Clovis Oncology, Inc.
Q3 2016 Earnings Call Transcript

Published: 4 Nov 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the Clovis Oncology Third Quarter 2016 earnings conference call. At this time, all participants are in a listen-only mode. Later we will have a question and answer session and instructions will be given at that time. [Operator Instructions] I would now like to turn the call over to your host for today's conference, Ms. Anna Sussman, Vice President of Investor Relations and Corporate Communications. Ma’am, you may begin.

[Anna Sussman:]

Thanks. Good afternoon, everyone, and welcome to the third quarter conference call for Clovis. You should have received the news release announcing our third quarter 2016 financial 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 may be accessed live on our webcast 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:]

Thanks, Anna. Welcome, everybody. Thanks for joining us today. Let me jump right in with an update on Rucaparib by recapping some key events in the past couple of months. In August, FDA accepted for accelerated approval and granted priority review status for our new drug application submission for rucaparib. We are seeking approval for rucaparib as monotherapy treatment of patients with advanced ovarian cancer with deleterious BRCA-mutated tumors previously treated with two or more chemotherapies. Tumor BRCA mutations include both germline and/or somatic mutations of BRCA. Our PDUFA date is February 23, 2017 and as previously announced we have been notified that the food act is not currently planned. Our companion diagnostic partner Foundation Medicine has its PMA application for the tissue-based diagnostic assay designed to identify tumor BRCA mutations, including somatic and germline mutations under review as well with the FDA. The timing of the PMA submission is expected to allow for regulatory approval of the companion diagnostic at substantially the same time that rucaparib could be approved. Our US commercial team is actively preparing for the launch and we will be ready to launch at the time of a potential approval. In preparation, for potential US commercial launch for rucaparib, we recently signed a long-term manufacturing and supply agreement with Lonza, our current manufacturer. We expect that this new agreement for a dedicated manufacturing line for rucaparib will provide a security of supply for us as well as reduce our cost of goods over time. Additionally, we amended our worldwide license agreement with Pfizer for rucaparib that provide us with the option to defer payment the milestone payments associated with first US approval and a first PMA approval from the time of approval to 18 months after the date of approval. This amendment which Dan will detail on his section provides us additional flexibility and should extend our cash runway. As you know this NDA is based on a full dataset of patients with the mutation of BRCA treated with two or more prior chemotherapies from our treatment studies, Study 10 and ARIEL2 and includes platinum-sensitive, platinum-resistant and platinum-refractory patients. We were pleased to present the primary efficacy and safety data from this NDA in an oral presentation last month at the 2016 ESMO Congress in Copenhagen. Presentation included the following highlights. The investigator assessed RECIST Objective Response Rate or ORR in the 106 patients evaluable for efficacy was 54%. Duration of response by investigator assessment in the efficacy population was 9.2 months. There were 377 patients included in the safety population of the NDA submission, the most common treatment-emergent adverse events included all grades reported in 20% or more of patients in the safety population included nausea at 77%, fatigue at 77%, vomiting at 46%, anemia 44%, increased ALT/AST 41% and constipation 40%. The most common Grade 3/4 treatment-emergent AEs reported in 10% or more of patients were anemia at 25%, fatigue 11% and ALT or AST elevation which were temporary at 11%.The full dataset is in the news release dated October 7 and in the ESMO presentation is available on our website. In addition, the ESMO dataset was the first presentation of the progression-free survival data observed in this population, which was ten months for the overall efficacy population. Specified by platinum status, this represents approximately 11.5 months for the platinum-sensitive groups, approximately 7.5 months for the platinum-resistant group, of note, PFS in the platinum-refractory patients was approximately 5.5 months and stable disease was observed in five out of the seven patients. Although these PFS data were not in the NDA submission, they are included in the MAA submission to the EMA. Speaking