Clovis Oncology, Inc.
Q1 2016 Earnings Call Transcript

Published: 6 May 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the Quarter One 2016 Clovis Oncology Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions] I would now like to introduce your host for today’s conference, Ms. Anna Sussman, Senior Director-Investor Relations. Ma’am, you may begin.

[Anna Sussman:]

Thank you, Sophie. Good afternoon, everyone, and welcome to the Clovis Oncology first quarter conference call. You should have received the new release announcing our first quarter results. If not, it’s available on our website at www.clovisoncology.com. As a reminder, this conference call is being recorded and webcast. Remarks maybe accessed live on our website during the call and will be available in our archives for the next several weeks. The agenda for today’s call is as follows. Patrick Mahaffy, Clovis’ President and CEO, will discuss the key components of our corporate update provided in today’s new release as well as an update of our clinical development programs. Then Dan Muehl, Clovis’ Vice President of Finance and Principal Financial and Accounting Officer, will cover the financial results for the quarter in more detail as well as our guidance for cash used in operating activities for 2016 and 2017. Patrick will make a few closing remarks, and then we’ll open the call for Q&A. Before we begin, please note that during today’s conference call, we may make forward-looking statements within the meaning of the Federal Securities Laws, including statements concerning our financial outlook and expected business plans. All of these statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Please refer to our recent filings with the SEC for a full review of the risks and uncertainties associated with our business. Forward-looking statements speak only as of the date on which they are made, and Clovis undertakes no obligation to update or revise any forward-looking statements. Now, I’ll turn the call over to Pat Mahaffy.

[Pat Mahaffy:]

