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Edited Transcript of PBYI earnings conference call or presentation 28-Feb-19 9:30pm GMT

Q4 2018 Puma Biotechnology Inc Earnings Call

Los Angeles Mar 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Puma Biotechnology Inc earnings conference call or presentation Thursday, February 28, 2019 at 9:30:00pm 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

* Mariann Ohanesian

Puma Biotechnology, Inc. - Senior Director of IR

* Maximo F. Nougues

Puma Biotechnology, Inc. - CFO & Principal Accounting Officer

* Steven Lo

Puma Biotechnology, Inc. - Chief Commercial Officer

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Conference Call Participants

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* Alethia Rene Young

Cantor Fitzgerald & Co., Research Division - Head of Healthcare Research

* Candace Aklile Richardson

Goldman Sachs Group Inc., Research Division - Associate

* Cory William Kasimov

JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst

* Kennen B. MacKay

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

* Michael Werner Schmidt

Guggenheim Securities, LLC, Research Division - Senior Analyst & Senior MD

* Pamela Ann Barendt

Cowen and Company, LLC, Research Division - Associate

* Thomas Jonathan Smith

SVB Leerink LLC, Research Division - Associate

* Yigal Dov Nochomovitz

Citigroup Inc, Research Division - Director

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Presentation

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Operator [1]

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Good afternoon. My name is Tim, 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, Tim. Good afternoon, and welcome to Puma's conference call to discuss our financial results for the fourth quarter and full year 2018. Joining me on the call today are Alan Auerbach, Chief Executive Officer, President and Chairman of the Board of Puma Biotechnology; Steve Lo, Chief Commercial Officer; and Maximo Nougues, Chief Financial Officer.

After market close today, Puma issued a news release detailing fourth 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 Investor section 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.

Today's conference call will include statements about the company's future expectations, plans and prospects that constitute forward-looking statements for purposes of federal securities laws. Such statements are subject to risks and uncertainties, and actual events and results may differ from those expressed in these forward-looking statements. For a full discussion of these risks and uncertainties, please review our annual report on Form 10-K for the year ended December 31, 2018, which will be filed tomorrow, and any subsequent documents we file with the U.S. 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, February 28, 2019. 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 a substitute for, our GAAP financial measures. Please refer to our fourth 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. Today, Puma reported total revenue for the fourth quarter of 2018 of $71.1 million. Total revenue consisted of product revenue for sales of NERLYNX and license revenue. 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 U.S. FDA 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 net NERLYNX sales of $61.1 million for the fourth quarter of 2018, an increase from the $52.6 million in net sales reported in the third quarter of 2018. In addition, our fourth quarter results included license revenue of $10.0 million, which represents a milestone payment we received from one of our licensing partners. In a moment, I will turn the call over to Steve Lo, whom is Chief Commercial Officer, who will provide an update on NERLYNX launch-related activities and detail our commercial progress in the U.S. to date.

As we announced, in September 2018, 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 this year beginning with our launch in Germany and followed by additional countries -- additional European countries throughout 2019.

In collaboration with our licensing partners, we also anticipate announcing regulatory decisions on neratinib for the extended adjuvant HER2-positive early-stage breast cancer indication in countries outside the United States and Europe during the first half of 2019. We also look forward to several additional clinical milestones for neratinib.

As investors are aware, in the fourth quarter of 2018, we announced top line data from our Phase 3 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. For the primary analysis of centrally confirmed progression-free survival, treatment with neratinib plus capecitabine resulted in a statistically significant improvement in centrally confirmed PFS with a p value of 0.0059 compared to treatment with lapatinib plus capecitabine.

For the primary analysis of overall survival, neratinib plus capecitabine resulted in an improvement that did not achieve statistical significance, but trended positively in favor of the neratinib plus capecitabine arm of the study with a p value of 0.21.

