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ArQule Inc. (NASDAQ:ARQL)

Q1 2010 Earnings Conference Call

May 6, 2010 9:00 AM ET

Executives

Bill Boni – VP, IR/Corporate Communications

Paolo Pucci – CEO

Rob Weiskopf – VP of Finance, Corporate Controller & Treasurer

Brian Schwartz – Chief Medical Officer

Thomas Chan – Chief Scientific Officer

Analysts

Mark Monane – Needham

Joel Sendek – Lazard Capital

Bret Holley – Oppenheimer

Howard Liang – Leerink Swann

George Zavoico – MLV

Operator

Good day, ladies and gentlemen, and welcome to the Q1 2010 ArQule Inc. earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference is being recorded.

I would like to introduce your host for today’s conference Mr. Bill Boni, Vice President of Investor Relations. Mr. Boni, you may begin.

Bill Boni

Good morning everyone. Welcome to the ArQule investor conference call reviewing operational and financial results for the first quarter of fiscal year 2010. This is Bill Boni at ArQule. This morning, we issued a press release that reported results for the fiscal quarter ended March 31, 2010. This release is available on our website at www.arqule.com.

Leading the call today will be Paolo Pucci, Chief Executive Officer of ArQule. Also present for the company and available for questions at the end of the formal portion of the call are Peter Lawrence, President and Chief Operating Officer; Dr. Brian Schwartz, Chief Medical Officer; Dr. Thomas Chan, Chief Scientific Officer and Rob Weiskopf, Vice President of Finance.

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

The forward-looking statements contained in this call represent the judgment of ArQule as of today. ArQule disclaims any intent or obligation to update any forward-looking statement except to the extent required by law. We will provide an opportunity for questions and answers at the end of this call.

I would now like to introduce the CEO of ArQule, Paolo Pucci.

Paolo Pucci

Thank you Bill and good morning everyone and thank you for joining us this morning. I would like to begin by recapping the second-generation program for our lead compound ARQ 197 first-in-class C-Met inhibitor.

The second generating program we have designed and began to implement over the last two years is intended to explore broadly the efficacy of ARQ 197 as a monotherapy specifically C-Met associated soft tissue sarcoma in germ cell tumors and in hepatoma second line therapy.

Also, it’s intended to explore the utility of ARQ 197 in combination in the following tumors: non-small cell lung cancer, colon cancer, gemcitabine-sensitive and sorafenib-sensitive tumors.

Out of all these trials – second generation trials that are ongoing, three are particularly relevant because they are designed as double-blind randomized. The non-small cell lung trial is designed as such, the HCC second line as designed as such and the colon cancer second line 3 (blood) combination is designed as such.

We have very recently reported results from the first of these three phase II double blind randomized trial. The trial that saw the combination of ARQ 197 plus erlotinib compared to erlotinib alone.

Let me give you briefly some summary details of what we have announced and I (inaudible) to say that the study demonstrated that ARQ 197 plus erlotinib yielded a 66% improvement in progression free survival in patients with advanced refractory non-small cell lung cancer.

In the total population of the trial the intent to treat population, that is, which was 167 patients, the median PFS was 16.1 weeks for the ARQ 197 plus erlotinib arm compared with 9.7 weeks in the erlotinib plus placebo arm.

In our interaction with opinion leaders since we announced the data, we have understood that this difference is considered to be meaningful. We have also understood that it was important to demonstrate that the placebo arm performs consistently with historic norms because it makes any comparison to that historic norm for the treatment arm more meaningful.

The difference in PFS between the two arms in the intent to treat population did not reach statistical significance (inaudible) that difference is measured applying a log-rank statistical test. However, when adjusting for imbalances, and we have reported before that imbalances of core relative to two group of patients EGFR (inaudible).

When adjusting for those imbalances in the distribution of the key prognostic practice the difference in PFS between the treatment and placebo arm was statistically significant when measured by applying a Cox regression analysis and such a Cox regression analysis had been pre-specified in our statistical plan for secondary efficacy analysis.

