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Executives

Amy Figueroa

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

Helen I. Torley - Chief Commercial officer and Executive Vice President

Barbara Klencke

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

Analysts

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

Rachel L. McMinn - BofA Merrill Lynch, Research Division

Jim Birchenough - BMO Capital Markets U.S.

Gene Mack - Brean Murray, Carret & Co., LLC, Research Division

Rene Shen

Laura K. Chico - Robert W. Baird & Co. Incorporated, Research Division

Robyn Karnauskas - Deutsche Bank AG, Research Division

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

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

Ryan Martins - Lazard Capital Markets LLC, Research Division

Ling Wang - Summer Street Research Partners

Stephen Willey - Stifel, Nicolaus & Co., Inc., Research Division

Salveen J. Richter - Canaccord Genuity, Research Division

Marshall Urist - Morgan Stanley, Research Division

Arlinda Lee - Barclays Capital, Research Division

Philip Nadeau - Cowen and Company, LLC, Research Division

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

Onyx Pharmaceuticals (ONXX) Q3 2012 Earnings Call November 1, 2012 4:30 PM ET

Operator

Welcome to the Onyx Pharmaceuticals Third Quarter 2012 Financial Results Conference Call. My name is Anthony, and I will be your operator for today's call. [Operator Instructions] Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

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

Amy Figueroa

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

Leading the call today is Dr. Tony Coles, Onyx' 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 and specifically, the U.S. launches of both Kyprolis and Stivarga. Next, Dr. Barb Klencke, Senior Vice President of Clinical Development, will provide an update on our global clinical programs. Finally, Matt Fust, Executive Vice President and Chief Financial Officer, will review our financial results for the third quarter of 2012. We will then open the call to questions.

Please note that we are issuing a correction to our press release as one of the supplemental tables reconciling GAAP and non-GAAP diluted EPS was missing a bracket around some of the numbers for the 3 months ending September 30, 2012 period. Please note also 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 third quarter ended September 30, 2012 tomorrow.

During today's call, we will be discussing 2 recently approved therapies: Kyprolis, carfilzomib for injection; and Bayer Stivarga, regorafenib tablets. For full prescribing information on Kyprolis, we refer you to the package insert posted at www.kyprolis.com. For full prescribing information on Bayer Stivarga, we refer you to the package insert posted at www.stivarga-us.com. These links are also included in today's press release.

In addition, 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 being posted on the Onyx' website. The presentation will be located on the Financial Information page of the Investors section.

I will now turn the call over to Tony.

N. Anthony Coles

Thanks, Amy. Good afternoon, and thanks for joining us today. As we begin our call, let me first say that our thoughts are with the many impacted by Hurricane Sandy, with the hope that all those affected will be able to quickly begin the recovery process. We're very mindful, especially of the Onyx' employees affected, and wish them the very best in the days ahead.

We started this year with one globally successful product, Nexavar, approved for the treatment of 2 types of cancer and a bold vision for building a leading oncology company with multiple therapies to help even more patients with cancer.

Specifically, our objective was to have, by the end of this year, 2 newly approved oncology therapies, bringing the total number of medicines in the Onyx portfolio to 3 across an array of solid and liquid tumors. We knew this would be an ambitious goal, but I'm very pleased and very proud to say that we have achieved this important milestone. And with this achievement, Onyx has truly been transformed, both as a company and as a business. We're focused on growing our top line and continuing our evolution as a leading biopharmaceutical company.

In a single quarter, both Kyprolis and Stivarga received FDA approval. And today, both these new products are available to patients in disease settings where treatment options have been extremely limited or nonexistent. These approvals would not have been possible without the patients, their caregivers and the physicians who participated in multiple clinical trials. And for this, we thank them. At Onyx, we're dedicated to innovation in the service of patients with unmet needs, and launching these 2 new therapies is our way of demonstrating this ongoing commitment.

Within our proteasome inhibitor franchise, we're beginning to unlock the significant potential we see for Kyprolis globally. Starting with the U.S. We're very pleased with the early performance of the launch, which is meeting our expectations for performance as we reach critically ill patients across the country. But our job is far from over, and we remain committed to investing both strategically and prudently in a comprehensive registration program for Kyprolis across multiple lines of myeloma treatment.

We continue to make good progress with our oral proteasome inhibitor oprozomib, as we are now advancing a new formulation for this therapy in the clinic. Ultimately, both of these programs are driven by our intense interest in transforming myeloma into a disease that is chronic and no longer uniformly fatal.

Turning to our kinase inhibitor franchise. Just over a month ago, Bayer received U.S. FDA approval of Stivarga for patients with previously treated metastatic colorectal cancer. The U.S.-based Onyx and Bayer teams began executing launch plans immediately, leveraging and expanding our kinase inhibitor sales force to co-promote both Nexavar and Stivarga.

In parallel, Bayer continues to make significant regulatory progress with global filings for both colorectal cancer and GIST. As a reminder, Onyx will receive a 20% royalty on net sales of Stivarga globally without any development or commercialization investment required.

Recently, I participated in the launch meetings for Kyprolis and Stivarga. And each launch meeting, it was impressive to see the knowledge, commitment and excitement exhibited by these highly skilled teams. While we're in the early post-approval period for both therapies, we are encouraged by the results and the initial work of these 2 talented teams in bringing these therapies to patients with limited treatment options.

As you know, the cornerstone of our kinase inhibitor franchise continues to be Nexavar, a therapy reaching patients globally in over 100 countries. Nexavar contributes important cash flow for our business as a treatment for both unresectable liver cancer where it maintains its unique leadership position despite multiple competitive attempts, and for kidney cancer where it remains an important treatment option.

