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Astex Pharmaceuticals (NASDAQ:ASTX)

Q2 2013 Earnings Call

August 01, 2013 8:30 am ET

Executives

Timothy L. Enns - Senior Vice President of Investor Relations, Business Development & Corporate Communications

James S. J. Manuso - Chairman of The Board and Chief Executive Officer

Mohammad Azab - Chief Medical Officer

Michael Molkentin - Chief Financial Officer, Principal Accounting Officer and Corporate Secretary

Martin Buckland - Chief Business Officer and Director

Analysts

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

Gene Mack - Brean Capital LLC, Research Division

Michael G. King - JMP Securities LLC, Research Division

Robin Davison - Edison Investment Research Limited

Jason Zhang - Edison Investment Research Limited

Operator

Good day, ladies and gentlemen, and welcome to the Astex Pharmaceuticals Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn today's conference over to Timothy Enns, Senior Vice President, Corporate Communications and Marketing. Please begin.

Timothy L. Enns

Thank you, operator. Good day, and thank you for joining us for Astex Pharmaceuticals 2013 Second Quarter Financial Results Conference Call. With me today are Dr. James Manuso, Chairman and Chief Executive Officer; Dr. Harren Jhoti, President and Director; Dr. Mohammad Azab, Chief Medical Officer; Dr. Martin Buckland, Chief Business Officer; and Michael Molkentin, Chief Financial Officer.

In a few moments, our officer team will deliver remarks on the 2013 second quarter financial results and our business outlook for the year. Our prepared comments -- after our prepared comments, we will open the line for questions.

Earlier today, we issued a press release with our financial results. A copy of the press release and a link to the webcast of this call is available in the Investor Relations section of our website at www.astx.com. A webcast replay will be available for 30 days at the same site.

During the call, we will make projections and forward-looking statements that are based on management's current expectations. Actual results may differ materially from these forecasts and projections due to various factors. There are significant risks and uncertainties in biotechnology research and development. There could be no guarantee that our projects, products or product candidates will progress preclinically or clinically as we expect that they will ultimately -- as we expect, or that they will ultimately obtain approvals for the indications that we seek. Moreover, even if our products or product candidates are approved in the future, we cannot guarantee they will be commercially successful.

The company's results may also be affected by a variety of factors, such as competitive developments, launches of new products, the timing of anticipated regulatory approvals or other regulatory actions, the actions of our strategic partners and collaborators with respect to the products we license or codevelop, and patent disputes or litigation.

For additional information and discussion concerning the risk factors that affect the company's business, please refer to the company's filings with the Securities and Exchange Commission. The company undertakes no duty to update forward-looking statements.

In the fall, we will be participating in the following investor conferences: The Rodman & Renshaw Annual Global Investment Conference in New York and the Stifel Healthcare Conference in Boston.

I will now turn the call over to Dr. James Manuso, who will provide highlights of our accomplishments during the 2013 second quarter. Jim?

James S. J. Manuso

Thank you, Tim. Good afternoon, and thank you for joining the Astex Pharmaceuticals 2013 Second Quarter Conference Call. Astex continued to execute on our operational and financial goals during the second quarter. We ended the quarter with $134 million in unrestricted cash, cash equivalents and current and non-current marketable securities, and we advanced the multiple clinical stage programs for our prioritized medicines in development. On the discovery side, we made considerable progress as well.

With respect to our ongoing Phase II clinical trials, patient accrual in our prioritized programs for SGI-110 and AT13387 are on schedule. SGI-110 is expected to complete accrual of more than 200 patients in the Phase II expansion trial in MDS and AML by year end, and data continues to be presented from the Phase I trial. Details from Phase I MDS patients were presented in Stockholm in June, and AML data has been accepted for an oral presentation at ECCO/ESMO in September. We are also on track to present data from the AML patients in the Phase II expansion segment of the trial at the ASH meeting in December.

During the quarter, we announced our next investigational new drug, or IND, candidate, ASTX727. This unique patented technology to control the effects of deamination on decitabine expands our epigenetics franchise to 3 hypomethylator compounds: an IV, Dacogen, a subcu, SGI-110 and now, an oral ASTX727. This combination medicine has the potential to be a best-in-class oral hypomethylator and an IND is expected to be filed by the end of this year. Preclinical data will be submitted for presentation at an upcoming scientific meeting in the coming months.

Our partnered products that are derived from our Pyramid discovery platform continued to advance under the aegis of our collaborators. They are in a variety of expanded clinical programs that have the potential to generate additional milestones and future royalty revenues. Specifically, 2 are advancing in multiple clinical trials. AstraZeneca continues to develop AZD5363, a potential best-in-class pan-AKT inhibitor in 5 Phase I or Phase I/II clinical trials as a single agent or in combination. Novartis has announced that LEE011, a potent CDK4/6 inhibitor, will be studied in 8 Phase I or Phase I/II clinical trials as a single agent or in combination. The focus of this medicine's development is in combination treatments with a particular emphasis on melanoma and breast cancer.

