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Executives

Jackie Cossmon – Investor Relations

Ron Barrett – Chief Executive Officer

Bill Harris – Vice President, Finance and CFO

Vince Angotti – Executive Vice President and COO

Analysts

Ravi Mehrotra – Credit Suisse

Michael Yee – RBC Capital Markets

Brian Abrahams – Wells Fargo Securities

Eric Schmidt – Cowen and Company

Juan Sanchez – Ladenburg Thalman & Company & Company

David Friedman – Morgan Stanley

Xenoport, Inc. (XNPT) Q2 2012 Results Earnings Call August 7, 2012 5:00 PM ET

Operator

Good afternoon. My name is [Temra], and I will be your conference operator today. At this time, I would like to welcome everyone to the XenoPort Second Quarter Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. Ms. Cossmon. You may begin your conference.

Jackie Cossmon

Thank you, [Temra]. Good afternoon and thank you for joining us on the call. Here with me today are Ron Barrett, our Chief Executive Officer; Bill Harris, our Vice President of Finance and Chief Financial Officer; and Vince Angotti, our Executive Vice President and Chief Operating Officer.

Before we begin our discussion of today's news, I would like to note that the information to be discussed on this conference call and webcast, including answers to questions asked during this call will include forward-looking statements that involve risks and uncertainties, including statements related to the therapeutic and commercial potential of our product candidates, future sales of and promotional activities for gabapentin enacarbil, FDA and other regulatory authority discussions, regulatory processes and the timing of regulatory filings and actions, our current and future clinical development programs and clinical trials, the release of additional clinical trial data and the timing thereof, our clinical development efforts, potential advantages of our product candidates, our dependence on collaborative partners and matters related to our dispute with GSK.

XenoPort can give no assurance with respect to these statements and we assume no obligation to update them. For detailed information about the risks and uncertainties that could cause actual results to differ materially from those implied by or anticipated in these forward-looking statements, please refer to the Risk Factor section of our most recent SEC filings, including our discussion of the inherent risks of clinical trials and regulatory matters. This webcast is a copyright of XenoPort.

At this time, I will turn the presentation over to Ron.

Ron Barrett

Thank you, Jackie. Good afternoon and thank you to those joining us on today’s call. I would like to discuss our progress since the last quarterly call and then Bill Harris will discuss the highlights of our second quarter financial results. We will both be relatively brief and then we will then take your questions.

We have been busy since the start of the second quarter and I’d like to thanks Xenoport’s employees for their strong efforts in advancing multiple development programs and other business objectives.

Starting with our novel fumarate compound, 829, we initiated the first human trial two weeks ago. We expect dosing of the 60 healthy volunteer subjects in this single dose fed versus fasted Phase 1 trial four formulations of 829 plus placebo will be completed this week. We will have a lot of bioanalytical work to complete and we hope to report preliminary safety, tolerability, pharmacokinetic results from this trial in October.

As you know, we are interested in the potential development of 829 in relapsing-remitting multiple sclerosis or RRMS and psoriasis. In addition to these two potential indications, there are published data that suggest potential utility of Nrf2 activator in a number of neurodegenerative diseases.

In July, we were happy to announce the collaboration with the Michael J. Fox Foundation that will enable us to assess 829’s potential efficacy in the Parkinson's disease animal model.

Now turning to Arbaclofen Placarbil or AP, we expect completion of enrollment of the pivotal Phase 3 trial for the treatment of spasticity in MS patients this fall and topline results in Q1 of 2013. Patients who complete this trial are eligible to continue AP treatment in the six-month open-label safety study.

As I mentioned in our last call, we initiated communication with the FDA to discuss the possible need to modify our trials to ensure that we meet the FDA's safety data requirements of 150 subjects with six months and 100 subjects with nine months of AP exposure.

We now have FDA agreement to enroll subjects directly into the open-label safety study, allowing directly enroll subjects to stay on AP for nine months. We believe that this was a good outcome since it avoided potential modification of the Phase 3 efficacy protocol for which we have a special protocol assessment and should allow us to keep our timeline of the potential filing of the NDA in the second half of 2013.

In June, we also had a productive End-of-Phase 2 meeting with the FDA, regarding our L-Dopa prodrug 279. As I mentioned last quarter, we have discussed the data with of our Phase 2 279 trial with an advisory board comprised of Parkinson's disease experts. They indicated they believe that the pharmacokinetics of 279 compared to Sinemet were impressive, encouraged us to find a way and continue development of product candidate.