Today, with 3 marketed therapies to treat 4 different cancers and additional indication bearing studies underway, Onyx is well on its way to becoming a leading oncology company. And with 2 launches underway and multiple catalysts ahead, we expect the momentum in the business we've seen to continue.

Now let me turn the call over to Helen.

Helen I. Torley

Thank you, Tony. With the approval of both Kyprolis and Stivarga in the last 3 months, the commercial team has been focused on executing our launch plans and bringing these important new therapies to patients in the United States.

Beginning with Kyprolis, I'm pleased to report that net sales in the third quarter, following our approval on July 20, were $19 million. This number reflects orders placed and product received by clinics and hospitals. Let me bring some additional color to the market dynamics and product demand we're seeing in this initial launch period. Importantly, there is a clear recognition of the unmet need that exists for the estimated 10,000 to 15,000 patients annually who have receive bortezomib and an IMiD and have progressed on or within 60 days of their last therapy, aside the opportunity to spend time in the field with our experienced oncology team in the last several weeks and have seen that this recognition has resulted in good access to health care practitioners through indicatingly strong interest in learning more about using Kyprolis.

While our promotional efforts are being focused on approximately 2,000 clinics and hospitals where the majority of the Kyprolis-indicated patients are currently managed, our initial priority has been to call in those attendants [ph] with the highest volume of potential patients and those centers that participated in the expanded access program. Through the end of September, approximately 50% of the 2,000 target accounts have already placed orders for Kyprolis.

Centers participating in the expanded access program were among the first to place orders, with 110 patients who remained on the program at approval converting to commercial drug. Further, early orders were driven by centers that have pre-identified patients for immediate use of Kyprolis in the event of Kyprolis approval.

And in September, we saw adoption continue to broaden to additional clinics and hospitals following visits from our field team. Initial market research and field team feedback suggest that most physicians are using Kyprolis in the third-line plus patients who previously received bortezomib and an IMiD and who are now progressing. Kyprolis penetration of the third-line plus population is estimated to have already reached 10% as of September within 8 weeks of the launch.

Turning now to reimbursement. The comprehensive program that we rolled out included Onyx 360, extended payment terms and deployment of our field-based reimbursement experts have been well-received. Confirmed coverage has already been received from all 12 of the Medicare Administrative Carriers, or MACs. And in addition, 70% of the 167 million covered lives who are in the top 67 commercial plans have confirmed coverage for Kyprolis. The coverage policies and any prior authorizations that are in place are generally consistent with the label indication and have not been reported to be a barrier to adoption or use.

Of note, our experience so far is that the majority of commercial plans that have not yet published the coverage policy are also covering Kyprolis on an individual patient basis. The Onyx 360 program staff and our field reimbursement teams are available to help answer questions on Kyprolis.

In summary, the initial response by physicians to Kyprolis have been quite positive, with the strong early sales driven by the pre-identification of patients for early use following approval, conversion of the expanded access program patients and the continued growth in the number of new accounts adopting and ordering Kyprolis in September.

Let me now comment on our kinase inhibitor franchise performance and our second product launch for the quarter. Stivarga was approved on September 27, a month ahead of its PDUFA date, and the Bayer and Onyx sales teams were prepared to launch and began promoting Stivarga immediately. An estimated 20,000 to 30,000 patients annually in the United States are indicated under the label. These are previously treated metastatic colorectal cancer patients who have limited treatment options today.

While it is still too early to provide specifics, initial feedback has been that there is an appreciation of the unmet need that exists for the third-line plus metastatic colorectal cancer patient population and a significant interest on the part of physicians in learning more about Stivarga. We fully expect Stivarga to be reimbursed by most insurance plans and Medicare. And as we await formally reviews, the REACH program, originally set out for next of our patients, will also assist individuals obtaining coverage for Stivarga.

Looking at other areas outside of the United States, Bayer has regulatory submissions for metastatic CRC pending in Europe and Japan. Bayer has received priority review from metastatic CRC in Japan and priority review for GIST, sNDA in the U.S. Regulatory actions are expected in both of these key regions in 2013.

Focusing now on Nexavar. In the third quarter of 2012, Nexavar global net sales, excluding Japan, were $208 million, comparable to net sales in the same period of the prior year. After taking into account the erosion in the dollar-euro exchange rate, global Nexavar net sales grew approximately 6% on a currency-neutral basis.

In the United States, net sales were $67 million, 7% higher than in the same period of 2011, primarily driven by price and growth in use in liver cancer. This growth in liver cancer has been driven by increased adoption and use by hepatologists and other non-oncologist prescribers. Net sales for the third quarter for the rest of the world, excluding Japan and the U.S., were $141 million, as demand-driven sales growth in Asia Pacific and Latin America was offset by Europe.

The approval of Stivarga creates an opportunity for Onyx' newly expanded kinase inhibitor sales team to now promote 2 products with demonstrated overall survival or progression-free survival benefit in 3 tumors, specifically advanced kidney cancer and unresectable liver cancer for Nexavar, metastatic colorectal cancer for Stivarga. Launching 2 new products this quarter, Onyx is truly differentiated as a company committed to improving cancer outcome for patients in a variety of settings.

And now, I'll turn the call over to Barb who will give an update on our clinical programs.

Barbara Klencke

Thank you, Helen. Let's start with our proteasome inhibitor franchise. Our comprehensive development program is well underway to evaluate Kyprolis across all lines of therapy in multiple myeloma. We have 3 ongoing global Phase III trials and are on track to initiate a fourth Phase III trial in front-line patients in the first half of next year.

