XOMA - NASDAQ

Ashleigh Barreto - Head of Investor Relations John Varian - Chief Executive Office Paul Rubin - Senior Vice President, Research and Development and Chief Medical Officer Frederick Kurland - Vice President, Finance, Chief Financial Officer and Secretary

Ted Tenthoff - Piper Jaffray Yatin Suneja - Cowen & Company Jason Kantor - Credit Suisse Adnan Butt - RBC Capital Markets Phil Nadeau - Cowen & Company Matt Kaplan - Ladenburg Thalmann George

Good day, ladies and gentlemen, and welcome to the XOMA Corporation's third quarter 2014 financial results conference. (Operator Instructions) I would now like to introduce your host for today's conference, Ms. Ashleigh Barreto, Investor Relations at XOMA. You may begin.

Thank you, operator, and good afternoon, everyone. Joining us on the call today are John Varian, Chief Executive Officer; Paul Rubin, Senior Vice President, Research and Development and Chief Medical Officer; and Fred Kurland, Vice President, Finance and Chief Financial Officer. Before we begin, I'd like to remind everyone that this conference call will contain forward-looking statements about the company. These statements are subject to risks and uncertainties that could cause actual results to differ. Please note that these forward-looking statements reflect our opinions only as of the date of this call. We will undertake no obligation to revise or publicly release results of any revisions to these forward-looking statements in light of new information or future events. Factors that could cause our actual results or outcomes to differ materially from those expressed in or implied by such forward-looking statements are discussed in greater detail in our most recent filings on Form 10-K or other SEC filings. I'd now like to turn the call over to Fred.

Thank you, Ashleigh, and good afternoon, everyone. We appreciate you joining us today. We continue to focus our resources on advancing our gevokizumab clinical development programs. The majority of our effort is allocated towards the EYEGUARD Phase 3 program, which now has four Phase 3 trials enrolling patients, and the newly launched gevokizumab Phase 3 program for pyoderma gangrenosum. All of our actions are designed to ensure we achieve our goal of seeing XOMA become a commercial operation, selling products to the specialist prescriber in the United States. So let's turn our attention to the financial results. For the three months ended September 30, 2014, we recorded total revenues of $5.1 million compared to $6.3 million during the corresponding period of 2013. Reimbursements from our cost sharing collaboration with Servier are booked as revenues and is the primary driver of the $1.2 million decrease in revenue. Under our agreement, Servier paid the first $50 million of all non-infectious uveitis development cost, after which all costs are shared equally between the two partners. We reached that $50 million spending level during the third quarter of 2013. Since that time, each partner has incurred non-infectious uveitis costs that are approximately equal to each other, resulting in a reduction in the reimbursement from Servier. Our third quarter 2014 research and development expenses were $20.2 million compared to $18.2 million in the corresponding 2013 period. The increase reflects higher clinical trial costs associated with XOMA's gevokizumab clinical development programs and increased personnel costs, including an increase in stock-based compensation, partially offset by decreases in spending in external manufacturing related to the timing of activities performed and preclinical development. Our selling, general and administrative expenses were $5.4 million and $5.2 million for the 2014 and 2013 quarters, respectively. The increase reflects an increase in stock-based compensation. For the third quarter ended September 30, 2014, XOMA had a net loss of $14.4 million, which included a $5.7 million gain in the non-cash revaluation of contingent warrant liabilities. Excluding the revaluation, our net loss for the third quarter would have been $20.1 million. In the quarter ended quarter September 30, 2013, we had a net loss of $29.6 million, including an $11.1 million charge in non-cash revaluations of contingent warrant liabilities. Without the revaluation, the 2013 third quarter net loss would have been $18.5 million. At September 30, 2014 we had cash, cash equivalents and short-term investments of $59.1 million compared to $121.6 million at December 31, 2013. Our third quarter cash burn was on target with our internal expectations and we are on target with our full year guidance of an operating burn of $55 million to $60 million for the full year. The guidance assumes license and contract related revenues to be received prior to yearend. I'll turn the call over to John for an overview of our operational highlights for the quarter. John?

