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Edited Transcript of ARQL earnings conference call or presentation 5-Mar-18 2:00pm GMT

Thomson Reuters StreetEvents

Q4 2017 ArQule Inc Earnings Call

WOBURN Mar 6, 2018 (Thomson StreetEvents) -- Edited Transcript of ArQule Inc earnings conference call or presentation Monday, March 5, 2018 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian Schwartz

ArQule, Inc. - Chief Medical Officer

* Dawn Schottlandt

ArQule, Inc. - Senior Director of IR & Corporate Communications

* Paolo Pucci

ArQule, Inc. - CEO & Director

* Robert J. Weiskopf

ArQule, Inc. - CFO & Treasurer

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Conference Call Participants

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* Chad Jason Messer

Needham & Company, LLC, Research Division - Senior Analyst

* George B. Zavoico

B. Riley FBR, Inc., Research Division - Analyst

* Jotin Marango

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* Matthew David Cross

JonesTrading Institutional Services, LLC, Research Division - Research Analyst

* Varun Kumar

Leerink Partners LLC, Research Division - Associate

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Presentation

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Operator [1]

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Good day, ladies and gentlemen and welcome to the ArQule Fourth Quarter and Fiscal Year-End 2017 Earning Conference Call. (Operator Instructions) I would like to introduce your host for today's conference, Ms. Dawn Schottlandt, Vice President, Investor Relations. Ma'am, please go ahead.

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Dawn Schottlandt, ArQule, Inc. - Senior Director of IR & Corporate Communications [2]

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Good morning, everyone. Welcome to the ArQule investor conference call reviewing operational and financial results for the fourth quarter and year-end 2017. This is Dawn Schottlandt, Vice President of Investor Relations and Corporate Communications at ArQule. This morning, we issued a press release that reported results for the fiscal quarter and full year ended December 31, 2017. This release is available on our website at www.arqule.com.

Leading the call today will be Paolo Pucci, Chief Executive Officer of ArQule. Also present for the company are Peter Lawrence, President and Chief Operating Officer; Dr. Brian Schwartz, Head of Research and Development; and Rob Weiskopf, Chief Financial Officer.

Before we begin, please note that we'll be making forward-looking statements as defined in the Private Securities Litigation Act of 1995. These statements will include, among other things, projections regarding the timing of a number of key events related to ArQule's proprietary pipeline. Actual results may differ materially from those projected in the forward-looking statements due to numerous risks and uncertainties that exist in ArQule's operations, development efforts and the business environment, including those factors discussed in our reports on forms 10-Q and 10-K and other documents filed with the Securities and Exchange Commission. The forward-looking statements contained in this call represent the judgment of ArQule as of today. ArQule disclaims any intent or obligation to update any forward-looking statement, except to the extent required by law. We will provide an opportunity for questions and answers at the end of this call. I will now like to introduce the CEO of ArQule, Paolo Pucci.

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Paolo Pucci, ArQule, Inc. - CEO & Director [3]

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Thank you, Dawn. Good morning, everybody, and thank you very much for joining us this morning. I will open today's call with an overview of what we achieved in 2017 as a preface to discussing the plans we have for the current year, 2018. So let me start with the 2017 business scorecard.

The -- what we made was essentially progress across the spectrum of our pipeline. So we made significant progress advancing derazantinib, our FGFR inhibitor, into a registrational trial. We also advanced miransertib, which is one of our AKT inhibitor, into a Phase I/II trial in Overgrowth rare diseases. That's expanding our rare disease strategy. And importantly, we performed a successful IND for ARQ 531, our BTK inhibitor, and is now ongoing with that trial. All this didn't prevent us from continuing the effort on our second AKT inhibitor, ARQ 751, which is -- which was progressing and is still progressing through a Phase Ia trial.

As we proceeded with all this body of work, we also strengthened the relationship with our academic collaborators. We strengthened the relationship with the NIH, with whom we are collaborating for miransertib in rare diseases; with Memorial Sloan Kettering, with whom we are collaborating for miransertib in oncology; and with Ohio State University, with whom we are collaborating for ARQ 531.

We continue this collaboration of having great value for two reasons: First, because they provide expert insights on each of the targets to a depth that cannot be found in a company like ArQule, and in many large companies as well. As we know, it is academia that often leads in exploring novel targets, and all these targets, with the exception of BTK, are truly novel; secondly, through the preclinical collaborations we have with each of these institutions, we also have the opportunity to obtain independent validation for all of our programs. Finally, and importantly, we raised the capital that was necessary and is necessary to continue with these efforts implementing our 2018 business plan. And that all happened in 2017. Now we will discuss here that more recently, early in 2018, we strengthened further our capital base with a business development deal and renegotiating the terms of a financial facility we have with Oxford. More details to come in the call.

Let me now briefly summarize 2017 by each program. ARQ 531 in BTK-driven B-cell malignancies, well, we filed a successful IND. That was done on time and on budget, and just as timely we initiated the Phase Ia portion on the Phase Ia/b trial, and that puts us in contention for the lead for the development of first-in-class reversible BTK inhibitors, something that we consider to be strategic for ArQule.

Moving on to miransertib ARQ 092 in a rare pathway-driven Overgrowth Diseases. In Proteus syndrome we had the greatest part of the achievement, and some of that came in fact from our collaboration with the NIH. In fact, after 2 years of rigorous testing, the NIH -- the geneticists at the NIH concluded the Phase I trial in Proteus syndrome that was run some time ago. We reported in the recent past that this trial met its objectives and provided us with clinical proof of concept that the drug works in this disease.

