Sarepta Therapeutics Inc (SRPT) 2007 Q2 法說會逐字稿

Welcome to the AVI BioPharma second quarter 2007 results conference call. At this time all participants are in a listen only mode. Following management's prepared remarks we will hold a Q&A session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded August 8, 2007. I would now like to turn the call over to Ms. Jody Cain. Please go ahead, ma'am.

This is Jody Cain with Lippert/Heilshorn & Associates. Thank you for participating in today's call. Joining me from AVI BioPharma are Michael Forrest, interim 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 second quarter of 2007 and in a separate release announced its refocused clinical development strategy. If you have not received these news releases or if 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 Letitia Hall.

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 risks 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 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, August 8, 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 now like to turn the call over to Michael Forrest.

Thanks, Jody, and my thanks to each of you for joining us today. In this call I will provide you with an overview of where we are heading with our clinical and research programs. Mark Webber will present a financial overview. Alan Timmins will give some additional details on our current programs, and then I will add some summary comments. After that, we look forward to taking some questions from you.

During our first quarter conference call we announced our intent to reevaluate AVI's programs to determine which of them hold the greatest near-term commercialization potential. As you know, based on the versatility of our NEUGENE antisense technology we have over the years been exploring quite a number of promising programs. But as a small development stage company we need to sharply focus our resources, both financial and intellectual, on those that are the most promising near-term prospects.

Our focus at AVI going forward will be on number one, advancing the clinical development of NEUGENE drug candidates targeting specific cardiovascular indications; two, using our new exon skipping pre-RNA interference technology or ESPRIT technology for the treatment of selected genetic diseases; three, continuing to pursue opportunities provided under our relationships with the Department of Defense to develop prophylactic and therapeutic agents that have the potential to offset the tremendous loss of life that might occur through the development and deployment of lethal biological weapons by terrorist groups; and four, continuing to our efforts to develop a product that may be effective in combating an outbreak of pandemic influenza caused by the H5N1 strain of avian flu.

Integral to our focusing efforts, we decided to immediately discontinue our current hepatitis C clinical development program. We believe that the potency of the current compound is insufficient for practical commercial use. This continuation of this trial will free up cash and human resources that will be used to support ongoing clinical development efforts in our coronary artery bypass grafting or CABG and our Duchenne muscular dystrophy programs or DMD.

Our discovery research programs will be redirected and tightly concentrated on programs designed to improve the potency, delivery, efficacy and safety of the products just mentioned, including continued efforts in hepatitis C. We will, of course, continue to search for new applications of our NEUGENE and ESPRIT exon skipping technologies. These efforts will be prioritized in the context of medical need, commercial attractiveness, the ready applicability of our technologies to such needs and our available resources.

We will continue to actively move forward with our ongoing clinical trial to test the ability -- hold on just a second -- moving on to our cardiovascular programs, we will continue to actively move forward with our ongoing clinical trial to test the ability of AVI 5126 to prevent the blocking of saphenous veins following their use in CABG surgery. We have very good reasons to advance this program. CABG is one of the most common surgeries in the United States with approximately 427,000 procedures performed in 2004 according to the American Heart Association at an average cost of approximately $35,000 to $50,000 per procedure. CABG surgery often uses saphenous veins to bypass blocked or narrowed arteries in order to restore sufficient blood flow to the heart muscle.

Although CABG surgery is effective in restoring blood flow, 30 to 50% of the saphenous veins graphs eventually become partially or completely blocked due to a restenosis like effect and will fail. A treatment to reduce blockage in vein graphs represents both an unmet medical need and a sizable market opportunity. Clinical and preclinical results have demonstrated the ability of our NEUGENE compounds to turn off the c-myc gene, which is thought to regulate many of the downstream genes that cause cells to proliferate. Excess cell proliferation is believed to be responsible for the restenosis-like effect that eventually causes vein grafts to fail following CABG surgery.

We previously reported that we have commenced with enrollment of patients in a European clinical trial in which we are using our NEUGENE drug AVI-5126. AVI-5126 is a more potent version of AVI-4126, which has already demonstrated promise in preventing or reducing restenosis following angioplasty procedures in which the placement of a bare metal stent was employed. AVI-5126 is a PPMO, a compound that employs the use of a peptide to enhance the delivery of the antisense agent to the appropriate cells. Alan Timmins will provide details on this clinical program later in the call.

