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Executives

Julie Wood - VP, IR and Corporate Communications

Tony Coles - CEO

Laura Brege - COO

Hank Fuchs - CMO

Greg Schafer - CFO

Analysts

Jim Birchenough - Lehman Brothers

Steve Harr - Morgan Stanley

Katherine Kim - Banc of America Securities

George Farmer - Wachovia Capital Markets

Howard Liang - Leerink Swann

Jessica Li - Goldman Sachs

Phil Nadeau - Cowen and Company

Onyx Pharmaceuticals Inc. (ONXX) Q1 2008 Earnings Call May 6, 2008 5:00 PM ET

Operator

Good afternoon ladies and gentlemen and welcome to the First Quarter Financial Results Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Onyx Pharmaceuticals. You may begin.

Julie Wood

Thank you, Christine. Good afternoon. I am Julie Wood, Vice President of Investor Relations and Corporate Communications at Onyx Pharmaceuticals. We thank you for joining us today for our first quarter 2008 financial results conference call.

Leading our call today is Onyx President and Chief Executive Officer, Dr. Tony Coles, who joined the company of March 31st. Also participating on the teleconference are Laura Brege, our Chief Operating Officer; Hank Fuchs, our Chief Medical Officer; and Greg Schafer our Chief Financial Officer.

Please note that we will making forward-looking statements during this teleconference that could include financial, clinical or commercial projections, statements that are not historical facts are forward-looking. References to what 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 10-K for the year ended December 31, 2007 as well as to our 10-Q for the first quarter of 2008, which is on file today.

I would now like to turn the call over to Tony Coles, who will begin the discussion with an overview of our business as well as the near term priorities for the company. After Tony's remarks the management team will discuss commercial, clinical and financial highlights. Tony?

Tony Coles

Thanks Julie, and welcome everyone. It is certainly a pleasure to join this call for the first time and as a member of the Onyx team. These last few weeks have been quite exciting and have already confirmed for me the unique opportunity Onyx has. Not only to create a new market in liver cancer and to build a great brand with our partner, but also an opportunity to build an even greater company, with a strong business fundamentals and attractive returns for our shareholders.

Before sharing my early observations and our near term priorities, I would like to recognize my predecessor Hollings Renton for leadership during the past 15 years. It was his vision and dedication that resulted in Onyx's current level of success. As many of you well know only a handful of biotech companies have discovered new oncology drugs and successfully brought them to market. I applaud the achievements of the Onyx and Bayer collaboration in adding Nexavar to the arsenal of cancer therapy.

Since joining Onyx, I have been immersed in identifying ways in which I can bring nearly two decades of commercial experience to driving future success for Nexavar. There is clearly an opportunity to further unlock Nexavar's potential by identifying additional patients and prescriber's who have not yet heard the Nexavar story and as a result drive further penetration for the brand. Although I have been with Onyx only a few weeks, there are some early observations I have made that provide for some clear conclusions and some key areas for immediate focus.

I would now like to share with you what we have established as four simple and straight forward near term priorities for growth. First and foremost together with Bayer we intend to manage Nexavar as a business. With careful attention to the growing top line revenues while at the same time exercising financial discipline to deliver returns for the brand. In order to do this we will need to make continued investments to tap into Nexavar's full potential, both for new patients in the currently approved indications and others in potential new indications.

As we are focused on creating operating leverage for the brand, we are committed to spending prudently as we seek to remain competitive in this space and reasonably by making trade-off decisions with an eye towards the best return for each incremental dollar spent.

Our second priority is to maximize today's in-market business by fortifying our position in kidney cancer and driving the uptake of Nexavar in liver cancer to create a dominant leadership position in this emerging market. While our recent share performance in the kidney cancer market has indeed stabilized, this continues to be a competitive market and we anticipate additional market pressure as new agents become available.

We believe that Nexavar given its comparative safety and efficacy profile has been, is and can continue to be a foundational drug in the treatment of kidney cancer and we will seek to continue to fortify our position in this market segment.

However, a key for the brand today and for the immediate future is liver cancer. HCC represents a large and previously underdeveloped market with tremendous potential in this country and even greater potential in the Far East and Europe. With our partner we are leveraging the success of our early launches and building on this already strong foundation of performance.

Our goal is to better understand best practice approaches for increasing awareness and earlier diagnosis of liver cancer globally, and to determine how these potential drivers might fit into our comprehensive global strategy for the brand. We have currently planned market expansion efforts and further clinical development in this indication, we expect to expand and solidify our leadership position in liver cancer.