For relapsed and refractory patients, as we recently announced, we completed patient enrollment in the FOCUS trial, one quarter ahead of projection. This randomized trial is being conducted under scientific advise from the EMA and is intended to support marketing approval outside of the United States, and importantly, to demonstrate a survival advantage with Kyprolis. This study incorporates a planned interim analysis, and depending on the rate of event accrual, it is possible that we could have top line results from an interim analysis as early as the second half of 2013.

Turning to ASPIRE, which is a primary endpoint of progression-free survival, we continue to monitor the accrual of events in this trial. We are observing the patients who are not progressing as rapidly as projected. So given the current rate of overall event accrual, we now expect results from an interim analysis could be available by the fourth quarter of 2013 or later.

While we await results from FOCUS and ASPIRE, we also are executing a head-to-head comparison strategy to evaluate Kyprolis' superiority versus VELCADE. To this end, we began enrollment in the Phase III ENDEAVOR study in mid-2012 to compare Kyprolis in combination with low-dose dexamethasone to VELCADE with low-dose dexamethasone in 880 patients. In addition, we plan to initiate a second head-to-head comparison trial of Kyprolis versus VELCADE in the first half of 2013, this trial in the front-line setting.

Finally, with an objective of covering the multiple myeloma treatment landscape, we are also advancing the development of our oral proteasome inhibitor, oprozomib. We have completed additional formulation work for this compound and are introducing a tablet, rather than in a powder and capsule formulation, into the ongoing Phase Ib/II trial this month. We look forward to presenting the early stage safety and efficacy data from the powder and capsule formulation at the ASH Meeting in December. In fact, at ASH this year, we are excited that we will have 7 oral presentations, including both company-sponsored and investigator-sponsored trial data for both Kyprolis and oprozomib. The oprozomib data with the split-dose regimen in hematologic malignancies was accepted as an oral presentation, and there will be 6 additional oral presentation on Kyprolis.

Turning our attention to the kinase inhibitor franchise. Onyx and Bayer expect to report top line results from the Phase III DECISION study in differentiated thyroid cancer patients before the end of the year, potentially providing a new indication opportunity for Nexavar. If the data are favorable, we would quickly pursue a supplemental regulatory submission for Nexavar in what would be a third potential indication. And in the advanced breast cancer setting, we expect to complete patients enrollment in the Phase III RESILIENCE trial in the first half of next year.

Moving to Stivarga. We recently announced that Bayer received priority review based on its supplemental NDA for a second potential indication in the gastrointestinal stromal tumors, which was submitted in August of this year.

So with the ongoing Phase III trials across our portfolio and for both franchises, we look forward to multiple data readout with the goal of potentially benefiting even more patients with cancer.

I'll now turn the call over to Matt.

Matthew K. Fust

Thank you, Barb. I'll begin my comments today with Kyprolis. As a reminder, we're currently recognizing Kyprolis net sales revenue upon shipment to clinics and hospitals under the sell-through method revenue recognition. During third quarter, $19 million was recognized as net sales on our P&L, and $5 million of Kyprolis shipments to distributors was recorded as deferred revenue on the September 30, 2012 balance sheet. Upon shipment to clinics and hospitals, this deferred revenue will be recording as net sales after applying the gross to net adjustment.

Cost of goods sold for third quarter 2012 was approximately 3% of Kyprolis net sales. Because the majority of costs associated with third quarter Kyprolis sales have been charged to R&D expense in previous periods, gross margin in the third quarter and in the early quarters of the launch will not be representative of our expectations for steady-state gross margin.

During the launch period, we currently expect the gross-to-net sales adjustment to be 15% on average, with quarter-to-quarter variability. The adjustment to gross Kyprolis sales revenue in the third quarter was approximately 17%. Gross-to-net sales adjustment accounts for chargebacks and rebates under government programs, our reserve for estimated product returns and replacements, fees paid to distributors and other factors, and may change as we gain more experience with Kyprolis in the market.

Let me call your attention to 2 items in our financial statements triggered by the approval of Kyprolis. First, a noncash expense associated with the amortization of Kyprolis-related intangible assets, which were recording on the balance sheet at the time of the Proteolix acquisition in 2009, is shown as a new line item on our P&L. Amortization expense was $4 million in third quarter 2012 and is expected to total approximately $10 million for full year 2012. This noncash expense is excluded from our calculation of non-GAAP net loss.

Related to this amortization, a tax benefit was recorded on the P&L in the third quarter to recognize the resulting deferred tax asset. This one-time noncash benefit, approximately $95 million, is also excluded from our calculation of non-GAAP net loss.

Turning to our kinase inhibitor franchise. Nexavar global net sales, excluding Japan, were $208 million in third quarter of 2012. After taking into account an 11% erosion in the dollar-euro exchange rate compared to third quarter 2011, Nexavar net sales increased approximately 6% with growth from the U.S., Asia Pacific and Latin America. Year-to-date, Nexavar sales, excluding Japan, have grown 4% compared to the first 3 quarters of 2011, and sales growth year-to-date is 9% on a currency-neutral basis. Nexavar collaboration revenue was $71 million in third quarter 2012, and commercial margin expanded to 64% in third quarter 2012 and 63% for 2012 to date.

Onyx' 20% royalty on global net sales of Stivarga is being reported on a separate line item on our P&L. In third quarter 2012, Stivarga royalty revenue of $131,000 was based on a single day of sales by Bayer following the U.S. approval at the end of September.

Non-GAAP net R&D expense of $83 million in third quarter 2012 was primarily driven by continued investment in Kyprolis. Third quarter expense included Kyprolis trial and clinical drug supply expenses for 3 ongoing Phase III clinical trials, ASPIRE, FOCUS and ENDEAVOR. In the first half of next year, we plan to initiate a fourth Phase III study in front-line multiple myeloma patients.

Third quarter 2012 non-GAAP net R&D expense also included Onyx' share of Nexavar development expense, as well as our earlier-stage oprozomib development program.