This is for the intent to treat population. Once we look at the largest – all the subgroups that we can examine, we see that improvement in PFS was even more pronounced in the predefined subgroup, or patients with non-squamous histology. This was a large group in number, 117 patients of the 167 total patients enrolled.

The median PFS in this group was 18.9 weeks in the treatment arm versus 9.7 weeks in the control arm. This represents a very interesting 94% improvement in PFS in favor of the ARQ 197 plus Tarceva combination.

Based on these findings, we believe that we have achieved a meaningful signal of efficacy from this trial and we are looking forward to next step.

Importantly, we did not observe clinically relevant differences in adverse event rates between the treatment and the control arms and that is valid for the intent to treat population as well as for subgroups we have analyzed.

The majority of the adverse events were mild in intensity and included rash, diarrhea, fatigue, so not unexpected either.

The findings from this phase II trial will be the subject as being chosen for an oral presentation on June the 5th of this year at the ASCO Meeting that will be held in Chicago. In addition to this oral presentation, we’re pleased to report that three additional posters have been accepted by us for this year for presentation.

We’re very pleased that an emerging company like ArQule has a significance presence in such an important meeting at ASCO. We made all effort to be present at ASCO and we’re very grateful that our presentations have been selected.

Looking beyond ASCO I cannot ignore that a question has come up to me several times during the recent weeks; the question is when will you take the next step in the non-small cell lung program.

What I can tell you today is that we are continuing to thorough analyze the entire 197 database. Not only the database we have accumulated through the non-small cell trial but also all the rest of the data that we are accumulating, both in combination and single agent use.

Together with our development partner in the west Daiichi Sankyo we have a number of work streams, which are ongoing. As part of those work streams, we certainly will seek direction from regulatory authorities and advice from industry experts in defining if and how we will advance to further testings.

We will obviously announce any decision that will have to be made in due time.

Let me turn now to C-Met soft tissue sarcoma. As we have previously indicated, we have completed accrual for this trial in the first quarter of this year, which is a little bit later than what we had expected. The problem was related to the difficulty of recruiting this trial and having to open some additional centers outside the US. This is due to the rarity of this group of tumors, which include alveolar soft parts sarcoma, clear cell sarcoma and translocation-associated renal cell carcinoma.

We’d like to confirm that we plan to analyze and announce results of this trial in the second half of this year. Let me now turn to the second part of the program that (inaudible) a double blind randomized trial for phase II, which is the hepatocellular carcinoma program, which we also couple with sorafenib sensitive tumor second-generation program.

During 2009, we initiated a phase I, II program with ARQ 197 in hepatoma. This program was designed to include safety run-in part, a phase II double blind randomized and a broad second-generation phase I study in combination with sorafenib in sorafenib-sensitive tumors. So, where are we in the development of this program?

This year we have presented at ASCO GU the results from our phase I safety run-in trial and we have showed that ARQ 197 as a single agent to be safely administered to patients with hepatoma. This is a very important finding for us because it helps us proceed responsibly forward in a tumor type which is very complex because of the underlying diseases of the liver.

Once we had achieved this safety signal, we proceeded quickly to begin a phase II randomized double blind trial comparing ARQ 197 to best supportive care in hepatoma second line after failures of either Nexavar frontline or any other investigational therapy.

The primary endpoint of this trial is time to progression and we plan to substantially complete enrollment for this trial this year.

Simultaneously to conducting this phase II trial, we have initiated a broad phase I trial associated ARQ 197 and sorafenib. And we are exploring this combination in sorafenib-sensitive tumors which are hepatoma, renal cell carcinoma, melanoma, non-small cell lung cancer.

We expect to complete enrollment in this phase I trial this year. Let me now turn to the pancreatic cancer tumor type, which we associate also with the phase I second-generation of ARQ 197 in combination with gemcitabine.

Enrollment for this phase I trial is ongoing. We plan to fully accrue this year the patient cohorts for pancreas, ovarian, breast and uterine cancer. Let me now turn to the last two studies that have been initiated under the leadership of our partner in the western world which is Daiichi Sankyo.

