Sarepta Therapeutics Inc (SRPT) 2007 Q4 法說會逐字稿

Welcome to the AVI BioPharma fourth-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 March 12, 2008. I would now like to turn the call over to Jody Cain. Please go ahead, ma'am.

This is Jody Cain with Lippert/Heilshorn & Associates. Thank you for participating in today's call. As we begin this call, I would like to point out that a link to slides accompanying management's presentation is available on the home page of the AVI website at www.avibio.com.

Joining me this morning from AVI BioPharma are Dr. Leslie Hudson, Chief Executive Officer, and Alan Timmons, President and Chief Operating Officer. Earlier today, AVI BioPharma released financial results for the 2007 fourth quarter and full year. If you did not receive this news release 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 Amy Higgins.

Before we begin, I would like to state the 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 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 12, 2008. 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'd like to the call over to Dr. Hudson. Les?

Jody, thanks very much indeed, and thanks to all of you for joining us today. First of all, I want to say just how pleased I am to have the chance of talking with you on this, my first conference call as AVI's Chief Executive Officer.

The form we'll use this morning, during about the next 45 minutes, we will give you an overview of our financial results, after some brief comments I'll make at the beginning. But we would like to spend most of the time looking at the AVI workplan towards the clinical advancement and commercialization of our NEUGENE-based drug candidates, as well as reviewing our near-term milestones. So really focusing on the clinical part of our pipeline for the purposes of this first call with you.

If I may -- and I promise I'll never do this again -- just to give you a very, very brief synopsis of my own background; and maybe in that synopsis, will be able to highlight to you why in fact I am so pleased to have a chance of coming on board at AVI at this, what I believe will be a seminal time. Because in essence, I started my career originally in discovery research. I migrated to development and ultimately ended up in Pharmacia, running their ophthalmology P&L.

But I think it is fair to say that the largest part of my relevant experience for this particular opportunity really comes from doing turnarounds, developing business strategies, and also being able to implement successful drug development and commercialization programs. I've worked in four small companies, so I have actually, as many of you will have yourselves, had the vagaries of success and failure. And as you know, those who come through in this biotech area are recidivistic entrepreneurs.

Fortunately, my last experience in Nabi Biopharmaceuticals was a good and successful one, so I come here really quite highly energized. So this is really something which I'm looking forward to getting to grips with in a very productive way.

One thing which I should say, which is probably highly relevant in the current context, is when I first came to the States, now almost 20 years ago, with Glaxo, my first project that I ran was actually with Gilead Sciences in the antisense field. And so in a very real sense, having started discovery research, looking actually at antisense effects with Bcr-Abl, I'm in a particularly good position to be able to look at the opportunity, now maybe 10, 15 years on.

In the two weeks that I have had in the Company, I've also had one week out on the road with our investors and clinical collaborators. I also had four weeks with my family driving across the USA from Princeton to get here, so you can imagine it has been a fairly busy time. And this is really a nice opportunity now to give you some of my perspectives in terms of what I see as the future opportunity here.

May I say first of all that this morning we announced that Michael Casey has been elected as the new Chairman of the Board of Directors of AVI, following the resignation of Jack Bowman for personal reasons. Mike has been a director of AVI for the past two years, and has substantial executive and corporate governance experience in our industry. We would really like to express, though, our appreciation for the excellent work that Jack Bowman has done in his dedication and guidance during his tenure on the AVI Board, particularly as he stepped in as Chairman during the past year, in the year of transition.

Going forward, though, we are very delighted to have Mike Casey in the Chairman role and I personally greatly look forward to working with him.

With those comments, I would like now to turn the call over to Alan Timmons for an overview of our financial reporting. Alan.

Thank you, Les, and good morning to all of you joining us on the call and over the Internet. Today, I'd like to review our 2007 fourth-quarter and full-year financial results, our year-end cash position, and also discuss our 2008 financial guidance.

Revenues from license fees, grants, and research contracts in the fourth quarter of 2007 were $5.2 million, up from $18,000 reported in the fourth quarter of 2006. This increase in revenue reflects increases in research contract revenues of $5.1 million, as well as higher licensing fees and grant revenues.