The NIH also presented the results of that Phase I trial at the Biannual U.S. Proteus Patient Advocacy Meeting. And the video of that link can be found on our website. This is a very, very important development for us and for the patients that are affected by this terrible disease. In absence of a reliable animal model, the only way to achieve a signal of this nature was to perform what amounted to be the first-ever trial done with the drug and an AKT inhibitor in this specific disease. We're also very happy for our collaborators at the NIH. As you know Dr. Biesecker and his team identified, in 2011, AKT1 as the driver mutation for this terrible disease, Proteus syndrome.

And now after 2 years of rigorous testing, they have provided also clinical proof of their discovery of -- back in 2011. So it's certainly in order to congratulate them for that success and that great scientific achievement.

We also proceeded with the following additional 2 prongs of our 3-prong strategy here. And in fact, the company-sponsored Phase I/II trial in the PROS family of Overgrowth Diseases began. This trial includes Proteus syndrome and we have reported that a number of patients have been already enrolled, both in the U.S. and importantly, in Europe.

Just as well for the third prong of our strategy, we continue to enroll patients on our compassionate use named-patient program, and this is those patients that cannot be reached through the NIH study or through our Phase I/II trial.

We are beginning to receive requests from very far away in the world from where we sit here in Boston. We have requests coming from India, we have requests coming from Brazil and other far-fetched parts of the world. And we are trying to meet those requests as best as we can.

So quite a bit of developments for the Proteus syndrome program and the rare disease program. And that is all important, but less so if it doesn't recognize -- it doesn't get recognized by the regulators. And here, I have the opportunity to remind you that these efforts were recognized by the regulators, and in fact, the FDA granted to the drug rare pediatric disease designation. And that will entitle us, upon approval for the drug, into a priority review voucher.

We are now -- we began to engage late in '17 with the EMA for a similar regulatory process.

Miransertib in -- or ARQ 092 and ARQ 751, the 2 AKT inhibitors we have in our development program, now let's talk about in cancer.

In oncology, we continue to advance miransertib in the late stages of a Phase Ib trial. Importantly here, the investigator-initiated cohort at Memorial Sloan Kettering that tests ARQ 092 miransertib in combination with the hormonal therapy anastrozole in gynecological cancer is beginning to provide the data that can be interpreted. Began in 2000 -- this trial began some time ago, proceeded through 2017, and is going to be a topic of discussion for us with the scientific community and as well as investors in the early part of 2018, and Brian will go into greater detail.

And finally, derazantinib in -- our FGFR inhibitor, in the FGFR2 fusion-driven cancer. So we presented at the past ASCO the Phase II proof-of-concept data, and we began dosing shortly thereafter in a registrational trial that test the drug in second-line intrahepatic cholangiocarcinoma with FGFR2 fusions.

So as you could see -- and this is the time to turn the page of 2017 and discuss only what is ahead of us. 2017 was a very busy year for ArQule on all fronts. More so because none of these programs is partnered. They're all supported by the resources that are here, both intellectual resources as well as capital, and both proceeded. They proceeded in such a way that they provide us with a foundation for very significant developments in 2018. So let's see how we go into 2018, what we are planning to achieve, and let's keep in mind through 2018 that high on our priority list is to be flexible, meaning to assess continuously the data and the opportunities that are in front of us from this broad portfolio and decide on capital allocation accordingly.

Let me start with ARQ 531, our BTK inhibitor in B-cell malignancies. ARQ 531, for those of you who are new on the call, and there are a few on the list, is a potent and reversible inhibitor of both wild-type and C481S-mutated BTK. Our objective is to be the first reversible BTK inhibitor to the market in B-cell malignancies. We anticipate data from the Phase I trial to be available at the upcoming AACR in April. Also at AACR, we will present additional preclinical data for ARQ 531 in AML and DLBCL.

More data from the Phase Ia trial will then be presented during the year as it becomes available and is QA'd internally. The market opportunity for a BTK inhibitor that addresses the emerging issue of resistance is estimated to be able to support more than one blockbuster drug. This would be the initial market we will target with ARQ 531. I am placing ARQ 531 as the first drug of focus for 2018 for this very reason.

Let me move on to miransertib ARQ 092 in rare AKT pathway-driven Overgrowth Diseases. Miransertib is a highly selective AKT inhibitor with a downstream effect on PI3K inhibition.

Our objective is to be the first and best-in-class AKT inhibitor in Proteus syndrome and PROS family of rare Overgrowth Diseases. We are poised to enter a registrational phase for Proteus syndrome, and we plan to continue to work in parallel with a company-sponsored and NIH-sponsored development program.

Based on analysis of the literature, we believe that the epidemiology in AKT pathway-driven Overgrowth Diseases, which includes Proteus syndrome, could be greater than 1,000 patients worldwide. And those 1,000 patients suffer of diseases that are classified easily as unmet need.

In addition, based on publicly available data, the median value for a rare pediatric voucher, which we will be granted if we were to be approved in Proteus syndrome, is approximately $175 million. And the last such voucher was traded in the range of $130 million. That alone, at least commercially, justifies our current efforts and the investment we're making in supporting this parallel path, in partnership with the NIH as well as independently.

I place these projects as the second one, although it's the closest to my heart given the terrible unmet disease, for all these reasons.

