Sarepta Therapeutics Inc (SRPT) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2011 AVI BioPharma Incorporated Earnings Conference Call.

My name is Larry and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. (Operator Instructions)

I would now like to turn the conference over to your host for today, Miss Erin Cox, Manager of Investor Relations. Please proceed.

Thank you, operator. And thank you for joining today's call. Earlier today we released our financial results for the third quarter of 2011. The news release is available on our website at www.AVIbio.com. Our 10Q will be filed no later than November 9th.

Joining me on the call today are Chris Garabedian, our President and Chief Executive Officer, and Mike Jacobson, our Vice President of Finance.

I would like to note that during this call we will make a number of statements that are forward looking, including statements about the development and clinical status of AVI's product candidates and their potential efficacy, clinical results, intellectual property position, revenues, expenses, potential funding from the government and other sources, and collaboration and partnering opportunities.

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 detailed description of risks and uncertainties we face, you are encouraged to review the official corporate documents filed with the Securities and Exchange Commission.

With that said, let me turn the call over to Chris Garabedian. Chris?

Thank you, Erin. Good afternoon, everyone, and thank you for joining us. I'm pleased to provide you an update and overview of our activities and accomplishments since our last quarterly update. This has been a quarter with continued progress for AVI since our last earnings call. We have continued to realize significant progress in our value driving programs including our rare disease program for the treatment of Duchenne muscular dystrophy and our antiviral programs for the treatment of life threatening hemorrhagic fever viruses of Ebola and Marburg.

With respect to our DMD program, our Phase IIB double blind, randomized placebo controlled study is well underway. We completed enrollment and dosed the first patient in August and have now completed several weeks of dosing in all patients. We are on track to have unblinded data of this 24-week study ready for release in the second quarter of next year.

With respect to our infectious disease programs, we currently have three antiviral drugs in Phase I safety studies. These initial Phase I safety studies are single ascending dose studies and are the first phase in determining a maximum tolerated dose in healthy human subjects.

Our drug candidates to treat the lethal hemorrhagic viruses of Ebola and Marburg have now completed all six dosing cohorts. A data safety and monitoring board will review the unblinded results in January of 2012. Since this is a dose escalation study, we have had DSMB reviews for the first five dose cohorts to determine if any safety concerns were present before going to higher doses. And I'm pleased to report that no safety concerns have been raised by the DSMB and we now have completed dosing in the sixth and final cohort at a dose of 9 mg/kg. We expect to begin the multiple ascending dose studies for both of these drug candidates in 2012.

Our third antiviral drug in development, AVI-7100, for the treatment of influenza, has completed the first dose cohort in a Phase I one single ascending dose study and we have received approval from the DSMB to proceed to the next dose escalation cohort. We previously announced our efforts to secure a contract award through the Department of Defense and DTRA, the Defense Threat Reduction Act, to fund the advanced development of AVI-7100 for the post exposure prophylaxis of H1N1 pandemic influenza.

A few weeks ago we learned that our proposal was not in the required competitive range for a contract award. We were disappointed in this decision but it does not change our opinion of the strength of our existing data set or the potential of this program. Since we are not under an active government contract for our influenza program, we are exploring options to continue funding the program through either public or private collaborative partners.

We presented data on AVI-7100 at ICAAC in September and these data reinforce our belief in the clinical potential of this product and think it may have a role against pandemic influenza in hospitalized patients who are immuno-compromised or resistant to [neurometadase] inhibitors.

Before I provide more detail on the programs that I just described, I'd like to provide an update on our guidance for this year. In late September, we announced that our government partner on the Ebola Marburg program, JPMTMT, that's the Department of Defense's Joint Project Manager Transformational Medical Technologies, agreed to a contract modification that moved activities that were planned for the second phase of the contracts into the first phase of the contracts. The overall program for each drug candidate is divided into four phases and we are currently performing activities in the first phase of each program.

While this was not an increase in the expected revenues associated with the overall programs, nor was it an acceleration of revenues, we did view it favorably for two reasons. First, it extended the expected timeline of the first phase of each contract by about a year. So instead of the first phase ending in mid-2012, the first phase is expected to end in mid-2013 which means the first phase of each contract would bring us revenues through 2012 and beyond.