We also took note of the results of the Phase 3 trial of the intravenous infusion pump Duodopa, that were presented at AAN earlier this year, where the maximum benefit of Duodopa over optimized Sinemet was observed at 10 to 12 weeks. I’ll remind you that the length of treatment of the optimized doses of 279 and Sinemet in the randomize phase of our Phase 2 trial was only two weeks.

We believe the outcome of our Phase 2 meeting was encouraging. The FDA indicated that the -- that a 505(b)(2) regulatory path for registration of 279 for the treatment of symptoms of advanced idiopathic Parkinson's disease was potentially acceptable.

They indicated that no additional preclinical studies will be required and that we had adequately address the PK bridging requirements identified in the 505(b)(2) guidance package.

Importantly, the FDA indicated that an NDA filed under Section 505(b)(2) could potentially be approved with a single Phase 3 pivotal trial comparing 279 to Sinemet, provided that the study was design adequately to make it a fair comparison between 279 and Sinemet.

The FDA gave us specific guidance on requirements for optimizing both Sinemet and 279. The FDA suggested we submit an FDA for this trial. Based on these positive developments we now plan to initiate certain activities in preparation for the Phase 3 development of 279.

Now, I’d like to update you on gabapentin enacarbil trade name Horizant in the U.S. and Regnite in Japan. We were happy that the FDA approved Horizant for the management of postherpetic neuralgia or PHN in adults in June.

GSK conduct its sales force training for this indication in July and are now promoting Horizant for both moderate to severe primarily RLS or RLS in adults and the management of PHN in adults in U.S.

Unfortunately, Horizant scripts remain lack luster and this has truly been the disappointment to us. I don’t have any news to report on our ongoing litigation or attempt to find a business solution with GSK. However, we remain committed in our belief that Horizant is a valuable treatment option for American patients with RLS or PHN.

Now turning to Japan, Astellas want Regnite for the treatment of RLS on July 10th. Astellas is committed approximately 1200 sales reps to the detailing of sleep specialist and neurologist.

We will receive a high teen royalty on net sale of Regnite. Xenoport’s revenue recognition and receipt of Regnite royalty payments will occur one quarter in arrears, so we expect to receive the company's first revenues based on product sales later this year in the fourth quarter.

We believe that Astellas’ marketing messages are well-aligned with the RLS treatment guidelines recently announced by the International Restless Legs Syndrome Study Group. For the first time, these guys recommend first line use of alpha-2-delta compound rather than dopamine agonist in our RLS patients with severe sleep disturbance, insomnia, pain, (inaudible) anxiety or history of impulse-control problems.

The guidelines also warn about the known issues and risks regarding long-term treatment with dopamine agonist, and suggest that excess use or switching of patients to alpha-2-delta compound when problems with dopamine agonist emerge.

Just this week, the American Association Sleep Medicine published its evidence based review of RLS treatment. Gabapentin enacarbil was the only alpha-2-delta compound that achieved a guideline level of recommendation with the highest level of evidence. Gabapentin enacarbil are the only alpha-2-delta compound approved RLS in U.S. and Japan.

Finally, I’d like to note that our recent financing raise net proceeds of approximately $43 million. We thank many of our existing shareholders for their support and welcome a number of new large shareholders.

We intend to use some of the proceeds to continue to advance 829 and 279 over the next year, while extending our cash runway. Meanwhile, we are having productive discussions with potential partners on several fronts which could potentially provide non-dilutive cash in the future.

And, with that, I'll turn it over to Bill.

Bill Harris

Thanks, Ron, and thanks to all of you for joining us on the call today. I’ll spend few minutes reviewing the financial results of the second quarter of 2012 and we will then take you questions.

Before I speak to our financial results for the quarter, I'd like to start with a brief update regarding Horizant. Horizant net sales as recorded by GSK were $1.6 million and $2.9 million for the second quarter and six months ended June 30, 2012, respectively.

Pursuant to the terms of XenoPort collaboration agreement with GSK, our share of losses from the Horizant joint profit and losses or P&L statement will be for given up to a maximum of $10 million. Our share of the joint P&L losses totaled approximately $8.3 million as of June 30, 2012.

