Neurobiological Technologies F2Q07 (Qtr End 1/31/07) Earnings Call Transcript

TRANSCRIPT SPONSOR

Neurobiological Technologies (NTII)
F2Q07 Earnings Call
February 12, 2007 10:00 am ET

Executives:

Paul E. Freiman – President and Chief Executive Officer
Craig W. Carlson – Vice President and Chief Financial Officer

Analysts:

Michael Yee – RBC Capital Markets
Russell McAllister - Merriman Curhan Ford
Elemer Piros - Rodman & Renshaw
Stephen Dunn – Dawson James Securities
Martin Silton – Private Investor

Presentation

Operator

Welcome to Neurobiological Technologies second fiscal quarter 2007 earnings conference call. Today’s call is being recorded. Except for historical information the matters discussed on this call are forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include those set forth in the company’s reports on form 10K and 10Q as filed with the Securities and Exchange Commission.

Except as required by law we undertake no obligation to update any forward looking statement we make today to reflect events after today’s call. Further, we note that the information, data, and statistics presented on this call are those of the company alone and in no way should be attributed to the company’s corporate or strategic partners.

Now at this time, for opening remarks and introductions, I would like to turn the call over to President and Chief Executive Officer, Mr. Paul Freiman. Please go ahead, Sir.

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Paul E. Freiman

Thank you Tony. Good morning everyone and I hope all is going well for you and I think many of you are in a frozen and snow besotted part of our country, but we’re not doing much better out here with rain. However, good morning and greetings.

This is a propitious time for this conference call as we just ended a week long International Stroke Congress which really is the top stroke meeting in the world on Friday, and I will provide you some information from that meeting. I think you’ll be quite pleased with it.

I also would like to comment that over the past few weeks we’ve seen our stock go from a recent low...but is now starting to bounce back. It’s still certainly not where any of us as investors want it to be but we’ve seen about a 25% increase in just a few weeks. Part of that is as a result of a pick-up report on our company on the part of two analysts, one from Merriman and Company and the other from Dawson James which certainly is getting the word out more and more on the street, so I’m delighted with that.

I’m going to turn the meeting over for the financial portion to our CFO Craig Carlson who you met via phone at the last quarterly conference call. Craig is going to report on the earnings and make a couple of financial statements and then we’ll come back to me and I’ll go through the product list with you. So Craig would you please take over.

Craig W. Carlson

I sure will and thank you all for listening in bright and early this morning. Let me begin just by reminding everybody, just because…for us it seems a little while ago, but it was only this past quarter that we filed our restated 10K. That obviously was something that we were focused on to get that cleaned up. That is currently behind us now and we’re looking forward to the future after getting that all completed. As an overview on the quarter, we performed pretty much on target from what we had broadcast internally and I’ll go through some of these comments for you.

As we stated in our information, total revenues of $4 million represented a very significant increase from the prior year quarter but as we indicated in our narrative, this needs to be understood in the context that in the 2005 quarter it was just the beginning of a revenue recognition program from the Xerecept Caltec transactions. So it’s a little bit of apples and oranges from that standpoint.

With the technology sale in collaboration for 2006, we will recognize every quarter $1.375 million and again that’s out revenue recognition from the $33 million sale. And our reimbursement for the quarter was $990,000 which was a little bit less in terms of expenses than we had anticipated.

Royalties from Memantine reached $1.7 million. That’s a 30% increase from the prior year. Nice jump from the prior year. It was a 4% increase from the prior quarter which actually was slightly lower than we had forecast and we’ll touch on that a little bit more as we go forward.

From an R&D standpoint, total expenses were $5.7 million. That’s a 22% increase from the prior year. The majority of the R&D expenses, about $4.6 million were related to Viprinex. Xerecept expenses were $1.1 million, a little lower than anticipated, and that was due largely to a delay of certain clinical activities and manufacturing activities to future quarters.

Our G&A expense, about $1.6 million, was flat from prior year, so for the quarter our net loss was $3.1 million or $0.11 per share. From the six month review, revenues of $8.8 million increased $5.4 million from prior year, again largely reflecting the increased Xerecept revenue recognition and expense reimbursement compared to prior year.

The technology sale and collaboration that I mentioned prior…we recognized $1.375 million so double that is $2.75 million on the revenue recognition sales of Xerecept with $2.8 million related to reimbursements. The royalties from Memantine were $3.2 million, a 40% increase over prior year.

For the six months, R&D is $11.5 million, an increase of $3.5 million from prior year. Viprinex accounted for about $8.5 million of our total R&D expenses for the six month period.

