Sarepta Therapeutics Inc (SRPT) 2006 Q4 法說會逐字稿

Welcome to the AVI BioPharma 2006 fourth quarter financial results conference call. At this time all participants are in a listen only mode. Following management's prepared remarks we will host a Q&A session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded today, March 15, 2007. I would now like to turn the conference over to Ms. Jody Cain.

This is Jody Cain with Lippert/Heilshorn & Associates. Thank you for participating in today's call. Joining me from AVI BioPharma are Denis Burger, Chairman and Chief Executive Officer; Alan Timmins, President and Chief Operating Officer and Mark Webber, Chief Financial Officer. Earlier today AVI BioPharma released financial results for the 2006 fourth quarter and full -year. If you have not received this news release or you would like to be added to the company's distribution list please call Lippert/Heilshorn in Los Angeles at 310-691-7100 and speak with Erica Torres.

Before we begin I would like to state that comments made by management during this conference call will include forward-looking statements within the meaning of federal securities laws. These forward-looking statements involve material risk and uncertainties. For a discussion of risk factors I encourage you to review the AVI BioPharma annual report on form 10-K and subsequent reports as filed with the SEC. Furthermore, the content of this conference call contains time sensitive information that is accurate only as of the date of the live broadcast March 15, 2007. The company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that said, I would like to turn the call over to Denis Burger.

Thank you, Jody, and thank you all for joining us today. At AVI BioPharma we have active clinical programs underway with our third generation NEUGENE antisense technology in cardiovascular disease and in hepatitis C. And with our novel Exon Skipping Pre-RNA interference technology or ESPRIT in muscular dystrophy. In today's call first Mark Webber will review our fourth quarter and year end 2006 financial results. Then as indicated in last quarter's call, I will provide you with an overview of our ESPRIT technology and its application to muscular dystrophy. Alan will then provide updates in our coronary artery bypass graft or CABG program. And I will then conclude with a summary of upcoming milestones before taking questions.

With that, I would like to now turn the call over to Mark Webber.

Thanks, Denis. Today I would like to review our 2006 fourth quarter financial results and our year end cash position, then I will introduce our 2007 financial guidance. Revenues from license fees, grants and research contracts in the fourth quarter of 2006 were $18,000 compared with revenues of $1.4 million reported in the fourth quarter of 2005. Revenues in 2005 were due primarily to recognition of $1.4 million in research contract revenue from government funding.

Operating expenses for the 2006 fourth quarter were $8.8 million compared with $6.2 million in the prior year. This increase was due primarily to higher R&D expenses, which totaled $6.7 million compared with $4.9 million in the prior year quarter. R&D expenses in the 2006 fourth quarter included additional employee costs of $725,000, of which $585,000 was from non-cash, stock-based compensation expense under SFAS 123(R). Higher R&D expenses this year also reflect $675,000 in AVI common stock issued to Ercole Biotech under terms of a stock purchase agreement announced last December. And $575,000 was due to contracting costs for the reduction of GMP subunits which we use to manufacture compounds for future clinical trials.

General and administrative expenses increased to $2.1 million in the fourth quarter of 2006 from $1.4 million in the prior year. This increase was due primarily to higher employee costs of $650,000, including $350,000 in non-cash, stock-based compensation expense due to SFAS 123(R). We reported a net loss for the fourth quarter of 2006 of $8.3 million or $0.16 per share. That's compared to a net loss of $4.6 million or $0.10 per share for the fourth quarter of 2005. Our 2006 fourth quarter results included non-cash, stock-based compensation expense of $935,000.

Revenues for the full-year of 2006 were approximately $115,000, down from $4.8 million in 2005. Higher revenues in 2005 reflect recognition of $4.6 million in research contract revenue from government funding. Operating expense from the 2006 were $33.1 million compared with $22.2 million in 2005. This increase was due to higher R&D costs, which totaled approximately $25.3 million in 2006 compared with $17.1 million in 2005, primarily as a result of an additional $3.1 million in employee costs. These costs included $2.4 million in non-cash, stock-based compensation expense due to SFAS 123(R) and $430,000 related to the acceleration of the vesting of certain stock options.

