Athenex Inc (ATNX) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2018 Athenex Earnings Conference Call. (Operator Instructions) And as a reminder, this conference is being recorded. I would now like to hand the conference over to Mr. Jim Polson, Investor Relations. Sir, you may begin.

Good morning, and thank you for joining our conference call as we provide an update on Athenex's business as well as a review of financial results for the first quarter 2018. The news release detailing the first quarter results crossed the wire earlier this morning and is available on the company's website. A replay of this call will also be archived on the company website.

During the course of this conference call, the company will make projections or forward-looking statements regarding future events, including statements about financial and clinical milestones anticipated in fiscal year 2018 and beyond. We encourage you to review the company's past and future filings with the SEC, which identify specific factors that may cause the actual results or events to differ materially from those described in the forward-looking statements. You can find our SEC filings in the EDGAR database at www.sec.gov or in the Investor Relations section at our website at www.athenex.com.

This morning, we are joined by Dr. Johnson Lau, Chief Executive Officer; Jeff Yordon, Chief Operating Officer; Dr. Rudolf Kwan, Chief Medical Officer; Li Shen, Acting Chief Accounting Officer; and several other executives, who will be available to answer questions after the prepared remarks.

With that, I'll turn the call over to Johnson for introductory comments.

Good morning, and thanks, everyone, for joining us today. I'm pleased to be reporting a strong start to 2018, building on the momentum and accomplishments we generated in our inaugural year as a public company. Let me first start by briefly speaking to some recent highlights from the first quarter and then handing it over to my colleagues for a detailed overview of the progress we have made across the business.

In our Orascovery platform, as we first discussed on the year-end 2017 earnings call, we received positive feedback from the U.S. FDA on the clinical trial design and also met our enrollment target for Phase III clinical trial of Oraxol for second interim analysis in metastatic breast cancer.

In fact, the trial has enrolled -- exceeded our target of 180 patients as early as February this year, and the trial currently has enrolled more than 260 patients. We continue to expect results from the second interim analysis of the first 180 patients in the third quarter of 2018.

Additionally, we recently announced the U.S. FDA has granted us orphan drug designation for Oraxol for the treatment of angiosarcoma, a rare form of malignant blood vessel cancer. This further validates our multipronged strategy for the development of Oraxol and is a testament to the quality of our global team in our overall planning of global registration strategy.

In U.K., Oraxol has received promising innovative medicine or PIM designation for all Paclitaxel-responsive tumors. And we are working towards the application of step 2 of the Early Access to Medicines Scheme program by the NHF in the U.K., and we'll be providing updates to you soon.

In addition, the Chinese FDA awarded us an IND in China to start clinical trials in under 6 months, which represents record time for this kind of action. Dr. Rudolf Kwan, our Chief Medical Officer, will speak to further developments in the Orascovery platform later in the call.

In Src Kinase platform, we want to remind that patient enrollment is completed well ahead of schedule for the -- our 2 Phase III clinical studies of KX2-391 Ointment for actinic keratosis indications, with top line results expected in the third quarter of this year. We continue to work closely with our partner, Almirall, our strategic partner for the development of KX2-391, and we are excited about the benefits we will realize from this very good collaboration.

I believe it's worth underscoring that we are well ahead of schedule on our late-stage clinical trials, which is a testament to our strong clinical team and also very encouraging for the progress of our pipeline. We are looking to continue this progress and momentum by accelerating our focus in investment in these promising clinical candidates.

For our financials. We generated first quarter revenue of $37.8 million, inclusive of $25 million associated with the licensing agreement with Almirall and $12.8 million generated from the commercial segment, an increase from $4.6 million year-over-year. In fact, we received $30 million from Almirall. But given certain conditions associated with $5 million of payment, we are taking a conservative approach in -- to recognize this $5 million as deferred revenue. Had all $30 million had been recognized as revenue, we would have been very close to breakeven for the quarter.

Furthermore, all 4 of our facility initiatives remain on target and as planned, and we are progressing according to plan on both our Dunkirk, Buffalo sites as well as Chongqing, China, API facilities. And we were pleased to inform -- to say that the U.S. Clarence or Buffalo site that is focusing on 503B and pilot plant has passed the FDA inspection in the first quarter of this year. And our Chongqing API facility just passed U.S. FDA inspection this last week, and I'm very proud of the team that there were 0 citations.

Heading into the balance of the year, we remain focused on advancing our clinical oncology and adjacent candidates, leveraging our global reach research and development capabilities in expanding our oncology product pipeline and building out our commercial platform that can achieve and support global sales, marketing and distribution.