Our G&A was a little less than prior year at $3.1 million and the higher amount of G&A in the prior year had a lot to do with additional legal expenses related to the Xerecept sale transaction. So we ended with a net loss over six months of $5.5 million or $0.19 a share.

With regards to our cash and investments, we ended up with $7.4 million. This compares to prior quarter of $11.1 million and June 30th we had $15.2 million. In January we received the $4 million final Caltec payment for the asset sale so we will not be receiving any more payments from them specific to Xerecept. We of course will continue with our collaboration services agreement where our expenses are reimbursed by Caltec.

Also in January, we received a $1.7 million royalty payment from Memantine. This is about a 3% increase from the last payment. The last two payments on a prior quarter basis from Memantine were a little less than we had anticipated. The 4% increase I mentioned earlier, and this most recent 3% increase.

I want to spend a couple of minutes commenting on the forecast for the remainder of this fiscal year. Our previous guidance two year was as follows: We estimated total revenue from royalties of $6.5 – $7.5 million. We’re going to tighten that range up because, as I stated just a minute ago, the rate of growth is a little less than we thought. So we think the royalty is now going to come in somewhere between $6.5 -$6.8 million by the end of this year, from a reimbursement of Xerecept, which as you recall includes part of our revenue recognition on the reimbursement from Xerecept expenses.

Our previous guidance was $8 -$9 million for the year. We’re going to reduce that down to $7 - $8 million and think that it is probably going to come in closer to the lower end of that range, and that has to do partially with the fact that there were certain expenses that we had assumed in our budget that we would be responsible for paying and some of those expenses will be paid directly by Caltec. So, we will not be in the middle of that, therefore we will not incur the expense, nor will we get reimbursed for that as a result.

Also the revenue recognition for the Xerecept sale is at a $5.5 million annual rate as mentioned before, so our total revenue range is somewhere in the neighborhood of $19-$20.3 million and is our guidance going forward from here.

From an expense standpoint, speaking first on Viprinex, our previous guidance was $18-$19 million. Our six month amount was $8.6 million for Viprinex but we anticipate a pretty significant increase in the second half of the year so the new range from Viprinex will go from $18-$19 million to $18.5-$19.5 million and I would steer you towards the higher end of that range.

As mentioned to you earlier, the Xerecept was about $7-$8 million. Our G&A will probably be around $6.2-$6.3 million so we see our total expenses for the year, ending June 30th will be somewhere in the neighborhood of $32-$34 million. With revenue, as I mentioned, somewhere in the neighborhood of $19-$20.3 million.

One of the things that I also wanted to address which we have addressed in all our SEC filings in our previous conference calls is that with a cash and investment balance of about $7.4 million, we will be needing to raise cash before the end of this year and we have been examining quite closely what our different options are for doing that and will be moving forward with the appropriate approach at the appropriate time.

Again, it’s certainly going to be before the end of this fiscal year. I should add that we also have an S3 on file with the SEC for $25 million.

So that summarizes our quarter and our six months. I will hand it back to Paul to give a business overview.

Paul E. Freiman

Well thank you Craig and I’d like to talk about the three bundles if you will, the three boxes of products that we deal with, Viprinex, Xerecept, and Memantine, with most of the focus on Viprinex because there is no question that’s what’s driving both our expenses and the upside of opportunity as we go forward.

I started out by saying that we just ended the International Stoke Congress which was held in San Francisco. There’s over 4,000 stroke people that come to this meeting and one of the things that strikes me is that we actually saw more device companies displaying there than drug companies. There are very few left standing. I want to get into that as we talk further.

So let me start about with regard to some of the activities that took place at this meeting, because they are really exciting. We made our mark at this meeting. We decided to put money behind it. This is a rare opportunity to get everybody under one roof.

So, starting out on the scientific side, there were two abstracts presented. One by Dr. Demartial of Bark-Demartial of Mayo clinic in Arizona who did kind of a meta-analysis of all the work that has ever been done on Viprinex by Nole.

It’s of interest…meta-analysis is basically of a blending of all your trials. And, interestingly enough, we had two successful trials in the United States and one highly unsuccessful trial in Europe. A trial called ESTAT.

Those three trials were blended together and analyzed and we just missed, actually we came fairly close to having a positive P, even with a large negative trial in Europe, which made us feel pretty good.

Secondly, there was a presentation or a poster by David Levy, our medical director that outlined our two clinical trials, the ongoing trials named ANK1 and ANK2, ANKRA stroke program one and two. And that was a very nice piece and it’s something we can use on an ongoing basis.