Our third priority is to continue investing in new indications for Nexavar. We still have much more to learn about Nexavar's clinical activity and potential efficacy in additional tumors, in different patient groups, in different diseases setting and in combination with different chemotherapy backbones. Onyx and Bayer are committed to maximizing both the near-term and the long-term value of this important oncology agent by allocating our join investment in a measured way across a variety of cancers.

Finally, and this is in parallel with these Nexavar-related goals, our fourth priority is to remain opportunistically focused on business development. We are committed to achieve in both our immediate priority of managing Nexavar as a business and our longer-term goal of creating a valuable company by maximizing Nexavar and building a portfolio.

We will remain poised on the business development front and intend to add resources to these efforts so that we can move forward opportunistically as appropriate. While Nexavar remains the cornerstone of business and the engine for growth, we expect to expand our portfolio as the way to build a sustainably profitable company as well as to mitigate any risk associated with being a one-product business.

We believe Nexavar's efficacy, tolerability and convenient oral dosing make it an ideal drug to benefit patients with many different types of cancers. We are extremely pleased with our early commercial results and remain focused on what we need to do to succeed with Nexavar.

It's now my pleasure to turn the call over to Laura Brege, who will highlight our commercial progress.

Laura Brege

Thanks, Tony.

In the first quarter, Onyx and Bayer continued the positive sales momentum both domestically and internationally, achieving global net sales of $151.9 million. This included approximately $101 million generated outside the United States and approximately $51 million generate in the United States, including our clinical supply order of $5.6 million in the US.

On a year-over-year basis, this represented 189% growth in sales from territories outside the United States and 96% growth in US sales. On a sequential basis, rest of the world sales increased by 23% over the fourth quarter of 2007 and US sales increased 19% over the fourth quarter of 2007.

Given the priority that Tony mentioned to maximize our in-line business, we are pleased that first quarter sales performance was driven by worldwide uptake in liver cancer, most notably in Europe.

Bayer has launched this indication in Germany and France and just recently in Spain, and they anticipate launching in Italy over the next few months. In Asia, Nexavar has been approved for this indication in South Korea. Additionally, we look for approval in Taiwan later this year.

Based upon what we've observed historically with regulatory approvals, we anticipate Bayer will launch the liver cancer indication in China in the second half of this year and in Japan in 2009.

In these countries, the annual deaths due to liver cancer are over 300,000 and 30,000 respectively. Together with the other Asian markets, these countries represent significant areas of unmet need and importantly growth opportunities for the brand.

In Asia, access and affordability are clearly important variables in determining product uptake. We believe that the number of liver cancer patients receiving oral systemic therapy for their disease will expand in a step-wise fashion as we seek to grow the markets by accessing greater number of patients at earlier stages of their disease.

Some of these growth drivers will be realized through our own market development activity, while additional growth will result from even greater number of patients developing and being diagnosed with lever cancer.

Liver cancer is one of the fastest growing malignancies in the United Stated and is expected to be for some time. For example, Hepatitis C is increasing at a rapid rate in the years to come and it is expected that a number of these patients will go on to develop liver cancer.

This is one of those rare instances where our company with an innovative product stands poised and ready to provide a treatment for future patients who will develop one of the deadliest forms of cancer.

Onyx and Bayer are actively conducting medical education and outreach to the various physician specialties that treat liver cancer patients. Initially, we utilized our established relationships within the oncology community and have been quite successful in building awareness in that market segment.

Our experienced and talented sales team is broadening its outreach to include liver transplant centers and major medical centers where recognized liver disease experts reside. Our team is reaching out to the multiple audiences, important in the early diagnosis in treatment of liver cancer, including gastroenterologists and hepatologists, both physician groups that manage a large percentage of liver cancer patients.

Other groups include intervention radiologists and surgeons who also are important members of the multi-disciplinary teams that manages liver diseases, including unresectable liver cancer. In addition, we are moving forward with a series of clinical trials intended to expand our leadership position in liver cancer. Trials include adjuvant study as well as combination study particularly with local therapies such as TACE or transarterial chemoembolization.

Environmental factors likely to impact uptake included reimbursement and affordability. Bayer's establish patient assistant programs in countries such as China to provide access to Nexavar, as well to provide important hands on experience for treating physicians. We anticipate advances and accessibility overtime in Asian countries particularly in China where the economy is flourishing and where broader government based reimbursement is expected.

With the combined company based outreach, broad clinical development program and changing environmental factors, we see the market opportunity in liver cancer is quite large with a potential to grow significantly overtime. We are actively engaged in developing this market by identifying opportunities and leverage points to fuel this growth.

