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ARIAD Pharmaceuticals Inc. (NASDAQ:ARIA)

Q4 2008 Earnings Call

February 12, 2009; 08:30 am ET

Executives

Dr. Harvey Berger - Chairman & Chief Executive Officer

Ed Fitzgerald - Senior Vice President & Chief Financial Officer

Dr. Tim Clackson - Senior Vice President & Chief Scientific Officer

Maria Cantor - Vice President of Corporate Communications & Investor Relations

Analysts

Ryan Martins - Barclays Capital

Phil Nadeau - Cowen & Co.

Eun Yang - Jefferies & Co.

Mona Ashiya - JP Morgan

Terence Flynn - Lazard Capital Markets

Howard Liang - Leerwink Swann & Co.

Operator

Thank you for holding for ARIAD Pharmaceuticals fourth quarter 2008 investor conference call. At this time all participants are in a listen-only mode. Following the formal report, ARIAD management will open the line for a question-and-answer period. Please be advised that this call is being taped at the company’s request and will be archived on the company’s website for four weeks from today.

At this time, I would like to introduce Ms. Maria Cantor, ARIAD’s Vice President of Corporate Communications and Investor Relations. Please go ahead.

Maria Cantor

Good morning and welcome to ARIAD’s investor call. This morning we will report on corporate development and financial results for the fourth quarter and full year of 2008 and review our financial guidance for 2009.

Joining me for this call are Dr. Harvey Berger, our Chairman and Chief Executive Officer; Mr. Ed Fitzgerald, our Senior Vice President and Chief Financial Officer; and Dr. Tim Clackson, our Senior Vice President and Chief Scientific Officer.

Before we get started, I would like to state that during this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to factors, risks and uncertainties, such as those detailed in our Form 10-K for the year ended December 31, 2007 and other SEC filings that may cause actual results to differ materially from the results expressed or implied by such statements.

Now, I would like to turn the call over to Dr. Berger for this morning’s opening remarks.

Harvey Berger

Thank you very much Maria and good morning everyone. ARIAD’s vision is to transform the lives of cancer patients with breakthrough medicines. We are focused on the discovery, development and commercialization of small molecule drugs to treat cancer, in patients with the greatest and most urgent unmet medical need, aggressive cancers or current therapies are in adequate.

This past year, 2008, was one of the most productive in ARIAD’s history and in our long standing efforts to fulfill this vision. We achieved the corporate objectives we set at the beginning of 2008 and are now beginning to see the results of our efforts in building a fully integrated oncology company.

With our ongoing focus and momentum, we expect 2009 to be an equally important year for ARIAD. Completion of enrollment in our SUCCEED trial of oral deforolimus in patients with metastatic sarcomas is coming into view, and we expect to have clinical proof of concept data on our second product candidate, AP24534 or 534 in blood cancers later this year.

I anticipate that 2009 will be a transformational year for ARIAD, for the company and importantly for its investors and within the next few years, for cancer patients whose lives we seek to transform. At the same time we achieved our goals for 2008. We continued to show a strong commitment to the financial discipline, especially in these challenging economic times. We ended 2008 as projected, with a solid financial position and we are well positioned going forward to achieve all of our business goals for 2009.

Ed Fitzgerald will reiterate the financial guidance for 2009 that we announced in January and provide a full financial update for the fourth quarter and for the full year of 2008. I will then come back online and share with you ARIAD’s progress in advancing its innovative oncology pipeline. Finally, we will close the call as we always do with an interactive Q-and-A session with the ARIAD team, including Tim Clackson, who also will be available to answer your questions.

So let me now turn the discussion over to Ed Fitzgerald for our financial update.

Ed Fitzgerald

Thank you Harvey and good morning everyone. I’d like to start with our financial results for the fourth quarter and the full year ended December 31, 2008, the details of which were provided in the press release we issued earlier this morning.

The company ended fiscal year 2008 with cash and marketable securities of $39.1 million. Cash used in operations for the year ended December 31, 2008 was $48.5 million. For the year ended December 31, 2008 we reported a net loss of $71.1 million or $1.02 per share, compared to a net loss of $58.5 million or $0.86 per share in 2007. For the fourth quarter ended December 31, 2008, we reported a net loss of $16.8 million or $0.24 per share, compared to a net loss of $15.7 million or $0.23 per share for the same quarter in 2007.

