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Onyx Pharmaceuticals Inc. (NASDAQ:ONXX)

Q4 2007 Earnings Call

February 19, 2008 10:00 am ET

Executives

Julie Wood - VP of IR and Corporate Communications

Hollings Renton - Chairman, President and CEO

Hank Fuchs - EVP and CMO

Laura Brege - EVP and COO

Greg Schafer - EVP and CFO

Analysts

Steven Harr - Morgan Stanley

Katherine Kim - Banc of America Securities

Howard Liang - Leerink Swann

Jessica Li - Goldman Sachs

Richard Smith - JPMorgan

Jason Zhang - BMO Capital Markets

Jim Birchenough - Lehman Brothers

Jim Reddoch - Friedman, Billings, Ramsey

Phil Nadeau - Cowen and Company

Operator

Good morning, ladies and gentlemen, and welcome to Onyx's conference call. (Operator Instructions)

I will now turn the call over to Onyx Pharmaceuticals. You may begin.

Julie Wood

Thank you. Good afternoon. I'm Julie Wood, Vice President of Investor Relations and Corporate Communications at Onyx Pharmaceuticals. We thank you for joining us today to discuss the ESCAPE Phase III lung cancer trials, and our fourth quarter and yearend financial results.

Joining me on our call today are CEO, Hollings Renton; Laura Brege, our Chief Operating Officer; Hank Fuchs, our Chief Medical Officer; and Greg Schafer, our Chief Financial Officer.

Please note that we will be making forward-looking statements during this teleconference that could include financial, clinical or commercial projections. Statements that are not historical fact are forward-looking. References to what we expect, believe, intend to do, plan, estimate or other statements referring to future events or results are intended to identify these statements as forward-looking. Forward-looking statements are inherently subject to risks and uncertainties. For a discussion of these risks and uncertainties, we refer you to our most recent 10-K and to our more recent filings with the SEC. In addition, our 10-K for 2007 is expected to be on file by month end.

I'd now like to turn the call over to Hollings Renton who will make a few introductory comments before turning the call over to Hank Fuchs to review yesterday's lung cancer announcements. After Hank is finished, the management team will provide a brief business overview, including the results for the fourth quarter and for the full year.

Hollings Renton

Thank you, Julie. Obviously, we are disappointed by the lung cancer results, as we had hoped that this trial would provide an important option for treating a disease that remains devastating despite recent treatment advances.

Before turning the call over to Hank, who will review the study, I would like to acknowledge and thank the patients and physician investigators for their support and participation in this trial. These results don't change our long-term outlook or our confidence that Nexavar can become a standard of care across multiple tumor sites.

We believe that Nexavar's unique features and proven efficacy continue to make it one of the most promising new oncology agents, and we have a number of randomized studies underway or planned in different tumor types to demonstrate this. We have made great strides toward further establishing Nexavar as a cornerstone of cancer care. With approvals in kidney cancer and liver cancer, we have a growing business in two indications and we have multiple avenues for future growth.

Now, I'll turn the call over to Hank.

Hank Fuchs

Thank you, Hollings.

As we announced yesterday, one of our pivotal Phase III lung cancer trial, known as ESCAPE, was stopped early. The ESCAPE trial enrolled over 900 patients with all types of non-small cell lung cancer. These previously untreated patients received Nexavar or placebo in combination with the chemotherapeutic agents, carboplatin and paclitaxel. The primary endpoint was overall survival, and the trial was conducted at more than 140 clinical sites internationally.

After completing a planned interim analysis, the independent Data Monitoring Committee, or DMC, recommended that the study be stopped, based on the conclusion that the trial would not meet its primary endpoint of overall survival. Safety observations were generally consistent with those from prior clinical trials of Nexavar. However, higher mortality was observed in the subset of patients with squamous cell carcinoma of the lungs treated with Nexavar plus carboplatin and paclitaxel, versus those treated with the chemotherapy doublet alone.

We and Bayer have accepted the committee's advice and are providing information regarding this Data Monitoring Committee recommendation to help authorities and clinical investigators involved in studies of Nexavar. In addition, the companies will further review the findings of this analysis and DMC recommendation to determine what impact they have on other ongoing mix of our lung cancer trials, including considerations of patient eligibility, endpoints and sample size. Data from the study will be presented at an upcoming scientific meeting.

