ArQule Management Discusses Q3 2012 Results - Earnings Call Transcript

| About: ArQule, Inc. (ARQL)

ArQule (NASDAQ:ARQL)

Q3 2012 Earnings Call

November 01, 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

Howard Liang - Leerink Swann LLC, Research Division

Ryan Martins - Lazard Capital Markets LLC, Research Division

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

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

Jonathan Eckard - Citigroup Inc, Research Division

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

Robin Davison - Edison Investment Research Limited

Y. Katherine Xu - William Blair & Company L.L.C., Research Division

Operator

Good day, ladies and gentlemen, and welcome to ArQule's Third 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. William Boni, Vice President, Investor Relations. Sir, you may begin.

William B. Boni

Good morning, everyone. Welcome to the ArQule investor conference call reviewing operational and financial results for the third quarter fiscal year 2012. This morning, we issued a press release that reported results for the fiscal quarter and 9 months ended September 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; 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 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. Good morning, all, and thank you for joining us on this conference call. We certainly hope everybody is safe, particularly those that weathered the storm that passed through for the last few days on the East Coast.

Let me start the call by talking about tivantinib, which is our lead compound. Unfortunately, during the third quarter of 2012, we have reported disappointing developments related to the MARQUEE trial. The MARQUEE trial was a Phase III trial conducted in non-squamous cell lung cancer, and it was also the first -- this was the first indication for tivantinib to get to the Phase III stage. This disappointing development was followed by more positive development that relate to the indication that we have selected of being the second to bring tivantinib into Phase III [indiscernible], and that's the hepatocellular cancer indication.

And now let me give you a little bit more detail and a recap of the circumstances around the MARQUEE trial. So just as a reminder, for those of you who might be recently in the stock, we have had quite a bit of turnover over the last month or so in the shareholder base. As a reminder, MARQUEE is a double-blind randomized Phase III registration trial that was conducted by Daiichi Sankyo and Kyowa in the western part of the world. This trial included centers -- clinical trial centers in the U.S., in Canada, in eastern Europe, western Europe, Australia and Latin America.

The enrollment for this trial started in January 2011. Completion of enrollment was announced in May in 2012, and approximately 1,000 patients were recruited in this trial from more than 200 trial centers. On October 2, we announced that the Data Monitoring Committee for this trial met and recommended after analysis that the study be stopped early for futility. Based -- this was a planned interim analysis, and the analysis focused exclusively on the intent-to-treat population, which is the non-squamous cell patient population. And the DMC, after this top line analysis, determined that the trial needed to be stopped for futility, and the companies have accepted that recommendation. And we have a press release, all of this in the recent weeks.

Although the interim analysis demonstrated that there was, in this trial, a statistically significant improvement in progression-free survival in the intent-to-treat population, unfortunately, this benefit did not carry over to overall survival. It's important, therefore, to say that we have pretty much successfully replicated the signal on a larger patient population, the signal that we had achieved in PFS in the Phase II trial. The Phase II trial that preceded this Phase III indicated that, that would be a trend. And unfortunately, that trend has not borne out in MARQUEE.

It's also important to note that no safety concerns were identified by the DMC inclination to the MARQUEE trial, including the issue of suspected ILD, which was a safety signal that had emerged from the other non-small cell lung trial that was being conducted by Kyowa Hakko Kirin in Asia. Now no safety concern does not mean that there is no side effect in the trial, obviously. It simply means that there was no side effects that was unforeseen and no side effects that -- no toxicity that would have led to stopping the trial for toxicity. So the drug, in combination with Tarceva, continues to have an acceptable safety profile.

The MARQUEE trial now is winding down, and we are expected to close the trial at the point of data maturity. So it's important to note that because the trial was stopped for futility and not for safety concerns, there is some flexibility that the companies can offer to investigators to -- that in turn can offer it to the patients that the investigators as they mean to take benefits from the therapy. That will also allow us to gather quite a bit more data in the database than what we had for the interim analysis, and it will allow us for a more thorough analysis of the data. And that is certainly of interest to us as well as to the investigators and the scientific community in general.

The MARQUEE trial, as I said, was a logical follow-up to the Phase II double-blind randomized trial that provided the signal of PFS OS, so that's what we have pursued. And although the investigator community and companies are no stranger to finding a Phase III disconnect between a Phase II PFS signal and Phase III overall survival signal, we were certainly disappointed that the trend that we have observed in the Phase II trial for OS did not materialize in Phase III.

The ATTENTION trial now. You remember that MARQUEE was conducted with Daiichi Sankyo and -- by Daiichi Sankyo in the West in partnership with Kyowa, while ATTENTION was conducted exclusively by Kyowa Hakko Kirin in Asia and more specifically in 3 nations in Asia: Japan, South Korea and Taiwan. A step back here as well, in late August, we were informed and we consequently informed the investing public and the scientific community that our partner, Kyowa Hakko Kirin, had decided to temporarily suspend patient enrollment in the ATTENTION trial.