We are extremely pleased our partnered programs are actively advancing in the clinic, highlighting the successful execution of a strategy to selectively partner with major pharmaceutical companies. Further details on these trials may be found at ClinicalTrials.gov.

Financially, Dacogen royalty revenue grew 15% over the prior year period to $16.6 million. Even though Dacogen's Orphan exclusivity lapsed in early May, the fiscal quarter's revenues were not impacted by a generic entry. Thus, Dacogen was not challenged in the U.S. market during the second quarter. However, as expected, a supplier of generic decitabine was granted approval in mid-July. This generic is anticipated to compete with Dacogen in the U.S. market. Keep in mind that the generic entry in the U.S. only affects the U.S. market. Dacogen is approved in over 40 other countries outside of the U.S. Astex will continue to receive escalating royalties at rates from 20% to 30% on all net sales of the drug worldwide, regardless of indication and irrespective of which of our partners, Eisai in North America or Janssen in the rest of the world, makes the sale.

In the acute myeloid leukemia, or AML, indication, Dacogen continues to be marketed and sold in the European Union, or EU countries, where for the treatment of patients aged 65 years and above with newly diagnosed de novo or secondary AML who are not suitable for induction chemotherapy. Dacogen is protected in Europe with a 10-year Orphan Drug designation that was granted in September of last year, when the product was approved by the European Medicines Agency.

Recall that the AML population in the EU is greater than in the U.S. There are 18,000 AML patients in the EU and 10,000 of them are elderly.

I will now turn the call over to our Chief Medical Officer, Dr. Mohammad Azab, who will provide an update on our prioritized clinical programs. Mohammad?

Mohammad Azab

Thank you, Jim, and good morning, everybody. Astex is pleased to now have 3 prioritized pipeline products, 2 of which are in multiple Phase II trials, and the third, which we just announced recently, ASTX727, preparing to enter the clinic soon. In the second quarter, we've presented data on both AT13387 and SGI-110 and the Phase II dose expansion accrual for our SGI-110 drug, the novel subcutaneous hypomethylating agent continued well. The details of the Phase I data set in the MDS refractory patients were presented at the European Hematology Association, or EHA, in June. We reported an overall response of 6 over 15 patients or 40% response rate with a 90-day median duration of response. All responding MDS patients had previously received and progressed after receiving Vidaza or Dacogen, and in 3 of the 6 patients, they have received both drugs previously.

SGI-110 Phase I AML data set and the details of which will be presented in an oral session at the European Cancer Congress, ECCO/ESMO, to be held in Amsterdam in late September.

The Phase II dose expansion segment of the SGI-110 trial continues to accrue patients on schedule and is on track to complete the full accrual before the year end. There are 4 patients cohorts randomized to the 2 different doses of SGI-110 and the daily times 5 regimen. These 4 cohorts are: the first line MDS patients, the relapsed/refractory MDS patients, first line elderly AML not suitable for induction chemotherapy, and finally, the relapsed/refractory AML patients. A fifth cohort is nonrandomized and includes only relapsed/refractory AML patients treated at the extended regimen of 10 doses of SGI-110 over -- daily over 10 days.

Preliminary SGI-110 Phase II AML data will be submitted for presentation at the American Society of Hematology, or ASH, conference in December, and additional data on other patient cohorts will be submitted for presentations at later meetings like AACR and ASCO conferences next year. Also next year, we expect to start the first pivotal Phase III study of SGI-110 in a hematology indication.

With respect to the solid tumor trials of SGI-110, we have 2 Phase II studies, one is the randomized study in platinum-resistant ovarian cancer and the other study is in hepatocellular cancer after failure on sorafenib. We are on schedule with the accrual rates for both studies and the data Redis are expected next year.

Astex's second priority clinical compound is the second-generation fully synthetic HSP90 inhibitor, AT13387. The 2 randomized Phase I/II studies of AT13387 are in castration-resistant prostate cancer and ALK-positive lung cancer, and they are both progressing well. Both trials to represent the first randomized investigation of an HSP90 inhibitor, both as a single agent and in combination with a targeted agents in prostate cancer and in ALK-positive lung cancer in a randomized setting.

