Altus Pharmaceuticals Inc. Q4 2007 Earnings Call Transcript

Altus Pharmaceuticals Inc.

Q4 2007 Earnings Call

March 11, 2008 11:00 am ET

Executives

John Jordan-Senior Director of Corporate Communications

David D. Pendergast - Ph.D., Executive Chairman and Chairman of the Board

Jonathan I. Lieber - Vice President, Chief Financial Officer and Treasurer

Burkhard Blank, M.D. - Executive Vice President and Chief Medical Officer

Analysts

George Farmer-Wachovia Securities

Steven Harr-Morgan Stanley

Stephen Byers-Jeffries & Company

Joseph Schwartz -Leerink Swann

Thomas Mcgahren -Merrill Lynch

David Maris - [Polyasnee]

Presentation

Good day everyone and welcome to this conference call with Altus Pharmaceuticals regarding the company’s fourth quarter financial results. This call is being recorded. I will now turn the call over to Altus’s Senior Director of Corporate Communications, Mr. Jon Jordan. Please go ahead, sir.

John Jordan

Thank you and good morning everyone for joining me today on the call with David Pendergast, Executive Chairman, Jonathan Lieber, Vice President, CFO and Burkhard Blank, Executive Vice President of Medicine, Development, and Regulatory. Before I turn the call over to David, I would like to direct your attention to our Safe Harbor statement in our news list today. Certain remarks that we may make during this call about future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. As noted in the statement, our actual results may differ materially from those indicated in these forward-looking statements. As a result of various important factors such as those that are discussed in our news release and in our Sec filings. Included in our most recent Form 10-Q which is on file with the FCC. Please refer to this filing for a description of those factors.

I’ll now turn the call over to David.

David Pendergast

Thank you John, good morning everyone and thank you for taking the time to participate in our fourth quarter and year end investor conference call.

In February I assumed the role of Executive Chairman after having served as a member of the Altus board since November of 2006 and as its’ chairman since November of 2007. As a result, I now have a more active role in the day to day management of Altus, while a search is underway to bring a new CEO on board. In addition Burkhard Blank and Jon Lieber have assumed increased leadership responsibilities and together we are responsible for the strategic direction of the company, establishing overall goals and policy’s and ultimately driving our clinical programs and this company forward. Over the last several weeks I’ve worked with Altus management to conduct a complete review of our development plans and clinical timelines. I am pleased to report that we remain on track to file the Trizytek NDA submission in the first half of 2009. Both the efficacy trial and the safety trial are progressing very well and we are reiterating our previous guidance for the ALTU-238 and the ALTU-237 programs.

I will now take you through more detailed updates on each of our clinical programs before turning the call over to John to review the financials.

Trizytek is the company’s orally administered enzyme replacement therapy currently in Phase 3 development for patient’s with pancreatic insufficiency. Our Phase 3 clinical program consists of an efficacy trial and a one-year safety study, both of which are necessary to support our first half 2009 NDA submission. The patient screenings for the Trizytek Phase 3 efficacy trial are now essentially complete in that we have reached our original target of screening more than 175 patients. However we have elected to extend patient screenings for up to three additional weeks, because our screen failure rate is slightly above our initial projections. We continue to believe that we will complete the efficacy trials in the second quarter, but now expect to report top line efficacy trial results in the third quarter. The additional patient screening should ensure that we reach our goal of enrolling and evaluating approximately 150 patients at more than 40 cystic fibrosis centers around the world.

To be clear, I want to state that these additional screenings will not affect the Trizytek NDA timeline, because the safety study is and always has been the gating item for submission. Regarding the safety study, we are confident that we have enrolled more than enough patients to allow us to have one years safety data on the required 100 patient for inclusion in our first half of 2009 NDA submission. At the end of January 2008, Altus had more than 130 cystic fibrosis or chronic pancreatitis patients enrolled in the Phase 3 safety evaluation. Top-line safety results are expected to be available in the second quarter of 2009, which is consistent with previous guidance and should represent the last remaining component for the NDA submission.

