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Edited Transcript of ARQL earnings conference call or presentation 7-Mar-19 2:00pm GMT

Q4 2018 ArQule Inc Earnings Call

WOBURN Mar 13, 2019 (Thomson StreetEvents) -- Edited Transcript of ArQule Inc earnings conference call or presentation Thursday, March 7, 2019 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

* Marc Schegerin

ArQule, Inc. - SVP of Corporate Strategy, Communication & finance

* 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

* Hartaj Singh

Oppenheimer & Co. Inc., Research Division - Research Analyst

* Jotin Marango

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

* Matthew David Cross

JonesTrading Institutional Services, LLC, Research Division - Research Analyst

* Wei Ji Chang

SVB Leerink LLC, Research Division - MD of Emerging Oncology & Senior Research Analyst

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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 Full Year 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Marc Schegerin, Senior Vice President and Head of Strategy and Finance at ArQule. Sir, you may begin.

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Marc Schegerin, ArQule, Inc. - SVP of Corporate Strategy, Communication & finance [2]

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Thank you. Good morning, everyone, and welcome to the ArQule investor conference call reviewing operational and financial results for the fourth quarter and full year 2018. I'm Marc Schegerin, Senior Vice President and Head of Strategy and Finance at ArQule.

This morning we issued a press release that reported results for the fourth fiscal quarter ended December 31, 2018. This release is available on our website at arqule.com.

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

Before we begin, please note that we will 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 key events related to ArQule's proprietary pipeline and financial guidance for 2019. 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 statements, except to the extent required by law. We will provide an opportunity for Q&A at the end of this call.

I'd 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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Marc, thank you very much. Thank you all for joining us on the call this morning. I will begin to say that 2018 has been, for ArQule, a very productive year. And possibly, we laid the foundation for further advancements into 2019. As a way of getting everybody organized on how the call will proceed, I'll offer upfront a couple of comments on the strategic scope of our business, a couple of updates since we last met on the phone. I will then reconcile the achievement of objectives for 2018. I would outline then objectives for 2019. Brian will elaborate further on the update I will have provided as well as the status of all of our clinical programs. Rob will then help us through the reconciliation of 2018 full year as well as Q4 and provide guidance for 2019. After that, we'll be happy to take questions.

So let me first start to remind everybody on the strategic intent we are pursuing with each one of our programs. We are working in BTK-mutated B-cell malignancies with ARQ 531,. and here, we squarely aim to be first and best-in-class in this new approach of reversible dual BTK inhibition in CLL as well as lymphomas. We are also engaged in the rare overgrowth disease spectrums with miransertib, which is our first-generation AKT inhibitor. And here, we aim and we are first and best-in-class for both Proteus syndrome and PROS, which is a collection of overgrowth disorders. And we work finally, in hormone-sensitive tumors with ARQ 751, and to a lesser extent, with miransertib. And here, we aim more modestly to be a fast-forward next-generator -- next-generation AKT inhibitor in the class.

Let me now provide just 2 updates to set the tone of the call. The first relates to ARQ 531. I'm glad to report that since the ARQ 531 presentation at ASH last December, we have observed our first C481S CLL patients those in cohort 7 at 65-milligram QD to respond to ARQ 531. The response was a deep one. And in fact, the patient experienced an 88%-tumor-burden reduction after the first scan.

This is the second partial response that we observed so far in this trial but is very important one because these patients represent the patient population that would be our fast-to-market opportunity with ARQ 531, which would be second and third-line CLL patients that have the C48 -- developed the C481S mutation.

So we're very encouraged that we -- we were very happy to see such a deep response at the higher dose as we were hoping and to come so quickly. I have also a second positive update this morning, and that relates to miransertib. For miransertib, in rare-overgrowth spectrum disorder, we have concluded interactions with the FDA of relative to the design of our proposed registrational trial programs in Proteus and PROS as well, and we plan now to initiate registrational trials in both disorders as soon as possible. This has been a long journey. But finally, we are now inside of the goal line.

As we approach launching registrational-trial cohorts in both Proteus syndrome and PROS disorders, I would like to take a moment to clarify something that might have been missed by most followers of the company until this point. That is that the miransertib opportunity in rare overgrowth disorder has grown larger than we originally anticipated it to be when we started to discuss it 3 years ago. 3 years ago, we focused exclusively on Proteus. And along the way, and we have presented data to support it, we came to understand that what we had been observing in Proteus syndrome relative to the efficacy of miransertib could begin to be observed in PROS. This makes a big difference commercially for the drug potentially because although it's true that Proteus syndrome is an ultra-rare syndrome that affects only few hundred people worldwide, it's also true that the totality of rare-overgrowth spectrum disorder, PROS, that we are now targeting with miransertib, potentially numbers in the thousands of patients.

As I've said before, we are launching multiple-cohort registrational programs that should allow us to develop miransertib to their -- its full potential in rare diseases as a pipeline in the drug for having as a scope of the therapeutic treatment overgrowth spectrum disorders. Nearly all of these disorders, I remind you, present a dramatically unmet medical need. Brian will provide a few more comments.

Now for 2018, let's reconcile some of the highlights and some of the achievements. First of all, for the company overall. For the company overall, we partnered derazantinib in February, we signed Sinovant Sciences and, later on in April, with Basilea Pharmaceutica. And as of now, the drug is entirely in the hands of our partners, and it will produce for us milestones and royalties, assuming that everything proceeds as hoped. We also strengthened ArQule capital structure. And in July, we had a successful and oversubscribed 7 million public offerings.