of which, I am happy to announce that we have now completed our submission for rucaparib to the EMA for a comparable ovarian cancer treatment indication. The MAA submission is in validation and is expected to be accepted for filing at the CHMT Meeting later this month. Turning now to ARIEL3 and soon to initiate studies with rucaparib. Target enrollment will meet ARIEL3 Phase 3 randomized maintenance study completed earlier this year. We currently expect data from this study in the second half of 2017. ARIEL3 is evaluating whether rucaparib given as maintenance therapy in platinum-sensitive high-grade ovarian cancer patients who have received at least two or more prior lines of platinum-based chemotherapy get extended period of time for which a response to a prior chemotherapy is maintained. Patients will randomize two blends to receive either rucaparib or placebo and the primary endpoint of the study is PFS. The primary efficacy analysis will evaluate in a step-down process, first, BRCA mutant patients including both germline and somatic new patients, then the HRD population including the mutant BRCA patients somatic and germline. And then finally, a step-down to all patients enrolled in the trial. Pending positive data, we intend to submit a supplemental NDA for the second-line maintenance indication for advanced ovarian cancer. As we have previously mentioned, after ovarian cancer, prostate cancer is our most significant area of focus. Prostate cancer is a high priority indication for us as it includes a substantial number of patients with BRCA and other mutations that maybe responsive to rucaparib. We plan to initiate two Clovis-sponsored prostate cancer trials shortly. We would also likely introduce our name for these trials which is TRITON that’s all diluted but it comes from trial or rucaparib in prostate indication. It also happens to be true that TRITON is ARIEL’s father In The Little Mermaid and that’s actually how we got to this name because full disclosure. The first Clovis-sponsored prostate trial will be TRITON2, our Phase 2 single-arm study inclusive of patients who have a germline or somatic BRCA or ATM mutations or other deleterious mutations in other homologous repair genes who have progressed after receiving one line of taxane-based chemotherapy and one or two lines of androgen-receptor targeted therapy in the castrate-resistant setting. So time forwarding endpoints are radiological overall response rate in patients with measurable disease and PSA response rate in patients without measurable disease. We anticipate this trial will initiate by the end of this year. Our second Clovis-sponsored trial is TRITON3, a Phase 3 comparative study inclusive of patients who have a germline or somatic BRCA or ATM patients who have progressed on AR-targeted therapy and not yet received chemotherapy in the castrate-resistant setting. This study will compare rucaparib to physician’s choice of AR-targeted therapy or chemotherapy, planned primary endpoint is radiologic progression-free survival, we anticipate this trial will initiate in Q1 2017. Also in collaboration with the Medical Research Council in the UK, rucaparib will be a study that would have known as the STRAT-STAMPEDE study in newly diagnosed castrate-sensitive de novo metastatic tumor, BRCA mutant and BRCA-like prostate cancer patients. This is expected to begin in the first half of 2017. In addition to the prostate studies, there are several clinical studies in ovarian and other tumor types which recently initiated or planned to begin enrolling patients in the fourth quarter of 2016 and first quarter of 2017. These include Clovis-sponsored, collaborator-sponsored and investigator initiated studies. ARIEL4, our Phase 3 multi-center randomized inflammatory study of rucaparib versus chemotherapy in advanced BRCA mutant inclusive of germline and somatic ovarian cancer. An investigator sponsored study evaluating rucaparib and bevacizumab in combination as a first-line maintenance therapy for advanced ovarian cancer. RUBY, an investigator-initiated study in women with breast cancer whose tumors have a somatic BRCA mutation or an HRD signature other than a known germline BRCA mutation. PLATFORM, an investigator-initiated study in gastroesophageal cancer in the first-line maintenance setting and finally and importantly, a Phase 1 b trial in collaboration with Genentech, a member of the Roche group to evaluate a novel combination therapy of their cancer immunotherapy Tecentriq or Atezolizumab and rucaparib for the treatment of gynecological cancers, with a focus for us on ovarian. The first patient is expected to initiate during the first quarter of 2017. Now I will turn the call over to Dan to discuss third quarter financial results.

