NovaBay Pharmaceuticals Inc (NBY) 2007 Q4 法說會逐字稿

Good morning and welcome to the Novabay Pharmaceuticals Fourth Quarter and Year-End 2007 Results Conference Call.

(OPERATOR INSTRUCTIONS)

I would now like to turn the call over to Cheryl Schneider of the Investor Relations group. Please proceed.

Thank you, Antoine. Good morning everyone and thank you for joining today's call for Novabay Pharmaceuticals. On the call today, we have Dr. Ron Najafi, Chairman and CEO; and Mr. Tom Paulson, Chief Financial Officer. Before we begin the call, I would like to take a moment to read the Safe Harbor statement. This conference call contains forward-looking statements which are based upon management's current expectations, assumptions, estimates, projections and beliefs. These statements include but are not limited to statements regarding the development and potential benefits of and the market opportunities for Novabay's product candidates.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or achievements to be materially different and adverse from those expressed in or implied by the forward-looking statements. Factors that might cause or contribute to such differences include but are not limited to risks and uncertainties relating to difficulties or delays in discovery, development, testing, regulatory approval, production and marketing of the company's product candidates, unexpected adverse side effects or inadequate therapeutic efficacy of these product candidates, the uncertainty of patent protection for the company's intellectual property or trade secrets, the company's ability to obtain additional financing if necessary, and unanticipated research and development and other costs. The forward-looking statements in this call speak only as of this date and Novabay disclaims any intent or obligation to revise or update publicly any forward-looking statement except as required by law. These factors are detailed in the company's filings with the Securities and Exchange Commission.

At this point, it is now my pleasure to pass the call over to Dr. Najafi. Ron, please go ahead.

Thank you, Cheryl. Good morning everyone. I would like to thank you for joining us on the call today. On behalf of the Novabay family, I would like to welcome our shareholders, both new and old, and our future shareholders to our first conference call that we are holding as a public company. Tom Paulson, our Chief Financial Officer, who will be reviewing some of our financial highlights. As many of you know, Tom joined us in January of 2008 and has significant public company experience. Tom previously worked for a number of biotechnology healthcare companies as CFO. And Tom replaced Jack O'Reilly in his role as Chief Financial Officer and we thank Jack for all of his help leading up to the IPO and several months after that. Jack is now concentrating full time on his other responsibilities here at Novabay as that of Senior Vice President of Business and Corporate Development. I will turn the call over to Tom Paulson now. Tom, please go ahead.

Thanks, Ron. Good morning everyone, this is Tom Paulson speaking. In 2007, we recognized $1.5 million from license and collaboration revenue, compared with $1.3 million during last year's fourth quarter. For the full year of 2007, that figure grew to $5.9 million versus $1.5 million in 2006.

For the increase in revenue from 2006 to 2007 was due to the timing of the Alcon and KCI agreements. The Alcon agreement was initiated in August 2006, while the KCI agreement began in 2007, June. We spent $1.8 million on R&D during the fourth quarter of 2007, a slight increase over last year's fourth quarter of $1.6 million. For the full year of 2007, R&D expenses were $7.4 million versus $4.1 million for the full year of 2006. The increase in R&D from 2006 to 2007 was in part attributable to an increase in personnel, as our R&D headcount including clinical personnel grew from 18 to 28 from the end of '06 to the end of '07.

Additionally, we incurred increased clinical expenses in 2007 in large part related to Phase I and Phase II studies of AgaNase under our pre-surgical nasal preparation program. Our general and administration expenses in the fourth quarter 2007 were $1.2 million, compared with $900,000 during the fourth quarter of 2006. For the full year, G&A expenses were $4.4 million compared to $3.0 million for the full year of 2006. The increase in G&A expenses was primarily related to increases in personnel costs and increases in expenditures for professional services such as legal, accounting and Investor Relations in connection with our IPO.

