Ariad Pharmaceuticals Management Discusses Q3 2012 Results - Earnings Call Transcript

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 |  About: ARIAD Pharmaceuticals, Inc. (ARIA)
by: SA Transcripts

Operator

Thank you for holding for ARIAD Pharmaceutical's Third Quarter 2012 Investors Conference Call. [Operator Instructions] Please be advised that this call is being taped at the company's request and will be archived on the company's website for 3 weeks from today. At this time, I would like to introduce Ms. Maria Cantor, ARIAD's Senior Vice President, Corporate Affairs. Please go ahead.

Maria E. Cantor

Good morning, everyone, and thank you for joining us. This morning, we report on financial results and corporate developments for the third quarter of 2012. Joining me this morning are Dr. Harvey Berger, our Chairman and Chief Executive Officer; Mr. Ed Fitzgerald, our Executive Vice President and Chief Financial Officer; and Mr. Marty Duvall, our Senior Vice President of Commercial Operations.

During this call, we'll be making forward-looking statements. These statements are subject to factors, risks and uncertainties, including those detailed in our Form 10-K for the year ended December 31, 2011, and other SEC filings that may cause actual results to differ materially from the results expressed or implied by such statements.

Now let me turn the call over to Dr. Berger for our opening remarks.

Harvey J. Berger

Thanks very much, Maria. I'll be very brief at the beginning. 2012 has been a very busy year for ARIAD, and the third quarter was no exception, as I think everyone's quite aware. The global Phase III EPIC trial of ponatinib in patients with newly diagnosed CML, as well as the Phase I/II trial of ponatinib in Japan are underway. As well positive clinical proof-of-concept data on 113 has been presented and we continue to advance its development. Importantly, we're now ready to commercialize ponatinib in the U.S. and we expect to be ready in Europe by the third quarter of next year. We have several updates to share with you this morning, but first, let me have Ed Fitzgerald run through our financial results for the quarter.

Edward M. Fitzgerald

Thank you, Harvey, and good morning, everyone. As noted in our press release this morning, our net loss for the third quarter was $53.2 million or $0.32 per share compared to net income of $13.9 million or $0.10 per share for the same period in 2011. Our R&D expenses increased by $19.1 million from the third quarter of 2011 to the third quarter of 2012, reflecting expansion of development activities for ponatinib and AP26113, including an increase in personnel and personnel-related expenses to support those activities. Our G&A expenses increased by $8.2 million from the third quarter of 2011 to the third quarter of 2012 due to growth in commercial operations and the supporting activities to prepare for potential regulatory approval and commercialization of ponatinib. Finally, as of September 30, 2012, we reported cash, cash equivalents and marketable securities of $206.7 million compared to $306.3 million at December 31, 2011.

Let me now turn the call back over to Harvey.

Harvey J. Berger

Thanks very much, Ed. Our focus this year has been on flawless execution throughout the company. We are transforming ARIAD from an innovative drug discovery and development enterprise into a fully integrated global oncology business. At our recent Investor and Analyst Day, we shared with you some of the processes and some of the steps that we've been taking, and I'm delighted to report on our progress in achieving these important goals.

So let's start with ponatinib. First, our NDA for ponatinib in patients with resistant or intolerant CML or Philadelphia-chromosome positive ALL has been accepted for filing by the FDA. Additionally, the FDA granted our request for priority review of ponatinib and has established an action date of March 27, 2013. As a reminder, we anticipate approval and commercial launch of ponatinib in the U.S. in the first quarter of 2013.

Second, in Europe, we submitted an MAA, seeking marketing approval for ponatinib in patients with resistant or intolerant CML or Philadelphia-positive ALL. The CHMP granted our request for accelerated assessment of the MAA, potentially decreasing the regulatory review time for us. And we anticipate approval of ponatinib in the EU in the third quarter of 2013. Patient enrollment is underway in our global Phase III EPIC trial of ponatinib in patients with newly diagnosed CML. The EPIC trial compares ponatinib to the standard of imatinib and as a primary endpoint of major molecular response at 12 months. We anticipate full patient enrollment in the trial by the end of next year. The study includes an interim analysis of the primary endpoint, 12 months after half of the approximately 500 patients in the trial have been enrolled. Depending on the results of this interim analysis, it may allow us to file for regulatory approval of ponatinib in the newly diagnosed clinical indication approximately 6 months earlier than otherwise.

Next, as we noted at our recent Analyst and Investor Day, we now have approximately 100 patients with CML or Philadelphia-positive ALL at 23 separate centers in the U.S. receiving ponatinib through an expanded access protocol. 40 of these patients are in the chronic phase of the disease. Patients on this expanded access protocol may be eligible to transition to commercial use of ponatinib following its anticipated approval. These U.S. patients are part of a broader, global Expanded Access Program that now includes more than 400 patients, some of whom are receiving ponatinib through compassionate-use programs.

