Curis Inc (CRIS) 2012 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the first quarter 2012 Curis earnings conference call. At this time, all participants are in a listen only mode. We will facilitate a question and answer session towards the end of today's conference call. As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the call over to Mr. Mike Gray, Curis Chief Financial Officer. Please proceed.

All right, thanks Howard. Good morning, and thanks, as always, for joining us. During today's call, we will provide you with an update on corporate plans and developments, and also discuss our Q2 2012 financial results.

Before we begin, I'd like to advise you this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements relating to our and our collaborator Genentech's expectations concerning the commercialization of, and market opportunity for Erivedge, the timing and outcome of ongoing regulatory reviews for Erivedge, and the timing and potential outcome of ongoing clinical studies of Erivedge, our plans and expectations for advancing CUDC-101 and CUDC-907, and the potential therapeutic benefits of these development candidates, and our and our collaborator Debiopharm's expectations regarding the advancement of Debio 0932 into additional clinical trials in 2012.

Actual results may differ materially from those indicated by the forward-looking statements in this conference call as a result of various important factors, including Genentech's net sales of Erivedge in the U.S. in advanced BCC being inadequate to provide us with meaningful royalty revenues in health authorities and territories, other than the U.S., not approving Erivedge in advanced BCC, and the failure of Erivedge to generate policy data in ongoing and future clinical studies in diseases other than advanced BCC.

In addition, we are -- Debiopharm could experience adverse results, delays and or failures in their drug development programs and we may experience difficulties with maintaining necessary IP, Intellectual Property Protection, maintaining key collaborations and obtaining the additional funding required to conduct our business.

And finally, we may experience unplanned cash requirements and may not receive additional anticipated payments under our collaborations, any of which would shorten our estimated period in which we expect to have cash to fund our operations.

We also face other risk factors described in our quarterly report on Form 10-Q for the quarter ended March 31st, 2012, and in other filings that we periodically make with the SEC.

We caution you that we are making these forward-looking statements only as of today, and that we may not update any of these statements even if events or developments subsequent to the date of this call cause these estimates or expectations to change.

With that, I'd like to introduce Dan Passeri, Curis's President and CEO, who will provide a corporate overview, as well as an update on our pipeline. Following Dan's remarks, I'll return to review our financial results for the second quarter of 2012, and then we'll open the call for questions. Dan?

Yeah, thanks Mike. Good morning everyone, and thanks for joining us today. We've seen continued progress during the second quarter with each of our four development programs during this period. Genentech continued to advance its U.S. commercial launch of Erivedge in advanced basal cell carcinoma. And Roche has made progress with its efforts to provide Erivedge to advanced BCC patients outside of the U.S., with recent submissions for regulatory approval in Australia, Canada, Israel, Mexico and Switzerland.

Importantly, we received a $4 million milestone payment upon Roche's submission to Australian authorities. In addition, Roche filed for commercial approval of Erivedge in advanced BCC in Europe in December of last year. Including the most recent filing in Australia, Roche has now submitted regulatory applications in a significant number of territories, and this clearly highlights its global strength and commitment to the development and commercialization of Erivedge.

Internally, Curis is focused on the ongoing Phase I clinical study in locally advanced head and neck cancer patients with our IV formulation of CUDC-101, as well as preparing IND filings for the second half of 2012, to begin Phase I testing of the oral formulation of CUDC-101, as well as our oral PI3-kinase HDAC inhibitor, designated CUDC-907.

Lastly, our partner, Debiopharm, has advanced our Hsp90 inhibitor, which is currently designated Debio 0932, into Phase Ib testing, and also plans to initiate a Phase I/II clinical trial in non-small cell lung cancer patients in the near future.

So I'm going to begin with the launch of Erivedge, which, this is to remind everyone, a first-in-class hedgehog pathway inhibitor, which recently received FDA approval during the first quarter of this year, for the treatment of adults with a type of basal cell carcinoma, or BCC, that has spread to other parts of the body, and that is metastatic, or that has come back after surgery, or their healthcare provider decides cannot be treated with surgery or radiation. And we refer to these categories of disease as advanced BCC.

Roche, for the ex-U.S. markets, and its subsidiary Genentech for the U.S., are responsible for commercialization of Erivedge in advanced BCC, as well as for its continued clinical development. During Roche's recent mid-year update, the company indicated that it had recorded net sales of approximately CHF 10 million, which converts to approximately $10.5 million U.S., during the first six months of 2012. Roche had previously reported approximately $5.4 million U.S. in net sales of Erivedge for the first quarter of 2012.

Despite the slight decrease in net sales recorded by Roche for the second quarter of 2012, our prescription data that we track appears to demonstrate that the prescriptions in the second quarter have increased several fold from prescription levels observed in the first quarter of 2012, and that there is a consistent increase in prescription on a monthly basis over the period since Erivedge launch in February.