Looking at the kidney cancer markets, most launches worldwide have now occurred in the first quarter of this year Japanese Regulatory Authorities approved Nexavar for this indication. As a reminder, Bayer is responsible for all development and commercialization cost in Japan, so Onyx earns a single-digit royalty on sales. Given the recent launch in Japan we may recognize royalty revenue as early as the second quarter.

In kidney cancer markets around the world Nexavar has been established as an important therapy. While, patients are benefiting from the multiple drug options now available to them, it's also causing competitive pressures, pressure that will continue as additional agents are introduced. We are pleased that Nexavar continues to have its valuable place in the treatment paradigm of healthcare professionals globally who are treating individuals with advanced kidney cancer.

We continue to explore initiatives in this market and are appropriately segmenting patients who can benefit from Nexavar's tolerability and efficacy. Much for ongoing company and investigator sponsored studies to generate incremental data in sequencing, combinations, dose escalation and adjuvant applications.

In addition, with Bayer and the Kidney Cancer Association, we have launched a disease awareness program designed to empower people affected by advanced kidney cancer to seek support, resources and information that can help them build and stay with the treatment plan in collaboration with their medical teams. Major League Baseball Hall of Fame pitcher, an advanced kidney cancer survivor, Don Sutton is a national spokesperson for this program.

This is an important time for the Nexavar franchise, as commercially we invest to maximize our leadership potentially in liver cancer and fortify our position in kidney cancer. I would now like to turn the call over to Hank Fuchs, who will provide an update on our development program.

Hank Fuchs

Thanks, Laura. As Tony mentioned in his opening comments we are committed to continuing our investment in the exploration of new indications for Nexavar. The hallmark of our broad development program is extending the evidence for Nexavar's applicability across multiple tumor types with consideration for specific patient populations and disease settings. Given Nexavar's success in two different cancers, we are increasingly confident of Nexavar's ability to help more patients with hepatocellular carcinoma, renal cell carcinoma and other types of cancers.

Clinicians are increasingly interested in Nexavar and therefore we have a diverse clinical program consisting of trials sponsored by the company, by international study groups, government agencies and investigators. Because patient's characteristics such as tumor type and current treatment can influence whether a cancer drug is successful in clinical trials, we are investigating Nexavar administered alone and in combination with other anti-cancer agents.

Importantly, with Bayer we are shifting our strategy to increase the number of randomized signal generating Phase II studies across tumor types as a way to more efficiently identify appropriate patient population and disease settings as well as to mitigate investment risk. For example, in breast cancer, we have launched a comprehensive program in collaboration with international breast cancer experts.

Our goal with this clinical development approach is to identify signal generating opportunities that will better inform our decisions for Phase III development, as we seek to balance an appropriate level of risk for our most significant investment. All told, Nexavar is currently the subject of over 200 clinical studies with a goal of generating valuable data that will guide our future investments with rigor and discipline. And we believe will ultimately lead to better treatment options for cancer patients.

Expect to see multiple presentations at upcoming conferences in the next few months, including data from the Asia Pacific liver cancer study, which will provide incremental information from that region of the world. More sub-group analysis from SHARP our pivotal liver cancer study and advance lung cancer study sponsored by ECOG administering Nexavar as monotherapy. Incremental information on sub-groups of kidney cancer patients from our expanded access program, dose escalation data, also in patients with advanced kidney cancer, as well as numerous other studies in different tumor types that are now reaching maturity.

In summary, with demonstrated efficacy in two previously underserved cancers and broadly a disciplined clinical development program designed to leverage Nexavar's tolerability, efficacy and oral administration, we believe that Nexavar is well positioned to make an increasingly significant mark in the treatment of cancer.

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

Greg Schafer

Thank you, Hank. As discussed earlier, total global net sales of Nexavar for the first quarter were $151.9 million, representing an increase of 149% compared to the first quarter of last year and an increase of 22% quarter-over-quarter versus the fourth quarter of 2007.

As a reminder, all Nexavar revenue is recorded by Bayer and Onyx and Bayer share profits worldwide, except in Japan, will earn a single-digit royalty on any sales.

For the first quarter, our net profit was $15.4 million or $0.27 per share fully diluted. Remember the first quarter has historically been the lightest in shared expenses for the collaboration. Additionally, as we continue to expect unevenness in expenses across quarters, bottomline performance is likely to vary from quarter-to-quarter.

Total shared Nexavar sales and marketing expense incurred by Onyx and Bayer, including cost of goods sold and distribution expenses, was $62.7 million for the first quarter of 2008. Total shared Nexavar development expenses under the collaboration were $37.5 million for the first quarter.

Looking forward, we will continue to make the necessary commercial and clinical investments to achieve revenue growth for both the near term and the longer term, and we are not revising expense guidance for the year.