Non-GAAP selling, general and administrative expense was $55 million for third quarter 2012. Growth in SG&A expense primarily reflects the cost of our expanded U.S. commercial infrastructure and the associated marketing support for Kyprolis.

We ended the quarter with $573 million in cash and investments which, together with cash flow from Nexavar, continue to support critical strategic investments in our proteasome inhibitor franchise.

We have no updates to the 2012 financial guidance we have previously provided, and we're not providing additional financial guidance at this time. Our 2012 financial guidance is included in the slides posted on our website in connection with today's announcement of results.

And now, I'll turn the call back over to Tony.

N. Anthony Coles

Well, there you have it. A quarter with a number of remarkable achievements. And building on this year of signature accomplishments, we expect continued momentum with upcoming commercial, regulatory and clinical milestones.

Specifically, in the months ahead, we look forward to the following: first, continuing the launches of Kyprolis and Stivarga in the United States; second, advancing the global Phase III development program for Kyprolis across all lines of treatment, including 2 head-to-head trials versus VELCADE; third, presenting data for Kyprolis and oprozomib at ASH and advancing our oral proteasome inhibitor program with the new formulation of oprozomib; fourth, reporting Nexavar top line clinical trial results in thyroid cancer later this quarter; and finally, updating Bayer's progress with global regulatory and clinical milestones for Stivarga.

Operator, we'll now open the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Cory Kasimov of JPMorgan.

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

Two questions to kick it off here. First, just wanted to confirm that you said the ASPIRE interim is now anticipated in the fourth quarter of 2013 or later. I guess, do you have a sense of why events are accruing slower than expected? Or maybe asked another way, how consistent is the PFS data for the Rev/dex combination in this setting in the literature? And then my second question is on dosing and for Kyprolis, and I'm wondering if you're finding in the real world, if docs are sticking to the initial label or pushing to doses that you're using in some of these ongoing clinical studies?

N. Anthony Coles

Okay. Thanks, Cory. I'm actually going to ask Barb to take the first question. Regarding ASPIRE, you did hear correctly that the results will be 4Q '13 or later, and I'll ask Barb to provide some color commentary. And then, Helen, if you could take the dose question of our early observations in the market. Barb?

Barbara Klencke

Thanks, Tony. So yes, the question we are tracking later than anticipated. These are event-driven analysis, so highly dependent on the rate of progression. But only information we have is the pooled information, so we cannot speculate as to the reason. As you mentioned, the Rev/dex literature has been published. We used in our initial projections the data that's been presented in New England Journal. And it could -- we basically are going to continue to look at event progression rates over time. The FOCUS data is a survival end point. And as we've completed enrollment, we're now looking forward to the next milestone, which is interim data. So we also talked today about the survival data being available in the second half of 2013 based on an interim analysis for that study.

N. Anthony Coles

And I think, Cory, and everyone else, this is just reflective of what happens with event-based trials. Some of them move up, some of them move back. The key here is that we're monitoring them as carefully and as closely as we possibly can. And we will bring you updates as we need to. But we are encouraged with the possibility of FOCUS data potentially early on the basis of an interim readout. Helen, how about the dosing question?

Helen I. Torley

Yes. And Cory, thanks for that question. With regard to the dosing and actually the general use of Kyprolis, what we're seeing is it's predominantly being used according to our label indication. So the dose is according to the label starting at 20 and titrating to 27. And the population that is being studied are patients who have previously received bortezomib and an IMiD and who are progressing on or within 60 days of their last therapy.

Operator

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

Rachel L. McMinn - BofA Merrill Lynch, Research Division

Wanted to see -- 2 questions. If you could comment at all about how to think about this bolus. You talked a lot about a lot of early ordering in which you would expect given all the unmet need out there. So when we think about oncology launches we tend to see early boluses. Is that going to continue into October? I mean, it looks like on the math here that there's over 1,000 patients that started in September. And then just separately, I was hoping you can maybe narrow down the front line head-to-head study for VELCADE that you mentioned? Is this going -- are you going to be waiting for 020 data from Celgene to come out, or are you going to just forge ahead with an MP-base study design?

N. Anthony Coles

Okay. Helen, would you take the question on October sales and what we're observing? And then Barb and I will comment on the front-line study.

Helen I. Torley

Thanks. With regard to certainly in August, what we did see was that with the early access program and also that the anticipation for the launch amongst physicians and patients, we certainly did see a bolus of patients. In September, however, we -- as we had representatives begin to call on our broader set of clinics and hospitals, we saw a new adopters come on board every week. So we believe that the early bolus was certainly present, but the performance that we saw in September reflected a more general rate of run of physicians learning more about Kyprolis and beginning to adopt.

N. Anthony Coles

And obviously, we can't comment on October sales on this particular call. But I think it's especially noteworthy that, as Helen said, we have new adopters coming on board. And we've only reached about 10% of the target population through September. So we do expect continued steady adoption both by practices, as well as in terms of the penetration in this total patient population. So I think good things ahead. In terms of the front-line study, we have not talked about the design just yet. But as we had -- have done with other trials, notably the ENDEAVOR study, we did want some certain set of key milestones to pass, so we really understand how to design these studies. And so the 020 data will be important as we think about the best design for the trial, and we'll keep you very close to what the design is for that front-line study. But we're very excited about getting this underway. There are very encouraging Phase II data to support this, and stay tuned for more details.

Operator

Our next question comes from Jim Birchenough from BMO Capital.

Jim Birchenough - BMO Capital Markets U.S.

Just a couple of questions. Just on the initial launch to start with, with Kyprolis. What kind of discontinuation rates are you seeing in patients treated? And then the second question, just a reminder on the ASPIRE study. Is the Revlimid in the control arm being dosed to progression, i.e., maintenance? Or is it dosed for just an induction period?

