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Ariad Pharmaceuticals Inc. (NASDAQ:ARIA)

Q1 2008 Earnings Call

May 7, 2008 8:00 am ET

Executives

Harvey Berger - Chairman and CEO

Edward Fitzgerald - CFO

Tim Clackson - Chief Scientific Officer

Rich Pascoe - COO

Analysts

Jim Birchenough - Lehman Brothers

Phil Nadeau - Cowen & Co

Eun Yang - Jefferies

Rich Smith - JPMorgan

Howard Liang - Leerink Swann

Terence Flynn - Lazard Capital Markets

Operator

Good day, ladies and gentlemen, and thank you for holding for the Ariad Pharmaceuticals' first quarter 2008 investor conference call. (Operator Instructions).

At this time I would like to introduce Mr. Edward Fitzgerald Ariad's Chief Financial Officer, please go ahead sir.

Edward Fitzgerald

Good morning. Welcome to Ariad's first quarter 2008 investor call to discuss our financial results and corporate developments for the first three months of this year. Dr. Harvey Berger our Chairman and Chief Executive Officer is with me on the call.

The agenda for today's call is as follows: First I will review our financial highlights for the quarter, and then Harvey will report on our steady progress toward achievement of key corporate objectives for the year. After the prepared remarks, we will open the call up for questions. Tim Clackson our Chief Scientific Officer and Rich Pascoe, our Chief Operating Officer, will join Dr. Berger and me for the Q&A session.

Before we get started, I would like to state that during this call we will be making forward-looking statements within the meaning of the private security litigation reform act of 1995. Such statements are subject to factors, risks and uncertainties such as those detailed in our Form 10-K for the year ended December 31, 2007, and other SEC filings that may cause actual results to differ materially from the results expressed or implied by such forward-looking statements.

Now I would like to review our financial results for the first quarter of 2008, details of which were provided in the press release we issued earlier this morning. For the three months period ended March 31, 2008, we reported a net loss of $17 million or $0.25 per share, compared to a net loss of $15 million or $0.23 per share for the same quarter during 2007. These results reflect a continued progress in our development programs and the positive influence of our collaboration with Merck & Co., Inc., on the development and commercialization activities for deforolimus.

The impact of the Merck partnership on our results of operations includes an increase in license and collaboration revenue of $1.4 million in the first quarter of 2008, as compared to the same period in 2007 based on the amortization of the upfront and milestone payments of $88.5 million received from Merck to date.

In addition, the cost sharing provisions of the collaboration resulted in funding from Merck, which offset the increase in development cost for deforolimus in the first quarter of 2008, compared to 2007. Such development costs increased as a result of advancement of our Phase 3 SUCCEED trial in patients with metastatic sarcomas as well as other development activities of Ariad and Merck all as anticipated under our joint global development plan with Merck.

Other R&D expenses, encompassing development of AP24534, our investigational multi-targeted kinase inhibitor, as well as discovery research, remained essentially unchanged from 2007 to 2008. As a consequence our R&D expenses, in total, remained essentially unchanged in the first quarter of 2008, compared with the same period in 2007.

Our general and administrative expenses increased in the first quarter of 2008, as compared to the same period in 2007 due primarily to certain corporate and commercial development initiatives in support of our product development activities, and ongoing patent litigation.

For the three month period ended March 31, 2008, we reported cash used in operating activities of $13.3 million, compared to cash used in operating activities of $12.6 million in the first quarter of 2007, the increase reflecting largely the increase in our net loss over the same period.

During the quarter we amended the terms of our term loan agreement with our bank, borrowing an additional $10.5 million and extending the payment period out to 2013 on favorable terms. This funding will be used in part to support the anticipated infrastructure improvements in the company, needed to achieve our development and business objectives.

We ended the first quarter of 2008 with $80.2 million in cash, cash equivalents and marketable securities on our balance sheet, as compared to $85.2 million at year end 2007.

Now, based on the results through March 31, 2008, our financial guidance for 2008 remains unchanged. We are projecting cash used in operations to be in the range of $41 million to $44 million for 2008. This amount is net of projected milestone payments totaling approximately $30 million, which we anticipate receiving from Merck as three Phase 2 clinical trials of deforolimus are initiated during the year. This projection does not include any potential additional funding from partnering or licensing beyond the Merck collaboration.

We also estimate that our net loss for 2008 will be in the range of $81 million to $84 million as previously projected.

Based on our current liquidity and our strategic partnership with Merck, we believe we have substantial resources to support our corporate and development goals and the necessary flexibility to address funding for our long-term needs.

This concludes my financial report, and I will now turn the call over to Dr. Berger.

Harvey Berger

Thank you very much, Ed, and good morning. During the first quarter we continued to focus our efforts and resources on the advancement of our key corporate objectives. We are committed to becoming an innovative leader in the discovery, development and commercialization of break through medicines to improve the lives of patients with cancer. On all fronts we are executing according to our plans and we continue to take decisive and fiscally responsible steps towards reaching these objectives.

