Onyx Pharmaceuticals Q3 2007 Earnings Call Transcript

Nov. 6.07 | About: ONYX Pharmaceuticals, (ONXX)

Onyx Pharmaceuticals Inc. (NASDAQ:ONXX)

Q3 2007 Earnings Call

November 06, 2007 5:00 pm ET

Executives

Julie Wood - VP of IR and Corporate Communications

Hollings Renton - Chairman, President and CEO

Laura Brege - EVP and COO

Hank Fuchs - EVP and CMO

Greg Schafer - VP and CFO

Analysts

Steve Harr - Morgan Stanley

Katherine Kim - Banc of America

Brian Rye - Janney Montgomery

Gene Mack - HSBC Securities

Jim Birchenough - Lehman Brothers

Howard Liang - Leerink Swann

Phil Nadeau - Cowen

Operator

Good afternoon, ladies and gentlemen, and welcome to the ThirdQuarter Financial Results Conference Call. At this time, all participants arein a listen-only mode. Later, we will conduct a question-and-answer session.Please note this conference is being recorded.

I will now like to turn the call over to OnyxPharmaceuticals. You may begin.

Julie Wood

Thank you. Good afternoon. I'm Julie Wood, Vice President ofInvestor Relations and Corporate Communications at Onyx Pharmaceuticals. Wethank you for joining us today for our third quarter financial resultsconference call.

Joining me today on our call are Onyx CEO, Hollings Renton; LauraBrege, our Chief Operating Officer; Hank Fuchs, our Chief Medical Officer; and GregSchafer, our Chief Financial Officer.

Please note that we will be making forward-lookingstatements during this teleconference that could include financial, clinical orcommercial projections. Statements that are not historical fact areforward-looking. References to what we expect, believe, intend to do, plan,estimate or other statements referring to future events or results are intendedto identify these statements as forward-looking. Forward-looking statements areinherently subject to risks and uncertainties. For a discussion of these risksand uncertainties, we refer you to our 10-K for the year ended December 31st, 2006, andour more recent filings with the SEC. Our 10-Q for the third quarter of 2007,including updated risk factors, is expected to be on file later this week.

Now I'd like to turn the call over to Hollings, who willprovide a brief overview of the quarter. After Hollings' remarks, themanagement team will walk through the commercial, clinical and financialhighlights.

Hollings Renton

Thank you, Julie, and welcome everyone. This is an excitingtime at Onyx with a growing oncology business, a recent regulatory approval inthe European Union and active filings globally for a second indication, as wellas a robust clinical development program.

In the third quarter, Nexavar global net sales exceeded $100million for the first time. This represents an increase of 29% over the lastquarter and 130% over the third quarter of last year. This revenue growth wasdriven by strong performance in both the United States and in the rest ofthe world.

Nexavar is a proven drug for the treatment of kidney cancer.It is now approved in more than 60 countries worldwide for that disease.Nexavar has also shown a survival advantage in liver cancer in three randomizedclinical trials. We expect approval in liver cancer to drive topline growththrough 2008 and beyond with several additional liver cancer studies plannedand many other trials underway in various cancer indications, representingfurther significant upside potential.

In addition to strong third quarter sales, we and Bayer madegreat strides toward securing approval of Nexavar for patients with livercancer in Europe and in the United States. We and Bayer reported just last weekthat the European Commission granted marketing authorization to Nexavar for thetreatment of patients with liver cancer. The rapid time from filing to approval,as well as the broad label, underscores the tremendous unmet need in thismarketplace. Nexavar is the only approved systemic therapy for liver cancer in Europe.

Also during the third quarter, the supplemental New DrugApplication, or sNDA, for Nexavar was granted priority review status by theFDA. We anticipate approval in the liver cancer indication this quarter, andare on track to launch immediately thereafter.

During the third quarter, an Asia Pacific regional Phase IIItrial of patients with liver cancer was stopped early when an independent datamonitoring committee found that Nexavar significantly improved overallsurvival, progression-free survival and time-to-progression. This study resultssupport that Nexavar's efficacy and tolerability in liver cancer extend across ethnicgroups and geographies. Data from this study will be submitted for presentationat a scientific meeting next year.

