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Edited Transcript of XLRN earnings conference call or presentation 5-Aug-19 9:00pm GMT

Q2 2019 Acceleron Pharma Inc Earnings Call

Cambridge Sep 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Acceleron Pharma Inc earnings conference call or presentation Monday, August 5, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ed Joyce

Acceleron Pharma Inc. - Director of IR

* Habib J. Dable

Acceleron Pharma Inc. - CEO, President & Director

* John D. Quisel

Acceleron Pharma Inc. - Executive VP & Chief Business Officer

* Kevin F. McLaughlin

Acceleron Pharma Inc. - Senior VP, CFO & Treasurer

* Sujay R. Kango

Acceleron Pharma Inc. - Senior VP & Chief Commercial Officer

* Todd James

Acceleron Pharma Inc. - VP of IR & Corporate Communications

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Conference Call Participants

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* Andrew Abriol Santos Ang

UBS Investment Bank, Research Division - Equity Research Associate of Specialty Pharma

* Bikramjot Singh

RBC Capital Markets, LLC, Research Division - Senior Associate

* Danielle Catherine Brill

Piper Jaffray Companies, Research Division - VP & Senior Research Analyst

* Eric William Joseph

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

* Jeff Hung

Morgan Stanley, Research Division - Equity Analyst

* Kyuwon Choi

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Leland James Gershell

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

* Martin Douglas Auster

Crédit Suisse AG, Research Division - Research Analyst

* Neil Puri

SVB Leerink LLC, Research Division - Analyst

* Yaron Benjamin Werber

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

* 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, ladies and gentlemen, and welcome to the Acceleron Second Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to hand the call over to Mr. Ed Joyce, Director of Investor Relations at Acceleron. Please go ahead.

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Ed Joyce, Acceleron Pharma Inc. - Director of IR [2]

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Thanks and welcome, everyone, to our second quarter 2019 earnings call. The press release reporting our financial results in addition to the presentation for today's webcast are available on the Investors and Media page of our corporate website at www.acceleronpharma.com. Joining me for the call today are Habib Dable, our Chief Executive Officer; Kevin McLaughlin, our Chief Financial Officer; John Quisel, Chief Business Officer; Sujay Kango, our Chief Commercial Officer; and Todd James, our Vice President of Investor Relations and Corporate Communications.

As a reminder, we will be making forward-looking statements regarding our financial outlook in addition to regulatory and product development plans and research activities. These statements are subject to risks and uncertainties that may cause actual results to materially differ from those forecasted. A description of these risks can be found in our most recent Form 10-K on file with the SEC.

I would like to now turn the call over to Habib Dable, our Chief Executive Officer.

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [3]

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Thank you, Ed. And good afternoon, everyone, and thank you for joining us today. This is one of the most exciting times in Acceleron's 16-year history. Not only have we built one of the industry's most advanced TGF-beta superfamily-based pipelines, spanning multiple disease areas, but with U.S. and EU regulatory filings under review for luspatercept, we are approaching the potential first approval of an Acceleron-discovered medicine. Our commercial team alongside our global collaboration partner, Celgene, is hard at work preparing for luspatercept's potential approval. Patient access for this first-in-class erythroid maturation agent remains our top priority.

In parallel, we are advancing our 2 Acceleron-led clinical programs in neuromuscular and pulmonary disease. Our 3 ongoing placebo-controlled Phase II trials, 2 with ACE-083 and 1 with sotatercept, have each completed patient enrollment and will help to establish proof of concept, with top line results from all 3 Phase II trials expected in the next 9 months. As you can see, this is meaningful progress for all programs in 2019, and we are well positioned to achieve our near- and medium-term clinical and regulatory objectives.

Turning to luspatercept. In June, we announced that both the U.S. FDA and European Medicines Agency accepted the BLA and MAA filings, respectively, of luspatercept for beta-thalassemia and myelodysplastic syndromes-associated anemia. This is a huge achievement for the Acceleron and Celgene teams and represents another important step in delivering this novel therapy to patients.

With the filing acceptance, we are pleased that the FDA granted priority review for beta-thalassemia indication with a target action date of December 4, 2019, and set a target action date of April 4, 2020, for the MDS indication. Likewise, the marketing authorization applications for luspatercept in adult patients with MDS or beta-thalassemia-associated anemia has been validated by the European Medicines Agency, with a potential decision on the filing expected in the second half of 2020.

We look forward to working closely with the U.S. and EU agencies to move this therapy toward approval. Patients are desperately in need of a viable treatment option, and we believe that luspatercept could bring a significant improvements to patients with these conditions by potentially eliminating or decreasing red blood cell transfusion burden.

Further luspatercept clinical development continues with 3 ongoing clinical trials: first-line treatment in lower-risk MDS patients, non-transfusion-dependent beta-thalassemia and myelofibrosis-associated anemia. To that end, we also remain committed to expanding our clinical development plan to additional patient populations with anemia that could potentially benefit from treatment with luspatercept.

