TESARO's (TSRO) CEO Lonnie Moulder on Q2 2016 Results - Earnings Call Transcript

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TESARO Incorporated (NASDAQ:TSRO) Q2 2016 Earnings Conference Call August 4, 2016 4:15 PM ET

Executives

Jennifer Davis - Senior Director, IR

Lonnie Moulder - CEO

Tim Pearson - EVP & CFO

Mary Lynne Hedley - President & COO

Analysts

Alethia Young - Credit Suisse

Jim Birchenough - Wells Fargo Securities

Tony Butler - Guggenheim Securities

Robyn Karnauskas - Citigroup

Laura Chico - Raymond James

Seamus Fernandez - Leerink Partners

Peter Lawson - SunTrust Robinson Humphrey

Eric Criscuolo - Mizuho Securities

David Nierengarten - Wedbush Securities

Operator

Good day, ladies and gentlemen, and welcome to the TESARO Inc. Second Quarter Financial Results Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the call over to your host, Ms. Jennifer Davis. Ms. Davis you may begin.

Jennifer Davis

Thank you, operator. Good afternoon, and thank you for joining us today to discuss our recent business progress and TESARO's second quarter 2016 operating results. With me here today are our CEO, Lonnie Moulder; our President & COO, Dr. Mary Lynne Hedley; and our CFO, Tim Pearson.

Earlier this afternoon, we issued a news release detailing our Q2 results. Please note that this news release and the slide presentation that we will refer to during this conference call are both available in the Investors section of our Web site, www.tesarobio.com.

Before we begin, I'd like to remind you that discussions during this conference call will include forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those described in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statement for any reason. The factors that could cause actual results to differ are discussed in the press release issued today and in our SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2015, and quarterly report on Form 10-Q for the quarter ended March 31, 2016.

During today's call, we may refer to certain non-GAAP financial measures that involve adjustments to GAAP figures. These non-GAAP financial measures are not a substitute for GAAP financial measures, and are unlikely to be comparable to non-GAAP information provided by other companies. We believe non-GAAP measures may be useful as tool to investors as a supplement to, but not as a substitute for, the applicable GAAP number.

I'd now like to turn the call over to Lonnie Moulder, CEO of TESARO. Lonnie?

Lonnie Moulder

Thank you, Jen. And thank you, everyone for joining us this afternoon. Our vision at TESARO is to build a leading oncology company and create value through the responsible development and commercialization of transformative therapies for people bravely facing cancer. The second quarter was an incredible time for the company marked by progress across a variety of corporate, commercial and pipeline initiatives and most significantly the extremely gratifying Phase 3 data from the NOVA trial of niraparib. These achievements set the stage for four potential new product launches in 2017 including the IV VARUBI and niraparib launches in the U.S. and the oral VARUBI and niraparib launches in Europe.

With the landmark NOVA results in hand, we're preparing to make global regulatory submissions and launch niraparib next year. Niraparib is the first and only PARP inhibitor to successfully complete a prospectively designed randomized well controlled Phase 3 trial and we really look forward to the presentation of additional data from NOVA at the upcoming European Society for Medical Oncology or ESMO Annual Congress in Copenhagen in early October.

As a remainder, TESARO has rights to each of our products and product candidates in key indications and geographies worldwide. Given the outstanding NOVA results, we're expanding our footprint and plan to launch our products directly in Europe. Our European headquarters has been established in Zug, Switzerland and an experienced team is in place under the leadership of Orlando Oliveira to globalize our important mission.

Turning now to VARUBI, we just completed our second full quarter of commercialization in the U.S. and we're pleased with the excellent feedback we have received from clinicians. As part of our launch plan, we're currently focusing on establishing the use of oral VARUBI within those oncology clinics that have in-office dispensing or IOD pharmacies. Nearly 4,500 commercial doses of VARUBI were provided during the second quarter and more than 190 unique provider sites have ordered VARUBI since launch.

Unit volume grew 30% sequentially for the second quarter compared to the first quarter and in June VARUBI had a 27% share of the oral NK1 market in the U.S. As additional clinics work through operationalize oral VARUBI, we're in track to reach the number one market share position of the oral NK1 market segment by the end of the year. This will set the foundation for additional brand growth in 2017 and beyond following the planned launch of IV VARUBI into the both the U.S. oncology clinical and hospital market segments.

Today only 25% of the patients defined as eligible under the NCCN guidelines receive an NK1 receptor antagonist. As we previously discussed, the launch of oral VARUBI is just the first step in our broader strategy to drive growth for this brand. The oral segment of the NK1 receptor antagonist market represents approximately 10% to 20% of the total addressable market opportunity for VARUBI in the U.S. While in Europe where we intend to launch oral VARUBI next year oral is the preferred formulation.

The expected launch of IV VARUBI next year will allow us to address the majority the U.S. market and overtime extend the use of NK1 receptor antagonistic to all patients receiving chemotherapy regimens recommended by the guidelines. We are confident this strategy will expand the market potential and drive growth for the overall VARUBI franchise as we move forward.

With that, I will now turn the call over to our CFO, Tim Pearson for a review of our second quarter financials. Tim?

Tim Pearson

Thank you, Lonnie. For the second quarter of 2016, TESARO reported a net loss of $58.4 million compared to a net loss of $60.6 million for the second quarter of 2015. The decrease in the second quarter of 2016 versus the prior year quarter was primarily driven by the $35 million of licensing revenue recognized in the current quarter related to the Janssen prostate cancer agreement which is partially offset by increases in expenses related to the U.S. commercial launch of VARUBI, expanded clinical development program activities, CMC related expenses and growth in our workforce, including the establishment of our field sales organization in the fall of 2015.

