福泰製藥 (VRTX) 2004 Q2 法說會逐字稿

Good afternoon my name is Meredith, and I will be our conference facilitator. At this time, I would like to welcome everyone to the Vertex Pharmaceuticals financial results conference call. All lines have been placed on mute to prevent any background noise. (Operator Instructions). Ms. Brum, may begin your conference.

Thank you, Meredith. Good afternoon, everyone. This is Lynn Brum, Vice President of Corporate Communications and Financial Planning of Vertex. On behalf of the senior management team, I think everyone for joining us today.

As we get started, I will remind you that information discussed on this conference call may consist of forward-looking statements, and as such are subject the risks and uncertainties discussed in detail in our reports filed with the Securities and Exchange Commission, including our 10-K.

At this time, Vertex's second-quarter 2004 financial press release has been issued. Please visit our Web site at www.VRTX.com to listen to the conference call and view a PowerPoint presentation. A replay of the conference call will be available via telephone and the Internet until the end of day, August 9th.

Vertex has had a very active and productive first six months of the year punctuated by key clinical and corporate progress in the second quarter. Key first-half events include the signing of collaborations with the CF Foundation, Mitsubishi and Merck, and clinical advances in our hepatitis C and inflammation drug candidates. We're focused on maintaining this momentum throughout 2004 and achieving important business objectives that will provide near-term and long-term value for our shareholders.

In today's call, we will review progress to date in 2004 in some detail, and we will provide an outlook for the remainder of the year. First, Ian Smith, Vertex's Senior Vice President and Chief Financial Officer, will summarize Vertex's financial and operational progress, second-quarter 2004 financial results and review our full-year 2004 financial expectations. Then John Alam, Vertex's Senior Vice President of Drug Evaluation and Approval, will review our significant recent clinical advancements and discuss our next step through our key pipeline programs. Then, Vicki Sato, Vertex's President, will close with an outlook for the remainder of the year, focusing on our key corporate goals for 2004.

In addition, Tony Coles, Vertex's Senior Vice President of Commercial Operations, will join us for the Q&A at the end of the call. Vertex's IR team, joined by Ian Smith, will be available after the conclusion of this call to answer any follow-up questions you may have.

Now I will turn the call over to Ian Smith.

Thanks, Lynne. As we entered 2004, we outlined several key initiatives to improve our operating profile. Specifically we have focused on reducing our operating cash burn and strengthening our capital structure while maintaining a focused RD investment to drive the Vertex value. I'm pleased to report we continue to show success on all fronts.

First, we continue to reduce our operating cash burn with increased Lexiva revenues. This trend will continue with the successful signing of three R&D collaborations in the second quarter and the recent approval of Telzir in the EU.

Second, we have reduced our R&D investment with focused development efforts towards core hepatitis C and anti-inflammatory product candidates. In addition to this operating performance, we have strengthened our capital structure by extending the majority of a portion of our outstanding convertible debt from 2007 to 2011 and have introduced equity flexibility with the conversion feature in this newly issued convertible notes.

As we look to the remainder of 2004, we will continue to operate with a focus on these key initiatives. New collaborations will be important both financially and to augment our research and development productivity. We will maintain a focused R&D investment, and as ever we are the best business at our stage of our development. We will remain opportunistic with a view to further strengthening our capital structure.

Now to our financials. During the call, we will discuss financial results prepared in accordance with GAAP and non-GAAP financial measures. Additional information regarding our use of non-GAAP financial measures is available in our second-quarter 2004 press release.

The second-quarter '04 GAAP net loss was $44.3 million or 56 cents per share compared to 2003 net loss of $89.9 million or $1.17 per share. The 2003 net loss included approximately $44 million of restructuring and other charges.