We plan to initiate additional studies to expand the benefitof Nexavar to liver cancer patients throughout the course of their illness,including as an adjuvant treatment in earlier stages of the disease. With noother systemic therapy approved for liver cancer, we believe Nexavar is poisedto become the new standard of care for this disease. We believe Nexavar'smultikinase activity, tolerability and convenient oral dosing make it the idealdrug candidate to benefit patients with many different types of cancer.

In addition to kidney and liver cancers, we are activelyevaluating Nexavar in non-small cell lung cancer, melanoma and metastaticbreast cancer. With a proven drug and extremely successful collaboration withBayer, outstanding commercial teams launching or ready to launch in a secondindication, and a comprehensive joint development program, we look forward tothe continued growth of the Nexavar franchise.

There has been enormous change and tremendous progress inthe 15 years that I have been at Onyx, and I look forward to many more years ofprogress and success. As previously announced, I am retiring as CEO next year, butwill continue as Chairman. I'm extremely confident in the management team andin the organization's ability to fulfill our vision of changing the way canceris treated.

It is my pleasure to now turn the call over Laura Brege tohighlight our commercial progress with Nexavar.

Laura Brege

Thank you, Hollings. Together with Bayer, we have establishedNexavar as an important agent in the treatment of advanced kidney cancer. AsHollings mentioned, in the third quarter, we continued the positive salesmomentum both domestically and internationally, achieving global net sales of$104.6 million.

Third quarter sales included approximately $41 milliongenerated in the United Statesand approximately $64 million outside the US. This growth reflects a 26%increase over the previous quarter's US sales numbers and a 30%quarterly increase in sales throughout the rest of the world.

We see the overall growth of the kidney cancer market ismoderating after the introduction and rapid uptake of the new targetedtherapies. Due to the increased number of drugs approved over the last fewyears, physicians now have alternatives and patients are benefiting from theseoptions as many of them are been treated sequentially with multiple agents.

Despite the increasingly competitive marketplace, Nexavarcontinues to play a significant role in providing therapeutic benefit topatients worldwide. The growth in third quarter sales was driven primarily byuptick in liver cancer, following the positive primary data presentation atASCO this past June.

In addition, in October, the National Comprehensive CancerNetwork or NCCM updated their guidelines for the treatment of liver cancer.Nexavar is now included in these guidelines as a treatment option formetastatic disease and for patients with “unresectable” disease or those whodeclined surgery.

In the short term as well as over the longer term, we expectthat the worldwide sales of Nexavar in the treatment of liver cancer patientswill drive revenue growth. As was the case with the introduction of effectivetherapies for advance kidney cancer, we anticipate that the number of livercancer patients receiving systemic therapy for their disease will expandsignificantly.

Liver cancer is the sixth most common tumor worldwide andthe third leading cancer killer globally with approximately 15,000 just in the United States and 60,000 in Europe,half of which are in the five largest European countries. Beyond the US and Europeover 0.5 million people die annually from this disease.

Nexavar has the potential to help the many thousands ofpatients, worldwide, suffering from liver cancer. We anticipate rapid uptake followingthe launch of Nexavar for this indication and intend to leverage ourfirst-to-market opportunity to drive topline growth.

In the European Union, following the recently announcedapproval for liver cancer, Bayer is moving forward with launch plans. Incertain countries, sales can occur immediately, while another, it will takelonger to obtain reimbursement. In addition, Bayer has filed for the livercancer indication in a number of regions, including Asia, most notably China and Japan.

In anticipation of this potential second indication in the US, weand Bayer are finalizing our commercial launch activities to ensure cliniciansand patients will have access to Nexavar immediately upon approval. The UScommercial team has prepared a comprehensive launch plan, including a detailedtargeting analysis of physicians treating liver cancer patients as well asthose treating patients with liver disease.

In addition, the sales organization has undergone extensivepre-launch training. And through our medical affairs initiatives, hepatologistsand oncologists specializing in the management of liver cancer as well as abroad range of other clinical care providers have been engaged to ensure thatall patient needs are addressed at the time of drug approval.

I would now like to turn the call over to Hank Fuchs, whowill provide an update on our development program.

Hank Fuchs

Thank you, Laura. As you know, we are studying Nexavar asboth monotherapy and in combination with other anti-cancer agents in a varietyof tumor types and settings with the goal of amassing comprehensive data thatwe believe will ultimately to additional and better treatment options forcancer patients.

