Puma Biotechnology, Inc.
Q3 2018 Earnings Call Transcript

Published: 2 Nov 2018

[Operator:]

Good afternoon. My name is Diego and I will be your conference call operator today. At this time, all participants are in a listen-only mode. After the speakers' formal remarks, there will be a question-and-answer session. As a reminder, this call is being recorded. I would now like to turn the conference call over to Mariann Ohanesian, Senior Director of IR for Puma Biotechnology. You may begin your conference.

[Mariann Ohanesian:]

Thank you, Diego. Good afternoon and welcome to Puma's conference call to discuss our financial results for the third quarter of 2018. Joining me on the call today are Alan Auerbach, Chief Executive Officer, President and Chairman of the Board of Puma; Steve Lo, Chief Commercial Officer; and Charles Eyler, our SVP of Finance and Treasurer. After market close today, Puma issued a news release detailing third quarter 2018 financial results. That news release, the slides that Steve will refer to, and a webcast of this call are accessible via the home page and Investors sections of our website at pumabiotechnology.com. The webcast and presentation slides will be archived on our website and available for replay for the next 90 days. Before I turn the call over to Alan for an overview of our performance and operations, I would like to point out that during this conference call, we will make forward-looking statements within the meaning of federal securities laws. All statements other than historical facts are forward-looking statements and are based on our current expectations, forecasts and assumptions. Forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from the anticipated results and expectations expressed in these forward-looking statements. These risks and uncertainties are identified in our Annual Report on Form 10-K for the year ended December 31, 2017, and any subsequent documents we file with the SEC. You are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date of this live conference call, November 1, 2018. The company undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call, except as required by law. During today's call, we may refer to certain non-GAAP financial measures that involve adjustments to our GAAP figures. We believe these non-GAAP metrics may be useful to investors as a supplement to but not a substitute for our GAAP financial measures. Please refer to our third quarter 2018 news release for a reconciliation of our GAAP and non-GAAP results. I will now turn the call over to Alan.

[Alan H. Auerbach:]

Thank you, Mariann, and thank you all for joining our call today. We are pleased to report that sales of NERLYNX, also known as neratinib, Puma's first approved drug, have continued to grow since launch. NERLYNX was approved by the United States Food and Drug Administration in July 2017 for the treatment of patients with early-stage HER2-positive breast cancer who have previously been treated with a trastuzumab-containing regimen. Today, we reported NERLYNX net sales of $52.6 million for the third quarter of 2018, an increase from the $50.8 million in net sales reported in the second quarter of 2018. In addition, our third quarter results included licensing revenue of $10 million which represented an upfront payment we received from one of our licensing partners. In a moment, I will turn the call over to Steve Lo, Puma's Chief Commercial Officer, who will provide an update on NERLYNX launch-related activities and detail our commercial progress in the U.S. to-date. The third quarter of 2018 included a major milestone for Puma. In September, we announced that the European Commission granting marketing authorization for NERLYNX for the extended adjuvant treatment of adult patients with early stage hormone receptor positive – HER2-positive breast cancer and who are less than one year from the completion of prior adjuvant trastuzumab-based therapy. We expect NERLYNX to be commercially available in the European Union in 2019 beginning with our launch in Germany during the first half of 2019 and followed by additional countries throughout Europe in the second half of 2019. The third quarter of 2018 also included acceptance of our new drug submission in Canada. And in October, we announced that our licensing partner, CANbridge Pharmaceutical, received confirmation that China's National Medical Products Administration accepted its New Drug Application for the extended adjuvant treatment of adult patients with early stage HER2-positive breast cancer, following adjuvant trastuzumab-based therapy. We also