As it is impossible to predict in advance in which patient groups any drug will be active, we believe that it's extremely important to have a broad development program within and across different tumor types, both alone and in combination with a variety of anti-cancer therapies as a way to mitigate the risk of trial failure and maximize the opportunity to help patients with cancer.

Now I'd like to turn the call over to Laura who will highlight our commercial progress with Nexavar.

Laura Brege

Thank you, Hank.

With approvals in two indications, we have a strong and growing business. We ended 2007 with excellent topline performance and positive momentum, having achieved $372 million in annual worldwide sales of Nexavar. This represents a 125% increase over annual sales in 2006.

In the fourth quarter, Nexavar global net sales reached $125 million, representing an increase of 96% over the same quarter in 2006 and 19% over the third quarter of 2007. Fourth quarter sales included approximately $43 million generated in the United States and approximately $82 million from outside the US, with the growth driven by the uptake in liver cancer.

For the full year, $142 million was generated in the US, while $230 million was derived from outside the United States. Nexavar is now approved in more than 30 countries for liver cancer, and numerous applications are pending worldwide.

Liver cancer is the sixth most common tumor worldwide, and the third leading cancer killer globally. As the first and only approved systemic agent in the US and Europe, and with broad labels in both regions, Nexavar has the potential to help thousands of people suffering from this disease.

At the same time, we realize that, as with any new market, there is an important learning process underway, both for us and for the treating physicians. As pioneers in the systemic treatment of liver cancer, we are leading the way in setting a new standard of care and shifting the treatment paradigm for this awful disease.

In the process, we are uncovering important information about the care patterns of specialists, and the underlying market dynamics for what is essentially a new therapeutic area, including the size of the total patient population, the rate of adoption and the duration of therapy. That the patients typically have underlying liver disease in addition to their liver cancer, and are often treated by a variety of medical specialists, adds to the complexity of this important therapeutic area.

The variety of screening and diagnosis patterns in different regions of the world, and the prevalence of the disease outside the US, are key focuses for our collaboration with Bayer. As we launch this new indication for Nexavar with Bayer, we're gaining critical market exposure and experience, and are devising market-based programs to educate physicians and to maximize the benefit to liver cancer patients.

In the EU, Bayer is proceeding with country by country launches, following approval for liver cancer in the fourth quarter of 2007. In addition, Bayer has filed for the liver cancer indication in a number of regions, including Asia. In Japan, the Nexavar filing for the treatment of liver cancer was granted priority review status just last month by the regulatory authorities.

In China, where Bayer filed in mid 2007, we anticipate initial adoptions to be primarily in the coastal urban areas where there is a greater affordability of healthcare.

Given the proven efficacy of Nexavar in the treatment of liver cancer, as demonstrated in multiple clinical trials, we intend to support additional trials with the potential to benefit patients at all stages of their disease. We are planning large, randomized trials evaluating Nexavar's use following surgery, to assess whether Nexavar can delay reoccurrence of the disease in the adjuvant setting, and in combination with transarterial chemoembolization, or TACE, as well as in combination with other agents.

Turning to renal cell cancer, Nexavar has been established as an important option for physicians and patients. We see the global kidney cancer market stabilizing after the introduction and rapid uptake of new targeted therapies. Patients are benefiting from multiple options, as many of them are being treated sequentially with different agents. In this increasingly competitive marketplace, we anticipate some sales pressure, more so in the US.

We believe that Nexavar will continue to play an important role in providing therapeutic benefit to kidney cancer patients worldwide, and are continuing to support multiple ongoing trials as a way to potentially expand the use of Nexavar in this market.

I would now like to turn the call back over to Hank who will provide an update on our development program.

Hank Fuchs

Thank you, Laura.

Building on our success in two very difficult tumors, Nexavar is currently the subject of approximately 200 clinical studies, with the goal of amassing comprehensive data that we believe will ultimately lead to better treatment options for cancer patients.

We have approximately two dozen key randomized trials ongoing or in final planning in several different tumor types that meaningfully extend our development program, including a comprehensive series of trials in both lung and breast cancers. The Nexavar clinical development program consists of trials led by Bayer and Onyx, international study groups, government agencies or outside investigators. Nexavar is being studied as both a monotherapy, and in combination with anti-cancer agents in a variety of settings.

