Avigen, Inc. Q2 2008 Earnings Call Transcript

Avigen, Inc. (AVGN)

Q2 2008 Earnings Call Transcript

July 30, 2008 1:00 pm ET

Executives

Aneda Montes – IR

Ken Chahine – President and CEO

Mike Coffee – Chief Business Officer

Andy Sauter – CFO

Analysts

Brian Abrahams – Oppenheimer

Jason Kantor – RBC Capital Markets

Katherine Xu – Credit Suisse

Presentation

Good day ladies and gentlemen and welcome to the second quarter 2008 Avigen earnings conference call. My name is Erica and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator instructions) I will now like to turn the presentation over to your host for today's call, Mrs. Aneda Montes [ph], Avigen Investor Relations, please proceed ma'am.

Aneda Montes

I want to welcome you to Avigen's second quarter 2008 earnings conference call. I'm Aneda Montes, Avigen Investor Relations and I'm joined today by Ken Chahine, President and CEO of Avigen; Mike Coffee, Chief Business Officer; and Andy Sauter, Chief Financial Officer. As all of you know, before we begin, we need to remind you that Avigen's Press release issued earlier today and management's comments during this call contains Forward-Looking statements that are based on Avigen's current expectations and involved risk and uncertainties that could caused Avigen's actual results to differ materially from those in these statements. To better understand the uncertainty regarding these forward looking statements, we encourage you to review our form 10-K report under the caption Risk Factors in item 1A of part of that report as well as other documents filed subsequently with the Securities and Exchange Commission. I will now turn the call over to Ken Chahine, President and CEO of Avigen. Ken?

Ken Chahine

Good morning and thank you Aneda for the introduction. Good morning everyone for joining our (inaudible) this afternoon – for joining us today. Let me outline the call as we normally do. We're going to start off with Andy Sauter, our Chief Financial Officer, outlining the financial results ending the second quarter of this year, and then I'm going to review the goals for 2008. We always start the calls with the review of the 2008 goals, same in fact ones that we shared in the beginning of the year and ask how we're doing against those goals. I think you'll be pleased as we are that we were at – we're on track to meet each one of those goals of yours.

We then going to give you an overview of the programs and the status of those programs, really emphasizing AV650 primarily, and then sharing a – some of the information on AV411 and 513 but we're going to focus on the progress of AV650, particularly the Phase II study that are ongoing. And then we're going to talk a little bit about the development strategy and really make sure that the development strategy for AV650 following the release of the Phase II-b data at the end of the year is clear. It's clear in our minds, we want to make sure it's clear on your minds. Our Chief Business Officer, Mike Coffee will then update us on the sales of Viveo by Orion and that German spasticity market. We continue to be very impressed by how well Viveo was doing in Germany, and we really think it's a foreshadowing for what we expect to happen in the U.S. in a much larger scale. And then finally we're going to review the AV650 patent strategy once again, and end the call with upcoming milestones and events. So, with that introduction, I like to turn the call over to Andy Sauter for the financial results.

Andy Sauter

Thanks a lot, Ken. So, this morning we did release our second-quarter financial results. We're happy to report that our performance remains in line with the plan that we established at the beginning of the year and that there is no change in our previous full year guidance. June 30, we did report cash and investments of $65 million. And, we continue to expect to end the year with approximately $40 to $45 million. At that point, our main objective was to do that after the completion of our AV650 Phase II study for spasticity in MS patients.

Our operating expenses remain steady, $8.2 million for the quarter and $16.4 million year-to-date. Both are cash position and our expenses are in track with our expectations. During the quarter, we continue to follow our business model. The objectives – control overhead and to direct our resources toward our top development priorities. These, you'll see, is reflected in comparisons of both the 2008 quarter and year-to-date periods versus last year, where you'll see R&D expenses are higher, primarily in connection with the recruitment of our AV650 Phase II trials and G&E expenses remain about the same.

As we look ahead, what's built into our previous forecast, our expenses associated with developing a pure form of AV650 for the U.S. As previously announced, this is required to meet FDA standards for chronic medications and is supported by our patent strategy for extended exclusivity of AV650. As previously announced, Avigen agreed to share the incremental development cost with our partner and we have been working with Sanochemia last year to develop a pure API for AV650.

We have budgeted to pay approximately $2.5 million in 2008 in connection with those costs. We expect this to be paid in the third-quarter this year. And, we also have budgeted another $2.5 million to spend in 2009. So, that's all been consistent with our previous cash flow forecast. It does not change our expectations for year end.

Our forecast also reflects the scheduled facility lease termination that was complete in May. Again, this was effectively reduced our annual overhead burden by approximately $1.5 million a year. This was associated with office and lab space that we were no longer using and partially subleasing.

So, in summary, we remain on focus – we remain focused on moving our top priorities forward toward the next inflection point and our financial outlook remains consistent. We expect in the year, with approximately $40 million to $45 million, with a strong cash position.