N. Anthony Coles

Okay. I think it's probably too early -- Helen, and you can comment if necessary. Probably too early for us, Jim, to talk about discontinuation for Kyprolis. Helen's nodding her head, yes. So I think that's the answer on that one. And then have -- Barb, comment a little bit, if you can, about the dosing for Revlimid and ASPIRE.

Barbara Klencke

That's -- I'll quickly say that we are dosing the Revlimid to progression.

Operator

Our next question comes from Gene Mack of Green Capital.

Gene Mack - Brean Murray, Carret & Co., LLC, Research Division

Two real quick ones. Just on the second, I guess, frontline head-to-head trial that you're planning. Can you talk about what dose you might be considering for Kyprolis in that study? And then -- or what your thoughts are around how you're planning to dose patients with Kyprolis in that setting? And then just -- since we've heard that there is use already of Kyprolis in combination with Revlimid, how are you -- are you having to help clinicians with that in terms of payers? Is there any sort of hoops that need to be gone through in order to get reimbursement there? Or how is that being worked out at this point?

N. Anthony Coles

Okay. Gene, on the design for the first-line study, I know there's a lot of interest in that, and we do hope to bring you details very shortly, both once protocol is finalized and we have first patient in. What I can tell you is that the dose is likely to be somewhere between the 20, 27 dose that we're using today as per the label and the 56 milligrams per meter square, which is the dosing that we're using in ENDEAVOR. Through the dose response studies we've conducted, we find this to be the most effective range. And we'll be finalizing the details around a specific dose for the frontline study, but it will clearly be within the parameters of either 20, 27 or 20, 56 which is the dosing schedule for ENDEAVOR. And then, Helen, in terms of Kyprolis and Revlimid?

Helen I. Torley

Yes. As I mentioned, our information is that Kyprolis is predominantly being used in the indicated population as a single agent. Certainly, we're aware of anecdotes where physicians are not using according to the label. Our team are solely focused in promoting the product according to the label and the label indication. So we're not involved with physicians who are electing to use the product that's not according to our label.

Operator

Our next question comes from Howard Liang of Leerink Swann.

Rene Shen

This is Rene Shen for Howard Liang. Can you talk about the oprozomib data that we'll see at ASH? Are we going to see the tablet form of that data? And when will we -- if not, when will see that data?

N. Anthony Coles

Barb, do you mind taking that one?

Barbara Klencke

That's right. The tablet will just be introduced into the clinic this month. So no, the ASH data will be powder and capsule. But we'll have both safety, as well as efficacy data, from the initial dose escalation cohorts from the prior formulation.

N. Anthony Coles

And I will just underscore that I think that everyone knows that this is a study in hematologic malignancy patients, but there's a pretty healthy sampling of myeloma patients as well. So we'll be able to breakout some of the incident of myeloma patients by safety and efficacy, as well as overall. So stay tuned for that.

Operator

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

Laura K. Chico - Robert W. Baird & Co. Incorporated, Research Division

This is Laura Chico in for Chris Raymond. Recognizing it's early days for Kyprolis, curious, have you seen the move to subcutaneous VELCADE impact Kyprolis uptake or the mix maybe between VELCADE and Revlimid in the earlier lines of treatment?

N. Anthony Coles

Helen?

Helen I. Torley

So our focus is obviously on promoting Kyprolis in our indicated population as a single agent. I think your other question is what is the use of VELCADE as subcutaneous, and I can say that the majority of the market is now using VELCADE as subcutaneous. But that is, given our indication, not impacting us. Before Kyprolis was approved, there was no standard of care for patients who previously have been treated with bortezomib and an IMiD and we're progressing. And so Kyprolis fills that unmet need today.

Operator

Our next question comes from Robyn Karnauskas of Deutsche Bank.

Robyn Karnauskas - Deutsche Bank AG, Research Division

Just quickly on oprozomib. Maybe you could give us some thoughts on whether or not you think you'll be able to quickly progress from Phase I to Phase III like Millennium and maybe potential timelines? And second, are insurers for Kyprolis requesting any proof of progression on Del Rev or progression within 60 days?

N. Anthony Coles

Okay. I think with regards to the oprozomib question, Barb, I'd ask you to give you some color commentary.

Barbara Klencke

So our current ongoing study is the Phase I/II, which means that our intent is to do the dose finding with dose escalation to maximum tolerated dose, identify the optimal dosing schedule, and then to expand in Phase II as efficiently as we can utilizing that same study. So our current plan is Phase I, Phase II before we move into Phase III.

N. Anthony Coles

Helen?

Helen I. Torley

And with regard to the coverage policies for Kyprolis, where there are prior authorizations in place or they're asking for additional documentation, that generally is taking the form of a simple form where the physician is asked to affirm that the patient has previously received bortezomib and an IMiD and is now progressing. So the physician just affirms that and, obviously, has the documentation in their case records to indicate that's the case.

Operator

Our next question comes from Biren Amin of Jefferies.

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

First of all, on the C-MAP patients that converted, what's the average treatment duration of these 110 patients? Second, on Onyx 360, it seems like it's a pretty generous co-pay assistance program. So I just want to see -- or if you could share maybe with us a percentage of patients treated so far that have benefited from the co-pay systems. And third, on Nexavar, RESILIENCE, is it still on track for enrollment finishing in first half of '13?

N. Anthony Coles

Okay, Biren. Helen, can you make some commentary around the C-MAP conversions? There may not be enough data. But what can you provide additionally?

