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Edited Transcript of ATNX earnings conference call or presentation 27-Feb-20 1:00pm GMT

Q4 2019 Athenex Inc Earnings Call

BUFFALO Mar 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Athenex Inc earnings conference call or presentation Thursday, February 27, 2020 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

* Randoll Sze

Athenex, Inc. - CFO

* Rudolf Kwan

Athenex, Inc. - Executive VP & Chief Medical Officer

* Timothy Cook

Athenex, Inc. - SVP of Global Oncology

* 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, Research Division - MD & Co-Head of US Biotechnology Research

* Kevin Michael DeGeeter

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

* Matthew Lee Kaplan

Ladenburg Thalmann & Co. Inc., Research Division - MD & Head of Healthcare Equity Research

* Minh Vong

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Timothy McCarthy

LifeSci Advisors, LLC - MD & Relationship Manager

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Presentation

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Operator [1]

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Greetings. Welcome to Athenex' Fourth Quarter and Fiscal Year 2019 Earnings Call. (Operator Instructions) Please note that this conference is being recorded.

At this time, I'll turn the conference over to Tim McCarthy of LifeSci Advisors. Mr. McCarthy, you may begin.

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Timothy McCarthy, LifeSci Advisors, LLC - MD & Relationship Manager [2]

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Good morning and 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 fourth quarter of and fiscal year-end 2019. The news release detailing the 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 course of this conference call, the company will make projections or forward-looking statements regarding future events, including statements about financial, business and clinical milestones anticipated in fiscal year 2020 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; Mr. Jeff Yordon, Chief Operating Officer; Dr. Rudolf Kwan, Chief Medical Officer; Mr. Randoll Sze, Chief Financial Officer; and Mr. Tim Cook, Senior VP, Global Commercial Oncology, 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 thank you, everyone, for joining us this morning.

The major progress Athenex made throughout 2019 has paved a way for another exciting and productive year in 2020, as we execute our mission to become a global leader in bringing innovative cancer treatments to the market and improving health outcomes for patients. Our immediate focus is to obtain regulatory approval for our 2 most advanced candidates, oral paclitaxel and tirbanibulin ointment, both of which have demonstrated success in Phase III clinical studies. In parallel, we continue to invest in and expand our commercial infrastructure, putting us on a strong position to launch and commercialize the first of our proprietary oncology therapeutics.

Our most advanced candidate is tirbanibulin ointment, which is partnered with Almirall, as a treatment for actinic keratosis. We are delighted to share that we have already submitted an NDA to the FDA. We will share more information once we have confirmation that the application has been accepted. Our partner, Almirall, is responsible for the regulatory filing in Europe and will be managing commercial activities in both the U.S. and Europe.

The planned NDA submission for oral paclitaxel is supported by a strong clinical data package, including the results of our Phase III trial in metastatic breast cancer completed in 2019. This trial successfully met its primary efficacy end point, showing a statistically significant improvement on overall response rate for oral paclitaxel compared to IV paclitaxel. We'll provide an update on the trial at the San Antonio Breast Cancer Symposium in December, also announcing in the conference that oral paclitaxel demonstrated a significant improvement in overall survival.

I would note that this is the first oral taxane to demonstrate a significant improvement in response rate and overall survival in a Phase III study with much less neuropathy. We are on track to submit a NDA in the U.S. for oral paclitaxel. We will not be providing additional details at this time, but we will share news of NDA acceptance by the U.S. FDA once it is confirmed.

It is important to note that we've developed this in monotherapy as the regulatory pathway. However, we all know that combination therapy is a standard in the present and future. We'll continue to explore paclitaxel as a backbone of chemotherapy going forward, including combination with targeted and immunotherapies.

In December, we announced the expansion of our strategic partnership with our Chinese partner, Xiangxue Pharmaceutical, to exclusively develop and commercialize oral paclitaxel, oral irinotecan and tirbanibulin ointment in China, Hong Kong and Macau. Xiangxue Pharmaceutical is a leading Chinese pharmaceutical company with proven R&D and commercialization capabilities in the region, and we are excited to collaborate with them to tap into one of the largest health care markets in the world.

Under the terms of the expanded agreement, we are entitled to receive an upfront payment of $30 million. And we are also eligible to receive development, sales and other milestones payments up to another $170 million as well as tiered royalties on commercial net sales of licensed products. The total deal size is potentially worth $200 million, excluding royalty payments.

We look forward to leading the clinical development of this portfolio of our various clinical stage products with the ultimate goal of serving patients and addressing the very attractive market opportunities that exist in China. Plans are underway to commence clinical trials.

Having already secured a partnership in China, we continue to explore the best options to leverage the value of our clinical assets in other territories worldwide. In the U.S., we have always believed that the most compelling strategy is to commercialize our paclitaxel ourselves, but we have active ongoing business development discussions with potential partners in other major markets in order to maximize the global revenue potential. I would add that beyond conventional out-licensing agreements, we are considering opportunities to collaborate on additional indications and explore combination therapies with partners.

Product sales for the full year 2019 exceeded our expectations and came ahead of the guidance we issued in November. Jeff and Randoll will provide more details.

Finally, we continue to maintain a healthy balance sheet. Cash and short-term investments at December 31, 2019, were $160.8 million. This includes the proceeds from the private placement we completed in December, in which we raised net proceeds of $59.4 million from a group of institutional investments. Randoll will provide you with more details on this transaction.

