Feb 18, 2010
Executives
Pamela Murphy – VP, IR/Corporate Communications Paul Friedman – President and CEO Dave Hastings – EVP and CFO Rich Levy – EVP, Chief Drug Development & Medical Officer
Analysts
Tom Russo – Robert W. Baird Rachel McMinn – Bank of America/Merrill Lynch Thomas Wei – Jefferies & Co.
Liisa Bayko – JMP Securities Ziad Bakri – Cowen Group, Inc. Alex To [ph] – Cross Research
Operator
Greetings, ladies and gentlemen, and welcome to the Incyte Corporation fourth quarter and year end 2009 financial results. At this time all participants are in a listen-only mode.
A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Ms. Pamela Murphy, Vice President of Investor Relations and Communications.
Thank you, Ms. Murphy.
You may now begin.
Pamela Murphy
Thanks, good morning. On the call today, are Paul Friedman, Incyte’s President and Chief Executive Officer; David Hastings, Executive Vice President, Chief Financial Officer; Rich Levy, Executive Vice President, Chief Drug Development and Medical Officer; and Pat Andrews, Executive Vice President and Chief Commercial Officer.
To begin, Paul will provide a brief overview of our lead programs and Dave will follow with a discussion of fourth quarter and year end financial results and 2010 financial guidance. We will then open up the call for Q&A.
Before beginning we would like to remind you that some of the statements made during the call today including statements regarding our plans and expectations for our drug development program, including the timing of our clinical trials, regulatory submissions and the potential safety and efficacy of our compound as well as our expected financial results and guidance are forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties that may cause our actual results to differ material including those described in our Form 10-Q for the quarter ended September 30th 2009 and from time to time in our SEC documents.
Paul?
Paul Friedman
Good morning, everyone. The fourth quarter was exceptionally productive for us.
By year-end we’d achieved all of our 2009 corporate goals, including the initiation of a global Phase III registration program for Incyte 18424 for Myelofibrosis with a U.S. study being conducted under an SPA.
The completion of a successful corporate financing and the establishment of two major alliances with top-tier pharmaceutical firms for our lead JAK1/JAK2 inhibitor programs as well as our c-MET program. Dave Hastings will describe our financial position in detail.
Because we were successful in raising over $500 million in new senior convertible notes and equity and in securing $300 million in upfront payments and milestones from our recent collaborations, we are in a very strong position from a cash perspective. The alliances with Novartis and Lilly also achieved what we wanted in terms of product rights.
In the collaboration with Novartis, we kept the U.S. rights to oral Incyte 18424 for all hematology-oncology indications, while Novartis has the ex-U.S.
rights. Now given the prior success Novartis has achieved in bringing multiple novel oncology products to market, we believe that 424 fits excellently into their hematology-oncology portfolio.
And importantly, for 424, we have a shared vision to develop it in multiple indications. I will come back to that in a moment.
In the Lilly collaboration, Lilly has worldwide rights for oral 28050 for inflammation. The major factor in our decision to go with Lilly was our right to co-develop 28050.
If we elect to do so, we would be responsible for funding 30% of the clinical development costs for that specific indication, for example, rheumatoid arthritis, beginning with Phase IIb through regulatory approval and the royalty rate range would increase to 20%, up to the high-20%s. Given the size of the commercial opportunity that we see with 28050 in RA alone this increase in the royalty rate dramatically expands our financial upside, especially when you compare it with a straight licensing agreement.
With respect to recent clinical developments and our 2010 objectives, I’m going to begin with the lead clinical program, Incyte 18424 for Myelofibrosis. The European Phase III trial, COMFORT-II, which began about two months before the U.S.
trial is fully enrolled and includes over 200 patients. It’s a 48-week trial expected to complete late this year.
Novartis is in the process of taking over COMFORT-II and will also have responsibility for the MAA filing, which they anticipate will occur in the second half of 2011. COMFORT-I, which is the U.S.
Phase III trial, is expected to be fully enrolled before the end of the quarter. Our goal is to present the data at ASH in December and submit the NDA in early 2011.