As a reminder, we set the following key objectives for the year 2008; first, to maximize the deforolimus opportunity in multiple potential clinical indications. Second, to establish our oncology commercial infrastructure, consistent with our agreement with Merck. Third, to advance our pipeline of innovative oncology product candidates, including the clinical development of our multi targeted kinase inhibitor, AP24534, and lastly, but importantly, to maintain a strong financial position.

I will address our recent progress with respect to each of these objectives. First let's discuss deforolimus. As part of our global development plan for deforolimus, enrollment in our Phase 3 SUCCEED trial in patients with metastatic sarcomas is proceeding well. Along with our partner, Merck, we continue to devote substantial resources to initiate new trial sites and accelerate enrollment in cancer centers around the world.

We believe that oral deforolimus may change the treatment paradigm for sarcoma patients. And we are dedicated to completing this trial as quickly as possible. No treatment for sarcomas has been approved in the US in more than 25 years. The SUCCEED trial, one of the largest trials ever conducted in patients with sarcomas, has been designed to maximize the potential clinical impact of deforolimus in cancer patients, those with the greatest unmet medical need.

Beyond sarcomas we are expanding the global development of deforolimus to include multiple cancer indications. We anticipate initiating single agent and combination trials of deforolimus this year, including three Phase 2 trials of deforolimus in patients with endometrial, prostrate and breast cancer. We will provide additional details regarding each of these trials, as patient enrollment in these trials begins.

Our base of scientific data on deforolimus also continues to grow. In April, last month, at the annual meeting of the American Association for Cancer Research, Ariad scientists presented new preclinical data demonstrating both additive and synergistic activity of deforolimus in combination with chemotherapeutic regimen's currently used in the treatment of sarcomas and endometrial cancer, two of the important cancers being studied in our global development plan for deforolimus.

The studies presented at the AACR meeting also revealed potential molecular markers of drug responsiveness. This is relevant to our joint preclinical research program with Merck, which aims to identify clinically relevant bio-markers that can help characterize and identify patients most likely to respond to deforolimus, as a single agent, as well as in combination with various chemotherapeutic agents, and importantly specific molecularly targeted drugs.

In parallel with the clinical programs that certainly attract most investors' attention, this joint behind the scenes research program on bio-markers and cancer biology is one of the highlights of our ongoing collaboration with Merck. Scientists at each company are contributing their skills and expertise to deepening our understanding of the mTOR pathway, various intercepting pathways and the impact of deforolimus on these molecular targets. These recently published data further validate the strategies of our global development plan in which deforolimus will be studied in patients with multiple different types of solid tumors.

Finally, we will be presenting the full data from our completed dose ranging study of oral deforolimus at the upcoming American Society of Clinical Oncology annual meeting in Chicago, later this month. Seven different dose regimens were studied in a large group of cancer patients. These results we expect will be highly informative with respect to the choice of the dose and regimen for oral deforolimus.

Now, let's talk briefly about our commercial infrastructure. We continue to strengthen our organization with key talent, since joining Ariad last year Matt Ros, our new Vice President of Oncology Marketing, and Frank Haluska our Senior Medical Director have brought proven oncology expertise to our team, and have already made important contributions toward the achievement of our corporate goals, and in particular, building our commercial infrastructure and our ability to work broadly with physicians and others in the oncology community.

In addition, Rich Pascoe who is here with me today, promoted in first quarter to the position of Chief Operating Officer. And Tim Clackson our Chief Scientific Officer, also here with me today, have taken on expanded roles within our organization. Over the coming year we look forward to announcing several additional senior level, strategic appointments, to help Ariad become a recognized leader in oncology.

Let's take a moment and talk about AP24534, our investigational multi targeted kinase inhibitor that has broad potential applications in cancer, both hematologic malignancies, as well as solid tumors. Our pre clinical data demonstrates that 534 potently inhibits the kinase target associated with drug resistant chronic myeloid leukemia and certain forms of acute myeloid leukemia, as well as the processes that regulate (inaudible).

These data also indicate that this product candidate should be well tolerated at anticipated therapeutic dose levels in cancer patients. As a result, we plan to study 534 in patients with both hematological cancers, as well as solid tumors. We will be initiating enrollment in the first Phase I trial of 534 in patients with hematologic cancers later this month. Later in the year we plan to initiated a second Phase I trial of 534 in patients with solid tumors.

Let's take a moment and talk about our discovery programs. This hasn't been a topic we have talked much about in the recent past, but this represents an important part of Ariad's overall mission. Innovation from our drug discovery team led by Tim Clackson remains supplemental to the culture we have created at Ariad and the future growth that we anticipate.