Miransertib ARQ 092 in pathway-driven cancers. So let's talk -- let's introduce this topic. This is a new topic in our conference call, in that the class of AKT inhibitors in the last 8 to 12 months has seen a resurgence of interest driven by a number of registrational trials that are now in the clinic.

So we have the broadest AKT program in the industry. We have, in fact, 2 AKT inhibitors in development: miransertib, which is the only AKT inhibitor to have developed -- who has shown reliable data in rare diseases which are AKT1 driven; and ARQ 751, which is still in the early stages of development.

Our objectives for miransertib here, in oncology, is now to explore late-stage opportunity beginning with endometrial cancer. We are completing in the meantime -- in the meantime that we're competing the 751 Phase Ia trial and evaluate at a later stage, we are considering to expand the Phase Ib trial we have had running for miransertib, and we would like to expand, specifically, the arm where we, with Memorial Sloan Kettering, have been testing the combination with the aromatase inhibitor, anastrozole, and specifically in endometrial cancer of the gynecological cancers that have been tested.

Our collaboration at Memorial Sloan Kettering plans to present data for miransertib in this setting at the upcoming AACR meeting as well. And we are actively evaluating with them plans to further develop miransertib in AKT pathway-driven cancers.

AKT is emerging as a target of interest, as I mentioned, in combination with hormonal therapy, there where such therapy is standard of care. At least, to our knowledge, 1 AKT inhibitor is currently in registrational trial for prostate and breast cancer, in combination, among others, with hormonal therapies in those settings.

Needless to say that the market potential for those indications will be very, very significant, more significant than anything we have addressed thus far, here at ArQule, during the past 10 years.

These are some of the reasons why I would like to highlight today, for you, this as a third priority for us during 2018.

Our fourth priority is derazantinib. derazantinib is a multi-kinase inhibitor designed to preferentially inhibit fibroblast growth factor FGFR -- receptor FGFR family.

Our objective, as we stated before, is to achieve a fast-to-market registration with intrahepatic cholangiocarcinoma, although that trial would give us the -- with the ongoing Phase III trial, although that will give us a conditional registration.

The trial we are conducting is now called DeLiver, and it tests derazantinib in second-line intrahepatic cholangiocarcinoma. The biomarker strategy for this trial is being implemented and is working well, and is centered around the break-apart FISH test.

We think this is important because it not only facilitates execution for the trial, but it will eventually also facilitate commercialization for the drug, if approved. We already have orphan drug disease, and we'll be watching the midterm analysis of 40 patients to decide if we have an opportunity to approve -- to apply for breakthrough designation.

We believe that the safety of derazantinib demonstrated thus far, the safety profile of the drug, it's an additional differentiating factor. We estimate that the market opportunity for iCCA, based on our forecast, could be greater than $200 million in yearly global peak sales for the second-line setting indication on its own, and if approved, it would grow larger as the drug gets developed more expansively in this indication and beyond. This drug is attracting attention of a potential partner, and this is proven by the collaboration that we have recently announced with Roivant Sciences for the territories of the People's Republic of China, Hong Kong, Macau and Taiwan.

Deal terms include an upfront payment of $3 million, an additional $2.5 million development milestones within the first year from the date of signing. ArQule is also eligible for an additional $82 million of regulatory and sales milestones and double-digit royalties in the low teens on future sales for derazantinib in Greater China.

Most importantly, partnering with Roivant allows us the opportunity to reach a market where the therapeutic need for one such drug might be very significant. In fact, the epidemiology for iCCA in China is a very significant multiple of [DTI] epidemiology that is registered for the Western world.

So these would be the 4 core priorities that we have for this year, and we'll be happy to take your questions later on.

And now, let me pass the phone to Brian, so that he can go into some more specific details of -- relative to each of these programs, following the same order. Brian, please?

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Brian Schwartz, ArQule, Inc. - Chief Medical Officer [4]

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Thank you, Paolo. Let me begin with ARQ 531 in BTK-driven B-cell malignancies. As Paolo said, ARQ 531 is a potent, reversible inhibitor of both wild-type and C481S-mutant BTK. Our objective is to be the first reversible BTK inhibitor to the market in B-cell malignancies.

In the third quarter last year, we began dosing in the Phase Ia portion of the Phase Ia/b trial in patients with B-cell malignancies, including B-cell lymphomas, chronic lymphocytic leukemia, Waldenstroms, who are refractory to B-cell therapies.

The Phase Ia trial is expected to enroll 20 to 40 patients at up to 4 sites in the U.S. in a standard 3-by-3 dose-escalation study. The main objectives are to establish pharmacokinetics, safety, pharmacodynamics and a recommended dose for our Phase Ib part of the trial. We are encouraged by the current accrual rates of the study. The initial pharmacokinetic data from the first few patients dosed are in line with our preclinical modeling projections. We plan to present data at congresses throughout the year, beginning at AACR. We expect to complete the Phase Ia portion of the trial this year and to subsequently initiate the Phase Ib portion, which will [comprise] of a number of prespecified cohorts, including one with patients harboring C481S mutation. The trial in its totality is expected to enroll 80 to 100 patients. The goal is to establish proof of concept in a number of different diseases.

While the prospect of clinical data is very exciting, we are still adding to the already comprehensive preclinical body of data presented thus far for ARQ 531.

At AACR, preclinical data will be presented showing the potential utility of ARQ 531 in AML, DBCL (sic) [DLBCL], and a number of other posters will also be presented. We anticipate that a comprehensive preclinical publication will be published in the medical journal by our collaborators at Ohio State this year as well.

