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ArQule (NASDAQ:ARQL)

Q2 2012 Earnings Call

August 02, 2012 9:00 am ET

Executives

William B. Boni - Vice President of Investor Relations & Corporate Communications

Paolo Pucci - Chief Executive Officer and Director

Robert J. Weiskopf - Principal Accounting Officer, Vice President of Finance, Corporate Controller and Treasurer

Brian Schwartz - Chief Medical Officer and Senior Vice President of Clinical and Regulatory Affairs

Analysts

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

Chad J. Messer - Needham & Company, LLC, Research Division

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

Robin Davison - Edison Investment Research Limited

Ryan Martins - Lazard Capital Markets LLC, Research Division

George B. Zavoico - McNicoll, Lewis & Vlak LLC, Research Division

Jason Zhang - BMO Capital Markets U.S.

Operator

Good day, ladies and gentlemen, and welcome to ArQule Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. Bill Boni, Vice President of Investor Relations.

William B. Boni

Good morning, everyone. Welcome to the ArQule investor conference call reviewing operational and financial results for that second quarter of fiscal 2012. This is Bill Boni. This morning, we issued a press release that reported results for the fiscal quarter ended June 30, 2012. This release is available on our website at www.arqule.com.

Leading the call today will be Paolo Pucci, Chief Executive Officer of ArQule. Also present for the company are Peter Lawrence, President and Chief Operating Officer; Dr. Brian Schwartz, Chief Medical Officer; Dr. Thomas Chan, Chief Scientific Officer; and Rob Weiskopf, Vice President of Finance.

Before we begin, please note that we will be making forward-looking statements as defined in the Private Securities and Litigation Act of 1995. Actual results may differ materially from those projected in the forward-looking statements due to numerous risks and uncertainties that exist in ArQule's operations, development efforts and the business environment, including those factors discussed in our press release announcing this call and posted on our website, as well as in our reports on Forms 10-Q and 10-K and subsequent documents filed with the SEC. The forward-looking statements contained in this call represent the judgment of ArQule as of today. ArQule disclaims any intent or obligation to update any forward-looking statement except to the extent required by law. We will provide an opportunity for questions and answers at the end of this call.

I would now like to introduce the CEO of ArQule, Paolo Pucci.

Paolo Pucci

Thank you, Bill, and good morning, everybody. Ladies and gentlemen, thank you for joining us today. We are very happy to report, once again, a quarter of solid progress for ArQule and I would like to begin by talking about the progress we achieved during the last quarter for tivantinib, which is our leading candidate, and first-in-class c-MET inhibitor.

During the second quarter of 2012, we have achieved significant milestones relative to the clinical development of tivantinib. The 2 most notable milestones relate to the completion of patient recruitment for the Phase III MARQUEE trial in non-small cell lung cancer conducted in the Western part of the world. And also, we were very proud for our presence at ASCO, where we presented the full data set relative to the Phase II single-agent HCC trial, of which, we announced results early this year. And this marks the second time, in 4 years, that ArQule has had an overall, and very well-attended, presentation at ASCO. We believe that, that is quite an achievement and it speaks also to the increasing scientific interest that this drug is generating through each clinical data.

Let me now focus a little bit more on the MARQUEE trial. Some history, we began enrolling patients in this Phase III MARQUEE trial, which sees the one clinical combination with erlotinib -- compared to erlotinib, in previously treated patients with non-squamous cell carcinoma. We began that in 2011, precisely in January 2011. In late May this year, so shortly before ASCO took place, we and our partner, Daiichi Sankyo, announced through a press release that recruitment of patients in this trial has been completed on schedule. Let me refresh everybody's memory on some statistics relative to this trial. This trial seeks to enroll about 1,000 patients, and about that many we have enrolled, and it has been conducted in more than 200 clinical sites worldwide. And this is a very appropriate time for me to publicly acknowledge the excellent effort put through in this trial by our partner, Daiichi Sankyo, which has been in the lead executing this trial. Also, it's time to thank Dr. Brian Schwartz, who's here with us, for contributing, in a decisive manner, to the successful completion of recruitment as well. It would be remiss not to thank patients, investigators and clinical scientists who have enthusiastically participated in the trial, and they have committed their time and effort to allow us to fully recruit in a timely manner.

And finally, I would like, also, to acknowledge the leadership contributions, many leadership contributions, of the principal European investigator, Professors Scagliotti of the San Luigi hospital in Turin, Italy; and the principal U.S. investigator, Dr. Alan Sandler of Oregon Health and Science University in Portland, Oregon.

The MARQUEE trial, I shall remind you, is conducted under a special protocol assessment, SPA, in the U.S. The next steps for this trial lead us to the interim analysis that we have announced previously. This trial has one, only one interim analysis. And as we have previously said, this interim analysis is now foreseen to, of course, sometimes in the coming fall should that proceed afterward, then this trial should have results, final results by mid-2013.