Net loss for the quarter ended December, 31, 2007 was $1.4 million or $0.09 per share as compared with a net loss of $1.1 million or $0.17 per share for the fourth quarter 2006. For the year ended December 31, 2007, Novabay reported a net loss of $5.4 million or $0.60 per share, as compared with a net loss of $5.3 million or $0.92 per share for the year ended December 31, 2006.

As many of you know, we completed our IPO in October of 2007 with our bankers, Dundee Securities, Desjardin Securities, Blackmont Capital and Dawson James Securities. We raised $20 million in gross proceeds and over $17 million after deducting IPO costs. We intend to use these proceeds to support our research and development efforts and fund our clinical initiatives. We ended the year with $22.4 million in cash, cash equivalents and short term investments. As of December 31, 2007, we had 21.3 million shares of common stock outstanding. I'll now pass the call back to Ron.

Thank you, Tom. Ladies and gentlemen, as many of you know, we have developed a class of antimicrobial compounds which is named aganocide compounds that we are using as a platform to create a variety of products that address critical needs in the antimicrobial arena. Many of the infections that we are targeting have become increasingly more difficult to treat because of the rapid rise in drug resistance. We have developed a platform of non-antibiotic anti-infective compounds designed to prevent the spread of this multi-drug-resistant infections. These molecules or product candidates are based on white blood cell molecules that are generated within the human immune system.

In laboratory testing, our aganocide compounds are highly effective. Because of their topical nature, we can license out our compounds by specific indications, an option that is not available to systemic drugs. To optimize the commercial opportunity of the aganocides, we have developed a two-pronged strategy. Our first approach is to partner the use of the aganocides in non-hospital indications and do it with the leaders in those markets. To that end, we have partnered with the affiliates of Alcon and Kinetic Concepts, also known as KCI. Through these collaborations, we have partnered in the areas of infections in the ear, eye, sinus and wound care. I will discuss these collaborations later in my presentation.

Our second approach is to create and retain technologies in indications focused on hospital-associated infections, an area that we believes presents a strategic opportunity for Novabay. We have a number of potential opportunities here. Our MRSA pre-surgical nasal prep and catheter-associated urinary tract infection that we also call CAUTI, clinical programs are two examples of these strategic initiatives. Through both retained and partnered clinical programs, our compounds are in development to treat patients with infections of the eye, ear and sinus and to create an improved environment for the healing of the wounds, and to prevent infections that either result from surgical or other hospital procedures.

Let me take a moment to discuss the market and the opportunities with you. In 2002, I am going to give you some data in the next couple of minutes that should really reflect what the opportunities are here. So in 2002, World Health Organization, commonly known as WHO, predicted that in ten years' time, we will be in a post-antibiotic era. What that means is that there will be infections for which there will be no effective antibiotics.

We are quickly approaching this phase as is evident by the rapid rise of MRSA and other drug-resistant bacterial infections. In fact, MRSA continues to evolve into more deadly variant forms. According to WHO, bacterial infections are the fastest-growing and fourth-leading cause of death in the United States, with as many as 100,000 deaths each year in the U.S. alone. Many of these infections are becoming significantly harder to treat because of the rapid rise in antibiotic resistance.

Again according to the Journal of the American Medical Association, JAMA, more people die from MRSA than AIDS in the United States. CDC estimated that in 2005, MRSA infected more than 94,000 Americans and killed 19,000 people. I believe the statistics for AIDS was 16,000 in that year. For all drug-resistant bacterial infections, it has been estimated that there are about two million hospital-associated infections per year, resulting in 90,000 deaths and costing approximately $66 billion to the healthcare system.

Ladies and gentlemen, this is a major problem. There is a clearly a need for a therapeutic solution that can kill bugs without giving rise to resistance. We believe that aganocide compounds have those characteristics and have strong potential to combat this epidemic head-on. Our ultimate aim is to reduce the usage of antibiotic and emphasize the need for a non-antibiotic approach where possible.