Helen I. Torley

Now I'm looking at Barbara. In terms of the duration of therapy for the C-MAP, Barb, I don't know if you get any specifics as to how long that group of patients have been on. I would imagine it was a shorter duration because it was probably the more recently enrolled patients. But, Barb, any specifics?

Barbara Klencke

Well, I will just say we don't have specifics today. But the trial of C-MAP was conducted within development organization as a clinical trial. And of course, we will collect all of that data, and we will be reporting that data. Much of the patients who were still on therapy, of course, at the time that they convert to commercial drug are then off trial. So we'll have some data in the future, but not a lot. I expected that it'll be very clear -- clearly, the patients that came into the C-MAP, which was rigorously defined exactly like the 003-A1 study, are likely to reflect the overall 001A -- 003-A1 clinical study pretty closely.

N. Anthony Coles

Where the treatment duration was, 4.5 months, on average. So just to remind everyone. And then while you've got the floor, Barb, if you could address the RESILIENCE breast cancer trial?

Barbara Klencke

That's right. It is on track. The enrollment is going well. We're a very steady state right now with a projection of completion on the first half of 2013.

N. Anthony Coles

Okay. And the thyroid in this quarter before the end of the year.

Barbara Klencke

Yes.

N. Anthony Coles

Very good. And then, Helen, do you want to talk a little bit about how Onyx 360 looks?

Helen I. Torley

Yes. Well, we've seen some robust enrollment in Onyx 360 to date. The commonest reasons for patient signing up for Onyx 360 are insurance verification, co-pay assistance, as you mentioned, but also for referral to transportation assistance. All of these 3, I would say co-pay assistance is the minority of patients at this time that -- of the launch.

Operator

Our next question comes from Geoffrey Porges of Bernstein.

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

I'd like to ask a question, Helen, just to hear your accent a little bit more, but unfortunately, I'll have to ask in a couple of accounting questions. Could you just remind us of when we should expect to see full cost of goods for Kyprolis, and what range we should be anticipating? And secondly, without sort of inducing you to give premature guidance, it looks as though by the end of the year, you'll be probably at the high end of your guidance for R&D and low end of the guidance for SG&A. And just could you confirm whether we're on the right track there? And then lastly, you've had -- you sort of pretty much absorbed all the incremental SG&A you need for these launches. Is this where we should be sort of basing ourselves as we think forward? Or was there only a partial quarter and will there be another step-up at the end of the year?

N. Anthony Coles

Okay, good. Matt, I'll ask you to take all of those.

Helen I. Torley

Which accent?

N. Anthony Coles

In your best Scottish accent, right.

Matthew K. Fust

So first, on the cost of goods question, it's not yet possible to specify over how many quarters we will be moving from the current cost of goods, which is below what we expect will be steady state -- toward a more steady-state level. We do expect it will occur over the course of several quarters. And our expectation is that we would see typical gross margin, as you'd expect, from a small molecule therapeutic as we hit steady state. With regard to R&D and SG&A guidance, first, in the context of the research and development expense, you have now flowing through the R&D expense line 3 Phase III trials, ASPIRE, FOCUS and ENDEAVOR, as it is ramping up enrollment. ASPIRE and FOCUS, obviously, already fully enrolled. So we're moving on to looking at the ENDEAVOR enrollment and then on into the frontline trial as we head into the beginning of next year, being partly offset by a reduction in Nexavar research and development expenses, which is -- we've got early in the year, we expect should be 10% to 15% lower in 2012 than in 2013. On the selling and general and administrative front, I think probably the best thing to point you to is the increase in SG&A expense guidance that we've offered on our second quarter earnings call that was intended to reflect for the 2012, but in particular, in the second half of 2012, the increment in selling and marketing costs associated with the U.S. commercial launch in support for Kyprolis. So I think as we look at run rates in the third and fourth quarter of this year, that should give a good launching-off point for what we expect will be the bulk of the U.S. commercial infrastructure support.

Operator

Our next question comes from Ryan Martins of Lazard Capital Markets.

Ryan Martins - Lazard Capital Markets LLC, Research Division

Just a couple of questions. The first one is on the $5 million deferred revenue. Matt, did I hear you say previously and on another call that these inventories in the channel are held for approximately just a couple of days? Just wanted to confirm that. And then the other question was on the once-weekly study that's initiated with Kyprolis. Can you give us some color on the strategic reasons for that study, and how those doses make way to the twice-weekly?

Matthew K. Fust

So this is Matt. First, on the deferred revenue, let me just do quick level stats again on our approach to the channel. So we did report $19 million in net sales in Q3. That reflects those Kyprolis vials that have already been shipped to hospitals and clinics. The $5 million deferred revenue that you referred to reflects Kyprolis shipments that have been made to our specialty distributors but have not yet, as of September 30, been shipped out to hospitals and clinics. That deferred revenue will be recognized as net sales revenue as it is shipped on to hospitals and clinics. What we're seeing is what we expected, that with effectively just-in-time delivery of Kyprolis from our specialty distributors to the hospitals and clinics who administer it. We do not expect and are not seeing any significant inventory level being held at the hospitals and clinics.

N. Anthony Coles

And then on the once-weekly study, Barb, if you could give us a little bit of color.

Barbara Klencke

Yes, absolutely. We're very interested in learning more about alternative dosing schedules for Kyprolis. This study that you mentioned recently came on to clinicaltrials.gov because it was recently activated. This is a Phase II study, it's being conducted as a multicenter, collaborative effort. We're working closely with the consortium of clinical research, clinical community-based centers, and it is a study where we will identify, first, the optimal dose when given weekly. We're proceeding with the 30-minute infusion. But as you can imagine, 56 milligrams may not be where we end up for the best tolerable dose when given once a week. So we will do some dose escalation cohorts initially to see if we actually could deliver a higher dose than 56. Then we'll do the Phase II expansion, again, in this multicenter, collaborative consortium of sites that we're working with.