I will now turn the call over to other members of the management team, beginning with Dr. Rudolf Kwan, our Chief Medical Officer, who will give an update on our R&D activities. Also joining us on the call today is Mr. Tim Cook, our Senior Vice President, Global Commercial Oncology. During Tim's discussion, he will provide information on the very positive reception we received in San Antonio. He will also provide an update on our prelaunch activities ahead of the anticipated oral paclitaxel approval.

But first, Rudolf, please go ahead.

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Rudolf Kwan, Athenex, Inc. - Executive VP & Chief Medical Officer [4]

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Thank you, Johnson. Let me begin with tirbanibulin ointment for the treatment of actinic keratosis. As Johnson mentioned, our NDA for tirbanibulin has [been submitted]. The tirbanibulin submission is supported by a strong clinical package, including 2 positive Phase III studies that demonstrate the excellent efficacy and a clean safety profile.

We believe that actinic keratosis represents a large and attractive market, and the commercial environment may get even more favorable in the coming years. We remain confident that tirbanibulin's clean safety profile confirms a competitive advantage over existing AK therapies, which are limited by side effects that negatively impact patient compliance. Almirall has stated that it plans to launch tirbanibulin ointment in the U.S. and EU in Q1 2021 and Q2 2021, respectively, subject to regulatory approval.

Now on to oral paclitaxel. And specifically, I would like to provide a recap of the data that we presented at the San Antonio Breast Cancer Symposium. We had announced earlier in 2019 that our Phase III study in metastatic breast cancer successfully met its primary end point. In the final analysis of the primary end point, we showed that patients treated with oral paclitaxel had an overall response rate of 40.4% compared with 25.6% for patients treated with IV paclitaxel, a difference of 14.8%. This was statistically significant with a p-value of 0.005. These results were based on prespecified, modified intent-to-treat analysis.

We were very excited to announce at San Antonio that treatment with oral paclitaxel also results in an improvement in overall survival in that trial. In the prespecified mITT population, the median overall survival for patients treated with oral paclitaxel was 27.9 months compared to 16.9 for those on IV paclitaxel, a difference of 11 months. The p-value was 0.035 with a hazard ratio of 0.684.

Overall survival was the secondary end point in the trial. It was an objective end point that's generally regarded by oncologists as the more important end -- outcome in a cancer trial. This was a relatively early [couple of] data, and I would note that we were able to show these survival benefits, making the results all the more impressive.

We believe the safety data of oral paclitaxel will be extremely compelling for both doctors and patients. There was an impressive reduction in neuropathy. Clinically relevant incidents of grade 2 or higher neuropathy occurred in 31.1% of patients on IV paclitaxel versus only 7.6% for those on oral paclitaxel. Neuropathy is a common dose-limiting side effect of taxane therapy that frequently results in the need for dose reductions. There was also a decrease in alopecia, with this side effect being reported in 48.1% of IV paclitaxel patients versus 28.8% for oral paclitaxel.

Furthermore, GI adverse events were manageable with probiotics therapy. Given the strong efficacy data and excellent tolerability of oral paclitaxel, together with the convenience of an oral route of administration, we are extremely confident about our unique and competitive product profile. We believe that the body of data we have generated will help establish oral paclitaxel as the treatment of choice for patients receiving chemotherapy for metastatic breast cancer.

As more oncologists in the U.S. have become aware of the potential of oral paclitaxel following the San Antonio presentation, we have received multiple inquiries and requests to support investigator-initiated trials. We have been evaluating these requests. We plan to move forward with a number of these programs, which will -- which we believe will give more U.S. physicians experience with the drug and if approved, help ensure a successful introduction into the oncology community.

Let me turn to our other studies of oral paclitaxel. Our Phase I program in cutaneous angiosarcoma started enrolling about 12 months ago, and we reported early data from this study during 2019. The initial response rate at the time of data announcement was clear and convincing, with all 7 patients who have received 6 weeks of treatment showing significant and visible reduction of the cutaneous angiosarcoma within 1 or 2 weeks of treatment. Three patients had complete response based on RECIST 1.1 criteria. We plan to submit additional data for presentation at medical meetings potentially in the first half of 2020.

With respect to our Phase I/II gastric cancer trial that combines oral paclitaxel with ramucirumab, we have now verified by -- in treating the expansion cohort and expect to report additional data later this year.

Lastly, our Phase I trial of oral paclitaxel in combination with pembrolizumab for the treatment of advanced solid tumor is progressing nicely, and upon determination of the dose, we hope to advance patients into the dose expansion cohort this year. This will enroll patients with advanced or metastatic urothelial, gastric or gastroesophageal or non-small cell lung cancer into 3 independent cohorts to further evaluate the activity and safety of the study combination. We believe this is only the beginning in terms of the value we expect to demonstrate for oral paclitaxel and our oral discovery platform overall.

I will now turn the call over to Tim Cook, who will discuss the positive reception from San Antonio and large preparations for oral paclitaxel. Tim?

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Timothy Cook, Athenex, Inc. - SVP of Global Oncology [5]

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Thank you, Rudolf, and good morning, everyone.