I would like to express our appreciation to our partner, Cook Medical, for providing updates on its programs with AVI licensed NEUGENE compounds. We are pleased with Cook's progress and its stated desire to rapidly commercialize NEUGENE products for the cardiology market. Cook Medical licensed NEUGENE product candidates from AVI back in March 2006 for the use in certain vascular diseases. Global Therapeutics, the Cook Medical company responsible for the NEUGENE program, announced last month it had completed a six-month follow-up study on patients enrolled in the Phase II APPRAISAL clinical trial. This trial was designed to study the effects of our NEUGENE compound AVI-4126 delivered systemically by micro particles to prevent cardiovascular restenosis when used in conjunction with the placement of one or more bare metal stents. Coke announced that the data from this clinical trial will be presented at the Transcatheter Cardiovascular Therapeutics or TCT conference in late October of this year.

In the second announcement also in July Global Therapeutics announced its plans to initiate a clinical trial for the inhibition of restenosis in patients following angioplasty using a bare metal cobalt chromium stent, a drug delivered to catheter and AVI-5126, the very same compound that AVI is currently testing in its CABG trial. Global Therapeutics indicated this trial is planned to begin before 2007 year end, of course subject to regulatory approval. This trial will be designed to incorporate up to 20 investigational centers throughout Europe with the intent to support a CE mark filing as a medical device in Europe.

If efficacy and safety are borne out, we see great potential with the NEUGENE compounds in combination with bare metal stents as an alternative to the use of drug-eluting stents for the prevention of restenosis. Recent concerns regarding the safety of drug-eluting stents have prompted decline in their use by physicians around the world. In the US, for example, drug-eluting stents are currently used in about two-thirds of procedures performed to open clogged arteries. This is down sharply from their use in 90% of all procedures early last summer. The drug-eluting stents' markets is about a $6 billion global market segment. Surely a product that performs well at preventing restenosis will enjoy considerable success in this sector. We will be pleased to help Global Therapeutics in any way we can to ensure that their trials are a success.

Moving to our ESPRIT program, we are also very excited about developing drug candidates based upon our exon skipping pre-RNA interference technology. ESPRIT holds potential as a highly potent tool for altering many disease mechanisms. Rather than simply blocking protein production as is the case with conventional antisense drugs, ESPRIT based drugs can induce the cellular machinery to skip over a targeted exon. An exon is a packet of genetic information used in part to build a protein. In some cases a mutation in an exon sometimes results in no protein being produced, a harmful protein being produced or production of a protein that is not harmful but is not functional. The ESPRIT mechanism provides a fine tuned approach to altering the disease process such that functionality of the protein can potentially be restored. This is truly remarkable technology that could result in the cure or improvement of patients that currently are untreatable. As currently reported -- as previously reported, rather -- our first application in this technology is the genetic condition Duchenne muscular dystrophy or DMD. Alan will also provide a more detailed report on this program later on.

Turning to our Department of Defense efforts, we have a two-year, $28 million research contract with the Defense Threat Reduction Agency or DTRA, a Department of Defense agency for the development of compounds to treat Ebola, Marburg and Junin hemorrhagic viruses. We are also receiving funds from a 2006 Defense Appropriations Act to fund our programs, including Ebola, Marburg and dengue viruses, as well as anthrax and ricin toxins. Based on a collaborative efforts with the United States Army medical research Institute for infectious diseases or USAMRIID, we are seeing very encouraging results from our preclinical work targeting certain of these potential bio terror threats. These preclinical efforts with NEUGENE antisense are being conducted in a high containment setting. Importantly, the knowledge we gain from these programs is potentially transferable to the development of drugs targeting both viral and nonviral targets in the commercial arena. Costs to run these programs is covered by the government contract.

Mark Webber will provide an update on funds received from the government as of the end of the second quarter. We also plan to continue work on our H5N1 influenza program for the development of an agent targeting this potentially pandemic disease. As previously announced, we've demonstrated efficacy with a NEUGENE PMO in an animal model following aggressive challenges by two strains of seasonal flu. While we hope to attract a partner for the large seasonal flu market, our internal influenza program was focused exclusively on combating the H5N1 subtype, which fits our stated objective of pursuing the fastest regulatory pathway to drug approval while maximizing the use of our resources. We will continue evaluating compounds for efficacy in additional animal models as the next step in supporting the filing of an IND for this indication.

I can assure you that while evaluating our development program we have continued to make good progress on our commercial and government programs. AVI's Board of Directors is also moving forward with a search for a permanent CEO. With our direction clearly defined Board is actively interviewing candidates with the appropriate experience to lead our Company forward. With those introductory comments I would like to now turn the call over to Mark Webber to review our financial results. Mark.