The increase in R&D expenses also reflects $2.2 million from the expansion of hepatitis C and CABG clinical programs and $1.7 million in contracting costs for the production of GMP subunits. The R&D increase also reflects $675,000 in AVI common stock issued to Ercole Biotech and $500,000 AVI common stock issued to Chiron Corporation as a first milestone payment under a license agreement that grants AVI a non-exclusive license to Chiron's patents and patent applications for the research, development and commercialization of antisense therapeutics against HCV. General and administrative expenses increased to $7.8 million in 2006 from $5.2 million in 2005. This increase is due primarily to an additional $2.4 million in employee costs including $1.6 million in non-cash, stock-based compensation expense due to SFAS 123(R) and $400,000 related to the acceleration of the vesting of certain stock options.

Our net loss for 2006 was $31.1 million or $0.59 per share. This compares with a net loss for 2005 of $16.7 million or $0.37 per share. Results for 2006 included non-cash stock-based competition expense of $4.9 million, of which $4 million was due to SFAS 123(R) and $830,000 was related to the acceleration of the vesting of certain stock options.

Reviewing our balance sheet we reported cash, cash equivalents and short-term securities of $33.2 million as of December 31, 2006. A decrease of $13.9 million from December 31, 2005. This decrease was due primarily to $20.6 million used in operations and $1.5 million used for the purchase of equipment and patent related costs. This was offset by the receipt of $5 million in net proceeds from a stock purchase agreement with Cook Group and $3.2 million from the exercise of warrants and options and sales under the company's employee stock purchase plan.

Additionally in January 2006 we were informed that in accordance with the final version of the 2006 Defense Appropriations Act approved by President Bush, AVI will be allocated $11 million to fund our ongoing defense-related programs. Net of government administrative costs it is anticipated that AVI will receive up to $9.8 million under this allocation. AVI's NEUGENE technology is expected to be used to continue developing therapeutic agents against Ebola, Marburg and dengue viruses as well as to continue developing countermeasures for Anthrax exposure and antidotes for Ricin toxin. These funds have yet to be received and are not reflected in our 2006 financial statements.

In reviewing our 2007 financial guidance, we expect cash expenditures for 2007 to be in the range of $25 to $28 million. The net cash burn for 2007 could be in the range of $10 to $17 million principally depending upon the extent of reimbursement under our DTRA programs.

With that overview, I would like now to turn the call back to Denis.

Thank you, Mark. Let me now take some time to introduce you to the concept of alternative slicing for Exon Skipping and our ESPRIT program. Again, ESPRIT stands for Exon Skipping Pre-RNA Interference Technology. ESPRIT technology holds potential as a highly potent tool for altering many disease mechanisms, and we believe ESPRIT will provide a basis for novel therapeutic drug development in AVI in the years to come.

In the gene genetic information is found in discreet packets of instructions called exons. These informational packets are separated from each other by other segments of DNA that are not informational. When the gene is transcribed in order to send instructions to the cell machinery to make a particular protein, the gene first makes an exact copy of itself called pre-RNA. When RNA is then processed by snipping out non informational segments and splicing the exons together adjacent to each other, the resulting RNA is called messenger RNA, and is transported from the nucleus to the cytoplasm of the cell. There the ribosome factory uses this information to manufacture the encoded protein.

Since the gene may have a number of exons, the cell machinery can mix and match various exons to produce a larger number of discreet but related proteins from a smaller number of genes. This is referred to as alternative splicing. ESPRIT technology uses our NEUGENEs to target sites in the pre-RNA to hide the targeted exon from the splicing machinery. This causes the machinery to skip the targeted exon, and this is referred to as Exon Skipping. The resulting protein would then lack the segment encoded by the skipped exon. This is fine genetic surgery. Rather than block the entire protein production as in a conventional antisense mechanism, only a piece or segment of the protein is not produced.

