美國安進 (AMGN) 2006 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen.

My name is Carol, and I will be your conference operator today. [OPERATOR INSTRUCTIONS] I would now like to turn the call over to our hosts, Onyx Pharmaceuticals.

You may begin.

Good afternoon.

I'm Julie Wood, Vice President of Investor Relations and Corporate Communications at Onyx Pharmaceuticals.

We thank you for joining us today for a general business update, as well as to review our second quarter 2006 financial results, which were released earlier in the day.

Please note that this call being held on August 8th, 2006, is the property of Onyx Pharmaceuticals.

Any redistribution, retransmission or rebroadcast of the call in any form without the expressed written consent of Onyx Pharmaceuticals is strictly prohibited.

The order of our prepared comments will be as follows.

After Hollings Renton, our CEO, make some brief introductory remarks, Ed Kenney, our Executive Vice President and Chief Commercial Officer will talk about recent commercialization activities.

After Ed finishes, Hank Fuchs, our Executive Vice President and Chief Medical Officer will provide a clinical update.

Next, Greg Schafer, our Chief Financial Officer, will discuss our second quarter financial results.

Finally, Hollings will make some closing comments and then open up the call for a discussion with management, including Laura Brege, our Vice President and Chief Business Officer.

I would like to add that the management team is participating from multiple locations internationally, so bear with us if we experience any slight transmission difficulties or delay during the call, particularly during the question and answer period.

Please note that we will be making forward-looking statements during this teleconference that could include financial, clinical or commercial projections.

Statements that are not historical fact are forward-looking.

References to what we expect, believe, intend to do, plan, estimate or other statements referring to future events or results are intended to identify these statements as forward-looking.

Forward-looking statements are inherently subject to risks and uncertainties.

For a discussion of these risks and uncertainties, we refer you to our annual report on Form 10-K for the year ended December 31st, 2005, specifically the section entitled Business Risk.

Additionally, our second quarter 10-Q, including updated risk factors, will be on file tomorrow.

Also note that the forward-looking statements are based on our beliefs and assumptions as of today.

These beliefs and assumptions may change as a result of future events or the passage of time, which would cause these forward-looking statements to be outdated and no longer our view.

We undertake no duty to update these forward-looking statements.

I would now like to turn the call over to Hollings Renton.

Thank you, Julie.

We are pleased to report that together with our collaborator, Bayer, we continued to successfully penetrate the renal cancer marketplace with Nexavar in the second quarter.

Net sales increased 36% when compared to the first quarter of 2006.

Worldwide net sales for Nexavar were $32.2 million, bringing total six-month net sales to $55.9 million.

In the United States, the increased demand in the second quarter suggests the rapid uptake of Nexavar, both in terms of new patient starts and repeat orders.

We are proud of what we have accomplished and anticipate that this is just the beginning of building a powerful oncology franchise.

We have shown that Nexavar is an active drug with confirmed therapeutic benefits.

We have demonstrated our ability to successfully commercialize Nexavar.

We have quickly accrued our next two pivotal phase III trials in melanoma and liver cancer to markets that if Nexavar is shown to be effective and is approved we believe could be rapidly penetrated in much the same way as the renal markets.

We are also currently enrolling patients in our first large, randomized combination trial in lung cancer.

Importantly, just a few weeks ago, Nexavar was approved in the European Union, marking another major accomplishment and opening a significant market for Nexavar.

Nexavar has now also been approved in Canada, Switzerland, Mexico, Chile, Brazil and Korea, and filings are pending in Australia, Turkey, Japan and other territories internationally.

To take full advantage of this emerging global commercial opportunity, Bayer has been actively engaged in numerous pre-launch and launch activities, similar to what was done in the United States.

Conversations are now underway in individual countries to finalize pricing.

With Bayer, our strategy for Nexavar is clear, simple and executable.

We successfully achieved the first component of that strategy by rapidly commercializing Nexavar in a tumor without an established therapy and in just over five years from beginning clinical studies.

This rapid market entry allowed us to establish the brand and a commercial oncology presence.

The metastatic melanoma and liver cancer trials will further expand on this part of our strategy.

The next phase of our strategy is to establish Nexavar's efficacy in the most prevalent tumor types in combination with already-approved anti-cancer therapies.

We believe Nexavar's combinability profile will enable us to fully realize its commercial and clinical potential.

This approach, which is reflected in our lung cancer trial, is also designed to tap into the interest and excitement Nexavar has generated in the clinical community.

As we move forward, in addition to the company-sponsored studies, we plan to expand our collaborations with government agencies, cooperative groups and individual investigators.

Our goal is to maximize Nexavar's commercial and clinical prospects by simultaneously running multiple studies to rapidly produce the clinical evidence necessary to demonstrate Nexavar can benefit patients with many different types of cancers.

Hank will talk more about our broader clinical development program for Nexavar during his remarks.

Also during the quarter, we added senior executive talent to fully execute our strategy.

First, Laura Brege joined us as Executive Vice President, Chief Business Officer, responsible for finance, business development, legal, human resources and investor relations.

As many of you know, Laura brings a strong track record of commercial operations, corporate development and strategic finance expertise that will enhance our ability to establish a major oncology franchise with Nexavar.

Prior to Laura's most recent role as a venture capitalist, she was a Senior Vice President and Chief Financial Officer at COR Therapeutics.

