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Executives

Gina Nugent - Vice President, Investor and Corporate Communications

Robert Forrester - Executive Vice President and Chief Financial Officer

Justin Renz - Vice President of Finance

Analysts

David Miller - Biotech Stock Research

Matt Osborne – Lazard Capital Markets

Chad Messer – Piper Jaffray

Alex Kale - Metixif

CombinatoRx, Inc. (CRXX) Q4 2007 Earnings Call March 6, 2008 8:30 AM ET

Operator

Thank you for holding. At this time, all participants are in a listen-only mode. There will be a question-and-answer session to follow. Please be advised this call is being taped at the company’s request.

At this time, I would like to introduce your host for today’s call, Gina Nugent, vice president, investor and corporate communications at CombinatoRx. Please go ahead.

Gina Nugent

Good morning everyone and welcome to the CombinatoRx fourth quarter and year end 2007 conference call in which we will provide a corporate update including fourth quarter and year end 2007 financial results and upcoming milestones. With me today is Robert Forrester, executive vice president and chief financial officer and Justin Renz, vice president of finance at CombinatoRx.

Before we begin, let me remind everyone that our statement today about our product candidates’ goals, financial projection, business development strategy and business prospects are all forward-looking statements under the Securities Laws. These statements are made based on our account assumptions, expectations or beliefs and are subject to a number of risks that could cause the company’s actual result to differ materially from these statements.

Our assumptions, expectations or beliefs may change and we do not undertake to update these forward-looking statements after today. In addition, the risks underlying these statements are described in the “Risk Factors” section of the report we filed with the SEC.

I will now turn the call over to Robert.

Robert Forrester

Thanks Gina. Good morning, everybody. What I am going to do this morning is review the accomplishments of 2007 and then I will hand you over to Justin who will review the Q4 2007 financial results and then I will review 2008 goals.

One of the things we wanted to do was change our name last year but unfortunately we did not so it is still CombinatoRx but let us move forward into the key accomplishments of last year and the early part of this year. First of all, CRx-102, this is our lead program and we advanced the CRx-102 into late stage clinical development. We have initiated two phase 2b trials for CRx-102. The first in which is COMET-1 which will evaluate the efficacy of CRx-102 compared to placebo in patients with symptomatic knee osteoarthritis.

Approximately 250 patients are planned to be enrolled in this 14-week, Five hour multi center, and randomized, double-blinded study. Patients are being randomized to receive three different doses of CRx-102, 2.7mg of prednisolone and 360mg, 180mg or 90mg of dipyridamole, in the other two arms 2.7mg prednisolone or placebo. The primary endpoint of this study is to assess CRx-102 compared to placebo using the WOMAC pain score calculated from baseline to day 98.

Secondary endpoints include the full WOMAC pain, stiffness, physical function parameters and patient global assessment scores. Of course, safety will also be assessed. On schedule for this trial we dated from this trial are expected in the second half of this year. The second trial with 102 is March 1 which will be about the efficacy of CRx-102 compared to individual components and placebo in patients with RA.

Approximately 600 patients have planned to be enrolled in this 14-week, 5-hour, multicenter, randomized, double-blinded study. Patients are being randomized to receive two different doses of CRx-102, 360mg of dipyridamole alone, 2.7mg of prednisolone alone and placebo with the last arm. The primary endpoint of the study is to assess CRx-102 compared to its individual components and placebo using ACR 20 scores.

Secondary endpoints include ACR 50, ACR 70 and DAS28 amongst other things. We expect data back from this trial in 2009. Just to remind you, CRx-102 has already demonstrated positive results and three placebo-controlled phase 2a clinical trials including statistically significant results in both hand away and rheumatoid arthritis. Just a reminder in ’08, 102 demonstrated statistically significant 31% reduction in pain but the 7% with placebo and the RA study, 102 demonstrated statistically significant 63% ACR 20 response compared to 30% with placebo. Also, this is very, very encouraging data and we look forward to getting the data back from the phase 2b studies.

The second major accomplishment in 2007 was we re-launched two new product candidates in the clinical trials. The first of this is CRx-401. We launched the phase 2a trial of this Type 2 diabetes drug candidate. CRx-401 is a Novel Insulin Sensitizer designed to provide anti-diabetic activity without promoting weight gain. CRx-401 demonstrated strong evident despite the profile in pre-clinical studies. CRx-401 is synergistic combination obtaining a sustained-release therapeutic dose of bezafibrate, an anti-cholesterol agent and a low dose of diflunisal which is an analgesic salicylate derivative that caused them to aspirin.