Let's now turn it back over to Ken to continue with the presentation.

Ken Chahine

Thanks Jamie, appreciate that and I do want to take a moment here to complement Andy in the finance team. I think that if you go back and look at the guidance over the last several years and grow [ph] we've ended the year in a cash position, I think you'll find that it's been incredibly consistent and that's very comforting and, certainly, with the current state of the equity markets, we continue to be conservative. We think our business model of having the high variable cost and low fixed cost, I think, puts us in a nice position. I think any, with $40 to $45 million, given all the activity from all sens [ph] we have this year, is a real accomplishment.

So, just spend a minute on the strategy and our mission, we are neurologically focused company but I do want to emphasize the innovative and highly differentiated drug candidate that we have that are still, despite their innovation and differentiation, have a mitigated development risk given the fact that they're approved outside the United States. We think that this is a unique strategy and one that we're very pleased to implement.

In terms of the goals for 2008, there were really three goals that we set out with the primary goal being the timely and reliable completion of the AV650 Phase IIb data and spasticity and as you'll see, for the rest of the presentation, we're absolutely on track to present data at the end of the year as we had hope.

We're also looking ahead beyond that data and looking for a favorable end of Phase IIb discussion with the agencies so we can set out a concrete registration of plan for AV650 and we're working in parallel with to put that information together to have– have the meeting – set of meetings with the agency. And then the final goal was to initiate AV411 patient studies. I'll update how we're doing on that, but AV411 continues to move and progress quite well.

Let me turn now to AV650. Remind you, this is a non-sedating anti-spasticity agent and upon approval, would be the only non-sedating anti-spasticity agent. We're currently running two phase IIb trials in spasticity. The first trial in patients with MS. Just to review the design briefly, this is a randomized, double-blinded placebo-controlled multi-center study. There's a four week double blinded portion and there's a 150 plus patients in the trial. There are three arms to the study. One arm is placebo, the second arm is the approved dose of 450 milligrams, and the third arm is a 900 milligram dose and we did that to assess whether higher doses above the approved dose of 450 would give us any incremental benefit and efficacy. At this point, we don't know, as we've repeatedly said the physicians in Europe that we talked to are very pleased with the 450 milligram dose. I think, this trial will clearly attest whether 900 provides any additional benefits.

In addition to the double blinded portion, the fact that this drug is approved in Germany give us some real unique opportunities. We have a six month open label portion to the trial which we now estimate a8n amendment to try to extend that to 12 months. And what that does is, as many of you know, the IPH guidelines require 1,500 patient to be treated various length of time, we really can get a jump on this by satisfying many of those requirements in Germany and in other parts of Europe, and of course, just to remind you this trial is run by U.S. headquarters, CRO. It's all done under good clinical practice. It's complying with all the IPH and FDA guidelines with respect to secure clinical trials that are conducted outside the United States.

The second trial that we're running is a Phase IIb trial set is the spinal cord injury. Design is fairly similar in the sense that it is a double –- a randomized, double-blinded placebo-controlled trial also multi-center, it's also four weeks in duration. This study is a two-arm study with a 120 patient projected to be dosed, one is placebo, and the other is the European approved dose of 450 mg.

Now let me update you now on how we're doing on these trials. The primary trial is a Phase IIb trial on spasticity following MS. Since the last call, we had a second DSMB review. Like the first DSMB review, it was very good, there seems to be no adverse event that are of any concern. The drop-outs would confirm that, the drop-out rate still remains low, I think under 10% at this point. And in terms of the enrollment, as we've reported today in the press release, the enrollment is complete. We have now treated over 150 patients in this trial. We actually made a pretty significant push towards the –-towards the end of this quarter to make sure we had enough patients, so we screened a little bit more than that. There will be a few other patients that have been screened, that they qualified for the trial, they will be dosed the next few days, and then all dosing would stop, and at that point the patients go into a wash-out period, a four-week, double-blinded portion. And, our expectation is that we will announce the completion of the trial in September, maybe early October, depending on the washout periods. So, we are very pleased to have the enrollment complete. We did this in about nine months which I think is a real credit to the team and really working together closely with the CRO.

In terms of open label enrollment, it has – it has been very good and that's very encouraging. We've had so far over a 100 patients that have rolled over from the double-blinded portion into the open label. I think that speaks to the safety and how the patients feel overall on the drug. So, we will continue to do that, as I mentioned will be a 6 and 12 months open label extension on that.

I want to focus on the powering of the trial, just for a second, just to say that it is powered to show statistical significance between the active and placebo. This was based on mainly the (inaudible) but we did also look at some of the other outstanding inhibitors that are out there. I bring this up only because I've been ask this in the last week several times. So, I just want to confirm that, in fact, it is – it is powered to show statistical significance.