And then third, there was a presentation by Dr. Levy to a plenary session. And it’s a real interesting one for those of you who are new to the company as our drug works in a multiple manner. The main activity, the main biological activity is an attack on fibrinogen in the blood. Fibrinogen is a sub-straight for fibrin which is the main makeup of the clot.

And, what David presented interestingly, was to look at the importance of fibrinogen in determining the outcome of a stroke. And, what he did was go back in the clinical work that had been done.

And, instead of looking at the active drug, he looked at the placebo patients, and measured the fibrinogens of patients coming in. And it clearly shows that fibrinogen has a great effect on the output, a great effect on the outcome of the patient if you will. The higher the fibrinogens for the patient going in, the worse that patient does. So attacking fibrinogen appears to be an important mechanism of action.

And speaking of mechanisms of action, we developed a mechanism of action-video, which is quite exciting. It drew a lot of attention, because we’re really delineating why this drug is different than all other stroke agents.

The stroke, I’ve learnt over the past couple of years is not a simple disease state or a simple condition. It’s a very complex process that’s taking place in the body and a number of systems are involved.

And, I’ve had a couple of doctors at the stroke meeting say that they like the idea that we have a drug that has multiple mechanisms of action for a condition that has multiple causes.

And, to run through this very quickly, we attack fibrinogen, we have an enzyme that breaks it up, and it prevents the formation of further clotting of more fibrin. It has an indirect effect on breaking up the clot on Fibrinolysis, a very mild effect and one that we think will help minimize side effects, yet to be proven of course. We have to prove it in our current clinical trial program, but that was exciting.

We also put together a very lovely booth with this video in it. It was right at the entrance of this meeting and we actually were the first booth seen as physicians came into the floor. We were absolutely mobbed. I would say we had the nicest looking booth at the show.

We also sponsored two, what we call lunch and learns. We invited people to a suite to come up and listen to David Levy lecture on our product and at the same time, of course provided them with a boxed lunch. We had two of these and there were a hundred people roughly that showed up at each one of these meetings. It was standing room only for the program. And a lot of these people are nurse coordinators and their physicians. These are like the sergeants in the army who really you know run the program and we picked up an awful lot of people who expressed interest in joining in on the trial and that’s important to us because we want to put on more and more sites both here and outside the country.

As part of that we also had individual KOL, Key Opinion Leader meetings with a great number of physicians. It was scheduled mostly day and night, and coming out of that two distinct things occurred that pleased us to no end.

We are looking for an expansion of a clinical trial program outside of the U.S. where recruitment tends to be much higher. And we learnt from other companies that two of the top recruiting sites in the world are Taiwan and Israel. And in that regard, the top stroke expert in Taiwan reached an agreement with us to bring 15 of his hospitals into the program. We are probably going to start those in May which is very quick going through IRB’s and alike.

And in Israel we also signed an agreement with the top Israeli stroke expert to bring in between eight and ten of his hospitals in a consortium. So we are really spreading the net. Israel should be on board around May as well.

Further, we had a reception inviting everybody at the meeting to come up and have a glass of wine and get to meet us and know us. And the reason for that, I mean quite frankly, NTI is not known by the stroke community or has not been known by the stroke community in the same light as AstraZeneca and Boehringer Ingelheim and alike. We became quite prominent at this meeting and the awareness increased dramatically. So, this was a very good thing for us to be doing.

We also, on Friday of this week, held an advisory board and steering committee meeting where we had 14 of the top stroke experts in the world join us. They are a permanent group, one being an advisory board that looks at the science and the other the steering committee which looks at the clinical trial program. They gave us some really good advice but the relationships that had been built with this group are quite extraordinary and we had just had a top notch bunch of people.

In news, there's quiet a bit that's been going on I must say. Clinical trial program as you know started out slow but it's been picking up steam. It's particularly true as we move outside of the United States.

I've learned from people who ran one of the largest, in fact, the largest trial ever in stroke that recruitment in the United States for them was under half a patient per month per site. And in Europe, and actually in the rest of the world, that number rises to about 1.2 patients per site per month.

So we clearly are trying to spread our net further, outside of the United States.

We're in a number of countries now and I think with the addition of Taiwan and Israel, the boost that we see right now is going to be supplemented.

In other interesting news, the German B.Pharm, that's the German FDA…we had a meeting with them about two weeks ago now, and this is the place were we had the failed European trial, primarily a German trial and you need to get national approval to move forward on a clinical trial basis in any European country.

We had made one presentation to the German authorities, they had a lot of questions and we came back with the answers and I must say that the product is no longer on a clinical hold in Germany. We can move ahead there.

