Sarepta Therapeutics Inc (SRPT) 2010 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the fourth quarter and full year 2010 AVI BioPharma earnings conference call. My name is Jonathan, and I will be your operator for today. At this time, all participants are in a listen-only mode. After the prepared remarks, we will be holding a Q&A session. (Operator Instructions). At this time, I would like to hand the call off to Mr. David Walsey, Senior Director of Investor Relations and Corporate Communications for AVI BioPharma. Please proceed, sir.

Thank you, Jonathan. Thank you for joining today's call. Earlier today we released our financial results for the fourth quarter and full year 2010. The news release is available on our website at www.avibio.com. Our 10-K will be filed early next week. Joining me on the call are Chris Garabedian, our President and Chief Executive Officer, and Dave Boyle, our Senior Vice President and Chief Financial Officer.

First I need to inform you that during this call, we will make a number of statements that are forward-looking. These forward-looking statements include statements about the development of AVI's product candidates, including NDA enabling activities, initiation of a Phase 2 clinical trial and the initiation of a pivotal Phase3 study in the second half of 2012 for AVI-4658, and the initiation of Phase I clinical trials in 2011 for AVI's three leading anti-viral product candidates for the treatment of Ebola, Marburg, and H1N1 influenza, the efficacy of AVI's PMO chemistries, and other RNA based technologies; AVI's ability to qualify for additional government contracts; expectations regarding collaboration opportunities; and other strategic transactions and expectations regarding future success, revenues, expenses, and funding from governments and other sources.

These forward-looking statements involve risks and uncertainties, many of which are beyond AVI's control. Any of such risks could materially and adversely affect our business, results of operation, and the trading price of AVI's common stock. For a detail description of risks and uncertainties we face, you are encouraged to review the official corporate documents filed with the Securities & Exchange Commission.

With that said, let me turn the call over to Chris Garabedian, AVI's President and Chief Executive Officer.

Thank you, David. Since this is my first conference call as CEO of AVI, I would like to take a few moments to mention how excited I am about the prospects of AVI's technology and clinical programs, and our ability to drive significant shareholder value based on both near-term and long-term events. In the last couple of months since joining the Company, I have spent a considerable amount of time speaking with AVI's key stakeholders, including our research collaborators, members of the DMD community, and both existing and potential investors.

The number one question I am asked is why did you join AVI? Simply put, I believe it is one of the most promising biotechnology companies in the industry, with the potential to drive significant value for shareholders. I have spent most of the last 13 years helping to build two of the most successful biotechnologies in the history of the industry, Gilead and Celgene, and this has provided me with a deep understanding of what it takes to turn promising technology and clinical assets into a biotech powerhouse, and I have learned how to do this with both proprietary programs and through business development deals. AVI has all of the elements and the essential foundations that can drive significant long-term value based on its clinical assets and its compelling technology platform.

Before I provide you with an update on the recent accomplishments of the Company and the activities that will take place over the year, I would like to share my thoughts about the history of the Company, and the potential of the Company's technology. Many outsiders who learn about AVI, mistakenly label it as an antisense company, and attach the negative adjectives that are often accompanied with the early challenges of this technology. I myself was skeptical when I first joined the Company as a Director last year, since I was at Gilead when they turned away from antisense in the 1990s because of the challenges of the early chemistries and acknowledged that it would take many years before the technology matured.

Many of the very same issues related to delivery and toxicity that made antisense a challenge, are the same issues that have fueled the recent disillusionment that large pharma has had with RNAI, where we have seen several notable companies announce that they are ceasing or scaling back their efforts with siRNA. While all of this has been happening in the RNA space over the last 20 years, many have missed that there were scientists at AVI who had designed a wholly new chemistry, with properties that are fundamentally different than both traditional antisense and siRNA chemistry.

Importantly this novel chemistry, which we call morpholinos, or PMOs, have addressed the limitations and challenges that plagued the RNA space. In the last few years, morpholinos have proved to be very safe, and have demonstrated activity across of number of targets in both rare genetic diseases and very virulent infectious diseases. It is clear to me that the great promise of RNA based therapeutics will be realized. The promise to transform medicine by creating drugs that work at the genetic or premessenger RNA level.

I joined AVI because I fundamentally believe that the technology that will lead this transformation is AVI's morpholino oligomer nucleotide. I would also like to mention that I have met a lot of our current shareholders, both large and small who have been committed to this Company and the promise of its technology for a long time, and they have been frustrated and inpatient with the progress that they have seen in realizing the value of this technology. While I wish it were possible, the business of transforming a Company into a leader in the biotech industry takes more than a couple of months on the job, but I can commit to you that there has been tremendous progress in the last couple of months since I joined the Company, and while many of these activities are not worthy of press releases, they are as critical in creating a foundation to move the Company on a path of success.

We are establishing new relationships with researchers, potential collaborators, reinforcing existing relationships, and telling the new AVI story with new leadership, a new vision, and a new strategy to those who are not aware of the potential of the technology and the Company. So thank you for allowing me to take some time at the beginning of this call to explain what attracted me to the Company. Now let me get on with the important activities that we are focused on at the Company.

There are several key value drivers that are being optimize at the Company, and all have them have the potential to provide catalyst events over the coming weeks and months and throughout the year. The primary value drivers that I am speaking of include first, our Phase 2 DMD program that is on a critical path toward a pivotal study, and will produce additional data later this year. Secondly, our antiviral programs which will see three clinical stage programs in Phase I studies in the coming months, and we hope to qualify for another government contract that would potentially fund our program through an NDA for both prophylaxis and treatment of influenza.

