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Edited Transcript of PBYI earnings conference call or presentation 1-Nov-18 8:30pm GMT

Q3 2018 Puma Biotechnology Inc Earnings Call

Los Angeles Nov 16, 2018 (Thomson StreetEvents) -- Edited Transcript of Puma Biotechnology Inc earnings conference call or presentation Thursday, November 1, 2018 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alan H. Auerbach

Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary

* Charles R. Eyler

Puma Biotechnology, Inc. - SVP of Finance & Administration and Treasurer

* Mariann Ohanesian

Puma Biotechnology, Inc. - Senior Director of IR

* Steven Lo

Puma Biotechnology, Inc. - Chief Commercial Officer

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Conference Call Participants

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* Carmen Marie Augustine

JP Morgan Chase & Co, Research Division - Analyst

* Chris Shibutani

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Kelsey Goodwin

* Kennen B. MacKay

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

* Varun Kumar

* Yigal Dov Nochomovitz

Citigroup Inc, Research Division - Director

* Ying Huang

BofA Merrill Lynch, Research Division - Director in Equity Research

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Presentation

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Operator [1]

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Good afternoon. My name is Diego, and I will be your conference call operator today. (Operator Instructions) As a reminder, this call is being recorded. I would now like to turn the conference call over to Mariann Ohanesian, Senior Director of IR for Puma Biotechnology. You may begin your conference.

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Mariann Ohanesian, Puma Biotechnology, Inc. - Senior Director of IR [2]

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Thank you, Diego. Good afternoon, and welcome to Puma's conference call to discuss our financial results for the third quarter of 2018. Joining me on the call today are Alan Auerbach, Chief Executive Officer, President and Chairman of the Board of Puma; Steve Lo, Chief Commercial Officer; and Charles Eyler, SVP of Finance and Treasurer. After market close today, Puma issued a news release detailing third quarter 2018 financial results. That news release, the slides that Steve will refer to and a webcast of this call are accessible via the homepage and Investors sections of our website at pumabiotechnology.com. The webcast and presentation slides will be archived on our website and available for replay for the next 90 days.

Before I turn the call over to Alan for an overview of our performance and operations, I would like to point out that during this conference call, we will make forward-looking statements within the meaning of federal securities laws. All statements other than historical facts are forward-looking statements and are based on our current expectations, forecasts and assumptions. Forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from the anticipated results and expectations expressed in these forward-looking statements. These risks and uncertainties are identified in our annual report on Form 10-K for the year ended December 31, 2017, and any subsequent documents we file with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this live conference call, November 1, 2018. The company undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call, except as required by law. During today's call, we may refer to certain non-GAAP financial measures that involve adjustments to our GAAP figures. We believe these non-GAAP metrics may be useful to investors as a supplement to, but not as substitute for, our GAAP financial measures. Please refer to our third quarter 2018 news release for a reconciliation of our GAAP and non-GAAP results. I will now turn the call over to Alan.

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [3]

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Thank you, Mariann, and thank you all for joining our call today. We are pleased to report that sales of NERLYNX, also known as neratinib, Puma's first approved drug, have continued to grow since launch. NERLYNX was approved by the United States Food and Drug Administration in July 2017 for the treatment of patients with early-stage HER2-positive breast cancer, who have previously been treated with a trastuzumab-containing regimen. Today, we reported NERLYNX's net sales of $52.6 million for the third quarter of 2018, an increase from the $50.8 million in net sales reported in the second quarter of 2018. In addition, our third quarter results included licensing revenue of $10 million, which represented an upfront payment we received from one of our licensing partners.

In a moment, I will turn the call over to Steve Lo, Puma's Chief Commercial Officer, who will provide an update on NERLYNX's launch-related activities and detail our commercial progress in the U.S. to date. The third quarter of 2018 included a major milestone for Puma. In September, we announced that the European Commission granted marketing authorization for NERLYNX for the extended adjuvant treatment of adult patients with early-stage hormone receptor-positive HER2-positive breast cancer and who are less than 1 year from the completion of prior adjuvant trastuzumab-based therapy. We expect NERLYNX to be commercially available in the European Union in 2019, beginning with our launch in Germany during the first half of 2019 and followed by additional countries throughout Europe in the second half of 2019.

The third quarter of 2018 also included acceptance of our new drug submission in Canada. And in October, we announced that our licensing partner CANbridge pharmaceutical received confirmation that China's National Medical Products Administration accepted its new drug application for the extended adjuvant treatment of adult patients with early-stage HER2-positive breast cancer following adjuvant trastuzumab-based therapy.

We also anticipate submitting for regulatory approval of NERLYNX for the extended adjuvant HER2-positive early breast cancer indication in additional countries during 2019. We also look forward to several additional clinical milestones for neratinib. As investors are aware, we have an ongoing Phase III trial of neratinib in third line HER2-positive metastatic breast cancer, also known as the NALA trial. The trial has a co-primary endpoint of progression-free survival and overall survival.

