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Executives

Bill Boni - VP of IR

Paolo Pucci - CEO

Peter Lawrence - President and COO

Brian Schwartz - CMO

Thomas Chan - CSO

Rob Weiskopf - VP of Finance

Analysts

Mark Monane - Needham & Company

Bret Holley - Oppenheimer & Company

Howard Liang - Leerink Swann

Han Li - Stanford Group

Joel Sendek - Lazard Capital Markets

Derek Jellinek - SIG

George Zavoico - Cantor Fitzgerald

ArQule Inc. (ARQL) Q3 2008 Earnings Call November 10, 2008 9:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2008 ArQule Incorporated Earnings Call. My name is Sandy, and I will be your coordinator for today.

At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder this conference is being for replay purpose.

I would now like to turn the presentation over to your host for today's call, Mr. Bill Boni. Please proceed.

Bill Boni

Thank you, Sandy. Good morning, everyone. This is Bill Boni, the Vice President of Investor Relations at ArQule. I would like to welcome you to the 2008 third quarter ArQule conference call, during which we will discuss the two press releases issued by the company earlier this morning.

The first press release outlines two deals between ArQule and Daiichi Sankyo Company Limited that marked the basis of a new strategic partnership between the companies in the therapeutic area of Oncology. The second release reports results for the fiscal quarter ended September 30th, 2008.

I am here with members of ArQule's senior management team, led by Paolo Pucci, Chief Executive Officer. Also participating on the call are Peter Lawrence, President and Chief Operating Officer; Dr. Brian Schwartz, Chief Medical Officer; Dr. Thomas Chan, Chief Scientific Officer; and Rob Weiskopf, Vice President of Finance.

Before we begin, please note that we will be making forward-looking statements as defined in the Private Securities Litigation Act of 1995. Actual results may differ materially from those projected in the forward-looking statements, due to numerous risks and uncertainties that exist in ArQule's operations, development efforts and the business environment, including those factors discussed in our press release announcing this call and posted on our website. As well as in our reports on Form 10-K and 10-Q and subsequent documents filed with the Securities and Exchange Commission.

The forward-looking statements contained in this call represent the judgment of ArQule as of today. ArQule disclaims any intent or obligation to update any forward-looking statement except to the extent required by law.

I would now like to introduce the CEO of ArQule, Paolo Pucci, who will be followed by other members of the management team. We will provide an opportunity for questions and answers at the end of the call.

Paolo Pucci

Thank you Bill and good morning everybody. It is a pleasure to share with our investors the significant news that were contain in our two press releases today. We hope to be able to provide more details that we could fit in the press releases of today in our discussion of this morning.

As you have seen, ArQule has entered in two agreements with Daiichi Sankyo, the leading pharmaceutical Japanese company and one of the top 20 pharmaceuticals companies worldwide.

The first agreement is a binding letter of intent that will lead to the co-development and to some limited extent co-promotion of ARQ 197, which is our selective inhibitor of c-Met. The second is a collaborative research agreement that is focused on two targets related to our capabilities of ArQule platform, which is the ArQule kinase inhibitor platform.

The two agreements that we have signed with Daiichi Sankyo are the results of months of due diligence by both parties, and very intensive cooperation that in my opinion set the stage for a very fast update of the work that is ahead of ArQule and Daiichi Sankyo in the implementation of those two agreements.

ArQule is honored to sign these two agreements with Daiichi Sankyo, because it finds in Daiichi Sankyo a partner for whom oncology is a major corporate priority, for whom 197 is a lynchpin in realizing this priority, and for whom our kinase inhibitor platform a chip represents the potential for significant pipeline expansion in this therapeutic area.

I am confident that with our new partner, we will be a competitor in oncology. As you know, Daiichi-Sankyo already has accumulated significant expertise in oncology, having been the owner of (inaudible) in the US and elsewhere.

We believe that two deals with one partner such as Daiichi-Sankyo will create synergy, which will ultimately benefit both companies. The synergy will also enhance our understanding of our best to bring Novel inhibitors of c-Met and either kinases through the clinic and on the way to market.

Let me now offer a new few comments on the ARQ 197 deal. We view this deal as fundamentally transformative for ArQule. It offers immediate and compelling validation of the quality and the relevance of our current clinical program.

We share with our partner the commitment to execute, a development plan that goes beyond what we have announced so far. A plan that will be able to realize the full potential I should say, therapeutic potential of ARQ 197 as a mono and combination agent.

This deal would also allow ArQule to establish a founding US commercial presence that will compliment the primary commercialization effort in the US that will be carried down by a strong and growing Daiichi-Sankyo US infrastructure. This deal also marked the achievement of our key short-term goals. As we have said in the past, we were aiming to close a deal for ARQ 197 by the end of this year. It turns out that we close such deal today.

Let me also offer a few comments on our AKIP deal, which in some ways is no less interesting to us and hopefully to you all than the ARQ 197 deal. In that, this deal makes somewhat emerge with greater evidence the importance of our discovery platform.

Some of you have heard me say in our investors' conference in the past that there were two ways to make our platform emerge: one, endogenous, by bringing forward INDs fully generated through that platform; one, exogenous, by signing one such deal as the one we're signing today.

Our discovery deal with Daiichi-Sankyo focuses on the discovery and the development of novel potent and selected inhibitors with two different kinase targets in the field of oncology. The work that will be done in researching these two different kinase targets will be exclusively done on behalf of and in cooperation with Daiichi-Sankyo.

This transaction begins to have the significant potential of our proprietary technology platform by leveraging the resources of a committed strategic partner, scientific resources that we did not fully possess before the deal we have signed. We believe that the AKIP platform is a powerful discovery engine for identifying novel inhibitors of kinases that are highly specific and well-tolerated.

Related to our mid-term business plan, I should say that the AKIP platform will allow to stalk the pipeline of ArQule as well as that of Daiichi-Sankyo with new and interesting candidates.

Now let me turn to the financials. My colleagues here would give you more details on the contracts that underpin the two agreements that we have signed.

This is my second quarterly call since I joined ArQule last June. It also provides me an opportunity to look back at the past six months. In the meetings and in the conversation that I've had with analysts over the past six months, it quickly became clear to us at ArQule that the financial health of our company was as much in focus as it was the topic of scientific milestones and scientific strength of our company.

The focus of the financial community on ArQule's financial health has only increased with a progressive deterioration of the financial markets. Consequently, from the very beginning, we set as a strategic goal to improve the financial health of our company and we are tempted to do so without diluting our shareholders.

Today, I think you will agree with us that we unambiguously reassure the people of this goal and the rest of the financial community that we have achieved that goal of strengthening ArQule's financial health without diluting our shareholders.

