Pharmacyclics Management Discusses Q2 2013 Results - Earnings Call Transcript

Jul.31.13 | About: Pharmacyclics, Inc. (PCYC)

Pharmacyclics (NASDAQ:PCYC)

Q2 2013 Earnings Call

July 31, 2013 4:30 pm ET

Executives

Rainer M. Erdtmann - Senior Vice President of Investor Relations and Administration

Robert W. Duggan - Chairman and Chief Executive Officer

Joshua T. Brumm - Principal Financial Officer, Principal Accounting Officer and Executive Vice President of Finance

Paula S. Sjovall Boultbee - Executive Vice President of Sales and Marketing

Urte Gayko - Senior Vice President of Regulatory

Jesse Seton McGreivy - Chief Medical Officer

Analysts

Yigal D. Nochomovitz - Morgan Stanley, Research Division

M. Ian Somaiya - Piper Jaffray Companies, Research Division

Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division

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

Navdeep Singh - Goldman Sachs Group Inc., Research Division

Michael G. King - JMP Securities LLC, Research Division

Brian P. Skorney - Robert W. Baird & Co. Incorporated, Research Division

Gena Huidong Wang - Leerink Swann LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Pharmacyclics Inc. Second Quarter 2013 Financial Results. [Operator Instructions] And as a reminder, this call is being recorded. I would now like to turn the conference over to Ramses Erdtmann, Senior Vice President of Investor Relations. Please go ahead.

Rainer M. Erdtmann

Thank you, Paolo. Good afternoon, and thank you for joining us for our conference call today.

With me on the call and available to answer questions are our CEO and Chairman of the Board, Bob Duggan; our Chief Operating Officer, Dr. Maky Zanganeh; our Chief Medical Officer, Dr. Jesse McGreivy; our Chief of Quality and Technical Operations, Heow Tan; our Executive Vice President, Sales and Marketing, Paula Boultbee; our Executive Vice President of Finance, Josh Brumm; our Senior Vice President of Global Regulatory Affairs, Dr. Urte Gayko; our Vice President of Research, Dr. Betty Chang; our Vice President of Clinical Medicine and Early Development, Darrin Beaupre; and our General Counsel, Rick Love.

Our agenda for today's call will include brief comments on the quarter by our CEO, a review of our financials, a summary of our marketing and sales preparations and also an update of our regulatory and clinical progress. This call today will be a bit longer than usual due to the amount of updates we are providing.

Before we start, let me remind you that this non-confidential presentation contains forward-looking statements about the business prospects of Pharmacyclics, including expectations regarding Pharmacyclics' financial performance, commercial products and potential future products in different areas of therapeutic research and development. Results may differ materially depending on the progress of Pharmacyclics' product program, action of regulatory authorities, availability of capital, future actions in the pharmaceutical market and developments by competitors, and those factors detailed in Pharmacyclics' filings with the SEC, such as the 10-Q, 10-K and 8-K reports.

I would now like to turn the call over to our CEO and Chairman, Bob Duggan. Bob?

Robert W. Duggan

Thank you, Ramses. Last quarter was particularly productive for Pharmacyclics. Let me touch on some recent highlights.

In June, the prestigious New England Journal of Medicine published our MCL study, PCYC-1104, and our CLL study, PCYC-1102. Then in late June, we finalized our NDA filing for ibrutinib with the FDA, which was announced in July. This filing included a staggering number of electronic pages. To be exact, 518,356 pages were filed and over 3,500 separate documents. Having enrolled the first patient in clinical studies for ibrutinib in February of 2009 and now filing the first NDA a little over 4 years later is a testament to the hard work and focus of our team at Pharmacyclics, our dedicated collaborators in the scientific community and our partner, Janssen.

For today's call, we want to give you a preview of the ongoing preparations we are taking to be commercial ready. I'm particularly proud of what our team of executives have accomplished in such a short period of time.

We have now completed the buildout of our sales force. A total of 75 highly competent professional and confident clinical sales team members have been hired and are currently onboarding. Our partner, Janssen, already has an oncology sales organization in place in their respective territories.

My statements should not be interpreted as an indication of when or if the FDA will provide us a label. However, we want to be certain that in the event we get an approval, we are prepared to respond on a timely basis. We also want to ensure we are fully integrated prior to launch with our colleagues at Janssen and have all the U.S. regions covered by the best in the industry. This functional responsibility takes time and does not occur overnight.

Our marketing, business intelligence and market access groups have been on board for some time, and we are working tirelessly to prepare for launch and to ensure that all patients who may benefit from ibrutinib can and will have access to ibrutinib upon approval and as needed.

We also bolstered our legal team including compliance, intellectual property, contracts, corporate legal staff. And we increased our safety team in order to be well prepared for post-marketing safety requirements. A medical affairs group has also been well established. The team of medical science liaison professionals recently went through their initial training and are now being deployed.

Within medical affairs, we also have professionally staffed individual teams for medical science, medical communications and medical information. In addition, we focused attention on fully setting up our product manufacturing and our CMC organization to ensure we have sufficient material made 100% to required specification with validated methods. We also prepared the actual manufacturing sites to be inspection-ready by the FDA.