And thirdly our differentiated RNA-based platform technology that has the potential to deliver on the promise of systemically delivered drugs that work at the origin of the disease at the genetic level. Lastly each of these programs are attracting the interest of potential collaborators and industry partners, that can facilitate business development deals, whether it be a partnership for DMD, a licensing deal for our infectious disease programs, or collaboration deals with partners who are excited about how our morpholino chemistry addresses the limitations and challenges of other RNA-based technologies.

Another aspect of our technology that is gaining attention is the scientific application of directed alternative splicing in our clinical DMD trials, where we have proven with a systemically delivered drug, that we can act at the preMRNA level to repair a genetic mutation and restore protein synthesis. In this case, we restored the expression of the dystrophin protein, and provided treatment to hopefully prevent the progression of a serious disease. We believe this is the tip of the iceberg in applying directed alternative splicing in the treatment of genetically based disease.

So first, let me share some details of our DMD program. AVI's most advanced clinical program which has the potential to have a significant impact on the lives of DMD patients. It exemplifies the streamlined rare disease development path that is one of the most attractive business models in the industry. In the last couple of months I have spent a lot of time meeting with the Duchenne Muscular Dystrophy community, including researchers, clinical investigators, and patient advocacy leaders, and have met several parents of DMD patients, and some DMD patients themselves.

Duchenne is a devastating muscular disease in children that typically leaves these children, mostly boys, confined to a wheelchair by their teens, often requiring a ventilator in their late teens, and ultimately a loss of cardiac function and death, typically before the age of 30. The disease is marked by the Duchenne patient's inability to produce dystrophin, a key protein required for healthy muscle function, because of genetic mutations in the dystrophin gene. Our drug, a potentially disease-modifying therapy that we hope will delay or prevent the patient's confinement to a wheelchair and extend their survival, restores the patient's ability to produce a functional dystrophin protein, and maintain their mobility and ambulation while on our drug.

The enthusiasm from researchers, clinical investigators, and the DMD patient community about the prospects of our clinical stage drug, which we refer to as AVI-4658, has led to an acceleration of our clinical program, and a strategy to put us on a critical path toward a pivotal study in 2012. To this end we announced in February that we have initiated several NDA enabling activities, including the initiation of a US-based Phase 2 study, that will help us determine the optimal dose for our pivotal program; The initiation of our long-term animal toxicity program, which will enable long term dosing, since DMD is likely to be a lifelong chronic treatment; and the initiation of our scale-up manufacturing process to prepare for pivotal and commercial-grade GMP drug supply.

It is important to note that we are currently focused on a subset of DMD patients, who will benefit from an exon 51 skipping drug, due to the specific mutations that they have. While an exon 51 drug will benefit the largest subset of patients, about one-fifth of the target population, we are also investigating the regulatory path for the stream-lined development of multiple exon skipping drugs, that could allow for AVI's drugs to benefit the majority of DMD patients. The details of the Phase 2 study are being finalized, and we are planning to begin dosing by the end of June, pending FDA and IRB review, and we are expecting to have preliminary 12-week results by year end.

I will now describe the size, scope, and design of the study. Study 201 is designed as a 24-week study that will look at once weekly infusions of both 30 mg/kg and 50 milligrams per kilogram in ambulatory DMD patients, who would benefit from an exon 51 skipping drug. We are planning on enrolling eight patients in the treated arms, four in each dose cohort, and we will also include an untreated matched cohort. We will be collecting biopsy data pre and post treatment, and clinical outcomes across all cohorts.

Specifically we will be looking at dystrophin expression in the 50 mg/kg cohort after 12 weeks of treatment, and in the 30 milligram per kilogram cohort after 24 weeks of treatment. This will help us to answer the question of whether large doses, larger doses can have an impact on the robustness and consistency of dystrophin expression in the short-term, by comparing the 50 milligram per kilogram patients with our previous 12-week study, but it will also help answer the question if lower doses over longer treatment courses achieve the same or greater dystrophin expression, as we see with the short-term treatment. We will also be looking at clinical outcomes at both three months and six months, and these data will provide important information to inform the design, scope, and powering of our pivotal study next year. We believe this program has the potential to provide AVI with its first commercial product within the next few years, and while we continue to evaluate partnership deals that would provide favorable economics to AVI, we are not slowing the program down, and would seriously consider an ex-US partnership for our DMD program.

The second area that is driving value for the Company is our robust infectious disease program, which is applying our technology across a number of viral and bacterial pathogens. Many of these programs are benefiting from significant financial support through our Department of Defense contracts. Specifically we have active contracts that provide funding of more than $300 million across our influenza, Ebola, and Marburg development programs. This is a collaboration with the Department of Defense's Transformational Medical Technologies program, and represents a validation of our technology, and the belief that AVI has the potential to deliver effective drug therapies in large quantities in the event of a pandemic infection disease threat, or in the event of a terror attack, via a weaponized infectious pathogen, regardless of whether it is an existing lethal virus like Ebola, or a new emerging or created virus that the world has not seen yet.

The potential of AVI's technology was the subject of a lengthy New Yorker article dated January 31st of this year, which describes the genesis of our antiviral program after we demonstrated an ability to go from receipt of a viral sequence, to the provision of anti-viral drug candidates within five days. We did this in a real world situation for a USAMRIID lab researcher who had an accidental needle stick with an Ebola virus. And we have now repeated a formal rapid response exercise to produce drugs for both H1N1 influenza and Dengue in seven days and 11 days respectively, from receipt of the target viral sequence. This infectious disease program is now poised to have three drugs in clinical studies in the first half of this year.

