美國安進 (AMGN) 2009 Q4 法說會逐字稿

Welcome to the fourth-quarter and full-year financial results conference call.

I'll be your operator for today's 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 Incorporated, you may begin.

Thank you, John.

Good afternoon, everyone.

I'm Julie Wood, Vice President of investor relations and corporate communications at Onyx Pharmaceuticals.

We thank you for joining us today for our fourth-quarter and year-end 2009 financial results conference call.

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

Tony Coles.

Also providing update the on the teleconference are Laura Brege, Chief Operating Officer; Ted -- Dr.

Ted Love, head of R&D; and Matt Fust, Chief Financial Officer.

Also available during the Q&A session are Dr.

Michael Kauffman, Chief Medical Officer, and Dr.

Todd Yancey, Senior Vice President of Clinical Development.

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 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, 2009, which was filed with the Securities and Exchange Commission today.

In addition, we will be presenting and discussing non-GAAP financial measures during the teleconference.

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.

A slide presentation that supplements the financial information in this teleconference is also available on our website.

The presentation is located on the financial information page within the investor section.

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 and financial highlights before we open the call for questions and answers.

Tony?

Thanks, Julie.

Good afternoon and thanks for joining us.

Let me start by saying how invigorated we are by our progress in 2009, which was a busy and a transformative year for Onyx.

As a result of the important work done during the last 12 months, Onyx is in a terrific position as an emerging oncology leader with a broad and a balanced portfolio of compelling compounds.

We have promising clinical data in several large cancer indications, continued strong global sales for Nexavar, which serves as our current growth driver, and a disciplined financial strategy allowing for focused value creation.

Based on these achievements we believe we are well positioned to continue building the future we envision for Onyx, improving the lives of patients and creating value for shareholders.

Turning to our commercial performance, Nexavar continued to be a strong engine of growth for Onyx in 2009, exceeding $2 billion in cumulative annual sales since its initial approval in 2005.

With a 24% increase in annual sales, as compared to 2008, and growing commercial margins, we're pleased to report our eighth consecutive quarter of non-GAAP profitability and positive cash flow.

It is this outstanding financial performance that has enabled us to invest in our future, creating multiple opportunities for continuous growth spanning the near-term, the mid-term, and the long-term horizons.

In liver cancer, where Nexavar remains the only approved oral targeted therapy, we are broadening access into new geographies where there are the largest number of cases and, as a result, the greatest unmet treatment needs for this disease.

In kidney cancer, Nexavar is well established as an important treatment option with a distinctive efficacy and safety profile.

To further maximize the value of this core asset, we are advancing clinical studies of Nexavar across a broad range of cancers, including breast, lung, thyroid, ovarian, and colorectal cancers.

Beyond Nexavar, Onyx expanded its portfolio in 2009 with the acquisition of Proteolix.

This transaction, completed in November of last year, advances us to the next stage of corporate growth and gives us worldwide rights to several novel assets, including Carfilzomib, a drug candidate targeting the $4 billion multiple myeloma market.

Carfilzomib was specifically designed to be highly selective for the proteosome inhibitors, making it a next-generation compound for the treatment of multiple myeloma, a disease, which despite several recent therapeutic advances, still remains uniformally fatal.

Onyx also has a diversified earlier-stage pipeline, providing additional opportunities for mid and long-term growth.

These novel agents target some of the most promising molecular pathways in oncology and beyond, Importantly, we have global rights to these compounds, which we can leverage in a variety of ways to optimize our business opportunities.

Another important step in our corporate evolution includes the recent appointment of Dr.

Ted Love as head of research and development and Dr.

Michael Kauffman as Chief Medical Officer.

Together, Ted and Michael bring highly complimentary experience that spans solid tumor and hematologic cancers, multiple drug classes and molecular pathways and we believe will provide Onyx with a superb R&D leadership.

In summary it was a transformational year for us as we strategically leveraged our success with Nexavar and created an even more valuable Company with opportunities for robust growth, and the transformation we envisioned for the Company is well under way.

Our approach to this process has three phases.

The first phase, which we achieved in 2009, is the foundation and included the establishment of a mid-stage and longer-term pipeline.

The second stage, which we are in the middle of today, is value expansion as we methodically unlock the potential of each of our assets in a strategic and targeted manner, as evidenced, for example, by the stunning data we saw for Nexavar in breast cancer last year.

And finally, the third stage will be commercial expansion where we begin to see new revenue streams driving significant additional growth.

We believe that the three stage transformation process will establish Onyx as a leading oncology company, with multiple products and multiple paths to help patients, and that our proven ability to grow the value of our assets in a focused and accelerated manner will create value for our shareholders.

Now I'd like to turn the call over to Ted Love to make some introductory remarks.

Thank you, Tom.

While it's still very early in my tenure, I would like to share what drew me to Onyx.

