Onyx Pharmaceuticals Management Discusses Q2 2012 Results - Earnings Call Transcript

| About: ONYX Pharmaceuticals, (ONXX)

Onyx Pharmaceuticals (NASDAQ:ONXX)

Q2 2012 Earnings Call

August 01, 2012 5:00 pm ET

Executives

Amy Figueroa

N. Anthony Coles - Chief Executive Officer, President and Director

Helen Torley - Chief Commercial officer and Executive Vice President

Matthew K. Fust - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Barbara Klencke

Analysts

Michael G. King - Rodman & Renshaw, LLC, Research Division

Cory William Kasimov - JP Morgan Chase & Co, Research Division

Terence C. Flynn - Goldman Sachs Group Inc., Research Division

Rachel L. McMinn - BofA Merrill Lynch, Research Division

Howard Liang - Leerink Swann LLC, Research Division

Biren Amin - Jefferies & Company, Inc., Research Division

Matthew R. Wooten - Robert W. Baird & Co. Incorporated, Research Division

Navdeep Singh - Deutsche Bank AG, Research Division

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

Ling Wang - Summer Street Research Partners

Echo Yinghui He - Maxim Group LLC, Research Division

Ryan Martins - Lazard Capital Markets LLC, Research Division

Nicholas Bishop - Cowen and Company, LLC, Research Division

Ying Huang - Barclays Capital, Research Division

Marshall Urist - Morgan Stanley, Research Division

Jim Birchenough - BMO Capital Markets U.S.

Operator

Welcome to the Onyx Pharmaceuticals Conference Call. My name is Trish, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded.

I would now like to turn the call over to Onyx Pharmaceuticals.

Amy Figueroa

Thanks, Trish. Good afternoon. I'm Amy Figueroa, Senior Director of Investor Relations at Onyx Pharmaceuticals. Thank you for participating on our second quarter 2012 financial results conference call.

Leading the call today is Dr. Tony Coles, President and Chief Executive Officer. After Tony's introductory comments, Dr. Helen Torley, Executive Vice President and Chief Commercial Officer, will discuss the progress in our franchises. Next, we will have Matt Fust, Executive Vice President and Chief Financial Officer, review our financial results for the second quarter of 2012 and provide an update on financial guidance. Then, Dr. Barb Klencke, Senior Vice President of Clinical Development, will discuss our ongoing clinical program. After that, we will open the call to your questions.

Please note that we will be making forward-looking statements during this conference call that could include financial, clinical, regulatory or commercial projections. Statements that are not historical facts 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 10-K for the year ended December 31, 2011, as well as to our other filings. We expect to file our 10-Q for the second quarter ended June 30, 2012 early next week.

For a full prescribing information on Kyprolis, we refer you to the package insert posted at www.kyprolis.com. Kyprolis carfilzomib for injection has been approved for the treatment of patients with multiple myeloma who have received at least 2 prior therapies, including bortezomib and an immunomodulatory agent or -- and have demonstrated disease progression on or within 60 days of completion of the last therapy. The indication for Kyprolis is based on response rates. Currently, no data are available for Kyprolis that demonstrates an improvement in progression-free survival or overall survival.

On today's call, we will be presenting and discussing non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures to the corresponding GAAP measures, please see today's press release, which is posted on the Onyx website at www.onyx.com within the News & Media section.

A slide presentation that supplements the information on this conference call is also available on the Onyx website. The presentation is located on the Financial Information page of the Investors section.

I would now like to turn the call over to Tony.

N. Anthony Coles

Thanks, Amy. Good afternoon, and thanks for joining us today.

Over the past 3 years, we've executed on our strategy to build a leading oncology company with 2 franchises and multiple therapies to treat increasing numbers of patients with cancer. With the recent accelerated approval of Kyprolis, the transformation of Onyx has accelerated and our growth strategy has being realized.

We're on track to reach our goal of taking Onyx from a company with 1 therapy to a company with as many as 3 therapies with the recent approval of Kyprolis and with regorafenib regulatory action on the horizon for later this year. We're proud of these achievements, and we expect the significant momentum in our business to continue in the second half of this year and into 2013 as we build Onyx for future success.

For the proteasome inhibitor franchise, in the United States, we are launching our first wholly-owned product, Kyprolis. This important milestone provides us with the opportunity to serve more patients and expands our footprint in oncology. While we are very early in the launch, literally days, it's gratifying to see the execution of our commercial plan going well with the experienced team that Helen has assembled.

To further unlock the value of this franchise, we are also executing a broad, global development program across additional lines of therapy in myeloma. Additionally, we are advancing oprozomib, our oral proteasome inhibitor in the clinic.

Before turning the call over to Helen, I'd like to spend a moment on our kinase inhibitor business where we have also made good progress. Nexavar is the foundation of this successful global business, and Bayer's regorafenib, now under priority review by the FDA, represents a second asset in this franchise. With Nexavar's increasing cash flow generation and continued leadership in liver cancer and with regorafenib as a potential near-term revenue driver in colorectal cancer, we're well-positioned to invest in the future growth of Onyx.

Now, I'd like to turn the call over to Helen.

Helen Torley

Thank you, Tony.

Let me begin by providing an update on the first phase of the Kyprolis launch and, in particular, some milestones the team has achieved and the early feedback we have received. Kyprolis was available for ordering from wholesalers on July 27, several days ahead of plan, and orders have begun being shipped to clinics and hospitals this week.

