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Curis, Inc. (NASDAQ:CRIS)

Q1 2010 Earnings Call

May 6, 2010 9:00 pm ET

Executives

Mike Gray - COO & CFO

Dan Passeri - President and CEO

Analysts

Brian Skorney - ThinkEquity

Joe Pantginis - Roth Capital Partners

Jason Kantor - RBC Capital Markets

Ted Tenthoff - Piper Jaffray

Ling Wang - Brean Murray

Ren Benjamin - Rodman

Jason Kantor - RBC Capital Markets

Operator

Good day, ladies and gentlemen, and welcome to the Curis First Quarter 2010 Earnings Conference Call. My name is Regina, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will be conducting a question-and-answer session. (Operator Instructions) As a reminder, today’s conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Mike Gray, Chief Operating Officer and Chief Financial Officer for Curis. Sir, you may begin.

Mike Gray

Okay. Thank you. Good morning and thanks, everyone for joining us. Today, we’ll provide as usual corporate update and we’ll also discuss our first quarter 2010 financial results.

Before we begin, I’d like to advise you this conference call contains forward-looking statements regarding our future expectations, plans and prospects within the meaning of the Private Securities Litigation Reform Act of 1995, including statements related to the following; the expected progress of our Phase I clinical development candidate, CUDC-101 and our timetable for selecting an additional development candidate from our targeted cancer programs; statements regarding our and our collaborators’ expectations concerning the further development of our Hedgehog pathway inhibitor program under collaboration with Genentech, as well as our Hsp90 technologies that are licensed to Debiopharm, including the timetable for regulatory filings and other clinical development milestones under those programs; as well as our expected 2010 administrative expenses.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including risks relating to our ability to successfully advance the research and clinical development of our clinic of our targeted cancer programs, including CUDC-101; Genentech’s ability to successfully advance clinical trials of GDC-0449; and Debiopharm’s ability to progress Debio 0932 through Phase I clinical testing; competitive pressures; our need to maintain our proprietary rights; our ability to successfully continue our collaborations with Genentech and Debiopharm, as well as to enter into new collaborations on favorable terms, if at all; unplanned operating expenses; our need to raise additional funds to finance our operations and other risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2009, and other reports we periodically file with the SEC. We caution you that we are making these forward-looking statements as of today and that we may not update any of these statements even if events and development subsequent to the date of this call cause these estimates and expectations to change.

I’d like to now introduce, Dan Passeri, Curis’s President and CEO, who will discuss our corporate highlights and provide an update on our pipeline. Following Dan’s remarks, I will return to review our financial results for the first quarter of 2010 and then, we’ll open the call to any questions. Dan?

Dan Passeri

Yeah, thanks, Mike. Good morning and thank you for joining us today. The beginning of 2010 has been a highly active period for Curis with our collaborators and our internal team making significant progress in advancing all of our key development programs. I’ll first provide a general overview of some central highlights and then, elaborate upon further details of the specific programs.

Our collaborators, Genentech and Debiopharm continued the clinical progress of their respective drug candidates in development. And I’ll start with an overview of the Hedgehog program, which is under collaboration with Genentech.

Roche, as a 100% owner of Genentech recently provided a clinical development update of GDC-0449, which is first-in-class Hedgehog pathway inhibitor. During that update, Roche indicated that it expects data from the ongoing Phase II first-line metastatic colorectal cancer study to be available in mid-2010 and that it intends to initiate a Phase II trial of GDC-0449 in operable basal cell carcinoma or BCC patients in the second half of 2010. So we’re very excited about that update. I’ll give you some more details in a moment.

Roche also indicated that it expects results from the ongoing Phase II clinical trial in advanced ovarian cancer patients during the second half of 2010 as well as results from the pivotal Phase II clinical trial in advanced BCC in 2011. We look forward to these important results in 2010 and 2011 as well as the initiation of the Phase II clinical trial in operable BCC patients during the second half of 2010. So obviously, we are approaching a very important timeframe for the company.

Our licensee, Debiopharm has also continued to advance Debio 0932, which is a single molecule heat shock protein 90 or Hsp90 inhibitor that was discovered by Curis’ scientists and licensed to Debiopharm in August of 2009. In February, Debiopharm notified Curis that the French regulatory authorities had formally accepted Debiopharm’s clinical trial application, which is the French equivalent of the U.S. IND application filing to allow Phase I clinical testing to begin. Most importantly, under this event, Curis earned an $8 million milestone payment from Debiopharm under the party’s license agreement upon the achievement of the development objective, which we received during the first quarter of 2010.

In April, Debiopharm treated the first patient in the Phase I clinical trial of Debio 0932. We continue to be very pleased with the quality and efficiency at which Debiopharm has advanced this asset. In addition to the efforts of our collaborators, the team at Curis has made important progress with our internal programs highlighted by the successful completion of our Phase I clinical trial of CUDC-101, in which, we observed several signs of biological activity in patients, including a confirmed partial response in a gastric cancer patient.

