Ariad Pharmaceuticals Management Discusses Q1 2013 Results - Earnings Call Transcript

May. 7.13 | About: ARIAD Pharmaceuticals, (ARIA)

Ariad Pharmaceuticals (NASDAQ:ARIA)

Q1 2013 Earnings Call

May 07, 2013 8:30 am ET

Executives

Maria E. Cantor - Senior Vice President of Corporate Affairs

Harvey J. Berger - Principal Founder, Chairman of the Board, Chief Executive Officer, President and Chairman of Executive Committee

Edward M. Fitzgerald - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Martin J. Duvall - Senior Vice President of Commercial Operations

Timothy P. Clackson - Chief Scientific Officer and President of Research & Development

Analysts

Jim Birchenough - BMO Capital Markets U.S.

Eun K. Yang - Jefferies & Company, Inc., Research Division

Michael J. Yee - RBC Capital Markets, LLC, Research Division

Y. Katherine Xu - William Blair & Company L.L.C., Research Division

Terence C. Flynn - Goldman Sachs Group Inc., Research Division

Matthew Harrison - UBS Investment Bank, Research Division

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

Matthew J. Lowe - JP Morgan Chase & Co, Research Division

Jonathan Eckard - Citigroup Inc, Research Division

Ying Huang - Barclays Capital, Research Division

Echo Yinghui He - Maxim Group LLC, Research Division

Michael G. King - JMP Securities LLC, Research Division

Philip Nadeau - Cowen and Company, LLC, Research Division

Howard Liang - Leerink Swann LLC, Research Division

Bret Holley - Guggenheim Securities, LLC, Research Division

Operator

Good day, ladies and gentlemen. And thank you for holding for ARIAD Pharmaceuticals First Quarter 2013 Financial Results Conference Call. [Operator Instructions] Please be advised that this call is being taped at the company's request and will be archived on the company's website for 3 weeks from today. At this time, I would like to introduce Ms. Maria Cantor, ARIAD's Senior Vice President, Corporate Affairs. Please go ahead

Maria E. Cantor

Good morning and thank you for joining us. This morning we'll report on financial results and corporate developments for the first quarter of 2013. With me on the call are Dr. Harvey Berger, our Chairman and Chief Executive Officer; Ed Fitzgerald, Executive Vice President and Chief Financial Officer; Tim Clackson, President of Research and Development and Chief Scientific Officer; and Marty Duvall, Senior Vice President of Commercial Operations.

During this call, we'll be making forward-looking statements Please note that these statements are subject to factors, risks and uncertainties, including those that are detailed in our Form 10-K for the year ended December 31, 2012, and other SEC filings that may cause actual results to differ materially from the results expressed or implied by such statements. Now, here's Dr. Berger with our opening remarks.

Harvey J. Berger

Thank you very much, Maria, and good morning, everyone. 2013 is off to a tremendous start following the U.S. market introduction of Iclusig. Our first quarter results show a very strong launch characterized by early adoption in all lines of resistance or intolerant CML and Philadelphia positive ALL, market penetration into the community physician setting, excellent patients access and the quality of ARIAD's commercial and medical affairs teams. We remain focused on the flawless execution on each of our key corporate goals, maintaining the strong trajectory of sales of Iclusig in the U.S.; approval of Iclusig in the E.U. this quarter and an effective European launch; full EPIC trial patient enrollment by year end; the start of the Phase II trial by Iclusig in GIST patients and transition into the 113 Phase II expansion cohorts later this quarter; and the start of our 113 pivotal trial in ALK positive non-small cell lung cancer patients in the third quarter.

We have several updates for you to share this morning. Ed Fitzgerald will cover our financials, Marty Duvall will review the Iclusig launch and Tim Clackson will provide some R&D update.

Edward M. Fitzgerald

Good morning, everyone. This is Ed Fitzgerald. As noted in our press release this morning, Iclusig U.S. net sales in the first quarter of 2013 were $6.4 million using the sell-through method of revenue recognition. We have recorded an additional $3.3 million in deferred U.S. revenue as of March 31, 2013, representing Iclusig inventory at specialty pharmacies and specialty distributors reflective of growing product demand.

Additionally, during the first quarter, we shipped $2.1 million of Iclusig to patients in France through the ATU, or Temporary Authorization for Use program. Revenue related to these shipments will be recorded when the list price of Iclusig is determined, which we anticipate will be later this year.

Our net loss for the first quarter of 2013 was $64.7 million or $0.36 per share, compared to a net loss of $55.9 million or a $0.35 per share for the same period 2012.

Our R&D expenses increased by $12.5 million from the first quarter of 2012 to the first quarter of 2013 reflecting further expansion of our clinical and manufacturing development activities for Iclusig and AP26113, as well expanded discovery research activities.

Our SG&A expenses increased by $18.2 million for the first quarter of 2012 to the first quarter of 2013, reflecting our investment in commercial launch of Iclusig in the U.S., the preparations for anticipated commercial launch of Iclusig in Europe, and related activities.