Excluding charges, our second-quarter '03 loss was 45.4 million or 59 cents per share compared to our '04 loss of 42.4 million or 54 cents per share. Second-quarter '04 revenues were $18.5 million compared to 16 million in the prior year. The growth in revenues was mainly driven by increased HIV product royalties. Notably the combined sales of Agenerase and Lexiva for the second quarter of '04 were approximately $26.7 million, a near doubling of revenues compared to the second quarter of last year. For the July approval of Telzir in the European Union, we expect royalties to further increase in future quarters.

Looking to our major expenses, R&D investment decreased to 47.5 million in the second quarter from $50.1 million in '03. Breaking down these numbers further, our research investment reduced to 28 million compared to $29 million in 2003 and development expenses decreased to 19.5 million from $21 million in 2003. We expect our research investment to remain at these levels and development expense to increase due to the initiation of key trials.

Our SG&A expenses for the second quarter of 2004 were $10.2 million, which is consistent with 2003. From a balance sheet perspective, Vertex ended the second quarter of 2004 with approximately $460 million in cash, cash equivalents and available for sale securities and $153 million of convertible debt due in 2011 and $162 million of convertible debt due in 2007.

Now to comment on our 2004 financial guidance. As the year progresses and we execute on key financial and operating initiatives, we remain committed to the guidance we outlined at the beginning of the year and will take a few moments to outline the key components of this guidance given the recent signing of R&D collaborations. The guidance for our 2004 loss before charges and gains of $140 to $150 million had the following components. Revenues of $90 to $100 million, of which $15 to $18 million relates to HIV product royalties and approximately $75 million related to committed and contracted R&D funding. This takes into account our recent new collaborations with additional revenue and cash flow based on the achievement of R&D milestones from the existing collaborations. Additional new R&D collaborations may enter this revenue guidance.

Our R&D, SG&A, cash and cash equivalents guidance remain consistent with the guidance we provided at the beginning of the year. I will close by stating that we expect our third-quarter loss before charges to reduce to the range of $37 to $40 million, consistent with our increased revenue trajectory. In summary, we have the opportunity to continue to reduce our operating cash burn and exceed our guidance by achieving milestones and completing further R&D collaborations.

John, over to you.

Thanks, Ian. Vertex has made significant clinical progress in 2004 reflecting the debt of our pipeline. Our current portfolio of drugs that Vertex owns and controls in development has two major components -- oral drugs for the treatment of hepatitis C and oral anti-cytokine therapies for inflammation.

For our portfolio of hepatitis C drugs, the major goal for Vertex in 2004 has been the clinical advancement of two existing drug candidates, merimepodibs or MMPD and VX-950. During the second quarter, we announced a trial design for our planned Phase IIB study of MMPD in combination with the standard of care. This study known as a METRO study is now actively enrolling study patients. The study will enroll 315 patients who were nonresponsive to prior combination therapy.

While the primary objective of the METRO study is to evaluate the ability of MMPD to increase the sustained viral rate, response rate or SVR at six months post-treatment, the study was designed with some critical interim data milestones. The speed of enrollment for the trial will determine the timing of such key data such as the antiviral effect after 24 weeks of treatment. We anticipate that this data will be (inaudible) for the program and will form an important part of our discussions with the FDA regarding the registration patent for MMPD. As enrollment progresses, we will be able to provide guidance on when 24-week data will become available.

Beyond the Phase IIB study, we also anticipate initiating a pilot clinical study in the second half of 2004 that will evaluate for the first time an all oral combination of MMPD and ribavirin in HCV.

Turning now to our oral HCV protease inhibitor, VX-950. In June 2004, we announced the start of a Phase IA clinical study in healthy volunteers. We believe this study, which is designed to measure the safety and pharmacokinetics of VX-950, will provide important (inaudible) information for the program. The Phase IA study that is now ongoing will tell us if we can achieve blood levels in humans that are consistent with that required to provide potent antiviral activity in the laboratory. Achieving sufficient blood levels will greatly increase our confidence that we will observe antiviral activity when we begin dosing patients infected with hepatitis C.

The next step for the VX-950 clinical program, our compilation of the Phase IA study in the third quarter and initiation of a Phase IB study in hepatitis C virally infected patients planned for the fourth quarter of 2004.