Daiichi Sankyo is initiated that this year exactly we recruiting two types. The first one is a single agent ARQ 197 in platinum-refractory germ cell tumor. And the second trial is ARQ 197 in combination with the (inaudible) in second line colorectal cancer.

I hope this gives you thorough update an a broader overview of the signal generating program which is ongoing for ARQ 197. Let me now say a few words about early stage pipeline. As you know we have in the pipeline three projects of interest. One is ARQ 621 in phase 1, it’s an inhibitor of the Eg5 kinesin motor protein. The second program is BRAF kinase inhibitor that is sailing towards IND and then we have the most recent program to come out from our discovery engine FGFR program.

This program includes series of compounds that inhibits fibroblast growth factor receptor. The plan for our pipeline is to develop approximately in parallel these three processes so this three programs started in new time we would be able to select the most promising out of this three programs to be brought forward for further testing. This is a very important strategic decision for us, because this will be the full year as we can tell for now, candidate that ArQule brings forward behind ARQ 197.

Between this year and next in order to come to a decision, we plan to generate phase 1 data for all of this three program provided that they all proceed through the different gates of procedural testing. So that we can come to a point where we can do a very disciplined analysis of the three program results and decide which one goes forward. Let me give you very, very briefly more specifics of where we have each one of these three programs.

Enrollment for Eg5, enrollment in the phase 1 program is continuing and we have not yet reached dose-limiting toxicity. For the BRAF, we have presented recently an initial profile for the drug at AACR and we plan to file an IND and those plans are on track. For FGFR, we have two candidates, that which we will select to lead and IND planning will follow-up these selection.

Let me now finally turn to the discovery platform. We’re very proud of what we have achieved in the development of our FGFR program, because this is the first kind of ArQule has a well developed multi sensitive program and it is the first time that we have the opportunity to chose among more than one dose candidates. And we have seen internally that we have been able to perfect such dose candidates over the last year and a half. We believe that this is further validation of the relevant and abilities of our key technology.

I wish I could go forward in more details about the work we have done in corporation of Daiichi Sankyo on the two Daiichi Sankyo targets but I think they will be for our fun to do at some point in time in the future. What I would like to say is that based on the work we’ve done internally for FGFR and for the two Daiichi Sankyo oncology targets, we have acquired novel scientific knowledge which is very relevant in our opinion to guide further development of our AKIP technology.

And we have a rapidly growing understanding of AKIP capabilities, and as a consequence of that, this growing understanding and some of the projects that are coming forward which are fully on by ArQule, we have launched a (inaudible) which we will discuss probably sometimes later next year.

All these accumulated knowledge is timely because the presentation of the FGFR data at AACR and the announcement we have made about ARQ 197 results for non-small lung cancer have determined the spike of interest from potential partners relative to our AKIP technology. It seems to be that such interest is not limited to oncology as a therapeutic class but also could encompass us kinase inhibitor in immunology inflammation, neurology and in some cases endocrine.

We will obviously report about any progress in due time. This concludes my brief overview of where we stand with our lead program, ARQ 197, where we stand with our pipeline developments for all three of the projects Eg5, BRAF and FGFR. And what we have learned in the mean time from our discovery engine AKIP technology that is in it.

Now I would like to turn the microphone to Robert Weiskopf and he will give you some details about our financial.

Robert Weiskopf

Thank you, Paolo. Good morning. For the first quarter of fiscal year 2010 as in March 31, the Company recorded a net loss of $9.8 million or $0.22 per share compared to a net loss of $9.9 million or $0.23 per share in the first quarter of 2009. At March 31, 2010 the Company had a total of $146.8 million in cash equivalents and marketable securities including $39.8 million drawn down in 2008 under notes payable collateralized by the Company’s auction rate securities.

Net of these notes at March 31, 2010 the Company had a total of $107 million in cash, equivalence and marketable securities. Revenues for the first quarter of 2010 were $6.3 million compared to $5.4 million for the first quarter of 2009. The increase in the first quarter of revenues was primarily due to revenue from the Company’s ARQ 197 and AKIP collaborations with Daiichi Sankyo.

