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Executives

Breanna Burkart - Director of Investor Relations and Corporate Communications

Patrick Mahaffy - President and Chief Executive Officer

Erle Mast - Chief Financial Officer

Gillian Ivers-Read - Executive Vice President of Development Operations

Analysts

Gene Mack - HSBC

Gur Roshwalb - Piper Jaffray

Phil Nadeau - Cowen and Company

Matt Osborne - Lazard

William Ho - Banc of America Securities

Jason Zhang - BMO Capital Markets

Eric Vieira - Majestic Research

Dave - Morgan Stanley

Steven Rosston - Glynn Capital Management

Jim Reddoch - FBR

Pharmion Corp. (PHRM) Q3 2007 Earnings Call October 31, 2007 5:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Pharmion Third Quarter Financial Results Conference Call. My name is Akiya (ph) and I’ll be your operator for today. At this time, all participants are in a listen-only mode.

We will conduct a question-and-answer session toward the end of the conference (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Ms. Breanna Burkart, Director of Investor Relations and Corporate Communications. Please proceed, ma'am.

Breanna Burkart

Thank you, Akiya. Good afternoon and welcome to the Pharmion Corporation third quarter 2007 conference call. You should have received the news release announcing our third-quarter financial results. If not, it is available on our website at www.pharmion.com.

As a reminder, this conference call is being recorded and webcast. Remarks may be accessed live on our website during the call, and will be available in our archive for the next several weeks.

The agenda for today's call is as follows. Patrick Mahaffy, Pharmion's President and CEO, will briefly review the third quarter and the near-term milestones associated with our product portfolio. Then Erle Mast, Pharmion's Chief Financial Officer, will review the financial results for the quarter and comment on the Company's outlook for 2007.

Then we would like to open the call for a Q&A session with our call participants and members of our senior management team. In addition to Patrick and Erle, joining us today is our Executive Vice President, Development Operations, Gillian Ivers-Read and our Chief Medical Officer, Andrew Allen, to respond to your questions.

Before we begin, please keep in mind that this conference call, particularly the discussion of our financial outlook, contains statements about expected future events that are forward-looking and subject to risks and uncertainties.

Factors that could cause actual results to differ and vary materially from expectations can be found in Pharmion's filings with the SEC. Forward-looking statements speak only as of the date on which they are made, and Pharmion undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

Now, I will turn over the call to Patrick Mahaffy.

Patrick Mahaffy

Thanks, Breanna. Thank you all for joining us this afternoon. We are extremely pleased with our financial results and our clinical and regulatory achievements during the third quarter.

Our third-quarter sales of $67.3 million represent our best sales quarter to date, and Erle will review the detail of the financial results after I give a brief overview of our results for the quarter.

We made significant progress during the quarter toward the achievement of our 2007 regulatory and development milestones, which we expect to contribute meaningfully to our growth in 2008 and beyond.

Highlights of the quarter include our announcement of exceptionally strong top-line Phase III overall survival data for Vidaza, which clearly differentiates Vidaza as the only agent that provides the gold standard of clinical benefit survival for patients with higher-risk MDS; the commencement of our Phase III pivotal trial for Amrubicin in small cell lung cancer.

The acceleration of our launch planning for Thalidomide, for which as most of you know, we anticipate a decision from the EU regulatory authorities on our marketing application for first-line myeloma within the next few months; the initiation of a research collaboration with MethylGene for the development of sirtuin inhibitors, this will be our third epigenetic anti-cancer program at Pharmion and our second with MethylGene.

We initiated an additional Phase I and II studies for our HDAC inhibitor, MGCD0103; and finally, received fast-track designation by the FDA for oral Azacitidine for MDS, which is currently the subject of a Phase I/II MTD study in MDS and AML.

We expect these recent and upcoming events to have a meaningful impact on our long-term growth prospects.

Turning now to our development pipeline, and first to Vidaza. Most of you are aware, and as I just announced, we released in August the top-line results from the largest study ever conducted in higher-risk MDS.

This study evaluated overall survival and several secondary endpoints in 358 higher-risk MDS patients receiving either Vidaza or conventional care. Results from this study represent our most significant achievement for 2007. I will briefly recap those top-line data.

In the primary endpoint analysis, Vidaza treatment was associated with a median overall survival of 24.4 months versus 15 months for conventional care, with a p value of 0.0001; hazard ratio was 0.58.

Two-year survival rates were 50.8% for Vidaza versus 26.2% for patients receiving the conventional care regimen, with a p value of less than 0.0001. Importantly, the median number of treatment cycles in the Vidaza arm was nine.

We believe the data from this study will provide a significant marketing advantage, as Vidaza is now the only therapy to not only demonstrate a survival advantage but a survival advantage of this magnitude in the treatment of higher-risk MDS.

In particular, physicians are particularly enthusiastic about the 100% improvement in the two-year survival rate, which is unprecedented in this disease. It is not at all clear that other agents in pivotal higher-risk MDS trials will have a similar effect in this patient population.

Full data from this study will be presented at a major medical conference later this year. Additionally, these data will serve as the basis for our European Marketing Authorization Application for Vidaza in the treatment of higher-risk MDS, as well as a supplemental new drug application to the FDA to include these data in the prescribing information.

We intend to file the MAA in Europe by year-end, seeking an accelerated review, and the sNDA in the first quarter of 2008. We will file additional submissions and supplemental applications in other international markets throughout 2008 as well.

Turning now for oral Azacitidine, our development of oral Azacitidine remains on track. We were pleased that the FDA recently granted fast-track status for oral Azacitidine in the treatment of MDS, acknowledging the potential significance of this agent. There are centers open and enrolling patients in the Phase I MTD study, and expect interim data as early as ASCO 2008.

I should note that investigator interest in oral Azacitidine is exceptionally high. We anticipate substantially expanding the clinical development program in 2008.

Now, to Thalidomide. Based on encouraging progress with the EMEA, we continue to expect an action from the European regulators on our filing within the next few months. In anticipation of this timing, we are accelerating launch preparation activities for Thalidomide Pharmion, including expanding our European sales force.

