美國安進 (AMGN) 2008 Q1 法說會逐字稿

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  • Operator

  • Welcome to the Onyx Pharmaceuticals results conference call.

  • At this time, all participants are in a listen only mode.

  • Later we will conduct a question and answer session.

  • Please note that this conference is being recorded.

  • I will now turn the call over to Onyx Pharmaceuticals.

  • You may begin.

  • - VP, IR, Corp. Comm.

  • Thank you.

  • 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 our first quarter 2008 financial results conference call.

  • Leading our call today is Onyx President and Chief Executive Officer, Dr.

  • Tony Coles who joined the Company on March 31; also participating on the teleconference are Laura Brege, our Chief Operating Officer; Hank Fuchs, our Chief Medical Officer; and Greg Schafer, our Chief Financial 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 10-K for the year ended December 31, 2007, as well as to our 10-Q for the first quarter of 2008, which is on file today.

  • I would now like to turn the call over to Tony Coles, who will begin the discussion with an overview of our business, as well as the near-term priorities for the Company.

  • After Tony's remarks, the management team will discuss commercial, clinical, and financial highlights.

  • Tony?

  • - President, CEO

  • Thanks, Julie, and welcome, everyone.

  • It is certainly a pleasure to join this call for the first time and as a member of the Onyx team.

  • These last few weeks have been quite exciting and have already confirmed for me the unique opportunities Onyx has.

  • Not only to create a new market in liver cancer and to build a great brand with our partner, but also an opportunity to build an even greater Company, with strong business fundamentals and attractive returns for our shareholders.

  • Before sharing my early observation and our near-term priorities, I would like to recognize my predecessor, Hollings Renton, for his leadership during the past 15 years.

  • It was his vision and dedication that resulted in Onyx's current level of success.

  • As many of you well know, only a handful of biotech companies have discovered new oncology drugs and successfully brought them to market.

  • I applaud the achievements of the Onyx and Bayer collaboration in adding Nexavar to the arsenal of cancer therapies.

  • Since joining Onyx, I have been immersed in identifying ways in which I can bring nearly two decades of commercial experience to driving future success for Nexavar.

  • There's clearly an opportunity to further unlock Nexavar's potential by identifying additional patients and prescribers who have not yet heard the Nexavar story, and as a result, drive further penetration for the brand.

  • Although I've been with Onyx only a few weeks, there are some early observations I've made that provide for some clear conclusions and some key areas for immediate focus.

  • I would now like to share with you what we've established as four simple and straight-forward near-term priorities for growth.

  • First and foremost, together with Bayer, we intend to manage Nexavar as a business, with careful attention to the growing top line revenues, while at the same time exercising financial discipline to deliver returns for the brand.

  • In order to do this, we will need to make continued investments to tap into Nexavar's full potential, both for new patients and the currently approved indications and others in potential new indications.

  • As we are focused on creating operating leverage for the brand, we are committed to spending prudently, as we seek to remain competitive in this space, and reasonably, by making trade-off decisions with an eye toward the best return for each incremental dollar spent.

  • Our second priority is to maximize today's end market business by fortifying our position in kidney cancer and driving the uptake of Nexavar in liver cancer to create a dominant leadership position in this emerging market.

  • While our recent share performance in the kidney cancer market has indeed stabilized, this continues to be a competitive market and we anticipate additional market pressure as new agents become available.

  • We believe that Nexavar, given its comparative safety and efficacy profile, has been, is, and can continue to be a foundational drug in the treatment of kidney cancer and we will seek to continue to fortify our position in this market segment.

  • However, a key for the brand today and for the immediate future is liver cancer.

  • HCC represents a large and previously underdeveloped market, with tremendous potential in this country, and even greater potential in the Far East and Europe.

  • With our partner, we are leveraging the success of our early launches and building on this already strong foundation of performance.

  • Our goal is to better understand best practice approaches for increasing awareness and earlier diagnosis of liver cancer globally.

  • And to determine how these potential drivers might fit into our comprehensive global strategy for the brand.

  • With currently planned market expansion efforts and further clinical development in this indication, we expect to expand and solidify our leadership position in liver cancer.

  • Our third priority is to continue investing in new indications for Nexavar.

  • We still have much more to learn about Nexavar's clinical activity and potential efficacy.

  • In additional tumors, in different patient groups, in different disease settings, and in combination with different chemotherapy backbones, Onyx and Bayer are committed to maximizing both the near term and the long-term value of this important oncology agent, by allocating our joint investment in a measured way across a variety of cancers.

  • Finally, and this is in parallel with these Nexavar-related goals, our fourth priority is to remain opportunistically focused on business developments.

  • We are committed to achieving both our immediate priority of managing Nexavar as a business and our longer-term goal of creating a valuable Company by maximizing Nexavar and building a portfolio.

  • We will remain poised on the business development front and intend to add resources to these efforts so that we can move forward opportunistically as appropriate.