We have an active drug discovery program in which we are applying virtual screening, computational tools and synthetic chemistry to designing drugs that inhibit or regulate validated cancer targets. We also use structural biology methods along with biological, pharmacological and metabolic assays to rapidly progress drug leads to drug candidates. This approach accelerates the process of lead generation and optimization to create novel small molecule drug candidates like deforolimus and AP24534Y our first two oncology product candidates. Our goal is nomination of our next development candidate this year, by year end.

Let me take a moment to summarize again comments regarding our financial position. Ed Fitzgerald's review of our finances reaffirms our commitment to maintaining a strong balance sheet and judiciously deploying our resources. Our collaboration with Merck will continue to be a critical source of funding for deforolimus, while preserving, importantly, the commercial upside over the long term for this product candidate. We believe that Ariad is in a solid financial position to support all of our corporate objectives and development plans, as well as the infrastructure changes needed to build our commercial organization.

We look forward to seeing many of you at upcoming investor healthcare conferences over the next several months including the Leerink Swann Conference in May and the Jefferies Healthcare Conference in June. In addition, our webcast annual shareholders' meeting is scheduled for June 12th. The meeting will take place here at Ariad, in Cambridge.

At this time I'd like to open the call up to your questions. As a reminder Rich Pascoe and Tim Clackson have joined Ed Fitzgerald and me to help answer your questions. Operator, would you please open the call up to investor questions.

Questions-and-Answers Session

Operator

(Operator Instructions). Your first question comes from the line of Jim Birchenough with Lehman Brothers, please proceed.

Jim Birchenough - Lehman Brothers

Hi guys. A few questions. Just first I was trying to assess how much runway you have with your cash. Should we assume that the burn that we are seeing this year, $41 million to $44 million net is what we should expect in future periods in '09, particularly do you feel you've got enough cash to get to interim data for the deforolimus Phase 3 and what measures could you take to extend the runway if you need to?

Edward Fitzgerald

Jim, this is Ed. Thanks for the question. We have, as you know, provided guidance for our cash used in operations for 2008. We have not at this point in time given guidance beyond 2008. We would expect that, that you and others can extrapolate from what we are doing currently out into the future. We will importantly manage our resources very prudently to stretch them, as far as possible to interim data and beyond, as we can see it at this point in time. And we will once again be very prudent about steps we may take to enhance our funding either through business development activities or otherwise. It is our objective to insure we stay well financed while minimizing any delusional impact on our shareholders for the foreseeable future.

Harvey Berger

Let me just add that, while we haven't given guidance for next year, we have laid out the impact of the Merck collaboration on the deforolimus cost going forward, not only for this year, but as well through next year, and the following year. And from that you certainly can extrapolate that we anticipate roughly flat expenditures next year relative to this year.

Jim Birchenough - Lehman Brothers

And then just in terms of SUCCEED, any more detail you can give us on enrollment, where you're at currently, what kind of trajectory you're seeing in month over month enrollment.

Harvey Berger

We are not providing any details about the enrollment. I can say that enrollments are going well, going as anticipated. We are bringing up many new sites. Actually this month is the target month for the overwhelming majority of the sites worldwide to be up and running, May and June. And that's going fine. We'll be in probably over a hundred centers, as you always have in a trial of this magnitude, as the trial moves forward.

So we're right on that plan with centers in the US, in Europe, in Asia, in parts of even South Africa, really all over the world. So that all of the major cancer centers throughout the world that are seeing patients with sarcomas are part of the overall SUCCEED clinical trial group, and so that those centers are participating. And we have looked broadly to insure that we have the best overall clinical trial group, throughout the world.

The advantage is not only being enrollment, but as well targeting the physicians and the hospitals that ultimately would be the prescribers for deforolimus. And so, both here in the U.S. and on a global basis along with Merck we have gone to great lengths to be sure that we're really capturing the leading centers and getting them involved in trial. And that's going very well and so enrollment is paralleling the extensive interest exhibited by investigators throughout the world, quality experience investigators, interested in sarcomas.

Jim Birchenough - Lehman Brothers

And just to follow-up on that Harvey, can you remind me what your guidance has been, for when you expect the first interim look. And if you haven't provided that guidance any updated thoughts on when we should expect the first interim analysis.

Harvey Berger

We haven't provided specific guidance on when to expect that. As we have discussed there are two interim efficacy and safety looks, one obviously about a third of the way through the events of the trial, the second at roughly two thirds of the total number projected event, which also is likely to correspond to full patient enrollment, not full patient follow-up, but full patient enrollment. The important one obviously is full enrollment and two thirds of the total number event based upon the power of the trial that's a place where, obviously we're very focused from the overall conduct of the trial. So, more than likely the first interim look will come sometime latter part of this year, but we're not projecting any specific time until we're there.

Jim Birchenough - Lehman Brothers

Okay. Thanks Harvey.

Harvey Berger

Thanks Jim.

Operator

Your next question comes from the line of Phil Nadeau with Cowen & Co, please proceed.