As a reminder, Onyx's direct expenses associated with Nexavar are included with our other direct expenses in the R&D and SG&A line items of our income statement. Onyx's direct R&D expense is 7.4 million in the first quarter of 2008, increased over the last quarter, primarily due to expenses associated with the breast cancer trials that Onyx is leading.

Included in our R&D expense is $580,000 in R&D related non-cash stock-based compensation. Onyx's SG&A expense was $19.8 million for the first quarter of 2008.

This line item includes the cost of our US sales force, the portion of shared Nexavar 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 of $4.6 million. Total non-cash stock-based compensation was $5.2 million in the first quarter of 2008.

We recorded a tax provision of $309,000 for the quarter. While we have significant accumulated net operating losses, this amount reflects corporate alternative minimum tax at a rate of approximately 2% of net income.

At March 31, 2008, we had cash, cash equivalents and marketable securities of $456.6 million as compared with $469.7 million at the end of the fourth quarter.

Now, I will turn the call back over to Tony.

Tony Coles

Thanks, Greg. Over the last couple of years, we've been fortunate together with our partner Bayer to be able to bring the benefits of Nexavar to cancer patients around the globe, and this work is only beginning.

Commercially, we will continue our work with worldwide launches of Nexavar in liver cancer as well as initiate critical market development work to support the growth of this opportunity.

On the clinical front, we are embarking on a network of liver cancer trials intended to expand our leadership position in this indication. And we are incrementally investing in breast and kidney cancer studies that will provide valuable insights on Nexavar in these diseases. Additionally, we have a broad program examining the potential benefits of Nexavar in numerous other regimens and tumor types.

Financially, we are in a strong position with a healthy balance sheet and positive contribution from the Nexavar business. Given our first priority to manage Nexavar as a business with financial discipline and an appropriate level of investment, we expect that over time the brand will deliver increasing margins to the overall performance of Onyx.

So, we'd now like to share with you how we see the year unfolding. The first quarter performance was very strong and showed growth for both the US and rest of world.

As we look forward to how the year might progress and if we exclude the first quarter clinical supply revenue that Greg mentioned, we fully expect that if the current demand trends continue, Nexavar net sales this year are projected to be within the range of $600 million to $650 million.

We believe this is stellar performance for Nexavar, which is only two years post launch and believe that Nexavar is on par and tracking with other successful targeted oncology agents. As our planned initiatives unfold and add additional liver caner launches are expected in new markets around the world, we may look to update this estimate later in the year. As a result of this top line performance and the balanced investments we expect to make for future growth, we anticipate that as a brand the joint Nexavar business will be profitable for the full year 2008.

As a result Onyx the company is expected to be cash flow positive and is likely to breakeven or potentially be profitable on the bottom line for the full year 2008. We're pleased with the performance of Nexavar the brand and its projected impact on Onyx's financials for this year.

As I mentioned in my opening comments we have four near-term priorities and they are squarely in front us. As we continue our efforts we are enthusiastic about our ability to make a difference for patients and their families and in so doing continue building a sustainable company for the benefit of our shareholders.

We will now take your questions. Christine?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from Jim Birchenough from Lehman Brothers. Please go ahead.

Jim Birchenough - Lehman Brothers

Yes, hi guys. Just wondering if you can break out for us particularly in the US, the distribution between renal cell and liver cancer sales?

Tony Coles

Jim it's Tony. Good afternoon to you. It's going to be difficult for us to breakout the sales by tumor type. Those data are really difficult to access, both in US and around the world. So we wouldn't even want to begin to make a guess as how they might break out. What we can tell you however is that the market shares have stabilized for kidney cancer, for renal cell and the important growth area for the business is going to be HCC. So we regard that as the large driver of future performance.

Jim Birchenough - Lehman Brothers

And just if I could follow-up then, just on your guidance and I appreciate you providing a guidance for the first time, but at the low end it's almost flat from where we were in the first quarter, despite the fact that we've had 22% sequential growth. So it seems incredibly conservative just wondering if you can comment on that.

Tony Coles

Well, I will make a couple of comments and then Greg may have an additional comment as well. If you keep in mind that the 2007 sales were $372 million, we think that this range showed the very strong trend towards good performance and does put it on track with performance of other similar targeted agents as their life post launch. So we think that's pretty remarkable. The thing that I would ask you to keep in mind as well as everyone else is that we did have a clinical order in the first quarter and if you back that out of the first quarter number, I think you will appreciate that the range that we provided does show pretty healthy growth.

We do understand and appreciate that we have additional work to do in terms of market development and it's quite possible that as these initiatives continue, we may choose to update the guidance as we move forward. But given that we are still in the middle of a launch phase and this is the first time we've provided guidance, we wanted to give you as clearer sense as possible about the momentum drivers in the business, but we think this is pretty good growth.