  • While Nexavar remains the cornerstone of our business and the engine for growth we expect to expand our portfolio as a way to build a sustainably profitable Company, as well as to mitigate any risk associated with being a one-product business.

  • We believe Nexavar's efficacy, tolerability and convenient oral dosing make it an ideal drug to benefit patients with many different types of cancer.

  • We are extremely pleased with our early commercial results and remain focused on what we need to do to succeed with Nexavar.

  • It's now my pleasure to turn the call over to Laura Brege, who will highlight our commercial progress.

  • - COO

  • Thanks, Tony.

  • In the first quarter, Onyx and Bayer continued the positive sales momentum, both domestically and internationally, achieving global net sales of $151.9 million.

  • This included approximately $101 million generated outside the United States and approximately $51 million generated in the United States, including a clinical supply order of 5.6 million in the U.S.

  • On a year-over-year basis, this represented 189% growth in sales from territories outside the United States and 96% growth in U.S.

  • sales.

  • On a sequential basis, rest of the world sales increased by 23% over the fourth quarter of 2007 and U.S.

  • sales increased 19% over the fourth quarter of 2007.

  • Given the priority that Tony mentioned to maximize our inline business, we are pleased that first quarter sales performance was driven by worldwide uptick in liver cancer, most notably in Europe.

  • Bayer has launched this indication in Germany and France and just recently in Spain.

  • And they anticipate launching in Italy over the next few months.

  • In Asia, Nexavar has been approved for this indication in South Korea.

  • Additionally, we look for approval in Taiwan later this year.

  • Based upon what we've observed historically with regulatory approvals, we anticipate Bayer will launch the liver cancer indication in China in the second half of this year, and in Japan in 2009.

  • In these countries, the annual deaths due to liver cancer are over 300,000, and 30,000 respectively.

  • Together with the other Asian markets, these countries represent significant areas of unmet need, and importantly growth opportunities for the brand.

  • In Asia, access and affordability are clearly important variables in determining product uptick.

  • We believe that the number of liver cancer patients receiving oral systemic therapy for their disease will expand in a stepwise fashion as we seek to grow the market, by accessing greater number of patients at earlier stages of their disease.

  • Some of these growth drivers will be realized through our own market development activities.

  • While additional growth will result from even greater number of patients developing and being diagnosed with liver cancer.

  • Liver cancer is one of the fastest growing malignancies in the United States, and is expected to be for sometime.

  • For example, hepatitis C is increasing at a rapid rate in the years to come.

  • And it is expected that a number of these patients will go on to develop liver cancer.

  • This is one of those rare instances where a Company with an innovative product stands poised and ready to provide a treatment for future patients who will develop one of the deadliest forms of cancer.

  • Onyx and Bayer are actively conducting medical education and outreach to the various physician specialties that treat liver cancer patients.

  • Initially, we utilized our established relationships within the oncology community and have been quite successful in building awareness in that market segment.

  • Our experienced and talented sales team is broadening its outreach to include liver transplant centers and major medical centers where recognized liver disease experts reside.

  • Our team is reaching out to the multiple audiences important in the early diagnosis and treatment of liver cancer, including gastroenterologists and hepatologists.

  • Both physician groups that manage a large percentage of liver cancer patients.

  • Other groups include interventional radiologists and surgeons, who also are important members of the multidisciplinary teams that manage liver diseases, including unresectable liver cancer.

  • In addition, we are moving forward with a series of clinical trials intended to expand our leadership position in liver cancer.

  • Trials include adjuvant studies, as well as combination studies, particularly with local therapies, such as TACE, or transarterial chemoembolization.

  • Environmental factors likely to impact uptake include reimbursement and affordability.

  • Bayer's established patient assistance programs in countries such as China to provide access to Nexavar, as well to provide important hands-on experience for treating physicians.

  • We anticipate advances in accessibility over time in Asian countries, particularly in China where the economy is flourishing and where broader government-based reimbursement is expected.

  • With the combined Company-based outreach, broad clinical development program, and changing environmental factors, we see the market opportunity in liver cancer as quite large.

  • With the potential to grow significantly over time.

  • We are actively engaged in developing this market by identifying opportunities and leverage points to fuel this growth.

  • Looking at the kidney cancer markets, most launches worldwide have now occurred.

  • In the first quarter of this year, Japanese regulatory authorities approved Nexavar for this indication.

  • As a reminder, Bayer is responsible for all development and commercialization costs in Japan, while Onyx earns a single-digit royalty on sales.

  • Given the recent launch in Japan, we may recognize royalty revenue as early as the second quarter.

  • In kidney cancer markets around the world, Nexavar has been established as an important therapy.

  • While patients are benefiting from the multiple drug options now available to them, it's also causing competitive pressure, pressure that will continue as additional agents are introduced.

  • We are pleased that Nexavar continues to have this valuable place in the treatment paradigm of healthcare professionals globally who are treating individuals with advanced kidney cancer.