At this early stage in our commercial launch, revenue from shipments of VARUBI to specialty distributors continues to be deferred, and we did not recognize any revenue from VARUBI shipments to specialty distributors that occurred during the second quarter. Product revenue recognized during the second quarter of $1.4 million consisted of VARUBI sales through our specialty pharmacy Biologics, as well as sales from specialty distributors to providers that occurred in Q1 2016 and Q4 2015.

Products shipped by specialty distributors continued to represent almost 90% of the unit shipped by our distribution partner since launch. The net sales price that we recognized on these sales was $333 per unit, or approximately 63% of our WAC price of $530 per unit. We continue to expect after factoring in GPO and distribution fees, discounts, rebates and co-pay and patient assistance programs, the net sales price that TESARO realize will be approximately 60% to 75% of the WAC price over the life of the product. However, throughout 2016, as we establish VARUBI’s position in the marketplace, we continue to expect the net price that TESARO will realize to remain at the low-end of that range.

As a reminder, accounting guidelines and the SEC impose a high threshold for revenue recognition, particularly for a biopharmaceutical company that is launching its first commercial product. On our balance sheet as of June 30th we have approximately $1.2 million of deferred revenue that relates to payments received from specialty distributor customers. We expect visibility into the channel, the provider and the payor mix, to continue to improve in the second half of 2016. However, there may continue to be revenue that is not recognized or is deferred in future quarters.

Research and development expenses increased to $50.1 million for the second quarter of 2016 compared to $38.9 million for the second quarter of 2015. The increase was driven primarily by higher costs related to the ongoing registration trials of niraparib, expenses related to the clinical supply and scale up, the advancement of our immuno-oncology portfolio, and increased headcount.

Selling, general and administrative expenses increased to $36.2 million for the second quarter of 2016 compared to $16.8 million for the comparable period of 2015, again related to the commercial launch of VARUBI and growth in our workforce including the establishment of our field sales organization in the fall of 2015. Acquired in process, research and development expenses totaled $4 million for the second quarter of 2016 and included the milestone payment related to our immuno-oncology portfolio. As of June 30, 2016, TESARO had approximately $320 million in cash and cash equivalents. In July, we successfully completed a follow-on offering of common stock that resulted in approximately 409 million in net proceeds with a file to offer premium of 4.7%. This 409 million will be reflected in our third quarter financials.

As you know our cash and cash equivalents balance declined by approximately $75 million per quarter on average during the first half of 2016 excluding proceeds from our common stock offering and the upfront payment from Janssen. This level of cash utilization supported the product launch of VARUBI in the U.S., several registration trials of niraparib and the advancement of our first two immuno-oncology candidates into the clinic.

Now in anticipation of four potential new product launches in 2017 niraparib and IV VARUBI in the U.S. plus niraparib and Oral VARUBI in Europe. TESARO will invest in prelaunch inventory manufacturing, development of supply chain capabilities and capacity and the expansion of European and targeted U.S. commercial operations in addition to making milestone payments for regulatory submissions. As a result of these incremental investments, which represent approximately 20% of our projected second half spend, we project that our cash and cash equivalent balance will decline by approximately $100 million on average per quarter during the second half of 2016.

Now, looking ahead we expect that these planned product launches will begin to meaningfully increase our revenues and partially offset our operating expenses in 2017 and beyond. As a result, we expect our cash utilization will peak during 2017, as sales from new product launches begin to cover sales and marketing expenses and offset a portion of our R&D expense.

With that I'll hand the call over to Mary Lynne.

Mary Lynne Hedley

Thank you, Tim. I'll now review each of our development programs beginning with rolapitant. Two regulatory applications are currently under review for rolapitant. The MAA for the oral formulation was submitted to and subsequently validated by EMA in March. And less than two weeks later we submitted an NDA for the IV formulation of rolapitant to FDA. We look forward to keeping you apprised of our progress, as these reviews continue.

Turning now to niraparib, our PARP inhibitor. We are evaluating niraparib in a broad development program in ovarian cancer. We reported the initial results from NOVA at the end of June, which as you know exceeded all of our expectations. The dedication of patients who participated in this trial, their devoted caregivers, our committed partners at ENGOT and the tireless team of TESARO associates have enabled these results. And for each of them we extend our admiration and our thanks. I will discuss those results and our plans for additional presentations of data from NOVA in a moment.

With the exciting data from NOVA now in hand, we are reassessing the primary efficacy populations for QUADRA and PRIMA. Once we have completed discussions with regulatory authorities, we will update you on any relevant changes and our view of the market opportunity addressed by these studies. Because we intend to use QUADRA as the registration trial, we will not initiate the data analysis from QUADRA and so we have incorporated feedback from the FDA on our statistical analysis plans.

PRIMA is an ongoing, randomized controlled registration trial in which patients with high grade serous ovarian cancer are selected for inclusion following a response to first line platinum therapy. Patients are currently being randomized two to one, to receive niraparib or placebo. And the primary end point of PRIMA is PFS. Niraparib is also being evaluated in two ovarian cancer combination trials, the AVANOVA study which is being conducted in collaboration with ENGOT, is evaluating the combination of niraparib plus the VEGF receptor inhibitor bevacizumab in patients with recurrent ovarian cancer.

The combination trial of niraparib plus pembrolizumab and FDA approved anti-PD-1 antibody continues to enroll patients who have either platinum resistant ovarian cancer or triple negative breast cancer. Patients with either of these two tumor types have demonstrated low response rates to anti PD-1 monotherapy, and it is our hope that we can improve upon the clinical activity with the addition of niraparib.