For the secondary endpoint of time to intervention for symptomatic central nervous system disease, also referred to as brain metastasis, the results of the trial showed that treatment with neratinib plus capecitabine led to an improvement over the combination of lapatinib plus capecitabine with a p value of 0.043. The safety profile of neratinib in the Phase 3 NALA study was consistent with previous clinical trials of neratinib.

Puma plans to meet with the United States Food & Drug Administration and European Medicines Agency during the first half of 2019 to discuss the results from this trial. We further anticipate that the results of the trial will be presented at a major medical conference in the first half of 2019.

Puma also has an ongoing basket trial of neratinib in a HER2-mutated cancers 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. We anticipate that updated data on the cohort of patients from the SUMMIT trial with HER2-mutated cervical cancer who were treated with neratinib will be presented in the plenary session at the Society of Gynecological Oncology, or SGO, annual meeting in March.

In addition, Puma plans to meet with the FDA in the first half of 2019 to discuss the clinical development and regulatory strategy for neratinib in patients with HER2 mutations with the goal of discussing a potential tumor agnostic indication for neratinib in HER2-mutated tumors. 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 2 CONTROL study involving the use of anti-diarrheal regimens on neratinib-associated diarrhea in patients with HER2-positive early-stage breast cancer in the first half of 2019. This will include updated data on the cohorts of patients receiving loperamide alone or in combination with budesonide or colestipol, and will also include data from the most recent cohort in the trial that uses no anti-diarrheal drugs as prophylaxis, but instead uses a dose escalation strategy during the first month of treatment in an effort to reduce the side effects and improve the tolerability of the drug.

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 then be followed by Maximo Nougues, who will highlight key components of our financial statements for the fourth quarter and full year 2018.

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

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Thank you, Alan. NERLYNX has been in the U.S. market since our FDA approval in July of 2017. Since then, thousands of patients have been prescribed NERLYNX. We continued to grow sales in the fourth quarter and look forward to continue to provide NERLYNX to more patients.

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 have also have a separate specialty distribution in-office dispensing 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, integrative healthcare systems and also the VA. To allow better access for patients, we expanded the distribution channel throughout 2018 and established partnerships with physician networks. As a result, we have continued to see an increase in patients being dispensed NERLYNX through hospitals and physician practices in the specialty distribution network. In the fourth quarter, sales in this channel continued to grow and represented as much as approximately 19% of total bottles sold in certain weeks.

Later in the call, Maximo 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 $61.1 million in the fourth quarter, a 16% increase over the prior quarter. We are also pleased to report full year 2018 net sales for NERLYNX of $200.5 million, our first full calendar year since launch.

The growth in the fourth quarter was a result of an increase in patient refills in the specialty pharmacies and also an increase in demand in both the specialty pharmacy and distribution channels. In particular, our partnerships with physician networks, such as ION and US Oncology, have given our sales force better access and allowed patients to obtain their NERLYNX prescription in the physician's office, resulting in the growth seen in the specialty distribution channel. We were also encouraged to see some sales regions that previously had lower sales volumes growing during the fourth quarter as a result of new personnel hired into those regions.

Slide 5 shows the growth by quarter of NERLYNX bottles sold. This represents all channels: specialty pharmacy and specialty distributor. There was a 12% increase of total bottles sold from Q3 to Q4, as well as steady growth throughout the year. You may notice the revenue growth is higher than the bottle growth. This is due to a more favorable gross to net in the fourth quarter.

On Slide 6, I would like to highlight an important program we launched in third quarter of 2018 for patients. This is our supportive care voucher program, which provides up to 3 months of anti-diarrheal products for free to eligible patients. As many of you know, the primary reason why a patient discontinues NERLYNX early is due to side effects. The discontinuations occur more frequently in the first month. While most physicians prescribe an anti-diarrheal medication with NERLYNX, our research showed that some patients may not fill the anti-diarrheal prescription. There were also some physicians not prescribing any of these medications at all, which we believe was due to the lack of awareness of the data from our CONTROL trial using prophylactic anti-diarrheal drugs.

