美國安進 (AMGN) 2011 Q2 法說會逐字稿

Welcome to the Onyx Pharmaceuticals second quarter 2011 financial results conference call.

My name is Christine and I will be today's facilitator.

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.

The floor is yours.

Thank you, Christine.

Hello.

I am Julie Wood, Vice President of Public Affairs at Onyx Pharmaceuticals.

We thank you for joining us for our second quarter 2011 financial results call.

Leading our call today is Dr.

Tony Coles, our President and CEO.

Also providing updates are Dr.

Ted Love, Executive Vice President and Head of Research and Development and Technical Operations; Laura Brege, Executive Vice President and Head of Corporate Affairs; and Matt Fust, Executive Vice President and Chief Financial Officer.

Please note that we will be making forward-looking statements during this teleconference that could include financial, clinical, or commercial projections.

Statements that are not historical facts are forward-looking.

References to what we expect, believe, intend to do, plan, estimate, or other statements referring to future events or results are intended to identify these statements 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, 2010, as well as to our other filings.

We expect to file our 10 Q for the second quarter next week.

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 the Onyx website.

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

I would now like to turn the call over to Tony Coles.

Thanks Julie.

Good afternoon and thank you for joining us today.

Over the last few years, we have been implementing a strategic plan to fuel Onyx's next stage of growth and to diversify our business with new revenue opportunities.

Based on that productive work, we are rapidly evolving into an oncology company that can deliver new medicines to a broader number of people with different types of cancer.

Let's talk first about our proteasome inhibitor platform.

Onyx has valuable assets in this critical area of cancer research for diseases where the medical need remains high.

Carfilzomib is a novel, next generation proteasome inhibitor with potential both as a single agent, and in combination with other therapies to help multiple myeloma patients across a variety of treatment settings.

We believe our proteasome inhibitor franchise could potentially deliver over $2.5 billion in worldwide sales in multiple myeloma alone.

To unlock this potential, we are completing our application for accelerated approval of carfilzomib.

Our number one priority is to deliver a high-quality application to the FDA that clearly and compellingly makes the case for an accelerated approval for carfilzomib and gets it to patients as soon as possible.

In pursuit of that goal, we have retained external experts, including former FDA medical reviewers, to assist us with finalizing the filing and delivering a high quality of application.

In order to incorporate their guidance into the final document and enable our best possible filing, we have decided to extend our planned submission date of the NDA by 4 to 5 weeks beyond the end of August.

As we monitor the regulatory landscape for similar applications, for accelerated approval, what is clear is that the bar for success with an accelerated approval application is high.

But importantly, is open and available for products with demonstrated efficacy in safety and diseases where there is a significant unmet medical need.

We believe that carfilzomib is such a product, and we look forward to submitting a strong and high-quality application, requesting priority review of the FDA, and having productive discussions with the agency.

Importantly, we continue to reiterate our belief that pending a favorable regulatory review, carfilzomib can potentially be approved on an accelerated basis in the US in the first half of 2012.

As required by the FDA for every accelerated approval application, we also have randomized Phase III studies well underway to support full approval.

We believe that our Phase III Aspire trial, which we conducted under a special protocol assessment by the FDA, will further establish the clinical benefits of carfilzomib, this time in patience earlier in their disease.

And that this trial can serve as the basis for full approval in the United States.

In Europe, the Phase III overall survival Focus trial is actively enrolling patients to enable registration in that region.

Additionally, there is widespread clinical interest in this compound, reflected in the dozens of ongoing investigator sponsored trials, including the combination study in newly diagnosed patients that we've reported data for.

In fact, approximately 1,300 patients have received carfilzomib in either company-sponsored or investigator-sponsored studies and will be included in the application we provide the agency.

With a regulatory approval for carfilzomib, Onyx will have a broader footprint in oncology with a new high-growth revenue foundation in hematology.

This opportunity compliments our existing Nexavar platform in solid tumor cancers and strengthens our position as an on emerging oncology leader.

Moving to Nexavar, an established therapy for both advanced kidney and liver cancer, where it remains the only approved targeted systemic therapy, we continue to see potential for growth.

Beyond our unique and growing leadership position in liver cancer, and our performance in Asia-Pacific, we believe Nexavar holds substantial promise in a variety of new indications.

