Medivation's (MDVN) CEO David Hung on Q1 2014 Results - Earnings Call Transcript

May. 8.14 | About: Medivation, Inc. (MDVN)

Medivation (NASDAQ:MDVN)

Q1 2014 Earnings Call

May 08, 2014 4:30 pm ET

Executives

Anne Bowdidge - Senior Director of Investor Relations

David T. Hung - Chief Executive Officer, President and Executive Director

Rick Bierly - Chief Financial Officer and Principal Accounting Officer

Cheryl L. Cohen - Chief Commercial Officer

Lynn Seely - Chief Medical Officer and Senior Vice President

Analysts

Lee Kalowski - Crédit Suisse AG, Research Division

Navdeep Singh - Goldman Sachs Group Inc., Research Division

Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division

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

Wen Shi

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

Matthew Roden - UBS Investment Bank, Research Division

John L. Newman - Canaccord Genuity, Research Division

Ying Huang - Barclays Capital, Research Division

Howard Liang - Leerink Swann LLC, Research Division

Yi Chen - Aegis Capital Corporation, Research Division

Operator

Good afternoon, everyone, and welcome to Medivation's First Quarter 2014 Financial Results Conference Call. This call is being recorded. [Operator Instructions] And now I would like to turn the call over to Anne Bowdidge, Senior Director of Investor Relations. Please go ahead.

Anne Bowdidge

Thank you for joining us. On the call today for Medivation are Dr. David Hung, President and CEO; Rick Bierly, Chief Financial Officer; Dr. Lynn Seely, Chief Medical Officer; and Cheryl Cohen, Chief Commercial Officer. We issued a press release today that you can find on our website at www.medivation.com.

Before we begin, I'd like to remind you that various remarks that we make on this call contains forward-looking statements that are made under the Safe Harbor provisions of the securities laws, including statements regarding XTANDI commercialization; the potential XTANDI regulatory approvals in other markets and for other indications and other potential future clinical trial initiation, events or results; the therapeutic potential and safety profiles of our product schedule; our future opportunities and milestones; and financial guidance for 2014.

In addition to our prepared remarks, we may make forward-looking statements in response to questions, including, for example, statements regarding our current and potential future collaborations, potential in-licensing opportunities and our future financial position and results.

Any statements made in this call that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause Medivation's actual results to differ significantly from those projected including, without limitation, the risks and uncertainties detailed in Medivation's quarterly report on Form 10-Q for the quarter ended March 31, 2014, which we filed today with the SEC.

All forward-looking statements made during this call are based on information available to us as of today, and we assume no obligation to update these statements as a result of future events or otherwise.

This call is the property of Medivation and any replay of this conference call cannot be made without Medivation's expressed written permission.

With that, I'll turn the call over to Dr. David Hung, President and CEO of Medivation. David?

David T. Hung

Thank you, all, for joining us today. We appreciate the opportunity to discuss XTANDI's performance during the first quarter and the achievements we and our partner, Astellas, have made on multiple significant commercial, regulatory and clinical objectives. Let me start with some recent regulatory developments.

Just this week, we and our partner, Astellas, reached a major milestone when the FDA notified us that our sNDA for enzalutamide for men with metastatic CRPC who have not yet received chemotherapy, was accepted for filing and granted priority review designation, which is reserved for drugs that treat a serious condition and, if approved, would provide a significant improvement in safety or effectiveness.

The FDA has set the PDUFA date for the completion of review at September 18, 2014. We've nearly completed the build-out of our field forces and are in the final stages of preparing for the launch in this upstream prostate cancer market, which we believe is largely untapped and very commercially attractive.

Since our last quarterly call, we've made significant strides in the post-chemotherapy market. According to our market research, a majority of physicians with a sample now, for the first time, view XTANDI as the preferred choice of treatment in the post-chemo setting.

And it was in this setting driven by oncologists that we saw stronger-than-expected demand. We were pleased by this finding because we did not anticipate that XTANDI would be so differentiated compared to other competitive agents among this physician base.

XTANDI's strong performance in the U.S. has created a solid foundation for global success and we and Astellas continue to make significant progress towards expanding XTANDI's worldwide presence. XTANDI is now approved in more than 40 countries for the treatment of metastatic CRPC patients who have previously received docetaxel.

In March, Astellas obtained XTANDI marketing approval for the treatment of patients with castration-resistant prostate cancer in Japan with the precaution that the efficacy and safety of the drug has not been established in patients with prostate cancer who have not received chemotherapy. This is a restriction that Astellas will address with the PREVAIL data in Japan.

Astellas made significant progress filing applications worldwide for the pre-chemo indication. Thusfar in 2014, we've earned approximately $62 million in milestone payments.

