Aspect Medical Systems Business Update Call Transcript

| About: Aspect Medical (ASPM)

Aspect Medical Systems, Inc. (ASPM) Business Update Call December 11, 2007 9:00 AM ET

Executives

Kathy Waller - Financial Relations Board

Nassib Chamoun - President and CEO

Andrew Leuchter - Professor of Psychiatry, Semel Institutefor Neuroscience and Human Behavior, UCLA.

Paul Manberg - VP of Clinical, Regulatory and QualityAssurance

Mike Falvey - CFO

Analysts

Tao Levy - Deutsche Bank Securities

Isaac Ro - Leerink Swann

Jonathan Block - SunTrust Robinson Humphrey

Joshua Zable - Natexis Bleichroeder

Operator

Welcome to the Aspect Medical Systems BRITE trial's resultsconference call. (Operator Instructions).

I would like to turn the conference over to Kathy Waller ofthe Financial Relations Board. Please go ahead.

Kathy Waller

Thank you, Steve. Good morning. I would like to thankeveryone for joining us today for our conference call. Earlier this morning wesent out a press release outlining the results from the BRITE trial. If anyonehas not received the release, please feel free to call the Financial RelationsBoard and [Karen Daubert] can send you another copy, our number is312-266-7800.

In addition, supplemental material has been posted onAspect's website that you may find helpful while listening to today's call.

Before we begin the call, we would like to remindparticipants that certain statements in this conference call areforward-looking statements within the meaning of the Private SecuritiesLitigation Reform Act. These forward-looking statements include statementsconcerning the potential impact of our ATR device on managing major depressantand in predicting antidepressant effects of neurostimulation; our plans toinitiate pivotal trials of our ATR device in Q2 of 2008; and, if successful, toseek FDA clearance in 2009. Our commercialization plans for the ATR deviceassuming it achieve necessary FDA clearance and the use of our platform biomarkertechnology in neurostimulation treatment for neuropsychiatric conditions.

The statements involve risk and uncertainty among thefactors that could cause actual events to differ materially from theseforward-looking statements in this conference call. They are those that are setforth under the heading "Risk Factors" in our annual report on Form10-K for the year ended December 31, 2006 and our quarterly report on the Form10-Q for the fiscal quarter ended September 29, 2007. Each was filed with theSEC.

In addition, any forward-looking statements represent ourviews only as of today, and should not be relied upon as representing our viewsas of any subsequent date. While we may elect to update these forward-lookingstatements at some point in the future, we specifically disclaim any obligationto do so, even if our views change. Therefore, you should not rely on these forward-lookingstatements as representing our views as of any date subsequent to today.

With that said, I would like to introduce Aspect's Presidentand Chief Executive Officer, Mr. Nassib Chamoun. Nassib will begin the call bypresenting an overview of the BRITE trial, and the call will later be open toyour questions.

Nassib, you may go head.

Nassib Chamoun

Thank you, good morning, and welcome. Joining me thismorning for the call will be Andrew Leuchter, M.D. Professor of Psychiatry atthe Semel Institute for Neuroscience and Human Behavior at UCLA, PrincipalInvestigator for the BRITE trial and share of Aspect's Neuroscience AdvisoryBoard. From the Aspect Management team we are joined by Paul Manberg, PhD, VicePresident of Clinical and Regulatory and Quality Assurance, and Mike Falvey,our Chief Financial Officer. Dr. Leuchter is joining us from a close scientificmeeting of leading academic psychiatrists today where the final results of theBRITE trial are being presented in a poster session. Some of the key findingsfrom the poster are summarized in a presentation that can also be accessed onour website at www.aspectmedical.com.

I will begin the call with some brief comments about thechallenges in the management of major depression that our technology seeks to addressand the evolution of Aspect's research efforts in this area leading up to theBRITE study results. Dr. Leuchter will then review the study, the design of theBRITE study, review the findings from the final BRITE data, and discuss thepotential impact on clinical care.

To conclude, I will provide some comments on the plannedpath forward for Aspect's depression program, and highlight our progress in anew field of investigation, namely neurostimulation. We will then open the callfor your questions.

The BRITE trial which stands for Biomarkers for RapidIdentification of Treatment Efficacy in Major Depression is an effort toevaluate Aspect's neurophysiologic biomarker of Antidepressant TreatmentResponse or ATR by Aspect and our collaborating investigators at ten differentsites across the U.S..For many of our study sites, the BRITE trial was their first major clinicalresearch undertaking with a medical device, which we believe is an indicationof the uniqueness of our technology in aiding the pharmacologic treatment ofdepression.

With that context, I would like to thank our investigatorsfor their successful efforts to enroll 375 subjects into the BRITE study whichwas completed at the end of Q1 2007, and to follow these subjects to their lastvisits in Q3 2007. We understand from our investigators that our EEG recordingprocedure was easily learned by their research staff and well-accepted bypatients.

