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Edited Transcript of PBYI earnings conference call or presentation 9-Aug-18 8:30pm GMT

Q2 2018 Puma Biotechnology Inc Earnings Call

Los Angeles Sep 5, 2018 (Thomson StreetEvents) -- Edited Transcript of Puma Biotechnology Inc earnings conference call or presentation Thursday, August 9, 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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* Chris Shibutani

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

* 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

* 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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Ladies and gentlemen, good afternoon. My name is Adam, and I will be your conference call operator for today. (Operator Instructions) As a reminder, this program is being recorded.

I would now like to turn the conference call over to Mariann Ohanesian, Senior Director of IR for Puma Biotechnology. Thank you. You may begin your program.

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

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Thank you, Adam. Good afternoon, and welcome to Puma's conference call to discuss our financial results for the second quarter of 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 Charles Eyler, our SVP of Finance and Treasurer.

After market close today, Puma issued a news release detailing second 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, our quarterly report on Form 10-Q for the quarter ended June 30, 2018, 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, August 9, 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 a substitute for, our GAAP financial measures. Please refer to our second 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, Puma's first approved drug, have continued to grow steadily 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've previously been treated with a trastuzumab-containing regimen.

Today, we reported nearly NERLYNX net sales of $50.8 million for the second quarter of 2018, which represents a sequential increase of 41% from the $36 million in sales reported in the first quarter of 2018. 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.

In June of 2018, the Committee for Medicinal Products for Human Use, also known as the CHMP, adopted a positive opinion, recommending marketing authorization for NERLYNX for the extended adjuvant treatment of adult patients with early-stage, hormone-receptor positive, HER2-over-expressed amplified breast cancer, who are less than 1 year from the completion of prior adjuvant trastuzumab-based therapy. The CHMP recommendation will be reviewed by the European Commission, which has the authority to approve medicines for the European Union, and we expect a decision this quarter.

In July, we announced that Health Canada had accepted for review our new drug submission, or NDS, for NERLYNX for the extended adjuvant treatment of adult patients with early-stage HER2-over-expressed amplified breast cancer following adjuvant trastuzumab-based therapy. The NDS has passed the mandatory validation period by Health Canada, the country's federal regulator for drugs and health products, and has now entered the review period. We look forward to working with Health Canada during the review of our submission.

We also anticipate submitting for regulatory approval of NERLYNX for the extended adjuvant HER2-positive early-stage breast cancer indication in additional countries in the second half of 2018 and first half of 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. As previously announced, the event rate in the trial has been coming in slower than we anticipated. Assuming that the event rate continues at the current rate that it is right now, we do not expect to be able to report the data from this trial until the fourth quarter of 2018. This assumes that the event rate continues to come in at the current rate that we are seeing. If the event rate slows down even further, we would not be able to report the data from this trial until 2019. We continue -- we will continue to provide investors with the anticipated timing in future updates.

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.

And finally, we anticipate reporting additional data from our Phase II SUMMIT study in patients with HER2 mutations in the fourth quarter of 2018 and first half of 2019.

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 first quarter of -- I'm sorry, for the second 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 U.S. market for a year since our FDA approval in July of 2017. Since then, thousands of patients have been prescribed NERLYNX. We had another good quarter of steady growth and look forward to continuing this momentum.

As we are a year into our launch, 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.

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 systems and also the VA.

In addition, our Puma patient links hub services help patients with copay and financial assistance and provides physician offices with reimbursement support.

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, we had another quarter of steady growth with net revenue at $50.8 million in the second quarter, an increase of 41% from the prior quarter. This growth was the result of more patients being prescribed NERLYNX and staying on their medication, along with the increase of prescribers becoming more aware of NERLYNX.

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 received NERLYNX through the specialty distributors. Note that the number of active patients shown each month is the net of discontinued and completed patients. You can see the continued steady 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 July. As of July 31, there are 2,076 active patients on NERLYNX. Of these 2,076 patients, we estimate 12% are receiving the drug through specialty distributors. We have also noted that many patients go -- will go back and forth between the 2 channels, based on physician and payer choice.

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 discontinue NERLYNX due to adverse events has slightly increased since last quarter and is approximately 14%. Please note that we have updated our metrics here to be more precise. There are data lags from the specialty pharmacies, and when the data is updated, we will also update prior months. Therefore, the monthly numbers may differ from prior presentations. Also, these numbers do not include patients on our free drug program, which currently is at 7.1% of patients.