We are pleased to share with you today that the Decision trial, a randomized Phase III study in patients with thyroid cancer, recently completed enrollment.

In total, by the end of next year, 2012, we expect that 5 late stage Nexavar trials will read out across a variety of oncology treatment settings.

This represents significant near-term clinical activity with the potential to meaningfully advance Nexavar's revenue trajectory.

To summarize, much has happened in the first half of this year already, and over the remainder of the year, we look forward to the following; First, filing the NDA for approval of carfilzomib.

Second, continuing the commercial expansion of Nexavar in liver cancer, and advancing its development for potential new indications where medical need remains high.

And finally, maintaining the financial flexibility to move our product portfolio forward, supported by operating cash flow from Nexavar and our very strong balance sheet.

Now let me turn the call over to Ted to review the progress we're making in our clinical development programs.

Thank you, Tony.

As you have just heard, in addition to finalizing our NDA for carfilzomib, we have multiple high-value development programs underway.

Also today, we are pleased to announce along with our partner, the Multiple Myeloma Research Foundation, or MMRF, that we are initiating an expanded access program for carfilzomib.

The carfilzomib myeloma access program, or CMAP, will include eligible patients in the U.S with relapsed and refractory multiple myeloma.

The FDA reviewed our treatment protocol for CMAP and gave us their authorization to proceed with the study.

With the launch of this program, we are gratified to be able to meet the immediate needs of patients with relapsed and refractory multiple myeloma, who have no remaining treatment options.

Turning now to the NDA, let me make a few additional observations.

At this point, we are finalizing the integrated summaries, [casing] the entire document, including review by former FDA medical reviewers, and completing the specific medical -- mechanical requirements of publishing an NDA.

We are pleased with our progress, and look forward to filing soon, a milestone that will reflect 6 years of intense clinical development activity.

As Tony stated, the decision to take this time will extend our target filing date by 4 to 5 weeks, beyond the end of August.

Given the full potential of carfilzomib, the few additional weeks to deliver the highest quality filing is time well-spent.

Turning to another important aspect of our global development program, we are pleased to report that our partner, Ono Pharmaceutical, announced yesterday that they have initiated a Phase I/II study with carfilzomib in Japanese patients with relapsed refractory multiple myeloma.

To remind you, last year we established a partnership with Ono valued in excess of $300 million for the rights for carfilzomib in Japan alone.

We are excited to see the progress they are making with carfilzomib in an important region of the world, while at the same time preserving significant worldwide rights for us in territories across the globe.

Moving to our comprehensive development program to support full approval in multiple myeloma, enrollment in ongoing ASPIRE and FOCUS trials is proceeding.

Our Phase III studies is to support US and European approval of carfilzomib.

We are pleased with the rate of enrollment in the ASPIRE trial, which is going exceedingly well, and as we've said previously, we expect to complete enrollment in the first half of 2012.

And based upon a potential interim analysis, we could see data read-out from this study in the first half of 2013, depending upon event accrual.

Recall that the ASPIRE trial is evaluating 700 patients with relapsed disease who are being randomized to receive combination treatment with or without carfilzomib.

To remind you, FOCUS is our 300 patient trial, evaluating the efficacy and tolerability of carfilzomib compared to standard of care with the primary endpoint of overall survival.

The trial is designed to support registrational filing with European Medicines Agency in patients with relapsed and refractory multiple myeloma.

Enrollment curves for the expanded trial are not yet mature, so it's too early to provide an accurate prediction of when we expect FOCUS to complete.

However, we do have an interim analysis built into the trial, so there is the potential we could see data read-out fire prior to full completion of the study.

We will keep you apprised of our expectations as we know more.

Our second proteasome inhibitor, ONX 912, is an orally available agent that could potentially treat even greater numbers of patients with multiple myeloma.

We were encouraged by the results of the Phase I study reported at ASCO that demonstrated approximately 80% inhibition in patients with advanced solid tumors.

Pending the Phase Ib/II study expected to begin this quarter, we will assess the dosing into hematologic malignancies.

We are developing Nexavar with our partner, Bayer, in additional potential indications, including thyroid cancer, non-small cell lung cancer and breast cancer.

As Tony mentioned, we are pleased to report that the Decision study has finished enrolling patients, bringing Nexavar one step closer to potentially playing a role in patients with thyroid cancer.