So, as we get closer, once we announce the completion of data, we'll disclosed exactly how and when we will disclosed the top line data. There really hasn't been any final decision yet, but, I do want to confirm that every – our expectation is to do this before the end of the year. There's no reason to believe that we couldn't meet that goal.

So, turning now to the spasticity trial in spinal cord injury. We've made significant improvements in last quarter. We've talked about opening more sites and open enrollment. This trial clearly has been enrolling more slowly. The population is a lot smaller. Their current meds – medications for spasticity, it's harder to wash them out. And so, we're continuing to making progress, but still, it's clearly not at a point where we are going to be reporting any time soon. We hope that the positive MS data at the end of the year would encourage enrollment as well. We're still shooting for a 2009 completion for this trial.

In terms of the strategy, how do these two trials play into our development strategy going forward? Well, following the completion of the MS trial, we will request an end-of-phase II meeting with the agency. We will not be waiting for the spinal cord injury trial date. I mentioned that on the last call. We remain consistent with that. The reasons for that is that the MS trial really provides, along with all the clinical data that we've generated, provides all the information we believe we need to have a good end-of-phase II meeting and to design and to come to agreement on a registration plan going forward.

To review, the primary end-point in the MS trial is the Ashworth. We're looking at the Ashworth. We actually have other secondary end-points that we think are important. We're looking at a fixed dose trial which is what the FDA prefers and we're looking at multi-doses, right. We're looking at 450 and the 900 mg dose. We also have the sedation measures we're looking at. In this particular trial, we're looking at VAS sedation, both at 450 and 900 mg. We think that that also provides the information we want in terms of designing wet trials we need to conduct to show that this drug is not sedated [ph] versus the other ones in the market. And again, we have the open label extension. We've done some drug (inaudible) studies. We have additional Phase I studies that we plan to do or ongoing right now.

So, this final credentiary [ph] trial is important but the focus of that is really to show that AV650 works in spasticity generally. So it works, not only in MS, but it also works in the second indication for spinal cord injury and that's why we believe that it's not on the critical path and that we will move forward with end-of-phase II meeting with the MS data.

Let me shed a little bit more time on the (inaudible). I want to make sure that this is clear. So, at the completion of the Phase II trial in MS – following MS. In some of these additional phase 1 studies that we've conducted for the last end-of-phase II meeting as I just mentioned. The phase II re-trial for spinal cord injury will continue.

Once we come to an agreement on the registration plan, our expectation is that we will be doing two phase III trials in MS or spasticity following MS. The reason we're talking about doing two trials is for chronic indication, the agency has consistently requested two 12-week studies. That the two MS studies that we'll be conducting will be 12 weeks in length. That will actually satisfy the chronic dosing, show that what we're seeing in four weeks does not wear off. At 12 weeks, certainly, all the data we've seen from Europe did not suggest that there's any wearing-off effect but if we need to prove that here in the United States and those two trials will do that. In phase– again, the phase IIb trial for spinal cord injury is there to show that in a second indication, basically, that spasticity's also being treated effectively by AV650. We also had additional studies. We believe that since this is a new chemical entity in the United States, QTc studies, other safety says a lot have to be conducted.

So, where that takes us is that once – what's the – what's an NDA package, if you will, look like in our minds. We have two Phase III studies in spasticity following MS, both 12 weeks, both powered, both registration trials. A second indication, being spinal cord injury showing that it's effective in spasticity following spinal cord injury. We will be doing a sedation study. We'll have to come agreement with the agency in terms of exactly what that– that sedation study looks like. Typically, our research shows that you need a placebo, you need AV650, we'll probably mean an active comparator, we'll come to agreement as to what that active comparator is. And as I mentioned, we have additional studies like QTc and (inaudible). That whole package, we believe, basically supports the NDA and, importantly, the labeling strategy that we want which is a general spasticity claim not just for MS or any other indication, being able to claim that there's no sedation. And then a couple other things that we are – we think are very important from a marketing standpoint, the lack of titration. You may have heard we had a webcast earlier this week with some experts from the U.S., in Germany, talking about AV650, particularly the neurologist from Germany saying that, there is no titration required. He certainly does not titrate. We think that's pretty important. When we look at the other drugs currently in the market, titration is a big issue. We think if we could show that no titration requires, that's a nice advantage. And the last thing is no drug-drug interaction restrictions. We've done some DDS studies already. Clinically we've not seen anything relevant. We think we want to make sure that there's no major restrictions on the label.

So again, as I sort of just mentioned, where does this label get us? Well, we think this label gets us to one that's very strongly differentiated in the existing therapies. Existing therapies have a significant amount of sedation. Just look at the package inserts. In some studies, you're seeing sedation rates that are as high as 90 plus percent. Our original Phase I study, many of you recall, shows no sedation in a placebo-controlled trial, and also no carbon of an impairment. We're going to continue to push on that front because we believe strongly that there isn't any sedation with AV650.