I will now move forward to miransertib in rare AKT-driven pathway Overgrowth Diseases. As Paolo mentioned, miransertib is a highly selective AKT inhibitor. Our objective is to be the first and best-in-class AKT inhibitor in Proteus syndrome and a PROS family of rare Overgrowth Diseases where the drug will be utilized.

We continue to pursue a multipronged development strategy, but now with the aim to create multiple paths to possible registration. Let me explain the rationale for the strategy. While the NIH trial helped us to identify hallmarks of Proteus syndrome such as CCTN, this disease, like other rare diseases, is heterogeneous. Each patient presenting with a unique manifestation of the disease, making a uniform measurement difficult. Our strategy is to compile a comprehensive clinical data set and is designed to capture the natural history of the disease and all the benefits observed in those treated. And this will provide a body of knowledge that can be presented to regulatory authorities. This is an ultra-rare disease, so every patient counts. We have reviewed other disease regulatory applications, and provided -- and there is precedent for such a strategy.

The first path we will pursue is to orderly collect patient data that could eventually support regulatory discussions for the purpose of filing for registration. This effort will combine the company-sponsored Phase I/II Overgrowth PROS and data from the named-patient compassionate use program.

Our ongoing Phase I/II trial for miransertib is enrolling Overgrowth Disease, including PROS and Proteus syndrome. These are driven by either PI3K or AKT pathway mutations. PROS, short for PIK3CA-Related Overgrowth Spectrum, includes over a dozen diseases such as CLOVES or fibroadiposes hyperplasia.

As I mentioned last quarter, we received regulatory approval to enroll patients aged 2 and older, and we were able to enroll 2 patients, 2 years of age in the PROS study this quarter. This is significant as the data collected from NIH Phase I study suggests that we will have the biggest potential for efficacy when we treat patients when they are still young.

In total, we have identified or treated 8 patients on the compassionate use program. The second part we will pursue is to continue our collaboration with the NIH that is in regulatory discussions to launch a new registration trial in Proteus syndrome.

The earlier Phase I trial in Proteus syndrome will conclude formally later this month, and we anticipate data -- final data that will be published later this year.

Let me summarize for those who are new to the call the intent of the foundational Phase I trial for Proteus syndrome, led by the National Human Research Institute at the NIH, that underpins our future programs. The trial enrolled 6 patients, including 3 patients aged 12 to 18 and 3 adults. The selected dose for the regimen was 5 milligrams per meter squared, dosed orally once a day with the intent to treat for up to 12 months. The primary objective was to determine the optimal dose that would reduce AKT phosphorylation in Proteus syndrome tissue by greater than 50%. The secondary objectives included safety in this population; quantification of the cerebriform connective tissue nevi or CCTN, which is commonly seen in Proteus patients; volumetric MRI analysis of the affected bone or CCTN lesions; quality of life; pain; and functional assessment.

In 5 of the 6 patients, a reduction of 50% in phospho-AKT levels compared to pretreatment levels was reported. We met the primary objective of the study. Certain secondary endpoints were also achieved. Most significantly, CCTN results demonstrated a reduction in abnormal tissue at cycle 12 compared to baseline, with the most marked reductions occurring in 2 children treated for 12 cycles.

CCTN is one of the key diagnostic criteria for Proteus syndrome. Complications are recurrent infections, pain, and the only effective treatment is surgical or amputation.

In a recent publication by the NIH, Proteus syndrome team highlighted the importance of the growth kinetics of the CCTN lesions of Proteus patients enrolled in the NIH longitudinal study. The findings of this paper were as follows: the growth kinetics are most aggressive before the age of 18; it is progressive with a growth rate of approximately 6% per year; the CCTN is preceded by an identified area of abnormal skin tissue; and finally, the amount of cells harboring the AKT mutation correlates with the aggressiveness of the CCTN.

This data makes CCTN an ideal target to evaluate the effectiveness of a therapy on the disease. As stated by Dr. Biesecker, miransertib is the first agent he has worked with which has shown any meaningful change in the CCTN lesions in Proteus syndrome. In conclusion, CCTN and other disease measurements produce reliable and reproducible results that can be proposed to regulatory agencies as a potential endpoint for a registration study, along with quality of life and pain assessment.

Let me move on now to miransertib and ARQ 751 in AKT-pathway-driven cancers. Just to reiterate what Paolo said, we have the broadest AKT program in the industry, with miransertib and ARQ 751 in clinical trials. Our objective for this agent is to explore emerging late-stage opportunities in oncology, beginning with endometrial cancer. We will have clinical data of both miransertib and ARQ 751 at AACR.

Data supporting miransertib in combination with the aromatase inhibitor, anastrozole, for the treatment of advanced endometrial cancer will be presented at AACR.

The Phase Ib trial conducted at Memorial Sloan Kettering identifies a potential clinical path forward in this hard-to-treat disease setting. We look forward to meeting with KOLs to establish a clinical path forward.

Data from the Phase Ia trial for ARQ 751, our next-generation AKT inhibitor, will also be presented at AACR by the group from MD Anderson. We will evaluate the data from both AKT inhibitors and determine the next steps.

Finally, let me move on to derazantinib in FGFR2-driven fusion cancers. Derazantinib is a multi-kinase inhibitor, designed to preferentially inhibit the fibroblast growth family receptor family, one, two and three primarily. Our objective is to pursue a fast-to-market conditional registration strategy in iCCA, and explore, in parallel, opportunities to expand and leverage this effort.

