Array Technologies Inc

NASDAQ:ARRY

Earnings Call Transcript 2019-Q2

[Operator]

Good day, ladies and gentlemen, and welcome to the Quarter 2 2019 Array BioPharma Inc. Earnings Conference Call. [Operator Instructions]. As a reminder, this call will be recorded.

I would now like to introduce your host for today's conference, Andrea Flynn. Please go ahead.

[Andrea Flynn, Senior Director, IR & Corporate Communications]

Good morning. This is Andrea Flynn. Welcome to Array BioPharma's conference call to discuss our financial results for the second quarter of fiscal 2019. You can join this conference call on Array's website at arraybiopharma.com. We are using slides to accompany our remarks today, which can be downloaded from the Investor Relations section of our website. A replay of the conference call will also be available on our website following today's presentation.

I'd like to introduce Array's Chief Executive Officer, Ron Squarer; our Chief Operating Officer, Andy Robbins; and our Chief Financial Officer, Jason Haddock, who will provide remarks today. Dr. Victor Sandor, our Chief Medical Officer, will be available to answer questions as needed. Before I turn the call over to Ron, I'll remind you of the following safe harbor statement. The matters we are discussing today include projections or other forward-looking statements about the future results, research and development goals of Array and its collaborators, and future financial performance of Array. These statements are estimates based on management's current expectations and involve risks and uncertainties that could cause them to differ materially from actual results. We refer you to risk factors discussed in our filings with the SEC, including our annual report filed on Form 10-K for the year ended June 30, 2018, and in other filings Array makes with the SEC. These filings identify important risk factors that could cause actual results to differ materially from those in our projections or forward-looking statements.

Today, we're discussing results related to BRAFTOVI and MEKTOVI and BRAF-mutant melanoma. For reference, the important safety information is provided in the appendix at the end of the slide deck.

I'll now turn the call over to Array's CEO, Ron Squarer.

[Ron Squarer, CEO & Director]

Thanks Andrea, and good morning to everyone. We are pleased to announce another strong quarter this morning. Starting on Slide 3, BRAFTOVI and MEKTOVI continue to receive a positive reception from oncologists treating BRAF-mutant melanoma patients, and we generated nearly $23 million in net product sales in our second commercial quarter, with quarter-over-quarter growth of 62%. We're seeing strong demand for BRAFTOVI and MEKTOVI with over 2,600 total prescriptions during the second commercial quarter and approximately 4,000 total prescriptions launched to date. As a reminder, BRAFTOVI and MEKTOVI are written as separate prescriptions. So each time the combination is prescribed, there's one prescription for BRAFTOVI and one prescription for MEKTOVI.

We believe current demand reflects the strength of data from the COLUMBUS trial and the foundation of differentiated PFS, OS and tolerability. There are approximately 5,000 new addressable BRAF-mutant metastatic melanoma patients each year, and we currently estimate the existing targeted therapy market for BRAF-mutant metastatic melanoma at over $400 million net sales annually in the U.S. and over $1 billion globally.

Moving to BRAF-driven CRC, we're very happy to report a remarkable 15.3 months of median overall survival from the safety lead-in of the BEACON CRC trial last month at ASCO GI. As announced in early January, we've completed enrollment in the BRAF CRC trial and look forward to the interim analysis in the first half of 2019. In August, we announced that the FDA granted breakthrough therapy designation to BRAFTOVI in combination with MEKTOVI and cetuximab for patients with BRAF V600E mutant metastatic melanoma cancer, as detected by an FDA-approved test after failure of 1 or 2 prior lines of therapy for metastatic disease. Patients with BRAF V600E mutant metastatic CRC have a mortality risk more than double that of metastatic CRC patients without the mutation, and currently there are no therapies specifically approved for this high unmet need population. The ANCHOR CRC trial, which is designed to assess the efficacy and safety of the combination of encorafenib, binimetinib and cetuximab in patients with BRAF V600E mutant metastatic CRC in the first-line setting continues to advance as well as our 3 nonexclusive immuno-oncology clinical trial collaborations with Bristol-Myers Squibb, Merck and Pfizer.

With the successful launch of our first 2 commercial products, we're now a fully integrated company with research, development and commercial capabilities, and we're looking forward to creating even more value. In the past couple of years, we've refocused our exceptional research engine to create new wholly-owned oncology INDs for Array BioPharma, and we look forward to a new IND this year. Additional oncology INDs are expected moving forward, and we will provide updates as appropriate.

Now moving to Slide 4, we have in place strong ex-U.S. partnerships to maximize the potential of BRAFTOVI + MEKTOVI around the world. Our Europe-focused partner with a strong legacy in oncology and over 1,000 employees dedicated to this therapeutic area, including commercial research and development capabilities, has made BRAFTOVI and MEKTOVI a top priority for their team and has launched the 2 drugs in Germany, Austria, the Netherlands and the U.K.

Ono, a Japanese market leader in immuno-oncology, has a powerful track record of success in developing and commercializing oncology products in Japan, including the first-to-market anti-PD-1 therapeutic, Opdivo or nivolumab. We look forward to their expertise in introducing our products to patient. We're very pleased that BRAFTOVI + MEKTOVI received approval in Japan in January. Under the agreements with PF and Ono, in aggregate, we stand to receive nearly $540 million in potential milestone payments, and the prospect that over half of future development cost could be offset by contributions from our partners.

In Europe and other territories, PF will deliver royalties on annual combined net sales of BRAFTOVI and MEKTOVI with rates starting at 20% and rising to 35% when sales exceed only EUR 100 million, and while in Japan and South Korea, Ono will deliver royalties on annual combined net sales of both products with rates starting at 22% and rising to 25% when sales exceed only JPY 10 billion, which is approximately USD 90 million.