The decrease in net revenue from unconsolidated joint operating activities for the second quarter of 2012 compared to the same period in 2011 was due to the receipt of a $10 million payment from GSK in connection with the approval of Horizant for the management of PHN in June of 2012, compared to the receipt of $30 million payment from GSK in connection with the approval of Horizant for RLS in the second quarter of 2011.

Similarly, the decrease in collaboration revenue for the second quarter of 2012, compared to the same period 2011 was due to the receipt of a $7 million milestone payment from Astellas related to the FDA, U.S. approval of Horizant for RLS in 2011.

Research and development expenses increased for the second quarter of 2012 to $10.8 million, compared to $9.9 million for the same period 2011. These increases primarily due to increased net costs for the arbaclofen placarbil development program, as well as increased personnel costs due to severance benefits charges, partially offset by decreased net costs for 279.

Selling, general and administrative expenses remained relatively constant for the second quarter compared to the same period in 2011.

Net loss for the second quarter of 2012 was $8 million, compared to net income of $19.5 million for the same period in 2011. Basic and diluted net loss per share were both $0.22 for the second quarter of 2012 versus basic and diluted net income per share of $0.55 for the same period in 2011.

In terms of cash, we ended the quarter with cash, cash equivalents and short-term investments of $81.7 million. And finally, as Ron mentioned, in July we completed a financing that resulted a net proceeds of approximately $43 million after deducting underwriting discount commissions and other estimated operating expenses.

With that, we will open the call to questions. Operator?

Jackie Cossmon

Operator?

Question-and-Answers Session

Operator

Your first question will come from the line of Ravi Mehrotra with Credit Suisse.

Ravi Mehrotra – Credit Suisse

Thank you. Two quick questions. Ron, could you give a little bit more detail on the four formulations that you spoke, 829 and for the Phase 1? And then secondly, on Regnite, can you just walk through what Astellas want to do in the more medium-term, obviously, the focus on sleep and neurology specialist’s makes kind of sense right now? Can you see them or do they have potentials to go more into [GP] population, or is that not so applicable in Japan? Thank you.

Ron Barrett

Sure. I’ll take the formulation question then Vince can take the Regnite question. The formulations that we’re using, the first is a immediate release type formulation that is enterically coded. So we would expected to not lease the drug until they enters the higher pH associated with the intestine, but it will have immediate release profile once it's released, that should be similar as PK profile to BG-12 or FUMADERM.

The other three formulations are sustained-release formulations that use different technology approaches and they have release kinetics at least in vitro as follows. They are all enterically coded so at low pH they don’t release. When they hit the intestinal pH, they would be expected to release over 8 to 16 hours.

And so what we want to see in this first Phase 1 trial is not only the metabolism of 829, does it converts fully to MMF. What is the metabolic fate of the [promleti] but we also want to look at the pharmacokinetic profile to decide which formulation or formulations. It’s possible we could take more than one into the next study. Now, Vince, with regard to Regnite.

Vince Angotti

Sure. As it relates to Astellas and Regnite Ravi in your question (inaudible) specialist versus GPRD and so maybe in the mid-term to long-term. As we understand it from the status today, the point of initial contact is occurring in the specialty offices today. We do realize it’s an underdeveloped market.

To that end, they are initiating consumer on branded campaigns as well as it relates to education in that market. We anticipate those patient initially will continue to move into the specialty offices and will remain to be seen whether they will expand GP offices beyond that.

Ravi Mehrotra – Credit Suisse

Thank you.

Vince Angotti

You’re welcome.

Ron Barrett

You’re welcome.

Operator

Your next question will come from the line of Michael Yee with RBC Capital Markets.

Michael Yee – RBC Capital Markets

Hey guys. Thanks. One question on 829 and then one question on the finances. On the Phase 1 study you're doing, my understanding is it a single-dose and you’re touching four formulations. At which point could we see multiple doses. Is that relevant here in Phase 1 and should we assume that you would look at partners but at the same time in parallel move forward to thinking about phase II. How should we think about that dynamic which actually go to run Phase 2?

And then on the finances, you suggested that there was about 8.3 million of your share losses on Horizant and you get the 10 million -- first 10 million is forgiven. Is there an expectation that that would go over 10 million at some point and when. How should we think about that and when should we be required to start paying?

Ron Barrett

Okay. I’ll take the first one and Bill will take the second one. The current study is a single-dose study but that single dose is given in fasted and fed condition separated by two weeks.