All in all, we have taken the organization over the past 7 months from about 220 employees to now over 415, with 46% of these new hires being recommended by our existing employee base. In 2013 alone, we had over 4,700 applicants for open positions. Today, we are fully integrated for commercial-ready operation.

Today, we have prepared several updates, one from each of the following departments: finance, sales and marketing, regulatory and clinical science. As you may know, we recently promoted Dr. Jesse McGreivy to the position of CMO. Jesse is a hematologist/oncologist. He has his undergraduate degree from UC Berkeley, his medical degree from Ohio State and his postdoctorate work at Georgetown University where Jesse trained under Dr. Bruce Cheson. He began his tenure with the company building his strategic clinical development plans for MCL, DLBCL and follicular. He has -- he was also an integral part of the global development strategy of ibrutinib. Jesse brings extensive industry experience in lymphoma, myeloma and solid tumors and has managed and assumed scientific responsibilities for Phase I through Phase III new drug development programs, most recently at Amgen and prior to that, Roche.

Let me also introduce Dr. Betty Chang, our new Vice President of Research Biology. Betty joined Pharmacyclics in 2009 and has taken the lead on teams studying the cellular biology and pharmacology of PCYC's BTK inhibitors. At PCYC, her team established the mechanism of action of ibrutinib in MCL and established the effect of ibrutinib in the mechanisms associated with rheumatoid arthritis. Betty comes with 17 years of research experience, working on the biology of kinases and kinase antagonists. She has published more than 40 manuscripts and conference abstracts on tyrosine kinases. I've gotten to know Betty well over the past years, and I'm very confident she will continue to greatly advance our research efforts.

I will now turn the call over to Josh Brumm, our Executive Vice President, for our financial update. Josh?

Joshua T. Brumm

Thank you, Bob, and good afternoon to everyone on the call. On this call, I will provide operating results for the 3 months ended June 30, 2013.

For the 3 months ended June 30, 2013, the company's non-GAAP net income, adjusting for stock-based compensation, was $19.2 million or $0.26 and $0.25 net income per basic and diluted share. This is compared to non-GAAP net loss of $15.1 million or $0.22 net loss per share for the 3 months ended June 30, 2012.

Revenue for the 3 months ended June 30, 2013, was $54.7 million compared to $2.1 million for the 3 months ended June 30, 2012. Revenue for the 3 months ended June 30, 2013, included a $50 million development milestone earned under our collaboration and license agreement with Janssen Biotech.

Moving to GAAP. GAAP net income for the quarter ended June 30, 2013, was $12.4 million or $0.17 and $0.16 net income per basic and diluted share, respectively, inclusive of stock-based compensation expense of $6.9 million. This is compared to GAAP net loss of $16.9 million or $0.24 net loss per share for the quarter ended June 30, 2012, also inclusive of stock-based compensation expense of $1.8 million.

As we look at operating expenses, GAAP operating expenses were $42.7 million for the quarter ended June 30, 2013, compared to $55.8 million for the quarter ended March 31, 2013. This is $19.6 million for the quarter ended June 30, 2012.

During the quarter ended June 30, 2013, the company reached a $50 million annual cap on the company's share of development costs and pretax commercialization losses under the Janssen collaboration agreement. Accordingly, we recognized $20.4 million incurred in excess of the annual cap as a reduction to operating expenses.

I would now like to take a little deeper look into the operating expenses over the last 2 sequential quarters. By adjusting operating expenses to exclude stock-based compensation expense and excluding the benefit of excess amounts, the company's adjusted operating expenses were $56.2 million for the quarter ended June 30, 2013, as compared to $32.2 million for the quarter ended March 31, 2013. The increase in quarterly sequential adjusted operating expenses of $24 million is driven by a number of factors, including many pre-commercial activities Bob spoke about in his opening remarks. First, higher supply chain costs driven by API production for increased pre-commercial activities. Second, we saw approximately a $5 million quarter-to-quarter increase related to the continued growth of our clinical development program for ibrutinib and the number of patients now on clinical trials. As you know, we completed an enrollment of both PCYC-1112 and PCYC-1117 ahead of expected timelines. Third, expenses were driven by the building of our sales and marketing teams as well as pre-marketing activities. And finally, Pharmacyclics is rapidly building and growing its employee base. We added a total of 67 employees in the second quarter of 2013, and that trend will continue into the third quarter.

As mentioned on the prior quarter's earnings call, we continue to expect non-GAAP net income net loss to be near break-even for the year ending December 31, 2013. This includes a reduction of expenses related to the assumption of the cost by Janssen in excess of the $50 million annual cap per calendar year under our agreement.

Also under the agreement with Janssen, they will fund the maximum excess amounts up to $225 million, which includes interest of $25 million. To date, a total of $38.5 million excess amounts have been recorded, and there's an additional $165.5 million available in excess amounts remaining. As a reminder, excess amounts are recognized as a reduction to operating expenses. Further, excess amounts shall be reimbursable only from the company's share of pretax profits after the third profitable calendar quarter for the product.

As of June 30, 2013, the company had cash, cash equivalents and marketable securities of $505 million compared with $511.2 million as of March 31, 2013. Additionally, we had $37.3 million in receivables due from Janssen as of June 30, 2013, of which $20.4 million was for excess amounts and $16.9 million was related to cautionary expenses under the collaboration. We expect to collect all amounts due from Janssen during the third quarter of 2013.

