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Flamel Technologies S.A. (NASDAQ:FLML)

Q4 2008 Earnings Call

March 05, 2009, 8:30 am ET

Executives

Stephen Willard - CEO

Siân Crouzet - Principal Financial Officer

Rafael Jorda - COO and EVP

Analysts

Matthew Kaplan - Ladenburg Thalmann

Peter Butler - Glen Hill Investments

Tom Weisingborne - Credit Suisse

Operator

Hello, and welcome to Flamel Technologies Fourth Quarter 2008 Year-End Earnings Conference Call. Your host for today's call is Stephen H. Willard, Chief Executive Officer of Flamel Technologies. Mr. Willard, please begin your call.

Stephen Willard

Thank you very much Christy. Good morning ladies and gentlemen. We opened as always with the forward-looking statement language, which is set out at the conclusion of yesterday's press release.

All statements made on this call are subject to a variety of future events and risk factors including those set forth in our filings with the SEC, particularly our Form 20-F, which are all publicly available. Please review them, as they are directly applicable to every element of this call.

2008 was a very strong year for Flamel Technologies as we made significant progress in four key areas; financial strength, pursuit of new opportunities, diversification, and continued innovation.

I would briefly like to review the fourth quarter highlights and recent developments. During the fourth quarter in particular Flamel signed two new feasibility agreements. The first was for the delivery of therapeutic vaccines, and we signed with a company with whom we are now pursuing multiple projects. We feel that therapeutic vaccines are a promising application for the Medusa technology that could showcase the ability of Medusa to increase efficacy of a wide variety of classes of therapeutic agents. The second project in the fourth quarter is using the Micropump platform for a combination product. We believe Micropump is particularly well suited for the delivery of combination products when compared to other controlled release technologies.

The second important event is the decision this past month by Merck Serono to exercise an option to license the Medusa platform for use with one of their already marketed molecules. This came after more than one year of close work between our two companies and triggered a 5 million euro upfront payment. We are pleased with the work that we have achieved since the original agreement was signed in December 2007. As you know we have many other feasibility studies that we have entered into before and since then, including the two I just mentioned.

We believe that these other feasibility studies conserve as future catalyst for the company to execute full license agreements with the upfront payments, development revenues, milestones and royalty, that such agreements typically entail.

And finally, in this uncertain financial time, we have maintained our strong cash position. The company finished 2008 with $37.1 million in cash and marketable securities, compared to $41.1 million at the end of 2007, a difference over the year is only $4 million.

Our solid financial position is an important factor for the company, to negotiate further licenses for our technology with existing feasibility partners as well as with new partners.

I would now like to ask Siân Crouzet, the company's Principal Financial Officer to discuss our fourth quarter and full-year financial result. Siân.

Siân Crouzet

Thank you, Steve. Good morning everyone. I would like to take you today on the drivers behind our financial achievement for 2008. Over the past 12 month we have made significant in ways into both reducing our losses and reducing our cash flow. Two, significant achievements despite a challenging external economic climate. This is cost of three year trend in which we have increased revenues, cut costs, reduced net losses and preserved our strong financial positions. The reduction in our losses over the past year is driven by three key factors. Firstly revenue, the diversification of the nature and force of our revenue across multiple projects and multiple customers has enabled us to achieve well balanced revenue stream, between license and research revenues, product sales and royalties. This is to be compared with 2007 where more than 50% of revenues were dedicated to the [fair] product to GSK.

The increase in royalty revenue and license and research revenue has significantly contributed to the improvement in the bottom line due to the quality good nature in such earnings. It should be highlighted that the increase in license and research revenue has been achieved on a reduced R&D cost base, further benefiting contribution. Our objective is to continue to be silent in 2009.

Now operating cost. As of the last quarter of 2007 we have bee prioritizing expenditures in order to bring our cost base increasing in line with our revenues. The remarkable decline in operating cost is $19 million is both a direct result further need to align our production cost without getting demand, but equally our commitment to closely control, monitor and prioritize SG&A and R&D expenditure.

Our R&D efforts over the past year have been focused on early stage on pre-clinical program, compared with an ambitious clinical program in 2007. In addition, with a multiplication as a number of feasibility agreement, R&D efforts are increasingly sponsored by external partners. These feasibility agreement and projects advanced to later stage development, naturally we will need to invest further in our R&D. That said, our commitment is to ensure that revenues drive any increase in operating cost.