In September, at the 14th European Cancer Conference, datafrom a 100-patient randomized Phase II study comparing Nexavar plus doxorubicinto doxorubicin alone in the liver cancer patients was presented.

Recall that in February of this year, we and Bayer acceptedthe recommendation of the independent monitoring committee to stop this study early,because patients receiving chemotherapy alone were thought to be atconsiderable disadvantage.

The data showed that Nexavar plus doxorubicin doubled theoverall survival to 14 months as compared to 7 months for those patients takingdoxorubicin alone. The hazard ratio was 0.45 and the p-value was 0.0049. Therewere no major differences in the rate of serious adverse events between the twoarms.

In lung cancer, we are exploring the utility of addingNexavar to existing drug regimen. In May, we completed patient enrollment and alarge pivotal Phase III trial in advance non-small cell lung cancer.

This trial includes patients with all histologies. Thesepreviously untreated patients are receiving Nexavar or placebo in combinationwith carboplatin and paclitaxel. The primary endpoint is overall survival, andwe anticipate having data from this study in the second half of 2008.

In addition, we have a second pivotal non-small cell lungcancer trial ongoing in Europe using anotherchemotherapy doublet, one that is more commonly used in that region.

In order to achieve the most meaningful statistical outcomein the broadest possible label, we are in the process of expanding enrollmentin this study to 900 patients with all histologies and adding overall survivalas a co-primary endpoint in addition to progression-free survival. In thistrial, patients are receiving Nexavar plus or minus gemcitabine and cisplatin.We expect to complete patient enrollment in this study by the end of 2008.

A Phase III trial sponsored by the Eastern CooperativeOncology Group or ECOG continues to enroll chemonaive advanced melanomapatients. This study is designed to compare overall survival of patients whoare treated with the carboplatin and paclitaxel to treatment with these agentsplus Nexavar. We anticipated enrollment in this study will be completed in2008.

In breast cancer, we have launched a comprehensivemultinational program in collaboration with renowned breast cancer experts.Enrollment has begun in three of these large randomized, double-blind,placebo-controlled Phase II for patients with HER2-negative metastatic breastcancer comparing Nexavar to placebo in combination with chemotherapy orhormonal therapy or other targeted agents.

Each trial will enroll approximately 220 patients and theprimary endpoint across the program is progression-free survival. A goal of theprogram is to screen effective therapies and to better inform Phase IIIclinical development.

In summary, with demonstrated efficacy in two previouslyunderserved cancer and a broad clinical development program designed toleverage Nexavar's combinability, tolerability and oral administration. Webelieve that Nexavar is well positioned to make a significant mark in thetreatment of cancer.

I'll now turn the call over to Greg Schafer.

Greg Schafer

Thank you, Hank. Net worldwide sales of Nexavar increased29% to $104.6 million in the third quarter of 2007, as compared to sales of$81.3 million in the second quarter. This corresponds to an increase of 130%when compared to Nexavar net sales of $45.4 million in the third quarter oflast year.

As a reminder, Onyx and Bayer share profits worldwide,except in Japan,and all Nexavar revenue is recorded by Bayer. The strong growth in Nexavarsales kept us in the profitability for the quarter with reported net income of$555,000, or $0.01 per share. This included employee stock-based compensationcharges of $3.6 million, or $0.07 per share and compares to loss of $10.8million, or $0.22 per share in the second quarter into a loss of $20.1 million,or $0.49 per share in the third quarter of last year.

For the nine months ended September 30th, 2007, Nexavar sales as reorderedby Bayer increased 144% to $246.8 million, as compared to sales of $101.3million in the nine months ended September 30th, 2006. Onyx's net loss was $22.5 million or$0.45 per share during the first nine months of 2007, as compared to $72million or $1.74 per share in a comparable nine month period of last year.

As a reminder, Onyx's direct expenses associated withNexavar are included with our other direct expenses in the R&D and SG&Aline items of our income statement. Total share development expenses under thecollaboration were $37.6 million for the third quarter. These expenses were higherthan those incurred in the second quarter, due to the expansion of clinicaltrial activity in lung and breast cancers, and preparation of the regulatorysubmissions for liver cancer.

