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Executives

Paul Laland - Vice President of Corporate Communication

John Walker - Chief Executive Officer

Ed Albini - Chief Financial Officer

Analysts

Akhtar Samad - Bear Stearns

Novacea, Inc. (NOVC-OLD) Q3 2007 Earnings Call November 12, 2007 4:30 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2007 Novacea Earnings Conference Call. My name is Lisa, and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference (Operator Instructions).

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Paul Laland, Vice President of Corporate Communication. Please proceed sir.

Paul Laland

Thank you, and thank you for joining us today afternoon for our third quarter 2007, financial results conference call. Joining me on our call today, are Novacea’s CEO, John Walker and Ed Albini, our CFO.

Before we begin, I’d like to make a brief statement regarding forward-looking remarks that you may hear today during the presentation. During the course of this presentation, the company may make projections or other forward-looking statements regarding, among other things, the progress, timing, and completion of our research.

Development and clinical trials for our product candidates; our ability to market, commercialize, and achieve market acceptance for our product candidates; our ability to protect our intellectual property and operate our business without infringing on the intellectual property rights of others; our estimates for future performance and our estimates regarding anticipated operating losses, future revenues, capital requirements; our needs for additional financing; and our collaboration agreement with Schering-Plough related to Asentar.

These forward-looking statements are based largely on the Company's current expectations and are subject to a number of risks and uncertainties. We urge you to review the factors discussed under the caption risk factors in the Company's filings from time to time with the Securities and Exchange Commission.

In light of these risks and uncertainties, there can be no assurance that the forward-looking statements made during this presentation will in fact be realized.

Except as otherwise required by applicable securities law, we disclaim any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Let me now turn the call over to Ed Albini, our Chief Financial Officer.

Ed Albini

Thank you Paul. Thank you all for joining us this afternoon. Following my review of the financials, John Walker will provide some comments on the terminated of our ASCENT-2 Phase 3 trial and other development programs in support of our second product AQ4N.

We’ve reported today a net loss for the third quarter of 2007 of $3.2 million or $0.13 per share, as compared to a net loss $6.9 million or $0.30 per share for the third quarter of 2006.

As of September 30, 2007, cash, cash equivalents and marketable securities totaled $103.8 million plus we had an additional $6.1 million in accounts receivable. As a reminder, during the third quarter, we received $67 million in cash, which was net of our sub-licensing obligations. We got that from Schering-Plough under the worldwide development commercialization agreement for Asentar.

Our net operating capital usage during the third quarter was approximately $4.5 million. Revenue for the three months ended September 30, was $8.6 million, which includes $2.5 million attributable to the recognition of a portion of the upfront payments under the development and commercialization agreement with Schering and $6.1 million related to reimbursement by Schering for our research and development efforts on Asentar during the third quarter.

The revenue for reimbursement comprises our entire accounts receivable balance as of September 30 2007. With the related payment expected to be received during the fourth quarter of 2007, in accordance with the terms of our agreements with Schering.

Total research and development expenses for the third quarter of 2007 were $9.6 million compared to $4.7 million for the same period in 2006. The increase in R&D expenses from 2006 to 2007 was due primarily to the higher level of clinical development activities in the ASCENT-2 Phase 3 trial for Asentar and that’s in patients with AIPC.

The cost associated with preparation for the initiation of our Phase 2 clinical trial for Asentar in advanced pancreatic cancer and development activities and product manufacturing expenses related to AQ4N. The overall R&D expense increase from 2006 to 2007 was offset partially by immaterial R&D expenses associated with vinorelbine oral in 2007.

As a result of the termination during the fourth quarter of 2006 of our then-existing agreements related to vinorelbine oral, and the return to the licensor of all the related product rights for the United States and Canada.

Total general and administrative expenses for the third quarter of 2007 were $3.6 million compared to $3.2 million for the comparable 2006 period. The increase in G&A expenses from 2006 to 2007 was due primarily to an increase in stock-based compensation and other employee-related expenses. This was offset partially by reduction in marketing and communication expenses.

As we look ahead, we projected revenues in 2007 under the development and commercialization agreement with Schering will include a portion of the total of $60 million received in upfront payments.