And with that, I'll now turn the call over to Andy Robbins for commercial update.

[Andrew Robbins, COO]

Thanks, Ron. Moving to Slide 6, we remain encouraged by the second full quarter performance of BRAFTOVI + MEKTOVI for advanced BRAF-mutant melanoma with net product sales of $22.7 million. As Ron mentioned, demand for BRAFTOVI + MEKTOVI was over 2,600 total prescriptions during the most recent quarter and nearly 4,000 total prescriptions during the first 6 months on the market. Again, as Ron mentioned, BRAFTOVI and MEKTOVI are written as separate prescriptions. So each time the combination is prescribed, it is counted as 1 prescription for BRAFTOVI and 1 prescription for MEKTOVI. The vast majority of prescription fills we've seen to date have been for the combination.

We continue to increase our customer base with new prescribers identified every week. As expected, early adoption has been strongest in academic centers, which is where the majority of metastatic melanoma patients receive care in the United States. We are pleased with how physicians in these centers have embraced our combination therapy and gratified that they are increasingly adding the combination to their practice. As we mentioned last quarter, immediately following launch, we heard feedback that physicians began switching many patients on to BRAFTOVI + MEKTOVI, who are already receiving treatment with other targeted therapy combinations. This was certainly encouraging and drove strong first quarter performance.

Given this switching dynamic, we expect some of this early uptick will help provide experience for prescribers but likely will not represent a sustained pattern of use, especially as BRAFTOVI and MEKTOVI are used more often as the initial targeted therapy for patients. As we've mentioned previously, we have imperfect data on historical treatment for BRAFTOVI + MEKTOVI patients, our ability to predict the split between de novo patients and switch patients remains directional at this point.

BRAFTOVI + MEKTOVI is the first targeted therapy to demonstrate more than 30 months of overall survival in a Phase III study, and we are pleased that on January 23, the FDA agreed to update our product labels with these overall survival results. Based on our own physician interactions and the third-party audits, our sales and marketing messages on overall survival, progression-free survival and tolerability results from the COLUMBUS trial continue to resonate strongly with melanoma health care providers.

We continue to believe that BRAFTOVI + MEKTOVI offers the best targeted therapy choice for patients with metastatic or unresectable BRAF-mutant melanoma, and I'd like to recognize the tireless efforts of our sales, marketing, medical and manufacturing teams and their dedication to patients. Two quarters into launch, we are pleased with how commercial payers have covered BRAFTOVI + MEKTOVI prescriptions and see no significant barriers to reimbursement for the combination in BRAF-mutant metastatic melanoma. Payers are well-versed in this space and understand the value proposition for BRAF/MEK combination therapy in this patient population as well as the benefits of our overall survival and progression-free survival results, coupled with our tolerability profile. We believe that BRAFTOVI + MEKTOVI offers the best option for patients with BRAF-mutant metastatic melanoma and remain committed to providing access to these patients regardless of their insurance or income status.

Moving now to Slide 7, as I just described, our launch in BRAF-mutant metastatic melanoma is going well, and as we begin to prepare for a second potential indication, we are pleased to announce our new disease education campaign, which was introduced at the ASCO GI conference last month. While we've previously guided that the majority of melanoma patients in the U.S. are treated at academic centers, the dynamic in the colorectal cancer market is quite different with the majority of patients receiving care in the community setting. The goal of our newly introduced campaign is to educate physicians on the increased risks associated with BRAF-mutant colorectal cancer and to encourage them to test their patients for the BRAF mutation consistent with the current recommendation in the NCCN CRC guidelines. More information can be found on our disease education website at brafmcrc.com.

With that, I'll hand it back to Ron.

[Ron Squarer, CEO & Director]

Thanks, Andy. Continuing on the topic of BRAF colorectal cancer, on Slide 9, the strength of BEACON CRC safety lead-in continues to guide our strategy. As I mentioned earlier, we were granted breakthrough designation for BRAFTOVI in combination with MEKTOVI and cetuximab. This designation provides enhanced opportunities for interactions with the FDA as we work to expedite the development and regulatory review of this important combination. And we've initiated an amendment to the BEACON CRC protocol to allow for an interim analysis of trial endpoints. And should the planned analysis, based primarily on confirmed ORR and durability response, in roughly half the enrolled patient population be supportive, we plan to seek accelerated approval in the U.S. The interim analysis may also support regulatory submissions in other regions, and we anticipate top line results from the analysis in the first half of 2019. This timing allows for the subset of patients required for their interim analysis of ORR to achieve a response and for the durability responses to be appropriately evaluated.

Next on Slide 10, we provide the details of the global Phase III BEACON CRC clinical trial just for reference. As a reminder, we announced the completion of enrollment in January.

Moving to Slide 11, well currently there are no FDA-approved therapies specifically indicated for this high unmet need population, the median OS demonstrated by EGFR and chemotherapy-continuing regimens for this population is only around 4 to 6 months. And while recent experimental BRAF inhibitor-containing triplet regimens reported median OS of 9.1 and 9.6 months, we are thrilled to report a remarkable 15.3 months median overall survival from the BEACON CRC safety lead-in at ASCO GI last month. And the related ORR benchmarks in this patient population range between only 4% and 8%, with experimental BRAF-containing triplet regimens demonstrating ORR rates of 16% to 21%. We reported a 48% confirmed ORR from our BEACON CRC triplet safety lead-in. Related median PFS benchmarks in this patient population fall only between 2 and 3 months, with recent experimental BRAF containing triplet regimens demonstrating only around 4 months median PFS. And for context, the Array triplet median PFS results of 8 months already exceed the expected median OS for the control arm of our study, based on historical results in this patient operation. Note that Array has not conducted head-to-head studies comparing encorafenib plus binimetinib against other BRAF/MEK combination therapies and these data come from separate Phase III and Phase II studies. I'll also issue our standard caution about making crosstalk comparisons in general. These trials were conducted under varying conditions and results may not be directly comparable.