Next I will discuss how oral anti-cytokine therapy programs for the treatment of inflammation and autoimmune disease. With VX-765, our second generation oral ice inhibitor, we continue on track to file an IND and initiate Phase II development in a major chronic inflammatory disease in the second half of this year.

The remainder by my time I would like to spend discussing VX-702, our lead oral P38 MAP Kinase inhibitor. We announce today that we have completed the first set of analyses of the data from the Phase IIA study of VX-702 in patients with acute coronary syndrome or ACS who are undergoing percutaneous coronary intervention or PCI. The study was a randomized double-blind placebo-controlled dose escalation study of four doses of VX-702. I'm pleased to report that the primary endpoints, safety and tolerability of that study, were met. I am also pleased to report that in this study VX-702 administration was associated with a dose-dependent inhibition of the rise in blood levels of C-reactive protein that otherwise acquires in the first few days immediately after a PCI.

C-reactive protein or CRP is a key inflammatory marker, elevations of which after PCI have been associated with the worst clinical outcomes such as death or heart attacks. This is the first demonstration of an anti-inflammatory effect in a cardiovascular setting with an orally active cytokine inhibitor and strongly support the further development of VX-702 in ACS.

The continuing medical need of ACS while underscore in the recent publication of the results of the synergy trial were despite full anti-anginal, anti-coagulant, anti-platelet and PCI more than 14 percent of patients died or suffered a heart attack within 30 days of hospitalization for ACS. We expect to present detailed results from our study of VX-702 in ACS at a medical forum later in the year.

Beyond ACS Vertex continues to evaluate the clinical and commercial potential of VX-702 and additional indications including chronic indications where a reduction in CRP would be associated with clinical activity. In this regard, the positive CRP results in the Phase IIA trial are not only applicable for evaluating the potential of VX-702 and ACS but provide demonstration in humans of the dose range of VX-702 that would be expected to have potent anti-inflammatory activity in any setting. Combined with the safety inflammation from the dose ranging study in healthy volunteers of up 28 days duration that we discussed in our first-quarter call, we believe that we have information that will allow us to select doses that would be expected to be tolerated in chronic disease settings and to be clinically active. We look forward to updating you on clinical plans for VX-702 later this year.

In summary, our development organization has established momentum and cost of pipeline in the first half of 2004 and look forward to on building on this momentum for both our anti-hepatitis C drugs and our oral anti-cytokine therapies.

I will now turn the call over to Vicki.

Our accomplishments in the first half of 2004 reflect Vertex's commitment to drive the business in key areas that build value for shareholders. First, we committed to strengthening the financial profile of the Company by increasing revenues and strengthening the balance sheet. In the first half of the year, our progress against this objective can be measured by, one, the continued U.S. ramp of Lexiva sales and the EU approval of Telzir, both of which support increased royalty returns and the milestone payment for our HIV franchise. Two, the signing of three partnerships that will support our R&D investments and which reflect the value we create in our research laboratories.

Specifically the strategic alliance with Merck on the VX-680 reflects our success in developing important drug candidates of target kinases and provides significant near-term revenue. Merck also creates a second partner for Vertex products to be developed and commercialized in oncology.

The partnership with the Cystic Fibrosis Foundation, which supports breakthrough research and provides Vertex the flexibility to develop and commercialize therapies in a high-value specialty indication. The partnership with Mitsubishi Pharma which provides financial support for the U.S. development of VX-950 and brings to us a committed partner to commercial this drug in the Far East where hepatitis C is a significant health problem. And finally we have taken steps to strengthen the balance sheet with a successful debt exchange and a significant deferral of obligations.

A second area of focus for the business is obviously progress with the key drug candidates in our development pipeline. We have made good progress here as well as planned, and John has highlighted that MMPD is now enrolling in the Phase IIB METRO study. MMPD in combination with pegylated interferon and ribavirin offers one of the few treatment options treatment options being evaluated today for patients unresponsive to interferon with ribavirin. Further, we are exploring additional ways to exploit the antiviral activity of MMPD in other HCV patient populations.

