美國安進 (AMGN) 2006 Q3 法說會逐字稿

Good afternoon.

My name is Ralph, and I'll be your conference operator today.

At this time, I would look to welcome everyone to the Onyx Pharmaceuticals third quarter financial results conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session. [OPERATOR INSTRUCTIONS] Thank you.

I would now like to turn the call over to Onyx Pharmaceuticals.

You may begin your conference.

Thank you, and 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 third quarter 2006 financial results, which were released a little earlier today.

Please note that this call being held on November 7, 2006 is the property of Onyx Pharmaceuticals.

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

The order of our prepared comments will be as follows.

After Hollings Renton, our CEO, makes 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 third quarter financial results.

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

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 the Form 10-K for the year ended December 31, 2005, specifically, the section entitled "Business Risks", as well as to our more recent filings with the SEC.

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

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.

This is an exciting time as we, and our collaborator Bayer, continue to execute commercially while working to broaden Nexavar's clinical utility in additional tumor types.

We have accomplished a great deal in a concentrated period of time.

Most importantly establishing together in the United States, and through Bayer in the rest of the world, the commercial infrastructure to successfully launch Nexavar in order to build a global oncology franchise.

Our success in advanced renal cancer is due to the dedicated team work of our collective clinical and commercial groups, and we intend to continue replicating this productive collaboration as we seek to leverage Nexavar's benefits across other types of cancer.

Global net sales of Nexavar exceeded $100 million for the first nine months of 2006.

And during the quarter, Bayer did an impressive job gaining approvals, securing pricing and launching Nexavar in Europe and other territories around the world.

As a result, worldwide sales exceeded $45 million in the quarter.

Product update in Europe appears to be paralleling the rapid uptake that we observed in the United States.

Kidney cancer is our first step in realizing Nexavar's potential.

Now that we have established Nexavar as an effective single agent treatment in a previously difficult to treat indication, we are expanding our efforts to explore Nexavar's utility in other tumor types because Nexavar works by impeding tumor growth through inhibiting proliferation and angiogenesis, two fundamental mechanisms associated with cancer and because of Nexavar's general tolerability we believe that it has the potential to be widely used in oncology, either as a single agent or in combination with other targeted therapies and chemotherapy.

We have completed enrollment in two more pivotal studies for cancers with unmet medical needs, advanced melanoma and liver cancer.

We expect to be able to announce the results of the melanoma study by the end of this year or early next year.

If successful, these trials have the potential to lead to additional registration and represent significant commercial opportunities for Nexavar.

We are also starting to explore Nexavar's utility in more common tumors, such as lung cancer and breast cancer.

We have initiated a pivotal study in lung cancer and have randomized Phase IIs enrolling or under consideration in this indication.

We are also embarking on a comprehensive breast cancer development program, all of which Hank will discuss later in the call.

Success in any of these tumors with clear unmet medical need or in any of the more common tumors which substantially increase Nexavar's commercial potential and bring us closer to our goal of establishing Nexavar as a part of the standard of care for patients living with cancer.

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

Thank you, Hollings.

Well, as Hollings mentioned, together with Bayer we solidified Nexavar's position as a valuable and important drug for the treatment of advanced kidney cancer.

Of the $45.4 million in net sales for the quarter, $28 million or approximately 60% occurred in the U.S., and $17 million or about 40% took place in the rest of the world.

During the third quarter, Bayer made substantial progress outside of the U.S. in rapidly securing registrations, gaining pricing approvals, building commercial infrastructure, and launching Nexavar.

Since Nexavar's approval by the European Commission in July, commercialization is occurring quickly and pricing is generally at parity with U.S. levels.

During the third quarter, we had full pricing approval in Germany and sales are underway in France.

More recently we received pricing approval in Italy and expect sales to begin this quarter.

In the UK, we need both pricing approval and authorization by the National Institute for Health in Clinical Excellence, or NICE.

That's expected to occur in 2007.

Likewise, pricing approvals in other European territories will continue into 2007.

All in all, Nexavar is now has regulatory approval in more than 30 countries worldwide.

As anticipated, the new targeted agents have already expanded the U.S. kidney cancer market substantially.

And over time, as patients continue to experience benefit from these new therapies, we anticipate further growth.

Patients progressing on one of the new agents are now receiving another targeted agent as a second line treatment.

As we've reported, renal cancer treatment patterns have also changed with the launch of the new targeted agents, and a disease that was predominantly treated in the tertiary care setting is now frequently dealt with in the community physician's office.

