美國安進 (AMGN) 2010 Q2 法說會逐字稿

Welcome to the Onyx Pharmaceuticals conference call.

I will 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 today's conference is being recorded.

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

Thank you, Chris.

Good afternoon.

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

We thank you for joining us for our second quarter 2010 financial results conference call.

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

Tony Coles.

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

Ted Love, Head of Research and Development and Matt Fust, Chief Financial Officer.

Also available during the Q&A session is Dr.

Michael Kauffman, Chief Medical 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 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 10K for the year ended December 31, 2009, as well as to our 10Q for the second quarter 2010.

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 the Onyx website within the news and media section.

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 investors section.

Now I'd like to turn the call over to Tony Coles who will begin the discussion with an overview of our business.

Tony?

Thanks, Julie.

Good afternoon, and thank you for joining us today.

I'd like to begin by saying how excited we are about our increasing momentum in transforming Onyx as an oncology leader with a focus on treating more types of cancer and serving even greater numbers of patients.

The strategy we put in place two years ago is clearly delivering as we move forward in realizing both near and long-term value creation.

Critical milestones this past quarter and this year demonstrate that this multi-faceted strategy is enhancing Onyx's potential for growth and multiple paths to revenue success.

First and foremost, with the recent announcement of positive top line data from our Phase IIb trial with carfilzomib, the next generation proteasome inhibitor, we could potentially have a second commercial product and new revenue stream as early as next year.

Second, with Nexavar, we continue to grow top line revenue, driven by our two approved indications.

The strong performance from this quarter is even more impressive given current macroeconomic conditions that are negatively impacting companies across industries.

Third, we are generating a growing body of clinical evidence that Nexavar, our key growth driver, may play a differentiated role in the treatment of several different types of cancer.

And importantly, as we continue to build future value, we are advancing a strong pipeline of new and highly innovative compounds with significant promise including the first potential oral proteasome inhibitor.

Now I'd like to highlight the top line data from our pivotal Phase IIb clinical trial, evaluating carfilzomib in patients with relapsed refractory multiple myeloma, a disease that, as we all know, is uniformly fatal.

The Phase IIb results demonstrated that carfilzomib has encouraging single agent activity, with a 24% overall response rate and a 7.4 month median duration of response despite a patient population that was heavily pretreated.

In addition, carfilzomib was shown to be well-tolerated over multiple cycles of therapy.

This is tremendous news for Onyx and of course, wonderful news for advanced myeloma patients who have exhausted the approved options.

In just nine months following our acquisition of Proteolix, we have achieved a major clinical milestone and have established a tangible proof point for our corporate growth strategy.

And since we own the worldwide rights to carfilzomib, this data increases the value of this key asset in our ongoing partnering discussions.

In addition, we intend to further unlock carfilzomib's potential by evaluating this promising agent in earlier stage myeloma patients and other cancers.

Turning to our established growth engine, Nexavar, we are furthering our leadership in liver cancer and continuing our important role in the treatment of kidney cancer.

At the same time, we've generated compelling signals of efficacy across our development program and are continuing to amass late stage data in tumor types such as lung, breast and thyroid.

The value of our broad clinical program was apparent at this year's ASCO meeting with more than 90 abstracts accepted.

The great majority of these were generated by investigator sponsored studies, signifying the growing interest among physicians in evaluating Nexavar's use in a wide range of malignancies.

The Onyx story is one of accelerating momentum, and as we rapidly advance carfilzomib toward the $4 billion multiple myeloma market and we continue to develop Nexavar for new clinical end cases.

These two important therapies, coupled with our deep and diversified pipeline, provide us with the assets to successfully meet our goals for value creation and strategic expansion, benefiting patients and shareholders alike.

We're very excited about the latest developments in our business and look forward to further driving this momentum with critical milestones and data presentations in the second half of this year.

These include additional data for Nexavar in breast cancer and the full data presentation for the carfilzomib Phase IIb trial.

Now, I'd like to turn the call over to Laura Brege, for a discussion of our business operations.

Thank you, Tony.

We are pleased to announce strong second quarter performance.

Nexavar global net sales were $236 million, representing a 17% increase year-over-year and quarter-over-quarter growth of 10%.

This revenue included approximately $59 million in US sales and $177 million from sales outside the United States with quarter-over-quarter demand growth in all regions across the globe.

Nexavar global net sales grew approximately 20% year-over-year when adjusted for currency.

Looking ahead, we are energized as significant market development and market expansion opportunities still have yet to be capped in all regions.