The drug demonstrated a favorable safety profile and we determined the maximum tolerated dose or MTD that we believe will provide us with an attractive therapeutic window for our future clinical testing of this first-in-class multi-target inhibitor, which targets HDAC, EGFR and Her2. Also, we published two papers related to CUDC-101 and presented what we believe to be important preclinical data at the 2010 AACR Annual Meeting related to CUR-906 which is a molecule from our novel class of compounds targeting HDAC, PI3 kinase and mTOR and we will continue to anticipate that we’ll select a development candidate for this compound class in 2010.

Also in the first quarter, we also took further steps to solidify our balance sheet by completing a registered direct offering of common stock and warrants in January of 2010 that brought us net proceeds of $15 million. In addition, during the first quarter, we received an $8 million cash payment from Debiopharm and this was a non-dilutive infusion of capital, and we received an additional 4 million under a settlement agreement with a pharma collaborator. I would believe that we now have adequate capital to fund our business into the first half of 2012.

Importantly, this cash life estimate doesn’t include additional development milestone payments that we could receive from existing collaborators, Genentech and Debiopharm, nor does it include any new corporate development partnerships that we may enter during this timeframe. We expect that we could receive additional milestone payments before the first half of 2012 from Genentech and Debiopharm if the results of the ongoing clinical trials are successful. Any such additional miles, would further strengthen our financial position and extend the runway further.

Let me now move on to a more thorough detailed review of our pipeline and I’ll first begin with the discussion of our programs under collaboration with Genentech and Debiopharm and then, I’ll turn to CUDC-101 and our other proprietary cancer programs. As I mentioned earlier, our collaboration with Genentech is nearing some very important clinical data in 2010 and 2011. Genentech is currently conducting three core clinical trials with GDC-0449, including a pivotal Phase II trial in advanced BCC that was initiated in February of 2009 and two additional Phase II clinical trials; one in metastatic colorectal cancer and another in advanced ovarian cancer that began in 2008.

First, in the pivotal Phase II clinical trial of GDC-0449, approximately a 100 patients with locally advanced and metastatic BCC are being evaluated in a single-arm, two-cohort global clinical trial. One cohort includes all patients with histologically-confirmed RECIST measurable metastatic BCC. The second cohort includes histologically-confirmed locally advanced BCC that’s considered to be inoperable by the treating physician. All patients receive a daily oral dose of GDC-0449 at the dose of a 150 milligrams per day. The primary endpoint of this study is to measure patient response with GDC-0449 therapy. Roche has projected that results from this ongoing pivotal study will be available in the first half of 2011 and pending a successful outcome, Roche has further stated that regulatory submissions for GDC-0449 in advanced BCC could occur in 2011.

I want to underscore that there’s currently no standard of care for patients with these types of BCC. And we would be extremely proud to be part of a therapeutic alternative that may provide benefit to these patients. As I mentioned earlier, Roche also recently indicated that it intends to initiate a Phase II clinical trial of GDC-0449 in operable basal cell carcinoma patients in the second half of 2010. We believe that the expansion into operable BCC patients could greatly expand the commercial potential of the compound for mutation-driven cancers. Genentech is currently working to define the trial design and we expect that will provide further updates in this trial once it has been initiated. Roche also updated its expected timing of Phase II clinical trial results of GDC-0449 in colorectal and advanced ovarian cancer; noting that it expects results for the colorectal cancer study in mid 2010 and for ovarian cancer trial during the second half of 2010.

And we certainly look forward to providing our shareholders with additional information as these important results become available. As a reminder, Genentech initiated a Phase II clinical trial of GDC-0449 in metastatic colorectal cancer in May of 2008 and completed enrollment in the second quarter of 2009. GDC-0449 is being evaluated in the study in approximately 200 patients with metastatic colorectal cancer in combination with the current standard of care in a randomized, placebo-controlled, double-blind Phase II trial. Patients receive either a FOLFOX or FOLFIRI chemotherapy regimen in combination with Avastin and are randomized to receive a 150 milligrams daily dose of GDC-0449 or a placebo.

The primary objective of the trial is to measure the period of progression-free survival for randomization to disease progression or death. Secondary outcome measures include the measurement of Hedgehog protein expression in archival tissue and tracking of adverse events. The advanced ovarian cancer trial was initiated by Genentech in December of 2008 as a single-agent maintenance therapy in which GDC-0449 is being evaluated in approximately a 100 patients with ovarian cancer in second or third complete remission in a randomized placebo-controlled, double-blind, multi-center Phase II clinical trial.

Patients are randomized in a one to one ratio to receive either a 150 milligrams daily dose of 0449 or placebo and are stratified based on whether their cancer is in a second or third complete remission. The primary endpoint of the trial is progression-free survival. Secondary outcome measures include overall survival, measurement of Hedgehog ligand expression in archival tissue and number and attribution of adverse events.

Genentech designed its Phase II clinical trial to investigate whether GDC-0449 may help to delay and/or attenuate tumor re-growth in a maintenance setting following clinical remission of cancer after second-line chemotherapy treatment for recurrent disease. Further details of all GDC-0449 clinical trials are posted to clinicaltrials.gov. In addition to the clinical trial progress, in February, we also announced that Chugai Pharmaceutical, which is majority owned by Roche, had exercised its right of first refusal for the development and commercialization in Japan of GDC-0449 under an existing agreement with Roche.