Finally, as of March 31, 2013, we reported cash, cash equivalents and marketable securities of $398.3 million, compared to $164.4 million at December 31, 2012.

Let me now turn the call over to Marty to provide detail on the Iclusig launch to date.

Martin J. Duvall

Thanks, Ed. Good morning, everyone. We are extremely pleased with the market introduction of Iclusig and the fundamentals of our launch in the U.S., and we are on track for a launch in EU to get underway this summer. In the first quarter of Iclusig availability in the U.S., we draw 4 conclusions. First, the uptick of Iclusig is strong. Our first quarter net sales of $6.4 million represents pure demand for Iclusig and importantly, does not include any inventory stocking. Second, Iclusig has a very broad awareness and patient access. Third, ARIAD's commercial effectiveness is outstanding. And finally, the box warning has had no discernible impact on the adoption or use of Iclusig. What drives us in concluding that the early penetration of Iclusig in the resistant/intolerant CML market is strong? Our goal is to be the most widely prescribed TKI for the resistant/intolerant patient population with no patient left behind. We are off to a great start.

Through April, we estimate that over 400 patients in the U.S. were treated with Iclusig obtained through physician prescriptions of commercially supplied drug. This does not include any patient using the initial 30-day Quick Start supply, which is free of charge, or any clinical trial participation. Refill rate continue to build as we would expect and importantly, discontinuation rates appear to be low at less than 10%. In line with our expectations, the benefit of having a broad label is being realized as approximately 1 out of 4 Iclusig prescriptions are being written for patients who have failed only 1 TKI. This is the true second line population. Our data indicate that less than 10% of the patients receiving Iclusig through commercially supplied drug have a T315I mutation, once again, supporting the view of broad product uptick across all resistant and intolerant patients.

We are very pleased that the mix of patients is more heavily weighted to chronic phase CML than anticipated. Approximately 60% are in the chronic phase. These patients will have the opportunity to benefit from Iclusig therapy over more prolonged periods of treatment.

Iclusig experience is being gained by a wide range of customers. At the end of April, there were approximately 300 unique physician prescribers of Iclusig and over 250 unique accounts were using the drug. Importantly, approximately 70% of the Iclusig prescribers are community-based physicians. This greater than 2 to 1 distribution in favor of community physicians over academic physicians clearly shows that Iclusig is being prescribed broadly among hematologists,oncologists in diverse clinical settings, not just investigators who participated in our clinical trials. The IMS weekly prescription capture rate has reached approximately 80%. It will continue to vary from week to week, but has leveled off roughly where we expect it to remain.

Our second conclusion is that Iclusig has achieved excellent levels of awareness in patient access. Through our best program and services, ARIAD is committed to affordability, access and adherence to Iclusig. Our goal is to make sure that no patient is left behind independent of their ability to pay. In addition to a free drug program for the uninsured, we are offering co-pay assistance programs to bring out-of-pocket costs down to $20 per month for commercially insured patients. ARIAD also donates to charitable foundations that provide funding from Medicare patient co-pays.

Iclusig enjoys wide access in payer coverage. Based on the policy decisions that have been made to date, we estimate that 96% of resistant/intolerant patient population will have their Iclusig prescription covered and we continue to work to ensure that the remaining 4% get access to Iclusig.

Iclusig has been added to the NCCN Guidelines, and has been positioned consistent with our broad label for patients who have failed 1 or more TKIs. Iclusig is also recognized in the Guidelines as a pan-BCR-ABL inhibitor, and that is the only TKI listed as a treatment option for every kinase domain mutation.

Our third conclusion is that the effectiveness of ARIAD's commercial execution is clear. We talked before about how we hired an outstanding team of oncology, hematology professionals, who wake up every morning motivated by one thing: Helping resistant/intolerant Philadelphia-positive leukemia patients. Through the first quarter, we have reached approximately 75% of our targeted customers at least once.

In our primary marketing research, the message of Iclusig's outstanding efficacy is being consistently delivered. Physicians provide excellent feedback on the medicine relative to our competition and prescribing levels are projected to increase across all lines of resistant and intolerant CML therapy. The results: In comparing the first 3 months of Iclusig launch to our competitors using the IMS National Prescription Audit, we are pleased that our cumulative TRxs are tracking nearly 40% higher than nilotinib did at the same point in its launch. Importantly, nilotinib only had 1 competitor in the resistant/intolerant market at the time of its launch, and as we know, now has annual global sales of over $1 billion. We project that at the end of April, Iclusig cumulative TRx's will be higher than for bosutinib, despite that product's 4 additional months of availability.

As I mentioned earlier, it is important to make clear that the box warning is having no discernible impact on our success. Physicians are prescribing Iclusig broadly and we are seeing a discontinuation rates of less than 10%. We will work to maintain this level of achievement and we are focused on the challenge.