We are conducting a registrational trial, which we have termed the DeLiver study, in FGFR2 fusion-driven iCCA. This is a biomarker-driven trial and serves as a fast-to-market strategy.

The trial will use break-apart FISH, as Paolo said, to determine the FGFR status of the patients prior to entry. The trial endpoint is objective response rate, and is expected to enroll approximately 100 patients with iCCA and FGFR2 fusions. We are planning for an interim analysis approximately midway through, when 40 patients have been enrolled and evaluated for response.

As an update, we now have 8 [step] sites recruiting in the U.S. and a number of sites recruiting in Italy. Patient accrual is going according to plan. As a reminder, this is a registration trial and has the potential to lead to conditional approval in FGFR2 fusion iCCA and will require a subsequent confirmatory approval trial.

I am looking forward to updating you on our progress as we move through the year, and I will hand it over to Paolo to update our guidance.

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Paolo Pucci, ArQule, Inc. - CEO & Director [5]

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Brian, thank you very much. So let's go to the guidance now. Let me review the key items in the guidance. ArQule expects revenue to range between $3 million and $4 million for 2018, expects use of cash to range between $26 million and $28 million for the pipeline as presented. Net loss is expected to range between $27 million and $30 million. Net loss per share is expected to range between $0.30 and $0.34 for the year.

And also for the year, we expect to close the -- actually in 2018, with between $23 million and $25 million in cash and marketable securities. This guidance reflects the currently -- the recently announced amendments to our loan agreement with Oxford Finance. Pursuant to that amendment, the amortization date and the maturity date have been extended until September 1, 2019, and August 1, 2022, respectively.

As a result, the amendment extends the interest-only payment period under the loan, and it pushes approximately $5 million in principal payments for a period of 1 year, while retaining the full 36-months amortization period.

This guidance supports aiming to achieve the following goals for 2018: ARQ 531 in BTK-mutated B-cell malignancies; complete the Phase Ia trial in refractory B-cell malignancies; and we aim to publish a foundational CLL paper, together with Ohio State, which will include the chemical structure and the crystal structure for ARQ 531.

Finally, we aim to present initial and subsequent Phase Ia data. We will begin, as we said, at AACR, and we will continue presenting during the year into ASH.

For miransertib, ARQ 092 in rare AKT-mutated Overgrowth Diseases, as we have evinced from Brian's presentation, we aim to initiate a registrational program in Proteus syndrome, the program's two-pronged approach that Brian described, and we aim also to publish the results from the NIH Phase I findings. And also we aim to publish a couple -- together with the investigators, a couple of the more interesting and relevant compassionate use cases.

Moving on to miransertib, ARQ 092 and ARQ 751 in AKT and PI3K-mutated cancer. We aim to present Phase Ib data in oncology for miransertib, beginning with AACR.

And we aim to present final data from the Phase Ia of ARQ 751 in oncology before the year is over.

For derazantinib, where we have less data flow due to the fact that the Phase III trial is ongoing, we aim to complete dosing of the patients needed to conduct an interim analysis in the registrational trial in iCCA that's ongoing.

So we aim to have approximately 40 patients dosed by year-end. And we aim also to explore, as possible, given the many priorities we have for this year, additional indications for this drug.

I will now turn it to Rob to briefly go over some of the relevant financials. Rob, please?

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Robert J. Weiskopf, ArQule, Inc. - CFO & Treasurer [6]

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Thank you, Paolo. The company reported a net loss of $29,203,000 or $0.39 per share for the year ended December 31, 2017, compared with a net loss of $22,718,000 or $0.33 per share for the year ended December 31, 2016.

For the quarter ended December 31, 2017, the company reported a net loss of $7,760,000 or $0.09 per share compared with a net loss of $6,820,000 or $0.10 per share for the quarter ended December 31, 2016.

At December 31, 2017, the company had a total of approximately $48,036,000 in cash, equivalents and marketable securities. For the year ended December 31, 2017, revenues were 0 compared with revenues of $4,709,000 for the year ended December 31, 2016.

For the quarter ended December 31, 2017, revenues were 0 compared with revenues of $1,187,000 for the quarter ended December 31, 2016.

Research and development revenue in the 3 and 12 months ended December 31, 2016, includes revenue from the Daiichi Sankyo tivantinib development agreement and the Kyowa Hakko Kirin exclusive license agreement.

The revenue decreases in the 3 and 12 months ended December 31, 2017, was due to the completion of the development period for both programs on December 31, 2016.

Fiscal 2017 research and development expenses were $19,468,000 compared with $20,042,000 for fiscal 2016.

Fourth quarter 2017 research and development expenses were $4,721,000 compared with $6,242,000 for the fourth quarter of 2016. Research and development expense decreased $0.6 million in 2017, primarily due to lower labor-related costs.

Research and development expense decreased $1.5 million in the fourth quarter of 2017 compared with the fourth quarter of 2016, primarily due to lower outsourced clinical and product development cost of $1 million, professional fees of $0.3 million and labor-related cost of $0.2 million.

General and administrative expenses for 2017 were $7,551,000 compared to $7,563,000 for fiscal 2016. Fourth quarter 2017 general and administrative expenses were $1,849,000 compared with $1,008,000 for the fourth quarter of 2016.

In February 2018, Roivant Sciences Ltd. and ArQule announced the initiation of a collaboration to pursue the development of derazantinib in Greater China. The deal terms included an upfront payment to ArQule of $3 million, which we received in February 2018, an additional $2.5 million development milestone to be received within the first year.

