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Onyx Pharmaceuticals, Inc.

Q4 2008 Earnings Call

February 23, 2009 5:00 pm ET

Executives

Dr. N. Anthony Coles - President and Chief Executive Officer

Laura A. Brege - Chief Operating Officer

Matthew K. Fust - Chief Financial Officer

Julianna Wood - Vice President, Investor Relations and Corporate Communications

Analysts

Jessica Li - Goldman Sachs

James Birchenough - Barclays Capital

Philip Nadeau - Cowen & Company

Howard Liang - Leerink Swann

Jason Zhang - BMO Capital Markets

George Farmer - Canaccord Adams

Cory Kasimov - J.P. Morgan

Operator

Good afternoon ladies and gentleman and welcome to the Onyx Pharmaceuticals Financial Results Conference Call. (Operator Instructions). I will now turn the call over to Onyx Pharmaceuticals, Inc.

Julianna Wood

Hello and welcome. I'm Julie Wood, Vice President of Investor Relations and Corporate Communications at Onyx Pharmaceuticals. We thank you for joining us today for our fourth quarter and year end 2008 financial results conference call.

Leading our call today is Onyx’s President and Chief Executive Officer, Dr. Tony Coles. Also providing updates on the teleconference are Laura Brege, our Chief Operating Officer; and Matt Fust, our recently appointed Chief Financial Officer.

Please note that we will be making forward-looking statements during this teleconference that could include financial, clinical, or commercial projections. Statements that are not historical facts are forward-looking. References to what we expect, believe, intend to do, plan, estimate, or other statements referring to future events or results are intended to identify these statements as forward-looking.

Forward-looking statements are inherently subject to risks and uncertainties. For a discussion of these risks and uncertainties, we refer you to our 10-K for the year ended December 31, 2008, which we expect to file with the Securities and Exchange Commission this week.

In addition, we will be presenting and discussing non-GAAP financial measures in this presentation. For reconciliation of these non-GAAP financial measures to the corresponding GAAP measures, please see today's press release which is posted on our website at www.onyx-pharm.com.

I would now like to turn the call over to Tony Coles, who will begin the discussion with an overview of our business. After Tony's remarks, the management team will review commercial, clinical, and financial highlights before opening up the call for questions and answers.

Dr. N. Anthony Coles

Before I begin, I would like to welcome Matt Fust as our new Chief Financial Officer. Matt brings extensive senior management and biotech operating experience to Onyx, and it is a pleasure to have him as a member of the executive team and a participant on today’s call. You will be hearing from that a bit later after Laura talks about some of our commercial successes and opportunities ahead.

Now, let’s turn to 2008, a year of remarkable growth and advancement for Onyx. It was the first full year of Nexavar’s expansion into its second indication of liver cancer. The first year, we expanded the pipeline by adding not just one but potentially three new compounds to the company’s portfolio and very importantly, it was the first fully year of positive cash flow and profitability for our business, an accomplishment that was made possible by increasing brand margins for Nexavar. While any one of these achievements would be a milestone in and of itself, the fact that these signature accomplishments occurred in the same year suggests that our business is transforming in the most important of ways and that we have achieved what few other biotech companies have, product sales driven earnings. With our financial profile and cash balance, we believe we are well positioned to weather the current economic turbulence, and we expect additional progress for the business in 2009. We recognize that Nexavar with its free cash flow is the engine for continued growth of our business, and we are committed to investing in and wisely growing this important asset.

In 2008, we made significant progress on all four of our corporate priorities. These include, first and foremost, managing Nexavar as a business where strong Nexavar sales growth of 82% and improved operating margins compared to the prior year, drove Onyx to profitability in 2008; second, maximizing our commercial business; third, investing in the development of Nexavar; and fourth, building a product portfolio beyond Nexavar. As Nexavar increase its penetration in liver cancer, it is creating a new standard of care across the globe for this very-difficult-to-treat tumor. At the same time, Nexavar maintained its presence as an important therapy for kidney cancer and together these two markets have established Nexavar as a significant player in the field of targeted therapies, and yet with all of this successful performance, it remains important for us to think ahead.

Beyond Nexavar, Onyx expanded its portfolio to encompass some promising new targets. We selected these novel agents based on their unique characteristics as well as their potential commercial opportunities. With deal structures that allow for staged investments as risk reduction and value creation occur, we have started to build a portfolio outside of Nexavar in a clear but measured way, and with our experience in driving development and commercialization efforts while managing cash reserves, we believe we are in an excellent position to grow the value of these assets as they advance into and through the clinic.