In addition, results from the IFM 99.06 study, the primary study in our Thalidomide submission, were published in the October 6 issue of The Lancet. This publication will be a key component of our launch materials.

Now, to Satraplatin. Unfortunately, last evening we announced that the overall survival results from the Phase III SPARC study did not achieve statistical significance. The results showed no difference between the Satraplatin arm and the control arm, with a hazard ratio of 0.97.

While we are disappointed with these results, as you know, we did not have high expectations for a statistically significant overall survival outcome.

Our European filing for Satraplatin, which was submitted in June, is based on the PFS data from the SPARC trial, and the timing of the submission was chosen so that overall survival data could be submitted during the review process.

These overall survival results will clearly have an impact on the EMEA's review of our active submissions.

We believe that critical to our submission will be the results of the prespecified subset analyses, with particular focus on the impact of prior Taxotere use. In addition, based on our very preliminary review of the overall survival data, Taxotere use following the SPARC trial may have contributed to the outcome of the trial. Obviously, we've only had one day to review these data, and any further comments would be inappropriate at this time.

Let me turn to 0103, our HDAC inhibitor. It is currently the subject of a broad Phase II program which includes studies in a variety of hematologic and oncology indications, both as monotherapy and in combination with approved anticancer agents.

During the quarter, it was granted orphan drug designation by both the U.S. and E.U. regulatory authorities for the treatment of Hodgkin's lymphoma, which provides certain incentives for sponsors to investigate a product for use in a rare disease or condition.

We initiated a Phase I trial in combo with Taxotere in solid tumors, as well as Phase II monotherapy study in CLL during the quarter, and expect to initiate a Phase II combination study with Vidaza in lymphomas before the end of 2007.

We also reported preliminary clinical data at the AACR-EORTC-NCI meeting from the Phase I portion of the 0103 in Gemzar or gemcitabine study in patients with solid tumors. In addition to reaching the MTD, these data demonstrated preliminary evidence of activity in pancreatic cancer and we are moving forward now with the Phase II portion of the study.

Together with MethylGene, we intend to initiate a pivotal registration study for 0103 by the end of 2008 most likely in either monotherapy in Hodgkin's lymphoma or in combination with Vidaza in a hematological malignancy, and in that case, most likely AML.

So in summary, we're very pleased with the progress of this program and the early efficacy signals that we are seeing for 0103 in solid tumors, as well as in hematological malignancies.

Moving now to Amrubicin, pleased to say that we recently initiated our pivotal Phase III study of Amrubicin in the second-line treatment of small cell lung cancer patients with either sensitive or refractory disease.

The randomized controlled multi-center study will compare Amrubicin to topotecan, the only approved chemotherapy for second-line treatment of small cell lung cancer in the U.S. and E.U.

Enrollment of the 480 patient study is underway, patients being randomized in a 2 to 1 ratio to receive either Amrubicin or topotecan. The primary endpoint of the study is survival. The secondary endpoints include progression-free survival, overall response rate, duration of response and quality of life.

For this study, we have completed the Scientific Advice process with the European regulatory authorities and reached an SPA agreement with the FDA. We expect this study, which is being conducted in 135 centers in North America, Europe and Australia, to take between 18 and 24 months to enroll.

If successful, the results will lead to a potential filing in the U.S. and perhaps in Europe in 2010. We are extremely pleased with the results seen thus far and the enthusiasm of the investigator community to participate in the trial.

Now, I'll take a moment to comment on our ASH plans. Our pipeline investment is yielding substantial new and updated data, some of which I have reflected today. And as a result, we're looking forward to what we expect to be our strongest presidents at the American Society of Hematology annual meeting, which is this December in Atlanta.

I'll note that we also plan to host an investor or analyst event on Monday evening, December 10th, from 7:30 until 9:00 to review the key clinical data presented at the meeting. Invitations will follow next month. I hope that many of you can join us there.

Now, let me turn the call over to Erle to discuss third quarter 2007 financial results and guidance for the year.

Erle Mast

Thanks, Pat. Good afternoon, everyone. Our full financial results are in this afternoon's press release, so I will direct my comments to highlights for the quarter, and I'll provide some additional analysis and commentary, and let me start with product sales.

As Pat mentioned, we had a very strong sales quarter, achieving our highest level of sales to date. Net sales for the third quarter totaled $67.3 million, which represented a 9% increase over total sales for the third quarter of 2006. For the nine months ended September 30th, 2007, net sales totaled $195.8 million, and that represented an increase of 10% over the same period in 2006.

Worldwide sales of Vidaza totaled $42.3 million for the third quarter, an increase of 16% over the third quarter of 2006. For the first nine months of 2007, worldwide Vidaza sales totaled $120.5 million, an increase of 14% over the same period of 2006.

Vidaza sales in the U.S. totaled $33.3 million in the third quarter of 2007, which were equal to the sales in the third quarter of 2006. On a sequential quarter basis, U.S. Vidaza sales increased 3% over the second quarter of 2007.

Many patients in compassionate use sales of Vidaza in Europe in certain rest-of-world markets continued to grow, totaling $9 million in the third quarter 2007, up from $3.3 million in the third quarter of 2006. On a sequential quarter basis, EU and rest-of-world Vidaza sales increased $1 million or 13% over the second quarter of 2007.

Thalidomide sales for the third quarter of 2007 totaled $20.2 million, which was equal to the Thalidomide sales during the third quarter of 2006, and in line with our Thalidomide sales for each of the first two quarters of 2007. For the nine months ended September 30th, 2007, sales of Thalidomide totaled $60.7 million, compared to $58.8 million in the same period of 2006.

Now, let me turn to operating expenses, and I'll begin with R&D expense. We made tremendous progress advancing the development of our product portfolio during the third quarter. As Pat just reviewed, we reported unprecedented top-line survival data for Vidaza in higher-risk MDS, initiated a pivotal Phase III study for Amrubicin in second-line small cell lung cancer and Phase I and Phase II studies for MGCD0103 in solid tumors and CLL, and we enrolled patients in the Phase I dose escalation study of oral Azacitidine. We also commenced our research collaboration targeting to 200 inhibitors with MethylGene, our third epigenetic program.