anticipate submitting for regulatory approval of NERLYNX for the extended adjuvant HER2-positive early breast cancer indication in additional countries during 2019. We also look forward to several additional clinical milestones for neratinib. As investors are aware, we have an ongoing Phase III trial of neratinib in third-line HER2-positive metastatic breast cancer, also known as the NALA trial. The trial has a co-primary endpoint of progression-free survival and overall survival. We have recently hit the number of events required to do a full analysis of both the progression free survival and overall survival endpoints. We are in the process of cleaning the data and anticipate that we should be able to announce the top line results from the trial including both progression free survival and overall survival endpoints either late this year or early next year. As the co-primary endpoint involves both progression free survival and overall survival, the company sees the results as having one of four outcomes. The first potential outcome would be that the trial achieves statistically significant results for both the progression free survival and overall survival endpoints. If this occurs, the company would then plan to meet with the regulatory authorities to determine if the data are sufficient for regulatory filings. The second outcome would be that the trial does not achieve a statistically significant result in either the progression free survival or overall survival endpoint. If this were to occur, the company would seek to rapidly shut down the trial and reduce any future clinical trial expenditures associated with the NALA trial. As the NALA trial is anticipated to represent approximately 35% to 40% of Puma's clinical trial expenses in 2018, the company believes that this would have a beneficial impact on Puma's near-term cash flows and path to profitability. The third and fourth outcomes would be where one of the endpoints achieves statistical significance and the other does not. More specifically this would be where progression free survival achieves statistical significance and overall survival does not or where progression free survival does not achieve statistical significance, but overall survival does. In either of these situations depending on the trend seen in the data, the company may choose to meet with regulatory agencies to see if the data supports regulatory filings. The trial is currently blinded and the company does not know which of these four outcomes is more or less likely to occur. . The company will provide a further update to investors once it has the top line results. In addition, as investors are aware, Puma has an ongoing basket trial of neratinib in HER2 mutated cancers which is referred to as the SUMMIT trial. In 2017, data was presented at the American Association for Cancer Research meeting or AACR, demonstrating that HER2 mutations were found in approximately 2% to 12% of almost every solid tumor. The initial data from the SUMMIT trial was presented at the AACR meeting in 2017 and was published in Nature in 2018. The major publication involved approximately 125 patients with HER2 mutated tumors that were given neratinib as monotherapy. Based on these results, the trial was modified to continue treating patients with neratinib monotherapy in some of the arms and to treat patients with the combination of neratinib plus trastuzumab in other arms of the trial. This was based on pre-clinical data suggesting greater efficacy of neratinib plus trastuzumab in HER2 mutated tumors. As of October 2018, the SUMMIT trial has enrolled approximately 250 patients. We anticipate reporting additional data from the Phase II SUMMIT trial in the fourth quarter of 2018 and first half of 2019. In addition, Puma plans to meet with the FDA in the first quarter of 2019 to discuss the clinical development and regulatory strategy for neratinib with the goal of discussing a potential tumor agnostic indication for neratinib in HER2 mutated tumors. We will continue to update investors as we obtain more information with regard to this matter. In addition, we expect to report additional data from our Phase II CONTROL study involving the use of antidiarrheal prophylaxis on neratinib-associated diarrhea in patients with HER2-positive early-stage breast cancer in the fourth quarter of 2018. I will now turn the call over to Steve Lo who will discuss our U.S. commercialization strategy and progress to-date for NERLYNX. Steve will be followed by Charles Eyler who will highlight key components of our financial statements for the third quarter of 2018.