The 2010 and 2009 periods also included revenue from the Company’s license agreement from Kyowa Hakko Kirin. Total costs and expenses for the quarter ended September 31, 2010 were $15.8 million compared to $15 million for the first quarter of 2009. Research and development costs for the first quarter ended March 31, 2010 were $12.1 million compared to $11.3 million for the first quarter of 2009.

The increase in 2010 research and development costs were primarily due to higher preclinical product development and clinical outsourcing costs related to our pipeline programs. General and administrative costs for the quarter ended March 31, 2010 were $3.3 million compared to $3.7 million for the first quarter of 2009.

The decreased cost 2010 were due to lower personnel and related costs. Today we are reiterating our guidance for fiscal 2010 as follows. As previously stated for 2010 ArQule expects net use of cash to range between $43 million and $47million, revenues are expected to range between $24 million and $28 million, net loss is expected to range between $34 million and $38 million, and net loss per share to range between $0.76 and $0.84.

ArQule expects to end 2010 with between $70 million and $74 million in cash and marketable securities. That concludes our financial review and I would now like to turn the call back to Paola.

Paolo Pucci

Thank you, Rob. In summary ArQule is on track to achieve the objectives we have set for this year and as you can imagine from the numbers you’ve heard our financial guidance is conferment at this time. Most importantly we believe that with the non-small cell results we have created significant shareholders value and I would premised not to thank Brian Schwartz and his team who has timely delivering of such complex and multinational trials. It’s very, very significant achievement for a Company of our size.

This closes the formal part of today’s call. I will like to open the floor to questions and as a reminder my colleagues are here with me and we will direct the questions as most appropriate. Thank you operator, we can open the lines.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). Thank you, one moment for our first question. And our first question comes from Mark Monane of Needham.

Mark Monane – Needham

Thank you and good morning and thank you for reviewing, hello?

Paolo Pucci

Yes, we are hearing Mark.

Mark Monane – Needham

Okay, thank you good morning. Couple of questions from your nice review. Number one is thinking about Tarceva is as a combination product. When drugs are used in combination they could either be given at same time or sequentially and I know you’ve done a lot of work previously on thinking about which drugs might be good combiners with 197. I guess in Tarceva, you may have extra flexibility, what are your thoughts about sequence and did you think you’ve optimized the sequence in of the two drugs?

Paolo Pucci

For what we could see in this trial, we face that the way the two drugs were administered was just fine. Obviously we have a much broader signal generating program in combination as you know and in some other cases we are exploring sequencing. Few of specific, the way it was administered was just fine, we have to do what we have seen.

Mark Monane – Needham

Sure and as Tarceva moves into other indications for example some question about using in a maintenance therapy, how does that change or benefit or not benefit or how does it – to modify the registration task for 197 plus Tarceva.

Paolo Pucci

It’s difficult to say right now. We are modeling however this time, the challenge is to predict uptake for Tarceva and also Alimta in the maintenance sector. It’s a fairly a new concept Mark and we will have to, we are testing it. Our model will into consideration several hypothesis and that’s the reason why we are taking the time that is necessary to come up with the right protocol and also define what the commercial potential of a positive results from that trial could be. But I don’t have a specific answer for you.

Mark Monane – Needham

Well I understand that, that’s helpful. Now I think there is an interesting opportunity here in the way that you have chosen a different combination as the way that I see it in terms of fact that, gemcitabine is known to work well in lung cancer and may have some other efficacy in squeamish medications and Tarceva has been approved and is used in pancreatic cancer. So do you have any thoughts about how you’re going to use this information thinking about further development of 197?

Paolo Pucci

Brian will take the question Mark.

Brian Schwartz

That’s a really interesting observation Mark and one that we’ve been throwing around in terms of mix steps and developing a comprehensive plant. I think what we’re trying to do now is try and focus now primarily on the registration pathway with the high-end probability of technical success as well as exploring all the other potential ways in which this drug could be combined, but you do raised some very interesting potential development scenarios which we’ve been throwing around combining those three drugs in a number of different tumors and that includes tumor types where Tarceva may have very modest activity but together with 197 and gemcitabine may have an additive top effect as well.

