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Edited Transcript of SYN earnings conference call or presentation 4-Nov-19 9:30pm GMT

Q3 2019 Synthetic Biologics Inc Earnings Call

ANN ARBOR Nov 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Synthetic Biologics Inc earnings conference call or presentation Monday, November 4, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Steven A. Shallcross

Synthetic Biologics, Inc. - CEO, CFO, Treasurer, Corporate Secretary & Director

* Vince Wacher

Synthetic Biologics, Inc. - Head of Product and Corporate Development

* Vincent I. Perrone

Synthetic Biologics, Inc. - Director of Corporate Communication

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Conference Call Participants

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* James Francis Molloy

Alliance Global Partners, Research Division - MD of Equity Research and Biotechnology & Specialty Pharmaceuticals Equity Research Analyst

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Presentation

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Operator [1]

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Good afternoon, and welcome to Synthetic Biologics' 2019 Third Quarter Investor Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now -- at this time, I would like to turn the call over to Vincent Perrone, Director, Corporate Communications at Synthetic Biologics. Please go ahead, Vincent.

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Vincent I. Perrone, Synthetic Biologics, Inc. - Director of Corporate Communication [2]

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Thanks, Amy, and good afternoon, everyone. Welcome to Synthetic Biologics 2019 Third Quarter Investor Conference call. Today, I'm joined by our Chief Executive and Financial Officer, Steven Shallcross; Dr. Michael Kaleko, SVP of Research and Development; and Dr. Vince Wacher, Head of Product and Corporate Development.

Synthetic Biologics issued a press release this afternoon, which provided operational highlights and reported our financial results for the quarter ending September 30, 2019. The release can be found on the Investor Relations section of our website.

During our call today, we'll provide an operational update on our GI and microbiome-focused clinical programs and summarize our financial results. We'll take questions after prepared remarks.

In addition to the phone line, this call is being streamed live via a webcast, which will be archived on our website, www.syntheticbiologics.com, for 90 days. During this call, we will be making forward-looking statements regarding Synthetic Biologics' current expectations and projections about future events. Generally, the forward-looking statements can be identified by terminology such as may, should, expects, anticipates, intends, plans, believes, estimates and similar expressions. These statements are based upon current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties, including those set forth in Synthetic Biologics' filings with the SEC, many of which are difficult to predict. No forward-looking statements can be guaranteed, and actual results may differ materially from such statements.

The information on this call is provided only as of the date of this call, and Synthetic Biologics undertakes no obligation to update any forward-looking statements contained on this conference call on account of new information, future events or otherwise, except as required by law.

With that said, I'd like to turn the call over to Steve. Steve?

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Steven A. Shallcross, Synthetic Biologics, Inc. - CEO, CFO, Treasurer, Corporate Secretary & Director [3]

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Thanks, Vincent. Good afternoon, everyone, and thank you for joining our 2019 third quarter investor conference call. Today, I'll be providing a brief update on our portfolio of GI and microbiome-focused clinical programs, which leverage the gut microbiome to improve patient incomes, and then I'll share our financial results for the period ending September 30, 2019.

During the third quarter, we continue to focus on the execution of our strategic initiatives as we advanced our portfolio of clinical programs targeting critical and unmet need in the prevention of life-threatening GI and microbiome-related disorders. A particular note, first, we announced a clinical trial collaboration with the Washington University School of Medicine to conduct a Phase I/II clinical trial SYN-004, or ribaxamase, in up to 36 adult allogeneic hematopoietic cell transplantation recipients.

Second, the enrollment remains ongoing in our Phase IIb investigator-sponsored clinical trial, SYN-010, which is being conducted by the Medically Associated Science and Technology Program at Cedars-Sinai Medical Center, the study's sponsor.

And finally, we continue our work on pre-IND-enabling toxicology and manufacturing studies in order to support an IND submission during the first quarter of 2020 for our SYN-020 program.

Importantly, these initiatives and other activities were conducted under our continued sharp focus on prudent cash management and financial stewardship, which has enabled us to further extend our cash runway through at least the end of next year, that's December 2020.

With that backdrop, I'd like to share more detailed updates on our product portfolio, starting with our SYN-004 or ribaxamase program. SYN-004 is our first-in-class therapeutic intervention designed to protect the gut microbiome from antibiotic-mediated dysbiosis. It is designed to be taken in conjunction with certain IV beta-lactam antibiotics, and its novel mechanism of action is designed to degrade residual antibiotic excreted into the GI tract before it can disrupt the natural balance of the gut microbiome.

