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Onyx Pharmaceuticals Inc. (NASDAQ:ONXX)

Q1 2009 Earnings Call

May 6, 2009; 5:00 pm ET

Executives

Dr. Tony Coles - President & Chief Executive Officer

Laura Brege - Chief Operating Officer

Matt Fust - Chief Financial Officer

Todd Yancey - Vice President of Clinical Development

Julie Wood - Vice President, Investor Relations and Corporate Communications

Analysts

Mona Ashiya - JP Morgan

Jim Birchenough - Barclays Capital

Jessica Li - Goldman Sachs

Howard Liang - Leerink Swann

Jason Zhang - BMO Capital Markets

Stephen Willey - Thomas Weisel Partners

David Moskowitz - Caris & Company

Philip Nadeau - Cowen and Company

Operator

Good afternoon ladies and gentleman and welcome to the first quarter financial results conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I’ll now turn the call over to Onyx Pharmaceutical. Onyx Pharmaceuticals you may begin.

Julie Wood

Thank you. 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 first quarter 2009 financial results conference call.

Leading our call is Onyx 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 Chief Financial Officer. Joining us during the Q-and-A period will be Dr. Todd Yancey, Vice President of Clinical Development

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, as well as to our 10-Q for the first quarter of 2009.

In addition, we will be presenting and discussing non-GAAP financial measures in this presentation. For reconciliation of these non-GAAP financial measures to 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 we open the call for questions-and-answers. Tony

Dr. Tony Coles

Thanks Julie. There is little doubt that we are living in interesting times and that the rules as we knew them are changing. This is even apparent in our industry, once thought of as recession proof, where we are now seeing the impact of the global economic recession even a month that will weather companies. We’d like to offer that there are some things that will continue to be indicators of success, despite the current economic situation.

Onyx continues to generate revenue from Nexavar, as it expands the large untapped market in liver cancer and drives positive cash flow. We are also increasing our development opportunities, maintaining our profitability and growing already strong cash reserves. These are positive and fundamental indicators of our current and expected success. Our goal, short and long term, is to continually strengthen top line performance and manage Nexavar as a business. So, let’s get started.

We are pleased to report our progress for the first quarter of 2009. Global net sales of Nexavar grew 17% in the first quarter, compared to the same period last year. This growth was driven largely by a string of successful liver cancer launches and the first stages of a focused market expansion for liver cancer.

While the current economic conditions caused some headwinds for Nexavar in the first quarter, we believe this effect will be temporary and that product and reimbursement approvals throughout the year will complement our ongoing market development efforts to achieve strong growth for the brand in 2009. With our clinical program for Nexavar and our recently expanded product portfolio, we remain positioned for continued success. With this in mind I want to take a few minutes to highlight the strengths that differentiate the company today.

First, in kidney cancer, Nexavar remains an important therapy for treatment. With more physicians using targeted therapies sequentially to extend patient lives, we expect Nexavar will remain an important choice for our physicians.

In liver cancer, which is the third leading cause of cancer related deaths, Nexavar is the only approved oral targeted therapy. We don’t expect any competition for sometime, giving us a leadership advantage in this market. We’ve continued unmet medical need in these two tumors around the world. We believe we are a long way from realizing the full value of Nexavar.

Second, it’s our expectation that Nexavar will have broad application across a number of other tumors. Nexavar’s dual mechanism of action, proven efficacy and too tough to treat diseases and established safety profile in tens of thousands of patients worldwide, has spurred tremendous interest from clinicians wanting to explore its use across a range of cancers.

In collaboration with these investigators, as well as through Onyx and Bayer responsive trials, there are literally hundreds of ongoing studies evaluating Nexavar in a variety of treatment settings. Chief among these are several Phase III company sponsored studies that are either ongoing or planned. As a result we are positioning Nexavar in the years to come with an ongoing stream of new data from these potential registrational trials and several more Phase II signal generating studies.

Third, we’re building a portfolio of diversified compounds by identifying and acquiring the next generation of leading therapeutics. While we are committed to building a valuable pipeline, we are simultaneously mindful of the major focus on resources and execute deals that play to our strength and require measured investment as we work to reduce clinical risk.

Finally, as mentioned a moment ago, we are in an excellent financial position. With over $467 million in cash and no debt on our balance sheet, we have the resources and financial flexibility to maximize the opportunities we have in front of us and ensure that we remain largely sheltered from today’s economic pressures.

Despite the economic turbulence, Onyx is in a position not only to whether short term challenges, but also to thrive as a result of the solid business foundation we put in place. We expect the pressure that the industry is currently facing will be contained in the long run. With our partner Bayer, we have successfully established Nexavar as a leading therapy in a very short period of time and continue to believe that it is on track to be a blockbuster brand.

As a result, short term fluctuations in sales do not undercuts the potential we see ahead with Nexavar. The depth and breadth of our development program ensures multiple potential shots on goal for the brand and our other products and we are strategically focused on building a long term and sustain ably profitable company.