In April, Astellas submitted a variation to amend the European Marketing Authorization Application for XTANDI for the treatment of adult men with metastatic CRPC who are asymptomatic or mildly symptomatic after failure of androgen deprivation therapy and in whom chemotherapy is not yet clinically indicated. We're pleased to report that the European Medicines Agency validated the filing and we await further news.

A key announcement we made at the end of March was the appointment of Rick Bierly as our Chief Financial Officer. Rick comes to Medivation with more than 30 years of experience in finance roles at GSK, Aventis, Centocor and J&J. We're pleased to have him as part of the team and joining us on our call today.

With that introduction, I'll now turn the call over to Rick to discuss our financial results for the first quarter of 2014. Rick?

Rick Bierly

Thanks, David, and good afternoon, everyone. I'm very pleased to be joining the Medivation team at this time and look forward to meeting and working with all of you in the analyst and investor community who are joining us today in the call.

I'll begin with an overview of XTANDI net sales as reported by Astellas, our collaboration partner. U.S. XTANDI net sales, as reported by Astellas, were $124.5 million in the first quarter of 2014 compared with $75.4 million for the prior year period. The first quarter 2014 results reflect 65% year-on-year growth compared with the first quarter of last year and a 1% quarter-on-quarter decline compared with $126.1 million in the fourth quarter of 2013. Although we anticipated that Astellas' reported first quarter 2014 U.S. net sales of XTANDI would be lower than in the fourth quarter of 2013 due to channel inventory de-stocking and other factors, we saw stronger-than-anticipated demand in the post-chemotherapy segment in Q1 2014.

Further, relative to our February guidance assumptions, we also experienced a $9 million favorable gross to net adjustment as recorded by Astellas in Q1 2014. I'll return to these 2 factors in the context of our 2014 full year guidance later.

Since our launch in September of 2012, XTANDI prescriptions have been written for approximately 79,000 bottles by more than 5,700 individual prescribers in the U.S. Prescriber and payor response to XTANDI continues to be very favorable. Our market research shows XTANDI has high awareness among both oncologists and urologists. XTANDI continues to lead in share of voice in oncology, the primary prescriber group for the post-chemo label. XTANDI also continues to enjoy robust and widespread coverage in U.S. Medicare and commercial prescription plans.

Based upon progress in post-chemotherapy approvals outside the U.S., x U.S. XTANDI net sales, as reported by Astellas, were $47.8 million in the first quarter 2014.

Turning now to Medivation's P&L. Collaboration revenue was $87.2 million in the first quarter of 2014 compared with $46.2 million for the first quarter last year. As a reminder, Medivation's collaboration revenue consists of 3 components: revenue related to U.S. XTANDI net sales; revenue related to x U.S. XTANDI net sales; and revenue from upfront and milestone payments.

In the U.S., we share XTANDI sales, costs, profits and losses with Astellas. Our collaboration revenue related to U.S. XTANDI net sales in each period is equal to 1/2 of the U.S. XTANDI net sales reported by Astellas. For the first quarter 2014, our collaboration revenue related to U.S. XTANDI net sales were $62.2 million compared with $37.7 million in the year-ago quarter, representing growth of 65%.

Outside the U.S., Astellas bears all XTANDI costs, retains all XTANDI profits and losses and pays Medivation tiered royalties ranging from the low teens to the low-20s on x U.S. net sales. For the first quarter of 2014, our royalty revenue related to x U.S. net sales of XTANDI, as reported by Astellas, was $5.7 million; virtually that entire amount is growth from the prior year quarter.

For the first quarter 2014, our collaboration revenue from upfront and milestone payments was $19.2 million compared with $8.5 million in the year-ago quarter. The first quarter 2014 amount includes $15 million in development milestone payments earned under our collaboration agreement with Astellas as a result of the Japan post-chemo approval and $4.2 million of upfront milestone amortization in the current period collaboration revenue. The upfront milestone amortization will continue at this quarterly amount for the remaining 3 quarters and is expected to be fully amortized by the end of the year.

In total, the $87.2 million of collaboration revenue declined this quarter by $9.4 million compared with the fourth quarter 2013. We achieved the first of several possible sales milestones, that being $400 million in annual worldwide net sales of XTANDI in the fourth quarter of 2013. Doing so then triggered a $25 million sales milestone in the fourth quarter that did not recur in the first quarter of 2014.

Moving now to expenses. Our total operating expenses in the first quarter 2014 are $95.7 million compared with $68.5 million in the first quarter last year. These amounts include noncash, stock-based compensation expense of $9.7 million in the first quarter of 2014 compared with $8.3 million in the prior year period.