Phil Nadeau - Cowen & Co

Good morning. Thanks for taking my question. My first question is on additional partnerships. In your prepared remarks you mentioned that your guidance didn't assume additional partnerships. What other partnerships this year are you contemplating and could possibly be signed.

Harvey Berger

Well, we haven't given any specific guidance to-date on what else we might do. I would not expect a 534 partnership this year, if that's the question. We are sticking to our guns, if you will that partnership should happen after the asset has demonstrated clinical value. And I think although we anticipate having a lot of proof-of-concept data on 534 towards the end of this year, I don't think that's quite enough to get the sort of value that we got with deforolimus.

But there are other opportunities for deforolimus, as we've talked about before outside of the oncology space, we have other technologies that have important applications from many of our legacy technologies. And we're looking at ways of monetizing all of those assets to provide additional non-dilutive sources of capital for the company. To build on the strong base that Ed described. If you turn the clock forward to next year, well by that time we will really be assessing in detail what the best strategies are for 534 as a potential partnering target.

Phil Nadeau - Cowen & Co

Okay. Fair enough. And for 534 have you said whether there will be any data at ASCO, pre-clinical data obviously?

Harvey Berger

I don't think we have specifically said whether there are or whether there will be or won't be, but I can say that especially given the schedule's out, no, there won't be and we didn't submit any.

Phil Nadeau - Cowen & Co

Okay. Great, thank you.

Harvey Berger

Sure.

Operator

Your next question comes from the Eun Yang with Jefferies, please proceed.

Eun Yang - Jefferies

Thanks. So Harvey you sounded like the patient enrollment for the deforolimus trial in sarcoma is going really well, and I'm just wondering whether there is a chance that the patient enrollment completion could be coming earlier than you previously anticipated in the third quarter next year.

Harvey Berger

Again, as much as, I'd like to provide additional insights, we're just not providing additional details at this point on enrollment on deforolimus. I just don't think we want to get into the habit of revising, modifying and qualifying input on enrollment. When we have news on the trial's progress, that we can share with everybody, we certainly will do that. I just can't stress enough that both from Ariad's perspective, as well as Merck's, getting this Phase 3 trial done is the number one, unambiguous priority for everyone involved in the program.

I would even argue all the way up to the senior management of Merck they are very focused, as are we, as am I personally, in insuring that this trial gets done as quickly as humanly possible, and as well as possible, because those two obviously go hand in hand. And we are driving as hard and as fast as we can to get this trial done. It is the single, most important driver of value, fair value for shareholders, a positive outcome, I don't need to say, but it's obviously a critical importance to Ariad and quite honestly to Merck. Both companies, very much are focused on getting it done quickly. So, we will move it as fast as we can and share with you and others where we are as we get a little bit further along.

Eun Yang - Jefferies

Okay. And then on the mTOR inhibitors, in general, clearly this class of drug has shown efficacy in curing cancer and we have a TOR cell from Wyeth on the market and earlier this year Novartis actually stopped a trial earlier in curing cancer with their mTOR inhibitor. But I'm just wondering on the sarcoma indication that, correct me if I'm wrong, but Wyeth did not really show robust efficacy in sarcoma with their mTOR inhibitor, so I'm just wondering if there are differences in terms of a patient populations or drug profile that you could point out that lack of robust efficacy in sarcoma with Wyeth's mTOR inhibitor may not be the case with yours.

Harvey Berger

Well, there are dramatic differences in the clinical data that have been presented over the last say two years. In sarcomas with deforolimus, our product, and temsirolimus, the Wyeth drug. In fact as you may recall the first time those data were presented was back-to-back at the same session, at ASCO, I think was two years ago. As you pointed out the data with the Wyeth drug, temsirolimus, was I would say was not just not robust, there was no efficacy. There was nothing seen. In contrast we have obviously had very striking and sustained and repeated activity with deforolimus in patients with sarcomas.

So as I've highlighted often, I believe these drugs at one level, this class of drugs, the three drugs we're talking about, everolimus, tensirolimus, deforolimus, have similarities, at the assay level, if you measure the binding of the drug to the target they're probably very similar, but these are different drugs, when it comes to different cancers and to clinical applications. We think in the sarcoma space the dose and dosing schedule between tensirolimus and deforolimus are quite different. And as you point out, the patient population of sarcoma patients, that's been studied, is probably different as well.

So I think there are probable explanations for these differences, we don't know enough why tensirolimus failed in sarcoma and deforolimus has been so successful, but there's little doubt in our mind that there is a strong a signal for deforolimus in sarcoma, as has been seen with the other drugs in renal cell cancer and that's why we're so upbeat about the potential for deforolimus in the Phase 3 SUCCEED trial, in sarcomas, but as well in the other indications we're pursuing along with Merck.

We have stayed out of the renal cell arena, because it's crowded, its complex, not because we don't think deforolimus will work there, because we do, but we have, I think, bigger opportunities first-in-class in best-in-class opportunities in sarcoma, in breast and other malignancies and that's what we're pursuing as part of our joint program with Merck.