Operator

Our next question comes from Ling Wang of Summer Street Research Partners.

Ling Wang - Summer Street Research Partners

A couple of questions. First was with regard to the anecdotal Kyprolis combination yields. I was sort of wondering whether you can comment on whether the peers can monitor whether the drug is used as a single agent or in combination setting once they provide the preauthorization? And then secondly, you mentioned there are 7 oral presentations at ASH this year. Can you provide some color on that? And then lastly, what is the current projections on when Kyprolis will get the product-specific reimbursement code?

N. Anthony Coles

Okay. In terms of Kyprolis, it's actually quite difficult for our payers or for the company, for that matter, to track whether they use as single-therapy use or in combination. So we don't really have any perspective on that one. And then I think, Barb, if you could talk a little bit about ASH.

Barbara Klencke

It's only a few days that ASH will, on their website, present the information. So I don't want to get ahead of the ASH announcement. Seven oral, so one is the company-sponsored oprozomib study, the Phase I efficacy, safety data, the Kyprolis, 6 oral, both a mix of investigator-sponsored data, as well as some of our own Phase II Kyprolis information.

N. Anthony Coles

And then just finally, Ling, the permanent J Code should be available in January of 2014. These operate on a cycle prescribed by the federal government, and we expect J Code in that timing.

Operator

Our next question comes from Stephen Willey of Stifel, Nicolaus.

Stephen Willey - Stifel, Nicolaus & Co., Inc., Research Division

With respect to -- a follow-up on the expanded access program. Can you maybe just provide a little bit of color with respect to the duration of conversion it took to transition these patients over to commercial product? Because I think on the post-approval call, you had indicated there were approximately 300 patients or so that were involved in the program, and it sounds like about 110 got converted. So I'm just kind of curious as to the kinetics of that transition.

N. Anthony Coles

Okay, good. Barb?

Barbara Klencke

We work very closely with our Onyx 360 colleagues, and others that had -- have a plan in place before the date of approval. So we were able to do so quite quickly. The vast majority of these patients converted in the month of August.

Helen I. Torley

And just to clarify, we had enrolled just over 300 patients in the C-MAP program. At the time of approval, that number had reduced significantly, had patients that either progressed or stop therapy or, unfortunately, died. So we were able to convert them into vast majority of patients who were still on the C-MAP program at the time of approval, and that resulted in the 110 patients we mentioned.

N. Anthony Coles

Very good.

Operator

Our next question comes from Salveen Richter of Canaccord.

Salveen J. Richter - Canaccord Genuity, Research Division

Just wondering with the 2,000 centers that you're targeting, what percentage are the initial high-volume and EAP centers? And how does that overlap with the 1,000 centers that have placed orders? And then also just wondering if there's any difference between use and feedback from the academic versus the community docs for Kyprolis.

N. Anthony Coles

Helen?

Helen I. Torley

Yes. Salveen, I don't have the specifics on what number of -- were C-MAP patients. But let me just give you a little color of the target accounts. So of the 2,000, we were targeting about 30% were hospital based and about 70% are

[Audio Gap]

As we look at where the volume of prescribing is come from, it is slightly skewed to having more orders coming in from the hospital base. But we've got a good representation of adoption across both hospital and community-based accounts.

Operator

Our next question comes from Marshall Urist of Morgan Stanley.

Marshall Urist - Morgan Stanley, Research Division

So just a few questions for me. Number one, maybe just a follow-up on the last question about the 2,000 accounts. Helen, first of all, what are you seeing in terms of a sort of prevalence pool? I know you alluded to this in the prepared remarks of patients who are awaiting another option in terms of per accounts or anything like that in terms of what you're seeing in terms of that group of patients. And then second, what's the plan for the sales force in getting out to the other 50% of accounts and actually seeing them, and how are you guys are thinking about how that will develop over the next few months? And then if you could tell us what China and Nexavar revenue was in the quarter, that would be helpful. And then lastly, just on ASPIRE. I was just curious, I know you're going to talk about the baseline characteristics in detail. But as you think about the pace of events, I'm just curious, is the mix of patients in terms of treatment history, either the Revlimid treatment history or VELCADE treatment history, did the final mix of patients kind of -- was that in line with your expectations when you designed this study?

N. Anthony Coles

Okay. Let me just handle the China-Nexavar question really quickly. For the third quarter, sales in China were $27 million, and that compares favorably to the second quarter of this year where sales were $24.5 million and to the third quarter of last year where they were $21.4 million. So a very nice run rate there for China. And then if you can, Helen, take the target account question, and then, Barb, I'll ask you to comment on ASPIRE.

Helen I. Torley

Let me start. We have 100 field personnel that we talked about at the time of approval, and I can actually say that they have reached virtually all of the accounts now, about 1,000 had ordered by the end of the third quarter, which is what we are reporting. As you can imagine, we do see a range of the numbers of eligible patients from the top-tier accounts to some of the smaller community accounts, but we haven't given those specifics. But clearly, that's why at the initial launch, we focused on those accounts where we knew they have the majority of Kyprolis-indicated patients, and that's where we are continuing to spend the majority of our time. However, we want to make sure every physician who has got patients who may be eligible for Kyprolis is educated and aware about the appropriate use of Kyprolis.

N. Anthony Coles

Okay, terrific. And, Barb?

Barbara Klencke

So you're certainly absolutely right that the baseline characteristics of a trial can influence outcome. We believe, though, that the enrollment criteria were written in such a way that it's very similar to the published literature on Revlimid/dexamethasone, that is we're enrolling patients with a relapse -- in the relapsed setting with 1 to 3 prior therapies. We have not -- we're not going to speak at all to any baseline characteristics of what we are seeing in the clinical trials. We're not doing those analysis. We're really focused on maintaining the integrity of an ongoing Phase III trial at this point in time and just looking purely at event rates at this point.