Upon Erivedge's approval, pharmacies that distribute Erivedge likely established inventories necessary to satisfy current and future prescription demand for Erivedge. Because Roche records net sales for Erivedge when Erivedge is sent to the distributor, a portion of the first quarter net sales were likely attributed to this inventory buildup.

While net sales will ultimately drive the value of our royalty interest in Erivedge, we remain highly encouraged by the apparent positive prescription demand trends at this early stage of product launch, and we look forward to continuing to monitor this in the future and reporting on updates as they become available.

Earlier this year, Roche communicated that it estimates that approximately 1.5% of all BCCs fall within the category of advanced BCC, and we believe that this represents a significant market opportunity for the drug. Roche also noted that the initial Erivedge uptake has been encouraging. Furthermore, payer coverage appears to excellent, with no significant reimbursement hurdles.

Based upon the early market launch metrics, and the estimates of potential patients, we continue to believe that advanced BCC market represents a significant value proposition for our shareholders, and we anticipate Erivedge's continued growth in the U.S. and globally, if approved in other territories.

As I mentioned earlier, Roche is working to secure approval for Erivedge in several other territories, including Europe, Australia, Canada, Israel, Mexico and Switzerland. We're eligible to receive potential additional milestone payments, upon regulatory approvals for Erivedge in advanced BCC in Europe and Australia, as well as royalty revenue in all territories in which Erivedge is sold.

Roche has indicated that it currently anticipates possible European approval, by the EMA, in either late 2012 or early 2013. And we estimate that potential regulatory approval in Australia could occur during the first half of 2013.

In addition to the lead indication of advanced BCC, Genentech is also conducting a separate Phase II clinical trial of Erivedge in patients with operable nodular BCC, which is a less severe form of the disease and accounts for a significant percentage of the approximately two million cases of BCCs diagnosed annually in the U.S.

This Phase II trial is the first study to assess the ability of Erivedge to provide complete histological clearance of a BCC tumor, which is an important first step in determining the efficacy of Erivedge in less severe forms of BCC, where BCC lesions are generally treated surgically. You know, our thought at this time is that the drug would likely be used, possibly as a neoadjuvant, prior to surgery in severe cases of operable BCC.

This trial is designed to test Erivedge as a single-agent therapy in a three-cohort trial of approximately 75 patients with operable nodular BCC, in a U.S.-based, open-label trial. Data from the first cohort was recently published in April in the Journal of Investigative Dermatology. This cohort evaluated the safety and efficacy of 12 weeks of daily, 150 milligram dosing of Erivedge, in 24 patients, with newly diagnosed, nodular operable BCC.

At the end of the treatment period, patients then underwent Mohs surgery, with independent pathology review. Pathologically confirmed complete clearance was reported in 10 patients, or 42% of the cohort, while clinical complete and partial responses were reported in 23 patients, or 96% of the patients treated. We obviously view this early data as highly encouraging.

The most frequent adverse events, or AEs, were similar to those observed in previous studies with Erivedge, and included muscle spasm in approximately 79% of the cohort, ageusia, which is loss of sensation of taste, in 42%, alopecia, or hair loss, in 38%, and dysgeusia, which is taste alteration, in 38%, fatigue in 21%, and nausea in 21%.

Most AEs were grade 1 and 2, and 7 out of the 24, or 29% of the cohort, reported grade 3 AEs, including four patients with muscle spasm. No serious AEs were reported in this cohort. Eight patients, or 33% of the cohort, discontinued from the study, including two that were due to AEs.

Cohort two is fully enrolled and accrual for cohort three is ongoing, with full study results expected in the second half of 2013. And to provide further clarification of the study design with these cohorts, cohort two is designed to follow patients after the 12-week treatment period, where they'll be followed up for an additional 24 weeks after treatment period to assess durability of response. So that is the Mohs surgery will not be performed until after that 24-week follow-up period.

Cohort three is designed to treat for eight weeks, followed by a four-week drug holiday, then treatment for an additional eight-week period. Now this cohort's designed to assess if there's a treatment benefit that can be enhanced with longer overall drug exposure, while ameliorating the associated AEs by providing the drug holiday.

In addition to the operable BCC study being conducted by Genentech, multiple trials in other cancer types are ongoing by third-party investigators, including the exploration of Erivedge in basal cell nevus syndrome, or Gorlin syndrome, medulloblastoma, sarcoma, glioblastoma multiforme, as well as in pancreatic, small-cell lung, gastroesophageal junction, gastric, breast, prostate, among others. We expect that some of the studies may yield data in the 2013 and -- I'm sorry 2012 and 2013.

For example, preliminary results were recently reported at the American Association for Cancer Research's Pancreatic Cancer Progress and Challenges conference. This early study reported on 20 previously untreated metastatic pancreatic cancer patients. These patients were treated for four weeks with Erivedge monotherapy, then followed by continued daily treatment with Erivedge and intermittent gemcitabine. Eighteen of the 20 patients were assessed for response after receiving three cycles, and the cycle's a 28-day periods of therapy.