It has been well-established that the prolonged use of antibiotics significantly increases the risk of developing gastrointestinal infections like CDI as well as the emergence and spread of antimicrobial resistance genes. Protection of the gut microbiome may also play a pivotal role in improving health outcomes for patients who administered long courses of IV antibiotics as part of their treatment plan for bone marrow and whole organ transplantations.

We've previously outlined potential approaches for regulatory pathway through which we could advance ribaxamase in a focused specialized patient population, where prevention of the gut -- or preservation of the gut microbiome is an established factor in positive clinical outcomes. During the third quarter, we were very excited to announce that we entered into a clinical trial agreement with the Washington University School of Medicine in St. Louis to conduct a Phase I/II clinical trial of ribaxamase in adult allogeneic hematopoietic cell transplantation, commonly called bone marrow transplantation.

The announcement of this clinical trial agreement is an important step for the development of ribaxamase in a narrower, more focused patient population, which may add to the already well-established clinical data set for our SYN-004 program. When co-administered with current standard of therapies, SYN-004 has the potential to significantly improve outcomes for patients who undergo allogeneic HCT. Specifically, allogeneic HCT recipients routinely receive long courses of IV beta-lactam antibiotics to treat neutropenic fever, which occurs in 80% to 90% of these patients. Damage to the gut microbiome caused by IV beta-lactam antibiotics is also strongly associated with a number of potentially fatal adverse outcomes in allogeneic HCT recipients, most notably acute graft-versus-host-disease or aGVHD, VRE colonization/bacteremia and CDI. The high incidents and severe outcomes of aGVHD, VRE and CDI brings into sharp focus the futility and toll of waiting to treat these problems until they arise. The message is very, very clear. Prevention is absolutely critical.

The proposed Phase I/II study will be conducted by Washington University and comprise a single-center, randomized, double-blinded, placebo-controlled clinical trial in up to 36 adult allogeneic HCT recipients. Under the terms of this agreement, Synthetic Biologics will serve as the sponsor of the study and will supply SYN-004 to Washington University.

Dr. Eric Dubberke, Professor of Medicine and Clinical Director of Transplant Infectious Diseases at Washington University and a member of our SYN-004 Steering Committee, will serve as the principal investigator of the trial in collaboration with his Washington University Colleague, Mark Schroeder -- Dr. Mark Schroeder, Associate Professor of Medicine of the Division of Oncology, Bone Marrow Transplantation and Leukemia.

The goal of the study is to evaluate the safety, tolerability and pharmacokinetics of 150-milligram oral SYN-004 administered to allogeneic HCT recipients who receive an IV beta-lactam antibiotic to treat fever. Participants will be enrolled into 3 sequential cohorts that will be administered a different study-assigned IV beta-lactam antibiotic. Eight participants in each cohort will receive SYN-004 and 4 will receive placebo. Safety and pharmacokinetic data for each cohort will be reviewed by an independent Data and Safety Monitoring Committee, which will make a recommendation on whether to proceed to the next IV beta-lactam antibiotic.

The purpose of the study will be -- will also be to evaluate potential protective effects of SYN-004 on the gut microbiome as well as generate preliminary information on potential therapeutic benefits and patient outcomes of SYN-004 and allogeneic HCT recipients.

Looking ahead, we plan on meeting with the FDA during the fourth quarter to take part in a Type C meeting, during which we intend to solidify the clinical protocol parameters for this trial. Enrollment is expected to begin during the first quarter of 2020, contingent upon agreement with the FDA and approval of the clinical study protocol by the Washington University School of Medicine's Institutional Review Board. We are thrilled about this collaboration with the esteemed team at Washington University and look forward to updating you on our progress.

Switching gears now, I'd like to provide a brief update on our SYN-010 program. Unlike currently approved and marketed therapies for IBS-C, which provide temporary relief to patients by targeting the symptoms of the disease often at the cost of significant adverse side effects, SYN-010 is designed to target and treat an underlying cause of the disease.

A growing body of clinical evidence continues to support the theory that excess methane production in the GI tract caused by the organism M. smithii may be a primary causative factor of IBS-C. SYN-010's unique mechanism of action is intended to target M. smithii and inhibit its ability to produce excessive amounts of methane without eradicating the microorganism from the GI tract. This is intended to treat the cause of the IBS-C symptoms without the negative side effects of diarrhea and nausea, which are often associated with over-the-counter prescription therapies. SYN-010 is designed to be a chronic treatment and intended to normalize bowel movements over time and importantly, reduce the abdominal pain and bloating often experienced as a result of this disease state.