We believe that the combined development efforts of Genentech, Roche and now Chugai will provide important opportunities for the development of 0449 in the majority of the significant global pharmaceutical markets and we believe that Chugai’s development and marketing expertise in Japan will further enhance Genentech’s and Roche’s ongoing development efforts in this first-in-class molecule.

Lastly, we are also very pleased with the continued progress of the collaboration between Genentech and the National Cancer Institute or NCI, as a means of gaining additional clinical insight into GDC-0449. Genentech and the NCI entered into a collaborate relationship in 2009, allowing the NCI to explore 0449 in additional cancer indications that are not presently being evaluated by Genentech or Roche, and there are now several additional clinical studies ongoing under this agreement with NCI. We look forward to providing further 0449 updates as results are available or as additional clinical trials are initiated as well as when Genentech or Roche communicates other important scientific observations. And obviously, we are eagerly awaiting the readout of the colorectal and look forward to keeping you posted on those updates.

I like to now turn to our other partnered program, which is a synthetic small molecule Hsp90 inhibitor development candidate designated Debio 0932. This candidate is being developed by our licensee, Debiopharm under our August 2009 agreement. Under this agreement, we granted Debiopharm a worldwide exclusive royalty-bearing license to all of our Hsp90 inhibitor technologies, including Debio 0932, which was formally called CUDC-305.

As I mentioned earlier, in February, Debiopharm notified us that the French regulatory authorities had formally accepted Debiopharm’s clinical trial application and as a result, we earned a $9 million non-dilutive milestone payment from Debiopharm. In April, Debiopharm treated the first patient in the Phase I clinical trial of Debio 0932 and we are eligible to receive an additional $3 million payment, should this molecule be used in the treatment of the fifth patient of this Phase I clinical trial.

The Phase I clinical trial is designed to evaluate the maximum tolerated dose or MTD in safety profile of Debio 0932. The first part of the study or Phase IA is an open label multi-center dose-escalation trial evaluating the safety and tolerability of escalating multiple dose levels of Debio 0932 as a single agent given orally in patients suffering from advanced solid tumors or lymphoma. The dose-limiting toxicities or DLTs, maximum tolerated dose in pharmacokinetic parameters will be determined using both every other day and daily administration regimens to guide the recommended Phase IB dose in schedule.

Secondary objectives will be to assess whether changes in pharmacodynamic biomarkers are indicative of Hsp90 inhibition by 0932 and whether or not they can be reliably measured in patient samples as a prospective biomarker. The objective of the Phase 1B study in expansion cohort of certain solid tumor and to our lymphoma patients will be to further assess the safety profile pharmacokinetics and pharmacodynamics of Debio 0932 at a potential Phase II dose level and to make a preliminary assessment of anti-tumor activity in patients with advanced solid tumors.

We’ve been extremely impressed and very pleased with Debiopharm as a partner, including its efforts to create a clinical development plan in advanced Debio 0932 efficiently into Phase I clinical testing and we look forward to providing you with further updates regarding Debio 0932 as they become available. I’d like to now provide you with a brief update of CUDC-101, which is our wholly-owned and retained first-in-class HDAC, EGFR and Her2 inhibitor product candidate, which we’ve designed to seek to disrupt cancer networks and we believe that this is an emerging paradigm in cancer therapy and our expectation is that this drug by hitting networks can combat resistance by simultaneously inhibiting multiple-cancer targets, therefore, enhancing the robustness of the blockade.

CUDC-101 is the lead drug candidate from our multi-targeted cancer programs and is exemplary of this approach and has recently completed the Phase I clinical trial dose escalation in patients with advanced, refractory solid tumors. As our first multi-target inhibitor in clinical development, we believe that CUDC-101 is exemplary of our approach, which aims to enhance the therapeutic effect and durability of clinical response by attacking cancer cells at multiple points of intervention.

CUDC-101 is designed to simultaneously inhibit both EGFR and Her2 at the cell-surface receptor level, while also blocking intracellular histone deacetylase or HDAC activity. We believe that this novel combination of targets enables a synergistic attack on multiple nodes or points of intervention in the overall pathway network used by tumors to survive, grow and invade surrounding tissue. We believe that our approach represents a potential breakthrough in cancer therapy, as it may provide for a more durable response by blocking tumor’s access to compensatory bypass mechanisms.

We believe that efforts to utilize the same targeted network inhibition strategy with other currently available drugs would require combining two or three separate agents, which is complicated by the fact that you often have mismatched pharmacokinetics, variable metabolic degradation rates, dosing schedules that are complicated and may display additive, even synergistic toxicities, in fact, that has been seen in a clinical trial attempt using SAHA and Erlotinib, where the toxicities were exacerbated and they could not achieve efficacious doses.