This supportive care voucher helps eliminate the financial barrier for patients to obtain loperamide, budesonide, colestipol or other anti-diarrheal medications. Since launching this program, the number of vouchers used has increased strongly from Q3 to Q4 and may have been an additional driver to sales growth in the quarter. We are encouraged to see more patients and physicians using these vouchers, which we are hopeful will help in keeping patients on drug longer and reducing the discontinuations.

On Slide 7, 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 is 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. This is when the insurance company needs more information. These situations contribute to the longer times to fill shown on the right-hand side of the slide.

Now on to prescribers on Slide 8. We continue to make progress in reaching our target physician audience, increasing to 68% in the fourth quarter. This represents physicians who our sales force has met with; not physicians who have prescribed the drug. Also, 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. We also believe that there are opportunities to get physicians who we have met with, but have not yet prescribed NERLYNX, to begin prescribing NERLYNX.

As Alan mentioned, we are committed to making NERLYNX available to patients across the world. We have formed great partnerships throughout the world with companies who have commercial and regulatory expertise in that region. As you can see on Slide 9, we expect both regulatory approvals and launches outside the United States in 2019.

In addition, on a parallel path, we are exploring partnership opportunities in Europe while also preparing to launch ourselves. We continue to make progress on ensuring NERLYNX will be reimbursed by the health authorities in Europe. We recently completed our submission to NICE in the United Kingdom. Germany, France and the United Kingdom are the first countries in Europe we are planning for product availability. As you may recall, we already have a managed access program in place for patients outside the United States.

To summarize, we are highly encouraged with the progress we have made with physicians, payers and patients and our full year net sales results for 2018. 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 Maximo Nougues for a review of our financial results.

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Maximo F. Nougues, Puma Biotechnology, Inc. - CFO & Principal Accounting Officer [5]

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Thanks, Steve. Let me start with a quick summary of our financial results for the fourth quarter of 2018. Please note that I will be making comparisons to Q3 and Q2 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-K, which will be filed with the SEC tomorrow and includes our consolidated financial statements.

For the fourth quarter 2018, we reported a net loss based on GAAP of $30.7 million, or $0.80 per share. Our GAAP net losses for Q3 and Q2 2018 were $14.2 million and $44.3 million, respectively. As you may recall, our results for the third quarter of 2018 included a reimbursement from our insurance carriers of approximately $10 million for legal expenses in connections with various lawsuits. In Q4, we recorded approximately $9.0 million of expense for estimated damages that may be paid pursuant to a jury verdict in a class action lawsuit.

On a non-GAAP basis, which is adjusted to remove the impact of stock-based compensation, we reported a net loss of $12.2 million, or $0.32 per share, for the fourth quarter of 2018.

As Steve mentioned, net revenue from NERLYNX sales were $61.1 million versus $52.6 million for the third quarter of 2018. Given this number, one of the specialty pharmacies purchased approximately $0.5 million to $1 million of additional NERLYNX, which we believe represented an inventory stocking ahead of an anticipated price increase in January.

NERLYNX net sales were $200.5 million for the full year of 2018 compared to $26.2 million in NERLYNX sales for 2017. We are pleased that 2018 sales of $200.5 million slightly beat our 2018 revenue guidance of $175 million to $200 million. Our gross to net reduction was approximately 7% for the fiscal year of 2018.

Cost of sales for the fourth quarter was $10.3 million, which included a monetization of milestone payments to the licensor of neratinib of approximately $1 million. Going forward, we will continue to recognize a monetization of the milestone payments to the licensor for about $1 million per quarter as cost of goods sold.

For fiscal year 2019, Puma anticipates the NERLYNX net U.S. sales will be in the range of $255 million to $280 million. We also assume that the gross to net will be approximately 9% in 2019. We further anticipate that Puma will receive licensing and royalty revenues from its licensing partners in the range of $5 million to $10 million in 2019. We anticipate providing guidance on the expected range of 2019 NERLYNX sales in Europe on our second quarter earnings call.