So taken altogether, we're very pleased with the first quarter results. In terms of what we are seeing in the early part of Q2, Iclusig weekly prescriptions continue to increase as positive experiences with our medicine expand. Preparations for our European launch are moving rapidly forward as we await easy adoption of the CHMP recommendation. We have a long and exciting journey ahead in building the Iclusig brand. As with any new product launch, broadening the prescribing base to build physician experience will take time. Armed with the medicine that we believe to be best-in-class and programs driven by talented motivated teams, we look forward to sharing future results and successes in the U.S., Europe and around the world.

I'll now turn it over to Tim for an R&D update.

Timothy P. Clackson

Thanks, Marty, and good morning to everyone. As well as the positive update on the Iclusig commercial launch, we have several R&D updates to share related to broadening Iclusig's development and the advancement of 26113.

Patient enrollment in the global EPIC trial of Iclusig in patients with newly-diagnosed CML is advancing as planned. We're on track to expect the interim analysis of the primary endpoint of efficacy and safety to be complete by the third quarter of next year with data lock estimated at midyear 2014.

We're pleased to announce this morning that in Japan, we have now transitioned to the Phase II portion of the Phase I/II trial of Iclusig in patients with resistant and intolerant CML, and we are advancing our recommended dose of 45 mgs given once daily. We expect to file for initial regulatory approval of Iclusig in Japan next year. Importantly, Japan is the third-largest CML market in the world. We anticipate enrollment in the SPIRIT 3 trial, in collaboration with the U.K. National Cancer Research Institute, will begin next quarter. The NCRI expects to enroll about 1,000 patients at approximately 172 clinical research sites in the U.K.

Our Phase II trial of Iclusig in patients with gastrointestinal stromal tumors, or GIST, will begin this quarter on schedule. Iclusig is a highly potent inhibitor of c-kit, the target in most cases of GIST, and can overcome many of the mutations which cause resistance to imatinib and sunitinib, the current standards of care in newly-diagnosed and second-line GIST patients, respectively.

We are excited to have a number of trials of Iclusig, either underway or imminent, that explore the drug's potential in settings beyond CML.

Now turning to 26113. We are now very close to completing the Phase I portion of our Phase I/II clinical trial and expect to transition into Phase II by the time of ASCO. We will be presenting a detailed overview of the Phase I portion of the 113 trial at ASCO.

As we previously said, we escalated the daily dose of 113 to 300 mgs once daily. Based on tolerability and pharmacokinetic data, we did not escalate beyond 300 mg dose level. Importantly, PK data from the trial, together with preclinical IC50 values clearly show that doses up to and including 300 mgs provide appropriate exposure to targeting both ALK and mutant EGFR, and that we do not need to go above this dose level.

Consistent with this analysis and the subsequent stages of the trial, we've gone on to expand patient cohorts at doses lower than 300 mgs once daily to allow collection of robust PK and safety data. Several doses and schedules have been explored, and we expect to have the recommended Phase II dose selected and announced as part of the ASCO presentation. This dose will be used for the Phase II cohorts of the ongoing trial and the pivotal trial of 113 in ALK-positive non-small cell lung cancer patients who are resistant to crizotinib, as part of the ASCO presentation. The pivotal trial is expected to begin in the third quarter as we previously stated.

One final note regarding our ASCO abstract that will be made public next week, as everyone knows. It's important to remember that all of these abstracts reflect data cuts that occurred in January of this year or earlier. The data presented at ASCO will reflect the most current, up-to-date view of our clinical programs.

Now let me turn the call back to Harvey.

Harvey J. Berger

Thanks very much, Tim. With this update, I ask the operator to open the lines to analyst questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Jim Birchenough from BMO Capital.

Jim Birchenough - BMO Capital Markets U.S.

Just a question on the market dynamics for Iclusig and then a follow-up on 113. Can you -- when you look at the switch patients that are coming on Iclusig, could you give a sense of what proportion are coming on for inadequacy of efficacy versus those coming on for intolerance? And is the label hurting at all the penetration in the intolerant group? And then the second part of the question on 113 is could you -- in looking at that dose of 300 milligrams, could you maybe contrast the activity of 113 to the Clovis compound at that dose level and whether you think you'll have the competitive EGFR agent?

Martin J. Duvall

Jim, this is Marty. I'll handle the first part of the question regarding resistant/intolerant patients. So we're seeing both patients come on Iclusig. I think given the PACE data, the majority of those patients were resistant so we're seeing an early uptake in the patients where there's an efficacy issue. And we realize that continued growth will require penetration in the intolerant patient population.

Timothy P. Clackson

Jim, this is Tim. Regarding the question on 113. Since I don't have any access to data or information on the -- but I can't the really comment on any data regarding the Clovis compound. Comparing at the certain dose, say 300 of 1 or the other compound, isn't really possible because of differences in formulation, PK and activity. So it's difficult to say. I think we'll be giving a full update at ASCO as I described. And as I mentioned, the dose is up to and including 300 appeared to give us very good coverage based on PK and preclinical IC50 value.

Jim Birchenough - BMO Capital Markets U.S.

Tim, just on that, can you maybe comment on the relevance of getting the dose adequate to hit the IC50 versus the IC90? Does that make a big difference in terms of expectations for clinical activity?