I want to now briefly review for you the three 424 presentations that were made at ASH this last December. First, Dr.
Verstovsek presented results from the ongoing Phase II trial in patients with Myelofibrosis, which showed that 424 continues to provide mark and previously unachievable clinical benefits in this patient population. These benefits occur regardless of whether a patient harbors a JAK2 activating mutation.
In the second presentation, he presented highly encouraging results from a Phase II trial in patients with advanced Polycythemia-Vera, PV and essential thrombocythemia also for short ET, who were either intolerant or refractory to Hydroxyurea. In the trial, there were 34 PV and 39 ET patients.
We saw normalization of hematologic parameters in the PV patients. All of the phlebotomy dependent patients, about 75% of the PV patients, became phlebotomy independent.
We also saw rapid and marked decreases in spleen size and significant reduction in symptoms. Similar changes were noted in the ET patients and 424 was well tolerated by the patient groups.
Given the strength of these results we are currently working with FDA to determine requirements for approval, first, in PV. Once we’ve obtained input from the FDA and provided the European Medicines Agency, the EMA, who concurs with these requirements, the next step to be design one global registration trial to gain approval in the U.S.
and in Europe. However, if it turned out that the EMA and the FDA could not agree on a single trial, requirements for a single trial, then most likely two registration trials would be performed to achieve approval in both regions.
In either case the objective is to begin registration trials in PV later this year. The third ASH presentation describe results from an investigator sponsored IND evaluating 424 as monotherapy in patients with relapsed or refractory Leukemia.
The study looked at 23 subjects and despite their highly refractory conditions six achieved stable disease. There was one complete remission and one partial response.
The positive clinical results we’ve seen with 424 along with the growing body of evidence indicating that JAK activation likely plays an important role in a number of hematologic malignancies suggests that a JAK1/JAK2 inhibitor may well have potential in multiple cancers. Therefore, an important 2010 objective for the joint development committee that we’ve established with Novartis is to determine the next most appropriate cancers to evaluate.
In the interim, we are proceeding with a new program we announced last quarter involving children with hematologic malignancies or relapsed or refractory solid tumors. This study evolves from a request made by the Children’s Oncology Group, the COG Group and they will be responsible for conducting this trial.
We believe they will be ready to start screening patients sometime this summer. Now, for our second oral JAK1/JAK2 inhibitor, Incyte 28050 now partnered with Lilly, we completed enrolment for the Phase II dose ranging trial in December.
The trial includes 127 RA patients who had an inadequate response to their DMARD treatment. For the first three months of the trial, patients were randomized to receive one of three 050 doses, 4 mgs, 7 mgs, or 10 mgs once a day.
At the end of three months all eligible placebo patients crossed over to either 7 mgs or 10 mgs once a day of 050. The primary endpoints for the study are safety and the per cent of patients achieving ACR20 at three months.
The key secondary end points are the per cent of patients achieving ACR50 and 70 scores at three months and the per cent of patients who achieve ACR20, 50, and 70 at six months. We intend to release top line results for the three month portion in the second quarter and present the full six month data at ACR in November.
Moving now to topical 424, we announced positive top line results from the three-month Phase II trial in psoriasis back in September, and as planned we submitted an abstract to the Society for Investigative Dermatology. If accepted this means we present the full results from that Phase IIb study at their annual meeting in May.
Early this year, we began speaking with companies who expressed interest in partnering in topical 424. Through these discussions we expect to determine whether a partner for this program makes sense or whether we should advance to Phase III by ourselves.
Regarding our earlier stage oncology programs, we presented Phase II results at the San Antonio Breast Cancer Meeting in December, suggesting that the combination of the sheddase inhibitor, Incyte 7839 with Herceptin-based regimens, may offer a new therapeutic approach in breast cancer patients, in particular, those who are P95 positive. We will need to discuss this with the FDA but if the results in the P95 patients are confirmed with additional data from the ongoing clinical trial, then I believe that comparative clinical trials of modest size would be sufficient to demonstrate improvements in progression-free survival in this population, who are known have poor response to current HER2 directed treatment regimens.