Although a subset of patients had evidence of disease progression on Erivedge, in this case GDC-0449, monotherapy per resist criteria, continuation of 0449, with addition of gemcitabine, resulted in resist-defined, confirmed partial responses in five patients, that's 28%, with four additional patients having stable disease, yielding a 50% PFS rate at three months.

Now the percentage of pancreatic circulating stem cells decreased in 56% of patients. And of these patients, the mean relative decrease was approximately 60%. Interestingly, sonic hedgehog expression was more highly expressed in patients that achieved a partial response or stable disease, as compared to those with progression.

So we look forward to providing additional updates on this and other ongoing studies as warranted, as well as on Erivedge program as a whole, on an ongoing basis in the future.

I'd like to now turn next, briefly, to CUDC-101, which is our first-in-class EGFR, HER2 and HDAC inhibitor, and it's our most advanced proprietary program. We're currently advancing an IV formulation of the drug in an ongoing head and neck cancer clinical study, and are also advancing an oral form of CUDC-101 towards IND filing in the coming months.

We are continuing to recruit patients in the ongoing Phase I clinical trial of CUDC-101, in combination with current standard of care, which is cisplatin and radiation, in patients with locally advanced head and neck cancer. The primary objective of this study is to evaluate the safety and tolerability of CUDC-101 when administered in combination with the current standard of care, which consists, again, of radiation and intermittent cisplatin.

This trial was originally designed to include only those patients whose cancers are human papillomavirus, or HPV, negative. During the second quarter, however, we amended the protocol, in this Phase I portion, to include HPV positive head and neck cancer patients with a prior smoking history, in order to assess a wider patient population to enroll in this study, while still focusing on the more aggressive forms of this cancer that are less responsive to standard chemo radiation.

We're currently in the second of two planned CUDC-101 dose levels, at 275 milligrams per meter squared, having successfully progressed to the first dose cohort in which patients received every-other-day dosing of CUDC-101, as an IV, at 225 milligrams per meter squared dose level. Patients in the first cohort experienced no dose limiting toxicities, and all patients received benefit from treatment.

Our current goal is to complete the dose escalation portion of this study at the 275 milligrams per meter squared in the fourth quarter of this year, and then to treat approximately 10 additional patients at the maximum tolerated dose, or MTD, determined in this study, in order to further characterize its suitability as the recommended dose for a Phase II study.

We are operating this study through four study centers, currently, and are working at additional centers in order to expedite patient enrollment later this year. Assuming the successful outcome of this study, we plan to progress CUDC-101 as an IV form and to randomized Phase II study comparing the safety and efficacy of cisplatin and radiation therapy, with or without CUDC-101, in 2013.

We view the head and neck cancer indication to be an ideal initial commercial path, with our current IV formulation CUDC-101, as the drug targets the primary driving mechanisms of the more aggressive forms of head and neck cancer. Synergy has been reported with HDAC inhibition and radiation, and our pre-clinical data has shown that CUDC-101 synergizes with cisplatin. And the IV dosing schedule aligns very well with current standard of care, where patients are required to go to the clinic every day, weekday, for seven consecutive weeks.

We're also continuing to work on advancing an oral formulation of CUDC-101 into clinical development. We believe that an oral formulation has the potential to make CUDC-101 more competitive in certain cancers, where there are investigational or commercially available molecules that are administered orally. And it would also allow us to try various dosing schedules for enhancing exposure, particularly as a single agent.

Importantly, we've made significant progress towards advancing an oral formulation of CUDC-101, and currently expect we'll file an IND for an oral version of CUDC-101 in the second half of 2012.

Moving on to the rest of our pipeline, we have advanced an oral formulation of CUDC-907, which is our proprietary synthetic small molecule dual inhibitor of PI3-kinase and HDAC, towards clinical testing. We expect to file an IND during the second half of this year, and then initiate a Phase I study shortly thereafter.

CUDC-907 is being developed in collaboration with the Leukemia and Lymphoma Society, or LLS, under which LLS will support our ongoing clinical development of CUDC-907. Under this agreement, LLS will fund approximately 50% of an anticipated $8 million in direct cost of the development of CUDC-907 through Phase Ib or Phase IIa clinical testing, for a total potential funding of up to $4 million from the LLS.

Our scientists recently published pre-clinical data on this drug candidate in the Journal of Clinical Cancer Research. The publication focused on CUDC-907's biological activity in cell culture and animal models of various hematological cancers, with a particular focus on B-cell lymphoma and multiple myeloma, which are the primary cancers that we'll be exploring in the Phase I clinical trial that we expect to initiate early in 2013. And we look forward to providing updates on this molecule as the compound reaches Phase I clinical testing.