[Steven Lo:]

Thank you, Alan. NERLYNX has now been in the United States market for over a year since our FDA approval in July of 2017. Since then, thousands of patients have been prescribed NERLYNX. We continued to grow in the third quarter and look forward to providing NERLYNX to more patients. We continued to be focused on the execution of reaching more patients and physicians. As such, the key performance indicators of our progress are primarily directed at the number of active patients on NERLYNX, ensuring patients have access, keeping patients on NERLYNX, and educating more physicians. A reminder that during my presentation I will be making forward-looking statements. On slide 3 as you may recall, our network of six specialty pharmacies provide NERLYNX directly to patients. The specialty pharmacies conduct benefit investigations, obtain a prior authorization approval from the insurance company, and then arrange with the patient to ship NERLYNX to their home. We also have a separate specialty distribution channel where the prescription does not need to be sent to the specialty pharmacy. This helps to facilitate the ability for certain patients to obtain NERLYNX directly from their physician's office, integrated health care systems and also the VA. Later in the call, Charles will review the full financial results, but I will now provide you with the current sales results. On slide 4, you see quarterly net sales of NERLNYX since FDA approval. As Alan mentioned, our net product sales revenue grew to $52.6 million in the third quarter. This growth was a result of more patients being prescribed NERLYNX and staying on the medication. However, in the third quarter, there were many patients who had completed their year of NERLYNX in the extended adjuvant setting, and there was also an increase in patient discontinuations. I will discuss further in the next slide. Slide 5 shows the total number of active patients receiving NERLYNX by month. This includes both patients who received NERLYNX through the specialty pharmacies and patients who we estimate received NERLYNX through the specialty distributors. Note that the number of active patients shown each month is the net of discontinued and completed patients. Please also note that there is a data lag from the specialty pharmacies. And therefore when the data is updated in each quarter, we will also update prior months. Furthermore, we may not be aware for up to 90 days of a patient's final discontinuation as the pharmacies do their best to reach the patients. We perform monthly audits to ensure we have updated numbers. Therefore, the monthly numbers of active patients may differ from prior presentations. Also, these numbers do not include patients on our free drug program which is currently at 9% of total patients. You can see the continued monthly growth due to new patients starting NERLYNX and patients continuing to receive NERLYNX. As a result, the total number of active patients at the end of each month since our FDA approval continues to grow as you see in the chart. I have also included the month of October. As of October 31, we estimate there are 2,139 active patients on NERLYNX. Of these 2,139 patients, we estimate 87% are receiving the drug through specialty pharmacies. We have also noticed that many patients do go back and forth between the two channels based on physician choice and payer mandate. As I mentioned, the number of active patients in the chart is the net number of patients on NERLYNX minus patients who have discontinued or completed their therapy. The percent of patients who discontinue NERLYNX due to adverse events has increased since the last quarter and is now approximately 18% since launch. This increase in patient discontinuations in the past quarter contributed to the lower revenue growth. While we continue to compliantly educate physicians about prophylactic treatment with antidiarrheal medications, our most recent market research showed that 27% of the physicians surveyed were not using any antidiarrheal prophylaxis when starting a patient on NERLYNX. We believe that this may have contributed to the increase in discontinuations. In order to address this, we are taking steps to increase physician awareness of the data from our CONTROL trial that shows a reduction in Grade 3 diarrhea and decreased discontinuation when using antidiarrheal prophylaxis with NERLYNX. Also, in early 2019, we are planning to submit additional data to the FDA from the CONTROL study so that the data from the patients treated with the budesonide and colestipol regimens in CONTROL could potentially be added to the prescribing information for NERLYNX. As a reminder, in the data presented from the CONTROL trial at the San Antonio Breast Cancer Symposium in 2017, the discontinuation rate due to diarrhea in the budesonide and colestipol arms of the trial were 10.9% and 1.7% respectively. This compared favorably to the 20.4% discontinuation rate in the loperamide alone arm of the trial. Since we launched over a year ago, we now have some patients who have completed their 12 months of extended adjuvant therapy with NERLYNX. There are also patients who are nearing their 12 months of treatment. In this set of patients who started a year ago, we have discovered that there are some patients who are staying on NERLYNX even beyond one year. While this is still a small percentage of our overall active patients, we are seeing that approximately 13% of the patients who were eligible to end at 12 months are taking NERLYNX for longer than 12 months. While it is too early to tell how prevalent this is, we are encouraged to see doctors and patients supporting this and continuing NERLYNX beyond a year and we will continue to watch this metric moving forward. The bottom line is that we continue to see growth each month in active patients on NERLYNX. On slide 6, you see that most patients receive NERLYNX in 10 days or less, and 74% of the patients receive it in 15 days or less, which we believe is a continuous sign of a smooth reimbursement process and good payer coverage. This has been consistent throughout the time NERLYNX has been in the market. There are a small number of patients who choose to delay starting NERLYNX due to personal reasons such as travel and vacation. We saw this occur even more frequently during the summer months. As we near the holidays, we are monitoring this as well. There is also a small number of patients who have been prescribed NERLYNX for off-label use such as metastatic HER2-amplified or HER2-mutated cancer which we do not market or promote. The insurance company will typically ask for more information. These situations contribute to the longer times to fill, shown on the right side of the slide. Now on to prescribers on slide 7. We continue to make progress in reaching our target physician audience increasing to 65% in the third quarter. There are more physicians restricting access to sales reps, and we have opportunities to reach them through medical conferences or online which is not reflected in the numbers here. We believe there are still more opportunities to reach more physicians especially increasing their awareness of diarrhea management options. As Alan mentioned, with our regulatory approval in Europe, we are preparing for launch outside of the United States. Specifically, we are working on building our commercial operations in Europe and Canada. As you see in slide 8, we have been working on ensuring NERLYNX will be reimbursed by the health authorities in Europe. The Global Value Dossier has been amended to reflect the indication in Europe and country-specific health technology assessments are underway. Germany, France, and the United Kingdom are the first countries in Europe, we are planning for product availability and progress has already been made. As you recall, we already have a managed access program in place for patients outside the United States. Furthermore, on a parallel path, we are also exploring partnership opportunity in Europe and Canada. In either approach, we expect our plan will allow for commercial availability of NERLYNX in Europe in 2019. Speaking of partnerships, we are committed to providing NERLYNX across the world to patients and physicians. Our established partnerships in Australia, Israel, China, Latin America and South America are going well. We will be receiving significant double-digit percent of sales royalties from these partnerships and in slide 9, you can see the expected timing of regulatory approvals with each of our partners. 2019 will be a key year for our partners and Puma, globally, as we expect potential approvals throughout next year. To summarize, we are highly encouraged with the progress we've made with physicians, payers and patients. We continue to grow our net sales. We continue to reach more prescribers and help patients receive and stay on their medication. We are committed to ensuring all appropriate patients have access to NERLYNX. I will now turn the call over to Charles Eyler for a review of our financial results.