Now, I’ll turn the call over to Laura Brege, to discuss our commercial and our pipeline progress. Laura.

Laura Brege

Thank you, Tony. For the first quarter of 2009, global net sales of Nexavar were $178 million, of which approximately $48 million were U.S. sales and $130 million were sales generated outside the United States. This represents a 17% increase in sales over the same period of last year.

As Tony mentioned, in the first quarter, broader economic pressures impacted sales. In the United States, this was reflected in inventory de-stocking at the specialty pharmacies that sell Nexavar, where inventory levels were lower than in 2008. We also believe there was some anticipatory buying by patients in the fourth quarter of 2008. Though in assessing the most recent demand trends, we believe this phenomenon has largely resolved and worked itself out of the system.

Turning to the opportunities in the liver cancer market, in the United States we are continuing to drive awareness among the many physician specialty types that participate in the management of liver disease patient.

Early evidence suggests that the broader prescriber market is developing as expected and proving to be a productive segment. We believe the opportunity for market expansion is significant and that the impact of our field based market development specialist teams is beginning to drive prescriptions in new audiences.

In Europe, critical markets such as Germany, France, Italy and Spain continue to contribute meaningfully to sales. In addition, countries in the broader European region, outside of the top four, represent largely untapped revenue opportunities for us.

Turning to Asia, China continues to have large potential market opportunity, with approximately 50% of the annual liver cancer cases worldwide. We’ve seen strong sales performance in this region since approval last summer, even ahead of government reimbursement.

Approval for the liver cancer indication in Japan is anticipated in the second quarter of this year. With nearly 40,000 liver cancer deaths annually, over two and a half time the number in the United States, we expect that Japan will drive the significant portion of sales growth, particularly in the second-half of the year once approval is in place. In other important markets of the Asia Pacific region, we anticipate approval in Taiwan later this year and in South Korea, Nexavar has already been approved and we are waiting reimbursement.

We are pleased with the progress we have made in establishing this new market. In addition to driving increased oncologist and physician specialty awareness and securing additional approvals and reimbursement, we are partnering with several groups to advance education for healthcare providers and patients. We are also generating additional data across the continuum of treatment to benefit more liver cancer patients earlier.

Several studies that could impact the next wave of market expansion are those evaluating Nexavar with local regional therapies such as TACE including both company and investigator sponsored trials. Additionally, we anticipate initiating a randomized Phase III trial in combination with Tarceva this year. For the longer term, we are evaluating Nexavar’s role on the adjuvant setting in our 1,100 patient STORM trial, which is enrolling patients with resectable disease.

Nexavar is also an improvement therapy in the treatment paradigm for kidney cancer, having been on the market now for more than three years. With an increasing number of treatment options available to physicians, sequential use of targeted agents is becoming more common.

As physicians tailor treatment practices to individual patient profiles, we believe data demonstrating benefit and safety across patients groups differentiates Nexavar. We are dedicated to advancing care for kidney cancer patients and there are a number of ongoing studies, including two Phase III adjuvant studies and several Phase II investigator initiated combination studies.

Nexavar revolutionized the treatment landscape for two different types of cancer. Today we have a broad development program underway as we look to identify where Nexavar might make significant impact for patients with other deadly cancers. While there are 100’s of clinical trials with Nexavar underway, I would like to highlight some of the key trials.

We are pleased to announce the initiation of a randomize Phase II colorectal cancer trial. This trial is evaluating Nexavar in combination with the well established chemotherapy regimen know as Folfox. Our trial will compare trivalent Folfox alone to trivalent Folfox with Nexavar as a first line therapy in patients with metastatic colorectal cancer.

Nexavar is also being evaluated as a treatment for non-small cell lung cancer. We’ve completed enrollment of our first line study assessing Nexavar in combination with gemcitabine and cisplatin, versus the chemotherapy doublet alone and based on Phase II data generated last year, we are starting a Phase III trial evaluating Nexavar’s monotherapy in later lines of therapy for patients with advanced non-small cell lung cancer.

We have previously announced plans to initiate a Phase III trial in thyroid cancer, based on data from a single-arm Phase II study, that show that iodine-refractory advanced thyroid cancer patients treated with Nexavar, demonstrated a significantly longer, medium progression free survival as compared to chemotherapy.

Finally in breast cancer there are ongoing randomized studies looking at several combination therapies and treatment setting. Two studies; one in combination with paclitaxel and another in combination with capecitabine completed enrollment at the end of 2008 and we could see trial results from these studies this year.

Beyond Nexavar, we are developing ONX 0801 a target of anti-folate inhibitor. With its dual mechanism of action that combines the proven approach with a Novel method of selecting and entering certain cancer cells, we believe it has the potential to benefit many different types of cancer patient, including those with ovarian, lung or breast cancers.

In addition we are closely monitoring the progress of ONX 0803 and ONX 0805, two JAK2 inhibitors that we have the option to in license. Data from Phase I dose ranging studies evaluating ONX 0803 in patients with primary myelofibrosis could also be available this year.