Also as previously announced on July 10, 2013, Pharmacyclics submitted an NDA to the U.S. FDA for ibrutinib. Upon the acceptance of the filing by the FDA, we would trigger 2 additional regulatory progress milestones totaling $75 million from our partner, Janssen.

Finally, we expect to end 2013 in excess of $550 million in cash, cash equivalents, marketable securities and receivables due from our collaboration partner, which includes the $75 million of milestone payments that would be earned upon the acceptance of filings by the FDA. We believe Pharmacyclics is in a strong position as the company prepares for the commercialization of ibrutinib and further expansion of our research and clinical development programs.

I would now like to turn the call over to our Executive Vice President of Sales and Marketing, Paula Boultbee. Paula?

Paula S. Sjovall Boultbee

Thank you, Josh. Let me provide you a high-level overview of what we have established in the sales and marketing division here at Pharmacyclics. We have been working very diligently to create a commercial organization. And during my time at Novartis when I led the global launch of Gleevec, I came to appreciate what a transformation a novel agent can do, and perhaps as importantly, I have learned that even a great product need to be supported with a deep and well-oiled commercial organization to maximize its full potential.

The first area I'll discuss is market access. Considerations such as price, distribution, patient support program and formulary coverage are a few of the areas that we have focused on. Without success here, even the best product can struggle. The team is led by our Senior Director of Market Access, who's an expert in market access strategy, national, regional commercial accounts, federal markets and payer marketing. Under his leadership, we have created a well-balanced team covering Medicare, Medicaid, commercial health plans, federal markets, trade and patient services.

Capitalizing on the teams and Janssen's broad experience, we're implementing a plan heading into potential launch. Over the past year, we also work steadily to develop our marketing team, attracting top talent from established hematology/oncology companies. Marketing is led by 2 senior directors in charge of distinct areas. One of the senior directors is leading the CLL franchise and came to us with 30 years of pharmaceutical and biotech experience. He has sold, trained and marketed 3 lymphoma products and have over 10 years of marketing experience with orphan and rare hematologic drugs. The other senior director comes to us from Genentech, where he was part of the launch team of Zelboraf for BRAF-mutation-positive metastatic melanoma. He also led the promotion for lung, colon indications and the accelerated breast cancer launch of Avastin.

Under his leadership guidance, the Pharmacyclics marketing team has expanded to cover all necessary functions, including strategy, promotional activities, digital promotions and the respective creative campaigns for each indication. The team is supported by business analytics and informatics units that provide market research, forecasting and sales force alignment services. It is led by an Executive Director with wealth of experience in oncology from Genentech and Amgen. And over the past month, he has built up a solid team to understand the dynamics within our existing and future markets, as well as pipeline products.

All of these efforts are very instrumental and will allow our sales teams to be truly successful. We have now hired and are training our sales organization with our Vice President of Sales, Michael Crum, and his regional sales directors leading the team. Michael comes to us from Genentech where we he was, for the past 2 years, the National Sales Director for solar [ph] franchise. During his 12 years at Genentech, he also worked on the rituximab, Herceptin and Avastin franchises. Michael is a very seasoned sales manager. We will benefit greatly from his cross-function experience and more importantly, his track record of success in managing, coaching, leading teams to consistently achieve or exceed sales goals.

Over time, we will provide further details on the structure of the sales organization. But it is important to note that we believe we have hired the top representative -- representatives from the top hematologic companies across the country, and we are now in the process of onboarding and training them.

These achievements would not have been possible without the support we have received along the way from our collaboration partner, Janssen. Together, we have organized the U.S. territories and have fully aligned the sale structures to cover all regions.

Finally, all of our activities will be supported by a public relations plan led by our Senior Director of Public Relations, who comes to us with extensive background leading public relations initiatives across various oncology and hematology franchises.

This gives you a high-level summary of our marketing and sales organization. We are prepared and ready to work with the timelines after dictated by the FDA.

And I will now turn the call over to Urte, who will update on our regulatory progress. Thank you.

Urte Gayko

Thank you, Paula. The past 3 months have been very exciting for all of us here at Pharmacyclics. As Bob has mentioned, we filed with the FDA an NDA for 2 relapsed/refractory B-cell malignancy indications, MCL and CLL, which was a major accomplishment for our team. I would like to thank all of those that participated for their tireless efforts and work to make this filing possible.

We have also worked very closely with the FDA, and we would like to thank the FDA for the guidance they provide us. We are pioneers as it relates to the breakthrough therapy status, being one of the first companies to receive the designation and now one of the first to file.

Since the announcement, we have been getting a few questions that I would like to address on this call. We did not file 2 NDAs. Rather, we filed one NDA for both indications. The filing was based on Phase II data. It covers the relapsed/refractory MCL and relapsed/refractory CLL patients derived from our studies 1104 and 1102. Both were single-arm nonrandomized studies.

We also requested priority review for this filing, which if granted would reduce the expected review term from 10 months after acceptance of filing down to 6 months. This filing was done in consultation with the FDA, and we are now awaiting their review of the application.