Our first quarter 2014 total operating expenses increased by 40% versus the year-ago quarter. The increased expenses continued to reflect our investment in the U.S. post-chemotherapy commercialization of XTANDI and enzalutamide clinical trial activity, including the initiation of our Phase III PROSPER and our Phase IV PLATO clinical trials in prostate cancer, as well as 2 Phase II clinical trials in breast cancer, and an increase in headcount in support of these activities.

First quarter 2014 expenses also include the cost of in-licensing activities, including the recently announced exclusive license and research arrangement with OncoFusion for BET bromodomain protein inhibitors.

We reported a net loss of $13.7 million or $0.18 per diluted share for the first quarter of 2014 compared with a net loss of $27.2 million or $0.36 per diluted share for the same period a year ago.

At March 31, 2014, we had cash of $241 million. Cash increased by approximately $13 million in the quarter from $228 million on hand at year-end 2013.

I'd now like to turn to guidance for 2014, starting with U.S. XTANDI net sales. We now estimate 2014 U.S. net sales of XTANDI, as reported by Astellas, to be in the range between $540 million and $575 million, such that our 50% share, reflected as collaboration revenue related to U.S. XTANDI net sales, would approximate $270 million to $288 million. We are increasing guidance based on stronger than previously anticipated sales demand seen in the first part of 2014, as well as the previously mentioned first quarter favorable gross to net adjustment.

We continue to expect mid single-digit, quarter-on-quarter percent demand growth in 2014 for XTANDI until receipt of FDA approval for pre-chemo patients based on our positive PREVAIL results, following which, we expect demand to increase by a double-digit growth rate. We assume, for this purpose, approval of the PREVAIL pre-chemo label occurs in September of 2014.

We anticipate collaboration revenue related to upfront and milestone payments will be approximately $229 million in 2014, including previously referenced upfront amortization plus $212 million of development milestones. Regarding development milestone timing, we assume European approval of the PREVAIL pre-chemo label triggering a $45 million development milestone in late 2014. And we assume Japan approval of the pre-chemo indication, also with the $45 million milestone, to occur in 2015.

Post 2013, Medivation is eligible to earn a total of $257 million of development milestone payments plus $295 million of sales milestone payments that would be triggered by achieving 3 specified levels of annual worldwide net sales. Of the development milestones, $15 million were earned in the first quarter of 2014 and, in addition, $47 million have been earned, thus far, in the second quarter.

Regarding sales milestones, there exists the possibility to achieve the next milestone at $800 million of worldwide XTANDI net sales at the end of 2014, for which there is a $50 million milestone. However, we cannot be certain of milestone achievement timing, of course.

Turning to expenses. We now expect 2014 total operating expenses for the year, net of cost sharing with Astellas, to be between $400 million and $430 million, down from our previous guidance of $460 million to $485 million. And in addition, we anticipate SG&A expenses will be just over 1/2 of total 2014 operating expense and R&D expense just under 1/2.

Our 2014 operating expense guidance includes an estimated $45 million to $50 million of noncash, stock-based compensation expense.

We have recently reassessed our 2014 hiring plans and operating expense investments with particular emphasis on advancing our commercial initiatives, clinical studies and early-stage R&D programs. Management is comfortable that the organization can continue to execute its important initiatives, including those associated with the Astellas collaboration on a timely basis in 2014 at this lower spending level. Most of our expected 2014 R&D expense relates to expanded XTANDI clinical development, including studies to potentially advance XTANDI's label further upstream in prostate cancer and also to explore XTANDI's potential utility in breast cancer.

Beyond XTANDI, just over 1/3 of 2014 R&D expense is anticipated to relate to our licensing, discovery and early development initiatives as we look to advance our early-stage programs.

Our operating expense guidance includes the BET bromodomain protein inhibitor program, but does not include the impact, if any, of new in-licensing arrangements that we may choose to do from this point forward in 2014. We will continue to pursue appropriate in-licensing opportunities to further our strategic objective of diversifying beyond a single-product company to one with a portfolio of multiple approved products.

With that, I'll now turn the call back over to David.

David T. Hung

Thanks, Rick. I'd now like to update you on the progress in our ongoing trials to develop enzalutamide earlier in the prostate cancer disease spectrum and also in breast cancer.

Enrollment is continuing in the PROSPER trial. The global Phase III trial we initiated in December is enrolling a higher risk subgroup of approximately 1,500 pre-chemo non-metastatic CRPC patients, who are progressing despite androgen deprivation therapy. In other words, these are patients that are earlier in the prostate cancer disease spectrum than those in PREVAIL who have metastatic disease.