As you know, the MARQUEE trial is only one-part, actually 1/2 of the non-small cell lung program for tivantinib. The other part of it is the ATTENTION trial. The ATTENTION trial, as you know, is very similar in design to the MARQUEE trial. Special recruitment in the ATTENTION trial is proceeding well in Asia. The trial is conducted by our partner, Kyowa Hakko Kirin in Japan and South Korea and Taiwan. He's actively recruiting in all 3 of these countries. And we estimate this trial might be fully approved possibly by the end of this year or by the end of next year. However, any official updates with greater detail should come from our partner Kyowa Hakko Kirin, which is solely in charge of executing this trial. Assuming then that both MARQUEE and the ATTENTION trial proceed as planned to the final analysis, we might obtain results for both trials by the end of '13 or very early thereafter.

So 2013 is really shaping up for ArQule and its investors to be pivotal year. I would remind all that these 2 trials, MARQUEE, ATTENTION, are the first Phase III registration trials that have been launched for tivantinib.

Let me now cover the last piece of our non-small cell clinical development program. That leads us to the KRAS mutant trial. We have launched the Phase II trial in subject of-- affected by non-small cell, and specifically, we're recruiting patients with the KRAS mutation. And the KRAS trial is an open label study. It's enrolling patients who are receiving tivantinib and erlotinib or chemotherapy, so it's a very interesting design. The primary endpoint of this trial is progression-free survival and I'm happy to say that this trial is on track to complete patient recruitment by the end of this year or early in 2013. This trial is designed to complete and complement the clinical evidence that we might obtain from the MARQUEE and ATTENTION trial. So really, sometime toward the end of '13, we will have all the data that we need to offset the utility of tivantinib in non-small cell lung cancer. And it will certainly be a data of great scientific interest.

This is what we have been talking about for the most part during the last 4 years. There was not much of an opportunity in the past to discuss our hepatocellular carcinoma program with tivantinib. We had a Phase II trial, double-blind randomized that was viewed with some interest, but some skepticism as well, given that the hepatocellular carcinoma phase has been so difficult to conquer and given so many other drugs have tried, but failed. Well, I think we surprised quite a few people early in the year when we disclosed that our single agent HCC second line trial has succeeded in a very significant way. And I think we further inferred and informed that they're relevant by completing the disclosure of the findings of this trial in the oral presentation that was held at ASCO in, I think it's June 2.

So let's focus only on those results we found in from the trial as presented at ASCO. So this latest findings represent the first randomized data reported with tivantinib administered as a single agent. And these findings basically show that the drug that has been tested previously nicely in combination with Tarceva now stand on its own as a single agent too and of being a therapeutic value. And we feel that this is important for the confidence -- the growing confidence we have in the overall program and the drug. I cannot recall many other, if any other, c-MET inhibitors that, at this point in time, can further double-blind randomized data where single agent has clearly been shown.

The tivantinib demonstrated as a single agent. It demonstrated a pronounced statistical significant improvement in overall survival, turn to progression and progression-free survival, which was particularly strong in the HCC patients which were classified as not high. A little more detail about each of these parameters as they turn out to be in the trial.

Median overall survival in tivantinib arm was 7.2 months versus 3.8 months in the placebo arm with a narrow ratio of 0.38 and a log rank p-value of 0.01. The median TTP was 2.9 months in the tivantinib arm versus 1.5 months in the placebo arm with a hazard ratio of 0.43 and a log rank p-value of 0.03. And the median PFS was 2.4 months in the tivantinib arm and it was versus 1.5 months in the placebo arm, with a hazard ratio of 0.45 and a log rank p-value of 0.02, a significant benefit, therefore, and consistent across all usual measures of that benefit.

So these results expand upon the statistical significance, 56% improvement, in the primary endpoint of the trial and TTP in the intent-to-treat population registered a hazard ratio of 0.64 and a log rank p-value of 0.04.

Sometimes, I get the questions from people that are not very close to the story. Okay, we understand the benefit you brought in HCC patients we were met high but was there an overall benefit if the trial overall succeed? And let me clarify that the trial did succeed and the reason being the ITT population and the reason we are focusing on the MET high, a portion of that patient population is because the benefits are so much more remarkable in that patient population and they will be remiss not to look at those results when we plan for Phase III. And in fact, the Phase III that we are having the plan is going to be focused as announced in that patient population. So what we intend to do is, we take a trial that succeeded overall on the ITT. We take the patient population when we saw the greater benefits and then we developed the clinical trials and Phase III that has the highest possible chance of technical and regulatory success for tivantinib as a single agent in second line HCC.

Let me talk a bit for balance on the adverse events. The adverse events were similar in the treatment and placebo arms of the trial, except for higher incidence of fatigue and hematological events, including neutropenia and anemia that were higher in the tivantinib-treated patients. The incidence of hepatologic events decreased following those reduction of tivantinib from 360 milligrams twice daily to 240 milligrams twice daily. Due to the incidence of neutropenia in the 360-milligram treatment group, the tivantinib dose was reduced to 240 milligrams twice a day for all patients and 240 milligram of that dose is the dose that we feel we can bring into the Phase III trial that is being planned.