Anticipating this change, we have supported a broad-based medical education program, as well as a number of direct support programs to enable community-based health care professionals to successfully treat patients with advanced kidney cancer.

As Hollings also mentioned our Phase III prison trial in advanced melanoma has completed enrollment and we expect to know the study outcome by the end of the year or early next year.

Based on that timing, early preparations are underway to provide support for a substantial medical education program in anticipation of a potential label extension.

If the trial results are positive, Nexavar could provide a meaningful therapeutic option in another disease with a grim prognosis and paucity of treatment options.

And as was the case in renal cancer, the combined Bayer-Onyx field force and medical affairs team will be well trained and prepared to drive the business and support health care professionals.

I'd now like to turn the call over to Hank Fuchs to talk about the progress Bayer and Onyx are making on the clinical program to expand the use of Nexavar.

Thank you, Ed.

I'm pleased with the progress we've made commercially and clinically, primarily because what these advances mean for patients and their families.

With Bayer, we're executing a well-coordinated comprehensive clinical development plan.

Our priority goal was to get Nexavar to patients as quickly as possible.

The fastest way to do that was to prioritize those cancers that remained difficult to treat and where limited clinical progress has been made.

We were successful with renal cancer, a disease where no new drug had been introduced in over a decade.

Similarly, both liver cancer and advanced melanoma are difficult to treat diseases.

Tackling these diseases is ambitious, but so is our goal to change the way cancer is treated.

However, before discussing those trials, I want to briefly review the ongoing kidney cancer studies.

Our pivotal Phase III renal cell cancer trial is still underway with the final survival analysis pending.

As you know from the two previous interim analyses of overall survival, we have seen the patients receiving Nexavar live longer than those administered placebo.

And this remained the case even after almost half the patients on placebo elected to cross over to treatment with Nexavar.

We also have a Phase II trial nearing completion that compares Nexavar to Interferon in treatment naive patients.

There are also two Phase III studies in the Adjuvant setting in kidney cancer getting underway.

In the U.S. trial patients are being treated with either Nexavar, Sunitinib or placebo.

In the European study, expected to be initiated shortly, patient wills either receive Nexavar or placebo.

Finally, there are multiple combination treatment studies in progress including trials of [Avaskin] , and another with an mTor inhibitor, as well as additional concepts being explored.

In addition to renal cancer, Bayer and Onyx are sponsoring Phase III trials in liver cancer, advanced melanoma, and lung cancer.

As I mentioned earlier, liver cancer and advanced melanoma are both underserved diseases with few treatment alternatives.

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 efficacy.

Given the end point of overall survival, we anticipate it will take a while to reach the required number of events in this study.

In advanced melanoma, there are two ongoing Phase III studies comparing the administration of Nexavar in combination with the chemotherapeutics Carboplatin and Paclitaxel to treatment with those chemotherapies alone.

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

We are now in the final stages of the study and we expect to announce the trial outcome at the end of the year or early next year with presentation of the study results planned for a scientific Congress next year.

If successful, the results from this study could be used as a basis for a registrational filing in the U.S. for accelerated approval in advanced melanoma.

For this trial, as well as our other pivotal trials, we, together with Bayer, participated in a special protocol assessment process with the FDA.

We've also completed enrollment in a randomized Phase II advanced trial of Dacarbazine administered to treatment naive patients with or without Nexavar and data from that trial should be presented in the first half of next year, as well.

Additionally, ECOG, or the Eastern Cooperative Oncology Group, is enrolling a Phase III study of Nexavar in combination with Carboplatin and Paclitaxel treating [keyminate] patients.

The primary end point of that trial is overall survival.

This is a large randomized study and it is expected to take some time to enroll.

From the beginning of the development program, we've been keenly interested in the possibility of combining Nexavar with other therapies.

To date we've reported on a dozen different combinations from early stage trials.

While Melanoma is the most advanced of the combination studies, many more are underway or in the planning stages.

Given Nexavar's observed efficacy and tolerability we believe that its full potential may be realized in combination settings with existing therapies or other novel therapies.

Our first major initiative to add Nexavar to a standard regimen in one of the more prevalent tumors is in lung cancer where we are following up on intriguing data.

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

Earlier this year Bayer and Onyx initiated a 900-patient, non-small cell lung cancer Phase III trial.