And our belief, Mark, is that the – going back to your sequencing question, our belief based on our previous experience with other products other than 197 and then particularly in the combination with cytotoxic, one has to ask the question of sequencing this new molecules in – on a cytotoxic backbone. That’s only the first question to answer, because the next one is, once you answer maybe sequencing is a good way go is how to sequence that.

We have left here with having a very efficient little holistic setup. So Tom Chan and his group can give us a pretty much real-time answers when we ask those questions, and we are very actively working on them. So for sometime, there is quite a little back and forth between what we are seeing in the clinics, what we are hearing from the opinion leaders that – and what we are going back to the labs and verify. And so it’s a very intense period for us in understanding the holistic picture that is emerging from the whole combination programs we have.

I think some of that will be published in the future.

Mark Monane – Needham

Thanks for the added information. I will go back into the queue.

Peter Lawrence

You’re welcome.

Operator

One moment for our next question. And our next question comes from Joel Sendek with Lazard Capital.

Joel Sendek – Lazard Capital

Thanks. So obviously there is a lot of decisions you have to make with regard to the design of the Phase III trial for 197 in lung cancer. I guess I have two questions. The first is, when are you going to ultimately make a decision on what the trial decision is going to be, because you can go around circles for a while I guess. I mean, do you have a – some sort of a internal deadline, something we can put in our models? And then the second question is, Mike, you do multiple Phase IIIs even in lung cancer?

Paolo Pucci

The first question is – I cannot give you a date, but I can give you a sense of what the processes are that needs converged. So first of all, we would like to see an additional piece of data from this trial, which directionally is important, which is overall survival. We do understand like everybody else does that this is going to be only directional and is going to be down founded by the crossover arm, but we will like to see that as well. And I – at this point in time, I have not seen at that piece of data, okay? So that’s something we need to see.

The second thing we need to see is we need to put a number of thought in front of opinion makers and get some feedback. Then we need to select one or two of those probables and calculate the MPB, because I do modeling just as you also – as you do. And then, there is – and all this is are under our control. What is not under our control is that when will we be granted audience with the FDA in EMEA for end of Phase II. And until I have a little bit more color on when that could be, I cannot give a date.

Now this said, we are proceeding with (inaudible) purpose. So our objective is to come to a decision as soon as possible. But this will be an important decision for us, for our partner, and (inaudible) vis-à-vis all reasons. You know what on average is the timing. We believe we have positioned ourselves for the most advanced c-Met in development with this data. And you only need to look at the actual program to see that that is not my opinion, but it’s very now a fact. But we know that not – this advantage doesn’t last forever, so we will go as fast as we can prudently and rationally.

As far as doing additional trials in lung cancer, I would rather answer that question once we have put the data in the open, because right now, it would be very academic for me to say and I would not do justice to a very, very, relevant question, Joel. So we should take that question after you have had the opportunity to see the data with a greater detail at ASCO when will have the opportunity what happens in the difference of groups, including the crossover arm.

Joel Sendek – Lazard Capital

So will we get that as ASCO? I mean, are you going to have the survival signal at ASCO?

Paolo Pucci

We are trying. The survival signal is something that depends on us up to a point, because we need event for the survival signal. And if we have the events, we – timely, we will have it. You know, we have always been cautious. We never hyped the fact that events were slow or due to be slow or not so slow coming. We look at this piece of data as a matter of fact piece of data.

If the events are going to be down, we have the time to add – to put to the attention of where we will present, because it’s not our choice where it gets presented, but it is the presenter’s choice. We will certainly put it in. And we have been able to make the late-breaker really, really it was a tight squeeze, and we will try to do this one as well. But we need the events. If we don’t have the events, we don’t have the data.

Joel Sendek – Lazard Capital

Okay, great. Well, I will look forward to seeing the talk. Thanks.

Paolo Pucci

You’re welcome.