We have recently hit the number of events required to do a full analysis of both the progression-free survival and overall survival endpoints. We are in the process of cleaning the data and anticipate that we should be able to announce the top line results from the trial, including both progression-free survival and overall survival endpoints, either late this year or early next year. As the co-primary endpoint involves both progression-free survival and overall survival, the company sees the results as having 1 of 4 outcomes. The first potential outcome would be that the trial achieves statistically significant results for both the progression-free survival and overall survival endpoints. If this occurs, the company would then plan to meet with the regulatory authorities to determine if the data are sufficient for regulatory filings.

The second outcome would be that the trial does not achieve a statistically significant result in either of the progression-free survival or overall survival endpoints. If this were to occur, the company would seek to rapidly shut down the trial and reduce any future clinical trial expenditures associated with the NALA trial. As the NALA trial is anticipated to represent approximately 35% to 40% of Puma's clinical trial expenses in 2018, the company believes that this would have a beneficial impact on Puma's near-term cash flows and path to profitability.

The third and fourth outcomes would be where one of the endpoints achieves statistical significance and the other does not. More specifically, this would be where progression-free survival achieves statistical significance and overall survival does not, or where progression-free survival does not achieve statistical significance, but overall survival does. In either of these situations, depending on the trends seen in the data, the company may choose to meet with regulatory agencies to see if the data supports regulatory filings. The trial is currently blinded, and the company does not know which of these 4 outcomes is more or less likely to occur. The company will provide a further update to investors once it has the top line results.

In addition, as investors are aware, Puma has an ongoing basket trial of neratinib in HER2-mutated cancers, which is referred to as the SUMMIT trial. In 2017, data was presented at the American Association for Cancer Research meeting, or AACR, demonstrating that HER2 mutations were found in approximately 2% to 12% of almost every solid tumor. The initial data from the SUMMIT trial was presented at the AACR meeting in 2017 and was published in Nature in 2018. The Nature publication involved approximately 125 patients with HER2-mutated tumors that were given neratinib as monotherapy. Based on these results, the trial was modified to continue treating patients with neratinib monotherapy in some of the arms and to treat patients with the combination of neratinib plus trastuzumab in other arms of the trial. This was based on preclinical data suggesting greater efficacy of neratinib plus trastuzumab in HER2-mutated tumors. As of October 2018, the SUMMIT trial has enrolled approximately 250 patients. We anticipate reporting additional data from the Phase II SUMMIT trial in the fourth quarter of 2018 and first half of 2019.

In addition, Puma plans to meet with the FDA in the first quarter of 2019 to discuss the clinical development and regulatory strategy for neratinib, with the goal of discussing a potential tumor-agnostic indication for neratinib in HER2-mutated tumors. We have -- we will continue to update investors as we obtain more information with regard to this matter. In addition, we expect to report additional data from our Phase II CONTROL study involving the use of antidiarrheal prophylaxis on neratinib-associated diarrhea in patients with HER2-positive early-stage breast cancer in the fourth quarter of 2018.

I will now turn the call over to Steve Lo, who will discuss our U.S. commercialization strategy and progress to date for NERLYNX. Steve will be followed by Charles Eyler, who will highlight key components of our financial statements for the third quarter of 2018.

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [4]

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Thank you, Alan. NERLYNX has now been in the United States market for over 1 year since our FDA approval in July of 2017. Since then, thousands of patients have been prescribed NERLYNX. We continue to grow in the third quarter and look forward to providing NERLYNX to more patients. We continue to be focused on the execution of reaching more patients and physicians. As such, the key performance indicators of our progress are primarily directed at the number of active patients on NERLYNX, ensuring patients have access, keeping patients on NERLYNX and educating more physicians. A reminder that during my presentation, I will be making forward-looking statements.

On Slide 3, as you may recall, our network of 6 specialty pharmacies provide NERLYNX directly to patients. The specialty pharmacies conduct benefit investigations, obtain a prior authorization approval from the insurance company and then arrange with the patient to ship NERLYNX to their home. We also have a separate specialty distribution channel, where the prescription does not need to be sent to the specialty pharmacy. This helps to facilitate the ability for certain patients to obtain NERLYNX directly from their physician's office, integrated health care systems and also the VA.

Later in the call, Charles will review the full financial results, but I will now provide you with the current sales results.

On Slide 4, you see quarterly net sales of NERLYNX since FDA approval. As Alan mentioned, our net product sales revenue grew to $52.6 million in the third quarter. This growth was the result of more patients being prescribed NERLYNX and staying on the medication. However, in the third quarter, there were many patients who had completed their year of NERLYNX in the extended adjuvant setting, and there was also an increase in patient discontinuations. I will discuss further in the next slide.