There is a tremendous amount of momentum and effort underway to ensure or maximizing our opportunities across both commercial and development fronts. We have a strong product delivering value today and great opportunity ahead of us and we are focusing our investments and targeted opportunities with the greatest potential for value creation.

Now, I’d like to turn the call over to Matt Fust, who will review our financials.

Matt Fust

Thank you, Laura. Let me begin by commenting on a few growth drivers for our business. On our year end earnings call, Tony outlined three themes for 2009, growing Nexavar sales, managing Nexavar as a business and building momentum and advancing our development pipeline.

We are pleased to report progress on all three fronts during this first quarter and we are fortunate that Nexavar is generating cash for investments in optimizing the commercial potential of this valuable assets, funding the search for new Nexavar indications, enhancing our commercial capabilities and building Onyx’s emerging development portfolio.

While making these important investments in our future, Onyx also delivered another quarter of profitability. Non-GAAP net income for the first quarter of 2009 was $8 million or $0.14 per share on a fully diluted basis. GAAP net income for first quarter was $4 million or $0.07 per share, also on a fully diluted basis. As we have seen in the past, we expect earnings performance will vary from quarter-to-quarter due to variations in revenue and expense.

On April 29, Bayer reported first quarter 2009 global Nexavar sales of EUR 137 million, reporting a currency adjusted growth in euros of 29% over the first quarter of 2008. Translated into U.S. dollars, global net sales of Nexavar for the first quarter of 2009 were $178 million, a 17% increase compared to the first quarter of 2008. The average exchange rate during the first quarter of 2009 was $1.30 per euro. The dollar was stronger against euro in first quarter 2009 by approximately 13% compared to first quarter of 2008.

We are reaffirming our global Nexavar net sales guidance of $850 million to $875 million for 2009. Although, we will continue to monitor global economic conditions including the impact of foreign exchange rates on sales that are reported in US dollars, we continue to believe this level of Nexavar sales is achievable in 2009.

We expect to accomplish this through increased penetration in countries where Nexavar has been approved, through sales expansion in countries with recent approvals and most importantly, through growth in countries where we expect reimbursement or approvals later this year, such as Japan. Although, there maybe quarter-to-quarter variability in sales, we expect the launch progress and reimbursement approvals will continue to drive growth in the Nexavar business.

Shared Nexavar sales and marketing expenses incurred by Onyx and Bayer, which includes cost of goods sold and distribution expenses were $72 million for the first quarter, a modest reduction in expense compared to the fourth quarter of 2008. As a reminder, we have guided to an approximately 10% year-over-year increase in shared SG&A expense from 2008 to 2009. Though again, we do expect variability across the quarters of this year.

I’ll now turn to Onyx’s research and development expense, with a sequential quarter comparison. R&D expense was $29 million for the first quarter of 2009, compared to $60 million in the fourth quarter 2008. As a reminder, fourth quarter 2008 R&D expense included onetime expenses of approximately $34 million, which related to corporate developed. After accounting for these fourth quarter items, Onyx’s first quarter 2009 R&D expense increased approximately 10% from our fourth quarter 2008 level.

R&D expense in first quarter 2009 reflects continued investment in the Nexavar development program, as well as development costs for ONX 0801. The R&D expense line in our P&L 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.

Onyx’s SG&A expense was $22 million for first quarter 2009, essentially unchanged from the fourth quarter 2008. This line item includes the cost of our U.S. sales force, the portion of shared Nexavar market expenses that we incurred directly, the cost that we incurred for general and administrative support of the company and SG&A related stock-based compensation expense.

As a reminder, on our year end call, we estimated that for the full year 2009, we expect an increase of approximately 5% in total operating expense over the annualized fourth quarter 2008 levels, excluding onetime charges associated with corporate development in the fourth quarter of last year.

In these challenging economic times, we are continuing to manage our cash reserves carefully with a majority of our cash in conservative investments with short term maturities. This strategy coupled with current market conditions, resulted in interest income of only $1 million in first quarter 2009, compared to $5 million in the first quarter of 2008; however, we believe this conservative investment which is the right one for this time.

At March 31, 2009, we had $467 million in cash, cash equivalents and marketable securities. With this healthy cash position, no debt and positive cash flow from operations, we are in an excellent financial position.

With that I’ll turn the call back over to Tony.

Dr. Tony Coles

Okay Matt. As I mentioned on our last call, we’ve got some ambitious goals for 2009 and are pleased with our progress against those goals during the first quarter of the year. For example, we have several Phase II trials underway as planned, including a study scheduled to begin shortly, intended to extend our leadership in liver cancer. This trial combines Nexavar with Tarceva.

Additionally, we’re starting a Phase III monotherapy trial in patients with advanced stages of lung cancer and in the second half of the year we intend to initiate a Phase III monotherapy trials in thyroid cancer, following very interesting data from a Phase II signal generating study last year.