Since we launched a year ago, we now have some patients who have completed their 12 months of extended adjuvant therapy with NERLYNX. As you can see on the slide, a small percentage of our total patients started NERLYNX last July and August and are therefore due to complete their 12 months of treatment. In this set of patients who started a year ago, we have discovered that there are some patients who are staying on NERLYNX even beyond 1 year. While it is too early to tell how prevalent this is, we are encouraged to see some doctors and patients supporting this and continuing NERLYNX beyond a year, and we will continue to watch this metric going forward. The bottom line is that we continue to see steady growth each month in active patients on NERLYNX.

On Slide 6, you see that most patients receive NERLYNX in 10 days or less, and 72% of these patients receive it in 15 days or less, which 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. There are also a small number of patients who have been prescribed NERLYNX for off-label use, such as metastatic cancer, which we do not market or promote, where 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 7. Recall that our sales force has only been actively promoting NERLYNX since September of 2017. We continue to make progress in reaching our target physician audience, increasing to 63% in the second quarter, even though many physicians now restrict access to sales reps. We believe there are still more opportunities to reach more physicians, especially increasing their awareness of diarrhea management options.

As you see on Slide 8, in the extended adjuvant setting, we are pleased that NERLYNX is included in clinical guidelines in the United States, such as NCCN and ASCO. Moreover, as we prepare for launch in Europe, NERLYNX has already been incorporated in the St. Gallen guidelines and the German AGO guidelines. While we do not promote in this setting, NCCN has decided to include NERLYNX in its brain cancer -- in its breast cancer, brain metastases guidelines.

Overall, more physicians are becoming aware of NERLYNX as a treatment option for their patients, as the number of prescribers continues to increase.

As I mentioned, 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 on Slide 9, we have been working on ensuring NERLYNX will be reimbursed by the health authorities in Europe after regulatory approval. The global value dossier is amended to reflect the indication in Europe, and country-specific health technology assessments are underway. Germany, France and the United Kingdom are the first countries in Europe we are planning for product availability and progress has already been made.

As you may recall, we also have a managed access program in place for patients outside the United States. We are committed to providing access to NERLYNX for physicians and patients throughout the world and have established partnerships in Australia, Israel, China, Latin America and South America, and we will be receiving significant double-digit royalties from these partnerships. And in Slide 10, 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 made with physicians, payers and patients. We had a very strong quarter with 41% growth in 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 second quarter of 2018. Please note that I will make comparisons to Q1 2018 and Q4 2017, which we believe are better indications of our progress in becoming a commercial company than year-over-year comparisons. For more information, I recommend that you refer to our 10-Q, which was filed today and which includes our consolidated financial statements.

For the second quarter of 2018, we reported a net loss based on GAAP of $44.3 million or $1.17 per share. Our GAAP net loss for Q1 2018 and Q4 2017 were $24.3 million and $64.1 million, respectively. On a non-GAAP basis, we reported a net loss of $22.2 million or $0.59 per share for the quarter.

As Alan and Steve mentioned, net revenues from NERLYNX sales were $50.8 million versus $36 million for the first quarter. Our cost of sales for the second quarter was $8.8 million, which includes the amortization of milestone payments to a licensor of approximately $0.9 million. Going forward, we will continue to recognize amortization of the milestone payments to the licensor or $0.9 million per quarter as cost of goods sold.

For fiscal year 2018, Puma continues to anticipate that NERLYNX net revenues will be in the range of $175 million to $200 million. This guidance includes the majority of the revenue coming from the currently approved extended adjuvant indication only. We recognize that there are a number of factors that Steve mentioned in his presentation, such as patients who stay on NERLYNX for more than 12 months and patients who delayed starting NERLYNX until after summer that could result in us needing to revise of our revenue guidance for the year. As it is a bit too early to quantify the impact of these factors, we will wait until next quarter, when we will have a better idea of the quantitative impact before considering making any revisions to our revenue guidance.

SG&A expenses based on GAAP were $40.1 million for the second quarter of 2018 compared to $36.6 million for Q1 2018 and $30.9 million for Q4 of 2017. Non-GAAP SG&A expenses were $31.6 million for the second quarter of 2018 compared to $27.6 million and $22.7 million for Q1 2018 and Q4 2017, respectively.