Finally, as a recognition of the process that the company has made and the improvement in market capitalization, we regained listing in June to the Russell 2000 Index and, in December, to the NASDAQ Biotechnology Index.

Let's move on the projects specifically now, ArQule 531 in mutated B-cell malignancies. We recruited on schedule the Phase I trial and commenced recruitment of cohort 7 in Q4 of 2018. We also had numerous presentations during the year. The most important presentation were in June at EHA and, in December, at ASH. And also we published, together with our collaborators at the Ohio State University, in August, we published in Cancer Discovery, a foundational clinical paper -- preclinical paper, that includes ARQ 531 chemical and crystal structure. The totality of these presentations and publications, I would say, makes ARQ 531 the best peer-reviewed and the best-published reversible BTK inhibitor to date.

Moving on, on miransertib in rare overgrowth spectrum disorders. Here as well, we have a few achievements to remind you of. In September, we achieved Fast Track Designation by the FDA. We presented at ASHG several sets of data that are supportive of further development that were part of our discussions with the FDA. And we maintain, in fact, with the FDA, constructive dialogue that led us to the point where we are today of having a clear understanding of what would be agreeable registrational protocols for Proteus syndrome and PROS.

Moving onto ARQ 751. In 2018, we completed dose escalation, and we selected 75-milligram QD for next Phase dose, and we commenced Phase Ib/2. Derazantinib, although we partnered it, we had some remaining obligations to our partners in the way of transferring the drug to them. Those were outsourced timely and to wishes of our partners. And this is important because derazantinib could be the enabler of future nondilutive cash inflows for us.

This is the 2018 summary. And as you could see, it's a very, very dense but very productive year for us. And that sets us up for 2019, and let me illustrate the key goals that we are aiming for that year -- for this year. For ARQ 531, we plan to establish a recommended Phase II dose and rapidly commence expansion cohorts at that dose. We also plan to present additional Phase I data this summer at the major conference.

For miransertib, in rare overgrowth spectrum disorders, we plan to initiate registrational cohorts as I described before, one in Proteus syndrome and one in PROS family at the minimum. With the patient numbers and endpoints having been agreed with the FDA, and Brian will give you some details about patient numbers and endpoints later on. For miransertib, and more importantly ARQ 751 in AKT pathway-driven hormone-sensitive cancers, we plan to continue to ongoing involve trial and present data as it becomes available.

Please note that although miransertib is progressing now decisively in orphan diseases with a broader program than originally anticipated, we are bringing, nonetheless, to completion the ongoing Phase Ib part of the trial in endometrial cancer so that we can add to the body of data available to us to assess both of our AKT inhibitors in rare disease as well as in oncology. Now let me turn the call to Brian, who will beginning with 531, would give you more details.

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

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Thank you, Paolo. Let me start with ARQ 531. ARQ 531 is a potent, reversible dual inhibitor of both wild-type and C481S-mutated BTK. As a baseline, please recall that in the ASH poster, we reported that antitumor activity with the reduction in tumor burden was observed in 9 out of 20 patients. 4 of the 5 lymphoma patients experienced tumor shrinkage, ranging from 27% to 58%, including 1 PR in a follicular lymphoma patient who began at 5 milligrams and was dose escalated to 15 milligrams and then 45 milligrams and remained on therapy after 70 weeks. 4 of the 5 BTK refractory heavily treated CLL patients in the highest cohorts experienced tumor shrinkage. Since ASH, in the BTK-inhibitor refractory patient group, we have observed our first partial response in a C481S-mutated CLL patient, who experienced an 88% reduction in tumor volume at the first scan. This was the first patient for that the C481S-mutated BTK mutation enrolled in cohort 7 at 65 milligrams QD who had failed 3-prior regimens, including acalabrutinib.

Regarding the safety and the dose escalation since ASH, ARQ 531 continues to be well tolerated. However, 1 patient in cohort 7 at the 65 milligrams experienced a grade 3 rash, which according to the protocol was dose-limiting toxicity. To put this in context, rash is a side effect associated with multiple TKIs and has been reported with other BTK inhibitors. This patient specifically, who is on multiple concomitant medications, including a BTK inhibitor, also experienced the rash on prior earlier lines of therapy.

Cohort 7 has been expanded per protocol, 2 additional patients of 65 milligrams have cleared, and we are eagerly awaiting the third patient to clear. At this point, we would be in a position to dose escalate beyond 65-milligram QD as well as dose increase all the patients who are on 45 milligrams to 65 milligrams.

Pharmacokinetic data continues to be predictable with a half-life that supports QD dosing. Pharmacodynamic biomarkers in cohort 7 continue to demonstrate profound BTK -- phospho-BTK reduction of 100%.

In summary, we are very pleased with the progress we continue to make in this trial and, specifically, with the dose-dependent clinical activity that is emerging at the higher dose levels in second and third-line, C481S-mutant CLL patient population. In the 2 months that followed the ASH presentation, we observed further clinical activity which corresponds with preclinical modeling and emerging PK and PD data. With increasing dose above 30-milligram QD, we observe a more than dose proportional increase in exposure.

In an upcoming abstract, we'll include the data that was available as of mid-February. As mentioned, we are planning for this summer a follow-on presentation that will include all data available at that time.

Let me now transition to miransertib in rare overgrowth spectrum disorders. Miransertib is a potent and selective AKT inhibitor. Our objective is to be first and best-in-class AKT inhibitor in Proteus syndrome and PROS family of rare overgrowth diseases. This family of diseases is ultra rare, very heterogeneous and the patients currently suffer from a dismal quality of life and, in some cases, early mortality.

