Clovis Oncology Inc (CLVS) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Clovis Oncology fourth quarter 2016 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 turn the call over to Ms. Breanna Burkart, Vice President of Investor Relations and Corporate Communications. Ma'am, you may begin.

Thank you. Good afternoon. Welcome to the Clovis Oncology fourth quarter and year end 2016 conference call. You should have received a news release announcing our fourth quarter and year-end 2016 financial results. If not, it is available on our website at clovisoncology.com.

As a reminder, this conference call is being recorded and webcast. Remarks may be 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'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 our clinical development program.

Then Dan Muehl, Clovis's Senior Vice President of Finance and Principal Financial and Accounting Officer, will cover the financial results for the quarter and the year in greater detail. Patrick will make a few closing remarks and then we will 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 day 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 non-GAAP financial measures during today's conference call. Required disclosures related to this are in today's news release which can be found on our website. Now I would like to turn the call over to Patrick Mahaffy.

All right. Thank you, Breanna. Welcome, everybody. As you know, on December 19 of last year, the FDA approved Rubraca tablets as monotherapy for the treatment of patients with deleterious BRCA mutation, germline and/or somatic, associated with advanced ovarian cancer who have been treated with two or more chemotherapies and selected for therapy based on an FDA-approved companion diagnostic for Rubraca.

Rubraca's indication is approved under the FDA's accelerated approval program and is based on objective response rate and duration of response results from two multi-center single armed open label clinical trials, Study 10 and ARIEL2 Parts 1 and 2. As with all accelerated approvals, we are required to run confirmatory studies. The ARIEL3 maintenance confirmatory study has completed enrollment with data expected mid-year of this year, and the ARIEL4 treatment confirmatory study is open for enrollment.

I will provide some additional details on these trials shortly, but first I would like to provide an update on the launch. We are exceptionally pleased with the launch of Rubraca. We're proud of the performance of our entire commercial team, and especially the great work of our field team in educating and supporting the oncology community. It is too early to provide meaningful metrics about the launch, but we look forward to providing more details on our first quarter earnings call in early May.

I'm particularly pleased with our effort to make this drug available as rapidly as we did following its approval. At the time of approval, all of our specialty pharmacy and specialty distributor partners were signed on and ready to go. As a result, we were shipping Rubraca into the distribution channel within hours of the FDA notification.

All right, maybe a few metrics:

We had our first Rubraca prescription written the day after approval, and to date over 150 different healthcare practitioners have prescribed Rubraca. Dan will provide a bit more color on this, but it was like nice to see in the last two weeks of the year our team was successful in generating our first sales. This just speaks to how prepared we were having received the approval over two months prior to our PDUFA date. We have had no reimbursement issues to date and are not aware of anything that suggests we will have any reimbursement issues moving forward.

All major pricing compendia were notified on the day of approval, and as of February 1, 2017 Rubraca is in the federal supply schedule and our 340B contract was also recently completed. In terms of prescribing and utilization patterns to date, 70% have been from academic institutions and 30% through community-based practices. 80% of our prescribers are previous olaparib prescribers, 75% of our volume is being shipped through specialty pharmacies, and 25% is being processed through specialty distributors.

I should note that in time, we expect a greater proportion of Rubraca prescribing activity will take place at community practices, but we are pleased to see such high adoption out of the gate in the academic institutions that are more familiar with the Rubraca data. Before turning to our ongoing development program for rucaparib I'd like to provide a quick update on our European filing. We completed our submission last quarter for rucaparib to the EMA for the same ovarian cancer treatment indication we submitted to the FDA.

We anticipate an opinion from CHMP in late 2017, and pending a favorable opinion from CHMP, we expect an approval shortly thereafter. Given this timing, we are actively building out our European commercial infrastructure. Of course, we already have a regulatory and clinical team in place in our office in Cambridge in the UK.

Turning now to the rucaparib development program, I will start first with our two confirmatory trials:

Target enrollment in the ARIEL3 Phase 3 confirmatory maintenance study completed in April 2016. We continue to anticipate data from this study in mid-2017. I should note that we have not yet been notified by the independent statistician that we have reached the required 70% of events in the mutant BRCA population which triggers our analysis of the data. We expect, as is normal, that we will be able to unblind the report data from the trial about two months after we reach the final event.