This mechanism allows us to make designer proteins and fine-tune our approach to interfere with the disease process. It also allows us to skip an exon if that exon has a mutation that leads to a disease. And this is our first application of the technology. We have selected Duchenne muscular dystrophy as the first indication to pursue based, of course, on very favorable preclinical results. As background on this disease an important muscle protein called dystrophin acts as a shock absorber that provides strength and stability to muscle cells during contraction. Dystrophin is also believed to carry signals that inside and outside of the muscle fibers. Without dystrophin muscles are not able to operate properly.

The dystrophin gene is carried on the X-chromosome. Young men are more susceptible to dystrophin damage because they have only one X-chromosome. When a boy is diagnosed with Duchenne muscular dystrophy, or DMD, his body is not able to produce functional dystrophin, the most prevalent type of DMD occurs when there is a mutation in exon 51, which causes all of the other exons, and there are many, to be misread by the ribosome so that no viable dystrophin is produced.

Our objective is to use the ESPRIT based therapeutic AVI 4658 to skip exon 51, which would put the subsequent or downstream exons back in the correct reading frame for the ribosome. In collaborative preclinical studies mice with Duchenne type muscular dystrophy produced dystrophin for at least 16 weeks following initial systemic dosing with our ESPRIT compounds. The dystrophin formed in this study was shortened, lacking the piece from the skipped exon but was a functional version of dystrophin.

Let me share with you the importance of this. According to the Muscular Dystrophy Association the onset of Duchenne muscular dystrophy typically occurs between 2 and 6 years of age. It is characterized by generalized weakness and muscle wasting, which eventually affects all involuntary muscles including heart and breathing muscles. These young boys become wheelchair-bound and the survival with muscular dystrophy of this type is rare beyond the age of 30. There are a few patients where the shortened version without the mutated exon occur naturally and in those cases the disease is much more benign, and often not even diagnosed until the later decades of life.

Our objective clinically is to move this devastating form of DMD to the much milder form that is asymptomatic for much of life. We have started our clinical work in Duchenne muscular dystrophy through a collaboration with MDEX Consortium in the UK, which is a well-respected group established and funded to conduct clinical trials in Duchenne muscular dystrophy. The first step in our clinical program is a proof in principle controlled, dose escalating trial with up to nine boys with Duchenne muscular dystrophy receiving a single intramuscular administration of our drug, AVI 4658. Four weeks following injection the muscle will be biopsied and examined for molecular evidence of dystrophin production, representing a positive endpoint.

Concomitantly we anticipate the expansion of AVI 4658 clinical development to systemic administration for treating Duchenne muscular dystrophy. While we plan to pursue U.S.-based clinical trial we are also exploring other locations, including Eastern Europe, as well as sponsorship and collaboration opportunities in Australia. Our future goals include expanding this program to include many other exons implicated in Duchenne muscular dystrophy.

We are also pursuing additional opportunities with our ESPRIT program. As announced in December we entered a collaboration and cross-licensing agreement with Ercole Biotech to identify and develop ESPRIT drugs. Ercole is a recognized leader in alternative splicing field. We have each selected a set of specific gene targets and will take the respective lead in investigating the potential therapeutic and alternatives of these splicing mechanisms. We see this agreement as a means to strengthen the intellectual property position for ESPRIT technology and to benefit from the scientific collaboration between AVI and Ercole Biotech.

Although our first clinical application of ESPRIT is a potential orphan drug indication, we believe that the principal application of this technology is much broader than genetic diseases and perhaps will eventually include more gene targets than antisense itself. We are positioning AVI to be a leader in exon skipping in the field of gene silencing.

With that overview in our ESPRIT technology I will ask Alan now to review our CABG program.

Thanks, Dennis, and let me add my welcome to those of you joining us this morning on the call and on the Internet. We are making progress with our pivotal clinical study with AVI 5126 or Resten-CP in coronary artery bypass grafting patients. CABG surgery is one of the most commonly performed surgical procedures in the United States. Approximately 350,000 CABG procedures are performed in the U.S. annually, and about 800,000 are performed worldwide each year. Although coronary artery bypass surgery is effective in restoring blood flow, 30% to 50% of vein grafts eventually become blocked or otherwise fail.