We are not aware of any other effects of or disease-modifying treatments. Since we last reported, we have been in contact with the FDA and submitted a proposal for a registration program in Proteus and PROS. We have wonderful news for patients. The FDA responded to our proposal with minor comments that have been addressed in our final draft protocol. We are pleased to report that we are now positioned to commence a registration trial in both Proteus and PROS syndrome. This will be the first such program to be launched.

To remind our listeners, Proteus syndrome is caused by a gaining function somatic mutation in AKT1 gene. The PROS syndrome consists of a family of diseases, but all have a gain of function mutation in the PIK3CA gene and include diseases such as Klippel–Trénaunay syndrome, CLOVES, megalencephalies, infiltrating facial lipotomatosis (sic) [infiltrating facial lipomatosis] and many others. We would like to express our appreciation to the patients and families who have participated in the miransertib programs thus far and all our scientific collaborators. The registration program will -- is one protocol divided into a number of different cohorts.

The 3 important cohorts include: the first cohort will focus on Proteus syndrome and will enroll at least 10 patients; the second cohort will focus on PROS family of overgrowth disorders and will enroll at least 20 patients; the third cohort, at the suggestion of the FDA, will be single generation and will include patients from either group who did not qualify for cohorts 1 and 2 that may otherwise benefit from treatment. These cohorts will be open-label and the primary endpoint will be response-rate driven based on objective, measurable criteria using predefined imaging.

We are currently enrolling additional sites and expect to begin dosing as soon as possible. The single-generation worked for miransertib and ARQ 751 in oncology continues with the aim of prioritizing 1 of these 2 compounds by late 2019. We have substantially completed the -- finally, we have substantially completed the transfer of derazantinib Phase II registration trial to Basilea, and I'm pleased to read the announcement relative to the successful futility analysis that they conducted.

Now I would like to hand over the call to Rob, who will provide financials for Q4 and end of year 2018.

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Robert J. Weiskopf, ArQule, Inc. - CFO & Treasurer [5]

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Thank you, Brian. Turning now to the financials for the quarter ended December 31, 2018. The company reported a net loss of $8,487,000 or $0.08 per share, and there was a net loss of $7,760,000 or $0.09 per share for the quarter ended December 31, 2017. The company reported a net loss of $15,482,000 or $0.16 per share for the year ended December 31, 2018 compared with a net loss of $29,203,000 or $0.39 per share for the year ended December 31, 2017.

At December 31, 2018, the company had a total of approximately $99,558,000 in cash, equivalents and marketable securities. Revenues for the quarter ended December 31, 2018, were $2,941,000 compared with 0 for the comparable 2017 quarter. Research and development revenue for the quarter ended December 31, 2018, consisted of $93,000 from our February 2018 Sinovant licensing agreement and $2,848,000 from our April 2018 Basilea licensing agreement.

Revenues for the year ended December 31, 2018, were $25,764,000 compared with revenues of 0 for the prior year. Research and development revenue for the year ended December 31, 2018, consisted of $5,946,000 from our February 2018 Sinovant licensing agreement, $18,549,000 from our April 2018 Basilea licensing agreement and $1,269,000 from a nonexclusive license agreement for certain of our library compounds.

Turning to expenses. Fourth quarter 2008 (sic) [2018] research and development expenses were $8,850,000 compared with $4,721,000 for the fourth quarter of 2017. Fiscal 2018 Research and development expenses were $28,710,000 compared with $19,468,000 for fiscal 2017. The $4.1 million increase in research and development expense in the fourth quarter of '18 compared with the fourth quarter of '17 was primarily due to higher outsourced preclinical, clinical and product development costs of $3.5 million and $0.6 million for labor and related costs. The $9.2 million increase in research and development expense in 2018 was primarily due to higher outsourced preclinical, clinical and product development costs of $8.5 million and $0.7 million from labor and related costs.

Fourth quarter 2018 general and administrative expenses were $2,739,000 compared with $1,849,000 for the fourth quarter of 2017. General and administrative expenses for fiscal 2018 were $10,753,000 compared to $7,551,000 for fiscal 2017. The $0.9 million increase in general and administrative expense in the fourth quarter of 2018 compared with the fourth quarter of '17 was principally due to higher consulting and professional fees of $0.4 million and labor and related costs of $0.5 million.

The $3.2 million increase in general and administrative expense in 2018 was principally due to higher consulting and professional fees of $2.1 million and labor and related costs of $1.1 million.

Turning now, we anticipate that our cash, cash equivalents and marketable securities on hand at December 31, 2018, financial support from our licensing agreements and our loan agreement will be sufficient to finance our operations into 2021.

Let me now turn to financial guidance for 2019. ArQule expects revenue to range between $3 million and $5 million. Net loss is expected to range between $40 million and $43 million, and net loss per share to range between $0.37 and $0.39 for the year. ArQule expects to end 2019 with between $60 million and $63 million in cash equivalents 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 [6]

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Thank you, Rob, for the overview. And, operator, we are ready to take 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 Jonathan Chang with SVB Leerink.

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Wei Ji Chang, SVB Leerink LLC, Research Division - MD of Emerging Oncology & Senior Research Analyst [2]

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So I'll preface my questions by saying I may have missed some of the details on the prepared remarks, but can you provide any additional color on the patient responding to 531? Has the patient received only one scan at this time? And how many patients have been evaluated at this time in cohort 7?

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

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At this point in time, this is the one patient for whom we have a scan and have received prior 3 lines of therapies as Brian had mentioned. That's all we have for now. Brian, do I stand correct?