Given the confidence we have with our Phase III programs and our successful delivery of 2 Phase III programs patient recruitment on time, we are also evaluating additional opportunities to further strengthen the pipeline to position ourselves as a major leader in the field of oncology and to create value for all our stakeholders. We'll continue to update all of you as we make further progress on our clinical and commercial efforts.

With that, I'll turn the call over to our Chief Operating Officer, Mr. Jeff Yordon, for a more detailed overview of our accomplishments during the first quarter. Jeff?

Thank you, Johnson, and good morning, everybody. We had a very strong first quarter in which we made significant progress across both of our proprietary platforms and generated a record quarter of revenue performance, inclusive of a licensing fee generated from our agreement with Almirall. I'd like to start by providing a bit more detail on the progress we've made across our business this quarter.

Our landmark deal with Almirall continues to yield benefits. Under the terms of the agreement with Almirall, Athenex received $25 million in the first quarter of 2018 out of near-term payments, which will ultimately total $55 million with additional indications, milestone payments and a royalty payment starting at 15% based on annual net sales with incremental increases in royalty rates with increased sales.

While the initial upfront licensing fee from Almirall is in the amount of $30 million, we only recognizing $25 million during the first quarter with the remaining $5 million being recorded as deferred revenue, contingent upon confirmation that Almirall is satisfied with our clinical data. We are very excited about this partnership and look forward to collaborating with Almirall as we move the business forward.

And across our commercial business, we launched significant new products in both our 503B and specialty injectable business units. During the first quarter of this fiscal year, we launched 8 new products from our commercial units. As a whole, Athenex Pharmaceutical Division, or APD, now currently markets 19 products with 32 SKUs. And Athenex Pharma Solutions business, or APS, our 503B outsourced facility, currently markets 5 products with 23 SKUs.

We are also pleased to help fill the U.S. shortage opportunity of both Vancomycin and azithromycin, which were significant contributors to the first quarter revenue performance. We continue to take steps to strengthen our supply chain by continuing as planned with the development of large-scale cGMP manufacturing plants in both the United States and China.

As a result of our strong private-public partnerships with the state of New York, construction is well underway on our Dunkirk, New York facility, and we expect the facility to be completed by the first quarter of 2019. This partnership continues to be critical to our mission of developing innovative and effective oncology-focused therapies. I want to mention the fact that eventually our proprietary products will be manufactured there, and we have a comprehensive plan to immediately absorb overhead in this new facility.

Additionally, the API facility in Chongqing is ahead of target and could be completed by the start of the fourth quarter. We are extremely pleased to announce several very positive inspections by the U.S. FDA, which serves as major speed bump for many of our competitors. To this end, our 503B facility in Clarence, New York, completed a successful U.S. FDA inspection in the first quarter.

And finally, the Polymed API facility in Chongqing completed the U.S. FDA inspection last week with 0 citations, which is extremely remarkable and highlights the strength of our compliance qualifications. This is extremely relevant because Polymed supplies critical raw material to Athenex for our first 2 proprietary products. This is a major accomplishment, and we are not dependent on any third-party supplier for our key proprietary products.

As a company, we are acutely focused on the discovery, development and commercialization of oncology and adjunct oncology products. And we are spending a good deal of time with comprehensive cancer centers, looking for opportunities to improve the treatment of cancer and related conditions.

Our commercial platform will become critical to supporting our proprietary drug candidates when they are approved. In the interim, we are laying an extremely solid foundation of commercial capabilities as exhibited by strong revenue performance this fiscal year.

We continue to view the commercial platform as both an important opportunity to generate revenue and help to fund R&D efforts on the clinical platform and vital to the eventual commercialization of these platforms as we work to make Athenex a leading provider of proprietary oncology treatments and build a bridge to future decision-makers for our proprietary products.

With that, I'll hand the call over to Rudolf Kwan, our Chief Medical Officer, who'll provide some highlights in our clinical business. Rudolf?

Thanks, Jeff. Let me highlight some additional detail on our clinical program. I'll start with Oraxol, the lead candidate in our Orascovery platform.

In April, we announced receipt of orphan drug designation for Oraxol for the treatment of angiosarcoma. The designation represents our commitment to expand the indications for Oraxol. This is a parallel development program with our metastatic breast cancer and gastric cancer indications, in which Oraxol has already shown promising efficacy and safety profile. We expect to launch the clinical trial for angiosarcoma shortly.