Thank you, Fred. I'd like to thank everyone for joining us today. Throughout 2014 we've taken steps toward driving toward our goal of transforming XOMA into a commercial organization that markets its products to the specialist prescriber in the U.S. In addition to our ongoing Phase 3 studies in Behçet's uveitis and the broader non-infectious uveitis patient populations, earlier this week we announced the launch of our second Phase 3 clinical program in patients with pyoderma gangrenosum. This is a rare disease of painful expanding necrotic skin ulcers. We know many of you anxiously await the results from Servier's Phase 3 EYEGUARD-B study in patients with Behçet's uveitis. We too look forward to these results from the specific patient population, as gevokizumab has generated consistently positive data in both Servier's and our Phase 2 studies. As we said, we will announce when the final exacerbation in Servier study occurs. This event will allow Servier to unmask the data, which we should be able to report to you about six weeks later. As I have said in the past, this is finger of God stuff. We cannot control when the final exacerbation will occur. We believe we're nearing the goal line, but we're not there yet. As we've said though, we are not waiting. We continue to move forward with the activities that will allow us to pursue Behçet's disease uveitis as our first BLA submission for gevokizumab. Specifically, we are preparing analyses of the previously generated gevokizumab Phase 2 data in Behçet's uveitis patients, such that it can be supportive of the EYEGUARD-B pivotal study. We also initiated the supplemental EYEGUARD-U.S. study in September. Paul and I will discuss the study design and potential role for you today. Once we have the EYEGUARD-B data results in hand, assuming of course that they are positive, we will take the steps to request a pre-BLA meeting with FDA. Today, we'd like to provide more clarity about the EYEGUARD-B study and Servier's progress with it. In May, we reported that Servier had informed that 75% of the number of pre-set targeted exacerbations that allow the unmasking of the data had occurred, and that Servier predicted the final event would happen in June. I have asked Paul to spend a good portion of his comments today discussing our detailed learnings since we spoke with you last. Our learnings are encouraging to our ultimate goal and should give you a good understanding of how we got from where we were back in May to where we are today. We're getting closer to having the data, but as I said, we're not waiting. Our entire team is running flat-out to create additional opportunities for success. We lost our supplemental EYEGUARD-U.S. study in patients with Behçet's disease uveitis in September, specifically because it has the potential to be rate limiting to the BLA submission. This is an important study for us, as we believe its design gives us the flexibility to meet potential additional needs FDA has to review a XOMA sponsored BLA for gevokizumab for the treatment of Behçet's disease uveitis. Since our last call with you, I have dedicated a couple of weeks traveling to EYEGUARD clinical sites and meeting with the study investigators. I have met with almost all of our initially targeted 10 investigators, who will be participating in the EYEGUARD-U.S. study. Most of these are high enrollers in EYEGUARD-A and C. I plan to meet the remaining few in the very near future. These clinicians are committed to furthering gevokizumab's development. I have enjoyed getting to know them personally and learning more about the true clinical relevance our compound may have for patients with Behçet's disease uveitis and NIU here in the U.S. What I've learnt is that they view Behçet's uveitis patients differently than their standard non-infectious uveitis patients. They are even more aggressive in getting and keeping them under control. This difference was even more broadly acknowledged in a March recommendation by an expert panel of the American Uveitis Society and published by the American Academy of Ophthalmology, which recommended anti-TNF biologics as first line therapy for Behçet's uveitis patients, despite not being a label claim. In contrast, the recommendation for the broader NIU population was for biologics as a potential second line therapy. The clinicians I met with need and want safer and more effective therapies for Behçet's uveitis than the steroids and immunosuppressants they have available to them today. I heard loud and clear that the EYEGUARD-U.S. design feature that allows a transfer of controlled patients to gevokizumab without forcing an exacerbation was crucial to their willingness to put their Behçet's patients into the study. I also heard loud and clear that having a biologic with a label for Behçet's disease uveitis would greatly reduce the battle they currently wage to get their patients treatment reimburse with an off-label biologic. When you spend time with these leading clinicians, you also learn anecdotal things that help you appreciate the patient perspective. I learned of a 20-year old man, who was joined by his parents in a visit to a uveitis specialist due to vision issues. The specific some of the vision problems caused the specialist to ask about other Behçet's symptoms, such as ulcers in the mount and genital area. These corollary systems led to the Behçet's disease diagnosis. This poor young man feared he acquired an STD, but the questions led to a different answer, which could now be appropriately addressed. These investigators I met with have identified patients for inclusion in EYEGUARD-U.S., and we hope they can enroll them as quickly as possible. As a reminder, we estimate there about 5,000 to 7,500 Behçet's disease uveitis patients in the U.S. An important aspect of the study design, the clinicians really like, is the fact that patients have to respond to gevokizumab, either by controlling an acute exacerbation or maintaining a control state before they're actually randomized into the study. We designed the trial in this manner, based on the positive results from our Phase 2 trials, where patients consistently responded to gevokizumab treatment in a very rapid fashion. Based on these results we hope to see a rapid separation between the two arms. We've chosen a Behçet's disease uveitis first strategies specifically because it allows us to take our fate into our own hands, once we have the EYEGUARD-B data from Servier. If we can gain approval in Behçet's disease uveitis, we believe we only need a positive result from either EYEGUARD-A or EYEGUARD-C to seek the broader, but still orphan indication of non-infectious uveitis. The EYEGUARD-A and C trials are progressing, although enrollment in these studies continue to be slower than either Servier or we anticipated when we launched them. We are enrolling patients at an increasing pace, which is encouraging, but the pace doesn't compel us to revise our Behçet's uveitis BLA first plans. What we haven't seen so far is the bolus that we hope for from the five countries, Argentina, Armenia, Brazil, Mexico and Turkey. As we've said, these five were projected to provide 125 patients between the two studies. Getting sites in these countries open has helped increase the overall pace, but a slower hope for opening up centers within these countries has caused their impact to be gradual rather than immediate. Success in either of these studies could support our desire to address the broader NIU patient population. This is also an exciting time for us, since we've launched the pivotal program for gevokizumab on our second indication, pyoderma gangrenosum. It was only a year ago, on this quarterly call, that we disclosed the data we generate in the pilot study of gevokizumab in a small number of patients suffering from pyoderma gangrenosum. Earlier this week, only a year later, we opened the first of two planned Phase 3 studies for patient enrollment. This one with centers exclusively in the U.S. Now, that the first study is open for enrollment our clinical and regulatory teams are working to open the second study, which will include several countries outside of the U.S. in addition to U.S. centers. This is a painful and disfiguring disease. I can only imagine how difficult it is to experience one little or multiple PG ulcers or have the chronic form of the disease. We are extremely hopeful that patients in our Phase 3 trials receive similar results to those we saw on our pilot study. Gevokizumab has the potential to offer patients and their physicians the first compound approved specifically for pyoderma gangrenosum. If we are successful, we believe gevokizumab will have a positive impact on these patient lives. Both Behçet's disease uveitis and pyoderma gangrenosum offer the potential to pursue BLA submissions for very rare indications in patient populations in need of new therapeutic options. Drug development is never as clear cut as one expects or hopes. There are many, many variables and dynamics that change rapidly and must be factored into your decision making. You have to have confidence that you will succeed in the end. We are moving gevokizumab in the right direction and we're working hard to ensure we have the multiple opportunities to succeed. With that, I'll turn the call over to Paul to review our recent clinical developments. Paul?