The titration, as I just mentioned a few minutes ago, really is an issue. Titrating pop [ph] to get to you a tolerable dose and in many cases, like with Acolten [ph], the withdrawal becomes an issue, so you have to titrate down. Slowly you can get some adverse cement [ph] including seizures if you do – if you withdraw too quickly. Not having that impediment I think is a nice feature from a marketing standpoint, and again drug-drug interaction studies – the other drugs that are out there, some of them have some pretty significant restrictions. Not having any significant or major restriction on DDI, again, would be pretty important. So I just want to remind everyone that this improve safety profile that we believe AV650 has does not comment the expense of any efficacy. We compare the literature with – of tizanidine [ph] and baclofen [ph] and others. And, look at the AV650 literature, its very comparable. The only thing I will caution is at times, its not comparing apples to apples, particularly, the tizanidine manuscripts. They collect the data slightly differently. I don't want to get into details right now. Believe me that the data show that the efficacy is pretty consistent. If there is any questions or whatsoever, feel free to contact us. We are happy to walk you through the data.

So, bottom line is we believe that with the labeling strategy and development strategy that I just outlined, AV650 will be very competitive with the existing therapies. But in addition to that, we really have said consistently that we think this could expand the market and I think one piece of data that's actually really supporting the expansion of the market is the German launch and to that, I'm going to turn the call over to Mike Coffee, who's going to talk about the Orion experience, the German launch, and how well it's going.

Mike Coffee

Thank you, Ken. Sure. I look forward to that. So, in addition to telling you about the Orion results to date, I'd like to update on two other events that Ken alluded to earlier and that is a patient survey that was reported on earlier this week, as well as the experts panel's observation on what the findings from the patients survey provided.

So, first, with respect to this patient survey, which by the way included over 800 patients and was conducted by the leading patient advocacy group, WEMU [ph]. Some of the notable observations were – one, that in assessing the prevalence of spasticity, the survey found there a lot of patients that aren't included in the usual spasticity conditions that are considered when you look at the population. And, we are very intrigued with this and as a follow-up, we'll be working closely with patient advocacy groups and others to get a better idea of this larger spasticity treatment opportunity. Second, with respect to the findings, what was pointed out was that in excess of 60% of patients are not satisfied with their spasticity treatment. Furthermore, study found out that there are significant numbers of patients who just aren't aware that there's treatments for spasticity.

When we get in to the area of the satisfaction, what we find is that a very high percentage of them complained of side effects and drowsiness in sedation, a far and away the top side effect that's complained about. So, in conclusion in this survey, 92% of the patients expressed a strong interest in a new non-sedating oral therapy for spasticity. So, following the recording on that survey, what we had was the expert panel comment on their observations and they were kind of interesting and I think they tie very much into the results I just mentioned that. They pointed out to us that many spasticity patients are not treated or under treated for a couple of reasons. One is awareness education. There just needs to be more aware of that. The second is, the physicians commented that they purposely delay treatment in a lot of patients because side effects are the sedation and other see enough side effects are – such a big problem. If they wait until the patients have severe symptoms which, again, is pretty unfortunate.

And, finally, I think, some of you pointed out that's very interesting is that they really believe it's very important to have integrated care. And by that they mean tying in the patients to the doctor, physical therapy, and pharmaco- therapy. And right now, with the side effects, drugs like baclofen and tizanidine, and it becomes very difficult to deal with and they're looking to see that a new non-sedating oral therapy can help provide that.

So, I think those are – it's an interesting backdrop and as Ken mentioned, what we want to do now is to update you on a progress that Orion is having with Viveo, which is the same as our AV650 in Germany. I'll remind you that launched Viveo last October, so we have nine months experience here. So, what we see first, the penetration of Viveo in this entrenched market continues to be really impressive. Viveo has gone from 7% of the market in the fourth-quarter of 2007 and has grown to in excess of 20% of the market in Q2 of this year and has actually rapidly risen to the number two product in just nine months.

In terms of what's happening in the market overall, what we're seeing is Viveo is not just taking share from other products. So, it's actually expanding the market. So, what do I mean by that? In the last nine months – nine months, this market has expanded by 14%, and this is while baclofen and tizanidine sales have been relatively flat. So, why the expansion – what's happening? We're going to be looking more into that, but, in the view of Doctor Reese [ph], who was a participant in our panel and is a German neurologist. His feeling is that the launch of Viveo has caused an increased awareness of spasticity, more patients are coming in to doctors' offices and are seeking treatment. And furthermore, physicians are finding that they can start treating spasticity early with Viveo because of the lack of side effects. So again, these are the kinds of things that contribute to the expansion of the market, which as Ken said, we fully expect to see this similar thing happen here in the U.S.