Now, as expected, these and other development activities resulted in an increase to R&D costs, as our third-quarter R&D expenses totaled $29.1 million. We were very pleased to see our development programs progress during the quarter, as they will drive our longer-term sales and earnings growth.

Turning to SG&A expenses, selling, general and administrative expenses totaled $32.5 million for the third quarter of 2007 and $93.2 million for the first nine months of the year. Now, these amounts represent increases of approximately 30% over the comparable periods of 2006.

And as we previously discussed, we expanded our commercial activities in both the U.S. and Europe to prepare for the potential launches of Thalidomide and Vidaza in Europe and for the relaunch of Vidaza in the U.S. with the survival data.

During the third quarter, we completed the expansion of our U.S. sales organization, increasing the number of our field-based personnel by approximately 30. We now have a U.S. field-based commercial and medical science team totaling approximately 140, which we believe provides us with the appropriate resources to reach the MDS market. We reported a net loss of $21.4 million or $0.58 cents per share for the third quarter of 2007 and a net loss of $36.4 million or $1.05 per share for the nine months ended September 30, 2007.

Now, these net losses include stock compensation expense for the third quarter of $1.5 million and of $4.1 million for the nine months ended September 30, 2007. Also, the losses for the quarter and the nine months ended September 30, 2007 include an $8 million charge for a milestone payment triggered by the acceptance of our MAA for Satraplatin by the EMEA.

We ended the third quarter with cash, cash equivalents and short-term investments totaling $257.6 million. As a reminder we have no outstanding debt. Now, let me address our financial guidance for 2007. We now expect to report total sales for the year in a range of $265 million to $270 million, an increase from our previous guidance of $250 million to $260 million.

Research and development expenses for 2007 are now expected to range from $95 million to $100 million, an increase from our previous guidance of total research and development costs of approximately $85 million to $95 million.

Selling, general and administrative expenses for 2007 are expected to total approximately $125 million, up slightly from our previous estimate of $120 million. And finally, we expect our balance of cash, cash equivalents and short-term investments will range from $235 million to $245 million at the end of 2007, an increase from our previous guidance of $225 million to $235 million.

With that, I'll turn the call back to Patrick for some closing comments.

Patrick Mahaffy

I don't really have any. We had a great quarter, and we appreciate you joining us today. All of us now, including Andrew and Gillian, would be happy to answer any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Gene Mack of HSBC Securities. Please proceed.

Gene Mack - HSBC

Thanks for taking the question. I apologize for the bad connection, but that actually your fault for having this during prime trick-or-treating hours.

Patrick Mahaffy

I want to apologize to all of you with young kids, or all of you wanting to go to a party. So sorry about that.

Gene Mack - HSBC

Can you just give us an idea, in terms of market share, in terms of patients, share, where Vidaza is at this point?

Patrick Mahaffy

Yeah, the patient share for Vidaza in the United States is about 60% Vidaza, 40% Dacogen, maybe 59%, 41%, but that's the patient share.

Gene Mack - HSBC

Okay, great And then on Satraplatin, can you say definitively at this point, with what you know right now, whether or not you're going to file or not for that drug in EMEA?

Patrick Mahaffy

Well, I can say definitively we're going to file, because we already have. I cannot say definitively what I think the outcome will be. Maybe Andrew or Gillian can spend a moment on, Andrew; do you want to talk a little bit about what you think the clinical data mean, and Gillian a little bit about just the regulatory process? Because I think we'll have some interactions with the agencies certainly by the end of the year. Andrew?

Andrew Allen

Okay. So, the SPARC trial, remember, had two coprimary endpoints. One was progression-free survival and the other was overall survival. As you know, it met the primary endpoint of progression-free survival and failed to meet overall survival.

Now, as we've discussed previously, the progression-free survival endpoint is a composite, and it includes various measures of disease progression, and the major one is pain, which is as you know the major symptom of men with hormone-refractory prostate cancer that has metastasized to the bone.

So, we believe that the PFS benefit is related to a direct clinical benefit because of the impact upon pain. That's obviously a discussion that we're having with the regulatory authorities in Europe. Clearly, it didn't meet the overall survival endpoint, but the study was complicated by the introduction of the approval of Taxotere midway through the conduct of the SPARC study.

So, if you recall, SPARC began, the first patient came in September of 2003. Taxotere was approved in the European countries that were part of the EU at that point in November 2004 and would have rolled out during the year thereafter, as reinvestment took place in various countries.

And then the data cutoff for the PFS analysis was in middle of June 2006. So, Taxotere came in halfway through and clearly, if there were an imbalance in use of Taxotere across the arms of the trial that would potentially obscure any survival benefit of Satraplatin.

So, as Pat mentioned, the pre-specified subset analyses around Taxotere use are important and will help really isolate the effects of Satraplatin upon survival. Those analyses are now underway, but we obviously haven't completed them yet and are unable to give you any output from that work. It's clearly important work, however.

So, I think that's all I have to say about the clinical data and Gillian, on the regulatory issues?

Gillian Ivers-Read

Yes, in terms of the process, we submitted the marketing application in June of this year, and so, it's under active review. We expect the first round of questions, the day 120 questions to come in before the end of November. The process calls for us really not to have any communication with the rapporteurs until after that time.

So, we would plan to be answering the questions during the first quarter to half of next year. At the moment, we will wait to fully examine the data that we have and then have some discussion with the rapporteurs.

As we’ve said before, the file in Europe, which is based on PFS, with the overall survival data being submitted during the process, the clinical benefit is very important in Europe. We never expected to see really a statistically significant survival advantage. So, as we delve into the data, it will really depend on what we find in terms of the strength of the data for how we can address the European questions.