We understand that there may be more questions from the investment community on this topic at this time, but we don't want to make assumption as to how the FDA will respond to our filing. Therefore, during the question-and-answer section -- session of the call, we will not provide additional guidance on this topic.

Regarding the status of our 17p program in CLL, nothing has really changed with our clinical development for the use of ibrutinib in CLL patients with deletion 17p. We have completed enrollment in the RESONATE-17 study ahead of schedule, and we'll provide topline data after a 6-month follow-up in the first half of 2014.

The clinical treatment guidelines are specific for CLL patients with deletion of chromosome 17p, and we want to ensure we separately adjust this unmet need for these patients.

Regarding the Waldenstrom's program, we have an ongoing Phase II study, and we have not concluded our discussions with the agency. We will provide further updates once these discussions have been finalized.

Even though the U.S. filings are handled by Pharmacyclics, we work very closely with our colleagues at Janssen and greatly appreciate their support, particularly over the last 6 months. Janssen is responsible for all market applications outside the U.S. and has worked on progressing these.

The regulatory path is a bit more traditional in these countries as they do not have a breakthrough therapy designation. As we receive substantial updates from Janssen, we will pass them on to you.

I will now turn the call over to Jesse, our CMO.

Jesse Seton McGreivy

Thank you, Urte. Since early 2012, we've steadily improved our in-house capabilities, designed and developed trials to properly explore and build out the ibrutinib franchise. I will start today by providing a brief introduction to the team we have built in clinical sciences.

The 2 VPs in charge are Dr. Thorsten Graef, Vice President of Clinical Science; and Dr. Darrin Beaupre, Vice President of Clinical Medicine and Early Development. Thorsten joined Pharmacyclics in early 2012. He received his medical degree and PhD from the Heinrich Heine University of Düsseldorf, Germany. During his residency and fellowship, he specialized in malignant hematologic diseases. Prior to joining Pharmacyclics, Thorsten worked as a Medical Director at Merck, where he led various compounds in multiple Phase I through III clinical trials to evaluate novel therapeutics in patients with both hematologic malignancies and solid tumors. At Pharmacyclics, Thorsten is also leading the Waldenstrom's and multiple myeloma program.

Darrin also joined Pharmacyclics in 2012. He received his medical degree and PhD from the University of Texas at Houston. He completed his residency in Internal Medicine and fellowship in Hematology/Oncology at the University of Miami. Darrin is a board-certified hematologist and medical oncologist. Prior to joining Pharmacyclics, Darrin worked as a medical director in early clinical development at Amgen, where he was the lead on the early development malignant hematology programs, participating in multiple IND filings. Since joining Pharmacyclics, Darrin has served as the group lead on the non-Hodgkin's lymphoma programs and our early development studies.

Today there are over 1,700 patients enrolled in a total of 31 currently initiated clinical trials with ibrutinib. These are either initiated by Pharmacyclics, by Janssen or by independent investigators. If you look up ibrutinib on clinicaltrials.gov, you will find a total of 9 Phase I and 14 Phase II clinical trials, exploring ibrutinib mostly as a single agent or in combination with established standards of care.

Together with our partner, Janssen, we have now initiated 7 Phase III and one Phase IV clinical trial. These studies cover a broad spectrum of hematologic diseases and lines of treatment. Our partner, Janssen, has been a great ally in strongly pushing forward a very broad development program. Accordingly, we have been busy gathering our trial results and publishing them in scientific community.

This concludes our formal remarks. We would now like to open the floor to Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question in queue is from Yigal Nochomovitz of Morgan Stanley.

Yigal D. Nochomovitz - Morgan Stanley, Research Division

First question I had regards the Expanded Access Program. I notice that there's an Expanded Access Program underway in MCL, but I didn't see one in CLL. And given that you've filed in both indications, I'm just interested in whether we should read anything into that in terms of how you view the approval in CLL possibly differently from MCL.

Jesse Seton McGreivy

So thank you. That's a very good question. To clarify, currently, we do have an Expanded Access Program open through our partner, Janssen. We do not have an Expanded Access Program open in CLL as we have numerous clinical trials, which are either ongoing or planned across multiple indications in CLL. That includes the upfront setting, the relapsed setting or even the high-risk setting. Those trials are either in single agent or in combination. So given that we have such a broad range of trials open, that's why we have not pursued that program.

Yigal D. Nochomovitz - Morgan Stanley, Research Division

Okay. And if I may have a follow-up. On the Phase III NCI trial, which you've announced in the newly diagnosed CLL, I just wanted to get a better understanding of the thinking there. Given that, obviously, in the relapsed/refractory data you already have 75% PFS in 2 years, and we should expect the much higher PFS in the newly diagnosed patients, it seems to me that there may be limited headroom to show additional benefits on PFS when you add Rituxan or when you add Rituxan and Treanda. So my question is how -- is this trial powered enough to show those potential differences with likely high PFS in the newly diagnosed patients?