Our strategy from the very beginning has been to build an organization with a strong market focus and with an integrated business model that can leverage our proprietary commercial platform, supply chain and manufacturing capabilities. Building a successful specialty pharma business was the first step and has allowed us to build relationships and establish a supply chain in the oncology community. Our efforts to build out the commercial infrastructure for oral paclitaxel are now well advanced, and we are in the process of making key leadership hires for our medical science liaison team this quarter. We plan to have our account managers in place by midyear to begin engaging with commercial payers.

With regards to our oral paclitaxel sales team. We plan to start hiring our initial 25 to 30 sales representatives beginning in the second half of the year. We will then supplement this group with another 25 hires approximately 3 to 6 months postlaunch. We have conducted extensive customer segmentation work. And from our market research, we know that approximately 20% of high-volume accounts treat nearly 70% of the patients. We are focused on these hospitals and high-volume practices, and we will be able to begin our promotional efforts once we receive FDA approval. We plan to cover the remaining patient volumes through nonpersonal promotion.

We continue to have internal and external discussions on oral paclitaxel pricing and plan to conduct more quantitative pricing research later in the year. By now, we have a good idea about the acceptable ranges for our product, which are similar to other branded breast cancer medications.

In 2019, we launched our Athenex Oncology brand. Our goal was to increase awareness of Athenex and its products among health care professionals and emphasize our company's long-term commitment in the field of oncology. We aim to establish Athenex Oncology as a patient-focused entity developing and launching bold and innovative cancer medications while providing a communication platform for patients and health care professionals alike.

The brand was launched at ASCO last year, and we continued these initiatives at the most recent San Antonio Breast Cancer Symposium. In addition, we are now conducting market research to measure the baseline brand awareness, and then we will track our progress to increase this awareness throughout 2020.

Our oral paclitaxel abstract at San Antonio was accepted for oral presentation, and it was selected for a prestigious press program and it received broad media coverage. For example, we generated over 20 original online and print articles and 6 video interviews of our investigator, Dr. Umanzor. In fact, our program received over 68,000 social media impressions.

Following San Antonio, we conducted 47 one-on-one interviews with breast cancer experts. The feedback we received has been favorable, and it focused on our dramatic increase in overall survival and the significant decrease in peripheral neuropathy. As Rudolf noted, we have also received a steady stream of inquiries from physicians interested in conducting their own clinical trials of oral paclitaxel, which we view as highly encouraging.

So in closing, the precommercial activities around oral paclitaxel are critical for the entire company and for all our stakeholders. We have an opportunity to create significant value not just with the launch of our first proprietary product but also with additional indications and new therapeutics as our pipeline matures. I look forward to progress updates on future calls.

I'll now turn it over to Randoll.

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Randoll Sze, Athenex, Inc. - CFO [6]

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Thank you, Tim. Product sales for the 3 months and full year ended December 31, 2019, were $14.1 million and $80.5 million compared with $19 million and $56.4 million, respectively, for the 3 months and full year-end December 31, 2018. The decrease in product sales in the 3 months ended December 31, 2019, as compared to the same period in 2018, was primarily attributable to lower sales of vasopressin and Chongqing API.

License and other revenue in the 3 months ended December 31, 2019, was $20.3 million compared to $2.3 million in the same period in 2018. The increase was primarily due to a $20 million milestone achieved during the 3 months ended December 31, 2019, in connection with the Almirall license agreement. We recorded $20.7 million and $32.7 million license and other revenue in 2019 and 2018, respectively.

Cost of sales for the 3 months ended December 31, 2019, were $15.7 million compared to $14.3 million in the prior year. The increase in cost of sales was primarily due to an increase in the cost of specialty product sales of $4.6 million, offset by a decrease in the cost of 503B and API sales of $3.2 million. The increase in cost of specialty product sales was in line with that in specialty products revenue, while the cost of 503B and API sales decreased at a slower rate than the respective sales due to continued fixed costs despite decreased production.

Cost of sales totaled $69.6 million for the full year 2019, an increase of 48% as compared to $47 million for 2018. The increase in cost of sales was largely in line with the increase in product sales.

Research and development expenses for the 3 months and full year ended December 31, 2019, were $21.8 million and $84.4 million, respectively, as compared to $20.8 million and $119.9 million for the 3 months and the year ended December 31, '19 (sic) ['18], respectively. The year-over-year decrease in R&D expenses was primarily due to a decrease in in-licensing fees related to the license of TCR-T technology, product development and clinical operations, offset by an increase in preclinical development costs related to the arginine deprivation therapy and TCR-T immunotherapy platform and an increase in R&D-related compensation expenses.

Selling, general and administrative expenses for the 3 months and year-end December 31, 2019, were $18.1 million and $66.7 million, respectively, compared to $11.6 million and $49 million for the 3 months and year ended December 31, 2018, respectively. The increase in SG&A were primarily due to costs related to preparing to commercialize our proprietary products.

Net losses attributable to Athenex for the 3 months and year ended December 31, 2019, were $21.7 million and $123.7 million, respectively, or $0.28 and $1.67 per share, respectively. This compares to net losses for the 3 months ended -- for the 3 months and year ended December 31, 2018, of $27.1 million and $117.4 million or $0.41 and $1.82 per share, respectively.

At December 31, 2019, the company had cash, cash equivalents, restricted cash and short-term investments of $160.8 million compared to $107.4 million at December 31, 2018. I would note, our 2019 year-end cash includes $7.8 million funded by New York State for the construction of the Dunkirk facility, but does not include the $30 million payment we are due to receive from Xiangxue Pharmaceutical as a part of the expanded license agreement.