We’ve also begun several other signal generating the Phase II studies including recently, starting randomization for a colorectal trial and in ovarian cancer trials and in our Phase II breast cancer program, we may have data presented from two of these trials this year. We also expect additional approvals in liver cancer, including Japan in the second quarter of this year as Laura described, and finally, we planned to assess our option exercises for ONX 0803 and ONX 0805 as data becomes available for these two JAK2 compounds.

With Nexavar, we’ve got a pioneering drug and one that is well on its way to achieve a block buster status as I mentioned a moment ago. With strong annual sales growth and hundreds of trials underway to evaluate Nexavar views across a broad range of tumors, we believe we’ve all begun to tap the full potential of this asset. Additionally, we started to create a portfolio beyond Nexavar, as we continue to drive towards our ultimate goal of transforming the lives of patients affected by cancer.

Indeed our story, the story of Onyx has itself been one of transformation, transforming into a product sales driven company, into a profitable company and into a company with multiple pipeline compounds. These changes have been possible because of the solid business fundamentals that position as well today and for the future.

Operator, now let’s open the call for some questions.

Question-and-Answer Session

Operator

(Operator Instructions) We have our first question from Cory Kasimov from JP Morgan. Please go ahead.

Mona Ashiya – JP Morgan

Hi, good afternoon. This is Mona for Cory. A couple of questions; last week when Bayer reported, you also reiterated Nexavar sales guidance and I was hoping actually that you could speak a little bit more about the key upside drivers, what you are relying on. You’ve spoken about some of them, but perhaps if you could rank order them, is it the EU, is it Japan other nations in Asia.

Dr. Tony Coles

Okay, Mona thanks. We are happy to address that. We are not going rank order them, because it’s still fairly early in the year and there are a lot of moving parts, but suffice to say we underscore and we reiterate our full year sales guidance and I’m going to ask Laura to fill that question.

Laura Brege

Thank you, Tony. So, as we look around the world, we expect first of all growth in each of the regions. So, liver cancer remains a largely untapped opportunity for Nexavar and so in each region as you go through Europe, United States, Asia-Pacific and markets where we are already approved, we expect to see growth from each place.

But as you pointed out, in addition in a market where we are expecting approval and launches including Japan, and as we look in the broader European meaning past the four countries we generally think about, from more perhaps with some of the Eastern European and around Mediterranean, we do in fact see growth opportunities in addition coming from each of those regions.

Japan, as I said in my prepared remarks with 40,000 cases per year, 2.5 times United Sates is absolutely an important driver, particularly in the later half of the year.

Mona Ashiya – JP Morgan

Okay, that’s helpful and then, last week Bayer also noted that about $35 million of Nexavar sales have derived from regions outside of the U.S. EU, Japan and Canada; presumably that was from Asia and I wonder if you could speak a little bit more about, is that largely patients who are paying out of pocket in regions such as China?

Dr. Tony Coles

So, the quick answer to that Mona is that in some of the Asia Pacific markets, because I take your question to be focused on Asia Pacific, in some of those markets, we are still awaiting reimbursement approval, China is a great example.

Although, we are already on market in Japan for kidney cancer and we are currently reimbursed there, we are awaiting the HCC or liver cancer approval in that key market, which is the same for South Korea where we have approval for liver cancer, but again are awaiting reimbursement.

So as you move across Asia Pacific, you do see a blend of markets where we are already approved and being sold and distributed for kidney and liver cancer, but some key ones where we reimbursement approvals are pending. The business to-date in those markets where we don’t have reimbursement approval is largely out of pocket as supplemented by patient assistance programs in some of the key markets that Bayer is responsible for.

Mona Ashiya – JP Morgan

Okay

Dr. Tony Coles

Thank you.

Operator

Thank you. We have our next question from Jim Birchenough from Barclays Capital. Please go ahead with your question.

Jim Birchenough - Barclays Capital

Hi, guys. I am just wondering if we can focus on the European opportunity. It doesn’t seem like we saw much sequential growth in that market. So, I am just wondering if you could talk about what you are seeing in general terms for volume trends in Europe and maybe comment on what’s the market opportunity, what market do you already have approvals in and what’s the incremental market you could gain with approvals over the course the year?

Dr. Tony Coles

Okay Jim. Let me make a couple of general comments and then I’ll ask Laura to address this one as well. I think what we saw through most of 2008 were a series of accelerating sales in what we call the big four markets. We do sell a small amount in the United Kingdom through Bayer’s effort there, but we are not currently reimbursed according to Onyx.

So we typically think of Germany, Italy, France and Spain and have talked on calls past about, both the solid foundation in those markets and also the growth potential we see in big markets like Italy and Spain for instance, but one of the things that Laura likes to talk about and I’m sure she’ll comment on, are some of the markets outside of those big four, where we have demographics which support continued growth and as we move through the reimbursement process with some interesting opportunities so, Laura do you want to walk through those.

Laura Brege

So Jim, as we look at Europe, as Tony said centering on the four countries and Italy being the last of the big four that received reimbursement approval last summer, we are seeing continued strong demand and growth in each of those countries.