Aspect undertook the BRITE trial with a clear vision that aclinical need in depression care today is the individualization of treatmentthat is based on objective and early signals of response or non-response. Whilethere are many effective anti-depressives available today, it is impossible topredict which treatment approach will work for a given patient, so identifyingan effective regimen is still largely a trial and error process, which can takeweeks or months.

Unfortunately, many patients simply give up before receivingadequate treatment, particularly in the first several weeks, when side-effectsmay become more perceptible than symptoms relief.

With a high prevalence, 15 million people in the U.S alonewill experience a major depressive episode this year, and with the challengesof treating the disease, depression is viewed as a major health problem byhealth insurance, governments and businesses, which according to the NationalBusiness Group on Health, lose an estimated $44 billion per year related todepression.

One: Our successful pilot studies at Mass General and Cedars-Sinaigave us the confidence to move forward with the larger more complex BRITE trial,with the primary goal of prospectively validating ATR as a one week biomarkerfor treatment response to a commonly prescribed SSRI antidepressant, in thiscase, escitalopram also known under the brand name Lexapro.

Two: Developing evidence of the potential clinical impact ofATR and exploring alternative treatment pass for patients who are predicted notto respond to escitalopram. And three: Greatly expanding our EEG database toenable further refinements to our algorithm prior to a pivotal trial for FDAclearance, which we expect to initiate in Q2 2008.

We are very excited to report positive results for the BRITEtrial, which are being presented this week at a closed scientific meeting.Further analysis of the BRITE data continues and additional findings will besubmitted for presentation, a key clinical conferences in Q2 2008.

At this time, I will ask Dr. Andrew Leuchter to brieflyreview the design of the BRITE trial, discuss the results from the BRITE dataand describe the potential clinical impact of ATR on the management of majordepression, Andy?

Andrew Leuchter

Thank you, Nassib. Let me begin by quickly going over thedesign of the BRITE trial to put the results into context. All BRITE subjectswho identify the suffering from nature depression in the screening process hada baseline EEG recorded. Then they were given escitalopram, the brand name Lexapro,for one week at the recommended starting dose of 10 milligram per day. At dayseven, subjects received another EEG recording from which their ATR values werecalculated. However, both the subjects and the investigators were blinded tothe ATR results.

Also at day seven, subjects were randomized to one of the threestudy arms. In the first study arms, the subject continued on escitalopram at10 milligrams per day and it was continued through week seven of the study. Inthe second arm, subjects were randomly switched to the antidepressant bupropionXL, also known as Wellbutrin XL, and maintained on 300 milligrams of bupropionXL through week seven. Subjects in the third arm received a combination of escitalopramand bupropion through week seven. All of these assignments were random and werenot done on the basis of an EEG recording.

There were no statistically significant differences in thebaseline characteristics of the three study arms. After the week sevenendpoints, investigators could then increase the dose for the subject who hadnot yet remedied, meaning they had not fully recovered from their depressionfor the rest of the 13 week study.

282 subjects completed the BRITE study prior to the week'sprimary seven week endpoint, of which 220 were valuable, after excluding 33subjects who deviated from the study protocol and 29 with excess noise in theirEEG recordings. Although 10% of the subjects, particularly that nine of 10research sites, had no experience with the EEG previously.

Completion rates were within the expected range, and we arepleased to see that given the number of visits and the EEG recordings, seven inall per subject were built into the study. This is consistent with the positivefeedback we received about the ease-of-use and the patient's acceptance of theEEG recording technology and protocol.

The number of valuable subjects in each study arm wasroughly equal with 73 in the escitalopram, 73 in the bupropion switch arm and74 in the escitalopram/bupropion combination arm.

The protective accuracy of the ATR was tested in the primaryescitalopram, because this with the subjects, did not have any changes to theirtreatment regimen before the seven-week primary endpoint when changes insubjects Hamilton Depression Rating Scale, or HAM-D scores, were compared withtheir one-week ATR prediction.

Subjects were considered responders to treatment if theyexperienced a 50% reduction, or significant improvement on the HAM-D scale. Andthey were considered remitters if they achieved a HAM-D score less than orequal to seven of the seven-week primary endpoint. This generally would meanthat they had recovered from their depressive episodes, and these are verycommon definitions of response and remission for depression treatment trials.

In the final BRITE analysis, 52% of the subjects for theescitalopram and 47% across all study arms met the definition for response atweek seven. Remission rates at week seven were 37% for the escitalopram and 32%across all study arms. These remission and response rates are in line with therates seen in other antidepressant medication studies and were notstatistically different among the study arms or study sites.