As I said, we started dosing two weeks ago. We’ll finish dosing this week. The objectives of the study beyond those I mentioned earlier are to decide in future studies whether we’re going to dose with food or without food. Food can sometimes affect the performance of the PK profile of sustained-release formulations. So we’ll make a decision on the basis of this data which administration condition we’ll use for future studies.

Now, one of the reasons why we did the financing at this time has do with the fact that we were in our current operating plan prior to the financing, going to take this through the first Phase 1 study and then hope to partner it. What we’ve decided to do now is to utilize the proceeds of this financing to continue the development of 829 on our own.

While we continued partnering discussion so that we’re not, kind of, held hostage to come into a halt in the development program, and we have plenty of runway as we’re negotiating these -- the partnership.

The next study is we’re still working through but they would likely involve a, what’s called a single ascending dose and multiple ascending dose Phase 1 study in healthy subjects as a fairly standard study. It doesn’t take too long to conduct. We would hope to start that maybe at the beginning of next year.

We also believe that it would be useful for us to, kind of, put to bed any questions about the metabolites of 829, particularly of the comorbidity by doing a radiolabeled-mass balance study. Again, not a very longer or expensive study but we could consider doing that early next year.

And I think the critical question is what is the status of BG-12. If BG-12 is approved through the end of year early next year and is available, we may want to consider doing a comparative PK study. So that we can decide on how we adjust the doses of 829 to match the exposures that we know BG-12 is effective at -- in both MS and psoriasis.

I think at that point, we’ll have to decide which indications we’re going after and what the development plan is beyond that but at least those first few steps are pretty clear in our mind. It would take us through at least the first half of next year.

Michael Yee – RBC Capital Markets

Okay.

Bill Harris

And on your question on the finances, Michael. You’re right, so the -- our share losses at the $10 million are forgiven entirely and through the end of June, we were about $8.3 million towards that $10 million. Should we exceed the $10 million, our share of losses would then be accrued and would be repaid once the P&L becomes profitable ratably over 16 quarters.

In terms of the timing of when we might hit that crossover point, we don't provide any forward guidance and instead have just been reporting out our progress towards the $10 million, extrapolating on the quarterly results. Today, we’d suggest we may get there around year-end, this year, assuming those same trends continue.

Michael Yee – RBC Capital Markets

Thanks.

Ron Barrett

You’re welcome.

Operator

Your next question will come from the line of Brian Abrahams with the Wells Fargo Securities.

Brian Abrahams – Wells Fargo Securities

Hi. Thanks very much for taking my question. Congratulations on the continued pipeline progress. Just expanding on, I guess, some of the prior questions on 829 Phase 1. I was wondering do we know what PK parameters with MMF tend to correlate most with activity. I mean, should we be focusing on our peak levels, area under the curve, trough here and sort of related to that, what guided your dose selection. Obviously, you’re looking at a single dose in this Phase 1.

What guided your dose selection? Is your aim to dose on par and get similar MMF exposures to BG-12 or to dose lower and we should really just be focusing on the shape of the curves?

Ron Barrett

Yeah. That’s a great question Brian. So we get to the dose strength that we use in this study first. I won’t give you the exact milligram amount because that might clear you went through a molecular weight of the compound we haven’t disclosed its chemical structure. But it's equivalent to 120 mg of dimethyl fumarate in terms of the number of MMF equivalence.

So 120 mg is the tablet size or capsule size that was used in BG-12 program. And we felt that was good starting dose. We justified that as a starting dose as part of our IND. Obviously, the next steps would be to escalate the dose and to be sure that we’re safe and well-tolerated and understand what the steady-state pharmacokinetics are.

Now, your question about what the key pharmacokinetic, pharmacodynamic relationship is for psoriasis or multiple sclerosis, we simply can't be sure of that. What we've seen from the published data on BG-12 is just the mean data for the MMF exposure associated with the three times a day BG-12. And I think we’ve pointed out in the past that one of the things that striking about that data is the high arrow bars that is associated with the MMF concentration.

So there appears to be a fair degree of intrapatient variability. I think as the starting point for selecting doses for psoriasis or MS studies, we would want to kind of bracket the average AUC but we’re going to have to do, try multiple doses in our future studies because I don’t think any one really knows the answer to the question you're getting at. Is it just how to achieve a certain level for certain amount of times within AUC phenomenon or is it is a Cmax phenomenon, we don’t know.

