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Edited Transcript of ATNX earnings conference call or presentation 14-Aug-18 1:00pm GMT

Q2 2018 Athenex Inc Earnings Call

BUFFALO Aug 31, 2018 (Thomson StreetEvents) -- Edited Transcript of Athenex Inc earnings conference call or presentation Tuesday, August 14, 2018 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeffrey M. Yordon

Athenex, Inc. - COO & President of Athenex Pharmaceutical Division

* Li Shen

Athenex, Inc. - VP of Financial Reporting, Treasury & Acting CAO

* Rudolf Kwan

Athenex, Inc. - Executive VP & Chief Medical Officer

* Tim McCarthy

* Yiu-Nam Lau

Athenex, Inc. - Chairman & CEO

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Conference Call Participants

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* Chad Jason Messer

Needham & Company, LLC, Research Division - Senior Analyst

* I-Eh Jen

Laidlaw & Company (UK) Ltd., Research Division - MD of Healthcare Research & Senior Biotechnology Analyst

* Kennen B. MacKay

RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research

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Presentation

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Operator [1]

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Greetings, and welcome to the Athenex second quarter earnings and update call. (Operator Instructions)

I would now like to turn the conference over to your host today, Tim McCarthy, Managing Director of LifeSci Advisors. Please proceed, sir.

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Tim McCarthy, [2]

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Good morning, Latania. Good morning. Thank you for joining our conference call as we provide an update on Athenex' business as well as a review of financial results for the second quarter 2018. The news release detailing the second quarter results crossed the wire earlier this morning and is available on the company's website. A replay of this call will also be archived on the company website.

During the call -- course of this conference call, the company will make projections or forward-looking statements regarding future events, including statements about financial and clinical milestones anticipated in fiscal year 2018 and beyond. We encourage you to review the company's past and future filings with the SEC, which identify specific factors that may cause the actual results or events to differ materially from those described in the forward-looking statements. You can find our SEC filings in the EDGAR database at www.sec.gov or in the Investor Relations section at our website at www.athenex.com.

This morning, we are joined by Dr. Johnson Lau, Chief Executive officer; Jeff Yordon, Chief Operating Officer; Dr. Rudolf Kwan, Chief Medical Officer; and Li Shen, Acting Chief Accounting Officer, who will be available to answer questions after the prepared remarks.

With that, I'll turn the call over to Johnson for introductory comments.

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [3]

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Thank you, Tim, and good morning, everyone. We had a busy and productive second quarter at Athenex, with significant progress across clinical, operational and financial fronts. We announced very positive Phase III data with our lead Src Kinase inhibitor, KX2-391. Our proprietary Orascovery platform, Oraxol as a lead molecule, continues to advance well in the clinics, and we add significantly to our oncology portfolio with 2 very exciting technologies.

The highly positive Phase III results that we announced on KX2-391 confirm that the product is very active as a field treatment of actinic keratosis, and it's extremely well-tolerated. Our commercial partner, Almirall, shares our enthusiasm with these results. Jeff and Rudolf will each go into more details on this very compelling commercial opportunity.

Oraxol, our oral formation for Paclitaxel, is in Phase III in metastatic breast cancer, and we are pleased with the rapid pace of enrollment. This product is also in the clinic for gastric cancer, and we are preparing to move into new oncology indications, including angiosarcoma, following recent receipt of orphan drug indication by the U.S. Food and Drug Administration.

Our commercial business continued to perform well. Revenue for the second quarter was $11.6 million compared to $4.6 million in the same period last year. We also received $5 million from our partner, Almirall; however, due to accounting procedure, this will be recorded later before the end of the year. In total, including this $5 million, we'll have $16.6 million in revenue in the second quarter.

And we are also reaffirming our full year 2018 guidance in the range of $100 million to $125 million, inclusive of licensing fee revenue from our partners. We're continuously seeking new opportunities to expand our oncology pipeline, and announced on July 2, the licensing of 2 new technologies; an immunotherapy platform based on T-cell receptor-engineered T cells, or TCR-T; and a metabolic-based oncology biologic candidate.

The immunotherapy platform will be developed through a joint venture with Xiangxue Pharmaceuticals, a long-term partners of ours. TCR-T technology, similar to CAR-T, or CAR-T, can manipulate the tumor-killing properties of patients' own T cells to recognize the tumors through the tumor antigens. While CAR-T targets tumor antigens on the surface and surface antigen only represent a small portion of the tumor antigens, our TCR-T attacks intracellular antigens process and present with the HLA molecules, and this represent the majority of the tumor antigens that can be presented to the immune system.

We have seen the preliminary data in patients, and we are encouraged that we have shown -- we have seen a very good safety profile of the TCR-T technology in patients. Our TCR-T may have the potential to offer important advantages over CAR-T in its potential to target solid tumors in large proportion of patients. We are establishing a new joint venture, Axis Therapeutics Limited, to develop the TCR-T technology globally apart from China, with 55% owned by Athenex and 45% by Xiangxue Life Sciences, a wholly owned subsidiary of Xiangxue Pharmaceuticals. Athenex will be leading the global execution of the development.