But now on Slide 12, at ASCO GI last month, we shared the Kaplan-Meier curve depicting the 15.3 months of median overall survival from the safety lead-in in the BEACON CRC trial, median duration a follow-up was 18.2 months.

On Slide 13, we also provided updated detailed response rates by local assessment, which were consistent with central assessment and with prior analysis of the safety lead-in patients.

On Slide 14, we show tumor response by patient in the safety lead-in presented at the meeting. 27 out of 28 patients with a post-baseline assessment showed tumor regression and none showed resist-defiant progression as their best response. This is in contrast to the inset graph, which depicts tumor response by patient in the irinotecan and cetuximab treatment arm of the recent SWOG data set, which is similar to the control arm of the randomized portion of BEACON CRC. As we can see on the inset, the majority of patients showed significant tumor progression as their best response.

Now on Slide 15, we show the number of months each safety lead-in patient has been on therapy, the rows in teal green show patients who remain on treatment and the rows in light blue show patients who are off treatment. As you can see, 6 patients have been on treatment for 18 months or longer now, with several approaching 2 years. Further, the majority of responses were observed early at the first or second tumor assessment at 6 or 12 weeks, the median time on treatment is 7.9 months. These results are unprecedented for this patient population.

A key safety data for the BEACON CRC safety lead-in are shown on Slide 16. And now moving to Slide 18, we detailed the design of the ANCHOR CRC trial, which is now enrolling patients. ANCHOR CRC is an international trial designed to assess the efficacy and safety of the combination of encorafenib, binimetinib and cetuximab in patients with BRAF V600E mutant metastatic CRC in the first-line setting. Essentially, this trial was similar to the triplet arm of the BEACON CRC trial but in patients with metastatic BRAF CRC in the first-line setting. The trial was designed in partnership with top global CRC key opinion leaders, and we're excited by the potential that we believe this combination therapy has to offer these patients.

Moving to Slide 19, we show the global colorectal cancer market. On the left side, we can see that over 220,000 individuals unfortunately succumb to colorectal cancer each year across U.S., Europe and Japan. On the right, it's estimated that approximately 10% to 15% of advanced colorectal cancer patients have activating-BRAF mutations. But I'll also point out that the BRAF CRC addressable patient population is even larger than the size of the population of patients with BRAF melanoma, which, as I mentioned earlier, we currently estimate to generate over $400 million net sales in the U.S. and over $1 billion globally.

On Slide 21, we review our 3 nonexclusive clinical trial collaborations, one with Bristol-Myers Squibb, one with Merck and one with Pfizer, to investigate the safety and efficacy of our MEK inhibitor, binimetinib, with anti PDL -- PD-1/PD-L1 therapy in several solid tumor populations including metastatic, colorectal cancer, patients with microsatellite stable tumors or MSS CRC and all 3 trials continue to advance. Compared to other recent MEK I/O approaches, each of our collaboration programs on earlier lines therapy include the addition of a third agent or regimen and in the case of BMS and Merck utilize leading PD-1s versus a PD-L1.

And so with that, I'm now going to turn the call over to Jason to review our financial highlights.

[Jason Haddock, CFO]

Thank you, Ron, and good morning, everyone. Slide 23 outlines our select financial performance for the second quarter of fiscal 2019 and I encourage you to read our full consolidated financial statements and MD&A contained in our 10-Q, which was filed with the SEC this morning. We reported total revenue of $82.5 million for the quarter compared to $56.9 million for the prior quarter. We were pleased to report for the second quarter net product revenue for BRAFTOVI and MEKTOVI at $22.7 million. Net revenue from product sales is recorded net of estimated rebates, chargebacks, discounts, fees and vouchers. These gross-to-net adjustments represented 16.6% of gross product sales for the second quarter. Our collaboration revenue for the quarter was $50.9 million, which includes recognition of $40 million of milestone revenue from Loxo Oncology, related to their approval of their TRK inhibitor, Vitrakvi. We also received our first quarter of royalties related to the European sales of BRAFTOVI and MEKTOVI, which we anticipate to become more meaningful in the coming quarters.

Finally, our Novartis reimbursement revenue is $8.9 million for Q2, which is down $3 million from the prior quarter due to the activity of the underlying studies and certain reimbursement limits as mentioned last quarter. As we move to our operating expenses, our cost of goods sold related to our product revenue was $0.8 million, which represents 3.5% of net sales. Our research and development costs were $62.1 million for Q2, which is up $6.6 million from last quarter. The increase in R&D expense was primarily driven by activities related to the BEACON CRC trial and other proprietary trials, which was partially offset by lower activity on Novartis-transition studies.

SG&A for the second quarter was $30.5 million, which was $5.6 million higher than last quarter, primarily driven by commercialization activities. This brings our reported loss from operations for the second quarter of fiscal 2019 to $10.8 million compared to $23.7 million in the previous quarter. Our loss is lower due to our increased sales revenue and earned milestones from Loxo, partially offset by increased R&D and commercial spend. Other expenses for Q2 totaled $0.5 million, which represents a $0.6 million decrease from Q1, largely driven by higher interest income from our higher cash balance. Net loss for Q2 was $11.4 million or a loss of $0.05 per share compared to $24.8 million or a loss of $0.12 per share for Q1. The decrease in net loss was primarily due to the new product revenue from BRAFTOVI and MEKTOVI, earned milestones and partially offset by increased operating expenses and reduced reimbursement revenue from Novartis.