Early this week, Kyowa Hakko Kirin has announced with a press release in Japan that they are discontinuing the study following the recommendation of the independent safety review committee in Japan, after the reported and suspected cases of interstitial lung disease had been further analyzed. Now we understand that the currently enrolled patients can continue to receive therapy within the trial, both placebo and in the combination arm upon the request of a patient investigator and after the patients -- such patients have been re-consented.

Data for this trial, as far as I understand, remains largely blinded, so there has not been a determination of risk benefits for the trial, and that will probably occur sometime in the second half of 2013. I wish I could give more detail about that process, but I cannot because I don't have them at this time. And one detail that I'm sure people will be looking for is how many events could be included in this analysis in the second half of '13, and I am not sure about that at this point in time. But as we'll get down the road, informed by Kyowa Hakko Kirin, we'll try to provide more clarity.

Before I move on to HCC, let me say a few words about the KRAS mutant trial that is still in non-small cell indication. We -- I would like to remind you that we have a Phase II trial ongoing in a subset of non-small cell, that is patients with KRAS mutations. And in this patient population, albeit in small numbers, in the Phase II trial analysis, we observed a signal and so we're pursuing this signal. This KRAS trial is an open label study that are only patients who are receiving tivantinib plus erlotinib therapy and chemotherapy -- or chemotherapy. So this is combination of tivantinib plus erlotinib against chemotherapy.

So you see here it's important to remark again that the safety profile of the combination tivantinib plus erlotinib was upheld in the analysis of the DMC. That's one of the reasons why this trial is continuing. The primary endpoint for this trial is progression-free survival, and the trial is on track to complete approval by the first half of 2013. Now the results of this trial will complement, roundabout the same time, the clinical evidence that we are accumulating from MARQUEE.

Now let me talk briefly about hepatocellular carcinoma. This is the second indication we had long ago identified for tivantinib. This indication was announced to be, last summer, the subject of a Phase III trial that we intended to initiate by late 2012, early 2013. So we have been implementing that plan since June of this year. That one is based on Phase II randomized data that we presented at ASCO this summer, and that data is a single-agent tivantinib. And that data showed strong overall results among HCC patients in second line, whose tumors were MET-high.

Based on those findings, we and our partner, Daiichi Sankyo, made the decision to move forward into the Phase III clinical development. So the first visible milestone to be achieved in this process was announced a couple of weeks ago. We, with Daiichi Sankyo, seek an SPA for our Phase III trial, and we have recently announced that the SPA had been granted. So that's the first milestone that was achieved.

The second visible milestone to be achieved now is that to be the first patient's first visit, and we maintain that, that will occur either late this year or early next year. We are covering step by step the complexity of bringing forward a phase trial unlike any that we have brought forward so far at ASCO because the SPA for this trial covers not only the drug substance, but it also covers the diagnostic -- the companion diagnostic that goes with it. That complexity is reflected in ourself giving, rather than a date for achieving certain milestones, a range of dates.

The second-line treatment for HCC is an area of very pressing therapeutic need, and it remains completely unaddressed, not for lack of trying because several drugs have tried to address this unmet need, but unfortunately did not succeed. This trial will be a double-blind randomized study of tivantinib as a single-agent therapy in previously treated patients, mostly with sorafenib, which is standard of care in frontline and with -- and these patients will have MET diagnostic-high inoperable HCC. And that's the reason why we needed to SPA the companion diagnostic, as well as therapeutic.

The primary endpoint of this trial is overall survival in the intent-to-treat population, as I described it. And the secondary endpoint is progression-free survival in the same population. Approximately 300 patients are planned to be enrolled at approximately 120 centers worldwide.

When I look at this trial design, I feel more comfortable than I have felt before about managing some challenges that we knew we were facing with the non-small cell lung trial. The first challenge was we have a better defined patient population. It's more narrow. It brings more complexity with it, but it's better defined. It brings the complexity of the combined diagnostic obviously, but it's a better defined patient population.

The second challenge is whenever you test a combination, as we did in non-small cell, there's some sort of crosstalk [ph] between the drugs that are employed in the combination. Here, it's a much simpler situation with the drug being a single agent. And the third challenge is that once you pursue an OS signal, as we did in non-small cell, when nowadays, plenty patients are still eligible for third-line therapy, you pursue something quite challenging. Less so, you do once you pursue an OS endpoint in second-line HCC, where not having anything available for the second-line, much less there is anything available in the third line, which could put a risk to pursue above that overall signal -- overall survival signal. That's the backbone of our conviction in the Phase III HCC trial.

That said, we are well aware this is a complex endeavor, in that it includes a companion diagnostic and in that it is unclear if more than 50% of the patients having -- being affected by HCC will overexpress MET. And then, we bring with it the challenge of the screening a fairly large number of patients, twice or more the patients that we need to recruit in order to have the trial completed.

Let me now move on to colorectal. We are looking forward to data from the Phase II randomized trial in colorectal cancer that was conducted by our partner, Daiichi Sankyo, and the endpoint of this trial being -- with the endpoint being PFS and with data expected late this year, early next.

The pipeline. Now for those of you that have followed us for some time, you know that we had prepared our pipeline so that it could hopefully have the opportunity -- provide the opportunity for investment at this time. We have also said that we would assess those investment opportunities very carefully. Now it would have been exceptionally positive for ArQule to come to next summer with a successful MARQUEE trial that would have given us the opportunity to invest in the pipeline and therefore, bring forward a second drug as fully owned by ArQule. That, as we know, is not going to happen, having MARQUEE being suspended, being concluded for futility.