The increase in net loss in 2008 reflects the advancement of our development programs, primarily the cost of expanding clinical development of oral deforolimus in multiple cancers in conjunction with our partner Merck & Co. This net loss is below the range provided when we announced revised guidance for the full year during the fourth quarter of last year.

We have expanded our development activities for deforolimus as agreed upon in our joint global development plan with Merck, resulting in an increase in R&D costs in the fourth quarter and full year periods of 2008, compared to the corresponding periods of 2007. You will recall that our partnership agreement with Merck was signed in July 2007 and joint development activities began during the fourth quarter of 2007.

R&D expenses increased primarily due to initiation and advancement of several clinical trials for deforolimus and for our second product candidate AP24534, which is being studied in a Phase I clinical trial of patients with various blood cancers. Regarding deforolimus, the cost of development, including clinical and non-clinical studies, is shared equally between ARIAD and Merck, except for the cost of development activities required for ex-US countries, in which case Merck funds 100% of those costs.

Our general and administrative expenses increased in the full year period ended December 31, 2008, as compared to the full year period of 2007, due primarily to increases in costs related to certain corporate and commercial activities to prepare the company for planned commercialization of deforolimus, as well as ongoing patent litigation.

Now, let me turn to fiscal year 2009 and reiterate the financial guidance the company provided a few weeks ago, at the time of the JP Morgan Healthcare conference and as well detailed in the press release issued earlier this morning.

We are projecting cash used in operations for 2009 of $24 million to $28 million. Cash used in operations reflects the positive impact of milestone payments expected to be received from Merck during the year. Based on the potential initiation of certain Phase II and Phase III clinical trials of deforolimus, the company expects to receive approximately $50 million in milestone payments from Merck in 2009.

These include a $12.5 million milestone payment that the company already received from Merck earlier this year, related to the initiation of the Phase II clinical study of oral deforolimus in patients with advanced prostate cancer; a trial that began in the fourth quarter of 2008.

As well, it includes the $10 million milestone payment related to the start of a Phase II clinical trial of oral deforolimus in patients with non-small cell lung cancer that is expected to begin this quarter. Through December 31, 2008, we have received more than $100 million in upfront and milestone payments from Merck, reflecting the financial strength of this collaboration.

We also estimate that our net loss for 2009 will be in the range of approximately $78 million to $82 million, an increase of approximately $7 million to $11 million compared to 2008, reflecting development of product candidates and the deferral of revenue from the milestone payments from Merck in accordance with Generally Accepted Accounting Principles.

As Harvey mentioned in his opening remarks, we are operating in a challenging economic environment and therefore, we will continue to maintain strong financial discipline and prudent expense control in managing the company. We are actively assessing sources of incremental funding for our programs.

In terms of timing, we expect to bring one or more of these initiatives to fruition early this year. We are committed to further strengthening our balance sheet and ensuring that we remained well positioned financially to support our key business objectives for 2009.

Let me now turn the call back over to Dr. Berger.

Harvey Berger

Thank you very much Ed. Moving now to discuss progress within our core product programs, I will speak to a few slides that are now posted on our website as part of this webcast. For those who are going to follow along with this series of slides, remember that you need to advance the slides as we move from one to the other to the next, and I’ll give cues as to when we are moving from slide-to-slide.

The first slide that I will refer to is the focus on cancer, which follows an introductory slide and a forward-looking statement slide. Our focus at ARIAD is on cancer. The potential of our portfolio of cancer drug cuts across a wide spectrum of major solid tumors like breast and prostate cancers, as well as blood cancers such as CML and AML.

As we have stated, we are developing our drug candidates across these and other potential indications, but just as importantly, we are building a broad based cancer company driven by the strength of clinical scholarship and innovation of the products we discovered ourselves.

None of the products in our oncology pipeline are in-licensed. Our mission is to discover and develop novel targeted medicines for patients with cancer. All three products in our oncology pipeline fit this description.

