美國安進 (AMGN) 2008 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to the third quarter financial results conference call.

(Operator Instructions.) Please note that this conference is being recorded.

I will now turn the call over to Onyx Pharmaceuticals.

You may begin.

Thank you.

Hello and welcome.

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

We thank you for joining us today for our third quarter 2008 financial results conference call.

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

Tony Coles.

Also providing updates on the teleconference are Laura Brege, our Chief Operating Officer, Dr.

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 facts 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 are 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 31st, 2007, as well as to our 10-Q for the third quarter of 2008, which is on file today.

In addition, we will be presenting and discussing non-GAAP financial measures in this presentation.

For a reconciliation of these non-GAAP financial measures to the corresponding GAAP measures, please see today's press release, which is posted on our website at www.onyx-pharm.com.

I would now like to turn the call over to Tony Coles, who will begin the discussion with an overview of our business.

After Tony's remarks, the management team will review commercial, clinical, including comments on the new oncology compound that we just in-licensed, and financial highlights before opening up the call for questions and answers.

Tony?

Thanks, Julie.

Let me start the call by saying that we are very pleased with the performance of Nexavar and the business itself on both the top and the bottom line for this quarter.

Given the uncertainty of today's financial markets, we are also very pleased to report that Onyx remains very well positioned to weather the current global fiscal crisis, given the growth of Nexavar and our strong cash position with no debt.

We are uniquely positioned not only to withstand the uncertain times ahead, but also to capitalize on opportunities to grow the company.

Upon my arrival seven months ago, we laid out four simple priorities to support the company's ongoing growth objectives, objectives that are focused on improving the lives of patients with cancer and building sustainable shareholder value.

I'd like to review these priorities and assess our progress against each one.

Our first objective is to manage Nexavar as a business.

For the third quarter, Nexavar continued its impressive sales performance with global net sales of $181 million.

This is Nexavar's tenth consecutive quarter of net sales growth, and this growth continues to be based on underlying volume.

In addition to the notable top line growth we have seen in Nexavar since its launch, margins have steadily improved both before and after consideration of our ongoing development investment in Nexavar.

We expect Nexavar's cash flow contribution to increase annually as we remain focused on improving margins for the brand worldwide with our partner, Bayer.

As a result, we are pleased to update our previous guidance as we believe that the brand will be cash flow positive and that, on a non-GAAP basis, Onyx will be profitable in 2008.

Our second priority is to maximize our commercial business by creating a leadership position in the liver cancer market and fortifying our position in kidney cancer.

The first stage of our liver cancer launch has been well received by the oncology community, and we have great potential ahead of us as we continue to penetrate this large global market and identify new prescribers and new patients.

In less than three years since its first launch, Nexavar has generated over $1 billion in cumulative net sales worldwide.

With this forward momentum, we believe that over the next two years, in just the existing two indications, Nexavar has the potential to reach sales of over $1 billion annually.

Our third priority is to continue investment in the development of Nexavar.

With Nexavar's unique mechanism of action and compelling competitive attributes, we believe there is the potential for additional impact across other malignancies.

In this vein, we are pleased to announce that we are initiating randomized trials in both colorectal and ovarian cancers, where the commercial potential and unmet need have already been shown to be significant.

Finally, with an eye towards Nexavar's longer term prospects, we are also evaluating some of the promising early signals that have been observed in a number of other tumors.

Demonstrated efficacy in other solid tumors would mean even greater sales potential beyond our current projections.

Our fourth priority is to build a product portfolio beyond Nexavar.

We believe that current market conditions present a unique opportunity for the handful of well capitalized and product sales driven companies such as Onyx to emerge from the uncertainties of this period in an even stronger position.

With healthy cash reserves, no debt, and a growing brand that is generating positive cash flow, we are confident that growth opportunities for Onyx will abound.

Given these favorable conditions, our team has been actively looking to expand our product portfolio.

One of the key areas of focus is the in-licensing of early to mid-stage opportunities that combine both value creation and risk reduction opportunities.

Today, we announced the successful in-licensing of a novel targeted oncology compound.

What excites us about this compound, which we've named ONX 0801, is that it expands upon an already commercially proven class of drugs but with targeted specificity for tumor cells.

Under the terms of the agreement with BTG International, Onyx gains exclusive rights to develop and commercialize this compound globally.

In exchange, BTG will receive an upfront payment, milestones based upon certain development events and sales targets, and royalties on any future product sales.