In December 2019, we closed with a number of institutional investors a private placement equity offering of 3.95 million shares of common stock sold at a price of $15.30 per share. Net proceeds from the offering were approximately $59.4 million. Based on our current operating plan, we expect our cash and cash equivalents as of December 31, 2019, together with cash to be generated from our operating activities, will enable us to fund our operations into first quarter 2021.

In terms of product sales guidance, we expect 2020 year-over-year product sales growth to be in the mid-single digits from $80.5 million in 2019. While the company does not give quarterly guidance, we will comment that our product sales are expected to be back-end loaded in 2020. Our guidance for 2020 has taken into account our discontinuation of vasopressin sales and the suspension of operations at our Taihao API plant in 2019, which had meaningful contributions in the first 9 months of 2019.

For a more detailed discussion on our financials, including those specific factors that contributed to the changes in our income statement as well as financial results for the year ended December 31, 2019, please refer to the Form 10-K to be filed with the SEC.

I will now turn the call back over to Jeff Yordon.

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Jeffrey M. Yordon, Athenex, Inc. - COO & President of Athenex Pharmaceutical Division [7]

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Thank you, Randoll. As Tim has already covered most of our precommercial activities, I am going to focus my discussion this morning on our specialty pharma and compounding businesses as well as providing a brief manufacturing update.

Product sales for the full year 2019 grew by 43% to $80.5 million. The increase in product sales year-over-year was due to a $20 million increase in specialty product sales from growing sales volume of existing products and the launch and sales of new products, along with an $11.8 million increase in 503B sales mainly attributable to vasopressin sales. I'm pleased to say that we were able to raise guidance twice during the year and then beat this guidance with the numbers we are reporting today, despite having discontinued sales of vasopressin and sales from our existing API plants in Chongqing in the second half of the year.

Athenex Pharmaceutical Division currently markets 30 products with 59 SKUs, and Athenex Pharma Solutions markets 5 products and 16 SKUs. We expect to launch an additional 7 products, including 1 significant 503B product, in the first half of 2020. There has been an important recent development in the 503B business with the closure of the compounding division at another major health care company. This has opened up a potential window of opportunity for Athenex, and we are currently evaluating this situation and will position ourselves accordingly.

On the manufacturing front, the exterior of our facility in Dunkirk, New York, is now complete, and we're in the process of completing all the interior work and the layout of the various suites. The equipment will be ordered in March/April of this year, and the plant is expected to be operational by June 2021. We expect to manufacture our injectable and 503B products and eventually our proprietary oncology products for commercial sale at this facility.

At our plants in Chongqing, China, we are currently only producing API for our own clinical trials and registration needs, and we are not producing commercial batches of API due to a decision we made to suspend commercial production based on discussions with the Department of Emergency Management of Chongqing. The department has agreed that all manufacturing activities that are related to the approval of oral paclitaxel can be continued without interruption.

It should be noted that we also have an alternative source of API for our oral paclitaxel that is ready to supply the same high-quality material and backup contingency plans to ensure there are no disruptions to our approval and launch. We also want to emphasize that we are continuing to explore licensing opportunities of our proprietary products on a global basis.

We continue to make progress with the new 440,000 square-foot API plant, which is being built to U.S. cGMP standards. As mentioned previously, construction on the new API plant has been completed. As a result of the recent outbreak of novel coronavirus in China, most businesses in the country have experienced suspension and subsequent delay of the resumption of operations to various extents.

We expect there will be some delay in building out this new API facility in Chongqing, and it is currently expected to commence operations in the second half of 2020. Once operational, the facility is expected to expand API production capabilities to further support our global clinical development needs and to ensure the supply of API for commercial launches.

I will now turn the call over to Johnson for closing remarks.

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [8]

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This is a very exciting time for Athenex. The innovative work performed by our R&D and clinical teams has resulted in 2 late-stage clinical assets with very positive Phase III data and the potential for each to change the standard of care in their respective markets. The NDA for tirbanibulin ointment has been submitted, and together with the planned filing for oral paclitaxel, we believe we are on the path for both of these products to be launched commercially in 2021.

In parallel with these regulatory activities, we have been making the necessary investments in our manufacturing and commercial infrastructure to ensure a successful launch for oral paclitaxel upon approval and capture maximum value. We are pleased also with the progress we have made in advancing our pipeline and continue to explore opportunities where there is strong clinical rationale for applying our Orascovery platform and other platform technologies.

I would now like to open the call for questions. Operator, please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Robyn Karnauskas with SunTrust.

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Minh Vong, SunTrust Robinson Humphrey, Inc., Research Division - Associate [2]

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This is Minh on for Robyn. Congrats for the quarter and all the progress you guys have made. I know you said during the call, you won't share a lot of details around the NDA until it's been accepted. But I just want to get some clarity. Are you saying that you're going to file the NDA after the final FDA meeting regardless of the outcome of the meeting? So then possibly around July, we can probably expect an update on the outcome there? Just really quickly there first and then just a few more follow-up questions.

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

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It's Rudolf here. We certainly have -- are very confident with the data package we already have from the Phase III study and from our ongoing discussion with the FDA. So this final discussion with the FDA in early April would be the last pieces we want to cross off before we make a submission. As we indicated before, we are going to make the announcement of the acceptance of the submission. So we have no intention to make a public announcement of the submission itself.