Thanks, John, and good afternoon, everyone. As John said, over the last few months, we spend a great deal of time with our friends at Servier to be sure we understand the status of EYEGUARD-B. They have predicted that the final targeted exacerbation would occur in June. This prediction was based on the fact that approximately 75% of the targeted number have occurred by early May, and the rate of exacerbations appear to be occurring at a fairly predictable rate. Now, four months later, we still await the final exacerbations to occur. We think it's important to convey to you what we've learned and why we are encouraged by our learnings. Let me start by reminding you of what an exacerbation is, as defined in the protocol. An ocular exacerbation is any one of the following in either eye: a 2-unit worsening in vitreous haze score using the SUN scale; a greater than or equal to 15 letter decrease in best corrected visual acuity; an emergence of retinal infiltrates or acute retinal vasculitis. These criteria defining an exacerbation were determined in conjunction with multiple experts and regulatory disease, and each represents a relative decrement in the status of Behçet's disease uveitis. Another important reminder is that this is a steroid tapering study. Patients are randomized only when they are receiving 20 milligrams of prednisone or its equivalent. They are tapered to 5 milligrams using the JAB standardized procedure on a very specific schedule over an approximately three month period. Thus, this tapering schedule is identical for every randomized patient. What we're looking for, our exacerbations, as I just defined, during a very exact steroid tapering process. The predetermined number of targeted exacerbations as defined by the protocol are these specific exacerbations, which I'll refer to in my comments as per protocol exacerbations. The study was sized and powered, based on the number of these exacerbations that the statisticians at Servier and XOMA determined or required to show a statistically significant difference between gevokizumab in placebo treated patients. You may recall that in sizing the study, we also assumed a hazard ratio of 0.3. Basically, three exacerbations are predicted to happen in the placebo treated patient group for every one in the gevokizumab treated group over a specific length of time. While this assumption was necessary to size the study, the primary endpoint is the difference in time to first exacerbation has interpolated from Kaplan-Meier curve, documenting the number of exacerbations in each treatment group as a function of time. The primary endpoint will be calculated from data acquired from all randomized patients. However, patients who are rescued without meeting strict definition of exacerbation or dropout for other reasons will be censored at the time of their rescue or discontinuation. Patients can be rescued based on investigator judgment, even though they did not demonstrate the find exacerbation criteria per the protocol. It is very possible they may still require rescue due to lack of drug effect. Because of this, sensitivity analyses are built into the analysis plan and will be performed to provide additional clarity around potential benefit due to receiving gevokizumab. Now, why is this important? The most frequent reason that patients are censored is because the physician, rescue them by either increasing their steroids or by not decreasing their steroid as dictated in the pre-set tapering schedule or by introducing additional immunosuppressive therapies. In many of the cases, this would occur because their ocular symptoms worsened. These patients would be rescued without meeting the definition of a per-protocol exacerbation. The additional sensitivity analysis will allow us to capture any differences in this important group between gevokizumab and placebo-treated patients. Because of this, while the studies primary endpoint was powered based on a predetermined number of per-protocol exacerbations, rescues unrelated to exacerbations occur and are important to analyze in order to appropriately evaluate drug effect. While the rescue shouldn't be considered per-protocol, they can be inflammatory in nature and maybe effective by active treatment. Full analysis will allow all these events, all that we feed into the determination for the potential benefit of gevokizumab in patients with uveitis is secondary to Behçet's disease. There was another impact from this distinction between medically validated exacerbations and per-protocol exacerbations. As Servier got closer to the targeted number of exacerbations, they appropriately began the process of pre-cleaning the masked data. This process has occurred during the times, since they reported to us and we reported to you that 75% of the targeted exacerbations had occurred. What has happened over the past few months is that the number of previously identified medically validated exacerbations have been reclassified as rescues prior to or without exacerbations. In each of these cases, additional monitoring show that the physician did not follow the steroid tapering schedule and that they increased or did not reduced the steroid levels strictly as defined in the protocol. Over these past few months, the number of subjects' reclassified due to this data scrub is almost like identical to the newly occurred per-protocol exacerbations. Monitoring of the per-protocol exacerbations currently reported to us is complete, so that none of the existing count should be lost, as we await for the final ones to occur. Again, while these loss per-protocol exacerbations were removed from the race to the target, they were medically validated exacerbations, in spite the non-protocol steroid tweaking. Again, they directly impact the primary endpoint calculation and even more so, the sensitivity analyses. Servier has been very diligent on following these patients and ensuring their data is appropriately cleaned and verified for the eventual efficacy analysis. We are also procuring ourselves by working closely with them to understand patient status. Another factor that is both frustrating as well as encouraging is that the rate of exacerbations began slowing this summer. It is encouraging to see that there are still a significant number of ongoing patients in the trial, who have not experienced an exacerbation or have been rescued early. Many of them have been in the trial for over six months without issues, long after the steroid tapering has been completed. We've also seen the high percentage that exacerbate fairly soon after randomization. And we are completely masked as whether these earlier exacerbating patients, rescued or controlled patients are in drug or placebo, so nothing can really be read into this distribution. If you remember XOMA's small Phase 2 study in Turkey, we saw that five of the seven patients were treated once with gevokizumab exacerbated approximately four to seven weeks after a single treatment gevokizumab, a time were plasma concentrations were drifting towards zero. Now, in order to address the slowing pace of exacerbations, Servier has continued it's enrollment in EYEGUARD-B, in spite of the fact that it hit target