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Executives

Susan W. Specht – Director of Corporate Communications

Douglas E. Williams – Chief Executive Officer

James A. Johnson – Executive Vice President, Chief Financial Officer & Treasurer

Analysts

Edward Tenthoff – Piper Jaffray

Marshal Urist – Morgan Stanley

Han Li – Stanford Group Company

David Miller – Biotech Stock Research

Kenom Hong – Citigroup

ZymoGenetics Inc. (ZGEN) Q4 2008 Earnings Call Transcript February 11, 2009 4:30 PM ET

Operator

Greetings and welcome to the ZymoGenetics fourth quarter and year-end 2008 financial results conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) It is now my pleasure to introduce your host, Susan Specht, Director of Corporate Communications. Thank you, you may begin.

Susan Specht

Good afternoon everyone. Welcome to ZymoGenetics fourth quarter and year-end 2008 conference call. Before we begin, I need to remind you that we will be making forward-looking statements as part of our prepared remarks and in answering your questions. These statements are subject to many risks and uncertainties that could cause actual outcomes to be much different than we predict. Please look at our SEC filings including the Form 10-K for more information, and now I’ll turn the call over to Doug Williams, our CEO.

Douglas Williams

Good afternoon everyone and thank you joining us on the call. We will be reviewing our fourth quarter and full year 2008 financial performance and providing guidance for 2009. But before I turn it over to Jim Johnson, our CFO to discuss the numbers, I would like to highlight major areas of progress since the last quarterly call.

Perhaps the most significant news was the announcement of our collaboration with Bristol-Myers Squibb for the development and commercialization of Interferon lambda. We believe that Bristol is the ideal partner for this molecule and that partnering at this stage of development assures the smoothest and fastest path to registration. This transaction will provide us with significant near-term cash and downstream economic participation in the success with Interferon lambda. We expect that we will receive $200 million in cash through a combination of license fees and milestones during 2009.

Furthermore, we will share the profits and retain a co-promotion right in the U.S. We will also receive double-digit royalties on sales outside the U.S. This is of course depended on our continued participation in funding a portion of the development costs in the U.S and EU.

Turning now to IL-21, we've recently completed a transaction that we believe substantially increases the value of this molecule to ZymoGenetics. We acquired ex-North American rights to IL-21 for all indications from Novo Nordisk. This transaction was structured in a way to avoid any upfront cash consideration to Novo but with provisions for sharing a portion of the license fees above certain threshold levels and royalties on ex-North American sales.

We believe that having the worldwide rights to this program will provide an attractive licensing opportunity. Our Phase 2 studies with IL-21 in renal cell carcinoma and melanoma are proceeding. And we'll provide final data in both indications this year. We believe that the data showed that we have an active agent in both indications with an acceptable tolerability for outpatient dosing. In addition to progress with Interferon lambda and IL-21, we've made progress with our RECOTHROM business.

Jim will give you the specific financials but we feel encouraged by the growth we've seen in sales during the fourth quarter. We believe the new pricing strategy implemented in October along with the efforts of our sales and marketing team are responsible for this increased sales activity. In an effort to strengthen our RECOTHROM team, we brought Steven Zaruby into the company as President.

Steven has extensive sales and marketing experience in the hospital setting and has the mandate to make RECOTHROM a success as well as managing any line extension, product acquisition or co-promotion strategies to make our commercial operations more efficient and profitable.

With respect to additional data on the safety and efficacy of RECOTHROM, we presented the results of our Phase 3b study at ASH in December. This study further expanded our safety experience with the product and demonstrated that RECOTHROM did not produce an immune response in patients with pre-existing anti-bovine thrombin antibody.

Remember that the blackbox warning for bovine thrombin states that patients who have anti-bovine thrombin antibody should not be re-exposed to bovine thrombin. RECOTHROM offers a treatment alternative for these patients to avoid this re-exposure risk. The results further document that in certain surgical settings a substantial percentage of patients continue to have a detectable pre-existing, anti-bovine thrombin antibody titer.