Finally, we closed the quarter with a balance of $478 million in cash, cash equivalents and marketable security, which includes received milestone from Loxo and Pierre Fabre. Excluding nonrecurring items, our net burn rate for Q2 was approximately $39 million.

Now I'd like to turn the call back to Ron.

[Ron Squarer, CEO & Director]

Thank you, Jason, and now just to conclude the presentation, I'll review our top priorities and value drivers on Slide 25. We remain focused on the commercialization of BRAFTOVI and MEKTOVI in BRAF-mutant melanoma and are encouraged by the results from our second commercial quarter with nearly $23 million in net product sales and 62% quarter-over-quarter growth. And we continue to caution that these results are just from our second full quarter of launch and there were dynamics early in our launch of switching, which are unlikely to be sustained. So it's important to wait a few quarters before building a trajectory.

Next, the regulatory profit continues to advance outside the U.S. with the recent BRAFTOVI and MEKTOVI approvals in Europe in September 2018 and in Japan just last month. Further, we're thrilled -- we were thrilled to announce the median overall survival from the safety lead-in of the BEACON CRC trial at a remarkable 15.3 months and that we completed enrollment of the full BEACON CRC trial at that announcement in January.

Now following consultations with the FDA and EMA, we have planned an interim analysis based primarily on confirmed overall response rates and durability response, which we believe could support an accelerated approval submission given positive results. This interim analysis may also support regulatory submissions in other regions, and we anticipate those top line results from this analysis in the first half of 2019. Also happy that the ANCHOR trial in the first-line BRAF metastatic CRC setting continues to advance. And we remain excited about the prospects for our commercial activities, the programs we've described today and future INDs, and look forward to providing additional updates over time.

And with that, I'll now open up the call to Q&A.

[Operator]

[Operator Instructions]. And our first question comes from Chris Shibutani with Cowen.

[Chris Shibutani, Cowen and Company]

Two questions, if I may. The first on the switching patterns. Can you comment a little bit about where you're seeing it primarily in the academic versus the community setting? And at what point over the course of their treatment are you sort of seeing these patients to switch? Andy, I think in the past you've talked about how you thought this might be a phenomenon that would roll over. But a little bit more granularity would be helpful to get a sense for that trajectory.

[Ron Squarer, CEO & Director]

All right, so just -- I'll turn that over to Andy. I just wanted to point out that our whole sort of assessment of the switching dynamic is an estimate. So as we've said, just to reorient people, we saw sort of remarkable early uptake right out of the gate that was hard to explain from sort of treatment aid, new patients coming in to be diagnosed for the first time. We do believe that over time that dynamic is becoming less and less common, but we think it's going to continue to be a feature of use even over time. So these are estimates based on our sort of observations and anecdotes. And so perhaps Andy can give a little bit more color about where it's happening.

[Andrew Robbins, COO]

Chris, thanks for the question. I think, as we've said before, the concentration of our business which matches where melanoma patients typically seek treatment in the U.S. is in the academic setting. And certainly we see that the propensity to switch patients from one regimen to another without progression is primarily driven in the academic setting and those physicians. As Ron mentioned, we were on record and continue to maintain that there's probably 2 broad types of switching patients, those who are essentially waiting for us to get approved last summer and then those that start on a different targeted therapy combination and run into tolerability challenges. We think that the proportion of the first type of switch patient is probably declining over time just based on time passing and the availability of our products for the last 6 or 7 months. But the second type of switcher we think will continue into the future as physicians still are starting patient on other targeted therapy combinations, we don't yet have 100% market share last I checked.

[Chris Shibutani, Cowen and Company]

And then as far as the results from this quarter that you reported, are you seeing any sales into patients for use in BRAF colorectal cancer? And in particular, I think you've mentioned in the past, I believe, that guidelines could possibly pick up the use of the triple combination even while you're filing or doing the regulatory process, Dr. Grothey had mentioned, for instance, a possibility that if the safety lead-in was published, that might be a potential source of triggering for the NCCN guidelines. So were there any revenues from CRC? And are you thinking about publishing the safety lead-in?

[Andrew Robbins, COO]

So thanks again for the question, Chris. So the $22.7 million in net product sales that we reported were for all patients, not only for melanoma but we -- even in this quarter, we still maintain that the vast majority of patients treated on the combination are in BRAF-mutant metastatic melanoma. We do see sporadic use in other tumor types, notably BRAF-mutant colorectal cancer, and we even have some indication that creative physicians or physicians who are willing to go through a couple of nodes are getting reimbursement for the triple combination even from commercial payers, so that's encouraging. But it is certainly not a significant driver of the sales that we're reporting in the second quarter. We do think over time, as Ron mentioned, we're waiting in the first half of this calendar year for the interim results from the randomized portion of the BEACON trial, that those results, if positive and directionally consistent with what we've shown the safety lead-in, could be to expanded usage in that population.

[Chris Shibutani, Cowen and Company]

And publishing of the safety lead-in?

[Andrew Robbins, COO]

We typically don't comment in advance of those things occurring, but we certainly are aware that publishing data in peer-reviewed journals would be helpful to the product.

[Operator]

And our next question comes from Anupam Rama with JPMorgan.

[Anupam Rama, JPMorgan Chase & Co.]