I would now like to move to our Acceleron-led programs beginning with ACE-083 in neuromuscular disease. We're currently evaluating ACE-083 as a novel locally acting therapy with the potential to improve function in specific target muscles in 2 ongoing Phase II trials in patients with facioscapulohumeral muscular dystrophy, or FSHD, and Charcot-Marie-Tooth disease or CMT. Results from Part 1 of the trials demonstrated substantial increases in muscle volume in target muscles. We previously announced full enrollment of Part 2 of the FSHD trial and recently completed full enrollment of Part 2 of the CMT trial.

To quickly summarize, beginning with FSHD, Part 2 of the trial is evaluating 56 patients with mild to moderate tibialis anterior or bicep weakness, randomized to receive either ACE-083 or placebo. Part 2 of the CMT trial is evaluating 40 patients with mild to moderate tibialis anterior weakness, randomized 1:1 to receive either ACE-083 or placebo.

Specifically, as outlined in this slide, the trials are designed to evaluate similar top line outcome measures post 6-month randomized treatment period. These include the percent change in muscle volume and the change in intramuscular fat fraction as well as the percent change in motor function tests. In the tibialis anterior cohort of the FSHD trial, these include the 6-minute walk test, 4-stair climb, 10-meter walk/run. In addition to these outcome measures, we are also evaluating the change in disease-specific, health-related quality of life, as determined by patient-reported outcomes in the FSHD Health Index and the CMT-Health Index as well as overall safety and tolerability in both trials.

We believe that if the trial demonstrates improved functional outcomes, ACE-083 has the potential to become an important new therapy for patients with neuromuscular disease and unmet medical needs. We look forward to sharing top line results from both trials. We anticipate FSHD results in the second half of 2019 and CMT results in the first quarter of 2020.

I'd now like to move to our pulmonary program where we recently completed enrollment in the PULSAR Phase II trial of our lead pulmonary candidate, sotatercept, in pulmonary arterial hypertension or PAH. We believe that PULSAR's rapid enrollment over the past 12 months underscores the excitement for the program and the urgency for new therapeutic options for patients with PAH. Currently, the only approved PAH treatments target 3 main pathways that each promote vasodilation of the pulmonary vessels to reduce pulmonary vascular resistance or PVR. These therapies are used alone or in combination to improve exercise capacity and slow the progression of the disease. Sadly, though, median survival for patients is only 5 to 7 years. We believe that sotatercept has the ability to engage a fundamental pathway in the disease by rebalancing BMPR2 signaling and potentially restoring vascular homeostasis.

In preclinical models of PAH, sotatercept reversed pulmonary vessel muscularization and improved indicators of right heart failure. As outlined on this slide, the PULSAR Phase II trial is a randomized, double-blind, placebo-controlled study designed to evaluate the efficacy and safety of sotatercept in PAH patients. A total of 106 patients were randomized to receive placebo, low-dose sotatercept or high-dose sotatercept in combination with the standard of care therapies. Following the 6-month primary treatment period, participants in the trial will be eligible to continue in the 18-month extension period. The primary end point of the trial is the change from baseline in PVR, and the key secondary end point is change from baseline in 6-minute walk distance. We anticipate reporting top line results from PULSAR trial in the first quarter of 2020. Additionally, our clinical team is currently enrolling patients with PAH into the exploratory SPECTRA study.

And with that, I'll turn the call over to Kevin McLaughlin, our CFO, to review the financials.

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Kevin F. McLaughlin, Acceleron Pharma Inc. - Senior VP, CFO & Treasurer [4]

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Thanks, Habib. Good afternoon, everyone. Our cash, cash equivalents and investments as of June 30, 2019, were $500.9 million. This cash balance includes the receipt of a $25 million gross milestone payment earned upon acceptance of the luspatercept BLA and MAA filings. This compares to December 31, 2018 cash, cash equivalents and investments of $291.3 million. Based on our current operating plan and projections, we believe that current cash, cash equivalents and investments will be sufficient to fund projected operating requirements until such time as we expect to receive significant royalty revenue from luspatercept sales.

Collaboration revenue for the second quarter was $27.7 million. The revenue is all from the company's collaboration partnership with Celgene and is largely related to expenses incurred by the company in support of luspatercept and includes the $25 million gross milestone payment. The next potential milestone related to the luspatercept partnership is $35 million due upon first approval from either the FDA or EMA.

Total costs and expenses for the second quarter were $48.8 million. This includes R&D expenses of $34.8 million and G&A expenses of $14 million. The company posted a net loss for the second quarter ended June 30, 2019, of $17.9 million.

I will now turn the presentation back over to Habib for final remarks.

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [5]

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Thanks, Kevin. So to briefly summarize our priorities for the remainder of this year and beyond, beginning with luspatercept in hematology. Our #1 priority is the ongoing marketing application reviews with the FDA and EMA. We're also focused on the execution of the ongoing clinical trials and additional patient populations along with the potential expansion of luspatercept's development in other diseases associated with anemia.

For ACE-083, we expect top line results from both Phase II trials in the next 9 months, starting with FSHD in the second half of 2019 followed by the CMT trial in the first quarter. And finally, in PAH, we expect top line results from the PULSAR Phase II trial in the first quarter of 2020 and preliminary results from the SPECTRA trial in 2020.

I will now open the call to questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Carter Gould of UBS.