More recently, Greg Schafer, whom you will hear from later in the call, joined Laura's team as Onyx's Chief Financial Officer, a role he has been serving since March.

He also contributes significant hands-on experience to our operation.

He was previously CFO of Cerus Corporation.

You will hear from both Laura and Greg on today's call.

Now I'll turn the call over to Ed to discuss our commercial activities.

Thank you, Hollings.

As Hollings mentioned, in the second quarter, Nexavar worldwide net sales grew 36% over first quarter net sales, to 32.2 million.

The majority of these sales were U.S., with sales to the rest of the world and named patient revenues of approximately 5 million.

In the U.S., we continued to experience increases in the number of accounts, as well as the number of physicians prescribing Nexavar.

In fact, second quarter sales were generated by more than 2,400 different accounts and more than 3,500 prescribing physicians.

This signifies more than 30% growth in customer demand and account penetration as compared to the first quarter.

As we look across the quarter, sales performance was strong throughout each month of the period.

As Hollings mentioned, the recent European approval is creating new opportunities for Nexavar.

In preparation for the European launch, Bayer has been actively staffing their marketing and sales teams in Europe and in other territories worldwide.

Succinctly stated, the Bayer organization is ready to go.

Field representatives, their management, medical affairs personnel and drug distribution infrastructure are in place.

The Bayer organization has begun the process of commercializing Nexavar at the country level and Nexavar has already been launched in the UK and Germany and commercialization is also underway now in France.

In other European countries, we are awaiting only the final nod from pricing authorities to begin commercial distribution.

Given the need to establish pricing in individual countries, as well as the varying healthcare delivery systems, we expect the revenue ramp-up to be slower in Europe than it was in the U.S., as countries will come on line over a longer period of time.

In terms of the European market, the total patient number approximates the U.S. market, with an estimated 18,000 renal cancer deaths annually in the largest five countries.

That includes the UK, Germany, France, Italy and Spain.

But revenue opportunity due to economic factors tends to be somewhat smaller.

With the very strong uptick in the oral agents in the first half of the year, we expect Nexavar U.S. revenues to be essentially stable in the second half of the year, with incremental growth coming from Europe and other countries worldwide.

As a result of the new therapeutic options, it is clear that the total market opportunity in kidney cancer is expanding.

We believe that many patients are likely to be treated with multiple agents, either sequentially or, as new data emerges, in combination with other anti-cancer drugs.

Our market data also suggests that a higher percentage of patients will be treated in both the first line and in the second line settings.

There's also now emerging a third line market segment, as patients experience benefits from therapy at earlier stages in their disease.

For example, at ASCO, we saw intriguing early data about the potential use of multi-kinase inhibitors in renal cancer when used in sequence.

The independent data were generated from 35 patients treated with Nexavar or another oral multi-kinase inhibitor following anti-angiogenic therapy.

While this is a small study, efficacy similar to that seen in patients without prior anti-angiogenic therapy was observed, and there was no association between type of prior therapy received and response to subsequent therapy.

It's difficult to precisely project the total potential kidney cancer market opportunity at this early stage, since not all patients will elect to get successive therapies.

But applying some fairly modest assumptions to recently reported revenues of the new agents suggests that the current domestic market opportunity for oral therapeutics is in the range of 250 to 300 million, or perhaps higher.

Though only recently launched, we believe Nexavar has established itself as a mainstay of treatment for advanced renal cancer patients.

Market research has confirmed that most physicians appreciate that they now have multiple proven effective treatment options that will allow them to select the most appropriate therapy based on an individual patient's profile.

It is widely believed that the next step in the management of advanced kidney cancer will be a rational combination of therapies.

And in this regard, Nexavar should be well positioned due to its tolerability and efficacy profile.

We are at the beginning of a very exciting time, as we continue to launch what we believe will be a major weapon in the fight against cancer.

I'd now like to turn the call over to Hank Fuchs to talk about our clinical program.

Thanks, Ed.

There have been two important guiding principles in the clinical development of Nexavar.

First, for the benefit of cancer patients, get Nexavar to market as quickly as possible, and second, leverage Nexavar's attributes and explore its utility in as many tumor types and settings as feasible.

As a result of getting to the market quickly, Bayer and Onyx had the opportunity to provide patients with a new therapeutic option and also get broad exposure in the clinical community.

We intend to build on this important clinical foundation as we advance Nexavar's development.

Already, we have shown that Nexavar works as a single agent in its first tumor type.

During my remarks, I'll address our efforts to maximize the potential of Nexavar to help patients with renal cancer and also talk about the ongoing pivotal trials in other tumor types.

I will also discuss the next stage of Nexavar's clinical development, how we are organizing and planning in order to capture the full value of this molecule across a number of different settings and in combination with already approved cancer treatments.

In renal cancer, we have shown that Nexavar doubles progression-free survival in a previously treated patient population.

We have also shown that median overall survival was longer for Nexavar-treated patients, in spite of almost 50% of placebo patients crossing over to receive Nexavar treatment.

Additionally, in a small subset of treatment-naïve patients who participated in a phase two study, we observed an estimated progression-free survival of approximately 40 weeks.

We currently have a randomized study in a similar patient population underway and are now waiting for those data to mature.