Thanks, Mike. Today I would like to review our 2007 second quarter financial results and cash position, and then I will update our 2007 financial guidance. Revenues from license fees, grants and research contracts in the second quarter of 2007 were $2.4 million compared with revenues of $19,000 reported in the second quarter of 2006. The increase reflects higher research contracts revenues of $2.4 million and license fees of $31,000 partially offset by decreases in grant revenues of $8000.

Operating expenses for the 2007 second quarter were $11.2 million compared with $7.4 million for the 2006 second quarter. This increase was due primarily to higher research and development expenses which increased to $9.2 million from $5.9 million in the second quarter of 2006. R&D expenses in the 2007 second quarter included higher clinical costs of $1.4 million from the expansion of clinical programs and approximately $1.8 million in the expenses for government research contracts.

General and administrative expenses for the 2007 second quarter were $2 million versus $1.5 million in the prior year quarter. The increase in general and administrative expenses was due primarily to increases in legal expenses of $315,000 and compensation costs of $225,000, partially offset by decreases in SFAS 123(R) expenses of $75,000.

We reported net loss for the second quarter of 2007 of $8.5 million or $0.16 per share, which compares with a net loss of $6.9 million or $0.13 per share for the second quarter of 2006. For the first half of 2007 we reported revenues of $2.9 million compared with $85,000 for the first half of 2006. This increase reflects the increases in research contracts revenues of $2.9 million and license fees of $63,000, partially offset by decreases in grant revenues of $55,000.

Operating expenses for the first half of 2007 were $21.8 million compared with $17 million in the first half of 2006. This increase was due to higher R&D costs of approximately $15.5 million in the 2007 period compared with $12.7 million in the 2006 period. The increase in R&D expenses was due to higher net clinical costs of $700,000, $170,000 in contracting costs for the production of GMP subunits, $2.1 million in expenses for government research contracts, increases in chemical and lab supply costs of $390,000, professional consulting costs of $240,000 and leasehold and patent amortization expenses of $50,000. These increases in R&D were partially offset by decreases in employee costs of $980,000, of which $430,000 was related to the acceleration of the vesting of certain stock options in the first quarter of 2006 and decreases in SFAS 123(R) expenses of $290,000, and salaries and bonuses of $250,000.

General and administrative expenses increased to $6.3 million for the first six months of 2007 from $4.3 million in the comparable period a year ago. The increase in G&A expenses was due primarily to increases in compensation costs of $1.4 million, of which $1.6 million was related to the separation and release agreement with the company's former Chief Executive Officer that included $563,000 in cash compensation and $1.1 million in SFAS 123(R) expenses. These were partially offset by decreases in SFAS 123(R) expenses of $200,000. General and administrative expenses also included increase in legal expenses of $545,000 and accounting expenses of $60,000.

Our net loss for the first half of 2007 was $18.2 million or $0.34 per share. This compared with a net loss for the first half of 2006 of $16 million or $0.31 per share. Reviewing our balance sheet we reported cash, cash equivalents and short-term securities of $19.2 million as of June 30, 2007, a decrease of $13.8 million from December 31, 2006. This decrease is due primarily to $12.7 million of use in operations and $1.1 million due to the purchase of property and equipment and patent related costs.

In December 2006 we announced the execution of a two-year, $28 million research contract for the Defense Threat Reduction Agency or DTRA, an agency of the United States Department of Defense. The contract is directed toward funding our development of antisense therapeutics to treat the effects of Ebola, Marburg and Junin hemorrhagic viruses which are seen as biological warfare and bio terrorism agents. In the second quarter of 2007 we recognized $1.3 million, bringing our total for the first half of 2007 to $1.7 million under this contract.

In January 2006 we were informed 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 including Ebola, Marburg and dengue viruses, as well as anthrax and ricin toxins. Of this amount we expect to receive up to $9.8 million net of government administrative expenses. During the second quarter we recognized $1.1 million under these contracts. We expect to receive these funds or (inaudible) in the next year as research is completed and invoiced to the government. Contracts are in place for Ebola, Marburg and ricin anthrax projects. The current project under the original allocation, dengue virus, is still in the discussion stage.