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Andrew Abriol Santos Ang, UBS Investment Bank, Research Division - Equity Research Associate of Specialty Pharma [2]

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This is Andrew in for Carter. I had a couple. So first, on the FSHD study. In order to derisk the move into Phase III, how critical is it that you demonstrate efficacy across both the tibialis and bicep patients? I guess to put another way, if you demonstrated efficacy in just one cohort, how would you think about the potential risk profile of that Phase III, given the more mixed data on the other side? I had a follow-up on luspatercept, but if you can start there, that would be great.

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [3]

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Yes. So thanks for your question. This is Habib. So it's an excellent question. And I think what's most important is, as you mentioned, for us to be able to move forward into Phase III, there are a number of things that we're going to be looking at, both with the FSHD study as well as the CMT study, which we'll be reading out in the first quarter of next year. Just to remind everybody, the primary end point of both studies is looking at total muscle volume. And then obviously, the path forward is really going to be driven by our ability to reliably increase functional improvement in the patients that we're treating. And so whether it's FSHD alone or CMT alone or the TAs or the biceps, we'll be looking at that data to ensure that we've been able to achieve the minimum thresholds. And some of those thresholds that we talked about previously are looking at specific functional improvements such as in the tibialis anterior muscle, we're looking at 6-minute walk distance, timed 10-meter walk/run, 4-stair climb. And again, we're looking for trends, but we're also looking at some deviations from placebo in the double digits. And that's really what we've given ourselves as a threshold.

So to decide today as to whether or not we would go with biceps alone or TA alone or FSHD alone, we're going to be looking at the data in totality. And then after that and after having conversations with the regulators, we'll get back to you in terms of our path forward for Phase III.

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Andrew Abriol Santos Ang, UBS Investment Bank, Research Division - Equity Research Associate of Specialty Pharma [4]

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Great. And on luspatercept, seeing as you're looking to co-promote in the U.S. with your own team of -- I believe it was 15 to 20, how has Acceleron positioned its team here in that? Where do you see Bristol-Celgene operating? And where can Acceleron layer on or amplify the efforts here?

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [5]

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Yes. So that's a great question. And maybe I'll pass that on to our Chief Commercial Officer, Sujay Kango, to elaborate on some of the details.

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Sujay R. Kango, Acceleron Pharma Inc. - Senior VP & Chief Commercial Officer [6]

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Sure. Thanks for the question. And as we have articulated before, right, first and foremost, the co-promote allows us to have a dedicated team. And as you articulated, we have about a 20-people field force that is there. So we will be solely focused on luspatercept. And the approach we are taking with Celgene is actually to ensure that there is a surround sound. So we will be operating with all the key centers as well as the top decile accounts to ensure that there is coordination, collaboration, and we're going to maximize the opportunity, right? So we're not limited to a particular sort of cohort of physicians, et cetera. What we're going to do is, synergize and coordinate and amplify, what is necessary to drive an optimal value proposition for luspatercept and satisfy customer needs.

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Operator [7]

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Our next question comes from Yaron Werber of Cowen.

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Yaron Benjamin Werber, Cowen and Company, LLC, Research Division - MD & Senior Biotechnology Analyst [8]

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So Habib, maybe I have a couple of questions. The first one, maybe just a little housekeeping, but you're mentioning now approval or EMA decision in the second half of '20 for luspatercept. It was filed, I believe, in early April. So is it -- are you still sort of expecting a 12-month CHMP clock and then 2- to 3-month EMA and maybe it sort of goes into Q3? I'm just trying to understand the thinking about the second half. And then I have a follow-up as well.

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [9]

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Yes. So Yaron, so that is our expectation for the second half. And again, as you've alluded to, when you account for all of the clock stops, et cetera, that would take us into a second half potential decision. And so beyond that, we haven't elaborated which -- exactly which quarter that would fall into. But you're right, it does account for all the clock stops.

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Yaron Benjamin Werber, Cowen and Company, LLC, Research Division - MD & Senior Biotechnology Analyst [10]

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Okay. Has there been any requests from EMA recently that we need to know about?

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [11]

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No. Everything remains on track. It is going as expected.

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Yaron Benjamin Werber, Cowen and Company, LLC, Research Division - MD & Senior Biotechnology Analyst [12]

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Okay. And then for the PULSAR study, it's 106 patients, it's randomized 3:4. And so overall, it's going to be sort of 30, 40 patients an arm or so. And so I guess, my question really has to do with -- do you think that it's powered for a statistically significant difference? Or are you looking at trends at this point?

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [13]

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Yes. So with respect to the primary end point, again, primary end point is for PVR, and it is powered to show a difference. And we're looking for a difference of approximately 20% reduction in PVR.

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Yaron Benjamin Werber, Cowen and Company, LLC, Research Division - MD & Senior Biotechnology Analyst [14]

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Okay. And is it -- is the primary end point -- it's in both doses, right? Or is it one of them, the high dose really powered against the placebo?

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [15]

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Both.

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Operator [16]

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Our next question comes from Danielle Brill of Piper Jaffray.