But there is still parts of our pipeline plan that we can implement, we just had to make some adjustments. So making those adjustments, we are still convinced to bring forward the third candidate to IND. And we are indeed poised to move ArQ 087, which is an inhibitor of fibroblast growth factor, FGFR, into the clinic following completion of IND-enabling studies. Those studies have indeed been completed.

The recent research has provided substantial evidence for the importance of FGFR signaling in pathogenesis of diverse tumor types. ArQ 087 is a potent multi-kinase inhibitor with pan-FGFR activity demonstrated in microchemical assays. The cell studies also appear to suggest that FGFR2 might be the preferred target for this compound, particularly in gastric and in other cancers. We have completed the clinical development plan for 08 -- ArQ 087, including the definition of a strategy for patient selection and the potential identification of a biomarker. And all these, we will test in -- we will begin to test in Phase I.

As far as the strategy goes to frame the 087 project, it will join our other pipeline candidates that have already completed Phase I work. These candidates are the Eg5 inhibitor and the B-RAF inhibitor. And the pending generation of data for 087, we will, when this data is available, select one of those 3 candidates to possibly move forward into Phase II, either independently or if not possible to do it independently due to funding reasons, we will seek a partner for one or more of these candidates. And by that time, we should have a good data set for each one of these candidates to do so.

Let me finally turn to finances. The disappointment of MARQUEE led us to already move to tighten our financials. Our financial position was strong to begin with, but it can always be strengthened. And we're hard at work doing just that. We ended the third quarter of 2012 with $140 million in cash and marketable securities. The guidance we are providing today reflects a number of actions we have taken to tighten our variable cost base at this point in time.

The cash position that we are now foreseeing to have at year-end is $127 million to $130 million, and I shall remind you that our previous cash guidance called for a maximum of $126 million at year-end. So we are significantly upgrading our cash position by year-end, and we're doing so by tightening a number of variable cost centers really in a disciplined way.

Now for additional details on our finances, I would like to invite Rob Weiskopf to the call and to give you more detail.

Robert J. Weiskopf

Thank you, Paolo. The company reported a net loss of $431,000 or $0.01 per share for the quarter ended September 30, 2012, compared to a net loss of $2,260,000 or $0.04 per share for the quarter ended September 30, 2011. For the 9-month period ended September 30, 2012, the company reported a net loss of $5,576,000 or $0.09 per share compared to a net loss of $14,530,000 or $0.28 per share for the same period in 2011. At September 30, 2012, the company had a total of $140,158,000 in cash, equivalents and marketable securities

Revenues for the quarter ended September 30, 2012, were $10,944,000 compared with $11,954,000 for the quarter ended September 30, 2011. Revenues for the 9 months ended September 30, 2012, were $31,271,000 compared to revenues of $30,806,000 for the 9 months ended September 30, 2011. The $1 million revenue decrease in the 3-month period is due to revenue decreases of $4.6 million from the $10 million milestone payment received from Kyowa Hakko in the third quarter of 2011 and $3 million from the company's Daiichi Sankyo AKIP agreement, partially offset by an increase of $0.6 million from the company's Daiichi Sankyo ARQ 092 agreement and lower contra revenue of $6 million associated with the Daiichi Sankyo tivantinib agreement.

The $0.5 million revenue increase in the 9-month period is due to lower contra revenue of $11.3 million associated with the company's Daiichi Sankyo tivantinib agreement and revenue increases of $1.2 million from the Daiichi Sankyo AKIP agreement and $2.2 million from the Daiichi Sankyo ARQ 092 agreement. These revenue increases were partially offset by a $10.2 million decrease in revenue recognized on the $25 million MARQUEE milestone payment received from Daiichi Sankyo in the first quarter of 2011 and $4 million decrease in revenue recognized on the $10 million milestone payment received from Kyowa Hakko in the third quarter of 2011.

Total cost and expenses for the quarter ended September 30, 2012, were $11,533,000 compared to $14,235,000 for the third quarter of 2011. Total costs and expenses for the 9 months ended September 30, 2012, were $37,220,000 compared to $45,559,000 for the same period in 2011.

Research and development costs for the 3- and 9-month periods ended September 30, 2012, were $8,146,000 and $26,720,000, respectively, compared with $11,108,000 and $35,337,000 for the 2011 3- and 9-month periods. Research and development expense in the 3-month ended September 30, 2012, decreased primarily due to lower spending of $1.6 million on outsourced clinical and product development costs related to our Phase I and II programs for tivantinib, $0.8 million on preclinical costs and $0.5 million of lower labor-related costs. Research and development expenses in the 9 months ended September 30, 2012, decreased primarily due to lower spending of $5.2 million in outsourced clinical and product development costs related to our Phase I and II programs for tivantinib, $2.1 million on preclinical costs and $0.9 million on lower labor-related costs.