Next, we will be presenting follow-up data from the pivotal Phase II PACE trial at the upcoming American Society of Hematology Annual Meeting in Atlanta, Georgia in early December. Our ASH presentation will include 12 months of follow-up data from the trial.

Now we are ready for U.S. commercialization of ponatinib, and let me make a few comments about this. First, the company has been busy building a global commercial infrastructure for ponatinib, and we are ready to commercialize ponatinib in the U.S. with all the account specialists hired and trained. This is an experienced and talented team with an average of more than 10 years of oncology and hematology experience and over 30% of the team has specific CML experience. In addition to the sales force, the U.S. commercial team consists of regional business directors, corporate account managers, global marketing and distribution leaders, managed markets and payer reimbursement experts with support from medical affairs and medical information personnel. Secondly, in Europe, we have made great strides in executing on our commercial plan for the initiation of early access programs and implementation of pricing and reimbursement activities. The European supply chain has been established and key hires for the European leadership team have been made. ARIAD is committed to being commercially ready in Europe on July 1, 2013.

Now let me transition from ponatinib to AP26113, our dual investigational inhibitor of EGFR and ALK. First, the Phase I/II clinical trial of 113 is proceeding well with dose escalation now at the 300 milligram once-daily oral dose, and clinical investigators are enrolling patients at 7 sites in the U.S. and we will shortly bring on the sites in Continental Europe. Patients with non-small cell lung cancer are now exclusively being enrolled in the trial.

Second, as I think everyone knows, we recently presented the initial Phase I data on 113 at the ESMO Meeting in Vienna, which provided compelling clinical evidence of the anti-tumor activity of 113 at various different dose levels in patients with ALK-positive non-small cell lung cancer and initial clinical evidence of anti-tumor activity in patients with EGFR-mutant lung cancer. Importantly, 113 showed activity in ALK-positive patients with documented brain metastases, an important differentiating factor in this disease.

Next, we are moving forward with planning for pivotal trials of 113 to begin next year in ALK-positive non-small cell lung cancer patients. We will also plan to begin a pivotal trial in patients with EGFR-mutant lung cancer who have failed prior EGFR inhibitor therapy depending on the clinical findings from the Phase II portion of the ongoing Phase I/II trial. Like ponatinib, we believe that 113 will be an important value driver for ARIAD, especially as we initiate pivotal trials in 2013.

With this uptake -- update, please open the call to analyst questions, and we look forward to responding to those questions. To the operator, please.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Matthew Harrison from UBS.

Matthew Harrison - UBS Investment Bank, Research Division

First, on the expanded access, should we expect the number of patients in the U.S. to grow or is this sort of as big as it's going to get? And then secondly, for the patients in Europe, I know there are some countries where you can collect revenues such as France. Should we start to see that showing up? Or is that being -- is that showing up through R&D or somewhere else other than the revenue line? And then separately on expenses, can you just tell us, were there any rep costs this quarter or should we expect to see a full quarter of them for U.S. reps next quarter?

Harvey J. Berger

Thanks very much, Matthew. Let me try to address those. In terms of the expanded access, I think the general numbers that we've given are largely the numbers to expect. They might grow a bit as we move towards the end of the year and towards approval, certainly, in the U.S. And I think, in large part, the numbers we have encompass most of the expanded access. But of course, it's a fluid process that patients come on, on a regular basis at the centers in the U.S. that has the protocol up and running, and in Europe, on a site-by-site, case-by-case basis. So they may – it may continue to evolve. In terms of revenues in Europe, such as in France or Italy, those would be booked as revenues when they come through. We would expect some of those revenues to appear in the fourth quarter of this year, but recognize again that's on a patient-by-patient basis. But we expect to see some of that before year end. And lastly, rep costs are largely a fourth quarter expense.

Operator

Your next question comes from the line of Cory Kasimov from JPMorgan.

Karen E. Jay - JP Morgan Chase & Co, Research Division

This is KJ in for Cory Kasimov. Just a follow-up on the expenses in the -- on 113. The SG&A, since your -- will be relatively commercial ready, how should we think about expenses going forward as you're -- as the revenues are growing and you're making -- getting better adoption with doctors?

Harvey J. Berger

Well, the numbers that we've given you for this year and the numbers for utilization of currently available cash through the end of next year, at the fourth quarter of next year, certainly do in fact take into account the base plans for building a commercial organization in the U.S., as well as in Europe. Obviously, depending upon the exact timing of launch in the U.S. and Europe and the magnitude of the ultimate commercial activities that we decide to put in place in both U.S. as it rolls out and Europe next year, that will impact on what the total numbers are. But the basic cost of running the commercial organization, certainly, this year and into next year are already in the base plan that we've provided guidance on. And your second question was?