Also in February 2018, as Paolo mentioned, our loan agreement was amended to extend the interest-only payment period under the loan and defer approximately $5 million in principal payments for a period of 1 year, while retaining the full 36-month amortization period. Under the amendment, monthly payments of interest are due through August 2019, with payments of interest and principal due from September 2019 to August 2022. With that, we anticipate that our cash, equivalents and marketable securities on hand at December 31, 2017, financial support from our license agreements and the 1-year extension of our loan agreement will be sufficient to finance our operations into the fourth quarter of 2019.

Let me now turn to financial guidance for 2018. For 2018, ArQule expects revenue to range between $3 million and $4 million. ArQule expects net use of cash to range between $26 million and $28 million for the year. Net loss is expected to range between $27 million and $30 million, and net loss per share to range between a loss of $0.30 to a loss of $0.34 for the year.

ArQule expects to end 2018 with between $25 million -- $23 million and $25 million in cash and marketable securities. With that, I'd like to hand the call back to Paolo.

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Paolo Pucci, ArQule, Inc. - CEO & Director [7]

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Thank you, operator, and we can go to questions, if there is any in the queue.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Jotin Marango with Roth Capital.

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Jotin Marango, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [2]

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So the Overgrowth syndromes are a fascinating development, Proteus and the other syndromes. So I'd like to focus the question on the others. Could you speak a little bit more about the segmentation here, quantitatively and maybe qualitatively? So is that a basket from a regulatory and development standpoint or is the basket approach just an exploratory approach, which then could generate a stand-alone program. So just a few more pixels there. And then I have a question about the BTK side.

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Brian Schwartz, ArQule, Inc. - Chief Medical Officer [3]

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Okay. So I'll take the PROS. So in our preclinical evaluation of Overgrowth Diseases, we looked at not only Proteus, but we also looked at a number of Overgrowth Diseases generated by -- or where the PI3K different mutations, in fact the same hotspot mutations that are present in cancer, were present in those Overgrowth Diseases, so we followed the same path.

We looked at cells from these patients and how our drug did against these cells, and that's what led us to the start of the PI3K Overgrowth spectrum of disease study, because we felt that it would be similar to Proteus, as it was just downstream, and we had a very good effect on cells. In fact the paper is coming out in the next month or 2, which will describe the preclinical evaluation we've done with 092 in the PROS spectrum of diseases.

Like the Proteus finding, where they found AKT mutations in these patients' lesions, they also have been looking at all Overgrowth Diseases and have been starting to find different mutations in these Overgrowth lesions. So almost cancers -- Overgrowth Disease is starting to be segmented, much like we have done in oncology, whereby they are starting to define the syndrome by the mutation as well. So we feel that Overgrowth Diseases, such as CLOVES, Klippel-Weber, there's a bunch of them where the PI3K mutation is also present, we would be able to target that as well.

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Paolo Pucci, ArQule, Inc. - CEO & Director [4]

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And so as far as the basket study, you can view the Phase I/II in fact as the basket study. If we -- if from the study on any specific disease emerges enough data to convince us to elevate them to a separate study, that is what we would intend to do. With the objective that by the time we are concluded with the registrational program for Proteus, we'll have additional signals that we could pursue the same way we have been pursuing Proteus.

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Jotin Marango, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [5]

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And on the BTK front, about 531, given that we will soon see some data at the AACR and everyone's focus is now on this new class of agents, the reversible agents, I wanted to just ask you, what are the parameters that you think are fair for us to focus on in the Phase I study for this reversible agent in order to start painting a picture for them clinically in and of themselves, but also competitively? But what to really expect there and what is fair and conservative to look for in the data?

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Paolo Pucci, ArQule, Inc. - CEO & Director [6]

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So from our point of view, we can tell you that we are observing development initially for PK. So our focus for the first, I would say, 2, 3 cohorts is to see that the PK is what we had expected it to be, based on the preclinical experiment we carried out. In the later cohorts, our focus goal -- and in these cohorts, we also plan on looking to refine our understanding of how the various models work, so -- for measuring PD because, obviously, we are using irreversible models to test PD in -- with reversible inhibitors. So PK, understanding and refining our understanding for the measurement of PD as well as the half-life, right, for the drug. In later cohorts, we will be focusing more on measurement of PD, as well as observing -- beginning to observe a therapeutic effect. When it comes to observed therapeutic effect, our observations will have to take into account that we are including in our Phase I a relatively broad spectrum of patients because these are patients that have progressed past having been treated with any reversible inhibitors but also patients that have not been treated. So we are watching the mix of patients that are coming in this trial. And so far, we are seeing that there is a healthy mix. That's a two-stage approach we are taking for assessing the data. The data that will be at AACR is just very, very initial data because that's the only one we have fully vetted and QA-ed. I hope this answers. At least, that's our point of view.

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Jotin Marango, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [7]

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I look forward to all the presentations at AACR.

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Paolo Pucci, ArQule, Inc. - CEO & Director [8]

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Yes, it is quite a few presentations.

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Operator [9]

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And our next question comes from the line of Chad Messer with Needham & Company.

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Chad Jason Messer, Needham & Company, LLC, Research Division - Senior Analyst [10]

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Given your discussion this morning with the AKT inhibitor in cancer that maybe a combination with hormonal therapy is something you would like to focus on looking at, maybe through that lens, with the pending AACR data, could you talk about what we might want to see there?