The targeted agents are abiraterone acetate in prostate cancer and crizotinib in the ALK-positive lung cancer trial. In addition, in the ALK lung cancer trial, we're studying for the first time the combination of crizotinib with AT13387 in a front-line setting after completion of Part A. We expect to complete the Phase I Part A of both trials before the end of the year. We'll be disclosing the go, no-go decision for each trial and the commencement of the randomized Phase II parts of the 2 trials in the first quarter of 2014 or earlier, and the data from Part A will be presented at an upcoming scientific meeting.

Late last month, we presented preclinical data on AT13387 showing for the first time that front-line treatment of an HSP90 inhibitor in combination with targeted agents delays the emergence of resistance of the targeted therapy. The preclinical study was done in a melanoma xenograft model in combination with vemurafenib and was presented at the Melanoma World Congress in Hamburg. Our presentation was honored as one of the top 6 posters at the meeting.

The most recent addition to our epigenetic portfolio is ASTX727, an oral combination product consisting of oral decitabine with E7727, a novel cytidine deaminase inhibitor licensed from Eisai. High levels of cytidine deaminase, or CDA, in the gastrointestinal tract and the liver degrade nucleosides, such as decitabine, preventing an effective oral delivery. E7727 inhibits CDA activity, and thus, allows decitabine to be effectively delivered orally and to be absorbed in the GI tract.

Based on preclinical studies showing that oral ASTX727 can facilitate the delivery of low doses of decitabine at therapeutic levels, we anticipate filing an IND application in the fourth quarter of this year. These preclinical data will be submitted for presentation at the upcoming ASH meeting in December.

At this time, I would like to turn the call over to our Chief Financial Officer Michael Molkentin. Michael will provide details on our 2013 second quarter financial results. Michael?

Michael Molkentin

Thank you, Mohammad. I will now comment on our financial results. The company reported a net loss for the 2013 second quarter of $4.2 million or $0.04 per basic and diluted share, compared with net income of $1.2 million or $0.01 per basic and diluted share for the same prior year period. The company also reported a net loss for the 6 months ended June 30, 2013, of $3.7 million or $0.04 per basic and diluted share, compared with net income of $5.5 million or $0.06 per basic and $0.05 per diluted share for the same prior year period.

Total revenues for the 2013 second quarter were $16.6 million compared with $19.9 million for the same prior year period. Total revenues for the 2013 second quarter included royalty revenue of $16.6 million, compared with royalty revenue of $14.4 million for the same prior year period. There was no development and license revenue reported during the 2013 second quarter compared with $5.4 million for the same prior year period. The prior year period included a milestone earned from a collaborative drug discovery program with Janssen Pharmaceutica and was triggered when the partner received clearance to commence the Phase I clinical trial of a FDFR kinase inhibitor.

Total operating expenses for the 2013 second quarter were $23.7 million compared with $20.3 million for the same prior year period. The primary reasons for the increase in total operating expenses for the 2013 second quarter compared with the same prior year period are increased research and development cost associated with SGI-110, AT13387 and other internal discovery programs.

The noncash amortization of intangibles was $1.9 million for the 2013 second quarter, compared with a similar amount for the same prior year period, while stock-based compensation expense, a noncash expense, was $841,000 for the 2013 second quarter, compared with $810,000 for the same prior year period.

As previously indicated, the company reported a net loss for the 2013 second quarter of $4.2 million compared with net income of $1.2 million for the same prior year period. Included in the 2013 second quarter net loss is an income tax benefit of $2.9 million, compared with an income tax benefit of $1.6 million for the same prior year period. The income tax benefits for the current and prior years' second quarters are primarily due to the recognition of tax benefits associated with the amortization of deferred tax liabilities resulting from the acquisition of Astex Therapeutics Limited in 2011 and foreign research and development tax credits related to our U.K. subsidiary.

As of June 30, 2013, the company had approximately $134 million in unrestricted cash, cash equivalents and current and non-current marketable securities compared to $138.3 million at December 31, 2012.

Today's news release also includes the company's revised financial guidance for 2013, reflecting an anticipated reduction in the annual net loss from $30 million to $25 million. Selected comments on our financial guidance include royalty revenue being revised upward from $55 million to $63 million for 2013. The increase in anticipated royalty revenue is primarily driven by the delayed entry of generic competition after expiration of Orphan Drug exclusivity for Dacogen in the U.S. in early May 2013. A competitor recently announced the launch of generic decitabine in the U.S. in the first half of July of 2013.

Though we expect earning additional development license revenue from our partnered programs during 2013, we do not guide to such revenue due to the general uncertainty around, and timing of, milestone achievements and payments. Research and development expenses were revised from $67 million to $70 million for 2013. The increase in research and development expenses is primarily influenced by the acceleration and a revision of estimated costs associated with the company's 2 priority programs, SGI-110 and AT13387.