We will plan to let you know next on the Q1 2017 call in early May whether or not we have been notified that we have reached the required 70% of events in the mutant BRCA population to trigger that analysis. Pending positive data, we intend to submit a supplemental NDA for the second line maintenance indication for advanced ovarian cancer patients within four months of unblinding the data.

Let's discuss the trial design of ARIEL3 now. The ARIEL3 pivotal study is a randomized double-blind study comparing the effects of the rucaparib against placebo to evaluate whether rucaparib given as maintenance therapy in platinum-sensitive high-grade ovarian cancer patients who have received 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.

Enrollment in the trial required a partial or complete response to the most recent platinum-based therapy. Patients were randomized two to one to receive either rucaparib or placebo and the primary endpoint of the study is progression free survival, or PFS. Overall survival is a secondary endpoint. The primary efficacy analysis will evaluate in a step-down manner, first, BRCA mutant patients including both germline and somatic mutated patients. Second, all HRD positive patients, including the BRCA mutated patients, and finally, all patients enrolled in the trial including biomarker negative patients.

The trial was designed to enroll between 180 and 200 patients with BRCA mutated tumors out of the 564 patients enrolled in the trial. Clovis remains blinded to the tumor genomic status of all patients, however, based on IDMC guidance, we are confident that the 180 patient mark was exceeded. Our belief is that approximately 200 patients in this trial have tumor BRCA mutations.

Based on data from ARIEL2, we estimate that of the remaining 364 patients enrolled approximately half are HRD positive and the other half are biomarker negative. It is important to reiterate that these are our estimates, and we will only know the final numbers when we see the data.

Let's spend a moment on trials of other PARP inhibitors in the maintenance setting. You were all aware of the positive trial that read out in mid-2016 and that a second trial will be reported out at the SGO meeting next month.

Both trials demonstrated meaningful benefit in their target populations. But in each case, and in different ways, these target populations were more limited than the population we are addressing an ARIEL3. Importantly, one trial evaluated only women with low disease burden by excluding from enrollment any woman who had no measurable disease greater than two centimeters. This may not represent a real world population of advanced ovarian cancer patients and may not be reflective of the average patient population most clinicians see in their practice.

The second study, while not limited to patients with low residual disease, was limited to women with mutations of BRCA, so will be unable to demonstrate benefit in either an HRD or biomarker negative population. ARIEL3 enrolled 564 women with platinum-sensitive ovarian cancer, and in contrast, did not limit enrollment to either patients with low residual disease or just to patients with BRCA mutations.

As a consequence, we believe only ARIEL3 enrolled a patient population that is the reflective of the entire population of ovarian cancer patients treated in clinical practice.

An important feature of our statistical analysis plan is that in addition to evaluating the intent to treat populations described above, we also have a pre-specified subgroup analysis evaluating progression free survival in the population of women in our trial who had low disease burden or no residual disease upon entry.

As a result of this pre-specified secondary analysis, we seek to observe whether differences in PFS will be seen in patients with low disease burden compared to the broader population. In addition, we will learn, at least in the context of this trial, the distribution of patients with low disease burden compared to the overall population. And, of course, as already noted, we will evaluate mutant BRCA HRD and finally all platinum-sensitive women with ovarian cancer including biomarker negative patients.

This means that ARIEL3, if successful, could lead to a label for maintenance in all platinum-sensitive second line ovarian cancer patients. Turning now to ARIEL4, our confirmatory study in the treatment setting, which is open for enrollment. This is our Phase 3 multi-center randomized confirmatory study of rucaparib versus chemotherapy and relapsed ovarian cancer patients with BRCA mutations, germline and somatic, who have failed two prior lines of therapy. The primary endpoint of this study is progression free survival.

As we have mentioned frequently, after ovarian cancer, prostate cancer is our next area of focus. Prostate cancer is a high-priority indication for us as a meaningful number of patients with advanced prostate cancer possess mutations of BRCA and other mutations that may be responsive to rucaparib.

There are two Clovis-sponsored prostate cancers which are currently open for enrollment. The first Clovis-sponsored prostate trial is 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 HR 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. The planned primary endpoints are radiologic overall response rate in patients with measurable disease, and PSA response in patients without measurable disease.

