Curis, Inc. (CRIS) Q1 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to this First Quarter 2012 Curis Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the call over to Mike Gray, Curis' Chief Financial Officer. Please proceed.

Okay, thanks. Good morning, everybody, and thanks, as always, for joining us. During today's call, we'll provide you with an updated on our corporate plans and developments and also discuss first quarter 2012 financial results. Before we begin, I'd like to advise you that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, statements relating to our and our collaborator, Genentech's expectations concerning the commercialization of the market opportunity for Erivedge in the U.S. following its recent FDA approval; our and Genentech and Roche's expectations concerning the timing and outcome of regulatory reviews that are currently being conducted in other territories of Erivedge, including in Europe, Australia, Canada and Switzerland; our and Genentech's expectations regarding the timing of potential outcome of ongoing clinical studies of Erivedge in cancers other than advanced BCC or basal cell carcinoma, which are currently being conducted by Genentech and other third-party investigators, as well as our plans and expectations for advancing CUDC-101 and CUDC-907 and the potential therapeutic benefits of these development candidates and our and our collaborator, Debiopharm's expectations regarding the advancement of Hsp90 inhibitor, Debio 0932. Actual results may differ materially from those indicated by forward-looking statements in this conference call as a result of various important factors. And we encourage you to review our risk factors as more fully described in our annual report on Form 10-K for the year ended December 31, 2011, and in other filings that we periodically make with the SEC. Lastly, we caution you that we're making these forward-looking statements only as of today, and that we may not update any of these statements even if events and developments subsequent to the date of this call cause these estimates and expectations to change. Okay. So with that, I'd like to introduce Dan Passeri, Curis' President and CEO, to discuss our corporate highlights and provide an update on our pipeline. Following Dan's remarks, I'll review our financial results for the first quarter and then we'll open the call for questions. Dan?