Reflecting back on key developments during the first quarter. In January, we announced encouraging preliminary efficacy and safety data of Oraxol in the treatment of breast cancer in a clinical trial of 24 patients in Taiwan. Among the first 12 evaluable patients, we saw 50% partial response and another 50% stable disease. There was no progressive disease and no report of peripheral neuropathy.

In February, we announced meeting our enrollment target for the Oraxol Phase III clinical trial for metastatic breast cancer, putting us on schedule for second interim analysis in the third quarter of 2018.

In other developments across our Orascovery platform. For Oraxol in combination with ramucirumab, which is for gastric cancer, the first cohort of patients is completed, and we are dosing in the second cohort. Our China Oraxol clinical studies are in the final planning stage, and we should be starting clinical studies pretty soon.

Our Oradoxel, which is an oral formulation for docetaxel, and our Oratecan, an oral formulation of irinotecan, the clinical programs there are progressing very well, and we are in a position to advance these programs very soon. Finally, for the Orascovery platform, we are planning for the Oral Eribulin IND to be filed by the end of 2018.

Turning to the Src Kinase inhibition platform. In February, we announced Phase II clinical results for KX2-391 Ointment in San Diego at the American Academy of Dermatology Annual Meeting. Treatment with KX2-391 Ointment for 5 days achieved a high complete clearance rate of AK lesions at day 57 with excellent tolerability. We expect the top line data of the 2 Phase III studies to be available in the third quarter of 2018.

Let me close by reiterating that we continue to be ahead of already aggressive schedules in regards to our enrollment targets, which is a testament to the excellent planning and execution from our clinical team. We are very excited by our progresses, and we are accelerating investments in our clinical programs to maintain this positive momentum.

With that, I will turn the call over to Li Shen, our Acting Chief Accounting Officer, for an overview of our first quarter financial results. Li?

Thanks, Rudolf. I'm going to walk through the first quarter results, our current balance sheet position and confirm our revenue expectations for 2018.

Revenue for the first quarter was $37.8 million compared to $4.6 million in the same period last year. The increase was primarily attributable to $25 million in upfront licensing fees related to the collaboration agreement with Almirall, $8.6 million in specialty products sold through our commercial platform and $0.4 million for 503B products.

Please note that our initial upfront licensing fee from Almirall was $30 million. But as Jeff just mentioned, only $25 million was recognized in the first quarter, with the remaining $5 million contingent over the next year when our clinical data is confirmed to be satisfactory to Almirall.

R&D expenses for the quarter were $21.3 million, a decrease of $5.1 million from a year ago. This was primarily due to $14.4 million in decreased drug licensing fee to Hanmi and Gland, offset by $6.9 million increase of clinical study costs for Phase III trials of Oraxol and KX-01 Ointment, $1 million increase of compensation expenses and $0.9 million increase of product development and supplies related to 503B product and $0.5 million increase in preclinical studies and API R&D expenses.

SG&A expenses were $13.1 million, an increase of $3.3 million compared to $9.8 million for the 3 months ended March 31, 2017. The increase was primarily due to: a $1.4 million increase of compensation expenses; $1.4 million increase of office expenses and professional fees; and a $0.5 million increase of sales and marketing costs related to the launch of our proprietary product.

Now turning to the balance sheet. Cash, cash equivalents and short-term investments were $106.5 million as of March 31, 2018, compared to $51 million as of December 31, 2017. We remain focused on using our cash position to fund our clinical pipeline as well as working capital costs associated with commercial platform and general corporate purposes.

As we look towards the remainder of 2018, we are reaffirming our full year revenue expectation in the range of $100 million to $125 million.

With that, I'll now turn it back to Johnson for some final comments.

Thank you, Li. I'll conclude our prepared remarks before we open the call to questions. As a company, we remain acutely focused on the development and commercialization of oncology-focused therapies and specifically on the 2 Phase III trials currently underway across both of our clinical platforms.

Thank you to all of your continued support of Athenex, and we look forward to sharing upcoming milestones across our business when available. I would like to thank our team around the globe, whose hard work makes up the operational and clinical capabilities I'm so proud to be a part of.

With that, I'll turn the call over to questions. Operator?

(Operator Instructions) Our first question comes from the line of Kennen MacKay of RBC.