Jim Birchenough - Lehman Brothers

Okay, well, congratulations on the quarter. I'll jump back in the queue.

Tony Coles

Okay, thank you, Jim.

Operator

The next question comes from Steve Harr from Morgan Stanley. Please go ahead.

Steve Harr - Morgan Stanley

Couple of questions. Number one, at the end of fourth quarter your 2008 guidance was for sales in the joint collaboration that were consistent with the fourth quarter run rate, which was significantly greater than what you had in 1Q and I'm understanding there is a quarter-to-quarter volatility which could affected. Does that guidance still stand the expected cost to run this business or have you guys been able to find some costs savings and we should think a little about a number little less than the 4Q run rate?

Tony Coles

So, Steve let me if I can just clarify one thing. I think in your question you refer to sales, actually the guidance we provided at the year end was for consistent level of spend.

Steve Harr - Morgan Stanley

I said OpEx, I said OpEx.

Tony Coles

Yeah, okay, all right, good. Just we're aligning around the answer here. The specific answer is that we're not prepared to change expense guidance at this time. However, we are reviewing the expense base for the business and consistent with the investments that we want to make both for development and importantly market development, because that is one of the things we are squarely focused on now. We are not prepared to change that. Despite that however, we do believe that the business and the brand have an opportunity to be breakeven to profitable for this year.

Steve Harr - Morgan Stanley

And then as top line guidance. I'm still really confused by the $600 million is basically zero growth from your 1Q number. Unless you see a significant halting from the business, it's not very constructive or instructive.

Is that what you are trying to imply by the $600 million that there is some risk that the very substantial sequential growth that we have seen early in the launches is not sustainable or what else is driving such a low end to your guidance number? Back of the $5 million and 146 run rate, right? That's basically $585 million for the year.

Tony Coles

Yes, if you back out the clinical supply number, you get to kind of a run rate of about 580 as you suggested. So, at the top end of our guidance range is 650 or so. We call that $70 million spread, and we are continuing to focus on the growth opportunities. So, the nice part about this performance from the first quarter is that both the US showed very health growth as did ex-US markets.

And we are not signaling in anyway that we are not either enthusiastic or optimistic about the future growth. We are really trying to do our best to provide clarity in what we see as the immediate opportunity and reserve the right to come back as that opportunity continues to grow and revise that number upward.

We're really working to give everyone in the Street as much clarity as we possibly can, but we do believe and we will continue to drive the topline as aggressively as possible.

Steve Harr - Morgan Stanley

All right. Thank you.

Tony Coles

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, thanks. I just have a few follow-up questions about the expenses. So, when you talk about the operating expenses from the joint business, I know it's hard to give a like quarter-to-quarter guidance, but how should we look at the future quarters when you significantly went under by about $40 million if you compare it to the 4Q run rate?

Tony Coles

Katherine, I'm going to ask Greg to address that.

Greg Schafer

Yes, well, as you can see from our past experience, there is unevenness across the quarters, and it's got to do with the variability in the way the development program is run as well as launch expenses.

So, just to remind, the guidance we gave at the prior quarter which we are not updating at this time, we guided to four times the Q4 run rate for both R&D and for SG&A. So, to remind you on R&D, the fourth quarter collaborations then was approximately $52 million and on the SG&A, it's 82 million. So, we are not updating that guidance. So, we have annualized that for over the remaining quarters of the 2008.

Katherine Kim - Banc of America Securities

So, basically when you are not changing guidance, it means that the rest of the three quarters is going to be significantly higher than what people expected, because you had the savings in the first quarter?

Greg Schafer

Well, I would say two things. One is just to remind you that Tony's statements about we are reviewing all the expenses and investments very carefully as we move forward, but it would reflect an increase from Q1 for the remainder of the year based on us not updating the guidance at this time.

Tony Coles

Katherine, it's Tony. What I'd add to that is that's reflective of our continued investment behind some additional tumor opportunities on the product development side. So, you can expect that we will continue to look for new ways in which Nexavar can be used as we seek to understand where in the spectrum it might be used.

So, most of that investment will be to support that as well as our market development initiatives to drive HCC. And if I were to think about it in terms of what we expect will happen on the topline as well.

Katherine Kim - Banc of America Securities

Okay. So, Tony, if you can just answer, are you just trying to be very conservative at this point, because you seem to be both on the topline and/or from your operating expense to be very conservative, considering what you've reported in the first quarter.