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Robert J. Weiskopf, ArQule, Inc. - CFO & Treasurer [4]

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Great. So Jonathan, as per protocol, we enrolled actually the first 4: 2 lymphomas, 2 CLL patients. We'll give more color, obviously, at the next update and then with -- and then expanded the cohort subsequently.

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

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Yes. Remember that this pace again quick. There was one of the earlier recruits in late last year. We scan every couple of months. So we are 2 months away from last year December.

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Wei Ji Chang, SVB Leerink LLC, Research Division - MD of Emerging Oncology & Senior Research Analyst [6]

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Understood. So if I heard you correctly, this was the first evaluable patient?

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

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Yes, this was the first evaluable CLL-mutated patient of the 2 that we have in that cohort, yes.

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Wei Ji Chang, SVB Leerink LLC, Research Division - MD of Emerging Oncology & Senior Research Analyst [8]

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Got it. And then you certainly also have emphasized on this call and previously, the importance of getting patients in an earlier line CLL patient population versus the data you presented at ASH. Any color on just generally, how enrollment is going currently in terms of finding patients within an earlier line patient population?

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Paolo Pucci, ArQule, Inc. - CEO & Director [9]

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Yes. So it's interesting that the first patient to respond with a deep response, I would say, is only 3 lines of therapy, not 6 or 7 as we had seen before. And I think the median now is round about 5 to 6-point something. So that kind of speaks to the discussion we have had before that is important to recruit patients that more closely respond to the profile that we would aim in a registrational trial, second and third line. The quality of the patient measured by our prior line of therapies is improving. It's a little bit harder to discuss ability to recruit. If you put in the context of a much larger trial because we're still recruiting single-number patients. But we are encouraged by the fact that as soon as we needed to deploy the 3 -- plus-3 module for Cohort 7, 3 patients were very quickly recruited on.

We also still have a mix between CLL, C481S-mutated and lymphoma patients. But we're not seeing issues recruiting at this point in time. This is state-of-the-art update for us. So you will see -- let me talk about what Brian mentioned so that everybody understands it. You will see a shell for Congress come out in the next couple of months. That shell will have pretty much data as we are discussing now, okay? So that's what Brian was saying. So then when we get to summer, we will have another April, May, kind of some of June -- March, April, May and a piece of June data, so another 3 months of data. So there'll be a few additional scans in the data -- final data set. So we're looking forward to that update this summer. But I highly encouraged to see 88%.

Let me put in perspective. The only clinical paper that mentions responder in C481S patients that we don't know how many prior line of therapy that patient had, he might have had none, is in the GDC paper, in the Genentech paper, and that patient responded with tumor shrinkage of only 51%. So for us to see the second-ever patient responding, to know that the patient had received a prior irreversible BTK inhibitor and to see such a deep shrinkage, it was very encouraging.

Now obviously, next step for those patients to see how durable it's going to be. But let me talk a little bit about durability. The other patients out of the 20 or so we have recruited so far that is patient #1 that we reported as a responder -- as a lymphoma, we reported that patient as a responder in the ASH presentation. That patient is still on therapy. So that makes me hopeful, at least, by looking at that, although it's a lymphoma and not a CLL, that once we see a response, that response is durable. And we have also, Brian, approximately patients at 45 that are waiting to be escalated to 65. So the picture is getting clearer and more positive.

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Wei Ji Chang, SVB Leerink LLC, Research Division - MD of Emerging Oncology & Senior Research Analyst [10]

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Right. No, but definitely. A couple of more, if I may. You've spoken in the past about potentially, dose escalating beyond cohort 7. How are you thinking about this currently?

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

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So we're thinking about it as in -- ideally, we will like to have 3 buckets of data available to us if possible in summer time. We will like to have a first a bucket of data that is the patients that are at 45 that we hope to escalate to 65. That will have a certain set of information because these would be patients that have been long on the drug, so we'll have long-term safety that is highly unusual to have in a Phase I study, and we will see if moving them yet 1 more notch up in dose generates even better therapeutic outcomes. So that's 1 bucket of data.

Then we'll have these expanded cohort 7 data that is fewer patients -- it's another 6 patients or so. So about 8 patients there, about 6 patients here. And then if this cohort 7 clears and we are one patient away at this time, then at that point in time, given that all we have observed so far is rash, and remember, as Brian said, this patients had already developed the rash on one of the prior 3 therapies that might include a reversible inhibitor, then you might have that bucket of data. Now if we are able to get the cohort 8 buckets of data, that's going to be really very initial. So we're not going to have a lot more data on that cohort than we have on cohort 7 right now. But if there is no penalty in looking at a cohort 7, I mean a cohort 8, we will do it.

What needs to be very well understood though in this call is, if we go to a cohort 8, it doesn't mean that we stop other things. Everything proceeds -- will proceed in parallel. So you will have now rather than one cohort after the other, you will have these 3 streams of data proceeding in parallel and converging toward an end-of-Phase I decision for next Phase recommended dose. What you don't see, and we don't discuss on the call, but you should keep in mind, is that we're already working preclinically at laying the foundations for combinations as well.

As we discussed, the combination strategy is starting, a thing that we'll discuss later in the year, but we are doing the work on a couple of very interesting combinations, both in CLL and lymphoma. And you can imagine what those combination agents might be. I hope that clarifies.

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Wei Ji Chang, SVB Leerink LLC, Research Division - MD of Emerging Oncology & Senior Research Analyst [12]

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Right, that's helpful. And sorry, just one last one, I don't know if I heard you correctly, you mentioned you're expanding cohort 7?