Based on our preclinical animal studies where we administered 1,000 times the lethal dose of these already lethal hemorrhagic viruses, across multiple species, and we showed a 100% survival against Marburg, and up to 80% survival against Ebola. This led the Department of Defense to award contracts to support the full development of our Ebola and Marburg drug candidates through an NDA filing, and also supports the Company in ramping up our manufacturing capabilities, so we could stockpile large quantities of drug in the event of an emergency use authorization.

We have already received a contract to develop our H1N1 influenza drug, AVI-7100 through an IND, and the start of clinical safety studies, but more importantly, we are preparing to respond to an upcoming RFP that could provide funding through an NDA filing for influenza. While our Ebola and Marburg programs would obtain approval through an animal rule NDA, an influenza program would entail larger worldwide clinical programs for both treatment and prophylaxis. We have already started work to design the appropriate clinical programs, to meet the draft RFP requirements for flu, and are hopeful that this application may lead to another large government contract for an influenza development program through an NDA.

To be clear, across all of these infectious disease programs, AVI would benefit from any stockpiling requests and priority review vouchers if these programs prove successful. It is important to highlight that our government contracts are under a cost-plus arrangement and are accretive to earnings, so they generate cash flow and also cover some of the overhead and G&A expenses for the organization. Even more relevant is that these programs are allowing us to build out R&D capabilities in our large scale manufacturing know how which can apply to other proprietary programs.

The last point I would like to make related to our infectious disease program is that we also have preclinical data that support programs in Dengue, anti-bacterials, cystic fibrosis, and other infection disease targets. Any of these programs can be partnered, including influenza and our government-sponsored programs, and we are focused on unlocking the value of these programs with potential business development or academic partners. Like the partnership we announced with the Karolinska Institute to identify RNA-based therapeutic candidates for the treatment of extensively drug resistant tuberculosis.

Lastly the third value driver of the business is leveraging our morpholino based technology platform, which I spoke about earlier, to drive business development and attract industry partners. Our technology is a wholly different chemistry, and we believe better chemistry than other RNA approaches. We believe that this is under appreciated, and that its potential has not been fully elucidated to potential industry partners. It has a differentiated chemical backbone, is charge neutral, it works via a different mechanism of action, and it is highly modifiable with favorable drug like qualities. It has demonstrated excellent safety to date in more than 400 patients in the clinic and in healthy volunteers, and it is applicable in many therapeutic areas beyond those on which we are focused today. We view this as an opportunity for potential partners to access our technology, to develop RNA-based therapeutics across a wide range of disease areas.

Before I hand the call over to Dave Boyle, our CFO, who will provide a financial update, let me reiterate our focus on moving forward with our three key value drivers, by accelerating our DMD program, executing and expanding upon our Department of Defense funded development stage infectious disease programs, and taking advantage of opportunities to expand our core technology into other disease areas through business-development activities. Now Dave Boyle, our CFO will go over our financial results.

Thanks, Chris. For the fourth quarter of 2010, AVI reported an operating loss of $1.7 million, compared with an operating loss of $4 million in the fourth quarter of 2009. The decrease in the operating loss is the result of a $10.4 million increase in government research contract revenues, offset by a $7.2 million increase in the R&D expenses, and $0.9 million increase in G&A costs.

The increase in the government research contract revenues and the increase in the Research & Development costs were primarily related to the Ebola, Marburg and H1N1 contracts that were new in 2010. Research and development expenses were $13.9 million in the fourth quarter of 2010, compared to $6.6 million in the fourth quarter of last year, an increase of $7.3 million, again the increase was due primarily to increases in the research costs for the Ebola, Marburg, and H1N1 contracts, partially offset by lower spending on the Duchenne Muscular Dystrophy Program.

G&A expenses in the fourth quarter were $3.4 million compared with $2.5 million in the fourth quarter of last year, an increase of $0.9 million. The increase was attributed to higher compensation costs related to the increased headcount, legal expenses and facilities costs related to AVI's new Bothell, Washington facility.

Revenues for the fourth quarter of 2010 increased to $15.5 million, from $5.1 million in the fourth quarter of 2009, again as a result of the net increase from the new Ebola, Marburg, and H1N1 government research contracts. For the year 2010, the operating loss was $20.9 million, compared with an operating loss of $15.5 million for the year ended 2009. The $5.4 million increase in the operating loss was primarily the result of $11.6 million increase in the R&D costs, and a $5.7 million increase in G&A costs. Offset in part by an $11.8 million increase in government research contract revenues and other revenue.

Research & Development expenses were $36 million for the year ended 2010, compared with $24.4 million for the year ended 2009, an increase of $11.6 million. Again the increase was due primarily to $5.6 million in costs related to the July 2010 Ebola and Marburg government contracts, and $4.2 million in costs related to the June 2010 H1N1 government contracts. Both of these contracts were new in 2010.

Additionally, $5.5 million is related to the increased production of therapeutic drug substance, a $1.5 million increase in costs for the 2009 H1N1 government contract, and a $1.4 million increase in all other R&D costs, offset by a $4.3 million decline in the spending related to the 2006 Ebola, Marburg and Junin government contracts, and $2.3 million reduction in the Duchenne Muscular Dystrophy project costs.

G&A expenses for the year 2010 were $14.4 million, compared to $8.7 million for the previous year, an increase of $5.7 million. The increase was the result of a $2.6 million charge related to the April 2010 departure of AVI's former Chief Executive Officer. The increase was also attributable to higher compensation costs related to the increased headcount, legal expenses, a reduction of the fair value of property held for sale, and facility costs related to AVI's new Bothell, Washington facility.