For our financial guidance we are increasing our expected net cash burn for the year to be in the range of $22 to $24 million from our previous expectation of between $10 to $17 million. This increase is due to expenditures on government projects, additional costs related to the purchase of the manufacturing facility and higher clinical expenses. The expenditures may be reduced slightly in 2007 and significantly in 2008 because of the following. Our expectation that our partner Ercole Biotech will cover 50% of the costs related to systemic DMD study; our decision to phase the construction or manufacturing facility in order to conserve cash while still meeting anticipated needs for clinical and commercial materials. We now anticipate completion of the stage one unit of the manufacturing facility by the middle of 2008. Additionally, as discussed, we are not currently proceeding with the HCV clinical trials.

With that overview, I would like now to turn the call over to Alan.

Thanks, Mark, and let me add my welcome to those of you joining us this morning on the call and on the Internet. First I would like to discuss our ongoing clinical programs, starting with our evaluation of AVI-5126 used in CABG procedures. CABG procedure involves harvesting the saphenous vein from the leg and grafting it into the coronary artery to bypass blockages or narrowed passageways. Our CABG trial involves ex vivo or outside the body application of AVI-5126 to the saphenous vein after harvest and prior to engraphment. This compound incorporates a delivery peptide, which is in effect a transporter tail designed to enhance drug delivery. The saphenous vein is soaked in a solution containing the drug for 20 to 30 minutes. The delivery peptide dramatically enhances the uptake of the drug into the vein graft in this short time period.

As Mike discussed, the goal of this study is to determine if AVI-5126 reduces the incidence of graft blockage or failure following the procedure. This trial is a pivotal multicenter double-blinded and randomized and placebo-controlled study. It is being conducted in well-respected, high-volume cardiovascular study sites in the Ukraine with additional sites expected to come on board soon in Poland. The study will include up to 600 patients. We are currently in the Phase I/IIb portion of the study which includes the first 110 patients. This portion will monitor major adverse events including death, myocardial attacks or the emergency need for a repeat CABG procedure. We've established a drug safety monitoring committee comprised of independent third parties to periodically evaluate safety data.

We are pleased to report that no significant safety issues involving the drug have been reported to date. This study is proceeding on track with safety data from the first 110 patients expected in the first quarter of 2008. Based upon favorable safety data, we will consider initiation in the broader clinical trial. At that time the study can become a pivotal program. Patients will be under study surveillance for one year after the CABG procedure. During that period they will be evaluated systematically by standard criteria that includes blockage of the saphenous vein graft of 75% or more as measured by quantitative and geography. Our ultimate goal of this program is to pursue a filing for regulatory approval in Europe and to work with partners to conduct additional trials that may be required in the US and to commercialize the product.

Turning to our ESPRIT program and Duchenne muscular dystrophy, DMD is the most common form of muscular dystrophy affecting one in 3500 young males. An estimated 17,000 boys and young men are afflicted with DMD in the US alone. There is no approved therapy for this progressively debilitating and fatal disease. DMD is caused by one or more mutations in the gene that codes for a crucial protein for muscle function called dystrophin. Most of these mutations cause subsequent exons to be misread by the cell machinery so that no functional dystrophin is produced.

Our current program objective is to use an ESPRIT based therapeutic AVI-4658 to skip exon 51, put the subsequent exons back in the correct reading frame. This will allow for production of a truncated but functional version of dystrophin. We estimate that 15% of all DMD patients may benefit from skipping exon 51. Approval is expected shortly from the MHRA, a UK regulatory body equivalent to the FDA for research teams at the Imperial College of London to begin a proof of principle dose escalating trial using AVI-4658. This trial will include up to nine boys with DMD, each receiving a single intramuscular administration of the drug. Two to three weeks following injection the muscle will be biopsied and examined for molecular evidence of dystrophin production.

We are also aggressively pursuing in parallel the expansion of the clinical development of AVI-4658 to a multicenter dose ranging systemic administration trial for the treatment of DMD in conjunction with our cross licensing and development partner, Ercole Biotech. This trial will be designed to assess the functional efficacy of exon skipping in DMD. As Mike mentioned DMD represents the first of what we believe are multiple opportunities we expect to pursue with the ESPRIT program.

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

Thanks, Alan. Before we take your questions I would like to recap our key programs. First in the cardiovascular program we are on track with our CABG trial, with AVI-5126. We currently have sites actively enrolling patients and the drug safety monitoring board will closely monitor the first 110 patients, and this will give us an indicator of safety early, sometime early in 2008. Cook Medical has announced plans to present data from the Phase II APPRAISAL clinical trial at the TCT conference in October, and they have additionally indicated that they plan to move into clinical testing later this year with a kit including AVI-5126.