Slide 5 shows the total number of active patients receiving NERLYNX by month. This includes both patients who receive NERLYNX through the specialty pharmacies and patients who we estimate receive NERLYNX through the specialty distributors. Note that the number of active patients shown each month is the net of discontinued and completed patients. Please also note that there is a data lag from the specialty pharmacies and therefore, when the data is updated each quarter, we will also update prior months. Furthermore, we may not be aware of up to -- for up to 90 days of a patient's final discontinuation as the pharmacies do their best to reach the patients. We perform monthly audits to ensure we have updated numbers. Therefore, the monthly numbers of active patients may differ from prior presentations. Also these numbers do not include patients on our free drug program, which is currently at 9% of total patients.

You can see the continued monthly growth due to new patients starting NERLYNX and patients continuing to receive NERLYNX. As a result, the total number of active patients at the end of each month, since our FDA approval, continues to grow as you see in the chart.

I have also included the month of October. As of October 31, we estimate there are 2,139 active patients on NERLYNX. Of these 2,139 patients, we estimate 87% are receiving the drug through specialty pharmacies. We have also noticed that many patients do go back and forth between the 2 channels based on physician choice and payer mandate.

As I mentioned, the number of active patients in the chart is the net number of patients on NERLYNX minus patients who have discontinued or completed their therapy. The percent of patients who discontinued NERLYNX due to adverse events has increased since the last quarter and is now approximately 18% since launch. This increase in patient discontinuations in the past quarter contributed to the lower revenue growth. While we continued to compliantly educate physicians about prophylactic treatment with antidiarrheal medications, our most recent market research showed that 27% of the physicians surveyed were not using any antidiarrheal prophylaxis when starting a patient on NERLYNX. We believe that this may have contributed to the increase in discontinuations. In order to address this, we are taking steps to increase physician awareness of the data from our CONTROL trial that shows a reduction in grade 3 diarrhea and decrease discontinuations when using antidiarrheal prophylaxis with NERLYNX. Also in early 2019, we are planning to submit additional data to the FDA from the CONTROL study so that the data from the patients treated with the budesonide and colestipol regimens in CONTROL could potentially be added to the prescribing information for NERLYNX. As a reminder, in the data presented from the CONTROL trial at the San Antonio Breast Cancer Symposium in 2017, the discontinuation rate due to diarrhea in the budesonide and colestipol arms of the trial were 10.9% and 1.7%, respectively. This compared favorably to the 20.4% discontinuation rate in the loperamide-alone arm of the trial.

Since we launched over 1 year ago, we now have some patients who have completed their 12 months of extended adjuvant therapy with NERLYNX. There are also patients who are nearing their 12 months of treatment. In this set of patients, who started 1 year ago, we have discovered that there are some patients who are staying on NERLYNX even beyond 1 year. While this is still a small percentage of our overall active patients, we are seeing that approximately 13% of the patients who were eligible to end at 12 months are taking NERLYNX for longer than 12 months. While it is too early to tell how prevalent this is, we are encouraged to see doctors and patients supporting this and continuing NERLYNX beyond a year, and we will continue to watch this metric moving forward. The bottom line is that we continue to see growth each month in active patients on NERLYNX.

On Slide 6 you see that most patients receive NERLYNX in 10 days or less, and 74% of the patients receive it in 15 days or less, which we believe is a continued sign of a smooth reimbursement process and good payer coverage. This has been consistent throughout the time NERLYNX has been in the market. There are a small number of patients who choose to delay starting NERLYNX due to personal reasons, such as travel and vacation. We saw this occur even more frequently during the summer months. As we near the holidays, we are monitoring this as well. There is also a small number of patients who have been prescribed NERLYNX for off-label use, such as metastatic HER2 amplified or HER2-mutated cancer, which we do not market or promote. The insurance company will typically ask for more information. These situations contribute to the longer times to fill shown on the right side of the slide.

Now on to prescribers on Slide 7. We continue to make progress on reaching our target physician audience, increasing to 65% in the third quarter. There are more physicians restricting access to sales reps, and we have opportunities to reach them through medical conferences or online, which is not reflected in the numbers here. We believe there are still more opportunities to reach more physicians, especially increasing their awareness of diarrhea management options.

As Alan mentioned, with our regulatory approval in Europe, we are preparing for launch outside of the United States. Specifically, we are working on building our commercial operations in Europe and Canada. As you see in Slide 8, we have been working on ensuring NERLYNX will be reimbursed by the health authorities in Europe. The Global Value Dossiers has been amended to reflect the indication in Europe and country-specific health technology assessments are underway. Germany, France and United Kingdom are the first countries in Europe we are planning for product availability and progress has already been made. As you recall, we already have a managed access program in place for patients outside the United States.

Furthermore, on a parallel path, we are also exploring partnership opportunities in Europe and Canada. In either approach, we expect our plans will allow for commercial availability of NERLYNX in Europe in 2019.

Speaking of partnerships, we are committed to providing NERLYNX across the world to patients and physicians. Our established partnerships in Australia, Israel, China, Latin America and South America are going well. We will be receiving significant double-digit percent of sales royalties from these partnerships. And in Slide 9, you can see the expected timing of regulatory approvals with each of our partners. 2019 will be a key year for our partners and Puma globally, as we expect potential approvals throughout next year.