Gene Mack - HSBC

Just a follow-up on that, would symptom improvement in terms of pain qualify enough in terms of the European regulators' view of what is a clinical benefit? Or do you need more supportive evidence on maybe some of the other, I think there are 11 perspectives or prognostic indicators for which there's subset analysis in SPARC?

Gillian Ivers-Read

They require or well we could submit based on PFS, they require supportive data from the survival information. It's just that within the information as you say, with various subgroups and looking at the data there, there may be something that's enough to support the overall package in Europe.

Gene Mack - HSBC

But, would be the most important thing.

Gillian Ivers-Read

Yes.

Patrick Mahaffy

I think I would acknowledge what is self-evident. This is very much an uphill battle now, as a result of the results yesterday. We have always said it would be an uphill battle, but it became probably more uphill after yesterday. I think many of you don't model Satraplatin into your valuation analyses for us; I think that's probably appropriate.

But I will tell you that we will fight to get this approved for two reasons. One, we think there really is clinical benefit for these very advanced patients from this drug, probably because of the pain relief or delaying pain progression that you are alluding to.

And secondly, because if we are successful, it has, with that significant incremental cost, a very significant incremental revenue for us. So, we will try to get it approved. We will probably not spend much time talking about it over the course of the next six to nine months.

Gillian Ivers-Read

Thanks a lot.

Patrick Mahaffy

Thanks, Read.

Operator

And your next question come from the line of Gur Roshwalb of Piper Jaffray. Please proceed.

Gur Roshwalb - Piper Jaffray

Thank you for taking the question. What I'd like to get little more color on are basically two issues. What has changed in your discussion with the EMEA regarding Thalidomide that makes you accelerate the Thalidomide launch work?

And the second question revolves around European and rest of world sales of Vidaza, which were better then I had expected. I'm curious as to what sort of penetration you have seen to date and where do you think it's going to go prior to approval?

Patrick Mahaffy

I will first address the EMEA thing, and then ask Gillian to address it further if I don't get it all right and then - which I'm sure I will, Gill, so don't worry. Then Erle and I will talk about European and rest of world sales.

Thalidomide, what's happened is that we submitted the file in January. We got the 120 day questions in June, we responded to those in September and we now have draft responses to those. All of this demonstrates to us that we're making progress with the regulators.

So, what has happened is that the product is going through its review. We feel like that review is going smoothly and that we are addressing any remaining questions that the regulator has.

And so we feel very comfortable that we are in a good position with the EMEA and that we would anticipate, based on that progress, a regulatory action from the CHMP within the next few months.

Gillian Ivers-Read

Yes, that's fair enough. Obviously, you never know until everything is finally signed, sealed and delivered. But everything seems to be going well.

Gur Roshwalb - Piper Jaffray

Does within the next few months mean before year end or before the end of the first quarter? Can you be more specific?

Patrick Mahaffy

One of the reasons guys like us choose things like "next few months" is to give us some room. We clearly would hope to have a recommendation by the end of the year. It could slip over into January. A lot of this has to do with EMEA internal timelines.

Gillian Ivers-Read

But then, of course, we have to wait for the commission approval anyway…

Patrick Mahaffy

That's correct.

Gillian Ivers-Read

Which takes a couple of months. So it's no way the drug will be approved before the end of the year, given that timing of the commission approval step.

Gur Roshwalb - Piper Jaffray

Thank you. And then in terms of European penetration of Vidaza prior to approval?

Patrick Mahaffy

It's funny. I'm embarrassed to say I haven't formally tried to analyze the penetration. But I can tell you that since the market for MDS in Europe, just given demographics is somewhat larger than the United States, and our run rate now is $36 million, right?

Erle Mast

Right.

Patrick Mahaffy

So the penetration is still very, very, very, very low. And in fact, in an environment where it's not approved, I think that to have a run rate of $36 million for this drug is actually very, very encouraging, and we are pleased to see the growth continue.

Do you have anything to…?

Erle Mast

Yes. I think part of your question is where do we think this could go before the approval? I think every time we think it's kind of flattening out and holding steady, then we see another increase like we did from Q2 to Q3.

It obviously shows the interest in using this drug in an environment where there are no approved therapies, and I don't know where it will stop. I think, we would probably expect to see a benefit post ASH in Europe.

Patrick Mahaffy

Yes, for sure.

Erle Mast

As we do in the U.S. It's just difficult to quantify.

Operator

And your next question comes from the line of Phil Nadeau of Cowen and Company. Please proceed.

Phil Nadeau - Cowen and Company

Good afternoon. Thanks for taking my questions. The first question is on the expense lines. Could you go into a little bit more detail as to what happened there this quarter?

I think the expenses that you reported were somewhat heavier than we in the Street were expecting and the pipeline developments that you mentioned and even the progress of South European regulators weren't entirely unexpected.

Erle Mast

Yes, Phil, I'll address that. You're right and I think the expense growth relative to Street expectations were predominantly on the R&D line. When we started 2007, if you go back to the guidance we gave, we expected that our quarterly R&D costs would get up to the $25 million kind of plus range at some point during the year.

The exact quarterly timing of that is sometimes difficult to predict, because so much of it is driven by when studies are initiated. So the first couple of quarters of the year were probably lighter than what those internal expectations are.

Then in the third quarter with all the activity that we had and really the items that we highlighted were the drivers of the expense growth from Q2 to Q3. And that's what took us up from that $23 million range that you saw in the second quarter up to the $29 million range.

Having said that, I think we probably achieved a level now, with the development programs that we have underway that we would sustain. We haven't given guidance yet for 2008, and in fact, we're going through our budgeting process right now, so it's a little premature to do that.

But when we look forward to next year, while we certainly have some programs continuing into or starting new studies, we also have other products, Thalidomide, Vidaza and even Satraplatin that had some thoroughly costly studies in 2007 that are winding down or will largely wrap up in 2007.

So going into 2008, I think, the trend you see right now not the growth trend, but kind of where we're settling is what will probably be in that same range in 2008. But the drivers for the growth from Q2 are really the products and the studies that we mentioned.