This certainly is done through the Daiichi-Sankyo agreement and through the cash inflows that come from them. But there are also other elements of those agreements that will come to bear, and you will hear about them in a minute. What I would like to focus on is the resolution of the other half of what we need to do to improve our financial health, which is the resolution of our auction rate securities.

Just as a way of recapping, you might remember that we had roughly more than $60 million in auction rate securities in Q1 against those auction rate securities we borrowed of around $50 million first and then $40 million second time as announced in Q1 and Q2.

On top of that, we have recent positive developments that are related to the very final resolution of the illiquidity in the auction rate security market. Notably, on October 7th this year, UBS filed a prospectus for a rights offering that outlines their responsibilities under an auction rate securities settlement agreement.

We believe the terms of the settlements, which Robert Weiskopf, VP of Finance, will describe shortly thereafter, represent an additional and constructive positive step that UBS has taken toward the resolution of the relative illiquidity of our auction rate securities investment.

In summary, the immediate cash infusion of $75 million from the upfront coming from the two Daiichi-Sankyo deals announced today as well as the cost-sharing provisions that are included in those agreements, as well as some cost saving measures and operational efficiencies that we have instituted. All these provide us with ample financial run rate, through the buyback of other or other liquidity events which are also associated with the liquidation of the auction rate securities that we hold with UBS.

The bottom line, to put it simply, is that we now think we have sufficient financial resources and provisions to implement our three year business plan for the period 2009 to 2011, under the current assumption, that underpins that plan.

Now I would like to outline the topics that will be covered by my colleagues that will follow me shortly. First of all Peter Lawrence, who is the President and Chief Operating Officer for ArQule, who has lead all the negotiations for the Daiichi-Sankyo deals, as well as all other due diligences that have occurred in the last six months will give you details of the Daiichi-Sankyo deals announced this morning.

I think I will remit in our joining everybody here, ArQule, in congratulating him and his team for this very significant success.

Peter will be followed by Dr. Thomas Chan, our Chief Scientific Officer; who would provide for the first time in this session, scientific details related to our AKIP discovery platform. He will be followed by Dr. Brian Schwartz, who will then provide an update on progress in our clinical program, [centered] the presentation will be on 197.

Now, we are not a very large company, we are just more than a 100 people, and we've been quite busy over the past six months, but not so much to neglect the development program for 197. We will be happy to report here some progress for the program.

Then Rob Weiskopf will cover the financials, and I will come to back to open for Q&A. So without further ado, I'd like to leave the microphone to phone Peter. Peter please,

Peter Lawrence

Thank you, Paolo. Good morning everybody. As Paolo mentioned, the new relationship between ArQule and Daiichi-Sankyo has been defined today by two deals; one for ARQ 197 and one for our kinase inhibitor discovery platform that we have heard to as AKIP.

I'll start by talking about the 197 deal. We've entered into a binding letter of intent with Daiichi-Sankyo for an exclusive license, co-development and co-commercialization agreement for ARQ 197 in cancer disease that covers the US, Europe, South America, and the rest of the world. Excluding those territories that we are already licensed to Kyowa Hakko Kirin, which were Japan, China including Hong Kong, South Korea and Taiwan. We expect to sign the final agreement in early December.

The total value of the ARQ 197 deal includes an upfront cash payment of $60 million and an additional $560 million in potential development and sales milestones, for a total potential value of $620 million.

ArQule and Daiichi-Sankyo will share equally in the cost of Phase II and Phase III clinical development, but ArQule's share of Phase III development cost will be paid solely from milestones in royalties to ArQule, thus allowing our company to manage its P&L for the foreseeable future.

ArQule retains co-commercialization rights in the US and Daiichi will fund the cost of commercialization including those related to ArQule sales force. ArQule will receive tiered double-digit royalties on net sales of ARQ 197 in territory, and these royalties are significant and commensurate with the deal of this magnitude.

To understand the cumulative economics of our partnering activities with ARQ 197, we should consider both the deals with Daiichi-Sankyo and with Kyowa Hakko Kirin.

The first was signed with Kyowa Hakko Kirin in April 2007 and provided for a $123 million in upfront and potential development milestones, including a $30 million cash upfront payment plus undisclosed sales milestones. We've often seen the total potential deal value of the Kyowa Kirin transaction presented as a $123 million, but it's actually significantly larger than that when you consider the undisclosed development milestones.

Therefore on a combined basis, with the Daiichi-Sankyo agreement, the total upfront cash payments for partnering ARQ 197 on a worldwide basis totaled $90 million and the combined upfront and potential milestone payments for both deals are well in excess of $750 million.

As a point of reference, I would cite industry reports on collaborations for small cap biotech companies including one published recently by Oppenheimer that confirms that the cumulative economics of our partnering agreements with 197 are not only substantial but noteworthy in the history of product deals in our industry.

Beyond ARQ 197, Daiichi-Sankyo's view of our corporate relationship extends to the creation of a long term presence on oncology that encompasses multiple products. Towards that end, our two companies have entered into a second deal, a definitive research collaboration exclusive license and co-commercialization agreement for the discovery of therapeutic compounds that selectively inhibit certain kinase as implicated in cancers.

We believe this transaction will be the first of a number of collaborations associated with our AKIP discovery platform.

As mentioned earlier, Daiichi-Sankyo has the right to license products directed at two specified oncology targets. The potential of the AKIP platform is, of course, very broad, encompassing many targets in a number of therapeutic classes. We look forward to further exploitation of that going forward.

The agreement on AKIP with Daiichi provides for a $15 million upfront cash payment to find research support for the first and second years, licensing fees for compounds discovered as a result of the research and milestone payments and royalties. ArQule retains the option to co-commercialize license products in the US, and Daiichi-Sankyo will fund the cost of worldwide development, commercialization and marketing.

This agreement recognizes the potential of ArQule's kinase inhibitor discovery platform to generate compounds that inhibit therapeutically relevant kinases selectively and without competing with ATP. Many of you will recall that this platform is based on insights into the novel binding mechanism of ARQ 197 to c-Met. Dr. Tom Chan who has been directing our efforts in this area will have more to say about that shortly.

Daiichi-Sankyo and ArQule are committed to a close working relationship. We plan to establish joint committees to oversee all aspects of the clinical development, regulatory strategy and future commercialization of ARQ 197 and alliance managers of each company will help plan and coordinate our cooperative efforts, both in for 197 and also for the AKIP transaction.

Finally, on a topic unrelated to Daiichi-Sankyo, I am pleased to inform everyone listening that our IND for ARQ 761, our second-generation E2F-1 product, has been accepted for filing. We expect to hear from Roche in the near-term about their decision whether to extend their option period to the E2F-1 programs for 2009.

Finally, with regard to our Eg5 candidate, we're also on schedule to file an IND before year's end, as previously reported.