Our operating expenses for the 2007 fourth quarter were $10.9 million, compared with $8.8 million for the 2006 fourth quarter. This increase was due primarily to higher research and development expenses, which increased to $9.4 million from $6.7 million last year. Higher R&D expenses in the 2007 fourth quarter included an increase of $1.9 million in contracting costs for the production of GNP subunits, as well as higher expenses for government research contracts, chemical and lab supplies, government contract related equipment, patent amortization, property taxes, and consultant fees. The increase in R&D expenses was partially offset by decreases in employee costs.

General and administrative expenses for the fourth quarter of 2007 were $1.5 million versus $2.1 million in the comparable 2006 period. This decrease in G&A expenses was due primarily to decreases in compensation costs of $735,000, which was partially offset by increases in accounting and legal expenses.

We reported a net loss for the fourth quarter of 2007 of $4.1 million, or $0.07 per share, which compares with a net loss of $6.1 million, or $0.11 per share, for the fourth quarter of 2006.

For the full year 2007, we reported revenues of $11 million, compared with $115,000 in revenue in 2006. The increase in 2007 reflects higher research contract revenues of $10.8 million and license fees of $125,000, partially offset by decreases in grant revenue of $51,000.

Operating expenses for 2007 were $44.1 million, compared with $33.1 million in 2006. This increase was due to higher R&D costs of $34.8 million in 2007, compared with $25.3 million in 2006, and increases in G&A expense to $9.3 million in 2007, compared with $7.8 million in 2006.

Our net loss for the 2007 full year was $27.2 million, or $0.50 per share. This compares with a net loss for 2006 of $28.7 million, or $0.54 per share.

Reviewing our balance sheet, we reported cash, cash equivalents, and short-term securities of $25.1 million as of December 31, 2007, a decrease of $8.1 million from December 31, 2006. This decrease was due primarily to $24.7 million used in operations and $2.1 million used for the purchase of property and equipment and patent-related costs. These numbers were partially offset by the receipt of $18.6 million in net proceeds from a private equity financing completed in December 2007.

In December 2006, we announced the execution of a two-year $28 million research contract with 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 bioterrorism agents. In 2007, we recognized $8 million in research contract revenue from this contract.

In January of 2006, we were informed that in accordance with the final version of the 2006 Defense Appropriations Act approved by President Bush, AVI was to 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 report up to $9.8 million, net of government administrative expenses, and have now received signed contracts for this total amount.

In the full year of 2007, we recognized $2.7 million in research contract revenue under these contracts. We expect to receive the remainder of these funds over approximately the next year as the research is completed and invoiced to the government.

For our 2008 financial guidance, we expect our net cash burn for the year to be in the range of $16 million to $19 million.

With those comments, I would like to turn the call back to Les.

Alan, thanks very much indeed. So, we will take questions both for Alan and also from myself on the whole of our presentation when we get through to the end of the next piece, which essentially will be to look at the corporate priorities and also the beginnings of the business strategy which the management team will unfold to basically guide us through the next year. And obviously, as we get more and more depth and detail in this, we will be able to take the opportunity of presenting it both to the analyst community as well as our investors, both through this medium as well as in conferences.

Then if you look -- if you've had a chance already on our website, you will see there was a set of slides which will help structure the information that we want to convey to you this morning. But at the same time also to give us a medium for maybe a more efficient transfer of information. So I won't go through and read in great detail each slide, because I think the better way is to pick up the points that you would really like to have answered in the question-and-answer session.

So starting with the slides and just drawing your attention to the second slide, which is the Safe Harbor statement, essentially reminding you that the slides plus the verbal are necessary to actually understand the full content of what management is talking about here.

And looking at the first of the text slides, number 3, which is entitled The Opportunity. I guess another way you could subtext this is "Why did I return to antisense oligomers at this stage?" What I see in a sense is very compelling parallelism between what has been happening recently with monoclonal antibodies and what I believe is about to happen with antisense oligomers.

There was a period in both where you often start with hype and then sometimes that hype comes through; sometimes it doesn't. What one hopes for though is that research and discovery hype can be converted into solid progress. Often during that solid progress stage, it goes below the radar screen, and then as you get pioneer products starting to come out, then success starts to come quite rapidly and sequentially.

And one of the things that impressed me is the recent success of Isis. I think in many ways Stan Crooke is to be congratulated with the course he has steered here. And that also encouraged me that this is a very doable prospect of bringing forth drugs from this particular technology.

