Neurocrine Biosciences Inc (NBIX) 2006 Q2 法說會逐字稿

Welcome to today's teleconference. (OPERATOR INSTRUCTIONS). Please note this call may be recorded. I will now turn the call over to Mr. Gary Lyons. Go ahead please.

Good afternoon. Thanks for joining us for our second quarter earnings call. This call is I guess usually a week or so later in the quarter, but we thought it was important, given our last conference call, that we address financial issues, guidance, etc., to a more complete extent. So for that reason we wanted to come a little earlier on this.

Joining me today it is Paul Hawran, the EVP, Chief Financial Officer; as well as Wendell Wierenga, head of R&D. and Claudia who will read our Safe Harbor statement.

Certain statements made in the course of this conference call that 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 reports 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 the today's date, and we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances.

The agenda for today then will be for Paul to start with second quarter results. I will then provide a status of indiplon registration, FDA interactions. I will comment on our marketing plans, salesforce deployment, as well as have Wendell update you on our R&D progress. And we will finish up with Paul providing financial guidance going forward. With that, Paul.

We reported a net loss of 27.4 million or $0.73 per share for the quarter, as compared to the net loss of 5.6 million and $0.15 per share in the same period a year ago. Revenues for the second quarter were 9.2 million as compared to 33.2 million in the second quarter of 2005. The decrease in revenue is primarily due to lower revenue recognized from the indiplon collaboration.

Sponsored development revenue, licensees, milestones and salesforce allowance recognized under the indiplon collaboration were also lower in the second quarter of 2006, as compared to the same period last year.

Research and development expenses in the second quarter decreased to 26.2 million from 29.6 million. And the decrease was primarily reflected in lower external development costs, primarily for indiplon, offset by expenses related to the adoption of FAS 123.

SG&A increased to 12.5 million for the second quarter of '06, compared to 9.8 million. And that primarily was the result of the increased salesforce related to the indiplon collaboration. In addition, FAS 123 cost added to the SG&A cost.

Our balance sheet at June 30 included total assets 442 million, including cash, cash equivalents and marketable securities of approximately 240 million. That is compared to -- as compared to 273 million at December 31, 2005.

With that I will turn it back over to Gary.

Let me comment on FDA interactions and registration. We have applied to FDA for IR and a review meeting. That was done. The meeting has been granted for later August. We this week we will apply for a Type A meeting for MR. And felt it prudent to have two separate meetings to be able to separate any and all issues pertaining to both so that we can both have the right audience and begin the work necessary to move these through to resubmission.

Let me give you -- since this is going to raise some questions -- let me give you some of the history. Upon receipt of the May 15 action letters we notified the agency of our intent to request a meeting, and had ten days in which to do that. At the time while working with Pfizer, obviously jointly, had to prepare -- or they requested that we prepare responses and be fully ready before requesting such meetings. Subsequently through the termination of this agreement we have retained now control of all FDA interactions and development activities, and are free to work unilaterally and work directly with the agency.

We originally had scheduled or requested informal meetings, which had been required or requested by the agency. Since have been requested to submit for a Type A meeting, which is a meeting in which we preemptively provide the agency with of all of our questions, all of our data and data analyses which had been done and submitted for IR. And we frankly think this will be a more productive meeting in that both parties will be better prepared, that are able to know what we view the key issues as being, and for us to come out of this with very good clarity of what we need to do forward.

The MR data analyses and questions have been prepared. They will go in this week. Although we had hoped for a July meeting, I think primarily because of scheduling conflicts and our desire to have all the right people at the agency, including all reviewers in attendance, that was moved to later August. And we are hopeful that the MR meeting will follow that shortly. And once those have taken place we will come public and be very verbal about the work, if any, to be done, the timeline we believe will be required to complete that work, and therefore any implications on resubmission and ultimate approval and commercialization.

The work is done. We are anxious to have that dialogue and are prepared to do that. And we will be visiting the agency as Neurocrine representatives, along with appropriate consultants, to help us work through any and all issues.

As it relates to marketing, our position has been to bring this product back to resubmission, and at that time entertain other parties that could help us reach broader audiences, in addition to our specialty focus sales organization. We have no short-term needs to do that. All the work done to date, particularly all registration work, has been done by Neurocrine, as well as all manufacturing and pre-clinical work. So we have the expertise and resources necessary to conduct that, but we will actively look for partners at the right time to help us fully exploit this product.