Now, our oral c-MET inhibitor, Incyte 28060, now licensed to Novartis is in a dose ranging Phase I/II trial in patients with solid tumors. We are conducting that, it began in January.
Once the study is completed, Novartis would be responsible for future studies. For our indoleamine-2, 3-dioxygenase or IDO inhibitor, that’s Incyte 24360, we intend to initiate a Phase I/II trial also in patients with solid tumors later this year.
Multiple reports suggest that the immuno regulatory enzyme IDO is important for immune evasion by tumors and has been associated with poor clinical outcome when present in high amounts in tumors and with decreased overall survival. We believe inhibition of this enzyme may provide a unique method to treat malignancies, either alone or in combination with chemotherapeutics or other immune-based therapies.
Now, lastly we also expect to file a new IND for another oncology target, which I will describe once we’re ready to begin clinical trials, probably, late this year or very early next year. To conclude, while we remain committed to progressing and growing our pipeline in oncology and inflammation, 2010 marks an important transition year for us as we prepare for potential commercial launch of 424 in Myelofibrosis.
Building and investing appropriately in marketing and medical affairs to ensure a rapid and successful launch of our first product is one of our highest priorities. We have a core marketing team in place and while we have already completed extensive market research on the treatment of Myelofibrosis and understand what needs to be done for a careful launch, there is a lot to accomplish this year including, but not limited to, brand development, finalization of the generic and brand names, plus additional relationship building with KOLs, leading cancer centers and patient advocacy groups, additional marketing research efforts and other such preparations.
I will now turn the call over to Dave to describe to you our financial situation.
Dave Hastings
Thanks, Paul, and good morning, everybody. I will begin by reviewing our fourth quarter results and then I will provide financial guidance for 2010.
Our fourth quarter operating results and net loss were generally in line with our expectations. After excluding the following items, both of which we discussed at last quarter’s call.
First, we decreased the original carrying value of our 4.75% convertible senior notes by $148 million to reflect an embedded derivative liability. On November 24th, our shareholders approved an increase in authorized common shares at which time we had the mark-to-market the value of this derivative liability.
As a result, we recorded a one-time, non-cash charge of $34.3 million or $0.29 per share in the fourth quarter. Second, we incurred a non-cash expense of $4.7 million or $0.04 per share related to the amortization of the $148 million discount on the 4.75% notes.
And this discount will amortize over the life of the notes. Additionally, our fourth quarter selling, general, and administrative expense included transaction and advisory and legal costs related to the completion of the Novartis and Lilly collaborations.
These one-time costs were largely offset by the contract revenue recorded as a result of amortizing the upfront and initial milestone amounts related to these partnerships. Our year-end cash position was $474 million, excluding $56 million of restricted cash escrowed for the first three years of interest payment on our 4.75% notes.
And importantly, in January, we received another $150 million from our collaborations with Novartis and Lilly. Our cash burn in 2009 was $133 million, which included the legal and transaction fees related to our partnerships, but excluded the following items Net proceeds from our equity and senior convertible notes offerings, repurchases of a portion of our 3.5% convertible senior and subordinated notes, the funding of the escrow account for three years of interest on our 4.75% notes, and the upfront payment received from Novartis.
Now, moving to our 2010 financial guidance, we expect our cash use in 2010 to range from $165 million to $175 million. Importantly, this use of cash does not reflect any potential milestones from our partners.
While I can’t be specific about the timing or amounts, our net use of cash in 2010 could be lower depending on the timing of potential collaboration milestones. Excluded from this guidance are any amounts used to redeem our outstanding 3.5% convertible senior and subordinated notes, on January 28th we announced that we will redeem on February 22nd all of these notes, which currently total approximately $176 million.
Also excluded from our cash use guidance is $19 million in interest payments on the 4.75% notes which will be made out of the escrow account we established last year. Included in our 2010 cash use of $7 million for net lease related costs for the Company’s closed California facility.
