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XenoPort Inc. (NASDAQ:XNPT)

Q2 2008 Earnings Call

August 06, 2008 5:00 pm ET

Executives

Jackie Cossmon - IR

Ron Barrett - CEO

Bill Rieflin - President

Bill Harris- SVP and CFO

Analysts

Michael Lee - RBC Capital Market

Ram Selvaraju - Rodman & Renshaw

Steven Harr - Morgan Stanley

Yale Jen - Maxim Group

Katherine Xu - Credit Suisse

Boris Peaker - Cowen and Company

Lucy Lu - Citigroup

Operator

Good afternoon. My name is Christine and I will be your conference operator today. At this time, I would like to welcome everyone to the XenoPort second quarter financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions)

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

Jackie Cossmon

Thank you, Christine. Good afternoon and thank you for joining us on the call. Here with me today are Ron Barrett, our Chief Executive Officer; Bill Rieflin, our President; and Bill Harris, our Senior Vice President of Finance and Chief Financial Officer.

Before we begin our discussion of today's news, I would like to note that the information to be discussed on this conference call and webcast, including answers to questions asked during this call will include forward-looking statements that involve risks and uncertainties, including statements related to our future clinical development programs and clinical trials and the timing thereof, our partners clinical development plan, the release of additional clinical trial data and future regulatory submissions and the timing thereof.

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

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

Ron Barrett

Thank you, Jackie. Good afternoon everyone and thank you for joining us on our conference call today. I will begin today by reflecting on the progress of our clinical stage programs since the start of the year and set the table for what we believe promises to be an exciting series of milestones over the next 18 months. Bill Harris will then provide highlights of our financial results. We will then open the call to questions.

A major focus in 2008 has been the execution of our development programs and we were delighted to announce earlier this year the final two positive pivotal trials for Solzira and the first human data for 279 our Transported Prodrug of L-Dopa. Though it is slow in Q2, it was certainly less intense then in the first quarter; I can assure you that we have been working diligently to support what we believe will be an exciting series of trial results and other events over the next 18 months.

For Solzira the nearest term event is the filing by GSK of the RLS NDA. We have been working tirelessly with our GSK colleagues to prepare the comprehensive new drug application, which we believe supports the efficacy and safety of Solzira in RLS patients. We are also pleased to report that we continue to expect GSK to submit the NDA this quarter. We will issue a press release, when the submission has occurred.

You can also expect more data from our RLS trials to be disclosed over the next 18 months supporting the launch of Solzira if it is approved. For example, we will be presenting pain assessment data from our PIVOT RLS I trial at the 11th International Conference on Mechanism and Treatment of Neuropathic pain to be held November 6 to 8 in Bermuda.

Additionally, I want to highlight the work of our partners GSK and Astellas on the broader development of 512. Our partners are presently conducting four large clinical trials for the treatment of neuropathic pain. Astellas is also conducting a large RLS trial to support the registration for this indication in Japan. While GSK and Astellas have not disclosed the specifics of when they anticipate results, we believe it is likely that these trials will be completed in 2009.

Additionally, GSK plans to commence this year two additional trials, the first of which will examine the effects of Solzira on sleep in RLS patients and the other will explore a new indication, the prevention of migraine.

Assuming success of the above mentioned trials, Astellas and GSK will be conducting additional trials to support regulatory approvals in the various indications.

We and our partners are also actively considering the development of 512 in a number of additional indications. I will remind you that our partners are responsible for the conduct and the expenses of these future trials.

With respect to 986, we remain on schedule and plan to announce the top line results of the Phase 2 GERD clinical trial by the end of the year. We announce today that we plan to randomize the last patient in this study by next week.

This trial is designed taking into account, efficacy, tolerability and pharmacokinetic data from three previous studies. The first is a published 28-day placebo controlled study with four times a day racemic baclofen that demonstrated a statistically significant reduction in heartburn and other GERD symptoms. Based on published pharmacokinetic parameters for racemic baclofen, we can estimate the R-baclofen exposure that these subjects experience.

The second is our previous single-dose study of 986 in GERD subjects that demonstrated efficacy and reducing heartburn regurgitation symptoms, coupled with good tolerability. We collected detail pharmacokinetic data in this study, so we know the R-baclofen exposure in these subjects.