Yes. Thanks, Mike. Good morning, everyone, and thank you for joining us today. We've seen continued pipeline progress in the beginning of 2012 with each of our major programs. A highlight for the first quarter, which we were very pleased to announce was the January 30 FDA approval of our collaborator, Genentech's NDA submission for Erivedge for the treatment of adults with a type of basal cell carcinoma or BCC that has spread to other parts of the body that is metastatic or that has come back after surgery or that their healthcare provider decides cannot be treated with surgery or radiation. These subgroups are referred to as advanced BCC. Now this is an extremely important event to Curis, its shareholders and more and most importantly, the patients that are suffering from advanced BCC. BCC is the most common form of cancer in the United States, and the most common type of skin cancer, accounting for approximately 2 million new cases annually. While the disease is generally considered curable through surgical excision when restricted to a small area of the skin, a small percentage of this population may progress to advanced BCC, whereby, their cancer has advanced further into the skin, bones or other tissues or spread to other parts of the body. In these cases, the disease is difficult to treat and is often debilitating and life-threatening. Erivedge is now the only approved Hedgehog Pathway Inhibitor and also the only approved treatment for this advanced form of the disease. Prior to Erivedge approval, there was no approved medicine for this disease, and this is obviously a very important accomplishment for patients suffering from advanced BCC. Advanced BCC often results in severe deformity or impaired function of the affected organs. And patients historically have typically received 1 or more interventions including surgery, radiation and various chemotherapies, none of which are effective therapies for advanced BCC. So we believe that this approval has important financial implications for Curis. As a result of this approval, we've earned a $10 million milestone payment from Genentech, and we expect Erivedge to provide Curis with potentially significant future revenues from royalties on Genentech's net sales of Erivedge in the U.S. market and the potential for expansion beyond the U.S. market. In addition, as of today, we are eligible to receive a $4 million milestone payment for acceptance of the filing in Australia and are eligible to receive potential additional milestone payments and royalties for development and regulatory approvals for Erivedge in advanced BCC in Europe and Australia. Erivedge is currently under review by the European Medicines Agency, or EMA, and by Australia's Therapeutic Goods Administration. Approval in either territory would increase patient access to Erivedge and also result in milestone payments to Curis. Roche has indicated that it currently anticipates possible approvement by the EMA in either late 2012 or early 2013, but has not yet provided a timeframe for potential regulatory approval in Australia. Erivedge is also under review by Swiss and Canadian health authorities, further demonstrating Roche's global strength and also its commitment to providing Erivedge to patients with advanced BCC throughout the world. Roche recently communicated that it estimates 1.5% of all BCCs fall within the category of advanced BCC, and we believe that this represents a highly significant market opportunity for Erivedge. In addition, Roche recently provided an update on the U.S. Erivedge launch, including that over 175 patients have received Erivedge and that Roche reported approximately CHF 5 million in revenue for the period from Erivedge's approval on January 30 through the end of the first quarter of 2012. Roche also noted that the initial Erivedge uptake was encouraging and that payer coverage was excellent with no significant reimbursement hurdles. Based upon the early market launch metrics and the estimates of potential patients, we believe that the advanced BCC market alone represents a significant value proposition for our shareholders, and we look forward to Erivedge's continued growth in the U.S, as well as its potential approval in other markets in the coming months. Genentech's also conducting a separate Phase II clinical trial of Erivedge in patients with operable nodular BCC, which is a less severe form of the disease, and accounts for a significant percentage of the approximately 2 million BCCs diagnosed annually in the United States. We believe that the market opportunity within the operable setting may likely be the use of Erivedge as a neoadjuvant prior to surgery rather than to replace surgery itself. This Phase II trial is the first study to assess the ability of Erivedge to provide complete histological clearance of tumor as an important first step in determining the efficacy of Erivedge in less severe forms of BCC, where BCC lesions are generally treated surgically. This trial is designed to test Erivedge as a single agent therapy in approximately 75 patients with operable nodular BCC in a U.S.-based, open-label, 3-cohort clinical trial. Patients in the first and second cohorts receive 150 milligrams daily oral dose of Erivedge for 12 weeks, while patients in the third cohort receive the drugs for 16 weeks of daily dosing with 2 8-week dosing cycles, covering -- surrounding a 4-week period for which patients will not receive Erivedge. They basically get a drug holiday after the first 8 weeks, then go on for another 8 weeks. The primary outcome measure for the first and third cohorts is the rate of complete histological clearance of the target nodular BCC lesions at the time of tumor excision while the primary outcome measure for the second cohort is the rate of durable complete clearance of target nodular BCC lesions at the time of excision. So I just want to give everyone a context and remind you that the reason the lesion is excised after surgery is to be able to demonstrate a clinical effect on the lesion based on histological analysis. Data from the first cohort was published in April in the Journal of Investigative Dermatology, and will be presented at the upcoming Society of Investigative Dermatology Annual Meeting, taking place from May 9 through the 12th. This first cohort evaluated the safety and efficacy of 12 weeks of daily 150-milligram dosing of Erivedge in 24 patients with newly diagnosed nodular operable BCC. Patients then underwent most surgery with independent pathology review. And then for context, most surgery is a very systematic resection of the lesion, where they basically do a resection, look at it histologically under a microscope, go back, do another resection and you continue that process until there's no more evidence of lesion. A pathologically confirmed complete clearance in 10 patients that was 42% of the cohort, while clinical complete and partial responses were reported for 23 patients or 96%. This is extremely encouraging early data. The most frequent adverse events or AEs were similar to those observed in previous studies with Erivedge, and primarily included muscle spasms and alteration in the sensation of taste, hair loss, fatigue and nausea. Most AEs were a grade 1 to 2, 7 patients reported grade 3 AEs, including 4 patients with a grade 3 muscle spasm, and no serious AEs were reported in the study. Eight patients discontinued from the study, including 2 due to AEs and accrual to cohorts 2 and 3 is ongoing with full study results expected in the first half of 2013. So again, we're very encouraged by this first cohort report, and we look forward to providing you with further updates as they become available. In addition to the operable BCC study being conducted by Genentech, multiple trials in other tumor types are ongoing by third-party investigators and including the exploration of Erivedge in basal cell nevus syndrome or Gorlin syndrome, medulloblastoma, sarcoma, glioblastoma multiforme, as well as in pancreatic, small cell lung, gastroesophageal junction, gastric, breast and prostate cancers among others. Now the rationale for survey in these areas tumor types is buttressed by a wide range of data, demonstrating high levels of hedgehog expression in these tumor types. So we expect that some of these studies may yield data within 2012, and we look forward to providing additional updates on the Erivedge programs in the future as these data readouts become available. It's important to note that the U.S. approval of Erivedge during the first quarter of this year represents a key catalyst towards the next stage of our corporate evolution. Furthermore, we have a number of upcoming potentially key value-creating events lined up for the coming months related to Erivedge. Also, we are continuing to advance our own Curis controlled pipeline, which includes our lead proprietary drug candidate from our network-targeted cancer programs designated CUDC-101, which is currently in an IV formulation, and we're also working on an oral formulation, and I'll elaborate upon that in a moment. CUDC-907, which we are advancing towards clinical