Next slide; we set our objectives a year ago and delivered on each of them for deforolimus, for 534 and for our pipeline. We now have more than 10 clinical trials up and running in multiple potential cancer indications at leading cancer centers throughout the world. 2008 was a significant year for ARIAD in executing on these trials and now we are focused on enrolling patients, and completing the studies as quickly as possible so that these results can be presented at major oncology and other scientific meetings.

During the fourth quarter of 2008, we further advanced our efforts with the start of a Phase II clinical trial of oral deforolimus in patients with advanced prostate cancer. This is the third Phase II clinical trial of deforolimus to begin in 2008, evaluating the drug candidate in multiple different cancers, and the fourth when we include the Phase II clinical study of oral deforolimus in patients with advanced endometrial cancer that the National Cancer Institute of Canada, the NCIC, also initiated last year.

Before the end of the first quarter of this year, we expect to start another Phase II study of deforolimus; in this case in patients with non-small cell lung cancer. This placebo controlled randomized study will evaluate oral deforolimus in patients, with KRAS mutant lung cancer who have failed prior treatments.

Next slide; our approach to deforolimus is one of the comprehensive assessments of the safety and efficacy of deforolimus in a variety of cancers and clinical settings. At the heart of our strategy is assessment of deforolimus in multiple potential cancer indications, leading with sarcomas.

Over the past five years, nearly 1000 patients with 20 different cancers have received deforolimus in nearly 25 clinical trials conducted in 30 countries at 200 medical centers. Our extensive body of knowledge and experience with deforolimus to-date forms the basis of our development plans established with our partner Merck that takes us well into the future.

Next slide; ARIAD’s second internally discovered product candidate, 534, a multi targeted kinase inhibitor, is distinctive in its breadth, showing potential for the treatment of blood cancers and solid tumors. Preclinical data on 534 presented at the American Society of Hematology Annual Meeting last December, demonstrated complete inhibition by 534 of all known mutant variants of the target protein Bcr-Abl, including the T315I mutant that is resistant to all of the currently marketed therapies for CML.

The possibility of a potential new treatment for patients with CML who have failed both marketed and investigational therapies for this disease is generating a good deal of discussion on the Web on CML blogs. We expect that our investigators will be in a position to present the first clinical proof of concept data on this product candidate at a major medical meeting later this year.

Our scientists are experts in the design and characterization of small molecule drugs. Their skills and talent drive the productivity of ARIAD in developing a pipeline of oncology product candidates, each a product of ARIAD’s scientific excellence.

Next slide; in particular, deforolimus was developed after several years of working in the area of mTOR biology and related chemistry. 534 as I just mentioned, has shown broad potential, both in models of blood cancer and in solid tumors and importantly, our anaplastic lymphoma kinase or ALK inhibitor, the newest ARIAD product candidate that will enter preclinical studies this year, targets a unique genetic feature of cancer cells, just like 534 and (Inaudible).

This product candidate has the potential to regulate multiple cancer pathways and to change the treatment of patients with non-small cell lung cancer, lymphoma and neuroblastoma, among other cancers. We will have more data on our ALK inhibitor at this year’s American Association of Cancer Research meeting coming up in April; three product candidates, all novel small molecules and all derived from the internal discovery programs at ARIAD.

Next slide; our pipeline is robust with three promising oncology compounds, each in proven pathways, with multiple potential indications. This illustrates how we develop the indications with the highest likelihood of success and in turn the greatest transformative patient impact.

Next slide; as we look to 2009, we expect the year to be a defining one for ARIAD. This year we anticipate; first, completing enrollment in the Phase III SUCCEED trial, leading to the second interim analysis of efficacy of oral deforolimus; second, obtaining initial Phase II deforolimus clinical data in patients with endometrial and breast cancers; third, obtaining Phase I clinical data on deforolimus in combination with other targeted agents, such as bevacizumab, leading to multiple potential clinical indications and expanding the potential utility of oral deforolimus.

Fourth, presenting clinical proof of concept data for 534 at a major medical meeting, in patients with hematological malignancies; next, planning additional registration trials for deforolimus in 534 and setting the stage for their broader applications; and lastly, advancing our ALK inhibitor into pre-IND studies.