Eun Yang - Jefferies

In terms of other product in development for sarcoma some people are looking at IGF inhibition pathway and Roche has an antibody currently in Phase 2 for sarcoma, maybe it's too early to assess the efficacy of IGF inhibition, but is it something you can actually talk about what you are seeing with IGF inhibition, compared to mTOR inhibitors.

Tim Clackson

This is Tim. That's a great question. And I think there is a lot of excitement with that class of drugs, as there in for mTOR inhibitors in the sarcoma space. Many, but not all sarcomas, have been shown to be expressing IGF1 receptor. As you mentioned there are some ongoing trials. I think one of the most important things to bear in mind from our point of view is that we, meaning the Ariad-Merck partnership, have a unique opportunity to develop, to exploit both spaces, by virtue of our ownership of both mTOR inhibitor and an IGF1 receptor inhibitor. Merck's IGF1 receptor inhibitor MK0646, an antibody, is in Phase 2 development.

And one of the most important priorities for the partnership is to exploit our access to both agents simultaneously to move quickly with testing the combination, which is really suggested, which is really supported by a lot of non-clinical data. That indicates co-inhibition of mTOR and IGF1 receptor, they have a substantial anti tumor effect and studies that have been done in sarcomas as well as other indications.

So we, I guess, share the enthusiasm for IGF1 receptors as a target, bearing in mind that IGF1 receptors signals through mTOR, really see the big opportunity as combining agents, such as deforolimus and 0646 to get the maximum efficacy. We think by virtue of our having access unencumbered to both agents, we have a competitive edge there. I think will become a bigger part of the Merck-Ariad you will see in the next couple of years.

Eun Yang - Jefferies

Okay. And the last question is on non-oncology indications for deforolimus. You mentioned the immuno suppression or other auto immune diseases, but recently way Wyeth actually said they have kind of a derivative of their mTOR inhibitor. And has shown some efficacy in the treatment of stroke and they actually think that drug candidate could actually better than [Activae]. Is this something, is this probably an area that you would be looking at as well?

Tim Clackson

Yes. I'm aware, that is actually with an agent that shares some chemical features with Galxo, rapamycin analogs. It's actually working through a different target, an FKBP target. So, we're certainly aware of those opportunities. I think those are in a different pot from the opportunities to work specifically with fully active rapamycin analog such as deforolimus. In those cases the target is unambiguously mTOR, and mTOR by virtue of its central role in cell biology in a variety of tissues lends itself to actually a very wide range of potential non-oncology indications. Some of them are in the neurology space and we are certainly fully exploiting all of those opportunities, as well as keeping an eye on these other activities which are related but different.

Eun Yang - Jefferies

Okay, thanks very much.

Harvey Berger

Thank you, Eun.

Operator

Your next question comes from the line of Rich Smith with JPMorgan, please proceed.

Rich Smith - JPMorgan

Yes, good morning. I just wonder if you could give us a little bit more information on the three Phase 2 trials that you mentioned endometriosis, prostrate and breast, and maybe a sense of the timing when those trials may start?

Harvey Berger

We anticipate starting Phase 2 trials in patients with breast cancer, prostrate cancer and endometrial cancer this year. We haven't given specific guidance, nor has Merck, on the quarterly timing of those trials, but I think you should anticipate that at least two of those trials are going to start very soon. We are not providing any more details than that. And as well in terms of specific details of those trials, as a matter of practice, based upon sort of the ground rules we have set with Merck, is that we will provide the details of those trials, types of patients, combinations, dosing, et cetera, when enrollment in those trials begin, and when the details about the trials are posted on clintrials.gov. So, under our agreement with Merck we are sticking to that routine strategy.

Rich Smith - JPMorgan

Okay. And with respect to the molecular markers you were mentioned earlier, are they still at the early stage, can they be used to guide clinical developments in some of the programs you're starting or is it still too early?

Tim Clackson

This is Tim again. That's very much an ongoing process. In some cases it's clear that we will be moving ahead without integration of molecular markers. And I would highlight obviously sarcoma as one example of that. In other cases we anticipate there may be a benefit to folding in a molecular signature, a bio-marker strategy, if you will, if we're able to identify a signature of sufficient value and validation. Those are integrated parts of the clinical development plan and specific indications that are still evolving, so highly indicated.

This is very much an integrated non-clinical and clinical development plan. I think we are very excited along of course with Merck given the heritage in the potential for using bio markers, but we are committed to only deploying them when we have very solid rationale for doing so based on both clinical benefit and commercial rationales.

Rich Smith - JPMorgan

Is it more likely to be used sort of Phase 3 trials than, obviously, the ongoing Phase 2 that is just about to start?

Tim Clackson

In general, again we're not going to disclose specific details, but with all of these kinds of approaches one moves through a hypothesis generation phase, then a hypothesis testing phase. And both of these can occur non-clinically and then clinically. So, I would expect that any deployment of such a strategy would involve more than one clinical trial.