2010 will be the final year where we will have material costs related to these facilities as our leases expire end of this year and at the end of the first quarter 2011. Before moving to our operating line item guidance, I would say that broadly speaking, our increased cash use in 2010 is driven by investments in highly strategic areas, such as our significant investment in the clinical development of 424 in Myelofibrosis and PV and ET.
Pre-product launch activities for 424 both in manufacturing validation and marketing and the Phase II development of 28050 in RA. Now, moving to our detailed guidance, we expect revenue to range from $66 million to $68 million in 2010.
$66 million of this relates to the amortization of the Novartis and Lilly upfront and milestone payments. We are recognizing the upfront payments received from Novartis and Lilly as revenue on a straight line basis over four years and seven years respectively.
Again, our revenue guidance does not reflect any potential future milestone payments we could receive from these collaborations, which we would recognize as revenue immediately upon achievement. Our research and development expense is expected to range from $138 million to $145 million.
This includes a non-cash expense of $10 million to $12 million related to the impact of expense in share-based payments, including employee stock options. As I previously mentioned, our R&D investment is higher than last year as we continue to shift the preponderance of investment into clinical development.
In fact, out of total R&D clinical related costs now represent about 2/3rds of the expense. Because of this progress our clinical development head count is increasing, primarily to support the JAK programs, which continue to represent the vast majority of our program costs.
Our selling, general, and administrative expense is expected to range from $40 million to $45 million, including a non-cash expense of $6 million to $7 million related to the impact of expense in share-based payments, including employee stock options. The increase in SG&A from 2009 is solely due to our increased investment in the marketing function as we enter into pre-launch activities related to 424 in Myelofibrosis that Paul previously mentioned.
Our interest income is expected to range from $0.5 million to $1 million as we continue to invest our excess cash conservatively and yields continue to be extremely low. Our interest expense is expected to be approximately $44 million including a non-cash expense of $23.5 million, related primarily to the amortization of the discount on the 4.75% notes.
Finally, we expect a non-cash charge of up to $5.1 million related to the pending redemption of the 3.5% convertible senior and subordinated notes. So in conclusion I am confident we’re well-positioned from a financial perspective to support both our pipeline and pre-commercialization activities.
Even with these investments, based on our current plans we have enough cash to carry us through the launch of 424 in Myelofibrosis and transition Incyte into a successful commercial company. With that I will turn the call back to Paul.
Paul Friedman
Thanks, Dave. Operator, I’d appreciate it if you could now open the call for questions.
Operator
Tom Russo – Robert W. Baird
Hi, good morning, thanks for taking the question. Can you give any comment at this point on the regulatory discussions for 424 in PV and ET?
Maybe what you expect the design to look like. And also the decision to start with PV is that based more on the market opportunity that you see or you believe that there would be different regulatory requirements in those two areas?
Paul Friedman
Tom, we’re really not in a position yet to talk about most of the questions that you asked. The one that I can address is the last one and that is whether or not there would be for advanced ET or advanced PV patients same regulatory requirements is something we’ll find out.
If they are, then we would, I think take on ET sooner than we’re currently planning to, which by the way is not that much delayed from PV. It’s just with PV there is well-documented shortening of life expectancy and a higher conversion from that disease description of both to Myelofibrosis and they can go straight to leukemic transformation.
And with ET, while it happens, the data is much less convincing that there is any shortening in life expectancy. And we just thought that the hurdle would be lower this first time around to segregate our discussions to PV and then in parallel feel out the agency as to their receptivity to the ET patients.
In fact, the group of patients that we studied or are studying in the Phase II are people who are advanced with the ET diagnosis. Many of them do have spleens and they have constitutional symptoms and they are not either responding or they are intolerant to Hydroxyurea and they have high counts.
So, they still would benefit from the drug. It’s just that we thought it would be prudent to isolate the initial discussions to PV.
And so that’s our game plan. The other things, where we’re with the discussions, things are moving along, but I found the last time that we probably were a little too open publicly with where we were with respect to discussions on MF and it ended up painting us into a corner to a degree.
And I just don’t want to do that again. So, we need a couple more months.