In fact, within the first year after a CABG procedure an estimated 15% to 30% of saphenous vein grafts fail. After several years of declining CABG procedures owing to the increased use of balloon angioplasty and stenting, CABG is now again increasing due to caution surrounding the long-term risk associated with drug-eluting stent procedures that are coming to light. Resten-CP is being tested to prevent late-term consequences of intimal hyperplasia, which is considered the primary cause of vessel obstruction after CABG and intercoronary artery stent placement.

We are pursuing Resten-CP for the treatment of CABG through an internal program as we believe this represents an important opportunity for AVI. We have shown in a previous Phase II clinical study that Resten-NG reduced the restenosis rate after balloon angioplasty by approximately 75%. Vein graft failure has been shown to involve the same mechanism as cardiovascular restenosis with a critical involvement again of the c-myc gene. Resten-CP has the same NEUGENE component as Resten-NG and has been shown to be efficacious at silencing the c-myc gene. We are therefore applying our technology to a clinical problem which involves the same mechanism of action where it has already been shown to be effective, namely in reducing the incidence of restenosis and applied here we anticipate that it could also reduce the incidence of vein graft failure.

In our CABG study the saphenous vein is treated with Resten-CP ex vivo or outside the body before using it to bypass a blockage. Since the vessel is rinsed before the bypass procedure, the patient is not exposed to a detectable level of the drug. Obviously this lessens any potential safety concerns. We believe that we will be able to effectively treat the graft tissue outside the body due to the incorporation of our proprietary drug delivery peptide, CytoPorter, in Resten-CP. Our CABG trial is the first clinical use of this delivery peptide. In preclinical studies this procedure has been efficacious in down regulating the targeted gene, c-myc, and in prolonging graft survival.

Importantly, if successful our Resten-CP procedure could become the standard of care and may be routinely used in all CABG procedures. We believe that currently there are no approved drugs in this indication. While the potential for Resten-CP is substantial, the market for such a drug can be addressed without an extensive sales force because the sites where coronary bypass surgeries are performed are well-known. Our clinical program with Resten-CP is a pivotal, multicenter, double blinded, randomized and placebo-controlled study that is expected to include up to a total of 600 patients. We are conducting this program in well-respected, high-volume cardiovascular study sites in Eastern Europe.

The Phase I b 2 portion of the study includes 110 patients and is powered for safety and superiority. There will be an interim safety evaluation after 30 patients are enrolled and we anticipate reporting that data around the middle of the year in 2007. As previously stated, we expect to report data from the first 110 patients by the end of this year or early next year. At that point the study becomes a Phase III program. We are taking a cost-effective, efficient and quality approach to the clinical development of Resten-CP. Our ability to demonstrate efficacy in the Phase III study will be the first step in our plan to introduce Resten-CP as a CABG treatment in all major markets within the ensuing years.

With that update I would like to turn the call back to Denis.

Thanks, Alan. Before we take your questions I would like to review some of our upcoming milestones. First, in our cardiovascular program we have focused our internal efforts exclusively on our CABG program. As Alan discussed, we anticipate announcing interim safety results following the treatment of the first 30 patients around midyear and initial results from the first 110 patients in this trial later this year or early in 2008.

With AVI 4126 for the treatment of vascular disease, our licensee, Cook Group, has announced intentions to present independently reviewed core laboratory data from the APPRAISAL trial at the EuroPCR conference in May. In the APPRAISAL trial Resten-MP or AVI 4126 was delivered intravenously via microparticle technology in conjunction with the placement of one or more bare-metal stents for the treatment of cardiovascular restenosis.

Turning to our infectious disease program we are focusing commercial development on HCV, influenza and Dengue virus diseases. Starting with HCV, early in 2006 the company reported favorable safety tolerability in PK results among healthy volunteers. Preliminary data on HCV patients were presented in May, 2006. The PK in HCV patients was significantly different from that of healthy volunteers, which was not anticipated. The blood concentration of the drug in HCV patients was only one-third of that predicted to be required for a clinically significant reduction in viral load. Consistent with this observation no clinically significant reductions in viral load was reported.

