We also have some additional studies in premenopausal women, treatment for six weeks, looking at several other doses so we can pull all of this information together and be able to initiate our Phase IIb trial very shortly. So the program is making good progress, and we're pleased with the safety as well as the efficacy that we're seeing here with this particular agent. The Urocortin program, also in Phase II, and progressing now from mild to moderate CHF patients to the acute -- to decompensated heart failure patient population. We have just completed a treatment here in the U.S. under an IND, extending the duration of infusion with Urocortin 2 to four hours. And, again, we'll be communicating more details on this particular study as they are finalized.

But just a preliminary look at the information that we have suggests that we're seeing very similar results that we saw to the one-hour infusion in our earlier trial in New Zealand, where we were seeing about a 50% increase in cardiac output with minimal to no increase in heart rate and commensurate reduction in mean arterial pressure. So these are the kinds of results that should ardor well for treating the acute decompensated heart failure patient population. And now we're in the process of finalizing that protocol, lining up sites and getting ready to get the acute decompensated heart failure Phase II study initiated in the second half of this year. Also, CRF antagonist program joint with GSK has been making good progress, and the initial candidate in the clinic last year for Phase I single dose is finishing multiple dose and moving to Phase II in depression and irritable bowel syndrome. And secondly, they have elected to enter a backup come pound, as well, in Phase I. In fact, that is well along in its single dose, moving to multiple dose Phase I study. So there are two CRF antagonists now in active development with GSK's program supporting it, and we look forward to seeing the results of both the Phase I, as well as the Phase II, over the next 12 months or so. The APL for Type 1 Diabetes.

As you know, we will get a read out for that in the middle of this year in the July, August time frame. That study is basically completed. 95% of the patients have completed two-years worth of dosing. Again, the discontinuation rate has been remarkably low for a two-year clinical trial. And we are very comfortable that this has been a well-executed study, and we're waiting to see the results. Lastly, we initiated a new compound into the clinic in January of this year. It's an H1 antagonist, again, for the treatment of insomnia. We believe that the needs for sleep aids in the insomnia population is substantial and diverse, large, and that there is in fact a lot of need as well for additional approaches to the treatment of insomnia. And our H1 antagonist, a very highly selective potent compound, is now in single dose escalation, moving to multiple dose very shortly as we evaluate its safety and efficacy. Assuming, of course, it looks good in terms of its safety and efficacy and gets a preliminary evaluation on its effects on some of the sleep parameters, we'll be moving to Proof of Concept then in early 2007 with that new program in the clinic. So that's an overview, Gary, of some of the data coming out and what's anticipated yet later on this year in our six clinical programs.

Not discussed in this call are several things that are preclinical. I think we might expect at least one more new IND this year. But when things become clearer, we will expand on that during the next quarter. So with that, we would be happy to answer questions. Please ask.

[OPERATOR INSTRUCTIONS] Our first question comes from the site of Jim Birchenough with Lehman Brothers.

Hi, guys. Couple of questions. Just on the endometriosis data. Just wondering if you can put the data you're seeing in perspective with what we see with Lupron, and in particular with Lupron we see 100% cessation of menses over a 60-day period. Did you see that same phenomenon with your compound?

Jim, I can't give you more details on that because we don't have all of the analysis completed yet, including menses or amenorrhea. But we will certainly make that information available as soon as we have it all completely analyzed.

Just in terms of the --

Really the idea is, Jim, that we would put out a separate press release on this, probably towards the end of the week, with a lot more detail.

Okay. Just in terms of data release for Indiplon. You mentioned 50 data presentations. Anything in particular we should be focused on? And what I'm wondering, is there any new data in particular? Indiplon in patients with depression or other comorbid conditions?

No. Those are studies run by Pfizer that would fall under the Phase IV umbrella. So what you'll be seeing here will be Phase III registration trials, for the most part, in great detail and there will be some new information.

Great. Thanks.

Thank you. Our next question comes from the site of Geoffrey Porges with an Sanford Berstein. Go ahead, please.

Thanks very much for taking my question. Just a couple of things on Indiplon. You mentioned that you were in labelling discussions now, Wendell. I'm wondering if you could just give us a sense of what the major sort of areas of controversy. Particularly, what do you expect in terms of duration of safety data in the label and inclusion or exclusion of the driving safety data? And then what shall we will anticipating as sort of likely launching schedule given what you're seeing right now? Thanks.