Question on the Phase III Oraxol trial enrollment. Johnson, did I hear you correctly when you mentioned that there were 260 patients enrolled into that trial? Could you clarify that? And then could you also help us understand when you could potentially take the third interim analysis of this trial? How many patients are needed for that? And again, when we could see that analysis, and I think that would be the second interim analysis that would enable the trial to potentially be stopped early for success?

No problem. I will turn this to Dr. Rudolf Kwan, our Chief Medical Officer, to answer both of your questions.

Kennen, the enrollments in the -- passed 260 patients. Now the second interim analysis will be conducted on 180 evaluable patients when they reach the defining endpoint of 19 weeks. There is no interim analysis. The third analysis is the final analysis, and it's based on 360 evaluable patients.

And Dr. Kwan, could you maybe just remind us potentially when we could be anticipating the second interim analysis, based on when you did reach 180 patients?

Third quarter this year.

And I also want to highlight that the -- we are accelerating the entire study so that hopefully -- we are very confident with regard to our study -- clinical study design. But hopefully, we'll get a very nice upside with potential positive results with the second interim analysis in probably late third quarter this year. And now we are planning to accelerate to ensure that we can, if we need, we have to do the complete study that will also be completed very soon as well.

And can I ask just the trial is to halt early for success, and you do see a much higher response rate in the Oraxol arm versus the IV Paclitaxel arm? Can I ask sort of what additional internal processes would need to be accomplished for potential FDA filing or global registrational filing?

Yes, let me answer this question. First of all, we are very happy with the progress, and should know when the clinical study is evolving very fast, and the investigators are very excited, and the recruitment rate is fast, that is usually to me a very nice signal.

In addition, when we have the second interim analysis, assuming that we are -- we hit a certain p value, then obviously, the Data and Safety Monitoring Board will look at it in a very favorable way. And what they may do is they could encourage us to consider taking advantage of stopping group but obviously, they will encourage us to talk to U.S. FDA to ensure that they are -- they like our decision before we will actually stop the study. Otherwise, we should continue the study as fast as we can.

Now obviously, there are couple of possibilities. Number one, FDA really likes our data and tell us to go ahead and file the NDA, which we'll be very delighted. Second possibility is that FDA will then say, well, actually, we want to have more data to ensure everything is on track and why don't you continue and complete the entire study and show us the data.

But the third one, which is actually very important is that FDA can also look at it this way, that, oh, it looks very promising, but you're also advancing very fast, the investigative license. Why don't you submit and then we then -- and then you then show us the entire (inaudible) data during the evaluation of your product in a way like a rolling submission?

And I think that we are trying to maximize the potential for a return for investors and also trying to mitigate the risk and, therefore, to advance the study in the pace that we are ramping right now would be able to allow us to capture all the opportunities that we would like to have in conjunction with our discussion with U.S. FDA.

Got you. And it seems like from the enrollment you've had so far, there's potential that the trial could be fully enrolled by the time that interim analysis is completed on that initial 180 patients, the 4-month overall response rate. So is that sort of thinking about things correctly?

Kennen, you know that we are -- our management style is very conservative. Certainty, we have always been able to deliver our results. Our original plan is to complete the enrollment sometime by second quarter next year. You can see that we are already hitting 260, and even assuming that we need to get to 400. I think that there is possibility, a very good potential that we will provide additional upside surprises.

Got you. And if I can just ask one final question, and it's on the same Phase III Oraxol trial. Just wondering if you can help us understand what is getting done in this trial to potentially help physicians and patients deal with some of the neutropenia that may be seen with the higher AUC versus 3-week Paclitaxel and higher time spent within the efficacious range.

Sort of anticipating that we should be seeing increased neutropenia, which is an on-target effect, obviously. But just wondering if that's something that is getting used, given that the trial is being conducted in South America, or how we should think about potential management of an adverse event such as that?

Kennen, very good question. We definitely believe that the neutropenia is in correlation with efficacy. We also understand that the handling of oral Paclitaxel and IV Paclitaxel can be managed better with suitable inclusion-exclusion criteria.

We already have implemented some of those after the first interim analysis last year. So we are starting to see the positive results from that implementation. I think going forward, when we go to the FDA, we will have a very good plan to tell them how we can maintain the excellent efficacy while controlling the neutropenia.

Kennen, as you can imagine that what all the regulatory authorities like is that we are only presenting the data and then we should take a very conservative approach without being too vocal. And we are definitely in this position. Because being too vocal sometimes can affect the way that the investigators or the people who analyze the results to be biased. Our objective is to get the drug approved instead of providing data ahead of schedule. I think that is something very important for us to consider.