With our first program based on ESPRIT therapeutics, we expect regulatory approval soon from the UK authorities to begin dosing patients in a pilot study in DMD targeting exon 51. Perhaps more importantly, we are moving forward aggressively with preparations for a Phase I, II clinical trial designed to determine a safe and effective systemic dose for the treatment of this devastating condition. Our partner, Ercole Biotech, has indicated its intention to fund 50% for the cost of the DMD program.

In our flu program we are planning to further test delivery of our compounds in animals affected with the aggressive strains of seasonal flu and animals infected with the H5N1 subtype of avian flu. We plan to conduct these studies at commercial labs in order to maintain better influence over the timeliness of the work. If successful, the studies are expected to provide sufficient preclinical data to support filing of an IND with the FDA for use in H5N1 avian flu. And finally, our research and development efforts will be redirected and tightly concentrated on programs designed to improving the delivery of our compounds to target cells, increasing potency and lowering overall dosage requirements thereby improving the potential efficacy and safety of our products. This program will include hepatitis C, which we continue to believe is an attractive target for our NEUGENE antisense technology.

With the completion of our evaluation we now believe that we are firmly focused on those programs that demonstrate the greatest near-term commercial opportunities. I also want to announce that we have started construction on the first stage of our 34,000 square foot facility in Corvallis that will house a large-scale GMP production facility. The construction will incur in stages with each stage coming online in order to meet the anticipated clinical and bulk job requirements for AVI as well as for our partners. Our stage buildout program is designed to conserve the use of cash. We anticipate that the initial buildout of our first stage will be completed, and the facility will be operational by the middle of 2008.

So with that update I would now like to open the call to your questions, and operator, we are ready for the first question.

(OPERATOR INSTRUCTIONS) Ding Ding, Maxim Group.

Good morning, everyone. I wanted to first congratulate you for completing the evaluation of the pipeline. And I certainly applaud your decision to discontinue the hepatitis C program. I think is a very good decision for continuing to focus the resources going forward. Just a few questions here. First on the Resten-NG and the Resten-MP, you mentioned Cook has announced its plan to conduct additional clinical studies with bare metal stent, as well as catheter delivery. Given the current data we have, the Phase II data, we already had with the catheter delivery as well as systemic delivery following the bare metal stent placement. Can you provide some additional color as to what is the purpose of those additional studies? Should we consider these studies to be part of the registration study for commercialization and regulatory filing?

Thank you, Ding Ding. That is a very good question and unfortunately at this point in time we don't have access to the strategic decisions of Cook. We know as you correctly pointed out that there was efficacy that has been demonstrated with 4126. But we also know based upon our own experience that there is a significantly increased potency of the next generation peptide based product which is 5126. I just can't comment because I don't know as to whether Cook will continue both of these programs in parallel or substitute one for the other.

So the new study is going to focus on 5126 rather than 4126?

That is correct, and part of the strategy I think is that they are looking at moving this into a kit-based approval, which will allow the use of the product to be delivered with a specialized catheter that will administer the product directly into the vein that is being -- where the stent is being placed in order to localize the treatment. And in this fashion they will be able to use the entire package, the catheter, the drug and the bare metal stent as the basis for application. Is a CE mark, which would be the fundamental basis for approval in Europe and probably only one study would be required.

I see. Do we have any body language from Cook Group as for their plans and timing for moving the 4126 into regulatory process or that is no longer a focus now going forward?

I don't know because I think Cook is still deciding what they wish to do and whether they want to move both programs at the same time or switch to the 5126 program.

For CABG program you mentioned that no safety issue has been reported so far. How many patients have been enrolled, and how long have these patients had the procedure? And when should we expect to see any efficacy data from this trial?

We don't like to talk on a day-to-day basis about the number of patients that have been enrolled, but there have been a reasonable number that have been included in the trial already and many of these have been on the study for up to 60 to 90 days. So as a consequence of this we have the drug safety monitoring board, which is evaluating these patients on an ongoing basis and as a function of that they have told us that the whole trial seems to be very clean, and they've encouraged us to just continue moving forward as quickly as we can for the first step of the Phase I/IIb program that Alan mentioned, or Phase I program essentially of enrolling the first 110 patients. At that point in time we won't actually receive data because the data would represent then an unblinding of the study, which I'm not sure we want at this point in time. But it certainly would then, the DSMB would then give us a nod as to whether the program should be halted from a safety perspective, which unlikely it would because if it needed to be halted it would be halted sooner than that. Or on the contrary and what we expect is that the program would then be given the nod to move forward into what is the pivotal portion of the trial.