The structure of this deal is such that our investment increases only as meaningful value creation and risk reducing events occur.

In summary, Nexavar has delivered yet another quarter of strong sales growth.

Liver cancer launches are underway and continuing around the world in some of our most promising markets.

This impressive brand performance is generating positive cash flow for Onyx, and we are on track to be profitable on a non-GAAP basis in 2008.

We believe that the continued growth of Nexavar will provide the cash needed to invest wisely in other indications for Nexavar.

In all, we are extraordinarily well positioned in this turbulent economy, and we look to capitalize on our strength.

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

Laura?

Thank you, Tony.

In the third quarter, Onyx and Bayer achieved global net sales of $181 million.

Approximately $133 million of these sales were generated outside the United States, and approximately $48 million were sales generated within the United States.

In the US, we have augmented our sales team with market development specialists, complementing the existing field force in high potential geographies, targeted for deeper penetration of the liver cancer market.

These specialists started in the field in September, and have a broad expertise as well as an extensive network of contacts in the liver disease community.

Charged with reaching out to previously uncalled on physician audiences in order to increase awareness of Nexavar, they will target key stakeholders in markets where the prevalence of liver cancer is the highest.

Further building on the work of these specialists, we are also focusing our continuing education initiatives on programs that target multidisciplinary specialists treating these patients, including a first ever presence at the recent American Association for the Study of Liver Diseases, or AASLD, meeting.

By creating and supporting education and awareness across all the physicians who treat liver cancer patients, we intend to drive earlier utilization of Nexavar, expand the universe of Nexavar prescribers, and optimize the global patient benefit from treatment.

Turning now to Europe, we have seen continued penetration and demand generation in this important region.

As you may recall, of the European nations, Italy has the highest number of annual new cases associated with liver cancer, and roughly 12,000 or 20% of the total number of European cases.

Just this summer, reimbursement for Nexavar was established in this key market.

And as a result, Italy contributed to the strong European growth we saw during the quarter despite the potential for seasonal variability.

In July, Nexavar was approved in China for the treatment of liver cancer.

This high potential market was an important contributor to Third World growth -- to third quarter growth in the Asia-Pacific region.

Typically, the uptake of pharmaceutical products in China tends to be gradual until reimbursement is in place, which then leads to rapidly increasing sales and sustained growth for a much longer period of time as compared to Western markets.

As discussed in our prior call, government-based reimbursement for Nexavar is pending in China.

Progress is also being made in other key Asian countries.

In South Korea, Nexavar has been approved for liver cancer and reimbursement is pending.

And in addition, Nexavar was approved in Taiwan in the third quarter.

And in Japan, we anticipate that Nexavar will receive approval in liver cancer in the first half of 2009.

Turning to kidney cancer, Nexavar continues to be an established treatment option, with approvals in more than 70 countries worldwide.

Although the introduction of multiple agents in kidney cancer has created competitive pressure in the market, Nexavar has carved out an important position in the treatment of kidney cancer.

Sequential use of targeted therapies including Nexavar is extending the live expectancy of kidney cancer patients, and Nexavar continues to play an important role in the treatment paradigm.

Recently reported subgroup analyses from the EU Expanded Access Program that included over 1,100 patients demonstrated that Nexavar offered benefits across a variety of patient groups, including patients with comorbid cardiovascular conditions, elderly patients, and patients with brain or bone metastases.

These results extend our growing pool of data and inform our ongoing outreach to kidney cancer prescribers as they being to make individual therapeutic decisions based on patient profiles.

Almost three years after its initial approval, Nexavar is well established in the medical and in the patient community.

With Bayer, we're putting the necessary programs and resources in place that we believe will ensure all liver and kidney cancer patients who could benefit from Nexavar have the opportunity to do so.

Now, I'll turn the call over to Hank, who'll provide us with a clinical update.

Thanks, Laura.

Before giving a brief overview of the Nexavar development program, I'm excited to provide some background on the deal we announced today for ONX 0801, the oncology compound that Onyx just in-licensed.

This novel molecule exploits a recently discovered feature of cancer cells.

Specifically, cancer cells can overexpress a particular receptor for the transport of folate, a necessary ingredient in DNA synthesis and cell division.

Not surprisingly, patients whose cancers overexpress the alpha-folate receptor have a poor prognosis.

Once ONX 0801 enters the cell through the cell surface receptor, it is designed to inhibit thymidylate synthase.