Now given this approach that we are taking, which has been demonstrated to be consistently positive, getting a lot of endorsements, the fact that the various health authorities, including U.S. FDA, the U.K. -- the MHRA, the Chinese FDA, and also the regulatory authorities from other countries like New Zealand and Taiwan, the way that they provide feedback or support is a very good indication with regard to the fact that our product's profile looks very promising and then they are in full support with regard to our regulatory path.

And our next question comes from the line of Chad Messer of Needham & Company.

And I'm very excited about some of the upcoming readouts that we have with your oncology programs in the third quarter. On Orascovery, you've added an Oral Eribulin to your pipeline. Just wondering if you could walk us through your thoughts behind that choice and what you think the potential for that product is?

Chad, thank you for your question. We do -- we did have many choices. And obviously, it boiled down to a balance with regard to what is the best candidate. At this stage of our company, we can obviously add more, but we have to do it one at a time. And also, the resources we require and also the benefit that can -- we can derive for our shareholders and stakeholders.

Now let me share the properties of Eribulin. I would like to say that Eisai did a very good job in terms of getting this very important and useful clinical product for oncology patients. This product has a few very interesting profile. Number one, it is very active. Number two, it's derived from naturally occurring products, which they derive further in terms of making it even better. And number three, it's very active against Paclitaxel-resistant tumors.

Now if I try to make it into oral, and unfortunately, the absorption was always on the single-digit side. Therefore, it is still a -- an intravenous product. We look at the profile. We tested in animal model. We found it to be an excellent candidate. But more importantly, we were able to come up with a different synthetic route. That means we're able to produce the product in very pure fashion that will be suitable for what we are doing, and at same time, the effect that this product is active against the Paclitaxel-resistant tumor.

Obviously, you can imagine how many different things we can do by putting them together. And that is reason why, based on this profile, the physicochemical properties, the pharmacological properties and all the data that we have generated in animal model, we feel that this will be a very good candidate to move forward. And I think that is why we make the choice.

Also, Chad, we anticipate that the drug should cross the $1 billion revenue mark early next year. So it will be a very, very good opportunity for our shareholders.

All right. I figured you guys had a strong rationale there. It sounds like I was correct. This next one is one that I posed to Jeff when I saw him recently, and he suggested that after quarterly earnings is a better time to ask it.

I realize that the proprietary -- or the commercial part of your business has a very strong strategic reason for being in existence to support your own products in the future. But I've been trying to figure out how much cash it could generate on its own? And you guys have a fluctuating COGS. That makes sense because you're launching a lot of products, and I'm sure there's lot of upfront cost and things there.

But I was wondering if there's any way you could sort of even give me ranges or something to think about what the cash generation potential from this conglomeration of different commercial opportunities that you're pursuing ahead of your proprietary products?

Yes, let me give you some guidelines, Chad, on that. The traditional API to compounded product on the 503B, that margin should be in the 50% margin area. If you're compounding products from a finished vial, you're probably looking at margins in the 30%. So as we talk about more and more products, we can help you there.

The traditional margins on competitive injectable products figure about a 35% margin, but the difference being is that there are a bunch of products that we are now supplying that are shortage products, those margins approach 80%. And we have chosen a tremendous amount of products that have huge barriers to entry, both in terms of raw material and in terms of manufacturing. And those products are about 70%.

So we're willing as we move forward to sit down to sort of give you a break out how that all works out to give you a blended margin. It's significant, and we believe that not only will we cover all of the commercial overhead, but we will also begin to contribute some interesting dollars to our clinical program.

Chad, also let me add one more important component is that if you think about it, I mean, the effect that we have 2 proprietary products going to market with a number to follow; for us to evolve nicely then we also need to have a game plan with regard to our own products' marketing plan as well as a commercialization plan.

Now the cost savings and also the time savings with regard to the team working together instead of using a third-party consultant is significant. It will cause millions, multiple millions of dollars just to set up a commercialization plan and a marketing plan and to have people already in place that we can switch to do our proprietary products in a short period of time.

Now obviously, that put us in a very good position in terms of the fact that when we're successful, we are not [success] of having the only outlet to deal with big pharma. The fact that we have already got our Oraxol plant completed is a testimony with regard to the cost saving and time saving and our commitment to the program.

Our commitment to KX-01 for actinic keratosis, the marketing plan as well as commercialization plan is one of the key reasons why our partner, Almirall, and all the people that talk to us at the same time at that time were so impressed with regard to what we can do. In fact, our team are happy to join force together to ensure that the launch of the product is a success.