With respect to the sub groups in the Phase 3 efficacy trial, it is important to note that severe malabsorption patients represent approximately 25% of the current total of enrolled patients, which is the percentage that was discussed and agreed upon in the special protocol assessment between Altus and the FDA. Severe malabsorption patients are defined as those patients with a Co-efficient of Fat Absorption, or CFA, below 40%. Our Phase 3 clinical program is the largest ever conducted to evaluate the efficacy and safety of enzyme replacement therapy in CF patients. And it demonstrates our commitment to advancing enzyme replacement therapy options for both cystic fibrosis patients and others who suffer from pancreatic insufficiency.

With this in mind, I would like to take this opportunity to congratulate Burkhard and his clinical team for successfully managing such a large and challenging program. This has truly been a global program and in the end, we will have more than 300 patients for more than 70 sites in nine countries across three continents included in this program. All has been accomplished in basically three quarters. Again, I believe it is a tremendous job by the Altus clinical team. I would also like to thank all of the physicians and patients who are participating in this program. And in addition, I’d like to acknowledge the role of the Cystic Fibrosis Foundation for their continuing support. This has been a great group effort by all of the parties involved.

Now moving onto ALTU-238, which is being developed as a once per week formulation of Cystic Fibrosis Foundation that could be a significant benefit over the current daily hGH therapies. Our ALTU-238 program is moving forward and I’m reiterating our plan to initiate a Phase 1c trial this summer. The trial was designed to confirm that the ALTU-238 material, produced at the current manufacturing scale, performs similarly to material used in the previous Phase 1 and 2 trials. The Phase 1c trial is expected to include approximately 35 subjects and the safety profile of the ALTU-238 will be evaluated over a two-week period. We expect to complete the Phase 1c trial in the third quarter and upon successful completion of the data analysis, we plan to initiate a Phase 2 pediatric trial.

Now moving onto ALTU-237; ALTU-237 is being developed as an oral form of an oxalate-degrading enzyme for the treatment of primary and enteric hyperoxaluria as well as to prevent the recurrence of kidney stones. I’m pleased to report that enrollment is complete for the Phase 1 trial. This study enrolled approximately 60 subjects into four cohorts and we are on track to report top-line results in the second quarter.

I will now turn the call over to Jon Lieber for a summary of our financial results.

Jonathan Lieber

Thank you, David. Good morning everyone. For the fourth quarter of 2007 the company reported net income attributable to common stockholders of $5.4 million or $0.16 per share fully diluted, compared to a net loss attributable to common stockholders of 14.5 million or $0.63 per share basic and fully diluted in the fourth quarter of 2006. Total revenue was 26.8 million in the fourth quarter of 2007, compared to 1.1 million in the fourth quarter of 2006.

The increase in fourth quarter 2007 revenue is primarily due to our former ALTU-238 collaboration agreement with Genentech, which was terminated effective December 31, 2007. Included in fourth quarter 2007 revenue was $25.1 million associated with the ALTU-238 agreement. The significant increase in quarter-over-quarter revenue, combined with a $4 million termination payment from Genentech, which was reported as a gain, contributed to the company reporting a profit for the fourth quarter of 2007.

R&D expenses totaled 21.1 million in the fourth quarter of 2007, compared to 12.3 million in the fourth quarter of 2006. The increase in R&D expense is primarily due to an increase in cost related to the Trizytek Phase 3 studies, as well as the ALTU-237 Phase 1 trial.

General Sales and Administrative expenses were $5 million in the fourth quarter of 2007, compared to 4.2 million in the fourth quarter of 2006.

Regarding Altus’s full year results, the company reported a net loss attributable to common stockholders of $63.5 million or $2.23 per share for the full year ended December 31, 2007, compared to a net loss attributable to common stockholders of 57 million or $2.75 per share for the full year ended December 31, 2006.

Total revenue was $28.5 million for 2007, compared to 5.1 million in 2006. Similar to our fourth quarter results, the increase in 2007 revenue was due to the termination of our ALTU-238 collaboration agreement with Genentech.

R&D expenses totaled 70.6 million for 2007, compared to 50.3 million in ’06.

Research and Development expense for 2007 increased primarily due to increases in third party development costs relating to the Trizytek and ALTU-237 programs and an increase in personnel related costs.