ONX 0801 is distinct from currently marketed thymidylate synthase inhibitors such as Pemetrexed, 5-fluorouracil, and Capecitabine because of its selective tumor cell uptake by the alpha-folate receptor, but is similar in its intracellular mechanism of action.

In contrast to current generation inhibitors of this class, we believe that ONX 0801 could result in improved clinical outcomes with lower toxicity.

The alpha-folate receptor is over expressed in a number of tumor types with significant unmet medical needs including ovarian and lung cancers, but also very common malignancies such as colorectal and breast cancer with additional potential in inflammatory diseases.

Based on its novel mechanism of action, we believe that ONX 0801 may represent a new era in targeted anti-folate inhibition, and may have the potential to be the first therapy of its class to be targeted to cancer cells by this recently discovered receptor transporter system.

Now, on to the Nexavar development program, where we are executing on three fronts.

For the first, we are building on current successes, further establishing and extending our position in the two currently approved indications.

In liver cancer, we recently announced the initiation of the Storm trial.

This trial evaluates Nexavar as adjuvant treatment following surgery or local therapy, and will evaluate recurrence free survival as its primary endpoint and is expected to give us clear insights into how Nexavar might be used in patients with resectable disease.

Turning to kidney cancer, we also have two adjuvant studies underway for the treatment of these patients.

Enrollment in the US adjuvant trial of Nexavar in kidney cancer is now more than 70% complete.

In the second segment of our new indications strategy, we're continuing to execute on trials that could lead to opportunity for new tumor uses.

These opportunities include non-small cell lung cancer, metastatic melanoma, and breast cancer.

In non-small cell lung cancer, the ongoing Phase III study evaluating Nexavar in combination with chemotherapy is expected to finish enrolling patients in the first half of 2009.

In metastatic melanoma, ECOG has completed enrollment of patients in the first-line Phase III study evaluating Nexavar in combination with Carboplatin and Paclitaxel.

And in breast cancers, multiple randomized Phase II trials are underway assessing Nexavar in combination with chemotherapy, hormonal therapy, and other targeted agents.

Two of these trials, one in combination with Paclitaxel, one in combination with Capecitabine, have nearly completed accrual.

And for the final segment of our Nexavar development strategy, we are looking into the longer term future of Nexavar and evaluating some of the promising early signals that we've seen.

We are initiating new Phase II signal generating studies, including randomized trials in both colorectal and ovarian cancers, and have just initiated enrollment for the ovarian trial.

We believe we are well poised with a broad development program to understand and extract the full value of Nexavar based on its efficacy, tolerability, and convenient oral dosing.

Now I'll turn the call over to Greg.

Thank you, Hank.

As discussed earlier, total global net sales of Nexavar for the third quarter of 2008 were $181 million, representing an increase of 73% compared to the third quarter of last year.

On a non-GAAP basis, excluding stock-based compensation expenses, net income was $16.5 million or $0.29 per share in the third quarter.

On a GAAP basis, our net income was $12.2 million, or $0.21 per share fully diluted.

As we have seen in the past, we continue to expect bottom line performance to vary from quarter to quarter due to unevenness in expenses across quarters.

Total shared Nexavar sales and marketing expenses incurred by Onyx and Bayer, including cost of goods sold and distribution expenses, were $79.4 million for the third quarter of 2008.

Total shared Nexavar development expenses under the collaboration were $41.9 million for the third quarter.

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 SG&A expense was $19.3 million for the third quarter of 2008.

This line item includes the cost of our US 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 non-cash stock-based compensation expense.

Interest income was $2.8 million in the third quarter of the year.

At September 30th, 2008, we had cash, cash equivalents, and marketable securities of $488.2 million.

Given the current economic conditions, I'd like to briefly comment on our investment strategy and risk exposure.

Onyx is well invested in conservative vehicles with the majority of our portfolio in US government Treasury bills and agencies.

We do not have exposure to distressed financial or mortgage institutions.

With respect to foreign exchange exposure, the majority of Nexavar's sales occur outside the US, and reported sales levels are affected by changes in the currency markets, particularly with respect to the dollar-euro exchange rate.

In the third quarter, we saw the average exchange rate move about 4% as the dollar strengthened against the euro.

This translated to an approximate 2% drag on global sales as reported in US dollars.

So, while we saw quarter-over-quarter demand increase by about 9%, sales growth as reported in US dollars was 7%.

It is important to note that we also have a significant percentage of Nexavar commercial and development expenses outside the US as well, largely in euros.