Last year, we announced the expansion of our relationship with Cedars-Sinai Medical Center in the form of an agreement to co-fund an investigator-sponsored Phase IIb clinical study to further evaluate the efficacy and safety of SYN-010. This study is being led and conducted by the distinguished team of the Medically Associated Science and Technology, MAST, Program at Cedars-Sinai and is a 12-week randomized placebo-controlled trial evaluating 2 dose strengths of SYN-010 in patients diagnosed with IBS-C.

Enrollment of this study commenced earlier this year and remains ongoing. A data readout is anticipated during the first half of 2020. The clinical data we expect to generate from this targeted patient population is important for several reasons: First, this trial is designed to address specific queries about dose response and ways of treatment that led to the design of the Phase II/III adaptive design clinical program agreed to with the FDA last year.

Second, by partnering with Cedars-Sinai, we're able to generate this data at a significantly lower cost than if we were to run this trial on our own.

And lastly, positive results from this trial may allow us to reengage with prospective partners who found the Phase IIa data compelling but not conclusive enough to justify the significant capital investment required to complete the clinical trials necessary for product registration. We remain in close contact with Cedars-Sinai as they continue to expand their enrollment efforts for this trial, and we look forward to updating you on our progress.

Before I review our financial results for the third quarter, I'd like to share a brief update on one of our more promising early-stage assets, SYN-020. SYN-020 is an oral form of intestinal alkaline phosphatase or IAP. IAP is an endogenous enzyme expressed in the upper small intestine that plays an important role in reducing GI inflammation, tightening the gut barrier and promoting a healthy gut microbiome. Through these activities, oral delivery of IAP has the potential to treat both gastrointestinal and systemic disorders.

Despite its broad therapeutic potential, industry development of IAP as an oral drug has been hindered by manufacturing hurdles, resulting in current IAP costs of up to $10,000 per gram. We believe we've overcome this hurdle and now have the ability to produce more than 3 grams per liter of IAP for roughly a few hundred dollars a gram, an achievement that we believe makes SYN-020 a commercially attractive compound.

We've identified and are currently pursuing a clinical indication for the treatment and prevention of radiation enteropathy secondary to cancer therapy as a potential novel indication with a large unmet medical need.

During the third quarter, we made significant progress toward the completion of IND-enabling toxicology studies and assay development work that are expected to support our IND filing for this program during the first quarter of 2020. We remain encouraged and excited about this program and its potential to be a value-adding catalyst for our company.

We believe the clear and viable strategies we have detailed today will allow us to creatively and aggressively advance our development pipeline in ways that have the potential to drive significant value for our investors, which to date remain unrecognized.

With that backdrop, I'll review our financial results for the third quarter of 2019. During the third quarter, we continue to operate in an efficient manner and identified additional areas to further reduce our cash burn while maintaining focus on execution on our development stage strategies to further advance our clinical pipeline.

As of September 30, 2019, our balance sheet remains well capitalized as we reported cash and cash equivalents of $18.7 million. We believe this cash balance is enough to further extend our operating runway until at least the end of the fourth quarter of 2020. This is particularly important as it should allow us to report on several important clinical milestones, including a data readout from the ongoing Phase IIb study of SYN-010.

We will continue to operate in an efficient manner and seek to identify additional areas where we can further reduce our cash burn while remaining focused on execution as it relates to the advancement of our clinical development pipeline.

Now I'll turn to the financial results for the third quarter. General and administrative expenses decreased by approximately 26% to $1.1 million for the 3 months ended September 30, 2019, from $1.5 million for the 3 months ended September 30, 2018. This decrease is primarily due to decreased stock-based compensation expense related to forfeitures and decreased option grants, along with the reduction of investor relations and consulting costs. The charge related to stock-based compensation expense was $68,000 for the 3 months ended September 30, 2019, compared to $186,000 for the 3 months ended September 30, 2018.

Research and development expenses increased by approximately 46% to $4.1 million for the 3 months ended September 30, 2019, from $2.8 million for the 3 months ended September 30, 2018. This increase is primarily the result of higher manufacturing and pre-IND-enabling toxicology study cost for SYN-020 and the costs incurred to co-fund the investigator-sponsored Phase IIb clinical trial for SYN-010.

Research and development expenses also include a charge related to stock-based compensation expense of $22,000 for the 3 months ended September 30, 2019, compared to $289,000 for the 3 months ended September 30, 2018.