Shared Nexavar sales and marketing expenses, including costof goods sold and distribution expenses, were $56 million for the third quarterof 2007, an increase from $49.3 million in the second quarter, as Nexavar's usecontinued to expand throughout the world, and as Bayer and Onyx prepare foranticipated launches in liver cancer.

With our continued investment in Nexavar, we anticipatefull-year 2007 share development expenses to increase in the fourth quarter,and to be near the 2006 level for the full year. We also expect shared SG&Aexpenses to continue to increase in the fourth quarter, as we launch Nexavar inliver cancer.

Onyx's direct SG&A expense of $15.2 million in the thirdquarter of 2007 was slightly lower than that recorded in the second quarter,primarily due to a reduction of marketing expenses at Onyx. Our SG&Aexpense line item includes the costs of our US sales force, the portion ofshared Nexavar marketing expenses that we incur directly, and the costs that weincur for general and administrative support of the Company. Total employeestock-based compensation expense for the third quarter of $3.6 million included$2.8 million in SG&A, and $800,000 in R&D.

At September 30th, 2007, we had cash, cash equivalents, and marketablesecurities of $451.2 million, as compared with $271.4 million at December 31st, 2006, and$454.4 million at the end of last quarter.

Now, I will turn the call back over to Hollings

Hollings Renton

Thanks, Greg. We in Bayer are committed to delivering on ourstrategic plan to maximize our investment in Nexavar across multiple tumortypes on a worldwide basis. This is based on the statistical and clinicalsignificance of our data, the enthusiastic responds from the clinical communityand the testimonials we hear from patients.

With the recent regulatory action in the European Union andanticipated regulatory actions in the United States and elsewhere forliver cancer, we believe we are well on our way for achieving our long-termstrategy for sustained growth and profitability.

Looking ahead, we intend to continue our strong milestonemomentum through 2008, including regulatory actions and liver cancer forNexavar in the US and the rest of the world, commercial launch of Nexavar forliver cancer as we have obtained approvals from regulatory authorities andreimbursement authorizations were necessary, presentation of the results of thePhase III Asia Pacific liver cancer trial at an upcoming scientific meeting,reporting topline results from our first Phase III study in non-small cell lungcancer, as well as completing enrollment in our second Phase III lung cancertrial, and in collaboration with outside investigators initiating twoadditional Phase II studies in lung cancer, completing enrollment in the PhaseIII ECOG study, evaluating overall survival in front-line patients with metastaticmelanoma, continued implementation of our breast cancer program with additionalPhase II studies getting underway to evaluate Nexavar in combination with othertreatments and in other settings, and further expansion of the clinicaldevelopment program, and a continued presence at key clinical meetings withpresentations of Nexavar data generated in a variety of different tumors.

We are proud of our track record of delivering on ourcommitments to provide an oral, well-tolerated, combinable agent to cancerpatients with unmet medical needs. In addition to ongoing sales growth in 2007,we have reported positive liver cancer data from three studies, filed worldwidefor second indication for Nexavar, and approved in the European Union for thetreatment of liver cancer, completed enrollment in a Phase III lung cancerstudy and expanded our clinical development program. With these importantachievements and many events pending, we look forward to making Nexavar thesystemic standard of care for patients with liver cancer and look forward towhat we believe will be an exciting 2008.

We will now take your questions.

Julie Wood

Operator, could you see if there is any question?

Question-and-AnswerSession

Operator

Yes, thank you. We will now begin the question-and-answersession. (Operator Instructions)

We have Steve Harr from Morgan Stanley.Please state your question.

Steve Harr - Morgan Stanley

I want to get just a little better sensefor what's driving some of the growth that you're seeing with Nexavar. And inthe US, I know you don't want to breakdown on and off labels sales, but is itfair for us to assume that almost all growth occur in hepatocellular carcinoma,and then Europe, is it fair to for us to assume that almost all growth isoccurring because of, I guess, a combination of the dollar weakening but moreimportantly new country approvals?

Hollings Renton

Yeah, Steve. So in terms of the overallgrowth for the quarter, that was largely driven by liver cancer uptake prior toapprovals. So that's the primary driver. And probably a little bit more so inthe US than in Europe, but we don't really break it out that much.Clearly, in Europe we are getting some benefitin addition from some ongoing launches as well as some currency exchanges. Weare seeing worldwide, globally a pretty stable RCC and use off label outside ofliver cancer. So we're pretty encouraged about the position that we have.