Secondly, it increases the amount of data that we will have when a decision is made to proceed to the next phase of the contract. And we believe this may increase the probability of securing support to continue the programs. One of the requirements for the final approval of the contract modifications that I just described was to establish a new schedule of activities which the government refers to as a re-baselining of the program in order to establish an updated set of assumptions for costs and timing of activities from this point forward.

As a result of this undertaking, it required us to defer some activities and expenses until we received approval of the re-baselining which was finalized in this past week. As a result, some of the revenues that we were expecting in the fourth quarter of this year have shifted into 2012 resulting in lower revenues for 2011 than we previously guided.

Specifically, we are lowering our revenue guidance to $40 million to $50 million from our previous guidance of $50 million to $60 million. It is difficult to predict with specificity when expenses will be billed and reimbursed and ultimately captured in our fourth quarter revenues which explains the larger range as we enter the last two months of the year.

As a result of the changes in revenues, there is a corresponding reduction in margin and fees collected from the government, so we are increasing our cash burn guidance to $30 million to $35 million, a $2 million increase from our previous guidance of $28 million to $33 million. It is important to note that these revenues and their corresponding contribution to our margin are simply shifting into the new calendar year.

I'd like to now to address our development activities in greater detail. First let me provide you an update on our DMD program. As I previously mentioned, we are actively dosing all 12 patients in our placebo controlled Phase IIB study of Eteplirsen. And as a reminder, patients enrolled in this study are receiving once weekly intravenous infusions of 50 mg/kg of Eteplirsen, 30 mg/kg of Eteplirsen, or placebo, and will be evaluated on a number of safety and efficacy endpoints.

The efficacy endpoints will include biochemical markers and muscle biopsies such as the production of dystrophin protein and markers of immune inflammatory response as well as clinical outcomes to measure muscle strength, function, and degree of ambulation.

We expect the unblinded results of the 24-week data to be available in the second quarter of next year. These data will be an important milestone for the company as it will allow us to better understand the treatment effect of Eteplirsen compared to a placebo controlled cohort.

In a progressive disease like DMD, it is difficult to ascertain clinical outcome benefit without a placebo controlled cohort as many of the clinical outcomes are effort based tests that can result in placebo effect or be impacted by psychological and behavioral factors.

While the data from the study will help us guide our pivotal study program that we expect to initiate by the end of 2012, having a placebo controlled study will also be more meaningful to the FDA and other global regulatory authorities as we look to build support for the potential registrational approval of Eteplirsen.

Of course, is the results are outstanding, and a clear treatment effect is demonstrated statistically, which may be difficult in a trial of this size, we may consider filing an NDA under subpart H accelerated approval. Additionally, we are currently planning a DSMB meeting in the first quarter of next year to review the 12-week safety data and this will include a review of safety based on the biopsies.

In addition to our Phase IIB study, we continued to make progress with other critical path activity including continued dosing of our long term animal toxicity programs. We are actively dosing animals in our 9-month primate study, our 6-month mouse study, and our 10-week juvenile rat study. As we previously guided, we will have results from these studies summarized in the first half of 2012 to support regulatory discussions in advance of our pivotal study.

Lastly, we are also on track to optimize our GMP manufacturing process and expect midscale batches to be completed in the first half of 2012 and large scale batches in the second half of 2012, in time for sufficient drug supplies to begin our pivotal trial by the end of 2012.

Finally, oral proceedings before the Opposition Division of the European Patent Office in connection with our opposition of what we believe is an overly broad patent issued to Prosensa is scheduled for later this month and we will provide an update regarding the decision promptly following the hearing.

Now, I'll turn attention to our infectious disease programs which continue to show progress in the clinic. On the Ebola and Marburg front, the Phase I safety studies have continued to progress and we have now completed dosing in all six dose cohorts which evaluated doses escalating from 0.01 mgs/kg up to 9 mgs/kg. The results were evaluated by an independent data safety monitoring board which indentified no safety concerns through five dose cohorts, allowing us to complete dosing in the sixth dose cohort.

We expect the last meetings of the DSMB in January of 2012 to review the unblinded data and we'll determine if the drugs are safe up to 9 mgs/kg as a single dose. These findings will inform the design and dose cohorts of our multiple ascending dose studies to be initiated in 2012.

With respect to our influenza program, our lead candidate, AVI-7100, we have dosed the drug in the first cohort of a Phase I safety trial with a favorable review from the DSMB to proceed to the next dose cohort. This drug candidate created with another variation of our PMO plus technology underscores the broad application of our technology in the infectious disease and antiviral space.