Karen E. Jay - JP Morgan Chase & Co, Research Division

Just on 113. Are you close to finalizing details for the pivotal trials? And can you share anything with us in terms of patients or how big the trials will be, maybe whether there'll be a comparator?

Harvey J. Berger

Those are all really great questions with respect to the design of pivotal trials on 113. I mean, the first place, obviously, to focus on patients who have failed one of the other ALK inhibitors. We've talked a little bit about that. But that the overall design of the trial, whether or not they're going to be single arm or comparator arms, we'll provide additional guidance on that as we've firmed up our own internal plans and gotten a confirmation and agreement from the relevant regulatory authorities. That's all ongoing. And certainly, with our goal of initiating the first of those trials for sure next year, we'll be moving forward with providing additional color to the trial as we get closer to the first of those trials.

Operator

Your next question comes from the line of Phil Nadeau from Cohen and Company.

Philip Nadeau - Cowen and Company, LLC, Research Division

If I could do my follow-up first and my question second. The follow-up is actually in relation to the prior 2 questions. Can you give us some idea of what the account specialists will be doing to prepare the market before the actual FDA approval of ponatinib? That's follow-up. And then the actual question is on the ASH data for the PACE trial. What'll be the data cutoff for that data? And then the abstract, it seemed like it was a later cutoff than what we had seen at ASCO, a 3-month-later cutoff, but yet the median follow-up had only gone out by a month and I'm kind of curious why that was.

Martin J. Duvall

Phil, it's Marty, and thanks for the question. I'll take the first part as it relates to the activities of the account specialist. So it's very, very detailed training, is really the majority of the activity that they'll be undergoing here over the next quarter. So as it relates to disease state, competition, obviously, our own internal data. We'll also begin to do the work in understanding our target customers and prioritization of those customers and understanding current prescribing habits. So we have quite a list of activity for them that they'll be undergoing over the next several weeks.

Harvey J. Berger

So Phil, in terms of the abstracts and the data cuts, I mean, for the ASH meeting, there'll obviously be a very late cutoff date. We haven't said when it's going to be, but data that'll be presented will be a minimum of a year or 12 months of follow-up. The data, as of July 23, had a median follow-up, as you point out, of 11 months, which is basically a month longer than we had previously presented. It really -- the timing of the cutoffs for the abstract and the presentation are really largely based upon when we could get the data done in the context of everything else that was going on. Having said that, for the presentation at ASH, having late data or as late data as we can is obviously important, and we will have data probably with a cutoff sometime during this month.

Operator

Your next question comes from Howard Liang from Leerink Swann.

Howard Liang - Leerink Swann LLC, Research Division

Just have a question on pancreatitis. I know [indiscernible] it's stated in the abstract as well, but do you see any case -- any worsening on new cases, let's say, beyond 3 months of treatment?

Harvey J. Berger

I can't say for sure if a case has ever been seen. But certainly, because I just don't know the answer to that, Frank would probably know. But I mean, in general, the pancreatitis is something that is seen real early. It is something that is, repeatedly, whenever we've looked, is seen early, managed by dose modification. It's very unusual for it to come late. Can I say for sure that it's never occurred late? Probably not, because I just don't know, not only in PACE, but in all of the trials in expanded access. But the overall perspective on pancreatitis is that it's almost always a very early event.

Operator

Your next question comes from the line of Rachel McMinn from Bank of America Merrill Lynch.

Rachel L. McMinn - BofA Merrill Lynch, Research Division

Harvey, I'm wondering if you can -- I'm almost hesitant to ask the question. But I'm wondering if you have any insight into the scope of the ponatinib label is one, I guess, whether it would be broader than patients failing 2 TKIs? And I guess just secondly, from a commercial perspective, whether you think it matters over the near term? It just seems to me like most patients will have received all these different therapies anyway, so I think there's just a big focus and I'd love to get your perspective on that.

Harvey J. Berger

Sure. Thanks, Rachel. I mean, I can't speak to what the label's going to look like, but I can talk about the general issue. There are patients, as you know, who develop resistance or become intolerant to one or more of the other drugs at different phases or different stages of sequential treatment from one prior TKI to more. And I think what the PACE trial clearly documented is that ponatinib had very good activity. In fact, best activity earlier in the course of those -- the course of the disease. But all through the resistant/intolerant population, whether -- almost independent of the patients failing one or more of the TKIs, you had strong activity and high response rates. Obviously, more of the patients have failed multiple TKIs than have failed one TKI, but I think the message of the PACE trial is that ponatinib works across that entire spectrum of patients. And we'll see when we get to the label -- final label negotiations with the agency, what the label looks like.

Rachel L. McMinn - BofA Merrill Lynch, Research Division

Right. But I guess, can you just -- you've addressed the scientific part of it. I'm wondering, as you sat down in your commercial planning, how important is it to the first year of sales to have a broader label?