Steve Harr - Morgan Stanley

So is there off label sales, I'm sorry,in Europe, outside?

Hollings Renton

There is some use in liver cancer priorto this recent approval, and some of it occurs through a variety of differentmechanisms whether it's named patient basis or through hospital formulas orother approaches.

Steve Harr - Morgan Stanley

Great. Thank you.

Operator

Your next question comes from KatherineKim from Banc of America. Please state your question.

KatherineKim - Banc of America

Yes, hi. Can you hear me?

Hollings Renton

Yeah, we sure can.

KatherineKim - Banc of America

Okay. Congratulations on a great quarterby the way.

Hollings Renton

Thank you.

KatherineKim - Banc of America

So in terms of Europe, howdoes reimbursement occur for off label use?

Hollings Renton

Laura, do you want to talk a little bit about the process,because it's different on a country-by-country basis.

Laura Brege

In terms of EU countries, such as Germany, sales can occurimmediately and mechanisms are in place for that, while in others, it takeslonger to obtain reimbursement. Different hospitals and formulary providesupport for patients who need drugs, which have been studied, but not yetapproved.

KatherineKim - Banc of America

Okay. So it's fair to assume that in the fourth quarter youwill have off label use in other countries in Europe.Is that fair to assume that?

Laura Brege

With the approval coming in the EU in the fourth quarter, Ithink that it's fair to expect that most of our sales in fact will be with thelabel unapproved.

KatherineKim - Banc of America

Okay. And then my next question is on Asia.You have recently filed for approval. When do you think that you could getofficial approval of that and what is the process in the emerging markets suchas China?

Hank Fuchs

Yeah, hi, this is Hank. So as we have mentioned, Bayer hasdone a really outstanding job of having interactions with various agent healthauthorities, including the Chinese health authority and the Japanese healthauthority, to understand requirements for registration in those regions.

And what we have said about that is: is that the regionalhealth authorities require primarily the data from the SHARP's clinical trialto attach to the efficacy of the product and have requested additional studiesto be conducted locally, primarily to augment the safety experience. In China, as you know, we've talked about the needfor a smaller randomized trial conducted primarily in China, but also in Taiwanand Koreato evaluate primarily, again, the safety of Nexavar in Asian patients.

That study has been completed. And in fact, Hollings reportedearlier that that was a study that was unwinded and efficacy was demonstratedeven though that wasn't a requirement. So those data will be provided to theChinese health authority. And as to the process of ongoing negotiations withhealth authority, we don't generally comment on that.

In Japan,the pattern is fairly similar. We have the met with the health authorities.We've understood the requirements for registration. There we have an ongoingtrial in combination with chemoembolization, a predominant mode of therapy forhepatocellular carcinoma in Japan.That study continues to enroll. And again, we won't be in a position to commenton the regulatory process of those discussions until they are more mature.

KatherineKim - Banc of America

Okay. And have you done a preliminary analysis of the marketpotential in an emerging market such as China?

Hollings Renton

Yeah, certainly, we've looked, Katherine, at the incidence.I think as you probably know, the disease is much more common outside of theUnited States regardless of what (inaudible) in a range of something like13,000 to 15,000 deaths in the US. But if you go to Europe,it's almost 60,000 in terms of incidences and deaths, pretty close to the samething with about half of that occurring in the top five countries.

So it's a much larger disease. And we think it's verysignificant in the US and inEurope. In Japan, it's a little under 40,000,seriously incidences and deaths. And then if you look into China, for example, it's over300,000. So it's obviously a very significant disease.

The big issues in terms of trying to evaluate the potentialthere is the lack of reimbursement. And so it really is an affordability issuein terms of patients who are in a position to be able to pay, we'll have itthrough that means we do have some patient assistance for other patients. Butits very tough to predict at this stage, what the actual use, we've beenpleased with the uptake in renal cell cancer thus far and we're alreadybeginning to see some use probably in liver cancer in China as well.

KatherineKim - Banc of America

But when do you think that you'll have better understandingof the potential from Asia?

Hollings Renton

When we get some more experience there, I'd say probably.Yeah.

KatherineKim - Banc of America

Okay. Thank you.

Hollings Renton

And we think it's a market that's -- I mean, again, I thinkthe other thing is general the case for liver cancer is it's a disease that'sincubating as a result of prior infection. So it's a disease, it's going togrow. And if you look at just a Chinese market, clearly, there is a growingmiddle class there, so we think that represents another element of growth.