An improved ATR, what we call version 4.1, developed priorto the final BRITE analysis, and was 74% accurate in predicting the seven-weekresponse and remission on the escitalopram subjects in the final BRITE dataset. This was significant with the p<0.001 on the end of the 73 subjects.

In the fully prospective test, under post-interim analysissubjects, ATR 4.1 actually achieved 76% accuracy in predicting responses. Thiswas statistically significant at the .002 level on 38 subjects and 79% accuratein predicting remission, significant at the .005 level. These results on thesecond half of the BRITE data are an important validation of the predictiveaccuracy of ATR 4.1, because this algorithm was developed prior to cracking thecode on the final BRITE data set.

The version of ATR reported on at the interim BRITE analysisthat the earlier version ATR 4.0 was alsoshown to be a significant predictor of the seven-week response and remission onthe final BRITE data set. It had an accuracy of 60% in predicting responsesignificant to the p .048 level, and 68% for predicting remission significantto the .012 level.

We were very pleased to see ATR also emerging as a predictorof remission, which is extremely important from the clinical standpoint,because the goal of treatment is to achieve remission. A remission is a muchless frequent occurrence than response in antidepressant treatment, and it cantake a very long time to achieve, so to be able to predict this outcome wouldbe particularly valuable to our position. I should add that as I presented thisdata here at this meeting, people were really very excited at the prospect ofbeing able to predict antidepressant treatment remission.

Perhaps the most clinically compelling analysis from BRITEis the retrospective analysis of the potential impact on outcomes of the ATR-guidedtreatment. We designed a BRITE, which predicted escitalopram responders andnon-responders and will randomize to all study arms. This allowed us toretrospectively examine differences and outcome among subjects treated inaccordance with their ATR status, and those maintained on a single agent SSRI,common in the management depending depression patients. What we first observedwas that ATR-predicted responders to escitalopram had response rates of 67% ifleft on escitalopram for seven weeks. Similarly treated predictednon-responders had a response rate of only 28%.

This difference between the 28% and 67% response rates ishighly statistically significant as a p<0.001 level. The same held true forremissions. BRITE subjects, predicted to achieve remission with escitalopramtreatment, were significantly more likely to remit if randomized to stay onescitalopram for seven weeks. 50% of those subjects reached remission, ascompared to subjects predicted not to remit on escitalopram, who had aremission rate of only 21% if left on escitalopram. The difference between 50%and 21% is a statistically significant p-0.01 level.

Practically speaking, the ATR could potentially provide thegreatest clinical benefits for those patients who might be kept on a medicationthat is unlikely to help them. Research has shown that depression patients whoare not getting better with the first treatment attempt, not only do they experienceprolonged suffering, but they are more likely to abandon treatment altogether.This is because of the lack of efficacy, and they may become more resistant totreatment over time.

In the BRITE study, subjects who were ATR predictednon-responders to escitalopram had notably better outcomes if they wererandomized to switch to bupropion, an antidepressant with a different mechanismof action than escitalopram. Specifically BRITE study results showed that wecould theoretically achieve a 61% response rate if patients were treatedaccording to ATR status; in other words, leaving ATR positive subjects on escitalopramand switching ATR negative subjects to bupropion. This would represent a 10%absolute increase when compared with the 51% response rate for subjects treatedwith escitalopram alone. It also reaches the number needed to treat, athreshold of 10. This means that at least 10% of depressed patients wouldtheoretically have a much better clinical outcome if ATR was routinely used toguide treatment.

A threshold at the United Kingdom’s National Institute onClinical Excellence has stated [without] public health significance, that webelieve that the public health significance maybe even greater in actualmedical practice, when factors such as medication adherence are considered. Andwe will examine this possibility in the future studies.

Another objective of BRITE was to test the technology’sability to predict the emergence of adverse events during medication treatment,the most serious of which is suicidal ideation. Fortunately for the patients inBRITE and the implied safety of the protocol, the incidence of treatment-emergentsuicidal ideation was lower than we had anticipated.

Initial analysis of BRITE results regarding EEG-basedpredictors of worsening suicidal ideation, are trending in the expecteddirection. But the study was not powered adequately to fully evaluate thishypothesis and further studies will be required to test this point.

We will continue to bind the BRITE data to identify EEGfeatures associated with treatment-emergent adverse events.

And with that let me turn things back over to Nassib.

Nassib Chamoun

Thank you, Andy. Let me wrap-up with a few key points here.We are very excited about the positive results from the BRITE trial. Theseresults from BRITE give us the confidence to move our ATR program forward tothe next pivotal trial, which we are currently designing with feedback from theFDA and our advisors, and plan to initiate in Q2. We expect that this trialwill be roughly half the size of the BRITE trial and we'll focus on predictionaccuracy as the primary endpoint. We believe if this next trial is successful,it will lead to a filing seeking FDA clearance in 2009.