General Sales and Administrative expenses were 18.2 million for 2007, compared to 14.8 million in 2006. The 2007 increase was primarily driven by an increase in personnel related costs. The increase in personnel costs reflects the full year impact of head count hunt in 2006, in addition to new head count hired in 2007. The company’s cash, cash equivalents and marketable securities balance at December 31, 2007 was $138.3 million.

Turning to our 2008 financial guidance; based on our current operating plans, the expected timing and cost of the Trizytek Phase 3 efficacy and safety trials, the ALTU-238 Phase 1c trial and the ALTU-237 Phase 1 clinical trial and other product development programs, we expect net cash used in operating activities to be between $85 million and $95 million in 2008.

That concludes the financial summary. I’ll now turn the call back over to David.

David Pendergast

Thank you, Jon. We believe 2008 is a pivotal year for Altus and we have placed ourselves in a position to succeed at meeting the challenges that lie ahead. Our clinical programs and pipeline have tremendous value. The Altus team is focused on the timely development of our product candidates that are targeting serious diseases in underserved indications. During the next year we expect to accomplish the following: Complete the Trizytek Phase 3 efficacy trial enrollment in the second quarter of 2008; report top-line Trizytek Phase 3 efficacy trial results in the third quarter of 2008; prepare for Trizytek NDA filing for the first half of 2009; complete the Phase 1c study for ALTU-238 in the third quarter of 2008; secure a long-term hGH supplier for ALTU-238; complete Phase 1 clinical trial for ALTU-237 in the first quarter of 2008; report the top-line data for ALTU-237 in the second quarter; and complete the pre-clinical testing on ALTU-236 and 242. We are committed to achieving our corporate goals and we are enthusiastic about the important data we anticipate reporting in 2008.

With that, we conclude our formal remarks on the call today. I will now turn the call back over to the operator, who will open the question and answer period.

Question-and-Answer Session

Operator

Thank you, sir. The question and answer session will be conducted electronically. (Operator Instructions) We’ll pause for a moment to assemble the queue. And our first question comes from George Farmer with Wachovia Securities.

George Farmer-Wachovia Securities

Hi, good morning. Thanks for taking my question. I just want to clarify something in your prepared comments. You said that, was it 25% of the patients that CFAs below 40 is that correct?

Jonathan Lieber

For those that we have CFA results, yes. Today it’s in the order of 25%.

George Farmer-Wachovia Securities

Okay and how does that compare to the Phase 2 patient population?

Burkhard Blank

In the patient population in Phase 2 we had, I think it was 26.5% and we designed the Phase 3 trial, had to design the Phase 3 trail with assumption that we would see a similar breakdown in the patients, in the stratum which are severely affected and those who are not as severely affected and that was discussed also with the FDA agreed and the statistical analysis plan. The most recent update that I could see was from yesterday, with information of 50% of the patients that would ever need it for the analysis of the trial and there we are above the target, slightly above the target, so that gives us confidence.

George Farmer-Wachovia Securities

Okay and was it last quarter or the quarter before when you announced that enrollment was proceeding slowly with the CFAs below 40, it sounds like that pace has picked up. What changed in particular?

Burkhard Blank

You’re right on that and what I said at the last quarter is that there is basically nothing one can do to direct the percentage of points in the below 40 or above 40 in any direction. So we have a slow pick up in the more severely affected patients and this has reversed and now we are basically seeing the same that we saw in Phase 2.

John Jordan

I think I would also make the point that the initial discussion was on a very limited number, it was on the first patients that we had seen. Now we’re looking at, as Burkhard said, on the order of half of the patients that we expect to ultimately evaluate. So, as we’ve gotten more and more patients into the trials the number has reverted to both what we expected and what occurred in the Phase 2.

George Farmer-Wachovia Securities

Great, thanks very much.

John Jordan

Thank you for your question.

Operator

And our next question comes from Steve Harr with Morgan Stanley.

Steven Harr-Morgan Stanley

Sorry, I apologize, I joined late. Did you discuss, your primary end point are these patients who have a below 40%. How has the actual accrual of these patients affected the power of this trial?