SG&A expenses were $41.0 million in the fourth quarter of 2018 compared to $28.5 million and $40.1 million for Q3 and Q2 2018, respectively. SG&A expenses were including non-cash charges for stock-based compensation of $7.9 million for the fourth quarter of 2018 compared to $9.4 million and $8.5 million for Q3 and Q2 2018.

Research and development expenses were $38.4 million in the fourth quarter compared to $36.4 million and $43.3 million for Q3 and Q2 2018. R&D expense, including non-cash charges for the stock-based compensation, $10.6 million, compared to $11.4 million and $13.6 million for Q3 and Q2 2018.

In the fourth quarter of 2018, Puma reported positive cash flow of approximately $8 million compared to cash burn of approximately $7 million for Q3 and cash burn of $15 million for Q2 2018. We are pleased to have achieved our previously stated goal of positive cash flow in the fourth quarter.

We ended the fourth quarter of 2018 with about $108 million in cash and cash equivalents and $57.0 million in marketable securities. Our accounts receivables balance at the end of December 31 was $20.8 million. Our accounts receivables terms range between 10 and 68 days, while our days sales outstanding are about 38 days. Our distribution network takes approximately 3 weeks of inventory.

Overall, we continue to deploy our financial resources to focus on the investment of neratinib to 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, Maximo 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 who will continue to move forward with our plans to advance and expand our commercial activities for the balance of 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 the line of Alethia Young of Cantor Fitzgerald.

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Alethia Rene Young, Cantor Fitzgerald & Co., Research Division - Head of Healthcare Research [2]

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One, I wanted to talk a little bit more about the discontinuations, and I know you've been doing a lot of work there to try to help with that process. Would you be willing to kind of characterize what the rate was this quarter? And then maybe just talk a little bit more about what you think has really worked to kind of drive maybe more compliance and even some of the CONTROL-based regimens. And my second question is just basically around Europe, and you were talking about partnership or go alone. Is there a situation that you would prefer, or what's kind of the task that goes on making that decision around what you're going to do in Europe?

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

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Okay. On the first quarter of discontinuations, Steve, would you like to take that, please?

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

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Sure thing. Yes, so as I mentioned earlier, we've had a mix in the channel. And so we typically only have visibility on patients in the specialty pharmacy channel. And what's also interesting is these patients may go back and forth, so it's a little more difficult today to track the discontinuations. But qualitatively what I can say is that we have seen the trend go down for a few reasons. One is, as I mentioned, the supportive care voucher program has been extremely helpful. We've been educating physicians a lot more about the CONTROL regimens. And then certainly, we also have a nurse team in place, which they're out in the field educating the practices, and we also have a nurse support line available as well. So all those in general I think have helped qualitatively.

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [5]

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Yes. And Alethia, to add to that, our understanding is that with any new drug that comes out, the more experienced physicians get in using the drug, the better they get at managing the side effects. For example when Xeloda, capecitabine, was first launched, people had issues with the diarrhea and the hand-foot syndrome. And with AFINITOR when it was launched, we know people had issues with the stomatitis. As they use it more, they get better at managing it. So our assumption is that that's probably benefitting us as well. To your second question regarding Europe, as Steve mentioned, we are looking at both opportunities to launch the drug ourself and to establish some type of a partnership or some type of a strategic type of a situation. I think we're committed to doing what's best for the shareholders, and that includes the senior management to the company and board of the company. We're always committed to doing whatever is in the best interest of the shareholders.

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Operator [6]

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Our next question comes from the line of Paul Choi of Goldman Sachs.

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Candace Aklile Richardson, Goldman Sachs Group Inc., Research Division - Associate [7]

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This is Candace Richardson on for Paul Choi. I just have one quick question. How much of the plans for cash flow profitability are tied to metastatic utilization in 2019? Thank you.

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [8]

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Yes. So in terms of the metastatic, our assumption is that we would file the NDA in the first half -- I think we said mid-2019, I believe, so June-ish time frame. I would anticipate that either it's a priority review or it's a standard review. Either of those would not be completed until 2020. So our guidance and our cash flow assumptions for 2019 do not include any utilization in the third-line setting based on the NALA data.