To remind you, the Phase III Decision trial is designed to confirm the efficacy seen in multiple Phase II studies with single agent Nexavar.

Phase II data reported at ASCO showed overall survival with Nexavar of 140 weeks.

Historically, survival with chemotherapy has produced approximately 40 weeks improvement in survival.

So the opportunity with Nexavar is considerable to patients.

Needless to say, we are extremely excited about the prospects for treating this under-served patient population, which represents 95% of all thyroid cancers, and we expect to have data readout from this trial in the 1st half of 2012.

In the Phase III lung cancer trial known as Mission, we are assessing the single agent activity of Nexavar in third and fourth line settings.

This study completed enrollment at the end of last year, and depending upon event accrual, it is possible that we may be able to share top line overall survival data by late this year or early 2012.

At ASCO we shared data from the third of 4 studies in our Ties breast cancer program.

The positive result, along with the findings of the first Ties study, gives us confidence in Nexavar's potential role in breast cancer.

We are exploring this significant opportunity in the ongoing Phase III registration enabling resilience trial.

In summary, we are running a number of clinical trials aimed at bringing valuable new therapies to cancer patients.

With the completion of our next milestone, the submission of the NDA for accelerated approval for carfilzomib, we reaffirm our belief that carfilzomib could potentially be approved in the U.S in the first half of 2012.

Stay tuned for updates on our regulatory progress over the coming weeks.

Now I'd like to turn the call over to Laura Brege for a business update.

Thank you, Ted.

Nexavar global net sales in the second quarter were $246 million, up 4% compared to the same period in 2010, as well as when compared to the first quarter of this year.

Second quarter sales included approximately $58 million in the United States, and $188 million in sales from the rest of the world, including Japan.

In the Asia-Pacific market, Nexavar's promise continues to be released, as evidenced by robust sales in that region, led by Japan, with year-to-date sales of $81 million, and China, with sales of $35 million, an increase of 32% and 36%, respectively, for each country compared to the same period in 2010.

This region is key to Nexavar's market expansion due to both the demographics and epidemiology of liver cancer.

China, a market currently driven largely by private payers, represents more than 50% of the world's cases of liver cancer.

Japan is in the top 5 countries globally in terms of the annual incidence of liver cancer, with about 40,000 cases per year.

We are expecting continued growth across all 4 of the major countries in the Asia-Pacific region, including South Korea and Taiwan, where economic expansion is a contributor to Nexavar sales.

The strategic decision we made some time ago to focus energy and resources on the unmet and growing need for effective liver cancer treatments has already, and should continue to drive ongoing and future market expansion.

And this strategy has proven to be the right decision, as our business mix has moved increasingly toward more liver cancer.

Nexavar is delivering the resources to expand research investment across our entire oncology business.

We currently estimate that we reach about 50% of liver cancer patients in the United States.

Our strategy to reach patients earlier in their disease will be supported by data from 3 late stage liver cancer trials.

We believe data from the Phase II Space trial will provide additional clinical study experience with Nexavar in combination with Tace, and potentially expand access to another 20% of the patient population.

We project that top line data from the space trial could be available by year-end.

In the adjuvant setting, addressing an additional 20% of the population, the Phase III Storm trial is due to read out in 2012.

Search, a combination Nexavar plus Tarceva, is also due to read out in 2012.

So there are a number of high potential liver cancer trials maturing that could generate important new Nexavar data, and support potential label expansion in the near term.

Turning to carfilzomib, we are continuing our pre-commercialization activities, ahead of a potential US approval, including adding a small number of headquarter-based individuals who are planning, and will execute the product launch.

And in addition, as we prepare for the global commercialization launch of carfilzomib, we are also beginning to build out critical competencies in Europe.

Specifically, we have created a strategic presence by establishing both market access and regulatory capabilities in that region.

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

Thanks, Laura.

As Laura was just outlined, Nexavar continues to provide a solid operating contribution which supports our investment across the oncology portfolio.

Total net sales of Nexavar in the second quarter 2011 were $246 million, with sales growth in the quarter driven primarily by the Asia-Pacific region.