  • We continue to explore initiatives in this market aimed at appropriately segmenting patients who can benefit from Nexavar's tolerability and efficacy.

  • Watch for oncoming Company and investigative-sponsored studies to generate incremental data in sequencing, combinations, dose escalation, and adjuvant applications.

  • In addition, with Bayer and the Kidney Cancer Association, we've launched a disease awareness program designed to empower people affected by advanced kidney cancer to seek support, resources, and information that can help them build and stay with the treatment plan in collaboration with their medical teams.

  • Major league baseball hall of fame pitcher, and advanced kidney cancer survivor Don Sutton is the national spokesperson for this program.

  • This is an important time for the Nexavar franchise.

  • As commercially we invest to maximize our leadership potential in liver cancer and fortify our fortify position in kidney cancer.

  • I would now like to turn the call over to Hank Fuchs who will provide an update on our development program.

  • - CMO

  • Thanks, Laura.

  • As Tony mentioned in his opening comments, we are committed to continuing our investment in the exploration of new indications for Nexavar.

  • The hallmark of our broad development program is extending the evidence for Nexavar's applicability across multiple tumor types with consideration for specific patient populations and disease settings.

  • Given Nexavar's success in two different cancers, we are increasingly confident of Nexavar's ability to help more patients with hepatocellular carcinoma, renal cell carcinoma and other types of cancers.

  • Clinicians are increasingly interested in Nexavar, and therefore we have a diverse clinical program consisting of trials sponsored by the Company, by international study groups, government agencies, and investigators.

  • Because patient characteristics such as tumor type and current treatment can influence whether a cancer drug is successful in clinical trials, we are investigating Nexavar administered alone and in combination with other anticancer agents.

  • Importantly, with Bayer, we are shifting our strategy to increase the number of randomized signal-generating Phase II studies across tumor types as a way to more efficiently identify appropriate patient population and disease settings, as well as to mitigate investment risk.

  • For example, in breast cancer, we have launched a comprehensive program in collaboration with international breast cancer experts.

  • Our goal with this clinical development approach is to identify signal-generating opportunities that will better inform our decisions for Phase III development, as we seek to balance an appropriate level of risk for our most significant investment.

  • All told, Nexavar's currently the subject of over 200 clinical studies, with the goal of generating valuable data that will guide our future investments with rigor and discipline, and we believe will ultimately lead to better treatment options for cancer patients.

  • Expect to see multiple presentations at upcoming conferences in the next few months, including data from the Asia Pacific liver cancer study, which will provide incremental information from that region of the world.

  • More subgroup analysis from SHARP, our pivotal liver cancer study, and advanced lung cancer study sponsored by ECOG, administering Nexavar as monotherapy.

  • Incremental information on subgroups of kidney cancer patients from our Expanded Access program, dose escalation data, also in patients with advanced kidney cancer, as well as numerous other studies and different tumor types that are now reaching maturity.

  • In summary, with demonstrated efficacy in two previously underserved cancers and a broad, yet disciplined clinical development program designed to leverage Nexavar's tolerability, efficacy, and oral reministration, we believe that Nexavar is well positioned to make an increasingly significant mark in the treatment of cancer.

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

  • - CFO

  • Thank you, Hank.

  • As discussed earlier, total global net sales of Nexavar for the first quarter were $151.9 million, representing an increase of 149% compared to the first quarter of last year, and an increase of 22% quarter over quarter versus the fourth quarter of 2007.

  • As a reminder, all Nexavar revenue is recorded by Bayer and Onyx and Bayer share profits worldwide, except in Japan, where we will earn a single-digit royalty on any sales.

  • For the first quarter, our net profit was $15.4 million, or $0.27 per share fully diluted.

  • Remember, the first quarter has historically been the lightest in shared expenses for the collaboration.

  • Additionally, as we continue to expect unevenness in expenses across quarters, bottom line performance is likely to vary from quarter to quarter.

  • Total share of Nexavar sales and marketing expense incurred by Onyx and Bayer, including cost of goods sold and distribution expenses, was $62.7 million for the first quarter of 2008.

  • Total share Nexavar development expenses under the collaboration were $37.5 million for the first quarter.

  • Looking forward, we will continue to make the necessary commercial and clinical investments to achieve revenue growth for both the near-term and the longer term, and we are not revising expense guidance for the year.

  • As a reminder, 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.

  • Onyx's direct R&D expense of $7.4 million in the first quarter of 2008 increased over the last quarter, primarily due to expenses associated with the breast cancer trials that Onyx is leading.

  • Included in our R&D expense is $580,000 in R&D-related noncash stock-based compensation.

  • Onyx's SG&A expense was $19.8 million for the first quarter of 2008.

  • This line item includes the costs of our U.S.

  • sales force, the portion of shared Nexavar marketing expenses that we incur directly, the costs that we incur for general and administrative support of the Company, and SG&A-related noncash stock-based compensation expense of $4.6 million.