So I think that there's both the tangible number that one can see, but I think, the intangible with regard to what Jeff's team will be able to bring to support the proprietary products being developed by Dr. Kwan will also be very important in terms of the intangible value created for our organization.

Look, you guys have a unique strategy, and I'm -- the longer I spend time with you, the more I'm sort of waking up to what the strategic synergies are here. I appreciate you taking me through that.

Maybe just one last housekeeping one on the $5 million from Almirall that you're holding in reserve. Is there anything you can see more specifically about what them being happy with your data is? Is that -- I don't know what you can share or not share about what contractually it would take to meet you releasing that cash from reserve?

Actually, I negotiated the deal. So let me answer the question. So basically what happened is that when we cut the deal, the upfront payment was $30 million. But the challenge with regard to the fact that what if somewhere down the road that either the data was not ideal or that we are trying to get the package back based on different other conditions, say, for example, like the sales target not really ideal, all these other things, then at that point of time, our partner, Almirall, may have already generated a lot of data that will be very useful to us that we will like to have access to.

Now based on that, if say there is an agreement that we would like to, say, for example, separate our ways in an admirable way, then the data that would be generate, we will agree to pay a certain amount of money to get their data so that we will not be losing any time in terms of launching the product on our own, if necessary, which, obviously, we don't want to get into that. But, we, as a contract, we always need to prepare for everything.

So under that circumstances, we'll pay up to $5 million. But since it's up to $5 million, our accountants actually decided it would be ideal for us to take the most conservative approach. And that is the reason why instead of booking $30 million, they elected to book $25 million. So the only condition is, if we want to get a lot of data back from them, then there will be a payment, but there is a ceiling to the payment that we're talking about.

Okay, all right. So this sounds like this is related to data that comes out from this study. So is it safe to assume you will have decided how to treat that $5 million shortly after all the data comes out in the third quarter?

The contract actually allows them a certain period of time for them to reveal data. Certainly, when the data comes out positive, you can imagine that it will be very positive. And I think that our confidence based on the Phase II results, which is already a very big study based on 168 patients, only extending to around 600 in our 2 Phase III programs should give you a lot of confidence with regard to where we can get ourselves into. And I would encourage you to look at the way that when you have positive Phase III data, in fact, if anything, people are going to get even more excited.

Our next question comes from the line of Yale Jen of Laidlaw & Company.

Maybe I'm just going to start with housekeeping questions and move along with others. First is that for the $37.8 million revenue this quarter, can you break down a little bit more specifically, for example $25 million is the upfront? And what would be the product revenue and what would be the -- so the deferred revenue to be seen or not be seen for this quarter?

Let me answer first while Li is taking the data. $37.8 million in total, $25 million are being accounted for as licensing fee from Almirall. $5 million, that will be treated as deferral is not part of the $37.8 million. So the commercial operation generate $12.8 million in the first quarter. Is that the number that you're looking for?

Yes, that's the number I'm looking for. I'm sorry.

If you add the $5 million that is treated as deferred, and if you -- with that, currently, the first quarter, it should be $42.8 million.

Okay, great. That's very helpful. And second again on the housekeeping side, what's the share count base for calculating the net loss per share for this quarter?

We are going to get you the number right now. Li, do you have the number?

Yes, I do. It's 0.12.

No, share count base.

Share outstanding.

Yes, the shares outstanding, total number of shares outstanding.

Shares outstanding for this current quarter?

Yes, Li.

It is 63,275,929.

Okay, great. That's sounds good. That's very helpful. Appreciate that. Maybe just 1 or 2 clinical questions.

First of all, you mentioned that you are going to starting to look into angiosarcoma as a separate indications going forward as additions of line extension. Could you elaborate a little bit more in terms of, first of all, the investing data suggesting what happen -- existing data suggesting the Paclitaxel's impact -- therapeutic impact?

As well as what could be the potential benefit of that as you will have if you -- once you continue -- once you start the study, the study is successful and in terms of the regulatory sort of benefits or possibilities?

Definitely. Angiosarcoma is a very malignant tumor of a blood vessel. The current treatments are not ideal. The only treatment that has some short-term benefit is IV Paclitaxel. But unfortunately, because of the side effects and liability, they usually cannot maintain treatment for long.

We have generate both preclinical data and animal data that convinced the FDA that the oral Paclitaxel has a potential significant benefit upside and thus they designate the orphan drug indication. So we'll start clinical studies anticipating that the oral Oraxol being more tolerable long term would have a significant benefit in this very difficult-to-treat cancer.