[Dan Muehl:]

Thanks, Patrick and good afternoon everyone. Our third quarter 2016 financial results are included in this afternoon’s press release. I’ll review the highlights of our financial results and provide some additional commentary. Let me start with our balance sheet. We ended the third quarter with $318.8 million in cash, cash equivalents and available-for-sale securities. Cash used in operating activities was $63 – I am sorry, $60.3 million for the third quarter of 2016 and $212 million for the first nine months of 2016. This compares with $71.7 million and $177.4 million for the comparable periods of 2015. The reduction in cash used for the third quarter compared to the prior year is primarily the result of lower R&D spending which I will discuss later. We reported a net loss of $65.7 million or $1.70 per share for the third quarter 2016 and $278.4 million of $7.24 per share for the first nine months of 2016. This compares to $98.6 million or $2.62 per share and $233.3 million or $6.62 per share for the comparable periods in 2015. Our operating results for the first nine months includes a net expense non-cash impact of $49.9 million related to our 2013 acquisition of lucitanib product rights which we obtained through the purchase of Ethical Oncology Science or EOS. $in the second quarter of 2016, we recorded a non-cash impairment charge of $104.5 million to reflect a reduction in the estimated fair value of the intangible asset related to lucitanib reported as part of the EOS purchase base accounting. This reduction in fair value was the result of our and our development partner’s decision to discontinue developments of lucitanib for breast cancer. We also recorded a non-cash deferred income tax benefit of $29.2 million associated with this charge. In connection with the acquisition of EOS, Clovis is obligated to pay additional consideration to the former EOS shareholders as certain future regulatory and sales milestones for lucitanib are achieved. The estimated fair value of these contingent payments is recorded as a liability on the Company’s balance sheet. During the second quarter of 2016, we recorded a non-cash $25.5 million reduction to zero in the fair value of the contingent consideration liability due to the change in the estimated probability-weighted future milestone payments. This reduction is included as a credit to operating expenses in our 2016 results of operations. On a non-GAAP basis, we reported an adjusted net loss excluding these items of $228.5 million or $5.95 per share for the first nine months of 2016. Our third quarter R&D expenses totaled $54.3 million and $196.7 million for the first nine months of 2016. This compares to $76.1 million and $193.3 million for the comparable periods in 2015. As noted above, the decrease in expenses for the third quarter is primarily due to decreased development activities for rociletinib compared to the prior year, partially offset by higher expenses associated with rucaparib development programs and launch preparation. The increase in expenses for the nine months period is primarily due to increased development activities for the rucaparib program launch preparation and increased personnel-related expenses, partially offset by lower expenses related to clinical development activities for rociletinib. However, we anticipate that total R&D expense will decrease for 2016, compared to 2015 as fourth quarter 2016 R&D expenses will be lower than the comparable period in 2015. General and administrative expenses totaled $9.2 million for the third quarter of 2016 million and $28.5 million for the first nine months of 2016. This compares to $8.3 million and $22.3 million for the comparable periods in 2015. The increase year-over-year is primarily due to higher legal expense and personnel costs for employees engaged in general and administrative activities. Operating expenses for the second quarter of 2016 includes share-based compensation expense totaling $9.2 million and $29.7 million for the first nine months of 2016. Now looking forward, we expect cash used in operating activities for 2016 to be between $276 million and $286 million, and we expect to end 2016 with between $245 million and $255 million in cash, cash equivalents and available-for-sale securities. This change in cash guidance is primarily related to the Pfizer license agreement amendment Patrick mentioned earlier. We have the option to defer the payment of the milestones based on the US approval of the rucaparib NDA and the EMA approval of the rucaparib MAA until 18 months after the date of achievement of these milestones. As Patrick mentioned, this potential deferment gives us greater flexibility in extending our cash runway. We currently anticipate being able to fund operations into 2018 from available cash, cash equivalents and available-for-sale securities. Now, I’ll turn the call back to Patrick for some closing remarks and then we’ll open it up for Q&A.

[Patrick Mahaffy:]

Great. Thanks, Dan. Well, we obviously have a pretty meaningful couple of months ahead of us. We anticipate receiving the FDA’s decision on our NDA for rucaparib in the treatment of advanced ovarian cancer by our PDUFA date on February 23, 2017. Our US commercial medical affairs organizations are in place and actively preparing for a potential approval and the associated launch of rucaparib and we anticipate the initiation of multiple additional trials to expand rucaparib development into other oncology indications later this year and in early 2017. Lastly, in anticipation of the acceptance of the MAA submission for the treatment indication for advanced ovarian cancer is expected later this month. We intend to begin preparations for a potential European launch. And now, happy to open the call up to Q&A.

[Operator:]

Thank you. [Operator Instructions] Our first question is from Kennen MacKay with Credit Suisse. Your line is open.

[Kennen MacKay:]

Thanks for taking the question. Pat, you mentioned the MAA submission within a comparable population. Should we interpret that to be sort of third-line outcomer similar to the NDA?

[Patrick Mahaffy:]

You should assume it as the NDA population.

[Kennen MacKay:]

Okay.

[Patrick Mahaffy:]

It will be exactly the same indication.

[Kennen MacKay:]

Okay. Terrific. Thank you. And then, just to follow-up on the Lonza agreement that you announced, obviously, that’s sort of a long-term solution. How should we be thinking about sort of current production facility for commercial supply should be FDA grant accelerated approval? Thank you.