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Minh Vong, SunTrust Robinson Humphrey, Inc., Research Division - Associate [4]

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And then I guess, Rudolf, while you're still on the line, a quick question on the angiosarcoma. I know there was a lot of excitement around that when you guys have put out data. If you can just talk a little bit about how enrollment is going and how many more patients we may expect? And then when you would think you would want to talk to the FDA about a regulatory path forward for that indication?

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

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Very good question. As you know, angiosarcoma is rare disease, and we obtained orphan drug designation from the FDA and late last year also from the European health authority. And our early data obviously is a driving point in getting those designations. And as a rare disease, our enrollment's actually very rapid. We have been enrolling very, very well since the study started in about 13 months ago, and we continue to generate exciting data. What we have reported in the first 7 patients has now been extended to a lot more patients, and you will expect to see those additional data being communicated to the medical community very soon.

And of course, we are in the process of planning to interact with the FDA to find a regulatory path forward. And of course, this will -- you'll expect that we'll very soon, that as soon as we got information about that, we'll be making announcement of the regulatory path for angiosarcoma. So stay tuned on that one.

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Minh Vong, SunTrust Robinson Humphrey, Inc., Research Division - Associate [6]

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And then I guess one real last one for Tim. Can you talk about how -- talk about the sales team? Do you have it fully staffed to target the 70% of the accounts that you had mentioned? Or just where along in the launch process are you in filling out the field team?

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Timothy Cook, Athenex, Inc. - SVP of Global Oncology [7]

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Sure. This is Tim. Thanks for the question. We are in the early stages of filling out the sales team. We're starting really with the medical team first, the medical science liaisons because they can begin engaging the thought leader experts immediately. We'll follow then with our account managers, who will be engaging the payers. We can engage payers or population-based decision-makers well in advance of approval through a program called the Preapproval Information Exchange Act. And so that will be our second phase. And then in the second half of the year, we will start bringing on our sales force, as they have limited things they can do prior to preapproval. So it's a phased approach: science first, then payer, then the sales team, and the goal being that they're in place and fully trained and ready to go whenever we receive final FDA approval.

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Operator [8]

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The next question comes from the line of Kennen MacKay with RBC Capital Markets.

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Kennen B. MacKay, RBC Capital Markets, Research Division - MD & Co-Head of US Biotechnology Research [9]

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Congrats on the incredible progress through 2019, both actinic keratosis and Athenex Oncology and a lot of the excitement at San Antonio. A couple of questions. It sounds like there's a slight delay, maybe a 1-month delay, in the plans for Oraxol filing in the U.S. to accommodate the final FDA meeting. I was just hoping -- I imagine you've already had some interaction with the FDA around either a post-Phase III or pre-NDA meeting. Can you maybe just help us understand what remains to be discussed or agreed upon with the FDA prior to the filing? And again, help us understand why you're so confident that you'll be able to file promptly after this meeting?

And then maybe related to that, I was wondering if you could clarify if you've reached an understanding with the FDA one way or another on a means of analyzing Oraxol's overall survival data so that it could potentially be included in the label, or maybe that's part of the upcoming April meeting. And then lastly, I was just hoping you could elaborate a little bit on any impact to Chinese operations regarding the coronavirus concern that's certainly sweeping the new cycle here.

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Rudolf Kwan, Athenex, Inc. - Executive VP & Chief Medical Officer [10]

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Kennen, excellent question. The -- we have a very strong package from our Phase III program in accordance with the FDA-designed, confirmed overall response rate as an approvable end point for Abraxane. So our clinical study clearly demonstrates that based on the primary end point, we win very convincingly over well-performing active control arm with a significant -- very significant p-value both in the protocol-specified analysis and the ITT. And in addition, all the survival analysis were in the right direction, especially the overall survival trend in the protocol-specified mITT even at early stage is statistically significant with a difference of 11 months in favor of the Oraxol. So we are confident with the efficacy side.

The safety side, the fact that we were able to achieve a dramatic reduction in the clinically relevant neuropathy is a strong point, plus the fact with the first oral taxane, oral formulation of a compound, taxane that's well known and well known to the FDA for IV paclitaxel. So we are very confident with regarding the clinical data set as it stands to fulfill whatever the FDA would need for approval. As you rightly point out, we want to have the opportunity, as I articulate before, since the overall survival is an extreme pleasant upside that we did not plan for, we want some guidance from the FDA in order to maximize our chance of the label discussion, including the survival data in there. So you are spot on that we certainly would take the opportunity to discuss this issue with the FDA.

Your second question about the overall survival, I think I've answered that already. So your third question is on coronavirus. But before that, I will also give a little bit more flavor why we call this as the final FDA meeting. I think this is behind your question. We already have ongoing dialogue, and they have been checking off all the preclinical CMC questions one-by-one with the FDA. And we -- as I indicated, we believe our clinical package is really strong enough. So really, the final discussion is really on the normal formality of the submission format, checking up those last items. But more importantly, as I indicate, we wanted the opportunity to optimize our labeling discussion.

Johnson, do you want to talk about the coronavirus?