Research and development expenses based on GAAP were $43.3 million in the second quarter compared to $46.9 million and $50.2 million for Q1 2018 and Q4 2017, respectively. On a non-GAAP basis, R&D expenses were $29.7 million compared to $30.5 million and $32.9 million for Q1 2018 and Q4 2017, respectively. It should be noted that we incurred approximately $1.3 million of one-time expenses related to the CHMP review during the second quarter.

Our net cash used in operating activities for the second quarter of 2018 was approximately $17.6 million compared to $6.3 million and $36 million for Q1 2018 and Q4 2017, respectively. Our cash burn for the second quarter was approximately $15 million excluding proceeds from our term loan compared to cash burn of approximately $3 million and $25 million for Q1 2018 and Q4 2017, respectively. We anticipate the continued reductions in our cash burn for operations throughout 2018, such that by the fourth quarter, we will have transitioned to cash flow neutral, cash flow positive.

At the end of the second quarter of 2018 -- excuse me, we ended the second quarter of 2018 with about $96 million in cash and cash equivalents and $38.6 million in marketable securities. This includes approximately $70.8 million of net loan proceeds. Our accounts receivable balance at June 30 was $21.3 million. Our accounts receivable terms range between 10 and 68 days, while our days sales outstanding are 38 days.

Effective May 8, 2018, we amended our existing term loan, replacing the existing loan amount of $100 million with a new $155 million term loan subject to funding in 2 tranches. The first tranche of $125 million gross was received on May 8, 2018, and was used to retire the outstanding balance of the original loan of $50 million and for general corporate purposes. The second tranche of $30 million may be drawn down at Puma's option subject to achievement of certain milestones. The loan will mature on May 1, 2023.

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. As 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 will continue to move forward with our plan to advance and expand our commercial activities for the balance of 2018 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 Cory Kasimov from JPMorgan.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [2]

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A couple for you. I guess, first one, I wanted to ask about the monthly trends. So the net monthly patient data you provided this afternoon is definitely helpful and also encouraging. I was wondering if you could also describe the monthly new patient starts and how that's been trending, since you had previously disclosed it in early April.

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

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Yes. Cory, thanks for the question. So I don't have that data in front of me. So I don't -- can't really comment on it. What I would say is the monthly numbers you're seeing in that chart are basically existing patients plus new patients minus discontinuations. So that's -- so one of the reasons we did that is we were hearing from a lot of investors, "You're giving us lots of metrics, but we really just want to know is how many patients are taking the drug every month?" And obviously, you could have, for example, a month where 200 patients sign up for specialty pharmacy, but 150 discontinue, so your net add is only 50, right? So we felt it was more appropriate and much more helpful to investors to give them a more live model, if you will, which shows basically every month. Again, it's the patients who are continuing to take the drug plus new patients minus discontinuations, and it includes both specialty pharmacies and the specialty distributors.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [4]

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Okay. So seeing what looks like -- I mean, the slide went by pretty quick, but what looks like an acceleration in the July numbers over what had been up months even before that should be a promising signal. Okay. And then another question I had is that you said, I think, 63% of target prescribers have been reached. Does that mean that you've detailed them, or that they're prescribing drug? I guess at this stage, are there any 1 or 2 specific issues that might be keeping prescribers on the sidelines?

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

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Yes. This is Steve. I'll answer that. Those are the physicians, the 63% of our target which we've actually been in front of and we've detailed. And ultimately, it boils down to the same discussion that physicians will undertake, which is benefit versus managing the side effects. It's been really positive, given the diarrhea management options that we can now talk to them about. And then the rest, essentially, as I mentioned earlier, in the oncology audience, there's a lot of physicians that don't see sales reps now, so we look to access them in conferences and other venues.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [6]

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Okay. And if I could just work one more in. Given the sequential 41% increase in sales this quarter, I'm curious if there's anything specific that you might be worried about, or any issues we should be thinking about as we head into the fall that prevents you from raising guidance at this point. Or are you just trying to be -- stay conservative on that?

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [7]

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I think we're trying to stay conservative on that, Cory. I think when we -- as you know, when we first put out our revenue guidance earlier this year, we stated we were being conservative, and I think that's where we're more comfortable. I think we'd just like to get -- as Charles mentioned, there's a lot of metrics that we'd like to get a little more quantitative, meat on the bone, if you will, before we start looking into any changes in the guidance.