Maybe a quick question from me on -- in the slides you talked about new prescribers identified every month. Maybe you could expand on where you are in terms of penetration into your top-tier physician cohorts both in the academic and community setting.

[Andrew Robbins, COO]

Anupam, thanks for the questions. It's Andy here. I think we feel pretty confident at this point that in the academic setting we've had very strong usage, especially at our high-decile target physicians. Certainly, the awareness in the prescribing, we're seeing that come through very strongly in that setting. As you might imagine, given the sort of the epidemiology of melanoma and the number of community oncologists in the U.S., that there are many, many physicians who may see 1, 2, 3 melanoma patients per year. And so penetrating the community setting will take more time. We are doing that now. We have many strategies in place, both from a sales force perspective as well as a nonpersonal perspective, to get them interested in our combination and prescribing in those patients when they see them. But again, our focus remains in the academic setting as we see that's where the concentration of patients is treated and frankly, the number of physician targets that we need to reach is quite a bit more manageable.

[Ron Squarer, CEO & Director]

Maybe, Anupam, just to comment on our ability to estimate sort of market share, especially new prescription market share. So as I described even where we're able to estimate when patients are new to our products, our ability to understand whether they are part of that switch cohort, which means they are not naive to the class, is challenging. So what we are you doing at this time is we've provided our estimate for what we think the dollar value in the U.S. and globally are for metastatic melanoma. Obviously, we're providing net sales each quarter, we're providing prescriptions, which are TRx. The secondary sources, unfortunately, that we have at our disposal are not credible, at least at this point. And so at least for the foreseeable future, that's what we're going to be able to do in terms of talking about our progress.

[Operator]

And our next question comes from Stephen Willey with Stifel.

[Stephen Willey, Stifel, Nicolaus & Company]

Maybe, Andy, if you can just give us a little bit of insight as to what kind of read you might have on patient persistency. At this point, I think, all of us are still kind of wondering what duration of treatment might look like in -- just given I guess that you had some patients who were switching off of competitive combinations early in the launch. Just wondering if you have any color as to whether or not those patients remain on therapy at this point.

[Andrew Robbins, COO]

Steve, thanks for the question. So we're still not in a position, where I think we can try to estimate means or medians for duration of treatment just based on the cycle and the launch and how many months have elapsed. But we are encouraged that even the switcher patients who came on in July and August, many of those patients remain on therapy today. So I think we had maybe a hypothesis that many of those patients were at the very, very end of their treatment potential for MEK and BRAF and coming on they might not represent a good estimate for duration of therapy. But whether it's the activity of our combination or the tolerability, I think we are seeing signs that even switchers in the early portion of the launch cycle, many of those patients remain on. So we're encouraged. It's going to take us a few -- at least a few more quarters to get to any sort of metric that we're comfortable providing externally. But again, we feel very strongly that our combination provides such a differentiated therapeutic index both on activity and safety, and we're hopeful that will lead to very strong duration of treatment.

[Ron Squarer, CEO & Director]

Just a clarification, I think it's going to be a long time before we're able to feel comfortable that we have a good assessment of duration. So I think directionally, we're excited, but it will take a while. Of course, we'll have to parse out to the best of our ability from different sources whether the patients were naive to the class or not. Certainly excited to see some patients do well, of course, others don't. And so you have the dynamic of that complicating an assessment of duration and that's a critical issue, of course. We recognize that it's a critical issue for how the business grows. But it's going to be a while till we sort of settle on some numbers.

[Stephen Willey, Stifel, Nicolaus & Company]

Understood. And just with respect to gross-to-net, I guess it perhaps maybe looks like it was within that 20% range that had characterized 1Q. Is that a fair statement?

[Andrew Robbins, COO]

Yes. We reported gross-to-net of 16.6% this quarter and so as you might imagine, some of the dynamics in the early stages of an oral oncology launch are moving in the direction where the gross-to-net is coming down slightly based on volume. So some of those dynamics about QuickStart programs are coming out as we move through launch cycle.

[Stephen Willey, Stifel, Nicolaus & Company]

Got it. And then maybe just a couple of quick pipeline questions. Is there any update with respect to potential selumetinib filing from partner AstraZeneca? I think they had perhaps, previously suggested that, that could have been a year-end '18 event. And then I know that there was also some discussion around the currently enrolling 797 trial with respect to maybe trying to set up some kind of futility analysis to get a better read on a facts side. So if you can maybe just give us some incremental updates there, that would be helpful.

[Andrew Robbins, COO]

Yes, sure. So with NF1, first of all, I'll remind folks how remarkable the results are now through 2 series of studies over time showing very high response rates around 70% and most patients receiving benefit. These are young people who -- many of whom have been on drug for a long time. So we think it's a remarkable advance in the treatment of the disease. Now from what we understand, AstraZeneca is still completing with the return of the final analysis. Now this is a study that they're doing in cooperation with other organizations, which may explain why it seems to be taking so long. But we do think that they will in the not-too-distant future complete that analysis, and we hope that, of course, it would support a regulatory filing and ultimately commercialization. Beyond that, we have to direct you back to AstraZeneca. With 797, yes, it is true that there is a futility analysis envisioned for the ongoing registration trial for 797 in this rare mutation-driven form of dilated cardiomyopathy. That is not uncommon for these types of studies. But we have articulated that we have set in our mind and with our partners a -- what we'd call sort of a high hurdle. If the product can meet that hurdle, of course, we will continue with more confidence of a useful outcome. If not, we'll move on to the many other programs and even new INDs that we look forward to in the future. So that's our position there.

[Operator]

And our next question comes from Michael Schmidt with Guggenheim Securities.