So, we'll continue to keep you updated on Viveo's launch progress as we go forward in quarterly earnings calls and other opportunities. The other thing I want to mention is that we are currently sponsoring a survey of German neurologist and what we really want to do in this awareness trials is to dig in to the neurologist's use and experience with Viveo and, we plan to report the results of this survey at Avigen's Research Day on September 10 on webcast. And also, for those of you interested in learning more about spasticity experts, comments in spasticity, I encourage you to visit the Avigen website, www.avigen.com, for the link to the archive webcast. Okay? Thanks.

Ken Chahine

Thanks Mike. Yeah, I want to reiterate, I really would encourage you to go to the website and look at the expert panel discussion. It is very, very good and it is also very enlightening. These are leading MS specialists in the U.S. Similarities between the German market and the German neurologists' treatment MS and I can't emphasize enough that we stopped at this 86 special [ph], we had a nice opportunity in the United States. As we dig in, we're more and more encouraged that this market really is undeserved. We talked about the MS market here in the U.S., same thing. Many of the patients simply can't take any medication. And so, what they said was we think we can recruit in the U.S. a trial just as quickly as you did in Germany. So, go out – go to the website, look at the comments, I think you'll find it very interesting.

On the other aspects of AV650 that very exciting is that – of course, when we first launched this – when we first in-licensed this product, we felt that the business case, with the five year Hatch-Waxman exclusivity was actually very good. We thought that the drug would do extremely well on the five years. We talked about having potentially a formulation extension but the intellectual property that we announced last quarter is really critical because it gives us the potential for exclusivity till 2027. It just reminds me. It's a composition of matter patents, so really, it's the strongest patent protection you can get and it's on a pure form of AV650. This pure form sort of patent, if you will, a well established and, I can tell you, we, me as a patent attorney, our chief, Christina Thomson, has also gotten patents allowed in this area. And if you do a little bit of research, I've shared this with some of you, looking at five's or in four's, Ingen, Genentech, Sharon [ph], all of them have used this strategy. It's a very robust improvement in our strategy. And, just to remind you we are being held to this standard right now in this pure form in the United States. And all of our trials, Phase II trials, currently comply with that standard. We don't expect any delays in our Phase III as a result of this pure form. As Andy mentioned, we've made some tremendous success of API and the stability of the API is complete and so we feel very confident that we've met the FDA standard, and that it's not going to create any delays whatsoever, what it is going to create is exclusivity till 2027.

So just to summarize 'cause I covered a lot quickly here is the Phase IIb trial is on track to have data at the end of the year. Enrollment is complete. The safety profile of the drug has been very encouraging, similar to what we have seen in the European experience. Open-label roll-over has also been very encouraging and I think speaks a lot to the safety and tolerability of the product, and we are excited about having – reporting the top-line data here at the end of the year.

As far as the development plan, as soon as we got the top-line data we're going to be moving to an end-of-Phase II meeting and registration discussion with the agency. We're going to bring together, we think a very robust package of not only this Phase II data but significant Phase 1 efforts that we've generated over the last couple of years. As Mike just mentioned, the Orion data that the key opinion leader, the patient dissatisfaction surveys, all very encouraging, all pointing to a market potential that we think is very attractive, and again, having exclusivity in 2027 is a key component.

So with that summary, let me move on now quickly to AV411, AV513 and then I'll take question at the end.

AV411, first-in-class, non- opiate oral drug for the treatment of neuropathic pain. As many of you know, this drug is approved in Japan for bronchial asthma. It's a new chemical entity in U.S, it's also a new chemical entity in Europe. We have very good intellectual property around AV411, in the use of AV411 in the U.S and in Europe. As many of you know, we've completed a Phase II-A study, completed some Phase I studies. At the last call, we were still conducting a maximum tolerated dose study and if you recall, we have said that the reason we haven't completed that trial was that we had reached the original design of up to 80 milligrams on a single dose and not reach any– had not reached a maximum tolerated dose. We ask the FDA if we could go to 100 milligrams. We've provided the rationale, they've agreed with that. We've actually now treated and completed the 100 milligram dose and while we didn't officially meet a maximum tolerated dose, there was trend and adverse event, particularly (inaudible) no surprise. And we don't really feel a need to go any higher, so at this point, we'd say the maximum tolerated dose– the maximum tolerated in this trial is complete and we're compiling that data right now. But we have to say, I think, AV411 has exceeded or far exceeded our expectation for – from a (inaudible) standpoint and we so believe that going into Phase II trial of 15 milligram twice a day dose is where we need to be. But having a 100 milligram as single dose gives us an enormous amount of confidence in the tolerability of the drug going forward.

So, we're on track to initiate patient studies this year. We think that the opiate withdrawal potentiation [ph] is really the lead patients that we're looking at. We're working with NIDA [ph] in the Columbia University closely to get that started and I hope to provide you updates on next call on that trial.

