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Alexza Pharmaceuticals, Inc. (NASDAQ:ALXA)

Q3 2008 Earnings Call Transcript

November 6, 2008, 4:30 pm ET

Executives

August Moretti – SVP and CFO

Tom King – President and CEO

Analysts

Ted Tenthoff Piper Jaffray

Jason Kantor RBC Capital Markets

Art Georaver – Georaver

Operator

Good afternoon everyone, and welcome to the Alexza Pharmaceuticals third quarter 2008 financial results conference call. At this time, all participants are in listen-only mode for the conference. Today’s conference is also being recorded and if you have any objections, you may disconnect at this time.

I would now like to turn this afternoon’s conference over to Mr. August Moretti, Senior Vice President and Chief Financial Officer of Alexza. Mr. Moretti, you may begin.

August Moretti

Thank you. Good afternoon and welcome to the third quarter 2008 financial results conference call. Before we get started, I would like to remind you that the matters discussed on this call contain forward-looking statements that involve risks and uncertainties, including those relating to the potential results of future clinical development, our ability to commercialize products, the timing of the commercialization of such products, and our projected revenue and expenses. Actual results may differ materially from the results predicted, and recorded results should not be considered an indication of future performance. These and other risk factors are more fully discussed in our Annual Report on Form 10-K including under the discussion under the caption Risk Factors and in our quarterly report on Form 10-Q, which we filed with the SEC earlier today.

Alexza disclaims any obligation to update or revise any forward-looking statements made on this call as a result of new information or future developments. Alexza’s policy is to only provide guidance on product candidates and corporate goals for the future one to two fiscal quarters and to provide update or reconfirm its guidance only by issuing a press release or filing updated guidance with the SEC in a publicly accessible document. Clinical guidance is as of today November 6, 2008, and financial guidance relating to the company’s current cash, cash equivalents, and investments is as of September 30, 2008.

I’ll now turn the call over to Tom King, President and CEO of Alexza.

Tom King

Thank you Augie. Good afternoon and thank you for joining us. We always look forward to these quarterly conference calls where we can update you on our progress.

Notwithstanding the incredible challenges of the current financial markets Alexza continues to make great progress with our lead program ahead of even our own original expectations.

I’m going to start with a brief overview of the progress we have made this past quarter towards the accomplishment of our operational goals and then provide a brief summary of the current status of each of our product candidate programs. I will then pass the call back to Augie Moretti to review the third quarter financials. After that, we’ll open up the call up for questions and answers.

During the past three months, we have met or exceeded our own internal operational goals. As a brief reminder in the first half of 2008 we initiated and completed the enrollment of our first Phase 3 pivotal study with AZ-004. This is our lead program, which is for the treatment of agitation and schizophrenia in bipolar patients.

In early September we reported the initial data from the study. The initial results were very strong showing highly statistically significant improvements in patients receiving AZ-004 and the study met all of its primary and secondary endpoints. In addition to the data we have released in the financial world data, from the study will be presented in a scientific form in December at the 47th annual meeting of the ACNP.

In July, we also announced the initiation of our second AZ-004 Phase 3 study. This study was our first clinical trial in bipolar patients and it is the second of two pivotal studies for our AZ-004 new drug application. In October, we announced completion of enrollment of this study and we expect to report top line results before the end of this year.

In the third quarter we conducted our end of Phase II meeting with the FDA for AZ-001, Staccato prochlorperazine, for the treatment of migraine.

In October, we submitted our updated IND for AZ-104 the low dose version of Staccato prochlorperazine, which is being developed for the treatment of migraine.

I’d like to provide a brief summary now of each of the programs and key next milestones. AZ-004, Staccato loxapine, again we’re developing AZ-004 for the treatment of acute agitation in patients with schizophrenia or bipolar disorder. With the strong results from our first Phase 3 clinical trial and our expectation of releasing data from the second pivotal trial in the next two months the company projects an NDA filing for AZ-004 in early 2010.