We have some work to do on the CMC side, that's the manufacturing side, just for Germany and something that we think can be addressed again by May, so May is going to be an important month for us.

Germany is probably the most prestigious country in Europe in terms of stroke, so we're happy to have them on board.

Again in addressing Europe, we've been working with a small CRO, a clinical research organization, to help us bring sites in and we feel that we need more clout and to that end have hired ICON, which is a major international CRO to run the European trials for us. We've worked with them in the past on Xerecept and there's a lot of personal relations there, so it will I think be very very good for patient recruitment.

So let me move away Viprinex, right now and move to Xerecept.

I had told you at the last meeting that we expected to have an interim analysis sometime in January, maybe February, and all we're waiting for is for the DSMB, the drug safety monitoring board to gather. That should take place, I believe it's February the 23rd, so we're getting real close to an interim report on Xerecept.

We continue to recruit patients nicely and it appears to me that sometime in 2008 the trials will have ended, a submission will be made to the FDA, and with fingers crossed, Xerecept will be a product on the market if it's successful in these trials in 2008. So, exciting times are ahead on that one.

With regard to Memantine, for those of you who again are new to the phone call, Memantine is providing good royalties for us. Craig talked about a 3-4% increase per quarter, a little less than we anticipated.

Most of that little less is coming out of the European piece of it, where the sales seems to be not flat but flattening, much more than what's going on with Forest in the United States, in fact Forest announced a record quarter just a few weeks ago in terms of sales and that will be reflected in the next check that we receive next quarter.

With regards to the Children's Hospital indications in Neuropathic pain, the AIDS dimension of Huntingtons disease, those discussions between the parties and the parties are Merz, Children's Hospital and ourselves, continue to go on.

I was out in Frankfurt a few weeks ago…we continue to move forward on this. I don't want to make any predictions at this point but you'll hear from us as soon as possible as for the outcome of what's going to happen with Memantine and its royalties.

Last but not least, I'm going to go back to Viprinex and just touch on, I think, probably the most exciting thing that's been going on. You know we're deep into the trials now. We've got around a couple of hundred patients. The trials are blinded to us, the Drug Safety Monitoring Board are the only ones that know what's really going on, but we have learned a few things that I can share with you.

In terms of the DSMB the Drug Safety Monitoring Board, three meetings have been held. Each of those meetings came out with a positive result for us in terms of their saying: “continue to the next level”.

DSMB have the capability of stopping a trial for safety reasons. We don’t have any clear picture on what's happening with regard to efficacy but on safety we are passing all the hurdles.

The number of bleeds for the entire trial are very very light, such as, they're around a placebo rate, and we don’t know whether the patients who bleed are placebo patients or ANKRA patients. But, if they're all our patients it still would be a very low level. So we're encouraged by that.

The second piece of encouragement is that fibrinogen is so important in these trials and we had established a pattern that we're trying to follow with the new dose of ANKRA that's being used in both the trials. We are hitting those patterns very very well.

In all but one case we've seen all the patients go down to levels of under 40 milligrams per deciliter, this is a low level of fibrinogen. We see that in the first 24 hours. Within 48 hours we're seeing everyone over 70, which is our target, and within 72 hours we're seeing everyone over 100, which is in the normal range. So things are looking good from that stand point.

Again this is just biological mechanism, but if it weren't showing these patterns, we'd be worried, so thing are going quiet well on that front.

So with that, I'll stop blabbing and open this up. Tony if you could start taking questions, I'd be happy to try and answer them, and Craig is on the line as well.

Question-and-Answer Session

Operator

Absolutely sir. The question and Answer session today will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit one on your touch tone telephone. If you are using a speaker phone, please make sure that your mute function is turned off to allow your signal to reach our equipment. We will proceed in the order that you signal and we'll take as many questions as time permits.

Once again please press star one, on your touch tone telephone to ask a question at this time. We'll pause for just a moment to allow everyone a chance to signal.

And we'll go first to Michael Yee with RBC Capital Markets, please go ahead.

Michael Yee – RBC Capital Markets

Hey Paul, how you doing?

Paul E. Freiman

Hey Michael, how are you?

Michael Yee – RBC Capital Markets

Thank you, good morning.

Couple of quick questions. Can you talk about any potential partnering discussions around Viprinex, either potential partner before or after the data and can you remind us where you are in terms of enrollment of the trials? Where you are in terms of where your expectations were and when you think that can be complete, when data can be released? I’ll pause there.

Paul E. Freiman

Ok fine, as far as the partnering is concerned, we're having a whole series of meetings with major pharmaceutical companies now.