Operator

And our next question comes from Bret Holley of Oppenheimer.

Bret Holley – Oppenheimer

Yes, thanks for taking question.

Paolo Pucci

You’re welcome.

Bret Holley – Oppenheimer

I was wondering, what is currently known about differences c-Met expression or c-Met mutational status and non-squamous versus squamous non-small cell lung cancer?

Paolo Pucci

Either Tom or Brian, one of you –

Thomas Chan

Maybe I can take a crack at it. Good morning. It is actually not a whole lot of data supporting that there is high incidence of mutation in the non-small cell lung cancer. I think there is plenty of this type of mutations in the gastric and also in other forms of cancer, but lesser in non-small cell. So I would say that if we do find them, it’s going to be a rarity, it’s probably not going to be a driver in terms of efficacy analysis.

Bret Holley – Oppenheimer

And then, as far as – I guess you mentioned gastric cancer, is that something that you are considering or approaching with 197 based on the high incidence to mutations?

Thomas Chan

I should say the gastric – I received just yesterday the question about gastric cancer and I have to clarify that. Gastric cancer is a very, very, very specific Asian opportunity, because the standard of care for gastric cancer as you know is different in Asia than it is elsewhere. The backbone for gastric cancer treatment in Asia is as one (inaudible) and unfortunately did not become a global backbone since the western study did not succeed.

It is – gastric study is of certain – certainly of interest for our Asian partner. And we have some interest as well. It is more difficult to talk about gastric cancer as a global tumor to be honest with you. So that’s the – that scientific base for 197 – ARQ 197 in gastric cancer, very, very significant commercial opportunity in Asia, more difficult to envisage a global development.

Bret Holley – Oppenheimer

And then one last question about the non-small cell lung cancer Phase II. I am wondering, given the fact that we are under a month away from the presentation. What really is the logical cut-off date for when you need to have the events for the calculation of overall survival before it can be presented at the meeting? Is it literally kind of up to the last minute?

Paolo Pucci

The cut-off date is first specified in our statistical plan if I am correct, Brian.

Brian Schwartz

The event number and minimum time of follow-up has been pre-specified in our plan. But you are correct, Bret, it will be down to the wire kind of thing, as we are only less than four weeks away from ASCO.

Paolo Pucci

Nothing new, Bret. The late breaker was truly late-breaker as well.

Bret Holley – Oppenheimer

Okay. Thank you very, very, much guys.

Paolo Pucci

Doesn’t make for a very relaxed working here, but it is what it is, the patients are waiting, we have to run.

Bret Holley – Oppenheimer

Fair enough.

Paolo Pucci

You’re welcome.

Operator

And our next question comes from Howard Liang with Leerink Swann.

Howard Liang – Leerink Swann

Thanks very much. From the current Phase II trial, randomized fifth trial, is it possible to tease out whether 197 or c-MET inhibitor is more or less active in patients with EGFR mutation, I know you have a small number of patients.

Paolo Pucci

It’s a very small number of patients, Howard. I would live it your judgment once you see the full set of data. But it’s really – it’s a relatively small number of patients. It’s not irrelevant, but it’s a small. So it will have to be speculation.

Howard Liang – Leerink Swann

Okay. And then how the overall survival data, when we see it at ASCO or later, I know that there is a imbalance in EGFR mutation status that is unfavorable to the drug. Is there a way – I mean, first of all, how do you think it might impact on your survival curve, because of imbalance? And also is there a way to control or compensate for that in your statistical analysis?

Brian Schwartz

Howard, two statements, one – the second one is easy to address. We did account for us in our pre-specified analysis plan, remembering that overall survival is a secondary endpoint, so there is a little bit more flexibility. But there is a progression model run on overall survival in the pre-specified SAP which we locked down already before we did the analysis of PFS.

The second question in my opinion and maybe more philosophical, the fact that we have at least sort of eight months follow-up in terms of overall survival and that the trial is maximum 2.5 years old, it’s unlikely that you are going to get many events in the EGFR mutation, because the censoring will slightly favor the placebo arm, but it’s not going to have as big an impact as having events. So that it’s less likely to impact survival in the timeframe in which we are looking compared to PFS which was a much shorter timeframe.