[What] the other areas that really has changed has been this notion that looking at the genome, looking at the set of genes, looking at the proteins, what RNAi interference experiments have been teaching us, the ability to actually go in and interfere to direct the splicing of pre mRNA, is really quite fundamental to many processes -- and I'm going to return to that.

So in essence, what I'm really saying is it looks like there's pending indications of technology and corporate maturation. So corporate maturation meaning that there will be products coming out. And in terms of a technology, there is a very strong understanding now that there are diverse chemical solutions, not just one approach which everybody is following. That in fact the ability to be eclectic in that chemistry means that you can start now tackling and solving some of the challenges of bioavailability, tissue localization, uptake, in vivo.

In our own case, the PMO, PPMO, and PMO-plus technologies and chemistries that we developed I believe can go forward as a really full structure-activity relationship study that we can do for really good solutions to very, very narrow problems of particular compounds which we will bring forward as drugs.

So I think overall, that really is largely driven by technology which is about to mature. I think for AVI, though, the opportunity is to actually focus our R&D to develop a product flow process, and also to very firmly commit to success in the clinic. And I think it is that which has really formed the basis of my presentation this morning, but also on slide 4, the Company goals.

These will come up during the year. It is the agenda against which we will work, both in terms of our communication strategy, but also our management team in leading the Company. Advancing AVI's clinical development programs is central to everything, because there you see evidence both of validation in terms of successful clinical demonstration of therapeutic utility, but also successful program partnering and commercialization.

And the ability to do that and the necessity to do that is really what has driven our first assessments around how we're going to adapt and evolve the Company in the near term, the first being in terms of the infrastructure required to support of a flow of product candidates. This is really very central. And looking at what we have in the research portfolio, what we're going to prioritize from the research portfolio, and how we're going to draw that out into a proper product development flow, harnessing really exploratory development as the link between research and the clinic is very, very important.

We also want to be able to give more emphasis to the control of alternative gene splicing, particularly as, as you already know, in Duchenne muscular dystrophy, we already in fact have got clinical engagement at that level. I'm not going to say more about that at this stage, because I would imagine that is probably going to be part of the questioning that we would actually get.

Slide 5 really is just to underpin, if you like, the technological scientific clinical drive that we are looking for in the Company, the idea of a good background in virus infection or immunomodulation as a way of controlling virus infection induced disease. But also with our toe in the water with DMD, this whole idea that there is a really fundamental process here, which excitement has been generated around by RNI, but I believe that the antisense oligomers are what is going to unlock it for therapeutic utility.

You can actually correct mutations. You can, in fact, often push cellular processes in different directions; for example, either promoting or inhibiting signal transduction by using exon-skipping technology. And also, one can generate totally new proteins. For example, exon deletion in membrane-bound proteins can give you soluble receptors actually produced in situ, which clearly can be a highly relevant technological opportunity relative to the ability of producing therapeutic proteins actually in situ in the human body.

So let's pause at that level and go over now to look briefly at each of our ongoing clinical programs, and then we will actually get to the Q&A part.

First of all, if I may report on the Cook partnership. As you know, this is very important for AVI as it currently is not only our most important active partnership, in fact it is actually our only active commercial partnership at the present time. Cook continues to pursue applications with AVI-5126. This is our anti-c-myc PPMO product, which is being looked at for restenosis, including both a catheter delivery kit as well as a coated stent.

So AVI is supporting Cook with product and analytics, and Cook is performing the required regulatory studies, basically to be able to take forward the development candidates they have. And they may ultimately pursue both catheters as well as coated stents, so that in fact the diversity of clinical maneuver is optimized. So clearly, this is an area where the program is very firmly under Cook's control. And they, as you know, are a private company, and we are supporting their development efforts.

The next slide goes back to the notion of the central importance on slide 7 of business development. As I said, Cook is currently our most important because it is our only business relationship. So the ability to advance our programs to Phase II and then have a very, very important and very large effort for partnering-out of those programs is really quite important, in my view, quite simply because ideally, one wants to have one's commercialization partner present at the end of Phase II meetings, for example, with the FDA. So in a sense, what I am signaling to you here is what I see is our sweet spot in AVI as a drug developer partner and commercialization channel that we are going to operate.