Phil Nadeau - Cowen and Company

Okay. And in order to hit the top end of your new R&D expense guidance, you actually have do have a sequential decrease in R&D expense in Q4 versus Q3. Am I interpreting the numbers right and is that decrease something that expect that?

Erle Mast

Yes, I think the decrease is slight. I think it's like $29 million to $28 million. But you are correct.

Phil Nadeau - Cowen and Company

Okay. That's great. And then on Second, on oral Azacitidine, in your prepared remarks you mentioned that there will be data from, I think, the ongoing study at ASCO, which suggests that there won't be any data at ASH. Is that, in fact, true that there won't be updated data on oral Azacitidine at ASH?

Patrick Mahaffy

It is for sure true, and we have said consistently there will not be data on oral Azacitidine at ASH. The most recent data was at ASCO 2007, and we didn't anticipate and have not anticipated having any data from the MTD study until next year.

And I guess, I should note, we said, could be at ASCO. We have to submit it, and more importantly, they have accept it. But that's the timing I think you should be looking toward.

Phil Nadeau - Cowen and Company

Okay. Thank you.

Patrick Mahaffy

You’re welcome.

Operator

(Operator Instructions) and your next question comes from the line of Matt Osborne of Lazard. Please proceed.

Matt Osborne - Lazard

Hi, guys thanks for taking the question ahead of queue. Can you report on the number of cycles that you have seen for Vidaza at this point?

Patrick Mahaffy

You mean commercial…

Erle Mast

Or do you mean in the trials?

Matt Osborne - Lazard

In the U.S. So say from first quarter, second quarter, now third quarter, what the number of cycles you perceive to be that's being used in the field?

Patrick Mahaffy

Five-ish. It's been fairly consistent. I think, we have high hopes that next year it will grow following the presentation at ASH.

Matt Osborne - Lazard

Okay. And what are you allowed to detail with now to physicians, and if so, how are you detailing that survival data at this point?

Patrick Mahaffy

Well, Gillian is here, so I'm just teasing, Gillian. We really are not allowed to do that much. We have provided -- what do we have, Gillian, the copy of the trial design that can provoke questions, and if the questions come, then they are referred to our medical information group.

It is extremely difficult. I think one of the things that people have to kind of keep in mind is we actually have to be really careful, because all physicians have seen, just like you, is a press release.

There are some physicians, who are experienced with Vidaza for whom that press release means exactly what I thought. I'm going to keep giving Vidaza. I love this drug.

So we have to be careful not to let it go through a normal academic and clinical review. That's why we have very clearly stated that the big moment for us and I mean big moment is ASH.

As we have seen now, the details of the data well beyond the top line presented, we are very encouraged by the consistency of the effect and the meaningfulness of the effect. And I think that ASH is going to be very important and very exciting for Vidaza.

I think then we will probably be more aggressive with the use of those data in the field, because the abstract will have been peer reviewed and presented at ASH.

Matt Osborne - Lazard

Great.

Patrick Mahaffy

Still we do now, that we -- and you'd be surprised at the number of community-based physicians who don't know all this yet. It's not like they're trolling the Internet all the time for information on drugs.

Matt Osborne - Lazard

Was there any price increase taken for Vidaza in the past quarter or two?

Patrick Mahaffy

There was not…

Erle Mast

Yes. No, the last one was on October the 1st, so not in Q3, and we had the 2% increase that was effective the 1st of October.

Matt Osborne - Lazard

Last question on Amrubicin. If I'm correct when I heard in the prepared remarks 8 to 24 months for enrollment, does that seem a little long? Or are you considering what seems to be a difficult drug with Topotecan in this setting, given its safety and tolerability and efficacy, lack thereof and dosing and all that?

Are you factoring in kind of a slow enrollment on the topotecan arm?

Patrick Mahaffy

Go ahead, Andrew.

Andrew Allen

So, this is a nearly 500 patient trial, and we offered up 18 to 24 months as the enrollment guidance. Obviously, we hope it will be at the short end of that, and maybe even beat it. So we've certainly had no problems enrolling our Phase II trials.

As, one of those Phase II studies is in sensitive second-line small cell lung cancer, and that study also randomizes patients to Amrubicin versus topotecan, and that study is just about to fully enroll.

So, we don't anticipate particular problems, and of course, the number of patients is related to the number of sites, which is related to your budget. So there are many factors driving how quickly a trial will enroll. We don't anticipate problems.

Patrick Mahaffy

Andrew, I might add, too, Topotecan isn't beloved, but everybody who treats small cell lung cancer in the United States and Europe those are the only appropriate comparator arm in this study is topotecan.

The only appropriate comparator arm in a study in small cell -- in relapsed/refractory small cell lung cancer is topotecan. The attitude of the clinicians is because I have been at some advisories advisory meetings.

In fact, Andrew and Gillian were at this same one, was where a guy actually got up and said, look, we just have to do the heavy lifting, because we have to get this drug approved. It's very important for us, and we have to enroll in this trial to get it to the FDA. I don't perceive it to be an issue at all.

Operator

Your next comes from the line of William Ho of Banc of America Securities.

William Ho - Banc of America Securities

Hi, guys. Congratulations on the quarter and on the data this quarter. Just give us a little bit more clarity on what you're seeing, or if you had any impact at all from the top-line survival data for Vidaza, and if not, I guess what will drive that?

Will we not see it in the fourth quarter, or do you think it will be like in the first quarter or second quarter of next year before we really see an impact there?

Patrick Mahaffy

What I have said prior to, I mean, within the third quarter consistently is and I think that this is kind of going to bear out is that I'm not really expecting to see much of an effect, if any, in the third quarter, and it went up $1 million.

So I think that counts as not much of an effect. I said, I think, we'll see a little more of an effect in the fourth quarter, but not anything dramatic. I think the period of time to really look for the effect is in the first half of next year following ASH, the availability of the abstract and the conversations at ASH about the fact that these results completely change the opportunity to treat your patients with MDS, with higher-risk MDS.