General and administrative costs for the 3- and 9-month periods ended September 30, 2012, were $3,387,000 and $10,500,000, respectively, compared with $3,127,000 and $10,220,000 for the 2011 3- and 9-month periods.

Today, we are revising our financial guidance for 2012 based on 2 considerations: the first related to the timing of revenue recognition and the second related to reduced costs. First, the development period for recognition of revenue from ArQule's tivantinib collaboration agreement with Daiichi Sankyo has now been extended to June 2015 as a result of the recent decision to terminate the MARQUEE trial. Commencing with the fourth quarter of 2012, revenue will be recognized over this new development period.

Second, the company anticipates a reduction of expenses in 2012 related primarily to lower outsourced costs for tivantinib in preclinical development programs. Therefore, for 2012, ArQule now expects net use of cash to range between $35 million and $38 million. Revenues are expected to range between $34 million and $37 million. Net loss is expected to range between $12 million and $15 million. Net loss per share is expected to range between a loss of $0.20 and a loss of $0.25 for 2012. ArQule expects to end 2012 with between $127 million and $130 million in cash and marketable securities.

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

Paolo Pucci

Thank you, Rob. So as a summary, the objective of this recalibrated plan that we're putting in place is move forward with speed and purpose with the Phase III HCC trial, tighten our use of cash as possible, recalibrate our plans according to that tightening and move to the next cycle that is a value creation that will be dominated by the Phase III HCC.

With that, I would like to open the floor for questions. Operator, if you may.

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

A couple of questions. First, on MARQUEE, are you going to be able to look at the MET-high population? And is there anything to do there if you get a signal? And then on HCC, if you can just give us an update. I know you kind of mentioned it with regard to enrollment, but any more detail you can give us on the timing of how long after enrollment we might see data?

Paolo Pucci

Sure, Joel. For MARQUEE, we are going to try to gather as many events to run meaningful analysis on the endpoints in the subpopulations. Unfortunately, we're not stratifying for MET-high because the timing of when we started that trial. But for all the patients that will be able to be analyzed, meaning we will have valuable tests, we will certainly look for an analysis of that. We will also look at the subgroups, other subgroups like KRAS, EGFR wild type, EGFR mutant. And that's the reason why we're taking the opportunity to close the trial in a progressive fashion rather than just close it off at a specific date, being that we have not been alerted to a toxicity signal that would otherwise have forced us into a hard stop for the trial. So that's the purpose -- so that's one of the purposes of the process we're following to close the trial. Obviously, that requires time. The database will be closed at a later date, probably very late this year. Then we'll take time to gather the data. It will take time to gather the data and to wait. And then certainly, we will analyze all of it. And we foresee that at that point, there'd be a convergence also from any data coming from ATTENTION and any data coming from the KRAS trial. So we'll have 3 studies converging sometime in the first half of next year to provide data and understanding. As far as recruitment for HCC, I think the Daiichi Sankyo colleagues and the people here in Kyowa have done a very nice job getting that off the ground quickly. A CRO has been selected. Most of the sites have been selected, and I'd say that a good percent of those selected have also expressed interest. So we are really aiming at first patients late this year, early next. There is 1 or 2 additional trials that are -- maybe one more trial in second-line that is recruiting a former competitor, and that is, to our knowledge, another one that might be starting. But none of them take a selected population. So they're not necessarily competing for patients. And as far as cleaning to patients recruited, well, here, we are a bit on uncharted waters. We have observed roundabout about 50% of MET overexpression in our Phase II trial. There is not a lot of reliable literature that talks about MET overexpression in HCC. So if you take the assumptions that roundabout 50% of the patients will be MET-overexpressed, in order to have 300 patients enrolled, we'll need to screen 3 -- 600 to 700 patients. That's the assumptions we're making right now. And that's why this trial might take a little bit more time. Now obviously we're going to provide more clarity along the way. Say, 12 months from now, we will have had about 10 months of screening and recruiting activities. And at that point, we can be more precise. But at this point in time, I cannot be any more precise than this.

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

Okay. But suffice to say it's going to take probably -- to get all your patients in, you're looking at well more than a year, I guess.

Paolo Pucci

I think so. We are looking well more -- I think in a year, we'll give an update, and then we'll give a projection of end of recruitment. It is very different from non-small cell. Non-small cell went fast recruiting because there wasn't -- there are not many trials running and we really did not stratify upfront. We didn't -- and we talked EGFR mutant, as well as wild type, so it was kind of all comers and no screens. There was no screens beyond the older filter. Here we have a much bigger filter. Now on a positive side is that the front-line therapy is very well defined. There is no therapy other than front-line. So in second-line, really there is a very big incentive. You either put patients on off-label other drugs, or you put them on clinical trials in their facility. And then maybe I'll let Brian give a little bit of clarity of the enrollment criteria, what do we consider patients eligible for second-line therapy.