Harvey J. Berger

I think our view is that the label in the first year is not going to make a huge difference to how the drug is actually used in its first year. I think physicians are looking at the use of ponatinib in the resistant/intolerant patients and how the label plays out relative to what the projections are. I'm not sure that the actual label has that much impact right upfront on how the drug is going to be used. I think -- I just don't think -- while obviously, a label that has the fewest limitations possible is good to have and is something we would want to have, it seems clear to us that the initial uptake of the drug will be in this broad group of patients who are resistant or intolerant to the drug. And I'm not sure it's going to make -- that the actual wording of the label is going to have a huge amount to do with what the first year uptake of the drug actually is.

Operator

Your next question comes from the line of Michael Yee from RBC Capital Markets.

Michael J. Yee - RBC Capital Markets, LLC, Research Division

Question on the prevalence pool, actually, I know you went through a lot of numbers at the analyst event about incidents and first line and all this. What is -- what work have you done in regards to looking at how many patients are actually on drug in second and third line? How many patients do you think out there today are intolerant, not getting a good response, probably should come off? And sort of in the same context of that, how many patients have you actually identified out there that could be available to come on to your drug right off the bat? Do you have any thoughts on that?

Harvey J. Berger

I'm going to let Marty answer that.

Martin J. Duvall

So thanks, Michael. And we look at similar sources to the ones that you look at regarding the prevalent pool, so I think those numbers have been pretty widely communicated. Addressing specifically and kind of tying back into the Analyst Day presentation as it relates to the United States market, what we've characterized is we believe about 2,500 patients will switch their TKI therapy in 2013 in the United States as a result of resistant/intolerant. Difficult to speculate on patients that might be out there in a prevalent pool that might switch because there's a new and effective option, but we ground more towards that 2,500 number in viewing the likely switches.

Michael J. Yee - RBC Capital Markets, LLC, Research Division

And have you done any work in terms of what the doctor feedback is in your mind in terms of bosutinib that's actually just launched, the pricing of all that kind of stuff and also, obviously, there was another drug that just approved, Synribo. What were your – in regards to the price about that drug?

Martin J. Duvall

Yes, so we don't have a lot of specific feedback from any primary market research at this point in time. We have the general key opinion leader feedback through various advisory boards and the characterization of bosutinib as another second-generation agent. It's pretty clear with unique issues related to toxicity profile. We're monitoring the uptake of the drug and we're not seeing a whole lot currently. So I believe our characterization is that it is another second gen option, and we stand behind our thoughts that what we have in ponatinib is something that's different and a best-in-class agent. The other product that's recently been approved, take a look at the efficacy data, the dosing, that drug -- particular drug has been around quite a long time. The efficacy data is not outstanding. If you look at patient populations and look at comparisons, so to speak, while difficult to do, of course, cross trial, doesn't really measure up to the activity of the targeted therapies but does present an important option maybe for patients who have failed a different mechanism of action. We don't expect it to be a major player in the market.

Michael J. Yee - RBC Capital Markets, LLC, Research Division

Last question is I think that GIST for ponatinib probably could be one of your bigger indications. There wasn't an investigator-sponsored study that I saw on the list. Can you just remind us whether or not you think you would start a study there in 2013 and your thoughts about that?

Harvey J. Berger

Well, as you point out, GIST is a very good potential target for ponatinib. Ponatinib is an extremely potent inhibitor of c-KIT, including the resistant gatekeeper mutants of c-KIT, another tyrosine kinase that is inhibited by ponatinib. We're working on what the best strategy will be for pursuit of GIST. It may involve investigator-sponsored trials. It may involve a corporate-sponsored registrational or pivotal trial. We are talking with the experts in the field. It is clear that there's a tremendous need for better drugs for GIST. The first-line patients are reasonably well or quite well treated with imatinib. But once patients fail imatinib, the available choices, although there are numerous and many, none of them are very good. And so ponatinib may well be an option in those patients. We'll provide additional color on that early in the New Year, I anticipate.

Operator

Your next question comes from the line of Katherine Xu from William Blair.

Filippo Petti - William Blair & Company L.L.C., Research Division

This is Fil Petti in for Katherine. Just real quick, was wondering if you could provide us with some additional insights into the European commercial team. Will it be similar in size and structure to that of the U.S. team that you talked about?

Harvey J. Berger

Well, maybe I can start and I'll hand it over to Marty. I mean, we have not given many details yet about the European organization and probably won't until we're closer to launch in Europe. So the feedback we can give you, I think, is general at the moment, although we have a very detailed plan in place. So maybe Marty can make some comments on this.

Martin J. Duvall

Yes, thanks, Fil, for the question. So the one thing is we look at -- you look at Europe in general, it's probably not fair to look at it that way. You have to look at each individual country, and the concentration of treatment of CML patients differs on a country-by-country basis. So as Harvey kind of alluded to, we've done diligence as it relates to what's needed with the appropriate blend of medical science liaisons and account specialists to cover each of those individual countries. So we'll provide more color on that throughout next year as we move towards our commercial launch readiness in third quarter.