Before I turn it over to Jim, let me signal a shift in how we’ll be speaking about RECOTHROM from now on. In prior quarters, early in the launch, we had given updates on softer, sometimes confusing metrics such as P&T committee meeting numbers and formulary decision outcomes. We've now been in the market for a year and were shifting away from those metrics to providing net sales guidance, which is the metric that matters. Jim?

James Johnson

Thank you, Doug. Here are a number of positives reflected in our fourth quarter financial results. The continued growth in RECOTHROM sales is starting to have a meaningful impact on revenues. We’ve also had substantial amount of license and collaboration revenue in the quarter and we are seeing greater impact from our efforts throughout 2008 to reduce R&D expense.

As a result our net loss for the quarter declined to $9.2 million, or $0.13 per share compared to $38.6 million, or $0.56 per share in the fourth quarter of 2007. Revenues for the quarter totaled $36 million. The settlement of our litigation with Bristol-Myers Squibb by licensing them our IG-fusion patents brought in $21 million of this total.

The sole license fee was recognized as revenue in the fourth quarter because we have no ongoing or future obligations under the agreement. In addition, we've recognized $9.5 million of deferred revenue under our collaborations with Bayer and Merck Serono.

RECOTHROM net sales for the quarter were $4.7 million and this is 165% greater than net sales in the third quarter. We saw increased demand each month during the quarter. It’s important to point out though that there was an increase in the levels of wholesalers stocking during the quarter. We’ve estimated the increase at approximately $800,000, which could end up effecting first quarter 2009 revenues on one to two weeks of sales.

Half of the product sales for the quarter was $4.7 million, which included $3.8 million reserve for inventory projected to become obsolete. We now have a better visibility into our rate of market penetration and although we're planning to extend the shelf life of our finished product to 36 months. We won’t have the stability data until late 2009.

We recorded the obsolescence reserve in recognition of these factors and with this reserve we believe the issue is now behind us.

R&D expense for the quarter reflects our ongoing efforts to reduce operating costs. Fourth quarter 2008 expense dropped substantially, in fact nearly in half from the fourth quarter of 2007, and there were three primary factors responsible for this. Discontinuation of our atacicept development costs resulting from the restructuring of our Merck Serono collaboration, lower internal costs resulting from headcount reductions made in the first quarter of 2008, and expensing of RECOTHROM inventory costs in the fourth quarter of 2007 prior to FDA approval.

SG&A expense was up about 8% in the quarter to $14.6 million and nearly all of this increase was attributable to sales and marketing costs. Our operating expenses for the quarter included $5.3 million of non-cash stock compensation expense, and of this $3.3 million was included in R&D and $2 million in SG&A.

I'm going to shift subjects now and look ahead to 2009 and our financial expectations for the year. Before I do that, however, I want to remind you that these estimates reflect our current thinking based on today’s circumstances.

We expect further improvement in the numbers because we planned to complete additional collaboration or licensing transactions, which we expect to bring in more cash and we expect to take further steps to reduce our operating costs.

So for 2009 RECOTHROM sales, we expect to see a continued upward trend and we believe the net sales for the year will fall within the range of $25 million to $35 million. Other revenues should be in the range of $95 million to $105 million. The largest component of this amount is revenue from our Interferon lambda collaboration with Bristol-Myers Squibb, which is expected to close later this quarter. Similarly to our collaboration with Bayer for RECOTHROM, we will record the Bristol-Myers Squibb license and collaboration revenue using percentage of completion method.

Revenue will be recognized proportionally based on the costs we incur each period. And we expect to receive $200 million of cash in 2009 under the collaboration. However, the amount we recorded as revenue must be reduced by any amount payable back to Bristol-Myers Squibb for their program related costs. Remember that we’re responsible for paying the first $100 million of the program costs.

Over the coming three years, we expect to recognize total revenue under the collaboration approximately $150 million and of this we expect that approximately $50 million to $60 million will be earned in 2009. And the first quarter revenue announced will be quite a bit less than in quarters two through four due to timing of the transaction.