Our second Clovis-sponsored study 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 yet received chemotherapy in the castrate-resistant setting. The study will compare rucaparib to physician's choice of AR-targeted therapy or chemotherapy. The planned primary endpoint is radiologic progression free survival.

We're also plan to begin later this year an earlier line study in castrate resistant prostate cancer and will provide further details as we finalize the design.

We were pleased to announce an agreement with Strata Oncology earlier this month to accelerate patient identification and enrollment for the TRITON program. The Strata trial is an observation study that provides no-cost tumor sequencing to patients at participating clinical sites, and under this agreement, match BRCA and ATM mutated advanced prostate cancer patients to our TRITON studies.

Strata has agreed not to provide similar matching services on behalf of any other Strata collaborator for any other metastatic castrate resistant prostate cancer clinical trial with respect to patients with these same genetic mutations. We are optimistic that by working with Strata we will accelerate enrollment in the TRITON studies.

In addition to Clovis-sponsored prostate cancer studies, we're working in collaboration with the Medical Research Council in the UK to study rucaparib in what is known as the STRAT-STAMPEDE study in newly diagnosed castrate sensitive metastatic tumor BRCA mutant and BRCA-like prostate cancer patients. This cooperative group study will begin this year. Beyond the ovarian and prostate studies I have described, there are several clinical studies in ovarian, breast and gastro-esophageal cancers which are open for enrollment or anticipated to open shortly.

These include Clovis-sponsored, collaborator-sponsored and investigator initiated studies. I would like to focus on two of these studies to highlight our strategy and approach to the first line maintenance opportunity in ovarian cancer. In sum, we believe there is a greater potential to achieve a curative result with rucaparib combination therapy following first line platinum therapy versus PARP inhibitor monotherapy.

The two trials that follow this approach include MITO-25, a cooperative group study, evaluating rucaparib versus rucaparib plus bevacizumab, Avastin, as first-line maintenance therapy for advanced ovarian cancer. The MITO-25 study has planned enrollment of over 200 patients with mutations of BRCA or an HRD signature with PFS as the primary endpoint. The three arms of this study include carboplatin, paclitaxel and bevacizumab followed by bevacizumab maintenance; carboplatin, paclitaxel and bevacizumab followed by bevacizumab and rucaparib maintenance; and then carboplatin and paclitaxel followed by rucaparib maintenance.

Beyond Avastin combinations, there is increasing pre-clinical and clinical evidence that an anti-PD-1 or PD-L1 combination with a PARP inhibitor could be meaningfully additive to progression free survival without synergistic side effects. Accordingly, in collaboration with Genentech, a member of the Roche Group, a Phase 1b trial is beginning shortly to evaluate a novel combination therapy of their cancer immunotherapy, Tecentriq, or atezolizumab, and rucaparib for the treatment of gynecological cancers with a focus on ovarian cancer.

Additionally, we plan to initiate a Clovis-sponsored rucaparib plus an anti-PD-1 or anti-PD-L1 in front line ovarian cancer maintenance before the end of this year.

Two other studies I will briefly mention are 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, and PLATFORM, an investigator initiated study in gastro-esophageal cancer in the first line maintenance setting. Now let me turn the call over to Dan to discuss fourth quarter and year-end financial results.

Thanks, Patrick, and good afternoon, everyone. Our fourth quarter and year-end 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 2016 with $266.2 million in cash, cash equivalents and available for sale securities. In January, we raised net proceeds of $221.2 million through an offering of 5.75 million shares or common stock. Therefore, the Company has $487.4 million in adjusted cash, cash equivalents, and available for sale securities at December 31, 2016 as adjusted for the January 2017 financing proceeds of $221.2 million.

Cash used in operating activities was $54.7 million for the fourth quarter of 2016 and $266.7 million for the year. We reported a net loss of the $70.7 million, or $1.83 per share, for the fourth quarter of 2016, and $349.1 million, or $9.07 per share for the full year 2016. This compares to $119.5 million, or $3.12 per share, and $352.9 million, or $9.79 per share for the comparable periods in 2015. Net product revenue for the quarter and the year was $78,000 following Rubraca's approval and launch on December 19, 2016. I will provide some additional color on the launch shortly.