Beyond ovarian cancer, patients with breast cancer and a germline BRCA mutation are enrolling in BRAVO a Phase 3 trial of niraparib. We expect data from this trial in the second half of next year and NDA and MAA submissions to follow shortly thereafter. Over the next year, we plan to expand the niraparib clinical program to include additional tumor types, including lung cancer and Janssen will initiate a niraparib clinical development plan for patients with prostate cancer.

Turning back to NOVA, the results from NOVA are the first data from a prospectively designed randomized Phase 3 trial for a PARP inhibitor. And the full data from this global trial are intended to support regulatory applications in the U.S. and Europe during the fourth quarter of this year.

NOVA was designed to evaluate a single daily oral dose of niraparib in patients with recurrent platinum sensitive ovarian cancer. And to definitively assess which patients could benefit from a PARP Inhibitor. Participants in the NOVA trail were enrolled into one of two cohorts based on their germline BRCA mutation status. Within each cohort patients were randomized such that for every two patients receiving niraparib, one patient received placebo control. The primary endpoint for this study was PFS which was assessed separately for each of the two cohorts.

As we announced at the end June, positive results were achieved in both cohorts and all three primary efficacy population. Among patients who were germline BRCA mutation carriers, the niraparib arm successfully achieved statistical significance over the controller for the primary endpoint of PFS with a hazard ratio of 0.27. The median PFS for patients treated with niraparib was 21 months compared to 5.5 months for control with a P-Value of less than 0.0001.

In the non-germline BRCA mutation cohort, the primary efficacy analysis was conducted in patients determined to the HRD positive using the Myriad Genetics myChoice HRD test. The niraparib ARM successfully achieved statistical significance over the control ARM for the primary end point of PFS with a hazard ratio of 0.38. The median PFS for patients with HRD positive tumors who were treated with niraparib was 12.9 months compared to 3.8 months for control with a P-Value of less than 0.0001.

Since the PFS results were statistically significant in the HRD positive population, a primary efficacy analysis for the overall non-germline BRCA mutant cohort was conducted. Niraparib also showed positive results for the overall patient population, which included patients with both HRD positive and HRD negative tumors. The niraparib arm successfully achieved statistical significance over the control arm for the primary endpoint of PFS with a hazard ratio of 0.45. The median PFS for patients treated with niraparib was 9.3 months compared to 3.9 months for control with a P-Value of less than 0.0001.

With these landmark data, niraparib became the first PARP inhibitor to successfully demonstrate positive clinical benefit for any cancer indication in a prospectively designed randomized well controlled Phase 3 trial. Niraparib is also the first PAPR inhibitor to demonstrate statistically significant improvements in PFS among patients who have HRD positive tumors which includes those who do not have BRCA mutations.

Additional NOVA data including data from exploratory subpopulations such as those patients with HRD negative tumors will be presented at ESMO in early October. As you know, in order to preserve our ability to present these data at a premier medical meeting, we are unable to provide additional details prior to this meeting. We are gratified to be working on behalf of women living with ovarian cancer, whose personal journeys and stories of courage have often humbled our team and driven us forward in our efforts to develop a meaningful drug against this dreadful disease for which there have been few therapeutic advances made in the past decade.

The NOVA data will provide us with a wealth of information in our continuing efforts to improve patient care. As you know, there is no currently approved therapy for maintenance treatment of patients with recurrent ovarian cancer following response to platinum. If approved niraparib may address the difficult watch for waiting periods experienced by patients with recurrent ovarian cancer and extend the disease free interval in between cycles of platinum based chemotherapy.

Finally, turning to our immuno-oncology program. We believe that ownership of a broad-based immuno-oncology platform uniquely positions TESARO as a substantial player in oncology. And we expect that immuno-oncology product including antibodies directed to TIM-3, LAG-3 and PD-1 will become a foundation of cancer therapy regimen across a variety of tumor types. Having all three of these antibodies in our pipeline in addition to buy specific antibodies provides a competitive advantage for initiating our own development program, attracting potential partners, and facilitating collaborations with others who may have complementary approaches.

Our PD-1, TIM-3 and LAG-3 programs continue to rapidly advance. And in just over two years since we began our collaboration with Anaptys, we have moved two antibody candidates into the clinic and identified a third for IND enabling studies. The Phase 1 trial for TSR-042 is enrolling patients and our goal is to identify a dose and schedule for this anti-PD-1 antibody by the end of this year. We recently initiated the Phase 1 study for TSR-022, our antibiotic candidate targeting TIM-3 which in our view is one of the most promising targets in immuno-oncology.

Our anti-LAG-3 clinical candidate TSR-033 is now being evaluated in IND enabling studies and our discovery stage I-O programs continue to move forward. We are working towards selecting our first bispecific antibiotic candidate this year and we are well on our way to identifying our first clinical candidate as part of our small molecule I-O collaboration with the MD Anderson Cancer Center. We are excited about the potential for our pipeline portfolio and we look forward to keeping you apprised of our progress.

I'll now turn the call back over to Lonnie. Lonnie?

Lonnie Moulder

In summary, the first half of 2016 was a defining time for TESARO and we expect to deliver on several key milestones in the second half of the year. We will execute on the launch of VARUBI and prelaunch plans are underway to support four potential product launches in 2017, niraparib in both, the U.S. and Europe, IV VARUBI in the U.S. and oral VARUBI in Europe. We're really excited about the NOVA data presentation plan for ESMO. And we expect additional data from our niraparib clinical programs to become available over the coming quarters. Finally our I-O candidates are rapidly moving forward and we expect to begin combination studies next year.

Operator, at this point can we open up the call for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from Alethia Young of Credit Suisse.