So we believe that this approach has significant competitive advantages. Furthermore, with multiple drugs in combination, there is no certainty that the drugs will penetrate the same cancer cells for the intended combination effect. In contrast, we believe that CUDC-101 as a single small molecule has aligned pharmacokinetics, is metabolized as a single agent and blocks the respective targets in the same cancer cells at the same time with potentially fewer toxic side effects and thus, we believe may represent an important advancement in targeted cancer therapy.

CUDC-101 has recently completed a dose escalation Phase I study in which it was determined that 275 milligram per squared represents the maximum tolerated dose or MTD of the drug. The Phase I trial was designed as an open label dose escalation study of CUDC-101 in patients with advanced, refractory solid tumors. The primary objectives of the Phase I trial were to evaluate the safety and tolerability of escalating doses of CUDC-101 and to establish the MTD and dose-limiting toxicities.

Secondary objectives were to asses the pharmacokinetics to evaluate the pharmacodynamic biomarkers and to asses prospective efficacy and the ability of CUDC-101 to effectively inhibit the respective targets of HDAC, EGFR and Her2 in the patient population. Study was conducted at two clinical sites within the United States and enrolled 25 patients across several dose-escalating cohorts.

We have to say that we are extremely pleased with the clinical results to-date, which demonstrated that the drug has the potential for a favorable safety profile and can disrupt the intended cancer targets as evidenced by the clinical biomarker data. We’ve demonstrated promising evidence of anti-tumor activity at doses ranging from a 150 milligram per meter squared through to 275 milligrams per meter squared. We believe that this represents potentially an attractive therapeutic window. And the responses we saw included a mixed response in a head and neck cancer patient, it was at a 150 milligrams per meter squared as well as stable disease in breast cancer, both of which were at a 150 milligrams per meter squared, as well as a confirmed partial response in an advanced gastric cancer patient, where we saw approximately a 55% regression in the primary lesion. In addition, we saw a tumor reduction of over 20% that was observed in a second head and neck cancer patient and that was at the 275 milligram per meter squared dosing level after just four weeks or two cycles of study drug.

So this clinical data provides us with what we believe is an attractive therapeutic dosing range and we look forward to advancing the drug to the next stage of its development. We are continuing to audit study data from the dose escalation while also working to complete the pharmacokinetic and biomarker analysis and we anticipate that the study’s principal investigator, Dr. Anthony Tolcher of South Texas Accelerated Research Therapeutics also called START will present final trial data at the 22nd EORTC-NCI-AACR Symposium on Molecular Targets and Cancer Therapeutics, which is being held this November, November 16 through 19, in Berlin, Germany.

Looking ahead, we plan to initiate a Phase IB clinical study with CUDC-101 with the intent of enrolling additional patients at the established MTD of 275 milligrams per meter squared in tumor types including gastric, head and neck, breast and liver cancers to assess different dosing regimens and to seek additional signals of activity and to help guide future clinical studies. We are also anticipating the initiation of a Phase 1/2 clinical trial of CUDC-101 in non-small cell lung cancer patients in the second half of 2010.

In addition to the completion of our Phase 1 clinical trial, I’m also pleased to report that our scientists have published two papers related to CUDC-101 during the first quarter, including a medicinal chemistry paper related to the discovery of CUDC-101 and again, that’s our HDAC, EGFR and Her2 inhibitor, which was published in the journal of medicinal chemistry.

This paper described the structure-based rational drug design, synthesis and structure-activity relationship or SAR of a class of novel compounds that include CUDC-101 and the identification of CUDC-101 as a clinical candidate. Also I just want to underscore that 101 in the class of compounds have been a subject of an issued U.S. patent, so we are very pleased with the fact that we’ve been able to protect this compound as well as the class with an issued U.S. patent and continually to expand our IP protection for the multi-target platform. A second paper was also published in the journal Cancer Research that describes the potent anti-cancer activity of CUDC-101 and we’re proud that our scientists have published a pre-clinical CUDC-101 data in procedure scientific journals and we believe that this reflects the high quality of science being conducted at Curis.

So as I mentioned earlier, we are also diligently advancing our preclinical pipeline and we presented data at the recent AACR 2010 Annual Meeting that highlights data from our novel research compound CU-906, which is designed to inhibit HDAC as well as Class 1 PI3 kinase and mTOR kinases, the combination being confirmed by Curis’s scientists with potential synergistic interaction. It’s the same basic concept as 101 in terms of a network disruption as opposed to a single node of intervention.

The activation of PI3 kinase, mTOR in related AKT phosphorylation signaling pathways play a crucial role in cancer development and progression, and inhibition of these pathways have recently been investigated extensively as a perspective cancer therapy. However, the efficacy of PI3 kinase pathway inhibition has been limited by the activation of compensatory pathways that is alternative mechanisms such as RAF-MEK and ERK pathways. This is a very similar concept to what we’ve seen with EGFR inhibition, blocking that one node results in compensatory alternative mechanisms being upregulated. So the same basic concept with this PI3 kinase, HDAC inhibitor is meant to knock out the bypass mechanism.