KatherineKim - Banc of America

Okay. Great. Thank you very much.

Hollings Renton

Thank you.

Operator

Your next question comes from Brian Rye from JanneyMontgomery. Please state your question.

Brian Rye - JanneyMontgomery

Well, good afternoon and thanks for taking my question,Hollings. Most of mine have been addressed, I guess with just one house keepingitem at this point. I noticed that a little bit made in this $40 million inmilestone base loans that you will owe Bayer. And I presume this because the JVtook over the profitability this quarter, but could you just generally remindus for modeling purposes of the repayments schedule from this point forward?

Greg Schafer

Okay. This is Greg. The collaboration agreement provides forOnyx to repay Bayer from a portion of our profit under the collaboration, sothat percentage is 40%, it's just a prescribed methodology that we use. So tothe extent that the collaboration is profitable and we include our non-sharedexpenses such as our sales force in that calculation and we would be remitting40% back to Bayer.

Hollings Renton

40% of our shares and it's not a P&L. It's strictly abalance sheet item, reclassification.

Brian Rye - JanneyMontgomery

Got you. And are there any annual caps on that?

Hollings Renton

There are no caps. It's only capped by the 40% that Gregmentioned of our share of the 50% profits.

Brian Rye - JanneyMontgomery

Okay. It sounds good and congratulations on the quarter.

Hollings Renton

Okay. Thanks a lot, Brian.

Operator

Your next question comes from Gene Mack from HSBCSecurities. Please go head.

Gene Mack - HSBCSecurities

Hi. Thanks for taking my question. A couple of follow-ups:First, I guess it's fair to say that sales -- pitching your earlier comments onsales in renal cell haven't significantly increased. So I'm just wondering whatyour thoughts are around the earlier data showing a high-dose, some patientscontrolled with the high dose administration of Nexavar and also where thatmight go? Are you thinking about pursuing that further?

Hollings Renton

Yeah. We definitely are. Maybe Hanks wants to talk about howwe're -- we had data burgeoning from one single site that we are following upon. Hank you want to talk about the plans?

Hank Fuchs

Yeah. So following on the very exciting presentation thosedata, we've initiated a number of different activities. One would be thesystematically and independently review the findings from that study to lead topublication of the data. Obviously, that's one of the key accomplishments toreach going forward. Also, we want to understand that disposition of the drugand whether the pharmacokinetics are linear with increasing dose.

So we've initiated that activity. We've also initiatedexpanding that trial to additional sites to collaborate the findings from thatsingle site study. And finally, we've initiated a randomized trial comparingconventional to higher dose Nexavar. We've heard anecdotally that a number ofclinicians are starting to getexperience using higher dose of Nexavar, I would say at the anecdotal level.It's a little bit encouraging, but it's also very early.

This is one of the most important and exciting findings inthe kidney cancer franchise, and if we're able to demonstrate, on a consistentbasis, that higher dose of Nexavar is both tolerated but, more importantly,leads to meaningful improvements in patient outcomes, such as either completeresponses or substantially prolonged progression-free survival, that would bevery important for the kidney cancer business

So this is one of the most important initiatives that wehave underway in the clinical area. And it accompanies other data that we arecollecting on the use of multikinase inhibitors in sequence or in combinationswith other targeted therapies. So we have a fairly rich and robust investmentin the kidney cancer space. I think that's a reflection of clinicians'sustained interest in Nexavar as a vital cog in the wheel of the management ofkidney cancer.

Gene Mack - HSBCSecurities

Okay. But it's safe to say we're still kind of early daysbefore we see the next milepost?

Hollings Renton

Yes.

Gene Mack - HSBCSecurities

Okay. And then one other question on the possibility, areyou folks any closer to (inaudible) or if this would be sustainable.

Hollings Renton

As Greg said, I think he used the word tips intoprofitability in the third quarter. We're not yet committing to that. Lookingahead to the fourth quarter, clearly we're looking for ongoing sales growth,but also we do see higher levels of expenses in the quarter, not only forramping up some of these clinical trials, but importantly for the launch ofNexavar, not only in the EU, but getting ready to launch in other territoriesas well. So those are happening.