These expenses have been favorably impacted by the strengthening dollar and serve as a natural hedge in our business against currency fluctuations.

As such, we estimate the effect of the currency movement in the third quarter affected our income by less than $1 million.

Now to guidance.

Looking forward, despite the movement in the currency exchange rates, we continue to reiterate our global sales guidance for the full year of 2008 of $660 million to $675 million.

For total shared collaboration expenses for the fourth quarter, including both commercial and R&D, we are reducing our guidance to $160 million, a decrease of more than $30 million from our previous guidance.

This reflect our strategy of measured investment with a focus on the Nexavar brand's margin performance, as well as potential benefit from foreign currency exchange rates.

As Tony mentioned, for 2008 we expect Nexavar, the brand, to be cash flow positive and Onyx, the Company, to be profitable on a non-GAAP basis, a significant achievement for us and a testament to the strong performance of the Nexavar brand.

Looking into next year, we will continue to make the necessary commercial and clinical investments to achieve sales growth for both the near-term and the longer term while remaining focused on continued improvement in commercial margins for the brand.

We plan to provide 2009 guidance on our year-end financial results teleconference.

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

Several feature distinguish Onyx as a thriving company despite the broader economic uncertainty.

We have a proven drug with growing global sales, a business that is cash flow positive.

We also have the financial resources that provide the wherewithal to continue to building a portfolio and creating benefit for patients and physicians.

We have a broad and balanced clinical development program for Nexavar, as well as an exciting newly in-licensed oncology compound.

And most importantly, we have a compelling strategic vision that we believe will create even more value for shareholders.

Nexavar isn't just a promising compound, it's a drug.

It's a drug that is delivering tangible benefit to patients around the world and, as a result, Onyx is in the small universe of companies that boast a growing product driven top line with positive cash flow and an extremely strong balance sheet.

Patients are living longer because of Nexavar, and their experiences are making Nexavar a leading commercial success.

With growing sales, blockbuster potential, and a strong financial profile, we're in an ideal position to deliver on our stated goals and thrive in spite of today's global financial situation.

Our strategic priorities are clear and we're focused on them for the benefit of patients and shareholders alike.

This ends our prepared comments.

Operator, we can now open the call for questions.

Thank you.

(Operator Instructions.) Our first question comes from Jim Birchenough from Barclays Capital.

Please go ahead.

Yes.

Hey, hi, guys.

Hey, so a couple questions, one just on the guidance you just provided.

As I look at the math, you're really guiding to a sequentially down fourth quarter.

So, I'm wondering if there's something we should be worried about ahead, or is it that Bayer really ties your hands in what kind of guidance you can provide?

Well, I think, Jim, as you know, we do try to work with our partner to provide a consistent guidance across.

We actually feel very good about the fourth quarter from a demand point of view, and Greg made the comment that despite the fluctuations in foreign currency, which we expect to continue, we are looking forward to a very strong volume-based fourth quarter.

Maybe, Greg, you'd like to make some additional comments on that?

Well, I think that's right.

We're only about a month into the quarter here, and it's hard to say exactly where the currency will land.

So, we want to be careful about the guidance we provide, given that backdrop.

But, we're happy to hold to the top line guidance we've given in the past, given where the exchange rate is today.

And then, just to follow up on the spend guidance and what was unclear to me, did you provide an update on JV OpEx?

Was that the update you provided, to your mind, as what we should expect for JV OpEx for the full year?

And just wanted to see whether you're willing to say whether the fourth quarter OpEx and the JV should be considered a run rate for '09.

Well, we'll ask Greg to do that.

And I will say, Jim, just before Greg answers, we won't provide any guidance for 2009.

We don't want to prejudge what we'll say on the year-end call after the beginning of the new year.

But, Greg can certainly comment on the $160 million new guidance.

Sure.

So, as you know, Jim, we provided guidance based on last year's Q4, which translated into roughly guidance of $536 million for both R&D and combined commercial expenses for the JV.

And now that we're entering or in Q4, we're just providing guidance on the Q4, and that translates to just over $500 million.

So, that's how we come up with the $30 million reduction in the expense guidance.

Okay.

And at this point, just to be clear, you can't really say whether that should be considered a run rate for next --?

No, I don't think we want to foreshadow or project anything for next year.

We're in the middle of operating planning and budget planning right now, so we'll come back to you once we've nailed all those details down and give you a good clear sense of 2009 on the year-end call.