enrollment in the second quarter of this year. Since a high percentage of patients exacerbated in the early months, we can expect a sizeable portion of these newly enrolled patients to exacerbate fairly soon. So we can achieve the per-protocol exacerbations target. We remain very hopeful that these masked results are in encouraging indication of the potential of gevokizumab in this disease and we eagerly await the opportunity to review these data in an unmasked fashion in the near future. Now, I know this was a long and complicated explanation, but we believe it was important to articulate the underlying facts, as we work toward this important goal. Now, let me review the EYEGUARD-U.S. study and then I'll provide a little more color on pyoderma gangrenosum pivotal study designs. I will also tell you about XOMA 358, the lead compound in our XMetD program, which began clinical development in October. Now, you'll recall we designed the EYEGUARD-U.S. study as a supplemental study to support our Behçet's disease uveitis first strategy in the U.S. It is a randomized, double-masked, placebo-controlled withdrawal trial that is designed to enroll up to 28 patients or 14 per treatment group. We will be enrolling patients' whose uveitis is currently controlled or has been brought under-control by gevokizumab. Patients who present with active disease will receive gevokizumab, and if 28 days later their exacerbation has been brought under control, they will be eligible for enrollment in the randomized-withdrawal portion of the study. In addition to these patients with active disease, patients who present who are under control by other therapies will be switched to gevokizumab. These patients will be screened 28 days after receiving gevokizumab and if they show continued inactivity of disease, they too will be eligible for enrollment in the randomized portion of the study. Once patients are documented to be stable on gevokizumab, they will be randomized to receive 60 milligrams of gevokizumab dose subcutaneously, once monthly, or a matching placebo-control. The primary endpoint is the time it takes a patient to exacerbate after randomization. Patients will be stratified based upon maintenance therapy and screening, and the occurrence of at least one ocular exacerbation within 12 months of screening. Now, as John stated, the physicians who treat patients with Behçet's disease uveitis are excited about the study and gevokizumab's potential to treat their patients who are in need of a new treatment option. We hope to see that excitement reflected in the speed, in which they can enroll patients in EYEGUARD-U.S., particularly as the participating investigators are recognized for their leadership positions in treating this very rare ophthalmic disease. Now, we've talked a lot about the Phase 3 program for pyoderma gangrenosum in the past couple of calls. So I'll just touch on it briefly. One of the two studies will be conduced only in the United States. This study is now open for patient enrollment. The other study will have clinical sites in both the U.S. and several other countries. Each study will enroll 58 patients who will be randomized one-to-one to receive 60 milligrams of gevokizumab or placebo dose subcutaneously once monthly. The primary endpoint is complete healing of the target ulcer at day 126, with confirmation of complete healing two weeks later. We will be capturing multiple secondary endpoints including time to ulcer closure and changes in pain measurements. Over the past few months, I've been meeting with non-U.S. investigators who have confirmed the medical need outside of the United States and their excitement to participate in our trial. We are completing the necessary steps to launch the second study. Now, let me turn to XOMA Metabolic or XMet program, which targets the insulin receptor. This program is also the product of our own discovery efforts. Insulin is the primary hormone for lowering blood glucose levels. XMetA is designed to activate the insulin receptor and XMetS to sensitize the insulin receptor when in an insulin resistant state. Now, we intent to license XMetA and XMetS to a partner or partners, as the scope of development and commercialization for compounds in diabetes mellitus are outside of our focus on small indications treated by the specialist physician. Our preclinical work on XMetA is nearly complete, and has allowed potential corporate partnering efforts to begin. Our preclinical work on XMetS is ongoing and nearing key inflection points. We expect that both potential products will be acquired by a company or companies with expertise in the development and commercialization of compounds for Types I and II diabetes. Now, on the other side, abnormal increases in insulin secretion can lead to profound hypoglycemia or low blood sugar, a state that may result in significant morbidities including cerebral damage and epilepsy and can result in fatality. XOMA 358, the lead compound from our XMetD program is a fully human monoclonal allosteric modulating antibody that binds to insulin receptors and attenuates insulin action. We designed the compound to negatively modulate the insulin receptor and its downstream signaling capabilities. Essentially, increasing and normalizing blood levels in patients who are hyperinsulinemic. In October, we announced we had launched clinical development of XOMA 358, and that the first volunteer had been dosed. This Phase 1 study is exploring the safety and tolerability of a single intravenous dose of XOMA 358 in healthy volunteers. The study will also explore the biologic effects of ascending single IV doses of XOMA 358 on glucose and insulin level, as well as insulin sensitivity. Both of these markers are intended to confirm relevant biologic effect as well as and in foremost as to the appropriate doses for Phase 2 trials. Our approach to the XMetD program is similar to a large pharma company approach. We have discovered multiple compounds with different characteristics. The multifaceted array of antibody fragments could be adapted to the many forms of hyperinsulinemic hypoglycemia or replace initial leads should different potency or kinetic characteristics be desired. This should allow this program to progress at a rapid and continuous pace. We will learn a great deal from this XOMA 358 Phase 1 study and I'm excited to explore the potential of the program. Based on XOMA 358's characteristics and those of all the compounds in XMetD program, we are investigating it as a novel treatment for non-drug-induced, endogenous hyperinsulinemic hypoglycemia or low blood sugar caused by excessive insulin produced by the body. We believe a therapy that can safely and effectively mitigate insulin induced hypoglycemia has the potential to address a significant unmet therapeutic need for certain rare medical conditions associated with hyperinsulinism, including congenital hyperinsulinism, a series of genetic disorders causing an inability to control insulin levels and insulinoma, a tumor of the insulin producing cells in the pancreas. These diseases have severe consequences and novel therapies clearly are needed. I'll now turn the call back to John for closing remarks.