This is Gary. Let me handle this. I don't know that we want to go into the details of select specific discussions with agencies other than to say, as you implied or asked, we were asked to include driving study information. Having been requested to submit that study, we have done that. We have been asked to update the AE tables to include some more of what I would call favorable information and we have done that. Agency has agreed to combine package inserts. So in that case we've combined it, submitted a new package insert. So I think it's safe to say that we have conformed with everything that they have requested to date. Ultimately, in definitive negotiations, whether some of that or other things come or go are to be determined. Too early to tell. But everything that they have asked for, and there have been multiple changes in the package insert, have been made and have been submitted.

And in terms of launching?

Well, we first have to get through approval. So upon approval, I think we can give better guidance. As Paul has said, we haven't put sales in this year just because we want to have a clear idea of when this will stock, launch, when we'll have the soft launch and full launch and therefore be able to better predict.

Thank you. Our next question or comment comes from the site of Matt Duffy with BDR Research. Go ahead, please.

Hi. Thanks for taking the question. Just in terms of the GnRH program. On the CPSS, the measures. Are there other efficacy measures you are looking at? And have you taken a look at that data? And was that the primary efficacy end point you were looking at?

Of course the primary end point for endometriosis studies is the composite score,the Combined Pelvis Signs and Symptoms Scores, CPSS, which includes five categories, three of which are highly dominated by pain measurements. And in our clinical study we did do pain measurements on a daily basis using electronic diary. I was giving you, for example, some data of the last four weeks of the study where we were looking at pain scores which we think are really the most relevant in terms of the patient, of course. And we saw significant reductions in pain using the traditional visual analog scale. In terms of CPSS, we were looking for a change there that would be clinically significant,and generally a four-point reduction is considered clinically significant.

I can tell you, for example, that we had a reduction of 5 points in the dose group with 56418, but we have a lot of data there that we want to go through. It's not just a matter of the final 12-week end point, but looking at it by month. Because in fact this data was collected in terms of CPSS composite data monthly. As well as the daily pain scores. We want to get the estradiol data, pharmacokinetics, et cetera. So it's a very data intensive study, and unfortunately I don't have all of that data just yet because we're still completing all of the subset analyses.

We'll include as much of that as is available towards the end of the week in a press release. But I think our Proof of Concept here was to show -- to either meet or beat what would be considered clinically relevant using the composite score. And we have clearly done that in this study. With side effect profile, it's equal to or no different from placebo.

Okay. Very good. Thanks. And on the side effect profile. Just the most common side effects? Obviously they were all similar to placebo. But what were the ones that were most common that you saw?

They are basically -- Like you say, they were similar to placebo. So, in this patient population, you are seeing headaches. You're seeing some GI upset. You'll see affects in -- You know, the aspects of measurements of vasomotor systems, which are segregated into a separate category. We, in fact, measured hot flashes on a daily basis. So it's the typical ones and when there's no differentiation from placebo, there's really no attribution we can give to the two treatment arms at that time. Which is very encouraging in our view particularly since the treatment with a GnRH agonist like Luprolite will show, in fact, a very substantial increase in vasomotor systems.

Very good. Thanks.

Thank you. Our next question or comment comes from the site of David Woodburn with Prudential Equity group. Go ahead, please.

Thank you. Congratulations on the GnRH data. How far do you anticipate taking this program before partnering or at least starting to talk in terms of partnering? And does that -- Would you have the data now to get started? Or are you just going to wait until you get the entire Phase II program done? And then secondly, I guess, a question for Paul. The prior guidance for the year was break even to a net loss of 10 million. Now it's a break even. What changed there?

I think the loss pretty much means the same. Break even to 10 million.

Yes, a slight loss. That 10 million has narrowed down a bit. Some of it is just really tightening down on some of the budget numbers. But nothing significant.

So on partnering we have sort of -- In the U.S. or worldwide, held off partnering. There are a list of candidates in the queue, some of which we have signed CDAs with. Some others we haven't, pending results from the study. I think given the robustness of the study, the second three-month study will not be relevant necessarily for us to pick a dose. So therefore we would expect to move into a similar study of 6-month duration -- When, Wendell? Third Quarter?