testing, that's an oral formulation. And Debio 0932, which is our Hsp90 oral compound, which we have partnered with Debiopharm, currently testing in a Phase Ib trial. I'm now providing -- I'll now provide an overview of the progress relating to these various programs, beginning with an update on CUDC-101, which is exemplary of our overall approach to designing novel drug candidates for cancer network disruption. We aim to enhance the therapeutic effect and durability of clinical response by designing molecules that attack cancer cells at multiple complementary and potentially synergistic points of intervention. And this is what we mean by the concept of network disruption, in that we're hitting the cancer cell at multiple points of intervention, trying to provide a more durable disruption of the biology that the tumor cell is accessing. We are continuing to recruit patients in our ongoing Phase I clinical trial with CUDC-101 in patients with locally advanced head and neck cancer, which is being used in combination with cisplatin and radiation. We have preclinical data demonstrating synergies when used with a standard of care. We recently amended the trial eligibility criteria to also include a subset of patients that are p16 positive, which is indicative of HPV-positive status and with a prior smoking history of greater than 10 packs per year, as well as of the original HPV-negative subset. This amendment provides a wider patient population to enroll in the study and is meant to capture the changing demographics of head and neck cancer by targeting the more aggressive forms of this cancer that are less responsive to standard chemoradiation therapy. We also believe that this amendment would potentially expand the addressable market segment for the drug. This primary objective of the study is to evaluate the safety and tolerability of CUDC-101 when administered in combination with the current standard of care of radiation and intermittent cisplatin, which is a chemotherapeutic drug. Patients in the first cohort experienced no dose limiting toxicities when combined with standard of care, and appear to be receiving benefit from the treatment. A preliminary assessment of the first cohort has revealed highly encouraging responses, but we obviously need further numbers to build statistical confidence in these early, but encouraging observations. The successful completion of the first dosing cohort has allowed us to escalate to the next and final dose level of 275 milligrams per meter squared, our Phase IA maximum tolerated dose or MTD. Accrual to this dose level is ongoing. Our current goal is to complete the dose escalation portion of this study at 275 milligrams per meter squared by the end of the third quarter of 2012, and then to treat approximately 10 additional patients at the MTD determined in the study in order to further characterize its suitability as the recommended Phase II dose. Assuming the successful outcome of the study, we plan to progress CUDC-101 into a randomized Phase II study, comparing the safety and efficacy of cisplatin and radiation therapy with or without CUDC-101 in 2013. We view the head and neck cancer indication to be an ideal initial commercial path indication with our current IV formulation of CUDC-101, as the drug targets the primary driving mechanisms of the more aggressive forms of head and neck cancer. Also that synergy has been reported with HDAC inhibition and radiation. Our preclinical data has shown that CUDC-101 synergizes with cisplatin, and the IV dosing schedule aligns well with current standard of care, where patients must present to the clinic every weekday for 7 consecutive weeks. Importantly, we continue to make promising progress also towards an oral formulation of CUDC-101, and currently expect that we will file an IND and then begin a Phase I study in the second half of this year. Importantly, the oral formulation would allow us to expand potential clinical indications and provide greater dosing schedule flexibility. Furthermore, an oral formulation would provide an opportunity to take advantage of what we've already observed and learned from the Phase I expansion cohort with the IV formulation with emphasis upon the potential of increasing drug exposure as a result of dosing schedule flexibility, afforded with an oral formulation. We're currently in the process of finalizing data and study close-out of our Phase I expansion study with CUDC-101. And we anticipate we'll be -- and we'll present these observations of the full data from this study at an upcoming Medical Conference in 2012. Now moving on to the additional drug candidates from our pipeline. I'll provide a brief summary of CUDC-101 -- I'm sorry, CUDC-907, followed by an update of our Hsp90 inhibitor. CUDC-907 is an orally available synthetic small molecule dual inhibitor of PI3 kinase and HDAC. And as we've accomplished with CUDC-101, we believe that this will provide a durable network suppression, and it is supported by preclinical data. Just want to remind everyone that one of the limitations of PI3 kinase inhibition is that you see MEK upregulated as a bypass mechanism, and that's one of the attributes and benefits of our approach is we're blocking the primary single transduction, in this case, PI3 kinase and through the HDAC moiety. Supported by preclinical data, we appear to be preventing the access to the bypass mechanism. So we've advanced an oral formulation of CUDC-907 towards clinical testing, and expect to file an IND during the second half of this year, and then to initiate a Phase I study. CUDC-907 is being developed in collaboration with the Leukemia and Lymphoma Society, or LLS, under which LLS will support our ongoing development of CUDC-907. Now under this agreement, LLS will provide approximately 50% of the direct cost for the development of 907 up to a total of $4 million. Our scientists recently presented clinical data on this drug candidate at the American Association for Cancer Research Annual Meeting in Chicago. Poster presentation focused on 907's biological activity in cell culture and animal models of various hematological cancers with a particular focus on multiple myeloma and B-cell lymphoma, which are the primary cancers to be explored in the Phase I clinical trial that we expect to initiate at the end of this year or early 2013. In in vitro and in vivo testing, 907 outperformed a first-in-class HDAC inhibitor, as well as an investigational pan class I PI3 kinase inhibitor given as a single agent or in combination of both agents. 907 also demonstrated enhanced anti-tumor activity in animal models of B-cell lymphoma and multiple myeloma when co-administered with standard of care agents used in the treatment of patients with these malignancies. Furthermore and importantly, the poster presentation also showed that many commonly used in vivo models of B-cell lymphoma and multiple myeloma expressed more than one PI3 kinase class I isoform, suggesting that a pan PI3 kinase inhibitor such as 907 may afford greater benefit in many cases than the PI3 kinase inhibitors that are focused and selectively on PI3 kinase isoforms. Accordingly, 907 showed greater biological activity than a delta-specific investigational inhibitor and a number of hematological cancers in vitro and showed greater growth inhibitory activity in animal models of non-Hodgkin's lymphoma. We look forward to providing further information on 907 as it becomes available. I'd like to now provide a summary overview of our Hsp90 program, which is being developed by our licensee, Debiopharm. The lead candidate under this agreement is designated Debio 0932, which is a synthetic non-geldanamycin orally available small molecule Hsp90 inhibitor. During the first quarter of 2012, Debiopharm advanced Debio 0932 into a Phase Ib expansion study. The primary objectives of this study are to further assess the safety profile, pharmacokinetics and pharmacodynamics of Debio 0932 and to make a preliminary assessment of antitumor activity. Debiopharm expects that approximately 30 patients with advanced solid tumors will be treated in this portion of the study, including patients with non-small cell lung cancer. We are eligible for our next milestone under this agreement if and when Debiopharm treats its fifth patient in a Phase II clinical trial, assuming that Debiopharm advances 0932 into Phase II clinical testing. We currently anticipate that Phase II testing could initiate in the first half of 2013. Debiopharm had previously successfully advanced 0932 through a dose escalation portion of the Phase I study, and we expect that Debiopharm will present results of this Phase I study at the ASCO Annual Meeting in Chicago, taking place from June 1 to 5 of this year. We've been pleased with the progress that Debiopharm has made and the ongoing development of Debiopharm to date. And again, we look forward to providing you with further details of progress with this compound as they become available. I'd like to now turn the call back over to Mike for financial discussions. And following Mike's comments, we'll open the call up for questions. Mike?