Thanks, Paul. I'd like to share a piece of good news from Servier. The EMA granted gevokizumab orphan drug designation in Schnitzler Syndrome, a disease characterized by long-term hives, abnormal amounts of certain proteins in the blood, recurrent fever, bone and joint pain and swollen lymph nodes. It's a long-term debilitating and life threatening disease that may lead to complications including severe anemia, AA amyloidosis and disorders where white blood cells are produced in excessive amount. The disease usually appears during adulthood and affects approximately a 1,000 people in the EU. Schnitzler is one of several indications Servier is studying in its independent proof-of-concept program. They also have proof-of-concept studies ongoing in polymyositis, dermatomyositis and giant cell arteritis. A full Phase 2 cardiovascular study is also underway. Their commitment to gevokizumab is strong. They have said, it is their only completely new NCE or biologic in Phase 3 testing and it is important to their future success. We await the EYEGUARD-B Behçet's disease uveitis Phase 3 trial to hit the targeted number of exacerbations that allow Servier to unmask the primary endpoint. Hopefully, Paul's comments conveyed how crucial it is to gain as many protocol exacerbations and rescues as possible in this study, allowing the time and events to hopefully separate the placebo, and gevokizumab-treated arms can only strengthen the final result, if gevokizumab is in fact helping these patients. We must remain mature and remember that what matters most is the ultimate trial result. We believe that to this goal, time really is on our side. But we are not waiting, our Behçet's first strategy allows us to have more control over our fate and we are aggressively acting to pull all the things in place necessary to ensure that if the EYEGUARD-B study results are positive, they can lead us to a successful BLA submission. Our team is also doing everything possible to drive enrollment in EYEGUARD-A and C and to allow access to the broader NIU population as quickly as possible. Our launch of the pivotal study of gevokizumab and pyoderma gangrenosum opens a potential new therapeutic area for gevokizumab. In the past 12 months, we've taken steps to drive XOMA closer to transforming into commercial organization that markets products to the U.S. specialist prescriber. Our success in commercializing gevokizumab in any of these indications will support the development of the exciting compounds that are in our pipeline like XOMA 358, the first of many discovered and developed in XOMA's lab. We have taken control of our destiny and we're now executing on our strategy. Thanks for joining us. And I'll now open up the call to questions.