Okay, great.

Well, thanks for taking the questions.

Absolutely.

Thank you, Jim.

Our next question comes from Jason Zhang from BMO Capital Markets.

Please go ahead.

Yes.

Can you hear me?

Yes.

Go ahead, Jason.

How are you?

Okay.

Fine, thanks.

I came in a little late.

I -- so, have you break out sales of Nexavar in this quarter by geographic region more than just US, ex-US, and Japan?

Could you also go into, for example, European countries versus countries other than European and Japan so that we can know how the product is doing in the various areas?

Jason, what I'd say is that we're going to stay focused on a pretty high level and keep with the regional breakouts that we've provided.

Laura will have some specific comments in a second, but suffice it to say we have always had the expectation that this brand is a brand that will grow predominantly outside of the US on the basis of additional launches and progress we make in HCC.

And so, I think as you think about the brand, look for the additional efforts that we have within the United States with the non-oncology audiences to be our specific initiatives to grow sales there.

But, by and large, we do expect most of the growth to come from Europe and from Asia-Pacific.

Laura, do you have anything to add to that?

Yes.

So, we did not breakout any farther than, as Tony described, in US and rest of world and Japan, as well you know.

What we can say, and then said in the prepared remarks, is that we had strong underlying demand worldwide.

So, all regions reported very strong demand, including the EU.

And in particular for Europe, Italy came onboard with reimbursement in the third quarter and was important in the third quarter growth.

China coming aboard, approved in July.

So, really quite an exciting time as we look at all the different levers that we have for growth.

Thanks, Jason.

Thanks.

That's very helpful.

Okay.

Our next question comes from Jessica Li from Goldman Sachs.

Please go ahead.

Thanks for taking my questions.

I have a few.

First of all, I would like to get your [inaudible] you would consider implementing a FX heading strategy going forward.

And then secondly, wondering whether there were any price increase for Nexavar in third quarter?

And then lastly, given the fact that there are quite a few distressed assets out there, wondering whether you would consider change the pace of your business development activities?

Thank you.

Okay.

Yes, Jessica, we'll probably divide that one up.

I'll ask Greg to comment on hedging strategies, Laura to talk about pricing and any increases, and I'll take the -- your final question.

Greg?

Sure.

Yes, Jessica, we have evaluated hedging strategies in the past and we continue to evaluate whether they're appropriate for our business.

With the natural hedge in the business right now and the fact that we're in launch phase, we don't feel it's appropriate to have an active strategy right now.

But, we continue to monitor that really month by month in the business.

Okay.

Laura?

For in -- midway through the third quarter, the US had a price increase, and the rest of the world remains within a pretty nice price band.

What was the price increase?

5% mid-quarter.

Great.

Thank you.

And that was US only, Jessica.

Okay.

Okay?

And then, in terms of your comment about the broader economic environment and the opportunities that it's creating, we certainly recognize that there are a number of assets out there that are very high quality in companies that don't have the wherewithal to carry them forward.

And this actually does cause us to redouble our efforts to be opportunistic and to find the right combination of things to bring into the company.

The deal we announced today is actually an asset coming from a strong and a healthy company, BTG.

And we like this deal a lot because it represents an opportunity for us to bring in another targeted therapy.

We are continuing to examine opportunities for other targeted therapies and other interesting and novel oncology compounds, and do think there could be some additional opportunities given the circumstances that a number of companies find themselves in.

The most important thing is that we will apply both rigor and discipline, not just to evaluating the compounds, but in how we want to price them in the structure of the deals that we do so we can actually get the best terms and minimize our investment as we reduce risk in each of the assets.

So, it's a great question.

We're poised to take advantage of any opportunities that might come up, and look to do so opportunistically.

Great.

Thank you.

All right.

Thank you.

Our next question comes from Howard Liang from Leerink Swann.

Please go ahead.

Thanks very much.

Like to ask a question regarding the in-licensed compound.

Can you give a sense of sort of what's next for this compound, what tumor types and trials you are planning to run, and what data you've seen so far?

Okay, sure.

I'll ask Hank to take that one.

Hank?

Yes, Howard, as I said in the prepared remarks, we're excited about ovarian cancer and lung cancer in the very near term.

In ovarian cancer, overexpression of the alpha-folate receptor is nearly ubiquitous.

And it's a tumor in which there are promising data for thymidylate synthase inhibitors already, so that we hope that the concept of receptor directed targeting plus leveraging an already established intratumoral mechanism will be a fabulous one to combination.