The primary endpoint of the trial is metastasis-free survival. Both of our 2 ongoing Phase II clinical trials, TERRAIN and STRIVE, have now completed enrollment. As you may recall, STRIVE and TERRAIN were both designed to compare the effect of enzalutamide, head to head, versus bicalutamide, the most commonly used anti-androgen.

TERRAIN enrollment was completed by Astellas in July of last year and STRIVE enrollment was completed by Medivation in March of this year. These 2 trials enrolled a total of nearly 800 men. The TERRAIN trial enrolled patients in Europe with metastatic disease and the STRIVE trial enrolled men with both metastatic and non-metastatic disease in the U.S. The companies continue to follow up with these patients.

Enrollment is continuing in our Phase IV PLATO trial, which we initiated in November last year. The purpose of this trial is to determine the potential clinical benefit of continuing enzalutamide treatment in patients with chemotherapy-naïve metastatic CRPC after progression on enzalutamide. Therefore, in this trial, approximately 500 patients with chemotherapy-naïve metastatic CRPC will be enrolled and treated with an open-label enzalutamide.

At the time of progression on enzalutamide, patients will be randomized to either continuation of enzalutamide with the addition of abiraterone plus prednisone versus switching therapy to abiraterone plus prednisone alone.

The primary endpoint of the trial is progression-free survival. In addition to our ongoing studies evaluating enzalutamide in prostate cancer, we also have 2 ongoing Phase II trials evaluating enzalutamide in breast cancer. In June, we initiated enrollment in a Phase II trial evaluating enzalutamide as a single agent for the treatment of advanced androgen receptor-positive, triple-negative breast cancer, known as TNBC. TNBC is a type of cancer which is not driven by the 3 most commonly targeted receptors in breast cancer: estrogen, progesterone and HER2.

The Phase II open-label, single-arm, multi-center trial plans to enroll approximately 80 patients with AR+ TNBC in sites in the U.S., Canada and Europe. The primary endpoint of the trial is clinical benefit rate defined as the proportion of patients with a complete response, partial response or stable disease at greater than or equal to 16 weeks.

All patients will receive enzalutamide at a dose of 160 milligrams to be taken orally once a day. Enrollment is continuing in our Phase II trial in breast cancer we initiated in December, evaluating enzalutamide in combination with exemestane in approximately 240 women with advanced breast cancer that is either estrogen receptor-positive or progesterone receptor-positive and HER2 normal.

The primary endpoint of this trial is progression-free survival in all patients within a subset of patients whose tumor expresses the androgen receptor. A key component of our corporate strategy is to diversify beyond a single-product company to one with a portfolio of multiple approved products. As we've said, we plan to achieve that diversity through our own internal lease activities and by in-licensing technologies from academic institutions or other third parties.

In line with that strategy, in April, we announced a licensing agreement with OncoFusion Therapeutics, a private company that was formed based on technology developed at the University of Michigan. The agreement provides Medivation with exclusive worldwide rights for the development and commercialization of a new class of pharmaceutical therapeutic agents targeting BET bromodomain protein, which have potential broad application in oncology and other diseases.

Just 2 weeks ago on April 23, an article authored by OncoFusion cofounders and University of Michigan professors, Arul Chinnaiyan and Shaomeng Wang, appeared in the journal Nature, showing that a compound designed to inhibit BET bromodomain protein has significant effect on inhibiting prostate cancer growth in preclinical model. Consistent with the fact that the target of BET bromodomain inhibitors is downstream of the target for current hormonal therapies in CRPC, BET bromodomain inhibitors demonstrated efficacy in AR-resistant cell life. These data suggest that BET bromodomain inhibitors may, therefore, have therapeutic potential in patients with advanced disease who have progressed on other treatments.

Particularly notable in the major publication was the lack of effects of bromodomain inhibitor on normal prostate cells while still exerting striking effects in prostate cancer cells, suggesting that antitumor effects described are achieved without modulating normal prostate tissue, consistent with BET bromodomain proteins regulated expression of tumor promoting gene.

This finding opens the possibility of a differentiated approach to treating earlier stage prostate cancers compared with current castrating therapies as currently marketed prostate cancer agents like Lupron, Casodex, ZYTIGA and even XTANDI are all known to affect normal prostate tissue.

We believe that this bromodomain program offers the possibility of leveraging and expanding our established prostate cancer franchise to develop a next-generation, best-in-class prostate cancer therapy. And because BET bromodomain proteins comprise a large family of epigenetic regulators that appear to play a role in aberrant signaling across many disease states as shown by scientists at OncoFusion as well as in multiple other independent laboratories, we are particularly excited about the potential breadth of this program in targeting cancers beyond prostate cancer such as breast, lung and melanoma cancers and hematologic malignancies, as well as other non-cancer indications.