In liver cancer, we believe there's a significant growth opportunity as we continue to build upon Nexavar's strong leadership position, and we anticipate that this will continue as potential competitors have not proven success in this indication.

In the United States, we estimate a little more than half of liver cancer patients who are eligible for Nexavar are being treated.

We're aiming to reach additional eligible patients through our integrated approach to build the marketplace.

In this regard, we are successfully executing on our comprehensive program, focused on the multi-disciplinary team that treats liver cancer patients.

And as demonstrated in the United States where commercial bottles ordered by non-oncologists grew 22% year-over-year.

Additionally, the hepatology prescriber community continued to show good growth with a 12% increase in bottles quarter-over-quarter.

Turning to the Asia-Pacific region, we've seen strong growth with a 32% year-over-year net sales increase in this region.

We believe efforts to build awareness and to drive interest are well underway.

Specifically, Japan has shown good sequential growth of 16% and represents the second largest contributor of net sales year-to-date.

In China, we continue to see solid sales performance, even ahead of reimbursement approval.

This clearly speaks to a therapeutic need and the opportunity in this region of the world, where over half of all liver cancer incidents occur.

More broadly, several years ago, as part of our commitment to sustained leadership in liver cancer, we implemented a clinical program designed to generate additional data.

Before the end of the year, we expect all three of these important trials to complete enrollment including one, a global registration enabling adjuvant study, two, a combination study with Tarceva, another targeted agent and three, a combination trial with local regional therapy case.

At ASCO, data from separate smaller studies evaluating Nexavar in combination with TACE demonstrated that Nexavar is well tolerated when simultaneously administered with this local regional therapy.

These are exciting times for us and exciting results as we look to identify greater numbers of patients who might benefit from the treatment of Nexavar.

Looking at kidney cancer, Nexavar remains an important agent for the treatment of patients with this disease, despite a growing number of entrants in this marketplace.

Recent data in this disease setting validates our confidence in Nexavar's attractive product profile and reinforces its position for the treatment of kidney cancer.

At ASCO, a comprehensive analysis of long-term safety data in more than 700 patients show that Nexavar was well tolerated in patients treated for extended periods, ranging from 12 to 42 months,with average treatment duration of 20 months.

Today, Nexavar continues to benefit tens of thousands of patients worldwide and provides Onyx with the resources needed for strategic investments across our pipeline.

With positive clinical results from Nexavar and other pipeline agents fueling our momentum, we're aggressively planning to capitalize on the opportunities before us, specifically in multiple myeloma with carfilzomib.

Multiple myeloma is the second most common hematologic cancer with more than 180,000 people living with myeloma and approximately 86,000 new cases diagnosed annually.

In the US specifically, more than 50,000 patients are living with this disease, and approximately 20,000 new cases are diagnosed annually.

Researchers have made treatment advances in the last decade.

However, myeloma remains an incurable disease.

While many patients respond to treatment initially, virtually all eventually relapse and require subsequent treatment, underlining the need for new therapies.

With the activity and favorable tolerability profile we've seen today, we believe carfilzomib could be an important drug in the treatment of this disease and provide us the opportunity for Onyx to enter into the multibillion dollar hematologic cancers market.

There are multiple avenues of commercial growth, both through the expansion of our in line business, as well as the potential of new pipeline products, such as carfilzomib.

We believe we're on the cusp of propelling Onyx to the next level of corporate growth by transforming the Company with additional revenue streams.

Now I'd like to turn the call over to Ted to discuss our clinical development programs.

Thank you, Laura.

As Tony mentioned, this is an exciting time for Onyx as we are generating promising clinical data in multiple large cancer indications, potentially enabling us to continue providing much needed treatment breakthroughs to patients and their families.

In multiple myeloma, we are pursuing regulatory approval for carfilzomib, our selective next generation proteasome inhibitor.

We are exploring the opportunity for accelerated US approval based on the results of our Phase IIb single agent study with carfilzomib in 266 patients with relapsed and refractory multiple myeloma.

Each of the patients in the study had disease that progressed despite multiple treatments with available agents.

We are pleased to have reported top line results from this study, demonstrating that in the 257 evaluable patients, carfilzomib achieved an overall response rate of 24% and a median duration of response of 7.4 months.

The clinical benefit response, which includes complete and partial responses plus minimal responses was 36%.

Carfilzomib was shown to be well tolerated, and there were no new unexpected toxicities observed.

As a reminder, this patient population had seen a median of five treatment regimens corresponding to 13 anti-myeloma agents.