With that, I'd like to introduce Tom Chan, our Chief Scientific Officer, whose efforts have been instrumental in signing our discovery agreement with Daiichi-Sankyo. Tom?

Thomas Chan

Thank you very, Pete. As many of you know, our effort at ArQule during the past year have been highly productive in elucidating the unique and previously unreported finding mode of ARQ 197 to its target to c-met receptor tyrosine kinase.

We have completed an initial round of interrogation of the human genome to see if comparable binding sites are present in other kinases. To our delight, we have identified similar binding sites in well over 100 kinases, which led to the establishment of a powerful discovery engine at ArQule of normal kinase inhibitors designed to be ATP exclusionary, which were termed type IV inhibitors.

The type IV inhibitors are predicted to be highly selective for the targeted kinases and have potential to exhibit very favorable safety profile because of very minimal off-target activities.

I am delighted this morning to report that we can now pursue additional applications of our discovery engine, supported by the resources of Daiichi-Sankyo. The collaboration announced this morning has focused on discovering inhibitors of two different classes of kinase that have been implemented in human cancer.

Our plan is to design non-ATP competitive inhibitors and perform in silico screening to identify new libraries of weeds that can be synthesized and purified by ArQule's proprietary robotic parallel chemistry platform. When this platform is coupled to high throughput robotic-assisted kinase screen and biophysical assays, the drug discovery engine resulting from this effort will identify multiple chemical scaffolds for lead optimization within a very short period of time.

Daiichi-Sankyo's expertise in target identification and protein production as well as their substantial in-vivo modeling and safety profiling capabilities are highly complementary to ArQule's strength in computer-aided drug design, hit generation, lead identification and optimization expertise. The seamless integration of capabilities from these two companies would have assured that rapid advancement of drug candidates for us at clinic can occur.

In closing, although our focus with Daiichi-Sankyo is in the field of oncology, we believe that type IV kinase inhibitors with their minimal off-target activity can be applied to a variety of therapeutically relevant kinases implicated in a broad range of human diseases.

We look forward to expanding this proprietary drug discovery platform through additional collaborative research programs in the near future.

With that, let me turn the microphone over to Dr. Brian Schwartz for a clinical update.

Brian Schwartz

Thank you, Tom. Having recently returned from the triple meeting in Geneva, the AACR, NCI, EORTC meeting, I am happy to report that the enthusiasm amongst key opinion leaders we had discussions with, in ARQ 197 and c-Met, as a therapeutic target is growing.

More and more physicians are expressing interest in participating in our clinical trials with ARQ 197. This is based on the safety profile generated to date, the anti-tumor activity seen, the biological activity, as well as the combinability data with some novel targets. This interest will serve us well as we purse enrolling in our ongoing trials and embark on new trials.

Our interactions with key opinion leaders are an important element in our clinical trial decision-making process. This is driven by scientific data, the biology, pre-clinical and clinical signals seen in our program and the competitive landscape.

As announced, ArQule has been conducting a broad review of its strategic development options for 197. This has been reviewed and completed, and it has informed our clinical strategy going forward. We are currently actively sharing our findings with our new partner Daiichi-Sankyo.

Let me now move forward, onto some of our ongoing programs. Our Phase II program with ArQule 197 includes three tumor thoughts currently; the MIT tumor that is clear cell sarcoma, alveolar soft part sarcoma, and pediatric renal cell, non-small cell lung cancer and pancreatic cancer.

As you are aware last month, we expanded our ongoing MIT trail, following a confirmed partial response as defined by recess in a heavily treated patient with clear cell sarcoma.

We have now proceeded to the second protocol defined stage of the trial where we’re optimizing treatments using a higher dose of ARQ 197 that of 360 milligrams BID.

As we move forward into the second stage of this trial, we’re preparing to initiate discussions with the key opinion leaders in this area, regulatory authorities to identify the best way forward to prove the utility of this compound in this indication.

I’m pleased to report that we have dosed our first patients in the Phase II randomized non-small cell lung cancer trial. In this trial, we’re comparing the combination of 197 two erlotinib plus placebo.

This trial was initiated following the successful completion of a Phase I running with a combination which showed to be well tolerated and could be used to recommended Phase II dose of 360 milligram bid of 197. We expect to enroll in this trial, approximately 155 patients from 50 sites with the primary endpoint being progression free survival.

Our principal investigator, who has given us input into the trial, is Dr. Thomas Lynch and Dr. Suk Heist from the Mass Gen Cancer Center. The third program in pancreatic cancer, the initial portion where we compared gemcitabine to the low dose or a 120 milligram bid of ARQ 197 is ongoing and accrual is currently on hold.

Following preliminary review of the interim data, discussions with key opinion leaders, we are currently planning to add an additional group of patients, who will receive both 197 and a schedule of gemcitabine.

This new group of patients will be evaluated primarily for safety, and once completed the totality of the pancreatic data will be evaluated. Based on the data generated in all arms, we will make a decision about initiating a Phase 2 randomized trial, comparing gemcitabine plus 197 to possibly gemcitabine.

The size of the trial is expected to be between 100 and 150 patients. It's worthwhile noting that recent data published by Dr. Vogelstein underscores the genetic complexity of pancreatic cancer. This has been illustrated by the numerous failures in this disease of single targeted drug, and we believe that targeted therapy such as 197 would be best employed in the context of combination therapy.

Finally in all these trails, I am happy to report that we are increasing our dose, and in all our trails to 360 milligrams bid from the previous of 120 milligram bid doses. This increase is based primarily on the findings of the maximum tolerated dose and the dose limiting toxicities seen in the Royal Marsden study presented at ASCO, and then again at the triple meeting. We believe that this dose will maximize the therapeutic benefit of the compound.

As mentioned earlier, we are sharing findings with our completed scientific, regulatory, commercial analysis of the clinical development plan of 197, and we continue to work with Daiichi-Sankyo on our joint development strategy. I look forward to provide additional updates as existing trails progress and new trails are being initiated.

This concludes my clinical review, and I would now like to introduce Rob Weiskopf, who will provide a financial overview.

Rob Weiskopf

Thank you, Brian. I would now like to discuss ArQule's financial performance for the third quarter of fiscal year 2008 ended September 30. The company reported net loss of $11.281 million or $0.26 per share, for the quarter ended September 30, 2008, compared to a net loss of $11.118 million or $0.26 per share for the quarter ended September 30th 2007.

Through nine-month period ended September 30, 2008, the company reported a net loss of $41.235 million or $0.94 per share compared to a net loss of $38.983 million or $1 per share for the same period in 2007.

Total revenues for the quarter ended September 30th, 2008, were $2.664 million compared to $2.736 million for the quarter ended September 30th, 2007. Revenues for the nine months ended September 30th, 2008, were $8.774 million compared to $6.623 million for the nine months ended September 30th, 2007. Increased revenues for the 2008 nine-month period are primarily due to revenues from Kyowa Hakko Kogyo Company Limited.