With Nexavar we have a great product, not only in its currently-approved indications but also in the opportunities to extend its use to other cancers where new treatment options are needed.

Nexavar's efficacy and safety profile has fueled significant interest among the cancer community and there are hundreds of clinical trials ongoing with this agent across a diverse number of tumor types and settings.

Concomitant with the expansion of the Nexavar pipeline, the Company has acquired an impressive portfolio of novel drug candidates at various stages of development, and today Onyx has multiple potential products giving us the platform to help more patients with a variety of cancers and potentially autoimmune disorders.

Let me spend a moment reviewing the most recent addition to our pipeline, Carfilzomib.

Carfilzomib is a next-generation proteasome inhibitor with two clear pathways to potential regulatory approval.

First, we have the opportunity for accelerated US approval based on the results of a Phase 2b study of Carfilzomib in patients with relapsed, refractory multiple myeloma whose disease has progressed on available therapies.

We [instigated] this study this year, data that could serve asa basis for potential NDA filing by the end of the year.

It is important to remember that these patients have failed a median of five treatment regimens and are refrectory to their last treatment.

In a disease that is uniformly fatal, these patients represent a patient population for which no alternative therapy exist.

For the 001 -- 00A1 study, we believe an overall response rate in the high teens, with approximately four to six months or greater duration of response, coupled with strong tolerability would be an impressive result, given the advanced nature of the disease in this patient population.

We also plan to seek approval for the use of Carfilzomib into the last setting through a Phase III combination study, which is expected to begin in the first half of 2010.

We are pleased to report that we have a special protocol assessment agreement in place with the FDA, having rapidly completed this process just last month.

The trial is based on the promising activity demonstrated on a Phase Ib study of Carfilzomib, in combination with Revlimid and low-dose dexamethasone, two drugs that comprise a current standard-of-care for the treatment of relapsed multiple myeloma.

In short, the Company has taken critical steps toward delivering on its vision to transform the lives of cancer patients and their families with breakthrough medicines and I'm looking forward to contributing to our ongoing and future success.

I'll now turn the call over to Laura.

Thank you, Ted.

For the full year of 2009 global net sales of Nexavar increased 24% to $844 million, of which $213 million were sales in the United States and $631 million were from sales outside the United States.

In Europe, we saw robust year-over-year sales growth of 22% fueled by strong performance across the region and we expect continued increased demand across the region, as we work to expand penetration of Nexavar in existing markets and to expand our reach in the broader European market including Eastern Europe and the Mediterranean.

In the US,for liver cancer we have established relationships with a solid base of oncology prescribers, as well as with a growing number of multi-disciplinary medical professionals who diagnose and treat patients with liver disease.

While currently small in number, the increasing importance of these prescribing specialist to the treatment paradigm is clear.

In 2009 they accounted for 43% more unique prescribers than in 2008, resulting in a 92% increase in the sales units from this position segment, and their impact is growing, contributing 16% of our total identified prescriptions for liver cancer.

At the same time, we're also growing other customer segments.

In 2009, we saw a 13% increase in sales for the federal market and a 12% increase to liver transplant centers.

Turning to the Asian Pacific region, China continues to be a leader.

China has the highest rate of liver cancer in the world, making it a key market for Nexavar, and even ahead of reimbursement, we anticipate continued growth in this region.

China has begun its reimbursement review process and discussions regarding Nexavar are ongoing.

We continue to believe reimbursement approval could occur in the next 12-to=18 months.

In Japan, Nexavar received marketing approval for liver cancer in mid 2009.

It's the only territory where Onyx receives a royalty on sales.

Year-over-year growth was impressive; however the uptake was slower than anticipated and while this was largely offset by strong rest-of-world performance, it still impacted top-line growth.

To South Korea we continue to wait reimbursement approval, now expected in the first quarter, and in Taiwan we anticipate marketing approval in the second quarter.

For perspective, when thinking about these markets, South Korea is similar in size to the US with approximately 14,000 annual cases of liver cancer and Taiwan has approximately 10,000 annual cases.

We believe this could contribute to strong growth in 2010.

Turning to kidney cancer, Nexavar is an established agent for the treatment of these patients and we've maintained a strong position in the second-line market, despite increasingly intense competition.

We believe that this stems, in part, from physicians' comfort with Nexavar in treating this disease and Nexavar's favorable overall profile for a broad range of patients, including important patient segments such as the elderly, who account for roughly one-third of the total kidney cancer population.

In summary, Nexavar is well established globally in two important tumors, with over 100,000 patients treated since launch.

Patient the worldwide are benefiting from the use of Nexavar and we're continuing to maximize its impact.

At the same time we're beginning to develop our US marketing strategy for Carfilzomib, identifying critical launch activities necessary for success so that we can move quickly upon approval.

Now I'd like to turn the call over to Matt to review the financials.

Thank you, Laura.