[Michael Schmidt, Guggenheim Securities]

I just had a follow-up on your sales growth dynamics quarter-over-quarter. When I look at prescription -- TRx figures that you provided, it looks like there's still a little bit of a disconnect between growth quarterly of that compared to your net sales figures. Just wondering if there's anything else ongoing in terms of inventory changes that could explain some of that.

[Andrew Robbins, COO]

Michael, it's Andy. We feel confident that there's nothing going on from an inventory perspective that's impacting our sales. So the numbers that we reported, as you see, that they're sort of estimated as greater than and approximately. That might help you back out some numbers. But we -- I think to directly answer your question, there's nothing significant with inventory that should be changing our numbers.

[Michael Schmidt, Guggenheim Securities]

Great. Thanks for clarifying that. And then a question around BRAF colorectal cancer. You did mention your awareness campaign that you launched recently, just curious given that testing is already in NCCN Guidelines, do you by any chance have market research or have done market research, looking at what percentage of BRAF positive colorectal patients are actually already being identified to them? Just curious, how that might affect potential launch dynamics, pending approval obviously.

[Andrew Robbins, COO]

Sure, that's a great question. And while we, of course, hope that every patient with cancer gets next-gen sequence testing, that's unfortunately not the reality today in the United States. We think that in the academic setting, nearly all colorectal cancer patients are aware of their BRAF status by the time their disease has spread to Stage IV metastatic cancer. In the community setting, rather, where the majority of CRC patients get their treatment, it's definitely not at that level. It's probably more in the 1/2 to 2/3 of patients are being tested today for their BRAF status and so that is essentially why we've embarked on this disease education campaign to get those numbers up in advance of what we believe will be an important finding from the BEACON CRC trial.

[Ron Squarer, CEO & Director]

One thing I'll add is that we think that use of diagnostic, the trends are in our favor, certainly becoming more commonly a part of any treatment paradigm in any setting. I will share with you sort of my opinion that the fact that there's no real good intervention today in BRAF colorectal suggest that the motivation for testing mainly being about prognosis is, I showed today and I've said in the past, a very poor prognostic indicator. That's a very different motivation than if there is a potentially -- if we're successful of potentially useful or very useful intervention and I think that's going to drive use. I think the trends are in our favor, but it's going to be driven by what is the benefit of actual testing, and I think that we'll be able to tackle those hurdles at that time.

[Michael Schmidt, Guggenheim Securities]

Makes sense. Great. And then the last one. I guess, there are other cancer types that have a BRAF mutation and I was just wondering whether you have any plans to potentially develop the combination in those as well?

[Andrew Robbins, COO]

Yes. So we prefer to discuss details of any kind of life cycle when we're able to be more specific, certainly have done that with our first-line BRAF colorectal trial. But the single largest population of patients with BRAF-driven disease is, in fact, colorectal. Second-largest would be metastatic melanoma. And after that, there are others like lung and even smaller populations, which we're certainly considering how to address but we don't have those details at this moment.

[Operator]

And our next question comes from James Birchenough with Wells Fargo Securities.

[James Birchenough, Wells Fargo Securities]

Just a question on the BEACON study, if I could, and expectations. Could you remind us what the duration of response is with the VIC regimen? What you think the hurdle is for duration of response with your combination? And then if you could maybe share with us [indiscernible] at PFS and OS at the interim? And then I've got a follow-up.

[Andrew Robbins, COO]

Jim, I don't think that they've reported in their publication their DOR but they did report a PFS of around 4 months for the VIC combination, the median PFS, which is -- again it's a cross-trial comparison. But if you look at safety lead-in with a median progression-free survival of around 8 months, we feel that the durability of the -- our triple therapy is noticeably different. So maybe that helps answer your first question.

[James Birchenough, Wells Fargo Securities]

And then just on whether we should expect PFS and OS data at the interim? And I guess the add-on is, do you expect enough events at that time for those to be statistical power or reasonable statistical power for us to think about that?

[Ron Squarer, CEO & Director]

Yes. So as we've said, the focus of the interim analysis is on OS that has been given sufficient time to be deemed durable. Now we've -- I'm sorry, ORR. Thank you. Let me start over. As we've said, the focus of the analysis in the interim is overall response rate, which has been given sufficient time to be deemed durable. We have said that there are other end points that will be analyzed. But we've really not commented beyond that. And so that's where we are, and we look forward to those results in the first half of this year.

[James Birchenough, Wells Fargo Securities]

And maybe just one final question just on earlier programs. Ron, just in terms of new INDs, should we expect novel targets? Are there any provisions in your current collaborations, where you've designed molecules rather that prevent you from going after the same target? And if you could, are there things you've learned about those targets since designing other molecules that might serve the basis for improvement?

[Ron Squarer, CEO & Director]

Yes. So we hope over time, when relevant, to provide more insights into what is not just a single program. It is a pipeline that we're building, and we are comfortable saying that the answer to your question is yes and yes. So we are looking both at more novel approaches but with good science behind them and as well the opportunity to take mechanisms that have shown promise and have been useful and understand their limitations and determine whether with our technology we can address those limitations effectively. So the answer is, over time you should expect to see sort of a balanced approach emerging out of Array.

[Operator]

And our next question comes from Eun Yang with Jefferies.

[Eun Yang, Jefferies]

In BRAF melanoma, it looks like this is a physician-sponsored trial for triplet combo with the BRAFTOVI + MEKTOVI with pembro. I understand that Novartis is doing triplet combo as well with anti-PD-L1 with their targeted therapies, Phase III data supposed to be coming out later this year. So is this triple combo something that are you planning to do for the restoration pack? And also, what's the kind of current thinking in the medical community, is it the sequential treatment approach between targeted and immuno-oncology product or the triple combo? And I have a follow-up question.