Let me talk now about second line treatment of HCC in a little bit more detail. This is an area of pressing therapeutic need. Nothing symbolizes it more than the fact that the trial can be conducted comparing the active drugs to best supportive care, which tells you that there is no therapy available for these patients. It is foreseen that this area of need will remain strong in the future. We and Daiichi Sankyo have, therefore, been engaging in dialogue with the regulatory authorities related to the Phase III trial in second line HCC patients with MET high tumors, and planning is very well on the way to initiate this trial as soon as possible. There are some technical times that need to be respected. And normally, it's a few months. Our ambition is to start as soon as possible. So far, the feedback we have received from regulatory authorities has been encouraging and want to clearly understand why this is an area of enormous unmet need.

Now let's take a step back before I go further discussing HCC. Those of you that follow the company for the past 4 years will remember that when we launched, I think, 3 years ago, our HCC program, the second one for tivantinib, we deliberately set to pursue 2 courses of action. One course of action was we put the step towards the second line single-digit HCC part, which I have just described. The second course of action where we've worked on most certainly, waiting for commercial development, was combining tivantinib with sorafenib.

As you know, sorafenib is and will remain likely uncontested standalone care in HCC front-line and in HCC overall because there is nothing approved in second line. We started very cautiously in spite of our good expectations for this combination, so we did the work in vitro or we did the work in vivo. We did a pilot Phase I and then we expanded this Phase I in a trial that is almost an open label Phase II that moved from enrolling 20 patients that were originally planned to enrolling 80 patients.

So now we are the only c-MET inhibitor that in the space of HCC has demonstrated unequivocally single agent activity and unequivocally the ability to combinate with Nexavar at standard dose for both drugs.

Then let me talk about this last achievement. So in addition to the data set for the HCC second line single agent, we presented at ASCO also the full data set with HCC patients of the expanded Phase I sorafenib plus tivantinib. This trial included several cohorts of patients. About 20 patients each were tested in hepatoma renal carcinoma and melanoma and there was a number of a few patients, single agent, that is tested for Nexavar sensitive tumors.

Across all tumor types, we observed that the combination of tivantinib and sorafenib was well tolerated, with both drugs administered as standard therapeutic dosages, and we also observed preliminary evidence of synergistic anticancer activity. We view the combined inhibition of MET and angiogenic as a particularly promising therapeutic approach in front-line HCC at this time. We also know that from the commercial point of view, the task to front-line HCC appears to be open now, in light of the recent clinical failures of brivanib single agent Phase III trial against sorafenib, and the sorafenib plus allotted combination against sorafenib.

I believe personally that this latest development does show that sorafenib is a very difficult drug to beat in first line HCC and now we have the certainty of what the standard of care for the foreseeable feature is in front-line. So we have all the elements that we need to further things about a possible expansion of tivantinib in the hepatocellular carcinoma space.

Let me now turn to colorectal cancer. As you know, we have second line double-blind randomized -- second line colorectal trial ongoing. Earlier this year, patient enrollment in this Phase II trial was completed. We expect to get data from this randomized trial for tivantinib in combination with irinotecan and cetuximab in KRAS one time second and third line CRC patients late this year or early 2013. The endpoint of this trial is progression-free survival.

For the first time now, I would like to speak with and offer more detail about work that we have ongoing with the NCI and our CRADA agreement. I do so because a number of these trials have now been registered in clinicaltrial.gov, and comfortably, I can speak about them more openly. I should say that beyond the trials we will discuss today, there is a number of other trials that are in the works that is testimony of the high scientific interest that tivantinib is soliciting.

So the first trial is a Phase II open-label trial in multiple myeloma that tests tivantinib as a single agent. Then there is a Phase II open-label trial in breast cancer that tests tivantinib also as a single agent. There's a third Phase II randomized trial in prostate cancer that also tests tivantinib as a single agent. There is a fourth trial in advanced solid tumors that tests tivantinib in combination this time with [indiscernible]. Additional tumor types, additional combinations are being considered under the creator for tivantinib. As they get registered in the clinicaltrial.gov, we will up the quarter in our quarterly calls.

So in summary, for tivantinib, the non-small cell and colorectal trial should give us meaningful and incremental beta events, roughly every other quarter from this fall until the end of 2013. The hepatocellular programs in its form and its possible future development plus the greater programs should generate meaningful data events beyond 2013. So after 4 years of hepatocellular clinical development work for long and hard years, I should say, we are entering a different year now. We are entering a period where we begin to harvest clinical data and that period will stretch well into 2015.

A few words about pipeline and discovery. Our brother pipeline of early development and discovery in the first candidates continue to move forward systematically. Our decisions regarding these candidates balance as we have said many times before, investment opportunities with usual of cash considerations. We are committed to generating preclinical and early clinical data that hopefully will provide us a sound basis for selecting a candidate for further development in the future.

Phase I work is likely complete with actual ARQ 621 and ARQ 736, our KRAS kinase inhibitors, respectively. We're also nearing the completion of further clinical work with lead candidate that has emerged from our fiberglass growth factor effective program VEGFR program.

Financials, we have entered the first half of 2012 with $147 million in cash and marketable securities. This includes the net proceeds of approximately $56 million from our April 12 stock offering. These resources will be sufficient to finance our operations through 2014, which is well beyond the readouts of the data from both of the Phase III non-small cell lung cancer trial as well as the Phase II colorectal trial.