Rich Smith - JPMorgan

And just quickly on 534 in hemo indications, could you give us a sense of what those might be, are they like to be inside CML, AML, et cetera.

Harvey Berger

Richard certainly the population will be heavily weighted towards CML and AML which are the two important target indications for this Bcr-Abl inhibitor, but it will also include other, other hematologic malignancies, the details of which will be provided shortly when that trial starts. But, it's not a trial that is limited to the patients with Bcr-Abl mutations, but obviously patients with those mutations especially T359,mutations, provide us with early proof-of-concept of the drug's activity. So it will be a mix of broader hemo malignancies, so that we can get safety and tolerability and PK data on the drug in the general target population as fast as possible. But it will be heavily weighted in the selection of patients to those with CML and AML so that we can get proof-of-concept, as early as possible as well

Rich Smith - JPMorgan

All right. Thank you.

Harvey Berger

And we will providing more details on that very soon.

Rich Smith - JPMorgan

Okay. Thanks.

Operator

Your next question comes from the line of Howard Liang with Leerink Swann, please proceed.

Howard Liang - Leerink Swann

Thanks very much. Just follow up on the Phase 2 programs, I know that you cannot give details, but can you talk about whether it's Merck's strategy typically for Phase 2 to minimize trials in oncology?

Harvey Berger

I think Howard it's not so much what's Merck's strategy or our strategy is. The way deforolimus is being developed is really through this global development plan that we jointly developed and jointly own. We, as I think I've shared with you, we went out, we collectively, the Merck medical team, the Ariad medical and scientific teams, went out to the leaders of the oncology community, in very targeted ways, in the indications that we were interested in, and had multiple advisory boards, scientific boards, assessing the biology, the clinical challenges, the clinical trial design issues associated with each of the target indications that we had identified for further study. Which is, as you know, sarcoma, endometrial cancer, prostrate cancer, non-small cell lung cancer and endometrial cancer.

And so we went to the experts together to help us define the best approaches. So neither Merck nor Ariad had a preconceive notions that Phase 2 must be randomized or not. Having said that, the Phase 2 trials that we're about to start, if I recall correctly I think two are randomized, one is not, but that's based upon the best thinking from the experts on how to develop a drug and determine the appropriateness of developing it in specific, well defined clinical applications in those three malignancies

Howard Liang - Leerink Swann

Okay, great. A question on the oral dosing study that you're presenting at ASCO, I think it's called the 106 study, can you give us a sense of how many patients will be reported on? And also whether is this just going to be a PK study or whether there will be efficacy data on tumor responses?

Harvey Berger

That's easy to answer. What we have said in the past is about 150 patients and there will be both PK, pharmacokinetic data, as well as pharmacodynamic data and efficacy data.

Howard Liang - Leerink Swann

Okay, great. For 543 with the timing of starting the hem trial later this month can we still expect to see data at ASCO or is that too close.

Tim Clackson

Howard, this is Tim. I think it's best to say that we will aim to submit clinical data that's available at that time. And then obviously the data that we will hopefully have a chance to present will reflect the latest data that we have.

Howard Liang - Leerink Swann

Okay. And Tim, as a question sort of mechanism question for you, I think there are some recent reports that mTOR kinase inhibitors behave somewhat differently from the rapamycin analogs. Can you just talk about your view of the differences between the rapamycin approach and the maybe a kinase inhibitor targeting both the mTOR and the PI-3 kinase.

Tim Clackson

Right. I am happy to do that. As you know, the number of presentations from various places on kinase inhibitors mTOR at [ACR] which we were aware of. I think obviously there's no clinical data yet, none of these agents have moved into the clinical, to my knowledge. At least not to the extent of having data being reported. So far I think the data that we have seen have been consistent with what would have been predicted, which are that the kinase inhibitors directly inhibit both mTOR 1and TOR 2 activities. And by virtue of that it would be expected to have a somewhat different profile from rapamycin analog based compounds, which only directly inhibit TOR 1, although there's evidence of long-term indirect inhibition of TOR 2 as well.

I think it's too early to predict exactly what the differences would be in terms of potential activity, differences, and side effect differences. I think there are various schools of thought, including those that would expect a somewhat broader side effect profile from direct kinase inhibitors, and then how that would translate also into activity and the breadth of activity remains to be seen.

One of the attractions, I think we're very as you know very excited about deforolimus, is that the blend of activity across a broad range of indications with the very high tolerability of the drug. And this lends itself to the kind of strategies we're deploying in the SUCCEED Phase 3 trial where we have the potential for long-term maintenance type treatment with, we hope, a very benign side effect profile. That may or may not be possible with an mTOR kinase inhibitor, so I think what we're doing in our clinical development is playing to the strengths of deforolimus, both in terms of efficacy and side effect profile linked directly to its mechanism.