The noncash charge for the amortization of intangible assets remains unchanged at approximately $8 million for 2013. General and administrative expenses also remain unchanged at $50 million, while we are forecasting a modest increase in the estimated income tax benefit from $5 million to $6 million for the year. The impact of the aforementioned revisions result in an enhancement of our operational performance, where our anticipated net loss has been revised downward from $30 million to $25 million for 2013. But remember, that the forecasted net loss does not reflect any anticipated development and license revenue that may result in the second half of 2013.

Noncash operating charges, included in total operating expenses, continue to be estimated at approximately $12 million for the year. This concludes the review of our 2013 second quarter financial results and comments on our revised annual financial guidance for 2013.

I will now turn the call back to Dr. Manuso for closing remarks. Jim?

James S. J. Manuso

Thank you, Michael. In the first half of 2013, we have continued to progress our medicines in the clinic. We remain financially strong. Our epigenetic franchise of hypomethylators has been expanded to include 3 products at various stages of the lifecycle. First, intravenous Dacogen, approved for the treatment of MDS in North America and elderly AML in the EU. Dacogen is now marketed in over 40 countries worldwide. Second, SGI-110, a subcutaneous medicine in Phase II trials. This medicine has the potential to be a best-in-class hypomethylator for the treatment of intermediate or high-risk MDS and AML and solid tumors, such as platinum-resistant ovarian and hepatocellular cancers. Third, the pre-IND stage medicine, ASTX727, a novel oral hypomethylator being considered for development in chronic diseases, including low-risk MDS, maintenance treatments and the hemoglobinopathies.

Readouts from 2 AT13387 Phase I/II studies in prostate cancer and ALK-positive lung cancer are expected to be announced next year.

Our financial footing continues to be strong. We increased by $8 million, our 2013 royalty revenue guidance to $63 million. At the end of the second quarter, Astex held $134 million in cash, cash equivalents and current and non-current marketable securities. By year end, we anticipate reporting SGI-110 Phase I AML responses and biomarker data at ECCO. We expect to report preliminary SGI-110 Phase II AML results at ASH. And we anticipate filing an IND for ASTX727 and presenting preclinical data on this oral hypomethylator at a scientific meeting.

The Astex management team and I look forward to updating you throughout the course of this year on our progress. Dr. Harren Jhoti, Dr. Mohammad Azab, Dr. Martin Buckland, Michael Molkentin, Tim Enns and I are now ready to answer questions. Operator, we'll take questions at this time, please.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from Michael Yee of RBS Capital Markets -- I'm sorry, RBC Capital Markets.

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

Two questions. First question is on the oral, which was a announced recently, that's quite interesting. What does the animal model or the PK curves look like on that? Is it identical to subcu? Is there something enhanced about it, better exposure, et cetera, than subcu or is it just easier administration? Maybe you can talk about that. And the second question is on the SGI-110 AML data. I think there's a lot of anticipation, a lot interest in this, of course, at the end of the year or so. What type of response rates are good response rates in this population? What are the comps and what do the other agents show?

James S. J. Manuso

Let me just comment by way of introduction. We're extremely excited about 727. It does have the potential because of the cytidine deaminase inhibition to transport significant amounts of decitabine across the barriers that typically get in the way. So we do expect this to be a far superior oral. I'm going to ask Mohammad Azab to comment on that. And relative to the 110 data in AML, he'll address that as well. Mohammad?

Mohammad Azab

Thanks, Jim. Hi, Michael. So the oral actually with the combination with the CDA inhibitor were able with very low doses of decitabine, that are like equivalent to the IV or even less, to achieve therapeutic exposure. And that would avoid any GI toxicities that you might have with large doses of nucleosides that have been reported. For example, azacitidine in the publication that we have done, as you may have noted, has about 12% Grade 3 and 4 diarrhea and 7% Grade 3 and 4 vomiting. So we help to avoid these by delivering the decitabine at the low dose with the CDA inhibitor. We're also achieving a far superior biovailability, so we're reaching actually over 100% and because of that, not just the inhibition of CDA in the gut and the liver, but also some systemic inhibition of CDA as well. So we believe that will be a much more convenient, best-in-class oral hypomethylating agent. And this will be basically for replacement -- for 2 things, the replacement of Dacogen as a more convenient hypomethylating agent given orally and extending the indications to those indications which require more chronic administration. You can't get chronic administration with an IV or a subcu. And this type of administration in a chronic setting would be things like low-risk transfusion-dependent MDS and things like the maintenance and AML treatment after remission. And this is something that we have been thinking for a while on, but really requires an oral agent is the sickle cell anemia. This is an area where there is a lot of anecdotal data on Dacogen, but has never really been explored in a formal development because of the IV route, which was not amenable for that indication. So these are the things that we're looking for, for the oral hypomethylating agent. In terms of the -- I think your second question relates to the AML Phase II data and the anticipation. I think the comparable data basically will be the largest data set is the treatment of naïve elderly AML patient from the Daco 16 trial, which resulted in the approval in Europe. The complete remission rate in that trial for Dacogen that was associated with improvement and survival in the EU label was 16%. So that would be the comparable rate that we'll be looking at. We're looking to better that rate with SGI-110, hopefully.