VX-950 is well into a Phase I assessment of pharmacokinetics and safety, but sets the stage for antiviral studies in patients later this year. VX-765, our second generation ICE inhibitor controlled by Vertex, is on track for further clinical development later this year, and VX-702, our second generation p38 MAP kinase inhibitor, has demonstrated a clear ability to down regulate C-reactive proteins in the cardiovascular setting driven by inflammation. This result, together with the excellent safety shown in a 28-day human study and the once daily dosing regimen, provides a strong foundation for moving forward in chronic inflammatory diseases, and we will speak to that more in the second half of this year.

The first half of this year has seen strong performance against key corporate objectives, and I fully expect this trend to continue in the months ahead. We have innovative drug candidates that can improve therapy in two important areas, hepatitis C infections and diseases of inflammation and immune disorder. Any of these drugs could drive our value as a corporation as we further demonstrate clinical activity and ultimately gain product approval in the months and years ahead. We're committed to maintaining a focused energy on our pipeline and to a financial flexibility that enables enables thoughtful investment into the business. We look forward to a strong 2004 and appreciate your continued interest and support.

Lynne, back to you.

I would like to ask Meredith now to queue up for questions.

(Operator Instructions). George Fulop (ph), Needham & Co..

Question for John Alam. In view of the recent announcement of another Aurora kinase inhibitor to potentially enter the clinic in 2005, how do you see the competitive landscape shaping up?

I think at this stage all available information we remain in the league. We are well positioned to go into the Phase I study working with Merck at the lead by the end of the year. But I think it does point to what Merck is bringing to the table is the really very strong biology that comes out of the Rosetta Informatics with the molecular profiling ability to profile tumors, specifically work on the mechanism and to really drive the VX-680 in addition, and a very strong development infrastructure that they have built specifically in the oncology side that to a certain extent has been hungry to get their hands on a drug that they could drive forward and drive through that infrastructure.

Thank you.

Stephen Harr, Morgan Stanley.

I have two quick questions. First of all, Ian, when I look at the number of deals you signed in the second quarter and the second-quarter collaborative revenue, it does not quite add up. I thought you were recognizing revenue from all of these deals except for the Merck deal this quarter? Am I incorrect in that, or we are now going to see the real impact of these until the third quarter?

And them my second question is just more clinical. If you guys could just walk up through what exactly is the strategy with merimepodib in terms of what are the potential timelines that could lead to regulatory approval? I guess myself and other people I talk to are still a little bit confused on that point.

So your latter assumption was correct. The major impact of those deals commenced in Q3 and 4 onwards. John?

So what we have said with regard to MMPD is that our target for MD&A filing is 2007, that it does have the potential for filing in that timeframe, and that first filing would be in a nonresponder population.

The more specifics of exactly what that is, what is the clinical data package that would support that filing, we have not spoken to him and are not prepared to discuss that at this time. It will be dependent on the set of discussions that we plan on having with the FDA in 2005, and those discussions will be based on -- the basis for those discussions will be the interim clinical data coming out of the Phase IIB study.

My only other comment is in terms of additional indications and specifically in naive patient populations those are areas that we would explore at a future timepoint, and any filings would be expected to be after the nonresponder filing.

Thank you.

Geoff Porges, Sanford Bernstein.

That was close. Hi. A couple of questions. One for Ian. Ian, could you just give us a sense of what you see now as the financing options available to Vertex and the timing and strategy for those alternatives that you might pursue looking forward? Obviously you have pushed out part of the debt somewhat, but I would be curious to see what your thinking is right now.

And then the second question related to the last three programs that Vicki mentioned -- 702, 765 and you did not mention 944. But I am still curious as to are they still on the block for out-licensing collaborations given the data that you have now and what sounds like commitment to further development for each of them? Thanks.