Generally for the field, lots of agents to look at, but given that we're also in Phase 3 development and the mTOR kinase which is just entering the clinic I think we're looking at different set of criteria.

Howard Liang - Leerink Swann

Great. I'd like to return to the SUCCEED trial. I think you have experienced starting with investigators for a few months now on this trial. Can you talk about the reception by clinicians to your maintenance approach of treating after initial response, so that we have a sense of how this drug will be received commercially.

Harvey Berger

Actually I mean I think very good question. What we have found Howard is that, and it's consistent with what I said, I think it was in response to Jim's earlier question. What we have found is that investigators are really excited about this application. This is the first new treatment paradigm for patients with sarcoma, probably ever since chemotherapy got introduced to these patients. And I think, many of the docs who are the oncologists who are taking care of these patients not only take care of sarcoma patients, as you move past, centralized centers here in the US, but see this as a direction that the treatment that can be used for the treatment of solid tumors more broadly.

So the concept of introducing a maintenance treatment regimen into the treatment of solid tumors, I think, has been exceptionally well received. I mean, we're not alone in believing from a company development point of view that the maintenance setting has relevance to other molecularly targeted agents. Certainly there are trials with EGFR inhibitors, there are trials with VEGF inhibitors. That are focusing in on the maintenance setting, not in sarcomas, but in non-small cell lung cancer for example. So this is I think a trend, and I believe, we were ahead of the trend with the SUCCEED trial. And the field is now seeing throughout the world as a real opportunity and very well received. Rich, anything.

Rich Pascoe

I would go back two and a half years ago, when I first joined Ariad, the genesis of this maintenance concept in sarcoma actually came from some early discussions we had with many of the thought leaders, who are now clinical trial investigators in the SUCCEED trial. So this concept of treating patients in this maintenance setting came from the investigators, who are in fact enrolling patients now in the trial, and that was supported through the market research activity that we conducted both before and certainly after this idea came to us. So, clearly there's strong support for it. We are focused on enrolling patients now in this setting and gaining the necessary clinical data to get this drug approved in sarcoma. But I think without a doubt the investigators support this concept, and believe this is truly changing the outcomes for patients in helping them to stay out of chemo, between these cycles. So we have been very encouraged by the feedback we have received. And, I think, we will continue to see that as this trial

Howard Liang - Leerink Swann

Great, thanks very much.

Operator

Your next question comes from the line of Terence Flynn with Lazard Capital Market, please proceed.

Terence Flynn - Lazard Capital Markets

Hi, good morning, thanks for taking the question. First just a follow-up question on the ASCO presentation, I was wondering if the dosing schedules you're going to be presenting are identical to those that were presented at the A&E conference back in 2005.

Harvey Berger

What was presented back in 2005 was very early, limited data on the first handful of patients. I forgot the number, but nowhere it was near the 150 patients and nowhere it was near the seven dosing schedules. So, while I don't have the two abstracts in front of me, just based on timing and as to when things were submitted and presented, I'm confident that the data you will see at ASCO are substantially more complete, more extensive than what was presented a couple years ago.

Terence Flynn - Lazard Capital Markets

Okay. But the dosing schedule themselves will be similar to those that you used in that 2005 presentation, is that correct?

Harvey Berger

Well, they're similar, but dosing schedules were added in the trial, based on what we learned in the early dosing schedules. So it was not as if we designed seven dosing schedules at the beginning and said, let's run seven parallel cohorts of seven different dosing schedules you started with, I don't recall the numbers, but let's just say two or three, began getting data there, used that information to design the fourth or the fifth, used those information to design the sixth or the seventh. And it was a derivative design by which the data we learned on safety, tolerability and efficacy from the earlier schedules helped impact on how the subsequent regimens were designed. So to answer your question again, I think, the data you will see at ASCO are similar in terms of schedules, but I'm confident that there's many more schedules, and much more robust data on those schedules to be presented at ASCO than at A&E a couple years ago.

Terence Flynn - Lazard Capital Markets

Okay, great. And then the second question just on the NF-kappa-B litigation, I was wondering what the next data point there, that's a ruling from the federal appeals court on Lilly's appeal or if it's another data point we should be expecting?

Harvey Berger

Next data point, I would say the two next major events in the NF-kappa-B litigation are the actual appeal to the Federal Circuit, and the hearing by the Federal Circuit of the Lilly case, and then obviously a ruling. We don't expect that ruling till next year. Although I don't know if we have a schedule yet, I don't think we do for the actual hearing of the appeal.

And the other next, the other important event this year with respect to the NF-kappa-B litigation is the trial in Delaware Federal Court, which is scheduled for early November of this year, that's the trial against Amgen, with respect to the potential infringement, alleged infringement of Enbrel. And so a trial, year end in the Enbrel, Amgen case and hearing of the appeal in the Lilly case are the next major outcomes.

Terence Flynn - Lazard Capital Markets

Okay. Thanks a lot Harvey. Thanks Terry.