Now with regard to efficacy, that is a very good question. And AVI is right now we have no interim look planned for the study. However, we are actively discussing this from a strategic standpoint with our clinical people, with outside experts and with our statisticians who as you know, are a breed to themselves. In order to determine what the statistical penalty might be if we decide to take an efficacy look on an interim basis. We haven't come to that conclusion yet, and if we decide to stop the trial at some predetermined point in order to take a look at efficacy, we will certainly let you know. Right now that is not in the cards or it is not on the table.

So the DSMB dosing criteria is only going to be based on safety, while you're going to look at interim data on the efficacy?

Well, we may decide to look at interim data on efficacy. That decision has not yet been made. There is [two] possible outcomes from the DSMB. One is that they tell us to go forward because the safety looks good. Highly unlikely because these things don't usually take place in this way. But there is an outside chance that they may say you should stop the study because the efficacy is so outstanding that we are not denying patients the opportunity to get the drug. That would be an unbelievably good outcome and not something that we are expecting because typically these trials take a long time and involve a very large number of patients before one can come to that conclusion. So the response from the DSMB at the end of the 110 patients will be based on primarily on safety.

That's very helpful. And lastly, if I may, and I will be back to the queue, for the flu program I understand your internal focus will be on avian flu and not seasonal flu going forward. Have we started the animal study with H5N1 avian flu strain infection in animal models?

The simple answer is no, we have not, but it is a little bit more complicated than that. The difficulty is that the H5N1 strain is now becoming closely guarded by many people who possess it, including government agencies overseas and so it has been a little bit more difficult than we had anticipated in order to get access to this lethal strain for use in animal testing. We believe we've lined up a couple of sites that have access to it and we are contacting those to see if we can get the studies put in place.

On the other hand, we want to take a look at potentially using pulmonary delivery for our PMOs because we believe that that has a very significant possibility of even greater efficacy, than that which we've seen already in the preclinical results. So we may be running a parallel program doing pulmonary studies to test the efficacy of the product, as well.

Thanks very much for the added color.

(OPERATOR INSTRUCTIONS) Ren Benjamin, Rodman & Renshaw.

Good morning, and thanks for taking the question. Just a couple of additional details. Can you just remind us of the deal with Cook, what exactly they have access to, what they don't have access to. And then as they get ready to initiate this new trial, and I think you mentioned it was a pivotal trial, are there milestones associated with it? And if not, what sort of clinical development needs to occur in order for milestones to be triggered?

The deal with Cook is that they have licensed NEUGENE technology for use in cardiovascular disease areas, specifically excluded from that is CABG. There are -- you might recall from when the deal was signed there are no clinical type benchmarks going forward. We have forgone that in exchange for a higher royalty at the success end of things, and we've disclosed that royalty as being a low double-digit royalty. And so they basically that is their playing field, cardiovascular disease using various NEUGENE technologies.

Regarding the timing of the cardiovascular program you mentioned that the safety data is likely to be expected at least from the first 110 patients in say early 2008. Can you give us an idea as to -- if you get the nod to go forward and to expand this and move this into a much larger trial, how long do you think it will take based on current enrollment rates and what you can get enrollment rates up to, how long will it take to get to 600 patients? And when do you envision that data being available?

We believe that we can get to the 600 patient level in 2009; so the data would be available at a point after that. It would take essentially the rest of 2008 and somewhat into 2009 to enroll those additional patients.

Okay, and do you have any idea -- you had some details regarding the pivotal trial from Cook. Do you have any idea how many patients they plan on enrolling and how long the development timelink could be for that program?

I do not think they are far enough down the pathway yet that they have determined or announced those figures. But I think what you can -- Ding Ding used a very nice term there, which was she asked about body language from Cook. And I think that you can interpret the body language from Cook as well as their statements in their releases in July that they are keen on the quickest possible route to commercialization for their products incorporating NEUGENE technology. And we take that as very good news, indeed.

Okay, so one last question on the Cook side. They were supposed to -- correct me if I'm wrong -- present this data at the PCR conference -- I think there was a conference in April. But that was somehow pushed back, and now it looks like it is the same data that we're going to have presented now at the TCT conference. Do you know why that was pushed back?

I think specifically it was because follow-up had not been completed on a couple of patients, and they did not want to present an incomplete package at the initial conference. And Cook's tendency and desire is to present their data at the big name, the big marquee conferences. And so TCT is the next of those.