Traveling around starting first in the former Eastern European block and thinking in terms of Romania, Bulgaria, Poland, Czechoslovakia, these are countries which historically have not been a stronger market perhaps in kidney cancer, but are very important and liver cancer, so we expect to see growth in each of those markets throughout 2009 and beyond.

In addition, coming around the Mediterranean, Greece, Turkey, Egypt; countries again that we have historically really seen a different opportunity in are very, very important and are important growth drivers in 2009. In addition, coming around to the former USSR and the countries around these Scandinavian side for different reasons, the demographics point to opportunity in ACC.

So in summary as I look at it, the top four countries are in fact each contributing strongly and each growing. Then as we look more broadly, I think about that in the three regions I described each with a growth opportunity.

Jim Birchenough - Barclays Capital

Maybe just to follow-up and in the U.S., specifically there is a sequential decline in the first quarter and you described the headwinds, but just wondering if you could maybe quantify the headwinds you saw in terms of the inventory reductions and maybe let us know if you actually saw continued volume demand in the first quarter in the U.S.

Laura Brege

Sure. So as you point out, in the sequential quarter that’s the case. Year-over-year we saw worldwide from a context perspective, good growth at 17% worldwide. In the U.S. the two phenomenon which I think you’ve been generally hearing from other companies and our market place is that we did have two phenomenon; destocking, meaning lower inventory levels carrying in 2009, than has historically been seen and some anticipatory buying by patients who are doing well on Nexavar and pulling that prescription forward in 2008.

So in terms of numbers, as we’ve analyzed that, that’s looking like about $3 million to $5 million or so in the U.S. in the first quarter. Importantly, we looked at where we’re watching the trends as you would expect here and importantly as we got later in the quarter and in the recent month, you’re seeing very strong trends, but you’re telling us that this has worked its way out of the system.

Jim Birchenough - Barclays Capital

Okay, thanks for taking the questions.

Dr. Tony Coles

Thanks Jim.

Operator

Thank you. We have our next question from Jessica Li from Goldman Sachs. Please go ahead.

Jessica Li - Goldman Sachs

Thank you for taking my questions. First, sales from Japan seem to have declined sequentially as well, some $16 million in 4Q ’08 to about $11 million in 1Q, what do you think have contributed to the sequential decline there?

Dr. Tony Coles

I think the quick response Jessica, is that Japan is still in its earliest days of launching and so we can expect some random variation quarter-to-quarter. I think we were all very pleased with the third quarter sales from Japan, which represented the first quarter real sales there and equally strong performance in the fourth quarter. So, it’s not unexpected that you find in the third quarter of that market, which is this current quarter we reporting on, lighter sales, as Japan is getting its arms around the opportunity.

What’s most interesting is that the RCC opportunity has been so important in Japan, which is a comfort a country that has more modest demographics for that particular disease in comparison to liver cancer, where as Laura pointed out, give about 40,000 cases of liver cancer annually, compared to the U.S. at 15,000 and Europe at 54,000. So, we don’t make very much of it at all as a sign of future demand and think it’s well within normal in terms of the random variation for an early launch.

Jessica Li - Goldman Sachs

So, is that fair to assume that you haven’t seen too much economic pressure in that region?

Dr. Tony Coles

I think the better is Bayer to assume. It’s a market that Bayer leads on and it’s our expectation as we chat with our partners that we have not seen significant pricing pressure in that particular market.

Jessica Li - Goldman Sachs

So, may I ask another question; in the U.S. you’ve cited a few factors that could have contributed to the sequential decline in the U.S. I’m just wondering whether you’ve seen any sort of change in prescription due to the economic condition; meaning, have you observed any delay in drug use, given sort of the out of pocket expenses?

Dr. Tony Coles

Laura, do you want to comment?

Laura Brege

Yes, certainly. We are seeing in the U.S. that as I said, both our distributors and patients are being thoughtful, but we are not seeing a change in the underlying behavior. We have had good programs in place from the very beginning of the launch of Nexavar over three years ago and really feel that patients are able to sort of reach programs in particular to be able to access drug and not really seeing major changes in behavior.

Jessica Li - Goldman Sachs

Great, thank you.

Dr. Tony Coles

Thank you, Jessica.

Operator

Thank you. We have our next question from Howard Liang from Leerink Swann; please go ahead.

Howard Liang - Leerink Swann

Thanks very much. Is Korean reimbursement approval still expected for this year?

Laura Brege

So the Korean approval is approved in the liver cancer, but sort of on reimbursement where we are is always reluctant to predict what a government is going to do and so we expect it in the coming year; when that comes in the coming year I don’t now.

Howard Liang - Leerink Swann

Okay then related Taiwanese HCC approval, I think it’s later this year. What will be the impact of that? I think it’s already approved there for RCC. So to unique you have reimbursement approval for HCC before seeing a ramp up?