Looking ahead, we believe that the tumultuous market conditions continue to favor companies like Onyx with a healthy cash balance, a strong financial profile, and a cash-generating product. Mindful of this, we will continue to actively evaluate opportunities and expect to remain as selective in the types of compounds we asses as we are diligent in the kinds of deals we execute.

In summary, Onyx has advanced significantly from its position just 12 months ago. We have leveraged our successes with Nexavar to invest strategically in the excellent growth potential of the company. We have established a robust commercial presence in the liver and kidney cancer markets. We have created a rich pipeline with Nexavar, and beyond this, we have begun shaping a diversified portfolio through strategic and disciplined corporate development activities. We are confident in our strong operating and financial position entering 2009, and we expect that our commercial successes, our opportunities for growth, and our strong balance sheet will continue to differentiate us from our peers.

Now, I would like to turn the call over to Laura to provide an overview of our commercial and development activities.

Laura A. Brege

Thank you, Tony. I would like to begin with a short overview of our sales performance and then briefly discuss our commercial activities in liver and kidney cancer. I will finish my comments by describing a few of our development highlights.

For the full year of 2008, global net sales of Nexavar increased 82% to $678 million. Of which, $197 million were US sales and $481 million were sales from outside the United States. In the fourth quarter, global net sales of Nexavar were $177 million, a strong performance driven by an increase in underlying demand across all regions, despite a weakening Euro and fluctuating foreign exchange rates. Of the total sales generated in the fourth quarter, approximately $52 million were US sales, demonstrating strong growth of 8% compared to the prior quarter, an accomplishment we are especially pleased to report.

As we have previously discussed, referral patterns for liver cancer vary across academic and community centers making the treatment paradigm more complex than for other cancer indications. Since Nexavar is the first therapy of its kind for liver cancer, our primary job has been to build and to expand this market, identifying new patients and new prescribers, wherever possible.

What we have discovered is that relationships between the various physician specialty types that treat liver cancer are critical. In the United States, we deployed market development specialists in the second half of 2008 to call on the various non-oncologists specialties within these multidisciplinary teams that treat liver cancer. These sales specialists are concentrating on regions in the US with the largest market potential and preliminary market intelligence suggests their work is beginning to gain traction especially within the hepatology community. As it is still early in the course of their efforts, we expect to see the impact of these activities emerge throughout 2009 and beyond.

In Europe, we continue to expect significant sales growth in the largest countries, notably Spain and Italy where Nexavar gained reimbursement status during 2008. In addition, Bayer is expanding its efforts in the broader European market which is largely untapped with approximately 25,000 deaths annually representing 40% of all cases in Europe, European countries outside the top 5 are likely to contribute meaningfully to sales growth over the coming years.

In China, we have seen increasing uptake of Nexavar since it was approved in July and with its leading incidents of liver cancer, we expect that China will also drive sales growth in 2009.

Turning to other countries in Asia, Nexavar received marketing approval in South Korea in 2008 and reimbursement approval is expected in the first half of this year. In Taiwan, marketing authorization has been filed, and we expect approval should also occur in the first half of this year with reimbursement potentially to follow less than a year later. In Japan, Bayer has filed for marketing approval for liver cancer and expect to receive authorization in the first half of this year. With reimbursement already secured in this key country, the launch approval for liver cancer is expected to drive significant sales growth in the latter half of the year where Onyx receives a royalty in all sales.

In addition to the progress we are already making, critical success factors for our continued growth for liver cancer include: First, increasing penetration in existing markets and capturing new patients specifically at the time they are first seen and diagnosed by the different physician types; second, driving appropriate utilization of Nexavar earlier in the continuing of patient’s disease, third, extending our leadership by generating adjuvant data for Nexavar through the phase III STORM trial and in conjunction with local regional procedures such as TAE, and finally, securing new country approvals and reimbursements in key Asia Pacific markets to derive continued sales growth.

Turning to kidney cancer, Nexavar continues to play an important role in the treatment of this disease. It is the only agent with overall survival data in the second line setting. Development initiatives in kidney cancer are also centered on expanding our clinical data set to further inform and derive utilization. There are two phase III studies underway evaluate Nexavar in the adjuvant setting as well as several phase II studies evaluating Nexavar in a variety of sequencing and combination studies.