ASH will be the moment when physicians, not just community-based physicians, but all of the opinion leader community can see the detail of the data, and that will drive their enthusiasm for use of the drug.

William Ho - Banc of America Securities

Are you getting many questions about a comparison between your survival data and what they have seen thus far with Dacogen?

Patrick Mahaffy

We like those questions. We like those questions an awful lot, given the history of Dacogen in every trial looking at survival on a prospective basis, which has, as a top number, 15 months. Andrew, do you want to talk about that for a second?

Andrew Allen

Sure. So the only Phase III randomized controlled study of Dacogen and MDS in a very comparable population gave results of the median survival best supportive care of 14.9 months and median survival Dacogen recipients, 14.0 months.

The Phase II programs from Dacogen reported by the Europeans, both as a single Phase II study with 66 patients and then a larger analysis that included 177 patients, including those 66, all suggested that again, in the MDS higher-risk population, sometimes adding in a few -- one patients, which might actually improve the outcomes of all those trials with Dacogen demonstrated a median survival again of 15 months.

So, we see a very consistent message from the published literature that Dacogen in the treatment of MDS is associated with 15 months' survival outcome. That is exactly the same as the control in their Phase III trial, and interestingly and reassuringly, exactly the same as the control in our Phase III trial that Pat described earlier.

As you know, the EORTC are running another Phase III trial with Dacogen in the treatment of MDS using exactly the same dosing schedule as was used in these prior studies, and using the same patient mix as was used in these prior studies. So we have seen nothing to suggest that Dacogen will do other than show median survival of around 15 months.

Obviously, if that is true, that raises a very interesting scientific question as to why, and we can perhaps talk about that lastly. But there are clearly important differences between Dacogen and Vidaza, and the importance of those may become much more subject to scrutiny if their survival study doesn't show findings similar to the data.

William Ho - Banc of America Securities

Right. Yeah, I would love to talk about that separately. Just to clean up one thing, can you give us the breakouts for stock-based compensation in R&D and SG&A?

Erle Mast

I'm just trying to do this in my head. I think the number for Q3 was like $1.5 million, and I'm going to guess one-third R&D, two-thirds SG&A. Something close to that.

William Ho - Banc of America Securities

Thank you.

Erle Mast

Thanks, Will.

Operator

And our next question comes from the line of Jason Zhang of BMO Capital Markets. Please proceed.

Jason Zhang - BMO Capital Markets

Thanks. I have two questions. One is on Satraplatin and one is on Thalidomide. At what point you would decide not to even bother? I guess, if you got the 120 day responses from EMEA and they say because a drug didn't really show a survival benefit, and we think it might be not in the best interest for the EU to approve this drug, if you got that kind of question, would you just say very unlikely you will go forward and you will make a decision at that point?

Patrick Mahaffy

I think you answered the question. I mean, we think we have good evidence of clinical benefit that goes beyond survival. Expectations of meaningful survival in very, very advanced second-line hormone-refractory prostate cancer should be relatively modest to begin with.

The focus, I believe, by the regulators and particularly in Europe, who I think have an understanding of this, is going to be as much on clinical benefit, for example, the impact on pain, as was discussed earlier than on solely on survival.

We will fight to get it approved until it becomes if it becomes evident that it cannot be approved. But it would be foolish of us to have a drug that has provided some benefit to patients with a clean safety profile not be given a chance to go through the regulatory process.

Jason Zhang - BMO Capital Markets

Why do you think, in the case of MDS, they insist on survival?

Patrick Mahaffy

I think that that was always misinterpreted. What they insisted on was data from another trial, and they knew that we were running a trial where survival is the outcome.

So I think that was always misunderstood. It was never that they said you have to have survival; it was they said your trial wasn't sufficiently robust. As you may remember, 9221 was our submission was based on a reanalysis of a cooperative group study.

So it wasn't so much they said you must have survival; it was they said you must have another prospectively designed GCP trial. Something like 65% or 70% of the oncology drugs approved by the EMEA over the course of the past five years have not had survival data.

So it's hardly unusual for them to approve a drug without survival data. This case, however, is harder, I will acknowledge because it failed to show a survival advantage or even a trend.

Jason Zhang - BMO Capital Markets

Okay, I will leave that to you. The question on Thalidomide is you said you are going to relaunch the drug, and given that Thalidomide is already there, you have price agreement with most of the countries.

Trying to figure out how quickly can you actually get the drug launched in kind of formal launch between you've got EMEA approval and to really launch the drug in some of the individual countries.

Patrick Mahaffy

It would vary by country, because reimbursement believe it or not, even though there is an agreement in countries like Spain and Italy for our compassionate use or named patient sales, you still have to go through the process of getting it formally reimbursed in this case, by a different branch of the government, albeit related.

So if you were planning a rollout for Thalidomide, I would plan on a German/U.K. and kind of Nordic territories launch right away following the approval, a French launch within a month or two of the formal approval not the recommendation, but the formal approval. And the Italian, Spanish and Greek and Portugal launches occurring four to five months after the formal approval. That's around the timeframes we would anticipate reimbursement.

There are some confounding circumstances here. Particularly, I believe certain of these countries, if not all of them, would like to see the elimination of the alternative providers. So they may be indented to give us that reimbursement faster, so that we can launch and eliminate those alternative providers.

Jason Zhang - BMO Capital Markets

Finally, could you remind us the price difference between Thalidomide and Revlimid in Europe these days?

Patrick Mahaffy

Well, we anticipate that a course of therapy for Thalidomide will be somewhere around $12,000 to $13,000. And a course of therapy for Revlimid in Europe is between $80,000 and $100,000.

Jason Zhang - BMO Capital Markets

Thanks.

Operator

(Operator Instructions) And your next question comes from the line of Eric Vieira of Majestic Research. Please proceed.

Eric Vieira - Majestic Research

Thanks for taking my call. It's really a follow-up to Matt's question earlier regarding Vidaza. You gave us what you thought sort of the current clinical practice is for number of treatment cycles. So how are we supposed to look at this median of nine? Do you have information on what the mean number is, and does that vary significantly from the median? I know you may not have this, or be able to talk about this.