Our Hsp90 program is being developed by our licensee Debiopharm, and the lead candidate is designated Debio 0932. This is an orally available, small molecule, non-geldanamycin, Hsp90 inhibitor. Debiopharm recently completed the dose escalation portion of a Phase I clinical trial of Debio 0932, and presented data from this study, at the annual meeting of the American Society of Clinical Oncology in June of this year.

Debio 0932 was tested as a monotherapy in 50 patients in this portion of the study, including 22 patients that received Debio 0932 every other day, and 28 patients that received daily dosing of Debio 0932. Debio 0932 was generally well tolerated in this study with mostly adverse events classified as grade 1 or 2, and that is mild or moderate, with no apparent dose or -- excuse me -- with no apparent dose or schedule relationship. In particular, no ocular or cardiac toxicities, and no consistent changes in hematology or biochemistry parameters were observed.

The most common adverse events included asthenia, which is loss of strength or energy, constipation, decreased appetite, diarrhea, nausea and vomiting. Anti-tumor activity was assessed in 45 of the 50 patients enrolled in this study, with two patients having achieved partial responses, including one patient with breast cancer, and one patient that was KRAS mutant lung cancer. Stable disease was observed in 12 patients, and disease progression was observed in the remaining 31.

The recommended dose for further study was determined to be 1,000 milligrams daily, and Debiopharm advanced Debio 0932 into Phase Ib expansion portion of the study in the beginning of 2012 at this 1,000 milligram daily dosing level.

The primary objectives of the Phase Ib portion of the study are to further assess the safety profile, pharmacokinetics and pharmacodynamics of Debio 0932, and to make a preliminary assessment of the anti-tumor activity. Debiopharm expects that approximately 30 patients with advanced solid tumors will be treated in this portion of the study, including patients with non-small cell lung cancer.

Debiopharm also indicated that it plans to initiate a combination, Phase I/II study in patients with non-small cell lung cancer in the second half of 2012. This study will include patients with advanced non-small cell lung cancer, stage 3b or 4, with EGFR wild type receptor. KRAS mutation status will be assessed and will be used as a stratification factor.

The study will consist of three parts. Part A is an open-label dose escalation study of Debio 0932, in combination with standard of care in patients who are candidates for first line or second line treatment. The first line standard of care consists of cisplatin and gemcitabine, in the case of squamous histology, and cisplatin and pemetrexed in the case of non-squamous histology. Second line standard of care consists of docetaxel.

Part B is a randomized, double-blind, placebo-controlled study of Debio 0932, in combination with first line standard of care in 138 patients who did not receive prior systemic treatment for advanced non-small cell lung cancer. Patients who subsequently developed progressive disease In Part B will then enter into Part C. So Part C is a second randomization, which will assign patients to double-blind treatment with docetaxel plus placebo, or docetaxel plus Debio 0932. Approximately 100 patients are expected to enter Part C.

Part B has primary endpoint of progression-free survival at six months. Key secondary endpoints include best overall response rate, duration of objective response, change in tumor size from baseline until six months, and overall survival.

Part C has a primary endpoint of change in tumor size from baseline until six months. Key secondary endpoints include best overall response rate, duration of objective response, progression-free survival at six months, and overall survival. Potential pharmacogenomic, tumor pharmacogenetic, proteomic and pharmacogenetic factors, predictive of response to Debio 0932, will be assessed.

We are eligible for our next milestone payment under our license agreement with Debiopharm if, and when, Debiopharm treats its fifth patient in Phase II clinical studies, assuming that Debiopharm advances Debio 0932 into Phase II clinical testing. We currently anticipate that Phase II testing could commence in 2013.

At this point, I'd like to turn the call back over to Mike for financial discussions. And then following Mike's remarks, we'll open the call up for question and answers.

All right. Thanks, Dan. I'll try to be brief in just covering the Q2 financials, and then, as Dan said, get to Q&A.

So for the second quarter of 2012, we reported a net loss of $2.9 million, or $0.04 per share on both a basic and fully diluted basis, as compared to a net loss $4.9 million, or $0.06 per share on both a basic and fully diluted basis, for the same period in 2011.

We recorded revenues for the second quarter of 2012 of $4.4 million as compared to $400,000 in the same period in 2011. The increase from the prior year period primarily resulted from $4 million in license fee revenues that we received from Genentech, upon Roche's filing of Erivedge for marketing registration in Australia. We also recorded $250,000 in royalty revenues from Genentech's U.S. net sales of Erivedge during the second quarter of 2012.

Operating expenses for the second quarter of 2012 were $6.8 million dollars, as compared to $5 million for the same period in 2011. R&D spending was $4.5 million in Q2 2012, versus $3.1 million in Q2 2011, an increase of $1.4 million.