Based on these data, two additional studies were proposed using AVI 4065; an extended treatment duration protocol and a high dose treatment protocol. Preliminary data from the protocol extending the treatment duration to 28 days have not shown a significant benefit on improving the PK or reducing viral load, although the study is ongoing. AVI has plans to conduct a high dose escalating treatment protocol designed to exceed the predicted blood concentration with the goal of achieving a clinically significant reduction in viral load. AVI plans to complete this study and anticipates reporting safety, PK in viral response data from the study before the end of this year. The company recently completed GNP manufacturing of AVI 4065 for this planned, high dose treatment protocol.

In our influenza program we are continuing the work with collaborators to complete preclinical animal data that is required to support our planned filing of an IND. Our NEUGENE technology allows for the targeting of regions of the viral genetic code that are common to all influenza A sub-types. This suggests that a single NEUGENE drug could provide effectiveness against most influenza strains, including avian influenza and the more common seasonal influenza.

Additionally, we expect to finish preclinical work in a primate study with the Dengue virus program this year. This is expected to be the next viral program to move into clinical development. As I mentioned in my overview of muscular dystrophy program with the MDEX Consortium in the UK we have initiated a pilot clinical study in DMD targeting exon 51 and anticipate molecular results to be available later this year. And lastly, with our rapid defense therapeutics that comprise our bio defense program. As Mark mentioned earlier, we have not yet realized any of the $11 million allocation from the Department of Defense. We expect these funds to be recognized in our financial results through the remainder of 2007.

In December we announced a two-year, $28 million research contract with the Defense Threat Reduction or DTRA agency, which is an agency of the Department of Defense. These funds are dedicated to the development of NEUGENE therapeutics to treat Ebola, Marburg and Junin hemorrhagic viruses. This contract is separate from the $11 million allocation and as this agreement is in contract form we expect to be receiving funds from our research throughout 2007 and 2008.

With that update, at this time I would like to open your call to questions.

(OPERATOR INSTRUCTIONS)

While we are waiting for the first question we continue to conduct active investor outreach through participating in investment conferences. As many of you know earlier this weekly we presented at the Cowen & Company 27th Annual Health Care Conference in Boston. We will keep you apprised of upcoming presentations and invite you to meet with us in person should you be in attendance. Operator, are we ready for the first question?

Ren Benjamin, Rodman & Renshaw.

Good morning and thanks for taking the questions. A couple of questions. One I guess starting from the ESPRIT program, you mentioned that essentially what you're doing is you are converting this protein now into the form that causes the asymptomatic version of muscular dystrophy. What is this form called? And what is this asymptomatic indication called?

When you skip exon 51 naturally there are examples of this condition, and that form of muscular dystrophy is called Becker muscular dystrophy, or BMD, and it is characterized by loss of muscle function in the fifth or sixth decade of life. These people often come in for diagnosis when they can no longer play tennis or play other active sports that they have been doing most of their life. So what we are trying to do is convert this early childhood devastating form, which is the Duchenne form in which all of the exons downstream from 51 are out of frame to the form in which only the exon 51 is skipped, and the majority of the exons downstream are in frame. It turns out that the dystrophin protein has two important functions at each end of it. And as long as you have both ends intact you can get a functional protein. And by skipping the mutation of an exon somewhere in the middle you still end up with most of the functions of dystrophin. So that is the objective.

So have you guys compared let's say the sequence of the BMD, the gene that causes BMD versus the sequence of the gene once you have skipped out exon 51 just to make sure there are no other mutations of let's say other exons which might be conferring this dominant activity?

That is a good question, Ren, and we haven't done it, but it has been done and is well-known by the geneticists in this field. So I think everyone that is working in this field would buy into the concept that this is a very viable clinical objective.

Got it. Have there been interests from other parties regarding this technology? Because I guess another way of putting it is NEUGENE particularly suited for this exon skipping or can any other antisense technology try to do this?