Our operating results for 2016 includes a net expense non-cash impact of the $50.6 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 recorded as part of the EOS purchase price accounting. This reduction in fair value was the result of our and our development partner's decision to discontinue development of lucitanib for breast cancer.

We also recorded a non-cash deferred income tax benefit of $28.4 million associated with this charge.

In connection with the acquisition of EOS, Clovis is obligated 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 the 2016, we reported a non-cash $25.5 million reduction to zero in the fair value of the contingent consideration liability due to a change in the estimated probably-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 $298.6 million, or $7.76 for 2016.

Our fourth quarter R&D expenses totaled $54.5 million, and $251.1 million for the full year 2016. This compares to $76 million and $269.3 million for the comparable periods in 2015. The decrease year-over-year is primarily due to decreased development activities for the rociletinib program and to a lesser extent expenses related to the commercialization of Rubraca which had been classified as research and development prior to FDA approval, partially offset by higher expenses related to the Rubraca program.

Selling, general, and administrative expenses totaled $12.2 million for the fourth quarter of 2016 and $40.7 million for the year. This compares to $8.2 million and $30.5 million for the comparable periods in 2015. The increase year-over-year is primarily due to higher legal costs, higher selling, general and administrative expenses related to the commercialization of Rubraca which had been classified as research and development prior to FDA approval, and to a lesser extent, higher personnel costs.

Operating expenses for the fourth quarter of 2016 include share-based compensation expense totaling $10.1 million and $39.8 million for the full year 2016. Now I will provide some further color on the Rubraca launch from a financial perspective.

We're now approved to sell Rubraca in the United States. We distribute our product principally through as limited number of specialty distributor and specialty pharmacy providers. These customers subsequently resell our products to patients and healthcare providers. Separately, we have arrangements with certain payers and other third parties that provide for government mandated and privately negotiated rebates, chargebacks, and discounts.

Product sales are recorded net of estimated rebates, chargebacks, discounts, and other deductions, as well as estimated product returns, known as gross to net, GTN adjustments. We only recognize revenue on product sales once the product is resold to the patient or healthcare provider by the specialty distributor or specialty pharmacy provider.

As we have previously described, we have decided to block third-party sales data for competitive reasons. That said, a small number of prescriptions were reported while the launch process was getting put in place. These reported sales are also not reflective of our total sales and they should not happen again in the future.

Cost of sales for the year ended December 31, 2016 consist of costs associated with the sale of the Rubraca, mainly freight, royalties, and amortization of capitalized acquired intangible license right and milestone payments related to Rubraca. Based on our policy to expense costs associated with the manufacture of our products prior to regulatory approval certain of the costs of Rubraca recognized as revenue during the year ended December 31, 2016 were expensed prior to the December 19, 2016 FDA approval, and, therefore, are not included in the cost of sales during the current period. We expect cost of sales to increase in relation to product revenues as we deplete these inventories and amortize the capitalized acquired intangible license rights and milestone payments related to Rubraca. We expect to use the remaining pre-commercialization inventory for product sales through the third quarter of the 2017.

With the FDA approval of Rubraca on December 19, 2016, all sales and marketing expenses associated with Rubraca are included in selling, general and administrative expenses and no longer in R&D. This will have the impact of lowering R&D expenses on a comparable period basis from 2016 to 2017. Clinical trial expenses will shift in composition in 2017 as well with the completion of all rociletinib trials and the winding down of ARIEL2, ARIEL3, and Study 10 for rucaparib. The initiation of TRITON2 and TRITON3 and ARIEL4 will begin to add the higher levels of spending as 2017 progresses. Now I will turn the call back to Patrick for some closing remarks and we will open it up for Q&A.

Thanks, Dan. With our approval, launch and recent financing, we are off to a great start in 2017. Of course, we have a very meaningful year ahead of us. We look forward to providing an update on our Q1 call on the launch of Rubraca in the US.

We continue to anticipate data from ARIEL3 mid-year. This will provide a very robust data set in a real world population in patients with advanced ovarian cancer in the second line maintenance setting from a Phase 3 study. Hopefully, we'll see a CHMP opinion before the end of the year, followed by a potential approval of rucaparib in the EU shortly thereafter.