Moving to costs and expenses, we expect 2009 cost of product sales to be in the range of 20% to 22% of net sales. R&D expense for the year is expected to fall within the range of $115 million to $125 million, which includes a substantial ramp up in PEG-Interferon lambda development costs, that’s offset by savings from the conversion of the atacicept collaboration.

SG&A expense should be in the range of $60 million to $65 million and there will be very little growth here other than the commission payable to buyer on RECOTHROM net sales in the U.S.

Overall, we expect our net loss for the year to be in the range of $55 million to $75 million, or from $0.80 per share to $1.09 per share.

Our cash situation is strong. We ended 2008 with about $90 million of cash and investments, and we expect to end 2009 with somewhere in the range of $120 million to $140 million but it doesn’t reflect additional cash that we expect to bring in from new transactions, and further reductions in operating expenses that we expect to achieve. And additionally, we still have $75 million available to us under our Deerfield line of credit that can be drawn anytime between now and January 2010.

Overall, the financial trend for the company are improving and we have the financial resources we need to carryout our business plan in 2009 and beyond. Thank you, Doug.

Douglas Williams

Thank you, Jim. I'll turn your attention now to what you can expect as far as milestones for the company in 2009. On the RECOTHROM front, we’re focused on building on the sales momentum we saw in Q4 of 2008 to meet or exceed our 2009 sale guidance, Interferon lambda should begin Phase 2 clinical testing in the second half of 2009.

We are currently finalizing our development plans with Bristol-Myers Squibb and we have a poster presentation to update you on our Phase 1b study at the EASL meeting in Copenhagen in late April. We will present data on the combination of Interferon lambda plus ribavirin in this session. We planned to present final data from the renal cell study in combination with Nexavar at ASCO. We’ll also complete accrual and have final data in melanoma with IL-21 as a single agent by year-end.

These data will support partnering activities with this molecule for further development and commercialization. We are also actively pursuing additional partnering transactions to facilitate more rapid movement of our preclinical assets into development and to bring additional cash into the company. This is part of the strategy we’ve articulated to reduce the company's cash consumption.

So in summary, we have three major strategic objectives for the year. The first is to make RECOTHROM the success in the marketplace we think it can be. Our second priority is to aggressively develop Interferon lambda with our partner Bristol-Myers Squibb, initiating key Phase 2 clinical trials, and finally we remain committed to reducing our cash burn in 2009 through additional cost cutting and partnering activities.

At this time we’ll be ready to take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). The first question is from Edward Tenthoff with Piper Jaffray. Please go ahead with your question.

Edward Tenthoff – Piper Jaffray

Great, thank you very much and congratulations on a much improved year-end. I know there has been a lot of work on for physicians, so congratulate them on the hard work in progress. If I made the starting with recoup sales in fourth quarter, the stocking issue and sort of the pricing update, you have given the guidance of $25 million to $35 million. Can you give us a little bit more color on that? Are you finding that you are converting bovine? Is it coming at the expense of other human thrombin? Give us a little bit more color on that fourth quarter success and sort of how the pricing is backing up currently?

Douglas Williams

Hi [Tenth], this is Doug. Thanks for the compliment at the beginning of your question. We do think that the quarter was certainly a good one for us, and moving us in the right direction. I think as far as the fourth quarter for RECOTHROM, certainly the pricing change that we took in October I think was a key reason for accounts to convert. We have been seeing I think more activity in the marketplace in the fourth quarter in terms of sales activity, that has begun to translate into dollars and I think we are beginning to get a handle now on the run rate sort of based on that fourth quarter. And that’s what has sort of led us to project forward and give our guidance for 2009 with some sense of confidence. As far as the stocking issue is concerned I think again we sort of looked at the run rate and made an estimate based on what we have seen as the levels of wholesaler stock that were sort of consistent with previous levels of sales and made an estimate that approximately $800,000 of the fourth quarter reflected stocking sort of in anticipation at the beginning of the year. So we’ve sort of based that of comparing the sales curve with the previous stock in curves and really coming up with that gap and estimating that’s attributable to about $800,000 of that number.