Jesse Seton McGreivy

So that's a very good question, and currently, we don't have randomized data to evaluate whether the addition of Rituxan plus ibrutinib makes a difference compared to ibrutinib alone. Our data, as we mentioned in the front line setting from the treatment naïve cohort that we published from the 1102 study, is obviously very compelling, with about 2 years of follow-up. Over 90% of those patients are progression free. So will the addition of Rituxan add benefit to those patients? That's a very good question. We really need a trial to determine that. It may be that Rituxan increases the CR rate, but randomized data needs to be done to clarify this. And is the trial powered well enough to really beat out bendamustine/Rituxan control? We feel that the data is so compelling with ibrutinib that, that certainly is possible.

Yigal D. Nochomovitz - Morgan Stanley, Research Division

And one last question, if I may, on the hiring plans. I think you mentioned an increase or continued ramp-up of hiring in the third quarter. How will that pace relative to a doubling in the last 6 months?

Robert W. Duggan

Could you repeat -- how will that -- I couldn't make -- understand the end of your question.

Yigal D. Nochomovitz - Morgan Stanley, Research Division

What will be the pacing be of the hiring in the third quarter given a doubling in the first half of the year? Is it going to be a similar rate or slowing?

Robert W. Duggan

I would say it would slow, but we will hire on an as-needed basis, where needed. But at this point, I don't see it continuing at that pace for the time being.

Operator

Our next question in queue is from Ian Somaiya of Piper Jaffray.

M. Ian Somaiya - Piper Jaffray Companies, Research Division

I would love to get your perspective on where this drug is -- where ibrutinib is going to be, is initially a potential or the Phase II data release and what impact that might have on physicians' perceptions or like the utility of the drug. The last question I just had was on the anti-CD20 side. I mean, how quickly do you expect that market to transition away from Rituxan to GA101? And do you think a combination data with GA101's going to be necessary to begin the adoption in that setting?

Robert W. Duggan

Ian, this is Bob. Really, those are good questions and important questions. However, we don't feel comfortable in weighing in at this point in time as to where to answer those questions the way you might like. The market is the final judge. We do our best to create data, present data, communicate that, make sure that it's understood. And we'll leave it up to the clinicians and the patients to weigh in and vote what therapy they want, when and as they need it. We don't have our finger totally the pulse of that yet. But as we get some experience, we'll be in a better position to potentially respond to those kind of questions.

M. Ian Somaiya - Piper Jaffray Companies, Research Division

I fully appreciate the answer, Bob. I was just -- maybe if I could ask it a little bit differently. Are there variables that we should consider as we think about potentially forecasting the launch of ibrutinib? And I'm sure you can appreciate that we don't want to -- you want to curtail enthusiasm, overenthusiasm when it comes to a product like this, and you want us all to be on -- maybe on the same page. So anything -- any information or any tidbits that you can provide would be appreciated.

Robert W. Duggan

Well, I appreciate your note of curtailing overenthusiasm. We certainly are not trying to hyperbolize anything or overpromote, as you well can respect. Our view, and we've defined drug value as efficacy plus duration plus tolerability over a patient, suffering patient trauma squared, and we do our best to create that phenomena and present that data. The market will weigh in. We've put a capable team together in marketing and sales. We believe the opportunity is an important one. We're here to serve patients. That's the goal of the company. We'll do everything we can to best serve them. Adoption rates and the uptake is something that we're not in a position to predict. This will be this company's first launch, first commercial launch. And we feel you and we are better served if we announce the results as they come in, when they come in. Yes, that can create a 90, 180-day lag in terms of what actually happens, but now we're dealing with facts and not what we would like to happen, hope to happen or otherwise speculate about. So I would -- I appreciate that question, and I will inform all shareholders we will not be predicting uptakes our revenue forecast, and then we'll report them to you on a timely basis. You've seen in this last 1.5 years our timeliness of getting our reports out to you, and we'll continue to strive to get those reports even faster, but we'll let the facts speak for themselves.

Operator

Our next question in queue is from Geoff Porges of Bernstein.

Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division

A couple of financial questions and then just one on overall news flow. I believe, Josh or perhaps Ramses, that you suggested that the option expense was going to be in the range of $18 million to $20 million per quarter last quarter, and that was well below that. I'm just wondering what we should be really modeling for the balance of the year and if that was incorrect in what we heard. And then secondly, the repayments of the expenses by J&J after the third quarter, is there a maximum that, that will or does it at all come out of the first quarter, potentially using up all of the profit share? And then lastly, could you just give us a sense of what you're expecting to come out of ASH?

Joshua T. Brumm

Okay. Thanks. I'll take the first 2 questions and then turn the final question over to the team that will talk more about the ASH program. As it relates to SBC, last call we said we would expect the quarterly average to be between $18 million and $22 million. We still expect that average to be on a quarterly basis for the year. So I think as you look to the last 2 quarters of the year, you'll see an increase in SBC expense, but it will average over the 3 quarters at around $18 million to $22 million. So that number is still, in fact, a good number. The second question that you asked regarding the -- can you refresh the second question, please?

Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division

Yes. The cap on the expenses or the -- effectively, the reimbursement from J&J, when you have to repay that? Does that come out of all the profits after the third quarter until you have fully paid it off or is there a maximum per quarter for that obligation on you?