David Pendergast

You’re right, the primary extent point, that was a primary analysis of the primary of the primary end point which is CFA, changes compared to placebo is in the more severely affected in the below 40. The trial is powered, assuming that we get 40 patients or at least 40 patients in this stratum, 20 on placebo, 20 on active that will give us a power of over 98% to identify statistically significantly difference between active and placebo. So even if the trial would come out below the 25 percentage points, which we don’t anticipate, but could be because we have [indiscernible], will be more than sufficiently powered for the primary analysis.

George Farmer-Wachovia Securities

Okay and so, I’m sorry, where are you in terms of completing enrollment? Is it ove, or how much risk is there that we could see a further decline in the timeline?

Burkhard Blank

Let me define what we mean by screening and by enrollment in this trial design. Screening patients, in any trial, means patients come to a first site visit and the inclusion/exclusion criteria are set and once they are fulfilled then these patients are enrolled or not enrolled. The key result that is right remitting for that is a stu-term it’s a thick with assays which is indicative of pancreatic insufficiency or not. So we want to make sure as any other trial did in this indication, that we don’t put patients into the trial that don’t have pancreatic insufficiency. This time requires two to four weeks. So, two to four weeks after screening patients, we’ll then enroll and then screen out. As of yesterday, we had 177 patients screened in the program and 122 patients enrolled, actually that means starting on the active part of the trial.

George Farmer-Wachovia Securities

Okay.

Burkhard Blank

I’m sorry to the second part of your question, as we had indicated; we gave ourselves three more weeks than originally anticipated to give us the number of patients to compensate for slightly increased screen fail rate compared to what our subjects were.

Jonathan Lieber

I think the main message on the efficacy trial is that the challenge for any of these Phase 3 trials that are as large as this is that locating the number of patients that both meet your entry criteria and are willing to participate in the trial. I think the good news that we have today is that we have identified that number of patients and that’s why we sound pretty upbeat relative to the trial.

George Farmer-Wachovia Securities

Okay, so this is like about 3 weeks away from what you had expected from late Q2?

David Pendergast

Yes, that’s sort of on the order, as we sit here today, from the screening perspective and so we’re looking at a slip into Q3.

George Farmer-Wachovia Securities

Okay, great, thank you.

Operator

And our next question comes from Steve Byers with Jeffries.

Stephen Byers-Jeffries & Company

Yes, hey guys. I’m calling for Yu and she’s actually over in Europe for the week marketing. Most of my questions have actually already been answered. But, just quickly, if you guys can just provide a little bit more color into just from a modeling perspective for ’08, you know, you can give us any more color than just the cash burn that would be greatly appreciated. Also, I want to, this is just a minor point, but you talk about filing in the first half of ’09 and yet you expect to see the safety data from the safety trial in the second quarter. Is that going to be kind of a supplement? Are you going to file before then or are you going to wait until after Yushi has that data in hand and you announce that, that you’re going to file?

David Pendergast

Let me take the second part first and then I’ll turn it over to Jon who may question about more color on this, on the financials. The way we are looking at this, because the safety data is the last of the data that we need, Burkhard and his team have put together an NDA filing plan and we will be writing up all of the other sections, the CMC section, the efficacy and all of that and essentially, as we approach the safety cut off, we should be in a position to do the safety cut off, add the safety data to the clinical section and file the report. So that’s why I mentioned that this would be the last piece of data that should be waiting to be dropped into what is essentially a written NDA in the second quarter of ’09.

Jonathan Lieber

Two and to answer the second part of the question or the other half of the question, as I mentioned our cash at the end of ’07 was just shy of $140 million and we expect out net cash used in operating activities this year to be between 85 and 95 million, which gives us cash comfortably into the first half of next year. Would I like to have more cash? Generally speaking, I always want to have more cash and we are certainly looking at a whole host of different opportunities in terms of shoring up our balance sheet, including partnering opportunities and product specific capital raising opportunities; at the end of the day we want to create more value, put some milestones behind us, before doing any of that, but certainly those are amongst the things we are considering to shore up the balance sheet.

Stephen Byers-Jeffries & Company

Okay perfect. That‘s it from my end.

Operator

(Operator Instructions) and our next questions comes from Joseph Schwartz with Leerink Swann.

Joseph Schwartz -Leerink Swann Llc

Hi, thanks for taking my question. I was wondering if you could update us on your strategy for an alternative formulation of Trizytek for younger patients as well as what you’re considering to bring that drug to market over in Europe and the rest of the world?