Revenue for the full year 2010 increased to $29.4 million from $17.6 million for the year 2009. As a result of the net increase in the revenue from the new Ebola, Marburg, and H1N1 government research contracts.

The net loss for the fourth quarter 2010 was $7.6 million, or $0.07 per share, compared to a net income for the fourth quarter of 2009 of $3.5 million, or $0.03 per share. The $11.1 million increase in the net loss was primarily due to the change in valuation of certain warrants described below.

The net loss for the year 2010 was $32.2 million, or $0.29 per share, compared to a net loss for 2009 of $25.2 million, or $0.27 per share. The $7 million increase in the net loss was primarily due to the increase in operating loss, and the valuation of certain warrants described below.

In connection with AVI's 2009 and prior equity financing, the Company issued warrants that are classified as non-cash liabilities. The amount of the warrant liabilities are primarily affected by changes in AVI stock price between each financial reporting period, and causes the warrant liability to fluctuate as the market price of AVI stock fluctuates. In the fourth quarter of 2010, the valuation increased to $6 million relative to the third quarter 2010. For the year 2010, the warrant valuation increased to $11.5 million, relative to the valuation at December 31, 2009.

AVI had cash and cash equivalents of $33.6 million as of December 31, 2010, a decrease of $14.7 million from December 31, 2009. This decrease was due primarily to cash used in operations during the year 2010 of $15.2 million, and cash used for property and equipment and patent-related costs of approximately $2 million ,and payment of long-term debt of $0.1 million. Offset by cash inflows from the exercise of stock options and warrants of $2.6 million.

For 2011, we are providing guidance for the revenue of approximately $50 million to $60 million, and cash expenditures for operations net of government funding and other collaborative efforts to be approximately $23 million to $28 million. AVI believes it will continue to receive funding from government contracts, and has assumed certain revenues from these awards in providing this guidance. If AVI does not continue to receive the funding from its current contracts, its guidance may change.

And with that, I will turn it back over to Chris.

Okay. Thank you. Operator, Jonathan, I think we're ready to take calls.

(Operator Instructions). And your first question is from the line of Marko Kozul with ThinkEquity. Please proceed.

Good evening, and Chris, first I wanted to extend my congratulations on joining the high quality team. My first question relates to influenza, I was hoping maybe you could discuss some of the recent contracts that BARDA provided in the space and how this might relate to your program, and what kind of contract we might, generally speaking, see from the government on AVI-7100?

Yes, thanks, Marko. So, first of all, there are several funding organizations that work on behalf of the government. We have worked with the Transformational Medical Technologies through the Department of Defense, so BARDA typically comes in in later stage development products. We will be more involved in stockpiling. We have discussions with BARDA, they are aware of our technology, but the influenza program that we have had to date has been funded by TMT, so we continue to talk to them.

They have posted a draft RFP, which I referred to, which would take influenza through a full NDA, and we are awaiting the posting of that draft RFP. We think that will come this month, and we are already preparing a response to that RFP. So right now we have to continue to pursue development of our influenza drug, and then at some point we would hope BARDA would come in and like what they see, and ultimately fund us for stockpiling of that influenza drug. But at this point, TMT would be the funding arm of further work with 7100.

Perfect. And some of those contracts came in close to $200 million or so in development expenses. I was wondering given how broad AVI-7100 could be in terms of prophylaxis and treatment, if you could discuss just some general themes or trends, in terms of size of contracts that might be available for the compound?

Absolutely. Yes, so the best way to answer that is that we received nearly $150 million for the Ebola and Marburg contracts each. Okay. So over $290 million worth of contracts for those two programs, and those were animal rule NDAs. So if you can think about what would be required for an influenza NDA, where the draft RFP requested both treatment and prophylaxis, and we know that they would be looking for clinical data, so we would have to basically find influenza patients around the globe, and to prophylax patients who were exposed to influenza virus, that would be a significantly more complex and larger program that would likely involve thousands of patients in a clinical study.

So that is what we are trying to design, but if we received a contract close to $150 million for an animal rule NDA, you can do the math of what an NDA for a treatment and prophylaxis clinical program might look like. Having said that, we know that we can't get too crazy with the expectation of what they could spend, but I think it is fair to say that we would expect it to be north of what the NDA for the animal rule was funded for, and we just have to figure out what program is best, and what that looks like.

Perfect. Thanks for taking that question, and just one on Duchennes, you mentioned evaluating the patients on the 30 milligram dose at 24 weeks, and the 50 milligrams at 12 weeks in the upcoming Phase 2 study, I was wondering is there an extension study planned for those patients, number one? And number two will you also be accessing the 50 milligram dose beyond 12 weeks, at 24 and beyond?

Yes, so first I need to say that we are reaching out to the FDA to ensure that we can go beyond 12 weeks at these high doses. They have already given us clearance to do 50 mgs and up to 100 milligrams/kg over 12 weeks, so we believe that they will allow us, because we have initiated our long-term animal tox program that they will allow us to go up to six months of dosing. It is not clear if they will allow us to continue beyond six months. The plan is to look at both dose cohorts at least to 12 weeks, and again we believe that we will get approval to go to 24 weeks. The matched untreated cohort, we hope will be rolled over to either a 30 or 50 milligram dosing, but at this time the protocol details are still being finalized, and we will provide more clarity around that and potential continued dosing as we get that information.

Great. Thanks for taking the questions, and look forward to the progress.

Thanks, Marko.

Your next question is from the line of Steve Brozak, WBB Securities. Please proceed.