Just to cover those in order. Firstly, I will start with we ended the quarter with $460 million of cash. So from a liquid position, I think that's a strong position to be in given the deferral of the 2007 debt to 2011.

The primary way that we address the liquidity in this business is through partnerships gaining upfront payments from partners, but also then ongoing operational funding. Secondarily, we look to the capital markets, and we remain opportunistic there. There are a number of ways to go there, especially through the convertible market at this point. It remains attractive. But that depends on the opportunity and the events in the Company. And because of our profile, we have the time to be patient and wait for the right timing.

Thanks.

Regarding the partnering for 702, 765 and 944, what we can say is that 944 is clearly available for out-licensing on a global basis, and we are, as we did with VX-680, looking to put in the hands of a partner who can create value for this oncology opportunity. For 702 and 765 because they are an important part and a cornerstone of our immunology franchise, we anticipate retaining significant downstream rights for these and control of these assets within North America. We are looking for partners which can help us outside of the United States and North America and which can help us accelerate both of these compounds through the clinic so that we might realize their full value. So we will be thoughtful, creative and strategic about the kind of partnerships we take for these compounds to ensure we can reach our commercial goals.

So I can just clarify that then? So 702 for both ACS and other anti-inflammatory indications you would plan to continue to develop internally for North America?

So let me be clear on 702 in particular because as we continue to evaluate the full set of options for 702, including potential chronic indications, we would be looking for partner that could actually help us to commercialize and develop 702.

Okay. So 702 and 944 are sort of more complete partnership opportunities then?

I think you can clearly see that for 944. But 765 and 702 are two assets that we are certainly interested in retaining significant rights to.

Okay, thank you.

Meg Malloy, Goldman Sachs & Co..

Thanks. I realize it will depend on enrollment, but can you give us a best case/worst case scenario of when we might expect to see 24-week data on the METRO study?

As you say, it is very much enrollment driven. What we have said at this point is in 2005. It will obviously be some point in 2005. As we get further into the enrollment, we will be more specific about that.

If I could just follow-up for the Phase IB study of 950, could you walk through what you had would hoped to see in terms of design and number on that?

We will provide more specific information once we start the study. The target is in one to two week duration study in patients who are infected with HCV and where obviously the primary objective for the first-time end patients will be safety in pharmacokinetics with multiple doses. But we will be looking at HCVR in there as well, and the target is to be in the study by the end of the year.

Okay, thanks.

Annabel Samimy, UBS Warburg.

Just a few questions. Can you give us a little clarity on what the royalties might look like for the rest of the year, if it is going to be pretty even between 3Q and 4Q, if you're going to get more of a lumpiness over the next couple of quarters, and talk about a little bit if the partnership for partnering environment has changed at all over the course of the last few months? Clearly you're done very well, but I'm just wondering if there is a little bit of a slowdown in partnering toward the second half of the year?

So just to respond to the first of your question, which was regarding the royalties, the royalties year-to-date are approximately $6.5 million. And I did give financial guidance on this call that we target the royalties to be between $15 and $18 million for the full year, and we would expect a steady ramp at that royalty --

I'm sorry. I meant the partnership fees. I apologize.

The partnership revenue from the revenue we secured in the second quarter will impact Q3 and Q4 more specifically than Q2 given the timing of the signing of those deals, and those partnership amounts, the revenue amounts are built into a full-year guidance that I provided on the call, which targets the full year revenue from partnerships to be $75 million. And that is before any further collaborations, and maybe Tony may have added comment.

Just to comment quickly on I think your question was regarding the partnering landscape, and what we have seen is certainly some recent success and a fair bit of momentum in the business around the assets that we have partnered already. If anything through the discussions we are actively having with a number of potential collaborators, we expect to continue to be successful with our partnering efforts.

The landscape appears to be quite favorable for both late stage as well as early stage assets, and we think that our portfolio and our pipeline are well positioned to take advantage of what seems to be a slight uptick in the environment.