Now the benefit -- the regulatory benefit that comes along with an orphan drug indication is tremendous. It basically opens the door for a lot of dialogue and a lot of related questions we can pose the FDA. But more importantly, on a global basis, it allow us fast track potential in some of the more difficult to get to health authorities. So that is the important element of the indication. Does that answer your question?

Yes, sure. And maybe I just add a little bit to see whether that makes sense, which is that if you would be successful in the angiosarcoma and that would be, let's say, also let's assume that breast cancer was successful, then it will have 2 indications, which the oral drug presumably better than the IV drug.

Would that give potential -- lay a ground to suggest across the board in all oncology indications whenever you use IV drug, at least, possibly could be suggesting that the oral drug will be better? So in other words go beyond the indication you've been exploring at the moment?

Yes, you read some of the people's mind. But certainly, as a company, we only provide data. And if the regulatory authorities look at it this way, we will be excited if they look at it this way. But certainly, part of our regulatory strategy, globally, [such that] using the U.K.'s promising innovative medicine and now using this approach represent our experience in terms of how to (inaudible), not just the single path but using multiple paths in terms of ensuring the global regulatory integration is a part of our strength.

I'm delighted to say that the U.K. health authority is saying that after our success, that now another company starts to realize that there's something called the promising innovative medicine definition, but the fact that we are ahead and they are helping us in a very nice way, we will be enjoying our -- the results that we can generate through our experience in terms of the appropriate regulatory path.

Okay, great. That's very helpful. Maybe the last question here really is that you have your -- you mentioned that the Dunkirk facility once finished will be part of the facility to manufacture your proprietary products. And also, you mentioned the Chongqing facility, the Polymed also has the inspection. So all these things, are you suggesting that the drug, if it be successful, will be manufactured both in United States as well as in China or just a different part of the process being done in both continents?

Yes, let's talk about the finished facility in Dunkirk is finished drugs. And to absorb the overhead, we will have our 503B solution business can immediately begin doing that, plus we have bought a bunch of products that will be moved into that facility as soon as it's available to absorb, plus, we'll be making, eventually, all of our proprietary products there. That's finished product.

In terms of the Chongqing facility, we're talking about raw material and the most relevant part of that is that Paclitaxel is the major product being manufactured there, and that's essential for Oraxol and our follow-on product docetaxel. So we are completely not dependent on third party. We're back integrated and can supply our raw material ourself. It's a phenomenal position to be in.

And Yale, also to further support Jeff's answer is that -- the other way to answer your question is there are 2 levels that we have to address.

Number one is that we contemplate that this is going to be a very sizable product. And for a very sizable product, the initial manufacturing from the transfer, from the existing contract manufacturing organization to our own plant will take some time. We just want to make sure that by the time we are ready, we don't just -- without ensuring that we have a backup, that's number one.

And also, to have a sizable product base is essential for oncology patients, we have to ensure that there's no interruption to supply. And to have good planning, it is actually a important component to ensure that we have a second plant for different geographic supply that we can sort of scale up in case there's interruption in one area. For important medicine, we have to ensure that they are in supply. And that is how we plan on our overall strategy.

And Yale, the last thing is that the state of New York is complying exactly as they're supposed to contractually. They are making the payments that we need, and we are following our agreement in terms of how we plan on hiring people, and everything is on target. We're very excited about it.

(Operator Instructions) Our next question is from the line of Matt Kaplan of Ladenburg.

So just wanted to dig in a little bit more to Oraxol and how we should think about the probability of the Phase III trial stopping a little bit early on the second interim analysis. Can you tell us a little bit about what some of the statistical assumptions are and how you're modeling the second interim analysis and potential for efficacy there?

Dr. Kwan will answer your question.

Matt, the design of the study is based on 360 patients. The general p value equal to 0.05. We have 2 interim analysis, so the alpha is split. We -- basically the first interim analysis is futility and so there's very, very little alpha spent in the first interim analysis. And the final interim analysis, we probably keep on to close to 0.05. So that is the parameters looking at the second interim analysis without me disclosing the details on that alpha, how it is spent.

The -- [ESMB] give us an indication that we should work fast towards the second interim analysis. So the data -- they look at the data and see that there's a reasonable probability of achieving that in the second interim analysis. I think that is probably always appropriate for me to comment on at this time point.