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

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Yes. Just to add one more comment is that as Rudolf has already indicated, the discussion or communication of FDA is ongoing. And I'm delighted to say that [SC] has indicated that all the discussion with regard to the preclinical as well as the CMC package, everything, the discussion was very satisfactory. So therefore, the last -- this is the reason why Dr. Kwan is saying that this will be the last piece of information more on the discussion with regard to today's clinical data.

Now with regard to your question on coronavirus outbreak in China, how it affects our China operation, obviously, as an organization, employees come first. So immediately, we have been assembling supplies to be shipped to Chongqing to ensure that all the employees will have the supply for them to be healthy and at the same time, to ensure that the environment is safe before we will ask them to continue the operation. Now let me emphasize the fact that the epidemic is not a company-specific issue, and it has affected many other companies and their business activities in China. We are now actively monitoring the situation, and we believe the impact to our China operations remain manageable.

Now as part of our launch preparation, we do have plan B and we do have plan C. And we have already activated backup suppliers for most of our most critical API products and also to work to secure all the suppliers as part of the normal course supply chain activities. I'm delighted to say that based on our assessment, there will be no delay in any of our ongoing activities as well as no impact on the launch of our products according to the regulatory approval date.

Given the high uncertainties associated with the coronavirus epidemic at this moment, it is very difficult for anyone to predict how long these conditions will exist and the extent to which this may affect, but we will be closely monitoring the situation. And if the issue is resolved earlier than expected, then I believe this will only represent an upside for our organization. And I hope I answered your question.

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Kennen B. MacKay, RBC Capital Markets, Research Division - MD & Co-Head of US Biotechnology Research [12]

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Yes. You did. Maybe 2 quick follow-ups on that. The first, just wondering if you could confirm that the Oraxol submission was still going through the 505b2 pathway or whether conversations with the FDA had suggested maybe it should go through a different pathway. And then separately, for Johnson, you are one of the world's experts on virology and especially retroviruses. I was wondering if there was anything that could be done by the Athenex team to potentially start looking at treatment for coronavirus, given on-the-ground operations over there and your expertise.

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Rudolf Kwan, Athenex, Inc. - Executive VP & Chief Medical Officer [13]

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Kennen, first question, I can confirm that the 505b2 track is still what we are working towards with the FDA. [So on to the virologist].

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

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With regard to your second question, I think that you are potentially witnessing the evolution of a new virus that can evolve into a more source of recurrent events going forward. And obviously, the most important thing is whether there will be a host that the virus can hide during the summer seasons. Now having said that, I mean, I was summoned to help. And then on top of my regular Athenex activities for -- on behalf of global health and humanity, I did help. And in fact, I was helping in terms of designing some of the early coronavirus vaccines as well as some of the diagnostics.

And certainly, I mean, the Board is fully aware. The Board fully endorsed my participation to be able to help. And certainly, if there are good opportunities going forward, Athenex may be able to enjoy the upside of this new development as well. And all this has been fully communicated to the Board of Directors. And they are excited and they are encouraging us to be helpful. And I think, stay tuned. And if there's any new developments, we shall be more than happy to disclose the potential upside surprises for our stakeholders.

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Operator [15]

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

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Chad Jason Messer, Needham & Company, LLC, Research Division - Senior Analyst [16]

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Congrats on all the progress, in particular with the 2 NDAs, the filed and pending one. One of your differentiating factors for Athenex is your manufacturing and supply chain stuff, and I thank Jeff for his update on it. But I was wondering if we could get a little bit more quantitative on your preparedness for an oral paclitaxel launch. I know in the past, we've talked about a potential need for up to 5 or 6 metric tons of paclitaxel to supply the market. Is that still your thinking? And where do you guys feel that you are in terms of being prepared to be able to deliver that?

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [17]

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Our previous guidance was for the peak sales to be somewhere between 2 to 4 metric tons according to our assessment. It was based very simply on the number of patients that require therapy, the duration, the dose required and then you factor that into the amount of API required. And our plants are in China, in Chongqing, will be able in full operation on to supply this with no issue. Now having said that, I mean, as the organization, they are fully integrated. And to prepare for any potential interruptions based on our experience, we did with the help of Mr. Jeff Yordon and others to set up plan B and plan C because for a critical medicine like oral paclitaxel, we have always -- we have the responsibility to ensure no interruption of supplies.

Now on this incident, I mean, the substance -- the challenges that we are facing in China with some other factories having exposure in China, plastic chemical factory as well as the coronavirus issue were unexpected. But having said that, our preparation is now paying off in terms of the fact that we were able to activate the plan B in terms of other supplier. And also, we have another -- other supplier just in case. But as of right now, we have full confidence that we'll be able to supply the API to satisfy the requirements or the needs of the patients not just in the U.S. but globally. I will have to say that in case the issue is resolved earlier, which we are monitoring very closely and be very supportive, this will only represent upside and very nice upside surprises for our organization and also for our stakeholders.

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

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And obviously, most of our conversation today has been on your 2 lead programs given the critical juncture they're at. But can we just get a quick update on a couple of the other things you guys are working on? The PCR and the arginase program, where do those sit today? And what's the next thing to look forward from them?