According to a study from the international myeloma working group, patients such as those enrolled in the 003A1 study would have been expected to respond to therapy only 11% of the time and survive only six to ten months.

Given that there are virtually no other alternative treatments for these patients, we believe this represents a population for which there is a significant unmet medical need.

We are in conversations with the FDA and expect to submit a US NDA filing by year end for possible accelerated approval next year.

As part of the NDA package, we will include data from the 004 Phase II study that was presented at ASCO in June where investigators reported that treatment with carfilzomib exhibited one of the highest ever reported single agent overall response rates and longest durations of response in patients with multiple myeloma who had one to three prior therapies, a less heavily pretreated population than the patients in our Phase IIb study.

For European registration, we shortly plan to begin the focus study, an 84 patient Phase III study of single agent carfilzomib in relapsed refractory setting, comparing the agent's efficacy to that of best supportive care.

Subsequently, we are pursuing approval or carfilzomib administered in combination with Revlimid and low dose Dexamethasone to patients earlier in the course of their disease.

This strategy received an important boost when data from a Phase Ib study called the 006 trial was reported at ASCO, showing a 75% overall response rate in previously treated myeloma patients who received full doses of Revlimid and full doses of carfilzomib at 27 milligrams per meter squared.

Side effects, as previously seen in other trials in the clinical program, were manageable.

Importantly, there were no overlapping toxicities observed with the treatment combination.

Encouraged by this data, we recently initiated an international 700 patient pivotal Phase III study, the ASPIRE trial, which is being conducted under a special protocol assessment from the FDA and scientific advice from the European Medicines Agency.

Turning now to Nexavar.

As you have heard, there is broad physician interest that is generating substantial data flow and in forming unique opportunities for this drug beyond its approved indications.

I'd like to quickly highlight some of the development programs and what they mean through our ongoing efforts to maximize the potential of this key asset.

In lung cancer, positive results from the externally sponsored Phase II BATTLE trial reaffirm Nexavar's activity in non-small cell lung cancer.

Given these data, we look forward to the results of MISSION, our pivotal third and fourth line monotherapy Phase III study, which we expect will conclude enrollment this year.

In breast cancer, we are building on the compelling data we reported last fall from two Phase II studies.

Encouraged by these results, we look forward to initiating a pivotal Phase III breast cancer trial this year evaluating Nexavar in combination with capecitabine.

We expect to report data this year from the randomized Phase II trial evaluating Nexavar in combination with gemcitabine or capecitabine in women with breast cancer who progress on Avastin.

In thyroid cancer, we have on ongoing Phase III trial to confirm the efficacy seen in multiple Phase II studies with single agent Nexavar.

Finally, I'd like to note that we are also making good progress in advancing our deep and diverse early stage pipeline beyond carfilzomib.

As evidenced by recent industry news, JAK inhibitors represent an exciting emerging class of therapeutics in an area of intense clinical and scientific interest.

JAK mutations are commonly found in diseases, such as primary myelofibrosis, polycythemia and essential thrombocytopenia.

The JAK signaling pathway is also known to play a clinical role in the proliferation of certain types of cancer cells and the inflammatory pathway and therefore, may have a place in the treatment of solid tumors, rheumatoid arthritis or psoriasis.

We believe our options on two JAK inhibitors, the subject of our recently expanded agreement with S*BIO, have a differentiated profile within the class of JAK2 compounds.

The compounds appear to be potent and selective inhibitors of JAK2 and [flip3].

Additionally, evidence of clinical activity in myelofibrosis was shown at the European Hematology Association meeting where we saw interim results from a Phase I study for ONX803 that reported that 11 of 13 patients had a reduction in spleen size ranging as high as 50%.

Importantly, there was also evidence of reduced hematologic toxicities resulting in reduced dependency on blood transfusions.

We are also advancing additional pipeline compounds in our diversified portfolio.

We expect that ONX 801, our alpha folate receptor targeted inhibitor of thymidylate synthase and ONX 912, our oral proteasome inhibitor, should both complete ongoing Phase I clinical trials.

In summary, we are executing a broad development strategy that is generating good momentum to bring valuable new therapies to cancer patients.

With success in any one of these high potential areas, we can bring meaningful benefit to more patients.

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

Thank you, Ted.

I'm pleased to report strong financial performance for the Company, including profitability on a non-GAAP basis in the second quarter and first half 2010.

For second quarter 2010, non-GAAP net income was $2.9 million, or $0.05 per share on a fully diluted basis.