Treatment naive patients with all histologies are receiving Nexavar or placebo in combination with Carboplatin and Paclitaxel.

We're pleased with the uptake of this study, particularly in the U.S.

In order to mitigate development risk and extend our reach in lung cancer, we also have randomized Phase II studies now enrolling or under consideration including a large ECOG monotherapy study in third line patients.

Our next development initiative is in breast cancer.

In this disease, we are embarking on an approach that combines elements of the Company-sponsored studies and externally sponsored trials.

Multiple randomized Phase II studies are now being planned with extensive outside expert input on trial design.

This approach is being energized by the clinical community's excitement in exploring the efficacy of Nexavar in a range of breast cancer settings.

We are looking forward to sharing more details of this program in coming quarters as trial designs are finalized and studies are opened.

As you can see, there's a tremendous amount of work underway.

In addition to the existing combined talents of Onyx and Bayer, we have recently recruited several experienced physicians to extend our efforts in development and medical affairs in order to fully capitalize on Nexavar's promise as an oral multiple kinase inhibitor, as well as its first-to-market status in renal cancer.

Competition exists and it will only increase.

So it is imperative to move quickly and decisively on a development strategy that will enable Nexavar to reach its full clinical and commercial potential.

Now I'll turn the call over to Greg Schafer.

Thanks, Hank.

For the three months ended September 30, 2006, Onyx reported a net loss of $20.1 million or $0.49 per share, which included stock-based compensation of $3.5 million.

Net worldwide sales of Nexavar were $45.4 million for the third quarter and $101.3 million for the first 9 months of 2006.

Third quarter sales represented a 41% increase over the $32.2 million recorded in the second quarter of 2006.

And as Ed mentioned U.S. sales were approximately $28 million and ex-U.S. sales were approximately $17 million during the third quarter.

As a reminder, all Nexavar revenue is recorded by Bayer.

For the third quarter, Onyx's net expense from the unconsolidated joint business was $3.6 million.

The net loss was less than what we saw in the second quarter due to strong top line growth and a dip in development expense for the quarter, somewhat offset by increased sales and marketing expenses.

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

Total share development expenses under the collaboration were $40.7 million for the third quarter of 2006.

Share development expenses for the period decreased when compared to the second quarter of the year due to variability of costs associated with clinical trials and third party vendors.

Shared Nexavar sales and marketing expenses incurred by Bayer and Onyx, including cost of goods sold and distribution expense, were $20.9 million for the third quarter of 2006.

This represents a $3.7 million increase over the second quarter of the year and resulted primarily from expenses associated with Bayer's staffing and launch activities outside of the U.S.

Onyx's direct SG&A expense of $11.9 million in the third quarter of 2006 was a decrease from $13.4 million in the second quarter of this year, primarily due to expenses associated with ASCO in the second quarter.

Our SG&A expense includes the cost of our U.S. sales force, the portion of shared Nexavar marketing expenses that we incur directly, and the costs we incur for general and administrative support of the Company.

Total stock-based compensation expense for the third quarter was $3.5 million or $0.08 per share. $600,000 of this is reflected in the R&D line item and $2.9 million is in the SG&A line item.

At September 30, 2006, we had cash, cash equivalents, and marketable securities of $218.2 million as compared to $284.7 million at the end of 2005.

The second quarter number includes $6 million of marketable securities classified as long-term on a condensed balance sheet.

Looking forward, we plan to continue to expand the investment in Nexavar development, advancing programs in the later stage studies, as well as moving into additional tumors and more combination settings.

With this in mind, combined development expense for the collaboration in the fourth quarter should be more close -- should more closely reflect the levels seen in the second quarter.

We expect continued growth in Nexavar sales and will increase our commercial activities accordingly in support of launching and selling Nexavar worldwide.

Now I will turn the call back over to Hollings.

Okay.

Thanks, Greg.

With Bayer, we have successfully developed and commercialized a targeted oral antiangiogenic and anti-proliferative agent in our first indication.

We have proven its efficacy in what had historically been one of the most difficult to treat cancers and we are competing successfully in that marketplace.

Market acceptance and uptake has been strong globally with over $100 million in net sales for Nexavar for three quarters in the United States and only one quarter in Europe.

In addition, we have a strong balance sheet to enable, with Bayer, the execution of a broad and comprehensive development program.

As we look out over the next 12 months or so, we see a number of milestones, including multiple data announcements, trial initiations, a possible filing in melanoma and continued international launches of Nexavar in kidney cancer.