The second technology is a PEGylated genetically modified human arginase. Certain cancer types, around 60% of all cancers, lack the enzymes in the urea cycle and cannot synthesize arginine on its own. These tumors depend on circulating arginine for tumor cell survival and, needless to say, tumor progression. A long-acting therapeutic arginine, arginase enzyme, could deplete circulating arginine and therefore will starve the tumor cells while not affecting the normal cells, which can make their own arginine.

Our product uses genetically modified human arginase that has high potency and also only has one single positional isomer upon PEGylation, which is ideal as a commercial product. We plan to file an IND before the middle of 2019. Additionally, we're optimistic for the potential to develop combination therapy with TCR-T and other immunotherapies, such as anti-PD-1 or anti-PD-L1, based on our own portfolio. We believe that some of the pipeline drug candidates, including Oraxol, oral docetaxel, PEGylated arginase and KX-01 may all create synergy, both from a mechanistic standpoint as well as from clinical application perspective for cancer therapy going forward. We are delighted to have such a strong pipeline with this synergy in this exciting field.

To finance these 2 initiatives, we are very delighted to have the support of Perceptive Advisors. Perceptive invested USD 100 million in our company in conjunction with these 2 deals. Perceptive, as you know, is a well-established and respected institutional health care investor with a long history of supporting biotechnology companies. We are very grateful for their support.

I also want to mention 3 important appointments. The addition of Mr. Benson Tsang to our Board of Directors. Mr. Tsang will serve as the Chairman of the Audit and Risk Management Committee as well as a member of the Nominating and Corporate Governance Committee. His previous positions include Chief Financial Officer of WuXi PharmaTech, where he played a crucial role in WuXi's successful IPO in 2007.

The appointment of Mr. Timothy Cook to head the Global Commercial Oncology is also important to us. He was formerly in charge of Eli Lilly's oncology franchise in North America. Also, the appointment of Ms. Christina Wang, a veteran of clinical research and a co-founder of Choice Pharma, a reputable full-service CRO in Asia, to lead the clinical operation efforts in Asia Pacific and will support the global clinical operations, including data management and biostatistics.

Heading into the balance of the year, we'll have a number of important milestones. The interim analysis of Oraxol Phase III trial is expected in September. We plan to file an IND for our Oral Eribulin in the fourth quarter of this year. And we will also have additional updates on our new TCR-T and PEGylated genetically modified human arginase program later this year.

With that, I'll turn the call over to our Chief Operating Officer, Mr. Jeff Yordon, for a more detailed overview of our progress during the second quarter. Jeff?

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Jeffrey M. Yordon, Athenex, Inc. - COO & President of Athenex Pharmaceutical Division [4]

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Thank you, Johnson, and good morning, everybody. Let me begin with KX2-391, formerly known as KX-01. By now hopefully, you've had a chance to review the positive Phase III clinical data in actinic keratosis we announced with our partner, Almirall, at the end of July. Both clinical trials achieved their primary end points, and importantly, the safety profile for this product continues to look very good.

On the strengths of these results, we believe that KX2-391 has the potential to change the standard of care for actinic keratosis. I can say that in my 40-plus years in the pharmaceutical industry, I have never seen a market that's more underserved. The unmet need is very significant. The disease is estimated to affect over 50 million Americans alone and is the most common precancerous condition in dermatology. It is estimated that it accounts for somewhere between 14% and 29% of dermatologist visits in the United States.

We're very excited to be partnering with Almirall, as we prepare to commercialize this product. Almirall has strong franchise in dermatology and has already established itself as the leader in the field of medical treatment of actinic keratosis, both in Europe and in the United States. As a reminder, we signed this agreement last December. We received an upfront payment and are entitled to near-term payments of up to $55 million. We are also eligible to receive additional indication milestones as well as sales performance milestones. In addition, we will receive tiered royalties, starting at 15% based on annual net sales, with incremental increases in these royalty rates as sales increase. There's an additional $5 million payment by Almirall that could be reported as revenue by year-end.

We plan to submit a request to the United States FDA for a pre-FDA submission meeting in order to discuss the data and regulatory submission time lines for KX2-391. Almirall will employ its expertise to support the development in Europe and also to commercialize the product in the defined territories.

You probably have seen the news earlier in August that Almirall has also agreed to acquire Allergan's U.S. dermatology portfolio. This is a very significant deal that will increase Almirall's U.S. commercial footprint even further, and obviously, that has the potential to benefit KX2-391.