Joshua T. Brumm

Yes. There's no maximum per quarter. We do cost share split between our U.S. and our o U.S. entities. So this is done on a 60-40 basis. On the U.S. side, $120 million of the $200 million in excess amounts is dedicated to the U.S. So the max we would pay out any quarter of profitability would be $120 million. That $120 million could come out of one quarter of profits if there was $120 million of profits available to make that payment.

Robert W. Duggan

This is Bob Duggan weighing in. Adjusted on an as if all expenses had been paid off by Janssen and the $75 million was in our account, we'd sit today with $617 million. We do not expect the cash amounts that we've given you to deteriorate substantially from that. So even at our option, if we choose to, we could pay the entire bill, whatever it might be, back to Janssen without materially impacting our cash balances. So we built a company and created a partnership that reflects what our needs and interests are. We're very comfortable with our cash position and any amount that may be needed to be paid back to Janssen.

Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division

Good. And then just ASH?

Robert W. Duggan

I'll let Jesse weigh in on that.

Jesse Seton McGreivy

Yes. I'm sorry, the question pertaining to ASH? Updates?

Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division

What sort of updates and things should we be anticipating for ASH between now and the next quarter? You all have submitted your -- you may even have submitted the abstract already.

Jesse Seton McGreivy

Yes. So we've obviously been working towards ASH, but what I can share at this time is very limited in that once the abstracts become public then we can review those with the community.

Robert W. Duggan

It's a little bit early to weigh in on exactly what's going to be coming up. We'll be able to give you more color on that in the October call.

Operator

Our next question in queue is from Michael Yee of RBC Capital Markets.

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

My first question was when you guys go out and do your market research and look at the relapsed/refractory CLL population, what do you -- what are you coming up with in regards to incidence and prevalence of relapsed/refractory CLL? And how are you thinking about that? And my second question is actually for Paula. Since you came from Novartis, maybe you can compare your experience of that launch into what you can translate into this launch, both positively and whatever challenges you might think about. What should we be thinking about as it relates to Gleevec?

Paula S. Sjovall Boultbee

Yes. So if you allow me to take the last question first, which -- because that's the easiest question. So there is obviously a lot of similarities in terms of the diseases. Both are a chronic myeloid disease and the other one is a chronic lymphoid disease, though the myeloid disease is a little bit more aggressive. But in terms of drug performance, what we have seen so far is what the clinical data stand for. So from the market preparation point of view, I see a lot of similarities. The learnings are that even though you have these breakthrough products and they are very promising in the early results, you just need to handle them as any other product launch and putting your full force and prepare for the every event that could potentially happen out there, and that's what we're doing here. So we -- and we're really grateful to having a large partner, who have a lot of capabilities, a lot of resources, who have really utilized in this very intense timeframe we're building a commercial organization. I don't know if that answers your question, but that's the learning from the Gleevec case.

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

Okay. And then on relapsed/refractory size of incidence and prevalence, what do your market research says?

Robert W. Duggan

Mike, Ramses will answer that, but what he will give you is a data that is publicly available and previously published by others. We don't feel that it's appropriate for us to weigh in on whether we approve or disapprove of those numbers. But Ramses, will you give him the...

Rainer M. Erdtmann

I mean, Michael, you probably have seen this in your database, and it's very difficult to distinguish in any of these public databases an incidence and prevalence and also in front line and relapsed. The incidence that I have established is 16,060. I've shared the number with probably many of you. It's a number that floats in the public market, that comes from CER. And then prevalence is 113,499. That's the prevalence of the total population, which is basically everybody with CLL in the U.S. If you go to the major markets, it's 37,000 incidents, 178,000 prevalence. That's CLL. It's -- I have to give the disclaimer that this is very, a very -- it's very difficult to get to good numbers. We've had studies that we initiated with outside vendors, and even 2 vendors had different numbers. So these numbers come with that disclaimer. We have to establish our markets over time, and I think we will probably guide you to something over time. At this point, this is the public data I have found.

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

Okay. And just one really quick last question. Frontline, high-risk watch-and-weight patients, there was some suggestion that, that might be something under consideration. Any thoughts on you ever running that study?

Robert W. Duggan

17p?

Jesse Seton McGreivy

No, frontline watch-and-wait. So we are looking at that space. There is an interest for certain patients, particularly high-risk patients to potentially pursue treatments earlier because of their underlying disease. I've no formal announcement regarding planned trials in that space, but we're looking at it very closely.

Operator

Next question in queue is from Navdeep Singh of Goldman Sachs.

Navdeep Singh - Goldman Sachs Group Inc., Research Division

So can you just -- present the data of high-dose ibrutinib in multiple myeloma. And what in the data are you looking for? What's the threshold to take ibrutinib later in more advanced studies in myeloma? And where are you in terms of level of confidence that this threshold will be met, and then I have a follow-up.

Robert W. Duggan

Navdeep, this is Bob weighing in. Multiple myeloma is something that we're interested in, something we're pursuing, but it's not something we're going to weigh in on until sometime in 2014. We want to gather adequate, relevant data, verify it, then we'll weigh in. And so at this point, I would consider multiple myeloma to be a speculative appeal, not the fundamental thesis of investment. That does not say -- it does not weigh in on my opinion as to whether it will or won't work. It's just premature to quarter-by-quarter kind of weigh in on how we think the trial's going. We have multiple dosing schedules and multiple approaches to really come back to you at the right time with sufficient data to say, here's where we stand. So what you can tell is that we are encouraged and we continue to invest. If that changes, we'll let you know right away.