Now I would like speak for a moment about some of our clinical activities in additional tumor types. With Bayer, we have a broad development program underway exploring Nexavar’s efficacy in a wide range of setting. We have two phase III studies underway, one in non-small cell lung cancer and another in metastatic melanoma. Our pivotal lung cancer setting, Nexus, is evaluating Nexavar in combination with gemcitabine and cisplatin versus the chemotherapy doublet alone, and we are pleased to announce that this important trial has just completed enrolment with approximately 900 patients.

In metastatic melanoma, the Eastern Cooperative Oncology Group has completed enrolment of the 800-patient trial last year with overall survival as the primary end point. Dependant upon the rate at which events occur, we could see results from this trial this year. We also planned for additional phase III studies this year including initiating a pivotal trial for Nexavar in thyroid cancer.

Additionally, we are expanding our portfolio of single-generating randomized phase II studies to evaluate Nexavar in several other common tumors with significant commercial opportunity and unmet medical need. In breast cancer, two randomized phase II studies have completed enrolment, one in combination with paclitaxel and another one with capecitabine. We could also see top line data from one of the studies this year.

In addition, we have initiated signal generating trial evaluating Nexavar maintenance therapy for ovarian cancer patients and are planning to initiate a trial in colorectal cancer as well.

In addition to the progress we have made with Nexavar, we have made significant advances in expanding our pipeline. Our first recently added compound, ONX 0801 is a novel antifolate inhibitor. We believe it distinguishes itself from other agents in this proven class of drugs through its enhanced selectively for receptors that are over-expressed on certain tumor cells. We expect that this new first-in-class targeted therapeutic approach could result in improved outcomes for patients.

We have also recently acquired option rights to ONX 0803 and ONX 0805, two JAK-2 inhibitors. The option structure for this deal reflects our portfolio expansion strategy through corporate development transactions that provide staged investments as the risk is reduced. Data from phase I dose ranging studies evaluating ONX 0803 in patients with primary myelofibrosis could be available some time this year.

This is a busy and productive time given the significant advancements we have made both commercially and clinically. With Nexavar, we are well on our way to building a blockbuster oncology product and fully expect that by 2010, Nexavar could reach over $1 billion annually in worldwide sales. Tens of thousands of patients worldwide have already benefited from treatment with Nexavar, and we expect that thousands more will again benefit this year, and with our partner Bayer, we are committed to exploring and maximizing Nexavar’s potential against an ever increasing number of cancers.

Now, I would like to turn the call over to Matt Fust.

Matthew K. Fust

Thank you, Laura. As the newest member of the Onyx executive team, I share Tony’s and Laura’s enthusiasm that this is an exciting time for Onyx, and that the company is extremely well positioned, both for continued Nexavar growth and to capitalize on new opportunities. The growing positive cash flow from Nexavar is an essential effort for Onyx’s continued success especially in this challenging economic environment. The company’s fundamental financial strength, commercial and clinical accomplishments, and its future prospects make Onyx a standout in our industry.

I’m pleased to start my first earnings conference call by reviewing our strong 2008 financial results. I will also discuss our expectations for financial performance for 2009 and our guidance for the year. Given that we have changed the format of our financial tables beginning with this quarter, Julie Wood and I will be available after the call for more detained questions about these changes and the impact on modeling assumptions.

Worldwide net sales of Nexavar increased 82% in 2008 to approximately $679 million, exceeding the company’s sales guidance. This revenue growth is up from approximately $372 million in 2007. GAAP basis net income for 2008 also exceeded company guidance and was approximately $2 million or $0.03 per share, fully diluted, compared to a loss of approximately $34 million for 2007.

As Tony mentioned, achieving our first year of profitability is an important milestone for the company and provides a foundation for continued growth in 2009. Worldwide net sales of Nexavar in the fourth quarter of 2008 were approximately $177 million, a 41% increase over the fourth quarter of 2007. Although during the fourth quarter of 2008, the US dollar strengthened against the Euro by approximately 12%, sales performance reported for the fourth quarter of 2008 was driven by growth in underlying demand in all regions worldwide.

Shared Nexavar sales and marketing expenses occurred by Onyx and Bayer including cost of goods sold and distribution expenses, were approximately $299 million for 2008. This expense line item includes the cost of initiating launch activities for the liver cancer indication in new countries during 2008. Onyx’s Research and Development expense was approximately $124 million for 2008. Note that under the new presentation, the R&D expense line on our PNL includes half of all development expenses related to Nexavar, Onyx’s non-Nexavar R&D expense, and R&D related non-cash stock-based compensation expense.