In our commercial business, we continue to launch significant new products in both our 503B business, Athenex Pharma Solutions and our specialty injectable business, Athenex Pharmaceutical Division. We added to our 503B portfolio with the launch of compounded Vasopressin injection in ready-to-use premix IV bags in connection with this launch of compounded Vasopressin products yesterday. This product is greater than $400 million in revenue.

Athenex has commenced a lawsuit in the United States District Court, Western District of New York against Par Pharmaceutical and its affiliates in which Athenex seeks a declaratory judgment that Athenex' compounded Vasopressin products do not infringe patents covering Par's Vasostrict product as well as the invalidity of Par's patents. We also filed a motion to intervene as a defendant in an existing lawsuit between Par Pharmaceutical and the FDA in the United States District Court, District of Columbia. In this action, we will seek to establish that the FDA appropriately permits Vasopressin to be compounded, in accordance with 503B.

In our U.S. specialty pharmaceuticals business, an important launch for us was potassium chloride injection, which is on the FDA shortage list, and the FDA is allowing us to import and distribute this product in the United States. The product is used to prevent low blood levels of potassium or hypokalemia, which can adversely impact normal heartbeat.

Athenex Pharmaceutical Division now currently markets a total of 21 products with 36 SKUs and are planning on launching 5 additional new products before year-end with an additional 12 new SKUs. Our pharma solutions business currently markets 5 products with 27 SKUs, and we plan on launching another 2 products before the end of the year with an additional 11 SKUs.

In June, I attended the CPhI China conference with some of my colleagues. This is the leading networking conference in all of Asia. We were able to uncover some significant new opportunities, several of which had been consummated already. We will provide a further update in the near future.

Turning to manufacturing. We continue to make progress on our facility in Dunkirk, New York. All of the prep work and the foundations are complete, and the exterior should be finished by year-end. We expect the whole facility to be complete by the first half of 2019. Dunkirk is being constructed with substantial grant funding through a private-public partnership with the state of New York, and we are very happy for their support. Our oral proprietary products, injectable and compounded products will be manufactured there.

We are also in the process of a significant expansion to our Clarence, New York, facility following a successful U.S. FDA inspection in the first quarter. This is the headquarters for our 503B product manufacturing, and it's also where we will manufacture Oraxol for the clinical trials. This expansion is on target, and we should meet our objectives by the end of the year.

All these activities are important strategically as we establish Athenex as a fully integrated oncology company. We believe that we can create more value for shareholders by using our resources to commercialize products in the major markets.

But in order to be successful, we need to create both manufacturing and commercial infrastructure far in advance of proprietary product launches. The sales force in our 503B and specialty pharmaceuticals divisions are already building strong relationships and tremendous goodwill with both gatekeepers and influencers in the oncology community, and we have already completed the marketing plan for Oraxol and will definitely be ready to launch the product when it is approved.

In parallel with our development and manufacturing work, we continue to build-out our senior management team. And as Johnson mentioned, we were very pleased to announce in July the appointment of Timothy Cook as Senior VP of Global Commercial Oncology. Tim is exceptionally well-qualified for this position. He was previously the head of North American Oncology at Lilly, where he played a critical role in the launch and commercialization of 3 oncology products in the U.S., Europe and Japan. Under his leadership, Lilly became a major player in the global oncology market. Having Tim on board at this juncture will allow Athenex to focus and advance our commercialization effort, specifically in the oncology market, as our pipeline of innovative proprietary products advances toward launch.

I will now turn the call over to Dr. Rudolf Kwan to discuss our clinical development activities.

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Rudolf Kwan, Athenex, Inc. - Executive VP & Chief Medical Officer [5]

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Thank you, Jeff. Let me begin by providing more detail on the 2 positive pivotal trials of KX2-391 in actinic keratosis, both Phase III studies which were designed to support the global registration of KX2-391 as a field therapy for actinic keratosis of the face and scalp. Each study achieved their primary objectives of efficacy and safety. The primary endpoint of 100% clearance of lesions at day 57 were matched with high statistical significance of p less than 0.0001 for each study.

In addition to meeting the primary endpoint, high statistical significance was also achieved for clearance of lesions in both the face and scalp subgroups. And very importantly, KX2-391 appeared well tolerated with local skin reactions that were mostly mild and transient and confirmed the excellent profile [ready] for the Phase II study. We plan to submit this data for publication. So we can't provide whole lot more detail at this time. But I will say that the response rate in the Phase III were better than the Phase II data we reported at American Academy of Dermatology earlier in the year.

Current treatment for actinic keratosis include cryotherapy, lasers, surgery and topical medication. Generally, these are either not practical for multiple lesions on the face or scalp, are not effective, or take a long time to administer or in the case of topicals, such as 5-FU also have severe side effects. The later agent is associated with pain, ulceration, burning and inflammation that can last up to several weeks. It is partly for this reason that the market remains relatively underpenetrated. And this is why we believe that KX2-391, which is efficacious, has a good safety profile and can be administered as a 5 daily application, has the potential to be a game changer in standard of care in the treatment of this disease.