To help patients at earlier stages of their disease, there are also adjuvant trials underway or planned.

In addition, we also have multiple combinations studies either in process or being planned for renal cancer.

In addition to renal cancer, Bayer and Onyx are also sponsoring pivotal trials in advanced liver cancer, metastatic melanoma and lung cancer.

Like kidney cancer, the liver and melanoma studies were identified based on encouraging early data in tough to treat tumors where patients lack effective therapies.

In liver cancer, we are conducting a phase III trial evaluating Nexavar as a single agent and focusing on overall survival as the principal measure of effectiveness.

During the second quarter, we completed enrollment of nearly 600 patients in this trial.

Given the endpoint is overall survival, we anticipate it will take some time to reach the required number of events in this study.

In metastatic melanoma, there are two ongoing phase III studies comparing the administration of Nexavar in combinations with the chemotherapies carboplatinum and paclitaxel to treatment with those chemotherapies alone.

In one study, sponsored by the company, approximately 250 previously treated patients have been enrolled to assess a primary endpoint of progression-free survival.

While we have completed enrollment in the study, it is difficult to pinpoint exactly when the number of events will be reached, and therefore the analysis triggered and completed.

However, based on the rate of progressions that we have seen most recently, we are projecting that we will have data this winter.

If the results from the study are positive, the trial could serve as the basis for a regulatory application.

Additionally, we have completed enrollment in a randomized phase II trial of dacarbazine administered with or without Nexavar.

Finally, the Eastern Cooperative Oncology Group, or ECOG, is enrolling a large phase III study of Nexavar, also in combination with carboplatinum and paclitaxel, and a primary endpoint is overall survival.

The melanoma trial is our most advanced combination study, but many more combination studies are underway.

It is in the combination setting that we believe the full value of Nexavar will be realized, as oncologists have traditionally used additive therapies to achieve additive clinical benefits.

We believe that Nexavar, with its efficacy and tolerability profile, is well suited as a combination agent.

We're now transitioning into clinical development for the more common malignancies and actively looking to combine Nexavar with existing drug regimens and to partner with key opinion leaders to explore a wide number of therapeutic options simultaneously.

As Hollings mentioned, the therapeutic potential of multi-kinase inhibitors may be greatest when used in combination with other anti-cancer agents.

In that regard, we are pleased with Nexavar's efficacy and tolerability.

We have already collected preliminary evidence of Nexavar's combinability with several different agents, and that work continues.

Importantly, Nexavar does not cause myelo-suppression as a dose-limiting toxicity, a side effect that would make many combinations difficult, if not impossible.

Our first major initiative is in lung cancer, where we are following up on provocative data generated in multiple small settings.

Lung cancer is an important example of a disease that remains devastating, despite recent therapeutic advances.

Earlier this year, Bayer and Onyx initiated a phase III trial involving 900 patients with non-small cell lung cancer.

The protocol calls for treatment-naïve patients to receive Nexavar in combination with the standard chemotherapeutic agents, carboplatinum and paclitaxel, the same agents used in the melanoma program.

In order to mitigate development risk and extend our reach in lung cancer, we have also a number of randomized phase II studies now being planned or underway, including a large ECOG monotherapy study in third-line patients.

Ultimately, this will result in a comprehensive lung program across disease classifications and a variety of combination settings.

With Bayer, we plan to take a similar approach in other high-incidence tumors, such as breast cancer.

Just as in lung cancer, where we leveraged our experience with carboplatinum and paclitaxel, here we will utilize our taxane experience given its prominence as the standard of care for breast cancer.

Further, we are tapping into the enthusiasm that has already been generated in the clinical community through a collection of externally sponsored trials.

We intend to use that network to expand our clinical program in a disciplined and targeted way into relevant settings across the more common cancers.

Our goals for the next year are to launch several randomized phase II trials in large tumor types in which sponsorship is borne at least in part by external experts.

We have already begun to achieve success in this regard with cooperative group sponsorship of randomized trials, such as ECOG for the U.S. renal adjuvant and for the melanoma metastatic setting and for the lung cancer trials, as well as through the Medical Research Council, or MRC, for the renal adjuvant study that is about to start in Europe.

Now, we plan to expand this number of trials, heavily relying on external investigators and cooperative groups to enable this endeavor without the cost of managing all these studies internally.

Our focus will be on excellence in collaboration, facilitating timely startup of trials, facilitating patient accrual and reporting of data, while leveraging experts to design and execute trials and working closely with health authorities to facilitate rapid access to Nexavar as appropriate.

This is an exciting time in drug development.

By relying on the unique attributes of Nexavar, including its oral availability in continuous administration, and by effectively partnering with the oncology leadership community, we believe we can run a number of important clinical evaluations while at the same time mitigating clinical, commercial and financial risk.

We look forward to talking with you in more detail as these programs mature.

Now I'll turn the call over to Greg.

Thanks, Hank.

For the three months ended June 30th, 2006, Onyx reported a net loss of $31.5 million, or $0.76 per share, which included stock-based compensation of $3.7 million.

According to the terms of our collaborative agreement, Bayer records all Nexavar revenue.

Net worldwide sales for Nexavar were $32.2 million for the second quarter of 2006.

And this represents a 36% increase over the $23.7 million recorded last quarter.