So, what are we doing about this? I will now take a moment to discuss our ongoing programs with our licensing partners, Alcon and KCI. And then I will go through some of our own internal programs. I would like to remind you that the agreement we have with Alcon and KCI prohibits us from disclosing some of the provisions of the agreement, and I will refer you to our SEC filings on those.

So during 2007, Novabay continued to work closely with Alcon on development of NVC-422, the company's lead aganocide compound, for the use in the eye, ear and sinus as well as in contact lens solutions. This is a significant partnership for Novobay. In addition to the upfront technology access fee that we received from Alcon in 2006, we continue to receive significant reimbursement from Alcon to support our ongoing research and development activities relating to our collaboration. As a result of our collaboration with Alcon, we have developed several molecules, some of which can be developed further, either internally or with Alcon. We are optimistic about our relationship with Alcon and the program that we are working on with their development team and look forward to the achievement to come in 2008. And we have several things that we are hoping to achieve obviously before the end of 2008.

As for Kinetic Concepts, this is our other partnership. We are particularly proud of it with the one -- with KCI. This past June, we significantly advanced our commitment to wound care by entering into an exclusive worldwide agreement with an affiliate of KCI for the use of NVC-101, a compound also trademarked as NeutroPhase. As you may know, Kinetic Concepts is a leading wound care company that generates over $1 billion annually from its VAC system for accelerated wound healing. The company also has the largest sales force in the wound care market, with approximately 1,800 representatives. In September of '07, we received a 510-K approval from the FDA to market NeutroPhase and in February of '08, we were notified of the allowance of U.S. patents covering the use of NeutroPhase in wound care applications. Our product team is currently working closely with KCI to prepare their product for use with the next generation of the VAC system.

So in addition to our partnerships that I previously mentioned, we are working on several internal programs that we have not licensed. In the third and fourth quarter of 2007, the company completed two Phase I safety trials of NVC-422 for use as a pre-surgical nasal preparation. We trademarked this product as AgaNase. The result from these studies indicated that AgaNase is safe and well tolerated. The company is conducting these studies to demonstrate that AgaNase can reduce the amount of staph aureus and in particular, MRSA, which is the resistant form of the staph aureus, in the nasal passages. Used prior to surgery, the company believes AgaNase should significantly reduce the number of patients who develop potentially life-threatening bloodborne infections.

In November of '07, we initiated a Phase II study in healthy volunteers that are carriers of staph aureus, which means they have staph in their nasal passages. The purpose of the Phase II study is to establish the efficacy of AgaNase as a pre-surgical nasal preparation to eliminate staph from the nasal passages, thereby preventing the incidence of staph infection in surgical settings. It has been shown that nasal caries of staph are at significantly higher risk of developing surgical site infections. Many hospitals are beginning to screen and treat patients who come in with MRSA.

Treatment modalities involve the use of antibiotics. It is now being discovered that MRSA, as mentioned earlier, is becoming resistant to the common antibiotics used in the hospitals. First of all, we believe that AgaNase should replace these antibiotics and thus, stop the vicious cycle of growing resistance. Secondly, we believe that AgaNase should significantly reduce the number of patients that develop unnecessary life-threatening bloodborne infections.

Our second internal program is to prevent catheter-associated urinary tract infections and we created an acronym for it, CAUTI, and we call it CAUTI. In December of '07, Novabay filed an investigational new drug, commonly known in this trade as INV, to initiate Phase I human clinical trials for NVC-422 for the prevention of CAUTI. In January of '08, we were pleased to receive rapid clearance from the FDA to begin human clinical trials. The treatment phase of this study began in late February of '08 and we announced last week that the first cohort of patients had been dosed. This is a cohort of five patients.

And I am glad to say that we just completed the second cohort with no adverse events. We believe this represents a large market opportunity for us with an estimated 5 million patients undergoing catheterization each year. CAUTI is a major source of hospital acquired infections, ladies and gentlemen. It accounts for almost 40% of all hospital associated infections, roughly 800,000 patients per year. This is a pretty incredible number. These infections prolong hospitalization and in some portion of cases, cause death. The cost of treating CAUTI has been reported to vary from $2,000 to $30,000, depending upon severity. There are no approved products for preventing this infection.