In kidney cancer, we will report Phase III overall survival results, as well as Phase II progression-free survival results in the first line setting.

We also expect pivotal Phase III results in advanced melanoma and liver cancer.

And there will be more randomized Phase II results coming next year in liver cancer and in melanoma.

We also expect the initiation of several randomized studies in lung cancer and in breast cancer.

So as you can see we have a full and exciting lineup of clinical activity in the relatively near term.

With Bayer's worldwide presence and a successful co-promotion relationship in the United States, we are moving aggressively to establish Nexavar's position within the international oncology market and to establish it as a global standard of care across multiple tumor types.

Thank you for your time.

Now, we would be happy to take questions.

Ralph?

Yes, ma'am. [OPERATOR INSTRUCTIONS] We'll pause for just a moment to compile the Q&A roster.

And your first question comes from the line of Steve Harr.

Hi, Steve.

Steve?

Ralph, we're not getting Steve, we might want to move on and come back to Steve.

Okay.

Your next question comes from the line of Jason Zhang.

Hi, Jason.

Hi.

Couple questions.

First, you said the [INAUDIBLE] and distribution is $3.9 million more in the third quarter as compared to the second quarter.

Do we also have that number for R&D, so how much more R&D or less R&D in the third quarter as compared to the second quarter?

I'm talking about the joint venture.

Yes, we do.

And that is apparent in the supplemental table you'll see in the press release.

Yes.

You have three months and you have nine months.

I just want to compare the third quarter and the second quarter just R&D.

I see.

Okay.

Well, combined R&D for the collaboration, just let me pull it out here for this quarter was $40.711 million and the corresponding amount for last quarter was $49.362 million.

And you said going forward both R&D and I mean -- distribution are more resembling the second quarter not the third quarter?

That's correct, yes.

The guidance is to look at the collaboration R&D investment for the second quarter.

Okay.

On the commercial side, the expenses are likely to be up a little bit in the fourth quarter as launches continue in other territories by Bayer around the globe.

Okay, and quickly the market dynamics.

Now you have Nexavar in the U.S. at least for more than three quarters.

Can you tell us a little bit about what is the average duration?

And how is the drug used in terms of first versus second line?

And how many, how much do you see actually use in second line after Sunitinib or vice versa?

I think it's premature for us to really publicly disclose anything.

It's pretty much the early days in the evolving worldwide market.

We clearly are generating some of this longitudinal data internally, but really aren't in a position to share it.

And we've done some of our own market research.

In general, we're maintaining.

We're very pleased we've established Nexavar as a mainstay in the treatment of kidney cancer patients, and with over $100 million of sales in nine months and $45 million in the quarter, we're extremely pleased with those results as well as with Bayer's performance in the $17 million that they generated in not even a full quarter of EU approval and really with only Germany being the only country that had full pricing approval along with regulatory approval.

It's off to a strong start.

But I think we have to recognize that this market both in the U.S. and internationally has been one of rapid uptake in evolution as physicians and patients are getting comfortable with the two new targeted agents which are expanding the market.

And also maybe I can try from another angle is in the Phase III trial, at least the medium [INAUDIBLE] is about 6 months.

Are you seeing average duration of use more than that?

Are you surprised at what you learned from the market or are you pretty much expect what you get?

Again, we haven't disclosed anything.

I think in general one would expect, in general, that the results in the market are somewhat less than you would see in a controlled clinical trial.

But again we haven't really disclosed any of our specifics.

Okay.

Thanks.

Next question.

Your next question comes from the line of David Witzke with Banc of America Securities.

Hi, David.

Hi, it's Will Sargent on behalf of David.

Hi, Will.

How are you?

Good.

I was calling to see, on the last quarterly call you had estimated the U.S. renal cell opportunity about $250 million to $300 million.

I was wondering with another quarter's worth of data and exposure to the market if you're still comfortable with that range or if you had revised that estimate?

That estimate was really pretty much a run rate of what we were experiencing in the quarter and exiting the quarter as opposed to a projection of the market itself.

It really is premature to project this evolving worldwide market for the drug.

I think one of the big things in addition to Jason's comment that is, his line of inquiry, is this issue of epidemiology.

Historically, before the advent of the new targeted agents, you had an overall median survival of about 12 months in this patient population, therefore you could think of this market on a more of an incidence based disease epidemiology.