Maybe by the next time, we convene for one of these talks we’ll be in a position where we can give you significant information on your first questions.
Tom Russo – Robert W. Baird
Okay, and then two other quick ones. Is it your intent at this time to pursue an SPA for that?
And also what data should we expect in 2010 from the ongoing Phase II trial in those two settings? Thanks.
Paul Friedman
I’d say the vast majority of the times for these kinds of indications it would be better off if you could secure an SPA. Is it absolutely written in stone that’s how we would do it, no, but if we can negotiate an SPA that’s how we’ll do it.
I would let Rich answer about where the study will be this year and what kind of information will be revealed about it.
Rich Levy
Sure. We don’t have any data from new study.
The prior study, the patients who were enrolled and we presented on at ASH, they’d be the same patient population, but those patients are continuing. So the earliest that we might present an update on those patients would likely be ASH of 2010.
Tom Russo – Robert W. Baird
Okay, thanks very much.
Operator
Thank you. Our next question is coming from Rachel McMinn of Bank of America/Merrill Lynch.
Rachel McMinn – Bank of America/Merrill Lynch
Yes, thanks very much. I wanted to dig into the cash use guidance a little bit more.
Can you give us a sense of what are the moving pieces here? In other words, I know that you’re excluding any potential milestones from Lilly, but if 050 is successful, is that already built into your R&D guidance or would that be something that you would contemplate later in the year and same with the Phase III for topical 424?
I’m just trying to understand the moving pieces.
Dave Hastings
Yes, I think it’s logical to assume that as our programs progress is the partnered ones that we would be eligible to receive milestones. In terms of the 050 program, we did build into the development budget, the initiation of an IIb study, in the second half of the year, so that’s in the guidance.
Again, that would be logical area where we would, as the program progresses you would expect to receive milestones for. The 424 topical program, as Paul mentioned, we’re looking at the appropriate studies to do there as well as talking to potential partners.
Rachel McMinn – Bank of America/Merrill Lynch
So, is it fair to assume that your R&D guidance doesn’t really bake in a Phase III start at this point?
Dave Hastings
Yes, that would be fair.
Rachel McMinn – Bank of America/Merrill Lynch
Okay. And then just one quick question, I know we don’t actually have a lot of detailed data on the inflam program partnered with Lilly 050, but just wondering if you can make any broad comments about cholesterol elevation with this class of drugs and I guess, how treatable you think this side effect with the JAK2 inhibitors is going to be with statins or just other standard therapy?
Thanks.
Paul Friedman
So mechanistically, you would expect HDL and LDL to go up in kind. I think that’s an important point to remember when we start to talk about the lipid profiles, so that, that ratio in the vast majority of people doesn’t change, ergo cardiovascular risk profile shouldn’t change.
And in the much smaller group of people, who would for reasons that aren’t completely understood, have a bit more of an LDL elevation than they have of an HDL elevation, if that is a significant change that what I think will be a very small subset of patients may have to be put on a statin and there is no reason to think that the statin would not control and bring their LDL back down to acceptable ranges.
Rachel McMinn – Bank of America/Merrill Lynch
Okay, thanks very much.
Operator
Thank you. Our next question is coming from Thomas Wei of Jefferies & Co.
Thomas Wei – Jefferies & Co
Thanks. I just wanted to ask a couple questions here on PV and ET and then on the expenses.
Just trying to understand exactly, how this strategy is going to work. So you are probably going to start an SPA negotiation process with the FDA for PV, complete that and then take that SPA to the EMA or Novartis is going to take that SPA to the EMA, to see whether or not they accept that design.
And so, presumably as part of this you are talking about a single global trial that would need to be at least 48 weeks long in duration?
Paul Friedman
That’s not inaccurate. That’s probably a sequence that makes sense, yes.
We already are interacting with the FDA. The way you stated it is like we will.
We are. And then Novartis would get their scientific advice from EMA and then we would start hopefully.
Thomas Wei – Jefferies & Co
So does that mean that if for some reason there isn’t agreement between the two agencies, you would be locked into a 48-week trial design with the FDA, because that’s what you’re initially proposing here as part of the SPA?