As I mentioned on the July 20th call, our approach has been to put in place an approximately 100 person multidisciplinary field team. The field-based market access experts, nurses and sales leadership team were trained in advance of the early approval, and our market access experts, nurses and sales leaders were immediately deployed upon approval beginning calls in July 23. Our field sales team is completing their training and will be calling on offices later this month.

With only just over a week under our belt and very early days of our experience, I can provide the following early feedback. The market access experts have completed a number of calls in Paris [ph], and we have received the first confirmations of coverage by both Medicare administrative carriers and commercial plans. There have also been encouraging initial feedback from health care practitioners who acknowledge the unmet need that exists in the Kyprolis' indicated population and are expressing interest in learning more about Kyprolis.

We have initiated the steps that concludes the C-MAP program, with Onyx 360 standing by to provide assistance for patients converting to commercial drugs. There are a number of steps that clinic and patients must undertake, so we expect the first patients to begin transitioning to commercial drugs in the next few weeks.

In summary, while it is early days, we are encouraged by the preliminary response to Kyprolis.

Turning to our kinase inhibitor franchise. Nexavar is now approved in over 100 countries worldwide, with approximately 70% of Nexavar sales generated outside of the United States. In the second quarter of 2012, Nexavar global net sales, excluding Japan, were $214 million, 4% higher than prior year. Net sales in the rest of the world, excluding Japan and the United States, were $149 million, as demand-driven sales growth in Latin America and Asia Pacific was offset by unfavorable euro foreign exchange rate decline. In the United States, net sales were $65 million, 13% higher than prior year.

In the second half of the year, we're continuing to focus on increasing use in unresectable [ph] hepatocellular cancer where Nexavar remains the only approved targeted therapy.

Looking forward, a key upcoming event for Nexavar is a DECISION data readout expected in Q4. If registration-supporting, this could add an additional indication for Nexavar in patients with differentiated thyroid cancer where there have been no new therapies approved for patients in over 30 years.

Moving onto regorafenib. With FDA priority review designation for the metastatic colorectal cancer filing, we are preparing for a second potential launch for Onyx this year. As I mentioned in our call last quarter, many of the physicians we call on today for liver and kidney cancer also manage colorectal cancer patients. This results in the need for only a modest increase in our sales force size to be able to reach the physicians managing the majority of colorectal cancer patients while continuing to call on the liver and kidney cancer prescribers. We have completed the hiring of our additional sales team members, and we'll be initiating training in the next week.

Upon approval, regorafenib will be jointly promoted with Bayer in the United States. Onyx will be reimbursed on a fee-per-service basis for regorafenib promotion provided by our kinase inhibitor sales team, and we will also receive a 20% royalty on global net sales.

Now I will hand the call over to Matt.

Matthew K. Fust

Thank you, Helen.

2012 continues to be a year characterized by a growing cash flow contribution from our kinase inhibitor franchise and strategic investment in our proteasome inhibitor franchise. Our business is strong, and we're advancing our plans for future growth.

I'll begin today with a review of financial highlights for second quarter and then provide an update on financial guidance for 2012.

As Helen mentioned, Nexavar global net sales, excluding Japan, were $214 million in second quarter 2012, 4% higher than second quarter 2011. After taking into account an 11% erosion in the dollar euro exchange rate, Nexavar net sales grew approximately 10% on a currency-neutral basis.

Nexavar collaboration revenue of $73 million in second quarter 2012 grew 7% over second quarter 2011 or 11% growth after adjusting for $3 million in royalties on sales in Japan, which were booked in second quarter 2011 as Onyx no longer receives royalties on Japan sales. Collaboration revenue growth was driven both by higher sales and by improved commercial margin, which expanded to 61% in second quarter 2012 compared to 57% in second quarter 2011.

Non-GAAP net research and development expense of $74 million in second quarter 2012 was primarily driven by investment in carfilzomib, along with Onyx's share of Nexavar R&D. Second quarter included carfilzomib trial and clinical drug supply expenses, 3 ongoing Phase III clinical trials: ASPIRE, FOCUS and the recently launched ENDEAVOR, as well as commercial supply for the U.S. product launch of Kyprolis.

Non-GAAP selling, general and administrative expense was $41 million for second quarter 2012, primarily driven by investment in commercial infrastructure and the associated support to prepare for the launch of Kyprolis.

Contingent consideration expense of $53 million in second quarter 2012 primarily reflects an adjustment in the liability associated with the $80 million milestone payment to the former Proteolix stockholders, which was traded by the U.S. accelerated marketing approval of Kyprolis.

We have decided to make the milestone payment, which is due later this month, using a combination of stock and cash. Approximately $63 million will be paid in the form of Onyx common stock to the former holders of Proteolix preferred stock, and $17 million will be paid in cash to the other former Proteolix security holders.

At the current trading price of Onyx common stock, we expect to issue approximately 850,000 shares, representing just over 1% of our current fully diluted share count. We expect noncash contingent consideration expense for 2012 to be approximately $70 million, inclusive of the adjustment made in second quarter.

We ended the quarter with $590 million in cash and investments, which together with the expanding cash flow from Nexavar will allow us to continue to invest strategically in advancing the development of carfilzomib and oprozomib.

Let me turn next to 2012 corporate financial guidance. Nexavar global net sales guidance, which excludes Japan, is unchanged. Because the dollar euro exchange rate is volatile, it's far more challenging to predict sales reported in U.S. dollars. And Nexavar sales could also be impacted by a pressure on pricing and demand, discounts, rebates and health care reform in various countries.