All right, thanks. In the first quarter of 2012, we reported net income of $2.2 million and $0.03 per share on both a basic and fully diluted basis as compared to a net loss of $6.8 million or $0.09 on, again, both a basic and fully diluted basis for the first quarter of 2011. Revenues for the first quarter of 2012 were $10.4 million, as compared to $100,000 for the same period in 2011. The increase is primarily the result of the $10 million milestone payment to be received from Genentech upon FDA's approval of Erivedge in Q1, and $271,000 in royalty revenues that we earned from Genentech's net sales of Erivedge during the first quarter of 2012. I would just like to point out that the royalty calculates out to 5% of the $5.4 million in Genentech's Q1 sales. Our royalty, just as a reminder, ranges from the mid, so this is the lowest or beginning royalty rate to upper single digits on global sales. So obviously, as Erivedge sales increase, the royalty rate to Curis will increase in the future. Operating expenses for the first quarter of 2012 were $8.2 million as compared to $5.5 million for the same period. Most of the increase was related to costs associated with the U.S. approval of Erivedge in Q1. We recorded cost of royalty revenues of $114,000 for the first quarter of 2012. This amount include $100,000 that we paid to a university licensor upon the first commercial sale of Erivedge, and approximately $14,000 that we paid to university licensures, which represent 5% of the $271,000 that we received in -- or that we earned in royalty revenue for Q1. So going forward, this line item should approximate 5% of the royalties that we receive. Research and development spending was $5.4 million for the first quarter of 2012 as compared to $3.1 million for the same period in 2011, an increase of $2.3 million. The increase was primarily due to $1.6 million in expenses that we incurred related to payments made to various university licensors associated again with the Q1 approval of Erivedge. These included a $1 million expense, which was noncash that represented the fair value of a one-time issuance of an aggregate of 200,000 shares of our common stock to university licensors in connection with the approval of Erivedge, and $500,000 in sublicense fee that we paid on the $10 million approval milestone that we received from Genentech. So again, this represents 5% of that milestone payment. Spending on 907 and 101 both increased modestly year-over-year, as we continue to move those programs forward and our stock-based compensation increased $200,000 to $400,000 from $200,000 in the prior year period, so an increase of $200,000 year-over-year in R&D stock based comp. G&A spending was $2.8 million for the first quarter of 2012 as compared to $2.4 million for the same period in 2011. The increase is primarily due to increased spending of approximately $300,000 in legal and personnel cost. In addition, stock-based compensation increased by $100,000, so it's $600,000 in Q1 of 2012 as compared to $500,000 for the prior year quarter. As of March 31, 2012, our cash, cash equivalents and marketable securities totaled $45 million, and there were 78.5 million shares of our common stock outstanding. I'd like to just update the year end cash guidance based primarily on the milestone that we earned yesterday of $4 million on Roche's filing for approval of Erivedge in Australia and also approximately $3 million that we brought in, in Q1 from warrant and option exercises. We now expect year end cash to be between $30 million and $34 million, exclusive of any additional royalty revenue or milestone payments that we receive from Genentech. Looking forward, we do -- just as a reminder, we do expect to continue, obviously, receiving royalty revenue from Genentech sales of Erivedge in the U.S, and are also eligible for future milestones should Erivedge be approved in Europe or Australia. Also under our partnership with Debiopharm, around the Hsp90 inhibitor, Debio 0932, we're entitled to a milestone payment on the fifth patient in the Phase II portion of the Phase I/II clinical trial that they're going to initiate shortly in non-small cell lung. So that concludes our prepared remarks. I'd like to open the call for questions. [Operator Instructions] Operator?