  • Total noncash stock-based compensation was $5.2 million in the first quarter of 2008.

  • We recorded a tax provision of $309,000 for the quarter, while we have significantly accumulated net operating losses, this amount reflects corporate alternative minimum tax at a rate of approximately 2% of net income.

  • At March 31, 2008, we had cash, cash equivalents, and marketable securities of $456.6 million as compared with $469.7 million at the end of the fourth quarter.

  • Now, I will turn the call back over to Tony.

  • - President, CEO

  • Thanks, Greg.

  • Over the last couple of years, we've been fortunate, together with our partner, Bayer, to be able to bring the benefits of Nexavar to cancer patients around the globe and this work is only beginning.

  • Commercially we will continue our work with worldwide launches of Nexavar in liver cancer as well initiate critical market development work to support the growth of this opportunity.

  • On the clinical front we are embarking on a network of liver cancer trials intended to expand our leadership position in this indication and we are incrementally investing in breast and kidney cancer studies that will provide valuable insights on Nexavar in these diseases.

  • Additionally, we have a broad program examining the potential benefits of Nexavar in numerous other regimens and tumor types.

  • Financially, we are in a strong position with a healthy balance sheet and positive contribution from the Nexavar business.

  • Given our first priority to manage Nexavar as a business with financial discipline and an appropriate level of investment, we expect that over time, the brand will deliver increasing margins to the overall performance of Onyx.

  • So we would now like to share with you how we see the year unfolding.

  • The first quarter performance was very strong and showed growth for both the U.S.

  • and rest of world.

  • As we look forward to how the year might progress and if we exclude the first quarter clinical supply revenue that Greg mentioned, we fully expect that if the current demand trends continue, Nexavar net sales this year are projected to be within the range of 600 million to $650 million.

  • We believe this is stellar performance for Nexavar, which is only two years post launch and believe that Nexavar is on par and tracking with other successful targeted oncology agents.

  • As our planned initiatives unfold and as additional liver cancer launches are expected in new markets around the world, we may look to update this estimate later in the year.

  • As a result of this top line performance and the balanced investments we expect to make for future growth, we anticipate that as a brand, the joint Nexavar business will be profitable for the full year 2008.

  • As a result, Onyx the Company is expected to be cash flow positive and is likely to break even or potentially be profitable on the bottom line for the full year 2008.

  • We are pleased with the performance of Nexavar the brand and its projected impact on Onyx's financials for this year.

  • As I mentioned in my opening comments, we have four near-term priorities and they are squarely in front of us.

  • As we continue our efforts, we are enthusiastic about our ability to make a difference for patients and their families and in so doing, continue building a sustainable Company for the benefit of our shareholders.

  • We will now take your questions.

  • Operator

  • Thank you.

  • (OPERATOR INSTRUCTIONS) The first question comes from Jim Birchenough from Lehman Brothers.

  • Please go ahead.

  • - Analyst

  • Hi, guys.

  • Just wondering if you can break out for us, particularly in the U.S., the distribution between renal cell and liver cancer sales?

  • - President, CEO

  • Jim, it's Tony.

  • Good afternoon to you.

  • It's going to be difficult for us to break, break out the sales by tumor type.

  • Those data are really difficult to access, both in U.S.

  • and around the world.

  • So we wouldn't even want to begin to make a guess at how they might break out.

  • What we can tell you, however, is that the market shares have stabilized for kidney cancer, for renal cell, and the important growth area for the business is going to be HCC, so we regard that as the large driver of future performance.

  • - Analyst

  • And just if I could follow up, then, just on your guidance, and I appreciate you providing guidance for the first time, but at the low end, it's almost flat from where we were in the first quarter, despite the fact that we've had 22% sequential growth.

  • So it seems incredibly conservative, just wondering if you can comment on that.

  • - President, CEO

  • So I'll make a couple of comments and then Greg may have an additional comment as well.

  • If you keep in mind that the 2007 sales were $372 million, we think that this range shows a very strong trend towards good performance and does put it on track with performance of other similar targeted agents at their life, at their life post launch, so we think that's pretty remarkable.

  • The thing that I would ask you to keep in mind, as well as everyone else, is that we did have a clinical order in the first quarter and if you back that out of the first quarter number, I think you'll appreciate that the range that we provided does show pretty healthy growth.

  • We do understand and appreciate that we have additional work to do in terms of market development and it's quite possible that as these initiatives continue, we may choose to update the guidance as we move forward.

  • But given that we are still in the middle of a launch phase and this is the first time we've provided guidance, we wanted to give you as clear a sense as possible about the momentum drivers in the business.

  • But we think it's pretty good growth.

  • - Analyst

  • Okay.

  • Well, congratulations on the quarter.

  • I'll jump back in the queue.

  • - President, CEO

  • Thank you, Jim.

  • Operator

  • The next question comes from Steve Harr from Morgan Stanley.