Ongoing trials in lung cancer include a Phase III and a Phase II study. The Phase III non-small cell lung cancer trial underway in Europe is adding Nexavar to gemcitabine and cisplatin, the chemotherapy doublet most commonly used there.

The randomized Phase II study under the sponsorship of the Eastern Cooperative Oncology Group, or ECOG, has completed enrollment of refractory patients. This trial, evaluating Nexavar as a monotherapy, is using a randomized discontinuation design. We anticipate results from this study midyear.

ECOG is also sponsoring a Phase III trial enrolling chemo-naïve advanced melanoma patients. This study is designed to compare overall survival of patients treated with carboplatin and paclitaxel, to treatment with these agents plus or minus Nexavar. We anticipate enrollment in this study will be completed in the next quarter.

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

Each trial will enroll over 200 patients, and the primary endpoint across the program for each study is progression-free survival. Our goal with this clinical development program is to screen combinations with effective therapies, and to better inform the Phase III protocol development process.

In summary, with demonstrated efficacy in two previously underserved cancers, and a broad clinical program designed to leverage Nexavar's unique features, we believe that Nexavar is well positioned to continue to make significant advances in the treatment of cancer. We have a solid long-term program to deliver many opportunities for success.

In addition to investing further in tumors where Nexavar's efficacy has been already demonstrated, we have multiple randomized Phase II trials under way. There are also a number of other earlier signal generating trials ongoing that will further inform and extend our development program.

Now, I'll turn the call over to Greg Schafer.

Greg Schafer

Thank you, Hank.

Net worldwide sales of Nexavar increased 96% to $124.9 million for the fourth quarter of 2007, as compared to sales of $63.7 million in the fourth quarter of 2006. For the full year, Nexavar net sales were up $125% to $371.7 million, as compared to $165 million in 2006. Sequentially, we also experienced strong sales growth, with an increase of $20.3 million, or 19% over the third quarter.

As a reminder, Onyx and Bayer share profits worldwide, except in Japan where we will earn a high single digit royalty beyond any sales. For the fourth quarter, our net loss was $11.7 million, or $0.21 per share. This included employee stock-based compensation of $3.9 million, or $0.07 per share.

For the full year of 2007, Onyx's net loss was$34.2 million, or $0.67 per share. Shared Nexavar sales and marketing expense by Bayer and Onyx, including cost of goods sold and distribution expense, was $82 million for the fourth quarter of 2007. This is an increase over the prior quarter, as Nexavar's use continues to grow throughout the world, and as Bayer and Onyx expanded Nexavar's launch activities for liver cancer in the EU and in the US, and prepared to launch elsewhere.

Shared R&D expense by Bayer and Onyx was $51.7 million for the fourth quarter of 2007. This expense was higher than that incurred in the previous quarter, due in large part to increased clinical trial activity in preparation of regulatory submissions for liver cancer.

Onyx's direct R&D expense of $5.5 million in the fourth quarter of 2007 is primarily Nexavar-related expenses incurred directly by Onyx.

Onyx's SG&A expense was $16.4 million in the fourth quarter 2007. Onyx's SG&A expense includes the cost of our US sales force, the portion of shared Nexavar's marketing expenses that we incur directly, the cost that we incur for general and administrative support of the company, and SG&A related non-cash stock-based compensation expense.

At December 31, 2007, we had cash, cash equivalents, and marketable securities of $469.7 million, as compared to $271.4 million at December 31, 2006, and $451.2 million at the end of last quarter.

In 2008, we anticipate Nexavar's primary topline growth driver to be revenue from the liver cancer indication, and given the worldwide distribution of the disease, that an increasingly larger percentage of Nexavar sales will be generated outside of the US. Because of the dynamic market conditions, we are not providing 2008 revenue guidance at this time.

We are committed to fully unlocking the market potential of liver cancer to focus market development efforts, and investing in the clinical potential of Nexavar. As a result, for shared commercial expenses in R&D, we expect annualized spending levels to be similar to those we reported in the fourth quarter of 2007, and we expect the spend may be uneven across quarters as clinical trials, commercialization, and launch activities vary throughout the year.

We expect Onyx's SG&A expenses, excluding stock-based compensation, to be higher on an annualized basis than what we reported in the fourth quarter, as we increased our field-based commercial support activities for Nexavar. As a result, while we may be cash flow positive for the year, we are not yet comfortable projecting a possibility in 2008 that we may have profitable quarters, due to the variability of expenses.