I'll divide my remarks today into two parts; first, a review of 2009 results and second financial guidance and management expectations for 2010.

Despite a challenging macroeconomic environment, 2009 was a year of strong business performance for the Company, during which we produced robust top-line growth; improved Nexavar's commercial margin; increased operating cash flow; strengthened our balance sheet; delivered important clinical data in breast cancer.

demonstrating Nexavar's potential in yet another tumor type; and accelerated Onyx's transformation and expanded our portfolio of product development candidates with a carefully-structured.

well-executed acquisition.

During 2009, Nexavar sales grew in every region of the world, resulting in global net sales of $844 million, or a 24% year-over-year increase.

We saw the strongest growth outside the United States, with $631 million in ex-US sales, an increase of 31%, or $150 million over 2008.

In the US, net sales of $213 million grew 8% over 2008.

Nexavar sales in Japan, where Onyx receives a royalty grew, to $90 million following the liver cancer approval and launch in the second quarter of 2009.

Although Japan showed strong sales growth in 2009, the results were significantly lower than expectations and impacted top-line sales.

However, due to outperformance in the rest of the world, Nexavar global sales were only slightly below our expectations for the year and because Japan is a royalty-bearing territory, the impact on our net income was minimal.

One of the key commercial accomplishments during 2009 was the significant improvement in commercial margin on Nexavar sales.

Together with Bayer, we closely manage and drive commercial margin worldwide.

Through this disciplined financial and expense management, we improved commercial margin to 59% in 2009 from 53% in 2008.

I'll turn now to operating expenses.

Total research and development expense in 2009 totaled $129 million.

The Nexavar development investment enabled an expanded late-stage clinical registration program, including trials in lung, breast and thyroid cancers.

2009 also marked important new investments in Onyx's R&D portfolio.

During the year we advanced ONX 0801 into a Phase I trial and added a Proteolix development program following the acquisition in the fourth quarter.

Selling, general and administrative expense was $101 million in 2009, which included $6 million in non-recurring transaction expenses related to the Proteolix acquisition.

You will note a new operating expense line in our P&L representing the increase in contingent consideration related to the Proteolix acquisition.

Each quarter, we will report a non-cash expense reflecting the time value of money associated with potential future milestone payments under the Proteolix agreement.

Changes in our estimates of the amount of future payments will also be reported on that line.

Our 2009 net interest expense of $3 million consisted of cash and non-cash interest expense on Onyx's convertible debt issued in August 2009, partially offset by income on our investment portfolio.

As a reminder, our convertible bonds pay cash interest of 4% on their $230 million face value.

Total cash interest expense for 2009 was approximately $4 million, and a description of the accounting treatment for our convertible debt can be found on our website within the investor section.

Our income tax expense for 2009 consisted primarily of alternative minimum tax over to federal and state tax authorities and totaled $1 million.

During 2009, we successfully expanded the Company and our pipeline with the Proteolix acquisition.

We increased the breadth of the Nexavar development program and at the same time we delivered non-GAAP net income of $54 million, or $.89 per share on a fully-diluted basis.

As a reminder, we provide non-GAAP net income as a more meaningful measurement of core operating performance and we expect to continue reporting that metric on a quarterly basis.

The non-GAAP net income calculation excludes non-cash items and non-recurring expenses, the details of which are described in today's press release and are posted on our website.

Turning to the balance sheet, let me remind you we're accounting for the Proteolix acquisition in accordance with Accounting Standards Codification 805, which resulted in several new items.

Again, please see the description of the accounting treatment for the acquisition on our website and [Shirley] and I will be available after this conference call if you have any specific questions about the acquisition accounting.

We ended 2009 with $587 million of cash and investments, maintaining the financial strength and flexibility for the Company.

Let me now turn to financial guidance for 2010.

We expect global Nexavar net sales of approximately $1 billion in 2010, representing 20% year-over-year growth.

Potential growth drivers include liver cancer sales in Japan and China and in South Korea following anticipated reimbursement there.

Variables that could influence sales in 2010 include currency exchange rate movements; increasing global pressure on pricing and discounts; the final shape and timing of healthcare reform, if any, here in the US; and the dynamics of an increasingly competitive kidney cancer market.

We will keep you posted on these variables as we move through the year.

We expect continued improvement in Nexavar commercial margins to 60% or better in 2010.

Key elements of collaboration commercial expense will be liver cancer launches in South Korea and potentially in Taiwan, our success in insuring effective cost discipline, and the impact of currency exchange rates.

We expect our net R&D expense in 2010 to increase by roughly $35 million to $50 million as compared to 2009.

This increase represents the investment across our entire portfolio, including Nexavar, Carfilzomib, and our earlier-stage pipeline.

For Nexavar, R&D investment will be driven by registration enabling Phase III programs across multiple tumor types and continued investigation of potential new indications for signal-generating Phase II trials.