Non-GAAP net income excludes non-cash items such as a continued consideration expense in connection with the Proteolix acquisition accounting as well as non-recurring expenses and is intended to provide a meaningful metric for our core business performance.

Details of the non-GAAP net income calculation are described in today's press release and posted on our website.

As Laura outlined, global net sales of Nexavar for second quarter 2010 were $236 million.

This represents year-over-year growth of 17% compared to $201 million in net sales in second quarter 2009, as well as strong sequential growth over first quarter 2010 with double-digit sales growth in the US, in the rest of world market under the Bayer collaboration and in Japan.

Second quarter sales included ex-US clinical orders.

These routine orders are a normal part of our business and are modest and not material.

The average exchange rate during second quarter 2010 was $1.27 per euro compared to $1.36 per euro for the same period last year.

We are maintaining our guidance for global Nexavar net sales with an expected range of $925 million to $975 million for 2010, representing double-digit growth over 2009.

Nexavar sales may continue to be impacted by macroeconomic drivers such as currency exchange rates, the rate of growth in Japan, pricing and reimbursement considerations in various territories around the world and the dynamics of an increasingly competitive kidney cancer market.

We continue to demonstrate discipline in our research and development spending with R&D expense of $43 million in second quarter 2010, roughly flat to spending in the first quarter of the year.

We expect our R&D spending during second half 2010 will continue to be driven by expansion of Onyx's development pipeline, particularly related to the carfilzomib development program.

Selling, general and administrative expense of $27 million in second quarter 2010 was 13% higher than the same period last year, primarily due to the timing of shared advertising and promotional costs related to Nexavar incurred by Onyx, as well as due to planned expense increases as a result of the acquisition of Proteolix.

As a result of the positive clinical trial results from the carfilzomib 003A1 and 006 studies, we recorded a charge for continued consideration expense in second quarter 2010.

Given the recent success in the carfilzomib development program, this second quarter expense reflects the increase in the estimated amount of potential future liabilities for earn-out payments under the Proteolix merger agreement.

The next payment that may be payable under the agreement would be due upon accelerated approval by the FDA in the US of carfilzomib for treating relapsed refractory multiple myeloma.

As a reminder, during April, we made a $40 million milestone payment due under the merger agreement.

That payment is reflected as a reduction in current liabilities on our June 30 balance sheet and did not flow through the statement of operations.

Because we have euro dollar foreign currency exposure through our Nexavar collaboration, we implemented a foreign currency hedging program early in third quarter of 2010.

Because we receive a net settlement from Bayer for the Nexavar global profit share, our hedging program will not change the Nexavar sales that we report in the calculation of revenue from collaboration agreement table in our quarterly press release.

The financial statement impact of the hedging program will be reported as other income or loss on our P&L, beginning with third quarter 2010.

At the end of the second quarter, we had approximately $527 million in cash and investments, maintaining a strong financial position for the Company.

In summarizing the financial results, this quarter was marked by strong top line Nexavar growth and disciplined management of both commercial and development spending.

This performance drove non-GAAP profitability in the first half 2010 and positions us for full year non-GAAP profitability consistent with our guidance.

Our underlying business fundamentals support the aggressive growth strategy that positions us as a future leader in oncology.

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

Thank you, Matt.

Through a thoughtful and proactive business strategy, we've put the building blocks in place that will enable us to realize multiple opportunities to deliver both near and long-term value.

Over the rest of 2010, we look forward to a number of corporate and development milestones that will further accelerate our momentum.

For carfilzomib, we look forward to presenting the full data set from our 003A1 Phase IIb trial before the end of the year.

We also look forward to initiating a Phase III trial shortly to support the European registration as a single agent in relapsed refractory patients and finally, for carfilzomib, filing the NDA by the end of this year.

For Nexavar, we expect to continue our penetration in existing markets, to initiate the Phase III clinical program in breast cancer, to complete enrollment in three major liver cancer trials, the SPACE trial, the STORM trial and the SEARCH trial and to completing enrollment in our Phase III monotherapy non-small cell lung cancer trial called MISSION.

And finally for the pipeline, to presenting a robust group of top line data findings at medical meetings, including additional Phase II breast cancer data.

In summary, we're committed to our strategy and our success as we continue to build momentum toward our goal of transforming Onyx into a leading bioPharmaceutical Company with multiple products, multiple revenue streams and multiple ways to help patients.

Operator, we'll now open the call for questions.

Thank you.

We will now begin the question-and-answer session.

(Operator Instructions) Our first question comes from George Farmer of Canaccord.