In the US, Nexavar net sales in the second quarter 2011 were slightly lower than second quarter 2010 sales, primarily due to the impact of healthcare reform, including reserves for the Medicare part D donut hole coverage.

We expect the Medicare part D impact to be most significant in the first half of the year, as Nexavar patients reach their contribution thresholds.

We continue to expect global Nexavar net sales of approximately $975 million to $1.025 billion for full year 2011, with double-digit growth in the Asia-Pacific region.

Variables that could influence sales growth in 2011 include new clinical data, global pressure on pricing and discounts, health care reform in various countries, the dynamics of the increasingly competitive kidney cancer market, and currency exchange rate movements.

Nexavar collaboration and cost of goods, distribution and SG&A expense of $89 million in the second quarter 2011 was higher than spending in second quarter 2010, primarily due to timing of certain commercial expenses and resulted in a Nexavar commercial margin of 57% in second quarter 2011, and 59% in the first half of the year.

We do continue to expect Nexavar commercial margins of 60% or better for full-year 2011.

Growth in research and development expense, which was $63 million in second quarter 2011, primarily reflects our expanded carfilzomib development program, notably the Aspire and Focus trials.

Additionally, as you'll recall, the expense of manufacturing inventory in anticipation of a commercial launch is included in R&D expense.

We continue to expect $225 million to $250 million in net research and development expense in 2011.

Second quarter 2011 selling and general administrative expense of $38 million includes selected pre-launch investments around carfilzomib.

We expect full-year SG&A expense to be consistent with current spending trends.

And later this year as we gain more clarity on the US regulatory process for carfilzomib, we will update you on gated pre-launch spending and the projected impact on full-year SG&A expense.

Based on current spending trends, we expect to be profitable in 2011 on a non-GAAP basis with the expectation that revenues from corporate development will offset investment in carfilzomib development and pre-launch readiness.

We received widespread interest across our portfolio and expect that transactions could involve any of our products, with a structure that may include up front, milestone based, and/or royalty payments and could also include funding participation for development.

For second quarter 2011, Onyx reported a non-GAAP net loss of $27 million, or $0.43 per share on a fully diluted basis.

As a reminder, we report non-GAAP information as a meaningful measurement of core corporate performance.

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

Finally, in second quarter 2011, we recorded a $10.7 million one-time exit cost related to the previously announced consolidation of our corporate and laboratory facilities here in south San Francisco.

Financially, we are in a position of strength, with operating cash flow from Nexavar that gives us the financial flexibility to move our portfolio forward and with a strong balance sheet.

We ended second quarter with approximately $550 million in cash and investments.

Thank you, and I'll now turn the call back over to Tony.

Thanks, Matt.

Nexavar is a great drug, delivering benefits to patients globally, and we have every reason to believe that carfilzomib is another great drug and a potential second blockbuster with the potential to help cancer patients around the world.

We look forward to delivering on the promise of both of these valuable molecules that we are shepherding forward.

Before we conclude our prepared remarks, and open the call to questions, I do want to comment briefly on our litigation with Bayer.

The trial is expected to begin on October 3, and for your convenience, we've added a litigation update page to the Investor Relations section of our corporate website.

It provides links to the publicly available documents, as well as a link to the San Francisco Court website, where you can access all the case related documents.

We continue to be confident in our case, and the evidence supporting our claims and look forward to a resolution of this matter.

As you've heard today, we look forward to completing submission of the NDA for accelerated approval of carfilzomib for the treatment of relapsed and refractory myeloma, and to getting this promising drug to patients as quickly as possible.

Nexavar has delivered another quarter of solid operating performance and has the potential to drive even further growth in liver cancer, new indications, and the Asia-Pacific region.

Our financial performance strikes a balance between expanding top line sales, targeted investment in R&D, and building new capabilities to ensure commercial success.

We've got a very exciting second half of 2011 ahead of us in keeping with our mission of making a difference in the lives of patients, and look forward to our continued dialogue.

We'll now open the call to your questions.

Operator.

Thank you.

We will now begin the question and answer session.

(Operator Instructions)

The first question comes from Gene Mack from Mizuho.

Please go ahead.

Hi.

Thanks for taking the question.

Tony and Ted, I wonder if you could just talk a little bit more about the extended timeline for filing the NDA.

I'm just wondering if perhaps there was something that your consultants picked up from the July 14 ODAC panel for Adcetris that might be driving a little bit of that.