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

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Cohort 7 is expanded as per protocol because the protocol calls that once you have DLT and the rash was adjudicated as a DLT, then you add 3 more patients. And if those 3 patients clear with no additional DLT, then you automatically can escalate it to the next cohort. Now cohort 7 was intended to be the last of our cohorts.

And you were asking, will we consider cohort 8? And the answer that I just give a little bit more complex. To you, a straighter answer is, yes, we will consider cohort 8 if cohort 7 clears nicely. And we are 1 patient away from that goal.

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Operator [14]

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

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Chad Jason Messer, Needham & Company, LLC, Research Division - Senior Analyst [15]

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Can you just remind us for 531 where we are in the dose escalation based on the preclinical data you had with safety and efficacy? Are we up at the high range of where you predicted to be? I know 7 originally was where we were going to stop.

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Paolo Pucci, ArQule, Inc. - CEO & Director [16]

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Yes. I mean, we are pretty much there. And as Brian said, the exposures become more than dose proportional at this time. Brian, I don't know if you want to add any commentary.

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Brian Schwartz, ArQule, Inc. - Chief Medical Officer [17]

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I mean, Chad, with all these agents, it's difficult to know in different species where the top end of the safety margins lie. But if we look at the good PK, the -- the Siemens we're currently achieving now in cohort 7, we are not far away from the safety margin we saw in other species.

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Chad Jason Messer, Needham & Company, LLC, Research Division - Senior Analyst [18]

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Okay. Understood. Continue to look for updates.

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

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Yes. So retrospectively, Chad, if you look at the range of doses, it's probably useful to remind that we have started with 5 milligrams once a day QD, correct, Brian? And we are now at 65 milligrams. So it's a very, very broad range from cohort 1 to cohort 7. And for those people that are new to the story, and I have 30-plus people on this call it seems, let me also remind you that we started at such a low dose because we did not have a healthy volunteer study at the time. And so not having that data in discussion with -- and having a potent drug in discussion with the regulatory agency, it was deemed best to start that low 5-milligram dose, just to give people -- the new people on the call perspective.

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Chad Jason Messer, Needham & Company, LLC, Research Division - Senior Analyst [20]

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Okay, great. And I also don't want to, in any way, overshadow the progress you're also reporting with miransertib today with the regulatory update. You mentioned that the primary endpoint's going to be response-driven or on predefined imaging. So just wondering if that's something you're still working out? Or was that pretty well laid out in the proposal that you have sent to FDA?

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Brian Schwartz, ArQule, Inc. - Chief Medical Officer [21]

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So, Chad, that's pretty much worked out. For the Proteus syndrome patients, we will be using a photographic tool in a predefined way to determine response. For the PROS syndrome, we will be using something similar to what was used in Neurofibromatosis with volumetric MRIs with observing a predefined change and using a responder analysis. So there's a cut-off. Patients would either be defined as responders or nonresponders based on the change in the size of their lesions, either on photography for Proteus or on volumetric MRIs for PROS.

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Chad Jason Messer, Needham & Company, LLC, Research Division - Senior Analyst [22]

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All right. Very exciting to have that worked out. And it certainly sounds like doable endpoints.

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

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And Chad, to help our current and potential investors, we're preparing a presentation that we will likely upload in the next couple of months on our website that will give a good overview of the disease. It will be a very good introduction to the overgrowth syndrome category so that people can run that diligence and really get convinced on their own that this really could be a little standalone rare disease company with a few thousand patients as potential target eventually. So we'll come around and discuss once it's ready.

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Operator [24]

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And our next question comes from Jotin Marango of Roth Capital.

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Jotin Marango, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [25]

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I will pivot and focus on the AKT orphan program a little bit because -- and it sounds like it's moving through a registrational stage now. So we have spoken about the prevalence in Proteus before in our calls. What are your estimates or thoughts about PROS since this is now suddenly a tangible add-on to this story although it's complex because it's composed of multiple disorders?

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Paolo Pucci, ArQule, Inc. - CEO & Director [26]

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So, Jotin, Marc has been doing most of the work to strike out the epidemiology in the other diseases. So he'll take the -- he'll give the answer. Marc?

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Marc Schegerin, ArQule, Inc. - SVP of Corporate Strategy, Communication & finance [27]

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Well, we've done a lot of work internally to tease apart this fairly complex spectrum of disorders. There are several diseases, which in the past, were named, for the most part, after the doctors who discovered them. But once the genetic cause of this constellation of diseases was better understood, all relating to the PIK3CA gene, which codes as for PIK3CA kinase, it was much more obvious that these diseases are actually very closely related and could, therefore, be treated along a common pathway.

So some of these diseases include relatively more common ones, such as Klippel–Trénaunay. Others that are a little bit less common, such as infiltrating facial lipomatosis and others that are in the middle. There is a group of diseases that in the past have been given various monikers of megalencephaly. But these are groups if you were to put them in a Venn diagram would overlap substantially.

Also, CLOVES is, C-L-O-V-E-S, is an acronym for the different signs and symptoms of the disease and its presentation. It's also a fairly well documented -- and relative to all these diseases, relatively well understood and documented disease. In terms of the epidemiology, collectively, these things clearly number in the thousands.

Some of the diseases individually though, at least in terms of specific patient reports, in other words, identified patients in the literature, number in the hundreds. So KTS or Klippel is probably thousands of patients that have been identified in the call it developed world. Most of identified patients are identified in the developed world for obvious reasons actually.