Brian Schwartz

So Joel, just to clarify a few things with regards to the trial. Obviously, in discussions with agencies, whether the FDA and EMDA -- EMDA, we had to define what were sorafenib failures. So every patient needed to either fail or be intolerant to sorafenib, the only approved front-line therapy and as Paolo mentioned, supply us with a biopsy. One of the other reasons why we're a little hesitant to give timelines with HCC is there's still a large proportion of patients who get treated with HCC without having tissue readily available prior to them starting therapy based on a number of guidelines supplied by the hepatologist. So unlike lung or colorectal, where there's a lot more tissue available, we're not sure exactly how many patients will require new biopsies to come onto the trial and a little hesitant in terms of putting predictions out there based on other second-line trial accrued pathos. I think the third part is, this will -- most second-line trials that have accrued or are being accrued have a large component from Asia. Our trial will primarily be run x Asia. So that's a third component that we need to deal with as it goes with accruals. But we'll give you a lot more guidance once we get 50% of the sites up and running and see what the screen failure rates are.

Operator

Our next question comes from Howard Liang from Leerink Swann.

Howard Liang - Leerink Swann LLC, Research Division

Regarding the MARQUEE trial, do you have an understanding as to why there's disconnect between the PFS and OS level?

Paolo Pucci

No, we don't because -- Howard, unfortunately, we don't at this time. We only -- we can't -- we don't have the data to answer fairly elementary questions like what these patients received as third-line therapy and when they received it. We are not yet in the position to answer those kinds of questions. Remember this was, to us, an unexpected event because this was supposed to be an interim analysis in [indiscernible]. But that wasn't supposed to -- we are not assuming it will go this way, and we are still blinded to the data. So as I said before, Howard, we have to go through the process of bringing the trial home in its entirety, and that's a process that takes some time. I think going through this process is going to allow us to have the best possible datasets available. A hard stop blinding all of us to the data, it would've left us, for a 1,000-patient trial, with 400-some events to analyze rather than hopefully 600-some. So we don't know, Howard.

Howard Liang - Leerink Swann LLC, Research Division

Okay. And is 087, the FGF ARQ inhibitor ever part of the Daiichi AKIP collaboration?

Paolo Pucci

No, it is not. The only drug that is into the clinic that was part of the -- the biggest part of the Daiichi Sankyo collaboration discovery is 092, and that's nearing the end of Phase I. And we have been conducting the Phase I on behalf of Daiichi Sankyo. So it will be up to Daiichi to comment. I can only say that, looking at that molecule, we're quite pleased, and we can see that we have gotten better in time in bringing candidates forward. The plans are better. The candidates performed closer to expectations. Every one -- every other candidate that we've brought showed improvement in terms of quality and performance in Phase I. So we hope that 087 will do even better than 092.

Howard Liang - Leerink Swann LLC, Research Division

Great. And just to follow up for the HCC trial, why is it primarily x Asia?

Paolo Pucci

Because so far it's a trial that is sponsored by Daiichi Sankyo and ArQule and therefore, is x Asia. We know that Kyowa Hakko Kirin is hard at work doing the -- generating the data that will be necessary in order to address HCC in Asia and they are very, very interested in doing so. But they have to do a little bit more preparatory work. Whether they will, at some point in time, join this Phase II trial or prefer to do a bridging trial or maybe leapfrog in front line with a [indiscernible] combination, that remains to be seen. And we haven't been informed, so we'll have to see.

Operator

Our next question comes from Ryan Martins from Lazard Capital.

Ryan Martins - Lazard Capital Markets LLC, Research Division

Talk about how the expression of MET their changes post first-line therapy and post your -- depending on your response to first-line therapy. And just to follow up on your comments around biopsies. If a patient has had a biopsy prior to getting first-line therapy, is that tissue used for MET expression in order to qualify them for enrollment into your trial?

Brian Schwartz

So Ryan, it's a part of the SPA agreement with our partners. So just to get the long story short, if there's a large block available pre-front-line, that will be eligible provided it's analyzed in a very short period of time. If there's only slides available that won't be eligible. We'd either have to have a block or slides available within 60 days of being cut or a relatively short time frame of being cut. So going through the SPA process, we have, together with SPA and our partners, defined very strict criteria in terms of how fresh the tissue needs to be and what the quality of the tissue and how much tissue you need to come onto the Phase II trial, and that's the part that is unknown when we get into in terms of patients who qualified for the trial in terms of the accrual component that I was talking about.

Ryan Martins - Lazard Capital Markets LLC, Research Division

And Brian, what's your current thinking on how the expression could vary from..

Brian Schwartz

So there's a little bit of conflicting data, Ryan. But what it does look like is, in small studies conducted at surgical receptions, so a lot earlier, the MET expression has been shown to be anywhere between 20% and 60%, most probably closer to the lower end. So our thinking is that as you go through lines of therapy, the MET expression -- the proportion of patients that are MET-positive will go up. But it's still unknown as no one has really done that data in big numbers. It's always been small series with different antibodies and different cut-offs.

Ryan Martins - Lazard Capital Markets LLC, Research Division

And then one follow-up, again on the HCC trial. Obviously, you've seen the data for brivanib and we've seen that there's some important stratification factors, potentially like vascular invasion, extrahepatic spread, AFP. Just curious as to -- have you guys thought about those in terms of incorporating those in your trial design? And finally, just on the neutropenia that we've seen, are there any changes relative to your Phase II protocol that you may have incorporated to minimize whatever neutropenia or neutropenic success rate you could have seen?