Next slide; the ARIAD we see in the future is growing, a fully integrated cancer company with a number of leading products in the marketplace and a diverse, robust, early and late stage pipeline, all products developed internally based upon clinical scholarship and scientific excellence. We see a company transforming the lives of cancer patients with breakthrough medicines.

Operator, please open the call up to questions. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Jim Birchenough from Barclays Capital. Please proceed sir.

Ryan Martins - Barclays Capital

Hi, actually this is Ryan Martins in for Jim Birchenough, thanks for taking my call. I was wondering if you guys could give us some additional color or update on the programs behind sarcoma, that’s the prostate, endometrial and breast programs.

Harvey Berger

What sort of information would you like? I’m not sure what you’re aiming for.

Ryan Martins - Barclays Capital

More in terms of what we can expect, in terms of timelines on data.

Harvey Berger

Well, what we just said and what is our focus is getting to be in a position to have initial clinical data, first in endometrial and breast cancer; obviously, that would be followed by the data in prostate and non-small cell lung cancer. The order is largely driven by when this trial started and the size of the trials, so our goal is to have at some point this year, the initial Phase II data with respect to breast for starters and endometrial cancer potentially.

We don’t expect the prostate or non-small cell lung cancer data in the near term, namely in this year, because those trials started either in the case of prostate in the fourth quarter of last year or in the case of non-small cell lung cancer just starting. So the two most advanced trials of those four Phase II trials are in endometrial and breast cancer.

There are two trials running in endometrial cancer, one a cooperative group trial run by the NCIC in Canada and the other run by ARIAD and Merck. The breast cancer trial is moving along well, as are all of these trials. So we will have data as soon as enrollment is far enough along and we are first focused in the first two trials that started initially.

Ryan Martins - Barclays Capital

Sure, and just another question related to the sarcoma trial. Have you already had the first interim analysis? I know it was projected sometime first quarter.

Harvey Berger

We’ll announce the results, information relating to the first interim analysis when it’s completed. It’s not been announced to date. We expect it to happen sometime in the early part of this year. It is driven first and foremost by the timing of events that is the time when patients in the trial, progress. Obviously, first it’s driven by enrollment that we have control over and enrollment in turn provides the basic data that can lead to a certain number of events.

What we said is that the first interim analysis will occur at roughly one-third of the projected total number of events for the entire trial, so one third for the first interim analysis, two thirds of the events for the second interim analysis, and then obviously all the events for the final analysis after all patients are followed to that point. So we expect the first interim analysis as planned.

Ryan Martins - Barclays Capital

Okay and in terms of shoring up the balance sheet, are you guys already in partnership talks; I’m guessing in terms of 534? How should we expect that progressing in terms of potential partnerships?

Harvey Berger

We haven’t made any comments about our plans to partner 534. We certainly wouldn’t consider partnering 534 on any terms less favorable to us than what we have for deforolimus with Merck, but having said that, we are as Ed said earlier looking at and assessing a series of options for incremental funding, obviously including business development activity and we expect to bring one or more of these initiatives to fruition early this year. We are right on track to achieve that.

Ryan Martins - Barclays Capital

And one final question if I may? You’ve outlined the data that could be presented at ASCR. I’m just wondering in terms of ASCO, what kind of data should we expect for ASCO this year?

Harvey Berger

We are really not providing any guidance at the moment on what to expect at the specific meetings other than the ones that we are sure of, which obviously is AACR since we know the abstracts were submitted and accepted. So we will provide additional guidance later in the year as we know what’s going to be presented at each of the meetings, including ASCO.

Ryan Martins - Barclays Capital

Okay, great. Thanks for taking my questions.

Harvey Berger

Sure.

Operator

Your next question comes from the line of Phil Nadeau from Cowen & Company. Please proceed sir.

Phil Nadeau - Cowen & Co.

Good morning. Thanks for taking my questions. My first is on the ongoing Lilly and Amgen litigation. Could you give us an update there?

Harvey Berger

Sure. These are two separate processes. The Lilly case relates to Xigris and Evista, and it’s in their infringement of our NF-KB patents and in Amgen it’s the infringement of embrel with respect to the same set of patents. Last Friday, February 6, the Lilly case went to appeal at the Federal Circuit in Washington.