Howard Liang – Leerink Swann

Great, that was very helpful. Thanks very much.

Paolo Pucci

And Howard, more than that, it’s a speculation for us at this point really.

Howard Liang – Leerink Swann

Thank you.

Paolo Pucci

You’re welcome.

Operator

(Operator Instructions). Our next question comes from George Zavoico from MLV.

George Zavoico – MLV

Hi, everyone. Good morning.

Paolo Pucci

Good morning.

George Zavoico – MLV

Congratulations on a nice quarter. I – it seems to me that this is the maybe the first time that you have actually mentioned you would be triaging in a sense, the Eg5, the B-RAF and HGFR programs in a sense that you will choose to move forward only one of those three programs. Though strategically, that’s a pretty big decision, and I am just wondering what’s driving that. And I am speculating that perhaps, I mean seeing at ACAR, the huge amount of interest in c-Met and I am sure that will be repeated at ASCO for us, the sense of urgency in channeling resources toward 197, could you speak to that a little bit please?

Paolo Pucci

So the three (inaudible), it’s related to the fact that it’s taking a little bit longer for us to find the MTD for Eg5, because the hypothesis of having a draw which was more benign in terms of side-effects not hitting because it didn’t hit the bone marrow is and having started a relatively low dose based on other Eg5 experiences, is making the Phase I trial last longer than we had expected. At the same time, the progress that we have observed with the B-RAF and HGFR and that has been the most remarkable progress in my opinion is making the Phase I programs roughly converge. I can’t ignore that this is somewhat of variations versus what where my assumptions two years ago and that’s why I’m simply signaling today that we might have choice, more choice than we thought we would have had. The funding of ARQ 197 is not really so much an element for this pipeline prioritization, 197 we have provided for intents of phase II barring any further expansion of the phase II and as you know only for the phase II or cost for 197 we are focused not for the rest.

Also George what we’re beginning to appreciate is the strategic importance of that decision. See, up to when we presented the non-small cell – we opened the non-small cell trial we were a hopeful company to have a lead product that was relevant. Now, we are a little bit more confident that – we are a little bit more than hopeful and that is changing a little bit our mindset. What hasn’t been achieved by some companies in the past is a good follow on to good leads.

So all that you need to read in our pipeline, the discussion of today is two things. We will have more choices than we have expected to have in a much narrower timeframe than we had expected to have and the second thing is we are – though we are completely focused, what needs to be done for ARQ 197, we’re beginning to pay more attention of the second very strategic item we have, which is what would be the product that comes after 197 from ArQule, would it be partnered, would it be proprietary, how we would bring it forward, how would we fit – would we fit it with development timeline of 197.

We actually have a third very important strategic question to answer in the next few months and that question is what is the next target we’re going to tackle in the ARQ platform. Is it going to be an oncology target, is it going to be an oncology and inflammation immunology target, what are the characteristics of that.

Now one thing at a time but I hope I answered your question and gave you our current perspective of where the pipeline calibration fits in the overall strategy for ArQule.

George Zavoico – MLV

Yes that helps and Tom, congratulations in making life a little bit more interesting and perhaps difficult for Paolo in having to make these decisions by giving him a luxury of choices.

Thomas Chan

Thank you George.

George Zavoico – MLV

One more question regarding the signal-generation trials. These are all small indications and I’m wondering I mean the non-small cell lung cancer David clearly is a signal generation is a clear positive signal generation in my mind and it seems to be from what you’ve discussed also in the minds of the opinion leaders that you’ve spoken to. How does that impact, in a strategic point of view, further development in the smaller MiT tumors for example, the sarcoma tumors with regard to moving them forward into phase III and seeking an NDA, an approval for those indications?

Thomas Chan

At this point in time everything is proceeding in parallel George. Yes the other trials are smaller. I would say that three trials have particular significant impact because they will give you the most rigorous signals and that’s why I’ve split them up for all of you on the call early on. We have three double blind randomized signal generating trials. One read this year, one’s going to read next year and the other one the year there after. This year right now small cell, next year we’ll read HCC, the year thereafter is the colorectal, if it passes this initial phase of running.