In terms of the real prevalence, that, of course, is a little bit unknown, since there are no treatments for a lot of these very severe conditions other than surgical amputation of the affected limb or digit or what have you. And diagnosis is fairly -- it's not always very accurate in certain community settings. There's probably a tremendous underdiagnosis. And honestly, the importance of an accurate and timely diagnosis is not that high when you don't have an effective treatment for the disease. So we hope to change all that. But clearly, there is a huge market out there and a very, very high unmet need for these, primarily children who are suffering from these conditions.

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Jotin Marango, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [28]

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And Marc, when it comes to the recruitment of these patients, are there pockets where they are primarily referred to and treated? So basically, how far do you have to go in terms of getting centers in order to cover a good portion of the actual prevalence?

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Marc Schegerin, ArQule, Inc. - SVP of Corporate Strategy, Communication & finance [29]

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Absolutely. So there's 2 parts to that question. The first one is that the actual prevalence of the disease is uniformly dispersed. So there is no ethnic -- it's a pan-ethnic condition, and all of these conditions arise from a spontaneous mutation during early embryological development. So the prevalence is spread, unlike some other rare genetic diseases that track in families, et cetera, like FAD or TTR amyloidosis. So it's spread. However, the actual treatment of these patients, because of referral upon referral upon referral, tends to cluster in the most academic specialty centers. That's true in U.S., but it's also true, we've seen, in Europe.

So there is a clustering of the patients in terms of where they're being treated. Not where they're being born or they live, but where they're being treated, in the high-academic centers, both in the U.S. and the EU. And since we've been working on these conditions now for several years, we've developed relationships with the KOLs and the treating physicians at these academic centers starting with the NIH, but also many other centers in the U.S. and EU and Australia. And so we have a bit of insight into where these patients are and how to reach them in terms of trial recruitment for the next phase.

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

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and Jotin...

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Marc Schegerin, ArQule, Inc. - SVP of Corporate Strategy, Communication & finance [31]

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Go ahead, go ahead.

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Jotin Marango, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [32]

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No, lastly for Marc or Brian. You mentioned, Paolo, that with the protocol, you're aiming at 10-plus patients on one cohort and 20-plus on the PROS. So what's your estimate, sort of, having seen the prevalence of these patients, what's your estimate about development timetable here in terms of recruitment for the cohort? And how long is the full protocol treatment until the imaging endpoint?

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Brian Schwartz, ArQule, Inc. - Chief Medical Officer [33]

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So very good question. It's really hard to determine how long the crew will take. However, we'll say, we have a real wonderful relationship with the advocacy groups who have provided us, for example, over 30 names of potential Proteus patients. How many actually qualify and get onto the study would be very difficult and hard to know. We're anticipating based on the work -- the feasibility work that we have done that will take about a year to enroll the Proteus patients, and we're following them for a minimum of a year. So the last patient will be followed for a year before we do the primary analysis. For PROS, as Marc mentioned, in most big pediatric centers have these overgrowth in vascular disorder clinics, and the numbers are actually quite big. Once again, it will all depend on the criteria laid out in the protocol, with -- which is primarily related to the imaging criteria for these patients. But once again, we're anticipating about a year to enroll the 20 PROS and about a year to follow up before we'd be ready to run the final analysis.

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Paolo Pucci, ArQule, Inc. - CEO & Director [34]

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The good thing is that we don't have to stop what we're doing. Correct, Brian? And start a whole new process of a new trial, right?

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Brian Schwartz, ArQule, Inc. - Chief Medical Officer [35]

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Correct.

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Paolo Pucci, ArQule, Inc. - CEO & Director [36]

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So you might want to describe how you're going to move seamlessly from the current trial into the next?

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Brian Schwartz, ArQule, Inc. - Chief Medical Officer [37]

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So basically, Jotin, very much like the PD1 inhibitors that will open new cohorts, we will just be opening within the current trial multiple cohorts that we will enroll into.

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Paolo Pucci, ArQule, Inc. - CEO & Director [38]

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Yes. So when you look at the most precise time horizon, you're looking at up to 12 months from now to recruit. And then depending on when we are able to recruit the last patients, another 12 months in order to have the data. This said, there are things that happen in between. One thing is that we have a designation by the FDA that allows us to go back to them anytime for interactions. So at any time, they can take decisions. If the evidence is very compelling, they could take decisions any time. And we will certainly solicit those decisions if the evidence is compelling.

In addition, also on the regulatory front, we are in the process of collecting additional data from our compassionate side that has really spread out around the world because if the evidence continues compelling, then we have the opportunity to file for a breakthrough designation, which will very much be top-of-mind for me in the business plan. It's a process that has just started. And therefore, I haven't mentioned it formally in our objectives, but it's something that -- it's top-of-mind for us.

Last thing I want to say is, although we are starting a formal registrational trial, we are going try -- to try to continue to have however many patients we can, wherever there might be in the world, provided that the physician that is asking on the patient's behalf our help fulfills the requirement of our global name patient compassionate use. The only thing we would ask of our compassionate use request us is that if there is the opportunity for them to be enrolled in the trial, they do that rather than receive drug as compassionate. But we will try not to leave anybody behind.

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Operator [39]

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And our next question comes from Matthew Cross with JonesTrading.

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Matthew David Cross, JonesTrading Institutional Services, LLC, Research Division - Research Analyst [40]

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Congrats on the positive new developments from 531 and Proteus, PROS. I had a couple of questions here on both of those programs. So at this point, you've laid out quite well, I think, how the 531 seventh cohort expansion will play out. But I wanted to also ask a bit more about this other bucket of patients, who'll be dose escalated from a lower dose level cohorts. You mentioned dose escalating those that were at 45 milligrams who are ongoing in the trial, but I was also curious about, both, how many of these you would expect at this time are suitable to do so? And also, as of your ASH data, I believe, you had 2 patients still ongoing at the 30-milligram dose. And would you consider pushing up a few of these patients who are more than 1-dose level below 65 milligrams to that level as rapidly as possible and as tolerated?