Timothy P. Clackson

Sure. Our aim is to be well in excess of the IC50. We will give -- obviously, we'll be able to talk a lot more about the PK that we have at ASCO. But our aim is to substantially exceed the IC50s.

Operator

And our next question comes from the line of Eun Yang from Jefferies.

Eun K. Yang - Jefferies & Company, Inc., Research Division

A question to Tim. So with the 113, you are moving into expansion cohort study by ASCO. So in terms of EGFR T790 in mutant patients, you're enrolling about 20, but how many patients do you expect to see at ESMO this year?

Timothy P. Clackson

I think it's too soon to say. Obviously, we're going to be very motivated to enroll those patients as fast as we can. And I think we'll have an opportunity to look -- to enroll many patients to have data in time for ESMO, but the exact numbers are very difficult to predict.

Operator

And our next question comes from the line of Michael Yee from RBC Capital Markets.

Michael J. Yee - RBC Capital Markets, LLC, Research Division

On 113, you said you stopped at 300 milligrams, PK PD part of the reason. Did you see any grade 3 or grade 4 adverse events for safety, any components of that? And when we get to ASCO or ESMO and you've picked your dose to go forward, how much patient experience will you have at the dose you're going to go forward with to give us confidence that, that is going to be a safe dose since you're going to be dosing a Phase III study in that? And the second part of the question is when you start these cohorts, how fast can you enroll patients in an EGF cohort? I mean you've got sites open, so 10 patients in a month, is this reasonable?

Timothy P. Clackson

Okay, Michael. So as I mentioned in my remarks, the reason we didn't escalate beyond the 300 was a combination of tolerability and PK data. Obviously, we'll flesh out that appropriately at ASCO. But we are at very high levels of 113, which gives us confidence that we can get coverage even at those levels. You asked how much experience we would have at the appropriate dose when picked. One of the things that we've been doing over the last several months is to very carefully build robust data at several doses, PK, tolerability, and that will allow us to make a very confident move into Phase II at the recommended Phase II dose, which as I described, is imminent. How fast can we enroll? Yes, you kind of answered your own question accurately. Because this is a Phase I/II trial, we can move instantaneously into a Phase II trial with sites fully open. So certainly, any regulatory or site-specific steps won't be rate limiting.

Operator

And our next question comes from the line of Katherine Xu from William Blair.

Y. Katherine Xu - William Blair & Company L.L.C., Research Division

So question for Tim at 113. So one of the reasons why into the Phase I study, that 113 didn't show as clear of benefit in EGFR mutations is because the patients were -- likely, because the patients were too experienced. They had EGFR Tarceva failures, you had [indiscernible] also to nilotinib [ph] and put in [ph] and a bunch of other afatinib and a bunch of other things. So I'm just wondering, in the Phase I/II, I guess, at those expansion cohorts, are you going to start recruiting patients who are fresh Tarceva failures, or you're still going for the very fourth line patients who are not really characterized well molecularly at all?

Timothy P. Clackson

No, this will be a very different patient population, Katherine. So as you talked about before, yes, the patients we had in the Phase I portion were definitely Phase I patients, multiply pretreated with chemotherapy, most of them had seen other targeted agents such as afatinib or an afatinib combo after their Tarceva failure many years sometimes elapsed between the TKI failure. So that, coupled with a lack of immediately pretrial genetic information makes it very difficult to make an assessment. In the Phase II portion, we're going to focus on patients who have documented T790M. We're going to have a detailed knowledge of their treatment history and there are protocol-defined time limitations that we can talk about as we open that portion of the trial that will mean that patients will have recently failed their TKI, they're EGFR TKI therapy. So it'll be a very different type of patient substrate.

Harvey J. Berger

I would add, Katherine, in the Phase I portion of the trial, there was no requirement that patients be T790M either by history or documented, they were patients who had failed, among other things, EGFR inhibitors. That's going to be quite different in the Phase II cohort where we will have documented genetic information on every single patient with the focus being on those who are T790M-documented. That's one of the most important key differences.

Y. Katherine Xu - William Blair & Company L.L.C., Research Division

I understand. But I guess, and let me clarify a little bit, I thought that was a -- so when you escalate to 300, you're coming down to sort of another dose or so to expand cohorts prior to starting the Phase II, is that the case, or...

Timothy P. Clackson

No, Katherine. We're, obviously, since we talked about doing -- announcing it at ASCO, we're weeks away from formerly nominating the recommended Phase II dose. So we're very close.

Harvey J. Berger

So there will be a dose that we will go forward with in all of the Phase II cohorts as well as in the pivotal trial in patients who have failed crizotanib.

Y. Katherine Xu - William Blair & Company L.L.C., Research Division

Right. And those expansion cohorts that you recently did, so those patients were still the sort of a later line patients. You really didn't go for the sort of the fresh Tarceva failure like patients.

Timothy P. Clackson

Those expansion cohorts have yet to start, Katherine. Those will start at the moment we declare the Phase II dose before [indiscernible] ASCO or right after ASCO.