The appeal of our favorable jury verdict was heard by a panel of three judges from the Federal Circuit and I think the appeal hearing went very well. Obviously, it’s impossible to read what outcome will come of that, but the case has been heavily briefed by both sides and we expect that we will have a ruling from the Federal Circuit with respect to the Lilly case in say three to four months from February.

Could it be as early as two months? Occasionally, it is. More often than not, it’s roughly a quarter, the time required for them to prepare their responses. So, we would expect a response from the appeals court on Lilly sometime during the second quarter.

Phil Nadeau - Cowen & Co.

Harvey, if that appeal goes your way, is there another level to which Lilly could appeal this?

Harvey Berger

Sure. Either side could appeal a decision made by the panel of three judges through what’s called an en banc hearing which would have all of the judges of the Federal Circuit review either all or a part of the ruling. So clearly there is, as a legal and procedural matter, a second level of potential adjudication of the issues being appealed within the Federal Circuit.

Depending upon the outcome of either the panel of three or the en banc decision, any Federal Circuit ruling is subject to appeal to the Supreme Court if there is a constitutional matter or if there is a matter of significant dispute that impacts upon policy or impacts upon the state of the law as it relates to fundamental matters of patent law.

As you know, the Supreme Court takes relatively few patent cases, even fewer biotech patent cases, so it’s impossible to predict whether either side would appeal to the Supreme Court and then whether the Supreme Court would accept sert [Ph], which means whether they would hear the case, but those are basically the steps in the appeal process that remain.

With respect to Amgen, the appeal of the Amgen claim construction, we expect to be heard in the second quarter of this year. We do not have a date yet; that’s just based on an estimate from when the briefs were filed and following briefs are due. So, we would anticipate that most likely during the second quarter of this year.

Again, the same caveats apply to what I said about Lilly and of course the Amgen proceedings are earlier in their history because we do not have a jury verdict like we do in Lilly where we have a favorable jury verdict in which ARIAD would receive approximately 2.5% royalty on sales of Evista and Xigris, dating back to the time the case was filed.

Phil Nadeau - Cowen & Co.

Okay, that’s very helpful. Then one last question from me and that’s on the milestones from Merck. It sounds like you have good visibility on at least the first two, one of which you’ve already received. Is there any risk that any of the other milestones get pushed out beyond this year? It does seem like you’re very dependent on recognizing those milestones in order to stay above zero on your cash balance through year end.

Harvey Berger

Sure. The very nature of milestones is that they are driven by events happening. Obviously, we’ve focused in on the first two which are quite firm, the second two as we point out and as Ed highlighted earlier, they are dependent upon starting certain Phase II and Phase III trials later this year and continued progress in the partnership.

We have every reason to believe that they will happen and that more than likely they will happen in the fourth quarter, but I can’t sit here today and say with absolute certainty that they couldn’t be pushed off into the first quarter of the following year or that they couldn’t be delayed. I mean, it is as you know driven by the success of the programs, by decisions that have to get made, but I will say that the trials that are tied to those milestones are in the global development plan; they are well thought out; they are not just us hoping for something good to happen, but rather very much a part of the jointly developed ARIAD and Merck global development plan, indication-by-indication. They are front and center of that jointly developed collaborative effort.

So we expect them to happen, but of course they are dependent upon events occurring and we see them as an important part of our funding plans, but most importantly and this is really the heart of the question, is the trials that they speak to are very much a part of the development program that Merck and ARIAD have bought into.

Phil Nadeau - Cowen & Co.

Okay and one more question if I may. Let’s just say that those two milestones were pushed out to next year; it seems by my back end of the math, you’d have a real cash crunch going into the second half of the year. Is that fair and if so, how would you fund the operations?

Harvey Berger

Well, I think I have to go back to what Ed said earlier and what was in our press release and what we said at our last call as well as this morning, that there are several additional sources of incremental funding and we expect to bring one or more of those initiatives to fruition early this year.

So I can’t stress that enough, that while our base plan has the uncertainties that you’ve identified, that doesn’t take into account plans that we have because we recognize that we need to be prudent and judicious in having the type of funding that is necessary to ensure that we are well positioned financially, not just in the next 6 to 12 months but going forward.

So, we have a plan, we’re clearly going to address your question by virtue of delivering on the initiatives that we expect to bring to fruition early this year.