For Carfilzomib we expect to complete the Phase 2b trial, that may enable the NDA filing in the US this year, and plan to initiate two Phase III trials in the first half of the year including the pivotal study in the relapsed multiple myeloma population and a study for relapsed refractory patients for European approval.

And for the earlier-stage pipeline we expect to create additional value for the advancement of ONX 0801 through Phase I and ONX 0912, an oral proteasome inhibitor, into the clinic this year.

Our selling, general and administrative expense is expected to increase 5% to 10% over 2009 supporting our larger post-acquisition organization.

In addition, later this year, once we have top-line data on the Carfilzomib Phase 2b study and a clearer path toward a potential US launch, we will update you on plans for future commercial expansion related to Carfilzomib.

We anticipate net interest expense in 2010 will be approximately $15 million, reflecting both the cash and non-cash expense of our convertible debt net of investment income.

We expect non-cash charges in 2010 will include stock-based compensation expense of $25 million to $30 million and approximately $14 million representing the time value of money for continued consideration related to the Proteolix acquisition.

And we expect once again to pay alternative minimum tax rates in 2010.

We're pleased with the momentum we've created since completing the Proteolix transaction just a few short months ago.

Specifically, we've obtained a [spot] for our upcoming pivotal Carfilzomib combination trial, completed enrollment in three Carfilzomib trials, advanced plans for two Phase III trials to begin this year, and had our IND for ONX 0912 accepted.

We're moving quickly to realize value from these important assets as we advance our pipeline, and at the same time, we remain focused on continued generation of cash flow and disciplined spending, with a sustained expectation of non-GAAP profitability for 2010.

We're entering 2010 with a blockbuster product in Nexavar, improving commercial margins, new indications for Nexavar under development, an expanding development pipeline with Carfilzomib and several earlier-stage compounds and a strong financial position in cash flows.

We anticipate that 2010 will be a year of significant value creation as we move quickly to leverage the value of these.

I'll now turn the call back over to Tony.

Thanks, Ted, Laura, and Matt.

This is an important and an exciting time as we move quickly and judiciously to expand the value during this second phase of the Onyx transformation.

Over the coming year there will be a number of milestones that will drive momentum for our new pipeline.

For instance, for Carfilzomib we will focus on maximizing the opportunity represented by this potentially game-changing agent.

Specifically, we anticipate initiating two Phase III studies, one in combination with Revlimid and dexamethasone and one a monotherapy study in Europe; obtaining a data read out from the Phase 2b pivotal registration study; and finally and importantly, a potential NDA filing by the end of 2010.

For Nexavar, we look forward to continued penetration of the existing markets; securing liver cancer reimbursement in South Korea and obtaining approval in Taiwan; reporting top-line results from Nexus; the Phase III lung cancer study; initiating the Phase III clinical program in breast cancer; continuing or initiating enrollment in seven planned or ongoing Phase III trials;and presenting data at a variety of medical meetings, showcasing the extensive interest in Nexavar in the clinical community, and including additional Phase II breast cancer data.

At the same time, we plan to advance the other promising candidates in our newly-expanded pipeline, including completing the first-in-man Phase I trial for ONX 0801 and beginning a first-in-man Phase I trial for ONX 0912, and finally reporting exciting pre-clinical data generated by ONX 0914, our immunoproteasome inhibitor being explored for autoimmune disorders.

We're proud of our achievements of the past year and are committed to building additional value by moving quickly to unlock the potential of the pipeline.

We believe the foundation we've put into place has positioned Onyx well and are confident we'll be able to advance our business and realize our growth opportunities in 2010.

Operator, that concludes our prepared remarks.

We'd appreciate it if you could open the call for questions.

Thank you.

(Operator Instructions).

Our first question comes from Jim Birchenough from Barclays Capital.

Please go ahead.

Yes, hi, guys.

Just want to explore the trends for Nexavar, if we could.

It seems that in the fourth quarter, Nexavar was flat in the US around $56 million and flat in Japan, so the growth seems to have come from Europe and rest of world.

Just wondering if you can break it out what kind of growth we got out of Europe and what came from China?

And then I guess the second part of the question is just what's the dynamic ex-US?

Is it growing HCC being offset by a decline in RCC, or is RCC stable and it's just you're not getting the incremental territories as quickly as we'd expect?

I'm just trying to understand what drives this going forward.

Okay, I think, Jim, I'll ask Laura to start off with that one and I'll have a couple of closing comments.

Laura?

Surely, hi, Jim.

First of all, when you look at year over year we experienced 24% annual growth and that came from demand growth in every region == and then I'll go through each of the regions for you -- so every region saw demand growth.

What you have seen is some quarterly variation and actually if you go back over the last three years in reported sales you'll note third quarter has actually been higher each of those years in the fourth quarter so is that cyclicality for us?

It's a potential path to understand what the growth base is.