[Andrew Robbins, COO]

Eun, this is Andy. As you might have seen at ESMO this year, the KEYNOTE-022 study was presented, which was pembro in combination with the Novartis-targeted therapy doublet to make the triplet. And I think talking to many, many melanoma thought leaders after that presentation, I would characterize their responses as they were underwhelmed from the combination of a PD-1 directly at the same time concurrent therapy with targeted therapy. We do notice that Novartis does seem to talk a lot about this trial that you referenced and the results that they are expecting in the spring. Because there's only 2 modalities to treat metastatic melanoma patients with, I think that the current thinking in the community or in the academic setting is that it has -- it's going to have to be pretty noticeably different to want to use all available therapies concurrently in 1 line. So that -- it's possible and that's why we are running a study like IMMU-TARGET, which you referenced, which is our combination of BRAFTOVI + MEKTOVI plus Keytruda. We have not announced any plans to go into a Phase III study to pursue registration. But because BRAFTOVI and MEKTOVI and Keytruda are all indicated for BRAF-mutant metastatic melanoma patients, we want to make sure that we do generate those data in a critical setting should the standard of care evolve in that direction, which would allow us to have discussions with melanoma experts about what do our drugs do in combination with the PD-1. So the shortest answer is, we have no plans to go into a Phase III trial at this time. But because we are generating those data and we will monitor how the field emerges, we would be ready to do so if appropriate.

[Eun Yang, Jefferies]

That's helpful. And a question on BRAF colorectal cancer. So in the BEACON lead-in -- safety lead-in trial, you showed a 48% response rate in second and third line. So when you look at ANCHOR first-line trial, what response rate you consider as encouraging and success?

[Andrew Robbins, COO]

Eun, so -- yes. In order to -- we haven't really set a bar as for what we think the ANCHOR trial needs to surpass in order to be successful. And again, we're running that study because we think our triple therapy is so important for BRAF-mutant colorectal cancer patients. The numbers that you referenced out of our safety lead-in and if you look at the previous studies that have BRAF colorectal cancer patients in a first-line setting, like the tried study, I think if you got to 40%, 50% plus response rate that would be eye-opening in the minds of the colorectal cancer KOLs. So what we would love to do is essentially surpass what we've seen in the safety lead-in over the BEACON results in the first-line setting.

[Operator]

And our next question comes from Peter Lawson with SunTrust Robinson.

[Unidentified Analyst]

This is Min Long [ph], filling in for Peter Lawson. I guess our first question, looking at the scripts guys have mentioned, you have over 2,600 scripts this quarter, that's about double from last quarter. I was wondering if you can break down that growth between patients who have switched and then treatment-naive patients for us?

[Andrew Robbins, COO]

No. Unfortunately, we can't. These are all estimates driven by, as I've said, out of the gate sort of the lack of any other explanation for the amount of initial volume. It couldn't be explained by sort of naive patients in that a lot of anecdotal information. So using again anecdotal information, we do believe that over time the amount of -- or proportion of patients that come from switch will -- it will become a smaller portion. It may always be a feature of the way our products are used, but it will become less important over time and that's unfortunately all we're able to share because we don't know any more than that.

[Unidentified Analyst]

Okay, great. And then maybe 1 or 2 for Jason, I guess. How should we be thinking about R&D spend for the rest of the year? I know you had mentioned that it had gone up from last quarter primarily due to BEACON CRC. But going forward, how should we be thinking about R&D spend? And then maybe if you can comment on other revenues as well. You guys commented on the Ono royalty starting at 22%, going up 25%. But how are you guys thinking about other revenues as well?

[Jason Haddock, CFO]

Yes. As far as the R&D spend, we don't expect a substantial difference or change in what our run rate has been here. Our proprietary programs continue to advance, which will increase spend a bit but it's partially offset by our Novartis activities, the transition studies, as those studies continue to wind down. So net-net, we expect a fairly flat or consistent R&D spend going forward. As far as revenues going forward, yes, you mentioned Ono, but in addition Pierre Fabre launched last quarter and again, we start fairly high at a 25% and then go up to a 35% fairly quickly after $100 million sales. So looking forward for those royalties become meaningful and to share more details on those in subsequent quarters.

[Unidentified Analyst]

Great. I guess one last one from me. Maybe Andy or Ron, towards your educational campaign, when would you expect to see it having an impact, maybe not next quarter or few quarters from now potentially?

[Ron Squarer, CEO & Director]

So we're sort of -- we launched it at ASCO GI because we thought that, that was, number one, important from a timing perspective and number two, I think that there's a lot of eyeballs and excitement around the treatment of BRAF colorectal cancer right now. If you roll forward, we expect to have the BEACON interim -- BEACON CRC interim result sometime in the first half of this year, which you could imagine if positive would support a filing on a basis that's not too many months or quarters later than that. So we want to ensure that the benefits of this disease education program improve testing during the calendar year 2019 so that we're in a really positive place by the time FDA has the potential to make a positive decision, again assuming the BEACON CRC interim analysis is positive and that patient patients are aware of their status when our drugs are made available.

[Ron Squarer, CEO & Director]

And we've said it but just to be clear, this is a disease education program not currently linked to any kind of expectation of user sales. This is about the longer-term raising awareness about the need. As I said earlier, I think the use of such diagnostics will be driven by the availability of a useful intervention.

[Operator]

And our next question comes from Thomas Smith with SVB Leerink.