Now, I would turn the call over to Hollings.

Hollings Renton

Thanks, Greg

While we are disappointed by the outcome of the Phase III lung cancer trial, these results don't change our long-term outlook or our confidence that Nexavar can become a standard of care across multiple tumor types. We are pleased with the outstanding commercial results for Nexavar in 2007, and look forward to the continued growth of the Nexavar franchise, which we anticipate will be driven by sales for the treatment of liver cancer patients, both in the near-term with the current label, and beyond as we generate data in combination with surgery, local procedures, or other systemic therapies.

With the proven drug, a successful collaboration with Bayer, outstanding commercial teams launching Nexavar in a second indication, and a comprehensive joint development program, we continue to be energized by the promise of Nexavar both now and in the future.

We'll now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions)

The first question comes from Steven Harr from Morgan Stanley. Please go ahead.

Steven Harr - Morgan Stanley

Hi. A couple of questions. First-off, on the safety side in the squamous cell population from the failed trial: Can you give us an idea or especially patients? I'm sure they want to know what the safety signal is that you think led to the adverse outcome?

Hollings Renton

Hi, Steve. Good morning. First of all, there was a meaningful increase in mortality in patients with squamous cell carcinoma. And as you know, we had an independent Data Monitoring Committee monitoring the study because of a potential concern for fatal pulmonary hemorrhage associated with other anti-angiogenic drug.

However, we found in this study that this increase in mortality was not associated with the reported excess of fatal-breathing events. As you know, we just got this data. We're currently in the process of reviewing, trying to understand these findings better.

Steven Harr - Morgan Stanley

Okay. That's helpful. And if we move onto just your operating expenses, as people are trying to figure or are confused, could you give us an idea of just where you expect this trend to go overtime? I mean you have a failed study now in hand. Is this something where overtime we should expect R&D to moderate, expect it to increase, and then SG&A once we get pass the hepatocellular launch? Do you think that you will begin to see incremental sales fall in the bottomline and see margin expansion or you're going to end up continuing to invest, and then we should kind of take the margins you have and stabilize them overtime?

Hollings Renton

Yes. So maybe we should talk a little about the risk return on the investments that we're making to capitalize on Nexavar. I mean the first is obviously investing commercially to launch the drug. We've got a first-mover advantage. We want to capitalize on that first-mover advantage. These higher expenses commercially are to see to a successful launch. And Laura highlighted some of the issues around reaching additional audiences to gain penetration with the current label.

As well as then secondarily, the next series of investments for us is in the clinical developments in liver cancer, which we think is relatively low-risk, given that we are three for three in large clinical trials in liver cancer, and we think we can extend the benefit to a lot of patients with the disease at earlier stages, both that are getting surgery and local procedures or maybe even later to enhance the activity of Nexavar in combination with other agents. So we think that's an investment that makes a lot of sense.

On the development side of things beyond liver cancer, as you know, we've increasingly moved our development program into randomized Phase IIs, as probably best exemplified by the breast cancer program. But we're doing it in lung cancer and other settings as well as in other diseases.

So I think that at this stage, we certainly are looking at how much to put overtime because we do see a need to improve the margins commercially as we get to the launch behind us, as we see growing sales in HCC, more cash dropping from the commercial activities to fund the development. And although the development dollars will be higher as we guided here in this next year, I think beyond that it's going to depend on results out of Phase II studies.

Steven Harr - Morgan Stanley

All right. Thank you.

Operator

The next question comes from Katherine Kim from Banc of America Securities. Please go ahead.

Katherine Kim - Banc of America Securities

Hi. Thank you for taking my question. First question I have is on the European trial: do you expect to amend the trial to restrict to the non-squamous considering the results of the US trial?

Hank Fuchs

Hi, Katherine, this is Hank. As I indicated, we just got this data over the weekend. We'll be sharing the data with the Data Monitor Committee and principal investigators of the trial and discussing with them what if any amendments to make in the ongoing program with the wide variety considerations, including, but not limited to, patient population. So, stay tuned.

Katherine Kim - Banc of America Securities

Can you just tell us in terms of recruitment, where you are at with the European trial?

Hank Fuchs

Yeah. We don't give specific updates on enrollment in ongoing clinical trials.