Other income was $92,000 for the 3 months ended September 30, 2019, compared to other income of $631,000 for the 3 months ended September 30, 2018. Other income for the 3 months ended September 30, 2019, is primarily comprised of interest income, while 3 months ended September 30, 2018, is comprised of noncash income of $626,000 from the change in fair value of warrants. The decrease in the fair value of warrants was due to the decrease in our stock price.

Cash and cash equivalents as of September 30, 2019, was $18.7 million.

In closing, I'd like to thank each of you for joining our call today. As I hope I've conveyed clearly in my remarks, we continue to work feverishly to successfully deliver on our strategy of advancing our portfolio of early and late-stage clinical programs.

During the remainder of the year, we will remain keenly focused on our top priority, and that is to continue to execute against the strategies I outlined today in order to actualize the long-term value of our clinical assets, including holding a Type C meeting with the FDA to solidify our clinical protocol in advance of our Phase I/II clinical study for SYN-004, which will commence enrollment in Q1 of next year and will be conducted by the esteemed team at Washington University, remaining in close contact with the team at Cedars-Sinai Medical Center as they continue to move forward with the enrollment in our ongoing Phase IIb study of SYN-010, completing the preclinical activities and toxicology studies to support an IND application filing during the first quarter of 2020 for our SYN-020 intestinal alkaline phosphatase program, and continuing to seek to identify additional opportunities to further reduce our operating costs in order to further extend our cash runway.

I and the entire team at Synthetic Biologics are focused on advancing these programs, delivering on our stated milestones and unlocking the value of our assets that, frankly, I believe the market is currently ignoring. We look forward to continuing to update you on our progress in the weeks and the months ahead.

Now I'll turn the call back over to Vincent.

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Vincent I. Perrone, Synthetic Biologics, Inc. - Director of Corporate Communication [4]

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Thank you, Steve. Amy, we'd like to open the phone line to questions. Could you please describe the procedure to ask questions for our listeners.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Jim Molloy at Alliance Global Partners.

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James Francis Molloy, Alliance Global Partners, Research Division - MD of Equity Research and Biotechnology & Specialty Pharmaceuticals Equity Research Analyst [2]

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I had a question on the Type C meeting with the FDA. So -- can you be a little bit more -- or how specific can you get on what exactly you hope to sort of get out of that meeting and just say up for going forward in the Phase Ib/IIA for 04?

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Steven A. Shallcross, Synthetic Biologics, Inc. - CEO, CFO, Treasurer, Corporate Secretary & Director [3]

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Okay. This is Steve. I'll start out and then if Vince Wacher has anything further to add, he can contribute as well. So the purpose of this meeting is to review the protocol that has been put together by our team at Wash U and our folks internally. It's kind of a novel approach to demonstrate that our product is, in fact, safe in this fragile patient population. But more importantly, I think a lot of focus and attention will be paid on the trial design and the design's ability to demonstrate that ribaxamase is not systemically absorbed and that it does not interfere with antibiotic use in these patients. We do not believe, based on previous trials that we have conducted, that this is going to be an issue. But nonetheless, the patient population is a bit different. So we've designed this trial to once and for all demonstrate, in fact, that ribaxamase will be safe for this group of patients.

The protocol is a little unique in its design. It's going to sort of evaluate 3 antibiotics in 3 cohorts in increasing strength. And after each of those cohorts, we'll have a data readout. So there'll be milestones that we'll be talking to the market about as we progress further along in this trial. I don't know, Vince, do you have anything further to add?

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Vince Wacher, Synthetic Biologics, Inc. - Head of Product and Corporate Development [4]

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No. I think that's covered it. We -- this is a new population for us, and we are addressing questions that the FDA has asked us before by running this trial, and we want them to agree that this is the right way to go. That this is the -- that this will address their queries and that they are comfortable with the design of the trial, but also our safety oversight to make sure we protect the patients.

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James Francis Molloy, Alliance Global Partners, Research Division - MD of Equity Research and Biotechnology & Specialty Pharmaceuticals Equity Research Analyst [5]

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Excellent. And then I know on the last call, the SYN-010, there have been -- there are some challenges on the screening period and the baseline measurements at the Pimentel Lab. And I know that anticipation would be -- that will quickly be resolved. That got resolved. And is all squared -- everything squared away on enrollment with Pimentel Lab?