Yes. In fact, we'll be starting that third quarter.

Starting the third quarter. We would be inclined, perhaps, to initiate partnering discussions, but probably not conclude those until we have a robust Phase II program, all other things worked out as we did with Indiplon related to preclinical, manufacturing, IP, all of that. So that at a point of starting Phase IIIs, which again will be a repeat of Phase IIbs. But at that point I think we'd be ready to pull a trigger. And Paul has modeled our financials to include all of those costs. But we're assuming a partnership would defer our Phase III costs.

And then, Wendell, would the best case start of Phase 3 be -- What? Just in general, first half '07 or second quarter of 07?

Well, I think important consideration here will be a dialogue with the Agency at the right time as to the pivotal trial program. Our Phase IIb study is a 6-month study and that's really driven by, as I said, getting the bone end points in hand. Which is an important factor here for considering the dose relative to whether add-back [inaudible] would be needed or not. Not to really generate more efficacy data. And that would be the same type of trial one would do in Phase III, other than getting 1-year safety data. ICH requirements require 100 plus patients to be on the drug for one year, and about 300 to be on for six months. So we'll be getting the 6-month safety data that would satisfy quite a bit of ICH, but not the 1 year. And that would be an important part of a Phase III program. The extent to which we can incorporate Phase IIb and Phase III.

In terms of our overall strategy, I think it's important we have that nailed down with the FDA. And we haven't really decided on when, exactly, to do that. Another factor here, of course, is having all of our tox program done, and we're now finishing our 6-month toxicology studies. Gearing up to do the long-term carcinogenicity, and the two-year studies that are needed for that. So you can factor that into the timeline. So something in the range of 2008 for Phase III, but I can't really be any more specific than that right now.

Okay. Thank you very much.

Those are all of the things that we want to be able to do ourselves to add value to this. And particularly given this data, we view it as such a high probability success program and to be able to extract economic [inaudible] of Indiplon, we think we need the full package. Although partnering early is possible, but not on the best terms.

Thank you. Our next question or comment comes from the site of Ian Somaiya with Thomas Weisel Partners.

Thank you. Congratulations on all of the positive developments. Had a couple of questions. First, just on the GnRH program. Just some additional details, if you could. You know, was a maximum tolerated dose reached at this point? Did all doses decrease pain? And I don't know if bone mineral density was evaluated in this three-month study or not, but if you could just comment on that.

Sure. Bone marrow density was not evaluated. Typically three months is not long enough with, for example, Lupron to see a significant change in bone mineral density. It requires about double that length of time, about six months. We did use some surrogate markers for any potential changes in bone. [Antilopeptide] is one example of that. I don't have that data yet. In fact, in this study we're following these patients for another three months without drug to look at return to cycle. Looking at the antilopeptide marker at six month return to baseline estradiol levels and so on.

So there's still more data yet to be generated here in this three-month study. In terms of communicating that. Of course, we'll have that -- We'll communicate that when we wrap this all up in another three months. The dose that we used -- the 150 milligrams certainly showed robust efficacy. Whether that's, in fact, a maximally tolerated dose -- We really need to analyze the rest of the data to determine that, as well as some other studies that are coming off here within the next couple of weeks.

In Phase I we have gone with doses as high as?

200.

Okay. How soon did patients report resolution of their pain symptoms?

I don't have that information either. Obviously a very interesting question. An important question. We have anecdotal information. But now we have all of the data here, and we're finishing that analysis as well. So I don't have the temporal relationships here by week or month in terms of pain or CPSS.

Okay. One last question on the Indiplon program. I don't know -- Gary, if you could just walk us through, maybe your checklist on what needs to happen to launch Indiplon on schedule. Obviously the FDA approval being one of those things.

That's kind of the most important.

Okay.

With that, I think everything else is in place here and at Pfizer. DEA scheduling, license prior to shipment. So that's it. We're ready to go. The manufacturing is all set to go and the plans are in place.

Okay. So from the time you get Indiplon on the federal register, what happens after that? How long is that process?

That's a 30-day comment period. Pretty standard. During that period of time, of course, we package and do the preparatory stuff necessary to have a full launch.

Okay. All right. Thank you.