[Charles R. Eyler:]

Thanks, Steve. Let me start with a quick summary of our financial results for the third quarter of 2018. Please note that I will make comparisons to Q2 and Q1 of 2018 which we believe are better indications of our progress as a commercial company than year-over-year comparisons. For more information, I recommend that you refer to our 10-Q, which will be filed on Monday and which include our consolidated financial statements. For the third quarter of 2018, we reported a net loss based on GAAP of $14.2 million or $0.37 per share. Our GAAP net loss for Q2 and Q1 of 2018 were $44.3 million and $24.3 million, respectively. On a non-GAAP basis, we reported net income of $6.6 million or $0.16 per fully diluted share for the third quarter of 2018. As Alan and Steve mentioned, net revenue from NERLYNX sales were $52.6 million versus $50.8 million for the second quarter of 2018. Our year-to-date gross to net reduction is 7.9%. Cost of goods sold for the third quarter was $9 million, which included the amortization of a milestone payment to a licensor of neratinib of approximately $1 million. Going forward, we will continue to recognize amortization of the milestone payments to the licensor for about $1 million per quarter as cost of goods sold. As Alan previously noted, in the third quarter of 2018, we also recognized aggregate sublicense revenue of $10 million. We have seen a good start to fourth quarter NERLYNX sales with an estimated $22.5 million in gross sales in October. We are maintaining our fiscal year 2018 sales guidance of $175 million to $200 million in NERLYNX net product revenue in order to be conservative in case we experience a slowdown in new patient starts due to the November and December holidays. We do not know if we will experience this, but we would like to err on the side of caution with respect to this. As a reminder, this guidance includes only revenue coming from the currently approved extended adjuvant indication and excludes revenue received from our licensing partners. SG&A expenses were $28.5 million for the third quarter of 2018 compared to $40.1 million and $36.6 million for Q2 and Q1 respectively. SG&A expenses included non-cash charges for stock-based compensation of $9.4 million for the third quarter of 2018, compared to $8.5 million and $9 million for Q2 and Q1 respectively. Research and development expenses were $36.4 million in the third quarter, compared to $43.3 million and $46.9 million for Q2 and Q1 2018 respectively. R&D expenses included non-cash charges for stock- based compensation of $11.4 million compared to $13.6 million and $16.4 million for Q2, Q1 2018 respectively. Our net cash used in operating activities for the third quarter of 2018 was approximately $7.3 million compared to $17.6 million and $6.3 million for Q2 and Q1 2018, respectively. Our cash burn for the third quarter was approximately $7 million, compared to cash burn of approximately $15 million for Q2 and $3 million for Q1 2018. We anticipate continued reductions in our cash burn for operations such that by the fourth quarter of 2018, we will have transitioned to cash flow neutral, cash flow positive. We ended the third quarter of 2018 with about $68.3 million in cash and cash equivalents and $59.7 million in marketable securities. Our accounts receivable balance at September 30 was $19.8 million. Our accounts receivable terms range between 10 and 68 days, while our days sales outstanding are about 35 days. The specialty pharmacies continue to maintain approximately three weeks of inventory. Overall, we continued to deploy our financial resources to focus on the advancement of neratinib through ongoing clinical trials and the commercialization of NERLYNX.

[Alan H. Auerbach:]

Thanks, Charles and Steve. Since we launched NERLYNX for the treatment of early stage HER-2 positive breast cancer in the third quarter of 2017, we have continued to receive positive feedback from patients, prescribers and payers. We'll continue to move forward with our plans to advance and expand our commercial activities for the balance of 2018, 2019 and beyond. This concludes today's presentation. We will now turn the floor back to the operator for Q&A. Operator?

[Operator:]

Thank you. We will now begin the question-and-answer session. And our first question comes from Carmen Augustine with JPMorgan. Please proceed with your questions.

[Carmen Augustine:]

Hi, guys. Thanks for taking the question. So, first, looking at kind of the number of active patients on drug by month, we see the July number fell quite substantially about 250 patients, and you kind of alluded to some of the changes that go on between this quarter and when you follow up. But could you just kind of detail what exactly is behind those changes that could kind of lead to that magnitude of restatement?

[Steven Lo:]

Certainly. This is Steve. As I mentioned in my script, we receive data from our specialty pharmacies, which accounts for 87% of our channel, we receive the data from them once a week and they will, of course, tell us whether a patient is active, et cetera. We also audit the data every 30 days. And then on top of that, these specialty pharmacies, part of their job is to reach a patient, try to get them to refill, ship to the patient, et cetera. So, it could be up to 90 days until that data is updated because, again, part of what they do is to help the patient with adherence and compliance. Therefore, what you see in the difference in the July numbers, again, would be the subtraction of patients who have discontinued, that we receive the most up-to-date information on, as well as potentially some patients who completed therapy.

[Carmen Augustine:]

Okay. So, sorry just to follow-up on that, does that mean that they never got on drug or did they get on drug in July and then they discontinued so you removed them from the restated July number?

[Steven Lo:]

Yes. So to clarify, we do a census every month. So, whenever we do this and the last time we showed this to you was our August earnings call. At that point in the month of August, we believe that we had, I believe the number was 2,076. And again, as you can imagine in August compared to July, that's essentially only a week or two since we closed out July. So throughout the course of the next 90 days we'll receive updated information to find out that there was a July patient who was active who had discontinued during that month.