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [19]

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Yes. First of all, as the CEO of the company, I would like to congratulate the clinical team for a job well done. Now let me just give you some idea of the magnitude of the scope of work that they're working on. If I share with you that the file for the NDA for tirbanibulin, the file size is 4 gigabyte. Can you imagine the magnitude of the work that we're talking about in terms of NDA? And I'm very happy with the quality of the submission, and they are now working very actively on the oral paclitaxel. The timing is a function of the regulatory strategy as well as to ensure that we get the best label for the product so that our oncology commercial team will be able to do a good job in taking advantage of the label.

Now with regard to the other programs, they are all advancing. But since most of the shareholders are focusing on the result of top 2 programs, and we are also spending time on the top 2 programs. I'm delighted to report that we have very good progress with regard to the TCR-T program as well as the arginine depravation therapy program. There were some minor interruptions because of the coronavirus issue as well as some other supplies issue because you can imagine that some of the key supplies that are required for some of the products that we manufacture were interrupted by the recent events. But having said that, we are still very much on time, and you are going to hear more from us in the near future. And I will ask you to stay tuned. There will be more new developments to these programs as well.

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Operator [20]

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The next question is from the line of Kevin DeGeeter with Oppenheimer.

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Kevin Michael DeGeeter, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [21]

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Maybe just following up on the earlier comments on the angiosarcoma update. Rudolf, will there be an opportunity in the upcoming medical meeting presentation to provide both some durability of response data for at least the subset of maybe some of those first 7 patients, alongside response data for a larger cohort? Or should we expect the update to focus primarily on response data?

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Rudolf Kwan, Athenex, Inc. - Executive VP & Chief Medical Officer [22]

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Good question, Kevin. Angiosarcoma really occurs most commonly in very elderly patient population. The typical patient population in our studies were in their 80s or 90s. There's another subpopulation very much in the post-breast cancer surgery and irradiation that subsequently develop kind of an irradiation-related secondary angiosarcoma. Those will be typically in their 60s or their 70s, okay? So those patients do not tolerate treatment generally very well. So durability is indeed a major question for those treatment.

So we have already announced, in the early patients, we saw very early response, which is a very good sign. So the questions of durability would definitely be an area of focusing on to present in our presentation. We can say that we certainly are preparing for abstracts. Once they are accepted, we will notify the investor community accordingly. And certainly, we're very pleased with what we are seeing so far. I think that you should expect to see some data certainly coming out.

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Kevin Michael DeGeeter, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [23]

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Terrific. That's great. And then maybe as my follow-up question, I think, Jeff, in your prepared comments, you called out specifically singular exciting opportunity for a new product, a new 503B product. Could you expand a little bit more about that? And maybe just as we think about a little bit of context for the product sales guidance for the year, kind of how important is the introduction of any 1 or 2 products to really be able to sort of generate some -- what would be pretty meaningful growth off of the fourth quarter revenue run rate for product sales?

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [24]

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Jeff? So let me answer the question on behalf of Jeff. We do have a number of products to be launched.

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Jeffrey M. Yordon, Athenex, Inc. - COO & President of Athenex Pharmaceutical Division [25]

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Johnson, I can answer the question.

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [26]

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Thank you.

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Jeffrey M. Yordon, Athenex, Inc. - COO & President of Athenex Pharmaceutical Division [27]

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We should introduce that product at the end of March. And I would like to, at this point in time, let the products stand until we introduce it. Certainly, you understand the changing climate in the 503B business with the most significant competitor exiting markets. That offers us some very good opportunities. I have to be frank, we're not a big player in that market. But we have several products that we think by just increasing our staff and clearance, we can generate significantly higher market shares without really increasing cost much. So that first product you'll see at the end of March, another product you'll see probably in June coming out of APS. The upside is fairly significant, but we are very satisfied with where the sales forecast is now. And all of this just represents upside.

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Operator [28]

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The next question is from the line of Yale Jen with Laidlaw & Company.

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I-Eh Jen, Laidlaw & Company (UK) Ltd., Research Division - MD of Healthcare Research & Senior Biotechnology Analyst [29]

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Congrats on all the progress so far. I also have a question on the coronavirus but taking it from a slightly different angle, that the FDA recently suggested there is about maybe 150 drugs that could be at risk if the Chinese API manufacturing was delayed. So is that any of those things impact on, I guess, Jeff, your side of the operation? Or do you see any opportunity there you can pick up the slack?

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Jeffrey M. Yordon, Athenex, Inc. - COO & President of Athenex Pharmaceutical Division [30]

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Yes. I think first and foremost is the fact that certainly our customers are concerned about products coming in from China. We try to explain that all of the products are made in isolated conditions with really no human beings involved. So as of right now, we think that we're okay from that standpoint. But to be honest, the delays that we're seeing mostly is in supplies of the most rudimentary things like paper for product portfolios, for inserts, for labeling. But we're handling all that. And in fact, we have a very significant launch of fulvestrant that just occurred with a Chinese company. So I think we're okay for now. And these are important products, and I think the FDA is working closely with us.

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I-Eh Jen, Laidlaw & Company (UK) Ltd., Research Division - MD of Healthcare Research & Senior Biotechnology Analyst [31]

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Okay. Great. That's helpful. And also just curious, in terms of the new API plants in Chongqing that you anticipate to be more fully operational in the second half of this year, would that replace all the capacity or the other stuff, the Taihao plant that you no longer operate?