In September at the ICAAC meeting in Chicago, we presented some key preclinical proof of concept data supporting the activity of AVI-7100. First we presented data demonstrating that AVI-7100 is effective in reducing symptoms and viral load when administered to ferrets infected with an oseltamivir resistant H1N1 influenza A virus.

Additionally, AVI-7100 in combination with oseltimavir resulted in the greatest reductions in viral load, suggesting AVI-7100 may result in increased susceptibility of oseltimavir resistant flu. And we also showed that treatment with AVI-7100 provides an effective barrier to transmission of an oseltamivir resistant H1N1 influenza A virus from infected ferrets.

While we are encouraged by these data, we have paused our clinical development efforts that are underway with AVI-7100 and intend to explore other options for securing support and funding to pursue a program for post symptomatic treatment with government agencies, commercial partners, or other means.

We will continue to explore applications of our technology across other infectious disease targets and medical countermeasures with the Department of Defense and other agencies such as NIH's NAIAD, and Health & Human Services' BARDA.

Before we move to a review of our financials, let me again restate our revised guidance for revenue of $40 million to $50 million and our cash burn guidance of $30 million to $35 million in 2011.

Finally, I'd like to officially introduce Mike Jacobson who joined us in the third quarter as Vice President of Finance and has assumed the role of Principal Accounting Officer. We are very excited to have Mike join our team. He comes to us with extensive public company experience in the biotechnology industry. I'll now turn the call over to Mike who will review the financial results for the quarter.

Thanks, Chris. Hello, everyone. I'm happy to be here and be a new member of the AVI team. With that, let me begin by talking about the third quarter comparisons. In the third quarter of 2011 we reported an operating loss of $11.3 million, compared with an operating loss of $3.8 million in the third quarter of 2010. This increase in our quarterly operating loss was primarily due to increased research and development expenses and slightly lower government contract revenues.

With regards to research and development, our expenses were $15.6 million in the third quarter of 2011, an increase of $6.6 million over the prior year quarter.

The increase was primarily due to incremental spending on our DMD development program and increased spending related to Ebola and Marburg government contracts we received in July of 2010. These increased research and development costs included Phase IIB trials for DMD and Phase I single ascending dose trials for Ebola and Marburg viruses.

Revenue for the third quarter of 2011 was $7.5 million compared to $8.7 million in the prior year. This decrease was a result of reduced revenue associated with flu and other government contracts which were essentially completed in prior quarters. This was offset in part by higher revenues in the Ebola and Marburg government contracts.

Now I'd like to turn to the year to date comparisons. For the first nine months of 2011, our operating loss was $26.9 million, compared with an operating loss of $19.2 million in 2010. This increase was the result of incremental costs for research and development and general and administrative costs partially offset by increased revenue on our government contracts.

More specifically, research and development expenses are $48.2 million so far this year, an increase of $26.1 million from the prior year. This increase was due to additional spending as we ramped up for the Ebola and Marburg government contracts, an increase in DMD related program costs as we proceeded into Phase II clinical trials, and increased spending on our other proprietary research and development activities. This increase was partially offset by reduced spending on previous government contracts that we have now completed.

G&A expenses in the first nine months of 2011 were $12.1 million. This is an increase of $1.1 million from the prior year. The increase was primarily due to incremental salaries and employee related costs as well as higher costs for professional services and costs for our facilities. These increases were partially offset by reduced severance costs related to the former CEO which we incurred in 2010.

Revenue for the first nine months of 2011 were $33.4 million, an increase of $19.5 million from the first nine months of last year. The increase was primarily due to incremental activities associated with the Ebola and Marburg government contract.

The net loss for the third quarter of 2011 was $4 million, or $0.03 per share, compared to a net loss for the third quarter of 2010 of $7.3 million or $0.07 per share. For the first nine months of this year, our net loss was $900,000 or $0.01 per share compared to a net loss of $24.5 million or $0.22 per share in the prior year. For both the quarter and the year, the reduced net loss was due to decreases in the liability for the outstanding warrants partially offset by the increase in our operating losses.

In the third quarter of 2011, the warrant value [audio interruption] compared to an increase in the valuation of $3.6 million in the third quarter of 2010. In the first nine months of 2011, the warrant value decreased by $25.6 million compared to an increase in the valuation of $5.5 million in the first nine months of last year. I would like to point out that this change in warrant valuation is a noncash charge.