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Operator [9]

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Our next question comes from the line of Yigal Nochomovitz of Citigroup.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [10]

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And congrats on getting to cash flow positive for the fourth quarter and the hopefully beyond. I have a few questions, Alan. Are you able to say at this point when you might be EPS profitable, if that's something we could expect this year? And then on the guidance, I hope I heard the numbers right. I think it was $255 million to $280 million. Could you just expand on that a little bit, because obviously you guys took a 10% price increase recently in January, and so that would imply that -- seems that the guidance is maybe a touch conservative. I just want to get a better understanding of what's going into that range.

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [11]

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Yes. So Yigal, on your first question on when Puma would be EPS profitable, I don't know that we would be EPS profitable in 2019. Obviously we have the opportunity to be fully cash flow positive in 2019, with certain assumptions around that, but I think we'll be able to give a little bit better guidance on that on the second quarter call. In terms of your question on the guidance, when we issued our guidance in 2018, the $175 million to $200 million, the first question we got on that was someone saying, well, your guidance looks conservative. And my answer to that was, well, we're much happier to take a conservative guidance, and we're more than happy to adjust that whichever way we need to later in the year. So you're asking the same question again. And I think it's fair to assume that we are always more comfortable being conservative, and that certainly gives us an opportunity to later adjust that later in the year.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [12]

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Okay, perfect. And then just to follow up, could you comment at all as far as how much of the December holiday seasons may have -- from respect from a headwinds to the $61 million that you reported in the fourth quarter?

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [13]

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I don't know that we have any evidence that the December holidays had any impact, headwind or tailwind. I don't think we have any evidence that it was either.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [14]

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Okay. And then just a few other market dynamic questions. Have you seen any shift towards colestipol and away from loperamide? And can you comment on what would the percent of patients that might be going beyond 12 months? Thank you.

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [15]

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Okay. So first of all, I think...

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [16]

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Yes. So I'll address the first question on the shift to colestipol. So we don't receive any prescription data on the anti-diarrheal, so this will always be anecdotally what we get from the market research from physicians or what is reported back to us from the physician's office. I would look at it this way. We've been fairly agnostic. The most important piece is we want patients to receive an anti-diarrheal when they receive an NERLYNX prescription, and that's been the main message. More physicians are becoming more aware of the CONTROL data, and they see the data for themselves. But we have seen colestipol, budesonide and loperamide used across the board.

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [17]

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And then I would add to that, we applied to FDA to have our label updated. So you'll remember that at the time we got approved, we were only allowed to put in the data on from the CONTROL study on just the loperamide alone arm, because at that time that was the only arm we had a full 12 months of data on. Unfortunately that arm has a very high rate of discontinuation, but I believe, if I remember the data correctly, the CONTROL study showed that in the loperamide alone arm, the discontinuation rate was somewhere around ballpark 40%. We submitted somewhere around November/December of last year to have the budesonide arm put into the label. And so I would anticipate that sometime probably Q2 or so, we would be getting the label updated to include the budesonide arm. We will then follow with the colestipol arm. I think the last data we had on the budesonide arm that we published, I thought the discontinuation rate was, don't quote me on this, but if I remember this correctly, it was somewhere in like the 20% to 25% range or something like that. And obviously shifting to that will help improve the discontinuations as well. So I think that as we get that data into the label, right now we can't promote it, but as we get that data into the label, we'll be able to promote that, so I would imagine we would start seeing more use of those regimens going forward.

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [18]

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Yes, and this is Steve. On your second question regarding patients who go beyond 12 months, as I mentioned earlier, now that we have a larger specialty distribution channel in-office dispensing, it's becoming a little more difficult to track that since some patients move back and forth. I know in the past we reported that there are patients who go beyond the 12 months. That's still happening, but we just don't have the exact numbers behind that.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [19]

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All right. And just one quick one, I just want to make sure I heard correctly. You gave guidance for the licensing partner revenue $5 million to $20 million. Did I hear that correct, $15 million to $20 million? What was that number?