Finally, we have completed our repeat dose phase 1 study of 986 in healthy subjects. Doses of 986 that produce R-baclofen exposures similar to exceeding those in the previously mentioned studies were well tolerated. These are doses that are been studied in the current trial. We will be presenting a detailed from this Phase 1 study at the American College of Gastroenterology meeting in October in Orlando or Florida.

We look forward the result of the current trials since we believe it will provide useful information about patient selection placebo responses, endpoints and doses to be used in future studies of 986.

I am also happy to report that our additional efforts to enroll patients in the 986 phase 2 spasticity trial or yielding results. We believe that we can enroll all patients on time to report the results of this study in the first half of 2009.

Also, related to 986, we announced today that we initiated a thorough QTc study, designed to assess the cardiovascular safety of 986. As most of you know our thorough QTc study is now extended aspect of most drug development programs. We have not seen anything in our previous study because of those concerns and this includes to repeat those Phase 1 study that push the dose up to intolerability and also collected extensive ECG data.

We hope that the successful completion of this QTc study will allow us to continue the momentum of the 986 development program and support the safe conduct of study with of greater of number patients and an increased duration of treatment.

Work to identify improved formations of 279 is also progressing and we believe that we will be in a position to initiate additional Phase 1 trial with 279 by years end. Assuming success, we hope to initiate a trial with Parkinson's disease patients in 2009.

Finally, our partner Xanodyne announced yesterday part of the top line results of two pivotal Phase 3 clinical trials of their modified release formulation of tranexamic acid for the treatment of women with menorrhagia or heavy menstrual bleeding.

Under the terms of our collaboration agreement, XenoPort will receive single digit royalties on U.S. sales of Xanodyne's product if approved by the FDA. This is in addition to double digit royalties on future U.S. sales of XP21510, our Transported Prodrug of tranexamic acid, if approved by FDA in the future.

In summary, the next 18 months could bring action by the FDA on the Solzira RLS NDA and be potentially data rich, with results from as many as nine well controlled efficacy studies intended to provide proof-of-concept or corroborate clinical utility. We hope that these events if positive will represent tipping points for the company. Most of the attention from the investment community has been on the Solzira RLS program that was focused on getting the first approved indication in the U.S.

With the RLS NDA scheduled to be filed this quarter, we believe that other therapeutic indications for 512 and the commercial opportunities for 986 and 279 will come into sharper focus over the next 18 months, as we diversify the risk profile and the commercial opportunities for the company.

Since the start of the second quarter, we also enhanced our management team and board. In addition to Vince Angotti, our Chief Commercialization Officer that we spoke about in our last conference call, we recently strengthened our executive team with the addition of the Chief Medical Officer, David Stamler. We believe that David's drug development background particularly in the CNS area will be very beneficial, as we progress candidates in our pipeline.

We are also pleased to strengthen our board through the addition of Per Lofberg, an industry veteran who brings significant expertise in the managed market and reimbursement areas, their important consideration, as we analyze our business opportunities.

In short, we believe, we are putting the people in place and executing against our plans to assure that we meet our goal to be the best-in-class specialty pharmaceutical company.

With that, I will turn the call over to Bill.

Bill Harris

Thanks, Ron and thanks all of you for joining us today. As Ron reviewed for you, we continue to make solid progress against our business objectives during the second quarter and our financial results reflect this progress.

As you know by now, we have been recognizing the revenue associated with the upfront milestone payments from GSK in proportion to the completion of our obligations under the agreement. Through the end of the second quarter, we have recognized approximately $125 million of the $140 million we have received from GSK.

The $25 million decrease in revenues for the second quarter compared to the same period last year was primarily due to decreased revenues recognized under our GSK collaboration, as we have completed all of the Solzira clinical trials with the exception of the open label safety study, which we expect to be completed by the end of this year.

Research and development expenses for the second quarter of 2008 reflect the same trend. The $2 million decrease in R&D expenses compared to the same period in 2007 was principally due to decreased cost for the clinical development of Solzira, partially offset by increased cost associated with our 986 GERD and spasticity development programs, increased preclinical development activities and increased personal cost resulting from increases headcount and increased non-cash stock-based compensation.