We ended the third quarter with cash and cash equivalents of $46.4 million, an increase of $12.8 million from yearend. This increase was primarily due to the $32.1 million net proceeds raised in our April equity financing and then partially offset by $18 million of cash used for operations during the first nine months of this year. We have also used approximately $1.5 million in cash this year for property, equipment purchases, and capitalized patent costs.

Chris has already spoken about our guidance. I would just like to reiterate that for 2011, our revised revenue guidance is $40 million to $50 million. This reduction is attributable to the recent Ebola Marburg contract modification that delayed certain manufacturing activities, some preclinical studies and clinical studies from 2011 into 2012. The guidance for projected cash burn has been adjusted to reflect the net contribution we would have received on the delay of Ebola Marburg contract expenditures had the costs been incurred this year. Our revised range for cash burn has therefore been increased by $2 million to $30 million to $35 million.

With that, I'd like to turn the call back over to you, Chris.

Operator, I think we can open up the call to questions.

(Operator Instructions) Ted Tenthoff, Piper Jaffray & Co.

Great. Thank you very much for taking the question. I know it's been a busy quarter and lots moving around. I wanted to spend a minute on the plans to look for alternative finance for the flu program. If you could, start by reminding me what the current status is for the Phase I program and then kind of what are the decision points that you need to make in terms of timing about when to decide to finance that or how quickly do you need to find a potential partner there or other source of funding?

Ted, thanks for the question. We, as I mentioned in the script, we've paused the program currently. And just as a reminder, this is an IV administered drug that was in Phase I development and we've completed the first dose cohort. So in terms of the application of that specific drug and delivery form, that's why we believe that it's better suited for a hospitalized setting. We do think the drug could have application for pandemic stockpiling in the event of a more virulent or lethal strain of influenza A and that's why we were disappointed that the Department of Defense did not fund the program. However, there are other agencies who fund flu such as NIH's NAIAD as well as Health & Human Services' BARDA. In fact BARDA has a BAA that is posted and we're evaluating if our data to date would qualify for some of these other funding means through these other agencies. So we are exploring that actively and have initiated contact with these agencies to discuss potential options.

On the other side of that is, we are open to exploring partnerships with pharma or big biotech who might be interested in the flu space. And so, again, that's another means that we may explore. But again, because we just recently heard about this and we continue to explore other funding mechanisms, our first priority is to see if we can get outside funds to continue this program. It's difficult at this point to think about using our own cash to continue these programs because we have other priorities right now that would take precedence. But I think we will evaluate the commercial opportunity and decide if and when that would be feasible. But at this point we're going to explore other means of getting funding for keeping the program going.

Great. Thanks very much.

Marko Kozul, ThinkEquity.

Hi, thanks for taking the question. This is Irene Lau in for Marko Kozul. Can you help us understand your strategy for balancing your cash resources with the potential of incoming non-dilutive milestones for the remainder of 2011 and 2012?

Sure, Irene. So our priority right now is supporting our proprietary DMD development program. As you know, our viral programs for Ebola and Marburg are fully funded by the government. In fact, we get cash flow and additional margin to offset G&A and overhead from those programs, so it serves to offset some of the burn on our proprietary DMD programs. So again, as we enter into 2012, most of our discretionary spend and any contribution from the government programs will be focused on our DMD program.

We are doing some early research development, but even some of that is focused on supporting DMD and other exon-skipping drugs. We continue to explore non-dilutive means of capital and we are looking for potential partners through early stage collaborations who would be interested in applying our morpholino technology in other therapeutic areas. We are still willing to entertain an ex-US partnership for DMD which could provide another means of non-dilutive capital and many of our parents are awaiting the Phase II results. But that's not stopping us from initiating contact or having dialogue for those interested parties on DMD.

And although we had hoped for the advocacy community to bring dollars in, we're finding that there isn't as much money as maybe there has been historically available for non-dilutive funding of the program. We continue to look for other means through grants and advocacy support to try to get additional funding. We did have some funding to support our Phase II study that we're doing in the US from PEMD and MDA, but we continue to explore for other non-dilutive means. So at this point we're going to continue to look for other ways to add to our cash balance and that's all I have to say at this point.

Thank you, that's really helpful.

Yale Jen, Maxim.