And I wonder if you can just talk a little bit about the response rate that you're going to be submitting to the FDA and how confident that you can be that the FDA is going to agree with those response rates.

And maybe also just a quick comment on the overall survival benefit that was seen among each of the patients -- among each of the categories of responses that you saw and how important that might be to the FDA considering the fact that they focused a great deal on duration of response with the Adcetris panel last month.

Thanks.

Okay.

I think, Gene, what I would say is that we have actually had the benefit of incorporating both real time and some very recent examples of companies moving through the accelerated approval process.

Obviously, we won't comment on other companies, but we've been able to incorporate these examples into our thinking and our planning, and I think have the benefit of these very recent experiences.

We are taking these live learnings into account as we finalize the NDA, and it is a place where we are looking to both enhance and strengthen the NDA through the advice of the external experts.

These are individuals who have had the responsibility for reviewing applications and are extremely well placed to advise us and to improve and strengthen the high-quality NDA that we want to provide.

The net effect should be a high-quality filing for the FDA to consider, and we consider these external experts important to the process and the strength of the overall filing.

I think the questions specifically on the response rate and overall survival, I'll ask Ted to comment on.

Before I get there, I want to emphasize that the feedback that we've been receiving from reviewers has actually been quite encouraging.

And we've used that feedback as an opportunity to strengthen the filing.

I'll give you 1 example.

1 of the observations noted is that the dose response data was quite compelling.

So, we actually took effort to get an external person to help us go through that very carefully, analyze all of the appropriate endpoints of efficacy for dose response, and that's now incorporated into the NDA.

But that's 1 example of some of the things that we received input for, and we thought good opportunity to enhance the filing, but it took more time.

To your question about the response rate, it's really as we previously reported.

The response rate overall is approximately 24%, and that number is unchanged.

And that number is actually quite consistent within the database as you look at various sub-populations as we've also previously reported.

Finally, you asked about the overall survival data, that data is quite compelling.

We are very encouraged by that, and it was presented at AAPS last year and generated a great deal of excitement.

I will, however, caution that, as was very clear at the recent ODAC meeting, the FDA is very limited in terms of their ability to interpret time-related data in single arm trials.

So, while that data was very encouraging, I think interpretation is limited by the single arm nature.

The only thing I'd add, Gene, to the comments, I'll just remind everyone of our median overall survival data.

For all patients in the study regardless of response to drug, it was 15.6 months, and for those with the best response, we're currently at 20.7 months, and with ongoing follow-up for the best responders.

So, we continue to think that this is really still quite excellent.

Let's take the next question, operator.

Thank you.

And as question comes from David Moskowitz from Roth Capital Partners.

Please go ahead.

Thanks.

I appreciate the question.

I'm just wondering, this expanded access program just makes me scratch my head a little bit.

Can you explain to me what the incentive is for FDA to approve the product on an accelerated basis to give patients access to the drug when, in fact, this access program may in fact already give patients access to the drug without approval.

So, David, on this point, obviously this is something that we studied very carefully.

There are a couple of schools of thought about it.

I would start by saying that this program, this extended access program is first and foremost about patients.

We do know that patients continue to have an unmet need here, and that they can benefit from carfilzomib.

And the partnership that we have with the Multiple Myeloma Research Foundation pointed us in the direction of lowering this program out to make carfilzomib available through investigators who have had experience with the drug.

So the first priority here is patients, and we want to stay focused there because it's how we are building the Company.

Your comment about how the FDA might view this, I think there's recent evidence and public comments attributed to the FDA to suggest that they are actually quite pleased when they can review a file and have an expanded access program ongoing.

And I don't think that we can find any data to suggest that an expanded access program either slows things down or lessens the chance of an approval.

So, in the balance of things, because it's best for patients, we've moved forward with this, and we'll learn something through it, but we also have the additional benefit to have the protocol for the expanded access program reviewed by the FDA.

And we'd underscore that the FDA has reviewed it, has given it authorization to go ahead, and that suggests to me that we have at least a green light to make this available to patients.

Next question, operator.

Thank you.

The question comes from Terence Flynn of Goldman Sachs.

Please go ahead.

Hi.

Thanks for taking the questions.