Filippo Petti - William Blair & Company L.L.C., Research Division

Okay, great. And then just as a follow-up. I know you talk a little bit today in the press release about the pricing and reimbursement activities for ponatinib there. And I was wondering -- I know you gave us also some guidance at Analyst Day around 2014 for full PNR approval, but in terms of 2013 and potential approval coming in the second half of 2013, just thinking about what additional countries could we potentially see potential sales from ponatinib other than maybe France and Italy.

Martin J. Duvall

So I think one that would rise to the top would be Germany, just from the standpoint of, that country stands out as unique as it relates to special import program upon approval in the U.S., for example. That's the mechanism by which the German government provides access to drugs prior to approval. So I think that, that would be one particular area. As we look at each of the individual countries, I think I'd go back to the guidance and to the communication at Analyst Day, which suggest that the PNR timelines vary on a country-by-country basis, and our overall expectations as it relates to revenue in Europe in 2013 are relatively small.

Operator

Your next question comes from the line of Ying Huang from Barclays.

Ying Huang - Barclays Capital, Research Division

So firstly, can you confirm that whether you have seen any dose-limiting toxicity such as the one case of liver enzyme elevations that was seen in the 120 milligram, I guess? And then -- I mean, the second question is, do you know for a fact that there is a pre-existing pool of patients who have failed all 3 lines of therapy on the market already and they're basically waiting for a new therapy to come along in the market?

Harvey J. Berger

So the first question relates to 113 and the second to ponatinib. On 113, all we can tell you is that we have escalated to 300 milligrams per day, and the trial is moving forward. And we'll provide additional information about the trial really at 2 points: one, most likely at a time when we transition into a Phase II cohort; and secondly, of course, when data from the trial are presented at a major medical meeting sometime in the first half of next year. We haven't decided which meeting it'll be or the status of the -- what we'll need in terms of the status of the data. But obviously, it'll have to be incremental above and beyond what was presented at ESMO. So at one of the oncology meetings in the first half of next year, you should expect some update on 113 and on the results and your -- to answer your question directly with respect to DLTs. In terms of ponatinib pre-existing pool of patients who have failed all 3 agents, I guess we would say those patients clearly are out there. They definitely do exist. I would go back to Marty's earlier answer of there are 2,500 patients who are going to switch therapy. That's a very thoughtfully derived number based on a lot of market research and analysis. And within that 2,500, our patients, the ones that you have described who have failed multiple lines of therapy, in fact, all of the available therapies, right, Marty?

Martin J. Duvall

Exactly. So if you go back to the slide from Analyst Day, it would characterize about 800 of the 2,500 is patients that have failed multiple TKIs.

Operator

Your next question comes from the line of Jim Birchenough from BMO Capital.

Jim Birchenough - BMO Capital Markets U.S.

A couple of questions. Just following up on those 2,500 patients that you expect to switch. I'm guessing that's based on what we've seen historically. So the question is do you expect mutational analysis to drive that number higher in subsequent years? And have you seen any impact of some of your efforts prelaunch to encourage mutational analysis? And then the second question just stems from the ASH abstract and I have to say that, looking at the 66% of patients that completed 11 to 12 months of therapy, there's something like a 34% dropout rate in PACE, which was higher than I recall from the Phase I experience and higher than what I'm expecting in the real world. So maybe you could discuss that, why we see that level of discontinuations and why that shouldn't be what we'll see commercially.

Harvey J. Berger

Marty, why don't you talk about the first question?

Martin J. Duvall

Sure. So Jim, real good point there on a potential -- with mutational analysis and a potential driver in impacting and changing that pool over time of 2,500 patients. So we are, in our model, anticipating and projecting that efforts that we're doing and other companies are doing in terms of guideline adherence and those type of activities would actually impact that pool over time. So you will see, in subsequent years, that number changing based on our model, based on trends within the marketplace. As to whether or not we're able to identify any specific impact of a program like the CML Response Project, little too early and probably a little too much fine-tuning there to really be able to tease out any specific impact of any one program over another. But generally speaking, we are seeing trends that are moving in that direction, and we would anticipate those to grow and have built those into our model.