We will continue to expand our clinical development program for rucaparib into other solid tumors studies and in combination with an immuno-oncology agent, and we look forward to providing additional details during the course of this year. Now will open up the call to Q&A.

(Operator Instructions)

Kennen MacKay with Credit Suisse.

Thanks for taking my questions. Pat, I just had a question for you on the front line maintenance of ovarian cancer. You mentioned the MITO-25 trial and the n being over 200. I think at the ESMO presentation, the n was 357 which pretty much puts it on par with some of the registrational trials of competitors that are out there and working at the front line setting.

I just wanted to get your perspective if that was something that potentially could be registrational in HRD positive patients? And then also if there was any thoughts about going for a front line trial in patients that may be included biomarker negative patients, similar to ARIEL3 but a line earlier. Thank you.

So MITO-25 is a cooperative group study. So the number of patients enrolled will be determined by that cooperative group. But we certainly have a great dialogue with them and in the event we choose to increase the enrollment and they agree to that, that is certainly feasible. It is looking at HRD, it is not looking at biomarker negative patients. I do not believe that will change in the context of the MITO-25 study.

However, as I noted, the study that we will sponsor is the combination study in the front line maintenance setting with the anti-PD-L1 or PD-1 antibody. We will initiate that study by the end of this year, and the current thinking in that study is that it would be analogous to, say, the ARIEL3 study where it would enroll an all comers population and then do a step-down analysis, similar, again, BRCA, HRD plus BRCA and all comers.

Got you. Thank you, Pat. Maybe just one quick follow-up. We saw Lynparza's data in breast cancer recently. We should hopefully get some data from Pfizer's talazoparib later in the year. I just wanted to get a sense of whether or not you had any plans for sort of continuing beyond RUBY in breast cancer?

Obviously, congratulations to AZ. I think that is great news for them and great news for the class. We look forward to seeing the full presentation of the data. We are actively evaluating our path in breast cancer and particularly in triple negative breast cancer, and potentially in a larger population than just the BRCA-mutated patient population.

One of the dialogues we are having, and I'm sure our co-PARP inhibitor developers are having, trying to figure out where best to consider monotherapy, perhaps in a more limited population where best to consider the combination with a PD-1 or PD-L1 where you could look for potentially a greater amount of activity given the potential synergy of these compounds. So that is an active discussion here, but I imagine that would be describing our plans sometime in the middle of this year.

Okay. Thank you very much. I look forward to it.

Thank you. Our next question comes from the line of Tom Shrader with Stifel.

Good afternoon. Congratulations on all the progress. Pat, as you start to screen and enroll patients in prostate cancer, do you have an updated sense of how many are going to qualify, how big is the target population relative to the whole population, and does it change with line of therapy? Does it change depending on whether you are before or after chemo?

What we observed and what has been published are different -- it is a range of numbers. But what I think everybody agrees is that BRCA mutations and ATM mutations, whether they are somatic or germline, are a pretty poor prognostic factor for prostate cancer patients. As a consequence of that, if you look at germline BRCA mutations in newly diagnosed non-metastatic prostate cancer, the incidence of patients with BRCA mutations is somewhere between 2% and 4%.

So it is relatively low. By the time those patients become castrate resistant prostate cancers and have metastatic disease, the numbers described for the combination of those two mutations, including both somatic and germline, are between 20% and as high as 30% of those men who in fact have those mutations. So while the population of newly diagnosed patients with BRCA mutation is smaller, as a percentage of the CRPC patients, it actually gets to be a pretty meaningful percentage, somewhere between a quarter and a third.

And is that your data -- that is higher than the published data I have seen.

There are some published data. It also has -- for instance, one of our investigators in New York has been evaluating doing next-gen sequencing on all of their prostate cancer patients. And his specific institution, which may have a slightly higher percentage because of the location, it is 25% to 30%. That is two years of data for his patient population.

Okay, perfect. And then quickly on ARIEL3, you are going to report data differently than your competitor in terms of where somatic BRCA patients go. Do you think that will get right-sized in the labels, such as the labels for the two drugs will report the same thing, or are you kind of stuck with your endpoints forever? Is that a problem or is that not a problem? Just your thoughts?