The second Phase 3 trial has completed enrollment of 314 patients with bipolar disorder and with acute agitation conducted at 17 US clinical centers. This trial was an in-clinic, multi-center, randomized, double-blind, placebo-controlled study and tested two doses of AZ-004, the 5 milligram and 10 milligram. The patients could receive up to 3 doses of the study drug in a 24-hour study period depending on their clinical status. Patients eligible for the study included those who were admitted through an emergency department and those who are already inpatients in a hospital setting as long as they had acute agitation at the time of patient randomization.

In the overall AZ-004 program, we have completed five clinical trials enrolling more than 800 patients to date and have announced positive results from all four of these studies. These four studies which will form the base line and foundation for our new drug application include a 50 subject Phase I study in healthy volunteers, 129 patient Phase II study in agitated schizophrenic patients, a 32 patient multiple dose, tolerability and pharmacokinetic study in nonagitated schizophrenic patients and the first Phase III study, which was a 344 patient study in schizophrenic patients with acute agitation.

We had also completed an end of Phase 2 meeting with the FDA for AZ-004 in September last year in 2007 and believe we have a very clear understanding of the development requirements for following the AZ-004 NDA.

AZ-004 has been licensed to Symphony Allegro and we have the right to repurchase all rights to this product candidate.

Moving to AZ-001, Staccato prochlorperazine. We are developing AZ-001 to treat patients suffering from acute migraine headaches. During the third quarter of 2008 we conducted our end of Phase 2 meeting with the FDA. From this meeting we believe we have a clear understanding of the NDA requirements for this product candidate as well. Consistent with our previous guidance Alexza is not planning on conducting any AZ-001 phase III studies without a partner. And we’re continuing to seek partners for this Staccato migraine product candidates both AZ-001 and AZ-104.

Moving to AZ-104, Staccato loxapine. We are developing AZ-104 which is low dose version of Staccato loxapine, to treat patients suffering from acute migraine headaches. AZ-104 has completed a Phase 2a in-clinic study and we saw up positive results in that in-clinic study in migraine patients. In October 2008, we submitted our updated IND with AZ-104 to give the Division of Neurology Drug Products at the FDA, and we expect to initiate our first outpatient study of Phase 2b clinical trial in early 2009.

AZ-104 has been licensed to Symphony Allegro and the company has the rights to repurchase all rights for this product candidate.

AZ-003, renamed by Endo Pharmaceuticals EN 3294, also we call as Staccato fentanyl, and we are developing this product in conjunction with Endo Pharmaceuticals for the treatment of breakthrough pain in North America.

Endo Pharmaceuticals is responsible for the regulatory, preclinical, and clinical development and for ultimately commercializing this product in North America. Alexza is responsible for the development of Staccato Electric Multiple Dose device technology and has the exclusive rights to manufacture the product for clinical development and for commercial supply.

During the third quarter of 2008, Alexza completed testing and shipped the first batch of EN 3294 clinical trial material to Endo for use in their first EN 3294 Phase II clinical trial. This CTM shipment resulted in revenue recognition during our third quarter.

AZ-007, Staccato zaleplon. We are developing AZ-007 for the treatment of insomnia in patients who have difficulty falling asleep, including patients who are awake in the middle of the night and have difficulty falling back to sleep. AZ-001 has completed Phase I testing. As we had mentioned two weeks ago in our updated conference call we’re currently planning no additional clinical work on AZ-007 during 2009.

AZ-002, also known as Staccato alprazolam. We are developing AZ-002 for the acute treatment of panic attacks associated with panic disorder. We have completed a Phase I study and one Phase II proof-of-concept study in panic attacks an indication that the company is not planning to pursue. However, given the safety demonstrated profile the successful and reproducible delivery of alprazolam and the intravenous like pharmacological effect demonstrated to date, Alexza and Symphony Allegro, our partner with this compound, are accessing AZ-002 for other possible indications and renewed clinical development.