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Danielle Catherine Brill, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [17]

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A couple for me as well. I guess following up on the last question for the PULSAR study. In addition to PVR, do you also need to see an improvement on the 6-minute walk distance to justify moving forward? Or will the PVR end point be enough to go into Phase III?

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [18]

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Yes. So it's a great question, Danielle. So obviously, the primary end point of PVR is not going to be enough based on historical approvals that we've seen in the space. The gold standard has been and we believe will continue to be 6-minute walk distance. So we're also looking at some secondaries, including 6-minute walk distance, and we've given ourselves a threshold there for that functional improvement of 30 meters.

Now that said, we do believe that we potentially are approaching this disease area from a very unique perspective through the mechanism of action and rebalancing BMP signaling. And as such, we could, if approved, be one of the first disease-modifying drugs approved in -- for these patients. And if so, we could have an opportunity to be looking at some unique end points, as we think about Phase III. And as such, we move forward with the SPECTRA study, and we're looking at some unique end points there such as cardiac MRI, invasive cardiopulmonary exercise testing.

And so as we think about Phase III, once we put the card on Phase II, yes, indeed, we do want to see an improvement in 6-minute walk in addition to PVR. But we also could be looking at some creative end points, as we think about Phase III, as we get a better look at some patients as they start coming out of SPECTRA.

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Danielle Catherine Brill, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [19]

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Okay. So would a trend be enough there?

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [20]

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Yes. So I think it's too early to say. Once we look at the data, we'll -- and we couple that again with what we're seeing in SPECTRA, I think we'll have a better read. That said, I think a 30-meter increase is what we've been hearing from a number of our stakeholders as a threshold that we'd like to achieve on top of standard of care.

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Danielle Catherine Brill, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [21]

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Okay. And then one other related to luspatercept. You guys mentioned plans for next indications. Can you just remind us what some indications of interest might be? And when we might get an update on that?

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [22]

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Yes. So coming out of last summer, where we announced positive Phase III results for beta-thalassemia as well as lower-risk MDS, not only were we thrilled that luspatercept was able to show, that it can restore healthy red blood cell formation in 2 very distinct diseases, but also it did so in a safe and tolerable way. Now just to remind everyone, we do have 3 ongoing studies today. We've got the BEYOND study, which is looking at nontransfusion-dependent beta-thalassemia. We've got the COMMANDS study, which is looking at the frontline setting head-to-head against ESAs. And we've also got the ongoing myelofibrosis study.

So myelofibrosis is in addition to some of the -- recently where -- I guess at the JPMorgan, we had announced that if we looked at beta-thalassemia and myelodysplastic syndromes and all of the indications, including the frontline settings in nontransfusion-dependent, we saw an opportunity of over $2 billion. If indeed, myelofibrosis as the next indication is successful, we believe that, that could add an incremental $1 billion in peak sales opportunity.

Now beyond that, we also feel that there is an opportunity to cast an even wider net. And the teams, our teams and the Celgene teams are working and prioritizing some of those. And you asked what else beyond myelofibrosis we could be looking at? We are looking at indications where we believe the unmet need is very high but also where the mechanism of luspatercept could have a meaningful benefit for these patients. And some of those indications could be alpha-thalassemia, chemo-induced anemia as some examples of areas where we believe the unmet need is high and where we potentially could have a path forward. So some more to come.

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Operator [23]

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Our next question comes from Eric Joseph of JPMorgan.

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Eric William Joseph, JP Morgan Chase & Co, Research Division - VP & Senior Analyst [24]

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Just a couple of questions from us. I guess first, on FSHD with ACE-083. I guess from talking to docs, it seems that some of the feedback that we're getting from docs is that while presumably function in the TA and the bicep is important, other muscle (inaudible) shoulders, back, hip (inaudible). So I guess I'm wondering, if we were to sort of fast forward to where ACE-083 is potentially approved, how -- wonder if you can kind of speak to how -- what other muscle groups we might anticipate the use of ACE-083? And whether other muscle groups might get back into the design of a Phase III trial?

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [25]

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Okay. So Eric, you did cut out a bit, but I think what you're asking is based on some of the feedback you've been receiving from KOLs is that, the TA and the biceps are obviously important muscles that drive the disability in these patients early on. But there are other muscles as the disease progresses that may warrant perhaps, some further studies around and perhaps, an opportunity for life cycle management. Is that your question? Yes, okay. I think, we may have lost Eric, but I'm going to assume that is the question.

So I guess, when we think about it, we are very deliberate about the biceps and the TA muscles as the early muscle groups to be looking at. For a number of reasons, is one, we've been able to identify these muscles as being the actual dominant muscle, that actually affected the activities of daily living for these patients in a very profound way. Furthermore, we also know that specifically, if you think about the tibialis anterior muscle in CMT, for example, it's one of the earlier muscles that are affected with disease progression. And so, if indeed we are successful with FSHD or CMT or both, we'll obviously take a look at life cycle management opportunities. And if indeed we feel it's warranted that we could move into other dominant muscles where an intramuscular injection would have the potential transformative effects for these patients' lives, then we -- yes, we will consider it. But for now, the focus is really on these 2 studies in Part 2 of Phase II, to ensure that we have a reliable functional benefit for these patients as we consider moving into Phase III or not.