And then, traditionally, as you probably know if you lookedat our statements historically, the last quarter of the year tends to be ahigher expense quarter from a seasonal standpoint. So we're not ready tocommit. We will obviously be talking with you guys again in February, and we'llrevisit this issue of the outlook for profitability.

Obviously, it's going to depend on timing of the ramp inHCC, how quickly these development expenses are going to ramp next year. Wehaven't obviously given a specific guidance, but there are going to be somehigher levels there, importantly because we're adding some HCC studies to thismix of things as well. And then, ultimately, if we were to take on anothercompound for licensing, that could affect things as well.

Gene Mack - HSBCSecurities

Okay, great. Thanks and congratulation on your retirement.

Hollings Renton

Not true retirement, just changing my role. Thanks.

Operator

Your next question comes from Jim Birchenough from LehmanBrothers. Please go ahead.

Hollings Renton

Hi, Jim.

Jim Birchenough -Lehman Brothers

Hey, Hollings, how are you?

Hollings Renton

Good.

Jim Birchenough -Lehman Brothers

Just one question in terms of expected use for Nexavar inliver cancer and focusing on patients that I don't think were studied, patientswith Child-Pugh C classification, did those patients tend to die of their cirrhosisor of their progression of cancer? And if it's progression of cancer, do youexpect that these patients will be treated with Nexavar?

Hollings Renton

The Child-Pugh C, we don't have much experience, and theyare the patients that are in the toughest shape. So we don't have a lot ofexperience that would indicate that we would confidently project use in thatspace for patients with that disease, because they are pretty sick.

But, if you looked at the entire space, maybe that's 20% ofthe patients, something of that order of magnitude. There is only another 10%of the patients that ultimately achieve a cure concert of intent. So the restof the patients we see being eligible, and we obviously help to generate somedata in the adjuvant setting, which could extend the time a patient stay on thedrug.

Jim Birchenough -Lehman Brothers

And just a follow-up, I may have missed it in your preparedremarks, but did you provide any refinement of timelines for data from thenon-small cell lung cancer trial?

Hollings Renton

No. We just talked about it being in the second half of '08previously. So we didn't change that.

Jim Birchenough -Lehman Brothers

Okay, great. Thanks for taking the questions.

Hollings Renton

Thank you.

Operator

Your next question comes from Howard Liang from LeerinkSwann. Please state your question.

Howard Liang -Leerink Swann

Thanks. In the US, can you say whether RCC salesare stable or was there any decline?

Hollings Renton

No, we haven't really changed anything in terms of guidancefrom essentially stable. And obviously, it's a competitive space. There wasprobably a little bit more pressure in the US than there is ex-US.

But if you remember that more of the business now today inrenal cell is ex-US where oral drugs are preferred. So in terms of looking atthis geography, I think again, it's probably are we thinking globally aboutthis?

Howard Liang -Leerink Swann

Okay. And just the use in the quarter for HCC, I think wehear fair amount of use. I think there is actually fair amount ofreimbursement. I guess just sort of how much of a penetration is there in HCCor are we really, really early, very, very limited use or is there a fairamount of use in HCC, both in the US and Europe?

Laura Brege

There is a tremendous interest in using Nexavar, both fromthe clinical study side as well as with the prescribing physicians. You onlyhave to look at the ASCO presentation or seeing more than 40 of them see that.

We, as you know, only promote Nexavar for its FDA-approveduse, which is RCC. Following the primary session and following the datasubmission, you saw more and more use in the third quarter. And I guess wewould be most comfortable saying that growth was driven by HCC in the thirdquarter.

Howard Liang -Leerink Swann

Okay. That's helpful. Can we just go over the big five in Europe in terms of how soon reimbursement can be obtainedfor HCC? You mentioned Germanyis right away. What about the other four countries timing wise?

Hollings Renton

I think probably Germanyand France are the quickestand UKis the latest. As everybody knows, Italyand Spaintake a little bit more discussions with authorities to gain reimbursement.

Howard Liang -Leerink Swann

Are we talking about similar timeframe as with RCC, or is itbecause they already have won the market, it's more quickly?

Hollings Renton

No. I don't think we've put a timeline on it. But I thinkthe bottom line is that it means that some of those approvals won't occur untilinto the first quarter of next year.