Katherine Kim - Banc of America Securities

Okay. And then, could you give or provide a status of the Japan launch in renal, because I know that you've gotten the approval, but when do you expect pricing approval, and then, also, if you can talk about the hepatocellular approval?

Laura Brege

Hi, Katherine, this is Laura. In Japan, as you pointed out, we have just received approval for RCC and have also been notified. Bayer has been notified that Nexavar has priority review for HCC. So we expect RCC pricing and revenue to begin to come in throughout this year. We've seen about a year and half, somewhere in the current 12 months period, I think, we're going to begin to see HCC movement.

Katherine Kim - Banc of America Securities

Okay. And then final question on expense side. So when you talk about the annualization of being similar to the run-rate of the fourth quarter, are you referring to the Nexavar-related expenses, or are you also referring to your own R&D and SG&A expenses?

Greg Schafer

Yes. Katherine, just to reiterate the guidance was on a shared R&D and SG&A expenses, which can be found in the supplemental table on the press release. And then, we also guided to our own SG&A expenses being higher than the fourth quarter run-rate.

Katherine Kim - Banc of America Securities

And then in terms of profitability, are you giving the JV profitability or your own profitability?

Greg Schafer

No. What we talked about is being cash-flow neutral. That's our expectation, and not yet at a place to be able to project profitability for the company.

Katherine Kim - Banc of America Securities

Okay. All right. Thank you

Operator

The next question comes from Howard Liang from Leerink Swann. Please go ahead.

Howard Liang - Leerink Swann

Thanks very much. Was there an option to only discontinue the squamous cell portion of the trial?

Hank Fuchs

Good morning, Howard. At this point we do not believe that the data support further pursuit of development or registration of Nexavar in non-squamous non-small cell lung cancer in combination with carboplatin and paclitaxel.

Howard Liang - Leerink Swann

Okay. And operationally, what does it mean to stop the trial at this point, because I would imagine that everybody is off Nexavar triple combination by now, and I guess are there still many patients on Nexavar monotherapy at this point? And when data will not be collected after you stop the trial?

Hank Fuchs

Yeah. I think, in general, Howard, most of the patients have discontinued the study due to either progressive disease or other events. And we'll be working very closely with the physician investigators to convey these results. At this point, I don't think that additional data will really change the conclusion in an important way.

Howard Liang - Leerink Swann

Okay. And can you say what percentage of the ESCAPE trial population was squamous versus non-squamous?

Hank Fuchs

We said in the past that the accrual of squamous population in the study was generally representative of squamous cell carcinoma, in general, somewhere we refer to around 25% or so of patients that have non-small-cell lung cancer have squamous disease. I want to point out that the data will be presented in upcoming scientific meetings. So we're a little reluctant to disclose a lot of the details of the study, but we rather encourage folks to participate in the scientific sessions.

Howard Liang - Leerink Swann

Okay. Great. Thank you very much

Operator

The next question comes from Jessica Li from Goldman Sachs. Please go ahead

Jessica Li - Goldman Sachs

Thanks for taking the question. For one, you may not want to disclose this now, but I would still like to ask the question: Are there any positive survival trends for Nexavar in non-squamous cell population, or do you have the subset analysis built in?

Hollings Renton

Again, I think going back to Hank's answer that data will be presented at upcoming scientist meeting.

Jessica Li - Goldman Sachs

Okay. The next question is do you think the 400 milligram bid dosing to be optimal dosing for lung cancer as well as breast cancer given what you've in the day ESCAPE trial?

Hank Fuchs

As you know, Jessica, we have some very exciting data in kidney cancer. The dose finding timeframe of Nexavar began in year 2000-2001, and we identified hand-foot skin reaction as a dose-limiting toxicity. But that was in advanced cancer patients, and without the benefit of knowing how effective the drug was going to be. And so, we were very intrigued and encouraged last year, when an investigator at an institution reported that he could administer a twice-as-high dose without actually increasing patient toxicity.

And that investigator in kidney cancer reported that a majority of patients could actually achieve a remission, and in some cases complete remission of their kidney cancer, which was an extraordinarily exciting finding. We were busy pursuing, documenting those findings and extending those findings in other clinical sites as well as in randomized trials. So I'd say stay tuned for the possibility that we might find different strategies to optimize the effectiveness of Nexavar in cancer.

Jessica Li - Goldman Sachs

Great. Thank you.