And we’re currently expecting to recognize that $60 million ratably over an approximately six-year period of time that began on June 26th of 2007, which would be effective dated agreement and that period with that six plus year period will end on June 30, 2013. The other revenue that we expect to receive is revenue from cost reimbursement related to our development efforts on Asentar, that’s based on our direct cost incurred and also the efforts of our employees who are working on Asentar.

As we look ahead, we currently estimate that our cash balance at December 31st 2007 will be approximately $100 million and that includes the estimated reimbursement by sharing of our Asentar development cost that we incurred in the third quarter of 2007, that the receivable of $60.1 million that’s on our balance sheet. Based on our current plans, we project that our net usage in 2008 will be in the range of $20 million to $25 million.

I will now turn the call over to John Walker, who will provide you with the few comments on the news of last week about Asentar as well as the brief overview of our development programs for AQ4N.

John Walker

Thank you, Ed. As many of you are aware we announced last week that Novacea and our partner Schering-Plough accepted the Data Safety Monitoring Board substrate and recommendation to immediately terminate the ASCENT-2 Phase III of the Asentar for the treatment verification with androgen-independent prostate cancer.

Due to an imbalance of debt between the two treatments arms, given the promising clinical activity observed in our Phase II trial we are clearly very surprised to disappointed by these findings. However we and Schering-Plough are actively analyzing the clinical data in an attempt to understand the cause of the higher death rate in the Asentar plus Taxotere treatment group.

As I mentioned last week, it is important to note that our preliminary analysis has not identified any unexpected safety concerns with Asentar and unless we discover any unanticipated safety issues with our product candidates, we believe the Asentar remains the late stage asset and viable cancer product candidates.

We believe that our partnership with Schering-Plough remain strong and our actively working together to evaluate to results of ASCENT-2 and to determine next steps. We intend to be patient and take the time necessary to understand the imbalance of debt in ASCENT-2 and we hope to update the market on our findings within the next few months.

Following completion of our analyses of the ASCENT-2 data we also hope to resume enrolment in our Phase II trial in advanced pancreatic cancer as well as several investigators sponsor trials that we had under way.

As we continue our diligence with Asentar, let me now provide you with the few comments on our development product AQ4N. AQ4N has a noble mechanism of action and we are developing it as a tissue-targeted cytotoxic prodrug, particularly for use in the oxygen-starved regions of solid tumors, where radiation in chemotherapy have very little affect.

The AQ4N clinical program consist of three ongoing studies including Novacea's Phase I/II trial in the glioblastoma multiforme or GBM as well as two European Phase I/II studies in bladder cancer and in solid tumor with cisplatin.

We expect to have preliminary safety data from our GBM study in the next few months and plan to present data from our European Study as ASCO 2008. Many of you are aware that we are also moving AQ4 in hematological malignancies; to that end we recently initiated a Phase II study in patience with Relapse Acute Lymphoblastic Leukemia or ALL. We also plan to start Phase II trial in B-cell Lymphoma during the first quarter of 2008.

Let me briefly explain the rationale behind our expanded clinical program for AQ4N; laboratory studies under normal oxygen conditions have indicated that AQ4, the active cytotoxic drug has the ability to kill tumor cells derive from hematological malignancies including lymphoma and leukemia at very low concentrations.

Non-clinical toxicology studies have indicated that AQ4N could target lymphoid associated tissues and induce lymphoid white blood cells. In other words AQ4N has the ability to target lymphoid cells with probe sensitivity. Although, the rate of success in the treatment of adult ALL has increased in the last 20 years, the therapeutic options are still very limited and the majority of adult patience diagnose die fairly quickly.

The presence of co-existing medical disorders and older population may also lead to decrease tolerance of chemotherapy agents. They reported cure-age for adult ALL seldom exceed 40%; despite, the use of newer medical advances and the five-year event pre-survival is approximately 40%. Clearly, there is a need for better treatment options for Adult ALL patients.

With that in mind, we initiated in October a Phase II multi-center single arm open label study of AQ4N to evaluate the safety tolerability and efficacy as a monotherapy in people with relapse B-Cell ALL.