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Paolo Pucci, ArQule, Inc. - CEO & Director [11]

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Yes, and we focus -- so a little bit back in time, Chad. Sometimes, like 3, 4 years ago, a number -- there were a number of AKT inhibitors in development. I think there were more than 10 AKT inhibitors in development. And at that point in time, some of those AKT inhibitors observed efficacy in oncology, actually quite intriguing efficacy in oncology as a single agent. But with that efficacy, also, side effects were observed, those limited side effects. So we, at that point, took the path of going to a lower dose and exploring the drug in rare diseases, where we have seen, as described in this call, the efficacy, but not the side effects, thankfully. In the other AKT inhibitor, they pursued a different path. They pursued the path of combination in oncology. And now there has been -- in last 8 months or so, there have been a number of trials, Phase III trials launched in -- by one of the other AKT inhibitors in development in combination with monotherapy. And so not to be excluded from that race, we participated -- we launched this Phase Ib part with Memorial, and we were looking for responses, in short, to your questions. So we look at the -- we look at if the combination with anastrozole for our drug, specifically, could generate responses but without -- or we mitigated those limited toxicities. So that's what we were hoping to see. We were hoping to see responses, and were hoping to see much less severe side effects than we have observed in the past as a single agent. And that's what you probably are going to begin to be able to assess as well: Are the responses there and what is the safety profile? Obviously, (inaudible) smaller numbers.

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Chad Jason Messer, Needham & Company, LLC, Research Division - Senior Analyst [12]

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So preliminary responses and some safety that would lend it to be a good combination partner.

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Paolo Pucci, ArQule, Inc. - CEO & Director [13]

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Yes. Exactly. And if one study is how the AKT landscape in oncology is developing, you will see that there are some very, very significant clinical efforts ongoing. That is nearly 3000 patients, clinical efforts focused on prostate cancer and in breast cancer. That's the reason why we presented our pipeline in the order we did this morning, because we chose to go by market potential. And that's the reason why we presented the priority 1, 2, 3, 4, because that's market potential.

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Brian Schwartz, ArQule, Inc. - Chief Medical Officer [14]

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I think one of the differences is this will be -- there's been quite a lot of work done with AKT, PI3K, mTOR inhibitors in this kind of space. This is different because it will be the first sort of Phase Ib study where we are prospectively identifying a set of mutations and looking at the combination in that subset. So it will be something that hasn't been done retrospectively, but something that will be prospectively presented as well, which is interesting.

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Operator [15]

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And our next question comes from the line of George Zavoico with B. Riley FBR.

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George B. Zavoico, B. Riley FBR, Inc., Research Division - Analyst [16]

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Couple of questions on the Proteus syndrome. It's an ultra-rare disease, as you mentioned, and you're planning on a registration trial. And I presume that's just Proteus syndrome. I think you implied that, not some of the other Overgrowth syndromes?

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Paolo Pucci, ArQule, Inc. - CEO & Director [17]

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Correct.

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George B. Zavoico, B. Riley FBR, Inc., Research Division - Analyst [18]

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For such an ultra-rare disease, how big do you expect this trial to be in the number of patients that you expect to be enrolled? And what age group are you aiming for?

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Paolo Pucci, ArQule, Inc. - CEO & Director [19]

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So we are a -- as far as age group, we will be aiming for the patients in the age group which based on the NIH study has taken the greater benefit. So it will be young patients to young adults, where the disease still developing. As far as a trial, we are trying to position this as a program rather than just a single trial. In reality, what we -- we think that we should be able to collect, in a very rigorous way, data from about 10-or-so patients, and then as others have done before us, try to engage the regulatory authorities on that basis. Because that's a very ultra-rare disease, there is precedent for doing that, and we can pursue that timely. Unlike some of our predecessors that have used that strategy though, we have the benefit of a backup strategy that will take a little bit more time but will have greater scientific rigor, and it would have the benefit of a framework that has been more thoroughly reviewed from the regulatory point of view from the authorities, which is the NIH program. It's very difficult for us to comment about that program right now because although we understand the thrust of it, we have not been able to assess the final protocol. So at this point in time, this would be our one-two strategy. So say that the authorities find sufficient evidence in the collected cases and compiled in a rigorous way as far data goes to grant us approval, then there will be a potential additional confirmation coming from, eventually, an NIH trial. And in case the evidence presented on the case patients were not sufficient, then one could argue that there will be additional data coming as well. And that's why we are discussing a program. We are trying to balance all the opportunities that we have in front of us. We would also be in the position, because we have a Phase II trial open that includes Proteus syndrome, to -- once we see a proto from the NIH, to assess whether or not we want to pursue that in parallel as well. So that will be a 3-prong approach in overseas markets where the NIH, for logistic regions, cannot reach. So that's the program we have in mind, and those other 2 parallel tracks that we will pursue for now, and you also heard of a third that could be added, but at a later date.

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George B. Zavoico, B. Riley FBR, Inc., Research Division - Analyst [20]

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Okay. With regard to efficacy endpoints, based on the evidence you have seen so far, do you have any expectations that you can reverse the CCTN lesions or just halt their progression?

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Paolo Pucci, ArQule, Inc. - CEO & Director [21]

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At this point in time, we have seen containment on the CCTN lesion. And as it is shown in the video that is linked to our website by Dr. Biesecker, he has observed an improvement of the texture of the lesion in the sense that the lesions have become, in the younger patients, softer. And that is not inconsequential because those are under your feet, and it makes a difference whether or not you're walking on sharp stones or soft carpet. So that's what has been observed. And that's what we will pursue to observe.