[Operator Instructions] And our first question comes from Simos Simeonidis from Cowen and Company.

Dan, just to clarify what you said about the patient uptake in -- of Erivedge, is the 175 new patient number that you indicated, is it for the quarter, meaning the February and March? Or is it up to today?

Quarter.

Quarter, yes. It's February and March.

Okay. And my second question, and I'll jump back in the queue. Could you tell us what Erivedge data we'll see at ASCO?

We showed -- there will be data on at least 1 and possibly 2 studies in cancerous sarcoma. There will be data from one of the -- from a randomized Phase II study in pancreatic cancer, and I think there'll will be some additional data in advanced basal cell.

So the operable BCC will be at the week after ASCO at the investigational dermatology meeting?

No, no, the operable BCC data is actually later this week at the Society of Investigative Dermatology meeting. I think the event's being presented on the 11.

Our next question comes from Boris Peaker from Oppenheimer.

I just wanted to learn a little bit more about the initial prescribers. Could you comment the initial docs that are writing scripts for Erivedge? Are they mostly academic, community docs? And how do you see that dynamic evolving with the launch?

Yes. Unfortunately, Boris, we don't have that level of granularity at this point from Genentech. So we don't know where the initial prescriptions have gone. We'll hopefully be able to clarify that over the next quarter or 2.

Okay. And my last question is have you discussed Gorlin's syndrome development strategy with Genentech or Roche? I mean, the data seems very strong. I think I heard you mention that you plan on starting other studies, although I'm not sure how you could do a blinded study in this case given the strong response in the drug arm?

Yes. That's an important question. We have had some preliminary discussions just in terms of the encouraging data. We have not had an explicit discussion with Genentech around the prospects of the current label encompassing Gorlin's. If you look at the particular verbiage in the existing label, it states in the second characterization after the first -- first is metastatic. The second is -- or the lesions returns after surgical excision. Our take is that may potentially encompass Gorlin's, but we haven't had that formally communicated by Genentech, Roche. We do know that Gorlin's is being investigated through an NCI-sponsored clinical trial. As you stated, the data to date looks quite compelling. There was a publication by Irv Epstein out of Stanford a while ago, which showed actually quite dramatic responses in Gorlin's. And I think the key is going to learn how to administer it chronically to this patient population, where the patients will probably need a drug holiday to attenuate or allow the AEs to resolve, and that's going to take some experience and further study. So we look forward to getting clarity from Genentech, Roche as their strategy is communicated publicly.

Just one other comment on that, Boris, is that radiation is counter-indicated for Gorlin's patients. So that's another part of the label where BCC is not appropriate to be treated with radiation.

And your next question comes from Ed Tenthoff from Piper Jaffray.

Yes, I wanted to ask about the CUDC-101 data that you're going to be reporting this year. I know you went through it a little bit on the call, but if you could just kind of run back through a little bit more detail about what we should be expecting there and how that can inform future potential trial design?

Yes. So what we'll be reporting on is the update on the Phase Ib expansion cohort. And potentially at the end of the year, observations from our dose escalation study with head and neck cancer. So to break that into the 2 buckets. The first category looking at the expansion cohort, what we've observed to date is the drug appears to have activity in a number of tumor types, and that activity is stable disease, some long-term stable disease in a number of tumor types, where EGFR is part of the driving mechanism. So that's very encouraging, but we also have concluded with the IV, we have 2 primary obstacles. We had a number of patients although having long-term stable disease dropped out of the study based on clinic fatigue, and that is the inconvenience of having to go back to the clinic for an IV infusion. And then we also have had an observation of a limitation in terms of the exposure of the drug based on its T-half, particularly going in for an every-other-day infusion. So that's where the oral is very important for expansion into those other indications. And on the head and neck, we continue to see some encouraging data. And our expectation is by the end of the year, we'd be able to report on our summary of these observations. I think it's too early to conclude anything. We only have an NF3 right now. So by the end of the year, we would be in a position to report out on the Phase I dose escalation.