R&D expense for the fourth quarter of 2008 includes approximately $34 million which was incurred in connection with two transactions; the licensing of rights to Onyx 0801 from BTG and acquiring the option to license two compounds from S*BIO.

Onyx’s SG&A expense was approximately $81 million for 2008. This line item includes the cost of our US sales force, the portion of shared Nexavar marketing expenses that we incur directly, the cost that we incur for general administrative support of the company, and SG&A related non-cash stock-based compensation expense.

Finally, on December 31, 2008, we had approximately $458 million in cash, cash equivalents, and marketable securities, with cash flow from our operating results contributing to a healthy balance sheet. Turning to 2009, we expect robust demand to continue to drive worldwide net sales growth of Nexavar. As a result, we are providing guidance for global net sales of $850 million to $875 million for 2009, reflecting the continued launch progress and reimbursement approvals that we expect in several key markets including in Asia Pacific. As we drive the Nexavar business to the next level, we expect continued strong product revenue growth to be another signature accomplishment for the company.

With Nexavar’s growing sales, we expect the Nexavar business will continue to be significantly cash flow positive, and as a result, Onyx to be profitably again in 2009. We expect to grow earnings per share while continuing to make the investments necessary to grow in year term sales and to maximize the potential of our business. Commercially, we will continue to support ongoing and planned liver cancer launches globally and will expand our ongoing outreach to non-oncologists. We will also continue to further our development efforts, both by exploring promising new indications for Nexavar and by advancing our first pipeline compound ONX 0801.

Given these investments, we expect total operating expenses for 2009 to increase approximately 5% over the annualized fourth quarter 2008 level, excluding the one-time charges for our corporate development transactions. Consistent with our practice in prior years, we will not be providing specific dollar EPS guidance for the year.

As we did in 2008, we enter 2009 confident in our ability to deliver meaningful results for patients and for shareholders, and with that I will turn the call back over to Tony.

Dr. N. Anthony Coles

Thanks, Matt. The year 2008 was a year of major achievements and foundation building and in 2009 we expect to expand upon that success. Looking to the year ahead, we anticipate continued sales growth from Nexavar driven by continued demand growth, expanding both our geographic reach and penetration in existing markets. In addition to strong sales performance, as Matt has outlined, and a continuing and sharper focus on operating leverage, we believe there will be opportunities for considerable momentum in the advancement of our pipeline this year. Specifically, we will be furthering our phase III development program with a large randomized trial of Nexavar in combination with another targeted therapy in liver cancer to extend our leadership in this space. We may be in a position to report out data from ECOG’s phase III metastatic melanoma trial. In addition, we plan to initiate a pivotal phase III trial in thyroid cancer. In our phase II development program, we may have a data readout from one of the large randomized phase II breast cancer trials, and we intent to expand up our existing program with a randomized phase II trial in colorectal cancer.

Finally, we intend to assess our option exercises for ONX 0803 and ONX 0805 as new data becomes available from the ongoing development of these exciting new compounds. We have made important progress towards accelerating our vision of building a leading biopharmaceutical company. We have positioned Nexavar as a leader in the treatment in liver cancer and as an established therapy for kidney cancer and in these two indications alone, as Laura mentioned, we believe that Nexavar has potential to reach worldwide net sales of over $1 billion annually by 2010.

Operator, we will now open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question is from Jessica Li - Goldman Sachs.

Jessica Li - Goldman Sachs

First of all, with regard to your 2009 Nexavar sales guidance, what’s your assumption for the exchange rate?

Dr. N. Anthony Coles

Jessica, given all the uncertainty in foreign currency rates, we are not making a specific projection on what we think it will be. Currently, it is anywhere from about $1.26 to $1.30 recently, and we are just tracking it very carefully. Matthew, do you want to add anything to that?

Matthew K. Fust

The only comment I would add is that we are obviously acutely conscious of exchange rates given their importance in our business and our operating plan was built with those rates in mind.

Jessica Li - Goldman Sachs

Okay great, and you’re 2010 sales guidance of greater than $1 billion, does that include any other indications?

Dr. N. Anthony Coles

No, it’s just with the 2 current indications we have now, Jessica.