Now it's clearly going to be moving to a prevalence based disease as we and other agents add to the survival and in our updated survival analysis that Hank referenced earlier, if you adjust for the crossover, we added about five months.

Clearly, the other agents are adding some survival benefit, as well.

And patients are going to see multiple courses of therapy and see all of these agents, either in succession as monotherapies, or potentially over time in combination with one another.

I think there's a lot of dynamics that make it premature for us to actually speculate on what the total opportunity may be on a global basis.

So you're still comfortable with that as a run rate?

Well, it's probably kicked up a little bit if you took a look at the numbers that were reported by Pfizer, as well as ours today.

Clearly, the run rate's at the high end of that spectrum.

Okay.

And do you have any further guidance on when you think enrollment for the Phase II non-small cell lung trial may complete?

The Phase II or the Phase III?

I'm sorry.

Pardon me, the Phase III.

The phase III study, as you know, was just initiated in the first quarter and it's pretty typical that the first six months or so is one of active site initiation.

We're pleased with how the enrollment's gone, including in the United States as Hank said in his comments, I think it's really premature for us at this early stage to project completion of accruals.

Okay, thanks for taking my question.

Thanks, Will.

Your next question comes from the line of Howard Liang with Leerink Swann.

Hi, Howard.

Thanks, I have a couple of questions if I could.

First, do you have the break down of sales on Nexavar by indication?

Was there any contribution of melanoma sales to the mix?

The majority of the sales are really in RCC.

There is some off-label sales.

Most of that off-label would be in melanoma, but there's some in lung, for example.

But the predominant part of the sales, vast majority is in renal cell.

What would be the contribution of melanoma?

We don't break out that.

It's too small to be really a meaningful part of the equation at this stage.

Okay.

And how is Nexavar distributed in Europe?

Was there inventory stocking in the number?

I think in any stocking would be relatively nominal there.

And again, as I said, you know, and Ed said actually, the full pricing approval was in Germany and then we had sales also in France.

But it's been relatively tight from an inventory standpoint.

So, I guess just in terms of where the penetration is in Europe, I think so far you said there's a Europe, France, and maybe Switzerland.

Sounds like some of the bigger countries, UK, Italy are still to come.

What about Spain?

Is that --

Spain, as Ed said in his comments, Spain and some of the other territories are probably going to take into 2007 before we get approval there.

As Ed said, we did recently receive approval in Italy.

So that should be able to get some sales in that region.

And then we also expect full pricing approval in France, as well.

Great, thank you.

Your next question comes from Steve Harr with Morgan Stanley.

Steve, are you there?

Can you hear me this time?

Got you.

I was here last time, too.

So a couple of questions.

First of all, some of this may be a little redundant, but I'm just trying to understand first of all the U.S. dynamics.

It's basically flat quarter-over-quarter.

And you had an increasing run rate as you moved through Q2.

As you look at your exit as you move on right now, have you peaked?

Do you think?

Are you at a plateau?

How are you thinking about the U.S.

Nexavar marketplace?

I think it's consistent in the U.S. with what we guided to last, which is essentially stable revenues there with the growth occurring, which, again, occurred beyond our expectations in this third quarter in Europe.

So Europe and other places around the world will be the primary driver of growth in the renal cell market.

And then so -- at this point where do you think you are in Europe?

Do you view Europe as a bigger market than the U.S. for some other oncology drugs?

I think it's pretty early to speculate.

We're quite positive about it given the fast start with limited territories, but I think it's pretty early to say whether it's going to be the same size, slightly larger, slightly smaller.

And then with, you know, impending data from Avastin, actually I don't think it's a question for that.

What are you seeing first of all in sequential use with Suten, either Nexavar first and then Suten or Suten and then Nexavar?

There's patients are seeing both of these agents in sequence.

And as you are aware from ASCO, there was a small study out of the Cleveland Clinic that showed that there was value of following one antiangiogenic with another.

And clearly patients are being treated with both in sequence.

And then how are you guys thinking about Avastin and the impact that will have on the market?

Do you think, are you likely to just one small molecule and then the antibody, or how are you preparing the market, or your marketing message to prevent Avastin kind of taking over the sequential use marketplace?

Well, again, we like the product features that we have in terms of oral availability and side effect profile, as well as the fact that their cost is going to be about twice the cost of ours in this indication.

Thank you.

Thanks, Steve.

Your next question comes from Brian Rye with Janney Montgomery.

Hi, Brian.

Hi, Hollings, and good afternoon and congratulations to everyone on a strong quarter.