Thank you. Our next question or comment comes from the site of Thomas Wei with Piper Jaffray. Go ahead, please.

Thanks very much. Any updates on your thoughts about doses that we should be expecting to see on the Indiplon label?

No, and as we said before, doses range from 5 to 20. Depends on package insert. Combined package insert may speak to three, two, may speak to four. The doses under consideration are 5, 10, 15, and 20.

Okay. And the driving study -- Just so that I'm perfectly clear here. Should we be expecting there to be specific mention and referral to this driving study on the label? Or it is just that the FDA wanted to see the data from the study?

They requested to see the data. We require -- We responded that we were not, at the time, seeking label changes and didn't see the need to submit it. And they indicated to us that they thought perhaps we would. So as a result, we have included language that cites this study and its lack of impairment on driving the next day, which isn't to say that in the precautionary generic section of the label -- There may still be warnings that say until you -- how you respond to the drug you should use caution. But this will be the only drug on the market with a label if it stands as is that indicates, when put to the test and patients are tested versus placebo at our two active doses versus an active comparator, that we are unable to detect impairment in this patient population.

That's helpful. And then in terms of sales force. How has retention been like for your own sales force?

Well it's been very high. Obviously, somewhat biased, we hired experienced people who were anxious to come to a biotech company and launch a new drug and be in the biotech versus pharma environment. So they are delighted to be there.

Turn over is low. And, as you might expect, turnover has primarily been weeding out the people are not the top performers but those -- to make sure that we have the first team in place at launch. But it's been relatively low. Morale has been high. We've had a national sales meeting early in the year to make them feel part of the company, keep them jazzed. We've begun the education process. So it's a very good group.

And then just one last question on the GnRH antagonist, on the primary end point. You mentioned that there was a 5-point reduction in the signs and symptoms scale. Was that -- Can you give us the data by the doses here? And was that statistically significant?

Yes. That will come out in a press release very shortly when we have all of this information so that we can put it all together in a more complete package. And if you'll allow us to do that. We debated here as to whether we wanted to give you a first look here at this information, realizing it wasn't all quite complete even though we're very confident in the numbers I have given you. We just want to make sure that everything else is ready before we give out the rest of the data. So if you'll bear with us just for a couple of days or so, we'll get out the rest of it.

To remind you, Thomas, I think we talked about this before -- Since we're shooting in the dark and no one has done this before, rather try to establish P Values, what we did through our consultants was pick a number that was considered to be a clinically relevant reduction in these scores, and we beat or exceeded them. So we now know exactly how to power, you know, the next study for statistical significance, given the results from this and the dose response from this.

Maybe what would just be helpful is -- Do you have what that number was in the placebo arm?

I don't think we do offhand. No. Do you have it?

No. I don't have it. It will be in the press release.

All right. Thanks.

Thank you. Our next question or comment comes from the site of Phil Nadeau with Cowen. Go ahead, please.

Good afternoon. Thanks for taking my questions. First, two financial questions for Paul. Paul, your guidance seems to apply a decrease in expenses through the year. Is that largely a decrease in R&D? Or what is that attributed to?

Paul, as I said, it's really more in terms of just lining up the budget to the forecast and just tightening up some areas. There isn't any one area that our expenses are being lowered. They are really just right across the board.

If you extrapolate the run rate from this quarter you come to a much higher operating expense number than what you have guided to.

yes, it's somewhat dangerous to start extrapolating. We don't really provide guidance on a quarterly basis. I think that if you do extrapolate, keep in mind that you've got some issues in there regarding FAS 123, as well as the acceleration or deceleration of various clinical development programs as we move along. So I wouldn't -- I wouldn't just automatically bring that out to the full year.

Okay. And I guess my second question you just touched on. Why would FAS 123 go down through the year?

Well, again it depends on exactly the -- As you know, price of shares are affected by it, volatility is affected by it. Redemptions of the stock itself or exercises of options and though like. So all of that gets impacted.

Then my second question is on the GnRH data. Wendell, I know you don't want to share with us too much of the detailed data, but if I remember correctly your next trial is looking at twice daily doses of the compound, whereas this trial looks at once daily doses. Have you see anything in your preliminary look in the data that suggests you should move to a twice daily dose?