Harvey J. Berger

In terms, Jim, with your second question with respect to the abstract, obviously, a lot more data on this will be presented at the meeting. But if you try to compare the Phase I and Phase II patients, I think what you find -- and there's other abstracts that deal with prognosis, but what you find is that the Phase I patients, surprisingly, had a better prognosis based on various risk factors, most particularly, their response to prior therapy. The PACE trial, it turns out overall, are patients who were very sick, and even in the chronic phase patients were patients that had very low response to prior therapy, one of the best predictors of long-term outcome in sequential CML therapy. So the difference between the Phase I and Phase II is, in part, make-up of the patients. In the real world, obviously, the real world is going to be determined by which type of patients you're focused on. If you have a practice -- a clinical practice where you are thinking of ponatinib in patients that have failed everything else, that means their response to prior treatments is low, that means they're at high risk in the CML population. And as we've shown, probably have a slightly lower response rate than if they fail less therapy or earlier in the course of the disease. And so there's another abstract that deals with the multi-varied analysis or predictors of outcome. And I think what we're learning from the trial and applicable to both trials on ponatinib is that you can define predictiveness of outcome from pre-existing risk factors. Also worth pointing out that with 66 or 2/3 of the chronic phase patients remaining on trial at just a little bit less than a year and a major cytogenetic response rate of about 55%, the difference between that are patients who still may benefit from ponatinib as patients are followed up longer. So the data that'll get presented at ASH will, of course, try to deal with the evolution of those patients that remain on therapy and overall with patients over -- looking at overall how patients do over time. So real world, it's probably someplace in those range of numbers, but entirely driven by the specific types of patients that you take into account in your definition of real world. You average everybody from lots of patients who've only failed one TKI and are very early in the natural history of the disease with those patients who, to respond to one of the earlier questions, have failed all 3 patients and are looking desperately for a drug, those are very different patients in terms of prognosis.

Jim Birchenough - BMO Capital Markets U.S.

Harvey, can I just ask one follow-up to tie the 2 questions together? When you talk about 800 patients of the 2,500 that have failed everything, is it reasonable to think that 1/3 of the population you're thinking about as switch patients are like PACE and 2/3 are like Phase I? Is that some way to think about it?

Martin J. Duvall

I don't think that, that would be...

Harvey J. Berger

No. I think neither one of the trials has a large number of patients; thus, I'll get to this, who have failed only one prior tyrosine kinase inhibitor. And so the patients who will do the best, who are likely to stay on drug the longest, who are likely to have the highest response rates, are patients who failed one of either erlotinib, dasatinib or imatinib. And so there's really -- it's the PACE -- it's the Phase I population which has a better prognosis than the PACE population. But then there is, to the left, if you will, in terms of growing prognosis, to the left of the Phase I, would be patients who've only failed one TKI, it doesn't matter what it is. And the trial, the PACE trial, is sort of is an umbrella for everything. But if you start to try to model the breakdown of that 2,500 patients, you have some that have a better risk profile, you have some of that have the Phase I type risk profile and you have some that have the range of Phase II or PACE profile.

Operator

Your next question comes from the line of Joel Sendek from Stifel, Nicolaus.

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

I have a question about the Expanded Access Program. So you said, Harvey, in your prepared remarks, as well as in the press release, that those patients may or could be able to transition to commercial use. I'm just wondering why it isn't that they could definitely transition. And the reason I'm asking is, if you look at the 400 or so patients or more than 400 patients, you could get to your first 12 months sales guidance on the basis of that alone. I know that's blending U.S. and x US, but still it's a substantial number. So I'm wondering why you're using what appears to me to be conservative language.

Harvey J. Berger

In terms of the expanded access efforts, firstly, it's worldwide. It includes some patients who are accelerated or blast phase who, while they might be a candidates to transition, the natural history of the disease, as you know, has a survival in blast phase of only 6 months, median of about 6 months. Accelerated phase is better, but accelerated phase is overwhelmingly the minority of current patients who are getting TKI therapy. So you have a mix of those 2 and you have limitations in -- depending on the protocol, depending on the country and depending on the compassionate -- the terms of the compassionate use with respect to whether we have an obligation to give the patient drug through their full course of their treatment or whether or not they really can be transitioned over. Certainly, in the U.S., you have a greater likelihood of transitioning patients in an expanded access protocol to a commercial use of the drug. Much higher in the U.S. than in parts of Europe and other parts of the world where we have a, I would say, a moral and ethical obligation to continue providing drug, in some instances, longer or completely as opposed to in the U.S. So it is really a mix. You cannot assume that all 400 patients are chronic phase patients who are in protocols or in under INDs that allow us to immediately make a switch. It is very heterogeneous, which is why we've given more conservative numbers on switch from the pre-approval programs to for-pay programs.

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

Okay, that clarifies. And I guess the follow-up to that is, can you help us, at least for the U.S. anyway, maybe quantify that? Is it -- could I assume the majority or could you give me a number to use?

Harvey J. Berger

For what? I'm not sure what...

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

For the 100 in the U.S. that might be able to switch.