Thank you for that question. NEUGENEs and our PMO oligomers are particularly suited for this for several reasons. To do this first you have to have an agent that can make its way to the nucleus, and once it arrives in the nucleus it has to be able to recognize and bind to its target, which is somewhere around the junction of the non informational transcript to the exon. And once it binds there it must not in any way activate enzymes that clip or disrupt the message. And that is unique, as you know, to our technology. We operate exclusively by sterically interfering with cell machinery, and we don't enzymatically clip the target in any way. If you clip the target you wouldn't have an RNA, and you wouldn't produce a protein.

So it is somewhat unique to our technology. There are other chemistries that can in the laboratory produce these effects, but none of them have been extensively used in the clinic like ours has. So we have the advantage of being able to demonstrate that there is a preferential accumulation of our drug in the nucleus of cells and that it functions in a way that allows the pre-RNA to be processed to functional RNA and of course, it has quite a distinguished safety record in the clinic.

So as far as the trial is concerned, has that trial officially started? Have you injected the first patients? And if not, when is that going to happen?

Yes. The trial is "officially" started. It has been initiated. The protocol was originally submitted back in the fall and approved both by the GTAC agency in the UK and the MHRA medicines health regulatory authority. Then we made late in the year with consulting with MDEX we made some modifications to the protocol. It has gone back a second time and been approved by GTAC. I might mention that that stands for gene therapy advisory committee and different countries consider antisense and gene splicing in different ways. In the U.S. it is not considered gene therapy. In the UK it is. But we've gone through those approval hurdles, and the second round with the modifications we've made should be approved by MHRA in the next few days, and we expect then the recruitment and the first patients to be injected sometime in the second quarter.

Just turning briefly to the CABG trial, that trial is ongoing right now, correct?

The MDEX trial for muscular dystrophy we would consider ongoing, although the first patient hasn't been injected. In the case of CABG not only has that been initiated back in the fall, but patients saphenous veins have been treated, and those have been transplanted and patients are in the program physically.

What sort of data would we be expecting by midyear? I know you said safety but is there in the CABG indication, can you look at, say 30-day restenosis rate or 90-day restenosis data? Will any of that be available by middle of the year?

The only thing that will be available by midyear will be overall safety in the first 30 patients. There simply isn't enough time to get three months, 90-day efficacy data. And one really can't get any efficacy data before 90 days. What we do expect is and what we are indicating is that we are on track to meet our overall original objective that we set for the benchmark back in the fall that we would have the data on the first 110 patients around the end of this year.

The program that Cook is running right now, you mention there was going to be some data hopefully presented at the EuroPCR meeting. What sort of data are you expecting, and what happens to the program after that?

The program was fully enrolled sometime ago in Germany. It is called APPRAISAL. It involves three different clinical sites in Germany, a very well controlled study where we deliver AVI 4126 Resten-NG with a microparticle formulation which is our microbubbles. And what we are trying to show is that delivering this drug systemically with at the time of angioplasty and the placement of a bare-metal stent that that is as good an alternative as a drug-eluting stent. And with all of the concerns in the last six months to a year on the long-term issues around drug-eluting stents and lifelong antiplatelet therapy, etc., this could be a very, very critical result. Now what do we expect in the data? The data is all independently reviewed by the group at Harvard and analyzed. And Cook has indicated that they are going to present that data. So we will know the statistical significance of how well systemic delivery of this drug performed with bare-metal stents.

Have you talked at all about how this program is going to move forward? For example if the results are good, do you or do they anticipate being in pivotal trial say later this year?

We would expect they will make their intentions known at the May PCR. As we indicated back when they presented some preliminary indications at the TCT meeting last fall they were pleased with the program. Other than that they have not shared the data with us.

And finally my last question has to do with the HCV program. So clearly extending the dose was disappointing. The results don't seem to show any more benefit than what was previously described. But how is this high dose study, I guess when did the high dose study officially start, and how high a dose are you going and how long do you have to treat for?