Jessica Li - Goldman Sachs

Great, thank you. Finally, as you’re rolling out the liver cancer indications in such a tough economic environment, I am wondering whether you can share with us your pricing discussions, and what your pricing discussions are like, how are they different from when you first rolled out RCC a couple of years ago?

Dr. N. Anthony Coles

I will ask Laura actually to make a comment on that one.

Laura A. Brege

Hi Jessica. The enormous need that Nexavar serves for patients in for both kidney cancer and liver cancer faced with these deadly diseases really has made the path very clear and straightforward for us and around the world in the pricing discussions, even recognizing the world that each of the countries faces. There, we have been very successful in having a good pricing range worldwide, reflecting the value of the drug to patients.

Operator

Our next question comes from Jim Birchenough - Barclays Capital.

James Birchenough - Barclays Capital

Congratulations on the good volume growth and the guidance for 2009. I just wanted to clarify on the OpEx guidance for 2009, was that your own PNL OpEx, is it the JV OpEx, or is it both combined? It was a little unclear to me.

Dr. N. Anthony Coles

It is the total operating expenses for the company. One of the things Jim, we are trying to do is to have everyone appreciate the total spend for Onyx, the corporation, which obviously includes Nexavar, but now that we have got the additional development opportunities with 0801, I wanted to ensure that everyone has a very clear scent that we have got a portfolio basis for our spending.

James Birchenough - Barclays Capital

So, I guess the missing piece is what the JV OpEx is. Do you have any guidance on that?

Dr. N. Anthony Coles

I am going to ask Matt to make a couple of comments, I will add, and there may be some other questions around expenses that Julie and Matt will be available right after the call to go through any detailed questions, so please do keep that in mind as you prepare your questions for us today. Matt, you want to talk a little bit about where we are investing?

Matthew K. Fust

Yes. We are, as you point out, focused looking at the collaboration OpEx as well. The key areas in the shared research and development expense which is, as you recall, now reported out separately in the new presentation format, will include the additional support of HCC with expansion into new indications as well as new tumor investment types for Nexavar. On shared SG&A, we are continuing to invest together with Bayer to really accelerate that leadership position in HCC as well as the continued launches as Laura outlined in her comments in new countries. All of that is obviously cognitive of Tony’s comments of managing Nexavar as a business which includes that focus on that margin from Nexavar.

James Birchenough - Barclays Capital

Just a final question on Nexavar sales in the fourth quarter, can you break out what the European sales contribution was?

Dr. N. Anthony Coles

Jim, we haven’t historically, and we won’t start today breaking out the region sales. At large, it talks specifically about the 8% growth in the US which we take as a very good sign of perhaps gaining traction in the US market as a result of some of our efforts there. We haven’t broken out the regions specifically and Bayer doesn’t either, and we won’t start today, but I think it is very fair to say that despite the foreign currency headwinds, we have got volume growth in each one of the major regions across the globe.

Operator

Our next question comes from Philip Nadeau - Cowen & Company.

Philip Nadeau - Cowen & Company

My first is the followup on Jim’s question on the shared SG&A expense. It does seem based on your topline guidance and at least a commentary about the bottomline, you can conclude that you can be anywhere from modestly profitable to widely profitable. Could you give us some idea of what is a reasonable SG&A growth for this year to SG&A expense in this environment with the launches that you have ongoing now?

Dr. N. Anthony Coles

I think what we can say that would be helpful Phil is that the total operating expenses for Onyx, Inc., will go up by 5% and that is based on the fourth quarter run rate after you exclude the one time charges for the two deals. So, what we’re trying to communicate and what we’re saying explicitly is that there will be a modest increase in all of the corporate expenses. Now, I’ll remind you that we are continuing the launch process for HCC in several markets including several of the Asia-Pacific markets where we’re waiting both approval as well as reimbursement. Taiwan is a great example; South Korea, we’re waiting for reimbursement, and these are such important markets that we want to continue to invest there and get it right. I think if you can take comfort in the notion that we are spending just modestly, we say 5%, for the total business because we want the flexibility both to support the launches for Nexavar as well as to invest in 0801. We’re well aware that everyone’s used to tracking the shared expenses, but we’re trying to get everyone very comfortable with the new presentation format and the notion that expenses are really growing very modestly for the total business.