First on the carfilzomib filing, just wondering if you brought these external consultants in recently or if you have, throughout this whole process, been using these external consultants.

And then I have another follow-up question after that.

Terence, I think Ted will probably comment.

He's very close to the process here.

We have brought in some people very recently, but we have been using some consultants throughout the process, so it's a mixture of both.

What I would say, though, as Tony said, we've been learning also from the experience that we've been seeing with other companies in terms of their interaction with the FDA and the accelerated approval process.

And we've been trying to continuously integrate that into our strategy.

Okay.

And would you say based on their feedback you're more confident in accelerated approval at this point, given the feedback that you're incorporating?

I'm not sure if I would want to try to comment on our confidence level.

What I can say is that we think that the things that we're doing are prudent and increasing the quality of the filing.

Because that's really all we can control, is the quality of what we submit and that's what we are committed to.

Okay.

And what the question, just on the Aspire study, I noticed during your remarks is that there is potential for an interim analysis in the first half '13.

I think this is the first time you've talked about an interim analysis in this study.

And I'm just wondering if that interim, your guidance to first half of '13 is based on what you're seeing on the enrollment side are actually on the event side.

Thanks a lot.

I'd say is largely driven by the enrollment.

You know that we've got, and we announced previously, that we would have the interim analyses for both this and the Focus study.

And it's largely being driven by enrollment, which as Ted commented in the prepared remarks, is going exceedingly well.

So, we are quite encouraged that there's both a high interest in this particular trial and enrollment seems to be following along very nicely.

Operator, we will take the next question.

This question comes from Rachel McMinn from Bank of America Merrill Lynch.

Please go ahead.

I wanted to get your thoughts on the timing of carfilzomib launch versus generic Velcade entry And I guess specifically as we think about these sort of 2 basics scenarios, accelerated approval, that would put a launch in 2012, which is about 5 years ahead of generic entry for Velcade.

But in the chance that you don't get accelerated approval, then you know, your launching, really, 3 years ahead of generic entry.

So, how do you think that changes either the slope or just the ultimate peak sales of carfilzomib?

Obviously, we are developing a set of competitive plans that will position us will when we do launch carfilzomib.

And I think the notion that we will have by the time of an expected Velcade patent expiry, we should have not only the data set from A1 in relapse and refractory patients, but also in the relapsed 1 to 3 prior setting.

And potentially even the focus data we would expect there, which will certainly see what the FDA says about that, and whether we can discuss that with physicians in the US

So, we expect it will have a robust data set to speak to.

We have talked previously about our intent to do a head-to-head trial against Velcade.

You can imagine that that would run concurrent with some of the other already existing Phase III programs, and we should have the results from that trial in plenty of time to really help physicians make a good choice between carfilzomib and Velcade.

Next question, operator.

The next question comes from Shiv Kapoor from Morgan Joseph.

Please go ahead.

Think you so much for taking my question.

On your R&D expense line, there are a lot of moving parts here, especially in the past couple of quarters.

Can you explain what your ongoing cash R&D expense is currently?

Or at least help us a certain back by telling us what we should and shouldn't include?

Matt, why don't you take that 1?

Sure.

Let me answer the mechanical part of the question first and then give you a little bit of color on the R&D spend.

Effectively, all of our R&D expense as reported in our GAAP financials is cash expense with the exception of a small portion of stock-based compensation that is rolling up in the R&D expense line.

That break up between the stock -based comp portion and the cash portion is detailed in the schedules to our press release which you can take a look at for each piece of quarterly earnings.

In terms of some of the underlying drivers, here in the second quarter we have continued to see R&D expense increase, primarily driven by the proteasome inhibitor development program, and especially the Aspire and Focus trials that you heard Ted report on in this call.

The clinical supplies and costs of conducting those clinical trials are the most significant driver of the increase in R&D expense.

Also, as I noted in my comments, we are beginning to build commercial inventory of carfilzomib in anticipation of the US launch, and those expenses rolled up in the R&D expense line as well, when they're incurred prior to the commercialization of the drug.

Thank you.

Operator, next question.

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

Please go ahead.

Good afternoon.

Thanks for taking my question.

It's a question on the ex-US plans for carfilzomib.

In your prepared remarks, on the 1 hand, you suggested that you are building the commercial structure in Europe to potentially handle a carfilzomib launch.