AZ-002 has been licensed to Symphony Allegro and we have the right to repurchase all rights of this product candidate.

Now I am going to turn the call back over to Augie for a review of our financials.

August Moretti

Thank you Tom. Good afternoon. I’d like to summarize the financial information that’s included in the Form 10-Q for the quarter and the nine months ended September 30, 2008. We reported a net loss of $14.7 million for the quarter ended September 30, 2008, and a net loss of $43.4 million for the nine months ended September 30. This compares to a net loss of $10.8 million and $31.9 million for the comparable periods in 2007.

Our consolidated results of operations include the operations of Symphony Allegro and loss attributable to non-controlling interest in Symphony Allegro reduced our net loss for the third quarter of 2008 by $6.1 million and reduced net loss for the nine months by $15.7 million. This compares to $3.0 million and $7.7 million in the comparable periods in 2007. We recognized $69,000 of revenue in Q3 and the nine months ended September 30, 2008, and did not recognize any revenue in the comparable periods in 2007. The revenue arises from amortization of the upfront payment we received from our agreement with Endo Pharmaceuticals for the development of AZ-003, Staccato fentanyl. We shipped Endo clinical material late in the quarter and have commenced amortization, which will be streamlined over six years.

Our operating expenses have increased in 2008, specifically R&D expense increased in the third quarter of 2008 and the nine months ended September 30, 2008 to $16.8 million and $47.2 million compared to $11.6 million and $31.9 million in the comparable periods in 2007. The increases in R&D expense are related to increased spending on clinical spending on clinical development of our AZ-004 our lead program Staccato loxapine for treatment of acute agitation and schizophrenic in bipolar disorder patients and AZ-003, Staccato fentanyl, which we are developing in partnership with Endo Pharmaceuticals. We also had increased spending on Staccato device development and manufacturing scale-up and increased personnel-related cost due to increasing staffing to support our clinical research and manufacturing efforts.

During the nine months ended September, we conducted Phase III trials for AZ-004, the second trial completed enrollment in October after completion of the quarter.

G&A expense increased in the third quarter and nine months ended September 30, 2008, to $4.4 million and $13.6 million as compared to $3.6 million and $11.2 million in the comparable periods in 2007. The period-to-period increase is a result from higher share-based compensation expenses in 2008, increased staffing for personnel and executive accounting, business development, information technology, and human resources necessary to support our growth, as well as increases in facilities costs, patent related costs and professional fees for legal and accounting services.

At September 30, 2008, we had, cash, cash equivalents and marketable securities of $78 million. This includes $26.5 million held by Symphony Allegro, which we consolidate on our balance sheet.

I will now turn the call back to Tom for concluding remarks.

Tom King

Thank you Augie. We believe our technology and products candidates we have under development can fundamentally improve and in some cases change the way many acute and intermittent conditions are treated. The treatment of acute agitation is an excellent example of this possible change in medical practice resulting from the Staccato technology.

Specific to AZ-004 physicians, nurses, and patients all tell us this fact. We are committed to building a broad portfolio of Staccato-based products that will capitalize on this potential. At this very same time we’re critically aware of the very difficult capital markets and the need to prioritize and focus on what we believe are the key near term value drivers as we move into 2009.

In practice this means over the next 12 months in addition to our AZ-004 activities we will continue to push forward our partnered and funded programs with Endo Pharmaceuticals for AZ-003 for breakthrough pain and with Symphony Allegro for AZ-104, Staccato loxapine, in a low dose form for migraine.

Without partner funding we’re currently planning no work on AZ-001, AZ-002, or AZ-007 in 2009.

In summary, Alexza continues to meet and in some cases exceed our own timelines and milestones. In addition to our critical successes we’re continuing to aggressively internal and external commercialization activities including our manufacturing scale up, quality systems, regulatory affairs, and strategic marketing and as we continue to track towards our planned AZ-004 NDA submission in early 2010.