Onyx reported $150,000 in revenue for the second quarter of 2006, and this resulted from licensing certain Onyx patents from the now discontinued therapeutic virus program.

Onyx recorded no revenue in the comparable period of 2005.

As you may recall, net expense or profit from the Nexavar unconsolidated joint business is calculated by subtracting total shared expenses, as well as any contractual adjustments under the collaboration, from Nexavar revenue and dividing by two.

We then add back Onyx's direct expenses relating to the collaboration.

For the second quarter, the result is the net amount due to Bayer from Onyx to equalize the parties' net expenses or losses under the collaboration.

In the second quarter, this amounted to $12.4 million.

Onyx's direct Nexavar expenses are included with our other direct expenses in the R&D and SG&A line items of our income statement.

Total Nexavar development expenses under the collaboration were $49.4 million for the second quarter 2006, a significant increase over the same period in the prior year due to an increased number of clinical studies, including the pivotal phase III trials in melanoma, liver cancer and lung cancer.

Shared development expenses for the second quarter also grew when compared to the first quarter of 2006 due to the ongoing clinical cost, as well as worldwide regulatory activities associated with Nexavar filings.

Onyx's direct R&D expenses reflected on our statement of operations includes the portion of shared expenses that we incurred directly.

Shared Nexavar sales and marketing expenses incurred by Bayer and Onyx, including the cost of goods sold and distribution expenses, were $26.2 million for the second quarter of 2006, a significant increase over the second quarter of 2005, as well as the first quarter of this year.

This increase resulted from expanded sales and marketing activities relating to the launch and support of Nexavar in the U.S. and the pre-launch activities in Europe.

Onyx's direct SG&A includes the cost of its U.S. sales force, a portion of shared Nexavar marketing expenses incurred by Onyx, as well as general and administrative support for the company.

Total stock-based compensation expense for the second quarter was $3.7 million, or $0.09 per share.

Seven hundred thousand of this is reflected in the R&D line item and $3 million is in the SG&A line item.

At June 30th, 2006, we had cash, cash equivalents and marketable securities of $243.5 million, as compared with $274.8 million at the end of 2005.

Looking forward, as Ed mentioned, we expect U.S.

Nexavar sales to be relatively stable over the next two quarters, with incremental revenue coming primarily from Europe as country by country pricing is established.

At the same time, we and Bayer plan to increase our commercial activities to support the rollout of Nexavar outside of the U.S.

Worldwide regulatory activities and joint clinical development adjustment will also expand, as the phase III lung trial ramps up and the other phase III trials in kidney, melanoma and liver continue.

As a result, we are expecting our quarterly net loss to increase somewhat from the second quarter level as we move through the third and fourth quarters of 2006.

Now I will turn the call back over to Hollings.

Thanks, Greg.

To grow exponentially beyond the renal market, Bayer and Onyx are deeply committed to establishing the board applicability of Nexavar to fully realize its clinical and commercial potential and to create a major global oncology franchise for several reasons.

First, Nexavar has shown dramatic single-agent activity in a disease that had no effective therapy and it has been well accepted in the marketplace.

We hope to repeat the success in the melanoma and liver cancer markets.

Second, given that tumors are characterized by uncontrolled cell growth and depend upon nutrients and oxygen to grow, Nexavar's dual-anti-proliferative and anti-angiogenic properties make it well suited for broad clinical use across tumor types.

Third, given its side effect profile and record of combinability in phase I trials, there's significant investigator enthusiasm in exploring Nexavar in combination with standard anticancer regimens in the most common malignancies, such as breast cancer.

We recognize that substantial investment in this comprehensive development program is necessary to fully realize the potential of this important asset and to further build shareholder value.

We look forward to results of the pivotal melanoma and liver studies to expand Nexavar's use in patients that have no therapeutic options.

Equally important, we look forward to adding to our program in lung cancer and establishing a program of randomized trials in breast cancer and other tumors to benefit as many cancer patients as possible.

We have the right partner and the right people, both in house and in the field, to create a global oncology franchise with Nexavar.

Thank you for your time.

We'd be happy to take questions.

Operator, could you cue for questions, please?

[Operator Instructions] Your first question comes from the line of David Witzke of Banc of America Securities.

Yes, thanks, good afternoon.

I might have missed it, but did you say to expect melanoma phase III data in the winter, and if so, how do you define winter in San Francisco.

Great question, David.

It obviously means late this year, early next year.

So it's possible late fourth quarter.

Possible.

And regarding liver guidance, is that more first half '07?

No, I think it's hard to predict because of the number of events, the number of deaths that are required, so we're really not putting specific timing out there for that at this stage.

And then on the guidance that Nexavar sales would be relatively stable for the remainder of the year, it seems a bit contradictory to the comment that growth was consistent month to month.

I wonder, just more granularity on the month following ASCO in June and what you're seeing in July and is there pickup from May to June and June to July?

No, actually, David, but we do feel that the demand generally will be stable.

We haven't seen a major change post-ASCO, so we feel that stable is the right guidance for us to provide for the balance of the year.

Thanks.

And then finally, if I can, the randomized trials to start next year in many tumors, are these more phase II randomized studies or are they registration trials?

Hank, do you want to comment a little bit about some of the upcoming studies?

Yes, we talked about those being randomized phase II studies.