So in an effort to enhance the anti-tumor activity and overcome the limitations of single, highly specific PI3 kinase inhibitors, we’ve developed a series of small molecule compounds that are able to simultaneously inhibit both PI3 kinase, mTOR and HDAC. We’ve identified compounds that exhibit anti-proliferation activity against a broad range of cancer cell types and in vitro studies, including cell lines that are insensitive to PI3 kinase inhibitors.

Our efficacy studies in various tumor xenograft models indicate that these compounds have more potent anti-tumor activity than a leading PI3 kinase inhibitors, which are currently in clinical development at doses causing no obvious side effects to the tumor-bearing models.

Importantly, we have identified a compound that displays, high exposure and long half-life in tumor tissue after IV administration in most models and early data supports the potential of compound being orally bioavailable. This compound has a half-life of more than 10 hours in mirroring tumor models inducing apoptosis and inhibits cell proliferation upto 48 hours following a single dose of the compound being exposed to tumor-bearing animals. We expect to select a new development candidate from a series of molecules targeting HDAC, PI3 kinase and mTOR in early second half or mid 2010.

I would like to now turn the call back over to Mike for financial discussions and then, after Mike’s remarks, we’ll open the call for questions. Mike?

Mike Gray

Okay. Thanks, Dan. Just go briefly through our first quarter 2010 financial results. We reported a net income of $4.8 million or $0.07 per basic share outstanding, $0.06 per fully diluted share outstanding for the first quarter of 2010, as compared to net income or $1.1 million or $0.02 per share on both the basic and fully diluted basis for shares outstanding for the same period in 2009.

Our revenues for the first quarter of 2010 were $12.6 million, as compared to $6 million for the same period in 2009. The increase in revenues from 2009 was primarily due to the recognition of $8 million in license fee revenue that Dan mentioned during the first quarter of 2010, upon the achievement of a development objective under our license agreement with Debiopharm. We also received settlement proceeds of $4 million from Micromet, a former collaborator upon settlement of an arbitration claim relating to a 2001 agreement between the parties, that’s including revenue as well. During the first quarter of 2009, we received and recognized $6 million in license revenue as a result of Genentech’s initiation of a pivotal Phase II basal cell carcinoma trial.

Operating expenses for the first quarter of 2010 were $6.9 million, as compared to $5 million for the same period in 2009, research and development spending was $2.5 million for the first quarter of 2010 versus 2.9 million in the same period in ‘09. The decrease is primarily attributable to lower spending on Debio 0932, the Hsp90 program and as a result of licensing this program to Debiopharm in August 2009. Debiopharm has paid all subsequent development costs since that license date. Offsetting this decrease, we increased our spending on our other targeted cancer programs.

G&A spending was $4.4 million for the first quarter of 2010, as compared to $2.1 million for the same period in 2009. The increase in G&A was primarily driven by $1.5 million in non-recurring legal and other costs associated with the Micromet arbitration proceeding. In addition, we reported a $300,000 increase in personnel costs, primarily as a result of changes to executive compensation, including $200,000 in discretionary bonuses to our executive officers and a $400,000 increase in stock-based compensation expense. This increase was primarily the result of $300,000 in expense associated with vesting of stock options that contained a performance condition that was achieved during the first quarter of 2010.

On a going forward basis, I expect that G&A will return to normalized levels. It’s an unusually high quarter, I realize somewhere around $2 million, give or take for quarter going forward. Other net expenses point of $900,000 for the first quarter of 2010, represent the change in the fair value of a warrant liability that we established in connection with our January 2010 registered direct offering, as a result of an increase in our stock price from January 27, 2010, offering date through March 31, 2010.

As of March 31, 2010, our cash, cash equivalents and marketable securities totaled $48.7 million. We had 75.6 million shares of common stock outstanding. As a result of increased expenses associated with the settlement with Micromet, we expect our G&A expenses will increase annually, 9 million to 11 million will be the total for 2010. We’d previously guided that these expenses would be between 8 and $10 million.

So that concludes the brief financial remarks and like to open up the call for questions. Regina?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question today, comes from the line of Brian Skorney with ThinkEquity.

Brian Skorney - ThinkEquity

Just a couple of quick questions here. Starting with the 0449, can we take anything away from Genentech’s initiation of the new BCC trial as far what the safety profile looks like in the Phase II trials? I assume they’re getting safety data from those studies and it would seem that to go into a more benign cancer setting, they need to really clean profile, any comments on that?

Dan Passeri

What we have seen to-date is the drug appears to be very well tolerated despite daily chronic exposure, no dose limiting toxicity has been observed. There are some AEs that have emerged, but I think, that all of them are transient and then, if you take the drug away temporarily, the AEs resolve.

So I think, this is indicative of the fact that Hedgehog is a typically a developmental embryonic pathway where it’s abundantly expressed and it is expressed at very low base levels in tissue maintenance. I think, that’s the reason it’s so well tolerated where the tumors are expressing high levels of the pathway. So we agree with your sentiment, the fact that they are going into a more benign setting. In fact, this could dramatically expand the market potential of the drug as well. But I think that is indicative of the safety profile that’s been observed in the advanced metastatic study.