In addition, in lung cancer, there is, again, a similar pattern of a high level of overexpression of the alpha-folate receptor plus proven efficacy of Pemetrexed, which works by a similar mechanism.

The compound is in the late preclinical stages, so as the time goes by we'll give you more specific updates on the immediate near-term development milestones.

Today is just the first milestone with the in-licensing of the compound.

And what can you say about -- sorry.

What can you say about the economics in terms of the royalty obligation?

We won't disclose the royalties.

Suffice to say, we are both pleased with the royalties that we were able to arrange with BTG, and would suggest that they're probably commensurate for an oncology I&D stage pre-Phase I compound.

We think that overall, this deal is attractively priced for both companies.

And the best part of this is that it actually allows us to mitigate our spend in our investment in terms of milestone payments as we work out the risk in this particular compound.

So, we like the structure of the deal very much.

The other thing that I'd say in terms of the development expenses that will -- that we will take on, these -- the largest development expenses for this compound, if it makes its way -- or as it makes its way through the pipeline, we expect to occur after most of the significant development expenses for Nexavar are winding down.

So, we think that there's a way for us to manage the portfolio in a very prudent fashion.

Thank you very much.

Okay.

Thank you.

Our next question comes from Katherine Kim from Banc of America Securities.

Please go ahead.

Yes, hi.

Going back to the Nexavar guidance, can you give us an idea of how much you think the fourth quarter number is going to be impacted by a foreign currency?

And then, do you -- in your guidance, do you assume any sales coming from Asian countries excluding Japan?

I'll ask Greg to comment and to answer it specifically, but Laura may have an additional comment as well.

Sure.

When we look at where the currency has moved quarter to date, it's about $1.32 per euro, which is a change from the average rate we saw in Q3 of $1.50.

We can't say where the euro and dollar are going to move.

There's a fair amount of fluctuation day to day, so I wouldn't -- I would hazard to guess what the net effect will be.

But, it is true that most of the Nexavar revenue comes from outside the US, and most of that revenue outside the US is in euros or in currencies that correlate closely to the euro.

And I want to reiterate the fact that we do have the natural hedge in the business, so while we would see potential impact on the top line, on a net basis we're not expecting a significant effect on the net income to the business or the cash flow.

I think that's why we're comfortable, Katherine, now moving our guidance to profitability on a non-GAAP basis for the Company.

We believe in the underlying and the fundamental strength in the business and Nexavar's growth.

Do you want to talk at all about fourth quarter, Laura?

Absolutely.

As Tony said, we are seeing very strong underlying business with Nexavar and we're seeing that in all regions.

So, very -- feeling very good about the fourth quarter underlying demand.

As you asked in particular about Asia, we are seeing, and continue to expect to see in the fourth quarter, revenue coming out of Asia-Pacific, Japan, and ex-Japan.

In particular, in China, where Nexavar has been on the market for RCC, Nexavar today -- and just approved in HCC in the third quarter.

Nexavar today is on track to be one of the best, if not the best, oncology launches ever coming through there.

And we announced as well that in Taiwan and South Korea, we have new approvals.

So, as we look forward to the growth drivers, they will certainly show up in the quarters to come.

Just on the guidance for EPS, can you give us an idea of an upper range that's just more clearer than just profitability?

I'm not -- try that again for me, Katherine.

I'm not sure I caught that.

Okay.

So, you had given guidance of -- that you're going to be profitable for this year, and I'm just wondering if you can give us -- could be more clear about it in terms of maybe possibly giving us a range.

Oh, no.

We're not prepared today to give a range.

I'm sure you'll appreciate that with the spending across both organizations, we're probably not prepared to foreshadow what the fourth quarter will look like.

We are really very pleased with the underlying demand that's driving the sales for Nexavar, and with our ability to manage the expenses and take advantage of the favorable effects of foreign currency for us in this particularly P&L.

So, we're very optimistic about the fourth quarter.

We won't be prepared to provide specific numbers, but expect that we'll be quite please with the way things turn out.

Okay.

Thanks.

Oh, thank you.

Our next question comes from David Moskowitz from Caris.

Please go ahead.

Yes.

Thanks.

Good evening.

Okay, so in terms of the mix of revenues that we're seeing from Nexavar in the US and the rest of the world ex-Japan, could you talk about what that mix looks like in both of those geographies looking at renal cell cancer versus the HCC indication?