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Jeffrey M. Yordon, Athenex, Inc. - COO & President of Athenex Pharmaceutical Division [32]

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Yes, Yale, that is the plan. And we have much, much more capacity, better equipment. So the plan is eventually everything will move over to the new facility. I want to just state once again that the most important aspect of this, the Chongqing government is working closely with us. Anything that has to do with the clinical needs to get Oraxol approved and on the market, they will allow us to do that without any restrictions. And that's the most important thing. And the only other thing I want to add from Johnson's comments about our raw material source is that not only do we have a secondary raw material source on paclitaxel but also another one on encequidar. So we're in very, very good position. But no matter what happens, we should be able to have no interruptions.

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I-Eh Jen, Laidlaw & Company (UK) Ltd., Research Division - MD of Healthcare Research & Senior Biotechnology Analyst [33]

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Okay. Great. That's very helpful. And maybe the last question, the housekeeping one. In terms of the $30 million, I guess, milestones from China, do you guys anticipate receiving that first half of this year? Or any time line you can suggest?

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Randoll Sze, Athenex, Inc. - CFO [34]

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Yes. So in terms of revenue recognition, it's likely going to be a first quarter event. In terms of getting the payment, you're right, I mean, we will be getting it by the end of first half.

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I-Eh Jen, Laidlaw & Company (UK) Ltd., Research Division - MD of Healthcare Research & Senior Biotechnology Analyst [35]

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And would you -- should we amortize that or that will be something that's booked?

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Randoll Sze, Athenex, Inc. - CFO [36]

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No amortization. It will be booked as revenue, yes.

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Operator [37]

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The next question is from the line of Matt Kaplan with Ladenburg Thalmann.

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Matthew Lee Kaplan, Ladenburg Thalmann & Co. Inc., Research Division - MD & Head of Healthcare Equity Research [38]

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Just wanted to follow up a little bit with Tim Cook in terms of the commercial preparations for Oraxol and get a little bit more sense in terms -- or more color in terms of the size of the commercial force that you're thinking about to target the 70% of the physicians you're going to emphasize initially.

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Timothy Cook, Athenex, Inc. - SVP of Global Oncology [39]

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Sure. Thanks for the question. Yes, we've been spending a lot of time in doing research, looking at what other companies have done and what's been successful. And so we feel that the right approach -- and first, I will just start out, when you think of the commercial team, it's not just the sales force, it's the medical science liaisons, it's the account managers calling on payers and then obviously, it's the sales force. So what we've seen, though, in our research is that if we really want to be efficient and effective, there are about 1,700 accounts that we really need to focus on that represent treating 70-plus percent of the patients.

And so our thought then is in terms of engaging those, the initial effort would be with approximately 25 to 30 so that we can execute with excellence. And then as we build momentum, we would bring on another 25 to 30 shortly after the launch. We anticipate having roughly 7 to 9 people calling on the payers, and we anticipate a medical sales force -- a medical science liaison team of between 4 and 6 calling on the largest academic centers in the U.S. So that's the plan right now. Obviously, things can change if new information emerges. But we feel pretty good about the plan, and we feel that we will be ready to turn on the efforts, the promotional efforts very quickly after FDA approval.

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Matthew Lee Kaplan, Ladenburg Thalmann & Co. Inc., Research Division - MD & Head of Healthcare Equity Research [40]

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Great, great. That's very helpful. And I guess second question, maybe more for Johnson. I guess given the success of your first full discovery program, Oraxol, through Phase III now and near-term NDA, can you give us an update in terms of the other programs you plan for that platform, including irinotecan and Taxotere potentially and what your plans are for driving this forward?

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [41]

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I'm delighted to say that the team is doing a very good job in terms of advancing the 2 most advance programs. But more importantly is that, despite their very busy schedule, they're keeping the other products on this 2 platform to continue to advance. I'm delighted to say that, I mean, this part of our strategy, in terms of timing, to ensure, first of all, to confirm that the platform works, followed by -- all the other products will follow. Because you can imagine that the regulatory path as a result of confirmation of the lead product will lead to a much more rapid and accelerated development of all the other products that follow, using the same strategy or the same platform. So I would like to say that just stay tuned, there will be more data on other programs that we're working on that are coming.

Now on top of that, I'm also delighted to say that we have a very comprehensive product cycle management program. What it means is that on top of oral paclitaxel, the tablet is moving and advancing very well. And we have other preparations, even for the PGP pump inhibitor. We have a second-generation already in hand. So if you ask me with regard to the quality of our product cycle management program, we have a lot of us being -- having big pharma experience, I can tell you that I will -- we'll all be saying that we're very proud of our product cycle management program. So everything else, everything is advancing and we're delighted they are doing well. And you're going to hear more data soon.

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Operator [42]

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At this time, I will turn the floor back to management for closing remarks.

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Yiu-Nam Lau, Athenex, Inc. - Chairman & CEO [43]

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Again, thank you very much for your time. We have a very good year, and I'm delighted to say that the clinical team has done a tremendous job in terms of submitting the first NDA already. And the second one will come very soon, pending on our discussion with the FDA, which I have full confidence that this is going to come very soon.

I'm also delighted to say that the marketing team is doing a good job to prepare us for the success. And the business development team is also very -- working very actively to ensure that we do not just capture the value of these particular products in the U.S. and Europe but also capture the value of our products globally.

And with that, I would like to say thank you for all the stakeholders for your support. And thanks again, and we will talk to you again next quarter. Thank you.

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Operator [44]

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Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.