Thanks for taking the question. And I have about three at this moment. The first one is that, Chris, you mentioned earlier about a patent, things related to Prosensa. Would you be able to elaborate a little bit more on that?

Yeah, sure. This is something we've disclosed previously through SEC documentation. But as we mentioned, we have an oral proceeding with the European Patent Office this month. And just to give you a summary, we are opposing what we believe is an overly broad patent that was issued to Prosensa in Europe. They tried for similar claims in the US and the claims were limited to compositions that contained drugs for skipping to exons which is not relevant to Eteplirsen or our lead DMD program. In all of the claims, the only issued patent that we are aware of that covers their clinical candidate in the US stand rejected due to pending reexamination.

So given all that, we are confident in our position in Europe and believe that we may be able to invalidate some or all of their claims. However, the outcome is difficult to predict and we cannot provide any assurances as to the results of the hearing. But it's also important to note that oral proceedings before the Opposition Division of the European Patent Office, although they'll provide an update regarding the decision promptly following the hearing, each party will have a right to appeal the ruling and a final resolution of the opposition may take a number of years. But again, we have prepared for this throughout the year and we are very confident and based on the precedent in the US that we will again invalidate some or all of the claims in Europe.

So I just want to confirm that this procedure is related only to the issues in Europe but have nothing to do with the United States, is that correct? Or US patent position has not been affected or will be affected?

That's correct. We always felt comfortable with our position in the US and this hearing doesn't have any link to our freedom to operate in our patent positions in the US.

Okay, that's very helpful. Another follow up question is for the Ebola Marburg. I wasn't sure I get it straight, so I just want to be clear that after the next, the review of next January, what will be the next step? I assume it's to advance to the next clinical stage. And could you give us a little bit of details as well as a possible timeline of that as well?

Yeah, sure. So Yale, the DSMB will meet in January. There will actually be two meetings. One for the Ebola data and one for the Marburg data. And they'll review the unblinded of all of the dose cohorts at that point. Really that is just to make a comment if we have full safety, which they've already commented through five dose cohorts, but do we have a safe profile up to the 9 mg/kg single dose? That will inform us on what we might do for the multiple ascending dose study. The multiple ascending dose study, we already have enough information that we will proceed with it, but if the 9 mg/kg dose is deemed safe, then that may allow us to push the dose in our multiple ascending dose studies, shift that to higher dosage studies. So that is what we are awaiting in January.

The multiple ascending dose studies are scheduled to initiate dosing in 2012. We don't have a specific timeline at this moment, but assume it's going to be probably in the mid timeframe of next year. But we'll be providing, once we have more specific information, we'll be providing more guidance on the timing of that.

It's also important to say that we are doing parallel activities to better characterize the effective dose and safe dose in animal studies, in primate studies in Ebola and Marburg. So that will be done in parallel to the human safety studies. And throughout 2012 we'll be gathering more and more data to better characterize what the effective dose and safe dose would be to do our pivotal animal stuffy. As a reminder, this is a program that would gain approval under the animal rule, so the pivotal efficacy studies will be done in animals.

Okay, I just want to be confirming, so at the earlier you mentioned that you have shifted some of the program from the second phase to the first phase, so this part, would this part of it -- and you mentioned -- so the multiple ascending dose study will be a part of this first Phase, this sort of expanded first Phase, or that will be a separate one?

No, Yale, you're exactly right. One of the main elements of the contract modification was moving the multiple ascending dose study from the second phase of the contract into the first phase. And as I mentioned earlier, while the first phase was supposed to end in mid 2012, with the multiple ascending dose beginning after that, now that's in the first phase. But again, the timing of those studies has not changed significantly. But you are correct, now the multiple ascending dose studies are in the first phase and so we will go to what we're calling milestone B which is the decision to go into the second phase. We will have data from the multiple ascending dose studies to make a case to go into the next phase of the contract.

So it would be reasonable to extrapolate or think that the funding for that, given that this is in the first phase, expanded first phase, so the funding is secure. And also, I don't know whether it is appropriate to reveal additional size of that funding for finishing this expanded first phase?

Well again, we don't believe any additional funding would be needed to complete both programs, assuming we continue to get approval to go to each next phase of the program. And this would lead to an FDA licensure ultimately of both product candidates. So again, we can't provide any guarantees because it is government funding and so it's their prerogative at any time to withhold continuing. But we think as long as we're having success with the program and we have the first phase of the contracts currently under active management, it's a very encouraging sign of both programs continuing to move forward.