Love to get specific numbers, of course, but given that you probably won't go there, can you talk about the trends of each component in each geography?

Sure.

Laura, will you take that one?

I'd be happy to.

And you're right, we're not going to be able to give you specific numbers by tumor by geography.

And the basic underlying, as you think about the business here, that information is just not generally available.

As we look for RCC and HCC, RCC today is approved in more than 70 countries worldwide.

Entering the third year in most geographies.

And as we look around to how the product is doing in that tumor, we're holding our own very well worldwide in RCC.

So, it's an important part of our business and a good strong contributor.

As we look to the growth drivers in HCC, now approved in more than 60 countries, but still coming onboard step by step including developing the market.

It's a brand new market.

Developing the market around the world, we see good growth coming from HCC to date and in the future.

So, as I look geography by geography, I would say that we are most, if you think about the US as we started almost three years ago in RCC and we're projecting that we'll get to start in Asia in HCC in South Korea next year, you'll see that it's really quite an excellent trend per tumor, per geography.

And David, the only thing I'd add to expand to Laura's comments, which I completely agree with, is that we do believe that this is a brand that has the potential to reach and exceed $1 billion annually within the next two years.

So, that should be a strong comment about our underlying and fundamental belief in the growth prospects here.

Great.

And I guess more specifically with regard to the renal cell carcinoma indication, Wyeth's Torisel definitely getting some traction in the market.

I think that product will be over $100 million this year.

So, I guess can I get a little bit better of a characterization of holding your own?

Does that mean, and again by geography, stable or does it mean the product is still growing?

So, let me give you a little bit more color on that.

Torisel, as you point out, is -- has been on the market now for about a year.

Remember, that's the -- labeled for high risk indication.

As we look forward in RCC, what we've seen to date and expect to continue to see is that patients get sequential treatment, that Nexavar is an important part of that treatment paradigm, prescribers have had almost three years of experience with Nexavar.

So, I would say holding our own says that we are seeing market share continue to be in the 20% range worldwide.

So, as you look at that with a market which is growing, not dramatically.

But, in fact, as you look at patients living longer and the sequential treatments, that we see good opportunity there.

Okay.

I'll take that as a stable with slight growth.

And just moving on to those OpEx expenses, appreciate that guidance.

And in terms of the $30 million reduction, give or take, how much would you say is due to currency influence?

Greg?

I'm not sure, David, that we'll be able to give any specific comment, but can you give David some color?

Yes.

Well, we haven't -- obviously, we don't know exactly how the currency is going to shake out for Q4, as we've mentioned before.

So, we haven't broken that down.

But, suffice it to say it's a number that we're committed to and we feel that we can hit.

And what it will mean is significant cash flow out of the brand for the year.

Okay.

And just lastly, I know there's no guidance for 2009, but if you can help us think through the components, the other question was can we take a run rate of 4Q.

But, I'm thinking there's still selling and marketing resources that have to be deployed in the HCC indication.

So, number one, are there more personnel that have to be added into the field from the Bayer perspective?

And then, I would imagine that there's got to be just launch rollout costs.

So, would that be a fair way to look at that component?

And then, R&D.

Again, are you sort of fully implemented on the other trials for Nexavar?

Again, this is JV R&D.

Are you fully implemented there?

So, is that reasonable to assume that we're fully deployed on the R&D side, or could there be a lot more to come?

So, I -- David, I'm not sure that what I'll share will be a specific answer to your question because, again, we don't want to get into guidance for next year.

But, what we can tell us is that we did announce today that we are initiating both colorectal and ovarian studies.

So, as the significant costs for the lung cancer program, from the European NExUS trial, and the melanoma program start winding down, we'll be replacing some of those expenses with these new investments in colorectal and ovarian, and we'll continue to look at other tumors.

So, there are some puts and takes that don't really allow us to give any specifics, but I think you get a sense that we do expect to continue to invest on the R&D side and in new tumor opportunities as well as in HCC, where we still see a potential for dramatic growth.

In terms of the commercial expenses, I think the only thing that we can share today is that we are committed to successful launches worldwide.

We are in the middle of many of the ex-US launches.

Laura's talked about China.

Taiwan's just received it HCC approval in the third quarter, and we expect Japan to come online in the first half of 2009.

So, remember that these are the markets with the most significant numbers of HCC patients, and we really want to make sure that we invest and get it right.

I think that's about as far as we can go today until we finish our operating planning and put our numbers together for 2009.