We have, I think, three opportunities for business development -- and these will be priorities for Ray Cummings, who is our head of business development -- increasing access to external funding for DMD. DMD, as many of you will know, it is very timely in the sense there is a lot of public interest at the present time, both at the government level as well as the foundational level, in being able to use exon-skipping technology for the correction of the mutations in DMD. And there is also leverage, we believe, in additional government funding opportunities of the sort that Alan actually reported on in the financial section.

So the R&D partnership, though, with a pharma and a large biotech is really quite important, because it is not only validation of what we're doing and its importance for drug discovery, development and commercialization; it is also because in fact it is important to our cash requirements as a Company.

Looking now at the two ongoing clinical programs, starting with CABG. So AVI-5126 is in the clinic for the treatment of restenosis in saphenous vein donor grafts prior to CABG. What we are looking for is a 50% reduction of graft failure compared to placebo. It is a double-blind, randomized trial, which is ongoing.

Per protocol, we had a review of clinical data at the first 30 subjects that had been recruited. And by the time that review had been completed by the DSMB, we had recruited an additional 17 subjects. And what we saw then in looking at that evaluation, obviously blind -- so this is feedback from the DSMB -- they advised us to actually expand from the single site that we currently have to include more sites.

And clearly that was always part of the protocol operationally -- actually, we had more recruitment at the single site at the beginning -- now we're actually expanding it -- and to enroll the next 30 subjects from a series of additional sites -- this is now ongoing. And then to review the rate of engraftment among those additional 30 subjects in the light of the 47 that we have also already collected.

So presently what we have seen is an overall higher-than-expected graft failure rate among 47 subjects. What is not clear -- because obviously it is a very small dataset, and for us in the Company it is blinded -- it is not clear whether it is related to patient characteristics, the drug, or the bias from a small sample of patients, all of which have come from a single dataset, or indeed other factors which we have not actually been able to identify at this stage.

Going over to the next slide, which is slide 9, the AVI-4658 DMD program. As you know, we have an ongoing program in the United Kingdom. It is a small dose-escalation study; that actually started in the last quarter of last year. We heard already in our initial discussions with the Medicine and Healthcare Product Regulatory Agency in Europe that the data package, the existing data package, should be sufficient to support a proposed IV study. That systemic exposure is clearly very, very important for what we're looking to demonstrate here as proof of concept in our DMD program. Direct injection into a muscle, in essence, is an in vivo parallel to an in-vitro experiment.

And so although it will give us very, very important safety data and also dosing data, as well as when we get to the right dose, a demonstration of the ability to actually induce dystrophin expression, really what we are targeting is in the first quarter of this year to submit a CTA for systemic IV dose-ranging safety and de novo dystrophin production in ambulatory DMD boys.

And then also the notion, having started with exon 51, as you know, there are a range of exons that are deleted or mutated in DMD, a more limited range that actually produce the majority of the cases. But the clinical strategy as to how one addresses those mutations is really quite important.

Go to the next program on page 10. And essentially, Alan reported -- and even in the financials you can tell that our research to date has been funding Ebola, Marburg, Junin, as well as Dengue viruses. And within that program, we also have work which is being funded for ricin and anthrax toxins. So from that point of view, the importance of this program is that the scientific efforts are really very important to us because advancements are really core to one of our basic areas that we have been researching in for now the past many years, which is the whole idea of control of viral infections using antisense technologies.

So from that point is view, the government programs really are duly important. Clearly it is a source of revenue which offsets quite a lot of our fixed costs, particularly at the manufacturing and the production stage of our chemical facility in Corvalis here in Oregon, but also some really very, very sound scientific relevance.

The final slide, which I will probably leave as a series of time and events for 2008, effectively shows you what our clinical and regulatory milestones are during the next four quarters. The first one, as you see, the filing of the pre-IND for AVI-6003 for Marburg virus, has been completed. And you can read through and see how the rest of the year is disposed with regard to clinical and regulatory milestones.

So with that, I will now actually pause and invite you to ask questions, and turn control of the call back to our operator, Christie, please.

(OPERATOR INSTRUCTIONS) Ren Benjamin, Rodman & Renshaw.

I guess just starting off, maybe we can just start off with the CABG program first. You mentioned that there is a higher-than-expected graft failure among the first 47 patients. Do you have some numbers behind this? And since you are blinded, do we know from which -- it would make sense that we don't know from which group we're seeing this, but maybe you can give us some additional color as to what has the DSMB somewhat troubled.