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George B. Zavoico, B. Riley FBR, Inc., Research Division - Analyst [22]

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Okay. With regard to AKT in cancer and 751, these have been investigator-sponsored trials, you said, MSKCC and MD Anderson. Going forward, will ArQule pick up sponsorship and funding of the trial then?

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Paolo Pucci, ArQule, Inc. - CEO & Director [23]

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We lost you at the end, but let me try to answer. The 751 study is a company-sponsored study that is being conducted at MD Anderson. So they're partnering with us but in the frame of our company-sponsored trial. The Phase Ib segment that is ran at Memorial is a part of the sponsored trial but is ran as an investigator initiated, importantly, because the concept emerged from MD Anderson, so we have to give them full credit for all of that. And with MD Anderson, we plan to continue to collaborate. The form has not been defined. Obviously, if we were to -- if the data -- if we were to proceed into a later-stage trial, which there might be opportunities, then that will most likely be a company-sponsored effort, but would -- most likely also with a leading role for Memorial.

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George B. Zavoico, B. Riley FBR, Inc., Research Division - Analyst [24]

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Okay. And finally one last question about the Roivant deal in China. Can you provide any guidance as to when you might expect Roivant to commence or initiate the first trial in China?

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Paolo Pucci, ArQule, Inc. - CEO & Director [25]

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We will have to refer you to future disclosures by Roivant, themselves. And we will bounce in calls like these any disclosures that we might receive from them, provided that they agree to it.

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Operator [26]

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And our next question comes from the line of Matt Cross with Jones Trading.

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Matthew David Cross, JonesTrading Institutional Services, LLC, Research Division - Research Analyst [27]

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Appreciate the pipeline update. So I guess just following up on Chad's question earlier, are you able to provide any detail on the potential mechanistic synergies that you'd expect to see between an AKT and an aromatase inhibitor? I know you'd mentioned testing in a particular cohort of patients, and I was just kind of wondering if you'd envisioned going into aromatase-inhibitor-resistant patients or what you'd expect this approach to look like based on data you've seen so far.

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Brian Schwartz, ArQule, Inc. - Chief Medical Officer [28]

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So that's going to be part of discussion with KOLs, what is the exact population. The Phase I portion allowed, basically, very advanced endometrial patients on -- majority of them had actually failed an aromatase or hormonal agent before coming on, but that's the path that we aim to have to define with the key opinion leaders. As you know, endometrial cancer is a tough cancer and has multiple pathways for therapy, including chemo and hormonal, dependent on number of different characteristics. So that part we have to find. The intriguing part for us, and we're going to present, is going to be in an enriched population where you anticipate the effects of both drugs to do well. We will see how -- we'll present the data coming up at AACR.

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Matthew David Cross, JonesTrading Institutional Services, LLC, Research Division - Research Analyst [29]

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Got it. I'll look forward to that presentation then. And then just a quick update on 531 program. I know in the past you'd mentioned that PK -- or from a PK perspective, things are tracking with kind of your modeling expectations. I was wondering if you are able to comment on whether that's still the case or if that's something that we'll just kind of need to wait for the update at AACR?

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Paolo Pucci, ArQule, Inc. - CEO & Director [30]

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You will see -- the update on AACR will refer to the data that we were beginning to look at. And generally, PK is still tracking to our modeling expectations, by and large.

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Operator [31]

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(Operator Instructions) Our next question comes from the line of Michael Schmidt with Leerink Partners.

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Varun Kumar, Leerink Partners LLC, Research Division - Associate [32]

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This is Varun Kumar for Michael Schmidt. I just have one follow-up question on BTK inhibitor. In your view, how are PK/PD and safety profile for a reversible BTK inhibitor expected to differ compared to an irreversible BTK inhibitor?

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Paolo Pucci, ArQule, Inc. - CEO & Director [33]

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We are going to find out through the trial. We have some -- the most basic expectation is to observe, at some point in time, efficacy in C481S-mutated patients. That's the basic assumption that underpins many of these diseases -- many of these irreversible BTK inhibitors, or actually few because there are only a few in development. And as far as safety, it's only -- it's early for us to comment.

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Brian Schwartz, ArQule, Inc. - Chief Medical Officer [34]

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I think there are a couple of on-target expected toxicities that most of the BTK inhibitors have. One would still expect those in terms of reversible and irreversible, but I'm sure there will be differences in terms of some of the other toxicities that have been reported. Some of the things we looked at in our toxicology package carefully was at the cardiac and ECG changes, which we did not have. But the safety profile, once you get into man, is going to be determined in the next year.

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Paolo Pucci, ArQule, Inc. - CEO & Director [35]

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The CLL paper, hopefully, will be published soon, will begin to also shed some light on what we mean when we refer to our preclinical experiments because the -- some of the CLL preclinical experiments in that paper would -- I think people are going to find of interest as well is the crystal structure for the drug and how is that crystal structure compared with the other inhibitors. But it's a question we hope to be able to answer in full with data by year-end once we have completed the Phase Ia part of this trial.

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Operator [36]

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(Operator Instructions) And I'm showing no further questions at this time. And I would like to turn the conference back over to Dawn Schottlandt for any closing remarks.

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Dawn Schottlandt, ArQule, Inc. - Senior Director of IR & Corporate Communications [37]

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Thank you for joining us on the conference today. We hope everybody has a great day.

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Operator [38]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.