Operator

The next question is from Gene Mack of Brean Capital..

Gene Mack - Brean Capital LLC, Research Division

I just wonder if I could ask a question in terms of your prioritization of the programs, given that you've got another candidate probably entering the clinic. At the same time, we do have the generic version of Dacogen now launched. So there might be a bump in the royalties as the AML European royalties ramp up. And I'm just wondering how you guys might be thinking about prioritizing and entering these candidates into later stage trials. SGI-110 is probably going to get into more than pivotal trial starting next year. And I'm just wondering your -- if you can talk at all about expectations on cash burn and what sort of -- how do you think about capital allocation for -- to maximize the time-to-market for SGI-110 in the means of protein and now, the new compound.

James S. J. Manuso

Thank you. Yes, indeed. We do anticipate that based on the data coming out of the trials for 110, we'll have a very clear sense as to where to go. As you know, there are going to be effectively 4 readouts on that trial toward the end of this year and early next year. Based on those readouts, we'll make a number of decisions having to do with where we go in the Phase III trials. Now needless to say, if we had significantly more cash, we might consider a multiple number of trials across the liquid cancers and solid tumors as well. So it's really -- what I'm saying is that it's really going to be a data-driven. That's the most important thing. The prioritization is going to be based on the data coming out of the trial. Now relative to generic Dacogen in the U.S, we have always anticipated that, that would have an impact on our royalty income. That has not changed. The only thing that changed was that we had a 2-month stay as it were. And we're getting a better sense, as time goes on, of the ramp-up of royalty revenues coming from the EU. And as I mentioned earlier, there are more AML patients in EU than in the U.S., and Janssen is doing a very good job entering the drug into of variety of jurisdictions around the world. So while we can't give you very specific guidance on where the curves are going to cross, mainly where the decline will meet the ramp-up, what we can say is that we've expected this for some time and this is something that we've given guidance to for an extended period. Now relative to the cash burn, and I'll ask Michael Molkentin to comment on this, we have always given guidance for a given calendar year, and occasionally, we look out a little bit further. So we will be updating this on a realtime basis. And as far as capital allocation is concerned, we believe that having this triad that I spoke of hypomethylators in the epigenetic arena positions us very, very well for undertaking any variety of collaborations with other pharmaceutical companies. It has never been our intention to market directly in Asia or in the EU, so we have another opportunity for entering into partnerships that can generate the upfronts and then milestones, and ultimately, royalties. And remember, that was the basis on which we were able to operate this company profitably for 5 out of the last 6 years based on the Dacogen deal, originally with MGI, and then subsequently, with Eisai. We envision that there are going to be data-driven decisions vis-a-vis prioritization and that we have a number of opportunities for generating cash and that we envision each of the 3 prioritized drugs in the hypomethylation space is focused on different markets, ultimately. And I'll ask Mohammad to speak to that. But first, let me turn it over to Michael Molkentin about the cash utilization.

Michael Molkentin

Yes. You hit on many of the points that clearly will impact what happens going forward over the next few years. But clearly, I think if you look at the situation from a funding perspective that the net contribution from the royalty revenue will decrease initially. And as Jim indicated, we don't know where the curves will cross between the decrease in the U.S. royalty revenue and the ramp-up on the European side. But you would presume that in 2014, it probably will not be at levels that we're currently guiding to for 2013. The other element that you would naturally have to take into consideration are the fact that the programs that we are at least publicly indicating that we're moving forward between our existing cash and our anticipated royalty revenue that we are in the position to fund those programs, at least through the end of 2014. And we will weigh, based on the data results of the various trials, what we need to do post that period of time. So that, I think, are some additional points that may clarify what Jim just said.

James S. J. Manuso

And Mohammad, relative to prioritization.