Harvey J. Berger

Well, some are -- I think we've said a certain number of chronic phase. I think 40 or so are chronic phase. Those are the -- probably the most likely patients to be readily switchable to a commercial setting, so call it half of the patients in the U.S. Remember, early on in the -- in any expanded access, given the profile of ponatinib, the first patients that you get calls about are the children who have ALL or who have blast phase CML where they're desperate or the adults who have those same indications. Sadly, those patients are in a very advanced phase of disease and switching them is far less the issue than hoping they survive long enough. It's really the chronic phase patients which are now becoming increasingly the type of patients you see who we now have lots of data on and where the physicians are wanting ponatinib for use of those patients. You should not assume that all the chronic phase are T315I because they're not. Lots of them don't even have full genetic sequencing. They're patients who have failed other therapies and need a new option.

Operator

Your next question comes from the line of Ryan Martins from Lazard Capital Markets.

Ryan Martins - Lazard Capital Markets LLC, Research Division

In the case of the ALK-positive pivotal trials, is there going to be a concerted effort to enroll patients with brain mets and to especially look at those brain met responses? And then secondly, Novartis has been indicating that the Gleevec patent coverage may potentially extend to 2019, versus what's generally assumed to be a 2015 patent expiry. If that is the case, how do you think about changes given that -- to the dynamics in the marketplace for ponatinib?

Harvey J. Berger

So in terms of brain metastases, I think what we've said repeatedly is that it's very difficult to study patients with brain metastases in the same trial as patients who don't have brain metastases because the natural history of those patients, especially in terms of safety and tolerability, is totally different than patients who don't have brain mets. Having said that, probably half of the patients with lung cancer have brain mets of one form or another. Many of them may have clinically stable or may have -- let's leave it at that, clinically stable with brain mets. We've allowed some of those patients into the ongoing Phase I/II trial and that's how the initial data on 113 in patients with brains mets was generated. Going forward, the best approach may well be studying patients' brain mets separately, having a separate trial that looks at that, or stratifying patients with or without brain mets upon entry, but trying to deal explicitly with brain metastases as a marker of a certain subset of the overall lung cancer patient population. That's part of the thinking that's ongoing, going back to one of the early questions this morning, about how to design this trial optimally, the registrational trials to get the best answers because clearly, as we know on crizotinib, lots of patients failed crizotinib because of brain metastases and because of worsening of the impact of those brain mets. You sure wouldn't want to exclude all of them. On the other hand, you certainly wouldn't want to have confounding data that makes it difficult to interpret the effectiveness of a drug like 113. So that's a very good example of the sort of question I can talk about in general medical terms, but exactly how we're going to deal with it will be part of how we deal with the actual design and development of the pivotal trial or trials for 113. Second question was the Gleevec patent. I guess I would say hallelujah. I'm delighted that they believe that the patent is going to last longer, and that branded Gleevec will be with us longer than some had thought. I think that is good for ponatinib because it provides both Novartis and Bristol the opportunity to continue to push forward with the use of Sprycel and Tasigna in the newly diagnosed patient and that fits perfectly with our view of go with the best drug first. And I think the burden's on us to prove that ponatinib is in fact the best drug and the best response rate. And we will need to -- we'll build on their experience in switching patients to one of the second generation drugs. So longer patent protection for Gleevec, we believe, is good for ponatinib.

Operator

[Operator Instructions] And your next question comes from the line of Ling Wang from Summer Street Research.

Ling Wang - Summer Street Research Partners

So question for 113. We've seen preliminary activity in EGFR-mutant patients. I was wondering whether you can highlight the key elements in the Phase II portion of the trial in terms of the EGFR-mutant arm or what might be the difference between this arm and the EGFR-mutant patients enrolled in the Phase I portion?

Harvey J. Berger

Okay. So far, the patients who have enrolled in the Phase I portion of the Phase I/II trial who have a history of being EGFR mutant is that those patients, one, have a history of being EGFR mutant, not a documented EGFR-mutant status at the time of enrollment in the trial. Secondly, they tend to be patients who may have failed an EGFR inhibitor long ago, have gone on chemotherapy, gone on different agents and in some instances, have also gone on and failed multiple -- one or more investigational therapies for EGFR-mutant status. That's an incredibly end-stage, heterogeneous, confounded patient population. That's not surprising for a Phase I dose escalation trial where the primary goal is definition of safety and tolerability and the secondary goal is initial evidence or clues of clinical proof of concept. In the Phase II cohort, that's EGFR mutant, all patients will have the genetic status of their disease defined upon patient entry. Secondly, we'll focus predominantly on patients who have failed erlotinib or one of the other approved first-generation EGFR inhibitors and then go on 113 with a diagnosis of EGFR-mutant EGFR failure promptly and quickly after that failure, not after having been subsequently failed multiple other drugs, multiple other investigational agents, but have their disease, their cancer, truly driven by EGFR-mutant activity. That's what we can treat with an EGFR-mutant inhibitor and that's what the Phase II portion will focus on. So it's a very much more well-defined and specific patient population. That, I think, is very much more the real -- potential real world use of a drug like 113 in EGFR-positive lung cancer.

Operator

Your next question comes from the line of Jonathan Eckard from Citibank.