To summarize, we are highly encouraged with the progress we've made with physicians, payers and patients. We continue to grow our net sales, we continue to reach more prescribers and help patients receive and stay on their medication. We are committed to ensuring all appropriate patients have access to NERLYNX.

I will now turn the call over to Charles Eyler for a review of our financial results.

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Charles R. Eyler, Puma Biotechnology, Inc. - SVP of Finance & Administration and Treasurer [5]

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Thanks, Steve. Let me start with a quick summary of our financial results for the third quarter of 2018. Please note that I will make comparisons to Q2 and Q1 of 2018, which we believe are better indications of our progress as a commercial company than year-over-year comparisons. For more information, I recommend that you refer to our 10-Q, which will be filed on Monday and which include our consolidated financial statements.

For the third quarter of 2018, we reported a net loss based on GAAP of $14.2 million or $0.37 per share. Our GAAP net loss for Q2 and Q1 of 2018 were $44.3 million and $24.3 million, respectively. On a non-GAAP basis, we reported net income of $6.6 million or $0.16 per fully diluted share for the third quarter of 2018.

As Alan and Steve mentioned, net revenue from NERLYNX sales were $52.6 million versus $50.8 million for the second quarter of 2018. Our year-to-date gross-to-net reduction is 7.9%. Cost of goods sold for the third quarter was $9 million, which included the amortization of a milestone payment to the licensor of NERLYNX -- excuse me, of neratinib of approximately $1 million. Going forward, we will continue to recognize amortization of the milestone payments to the licensor or about $1 million per quarter as cost of goods sold.

As Alan previously noted in the third quarter of 2018, we also recognized aggregate sublicense revenue of $10 million. We have seen a good start to fourth quarter NERLYNX sales, with an estimated $22.5 million in gross sales in October. We are maintaining our fiscal year 2018 sales guidance of $175 million to $200 million in NERLYNX net product revenue in order to be conservative in case we experience a slowdown in new patient starts due to the November and December holidays. We do not know if we will experience this, but we would like to err on the side of caution with respect to this. As a reminder, this guidance includes only revenue coming from the currently approved extended adjuvant indication and excludes revenue received from our licensing partners.

SG&A expenses were $28.5 million for the third quarter of 2018 compared to $40.1 million and $30.6 million for Q2 and Q1, respectively. SG&A expenses included noncash charges for stock-based compensation of $9.4 million for the third quarter of 2018 compared to $8.5 million and $9 million for Q2 and Q1, respectively.

Research and development expenses were $36.4 million in the third quarter compared to $43.3 million and $46.9 million for Q2 and Q1 2018, respectively. R&D expenses included noncash charges for stock-based compensation of $11.4 million compared to $13.6 million and $16.4 million for Q2, Q1 2018, respectively.

Our net cash used in operating activities for the third quarter of 2018 was approximately $7.3 million compared to $17.6 million and $6.3 million for Q2 and Q1 2018, respectively. Our cash burn for the third quarter was approximately $7 million compared to cash burn of approximately $15 million for Q2 and $3 million for Q1 2018. We anticipate continued reductions in our cash burn for operations such that by the fourth quarter of 2018 we will have transitioned the cash flow neutral to cash flow positive.

We ended the third quarter of 2018 with about $68.3 million in cash and cash equivalents and $59.7 million in marketable securities. Our accounts receivable balance at September 30 was $19.8 million. Our accounts receivable terms range between 10 and 68 days, while our days sales outstanding are about 35 days. The specialty pharmacies continue to maintain approximately 3 weeks of inventory. Overall, we continue to deploy our financial resources to focus on the advancement of neratinib through ongoing clinical trials and the commercialization of NERLYNX.

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [6]

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Thanks, Charles and Steve. Since we launched NERLYNX for the treatment of early-stage HER2-positive breast cancer in the third quarter of 2017, we have continued to receive positive feedback from patients, prescribers and payers. We'll continue to move forward with our plans to advance and expand our commercial activities for the balance of 2018, 2019 and beyond. This concludes today's presentation. We will now turn the floor back to the operator for Q&A. 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 Carmen Augustine with JP Morgan.

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Carmen Marie Augustine, JP Morgan Chase & Co, Research Division - Analyst [2]

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So first looking at kind of the number of active patients on drug by month, we see the July number fell quite substantially about 250 patients. And you kind of alluded to some of the changes that go on between this quarter and when you follow up. But could you just kind of detail what exactly is behind those changes that could kind of lead to that magnitude of restatement?

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [3]

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Certainly, this is Steve. As I mentioned in my script, we receive data from our specialty pharmacies, which accounts for 87% of our channel. We receive the data from them once a week and they will, of course, tell us whether a patient is active, et cetera. We also audit the data every 30 days, and then on top of that, these specialty pharmacies, part of their job is to reach the patients, try to get them to refill, ship to the patient, et cetera. So it could be up to 90 days until that data is updated because, again, part of what they do is to help the patient with adherence and compliance. Therefore, what you see in the difference in the July numbers, again, would be the subtraction of patients who have discontinued that we receive the most up-to-date information on as well as potentially some patients who completed therapy.