Patrick Mahaffy

I won't talk about it. We can certainly present it at ASH, if you think that's relevant. We've always presented it based on the median, including in the 9221 study, where the media was seven, not nine.

Eric Vieira - Majestic Research

Basically, how is that relating to current clinical practice? That's what Matt sort of got that out of you guys.

Patrick Mahaffy

One of the things that we have struggled with for three years is helping physicians understand two critical elements about Vidaza. One is you have to stay in therapy for at least four months, and maybe longer, before you see a meaningful impact on the disease.

Two is it's harder in the absence of evidence of why you should do this. You should stay on therapy not until you succeed; you should stay on therapy until you progress. That's the difference in treatment practice relative to numbers of at least chemotherapy agents, although it's changing for certain other agents -- targeted therapies that have been recently introduced.

We now have the value proposition for clinicians that justify why you should stay on therapy until you progress and these data will be presented in all their robustness at ASH that clearly correlate time on therapy to clinical benefit, and most relevant of all, survival.

And I think that finally in the field, and finally in meetings and through presentations, we'll be able to help educate physicians about the fact that this drug demonstrates for the first time a meaningful survival advantage for patients with MDS. To achieve that survival benefit, you need to stay on therapy, and that's how the trial was designed.

So I think that what I would do if I was modeling is I would not model achievement of nine. It's interesting, but almost never does clinical practice achieve that same type of number as does a very well controlled clinical trial, which is always populated with very motivated patients who should demonstrate their willingness to participate in a trial.

So I wouldn't take it to nine, but I would take it to seven or seven and a half over the course of some period of time following ASH, a year or around there.

Andrew, would you add anything to that?

Andrew Allen

No, I think it's all about the biology, as you say, of the newer agents. Unlike cytotoxic chemotherapy, which obviously is used intermittently and carries dramatic toxicity, these agents are believed to be effective on a continuing basis to slow the momentum of disease.

Even if the patient is progressed, the data emerging from many different agents suggests that often it's advantageous to remain on therapy to keep that particular break on the disease. You may try identifying other breaks on top of it, but it's just that conceptual switch that Pat alluded to.

Eric Vieira - Majestic Research

Thanks. It was very helpful.

Operator

And your next question comes from the line of Sapna Srivastava of Morgan Stanley. Please proceed.

Dave - Morgan Stanley

Hi, this Dave calling in for Sapna. Just a quick question about Satraplatin. Do you have any other indications that are currently in the works for the drug, and are you going to wait until an EMEA decision to try and move forward with anything?

Patrick Mahaffy

Andrew?

Andrew Allen

We are going to wait and discuss with GPC, obviously. That's the appropriate thing to do at this point. We obviously have other clinical trials running. Some of those are near completion, and clearly time is right to look at the results across the program, and establish whether we have convincing signals of activity and acceptable tolerability in other indications. So it's early days, but that process is underway.

Dave - Morgan Stanley

Is there any one indications that seems to be more promising at this point, or still too early?

Andrew Allen

I think a little early to judge. We will obviously share that information once we feel that we have a good handle on it

Dave - Morgan Stanley

Just one quick question on Thalidomide I know you are in the registrational process, but is there any indication as to what type of risk management program you would need to put into place upon approval? Is it going to be sort of STEPS-like, or something less or more?

Patrick Mahaffy

It will be exactly the same as for Revlimid.

Dave - Morgan Stanley

As for Revlimid in Europe?

Patrick Mahaffy

Correct.

Dave - Morgan Stanley

So it won't be as strict as the STEPS program in the U.S?

Patrick Mahaffy

It will be exactly the same as for Revlimid in Europe, and therefore have some differences related to both STEPS in United States and our own PRMP program in Europe.

Dave - Morgan Stanley

Okay. All right, thank you.

Operator

And your next question comes from the line of Steven Rosston of Glynn Capital Management. Please proceed.

Steven Rosston - Glynn Capital Management

Pat, can you flush out a little bit more what you were saying about how ASH is going to be such a big turning point, and how that relates to the two points you made earlier in terms of the challenges you have had with physicians, in terms of getting acceptance, in terms of duration of therapy?

Then secondly, can you talk a little bit about what your field force who's out there now, with the information that you'll bring, at least some of the information you bring to ASH, what kind of feedback they're getting from their work?

Patrick Mahaffy

To the extent that they have conversations about survival that is, if a physician brings it up. The basic attitude is these data seem amazing; I really want to see them at ASH. These data seem unbelievable; I really want to see them at ASH. I don't know how many times I've heard people are really excited about seeing the data at ASH.

And again, I have to reiterate, we all know from a press release that there is a meaningful impact. But physicians rarely make prescribing decisions based on a press release, and they certainly don't want to admit that they make prescribing information decisions based on a press release, frankly, because a patient wouldn't want them making prescribing information decisions based on a press release.

The reason ASH is a turning point is because I believe that the data will be presented; I believe that they will be accepted with the tremendous amount of enthusiasm, because it completely changes the opportunity to treat higher-risk patients. And as I told you, they will be presented in far more detail than were presented or described in that press release, all of which demonstrate a remarkable consistency of effect.

So the reason it's a turning point is it will have been through a peer-reviewed presentation at a major medical meeting. There will have been buzz, I believe, created around it, and therefore people will go back to their communities and be more enthusiastic about using the drug, including in those patients for whom they have not used any chemotherapy, because 50% of higher-risk patients do get primarily, if not solely, a best supportive care regimen.

And if this trial does anything, and it does a lot of things, it demonstrates that best supportive care is not an appropriate regimen for this patient population. Does that, Steve?

Operator

(Operator Instructions) And your next question comes from the line of Jim Reddoch of FBR. Please proceed.

Jim Reddoch - FBR

Thanks and good quarter. Most of my questions have been answered, maybe I'll just add one along the lines of that last question, which it seems to me that your main potential competitor is more like doctor apathy or doctor inaction or watchful waiting than it is necessarily another drug.