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Eric William Joseph, JP Morgan Chase & Co, Research Division - VP & Senior Analyst [26]

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Great. One follow-up, if I may. Hopefully, my line won't disconnect here. I guess other concern, PULSAR, which the trial is [fully] through, can you just comment on the rate of rollover (inaudible) it gets to open-label extension portion and...

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Todd James, Acceleron Pharma Inc. - VP of IR & Corporate Communications [27]

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Eric, it's Todd. Sorry, you're really breaking out. So we heard PULSAR and that it recruited well, but then the rest was really hard to hear.

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Eric William Joseph, JP Morgan Chase & Co, Research Division - VP & Senior Analyst [28]

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I'm interested in rollover rates into the open-label extension portion, whether patients are continuing on their current dose or being converted to either the lower high dose and the frequency of follow-up for PVR.

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Todd James, Acceleron Pharma Inc. - VP of IR & Corporate Communications [29]

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Yes. It's Todd, Eric. Thanks for the question. Yes, we just finished enrollment and we're not in a spot to be able to talk about percent rollover at this point. But when we get into the top line announcement, for example, that's something that we could talk about more as all the patients would have hit through the 6 months. And so that will be a better data point to get into what that rollover rate would be.

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Operator [30]

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Our next question comes from Martin Auster of Crédit Suisse.

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Martin Douglas Auster, Crédit Suisse AG, Research Division - Research Analyst [31]

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First, wanted to just kind of follow up and clarify some things from an earlier question. The SPECTRA trial, I guess, or the sotatercept PAH trial is powered for the primary end point of PVR reduction. Just want to clarify, it's not powered on the secondary end point for 6-minute walk. And then my second question had to do with -- you've obviously been in a really good position to be generating significant cash flows pretty quickly potentially from luspatercept. Wanted to talk a little bit about kind of how you're thinking about external BD discipline going forward as those cash flow coming in. What is the sort of magnitude you'd think about? And what stage assets much you'd be looking to bring into the pipeline? Conversely, if you have 100% success with your current kind of mid-stage pipeline, do you think you've got adequate resources and kind of cash flow that you can manage global, pivotal registrational programs for both assets? Or would you potentially seek geographic partnerships around those?

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [32]

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Yes. So great, Martin. So the first part of the question was really around powering. And yes, it was powering for the primary end point of PVR. So really, the meat of the question is on the second part, and it's around our current cash resources and our intent moving forward both from our organic strategy as well as inorganic. So again, just to remind everyone, when we raised capital last time in January, one of the things that I had articulated was that for the very first time, I would not be providing a cash runway guidance as we have done each and every time prior to that. And the reason for that is exactly as you're suggesting, Marty, is that, we believe that based on the current burn rate and assuming that we're able to conclude all of our Phase II trials as planned, that our visibility took us to the point where we would have overlapping luspatercept royalties in receipt of various milestones. And therefore, we never really saw that 1-year of cash, if you want, which would typically trigger a need for another raise.

Now that said, if indeed we flip the card on all of our Phase II programs and we feel that we have the opportunity to move forward into Phase III from a position of strength, or if indeed there is an inorganic opportunity to help us build out our leadership strategy in any one of the therapeutic areas that we've outlined as a commitment to moving forward, then that obviously would potentially change our posture. But again, that would be on the heels of positive Phase II data and then looking at Phase III investments and as to whether or not, we felt it would be value generating in seeking an ideal partner or if indeed that we'd be better off to go at it alone. And so we will be assessing all of those at the end of Phase II. But right now, as to where we sit, I think we sit in an excellent position, where we're able to conclude our Phase II studies and we're able to take a good look at them, and then assess what is the best path forward.

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Martin Douglas Auster, Crédit Suisse AG, Research Division - Research Analyst [33]

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I agree, you're in an enviable position. Do you have any loose sense that you can frame for investors in terms of as those royalties kind of start accruing and building up in terms of attaining profitability or maintaining profitability as a metric or how important that's going to be to Acceleron going forward? Or is that going to be dependent upon the opportunities in front of you in the pipeline?

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [34]

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Yes. So again, I think at the end of the day, Marty, our goal is to do what we do best, and that is to innovate and to focus on bringing transformative medicines to the patients that we're serving. I think we're in an enviable position from a -- on a cash point of view and our ability to dictate our future moving forward in terms of how we would move into Phase III, if we're successful.

But I think we're also in a pretty enviable position that we are in 3 therapeutic areas where we've got 2 positive Phase III results in hematology. We've got 3 Phase IIs that are going on between pulmonary and neuromuscular, and we are in a wonderful situation here to be able to take all of those studies to their conclusion and then assess as to whether or not, what the best investment strategy will be. That said, we will always be disciplined and making sure that our primary focus as we innovate, is to do so in a way that we're continuing to also return value to our shareholders.

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Operator [35]

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Our next question comes from Geoffrey Porges of SVB Leerink.

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Neil Puri, SVB Leerink LLC, Research Division - Analyst [36]

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This is Neil filling in for Jeff. I just had one question regarding luspatercept and the upcoming launch. Can you explain how the responsibilities will be shared between you and Celgene-Bristol? And how do you intend to report expenses and revenues in the U.S. and EU?