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Paolo Pucci, ArQule, Inc. - CEO & Director [41]

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I mean, if the medical staff here and our physicians judge the patient that the can be escalated, then they will escalate them, no question about it. The limit to escalation we have right now is 45 because that is the cohort that protocol is cleared. As soon as cohort 6 clears, there is a number of patients that the physicians are very eager to escalate. And I don't know about the 3, but the total number today is round about 8 patients.

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Brian Schwartz, ArQule, Inc. - Chief Medical Officer [42]

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Of these CLL patients, the 30-milligram and the 45-milligram cohort, they're still -- they're all ongoing as of the last February 15 update.

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Matthew David Cross, JonesTrading Institutional Services, LLC, Research Division - Research Analyst [43]

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Great. Okay. And then, Brian, I appreciated the breakdown here on the cohorts you're looking to enroll in the Proteus-PROS registrational trial with these 2 arms dedicated to patients in each indication group. But I was hoping to get more clarity on this third group of patients who don't meet the criteria for core Proteus' or PROS' arms. Could you kind of go into, which criteria disqualify them from entering these first 2 groups but still allow them to participate in the third one rather than being excluded altogether?

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Brian Schwartz, ArQule, Inc. - Chief Medical Officer [44]

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So there were a number of factors that we really wanted to consider because we've only got a small number of patients for our response analysis, the criteria for coming into cohort 1 and 2 in terms of imaging are relatively strict. So for example, we believe that the disease grows most rapidly in children. So over a certain age, let's say, a patient is 19 years old with Proteus, he would fit into Bucket 3.

Other criteria, a lot of them have had amputations, so the certain lesions may not be valuable, but we may be able to evaluate the disease using other treatment modalities. And then the FDA really wanted to get a good feel for safety in a slightly broader population as well as the individual effect on quality of life in a bigger group. So this extra cohort gives you the ability, in terms of a secondary or tertiary analysis, to not only look at 10 or 20 patients but to look at 60-odd patients when you ran, for example, quality of life, pain and other secondary endpoints. Hello?

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Matthew David Cross, JonesTrading Institutional Services, LLC, Research Division - Research Analyst [45]

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Sorry, I apologize. I just had this on muted. I wanted to follow up just a little bit. So I could confirm there on the fact that, that last cohort, you would expect to be quite large relative to the other 2 in making these quality-of-life assessments. Is that fair that you said, I guess if I heard correctly about 16...

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Paolo Pucci, ArQule, Inc. - CEO & Director [46]

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About another 20 -- 16 total. So approximately 25 is what we're thinking would come into the trial in the timeframe. So let me add a couple of unscientific words. We are in these diseases in uncharted waters. And we are, together with some of our scientific collaborators, drawing the map for these uncharted waters. And so the discussion with regulatory agency was, let's give either to other parts as much flexibility as necessary to make decisions on the basis of the data, and let's produce this data in a way that is conducive to scientific decisions. That's the spirit, in a way, of the program. And there is a very good, by now, understanding of Proteus syndrome, endpoints included. There is good understanding for some of the other overgrowth, and there's things that you have yet to be learned.

Now the beauty of putting that cohort is that as we will learn these things, the data will be produced in such a way that it can be the subject of a regulatory discussion. And that's unlike some of the efforts we have had so far that we're primarily meant to bring therapy to patients that really were on their last chance, right? So...

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Matthew David Cross, JonesTrading Institutional Services, LLC, Research Division - Research Analyst [47]

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Got it. No, it was a very creative design for kind of tracking out the path to yourselves in this indication and then glad to see the regulators are on board with it. So looking forward to a productive 2019 as well.

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Operator [48]

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(Operator Instructions) Our next question comes from Hartaj Singh with Oppenheimer & Co.

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Hartaj Singh, Oppenheimer & Co. Inc., Research Division - Research Analyst [49]

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Really appreciate very granular update, Paulo, Brian and Marc. I just have 2 questions: one is kind of a general question; one, just on a housekeeping question. The general question is, Brian, there has been quite a lot of change in the last year or 2 years in leukemias and lymphomas. You've got leukemias, venetoclax now, out there. You got -- I think data just presented in a recent conference of venetoclax in combination of its various other therapies and leukemias with BTKs also in combination therapy. You've got CAR Ts and lymphoma. So my question is, as you're going forward with the experience you have with the 20 patients, how are you thinking about, aside from your go fast-to-market strategy? How are you thinking of the different patient cohorts? And then would you stratify and do some kind of risk stratification just to be able to risk mitigate the next stage of clinical trials? And I just got a quick housekeeping question after that.

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Brian Schwartz, ArQule, Inc. - Chief Medical Officer [50]

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So thanks, Hartaj, you bring up something that we've been working on together with OSU and a number of other collaborators. As the treatment changes, we are now preclinically -- and hopefully, in the next year, we'll present some really interesting data. Looking at combinations with a BCL2 inhibitor as well as exploring the avenues for combinations with CAR Ts and by specific antibodies.

There's a very strong rationale to use BTK inhibitors in the exact type of setting that you're talking about, and we believe from the early data that we've seen, even though it's preclinical, they also have differentiating features between the early preclinical data we're seeing versus other BTK inhibitors, which could help us move in that regard. But looking at the development plan, you're correct, as we're looking at the fast-to-market of single agent and third -- and second and third line who failed BTK, a BTK inhibitor, a BCL2 inhibitor or not eligible for a BCL2 inhibitor as our fast-to-market. And then our expansion strategy will definitely include a combination with a BCL2 inhibitor.