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Maximo F. Nougues, Puma Biotechnology, Inc. - CFO & Principal Accounting Officer [20]

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It's $5 million to $10 million.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [21]

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$5 million to $10 million for 2019. Okay.

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [22]

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And Yigal, just so you know, there's some other payments that we didn't put in there because it's uncertain on the timing of them. So that number may be conservative. It's just there's certain payments that there are milestones that need to be hit, and it's not clear if those are going to come in 2019 or in 2020. So we did not include those milestones in that guidance.

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Operator [23]

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Our next question comes from the line of Cory Kasimov of JPMorgan.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [24]

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Most were asked, but one I have is are you able to give us the net active patients by month, similar to what you've done the last couple of quarters as opposed to just the bottles sold?

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [25]

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Hi, Cory. Yes, this is Steve. Yes, unfortunately, as I've been mentioning, it's a little more difficult now since we have expanded the specialty distribution channel. And so because of that, we don't receive metrics from the in-office dispensing regarding actual patients, whether it was a new prescription or even a refill. So because of that high amount of variability, and we can't track patients longitudinally, it is very difficult to provide net active patients moving forward.

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [26]

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Yes, Cory, just to clarify, Cory, so in past quarters -- as you know, we have the 2 channels. There's the specialty pharmacies where a prescription is written and then they physically deliver it to the patient, and then there's the specialty distribution, which we tend to call the in-office dispensing because the bottle's just given to the patient right in the physician's office. In past quarters, that in-office dispensing was only about 5%. So our ability to say, all right, here's the estimate for the number of active patients, the error bars around that were kind of low. As you heard, we're now seeing a lot -- almost 19% going into that in-office dispensing. It creates much larger error bars around those numbers, and it makes it more challenging for us to try to estimate the actual number of active patients. So the bottle numbers is probably the best way to do that because we assume every bottle is a patient. I can't understand why someone would get 2 bottles at once. That's probably the best way to do it.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [27]

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Okay. All right. And then I guess just 2 clarifications. Can you repeat what the gross to net was in 4Q and how that compared to 3Q?

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Maximo F. Nougues, Puma Biotechnology, Inc. - CFO & Principal Accounting Officer [28]

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The 4 to net -- sorry, the gross to net in Q4 was 4% in -- or close to 4%, sorry. In Q3, it was close to 7%. The explanation for that is we have been using an estimate based on a claims history that wasn't our own on a similar product. Now that we have 12 months of claims, we can actually go back and see what actually has happened for the last 12 months, and we basically reconcile that in Q4.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [29]

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Okay. And then my last question is, how much did inventory change in the fourth quarter ahead of the January price increase? I hear what you said about the one specialty pharmacy that was like up to $1 million, but can you say overall how much inventory changed?

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Maximo F. Nougues, Puma Biotechnology, Inc. - CFO & Principal Accounting Officer [30]

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Our estimate has remained fairly flat. Around the 3 weeks I think I mentioned, that really hasn't changed that much.

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [31]

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And Cory to think -- regarding the inventory builds from that one pharmacy, which was I think we said in the range of $500,000 to $1 million, an easy way to look at that is if you say that the quarter's numbers was about $60 million, there's 12 weeks in the quarter, so that's $5 million a week. There's basically 5 business days, so it's $1 million a day. So that basically comes down to somewhere around 1 day.

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Operator [32]

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Our next question comes from the line of Chris Shibutani of Cowen and Company.

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Pamela Ann Barendt, Cowen and Company, LLC, Research Division - Associate [33]

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This is Pam on for Chris. Do you have an estimate of the average duration of treatment specifically in 2018 and how that might change in 2019?

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [34]

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This is Steve. Yes, I will provide a very similar answer. Because of the fact that we are unable to track patients who start or are interim in the specialty distribution channel, it's very difficult to track patients longitudinally, and therefore we don't have those duration numbers.