Brian Skorney - ThinkEquity

And then, when we look at the extension of the 101 trial, you mentioned that you’ll be looking at gastric, head and neck, breast and liver cancer. Are you guys planning to stratify enrollment in those or are you going to look to do a quarter, a quarter, a quarter or is it, just, whoever comes into the trial if they can get, you will take?

Dan Passeri

Yes, so it will be those four indications and they are going to be, what we are estimating is 10 patients per indication. And we are also going to be serving two different dosing schedules. So the objective is to get a more robust representation. So we are very intrigued and pleased with the fact that in the dose escalation all-comers trial, we did see response in some tumor types that reflected the preclinical data.

So we were anticipating response in head and neck, and gastric based on preclinical data. So we are very pleased with those results in the stable disease and the breast cancer patients also correlates with what we were expecting from our preclinical data. We didn’t treat any liver cancer patients as far as I know in the dose escalation, but we’ve had very impressive xenograft data with liver cancers, that’s why that’s included as well.

Brian Skorney - ThinkEquity

And Mike, just a quick housekeeping question, I might have missed this in your comments at the end. So for, I think, you previously said G&A guidance is 8 to 9 million, should we include the legal costs and the 0.5 million in performance-based compensation?

Mike Gray

Yeah, I did bump that up to 9 to 11.

Operator

Your next question comes from the line of Joe Pantginis with Roth Capital Partners.

Joe Pantginis - Roth Capital Partners

Quick question on 101 and then, a follow up on 0449 please. Can you give a quick review again with regard to what the prominent DLTs that you did see? And secondly, I might have missed this, you were giving the doses for the different responses, but what was the dose of the patient that saw the PR in advanced gastric patient?

Dan Passeri

Yes, so, the dose that the patient had the confirmed PR was at 275 milligrams per meter squared. And in terms of the DLT, the DLT that emerged at 300 milligrams per meter squared was a Grade 2, which is not normally considered a DLT. So I’ll explain that in a moment. It was a Grade 2 creatinine level. The key here was it was seen after one infusion, so one dose resulted in going from baseline to a Grade 2. So the definition of a DLT is that the patient does not receive the drug for each consecutive day during the dosing cycle. So the fact that the creatinine level went up to Grade 2, patient did not receive drug the following day that defined it as a DLT. What’s encouraging is that this observation is manageable.

What we learned through surveying additional patients at that dose level is we could actually keep them on 300, if they were hydrated and the creatinine levels would come down or we could keep them on drug, but at a lower dosing level. If you went below 300, the creatinine levels come down. So what’s encouraging is this is a manageable toxicity.

I’d also underscore that this is a similar profile what you see in other HDAC inhibitors you have creatinine level increased, for instance in SAHA, it’s on the label. So we are encouraged that it’s a toxicity that can be identified and managed and the patient can remain on drug. We are also encouraged by the therapeutic window that we believe we have between 150 and 275, which gives the physicians some flexibility.

Joe Pantginis - Roth Capital Partners

Sure. That’s great. And we are looking forward to the expanded Phase I et cetera. Just a quick follow-up on 0449, there is a, I guess, you might call it a placeholder for ASCO, the title of the study is safety of the colorectal study. Could we sort of interpret that as a placeholder and that’s where we might get the data?

Mike Gray

Yes, I think, the intention is that will be a safety presentation only as of a planned interim safety look.

Operator

Your next question comes from the line of Jason Kantor with RBC Capital Markets.

Jason Kantor - RBC Capital Markets

Is it going to be unblinded safety data and patient demographic data that we’re going to get at ASCO?

Mike Gray

I think, there will be data presented on two arms. I think, we’ll allow Genentech to present that data in a month. I don’t think we can comment further on that right now.

Jason Kantor - RBC Capital Markets

Okay. And then, you mentioned a milestone or payments from Genentech, I mean, what that was for and when that came in?

Mike Gray

Well, that was actually just I think you’re talking about my financial review, Jason. It was just a year-to-year comparison. So that was for the initiation of the advanced BCC trial which is ongoing, but that was Q1 ‘09....

Jason Kantor - RBC Capital Markets

That was last year?

Mike Gray

Yeah, yeah.

Jason Kantor - RBC Capital Markets

Okay. And then, in terms of anything else from your pipeline that may go into the clinic? What’s your next clinical candidate and what’s the timeline on that?

Dan Passeri

Yeah, so the next clinical candidate will be most likely selected from the PI3 kinase, HDAC class of compounds. And the timing of that, Jason, is likely to be mid-year to early second half and then, obviously, the toxicity studies and the IND prep, we would forecast filing the IND within 12 months of that selection.

Jason Kantor - RBC Capital Markets

So second half of 2011?

Dan Passeri

Yeah, mid 2011 to second half.

Jason Kantor - RBC Capital Markets

And then, you mentioned some possible milestones from Genentech, what are the next set of milestones from Genentech?

Dan Passeri

Yes, we’ll receive milestones for each of the Phase III initiation with 0449. So if colorectal goes into Phase III, that will trigger a $6 million payment and likewise with the ovarian. And then, with the NDA submission for the BCC trial, that will be an additional milestone, that’s north of that.