All right, great. And then we'll get the oral IND coming soon?

Yes. Thanks for bringing that up. The oral IND filing should be in Q3.

Our next question comes from Joe Pantginis from Roth Capital Partners.

I guess, 2 questions, a housekeeping question for Mike and then maybe one for Dan. Mike, just wanted to be sure about what is the total milestones that are still left and then -- from Roche, for Erivedge. And then secondly, with regard to your 5% payment to the academic institution that -- for your royalty expense, is -- what is the duration? Or is there an expiration for that? Or is the royalty paid in perpetuity as long as you get royalties?

Okay. I'll take the first one. There's $68 million in milestones left. Most of those now are outside of basal cell. We have the 2 remaining milestones in the late indication, and that's for approval in Europe and approval in Australia. And those will be of a similar amount to the amounts received for the filings, the submissions.

On the 5% question, I need to circle back with our IP counsel, but it doesn't go the entire term. If I -- I'll throw an estimate out of 2020, so it's about half the remaining life of the compound itself. Erivedge is covered through 2028.

Okay, great. And then for Dan, based on the potential and additional indications with -- for all the third-party studies, any color you can provide maybe in your discussions with Roche as to how quickly Roche would look to start, say, larger Phase II separate studies for any of these third-party indications?

What's been communicated to us and it's really indicative of Genentech's and Roche's overall strategy in oncology is to follow the data where they have signal. So the key is to wait for public disclosure from the investigative parties, analyze the data, and then where they see a signal to try to make sense out of that and exploit it where appropriate. They haven't communicated to us, Joe, any clarity on timing on that. And so we're awaiting public disclosure as our investors are as well. So once that data becomes available, I think Genentech will then clarify to us what their overall strategy is.

Our next question comes from Brian Skorney from Brean Murray.

Just first one, really quick. Do you guys have a full breakout of Roche's sales? I know on their call, they said there was about CHF 5 million. So just kind of backing out the royalty number, it looks like the rate is just over 5%. Is that a reasonable way to look at it going forward?

Well, okay. So it's 5% right now. And what we've said consistently for a long time, it's a mid- to upper-single-digit royalty that escalates with global sales. So the contract, the sub-terms there or the actual step-ups are confidential under the terms of our contract, so we can't unfortunately disclose more than that. But what we do feel comfortable saying is that to get to that sort of high-single-digit level, we -- global sales need to be well, well, north -- south, rather, of $1 billion. So far south of $1 billion. So it's achievable step-up, and then there a few steps in the royalty schedule, so that as sales increase we'll have incrementally higher royalty. But right now, 5% is the royalty for Q1.

Got you. And then just on 907, I know you're kind of wrapping up the preclinical talks program right now. What are you seeing there? I know there's some concern out there just in the pan PI3 kinase inhibitors that are hitting alpha and beta isoforms since they're ubiquitously expressed, introduced some potential additional toxicities. Can you kind of put what you're seeing in your preclinical tox studies in contrast to what we should expect from pan PI3 kinase inhibitors?

Yes, so we haven't completed the tox studies as of now. But what we've seen to date, we don't have any real concerns about there being an obstacle going forward. The drug appears to be overall well-tolerated. I think we just have to wait until we finish the package and test it in Phase I. I think these generalizations are not helpful in terms of whether pan or isoform. I think you have to look at each drug as an individual entity, particularly ours, where it's hitting more than one target, has the potential of concentrating in a tissue that has those targets amplified. So I think we have to wait and see what the data reveals.

Our next question comes from Red Benjamin (sic) [Reni Benjamin] from Rodman.

Just a couple of questions. I guess the first, Dan, can you just give us a sense as to what the progress is or the progress that's being made on the oral formulation? And will we -- I know that there's going to be an IND filed by the end of the year. But can you give us a sense as to maybe where you are in the path and will we see any of this data maybe at ACR or one of the conferences coming up?

Yes, hang on one second, Ren. So the 101 oral, we have a couple of formulations. We focused on one in particular, looks promising. We have it made in pill form in a capsule. So we're encouraged that we'll be able to file the IND in Q3. In animal studies, we have encouraging early data, showing some oral absorption. So at this point, we're optimistic that we'll be successful to be able to file the IND and test it in humans. And based on our extrapolation of other compounds and what we've seen to date preclinically, we're optimistic that we should have adequate oral absorption in humans, which would give us the ability to now have dosing flexibility.

And is there -- do you have a bioavailability number that you're targeting or based on the animal studies that you can extrapolate right now? Or is it too early?

We're targeting something of the order of 40%-plus, 40% to 50%, I think, would give us a real comfort zone.