Phil Nadeau - Cowen & Co.

Okay, thank you.

Operator

Your next question comes from the line of Eun Yang from Jefferies & Co. Please proceed.

Eun Yang - Jefferies & Co.

Thanks very much. Harvey, you mentioned that there are two Phase II endometrial cancers. Just looking at the clinicaltrials dot gov website, both of the trials for data collection will not be occurring until 2010, 2011 and I think I heard you say that there is an interim analysis in the trial that you and Merck are running, what is the interim analysis based on?

Harvey Berger

Well, what gets posted on clintrials dot gov is I think you know, but I’ll explain and go through for everybody, is the final date of full enrollment and full analysis. Those dates and that duration, the 2010, 2011, is the full scope of long term follow-up for the trial. So those dates that get posted on clintrials dot gov aren’t particularly helpful in really understanding the dynamics of data availability.

So we haven’t disclosed any more of the details of earlier looks at the data. These are Phase II trials. We will do that as we track enrollment and as we get closer to them. We are clearly committed to having some insights based on initial data as to the direction of the breadth and the endometrial programs later this year.

We’ll provide additional guidance at a later time on what the statistical and analytical approaches are to achieve that, but we haven’t disclosed any of those details yet, largely because both ARIAD and Merck feel that it’s really too early to do that.

Eun Yang - Jefferies & Co.

Okay. I was under the impression that the 150 patient Phase II in endometrial cancer, the patient enrollment would be complete in the second half of this year. Is that correct or is this our assumption?

Harvey Berger

We haven’t given I think any guidance on timing for complete enrollment in any trial other than the SUCCEED trial in sarcomas. Certainly, we expect to have some data this year that we can use to plan the endometrial program, but we have yet to provide timelines for full enrollment.

Eun Yang - Jefferies & Co.

Okay. The last question is on the SUCCEED trial. We were under the impression that the first of built-in interim analysis would occur in the first quarter of this year and the second analysis would be in the fourth quarter of this year. I know that you mentioned the first one is based on one third of events, and the second one is two thirds. Is our assumption inline with your expectations?

Harvey Berger

Generally, yes. What we’ve said is we expect the first interim analysis to occur early this year, first quarter. We can’t know exactly when the first interim analysis will be, because it depends on when the events take place.

Once we have a third of the events and we haven’t disclosed whether we are there or not; but once we hit a third of the events, that then triggers a very clear analysis of the data driven by the drug safety, the Data Monitoring Committee, the DMC, because we don’t have any participation nor does Merck, in the analysis of the data for the first interim analysis. The data are entirely blinded to both companies since everybody is working on the trial, so it’s only the DMC that will have access to the event data and the Kaplan-Meier curves that will be generated among other statistical tools.

So early this year is correct. We expect for the second interim analysis, that full patient enrollment will occur by projection sometime during the fourth quarter. That’s our current target. So again, the exact timing of the second interim analysis, relative to the last patient being enrolled, is at the moment still out of our control, but we are estimating it to be roughly at the end of the year.

Could it be in the early part of the first quarter of next year? Could it be in the latter part of the fourth quarter of this year? Sure. It is impossible to know until those events happen and you have to literally wait. It’s that very last event that takes the last patient, the two third event number, that patient happens to be, let’s say a drug patient and happens to take a while; you have to wait for that event to occur.

So there are very specific thresholds based upon the progression events in the trial; but yes, your basic analysis or basic projection, that we will have the first interim analysis done soon and the second interim analysis around the end of the year into the early part of the following year, based on full enrollment in the fourth quarter, is exactly where we are.

Eun Yang - Jefferies & Co.

Thank you very much.

Operator

Your next question comes from the line of Cory Kasimov from JP Morgan. Please proceed.

Mona Ashiya – JP Morgan

Hi, good morning. This is Mona for Cory actually. Two questions, one following up on Phils question earlier. Can you provide a bit more clarity on what potential sources of additional funding are on the table; what options you might have? Yes, go ahead.

Ed Fitzgerald

Mona, this is Ed. At this point in time, we do not wish to comment any further about the details of those, but we are very focused on several different alternatives and again, we expect to bring one or more of those to fruition very quickly here.