For the quarter ended September 30th, 2008, total costs and expenses were $14.284 million compared to $15.885 million for the quarter ended September 30th, 2007. Total cost and expenses for the nine months ended September 30th, 2008, were $52.639 million compared to the $49.972 million for the same period of 2007.

Research and development costs for the three and nine-month periods ended September 30th, 2008, were $10.788 million and $39.220 million respectively compared with $12.529 million and $39.310 million for the 2007 three and nine-month periods. The decrease in research and development expense in the current quarter is primarily due to a decrease in the clinical outsourcing expenses, offset partially by an increase in personnel costs.

General and administrative costs for the three and nine-month periods ended September 30th, 2008, were $3.496 million and $13.419 million respectively compared with $3.356 million and $10.662 million for the 2007 three and nine-months periods. Increased general and administrative expenses in the 2008 nine-month period were primarily due to non-cash stock-based compensation costs.

I would now like to provide an update on our auction rate securities investments. We have approximately $61.6 million in auction rate securities at September 30th with a dated par value of $65.3 million. These are carried as long-term marketable securities in our balance sheet. 95% or all the $2.9 million at par value of these auction rate securities are maintained by UBS.

We have borrowed $46.1 million against these auction rate securities. On November 3rd, 2008, ArQule accepted an offer by UBS of certain rights to cause UBS to purchase ArQule's auction rate securities as described in a prospectus filed by UBS on October 7, 2008. As a result of accepting UBS's offer, ArQule can require UBS to repurchase these securities as par value beginning on June 30th, 2010.

The prospectus also stipulates that in the event that UBS should exercise its right to demand repayments of any portion of the company's current loan collateralized by these securities, UBS will arrange for alternative financing on the same terms as the current loan or, if such alternative financing cannot be established, to repurchase the pledged auction rate securities at par. We believe these terms represent a constructive and positive step toward the resolution of the illiquidity of its auction rate security investments.

I would now like to update our financial guidance for 2008 based on the two deals discussed earlier. As a result of the $75 million in upfront cash payments announced today and committed to ArQule by Daiichi-Sankyo, for 2008 the company expects revenues to range between $12.2 million to $13.2 million compared to previous revenue range guidance of $10 million to $10.5 million.

Net use of cash is expected to range between $57 million and $62 million compared with previous guidance of between $55 million and $60 million. Net loss is expected to range between $51 million and $56 million, and net loss per share to range between $1.16 and $1.28 for the year compared to previous guidance for net loss ranging between $69 million and $74 million or net loss per share between $1.57 and $1.68.

ArQule expects to end 2008 with between $145 million and $150 million in cash, cash equivalents and long-term marketable securities, net of our loan collateralized by auction rate securities. This compares with previous guidance of between $75 million to $80 million.

That concludes our financial summary. Now, I'd like to turn it back to Paolo.

Paolo Pucci - Chief Executive Officer

Thank you, Rob. I hope we have made several key points. I have to apologize for a conference call that is a little bit more advanced than usual, but hopefully this is welcome news.

The first point I'd like to make in summary is that we are now in a solid financial position. ArQule is well capitalized for the mid-term. In the current environment that we live in with the financial markets in full turmoil, this is a fact of no small consequence.

Second, we now have not one, but two very powerful partners that will help us fully develop ARQ 197 worldwide with the strategy of development that will have breadth and depth. The resources that these partners bring to bear are much only by their commitment to the product into the therapeutic area of oncology.

Third, our AKIP drug discovery platform has finally emerged. We are delighted to have in Daiichi-Sankyo the first scientific partner that fully understands the potential of this platform. We are looking forward to their continued support in developing this platform further.

Finally, I believe that in these difficult times, the ArQule management team and all of its employees have been able to deliver on some of the key near-term commitments we had with the financial community. I would be remiss not to remind you all that your support in this difficult environment is as appreciated as more than ever.

Now, operator, if you please, I would like to open it to a short session of Q&A. I will take some questions or I will direct the questions to any of my colleagues here as needed. The session is open for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions). First question comes from the line of Mark Monane of Needham & Company.

Mark Monane - Needham & Company

Thanks for taking our questions. Congratulations on your progress, a very exciting way to start the week.

Peter Lawrence

Thank you, Mark.

Mark Monane - Needham & Company

I'm at the American Heart Association meeting where there is lot of talk about biomarkers. We saw some data on this, the high-sensitivity-CRP.

Can you comment, is your potential in these trials are coming up, especially the lung cancer trial that you're planning, to look at any biomarkers that may have given us an indication of either which patients maybe most responsible or maybe to outline the program outcomes? Is there a good outcome before we actually see a survival of PFS outcome?

Paolo Pucci

Thank you for the question, Mark. I think the most proper person to answer this is Tom Chan who has been in charge of the pre-clinical programs and is in charge of biomarkers program here at ArQule. Tom, please?

Thomas Chan

Thank you, Paolo. With full cooperation of Brian Schwartz and the clinical team for every single patients coming into lung cancer study, we have agreement from them to supply us with both diagnostic block and to extend possible biopsy tissues. We'll have to understand the biomarker status of each of these patients.

So, I would say by the end of this trial, we'll have a very good understanding on both predictive biomarker as well as pharmacodynamic biomarker.

Paolo Pucci

And now with that better understanding of biomarkers across our entire pipeline. So not just for 197, but also on the other assets that we hope we'll make emerge over the next year or two is a priority.

Mark Monane - Needham & Company

Concerning biomarkers in lung cancer, we've had some recent information about KRAS mutation and EGFR mutations. Can you comment how you might work that information into either designing a protocol of patient selection for the lung cancer trial that you're designing?

Brian Schwartz

I'll take that question Mark. It's Brian Schwartz here. In our trial, as Tom mentioned, we will be looking at KRAS status, EGFR and Met status of all patients coming in. There is a body of data emerging and hopefully we will able to better understand which patients will benefit from ARQ 197 class and EGFR inhibitor, understanding the patients that come in.

As you're aware, the KRAS data with EGFR inhibitors has emerging colorectal cancer showing the mutant patients not responding. It appears that in lung cancer, that trend maybe there as well. So, we're looking in a bunch of different subsets to make sure that we best optimize the therapy.

Mark Monane - Needham & Company

I think Glenn has a question.

Glenn Hanus - Needham & Company

Could you review further strengths of the Daiichi-Sankyo deal as well as what you'll expect out of Daiichi-Sankyo?

Paolo Pucci

So, first of all, the fundamental strength is that Daiichi-Sankyo is a truly global company with very strong infrastructure across the continuum of from the drug discovery to development on to commercialization. So, the fundamental strength that they bring to bear is global commercial play across the board.

