Clovis Oncology Inc (CLVS) 2016 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Clovis Oncology third-quarter 2016 earnings conference call.

(Operator Instructions)

I would now like to turn your call over to your host for today's conference, Miss Anna Sussman, Vice President of Investor Relations and Corporate Communications. Ma'am, you may begin.

Thanks, Bridget. Good afternoon, everyone, and welcome to the third-quarter conference call for Clovis. You should have received a news release announcing our third-quarter 2016 financial results. If not, it is 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 her 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's President and CEO will discuss the key components of our corporate update provided in today's news release, as well as an update on the clinical development programs. Then Dan Muehl, Clovis's Senior Vice President of Finance and Principal Financial and Accounting Officer, will cover the financial results for the quarter in more detail. Pat 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 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 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. Additionally, please note that we will be discussing adjusted net loss, a non-GAAP financial measure during today's conference call. Required disclosures related to this are on today's news release which can be found on our website.

Now I would turn the call over to 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 from 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 an ODAC 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 mutation, 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 would be approved. Our US commercial team is actively preparing for launch, and will be ready to launch at the time of a potential approval.

In preparation for a 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 agreement for a dedicated manufacturing line for rucaparib will provide a security of supply for us, as well the reduce our cost of goods over time. Additionally, we amended our world wide license agreement with Pfizer for rucaparib to provide us with the option to defer the milestone payments associated with the first US approval and a first EMA approval from the time of approval to 18 months after the date of approval. This amendment, which Dan will detail in his section, provides us additional flexibility and should extend our cash runway.

As you know, this NDA is based on a pooled data set of patients with a 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.

The 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 at 44%, increased ALT/AST at 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 elevations, which were temporary, at 11%. The full data set is in the news release dated October 7, 2016, and in the ESMO presentation available on our website.

In addition, the ESMO data set was the first presentation of the progression-free survival data observed in this population, which was 10 months for the overall efficacy population. Stratified by platinum status, this represents approximately 11.5 months for the platinum-sensitive group, 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'm 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 validation, and is expected to be accepted for filing at the CHMP meeting later this month.

Turning now to ARIEL3, in assume to initiate studies with rucaparib. Target enrollment in the 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, can extend the period of time for which a response to a prior chemotherapy is maintained.

Patients were randomized two to one to receive either rucaparib or placebo, and the primary endpoint to the study is PFS. The primary efficacy ruling analysis will evaluate, in a step down process, first BRCA-mutant patients, including both germline and somatic mutations, 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 may be responsive to rucaparib. We plan to initiate two Clovis-sponsored prostate cancer trials shortly.

We would also like to introduce our name for these trials, which is TRITON, it is a little convoluted, but it comes from Trial for Rucaparib in Prostate Indications. 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, just full disclosure. (laughter)

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 mutation, or other deleterious mutations in 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 planned primary 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 mutation, who have progressed on AR targeted therapy and not received chemotherapy in the castrate-resistant setting. The 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 studied in what is known as the STRAT-STAMPEDE study, a 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 initiated or plan to begin enrolling patients in the fourth quarter 2016 and the first quarter 2017. These include Clovis-sponsored, collaborator-sponsored, and investigator initiated studies:

ARIEL4, our Phase 3 multi-center, randomized, confirmatory 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 gastro-esophageal cancer in the first-line maintenance setting. And finally and importantly, a Phase 1B 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 the focus, of course, on ovarian. The first patient is expected to initiate during the first quarter of 2017.

Now I'll turn the call over to Dan to discuss third-quarter financial results.

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 $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, as I will discuss later.

We reported a net loss of $65.7 million or $1.70 per share for the third quarter of 2016, and $278.4 million or $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 the 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, recorded as part of the EOS purchase price accounting.

This reduction in fair value was result of our and our development partners decision to discontinue development 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 obligation to pay additional consideration to the former EOS shareholders, if 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 recorded 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 month 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 and $28.5 million for the first nine months of 2016. This compares to a $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 third quarter of 2016 include 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 options into 2018 from available cash, cash equivalents, and available-for-sale securities.

Now I'll turn the call back over to Patrick for some closing remarks, and then we'll open it up for Q&A.

Thanks, Dan. We obviously have a pretty meaningful couple of months ahead of us.

We anticipate receiving the FDA's decision on our NDA for rucaparib for the treatment of advanced ovarian cancer by our PDUFA date, on February 23, 2017. Our US commercial and 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 expected later this month, we intended to begin preparations for a potential European launch. And now I'm happy to open the call to Q&A.

Thank you.

(Operator Instructions)

Our first question is from Kennen MacKay, from Credit Suisse.

Pat, you mentioned the MAA submission was in a comparable population, should we interpret that to be third-line all comers, similar to the NDA?

You should assume it is the NDA population. It will be for exactly the same indication.

Terrific. Thank you. And then to follow up on the Lonza agreement that you announced. Obviously that is a long-term solution, but how should we be thinking about the current production facility for commercial supply, should the FDA grant accelerated approval? Thank you.

We have an existing relationship with Lonza, but that the issue we had with our current manufacturing is the lead times were little longer than we would like, and the cost of goods is a little higher than we would like, or we anticipate will be higher than we'd like.

Lonza came up -- but it is 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, should have a pretty healthy impact on lowering the cost of goods. They've been a really good partner.