(Operator Instructions) Our first question comes from the line of Ted Tenthoff of Piper Jaffray.

I appreciate the update and looking forward to hearing more on the exacerbation in EYEGUARD-B. I guess, just looking at PG, you guys probably know more about these patients at this point than anyone out there. How quickly do you think this could enroll? How many patients are these centers currently seeing? How should we be thinking along those lines?

It's really difficult when they ask, because the study like this has never been done before. So we're trying to obviously pre-scheme centers that we look in their databases to make sure they see appropriate numbers. Now, these patients, obviously it's not huge numbers, but many of our investigators see anywhere up to a half of dozen of these patients a year and in total we're looking to have about 60 centers worldwide enrolling. But to give you more specific answers, we really need some history before we can answer that at this point in time.

I was just going to say, Ted, what's interesting is if we just listen to what we hear we give you a really rosy answer, but the problem is, is as we learn, physicians are always very positive about how many patients they have and that's everything until the rubber really hits the road and you really start seeing enrollment, it's harder to judge. So we're just trying to be careful as to how we communicate that.

And the other side unlike uveitis, as far as we know there are no competing trials. So any patients coming to these centers, the doctors don't have to decide, which trial to put them into.

One quick question for Fred, if I may. I probably should know this, but at this point, what is it that does go into the contract in the other line? Is that mostly stuff from Servier or what's going into that line now?

It's really two items, Ted. It's our ongoing bio-defense business, which is series of contracts with arms of the National Institutes of Health, as well as the reimbursements from Servier. And as I mentioned earlier, the primary reimbursement is when there is a period of time in which we spend more money than they do on non-infectious uveitis, it just turns out that lately since last year when they hit the $50 million mark that they were fully funding, our spending has turned out to be more or less equal to each other, so the amount of reimbursement is lower than it had been in the past.

So I think the sensitivity analysis that Paul talked about is probably the most important one. So maybe we could talk about that a little bit, but then in addition to that Paul, some of the other secondary endpoints.

At least for understanding the difference between placebo and active that sensitivity analysis becomes important because, as I hope to explain that we had a defined exacerbation, but there are inflammatory-related events that could have been treated by the drug and that will better help us understand. But in addition to looking at time to exacerbation, we're also looking at numbers of exacerbation over a longer period of time. So in fact, if the patients even after they exacerbate, they continue to unblind the therapy. And we could then quantitate the number of exacerbations they have throughout a one year period. So we're hoping that not only do we show a longer time to first exacerbation, but we see fewer exacerbations over the course of the year, because that also would be very important for uptake of this drug. I think those are probably the two main events I would look.

And our next question comes from the line of Jason Kantor of Credit Suisse.

I guess I have two big questions. One, did you design this trial correctly given how the doctors are choosing to essentially break protocol in order to I assume provide the patients with appropriate treatment. It would seem that that's a design flaw? Maybe you can comment on that? And second, now that you know in some detail, what the exacerbation rate is? And you also understand that you had this headwind of reclassifications, which is now gone. You really ought to know or be able to estimate or provide some sort of guidance as to when you would hit those exacerbations at this point, now that you've worked through all of those unknown. So my question is why are you not providing us with guidance on that, now that you've worked through what seems to be a whole lot of information?

Let me answer your first question. It's absolutely not the wrong design. The definition of exacerbation is defined by regulatories agencies and experts, so we absolutely have to use their criteria, and that's what's considered to be relevant. And this is in all studies of severe disease. It's absolutely within ethical guidelines to allow them to treat patients when they feel they must. So to have designed it any other way would have been unethical. And importantly both types of events do get captured, when it comes to how the results were analyzed.

And, Jason, your point on, when we can estimate, when it can be done? That's a completely fair statement. At the same, we could wait and I'm not saying that's happening today, but we could wait for the very last one to happen and it could take a day, it could take a week, it could take a month. So you can predict a rate and we see a rate, Servier had a good prediction on rate, but you know what, if patients stay under control for a longer period of time, than they expect it and you hope they're on drug, well then that happens, right. So, yes, we can predict it, but you know what, the last event is going to happen when the last event happens. And so when it does, we'll tell you that it's happened. And again, the longer the study runs, if there has been a separation between the drug-treated group and the placebo-treated group, the longer the study runs and we should end up with a better separation between the groups. So we don't know the results, but the longer the study runs, the more powerful our separation should look.

Well, the more statistical power you have.

So in terms of events, are you basically where you were in May in that? I think I hared you say that the number of new events has basically been directly offset by reclassification of events.

We didn't say that. But what we can say is that, any events that we had lost have been made up. And I cannot be more specific than that today.