We continue to invest in early stage R&D to enhance both technology platforms and we are committed to both our internal and external programs which are key for the on going future success of the company.

This FAS 123 are non-cash charge for the fourth quarter amounted to $2 million and a total of $8.3 million for the full-year. The last element impacting a reduction in losses is the R&D tax credit. The particularly attractive tax legislation adopted by the French government to encourage R&D investment has far reaching financial impact for the company like ours. Thanks to this we have recorded an R&D tax credit for 2008 for $7 million compared with $2.3 million in 2007.

Finally, I would like to take you on our cash position and in particular the cash burn rate. With $37.1 million of cash and marketable securities at the end of December our cash balance, however, reduced by $4 million over the past year.

However, with the majority of our cash and marketable securities being held in euros, the strengthening of the US dollar against the euro during this period had a negative impact. The exchange rate has moved from $1.47 at the end of 2007 to $1.39 at the end of 2008.

In the absence of this unfavorable movement our real cash burn for 2008 was $1.8 million. This remarkable performance has been achieved from both the strategy adopted on revenue and expenses as discussed previously, and equally from an opportunity for us to receive some (inaudible) in advance relative to R&D tax credit. These funds was normally had been paid to us by the government over the next 3 year's.

Clearly, the turnaround in our financial results for 2008 demonstrate the benefit of the strategy we have been adopting. We have thought to diversify whilst prioritizing our expenditure enabling additional quality revenues to be achieved prior to making any growth in our cost base.

We intent to pursue this strategy in 2009 and support our partners as our program progress into later stage of development. The strengthening of our financial position is encouraging as we look into the future and particularly in light of the current economic context.

I will now pass it back to Steve.

Stephen Willard

Thank you very much Siân. The recent decision by Merck Serono to exercise their option to license the Medusa platform for use with one of their already marketed therapeutic protein, marked an important inflection point for the company. The company has now entered into more than a dozen Medusa feasibility agreements over the past two years.

We are very pleased with the results of the work Flamel scientist have achieved in working on these projects. A number of these are now substantially complete and nearing decisions as to whether or not to move to the next step.

These projects represent potential catalyst for the company which we expect could be very important during the coming year. We are pleased that we have successfully diversified our programs into a number of different areas. These include oncology, cardiovascular disease, therapeutic vaccines, ophthalmology, and pain management among others. We are especially pleased with the interest that we have received regarding the possibility of applying Medusa to new types of molecules, such as next generation antibodies that may offer important therapeutic advantages. But that present drug delivery problems which Medusa addresses.

SIR&A is another area where Medusa may assist in the effective delivery of those therapeutic agents where they are needed in the body. What is exciting to us is the recognition that Medusa is a cutting edge drug delivery platform that has potential applications to new classes of therapeutic agents in development. And the fact that the Medusa polymer has already been manufactured at commercial scale and tested in over a 100 clinical subjects is an important point to consider as well.

We are getting new projects because we improved technologies with which we compete are often not applicable to the new therapeutic molecules. Competing technologies typically involve some form of chemical modification. The major advantage these chemical modification techniques offer and versus immediate release therapies is to reduce the number of injections per patients, however, side effects is still relatively high.

Also even for those molecules which are amenable to chemical modification process, there is a strong diminution in the bioactivity of the therapeutics being delivered. Medusa is different because we are not working to reengineer individual molecules. We have a platform that can be used to deliver a range of molecules without altering the molecules themselves.

Furthermore, the production conditions for Medusa drugs are very gentle and do not involve harsh chemical conditions, where extremes of temperature which is important when working with [fragile] proteins. This is another limitation of many competing technologies. Medusa nanopolymers comprised fully biodegradable and biocompatible grafts materials that’s generally recognized as safe material. And which are all commonly used.

We believe that Medusa has many advantages versus competing technologies, one, in terms of safety and efficacy. Two, because the technology is capable of delivering fully active biologics that have not been [donated]. And three, because of other factors that limit technologies such as the loading ratio advantage of the Medusa micro particulate technology.