Well, I think in saying what you just said, essentially that there was a higher than historically expected rate of failure of engraftment, that basically is the extent to which we have an understanding of what has happened. We know that all of those cases came from a single site. The DSMB basically suggested that we expand to additional sites, which operationally we would do anyway. And they asked us to actually go for the next 30 patients to then again look at the graft failure.

It could be that in fact this is just an aberration of the small sample size. It could clearly be a series of other contributions. And as you know, we in fact are not able to actually get any details, because basically that would be to unblind the trial.

But the trial is going forward. Clearly, it is something where we are expanding to other sites, and we will actually be looking at the next tranche of data, as you can see on the timelines that I put in the last slide there. We are anticipating by the third quarter that we'll have enrolled the next 30 patients.

Okay. So if you enroll the next 30 patients, say, by the next -- by the third quarter, approximately how long after that will the DSMB need to take another look? Can you remind me, is the DSMB blinded as well, and they're just looking at the overall sort of safety of the trial, or are they unblinded?

No, the DSMB are looking at the data. We are unblinded with regard to -- we are blinded -- excuse me -- with regard to the data and also their discussions. So clearly, what we get back for them of necessity are very opaque statements of the type that we've just talked about.

I think the information within that third quarter for enrolling the patients and getting that information back will be between the end of the third quarter, beginning of the fourth quarter. Clearly, this is an important decision for the Company and we want to have that data as rapidly as possible.

Do you think that by the fourth quarter, we should know -- we should know the results, or at least what the DSMB is thinking?

That is what we are anticipating.

Okay. Moving on to the DMD program, which I think is one of the most exciting programs, can you just give us an update as to what is happening with IM study right now -- how many patients have been treated, if any? And I know that in the milestone table, you talk about the IV dosing, but when might we see some preliminary data from the IM study?

Well, so basically, the first patient has been dosed. We are still very early. We're still actually at a very low concentration of drug that is being injected. And I think it is at a point where we would like to get experience with the dose escalation before talk about in detail what we're seeing there.

You do know, though, that obviously in a very similar study, [fresenza] demonstrated the production of dystrophin in vivo by a very similar route. So, from that point of view, that was part of the reason why I was saying that the IM study is really only an incremental advance from what has been demonstrated. Though I wouldn't take away the importance of actually being able to use it to show that indeed, A, we can get the expression of truncated dystrophin; and secondly, to actually give us some indications of dose ranging.

Okay. And what exactly is the difference between AVI-4658 and there's this new PMO-based exon 50 product that you're talking about and filing an IND by the end of this year. Is it just a different exon that is being skipped?

So, yes, in principle it is a different exon that is being skipped. As you know, the approach is to be able to treat DMD when one actually has a successful and validated drug product -- it is probable to be able to hit enough patients for therapeutic benefit that one would want to perhaps go, for example, with a range, a limited range of exon-skipping capabilities or oligonucleotides.

And so one of the things that we thought it was important early on to get experience with is really more than one exon. Because although the idea in principle should translate very well, clearly there is no substitute for having clinical evidence that indeed the approach can translate from one exon to another. And what we actually put into the clinic, how we do it, these are very, very much now plans which are being made by the Company.

Okay. I guess just one final question. I jumped on the call a little late, so I apologize if you've already answered this, but can you give us some guidance as to what the burn rate will be in 2008?

Yes, Ren, we announced that guidance as $16 million to $19 million.

And then that takes into account, Alan, I guess, any of the grants or revenues that would be coming in from the government projects.

Yes, it does -- those grants that are contractually committed.

Got it. Thank you very much.

Yale Jen, Maxim Group.

Very good presentation. Thanks for that. Just to follow up on some of Ren's questions, relative to those that have been answered. One other that is for the DMD; this is a little bit longer haul. Do you think that this program you need a sort of commercial partner moving forward, as you look forward for this or do you think that you may be able to do it by yourselves should things be successful clinically?

You know, this is very much a matter of personal experience and, in some ways, personal preference. So when I was in ophthalmology, I ran a specialty pharma business. And you know in principle, the size of the sales force, the number of calls you have to make to different centers and the ability to access key opinion leaders for something like DMD is very doable in a Company of our intended sort of size. So if you like, that argues for it.