[Patrick Mahaffy:]

Yes. We have an existing relationship with Lonza, but the issue we have with our current manufacturing, the lead time is a little longer than we like and the cost of goods is a little higher than we like or we anticipate it will be a little higher than we like. Lonza came up, but it’s certainly adequate to meet our short-term and intermediate-term commercial needs. So we have no issues with supply either in terms of quality or in availability. This is a solution that Lonza actually came up with and then we worked with them to finalize that allowed for a dedicated site on the Lonza footprint that will allow for shorter lead times and in particular, over time it should have a pretty healthy impact on lowering the cost of goods. They’ve been a really good partner.

[Kennen MacKay:]

Gotcha. Thanks for taking my questions.

[Patrick Mahaffy:]

You bet.

[Operator:]

Our next question comes from Tom Schrader with Stifel. Your line is open.

[Tom Schrader:]

Good afternoon. Congratulations on all the good news. That’s been a nice run. I am wondering if I can ask a little bit about the liver issues. If we can get a little more detail, obviously the world is a little sensitive to those today, but can you tell us what you saw, did you see any serious liver issues to see any high flow? Just anything we need to worry about and then how do you think this would be dealt with in the labeling of a drug and just to the flush out this issue?

[Patrick Mahaffy:]

So, quickly, no liver tox issue. No case of high line including in the now 1200 or 1300 or 1400 patients we’ve treated. So well beyond the NDA efficacy and safety dataset. We do see a temporary and reversible rise in around 40% of patients of ALT and AST. I think it was at ESMO that they – that it presented, if you look at it graphically, it does go up at the first dose or excuse me, in the first cycle. But then by the end of cycle, through the cycle three it’s back to normal. It is dose through. So we – the physician just continue dosing. If we do see a Phase 3 event which is not - law, but it’s just a higher elevation. There are some patients who have seen some dose de-escalation but as you are aware in oncology, dose de-escalation is quite common for any number of adverse events. And it has caused no issue at all in either the patient or the physician treating those patients. In terms of labeling, we anticipate that it will be presented a lab abnormality but we do not anticipate any verbiage related to it other than it should be monitored.

[Tom Schrader:]

All right. Perfect, thank you for that. And then if we can turn to the Mermaid, in prostate cancer, do you expect you will have to follow the XTANDI path and be after-tax in first and then try to move in front or can you bill right for what I think seems a natural place which was right after XTANDI?

[Patrick Mahaffy:]

Well, the Phase 3 is – so the Phase 2, TRITON2 is a study that would have had both around of XTANDI and around a chemo with presumably would be docetaxel. The Phase 3 is a comparative study against either ENZO or – docetaxel, but in patients who have only failed one of Abiraterone and Enzalutamide and have not yet had chemotherapy. So, in fact, that’s the population we are going forward to comparative study again either in Enzalutamide or docetaxel.

[Tom Schrader:]

And you can do that study in modern places in the US, things like that?

[Patrick Mahaffy:]

Yes, we can. We’ve had no issues getting this trial established and with enthusiastic investigators and of course the protocol has been through at a testament by both FDA and Eli.

[Tom Schrader:]

All right, perfect. Thanks a lot. Congratulations again.

[Patrick Mahaffy:]

Thank you.

[Lindsey Rolfe:]

Pat, this is Lindsey. Can I just make one correction in that?

[Patrick Mahaffy:]

Yes.

[Lindsey Rolfe:]

We haven’t sent that press go to EMA.

[Patrick Mahaffy:]

Right, it looks – okay, just into the FDA.

[Lindsey Rolfe:]

That’s right.

[Operator:]

And our next question is from Steven Breazzano with Piper Jaffray. Your line is open.

[Steven Breazzano:]

Hi, thanks for taking the question. First, maybe if you could just discuss the broader status of tumor bracket testing today in the US and Europe. Is this currently being done in community centers or academic centers and then, maybe discuss any effort underway yourselves in foundation medicines that have kind of increased awareness of tumor bracket testing?

[Patrick Mahaffy:]

Yes, tumor bracket testing and tumor testing in general is through NGS screening is done that the majority now at academic institutions in the United States. So we are looking at BRCA and beyond BRCA. So at first, somatic mutations or other possible mutations beyond BRCA. That being said in the community setting, it is not common, so order a tissue-based assay because the only drug they have has four BRCA patients has limited of course to those with germline mutations of BRCA. We are aware that it will be upon us to create the awareness of the opportunity and therefore the importance, the opportunity to treat and therefore the importance of doing tissue-based testing for both germline and somatic mutations of BRCA. That being said, we’ve had a number of both academic and community ad boards. And they regard us as very significant advance and something that’s going to be very important to the treatment of their patients. So, I don’t – I am not concerned that this will not be adaptive and adopted relatively rapidly.