Assuming positive outcomes from our pivotal trial andsubsequent FDA approval, we plan to launch our first product with a smalldirect sales force focused on a targeted subset of psychiatrists, who areopinion influencers in the field of depression and high prescribers ofantidepressants.

This customer segment consist of approximately 8000psychiatrists, of which about half are concentrated in metropolitan areas, andmany of those in group practices. These clinicians are also the most experiencedand knowledgeable about their needs and the challenges of treating thedepression patient population, and they will provide Aspect with valuable inputwith which to refine the technology. This Phase I launch would be expected tolast 18 to 24 months post-FDA clearness, and with the aim to gain a marketfoothold among self-pay patients who are well-represented in the types of psychiatrists'practices, while building the clinical evidences for reimbursement and furtherdeveloping the technology.

As the planned product and application evolves, andreimbursement becomes established, we expect that the market opportunity couldgrow substantially to include a much broader group of practitioners who will constitutethe prescribers of antidepressants today. At that point, we would likely see acommercialization partner with scale in the office based position marketplace.

We believe the development of our technology well times totake maximum advantage of the trend towards personalized medicine, and has thepotential to be extremely attractive to patients, clinicians and payers alike,particularly in the [group of] Psychiatry where the trial and error medicationselection approach still predominates.

There is a growing recognition that improvements in care willbe realized, not just through the development of new therapeutics, but by theindividualization of treatment through the use of biomarkers of response.

On this same theme, the need for biomarkers is even moreacute when more costly and invasive treatments for depression are contemplated,such as neurostimulation approaches. For that reason, we have decided toallocate additional resources to the development of biomarkers for use inconjunction with neurostimulation treatment. There is a critical need formethods to determine which patients might benefit from neurostimulation priorto implantation of devices and to improve treatment outcomes by optimizingstimulation parameters.

This week, we are presenting a poster at the Annual Meetingof the International Neuromodulation Society meeting in Acapulco, Mexico,entitled "EEG ATR May Predict Clinical Response to Cortical StimulationTherapy: Initial Findings from the PROSPECT Study". The poster outlinespreliminary findings from the research collaboration with NorthstarNeuroscience, to evaluate EEG-based markers of response, and Northstar's pilotstudy of cortical stimulation for treatment of depression.

These preliminary findings suggest that our ATR treatmentresponse biomarker may also be a predictor of an antidepressant effect withcortical stimulation. Neurostimulation is a very interesting field, and webelieve our platform biomarker technology may prove to be valuable in theoptimization of neurostimulation treatment for neuropsychiatric conditions.

With that, I would like to open the call to your questions.Thank you.

Question-and-AnswerSession

Operator

Thank you. (Operator Instructions) And we'll go to Tao Levywith Deutsche Bank.

Tao Levy - DeutscheBank Securities

Hey, good morning.

Nassib Chamoun

Good morning, Tao.

Tao Levy - DeutscheBank Securities

I'm having a few questions here. First, just maybe one alittle bit quickly, I just want to make sure I got the points here. The startof the patient enrollment in the next trial will be second quarter of '08?

Nassib Chamoun

That's correct.

Tao Levy - DeutscheBank Securities

And you said the trial will be half the size of the BRITEtrial. So how long do you expect it to take to enroll, seems like it will bepretty short, right?

Nassib Chamoun

I will let Paul Manberg to answer that. He is putting allthose pieces together.

Paul Manberg

Yeah. The current study, it took about 18 months frombeginning to completion of the trial. So we expect this to be shorter thanthat, because we will probably be looking at an eight-week endpoint for thisstudy. So it won't be as long of a tail. And since the number of patients willbe about half, we are expecting about a year for this study to be completed.And that, based on our successful completion of the BRITE study on schedule, Ithink we are confident that we can accomplish that.

Tao Levy - DeutscheBank Securities

And you are early to add, I assume you've had earlydiscussions with the FDA, what type of regulatory process is this going toinvolve, they can require panel. Is it quicker than the standard 9 to 12 monthsregulatory review?

Paul Manberg

Right, we've held two meetings with the FDA about this andthere was obviously a question as to which reviewing branch would get it.That's been worked out. This is being viewed as similar to a diagnostic typedevice where we are predicting response. So we are now expecting that we willprobably go through 510K process or the de novo processes, that still under adiscussion. And there is no requirement under those processes that it goesbefore a panel, I think it's still possible that the FDA would decide to dothat.

Tao Levy - DeutscheBank Securities

Okay.

Andrew Leuchter

So, we are hoping that the review process might be shorterthan a year, but as you know with the FDA that it really depends on thestrength of the evidence that you submit.

Tao Levy - DeutscheBank Securities

Great. And then for the clinician, maybe if I could have acouple of quick questions. First, do you have any data on patients whocompleted the entire trial, who went the 90 days?