Philip Nadeau - Cowen & Company

Just to maybe boil it down for an unintelligent analysts like myself, since you do record some of the Nexavar SG&A expense on your P&L and obviously the whole cost of your own 100% US sales force, if your P&L has gone up by 5% then it’s hard to see how the Nexavar SG&A expense could go up much more than that; maybe it could go up by 10% or so, but it would be mathematically difficult to hit your guidance if the SG&A expense went up by something more or several fold above the 5% you’re giving for your corporation. Is that correct?

Dr. N. Anthony Coles

Yes, I think that’s a reasonable assumption Phil. I think that’s a good assumption.

Philip Nadeau - Cowen & Company

My second question is on renal cancer, we expect that Afinator from Novartis is going to launch this year; how do you expect that’s going to impact your US sales of Nexavar in renal cancer and what are you doing to defend against that launch?

Laura A. Brege

If you take a look at RADO01, the phase III trial which was reported out last year at ASCO looked at RADO01 post TKI, so post Nexavar and post sunitinib, and actually at least half of the patients were third-line patients. So, as we look forward we think that RADO01 may have benefit for patients after they have failed the TKIs. Experts well established thousands upon thousands of patients and prescribers are very comfortable with the benefits that Nexavar brings to the patients and sequencing is a very important part of that story.

Dr. N. Anthony Coles

Does that help, Phil? Does that answer your question?

Philip Nadeau - Cowen Capital

Yes, I think it does. And then, the last question is just on the melanoma data, you suggested that it could be out this year. We believe that there’s an ECOG Meeting sometime in April or May; is it possible that the data could be out that early?

Dr. N. Anthony Coles

I don’t think it’ll be wise for us to comment specifically on timing. What we’ve always said is that this is an event accrual trial, and so we have to wait for all the events to accrue unless there is such a significant difference so we’ve got an earlier readout either ways. So, we probably can’t specifically either on specific ECOG Meetings or when we’d expect the data. I think let’s let the clinicians accrue the appropriate number of events and then we’ll be on very strong footing when we do have something to share with you.

Operator

Our next question comes from Howard Liang - Leerink Swann.

Howard Liang - Leerink Swann

If I could ask a couple of R&D questions. You mentioned that you are starting a combination trial, wasn’t that an oral agent, I’m not referring to Tarceva. Can you just talk about what is your commitment in terms of the force of that trial?

Dr. N. Anthony Coles

Let me start by talking just a little bit about our HCC clinical development investments, they are the other phase III investments. I think everyone’s well aware that we started a trial, an adjuvant trial, in the third quarter of last year, the so-called STORM trial, which is an 1100-patient trial, and this is a global trial and we are continuing to I think very nicely enroll patients. We also have a number of studies ongoing looking at Nexavar use in various stages of TACE therapy, both during and after, and this particular trial, the combination trial, is indeed in combination with Tarceva and we think that this trial with the other efforts that we have underway, both the adjuvant trial and the local regional trials will give us a very strong sense of all of the places Nexavar can be used across the entire therapeutic spectrum, from the very earliest moment of diagnosis and therapeutic choice to potentially some of the later stages where we even have the best data going in liver cancer.

Howard Liang - Leerink Swann

When will the TACE trials read out?

Dr. N. Anthony Coles

There is a Japan post TACE study that has finished. We haven’t provided any guidance on when that will read out, the data is still under analysis, and the other TACE trials are largely getting underway now. It’s a combination of some company sponsored studies that we will be initiating this year as well as ISTs that are already underway, and that’s actually important data for us. So, we’re really anxious to get those moving and look forward to sharing the results with you when we have them.

Howard Liang - Leerink Swann

Lastly, on the thyroid cancer phase III, can you tell us about the design?

Dr. N. Anthony Coles

The design we haven’t disclosed yet. It’s actually still being worked on internally, but this is on the heels of such a strong signal from the phase II study that we talked about at ASCO last year. We’re really happy about progress in this particular opportunity for us. We were fortunate enough to receive NCCN guideline recommendations for this and the companion listing on last year, and in order for us to take full advantage and to promote it appropriately we felt we go out and collect data ourselves, and this will be a pivotal registrational trial. So, once we’ve got the details on the protocol, we’ll be more than happy to share those with you, but this should be finalized soon and we’re looking forward to enrolment in the near future.

Operator

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

Jason Zhang - BMO Capital Markets

Laura, for the US sales in the fourth quarter, the 8% increase; could you go a little deeper in terms of the two markets, RCC and HCC. Can we assume that the growth is mainly from HCC or you actually saw growth from the two markets?