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Operator [8]

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

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [9]

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With regard to the split on the specialty pharmacy versus the in-office dispensing, Alan, do you have any color on how that program is working in terms of patients receiving drugs in the office?

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

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So I believe Steve said that about 12% of the patients are receiving the drug through the specialty distributors, which is the in-office dispensing. But we also, as Steve mentioned, we get patients who bounce back and forth, meaning that sometimes, they'll get it from the pharmacy, and sometimes, they'll get it from the specialty distributor -- from the in-office dispensing. So the 12% is kind of an average. We've seen it go as high as 15% in any given week or month. But on average, it's about 12%. And again, the error bars around that are that we do get patients where, sometimes, they'll get it from the pharmacy, and then sometimes they'll get it from the in-office.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [11]

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Okay. Great. And then regarding the 63% of target prescribers that you reached in 2Q, am I hearing you right that, essentially the remaining 37% are just not eligible for being detailed because they won't be seeing reps? Or have you sort of plateaued on that effort on the detailing front?

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [12]

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Not necessarily -- this is Steve. Not necessarily that we've plateaued. I think there are more opportunities to access these physicians. Recently, we've entered into a nice partnership with ION, which is a large group purchasing organization which has now allowed us access to those sites. We're actually in the process of working with other large physician groups. So definitely not a plateau. But certainly, the way I look at it is, there's still a lot of opportunity in front of us.

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

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And can you speak to some of the practices that the physicians are using in terms of any early dose titration just to get patients comfortable with the profile of the drug? And also, what types of diarrheal or prophylactic regimens have been most effective thus far in the commercial setting?

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [14]

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So in terms of diarrhea management, I think the most common one we see is just using loperamide, largely because that's kind of the go-to drug, if you will, for both preventing and treating the diarrhea for many cancer drugs, not just NERLYNX. We do find that the docs who are using colestipol tend to give very favorable feedback of that, and we tend to see them having a much better success rate, if you will. And one of the things that Steve and his group have been very focused on is raising awareness of the colestipol data. Because as of yet, it's not in our labels, and so we need to raise awareness via other ways. You also mentioned the dose titration and dose escalation. We are aware that physicians are indeed doing this. And just to give a little history of this, the neratinib mechanism of action is it's an oral irreversible tyrosine kinase inhibitor that is a pan-HER inhibitor. There's another drug, afatinib, which I think is called Gilotrif, sold by Boehringer Ingelheim, which is approved for lung cancer. And it is also similar to neratinib, an oral drug that is an irreversible pan-HER TKI. With afatinib, a lot of the docs have been very successful, and afatinib has the exact same profile as neratinib in terms of causing Grade 3 diarrhea. It's all in the kind of first month, and then it -- the incidence of that diarrhea goes away over time. A lot of docs in lung cancer have been very successful, from what we understand, in doing a dose titration with afatinib, where they kind of start at a low dose and then titrate up to get to a full dose. We're aware -- again, we don't market for this, but it is something we recommend. It's just you have a lot of community doctors who treat lung cancer and breast cancer, so they have this domain knowledge, if you will, from using afatinib. We are aware of a number of docs who are indeed doing this where they titrate the dose of NERLYNX in the first month, and they're apparently having a much better success rate by doing this. We are indeed in our control trial, which is our Phase II trial looking at prophylaxis. We do indeed have a cohort right now where we're actually studying this in control using a dose titration or dose escalation, where we'll be hopefully able to see how successful this is. But we are aware it's happening in the field. I don't know to what percent. But we know this from feedback from physicians and also, as you know, there's a lot of these online videos that physicians post talking about their experience with drugs. And there have been online videos as well, where doctors said, "I'm doing this and I'm having a much better success rate."

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

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Okay. That's very helpful. And then, Alan, on the financials, I think you mentioned in the script regarding being cash flow neutral to positive by the fourth quarter. What about on an EPS basis? Is that something you can talk about?

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

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I don't think we can yet talk about when we would be EPS-profitable. We'll need to get back to you on that.

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Operator [17]

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Our next question comes from the line of Ying Huang from Bank of America Merrill Lynch.

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Ying Huang, BofA Merrill Lynch, Research Division - Director in Equity Research [18]

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Maybe on the new patient adds, Alan, can you just talk about even the trend for the last 3 months in terms of new patient adds? I know it's a little bit difficult for us to do the math, given now you're changing the way to report the net patients who are on the drug. And then secondly, since August of last year, some patients will start to roll off the therapy if they don't get treatment of beyond 12 months. Do you think that, potentially, you might see a slowdown in fourth quarter if that's the dynamic?