Jonathan Eckard - Leerink Swann LLC, Research Division

Some of the other launches of the other TKIs, we saw some of the early sales had a significant portion of stocking. Could you talk about the differences between your planned stocking methods and how we should be able to calculate the appropriate amount of inventory in the early sales? And also, could you give us any guidance on how much expected commercial supply of drug you expect by launch?

Harvey J. Berger

Marty?

Martin J. Duvall

Thanks, Jonathan. So going back to the way we're looking at distribution and the comparative distribution methodologies and really how things have evolved since the launch of the second-generation tyrosine kinase inhibitors, it's changed quite dramatically. And from our approach, the approach that we discussed at Analyst Day, no patient left behind, very narrow distribution methodology through specialty pharmacy and specialty wholesalers. I wouldn't build much inventory into the -- into your numbers. I would think specifically in terms of the patients that we'll treat and more of a just-in-time kind of delivery of medication to those patients. So it's a far different situation than it was back years ago with a broader, more retail kind of distribution environment for these narrow patient populations.

Harvey J. Berger

Jon, I'm not sure I understand the second question, what sort of commercial supply. Did Marty answer that or was there something separate?

Jonathan Eckard - Leerink Swann LLC, Research Division

I guess, when it comes to the R&D spend over the next, say, 6 to 12 months leading up to the 2 launches, I'm guessing how much drug are you expecting to have on hand at the various launches, for modeling purposes, on cost of goods and as well as R&D for, say, the next 12 months?

Harvey J. Berger

Well, I mean, I think the cost of goods for us is quite low, and it's quite standard for a small molecule drug. There's nothing unusual about ponatinib with respect to cost of goods in the context of other small molecule TKIs. We obviously will have supply of drug for both commercial availability in the U.S. and around the world, but as well as for clinical trials. The supply of trials and the supply of the marketplace will all come from the same source and material. But manufacturing the drug, stocking the drug internally for our own uses and for commercialization is very straightforward, we have that completely under control. And certainly, any of the projections that we have provided to you and to others with respect to cost of R&D, cost of clinical trials and cost of commercialization take into account the cost of drug for us.

Edward M. Fitzgerald

Jonathan, this is Ed. One bit of clarification on that, and it think you're alluding to this in your question. Prior to launch of the product, we are building some -- we are building commercial supply and that is being accounted for as R&D expense at that point in time. So in this relative 2 initial sales of the product, cost of goods will likely be lower than what the ongoing amount will be when we burn through that initial supply.

Jonathan Eckard - Leerink Swann LLC, Research Division

Very good. And could I ask a quick question regarding 113 and the eligible population? When we were look -- if we were to look and follow the sales of crizotinib, how can we use those sales numbers as a gauge to the available patients? Or is there -- what's the factor to take into account with regards to the amount of clinical patients that may not be showing up in the sales numbers of crizotinib that could triangulate to the number of available crizotinib failure patients for 113?

Harvey J. Berger

Well, starting with the patients who have received crizotinib, obviously, is a good approach. I think, from everything we know, the launch of crizotinib has gone slower than many would've predicted. Certainly, Pfizer would have predicted, as far as I'm aware. I think that our read of that is that's heavily being driven by the lack of either availability or broad utilization of genetic analysis of lung cancer samples, even though it's perfectly obvious to experts that if you have lung cancer, you really ought to have it taken care of at a center where analysis of the genetics of the tumor biopsy is standard of care. And if you go to any of the major cancer centers certainly in the U.S. and, I think, as well in Europe and other countries, you will get a complete genetic analysis of your tumor sample. I think what Pfizer is experiencing, and we've certainly heard this, is that while that makes perfect sense, the availability of that test or the behavior that's needed on the part of physicians to send samples to other centers or to other laboratories to get the information is lower than you would like. So I think eventually and hopefully soon, every patients who have lung cancer will have their tumor sample assessed for not only ALK, but ROS1, EGFR, KRAS and a variety of other signals that are now emerging in the cancer genetics field, same as in colon cancer and probably soon in other solid tumors as well. So allowing that, that may be the filter that you have to put your analysis through, starting with current crizotinib numbers is certainly a reasonable place to start. So operator, I think that's our last question. Am I right?

Operator

Yes, I would now like to turn the call back over to Dr. Berger for closing remarks.

Harvey J. Berger

Thanks very much. Let me start by thanking Jon Eckard, who recently joined Citi and initiated coverage recently and was – asked the last set of questions. So welcome. Having said that, I'd like to thank everyone who's been on the call this morning who's asked questions and every one of you who has expressed great interest in ARIAD. We are in the midst of an extremely busy fourth quarter, and I look forward to seeing many of you at the ponatinib data presentations at ASH in December. And then early in the coming year as we move forward with next year's increasing focus on further clinical development and commercialization. Thank you.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.

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