These benefits create a great amount of value for our partners, Medusa appears to be applicable to every molecule that we have worked with so far, because it uses a self assembling nanopolymer that bonds with therapeutic peptides, proteins and other molecules through hydrophobic interaction. The platform is especially attracted commercially because it offers partners a off the rack solution for controlled release of target molecules.

The Medusa platform offers other advantages in terms of better drug formulations which can translate into therapeutic, safety and dosing benefits for patients. For our partners this can mark difference between their drug being commercially viable with our technology versus not making it to market with other.

I think that the reasons to enjoy such success attracting partners to the Medusa platform are the following. One, Medusa appears to be widely applicable, the work we had conducted to-date shows the Medusa platform is potentially applicable to proteins, peptides, therapeutic vaccines, novel large molecules and in other formulations that have not been successfully adapted using chemical modification.

Secondly, because there is no covalent bond, there is no loss of bioactivity. Proteins and peptides tend to work like a key in lock. Many competing methods for the controlled release of proteins and peptides involve the creation of chemical bond which inevitably means that the shape of the key being delivered is altered resulting in the loss of reduction of bioactivity.

Three, we believe that we can control the pharmacokinetics using the Medusa platform more effectively. This is especially important on addressing molecules that have peak dose related side effects such as Interferon-Alpha this is why we believe that Medusa potentially allows for the creation of safer more effective drugs.

And finally, our system is cheaper as well, not just because 100% of the molecule being delivered as active but also because the formulation itself is a simpler process and does not involve chemical modification.

As I mentioned, we now have more than 12 Medusa feasibility programs. We have multiple Micropump projects as well. Many of the remaining programs are well advanced or are substantially completed such the potential catalyst could develop over the coming year. We have been extremely pleased that we have not had any projects halted because of inability to achieve the projects goals despite the variety of molecules we have worked out.

As we go forward during the year, we expect that a number of these programs believe that go forward be dropped or be replaced with success or molecules. Our goal is to maintain a fairly steady number of feasibility programs in our pipeline to re-price the program that are licensed or which don't move forward.

We currently are in discussions for a record number of new feasibility programs based on the success of our previous work and I am very pleased with the interest that the platform is receiving. Over the course of the year, we hoped to be able to share more announcements of the sort that we published last month with respect to the Merck Serono program.

When a company takes a license what it means to Flamel is that we can expect an upfront license fee either pre-negotiated at the time of the feasibility study or based upon negotiations conducted after proof of concept has achieved.

Development cost for the program including a typical step-up and reimbursed full time equivalent, which are our scientists are borne by the partner. To-date, for example, we have invoiced over $13 million from the Merck Serono program alone. Of which more than half will be reflected in our cash balance sheet going forward and is not part of our excellent year-end cash position at the conclusion of 2008.

We also negotiated a milestone schedule based upon clinical and regulatory achievements over the course of the development program as well as royalties to be paid un-failed of the molecule. This shows how we can achieve important financial result far ahead of a product reaching the market this model is very efficient as that allows us to develop multiple long-term opportunities for the technology will be in funded by our partners.

Last quarter, for example, our net loss was approximately $700,000 excluding non-cash compensation expense. It doesn’t take much to tip the company to a cash flow positive stands. For the year 2008 the XFAS 123R loss was less than the typical upfront payment we received from a typical partner on any major new license agreement. There are a number of catalysts we see based on the data that we have generated in our feasibility studies, which could have a substantial result rather a substantial effect on our results for this year.

We are well positioned to negotiate deals based on the prudent model we have pursued over the past few years. We have a strong foundation with $37 million in cash and marketable securities as well as a record number of feasibility programs in development.

Our discussions to license these existing feasibility programs are ongoing and we look forward to updating you about developments as they unfold. This is also an opportunity for me to welcome the newest member of our management team, Jeff Vick, who joins us as Chief Business Officer. Jeff most recently served as the Chief Executive Officer of Silence Therapeutics, a leading European RNA interference company. Jeff received his MBA from Stanford University and he is Master of Science in Biochemistry from the University of California in San Diego. He has over 20 years experience in the biopharmaceutical industry having worked with Senior Management of biotechnology companies including in the area of drug delivery and also has performed research in oncology and autoimmune diseases.

We believe Jeff will be a great health not only in further developing the opportunities that we have created over the past couple of year's, but also in discovering new opportunities with new and existing partners.