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [19]

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So Ying, to answer your first question, as we said in the earlier comments, again, the graphic you're seeing is basically patients who are continuing to take the drug, plus new patients, minus discontinuations. So it's a net number. So again, I don't have the new patient starts numbers in front of me. So I can't comment on this. I would just direct you to that graph. In terms of the patients who are becoming available for their 12 months of therapy and do they continue beyond a year, which Steve mentioned that are indeed seeing, or do they discontinue? We're obviously very encouraged that we're seeing patients continuing to take the drug beyond 1 year. Again, we don't have a huge number of patients, as you can see on the graph. We don't have a huge number of patients who have yet become available to be -- either make that decision of completing their 12 months of therapy or going on for a longer period. But having said that, we're very encouraged with the percent of patients who are continuing. And I think that them continuing beyond 1 year is really the patient's desire to do everything they can to prevent the recurrence. And Steve, if you'd like to comment, this is not the first time something like this has been seen.

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [20]

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Yes. So I'll add a few other comments in addition to Alan's. So first, on the new patient starts. When we reported those in prior quarters, please also note that was only from the specialty pharmacy channel. So we were only showing you a portion of the new patient starts. We don't receive that information on the specialty distribution channel, and that's why, from our perspective, providing you the net number of active patients is really the key performance indicator for us. On the second item related to duration, I can tell you that, as I mentioned earlier on the script, we do have patients who, although a small cohort have reached their year, they are staying on for a variety of reasons. One is, essentially, this is their last option before a recurrence can occur. When I used to work on the drug Herceptin, which was also -- with an indication for 1 year, there were many patients who did not want to go off the drug after 1 year of adjuvant treatment. So again, this is early in our launch. I think we need to look at the metrics and we may have more clarity as we see more patients reach 1 year.

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Ying Huang, BofA Merrill Lynch, Research Division - Director in Equity Research [21]

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Got it. And if I may, do you guys have any idea about roughly the percentage of patients who are actually on NERLYNX off-label, either brain mets patients or other metastatic breast cancer patients?

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Steven Lo, Puma Biotechnology, Inc. - Chief Commercial Officer [22]

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Yes. We do receive that data from the special pharmacies only. So understand that. And we're noticing about 5% of the prescriptions are for off-label.

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Operator [23]

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

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [24]

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Wondering, can -- maybe if you could expand a little bit on the rationale behind the patients who do continue beyond a year. And any sort of sense -- sort of what percentage of patients we could really expect this to be -- this is, obviously, going to be a big factor relating to sort of compounding in the second half of 2018.

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

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Yes. This is Steve. We've recently had a few patients in a focus group, and we were posing that question. Again, this is small numbers here. But once again, I think if you put yourself in the mind of a typical patient of ours, who's a young breast cancer patient with a few kids and they were recently diagnosed, you hear this from them, they want to do everything they can to prevent their cancer from coming back, and that is a really good mindset of the patients who are on this drug. And I think that the other positive part of it is these patients, now that they reached 1 year, they are tolerating the drug really well. So those are the things that we're certainly taking away. But again, I'll have to caution everybody, it's a small number of patients right now. We're analyzing this. And certainly, as we have more patients reach 1 year, we'll have a better clarity around it.

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

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Yes. Ken, if I can add to that. So first of all, remember that these are early stage breast cancer patients. So if I remember correctly, the average early-stage breast cancer patient is somewhere around 40 years old. So with cancer, that's young. And as Steve said, these are young women who have children and they want to watch their babies grow up and produce their own babies, right? So they want to do everything they can to prevent recurrence. And also taking on what Steve said, remember with NERLYNX, is the side effects all tend to be front-end loaded. By the time these patients are getting up to month 9, month 10, month 11, you're not really seeing the side effect that you saw in month one, so their tolerability is much, much better. So again, as you said, but you can look at the graph we have on Slide 5, there's 2,076 patients as of July 2018. The first 2, the July, August, those will be the ones who would be available for future -- for continuing it beyond 1 year. So that, net-net, is less than 5% of all our patients. So we don't have this type of metric on 20% or 30% of the patients. But we are encouraged with the percentage we're seeing. So if that continues and continues to hold at the current percent it is, it certainly can be meaningful. And that percent can certainly go up as well, but it can certainly go down, too. So I think we just want to wait a little bit longer just to get another quarter under our belt here, and then we can have a much better idea of how to influence our revenue guidance for that.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [27]

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Apologies, Steve, I'm trying to multitask on calls here and failing miserably. And one final housekeeping question here. Just wondering on gross to net versus Q1 and whether there was any inventory that influenced the quarter. I know that hasn't been an issue in the past, but just housekeeping.