Was just curious about Ed's comment about pricing in Europe sort of being at parity with the U.S.

And he feels like in the other territories that have yet to be set if that trend can continue.

Yes, I think parity is the goal.

And it's generally holding up.

Bayer is doing a very nice job of managing the pricing in those territories.

Okay.

Sounds good, thank you.

Thank you.

[OPERATOR INSTRUCTIONS] And your next question comes from Elise Wang with Citigroup.

Hi, Elise.

Hi, how are you all?

Could you elaborate more so on what the reasons were for the decrease in the R&D spending for the joint venture?

Maybe you can give us a little more detail on why there is that variability on a quarter-by-quarter basis, and how we should look at this somewhat going forward with you initiating studies in breast cancer?

Really in three places.

It's Bayer, outside of the U.S., and then Onyx directing some activities here in the U.S. and Bayer also in the U.S.

And there's large studies that are being completed and started over time.

And the external costs include CROs and the site costs, of course.

And depending on when the studies are being initiated or ending, we're seeing variability in the quarters.

And that's what we saw here.

Now we guided as you, in my prepared remarks, this is a dip in the third quarter.

And we'll probably see it come back to where it was in the second quarter for the collaboration investment.

But I think over time I would expect to continue to see it be -- being lumpy out beyond the fourth quarter.

Okay.

But in terms of the fact that we'll be initiating some additional studies besides the ones that are ongoing.

Overall we should be assuming, nonetheless, that R&D spending, perhaps maybe on a year-over-year basis should continue to increase?

We haven't given guidance for '07 yet, but it certainly is not going to decrease with additional Phase II studies coming on in spite of the fact that some of the Phase III studies may be wrapping up in the '07 kind of a time frame.

Okay.

And then just coming back to the U.S. trends for Nexavar.

Obviously, it was somewhat flattish.

What will it take to in your mind to somewhat reignite, if you will, the growth, in the U.S.?

One of the features again, I think it's still very early in terms of how the market is using the two orally available drugs that are out there.

Obviously, we expect that it's likely that CCI779 could get approval into 2007, which in our view, given the multiple courses of therapy is likely to expand the overall market and from our standpoint one of the directions that has been investigated to date and will continue to be of interest to us will be combination trials.

So with some established therapies, potentially with Avastin and certainly also with CCI779.

That's an element that could be an increment for us in the future.

Okay.

And just one last question.

Is there, if you will, a break even sales point for you and Bayer on Nexavar that you're all targeting?

We haven't, we're not managing towards short-term profitability, Elise.

And we're not providing specific guidance around that.

As you know, we focus our Company around Nexavar, and we believe that it has broad potential.

So we and Bayer share the vision, we want to explore it broadly, given its mechanism at action, its single agent activity, oral availability, good side effect profile, and combinability.

We're going to invest at the maximize value of Nexavar as opposed to drive to short-term profitability.

The big driver you guys have been talking about is the level of the development spend and we're not going to let up on that.

Okay.

So there's no limitation basically between yourselves and Bayer in either targeted financials or a timeline in which you want to see some profitability out of Nexavar?

No.

The guidelines are looking for data to continue to drive toward expanded uses.

Okay.

Thank you.

Your next question comes from David Munno with Merrill Lynch.

Hi, David.

Hi.

Most of the questions were already answered.

I wanted to go back to the R&D spend.

And if you could -- could you go over some of the additional trials again in terms of what the sizes we should expect, and when we should expect some of them to start and that spending to start in the JV?

Yes.

So the obviously as we talked there are several Phase III studies that are underway.

Obviously, we're still in the process of wrapping up the RCC studies at this stage.

But those are clearly tailing off.

But at the same time, clearly we also have other studies in RCC that are underway, plus the Phase III studies in melanoma, liver, and lung cancer.

There will be additional studies started up, there'll be Phase II randomized studies in lung and breast are the next two major priorities and there could be others beyond those, as well.

There will be randomized Phase IIs that will be coming online, but some of the Phase IIIs will begin to wind down.

And we're hopeful that the Phase II randomized studies will generate Phase III signals for us.

For those studies, are those all that you're going to be conducting internally?

Or will you be using any of the cooperative groups to conduct those?

Hank, you want to comment on -- Hank's had a lot of interactions with the key investigators, for example in the breast program, which is the part that we're leading.

And Bayer's been doing the same thing in the lung program.

You want to comment a little bit?