Alethia Young

Going to kind of PARP indication expansion, when you talk about lung cancer, maybe you guys can discuss kind of what in the literature around that -- your potential prevalence rates for DNA repair, as used in those particular cancers or is it broadly lung cancer, the small cell or is it non-small cell? And then also just maybe help us run through kind of logic for PD-1 and PARP again and what we see in the literature for the synergies with that? And I'll leave it there.

Mary Lynne Hedley

So, related to expansion into other indications including lung, at this point I don't -- I think it's premature for me to comment specifically on which type of lung cancer or which indications. I guess I will say that the NOVA data broadly helped us understand how PARP inhibitors could potentially be affective in patients with platinum-sensitive type diseases and also as you may know we looked at in collaboration with Myriad not only the HRD positive test results but also mutations across those tumors that might render them sensitive to potentially PARP inhibitor, so we have the whole wealth of information from NOVA which we will apply to our further assessment of how we look at our other indications.

And then related more specifically to your question, I believe about the combination of PARP inhibitors and anti-PD-1 antibodies as you know our PD-1 antibodies haven't been particularly effective in ovarian cancer and particular in triple negative breast cancer, the response rates range from about 12.5% to 18%, and there is a couple of reasons that that might be the case. The first is that obviously one has to have a sufficient T-cell response in order to actually have activity of anti-PD-1 antibody and the other situation is that you have T-cells, but your tumor microenvironment is not enabling the activity of those T-cells.

So on two potential fronts, we may be able to see benefit of adding of niraparib, the first is that there is the potential for niraparib due to its mechanism of action to enable the addition of the different mutation and those mutations may in fact be recognized as non-cell and activate T-cell responses. And the second is that simply the effect of tumor cell death within the tumor microenvironment and the inflammatory processes that that cause may enable the tumor microenvironment to switch from a cold to a hot tumor. So those are two theories by which we think our PARP inhibitor may in fact provide some synergy with an anti-PD-1 antibody.

Alethia Young

And then just Mary Lynne on the kind of filing timing is there anything kind of incremental that we should think about in like getting to our fourth quarter filling for NOVA?

Mary Lynne Hedley

And maybe I don’t understand the question, anything incremental?

Alethia Young

May be in line, anything beyond the typical things related to filing for an FDA and the European approval of a drug, is there anything else that we should be waiting on?

Mary Lynne Hedley

I would say at this point, no.

Operator

Thank you. Our next question comes from Jim Birchenough from Wells Fargo Securities.

Yanan Zhu

This is actually Yanan Zhu for Jim. Congratulations on the progress. We have a couple of questions, a question on NOVA, is the overall survival, is that going to be part of the data reported at ESMO?

Mary Lynne Hedley

The overall survival data is as you can imagine quite immature at this point. We'll provide a brief mention of it, but again it's very immature.

Yanan Zhu

Right. And so is the PFS considered approval end point in this case?

Mary Lynne Hedley

Yes.

Yanan Zhu

Okay, great. And also for the HRD negative population, I know you're going to be able to go into the data as well, but could you comment on if the data is positive, what are the strategic implications of it because this is kind of on target territories and the I am wondering what implication does that have for your registration strategy as well as commercial strategy?

Mary Lynne Hedley

So as you know that we can't comment on any of the exploratory efficacy analysis that occurred, I can only reiterate that in the three primary efficacy populations which included the germline BRCA cohort, and in the non-germline BRCA cohort the HRD positive population, and the overall population we had what we considered to be very meaningful results. And other than that I think we’d have to just wait till ESMO and we certainly look forward to that data presentation.

Yanan Zhu

And some questions on the QUADRA and mainly because you mentioned that you are going to speak with FDA before releasing the data. Did I hear that correctly?

Mary Lynne Hedley

We’ll not even analyze the data. So, if you’re discussing and I mean think about it, if you’re discussing the statistical analysis plan you don’t want to have looked at any of the efficacy data from the study because that may change your view of how to define the statistical analysis plan. So, until we have the QUADRA stat plan agreed with FDA and the efficacy populations to find an agree with them we won’t even look at the efficacy data.

Yanan Zhu

Right. Is the data still on-track for reporting in third quarter?

Mary Lynne Hedley

So I believe at this point, we haven’t said that we would be reporting QUARDA data in the third quarter.

Yanan Zhu

Okay, all right. So, lastly, just in terms of evaluating the data when it's out for the QUADRA, especially because it's a single arm trial in order to consider what might be a meaningful result. We have the Lynparza data 34% ORR, 7.9 months duration of response described in its prescription label kind of the same line of patient population. However, I think that study in those patients who are considered inappropriate for further platinum treatment, whereas, QUADRA wrote both platinum sensitive as well as platinum resistant patients. So, could you kind of talk about how that might change the benchmark of success?

Mary Lynne Hedley

I would point you to a publication that recently came out in the, that described essentially the efficacy population for the Lynparza label and the author is Susan Domchek and it came out last year 2015 I believe in the fall. And I think it's clearly defined there that platinum sensitive patients were also included. The problem with -- the reason that one doesn’t necessarily refer to specifically the platinum sensitive platinum resistant patient populations when you get to late line treatment this is very hard to determine whether or not they are still -- to call them platinum sensitive or resistant. So they’ve tended to be sort of lumped together in one group, so that’s what happens at the label. But by the definition of a response to platinum for greater than or at least six months, some of those patients are certainly considered platinum sensitive and I would just refer you to that publication for all the detail.

Operator

Thank you. We’ll take our next question from Tony Butler of Guggenheim Securities.