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Carmen Marie Augustine, JP Morgan Chase & Co, Research Division - Analyst [4]

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Okay. So sorry, just a follow-up on that. Does that mean that they never got on drug? Or did they get on drug in July and then they discontinued, so you removed them from the restated July number?

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [5]

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Yes. So to clarify, we do a census every month. So whenever we did this and the last time we showed this to you was our August earnings call. At that point in the month of August, we believe that we had -- I believe the number was 2,076. And again, as you can imagine in August, compared to July, that's essentially only 1 week or 2 since we close out July. So throughout the course of the next 90 days, we'll receive updated information to find out that there was a July patient who was active, who had discontinued during that month.

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Carmen Marie Augustine, JP Morgan Chase & Co, Research Division - Analyst [6]

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Okay. Got it. And then one just financial question, if I could. SG&A is down sequentially as well as year-over-year, which struck us as a little bit odd, given that we're in the launch phase still. Could you speak to how we should think about SG&A growth from here?

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Charles R. Eyler, Puma Biotechnology, Inc. - SVP of Finance & Administration and Treasurer [7]

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This is Charles. One of the things that occurred in the third quarter is we had a reimbursement check that had been related to legal fees regarding our class action lawsuit. Some of those fees were being disputed with the insurance carriers. That was resolved in the third quarter, and we had received a check for about $5.6 million.

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Carmen Marie Augustine, JP Morgan Chase & Co, Research Division - Analyst [8]

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Okay. So should we continue to think about SG&A expense kind of growing from here?

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Charles R. Eyler, Puma Biotechnology, Inc. - SVP of Finance & Administration and Treasurer [9]

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Yes. Particularly with the sales force -- sales commission, as our sales grow, those expenses will continue to grow as well as certain aspects of the marketing program.

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [10]

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And then to answer your question on R&D, obviously, we have a number of trials that are nearing completion. So as you have less patients active, less monitoring of sites occurring, R&D expenses are going to go down. So I think we have been guiding that we would see sequential R&D expenses starting to trend down, so I would anticipate that would probably continue.

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [11]

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Yes. And this is Steve, I'll add another comment related to SG&A. So many of our programs are based on the number of patients who are active, potentially are in kind of compliance and adherence programs. So it stands to reason that some of those expenses will increase because we'll have more patients on drug.

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Operator [12]

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Our next question comes from Yigal Nochomovitz with Citigroup.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [13]

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I'd just like to get a better understanding regarding the -- what you're seeing in the trends with regards to target prescribers reached. It looks like you're sort of leveling off at around 55%. Is that how you're designing things? Or is there some sort of challenges in terms of getting access to that 35% that you haven't been able to reach yet?

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [14]

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Yes, thanks for the question. This is actually pretty much globally in the oncology world. We're finding that, certainly, academics institutions and lots of oncologists now will close their access to sales representatives. So this is certainly not unexpected. We see that in places such as the Northeast quite a bit. What we are doing about it, which we don't count in these numbers here, is we do have other ways which we reach physicians. They're at medical conferences. We also have a few online and e-detail programs in place. We don't count those in there because it's not a direct rep-to-rep interaction, one-on-one. But rest assured, we do have other ways to reach physicians.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [15]

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Okay. And regarding the prophylaxis, which you talked about in terms of some of the discontinuation rates for the different regimens. Do have a current snapshot of the way it's broken out in the market currently in terms of what percent of physicians are using budesonide versus colestipol versus loperamide or maybe others?

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [16]

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So Yigal, you'll remember that in the FDA approved label in the prescribing information, the only drug that the FDA put on the label was loperamide, right? And that was one that had the highest discontinuation rates. So we don't -- I believe the majority of these -- of them are probably just using loperamide because that's what's in the label. We're increasing our efforts to try to get more exposure and increase awareness of both the budesonide and colestipol arms because they have much better rates of discontinuations. And that's where the label update that Steve was referring to will be very helpful.

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [17]

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Yes, Alan is exactly right there. We have a small snapshot based on a voucher program. So last quarter, we launched a voucher program to help patients have access to anti-diarrheal medications. And the data from there, again, a small number, most of the voucher redemptions are for loperamide, so exactly what Alan is saying there, because that's in the label, and we're looking for other ways to ensure that physicians are aware of the other diarrheal -- anti-diarrheal regimens.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [18]

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Okay. And then on the Germany launch, it wasn't 100% clear. Are you -- is the plan to sign a partner or to launch this yourselves with your own employees? It's just -- or has that not been determined yet. It's not that quite obvious what the strategy is there yet?