Harvey Berger

Certainly, business development is part of the mix, but what we do and when and the exact order of things, we are just not going to disclose anything more yet.

Mona Ashiya – JP Morgan

Okay and then just a second question, also relating to financing and that is, your agreement with Merck, I understand you have the option to have $200 million in advance of development costs. I just wondered if you can remind us at what point can you draw on that and what is the interest on that, if you can.

Harvey Berger

The development funding line, as we’ve disclosed in the past, we would envision, based on our ongoing expenditures and ongoing costs in the deforolimus program, we would be in a position to trigger that loan or development funding advance towards the end of next year, based upon the current terms of the agreement.

We, in order to access the $200 million, call it a line of credit; we need to have spent a minimum on our part of the development programs, $150 million. We expect to be at that roughly at the end of next year and we would need to have first approval of deforolimus and indications such as sarcomas. So that too we would envision occurring in the latter part of next year, which is why based on the current structure of the partnership, would be able to access the line by roughly fourth quarter of next year.

Mona Ashiya – JP Morgan

Great, thanks so much.

Harvey Berger

Ed, do you…?

Ed Fitzgerald

That’s fine. Very accurate Harvey.

Operator

Your next question comes from the line of Terence Flynn from Lazard Capital Markets. Please proceed.

Terence Flynn - Lazard Capital Markets

Hi, good morning. Thanks for taking the questions. I’m just wondering on the 534 trial, if you can provide us with an update on enrollment perhaps and maybe the number of CML patients with the 315I mutation. Then the second question related to that trial, just I know it’s a dose escalation trial, but just maybe if you could provide us with the number of dosing cohorts that you are through or have completed to date? Thanks a lot.

Harvey Berger

All very good questions Terry, but unfortunately none that I’m going to be able to say much about. We just haven’t provided the details. I guess what I can say at a top line is the trial is moving ahead very well. We are generating lots of interest by patients and investigators. We are enrolling quickly and promptly. We are having no problems whatsoever enrolling patients in incremental doses and we expect to have clinical proof of concept data on 534 in various forms of resistant refractory CML for presentation in the second half of this year.

Again, remember this product has some important virtues. It’s likely to be a once-a-day oral product; that’s certainly the way it’s being studied to date. It’s not IV, as many of the other products in this field are. We believe it will have quite a substantially different safety profile from other investigational drugs that have been pursued in this area. We believe that it will be distinguishable, both in terms of safety and efficacy and mechanism, from many if not all of the other drugs in this area of resistant refractory CML and it also has a potential for efficacy and utility in patients with AML.

So it’s really an incredibly exciting time for this compound and for seeing how this is going to play out in clinical development and all of that hopefully bodes well for moving to a registration trial, a pivotal trial of this agent very quickly.

Terence Flynn - Lazard Capital Markets

So, the second half ’09, so ASH is a better expectation as opposed to ASCO?

Harvey Berger

Yes.

Terence Flynn - Lazard Capital Markets

Okay, thanks a lot.

Harvey Berger

Or there are other meetings. I would add there are other meetings that focus on hematologic malignancies in the second half of the year and so while we will certainly aim for ASH, you shouldn’t assume it will only be ASH.

Terence Flynn - Lazard Capital Markets

Okay, so we could get top line data earlier than the ASH abstracts come out?

Harvey Berger

It’s too early to say.

Operator

(Operator Instructions) Your next question comes from the line of Howard Liang from Leerwink Swann & Co. Please Proceed.

Howard Liang - Leerwink Swann & Co.

Thanks very much. This is just regarding the two additional Phase II and Phase III trials tied to the remainder of the $50 million milestone that you’re expecting from Merck. Is the start of these two trials dependent on data from ongoing trials or is it just a matter of agreeing on a trial design, getting the sites up and running?

Harvey Berger

Well, as you know, all of our clinical trial related milestones are triggered by enrollment of the first patient. So being consistent with what has triggered the milestones that we’ve already received, the trial milestones that make up the second half if you will, of that $50 million relates to one or more trials and there’s some possibilities as exactly how that will play out, one or more trials, and them triggering the milestones based on first patient enrollment.