Yes. The second trial we have ongoing includes singe dose versus twice daily dose. And as I said earlier, we'll be reporting out that study. It's about the same sized study, about 70 to 80 patients. We'll be reporting that out later on this year. At this point in time, we really need to analyze the data here further in terms of thinking whether QD at the end of the day is going to be satisfactory. I'm really guessing as to whether it's going to be satisfactory for the endometriosis patient population. If you'll give us a little bit more time, we'll know. I think the analysis that we're doing in some other clinical data -- The second 6-week premenopausal trial that we have going on, well that data is now complete and we'll have that in here very shortly in early May, will be definitive enough together with this efficacy trial here in on endometriosis that we'll be able to say definitively whether once a day or twice a day is going to be optimum. And it may be that, for certain part of the patient population, twice a day will be better than once a day. So we also want to maintain some degree of flexibility here as we move forward into larger patient populations.

Yes. This is Gary. There's really no evidence to support that to date. I was actually the one behind this, to suggest we do a second study, same design to make sure that in the event something were to flaw with the first we hit a second shot on goal. Fortunately, that's not necessary. From my perspective, I think the only thing that will be interesting from this study, assuming success again, will be a 100 mg dose which then brackets the 150 and 75. I think the BID is, frankly, irrelevant but we couldn't think of a second or third arm that would give us any more information. Our previous once a day versus twice a day showed no difference in estrogen suppression.

Okay. Great. Thank you.

Thank you. Our next question or comment comes from the site of Annabel Samimy with UBS. Go ahead, please.

Hi. Thanks for taking my call. I have a few questions. But after all of the GnRH questions and requests to be patient, I'm not going to ask you anything except for the fact that -- It is possible that you may use some of your backup compounds for future trials?

Yes, we do have a backup that we think looks very nice. And the goal has always been to have that in the queue to have it up through Phase Is, to hold it there in case there were anything that would go astray with the lead compound, we would not be starting from scratch. Another alternative, of course, is if the VPH data looked good then perhaps we direct one compound for one indication and one for another. And yet a third variation is maybe outside of the U.S., the second compound may be a partnerable candidate so it would not compete with the lead. But as always, we develop at least two compounds. And at this point it's too early to say how you improve on 418. We just know this compound is different chemically.

At this point you, don't have any reason to use the backup compound.

No. To put it in development, bring it through Phase Is, have Phase I data and put a hold on it.

Let me ask you a separate question on Indiplon. Actually, it's more on your R&D. I noticed your sponsored R&D went up significantly from the fourth quarter to 5.8. And I was just wondering if any of the -- I guess, the comorbidity studies have started.

No. We don't pay for any of those. That happened to be previous registration trial that became billable this year.

Can you share with us whether Pfizer has started any comorbidity studies?

Yes, they have.

They have. And might we see some of those at some of the upcoming meetings?

No. The focus on the upcoming meetings will be fully on registration trials.

All of the upcoming meetings?

Right. This year.

Great. Thank you.

Thank you. Our next question or comments comes from the site of Tim acreman with SAI. Go ahead, please.

Hi. Thanks for taking my questions. I believe in early 2005 there was some discussion of doing live driving studies with Indiplon over in Europe. I was wondering if those took place and when we might see some results of those trials. Additionally, I was wondering whether there had been any sleep-driving or sleep-eating episodes observed with Indiplon.

The first question is -- Yes. There are several studies designed. The simulator study the second an actual driving study which is planned. One you know about, the simulator study. The second, an actual driving study, which is planned. The simulator study was obviously a pilot to pick the right design, the right doses, the right active comparative before jumping to and crashing cars. And that trial was planned and will run. Second part of the question was -- ?

Were there any sleep driving or sleep eating episodes observed with Indiplon?

All we can say -- I can't get into that now. I can say we have an 8,000 patient database that we've looked at extensively and feel pretty comfortable with the data we have that I believe be published here in the not too distant future.

Good.

Thank you. Our next question or comment comes from the site of Elise Wang with Citigroup. Go ahead, please.

Hi, Gary.

Hello.