As we looked forward, as I said, for the year we saw tremendous growth of 24% and as we look forward to 2010, with the guidance that Matt shared we're looking forward to growth of 20%.

I expect that growth to come, again, from every region on a demand basis so that means that I expect that in every region we'll have more patients who receive the value of Nexavar.

Liver cancer is absolutely the driver so the growth will be coming worldwide from liver cancer; both from the territories where we currently have approval and also a couple as we're looking into it.

Japan we've only been on the market for two quarters and it's -- again, if you look back over time, it's common to see some early variability quarter over quarter in the launch year so I think that, as we said, we saw impressive sales growth in Japan.

Lots more to come as we look into 2010.

South Korea's market that I had in my prepared remarks we really think very carefully about because a number of deaths at 14,000 annually is about the same size as the US, and Taiwan behind it, so as we look at all of the places that we'll see growth drivers in 2010, I really see HCC and across the globe.

RCC is increasingly competitive, no question about that, but we've maintained a good position and I expect we'll continue to maintain a good position.

The only couple things that I would add are that we've always been very clear that the greatest growth opportunities will come outside the US, which is supported by the demographics and epidemiology, and I think in Matt's section we discussed the notion that ex-US sales were 31% year over year and -- while the US sales grew at 8%.

I don't want to gloss over the comment Laura made, though, about the growth rate for global sales in the third quarter usually being higher than in the fourth quarter and we've seen this pattern for the last three years.

So it's just something that we are observing and keeping our eye on but we don't think at all that it diminishes the prospects for continued growth in all of the regions in 2010, which is exactly what we're looking for.

Okay, operator, next question?

Our next question comes from Gene Mack from Soleil Securities.

Please go ahead.

Hi, thanks for taking the question.

I guess just a little bit of clarity on what might be, or just remind us what might be driving the margin improvement on Nexavar.

Is that coming out of --just because of the new accounting it's makes it a little bit difficult to tease that out.

Is it coming from cost of goods or sales, SG&A spend?

Okay, Gene.

I'm actually going to ask Matt to make a comment on that but I do want to just start off generally saying that when I became CEO two years ago we talked about managing Nexavar as a business and really working to improve the margins.

I can tell you that we've done this collaboratively with our partner Bayer.

Both organizations are fully aligned around improving the commercial margins for this compound and the results that we're reporting today for 2009 are a direct result of both that strategic committment to manage the margins and the alignment across both organizations to manage expenses through what has been a very successful launch in HCC.

So that's a committment that we'll have on a going-forward basis and we remain in line behind delivering improved leverage on the commercial margin.

Matt, do you want to provide some additional details?

I think just a couple of points.

First, there were no changes during the calendar 2009 from an accounting treatment standpoint that would influence the calculation of the collaboration margin.

That number is derived by taking a look at the global SG&A expense relative to net sales, excluding Japan, and as Tony pointed out, that's been an effort around specifically managing the investment on SG&A relative to the underlying sales growth.

Okay, next question, operator?

Our next question comes from Shiv Kapoor from Morgan Joseph.

Please go ahead.

Thanks for taking my questions.

I was wondering what was the reason for slightly higher-than-expected SG&A this quarter, and also higher than expected share costs?

And if you can also comment on the sustainability of [this plan].

so should we expect these higher levels to continue or is this a one-time fourth quarter thing?

Okay, very good.

Shiv, I'll just ask Matt to address that directly.

Sure.

The SG&A, I'm assuming you're referring to the collaboration SG&A expense and again, we've seen a pattern of that ticking upward in the fourth quarter.

It's purely a function of the quarter-to-quarter variability in those investments.

As we look across the full yea, as I mentioned we saw that margin improving from 53% in 2008 to 59% in 2009.

Similarly, on the share cost I assume you're referring to stock-based compensation expense.

Recall that with the closing of the acquisition in the fourth quarter, we have a larger employee base and so that contributes in part to the higher level of stock-based comp.

And there are-- I think there's no reason to believe that that's going to be the run rate for 2010.

We've got that sustained committment to managing the SG&A and Matt's given very good guidance for a 5% to 10% increase in SG&A as we move into 2010 and we stand by that.

Next question, operator?

Our next question comes from Jessica Li from Goldman Sachs.

Please go ahead.

Good afternoon, thank you for taking my question.

First of all, did you break out sales from China for fourth quarter?

We have not, Jessica.

We -- given that Bayer is reporting in just a few days after us, which is a slightly unusual turn of events -- they usually report ahead of us and all that information's out -- we're actually going to leave it in their hands to report the country level sales for the markets where they have the distribution leads.

Okay, I think we'll take the next question, operator?

Our next question comes from David Moskowitz from Madison Williams.

Please go ahead.

Yes, thanks for taking the question.

I have a couple.

First of all you mentioned you have an SPA with the FDA that you guys just completed about a month ago on Carfilzomib, so can you give us a little bit more clarity around what's contained in the SPA, specifically the 18% objective response rate in Velcade refractory patients.