We think targeting the average concentration for the same amount of time over the course of a day is probably the best starting point.

Brian Abrahams – Wells Fargo Securities

Thanks. It’s very helpful. And just a quick follow-up, any time table for the presentation of the psoriasis [animal model] results?

Ron Barrett

We’re looking at abstract deadlines. We don’t -- haven’t given any guidance on that.

Brian Abrahams – Wells Fargo Securities

Okay. I guess, lastly, can you make any comments on the safety and tolerability thus far granted that is the only a single-dose but any general comment for the 829 Phase 1? Thanks.

Ron Barrett

No. We don’t comment on things that are in progress. It’s blinded. And as I said, we’ll have the last dose will be, I think, Thursday this week and the data dose remain blinded.

I mean, if you would ask me kind of theoretical look, what you would expect to see. I don’t’ think with this does, we would expect to see any GI issues. And also the fact that we think that we may to improve GI tolerability. If you look at what's been published on equivalent doses of DMF. I think there have been some reports of flushing at this level of dosing of the MSL.

We’ll wait to see whether we see any flushing, perhaps with immediate release formulation. But again, the number of patients in the study is low. We’re not -- the objective of the study is not to make any conclusions with regard to the tolerability of the drug.

Brian Abrahams – Wells Fargo Securities

Fair enough. Thanks very much.

Ron Barrett

Okay.

Operator

Your next question will come from the line of Eric Schmidt with Cowen and Company.

Eric Schmidt – Cowen and Company

Good afternoon. Thanks for taking my questions. Ron, it sounds like we’re going to learn more about 829 differentiation on tolerability before we’ll learn much about efficacy. I guess, one is that true, and two, when do you think you will be able to make more of a comparative claim about this period of tolerability?

Ron Barrett

I’ll be sure we understand what the word claim is. We’re not talking about a promotional claim here. You said what was the date it will be available?

Eric Schmidt – Cowen and Company

That’s right. So that an investor might be able to look at the two?

Ron Barrett

Sure. So again, this is dependent on the development plan going forward. As they mentioned, we do think that the best way to do that is to have BG-12 in the same experiment. Obviously, we can't do that until or if -- until or when BG-12 is approved. That might be in the first half of next year. This everyone knows. And to what extent the first study would incorporate GI or flushing comparison. We haven't decided yet.

Certainly, a PK comparison so that we can pick appropriate doses of 829 to mimic the same exposure level. I think it would be a first step, because what we would want to be doing in any comparative tolerability study is comparing equivalent exposures to each other in terms of tolerability. Did you follow that?

Eric Schmidt – Cowen and Company

I did. Thank you. And in terms of a partnership discussions is that the important data you think you need that kind of comparability data in order to drive full value here or would you be partnering something that's more, I don’t know, Me2 too in nature less differentiated?

Ron Barrett

Well, I think you need to consider that the indications first, it’s certainly wouldn’t be Me2 in psoriasis. And so we believe that the psoriasis type deal could really occur anywhere along the line and it’s all about creating competitions in addition to how far we are in terms of development.

With regard to MS, I think it is perhaps a relative -- relevant question, how would the profile of 829 standup in a potential world where BG-12 is generic, which as you know there is a lot of discussion about when that might be and so some parties might feel like we need to have some comparative data. I can tell you that there are parties that have said that that's not such a critical element to concluding a deal.

Obviously, it would be a different type of deal and probably higher value if we had that data in hand. But I don’t think it’s an impediment to complete a deal.

Eric Schmidt – Cowen and Company

Okay. And is the formulation that you do in psoriasis, would that therefore be different from what you do in MS that will allow you separate the two?

Ron Barrett

That is a really interesting question. There is couple of complexities to that. One is pricing particularly in the U.S. between psoriasis and MS is likely to be quite different and therefore, you need to be mindful of, if you have the same product same, dose strength, same formulation, does that create any complexity for you? And that was really part of our drivers and actually working on some other compounds and we do have another compound that obviously is a better way from doing an IND.

But if we find ourselves with a partner in a situation where different compounds would be the solution for how one attacks different indications, we are doing the work to be in a position to do that. I can’t answer that question and it’s really going to be one that’s going to be driven by the nature of the partnerships that we do.