Laura A. Brege

As I’m sure you are quite familiar with by now, it’s hard to break out the specific tumor types and data, but what we can tell you is that HCC is the growth engine for the business and so as we look at where we are continuing to gain new patients and have patients on drugs for longer and longer should really expect that HCC is the big driver to that, we had the opportunity to have some early feedback from the market development specialists in key markets.

Jason Zhang - BMO Capital Markets

And do you see the same trend from Europe?

Laura A. Brege

As we look around worldwide, I think that we really should be thinking in terms of HCC as a growth driver, RCC as a critical cornerstone in the treatment paradigm for physicians and for patients and worldwide Nexavar enjoys a nice position in both kidney cancer and growth coming in liver cancer.

Jason Zhang - BMO Capital Markets

A question for Tony; for 2009, will you continue to seek new compounds to in-license or are you happy with what the options you have gotten so far; how should we look at that for 2009?

Dr. N. Anthony Coles

Yes, I think what we can say is that obviously we’re very happy with the compounds that we have in-licensed and now have full responsibility for 0801 from BTG. We’re also really excited about the two JAK2 inhibitors that we have the opportunity for, but we have said since my first day on the job and will continue to say that we will be opportunistic about any other great asset out there that might be available to us. One of the things that we do see which I’m sure many of you see also is that there are a number of high quality assets in company situations where the company is either running out of cash or has an uncertain ability to push them forward in development. We think companies like Onyx as well positioned cash-wise and with the cash flow we have from Nexavar can take advantage of some of these opportunities and bring these compounds to the clinic and ultimately to market. So, we will remain opportunistic, but there is no specific deal on the horizon today.

Operator

Our next question comes from George Farmer - Canaccord Adams.

George Farmer - Canaccord Adams

Of your recorded revenue, can you tell us what portion of that was royalty from Japan sales?

Dr. N. Anthony Coles

We’ll take a look at that in just a moment. Do you have another question?

George Farmer - Canaccord Adams

Yes, if you could just get back to an earlier question about what portion of your ex-US sales was Europe, continental Europe versus I guess those in Japan and other territories? I’m just figuring that in the past when you’ve broken out the revenue subject to profit sharing in prior quarters, you’re not doing that this time, and that gave us a handle about what the sales in Japan were roughly.

Dr. N. Anthony Coles

The world to revenue math is I think for the 12 months ended December 31, 2008, it’s $2.8 million, and you can find this in the press release in the table that calculates the revenue from the collaborative agreement. So, it is available in the press release.

George Farmer - Canaccord Adams

Okay great Tony, thanks. Also, as far as your go-no go decisions in breast cancer, what are you looking for from those two trials and were there not supposed to be other phase II trials, randomized studies in breast that were also supposed to be initiated as well?

Dr. N. Anthony Coles

Yes, I’ll remind everyone that this was a broad program with five trials that were under development and planned. Four of those trials were actively enrolling and the fifth one, the trial studying Nexavar in combination with aromatase inhibitors is actually so important to us that we decided to make that a company sponsored trial and we’re putting the finishing touches on those plans as we speak. For the first two trials, breast cancer trials, where the enrollment is I think easily within sight and actually done last year, we’re really just looking for a signal of what Nexavar can do in combination with standard chemotherapy because there is still such significant unmet needs in this disease which are considered to be fairly heterogeneous, we actually think that any signal that demonstrates an extension in survival in combination with standard chemotherapy would be a very good thing, and we will then step back and build our plans on what the registration path forward in breast cancer might be. The nice thing is that we’ve got multiple short-term goal in breast cancer across this sub-broad portfolio study, and we’re really excited about beginning the company sponsored initiatives in breast cancer later this year.

George Farmer - Canaccord Adams

Laura, maybe circling back on Phil’s question regarding Afinator and the potential competition from that drug; do you have any feel or any data for how Nexavar and Sutent are used interchangeably, are they used sequentially one after the other or do you feel that once a VEGFR inhibitor has failed that other lines of therapy are ultimately used?

Laura A. Brege

When you look at the data both from the marketplace and shown at ASCO and what you’re seeing is that kidney cancer patients are living longer and they’re living longer because they have the opportunity to receive both TKIs, to see Nexavar and then Sutent or the other way around, and you’ll see that in both cases patients have longer survival and so as I said with Afinator you’re seeing that that half of those patients were third line, and so is this drug going to be added to the regimen after failed therapy and TKI? Sure, there is a good place for that after the patients have already exhausted their options on Nexavar and Sutent.