Paul Friedman
I think it’s going to be hard with PV to do a six-month study. We may have end points, key end point at six months, but I doubt we’d be able to file without 48-week data.
Thomas Wei – Jefferies & Co
That’s very helpful. And then just looking at the guidance for the amortization of the upfront payments it looks like, we’re backing into this correctly, that you’re assuming 4.5 years for both sets of upfront payment to be amortized.
That’d be through mid-2014. So, the Lilly one kind of makes sense given our estimate for the time line for approval in RA, but I’m trying to understand a little bit better the 424 milestone through mid-2014, if that refers to PV and ET approval, I guess, I’m not exactly sure, why it would take so long to be approved in Europe in those two indications?
Dave Hastings
So, just to clarify on Lilly, as I mentioned it’s actually a seven-year amortization period. And then as you mentioned Thomas, for the Novartis revenue, it is four years which would take it out to the end of '13.
The accounting is driven by the Incyte involvement and mainly tied to the time in the clinical trials, which is consistent with an approval in Europe for PV and ET.
Thomas Wei – Jefferies & Co
Okay. And then lastly –
Dave Hastings
(inaudible).
Thomas Wei – Jefferies & Co
Okay. And there is no mention during the prepared comments, unless I missed it on the HSD1 inhibitor.
Paul Friedman
As we’ve said, we’re not planning to on our own do further studies there. We have, in parallel, with our now ongoing discussions with companies on the topical program; we are also talking to people about partnership structures for HSD1.
Thomas Wei – Jefferies & Co
Thanks.
Paul Friedman
So we really didn’t have anything new to add there. Maybe we should have put a sentence into the prepared remarks.
Operator
Liisa Bayko – JMP Securities
Hi, good morning. Just a follow-up to Rachel’s question.
In terms of the cholesterol elevation, mechanistically, when might you expect to see any changes there? And with the three-month study, the data that’s forthcoming, would that be enough time to either describe better any potential for cholesterol elevation with 050?
Paul Friedman
Yes, I think in three months we should see it and I’m sure we’re going to see it because we believe it’s an IL-6 based phenomenon although the mechanism is not crystal clear, if you look at Actemra, which does nothing but block the IL-6 pathway, they’ve seen. And so we do expect to see increases in HDL and LDL.
And if you go back and look at the Pfizer data and look at the Actemra data and look at the ratio of those two lipids, the mean ratios are pretty much same as they were at baseline, and it’s harder looking at their data to piece out individual patients, because they are pooled data. But if you look at enough of the lipid data, there are occasional patients, who bump their LDL more than the increase they get with HDL, and to me those would be people who you might want to put on a statin.
In fact, if you did put such an individual on a statin and I’m not saying it’s a great thing to have to go on another drug, but those people actually may end up with a better ratio at the end of the day, because of their HDL elevations. But, the majority of people don’t change the ratio in a significant way.
And I think we will see indications of that at three months.
Liisa Bayko – JMP Securities
Great, that’s helpful, thank you. And then just moving to the efficacy for 050, can you maybe describe a little bit to us what kind of efficacy you are expecting to see and what would get you excited to want to make the further commitment to be involved in co-development of that program?
Paul Friedman
Liisa Bayko – JMP Securities
Okay, thanks, I will hop back in the queue.
Operator
Ziad Bakri – Cowen Group, Inc
Thanks for taking the question. First question was just on psoriasis.
Am I right in saying that if you don’t get the right deal term for the topical program that you’ll move forward in a Phase III alone? And if so, could you give us some indication of maybe what the timelines and the number of patients designed, etc., might look like for study in psoriasis?
Paul Friedman
We haven’t designed that study yet. There are a number of ways we could move forward.
One would be to go directly into a Phase III study. The other would be to look at in relatively short-term studies and relatively small studies special subset of patients.
For example, patients who cannot be treated topically with steroids and a significant number of psoriatics have this. They either have facial psoriasis and/or intertriginous areas, especially the genitals, where you can’t use steroids.