In addition to our work with the partners, we continue our ongoing research and development as this is a crucial element of our business model. We have made substantial progress to advance both the Medusa and Micropump platforms over the past year.

The innovations we have made are the subject of recent patent filings and we expect to file several more filings in the months to come. Both Medusa and Micropump are best in class platforms that offer important advantages to our partners, which is why we continue to attract new opportunities for both platforms. The projects that we will attract over the coming years will incorporate the advances we continue to make on these platforms. These advances will enable our partners to offer greater value added to patients in terms of efficacy, safety and potential cost savings. And of course, improved intellectual property, benefits return on investments for our partners and ultimately our shareholders as well.

As we look forward to the coming year, we are mindful of the economic environment that we expect will affect us for the foreseeable future. Many believe that this current cycle began accelerating in a downward way last September. Since then, however, we have signed four new feasibility agreements, two for Medusa and two for Micropump. We currently are in discussions for an unprecedented number of new feasibility agreements to work on both novel, and already marketed molecules.

I attribute this to our now established reputation as a nimble, technologically advanced solution provider for the biotechnology and pharmaceutical industry. We are ready and able to solve problems for large R&D organizations that create great value while avoiding large fixed costs for our partners.

This model has involved a great deal of hard work on the part our scientists who continue to work to improve our technology platforms. We are just beginning to reap the fruits of the work our team has performed this past three years. The diversified opportunities that will serve as the foundation of our company's growth going forward were created at relatively low cost. We intend to continue offering innovative solutions to our partners and are greatly looking forward to maintaining a pipeline of early stage partnerships going forward to be able to ensure a certain percentage move forward into further development, which entails upfront fees, greater reimbursed R&D revenues, milestones and eventually royalties to us if and when the products are approved.

These are tremendous potential catalyst for our company of our size, with only 24 million shares outstanding and no convertible debt and other overhanging obligations. The value that we are creating for our partners and our shareholders will, I expect, become far more visible in the coming year. I am extremely proud of the work that our scientists have accomplished, and they have earned a justifiably high reputation with their counterparts of partner companies.

Based on all of this, we believe 2009 will be a great year for us. With that, we will now take your questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Your first question comes from the line of Matt Kaplan of Ladenburg Thalmann.

Matthew Kaplan - Ladenburg Thalmann

Hi, Steve. Good morning.

Stephen Willard

Good morning, Matt. How are you?

Matthew Kaplan - Ladenburg Thalmann

Doing well. Thank you. Thanks for taking my questions. First off, congratulations on getting the license agreements solidify with Merck Serono on getting the upfront payment of 5 million euros. Can you give us a little bit more color in terms of the maturation process, lets call it the current license agreements, and specifically looking at a couple of things, you touched on this during your opening remarks, but when do you additional milestones coming from the other feasibility studies and agreements, are these things near-term. And then a second part of that question and a little bit longer term when do you think you could have the next new either product to market using Medusa or Micropump technology?

Stephen Willard

Sure. First of all thank you for your congratulations on the 5 million euros. I think that is simply as I mentioned in my remarks an important piece of the relationship on that one project alone, we have invoiced more than $13 million in total. And so there is a lot of, while people look at sort of the big numbers, there is a lot in addition to the big milestone payments that pay our bills and lead to the stronger and stronger financial results that we have been able to achieve over the past two or three years.

With regard to other milestones as I said in my remarks, we have been working very hard over the past couple of years to increase to 15 to 17 whatever partnered programs. And these programs have been in development for some period of time if you were to look, for example, at the corporate presentation that Flamel has on its website, you will see that a year-over-year comparison from March of 2008 we had two projects at the end of March 2008 that were in preclinical or beyond, we now have 15. And so you can see graphically from that presentation how our projects have moved forward and obviously as we get into pre-clinical and beyond the chances of milestones and further beneficial commercial turns increased substantially. So, as I see 50 in projects now in pre-clinical or beyond, the opportunity for catalysts is certainly considerably better than it has been as recently a year ago.

And then to your final question, which gets to products on the market and royalties, we do have a very diversified set of projects ranging from over the calendar projects to full NDAs. I think if I were try to aggregate it and give a clear answer, I would say probably we could have products on the market and delivering royalties in 2011 for Micropump and a bit later maybe 2013 for Medusa.