[Steven Breazzano:]

Got it. And I know there has been some debate about response rates in platinum status. Maybe if you guys could characterize just the discussions with regulators and maybe how they are viewing the spectrum, platinum-sensitivity and response rate? Thanks.

[Patrick Mahaffy:]

Yes, as anybody in front of FDA would tell you we are going to be pretty limited in our dialogue around any interactions we are having with FDA right now. I will tell you that from the beginning of our embarking on this program, FDA has minimized the importance of platinum status and prioritized the importance of line of therapy. And interestingly enough you see some relationship because the greater the line of therapy is the more likely you are going to become platinum-resistant, platinum-refractory. So, I get it that people have one or two evaluating trying to interpret how the varying response rates in platinum-sensitive, platinum-refractory and platinum-resistant patients would be, but I am comfortable that we are in a good place with regard to the indication that we are seeking.

[Steven Breazzano:]

Thanks, very helpful.

[Anna Sussman:]

Hi, Brigit [ph] it’s Anna. I was going to say we have time for one more question today.

[Operator:]

Okay. And our next question is going to be from Cory Kasimov with JP Morgan. Your line is open.

[Cory Kasimov:]

Hey, good afternoon guys. Thanks for taking my questions. I guess, first, Pat, can you just remind us of the rationale in data for PARP inhibitors in prostate cancer that it kind of gives you that overall confidence if we initiate a Phase 3 trial next year?

[Patrick Mahaffy:]

Yes, of course, I think, one of the things that we as a community have learned is that, irrespective of tumor type, if it’s BRCA then it’s a PARP inhibitor. And we’ve further learned that if it’s BRCA, irrespective of whether it’s germline or somatic, it’s a PARP inhibitor. And we have that validated in a very modest way in the three or four patients with prostate cancer that were treated in either our Phase 1 are under compassionate use with very encouraging results. And for the class, have the seen the De Bono paper which was published in the New England Journal in the last three or four or five months that demonstrated for olaparib an encouraging research response rate in both – and PFA response and other measures of responsiveness. In not only in somatic and germline BRCA patients, but also in germline and somatic mutations at ATM. So I think as a community, we in the PARP field focus developers and our clinical colleagues are very enthusiastic about the potential here and I can tell you that at the Prostate Cancer Foundation, which is you know intimately involved in thinking through and a time supporting the development of agents, they have embraced the opportunity for PARP inhibitors in the treatment of both somatic and germline BRCA patients as well as other mutations associated with homologous repair deficiency. So, I think, we seem to have data. We have some evidence of our own drugs providing real benefits and we have a community that has embraced the opportunity.

[Cory Kasimov:]

Okay. That’s helpful. And then, with regard to your step-down statistical analysis plan for ARIEL3, are you able to describe the overall powering assumptions you have built into that – into the assumptions you have for the control arm?

[Patrick Mahaffy:]

I can tell you what it is for the mutant BRCA population and it’s 90% powered to detect a hazard ratio of 0.5. And so, as you can see from data for other agents, the hazard ratios have been considerably better than that.

[Cory Kasimov:]

Right, okay. And then the last one I’ll squeeze in here, just if there are any more details you are able to provide on what if anything you had to give Pfizer to delay the timing of those milestone payments under the deal amendment, reminded the – those milestones are and do you’ve disclosed that?

[Patrick Mahaffy:]

Yes, it’s a $20 million milestone on NDA approval and a $20 million milestone on MAA approval.

[Dan Muehl:]

And it’s a little bit higher if we delay it by 18 months, but we haven’t disclosed what that is, Cory.

[Cory Kasimov:]

Okay, all right. It’s perfect. Thank you guys, very much.

[Patrick Mahaffy:]

Thank you.

[Operator:]

Thank you. And I am not showing any further questions. I’ll now turn the call back over to Anna Sussman for closing remarks.

[Anna Sussman:]

Thank you. Thank you, everyone for your interest in Clovis today. If you have any follow-up questions, you can reach me at 303-625-5022. This call can be accessed via replay of our webcast at clovisoncology.com beginning in about an hour and it will be available for 30 days. Again we appreciate your interest and time. Thank you and have a good evening.

[Operator:]

Ladies and gentlemen, this does conclude the program and you may now disconnect. Everyone have a great night.