Operator

Our next question comes from Ying Huang of Barclays.

Arlinda Lee - Barclays Capital, Research Division

This is Arlinda on behalf of Ying. Could you guys please comment on maybe the frequency of dosing that you're seeing with Kyprolis? And as well on the upcoming FDA decision for pomalidomide and if you're hearing anything from your accounts on this as well?

Helen I. Torley

All right. I can comment on the dosing being consistent with the label. That is what our field team are focused on educating physicians on, beginning at 20 and then up tritrating as indicated to 27 milligrams per meter squared. With regard to upcoming new products approval, that we're not going to speculate and we can't speculate on when -- whether and when any other products would be approved.

Operator

Our next question comes from Phil Nadeau of Cowen & Company.

Philip Nadeau - Cowen and Company, LLC, Research Division

As I think about modeling Kyprolis, I just wanted to ask you again, to follow-up on Rachel's question of this idea of bolus versus watch TAC levels in September. Again, before I do anything crazy with my numbers, could you give me some idea of what Kyprolis was selling at September, understanding that it's going to grow off that base in future quarters? And then 2 related questions. When do you expect to give Kyprolis guidance? What do you need to see before you feel comfortable guiding? And what type of peak penetration do you think Kyprolis could ultimately achieve in that third-line setting?

N. Anthony Coles

So I'll handle the guidance question and then leave the other 2 to Helen. I think we've learned from the best practices of other companies that we really do need a solid track record of experience with a product's performance in the marketplace. I think we've got to -- at least, we're reporting today about 8 weeks' worth of data. So it's clearly too early for us to give Kyprolis guidance. And I think we're going to watch the progress of what so far has been a very exciting launch for us before we commit to when we might provide guidance. So do stay tuned, Phil. I know everyone wants guidance all the time, but we really want to make sure that when we do provide any information, it's to the best of our knowledge and our ability. Helen, can you take the other 2 questions, how they should think about modeling Kyprolis?

Helen I. Torley

Yes. Let me start with peak shares. As we mentioned on the call, we estimate that in September, 8 weeks into the approval, into the launch, we have achieved about 10% share of the third-line-plus population. As a reminder, this is a population who have no standard of care today. Patients may get a recycled earlier treatment. If they have, they may get a novel combination. And so we do think there is significant room for growth in terms of market share, although we haven't provided our view on that. But we're 10% today, and we do see that being significantly higher because the patient have limited other options. With regard to the sales in September, we haven't traditionally broken down sales on a monthly basis. But I do think -- if you think about the number of patients that converted from the C-MAP program, it's about 110 patients. You can do the math to estimate -- that was probably between 10% to 15% of the patients in the quarter, if that helps you at all.

N. Anthony Coles

Very good.

Operator

Our next question comes from Terence Flynn of Goldman Sachs.

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

Can you just let us now in terms of the 10% market share that you're using, what's the denominator that you guys are using that? Is it somewhere between the 10,000 to 15,000 patients? And then second question, just remind us in terms of EU filing, do you think FOCUS data is going to be enough to get a European approval?

N. Anthony Coles

Okay. On FOCUS, very quickly, I think the answer there is yes. This is actually a result of several conversations with the EMA, and it is an overall survival study. So importantly, it's one of the last times probably an overall survival study can be done in this population. So we think it's valuable. It's registration worthy, and are really, as I mentioned earlier, very excited about not just the completion of enrollment but the potential interim readout in the second half of next year. And then, Helen, with regard to the penetration, patient penetration?

Helen I. Torley

Yes, as we look at our addressable population, it is the 10,000 to 15,000 patients who have previously received bortezomib and IMiD and are progressing. So our estimate of 10% comes from our estimates of how many new patient starts we've had in the third quarter and also triangulated with some syndicated data that suggests that's the market share as well, so a couple of sources triangulating. But clearly, these are estimates. And as we get more weeks of data, we're going to continue to refine that.

Operator

Our last question comes from Jim Birchenough of BMO Capital.

Jim Birchenough - BMO Capital Markets U.S.

Just a couple of quick ones. First, just once this call is done, we're all going to go back to tracking IMS data to the extent we can. So just wondering if you could comment on how well that's tracking with what you're seeing? And then I guess the second part is as you think about converting the 50% of docs that have used this versus the 50% that you want to use Kyprolis, could you talk about your peer-to-peer selling efforts? Do you have a speakers bureau? And how quickly that growing? When will they start launching programs?

Helen I. Torley

All right. Yes, with regard to the IMS, Wolters Kluwer data, as you know and all distributors do, are reporting or do report them, this data, and so it isn't expected to provide complete information. And as you can tell at the moment from what's been reported and what we're reporting, there is a gap between those 2. So it's not going to be a reliable way to track down the Kyprolis performance. With regard to the peer-to-peer program, we do have a speaker program up and running. We've already completed a number of programs, and we're continuing to add to that speaker bureau as physicians gain experience with Kyprolis and express an interest in participating in our peer-to-peer education.

N. Anthony Coles

Well, guys, I think that's all the time we have. I will say this in closing. Looking back on the quarter, these achievements really are unprecedented in the history of Onyx and remarkable for any biotech company. We fully believe we're well on our way to becoming a leading biopharmaceutical company, the kind of company our team envisioned a few short years ago when we put this strategy in place, and we fully expect to carry this momentum forward, both into the fourth quarter and into 2013.

So thank you for joining us today. Thank you for your questions, and we will see you at ASH. Take care.

Operator

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

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