Turning to Oraxol, the lead candidate in our oral discovery platform. It is in a Phase III clinical trial for metastatic breast cancer. Recruitment in this trial is advancing very well. We have been hitting our enrollment targets, and the next data point will be the second interim analysis by the DSMB in September. This analysis has stopping rules based on positive and negative outcomes.

We continue to believe that the profile for Oraxol from this study would mirror the encouraging preliminary efficacy and safety data we announced in January in a PK and Phase I/II clinical trial in Taiwan. In that study, among the first trial evaluable patients, we saw 50% partial response and another 50% stable disease. There was no progressive disease and no report of the peripheral neuropathy that is frequently seen with Paclitaxel.

We strongly believe in Oraxol's potential and the excellent target profile with the convenience of no need for infusion, no need for intravenous steroid, no need for intravenous antihistamines, reduction of painful peripheral neuropathy and, more importantly, better efficacy. In the gastric cancer indication for Oraxol, our study in combination with Eli Lilly's ramucirumab is progressing well and showing good tolerability and activity thus far.

In April, we secured the U.S. FDA orphan drug designation for Oraxol for treatment of angiosarcoma. This is a parallel development program, with our metastatic breast cancer and gastric cancer indications. We expect to launch the clinical trial for angiosarcoma this year.

We also plan to explore the potential of Paclitaxel's stimulatory characteristics in induced cell death in the context of co-development with immunotherapy in cancer treatment. Finally, our other clinical studies in Oratecan, Oradoxel and other programs are all progressing well.

With that, I'll turn the call over to Li Shen, our Acting Chief Accounting Officer, for an overview of our second quarter financial results. Li?

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Li Shen, Athenex, Inc. - VP of Financial Reporting, Treasury & Acting CAO [6]

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Thanks, Rudolf. Let me start with the results for the second quarter ended June 30, 2018. Revenue for the second quarter was $11.6 million compared to $4.6 million in the same period last year. The increase was primarily attributable to a $5.2 million increase in specialty products sold through our commercial platform. Revenues this quarter do not reflect the additional $5 million milestone payment by Almirall, which will be included by year-end.

Cost of sales for the second quarter were $9.4 million as compared to $4.1 million for the comparable period in 2017. This was primarily due to the increase of $4.1 million cost of sales for the recently launched specialty products and $1.2 million cost of sales from 503B and the API products. The increase in gross profit was primarily due to the impact of the increase in shortage specialty product sales, which carry a high margin than other product lines. R&D expenses for the quarter were $26.6 million, an increase of $9 million compared with the same period last year. The largest component of those was $6.5 million in clinical trial costs associated with the progression of the Phase III trials of KX2-391 Ointment and Oraxol.

SG&A expenses were $12.8 million compared to $13.6 million in the same period last year. Net loss for the second quarter ended June 30, 2018, was $37.4 million or $0.58 per share. Cash, cash equivalents and short-term investments was $80.7 million at June 30, 2018, compared to $51 million at December 31, 2017. Subsequent to the end of the quarter, in July, we closed a privately placed debt and equity financing deal with Perceptive Advisors for gross proceeds of $100 million.

The company entered into a 5-year senior secured loan for $50 million after financing and issued approximately 2.7 million shares common stock at price of $18.66 per share for the remaining $50 million. As Johnson mentioned earlier, we established Axis Therapeutics based in Hong Kong to manage our TCR-engineered TC technology. This joint venture will be owned 55% by Athenex and 45% by Xiangxue Life Sciences. We will make a capital contribution of $30 million to the JV as well as an upfront payment in the form of a $5 million issuance of our common stock. For more detail on our financials, including results for the 6-months ended June 30, 2018. Please refer to our Form 10-Q filed with the SEC this morning.

With that, I will now turn it back to Johnson for some final comments.

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [7]

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Thank you to all of you your continued support of Athenex, and we look forward to sharing upcoming milestones across our business, when available. I would like to thank our team around the globe, whose hard work makes up the operational and clinical capabilities I'm so proud to be a part of.

With that, I'll turn the call over to questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Kennen MacKay with RBC.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [2]

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It was great seeing the team the other week. First, maybe one for Dr. Kwan. Wondering if you could elaborate a little bit on to your comments on positive enrollment in the Phase III metastatic breast cancer trial of Oraxol and reaching your goals there. Is there any sense as to how many patients have been enrolled into this trial following your prior announcement that you'd reached the 180 patient enrollment number that obviously we'll see some hopefully data from in September?