So this, in a sense, the financials closed the loop that we have opened early in the call discussing about the MARQUEE trial. We are set on the significant clinical data, multiple times during the period 2012 and 2015. And we have secured the financial resources to do so effectively. For additional details on the financials, I would like to now turn the call to Rob Weiskopf, Vice President of Finance.

Thank you for your attention.

Robert J. Weiskopf

Thank you, Paolo. The company reported a net loss of $885,000 or $0.01 per share for the quarter ended June 30, 2012, compared with a net loss of $10,804,000 or $0.20 per share for the quarter ended 2011. For the 6-month period ended June 30, 2012, the company reported a net loss of $5,145,000 or $0.09 per share compared to a net loss of $12,270,000 or $0.24 per share for the 6-month period ended June 30, 2011. At June 30, 2012, the company had a total of $147,068,000 in cash, equivalents and marketable securities.

Revenues for the quarter ended June 30, 2012, were $11,829,000 compared with $5,447,000 for the quarter ended June 30, 2011. Revenue for the 6-month period were at $20,327,000 compared to revenues of $18,852,000 for the period ended June 30, 2011. The $6.4 million revenue increase in 2012 3-month period is due to revenue increases of $1.7 million from our AKIP agreement with Daiichi Sankyo, $0.8 million from our Daiichi Sankyo ARQ 092 agreement, $0.2 million from our Kyowa Hakko Kirin tivantinib license agreement and lower contra-revenue of $3.7 million.

The $1.5 million revenue increase in the 6-month period was due to increases of $4.2 million from Daiichi Sankyo AKIP agreement, $1.6 million from our Daiichi Sankyo ARQ 192 agreement, $0.6 million from our Kyowa Hakko Kirin license agreement and lower contra-revenue of $5.3 million. These increases were partially offset by a $10.2 million decrease in revenue recognized in the $25 million MARQUEE milestone payment received from Daiichi Sankyo in the first quarter of 2011. In the 6 months ended June 30, 2011, when we received that milestone payment, we recognize revenue of $12.7 million compared with $2.5 million in the 6 months ended June 30, 2012, which resulted in a decrease of $10.2 million.

Total costs and expenses for the quarter ended June 30, 2012, were $12,785,000 compared to $16,388,000 for the second quarter of 2011. Total cost and expenses for the 6 months ended June 30, 2012, were $25,687,000 compared to $31,324,000 for the same period in 2011.

Research and development costs for the 3 and 6 months ended June 30, 2012, were $9,271,000 and $18,574,000, respectively, compared with $12,836,000 and $24,229,000 for the 2011 3- and 6-month periods. The lower research and development costs and expenses in the 2012 periods were primarily due to lower outsourced clinical and product development costs related to our Phase I and Phase II programs for tivantinib.

General and administrative costs for the 3- and 6-month period ended June 30, 2012, were $3,513,000 and $7,113,000, respectively, compared with $3,552,000 and $7,095,000 for the 2011 3- and a 6-month periods.

Turning now to financial guidance, as previously stated, for 2012, ArQule expects net use of cash to range between $39 million and $44 million. Revenues are expected to range between $40 million and $45 million. Net loss is expected to range between $15 million and $20 million. Net loss per share is expected to range between $0.25 and $0.33 for 2012. ArQule expects to end 2012 with between $121 million to $126 million in cash and marketable securities.

With that, I would like to hand the call back to Paolo.

Paolo Pucci

Thank you, Rob. And operator, if you would please start with the questions if there is any in the queue. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Joel Sendek from Stifel, Nicolaus.

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

I have 2 questions. The first is, do you have any plans to go into the front line in tivantinib for HCC? If so, over what time frame? And then on the CRADA studies that you mentioned for prostate cancer in particular, are you looking at a bone scan response?

Paolo Pucci

I'll take the first one. The focus that we have with Daiichi Sankyo and, to some extent, with Kyowa Hakko Kirin, right now is completely on the second line of a follow-up trial of Phase III as Daiichi Sankyo has announced together with us in the press release at ASCO. The developments in front line are very recent and they're just now getting us to think through it. Now were they -- both are unexpected, so for everybody's benefit on this call, over the last 2 years, Nexavar has been challenged as the solo line standard of care in HCC by the last 4 trials. The first one, if I recall correctly, was sunitinib against Nexavar. The second was another drug. The third was brivanib and the fourth and was Nexavar plus Tarceva. All these trials have failed. Now there is a reason why I personally push very hard within our alliance for doing the combination work with Nexavar, and the reason is I expect personally for Nexavar to be very likely be the placebo standard of care for a long, long time. This said, the speed at which the communication on brivanib failure and Nexavar Tarceva failure count has surprised me as well. So we are at the relative infancy of discussion with our partners, both of them, for any alternative that there could be to front line. And I don't foresee that any decision will be made in the immediate future also because we have the luxury of having quite a bit of an advantage over potential competitors in that we are so far the only c-MET inhibitor that has the single agent in HCC other than Nexavar, but that's a different one. And then we are also the only c-MET inhibitor that has to a certain extent, see the base of combine the data was Nexavar. So I'd say that work will begin soon and it's a new prospect that has opened. There might be different ways to approach the phase, the front line setting with tivantinib. It could be with Nexavar, it could be not necessarily with Nexavar depending on the patient population. At this point in time, I have some ideas. I work with Daiichi Sankyo to have some ideas, as well. They are all very good ideas. And also, our partners at Kyowa Hakko Kirin have very good ideas that might be more specific to the agent. So please stay tuned. The work will begin soon. Obviously, the work was greatly facilitated by the fact that we have just gone through an extensive HCC commercial and scientific review, which is generally in the partnership we have with Daiichi Sankyo, at least until we have reached a Phase III decision. So we don't start from scratch and I expect the discussions to proceed timely.