Thanks for taking my questions.

Our next question comes from Tom Shrader with Stifel.

Good afternoon, and congratulations on all the good news. It's been a nice run. I'm 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? And you see any serious liver issues? Did you see any Hy's law? Anything we would need to worry about? How do you think this would be dealt with in the labeling of the drug? Can you just flesh out this issue?

Quickly, no liver tox issue, no case of Hy's law, including in the now, 1,200 or 1,300 or 1,400 patients we've treated, so well beyond NDA efficacy and safety data set. We do see a temporary and reversible rise in around 40% of patients of ALT and AST. I think it was at ESMO that she presented, if you look at it graphically, it does go up in the first cycle, but by the end of cycle two or cycle three, it is back to normal.

It is dosed through so the physicians just continue dosing. If we do see a Phase 3 event, which is not Hy's law, but is just a higher elevation, there are some patients who have seen some dose de-escalation, but as you are aware in oncology, dose-descalation is quite common for any number of adverse events. And it has caused no issue at all in either the patients or for the physicians treating those patients.

In terms of labeling, we anticipate that it will be presented as a lab abnormality, but we do not anticipate any verbiage related to it, other than it should be monitored.

Perfect. Thank you for that. And then If we can gear into the mermaids. In prostate cancer, do you expect you will have to follow the XTANDI path and be after-taxene's first, and then try to move in front, or can you go right for what I think seems the natural place, which is right after XTANDI?

The Phase 2, TRITON2, is a study that would have had both a round of XTANDI or abiraterone, and a round of chemo, which presumably would we be docetaxel. The Phase 3 is a comparative study against either ENZ or docetaxel, but in patients who have only failed one of abiratrerone and enzalutamide, and have not yet had chemotherapy. So in fact, that's the population we are going for in a comparative study against either enzalutamide or docetaxel.

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

(laughter) Yes, we can. We've had no issues getting this trial established, and with enthusiastic investigators and of course the protocol has been through an assessment by both FDA and EMA.

Thanks a lot. Congratulations again.

Pat, this is Lindsey. Can I just make one correction there? We haven't sent that protocol to EMA.

Okay, so it's just been through the FDA.

That's right.

Our next question is from Steven Breazzano, with Piper Jaffray.

Thanks for taking the question. First, maybe if you could discuss the broader status of tumor BRCA testing today in both the US and Europe. Is this currently being done in community settings or academic centers? And maybe discuss in the efforts underway, yourselves or Foundation Medicine to increase awareness of tumor BRCA testing?

Tumor BRCA testing and tumor testing in general is, through NGS screening is done at the majority of academic institutions in the United States. So we are looking at BRCA and beyond BRCA to look for somatic mutations or other possible mutations beyond BRCA. That being said, in the community setting, it is not common to order a tissue-based assay, because the only drug they had for BRCA patients is limited, or 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 this as a very significant advance, and something that's going to be very important to the treatment of their patients. So I'm not concerned that this will not be adapted and adopted relatively rapidly.

Got it. I know there is been some debate about response rates and platinum-status, maybe if you guys can characterize the discussions with regulators and maybe how they are viewing the spectrum of platinum-sensitivity and response rates? Thanks.

As anybody in front of FDA would tell you, we are going to be pretty limited in our dialogue around any interactions we're 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 interesting enough, you see some relationship because the greater the line of therapies, the more likely you're going to become platinum-resistant or platinum-refactory.

I get it that people have wanted to evaluate, and tried to interpret, how the varying response rates in platinum-sensitive, platinum-refactory, and platinum-resistant patients would be, but I'm comfortable that we are in a good place with regard to the indication that we are seeking.

Thanks. That's very helpful.

Hi, Bridget. It's Anna. I was going to say we have time for one more question today.

Okay, and our next question is going to be from Cory Kasimov, with JPMorgan.

Thanks for taking my questions. First, Pat, can you remind us of the rationale and data for PARP-inhibitors in prostate cancer that gives you that overall confidence to initiate a Phase 3 trial there next year?

Yes. Of course. I think one of the things that we as a community have learned is that irrespective of tumor type, if it is BRCA then it is a PARP-inhibitor. We have further learned, that if it is BRCA, irrespective of whether it is germline or somatic, it is 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 or under compassionate use with very encouraging results. And for the class, had 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 RECIST response rate in -- and PSA response and other measures of responsiveness. In, not only somatic and germline BRCA patients, but also germline and somatic mutations in ATM.

I think as a community, we in the PARP field, both as developers and or clinical colleagues, are very enthusiastic about the potential here. And I can tell you that at the Prostate Cancer Foundation, which is intimately involved in thinking through and at times 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 deficiencies.

I think we've seen good data. We've have some evidence of our own drug providing real benefit, and we have a community that has embraced the opportunity.

That's helpful. 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 arms?

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

And the last one I will squeeze in here, if there anymore details you are able to provide on what, if anything, you had to give Pfizer to delay the timing of this milestone payments, under the deal amendment? Remind us of how big those milestones are, if you've disclosed that?

Yes. It's a $20 million milestone on NDA approval, and a $20 million milestone on MAA approval.

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

Okay, perfect. Thank you guys, very much.

I'm not showing any further questions, so I will now turn the back call back over to Anna Sussman for closing remarks.

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.

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