Edward Tenthoff – Piper Jaffray

Right. And just then from the competitive [thought] can you say is the gain coming to the expense of bovine? Are you still seeing Omrix/J&J or has that transaction caused some disturbance there? Just give us a little bit of color on the market?

Douglas Williams

Yeah, I think in terms of the topical hemostat market, we’ve got information now on 2008, and how that market has played out. The IMS information would tell us that primarily what seems to happening in the marketplace is a displacement of bovine thrombin. I think that the majority of that change is attributable to us, taking market share away from Thrombin-JMI. I think the level of activity for Evithrom is still somewhat difficult as routine although certainly the numbers would lead you to believe that they haven’t been making significant inroads in terms of that particular product. Now again I think we’ve always said that we are not certain reporting around Evithrom as far as those numbers are concerned. And certainly the information that we have would suggest that in terms of our capturing market share from Thrombin-JMI that we are sort of leading the way versus the other plasma-based thrombins that are out there. And we don’t see any real discernible difference in terms of J&J’s acquisition of Omrix. We didn’t really expect that there would be given the J&J has always been responsible for the marketing and sales of the product all along.

Edward Tenthoff – Piper Jaffray

Great, that’s very helpful. I appreciate it.

Operator

The next question is from Marshal Urist with Morgan Stanley. Please state your question.

Marshal Urist – Morgan Stanley

Yeah, hey guys, good afternoon. So I just wondered if you go back and talk a little bit more about the RECOTHROM guidance, and I know you don’t want to talk about the formulary and patents and everything, but can you give us a sense of the extent to which the pace there is improving and, are you seeing any change in complete conversion versus sharing formularies? And then on the guidance for next year, when you got to that number, it’s still a pretty healthy improvement of the run rate from the quarter if you backout the inventory charges. I’m wondering what you guys are assuming in there in terms of how much of that is sort of follow through from accounts we’re already in and then how much would you be accounting on new accounts in formulary patents to get to that number?

Douglas Williams

I mean without giving you too much color around how we triangulated in on that range. I mean sufficed to say that we feel that though we have a much better handle on what's happening in the market right now than we did certainly earlier last year. We've looked at our current run rate and made a few assumptions about some of the accounts that we know have converted, but aren’t yet reflected in the sales. So, I think that we’ve taken sort of a data-oriented approach to generating that range that we've provided and we feel pretty comfortable right now with that range based on what we see today. So, I think we feel as though there are some accounts that obviously haven’t begun their ordering process. And I think overall what we are seeing in the market in terms of general activity trends, we are getting more P&T committee meetings. We are still successful at those P&T committee meetings. And again we are trying to move away from spending too much time on those softer metrics, which many of the people whose names I see are on the call have expressed some dismay at not really knowing how to utilize that information effectively, given all of the different variables that play into the time it takes or an account to convert, the time it takes for converted account to switch to actual steady state ordering patterns. It has been a complicated metric for people to understand. So, I think we feel pretty comfortable with the numbers we put out there based on fourth quarter run rate and what we see moving forward into market.

Marshal Urist – Morgan Stanley

Okay, gotcha, and then I just wanted to ask you another question about how you guys are thinking about into the cost structure in R&D and obviously some of the work that you are going to be doing there is going to be [muffed] by first $100 million from the Interferon lambda deal. So, I was just wondering if you could give us the sense of how you are thinking about that through the year and how we might be able to think about where is the R&D base could be ones kind of emerging from that $100 million number?

James Johnson

Hi, Marshal. This is Jim. It’s kind of difficult because we are still working with a very preliminary development plan, but generally speaking I can tell you that in the guidance that we’ve provided, we’ve assumed that in 2009 we would be incurring the first $40 million to $50 million of the $100 million that we’ve committed to cover under the deal. So essentially figuring roughly half of that $100 million in 2009 and other half in 2010, and that we’ll be converting to the 20% proportion that we’re committed to on a longer-term basis.