Hollings Renton

Yeah. And Jessica, just in combinations with chemotherapy, we have to establish the safe dose in combination with the chemotherapy. For example, this one had a preceding Phase I trial, where we established 400 milligrams as the safe dose to be used with the regimen of carbo/tax.

Jessica Li - Goldman Sachs

Right. Thank you.

Operator

The next question comes from Richard Smith from JPMorgan. Please go ahead.

Richard Smith - JPMorgan

Yeah. Good morning. Could you just give us a little bit more information about the rollout of Nexavar in Europe and other countries that it's available and how it might be being used at the moment?

Laura Brege

Richard, it's Laura. In the EU, we received approval in the fourth quarter, and depending upon the country, you have pricing approval and launches, which will occur basically throughout the first half of 2008. We did have some early uptake in Germany and France, and in particular, in Germany where pricing approval is not necessary separately. So in the top EU countries, we've had some uptake in Q4. As I said, the growth was driven by that. I'd say that Germany is the most penetrated and that the non-top five EU are the least penetrated.

Richard Smith - JPMorgan

And countries like the UK, Spain, Italy, are they anticipating approvals or uptake in the first half, is that right?

Laura Brege

I want to say yes to that, with the exception of the UK.

Richard Smith - JPMorgan

Okay. Thank you.

Operator

The next question comes from Jason Zhang from BMO Capital Markets. Please go ahead.

Jason Zhang - BMO Capital Markets

Thanks for taking my questions. Question for Hank: I know one of the major reservations we had about is ESCAPE, there was a randomized Phase II study, and I guess company used [Avastin result] as a proof that angiogenesis could work in combination with chemo and that proved not to be the case for Nexavar. So my question is, tier-one is for the Nexavar trial, do you have an interim analysis?

And number two is so far Nexavar has been shown to work only as a monotherapy, has not worked out at all in combination with chemo for multiple types of tumor now. Now what decision you'll have to make going forward, particularly given your R&D expense seems to go higher every year, at what point do you think the investment scale tips towards unfavorable if you keep investing in the combination, where there is really no scientific reason to believe that it will work?

Hank Fuchs

Okay. Jason, thanks for your questions. So let me see if I can get them, and then please follow-up. So first of all, we do have Data Monitoring Committees overseeing our Phase III clinical trials where survival is a primary endpoint, and certainly the NExUS trial of Nexavar in combination what gem/cis is one of those.

We were very encouraged to dive into a Phase III clinical trial on lung cancer. We believe that the need for new therapy is to improve patients' outcomes, the efficacy of other anti-angiogenic drugs, the competitive environment. And the preliminary data that we had was sufficient to address this large population with unmet needs. And unfortunately that didn't wok and we need to assess the impact of that program.

At the same time, I don't believe that our drug is going to be an entirely monotherapy drug. Certainly most mature programs that we have data on are in monotherapy settings, given the devastating need of patients in those settings liver cancer and hepatocellular carcinoma. But we do have efficacy beyond those very tough tumors in combinations with dacarbazine and combinations with doxorubicin and melanoma and in liver cancer specifically. And we're encouraged by that.

So we've undertaken a broad program to invest. You certainly know that that we had a balanced portfolio of investments of Phase IIIs and Phase IIs. And what you see happening in the Nexavar investigation program is that we're increasing our commitment for the Phase II signal generating activity as a means to point the way forward for Nexavar in a very strategic and informed manner. So, hopefully, I've covered your questions.

Jason Zhang - BMO Capital Markets

Thanks. That was really helpful. And also I have a financial-related question. I know you are little reluctant to really breakout revenue from renal and liver, and you said that liver cancer is really just the start. I wanted to probe a little more, particularly for the US liver cancer market. The data came out last ASCO -- most physicians probably know very well the data. And can you give us any sense in the US at least, where do you think the liver cancer market is, how much of room there for growth, and whether it will follow the pattern renal sale, that means in a very fast uptake and pretty fast way towards maturation?

Laura Brege

You are certainly right that the ASCO presentation for HCC was met with great enthusiasm in the medical community. And particularly in the US, we saw some quick uptake, which was very encouraging for these patients. So, as we look for how penetrated are we today in the US market, and what's that opportunity, I think its early days for us to be able to characterize that well.

It's a new market. We have a leadership position in it. We're developing that market. So, I think that the conclusion of it is that we have good interest in the drug, we have good usage, and we have great opportunity to continue to expand that market.