Operator

Our next question comes from the line of Terence Flynn from Goldman Sachs.

Terence C. Flynn - Goldman Sachs Group Inc., Research Division

First, just wondering, you've talked in the past about this 2,500 annual switch patient population in the U.S., I was just wondering your current view of that given the trajectory out there in the marketplace and any details on break down there among reason for switch or rather a resistance or intolerance among that 2,500? And then just a question for Tim on 113. If you're -- guess, your confidence level that you will use the same dose and schedule for both the ALK and EGFR population.

Martin J. Duvall

So Terence, thanks for the question on 2,500 annual switches. So what we provided in terms of the context around that is we believe about 1,400 to 1,500 of those have failed one and the remainder have failed 2 or more. I do sense, and we'll provide the detail in the future that, that number is actually increasing with the number of choices available in the market today. So I think that plays well into our hands as we march forward. So stay tuned for updates there. As for split on resistant/intolerant, clinical trials would suggest that, that might be in the 50-50 range.

Timothy P. Clackson

And Terence, this is Tim. Regarding your question on dose, yes, in general, it still remains our goal to advance the single-dose, certainly, to nominate a single recommended Phase II dose. So that analysis will be part of the final recommended Phase II dose analysis and selection.

Operator

And our next question comes from the line of Matthew Harrison from UBS.

Matthew Harrison - UBS Investment Bank, Research Division

Can you tell us anything about the average duration of use for aqueous patron patients in the quarter and then sort of as a corollary to that, you were talking about 60% of patients are in the chronic phase, would you expect that number to go up or go down? I would've thought there would have been more blast in accelerated when you launch and chronic become a greater proportion of the patients as you get further in the launch? And then on 113, Tim, I just want to clarify one thing you said. You said schedule and dose, should we -- does that mean you're looking at BID as well as QD doses?

Martin J. Duvall

Yes. So thanks, Matt. As for average duration, it's just too early to tell. In my comments, I suggested refill rates are on track for where we'd expect them to be. So I think we need a few more months, another quarter to really talk intelligently about that number. But we are pleased with it. As for the comments on more advanced phase patients, I would agree with you. We also expected higher levels there. I think it really speaks to the strength of the launch in terms of 60% being chronic phase CML patients out of the gate. So given the proportion of patients, I would expect that mix to continue.

Timothy P. Clackson

And Matthew, regarding your 113 question. In

the later stages of the Phase I, we have explored BID at some doses, but we are very confident that we'll be moving ahead with a once-daily dosing as the recommended Phase II dose.

Operator

And our next question comes from the line of Joel Sendek from Stifel.

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

First of all, I wanted to say I appreciate the conservative revenue reporting. A lot of companies in their first quarter don't do that, so that's very helpful for us. And then I did want to question about how you indicated that the black box warning is having no impact. I'm wondering how you know that for sure, and if you didn't have the black box, would the sales have been higher? And if that might be the case, is it still worthy of trying to potentially get the black box removed? I know historically, you've said that the black box doesn't really matter, and now you're seeing evidence of that. So if you can just give us some more details behind that?

Martin J. Duvall

Joel, I think in terms of removal of the box warning, I think that, that really plays out potentially with the EPIC trial. So I think stay tuned more on that. As for your question on the box warning having no discernible impact on the launch, I mean, we feel that the strength of the numbers, the broad uptake, the number of patients we currently have on therapy, would suggest that. Might there be a doc here or there that would've used the drug? That's possible. But we feel very good about it. And knowing that the discontinuation rate is less than 10%, we feel very good moving forward in terms of that box warning and what patients are actually experiencing.

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

Okay. I just have a quick financial follow up. The cost of goods at 4%, is that a good number for future modeling?

Edward M. Fitzgerald

This is Ed, Joel. That number, overall, I think represents a very good number to use. We will burn off some very low cost pre-approval inventory but it will not have a material impact overall on that number relative to revenue.

Operator

And our question comes from the line of Cory Kasimov from JPMorgan.

Matthew J. Lowe - JP Morgan Chase & Co, Research Division

It's actually Matt Lowe in for Cory today. Just firstly, if you could comment on the rate of new patient adds for Iclusig month-to-month. And then secondly, just the feedback you're getting or the real -- from the real-time monitoring of the drug's performance in the field. Any emerging AEs in the commercial setting or any impediments at all to the launch that you're seeing?

Martin J. Duvall

Yes. So we're -- Matt, thanks for the question. So the rate of new patient adds, we feel very good about the way that is proceeding. New patients added to a refill rate is generating that month-to-month growth that we're seeing, so we're very pleased with that. I can provide you the commercial perspective as it relates to the feedback and real-time patient experience, and we're not seeing anything that would not have been expected based on the way investigators reported their experience with the drug in clinical trials

Operator

Our next question comes from the line of Jonathan Eckard from Citi.

Jonathan Eckard - Citigroup Inc, Research Division

So my first question has to do with this less than 10% dropout rate. Could you comment broadly on the proportion of these that were due to disease progression from the early accelerated blast phase patients? And would it be reasonable to think this could go down as the bolus of these patients begin to transition to the treatment? And I have a follow-up on some of the French sales.