Please go ahead.

Hi.

Thanks for taking my question.

Ted, can you go into a little bit more detail about what's next with FDA and the carfilzomib application?

Are you going to have a formal end of Phase II meeting with the agency?

And then, what does acceptance of an application by the agency mean, and how should we interpret that?

Thanks, George.

I'm happy to answer that at the level that I think is appropriate for a Company to report.

So let me just comment in generalities, and you've known me for a long time.

It's fairly standard in these circumstances to try to have a free NDA meeting with the FDA.

And the main objective in that meeting, of course, is to present a reasonably detailed summary of the data so that the FDA has an opportunity to review that data and come to some sense about how they would like to see that data presented.

And also in that meeting, you typically present some view of how you plan to analyze the data and present that to allow them to give you some feedback on that.

So I can't comment specifically on our actions, but I can tell you that that's a fairly traditional approach to dealing with this.

In terms of your question about acceptance, I think you know the FDA can consider an application incomplete or inadequate, so the acceptance really is a statement by the FDA that says that they found no deficiencies in the application that would be an automatic basis for refusal to file.

It obviously does not mean that you're going to be approved, but it does mean that they are no, at least automatic reasons that make your application unacceptable.

So that would be the process, and I think that answers your question about acceptance of the filing.

Okay.

Thank you, Ted.

Operator, next question, please.

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

Please go ahead.

Good evening.

Thanks for taking my questions.

Laura, my question's for you.

In your remarks, you didn't mention that $9 million purchase that Avea made that they publicly disclosed and if we back out that purchase, it does look like US sales are down about 7% quarter-over-quarter.

So, first, can you confirm that Avea made a $9 million purchase in the quarter, and could you give us maybe some more idea of what you're actually seeing in physicians and patients hands, the use of Nexavar, is it really declining?

So before I turn that particular answer over to Matt, I want to reiterate two things and then correct one thing.

That is, our belief that this was a great quarter indeed and including for the US business and importantly, one with quarter-over-quarter demand growth across the globe and growth in all regions.

You're not looking at it quite right in terms of backing the clinical sales out from the US.

The US sales that you see there don't include a clinical order.

But let me give it to Matt to provide additional detail.

Sure.

We see that because Nexavar is now an established standard of care, both in kidney and liver cancer, companies that are testing new therapies are routinely purchasing clinical supplies of Nexavar for use in their clinical trials.

Clinical orders are now a normal part of the Nexavar business.

They're included in most quarters and in all recent quarters, in fact.

And as we commented in the prepared remarks, in the second quarter of this year, there were clinical orders, but they were in the rest of world business, not in the US business.

Okay, thanks, Matt.

Thank you for clarifying that up and Phil, thanks for the question.

We wanted to make sure everyone understood these clinical sales were not in the US business.

Operator, next question.

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

Please go ahead.

Yes, can you hear me?

Yes, we can hear you.

Okay.

A question on your strategy going forward for breast cancer.

We all know what happened to Avastin.

Clearly, there was a change of view.

What is the end point, what is the clinical benefit?

In that context, I'm wondering whether have you had a chance to talk to your partner Bayer with regard to your decision going forward in the breast cancer field?

If the hurdle is higher, looks like it is, is it wise to reconsider your strategy there and whether breast cancer remains, particularly in the front and second line setting, remains a realistic opportunity for you, considering how much the investment you have to put into it.

So Jason, let me -- I'm going to ask Ted to make a couple of comments on this, but let me start with a comment that Avastin and Nexavar are very different drugs.

I know that most people appreciate that Nexavar is both anti-angiogenic and an anti-proliferative agent.

So in that regard, its unique mechanism of action distinguishes it from Avastin.

I start there because I think there's a tendency to put all the anti-angiogenic compounds together in one category.

And what we've known about Nexavar in this unique mechanism of action is that it does act and behave quite differently from other compounds.

Having said all that, we have followed the Avastin topic quite closely over the last couple of weeks and I know Ted has some addition comments that he can share, Ted?

Sure, thanks, Tony.

Tony, I think I will start actually where you stopped off, which is to say that it is important to recognize, and I know the FDA, as we recognize, Avastin and Nexavar are very different drugs.

Specifically, I'd like to emphasize that Nexavar has anti-angiogenic as well as anti-cancer activity through the RAS/RAF pathway, which I think is a very important distinction.

I think the second point I would make is that we really don't know what the outcome will be with Avastin yet, and we don't want to presume what that outcome will be, but we can say that it's been data-driven.