Tony Coles

Katherine, I think the way I'd answer that question is it's probably in our best interest to set a kind of a common ground as we are starting to beginning of the year for what we expect. We fully expect to continue, as I mentioned in my previous comments, to drive the topline sales aggressively.

But this is the first time we are providing guidance. And I think it's going to be very important for us to be very thoughtful about how we set the guidance and then make sure that we hold ourselves responsible for doing what we can to exceed that guidance with all the efforts that we have in the organization.

So, we are trying to: A, be responsive to the request for guidance, which we've heard loud and clearly, but also to set expectations appropriately for what we see in the business. We do believe that our continued efforts at market development will pay fruit over time.

Katherine Kim - Banc of America Securities

Okay. Thank you.

Operator

The next question comes from George Farmer from Wachovia Capital Markets. Please go ahead.

George Farmer - Wachovia Capital Markets

Hi. Thanks for taking my question. Tony, I too take as you as with the guidance that you provided and I don't understand especially since your comments, your prepared remarks coming from management were so bullish, especially in the Asian opportunity potentially in second half of this year. And I would sum it that you just don't even bother giving guidance if that's the case.

But I also I want to kind of ask you also about the opportunities in US especially given that a large part of the US number had to with this clinical supply material looks like growth has pretty much settled. Is that, should we assume that, just that those of the liver cancer in US may not be as big as the patient numbers suggest?

Tony Coles

George, let me take your question on the guidance first and then I'll ask Laura to make some comments on US market. I will share a perspective, I said this in my response to [capping] our share perspective that. What we want to do is set a starting point and then look in the second half to update that guidance, which we are very comfortable that we'll be able to do once we get into the quarter performance under our belt. We think that doing this stepwise is prudent and setting the stage very thoughtfully and carefully is wise. So let me have Laura comment on your market question for US.

Laura Brege

In the US we see tremendous opportunity and I do believe that the patient's numbers which are available for you to look at in the US are reflected by our really strong opportunity. This is a disease that is that has significant unmet need, there has been nothing available for our patients, we have the first systemic therapy available which extended's overall survival. So it depends on how you want to go ahead and math out building in the market, but this is a great opportunity.

Today, what we have done is had an opportunity to go out and serve the patients who are in the system treated fundamentally by the medical oncologists an audience that we know well. Patients in the US hereto for where there was no therapy really have been presenting quite advanced in their disease. These are patients who are treated by multiple specialists and who in fact will have the benefit of Nexavar, as we meet and educate each of those audiences. So as we look at the opportunity we see that opportunity this year and we see the opportunity in future years.

George Farmer - Wachovia Capital Markets

Okay. A quick housekeeping question also. You reported $408 million in cash at the end of the first quarter, that's actually down from $470 million you reported at the end of last year, yet you had positive net income. Where is the rest of that cash going?

Greg Schafer

This is Greg. There is really three areas that I'd like to point to. First we re-classed some auction rate securities into long term. These are AAA rated student loan, government guaranteed auction rates and we revalued those at about 97%, which resulted in a balance sheet impact of about $1.7 million. The other effects are really a result of the strong performance in the quarter. So we saw an increase in our receivable from Bayer over the quarter of over $30 million based on the profitability of the collaboration and secondly we reduced the amount of the advance from Bayer by approximately $9 million. So those all affected the balance sheet.

George Farmer - Wachovia Capital Markets

Okay, great. And one last question, you talk about reviewing the expense base. Is that coming from (inaudible) Bayer are they kind of rethinking about Nexavar development going forward. Especially in light of the failed lung cancer trial or are there any other big opportunities away from breast that you guys are considering. And on that note when are we going to see some of the first readout from the breast cancer studies?

Tony Coles

George, in terms of the expense review, what I can tell you is that, that's happening jointly in both Onyx and Bayer. And I think what you will hear from the very top of both organizations is the desire to manage the spend for the brand and to be very thoughtful about the expense base. So it is not unilateral, it is both organization and we are both intent on what I have laid out as the first priority, which is to manage Nexavar as a business and it's with that lens that we are looking at all of the expenses in the business to make sure that we are delivering an appropriate return for this brand at this point in it's lifecycle. And that is a perspective that we share with our colleagues at Bayer.

In terms of the breast a cancer trial, readout Hank.

Hank Fuchs

Yeah, as you know we five randomized Phase II studies that are really just getting underway. They have been designed in collaboration with the opinion leaders around the world to answer a independent questions about the potential role for sorafenib in breast cancer and it's really first time we've launched a program with concurrent asking of Nexavar to identify its optimal setting and role. So, we're just getting that program underway and we'll give you an update on progress as we make a little bit more progress.

George Farmer - Wachovia Capital Markets

Great, thanks very much.