Great. One other question. Could you talk a little bit about the reason behind dropping the interferon from the next clinical trial that you're going to be doing with merimepodib. You have got merimepodib plus ribavirin. Can you just talk a little bit about that?

Just to be clear, it is going to be a short-term study to look at the mechanism of and the antiviral effects of MMPD and ribavirin. The intent here is not to develop MMPD and ribavirin by themselves as a long-term treatment option, but it is to look at to better understand the additivity or synergy between MMPD and ribavirin in hep C in man, in humans rather than in vitro.

As you know, we have a lot of in preclinical data and mechanistic data that supports that the two would be additive and/or actually synergistic. And we want to be able to demonstrate that in man which will do two things. One is it will shore up the underlying mechanism in pharmacology behind the triple combination, which I think for everyone, ourselves and regulatory authority investigators, will help in designing further studies and understanding how best to dose the drug in that combination. But I think more interestingly perhaps it becomes the cornerstone or the basis for exploring all oral combination with any other direct antiviral, including potentially with VX-950 such as MMPD ribavirin and VX-950, and those would come in the future. This study would really just be laying the basis for foregoing the foundation for going forward with that.

Thank you.

Charles Duncan, JMP.

A quick question on 702. If we could explore a little bit about the duration of dosing and give us a little color on what you think the next development steps are for that compound?

As we said, we're going to -- one of the goals for the remainder of the year is to be more explicit in terms of how we're going to go forward with 702. So I'm not going to talk that much to that. There is additional data we are evaluating, and I think there is a broader set of discussions that we are now engaged in looking at both the commercial opportunities and the clinical opportunities in a number of different indications. As we go out in the next few months, I think you will hear much more in terms of specific plans. But we are as we said we are evaluating opportunities both in ACS and in chronic disease indications.

John, do you want to set any goals for the year? Do you expect to enter or initiate Phase IIs in one chronic and one acute indication?

No, I'm not prepared to set those goals at this time.

Okay, thanks.

Hari Sambasivam, SG Cowen.

Very briefly back on the 702, John, if you could please just -- I think I missed some of the details that you mentioned about the trial design of the Phase IIA that you just did, and you also briefly mentioned some safety data. And I'm just wondering if you can sort of walk me through that one more time?

It is two different trials. In the first-quarter conference call, we talked about that we had completed a 28-day dose ranging study in healthy volunteers where we were trying to establish the somewhat longer term safety or tolerability profile in man and that we had completed that study, and those data supported both 28 days and, given the trend in this study, longer duration studies as well. So that is one point.

Today what we announced were the results of the ACS trial, which was a 5-day treatment trial and a dose escalation trial in patients with ACS who were undergoing either angioplasty or stenting, collectively known as PCI. And the way that the central trial design was, was the drug started a couple of days in advance of the PCI, and then the drug was given through the PCI and for a 5-days, so 3 days following the PCI as well. And it was dose escalation study given that as you know these patients received pretty complicated drug regimens, including anti-coagulants and anti-platelet agents, so the concern is always that, is there a potential for exacerbating the bleeding complications?

So we went through the dose escalation, and the primary objective again was from a safety standpoint, particularly from a bleeding standpoint, was there any worsening and what is the combination? Was adding a 702 in any way detrimental? And what we announced today is that those safety objectives were met, and we were able to successfully dose escalate without evidence of any new significant toxicities being added.

Then the additional positive point was that at the time of the PCI, what was known, what has been known for a few years now, there is a significant elevation in inflammatory markers and in particular elevation in C-reactive proteins. Patients with ACS tend to have higher than normal values to begin with, but there is a further significant increase at the time the PCI is performed. What we saw in the data is that that inhibition or that increase in CRP was significantly inhibited with VX-702 treatment.

You mentioned something about hospitalization data there. Do you recall that?