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

And then presumably -- sorry, presumably you could start a Phase III prior to the Phase II results?

Paolo Pucci

Presumably, yes. Presumably. But I am here giving you more my opinions because in truth, we have not started the process of discussion with our partners. So I'm simply, in this call, highlighting that the path to front line is open. How can it be -- how can one go along that path? Hopefully, we'll be able to tell sometime soon. The HCC market is a very attractive market in many, many ways. It's beginning to prevent a number of synergies with franchises other than oncology as well. And the Nexavar sales demonstrate that it's the HCC tumor space that prevent a steady growth in terms of commercial sales. So quite interesting development, Joel. I think for now there's another consideration to make. It's very relevant that we have achieved second line single agent efficacy in a randomized trial because some of the trials that have moved forward in HCC were not backed up by randomized Phase II data and probably didn't allow those enterprises to select appropriately the patient population. I think it has not been in the spotlight. But the fact that we are able to identify for the first time a specific population in these tumor type, it's a very, very relevant event relative to the derisking of the future trials. And with Daiichi Sankyo, we are having discussions with Kyowa Hakko Kirin as well, so the decision has been to go for the most -- to go for the cap that presents now based on data, the highest likelihood of success in Phase III. That's the second line. Then this development in front line came along and we start to think about those, too. Currently, I would say because we have a competitive advantage, but that can also be eroded because just like we have seen this development, so have other compounds. Let me now go to the second question, and maybe Brian will be so kind to take it and I'll remind all, the question was, do we launch in the prostate trial. And obviously, what Joel is referring to is probably not to put words into your mouth, Joel, obviously, your question comes from the very interesting evidence that has been presented by the drug in prostate cancer. That has led them to a Phase III trial which is currently ongoing.

Brian Schwartz

So Joel, the trial is run by CTEP and headed up by the Ohio State group. Accrued [ph] is actually going quite nicely and it's randomized pretext this year versus their supported peers. The primary endpoint of the trial is PFS. However, as we're all very interested, there'll be looking at many aspects of bone, not only bone scans, but also other markers of bone turnover and to determine the effects of tivantinib on bone lesions using multiple different modalities. But it will be a secondary endpoint of that study. It is run through the CTEP CRADA mechanism, so some of the release of data is really at their discretion, at being randomized. We've got about 80 patients that we plan to analyze before we present the data and we're well on our way to get that data within a year or year and a half, I would say.

Operator

Our next question comes from Chad Messer from Needham & Company.

Chad J. Messer - Needham & Company, LLC, Research Division

I wanted to ask about the KRAS trial in lung. Assuming that it plays out, that there is indeed a pronounced stronger effect in the KRAS patients, I was wondering how you see yourself pursuing that finding for the benefit of tivantinib and how you think that it would influence physicians when thinking about prescribing the drug.

Paolo Pucci

Maybe, Brian, take the call, Chad.

Brian Schwartz

When we put the trial together in KRAS mutants, there've been a couple of trials reported that have shown that erlotinib compared to the controlled use actually performed worse in the KRAS mutant group than the control group, be it chemo or better supportive care. So in our discussions with the lung consortium, we decided to use tivantinib plus erlotinib, where we saw the signal in KRAS mutants versus chemotherapy-based support of care. We will have, just to remind everyone, the incidence in non-squamous KRAS mutants is about 25%, so we will have a reasonably large proportion of patients in our MARQUEE trial to evaluate up again. So we'll have 2 pieces of data, the KRAS versus chemotherapy with the combination and in the KRAS versus erlotinib on its own. In addition, a number of new drugs or a number of new therapies and a number of new trials have also been presented with KRAS, so we would have to reevaluate our potential pathway forward. But the hope is to move the tivantinib combination of some sort in KRAS earlier on in the continuum of care rather than later on where it's currently being tested. That was the original plan.

Operator

Our next question comes from Adnan Butt from RBC Capital Markets.

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

Sorry, if it's been asked, but I've been on and off a couple of calls. The question I have is on liver cancer. Essentially, a couple of other agents have had setbacks recently and then how does that factor in to your decisions regarding tivantinib?