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Pamela Ann Barendt, Cowen and Company, LLC, Research Division - Associate [35]

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Okay, interesting. And perhaps maybe just a quick follow-up. Do you have plans to look into this or to determine if you're relatively close to the maximum duration you would expect, which would be about 12 months?

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [36]

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Yes. So I think that that is obviously something we're looking into. As you know, we have a number of programs in place, as Steve mentioned, which include the vouchers, increased awareness of our CONTROL trial data, and then obviously the label updates. So our hope is that whatever the current median duration of treatment is, we have the opportunity to improve that in 2019. So yes, we are planning on looking into that during this year, especially as we get these new initiatives more rolling, so perhaps we can report on that at a later call.

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Operator [37]

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

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [38]

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Congrats on the clinical and commercial execution on the quarter, first off. I have a quick follow-up on the inventory question, given the sort of 4-fold increase in the in-office dispensing where there is some inventory. It seems like the statements around 3 weeks of inventory on hand presumably for this channel were a little bit different. Can you maybe help us understand a little bit for the entire quarter what the impact of the inventory was, given in prior quarters it seems like it was very close to nothing presumably because it was almost all through the spec pharm channel.

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Maximo F. Nougues, Puma Biotechnology, Inc. - CFO & Principal Accounting Officer [39]

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So we actually haven't seen that change between channels in terms of the 3 weeks average. I looked at the last 3 quarters on what we have reported, and again, it stays about the same. Obviously our sales have increased, so the number of bottles in inventory are there. It has increased, but that average is still about 3 weeks.

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

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And Kennen, you rambled something there about it was once zero and now it's 3 weeks. The inventory was never zero. It has always -- I think since we've been tracking this launch, it's always been right around 3 weeks. We've never -- it would be impossible to have zero inventory.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [41]

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Got you. Okay. And apologies to that, Alan. And maybe just more broadly, was wondering, given the very impressive growth we saw from Q3 to Q4, sort of if you could elaborate a little bit on commercially any of the differences that we've seen this quarter versus, for instance, prior quarters. Is it much more in-office dispensing and the impact of additional use of prophylactic Imodium or other anti-diarrheals in new patient starts? Thank you.

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [42]

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Yes, this is Steve. So there were a few drivers this quarter that we certainly noticed. Number one, we had very strong -- of the patients that we tracked who were able to refill, we tracked an increase in refills in the specialty pharmacy channel, so that was one driver. The second driver, as you mentioned, included the growth in the in-office dispensing. And the specialty pharmacies didn't suffer from that because they also grew as well. So I believe that that was certainly some very good demand driven there. And then I also highlighted the fact that our high performing regions have continued to perform, but we're now seeing some of the lower volume regions start to grow as well. And I believe that -- I think with new personnel in place, as well as physicians being more educated with better access, they're understanding not only the efficacy, but also the ability to manage side effects.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [43]

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That's it. Really impressive commercial quarter.

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Operator [44]

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Our next question comes from the line of Michael Schmidt of Guggenheim Securities.

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Michael Werner Schmidt, Guggenheim Securities, LLC, Research Division - Senior Analyst & Senior MD [45]

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I had a few. Maybe first, Alan, around the potential launch in Europe this year. How should we think about operating expenses going forward, maybe thinking of the fourth quarter 2018 run rate in terms of how much additional infrastructure buildout might be necessary in Europe.

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [46]

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So Michael, building a sales force in Europe is very different than building one in the United States, because obviously when you build one in the U.S., you have to go all 50 states at once, whereas in Europe you kind of go country by country. And you can't launch in a specific country until you get reimbursement. The only one you can launch in is Germany, which is obviously not as big as the United States. Obviously it's much smaller. So you tend to have -- rather than having a huge number of expenses upfront like you would in a U.S. launch, it tends to be more protracted over time. So I think that on our second quarter call when we start giving guidance for European sales and give a little more clarification on our path forward, I think we'll be in a better position to do that. But again, I wouldn't anticipate that the cost of a buildout in Europe in 2019 would be something that would be similar to what we did in the U.S. It's just a much smaller and longer-term type of a build.