Mike Gray

But Jason, if you recall, there is about $115 million, 1-1-5 million dollars associated with the small molecule 0449 and milestones we received, 18. So we still are roughly a 100 million left on this drug.

Operator

Your next question comes from the line of Ted Tenthoff with Piper Jaffray.

Ted Tenthoff - Piper Jaffray

Lots of things to discuss. I’m thinking about things a little bit more at the kind of 30,000-foot view here. You’ve done some nice partnerships here and have some additional assets progressing. How are you guys looking to sort of strategically fund and/or partner the pipeline, in particular some of the earlier stage assets going into proof of concept and things along those lines?

Dan Passeri

Yes, very important question, Ted, and what we’ve attempted to achieve is a balanced approach where we’ve had a deep pipeline, where we have no intention of raising additional money until we make significant progress in a number of strategic areas. So the Genentech program is obviously important from a momentum standpoint, and we are looking forward to that readout, midyear. 101, our objective there is to demonstrate a robust body of data showing that this multi-target inhibitor approach i.e. network disruption, which we do believe is the shifting paradigm in cancer therapy when you look at all those combination trials.

Our objective there is to compile a data package that demonstrates that the drug is knocking out a network for a more robust response and we believe we should be able to achieve that within the next 12 to 18 months. Our preclinical pipeline, that’s budgeted right now. So we have enough cash to get well into the first half of 2012.

We will look strategically at a number of alternatives and pursue in parallel a number of options and then, at that time, determine which one is the most attractive to represent our shareholder interest. So we can pull in non-dilutive capital without giving up too much upside that would preferable. So we are looking at, for instance, territory carve out possibilities or shared risk strategies.

Mike Gray

The only other thing that I would add, Ted is that Genentech data in particular will proceed fairly significant milestones. So within this, basically, more or less two year cash life that we have right now, we have the opportunity to extend it significantly with these milestones.

Operator

Your next question comes from the line of Ling Wang with Brean Murray.

Ling Wang - Brean Murray

It seems to me for the Phase II BCC trial, the timeline for data reported is certainly pushed out to 2011. Can you give us some indication for that? Is this matter of a enrollment completion later than expected or the current data, the initial data that is somewhat different from what we expect?

Mike Gray

Yeah, I think, we’re generally trying to project sort of straddling the end of 2011. So having this, sorry, the end of 2010, into 2011 for Genentech data. I don’t think it’s necessarily slipped all that much, Wang. I think, it will probably be earlier 2011 than later 2011, since Genentech or actually Roche in its last update did say, as I think Dan mentioned that they are still playing on NDA submission in 2011 or that they could file an NDA submission if the data is positive, so that would hint that it has to be in the earlier side of 2011.

Ling Wang - Brean Murray

I see. And also for that trial, there are some secondary endpoint with, like PFS or survival, that don’t need longer follow-up. I was wondering what data that would be sufficient for the NDA filing? Will they have to wait for a dose, or definite endpoints to mature or...?

Mike Gray

I don’t think so. No, I mean, that wouldn’t be as you mentioned, that would take a longer time. I think, Genentech hasn’t really provided guidance on what the response rate as a primary endpoint, they haven’t provided guidance on what they think would be suitable to file on NDA. So I think, we probably won’t comment further, but the response rate that was observed in the 33 patients that we reported in the last fall in The New England Journal of Medicine was about 55%, 56%. So the early clinical data is definitely very encouraging.

Dan Passeri

Yeah, so when you couple that with the fact this patient population that has no therapeutic alternative, I think, it’s boding well.

Ling Wang - Brean Murray

Okay and then just lastly, from your understanding because in this Phase II trial there are two different patient population. Will they be revealed separately or as a whole?

Dan Passeri

We don’t have clarity on that right now.

Operator

The next question comes from the line of Ren Benjamin with Rodman.

Ren Benjamin - Rodman

Just a couple of questions, primarily having to do with timing, the Phase IB cohort, can you just talk to us a little bit about when exactly this is going to start? Has it already started? Do you plan on initiating some new sites so that enrollment can be quite robust? And how long do you think this planned cohort expansion would take?

Mike Gray

(Inaudible) So let me start with the last part of that, how long? We are expecting we should be able to complete it in a 12 month period. It will be a little bit longer (Inaudible) I apologize for the interference. We’ve got some interference on the phone. In terms of the initiation, Ren, we are in the process now of launching. So we are hopeful that month and a half, we should be starting to treat patients. We have several clinical sites identified and the investigators are optimistic about the ability to rapidly enroll patients. So we are hopeful we will be able to complete that expansion cohort in a 12-month period.

Dan Passeri

And Ren, just to add on that, in the Phase I, as you are aware, we had two sites, but nearly the majority of the patients I think, I’d say, 21 out of 25 came from one of the centers. So we are definitely trying, we are aware of that, trying to balance this out among more sites. We’ve sent the protocol to (Inaudible) sites and we’ve already heard back from a couple, indication of interest and working on contracts with the first of those. So I think we’ll initiate and we will have a larger number of sites to help us enroll this quicker.