Spending on our internal programs increased by approximately $700,000, including an increase $600,000 in spending on 907, the HDAC PI3K inhibitor, primarily due to an increase in pre-clinical development costs, preparation for an expected IND filing in the second half of this year. Our spending on 101 also increased by about $100,000, primarily due to costs with our ongoing development of an oral formulation during the second quarter.

In addition to increases in spending in our internal research programs, we incurred $650,000 in R&D expense during the second quarter of 2012 related to sublicense fees paid to university licensors in connection with Roche's filing in Australia. And lastly, stock-based compensation increased $200,000 year-over-year.

G&A spending was $2.3 million for the second quarter of 2012, as compared to $1.9 million for the same period in 2011, an increase of $400,000. The increase was primarily driven by an increase in stock-based comp of about $0.5 million. Offsetting that increase, our legal fees were significantly decreased by about $200,000, Q2 2012 to 2011, primarily related to decreased patent costs.

Other expense was $500,000 for the second quarter of 2012, as compared to $300,000 for the same period in 2011. Just a reminder, other expense represents the change in fair value of a warrant liability established in connection with the 2010 registered direct offering. As of June 30, 2012, our cash, cash equivalents and marketable securities totaled $44.7 million, and there were 79.1 million shares of our common stock outstanding. We currently expect that our year end cash, without additional collaboration payments, will be at or slightly above the upper end of our previously issued cash guidance, which was $30 million to $34 million. We believe that this -- that our existing cash provides us with sufficient capital to fund our currently planned operations well into the first half of 2012. This projection importantly excludes royalty revenues that we expect to receive from Genentech on its net sales of Erivedge, as well as any additional milestone payments from either Genentech or Debiopharm that we have the potential to receive in 2012 or 2013. So today we're sitting on somewhere close to two years of cash. In addition to this currently available cash, we do anticipate that we'll receive additional milestone payments. One on the approval of Erivedge in Europe, which we expect could occur in late 2012 or early 2013. An additional milestone on approval of Erivedge in Australia, which we expect could occur in the first half of 2013. And then lastly, a milestone payment from Debiopharm, which Dan mentioned earlier, on its treatment of the fifth patient in the Phase II portion of the Phase I/II study that we'll initiate shortly. And we expect that that payment could occur in the first half of the year.

So, with these near-term milestones, that we view as low to moderate risk, we'd have adequate capital to fund our operations through 2014. So in addition, and obviously very importantly, we continue to receive increasing royalties from Genentech and, hopefully next year, starting next year, Roche's sales of Erivedge in other territories, which will further strengthen our capital position.

That concludes our prepared remarks and I'll now open the call for questions.

(Operator Instructions). Simos Simeonidis, Cowen & Company.

Good morning, guys. Thanks for taking the questions. You know, just in an effort to reconcile the sales numbers for the first two quarters, and what we've seen as a pretty significant increase in prescriptions, first of all, did Roche give you an idea of the number of patients that were treated this quarter? I know in the first few weeks that Erivedge was on sale in the first quarter, it was 175. Do we know what number of patients for the second quarter?

We don't know specifically. We do know that it's more than 2x, but that's about the guidance that we have.

More than 2x of Q1?

Yeah.

Okay. And then, I know, Dan, you don't like to speculate, but I mean there seems to be an inventory buildup, unless you believe there was a decrease in demand, which doesn't really jive with the prescription numbers. But do you think there was inventory buildup, you know, this quarter? Or in the first quarter, how many weeks' worth of buildup do you think is in these numbers of $5.4 million?

Yeah, good question. And that's really going to be an estimate and extrapolation based on metrics that we have access to. But we think there's been a significant increase in prescriptions, Q2 over Q1, and that's what we're focusing on. We're really confident with that (inaudible).

Yeah, let me please add something to that. So, it's hard to know exactly because you don't know the individual of a prescription. It could be for a month, it could be for a few months, and so it's tough to know.

What we do know is, based on the data that we have, which is through a reputable subscription, a reputable database, it's not perfect, our understanding is that because the drug's distributed through specialty pharmacies, it's a little bit less transparent than other distribution methodologies. But just from a relative sense, you see basically a, you know, a four-to-one, or five-to-one increase in prescription, quarter-to-quarter.

So, in my mind, which, you know, it could be more or less, but just as an approximation, I'm thinking that you know no more than $2 million in actual net sales, in book net sales, that Roche recorded in Q1, were to fill demand. And it was probably actually a little bit less. And then, you know, between the $10.5 million U.S. between Q1 and Q2, you have somewhere, you know, in seven -- say $1.5 million to $2 million Q1, $7 million to $7.5 million with some inventory left at the end of Q2.

But what you'd hope to see is that the inventory sort of evens itself out and now we started getting into a period where the quarterly net sales numbers actually are more closely aligned with what you see from the prescription data.

Okay. Then, you know, if we can -- I don't know if you can do this -- but maybe you could give us some insights to the sales and marketing efforts from Roche. Is there any adjustments that they've communicated to you to their sales and marketing approach?