Yes, it's really an exciting time for Nexavar because there's quite a bit of interest in the medical community for the development of Nexavar.

And as compared to the pre-registration phase when the Company really has to fund its own clinical trials entirely, we're now moving into an area where there's quite a bit of interest in key opinion leaders and academic physicians through cooperative groups owning and running their own clinical trials, some of which can be very large and very broad in their scope.

One of the things that we're paying very close attention to in these collaborations is the overall quality so these trials serve the academic purpose of changing the standard of care, but also serve the regulatory purpose of enabling us to make claims.

We're working very closely with our colleagues to assure that studies that their running will support adoption of the product and registration of the product.

And this is a very rich and active time for us as we change how Nexavar is being investigated.

And it's exciting because it's a reflection of a core of intrinsic interest in the product.

I understand that.

I guess what I'm trying to figure out is over the next two to five years how much spending is going to be done internally to try to expand indications for Nexavar and to expand its use whether individually in renal cell or sequentially with other therapies that have already been approved versus what's going to be spent externally by some of your collaborators in the cooperative groups?

Yes, I would say the important thing about the mix is if you looked at the early set of trials we've had, they've almost exclusively been Company sponsored which are on the more expensive end of those studies.

As Hank mentioned, we're now looking at ways to interact with collaborators and cooperative groups in a way that assures quality, but does it in a more cost effective fashion.

The other thing I would add to what Hank had said, is that by virtue of having a marketed product there's a great deal of interest on the part of investigators to sponsor trials using the product that's available in the marketplace, as well.

So there's multiple ways that we think we can -- number one, initiate signals, number two, get to registrations and labels, as well.

And core to all of that is having lots of clinical trial opportunities for results.

So I think the short answer to your question is fewer company sponsored, more non-company sponsored and overall many more trials.

Just one final.

Are the trials that you have planned for the U.S. only, or U.S. and Europe?

Global, generally.

Okay, thanks.

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

Okay, just a follow-up question.

Nexavar sales in the U.S., quarter-to-quarter is flat.

I wonder whether you can share with us some of the conversation of the patients in terms of [INAUDIBLE] before this quarter or new patients come on to the drug during this quarter?

Do you see any change over there so that we can really have any idea of the therapy and what it's going to be like in the --

Obviously, we track, we're able to get through reach and other sources a lot of data.

At this stage, I think, for purposes, the guidance that we've suggested, which is we see essentially stable revenue generation in the U.S. with growth ex-U.S.

I think about as far as we can go at this stage publicly.

And again, to compare, [Susan] has actually had a pretty good strong quarter, are they taking new patients or moving the treatment earlier in the treatment paradigm than Nexavar is able to do.

Do you have any sense of what the competition?

I would say in general, they have a somewhat higher share in the first line setting and we have a somewhat higher share in the second line because the inverse typically happens at this stage with the two primary products being the oral antiangiogenics.

Okay.

Thanks.

Thanks, Jason.

You have a follow-up question from the line of Howard Liang with Leerink Swann.

Thanks.

Just a couple of questions on the timing of clinical data.

Hank mentioned that the liver cancer trial will take some time to, to accumulate because it is an oral [INAUDIBLE] study..

Would this be something we could see in 2007?

Yes, in my closing remarks I actually pointed ahead to the next 12 months or so, which would go through the end of '07 which could include potentially the liver cancer data.

Okay.

Great.

And the Phase II randomized study in RCC comparing Interferon versus Nexavar, when will we see data?

First half of the year.

Great.

Thank you very much.

Thanks.

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

Hey, this is [INAUDIBLE] for Jim Reddoch.

I actually, a lot of the questions have been answered.

I just had one question about the breast cancer trial.

Can you give us some more color on the patient types you're going to be targeting?

Are these going to be combo trials?

Any other color, thanks?

As I said in my prepared remarks, I look forward to giving you a lot more specific details as the trials are finalized.

I'd say on a conceptual level, though, the thing that's really important about breast cancer is that there are a lot of different segments of the breast cancer patient population, including patients who are first being treated with chemotherapy or first being treated with hormonal therapy or who are relapsing from those therapies.

And all of those patients could be important targets of Nexavar.

In breast cancer, a lot of the patients can be very healthy and therapy is targeted to preserve their quality of life and hormonal therapy is quite active.

An area of keen interest for us, for example, and consistent with the goal of changing the way cancer is treated is to try to get patients treated as early as possible and with as convenient regimens as possible.