Burkhard Blank

We are developing a formulation that is convenient for patients at an age where they, children where they cannot swallow capsules reliably and there is an agreement that basically this is for anybody below seven-years-old. Age, we’re currently developing this formulation, putting in absorbability and later this year we can make a conclusion whether this formulation is suitable for clinical studies to be initiated in due course.

David Pendergast

And following on Jon’s commentary about partnering our programs at a point in time when we think we can get the best value with Trizytek, a European approval will require a competitive trial or trial with a reference drug. And in order to design that trial, we really do need the efficacy data from the Phase 3s. So we will be looking at partnering opportunities after we get the efficacy data so that we can design and suggest a trial and work with a partner on what that trial would look like. But, we’re certainly interested in having Trizytek be a global brand.

Joseph Schwartz -Leerink Swann Llc

That makes sense. If I could just ask a follow up on 238;.what options are you considering? Are you still considering partnering that drug and are you talking to anyone currently or are you able to take somebody’s sell line? Are you able to access that and then create your own brand? Assuming that you had access to the funds needed to do that.

David Pendergast

Again, following on from the idea of value creation, we are committed to take that product into the clinic and to demonstrate that the material that we have scaled up behaves as the Phase 1 and Phase 2 trial, that’s one of the questions a perspective partner would ask and we want to be in a position to answer. We also, as one of our goals, is committed to securing a supply of hGH and therefore can talk to partners that either have their own source or partners that would be dependent on another sources and we’re confident that we can do that. And at that time we will be aggressively seeking to partner 238. And as far as, are we talking to folks? We don’t comment on ongoing BD activities, but I think the fact that we had partnered it once and that we are investing the clinical program, it should be taken into view that we believe in both the product and our ability to find a partner for it.

Joseph Schwartz -Leerink Swann Llc

Thank you.

Operator

And we’ll take our next question from Tom Mcgahren with Merrill Lynch.

Thomas Mcgahren -Merrill Lynch

Hey thanks. I had another question on 238; when do you think you would start a trial in adults? They mentioned in the press release essentially a pediatric trial after the Phase 1c is completed, but you previously had talked about an adult trial first.

Burkhard Blank

We’ll do a Phase 1c as was said, middle of the year. Once we look at the data we’ll make a decision than, when to start a Phase 2 trial in children. The decision relative to when the Phase 2 trial will go into a Phase 3 trial in adults is currently not made, so we’ll be able to make that decision later this year.

Thomas Mcgahren -Merrill Lynch

Okay and then just deeper in the pipeline, in the pre-clinical pipeline, do you think that ALTU-236 could enter the clinic in 2008 in BKU?

David Pendergast

I think in both the pre-clinical programs we’re committed to get to a go, no go decision by the end of this year and I think that we would not see either one of them in the clinic until 2009. But, we would hope to select one of them to take forward by the end of this year.

Thomas Mcgahren -Merrill Lynch

Okay, thanks a lot.

Operator

And we’ll take our next question from Steve Harr with Morgan Stanley

Steven Harr-Morgan Stanley

I just wanted to follow up here and just, there is some new management with the company and there are some questions on liquidity, which I’ve got, over the next two years. So has anything changed in the strategy of the last couple of months and how are you just thinking about, just draw us a road map, lets assume success in the pancreatic enzyme program. What will happen with world wide rights around each of these drugs and how you think you can access capital and what are the priorities for development and moving things forward over the next 12 to 24 months?

John Jordan

We are currently going through each of the programs in a very rigorous way in terms of looking at their value proposition through fifth year of sales. We’re also looking at each one of them in terms of both our ability and the value that would be created by us taking them to market directly or by partnering them and we’re doing that on deep into the pipeline. So we’re making those assessments from Trizytek right through some spoons in research that we haven’t even talked about publicly. And, we should be able to be complete with that process in the second quarter and we should than be able to integrate in the Trizytek clinical data and then put that all together in a road map for us and for you by the end of the third quarter of this year. And at that time, we will have some sense of the capitalization we hope to create by partnering and what we may need to address by virtue of some of the other instruments that John had referenced earlier. But, we believe there’s value in all of these programs and the question of how to capture it and who would be a good partner and at what stage, we’re going through that review in depth, or re-going through it right now.