But on the other hand, in the financial guidance, there seems to be an assumption for a relatively large business development payment in the second half of the year, which seemingly could most likely come from carfilzomib's ex-US rights.

So those conflicting.

I'm curious to get your most recent thoughts on whether you're going to keep carfilzomib for yourself in Europe, or whether it's likely you're going to out license it.

Okay.

Thanks for the question.

Let me go back and just review a couple of things.

Our comments about the infrastructure build in Europe are largely around those pieces that are essential in the pre-launch planning period.

So, it's largely regulatory to ensure that we've got correspondence with the EMA and medical access or pricing reimbursement, which increasingly, these days, is a very important part of the pre-launch and pre-registration planning.

So, we've got targeted investments in the EU, and we'll expand those as necessary as we move forward with the regulatory pathway.

But, we have a little bit of time because Focus is enrolling, and we don't expect data in the near term.

I think what I'd like to do is broaden everyone's thinking about how we might think about corporate development for the company this year.

We, in that section, talked specifically about the notion that corporate development revenues can be generated from any of our assets and in any of the territories where we have rights.

So, I'd like to broaden our thinking about how we are contemplating corporate development.

That could be a combination of both royalties, milestone payments, up fronts, et cetera, across the entire portfolio and the entire asset base.

What I've always said, is that it was a clear and easy decision to license the rights in Japan.

We think there is a similar clear and easy decision to license the rights in Latin America and AsiaPacific, as well.

But when it comes to Europe, we're really focused on retaining the significant part of the downstream rights in that particular market.

We know that that's a way to build a sustainable Company, which is our objective, both in the near-term and over a longer period of time, and we think that there are a variety of ways, through partnerships and on our own that we might accomplish that.

Remember, the goal is for us to obtain significant downstream value in that particular territory, that being Europe, and that's what you see us providing limited resources for small infrastructure builds to make sure that we can do that.

Next question, operator.

As question comes from Chris Raymond from Robert W Baird.

Please go ahead.

Hi.

This is Matt in for Chris.

Thanks for taking the question.

In the Q1 call, I think you mentioned global Nexavar sales were in line with guidance, and SG&A also in line with guidance.

After Q2 now, are they still in line with your annual guidance, and then can you also break down Nexavar revenue into HCC versus RCC by region?

Thanks.

Hey, Chris.

Yes.

We believe that we are still tracking toward our 2 key components of Nexavar guidance, top line sales guidance, as well as commercial margin or contribution guidance for the year.

And as we see through the first half of the year with global Nexavar sales growth at about 7% over the first half of last year, that's tracking very consistently with where we are envisioning heading.

We don't have an ability, unfortunately, to break down between HCC and RCC by region, as we experience consistently the requirements of various countries in terms of what specific diagnosed information physicians provide when writing scripts varies widely, and we simply don't have a strong ability on a more detailed regional basis to sort to that mix.

I do think it would be safe to say that we have seen a trend over the last several months where the RCC portion of the business is declining, and importantly -- and Laura commented on this earlier, strategically we expected this given the amount of competition.

So, we've purposely shifted the business to liver cancer, and it's where we have provided reinforced efforts both commercially and from a sales perspective to ensure that we've got great growth opportunities there as we face kidney cancer competition.

It's probably A 70% - 30% split today and that's probably not moving very much.

And as Matt said, it is difficult to provide in terms of what we get on a territory basis.

But importantly, we'll be able to shore up both our commercial efforts in liver cancer, hopefully with some additional data in the coming months, from some very important trials that will open up new parts of the liver cancer market to us and in earlier stages of treatment.

And this will help overall.

Next question.

The next question comes from Yale Jen from Maxim Group.

Please go ahead.

Thanks for taking the questions.

Just want to get some sense of the new CMAC program.

Would that have any potential impact on the recruiting for the Aspire trials?

No, it should not.

The patient population that we are enrolling in that trial is similar to the 003A1 trial, and you'll recall that Aspire is really focused on 1 to 3 prior relapsed patients.

It could have some overlap potentially with patients that we are recruiting for the Focus trial, but you'll recall that the Focus program is an entirely ex-US program.

So, by geography, there's 0 competition.

Okay, great.