Laura Brege

So, for Taiwan as you point out, reiterate both the approval and reimbursement. We expect those would come very close together.

Howard Liang - Leerink Swann

Okay great, and then can I ask you about rational of the randomized colorectal cancer trial. I thought that almost the very first trial was Nexavar. There are a large number colorectal cancer patients; I thought it was limited single agent activity of Nexavar in the setting. I guess what’s the rational for testing in colorectal cancer?

Dr. Tony Coles

So Howard, I’m going to make a couple of comments and ask Todd Yancey, our Vice President of Clinical Development to take that. I’ll remind everyone and we’re clearly well aware that there is significant unmet medical need in colorectal cancer.

We have certainly learned a lot about the association of KRAS status in response to therapy, but we still have a lot of unmet medical need in this particular cancer and we all know that the five year survival rate remains poor, but having set that backdrop, there’s a lot more we need to do in cancer. Todd, would you make any additional comments.

Todd Yancey

Howard, I’d only offer that we think we may have a unique opportunity in colorectal cancer based on our mechanism of action. There is proof of antiangiogenic benefit in this opportunity and as Tony mentioned, KRAS and also BRAF-mutant status may also offer a differentiator for us with 40% of colorectal cancer patients having a KRAS mutant status and an additional 10% having BRAF and this as you I’m sure aware is an opportunity for patients where the monoclonal antibodies are not apparently demonstrating benefit.

Howard Liang - Leerink Swann

Will you be selecting patients based on KRAS or BRAF status?

Todd Yancey

Howard, I’m sorry. Would you mind repeating it; we missed just the first part of your question.

Howard Liang - Leerink Swann

I’m just wondering whether this trial will be selecting patients based on KRAS or BRAF status.

Dr. Tony Coles

Howard, we don’t really get into detail on the study designs, but what I can tell you is we will certainly be assessing KRAS status and BRAF status because of the reasons that I mention to you.

Howard Liang - Leerink Swann

Great, thanks very much.

Dr. Tony Coles

Sure. Thank you.

Matt Fust

Thanks, Howard.

Operator

Thank you. We have our next question from Jason Zhang from BMO Capital Markets. Please go ahead.

Jason Zhang - BMO Capital Markets

Thanks. I have a couple of questions. First for Matt, around a $29 million R&D, how much is your non-Nexavar related R&D in this quarter?

Matt Fust

Hi Jason, we have made a practice and won’t be today specifically breaking out Nexavar versus non-Nexavar spending in R&D. What I can say qualitatively is that the level of spending on ONX 0801, which is the only program outside of Nexavar that is in active development, is at a relatively low level of R&D spend, as you’d expect for a program that is still preclinical.

Jason Zhang - BMO Capital Markets

I’d say $2 million, $3 million in that range?

Dr. Tony Coles

I think it’s probably fair to say in that range. We haven’t talked a lot about the cost of that particular program, but I think Matt is right to point out, that it is still fairly early stage and what we’re working on now are preparing for the IND and CTA filings, finishing some of the late animal work in order to get first demand and you can imagine, both activities are not very expensive.

Jason Zhang - BMO Capital Markets

Okay and then a question for Laura. You mentioned that you have seen Nexavar growth in out regions, including U.S., Europe and of course outside of Europe. If I just look at the U.S., you have a sequential down quarter and looking at the last five quarters in a row, there’s really not any growth at all.

So I’m wondering, going forward, what makes you to think that it will be different than the last five quarters and what signs do you see that will show growth and actually wanted to know even though the revenue is relatively flat, do you see a difference between RCC and Nexavar. What I mean is, do you see RCC declining offset by HCC increase?

Matt Fust

So Jason, I think in terms of the time period you’ve talked about the five quarters in the U.S., let me just link an observation, which is something that we talked a lot about in the middle of last year.

I want to underscore; that is that we expect the greatest growth contribution to come outside of the U.S. and this is a different paradigm and for most of the companies, most of therapies, but just given the demographics for liver cancer, we expect the greatest amount of growth. So while we clearly care a lot about the United States, we’re looking for the future of the brand to be driven by external U.S. growth.

Now, Laura has comment already that we expect our regional growth in each of the major regions, but I would note for you and the rest of our listeners, that the fourth quarter performance in the United States was quite significant in terms of it’s growth, the fourth quarter saw about 8% to 10% growth over the previous quarter. So, I don’t think it’s a good characterization to suggest that the U.S. sales have been flat for several quarters.

So, I point that out, because in the third quarter we made a conscious decision to expand our sales force efforts to call on non-oncologists and we are continuing with those efforts where we do have some signs that we’re gaining traction. Having said all of that, I’ll just remind us again that we expect the greatest volume growth to occur outside of the United States.

So, we’ll continue to stay focus to the U.S., continue to focus on non-oncologists, but we will be working collaboratively with Bayer to ensure that the ex-U.S. regions out perform our expectations.