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Michael Werner Schmidt, Guggenheim Securities, LLC, Research Division - Senior Analyst & Senior MD [47]

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And then how should we think about pricing assumptions in Europe and potentially rest of world as well?

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [48]

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I don't know that we're in a position to give that yet. I would rather wait until we're a little more mature in our decisions on Europe, and then we can give it at that time.

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Michael Werner Schmidt, Guggenheim Securities, LLC, Research Division - Senior Analyst & Senior MD [49]

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And then maybe one more question on sales dynamics in the fourth quarter. And I understand that a lot of that has been driven by refills and maybe a decrease in discontinuation, better compliance rates. But can you help us understand maybe a little bit more how your patient new starts are trending relative to early in the year?

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [50]

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Yes, so this is Steve. We did see an increase in new patient starts right in January, so that's at least encouraging. And that's really essentially what we've been tracking.

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Operator [51]

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Our next question comes from the line of Thomas Smith of SVB Leerink.

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Thomas Jonathan Smith, SVB Leerink LLC, Research Division - Associate [52]

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Just on the number of prescribers you've reached, I think you mentioned that you've now detailed about 68% of your target. Can you give us a sense of how many of the physicians you detailed are I guess what you would call active prescribers of NERLYNX? Or maybe give us a sense of how many of those prescribers have yet to write a prescription for NERLYNX?

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [53]

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Yes. So with regard to -- so again, the physicians who we've detailed means that our sales reps have met with them. It doesn't mean they're prescribers. The numbers in that graph are just the ones our sales reps have met with; not the ones that actually have prescribed the drug. I would say that a rough estimate is that I think we're looking at over 60% of them have become prescribers. So obviously there's still a lot more to move there. There's a lot more on the needle to move there in terms of new prescribers. So there's obviously still a very nice opportunity for new prescriber growth.

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Thomas Jonathan Smith, SVB Leerink LLC, Research Division - Associate [54]

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Great. Okay, that's helpful. And then also, could you give us a sense I guess within these physician practices that it sounds like you're gaining better access to, what's your sense for how much drug these physician practices are keeping on hand in their office to dispense?

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [55]

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Yes, I think we already commented that the inventory levels at -- through the in-office dispensing is the same inventory levels as in the specialty pharmacies. So those 2 inventory levels appear to be the same.

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [56]

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Yes, and this is Steve. I'll also add that because the wholesale acquisition price of this product is over $12,000 per bottle, the way that the offices have their agreements with the specialty distributor, typically they can order and receive product within 48 hours. So there really isn't a huge incentive for them to be storing a lot of product in the practice.

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Operator [57]

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Our next question comes from the line of Yigal Nochomovitz of Citigroup.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [58]

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I just had one follow-up related to the interplay of the adjuvant market and the metastatic market. And I know you only got the NALA data I think December 17, so it probably didn't impact the fourth quarter. But I'm just curious, what have you heard in the channel checks as you speak with physicians about the interest in neratinib in adjuvant given now that for the second Phase 3 trial, which has shown meaningful disease control? Is that creating a tailwind for the adjuvant market, or is it not really -- that not really a topic of discussion as you see it?

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [59]

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I don't know that we've seen any impact yet of that. Now again, you're right; we just announced it in December. It's only been a month and a half or so. I don't know that we've heard any feedback regarding that yet.

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Operator [60]

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This concludes our question-and-answer session. I would now like to turn the conference back over to Mariann for closing remarks.

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Mariann Ohanesian, Puma Biotechnology, Inc. - Senior Director of IR [61]

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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 later this afternoon. Thank you for your time and attention today.

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Operator [62]

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Ladies and gentlemen, thank you for participating in today's conference call. This concludes our program. Everyone, have a great day. You may now disconnect.