This study will be conducted in two stages at a total of 56 variable patients will be enrolled. The study will be conducted in approximately 30 clinical trail sights in North America and Germany. We currently anticipate data from this trial in mid-2009.

Before I open the call up for questions, let me summarize by saying that while we had setback with termination of our ASCENT-2 Phase III trail, we are fortunate to be in the strong financial position that we’ll not necessitate us going back to the capital markets in the near future.

Depending on our full analysis of the ASCENT-2 data, we still believe Asentar is a late stage asset and that one day this product will benefit cancer patients.

We also have in place a broad clinical development program and supported AQ4N and we will continue to actively evaluate licensing opportunities as well as a wide range of strategic business initiatives.

I'll now be happy along with my colleagues to answer any question that you may have.

Question-and-Answer Session

(Operator Instruction) Your first question comes form the line of Akhtar Samad with Bear Stearns. Please proceed.

Akhtar Samad - Bear Stearns

Yes, hi. John this is a question for you about the timelines for some of the programs you’d indicated. I’m just wondering, if you could give us a little bit more color on the timelines potentially from data from bladder cancer study and also a little bit more detail on the kinds of patients that you’re looking for in the B-cell lymphoma study that will be started in the first quarter next year?

John Walker

Let me take the later question first, which is regarding the B-cell lymphoma study. That specific protocol is currently being worked on Akhtar. So it will be a little premature for me to describe specifically the nature of the inclusion criteria that we would have for that study.

So that would be something that we will need to update as we move a little bit further along in our specific planning as I indicated the protocol is currently being as they worked on actively.

Secondly, as it relates to timeline, we are anticipating that during the first six months of next year or over the next six months I should say more appropriately leading up to the ASCO Presentation that we will hopefully be able to report out a number of activities associated with AQ4N.

These relate to the results of our Phase 1B portion of the GBM study as we previously indicated as well as an update on primarily safety, but also we hope some efficacy evaluation as well in regard to both the bladder cancer study that you alluded to, which is in combination with radiation therapy as well as the solid tumor with cisplatin study, which is also being concluded as this point in time.

So, what we are hoping is to be able to provide top-line data to the market but a more definitive analysis for submission at ASCO presentation in 2008.

Operator

(Operator Instructions) There are no additional questions at this time. I’d now like to turn the presentation back over to Mr. John Walker.

John Walker

Thank you very much again for everybody to participating today. We currently anticipated that in regard to the news that we had last week that this might be somewhat in anticlimactic (ph). But let me make sure that everyone is fully aware of the obvious purpose for this call was clearly to provide the financial information for our third quarter.

As you know, when we made the announcement last week regarding the sensation of the ASCENT-2 study. We were very clear to indicate that we would finish the third quarter and then we had finished the third quarter was approximately $110 million in cash. You’ll note that that actual number is closer to $109.9 million, I’m sorry.

When one combines both the receivable as well as the cash marketable securities etcetera, and importantly, there are burn rate for the third quarter came in at $4.5 million. That is a significant change from what people have seen with the company previously, and is more indicative of the going forward burn rate that we had alluded to in providing guidance to you for 2008 where we would expect that our burn rate would be between $20 and $25 million.

And this point in time, our annualize rate as you know is closer to $18 million based on the third quarter number. So this really translates into a situation were we have the cash reserves and the burn rate appropriate to allowing the company along with our partner Schering-Plough to fully analyze the ASCENT-2 data and to make the right decisions regarding the future development of Asentar.

We feel that we’re in a very fortunate position as a result of that. And we want it to take this opportunity and having the call associated with our third quarter financials to provide that very important update to the market in regard to the financial liability of Novacea at this point and our ability to continue to move our programs forward. And importantly, our continued believe that Asentar will, in fact, continue to move forward and develop.

Again, we have not seen anything today that indicates that we any safety signals associated with Asentar in the ASCENT-2 study. There was clearly an in-balance and we have a fail study but we are very hopeful as we’ve indicated that we do not have a fail drug or rather we continue to have a late stage asset that along with Q4 and we’ll be in full development as we go through 2008. Thank you very much for your time.

Operator

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

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