The response from the first few earlier, I'd say a few months ago, was that we're really interested but we want the data before we do anything.

I've engaged a couple of multiple talks now with large companies as well who have not come up with that paradigm yet. My suspicion is that it would be a lot easier to strike a deal once we can show some data namely, the interim-analysis. I may be wrong in that, but the interest level seems fairly high for a couple of these guys now. So in some ways it will pay more later with data, so it's a negotiation. I hope that helps Michael.

As far as data is concerned everything is driven by the number of patients we have in the trail. And as I say we're starting to show a nice increase in that sense. And I would say by mid-year we really should be flying because of the net going wider in Asia and in Europe. I'd say that by the end of this year to the very first quarter of next year we'll have our interim analysis finished, which is slower than we had originally anticipated, but it is what it is. We're turning over every stone that we can to bring patients into the trial.

Interestingly enough, the competitors have been slowly falling it seems, one at a time. And even though there are a few new smaller trials being started around the world…a comment from an Australian investigator at this meeting where he said, "You know you're the only guys doing trials right now, we really want to work with you". So life has been made easier with the demise of the Saint trail which was the AstraZeneca trial and the completion of the enrollment for the Desmodaplace second trial. So we're seeing more sites open up so that's a healthy sign. It fluctuates, but we're seeing, that hockey stick I talked about is taking place.

Michael Yee – RBC Capital Markets

So you expect potential in interim analysis around end of the year for Q1?

Paul E. Freiman

Yeah.

Michael Yee – RBC Capital Markets

OK. And how far behind is the second trial?

Paul E. Freiman

The second trial is about a half year behind. But I'm not sure at this point that we will do an interim analysis on the second trial. I mean basically the first and the second are looking at very similar endpoints. And if we can get enough data out of this first trial to either say go or no go…there seems to be questions certainly in the scientific community whether we have to do that.

Michael Yee – RBC Capital Markets

OK, great.

Operator

And we'll take our next question from Russell McAllister with Merriman Curhan Ford. Please go ahead.

Paul E. Freiman

Good morning Russell.

Russell McAllister - Merriman Curhan Ford

Good morning, thank you for taking the question. I guess I'll start off with a housekeeping question for Craig. Craig, the R&D of $5.7 million in the quarter, did that include the one-time payment to Nordmark for the snake facility or was that amortized?

Craig W. Carlson

No, that did not include that payment. We were a little bit less on our Viprinex expenses than we had anticipated and considerably less on the Xerecept expenses than we had anticipated. So that really explains the difference. The Nordmark payment occurred in January.

Russell McAllister - Merriman Curhan Ford

So that will show up in full in January R&D

Craig W. Carlson

That's correct, that's correct.

Russell McAllister - Merriman Curhan Ford

Terrific, and then Paul, some Viprinex related questions for you. Could you talk for a moment about how the program for Viprinex differs from Forest's program, or Desmodaplace in terms of screening, criteria etc…

Paul E. Freiman

Yeah, that's a very good question. Desmodaplace is the vampire bat saliva venom if you will, that is being developed by Pion and Forest. They're determined to use special imaging, fusion repro-fusion imaging which is essentially MRI, to screen all patients coming into the trial. And this screening, in a sense, cherry-picks those patients that have a visible, what's known as a penumbra or a shadow around the side of the stroke and they’re aiming at patients that they think their drug can help with regards to the fact that there are still living cells around there.

This is quite an interesting approach scientifically, I think it's terrific and I think imaging is going to grow more and more over the next decade. So they are cherry-picking patients. On the other hand, we're taking all comers into the trial because that’s what happens in an emergency room with patients who come in all sorts of shape. And we want to know what happens with that drug in the general population. We'll probably have more failures because we are taking on extremely sick patients. We're also going to have a lot of wins. And frankly, and in talks with the FDA, they're very interested in knowing what's going to happen to the larger population of patients.

The second thing is that the MRI is not found in most emergency rooms of hospitals. I think if any of you have ever had an MRI, just think how long it takes to get an appointment just to get into one of the bloody things. So in the case of Viprinex, we have to do a cat scan and cat scans are available in just about every emergency room in the world.

And if you start looking outside the United States there are virtually entire countries that don't have an MRI in any emergency room. And I can cite the UK as part of that. So for that reason you have to catch a lot of frogs to get people into that Desmodaplace trail and again, we're all comers. So really it's a fork in the road. It's two different approaches. I think their approach is an excellent scientific approach. I think our approach is an excellent practical approach.

Russell McAllister - Merriman Curhan Ford

Thanks that very helpful and then in terms of dosing, is Desmodaplace similar to Viprinex in terms of it being sort of front loaded?