General administrative expenses for the second quarter of 2008 increased by approximately $2 million compared to the same period in 2007. This increase was primarily due to increased personal and related cost resulting from increased headcount and increased non-cash stock-based compensation.

Net loss for the second quarter of 2008 was $12.4 million compared to net income of $13.5 million for the same period in 2007, again reflecting the decrease in collaboration revenue recognized during the quarter.

Net loss per diluted share was $0.49 in the second quarter of 2008 versus net income for diluted share of $0.52 for the same period in the prior year.

Finally our balance sheet remains strong with cash, cash equivalent and short-term investments of a $150.4 million at June 30, 2008.

So with that, we will now open the call for questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is from the line of Michael Lee with RBC Capital Market.

Michael Lee - RBC Capital Market

Great. Thanks Ron. Couple of quick questions, can you remind us or give us an update on what you found from the exposure response analysis on 512 and what you have determined and how you think the FDA will look at that?

Ron Barret

Sure. We have conclude as that analysis, it will be part of the NDA submission, to suddenly take a step back and explain why that is important part of any new drug application and particularly in this case, where we have mixed data on the 600 mg dose group from our Phase2 and our Phase 3 study.

With Solzira, because the act of component gabapentin is not metabolized in the body, and because the greatest contributor to the exposure that a patient exposes with a given dose is body-weight, its important to look at exposure-response as well as dose response. In this case we have done that. We have looked at a number of end-points, some of which there is not a great sensitivity in that end-point like the RLS scale, so it is difficult to discriminate between doses.

However there are some endpoints that do discriminate. There appears to be an exposure-response trend, which would suggest that on average patients are going to benefit, by having a higher dose, leading to a higher exposure.

Importantly, part of this analysis is also looking at whether there is any advantage in terms of safety and tolerability of lower exposures and lower doses. There one has to consider not only the incidence of adverse events, but the severity, the duration, whether those adverse events lead to withdraw. In the case of Solzira, the data certainly suggests that there is not a clinically meaningful difference between 600 mgs and 1200 mgs.

So this will all go into the consideration of the recommended dose. We and GSK feel confident that we have a very strong package supporting the efficacy and safety at 1200 mgs. I can not say categorically that the FDA might suggest that the label say start at 600 milligrams and proceed to 1200 milligrams. We think that it is low tolerability that the FDA would have any concern about additional studies or being required to define a safe and effective dose of Solzira.

Michael Lee - RBC Capital Market

What were some of those extra endpoints you looked at that were sensitive?

Ron Barrett

We have two co-primaries, the IRLS score and the Investigator CGI. We have talked in the past about how we had a number of other endpoints, patient, global impression of improvement. We have looked at various sleep parameters. We looked across a number of these endpoints to see whether there is any reason to suggest that the higher dose 1200 leads the benefit and we believe on some not all these endpoints, there appears to be a clear benefit for the higher dose.

Michael Lee - RBC Capital Market

Okay. Just one last question on 986; when do you think we would get some data on the QTc study, are you going to disclose it or no news is good news?

Ron Barrett

Yes. We have not given any guidance with regard to when we expect the data. We have not decided how we would disclose the results of the study. Obviously, if there was a problem that would be highly material that we would disclose it right away.

Michael Lee - RBC Capital Market

Okay, great. Thanks.

Operator

Your next question is from Ram Selvaraju with Rodman and Renshaw.

Ram Selvaraju - Rodman & Renshaw

Hi. Thanks very much for taking my question. I have three quick questions. First of all with respect of the GERD study of 986 the one where you are expected to announce the randomization of the last patient next week, was I correct in hearing that you would expect results from the study in the first half of next year?

Bill Harris

No, that is not correct. We said that we would expect the results by the end of this year. This is a four-week study. So, the last patient will enter the four weeks of treatment. There is the two week follow-up until the last patient is out of the study. Then there is the customary eight to twelve weeks of cleaning up the data, conducting Q&A and then running the statistics.

Ron Barrett

The confusion maybe that the 96 spasticity data is expected in the first half of next year.