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [37]

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Yes. Great. Thanks for the questions. Again, I'll pass that commercial question on to Sujay and perhaps, maybe even Kevin for a little detail if there's anything that we can provide on the reporting.

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Sujay R. Kango, Acceleron Pharma Inc. - Senior VP & Chief Commercial Officer [38]

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Sure. Thanks for that, Habib. And so -- as you've sort of stated right, at this juncture, we are collaborating very closely with Celgene. So our discussions with them in relation to the promotional aspect is, we are developing a complete approach to a day 1 through 90 plan. We have worked together through a joint collaboration committee that meets frequently as well as through joint operating team that meets almost on a monthly basis, to really map out our launch plan or launch strategy of sort of approach to trainings. So our field team is now hired, so they are undergoing training. And so all of those coordinations are taking place jointly with Celgene. And we will be prepared day 1, ensuring that there's a sense of urgency to sort of really support the needs of the patients and the physicians. So that's our primary focus.

We both equally have a target to call on the beta-thalassemia physician population as well as the MDS physician population once we have the approval, right? So at this juncture, there's no promotional elements that are going on. There's more training and preparation that's going on at this juncture. So we will divvy up and sort of call. Now, our territories are larger compared to the Celgene territories. So we actually coordinate at a local level to decide what's the optimal basis for us to really execute launch. And that's part of the account planning and territory planning that we are doing right now with our collaborators with Celgene.

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Kevin F. McLaughlin, Acceleron Pharma Inc. - Senior VP, CFO & Treasurer [39]

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This is Kevin. As far as the reporting goes, as a reminder, Celgene or BMS will be reimbursing us for a large -- very large portion of our commercial appetite, direct sales force, et cetera. So you will see on -- in the P&L a reimbursement line up in collaboration revenue but the corresponding expenses down in the sales and marketing lines. In addition, revenue obviously will be reported, product-related revenue for us, royalty-related revenue will be reported and we'll have a process in place, where that will be reported standard on a quarterly basis based upon the royalty and the achievement.

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Operator [40]

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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 [41]

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I just wanted to dig in a little bit more on the biology of FSHD versus CMT. And just in particular, some of the differences in those 2 diseases that could lead to possibly differential muscle growth. And more specifically, is there any reason to believe that either FSHD or CMT is more likely to yield a clinical benefit in the context of a similar muscle volume growth?

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [42]

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Great. Thanks for your question. I think I'll pass that on to John Quisel, our Chief Business Officer, to elaborate a bit.

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John D. Quisel, Acceleron Pharma Inc. - Executive VP & Chief Business Officer [43]

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Sure. Thanks, Habib. Thanks for your question. Certainly, one that we thought about a lot as we were setting up these trials. And essentially, these 2 diseases, we view as testing different hypotheses about patients, where ACE-083 may provide the most benefit. So I don't think we would take a bet on which one is more likely to work. With FSHD, you have a disease where the pathology is really starting in the muscle, with overexpression of the DUX4 transcription factor, leading to degradation of the muscle in that regard. And the premise of ACE-083 is that if we can strengthen and rebuild those muscle fibers, it can restore the function to the patients.

On the flip side, there are a variety of disorders where patients experience a death of the neurons and a loss of innervation of muscle fiber and consequently then, weakness that sits in that setting. And that's what the CMT trial is intended to test. So there, patients are having a slow and partial retraction of the neurons to innervate the muscle fibers. And so what you have is muscles at the limb and the TA muscle in particular if the bottom of the leg is affected where you have only a fraction of the muscle fibers are still innervated, and as a result, the non-innervated fibers lose strength manifesting as foot drop for the patients. And there, the premise is that if you have a partial loss of strength in the muscle due to loss of innervation, if you can restore muscle mass and strength using something like ACE-083, then you should be able to restore the function.

So again, to summarize, 2 different premises, essentially diseases with a muscle origin like FSHD being tested in that trial and diseases within neurological origin like CMT being tested in that trial. And we wouldn't handicap which one is more likely to work.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [44]

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Okay. Got it. And then with respect to the different muscle end points, 6-minute walk, 10-minute walk/run, the 4-stair climb, is there any reason to believe that one or more of those is more likely? Or do you have higher confidence in one of those end points? Or it's just a matter of seeing the data before you can make any comments there?

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John D. Quisel, Acceleron Pharma Inc. - Executive VP & Chief Business Officer [45]

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It really is going to be data-driven where, as you know, one of the few companies to run clinical trials in this space are really establishing the end point that are appropriate and they are likely to read out with these patients. And so we designed the trials to measure a suite of different end points, and we'll be looking at the totality of the data.

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [46]

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Yes. The only thing I would add to that, Yigal, would be we're also working very closely with the University of Rochester in validating a PRO with the FSHD Health Index as well as the CMT-Health Index, where we're going to be looking at a number of questions which affect a patient's activities of daily living. And we'll be also assessing that questionnaire as we look at the Phase II data as well and looking to working with the regulators in validating that.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [47]

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Okay. That makes sense, Habib. And then just one question that wasn't asked yet. Maybe you expected this. I'd just like to get your thoughts. MDS, you received -- or you and Celgene received standard review and data fellows priority review. Was that what you expected? If so? Okay. If not? I'm curious what you have to say there.