From a salesforce standpoint, as you know, we have a 200 person salesforce focusing on psychiatry that is in place, funded -- fully funded right by Pfizer through Zoloft generics, which happened on July 1. That salesforce remains in place, and as we said during our last call, had multiple discussions with parties related to either acquiring products or companies or co-promotes.

We have one very exciting opportunity before us that is not yet final. And very shortly we think we will have information to know whether this will satisfy our needs to do forward, but our goal is to subsidize the cost of that salesforce, keep them focused on the appropriate audience, and keep them in place to be there for the indiplon launch.

So should that not be possible, we will know this by the end of the month, and we will unfortunately be in a position where we would have to let that asset, let that salesforce go in full or in part, and recreate that organization later to conserve cash, and make sure the money is going into indiplon development and registration, as well as other key product areas. So expect more information on that shortly.

From there, why don't I turn this over to Wendell to comment on the pipeline. Paul will then end with projections, forecasts, and we will open it up to Q&A.

As you know, we have been presenting indiplon data, both our IR and MR over the past six months or so at meeting such as APA and APSS venues, so where 15 abstracts have been presented already. That included clinical trials assessing the safety and efficacy of indiplon, IR and MR, in adults as well as in elderly patients, including results of a twelve-month study assessing safety and tolerability in primary insomnia and the results from the next day driving study. All told 15 milligram data now has been shown over 700 patients in adults, elderly and in objective data as well, analyzing its endpoints with the PSG.

Turning to GnRH, which is our most expensive program at the present time, after indiplon, we have now completed the first three month clinical trial in patients with endometriosis with our GnRH antagonist, NBI-56418. This is in 76 patients. It was actually a three-month treatment phase follow by a three-month safety follow up, and the safety follow up has now been completed, and we will have the data totally analyzed by middle of third quarter. But I can say that at this point, based on the interim data that we have from an efficacy point of view we have clinically significant results at the high dose distinguishing the drug from placebo, not only with CPSS, which is the regulatory driven endpoint, but also the measurement of pain independently using visual analog scale.

In addition, we have data from a marker of (indiscernible) turnover which shows no difference from baseline to treatment at the end of three months, which is encouraging relative to long-term impact on bone. But I would hasten to point out that it is a marker of the bone turnover and not the regulatory driven endpoint, which would be a measurement of bone marrow density, and indeed a longer timepoint of at least six months.

We also have estradiol levels that have been measured and show a nice correlation, as we had forecasted based on our earlier six-week trials in premenopausal women, a nice correlation with efficacy. And this then is being partnered up with the earlier data that we have generated in the six-week trials to provide the right doses now to initiate a longer term six month trial in patients with endometriosis, looking at both CPSS, visual analog analysis of pain as well as bone marrow density measurements for any change in bone density over that time frame.

We have also completed a second Phase II clinical trial, a treatment for three months, virtually identical to the first trial I was just mentioning, where we have explored higher and lower doses of the drug. That enrollment is complete. The treatment phase of that will be done in the fourth quarter, and we should be reporting results shortly thereafter.

That will give us a very complete picture of the exposure response relationship, not only as it relates to efficacy by these various endpoints, but also a key long-term endpoint such as change in bone turnover. There was no increase in evidences of vasomotor symptoms, such as hot flashes, in the treatment phase of the three-month study. That is encouraging as well relative to other agents that are used for the treatment of endometriosis, such as GnRH agonist.

We will, as I said, full analysis of all the subsets of the CPSS scoring system, including dysmenorrhea rates, in the not too distant future, now that we have finished the three-month safety extension of that particular clinical trial.

We have also finished a two-week study in males looking at change of testosterone level as a prelude to understanding the potential of this drug in the treatment of BPH, benign prostatic hypertrophy. And we also be reporting that data out in the next month or so, as that study has now be completed and we will have full analysis of that. The important part there is really understanding testosterone relative to DHT levels and the role then that, as I say, the drug potentially play in long-term treatment of that disease in males.

The Urocortin program has now completed the next phase of early Phase II studies, and then is the four-hour infusion in patients with chronic congestive heart failure. The preliminary data from that -- again, it is not quite fully analyzed, so the preliminary data shows similar changes in hemodynamic endpoints and cardiac output that we saw with the earlier one-hour infusion. This will then be the basis then for designing the appropriate study in the acute decompensated heart failure population subsequently as we complete that analysis and report off that information.