Okay. And I guess just on the Debio 0932, the -- I think in your prepared remarks, you mentioned that they're going through the additional expansion cohort with 30 patients. And you mentioned that the Phase II could start in first half of 2013. And I thought, Mike, when you had said your remarks that the Phase II could start shortly in non-small cell lung cancer, so could you just clarify it up for me when this could be starting? And when might we see the data from the initial patients, initial set of patients, not the expansion cohort?

So the second part of your question, the Phase Ia, will be presented at ASCO. And the second part of your question is the Phase I/II study, so it's a combination with chemotherapy. So the Phase I portion will start very shortly and we expect that sometime in the first half of next year, we'll have the Phase II portion starting. So this trial itself starts, but it's the Phase I portion that starts this quarter. And then the hope is that they'll advance that to Q2 first half next year.

And the milestone only hits after the -- after advancing to Q2?

After advancing to Phase II, yes.

Our next question comes from Ed Arce from MLV.

So just wanted to get a little more detail around the operable nodular BCC data that came out recently. With 42% complete histological clearance, it's pretty good data. I was just wondering when we could expect some data around the second and third cohorts of that study. And assuming that we see continued strong results, what would the plan be to progress it further?

Yes, so I think, overall, first of all, it's indicative of their sort of detailed systematic approach to studying mechanistic activity, which I think is going to be really important in properly positioning the drug more broadly. So I agree with your sentiments, the 42% complete histological clearance is very encouraging. And just to remind everyone, it's doubtful that this would be used to replace surgery, but to supplement it in those severe cases of operable nodular BCC. So the second cohort is looking for durability of response. So they were part of that first group of patients that were treated for 12 consecutive weeks. So the first cohort then ended at that point, and they did a systematic surgical excision to look at the histological activity. The second cohort at the end of that 12-week period are then followed out for an additional 24 weeks or up to an additional 24 weeks, where they will then have a surgical excision, and that's to look at durability of the effect and the possibility that there may be an enhancement of effect. Just to remind you, the drug has a T half of about 7 days. So the drug still has activity pass that 12-week dosing period, so we may see some clarity there. So I think what they're looking at is a very systematic analysis of the drug's molecular action and activity mechanistically on the lesion. And then the third cohort is to look at the difference of dosing for an 8-week schedule, then giving a drug holiday, and then an additional 8-week schedule to see if you can enhance that 42% histological clearance potentially. And by giving the patients that 4-week period off to attenuate and potentially resolve the AEs that start manifesting at around that 8-week period. So to try to learn the best way to give this drug and so to your question, I think the data would likely be released on the second cohort possibly by the end of the year. Third cohort, I would say early 2013.

Okay, great. The only other question I had was now that you've got between Roche and Genentech submittals across the U.S., EU, Canada and Australia, I'm just wondering if there were any other markets that perhaps are being considered, in particular, Japan or perhaps somewhere in Latin America?

Yes, I think Japan and Asia, per se, is not an attractive market for BCC because the populations don't typically have the rates of BCC that you have from sort of Western Europeans that have moved to other areas of the globe, where they're exposed to a high degree of UV radiation. I think Latin America is another territory. Eastern Europe is another territory. So those are the markets that they're looking at exploiting.

Our next question comes from Mani Mohindru from ThinkEquity.

Most of my questions have been answered, but a couple of quick follow-ups, one on a prior question on basal -- operable basal cell carcinoma. As I look at the abstract, that's the only thing I found on the Journal of Investigative Dermatology. I do see that over and beyond the 42% complete histological response, there were CRs as well. I think 5 patients had CRs. I thought that it was pretty compelling data in Roche and Genentech's end, so maybe do they have any internal discussions ongoing that even with this short duration of therapy, they were able to hit CRs? And a follow-up on the AEs, what AEs are the primary reasons for discontinuation in this trial and others? And then maybe I'll take one more question, a short question.

Sure. So the primary AEs that manifest our muscle spasm, alteration of the cessation of taste and alopecia. Those are the primary ones. There's some other AEs involved as well. I think the most prevalent one that results in patients dropping out are the muscle spasm, particularly if it gets to a great, great rate, and the alteration of the cessation of taste. I think that's one of the reasons, Mani, they're looking at the 8-week dosing regimen followed by a 4-week holiday to allow those to attenuate, and possibly resolve and then dose again for an 8-week period.

Okay. And any comments on the CR part of the -- like the responses? Has there been full data published? Or is it just the abstract and we should just wait for the full data?

Yes, just the abstract and we would prefer for communication of the full data before we communicate on anything.

And just quickly on 101, so the gastric forms you've so far in your dose escalation, where solid tumors is stable disease and is that with monotherapy?