  • Please go ahead.

  • - Analyst

  • A couple of questions.

  • Number one, at the end of the fourth quarter, your 2008 guidance was for sales in the joint collaboration that were consistent with the fourth quarter run rate, which was, is significantly greater than what you had in 1Q.

  • And understanding that there is some quarter to quarter volatility, which would be expected does that guidance still stand, the expected costs to run this business, or have you guys been able to find some cost savings and we should think about a number of little less than the 4Q run rate?

  • - President, CEO

  • So, Steve, let me, if I can, just clarify one thing.

  • I think in your question, you refer to sales.

  • Actually the guidance we provided at the year end was for a consistent level of spend.

  • - Analyst

  • I said OpEx.

  • I said OpEx.

  • - President, CEO

  • Yes, okay.

  • All right, good.

  • Just so we're aligning around the answer here.

  • The specific answer is that we're not prepared to change expense guidance at this time.

  • However, we are reviewing the expense base for the business and consistent with the investments that we want to make both for development and importantly market development, because that is one of the things we're squarely focused on now, we're not prepared to change that.

  • Despite that, however, we do believe that the business and the brand have an opportunity to be break-even to profitable for this year.

  • - Analyst

  • On this top line guidance, I'm still really confused by the $600 million, it's basically zero growth from your 1Q number.

  • Unless you see a significant halting of the business, it's not very constructive or instructive.

  • Is that what you're trying to imply by the $600 million, that there is some risk that this very substantial sequential growth that we've seen early in the launch is not sustainable?

  • Or what else is driving such a low, low end to your guidance number?

  • I mean -- back out the 5 million, a 146 run rate, right, that's basically 485 -- 585 million for the year.

  • - CFO

  • Yes, if you back out the clinical supply number, you would get to kind of a run rate of about 580, as you have suggested.

  • So at the top end of our guidance range of 650 or so, we call that a $70 million spread, and we are continuing to focus on the growth opportunities.

  • So the nice part about the, this performance from the first quarter is that both the U.S.

  • showed very healthy growth, as did the ex U.S.

  • markets.

  • And we're not signaling in any way that we're not either enthusiastic or optimistic about the future growth.

  • We are really trying to do our best to provide clarity in what we see as the immediate opportunity and reserve the right to come back as that opportunity continues to grow and revise that number upward.

  • We're really working to give everyone on the Street as much clarity as we possibly can, but we do believe and we will continue to drive the top line as aggressively as possible.

  • - Analyst

  • All right, thank you.

  • - CFO

  • Thank you.

  • Operator

  • The next question comes from Katherine Kim from Banc of America Securities.

  • Please go ahead.

  • - Analyst

  • Hi, thanks.

  • I just have a few follow-up questions about the expenses.

  • So when you talk about the operating expenses from the joint business, I know it's hard to give a, like quarter to quarter guidance, but how should we look at the future quarters when you significantly went under by about 40 million, if you compare it to the 4Q run rate?

  • - President, CEO

  • Katherine, I'm going ask Greg to address that.

  • - CFO

  • Yes, well, as you can see from our past experience, there is unevenness across the quarters and it's got to do with the variability and the way the development programs run, as well as launch expenses.

  • So just to remind the guidance we gave at the prior quarter, which we are not updating at this time, we guided to four times the Q4 run rate for both R&D and for SG&A, so to remind you, on R&D, the fourth quarter collaboration spend was approximately 52 million, and on the SG&A, it's 82 million.

  • So we would expect that -- we're not updating that guidance, so we would annualize that over the remaining quarters of the 2008.

  • - Analyst

  • So would you say that -- so basically when you're not changing guidance, it means that the rest of the three quarters, it's going to be significantly higher than what people expect, expected, because you had the savings in the first quarter.

  • - CFO

  • Well, I would say that two things.

  • One is just to remind you that Tony's statements about we're reviewing all the expenses and investments very carefully, as we move forward, but it would reflect an increase from Q1 for the remainder of the year based on not updating the guidance at this time.

  • - President, CEO

  • Katherine, it's Tony.

  • What I would add to that is that that's reflective of our continued investment behind some additional tumor opportunities on the product development side.

  • So we -- you can expect that we will continue to look for new ways in which Nexavar can be used, as we seek to understand where in the spectrum it might be used.

  • So most of that investment will be to support that, as well as our market development initiatives to drive HCC.

  • You probably want to think about it in terms of what we think is going to happen on the top line as well.

  • - Analyst

  • Okay, so Tony, if you can just answer, are you just trying to be very conservative at this point, because even on, you seem to be both on the top line and also on the JV, the operating expense to be very conservative considering what you have reported in the first quarter.

  • - President, CEO

  • Katherine, I think the way I would answer that question is it's probably in our best interest to set a kind of a common ground as we're starting the beginning of the year for what we expect.