The CRF program in collaboration with GSK is proceeding to Phase II in the treatment of irritable bowel syndrome, as well as [JAD]. And their backup compound that they have is completing multiple does Phase I studies in anticipation of, again, similar types of therapeutic endpoints in Phase II, presumably on target for early next year for the backup compound. The CRF program continues as we had earlier forecasted in 2006.

We will have a readout from our Type 1 Diabetes APL clinical trials program, 188 patients. And that readout will be in the next month or month and a half. That study has, as we have said before, completed enrollment back in the April time frame. And then we had a three-month safety follow up with that, so that is now approaching database lock-in and conclusion of the analysis of the clinical trial. Should that be a positive outcome, obviously, we will be looking at the potential for partnering that agent. The endpoints there are C-peptide hemoglobin A1C and insulin usage.

Lastly, our H1 antagonist, we have now determined the top dose in the single-dose Phase I study with this agent, and are anticipating then moving to as multiple dose two-week clinical study looking at several different doses to understand pharmacokinetics, of course, safety of course, as well as looking at some key measurements of potential for the treatment of sleep disorders. And therefore we are doing the study with nighttime dosing and using various measures and volunteers to see if there is an improvement in sleep disruption.

That is the R&D program at the present time relating to those projects that are currently in clinical studies. And I will give it back to you, Gary.

Can we turn it over to Paul for financial outlook?

Let me wrap it up with the financial outlook, as well as coming back on some additional points on indiplon, as well as our pipeline. 2005, as I mentioned, we ended the year with 273 million in cash. We expect to end 2006 with approximately $180 million in cash. The cash burn will be somewhat lower than our GAAP net loss, which we expect to be about 130 million. The difference between the cash burn and the GAAP loss is obviously a result of non-cash charges, such as FAS 123, depreciation, amortization and other non-cash charges.

Our plan beyond 2006 is to ensure that we have two years of cash running forward. That would mean that we would bring our annual cash expenditures down to approximately $80 million, not including investment in launching indiplon activities. Exclusive of indiplon, this means lowering expenses.

Now we do have the potential to add to our revenue based through additional collaborations, and we believe our strong pipeline contain a number of partnering opportunities. We are, however, prepared to take appropriate steps on the expense side beyond any decisions of the salesforce that Gary had mentioned earlier, in order to meet our targeted burn rate.

To advance indiplon to commercialization we will need additional financing. How we precede on a financing will be determined largely on -- based on our meetings with the FDA, as well as determining the overall strategy for indiplon. There are a number of wide range of options, including staggered launch, as well as holding the launch for a full launch, from partnering to an equity offering. Again, we will have more to say on this once we finish our FDA discussions and have clarity on the strategy moving forward.

With that I will turn back over to Gary.

I think we are now prepared to open this up to Q&A.

(OPERATOR INSTRUCTIONS). Jim Birchenough with Lehman Brothers.

A couple of questions. Just number one, Gary, now that the collaboration is done with Pfizer and you've got this back in your hands fully, can you give us a bit better insight into what the key issues you are addressing are for the MR tablet? Those things that you are addressing in a Type A response?

No, other than to say we obviously have submitted a list of questions. We will do so for IR and we will do so for MR. We will submit all of the requested re-analysis, etc., but until we have had that meeting and a reaction to our questions it would be speculative on my part.

Just so we understand a bit better, I know historically when we have seen data for indiplon 20 milligrams as a modified release, it was characterized as relatively well-tolerated, but the sense was 15 was introduced driven by Pfizer wanting the best-in-class label. Are you guys revisiting whether you might reintroduce the 20 milligrams dose to FDA, particularly if they ask to do longer term dosing studies with 15, that you already have with 20?

I can't say that is a strategy that we have talked about. But again, we will have the FDA interactions and decide. I remind you efficacy of 15 was very close to 20. And obviously the lower the dose, the better the profile and AE tables. Not an option we have considered, but can't say we would rule that out. But that would be subsequent to our meeting.

And then just for Paul. Just so I understand, Paul, in terms of your guidance for an annual cash burn of 80 million for the next few years, does that include the top end of expense you would expect for additional indiplon trials, or it is that separate and that would be something you have to finance separately?