Ram Selvaraju - Rodman & Renshaw

Okay, thanks for that clarification. Also, I just wanted to confirm with respect to your collaboration with Xanodyne under the terms of that agreement that you would be receiving the second $6 million payment sometime in mid-October?

Bill Harris

That is correct. We are receiving the second $6 million tranche of the $12 million upfront payments on the one-year anniversary of executing the agreement, which is in October.

Ram Selvaraju - Rodman & Renshaw

Also with respect to that collaboration, you mentioned that Xanodyne is running Phase 3 trials with its tranexamic acid drug. When do you expect or when does Xanodyne expect those Phase 3 trials to report out?

Ron Barrett

So, there is no disclosure from Xanodyne on that. The two studies that they announced yesterday were their pivotal studies. They also have a couple of long-term safety studies that are open label that are currently running, but they have not guided to when those will be complete.

Ram Selvaraju - Rodman & Renshaw

Okay. Then my last question is with respect to your propofol candidate for treatment of migraine. When would you expect to file an IND on that and can we expect that to occur in the next 18 months as well?

Ron Barrett

No. We have not provided any updated guidance on that. Its still is in preclinical development and I would say right now, it is not a major priority for development and organization. It is trickling along but we have a lot of other important activities that are in front of us and it is still a preclinical development.

Ram Selvaraju - Rodman & Renshaw

Okay and just one last thing with respect to the 986 candidate. Could you comment at this time as to whether you would seek to license the drug before the results of spasticity study and with the results of the GERD trial in hand or would you prefer to wait until after both trials report?

Ron Barrett

I will give a high level answer and may be Bill can add to it. We do not give any guidance with regards to when we expect to do deals. We will do deal if and when the right presents itself. We are obviously in this very data rich period over the next nine months. So, we are focused on getting that data and we do not give guidance with regards to when we expect to do a deal.

Bill Rieflin

I would echo Ron's sentiment as you probably are aware Ram. We have been in discussion about fluttering 986 for a number of years when we did the GSK deal for rest of world rights to 512 become Solzira. We pulled back from those discussions because we did not have the same financial imperatives that we had prior to the GSK deal. Now we are in a position to look at the data and see where it takes us.

The patent decision is going to be a function of a number of things including what the safety and efficacy looks like in GERD. Spasticity is a very important strategic indication for us, given our desire to build CNS specialty sales force. So, I would not want to put a final point on it, then just to say we are in discussions. We are going to do a partnership at the appropriate time, whether it is before the GERD data, whether its after the GERD data but before the spasticity data or that it is after the spasticity data is an open question.

Ram Selvaraju - Rodman & Renshaw

Okay, thank you.

Ron Barrett

You are welcome.

Operator

Our next question is from Steven Harr with Morgan Stanley.

Steven Harr - Morgan Stanley

Hello, good afternoon.

Ron Barrett

Hi Steve.

Steven Harr - Morgan Stanley

There is a lot of discussion after the neurology meeting about your patient who had committed suicide after the completion of your Phase 1 dosing work and then there was the FDA panel recently where the antiepileptics were discussed around some of there potential risk around suicide. So, what have you learned about 512 after the panel and how do you think that is likely to impact your label given that you have the same active drug as gabapentin but you are also not seeking an indication for seizure and your chasing the – focus on antiepileptic patients, I should say, antiepileptic use specifically?

Ron Barrett

Sure. Let me just provide a little bit information about the case that you mentioned, this occurred in a Phase1 study, a single dose study, it occurred more then two days after the dismissal of the subject from the unit. It was deemed by the investigator to be unrelated to the drug and because that was not a placebo controlled study, there is no real way to determine, whether this was related to the drug and as I said the investigator assessment was that it was not.

Obviously before we had designed and finalized our Phase 3 program, we had discussion of this issue with the FDA, the issue of how to assess the potential for suicidality. We have very clear agreement with them on what needed to be done in our Phase 3 program and we did do that and that is part of the NDA. We conducted the same analysis that has been conducted with the other antiepileptic drugs that you referred to. There is nothing in that data that suggests that there is any issue with regard to suicidality that is ideation attempts or completions.