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Rudolf Kwan, Athenex, Inc. - Executive VP & Chief Medical Officer [3]

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Thank you, Kennen. We have already announced that we have achieved 180 patients for the second interim analysis earlier on this year. And as we speak, we have already enrolled more than 300 patients in the study.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [4]

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Okay. Congratulations on that. Thanks for the increased granularity there. And then just a couple more questions relating to sort of the business as well as on Vasopressin. Firstly, wondering, how much API manufacturing capacity currently is going for clinical trial supply for Oraxol or any of your other Orascovery products that are in earlier development? Maybe it could be helpful if either is presented either as a percent of your API business or what this could represent if it was recognized as commercial sales? And then on the Vasopressin launch, I was just wondering if you could help us understand any interactions you'd had with the FDA, ahead of this surprise announcement yesterday that could help us sort of gain comfort that there isn't sort of a warning letter coming with the FDA's updating of 503A and 503B list, which could really sort of define the legality of compounding here?

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Jeffrey M. Yordon, Athenex, Inc. - COO & President of Athenex Pharmaceutical Division [5]

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Okay, Kennen. This is Jeff. In terms of your first question on API, about 30% of our current capacity is being used for clinical studies. Remember, our facility in Chongqing is almost completed. So at some point next year, it'll be substantially bigger in terms of our capacity and will give us the opportunity to not only sell more commercial Paclitaxel but also sell lot of our other products. In terms of the Vasopressin, I think, the best way to look at it, right now everything we are doing is well within the legal limits and FDA guidelines. So we feel comfortable with that. We never would have proceeded if we didn't feel that we were doing something that was defendable and that the FDA would be supportive. So that's where we're at right now.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [6]

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And maybe just a couple more then on the clinical development front. Dr. Kwan, you'd also talked a little bit about potentially combining Oraxol with some immuno-oncology checkpoints. The trial combining Oraxol with Pembrolizumab has posted on clinicaltrials.gov. I was wondering if you could discuss this trial collaboration a little bit, help us understand who is running the trial, where -- who is paying for Pembrolizumab, and what's Merck's really involvement here, even any sort of corporate interactions you've had with them to date? And then maybe one additional question for Johnson. On the TCR data that you are describing, could you help us understand the human data that you've seen so far? Was this from a clinical trial setting or more of sort of a one-off commercial setting in academic centers in Asia? And then one further quick follow-up. On the arginine depletion, wondering sort of if you could help us understand why a modified arginase with a single PEG is ideal? And with that single PEG, if there's any [color] on the half-life of that product that you could help us with?

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [7]

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Rudolf?

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Rudolf Kwan, Athenex, Inc. - Executive VP & Chief Medical Officer [8]

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Okay. Yes, let me start. The immuno-stimulatory effect of Paclitaxel is well described. Basically, Paclitaxel, when they induce cell death it's through a pathway of apoptosis and as such generally it's immunogenic. And if you look at the clinicaltrials.gov, you'll find that there are many, many studies that the PD-1 -- anti-PD-1 and anti-PD-L1 are conducting, and that's not by coincidence. They have long observed that the combination has a high synergistic effect. Our study is not yet publicly discussed; however, it is already available in clinicaltrials.gov. So you can look into our design. I think sufficient to say, that we intend to explore this pathway along with the other immunotherapy platforms that we have in our pipeline. So it's not only limiting to PD-1 or PD-L1. The details of it, you can find in clinicaltrials.gov. The study is being done in the U.S., and we do not have pay for the immunotherapy. Let me pass it back to Johnson.

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [9]

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So Kennen, obviously, you asked a question with regard to corporate discussion, and obviously, it will not be appropriate for us to discuss about any corporate discussion. But suffice to say, as you can imagine, there are 5 different anti-PD-1 or anti-PD-L1 approved in U.S. and EU by 5 of the major players in pharmaceutical industry. And therefore, from our perspective, we believe that we will be the ideal candidate on the other side in combination. And therefore, you can imagine that we should not be limiting our discussion to only one potential partner. And I think, that's all I can share and discuss with you at this point of time. Now you have 2 more questions. One is on the TCR-T in the technology and what do we know. Now we did disclose on the 2nd of July teleconference that the technology that we now own a major part of it is, it has enhanced binding affinity between the TCR and the target antigen in the context of HLA. The T cell that we are working right now has a good solubility that it has enhanced expression in the engineered T cells, and we also have much better HLA coverage that means covering a larger proportion of patients. So therefore, we are encouraged by all these results in terms of its potential in human patients. Now our data were already kind of good data generated by our partner that we mentioned in our teleconference on July 2, and we did see some encouraging clinical data, which we also shared. But right now it may not be an ideal situation for us to share all the details of the clinical studies while we are trying to look into it in finalizing all the data before we share the data. Suffice to say, we did see a very nice clinical signal in our due diligence process. Now with regard to your question on the arginase depletion, you asked 2 questions. Number one, why is single PEGylation site important? And second question is what is the half-life of it? Let me answer your second question first. In animal studies, the half-life is actually more than 7 days, which means that in humans, it's likely to be even better. So we do have a biologic with an ideal profile as an anticancer drug. Now suffice to say that when you have such a long half-life, you asked a question, is there an antidote? [I woke up]. And it's relatively straightforward. Infusing the amino acid arginine is already the antidote, which means that we do have a long-acting, highly potent biologic molecule with an antidote in hand. Now your question with regard to why is it important to have a single PEGylation site, that came from many years of experience. Now allow me to remind you that I was actually leading the effort in Schering-Plough in developing PEGylated interferon called Peg-Intron. And then our Chief Business and Strategy Officer, Dr. Simon Pedder, was leading the effort to develop Pegasys in Hoffmann-LaRoche. We all know that if you have many, many positional isomers, subject after the PEGylation, the CMC portion or the manufacturing process will be very challenging and may not be ideal for commercial product, even though it may not be that difficult to push into clinical studies. What we have right now is a single isomer, a very easy to deal with from a CMC perspective very potent and at the same time very long half-life. We believe that we have a very good product in PEGylated arginase. Now the final question that you asked is the combination. And suffice to say when we had discussion with some of the leading oncologists, once they heard that we will be able to deplete arginine that actually cancer cells may not be able to use to synthesize proteins, then they all realize the potential in conjunction with immunotherapy that we are talking about. I think that we are assembling a very good pipeline, which will create a lot of synergy. And we share all this synergy when we have the appropriate data to share with the investment community. Right now we are finalizing our data. And hopefully, in the near future, we'll be able to share with you all the excitements. And thank you for your questions.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [10]