Brian Schwartz

So Ryan, I mean, I don't know if that trial is available in clinicaltrials.gov yet, but the 3 key factors that you mentioned will be stratification criteria for the trial as was brought up and discussed with both the experts, FDA and EMA. And once we've put it in clinicaltrials.gov, we'll specifically give the AFP cut-off and all the other points that we agreed to. So that was the -- that's definitely stratified by those criteria.

Ryan Martins - Lazard Capital Markets LLC, Research Division

And just one final financial question, are the royalty rates any different for HCC versus...

Paolo Pucci

No, the royalty rates don't differ by indication. It's one royalty rate.

Operator

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

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

Following up on the second-line study. Is there anything more that you can say, what needs to be done in terms of steps being taken before the first patient is enrolled? And secondly, you've given quite a bit in terms of enrollment criteria. Can you say anything about what your assumptions are for second-line patients in terms of -- what kind of the benefit you might see and when you might actually get the data once the last patient is enrolled?

Paolo Pucci

So in terms of additional sets, as I've said, it's -- we are well in the planning process to get to first patients as we did. Obviously, if we had IND approvals already, we could be more precise. But I think the next update is going to be first patient, first visit. And that's going to come in the form of a press release, hopefully, before our next conference call. That -- I can only point you to that as a next update. And as far as the second question...

Brian Schwartz

I can go through a little bit around the assumptions that we've put in.

Paolo Pucci

But we are limited, Adnan, because until the trial is published, we really wouldn't want to talk too much about statistics. So within that limit, we give something. And then it's going to be published and available for everybody at the same time.

Brian Schwartz

So I mean, it's a 2:1 randomization. You're correct, we have to wait a reasonably long period of time from last patient, last visit to collect the predetermined number of events. Normally, trials of this nature, you wait between 9 and 12 months from last patient, last visit, and we're looking for a meaningful improvement in overall survival assuming that the MET-positive group do worse than the MET-negative group on placebo drug second-line. The problem with the second-line data to make assumptions up to now has been that the only second-line trial that's published in a randomized setting has been the brivanib trial and the sorafenib increased dose trial, and their overall survival ranges from 6 to 9 months, so you can assume that our assumptions are maybe a little bit on the lower end of those numbers.

Paolo Pucci

You do know that those assumptions are acceptable to the FDA. Otherwise, we wouldn't have gotten an SPA.

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

Sure. That's helpful. In terms of the actual diagnostic, how long does a definition take in terms of having a tissue sample and then determining MET levels?

Brian Schwartz

We went through a validation process of 50% of the tumor tissues standing 2+ or better. And during the validation process, we have defined stability, how long, how you prepare the slides and the provision to have extra slides should we need any additional evaluations later on.

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

Okay. And then turning now to your Asian partner, have you had any discussions with them in terms of liver cancer?

Brian Schwartz

So they have -- you can see in clinicaltrials.gov, they've initiated a Phase I, which they need to do, and they need to determine the pharmacokinetics in the Asian HCC population. And that is moving forward quite nicely. As most of you are aware on the call, the Japanese Phase Is will only take a little bit longer to complete than standard Phase I. But they're well on track to complete that in the first half of next year so they'll be in a position to decide their next steps soon thereafter.

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

Okay. And then if I can ask a question on MARQUEE. I think you said patients are still being dosed in the MARQUEE study. Can you say how many are being still...

Paolo Pucci

No, we can't, sorry.

Paolo Pucci

And we are in the process -- we don't know how many physicians are going to choose to continue to dose and how many, which is not to -- we can't say, neither for the therapy nor for placebo because we have some countries where placebo is not so readily available commercially, and therefore, physicians might decide to keep them just because of that on the placebo arm. We are -- it's a process. It's a process we are not prepared for, and therefore, we're writing it as we go.

Operator

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

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

A question about the screening process for the MET-high. There have been some examples in the past where the individual site screen does not necessarily [indiscernible] the same conclusion with the central review. And you have 120 centers doing this trial. Could you talk a little bit how you're going to qualify the results of the companion diagnostics?

Brian Schwartz

George, the only real thing that we can say is that all will be done centrally, one lab, one place, everything predefined in order to comply with the regulations to get the diagnostic approved. So as much standardization as possible will be used in this trial.

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

So the samples are sent directly to central review, they're not assessed at the site then?

Brian Schwartz

No. Central review, yes.

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

And is that somewhere in the U.S.? Because you mentioned you identified a CRO that's going to do that.

Brian Schwartz

Well, that's part of the process of putting the SPA, and the diagnostic FDA approval was both the materials used in the test, as well as the vendor who's going to run all the tests. And we'll be right at one location in the U.S.

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

Okay. But central review looks good, okay. And then second question with regards to Daiichi AKIP program. There were 2 compounds, as I recall, that were part of the agreement. Is there -- can you provide any update on the second one?

Paolo Pucci

There was 1 compound and originally 2 targets. And then when there was the renewal, there were 2 more targets. So the second target that we have been working at on Daiichi's behalf for contractual reasons needs to remain undisclosed, unless Daiichi decides to disclose it at some point in time in the future. So we have chemical matter for them but the contractual, we cannot disclose what the target is, sorry.