And then, actually one more thing I wanted to mention, actually, on 411 is that there had been several patent publication that have come out. We are in the process right now of putting these publication numbers on our website on the product page for AV411 so you could go and look at them yourself. The method of treating neuropathic pain, which is the initial patent that we filed, has been published. You can take a look at it. There's also been a lot of discussion about the mechanism and action of AV411. We've been working hard on that. There is a patent for methods and antagonizing of MIF, which is Migration Inhibitory Factor, and there's some other patent publication that's been coming out on the mechanism of action.

And then, the third publication that has come out that you might want to take a look at is the analogs. We've talked a lot about the fact that we are not – we didn't just stop at AV411, we have made several hundred analogs of AV411 at this point. We think we have a good structural function relationship of 411, what regions in the molecule are important for dependence and for pain, which ones are not. That allowed us to file a broad generic patent, if you will. That patent has published as well and you could take a look at some of the analogs and some of the work that the team has done. Excellent research that led to a very, very important patent application. And, all three of those were published. We have hope to have those numbers up. If they're not up now, we'll have them up shortly so you could look at them.

And then 513. We really have been focusing on AV650. That's our priority. That's what our priority should be, AV411 as well. AV513 has been a small effort. We still believe this has really strong potential as an oral treatment for bleeding disorders. It really did have the potential revolution the way Hemophilia is being treated. We continue to make a progress in this area in terms of manufacturing and have some interactions with the FDA and our strategy is tilted to look at a U.S. filing through the IND and will hope to give you updates again in the next – maybe next conference call on how we're doing on that.

So let me just end now with some of the upcoming events. There's a lot going on. We expect investor conferences, we have various investor conferences that we'll be presenting at – UPS, Oppenheimer, Credit Suisse, and others between now and the end of the year. As Mike mentioned earlier, we're going to have this Research Day, and also a panel of – or survey of German neurologists which I think will be extremely interesting to get a sense of what their experience has been with Viveo or AV650 over the last 9 or 12 months. And then we're going to be present at various scientific meetings including international society for pain where we have various talks, and other meetings going forward, so. Anyway, with that I'd like to open it up for any questions. Moderator, if you wouldn't mind opening the lines please.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from the line of Brian Abrahams with Oppenheimer. Please proceed.

Brian Abrahams – Oppenheimer

Hi. Thanks for taking my question and thanks again for hosting a really interesting panel on Monday. I noticed that the panelist emphasized the differentiation of Tolperisone versus some of the other drugs that are out there. I was struck by the comments they made on how some of the medications that are out there now have this wearing-off effect overnight whereas Tolperisone might not necessarily share the same quality. I was hoping you might be able to talk a little bit more about how the current trial design might be able to bring out some of those distinctive characteristics, specifically with regards to the timing of how the Ashworth and other functional measurements are taken during the day.

Ken Chahine

Sure. Thanks Brian. That's – no, that is a really good question and good observation and you're absolutely right. The – both neurologist from Germany and U.S expressed the same wearing-off type. In particular, they were talking about how in the morning many of the patients would wake up stiff, if you will, from the spasticity, but the German neurologist who is the one who had the experience with the Tolperisone says that he's not getting that complaint. So, one of the interesting things is the pharmacokinetic profile of AV650 would suggest that it would wear off in a couple of hours. However, the experience from the German neurologist is suggesting that it – the pharmaco dynamic effect could be longer.

That's never been studied well and what we're doing now and I don't have the protocol in front of me but I promise at Research Day we will go through the protocol in a lot more detail but I think that what I can say right now is we're taking Ashworth scores before the patients comes in and takes the medication and then we're taking Ashworth scores again several hours later. So, what we're doing is a couple of things. If the effect in fact has endured, let's say, through the night and in the morning, that early Ashworth score might actually be – represent the drug, the efficacy extending through the night and into the morning. And they take the next dose and then if we assess it, let's say, several hours later, there is a wearing off effect, we should have the peak concentration versus three hours later. So, I think, – the long short is I think our design will at least capture part of that Pharmaco dynamic effect is in fact– it exists. So, that's very encouraging the way we designed the trial for that.

Brian Abrahams – Oppenheimer

Great. And then just a question following up on you mentioned before regarding the powering of the study. I was wondering if could just be a little bit more specific. I think you'd mention in the past that it was 80% powered. Is that to show a half a point improvement on Ashworth's or a full point and is that at P of 0.05.? Thanks.

Ken Chahine

Yes, it is. It – so, you are absolutely right. For typically for Phase II, that's an 80%, but it's – it is a P value of 0.05 and it was basically – what we did was, we took all the available data, sanovine [ph] being obviously the one that was – it was Tolperisone first of all. It's obviously one of the more recent trials. And so, its statistically – it was powered to show a statistical difference between have a half a point change in the actual score at a power of 0.05. And were there was any doubt with respect to some of the assumptions, for example, variability and things like that standard deviation, we were always took the more conservative route. So, we think that the – that the trial is more than adequately powered and we're pretty comfortable with it going forward.

