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Executives

Jim DeNike - Director of Corporate Communications

Peter Thompson - President, Chief Executive Officer andChairman

Michelle Burris - Senior Vice President and Chief FinancialOfficer

Dan Burge - Chief Medical Officer

Ken Mohler - Senior Vice President of Research andDevelopment

Analysts

Steve Harr - Morgan Stanley

William Sargent - Banc of America Securities

Joel Sendek - Lazard Capital Markets

Shiv Kapoor - FBW

Trubion Pharmaceuticals, Inc (TRBN) Q3 2007 Earnings Call November 12, 2007 5:00 PM ET

Operator

Good afternoon ladies and gentlemen, and welcome to theTrubion Third Quarter 2007 Earnings Conference Call. My name is Katie. Today'sconference is being recorded. At this time, I'd like to turn the conferenceover to Trubion's Senior Director of Corporate Communications, Mr. Jim DeNike.Please go ahead.

Jim DeNike

Thanks, Katie, and thanks everyone again for joining us. Onthe call today from Trubion are Dr. Peter Thompson, President, Chief ExecutiveOfficer and Chairman, and Michelle Burris, Senior Vice President and ChiefFinancial Officer. Also joining the call for the Q&A are Dr. Dan Burge,Chief Medical Officer, and Dr. Ken Mohler, Senior Vice President of Researchand Development.

Earlier today we issued our third quarter 2007 financialresults, and a copy of our release can be found on the Trubion Web site attrubion.com. I'd like to remind each of you that today's conference call maycontain forward-looking statements based on our current expectations.

These statements are only predictions, and actual resultsmay vary materially from those projected. Please refer to Trubion's documentsfiled with the SEC concerning factors that could affect the company, copies ofwhich are also available on our Web site. I'd now like to turn the call over toPeter.

Peter Thompson

Thank you, Jim, and thank you for joining us again so soonafter our ACR call last week. Since we discussed ACR results last Thursday,most of my comments will focus on our other key initiatives. Michelle will thenprovide a summary of our third quarter financial results, and we will thenwelcome your questions.

Many of you participated in our conference call on November8, during which we provided an update on TRU-015 for RA and the data that wepresented at the ACR annual meeting. For those of you unable to attend thecall, we have posted our ACR poster presentations on our website.

And the archived conference call and Q&A webcast isavailable for replay in the investors section of our Web site. As we stated onthe call last week, we believe the data presented at the ACR annual meetingdemonstrates TRU-015's ability to significantly improve RA signs and symptomsfollowing a single infusion. And therefore, could represent a new level ofconvenience for patients and physicians.

The data presented at ACR also suggests that clinicalresponses may be maintained during B-cell recovery, which could represent anattractive alternative to current therapies. We and our partner’s have agreedon the design for our next study that we believe could be supportive of aregistration package, and we look forward to TRU-015's continuing development.

Both companies are working to finalize protocol details andplans for study initiation, and we will provide additional information afterpatient dosing has begun. As we also stated on the call last week, we havealready begun retreatment of RA patients from the TRU-015 Phase IIb trial.

80% of those subjects who received initial therapy in thePhase IIb study have already been retreated, and we expect nearly all of theoriginal participants to register for retreatment. Looking ahead, we expect tobegin TRU-015 Phase I clinical trials for both systemic lupus erythematosus andnon-Hodgkin's lymphoma.

These programs are the most recent expansions of our CD20collaboration with Wyeth, and we look forward to sharing more with you as theseand other product candidates progress. I am also pleased to inform you that wehave filed an IND application for our proprietary TRU-016 product candidate; anovel CD37 targeted therapy for evaluation in patients with B-cellmalignancies.

This is an important milestone for us, and we will issue apress release and provide final trial protocol details once patient dosing hasbegun. Before we open the call to questions, I would like to turn the call overto Michelle for a summary of our third quarter 2007 financial results.

Michelle Burris

Thanks, Peter. I'll take a moment to review our financialsand then reviewed our guidance. Revenue for the third quarter and nine monthsended September 30, 2007 was $4.6 million and $14.5 million, respectively,compared to $16.5 million and $30.2 million, respectively, in 2006.

The three and nine-month decreases were due to decreasedmilestone revenue, reduced reimbursement revenue from the Wyeth collaborationas a result of the successful transfer of manufacturing activities for TRU-015from Trubion to Wyeth during 2007, and decreased revenue from the recognitionof the $40 million upfront fee from Wyeth due to a change in the estimatedresearch and development period.

The estimated term of the research and development serviceperiod is reviewed and adjusted on a quarterly basis as additional informationbecomes available. After review, we have revised the length of the serviceperiod to reflect our commitment to conduct the TRU-015 RA Phase IIbre-treatment study. These decreases were partially offset by an increase inreimbursable clinical costs that were related to our Phase IIb clinical trialfor TRU-015 that we completed in July 2007.