Having two deals across the continuum of from discovery to commercializing helps us capture tremendous synergy. We have plenty to earn from both deals as we work with Daiichi-Sankyo. So, that's the profile of the company.

Also, I would say that the fact that 197 will be a very significant element of Daiichi-Sankyo's oncology strategy, we assure that that you will have the proper focus for full development. This would have been different if we had partnered with other companies where 197 could have been [overlapped] or in partial competition with other assets that might have been there already.

Also, Daiichi-Sankyo had heritage in oncology, so that certainly assures of our joint ability to hit the ground running with development and thereafter. Then there are some fairly more specific items that this partnership brings to us: a well-balanced deal structure, which we consider to be a win-win deal across the board; and the ability for us to further develop our discovery platform and develop the 197 program that will have greater breadth and greater depth than it would have had if we had to develop it on our own.

Finally, from the strategic point of view, because Daiichi-Sankyo is unencumbered by other competing products in oncology, this can lead to 197 spread it wings across multiple potential combinations. This wouldn't have been possible if we had partnered the product with some companies that have already a great stake in one or two molecules currently on the market.

This said, our commitment to Tarceva, and I think I can speak for both ArQule and Daiichi-Sankyo, remains a fundamental cornerstone of our program. However, we would not be limited to just that. That is a cornerstone. We're looking toward more. As you've heard today, we'd begin combination work with GEMZAR and would be looking at a set of combination.

This is, in summary, what Daiichi-Sankyo brings to ArQule with these deals. I hope that answers your question.

Operator

And your next question comes from the line of Bret Holley of Oppenheimer & Company.

Bret Holley - Oppenheimer & Company

Yes, thanks for taking my question. Congratulations on the deal, guys. My question is how this deal enables you to go broader than the current 197 development in the clinic? What new indications do you feel could be enabled by this deal?

Paolo Pucci

So, thanks for the question, Brett. There are a number of other indications that we have already assessed: the Board from the development point of view, regulatory visibility and commercial outlook, all the way down to a probabilized MPD. And those indications are as we speak to the attention of Daiichi-Sankyo. That's the only reason why we have not kept to our commitment to disclose those new indications at this time.

We believe that having a new global partner that shares with us the development priority, its only fear is that whether you have the time to study it and that whatever new indications we would choose, it will be done together. So, look forward for a joint Daiichi-Sankyo-ArQule announcement in the near future about what those additional indications would be.

I hope you'll understand that as a matter of courtesy and the good business practice, I can't elaborate more. But to give you a hint, we think we have identified at least one additional setting where we would pursue the drug as a monotherapy against the supported chiro placebo. And we have identified at least one more interesting combination with a novel compound. And I will leave it at that, if you don't mind.

Bret Holley - Oppenheimer & Company

No, that's understandable. I guess another question I had is that the, the co-commercialization rights under this deal are a little bit vague. Can you give a few more details about how that might work down the road?

Paolo Pucci

Yes, let me put it very simply. From the commercialization point of view, Daiichi is clearly the senior partner. And we will have some limited commercialization rights in the last, deploying in a small sales force with a much larger Daiichi-Sankyo sales force and using the Daiichi-Sankyo commercial platform.

The deal is designed in a way that Daiichi-Sankyo will take the commercial lead worldwide outside the US and with the exception of the Kyowa Hakko Kirin territories. The structure of the royalties is designed in such a way that Daiichi-Sankyo will have the opportunity to make maximum commercial investment for a fast success of the drug once it hits the market and that over the lifetime of drug commercialized. That is ArQule will have its fair share of the return from that commercial success.

Bret Holley - Oppenheimer & Company

But if you elect the co-commercialization option, does your economics as far the royalty or any other former payment actually increase?

Paolo Pucci

As I said, we have a fairly dense of news conference call where in some other items like you are referring to, we will prefer to clarify once we come closer to those events.

Bret Holley - Oppenheimer & Company

Okay.

Paolo Pucci

There are a number of things that have competitors that will continue to competitive intelligence for us which we're trying to prevent in this call and future calls as well.

Bret Holley - Oppenheimer & Company

Okay. Thanks very much, and congrats again.

Paolo Pucci

You're welcome.

Operator

And your next question comes from the line of Jonathan Eckard of Leerink Swann. Please proceed.

Howard Liang - Leerink Swann

Hi. This is Howard here.

Paolo Pucci

Good morning, Howard.

Howard Liang - Leerink Swann

Good morning. Can you talk about the cost of the Phase 2 program? I think you mentioned that you'll be sharing the costs of the Phase 2 program, but Phase 3 will come out of your share for profit?

Paolo Pucci

Yes. I will let Peter comment about that deal structure.

Peter Lawrence

Sure. Howard, I want to make sure I understand your question, and I don't know if it went to structure or over to actual cost. I don't know who is prepared to talk about the actual cost of the Phase 2. But we will pay 50% of the Phase 2 and share that equally with Daiichi. And then as you suggest, when it gets to Phase 3, that will paid out of the milestones, and if that's insufficient, then ultimately out of royalties and exclusively out of those sources of revenue.

Howard Liang - Leerink Swann

Okay. Just relating to the comment I think Paolo made regarding your funding maybe sufficient for the next three years, from 2009 through 2011. I guess did I get that right that --?

Paolo Pucci

Yes. You got it right. I was a little more precise than that. However, if you don't mind, we have a business plan underpinned by certain assumptions. Assuming that those assumptions are realized, we believe that we can fund the three-year business plan. Obviously, those assumptions get revised from a year-to-year basis.

Now, specifically, you can imagine that the synergy between the enhanced cash position we're going to have at the end of this year, a reduced cost base due to cost savings as well as cost sharing foreseen in this field and a reasonable assumption for milestones, because royalties won't fall in this period, lead us to believe today we have the financial run rate to manage our three-year business plan as it is. And then on a year-by-year basis, we will add to it. We will elaborate further.

Howard Liang - Leerink Swann

Got it.

Paolo Pucci

Does that answer you question, Howard?

Howard Liang - Leerink Swann

Yes. If I could just ask a question regarding how you came to this structure for deal, so if I look at your market cap, I think it's below over $100 million, and then you got $75 million on this deal, I think from Daiichi's perspective, I was wondering whether there was any consideration for them to acquire ArQule and whether were there any discussions on those lines and what was your consideration?

Paolo Pucci

It would actually be a questionnaire for Daiichi. [This cash is] where apparently Daiichi have lost it quite some time and probably through the ups and downs of our market cap as well as the market cap of certain biotechnology companies.

I believe that we have a very good working relationship established already with Daiichi, and we are looking forward to implement this deal and nothing different than this deal. Maybe, these are ones you had, even though Daiichi has had the most frequent action.