We are not providing guidance for Kyprolis net sales as we monitor sales trends for this newly launched product. It's important to note that until we receive a Kyprolis-specific Medicare J Code, which we expect in January 2014, a miscellaneous J Code will be used. While this is common practice with injectable products, it can require extra time for physicians to receive reimbursement, especially in the initial launch phase.

Consistent with our practice, 2012 expense guidance is provided on a non-GAAP net basis, excluding stock-based compensation. We continue to believe this better represents our operations, and is aligned with how we evaluate the business internally.

In anticipation of the accelerated approval of Kyprolis, we made some important investments in building commercial prelaunch supplies, which, in accordance with GAAP, were charged to R&D expense prior to Kyprolis approval, and we accelerated our broad development program. Consequently, for 2012, our guidance for non-GAAP net R&D expense is increasing to a range of $305 million to $320 million.

Specific to the kinase inhibitor franchise as planned, we continue to expect to reduce Nexavar R&D expense by 10% to 15% in 2012 compared to 2011, as multiple Nexavar Phase III clinical trials reach completion. Remember, we do not incur expenses for the development of regorafenib.

As you'll recall, the selling, general and administrative expense guidance we provided earlier this year did not include a U.S. commercial launch for Kyprolis. As Helen mentioned, we now have added a field team and the related infrastructure and support staff and have begun incurring marketing costs. We now expect non-GAAP selling, general and administrative expense for 2012 within a range of $210 million to $220 million.

We continue to expect a non-GAAP net loss in 2012, a year in which investment in our proteasome inhibitor franchise, including the U.S. launch of Kyprolis, will exceed the contribution from the kinase inhibitor franchise.

Let me close by discussing a few anticipated accounting treatment items related to the Kyprolis U.S. launch. First, as is common for new product launches, we expect to recognize Kyprolis sales revenue upon shipment to the physician, infusion center or hospital, the revenue recognition model known as sell-through rather than upon product shipments to our specialty distributors. As a result, some Kyprolis sales will be recorded as deferred revenue on the balance sheet rather than as net sales on the P&L until the requirements for sales revenue recognition, including the sell-through, have been met.

Second, we expect that the adjustment to gross product sales that will be required to determine net sales be close to net adjustment will be in the range of 10% to 15% during the launch period. It's too early to project what the gross to net adjustment will be longer-term. And as we build experience to enable accurate estimates of the components, such as government discounts, co-pay assistance and product returns, we'll provide you with additional color on this adjustment.

Finally, prior to the Kyprolis approval, commercial supply costs were charged to research and development expense. Following approval, commercial supply costs for Kyprolis are capitalized into inventory and will be expensed through cost of goods sold. As we sell the product that was charged to research and development expense, we may report a higher gross margin, and thus, we expect it will be several quarters before a representative product gross margin will be reported in our financial statements.

Our business today has significant opportunities, underscoring the importance of investing to realize the full potential of our pipeline. As we've demonstrated in the past, we will be both mindful and disciplined in our approach.

Now I'd like to turn the call over to Barb for an update of our clinical [ph] program.

Barbara Klencke

Thank you, Matt.

Starting with our proteasome inhibitor franchise, we are executing the comprehensive global development strategy for carfilzomib, a therapy we believe has promise across a variety of lines of patient treatment. We are excited to have Kyprolis approved under the accelerated approval pathway, and our work to support post-marketing requirements and full approval is well underway.

Importantly, last week, the full data from our 003-A1 study, on which Kyprolis was approved, was published in Blood, the premier peer-reviewed medical journal for the American Society of Hematology.

The carfilzomib program currently includes 3 ongoing Phase III trials. The ASPIRE study is the primary confirmatory study and enrolled patients who would had 1 to 3 prior therapies. Based on a planned interim analysis, we could have data in the first half of 2013, depending on the rate of event accruals. If the trial goes to full completion, we would expect a data readout in the first half of 2014 but, again, depending on event accrual rates.

The FOCUS trial is designed to support registration for carfilzomib in relapsed and refractory multiple myeloma outside of the United States. We are on track to complete enrollment of 300 patients in the first quarter of 2013.

Our development plan also includes evaluating carfilzomib's superiority over existing therapy. We recently initiated ENDEAVOR, our first head-to-head study. This global Phase III trial is in multiple myeloma patients who have relapsed after 1 to 3 prior regimens and compares carfilzomib in combination with low-dose dexamethasone to VELCADE with dexamethasone. And we are also finalizing our plans on the protocol design for a head-to-head trial in a front line setting, which we hope to initiate in 2013.

For our oral proteasome inhibitor, oprozomib, it is a compound we believe could play a role across a variety of multiple myeloma treatment settings and warrants further development. Dose escalation is going well in our ongoing Phase Ib/II trial, and the maximum tolerated dose with the split-dose regimen has not yet been reached. We have seen initial clinical responses in multiple myeloma patients and expect to have preliminary data from the Phase Ib portion of the trial before the end of the year. We are also working on a new formulation for oprozomib and plan to introduce this in our ongoing Phase Ib/II trials this year.

Turning now to the kinase inhibitor franchise. The Phase III decision study in differentiated thyroid cancer is nearing completion. We expect to have top line data from this in the fourth quarter of this year. If a progression free survival benefit is demonstrated, we would, together with Bayer, pursue a supplemental regulatory submission for Nexavar. And in advanced breast cancer, we expect to complete patient enrollment in the Phase III RESILIENCE trial in the first half of next year.