Paolo Pucci

Yes, we have discussed it. I'll be brief for the benefit of the others. The primary plan we have at this point in time which has been agreed with our partner, Daiichi Sankyo and, to some extent, might be under discussion with our partner Kyowa Hakko Kirin, is to proceed with the highest likelihood of success trial in Phase III and that is a repeat the second line design with 240-milligram dose and on the inpatient that has MET high. That is where we have publicly announced with Daiichi Sankyo for now at ASCO. The development that you referred to is the failure of brivanib and Tarceva plus Nexavar in front line, the obviously Nexavar standard of care in front line and the path open that you either challenge or add to that standard of care. And no decision has been taken at this time with any of our 2 partners and all 3 participants, that is ArQule, Daiichi Sankyo and Kyowa Hakko Kirin have ideas that we have to come together and discuss if that is an opportunity. And the moment that we jointly decide how to proceed, we will comment. But the rest assured that those development have not gone unnoted, and we have done some preparative work this year at ArQule to analyze in great detail the best market opportunity. So as soon as we can convene the partners to discuss, the process will begin. And as soon as we'll have a joint decision as has been in the past, we will communicate accordingly. That's as much as I can say for now, but those are very interesting developments for us.

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

And then just one more question and I'll jump back on queue. c-Met definition is there a [indiscernible] on standard or is it varying from agent to agent and trial to trial?

Paolo Pucci

I would say this is an evolving standard that you've heard a couple of companies speaking about c-MET high and c-MET low. You heard a couple of companies speaking about c-MET, that was even negative. I think where I believe, a little bit more of a standard is how patients on the high side and on the low side are characterized. And we have views that we believe to be that standard in classifying patients in the HCC trial, Phase II, that is, and that we analyze in relation to Phase I. And that standard basically gets summarized as follows. Patients that are staying through IHC more than 50% or more and score at 2, 2 plus or higher. Those are classified as MET high, correct, Brian? And the other one, our trials are classified as MET low. I think we are in the infancy of this classification and there is a number of additional zones of exploration, I would say, between negative, positive MET high and low. And only the data that is to come will tell us more. And then maybe I'll let Brian to give you a bit more detail on how that is done in MARQUEE, which is in non-small cell lung trial.

Brian Schwartz

Right now, as Paolo said, we are assuming a standard definition. However, we will have a data set for the 1,000 patients worth of data using the same antibody, the same technique and may have the ability to modify what we call the MET positive and MET negative based on the data we collect from our ongoing trials.

Operator

Our next question comes from Robin Davison from Edison Investment Research.

Robin Davison - Edison Investment Research Limited

Yes, first of all, I just wondered, you mentioned the interim analysis in the MARQUEE study. Can you confirm whether there's an efficacy test there, as well as futility?

Paolo Pucci

Yes, there is both.

Robin Davison - Edison Investment Research Limited

Right. Okay. have you disclosed the number of events in the study. I mean, obviously it's 50% of the events for the interim analysis, I mean, what is the actual number of that trial?

Paolo Pucci

What we have disclosed publicly, so far, is that the interim analysis will be triggered, though -- the process of going to the interim analysis will be triggered once we reach 375 events, I think. Is that right? And obviously, there are 3 qualified rules for the DSMB and those predefined rules might lead to having somewhat more than 375 events given that there are preparation times from when the process is triggered when you get executed. Anything to add, Brian?

Brian Schwartz

No.

Paolo Pucci

That's as much as we are disclosing we can say.

Robin Davison - Edison Investment Research Limited

I also had another point on the HCC test. We have discussions on that. One of the things I don't think we touched on is the fact that, obviously, most of the patients are in Asia, and that would sort of fall into the Kyowa Hakko Kirin area of the sort of commercialization agreements. I just wondered if you could make any comment about how the costs will be shared for that study among the 3 parties and responded?

Paolo Pucci

I would respectfully disagree with your comments that most of the patients are in Asia. If you imply with the comment with most potential commercial potential is in Asia, I mean, in sales. Of course, if you look at epidemiology married with access, then you see that the European area is as relevant as the Asian area. There is only one country that didn't turn out as being the highest potential country, that's Japan. No growth in Japan, you both have very large epidemiology and you also have sometimes the patient access. So that's the only country in Asia where the epidemiology translate into commercial opportunity as is. So I would say that in the area that falls within Daiichi Sankyo's territory, Europe and Southern Europe, particularly, are very, very attractive commercial opportunities, which personally, I thought based on my analysis, which is strictly my analysis, ArQule analysis that is, those are very attractive commercial opportunities. So I will rebalance it that statement. I think HCC is as interesting to the West as it is to Asia. As far as growth sharing, nothing, there is nothing that I can add to the current global to what we have discussed in the past. So we have an agreement with Daiichi Sankyo. And as it is for the -- in non-small cell lung cancer, in non-small cell lung cancer, we are conducting 2 trials, 1 in the West which is MARQUEE. For that, we are splitting the cost with Daiichi Sankyo. We fund roughly 50% of those costs and Daiichi does the same. And that I should remind you that Daiichi Sankyo is in the lead in executing the trial so we participate through our normal mechanism of governance. In Asia, instead we have a separate trial, which is conducted by Kyowa Hakko Kirin exclusively, other than by the board mechanism of governance that there are, we are not involved in that trial. That trial is conducted exclusively by Kyowa Hakko Kirin in Asia and they are bearing 100% of the cost. If at some point in time, all the 3 companies feel that there's going to be -- there is a possibility to break the pattern of an Asian trial and a western trial and go to a global trial, there is something that is not contemplated in the-- neither of the 2 countries and will have to be discussed and I foresee that ArQule will be somewhat involved. But it would be a more intensive discussion to happen between our 2 partners, to which we will obviously participate and based on the modified government mechanism. But at this point in time, I don't have an update for you. There is a number of discussions ongoing and I cannot base only on what is visible to me, which is the progress we're making in bringing it forward there to a second line HCC Phase III with Daiichi Sankyo.