Congratulations Chris on joining a very exciting story here. I will come straight to the point. You have got two franchises here which have synergies. The first one has to deal with an ongoing franchise, which is basically providing you with revenue on the government side, which is a tangible franchise which you are familiar with, and which frankly has other applications which are commercial in nature into the future.

Then you have your second franchise, which is commercially oriented franchise, which you have a long history of having developed in other Company products, and also partnering arrangements. Can you tell me how the two of them can be leveraged going into the future, and how you would see the leveraging taking place, and how let's say your experience with larger pharmaceutical companies that are not as enterprising as you can be, would and I am obviously not going to hold you to this, but how the larger pharmaceutical companies might be interested in saying, look we are willing and interested in this part of it, and you have the government basically interested in this part, give us some color on that part, and I have got a follow-up after that?

Yes, so where we sit today, we like the fact that we have a diversified platform for the Company, where we are going after a nice rare disease development program that could provide tremendous upside in shareholder value to the Company in the very near term, in the next few years as we move the DMD program through an NDA and commercialization. We like the fact that the government programs allow us to build out our R&D capabilities, our scaled manufacturing. It provides cash flow. It offsets a lot of the expenses on our proprietary program, so we like it as a diversification, and a way to mitigate some of the risk of a lot of the biotech companies out there that have a single asset, where they live and die by that product's success. So right now we like the fact that we have these two primary value drivers for the program.

And we think there are synergies across where we learned from the scale-up manufacturing that could be applied to DMD scale-up know-how, and we learn about our technology platform that can be applied for new proprietary programs, so where we sit today we like this integrated into the Company. As I think ahead, and it is premature to do so, obviously leveraging a commercial infrastructure around a rare disease or a neuromuscular franchise to bring in other products, to look for ways to leverage that is very obvious, if we are successful.

In terms of the government contracts, again, we have come up a huge learning curve, and we believe we are positioned very favorably as a preferred kind of collaborator with the Department of Defense, and we are in fact in discussions with other agencies around other programs, and so we are just focusing on doing the best job we can with that, and we think that will open up the opportunity to look for consolidating other government programs across other infectious diseases, but again I think it is premature to speculate on that at this point.

That actually leads me to the follow-up in terms of the government programs. Obviously, these government programs, the people that you are dealing with, the contracting officers, these people do an incredible amount of due diligence to ensure not just that they are signing you off a check because of a personal relationship. You have to go through a step-by-step procedure to say that you can not just test it, but you have the ability to, quote unquote, go through the process all the way to manufacturing, and realistically during a certain time period you can actually deliver a product, either direct or through stockpiling. Could you give us an example of how that would work? And then I will jump back in the queue.

Yes, again, the contracts that we have with them are designed and shaped to move us as rapidly toward an NDA filing, and in parallel to prepare our manufacturing for scale-up production, and for lack of a better word, commercial supply, for stockpiling for the DoD, so I think that is the intent, and we know that should an emergency hit, they want us to move as swiftly as we can. So that if an emergency use authorization were required, and let's say in the case I described earlier, a new infectious disease emerged that we have not seen yet, and they identified the sequence, and they handed that sequence over to the Company, that we could turn around a drug very quickly that could be tested in animals, tested in humans, and ramped up quickly. I mean, that is what we are gearing up for. We are not there yet as we sit here today, but that is the hope, and we think that could result in large government stockpiling contracts in the future, and that could be, and in the nearer term, once we complete the scale-up manufacturing that we are focused on right now.

I look forward to following up with this exciting story. I will jump back in the queue. Thanks so much.

Alright. Thanks, Steve.

Your next question is with Ren Benjamin with Rodman. Please proceed.

Hi, good afternoon, and congratulations on the progress. Couple of questions just starting off with the DMD program. Can you talk to us a little bit, you went through the design and how the study will be conducted. Can you talk to us a little bit about the rationale for choosing the 30 and the 50 milligram doses, especially given that originally you were looking at shorter term doses of 50 and 100. And then separately, can you talk to us about what sort of clinical outcome end points are you looking for at the three-month and six-month time periods?

Okay. Thanks, Ren. Yes, regarding the dosing, so first of all there is a healthy debate in the DMD community about whether large doses are better, in other words how much can the muscles absorb over higher dose-burdens over short periods of time, versus it is better to have, lower, or lower doses repeatedly over a more chronic exposure to the muscles? And so we are trying to test that hypothesis with the 50 versus 30 milligrams. Frankly we don't believe we need to go up higher than 50 mgs per kg, and we will know at the end of this study, and we know the FDA has given us clearance to go up higher if we need to, but we did see very good activity at 20 mgs per kg, and even 10 mgs per kg in the UK study, but we believe that because of our safety profile, that we have the chance to actually improve efficacy, and we want to improve that margin if possible.

So related to how we chose that, it is obviously the 50 mgs is what the FDA gave us clearance to look at in this next phase of clinical research. 30 mgs per kg, we picked that because the best responder we had from the UK study that was over 12-weeks, received a cumulative dose that was about 50% higher, this was a 20 mgs per kg-dosed patient, that because it was weight based dosing, and he was heavier than the other kids his age, he effectively received about 50% more drug, cumulative dose, and we believe there is no reason to believe his muscles, right, were any larger right then than the boys his age. So effectively his muscles were getting a dose about 50% higher, or akin to a 30 milligram per kilogram dose.

This is not scientific. Dosing on small samples is always difficult, but it is much more attractive to us if we can find an effective dose at 30 mgs per kg over chronic dosing, as opposed to 50 mgs per kg, just from a cost of goods, and a more attractive business model standpoint. So I think this is the study that hopefully will inform what that right dose is, and if we can continue both cohorts beyond six months, we will, it will be an open label study. So we would be able to look at clinical outcomes.