Thanks, Anna, welcome everybody, and thank you for joining us. As I am sure you are aware, it’s been a time of intense review and decision making over the past few weeks. While times like these are very challenging and we’re extremely disappointed in the outcome for rociletinib. I’m able today to provide clarity about our plans. We truly understand our objectives moving forward, prioritizing rucaparib development activities, preparing for the potential U.S. launch of rucaparib could occur during the fourth quarter of this year or first quarter of 2017 and managing our existing cash proven by the end of 2018, hopefully well into 2018. So let me start with rucaparib. Last month, we initiated a rolling NDA submission to the FDA for rucaparib for the treatment of patients with advanced ovarian cancer with deleterious BRCA mutated tumors, including both germline and somatic mutations. This NDA is based on a blended population of patients for more ongoing treatment studies, Study 10, ARIEL2 (Part 1) and ARIEL2 (Part 2) and includes platinum-sensitive platinum-resistant in a small number of platinum-refractory patients. We expect to complete this NDA submission before the end of this quarter. Foundation Medicine, Clovis’ companion diagnostic partner, intends to complete the PMA application of its diagnostic assay designed to identify both germline and somatic BRCA mutations with the FDA in the same timeframe. The timing of the PMA submission is expected to allow for regulatory approval of the companion diagnostic at substantially the same time that rucaparib would be approved. Based on the anticipated timing of a potential fourth quarter 2016 or early 2017 launch, we have made a decision to maintain our U.S. commercial organization. In addition to being very confident in the team’s skill set and relationships with clinicians, simple math is also a driver of this decision. If we were to eliminate the U.S. sales force, we would, including severance, be effectively paying them through this summer, at which time we would need to hire either a new sales force, which makes no sense, or engage a contract sales organization, which would cost the same or more as our existing sales force and potentially not be as experienced or committed as the team we have in place today. It could also lead to a delay in the potential U.S. launch of rucaparib. It absolutely goes without saying that the launch of rucaparib is critical for the success of this organization. Then we believe that our existing sales force represents our best chance at achieving that goal. In addition, an MAA submission for a comparable ovarian cancer treatment indication to the EMA is planned during the fourth quarter of 2016. Turning to ongoing studies with rucaparib, ARIEL3 is our Phase 3 registration study in the maintenance indication, comparing the effects of rucaparib versus placebo. The study is evaluating whether rucaparib given as maintenance therapy in platinum-sensitive high grade ovarian cancer patients, who have received two or more prior rounds of platinum-based chemotherapy, can extend the period of time for which a response to a prior chemotherapy is maintained. We are announcing today that we have completed target enrollment in ARIEL3 this month, and we expect data from this study in approximately 12 months. The study enrolled 540 patients in a two to one randomization of rucaparib versus placebo in 11 countries, including 120 patients enrolled in the United States, 275 patients in Western Europe, 70 patients in Canada, and the remainder in Australia, New Zealand and Israel. Pending data, we hope to use the data from this trial to file a supplemental NDA for maintenance indications for advanced ovarian cancer patients with tumor BRCA mutation as well as mutations – as patients with BRCA-like mutations. We also are announcing that we recently entered into a clinical trial collaboration with Genentech, a member of the Roche Group, to evaluate a novel combination therapy of their investigational cancer immunotherapy atezolizumab and rucaparib for the treatment of gynecological cancers, with a focus on ovarian cancer. The Phase 1b trial is planned to begin enrolling patients during the second half of 2016. We and our investigators are very enthusiastic about the potential for this combination. Two investigator-sponsored studies exploring rucaparib’s activity in different breast cancer settings are underway or initiating later this year. And an initial investigator-sponsored study in gastroesophageal cancer is expected to initiate later this year as well. Prostate cancer is a high priority indication for us as it represents a substantial market with significant unmet need, and we plan to initiate two prostate cancer trials. First, a Clovis-sponsored study in metastatic castrate-resistant prostate cancer inclusive of patients who have a germline or somatic BRCA mutation, or an ATM mutation. And second, in collaboration with the Medical Research Council in the U.K., rucaparib will be studied in what is known as the STRAT-STAMPEDE study in newly diagnosed castrate-sensitive de novo metastatic tumor, BRCA mutant and BRCA-like prostate cancer patients. Lastly, we intend to initiate the ARIEL 4 confirmatory study during the second half of 2016. ARIEL 4 is a Phase III multicenter randomized study of rucaparib versus chemotherapy in BRCA mutant patients with relapsed high-grade epithelial ovarian, fallopian tube or primary peritoneal cancer, who have failed two prior lines of therapy. Now, let me turn to rociletinib. We were recently notified by the FDA that we can anticipate receiving a complete response letter, or CRL, on or before June 28 PDUFA date. We’re very disappointed with this outcome for rociletinib as there is a clear need for additional treatment options for patients with this difficult to treat disease. However, in anticipation of receipt of the CRL, we are making the following changes. We have terminated enrollment in our ongoing company-sponsored and investigator-sponsored studies of rociletinib, including TIGER-3. We have withdrawn our MAA for rociletinib previously filed with European regulatory authorities. We will, of course, continue to support patients currently treated with rociletinib in the clinical trials. And related to the termination of development activity for rociletinib, we are reducing our staff, eliminating a large number of contractor positions and delaying or eliminating planned new positions. This will result in the reduction of our staff and contractor positions by about 35% by the end of 2016 compared to year-end 2015. While we are discontinuing our investment in rociletinib, we are continuing analyses to determine whether certain population of patients may represent an opportunity for a partner committed to investing in further and specific clinical development. Turning now to lucitanib. Lucitanib is our oral potent inhibitor of the tyrosine kinase activity of VEGF, PDGF and FGF receptors. Clinical data to date suggests that its VEGF-inhibitory effect is the most pronounced. We completed enrollment in our breast cancer study during the first quarter and we will determine with our Servier when the data from our study and their study should be presented. We do expect to make a decision regarding the future developments of lucitanib before the end of 2016. As a reminder, all development costs from lucitanib are still paid by Servier and will be into 2017. Now, I’d like to introduce Dan Muehl, our Vice President of Finance. Dan joined Clovis in mid-2015 and now serves as our Principal Financial and Accounting Officer. We’ve known Dan for a long time. He was with us at [indiscernible] and has previously served as CFO at three publicly traded companies. Now, I’ll turn the call over to Dan to discuss first quarter financial results.