Howard Liang -Leerink Swann

Like for UK,so the last one will be…

Hollings Renton

No, sorry. I don't want to commit to anything for nice. Butfor Italy and Spain,it's going to be approvals, probably reimbursement authorizations coming in thefirst quarter of 2008.

Howard Liang -Leerink Swann

Okay. Great. And then in China, since it's not reimbursed,do they really need approval for patients or doctors to use it?

Hollings Renton

Obviously, it's approved for renal cell cancer. And sinceit's not approved, it can't be used if physicians and patients feel it'sappropriate.

Howard Liang -Leerink Swann

Okay. And just a last question regarding your strategy ofbuilding up a pipeline. Can you just harp about your strategy or priorities?

Laura Brege

Nexavar remains our top priority. And as you know, we thinkabout Nexavar as a pipeline in and of itself. So we have been and continue toactively assess oncology opportunities in particular, and we will continue todo that. Our focus remains however on Nexavar.

Howard Liang -Leerink Swann

Great. Thank you.

Operator

Your last question comes from Phil Nadeau from Cowen. Pleasestate your question.

Phil Nadeau - Cowen

Good afternoon and thanks for taking my question. First, inyour prepared remarks, you mentioned that there were 60,000 deaths from livercancer in Europe. And I think that's somewhathigher than the figure you recorded back in February or March when youannounced the data. I think around at that time, you were saying about 35,000deaths. So why the difference and how many of those 60,000 deaths are actuallyin big five countries?

Laura Brege

No, actually the number for all of Europeis about 60,000, and obviously it varies a little bit depending on whatstatistics you pull from, but the big five there is approximately a 30,000deaths annually

Phil Nadeau - Cowen

Okay. That's great. And then, second is on the agreementwith Bayer, this is the first quarter, I believe where Nexavar itself wasprofitable, does that change anything about your agreement with Bayer. I guesswhat I am particularly asking about is there some speculation in the marketthat that may affected terms, should Onyx be bought by an independent companyis that, in fact, true?

Hollings Renton

Nothing changes in the agreement as other than what ispaying back the debt that we had previously received from them. So nothingchanges under the agreement and we continued to be focused with Bayer ondriving the value of Nexavar and making it available as many patients as wepossibly can, so that nothing changes.

Phil Nadeau - Cowen

Okay. Great. And then, third question is on the Onyxcorporate SG&A expense rate, you had noted in your prepared remarks thattook down a little bit in the fourth quarter, but you didn't really say what'sgoing to happen in the future, how much more do you need to add to yourinfrastructure?

Hollings Renton

Well, we haven't given any guidance on our G&A lineitem. It has been relatively stable. One thing I noticed in that line item isalso our Nexavar direct expenses or marketing expenses that we pay directly tosupport our other product, so that can show some fluctuation fromperiod-to-period. What we saw from Q2 to Q3 was a slight decline in thosemarketing expenses; the later had to do with activity around ASCO, which tookplace in the second quarter.

Hank Fuchs

Yeah. I'd say also that given those comments, we're notreally changing the size of the organization, but as we're looking to launch inthe US, there are going to be some additional expenses, launch -- we probablyhad some pre-launch expenses but we are getting ready for launch as well so

Phil Nadeau - Cowen

Okay. Great. And then, last question is on Asia.I think, we are all struggling with exactly how big of market that could be forbranded oncology product? Do you have any data on other branded oncologyproducts and how much they sell in the Asiamarkets?

Hollings Renton

You know, we've looked at various sources for that as aguideline and I don't have that at the tip of my finger side, I'll be reluctantthat one, you give us a call back and Schafer can take that up.

Phil Nadeau - Cowen

Okay. Great. Thank you.

Hollings Renton

Thanks. Okay. Well, thank you everybody, again. We hadobviously had a very great quarter here with $105 million in sales, announcingliver cancer beginning to drive our financial performance. We are very pleased,obviously, with the European Union approval in liver cancer, continuing topress forward with the applications in the USand elsewhere including Chinaand Japan.

Obviously, we've expanded our trials in breast cancer andinitiating a lot of other trials. We got proven drugs with significant upsides,so we are obviously very excited about where we stand and look forward toupdating you on the next call coming February. Thank you very much.

Operator

Thank you. This concludes today's third quarter financialresults conference call. Thank you for participating. You may all disconnect.Have a great day.

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