Moving on to the ESPRIT program, you mentioned that the MHRA is expected to approve this protocol fairly soon. Do you expect that to occur in this quarter? And since you are talking with the site involved, and you are only looking at nine boys with DMD, do you expect this trial to enroll fairly quickly and to get the results fairly quickly so say by the fourth quarter of this year?

Good question. The answer to the first part on timing, we have been expecting approval from the MHRA for about four or five months now. So this process is inexplicably long and painfully delayed. But we unfortunately have no control over the decision-making or the bureaucracy with the MHRA. We originally had a very good outcome, and then somebody said well wait a minute, we want to look at one other thing and they are still in the process of looking at that one other thing. Neither of the things that they originally questioned in our view are consequential.

So yes, we're hoping that it will be approved during this quarter, but we can't absolutely guarantee it. Now the nine boys that will be enrolled potentially could be enrolled very quickly, although the logistics as you might imagine of bringing people around from various parts of the UK into this center for treatment could be a little bit complex. And I think we are not anticipating that the trial will be completed until sometime next year. They will be testing these boys actually one at a time, so the first one gets treated, they wait three or four weeks to see whether there is -- to give the drug enough time to work to produce dystrophin on the basis of what we've seen in some of the preclinical studies. And then they do an explant of the muscle into which the PMO has been injected.

They then homogenize the explant and look to see whether dystrophin has been produced, and that is really the endpoint of the study is to see whether or not dystrophin has been produced. And if so, at what level. So it is not an efficacy study per se because there is no functional outcome. On the other hand, the study that I referred to earlier is one that is designed to look at efficacy in a staged way. First it is a dose ranging study and then moving into the efficacy parameters; although there is a possibility that we may get some peek at efficacy early on. And that study is being extremely aggressively pursued by us, and I can't give you an absolute prediction but we certainly hope to get the trial going. In the absence of any contrary feedback from regulatory authorities we hope to be able to get that going sometime in the first half of 2008, and we expect that trial could actually recruit fairly quickly.

So that provides a good segue to my next question. That is in the US trial can you just give us some details as to how that trial is going to be conducted and how big do you think it is, and what are the endpoints there? Is it going to be something similar to the UK, or are you going to look for functional endpoints?

No, it is not similar to the UK. This will be a subcutaneous injection that is given in the early stages at different doses to four different cohorts of boys. So increasing the does up to, from a low dose up to a higher dose, all within the bounds of safety data that we have on the product. And the study will be designed to at some point in time after the subcutaneous injection of the boys, to do biopsies of muscles, probably the arm muscle of the boys to determine if dystrophin has been produced. And what we are looking for is to see whether dystrophin has been produced at a level that we are estimating to be or not estimating -- that we're hoping will be at least 30% of what the normal dystrophin levels that are being produced are. And children afflicted with a less severe condition of this disease called Becker's muscular dystrophy, children or even adults live to be ripe old age with dystrophin production that approximates 20% of normal.

So our target of 30% that we think is a good one to give us a good indicator as to whether efficacy will be produced. And then as we are going down the road over a period of time, we will be doing all the customary safety assessments for any investigational new drug. And part of the safety assessments will be to see whether we've had an adverse outcome on any muscle function so there will be muscle function tests with the ability to move, the ability to lift weights, grip strength and things of this nature which will give us an indirect measurement of efficacy. So we think that this is extremely well-designed clinical program. We are very excited about it as you probably know, Duchenne muscular dystrophy is lethal. It is absolutely devastating and progressive condition that affects not only the children, but the families of these boys. And there is no current therapy, and we are really quite proud to be having a product that we think may be effective in potentially curing some of these children.

So with the amount of time and effort and money that AVI has put into the NEUGENE therapeutics, clearly at the very least one can say that a significant safety database has been amassed. And so if that's the case, while the function may be different here or the mechanism of action may be different here, what do you think could be a holdup, or what sort of issues do you think the FDA could bring up in not delaying, but slowly moving the application forward to actually get to a clinical trial?

Well, the only possible thing can be -- since there is no possibility to do preclinical studies in a human model that exactly duplicates DMD. So therefore the models have all been done with artificially induced muscular dystrophy in both mice and in dogs. So the relevance of those in terms of the sequence that we are using for boys is totally different. The animals are unique to the animal and this is a human condition. So the only holdup we think that might be possible is the sort of the SU on additional safety data or toxicology data that they may request.