Now the issue of the Advisory Committee and what the FDA is going to do with regard to appropriate warning of the potential. I thought it was the meeting itself was very good and that all of the pertinent issues got raised. I think a very important one is that the incidence, if you bundle all of the adverse, all of the antiepileptic drugs, we are still relatively low. The other thing that was clear in the data is that with gabapentin there did not appear to be any signal that reached statistical significance.

So, the other good thing was that, I think the panel waived the issue of what is the potential unintended consequences of a "Black Box" warning and I think came to the right conclusion in my view that this did not warrant a risk that rose to the level of a "Black Box".

Now, the FDA is obviously going to make the final decision. It was also clear that the FDA at that meeting was not ready to address the issue of a case like Solzira, which we are developing for an indication other then epilepsy. It was clear from the analysis that the FDA did that the signal if you want to call it that for suicidality was apparent in the epilepsy trial but not in the other indications.

So, it is unclear what consequences this will have on new drugs that are being pursued for indication others then epilepsy. So, I think the good news was that no Black Box to that if there is a warning precaution in the labels that will be across all labels. Again there was nothing in that rather large database for gabapentin that is suggested that there was a signal. Steve?

Steven Harr - Morgan Stanley

That is very helpful. I said that was great. Thanks.

Ron Barrett

Okay. Thank you.

Operator

Your next question is from Yale Jen with Maxim Group.

Yale Jen - Maxim Group

Thanks for taking the question. Just want to follow-up a little bit on the previous question regarding the suicidality. Have you guys mentioned, you had actually done a study was the data any similar to what have done by the FDA or just something even lower than that?

Bill Harris

No. what I said was that the study what we discussed with the FDA was what type of analysis will be appropriate for assessing the potential risk of suicidality. The way that this is done is by the Columbia methodology that one looks for various terms within your adverse event terms that have the potential to be related to suicidality and then those case reports are submitted to blinded readers and there is an assessment of whether these are real suicidality cases or not. We have done that, there is nothing in that analysis from all of the data, from our placebo-controlled studies, and so, not unexpected given the fact that similar analysis on a much larger data-set with gabapentin did not show any signal that gives us any concern.

Yale Jen - Maxim Group

Okay. Great. In terms of the $25 million you had received the last quarter, is that going to be recognized in the third quarter or that will be amortized? How should I look at this?

Bill Harris

Hi. This is Bill Harris. It will be recognized consistent with the $75 million up-front and the other milestone payments. That is, it is being recognized under this performance-based model, in proportion to us completing our obligations under the contract. Our obligations were completing the Phase 3 RLS program in the US. So it will go into the calculation and be recognized over the period of our expected performance.

Now, since GSK is going to be filing the NDA, I think it is fair to assume a substantial portion of that will be recognized by the time of the filing, but there will likely be some low-level support of ours during the review of the NDA and a small piece will be recognized to the end of that.

Yale Jen - Maxim Group

Great. The last question I have is about 279. You mentioned that there will be two formulations to be assessed in the upcoming Phase 1 study. Is that just dosing or dose escalating, finding the two different formulation and determine which one would be ultimately use for the subsequent studies?

Ron Barrett

That is correct. It will be a single dose studies similar to one we conducted with the prototype formulation earlier at this year and the objective of the study is to improve on certain aspects of that formulation. One is to improve on the drug loads, so that we have a smaller pill size burden. One is to improve upon the manufacturability of the tablet, and then we also look at the PK and then decide which formulation that we will take into future studies.

Yale Jen - Maxim Group

Okay, great, thanks a lot.

Ron Barrett

Thank you.

Operator

Our next question is from Katherine Xu from Credit Suisse.

Katherine Xu - Credit Suisse

Hi good afternoon

Ron Barrett

Hi Katherine.

Katherine Xu - Credit Suisse

I have just a question and then follow on to the safety side of Solzira. One, theoretical concerning about because of your prodrug design, you can expose patients with gabapentin levels that have not been possible before. We talked about at six grams; the PK is still linear, going up to that high level. So theoretically what are your current thoughts are on potential abuse and also when you go, expose, or ask some patients if they take it for high dosage and at that level where nobody had any experience before? What are the potential safety concerns and how would the FDA actually look at this.