In addition to BET bromodomain protein, we are also investing in other early stage program, both in the discovery stage and in the preclinical development stage.

Our early stage programs focus primarily on cancer and central nervous system diseases where we believe new therapies can substantially improve the current standard of care. We will update you on our early development programs later this year.

With that, we thank you for your continued support and we look forward to updating you further on our progress in 2014. I'll now turn the call over to the conference coordinator to open the call up to Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Lee Kalowski of Crédit Suisse.

Lee Kalowski - Crédit Suisse AG, Research Division

David, I hope you don't mind, I wanted to ask a question on the commercialization. And if you didn't mind, a quick follow-up on the litigation, if that would be all right. So the first question that I have is, looking at the new guidance going up by $40 million versus what was just given maybe 2 months ago, and if I take out the $9 million gross to net adjustments, I mean, I assume that's -- based on the sales this fiscal year, it still leaves $31 million over the next 3 quarters. And you guys are talking about -- still thinking about single-digit quarter-on-quarter growth. So is this difference relative to where you were 2 months ago, pre-chemo uptake? And can you say if the additional reps that you hired are out detailing products ahead of the pre-chemo PDUFA?

Cheryl L. Cohen

Yes. Lee, this is Cheryl. I can talk about the commercialization to you. What we saw in the first quarter, which is what we didn't anticipate, is actually the impact in our post-chemo setting, our post-docetaxel. What we saw that was surprising is, first of all, we saw that it was the first time that oncologists differentiated us in the marketplace. And then, in addition, we saw a share change in the post-docetaxel setting.

Lee Kalowski - Crédit Suisse AG, Research Division

Okay. But you're still talking about single-digit growth?

Cheryl L. Cohen

Yes. We're still continuing to have mid single-digit growth, but that's after -- or over a higher volume.

Lee Kalowski - Crédit Suisse AG, Research Division

Okay. And the reps, are they out detailing product ahead of the PDUFA?

Cheryl L. Cohen

No. Not in PREVAIL. We cannot promote PREVAIL because, obviously, we don't have that approved indication. The only thing our reps are promoting is XTANDI in the post-docetaxel setting.

Lee Kalowski - Crédit Suisse AG, Research Division

Got it. Okay. And I just wanted to ask a quick question on the litigation. So I know this quarter, there was an 8-K talking about UCLA filing a different -- additional claims, including claims on the profit split. So can you say if the agreement with Astellas would basically split that if you had to pay? And now that they would have some skin in the game, could the litigation be moved to a federal court if they were to intervene?

Rick Bierly

Lee, maybe -- this is Rick, maybe I'll take that. So first of all, as we indicated in the 8-K, we don't agree with the supposition that the sales milestones and, now, the pretax profits are subject to the 10% with UCLA. And so, we intend to vigorously defend against that allegation. And so, there's no conversation or a place in the Astellas arrangement to even get to that. That's not a present-day thought.

Operator

Our next question comes from Navdeep Singh from Goldman Sachs.

Navdeep Singh - Goldman Sachs Group Inc., Research Division

So you raised guidance about -- you raised guidance up about $40 million or so. And I'm wondering -- are you -- does your new guidance assume any uptake or any material uptake in pre-chemo prostate cancer? And I have a quick follow-up.

Cheryl L. Cohen

This is Cheryl Cohen. Our new guidance is with the same assumption of a September launch with PREVAIL.

Navdeep Singh - Goldman Sachs Group Inc., Research Division

Okay. And then over the quarter, there were some data indicating that XTANDI is not effective in ARv7-positive prostate cancer patients. Can you discuss the impact of that data? And do you have a sense of how many patients test positive for ARv7?

David T. Hung

Yes. I -- no, I think that the bottom line for us is that in now 2 Phase III trials we've shown robust benefits in both survival and progression-free survival as well as multiple secondary endpoints, and we think that clinical data trumps preclinical data.

Navdeep Singh - Goldman Sachs Group Inc., Research Division

Okay. And then, David, any sense of when we'll get to see the TERRAIN data?

Lynn Seely

So this is Lynn. As you know, both the TERRAIN study and the STRIVE study have completed enrollment, which is great news. The TERRAIN study completed enrollment in July, and the companies, Medivation and Astellas, are continuing to follow these patients. At this point, Astellas hasn't given any guidance on when the TERRAIN data will become available.

Operator

Our next question comes from Geoff Meacham from JPMorgan.

Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division

I wanted to talk a little bit about the trends that you saw in the first quarter. You speak to the duration of XTANDI therapy over time that -- what you've seen over the past, say, 6 months or so. And then any change post-PREVAIL, the presentation, any changes that you've seen among prescribing behavior for medical oncologists. Is there -- I just want to get a sort of a hint. I know you don't promote in preclinical. I just want to get a hint for whether you're seeing any volume coming from medical oncologists and -- or any early signals from the urology segment, which I doubt, but I suspect that you could see some coming into that kind of show [ph]?

Cheryl L. Cohen

Great. This is Cheryl. Let me address the duration question first. We're continuing to see duration increase over time as we're longer on the market, which I think is a positive thing. And to address your post-PREVAIL question, as you know, we cannot promote the PREVAIL data yet and the growth that we actually saw in the first quarter, surprisingly, was in our approved indication, which is the post-docetaxel setting. And finally, the urologists, and I think we've stated this before, that we don't anticipate to see any uptake with PREVAIL in urology until we get the approved label.

Operator

Our next question comes from Katherine Xu from William Blair.

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

A couple of questions here. So with regard to PROSPER, we've heard that for the studies, first on the MGO setting, it's a little bit difficult to enroll because patients are blinded for their PSA and there could be people getting PSA testing themselves or even quitting after they figure out they're on placebo. So just, I'm curious what your experiences are with enrolling that study.

Lynn Seely

Sure. This is Lynn. There is no question that the non-metastatic CRPC setting where PROSPER is currently enrolling is a little bit more difficult than in the metastatic setting. However, there are no surprises here. This was something that we expected. We planned accordingly for it, and I think we're actually quite pleased at how our PROSPER trial is going at this point in time. And we are -- there are -- it's a difficult trial, but we're prepared for it and we're on top of it and, again, pleased with the progress we're making.

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

Lynn, if you don't mind, another question for you. For the TERRAIN study, could you remind us the endpoints, both primary and secondary? And also, what do you think that you have to achieve over Casodex to potentially justify -- this is close to $8,000 a month price tag in the earlier stage cancer setting?

Lynn Seely

Sure, Katherine. So I think the primary endpoint of the study is a progression-free survival endpoint. This is not a strict radiographic progression-free survival endpoint, it's a composite endpoint which also includes changes, in the classic therapy. And I think, at this point in time, we're not going to speculate on the benefit. But obviously, we're conducting the study head-to-head with bicalutamide. We fully anticipate that the study will show benefit for XTANDI. But we're going to wait and see the results before we speculate.

Operator

Our next question comes from Geoffrey Porges from Sanford Bernstein.

Wen Shi

This is Wen Shi, here for Geoff. I have 2 questions. One is on your operating expense guidance, right. So there was a significant guide down in terms of expenses. I think what you had in previous guidance, we were under an impression that you were going to ramp up R&D, you were going to ramp up SG&A. So what was the thinking process behind this new guidance that you just figured out a better way to prioritize things and lower expenses? Right, then I have a question about breast cancer.

Rick Bierly

Okay. Yes, thank you, this is Rick. I think it's more the latter. The operating expense reduction is about 10%, plus or minus, versus the previous assumption. And frankly, I think we see that as very manageable for us. We think $400 million to $430 million of spending net of cost sharing is a sufficient amount, really, for us to be spending to carry out more important programs in 2014. Some of the change also has to do with my coming onboard as we took that opportunity to revisit hiring plans and timing, as well as other spending. And so, we continue to have a full plate of XTANDI development studies that we're focusing on with Astellas and we're also expanding the commercial field team and training the team to be ready in anticipation of the new PREVAIL label, should that come. And this relook has really also enabled us to juggle some things and, let's say, acquire the new license and research arrangement with OncoFusion. Again, I would say that our programs are on track and well funded at this revised 2014 spend level.

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

Thank you, Rick. And good luck with your new role.

Rick Bierly

Yes. Thank you.

Wen Shi

Yes. On breast cancer, right, especially on triple negative, how should we think about what would be a good efficacy signal in this patient population, especially since this is a single arm and not a controlled study, right? And also in terms of timeline, is it correct to think that there's going to be 6 months treatment after you have enrolled the last patient? So it's like whenever you the finish enrollment plus 6 months and plus some more when you get a data?

Lynn Seely

Yes. So this is Lynn. It's good questions about the triple negative breast cancer study. This is an open-label study where we're enrolling women who have AR+ triple negative breast cancer. That trial is continuing to enroll. And at this point, we really haven't given any guidance on the timelines. And again, I really don't want to speculate on the results until we have them.

Operator

Our next question comes from Matt Roden of UBS.