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Paolo Pucci, ArQule, Inc. - CEO & Director [51]

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And we're also interested in with possibly (inaudible) as a potential combination partner as there is quite a bit of work that is going on. I just can't this -- I can't put it in our objective to say for then -- for clinical data with, this, this, this and that other the current standard of care. I can't pull it out because it's not in my hand, it's with our collaborators. But you -- I should hope that there will be in the next 12 or so months, some publications on the results of the preclinical work that is going on because we are seeing some of those results as we go. Then it takes a little bit of time to finish it, to prepare it for publications. That will be up to our collaborators. And then you had a housekeeping question.

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Hartaj Singh, Oppenheimer & Co. Inc., Research Division - Research Analyst [52]

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Yes. And so actually Brian just one quick follow-up to the granularity Brian that you gave, which you said. Do you think that the ability to move up and down the dose with the reversible BTK with 531 that you can actually -- that gives you an advantage with irreversible inhibitors that are going -- that are trying these combination therapies that are approved right now. Does that, you think going forward, that gives you an advantage, and that's what kind of stimulates the KOL community to want to work with the reversible?

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Paolo Pucci, ArQule, Inc. - CEO & Director [53]

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At this point, it's hard to speculate...

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Brian Schwartz, ArQule, Inc. - Chief Medical Officer [54]

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MD Anderson, Hartaj, I think MD Anderson are doing some really neat work with their frontline combination with both venetoclax and ibrutinib. And the mutations, even though you give the 2 together, when they progress, you can start to see that the different resistant mechanisms come through as well. So I think some people will move the therapy forward. I still think there will be a place. And then hopefully, an irreversible inhibitor, we won't be susceptible to -- we will work with those, if those mutations, which shouldn't emerge in that setting, should occur. So we may have a benefit in certain regards. We presented a little bit of data in the Cancer Discovery paper. Clearly, this drug has some differences in terms of signaling when compared to ibrutinib, which may give us some advantages as well in combination with the therapies you mentioned.

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Hartaj Singh, Oppenheimer & Co. Inc., Research Division - Research Analyst [55]

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No, that's great, Brian. that's great, Paolo. I mean, love it. And it's -- the data is just great and keeps on trending in the right direction. Just how you think...

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Paolo Pucci, ArQule, Inc. - CEO & Director [56]

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That's what I keep on telling people. So far, we have had 4, 5 updates, and every update has seen some incremental positive. It's just that we started at 5-milligram, so it took time.

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Hartaj Singh, Oppenheimer & Co. Inc., Research Division - Research Analyst [57]

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Yes, no other follow-up, that makes sense. Marc, just quick question, housekeeping. When you're thinking about -- I know you've given the kind of like the burn rate and where you can go with the cash on hand. You -- in 2018, you're -- you increased your burn or your OpEx roughly about $1 million per quarter from Q-to-Q. Is that the way to think about in 2019 or just take the fourth quarter and kind of carry that forward? I mean, I'm not looking for (inaudible) but just something.

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Paolo Pucci, ArQule, Inc. - CEO & Director [58]

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I think the 2 years are now easily comparable for a number of reasons. I mean, if you take our fixed-cost base, we are not renting any more offices. So the office space we have is what it is. But we have a few more people. We have brought down -- in order to survive and to finance the development of pipeline, we have brought down our fixed-cost structure to 30-some people. And now with all these trials going, we had to hire a few more people. So we are rebuilding in a way the company so that we can function appropriately.

And then the other reason why you can't really compare of one year to the other is because we have taken out, with the licensing to Basilea and Roivant the most expensive variable cost item of last year that was the FGFR inhibitor. So I wouldn't compare. I wouldn't extrapolate. I would just stick to the guidance figure. And kind of, you can think that some of the cost are going to creep up in the later part of the year as the trial started. But I wouldn't compare year-to-year. I would just stick to the guidance.

I think what changes -- what would change our variable cost base. We're going to try to keep our fixed cost base in check because it's never easy to raise capital. By the way, the guidance includes $2.5 million milestones that we have received from one of our partners in the meantime. Remember that when we outlicense to Sinovant, there was a 2-step milestone: one, we received at signing; and one, we were due to receive after certain of -- objectives that have been met. And they have been met. Correct, Rob? So we got the $2.5 million in the bags.

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Robert J. Weiskopf, ArQule, Inc. - CFO & Treasurer [59]

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Yes, yes.

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Paolo Pucci, ArQule, Inc. - CEO & Director [60]

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So that will get us to $63 million actually, Hartaj. So I think going -- the simplest answer is, look at the guidance for '19, assume that the cost will increase on a quarterly daily basis from Q1 to Q4. And then keep an eye on expansion of 531. At the moment, 531 kicks into expansion. That will transform, to some extent, our cost -- variable cost base. And that will likely happen before the same happens with 751 in oncology.

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Operator [61]

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Thank you. And I'm showing no further questions in the queue at this time. I'd like to turn the call back over to Marc for any closing remarks.

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Marc Schegerin, ArQule, Inc. - SVP of Corporate Strategy, Communication & finance [62]

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Thanks, everyone, for joining the call. This concludes the session.

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Paolo Pucci, ArQule, Inc. - CEO & Director [63]

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Thank you.

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Operator [64]

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

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Paolo Pucci, ArQule, Inc. - CEO & Director [65]

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Bye-bye.