So, antibiotics cannot do it, because bacteria inside the catheters form what is called a biofilm within the catheter, a cocoon-like shield where bacteria goes into dormancy. For an antibiotic to be effective, they need fast-growing bacteria. So antibiotics do not easily kill bacteria once they have formed a biofilm. In controlled laboratory studies that we have conducted at Center for Biofilm Engineering at Montana State, our aganocide compounds were found to be highly effective at killing bacteria in biofilm.

I will conclude my remarks by walking you through our development program for dermatology. Novabay is focused on developing products that will potentially eliminate the need to use antibiotic-based products in dermatological indications and markets. We believe that NVC-422 can be as effective in many cases of dermatological infections, such as acne and impetigo. In laboratory testing that we have done recently, NVC-422 has been shown to kill P. acne very effectively and other dermal bacteria. And we have made significant progress towards cosmetically acceptable formulations. Although we are in discussions with leading dermatology company, we intend to retain a significant commercial stake in this attractive market.

So in conclusion, I would like to say we strongly believe that Novabay possesses significant value drivers in 2008 and beyond. It is important to note that based on historical data, the success rate for developing anti-infectives are typically much higher than other therapeutic candidates. For example, historically, 33% of anti-infective that made it into Phase I studies became a commercial product, as opposed to 1% to 5% of cancer, cardiovascular or CNS drugs. Furthermore, the time and cost of developing anti-infectives is typically much lower than other therapeutics due to the shorter clinical study duration and the well-established regulatory pathway for this class of drugs. Our internal programs are focused on delivering results from our Phase II studies in the pre-surgical MRSA nasal prep studies in 2008 and hopefully moving into Phase II studies in catheter-associated UTI, CAUTI program, by the end of the year in 2008.

We are also moving forward with our strategic initiative to develop a dermatology product and we will update you on the status of our direction in the coming quarters. For our partnered products, we are moving forward with Alcon and we are hopeful that the collaboration will bring two indications to the clinics before the end of this year, '08. As far as KCI is concerned, we are working very closely with them to launch their product within the next 12 months.

We have begun life as a public company, as many of you know, as we intend to keep an open line with our shareholders. After the IPO we established an ongoing outreach program and we are meeting with our investors, current and potential. As an example, beginning next week, we will be meeting with the members of the investment community in New York, Boston, Toronto, and if you have any questions or any interest in speaking with us, please contact us.

I hope today's call was helpful in providing you with an overview of our clinical programs and what we have achieved to date. Let me reduce our objectives to three points. One, we want to save lives. Two, we must create a commercial enterprise. And three, we want to create shareholder value. I am happy to take any questions you might have at this point.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of [Elizabeth Barrett] with Chelsea Asset Management. Please proceed with your question.

Hi, good morning, gentlemen. Congratulations on your accomplishments. If you could please just repeat in addition to your internal programs, what do you expect to have in clinical with your partners by the end of 2008?

Okay, so we are very hopeful that Alcon will begin two clinical programs this year. These are safety studies and they will be in ophthalmology, that will be eye infection and specifically, it will be a non-specific conjunctivitis study. And they will be also using the same formulation in ear infections, and that will be again a safety study. And we are very optimistic that they will begin those trials, the ophthalmology toward the middle of this year, and optic, toward the end of this year.

Very good, thank you.

Your next question comes from the line of Stephen Dunn with Dawson James. Please proceed with your question.

Good morning, Ron and Tom. Congratulations on your first conference call.

Thank you.

I guess since it is your first conference call, it kind of necessitates running through your pipeline as far as the timing of events for each of the items. I guess what I want to start with is your NeutroPhase with KCI. I understand now that NeutroPhase did receive FDA 510-K approval and your patent allowance. However, KCI needs to file a combination with the 510-K with the FDA. Could you give me the timing on the filing and when you expect approval?