Matthew Kaplan - Ladenburg Thalmann

Great. And just a follow-up question, what the visibility that you have from the milestones and how your business model works right now with all of the feasibility agreements. Do you think, you are very closed to reaching, I guess kind of cash flow positive state in the fourth quarter as you mentioned with a loss of just $700,000. Do you think 2009 could you be, let's call it cash flow positive based on just these base business of partnerships.

Stephen Willard

Yes, I think what we can do, at this year to talk about what we have accomplished and then give an idea of our confidence that we can continue to trend. For example, if you look at 2007 we cut our losses by more than two-third, we have continued to have success in cutting our losses. We managed to have as Siân pointed out, roughly the same amount of cash at the end of 2008 as 2007, $1.8 million of actual cash, and then some exchange rate fluctuations.

I think we have earned a reputation over the last two or three years for being able to make substantial improvements with regard to the bottom line and to our cash position and I am hopeful even in this uncertain economic environment that we will be able to continue on this trends going forward. And as you point out, we are not that far away. Its going to depend on economic factors, but again, I would like to highlight what I mentioned before which is, despite the economic difficulties particularly over the past six months, it hasn’t stopped us from signing four new partnerships and we except more of it in the months to come.

Matthew Kaplan - Ladenburg Thalmann

Thank you.

Stephen Willard

Thank you, Matt.

Operator

Your next question comes from the line of Peter Butler of Glen Hill Investments.

Peter Butler - Glen Hill Investments

Good morning.

Stephen Willard

Good morning, Peter.

Peter Butler - Glen Hill Investments

Regarding these feasibilities studies, what is the total number of them? Did I hear 15? And how many are Medusa versus how many Micropump? And I assume that all of these are either on existing drugs which have to be blockbusters or new entities that the partners think will have to be blockbusters. So, I was wondering on the drugs that are in fact commercial now, what is the aggregate sales on these existing drugs. And when these entities finally gets at the commercial stage can we assume that you are going to get something like 8% to 10% royalty on Micropump and 10% plus on the Medusa? I know it's a multipart question but could you take a shot at some of those?

Stephen Willard

I will do my best Peter. First of all, if I remember correctly you were asking for exactly what are the numbers with regard to our various projects?

Peter Butler - Glen Hill Investments

Yes.

Stephen Willard

And I would encourage all of you to keep a close eye on our corporate presentation which can be found on Flamel Technologies website. Slides 29 and 30 of that presentation of where we frequently update our projects as they come in. You can also see if we were to lose projects although unfortunately that’s far we have not had that recently. Currently, as you will on slides 29 and 30 that we have 14 ongoing Medusa visibility partnerships, and the total of 18 in the aggregate which means there is 14 Medusa and 4 Micropump.

With regard to the potential of these drugs we are working on the variety of different things obviously with 18 different projects, many of them are currently, well a good number of them are currently blockbuster drugs which means $1 billion of sales or more. Others are new chemical entities where we can't begin to guess what the alternate sales will be, although they are important products for a potential product for our customers. And others are over-the-counter or other things which are currently sold and those are in the hundreds of millions but not quite blockbuster. So, when you begin to get up to 18 different programs you get variety of different results, but all of them I think individually could contribute significantly to our goals of continuing our success over the past two to three years of strengthening our company and preserving our strong financial position, as well as showing and extending on the strength of our scientific technology.

And the final question was with regards to if I remember correctly, with regard to what’s our going rate with regard to both Micropump and Medusa?

Peter Butler - Glen Hill Investments

Yes.

Stephen Willard

As I have said previously on conference calls and it hasn’t changed, I think that Micropump in it’s current form is something where we provide significant advantages but it will do have alternatives. And so single-digits royalties going up to potentially low double-digit royalties is probably the best that I think we can expect for the average projects, there are exceptions, of course, but I am hopeful that if our scientists are successful in some of their efforts to enhance the technology then we would be able to adjust that pricing upwards.

With regard to Medusa for the reasons that I discussed in my remarks at the beginning of the conference call, I think we offer a very substantial differentiation from other delivery systems that are available and so our prices are higher with regard to Medusa.

Peter Butler - Glen Hill Investments

Okay. Good. Thank you. On a separate subject, why is Mr. Jorda so shy. I heard great things about in the industry and but we never hear from. He is just shy, he should say a word every once in a while?