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Got you. Thank you for the generous and detailed responses. And maybe just one final question, if I may. I know I've been dominating your time, but this will save me from jumping back in the queue. On actinic keratosis in Australia, you do still own the rights here, maybe it's sort of the highest concentration of patients with actinic keratosis in the world. It's a very unique market with a concentrated coastal population here. Could you maybe talk about how you're thinking about this market, either from a stand-alone basis and potentially launching KX2-391 there yourselves or from a partnering perspective?

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [11]

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Thank you for your question. Australia is a very interesting location because more than 50% of the adults above age 40 will have actinic keratosis. And the other interesting thing about Australia is that all the -- majority of the population are concentrated only in a few big cities. So if you look into the potential market size of KX2-391 for AK in Australia, it's actually very attractive. In the same time, with the data that we have, we believe that we can be a leader in this field in Australia. Now coupled together with the fact that the population of Australia are densely populated around cities, we estimated that we only need to take around anywhere between 7 to 9 sales force to launch the product in Australia. Now certainly, I mean, our job as a management team is to ensure that we get the best value for our stakeholders, and therefore, all options are on the table. We shall be more than happy to entertain some very good offers, or we are prepared to launch it ourselves because that is well within what we can do on our own to ensure that we get the maximum value for our shareholders. And thank you for your question.

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Operator [12]

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Our next question comes from Yale Jen with Laidlaw.

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I-Eh Jen, Laidlaw & Company (UK) Ltd., Research Division - MD of Healthcare Research & Senior Biotechnology Analyst [13]

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My first question is that for the second interim look of the Oraxol data, could you give us little bit sort of different scenarios that might be so investment -- better understood what the difference or possibility could be going forward in September?

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [14]

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Rudolf?

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Rudolf Kwan, Athenex, Inc. - Executive VP & Chief Medical Officer [15]

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Yes. Yale, the different scenario of DSMB interim analysis will be, one, go ahead as plan, that is generally the most common scenario of most interim analysis. Two, stop because of fertility which is built into the study, which, I believe, is unlikely based on the first interim analysis look that the DSMB was so encouraged about, all right? And third will be (inaudible) recommending the -- stopping the study based on reaching a predefined p value, okay? So those are the 3 scenarios. I would leave it to DSMB to come up with the data because we -- that is based on double-blind data that we look at. All I can say is all the data we have seen so far from these studies is very encouraging, and our target profile for the Oraxol compound still remain, as I said earlier, not only achieving convenience of no IV infusion, no -- reducing painful neuropathy and looking forward to a better efficacy.

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [16]

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Yes, the way I want to characterize is the following. We are all very confident with the fact that this event will be a product and actually a very important product for cancer patients. The primary objective of us is actually not forcing the disclosure of data. The primary objective is to ensure we follow all the procedures to get the product -- getting the all the data available and getting the FDA [spot in] and endorsement and approve the product eventually for us to help patients. I think that there is obviously a tendency for people to really want to know the data as soon as possible. But from our perspective, we are very confident. Let me emphasize again that, we are very confident with the product. And our objective is to ensure whatever data we get, no matter how good it is, we are looking at the overall picture with regard to the development process to ensure whatever we do will not jeopardize our path into success. And since we are very confident with this product, the path to success is far more important than a single time point with regard to data disclosure. And I think that provides our opinion with regard to how we look at the second interim analysis. Thank you, Yale.