Ren Benjamin - Rodman

You may have said this and I missed it in the translation, how many sites total would you like to have?

Dan Passeri

Five.

Mike Gray

Five.

Ren Benjamin - Rodman

Five, got it. Okay. And then, regarding the responses that you have seen, I think, in the end of the year call, you had mentioned the SD, the stable disease that had greater than 20% reduction in tumor load, probably on their way to a PR after two cycles. Some time has passed since that last update, correct me if I am wrong. Is the person still on drug, have they gone through maybe three or four cycles yet and is the response increasing or have they come off study?

Dan Passeri

Yes, so the short answer to that is the come off study and I will give you the details now. The patient was the very last patient enrolled. We saw a greater than 20% reduction after two cycles which was very encouraging. This patient unfortunately was a very advanced head and neck cancer patient with a very large tumor in the oral cavity, they were actually on a feeding tube. They had a come off study for other complications that had nothing to do with the drug. So unfortunately, we were not able to continue dosing.

Ren Benjamin - Rodman

Okay. Switching gears quickly to the Hsp90 program and I apologize if you’ve already answered these questions when I got dropped off the call. And again, having more to do with timing, the trial is initiated, I am assuming that the first five patients haven’t been enrolled yet since we haven’t seen a press release for the milestone, final milestone payment. Is that correct?

Dan Passeri

That’s right, yes. And it will be a standard dose escalation, so the first three patients will have to get through safely and then basically the second patient in the second cohort.

Ren Benjamin - Rodman

Got it. And has Debiopharm provided any additional clarity as to just how long this trial could last? And when we might see some data from this trial?

Mike Gray

Yes.

Dan Passeri

Yes, that’s standard 12 to 18 months timeframe. They are actually going to be doing a very deep robust survey, to follow, total number of patients to go up to 80, I mean, they are basically testing in every other day which is I think more of the traditional Hsp90 dose schedule...

Ren Benjamin - Rodman

All right.

Dan Passeri

For oral Hsp90 and daily based on the...

Ren Benjamin - Rodman

Right.

Dan Passeri

The preclinical safety profile. But that’s an important attribute of the trial design. They are going to be surveying two dosing schedules, Ren, to look at the safety profile every other day and that’s very much supported by preclinical data where the PK and the plasma is substantially different from the tumor, and the tumor, the drug is degraded at a much lower rate. So that it is in favor of an every other day dosing schedule where you would have it cleared in the plasma and retained in the tumor. However, the drug did have a very attractive safety profile, so they are also trying everyday dosing and as Mike stated it’s up to 80 patients

Ren Benjamin - Rodman

For every other day and every day?

Dan Passeri

Yeah.

Ren Benjamin - Rodman

To 80 patients and I apologize, can you just remind me of the entire schedule, is it three weeks on, one week off, how is that looking?

Dan Passeri

I would rather actually clarify that to make sure I am accurate and get back to you on that. I don’t want to say something that’s inaccurate. I don’t recall the specifics of it.

Ren Benjamin - Rodman

No worries, just one final question on the preclinical pipeline. There was a lot of interest at AACR this year and there were probably rows of posters having to do with companies developing combination drugs or all-in-one drugs and knocking out multiple pathways, so your network disruption, I mean hypothesis has caught on fire. Have you gotten any inbound calls or are there any discussions right now with potential pharma partners even at a preliminary stage or is this one of the assets given your cash positions, is this one of those assets that you would rather see develop a little bit further along, let’s say into the clinic Phase I or Phase II before entertaining partnering discussions?

Dan Passeri

So it’s certainly in that category. We want to hold on to this as long as we can. We do believe that this represents a potential breakthrough approach. We do not want to just license this out to a pharma company at this point, but to qualify the first part of your question, we are getting significant amount of interest and inquiries as to the drug’s activity and I do believe that this approach is really starting to take route in the field. I think, when you look at the clinical observations of a number of these highly specific inhibitors, the data clearly suggests that a specific node of intervention is albeit attractive in that it’s targeted, it’s not enough. You need to hit the network. And it’s going to follow a suit much like what we saw with HIV therapy where they use cocktails. So there is a growing interest in this concept, the fact that our preclinical data shows a very robust suppression of the network is starting to raise some eyebrows and I think, a number of pharma companies are watching the clinical trial data carefully.

Operator

Your next question comes from the line of Jason Kantor with RBC Capital Markets.

Jason Kantor - RBC Capital Markets

Thanks for taking my follow-up. Just wanted to make sure I understood on the P&L, so are you showing the full 4 million from Micromet on the top line?

Mike Gray

Yes, it’s flowing through revenue.

Jason Kantor - RBC Capital Markets

Okay. So when we look at the four plus eight, that’s pretty much most of your revenue there?

Mike Gray

Yes.

Operator

Ladies and gentlemen, this concludes the question-and-answer portion of the call. I’d like to turn the call back over to Mr. Passeri for closing remarks.

Dan Passeri

Well again, thank you very much for your attention. This is a very exciting and important period for the company and we look forward to giving you updates as they become available. Thank you again.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation and you may now disconnect. Have a wonderful day.

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