How are you? Just to come back to the question around the dose levels that you're seeking to get approval on. I know that there's been some speculation around the 20 mg dose, and I was wondering if you could remind us -- I think if I recall, at least in the restful study, there was some order of magnitude higher side effect incidents, I think, such as around amnesia and sleepiness in terms of absolute percentages compared to placebo. But I don't recall if they were statistically significant or of any other note. And perhaps you can remind us and maybe if you could provide some color around the -- any feedback you've gotten about the high dose or the 20 mg dose.

Yes. I can't remember the specific results, but I can tell you clearly there would be no statistically significant difference versus other doses because, you know, the studies aren't set up, the numbers are small, incidences of side effects, sleepiness, drowsiness, tiredness always are marginally higher as one moves up the dose curve. The reason to select the lowest dose is that of efficacy. So 15 mg is 98% as effective as a 20 mg, has fewer side effects, then what is there to gain? So I think -- I came back to what I told Thomas earlier, and that is if there were two package inserts then having two doses for each would make sense. If there is one, which is what's on the table now, a 5, 10, 15 seems to cover everyone's needs from an efficacy and safety standpoint.

Okay. That's helpful.

I think -- In the study, I think in one of the more recent meetings -- Hopefully I'm not speaking -- Maybe I shouldn't say. Some of the data that has just been released with 15, or will be released, shows side effect profile actually extremely favor if not better than placebo on all fronts.

Okay. That's helpful. Another question for you has to do with -- I understand Pfizer's policy is not to initiate a D2C campaign in the first six months of a launch, and I was wondering how that factors into your combined efforts in terms of when the product is in fact launched, if Pfizer is in fact is going to adhere to that policy, which I believe they most likely would.

Yes, they will because they are setting the standard. But the policy is six months from approval, not launch, which still puts it in the budget this year. And it's specific for branded, primarily TV or that type of media, so it would not apply to other types of direct to consumer advertising both out of promoting sleep or the brand name for the product itself. So it's not a ban across the board. It's a select absence of seeing this on TV with a brand name before physicians have been adequately educated.

Would that prevent you all from perhaps doing D2C advertising?

No. It would just change the mix and the nature of it. But it continues to be a big part of the marketing mix, a big spend, and a big budget item for this year, actually.

Okay. And then if you can also update us. I know that you have been on the search for additional drugs to add to your sales force bag, if you will, particularly in the CNS area. Can you give us an update on where those plans are?

The quest goes on. We're active in both acquiring companies, products, and have an interesting co-promote that is in discussion. But, as you know, until these things are complete, they are not complete.

All right. Thank you very much.

Yes.

Thank you. Our next question comes from the site of Bill Tanner with Leerink Swann. Go ahead, please.

Thanks for taking the question. Just some clarification on the Indiplon labelling discussions. I know that you guys mentioned that the driving data have been submitted as, I guess, a revision to the labeling. I'm just trying to get an idea as to how iterative the process has been subsequent to that with respect to the entire label.

The process has been -- There have been several requests, starting with the combined label, drive studying, display of AEs, other things that have been requests that we have made and submitted and no formal feedback one way or another on that. So --

So would you not have expected some kind of feedback, though?

Not necessarily on that, no. Since we did exactly what they requested.

And then no other feedback on any other aspects of the label?

Not as yet.

Okay. Thank you.

Thank you. At this time, we'll have -- take our final question as a follow up from the site of Jim Birchenough with Lehman Brothers. Go ahead, please.

This is your third shot, Jim.

No, I think this is number two.

Oh. Okay. All right. You get another one then.

Just following up on Bill's question. You'd mentioned earlier, Gary, definitive labeling discussions have not occurred yet. Do you expect those to occur before approval? Or are you, at this point, expecting an approval with definitive label negotiations afterwards.

We have always expected that we would have discussion prior to.

And that remains the case?

That remain ours expectation. But that's our expectation and the regs call for that. And we're now at the point at which those things typically happen, but until we engage in these discussions it's premature.

Then just in terms of launch, can you say if a brand name has been selected and, as well, whether Pfizer's set a tentative date for a big national launch meeting?

Pfizer has a date set, given the size of the sales force. The venue to be created. Yes, brand names have been selected, or have been submitted. Final brand name has not yet been selected, but several have been submitted.

Great. Thanks.

Okay. I think that's the last question. I thank you for joining us. Feel free to call Paul or myself directly following the call. And look forward to updating you again at second quarter. Bye, everyone.