Brian Abrahams – Oppenheimer

What drop-out rate does that assume? Did you (inaudible)?

Ken Chahine

You know, that's a good question. Okay, so we initially assumed the 20% drop-out. We've had – for a fewer drop-outs. And, I didn't say this but I'll say this now, we overshot a little bit, for sure. So, we're going to have more than a 150 patients that have been dosed. So, while – as you so correctly said, you usually assume some certain amount of drop-out, not only did we have less, but because we screened more patients and are dosing more patients, we will end with a 150 patients having completed the double-blinded portion.

Brian Abrahams – Oppenheimer

Great. Look forward to seeing the top line data. Thanks for taking my question.

Ken Chahine

Thanks, Brian.

Operator

Our next question comes from the line of Jason Kantor with RBC Capital. Please proceed.

Jason Kantor – RBC Capital Markets

Hi. Thanks for a very thorough update and I also did enjoy the expert panel and I like that format. Just wanted to talk a little bit about the exact timing of how this affect the trial in MS is going to ride. You say, you've completed enrollment, I guess you've completed the target enrollment but there is some stragglers who haven't been dosed, and you mentioned late September, early October, is that an announceable event that the last patient has completed therapy or follow-up. Is my understanding correct?

Ken Chahine

Everything you said is actually correct. So we treat it in. It sort follows-up with Brian's question right? Because typically, in different companies they're different but typically you say, okay we're going to roll 150, you assume a certain drop-out and your power is based on a number less than what you enrolled. In this particular case we will have 150 completers, and you're absolutely right, they were a few people that we had screened. That if they qualify, we will dose them, I mean, I think it was a lot of effort obviously on the site partners, enthusiasm on the patient's side, so we feel it's fair that the treatment had literally will happen in the next few days, I mean, this is not something that's going to be ongoing. We've set a very hard date for the last patient to be dosed. And you're absolutely right, we will announce then, the completion will be the last patient out, that means that right after that point where we lock the data, we will continue to do the quality control. We're doing that now. Our team visited many of the sites, we're looking at the case report forms making sure everything is in order, and actually we were very impressed with the quality of the data so far. But that will be the announceable event and then from that point on, after we lock the data, just take us some time to obviously analyze the data, and then the top line results will come after that.

Jason Kantor – RBC Capital Markets

And will you release fairly detailed information? Or at that point it will be – thumbs-up, thumbs-down, and setting at a conference?

Ken Chahine

In terms of the top line data?

Jason Kantor – RBC Capital Markets

Yes.

Ken Chahine

I don't know. I think we'll get more than a thumbs-up, thumbs-down. Our goal is to try to give some meaningful top line data where we'll be try to be cautious – is that we will want to present it and we won't want to jeopardize those rights for presenting it, but I think that we could find a balance to make sure that we get more meaningful data than just a thumbs up- thumbs down. I don't know, Mike, maybe you got anything to add there?

Mike Coffee

I think, Jason, it's going to be top line data the end points and safety, which is I think what we're primarily concerned with and , obviously, we won't want to be in further on secondary measures and that sort of thing but as Ken said, we're going as far as we should so that we get a good publication in a premier publication, premier journal.

Jason Kantor – RBC Capital Markets

But what about any other answer [ph], as you mentioned the QT–-sort of QT study. Do you have to do additional animal tox or GINA [ph] tox or anything like that?

Mike Coffee

It's a good question. We've been in, again, a unique situation which we've taken full advantage of in the sense that we have done all the non – the pre-clinical data, and mainly some God [ph] data on the QTc. There's nothing to suggest pre-clinically that there's any QTc concerns. We've obviously done all the (inaudible) cells. None of that suggests there's any concerns whatsoever either. We had many of our patients in our Phase I trials look – have the whole (inaudible) monitors looking at Cardiovascular and ECG's. We didn't see anything there as well. So, so far, Jason, there's no– nothing that gives us any concern regarding the QTC. The other things that you mentioned like Gina tox, we completed the ICH guidelines for the Gina tox as long– we've been reassured with the FDA and this is the way the EMA guidance as well. As long as we keep the level of Gina-tox —below this very, very small amount that they're – that they set as a bar, there's nothing further to be done. The agency has never requested that we do anything further other than keep it below this level. So, I think, we're fine there. But I will say that we have completed both carcinogenicity studies. That's important. And so far, again, those take an enormous amount of time to analyze, but, there's been no signals whatsoever within the carc studies that give us any concern either. So, I believe the rat came down first and then the –mouse more recently came down and those are analysis but nothing's jumping out at us to be concerned.