But we'll also be conducting them in a very high-quality way, so if the data are very strong they could support registration, but I think the best way to think about them is randomized phase II studies.

Thank you.

Thank you.

Your next question comes from the line of Howard Liang.

Hi, Howard.

Howard?

Operator, we might have lost Howard.

Okay, and we will proceed with the next questioner.

Your next question comes form the line if Phil Nadeau with Cowen.

Hi, Phil.

Hi, good afternoon.

Congratulations on a good quarter.

Hollings, my first question is for you.

You mentioned Japan briefly in your remarks.

Where is the filing in Japan and when could we expect to see Japanese commercialization?

Obviously, as you know, Bayer is conducting those studies.

They have filed in Japan and are getting ready.

I don't know that they've given specific guidance on the approval yet, but it has been filed.

Okay, great.

And then second you mentioned economic factors would maybe reduce the size of the European - or the dollar size of the European market versus the U.S. market.

What type of pricing have you seen in the UK and Germany, and what other economic factors are impinging on the launch?

Ed, do you want to take that one?

Yes, sure.

Yes, Phil, the pricing strategy for the product is to price at parity.

That is our approach.

It's a world in which product moves across borders more easily than it used to.

But the economic factors that affect products being marketed outside the U.S. are fundamentally reimbursement, coverage and level of reimbursement that are frequently government-directed programs.

So if you look across the spectrum of anticancer drugs and sort of how they do in rest-of-world markets, whether it's EU or Japan or elsewhere, they tend to collectively do slightly less well than the U.S. market in total.

Okay, and is that in your opinion mainly because of less off-label use, or do you find even within the labeled indication, it's often tougher to get reimbursement for a patient?

Probably a little bit of both.

There is less off-label use because it is typically a more restricted environment than it is here.

Okay.

Hank, my next question is for you.

Do you have any updated information on how Nexavar is being used in clinical practice?

Is it first line in refractory patients and what's the typical duration of therapy?

You're talking about in kidney cancer, Phil?

In kidney cancer.

In general, from a clinical perspective, I think most clinicians' perspective is that one size doesn't fit all.

That is that they like the abundant choices in kidney cancer and that there appears to be evidence and support for using Nexavar before other anti-angiogenics and after.

But, Ed, did you want to make any additional comments?

Yes, no.

As we look across the use of the drug, the overwhelming majority of use is in kidney cancer.

There's relatively little off-label use, and we are getting both.

The one thing that continues - we said this I guess on the last quarterly call, it continues to be true, a tremendous amount of movement going on in the market with first line, second line shares moving back and forth and an awful lot of sequential use as well.

Okay, do you have any estimate of what your first and second line market share is currently?

Well, there are publicly available audits that we kind of point people to, so we haven't provided any guidance.

The fundamental share that we're pointing to these days of course is the one that is calculated off the reported revenue of the two agents.

Okay, fair enough.

Thank you.

Your next question comes from the line of Steve Harr with Morgan Stanley.

Hey, Steve.

Hey.

I'm trying to get an understanding, Hollings, of your long-term margins here and what do you think is the run rate that Nexavar needs to hit for first of all the profit split to be possible, and then for the actual company to be profitable?

When you say the product to be profitable, you're talking about, again, the marketing contributions or the product itself, fully loaded.

The fully loaded, so that you - you could do both, if you want.

I'm mainly thinking...

The run rate, the path to profitability just fundamentally, as you know, we've said consistently our approach here is to invest in the asset to maximize the potential rather than driving to short-term profitability.

So run rate calculations really depend mostly around the level of the development expenses.

So I think it really is going to depend a whole lot on the level of development expenses that we maintain here.

So I think as we get data we're going to have to modulate the expenses against the data that we have to really talk about when we get to profitability.

So I don't really want to give out something that is not a current ability to forecast.

Sure, but given your current business, because I think the sales are coming in at a level that was more or less consistent with expectations, but the spending went a little bit higher than people expected.

I know in the second quarter you had obviously a lot of expenses that aren't every quarter, around ASCO.

So I'm just trying to get to a level at which you think we can get to some profitability.

Well, again, I think over the next period of time, the expenses, the guidance that we're putting out here is to say that the losses may be a little bit higher over the next couple of quarters.

These level of expenses in general, I would say, are relatively representative of where we are at this stage.

And the expenses will go up a little bit for launch expenses and some for development and we look to that to be offset by increasing revenues.

But, again, we're not pushing for short-term profitability.

We really believe the right thing to do with this asset, having focused on the asset, is to invest in the long-term potential, so we want to be in a position to be able to do that.

Fair enough.

Thanks.

Your next question comes from the line of Howard Liang.

Good afternoon.

About your assumption for the market, 250 million to 300 million for the U.S., what are your assumptions for patient numbers, maybe a breakdown of first line, second line and more refractory patients.

Howard, it wasn't that complicated a calculation.

Basically, it was driven off the run rates of the two agents and some very modest assumptions about solidification of use in the marketplace, physicians and patients getting comfortable with the agents, length of therapy perhaps extending and less switching back and forth.

So it wasn't a bottoms up - our marketing group does do bottoms up calculations obviously in our models, but that calculation of opportunity isn't quite that thoughtful.

But, having said that, we believe it's fairly accurate.

So you said that's based on the current run rate of the two agents?