So, Steve, I cannot really comment. Our agreement with our corporate partners really prohibits us from getting to that level of detail. So I would think just stand by.

I guess would you -- are you committing to a Q4 launch then with KCI? Because I thought I heard that.

We are very hopeful and optimistic about this partnership with KCI. We are working very closely with them, a lot of meetings, a lot of onsite meetings both here in Emeryville and San Antonio. And we are hopeful to get this thing accomplished as soon as possible. I can't give you any timing.

Okay. Let's go onto AgaNase for your pre-surgical nasal prep.

Okay.

You have got some Phase II data, I guess we are doing dose rangings, dose ranging studies in the Phase I, is that correct?

Right. No, so the AgaNase is, we are now taking the highest dose that came out of the Phase I study, which we qualified 0.3 and 0.6% NVC-422 in saline and we are taking those into a dose ranging efficacy study in volunteers. And this is a five-day study, double-blind, placebo controlled, 15 volunteers in each cohort, and 10 patients on the active drug, five patients on placebo. And it is a five-day study and we are trying to mimic essentially the time patients spend in the hospital.

And we are -- as you know, patients are now being, before you take somebody into the clinic or into the surgery, you prep their skin and now if their patient has MRSA in their nasal caries, basically they treat them with antibiotics. We are trying to replace that antibiotic with AgaNase because of its lack of resistance, and we are trying to achieve that within a five-day period. So you take a patient, you essentially treat a patient a day or two before surgery and then you continue to treat the patient several days after surgery until the patient is out of the hospital.

Okay, so we initiated a Phase IIA in the 0.3% and the 0.6% dosages. When we will expect to see results?

Okay, so what we are aiming for a database log some time toward the end of April and we are hoping we will have results -- top line results shortly thereafter.

All right. Well, let's go onto your catheter-associated urinary tract infections. I guess we have a trial started. I guess, could you give us some color on how that is structured?

So, this is again, it is a double-blind placebo controlled safety study. We have a solution of NVC-422, this is similar to AgaNase but much lower concentration that we are putting into the nose. And that solution is being used to irrigate the catheter and some of the solution gets into the bladder. And it is a five-patient or five-volunteer per cohort. We just completed patient number ten, which is completed two cohorts. And three of those are on active drugs, two on placebo and it is really a dose ranging study. We are trying to find the maximum tolerated dose and our ultimate goal is to be able to irrigate the catheter and partially the bladder in a seven-day safety study.

So assuming no tox-limiting dosages, how many cohorts are we planning?

We are looking at somewhere between 29 to 41 patients.

So that is six cohorts?

Right.

And assuming again we don't hit any dose-limiting toxicities, that we get to all six cohorts, when would you expect to have results from all that?

Right, so we are expecting data sometime toward the end of June of this year. And that is barring any unforeseen lack of volunteers. We were pleasantly surprised that there were plenty of volunteers in this safety study to want to take catheters. So that really has sped up our program. Initially, we were expecting to finish the trials toward the end of summer, but now it looks like it is going to be much faster than we thought.

Okay. And last on the pipeline questions, on the dermatology, I guess your call is you want to keep significant commercial stake in the dermatology product. I guess, what does that really mean? I mean, are you looking to partner it or are you looking to keep United States and target ex-U.S., or what does that phrase mean, really?

Yes, so what -- we definitely are interested in partnering it. I think this is a very -- it falls within that strategy that we want to partner our non-hospital indications. And this is obviously, you need a commercial partner that can really make a go of it. And we are -- our intent is to keep a chunk of this opportunity for ourselves, either U.S. and we partner Europe or vice versa. We need to see that to try to maintain some commercial benefit for our shareholders going forward.

So are you looking to split this up based on geography? Are you looking to split it up based on indication?

I think that is to be determined and to be negotiated. But both.