Marshal Urist – Morgan Stanley

Okay, gotcha. And then last question is if you just you guys are talking about if there is anything how things are going on the other partnering transactions in your timeline through that throughout the year? Do you guys have a goal there or is it just anytime over the year?

James Johnson

Well, as you know it’s difficult to predict the specific timing. I will tell you that we are actively having partnering discussions right now and we would hope to be able to conclude those fairly shortly, but I can't give you a specific timeline given the uncertain nature of those types of transactions.

Marshal Urist – Morgan Stanley

Okay, great thanks guys. I appreciate it.

Operator

The next question is from Han Li with Stanford Group. Please go ahead with your question.

Han Li – Stanford Group Company

Yeah, good afternoon. Questions on RECOTHROM. Bayer filed European Marketing Application last August. Any update on the European Regulatory Discussion and Drug Vying approval and also can you give us some color on the European thrombin market and we know that J&J also filed for their human thrombin products in Europe too?

James Johnson

As it relates to Bayer’s filing in Europe there is no real update at this point to provide you with other than our assumptions haven't changed. We’re still operating under the joint assumptions that the existing package of data that we provided will be acceptable to garner registration in that territory. Again as you know the communication issues around contact with the EU authorities is something that we have to sort of follow the lead of our partner on and until they are ready to disclose any additional information, we sort of follow their lead in this regard. But at this point there is no change in the assumptions. We’re still operating under the assumption that the existing package will be acceptable to garner approval in the EU territory and beyond. And as far as the thrombin market, again I think this is a situation where there is no standalone thrombin in the EU market today. Bayer believes that provides a very significant opportunity to basically launch their product and build a new market, where there isn’t one. The current options for physicians in the EU territory are either cheap surgical sponges, which really don’t have much in the way of hemostatic properties, or expensive fiber and sealants, which by definition are expensive and physicians sort of keep those in reserve. I think the price point for a standalone thrombin product in that market could be quite attractive and therefore it represents a good market opportunity for Bayer. That’s the way they have seen it obviously since they struck the deal with us and again we're optimistic that we’ll receive approval on schedule.

Han Li – Stanford Group Company

Okay. When you see on schedule and approval timeline, should we the earliest we expect or should be some time this summer in Europe?

Douglas Williams

And it’s usually about 12 to 14 months. I think is the average time in the EU.

Han Li – Stanford Group Company

So, they filed August, last August should be sometime August, September or it is?

Douglas Williams

Again I think that’s an estimate. I'm not sure that the EU follows quite as rigorous a calendar in that way. So, I would assume second half of 2009 sometime.

Han Li – Stanford Group Company

Quickly, roughly ballpark the European and other territories in terms of market size, can we think is equal size or bigger than the current U.S. market?

Douglas Williams

I think the way we've been thinking about the ex-U.S. market is that in the aggregate is probably a comparable size to the U.S. market.

Han Li – Stanford Group Company

Okay. And quickly a couple of housekeeping items, on the RECOTHROM, the U.S. sales, are you recording U.S. sales probably pay a royalty to Bayer, officially it’s commercial partner, so that will go into the express line going to SG&A I assume?

Douglas Williams

Yeah that’s correct.

Han Li – Stanford Group Company

And you disposed us up to 20% [virtually]?

Douglas Williams

The high end of the range is 20, but it starts in the mid teen.

Han Li – Stanford Group Company

I see. And those on the Bristol-Myers Interferon lambda deal you said that the revenue is recognized as a percentage of completion. But over what period is the seven or 17 years or longer?

Douglas Williams

Well, it’s a good question. Might not be clear in my comments but, generally speaking it’s based on our commitments to incur costs. And because in that agreement we have an option to convert it from an active agreement to a passive agreement much like we did with the package that at any point in time we’re not stuck to that very long period of time for revenue recognition. So we look at what our current intentions are as far as active participation and we came up with approximately three-year commitment period.