Eric Schmidt – Cowen and Company

Okay. Last question, maybe more for Vince. In terms of the Astellas, Regnite sales force in Japan, are these 1,200 reps marketing the drug in first, second or some other position?

Vince Angotti

Yeah. And that’s a primary owned emphasis within those 1,200 sales representatives.

Eric Schmidt – Cowen and Company

Thanks a lot.

Vince Angotti

You are welcome.

Operator

Your next question will come from the line of Juan Sanchez with Ladenburg Thalman & Company.

Juan Sanchez – Ladenburg Thalman & Company & Company

Good evening. First question is…

Vince Angotti

Hi, Juan.

Juan Sanchez – Ladenburg Thalman & Company & Company

Hi. The first question is for Regnite in Japan. How much is Lyrica selling in Japan? In that market I wonder whether or not you will need multiple labor claims in order to become a significant drug?

Vince Angotti

We know, Lyrica, I believe is approved for epilepsy and also more recently for neuropathic pain, both PHN and painful diabetic neuropathy. And my understanding is that it’s been doing quite well. Again, my understanding is that it was doing so well that this year they had to take a price cut because they exceeded the agreement that they have reached with the Japanese government. I don’t know the exact figure. Pfizer does not breakouts specifically, Japan sales in their reporting. But the impression I get, it’s doing pretty well.

And remember pregabalin is branded, gabapentin is still branded. In Japan, it’s only approved for epilepsy. So it’s a branded alpha-2-delta market in Japan. And specifically in RLS, pramipexole is still branded, was approved in 2010. So the market dynamics are quite different in Japan than in the U.S.

Juan Sanchez – Ladenburg Thalman & Company

Okay. The other question is on the cash flow rate, I couldn’t copy, how long is recurring cash going to take you, how far is it going to take you, would another guidance incorporate success with AP or not?

Bill Harris

Yeah. So, Juan, this is Bill. With the completion of the financing, our longer range guidance in our perspective supplement and flow of the 10-Q, it will get filed as our cash flow fund us into the first quarter of 2014. And importantly that does assume success of AP.

So, yeah, we’d be filing an NDA second half of ‘13 and looking at launching at second half of ‘14, so all the activities associated with that, doing that on our own are assumed in this plan.

Juan Sanchez – Ladenburg Thalman & Company

And my last question is on 829. I just wonder what’s so unique about your approach and why we should assume that other parties are not working on similar approaches.

Ron Barrett

Yeah. So, all we can do is watch the pattern order churn and we haven't seen any patent applications that have been following the path that we've taken. It’s still relatively early. The BG-12 results were not available until last year. I will say that making a asymmetrical diester that cleaves in the proper way that creates MMF and not the improper way, is not a trivial task. There is some cleverness and inventiveness that’s required there.

We have patent bid not only 829, but whole series of chemistries that achieved the goal of the selective cleavage in asymmetric diester. We are also pretty down in other potential road blocks from an IT perspective and we have the first mover advantage we believe, so that we are clearly -- as far as we know ahead of any of other parties that might be thinking to get into the fumarate space. That’s all I can say at this point.

It’s a typical kind of small molecule chemistry game where you cover the compound that you think you're going be your products and then you try to land grab as much of the chemistry space as you can and we've done that to the best of our ability.

Juan Sanchez – Ladenburg Thalman & Company

Thank you, Ron.

Ron Barrett

You are welcome.

Operator

Your next question will come from the line of David Friedman with Morgan Stanley.

David Friedman – Morgan Stanley

Hi. Thanks for taking my question. Just two quick ones. One is, after you guys gave AP data, is there any change to your plans to try to market that yourselves, then if you guys do build out a sales force, are you obligated to opt in and use that sales force for Horizant as well?

And then the other question is and you mentioned this briefly. But in terms of the path forward for the MS program, is there a way around running the multi-year studies that are typical of Phase 2 and 3 in MS, or is that necessary given the objectives of trying to differentiate potentially on a head-to-head basis?

Ron Barrett

Sure. Those are great questions. First on AP, obviously, you can never say what the future holds but it is our intention to market that product ourselves in the U.S. And as Bill said that is built into our operating plan.

Bill Harris

And it doesn’t -- we don't have to opt in to the GSK co-promotion. We put that sales force out, their separate decisions.

Ron Barrett

Okay. With regard to your question about the potential streamline development for MS for 829, there are some interesting possibilities here. First, as you know for NDAs, there are two potential paths. There is the more typical 505(b)(1) path, in which sponsors -- the FDA has to rely on their assessment of the safety and efficacy of the drug, solely on information provided by the sponsor.