Navdeep Singh - Goldman Sachs Group Inc., Research Division

Okay. And a couple of questions on the royalty that Quest owned that eventually was purchased by Royalty Pharma. Were you involved in the bidding process? If so, why didn't you purchase it? Is it just simply because the price was too high?

Robert W. Duggan

Navdeep, so they're in a business of acquiring royalties. Where -- that's not really the business that we're in. We share that royalty with our partner, Janssen. It's mid-0 to 10. It's about a 5% royalty. We're happy with the new partner, and I believe they're happy with the royalty. That's really what I can tell you. So it's not something -- no, we did not participate in. There was an auction process. That's not something that we participated in. And I'm happy to have Royalty as a support cast, and I appreciate the fact that Quest ran a good auction process.

Operator

Our next question in queue is from Mike King of JMP Securities.

Michael G. King - JMP Securities LLC, Research Division

I have a couple of questions. I wanted just to ask first, can you tell us if -- when and if you receive approval, are you expected to receive accelerated approval or will you receive full approval? And may that vary based on the indication?

Urte Gayko

Yes. No, that's a good question. So the short answer is that I cannot comment on it. I think what we can tell you is that the data that we submitted was based on Phase II data, and the Phase II data in this particular case was single-arm uncontrolled. It is up to the FDA to make this decision. And in general, I mean, just from a general regulatory point of view, the decision is made by indication.

Michael G. King - JMP Securities LLC, Research Division

Okay. If you then -- if you do receive accelerated approval on both CLL and MCL, do you feel that you have the adequate studies in place to convert accelerated into full approval?

Urte Gayko

Yes. No, thank you for that follow-up question. Yes, I mean, I actually think that is one of the strong sides of our development program for ibrutinib specifically that we are very far along. I think Jesse commented on the total of 7 randomized Phase III studies, and so we have several ones for both CLL and MCL. So yes, I definitely think the program is very suitable to have confirmatory studies in place.

Michael G. King - JMP Securities LLC, Research Division

Okay. And for those indications, PFS is the acceptable endpoint as opposed to overall survival?

Urte Gayko

For CLL and MCL in the relapsed/refractory setting, that is correct. PFS is acceptable, I do believe.

Michael G. King - JMP Securities LLC, Research Division

Okay. Great, and just with regard to RESONATE-17, the 6-month follow-up, is that something that you guys imposed upon yourself or was that a time -- was that a timeline or time period that FDA felt would make them feel comfortable that the results are robust and durable?

Jesse Seton McGreivy

Yes. It's a good question. Really it's the latter. For the RESONATE-17 study, it was based on our interpretation of the data and when we felt doing a snapshot and cutting the data that it would be reasonably mature enough to give us the confidence of the efficacy signal and the safety profile.

Michael G. King - JMP Securities LLC, Research Division

Okay. I just want to ask one more quick question on myeloma. Respecting Bob's intent not to release data before it's time, but I just wonder if you have contemplated the 17p deleted myeloma study at all as part of the development program.

Jesse Seton McGreivy

So currently I think as Bob mentioned, we're looking at myeloma. It's one of our earliest programs. We're enrolling the trial, which has been discussed. We are looking at the data, and as we enroll patients, we will look at biomarkers or other features of those patients who may be deriving clinical benefit. So specifically 17p or others, we'll look at a variety of avenues. I wouldn't say it's simply isolated to that. But where we look is where are we seeing activity and what are the biomarkers that correlate with those patients.

Michael G. King - JMP Securities LLC, Research Division

Okay. And then one final question, and I'll get back in queue. The MCL EAP, clinicaltrials.gov says it's going to be capped at 250 patients. Will you cap it at that or any comment on that at all?

Jesse Seton McGreivy

Yes. So this is a Janssen trial. So I would refer that particular question at them.

Operator

Our next question in queue is from Brian Skorney of Robert W. Baird.

Brian P. Skorney - Robert W. Baird & Co. Incorporated, Research Division

I have 2 questions. First one, can you give us any insight into the effect that the enrollment of RESONATE p had on the effect -- had on the enrollment of the RESONATE patients? I'm just trying to get a feel for whether or not the RESONATE patients on the whole have better prognostic factors and materially better prognostic factors than those that were enrolled in the Phase II study, maybe RESONATE-17p would get more -- the more severe, bad prognostic patients.

Jesse Seton McGreivy

Yes. So the eligibility -- it's a very good question. The eligibility for those studies are currently online. You can go on clinicaltrials.gov. It gives you the details of the eligibility. With regard to the demographics and baseline characteristics of each of the patients on trial, we will share that as soon as the data is available in a public forum. But I can't give you details of the number of priors or sort of the risk factors for those patients at this time.