Ron Barrett

Sure, well let me just point out that, while gabapentin absorption or gabapentin absorption is saturable and there is variability between patients. There are certainly some patients, who are good absorbers and are achieving blood levels and tolerated those blood levels substantially above the levels that we are getting with 1200 milligrams of Solzira in our RLS studies. So, the issue of drug abuse is one, obviously when one looks at Lyrica and sees that, that was deemed to be a controlled substance.

One has to think about, what is it about Solzira and gabapentin? That is different. First, we have an active gabapentin that is different from pregabalin. Second is that we have a sustained release formulation that releases the drug slowly overtime. We do not reach our maximal concentration until 7, 8 hours and that is in contrast to pregabalin, which achieves its peak drug concentration in 60 to 90 minutes.

We have not seen anything in our data that would suggest to us that we have an issue with drug abuse signals and I would say if you look at gabapentin itself there is little evidence that there has been diversion, there has been abuse of this and this compound have been around for many years obviously. So, while again, I can never say never, we think the probability of Solzira being scheduled is low.

Katherine Xu - Credit Suisse

Okay. Another question is with regards to QTc study for 986. So, Ron could you comment on any signals pre-clinically and clinically with regard to baclofen that could have an impact on the CV side?

Ron Barrett

Yes. Speaking about baclofen is difficult because the data is so mixed. I will say that we have done in all of our study, ECG analysis. Particularly in our Phase 1 repeat dose escalation study, we did Holter monitoring. We pushed the dose up to 90 mgs twice a day that substantially exceeds any dose that we would anticipate using in clinical trials. From that data there was no signal on QTc.

Now, that is not a definitive or through QTc study. In a thorough QTc study there is very specific requirements by the ICH guidelines on a positive control and a criteria for statistical significantly different from placebo. So, that is the purpose of the study. It is not in response to any safety concern we have seen in any of our trials. Did that answer your question?

Katherine Xu - Credit Suisse

I was just curious, from a just, in the literature for baclofen any signals pre-clinical and clinical.

Ron Barrett

Well. There is an overdose situation. There are pretty profound health and cardiovascular concerns, but again these are not controlled studies. We think the best data with regard to the safety of 986 comes from the studies that we have done, which have been very vigorous and placebo controlled and importantly the study that we are currently conducting, which as you know, the ICH guideline say that, one should conduct a thorough QTc study before launching on larger patient number studies and for expanded duration of treatment.

Katherine Xu - Credit Suisse

Thank you.

Ron Barrett

You are welcome.

Operator

Your next question is from Boris Peaker with Cowen & Company.

Ron Barrett

Good afternoon.

Boris Peaker- Cowen &Company

Hello. Can you hear me?

Ron Barrett

Yes.

Boris Peaker- Cowen &Company

This is Boris calling in for Rachel. Couple of questions here, on some of your milestones. I was wondering if you could comment in terms of what fraction of the remaining milestone is going to be associated with the NDA filing versus your approval.

Ron Barrett

No. We are not giving any guidance with regard to the additional $210 million in clinical and regulatory milestones associate with the program.

Boris Peaker- Cowen &Company

Okay. Thanks. Got it. On 279, just wondering whether it be a reasonable to expect it to in Parkinson's patients in earlier '09 or what is more detail on the timing of this *compound in Parkinson's patients?

Ron Barrett

All right. So we are starting this Phase 1 study by the end of the year. This is not a long study. We would anticipate that we will see the results in the first half. We are still finalizing our plans with regard to what the first study looks like in Parkinson disease patients. So I do not want to provide any guidance on when that will start or when it will complete. As we get closer to understanding what the Phase 1 data looks like and what the protocol will be for initial proof of concept with 279 will give some additional granularities.

Boris Peaker- Cowen &Company

Okay. Great. Another question on 986. I was wondering if you could comment on the enrollment of the trial and specifically if we could expect the top line results in early '09 or would it be later in the year?

Ron Barrett

You talking about spasticity or GERD?

Boris Peaker- Cowen &Company

Yes. I am talking spasticity. Yes.