On the second question, we just had a meeting yesterday internally with some outside collaborators to discuss and debate what are the right clinical outcome endpoints that we should be looking at? How frequently should we capture those? And so that is still in discussion before we finalize the protocol. Many know that the 6-minute walk test is a primary endpoint that the FDA has accepted for other programs like PTC's DMD program, so that would definitely be a component, but there is a whole host of other clinical outcomes that we could dial into this, and we are debating that, and as soon as we finalize that we will communicate that.

Okay. And just in regards to not just the clinical end points, but about this study, you mentioned that this study will be the prelude, and will help you design the Phase 3 pivotal study for marketing approval. Yet the study seems fairly small, and I guess the question that I have for you, and I am sure you have discussed this with your consultants and others in the field is, can meaningful conclusions be made from a study of this size that will help you adequately design a Phase 3 study? And why not go ahead and enroll just a lot more patients so you are a lot more confident of the numbers?

Yes, first of all, I think one of the challenges with DMD is that there is no real good blood marker, biochemical marker that we can look at that shows how much clinical outcomes might be improved. So we have some very encouraging biopsy data that is leading us to a more accelerated path to get into a pivotal study. The clinical outcomes, most believe that you really need to see six months to a year of clinical outcomes to really show that you are affecting the slope of the curve, in terms of progression of disease, or the loss of ambulation, or the path towards requiring a wheelchair for these boys. So we know in the end we are going to have to do a longer-term study.

I think we want to make sure that when we go into a pivotal, that we believe we have the right dose, that we believe we understand what the clinical outcomes look like compared to an untreated cohort, which we do not have today, and that is what this study is designed to do. It is always a trade-off to do more patients in earlier studies to mitigate your risk in pivotal studies, the beauty of a rare disease development program is that we think a pivotal study can be done on a relatively small number of patients, and I am thinking 80 could be enough in terms of treated patients. Alexion got their rare disease drug approved on an 80-patient treated study, but it is ultimately going to come down to, how many patients do we think we need to prove the clinical outcomes. This study will help us. The other reason that it is smaller in scope is it a function of cost, drug supply, and what we think we need to move this forward with what we have currently, before we place a bigger bet on a pivotal study.

Got it. And then just regarding the pivotal study, it seems to me that based on sort of the competitors that are out there Prosensa and PTC, both of which are well, I think PTC is filing their NDA and I believe Prosensa has started their Phase 3, it seems like you guys have the ability to kind of learn from the studies that they have already done, can get a gauge as to maybe how big your studies will need to be, and potentially also get a gauge as to how good your results will need to be. Is that correct, or is there too much sort of variability out there as of now? Can you just give us a sense as to how the competitive landscape is shaping up?

Yes, sure, so first of all, I mean, PTC is probably the best program where we could learn a little bit, in terms of what outcomes they looked at, what they learned from their study, and we have been, again speaking with a lot of the investigators who are involved in that study, and we have a really good sense of what they have learned from a basically responder versus non-responder analysis, et cetera.

Let me point out PTC is not a competitor to our drug. They treat a different subset of DMD patients that are not able to benefit from an exon skipping drug, they have a nonsense mutation that requires a different mechanism of action, but we can learn on the natural progression of that PTC trial.

Prosensa frankly they have not provided a lot of data publicly for us to learn anything meaningful in terms of our development program. I have not seen data from their systemically delivered study, I have only seen their small IM study biopsy results. Let me just add that one of the other things that is giving us a lot of confidence in this drug working in the clinic is the proof of concept in animals is very compelling. We have done studies in both mice and dogs, there are breeds of dogs that get DMD naturally, and we have tested out our drug at equivalent human doses that we are looking at right now in the clinic, where we saw good robust improvement in the dogs, and literally these are on videos that you can see on the internet.

Also with the mouse model we saw similar. And also remember muscle cells are identical across mammalian species. So we believe the animal models are very predictive of the correlation to clinical outcomes, because we would expect it to behave in those muscle cells, and in muscles in animals the same way that we would expect it to in human trials. So, again, we are trying to learn as much as we can to design the optimal study, to have the best chance of success in the clinic.

Okay. Fair enough. What is happening with AVI-5038?

Yes, so we have communicated on 5038, this is the PPMO for others on the line, our peptide conjugate version, of which we explained we saw some toxicities in some of the early studies we conducted with that agent, and we had basically proceeded with some additional work that looked at the mechanisms of toxicity, and also some experiments to try to mitigate the toxicity we saw. We have completed those studies, we continue to analyze that data and try to learn what implications that might have for the development of 5038, but we are not investing anything further at this point in the advancement of that, but we are just trying to analyst the data we have on the toxicity and deciding what the state of 5038 is moving forward.

Okay.

Ren, we have got a lot of others in the queue, so just one more question, please.

Okay. Fair enough. Regarding the H1N1 program, we have a couple of dates written regarding when the RFP is due, and when the response is due. Is this all expected to happen in the first quarter and second quarter of this year?

Yes, it is out of our hands. We don't know when the formal RFP is going to be posted, there was a notice out that indicated it would occur in March. And we are still in March, so it has not been posted to my knowledge at this point, so basically we are waiting for that, but that has not stopped us from all of the activities internally. We are preparing and anticipating that RFP, and when that RFP is posted, it will obviously give a date of an expected response to that RFP, and then we will satisfy that date, so I think we are moving ahead as though that is going to be posted, and that response would be due sometime in April, but we won't know that until they post something formally.