Operator

Our next question comes from Ryan Martins from Lazard Capital.

Ryan Martins - Lazard Capital Markets LLC, Research Division

I was hoping maybe you could update us on any discussions you have with regulators post the ASCO presentation and obviously starting your Phase III program. Also, in light of the neutropenia, the increased neutropenia that was seen in the ASCO data, how are you guys thinking about your plans for Phase III in terms of similar kinds of patients you may be bringing in, use of growth factors, et cetera? And finally, maybe one question for Brian that's around the KRAS program for tivantinib. Obviously, you've seen the rare data, some other compounds. I think you mentioned you maybe going into another stage with patients. I was hoping you could provide some more color on that.

Paolo Pucci

Okay, I'll try to take the first few questions and let Brian answer the last one. As far as regulators, it is our policy not to comment beyond what I have said this morning. We have had a discussion with the regulators and we consider those discussions to have been productive and uneventful. More than that, for a number of reasons, we cannot say and that, I think, is a standard practice for the industry. If there were something that needed public disclosure, we would disclose it. So far, we don't have any such thing. The neutropenia piece, I think we have demonstrated fairly clearly in the Phase II trial that it can be controlled in a very significant way through the down dose and I'd like to reiterate that the 240 milligram dose is the one that we are considering bringing into Phase III for the future. And that should help us contain that side effect to the level that we have seen in the Phase II. And then for when we put in the protocol, at some point in time, we will discuss the protocol, but not readable for these approved by the regulatory authorities. Otherwise, we would have to be discussing things that will that have to take back or enhance or modify and we prefer to get to the end line and then be a little bit more exclusive after that with the certainty that what we discuss is final. And I'll let Brian answer the KRAS question.

Brian Schwartz

When we just get the neutropenia, sorry, Paolo, the neutropenia question. So Ryan, as we move through the Phase II and the program, especially in HCC, we put a much more intensive monitoring of neutropenia. And as a lot of the HCC patients have other issues that you really have to watch out for, we -- once we put those mechanisms in place, which we are putting in place upfront in the Phase III trial, we don't anticipate the same degree of problems that we had at the 360-milligram dose. Our hope is also to move forward in the Phase III with a slightly lower dose, so don't anticipate those problems that we observe. We also acknowledge that we'd have to educate the herpetologist that normally don't deal with neutropenia to the same extent as the oncologist in the Phase III trial as to avoid issues related to neutropenia. As everyone in the call is aware, neutropenia is not really a problem unless you develop sepsis. So it's really recognizing it early and having a uniform approach in terms of dealing with it. So that's the neutropenia side. In terms of the KRAS, you're correct, the RA and the Taylor trial may have changed our thinking a little bit. Our thinking originally was, so for example, we had a couple of ideas either to do a KRAS mutant. No one's tested KRAS mutant in a maintenance setting and no one's tested KRAS mutants upfront in combination with chemotherapy, perhaps other than top government, in the front-line setting. So it's really Aire and a couple of other companies I really the first group to actually test the KRAS mutant. Our plans are really in its infancy. But that was our thinking that it's going to be 25% of the non-squamous and it would be a very lucrative way to move into the front-line setting without creating a trial of all-comers because we acknowledge that all-comers frontline has really been a graveyard for many new agents up to now.

Paolo Pucci

I think there are news today about hep C drugs that just crossed the wire that tells you that the HCC space, whether the leaders space, so whether your purchase from the oncology point of view whether you approach it from the hep C point of view, requires some care. I have said before, the trials that succeed, in some trials only, the trials that succeed in hepatocellular carcinoma need to be stitched by hand, not by machine. So it's almost a throwback to another day of a pharmaceutical development where people take very, very close rather than letting CRO assembly executed on a contract. But that's my own personal opinion. So I have been involved in this case for what, 7 years now, more than that, actually almost 10. I hope this answers it.

Operator

Our next question comes from George Zavoico from MLV & Co.

George B. Zavoico - McNicoll, Lewis & Vlak LLC, Research Division

My question goes back to the MetMAb biomarker. I mean, your success in progress in the c-MET targeting space actually provided, I think, the impetus in developing an accurate and reliable and precise measurement of what c-MET high, what c-MET low, what c-MET intermediate, and you're probably in a position to someone to dictate where those criteria and cut points may be. Having said that, how satisfied are you now with the current methods and there are multiple methods to measure c-MET? And then the follow-on question to that is, that with the lung cancer trials showing obviously better efficacy in c-MET space, do you see trials going forward and your trials going forward in different indications also moving in that direction in that you'll be selecting c-MET high patients only?