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [19]

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Okay, thanks for that question. First and foremost, we have every intention of launching in Germany ourselves. We've already started the process with them. Last year, we had a pre-advice meeting with the G-BA, which is the reimbursement authority there. We are working on our supply chains to be able to supply Germany. As you may know, Germany is usually the first country that most companies will launch in because of the ability to price there before reimbursements is determined. So we are certainly ready to do that. At the same time, we have and have been exploring partnership opportunities with companies who could partner with us in Europe. That's a parallel path. It's not one versus another. And as Alan stated before, in other situations, he stated that we'll do what's best for the shareholders here.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [20]

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Okay, and then my final question was, should it be our expectation that you're going to introduce the 2019 revenue guidance at some point before the end of the year for the U.S. market?

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [21]

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I believe we will introduce 2019 revenue guidance at some point. I don't know if we will do it before the end of the year or if it will be something we do early next year, but at some point, yes, absolutely.

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Operator [22]

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Our next question comes from Alethia Young with Cantor Fitzgerald.

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Varun Kumar, [23]

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This is Varun Kumar for Alethia. Just my first question on if you can provide any color on the new patient start trend. As I understand, the active patients are increasing. So entering into 4Q, how should we think the new patient trend will evolve?

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [24]

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So I don't think we have the numbers in front of us so I can't comment on it. I think, probably looking at the month-to-month changes that you're seeing in the active patients is probably a good trend to assume.

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Varun Kumar, [25]

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And maybe one final one. So I'm just trying to understand how much of the sales is being restricted by the uses of NERLYNX in a specific subpopulation? So any color on the real-world users or based on HR status?

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [26]

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Yes. This is Steve. So as you know, our labels for the entire intent-to-treat population, we recently did physician surveys to understand which patients they are prescribing NERLYNX for, and they are prescribing NERLYNX for the entire intent-to-treat population. There is, of course, stronger preference for those patients who are hormone-receptor positive -- no positive that -- and again, it's a small physician survey. We don't pull charts to do chart audits, but it's safe to say that it is across the board was certainly a lot more patients in the hormone receptor no positive.

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Operator [27]

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Our next question comes from Ying Huang with Bank of America.

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Ying Huang, BofA Merrill Lynch, Research Division - Director in Equity Research [28]

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First, I have a question on the discontinuation rate. You mentioned that 18% of patients overall discontinued due to adverse events. Can you talk about overall discontinuation rate beyond 18%? And then, typically, does it still happen in early -- few weeks or in few months? Or is it kind of spread around in terms of when the patient discontinue? And then I have a question also on the patients who are beyond term of treatment. You mentioned 13%. Is that a cumulative number when you count from the beginning, first day when they take -- when they start to take NERLYNX? Or it's only using patients who have reached 12 months as a denominator here?

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [29]

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Steve, do you want to take it?

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [30]

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Yes, sure. Thanks, Alan. So first of all, on the discontinuation rate, yes, so I gave you an 18% discontinuation rate for adverse events. The overall discontinuation rate is twice that amount, but remember, the drivers behind that number are going to include patients who transfer to another specialist pharmacy, they could have transferred to a specialty distributor. There's a -- rare cases, there is an insurance issue, which we put them on free drug. And then we also get a category around patient-physician choice, which is a very general category, but when we audit our pharmacovigilance data and compare it to the specialty pharmacy adverse event reporting data, we come up with the 18%. So that's a pretty firm number there. Your second question was around when do patients typically discontinue if they do. This is mirrored very closely to the CONTROL trial as well as with ExteNET. We're seeing that when patients discontinue in general, usually within the first 60 days, interesting enough, as I shared with you earlier, we're finding that, in the physician survey, 27% of them aren't giving them anti-diarrheals. And so I think with more education there, we hope that, that number will improve. And then your third question was around the patients who go past 12 months of therapy. We only look at the cohort of patients who have reached the 12 months and are getting ready to complete, and of that cohort, 13% of them are still -- have continued on.

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Ying Huang, BofA Merrill Lynch, Research Division - Director in Equity Research [31]

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And I have a quick follow-up. If I look at the slides that you presented last quarter, it seems that the number of active commercial patients, obviously, as you mentioned, it's been changing. But I noticed that the difference is becoming wider. For example, in May, the delta between the 2 reports, today and last time, was 59. And then in June, it's 126. But then when I looked at July, you reported 2,076 last quarter. And now to date, it's 1,812. Now the difference is 264. So just wondering how reliable is this October number you are having in the today's slide?

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [32]

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Yes, and that will be very consistent with what I said before. It's going to be more reliable 90 days from now, a little more reliable 30 days from now. We thought, just for full transparency, it was important for us to share with you the snapshot that we had in October in the same way that Charles is sharing with you what the gross sales are for the month of October as well.

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Operator [33]

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Our next question comes from Michael Schmidt with Guggenheim Securities.

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Kelsey Goodwin, [34]

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This is Kelsey Goodwin on behalf of Michael Schmidt. We're just wondering, how are you guys thinking about the potential NERLYNX market opportunity and how that might be affected by Roche's KATHERINE trial? Assuming that Kadcyla will obtain FDA approval or it does at some point. I guess, how will that affect NERLYNX if it's treated in the adjuvant treatment?