Thanks. And last -- I apologize that this is the third question and last question -- which is that earlier I believe there was the guidance suggesting that you would have first quarter of next year to provide 12-week treatment outcomes from the biopsy side. Was that was consolidated into all into second quarter at 24 weeks? Has some changes occurred more recently?

Yeah, as we put together our charter for the DSMB, we have gotten a lot of feedback and while we weren't sure the level available of data or detail that would be available through a 12-week DSMB, it looks more like it's going to be a safety signal. And again, we expect the 12-week data that includes the biopsy data to look for signs of safety would be taking place in the first quarter of next year. But again, the results and efficacy results from both the 12-week and 24-week unblinding would be available in the second quarter of next year.

Okay, thanks a lot and appreciate the details. That's very helpful.

Reni Benjamin, Rodman.

Good afternoon, and thanks for taking the questions. I apologize, I jumped on the call a little late, so you may have answered this in your prepared remarks. But I just heard from Yale's question that the data from the ongoing Phase IIB trial will be available in the second quarter. Can you talk to us a little bit about what it is you're -- what would be the ideal results for you that kind of give you the go ahead to move forward? And what might cause some pause and kind of make you reflect and think about a change in strategy?

Yeah, Reni, that's a great question. I have to say just on the biochemical data that we collected in the UK study where we saw every patient in the 10 mg/kg and 20 mg/kg cohorts show production of novel dystrophin and showed a reduction in immune inflammatory response in the muscle. In fact, we saw statistically significant reduction in those cohorts on CD3 cells and a similar trend in CD4 and CD8.

This was enough to suggest that we could advance the program into a pivotal study. But because we showed such great safety at those doses and the FDA was comfortable with us exploring higher doses, that is what led us to explore 30 mg and 50 mg/kg in this study. We also are for the first time extending dosing beyond 12 weeks. So I have to say, I'd be very surprised if we didn't see at least as good of a biochemical response as we saw at 12 weeks at doses that are lower than what we're looking at now.

So it would really have to counter what we had seen in the previous study. But to answer your question of the kind of degrees of optimism that we would have in moving forward, obviously if we saw greater dystrophin production, more consistent, more robust with these higher doses at 12 weeks in the 50 mg or 24 weeks in the 30 mg, that would encourage us to proceed.

If we looked at clinical outcomes and we started to see trends of success out to six months, that would make us quite optimistic that in a six-month or year long pivotal study in a larger number of patients that we could generate data to obtain FDA or EMA approval. And I'd say the most favorable scenario would be that we show robust effects biochemically, dystrophin production and/or immune inflammatory response statistically, compared to placebo. And if we showed a clinical outcome or maybe several clinical outcomes where we showed a treatment effect versus placebo, then we may get even more optimistic that we could file the data set under subpart H accelerated approval.

Our discussions with the FDA have been very encouraging in that while a biochemical effect alone would not likely be enough to gain approval, if we could show a correlation between a statistically significant biochemical effect versus placebo with a statistically significant clinical outcome, and that might be six-minute walk, it might be myometry tests, it might be a 10-meter run/walk test, we think that may be enough to encourage us to file an NDA under subpart H accelerated approval.

So I think there's different levels that would encourage us more strongly or less strongly about the optimism, but I'd have to say the only outcome which would make us pause about moving forward would be results that were either similar or less than what we saw in the UK study.

Okay. And just thinking about the next pivotal study, after these results come out in the second quarter, one of the things I think you've brought up in the past is having enough drug to run the pivotal study. Can you talk to us a little bit about what's happening at the manufacturing level and sort of based on those thoughts when you think a pivotal study could be initiated?

Yeah, so we would be relying on contract manufacturers for the large scale production of drug for our pivotal study. And we have been evaluating several options and we will make a decision with sufficient time to pick the right supplier, give them enough time to do their setup and ultimately have several large scale runs for validation where we would have drug supply ready by the end of next year to initiate our pivotal study.

So that is well underway. We are on track to have that drug supply in place. Now we have always had the ability to make small scale drug supply in house as well as relying on midscale production CMOs who produce drug for example for our current Phase IIB study.

So again, once we knew we wanted to prepare for our pivotal program, we put in place a process and a program to make sure we had the right process and the right scale to produce these large scale batches. So we're on track for that to initiate our pivotal study by the end of next year.