Mohammad Azab

Yes. Well, I think, I mean, you mentioned initially on it, Jim, when you said it would be data-driven. We have multiple Phase II trials in hematology and solid tumors for both the drugs SGI-110 and AT13387, and we'll be guided by the data. The Phase II indication that gives us the best data will be prioritized. And of course, also the priority is a little bit tilted to the SGI-110. And we know already from the Phase I that we had very good clinical proof of concept responses even in those patients who were heavily pretreated. In terms of the differentiation of the different hypomethylating agent, I think it is really clear in our mind that the SGI-110 will be developed and indications where we can actually be to the current hypomethylating agents, Vidaza or Dacogen, in the clinical trial, or an indication where Dacogen or Vidaza are not approved. Remember, they are only mainly approved in the front-line MDS setting, and we're studying 3 other patient populations. And for the oral, as I mentioned in response to the earlier question, we'll be looking mainly -- looking at indications where it requires chronic administration, which is not suitable for an IV or a subcu.

James S. J. Manuso

Is Mike King available now to post his questions?

Operator

Yes, one moment. Mike King from JMP Securities.

Michael G. King - JMP Securities LLC, Research Division

I wanted to start out with maybe some incremental questions on financials. Number one, I was hoping to get you to help us understand the current cash position and sort of approximately how far you think it will take you -- does it take you to commercialization of SGI-110, or is there some other bogey in the future that we can aim for? And then also, I know you provided -- kindly provided 2013 financial guidance, but I don't expect you to provide 2014 yet. But it would seem sort of order of magnitude, your R&D spend is going to have to go up a lot to support 110 and the other hypomethylating agents, as well as 13387. So I don't know if we can get kind of a rough direction with regard to R&D spend, but anything you could do for us there would helpful -- be helpful.

James S. J. Manuso

Sure. Mike, because so much of the decision-making will be driven by the data, it's a little difficult to determine the size of the trials that will be necessary in order to advance 110 or 387 for that matter. What we certainly can say, as Michael indicated, is based on the cash position of $134 million as of the end of the second quarter, we are very comfortable with that taking us through 2014, potentially beyond. Again, it's a moving target as far as the prioritization and the trials. The other uncertainties relate to the milestone payments that we do expect to be forthcoming from the 4 drugs that are in the hands of partners. The magnitudes of those increase as the drugs advance in the clinic. And as we've tried to indicate, we believe our partners are very committed to the advancement of these drugs. So we would expect to have a cash forthcoming there. As far as commercialization of 110 is concerned, I mentioned earlier that it's not our plan to commercialize these drugs in the EU or in Asia. It certainly is a possibility in the U.S. So if we're able to have the kind of data that generates interest on the parts -- partners in Asia and in EU, then of course we would enter into partnerships that generate significant upfronts, and that in turn would underwrite the expenses of the ultimate commercialization. So what we have said, and this is very clear, is that our R&D spend will increase. We've given the guidance consistent with that. We would expect, as we get into Phase III trials, again, hopefully on success of our medicines next year, those expenses will go up markedly. And yet the ability to underwrite those is certainly there. Michael, do want to comment on that?

Michael Molkentin

Well, you raised really many of elements that need to be considered and reflected in what our financial circumstances may look like 12, 18, 24 months out. Clearly, we commented on the royalty revenue and that there will be a -- that level will be different from what we are currently seeing -- that we've currently seen historically and what we're guiding to. But the important elements that Jim mentioned were the milestones that we anticipate over the next few years from the various existing collaborations that we have. We don't guide to those as we've indicated that their difficult to forecast and as to when they will occur and the timing of them. And then the other point that Jim alluded to is we don't guide to the potential financial benefit from new business collaborations that we engage in. As you know, our business model has been: we fund programs up through the clinical proof of concept and we would prefer, if we can, to find a partnership or some type of collaboration for funding some level of Phase III programs. So those elements aren't always clearly factored into our financial results, but will benefit us depending on when they occur. And I guess, last, I just want to emphasize, as we mentioned earlier, we do feel that based on the current programs that we've been discussing that we're moving forward with, even though R&D expenses will increase, we do feel comfortable that we can fund them adequately, at least through the end of 2014, and possibly beyond, as Jim has indicated.

James S. J. Manuso

And that includes, Mike, 727 as well, okay? So what we expect is that 110, 387 and 727 will be actively being examined in the clinic next year. And to the extent that we have very compelling data, we'll monetize that in ways that are meaningful. So we have a number of alternatives, and many of which are not immediately quantifiable, aside from saying that we're comfortable post-2014, and yet we expect to initiate any variety of liaisons in order to assure that we have plenty of cash around.

Michael G. King - JMP Securities LLC, Research Division

Okay. All right. That's helpful. I mean, I get it. There's a lot of levers you can pull. If I can, maybe just a quick question or 2 on data. With regard to the relapsed/refractory AML cohort, again, to Mohammad's question the -- or point about ASH, the data presented there. And could you just talk a little bit about that, and maybe the number of patients that you think you'll have by the time we arrive at ASH?