Matthew Roden - UBS Investment Bank, Research Division

So first, I wanted to see if we can increase the clarity one tick further on the quarterly number. You reported $125 million here. You mentioned the $9 million favorable gross to net adjustment. I just want to get a sense if there's any other adjustments or any other aspects of the number that's different than what the demand level is? So in other words, if you go back to the fourth quarter, in the various adjustments you talked about last quarter, kind of like maybe the right demand level at that point was $105 million to build off of. Should we assume that it's $116 million here or are there other adjustments we need to keep in mind? And then related, as you think forward, in the next couple quarters, I know you can't give specific guidance, but should we be factoring in any other inventory or gross to net adjustments as we go forward?

Rick Bierly

Okay. Yes, thanks. This is Rick. So I think we spoke about the key elements that we saw in the quarter, that being demand growth and also the one-time gross to net adjustment. There were items, as you mentioned, that had been sort of highlighted in the call a couple of months ago. And I would simply summarize by saying that the various onetime elements within the first quarter tended to be somewhat offsetting in nature. And so, a reasonable demand base in Q1, versus the number that you quoted, in our way of thinking, it's probably closer to the reported net sales level for the quarter. So we don't see any, let's say, inventory adjustments on the near-term horizon.

Matthew Roden - UBS Investment Bank, Research Division

Okay. All right. That's helpful. And then on the bromodomain program, the OncoFusion collaboration there. So I guess, there are other BET molecules out there in the world, and I was just wondering, what was it about this particular franchisee you thought was attractive and maybe different than the others out there, and how should we think about that? I mean, how far along are we here? Are we going to see any incremental information on that program this year?

Rick Bierly

Well, we will be updating you further on the status of our early development programs later in the year. I'm not going to comment more at this conference call about this particular program, except to say that we really like the program, we really believe that Shaomeng Wang and Arul Chinnaiyan have done a great job in creating a portfolio of compounds that have obviously impressed us sufficiently to license the program. And we will expect to update you on this and other programs sometime later.

Operator

Our next question comes from John Newman of Canaccord.

John L. Newman - Canaccord Genuity, Research Division

Yes. I just wondered if you could talk about sort of the process that you're going to engage in, in terms of reaching out to the urologists, if you receive approval for the PREVAIL study later this year. Are there specific accounts that you're going to target in terms of urologists that, for whatever reason, may be using the product post-chemo? Are there -- are you going to be focusing mostly on the larger accounts? And what is the messaging going to be? Since we're going to be talking to urologists here, are they going to be satisfied with explaining a hazard ratio? Are they going to look at PSAs? Or how do you plan on approaching that?

Cheryl L. Cohen

Thank you for the question. This is Cheryl Cohen. First of all, this is all in the context of after approval of PREVAIL, how we would approach the market. I think you know today we're calling on a small segment of the urologists that currently today manage post-chemotherapy patients. But going forward, after approval, we plan on expanding and broadening that mix of customers. It will all be in urology. There's today about between 8,000 and 9,000 customers that use Casodex that we will be focusing our efforts towards in order to penetrate and have a successful launch. Going into the messaging, the only thing that I'd like to say, for competitive reasons, is that it will be simple and easy for the urologists to understand.

Operator

Our next question comes from Ying Huang from Barclays.

Ying Huang - Barclays Capital, Research Division

First of all, can you clarify a little bit more the market dynamics that you're seeing in the field? That is you mentioned that majority of the doctors favor XTANDI over ZYTIGA in post-chemo. Can you give us a little bit like in terms of number or percentage in favor of XTANDI? And then, are most patients getting XTANDI treatment ahead of ZYTIGA in this setting? And then secondly, if you could help us understand whether there's any inventory change from 4Q '13 to 1Q here.

Cheryl L. Cohen

Okay. So Ying, this is Cheryl, I'll take the first question. Based on our market research, we have seen, for the first time, this quarter, that a majority of the physicians, which is oncologists and urologists, have favored XTANDI over ZYTIGA. The second question, can you repeat that in regards to XTANDI?

Ying Huang - Barclays Capital, Research Division

Yes. So if you look at overall, the U.S. end-market sales for XTANDI, is the majority of sales coming from patients who are using XTANDI ahead of ZYTIGA?

Cheryl L. Cohen

That is correct. The majority of the sales are coming from being used ahead of ZYTIGA.

Ying Huang - Barclays Capital, Research Division

And then any clarity on the inventory level change from fourth quarter last year to this quarter?

Rick Bierly

Not in detail. I think it was pretty much as we anticipated. And as I mentioned, those factors that we saw, sort of onetime events in the first quarter tended to be somewhat offsetting.

Ying Huang - Barclays Capital, Research Division

If you don't mind, can you tell us, if you look at the bottles you shipped out in terms of demand growth from fourth quarter to the first quarter here?