Along the way, you will have smaller signal generating problems. So the difference is that for – and I would say MiT and germ cell are also strong signal generating in my opinion that could inform a phase III decision. So you have some trials that are double blind randomized non-small cell, colorectal, and HCC, that could inform – could provide you a signal strong enough from a randomized double blind that you could consider bringing to phase III. You have two trials that are single agent, open label, therefore they’ll provide you a weaker signal, but nonetheless could be an interesting signal because they’re purely unmet needs, so you don’t really need a double blind randomized for those trials, which is MiT and germ cell tumors.

So those are the five trials that really could produce a signal. The others are more – are the earlier signal generation findings because in some of those tumors like some of Nexavar-sensitive tumors, some of germ cell sensitive tumors – we are at an earlier stage; however, don’t underestimate those trials because trials – the Nexavar-sensitive tumors and – we started with Nexavar in HCC. We started with gemcitabine in pancreas and then based on the request from the investigators, we have expanded the two certain germ cell sensitive tumors, certain Nexavar-sensitive tumors. So those trials that were born as 20-patient trial released signal generation in the most essential way.

They have expanded now and there will be 50-60 patient trials with each cord having 10-15. You could see some interest in things there. Now are those signals that one would automatically bring forward in phase III? Not likely, but those are signals that will (inaudible) for the phase II work. So that is the rationale to the whole plan. I’m not so sure that we are good enough to get it across as rationally as it is in our heads but actually this is the rationale.

So you have two levels of signal generation. Signals that you can bring to phase III potentially, signals that you can bring further to phase II for explanation.

George Zavoico – MLV

Okay that helps a lot.

Thomas Chan

We have got – we have leveraged – Pucci, Brian and I, we have leveraged all the experience we have accumulated in the past 20-25 years of our career. So we are really trying to do a very thorough working phase I/II.

George Zavoico – MLV

Okay that helps a lot. I think that’s coming across, thank you.

Thomas Chan

You’re welcome.

Operator

And our next question comes from Mark Monane of Needham & Company.

Mark Monane – Needham & Company

Thank you. I have a follow-up question and that is when you were designing the 197 Tarceva trial in non-small cell lung cancer, did you design it as a PFS trial or as a survival trial and the question is, I’m getting at, is if you powered it sufficiently to answer the overall survival question.

Brian Schwartz

Mark it was primarily powered for PFS and oh, this was done – we’re not expecting to see much in steps we’re expecting to look at the curve and to draw conclusions based on how it could look but it’s definitely not powered to get much of an answer in terms of statistic for overall survival.

Mark Monane – Needham & Company

When you’re looking at the curves, what do you, Brian and the team, would be a clinically relevant finding. I’m assuming when you look at the curves, what kind of finding are you looking for in order to say that this is a signal.

Brian Schwartz

I think its similar trend – you’re looking for strong trends and you’re looking for – based on other historical positive phase II lung trials, you’re looking for similar type trends and curves. And also given that we have identified at least two sub-populations in what we have communicated so far, we will be looking at consistent trends in the sub-populations as well, squamous on one side and non-squamous cell histology on the other side.

Mark Monane – Needham & Company

Thank you and then how many people now at ArQule and how is that mix of individuals changed as the products have moved further in clinical development.

Thomas Chan

The workload has changed – the number of people is the same, so you just – the same people working harder if I might say. No, no changes; we’re still about 115 people and we are just busier than we have been before, no change in personnel.

Mark Monane – Needham & Company

To avoid going longer than the recent Yankee Red Sox games – I’m going to end here, thank you.

Operator

And at this time, I’m showing no further questions.

Paolo Pucci

Then thank you all for joining us. We’re looking forward to see most of you at ASCO. We will have a good presence and we’re looking forward to see everybody there and we hope to continue bringing relevant data for physicians and patients down the road, bye-bye.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program, you may now disconnect.

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