Total operating expenses for the third quarter and ninemonths ended September 30, 2007 were $11.5 million and $35.9 million,respectively, compared to $11.6 million and $30.6 million, respectively, in2006. The three-month decrease was primarily due to the decrease in outsidemanufacturing costs for TRU-015 due to the successful transfer, again, of themanufacturing activities to Wyeth during 2007.

This decrease was partially offset by increased clinicalcosts related to the Phase IIb clinical trial for 015, increased personnelrelated expenses due to increased headcount, and increased outsidemanufacturing costs related to our own proprietary product candidate, TRU-016.

The nine month increase was primarily due to increasedclinical costs that are related to TRU-015 Phase IIb study, increased personnelrelated expenses reflecting increased headcount, and increased outsidemanufacturing costs related to 016. These increases were partially offset bylower outside manufacturing costs for 015, due again, to the successfultransfer to Wyeth of that manufacturing and lower non cash stock-basedcompensation charges.

Net loss for the third quarter and nine months endedSeptember 30, 2007 was $5.9 million, or $0.33 per diluted common share, and$18.4 million, or $1.04 per diluted common share, respectively, compared to netincome of $5.4 million, or $0.40 per diluted common share, and 871,000, or$0.06 per diluted common share, respectively, in 2006.

We had $86.6 million in cash, cash equivalents andinvestments as of September 30, 2007, compared to $90.3 million as of June 30,2007. As a result of the lower anticipated reimbursement revenue and lowerexpenses due primarily to the successful transfer of the manufacturingactivities for 015 from Trubion to Wyeth, we now expect 2007 results to fallwithin the low end of or slightly below all of our previously provided guidancerange.

As a reminder, the ranges we have previously provided wererevenue of $20 to $25 million, revenue again, being generated from fees,milestones and reimbursements earned through the Company's Wyeth collaboration,total operating expenses of $55 to $60 million, and operating cash requirementsof $28 to $32 million.

That concludes my update on our financials, and I would onceagain like to thank all of you for joining us today, and we look forward toupdating you again on our next earnings call.

And as we open the call for Q&A, we would be happy to(inaudible) you may have about the data presented at ACR last week. And I'dalso like to remind you that Doctors Burge and Mohler are also available forquestions as needed.

Katie, please go ahead.

Question-and-Answer Session

Operator

(Operator Instructions) We will go first to Steve Harr withMorgan Stanley.

Steve Harr - Morgan Stanley

I've got a couple of questions. Michelle, I guess I'msomewhat surprised you have to pay for the re-treatment trial yourself, aswe’ve been understanding that Wyeth was going to pay for the development ofthis drug.

What, are there any other studies that Wyeth is like you aregoing to have to pay for between now and registration?

Michelle Burris

Actually, Steve, I'm sorry if I left the impression that weare paying for that study. We are not paying for that study at risk. We arereimbursed by Wyeth.

Steve Harr - Morgan Stanley

That makes more sense. You are just paying for it andreimbursed. I got you. Okay.

Michelle Burris

So, what that means is that's why we have to adjust therecognition period of the $40 million upfront, because we're conducting thatstudy.

Steve Harr - Morgan Stanley

And you will, but you will be reimbursed?

Michelle Burris

Absolutely.

Steve Harr - Morgan Stanley

And any update on 016, in terms of when we are going to seeany clinical data from drug?

Peter Thompson

As noted, Steve, we have filed the IND for that. So assumingthat there isn't a holdup there, we would anticipate trying to get clinicalactivity started probably accounting for the holidays, in the first part ofnext year. And as is our practice, we would be providing more details about theinitial clinical experience we anticipate with that drug at that time.

Steve Harr - Morgan Stanley

Great. Thank you.

Operator

Now we'll go next to William Sargent with Banc of AmericaSecurities.

William Sargent - Banc of AmericaSecurities

Hi, thank you very much for taking my question. Michelle, Iwas wondering, could you tell us what the new duration of the recognitionperiod is at this point?

Michelle Burris

The recognition period, it will be, I believe, detailed outin our 10-Q. We have currently estimated that to be a six year and three monthsfrom the time of signing. And again, that speaks of our estimate of there-treatment and the number of re-treatments; that can, obviously, change, ascan the need to evaluate that timeline going forward should we conductadditional studies, or should re-treatment be accelerated or some other eventscome up under our research and development agreement that we take on.

William Sargent - Banc of AmericaSecurities

So the new recognition period is six years three months?

Michelle Burris

Correct.

William Sargent - Banc of AmericaSecurities

And then I was wondering, in thinking about the design forthis additional dose-ranging trial, is there the potential that you could getinformation that you would find sufficient in order to potentially start an additionalPhase III in parallel with this trial?

Or is the anticipation right now that this trial would needto be completed and Rheumatoid before an additional registrational level trialwould be started for RA?