That's what is so exciting about Nexavar and that's the promise that we want to tap into.

Okay.

Thank you.

And just kind of building off that point and some of the points that were raised earlier around clinical trials.

Also in the, both the renal space currently, through using cooperative groups, there are longer term Adjuvant studies also underway through ECOG in the U.S. about to start in Europe for renal cell.

We would expect that we would be looking at moving the drug earlier stages in melanoma, breast, and other diseases.

Okay.

Thanks.

Your next question comes from the line of Richard Smith with JPMorgan.

Yes, good evening.

Just quick question.

Can you provide anymore information on the driver of ex-U.S. sales?

And part, most of it was Europe, but any particular countries, was it Germany?

Germany is the biggest because it's the country we indicated had received the first pricing approval.

The full EU approval was granted in July.

And then, obviously, we have to follow that up with pricing approvals and Germany was ahead of the pack there.

Bayer has a strong presence not only there but throughout Europe, as well as internationally.

And might be a little too early, but do you anticipate or are you seeing, or do you anticipate any difference in the use of Nexavar indicated indication Europe?

Yes, it's way too early.

Okay, thanks.

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

Thanks.

Couple of quick questions.

Looks as though, just looking at trends here that the, or your share of the consolidated joint business came close to break even here.

But I guess that trend is going to reverse itself next quarter on an overall basis based on the increase in R&D, is that a right way to think about that?

Well, the components to think about are, of course, the product revenue and then the commercial costs, the R&D costs.

And then --

I understand that --

Yes, so.

On an overall basis, looks like the largest item that's moving is the R&D and given that we're going to go, we're going to go, we're going to reverse trend.

Well, we're expecting product revenue to increase, particularly in Europe once you roll out into these other territories.

Okay.

And then on the combined cost of goods and SG&A, are you guys -- are you guys close to maximum efficiency on the actual manufacturing?

And should we just expect, really, at this point fluctuation to be related to the SG&A component?

Yes.

Okay.

And there were a couple of [Seetep] trials, I guess they were all earlier stage Phase II.

A couple, particularly in ovarian, prostate cancer you guys haven't mentioned.

I was just wondering are those any closer to getting data or be seeing there?

Yes, there's a rich signal generating program going on in [Seetep].

I would expect that those will lead to clinical trials in probably in the ovarian cancer setting, more trials in the kidney cancer setting.

I think one of the most exciting aspects of it is it's generating some combination data for us, and paving the path forward to novel biological combinations, as well as chemo and biological combinations.

Over the next months, I would expect to see those trials turn into signals, which then lead to further randomized trials.

So maybe ASCO next year we might be able to see data there?

I'm sure we're going to have a busy ASCO.

And one last question.

Are you -- can you talk any at all about what you're seeing Nexavar combined use with Interferon on the front line?

In terms of the marketplace?

I would say, again, we don't have a whole lot of data on that at this stage.

I'd say most of the use is at this stage monotherapy use.

There may be some in very refractory patients, but I would say for the most part it's monotherapy, oral targeted agents in sequence.

And then maybe I missed this one.

But the data, target for data, or at least close of enrollment of the Phase III trial combined with Interferon.

Is that coming close to --

That's the Phase II first line study which will be reported out of the scientific meeting in the first half of '07.

Okay.

Great.

Thanks.

Yes.

Ralph, I think we have time for one last question.

Okay.

Your last question comes from the line of [Leland Gerschel] with Cohen & Co.

Good afternoon, thanks for taking my questions, again.

Congratulations on strong sales.

Want to ask about EU sales on an inpatient basis.

You reported $5 million in sales for Q2.

Are you still reporting that for Q3?

We didn't break that out separately.

Some of the sales into patients outside the U.S. were still named patient sales, but the majority of that is in market sales.

Okay.

Great.

And any awareness of use of Nexavar in the Adjuvant renal cancer setting off label?

You know, again, I think we can capture first use, but whether it's Adjuvant or not, I think we don't have that data at this stage.

Okay, great, thanks for taking my questions.

Okay.

Great.

Again, thank you for everybody for joining us.

Obviously, we're very pleased with the top line performance that was reported out today and remain as convinced as ever of Nexavar's potential beyond kidney cancer and our commitment remains very strong to explore it broadly.

Thank you all very much, and we'll be talking to you again in the future.

Thanks.

Ladies and gentlemen, this concludes today's conference call.

You may now disconnect.