  • We fully expect to continue, as I mentioned in my previous comment, to drive the top line sales aggressively, but this is the first time we are providing guidance and I think it's going to be very important for us to be very thoughtful about how we set the guidance and then make sure that we hold ourselves responsible for doing what we can to exceed that guidance with all the efforts that we have in the organization.

  • So we're trying to A, be responsive to the request for guidance which we've heard loudly and clearly., but also to set expectations appropriately for what we see in the business.

  • We do believe that our continued efforts at market development will pay fruit over time.

  • - Analyst

  • Okay.

  • Thank you.

  • Operator

  • The next question comes from George Farmer from Wachovia Capital Markets.

  • - Analyst

  • Hi, thanks for taking my question.

  • Tony, I, too, take issue with the guidance that you provided and I don't understand, especially since your comments, your prepared remarks coming from management were so bullish, especially on the Asian opportunity potentially in the second half of this year and I would submit that you just don't even bother giving guidance, if that's the case.

  • But I also want to kind of ask you also about the opportunities in the U.S., especially given that a large part of the U.S.

  • number had to do with this clinical supply material.

  • It looks like growth has pretty much settled.

  • Is that -- should we assume that just the liver cancer in U.S.

  • may not be as big as the patient number suggests?

  • - President, CEO

  • George, let me take your question on the guidance first and then I'll ask Laura to make comments on the U.S.

  • market.

  • I will -- I will share a perspective.

  • I've said this in my response to Katherine and I'll share a perspective, that what we want to do is set a starting point and then look in the second half to update that guidance, which we're very comfortable we'll be able to do once we get another quarter of performance under our belt.

  • We think doing this stepwise is prudent and setting the stage very carefully and -- is wise.

  • So let me ask Laura to comment on your market question for the U.S.

  • - COO

  • In the U.S., we see tremendous opportunity and I do believe that the patient numbers, which are available for you to look at in the U.S., are reflective of really strong opportunity.

  • This is a disease that has significant unmet need.

  • There's been nothing available for patients.

  • We have the first systemic therapy available, which is, which extends overall survival.

  • So it depends on how you want to go ahead and map out the building in the market, but this is a great opportunity.

  • Today what we have done is had an opportunity to go out and serve the patients who are in the system treated fundamentally by the medical oncologists, an audience that we know well.

  • Patients in the U.S.

  • heretofore where there was no therapy really have been presenting quite advanced in their disease.

  • These are patients who are treated by multiple specialists and who in fact will, will have the benefit of Nexavar as we meet and educate each of those audiences.

  • So as we look at the opportunity, we see that opportunity this year and we see the opportunity in future years.

  • - Analyst

  • Okay.

  • Quick housekeeping question also.

  • You reported $408 million in cash at the end of the first quarter.

  • That's actually down from $470 million that you reported at the end of last year, yet you had positive net income.

  • Where is the rest of that cash going?

  • - CFO

  • This is Greg.

  • There's really three areas that I would like to point to.

  • First, we reclassed some auction rate securities into long-term.

  • These are AAA rated student loan, government-guaranteed auction rates and we revalued those at about 97%, which resulted in a balance sheet impact of about $1.7 million.

  • The other effects are really a result of the strong performance in the quarter, so we saw an increase in our receivable from Bayer over the quarter, up over $30 million based on the profitability of the collaboration, and secondly, we reduced the amount of the advance from Bayer by approximately $9 million.

  • So those were all effected on the balance sheet.

  • - Analyst

  • Okay, great.

  • One last question, you talk about reviewing the expense base.

  • Is that coming from up top at Bayer?

  • Are they kind of rethinking about Nexavar development going forward, especially in light of the failed lung cancer trial?

  • Are there any other big, big opportunities away from breast that you guys are considering, and on that note, when are we going to see some, the first readout from the first breast cancer studies?

  • - President, CEO

  • George, in terms of the expense review, what I can tell you is that that's happening jointly in both Onyx and Bayer and I think what you will hear from the very top of both organizations is a desire to manage the spend for the brand and to be very thoughtful about the expense base.

  • So it is not unilateral.

  • It is both organizations, and we are both intent on what I've laid out as the first priority, which is to manage Nexavar as a business and it's with that lens that we are looking at all of the expenses in the business to make sure that we are delivering an appropriate return for this brand at this point in its lifecycle.

  • And that is a perspective that we share with our colleagues at Bayer.

  • In terms of the breast cancer trial readouts, Hank?

  • - CMO

  • Yes, George, we have five randomized Phase II studies that are really just getting under way.

  • They have been designed in collaboration with key opinion leaders around the world to answer independent questions about the potential role for sorafenib in breast cancer and it's really the first time we've launched a program with concurrent asking of Nexavar to identify its optimal setting and role.

  • So we're just getting that program under way and we'll give you an update on progress as we make a little bit more progress.

  • - Analyst

  • Great, thanks very much.

  • - CMO

  • Thank you.

  • Operator

  • The next question comes from Howard Liang from Leerink Swann.