Jason Kantor – RBC Capital Markets

And one last question if you don't mind. The – this amendment to extend the protocol, would that be completed in time so that everybody who's already rolled over will be able to continue or will there be interruptions for people who have to drop-out because –

Ken Chahine

Are you talking about – I'm sorry, just a clarification, are you talking about the 6 to 12 months extension?

Jason Kantor – RBC Capital Markets

Yes.

Ken Chahine

Yes. So, six months extension is in place. So there will be no – there should be any, excuse me, there should not be any interruption. The goal is that anyone who is in the six months extension, once they get the 12 months approval, can just continue beyond that. But, the six months is absolutely in place. So, at a minimum, we will – they will have the six months extension in place.

Jason Kantor – RBC Capital Markets

Okay, thank you.

Ken Chahine

No problem. Thanks, Jason.

Operator

(Operator instructions) Our next question comes from the line of Katherine Xu with Credit Suisse. Please proceed.

Katherine Xu – Credit Suisse

Hi. Thank you for taking my questions. I just want to understand the design of the Phase II MS study. So basically, you started with the patients that you wash them out for a week? And then, you put them on for four weeks, and then there's another week of wash-out and then roll over to open label?

Ken Chahine

Katherine, I don't – I don't believe there's a second wash-out. There's just the wash-out for any current medication that they're currently on and then they go on a four-week double-blinded period with AV650 and then they automatically roll over if they so choose to the open label and that the overwhelming majority has elected to go into the open label. So there is no wash-out period after the trial that I'm aware of, I don't –

Mike Coffee

No, and Katherine, as you know, there's three arms in trial placebo 450 and 900, and when they roll over they will all roll over to 450. So the placebo's will go to 450, the 450s go to 450, the 900 go to 450, and then the physician and patient have the option to adjust their dose up to 900 mg. in the open label.

Ken Chahine

That's right, and they're encouraged to go to the higher dose (inaudible) tolerability issues and we just talked to our clinical group and – actually I would say that the majority of patients have also have gone 450 or 900, so yes we're – we're encouraged..

Katherine Xu – Credit Suisse

Okay. Great. A couple of questions for Andy, if possible. The $5 million that you're paying Sanochemia for – are those going to be expensed as R&D?

Andy Sauter

Katherine, yes, that's correct. So in connection with the agreement and the estimation of sharing cost for – to develop the product, it has been set-up in sort of milestone base payments. We believe the first half will be paid here in the third quarter. It will be expensed to about as $2.5 million into R&D expenses, and the other $2.5 will be primarily – probably around in the middle of the second half of 2009.

Katherine Xu – Credit Suisse

Okay. Great. And then in the press release you said you believe you have two years of cash left?

Andy Sauter

That's correct.

Katherine Xu – Credit Suisse

So you decide – it all moderately [ph] looks like the burn in the next two years will be lower than '08.

Andy Sauter

Clearly, our overall burn is designed to reflect our sort of corporate portfolio, and as you know we have a number activities going on. We do continue to make sure we're able to focus on AV650 as our primary goal and put the right level of resources toward our other products but we do have some flexibility in how we prioritized that. So at this point we're very comfortable that if we end the year with the $40 million to $45 million that we believe we will still have that that will continue to carry us into the first part of 2010, and that gives us about a two year time horizon from this point.

Katherine Xu – Credit Suisse

Okay. So this is fully taking into account the expenses for the Phase III study for AV650 and has not taken into account any cash inflows from various financing activity?

Andy Sauter

That is correct. It does not require any additional cash flows from other financing activities.

Katherine Xu – Credit Suisse

Okay.

Ken Chahine

I can just add – I know this is a question Katherine that came up and others might find interesting, in terms of the cost, there's two things that I think – multiple things that MS trials going to provide but one of the things is that because of the powering, as we were discussing earlier on Brian's question, if we're right about the powering and we think that we are, this Phase III trial should not be really significantly different than this set of Phase IIb trial. So in terms of the number of patients, because we're doing a lot of the open label extension on this one as well, it will be pretty similar. So I think that the Phase III program, believe it or not, I think should be very modest compared to a lot of the other programs, and so I think that's why Andy's feeling comfortable in saying that we have the cash two years later or whatever, so.

Katherine Xu – Credit Suisse

Okay. Thank you.

Andy Sauter

Thank you.

Operator

(Operator instructions) There are no further questions. I would now like to turn the call back over to CEO for closing remarks.

Ken Chahine

Thank you. So let me just close by saying, I want to thank everyone for joining us this afternoon on the call, we're very pleased to have completed the enrollment and we look forward to giving you further updates, as I said, in September, early October time frame about the completion of the trial and then looking at – depends on the timeline, for disclosing the top line data. So, thank you for joining us and we look forward to keeping you up to date on other calls. Thank you.

Operator

Thank you for your participation in today's conference. This concludes the presentation. Everyone have a great day.

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