What is the size of the sales force they're using and how are they, in terms of the physicians they're targeting, if you know what percentages is for medical oncologists versus let's say Mohs surgeons, and then thirdly general dermatologists?

Yeah, that's a really important question and I think, just to provide some context. First off, we've been really impressed by the professionalism and commitment of Genentech and Roche to this drug. And I'll remind everyone, this is a newly approved drug. It's a novel mechanism in a disease that has previously had no therapeutic alternative. The patients are benefiting quite dramatically from this drug. So, just from that standpoint, you know major accomplishment in terms of the impact on patients' lives.

So Genentech and Roche are firmly committed, at this point, to the drug's continued development commercialization. The feedback we get from them is they're actually very pleased with the process and the uptake. And I think it's really just indicative of the fact that it's not like other indications where you may have patients with a life expectancy of several months, and you've got this bit of rapid buildup.

This is a drug that is going to take some education and it's going to take a bit more of a process. But they have communicated to us they've been very pleased with the response so far, both in terms of the commercial uptake, but more importantly, the feedback they're getting on patient responses.

They've been very committed to a sales and marketing effort globally. You know, we have seen marketing materials and education materials that they've put together. And again, I think the key here is they are not just targeting oncologists, but also Mohs surgeons and dermatologists, per se.

And the more this process continues, the more the data is compiled, and the more data is published, I think the growth trajectory will continue on this drug. It's just going to take some time to build up and to achieve its full potential. But we're very impressed with their overall performance and commitment to this drug.

And the last question, and then I'll jump back in the queue, is this the sales force that's detailing Zelboraf, for example?

We think so, yeah.

(Inaudible), yeah.

Okay, great. Thank you for taking the questions.

Thank you.

Adnan Butt, RBC Capital Markets.

Good morning, guys. Thanks for taking my question. A follow-up one on Erivedge. So first, I thought that royalties were a bit lower in the second quarter than the first quarter. Is that a reflection of the sales trend?

Secondly, prescription data looks very promising. Do you think it's an accurate reflection of demand? Do you have access to patient numbers, aside from the prescription numbers that we see?

And last question on Erivedge, what is compliance like? Are you able to track that? Would you be able to track that? And what do you expect it to be in the real world versus the clinical trials?

(Inaudible).

All right. From the -- so the first question, I think, was net sales and our royalty modest decrease Q1 to Q2. I think we kind of touched on this in the call, and actually Simos's question before just sort of asked about the effect. I think it's really an inventory effect.

And you see -- you mention in your question as well, the prescription data is much stronger in Q2 versus Q1. So clearly a lot of net sales, which again Roche books when the product is shipped to the specialty pharmacies that distribute the drug, had basically a launch buildup of inventory, and that was reflected in the Q1 numbers.

So, you know we're encouraged that you see four to five times Q1 scripts in Q2. And we're hopeful that the net sales number will get closer to reflecting sort of the prescription trends that we see.

As far as prescription data, we don't have clear vision through to actual patient numbers from Genentech at this point. We do know that the numbers are -- that the relative direction is accurate. But in terms of reconciling total patients versus prescriptions, we don't have that clarity.

And then the final question about compliance and what do you expect treatment duration to be in the real world versus what it was in studies?

No, it's so early. And in studies, if you recall, just updated at ASCO in June, the median duration in the pivotal study was 13 months. And we're only in, now, the six-month post-launch. So, you know, I think we'll have to wait and see. Right now it's kind of the best information that we have available.

Okay. I will jump back in queue. Thanks.

Thank you.

Thanks, Adnan.

Joe Pantginis, Roth Capital Partners.

Hi, guys. Good morning, thanks for taking the question. Thanks for the update. Dan, also thanks for your details on the commercial efforts that Roche is undergoing right now. I was wondering if you could drill down on a little bit of that.

You guys have consistently said, and Roche has as well, that it's been about 1.5% of the market for the advanced BCC. Can you drill down a little bit with regard to the efforts that Roche is undertaking, with regard to how they're identifying patients? Obviously there should be a pool or, you know, good access to patients based on the clinical centers that have been used. I just wanted to see if you could drill down about any additional efforts in looking to identify patients who would be Erivedge candidates.

Yeah, an important question. I think that's part of this, as I stated earlier, part of the sort of education process in their sales and marketing effort.

You know, if you look at current sales and the increase in patient numbers, I think it's rational to estimate that a good portion of those are patients that have been on study, patients that have clear, pent up, and immediate demand, and that would be metastatic patients and very severe advanced BCC patients. So these would be physicians that were already in the queue, probably already either part of a trial or in discussions with Genentech.

And then a continued effort with oncologists, which would see the metastatic and very severe cases of advanced BCC. Mohs surgeons, so the leading Mohs surgeons that are seeing more complex cases of advanced BCC. And then more broadly, educating dermatologists for broader acceptance and application.