Tony Butler

Yes thanks Mary Lynne, a comment also on QUADRA. First, I think the enrolment number is around 250 patients. Is that fully enrolled to-date? That’s number one. And number two, I recognized your comments around the statistical analysis and having conversations with FDA about looking at or agreeing with this statistical analysis that you’d utilize at the open label. Would it not be obvious to a number of the physicians regardless of whatever analysis that patients maybe better off on drug, on therapy versus at least the historic controls they have seen? And then thirdly around the same topic again, if in fact those -- so, we speculate it, HRD minus patients have a benefit, the question then becomes in QUADRA are there sufficient number of HRD minus versus HRD plus patients to actually draw a conclusion about both populations in the 250 patients that you would have recruited? Thanks very much.

Mary Lynne Hedley

So, first point, no we're not fully enrolled. Second point related to the single arm nature of study and physicians knowing how their patients are doing, certainly they know how their own individual patients are doing, but of course they don't know the aggregate how an aggregate patients are doing across the study. And then your third question I think it is important to point out that we're in track, we're in QUADRA, enrolling patients with BRCA mutations those who are HRD positive and those who are HRD negative and our goal is to achieve the sufficient number of patients in each of those three populations to potentially support a broad indication.

Operator

Thank you. Our next question comes from Robyn Karnauskas of Citigroup.

Robyn Karnauskas

So, one on VARUBI and one on Niraparib. So, I'll start with the Niraparib question, so, now that you have the data, any updated thoughts on the first line study and/or can you say out of first line who's the option to underlines the BRCA positive arm before the overall population just because the Niraparib study pre-data that is going to read out, I'm sorry so one could read out ahead of the data if you don't, just trying to understand the thought from the competition, how they think about the clinical trial readout, how you're thinking about that? And then on VARUBI I want to ask about the case that you've gained a lot of share congratulations on that. Do you know that which you are growing the market and is there a max share that due to contracting you know that you can get, so there're limits to share that you think you, how should we think about market share peaks for those both? Thanks.

Mary Lynne Hedley

I will start on the money I'll pick up the VARUBI question. So, in terms of potential impact from SOLO 1 we know obviously SOLO 1 is only one limited to patients with BRCA mutation and this represents the minority of the overall treatable patient population with recurrent ovarian cancer. So, our goal is considering the strength of the NOVA data, how do we optimize PRIMA study design, so we're able to assess Niraparib in broadest patient population in the frontline setting. So, those are the thinkings that we have and we'll keep you updated on how we intend to potentially optimize the PRIMA study to meet that goal. And Lonnie?

Lonnie Moulder

Robyn with regards the VARUBI market when we began our educational support activities, during the prelaunch cycle, we had of course data on the market size and since that time -- so that's probably in 2014 through where we are today, the actual NK-1 receptor antagonist class has grown over 20% during that time. So, that's educational activities prelaunch and then our own promotional activities have grown the overall market. If you look though at the oral market as we headed into the launch of VARUBI, the oral market was shrinking meaning the ratio of oral to IV was going from about 20/80 towards 10/90.

At the same time many oncology clinics were attempting to operationalize in office dispensing pharmacies which would give them an opportunity of course to utilize oral VARUBI along with other oral supportive care and anti-cancer agents. So several dynamics there as I said and you reiterated, in the month of June, we had a 27 share of the overall category and by the end of the year we would anticipate having majority share and if you look at the current dataset available to all of you via IMS, that would mean a number of units that's probably less than double what we did in the month of June to actually attain a 50 share and approximately 50 share. And if that's the trajectory for oral, we would anticipate clearly driving the oral VARUBI share of the oral market beyond 50%.

The real opportunity though as you know as has been described in the past is the IV market segment which today is closer to 90% of the market, if we had just a steady state of IOD practice utilization meaning that the oral segment didn't grow anymore and we're looking at the IV segment. The IV segment today is something north of 350 million in the U.S. alone and if we have the kind of acceptance around VARUBI oral that's beyond 50%, we would clearly believe that we could achieve that IV and we have stated that in the past importantly though our educational activities and now promotional activities that have helped grow the market over the last almost two years by over 20%. We would want to double or triple the size of the NK-1 receptor antagonist market to get the utilization closer to what the guidelines recommend. So that is our objective and we would anticipate based on where oral VARUBI is headed that overall we would have the majority share.

Robyn Karnauskas

And just as a follow-up and by the way thank you Mary Lynne for better articulating my question, so just a follow-up on VARUBI, but I know it's early but are you starting to get hospitals that weren’t giving NK-1 for certain patients and giving NK-1s even in the oral market, are you seeing any trends there, sort of giving you some hint that you can open up the market with IV?

Lonnie Moulder

And just so you are aware, I think you mentioned hospitals as you know our initial focus with oral VARUBI is really oncology clinics, the clinic segment.

Robyn Karnauskas

Right.

Lonnie Moulder

That is about 70% of the overall opportunity and of the clinic segment, we're focused on about half of that in this initial launch that have half of that clinic potential that actually involves in office dispensing operations or pharmacies. So the hospital components of the VARUBI opportunity would really be part of our strategy as we launch the IV.

Robyn Karnauskas

Got it, okay.

Lonnie Moulder

But we know of practices that have operationalized oral VARUBI within their in-office dispensing operation that have updated their regimens to become more in line with the NCCN guidelines other guidelines. Clearly though we have a way to go on that.

Operator

Thank you. Our next question comes from Chris Raymond, Raymond James.

Laura Chico

This is Laura Chico in for Chris Raymond today. This might be a question for Tim or Lonnie I guess you indicated 20% of your second half spend will be focused towards some new product launches. I guess wondering if you could give a little more color around your plans for the commercial infrastructure expansion? And kind of keeping in the backdrop here just the fact that you have the J&J partnership in place, how are you factoring that into your build out plans?