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Steven A. Shallcross, Synthetic Biologics, Inc. - CEO, CFO, Treasurer, Corporate Secretary & Director [6]

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Yes. I think we've made a lot of progress there. We meet frequently with their team. Vince, do you want to briefly update there?

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Vince Wacher, Synthetic Biologics, Inc. - Head of Product and Corporate Development [7]

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Yes. We have worked on a couple of different things to try and boost the enrollment into the study. And we've actually just initiated a program with a more comprehensive outreach to bolster what the activities that sort of have been done inside the Cedars-Sinai Medical Center Program. They have reached out themselves to nearly 1,000 patients, but we have initiated a program now through another vendor that could triple that outreach and expand the area of the outreach so that we can get more patients in from more distal sites and reimburse them for travel. So by doing that, we hope to rapidly accelerate the enrollment, but also diversify the population beyond just the area around Greater Los Angeles.

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James Francis Molloy, Alliance Global Partners, Research Division - MD of Equity Research and Biotechnology & Specialty Pharmaceuticals Equity Research Analyst [8]

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All right. Great. And the last question on my end. The -- you made some comments on the runway going out to the Q4 and the good fiscal discipline. But certainly, the number -- operating expense went up pretty sharply in this quarter. Is that a onetime number? Should things return back to the $3 million, $4 million range? Because it would seem that at these levels, with '18 in the bank, it wouldn't seem like you could get to the fourth quarter of next year.

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Steven A. Shallcross, Synthetic Biologics, Inc. - CEO, CFO, Treasurer, Corporate Secretary & Director [9]

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It will. That's a great observation. We continue to spend a lot of time on looking at areas where we can significantly reduce our burn, and a lot of our savings have resulted in reductions in G&A. We saw a bit of a bump this quarter, and that was due primarily to a lot of the costs associated with the manufacturing activities for our SYN-020 product and the ongoing toxicology studies. All those expenses were planned. They're coming in and they're pretty much in line with where we expected them to be. But your observation is correct. We'll start to see the larger sort of nonfixed expenses diminish and you'll see more of a steady burn.

I'll point out that, Jesus, well over sort of 1.5 years ago, our monthly fixed burn was somewhere in the neighborhood of $1.2 million a month. We have brought that down to under $400,000 a month right now. So we've done a great job internally with our team to really get our arms around our costs.

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Operator [10]

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(Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Steve Shallcross for closing remarks.

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Steven A. Shallcross, Synthetic Biologics, Inc. - CEO, CFO, Treasurer, Corporate Secretary & Director [11]

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Thanks, Amy. I'd like to close on a comment that I made a few minutes ago before the Q&A and that is, that I really believe the capital markets are totally ignoring the underlying value of our assets. So what are we doing about that? And I guess the best way to frame this is to look at the facts. First of all, during the last several years, we've completed multiple Phase II clinical studies, which has demonstrated proof-of-concept for our 2 lead programs that we spent so much time talking about. And not only that, they've also garnered the necessary KOL support that we think is incredibly important and needed to further advance these programs.

Perhaps the previous clinical strategies were a bit shortsighted. But ultimately, the bottom line is that we've been successful with generating compelling clinical data to further support the advancement of these really exciting and potentially viable products from markets which still, to be quite frank, have significant unmet needs.

So the bottom line is we've learned from the past, and we've used that knowledge and experience to pivot towards a solid clinical path that we believe will ultimately unlock that value. So let me reiterate, it really makes no sense that we are currently trading at a market cap that is a fraction of our historical path, while during that same time frame, the clinical development risk of all of our programs has been further reduced.

Second, we're working with some of the best and globally recognized experts and institutions in the world, namely leading experts from Cedars-Sinai Medical Center on our SYN-010 program, the Washington University School of Medicine in St. Louis on our SYN-004 program and Massachusetts General Hospital on our SYN-020 program. Clearly, our portfolio of products harness the interest and support of these world-renowned clinicians who've been instrumental in working with us as we plan for the advancement of these very important compounds.

Finally, we thoroughly understand that data and deals matter. During the past 12 months, we've been working feverishly to develop and institute high-quality and cost-effective clinical programs that are well-designed, focused on the optimal clinical indications and offer the greatest opportunity for success. When the data is ultimately reported from our current clinical activities, I'm confident that I and we will spark the necessary interest from potential partners around the world. I can assure you that we continue to remain engaged with multiple interested parties for all of our programs in order to ensure that once the data is in hand, we can act quickly.

Thank you again for your support, and we look forward to keeping you informed on our progress. Have a good evening.

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Operator [12]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.