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

Yes. I know and I understand that. I was wondering if you could -- and I guess a follow up to Daiichi, regarding approximately when the second target may be identified or the second compound might be announced.

Paolo Pucci

No, that's in Daiichi's hands. When they decided for the AKT, they put out a press release that we could follow. But until that happens for the next compound, we cannot say.

Operator

Our next question comes from Jonathan Eckard from Citi.

Jonathan Eckard - Citigroup Inc, Research Division

I was wondering if you could give us an update on the Phase II trial for prostate cancer as part of the credit. And I know there's a single-agent trial but with all the advancements in prostate cancer, could you tell us what you expect to be the most useful information coming out of this trial with regards to what tivantinib's role could be in a combination -- potential combinations going forward?

Brian Schwartz

So John, the traces are really important thing. When we started the trial, there weren't drugs that had been approved in the pre-docetaxel setting, and now there a lot of drugs moving into that space quite quickly. We are actually very encouraged by the accrual run in that trial, and there are trials out of our control. But if the pace at which they're accruing at this current rate continues, they'll be completed sometime next year. Their patients -- just under 100 patients randomized to the 2 different arms. In terms of next steps, we've looked at combinations with, for example, eviardiron [ph], which be -- would be the logical next step for the start of development plan. But that would take a little bit of time to work through and a lot of that is being done in discussions with the NCI, and we'd try and move that program, if agreed by the NCI, through that channel.

Jonathan Eckard - Citigroup Inc, Research Division

Very good. And then for the colorectal trial, matuzumab, am I correct that you -- further screening and in terms of chemistry, this is the same protocol that's being applied in the liver trial? And again, what information from this initial readout could be the most important takeaway with regards to, I guess, c-MET's removal in MET disease and what kind of efficacy with each should we mainly be focused on?

Brian Schwartz

I think it's a little bit hard. We're not privy to all the information. What I will say, John, as we go through each indication, we get better at defining the logistics of collecting MET -- tissue for MET analysis. The CLC started a while ago, so we were relying on primary tissue, most of it from surgery. So we're learning along the way. But our expectation is we'd have a cohort of MET-positive patients in colorectal to analyze in a similar way we analyze the other tumor types, like HCC and non-small cell lung cancer. But that is still to be defined. Some of the logistics associated with a colorectal trial are not available to us as this trial is primarily being run by our partner, Daiichi, at this point in time. But they are using the same criteria, the same antibody in determining MET status.

Jonathan Eckard - Citigroup Inc, Research Division

Yes. And based on, I guess with the combination of Erbitux and tivantinib is kind of absorbed mechanism in lung cells kind of overcoming the systems, would an extension of PFS be the most logical kind of observation to be looking for, for this? And would it be feasible to think that there could be a large enough difference at this point in time to come to any kind of early conclusions?

Brian Schwartz

I think it'll give us a good indication of the activity in colorectal. I think PFS, now that there are multiple drugs available, post therapy, it's going to take a long time and be difficult to get a true OS signal at this point in time. We also have -- we haven't really evaluated this drug in a tumor type where higher response rates are noted. So here, we'd anticipate a reasonable robust response rate for cetuximab, plus irinotecan and could see if there was any increase in response rate in the setting. I just want to remind you that the only -- the closest possible trial that has been presented to date was the trial by Amgen, looking at the Amgen EGFR antibody, plus an HGF antibody, and there, they were able to show actually improved response rates, as well as a trend in PFS in second-, third-line colorectal cancer with that combination. So that's the only historical data available to us to work on, but I think that overall survival in this setting is not -- we're not going to have sufficient events to draw any conclusions, and it's going to be PFS that's going to help us.

Jonathan Eckard - Citigroup Inc, Research Division

Great. And then just quickly, HCC, have there been any further developments or discussions regarding additional HCC strategies, including combination with Nexavar, in earlier lines setting?

Paolo Pucci

The front-line setting is very attractive to us, and we continue to assess with both of our partners how we could engage in that. But there is nothing committed at this point. The MARQUEE events have kept everybody unfortunately very busy. And the HCC second-line, it's a complex trial that requires our full attention. I think we'll be able to say something more middle of next year. Also, Jonathan, we're going to want to know what the landscape really looks like once we have sites active in second-line HCC and once we have seen what the trends are in real life for screening and for MET expression.

Operator

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

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

In terms of Phase I decision as to when to move forward, what would that be based upon? Is it primarily a safety decision? And when do you expect to make that from the pipeline?