Lonnie Moulder

Yes let me -- Laura this is Lonnie. I’ll start out with the last part of your question. The J&J or Janssen relationship as you know is focused on the development and commercialization for niraparib in prostate cancer indications including monotherapy in combination. The prostate cancer commercialization ultimately will be via the field and internal commercial organizations of Janssen in key markets. So that is their responsibility but it not impacts what we need to put on the ground to successfully launch VARUBI and niraparib for all other indications, the indications that we were developing. So the focus in the U.S. is a modest expansion for the launch of niraparib primarily and then of course in Europe what we’re working on is putting a full sales, marketing, medical and support organization in place to successfully launch oral VARUBI in the first-half of next year and niraparib in the second half of next year. And obviously there are some things around niraparib that will collaborate with Janssen because they have experiences that we can leverage. But as far as infrastructure, it will be our team.

Laura Chico

And I guess one quick follow-up, we did notice a new niraparib trial on clintrials.gov that was focused on HER-2 negative breast cancer patients, but was using a different criteria or test to evaluate or classify BRCA rightness. So I guess just thinking about the future niraparib development strategies. How should we be thinking about the role of the HRD assay as you’re doing these additional studies? And I guess thinking more broadly about the HRD assay across other tumor types, what’s the expected utility in the other indication?

Mary Lynne Hedley

So at this point, given again that we were able to demonstrate positive responses in the NOVA trial using the HRD positive test there is always the and also just as you may know the HRD test itself was actually creating impart using test samples derived from patients with breast cancer or ovarian cancer. There is certainly the possibility of expanding into a broader breast cancer population using an HRD positive test to identify patients to the benefit. So I think that remains a possibility yes.

Operator

Thank you. Our next question comes from Seamus Fernandez of Leerink.

Seamus Fernandez

So I just had a few here, and congrats on the obviously on the NOVA data and all the success in the quarter. But as we think kind of about testing rates volume maybe you can give us a little bit of a backdrop of what you guys are seeing in terms of current utilization of Lynparza and PARPs and where you really see that in the Unites States and if you're evaluating that at this point or is that something that you will evaluate on a go-forward basis? Second question is on testing. Can you just give us a sense of where BRCA testing is in the ovarian cancer patient population as a percentage of the overall patient population maybe just the estimate there and is there any testing for HRD yet and is that something that you guys are watching closely? And then I've got a couple of additional more research specific questions, but maybe we can just start there.

Mary Lynne Hedley

So, just starting with the testing, as you may know the guidelines for ovarian cancer testing do recommend that all patients receive a germline BRCA test and obviously prior to their being a therapy available that could be utilized to design maybe treatment was the idea that carriers are at a significant risk for developing ovarian cancer and their family members may want to know that for their own reasons obviously to take prophylactic measures or not. So, I would say that certainly BRCA testing as a whole is increasing in the U.S. anyway it's in Europe a little bit more of a difficult situation and it's a country specific situation in terms of how often patients are actually tested, because each country has a different criteria. So, for example in France, you require genetic tempering as well in prior to you being able to even get a test. So, we're following that closely in terms of how that might potentially affect the market but as you know of course NOVA is representing, the NOVA data has suggested that there is activity even outside of BRCA mutant patients. Related to Lynparza use we're seeing primarily payors are requiring that patients have a positive BRCA test in order for that drug to be utilized and as you know Lynparza in U.S. is only approved in late line treatment setting. It is getting utilization in that indication but there is also some use in the second line and even first line setting.

Seamus Fernandez

And maybe just a couple of follow-ups Mary Lynne, as we think about some of the questions that we always get on somatic BRCA, can you help us understand if one were to look at HRD, what percent would typically be somatic BRCA and is it -- would you -- do you believe so strongly that the somatic BRCA percentage in the HRD positive patient population in NOVA would be -- is likely to be consistent with those historical norms? And the reason I asked that question is just because there remains some controversy as to whether or not all of the benefit would be held by somatic BRCA patients I think simple math would suggest that's not the case but I just wanted to maybe try to determine a little bit more what the -- how consistent -- are there any consistencies we should setting to be considered?

Mary Lynne Hedley

So, I guess I could just be short and sweet and say that we don't believe that somatic BRCA mutant patients is in the HRD positive population not driving the response be overall benefit in the HRD positive group which I think is really what you're asking.

Seamus Fernandez

And then just one last question, Solo-2 seems to be running a little bit longer for Lynparza than expected and if I look at the hazard ratios in study 19 and the hazard ratio that we saw in for niraparib, both were very robust. I am just wondering do you -- is your view that niraparib is because of its PARP trapping capabilities it's like to be better than Lynparza or are we really focused on what you just have a different indication, NOVA 2 has a broad indication and really is the only drug over the next call it three to four years that is likely to have anything -- that is likely to have a label that's broad?

Tim Pearson

Yes. Let me comment and turn it over to Mary Lynne, you're referring to the change in the timing for Solo-2 and if you just note from the recent AstraZeneca quarterly call, you'll see a whole series of study outcomes that's been pushed out and that's been a pattern on prior calls, if you just track as we've tracked when their data will be coming and not just for olaparib, but also on some of their other oncology programs. So I think that's just more of a posture on how they guide if you look at the pattern and just one other thing from the AstraZeneca call, they said that they're seeing BRCA testing rates that had moved up to about the 60% level as it relates to their understanding of the market. And that was their comment they're tracking it closely of course because of the Lynparza’s narrow label. Mary Lynne?

Mary Lynne Hedley

Sure. Yes I think the question broadly relates to how NOVA results might position niraparib in the market compare to other potential from PARP inhibitors that maybe approved in a similar setting. And you know I guess I would just have to reiterate with the data, which has basis of 0.27, 0.3 and 0.45 in the three primary efficacy populations which cover the entire recurrent platinum sensitive patient population together with the median PFS studies and the overall shape of the TAM curve I think they provide compelling evidence of the meaningful benefit of niraparib across that patient population and we'll just have to wait to as to follow that information.