Dr. N. Anthony Coles

One of the things we do know, George, just to build on that is from data presented at ASCO last year, patients with RCC are indeed living longer as a result of sequential therapies whereas the four we were down to a few short months following diagnosis, the patients saw according to this one particular trial are living onto 16 months and greater with 16 being the mean there. So, as the lifespan continues or gets expanded if you will, there is a longer period of time through which multiple agents can be used and this is why we see some of the sequencing that physicians are beginning to do. This we believe presents great opportunities for agents like Nexavar and creates agents like Afinator that we expect will be used later in the sequencing.

Operator

Our next question comes from Cory Kasimov - J.P. Morgan.

Cory Kasimov - J.P. Morgan

The first question is on pricing. You guys took an 8% price increase in the US in January. In the past you talked about pricing paradigm in other regions of the world as well. Can you talk about how you’re able to maintain that going forward if you are able to maintain that?

Dr. N. Anthony Coles

Our expectation, and Laura may have a reflection as well, our expectations is, and the way we always talk about it Cory is that our partner outside of US prices within a brand, a pricing band, and so far we’ve actually been able to maintain that with very little difficulty at all in most of the key markets around the world. So we don’t expect it’ll be a significant issue as long as we continue to operate within that band which of course gives our partners some latitude, but I think it’s fair to say that they really are focused on managing within that band.

Cory Kasimov - J.P. Morgan

The next question I have is on trends that you’re seeing in treatment duration and how that may vary between regions and this is for HCC.

Dr. N. Anthony Coles

I’ll start with a general comment and Laura can provide some details. One of the things that we are observing is that it is a very far to track treatment duration information and I start there just to have a context for the rest of what I’ll say and what Laura will say; firstly, the odd is not very good; two, they are even worse outside of the US; and thirdly, no physician has to really disclose the diagnosis for which they’re writing a particular prescription in any of these markets. So, it’s very difficult to track duration of therapy by indication let alone duration of treatment in any setting. But having said all of that what we are experiencing is that the longer Nexavar is on the market, the more comfortable physicians are with administering it and the earlier it is being used. So, it’s a combination of both physician comfort as well as earlier use in the treatment paradigm that seems to be providing a longer opportunity for patients to stay on Nexavar. I can’t give you a specific number because it is difficult to track, but anecdotally what we understand is that patients earlier in the course of their therapy and shortly after diagnosis and appropriate patients are getting Nexavar, and we think that’s making the difference. You’ll recall and the clinical trial is 5-1/2 to 6 months or so on average, and we’re really hoping that we’re getting close to that in actual clinical practice.

Cory Kasimov - J.P. Morgan

Lastly Laura, you mentioned in your comments that you expect China to drive growth in ’09. Can you provide any additional insight on some of the early feedback you’re getting from that region?

Laura A. Brege

When you think about Asia-Pacific is the driver in China certainly as part of that with a huge unmet medical needs that you see in China in particular, over 320,000 deaths a year, and as you know the urbanization of the population. Bayer has done quite an excellent job in the launch of the product which began last July, I think July after Nexavar was approved in HCC, and so as you’re seeing those factors, the huge unmet medical needs, the centers of excellence which are in the major cities, and Bayer’s strong position, we really think that China will be important in 2009 and for many years to come.

Operator

This concludes the question-and-answer session. I’ll now turn it back over to Onyx Pharmaceuticals for closing remarks.

Dr. N. Anthony Coles

Thank you and thank you everyone who has joined us today. Just a couple of final points; with hundreds of clinical trials we have worldwide with the multiple data sets that we’re expecting to present throughout the year, both at ASCO and elsewhere, and with additional trials yet to be initiated, we are keenly aware that the opportunity for growth in all fronts for Nexavar and the company are significant. We have achieved our first year of profitability and with a product that is continuing to grow revenues globally, with the guidance we’ve given this year which is exciting for us, and the fact that this product provides positive cash flow, we believe strongly that we’re well positioned with a healthy financial profile and great balance sheet, to advance our business and deliver on these growth opportunities. We thank you for joining us today. I’ll remind you that Matt and Julie will be available for calls and we look forward to keeping you apprised with our progress throughout the year. Enjoy the evening and we’ll talk to you soon. Thank you.

Operator

Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may all disconnect.

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Source: Onyx Pharmaceuticals, Inc., Q4 2008 Earnings Call Transcript
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