No, actually that does conclude in the mix certain assumptions regarding a number of trials that we would have to perform. And again that is speculation on our part, because as you know, until we meet with the FDA, we're not sure. But that number doesn't assume that we will do a couple of trials. But it doesn't include anything relating to launch activities.

David Woodburn with Prudential Equity.

I have just a couple of questions on the sales force. Obviously you would like to keep them focus focused on CNS, but if this partnering opportunity that you seem to be most interested in, is that still within CNS, or would you be willing to consider something outside of that just to get some revenue?

And then secondly in terms of turnover, how many of the 200 reps to you anticipate staying through the end of this month? And I guess what kind of notice will they get at the end of this month if you do or do not do the partnering?

The opportunity we're looking at is at the heart of CNS, so it is a site which is right where we want to be, although for the right opportunity we have and would have looked outside of that. But today turnover has been very low. It is a focused, committed group. We are hopeful that we can put something in place to keep them there motivated and excited for indiplon launch.

And then as far as the end of this month, if you do or do not decide to do the co-promote?

Right. Then we would be in position where we couldn't sustain the salesforce due to the costs associated with that, and therefore we would have to look at terminating part or all of the salesforce to conserve cash and put that into product development, with the eye towards putting this group back together at the appropriate time.

I guess what I am after is do they get essentially a six month package? Is it -- if we were modeling through the end of the year do we just assume that you are paying for the sales force whether you actually terminate them or not?

Paul?

Actually the salesforce has been advised of various termination possibilities, and we do have in our number a termination or the cost of terminating that salesforce, and that is included in my number of 180 -- or ending the year at $180 million. Beyond that, I feel a bit awkward of actually telling you exactly what the individual details of the termination package might or might not be.

That's fine. Your response is great, Paul. Thank you.

My pleasure.

Ian Somaiya with Thomas Weisel Partners.

Just a question on the guidance. Does the $180 million figure, does that include potential licensing or cost of licensing a compound, Paul?

No, it doesn't actually. When you say licensing the -- in terms of the salesforce we are actually looking at a co-detailing, if you will. So there wouldn't be any costs associated with that from our end.

There were other opportunities we looked at but we would have to have had acquired with cash, not equity, that we just thought cut into burn too much to make that practical.

Gary, you said you're waiting for the right time to pursue a partnership for indiplon. When would that right time be? What are some of the triggers or things that need to happen before you can go out there and start marketing or trying to get a marketing partner for indiplon?

As you can guess, there have been multiple people talking to us about that. And pretty much the guidance we are giving them is we need to meet with FDA first, know what path and timeline we're on. If I were to speculate I would say upon resubmission of at least one of the NDAs would be a reasonable earliest point.

As partners do they -- as a contingency and in terms of signing a deal, would they want to be 00 or do they request to be involved in discussions with the FDA at this point?

No, not -- well, we haven't had that level of discussions with them, but we would not want to do that.

Geoffrey Porges with Sanford Bernstein.

Further questions on the guidance. First, concerning the assumptions about any deal that you might do, what is your threshold for how much of the customer salesforce you would like to cover and the income that you could get from the co-promote?

And then secondly, just also looking at the second half of this year, you're running at sort of -- it looks like 26 to 27.25 in R&D. How much of that come back to? And then are you just still sticking with the 10 to 30 million in terms of the cost that you have to invest in indiplon?

On the sales side, obviously we would like to recover all of the costs. Maybe a situation we're unable to do all of now but see a way to towards earning to that 100% reimbursements soon, and/or add a second product to the bag that makes it a profitable adventure.

As far as the R&D burn is concerned, the actual cash burn associated with the R&D for us is actually under 20 million at this point in time. That could potentially be lowered. And what we are doing is looking at the individual programs and making decisions on how to actually run that forward. Does that answer your question?

Yes, that's helpful. But the presumption we should make right now is that pretty much stays flat?

No, I wouldn't make the presumption. What I would do is, however, say that the overall guidance is that we will end the year at $180 million, and that is really our targeted number. Beyond that I would say that we are looking to lower expenses across the board, but it really depends on prioritizing the various programs, and deciding on which programs we will move forward from a clinical perspective as well as pre-clinical side.