[Dan Muehl:]

Thanks, Patrick, and good afternoon, everyone. Our first quarter 2016 financial results are included in this afternoon’s press release. I’ll review the highlights of the financial results and provide some additional commentary. Let me start with our balance sheet. We ended the first quarter with $445.5 million in cash, cash equivalents and available-for-sale securities. Cash used in operating activities was $83.7 million for the first quarter of 2016. Our first quarter R&D and general and administrative expenses totaled $84.4 million, which was in line with our operating cash used for the quarter. Clovis reported a net loss for the quarter of 2015 of $83.4 million, or $2.17 per share. The net loss for the first quarter of 2015 was $63.1 million, or $1.86 per share. Research and development expenses totaled $74.6 million for the first quarter of 2016, compared to $56.8 million for the first quarter of 2015. The year-over-year increase in expense is due to the significantly expanded clinical development activities for rucaparib, increased commercial products planning costs, increased personnel-related expenses associated with the hiring of additional staff including the U.S. sales force to support the company’s expanded activities, partially offset by lower expenses related to the clinical development activities for rociletinib. General and administrative expenses totaled $9.8 million for the first quarter of 2016, compared to $6.8 million for the first quarter of 2015. The increase year-over-year is primarily due to higher legal expense, consulting fees and personnel costs for employees engaged in general and administrative activities. Operating expenses for the first quarter of 2016 includes share-based compensation expense totaling $11 million. Now looking forward. We expect cash used in operating activities for 2016, including substantial wind down cost related to the rociletinib to be between $294 million and $309 million, and we will end the year with between $220 million and $235 million in cash, cash equivalents and available-for-sale securities. The year-end cash guidance assumes the payment of milestones of $21.75 million based on U.S. acceptance and approval of the rucaparib NDA and the EMA acceptance of the rucaparib MAA. We anticipate modestly higher R&D spending in 2016 compared to 2015 in total, which in turn will increase our cash usage for 2016 compared to 2015. However, we anticipate 2017 R&D spending will be substantially lower than in 2016. As a result, we have sufficient cash to fund operations into 2018 from currently available cash, cash equivalents and available-for-sale securities. Our plan is to actively conserve cash in rociletinib-related areas while maintaining our ability to successfully launch rucaparib. As Pat has indicated, we plan to retain our commercial sales force for a potential U.S. launch of rucaparib in Q4 2016 or Q1 2017. We will be reducing spending on headcount, consultants, marketing, market access and clinical trial and development related to rociletinib. As indicated in our press release, we have terminated enrollment in all our existing rociletinib clinical trials, including TIGER-3. By taking this action now, we will begin to reduce spending in the quarters ahead. It is important to understand though that we cannot immediately end support for those patients, who are already enrolled in various studies. These patients will continue to receive drug and be monitored by their clinical trial physicians until treatment is discontinued. It will take a number of quarters before we realize the full reduction of rociletinib R&D spend, with residual cost going into early 2017. But to be clear, rociletinib R&D spending in 2016 will be significantly reduced from 2015, and again reduced from 2016 to 2017. Additionally, we expect rucaparib R&D spending to decline in 2017 compared to 2016 due to the completion of ARIEL2, ARIEL3, and Study 10, which will contribute to our reduced cash use in operating activities in 2017. Our G&A spending will also modestly decline from 2016 to 2017. We certainly have our challenges ahead, but we are fully committed to executing our plan and prudently managing our resources to enable success in the future. Now, I’ll turn it back to Patrick for some closing remarks, and we’ll open it up for Q&A.