Tony Coles

Thank you.

Operator

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

Howard Liang - Leerink Swann

Thanks very much. Just a clarification on the stabilization of the market share for RCC during the first quarter. Should we read that that the sales for RCC in the first quarter were similar to the fourth quarter?

Tony Coles

Howard, I'm going to ask Laura to address that. But, please be mindful of my response to Jim a moment ago that we're not breaking out sales by indication, that’s pretty tough and that data are hard to come by. But Laura do you want to speak to any of the underlying trends.

Laura Brege

Yes, thank you. Howard, just as Tony said I would not use the same numbers or different numbers fundamentally where we're in today is that Nexavar has got an important place in the therapy. Choices that physicians have, these patients see multiple agents. They are seeing Nexavar, and we have been very successful in capitalizing on the opportunities where we have great relationships with the oncologist and we have great progress in how patients have progressed on our drug.

So, I think that what we see today is that Nexavar has a good position in RCC, and we feel very comfortable with it.

Howard Liang - Leerink Swann

Okay. So, I guess I just wanted to return to the question of the momentum in US, because of you take out 5.4 or 5.6, you have $45 million to $46 million in the quarter in the US compared to 43 in the fourth quarter.

So, if RCCs are to stable, that would say that the growth seems to be fairly small. Where are you, I think, in the penetration of the HCC market?

Tony Coles

Let me make a couple of comments, and I'm sure Laura will have something to say on that. What is very interesting in terms of the launch for HCC is that what we recognized was the long-hanging fruit case from oncologists, and that drove a lot of the performance that we saw in the fourth quarter for the brand.

And I think that that business, because it's where we had the already established relationships and where we could very easily access the physicians talking about Nexavar, proved to be fruitful for us.

We are continuing our launch amongst the oncology audiences, but what we recognized is that there are number of other physician types who are treating an important number of HCC patients that oncologists don't see. So, we are in a phase and this does relate to the comments around guidance, we are in a phase where we are expanding our efforts to other physician types so that we can continue to grow and access those patients that we know are already there.

So view the dynamics in the fourth quarter on the basis of starting with the oncologists, if you will, as kind of Phase 1 in the launch, and then as we progress through 2008, expanding our target audience to other physician types which really should help context what we've said about revenue guidance a moment ago.

Howard Liang - Leerink Swann

Okay. If I can also ask, do have any market research on what proportion of HCC patients are seen by hepatologists versus the medical oncologists and also whether there is a difference in treatment duration by the two specialties?

Laura Brege

Howard, the medical oncologists would generally see a liver cancer patient relatively late in the disease.

Having said that, when you look at it geographically, as these patients have had a very complex history, they have two diseases, they have an underlying liver disease as well as hepatocellular carcinoma and have not previously had any treatment, what you see are specialty groups, depending upon where you are in the country, depending upon where you are in a particular medical centre, you will in fact find that the hepatologists, the oncologists, interventional radiologists, surgeons are all important parts of the treatment plan for a particular patient.

So as you look at where the patients are, they fundamentally are with the hepatologists and the gastroenterologists. They are there earlier in their disease, and so they do see medical oncologists. We have had the opportunity to address that audience. We are educating throughout the treatment continuum and are beginning to see really good results in terms of the understanding in the different audiences of the importance of Nexavar.

But, it is early days in that. It's building and the creating of the opportunity in this marketplace.

Howard Liang - Leerink Swann

Okay. Do you have the breakdown between the two, the patient population seem like the two groups?

Laura Brege

No, I don't have that to share with you

Howard Liang - Leerink Swann

Okay, great. Thanks very much.

Operator

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

Jessica Li - Goldman Sachs

Thanks for taking my question. Just quickly, could you please remind us whether there is any price increase in first quarter that is in the US and also could you please give us an update on the European lung cancer trial?

Tony Coles

Sure. Greg, if you can take the price increase question and then Hank will comment on the European lung trial.

Greg Schafer

Yes, there was a price increased in the US of 5%. And Hank?

Hank Fuchs

And a NExUS trial is a frontline trial that was designed to enroll 900 patients treated with a different chemotherapy backbone. The chemotherapies are gemcitabine and cisplatin, which is very important in the lung cancer program, because it's been shown with the targeted therapies.

Sometimes, the targeted therapies work with one combination really well and not in other combination. And so, we're really looking for it to testing through [afferent] activity in that. We have, as you know, removed the squamous cell cancer patients from the study and enrollment is now on track, and we'll give a little bit more clarity about when we think we'll complete enrollment as we draw near to that.

Jessica Li - Goldman Sachs

Great, thanks. Also, just curious as to what lessons you've learned from the ESCAPE trial finding?