As has been our practice since the company was founded, we’ve set very aggressive operating goals for each year including the goals related to our lead program. All of us at Alexza are working very hard to meet and even sometimes even exceed these goals.

Thank you again for your time today and for your ongoing interest in Alexza and for your support. We would now like to open the conference call up for questions.

Question-and-Answer Session

Operator

(Operator instructions) And your first question comes from the line of Ted Tenthoff from Piper Jaffray. Please proceed.

Ted Tenthoff – Piper Jaffray

Great. Thank you very much. Two quick questions for you. Firstly if I may just with respect to where things are with Symphony right now. If you were to do a Staccato loxapine deal either US or whatever, I’m assuming that you would have to buyback Symphony. What is the current amount that you would have to --that you would owe Symphony capital?

August Moretti

The current, this is August Moretti, the current buyback price under the Symphony Allegro agreement is $82.5 million and the price increases in early December.

Ted Tenthoff – Piper Jaffray

Okay.

August Moretti

The price increases on a quarterly basis to reflect the return on Symphony’s investment.

Ted Tenthoff – Piper Jaffray

And what was that return, is it 22% or?

August Moretti

The price increases are at 27%.

Ted Tenthoff – Piper Jaffray

27% annually.

August Moretti

Annually, yes.

Ted Tenthoff – Piper Jaffray

Okay, just looking --

Tom King

I’m sorry. Just to be clear on that I think the most logical way as we contemplate doing a transaction for AZ-004 would be to take down the Symphony and buy that out. It is not required. We have a free and clear well stated option on that and that option remains with us until December, 2010. And we know exactly what the buyback is at each point along the way. And so the most straightforward way would be to take down the Symphony partnership, buy it out and transfer those rights to the licensing partner or partners. However, the option is an asset on itself. So that is not the only solution. And so there is what we feel a portfolio of options out there in front of us with regard to the way that we could partner this product though you are right that the most straightforward way is to close out the Symphony transaction and convey a license that it is free and clear to the potential licensee.

Ted Tenthoff – Piper Jaffray

Tom, sort of got you. I’m looking at you know, this lag between delivering second Phase III trial data and NDA filing of over a year, and I know that enrollment came so much quicker that maybe you got caught a little bit off guard just with respect to what you needed to do to get that done, but you know, it seems like that is a big lag to get a potential drug to market especially right now with the cash situation and all of that. Is there anything you can do to accelerate that? Is there do you think you got caught off guard a little bit because of the speed at which the Phase III was enrolled, just tell me a little bit more about that?

Tom King

Certainly. An NDA is a compilation, there is a lot more than the two pivotal studies and I think we’re not behind with regard to the plan to an NDA. In fact if anything we’re running as fast as we can to get the done. The NDA also includes four additional supporting studies that we have been very clear about. We have -- they’re all in normal warrant years. We have a normal healthy volunteers study looking at pulmonary function. We were going to start that last in 2009. We’re pulling that forward and starting that this year. We have a thorough QT study. We have pharmacokinetics in smokers versus nonsmokers and we also have pharmacokinetics in healthy lung versus non-healthy lung, subjects with asthma or COPD. So, there is probably another 6 to 8 months worth of clinical research involved with that. We have escalation of manufacturing. We have registration stability batches to make for the NDA. We have quality systems to finalize. We have all the reports to write on the preclinical work and the entire (inaudible) to put in and I think it is important that you know, I think most companies probably always lag behind their NDA submission because they’re hanging on for hope of getting the Phase III clinical trails done. By the end of this year, we’re going to be very clear about the safety and efficacy of this product and treatment of patients. So it is more of an execution risk as we see it as opposed to a clinical timeline risk and while we have taken away what traditionally is the most overhang and that is the pivotal studies in the Phase III studies it doesn’t lighten up what is required for an NDA, which is still a substantial amount of work. And so if we thought there was anyway to pull that in we certainly would but there is certain amount of work that has to be done and the fact that we’re pleased because the Phase III trials have come in a couple of years ahead of schedule is a fantastic outcome but it doesn’t alleviate the amount of work that is still required to submit the NDA. And I can remind just from a perspective we didn’t do a first dose and end [ph] with this drug until 2005. And so the fact we’re going to submit a full blown NDA in less than five years is an incredible feat in itself.