Paul E. Freiman

No. They had done an earlier trial with about five doses of Desmodaplace in it and they had reached a middle ground where they saw, at least in the small patient population, that bleeding was minimal. They had high bleeding, as they came up to high doses.

I think the important thing here, Russell, to think about, is that their drug acts quite differently than ours. Whereas ours is a defibrinogenating agent with fibrinolytic effects, secondary effects, theirs is a very powerful fibrinolytic. It bangs away at the clot immediately and that's its only mechanism of action. So you would expect to see a lot of differences in the way the drug behaves in the body.

Russell McAllister - Merriman Curhan Ford

That's very useful. Thank you.

Paul E. Freiman

OK.

Operator

And we'll go next to Elemer Piros with Rodman & Renshaw. Please go ahead.

Elemer Piros – Rodman & Renshaw

Good morning Paul.

Paul E. Freiman

Thank you Elemer, how are you?

Elemer Piros – Rodman & Renshaw

Good thank you. Paul if you could remind us, the interim analysis will take place on how many patients?

Paul E. Freiman

325

Elemer Piros – Rodman & Renshaw

325?

Paul E. Freiman

In one trial, yeah.

Elemer Piros – Rodman & Renshaw

OK, and a couple of housekeeping questions. I may have missed these numbers Craig, I apologize. The revenue recognition for the sale of Xerecept, what was it for the current quarter and do I remember correctly that this was the last piece?

Craig W. Carlson

Yes, a couple of things. The revenue recognition is spread out over this $33 million and goes out through November 2005. So we recognize revenue at the rate of $5.5 million per year.

Elemer Piros – Rodman & Renshaw

$5.5 million per year?

Craig W. Carlson

Yeah $5.5 million per year.

Elemer Piros – Rodman & Renshaw

Per year?

Craig W. Carlson

So it's $1.375 million per quarter.

Elemer Piros – Rodman & Renshaw

$1.375 million, yes yes yes.

Craig W. Carlson

And then, so the $4 million payment that we received in January, that will not be separately recognized, that is part of that overall $33 million sale that occurred?

Elemer Piros – Rodman & Renshaw

So for the remainder of this fiscal year and for fiscal 2008, you still have the $1.375 million recognized per quarter?

Craig W. Carlson

Per quarter, that is correct.

Elemer Piros – Rodman & Renshaw

Ok I think I understand it now. The next question still related to Xerecept, it was $1.8 million in the first fiscal quarter, what was it in this one?

Craig W. Carlson

Our actual expenses were $1.1 million, our reimbursement was $990,000. We do have a payment lag from a quarter standpoint. So that was a fair amount less than we had anticipated. And that was a combination of a timing shift on some activities that Xerecept chose to do that did not happen in the quarter that ended December 31st. And the other piece of it…there are certain costs that we have historically paid directly to Caltec.

We have started, and a little bit in the end of this quarter. Now, going forward there are going to be certain expenses that will go directly to Caltec. These are more manufacturing, commercial related expenses, so instead of having them funneling through NTI that gets recorded as an expense and therefore we get reimbursed on, that invoice goes directly from the vendor to Caltec who pays directly. So that’s why I was reducing our overall estimate of expenses from $8-9 million earlier to $7-8 million with guidance closer to the $7 million piece.

Elemer Piros – Rodman & Renshaw

And so the $7-8 million includes both the reimbursement you get for R&D and the revenue recognition for the sale.

Craig W. Carlson

No, the $7-8 million is purely our expenses and therefore reimbursement will be directly related to that. So, for example, the revenue recognition of $1.375 million is independent of that $7-8 million estimate I provided.

Elemer Piros – Rodman & Renshaw

Then I have a follow up question here, because if you recognize $1.8 million in the first quarter, roughly $1 million in the second quarter, that’s $2.8 million. So you expect to recognize over $5 million or somewhat less than $5 million in the second half of the year?

Craig W. Carlson

Yeah, there are some expenses that were fairly larger kind of expenses related to manufacturing and some other activities that we expected to occur in December that’s probably going to be moved off into this quarter.

Elemer Piros – Rodman & Renshaw

OK. To see the SG&A line at $1.6 million, do you expect this to be fairly steady during the next six quarters or so?

Craig W. Carlson

Yes. No significant increases. Maybe just some kind of cost of living type increases.

Elemer Piros – Rodman & Renshaw

Thank you, Craig. And Paul, a question for you.

Regarding the Xerecept interim-analysis, you mentioned that the DSMB is going to be looking at meeting on the 23rd of February. Is that right?