Is the FDA looking for that particular level or better?

That's number one.

Number two, the expense guidance you have an increase in R&D, $35 million to $50 million.

Is that over and above the GAAP level that we've seen in 2009?

In other words does that include the $7 million payment in the fourth quarter?

And then lastly, commercial margin.

Can you guys explain that?

I would assume that is COGS, SG&A and R&D?

Thanks.

Okay, good, lots -- a few questions in there, we'll divide them up across Michael Kauffman and Matt and myself.

So the first question I think had to do with the SPA agreement that we've got in place with the agency and what the specifics are there.

I'll ask Michael to address it, but I will tell you that we actually can't provide all of the details because they're a matter of our relationship and ongoing discussions with the FDA.

So Michael, with that why don't you share everything we can?

Sure.

Let's just start off just to clarify, the 18% response rate is something that you've seen before in a different trial.

This is the 003 A0 trial, which was the pilot study in relapsed and refractory patients and served as the basis for designing what we hope is the accelerated approval study, which is the 003 A1 study.

So the 18% is really independent of that and that basically says that approximately one out of five patients is having a meaningful reduction in tumor mass despite the fact that their myeloma has seen essentially every available agent and in many cases experimental drugs.

as well.

So we're quite excited about that and anticipate good results from the A1 pivotal study.

Separately, the SPA was done on a -- the Phase III confirmatory study.

This is an international study of approximately 700 patients of Carfilzomib in combination with Revlimid and low-dose dexamethasone against Revlimid, dexamethasone, and this study was the subject of the successful SPA agreement last month.

And in addition we should say that study design and the major elements have all been vetted with the European regulators, as well.

So we're looking for progression-free survival as the standard end point in this population and we anticipate starting that study in the first half of this year.

And finally, just as background to the design of that study, what we can point you to is the 006 clinical trial PX 171006, which we recently completed enrollment on.

This was a Phase Ib/II study where we show that Carfilzomib at full dose, 27 migs per meter squared, could be combined successfully and well tolerated with Revlimid at full dose, 25 milligrams per day, in a very nice combination and we presented the initial data at the ASH conference in 2009 and further data will be upcoming at additional meetings.

Okay, very good.

For the financial questions, Matt?

Would you take those?

Hi, David.

So on your first question with regards to 2010 R&D guidance, the guidance we provided of growth in the range of $35 million to $50 million in 2010 is over the 2009 reported are the expense numbers, so the R&D number, the GAAP number that appears on the face of the P&L.

And on your second question around commercial margin, again we wanted a metric that would focus on the commercial performance of Nexavar on a global basis and to provide insight to that in a way that's readily visible based upon the financial information that we provide.

So commercial margin is actually the ratio of the commercial contribution relative to global Nexavar sales, excluding Japan, but reflecting only the sales, marketing and cost of goods components.

So the way that's determined, if you reference the calculation of revenue under the collaboration agreement, which is shown in our press release, it's the ratio of the combined collaboration commercial profit over the revenue subject to profit-sharing, which excludes Japan.

Okay, very good.

Thanks David.

Operator, next question?

Our next question comes from Peter Hellman from Robert Baird.

Please go ahead.

Hi, thanks for taking my question.

Just another quick question on the commercial or collaboration agreement margins.

It looks like in the combined COGS and SG&A there was a little bit of a bump in Q4 but there'd been steady progress throughout the year.

How should we think about those margins going forward?

Yes, Peter, that question, I think, and maybe is closely related to Shiv's question a moment ago, we sh -- you should not be expecting that's the run rate for going forward for 2010 and the guidance Matt provided for SG&A expenses for the Company would be 5% to 10% above the full-year estimates for 2009.

So I think that's probably responsive to it but, Matt, anything else?

So just to be sure we're answering, Peter, your question accurately, you asked about the collaboration margin.

There the guidance we gave was for 60% or better margin in 2010.

As Tony pointed out, I think the Q4 absolute dollar is probably not a good run rate to use as we project forward, but instead focus on that guidance number.

Okay, next question, operator?

Our next question comes from Ling Wang from Brean Burrey -- Brean Murray.

Please go ahead.

Hi, thank you for taking my question.

So my first question is a follow up on R&D expense.

You guided approximately $35 million to $50 million over 2009 number.

I believe that the -- after acquisition you mentioned $25 million so can you please explain what caused the additional increase in R&D?

And then I take -- I'll ask my follow up other question.

Okay, Matt?

Can you take that question?

Hi, Ling.

Yes, so within the guidance that we offer for 2010, please keep in mind that that R&D investment increase of $35 million to $50 million reflects investment across our entire portfolio, not only the assets that we acquired in connection with the Proteolix acquisition.

So that reflects investments in Nexavar, notably the label expansion and new indication seeking activity, including some specific things we've talked about, such as the planned Phase III combination trial in breast cancer, as well as the ongoing set of breast cancer trials and trials in long HCC and other indications.