Against it, many of our companies of the type like AVI have had a long history in discovery, in development, and a very much more curtailed history and experience in terms of commercialization. And the commercialization, the whole of that translation of a product candidate into a product, is an art in itself.

And it is really just a very simple business decision. What the Company should always do, and we certainly will do, is look at what our partners -- our potential partners would offer us, and then against that, look at what in fact we could do ourselves, both in terms of risks and rewards. And that ratio will guide us. If in fact we believe we can do better on our own than we could by partnering with a major company, then it is very clear what we should do.

But you know, there are always attendant risks. And personally, particularly for the first few products that come through, having a commercial partner helps you actually get that culture into a company like ours. So, you know, in all honesty, when we get there, we will make the right decision, because we will make the right analysis and we will have talked to the right partners.

Okay, great. Thanks a lot. Another question is about the coated stent that Cook may also develop. Could you shed a little bit more light on that in terms of what you can do?

Yes, you know this is a partnership, as you know, with Cook. It is a program which they themselves are running, absolutely; it is an internal program to them. We have no milestones, so we don't have any reportable events from our side of that partnership. And the reason we don't have any reportable events as milestones is that we traded up in the level of royalty that we will get once the product becomes commercial.

And so from that point of view, the information flow is going to, of necessity, be much more limited around that particular program, other than letting you all know that it is ongoing, which I have done. The reason for that is we don't have control of it directly. And it is partnered out, and basically Cook are a private company that don't have the same reporting obligations as AVI.

Correct. Thanks a lot. I appreciate it. The last question before I go back to the queue is that for the exon 50 product that you intend to file IND at the end of this year, could you tell me a little bit more about the anticipation for the program, the specific potential goal this program may accomplish compared to the one you are -- ongoing right now?

It literally is to go after another, more rare exon. The frequency with which you see exon 50 mutations is less than you see in exon 51. And as I said previously, although there is every reason from a scientific and logical point of view to expect our chemistry to translate, expectation is no translation for experience. So from that point of view, we want to get that experience.

And the funding for this one, you're thinking about internally or (inaudible) do you anticipate some sort of funding from externally?

Well, there is, as you know, a lot of support, both from government funding -- DOD funding, for example, for DMD. The foundations themselves have done an extremely good job in that regard. Personally, I have actually had a lot of admiration for what has been accomplished in that regard. And indeed for that particular PMO approach for exon 50, we have already been able to get some funding towards it. And it is enough to actually help us over those first initial hurdles into the clinic.

Great. Thanks a lot, and congratulations on your new assignment.

Thank you. Look forward to working with you.

[Lenny Stout], National Planning Corporation.

Hi, Dr. Hudson.

Lenny, Les would be great. My mother used to call me Dr. Hudson when she was really annoyed with me.

Good to hear you say that. One of the things that we deal with a lot in AVI is expectations. And in the area of the virus development, while we learn an awful lot from that, what are the real objectives there? Are we trying to get large contracts with the government? Is that a reasonable expectation? Do we have timeframes with that, with the state of government's ability to actually make a contract get let and funded?

Good question. So I'm going to start, and then I'm going to actually ask Alan to pick up with me as well, because Alan has been extremely successful in leading the effort on behalf of AVI to actually get government funding, along with some of our other colleagues in the management team. And that is an area which I have asked him to take particular responsibility for and will be leading the charge in that regard.

So let me answer this strategy question, Lenny, that you're really asking, and then I'll pass it over to Alan. So we have got a good history of treating virus infections. We've got a good history of treating disease, particularly disease caused by excesses, if you like, of the immune system. One of characters of virus disease in general is that very often the infection starts a disease-causing process, but by the time you try to come to treat the disease with an antiviral, it has already escaped.

Now, I hope that will give you a clue -- what we are looking at as our core to, if you like, our research strategy is the ability to take that concept, that dual concept, on the one hand of being able to treat the virus and on the other hand to be able to actually limit and curtail and ultimately treat the disease. So from that point of view, when I was talking about focusing our research pipeline, that balance is going to be very important. And it is an area where over the last several years we really have built up a lot of in-house expertise and knowledge, and I believe that will also drive some of our early partnering efforts.