Yes, if we just look at the reported revenue in the U.S. of the two new agents and make some assumptions about modest growth and solidification of treatment patterns, it doesn't - you don't have to assume a whole lot to get to the 250, $300 million range.

Okay, so you're assuming that the market does not grow that much from the current levels.

Well, what I'm saying is you can get to that level - the application - I think what I said was the application of very modest assumptions.

Both of these agents have been taken up very rapidly in the marketplace, very quick penetration.

And so the upside that remains in the U.S. continues to be the third-line segment that I mentioned, which is beginning to appear now.

We don't know how big that's going to get, but it was not existent prior to the introduction in new agents.

And the comfort and the experience that people develop with these agents that are out there.

As newer agents come in, as people get more comfortable with sequencing, as people get comfortable with combination therapy, then there's additional upside in the renal opportunity.

And again, that's a U.S. look at it.

Okay, great.

About the timing of melanoma data, how important is it to the franchise that you have full survival data from the ECOG study and how does that factor in terms of managing the timing of your first study from the PRISM study?

Hollings, you want me to take that?

Yes, I'm sorry, I didn't quite hear the question.

Go ahead.

So the question is about the timing of the ECOG study and its relationship with the PRISM study.

So the ECOG study is going to accrue I think about 800 patients with overall survival as the primary endpoint.

So that study is somewhere in the mid 100s in terms of accrual and it's going to take a good chunk of time for that result to be seen.

The PFS result will be in hand well before that study completes its accrual.

As I said in my prepared remarks, I do believe that if the data from our company-sponsored study in 250 patients with progression-free survival study as a primary endpoint, if that study is positive, it could form the basis of a regulatory application.

It's important to realize that that study is with PFS as a primary endpoint and in the second line setting, whereas the ECOG study is overall survival and ECOG undertook that study in the front-line setting knowing that the PFS result was likely to be obtained earlier.

So it is our expectation and I believe it's the ECOG leadership's expectation that even with the study being positive, that the ECOG study would continue to accrue and that we would be able to obtain the overall survival data subsequently, which would be important for definitive confirmation of the effectiveness of Nexavar in metastatic melanoma.

Can I just ask a follow-up on that?

In the ECOG study, upon progression in the control arms, can patients get Nexavar subsequent to progression?

Well, the key issue there is is that the patients who are receiving carboplatinum paclitaxel, and whether a clinical would give them [carbotax] a second time on progression seems a little dubious.

What they use in the second-line setting is really sort of up in the air, as there aren't a wide number of available agents that have been shown to be effective in metastatic melanoma, and it wouldn't be clear that combination with Nexavar would be better.

We don't have any plans to make Nexavar available in the study.

It's a pure parallel-arm study with no crossover.

Of course, the study is being conducted primarily in the United States, so the drug is available and I suppose there is some remote possibility that patients could receive Nexavar outside of the protocol.

But I think the best way to think about this is that the front-line survival study is not likely to be very contaminated with Nexavar crossover.

Great, thank you very much.

Your next question comes from the line of Jason Zhang with Prudential Equity Group.

Hi, Jason.

Hi, I have a question, actually, a follow up off of Howard's about your market assumption.

You said with the two agents right now, if you assume modest growth, you will have a 300 million U.S. market.

Are you suggesting that both drugs together have pretty much penetrated a majority of the renal cell patient population already?

So what's the message there?

I think that the message is that the renal market has - as the new agents have come into the renal market, the renal cell cancer market has expanded dramatically.

And you probably see that occur as other new agents enter the market.

But my point really was that if you just take the current run rates of these drugs, they have penetrated the market very rapidly.

However, physicians are still learning to use them and to deal with the side effect profiles.

Admittedly, the side effect profiles of the new agents are much more manageable and benign than the older agents, but there's still a learning curve that goes on.

But my point is, if you look at the two agents that are out there now, you've got this $300 million opportunity and that's with, as I said, modest assumptions.

It isn't talking about much on the upside and the upside certainly exists.

But then the math that we talked about as far as the ex U.S. opportunity and you see it gets factored in there too, so you end up with a worldwide renal market that's substantially larger, certainly, than preexisting markets, for a modest-incidence tumor.

And I think that's based primarily on how quickly the market has been penetrated to date, not necessarily saying that's the potential as things happen over time.

But we've already built the market pretty quickly with the two agents.

That's in the range of $250 million, being conservative, and there well could be growth beyond that.

Okay, can I also ask, now you have more than two quarters of time on the market.

Do you have any idea how Nexavar is positioned, because the data is in the second line, but mostly, I think for renal cell patients, nobody is really going to give them [inaudible] so Nexavar and carbo have been moving to front line very rapidly.

So, do you have idea how many patients who are treated with Nexavar did they actually choose front line and how many are second line, and actually in your current patients that are treated Nexavar what's the sequence of [suitin] Nexavar or Nexavar-suitin?

Any insight into that?

Well, I guess the overriding thing here is that all of this is new, the ASCO data.

As far as the market goes, and our market is the community market, not the tertiary care or the academic market, the data that was presented at ASCO and the data that's available for both products is still being absorbed by the marketplace, and as I mentioned before, there is a lot of switching going on - sequencing going on, one followed by the other.

But it's too soon to tell exactly where that's going to shake out.