Avastin achieved the initial approval based on data, and the new situation is based on new data.

Those bring me to my third and final point, which is the data for Nexavar with capecitabine is very impressive.

You'll recall we saw a 74% improvement in PFS.

It was very striking data and based upon that data, we've had our discussions with the FDA.

We continue to have those discussions with our partner, and our decisions are going to be driven by the data.

I think that's -- and we look forward to completing those discussions with the FDA and getting our capecitabine-based program up and rolling this year.

Okay.

Thanks, Ted.

I think that's very clear.

Operator, next question.

Our next question comes from David Moskowitz of Madison Williams.

Please go ahead.

Yes, thanks for taking my questions.

Just three quick ones.

Number one, you talked about partnership discussions ongoing for international rights to carfilzomib.

Can you talk about that in relation to your R&D expense?

In addition to potentially some upfront monies, would you expect that to impact in some way the R&D expense in the back half of the year as it relates to carfilzomib?

Also, the contingent liability that you guys took is rather sizable, $95 million or so.

That seems to suggest there was a significant uptick in your probability of success for carfilzomib.

Could you talk about that delta a little bit?

Rather surprising.

And then lastly, Japan looks like it's really growing significantly again after about three flat quarters.

What happened over there?

Why is that growing significantly in the second quarter?

Thanks.

Okay.

David, let me take your questions kind of categorically, if I can.

The first set have to do with, I think the remarkable results that we saw from the carfilzomib trial with the Phase IIb trial that we reported last week.

I think given the results, which we're very pleased with, and the overall response rate of 24%, we feel an obligation to bring carfilzomib to market as rapidly as possible, and this is on a worldwide basis.

We've said in the past that we know that Japan and certain parts of Asia-Pacific are not markets that we expect to participate in, and they are a specific focus of our partnering efforts today, and we think that these top line results do everything to actually increase the interest from certain parties in this particular asset.

Discussions about potential partnerships are underway and we do believe that our recent positive data on carfilzomib only increases the value of this asset.

So we would ask you to stay tuned on that particular front.

I think for the contingent liability question, I am going to ask Matt to describe that and talk a little bit about the context for that.

But again, I would, David, relate the contingent liability that we're reporting this quarter to the success of the trial that we've seen and the adjustment in our expectations for the actual outcome here.

Let me let Matt do that, and then we'll come back to your question on Japan.

Hi, David.

So the contingent consideration expense that we reported in second quarter is related, as you mentioned, to the Proteolix acquisition and in particular, to the GAAP accounting treatment that was required, given the structure of that transaction which had a combination of up front and earn-out payments.

The expense was recorded in the second quarter, largely reflects an increase in the probability of success for carfilzomib and captures the increasing likelihood that we will actually make the earn-out payments under the Proteolix merger agreement structure.

That's driven by the successful clinical trial outcomes that we saw both from the carfilzomib 00381 study results announced last week as well as the 006 study, which read out at ASCO.

I remind you that that's a non-cash charge in the second quarter, and there's a more extensive description of the charge in our 10Q filing with was made this afternoon, so I'd direct you to take a look at the 10Q, and you Julie and I will be available after the call if you have other call.

David, just on that one, I would just remind everyone that it was a non-cash charge, and it is why indeed we guide to non-GAAP as a true reflection of the business operations.

It's for exactly these kinds of reasons, to give investors a good sense of how we're managing the business.

Laura, would you take the Japan question?

Surely, good afternoon, David and thank you.

Asia-Pacific grew very nicely as did all regions in the second quarter.

In Japan in particular, we're just finishing up the first full year of launch, Nexavar was launched in HEC (inaudible) last year in the second quarter and I think as we've talked about in the past, tends to be lumpy in the early periods, and now we're in a great position as we look to unlock the potential with 40,000 patients a year diagnosed in Japan with HEC.

So we're very pleased with the sequential growth and as we pointed out, the second largest country in sales in the second quarter.

Okay.

Thanks, Laura.

Very good.

Operator, we're ready for the next question.

Our next question comes from of Shiv Kapoor of Morgan Joseph.

Please go ahead.

Thanks for taking my question.

I have a question on carfilzomib.

The ongoing Phase III study that you have for the US in relapsed multiple myeloma, could you give us an update on the enrollment on that study?

And can you also give us your assessment of what clinicians are thinking following the positive data from your Phase IIb study and based on that, do you expect faster enrollment in the coming months?

Okay.