Paul E. Freiman

That’s correct.

Elemer Piros – Rodman & Renshaw

How likely do you think that you would get the interim analysis results in the first calendar quarter of the year?

Paul E. Freiman

Oh, we will.

Elemer Piros – Rodman & Renshaw

Thank you.

Operator

As reminder, that’s star one at this time if you would like to ask a question.

We’ll go next to Stephen Dunn of Dawson James. Please go ahead.

Stephen Dunn – Dawson James Securities

Good morning Paul and Craig.

Craig W. Carlson

Hi Steven, how are you?

Stephen Dunn – Dawson James Securities

Good. Congratulations on a strong stroke conference showing.

Craig W. Carlson

Well, thanks.

Stephen Dunn – Dawson James Securities

Both my questions were answered. I’d just a little color, I think, from Paul. You were talking about the German regulators and what factors are they looking at. What was the most persuasive factor? Was it the hypertension or what was it that made them change their mind?

Paul E. Freiman

Well, it isn’t one thing. But again let me get into the failed trial that took place in 2000. Beieve it or not, in the hands of Nole in Germany, and the trial was a very large one, there were over 1000 patients in there and it was a disaster. So what we’re looking at is a retrospective analysis, it’s not a prospective analysis which is always a second best look. But we formed a hypothesis, and it kind of goes like this. Is that the dose of Viprinex that was used in the German trial and I’d say it’s the mean dose, this was given across a period of five days, was 25% higher than the dose used in the United States.

Now, put that in the context that one cc of this snake venom gives us a 150 finished vials of product. This is a very, very powerful drug and the dosing is very important, so that increase in dosage we thought was quite significant and apparently the authorities must have felt the same way.

The second thing is that in every clinical trial there are entry exclusions, certain people that you have to keep out of a trial. In the case of stroke, the biggest exclusion criteria is extreme hypertension. That’s defined in the United States as 185/105 and the ESTAT, the European trial, they allow patients in at 220/120. That’s a very high level of blood pressure, and if you look at the bleeding, you see that a great number of bleeds and deaths occurred in patients that would not have been eligible to come in to the American trial.

And the third factor that we think is very important, you can kind of predict who is going to do better in their recovery from a stroke based on several criteria. One is age and the other is pre-stroke conditions.

I’m talking about age. We are talking about cohorts of patients that are under 65, 65-75, 75-85, and 85 and higher, believe it or not. We know that patients who are older have less chance of recovering fully. They are more difficult patients.

It turned out that in the European trial that there was a huge spewing of younger patients toward placebo. It happens as randomization didn’t work and a spewing of patients over 85 into our drug. So those factors all put together seem to influence the authorities.

And I mean speaking of age by the way Steve, this tickled me, I learnt that one of our patients that could be placebo, it could be an active patient, is a hundred years old. And she apparently had survived this stroke. And, we will find out if it’s our drug or not later on. But you get a lot of old folks coming in with strokes so it’s important to have a drug that is relatively safe. Does that answer your question?

Stephen Dunn – Dawson James Securities

It does. Just one quick follow up. Regarding the enrollment process, as we’ve known that the involvement in the U.S. has been a little slow, are you seeing a pick up or are you anticipating a pick up because of the other trials? Was there any talk of that?

Paul E. Freiman

There is not only talk but I mean one of the top presentations at this meeting was the results of the same trial. And, it was a pretty full house trying to hear that one out. We are seeing an increase in the United States not as much on a per sight number of patient basis but on more sites coming in. And, it’s clear to me that we have to spread the net broadly to wind up somewhere in between 150-175 sites on a global basis, but we’ll do it.

We have sites that have not enrolled a patient in the U.S. and we have one site that has enrolled 19 patients already so it’s all over the lot.

Stephen Dunn – Dawson James Securities

All right, great, thanks and congrats on the stroke conference.

Paul E. Freiman

Thanks you very much Steve.

Operator

And we’ll go next to Martin Silton, private investor please go ahead.

Martin Silton – Private Investor

Alright, hi Paul.

Paul E. Freiman

Hi, how are you?

Martin Silton – Private Investor

My question is when the interim analysis…when you get the interim analysis, is that made public or are you able to make that public?

Paul E. Freiman

We will make a statement.

Martin Silton – Private Investor

Oh, you’ll make a statement?

Paul E. Freiman

Analysis is focused in on safety. That’s the prime reason for the analysis. If the thing isn’t working at all, we’d certainly know about it and let everybody know.

The interim is important to me for the following reason: Companies are smart if they can kill drugs early. If you just hang on and hope, you can spend an awful lot of money without a result. You want to know fairly clearly whether you ought to go forward or not.