And then if you look at the language of the label, you know we're very pleased with the scope of that label, where there are three categories and it appears to give physicians discretion. And I think ultimately, their methodical, systematic approach to doing this sort of systematically and deliberately of educating the market, will pay dividends in the long run, by getting access to a broader number of those patients. We believe, for instance, the Gorlin syndrome category could currently fall under the existing label, where these tumors recur.

So the 1.5% that Roche has stated potentially represents a 30,000 patient population. So even if it's a small subset of that, this is a significant revenue potential, and a very important drug for this indication. And I think it's going to take some time to see those numbers start to materialize.

Okay. That's helpful. Thank you. And then when you look at the, obviously the future potential expansion into other tumor types, you alluded to some of the IST data, such as like pancreatic, and you talked about different levels of expression that could be correlated with responses. I'm just curious about any future efforts, on Roche's part, on prospectively identifying any of those patients in future studies, or any potential diagnostic.

Yeah, complicated question. Joe, I think, you know, this clearly fits in the philosophy of Roche's oncology franchise, which is translational medicine, of identifying patients that have molecular aberrations, either over-expression or mutation, that, you know, they have drugs in their portfolio that would match those patients, and hedgehog is part of that approach.

Regarding other indications, again, I'm just going to commend the logic and rational approach that Genentech and Roche is taking, which is they're very methodically surveying multiple indications, watching the data emerge, and they will follow data. And if a signal emerges in any of these tumor types, with a molecular underpinning, having to do with the hedgehog pathway, we're very confident they will then invest to exploit those observations. And I think, you know, in this business, it's really the most prudent way to proceed.

Great. Thanks a lot guys.

Thanks, Joe.

Ted Tenthoff, Piper Jaffray.

Great, thank you very much. And thanks for the detail on everything going on with the Erivedge franchise.

Switching gears a little bit to 907, can you give us a sense -- obviously PI3K's been an area that's become increasingly excited, from a biotech standpoint, over the last few months, especially with some data coming out, both at ASCO and over the summer.

Can you give us an update on kind of what your longer term plans are here? Is this something that you would take forward yourselves for a while? Would you look at, or have you been entertaining potential partnerships? Give us a little bit more of a kind of high strategic view on what you want to do with that asset.

Okay. Thanks Ted, for the question. Let me just start off on a very high level, which is kind of philosophically what we're trying to do with the company. You know, Erivedge and Genentech represent growing revenues. And, as Mike stated, we're in very good position right -- we're in a very good position right now financially. We have just about two years of cash, with no additional infusion. And we expect additional infusions from milestones and as revenues increase.

So that being said, that's really the sort of strategic objective of this model, was to be using partnered assets to subsidize and create a more stable model, where we're able to then hold on to assets longer through development. And that's our intent with 101 and 907.

And as you alluded to, 907 it's a PI3-kinase HDAC inhibitor, and the PI3-kinase space is starting to heat up a bit. Our objective is to file the IND, demonstrate that the drug can be well tolerated at what we'll determine to be efficacious doses, hopefully. And the initial focus is going to be on hematological cancer, and then we'll look beyond that, based on the safety profile of the drug and the biological activity that we may observe.

Excellent. That's helpful. And what data should be expecting, or what would be the next release? I guess that would be the filing and then the Phase I data sometime next year, correct?

Yes. On 907 and 101, hopefully oral is successful and we'll be filing at this half -- yeah, this Q3 or Q4.

Excellent. And thanks for the update.

Okay. Thank you.

Okay.

Thank you. Ed Arce, MLV & Company.

Hi, Dan. Hi, Mike.

Hi, Ed.

Just one question, actually, on CUDC-101 and the leading trial now with head and neck cancer. So you mentioned that you've added to the patient population HPV positive with prior smoking history. And I was just wondering if you could elaborate or discuss how you came about that decision and how you believe that will help the ongoing trial results.

Yeah. The objective there was to increase patient access. We wanted to increase the rate of enrollment, particularly in this Phase I dose escalation. So our CMO, Dr. Maurizio Voi, basically proposed this strategy, and I think it's very rational, which was to look at the HPV positive but smoking history where these patients don't have the same response as the HPV positive non-smokers. And then it would give us an increased access to patients, particularly in the Phase I dose escalation, so that we could complete it hopefully on time.

So it's to look at obviously the safety and tolerability of the drug at various doses, in combination with standard of care. But hopefully we can also get some sort of representative signal in these patients that may give us some insight. The thought being that those patients also have typically an EGFR component driving the cancer, where our drug may have an effect.

Okay. Great. Thanks, that's all I had.

Okay, thanks.

Boris Peaker, Oppenheimer Holdings, Inc.

Yes, good morning, and thank you for taking my questions. I just wanted to probe a little in Erivedge, but not look into specific sales, just to get an understanding of the difference in the community setting versus the academic setting, if you're getting any feedback on that from Roche and Genentech.