Hank Fuchs

One thing, just to add to what Laura had said, is that unlike RCC, we actually have two physician groups to educate to. So it's not the same, just educate the oncologist, but we have G hepatologist as well as some GI oncologist. So, I think that might modulate the rate of uptake in the US just based on the current label that we have.

I think the other think that may be a little bit different is the geography issue here with this disease in that HCC is much more prevalent outside of the US. There are also the same issues about multiple physician audiences, but also importance for follow-on pricing approvals, and I'd tell you that maybe Europe may not be that much different in terms of pricing approval follow-up, but the timing to get the drug in selected Asian markets, where it's very important, is probably going to lag a little bit. So that's going to be another driver that's out there in little ways.

Jason Zhang - BMO Capital Markets

Thanks.

Operator

The next question comes from Jim Birchenough from Lehman Brothers. Please go ahead.

Jim Birchenough - Lehman Brothers

Hi, guys. A couple of questions. Just number one: I'm wondering, Hank, whether you know whether the excess mortality seen in the non-small cell lung cancer trial was driven by taxane-related toxicity, Nexavar-related toxicity or progressive disease? In asking that question, I'm assuming you've got reports on grade 5 toxicity that would be drug-related.

Hank Fuchs

Yeah, Jim. Obviously, the first area of focus was on potential for the toxicities to be a result of fatal pulmonary hemorrhage, which, as I said before, did not appear to be the case. As to the precise nature of the toxicity that resulted in increased mortality, we've not really sort of uncovered primary findings just yet. We're going to be reviewing those data with experts and try to better understand that. But at this point what we can say is that it did not appear to be the direct result of excess fatal pulmonary hemorrhage.

Jim Birchenough - Lehman Brothers

Were you tracking the grade 5 toxicities along the course of the trial, and was there any imbalance seen there?

Hank Fuchs

Sure. There was an independent Data Monitoring Committee who oversaw the safe and ethical conduct of the clinical trial. They kept a very close eye on the clinical trial, and we first became aware of these results when they indicated that the trial would not meet its primary endpoint. And now we're sharing this news with you is fairly as quickly as we got it.

Jim Birchenough - Lehman Brothers

And then, just turning to the indications in hand, give a sense in renal cell cancer what percent of patients required dose reduction and whether there is any greater percentage where we're seeing a dose reduction in liver cancer?

Laura Brege

Hi. This is Laura. In renal cell cancer, the physicians have had an opportunity to have a lot of experience with the drug. And as we look at variability in patient treatment, we haven't seen anything that is, I think, driving particular changes in dose usage. As Hank said, we actually have had some interesting data about dose escalation as well in RCC. So I think that physicians are quite comfortable with using the drug and are comfortable with the approved dose.

In HCC, it's early days. The patients are clearly sicker than the RCC patients in that they have few diseases. But again what we're beginning to see is great familiarity with the usage of the drug and Nexavar is well-tolerated.

Jim Birchenough - Lehman Brothers

Great. Thanks.

Hollings Renton

Next question?

Operator

The next question comes from Jim Reddoch from Friedman, Billings, Ramsey. Please go ahead.

Jim Reddoch - Friedman, Billings, Ramsey

Hi. Thanks for taking the question, and I missed the beginning of the call. So I apologize if you may have touched on this. But in terms of other Nexavar trials, if I remember correctly, you are starting or have started four breast cancer trials? If I remember, they are fairly significant Phase II trials. Would the spending on these trials be majority in '08, or is it '09 sort of thinking in terms of the majority of spending for these trials? And secondly, which of those have taxane in the background? Thanks.

Hank Fuchs

Hi, Jim. Thanks for the question. This is Hank. I'll start, and if you need some additional financial help, if I need additional financial help, I'll ask Greg to chime in. So the trials are very large trials. We called them Phase II trials, but I want to point out at 200 patients in over 100 events, they are trials that are roughly comparable to the size of trials that have resulted in approvals for breast-cancer drugs recently.

That said, we're calling them Phase II trials, and their purpose is to generate signals to inform Phase III decision-making. Two of the trials have taxane backbones in them. There is a front-line trial that is weekly paclitaxel plus or minus Nexavar. And there is an additional trial that is (inaudible) choice therapy, either the taxane docetaxel or letrazol plus or minus Nexavar. So that will be about one and a half of those trials. I do want to add that we started five of these trials at this point, and the trials are just getting underway. So I think that the expenses will begin in 2008 and continue through 2009.