And will you need to do some sort of comparability study between this batch just in order to make sure, or some bioequivalency study given it's a new manufacturer?

Well normally they want to see that when you changed your process for scale, that the stability and the purity of the drug that's in the vial is comparable. So yes, they would be looking at that. And again, we have already initiated discussion with our midscale production suppliers. And so, again, we're very confident in our ability to scale and that this would produce a product with similar purity to go into pivotal studies.

The plan is that the processes that we put into place over this next year will be ready to be summarized in let's say a CMC section of a regulatory document where we could have a discussion with the FDA. And if they were comfortable with that process to go into pivotal, that would be the same or similar process that we would use for commercial scale supply.

Okay, and can you give us just a quick update on what's happening with the 9-month monkey toxicology study? Is that complete? And what's happening with the long term toxicology program?

Reni, you may have missed the beginning of the call where I described that we are actively dosing all of our long term animal tox studies. That includes our 9-month primate which we will have dosing completed by yearend. That also includes our 6-month mouse study and our 10-week juvenile rat study. All of that will be completed dosing by early next year in time to have that summarized, all the histopathology work completed and put into clinical study reports in the first half of next year. This means that we would be prepared to go to the FDA with our final study results from our 24-week study, our final study results from our long term animal tox program, as well as our CMC process that we're going to be producing the pivotal study drug supply. And we'll be able to have that discussion with the FDA we expect around the third quarter of next year.

Okay, and I may have missed this in the beginning, so I apologize, but can you just tell us what happened, if you know, with the RFP for influenza?

Yeah, you know, I can tell you what their feedback was to us which was that we were not within the competitive range to qualify. And what that means is that they look at all of the elements of our program and they put kind of a probability of success on that. And that includes many things. It includes the medical efficacy that we have established from previous animal models as an example. Do we have a robust enough data set that supports the indication that we're seeking? We know from their decline to even consider our treatment RFP was based on our lack of robust medical efficacy in their mind to qualify for the treatment RFP. They felt that our medical efficacy was sufficient to be considered for the prophylaxis, but again, they have to put an assessment of how robust is that data set to be likely to find success in the clinic.

There are other things such as the formulation we were proposing for example was an inhaled formulation. So they put a probability based on the data set so far of the likely success of that type of formulation. So there are many variables that they consider. And in totality, they assessed that the overall program was too risky for them to fund through full development.

Now, we have generated additional data since then that was presented at ICAAC that was not availability to submit as part of the RFP and they would not accept after the RFP deadline. And so that is what leads us to believe that we have a very robust data set and a compelling program to show the potential utility of this influenza drug. So that's why we will continue to explore other means of financing this program. So I hope that answers your question.

Yes, thank you very much and good luck.

Dominic Finnen, Merrill Nexus.

Good afternoon. This is another question related to the Company's capital resources. How will the government contract modification you mentioned and the deferral of revenues affect the cash burn in 2012? Can we assume the cash burn will go down or at least remain flat and that the Company has enough capital resources to cover operation in 2012? Or not?

Yeah, well we have not and are not providing guidance at this time for 2012. What I will reiterate is that the contract modifications, while they brought activities into our first phase, did not accelerate our revenues. But again, we expect that the revenues under this first phase and the additional activities will be completed through mid 2013 and we've disclosed that $46 million of what was previously and later phases of the development were brought into this current phase. And then we also talked about some of the deferred activities that moved from the fourth quarter expected of this year into next year.

Again, we're not providing guidance on revenues at this time for 2012, but we, again, are looking at what we need for our DMD program, we're looking at what the expected revenues and contribution are for our government activities, and again, we're comfortable right now with our balance sheet that we can get through a lot of the activities I descried over the next year. So from that standpoint, we will be providing guidance on our yearend earnings call early next year and at that time we'll have a better sense of what the revenue and cash burn will be for 2012.

Okay. Fair enough. Thank you.

With no further question, I would like to turn the call back over to Chris Garabedian for closing remarks.

Okay. Thank you, Operator. In closing, we're very excited as we continue to advance or programs in Duchenne muscular dystrophy and our infectious disease drug candidates. We look forward to reporting our progress at upcoming conferences. We will be presenting at the Lazard Investment Conference and the Piper Jaffray Investment Conference in New York in November. Thank you all for joining us today.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may disconnect at this time. Have a good day.