For regorafenib, a Bayer compound, we are seeing positive data from the Phase III CORRECT trial, showing a 29% improvement in the overall survival of metastatic colorectal cancer patients. Bayer has submitted regulatory applications in the EU and in the United States. We expect a regulatory decision by the FDA in the fourth quarter of this year based on Priority Review designation. And in Europe, a regulatory decision is expected in the first half of next year.

In the second Phase III study known as GRID, presented at ASCO this year, regorafenib showed a 4.8-month median progression-free survival in the treatment arm versus only a 0.9-month median PFS in the placebo arm in patients with metastatic or unresectable GIST. An additional submission is planned by Bayer for this indication in the United States in the second half of this year.

In summary, there is an active development program across our proteasome inhibitor and kinase inhibitor franchises. And we anticipate moving our trials forward as we look for more opportunities to help additional patients.

I'd now like to turn the call back over to Tony.

N. Anthony Coles

Thanks, Barb. There, you have a remarkable description of the achievements in the second quarter, highlighted by the accelerated approval of Kyprolis, as well as the priority review designation for regorafenib. I think what we'll do now is take questions, and then we'll come back with some final comments.

Operator, would you open the call to questions?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Mike King from Rodman & Renshaw.

Michael G. King - Rodman & Renshaw, LLC, Research Division

I wanted to ask a commercial strategy question. Some of the feedback that we got regarding Kyprolis pricing, in that it's a very expensive drug. So I'm just wondering how we should think about commercial uptake in that light and competitive positioning, vis-à-vis VELCADE, especially, in the subcutaneous delivery, modality where the toxicity is far less, and how you also might think about it as you escalate doses from the currently approved dose to what would be eventually higher doses.

N. Anthony Coles

Okay. Let me -- yes, I'll ask Helen to address that. I think, Mike, if we've got the question, it's to make some comments on the competitive position vis-à-vis VELCADE and their subcu administration twice weekly and the pricing in general. So Helen?

Helen Torley

Yes. Mike, if I can begin just with the pricing as we selected price for Kyprolis, we took into account feedback from both physicians and peers looking at the value that Kyprolis would seem to bring. Importantly, our indication and the size of that population was also an important part of that consideration, as people considered that these are patients who have significant unmet need to date, no standard of care and few treatment options. And so we think of our competitive positioning against VELCADE subcu. Our patients generally are patients who have already been exposed to VELCADE and an IMiD and progressed on or within 60 days of therapy of one of those agents. So we do expect the majority of our patients will also -- will already have either progressed on or had issues with their response to VELCADE.

N. Anthony Coles

The only other comment I'd add on for that particular question is, remember, we do have the unique patient support program, the Onyx 360 program, which will help triage insurance coverage for all the appropriate patients. So those patients who have insurance will be covered appropriately. Those who don't will actually have -- be provided assistance, and those who are underinsured, essentially, without a copayment, will also receive some support. So we're doing everything that we can to ensure that all appropriate patients who deserve to be on Kyprolis get access to it.

Operator

Your next question comes from Cory Kasimov from JPMorgan.

Cory William Kasimov - JP Morgan Chase & Co, Research Division

Two of them for you. First of all, will we be able to track the Kyprolis launch via -- or the Kyprolis script data via IMS or other similar services? And then with the product outside of the U.S., I realize that FOCUS is the key study there. But if you get a positive interim analysis for ASPIRE before your first look at FOCUS survival data, would you use that data to file for European approval?

N. Anthony Coles

Okay. Sure. Let me ask Matt to talk a little bit about our ability to track prescriptions and what our normal practice has been, and then I'll ask Barb to comment on using ASPIRE globally.

Matthew K. Fust

Hi Cory, it's Matt. With regard to prescription tracking, we are distributing Kyprolis through a small network of specialty pharmaceutical distributors, who, in turn, sell the drug on to the hospitals, physician offices, infusion centers and so forth. Our experience and our expectation is that those early data reported by third-party data sources tend both to be incomplete and inconsistent. So I'd caution you about relying too heavily, particularly in this launch period, on data available from those third-party sources.

Barbara Klencke

And this is Barbara. And to answer your question about ASPIRE, as we were in the protocol design phase, we saw a health authority input on that design from global regulatory authorities. So yes, the European health authorities are aware that ASPIRE could be finished with an interim analysis. So we would anticipate filing that data.

N. Anthony Coles

Yes, and I think that's a really important point because our goal is to get Kyprolis to patients worldwide as quickly as possible. So if there's an opportunity to provide Kyprolis on the basis of the Phase III program ahead of the focused study, then we'd want to do that, and -- so we won't slow things down. We will be going as quickly as we possibly can. Enrollment is done. We expect interim analysis result in the first half of '13, as Barb mentioned in her comments. So stay tuned and we will be doing our best to get it broadly available.

Operator

Our next question comes from Terence Flynn from Goldman Sachs.

Terence C. Flynn - Goldman Sachs Group Inc., Research Division

I was just wondering if you can give us any sense of the vials shipped at this point or maybe the accounts that have ordered. And then a second question I had was, can you tell us anything about the amount of inventory you expensed in R&D in the second quarter?

N. Anthony Coles

Okay. Helen, do you want to talk a little bit about distribution? And then Matt will cover the inventory question.

Helen Torley

Yes. Terrence, what accounts is for the network of specialty distributors that we have in place, all of them have certainly placed orders or have supply and have received orders from both clinics and hospitals. In terms of the amount, we're not really prepared to share that yet, but I think the good news is that the product is now available for patients in hospitals and clinics to be used.