Paolo Pucci

George, I think, first of all, thank you for your kind words. I don't think we are in the position to dictate much. I think it's the science of the data that guides everybody collectively and we are looking forward to contribution to some of our colleagues, competitors and partners in the industry to better refine our understanding, too. We take an approach -- there is no cookie-cutter response here for some of your questions., because we have taken from the very beginning the approach that every tumor type is different. What you see in tumor type is probably not directly applicable to the next. And so we are very careful not to generalize. But and we will speak tumor type to tumor type, so I'll give you an example. In non-small cell lung cancer, when we approach the Phase III decision with our partner Daiichi Sankyo, we approach Daiichi Sankyo under the assumption that selecting the non-squamous cell population is automatically very much enriching for MET expression, in that the data produced by ourselves and our competitors indicated that between 50% and 70% of the non-squamous histology are expressed in c-MET, so to be classified as either c-MET high or c-MET positive. While when you look at the squamous cell population, we have a 30%, I should say, at the most of the non-small cell long population, the evidence points to the fact that no more than 20% of that patient population over express c-MET, call it c-MET high or call it c-MET low or call it c-MET negative. So that was a decision specific to non-small cell. Now with that learning, we analyze the Phase II data. We prepare the Phase II HCC data in trial in a way that we could analyze the data in many ways, attempting to correlate MET status with other parameters just like we have done with histology non-small cell. So obviously, and Brian has presented at ASCO and will be further detail later on at ASCO. We look at hepatitis, is it hepatitis B, is it hepatitis C? Is it A or B negative, and a number of other parameters. And we say, is there any correlation between MET status and any parameters? And based on our data set, and you correct me if I'm wrong, Brian, we cannot find the correlation as long as we saw in non-small cell between histology and MET status. And therefore, really, MET status for the Phase III trial we have agreed with Daiichi Sankyo is the driver. Also, we have to consider that there is very, very -- there's not much literature available relative to biomarkers or biological fact population in non-small cell, in HCC. And so we have to go by what is available and obviously, our data is a very important piece of that. And that suggests that may be 50%, up to 50% of the patient population in HCC overexpresses MET. So really, that has been the driver, and we're going to see in the colorectal space how that works and that's why I wouldn't generalize. I hope I got my point across that it's going to have to be a tumor-by-tumor discussion, at least in our opinion, George.

George B. Zavoico - McNicoll, Lewis & Vlak LLC, Research Division

That clarifies things.

Operator

[Operator Instructions] Our next question comes from Jason Zhang from BMO Capital Markets.

Jason Zhang - BMO Capital Markets U.S.

First question, can you provide us the update about your RAF inhibitor, particularly given what you have seen at ASCO with some of the drugs in this space that have been -- had unit development? So what's your plans for your B-RAF inhibitor, particularly type of tumors and just going forward?

Paolo Pucci

Sure. Just as the failure of trial in HCC open up the competitive space, wide open for us, to squeeze through I would say. The opposite has happened in the B-RAF space. That space, from a competitive point of view, is getting more and more difficult to approach. Competition is enormously intense. Erlotinib is an excellent drug that is doing apparently very well. It delivers much of the same, and now ASCO brought forward to the forefront the MET and B-RAF combination. So I would say that we approach decisions for the future of the B-RAF as a really challenging task for us. That said, the Phase I is almost completed and then we are staying with the strategy of assessing the product line deliberately, with an eye to potential opportunity for further development but also cost efficiencies. So we will look at the data that we have for Eg5, for B-RAF and hopefully for FGFR next year or sometime next year, and actually, we are more encouraged than we have been before about our FGFR because, as you know, so far the FGFR in the market is really nonisomer specific. And so if we were able to pursue forward in FGFR, which would be specific, say, particularly, would be specific to FGFR II, then that will be a very interesting proposition and it will present us with the opportunity of combinability with other assets that are much further developed which we have access to in our portfolio. So we are a little bit more skeptical about the ability to bring forward a drug competitively in the B-RAF space. But that said, we'll just have to see our final data and then we need to see is the MET plus combination of GSK once it reaches the market closes the door to further entrants, our entry or somebody else or whether that door remains open. For FGFR, we have just been finalizing because we have to present to the board that FGFR as an IND candidate, which is by policy required here at ArQule before we go to IND. It's a very different story. It’s quite reasonable for FGFRs in development, not all of them are non isomer specific to our knowledge. They're not so far away in development because they're roughly in Phase II, beginning Phase II or so. And there are a number of tumor types that are of interest to Brian and I for potentially an isomer-specific FGFR, tumor types like small cell lung cancer, squamous cells and others, and I don't want to say a little bit more than that because it's premature. That's probably something for next call. But given you asked the question about the pipeline, I think I'd like to provide the general context in which decisions are made. So decisions are going to be made on a product by product and at ASCO 3.

Operator

I'm showing no further questions in queue at this time.

Paolo Pucci

Okay.

William B. Boni

Okay. This is Bill Boni again everyone. Thanks, all, for attending this call this morning. My number is on the press release. So if you have any questions or need to follow up in any fashion, don't hesitate. Look forward to our ongoing dialogue. Thanks, a lot. Take care.

Operator

Ladies and gentlemen, thank you for participating today's conference. This concludes the program. You may all disconnect and have a wonderful day.

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