Ted Tenthoff – Piper Jaffray

I really agree. And that is really helpful additional information. So good luck with all of this and good luck on the partnering front.

Tom King

Thank you. Thanks for the call.

Operator

And your next question comes from the line of Jason Kantor from RBC Capital Markets. Please proceed.

Jason Kantor - RBC Capital Markets

Hi guys. Thanks for taking the call. I wonder Tom if you could shed little more light on what some of the possible alternate scenarios might be with the Symphony option rather than just an buyback because I think this is a key, a lot of people are singularly focused on the need to raise some kind of capital in order to buy that back. So if there is some other option that might be on the table, it might be useful to hear what that it is.

Tom King

Certainly Jason. Thanks for the question. While I think it is important to go to the very top of it. If we don’t have a partnership, we don’t have any obligation to buy that back until December of 2010. Now, we certainly know what the math is and you know what the math in that escalation of that buyback. But we’re not -- we are not absolutely not under the gun to buyback that because that option doesn’t expire. And so the only reason that we would buy it back because we like the Symphony folks, we think they have added great value to us, would be if we did a deal. And so, and we have nicely advancing discussions on partnering on AZ-004 both for ex-US rights and for inside US rights based on who we are talking with. And there are lots of opportunities to think about other than just straight buyback. And the new ones of those are somewhat -- we’re a lot confidential [ph] on who we are talking about but different companies have different degrees of risk to which they would take and taking a pro rata ownership of the option which they can exercise at some point in time is one possibility. Financing that with something other than a straight upfront payment is another way to considering doing that. So a lot of it has to do with the specificity of who we partner with, the type of balance sheet the may have, and some of the creativity that they might have in their own view of financing this program going forward both domestically and internationally. So I don’t mean to be obtuse with the answer but it is very much dependent on who we’re talking to and the type of territory they are looking to seek and the amount of value that is derived by the size of the market opportunity.

Jason Kantor - RBC Capital Markets

And then talk to me about the complications potentially of trying to partner loxapine, when you have also got low-dose loxapine for another indication and then you have that somewhat tied to prochlorperazine because you are talking about partnering the whole migraine program. So it sort of sounds like they’re all somewhat linked.

Tom King

All mixed together. I think it is an interesting potential negotiating tactic to say that low-dose loxapine and high-dose loxapine are tied together because it is chemical entity. It is mostly an academic argument. It is very clear that 10 milligrams of loxapine is very good for an agitated schizophrenic and not going to be a great choice for a migraine patient, when we think the effective dose is going to be 1.25 to 2.5 milligrams. Alternatively giving 2.5 milligrams or 1.25 milligrams to an agitated schizophrenic is just not going to work. The prescribing environment is different. One is an outpatient, one is an in-clinic use at least initially. And so what I think again you might argue because of the similarity in the (inaudible) that is some potential cross talk there but I think functionally and from a medical perspective that is very, very little overlap there. And at least to date that has not been a complicating factor.

Jason Kantor - RBC Capital Markets

And two other quick questions. One on the partnering site, you have basically tabled a bunch of your other programs. Do you guys have the bandwidth to go through the partnering discussions on all these programs simultaneously?