No, not specifically, we haven't had any feedback on that. But I would say the sort of academic setting is really important to expand out more broadly, because that group will be the catalyst for disseminating information on patient responses and the therapeutic benefits of the drug, and the report on the AEs, through publications and conferences.

So I think that's, you know, a really intelligent way of doing this, is first emphasizing the sort of thought leaders in the academic group and then using that group to educate the broader group.

Great. And, but if we look at the real world dosing, in terms of what Roche may be reporting to you, or in your discussions with them, are you seeing any people maybe taking the drug once every two days or once every three days to manage adverse events and to kind of optimize the dosing for themselves?

No reports on that at all, Boris. But I think, just to make sure everyone's aware, the drug has a t1/2 of about seven days. So I think the key is to hit the halfway hard for a period of time.

One of the approaches they're taking, I think that's the objective of the operable nodular study where the third cohort has a four-week drug holiday, is to give the drug for eight weeks, where you should have, clearly have enough exposure for a therapeutic benefit. That's also where you're going to start seeing the AEs manifest more substantively, giving the drug holiday to ameliorate the AEs and then putting the patients back on drug.

So, yeah, this is part of the education process. They're learning about the drug's activity. I think they've done a really elegant job at elucidating the molecular mechanism, how the drug works. And now it's trying to maximize the utility of that knowledge by looking at various dosing schedules and combinations, et cetera, for other cancers. But with BCC, it's trying to determine if you can put a patient on drug holiday, ameliorate the AEs, and then keep the AEs to a minimum, while still retaining the therapeutic benefit.

Okay. That's helpful. And my last question is on Gorlin. I think you mentioned before that it is -- does [take the form] of the current label because these patients are surgically refractory and [alert]. Surgery is not going to cure them at any one point in time. But I'm just wondering how many patients -- do you have any feedback of -- not patients but from physicians -- how many of them actually see that? Since the word Gorlin is not actually mentioned in the label, how many of them do you think realize that the current label kind of includes these patients as well?

Again, that's going to be part of the ongoing sales and marketing effort of Genentech, and then globally Roche, you know, through their materials, reaching out the various groups that are involved in treating these patients.

So I would imagine thought leaders, like Erv Epstein out of Stanford, for instance, you know you would start off with someone like that who publishes and is recognized as a thought leader. And then through conferences and publications, you know, word-of-mouth, professional contacts, this will just become more and more widespread and accepted.

So, we're confident we're going to end up seeing a consistent and steady increase in market penetration and use of the drug.

All right. Thank you very much for taking my questions.

Thank you.

Mani Mohindru, ThinkEquity LLC.

Taking my question, and I apologize, I was late on the call. So if this question has been answered, I'd like to apologize in advance.

But I just wanted to get some additional details on your pipeline, more specifically the 907 program, the PI3 HDAC inhibitor. You know, the field's getting crowded with single (inaudible) of PI3-kinase is both on the solid tumor side's oncology, and even inflammation.

How do you see your compound, and even beyond PI3-kinase, as the other sort of inhibitors that are targeting similar indications, like NHL, CLL? I just wanted to get a sense from how do you see your compound fitting into that kind of a setting, and what potential indications would you like to pursue initially going into the clinic?

Okay, thanks Mani. An important question because the field is quite crowded, quite competitive, and that is where we think we have a real competitive advantage in that our drug is not yet another PI3-kinase inhibitor, it has PI3 activity, which is quite potent. But also, importantly, it has an HDAC pharmacophore built into the drug scaffold.

Recently, at a presentation at Columbia University, there was a researcher out of the University of California at Irvine, who presented data from his lab showing synergy between PI3-kinase inhibition and HDAC inhibition.

And we think that's the real benefit of this drug, in that it provides an added benefit, and hopefully synergistic benefit, of not just suppressing PI3-kinase signaling, which is the exchange of phosphate, so disrupting signal transduction, but also creating a further barrier to the tumor's ability to adapt to that blockade.

So we think that's the real advantage of this approach. The initial indications we're going to be going after, Mani, in the Phase I, we will be focusing on B-cell lymphoma and multiple myeloma. And that's really predicated on pre-clinical data that we've generated. We would obviously also look at the prospective application to solid tumor treatment.

And then, tangentially, it hasn't eluded us because we're seeing lymphopenia as part of the activity of this drug, hence focusing on B-cell lymphoma. But if the drug has an attractive safety profile, we may also start surveying the prospective application of the drug for autoimmune disease, where we'll be treating flare-ups.

Thank you. That's very helpful. Thanks.

Thank you.

I'm showing no additional audio questions in the queue at this time. I'll turn the conference back over to you.

Okay, thank you. I want to thank everyone for your time, attention and interest. And we look forward to giving you further updates as they become available. Thank you again. Have a good day.

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