N. Anthony Coles

I will just underscore Helen's comment that in record time, we finalized distributor agreements and that product in the channel as quickly as we could. So it's probably close to a record that we got product available for an earlier than expected approval, so just something to note there. And then Matt, I think there was a question on the Q2 inventory expense.

Matthew K. Fust

Yes. So maybe just a couple of points on inventory. First, to reiterate an observation that Helen made on an earlier conference call, we feel comfortable that we have sufficient inventory quantity in connection with our forecast for the launch. With regard to the expenses, we have not broken out specific details of the inventory that flow through R&D expense. I would reemphasize a point I made in my prepared remarks today which is we expect that the cost of goods sold and the resulting gross margin that flows through in these initial launch quarters is probably not representative of the ongoing cost of goods that we'll see because a significant fraction of the costs associated with this launch inventory has been expensed through the R&D line.

Operator

Our next question comes from Rachel McMinn from Bank of America.

Rachel L. McMinn - BofA Merrill Lynch, Research Division

A three-part question. One, just on that last issue. Matt, if you could give us a sense of what the normalized gross margin would be after you've finished going through the pre-expensed inventory? Two, if you could talk about, the R&D guidance that you gave, it implies either flat or maybe up R&D expense in the back half of the year, should we expect that to continue into 2013, when you kind of think on a blended basis with Nexavar going down and Kyprolis going up? How we should be thinking about that? And then finally, just on oprozomib, I was curious if you could give us a little bit more detail, Tony. You seemed to be talking about that a lot but I'm just wondering, with the new formulation going in, it sounds like the drug's clearly active but maybe the split dose isn't really commercially viable, how should we think about development there?

N. Anthony Coles

So let me start with oprozomib, and Barb may have some additional comments as well, then we'll have Matt take the financial questions. Oprozomib is progressing well in the clinic. We have identified a formulation that we like very much and we think that will work. It's too early yet to provide any real meat on the split dose data because recall that the split dose study was done in key malignant patients, which did include some multiple myeloma patients. And you heard Barb comment, in her answer, that we have seen some initial clinical responses but we are hesitant to comment more specifically. It is possible that we'll have data from that Phase Ib/II study later this year, so do stay tuned for that, and we'll bring that to you as quickly as we have it. And then next, I think it's ready to take the new formulation into a Ib/II study and try to get to Myeloma concept as quickly as we can. Barb, what would you -- would you add something?

Barbara Klencke

The only other point, to the point of split dosing with the new formulation, we will be studying that with the once a day dosing regimen again. So that may help with convenience with the new formulation, not yet in the clinic but to be soon started.

Matthew K. Fust

Rachel, it's Matt. So on your couple of financial questions, first, with regard to cost of goods sold and gross margin, not yet in a position, I think, to be able to give specific guidance on cost of goods. Although, I certainly would suggest adding 2 things. One, you could expect cost of goods and the resulting gross margin to be consistent with other small molecule prescription drugs as we move into a more normal phase. And again, I would emphasize, we don't expect that over the first couple of quarters, when we're moving the inventory, which has already been expensed through the R&D line, through the cost of goods equation, that we'll see a normalized gross margin. It will probably take a few quarters until that sorts out. With regard to research and development expense, we've not yet given guidance beyond calendar year 2012, but I think in your question, you hit on a couple of the key themes as we think about R&D for the rest of this year and going forward. Here in 2012, we're already beginning to see some of the impacts of the reduction in Nexavar research and development spending, as some of the Phase III trials wind down. We had given guidance that we expected Nexavar R&D spend would be 10% to 15% lower in 2012 than it was in 2011, and that still looks right to us for this year. We do expect that trend will continue as we move into next year, and continue to see reductions in the R&D investment in Nexavar. By contrast, we expect that the carfilzomib Phase III programs; FOCUS, ASPIRE and ENDEAVOR already underway, as well as the front line trial that Barb mentioned in her remarks will be the key drivers for Kyprolis R&D spend next year, and as Tony and Barb just discussed, we hope that we have an opportunity to make an investment in the continued oprozomib development program next year. So we'll certainly be back with more details on 2013 as we get closer, but I think [indiscernible] right trends to think about for R&D spend.

Operator

Next question comes from Howard Liang from Leerink Swann.

Howard Liang - Leerink Swann LLC, Research Division

Can your sales force for Nexavar and regorafenib sell Kyprolis and vice versa? And if so, what's the total headcount in the field?

Helen Torley

We have put in place 2 separate oncology field forces, so the kinase inhibitor field force that you referenced will be -- if regorafenib is approved, we'll add regorafenib and sell both regorafenib and Nexavar. We just hired about 100 field base personnel for the promotion of Kyprolis. But that will be all that that field force sells, so 2 separate salesforces now.

Operator

Our next question comes from Biren Amin from Jefferies.

Biren Amin - Jefferies & Company, Inc., Research Division

I guess 2 questions. What do you expect to be the PFS threshold to meet the stats heard on interim analysis in ASPIRE? And second and lastly, what is the status update on Ted Love's replacement?

N. Anthony Coles

Okay, Barb, could you take the ASPIRE question?

Barbara Klencke

Well, we don't talk -- we have not proposed any powering of our study. Historical benchmarks for the control arm with Revlimid/dex might be approximately a year, and whatever sort of threshold we do have, just to remind you, we do have a SPA so we do have FDA agreement around the type of benefit that we would need to see in order to stop the study.