Stephen Willard

Okay. Well, I will give you that word. Although, candidly he and I need to sort of spilt things up and he is so busy looking after so many elements of our company that I thought that having him participate extensively would not the optimal use of his considerable talent. However, to satisfy you that he does exist, Peter, Rafael how would you care to word or two?

Rafael Jorda

Yes, sure. Hello and thank you for the compliment. I am here and I am not so shy and for me the possibility and opportunity to answer any question I will be delighted to do so, but as you had seen in these areas actually doing a great job. So, I don’t think he needs me a lot of time in this area of communication, but if it's needed then I am here and no doubt about it.

Stephen Willard

That we convinced you he exist Peter.

Peter Butler - Glen Hill Investments

So, he is okay.

Stephen Willard

Yes. He looks fabulous. Can we move on?

Peter Butler - Glen Hill Investments

Okay. Last question. Again it’s a complicated question but where do you see Flamel two years from now?

Stephen Willard

I think in the next two years it could be incredibly exciting. We had needed to make a lot of changes over the past three years discussing quarterly with you and our shareholders. You are aware of the development of the uniform polymer running it through [full tox]. And our efforts then to convince partners about the flexibility, our ability to sign up 18 new deals, but I think as I said in my earlier remarks just beginning to scratch the surface. I think we now have a lot more data pre-clinical and clinical data on our two technology platforms. We have developed relationships with seven out of the top 20 pharma companies and I think that will be increasing, I am very confident it will be increasing as we go forward. We have done so much hard work over the past two to three years. And I think we are just beginning to enjoy the fruits of it.

I think the next two years could really begin to show the tremendous potential both scientifically and more importantly financially of all of the work we have been doing in the past three years.

Peter Butler - Glen Hill Investments

Okay, sounds good. Thank you, Steve.

Stephen Willard

Thank you, Peter.

Operator

(Operator Instructions). Your next question comes from the line of Tom Weisingborne with Credit Suisse.

Tom Weisingborne - Credit Suisse

Good morning gentlemen.

Stephen Willard

Good morning, Tom.

Tom Weisingborne - Credit Suisse

Steve I was wondering if you could take a moment to talk a little bit more about the technology and particularly Medusa. I noticed, I am looking at your corporate slides that using ubiquitous polymer you are increasing load capacity longer duration, flatter release profile and some of these are obviously very attractive to the companies you are partnering with. But can you tell me what sort of increases in that platform or additional benefits you have developed in the Medusa as its grown on your platform over the last several years I mean how much better is Medusa today than it might have been say three years ago.

Stephen Willard

Okay. Well first of all it is materially better because it is now a single polymer, you will recall that in the past years ago we had library of polymers and the problem was that we didn’t have a tox package on any of those polymers that was sufficient to take people through to late stage clinical trials and beyond. We now by identifying and developing a single polymer and getting a full tox package for it has created a backbone that has tremendous applicability to a wide range of molecules that’s the first real benefit.

A second and third benefit are some of things that I talked about in my remarks. I mean for example, with regard to peptide delivery and again depends on the molecule, loading is an incredibly important factor, you need to be able not to only the [test] peptides but also to deliver them in a substantial quantity, which isn't possible or is very difficult with the natural peptide themselves. And we have been able to successfully not only stabilize peptides and other molecules, but also increase a very significantly loading capacity for example, which makes the chances of these peptides much greater in terms of therapeutic benefit.

We have proven it in man on a variety of different clinical trials. I talked about the safety package. We have, in the last two or three years, proven its applicability to a wide variety of different molecules. You will remember that, two or three years ago, we had experience only in proteins, and now we are out to proteins, peptides, therapeutic vaccines, fragments, antibodies and lots of different things which just we had no experience on two or three years ago. And so that, in summary, are some of the changes I think that we have seen over the past two or three year. Let me just briefly turn it over to Rafael to see if he would like to add something.

Rafael Jorda

Yes. Thank you, Steve. In addition of what you say which are the improvements with from this year and the last year or so, there is another area where there is a lot of very important today in the development of biomolecules, which is that the formulation and the one that you talked about formulation I mean (inaudible) formulation is really necessary in order to achieve the therapeutical objective. So, that’s means in a lot of the programs that our partners are developing new molecules, we are involved at early stage, and the point towards that by a molecule to our technology in order to have the right formulation and to achieve the right therapeutical treatment so that needs the drug and not the (inaudible).