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [48]

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Yes. Actually, I'll repeat what we expected. We actually expected and had been anticipating a standard review for both indications. But we always said that we would be prepared, whether it's from all of our efforts from a commercial footprint, regulatory footprint, supply footprint, to be able to execute on whether or not one or both got a priority review. And we were pleasantly surprised that we got a priority review for one of our indications, and we are prepared to execute.

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Operator [49]

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Our next question comes from the line of Leland Gershell of Oppenheimer.

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Leland James Gershell, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [50]

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First question, on sotatercept, with the PULSAR trial fully enrolled, wanted to ask if it is time you can comment on the nature of the patients who came into the trial in terms of the level of severity of their PAH and potentially the other therapy they were on, that they came in on into PULSAR.

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Todd James, Acceleron Pharma Inc. - VP of IR & Corporate Communications [51]

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It's Todd. Yes. So as far as the patients that were included based off the inclusion criteria, we're looking at functional Class 2 and 3. And so we got what you would expect from a normal split in a Phase II trial of this size. And then as far as single, doublet or triplet, that really comes down to which country is the patient got enrolled in and what the standard of care is for that country. And so we got that appropriate mix based off of how the trial enrolled per country.

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Leland James Gershell, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [52]

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Okay. Great. And then just a couple of questions on luspatercept. I think you had mentioned in the past a plan to fully publish the data from MEDALIST and BELIEVE. Just wondering, if you could comment on that publication strategy, if we might be seeing those coming out in peer review in the near future.

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [53]

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Yes. So the goal is to submit for both studies in 2019, and we're still on track.

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Leland James Gershell, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [54]

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Great. And then just last, if I may. Any comment you can provide on the -- or color you can provide on the COMMANDS trial enrollment?

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [55]

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No. No further updates. We continue to be pleased obviously with that study. And once we get closer to full enrollment or absolute enrollment, we'll be able to provide you a little bit more color in terms of the exact time lines you can expect for top line release. But nothing new to share, Leland, today.

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Operator [56]

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

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Kyuwon Choi, Goldman Sachs Group Inc., Research Division - Equity Analyst [57]

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Maybe pivoting back to 083 for a moment. And with the Phase II trials ramping up and the extension trial getting underway here, can you maybe comment on what you're thinking with regard to potential duration here over the longer term? And secondly, what you think as you proceed towards the Phase III stage? What the -- what is the role of duration and sustainability of the change of muscle -- the muscle change and the agencies' view there going forward?

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [58]

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Yes. It's Habib again. So thanks for your question, a very, very important question, and quite frankly, it's really the driver of our investments in the extension study. And when we think about duration, we can really think about it in 2 different ways. One, what is the appropriate dosing interval, where patients will see a meaningful benefit, while at the same time minimizing office visits and/or injections. And two, the other part of duration is looking at how long will the drug last. And so, as you know, our primary end point in Part 2 of the study was at 6 months, and we were -- with a dosing frequency of every 3 weeks. When patients roll over into the extension study, they will be randomized either for every 4 weeks or every 8-week dosing. And so we'll get a better read there on the appropriate dosing interval for patients to be able to maintain the effect.

And then, again, just to remind everyone, when we took a look back at Part 1 data and we looked back at the extended dosing intervals, we had reason to believe that the efficacy was sustained up to potentially 8 weeks. But I guess we'll see if indeed that's going to materialize in Part 2 and more specifically from a functional point of view.

With respect to how long the drug will last, again, that's one of the things that we're going to be looking at in the extension study, as we follow patients out. And so more to come. But at the same time, a very important question on both fronts.

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Kyuwon Choi, Goldman Sachs Group Inc., Research Division - Equity Analyst [59]

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Okay. Great. And maybe just on luspatercept in myelofibrosis. I guess, as you think about the Phase II data coming up here in the not-too-distant future, can you maybe think about, where is the bigger opportunity to where you're more optimistic? Is it in the transfusion-dependent or nontransfusion-dependent population? And do you see one as being potentially a quicker area for development and potential label expansion?

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [60]

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Yes. So another good question, Paul. So again, when we recruited for the Phase II study, we looked at transfusion-dependent and nontransfusion-dependent. But we also looked at patients who were on ruxolitinib because of an enlarged spleen and those who were not on ruxolitinib. So we also need to look at that dimension as well. Quite frankly, if you think about it and our focus on patients with the highest unmet need across all of the disease areas that we focus on, I would argue that the area that's probably most important will be those that are on ruxolitinib because, again, to remind everyone, these myelofibrosis patients are suffering not only from anemia due to a fibrotic bone marrow, but they're also suffering from drug-induced anemia due to just simply mechanism of action of JAK inhibition.

So if you think about it from that point of view and that our internal estimates here have over half of the patients, myelofibrosis patients who suffer from moderate to severe anemia that have been on -- that are on ruxolitinib, arguably those patients that are on ruxolitinib and transfusion-dependent would most likely be the largest opportunity for us to cater to an unmet need in this population.