[Carmen Augustine:]

Okay. Got it. And then one just financial question if I could. SG&A is down sequentially as well as year-over-year which struck us as a little bit odd given that we're in the launch phase still. Could you speak to how we should think about SG&A growth from here?

[Charles R. Eyler:]

This is Charles. One of the things that occurred in the third quarter is we had a reimbursement check that had been related to legal fees regarding our class action lawsuit. Some of those fees were being disputed with the insurance carriers. That was resolved in the third quarter and we had received a check for about $5.6 million.

[Carmen Augustine:]

Okay. So should we continue to think about SG&A expense kind of growing from here?

[Charles R. Eyler:]

Yes, particularly with the sales force, sales commissions, as our sales grow, those expenses will continue to grow as well as certain aspects of the marketing program.

[Alan H. Auerbach:]

And then to answer your question on R&D, obviously, we have a number of trials that are nearing completion. So as you have less patients active, less monitoring of sites occurring, R&D expenses are going to go down. So, yeah, I think we have been guiding that we would see sequential R&D expenses starting to trend down so I would anticipate that would probably continue.

[Steven Lo:]

Yeah. And this is Steve. I'll add another comment related to SG&A. So, many of our programs are based on the number of patients who are active, potentially are in compliance and adherence programs. So, it stands to reason that some of those expenses will increase because we'll have more patients on drug.

[Carmen Augustine:]

Okay. Got it. Thanks. We'll go back in the queue now.

[Operator:]

Thank you. Our next question comes from Yigal Nochomovitz with Citigroup. Please state your question.

[Yigal Dov Nochomovitz:]

Yeah. Hi, thanks. I'd just like to get a better understanding regarding what you're seeing in the trends with regard to target prescribers reached. It looks like they're sort of leveling off at around 65%. Is that how you're designing things or is there some sort of challenges in terms of getting access to that 35% that you haven't been able to reach yet? Thanks.

[Steven Lo:]

Yeah. Thanks for the question. Yeah, this is actually pretty much globally in the oncology world. We're finding that certainly academic institutions and lots of oncologists now will close their access to sales representatives. So this is certainly not unexpected. We see that in places such as the northeast quite a bit. What we are doing about it which we don't count in these numbers here, is we do have other ways which we reach physicians. They're at medical conferences. We also have a few online and e-detail programs in place. We don't count those in there because it's not a direct rep-to-rep interaction one-on-one. But rest assured we do have other ways to reach physicians.

[Yigal Dov Nochomovitz:]

Okay. Thanks. And regarding the prophylaxis which you talked about in terms of some of the discontinuation rates for the different regimens, do you have a current snapshot of the way it's broken out in the market currently in terms of what percent of physicians are using budesonide versus colestipol versus loperamide or maybe others?

[Alan H. Auerbach:]

Yeah. So, Yigal, you'll remember that in the FDA approved label in the prescribing information, the only drug that the FDA put in the label was loperamide. And that was the one that had the highest discontinuation rates. So, we don't – I believe the majority of them are probably just using loperamide because that's what's in the label. We're increasing our efforts to try to get more exposure and increase awareness of both the budesonide and colestipol arms because they have much better rates of discontinuations. And that's where the label update that Steve was referring to will be very helpful.

[Steven Lo:]

Yeah. Alan is exactly right there. We will have a small snapshot based on a voucher program. So last quarter, we launched a voucher program to help patients have access to antidiarrheal medications. And the data from there, again a small number, most of the voucher redemptions are for loperamide. So exactly what Alan is saying there because that's in the label and we're looking for other ways to ensure that physicians are aware of the other antidiarrheal regimens.

[Yigal Dov Nochomovitz:]

Okay. And then on the Germany launch, it wasn't 100% clear. Are you – is the plan to find a partner or to launch this yourselves with your own employees? It's just – or is that not been determined yet? It's just not quite obvious what the strategy is there yet.

[Steven Lo:]

Okay. Thanks for that question. First and foremost, we have every intention of launching in Germany ourselves. We've already started the process with them. Last year, we had a pre-advised meeting with the G-BA which is the reimbursement authority there. We're working on our supply chain to be able to supply Germany. As you may know, Germany is usually the first country that most companies will launch in because of the ability to price there before reimbursement is determined. So we are certainly ready to do that. At the same time, we have and have been exploring partnership opportunities with companies who could partner with us in Europe. That's a parallel path. It's not one versus another. And as Alan stated before, in other situations, he stated that we'll do what's best for the shareholders here.

[Yigal Dov Nochomovitz:]

Okay. And then my final question was, should it be our expectation that you're going to introduce the 2019 revenue guidance at some point before the end of the year for the U.S. market? Thanks.

[Alan H. Auerbach:]

I believe we will introduce 2019 revenue guidance at some point. I don't know if we will do it before the end of the year or if it will be something we do early next year. But at some point, yes, absolutely.

[Yigal Dov Nochomovitz:]

Okay. Great. Thank you.