Mohammad Azab

Yes. Mike, thanks. For the relapsed/refractory, I think we have communicated that. We have completed that cohort, so it will be the full cohort data, which is 50 patients. For the treatment naïve elderly AML, we would be able to present partial data from -- also we expect to have 50 patients in the treatment naïve that we'll be able to put in the abstract partial data from the treatment naive elderly AML as well. I'm hoping by the time of the actual presentation in December, we'll have a lot more or close to complete data set that probably about at least 1/2 or 2/3 of the patients from the treatment may be also available at the time of the presentation. So we'll be -- it should be a substantial data of at least 60 to 75 patients of AML, 50 of them are relapsed/refractory and the remaining is treatment naïve AML.

Michael G. King - JMP Securities LLC, Research Division

Great, great. Very helpful. And then just one more question. Remind me, because it's been a source of controversy with the regulators regarding the unfit or ineligible patient population. We've seen in other studies in AML that there are patients that are deemed to be ineligible, but yet go on to receive either low dose ara-C or 7&3. And I'm just wondering how you guys are refining the definition so that the, I guess, the integrity of that definition is improved or preserved?

Mohammad Azab

Yes, actually we had a discussion with the FDA already at the time of the submission of the IND, and we have included that in our protocol. We will refine, of course, that definition in further discussion with the FDA at the end of Phase II meeting before starting the Phase III, if we're going in the Phase III of a treatment naïve elderly AML. So the current definition we're using in the Phase II trial, includes not just age of the patients, but the patient also which he has to be more than 65 years, but also the patient has to have at least one of the following prognostic criteria that makes them unsuitable for induction. These are concomitant morbidity in a major organ function, poor cytogenetics or secondary AML. As you know, anyone of these respond very poorly to the induction chemotherapy in addition to age. So we have already included that in the Phase II trials. That's the definition we are currently using. But as I said, if we are going to do the Phase III, we will make sure that we get agreement from the FDA on the definition and refine that if needed.

Operator

The next question is from Robin Davison of Edison Group.

Robin Davison - Edison Investment Research Limited

I just have a question on ASTX727, which I think I find very interesting. First of all, did you know yet from the studies that you have done or have access to that you can achieve the same sort of plasma levels as a low dose decitabine given IV in the sort of 20 milligrams per meter square?

James S. J. Manuso

Yes, indeed. As we indicated earlier, we've observed in the monkey models, which is the closest things that we have to the human, greater than 100% bioavailability. So yes, we're very comfortable with that. Mohammad?

Mohammad Azab

Yes. We're actually -- not only we're able to achieve those levels, actually we're able to exceed those levels by increasing the dose of the CDA inhibitor in the monkey model. And we have data comparing the levels in humans to the levels in monkeys using Dacogen IV, and they are very similar. So we are -- I am at least confident that the monkey model is very predictable, but we'll find out when we enter the clinic.

Robin Davison - Edison Investment Research Limited

Right, okay. The sort of second question on this one really is whether this is likely to have the same development time lines as a new chemical entity. And where there's any sort of speeding up, acceleration that you can obtain by attempting to bridge to existing decitabine data?

Mohammad Azab

Well, definitely that's a significant option for this drug, and we already have preliminary discussions with the FDA at the time of the pre-IND meeting. And we will continue to explore that. There was openness in the agency to work with us on this. How much we can leverage the decitabine IV data? We cannot be sure at this point in time. But as you said, there's definitely the potential for this drug to leverage the existing decitabine data if we are achieving the same levels systemically with the same pattern and that the component of that oral drug, which is the CDA inhibitor doesn't have any additional pharmacological activity or toxicity of its own. We are very comfortable with the preclinical data from the CDA inhibitor. It's very safe. We have more than 200-fold therapeutic margin of that drug between what we're using in the IND, and the levels that we can administer preclinically. So with both these factors in a very safe CDA inhibitor and similar decitabine exposure levels, we hope we can leverage the data for an accelerated administration pass, but that definitely will have to be negotiated with the FDA after we get the data from the clinical first-in-human study, which we will start next year.

Robin Davison - Edison Investment Research Limited

All right, okay. And then just finally. I wonder if you can say anything in broad terms about the financial arrangements with Eisai for the license to the 727. Is there any material payments likely to be made this year or in the coming years?

James S. J. Manuso

Martin, would you like to comment on that?

Martin Buckland

Yes. Hi, Robin. There are, as you might expect, modest milestone payments as we proceed through clinical developments. There is also a milestone payment that is due upon regulatory filing and regulatory approval, and then there is a small royalty that is due to Eisai as well. But the way we structured the deal was to keep those milestone payments during the clinical development extremely low until the product was completely de-risked.