In addition, it includes the Carfilzomib program, including the Phase III studies we spoke about on today's call, along with the earlier stage assets, both require in the Proteolix transaction and those that were under way here at Onyx.

So the increase really covers the full breadth of our portfolio, not only the Proteolix asset.

Okay, very good.

Thanks, Matt.

Next question?

Our next question comes from Howard Liang from Leerink Swann.

Please go ahead.

Hello, this is actually John in for Howard.

I just had a quick question on the Chinese reimbursement timeline.

Does the 18 to -- the 12-to-18 months that you provided, does that represent the national reimbursement or the province reimbursement, and what would be the hurdle for you to actually start recognizing the benefit from either of those reimbursements?

And then second would be the Taiwan, could you remind us of the appropriate reimbursement timeline in that after you get approval?

Thank you.

Okay, sure.

Laura, would you take those two questions?

Sure, hi.

The first piece for China as we look forward to it, the process for reimbursement, as you might recall, started at the end of last year at December 1st having the health authorities publish the beginning of the national drug reimbursement list and that did not address the needs of the innovative products and in particular, the targeted oncology products.

Those have gone forward on a different process, which is still unfolding.

The expectation's that that new proce -- that that process will include both the provinces, as well as the national approach, so as we look forward in our expectation of 12-to-18 months it's our expectation that that will include both.

It will include conversations, both at the national level and at the provincial level.

In terms of when we would first see benefit from it, I think we'd see benefit immediately.

The drug is on the marketplace, has been since July of 2008, proved in HTC, and well used on a private-pay basis.

So I think that as we look forward that remains a very strong opportunity that we would see unfolding, but I do think that it will unfold by province.

For Taiwan there's an expectation to see the general marketing approval coming in the second quarter and the reimbursement, I always hesitate to pick the exact dates, but it would be reasonable to expect that that could be within a year.

Okay, very good.

So lots of opportunity ahead in Asia, Asia-Pacific.

Operator, next question?

Our next question comes from George Farmer from Canaccord.

Please go ahead.

Hi, good afternoon, thanks for taking my questions.

Two questions.

One, have you secured your contracts for clinical materials involved in the Carfilzomib trial, specifically have you figured out what sort of expenses will be related to Revlimid expenses?

And also, could you repeat again the guidance, Matt, on the consideran -- contingent consideration line again?

I missed that.

Okay, Matt's going to take that particular question, but let me address your question, George, on the Revlimid and product supply for the 009 trial.

I think we have said before that we are working collaboratively with Celgene.

We know that both organizations are committed to getting new therapies out to patients with multiple myeloma and are in an ongoing dialogue with potential partners.

We've had a successful experience in partnering with Celgene; first on the pilot study for Carfilzomib, the 006 study that Michael talked about, and also on a first-line IST study that is underway, looking at the combination of Carfilzomib, Revlimid, and dexamethasone in a small part of our population as part of our IST program.

We expect and we look forward to continued productive conversations around both the 006 study, the 009 study that is the Phase III study you're referring to, and other upcoming Carfilzomib trials and have every reason to believe that we'll find a productive way forward.

We have not provided specific dollar amounts for any elements of this particular trial, but be reassured that as -- because we're operating under an SPA, we've got a very clear line of sight to what's going to be required for registration.

And on the contingent considerations, Matt?

Hi, George.

Yes, so recall that the contingent consideration expense includes potentially a couple of categories across all our non-cash charges and both would relate to the potential milestone payments due under the Proteolix acquisition agreement.

The first component, about which we gave quantitative guidance, is that we expect approximately $14 million in non-cash expense during 2010 that relates to the time value of money associated with that contingent consideration, essentially a representation of the value of our ability to make those payments later in time rather than at the closing of the transaction.

The other component that we may see flow through that line in 2010 would be reflecting any changes in our estimates about the amount of those future payments.

So for example,, if we receive clinical or regulatory information that would cause us to change our estimate about the likelihood and subsequent amount of those payments, that expense would also flow through this line if and when those changes occurred.

Thanks, Matt.

Next question, operator?

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

Please go ahead.

Good evening, thanks for taking my questions.

First is just to follow up to George's prior question.

I know you said the contingent consideration line is non-cash charges, but we are expecting pretty substantial cash payments -- pay outs being made over the next several years, so how will you account for those when they happen?

That's the first question, and then the next two are actually on Nexavar trials.

Do you have any additional information you could give us on the timing of the lung cancer data?

And then last, an update on the breast cancer Phase III design and possible primary end point there?

Thank you.

Okay, very good, Phil.

Matt, why don't you pick up on the contingent considerations then we'll come to the clinical questions?

Sure, so drawing the distention between the non-cash expenses that flow through the P&L and the cash payments that will be made is probably a good way, Phil, to respond to your question.