Tom King

Yes, the one that is most probably gated by one more set of clinical data is the migraine portfolio broadly. And we have apples-to-apples comparison of loxapine and prochlorperazine in an in-clinic setting, but we don’t have apples-to-apples comparison in an outpatient setting. We obviously had thought we would have been doing the Phase 2 b study sooner with the low-dose loxapine and we have explained thoroughly we are required to resubmit an IND to the neurology division since our current line of IND on loxapine is with the psychiatry division. That is done and that is live and we expect to be up an running and we expect to see some data sometime in the summer. And I think most of the conversations, not all, but most of the conversations with potential migraine patients -- migraine companies would like those outpatient would like to see those outpatient head-to-head using Staccato. So they can make an informed decision on; u choose one or the other or do you take them both and for what reason. When we talk to leading migraine experts Jason, the see new onsets that are different. So. AZ-001, prochlorperazine, appears to treat badder [ph] headaches, more severe headaches and treat them better. Though it has a -- appears to have a higher side effect profile than loxapine. Loxapine appears to have a lower side effect profile but appears to treat most headaches pretty well but it doesn’t appear to be as potent in treating those more severe, those more refractory headaches.

Jason Kantor - RBC Capital Markets

And lastly you mentioned that the Phase III trial that is finishing up is in both in-clinic as well as in emergency department. Was that also the case for the first Phase III that you had people coming into the emergency department and if that is different is that a potential risk factor for that setting?

Tom King

Yes, the design and the sourcing of the patients was exactly the same. So they’re actually still studied in a clinical trial environment. You know, all the investigations that we’ve have these clinical trial environments where there do it. The patients are sourced either (inaudible) emergency department or they are sourced because they are already an in-clinic patient. And the in-clinic patients probably got there because they came to the emergency department anyway. They were admitted to be started on the clinical trail. So that aspect of the trial design in terms of where those patients are being sourced is absolutely the same as the one that we did for the schizophrenic patients.

Jason Kantor - RBC Capital Markets

Thank you.

Tom King

You are welcome. Thank you Jason.

Operator

And your next question comes from the line of you Art Georaver [ph] from Georaver [ph]. Please proceed.

Art Georaver – Georaver

I am a shareholder. But I had a question in regard to the system. Is it a single dosage that you get and are you looking in to getting multiple treatment side of the same mechanism. The other thing I wanted to know is when you combine, when you put a drug into your little system how is the pattern or how long do you have -- let us say you make this thing and you do it for this year and the next year you come along with another drug and you put it in there. Each time what is the length of time that you have a patent on that that somebody else can’t come along and use that or I mean, if you take a drug that is going to be ending, and you -- the patent life of this drug and you put it into your system. Are you now extending that period in your system?

Tom King

Those are very goods questions Art. Let me answer them both. In terms of the number of doses we have 2 basic platforms that create aerosols in a very similar way, but one is a single dose and that is AZ-004 is good example where it is one device, one goes, one application. Then the device is disposed off. And we have 5 of our 6 compounds that are in development on that single-dose platform. One compound that we have that is on a multiple-dose platform that is reusable is AZ-003. The product is partnered with Endo Pharmaceuticals. So in that particular case we have a reusable controller that would be a sign to a patient and have a specific patient identification mechanism involved with the controller and the dose cartridge has 25 doses of fentanyl for breakthrough pain. And you would use 25 doses that cartridge then is disposable. Then you put a new cartridge in good for 25 more doses but the controller is reused for the entire patient period. So, we’ve actually evaluated those single-dose and multiple-dose technologies and actually have both platforms in the clinic.

Art Georaver – Georaver

Is there a liability because some of these people that might be using these things mentally may not be working on it. So I mean if a person sits there and keeps -- giving himself dosages, does it control that somehow or?