Robin Davison - Edison Investment Research Limited

Right. Does Eisai have any option -- sort of buyback option on this product?

James S. J. Manuso

No, they do not. This is something that we're free to develop in the United States, and that's where we're going with it at this point. We'll certainly explore based on a number of prior contractual arrangements with respect to the rest of the world. And that's something that, as we move the drug forward, we'll be engaging on.

Operator

The next question is from Jason Zhang of Edison Group.

Jason Zhang - Edison Investment Research Limited

Yes, couple of questions on 727 and the next actually on Dacogen. So first, the deamination control, you mentioned that there were 200 patient data already for this drug. And number one question is so can you talk about the formulation technology? Is this fixed field? How you actually put the 2 drugs together, one. Number two that those you use, how different is it from what Eisai has been testing in clinic and what clinical toxicity do you expect? Because I know that deaminase is everywhere. So what kind of toxicity you have to watch for in clinical trials?

James S. J. Manuso

Yes. We do not have clinical data for patient. That's why we're filing an IND, Jason. What I was referring to is the very wide therapeutic margin from the preclinical GLP talk studies that we have conducted to support the IND for the CDA inhibitor. And as we've said, there are more than 200-fold between the therapeutic doses that we expect to achieve in the clinic and the no observed adverse event levels that we had on the GLP study. So that's a very wide therapeutic margin. We do not actually expect and we are not anticipating to add incremental any particular toxicity of the CDA inhibitor. Although the deaminase -- cytidine deaminase exist in many tissues is really the cytidine levels are not associated with any known toxicity that we know of. So we're not really -- and also the absorption of this agent is limited to a certain period of time, and there is no accumulation. So really, we're not expecting any additional toxicity from the CDA inhibitor association with decitabine. In terms of the decitabine oral toxicity, as we anticipate and we said, that's actually an advantages and that we are expecting to be dosing the patient with a similar dose to the IV orally, which is around 20 milligram per meter square to achieve the therapeutic [indiscernible] that we're looking for. This is different from the data, for example, with oral is the cytidine which is being dosed at 300 milligram, which is more than double the dose that they are giving intravenously, which is 75 milligrams per meter square. So that's really kind of the differentiation. In terms of the formulation, it's very easy. In terms of the initial studies, we'll have to titrate, the decitabine and the E7727. So they will be given separately in 2 capsules. But once we fix the dose, so they will be put in the same capsule as a combination product. So that's the intent from the development of this drug.

Jason Zhang - Edison Investment Research Limited

Okay, so that's very helpful. And then the question I would ask that maybe, Jim, you can help us to understand is that can you actually tell us what countries in Europe Dacogen has been launched for AML? And then also could you also comment on your situations, for example in France, that were the issue not accepting -- accept pricing that Johnson & Johnson might have put forward? So anything that will be very helpful.

James S. J. Manuso

Sure. I appreciate it. Unfortunately, Jason, we're not at liberty to divulge the specific countries where the drug is currently marketed. But as you know, it was within days of its approval by the EMA that we did announce that it was sold and marketed in one of the G5. So that much has certainly occurred. What we've also indicated is that the number of countries where the drug is sold and marketed has increased considerably since 6 months ago. I mean, we were saying 35 countries now. We're saying more than 40 countries. And as far as pricing is concerned, we have no reason to believe that there is any negative pricing pressure on the drug. Again, I remind people it's the only medicine approved in the world for elderly AML. So we might expect there could be some premium over the price that you would observe in the U.S. prior to genericization of Dacogen. So I can't really give you more than that at this time. Michael, do you have any observations there.

Michael Molkentin

No, no. That's a complete response.

James S. J. Manuso

Yes, that's about all we can tell you at this point, Jason.

Jason Zhang - Edison Investment Research Limited

Good. Can I ask one more? So you actually have a list of drugs that you have developed to some degree, and that you prioritize. And so what's the plan for those assets? Are you actively looking for partners to license those drugs?

James S. J. Manuso

Yes we are. And I'll pass that to Martin for comment.

Martin Buckland

Jim, I don't think there's a great deal more I can add to the response. We are talking with a number of companies about the potential interest in both amuvatinib and also AT9283. But it's probably a little premature to say anything further about the state of those discussions at the moment.

James S. J. Manuso

Yes, certainly, Jason, it will always be our intention to try to monetize those assets that we're not going to advance. And that's something that we'll continue to exercise effort on achieving.

Operator

There are no further questions at this time. I'll turn the call back over to Dr. Manuso for closing remarks.

James S. J. Manuso

Okay. Well, thank you very much for dialing in. Please don't hesitate to contact us with any additional questions you might have, and I wish you a very good day. Thank you, and goodbye.

Operator

Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.

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