  • Please go ahead.

  • - Analyst

  • Thanks very much.

  • Just a clarification on the stabilization of the market share for RCC during the first quarter.

  • Should we read that as, that the sales for RCC in the first quarter were similar to the fourth quarter?

  • - President, CEO

  • Howard, I'm going to ask Laura to address that, but please be mindful of my response to Jim a moment ago, that we're not breaking out sales by indication, because it's pretty tough and that data are hard to come by.

  • Laura, do you want to speak to any of the underlying trends?

  • - COO

  • Yes, thank you.

  • Howard, so just as Tony said, I would, I would not use the same numbers or different numbers.

  • Fundamentally where we are and today is that Nexavar's got an important place in the therapy choices that physicians have, these patients see multiple lesions, they are seeing Nexavar and we have been very successful in capitalizing on the opportunities where we have great relationships with the oncologists and we have great progress in how patients have progressed on our drug.

  • So I think that what we see today is that Nexavar has a good position in RCC and we feel very comfortable with it.

  • - Analyst

  • Okay.

  • So I guess I just wanted to return to the question of the momentum in U.S., because if you take out the 5.4 or 5.6, you have 45 million to $46 million in the quarter in the U.S.

  • compared to 43 in the fourth quarter.

  • So if RCC's relatively stable, that would say that HCC seems to be, the growth seems to be fairly small.

  • Where are you, do you think, in the penetration of, the HCC market?

  • - President, CEO

  • So let me, let me make a couple comments and I'm sure Laura will have something to say on that.

  • It -- what it's very interesting in terms of the launch for HCC is that what we recognize with it was that the low-hanging fruit came from oncologists and that drove a lot of the performance that we saw in the fourth quarter for the brand, and I think that that business, because it's where we had the already established relationships and where we could very easily access the physicians to tell them about Nexavar, proved to be fruitful for us.

  • We're continuing our launch amongst the oncology audiences, but what we recognize is there are a number of other physician types who are treating an important number of HCC patients that oncologists don't see.

  • So we are in a phase, and this does relate to comments around guidance, we are in a phase where we are expanding our efforts to other physician types so that we can continue to grow and access those patients that we know are already there.

  • So view the dynamics in the fourth quarter on the basis of starting with the oncologists, if you will, it's kind of Phase I in the launch and then as we progress through 2008, expanding our target audience to other physician types, which really should help context what we've said about revenue guidance a moment ago.

  • - Analyst

  • Okay.

  • If I can also ask, do you have market research on what's, what portion of HCC patients are seen by hepatologists versus medical oncologists and also whether there is a difference in treatment duration by the two specialties?

  • - COO

  • Howard, the medical oncologist will generally see a liver cancer patient relatively late in the disease.

  • Having said that, when you look at it geographically, as these patients have had a very complex history, they have two diseases, they have an underlying liver disease as well as a hepatocellular carcinoma and have not previously had any treatment.

  • What you see are specialty groups, different -- depending upon where you are in the country, depending upon where you are in a medical center, you will in fact find that the hepatologists, the oncologists, the interventional radiologists, the surgeon, are all important parts of the treatment plan for a particular patient.

  • So as you look at where the patients are, they fundamentally are with the hepatologists and the gastroenterologists.

  • They are there and earlier in their disease, so they do see a medical oncologists.

  • We have had the opportunity to address that audience.

  • We are educating throughout the treatment continuum, and are beginning to see really good results in terms of the understanding in the different audiences of the importance of Nexavar.

  • But it is early days of that, of the building and the creating of this opportunity in the marketplace.

  • - Analyst

  • Do you have the breakdown between the two, the patient population seen by the two groups?

  • - COO

  • No, I, I don't have that to share with you.

  • - Analyst

  • Okay, great.

  • Thanks very much.

  • Operator

  • The next question comes from [Jessica Lee] from Goldman Sachs.

  • Please go ahead.

  • - Analyst

  • Thanks for taking my question.

  • Just quickly, could you please remind us whether there is any price increase in first quarter that is in the U.S.?

  • And also, could you please give us an update on the European lung cancer trial?

  • - President, CEO

  • Sure.

  • Greg, if you can take the price increase question and then Hank will comment on the European lung trial.

  • - CFO

  • Yes, there was a price increase in the U.S.

  • of 5%, and, Hank?

  • - CMO

  • And the Nexus trial is a front line trial that was designed to enroll 900 patients treated with a different chemotherapy backbone.

  • The chemotherapies are gemcitabine and cisplatin which is very important in the lung cancer program because it's been channeled at the target therapies.

  • Sometimes the target therapies work with one combination really well and not another combination and so we're really looking forward to testing (inaudible) activity in that.

  • We have, as you know, removed the squamous cell cancer patients from the study and enrollment is now on track and we'll give a little bit more clarity about when we think we'll complete enrollment as we draw nearer to that.

  • - Analyst

  • Great, thanks.