Tony Coles

Well, the ESCAPE trail was presented, as you know, recently and I had chance to review the data and was also in the context of a very large international lung cancer program. And I think that that pattern is, is that it's impossible to predict in advance what combinations of therapy is going to work precisely, whether it's in a perfect test tube experiment or Phase I study that can be done.

So we comb through data very carefully, we don't identify with clarity why does [Clinisol] patients had higher more mortality, but we do have a very broad program in lung cancer. And I wanted to point out that in addition of the [Gemsis] trial, we have two randomized Phase II trials going on with Alimta and Tarceva in the second line and also importantly I mentioned in our prepared comments, we have third line monotherapy trial, which is a randomized trial that we're looking for to being presented at ASCO in the next month. So all total we have a very large commitment to Nexavar and lung cancer and believe that we have a lot of trials underway that will give us important information I wanted to make decisions going forward.

Jessica Li - Goldman Sachs

So for this safety trails, due you include patients with histology?

Tony Coles

Yeah, so in the frontline program we have removed the squamous cell histology. The ECOG third line trial was completed prior to the escape trial of the enrollment and that does have squamous cell cancer patients in it. And the randomize Phase II studies have had squamous cell cancer patients in it. I don’t believe that their going forward will have squamous cell cancer patients in them.

Jessica Li - Goldman Sachs

Great, thank you.

Operator

There is time for one last question. The final question comes from Phil Nadeau from Cowen and Company. Please go ahead.

Phil Nadeau - Cowen and Company

Good afternoon, thanks for taking my questions. First a follow-up to the previous question that's on the melanoma Phase III. Could you give us an update when we might see that data?

Tony Coles

Yes. So just to remind everybody ECOG was conducting a frontline 800 patient overall survival primary endpoint study intending to accrue 800 patients. We had projected that that ECOG would conclude enrollment in the study in the first half of the year we are pleased to report that ECOG has now concluded randomization into the study. Because the study is an event driven study, we can't project yet when the sufficient number of death events will have occurred. So we look forward to getting more information as time goes by in terms of having a clear picture of when the data will be available.

Phil Nadeau - Cowen and Company

I think in the past you said that the liver cancer event rate or duration between completing enrolment and when we saw the data it could be a good proxy for the melanoma trial. Is that still the case or has anything changed your opinion on that?

Tony Coles

I hope that's the case. The reason I hope that's the case is because we stopped the liver cancer study in an interim analysis due to fairly significant efficacy and so I don't know if that kind of time frame will hold again and it really depends on how effective Nexavar is in the study. We usually try to point people to assuming that you have to go to the overall final analysis, because it is unusual for studies to stop early due to efficacy.

Phil Nadeau - Cowen and Company

Okay. And one last question on Nexavar in liver cancer. In the past you I don't believe you have given as much data on the average dose or duration of Nexavar in liver cancer, saying that it was too early in the launch. Do you have any of those figures now of what is the average dose or average duration on the patients on Nexavar?

Tony Coles

Laura?

Laura Brege

So, I can help you sum and as we go through in terms of to remind everyone duration of therapy, it's five months in the SHARP trial. And as Tony mentioned in the early days, you clearly see the sicker patients and therefore have an expectation of a lower duration of therapy.

And the next question of course is about what's the dosing looking like. The dose in the label, which is for same dose as for kidney cancer is in fact looking like it's being held up in the marketplace. So, I think you can feel that dose in fact is holding well and duration of therapy as we are successful in having patients seen earlier by the physicians who are knowledgeable of Nexavar, I think you should continue to see that improve.

Phil Nadeau - Cowen and Company

Should we say the dose is holding well? Does that imply that you see very little dose reduction in clinical factors?

Laura Brege

We have not seen a lot of dose reduction. Everything we've seen is anecdotal. And I think that Nexavar is incredibly well-tolerated as well as being the first agent to show overall survival in this deadly disease. And so, I think physicians are having very good experience of the drug.

Phil Nadeau - Cowen and Company

Great. Thank you.

Operator

That concludes today's question-and-answer session. I'd like to turn the call back to Onyx Pharmaceuticals for closing comments.

Tony Coles

Christine, thanks, and thanks to everyone for joining us this afternoon. We do look forward to bringing up update as the months progress and importantly updates on the opportunity in liver cancer where we do see some exciting things moving forward. So, thanks for joining us, and we will see on the road.

Operator

Thank you for participating in the Onyx Pharmaceuticals' first quarter financial results conference call. This concludes your conference for today. You may all disconnect at this time.

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Source: Onyx Pharmaceuticals Inc. Q1 2008 Earnings Call Transcript
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