We are running multi-center, randomized trial designed to evaluate the activity of 401 as an add on to therapeutics metformin in patients with Type 2 diabetes compared to bezafribrate. Approximately 80 patients are scheduled to be randomized in a 1:1 ratio to receive CRx-401 of bezafibrate plus placebo in addition to metformin in both arms. Endpoints of the trial include fasting plasma glucose, HbA1c, triglycerides, HDL and insulin resistance. Results of this proof-of-concept trial are expected in the second half of this year.

The second new product candidates that we does from last year is in phase 2a clinical study is CRx-191 of plaque psoriasis. This is topical synergistic combination drug candidate in development for psoriasis and other steroid responsive dermatoses. CRx-191 is the first in the family of novel topical product candidates that common psoriasis is developing. CRx-191 contains a mid-potency, steroid, mometasone and a low dose of tricyclic anti-depressant, nortriptyline. It works through a novel mechanism of action in which nortriptyline amplifies mometasone's anti-inflammatory activities without enhancing the steroid side effects with a goal of providing the efficacy of a higher potency topical steroid with a mid-potency steroid safety profile.

The trial is designed to valid the efficacy and safety of CRx-191 compared to placebo and each to its components in subjects with psoriasis. We have enrolled approximately 20 patients with chronic psoriasis. It is a 6-arm trial and the arms include CRx-191 at low dose which is the 0.1% mometasone and a 0.05% nortriptyline. The high-dose version of 191 which is the 0.1% mometasone and the 0.1% nortriptyline and then the other arm is up 0.1% mometasone alone, 0.05% nortriptyline alone, 0.1% nortriptyline alone and placebo. Endpoints include reduction from baseline in psoriatic infiltrate as measured by ultrasound at day 12 and we expect trial results back late of this month.

2007 was also a good year from the aspects of corporate development, financing and patents. We continue to pane off financial strength through a number of important events including Angiotech extending our collaboration which is also the $7 million payment if you can remember the expense of this early which is very encouraging.

Secondly we signed a $3 million research collaboration with the Charley’s Fund and the Nash Avery Foundation for Duchenne Muscular Dystrophy and we also importantly complete the registered direct stock offering of $35 million which a next to the study for $3 million which to fund the development of [Inaudible 8:17] drugs.

Thirdly, we semester result is in place to continue to execute on our business plan. We also marked advances and other key aspects of our business including the protection of intellectual property we create. In the recent example of the [832] last week where we issued the broad US patent covering compositional matter and methods that have used for the TCA/GC combinations. This patent which expired in 2002 provided full coverage for 191 as well as other product candidates. Also, last year we were issued a patent for massive use all CRx-102 and various immuno-inflammatory diseases including RA.

I will now turn the call over to Justin who will brief review the financial results for the fourth quarter and year end.

Justin Renz

Thanks, Robert. I am happy to report that we met our 2007 financial guidance in all fronts. We earned revenue of $3 million in the 4th quarter and $14.9 million for the full year which is at the high end of our revenue guidance of $13 million to $15 million. We have net loss of $14.2 million for the 4th quarter and $53.3 million for the full year.

Net loss, excluding stock-based compensation expense for the year ended December 31, 2007 was approximately $45.4 million which is below the low end of our net loss guidance of $48 million to $53 million for the year.

As of December 31, 2007, we had cash short-term investment and restricted cash of approximately $112.6 million which is at the high end of our 2007 guidance of $103 million to $115 million. Our financial guidance for 2008 based on our current operating plans within the year with revenue between $15 million and $20 million and a net loss, excluding stock-based compensation and depreciation expense, in the range of $49 million to $55 million and to finish the year with cash, cash equivalent, short-term investment and restricted cash of between $58 million and $64 million.

With that, I will the turn the call back to Robert to wrap up our prepared comments.

Robert Forrester

Thanks, Justin. Before we end the question, I would just like to review our goals for 2008. Our first and primarily the most important goal is to bring back the 102 phase 2b clinical data. Secondly, this year we would like to have some publications demonstrating the steroid dissociation while 102 is unique mechanism. Third is report multiple additional phase 2 clinical data search potentially coming from CRx-191 in plaque psoriasis which we have had shortly, 197 in atopic dermatitis and plaque psoriasis, 401 in type 2 diabetes. Fourth, we would like to refresh the early clinical port fully from the pool of product candidates we have on deck which currently includes HCV, B-cell malignancies and derm, just to name a few. Fifth, continue to discover an advance new programs include a funding research program such as cystic fibrosis, neurodegenerative diseases, ophthalmic and infectious diseases as well as Next Generation product opportunities. Sixth, continue to execute on our previously announced 2008/2009 partnering campaign and the transitional business model.