Jason Zhang - BMO Capital Markets

Okay, great. Can I just follow on that? So, Laura talked a lot about the European countries outside of the big four, mentioning in Turkey, Poland and Russia. Where you referring; in particular you’re seeing the opportunities in these countries upon approval? I guess you mean approval for HCC. So my question is, in those countries have you seen product sales for RCC already or are you still waiting, given the revenue for RCC use in those regions as well?

Laura Brege

For the separation in terms of where we are in approvals and sales, we do have approval in more than 80 countries for kidney cancer. So, yes indeed we are seeing sales from those countries in RCC, which is great, meaning that there is physician comfort and usage and we’re well established in the healthcare marketplace there.

The reason that they are so important is as we look forward to the growth in 2009 and beyond, is because the underlying epidemiology and demographics is associated with the HCC opportunity, which is much larger than the RCC opportunity.

Jason Zhang - BMO Capital Markets

Okay, just one quick one. Now we’re in the middle of May, is April different than what you have seen in first three months of the quarter?

Dr. Tony Coles

Yes, I think and Laura may have referenced to this in one of her earlier responses. We do actually see trends which are quite encouraging for this current second quarter performance and are encouraged that some of the dynamics that Laura talked about in terms of the inventory destocking, as well as anticipatory buying have largely worked their way through. We’re tracking it very, very closely, but the recent data suggest a good up tick in trends.

Jason Zhang - BMO Capital Markets

Thanks, great.

Dr. Tony Coles

Okay. Thank you, Jason.

Operator

Thank you. We have our next question from Stephen Willey from Thomas Weisel Partners; please go ahead.

Stephen Willey - Thomas Weisel Partners

Hi, thanks for taking my question. Laura, I know you’d mentioned that there was some strong sales performance in some of the Pan-Asia regions, ahead of reimbursement approval. I’m just kind of wondering if you could quantify maybe, what percentage of that rest of world number may have been derived out of those private pay markets.

Secondly I guess, if you have any early inclination as to what the treatment durations might look like in those regions, if they’re on the order of something that we saw in the Asian sharp trial?

Laura Brege

For the demand that we are seeing and the sales in the Asian Pacific countries and primarily China as we think about reimbursement, that is almost all private pay. So in fact, when you look at the China and performance that is just the beginning and just a tip of what will be able to happen.

In Japan, that is reimbursed in RCC and as you know we await the HCC opportunity and most of the opportunity here will come on reimbursement. So we’re seeing nice performance in that, but it’s still very early days.

In terms of the question about generation of therapy in Asia Pacific and the trial that we’ve seen; in the sharp trial we saw a duration therapy in HCC over five months and in the Asia Pacific trial we saw shorter and those patients were sicker, who had been enrolled in that trial.

So, I think as we look at it, in the early days of the market we’ll have shorter duration of therapy as the sickest patients wind up being treated and that that steadily increases. We have seen that both in RCC and in HCC and in every region.

Stephen Willey - Thomas Weisel Partners

Okay and if you had I guess compared the private pay demand that you saw come out of those regions in the first quarter, would it be safe to say that there was a similar amount of demand that came out of the second half of ’08 or would what you saw in the first quarter be kind of quantified as an up tick?

Dr. Tony Coles

Stephen, I’m not sure that we can actually answer that question as we haven’t analyzed data that particular way. What we know about 2008 is that it’s a year a launch and there is a mix of covenants that had provided reimbursement or not. So, beyond the regional level, it’s very hard to comment any specific country, but I think suffice it to say, there seems to be broad support across the world for providing reimbursement for Nexavar.

Bayer has been very effective, gaining reimbursement in all the major markets today and we are quite optimistic about continued reimbursement approvals in the Asia Pacific markets, where we think we’ve got the greatest demographic opportunity and sales opportunity. So stay tuned, but our expectation is that we are on track for what we said we would deliver.

Stephen Willey - Thomas Weisel Partners

Okay and then maybe just one more question and some clarity on the Phase III Nexavar trail in non-small cell lung cancer, as a monotherapy if I heard that correctly. Is that going to be a refractory setting and if its front line, can you maybe give a little bit color as to what kind of patient subsets you’re going to be targeting in frontline?

Dr. Tony Coles

Sure, it’s non-small cell first of all; it’s not frontline, its third or fourth line and this is following on some very provocative data, out of the ECOG 2501 studies that was presented last year at ASCO, which suggested some very positive trends in terms of improvement progression free survival in the later stages of treatment. This was monotherapy, so it will be a different design than our previous two large Phase III studies and we’re quite encouraged by the signal we saw in that Phase II program.

Stephen Willey - Thomas Weisel Partners

Great, thanks for taking my questions.

Dr. Tony Coles

Okay. Thank you.

Operator

Thank you. We have our next question from David Moskowitz from Caris & Company. Please go ahead.

David Moskowitz - Caris & Company

Yes, thanks for talking the questions. Good afternoon.

Dr. Tony Coles

Hello, David.