Andrew Leuchter

We certainly do have those data in terms of the finalendpoint for the study. We are still looking at those data right now in termsof what happened in the dose escalation phase of the study, because after theprimary endpoint then subject could receive an increase dose of medication. So,we are looking to see how sensitive the predictor is to medication dose changesand we will be looking at those data over the next few weeks.

Tao Levy - DeutscheBank Securities

Okay. So, that hasn't been collected, the analysis of thatdata has not been completed yet?

Andrew Leuchter

That's correct, yes.

Tao Levy - DeutscheBank Securities

When they looked at the data or when they changed the dosepotentially after day 49, did the clinicians then have access to the EEG data?

Andrew Leuchter

No, the clinicians remained blinded to the EEG results,really until the data analysis. So, it was all based on how subjects were doingclinically in terms of dose changes.

Tao Levy - DeutscheBank Securities

So, then do you change the dose and then you do I guessanother EEG at day 56 and then other one at 91?

Andrew Leuchter

Yes, whenever there was a dose change, we've got essentiallyanother ATR, we would have one EEG immediately before the dose change and thenone week after, so we could see how the EEG biomarker was affected by anychanges in those end clinical status.

Tao Levy - DeutscheBank Securities

So, is there a potential that, when after you go through theanalysis of the final three months data, that you lose some of thepredictability that you may have assumed earlier on as the patients get betteror get worse or again, I'm just trying to, understand what new data could comeout once you go beyond three months?

Andrew Leuchter

Right, it's a very good question and of course, until weliterally look at all the data, we won't know. I would expect that right now,we have an underestimate of our response in remission rates. I can remember ourprimary end points here was at 49 days, which all of the studies show, is atime when most of the patients would have responded or remitted, but we stillwould expect a substantial number to show improvement after that point. So, wemay find that we actually do somewhat better at predicting response orremission after our primary end point looking at the rest of the study. But, ofcourse, it’s going to be a complicated analysis, because subjects do sometimesdrop out of the study after a time or they may require different kinds ofchanges in their treatment, which might make them not eligible to continue inthe study. So, we'll have to look at that as we go.

Tao Levy - DeutscheBank Securities

Perfect. And then, my final question, the ATR guided datalooks, part of one of the more intriguing parts of the presentation. Are thereany efforts to do a trial looking at that area so that, because I feel likethat part reflects real world a little bit more when this product gets onto themarketplace?

Andrew Leuchter

Right. I'll comment just briefly on the potential for thatand then I'll ask Paul to comment on what we are going to be looking at. When Ipresented these data yesterday to a number of psychiatrist and cliniciansworking in this area, they too found that to be one of the most excitingprospects that rather than leading people on antidepressant treatment thatwould ultimately prove not to be beneficial to be able to make a change of oneweek is going to lead to earlier and substantial improvement I think peoplefind very exciting especially, because it looks like we can predict permission.So I think that’s something that is from the feedback I've gotten so far likelyto be embraced by the field. In terms of plans to look at actual switching, Paul,perhaps you'd like to comment on that.

Paul Manberg

Yeah, I think the strategy, as we look forward, is thepriority has to be to get the second confirmatory study to prove the efficacyof the ATR, certainly from a regulatory standpoint. So as requirement that youwant to have two studies confirming the efficacy and so that would be ourpriority to do a very tightly focus study to obtain that information. I thinkas we look at the various strategies to switch patients to other treatmentsthat will be really part of the work that we do in the marketplace especiallyto seek reimbursement, because in that clinical daily use, the type ofsituation that's the kind of information that the payers are looking more for.

Tao Levy - DeutscheBank Securities

Great, thank you very much and just one last thing. What'sthe name of the conference where this data was presented?

Nassib Chamoun

It's a large gathering of Neurocycle pharmacologist andthat's about all we can say are allowed by the conference organizers to say,because they don't authorize anybody to use their name or disseminate the nameof the conference. So, that's all we can share with you at this point.

Tao Levy - DeutscheBank Securities

Okay. Thanks a lot.

Operator

We go next to Isaac Ro with Leerink Swann.

Isaac Ro - LeerinkSwann

Thanks for taking the question.

Nassib Chamoun

Hi, Isaac.

Isaac Ro - LeerinkSwann

Hi. So, just first off, escitalopram arm 28% non-responders.I am wondering how that compares with the traditional [VIEW] results you getunder current practices without any kind of EEG guidance. What I am trying toget out here is, how much better do you think the ATR needs to be compellingfor clinicians, especially since there won't be reimbursement at the time oflaunch?