Peter Lawrence

No, I mean it's not something that we would ever talk about. No company really can talk about that issue. I think as Paolo said, we've known Daiichi for quite some time. John Celebi, the VP of Business Development, and I and Tom Chan have made multiple trips to Asia over the course of the past two years. We know their senior management. We know many of their scientists.

So they know us very well. We know them very well. And obviously, these are the deals that we've struck, so these are the deals that both parties felt were in the best interest of each party.

Paolo Pucci

And I think we have a win-win deal that allows to exploit the two assets, both the platform and 197 in great continuity with the work that has been done here to date until today.

Howard Liang - Leerink Swann

Great. Thanks very much.

Paolo Pucci

You're welcome.

Peter Lawrence

Thanks, Robert.

Operator

And your next question comes from the line of Han Li of the Stanford Group. Please proceed.

Han Li - Stanford Group

Good morning, everyone.

Paolo Pucci

Good morning.

Han Li - Stanford Group

A couple of quick questions on 197 clinical programs. First is on the MiT sarcoma Phase 2. You mentioned you're moving to the second stage. When should we expect an update from the sarcoma (inaudible)?

Paolo Pucci

I think for the second stage, ArQule goes on planned. And as most oncology companies, we hope to have a reasonable body of data around the big clinical meeting, which would be ASCO and other meetings, to have a reasonably large body of evidence to make some decisions. But it is an ongoing study. If appropriate data would come about, we would transfer them to the next possible meeting.

But right now, the big sum of the low dose and higher dose most probably would be available around the ASCO conference.

Han Li - Stanford Group

Okay. Can you remind me how many patients you plan to enroll for this total trial or --?

Paolo Pucci

Total around 40, just over 40.

Han Li - Stanford Group

Okay. And for pancreatic cancer, let me get it right. So, you're recruiting additional group of patients for a combination safety?

Peter Lawrence

Correct.

Han Li - Stanford Group

So you were switching from head-to-head comparison against gemcitabine into a combination?

Peter Lawrence

Correct.

Han Li - Stanford Group

And I assume this is the safety, is that dose escalating?

Peter Lawrence

On review of the safety that we've seen, we feel reasonably comfortable that we'd be able to do this in a seamless way. So it's step-wise fashion, but in a seamless manner.

Han Li - Stanford Group

Okay. And at what stage we should hear that go/no-go decision for the combo?

Peter Lawrence

Sometimes towards the end of 2009 I would imagine that it will all be out.

Han Li - Stanford Group

Right. Okay. And on the lung cancer, which line of treatments is this in combination with Tarceva?

Peter Lawrence

Primarily second and third-line therapy. So, the protocol is written that patients must have received at least one prior chemo regimen and eligible for Tarceva and they could not have received a prior EGFR inhibitor. So it's most probably second and third-line therapy.

Han Li - Stanford Group

Got it, okay. Last question just more on the finance side. Your R&D expense has dropped like $2 million, which is like closer to 20%. You said that outsourcing expense decreased. Can you give us some color on what's the outsourcing expense related to or is it one-time or we should expect it to stay this long?

Paolo Pucci

You're referring to the discovery outsourcing or you're referring to development outsourcing? I didn't get it.

Han Li - Stanford Group

No, just in the press release, you mentioned that the decrease R&D expense is due to the decrease in clinical outsourcing expenses.

Paolo Pucci

Okay. So the total R&D. So these are the question for development.

Peter Lawrence

I think there were a number of programs in the year before which included the other programs, the 501 program. So right now, being a much more focus program, we've tried to maximize all costs available to us, so that last year you had a big Phase 2 program in the 501 space, and now it was more a Phase 1 going into a Phase 2 program for 197.

Paolo Pucci

So, it is a one-time event due to the circumstances.

Han Li - Stanford Group

Then how should we think about R&D run rate going forward in light of the Daiichi partnership?

Paolo Pucci

You don't have to wait long for that, because you will hear the projections for next year once we have the Q4 call.

Han Li - Stanford Group

Okay. Thank you very much. Congratulations on the partnership.

Paolo Pucci

Thank you.

Operator

And your next question comes from the line of Joel Sendek of Lazard Capital Markets. Please proceed.

Joel Sendek - Lazard Capital Markets

Hi. Thanks. So my question is, when I look at the Kyowa deal, and frankly that you got 30 million upfront for that, I'm actually looking at this deal and actually being a bit troubled as to why you were only able to get $60 million upfront. Was that a competitive process? Did you have a lot of other companies involved or do you think that it's just a better all around partner for you? And also, a follow-on to that is can you tell us whether the royalty rate is higher than on the Kyowa deal?

Paolo Pucci

So I'll give some general remarks, and then I'll let Peter discuss in more detail. The deal is balanced in our opinion. All the environment of the deal is balanced out. There are some strategic elements that are very important to us, which is what I had learnt before. This is a very high priority for Daiichi-Sankyo, and it be fully resourced across the lifetime.

So, you can take a very short-term view, as you have taken. I am not sure that I would classify the upfront as unsatisfactory. If you go through the Oppenheimer report, I will show you the upfront exceeds debt. But it's anybody's judgment. We have done a strategic deal with Daiichi-Sankyo, and we did not dwell too much.

Has it been a competitive process, a very competitive process. So, I'll let Peter give you a little bit more details.

Peter Lawrence

Yes, they are only so many details that we are prepared to give, so I appreciate your inability to see, if you want to look at just financial details for a moment, every financial detail, because we are not disclosing the royalty. So you can't compare those two, the Kyowa royalties which have not been disclosed either. So that's obviously an important thing and --.

Joel Sendek - Lazard Capital Markets

I don't want to be looking at this short term. Actually, I am looking at it long term. One of the things that I want to focus on is whether the long-term value is greater and it would be if you have a greater royalty rates than you do on the Kyowa deal?

Peter Lawrence

Well, I am not prepared to tell you which is greater. I am just not prepared to say that on today's call. What I said about the royalties that we received from Daiichi-Sankyo is that they are significant and commensurate with the deal of this magnitude. That's really all I am prepared to say today.

But what I will say is that during the period after Steve Hill left and before Paolo got here and since Paolo has got here, I've always said when everybody has asked me what kind of deal I'll be prepared to do? If you were asking me, I'd say it would be a deal that has a meaningful upfront payment, one that helps us manage our P&L as this deal does, which is I think extraordinary, and also one that preserves significant backend benefit for our shareholders. And this deal does accomplish all those things. And I'd also ask you to think about this.

Daiichi-Sankyo is a global company, but they have a base in Japan. Obviously, not getting the Japanese market was important to them. So, for us to have negotiated with Kyowa Hakko Kirin, an Asian deal, we knew that there was going to be a cost associated with that, because there are many companies that would like to have Asia. Any global pharmaceutical company including Daiichi-Sankyo would like to have Asia.