  • Also, just curious as to what lessons you have learned from the ESCAPE trial findings.

  • - CMO

  • Well, the ESCAPE trial was presented, as you know, recently and had a chance to review the data.

  • And was also in the context of a very large international lung cancer program, I think the fact pattern is that it's impossible to predict in advance what combinations of therapies are going to work precisely well.

  • There isn't a perfect test tube experiment or Phase I study that can be done and so we, and so know, we've combed through the data very carefully.

  • We don't identify with clarity -- we don't identify with clarity why the squamous cell patients had higher mortality, but we do have a very broad program in lung cancer.

  • I wanted to point out that in addition to the gemcit trial we have two (inaudible) Phase II trials going on with Alimta and Tarceva the second line, and also importantly, I mentioned in our prepared comments, we have a third line monotherapy trial, which is a randomized trial that we're looking forward to being presented at ASCO in the next month.

  • So all told, we have a very large commitment to Nexavar and lung cancer and believe that we have a lot of trials under way that will give us important information on which to make decisions going forward.

  • - Analyst

  • Yes, so for the Phase II trials, do you include patients with oral histology?

  • - CMO

  • Yes, so in the front line program, we have removed the squamous cell histologies.

  • The ECOG third line trial was completed prior to -- the ESCAPE trial, the enrollment and that does have some squamous cell cancer patients in it.

  • The randomized Phase II studies have had squamous cell cancer patients in it.

  • I don't believe that they, going forward will have squamous cell cancer patients in there.

  • - Analyst

  • Great, thank you.

  • Operator

  • There's time for one last question.

  • The final question comes from Phil Nadeau from Cowen and Company.

  • Please go ahead.

  • - Analyst

  • Good afternoon.

  • Thanks for taking my questions.

  • First, a follow-up to the previous question.

  • That's on the melanoma Phase III, could you give us an update when we might see that data?

  • - CMO

  • Yes, Phil, so just to remind everybody, ECOG was conducting a front Line 800-patient overall survival primary end point study, intending to accrue 800 patients.

  • We had projected that we would conclude -- that ECOG would conclude enrollment in the study in the first half of the year.

  • We're pleased to report that ECOG has now concluded randomization into the study because the study is an event-driven study, we can't project yet when the sufficient number of death events will have occurred, so we look forward to getting more information as time goes by in terms of having a clear picture of when the data will be available.

  • - Analyst

  • I think in the past, you've said that the liver cancer event rate, or duration between completing enrollment and when we saw the data could be a good proxy for the melanoma trial.

  • Is that still the case, or has anything changed your opinion of that?

  • - CMO

  • I hope that's the case.

  • And the reason I hope that's the case is because we stopped the liver cancer study at an interim analysis due to fairly significant efficacy and so I don't know if that kind of timeframe will hold again, and it really depends on how effective Nexavar is in the study.

  • We usually try to point people to assuming that you have to go to the overall final analysis, because it's unusual for studies to stop early due to efficacy.

  • - Analyst

  • Okay, and one last question on Nexavar in liver cancer, in the past, you -- I don't believe have given us as much data on the average dose or duration of Nexavar and liver cancer, saying that it was too early in the launch.

  • Do you have any of those anythings now of what is the average dose or average duration of the patients on Nexavar?

  • - President, CEO

  • Laura?

  • - COO

  • So I can help you some and as we go through in terms of, to remind everyone duration of therapies, it's about five months in the SHARP trial and then as Tony mentioned in the early days, you clearly see the sicker patients and therefore have an expectation of a lower duration of therapy.

  • And the next question, of course, is about what's the dosing looking like.

  • The dose in the label, which is for same dose as for kidney cancer is in fact looking like it's being held up in the marketplace.

  • So I think you can feel the dose, in fact, is holding well.

  • And duration of therapy, as we are successful in having patients seen earlier by the physicians who are knowledgeable about Nexavar, I think you should continue to see that improve.

  • - Analyst

  • So when you say the dose is holding up, does that imply that you see very little dose reduction in clinical practice?

  • - COO

  • We have not seen a lot of dose reduction.

  • We have seen, everything we've seen is anecdotal and I think that Nexavar is incredibly well tolerated, as well as being the first agent to show overall survival in this deadly disease, and so I think we're seeing -- we're having -- physicians are having very good experience with the drug.

  • - Analyst

  • Great, thank you.

  • Operator

  • That concludes today's question and answer session.

  • I would like to turn the call back to Onyx Pharmaceuticals for closing comments.

  • - President, CEO

  • Thanks.

  • And thanks everyone for joining us this afternoon.

  • We do look forward to bringing you updates as the months progress, and importantly, updates on the opportunity in liver cancer, where we do see some exciting things moving forward.

  • So thanks for joining us and we will see you on the road.

  • Operator

  • Thank you for participating in the Onyx Pharmaceuticals first quarter financial results conference call.

  • This concludes your conference for today.

  • You may all disconnect at this time.