N. Anthony Coles

And in terms of the global head of research development and technical operation, a global search is now under way. We have seen a number of candidates who are highly qualified and we are continuing to do a review process. Our expectation is because we want a world-class R&D organization, we want a world-class R&D leader and we'll take the time that we think we need to find such a person who can not only reinforce the strategies we have in place today, but help us build towards the future. So, we'll bring you an update as soon as it's appropriate but the search is well underway and we, as you can tell, have expert help and assistance by the team led by Dr. Barb Klencke who has been involved in multiple oncology launches through her career at Genentech. So she saw [ph] and provided a very strong and very steady hand in this period of transition.

Operator

Our next question comes from Chris Raymond from Robert W. Baird.

Matthew R. Wooten - Robert W. Baird & Co. Incorporated, Research Division

This is Matt in for Chris. Just 2 questions, first on Nexavar, I think that you highlighted China as one of the regions that had a strong quarter. Can you just tell us what the number was and why they did -- why China was strong this quarter? And then on regorafenib, moving upstream in colorectal, can you just maybe update us on when we might see that Phase II second line data, and then, any plans for future studies?

N. Anthony Coles

So let me take the regora question, and I'll ask Matt to make some color commentary on China. The CRC Phase II study is well underway. We don't have expectations yet for when we might see data for that, but one thing we have commented on previously is that both teams there at Onyx are working on a full life cycle management program for regorafenib and that will bring you additional details as they're appropriate. We expect a broad, global development plan for regorafenib, and the expectations that Bayer has and that we have also provided include global net sales estimates of in excess of $1 billion for CRC GIST and other indication opportunities as they become available, so we will provide updates as they're appropriate. And then Matt, if you could talk a little bit about China, that will be terrific.

Matthew K. Fust

Sure. So China specifically had sales of USD 25 million in second quarter of 2012, which was more than 30% growth on a year-on-year basis, and we think is representative of the strength we're seeing, both across the Asia-Pacific region and more broadly, across emerging markets. For those of you who heard Bayer's earnings call earlier this week, they specifically called out a number of emerging markets, in addition to Asia-Pacific region as pretty really [ph] strong drivers for Nexavar, which as was mentioned in the prepared remarks today, sales outside the U.S. now account for nearly 70% of Nexavar sales.

Operator

Our next question comes from Navdeep Singh from Deutsche Bank.

Navdeep Singh - Deutsche Bank AG, Research Division

Just a couple of quick questions. Do you have any updates for the design of the Kyprolis Phase III trial and the newly diagnosed population? And secondly, I think you've updated your timelines for the readout of the DECISION trial to be in Q4, can you describe how you would -- you're thinking of this opportunity and why this trial is taking much longer to read out than previously expected?

N. Anthony Coles

Okay. Barb, would you mind taking those 2 questions?

Barbara Klencke

So the DECISION trial, I'll take first, and data is expected in the fourth quarter of this year. Why? It is an event-driven analysis. Our Phase II data showed something like a 96-week median time to progression-free survival, and so one might hope but cannot tell, until we do that analysis, that the treatment arm with Nexavar could be longer than what the study was minimally powered to detect. With regard to the first line trial, what we have said is that we are in the process of developing that trial and speaking with health authorities in the coming months. We've mentioned that it is likely to be a head-to-head, so we have VELCADE-based, carfilzomib-based treatment arms, but we've not finalized our plans at this point.

N. Anthony Coles

I think it's fair to say that the ENDEAVOR trial is squarely in our sights, and we really want to get that one up and running as quickly as we can. We've got first patient, first visit there, and we'll turn our attention now towards the front line study that Barb just elaborated on. So making excellent progress on both fronts, and as you know, the head-to-head comparison is really essential to our development and regulatory strategies.

Operator

The next question comes from Geoff Porges from Bernstein.

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

Just on -- first on financial, and then one on the trials. On the SG&A, it clearly is a step up with the new salesforce, and without trying to get guidance for next year, but should we be assuming that the sort of roughly, 6 looks like $60 million to $70 million a quarter for the balance of the year will be the baseline for future periods, given that it's mostly infrastructure? And then just a question on the ASPIRE trial. Barb, if you could give us some sense of the distribution of treatment failures, that would be second, third and later lines, how many is it? There's some criteria or what do you think we should estimate that at?

N. Anthony Coles

Okay. Barb, why don't you take the ASPIRE question? Then we'll ask Matt to comment on expense, SG&A expense.

Barbara Klencke

The ASPIRE trial, as it's still an ongoing trial, we've not done any analyses of baseline characteristics or how many of those patients have received 1 versus 2, or 3 prior regimen.

Matthew K. Fust

Geoff, with regard to the SG&A expense, we are not yet providing guidance specifically for 2013, but would expect the key drivers in the SG&A line to largely be in place in the second half of this year, which is to say the now established Kyprolis commercial infrastructure, as Helen mentioned, the expansion of the kinase inhibitor franchise with the modest increase in sales force to cover what we hope will be an opportunity to co-promote regorafenib alongside Nexavar. So I think if you were to look at the increase in our SG&A guidance, now reflecting the Kyprolis launch, that probably gives you a sense for the incremental selling, marketing and infrastructure costs associated with Kyprolis, and that's a good baseline for rounding into 2013.

Operator

Next question comes from Ling Wang from Summer Street Research.

Ling Wang - Summer Street Research Partners

I have 2 questions. First, could you please provide some details on your royalty agreement for carfilzomib with Ligand. And then secondly, for regorafenib, NDA filing in the colorectal cancer, would you expect the ODAC this year?