Andrew Leuchter

Well, from the feedback that I've gotten from my colleaguesin this meeting and just in general, if we have something greater than 70%accuracy in predicting not just responds, but also remission that's somethingthat right there people would find to be very, very useful. Of course, theyalso don't want to be switching people off of medications so much they can befairly confident that somebody is going to be a non-responder to thatmedication. So, if we are talking about only in the range of 20 plus percent,likelihood of response based on ATR, a negative ATR that's something also thepeople would find clinically useful.

I don't think that anybody would be following ATR blindly,this is the kind of thing that people would say, okay, I have a biomarker herethat is telling me, what the likelihood of the patient responding or remittingwith this medication. And then I am going to use all the information I haveincluding how the patient is telling me their feeling etcetera. Put all thosethings together and make a treatment decision. But I think that this biomarkeris something people would find to be a very valuable adjunct to all the otherinformation they have.

Isaac Ro - LeerinkSwann

Okay. And then just looking at the pivotal trial design, Iam just wondering [at last], is this a sort of thing where you need to controlfor maybe time of day when you are taking the EEG or administering drug, as Iunderstand, if there is a little bit of fluctuation in terms of how peopleoften feel depending on the time of day, things like that?

Paul Manberg

I would say for, in the present study, we did not controlfor that on purpose because it's so difficult to arrange for the patients whoalways come on the same day. So from a patient convenience standpoint, wedidn't think that it would be reflective of clinical practice if we mandate itto be used at the same time. There has to be a little bit of that variabilityto reflect what is clinical practice. So, we would not control for exactly thetime of day.

Nassib Chamoun

And that's actually better because that's the way of lifeand that's how the devices likely to be used.

Andrew Leuchter

Right. And just to add to that, in doing regular EEG andpractice, I mean people do sometimes try to control for time of last meal, timeof day, things like that. But if this is going to be a practical clinicalmanagement tool, it has to be robust enough that it is not sensitive to thosekinds of things that are common in clinical practice.

Isaac Ro - LeerinkSwann

Got it, okay. And then just last question regarding salesforce, it sounds like you guys rebuilding one out as they go prior to gettingreimbursement and prior to announcing a partner, is that the right way to lookat it?

Paul Manberg

Well, I think, this is really a high level overview of howwe are thinking about the market. I want to be very clear that initially we aregoing to be highly targeted with a very small organization, now whether that'san extension of our own internal organization, or it's in collaboration withsomebody. A lot can happen between now and the launch.

But if we decide to pursue it on our own, I want to be veryclear that this is not going to be a 300 sales rep, $50 million effort andlet's go after it across all front. But more of a sequence than plans launchthat allows us to get the benefit, what is working, what is not, allows us tounderstand the real utility of the product.

I think the value to the FDA cycle or process, we justdescribed is it's fairly straightforward, that's what they need, that's whatwe'll deliver to get the clearance. And then you have an approved product thatclinicians can integrate into their clinical practice and define all kinds ofutility for it, that will hopefully be able to a better build upon in a broaderlaunch and optimize the product for broader launch, while also collecting thedata necessary to secure reimbursement.

So I know sometimes there are anxieties that once thisproduct is launched, we are going to be spending tens of millions of dollar on alaunch. And we think there is a better way to achieve this goal and succeedwith this product in the marketplace.

Isaac Ro - LeerinkSwann

Great, thanks. Last question, just regarding path toapproval, would you expect to give us little bit of clarity regarding timing,and what do you think the FDA will want to see around the time, by the time youget to the start of the pivotal or something like that?

Paul Manberg

Yes. We would, once we have the launch of the study, onceit's approved, then we are certainly going to be starting, and I'd expect thatwe would put an announcement about that. Okay, as we did at the start of thisstudy.

Isaac Ro - LeerinkSwann

Thank you.

Operator

We will go next to Jonathan Block with SunTrust RobinsonHumphrey.

Jonathan Block -SunTrust Robinson Humphrey

Hey guys. Good morning.

Nassib Chamoun

Hi, John.

Jonathan Block -SunTrust Robinson Humphrey

This is sort of a little bit of a follow-up to Isaac's question.I guess just on the sales force. I realized what you are laying out there, but justwhen I look at it, I would think that to pioneer this market ex-reimbursement, withso many different touch points that a partnership would probably make a littlemore sense out of the gate. So, maybe if you can just give us some details,these discussions take place, you didn’t find the financials that attract,there was or is something that again you feel differently and you think you arebetter off just attacking from a specialized point of view initially, gettingthe traction and then leaning on the marketing dollars of the pharma company?