I'm just wondering what really kicks it into gear for these guys? Is it publication, or is it actually just the ASH literal presentation itself, or is it publication after then, and when might you expect that? Or is it some change in the guidelines, or any sort of NCCN references that maybe influences practice that they maybe need this place? Thanks.

Patrick Mahaffy

A couple of things, and thank you. What I have said is that there are kind of three stages to the impact of the Vidaza survival study. So the first stage is from the period of time between the press release in ASH, where we expect not a whole lot of impact, although some beginning in the fourth quarter.

The second period is post-ASH, where we anticipate a reasonable impact, as the data have been presented, discussed and I think generate quite a bit of enthusiasm. And as you know, there are many MDS sessions at ASH, including a presentation or a super Friday presentation by the MDS Foundation. So there will be a lot of MDS activity at ASH this year.

The third phase is that period of time where it's been published in hopefully a leading medical journal, and the data are in our label and we can vary assertively and aggressively promote from it, and that will have another impact on sales.

That period of time will probably begins in the June/July timeframe. No one can predict exactly when something would be published. I think that's about right for an FDA action, given the timing of our submission.

But we would think six to nine months for publication, so pretty similar, because we'll submit that publication in December.

Jim Reddoch - FBR

What about guidelines? I mean does ASH have guidelines?

Patrick Mahaffy

I think guidelines are more likely to, in many cases, those guidelines will, I think there will be guidelines of change. Some will proceed an FDA approval, many will wait until they see the FDA approval.

But you will see it, a number of changes in the MDS environment following the presentation of these data in December.

Jim Reddoch - FBR

Okay. Thanks. And one more if I could. You're taking a different approach with Amrubicin than another company out there, with your small cell trial. Pat, you've commented on this a little bit, but yours has another active comparator, and theirs is against best supportive care. Again, was that chosen because of speed of enrollment of having all arms with presumably an active versus some without an active?

And secondly, how is it powered again? What are the assumptions for what topotecan is going to show, and what are you trying to do better than?

Patrick Mahaffy

Andrew?

Andrew Allen

The simple question on powering, we’ve not disclosed a great deal of information about the design of this study Jim. But the power is -- or rather, the hazard ratio that we're looking to detect is less than 0.75.

So given that general guidance, and that is very consistent with what we are seeing from our Phase II program. So we're very comfortable that the drug has a substantial effect against the Vidaza survival when compared to topotecan.

And obviously, we also get some inferential data from our single-arm study in relapsed/refractory patients.

In terms of the choice of control arm that the standard approach, of course, is to randomize patients to your agent of choice versus standard of care. And this standard of care, as Pat described, from a regulatory perspective is unambiguously topotecan.

Now its not terribly popular, because it doesn't have much efficacy, carries significant toxicity, but it is the most commonly used second-line regimen in small cell lung cancer. That is a fact and it’s obviously regulatorially the appropriate comparator to use.

We've used it in our Phase II trials. We've seen data that we are very encouraged by. And so it's an easy and obvious choice to design a pivotal trial with topotecan as the comparator.

I think the better way to ask the question is why would you not use topotecan as your comparator, because it presents you with a couple of problems. Number one, for many IRBs there's an ethical issue about.

I’m randomizing a patient who is clearly a candidate for cytotoxic chemotherapy to receive either cytotoxic chemo or best supportive care, when there actually is an approved alternative agent.

Now, that can be done, but I think you have to go to certain countries where maybe topotecan is less widely available, for example, to provide real opportunity to enroll patients in such a study design.

It also means, of course, that at the end of the day, if you have a positive study, your claim is against best supportive care as opposed to being against another cytotoxic agent. So I think if we're positive in our study and our competitors are positive in their study, then the obvious model to follow if you are a physician is you would then use combination therapy with a platinum and a topicide front-line. Then you would follow on with Amrubicin, and then you would follow on with the platinum agent.

That would be the sort of rational way to apply the various data emanating from these trials.

Jim Reddoch - FBR

Thanks Andrew. And the historical survival that you used for topotecan?

Andrew Allen

Some of it is historic, and some of it, as I say, is gathered real-time in our controlled randomized Phase II study. If you look in the relapsed/refractory patient population, the median survival patients receiving topotecan is around four to five months.

If you look in the sensitive population, as you would expect, it is longer at around seven to eight months. Those are the data that we used as we kind of looked at designing our study, and as I say, we have seen a very convincing survival benefit in our Phase II programs with Amrubicin, such that we have designed the study to detect with good power -- remember this is a pivotal study.

So with good power, we're detecting a hazard ratio below 0.75, but we haven't disclosed more information than that.

Jim Reddoch - FBR

What's the expected split between sensitive versus resistant or refractory?

Andrew Allen

It will be something like 50/50. The hazard ratio that we’ve have seen in our trial, the comparative trial and the hazard ratio we impute when we compare our simple-arm study with historic controls suggest that actually the efficacy of the drug is very similar.

The hazard ratio is very similar in those two disease contexts. So we were happy to put both patient populations into the pivotal study, and obviously it's a stratified randomization and a stratified analysis, to allow for the fact that you have these two populations.

It is, of course, a pretty artificial distinction into sensitive and refractory that we only apply to small cell lung cancer. The same theoretical distinction probably exists in all tumors.

If you respond to any cytotoxic drug and then you relapse quickly, you're going to do worse than if you have a response that lasts for longer. So it's a somewhat artificial distinction that I think will erode as the Amrubicin data become better known.

Jim Reddoch - FBR

Okay, great. Thanks a lot.

Operator

At this time, I would like to turn the presentation back over to Breanna Burkart for closing remarks.

Breanna Burkart

We thank each of you for your interest in Pharmion today. If you have any follow-up questions, please call us at 720-564-9150. We apologize for those of you who joined us late to the call due to problems with access to the webcast.

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Please contact me if you need a transcript or replay, and I will provide updated information as I receive from Thompson. Again, we appreciate your interest and time. Thank you, and have a good evening.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a great day.

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