Peter Thompson

We're still working with Wyeth to fully establish the plansfor the timing of the additional studies, and we'll release that informationwhen we're able to do so with our partners.

William Sargent - Banc of AmericaSecurities

Is there a possibility that the two trials could be runningin parallel at some point?

Peter Thompson

I think we'd prefer to comment on that after we've completedand finalized the trial designs and further discussions with our partner.

William Sargent - Banc of America Securities

Okay. Great. And then one quick question, Michelle, forstock option expense in the quarter.

Michelle Burris

Yes? What was…?

William Sargent - Banc of AmericaSecurities

I didn't hear it in the comments.

Michelle Burris

Yeah. We actually, that is not in the press releasespecifically. It is in the Q that will be filed, across the non-cash stock compfor the three-month was just under $1 million, and for the nine months endedwas 2.7.

William Sargent - Banc of America Securities

Great. Thank you very much.

Michelle Burris

Thank you.

Operator

(Operator Instructions) I will go next to Joel Sendek withLazard Capital Markets.

Joel Sendek - Lazard Capital Markets

Hi, thanks. Let see two questions. First, they're about onthe financial side. If I look at the, even the low end of the operatingexpenses, at your current run rate, it would seem that you would have asignificant jump up in expenses in the fourth quarter just to meet the low end.Am I calculating that right?

Michelle Burris

You, to meet the low end, you are calculating thatcorrectly. Typically what you see in the fourth quarter. We could be slightlyunder that burn rate. It depends upon 80 and how much we carry over on thebalance sheet into the beginning of '06. That's really just a cutoff issue.

Joel Sendek - Lazard Capital Markets

I'm wondering, I know you're not giving '08 guidance orwhatever, but we normally use the fourth quarter as kind of a run rate. And ifit's ramping up substantially, that's going to impact, I just want to make surethat…

Michelle Burris

Keep in mind that it's going to be difficult to use a Q4 runrate for '08, because our own proprietary asset, which is 016, will beginclinical studies in '08. And that really won't be reflected in '07.

While some of the manufacturing costs are explained in thetext, or our prepared remarks, that manufacturing occurred in '07, obviously,the clinical studies will occur all throughout '08.

Joel Sendek - Lazard Capital Markets

Okay. That's helpful. And then as far as the reimbursement,as the trials continue with Wyeth, should we model in a slight increase insequential reimbursement, or should that be more aggressive as we model it out?

Michelle Burris

Well, I think it rather -- let's look at the fact that thePhase IIb study was fully enrolled about the end of the beginning of the year,and the re-treatment is 80%. You could probably suppose those are going to befairly similar, since we're going to be treating the same number of patients.

Joel Sendek - Lazard Capital Markets

That's it. Thanks.

Operator

And we’ll go next to Shiv Kapoor with FBW.

Shiv Kapoor - FBW

Thanks for taking my questions; I’ve got a couple. First,can you talk about some of the endpoints that are being used currently in RAtrials and what you're using? What do you think is going to evolve as theleading endpoint?

We've got ACR scores. We've got DAS-28. We've also got somelonger-term endpoints, the one-year and the two-year endpoint. Could youcomment upon what's more important and what should we be focusing on withregards to TRU-015 and competition in the biologic?

Peter Thompson

Shiv, I'll let Dan answer that question. He can talk fromhis perspective of the overall field. But, obviously, with respect to this nextstudy, it awaits finalization of protocol details.

Dan Burge

Yes. I mean certainly the endpoints that have been usedpredominantly for approval, at least in the United States, has been the ACR 20.The regulators don't have any firm requirements for which endpoint you use;these are individually negotiated between the Company and the regulatoryauthorities.

I think that would go and be true for also ex-U.S. I stillthink the predominate endpoints that we're seeing used are ACR responsemeasures for approval these days.

Peter Thompson

For signs and symptoms.

Dan Burge

For signs and symptoms. Correct. The longer-term endpoints,clearly, are necessary for physical function and radiographic endpoints.Everybody is, obviously, always interested in seeing the longer-term clinicalefficacy ACR responses, but those have not yet been the approval endpoints forclinical response.

Shiv Kapoor - FBW

With regard to the competitive dynamic emerging with regardto biologics in RA, were there any substantially newer therapies that youthought were impressive, or does the competitive dynamic look pretty stablewith methotrexate, followed by anti-TNF, followed by, perhaps, or inconjunction with, anti-CD20?

Dan Burge

I think that the paradigm that you've just proposed is stillthe current clinical paradigm that people are considering right now, just asyou described.

Shiv Kapoor - FBW

Thanks a lot.

Operator

Thank you. And we have no further questions at this time.I'd like to turn the conference back over to Dr. Thompson for any additional orclosing remarks.

Peter Thompson

I'd like to thank everyone again for your continued interestin and support of Trubion, and we look forward to speaking with you again soon.

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