Han Li – Stanford Group Company

I see.

Douglas Williams

So basically the net amount of revenue that we planned to recognize is about $150 million over three years.

Han Li – Stanford Group Company

Okay. And lastly on the $100 million clinical costs or development cost you have to pick up the first $100 million. I heard you mention that you have to reimburse Bristol that would deduct from the top end revenue?

Douglas Williams

Basically in the way it works is that on a cash basis we will bring in $200 million in 2009. Whatever part of that ends up going back to Bristol just close to our balance sheet and never goes on to our P&L and so basically it’s netted out.

Han Li – Stanford Group Company

Got it all right. Thank you very much.

Operator

Next question is from David Miller with Biotech Stock Research. Please go ahead with your question.

David Miller – Biotech Stock Research

Great, thanks for taking my question. King Pharmaceuticals has a new base for clinical trial that they are working on. It’s a 4-arm trial of about 600 patients is intended to try to get back to that based from their stated intend is to try to have the effect of possible exposure to Thrombin-JMI on aPTT. Can you give us some thought about how you are thinking about this trial in terms of competitive positioning and what you have in your plans or in your existing data that you can use on the field? On this issue?

Douglas Williams

Yeah, sure we are certainly aware the study, it has been ongoing for a while. I think if you look at the study design, it is our belief that it will not be able to clarify or negate the risks associated with immunogenicity simply because of the way they've chosen to design the study. It will in our estimation not enable them to remove the black box warning based on the way in which the study has been designed. So we continue to monitor the situation. We’re obviously exploring various options to react to whatever their chosen course of action is in the marketplace with that data. But sufficed to say that we believe and certainly there is documented evidence to show in the literature that the issue with immunogenicity and coagulopathy is not a problem that has gone away. It continues to be an issue and likely will continue to be one.

David Miller – Biotech Stock Research

Have you had inquiries from cooperative groups or other large centers who want to run a study there, kind to do a straight-up comparison between the two drugs to solve this issue once and for all?

Douglas Williams

No, we have not.

David Miller – Biotech Stock Research

Okay. And then the last question is can you give us any kind of guidance there or just general kind of guidelines on when you might be including RECOTHROM in other products basing them in the sponges or other kinds of means to kind of extend the use of the product in the surgical suite?

Douglas Williams

I can’t give you specific guidance on that now other than to say that we have pre-clinical activities ongoing for a [flowable] version and the timeline associated with when that would be approved is largely based on the need to have discussions with regulatory agencies about what path that might take. So if we were to move forward that would be the first formulation just based on the level of activity that we've already completed preclinically. There are other ideas and Steven Zaruby and his team will be exploring those and others as possible line extension strategies in the future, but for now I can’t give you a specific timeline given the lack of certainty around the regulatory path.

David Miller – Biotech Stock Research

Okay, and then I guess I have one other question on the guidance for cash use. Does that assume that any kind of in-licensing of products for the RECOTHROM sales force?

Douglas Williams

Yeah the answer is no on that. It did not assume any in-licensing activities.

David Miller – Biotech Stock Research

Okay, great thank you very much.

Operator

The next question is from Edward Tenthoff with Piper Jaffray. Please go ahead with your question.

Edward Tenthoff – Piper Jaffray

Great thank you very much. Two quick housekeeping points from my end to. Firstly the amortization period for the Bristol upfront, how long is that going to be?

James Johnson

It’s basically going to be recognized over three years.

Edward Tenthoff – Piper Jaffray

Okay, so over three years. The amort is over three years and then will get that revenue in as you recognize, and as you describe.

James Johnson

Yeah it’s on the level of costs that we incur over that period. So, it's not necessarily going to be even from quarter-to-quarter. It will basically quakes in vain with the costs that we were basically managing in the Phase 2 program.

Edward Tenthoff – Piper Jaffray

Yeah from the revenue side. Can you give us the precise stock based comp between R&D and SG&A?

Douglas Williams

I can, just stop for just a moment.