We have a tremendous amount of front-line use of the product and that's largely a result of usage patterns that were established with Nexavar was introduced in the market there were lots of physicians who tailored their therapy to the patient that they're treating and both drugs are not appropriate for all patients.

Okay, and then can I have another question, which regards the melanoma, the second-line melanoma trial.

I know you have SPA for this trial and the PFS is the primary endpoint.

You also have your statistical calculation and your hurdles.

I'm just wondering, if you don't have a P value, that is a typical P value [right now], but still have in a meaningful clinical improvement of PFS, what do you think the FDA's response will be and whether you will be bumped with your SPA even though you have to keep your statistical significance using the data to get [inaudible]?

Hank, you want to comment?

Yeah.

So to be clear if we exceed the level of improvement that is planned in the protocol we will exceed the statistical hurdle and at that point it will be an issue - it will be down to whether there is any safety findings that would preclude the FDA from granting accelerated approval for Nexavar.

If a smaller level of improvement clinically is observed than is planned in the protocol and statistical significance is not observed than it is unlikely that the FDA would approve the drug absence any other evidence to support the drug's use in melanoma.

So I think the simple way to think about this is the drug does or doesn't achieve its planned level of clinical activity and statistical significance and the agreements that we have at the FDA guide what those levels are.

Jason Zhang.

Okay.

Thanks.

Next question?

Operator?

Your next question comes from the line of Jim Reddoch with FBR.

Hey everybody and I apologize if you've touched on this before but the quarter over quarter increase in R&D I guess was a little bit surprising because I thought that most of your trials were up and going as of the first quarter meaning there shouldn't have been that huge of a quarter over quarter increase.

I guess lung did officially start about halfway through the first quarter but were there other things that happened in the second quarter that resulted in that kind of ramp?

And then the second part of that question is sort of a longer term question with the R&D coming in higher than we had had it in our side P&L and needing to exceeding that with your revenues to break even.

Where do you stop in terms of market expansion?

The buyer at the big company obviously wants to make this a very big drug and each market has to be built $250 million at a time there may need to be multiple occasions that need to be explored.

So how is that decided, how far you keep going and how many more trials do you keep doing ...

Greg, you want to answer the first one about quarter to quarter and I'll talk about market expansion?

Certainly.

So on the development side, as you noted, one major change was the ramp up of the lung trial, the other thing we saw was an increase in the regulatory activity around all of the tumor types as the trials mature.

So those are the few things we're pointing to as I noted in the prepared remarks.

And Jim, in terms of the market expansion, and clearly the renal is market entry and in terms of establishing the capabilities, clearly we've got a very quick ramp in the U.S. and feel good about the ability to sustain that in the U.S. but to really pay off we clearly need not only in the U.S. but in other territories indications outside of renal cell.

Renal cell gets us going but it kind of gets back to Steve's issue.

We need approvals in melanoma, liver, to generate additional revenues in the short term and then ultimately the big driver here will be getting data out of the larger tumor types.

I do think that probably some of these unmet medical needs are larger than people recognize but clearly the major driver that we're working on is to establish the drug in some of the more common malignancies and that obviously takes clinical development.

Okay.

Thanks.

Your next question comes from the line of Jim Birchenough with Lehman Brothers.

Hi guys.

A couple of questions just on the sales number this quarter.

I'm not sure you broke it out but what was the contribution from any European stocking and what inventory do you see, if any, for Nexavar in the U.S.?

The data was the [inaudible] analysis of revenue attributable to Europe from export sales and from mean patient sales largely in Europe, so it's not an inventory stocking in any of that.

And then just in terms of trends during the quarter, could you maybe speak to new patient starts and what the trend was as the quarter progressed in terms of new patients on Nexavar and secondary to that I am just wondering if your assumption for stable sales in the second half of the year assumes that you just retain the existing patients but you don't see much in the way of new patient starts.

Is that what we should read into that?

I don't think so but Ed, you want to comment on that?

Yeah.

Hi, Jim.

No.

That's not - what we're seeing is very steady flow of patients going on drug.

When we entered the market, you recall when we described the first quarter there was a fairly large pool of preexisting patients who were awaiting therapies.

There was our standard access program, then those patients were being converted and we're well beyond that now so what we're at is something that looks like a steady state equilibrium driven by disease incidence and the capture rate, if you will, of patients is very steady.

Just a final question on - I might have missed it but in terms of melanoma on the ECOG study, have you provided any update on where you're at with enrollment and when we might expect data from that trial roughly?

Is that second half '07 or '08 type event?

Hank, you want to ...

Yeah, the ECOG trials in the mid 100s and it's been up for several months now and I think that the remaining 600-plus patients accrual, 500 plus patients accrual is going to require a substantial amount of time and not something that we're projecting happening in the next year or so.

Thanks, Hank.

Your next question comes from the line of Gene Mack with HSBC.

Good afternoon.

Good afternoon.

And I apologize if you guys have gone over this.

I joined the call late.

I was wondering, do you have any sort of anecdotal color you'd like to share with us on combination use of Nexavar with other kinds of therapy?

Renal cell?

With cytokines in renal cell?

Hank, you want to talk about that?

Yeah.