Operator

Thank you. Our next question comes from Peter Lawson with SunTrust Robinson Humphrey.

Peter Lawson

Mary, I may have missed this, but is there any guidance around where we see QUADRA data such that kind of the second half event?

Tim Pearson

Peter, could you repeat the question?

Peter Lawson

Sorry, just on QUADRA data, could we see this in the second half of the year was any guidance around where we you done?

Tim Pearson

No, there isn't any guidance, so as we described until finalize the discussions with the agency on the statistical analysis plan, we're not providing guidance.

Peter Lawson

Okay. And then, it seems that there was a change in the inclusion criteria, on clinicaltrials.gov so the enrollment is continuing and so when do you expect that to finish?

Mary Lynne Hedley

The enrollment is continuing and again our goal is to be able to enroll a sufficient number of patients in each of the populations I mentioned so those who are HRD positive, those who are BRCA mutations and those who are HRD negative in order to do efficacy analysis that are potentially appropriate to support a broader indication.

Peter Lawson

And then just on I guess on TIM-3 do you think that could work in ovarian or what do you think is the best check point of I/O combo for ovarian cancer and PAPR inhibitor?

Mary Lynne Hedley

At this point, I would just -- and I think there is certainly potential for PD-1 and niraparib combination in the ovarian and triple negative breast populations. We’re very excited by our other I/O agents anti- TIM-3 and anti-LAG3. And as we move into next year, we look forward to sharing with all of you what our ideas are related to the combinations with those agents and PD-1 in terms of the potential tumor indications.

Peter Lawson

And do you think those could like TIM-3 could potentially move into ovarian?

Mary Lynne Hedley

I think TIM-3 is potentially -- it's potentially an agent that could do one of two things either it could improve the response in situations where we already see activity of PD-1 antibodies, if you just look across the indications that take out MSI-High colorectal, which has a very, very high response rate, obviously. But across the other tumors we typically see pretty low having a 20% to 30% response rate so that’s not bad and of course those patients has much better survival which is why everyone is so enthusiastic about immuno-oncology. But the majority of patients don’t benefit from a PD-1 antibody and there are couple of those probably several reasons for that, one of which maybe countered by the addition of TIM-3. So we’re doing a lot of work to understand more about the tumor microenvironment and then in particular immune cells that infiltrate into that environment and how a TIM3 PD-1 combination or frankly a LAG3 PD-1 combination might enable activity with PD-1 that you don’t otherwise see. So that’s one possibility.

And the second is that we know based on some data that were recently published in the non-small cell lung cancer setting that TIM-3 expression on the surface or T-cells that are expressing PD-1 rendering them resistant to PD-1 therapy. But if you add a TIM3 antibody you can reactivate those T-cells and reenergize those T-cells so that they recognize targets and so create the appropriate cytokines that would suggest that they are in fact after cells and put from the solid tumor cell. So in that case you could potentially either treat resistant patients and there will be a lot of them soon obviously PD-1 antibodies have been around a while now. Or again you can add it to the initiation of therapy and try to create longer PFS or longer survival by for that mixed resistance from generating them, from being generated.

Operator

Thank you. Our next question comes from Eric Criscuolo from Mizuho.

Eric Criscuolo

I guess first the financial question, what do you have embedded in the second half spend strictly for milestone payments?

Tim Pearson

Eric we haven’t specifically disclosed how much of the spend in the back half is related to milestones.

Eric Criscuolo

And could you put any type of parameter around it, or I mean is it the majority of the increase or is it a minority or anything like that?

Tim Pearson

No, it's probably out of the four so different things I quoted probably the least impactful.

Eric Criscuolo

And then just maybe one just wanted to be clear on something, I know last quarter you had said that the QUADRA analysis was being delayed as you awaited FDA feedback on these physical plans, so have you made incremental changes to that trial above and beyond kind of but you were awaiting on from the FDA or is it still the same things that you had mentioned last quarter?

Mary Lynne Hedley

We have not made any substantial changes but one minor change -- relatively minor change we made and somebody referred to it earlier in terms of inclusion/exclusion. We were doing proactive cytogenetic testing before we had as were many people developing PARP inhibitors for MDS and models testing because we weren't sure of the risk, now with the NOVA data we have removed the prospective requirement for having that test and now we store blood and we just -- if anybody ever develops MDS or AML downstream we have the blood and we can look at whether or not, what their baseline was, what their baseline cytogenetics were earlier. And that's just a responsible way to go about it and continue development of PARP inhibitors. But the fact that we didn't see an increase in MDS AML in the NOVA trial enabled us to remove that restriction. But I would say that's a pretty minor from a biological perspective, makes it easier to trial though.

Eric Criscuolo

And just to take that across to the PRIMA trial is that the same, you haven't made significant changes to the structure of the trial but we could just have a really time just awaiting on potential analysis changes?

Mary Lynne Hedley

So, there as you know we've just started enrolling patients. So, we have an opportunity to look at the NOVA data and as you know actually it has a broad population and asked ourselves a question right now the trial is enrolling based on an HRD positive test. So, you might look at the NOVA data and say well there's activity across the broad patient population, would that translate to the frontline setting and would that be a meaningful of the advantage and if both of those things seem logical to you then why not consider that opportunity in a way that enables you to again minimize the risk and protect the patient population meaning the analysis of the patient population that you're most likely from all the other data to see benefit in. So, just like we did with NOVA, when we designed NOVA we protected the BRCA patient population because that's all the data anyone had at that point, that was the population everybody thought was most likely to be successful and obviously the BRCA mutation population had the hazard ratio of 0.25 when compared to 0.38. So, it did do better. So, we would want to protect the primary analysis population but enable an opportunity to see activity in a broader patient population. If that makes sense, does that help?