[Operator:]

Our next question comes from Alethia Young with Cantor Fitzgerald. Please state your question.

[Varun Kumar:]

Hi. This is Varun Kumar for our Alethia. Just my first question on, if you can provide any color on the new patient start trend. I understand active patients are increasing. So, entering into 4Q, how should we think the new patient trend will evolve?

[Alan H. Auerbach:]

Yeah. So I don't think we have the numbers in front of us. So I can't comment on it. I think probably just looking at the month-to-month changes that you're seeing in the active patients is probably a good trend to assume.

[Varun Kumar:]

Thank you, Alan. And maybe one final one. So just trying to understand how much of the sales is being restricted by the users of NERLYNX in a specific subpopulation. So, any color on the real world users based on HR status?

[Steven Lo:]

Yeah. This is Steve. So as you know our labels for the entire intent to treat population, we recently did physician surveys to understand which patients they are prescribing NERLYNX for. And they are prescribing NERLYNX for the entire intent to treat population. There is of course stronger preference for those patients who are hormone receptor positive, node-positive that – and again it's a small physician survey. We don't pull charts to do chart audits. But it's safe to say that it is across the board with certainly a lot more patients in the hormone receptor node-positive groups.

[Varun Kumar:]

Okay. Thank you, Steve, Alan. Thanks for taking my questions.

[Operator:]

Thank you. Our next question comes from Ying Huang with Bank of America. Please state your question.

[Ying Huang:]

Hi. Good afternoon. Thanks for taking my questions. First I have a question on the discontinuation rate. You mentioned that 18% of patients overall have discontinued due to adverse events. Can you talk about overall discontinuation rate beyond AE? And then typically does it still happen in early few weeks or a few months, or it's kind of like spread around that in terms of when the patient discontinue? And then I have a question also on the patients who are beyond 12 months of treatment. You mentioned 13%. Is that a cumulative number when it comes from the beginning, first day when they take – when they start to take NERLYNX, or it's only using the patients who have reached 12 months as a denominator here? Thank you.

[Alan H. Auerbach:]

Steve, you want to take it?

[Steven Lo:]

Yeah. Sure. Thanks, Alan. So first of all, on the discontinuation rate, yeah. So I gave you an 18% discontinuation rate for adverse events. The overall discontinuation rate is twice that amount but, remember, the drivers behind that number are going to include patients who transferred to another specialty pharmacy. They could have transferred to a specialty distributor. There's a – rare cases, there's an insurance issue which we put them on free drug. And then we also get a category around patient, physician choice which is a very general category. But when we audit our pharmacovigilance data and compare it to the specialty pharmacy adverse event reporting data, we come up with the 18%. So that's a pretty firm number there. Your second question was around when do patients typically discontinue, if they do. This is mirrored very closely to the CONTROL trial as well as with ExteNET. We're seeing that when patients discontinue in general, it's usually within the first 60 days. Interesting enough as I shared with you earlier, we're finding that in the physician survey, 27% of them aren't giving them antidiarrheal. And so I think with more education there, we hope that that number will improve. And then your third question was around the patients who go past 12 months of therapy. We only looked at the cohort of patients who had reached the 12 months and they're getting ready to complete. And of that cohort, 13% of them have continued on.

[Ying Huang:]

Thanks very much for that. And I have a quick follow-up. If I look back to the slides you presented last quarter, it seems that the number of active commercial patients – obviously, as you mentioned, it's been changing. But I noticed that the difference is becoming wider. For example, in May, the delta between the two reports today and last time was 59, and in June it's 126. But then when I looked at July, you reported 2,076 last quarter. Now, to-date it's 1,812. Now, the difference is 264. So I was just wondering how reliable is this October number you have in today's slide.

[Steven Lo:]

Yeah. And that will be very consistent with what I said before. It's going to be more reliable 90 days from now, a little more reliable 30 days from now. We thought just for full transparency, it was important for us to share with you the snapshot that we had in October in the same way that Charles is sharing with you what the gross sales are for the month of October as well.

[Ying Huang:]

Got it. Thank you.

[Operator:]

Our next question comes from Michael Schmidt with Guggenheim Securities. Please state your question.

[Kelsey Goodwin:]

Hi, this is Kelsey Goodwin on behalf of Michael Schmidt. Thanks for taking the question. We're just wondering, how are you guys thinking about the potential NERLYNX market opportunity and how that might be affected by Roche's KATHERINE trial assuming that Kadcyla will obtain FDA approval or does at some point? I guess how will that affect NERLYNX – if it is treated in the adjuvant treatment? Thank you.