We’ve talked about looking at that group before going into Phase III. The Phase III studies, I can tell you that they are straight forward studies.
They are less expensive than typical Phase III, for example, for RA or in a cardiovascular indication and we certainly could do them. I can’t give you a time line yet or how we’ll actually evolve the program.
The whole point of talking to people, who have lived in this area for years, which make up a significant portion of the companies we’re talking to, is to get feedback that will help us craft the best path forward. So I don’t mean to be evasive, it’s just that we haven’t formulated the path forward yet.
Ziad Bakri – Cowen Group, Inc
Okay, thanks. And then just on the sheddase inhibitor, in terms of the design of that trial, if you were to do a study, it would be in the P95 positive subset.
Could you give us an indication of what proportion of HER2 positive patients or P95 positive? And would it be your expectation to move into a Phase IIb first or straight into a Phase III?
Paul Friedman
We think about 40% to 45% of HER2 positives are P95 positive, that’s what the data suggests. And we have to talk to the FDA, but our intent would be to go into a registration trial.
Rich Levy
Perhaps with an adaptive design.
Paul Friedman
Perhaps with an adaptive design, right.
Ziad Bakri – Cowen Group, Inc.
Okay, perfect, thanks very much.
Operator
.
Alex To – Cross Research
Hi, on the 050 trial, you mentioned after three months you’re going to switch the placebo group, cross-over to the 10 mg, am I correct? Why –
Paul Friedman
7 mg or 10 mg; I think it’s like a re-randomization. Half the people will get 7 mg, half will get 10 mg.
Alex To – Cross Research
Okay, that was my question about was wondering why you picked 10 mg, so there is two doses. So there is a re-randomization processes in the ways that the second part of the trial will still be double blinded or?
Paul Friedman
No.
Alex To – Cross Research
Okay. So –
Paul Friedman
Go ahead, Rich.
Rich Levy
Second part of the trial is still double blinded. It’s just that everyone knows they are not receiving the placebo.
Alex To – Cross Research
Okay. Earlier in the call, I think somebody mentioned, there might be a Phase IIb, so what would be the Phase IIb for a six-month straight double blinded on the dose you’ve chosen to go into registration or –?
Paul Friedman
That’s a study that we have to agree to with Lilly. Lilly will have the final call on that.
I think they probably want to see the Phase IIa results before committing to a Phase IIb study design.
Alex To – Cross Research
Okay. But, in other words, if this study is fantastically successful, you have a clear dose response curve for 7 mg and 10 mg and you have a six-month randomized results, why couldn’t you just directly go to a Phase III, because most of the RA Phase IIb design is they are basically the six-month trial.
Paul Friedman
I’ll let Rich expand on this. We’ve had that discussion internally.
If it would be possible to do that and the regulatory agencies would agree to it, why wouldn’t we? It’s a study with 127 people and probably only 60 people will be at doses that would be studied, if you had to guess in a Phase III.
That’s not a very much of a safety database for six months to jump into a large Phase III trial, but it is food for thought, I just think it’s an unlikely path forward, but I’d let Rich comment further.
Rich Levy
We just haven’t seen this division of FDA allow anybody to go from, as Paul said, 127 patient study to Phase III, which is generally over 2,000 patients plus there are additional things that can be learned about different sub-patient populations, different combinations, for example, we’ve only looked at patients, who are already on a DMARD. You may want to explore some other things and see if a dose response is the same, so, there’s a number of things you can do within the Phase IIb other than simply repeating the experiment that you’ve just done in larger numbers of patients.
But, it’s not completely out of the question if the results were so clear cut.
Alex To – Cross Research
Great, thank you.
Operator
Paul Friedman
Thank you all for joining us this morning. We certainly appreciated your support last year and turned out to be an extremely productive year for us.
We fully expect to maintain that level of productivity this year and we look forward to keeping you informed of our progress. And with that, operator, thank you and let’s end the call.
Operator
Thank you. This concludes today’s teleconference.
You may disconnect your lines at this time. Thank you all for your participation.