Eric Criscuolo

Yes, that helps a lot. Thank you very much. And then just on the, I guess the pipeline and the catalysts. Can we expect to see any type of outside of the ESMO NOVA data can we expect to see any type of initial data from any of the immuno-oncology programs or any of the other niraparib programs in the second half of the year sorry?

Mary Lynne Hedley

I had to think of all of the meaning? So can we get back to you on that one?

Eric Criscuolo

Absolutely.

Mary Lynne Hedley

Okay, thank you.

Eric Criscuolo

Sorry, to stump you there.

Mary Lynne Hedley

There is a lot of focus on NOVA and ESMO right now.

Operator

Our next question comes from David Nierengarten of Wedbush.

David Nierengarten

It seems you have the opposite problem going way back to Herceptin and not a problem, but where niraparib is active in all populations as we saw in the NOVA results, is there any chance or desire on your part on your balanced commercial opportunity versus estimated pricing to look at approval and the overall population or still looking at gBRCA and HRD positive patients?

Tim Pearson

Clearly the study delivered on the primary endpoints involving not only the gBRCA population, but the overall non-gBRCA population and in line with our mission to bring transformative therapies to people with cancer, we would want patients to have the opportunity regardless of their status and their study results support that. So our marketing considerations are then secondary, we will want to get the drug to all the patients that can benefit and that happens to be the broadest market opportunity.

David Nierengarten

Or maybe if I guess to be broad, I mean is there a point for HRD positive test when you think about your potential approval or again what you think about that the broadest regulatory strategy here and look for approval in the whole population?

Tim Pearson

Yes, I think any of those type of discussions, decisions really need to be informed by dialogue with the FDA that takes place in normal course as you prepared an NDA. So that's the only comment and I would make at this point, I know that's probably not completely satisfying David but that's what we will say right now.

David Nierengarten

All right I understand and then maybe a question for Mary Lynne on data, yes so you can't talk about data that we might see at ESMO, but given that benefit in the overall population, is there a follow-up data with those patients who were initially determined to be non-gBRCA or HRD negative to see if there is a change in their test later, or was there a follow-up testing I guess would be a question you could answer?

Mary Lynne Hedley

Well not from NOVA but just in general Myriad has done a lot of work on looking at whether or not test results change overtime and you typically don't see -- I mean if you are HRD positive, you typically don't revert right to HRD because you know I can’t some times on that test, but you -- so at a small frequency there are patients who go from HRD negative to HRD positive.

David Nierengarten

Okay. And then appending the presentation is it possible we would see that data or can you comment on that?

Mary Lynne Hedley

We didn’t do that in NOVA.

David Nierengarten

Okay you didn’t okay I think so it won’t be part of the [Multiple Speakers].

Mary Lynne Hedley

No, because it would be very difficult to get longitudinal standard across the large global Phase 2 study, so the patients who are typed as HRD positive or negative based on their -- the biopsy that was done at that surgery that was done at diagnosis.

Operator

Thank you. And our final question comes from Seamus Fernandez of Leerink.

Seamus Fernandez

Just a quick one as we head into the end of August. Lonnie, can you -- on the revenue that is being booked, 27% market share I presume of new patients, but that should be pre-standard. But can you help me understand how revenue is being booked for VARUBI oral at this point? And then separately the growth of demand actually seems to be accelerating, which I think is very [Technical Difficulty] in terms with your commentary. So, just wondering again are there any other things going on with the growth of IV VARUBI and then whether it’d be pricing, or other excess dynamics that you think are at play that puts you in good stat as you bring your IV VARUBI to market? Thanks.

Lonnie Moulder

Okay. This is Lonnie, I’ll address the second question and then turn it over to Tim. For the growth that you’re seeing as I described earlier, I think it has a lot to do with the investment we’ve made in educational activities and now the active promotion of a new CIND drug. And we’re getting the benefit of that in the oral segment clearly with rapid market share penetration. But of course the oral segment is smaller, much smaller. And our focus is in in-office dispensing pharmacies. Now some of those in-office dispensing pharmacies that are not yet capable of operationalizing VARUBI just because of our efforts, are using, are having greater utilization of the class and the drug that they have that’s IV today the only IV they have as you meant. So it meant sort of drafting on our activities, if you understand what I am saying. So yes the category is growing generally, and if it grows on the IV side, it's only meant that gets that benefit today. And then if it grows and growing on the oral segment in the oral segment we are getting that benefit and taking share, that’s what’s happening. Tim?

Tim Pearson

With regard to revenue recognition as I said in my comments for the second quarter we recognized revenue on the specialty pharmacy doses which is the smaller proportion of our doses sold in the quarter. We did not recognize revenue on the specialty distributor doses that have been shipped to practices. And that has to do with the visibility that we have mostly to the payor mix on those doses. So those have been deferred if we’ve actually been paid for them or don’t show up or more or like consignment inventory, if we haven’t been paid for them. Now, from prior quarters, we did not recognize specialty distributor doses either in the past this quarter for the first time we are catching up on the specialty distributor doses and those doses from Q4 of ’15 and Q1 of ’16 have been recognized in this quarter. And on Slide 6 of our update or slides we have provided the unit volumes by month.

Lonnie Moulder

Just for transparency purposes since some of that revenue has been deferred or unrecorded, does that answer your question.

Operator

Thank you. I'm showing no further questions at this time. I would like to turn the call back over to Lonnie Moulder, CEO of TESARO.

Lonnie Moulder

Well, we really appreciate your interest in TESARO and thank you and have a good evening.

Operator

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may all disconnect and have a wonderful day.

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