The hospitalization data was a separate point that, in fact, the need for new therapies, new anti-inflammatory therapies or new therapies, and we think anti-inflammatories is the next real step in the treatment of ACS. There is still a significant medical need. There is a perception out there that ACS with anti-coagulants and anti-platelets in particular is a solved problem, and the trial that I was quoting was the Synergy trial, which was published in JAMA in the first week of July. It is a study of enoxaparin Lovenox versus heparin, and in that trial despite all of the therapies, 14 percent of the patients still ended up having either a heart attack or died.

Just making the point that I think at this point we have really maximized out our therapy with the anti-coagulant, anti-platelet side, which is where the push has been in the last 10 years, and we need something new. Again, our view is that anti-inflammatories is that new step that cardiologists need to take, and there are a lot of cardiologists who believe that as well.

Just very briefly, your 702, the Phase IIA that you just did was placebo-controlled?

Yes.

And it was once daily dosing?

It was once daily dosing.

Thank you.

Phil Nadeau, SG Cowen.

Thanks for taking my questions. Just a few more follow-ups on 702. I was wondering if in any of the studies you reached dose limiting toxicity and what that was if you did?

We have not reached dose limiting toxicity. We escalated to a point that we knew was well into the anti-inflammatory range, and the important part of the ACS results are that the CRP data confirmed that, in fact, that based on all of our pharmacology data from the Phase I study that, in fact, from as accessed by effect on CRP, we were well into that dose range at the dose levels that we evaluated.

And then either the Ashia (ph) study or the 28-day study, did you see any evidence of any of the side effects that have tripped up p38 MAP kinase inhibitors in the past, things like liver toxicity or neuro-toxin?

I cannot really going to the specific details of the clinical data. It is going to be -- our expectation is that we will present the data at a major heart meeting, cardiology meeting, and we are targeting presentation this fall.

Is that at HA potentially?

We tend not to be specific on meetings until the abstracts have been accepted, and we clearly know when and where the data will be presented.

My final question is just on the chronic indication. If my memory serves me correctly, I think we have been waiting for chronic indication for 702 I think since last year. Could you maybe just tell us what has been the sticking point, what has been the bottleneck in determining a chronic indication for the drug? Thanks.

I don't know if it has been a specific bottleneck. What we have said is that we were evaluating both acute and chronic indication. In the acute arena based on a variety of different discussions both in the biology, clinical and commercial issue that ACS came out to be the first, the obvious one in the acute setting to go after. And then we went into the acute first because the clinical data that we had supported going into a five-day dosing regimen, which is what the Phase IIA study was designed as being.

And then we have -- to go into the chronic indication, we needed to have additional supporting data in the healthy volunteer context to move into the chronic indication, and that data we obtained with the 28-day studies that we completed in the first quarter and that we talked about in the first quarter call.

Okay, thank you.

Geoff Porges, Sanford Bernstein.

Just quickly related to the Novartis collaboration, are you assuming -- first of all the question would be, how many products or drug development candidates I should say do you anticipate proposing to Novartis this year, and how many milestones are built into the guidance if any? You mentioned that there are no new deals built into the current guidance, but I just wanted to confirm what your assumptions are about Novartis acceptance?

We do not provide guidance on how many compounds that we will be presenting to Novartis on a full-year basis. That data will come when it is available.

As far as the revenue guidance is concerned, the way we have built it up as I said, there is $15 to $18 million on royalties, $75 million of what is already contracted R&D funding, and that is the major components of the $90 to $100 million. There are a number of milestones that the company can achieve R&D milestones, that the company can achieve which would include milestones such as a Novartis compound, acceptance, the start of clinical studies for 950 is an example and also HIV product approvals.

So they would be incremental?

They would be adding to that base of 15 to 18 and the 75 million. So as a hypothetical example to provide clarity, if you took a royalty level of 50 and added that to the 75 million, you have got a base of $90 million of revenue, of which the milestones would add to.

Okay, thanks.

Was that our last question?

There are no further questions.

Great. Thank you everyone for joining us tonight, and the IR team and myself will be in our office to answer any additional questions. Thank you, everyone.

Thank you. This concludes today's conference call. You may now disconnect.