So, Kyowa had to pay somewhat of a premium, you might say, in order to affect that Asian transaction. But when you look at this deal on a global basis, $90 million upfront and well in excess of $750 million of potential milestones and the royalties that we are receiving, my guess is historically this deal would rank very, very highly for a Phase 1 and 2 assets, probably very close to the top.

Paolo Pucci

So, let me recap maybe for further clarity and better understanding of our process of assessment of this deal and the other options we had. The upfront is a fair upfront in our opinion when compared with the benchmarks. It was necessary to put our financial health in the shape that we wanted it to be to do substantially three things: Fund our mid-term business plan without diluting our shareholders; having our resources to let the rest of our pipeline emerge through preclinical; and fund a broader than currently seen program for 197.

So, anybody's judgment on the size of the upfront, but certainly I know that it allows us to do all these three things, which were of strategic importance.

Further down the road, the management of the P&L, as we entered Phase 3, was important for a company of our size as it was to balance the royalties in the such a way that Daiichi-Sankyo won't have the latitude to make the upfront investment that is necessary for commercial success and such that over the lifetime of the commercial life of this drug, which goes well past 2025, ArQule will receive very significant financial return.

This is the general consideration. We'd be happy to discuss modeling 101, and we do have our financial models to make sure that we capture significant value in a very fair and balanced way versus the value that our partner will capture.

Joel Sendek - Lazard Capital Markets

On the non-financial side, can you talk a little bit about their marketing infrastructure and how many people that they have and what the US regulatory --?

Paolo Pucci

I will rather direct you to the audits, but maybe out of the IMS audit or 2008, I can quote that Daiichi-Sankyo is nothing, but the number one company in Japan in sales with above 7%. They have a fast growing infrastructure in the US, they had a very significant additional cardiovascular launch.

They have a very significant infrastructure which is successful in the major European countries. That it is a growing company that has already grown effectively through the merger parts has rich pipeline.

So I'm entirely comfortable in the success that Daiichi-Sankyo will have. See I have worked in cardiovascular, worked long in anti-effectives. Daiichi-Sankyo is a very familiar company to me. This is the company that made levofloxacin a worldwide success. This is the company that has made olmesartan a worldwide success.

Although oncology is competitive, but anti-effectives and cardiovascular are brutally competitive. So a company that has so well competed in those therapeutic areas will certainly compete just as well in oncology and I shall remind again that this is the company that marketed (inaudible) in the past. So I'm very, very comfortable with that.

Part of the due diligence was for Daiichi-Sankyo to assess what capabilities we had, here at ArQule, how those capabilities could add their own and to some extent we had in that process the opportunity to meet might well the leadership of Daiichi-Sankyo. It's reminds me of the focus, commitment and deliberating to succeed that I saw in my former company when we started to build, in other words, I remember sometimes in 2004 a saying that my alma mater had yet to demonstrate the ability to compete in oncology.

Now we demonstrated in two years to be able to compete and I think next thing is to put to bed all the (inaudible). So, I am very excited about this financial pie. I like very much the people I have been in contact with, I think it will become success, but we need to get there.

Joel Sendek - Lazard Capital Markets

Okay. Thank you.

Peter Lawrence

You're welcome.

Operator

And your next question comes from the line of Derek Jellinek of SIG. Please proceed.

Derek Jellinek - SIG

Thanks for taking my question, guys.

Peter Lawrence

You are welcome.

Derek Jellinek - SIG

Could you possibly add some more color around $560 million in milestones for 197, kind of breaking up between the regulatory developments and if there any sales based milestones there?

Paolo Pucci

Yes Peter will give some comments.

Peter Lawrence

Well, thanks for the questions. My comments will be elliptical as usual on these things unfortunately because we are requesting confidential treatment. But I would say that there are significant development milestones as well the sales milestones I think that I would not call this a back end loaded deal. I would say these milestones are balanced and that's probably all I can say.

Derek Jellinek - SIG

Well maybe Peter you can comment on the significant milestones for development how they split as far as indication. How many indications across are they, are they four?

Peter Lawrence

I think you will see that in the contract when filed. So, I think we can probably say that. There's new ones. It will be either three or four indications.

Derek Jellinek - SIG

Okay. Thanks. On the deal itself, was there any provision for anti-takeover for any kind of possible future suitors to come up or acquirers and was there any standstill provision to kind of preventing Daiichi from at a latter day acquiring the company?

Peter Lawrence

No. This is my personal view and Paulo will give his in a moment. I think big companies don't like standstills and I don't think that standstills provide a whole lot of protection. I think that there are other ways to get protection. We have some of the standard chart prepared that the Delaware companies have. You can always put pills in place where people get too aggressive.

The Delaware Supreme Court has avoided doing that in the context of a hostile approach and in my experience and I've worked in biotechnology, as a lawyer as an investor and as an operating executive and those issues are really few and far between. They come up very seldom.

I think ArQule can put itself in a place to protect itself very promptly if it needed to and I think just a nature of our partner, we have a very good relationship with Daiichi-Sankyo and if they were ever interested in acquiring the company, they would come to us and tell us that. I think that's the nature of how they do business.

Derek Jellinek - SIG

Okay, thanks and lastly you have a lot of moving parts, would you kind of layout for us what the anticipated milestones, development milestones are over the next six months period maybe?

Peter Lawrence

No. I can't. We didn't do that. I think that that probably is going into a level of detail that I'm uncomfortable with. Once we're through the confidential treatment for assets, and the contract is filed, I think you'd be able to see when some things will likely fall out. Until that time, I think that I'm probably comfortable with the level of disclosure that we've given today.

Paolo Pucci

I'm sorry. I meant, as far as not financial milestones across your programs at MIT and then in long in a pancreatic as far as total milestones, developmental milestones, not financial, that we're looking forward in the next six months.

Peter Lawrence

Okay. Well, why don't I let Doctor Schwartz comment on that.

Brian Schwartz

So the MIT, as have commented already and there is no more to add to that. Probably Brian can give a little more color about the longer Phase II time to completion and because for pancreas there is nothing more to add than what has been said. Brian, just a comment on the non-small cells?

Paulo Pucci

I think the non-small cell lung, being a progression-free survival endpoint we targeting some time in the first half of 2010 to get the data and as you know the lung market is moving a little bit with progression-free survival as we better select out these patients. Main move, it's a little bit further. So anytime in the first half of 2010, we will get the randomized Phase II data in non-small cell lung.

Brian Schwartz

For any additional programs as raising the call earlier, we will try to complete with Daiichi-Sankyo the process of selection as soon as possible. All the work has been done. This is a very comprehensive file that analyzes the strength of evidence over of c-Met versus the commercial potential of a number of indications. So, it's just a matter of us of going through the suite of communications than sitting together with our partner and deciding what else to do. We hope to do it before year-end, but I can't commit at this point in time.