Tom King

Yes, that is one of the strengths we believe of the multiple-dose technology is that you program the software so that it only allows you to take doses within a specific time, a certain number of doses in that time period. Certain number of dozing windows per day for example, all based on the safety of the product. I don’t know if you ever been in the hospital and you’ve had patient controlled analgesia where you have the little pump and it allows you to get little doses of drug to treat your pain. The software that is used in those drug delivery pumps is very similar to the kinetics that we thought about in how we control and how we limit so that the patient can only use this safely and can’t abuse or misuse it. From an intellectual property perspective, when the company was founded it identified intellectual property patents in three major areas. The first was how to make these devices and we had a whole portfolio of issued patents on the way that we make these devices, how they are manufactured, the little components of the devices and all of that aspect. Secondly, we have a series of patents that speak to treating specific types of diseases and specific types of symptoms and so you use a certain type of compound to treat a certain type of side effect or certain type of drug system of something like that. So a certain drug to treat a migraine headache, for example, or certain drug to treat an agitation episode. The most important aspect is the third area that we have composition and matter on the aerosols that we create. So even if you brought us a drug and it worked in our technology, we give back to you a patent on the aerosol that we create with our technology. It is not just on a few drugs. We have very specific claims for hundreds of drugs that several years ago we got a very large patent that basically says if a drug is heat stable in our technology we can convey intellectual property on the aerosol. And these patents run until at least 2021, 2022. So even if somebody brought us a drug tomorrow and it worked on our technology, we could still convey patented production until at least 2022 using our technology.

Art Georaver – Georaver

Till 2022. But what if you, I mean what if you introduce a new drug 5 years from now. Do you get -- does that go forward?

Tom King

It would still, the term of the patent and therefore to protect that would be 2022. Unless if someone bought as a new chemical entity that had its own.

Art Georaver – Georaver

Yes, that would be different. I was thinking of products that are on the market now and as a way of extending the period of time on that drug?

Tom King

Quite many times when you look at product line extension or product lifecycle management big pharma companies are exited sometimes just with two or three years of extension and so (inaudible) that today because we have developed a technology so quickly. We actually feel we have an incredible amount of runway still left on the intellectual property around this technology.

Art Georaver – Georaver

How you are going to develop your own sales force. I remember with Alexza that when they first started out they did that and it didn’t work very well and they finally backed away from that but it appears that you’re going that direction of having your own sales force.

Tom King

What we’ve said is that in areas where we think that a very small targeted sales organization could add value is something that we have liked to consider having a sales force. So maybe it is not -- we aren’t unequivocally going to do it into primary care or into something where we just wouldn’t have the ability to have an effective sales force. When we (inaudible) who was obviously one of our founders, the vision was to have an area and that is why we think as AZ-004 as the opportunity for us to either promote or co promote in the United States into a tight group of physicians in this particular case it would be psychiatrics. We note that this drug would be initially launched into the clinic setting, into the hospital setting and we think a very tightly focused group of 30 to 50 individuals could be perfect to launch the product into that setting. The more we have learned about the product opportunity about AZ-004, we realized that there actually there are many office based physicians that still need to hear about the message and probably would prescribe and use this product. And so our -- even as we learn more about the market and dissect the market to a finer degree of detail we have evolved our thinking into feeling that probably we need to have a co promotion partner at a minimum in the United States just because we cannot afford. We don’t think we’re trying to be very realistic, you know, starting a sales force of 250 people for example because that would be an aspiration that is just beyond what a small company should do.

Art Georaver – Georaver

Okay one final question, on this Staccato repurchase is there a share amount that I mean not a -- I know that you said there is $83 million with it. One time did you agree on a certain number of shares because I mean the value of your shares a very low now?

Tom King

The answer to that is no. The agreement allows us to pay some amount of that in shares if we choose to do it, but it is 100% our call. And certainly at a share price where we are today it certainly wouldn’t be our top priority to do that.

Art Georaver – Georaver

Okay, thank you.

Tom King

Okay, thank you Art.

Operator

(Operator instructions) At this time there are no questions in queue. I would now turn the call back over to Mr. Tom King.

Tom King

Okay, thank you very much operator. We look forward to continuing to update you over the course of the next couple of months. We are anxiously awaiting the release of the initial results from the second Phase III study, which we expect to see in the December timeframe. We also have, just as a reminder, 3 investor conferences that we will be presenting in in New York City, the Lazard conference, the Piper conference, and the RBC conference. And so we look forward to potentially seeing you there and please as always if you have any questions, please don’t hesitate to reach out and we are always looking forward to answering that.

Thank you very much and have a good day.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a wonderful day.

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