All of these trials are being conducted in collaboration with renowned experts in the field of breast cancer and are not the typical company-sponsored clinical trial expenses. And so, we're really excited that these trials will generate signals which will lead to the further development of Nexavar in breast cancer.

Greg Schafer

I think the other driver of the increased expenses on the development side for 2008 and moving into 2009 are going to be the HCC investments. That is we have trials that will be launching as an adjuvant to surgery in combination with chemoembolization and in combination with other systemic agents. And the goal there is to add benefit to patients when they are in earlier stage of their disease in the adjuvant setting or when they're getting local procedures that they weren't eligible for curative treatments, and even to see if we can enhance the benefit for patients with Nexavar and other combinations.

So we think these are all rational investments, high payoff, relatively low-risk as possible because we're three for three in liver cancer, and therefore, we want to benefit as many patients as we can we think we'll get. It's a very good risk return proposition.

Jim Reddoch - Friedman, Billings, Ramsey

Okay, thank you.

Operator

The next question comes from Phil Nadeau from Cowen and Company. Please go ahead.

Phil Nadeau - Cowen and Company

Good morning. Thanks for taking my question. My first question is on your US sales in the quarter. There is only modest growth quarter-over-quarter. Why do you think that is? Is that because kidney cancer decreased in the quarter, or did liver cancer in the US plateau?

Laura Brege

We saw rapid uptake in HCC throughout the first few months after the ASCO presentation. The US approval was only received a couple of days before Thanksgiving. So I think that we have to look at the fourth quarter as one before the US sales force had an opportunity to be in the marketplace.

Phil Nadeau - Cowen and Company

Okay. That's helpful. And then, second is on duration of therapy. You mentioned that this is one of the parameters that you are monitoring in the launch. What is the duration you're seeing today in kidney cancer, and what's the duration you're seeing in liver cancer?

Laura Brege

It's difficult for us to tell you today where we are in duration of therapy, particularly in liver cancer. I can tell you that in SHARP trial we saw duration about 5 months, and in kidney cancer a bit longer. In the real world, as we experience activity with a variety of patients and physicians, we tend to see lower amounts or lower duration of therapy, and we are seeing some of that. But again, it's very early days in the development of the HCC market.

Phil Nadeau - Cowen and Company

Okay. And then last question is just a follow-up on one that was asked before, and that's on dose reductions. You said that you see in HCC that the drug is well-tolerated. Didn't really quantify or elaborate whether you are seeing any dose reductions at all? Could you talk a little bit more about dose reductions, specifically in liver cancer?

Laura Brege

Sure. But I will begin with that it's still too early to know as the reports that we hear are really anecdotal at this stage. We don't have a lot of data in the marketplace. And so, I think that right now we certainly have some patients who are just reduced and have an active program to help physicians in understanding how to manage those patients well. And then, as Hollings said, we are in the process to really just beginning of educating two medical specialties.

Medical oncologist has a lot of familiarity with Nexavar if he or she is treated a kidney cancer patient, but not if they've not treated one. And secondly, we have the GE hepatologist who has not had the opportunity to learn about Nexavar, and so we have active programs in helping them manage through that.

But no, I'm not giving you a number. I'm going to tell you that where we are is its early days and it's mostly anecdotal.

Phil Nadeau - Cowen and Company

Okay. Then one final question, if I may. The SHARP study, if I remember correctly, around 30% of patients were dose reduced. Have you ever disclosed whether the dose reduced patients had different outcomes, different PFS or survival versus those patients who received a full dose in the SHARP study?

Hank Fuchs

No. We have not reported that.

Phil Nadeau - Cowen and Company

Okay. Thank you.

Operator

There are no further questions at this time. I would like to turn the call back to Onyx Pharmaceuticals for closing comments. Please go ahead.

Hollings Renton

Well, again, we're disappointed by the liver cancer news, but we remain very confident in the drug. So stay tuned for future presentations at scientific meetings. Thanks a lot.

Operator

Thank you, ladies and gentlemen. This concludes the Onyx Pharmaceuticals conference call. Thank you for participating. You may all disconnect at this time.

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Source: Onyx Pharmaceuticals Inc., Q4 2007 Earnings Call Transcript
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