Derek Jellinek - SIG

Okay. Thanks again for taking the question.

Brian Schwartz

You're welcome.

Operator

And your next question comes from the line of George Zavoico of Cantor Fitzgerald. Please proceed.

George Zavoico - Cantor Fitzgerald

Hi, good morning. Congratulations on all that good news and a good quarter.

Paolo Pucci

Thank you, George.

George Zavoico - Cantor Fitzgerald

I keep this pretty short because it's being so long already, just to reiterate the whole world is not covered for ARQ 197, right.

Paolo Pucci

Yes. The whole world discovered with the Asian markets so to speak being commercially and development provides they Kyowa Hakko Kirin territories and with the rest of the world being shared as co-development by ArQule and Daiichi-Sankyo and commercially with ArQule in the position to exercise Sankyo promotion rights. In the end Daiichi-Sankyo having exclusive commercial rights for the rest of the world. Yes, George this is the summary.

George Zavoico - Cantor Fitzgerald

Okay. And you are going to sign an agreement with Daiichi-Sankyo sometime in December, do you see an immediate or a very quick benefit in terms of participating in R&D expenses in the first quarter of next year?

Peter Lawrence

George, this is Pete Lawrence, so this allows me to make two points, which I think fair mentioning. Thanks for the question. So, the definitive agreement with AKIP is signed. The binding letter of intent has been signed as well. Because of the magnitude of the deal there is waiting period as you've seen in the 8-K, from the press release under HSR Act.

We expect that to not take a long time and therefore we anticipate we could have signed the definitive with or without that, as I want to make the point that we are waiting for the terminations or waiting period under the Hart-Scott-Rodino Antitrust Act. We expect to sign the definitive agreement at the beginning of or I should say early December and therefore we would expect cost sharing to occur as of January 1. Yes, definitely.

Paolo Pucci

And we shall see the benefits in Q1 already George.

George Zavoico - Cantor Fitzgerald

Excellent. Regarding expenses, you made tremendous cost savings in R&D as well as G&A in this quarter. Just to reiterate, for your previous questioner, was that almost $4 million in outsourcing? I mean you reduced R&D considerably and that's very impressive in this environment.

Paolo Pucci

It's coherent with the environment we are living in, George, unfortunately. You know that the financial pressures on companies such as ours are tremendous, and we just try to adapt to those pressures, but thanks for your comment. I appreciate it.

George Zavoico - Cantor Fitzgerald

And finally with the AKIP deal with Daiichi-Sankyo, that covers just two compounds at this point, right? I presume depending on what happens in the future, its going to be open for more licensing opportunities there?

Paolo Pucci

Yes, the deal that we have with Daiichi-Sankyo is exclusive for two targets. That means that we cannot explore those two targets with anybody else but Daiichi-Sankyo. It was also a deal that last for the two years specified in this conference call. Other targets in oncology and for our greater interest beyond oncology are open. We will need to balance going after additional targets with the fact that we have limited resources here. But certainly, we would welcome any discussions in other targets that are not the one that we exclusively pursue with Daiichi-Sankyo

George Zavoico - Cantor Fitzgerald

Well, you have more resources now than you had yesterday?

Paolo Pucci

We have a little bit. I think the problem has not been stressed enough, is that, we have kept, and it's extraordinary these days, the most important commitment one can have with his or her own shareholders. We have set the company in better financial health than it was until Friday without diluting anybody, and without asking for any bailout from the government, which is more extraordinary these days.

Peter Lawrence

I also like to say that it's somewhat extraordinary in this day and age to actually monetize a drug discovery program where a lot of peer companies have been focusing more now on developing their later stage compounds and neglecting perhaps even dropping altogether some of the great discovery programs.

And especially since Daiichi-Sankyo looked at the AKIP program and saw that much value. I can't wait to see more details about the AKIP program and perhaps Tom maybe you can comment on when you might make the first scientific presentation at conferences regarding the AKIP program.

Tom Chan

I think, well, as we had discussed before. We have gone into a late-stage optimization program of one of the AKIP targets already. So, hopefully, by ASCO, we'll have exciting data to share with everybody. Of course, the two targets that we picked up with Daiichi-Sankyo, we probably wouldn't be able to share anything until the year following in 2010.

George Zavoico - Cantor Fitzgerald

So, the one thing you would talk about would be for licensing opportunity. When you talk about the [spring] you would talk about us in the spring.

Paulo Pucci

Correct. It will be, either we would pursue it ourselves or if we see enough of an interested partner then we could potentially partner that.

George Zavoico - Cantor Fitzgerald

Was Eg5 part of this or not or is the Eg5 inhibitor a ATP binding inhibitor [ph].

Paulo Pucci

It's unencumbered in terms of partnership with Eg5.

George Zavoico - Cantor Fitzgerald

That didn't come out of the ARQ program, did it?

Paulo Pucci

No Eg5 is ATP's target. So there's nothing to do with kinase and so it doesn't come out with.

George Zavoico - Cantor Fitzgerald

Okay, I got it. That is right.

Peter Lawrence

You'll have to wait a little bit longer for the endogenous validation of the platform, George.

George Zavoico - Cantor Fitzgerald

Very well. Thank you very much and congratulations again.

Paulo Pucci

Thank you. Operator, I would take just one more question please, if there is one in the queue. Otherwise I will offer concluding remarks.

Operator

I am not showing any further questions at this time. So ladies and gentlemen this concludes the Q&A session and I would now like to turn the call over to Paulo Pucci for closing remarks.

Paulo Pucci

Thank you. Thank you again all for joining us in this call. I would like to offer some closing remarks from in personal consideration. So we approach with past six months which I might refer, first six months of actual as a time of transition. The market turbulence has provided us with a few more unexpected challenges and. But we believe that we are now well positioned not only to grow further with our business plan, but also to profit from the market confusion.

Hopefully we can consider this period of transition conclude that we have achieved most of our short-term goals and the company is on course to operate effectively for the future. We need to thank our shareholders as well as our ArQule employees for their support and patients in this time of transition.

Some of you heard me say before that my philosophy going through any job is to take what you find, make it better and indeed you've heard today from people who have been at ArQule for a short time and now this would be in Q4 quite a bit longer.

What I hope that has come across this call is that ArQule has a deep complementary capable and commitment management team that can deliver on the business plan. This management team has all ArQule employees and with the help of our partners, we will continue to work passionately to enhance shareholders value as well as to advanced treatment for the patients in need who aren't out there in the world waiting.

Thank you again for you time today. We are looking forward to our number 101. We will be tomorrow presenting Rodman & Renshaw Conference in US city. Good bye. Have a good day.

Operator

Thank you for your participation in today's conference. This concludes the presentation.

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