So, while drug delivery was a benefit but was not necessary in the small molecules, today with the biomolecules its something that’s more and more important and most of the times its absolutely necessary. And that’s why we are involved lately and we can experience we have gained in the wide rarity of molecules it enables to collaborate at early stage and really do a co-development in some cases with the partners we have.

Tom Weisingborne - Credit Suisse

Are you finding that in all the feasibility studies involving Medusa you are using the ubiquitous polymer or in some cases you are developing individual polymers with a particular partner for their product?

Rafael Jorda

Essentially speaking it’s the ubiquitous polymer in each case.

Tom Weisingborne - Credit Suisse

Okay. Thank you.

Stephen Willard

Thank you, Tom.

Operator

Your next question is a follow-up from the line of Peter Butler of Glen Hill Investments.

Peter Butler - Glen Hill Investments

Yes, again.

Stephen Willard

Hi Peter.

Peter Butler - Glen Hill Investments

Good morning again. You did not include a balance sheet with your press release recent version I saw. I am assuming that the cash that you reported did not benefit from adding debt, is your balance sheet still essentially debt free.

Stephen Willard

Let me answer the question, because you tend to ask most of my questions and I hit those first two first?

Peter Butler - Glen Hill Investments

Sure.

Stephen Willard

Yes, we are still debt free and no we have never put out a balance sheet in connection with our fourth quarter conference call, because balance sheets have to be approved and signed off by our accountants as part of the 20F. There are absolutely no issues to-date with the accountants, but their work is not yet completed and we don't have the letter yet. And so that’s why we never put out a balance sheet until we do our 20F, which has the full certification from our accountant.

Peter Butler - Glen Hill Investments

Okay. Now looking forward, Steve, when you folks do get to a positive cash flow position, what is the sentiment on your Board of Directors or in management on the disposition of this cash flow, I assume that you guys are not going to make acquisition, there is no need to diversify because you have the internal research going. So what can you say about what happens next when you do turn cash flow positive?

Stephen Willard

With regard to acquisitions those of you who have listened to our calls for many years know that I am strongly disinclined to those. The technologies both Micropump and Medusa were totally developed within Flamel by our scientists who are the world's experts on that. As I have said a couple of times in this call, I think we are just really beginning to see the fruits of their work and the potential applications are so great that we have plenty in front of it.

Furthermore, we had the opportunity to apply our work to even more molecules. We have more than enough on our plates. We have been approached on a number of occasions with regard to acquisitions or things like that, because the reality is there are a tremendous number of very financial weak companies out there.

And so there are a tremendous number of people who come to financially strong companies like Flamel seeking to sell themselves, they do deals and things like that. And while we don't have much time to look at that sort of thing, we have taken look at a couple of things and candidly it has completely confirmed my view that our technology is so much better than what else is out there that I do not in any way anticipate acquisitions with Flamel as far as I can see into the future.

Peter Butler - Glen Hill Investments

So it sounds like shareholders will be rewarded for their loyalty to the company.

Stephen Willard

It is one of our very top goals to work for our shareholders and demonstrate that the business model that we have been pursuing for years is a careful and yet very successful one, which will have significant value creation for our shareholders.

Peter Butler - Glen Hill Investments

Okay, sounds good.

Stephen Willard

Thank you, Peter.

Peter Butler - Glen Hill Investments

Okay.

Operator

At this time there appears to be no further question. Mr. Willard, I will turn the call back over to you for any closing remarks.

Stephen Willard

Great. Thank you, Christy. As I said, I think 2008 has been really a wonderful year for us in terms of, again, financial strength, the pursuit of new opportunities, diversifications and innovation.

I am very pleased with our financial result. I think I am very pleased with our scientific success, and very pleased with the quality of the partners we have attracted, and very excited about the things that we are currently negotiating, both with regard to existing projects and with regard to future products.

I think that 2009 has the potential to be an even greater year and I very much look forward to speaking to you over the course of the year as we enjoy what I hope will be many successes to come.

Thank you once again for your interest in Flamel Technologies, and we will be speaking again with you soon.

Operator

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

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Source: Flamel Technologies S.A., Q4 2008 Earnings Call Transcript
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