So just to clarify, on the 1A, we had a confirmed PR in gastric cancer. We had some signs of activity at the single agent in some head and neck cancer patients and 2 patients. One was a mixed response. And in the Phase Ib expansion cohort, particularly with the every-other-day dosing, we saw a significant amount of stable disease, some long-term stable disease and that was as a single agent. We're confident that the drug is hitting its targets. It has a biological and clinical activity. But we're also -- what we observed is a potential exposure liability with this IV formulation. So again, that is why the oral is so important for us to expand out into other indications. That being said, we think with the IV, the head and neck trial has a potential path forward for a registration path based on the synergies we've seen. Pre-clinically, we're encouraged that, that actually would be an applicable application of the drug in the current IV formulation.

But you don't want to try anything with combination with the IV formulation and try to improve some of your responses?

So that's an important question, and we are actually asking that question internally. So at this juncture, we're not going to say we'll not look at that. We are actually assessing based on what we've seen in the head and neck trial, and the synergies we've seen pre-clinically to conduct some very systematic preclinical studies of synergies, where we may be able to apply the IV formulation in a defined setting for a defined period of time.

Our next question comes from Ling -- I'm sorry, from Jason Kantor from RBC Capital Markets.

Thought you might have forgotten about me. On the royalty step-ups, did those step-ups cover the entire sales for the whole year? Or is it just on the incremental sales above the threshold?

It's cuts. So the 5% rate applies from 0 to x, and then it cuts up a few more times to the upper single-digit range. So it doesn't go retroactive back to stellar one.

Within the year.

Within the year, yes.

Okay. So the royalty rates starts low at beginning of the year and potentially gets higher as the year goes on and then resets every year?

Yes.

Okay. And then in terms of the Debio 0932 data at ASCO, what are we going to see in terms of patient numbers and indications for that?

Yes, so we're going to provide data on the dose escalation. I apologize. The actual number of patients treated is alluding me right now, Jason, but I think it's over 30, I don't know.

No, it's over 50.

It's over 50, yes.

Yes, they had 2...

They had an everyday dosing schedule and an every-other-day dosing schedule.

That's right. So it's larger than normal Phase I study.

And they're going to be reporting on the tolerance of the drug and the drug appear to be very well-tolerated in that dosing schedule. And as Mike said, they had 2 cohorts. It was an everyday and every other day, and they'll be disclosing data on those 2 cohorts and then on activity, clinical activity within the Phase Ia. And I don't want to comment on that because they're going to be presenting that at ASCO.

Okay. And then in terms of the operable BCC, do -- did the data crossed any kind of hurdle in terms of what Genentech would want to see to move that forward for both safety and efficacy?

I think it's premature for us to forecast that. We would rather have Genentech and Roche make that statement. I would just convey that the data is very encouraging at this point. In terms of the safety profile, it's consistent with what we've seen, no serious AEs. The AEs tend to manifest later on in the dosing schedule. So that's the third cohort trying to attenuate the AEs through a drug holiday. And having -- this is not meant to replace surgery, per se, but to augment it. So I think the data's very encouraging and we can't put Genentech and Roche's thoughts out there at this point. They have to disclose that.

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

My question's on CUDC-101 and how that cancer remission trial has on that [ph] on the patient population. Could you provide us a little bit more details in -- for the scientific rationale for the expansion? And whether you need to -- I mean, whether you need more patients in this trial?

Yes, it's predicated on a couple of observations. One is our CMO, Dr. Maurizio, has always been working very closely with the PIs. And the amendment is meant to expand patient access for the trial, also to capture the changing demographics that we're seeing, particularly in major centers such as the Northeast and the West Coast, where there's an increasing number of head and neck patients that are HPV positive. So the HPV negative population and subset is clearly an attractive indication, where these patients do not respond as favorably to standard of care, and it is driven by EGFR and a subset Her2 as opposed to HPV. The amendment is meant to capture those patients that are HPV positive, but have a history of significant smoking, which puts them into a category of also having a likely involvement of EGFR. So that subset of HPV positive also do not tend to respond as favorably as just the HPV positive non-smokers. So it's meant to enhance our access to patients during the clinical trial stage, but also to potentially increase the market potential of the label.

Do you need to involve more patients than you previously originally planned?

No. Just the rate of enrollment. We want to try to escalate. And then going forward, at the end of this year, we want to be able to ramp-up the patient numbers at a good rate going forward.

All right then. When do we expect to see the initial data for this trial?

Yes, we're still optimistic we'll complete the dose escalation towards the end of this year, possibly the beginning of 2013, and then we'd report on that data and make a decision to proceed with a randomized Phase II.

Our next question is a follow-up from Simos Simeonidis from Cowen and Company.

Actually, I show no further questions in the queue, and would like to turn the conference back over to Mr. Dan Passeri for closing remarks.

Okay. So I think we've made significant progress during the first quarter. We look forward to giving you further updates as we become available, and thank you very much for your attention and support. And look forward to further details going forward. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect at this time.