[Alan H. Auerbach:]

Yes. So, the KATHERINE study is an adjuvant trial that is comparing Kadcyla which is T-DM1 to Herceptin in patients that did not receive a pathological complete response to neoadjuvant therapy. So, a few things on the design of KATHERINE. The first is that due to the approval of adjuvant Perjeta based on the APHINITY trial, these patients right now in clinical practice would be receiving Herceptin plus Perjeta in the adjuvant setting. So therefore, the control arm of KATHERINE which is just Herceptin alone, is not necessarily the current standard of care. The second is that due to the timing of when KATHERINE enrolled patients, not all of the patients in the trial received neoadjuvant Perjeta because neoadjuvant Perjeta was not available worldwide when the trial was enrolling patients. Now in terms of the results from the trial, look, I don't know what the results are going to show, but certainly anything that gives high risk patients another option is great. We're going to need to wait and see those results presented to understand them better. Obviously, the goal of treatments in both the adjuvant and the extended adjuvant setting is to reduce the risk of recurrence. So, I think what we will need to look at with the KATHERINE study is kind of what that five-year iDFS rate is, and look, if the five-year iDFS rate in the Kadcyla arm of the trial is 98% to 99%, then, yeah, there's not going to be much additional risk of recurrence for these patients. If the five-year iDFS rate in the trial is similar to what we saw in APHINITY for example, then obviously there's going to still be additional risk for these patients and they need to further reduce the risk. And as a reminder to the investors, in the ExteNET trial which is our Phase III trial, approximately 25% of the patients in ExteNET were similar to the patient population in KATHERINE which is that they did not receive a pathological complete response to neoadjuvant treatment. So, at the San Antonio Breast Cancer Symposium this year, we'll be presenting a poster on the efficacy of ExteNET. That's the basis for our EMA label which is mainly the patients who are hormone receptor positive and less than one year from the completion of adjuvant Herceptin treatment. And we'll also, in that trial, be looking specifically at the patients that did not achieve a pathological complete response and what their efficacy in ExteNET is. So it'll be a good way to look at what neratinib could add to the Kadcyla data from KATHERINE. And as you know, due to the fact that the hormone receptor positive disease tends to have a much longer term risk of recurrence. Their risk of recurrence can go out 10 years. Whatever efficacy we see in that group of patients would clearly be very additive to whatever efficacy is seen with Kadcyla in KATHERINE.

[Kelsey Goodwin:]

Okay. Great. Thank you so much. And then just one more thing, could you possibly speak a little bit more – I know you mentioned that you could meet with the FDA in the first quarter of 2019 and discuss possibly expanding the label into a tumor agnostic label. Could you maybe just speak a bit on that?

[Alan H. Auerbach:]

Yeah. So this is with regard to the HER-2 mutations. As you know, we have our ongoing study SUMMIT, which is looking at neratinib. It's a basket trial. So it's a tumor agnostic trial where we're looking at patients with all different solid tumors that have a HER-2 mutation. So we've certainly seen the FDA granting tumor agnostic indications. I know KEYTRUDA got it for the MSI-high. I know LOXO got it for the TRK-A fusion as well. So it's not something new. We've seen this. Yeah, there is regulatory precedent here. So our plan is to meet with the FDA in Q1 of 2019 in order to kind of discuss the path forward, from a clinical and regulatory perspective, based on the data that we currently have in the SUMMIT study.

[Kelsey Goodwin:]

Okay. Great. Thank you so much.

[Operator:]

Our next question comes from Chris Shibutani with Cowen. Please state your question.

[Chris Shibutani:]

Yeah. I know many of the questions have been asked. In particular, again, the NALA scenarios that you laid out, Alan, I'm trying to get a better sense. It sounds as if in the negative outcome you're describing this to be a cost savings. But can you go through a little bit more about options 3 and 4 and how you're thinking about that and what the implications would be for cost? I believe that we have continued to expect that the metastatic opportunity is still there. But if you could clarify a little bit more how you're seeing – your thinking behind the third and fourth scenarios where you have a positive PFS, not OS, and the reverse as well. Thank you.

[Alan H. Auerbach:]

Yeah. So if you end up having a outcome at NALA that's a statistically significant PFS but you have a trend in OS. I know of previous FDA panels where the FDA had said they would accept PFS and the trend in OS. So obviously, we would need to speak to them about that beforehand but that would – yeah, the plan would be to move forward from that perspective. Now, if you get a negative result on the PFS but a positive on OS – PFS as you know is a surrogate endpoint, OS is usually the preferred endpoint from FDA, and again, assuming you maybe see a trend in PFS but it doesn't hit statistical significance but you do see a statistically significant OS, again, we would speak to the agency regarding that.

[Chris Shibutani:]

And would you also consider these scenarios to be ones that you'd approach European regulators?

[Alan H. Auerbach:]

When we say regulators, yeah. I believe in my speech, we said talk to the regulators. Yeah. It would be both U.S., Europe and other countries as well.

[Chris Shibutani:]

And then just two things to follow up from previous comments about the NERLYNX U.S. experience, in the past, you had talked about off-label use in metastatic patients possibly counting for about 5% during that initial year. Can you comment what you're seeing for metastatic use currently? And then secondly, you had mentioned last – over the summer in the second quarter that there were some patients who were taking the drug for longer than 12 months. How has that played out as far as the current patient use? Thank you.