Rick Bierly

Yes. So I think I mentioned that the cumulative bottles launched to date is about 79,000. And in the -- I think when we reported that number, it was about 60,000 at the end of the year. And there are some adjustments that I'm aware of related to patient programs and a couple of other things that affect that data. But that's what we reported.

Operator

Our next question comes from Howard Liang of Leerink.

Howard Liang - Leerink Swann LLC, Research Division

Regarding your comment that the growth is from post-chemo, can you give us a sense of what data you used to determine that the growth is from post-chemo? And whether this is a, say, pure share gain or is there a market growth component?

Cheryl L. Cohen

Yes. This is the chart audit that we do to our ATU research. It's just common, usually used in our industry.

Howard Liang - Leerink Swann LLC, Research Division

So do you have data on most of the patients or sort of a subset of patient and project that to market?

Cheryl L. Cohen

Subset of patients. We don't pull every chart of every patient that's been on XTANDI. That would be impossible. We do that on a quarterly basis.

Howard Liang - Leerink Swann LLC, Research Division

Regarding the PLATO study, is there an interim look? I don't know if you would agree with the assessment. I think it looks interesting, but I don't know if -- 500 patients is quite a lot for a PFS endpoint. So therefore, maybe potentially you could see a benefit earlier?

Lynn Seely

So the 500 patients all start out on open-label enzalutamide. And this is a chemotherapy patient population, so -- because you have to before you get randomized, either through the addition of abiraterone or switching to abiraterone or prednisolone alone, you have to progress. So we start with 500 patients. A certain percentage of those we know are going to do great on enzalutamide and are not going to progress. And so, we're really just going to look at the percentage of those patients who progress. So we've done some very careful sample size calculations, and we believe this going to be the appropriate number to be able to demonstrate the benefit at the end of the day.

Howard Liang - Leerink Swann LLC, Research Division

Is there a prespecified interim look?

Lynn Seely

At this point, there's not a planned interim look, there will just be a final.

Howard Liang - Leerink Swann LLC, Research Division

Okay. Just a follow-up. Is there -- will you be able to file for some sort of a label expansion based on this study?

Lynn Seely

So at this point in time, we're not planning to file this as a label expansion. We'll see what the data show.

Operator

And our last question comes from Yi Chen of Aegis Capital.

Yi Chen - Aegis Capital Corporation, Research Division

First, when do you anticipate obtaining a CHMP opinion on the European regulatory filing for approval of XTANDI in the pre-chemo setting? And when might the drug be approved in your view? Could it happen this year?

Lynn Seely

So this is Lynn. Yes, for the purpose of the guidance and the forecast we've given, we've stated that it could occur in the fourth quarter this year. Obviously, we can't control exactly when the regulators are going to approve, so -- but we're anticipating somewhere around Q4, end of this year.

Yi Chen - Aegis Capital Corporation, Research Division

So you're talking about CHMP opinion or a final approval?

Lynn Seely

Approval. Final approval.

Yi Chen - Aegis Capital Corporation, Research Division

Okay. My second question is, when do you anticipate filing an R&D on the lead compound from OncoFusion's collaboration?

David T. Hung

We haven't disclosed that yet. But we'll update you in the future.

Yi Chen - Aegis Capital Corporation, Research Division

Okay. Are you familiar with ESSA Pharma and its work on N-terminal domain inhibitors of the androgen receptor? If so, is it likely in your view that such inhibitors could remain active against prostate cancer cells that are known to be resistant to enzalutamide?

David T. Hung

Certainly. I mean, yes, we're very familiar with that program. N-terminal domain inhibitors have -- certainly have the potential to address AR-resistant mechanisms. However, the reason that we are so excited about the bromodomain program is that it is not specific to prostate cancer or even to AR. So this is a very broad class of epigenetic regulators that we think play a significant role in prostate cancer and many cancers and as well as in non-cancer indications. So for us, we think there's a lot more bang for the buck for this program than something focused strictly on 1 receptor and 1 cancer.

Yi Chen - Aegis Capital Corporation, Research Division

Got it. Do you plan any further business development activities near-term, focusing on clinical stage assets?

David T. Hung

We just don't comment publicly on our strategy. Obviously, we have said previously that we intend to build our portfolio through both internal programs, as well as external programs. This is one example of an external program, but we certainly have many planned for the future growth of this company, but we just haven't disclosed them.

Thank you. And with that, we want to thank you, all, for your continued support, and we look forward to updating you further in the future. Thanks again.

Operator

Ladies and gentlemen, that does conclude today's conference. Thank you for your attendance; you may now disconnect. Everyone, have a great day.

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