Nassib Chamoun

There are a lot of discussions that are on going, it’s a matterof identifying the right partner, under the right terms that we believe aregoing to give us the best combination of resources and touch points. So, I amnot precluding that, I'm just saying that, regardless of who launches it. Theright approach here is to target a small subset of highly concentrated high prescribersthey are mega practitioners, they are likely to have access to a greaterpercentage of self paid patients. And to learn from their experience tooptimize the positioning of this product for reimbursement purposes and for a broaderlaunch, whether we are using our own organization or somebody else's, and Imust tell you that based on our experience with BIS, we work with severalhundred OEM reps around the world, but the people who are able to convey anddeliver the message appropriately are people that Aspect controls and trains,and are experienced enough to communicate and educate on the topic. Obviously,the larger footprint of a bigger company opens the door and gives you theaccess. So, it’s going to be a combination. And we're right now just beginningto think about that. I think, there's a lot of work to be done, to give you aclear commercialization tab that we just wanted to give you the highlight ofhow we are thinking about it, regardless of whether it’s purely our own peopleor our people with the collaboration of a partner, which we have severalongoing discussions and Andy can comment a little bit about the most frequentvisitors to his poster yesterday so Andy?

Andrew Leuchter

Yes, we had quite a bit of interest from not only academicpsychiatrists who would like to try out this technology in their own research,but also from a number of pharmaceutical companies who came by, who expressedinterest in seeing what ATR would show looking at already approvedantidepressants, but also looking at the compounds in the pipeline. I think, increasingly,people would like to see medication selection for individual patients directedby what might work for that particular patient. It's kind of theright-drug-right-patient, as early as possible model. So, I think, there areseveral companies that may want to help develop the technology.

Jonathan Block -SunTrust Robinson Humphrey

Okay, great I mean just two other quick ones, if I may ormay if you can speak a little bit to some of the design changes that were made,I think that you referenced that the some of the results got a little bitbetter, I'm assuming the latest and greatest will be used for the pivotal andthen just the feedback that you are getting surrounding the changes that hasbeen made and how that increases what you think will be the final outcome fromthe pivotal?

Nassib Chamoun

Sure, I think that as we said earlier and what we'veexperienced with this and the anesthesia space. Our algorithm has beenimproving for 20 years, obviously the more time and the more patients you haveunder your belt, the less significant those improvements become. And we'veidentified and other feature that we felt added value to the index weintegrated that into ATR 4.1 and clearly that has made a significant impact onthe performance of the index, both for remission and for response. And Isuspect that now we'll be doing a little more tweaking with the rest of theBRITE data, also looking at the data going out three months, because this is avery rich data set will have close to 2000 visits in EEG recordings, which isenormously valuable and it's part of what has constituted our most significantbarrier to entry historically aspect of these trials and the ability of thesetrials to provide data to constantly optimize these algorithms, which areempirical in nature. So we think that the full BRITE data set will help us totreat the index further as we go into the pivotal trial in Q2.

Jonathan Block -SunTrust Robinson Humphrey

Right. Just too perhaps, I think, as Nassib said that, whenone has more data one tweaks algorithms. I think the important feedback that Igot yesterday was, number one, people were pleased that we were prospectivelytesting the improved ATR algorithm on new subjects. So it wasn't just aretrospective what was actually a prospectively look people that encourage andplease by. And secondly just underline that people were very excited aboutability to predict clinician, which is something that people were notconvinced, we are going to be able to do the data certainly but very encouragingin that regard?

Nassib Chamoun

One more component along those lines is, also not just thealgorithm, but the architect rejection and the processing of the EEG, as wesaid, we lost about 10% of the cases, because of the noisy signal, but we'velearned from that and we'll probably incorporate some automated processing thatwould help guide the clinician and achieve a higher -- a hit rate on highquality EEGs when they apply the system. Again, these are artifact rejectionand algorithm improvements are the two of the biggest comparative barriersentry that we have on our bispectral index and that's really based on a massiveamount of clinical experience and clinical trials with data to optimize to.

Operator

(Operator Instruction) We'll go next to Joshua Zable with NatexisBleichroeder.

Joshua Zable -Natexis Bleichroeder

Hey, guys, thanks for taking my question andcongratulations.

Nassib Chamoun

Hi, Josh. Thank you.

Joshua Zable -Natexis Bleichroeder

A couple of quick questions here. Nassib, I just understandthe timeline properly, it seems like you start the trial in Q2 '08 and then youwould hopefully finish the trial with approval some time in '09. I am guessing,if the trial takes a year, that gets us to Q2 '09. So I guess may be you canjust walk me trough the thought process of the approval in '09?

And then once you would launch after that, you said therewill be a limited launch of 18 to 24 months, so when would sort of be the fullblown commercial, maybe can just kind of walk through that timeline a littlebit clear for?

Nassib Chamoun

Well, let me start by saying our goal is to submit anapplication or file in '09.

Joshua Zable -Natexis Bleichroeder

Okay.

Nassib Chamoun

Whether the approval is in '09 or not, it's tough for me totell the FDA will do what they need to do.

Joshua Zable -Natexis Bleichroeder

Okay.