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [35]

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Yes. So the KATHERINE study is an adjuvant trial that is comparing Kadcyla, which is T-DM1, to Herceptin in patients that did not receive a pathological complete response to neoadjuvant therapy. So we'll -- a few things on the design of KATHERINE. The first is that, due to the approval of adjuvant Perjeta based on the APHINITY trial, these patients right now in clinical practice would be receiving Herceptin plus Perjeta in the adjuvant setting. So therefore, the control arm of KATHERINE, which is just Herceptin alone, is not necessarily the current standard of care. The second is that due to the timing of when KATHERINE enrolls patients, not all of the patients in the trial received neoadjuvant Perjeta because neoadjuvant Perjeta was not available worldwide when the trial was enrolling patients. Now in terms of results from the trial, look, I don't know what results are going to show, but certainly, anything that gives high-risk patients another option is great. We're going to need to wait and see those results presented to understand them better. Obviously, the goal of treatment in both the adjuvant and the extended adjuvant setting is to reduce the risk of recurrence. So I think what we'll need to look at with the KATHERINE study is kind of what that 5-year iDFS rate is. And look, if the 5-year iDFS rate in the Kadcyla arm of the trial is 98% to 99%, then yes, there's not going to be much additional risk of recurrence for these patients. If the 5-year iDFS rate in the trial was similar to what we saw an APHINITY, for example, then obviously there's going to still be additional risk for these patients and a need to further reduce the risk. So as a reminder for the investors, in the ExteNET trial, which is our Phase III trial, approximately 25% of the patients in ExteNET were similar to the patient population in KATHERINE, which is that they did not receive a pathological complete response to neoadjuvant treatment. So at the San Antonio Breast Cancer Symposium this year, we'll be presenting a poster on the efficacy of ExteNET that's the basis for our EMA label, which is namely, the patients who are hormone-receptor positive in less than 1 year from the completion of adjuvant Herceptin treatments. And we'll also in that trial be looking specifically at the patients that did not achieve a pathological complete response and what their efficacy in ExteNET is so it will be a good way to look at what neratinib could add to the Kadcyla data from KATHERINE. And as you know, due to the fact that the hormone-receptor positive disease tends to have a much longer-term risk of recurrence, their risk of recurrence can go out 10 years, whatever efficacy we see in that group of patients would clearly be a very additive to whatever efficacy is seen with Kadcyla in KATHERINE.

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Kelsey Goodwin, [36]

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Okay, great. And then just one more thing. Could you possibly speak a little bit more -- I know you mentioned that you could meet with the FDA in the first quarter of '19 and discuss possibly expanding the label into a tumor-agnostic label? Could you maybe just speak a bit on that?

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [37]

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Yes. So this is with regard to the HER2 mutations. As you know, we have our ongoing study SUMMIT which is looking at neratinib. It's a basket trial so it's a tumor-agnostic trial where we're looking at patients with all different solid tumors that have a HER2 mutation. So we have certainly seen the FDA granting tumor-agnostic indications. I know KEYTRUDA got it for MSI-high. I know LOXO got it for the TRK fusion as well. So this is not something new. We've seen this -- yes, there is a regulatory precedent here. So our plan is to meet with the FDA in Q1 of '19 in order to kind of discuss the path forward from a clinical and regulatory perspective based on the data that we currently have in the SUMMIT study.

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Operator [38]

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Our next question comes from Chris Shibutani with Cowen.

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Chris Shibutani, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [39]

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I know many of the questions have been asked in particular, again, the NALA scenarios that you laid out, Alan. I'm trying to get a better sense. It sounds as if, in the negative outcome, you are describing this to be a cost savings. But can you go through a little bit more about options 3 and 4 and how you're think about that and what the implications would be for cost? I believe that we have continued to expect that the metastatic opportunity is still there, but if you could clarify a little bit more how you're seeing -- you're thinking behind those, the third and fourth scenarios when you have a positive PFS, not OS, and the reverse as well?

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [40]

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So if you end up having an outcome of NALA that's a statistically significant PFS but you have a trend in OS, I know of previous FDA panels where the FDA had said they would accept PFS and a trend in OS. So obviously, we would need to speak to them about that beforehand, but that would -- the plan would be to move forward from that perspective. Now if you get a negative result on the PFS but a positive on OS. PFS, as you know, is a surrogate endpoint. OS is usually the preferred endpoint from FDA. And again, assuming you maybe see a trend in PFS but it doesn't hit statistical significance, but you do see a statistically significant OS, again, we would speak to the agency regarding that.

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Chris Shibutani, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [41]

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And would you also consider these scenarios to be ones that you'd have put European regulators?

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [42]

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When we say regulators, yes, I believe in my speech we said talk to the regulators. Yes, it would be both U.S., Europe and other countries as well.