David Moskowitz - Caris & Company

Hi, my first question is on the unit growths. Can you talk about the unit growth that we’ve seen on a year-over-year basis, a lot of currencies in Europe? Matt, you kind of went through it with regard to Bayer sales up 17% and currency impact to Bayer a 13%, so am I to assume that we’re looking at 30% year-over-year unit growth world wide and I’d like to understand how that splits out between U.S. and the rest of the world? Thanks.

Dr. Tony Coles

Okay, I think this is a question where Matt and Laura may want to have some comment on. So, why don’t we start with Laura and then Matt I’ll ask you to add one.

Laura Brege

So as you pointed out, we had very nice strong unit growth, irrespective of the currency side of it here and if you account for currency, you see that our 17% year-over-year growth was actually understated and was quite a bit larger as a result to that. In terms of any detail on the unit growth, I don’t have anything to share with you there.

Matt Fust

Yes, that’s right Laura. Neither Bayer nor we have provided any specific detail on units or quantitative demand information. I think our intent and I apologize, it was confusing, was to provide as much visibility as possible on the currency impacts, by providing again on this call, a restatement of Bayer’s numbers as well as our dollar translated numbers.

David Moskowitz - Caris & Company

So you’re saying, we shouldn’t be thinking about that 30% unit growth?

Laura Brege

The 30% that you’re referring to is what Bayer side, is that what you’re asking?

David Moskowitz - Caris & Company

Yes, I mean if we think right, the bear of current impact is 13%, 17% in sales growth. So, just to do simple math, it seems like 30% year-on-year growth on a global basis. Are you saying that for some reason that’s not a good way to look at this?

Laura Brege

I would say that if I were doing that math, I would reasonably similarly.

David Moskowitz - Caris & Company

Okay, well thank you and on top of that would also be price. So, can we at least talk about the U.S.; has there been any price increases on the product and when would that have been?

Dr. Tony Coles

Yes, we had a price increase in January David, 8%.

David Moskowitz - Caris & Company

Okay, very good that’s very helpful. Just on some of the P&L items; first of all, on the P&L, it looks like it’s a little higher than we were expecting. Is that a good trend to be thinking about going forward and a similar question on the collaboration costs? Obviously light and impacted by currency in a favorable way, but nevertheless it still looks relatively flattish with the fourth quarter. So, have we started to see the collaboration costs normalize here?

Dr. Tony Coles

So, I think David and let me just remind you that Julie and Matt will be available right after the call, because we’d like to get everyone some more detailed questions on the P&L.

I think what you will continue to see from us is that we’ve got continued investment in the development areas as we’ve talked about and with the several Phase III and other trails we’ve got going on and we’ll continue those investments, as well as the launch investments throughout this year.

We’ve provided guidance, both for our own company expenses as well as the collaborative expenses and our expectation is that we will fall within the guidance that we’ve provided, but let me refer you specifically perhaps in a follow-up conversation to Matt and Julie and they can go through all the details that you need.

David Moskowitz - Caris & Company

Fair enough, thanks.

Dr. Tony Coles

Alright thank you. Operator, we’ve got time for one more question.

Operator

Thank you. We have our final question from Philip Nadeau from Cowen and Company; please go ahead.

Philip Nadeau - Cowen and Company

Good evening, thanks for taking my question. My question is specifically on the impact of Afinator. I notice that in your discussion of the headwinds facing Nexavar, competition was in one of them. Can you provide us more detail on maybe what you say in Q1, leading up to Afinator’s late quarter launch and have you seen any impact of Afinator’s availability now in Q2?

Dr. Tony Coles

Okay. Laura and her team are thoroughly familiar with that topic. So, Laura do you want to take that one?

Laura Brege

Yes. The great news for kidney cancer patients, which I shared in my prepared remarks, is that the sequentially use of therapy as well as combination, is the path for longer life for these patients, which we saw for the first time, actually out of Afinitor trial last year, which had about half of the patients, who were actually third and fourth time patients and tested hypothesis about adding Afinitor TKI to TKI.

Patients did very well on that and we look forward to having patients do well by taking TKI to TKI. So, Nexavar in that treatment and continuing earlier on, and then patient being able to live longer and get the benefit of the additional drug. So, as we look forward in 2009, we are very comfortable with how we are approaching in this market place.

Philip Nadeau - Cowen and Company

Okay, fine. Thank you.

Dr. Tony Coles

Okay. I think the good news there, is that patients are living longer with kidney cancer and its happening as a result of sequencing therapies which is the new dynamic we’re seeing.

So, we’re going to wrap up the call and what I’d like to say in closing is that with our cash generating oncology business, our comprehensive development program, the potential of a newly in-licensed compounds and our financial strength, we continue to believe that Onyx stands apart of many of those in our industry.

We will leverage the strength of our position today, to weather the challenge ahead as they come and work to create further leadership for business tomorrow. Thanks for joining us today and we absolutely look forward to keeping you apprised of our progress throughout the year. Thanks a lot.

Operator

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

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Source: Onyx Pharmaceuticals Inc. Q1 2009 Earnings Call Transcript
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