There, there might be some potential streamlining. I think I’ve talked about this in the past that there is kind of open question of what the value of Phase 2 in a situation like the one that we're facing. Typically Phase 2 is about proving mechanism of action as well as selecting doses for Phase 3. We don’t think we need to prove mechanism of action. And with regard to doses, we think we may be able to justify doses on the basis of the pharmacokinetic comparison to BG-12.

We did open that subject with the FDA in our Pre-IND meeting. They said, we can’t give you a definitive answer but it’s not -- it doesn’t sound crazy comment that make your case, if that’s the way that you want to go for skipping Phase 2.

The other regulatory pathway is a 505(b)(2) pathway and on its surface you might ask, well, how is that relevant here. But there is some potential for this as a potential pathway for the product. And MS assuming BG-12 as approved, the rationale goes as follows, that dimethyl fumarate is an ester that is a prodrug of MMF. Esters are considered to be a special class of molecule by regulatory law and in the case of an ester, there's a concept of active moiety. And in this case the active moiety is MFF.

829 is also an ester that has the same active moiety. So the unresolved question is, would a 505(b)(2) pathway be relevant here? We did test the idea with the FDA and we have talked to regulatory experts and the FDA wouldn’t give us a definitive answer, because BG-12 is not approved.

But I think we neither have thought that this was a kind of crazy idea. The issue there then becomes, how much work do you need to do to satisfy to the FDAs satisfaction that that whatever modification of the MMF PK profile that you have produced is still maintaining the efficacy of BG-12.

And so we may have to do in most one clinical study, as was the case for AP as was the case now for 279, a single study is sufficient under 505(b)(2) pathway. And then the more interesting question, which I really don't have an answer too, is what does that study have to look like? So they have to be a two-year placebo-controlled study. And I would just say there is a couple of things going on in the MS development world that were intriguing.

The first is and they come out of the biosimilar space. The first is an EMA guidance that came out earlier this year on beta interferon biosimilars. That’s the, I guess, it for the first time as well as far as I’m aware, that MRI data could be used in a non-inferior study – in a noninferiority study to get approval for a biosimilar.

And then similarly there's been some discussion and some written comments about Copaxone and how that there is a generic company who may be attempting to go through a biosimilar like process to get approval for a Copaxone biosimilar on the basis of MRI comparative data.

So along with an answer but I think there is some intriguing possibilities here. And as we’ve had discussions with people who were far more knowledgeable about MS development than we are, nobody has said any of this is crazy. We are going to have to go then and talk to regulatory authorities and see what would be required to get approval.

David Friedman – Morgan Stanley

Thanks. And just one quick follow-up, I mean is there a -- regardless of pathway, a certain amount of chronic exposure that patients would have to have just by the basic sort of rules of getting drugs approved, or are those way as you go through certain pathways versus others?

Ron Barrett

Yeah. So, 505(b)(1), I think my expectation would be that we would have to do at a minimum the ICH guidelines for a patient exposures. And I would think that if you are doing a 505(b)(1) development plan, you're likely going to get that plus more in terms of total exposures just part of your efficacy plan.

The 505(b)(2) is different and I would just point to our AP development program where we are initially developing that as a 505(b)(1). We did to chronic talks, we do carcinogenicity. But on the clinical side, the FDA has said that we don't have to meet the full ICH guidelines on exposures.

And 279, our latest kind of venture into the 505(b)(2) were all -- as I mentioned we were very encouraged. We made a strong case for that the formal 80 pieces not introducing any additional toxicity and that that we could rely on their agency's previous findings of the safety and efficacy of L-Dopa and they agreed to that.

Now, 829, I think every 505(b)(2) is different, but I do think that there is some potential that we may be able to leverage off our existing data.

David Friedman – Morgan Stanley

Great. Thanks very much for the answers.

Ron Barrett

You are welcome.

Operator

(Operator Instructions) And there are no further questions at this time.

Ron Barrett

All right. I’d like to thank you all for joining us on the call today and we look forward to updating you on our progress later this year. Thank you and have a good August and we will be presenting at some upcoming conferences. Hope to see some of you there. Thank you.

Operator

This does conclude today’s conference call. Thank you for your participation. You may disconnect at this time.

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