Martin J. Duvall

Yes. So the 10% drop off rate, it's difficult for me to really take a patient-by-patient view or really paint the broad bucket there. I think we are in a situation where my -- I guess, my experience would suggest that these could be patients, EAP patients, patients that were accelerated blast phase patients that have been treated overtime, maybe contributing to that early pool. But again, that discontinuation rate, we feel, is a very solid one moving forward. As to whether it will go down or drop, hopefully, we'll see that decline slightly over time. I think you had a follow-up on the French ATU.

Maria E. Cantor

Jonathan, you still there?

Operator

[Operator Instructions] We'll take our next question and it comes from the line Ying Huang from Barclays.

Ying Huang - Barclays Capital, Research Division

So firstly, Tim, can you just clarify that, whether you hit or not the dose-limiting toxicity in the Phase I portion of 113, because maybe I've missed it. And then secondly, you guys talked about 55% of prescribers coming from community, that was great news. But can you also talk about the volume or the script number written by community-based physicians versus academic physicians? And then lastly, can you talk about the pricing for existing drugs on the market in EU, and what your pricing strategy would be in EU once you get a formal approval?

Timothy P. Clackson

So Ying, I'll take the first question. So it certainly inappropriate for me to give all the details of where we're at with the detailed clinical data because, obviously, that's going to wait for ASCO. But we wanted to let everyone know that we didn't escalate beyond 300, and the reason for that were tolerability and the PK levels that we were seeing. So clearly, those are the influencing factors that you'd expect at those very, very high dose levels and the PK that we're seeing there. I think once you've -- once we get to the ASCO presentation, then all of that will be clear.

Martin J. Duvall

So on the community versus academic question, what we brought forward in the initial comment is the 2 to 1, or roughly 70% of the prescribers are community based versus 30% of the prescribers in the academic setting. You bring up a good point in terms of further analysis, and the answer to your question is that about 50% of the volume is in the community setting and 50% in the academic setting. As for pricing in the EU, really, where we sit today is similar to our view back at Analyst Day in October. Overall, we see pricing in the European market being lower in this class of drugs. And we continue to expect that our global pricing strategy will be one of premium pricing in that marketplace as well.

Operator

And our next question comes from the line of Echo He from Maxim Group.

Echo Yinghui He - Maxim Group LLC, Research Division

Just want to ask more details about the SPIRIT trial you are about to conduct in the U.K. And what are the treatment groups and control groups setting and whether, I want to know, management has control over it?

Timothy P. Clackson

Echo, this is Tim. I can give you a brief answer to that, but the details maybe -- can be dealt in an off-line discussion because a lot of it has already been disclosed. So it's a trial of newly-diagnosed patients that will be randomized either to ponatinib -- sorry, to imatinib or nilotinib, and then moved to ponatinib upon treatment failure of predefined milestones, and is evaluating a whole series of criteria in that kind of switch setting. The trial is being run by the NCRI in the U.K. And so they are responsible for the trial that held the regulatory responsibility. And so we don't have direct management oversight of that, and that's exactly the way we would like it. But of course, we'll collaborate closely with the NCRI.

Echo Yinghui He - Maxim Group LLC, Research Division

But if that trial has some meaningful results, would that be available or would that be valid for any --

Timothy P. Clackson

For regulatory filing?

Echo Yinghui He - Maxim Group LLC, Research Division

Right. Yes, in the U.S.?

Timothy P. Clackson

It's being run with the kind of rigor that could support a potential filing. But this is relatively long-term trial, I think, where we hope the -- something that provides data on ongoing basis. There isn't a particularly -- a particular regulatory filing scheduled later at this point, but it will be a heavily data-driven process.

Operator

And our next question comes from the line of Mike King from JMP Securities.

Michael G. King - JMP Securities LLC, Research Division

A lot of my questions have been answered. I just wanted to know if you could give us some color on what doses, maybe the breakdown between 45 and 15. And then I also wanted to ask Marty if the $3.5 million, or $3.3 million in deferred is a number we should be thinking about as kind of a comfortable cushion for inventory, or will there be a minimal amount of inventory of Iclusig in the channel?

Martin J. Duvall

Great. So I'll take the last part of that. So We ended the quarter with roughly 30 days of inventory. As we move forward, as demand builds, what represents 30 days of inventory grows a little bit. So I think you'd expect it to be up -- the inventory to be a little bit higher as we move forward and demand builds. As for the doses, so this is work-in-progress. We continue to analyze as in terms of what I see moving through our ARIAD PASS program, about 70% of the prescriptions are at the 45-milligram level and 30% at 30 milligrams. What I don't have is any breakdown in dose reductions or how that flows. But overall, most of our business -- the majority of our business is at the 45-milligram level.

Operator

And our next question comes from the line of Phil Nadeau from Cohen.