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I-Eh Jen, Laidlaw & Company (UK) Ltd., Research Division - MD of Healthcare Research & Senior Biotechnology Analyst [17]

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Okay, great. That's very, very helpful. And certainly, that's one of the focus of -- focuses of investors currently. Maybe just a -- the second question here is KX2-391. So we estimate that the NDA filing probably over the mid-year, next year. So is there a follow-up after your initial data release -- the Phase III data release to be conducted before you can file -- before it can be filed? And also, what might be the sort of European strategy at this moment from the partner -- by the partner?

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [18]

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Okay, Rudolf?

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Rudolf Kwan, Athenex, Inc. - Executive VP & Chief Medical Officer [19]

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Yes. The Phase III data is really highly, highly statistically significant in both studies. And -- so the study is still ongoing because the standard packages, you also need to collect the recurrence rate, which is not an end point for efficacy or safety. I think it's just a standard check box. For these indications, you need to check that box. So we are not concerned. And also, our phase II data in the recurrence rate was comforting to us. So we do not see any hurdle in the efficacy and safety package for the FDA. Nevertheless, we still need to complete the job and finish the study. On the other hand, with such highly statistical significant endpoint, we are planning to talk to the FDA even as we are finishing the study to see -- to gauge the reaction to the filing strategy. On the Europe front, we already -- our partner has already start engaging with EMA, and I think we certainly will continue that dialogue with EMA regarding the filing planning in Europe. It should be coordinated closely with the U.S. filing.

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [20]

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Okay. Yale, if you allow me to compliment, our team in terms of execution and data is that with such a strong p value data available in hand, again, our objective is to ensure that we work closely with FDA and according to the recommendations by FDA. And if that FDA feels that this data are so significant that they would like to advance the speed of our filing or would like to advance or speed up the process of reviewing, we shall be more than happy to be cooperative to work with FDA because our objective is the same is that we want to deliver the best product through the appropriate legal channel and registration channel to make it available to patients as soon as possible. Now in conjunction with your first question, allow me to also share one more piece of information with Oraxol second interim analysis. When we announced in February this year that we already recruit 180 patients, I think that was very exciting because people saw that the enrollment is getting faster and faster. And mind you one thing is that this is less than 6 months after the last announcement for 180 patients, only a little bit more than 5 months. We already recruit well above 120 patients in the last few months. So you can imagine that the excitement of the research community for our product in the clinical studies are picking up very nicely. And I think all this are pointing to encouraging sorts of signal or encouraging prospect of our product going forward. I think those are the key points I would like to share with you and for you to assess with regard to the potential. Thank you.

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I-Eh Jen, Laidlaw & Company (UK) Ltd., Research Division - MD of Healthcare Research & Senior Biotechnology Analyst [21]

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And maybe, as you mentioned that it's over 300 patients being enrolled in the study. So -- but you ultimately going forward talking about the final endpoints and those information. Would you stick to the 180 patients or you maybe had some additional follow-up to -- talking about this large patient cohort in terms of their clinical outcome?

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [22]

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Rudolf?

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Rudolf Kwan, Athenex, Inc. - Executive VP & Chief Medical Officer [23]

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Yes. We -- when you say you stick to 180 patients, you mean...

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I-Eh Jen, Laidlaw & Company (UK) Ltd., Research Division - MD of Healthcare Research & Senior Biotechnology Analyst [24]

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That's the initial -- I mean, 360, so that will be ultimately the data, the size of the enrollment, yes.

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Rudolf Kwan, Athenex, Inc. - Executive VP & Chief Medical Officer [25]

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Yes, I think, as most studies, we do -- our protocol do allow certain overage. I think you're spot on. And there are patients that do drop out in the early stage. So we intend to make sure we are tracking those enrollment very closely. And we intend to make sure that we have enough subjects should we continue -- should the decision from DSMB is not to stop the study but continue, then we will be very quickly finishing the study in very short period. And we will make sure that we have enough enrollment to achieve our objective as defined in the protocol.

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I-Eh Jen, Laidlaw & Company (UK) Ltd., Research Division - MD of Healthcare Research & Senior Biotechnology Analyst [26]

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Okay. Maybe last question -- go ahead.

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [27]

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Yes. I think your question can also be phrased this way is that, is there a hard and fixed rule with regard to what we are thinking with regard to the enrollment target and if it [cross] the 180 patients tends to be very exciting. Are we going to stop the 360? The answer is that we always want to ensure that this is going to be a product. Because the profile looks very good to both our Chief Medical Officer, our clinical team and myself. So the decision here is not really based on a financial decision. This decision is based on product development decision. And what we're going to do is that we do everything possible to ensure that we have all the data available to answer all the questions by the scientific community and the regulators to ensure that this will be a product. So therefore, the decision is not just a number. It's more in terms of do we have sufficient data in our entire package to ensure that this is a product. One thing that I have been encouraging the clinical team to do is that we will not respond to just say for example we can save a penny here or there, rather we'll do anything possible to ensure that our data package is very complete as to facilitate the evaluation by FDA to look upon our product and determine whether they like our product or not to be approved. I think that remain our primary objective rather than a single time point or single number. That will be what I have been encouraging to the clinical team and what I would like to share with you and the investment community.