Does the 10 to 30 million that you talked about before for indiplon still hold?

We assume that the overall clinical development 00 external development expenses associated with resubmitting the MR application is about $30 million.

So 30 million to get to the MR and less than that obviously for the IR?

Exactly.

Thomas Wei with Piper Jaffray.

Now with the termination of the collaboration, can you share at all what the current studies are that are better under way with indiplon in the Phase IV setting? How many patients are in those studies, and what kind of treatment duration, and whether or not they are going to be available short-term to potentially address some of the questions in a nonapproval letter?

What I can tell you is we still are actually under the 180 day wind down period, meaning we're still in collaboration with Pfizer and therefore not able to disclose that information. The only thing that has happened is we're able to separately negotiate a carve out to allow us to take over development unilaterally. So that is completed, but everything else remains a partnership. And until that partnership is dissolved, which we had hoped to do that sooner than 180 days, and in negotiating with them on outstanding issues, payments, etc.

And the guidance that you just gave on indiplon development expenses from now until the point of filing, does that -- does a large part of that include continued funding for the Phase IV programs that are under way, or is that exclusively for new trials that the FDA may require you to do?

That is exclusively new work that we would do. Any potential recoupment of costs or whatever from Pfizer would be -- is not included in this, but would be helpful obviously.

Will those additional expenses to continue the Phase IV programs be substantial?

I can't say, since we're in the 180 days period.

The only thing we could say is that part of the contract is that Pfizer is obligated to pay for the completion of all existing Phase IV or existing trials. To that extent, they will be responsible, and that is currently being negotiated with Pfizer.

Annabel Samimy with UBS.

I was just curious, can you give us an idea of how rapidly you might be able to initiate a subsequent trial of say 15 milligram, and how long in Europe, the most conservative assumption that might take? I know you can't -- you haven't had your meeting with the FDA yet, but have you run any various scenarios, and do you have an idea of what the most conservative assumption might be?

Actually since we have run all of 17 of the Phase III trials, worked with the same investigators, I think we have a very good handle on that. So the things -- the activities that we're doing now are making various assumptions on what, if anything, could be required, and ensuring that we have not only protocols but investigators, sites, everything set up and ready to go.

We wouldn't pull the trigger on any of those before the meeting in case they were required, because that would acquire notifying the agency. I think the turnaround time from that meeting to implementation would be very quick.

Any timeframe in terms of how long the study might be and how long it might take to be able -- (multiple speakers)?

In other words, we wouldn't be starting with scratch -- at scratch, we will be rolling right into investigators meeting and enrollment, and it would happen relatively quickly. But I would be -- that is speculate. I think we would have to know what the studies are.

Maybe separately, can I just add a couple of questions on the GnRH. Do you have any call on whether you might seek to look for a partnership on the GnRH earlier than not, given the various constraints that you might find yourself in?

I think more likely outside of the U.S. than in the U.S. where there is sufficient interest.

Was that something that you were contemplating prior to Phase III or at Phase III, or prior to a longer-term Phase II?

No, I think the plan had always been to try to retain, at least, North American rights, if not worldwide rights, through completion of Phase IIbs. I don't think we would want to compromise the value of the asset now by prematurely partnering worldwide, but selectively partnering geographically.

And then finally, just again on the GnRH, the second trial the agents recently completed enrollment of -- or completed, is that statistically powered to show any kind of reduction of pain, or is it similar to the other Phase II that was really statistically powered?

Wendell, why don't you talk about statistics related to both the studies.

Sure. When we did the first study, of course, we didn't set it up with traditional p-value endpoints because of the difficulty in knowing what the appropriate denominator would be without precedented studies in the literature.

But based on what we have seen here now with the 76 patients in that first study where we do several different analyses. For example, an ANOVA analysis which takes into account baseline as a covariance, we actually see at the 115 milligram dose, with only 22 patients in that cohort versus placebo.

A statistical significant decrease in CPSS scores relative to placebo wherein the 95% confidence intervals do not include zero. That kind of information tells us that we're probably with the same size study going to have not only clinically significant, but statistically significant results as well at the -- at least at the high dose that we're studying in the second trial.

We have also done several other subset analyses where we look at patients that are within a certain bracket of CPSS at baseline. Again, this is all on an interim basis, and we will have a more fuller analysis of that data in about a month and a half or so, after we have completed the safety phase.