Edward Tenthoff – Piper Jaffray

Sure. I'll ask one another one while you’re looking at that. With that $21 million that you've recognized coming in from the Bristol settlement, did that impact the cash in the quarter?

Douglas Williams

Are you talking about the Ig fusion settlement?

Edward Tenthoff – Piper Jaffray

Yeah, Ig fusion settlement, was that the cash?

Douglas Williams

That $21 million was received in November

Edward Tenthoff – Piper Jaffray

Okay in November.

Douglas Williams

Okay. So I have the stock-based comp numbers for the full year 2008. $13,572,000 in R&D and $7.7 million, exactly $7,700,000 even in SG&A.

Edward Tenthoff – Piper Jaffray

Great. I appreciate you going into that. So one more for Doug, if I may not from a [off log] upon too much, but how did you get such a sweet deal on Interferon lambda based on 18 patients? Characterize those negotiations and I mean again hats off because you really turned the stick around here on the balance sheet side. But give us a little bit more insight into what really grew Bristol’s? Were there other parties involved? Just give us a little bit more color on how you pulled that on?

Douglas Williams

I’ll give you a little bit of color [Tenth]. I think certainly there were multiple parties that expressed an interest in this particular asset. I think as you recognized well the HCV space is one that is very competitive right now as far as bidding for interesting looking compound. I think from Bristol’s perspective, they wanted to have an Interferon offering to complement their own internal programs with small molecule direct antivirals. And I think that they stepped up to the plate and really the negotiations were very active at the end. They really came together I think very quickly in the sort of post AASLD period where people really got a sense of the fact that that this compound, really did have quite a bit of activity, in terms of direct antiviral activity, but also looked like it has a target product profile in terms of better tolerability. I think if you look at our single agent data, you could make the case that it actually looks better than anything that’s been reported with an Interferon alpha offering. We've been fairly conservative in just how far we want to go in terms of describing that data, but sufficed to say that the numbers are the numbers and it’s very clear that this is an active agent. It’s very clear that it at least thus far meets our target product profile and I think the reason we got as you characterize it such a sweet deal is because it’s far and away the most differentiated of the Interferon offerings out there. So I think we were fortunate to be able to sort of capture the interest in the HCV marketplace with an agent that's got a profile that is arguably one that anybody interested in an Interferon offering would really want to have.

Edward Tenthoff – Piper Jaffray

Okay, very helpful.

Operator

(Operator Instructions). The next question is from Lucy Lu with Citigroup. Please go ahead with your question.

Kinam Hong – Citigroup

Yeah hi. This is Kinam Hong signing in for Lucy. Congratulations. By the way your next quarter (inaudible). I have a question just following the last question about PEG-Interferon lambda, the direct element in HCV sales and that has been pretty competitive and also it’s a more dynamic process with the addition of the PI to the mix. I was wondering if you could briefly comment and give a little more clarity on the development of cash for the Lambda program in the context that is standard which means for the PI?

James Johnson

Yeah I think at this point, I can’t give you a whole lot of clarity about the development plan. I think that’s it is under active discussion. There are multiple scenarios that we’re exploring because as you rightly point out, it’s a very dynamic market. We’re building in assumptions around expectations for the approval of at least the first of the direct antivirals and what impact that would have on the timelines associated with our program, but I think until we get a little more clarity from regulatory agencies about an acceptable path forward, we’ll essentially defer giving specific guidance about exactly what the clinical plan is going to look like. But sufficed to say that we plan to be very aggressive in our thinking, very aggressive in terms of our design issues and what we present to the FDA, because we like everyone else see that speed and speed to the market is an essential element of success for this program

Kenom Hong – Citigroup

Okay, thank you very much.

Operator

I’m showing no further questions in queue. I would like to turn the call back over to management for closing remarks.

Susan Specht

That ends our call. If you have questions, please contact Corporate Communications. Thank you.

Operator

This concludes today’s teleconference. You may disconnect your lines. Thank you for your participation.

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