And by the way, you haven't asked the question, but maybe I'll just -- to state it anyways. We've given ourselves also an internal hurdle rate of about 25% to 30% efficacy in this particular group based on a lot of the research and feedback that we've been receiving. So that's what we would hope to achieve to give us the confidence to wanting to move forward.

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Kyuwon Choi, Goldman Sachs Group Inc., Research Division - Equity Analyst [61]

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Congrats on all of the progress.

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Operator [62]

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Our next question comes from Jeff Hung of Morgan Stanley.

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Jeff Hung, Morgan Stanley, Research Division - Equity Analyst [63]

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For the MEDALIST patient population, you said that the earlier you can get to patients, the chances are better that they'll have bigger benefit from luspatercept. So from a commercial standpoint, what kinds of education or other initiatives are you considering to encourage earlier treatment versus the 44-month median time since diagnosis for patients in MEDALIST?

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [64]

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Yes. So I think the first thing to keep in mind is when you think about our anticipated label for MEDALIST, to remind everyone, these are patients whose endogenous EPO levels are over 200, and therefore, they would have been ineligible for ESAs or if indeed they were refractory to ESAs. And 90 -- approximately 95% of the patients in MEDALIST were refractory to ESAs. And as you stated, the median time duration from therapy -- sorry, the median time to entering into the trial from diagnosis was about 44 months.

Now one of the things to keep in mind is that a lot of patients in the study were on ESAs for 44 months because of the fact that there is nothing else really in terms of an alternative to be able to go onto such as luspatercept. And so we're hoping that if indeed, luspatercept is approved, that if indeed a patient is refractory to an ESA, that we may be able to get them earlier by the mere fact, that we've got another approved drug on the market as an option for treaters.

But most importantly, to get patients earlier, it will be really important for us to be successful in the COMMANDS study because the COMMANDS study is doing exactly that. It's studying frontline dosing of luspatercept head-to-head against ESAs, and we're designing it in a superiority designed fashion. So I would say by the mere fact of having a drug approved in that indication, I would hope that the time from diagnosis to getting on luspatercept will have shrunk just by the mere availability of another option for treaters and patients. And two, the COMMANDS study in itself if successful, we'll be able to get patients earlier.

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Jeff Hung, Morgan Stanley, Research Division - Equity Analyst [65]

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Great. And then a housekeeping question. Looks like SG&A ramped up a little bit from Q1 to Q2 relative to prior quarters. So given commercial preparations such as your own sales reps, how should we think about SG&A for the rest of the year?

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Kevin F. McLaughlin, Acceleron Pharma Inc. - Senior VP, CFO & Treasurer [66]

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So this is Kevin. Thanks for the question. Obviously, as I mentioned earlier, our sales costs will go up as we have now just brought on our sales force, but that will be reimbursed via Celgene or BMS. So you'll see an increase in the SG&A line but a corresponding increase in the collaboration revenue line. Outside of that, it's normal growth of G&A coming into a commercial environment and along with additional marketing efforts that support both the luspatercept program but also our internal -- internally owned programs in sotatercept and in ACE-083.

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Todd James, Acceleron Pharma Inc. - VP of IR & Corporate Communications [67]

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It's Todd. As you can imagine with 4 -- if you include FSHD, CMT, now the extension studies, the PULSAR Phase II trial with 106 patients and the SPECTRA trial, this is the most internally led program we've ever had running, at any given time. And so that's where you're seeing on the R&D side, the increase quarter-to-quarter. And you can expect that through the end of those trials.

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Operator [68]

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

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Bikramjot Singh, RBC Capital Markets, LLC, Research Division - Senior Associate [69]

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This is Bikram on for Kennen. I had a follow-up on the 25% to 30% hurdle rate you just mentioned on myelofibrosis study. If you could please elaborate on that. And is that for both hemoglobin improvement and transfusion independence? Or how shall we be thinking about it?

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Todd James, Acceleron Pharma Inc. - VP of IR & Corporate Communications [70]

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It's Todd. Yes, there's multiple patient populations, as Habib was describing, that we're going after in this trial. We're casting a pretty broad and wide net here. And so really, in any patient population, if we meet that bar for portion of patients that hit any of the end points, that would be enough for us to potentially move forward with the Phase III. And so that could be monotherapy luspatercept, the nontransfusion-dependent or the transfusion-dependent, or it could be a combination with rux likewise, anemia-only or transfusion-dependent. Though we know, over the course of this progressive disease, a majority of patients over time do become transfusion-dependent.

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Operator [71]

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At this time, I'd like to turn the call back over to Habib Dable for any closing remarks. Sir?

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Habib J. Dable, Acceleron Pharma Inc. - CEO, President & Director [72]

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I just wanted to close the call by thanking everybody for joining us. Thank you for your continued interest in the Acceleron story, and I very much look forward to meeting many of you over the course of the fall and winter as we close off the year. And in the meantime, wishing you all a great remainder of the summer. Thanks again.

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Operator [73]

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Thank you, sir. And thank you, ladies and gentlemen. This does conclude today's conference. Thank you for your participation, and have a wonderful day. You may disconnect your lines at this time.