Nassib Chamoun

And it could be faster, it could be slower, and that's whywe refer to a launch post-FDA clearance, which could be late '09, it could bemiddle of '10. I would be hard pressed to predict that right now. I would alsosay that the initial launch, not necessarily it's limited, but it's targeted,it's focused.

You are going to kind of your highest likely early adoptersand the most experienced likely users with the largest mix of patientpopulations. Because I think that's going to be very beneficial for us to fullscale commercialize this product, and it's going to be very beneficial for usfrom a reimbursement standpoint, and we expect that cycle to be 18 to 24 monthsagain from approval.

Now when is approval, I can't tell you that until we startthe trial, we figure out what the FDA wants to see and we see the results atthe end and it's all packaged and submitted. So, there are couple moremilestones before we can give you better visibility on that. But those are goodrough estimates that you should consider.

Joshua Zable -Natexis Bleichroeder

That's fair. That's helpful. And then is there anyway youcan give us any idea of price of the device and may be the disposablesassociated with it, do you have any idea?

Nassib Chamoun

It's too early to decide how we are going to price it.Clearly, this is not going to be a $15, $16 disposable as it is in theanesthesia space. It will be several times that and it will be potentially a$100 to $300 range, depending on the number of visits, number of assessmentsthat a patient is likely to go through and how we are likely to place theequipment, which right now consists of our BISx technology connected to aspecialized laptop of some sort. So the cost of the hardware is minimal.

The business model of how we integrate the hardware and thedisposable still needs to be worked out, but we are waiting to get the BRITEdata. So we can, based on that, do some market research and talk to potentialcustomers and evaluate the value proposition with something tangible in hand.

Joshua Zable -Natexis Bleichroeder

Great. And then I know some otherpeople asked about spending on the sales force, which I think you are prettyclear on answering that. Obviously, that would be ways away after approval. Soup until then, is there any reason to believe that you guys would up yourR&D, I know you are having a pretty healthy clip in general. But would wespend more sort of into it on the trial, on whether be, I know you've talked alittle about neurostem, just obviously during the trial cost money get in to theFDA. Any color there?

Michael Falvey

Yes sure, this is Mike. Currentlyas we look in to next year, the neuro program as described by Paul, as he laidout that trial. We think we could spend probably in the range of $4.5 millionto $5.5 million, which is little bit less than we've spent this year and lastyear. The biggest difference been driven by the size and the length of this newtrial versus the BRITE trial. So, we don't think you are going to see anysubstantial increase to support further development of the ATR. And we havespoken about it, there maybe potentials in coupling this with neurostem, but wegot nothing on the horizon just yet.

Joshua Zable - Natexis Bleichroeder

Great. Well, congrats, guys. Thanks for all the questions.

Nassib Chamoun

No problem.

Operator

We have a follow-up questionJonathan Block, SunTrust Robinson Humphrey.

Maggie

Hi guys it's Maggie in for John. Realquick, when you retrospectively looked at the data you said theoretically theATR non-responders would have done better if they switch to Wellbutrin. Retrospectivelyspeaking, would they have theoretically done better if they had switched to theWellbutrin/Lexapro arm.

Nassib Chamoun

Andy?

Andrew Leuchter

The results are clearest, before they switched to Wellbutrinalone. It's a pure case of one drug or the other. The results from theWellbutrin/Lexapro arm didn’t really show that it shows a clear predictor ofresponse to the combination treatment. So, we are really focusing primarily onthe single drug treatment arms.

Again, when we designed the study, we were not certainwhether a negative ATR would mean that one should either switch to a totallydifferent medication or whether one should do combined treatment with anothermedication and those were the two major options and it looks like that thenegative ATR the best step is to switch to a different medication. I thinkthat's the best way to interpret our results so far.

Nassib Chamoun

The one thing I would add is that the combinations therapygave us results that were intermediate, as you would expect so, they didn't doas poorly as if they just said on escitalopram, but they didn't do as well asthey would have or they did do, if you switch completely to a different drug.

Maggie

Thanks

Operator

Having no further questions, I would like to turn theconference over to Nassib Chamoun for any additional closing comments.

Nassib Chamoun

Thank you all for participating in our call this morning. Iwill close by simply reiterating our enthusiasm for the results we have seento-date from our neuroscience effort and our confidence in the steps we aretaking to capitalize on this opportunity. We believe that the results fromBRITE suggest that our technology may become an important tool to assistclinicians and the management of anti-depression therapy.

Our experience in this area may also position us to play asimilar role in the neurostimulation market. Paul, Mike and I will be in theoffice for the rest of the morning, if you have any other questions. Thank youall for your time this morning. Have a good day.

Operator

That does conclude today's conference. Thank you for yourparticipation. You may now disconnect.

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