Okay. Thank you for answering the questions.

Alright. Thanks a lot, Ren.

Your next question is from Yale Jen with Maxim Group.

Hi, this is Johnny. I am sitting on behalf of Yale, because he is on a business trip. Just a quick question for the DMD trial, I am afraid I missed part of it. When do you plan to start dosing the Phase 2 trial of that?

Yes. Good question. So we are planning to initiate dosing, I think I mentioned this in my prepared remarks by the end of June. We will start with the 50 milligram cohort, that is the plan, so that we can get biopsy results from that 50 mgs per kg cohort sooner rather than later. And we would expect to have the three-month clinical outcomes data from that study, as well as the 50 milligram, 12-week biopsy data around year end. So that is the plan for the Phase 2 study timing for this year.

Alright. And another quick question just for, to help me model your revenue. In your guidance you have around $25 million government funding. Do you think it is going to be awarded evenly in each quarter in 2011?

No, well, first of all, we're not giving guidance on a quarterly basis at this time.

Yes. Yes.

But what I can tell you is that the traunch that we are in right now was the $80 million traunch that started the last quarter of last year, and would continue through at least the first quarter of next year, but you can do the math, and we expect the majority of those revenues from that traunch of the contracts for Ebola, Marburg, and flu to hit this year, but we are not giving quarterly guidance at this time.

Alright. Fair enough. Okay. Thank you.

Your next question is from the line of Ted Tenthoff with Piper Jaffray. Please proceed.

Great. Thank you very much, guys. Great call. Lots of good details. Lots of good questions. Maybe from a higher 30,000 foot viewpoint, one of the things that has really struck me is the broad applicability of the technology, and while I certainly appreciate the focus on DMD, you mentioned the potential to partner the technology and really expand or multiply the number of programs that you are currently working on. So maybe lay something out, how that might work, what you are thinking? We have seen Isis, for example, do some of the rare disease partnerships with GSK. Is that the kind of model that you're thinking? Or maybe you can give us a little bit of guidance on that? Appreciate the time.

Yes, sure Ted, thanks. We are very excited. Since I came on board I realized and I talked to a lot of folks who were not as familiar with the AVI story or new investors, and importantly learned that we have not been communicating the benefits of our technology platform in the application in other disease areas effectively, and we are fixing that, we have changed that. And we are starting to get attention, and so I think the business development efforts has kicked up quite a bit, and we think there is a lot of application. Typically, we would focus on how we can apply our, we have various chemistries, so we have our PMO chemistry that we are applying in DMD, but we have our peptide conjugate version that has applications in dermatology, we have activity in Burkholderia, one of the pathogens in CS, so we could see that as an inhaled formulation for cystic fibrosis, and so we could partner that technology for very specific therapeutic areas.

We have our PMO-plus platform which is what has garnered the attention of the DoD, which we can go well beyond the programs we have now, and we think can go after anti-bacterial targets, we think again, tuberculosis, the Karolinska agreement would not preclude us from partnering that with a large pharma partner in tuberculosis. We think that each of these platforms has a lot of runway.

We also have a chemistry program called PMO-X, which is really a series of programs, where we are dialing up or down various chemical modifications to our core chemistry, that can enhance tissue targeting, dial up or down PK properties and really go after different disease areas. So what we are focused on is engaging the pharma partners out there, and say look, we have a lot of different ways that we could partner with you, and then what we will typically do is we are pursuing the ones that are gaining the most traction right now. So I'm glad you raised the question because I think that is the area that I can't provide much guidance right now, but we are very excited about the application to drive a variety of business development deals off of this technology.

Great. Thanks so much.

Your next question from the line of Richard Deutsche with Ladenburg Thalmann. Please proceed.

Yes. Thank you. Welcome aboard Chris. Actually Ted was right on the point that I wanted to get across. Most people I talk to have a real concern over, in fact almost a phobia in companies like this and how they are going to fund and build equity value, as opposed to the projected cash requirements, and I did want to see if you would explore your thinking in terms of driving shareholder value through non-dilutive funding, and how confident you are that you will be able, because you have got an embarrassment of riches. It is almost hard to talk about this Company, because you never get to the end.

It appears that if your morpholino technology from my uneducated point of view can almost derive against any organic material with an extremely high level of effectiveness and lack of toxicity. So I am really excited about it. But how do I explain to people what you are thinking? So I would thinking make you would give us a little more thinking about your thoughts from the big picture, of how you are going to do a non-dilutive path forward that basically will help drive the stock price?

Yes, Rick, it is a great question. As you can see from our recent quarterly financials where we had an operating loss of $1.7 million because we have the benefit of our government contract, so I just want to highlight first that that is a huge source of cash flow for us, that offsets a lot of the expenses that we have in our ongoing operations. Okay. So I just don't want that to be lost, that is a huge kind of opportunity for the Company to proceed with a program like DMD.

But you raise an excellent point. There are many different paths to get non-dilutive financing in to the Company, and business development is something I think can generate a lot of potential cash flow in, upfronts, et cetera, in large collaborative deals, and why I took the time at the beginning of the call to emphasize that this is not antisense, this is not siRNA, in other words don't lump us in the same category of these other RNA-based approaches. And I think we are having success and telling that story now, and getting out there in front of other potential partners.