Can you give me an example of how you might analyze the data to capture? Let's come up with a scenario where you don't hit your endpoint, for example, or where you're very close or either just making and are just missing it, and you've got this huge amount of data, which is patients who were rescued separately. How does get included in an analysis and how might FDA look at that?

What FDA does in all studies is all patients that have discontinued therapy, they will assume as if they have failed, and that's essentially the sensitivity analysis. So in this instance, even though they might not have met per-protocol definition of exacerbation, the sensitivity analysis will include all patients as if they exacerbated in their sensitivity analysis, which is commonly done. Now, in this instance, what we're seeing is that patients are rescued even though they didn't meet strict criteria, because of what appears to be inflammatory events. Things like they might have had a change that didn't quite meet the actual standard or they had macular edema, which is inflammatory event, but not part of the definition. They might have had symptoms of Behçet's disease that are not related to the eye. For example, mouth ulcers or genital ulcers that also might have flared because of lack of effective therapy. So when those get put back into the sensitivity analysis that will be captured.

I guess I'm just struggling with, is this something that other people have seen running these trials? I don't understand why these flares and treatment changes, when they're captured in the primary endpoint.

This is pretty much yet in terms of Behçet's uveitis control trials. That's control trials. I don't think there has been any other control trails that I am aware of that are done. So again, we try to design this as best we can, knowing the natural history from both literature and from asking experts.

Well, that's why I go back to the -- is it right design because their endpoint doesn't have to be that endpoint. It could be a different endpoint.

Yes, fair enough. But believe me, this was not -- the decision to design this trial was not taken lightly. It was discussed with probably every expert in Behçet's uveitis in the world as well as both FDA and EMA. So considering all the constraints on what you can remember, this is a very serious disease and you can't be on active disease, for example, cannot be on placebo for protracted periods of time.

I understand that. But when people look at this result with all these experts sit around and look at this trial and the way it played out, will they held this as the right way to run trials in Behçet's or will they look back at it and say, well, we probably should have included up steroid doses in exacerbation or some other way of looking at it, some other composite based on the fact you're getting so many people not dropping out as a result.

I'm not sure it's so many. I think it's probably more than predicted. But again, the initial predictions were based on best assumptions going forward. And as we go through the study we're evaluating what even those assumption should be.

But I mean, Jason, the point is these per-protocol exacerbations are the most strict definition of what an exacerbation could be. And that's what it needs to be, as it should be. And we're also capturing any of those potential inflammatory events underneath, so we'll have all the data. In fact, the one that's combined and you can almost think it was an intent to treat. But the definition that was required for this study, be the most strict of does your drug separate from placebo, is the most strict example or definition that you could have. And that's what it should be in this study.

And we always have this discussion, do you want to liberalize criteria to expedite the trial. And yes, you could increase enrollment and expedite the trial, but then you lose power. So you don't gain anything by doing what you suggest.

I am just saying that there should be -- ideally you run the study and the vast majority of patients make it to an endpoint I guess would be, which seems to have -- well, anyway, we'll wait and see that data.

That's how the question will be answered when the study is complete.

And our next question comes from the line of Adnan Butt of RBC Capital Markets.

So sort of a follow-up based upon your experience with Behçet's, what are your thoughts on the trial design for Behçet's U.S., is that embedded by the FDA as well, and what's the best estimate for timeline in therapies?

Again, the design itself has actually been seen by FDA and it's completely acceptable from a regulatory perspective. It's a little different and that this is a withdrawal design, and again its something that I think was doable in the United States. This design was floated by EMA and EMA has some issues with it, just again from an ethical perspective. So we think it's a really good design and it's accepted by FDA. It allows us to enroll as many patients as we possibly can. The timing again, it's really hard for us to predict, because it's never have been done in the United States before. So we can't look at previous Behçet's studies in the U.S. and say, this is how long it takes to enroll, because it just has never been done before.

Yes. It's important to reiterate, though we did it on the last call, but I'll say quickly here. This study design is incredibly flexible. And so the study design for EYEGUARD-U.S., it is set up in a way that, if we do not need the study results at all to have the FDA be able to review our BLA submission, we can just generate the data and be part of what we learned about the drug. If FDA says, look, we want to see interim results from that study, we'll have the interim results at whatever state-of-the-art, we'll be able to provide to them. And then we also designed it such, that if it needs to be a pivotal study, which we do not believe there is president, and would say that for this kind of an indication, with this patient population and the severity of the disease, that we should needed it as a second pivotal study, but if we do, it's doable that way too. So it's a very flexible study that can we think meet any demand that the FDA would put on us around that study. And we wanted to get it started in September, again in an answer to your question, because we wanted to have the most time possible to take it as far as we can, as we get that feedback from FDA.

I guess, the question was also asking, if there is any safeguards built into this protocol to kind of circumvent with the EYEGUARD-B challenges?

Well, this is a randomized-withdrawal.