Harvey Berger

Any more questions?

Operator

(Operator Instructions) And you do have a follow-up question from the line of Jim Birchenough with Lehman brothers. Please proceed.

Jim Birchenough - Lehman Brothers

Yeah, hi guys, I'm just wondering if you can comment on the use of bio-markers if you're going to use bio-markers in your Phase 2 program, in particular for prostrate cancer, I know there's a study that started in May of '05, where you looked at a variety of markers, and I guess I'm wondering what you learned from that study? When we're going to see that data and if you will be applying the same bio-markers in your Phase II program?

Tim Clackson

There's a variety of questions in there. I think in general, as we said earlier, Jim, we're not really going to discuss at this point when and how we might fold bio-markers into any particular trial. It's generally true statement to say that we are, especially in the Phase 2 setting, looking rather carefully at potential bio-markers, both in a hypothesis driven, and in a non-hypothesis driven manner. In our earlier trial in prostrate we did look at certain markers and that information in general gets folded into our group of knowledge that we applied globally, not just in prostrate but in other areas.

As you're aware there are certain markers, T-10 for example, which has attracted a lot of attention in a variety of settings. Our earlier studies looking at the Phase 2 sarcoma data set, did not reveal a correlation with T-10, but that's the kind of marker that we can look at in the prostate setting and other settings.

Our stature with those prostate data, since the next event is likely to be to write those data up, but I would focus attention really on the trial which we will initiated and then fully disclose details about prostrate later this year in collaboration with Merck, which reflects a lot of expert input that we have taken from the prostrate community, as well as our latest thinking in what kind of bio-marker strategies might make more sense. So, watch this space, I would say. We're very aware of the potential of bio-markers, but aren't ready to disclose anything at this

Jim Birchenough - Lehman Brothers

And just in general terms I guess I've been surprised that we haven't seen any correlation between bio-markers and activity in Phase 2, and just wondering in general whether the assays are sensitive enough, whether they've improved, and just in general terms whether Merck's got access to better assays in different bio-markers than you have looked at historically.

Tim Clackson

I think its worth pointing out that nobody has yet succeeded in identifying and there's not doubt about it that predicted bio-marker for mTOR is the target. And that reflects the complexity of the target, the number of input and output pathways that can influence whether an mTOR inhibitor is fully active or not along with feedback loops. So, most likely it's going to be a combination of signature in many cases. There was a lot of preclinical data that did support the concept of T10 as a predicted marker and in our hands and those of several other groups, both industry and academic, that correlation just has not held water clinically.

So, I think, by deep collaboration with Merck, to follow up your implication, we certainly jointly have access to real state-of-the-art technologies approaches and philosophy in the bio-marker world. And it really is a great pleasure to be collaborating in this area with Merck and the Rosetta team that is embedded within Merck to push this forward. I think they have certainly enjoyed getting their teeth into mTOR target given the challenge of identifying a bio-marker. And the approaches we're taking are very scientifically exciting. And, I think, as Harvey mentioned, will become more of the disclosable Ariad-Merck story over the next year. We're just not in a position to talk about it in detail right now, but we absolutely believe that there is value there to be generated.

Jim Birchenough - Lehman Brothers

And general just finally more specifically on prostrate cancer, to move into a Phase 2 or larger Phase 2 presumably you saw some signal in the prior study, when might we see further data from that prior prostrate cancer study?

Tim Clackson

As I said our current plans are just to proceed to writing that up. I would say that our current priority and focus is really on initiating the trials, as laid out in the global development plan. And again as you said, the fact that we're moving ahead and have identified prostrate as one of the core opportunities in the GDP to deforolimus, indicates that we believe that a lot of value there. Obviously, Merck is excited about the potential. Most importantly the prostrate cancer physician community really sees value and a clear path forward, which again we will look forward to sharing with you later this year.

Harvey Berger

I think strategy for prostrate cancer will become very clear when we start the trial and provide the details of how we're going to develop the drug in prostrate cancer, To extend what Tim said, we obviously use the data in our early prostrate cancer trial to help guide future decisions and these decisions about the design of a randomized Phase 2 trial. And I think we have figured out how best to develop an mTOR inhibitor deforolimus in prostrate cancer. And that will become clear as the trial starts, which isn't far off and we provide the details about the trial.

Jim Birchenough - Lehman Brothers

Great. Thanks for taking the additional questions.

Harvey Berger

Thanks Jim.

Operator

As there are no further questions in queue at this time I would like to turn the call back over to Harvey Berger for closing remarks.

Harvey Berger

I want to thank all the participants for joining our call this morning. Looking back on the last hour this was one of the most engaging and detailed investor calls we have had in a while and I'm delighted for that. We look forward to our next call and presentations at the upcoming healthcare conferences, as well as our annual meeting. Thanks very much to everybody for such active participation.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.

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Source: Ariad Pharmaceuticals Inc. Q1 2008 Earnings Call Transcript
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