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I-Eh Jen, Laidlaw & Company (UK) Ltd., Research Division - MD of Healthcare Research & Senior Biotechnology Analyst [28]

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Okay, great. That's very helpful. And maybe the last quick question just for Jeff is that you mentioned -- I mean, the press release mentioned Vasopressin as well as a few days before about potassium chloride. Just maybe give investor a little bit sort of idea in terms of the potential of these 2 products that seems to be a major product in the pharmaceutical and the pharmaceutical solution group of the company and so we just have to maybe see some sort of market potential of those 2 combined maybe for the (inaudible)?

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Jeffrey M. Yordon, Athenex, Inc. - COO & President of Athenex Pharmaceutical Division [29]

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Sure, Yale. No problem. The Vasopressin market is well over $400 million. We will go for our market share without causing a major disruption of the market. In terms of potassium chloride, there's a total of about 6 million units. The product is on and off of shortage. We certainly have the potential to take a significant market share, and that will all depend on how long the shortage continues. So we'll be excited about giving you an update at next earnings call, which will indicate pretty well how that shortage went. Suffice it to say they're both wonderful opportunities for the company and our shareholders.

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [30]

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And as Jeff has already indicated that there are opportunities that we're also pursuing as well. So our commercial division is setting the pace with regard to ensuring that we will be able to help patients in the U.S. with U.S. FDA, and also building the infrastructure to launch our proprietary products when the proprietary product is approved by the U.S. FDA and also by other regulatory authorities as well. So we are getting ourselves ready.

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Operator [31]

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Our next question comes from Chad Messer with Needham.

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Chad Jason Messer, Needham & Company, LLC, Research Division - Senior Analyst [32]

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KX2-391, you referenced a meeting with the FDA ahead of NDA filing. I just wonder if you could clarify whether that's a requested or scheduled meeting? And maybe a little bit more detail on what you hope to accomplish from that?

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [33]

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Rudolf?

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Rudolf Kwan, Athenex, Inc. - Executive VP & Chief Medical Officer [34]

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Yes. We are in the process of planning for scheduling the meeting. As you know, that our data is just coming off the analysis shelf, and we are in the process of cleaning all the data. We want to present with them -- to them a comprehensive data package as we can while the recurrence data is being collected. So all I can say at this time point, we are vigorously preparing for that, and we probably will make an announcement once we schedule a date with the FDA.

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Chad Jason Messer, Needham & Company, LLC, Research Division - Senior Analyst [35]

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Okay, great. And then just on the TCR-T program, it sounds like we're going to have to wait a little while before we get a chance to see the existing data that was previously generated. In the meantime, what should we expect going forward from you guys in terms of clinical development? Do you have any time lines for starting your next study and what might that look like or what indication might that be in?

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [36]

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Thank you for your question. Certainly, we are a company that are based on solid foundations, and therefore our approach is that, when we present data, those are very reproducible, comprehensive and defensible data. That's our position. So the data, as I indicated already, looks that there is a very nice clinical signal. But again, we will only be presenting data when we feel comfortable that this data are going to be very good data, at the same time, providing the leverage that we have since we know a lot of information that, I think, are proprietary in terms of giving us the edge of development. So I hope that the shareholders and the stakeholders will understand that. Talking too early may not be to the best interest of long-term shareholders. Now with regard to your question -- with regard to the milestones and clinical time lines, what I can share with you is that all the SOPs all these other things are being translated as we speak. And we already have drawn up a time line. And the current time line is that the clinical data generated so far are based on investigator-initiated studies in China. And our partner is planning to file an IND in China later this year or early next year, and we are hoping to also generate sufficient data and package to file to the U.S. FDA in the first half of next year. That is the current time line. But suffice to say is that, this is not a tablet not a pill. This is a process in terms of engineering T cells for treatment. And they're -- it's not as easy as one imagine because there will be a lot of engineering with regard to the lab, the compliance, the procedure, the SOP, that will require different set of approval before you can proceed to generate the appropriate clinical data. And we have a lot of experience in that, and we are already in the process of preparing ourselves to that. And I contemplate that in the next earnings call, we'll be able to provide more solid time line to the investment community. Thank you for your question.

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Operator [37]

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At this time, I would like to turn the call back over to Athenex management for closing comments.

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [38]

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Thank you for calling in to listen to us. And we are comfortable and happy with what we have delivered so far. And we look forward to communicating with you in the next earnings call in November this year. And thank you for calling in. Bye-bye.

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Operator [39]

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This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.