Ron Barrett

Okay. Now we are not giving any update other than to say that our efforts to enhance enrollment have led to better enrollment than we were sitting here last quarter. The only early guidance at this point is the first half of 2009.

Boris Peaker- Cowen &Company

Right. Are there any compounds, new compounds that we could expect in the clinic in '09?

Ron Barrett

We do not comment on things that are preclinical, so at this point we are not commenting.

Boris Peaker- Cowen &Company

All right. Great. Thanks.

Operator

(Operator Instructions) Your next question is from Lucy Lu with Citi.

Lucy Lu - Citigroup

Right. Thank you. Can you please comment on your cash needs for the next 12 months to the best if you can?

Ron Barrett

I will let Bill answer that.

Bill Harris

Lucy, as you know, our practice is to provide annual cash burn guidance to many of you each year, and then we do not update it. So the guidance just to remind you that we put out at the beginning of the year was net cash-burn guidance between $55 million and $65 million for 2008. So with a beginning balance of about $160 million that anticipated an ending cash balance of approximately $100 million.

Lucy Lu - Citi

Okay. Then the other question that I have is just thinking about going forward. Given baclofen's profile, they have a safety database. Do you think you need to generate for an indication such as GERD, if you were to go into Phase 3?

Ron Barrett

Sure. Well, we have had preliminary discussion of that issue with the FDA in our pre-IND meeting. This is a chronic indication and so the guidance that we have gotten so far and then we will have to meet the ICH guidelines for chronically administered drugs, which is 1500 total patients, 300 for six months, so 100 for a year.

Lucy Lu - Citi

Okay. Ron, I just wanted to better understand that R-baclofen obviously is one of the three isomers and am I sure we are looking at baclofen label right now on the company's website. Is that is the optimum dosage 40 to 80 milligram daily, that is the current dosage. By giving someone in the GERD study up to 60 milligram of R-baclofen, I am just wondering is that like doubling the usual dose or no?

Ron Barrett

We are dosing up to 60 milligrams of 986 which is the Prodrug, which has roughly twice the molecular weight of baclofen itself. So, 60 milligrams of 986 has the potential to deliver about 30 milligram of the R-isomer of baclofen. 60 milligrams of racemic baclofen delivers 30 milligram of R-baclofen. So, not by design but just by chance on a milligram basis, racemic baclofen and 986 have the potential to deliver about an equimolar amount of R-baclofen.

Lucy Lu - Citi

That is very helpful. Thank you.

Ron Barrett

You are welcome.

Operator

Your next question is a follow up from Katherine Xu with Credit Suisse.

Katherine Xu - Credit Suisse

Just very curiously with regard to the 96 study in GERD, so you have a QD in the morning right?

Ron Barrett

That is correct.

Katherine Xu - Credit Suisse

Yes. So, I was just curious QD in the morning versus QD in the afternoon with dinner from PK prospective will one have any advantage over the other? The reason why I am asking is that baclofen potentially causes some tremulous and then is it helpful to have it at night?

Ron Barrett

Well, I indicated from our experience so far with 986 that the doses that we are using in GERD, we do not see any adverse events that differ from what we are seeing with placebo in our healthy subject study. So, 986 has been very well tolerated to-date. With regard to the efficacy question one of the advantages and we have shown the PK data on this particular formulation of 986, as you can dose it in the morning and it maintains blood levels for 24 hours.

So, if we are above the threshold that is required for efficacy and below any potential threshold for side effects, we think that once a day in the morning will be fine. I will remind you that postprandial symptoms are very common in patients. So, most patients eat during the day and they experience their symptoms associated with meal. So, we want to be sure we have the drug on board during the day. That all said, one of the arms in this study is 30 milligrams twice a day and it may turnout that maintaining the blood levels very flat throughout the entire 24 hours may provide some advantage and that was the purpose of including that dose in this study.

Katherine Xu - Credit Suisse

Right. Thank you.

Ron Barrett

You are welcome.

Operator

There are no further questions at this time.

Ron Barrett

Okay. Well thank you very much for joining us this afternoon and as always if you have further questions please give us a call at 408-616-7220 and thank you for participating in the call and have a great day.

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