[Pat Mahaffy:]

Thanks, Dan. Moving forward, we are obviously prioritizing rucaparib development, preparing for a potential U.S. launch of rucaparib and conserving cash to fund operations into 2018. We are focused on the rucaparib regulatory submissions for an ovarian cancer treatment indication, but the NDA submission in the U.S. expected to complete during the second quarter and the MAA in Europe planned for the fourth quarter of 2016. Our commercial team is preparing for potential launch of rucaparib in the U.S. during the fourth quarter of this year or first quarter of 2017. And we now will open up the call for any Q&A.

[Operator:]

[Operator Instructions] And our first question comes from the line of Kennen MacKay with Credit Suisse. Your line is now open.

[Slanix Alex:]

Hi. Good afternoon. Thanks for taking our question. This is Slanix Alex calling in Kennen. A quick question on the sales force retention. I just wanted to get your thoughts on what the retention rate has been after the ODAC news on rociletinib?

[Pat Mahaffy:]

I think that I don’t have the number exactly at hand, but I think we’ve seen two, it might be three resignations since ODAC and we’d only had a handful prior to that. So that team has shown real commitment and resilience. And I think they were unaware that we were planning to maintain the sales force until they just heard it at 2’o clock today. So that’s in the phase of a great amount of uncertainty about whether we keep the sales force or not.

[Slanix Alex:]

Okay, great. Thank you. Second question, could you provide some details on perhaps the cash requirements as you prep for the rucaparib launch?

[Pat Mahaffy:]

I don’t think the cash requirements – that we would break them out specifically, but embedded in our existing G&A is effectively all of the G&A we have related to any pre-launch or launch related costs.

[Slanix Alex:]

Okay, great. Thanks. And just a final question. Given that there has been a lot of interest in M&A in biotech right now as we’ve seen. Is a potential sale of the company that’s something that management is considering?

[Pat Mahaffy:]

We just never really think about that, but the way it works in our industry is as maybe is playing out and in a case going on right now is that companies tend to be bought, not sold. And if there is interest, companies in the end have to respond to that interest. And if the interest is high enough, turn the decision making over to the shareholders.

[Slanix Alex:]

Okay. Great. Thanks for taking our questions.

[Pat Mahaffy:]

You bet.

[Operator:]

Thank you. And our next question comes from the line of Steven Breazzano with Piper Jaffray. Your line is now open.

[Steven Breazzano:]

Hi. Thanks for taking the question. With regards to the collaboration with Genentech, I was just wondering if you could provide a little bit more details on the rationale and just how you think about mutational burden in BRCA and ovarian cancer as well as any details on the trial design, for example, do you expect to include BRCA-like and BRCA patients or sort of all-comers? Thanks.

[Pat Mahaffy:]

Lindsey.

[Lindsey Rolfe:]

Yes. I’m here Pat. So, we’re just getting going with this collaboration. And, of course, the first objective of the study will be the Phase 1 component to establish safety of the combination. We’re not limiting enrollment just to patients with BRCA mutations. So we’re interested in listing at a broader spectrum of patients than that.

[Steven Breazzano:]

Great. Thanks. And just one more. Any plan for European commercialization? And how should we be thinking about that?

[Pat Mahaffy:]

We haven’t formalized a decision on what we’ll do in terms of European commercialization yet. We have many options available to us. We clearly will be behind the U.S. launch, and we don’t have the same situation in Europe. We don’t have a sales force in Europe now. We have a very, very small commercial group. We will be making a decision once the EMA has accepted the MAA over the course of the early part of next year when we have

[Steven Breazzano:]

Got it. Thank you.

[Operator:]

Thank you. And I’m not showing any further questions at this time. I would now like to hand the call back to Ms. Anna Sussman for closing remarks.

[Anna Sussman:]

Thanks, Sophie. We thank everyone for your interest in Clovis today. If you have any follow-up questions, you can reach me at 303-625-5022 or Breanna at 303-625-5023. This call can be accessed via replay at clovisoncology.com beginning in about an hour and will be available for 30 days. Thanks for your interest and time and have a good evening. Operator