One of the things we've learned from the HCV program is that the chronic active hepatitis patients are handling the drug differently than normal volunteers. And what that means is that the predicted dose from the normal volunteers to achieve what is referred to as the EC 90, the effective concentration that should produce clinically significant reduction in viral titer, 90% of the time, was not reached. In fact, the study missed it. The dosing missed it. And only by threefold, we only achieved one-third of the targeted dose. When we extended the treatment from 14 to 28 days we didn't appreciably change that.

So what we are doing now in the dose escalating high dose program is to give enough drug so that we exceed the EC 90. Now in actual amount of drug we are going to three to five times the previously administered doses and three times the previous dose should reach the EC 90. But we are going almost to as high as twice that. In addition, there is another factor that is relevant, and that is the intraday frequency in which you administer the drug. Because what you want is the highest concentration for the longest time without peaks and valleys. So we are not only changing the dose but we are also changing the frequency at which we give the dose. And we are looking at a number of different sites to do this. We have every anticipation that we will complete the study and be able to report safety PK and viral load data from all of the dose escalating cohorts before the end of the year.

Has the FDA approved the protocol already?

The FDA we originally had approval for doses higher than we used and that is one of the alternatives we are pursuing. But we are also pursuing sites outside the U.S. where we can do this in a more cost-effective manner. So at this time we have once again the full expectation that we will have this high dose data to report before the end of the year.

Thank you very much.

Phillip Wiggins, PharmSouth.

Dr. Burger, does AVI anticipate any possible upstream or downstream bottlenecks in higher production quantities for our HCV drug? I believe that is AVI 4065?

I think I understand the question, and we have made several rounds of GNP production of 4065. So we're very confident at the efficiency and yields we get. I think what your question relates to is when we go to these high dose studies what does this mean for actually the commercial formulation of the drug. And the answer to this question is we don't believe that the final commercial formulation will be used in these high dose studies. These high dose studies are to completely validate the target selection.

We have many alternatives available to us because of the malleability of our technology to then enhance delivery and target delivery to the liver etc. so that the dose will be within a commercially viable range. And we have already talked through many of these alternatives. So we honestly expect our higher dose studies to be fruitful. I think we'd love that the initial studies we did to have decreased viral load by the clinically relevant target areas. But seeing the pharmacokinetics there is a rational approach to why we didn't see those big viral drops and how to achieve that. So we feel positive about the program. We feel that with the alternatives available to us we're going to be able to make a viable commercial product here and that we don't anticipate GNP or manufacturing hang-ups to achieve that.

That was my question because I believe it is Mrs. Christensen that works for AVI that is on the board of maybe BioProcess, and they were discussing monoclonal antibodies, and a lot of companies were having trouble once they scaled up for production purposes, it was a lot different than producing for clinical trials. Of course we're talking apples and oranges here antisense PMO's versus monoclonal antibodies.

I appreciate that. Janet Christensen is the head of our regulatory department and very familiar with the FDA and production issues that surrounding that and experienced in the monoclonal antibody technology and production issues because of her past accomplishments. But certainly with PMO's one of the chief advantages is this technology is scalable from that in the past and have every confidence that that is not where the issues will lie.

You answered my question. Thank you.

(OPERATOR INSTRUCTIONS) [Dennis Stanek], RBC.

Is there any plan to file for a pandemic flue funding as was talked about last year?

We originally had a funding request that involved influenza in one of our applications that we submitted to the Department of Defense. And at some point the recommendation from the folks at the Department of Defense asked us to concentrate on some of the category A pathogens and we would have a better chance of being successful with that funding without influenza in it. So although we originally had a request for some influenza funding that didn't make it to the final round of our grant applications. However, we don't feel that the lack of funding in influenza and particularly in avian influenza is influencing our program. Right now we have three outside collaborators trying to finish up with the animal data that is required for our eventual IND, and we believe on all three fronts we are making nice progress.

There are no further question that this time. Please proceed with your presentation or any closing remarks.

I just want to thank you all for listening to this call, and we will certainly keep you up to speed on the conferences we are attending in the future and up-to-date. Thank you so much.

Ladies and gentlemen that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your line.