N. Anthony Coles

Okay. I think in terms of regorafenib, all we know, and all we've disclosed is that it's been accepted for priority review by the FDA after an end of April filing. So I think you can expect an FDA decision date somewhere near the end of October or so. We will certainly try to understand whether there will be an ODAC required. But we do know that the ODAC for September has been canceled, and we will continue our work with the FDA as they review the application. Our job is to get them everything that they need so that they can make a good decision on time for the PDUFA date near the end of October. And then, I think, Matt, could you address the Ligand question?

Matthew K. Fust

Sure, yes. We have, in connection with our purchase of Captisol from Ligand, Captisol is a component of the Kyprolis product, a royalty obligation to Ligand which is tied to global event [ph] sales of Kyprolis. Those royalty obligations range from 1.5%, which is the starting rate, up to a highest rate of 3% of global Kyprolis net sales. That top 3% royalty rate is triggered at sales levels over $750 million, and the royalty rate steps up between 1.5% and 3% with increasing levels of sales.

Operator

Our next question comes from Echo He from Maxim Group.

Echo Yinghui He - Maxim Group LLC, Research Division

Just want to ask that approximately, you have about 300 patients test [ph] on your Phase II trials on Kyprolis. Do you have any idea where you could provide any idea that how many of these patients were -- what percentage would be paying patients?

N. Anthony Coles

Okay. Helen, I'd like you to take that, but I do want to point one thing out. These 300 patients are part of the expanded access program for Kyprolis, which was launched in the United States near the end of the summer last year. So it's not a Phase II program per se, but the expanded access program. And Helen, comment?

Helen Torley

Yes. We really don't have specific sum, math [ph] at this point in time. This is obviously a process that the clinics and patients are going through, working -- many of them with Onyx 360 to understand their insurance coverage and their payment. We do think the majority of them will be able to transfer commercial drug and be on paying -- pay for it, but we don't have any specific estimates at this time.

N. Anthony Coles

And that is another place where our Onyx 360 program, the patient support program, will be facilitating that transfer of patients from the expanded access program to commercial product. So we will have some reinforcement in making sure all patients continue to get the therapy.

Operator

The next question comes from Ryan Martins from Lazard Capital.

Ryan Martins - Lazard Capital Markets LLC, Research Division

Just following up on the previous question with the expanded access program. Can you give us an idea of generally how far along these patients may be in their treatment as they move on to commercial drug? And secondly, with your increased focus on liver cancer, can you give us any updates on in terms of reimbursement in the Asia-Pacific countries; Taiwan, China, et cetera?

N. Anthony Coles

So, sure. I think for C-MAP, Barb, if you've got a perspective on that, I think the question is how far along in their treatment are these patients?

Barbara Klencke

We're seeing a span, as Tony mentioned, we opened this quite some time ago, and as we saw with our 003-A1, some patients continue to benefit for extended lengths of time. On the other hand, that program was closed to enrollment for a little while when we reached 250 patients, we needed to amend. And as the trial got reopened at sites over the recent months, we also saw another bolus of patients who have actually not been on very long, so a variety.

N. Anthony Coles

Good. I think it's just important to underscore there the exact same type of patients as in the 003-A1 study, so they relapsed, and refractory patients who look exactly like that study population. I think, in terms of liver cancer, yes, we are continuing to expect growth in liver cancer for next quarter in a worldwide basis, we've tried to talk for a number of quarters about the Asia-Pacific opportunity, and we've already talked in this call about the progress that's been made in China which is quite good. 31% growth in China year-over-year, up 24% quarter-over-quarter, so really good progress. The one new reimbursement we would report would be for Taiwan, which has happened recently. We don't have additional details to provide at this time, but I think of the major Asia-Pacific markets; China, South Korea, Taiwan. South Korea and Taiwan already have reimbursement, and China remains an open question, but you can see how well China continues to do in the private pay market.

Operator

Our next question comes from Nicholas Bishop from Cowen and Company.

Nicholas Bishop - Cowen and Company, LLC, Research Division

My question is on the safety profile of Kyprolis, and we saw at the FDA advisory committee some concern about potential association of the drug with cardiopulmonary toxicity. Although, of course, without a control arm, it's impossible to say whether there is an association. My question then is, if you have any insight into the likelihood of discovering an association with such toxicity when the ASPIRE data is seen, and if an association is found, what's the best strategy for optimizing uptake into earlier lines?

N. Anthony Coles

So, let me make a couple of general comments, and then Barb can add some additional detail. I think what I'd say is that there is a DSMB in place for the ASPIRE study, and they have endorsed the continuation of that particular trial. So I think that's a very good sign that there has been no cause to stop the trials on the basis of safety. You do know from -- certainly, our ODAC presentations that multi-myeloma, the disease itself, causes comorbid conditions including cardiovascular conditions, as well as some of the therapies used to treat myeloma particularly, the [indiscernible] that can cause cardiotoxicity. So we will -- we have some post marketing requirements, which Barb described, which will help us further understand this particular question, and we'll continue to work with the FDA to make sure that they have all the data they need to assess a safety profile for Kyprolis. So it's squarely in our sights and we'll have more information as these other Phase III programs continue.

Operator

Our next question comes from Ying Huang from Barclays.

Ying Huang - Barclays Capital, Research Division

I have a few. Number one, can you tell us how quickly you might convert Onyx patients in the expanded access program to commercially paying patients? And then number two, can you give us an update on timelines for the year, reporting from STORM cloud [ph] in the ASH [indiscernible] setting? And then number 3, how should we think about your launch trajectory? I know it's probably too early for you to give any guidance, but should we use the initial launch from VELCADE as a proxy?