There were a couple of reports at ASCO, one that was kind of intriguing from the point of view of increased response rate but wasn't very dramatic in terms of improvement and progression-free survival and another that was not very dramatic in terms of progression-free survival so I'd say that interferon is not the most interesting combination and also bear in mind that interferon's activity in renal cancer is not unequivocal.

That is to say, it's not labeled for metastatic renal cancer and there are no consistent and compelling evidence of inferferon's activity in renal cancer.

Where we are more interested in combination therapy in renal cancer is in the newer targeted agents and as you probably know, at ASCO there was a presentation of Wyeth's [CCI sense 7 9 10 surliness], a drug which phase I combination studies have begun with Nexavar and [tempsure linis] monotherapy was shown to prolong overall survival in high risk patients and that would be an area that I think the clinical community would say is very ripe for exploration of combination, that is to say you have two unequivocally active drugs and that is I think where there will be more energy applied.

There is a strong biological basis in that the mechanism of action of the [N2R] inhibitors complements, doesn't overlap with the mechanism of action of the multikinase inhibitors and there are a number, just to remind you of N2R inhibitors that are available so this is an area that we are keenly focused on.

Is that one of those areas where you looking towards independent investigator sponsored studies?

Yeah, I think in general that is the message, not just in renal cancer but also in the large tumors that the - just look at the most recent big successes in anti-antigenic therapy, the two most recently reported positive trials of anti-antigenics that have been reported were reported, conducted by ECOG.

One came from lung cancer and one from breast cancer, so I think it goes without saying that today's anticancer development strategy is going to pass through the cooperative group leadership in a significant way and that's a road that we plan to go down.

Okay.

And I hate to be thickheaded about this $300 million or $250 to 300 million number that you laid out there.

That's for each drug individually, right?

You [inaudible] them out or is it like a total of ...

No, it's the commercial opportunity represented by the new oral agents in the market as it exists today.

Already visible ...

So you would be looking to split that in some way, shape or form?

Basically.

And I didn't hear any mention of the lung cancer trial with [inaudible] background therapy.

Is that trial planned [inaudible] that trial off and [inaudible] registration quality study or ...

The lung cancer trial did you say with the [vastin] background therapy?

Yeah.

Yeah, just to be clear, the front line trial that we're conducting, 900 patients overall survival, primary endpoint is [carboblidapaco and taxol] [noavast] ...

Right, right.

And there is a smaller phase I trial that is planned to explore the safety and tolerability of Nexavar with carboplidapaco and Taxol and a vastin and that's a smaller study, not registration oriented.

Just to remind everybody that we have treated a grand total of I want to say 36 or so patients with Nexavar and [bemavasta and a vastin] in combination without chemotherapy so we're really at the beginning of investigation of what the clinicians like to call a complete vertical blockade of the angiogenic switch and what we're learning, this is what the drugs can be combined but at lower doses and even at lower doses we're seeing some provocative signals.

That's another area that we're very interested in combination therapy in the kidney cancer space but clearly would be extremely highly interested in the larger term with lung being, of course, one of them and in the case of the larger tumor, though, very much of our work is still at an earlier stage, still.

But you mean that the [inaudible]

I'm sorry, you broke up there during a question.

Right.

Assuming that you continue to get a decent safety signal there, what point do you think you would be able to move or start thinking about a registrational study?

Yeah.

I mean, I think that's a tough question.

I think that's something that we have to map out in our mind because it's not - it's all about risks and benefits and I suppose that we'll just have to see what the safety data are when we've collected a sufficient amount of patient exposure and what evidence of efficacy there is and again in the larger tumors that will have to be done in the background of chemotherapy.

So I think there is still some time in front of us before we are talking about registration trials and combinations with [avacivimab].

Sure and just the last thing.

Can you just remind us how frequently patients with melanoma PSS trial are going to be [called up]?

I believe their scan frequency is every six weeks.

Great, thank you.

Next question?

Your next question comes from the line of Patrick Flanigan with W.R. Hambrecht.

Hey guys.

Just a couple of questions.

The first I just wanted to be very clear that 100 percent of the sales in Q1 were in the U.S., that you actually had no ex-U.S. sales in Q1?

That is correct.

Okay, and then the second question deals with this emerging third line market in kidney cancer.

I was wondering if you could give us a little bit more color in terms of how doctors are using Nexavar in the setting.

Are they using full doses or are they using half a dosing combination with a vastin?

Can you just provide a little bit more color that would be great.

Well, it's really in third line, do you want to say whatever you can on that?

And there's not a lot to be said but there is a body of patients out there who are cytokine failures and have then been treated with one of the newer agents and have gone onto a second, newer agent and that's basically what we're seeing in the third line and as the other new agents come to market, that third line segment will - we expect it to grow.

We don't have hard and fast calculations that are around it yet.

We have to wait and see how the market adapts to the new agents and how it comes to view sequential therapy but it's pretty novel.

The second line market is evolving into a segment that's much bigger than it was heretofore and third line market was pretty much non existent.

So it's - it really, the reason for mentioning it is it really reflects the changing character of the market and it's, as we were talking earlier, the size of the renal market has increased substantially as well.

Okay.

Thanks.

Any other questions, operator?

We have no further questions at this time.

Great.

Well, again, thank you, everybody for joining us this afternoon.

We look forward to talking with you again on our next quarter report.

Thanks a lot.

Bye.