Brian P. Skorney - Robert W. Baird & Co. Incorporated, Research Division

Got you. Fair enough. And then, Bob, I know we've talked before about thinking about ibrutinib in combination with other oral-targeted agents, and I was just wondering if you can kind of get your temperature on current thoughts about starting some studies with ibrutinib and maybe be it a PI3 kinase inhibitor, a sic [ph] inhibitor, BLC2 inhibitor or maybe even your own HDAC inhibitor or I know both agents have really shown great data in follicular lymphoma. I just -- what are your thoughts in terms of combo studies?

Robert W. Duggan

Yes. As a company, we're here to make a significant difference for the betterment of patients in need of our medicines and ultimately, to bring about the real potential for cure. We think there's a phenomenal societal benefit in doing that, but first things first: get our drug approved as a monotherapy, look at the low-lying fruit in terms of combinations and then take on other responsibility. We have an obligation. We're in service to patients, and that's really as far as I should take this for multiple reasons. I appreciate the logic of your thinking, but when you think of us in this business, think we're here to make that significant difference for the betterment. We have promoted all the way that we're here to be an ally in support of the patient's cause and struggle. That fits to American Heritage's definition of a friend, and we really feel that we're not only a friend to the clinician but to the patient. So until there's a cure, we've got plenty of work to do. How we go about that is a bit more proprietary, but I'll give you that cover statement.

Brian P. Skorney - Robert W. Baird & Co. Incorporated, Research Division

I guess maybe if I could just ask in maybe a little bit of an another way. Just in terms of the mechanism and what we've learned about resistance and where ibrutinib has shown to be particularly good versus not very effective in terms of some of the mutational analyses that's been done. What sort of targets would you -- should we be thinking about as potentially overcoming some of the insensitivity issues to ibrutinib across the range of indications?

Robert W. Duggan

I'll let Jesse weigh in on that, but I will just say from looking at the stats I've seen, the insensitivity is quite infrequent. So if one just focused on the insensitivity, that's not -- particularly at this time, it's not a particularly large business. But having said that, one might choose to co-develop with pathways that are compatible but not identical to ibrutinib. But Jesse, you want to follow up on that?

Jesse Seton McGreivy

Yes, I think that's a great point, Bob. In regards to CLL, really when you're looking at patients with normal risk factors, the overall response rates are so high, between north of 70%, and then if you add in [indiscernible] with lymphocytosis patients, it's over 90%. And then the durability, we don't know what the median is on the patients we are studying. So it's hard to identify resistance there. There obviously are some progressors. And can we find combinations in other indications -- high-risk CLL 17p patients, diffuse large B-cells or indolent lymphomas? Absolutely. We're looking at multiple potential clinical trials moving forward in a variety of combinations, and you've listed a great -- the list you provided there was a great list of what the exciting therapies are that are coming up, and you can imagine we're looking at all of them for potential to help augment the activity of ibrutinib.

Operator

[Operator Instructions] Our next question in queue is from Gena Wang of Leerink Swann.

Gena Huidong Wang - Leerink Swann LLC, Research Division

I have 2 related questions. First, could you share your thoughts on your regulatory submission for Europe? And a related question regarding regulatory milestone. I know you filed one NDA. But did each indication earn its own milestone from Janssen? And also what additional indications are eligible for the remaining $150 million milestone? And how will that be calculated?

Urte Gayko

Okay. I will take the first part of your question, and then I will pass it on to Josh and others. As it relates to you, I think I mentioned also in my announcement that Janssen is responsible for all x U.S. market applications. We are actively in preparation of those, but no final plans are available at this point in time. I do anticipate that Janssen will announce such as they become available and we can comment on it as well. But I can say we are certainly actively working on it. And then in terms of the payments, I think Josh will respond to that.

Robert W. Duggan

Gena, I think you have a feedback in your phone.

Joshua T. Brumm

So the milestone triggered -- the $75 million milestone was triggered by the single filing for the NDA. So it was not multiple. It was just one filing triggered the one milestone for $75 million.

Gena Huidong Wang - Leerink Swann LLC, Research Division

So what additional indications are eligible for the remaining $115 million milestone? Or it would be just what. Sorry.

Robert W. Duggan

Gena, we respond to the milestones as we've earned them, and so we don't want to go into an anticipatory mode, but we really in a react -- we earn a milestone, we report it out. And we'll stay with that. We have substantial milestones yet to earn, I will say that.

Gena Huidong Wang - Leerink Swann LLC, Research Division

Okay. And lastly, if I may, how will RESONATE data be released? Will that be a press release or at a medical conference?

Jesse Seton McGreivy

It's a little premature to speculate on that. It will really depend on a variety of circumstances. So stay tuned, yes.

Robert W. Duggan

And if there are no further questions, we appreciate your attendance and your interest. I would like to say that today I'm pleased that we have weighed in on some important updates. Most significantly, our company is commercially ready for the market introduction of ibrutinib. We have a team of professional leaders, very experienced executives in place, in our opinion, to build the hematology franchise that ranks amongst the best in the business. And that will be in support of our goal to build a viable biopharmaceutical company that makes a substantial difference for the betterment of health care patients in need of the medicines that we make on their behalf. Thank you for your participation in today's call. We look forward to updating you in the next 90 days.

Operator

Thank you.

Robert W. Duggan

You're welcome, operator.

Operator

And again thank you, ladies and gentlemen, for joining today's conference. You may now disconnect. Have a great day.

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