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Chris Shibutani, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [43]

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And then just 2 things to follow up from the previous comments from the NERLYNX U.S. experience. In the past, you talked about off-label use in metastatic patients, possibly, accounting for about 5% during that initial year. Can you comment what you're saying for metastatic use currently? And then secondly, you had mentioned last -- over the summer in the second quarter that there were some patients who were taking the drug for longer than 12 months. How has that played out as far as the current patient use?

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [44]

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So in terms of our metastatic use, that is now up to 6%, and we -- from the feedback we get from physicians and also we have our expanded access program, our MAP program in Europe, the majority of the off-label use we anticipate is more in the brain mets and in the HER2 mutations. Because there's a lot of options in metastatic, I don't know that we really see any off-label use in kind of the combination with capecitabine's third-line metastatic setting. I don't think we see a lot of that right now. So I would say, the majority of the 6% we're seeing is probably more in the brain mets and in the HER2 mutations. On the patients going out longer than 1 year, I believe Steve said in his comments, we also had a question on that, that is now at 13% of patients.

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Operator [45]

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Our next question comes from Kennen MacKay with RBC Capital Markets.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [46]

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One sort of housekeeping question. Wondering if you could help us understand what the average dose intensity is in outgoing prescriptions? And then on your prescriber slide on Slide 7, I was wondering how much of these are sort of perpetually repeat prescribers? For instance, some of the prescribers that became cumulative prescribers in late sort of last year or earlier this year. Are they still prescribing NERLYNX? Or are there some physicians who have sort of a challenging experience managing some of the toxicity associated with the drug that then don't come back to it? And sort of what can be done about that?

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [47]

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Yes. So your first question around dose intensity. We don't receive that level of detail from the specialty pharmacies. I will say that, anecdotally, we do know that most patients do start on the full dose. And the way that the label's set up and due to side effects, the dose would be tapered down per the label. I know recently, in the last quarter, because of some medical education conferences, there have been physicians who have been dose titrating up. We don't have exact numbers on that because their experience with other tyrosine kinase inhibitor starts would be if they start on lower dose and they titrate up. So we are at least hearing that and seeing that in some of the physicians' surveys, but we don't have the quantity on that. In terms of your question regarding prescribers, and again, we only have the data from the specialty pharmacies, not the full channel. But we know that we're north of 2,300 prescribers for NERLYNX. About 1,300 of them have prescribed for 1 patient. However, those are mostly the recent prescriptions. So the way that I would look at that is the fact that, certainly, there are -- we're getting new prescribers every week, which is very promising. And there are going to be some of those physicians where they prescribe for 1 patient and then they haven't returned. And that's really the opportunity, to your question, around making sure that they understand the diarrhea options. As I stated earlier, there have been some physicians who have not used anti-diarrhea prophylaxis, and I believe those are the physicians who probably don't have the most positive expense, and our team goes back and make sure that they're aware of doing that, using the anti-diarrheal options.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [48]

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I just had one sort of additional, more high-level follow-up question for Alan. I guess, thinking about the conversation last year, one of the points that we talked about was sort of really having to commercially execute and operationally execute to really demonstrate that this market is sort of feasible. And now that, at least in the U.S., you've got over $200 million run rate for the drug, you've got upside in Europe as well as some -- potentially the metastatic setting. I guess I was sort of wondering, as you think about NERLYNX, where you think the sort of full value recognition of this asset will be, I guess, recognized in your eyes and then maybe also in the eyes of BD teams that are sort of out there in large-cap biotech, large-cap pharma? I heard the CEO of Amgen the other day talking about how smid-cap valuations have come back and they're thinking about becoming more active in that space. So really interested in sort of where you're thinking about the full value of NERLYNX being recognized.

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [49]

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Kennen, yes, I think that in terms of the value of NERLYNX in terms of NERLYNX sales, right now, we have the drug on the market in the United States. Next year, we will start to see revenues coming in, in Europe. We will also start to see royalties coming in from our partners in Australia, the Middle East, China, Latin America, South America. So I think 12 months from now, we will obviously have much better recognitions through revenue of the opportunity worldwide in the extended adjuvant indication. Now we obviously also have opportunities in the metastatic setting both in the HER2 amplified and the HER2 mutated. And obviously, we need to get data from those, get some guidance from the regulatory agencies and then execute on those as well. But those also offer additional upside as well. So I think that, like any other commercial execution, in time, we will just see as -- especially as we get more availability worldwide, we will certainly see that value recognition through NERLYNX sales.

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Operator [50]

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Ladies and gentlemen, we have run out of time for questions today. I will now turn the conference back to Mariann for closing remarks. Thank you.

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Mariann Ohanesian, Puma Biotechnology, Inc. - Senior Director of IR [51]

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We appreciate your interest in Puma Biotechnology. As a reminder, this call may be accessed via replay of the webcast at pumabiotechnology.com beginning in about an hour. Thank you for your time and attention today.

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Operator [52]

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This concludes today's webcast. All parties may disconnect. Have a great day.