As we have discussed before, that we always designed the study to have a very high-level confidence when we complete the study. But we did build in a stopping rule at the second interim analysis. So therefore, I think that it will be very appropriate to assume based on the (inaudible) that when we get the full study done, there should be very high-level confidence.

And then, if we hit the stopping rule, that will be a very nice upside. And then as you can imagine, the fact that we are accelerating (inaudible) confidence, and we just want to make sure that whatever the FDA's response is going to be after the second interim, we are well positioned to capture the opportunity.

Great. And then just on the Phase III -- 2 Phase III trials for your KX2-391 Ointment in actinic keratosis, help us understand also what we should be looking for in terms of endpoints for those studies?

Okay. So the endpoint for the 2 Phase III studies are identical. They are identical studies, identical endpoints, exactly the same that the FDA has used to approve compounds like Picato, another AK treatment. Basically, it is a complete response rate in patients who have received 5 days of treatment. And at day 57, after the last day of treatment, okay?

So you look at the patients who have 4 to 8 lesions in the beginning and then you give them 5 days of treatment in our case of the ointment, and then you just observe them again on a regular basis, but the primary endpoint is at day 57 it has to be completely gone, okay? If they still have 1 lesion remaining, that's not a complete response, and it's not counted, okay?

So in our Phase II data, we saw around, depending on look at the indication around 42% to 52% of complete response in our Phase II, okay? And in our Phase III, we power a 20% response over the vehicle control. Traditionally, the vehicle control in studies that has been approved by the FDA range from 0 to 5%. So I think we are reasonably comfortable that our both Phase III studies should achieve the targeted p value we set up for. Does that help?

And our next question from the line of [David Bengard], an investor.

I have a question regarding the Phase I trial on the Oratecan. And I'm wondering if you can share any detail on the trial. And specifically, do you expect or have reason to believe that the results will be similar with what you're seeing in the Oraxol in that you are able to deliver a better outcome with reduced toxicity? Or could we maybe just look at the Oratecan as just a more convenient way to dose compared to an IV?

And then secondly, I know on the KX2-391 when we first looked at that, the AK was kind of the secondary target. I'm wondering if you can maybe share if there are any additional studies going on and any possibilities for label expansion on the ointment.

Okay. David, thank you for the question. Oratecan, the Phase II study, Phase Ib study in the U.S. is progressing very well. We have not yet met the MTD which is quite interesting because in the original study which Hanmi did, by dividing the multiple days, they did hit the MTD at a consistent dose in the dosing regimen.

So in the U.S. dosing regimen, we are still progressing because we haven't reached the MTD. So I would tell you once we reach the highest dose we can achieve and for how we make use of it, I think that information alone is quite exciting, okay? Not to mention that the oral docetaxel program is also moving along very well with the PK.

So the Paclitaxel, the oral discovery platform, the HM program of oral Paclitaxel is now being born further with the Oratecan and the Oradoxel program, and we look forward to, obviously, data from the oral Oratecan and we make up the oral Eribulin data. So that is moving really well.

Now going to the KX2-391, you do remember that we did focus on the oral oncology indication. And if you remember, we did have a lot of synergy data combining KX2-391 with Paclitaxel in our preclinical data, and that is a part that I have always been talking about in the last years. And I think we are reaching the time point once we got Oraxol approved everywhere in the world that we can rollout that kind of planning.

So David, in summary is that since most investors are focused on our Phase III programs, I just want to share with you that every single things that we promised, they are all advancing. And your question is very well received with regard to the Phase I, Phase II. Everything is advancing really, really well and according to schedule and results as expected or better.

And your second question is, we haven't forgotten about KX-01 oral preparation. But the high-level synergy, the better approach to do that is when our Oraxol is getting to approval process, the -- it will be logical to relook into the combination, which we have established a very good game plan, and that should follow according to the time schedule that we have designed because that will be the most effective approach to deliver the results to our shareholders.

One thing I learned over the years is promises met promises kept here. So no question there. On the KX2-391 though, I was a little bit more leaning towards the -- didn't we have psoriasis as an early target before we went over to the 8-K? So it was on the ointment side that I was talking about.

You ask a very good question. Allow me to keep it a little bit confidential for the time being, just keep on watching us.

And at this time, there are no further questions. I'd like to turn the conference back over to Johnson Lau, CEO, for closing remarks.

Thank you very much. Thank you for all your time. We are excited with the results. And I would like to thank all your time, and we will continue working hard to ensure that we're going to deliver results to you in the many years to come. And again, thank you for your time and goodbye.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.