I guess so for investors, when would I see the next announcement or event for this pipe for the dermatology candidate?

I can't really tell you when, but I think some time this year, we will try to make some announcement as to where we are heading. But as I have mentioned to you before, we have obviously when we are talking to major derm companies in the U.S. and abroad. We also made significant progress with our derm product, we formulated them very successfully now internally. We want to increase the value of our product so that if and when we partner them, we can capture more value out of the partnership than if we just hand over the molecule to them.

Okay. I guess, when would we -- when do you foresee us in human safety testing to begin?

I can't comment on that, Steve. It is -- this is something that is still, we are trying to figure out what clinical programs can we do? We are really interested in doing some critical proof of concept studies with the formulation that we have created that will definitely show a potential partner that we had a product for P. acne. As you know, P. acne is a big opportunity and everybody is interested in acne opportunities, $2 billion. And the timings of those proof of concept studies have not been made clear to me by our clinical people.

Okay. And Tom, just a little housekeeping. What is your fully diluted share count right now?

Steve, I believe it is 24.5 million, I think is fully diluted.

Okay. Great. Well, I will jump back in the queue. It looks like 2008 is going to be very exciting for Novabay.

Thank you.

Thank you so much, Steve.

Your next question comes from the line of [Lynn Saxon] with Saxon Asset Management. Please proceed with your question.

Good morning, guys. Again, congratulations on your first conference call. You have mentioned that your clinical trials are faster and less expensive than the normal. Why is this and can you discuss maybe the expected length of time for your trials and the milestones for each?

So, as I mentioned too during our conference call, the cost and time of doing anti-infective trials are much lower than other therapeutic categories. For example, Alzheimer's trials, you have to -- I was talking recently with a friend. They are talking about three to four year trials, Phase III trials. In anti-infectives, typically you either kill the bug or you don't kill the bug. And you either have a clinical benefit or you don't immediately after that. So for example, in our MRSA nasal prep, we are looking at microbiological endpoints. In ophthalmology, I am sure Alcon will be looking at whether they kill the bug in the eye or not and in ten days' time, they will know whether they are impacting the eye. So that is a benefit of anti-infective trials. And again, the trials, the course of trial, it is an acute-type indication. So you use the product once and you are done. It is not a chronic indication. So the cost of this study, the time of this study is going to be much shorter.

Okay, I see. And can you discuss the milestones for each of the trials?

Specifically, I think for nasal, we are doing a safety -- we did safety study. We are now in efficacy study and things are moving forward, we hope to begin a Phase III study early next year. And on the catheter-associated UTI, we are hoping to engage into a Phase II study toward the end of this year. And with Alcon, as I mentioned, we have two clinical programs, those are safety studies that we should be able to initiate or they will be initiating this year. And with KCI, it is really a commercialization strategy and KCI is busily working on it.

Great, thank you.

Your next question comes from the line of David Martin with Dundee Securities. Please proceed with your question.

Hi, guys. Thanks for taking my questions. The first one, just on the dermatology, will your potential partners need to see proof of concept in humans to sign a deal? Are we going to have to wait for that to occur, do you think? And why do you want to keep a significant stake of dermatology? I thought your interest was keeping the hospital indications for yourself, with the out of hospital indications going to the partners?

Good morning, Dave. It is -- I think on the derm, I have to make myself clear. Our ultimate intention is to partner dermatology, both in the U.S. and Europe. But in order for us to do that successfully and be able to have a bigger stake in the agreement and bigger return on our investment, it is best that we have the proof of concept in hand when we negotiate with a derm partner. We have been talking, we have been in discussion with a potential derm partner, a major derm partner, and they are willing to take it on as it is. And they are willing to go ahead and develop it themselves. But I think it is best for us to have a little bit more so we could essentially have a better deal.

Okay. And what about this keeping a significant stake? Do you just mean develop it to a later stage so you get better economics and then hand off commercialization fully to the partner? I can't understand what contribution you could have to the commercialization of a derm product if you want to keep your strategy to focus your commercialization efforts in the hospital?