Let's talk first about the near-term cash payments.

Recall that the milestone payments under the Proteolix acquisition agreement begin with a $40 million development milestone payment, which was triggered off on clinical activity, specifically the Phase IIb trial that is currently under way.

We expect that we will make that $40 million payment during 2010, and as a result that payment was booked on the balance sheet as a current liability, so you will not see any P&L impact from that payment, which we do expect to make this year.

The next payment that would potentially be due would be a payment that would be triggered by accelerated approval here in the US for use of Carfilzomib in treatment of relapsed refractory multiple myeloma.

We have booked as a liability an estimated net present value of that payment but in amounts smaller than the full payment, so if, as we progress toward that FDA action, we determine that there's a meaningful increase in the likelihood of that payment or increased level of certainty of that payment, we would increase the liability on our balance sheet and the corresponding expense in an equal amount would then flow through the P&L and we would record that on the contingent expense line and would certainly break that out so you would have visibility to it when it occurred.

And for Phil's two clinical questions on Nexus and the breast program, I'm going to ask Todd Yancey to take those.

Todd?

Thank you, Tony.

Hi, Phil.

Well, we really are fortunate to have a broad program in both the tumors that you asked about.

Specifically, with regard to Nexus, as you know this is an event-to-driven analysis and so it isn't possible for us to specifically determine when we will know the results, but I think it's reasonable to expect, given that we completed accrual in the trial last year, that we would expect a read out some time in the mid portion of this year for that trial.

And we are also, as you will recall, enrolling patients actively in our third fourth-line Nexavar non-small cell lung cancer trial.

With regard to breast cancer, we were blessed,as you know, with tremendously positive incremental patient benefit for the combination of Sorafenib and [Kasidavene] and as well, saw evidence of incremental benefit for Sorafenib in combination with Paclitaxel.

We have announced intention to pursue a randomized Phase III examining the combination of Kasidavene and Sorafenib.

We are moving through that process with the regulatory authorities and we will announce the initiation of that trial when we are able to move forward, but we are committed to doing that in the course of this year.

And also we do expect to have read out from an additional Phase II trial in the breast cancer indication coming out of the single seeking program during the course of 2010.

So a lot to stay tuned for and we'll be back to you with additional information as we have it available.

Okay, very good.

Operator, I think we've got time for just one more question.

If you could queue up the next question, we'd be happy to take it.

Our final question comes from Cory Kasimov from JPMorgan.

Please go ahead.

Good afternoon, guys, thanks for taking my questions.

Most of them have been asked and answered but I do have two for you.

The first one is for Matt and goes back to the R&D guidance.

Is it possible for you to provide some sort of granularity into the relative break down in budgeted spending between Nexavar, Carfilzomib and your earlier-stage programs?

And then the second one is for Tony and it relates to Carfilzomib and just if you can update us on your strategic thinking for that asset outside of the US?

Thanks.

Okay, sure.

Let me ask Matt to just follow on the R&D spend question.

I don't think, Cory, we'll be able to break out all of the spend the way -- exactly the way that you're looking for it, that is by development program, but I do think Matt can give you a little bit of additional detail.

Sure.

As Tony said, we will not on this call be providing program-by-program or trial-by-trial guidance.

I think I can say qualitively -- qualitatively that we expect that Nexavar investment will grow modestly year over year, funding the said programs that we talked about on today's call and the large portfolio of trials that's under way, and that Carfilzomib is clearly the largest new component of R&D expense.

You might also find helpful our disclosures in the 10-K, which was filed today, we've provided you of the cumulative program spend in 2009 program spend and that's broken out in MD&A in our 10-K filing.

I do think it's fair to add, Matt, to that that we do have an important level of spending for the early-stage compounds.

These are two Phase I programs for 0801 and 0912 that are planned so they're commensurate with regular Phase I spending, but they are a very important part and we're quite pleased that we've put together a development program for a budget that gives full respect to the fact that we are trying to run a business.

All right, I think that's it for the questions.

In closing let me just comment that we really do think Onyx distinguishes itself as a Company with a lot of unique and compelling attributes and important among them would be our strong business fundamentals, with a product growing approximately 20% year over year and improving commercial margins, as Matt's described.

Secondly, the cash flow that Nexavar generates for the business that's able to fuel further value creation and provide very important momentum for our business.

And finally, the pipeline that we've spent the last 12-to-15 months building, which we consider quite strong and filled with novel compounds, that's really transformed the Company and gives us multiple ways to win.

We're in an excellent position to deliver on the Company's many opportunities and we expect several important milestones for clinical and commercial momentum ahead of us this year and the potential to drive our business even further.

Thanks for joining us today and we look forward to keeping you apprized of our progress as we move throughout the year.

Thanks and good evening.

Thank you.

Ladies and gentlemen, this concludes today's conference.

Thank you for participating, you may now disconnect.