So besides business development, the DMD advocacy community is also very excited about the prospects of our drug, and they have, I mean they have mobilized in a number of ways, there are literally dozens of organizations that are there to help raise money in support of DMD research. Some of them are large like the Muscular Dystrophy Association, or Cure Duchenne, which you may have seen the commercials around the Super Bowl this past year, as well as PPMD, that has been around trying to focus on how these organizations can help companies like us get products in development over the finish line, so we are already in a series of discussions with these organizations that we believe will yield other sources of supporting our program, helping us with further research, our clinical programs, and we continue to pursue that, so stay tuned, and look for those sources of non-dilutive funding, and then lastly, the government programs, they were here this week talking about our current program, and it is almost rare that we have a discussion with them where something doesn't come up about what else we could be doing for them, how else we could expect the program.

Other diseases areas, like Dengue, the influenza NDA which we talked about. They have discussed with anti-bacterials with us. So I think the government contracts are cash flow positive, and if we can leverage that, and continue to get other work from the DoD and even other agencies, that is another source, so as I sit here I am very hopeful about our ability to tap into these multiple areas of non-dilutive cash flow.

One quick follow-up going from the big picture to the eminent, your previous guidance, correct me if I am wrong was we were going to be able to go into the clinic with your flu before then of the first quarter, that has gotten a little bit hazy, and we are into March. Can you give us some detail as to what we can expect in terms of why it hasn't started, and what remains to be done and the timing on going into the clinic, which I think will be real exciting for all of us.

Yes, Rick, that is a great question. I have disclosed that previously at the investment conferences that we submitted our IND for flu in December. They came back to us, and requested some information on our technology platform. It was not relate to a specific clinical or safety concern, but they asked for some homology and pattern recognition data on our technology. So until we submitted that data, and since we have been on clinical hold. We have submitted that data, we are still awaiting their clearance, but at this time we expect to have that clearance and still expect to be able to dose safety studies by the end of the month, and again, we hope to hear imminently about clearance, and we hope to again, maintain our guidance that we will start safety studies by the end of this month, so again, that is where it stands now, and if we had more to say, we would, and that is why it wasn't mentioned.

Okay. Well thank you.

Thanks a lot, Rick. I think we have time for one more question.

Your next question comes from the line of Kevin McCarthy, private investor. Please proceed, sir.

Thank you. Chris, thanks for taking my call here. And that previous caller sure stole most of my thunder. But I guess I had a question here. Our group is trying to put together this AVI puzzle, and we are frustrated to some degree, where we don't understand where you constantly hear that you feel pretty strongly that the chemistry is superior to the other RNA competitors of yours, most notably Alnylam and Isis, yet they seem to be able to get partnerships and collaborations in the private sector.

You have got fully funded programs, and yet you have a market capitalization of about $200 million as we look at it today, with a lot of the major pharmaceuticals and larger biotechs being cash flush. Their drugs, their pipelines are bare. They could probably come in and buy the Company for $400 million but they don't. I guess this puzzle we can't put together is, are there still doubts about the chemistry and they just need to see it at a higher level of maturity? Is it the business development team? There seems to be something missing in this puzzle, it is very frustrating to us. I don't mean to be terse, certainly, but it is just like to is something missing. Thanks for taking my call or question or comment, however you want to classify it.

Sure, no problem. Kevin thanks for the question. I understand completely your question, I mean I was skeptical myself, and I had the benefit of being on the Board of Directors for about six months, to really understand and get to know the technology, but more importantly, since I have come on board as CEO, I have had a couple of months to really understand the approaches that the Company has taken in trying to get business development deals, and I just think it has not been optimized. I mean there was a lot of focus out there on DMD last year that didn't yield a partnership with the right economics, and there was very little done in terms of trying to do these platform deals and collaborations, and so I come with a strong business development background.

One of my first hires was Effie Toshav who came from Wilson Sonsini, has a lot of transactional experience in business development, we are revamping the way we tell the story. We are revamping the strategy of who we target and how, and we are already seeing success. We are already getting momentum with potential partners. And I can't say more than that at this point. I mean I think what you will see and what I saw is this technology is real, and we just need to tell the story, get in front of the right people, do it in a persuasive and compelling manner, and I think you will see partnerships come forward soon, and that is all I can say at this point.

Well, thank you very much for that.

I think we may have one more questioner in the queue.

Yes, sir. Your next question is from the line of Ron Mitchell with Hornor Townsend and Kent. Please proceed.

Thank you for taking my call. My question has to do with AVI-7100. And it is, how many different strains of the flu did you test this against in the ferret model? And are you looking to commercialize this with as just I guess the H1N1, or are you looking to commercialize this against flu strains in general?

Yes. So I think at this point we have disclosed that we have tested in H1N1 strains, but we have, it is a full program, and so we believe it has pan influenza A activity, in terms of the conserved site that we are targeting, and so again we believe that this has potential activity against, H1N1, H5N1, H3N2, seasonal flu, and the program that we are planning and designing is going to be a traditional influenza program, now the goal of the RFP is H1N1, but again I was at Gilead when we collaborated with Roche on the Tamiflu studies, and when you do influenza studies, you capture patients with symptoms of flu, and then you do the investigation of what strain they had, and if they had the flu after you have enrolled the patients in the study.

So at the end of that we would have a pro file of the drug of how it treated, how it worked against H1N1, how it worked against H3N2. Again H5N1 would be more on the animal model experiments, and we are going to continue to elucidate 7100 across all strains. But the expectation is that we would have a program that was designed to get a pan influenza A treatment and prophylaxis profile. And again, that is what we would hope would be the label if we did get funding through an NDA.

Thank you, that is very helpful.

Alright. Okay. I think that is all, operator, that is all the time we have. So you can conclude.

Yes, ladies and gentlemen, thank you for your participation in today's call. The presentation had ended. You may now disconnect. Have a good day.