I think I'm going to ask -- actually ask Michael to make a couple of comments on some of our interactions with both the investigators and key opinion leaders, and I'd also like him to talk a little bit about ASPIRE.

But I will say, Shiv, that we really just started the enrollment for the ASPIRE trial a few short weeks ago, and it's very, very early days.

But Michael, would you provide some additional background on the ASPIRE trial, what it's designed to do and the preliminary feedback we're getting from investigators and opinion leaders on the top line data?

Certainly.

The ASPIRE trial, as you know, is in patients with myeloma who have relapsed after one to three prior therapies and are permitted into the trial unless they're refractory to lenalidomide which is included, of course, in both arms.

And we do allow patients who have seen prior Velcade, providing that they aren't progressing on Velcade.

The goal of the trial is to demonstrate definitive clinical benefit in a clinical end point which is progression free survival under the special protocol assessment to show that carfilzomib added to Revlimid dexamethasone will show a higher PFS than Revlimid plus dexamethasone itself.

And I would also note that we're using low dose dexamethasone, which is now the standard of care.

This combination of a proteasome inhibitor plus a very active IMID like Revlimid is considered to be one of the most active regimens in myeloma.

And as Ted mentioned on the call, in fact, we saw 75% response rate, which included patients that had -- most of the patients had actually seen Velcade and lenalidomide or tholidomide in that study.

So, a very nice response rate, even in heavily pretreated patients.

As we said, we just began that trial and as things progress, we'll be able to give more data on that.

Doctors are very excited about this combination.

I think particularly the long-term tolerability of the triplet therapy where we're not seeing a lot of dose reductions because a lack of non-overlapping toxicity.

And that really brings me to my comments on the key opinion leaders and some of the clinical experts as they saw these data from the trial Phase IIb trial.

I think it's really important to remember that now myeloma patients today are in the nice situation that there have been several good drugs approved in the past years, but they're coming in with more co-morbid conditions and a higher duration or longer duration of disease when they enter these trials and heavily pretreated with bortezomib and lenalidomide and essentially all other available agents.

So, this is a population that really hasn't been studied carefully to date, at least in the mainstream literature yet.

And I think we're all quite pleased to see a response rate, but as importantly, a good durability of response, over six months, in fact, 7.4 months for a median duration of response and in addition, a minimal response rate of about 12%.

So an additional one out of every eight patients showing a significant reduction in their myeloma in this trial.

So I think overall, given that with the efficacy side, but coupled with the long-term tolerability of carfilzomib and a good -- an important number of patients being able to complete all 12 cycles of the study and in many cases, to go on to an extension study with single agent carfilzomib in this population, I think gives patients and physicians some excitement about this drug and the possibility for long-term disease control.

Thanks, Michael.

Operator, next question.

Our next question comes from Howard Liang of Leerink Swann.

Please go ahead.

Thank you very much.

If I could have two questions.

First, I may have missed it, but did you mention the status of Nexavar in Korea and Taiwan?

Whether the launches are expected this year?

And second is regarding the SPACE trial, I just wonder if you can talk about the significance of the trial.

I think it's characterized as a Phase II trial, but a rather large Phase II trial, whether that can lead to label expansion and also, can you talk about beta timing?

Okay, I'm going to ask Laura to comment on our Asia-Pacific opportunities in general, and she'll touch on your question for South Korea.

Let me start with the question on SPACE.

It is a larger Phase II trial and the primary purpose of which is to get safety data for Nexavar in the setting of local regional therapies.

We do expect to conclude enrollment for SPACE this year and expect that we should have some data from that trial in the coming months, but can't say specifically yet when those data will be forthcoming.

We think this will be a very important market expansion opportunity for us if these data are positive.

Because as many of you know, several patients with liver cancer do also receive local regional procedures, and one of the top questions interventional radiologists want to understand is whether Nexavar can be safely administered in that setting.

We hope to answer that question and to open up a new population for Nexavar therapy once we have these data in hand.

Laura, would you mind commenting on the other question?

Yes, so we did not update anything in South Korea, so we're sticking with the guidance we had given you on reimbursement, which we have said we expected it to be this year.

But as you know, it's difficult to predict what governments are actually going to do.

As we mentioned, we're very pleased with the performance in Asia-Pacific as a whole, and it's evidenced particularly by the strong growth in both Japan and China, which is driven by the self pay market at the moment.

Okay, thanks.

I think that is really coming on very nicely.

Your earlier comments about the launch performance for Japan, and it's the fourth quarter of our approval there I think signal more to come.