We are optimistic that we will go forward but every CEO will tell you the same thing so take this all Martin, with a grain of salt. But we feel good because we had over 2,000 patients on the historic trials if you will, and a couple of hundred now, and things particularly now…these new trials are different than the old ones. But again the three DSMB meetings have been positive. So we keep chugging away.

Martin Silton – Private Investor

Ok, so assuming that you decide to go ahead. Are we talking about now another year or two years after that before the trial is finished?

Paul E. Freiman

I am thinking that we will have our results in ‘09 and that will be finished then. We will submit through the FDA that year and hopefully because we are a fast track, get a pretty quick approval…again, if the date is right. So 2009 is probably as good as we can do. I will make some comments at the end of this meeting that will address a few more things around this Martin, Ok?

Martin Silton – Private Investor

Ok. Thank you very much

Operator

And we’ll take follow up questions from Russell McAllister with Merriman Curhan Ford, please go ahead.

Russell McAllister - Merriman Curhan Ford

Hi Paul, thank you for taking the follow-up.

Paul E. Freiman

Sure.

Russell McAllister - Merriman Curhan Ford

Based on your earlier comment about the ESTAT trial and the potential causes of that failure, I can certainly understand the difference in screening criteria for hypertension and ages being the factors. Do you know why Nole decided to elevate the dose for that trial versus the US trial?

Paul E. Freiman

Yeah, this is all anecdotal but our David Levy, our medical director, worked for Nole. I mean he was the head of the US trials and when he ran or finished a small trial, a phase two trial, where there were no bleeds, and it was kind of a low dose trial.
The second trial that he ran was a larger trial, a phase three, it was successful but he saw some bleeds and he had raised the dose by 15% over the initial trial.

At the end of that trial he said, “whoops”, you know I probably should have kept the dose down where it was over the five days of therapy and told the German's that he would recommend very strongly to reduce the dose at that point.

They had some professors as is the system in Europe who advised them that they should push the envelope even further, that they thought it was safe. And these people did not listen to Levy so he protested in vain. And I'm told at that point they just marched off with stronger doses.

So there's no real rational, it might have been a bit of arrogance for all I know, but what's clear is that in our estimation at least, that the dosing played a key role.

If you look at the 25% increase from trial three to trial two, and a 15% increase from trial two to trial one, that's a massive increase.

Now our trial, again to put it in perspective, and I don't think I've mentioned this, is a one day trial. We give a three hour infusion. We don’t give this over five days, and that's a critical difference than anything that's been done before.

So we give a very high, strong dose of product that bring fibrinogen levels down quickly, and that's extremely important, and then we stop giving it.

So essentially, we are giving almost a tenth of the dose over all that was given in the German trial. And we're feeling pretty good about that.

Russell McAllister - Merriman Curhan Ford

And the thought at least on the part of the German however incorrect in hindsight, was that by pushing dosage they could increase efficacy?

Paul E. Freiman

That's correct.

Russell McAllister - Merriman Curhan Ford

Perfect, that's very helpful, thank you.

Paul E. Freiman

OK.

Operator

And with no further question left in the queue, I would like to turn the conference back to our moderator Mr. Freiman, for any additional or closing comment.

Paul E. Freiman

So, I guess this is my moment in the sun, or the snow, whatever it is, but coming out of that stroke meeting, the thing that struck me most was the fact that this is such a serious disease, and I call it a disease, it's a condition. It’s such a serious condition with so little treatment available.

EPA looks like a fine drug that works for up to three hours, Desmodaplace is being developed to extend the window up to nine hours. It's a clock buster.

We're left standing with a drug that works totally different than all other agents, and there's such a great need out there.

We talk about the cost of G&A and R&D. I'd like you to think about cost of lives in terms of what good we could be doing if this damn thing works.

In terms of all the failures, and now there’s over 60 failures in stroke, almost every single one was a neuroprotectin agent.

The three successful trials that have ever been run are TPA, a product called Prourokinase, and Viprinex in its US phase three trial and the commonality is that all of these drugs restored blood flow to the brain, they were reperfusion agents. And that's the game that we're in.

So I'm excited about the prospects of this product, both from the stand point of making money for each and everyone of you, but as also from the fact that we're not dealing with widgets, you know, were really going to help people, and that's the best calling this bio-tech industry can come up with.

So with those ringing words, I say good day to you and have faith in us. We're pushing as hard and as fast as we can.

Take care and G-d bless.

Operator

This does conclude today's conference, we thank you for your participation, you may disconnect at this time.

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