And finally, the goal for this year is to maintain the financial strength by controlling CRXX-funded investments, monetizing assets by creating the opportunities to partner products and/or therapeutic franchises and leveraging our drug discovery platform with additional research and technology collaborations. As the year progresses, I look forward to keeping you up-to-date on how we are doing.

Ending at that point, I will now stop and take your questions. Operator?

Question-and-Answer Session

Operator

At this time, we will take any questions you may have.

(Operator instructions)

Our first question will come from the line of David Miller with Biotech Stock Research. Please go ahead.

David Miller - Biotech Stock Research

Hi, good morning.

Robert Forrester

Good morning, David.

David Miller - Biotech Stock Research

Pretty thorough report, I just have one question. It looks like from your projections that you should not expect to have to raise money in 2008, is that pretty much your goal?

Robert Forrester

Yes, what we have said to the script is we do not intend to raise money until we get through 102’s in the first set of data so we thought the right capital is to execute on the business plan and execute on these clinic trials.

David Miller - Biotech Stock Research

Okay and then after that you maybe not have to go back to the market for some time after that depending upon the partnering campaign?

Robert Forrester

Exactly right I mean our goal is the transition our cells from having a reliance from the active capital market somewhere. The reliance is based on business development as being the primary source of capital and this year, the product pull full year ensuring the point where we can begin to launch that business development effort. So, we want to first say that we will never go back to the capital market. I am not sure the quite value but that is that the goal that we are at and right now, we are well capitalized.

David Miller - Biotech Stock Research

Okay and do you have, I guess maybe I have more than one question, sorry, the March 1, do you have a some sense of one in 2009, we might see that data at first half still?

Robert Forrester

We have not given any more guidance for that. We would pretty give an update in the midyear at the R&D day here in Boston when we have seen more months of enrollment.

David Miller - Biotech Stock Research

Okay, great. Thanks much.

Robert Forrester

Thank you.

Operator

And our next question will come from the line of Matt Osborne with Lazard. Please proceed.

Matt Osborne – Lazard Capital Markets

I got it thanks for taking the question. Justin and Robert, first on 102, can you fine tune perhaps when we may see the 102 data from the comment study there in the third or fourth quarter.

Robert Forrester

Not yet, we have said the second half and the clinical team is working diligently but as you know it is all about enrollment and the things are going great but it is too soon to be more definitive. We will give you an update in the R&D day.

Matt Osborne – Lazard Capital Markets

Okay and can you remind us the extension, the open label extension period goes out to about a year, is this primarily for safety purposes or just for a way to enhance the efficacy claims? It seems like this maybe a pretty long duration in one that you could compete effectively against with other label claims or competing agents or the both? Both to enhance the safety and to improve the efficacy label?

Robert Forrester

Well, you see it is an aspect of both but I think safety will be the primary rationale behind this because we think that is going to be the big differentiating factor to the drug and the label is the long-term safety and we want to start building a good solid safety database and as you point out, we initially got a year but then the competency go longer, we will see how it goes.

Matt Osborne – Lazard Capital Markets

Okay and then on CRx-191, 197 we will see data first on 191, is it an expectation that we will wait until we see the 197 data before you decide which of these two compound is the most promising for this indication?

Robert Forrester

No, I do not think so. We have 191 data shortly this month. 197 is not due until the end of the year, we will look at the date for 191, see what we think about it and depending on the strength, the data we might initiate this clinical studies and/or initiate the business development patterned around it either around it alone or around the whole portfolio of topical derm products in the pipeline. We got to leave ourselves flexible until we see the data and decide what to do next for them but we do not anticipate waiting before doing something next with it until the end of the year with 197.

Matt Osborne – Lazard Capital Markets

Great, then last question just on the income statement, the R&D expense seemed a little bit light in the fourth quarter versus the third quarter, can you remind us what the differences in expense down that line and what we should expect on forward for the fourth quarter runway or bumping up back to the third quarter runway?

Robert Forrester

I will hand that over to Justin.

Justin Renz

Sure. A little early, I say somewhere in between we had a bunch of trials kicked off. In terms of the upcoming payments, I think that leads you in the third quarter and as enrollment continue, we will see the R&D expenses go up and down with the ebb and flow of our patients.

Matt Osborne – Lazard Capital Markets

Okay, great. Thank you.