I will remind everyone that we are already approved in South Korea and Taiwan, and we will continue to drive the Asia-Pacific opportunities with our colleagues at Bayer.

Next question, operator.

Our next question comes from Stephen Willey of Stifel Nicholas.

Please go ahead.

Hi, thanks for taking my question.

Just a follow-up on the previous question about clinical purchases.

I believe the Avea purchase was for 500 person renal trial, and just given the fact that we know that there's much larger liver trials that are currently underway, how should we be thinking about the impact of prior trial purchases, both with respect to the timing and magnitude and whether or not that's also kind of similar US, ex-US breakout as we're seeing in this quarter?

Thanks.

Okay, well, I would say there are lots of good items there and lots of good pieces of news, namely that Nexavar is the standard of care that people want to compare to or to have as part of a combination backbone.

I'll let Laura and Matt address the specifics of the second quarter, but do keep in mind that I think this is a very good sign that we've got a compound that people want to compare themselves to.

Laura?

Yes, thank you, Tony.

So, in particular, if you think about the liver cancer, as Tony described, opportunity, and kidney cancer where Nexavar has demonstrated, now on the market in its fifth year, the opportunity for patients to benefit from Nexavar, people want to compare with Nexavar and on that -- on a regular basis, relatively modest to our numbers.

On a relative basis, we continually have clinical orders as part of our business.

As Matt said, nothing significant in the United States, and the order that we had for the second quarter was not booked in the United States.

Okay, very good.

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

Perhaps two if this next one is a quick one.

So please, let's take the next question.

Our next question comes from Jim Birchenough of Barclays Capital.

Please go ahead.

Hi, guys.

I'll try and keep it a quick one to allow for another question.

But just on carfilzomib and the reference to the international myeloma working group study, there's mention of an 11% response rate, and my recollection from ASH was a 30% response rate.

So, could you maybe reconcile that, whether you're looking at a different subset of that study and if so, when we might see that data?

Thanks.

Sure.

Michael, I'll ask you just to comment on Jim's question, if you could.

Yes Jim, you correctly surmised that this is in fact, a subset which should be available before the end of the year.

The manuscript has been submitted for publication and includes all of the subset analyses.

In particular, this is a US only cohort, it is a post transplant cohort in order to make it more compatible in what we were looking at in the 003 study.

And importantly, it has four prior therapies rather than the 30% number you quote for three prior therapies in the IMWG that was presented.

So although we couldn't get enough data on five prior therapies, there just weren't enough patients actually, in that IMWG cohort, we got as close as we could.

So I think in sum, Jim, this is obviously a much sicker population and more like our population from the A1 study, which is why the 11% number is so relatively modest.

Okay.

Operator, I think we do have time for one more question.

Our last question comes from Gene Mack of Soleil Securities.

Please go ahead.

Hi, thanks.

I'll make it a quick one.

In the -- I think before Ted had described the carfilzomib trial set, it included 257 patients that were evaluated, and in the press release that you guys -- from the original top line, you mentioned that it was 266 patients.

So, is that delta there, that nine patients or so, is that sort of the difference between the intend to treat and the modified intend to treat?

Yes, it is.

And I think I'll actually ask Ted to make any comments specific to that.

But I will remind everyone that this is very similar to the SUMMIT trial, which was the pivotal trial for the Velcade initial approval where they had a larger number of patients who were enrolled and then a modest number, eight or nine or so, that were evaluable on the same basis.

So, Ted, would you provide any additional comments?

Not much, because everything that's been said, Tony, has been correct.

In fact, there were nine patients enrolled in the trial, did not -- who did not have either a baseline or a follow-up assessment and therefore, without those two assessments, they were simply non-evaluable.

So those were the only patients that were removed in our modified intent to treat.

Okay, good.

We appreciate the question, and I now have the data for the SUMMIT trial in front of me.

It was exactly nine patients as well that were not evaluable on that trial also on a much smaller end of 202.

Okay, I think that brings us to the end of our call.

We are clearly very pleased with our success with the top line data results from the A1 trial and with the strong second quarter sales performance for Nexavar.

All of the indicators seem to be moving in the right direction.

US demand is good, sales are strong across all the regions, and our colleagues continue to work to advance our ex-US opportunities.

I think our innovative pipeline and certainly our ability to strategically expand our business give us a number of promising opportunities to do what we want to do best, which is to transform the treatment of cancer.

We appreciate you for joining us today and look forward to being in touch with additional updates in the weeks and months ahead.

Thanks, and good evening.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may all disconnect.