Steven Harr-Morgan Stanley

Alright, thank you.

Operator

Our next question comes from Jeff Crek (sp) with Polyasnee (sp)

David Maris-Polyasnee (ph)

Hi it’s David Maris for Jeff. I have a couple questions. First, building on Steve’s question, how much cash do you think you need to get to profitability or cash flow positive? If you start ’08 with 138 million and spend 90 million, so that gives you 50 by year end, which means without any change I would think that you’d have a going concern language in your financials somewhere around the third quarter. And Steve and I think other analysts have you burning $100 million plus in 2009, so it would seem that you’d need to raise at least $100 million, so you mentioned these other instruments. But, actually you didn’t reference what other instruments they could be. But at the current level lays $100 million would be diluted by 50%. So, I mean it’s, how do you think you’re going to get yourself out of this jam other than partnering? Because partners, I would imagine, understand where you are in financials and it sounds harsher than it is. I just want to know what your plan is.

John Jordan

Okay I think the first issue is one of the burn is based on the support for the programs and what it’s going to cost to launch 135 or Trizytek. And in looking at that, that could be significantly ameliorated by partnerships and deals in so far as there are up-fronts, milestones and acceptance of some of the development responsibilities. So, until we have a clear view on where we’re going to be with 238 and some of the others, I think that that’s one variable that will become clear over the next couple of quarters as we do deals or as we anticipate and can see what kinds of deals we think need to be done and assess whether they’re doable or not. I think the other part of it is, if we have a good Phase 3 data on Trizytek, we would not expect to be doing an equity offering off of the current price. And so, I think we have to wait and see those two things. Jon, any additional comments on that?

Jonathan Lieber

No, I think David thanks for the question. I think that at the end of the day we are obviously are aware of the fact that we will need to add to shore up the balance sheet and add capital for the company. I think as David mentioned there are different options to do that. We’re certainly looking at partnering across, certainly from a strategic standpoint across all of our assets, as David mentioned. And capital rising, I mentioned before that we don’t have an appetite certainly at raising capital, certainly right now at these levels. We would like to put some value creating events between ourselves and the next capital raised. An example of that could be, for example, positive Trizytek Phase 3 efficacy data. But, there are, I mentioned other alternatives. There are product specific alternatives, product specific financing vehicles out there, which we have evaluated in the past and will continue to evaluate, as well as other options out there for us. And as we go through our strategic planning exercises that David discussed before we will be narrowing those choices down and ultimately selecting the one that we think creates the most value for shareholders.

David Pendergast

And I think as we go through the possibilities you have non North American rights to 135 for Trizytek, we had the 238 opportunity. Not opposed to partnering 237, research collaborations, 236 and so there are a number of opportunities to partner some of these things, some earlier than others and that’s part of what we have to go through to determine how much capital we actually need.

David Maris-Polyasnee (ph)

Okay, but at this point you don’t have an estimate of your cash spend for the next two or three years or to get to profitability?

Jonathan Lieber

We certainly have internal estimates David and what we’re giving right now is guidance for 2008 and the fact that we expect our cash on hand, without any additional partnerships, collaborations and new capital et cetera to get us comfortably into the first half of next year.

David D. Pendergast

And I think that’s one of the things that we’re, that’s one of the ways we’re asking the strategic planning question that I talked about in terms of the process that we’re going through and that is when we look, when we take a look at each of these programs and then we add them up in a corporate sense what is it going to take to profitability and we’re asking that question specifically and then what leverage do we have to pull and what value does that create. So that’ really the essence of the strategic planning process, or one key part of the strategic planning processl

David Maris-Polyasnee (ph)

Alright well thank you very much.

Operator

(Operator Instructions) And there are no further questions at this time. I’d like to turn the conference over to our speakers for any additional or closing remarks.

John Jordan

Well thank you everyone for your interest in the call today and we look forward to achieving our objectives over 2008 and we look forward to updating you on our next investor call. Thank you very much.

Operator

And that concluded today’s teleconference. Thank you for your participation. Have a good day.

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