However, given your first comment that the PMO's that have an extremely safe profile in everything that we've ever done with these compounds, we think that given the nature of the disease and the strong safety records that PMO possess that the FDA will allow us to move forward on that trial. But we don't know that until we talk to the FDA.

Got it. Two last questions regarding the funding for the government grants that you've obtained. Can you just give me a total as to I guess a total monetary value as to the number of grants that have been granted, for lack of a better word, by the US government to AVI. And when you think -- I think Mark Webber mentioned that $9 million will be recognized over the next twelve months -- but could you give us some more clarity as to how the timing of these grants will be recognized?

Yes, we can -- really our current grant and/or contracts with the government fall into two categories. There is the $28 million contract which covers Ebola, Marburg and Junin and other hemorrhagic viruses. We have received a small amount of funding on that thus far. We expect that to increase significantly in the next couple of quarters, and that basically as we ramp up and do the more extensive types of studies.

The other aspect is through four separate smaller grant like contracts, of which we've signed three of the contracts, the fourth one is in sort of the final discussion phases. That is where the $9.8 million number that Mark mentioned came from. We expect those contracts, the three contracts were just signed I believe this quarter or last quarter -- late last quarter. So there is ramp up that is going on with those, as well as with the fourth contract that is in discussion.

So I think you will see a somewhat of a ramp up on the $28 million over the next couple of quarters and then reasonably smooth receipt of funds over next year with that. With these three smaller contracts I think you will still have another quarter or a few months of ramp up, then followed by you will see those funds being received into through late 2008, as well.

Is there a time limit by which these funds need to be used?

There are time limits in it, but success breeds co-operation at the government level, as you might imagine. And so we would hope that if there was some sort of a time limit that we would have capability of extending that if we hadn't completed the testing by that point in time. It is a little bit interesting in that we are a contractor for the government and then the government is a subcontractor to us doing the work in USAMRIID, in many of the cases on the contract. So there's a lot of government interaction there, and therefore a lot of coordination that needs to take place.

Okay, great. That's it for me. Thank you very much for answering my questions.

Ding Ding, Maxim Group.

Just for a quick follow-up, any updates you could share with us on the partnership discussion (inaudible) particularly relates to the exon skipping program and Cytochrome P450 program.

We continue to have people that are interested in the Cytochrome P450 program, but these evaluations by the large pharmaceutical partners take time. And generally they are looking for the target drug that should be used in conjunction of Cytochrome P450 inhibition to produce a good clinical outcome and something that might have great commercial value. The things that we've done experiments with are midazolam, which you don't really need to increase the efficacy of midazolam, but it certainly has provided proof of principle, and that is the basis on which the pharmaceutical companies are interested.

I think the next step might be that if we can continue their interest is to have a -- select a proper target that has relevance to what from a commercial perspective as to what one of the interested companies has and do additional trials, of course supported by those companies. So it is ongoing, but these things always take time, as you know.

Maybe just a follow-up question on the Duchenne muscular dystrophy program focusing on the US side. Have you had a chance to schedule a pre IND meeting with the FDA? Is it still -- do you still expect it sometime in the summer or second half of the year? And secondly, you provide some additional color, and I was just trying to think through what are the additional steps we need to go through in order to prove that to move this program into clinic in the US?

Well, we are actually planning to move the program simultaneously in the US and in Europe. The contacts with the MHRA in the UK, to give you a little bit of additional color some people in the Imperial College and even some of the regulatory people within the MHRA, have asked us why we weren't just doing a systemic study as opposed to the intramuscular study that I described to you. We think that the prospects for getting approval and moving into Europe are actually quite good. We are scheduling discussions with the FDA regarding the protocol that I mentioned earlier. No formal meeting has yet been set. We need to accumulate all of our data first before we do that.

Any additional steps before we move this program into clinic in the US?

We hope not. The only possible way, as I mentioned before to Ren, is that we may need to do some additional safety toxicology studies in animal models. But we are not sure exactly how that would be done since this is a human protein that we're going after. And its just in animals, at least in the same form. So that can only be clarified with our discussions with the FDA, which we obviously will be proceeding to get clarity on as soon as we possibly can. Other than that, we are ready to go actually.

Did you mention -- do you have a target timeframe as for when to have that meeting with the FDA?

I would say within the next three months we should be able to have a meeting scheduled.

Okay, great. Thank you.

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

Okay. Thank you very much. Just as a closing comment I would like to thank you very much for joining us today and for your support and your questions. We will do our very best to keep you informed on our progress as we go through some of these steps that I've outlined and/or at our next conference call. Good day to all of you.

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