With regard to the government and why that is important, and why it is important just beyond the finances, let me hand it over to Alan to just add the codicil to that, please.

Thank you, Les. The government programs are extremely important as well, because a lot of what we learn under the government's auspices, on their nickel, to use the slang phrase, is also applicable for us in other disease settings. So it is a little bit like -- well, you and I have met, so we are of a generation that I'm confident in saying it's a little bit like the space program in the '60s.

Besides getting the first man on the moon, which is a neat accomplishment, but it doesn't pay the rent, there's also various technological developments or advancements or knowledge bases that are gained from that program. So our program with the government, though rewarding from a financial standpoint, is particularly rewarding from the technology spinoff knowledge base that we get from doing those projects. So from that standpoint, it has been quite gratifying for us as well, and I think over time you will see how, and we will endeavor to point out to you how it has pushed technology forward at a quicker rate than we could've expected by just doing internally developed programs going forward.

In terms of garnering that huge government contract at the end of the rainbow, a bioshields type of a thing, there's possibilities for that. But I think on a day-to-day operating basis, that is not why we are in the government business and it is not why we are working with the government. It's something that we will evaluate when the opportunity arises, if the opportunity arises.

Because the government is -- it is a double-edged sword to work with, as you might guess. It is good because we have made great scientific advances, but the government moves slowly. And all the while that it is moving slowly, there are changes within the government that are happening very rapidly. So the desire for a bioshield-type stockpiling may be in favor one day, may not be in favor one day. So we are not hanging our hat on that being the endpoint to our government efforts. We're really working toward both offsetting some of our ongoing costs, but also having that great increase in knowledge base from our ongoing efforts in the government sector.

Great, thank you. While I got you guys here, let me ask another question on expectations. We have this Cook program that's been going on for awhile and we're kind of almost blinded from knowledge since they are a private company and don't report to us on milestones. Do we have any clue on expectations of when they plan to do certain filings or reach certain phases of their clinical trials?

You know, the partnership with Cook is a good one, and as you say, it has been going on for some time. It is a situation where the degree of transparency which AVI has into that partnership of necessity is going to be greater than our ability to communicate it out. It is a situation where basically they are in control of the program. That is the price of the partnership. That is also clearly the opportunity of being able to leverage their commercial ability. And sometimes you can get around that by having early milestones which can be indicative and can be reported very easily. There are no milestones in this program.

I think I've understood that from the beginning. I was just trying to figure out how we're going to know when they are really getting ready to do something commercial with it, since it doesn't seem like there's a lot of communication from them to AVI.

Well, there is not a lot of communication from AVI to you about what they're telling to us. And you know, we are bounded by our partnership.

Okay. Well, we will have to deal with that, because while it is a very important program for us, let's get some more that we're a little more visible on, I think.

Oh, I'm into that.

Thank you.

[George Hayward].

Unless I missed it, you haven't mentioned cytochrome p450. I was wondering if you had had a chance to look at that, and if you have, whether you think there are commercial possibilities there or partnership possibilities.

George, thanks very much indeed for that question and good morning. You did not miss it; I just didn't mention it. One of the things that is, if you like, one of the appealing things about the research -- the discovery research effort that has been going on in AVI is that it's like having a treasure chest that you can sort through.

I think one of the very important opportunities that we have is the ability to get partnerships much earlier than the end of Phase II that I was alluding to. And at the present time, as you can imagine, my personal focus with the management team has been looking at our clinical programs and also the need to drive partnership in that regard.

I think what we will do with the research programs -- you know, there is a perspective -- if you hear about research progress about every six months to a year, you actually then can get a much better appreciation of how things are moving through. What I'd like to bring into being at AVI -- and I'm not sure whether we have ever done it here before -- is this idea actually of a dedicated day and certainly a dedicated call for our science.

Because I think the priorities are initially going to be by selection, and then secondly by evolution. And so what our research priorities are going to be and also what the expectation is for speeding up their evolution into exploratory development is very important, and that will actually be coming down the pike.

All right. Thank you.

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

Thanks, Christy. So I'd like to thank you all for joining us today. It has been pleasure to have a chance to talk with you. I hope our excitement has come across, and also our commitment to convert that excitement into solid progress. I look forward to working to you and giving you regular updates, and most of all, I wish you all a very good day. Thank you for joining us. Goodbye.

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