Operator

And our next question will come from the line of Chad Messer from Piper Jaffray. Please proceed.

Chad Messer – Piper Jaffray

Hi, Robert. Thanks for taking my call and if you guys, this is my question, if you guys are going to consider renaming the company at 2008, let me just throw out the best one that I have heard from some of the guys here and that is Combinator X that sound a super hero quality to it.

Robert Forrester

That is a good one.

Chad Messer – Piper Jaffray

Right. So, just a couple of quick questions, the first if you could just sort of remind me for the partnership campaign the different kinds of partnership opportunities that you have and sort of how you think about them and if you start to rank them in your mind in terms of importance to you, whether or not a bit several things, I can think of one would be another kind of product area partnership, I will say a Phobia or partnering some of the existing programs you have, your derm, 102…so, how are thinking about those different things relative to one another? And then if you could just give me any updates you might have on the Phobia compound, I believe, for just a number of it but I believe they were go into the clinic in the second half of this year, is that still on schedule?

Robert Forrester

Okay, Chad. Let me answer the one first and I think you did a good job of almost answering the question. We are considering multiple different business development opportunities ranging from the products and clearly, the products they are going to come an important source of non-value capital for us as we move forward as the products mature to the point where they are ready to be partnered, we will be executing on business development campaigns.

So the first potentially could be 191 and that would be in the topical derm space and within that, as I told you a little bit earlier, there are pretty couple of ways that one could do to use that. One is simply around the product itself as a standalone product with no typical license type of deal. One can brought that into maybe a portfolio of 102 or 103 topical derm products to make it like your bigger licensed type collaboration and third one could actually cover the whole topical derm franchises as a sort of mini company either to sell that or you can spin it off or do something creative with it spring in non valued capital to fund that program going forward. That will be in a one example bidding I mean, other examples would be 102 which is obviously the big program which will be a partnering campaign next year post the RA data and that will be a more typical license one. We will imagine well hopefully with the significant upfront, etc. etc.

Then in addition to that, as you mentioned, we are always open in pursuing other ways of creatively attracting resources, human or financial, to move us in some new therapeutic areas and you give the example of phobia and geotechnical another one in the medical devices and you have seen the whole series of foundation deals that we have done moving us into some higher medical need areas.

We continue to have these kinds of discussions. I think those are very valuable because they fundamentally pay for our research but allow us to attain significant product rights and we believe product rights are absolutely critical with the success of the company here. The best business development is [2031] activities going on in business development and then rest of about phobia and you are absolutely right and the phobia has given guidance that the first candidates from us will be going to make at the end of this year or in the second half of this year and it was the given guidance that there will be a second one and I think they have said also late this year but more like it is probably going to be early part of next years is what they are targeting. So, we are very encouraged by that and wish them every success obviously.

Chad Messer – Piper Jaffray

Thank you.

Robert Forrester

Thanks Chad.

Operator

And our next question comes from the line of Alex Kale [ph] from Metixif[ph]. Please proceed.

Alex Kale - Metixif

Hi, Robert. Good morning, you might have already talked this; I was not in the call entirely. Question on the reformulation of 102, do you have the update on that?

Robert Forrester

We gave an update at the earliest day based to say that things that are on track, we are on some biostudies right now and we look forward to giving more details as the year progresses in terms of the for the modified release but we are going to go once a day or are we going to stick with twice a day but all the activities that we have around reformulation are going well.

Alex Kale - Metixif

Okay, just to refresh my memory, what was the timeline you gave out at the earnest day?

Robert Forrester

What do you mean I should give out the timeline just to say that we were on track and with the development of the new formulations of 102.

Alex Kale - Metixif

Okay, very good. Thank you.

Robert Forrester

Thanks Alex.

Operator

And our next question is a follow up question from the line of Matt Osborne with Lazard. Please proceed.

Matt Osborne – Lazard Capital Markets

Hi, Robert just a quick follow up. Any data at the upcoming AACR meeting in the middle of April on the data last year?

Matt Osborne – Lazard Capital Markets

I am not sure. I am just looking at Gina, do we have anything in AACR?

Gina Nugent

I am going to have to get back to you offline on that, Matt.

Matt Osborne – Lazard Capital Markets

Okay.

Robert Forrester

Sorry, we are not sure. We will get back to you, Matt.

Matt Osborne – Lazard Capital Markets

Okay, great. Thank you.

Operator

(Operator instructions). Mr. Forrester, there are no further questions at this time. Please continue.

Robert Forrester

Well, thank you very much to everybody. Have a great day. Bye.

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