Right. So we are not going to be marketing derm. It is really a strategy to increase our return on our investment.

Okay, for the nasal prep, I know in Europe that there is already some use of nasal prep prior to surgery to decrease the load of staph aureus. In North America, typically no. We are seeing increasing resistance and increasing hospital infections and we all know that Medicare is making moves not to pay for hospital mistakes. But there are conflicting studies out there that show sometimes nasal prep reduces surgical site infections, sometimes it doesn't, and especially in cases where all comers are surgically prepped. And other studies show that washing the hands religiously makes the biggest difference as far as nosocomial infections. I am just wondering, are you seeing things that definitely, are you seeing signs that would definitely suggest that there is more nasal pre-prep occurring in the U.S.? And probably more importantly, do you foresee in the pipeline guidelines maybe that would require nasal decolonization prior to surgery?

So, to address these conflicting studies, I think if you look at all of the studies that patients were treated with say, Mupirocin, bactroban, and they had MRSA in their nose or staph, they had better surgical outcomes. The chance of the infection was lower, that is definitive. Now if you treat every patient, whether they have it or not, they haven't been able to show any definitive results. We know for a fact that in many hospitals in the U.S., I recently was talking to somebody at UCSF in San Francisco General Hospital. If you come in with MRSA in your nose, they are not going to take you into surgery. And they treat you with bactroban nasal or Mupirocin

And so, a recent study at Washington University in St. Louis has reported that if you continue to use Mupirocin in that fashion to treat these patients, now there is 13% Mupirocin resistance to MRSA. So this is another variant form of MRSA. AgaNase kills both MRSA and the variant form of MRSA and our intent is to go to the FDA and show them that we do kill both variants and all of the variants, including staph and MRSA.

Do you see any guidelines coming down that would potentially require or suggest -- at the very least, suggest that nasal prep is a good idea?

There is a guideline in the UK, very nice guideline that specifically says, you want to take the patient, you want to give him a shower with clorohexadine soap, then you want to prep their nose, you want to make sure if they have MRSA in their nose, you treat that. And you want to make sure the nurses wash their hands and doctors and surgeons and then you will have a very good outcome. In fact, there is and I am happy to send that to you.

I am just wondering in the U.S., is CDC working on something like that?

I haven't seen any in the U.S. But I think it is coming.

Okay, another question. You mentioned that with Alcon, you are working on other molecules other than NVC-422. And I wonder what your goals are for these other molecules, how -- what you would like to see different from NVC-422 and why you are making those efforts?

Dave, our agreement with Alcon prohibits us from commenting on those issues.

Okay. And then one question for Tom. What do you expect the burn to be in 2008?

Well, we do have as a policy, we don't give forward-looking earnings guidance. I mean, you can certainly tell from our financial reporting what our historical burn rate has been. It has been sub $1million a month. Obviously, as Ron explained our programs, and how fast will they be moving forward in multiple fronts in the clinic, the burn rate will certainly go up in 2008.

Okay, and would you expect any money coming in from either the wound care or the Alcon partnership? As far as milestones? I know you got the R&D reimbursement from Alcon, but are there major milestones on top?

So, as you will see from our SEC filings, we have a $70 million milestone payment that will be coming as we progress with Alcon into the clinic. And those are clinical milestones, and so INV filings, Phase I, Phase II, Phase III and commercialization. So, I think if we make it into the clinic with Alcon this year, one could expect a milestone payment.

Okay. And then KCI, if the second 510-K for the device drug is approved, is that a milestoneable event?

No.

No, okay. Okay, thank you, guys, and congratulations.

Thank you so much.

There are no further questions at this time. I will now turn the call back over to Ron Najafi.

Well, once again I want to thank you all for listening to our first conference call and I appreciate your patience. Please feel free to contact me or Tom Paulson with any additional questions, if you think of any. Once again, thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.