[Thomas Smith, SVB Leerink]

Maybe just a question first on launch in Europe. Jason, you mentioned there were some royalties in the quarter, but I was hoping if you could give us a little more color on initial sales by your partner. And how uptake in the early days there compares to the uptake in U.S.? Are you seeing -- or is your partner seeing a similar switch dynamic play out in the European countries, where BRAFTOVI and MEKTOVI are available? And then I have a follow-up.

[Jason Haddock, CFO]

Appreciate the question. Unfortunately, we have even sort of less insight into exactly what the dynamics are there. Generally, feedback has been positive but until we're able to actually articulate the royalties and then the imputed revenue, it will be a little harder to estimate. If I was to speculate, I think that the dynamics of, let's say, interest and the way physicians would see the usefulness of BRAFTOVI and MEKTOVI should be somewhat consistent but it will take time before we can articulate that in more detail. So that will be coming up in the future.

[Thomas Smith, SVB Leerink]

Okay. And then maybe one question on the pipeline. We've been getting a number of questions around the partner programs, especially some of the earlier stage programs under the clinic. Can you confirm if you received royalties from Mirati based on their KRAS program? And if so, can you provide some incremental color on the level of those royalties?

[Andrew Robbins, COO]

Thanks for the question. So I'll try to put two concepts together. The first is, yes, we do receive royalties from Mirati on that collaboration and the second on the specific level, we haven't disclosed it but what we have said is that our miles -- our royalties on our Loxo collaboration were in the mid- to high single digits and that the royalties that we expect from the Mirati collaboration would be better than the Loxo levels.

[Operator]

And our next question comes from Varun Kumar with Cantor Fitzgerald.

[Varun Kumar, Cantor Fitzgerald & Co.]

Just one to Ron. So at this past ASCO GI Conference, Novartis had some encouraging update in BRAF-positive biliary tract cancer. And so looks like the company is pursuing some niche tumor indications. So even though I understand that colorectal and melanoma will be the near-term focus for you guys. But just wanted to get some color as how we should think about that next value drivers. So it comes from the new INDs? Or you guys are equally interested in tumor agnostic level for MEKTOVI and BRAFTOVI?

[Ron Squarer, CEO & Director]

Yes, Varun, thanks for the question. So, look, it's great and we're certainly part of the process by which agents are tested broadly either through company-sponsored or through investigator-sponsored or collaborative studies and that's always good for patients. We continue to be open to those types of studies. But the -- from a value point of view, as I said, most patients are BRAF colorectal in BRAF-driven metastatic disease than melanoma. And then we probably go to lung next. There are a number of other settings. They get smaller at that point. We would love to pursue a tumor agnostic strategy. We think that is the way to ideally develop agents in this sort of era. But as you can already see between the 2 largest populations, melanoma and colorectal, there is a difference in the regimen. So cetuximab being important in colorectal, not relevant in melanoma. But certainly, we continue to think about these and are very supportive of the kind of research that creates new insight at the use of these drugs in -- broadly in disease.

[Varun Kumar, Cantor Fitzgerald & Co.]

Just wanted to have a quick one for Andy. I saw a price increase for the products in January. So if any color you can provide us on inventory impact we should expect this quarter and anything for gross-to-net for coming quarters?

[Andrew Robbins, COO]

Okay. So I think three separate questions. We did take a price increase. We continue to feel very strongly about the value of our products in BRAF-mutant melanoma. We took a price increase that we would characterize as in line with many, many other oral oncology folks in the industry, including those in targeted therapy and in BRAF-mutant melanoma. From an inventory perspective, as I think I mentioned earlier on the call, we don't see inventory dynamics as driving the sales that we reported in the second quarter. We are now at a level of volume where I think that our relatively limited distribution strategy through a handful of pharmacies and distributors is now sort of on a nice run rate from an inventory perspective. So I don't see major shifts in inventory driving anything. And then the last question, gross-to-net. Gross-to-net for the first quarter was 19.8%, for the second quarter was 16.6%. Of course, we will continue to look at gross-to-net and try to manage that effectively. But I think we're getting close to the range for where mature oral oncology products would reside.

[Ron Squarer, CEO & Director]

Varun, thanks for the questions. We're coming up on hour. So we'll just take one last question, if there is one.

[Operator]

And our last question comes from Paul Choi with Goldman Sachs.

[Paul Choi, Goldman Sachs Group]

My question is commercial here. And I was just wondering if you could maybe help us understand what your Medicare exposure is. And with the flip of the calendar, I know we're a little over a month into the new year. But if you're seeing any sort of changes in dynamics with regards to either insurance plans changing and so forth or donut-hole impact?

[Andrew Robbins, COO]

This is Andy. Thanks for the question. Medicare certainly is an important part of our business just based on the dynamics of the underlying population of melanoma. It isn't probably as big as some other tumors you may be more familiar with, like breast cancer and lung cancer, where the median age tends to skew a little higher in those tumors and maybe a little bit lower in melanoma. But we still do have a pretty substantial portion or a healthy minority portion of our patients who do get insurance through Medicare. It's probably too early for me to comment on the impact of the flip of the calendar for the current quarter in how that will impact from a donut hole and company topping up perspective, but certainly stay tuned for our next call for more color on that.

[Ron Squarer, CEO & Director]

All right, Paul, thank you for that. And thanks to everyone who called in today. Certainly, very pleased to the progress the company has made and look forward to a lot of exciting programs for the future. So with that, I'd like to close the call and thank our employees here at Array for their creativity, commitment and a strong sense of urgency that continues to fuel our success. I also want to thank our patients, partners and shareholders for their continued confidence and support. Thank you all very much.

[Operator]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.