Well, yes, as John said before, this trial allows patients who either have active disease or are controlled to enter the trial. So that already expands the potential universe of patients that could be enrolled. We're also allowing patients to have been treated or be on other therapies at the time they go into the screening portion of the trial, which also increases the universe of where we can go for it. And we're not waiting for them necessarily to come down to a specific level of steroid, and they don't have to be on steroid at all to be in this trial. So again, I think what we tried to do knowing that we have a smaller number in the United States of Behçet's in general is to expand the entry characteristics to enhance the probability of enrolling in the trial.

And there is one other subtle difference. I don't want to go too deeply into it, because it's little bit much disclosure. But at the point in time that these patients are randomized, they've already been tapered on steroids pretty significantly to the point where if that's steroid tapering schedule going forward won't be part of the mix for the physicians.

Will confound the ultimate affect.

Yes. They are being done. Although, the fluorescein angiography is not the primary endpoint, but we are doing fluorescein angiography, both in this study as well as in the NIU trials and OCTs as well are being performed.

And our next question comes from the line of Matt Kaplan of Ladenburg Thalmann.

Just to be clear, and just a follow-up with one more question on Jason entail, with respect to that study. It sounds like based on what you're saying, the study will be successful in giving us an answer one way or another. It's not going to be a null study in terms of not being able to interpret the results from what you're saying?

Well, obviously, that's what we're hoping. And to enhance the probability, it actually is giving us an answer. That's why we're going to make sure that we get the requisite number of events to occur before we break the masking and do the analysis.

So you don't think it's going to be just a study that fails to turn out an answer.

I don't think we'll see an equivocal result because of lack of patients.

Yes. Really, again time being on our side, I'm trying to be mature about these things, the ultimate result is what matters, right. And so by the time we get to the end, we will have a very high percentage of the patients who either have per-protocol exacerbations or who have been rescued, so the amount of data we're generating, and again the powering of the study or the impact on the endpoint from that amount of data should be very beneficial. So we're doing everything we can, to let this thing run, let the events happen, so we can hopefully see a separation between drug and placebo-treated patients.

And just to shift gears a little bit in terms of EYEGUARD-A and C. Now, the enrollment has been delayed in those for some time. What's your sense in terms of, can you give us a metric in terms of the number of sites that are up and running right now x U.S. and been able to add a different regions to those study to actually execute on the enrollment on the study.

Yes. So what we're seeing, Matt, is that the Servier; so in the U.S. all the sites have been open for, as you know, a long time. And the pace in U.S. is extremely steady and very predictable. And so in the U.S., we kind of know what we've got, right. The biggest variable, of course, is the non-U.S. All those key countries that we were so excited about getting up and getting the bolus from that Servier worked on those countries are open, but about half the sites in those countries are open as opposed to all of those sites, and actively screening, and so they're open, but actively screening. So now we're starting to see a pick up from Servier, but until we see a steady pace of that pick up, we don't want to get to too much more exact about predicting, but I do feel like we've got countries opened, sites getting opened, and we're starting to see a pick up, but until we see it for a little while longer, I don't want to get to specific on predicting, but we're seeing encouraging signs, at the same time it doesn't divert us from this Behçet's first strategy that we've chosen, but we're seeing encouraging signs in NIU, but not long enough and strong enough for us to be more specific than we have been.

And just a question for Fred. With obviously the expansion in timeline and you are ramping up in your R&D spend with launching of the PG studies and additional studies as well here on Behçet's U.S. study. Can you give us a sense in terms of your anticipated cash burn going forward, and especially leading into 2015? Can you give us a sense of the cash runway that you currently have on that?

It's about 12 months, Matt.

You have 12 months of cash right now?

Yes.

And our final question will come from the line of George

Well, the way the studies are designed, there is only one study. Well, it can come up in any study, where the endpoint is, there will always be sensitivity analyses done in the patients that, that stop dosing without hitting the endpoint. So it is possible. But remember the EYEGUARD-A is a completely different design, that's a responder analysis, as oppose to an exacerbation analysis. And the EYEGUARD-C is also not tying two exacerbations, but it's the number of exacerbations, because there is a higher number and we have power to do that. So it's a little different endpoint.

Yes. And I think you heard in our comments around how physician see Behçet's uveitis and non-infectious uveitis that they treat the Behçet's uveitis patients even more aggressively than they do their non-infectious uveitis patients. And so it's hard to blame a physician who may see somebody's vitreous haze go up 1 or 1.5, and they're supposed to reduce the steroid to say, you know what I don't really want to do that, particularly with this Behçet's uveitis patients, right. So it's hard to criticize that as appropriate action.

In fact, there is a recent paper on Behçet's uveitis out of Japan, and they had a lot of natural history data and the mildest patients exacerbate four times a year. And some new patients exacerbate up to 10 times a year.

And at this time, I am showing there are no further questions in the queue. I would like to turn the call over to John Varian for any closing remarks.

Thanks, everyone. We've taken a lot of your timetable. We really appreciate your interest and you joining us here today. As you can tell, we've got a lot going on and we've got some really big things in front of us. It's a really exciting time. And I do know that our team is up to the task in hands. So again, thanks for joining us.