But we're quite confident that the study that is already done is giving us a very good signal now on how to power additional studies. And our Phase IIb study is going to reinvolve about 300 plus patients or so. And again we will give more guidance on that when we report the results of our first six month Phase II study in patients.

For the next study that is going to be emerging like in the third quarter, third or fourth quarter, will we actually seek p-values?

Oh, yes, very differently.

Phil Nadeau with Cowen.

My first one is on indiplon itself. It has been about a month since you characterized, or at least publicly, the issues that the FDA raised in its letters. It sounds like you spent a lot of that time putting together questions to the agency and data analyses to take to the meeting. I'm wondering if your characterization of the issues that the FDA raised has changed at all in that period as you spent more time digging through the data, and whether the likelihood of additional trials, either for IR or MR, has changed as well?

No, I would have to say they haven't.

You still think it is likely that MR needs additional trials and possibly IR. Is that a correct characterization?

I think that all we can say at this point.

And then second is on the timelines for knowing with some certainty exactly what needs to be done. Typically is it nailed down when you leave the FDA meeting exactly what has to happen, or are there are subsequent off-line discussions that need to occur before you will actually know?

Wendell.

It is hard to say. What we are trying to do here of course with both of these meetings is to try to get the really key issues nailed down, particularly anything that would relate to additional work, since that would be rate limiting gating to the forward motion of resubmission. But there will likely be -- I wouldn't call them off-line, but let's call them subgroup meetings that happen relative to probably some of the things relating to re-analyses, making sure that in fact all the nuances of it are appropriately addressed. But I don't think those are going to be key relative to the plan going forward. I think it will be determined from these two meetings that we're having with them.

When will you make announcement of what needs to be done to Wall Street? Will it be two announcements, one after each meeting, or will you complete both meetings --?

I think ideally we would like to complete both meetings, assume they happen within a reasonable period of time. If not, then it is possible we could give more clarity on IR first, although our preference would be to do both at the same time.

Fair enough. One last question on the GnRH antagonist. It looks like the Phase IIb study is going to start actually before we see results from the second phase -- I guess you would collect Phase IIa trial. Does that mean that you have identified the dose for the Phase IIb, and if you have, what is it?

We have, and we will communicate that relatively soon, because we're just finishing the -- another important component of the design feature of that particular study. But based on the data that we have in hand, we're confident that the dose that would give us appropriate efficacy would also -- or doses, I should say, that would give us appropriate efficacy -- would also be bone sparing. That was really the key factor relative to picking the doses. And we now have the bone turnover data from the three-month trial in the end as well.

Eun Yang with Jefferies.

Questions on GnRH antagonist. The Phase IIb trial that you're planning for second half of this year, just wondering, given the fact that is going to be a six-month study, if the study is successful will that be a -- can we consider it as a part of the restoration trial? And first the question. And second question is in the trial would you compare GnRH antagonist to Lupron or placebo?

In response to your first question, it is possible that it could be part of the pivotal trials for ultimate registration of the drug. Obviously, the FDA would have to concur with that. Clearly Phase III trials would involve treatment for six months, so from a duration point of view, it will have sufficient duration.

Relative to the question of placebo versus positive control, both of those are possibilities and those are the things that we have, as I said earlier to a question, that is what we have been working through in terms of both doses as well as trial design.

The comparative arm would not be Lupron, given its restriction, and just the ethical issues of using Lupron long-term. But some of a active comparator.

Bill Tanner with Leerink Swann.

Gary, a question for you on the end licensing opportunity relative to the timing of the meeting with the FDA. So you said perhaps by the end of the month. I guess it is not inconceivable that the MR may not make it to the market until the 2008 timeframe. I guess I'm just kind of curious how you guys are looking at this opportunity, and it would be adequate were there to be that kind of a protraction in getting indiplon to market?

Yes, we believe it would. There is obviously the option to introduce in IR first. There is obviously an opportunity to add additional products to this to make it revenue generator. Yes, we would consider it under any of those circumstances.

And then maybe a question for Wendell. You kind of run through pretty quickly your discussion about the data in terms of what you got. And obviously you have got some MR data, some IR data. If you could help us, what exactly do you guys have in terms of the 15m MR? What has been submitted to the FDA?