N. Anthony Coles

Well, I'll take the guidance question on Kyprolis, and then I'll ask Helen and Barb to help on the other 2. We're not going to provide a guidance for either analogs or reference points at this moment for the sales of Kyprolis. We really are very early days in the launch and want to be careful not to either mislead or set inappropriate expectations. And just stay tuned for additional color commentary on how the launch is going to go. We believe that there are about 10,000 to 15,000 patients or so in the United States who would be eligible for therapy, and we will work our very best to reach all appropriate patients. Helen, why don't you take the C-MAP conversion question, and then Barb, if you could comment on STORM?

Helen Torley

Yes. As Tony mentioned in the last call, while 300 patients have been enrolled in C-MAP, obviously at this point in time, not all of those patients are on drug. What we do expect is that those patients are still in drug, we'll be working with the clinics and contacting Onyx 360 to identify their insurance coverage and determine how they're going to transfer over to commercial drug. And that is going to start in the next several weeks. This will be a process, we think, that will then take several weeks for all patients to continue. So if you're thinking of a timeframe, it is going to be, we believe, in the possibly 8 to 12 week time frame for this process to be complete.

Barbara Klencke

To answer the question about STORM. STORM is a Phase III adjuvant program for hepatocellular carcinoma randomizing patients to Nexavar versus placebo. The question was specifically around timelines to final data. This is an event-driven analysis, so given that, timelines are impossible to predict with accuracy. Adjuvant trials are quite long horizon trials, however and currently, we're looking at most likely the 2014 timeframe.

Operator

Our next question comes from Marshall Urist from Morgan Stanley.

Marshall Urist - Morgan Stanley, Research Division

So just 2 for me. First, Helen, maybe just talk about in your initial payer discussions, kind of what your understanding is of the mechanisms, if any, payers are using to kind of verify the patient profile in terms of prior lines of therapy, and how that is going to work as we think about the sort of realized Kyprolis patient population, even though I know you guys won't obviously promote anything other than the label, but just how that's working in the market would be helpful. And then second, any plans for compendia to maybe file some of the other data that you've got out of Phase II around also earlier lines of therapy, and what timelines you can give us there, if any?

Helen Torley

With regards to the payer feedback, it's obviously early days so I just want to prove that caveat, but where we are seeing them require any documentation, it is just the documentation that the patient has been exposed previously to protazomib [ph] and an immunomodulator agent.

N. Anthony Coles

Which is consistent with the label.

Helen Torley

Usually consistent with the labels, yes.

N. Anthony Coles

All right. And then Barb, do you have a comment on the compendia in Phase II studies? I don't think there's a lot we can say.

Barbara Klencke

There's no plans that we have to pursue that at the moment.

N. Anthony Coles

All right. And most of the compendia decisions are independent of the company in any case, so we don't really control those decisions on a routine basis.

Operator

Our last question comes from Jim Birchenough from BMO Capital.

Jim Birchenough - BMO Capital Markets U.S.

A question on the sales force that you've hired. Maybe if you can comment, Helen, on where these reps came from? Are they Revlimid reps, VELCADE reps? What experience do they have in myeloma? And then the second part of the question is just in terms of coverage, what proportion of Revlimid and VELCADE prescribers are you targeting initially, and what proportion of prescribers have experience with carfilzomib right now?

Helen Torley

Let me start with the representatives that we were able to hire, and I have to say, we're able to hire just a top class group of experienced representatives. We had a hiring profile which was experience in oncology, experience with injectable drugs, and if they had experience in myeloma, that was considered obviously, a bonus. So we have representation from all of the top oncology companies, team members who have launched multiple successful products over the last several years, so a very strong team is in place. In terms of the coverage we have, as we look back that we really sought to understand where the majority of patients who would have been exposed to multiple lines of therapy were managed. And so I mentioned in the last call, we're targeting about 2,000 clinics and hospitals. I would say that we'll be very consistent with where the majority of VELCADE and Revlimid is used today. So a vast majority of that use, what we're calling on the clinics, where the vast majority of those products are used.

N. Anthony Coles

Well, I think that's all the time we have for questions. My final comments are that this has really been an amazing quarter and really, quite a remarkable year starting with the restructuring of our agreement with Bayer, which brought us regorafenib as part of our portfolio. The accelerated approval for Kyprolis, and all the progress that we've made. We continue to make significant progress, as momentum builds across the business, and as we look at the back half of the year, we draw your attention to several upcoming events.

First, the continued execution of our launch with Kyprolis in the U.S. We've had a lot of conversation today about how that's going. The early returns are encouraging. And while we continue to execute a broad development program for the franchise, which includes oprozomib , the oral proteasome inhibitor, and the ongoing and planned head-to-head studies for carfilzomib on a worldwide basis. Additionally, we look forward to announcing regulatory action for regorafenib in metastatic colorectal cancer. And importantly, additional filings in GIST, which are expected to take place later this year in the United States, and in 2013 in Europe.

And then finally, the DECISION data for Nexavar in thyroid cancer. So the agenda is quite full for the team, we're really excited about the progress we've made in the business and what's unfolding for patients and for shareholders. We look forward to talking to you as we deliver our news, our growth strategies in building a premier company, and we appreciate you joining us today. Thanks. Thanks, operator.

Operator

Thank you. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!