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Charles R. Eyler, Puma Biotechnology, Inc. - SVP of Finance & Administration and Treasurer [28]

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Our gross to net actually came down. We're looking at a range in 10% to 11.5%. Again, in the beginning, being a new company with no experience, we were running a little conservative on the high side.

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

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And Kennen, on your question of inventory, I believe Charles...

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Charles R. Eyler, Puma Biotechnology, Inc. - SVP of Finance & Administration and Treasurer [30]

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On the inventory, our inventory has stayed extremely low. Again, we're burning off inventory that was manufactured prior to approval. So one of the metrics I'd look at is what inventory do we have sitting on our SP shelves, which is about 3 week's supply.

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Operator [31]

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(Operator Instructions) Our next question comes from the line of Chris Shibutani from Cowen.

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Chris Shibutani, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [32]

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Alan, in the U.S., I believe the FDA label enables patients to be taking NERLYNX without a particular restriction on when -- in relation to when they had the Herceptin, unlike I believe, what I think the guidelines of the European regulators were talking about. Are you seeing that there are patients in the U.S. who are coming perhaps more than 2 years out or 1 year out after they completed their Herceptin? Kind of what's the mix? And a second question would be if you could give us a little bit more dimension on the discontinuations. We have kind of an average discontinuation rate. In that regard, can you maybe comment whether that percentage number represents just more of a contribution from folks who really stopped earlier in the course, averaged out over kind of a bimodal distribution as in patients who continued? Just trying to understand what that number really means underneath.

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Alan H. Auerbach, Puma Biotechnology, Inc. - Founder, Chairman, President, CEO & Secretary [33]

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Okay. So Chris, on your first question. So our label for NERLYNX in the U.S., although you're correct, it doesn't specify a time limit as to when they -- from when they've completed Herceptin. Remember that the ExteNET trial, which is our Phase III trial, it was patients who were up to 2 years. So I don't think any physician would be comfortable going out to, like, 3, 4, 5, et cetera, just because we don't have the data. I think the large majority of our patients in the U.S. are within that first year. I don't think we've seen a huge percent of them coming from that kind of 1-2 year period. So I think that the label in Europe is going to cover -- from a time perspective, the majority of the patients we're now treating in the U.S. On your second question, we tend to see the majority of the discontinuations with the drug up front, and largely that's due to the tolerability and the diarrhea. And that's similar to what we've seen in the ExteNET trial, where the discontinuation rate was kind of highest in that first month. And I believe we've also seen something similar in the control trial, where the discontinuation rate is the highest in the first month. So I believe that's what we have been seeing commercially as well.

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Chris Shibutani, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [34]

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And then if I could follow-up over in Europe. It sounds like you're able to make some progress and what you've described as a commitment to building out some of your own infrastructure there. Can you help us understand how you're balancing out potential for partnership? I know that in outside of Western Europe, rest of world, there are some regional partners that you've already announced. But particularly for Western Europe, now that the CHMP process has worked out favorably for you, are you committed to developing your own infrastructure and kind of go direct as your primary approach at this stage? And what the cost implications might be as we think about our model?

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

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So I think, obviously, first, we have to wait for the approval. But I think that we are moving forward with building our own infrastructure. But certainly, our commitment is to the shareholders. And if something came up from a partnership perspective that was attractive, we could certainly evaluate that as well. But I think at the present time, our goal is to build it ourselves. And again, we need to wait for the actual approval and the timing of that. And I think, at that point, we can probably have a better idea of what the financial implications would be in terms of the build-out.

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Operator [36]

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Thank you. Ladies and gentlemen, that is all the time we have for our Q&A today. I would like to turn the call back over to management for closing.

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Mariann Ohanesian, Puma Biotechnology, Inc. - Senior Director of IR [37]

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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 [38]

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Thank you, ladies and gentlemen, this does conclude our teleconference for today. You may now disconnect your line at this time. Thank you for your participation, and have a wonderful day.