And just 1 follow-up, which is in terms of the Japanese study, which is just started, could you give a little bit more color in terms of the design and other aspects of it?

That trial -- I could, but I probably am not into this position to do that today.

I can tell you that it's a fairly typical trial, though, that is used to essentially confirm what we've seen in terms of PK in US patients with PK in Japanese patients.

That's really the major thrust of the trial.

I don't have the protocol in front of me, so I wouldn't want to be more specific than that.

But, that's really the major thrust.

Thanks, operator.

Next question.

The next question comes from Howard Liang from Leerink Swann.

Please go ahead.

Hello, this is Jon Eckard in for Howard.

Thank you for taking the questions.

I was wondering if you could talk A little bit about the Space trial.

I believe you said that it could expand up to 20% of the addressable patients.

Would these patients have a similar market opportunity to the existing 50% that you're treating?

And when would this data, not that it reads out, but when could actually have a commercial impact from this trial, as well as the Storm and Search trials?

Let me provide a little bit of context.

The label that we have for carfilzomib -- for Nexavar, I'm sorry, I apologize -- for Nexavar, is for patients with unresectable liver cancer.

We believe US includes most of the patients we're getting today, as well as some patients that we aren't accessing fully today that are being siphoned off for interventional radiology procedures, including chemoembolization.

That number represents, we expect, about 20% of the market, and were not just accessing that market today.

What we think the Space trial affords us is an opportunity to reach this group of patients, because this is primarily about safety in combination with chemoembolization.

So, the Space trial is a Phase II study, it's not Phase III, and it just gives us very helpful safety data that we think will be useful for interventional radiologists, as they're making their choices about the best way to treat the liver cancer patients that they see.

Just to complete the thought, there is another 20% of the liver cancer population that would be the post-surgical population that we don't currently have a label for.

And if we're successful and the Storm trial bears out, that adjuvant study should actually allow us to access that other 20% of the market.

The remaining 10% are end-stage patients, and which we usually don't get access to those patients except as a last ditch effort or salvage by physicians.

So, that's how we're thinking about Space, and we think that those data should be forthcoming by the end of this year.

Next question, operator.

Our next question comes from Corey Kasimov from JPMorgan.

Please go ahead.

Hi there.

It's actually Matt Lowe in for Cory today.

I was just wondering, as we get closer to the trial date for sorafenib, could you talk about the precedents for these types of cases settling before they go to trial?

And I have a follow-up as well.

Thanks.

It's a little bit hard to speak to precedents.

Because each case is unique and this is certainly unique in our space.

What I'll tell you is what experts in the field have told us, is that many of these cases do, indeed, settle.

So, there is always that kind of opportunity, and it's always good if participants in this process can settle.

However, having said all of that, we do like our case very much and do believe that, if necessary, we are prepared to go to court and to go to trial, and believe that everything that we've learned and the evidence that's been accumulated so far really gives us a strong position.

Okay.

And just quickly with the Proteolix agreement, could you just remind us what type of milestone you'll pay, should you get accelerated approval in the first half of 2012, relative to simply getting full approval sometime after?

What type of milestone you'll pay that company.

Yes I'll ask Matt to address that.

Sure, Matt.

The agreement under which Onyx acquired Proteolix was amended earlier this year, and provides for a series of milestone payments, the first of which is relevant to your question, which is a payment which is due to the former Proteolix stockholders if and only if accelerated approval is received in the US That payment begins at a total of $170 million, but does step down over time if accelerated approval is received, but at a date that's later than what was initially anticipated.

Okay.

I think that's all we've got time for today.

Obviously, the IR team will be available after the call to handle any additional questions, along with members of the finance team.

So, please avail yourselves of that.

I will close the call by saying we are very excited about the second half of this year.

It's a pivotal moment in the Company's history, and being this close to an opportunity for a second potential blockbuster is really energizing.

We are pleased with the evolution of Onyx with the growing clinical momentum, with the innovative pipeline we've built, and we think all of these things give us promising opportunities to transform the treatment of cancer and impact lives.

Thank you for joining us today.

We'll look forward to our next opportunity to talk.

Thank you, operator.

You're welcome.

Thank you for participating in the Onyx Pharmaceuticals second quarter finance conference call.

This concludes the call for today.

You may all disconnect at this time.