Philip Nadeau - Cowen and Company, LLC, Research Division

Just one on Iclusig and one follow-up. So in Iclusig, could you give us some sense of the proportion of those second line patients who have failed only Gleevec and are you seeing any use in newly-diagnosed patients? And then on the French sales, the French ATU, what price are you using to record those French sales? And will we be recording a lump sum when you get that official price later in this year, will all the deferred revenue go through one quarter?

Martin J. Duvall

Thanks, Phil. So it's early on those second line patients. I would suggest that the majority of them have failed a second line agent. But we -- I'm sorry, a second-generation agent. But we do have patients on the drug commercially that have only seen imatinib, so we do have patients that have failed Gleevec only. As for the price of the ATU, I do not believe we've disclosed that at this point in time. The price is higher than the U.S. price. And we'll continue to work with the French authorities as we move forward in negotiating that, and at the most appropriate point in time, we'll begin recognizing the revenue that we deferred to this point.

Philip Nadeau - Cowen and Company, LLC, Research Division

So will all the revenue go through one quarter when it's -- when you recognize them?

Edward M. Fitzgerald

Phil, this is Ed, we would expect it to go through all in one quarter.

Philip Nadeau - Cowen and Company, LLC, Research Division

Okay. And if the price that you're recognizing it in is higher than the U.S. price, should we assume that, that lump sum that goes through one quarter is actually somewhat less than the figures that you've given us? Will the revenue be recorded at a discount to kind of what you're recording at today?

Edward M. Fitzgerald

It won't have anything -- it won't be related to U.S. pricing at all. It really depends on where we end up with pricing with the French authorities.

Martin J. Duvall

So to answer your question, I'm not sure we've quite answered it yet. The ultimate price negotiated in France as the list price, certainly, will be less than the U.S. price, or certainly less than a premium to the U.S. price. But that does not mean that we'll need to recognize revenue at less than what has been deferred. That all depends on the overall negotiation dynamics for price in France and in Europe in general, but this applies specifically to France. So it's impossible to say today whether it'll be dollar-for-dollar what we reserve, or some discount to that. But you don't -- you should not make an assumption that it's less.

Operator

Our next question comes from the line of Jonathan Eckard from Citi.

Jonathan Eckard - Citigroup Inc, Research Division

So, yes, it was regarding the French shipments. So we saw shipments in both fourth quarter and the first quarter. Is this something that we should expect ongoing quarterly from this country? And the price that you're talking about, Harvey, with regarding with French negotiated price, would this be ultimate price, or is this just for the ATU? Do you still have to go through the French reimbursement process post-EMA approval?

Harvey J. Berger

It will be the price that we negotiate post-approval. So when we talk about the list price being available in France, it's not for the ATU program, but rather the overall list price in France that will be the commercial price going forward. Once we know what that is and have agreed upon a price with the French authorities, that will allow us then to recognize the revenues that have been deferred.

Martin J. Duvall

And Jonathan, yes, the shipments will continue through the point of that final pricing and reimbursement negotiation. So the program continues.

Operator

And our next question comes from the line of Howard Liang from Leerink Swann.

Howard Liang - Leerink Swann LLC, Research Division

My question is on 113. If I remember correctly, the exposure is super proportional to dose, so can you give us some idea what is the level of exposure at 300 milligram relative to 120. Then my follow-up question is on EPIC. In terms of the tracking of the cardiovascular adverse events, is there a predefined category of arterial thrombosis?

Timothy P. Clackson

So Howard, this is Tim. The first question. I guess all I can say now, pre-ASCO, is that the levels that we see it at 300 are -- and I'm not trying to be coy, but they're higher than 120. And to get numerical at this point is not appropriate. I think the most important thing to understand is that we've seen the doses up to and including 300 with we're well in the range that we want to be at for ALK, mutant ALK and mutant EGFR. And that's going to be driving the final decisions we make to get with investigators regarding the recommended Phase II, Phase III dose. All of -- there will be a little bit of data in the abstract, of course, that's dated as of January, but obviously, the main dates will be in the presentation in a few weeks. Regarding the question on the EPIC cardiovascular analysis, no, we don't have a lump predefined category.

Operator

And our next question comes from the line of Bret Holley from Guggenheim.

Bret Holley - Guggenheim Securities, LLC, Research Division

My question regards what you expect to be the steady-state level of prescribers in the community versus specialists. It strikes me that if you're already at 70% in the community, is that kind of where you would expect to kind of plateau as far as the mix of physicians prescribing? And I guess, the second question would be on how you see the volume breakdown evolving over time.

Martin J. Duvall

So Bret, those are pretty far-reaching questions and I don't have the exact details. What I would suggest is that the 70-30 mix will continue to shift in favor of the community setting based on 2 things: Number one is, will be our launch into the newly-diagnosed setting, and a lot of patients are presenting in that community setting. So that's going to drive the percentage in one direction. And we will see, over time, an increased confidence among the community oncologists to treat multiple lines of therapy in CML. So I think that those will be 2 drivers that would suggest that, that mix will continue to move in the direction of community physicians.