[Alan H. Auerbach:]

So in terms of our metastatic use, that is now up to 6% and we – from the feedback we get from physicians and also we have our expanded access program, our MAP program in Europe, the majority of the off-label use we anticipate is more in the brain mets and in the HER2 mutations. Because there's a lot of options in metastatic, I don't know that we really see any off-label use in kind of the combination with capecitabine third-line metastatic setting. I don't think we see a lot of that right now. So, I would say the majority of the 6% we're seeing is probably more in the brain mets and in the HER2 mutations. On the patients going out longer than one year, I believe Steve said in his comments and we also had a question on that, that is now at 13% of patients.

[Chris Shibutani:]

Got it. Okay, great. Thank you.

[Operator:]

Thank you. Our next question comes from Kennen MacKay with RBC Capital Markets. Please state your question.

[Kennen Mackay:]

Hi. Thanks for taking the question. One sort of housekeeping question, I'm wondering if you could help us understand what the average dose intensity is in outgoing prescriptions. And then on your prescriber slide on slide 7, I was wondering how many of these are sort of perpetually repeat prescribers. For instance, some of the prescribers that became cumulative prescribers in late sort of last year or earlier this year, are they still prescribing NERLYNX or are there some physicians who have sort of a challenging experience managing some of the toxicity associated with the drug that then don't come back to it and sort of what can be done about that?

[Steven Lo:]

Yes. So, your first question around dose intensity, we don't receive that level of detail from the specialty pharmacies. I will say that anecdotally we do know that most patients do start on the full dose. And the way that the label is set up and due to the side effects, the dose would be tapered down per the label. I know recently, in the last quarter, because of some medical education conferences there have been physicians who have been dose titrating up. We don't have the exact numbers on that because their experience with other tyrosine kinase inhibitor starts would be is they start at a lower dose and they titrate up. So we are at least hearing that and seeing that in some of the physician surveys, but we don't have a quantity on that. In terms of your question regarding prescribers and again we only have the data from the specialty pharmacies not the full channel but we know that we're north of 2,300 prescribers for NERLYNX, about 1,300 of them have prescribed for one patient. However, those are most of the recent prescriptions. So the way that I would look at that is the fact that certainly there are – we're getting new prescribers every week which is very promising. And there are going to be some of those physicians where they prescribe for one patient and then they haven't returned. And that's really the opportunity to your question around making sure that they understand the diarrhea options. As I stated earlier, there have been some physicians who have not used anti-diarrhea prophylaxis and I believe those are the physicians who probably don't have the most positive experience. And our team goes back and make sure that they're aware of doing that, using the anti-diarrheal options.

[Kennen Mackay:]

Got you. And then I just had one sort of an additional more high level follow-up question for Alan. I guess thinking about the conversation last year, one of the points that we talked about was really having to commercially execute and operationally execute to really demonstrate that this market is sort of feasible. And now that at least in the U.S. you've got over $200 million run rate for the drug. You've got upside in Europe, as well as from potentially the metastatic setting. I guess was sort of wondering as you think about NERLYNX, where do you think the sort of full value recognition of this asset will be, I guess, recognized in your eyes and then maybe also in the eyes of BD teams that are sort of out there in large cap biotech, large cap pharma. We heard the CEO of Amgen the other day talking about how SMID cap valuations have come back and they're thinking about becoming more active in that space. So, really interested in sort of where you're thinking about the full value of NERLYNX being recognized.

[Alan H. Auerbach:]

Thanks, Kennen. I think that in terms of the value of NERLYNX, in terms of NERLYNX sales, right now we have the drug in the market in the United States. Next year, we will start to see revenues coming in, in Europe. We will also start to see royalties coming in from our partners in Australia, the Middle East, China, Latin America, South America. So, I think 12 months from now, we will obviously have a much better recognition through revenue of the opportunity worldwide and the extended adjuvant indication. Now, we obviously also have opportunities in the metastatic setting both from the HER2-amplified and the HER2-mutated. And obviously, we need to get the – get data from those, get some guidance from the regulatory agencies, and then execute on those as well. But those also offer additional upside as well. So, I think that like any commercial execution, in time, we will just see especially as we get more availability worldwide, we will certainly see that value recognition through NERLYNX sales.

[Kennen Mackay:]

Got you. Thanks, Alan. I appreciate your thoughts on that and the HER2-mutated market is something I need to look back at. Thank you.

[Operator:]

Ladies and gentlemen, we have run out of time for questions today. I will now turn the conference back to Mariann for closing remarks. Thank you.

[Mariann Ohanesian:]

We appreciate your interest in Puma Biotechnology. As a reminder, this call may be accessed by a replay of the webcast at pumabiotechnology.com beginning in about an hour. Thank you for your time and attention today.

[Operator:]

This concludes today's webcast. All parties may disconnect. Have a great day.