The three trials that have been submitted to the FDA include a four-week study in adults at 15 milligram versus placebo. This is an outpatient trial -- a maintenance impaired population. Similar trial design in elderly for two weeks. And then thirdly, a PSG trial in adults and elderly, maintenance impaired, which was done in a crossover design, two nights with a five-day hiatus followed by a placebo as the crossover arm. So those are the three trials.

Then there is probably the expectation that you guys would have to do a longer-term trial with the 15 milligram?

That is a possibility.

And then I guess I asked on the last call, just wondering how you guys are thinking about what the appropriate MR dose for elderly, given the fact that most of the others sleep drugs I guess are multiple doses?

Of course that is what we are aiming for in terms of the initial dosage data that we have at 5 and 10 milligram IR, was anticipating use there for elderly, and not for 15. But we of course have data in the elderly population, which we think is important for understanding the safety of the drug with the 15 MR.

And then I guess just one last thing. I'm just seeing that -- I guess the MR was what is going to be not necessarily the most contentious, but there is going to be the greatest discussion. I would just think and wondering why you guys didn't try to get that meeting scheduled as soon as possible as you did with IR?

To answer that one, I think we felt starting with a drug that is less contentious and approvable and verified by our various consultants that a lot that we can accomplish and learn with IR would apply to the MR, and that the more prudent way of approaching this.

So the plan still is you think if the MR, for whatever reason, is not approvable, or it at least going to be protracted well beyond when the IR could be launched, you would just go ahead with the IR?

I haven't said that is what we will do, but we have various options, of course, and with partners we will decide.

Aaron Reames with A.G. Edwards.

I just had a couple of follow-up questions basically on the 15 milligram then. Since you're not really looking at trying to get an indication of use in the elderly, can you tell us how many patients were actually on the 15 milligram? I guess how many adults were actually on the 15 milligram, and that is an area of concern for the agency, they just want to see more patients that would be included in the label?

We can't say that we know that until we have met with the agency, but I think of the 600, probably 500 were adults or thereabouts. Wendell?

Yes, including PSG study, that would be correct. We think the elderly study was about 100 to 20 per arm, placebo versus drug, and then everything else was adult.

We had about 250 patients on the 15 milligram then?

That's correct.

Were there any major PK differences when you analyze it across gender? So were there between a male and female population at all?

I think we would have to refer you to published abstracts. I'm sure this is covered in prior published abstracts, maybe not from this year, but I'm not sure we want to go into that level of detail here now. But we can off-line talk about that and direct you to the right place.

And then just go back to 20 milligram, you mentioned that wasn't a possibility, but can you remind us of how many patients were on the 20 milligram in the adults and elderly populations?

Several thousand.

If you take 20 and 30, probably 3,000.

Okay. And then you had mentioned that you got some topline data in for Urocortin 2. And in the previous data that we have seen, we saw an impact on cardiac output as well as a reduction in preload and after load pressures. Are you still seeing that type of continuum of results in the current data that you have?

Wendell.

Yes, in the four hour infusion we have seen very similar responses to the earlier one hour infusion data. And as I said, we did a database lock on that, so we will be completing the analysis now that we have audited data.

And then when should we expect to see that?

Third quarter.

Jim Birchenough with Lehman Brothers.

A couple of follow-up questions. Gary, I am just trying to understand timelines a bit better on your decision around the salesforce. It sounds like you're going to make a decision on the salesforce before you really know what could be required for the IR capsule. And if it turns out that you could have a rapid turnaround for that, you might have given up on the salesforce too early. Can you just tell us how you think about that, and why not wait until you find out what the requirements are for the capsule before making the salesforce decision?

I worry about that. It is something I don't want to do. We have never done. And that was hopefully the plan that we could have on -- just get the feedback and know, however, we have to be very conscious of cash. Unless we can put it in a reasonable period time, conclude a deal to offset that cost, we would have to make a decision.

Wendell, I just wanted to drill down a bit about the dosing profile you may have going forward for indiplon. If it turns out that 15 milligrams isn't acceptable as an elderly dose, and you then they have to rely on 10 milligram IR as an elderly dose, do you feel that you need to establish a maintenance claim for that dose? And do you have that data already?