So we’ve already agreed with Merck in large part what those trials will look like, how those trials are designed. There’s plenty of time between now and the fourth quarter of this year to fine tune that. So yes, it is partially data dependent; it is partially dependent upon agreement on final protocol, it’s partially dependent upon regulatory feedback, but we are nine to ten months before the middle of the fourth quarter.

We have a lot of work to do between now and then, which is why I answered the earlier question that, sure, those milestones are dependent upon us achieving what we laid out to do during this year, but just as last year, we really have been marching along a path executing on each and every one of the trials together with Merck, so it’s very unified.

In a lot of partnerships with Big Pharmas, there’s a lot of tension between the partner, the big company and the biotech company, so that there is misalignment frequently as to what they’re going to do and when it’s going to happen. Here, there is complete alignment at the senior levels, R&D management, medical clinical management of ARIAD and Merck, as to the next steps in the global development of deforolimus.

Based upon the rather unique features of our collaborative agreement, we are both aligned to make sure that deforolimus succeeds and while these milestones are important to us, I would argue that they are immaterial with respect to the focus of the partnership. What we and Merck are focused on is how do we make deforolimus a huge success with making it one of the leading best-in-class drugs in oncology. That’s what’s driving the timing and decision-making.

So, Merck is as motivated, I would argue, as we are to get things started faster, sooner and better because they want to win just like we do. I think we have the foundation for extraordinary success based on this clinical development program that’s jointly decided upon by the two companies.

Howard Liang - Leerwink Swann & Co.

Okay, so it sounds like the decision has been made, for example, to start the Phase III. It’s not dependent on data readout from ongoing Phase II stuff here to characterize it?

Harvey Berger

No. As you know Howard, it’s always dependent upon the state of the data at the time you start the trial. So there is clarity with respect to the direction we plan to go, but early readouts of data, which could be as simple as a few responses here or trends there or significant or positive results in the trial or one or more trials; it’s a composite of many things put together.

Have we made decisions as to what direction to go? Yes, but nobody is going to start a Phase III trial, disregarding what they know at the time they start the trial. So the answer to your question is yes and no. The decisions have been made, but they remain contingent upon success and execution.

Howard Liang - Leerwink Swann & Co.

Great, thanks. I have a question regarding the Phase II that you are starting in lung cancer, in patients with KRAS mutations. Can you talk about the rationale for that trial and the design?

Tim Clackson

Howard, this is Tim. I can briefly comment on that, and then also comment that there’ll be more clarity in one of the presentations that we now know we’ll be making at AACR on that subject; but in essence, the choice to go there is based on a combination of the unmet need for that patient population and some validating scientific data that the partnership has obtained and as I mentioned will be presented.

Harvey Berger

We’ll be making another announcement about the KRAS lung cancer trial soon, when the first patients enroll; that’s not far off. The trial is posted on clintrials dot gov, so the basic design of the trial is certainly public information, but we’ll provide additional guidance on that trial shortly, when that trial begins enrollment. So there will be an opportunity then, as well as at the time of AACR, to provide further guidance and rationale for the trial.

Howard Liang - Leerwink Swann & Co.

Could you maybe just talk about the addressable market for this study? I think, in lung cancer KRAS mutations, it does not occur as frequently as in colorectal. Can you just talk about the overall size of the market?

Harvey Berger

I’m not sure Howard; any of us are prepared to give you those numbers now, largely because I don’t think I have them at the tip of my fingers. Certainly, if you want to follow up with us on some of the markets, I’ll be happy to have Matt talk with you about it, but it’s just not a set of numbers I have off the top of my head.

Howard Liang - Leerwink Swann & Co.

Okay. Thanks very much.

Operator

This concludes our question-and-answer session for today’s call. I would now like to turn the call back over to Dr. Berger for closing remarks.

Harvey Berger

Thank you very much to all of our participants for joining us on this morning’s call. We look forward to hearing from you if there are any follow-up questions and continuing to report on our progress throughout this year. This is going to be an exciting time. I think we’ve laid the foundation this morning for an extremely productive and transformative year and look forward to reporting again at our next quarter. Thank you.

Operator

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

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Source: ARIAD Pharmaceuticals Inc. Q4 2008 Earnings Call Transcript
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