But, we will be focused on managing the commercial margins for the brand.

We probably should take the next question, David, and we can certainly follow up after the call.

That was very helpful.

Appreciate it.

All right.

Thank you.

Our next question comes from Phil Nadeau from Cowen and Company.

Please go ahead.

Good afternoon.

Thanks for taking my questions.

My first question's also on your guidance for this year.

I'm curious to know why you aren't guiding to GAAP profitability.

It seems like you've been substantially GAAP profitable through the first three quarters of the year.

You talked about strong trends in Nexavar going into the fourth quarter and some currency hedge on the expenses.

So, what is it that you are worried about or that you see that has led you not to give us guidance for GAAP profitability?

I am going to ask Greg to take that.

But, I don't want to leave that particular question with the sense that we're worried about anything for the fourth quarter.

In fact, all the news we're delivering today is really quite upbeat and suggests strong underlying growth and the favorable effects of foreign currency for us.

So, we don't have any significant worries.

But, Greg, maybe you'd provide some specific color.

Sure.

Yes.

And I just want to reiterate, we're not worried at all.

We think we're going to end up with a tremendous year here.

But, a couple things that we expect in the Q4 are continued volatility in the exchange rates, and we don't know exactly where that's going to land.

So, we want to be careful and we want to make sure we hit any commitment that we do make.

And the other is, of course, the license agreement today comes with its upfront payments which will hit in Q4.

And we're also going to be initiating immediately our development plan for that product.

And that's the other consideration when we talk about the guidance we provided today.

Okay.

That's helpful.

Thanks.

The same questions on Asian reimbursement.

You mentioned that both Korea and China have reimbursement pending.

Can you give us some idea when we might get that reimbursement?

Yes.

Laura, comment?

Sure.

In China, as we look forward, that's a longer term process.

So, as we look at China the process there is to begin.

First, the list of drugs has to open up Nexavar to be added to that list, and then it goes through a national and then a provincial approval process.

So, that's something that will take a couple years to go through it.

So, as we look forward today, I can't give you a specific on when that's going to be approved.

But, it's something that will take a few years to go ahead and work it's way through.

As we look at for -- and your other one was South Korea in particular?

Yes, that's right.

Right.

So, in South Korea, we just announced that it's approved, and you would generally expect to see the reimbursement happen sometime later next year.

So, in 2009, probably second half as opposed to first.

Okay.

And one last question for Hank.

Hank, you mentioned that you're about to start a colorectal cancer development program for Nexavar.

If I remember correctly, the earlier data that we saw in colorectal cancer, particularly the single agent data, didn't really suggest much activity for Nexavar in colorectal tumors.

So, what is it that you've seen since then that suggests that doing a whole development program in colorectal cancer is a good idea?

Hank, you want to take that?

Sure.

Couple things, Phil.

I think, first of all, we've gotten data in HCC demonstrating improvement in overall survival.

And as you know, colorectal cancer commonly metastasizes to the liver.

That was intriguing.

And also recently at the European Society of Medical Oncology, we reported some data on overexpression of hepatocyte growth factor and responsiveness to Cerafibin in HCC.

And colorectal liver mets is also associated with a high HCC level, so this suggested some biological efficacy data.

Secondly, we looked at the original monotherapy data in colorectal cancer, and it actually compares favorably to Avastin's monotherapy data.

And what you'll remember is that the disease control rate for both Avastin and for Nexavar as single agents in colorectal cancer tends to be low.

And it's not really until you explore the potential of the drug in combination therapy that you begin to see really quite dramatic potential effects.

And so, we're encouraged to take the next step on the basis of our monotherapy data.

Finally, I think the colorectal cancer space is really underserved.

And especially with some recent retrenchments in the opportunities for biological therapies in this space, we believe that there is a need for more biological therapy.

So, we're very excited to launch a randomized Phase II trial.

We're being disciplined with our investment with respect to going direct to Phase III, but we do think that a randomized Phase II trial is a warranted, disciplined investment in what could be a very exciting opportunity.

Great.

That's helpful.

Thank you.

Okay.

I think that's all the time we have today for questions.

We appreciate you dialing in.

As usual, both Julie Wood and Greg Schafer will be available for follow up phone calls at the conclusion of the call.

Thanks again, and we're looking forward to our year-end update with you.

Take care.

Thank you.

Ladies and gentlemen, this concludes today's conference.

Thank you for participating.

You may all disconnect.