I think to just to interject, until we meet with the agency we don't know, but I wouldn't rule that out. I don't think we can unilaterally say that the 15 only applies to a certain population. I think what the agency had asked for was special analyses of both IR and MR in some populations, including elderly. And until we have those discussions and re-analyses presented, we won't know.

Do you feel though that the 10 milligram IR dose could support a maintenance claim?

Clearly it has subjectively.

Is one of your contingencies to do an objective sleep lapse study trying to confirm that maintenance claim?

I can't say.

Geoffrey Porges with Sanford Bernstein.

My questions have been answered. Thank you.

Tim Ackermann with SAI.

Some of my questions have already been answered. What is the status of the comorbid depression trial that was running? And secondly, at one point last fall Pfizer was running a trial that was listed on clinicaltrials.gov with an undisclosed sleep compound for transient insomnia. Was that in any way an indiplon study?

Again, I can't say, because we remain collaborators through the 180 day period, and the Phase IV program is something they are responsible for, so I can't comment.

David Woodburn with Prudential Equity.

Paul, a quick one for you. Are you going to have to adjust or modify any of the assets that you have got related to the insomnia program due to a change in development timing and no longer partnership with Pfizer?

No, actually the largest asset that we do have on the books is the prepaid royalty that we purchased from Wyeth back in 2003, if I remember right. That is on the books for $94 million. We have actually taken a look at that under the various FAS rules to see whether or not impairment has occurred. And frankly, impairment obviously has occurred, but the value of that asset as compared to the potential sales associated with indiplon still doesn't suggest a write-down of that asset at this point in time.

We are keeping an eye on that, looking at whether or not there would be an impairment of the asset going forward, perhaps after the FDA meeting. But in the financial analysis that we had done and been confirmed by our outside auditors, at this point in time it is still an asset that we would keep on the books as it is.

Thomas Wei with Piper Jaffray.

Just a follow-up. And I am sorry if this has been asked before, but for $30 million in indiplon development expenses for the MR formulation, how many patients would that support? Are we talking about thousands of patients that you would be able to enroll with $30 million?

No, those -- I can't answer that specifically other than to say that wasn't a number that was pulled out of the air, it was one of I think higher, if I'm not mistaken, of five or six different development scenarios developed with Pfizer coming out of FDA meetings, which could be a Phase I here or there. It could be a Phase III. It could be a -- so it -- you know I --.

I thought though that any individual -- one of these sleep studies cost in the single digit millions of dollars. They are generally a couple or a few hundred patients large. Are we talking about a potential order of magnitude of patients that might right into the thousands range?

Keep in mind that there are, depending on the type of trial that you're running will have a different expense. So for instance, a PSG study will obviously be more expensive per patient than a subjective trial that you might be running.

But I think it is fair to say that in our scenarios we are not assuming thousands of patients, if you will. And as Gary had mentioned, it is at the upper end of a number of different development plans that we're actually discussing and agreed to with Pfizer prior to their termination.

I think that comment is the cost of a Phase -- a [flat '04, '05, O1] study?

Yes, five of the last 15 milligrams, 125 patients sleep lab study cost about 5 to 6 million.

Mark Turner with Hunter Scott Financial.

I just wondered since Pfizer cut you guys off, or ended the partnership, are you looking for any new partners?

Not yet. There are interested parties, but we wouldn't have those discussions until we are further along past FDA refiled at a later point.

So you're looking to distribute it by yourselves or just --?

No, the development we can do ourselves, the commercialization is where we would require a partner. And until we have more clarity on where we are and how far away we are, we wouldn't have that discussion.

How long do you think you are from that?

Not close enough to have a conversation with a big partner right now.

Annabel Samimy with UBS.

I know you sort of it answered this question already, but in terms of a R&D you had mentioned about 80 million -- and that did or did not include the potential cost for future indiplon trials?

It does, yes.

Okay. Great. Thank you very much.

But not commercialization plan.

Not commercialization. So for the sales -- for the SG&A then would we have to assume -- I guess we would have to assume continued cost as it stands today?

Paul Hawran. Only if you're suggesting that there is going to be an offsetting revenue line item for that. That would be the only way that we would keep that expense line going.

As long as there are some kind of revenue offsetting that there's going to be cost associated with that?

Right.

It appears we have no further questions at this time. Mr. Lyons, I will now turn the call back over to you for any closing remarks.

Thank you. As always, any follow-up questions let us know. Good afternoon.