Paolo Pucci

Sure. The Phase I, it's going to be -- going from Phase I to Phase II on any one of the 3 assets, when you take them individually, it's going to be outlook. Is there a chance to bring -- the first priority is going to be, is there a chance to still be competitive pursuing this drug. So for example, for B-RAF, that's a very high hurdle because the field has changed twice already with the arrival of ipilumimab and then the arrival of sorafenib and now the arrival of the combination of GSK B-RAF and MEK. So that's a very high hurdle. For FGFR, there is a space already open. For Eg5, there is a space already open but there is questions around the target itself that might be resolved by the Eli Lilly trial. So that's going to be the first screen. Then we are going to see a speed of pursual. Is there a biomarker strategy? Is there a population that will allow us to go speedily forward and generate value in parallel to the HCC Phase III process? That's going to be very important. And then you'll have all the classical screens of the molecule for potency, et cetera, et cetera. So that's a process we'd follow. This process is also helped by interest the potential partners are demonstrating. And the work -- the results of the various interactions we have with these partners who helped us to calibrate, if you wish, where the market would see each one of these drugs. As far as the timing of the decisions, as I said in the past, we're looking to acquire near-completed Phase I set of data for each 1 of the 3 compounds. FGFR is going to the clinic hopefully soon. It's going to take about a year or so to complete unless we see something interesting or otherwise before, so it's 1 year to 1.5 years away.

Operator

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

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

I just wanted to take a second circle back on ATTENTION, which not really surprising under the circumstances that Kyowa decided to halt that. But if I understand, the stated reason really had to do with the aforementioned imbalance in the interstitial lung disease, and I guess I'm just wondering what -- do we know what they looked at in total in making the decision and that statement? Were they just looking at that imbalance? Did they have complete unblind data? Obviously, they would've been aware of the status of MARQUEE at the point of that final decision. Just wondering if you know what factors they were able to weigh.

Paolo Pucci

I think they look at the imbalance, Chad, and I don't think they perform an analysis over risk benefit for the overall trial. They just looked at the imbalance. And the physicians, the companies and the regulatory authorities in Asia are terribly sensitive to ILD. I mean, there is a 1:5 incident, whites versus Asians of ILD. And I think it will remain because the way is such that a focused attention, therefore, in looking for ILD that all grades of ILD turn out to be fairly significant numbers. So that's what we know, Chad. At some point in time, the [indiscernible] of the trial will be analyzed. In order to give you some guidance about what that analysis might be, we have said before that the trial has enrolled, at that point, sometime in August, slightly more than 300 patients, just a little bit more than 300 patients. So we don't know how many events they're going to have to analyze out of the 300-some patients that they've recruited. But they'll release the trial then and see what the results of their trial is. From the results in patient population, there's only wild-type EGFR, so the readout shouldn't be much beyond next year, end of next year.

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

Okay. All right, understood. I think, like you, looking forward to hearing more about what happened in ATTENTION and MARQUEE to try to understand a little better.

Paolo Pucci

Absolutely. And I think you have to consider, once you look at the Kyowa Hakko decision is, that without the 1,000 patients of MARQUEE and with the imbalance in ILD, the path to possible approval on the resized ATTENTION would've been -- under the circumstances, would have been very, very steep. So I think those are probably also considerations that were reflected in Kyowa Hakko Kirin's decisions.

Operator

Our next question comes from Robin Davison from Edison Investment.

Robin Davison - Edison Investment Research Limited

Just asking a similar question really. I'm wondering, you're saying that commercial considerations by Kyowa Hakko were essentially behind the decision to close the ATTENTION studies, is that...

Paolo Pucci

No, no, no. We are saying nothing more than the press release that Kyowa Hakko released and nothing more than the 8-K we have released. Kyowa Hakko Kirin suspended the ATTENTION trial following the recommendation from the safety review committee that observed an imbalance in [indiscernible] ILD between the 2 cases. That's all that we are saying. We're also saying that, obviously, the MARQUEE suspension [indiscernible] did not encourage a further consideration very likely. That's all we're saying.

Robin Davison - Edison Investment Research Limited

Okay, fair enough. Just as a quick follow-up, do you know how close to completion of recruitment the Phase II studies in non-small cell lung cancer are at this point?

Paolo Pucci

The non-small cell of ATTENTION, you mean?

Robin Davison - Edison Investment Research Limited

No, no. The 2 Phase II studies, the small ones.

Brian Schwartz

The KRAS and the EGFR mutant studies we've -- sort of the one run by us and the other one run by Kyowa Hakko Kirin, we've always maintained that it will be finished late this year, early next year. And they're pretty much on track.

Operator

[Operator Instructions] Our next question comes from Katherine Xu from William Blair & Company.

Y. Katherine Xu - William Blair & Company L.L.C., Research Division

So I just have a hypothetical question. If you look at non-small cell lung cancer in various settings and various lines and there are agents that have been approved or recommended, PFS data only without significant overall survival data, I'm just wondering, in your case, if you had your primary endpoint as PFI, would you have had a successful study at all. I mean, if not, why? I mean what are the factors?

Paolo Pucci

So yes, we have said that the trial succeeded in PFS. And we have -- and that success is clear in our eyes and statistically significant, too. Once the trial is going to be analyzed, people are going to be able to see. Obviously, this is the interim analysis. The final analysis is going to require a few more events, and we're observing the interim. Unfortunately, we cannot go back to the FDA to seek an approval on PFS because this trial was conducted on an SPA, and the endpoint in that SPA is overall survival. That's where things are.

Operator

I'm showing no further questions at this time. I'd like to hand the conference back over to Mr. William Boni for any closing remarks.

William B. Boni

Okay. Thank you, everyone, for attending the conference this morning, and we'll be available to take any follow-up questions. Have a good rest of the day. Take care.

Operator

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

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