Harvey J. Berger

Fred, I would add that the community physicians are well-aligned with the profile of Iclusig given that one really doesn't need to do testing to document what mutations are present. And clearly, more testing goes on in the academic community than in the community physician settings, so Iclusig fits with community physician prescribing very well.

Martin J. Duvall

It actually brings up an interesting point from an ad board where a prominent KOL in the U.S., when the question of mutation testing, the community setting came up, the KOL said, "If you're going to use Iclusig, you don't need the mutation test, because it works for every patient." So I thought that was an interesting anecdote.

Operator

[Operator Instructions] Our next question comes from the line of Mike King from JMP Securities.

Michael G. King - JMP Securities LLC, Research Division

I just wonder if you could talk about -- maybe too early, we may have to wait for ASCO, but I thought I would ask. I guess, the dose -- is 113 dosed in 30 milligrams tablets? And are you guys going work -- do some formulation work to have a single tablet version when you roll to the Phase II, or is that going to be kind of an ongoing process as time goes on?

Timothy P. Clackson

Mike, so yes, right now we have a -- setting the dose strength, which is a standard approach that gives us all the flexibility we've needed over the Phase I portion of the trial. We have a standard kind of life cycle management approach ongoing for formulation and for tablet strength which we'll roll out as we drive the pivotal program. But we don't see any of that as very limiting. And we think we've got a very good handle on the formulation basics of 113. So most importantly, we don't see the need for a fundamental reformulation of the drug. We've seen very, very good exposures. And so the changes that we'll be making would largely be tweaks and an optimization of strength at the appropriate time.

Operator

And we have another question that comes from the line of Jim Birchenough from BMO Capital.

Jim Birchenough - BMO Capital Markets U.S.

Just a couple of follow-ups. One, can you remind us what your target audience is for Iclusig? And what's the major barrier to physicians that haven't adopted the drug yet? On SPIRIT 3, just wondering when those patients become commercial patients? Is that after 12 months or are they commercial right out of the gate? I'm just trying to get a sense of -- I'm assuming you're providing free drug, but at what point do they become paying patients if they stay on therapy? And then for Tim, do you expect to nominate another candidate in time in the next 12 months in terms of another best-in-class targeted drug?

Martin J. Duvall

So Jim, regarding the target audience, our initial strategy started out keying on second-generation prescribers. And then we also looked at the top 3 deciles of Gleevec prescribers. So that audience comprise about 5,500 community physicians or so. That target audience is growing over time. And it's growing over time because we see more community physicians utilizing second-generation agents. So it's an evolving and growing target and of course, that target will expand. Again, that target audience will expand with our approval in the front line situation. In terms of major barriers to the use of the drug, I would suggest that the right patient showing up, a resistant/intolerant patient, failing prior TKI and being a candidate, as you know, the majority of these physicians, that broad number we put forward, are only managing a few patients. So it's really waiting for that opportunity. So we continue to reinforce our messages of efficacy, safety, differentiation of the drug and we will gain market share accordingly.

Timothy P. Clackson

Jim, you asked a question about nominating another candidate. So we haven't had any external declaration of our aims to nominate on a specific timeframe. And as we said before, we don't see any particular advantage to doing that. And so we are really rated onto the clinic. But as you implied, we have several programs within our discovery group. They are at various stages of development. They generally follow the game plan of ponatinib and 113. As you described it, best-in-class, and we hope potentially, final generation inhibitors that address and overcome resistance. We have a pretty high dose denomination within discovery and R&D group. We look for compounds that have a really high PRS, so we'll keep working on that game plan. And as soon as we've got something to talk about and present data on, we will.

Operator

And now we have our next question that comes Eun Yang from Jefferies.

Eun K. Yang - Jefferies & Company, Inc., Research Division

So the discontinuation rate is less than 10% with Iclusig. How does that compare to other TKIs for CML?

Harvey J. Berger

I think that, that would be difficult -- that is a difficult question to answer. As we think about the mix early on. So remember, with 25% of our patients in the second line, at least 75% that are in second lines and later, so it's a very case like as it remains there. So I don't have the direct comparative numbers. We feel, based on the trial, based on the efficacy, based on the community feedback, the launch feedback from prescribers, we feel very good about that number.

Eun K. Yang - Jefferies & Company, Inc., Research Division

Okay. And what was the gross to net discount in the first quarter, and what do you expect that to be by end of this year?

Martin J. Duvall

So we previously guided that we'll be under 10%. For the first quarter, we took a little bit higher number, and the reason for that is because of the Medicare patients and needing to cover the doughnut hole in the first couple of months as they have to meet a certain deductible, and we have a responsibility there. So moving forward, we're still guiding towards our overall year being under 10%.

Operator

And now like I'd to turn the call back over to the management team for their closing remarks.

Harvey J. Berger

A very brief closing comment. Thank you very much everyone for joining our call. We look forward to seeing you at ASCO in a couple of weeks to share with you update on 113 and Iclusig and look forward to seeing you then. Thank you.

Operator

Thank you, ladies and gentlemen. That concludes our conference call for today. Thank you for joining us, and you may now all disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!