Well, you do kind of live with your endpoints. That is life in the industry, but first of all, as it relates to activity in germline mutations versus activity in somatic mutations, in the treatment setting in our own NDA, the response rate for somatic mutated BRCA and germline mutated BRCA was exactly the same. In the PFS data presented from the trial you are alluding to, for the patients with germline mutations and somatic mutations -- forgetting the control arm, there were some differences in the control arm -- but on the drug arm, the somatic mutated patients and germline mutated patients, again, had effectively exactly the same progression free survival.

So first of all, I don't think -- I think it is fine that we have done it this way and certainly we will evaluate it in subset analyses of germline versus somatic, but I don't think is going to have an impact. But I will hasten to add, just as the competitor you mentioned is seeking to go well beyond BRCA mutations and go for an all platinum-sensitive ovarian cancer maintenance indication for patients who have had two or more prior therapies, that is the design of and the intent of the ARIEL3. So I kind of wish them well in their effort to get the all comers population because I think it gives us a good opportunity, as well.

But you think in the final drug labels, everything will be broken out, or you will be reporting different groups that may be aren't so clear, or you would have to explain? Is that the expectation?

Well, again, it is a limited impact commercially in the event we were to get all comers and they get all comers. I don't think it is going to be hard for physicians to make apples-to-apples comparisons of them saying, if they do break it out by subset population, which they probably will in the clinical section, section 14, I would imagine they will. If they show germline for that company and germline and somatic for us, but they are both good numbers, I don't think it matters.

If they show HRD for them including somatics, and it is a good number, and we show HRD, remembering the way our analysis is done is HRD for us including all of the BRCA mutated patients. I think that is fine. Of course, it is all comers, it is all comers. I'm not so worried about it.

I think there is going to be over time a desire on the part of the community to coalesce around a definition of HRD that is going to be relatively commonly applied. That is the feature of our study versus their study, that is I think somewhat different, not just about the inclusion of somatics in one definition of HRD and the inclusion of somatics and germline in our definition of HRD.

Obviously, we will disaggregate so people can evaluate those two separately. But the question is whether people are going to be confused about, should we use this test or that test, or can use this test with that drug. Markets tend to clean these things up over a period of time.

Okay. Perfect. Thanks for those thoughts.

Terence Flynn with Goldman Sachs.

Hello. Thanks for taking the question. Maybe just another one on ARIEL3. Pat, in your prepared remarks, you were talking about low disease burden versus high disease burden. Is there any data out there from any prior trials suggesting differential activity in these two patient populations with PARPs or is that just something that you want to explore further given the disease burden?

Yes. That is a great question. There aren't a ton of data because there aren't a ton of studies analogous to ARIEL3 or its competitor studies. It is a maxim or a truism in oncology that patients who have less disease, or lower disease burden, tend to do better on therapies than those who have a higher disease burden, so it feels a little bit intuitive to me.

Equally important and more data-driven, they didn't present the data, but in the Study 19 publication, they stated that patients who had received a complete response had a better outcome on Study 19 than patients in that trial who had a partial response, but they didn't quantify what the difference was. So there is a data point that says those with lower disease burden complete response did better, but it is not quantified, it hasn't been published so I can't quantify it for you. But I think given that data set, and given just a general belief about lower burden disease patients doing better, I think it will be a really interesting analysis that we are planning to do, to answer that question in a really robust way.

Okay. And do you know at this point the relative percentage of those two groups in ARIEL3 or you are blinded to that data?

We are blinded to every damn thing in that trial. So we don't know at all. It is interesting. I have had physicians tell me they think it is 25% to 35%.

I do know that when the data were presented for that trial at ESMO, when asked the question, the principal investigator was asked how many patients were excluded and he said only 7% failed to enroll in that patient -- in that trial because of that exclusion criteria. Obviously, I'm sure that is a fact. The only thing that is relevant is all the investigators knew about that exclusion criteria and would, therefore, not have sought to enroll a patient who they knew from their prior scan had a pretty meaningful -- had a greater than 2 centimeter lesion.

So I don't know what percentage of patients were voluntarily not enrolled, or sought to enroll in that trial because the physician had already effectively prescreened them.

Okay. Got it. And then maybe just one on financials. I might have missed it, but are you guys giving expense guidance this year, or is that something that, again, you are not going to comment at this point just given where you are in the launch?

Yes. We're not going to comment at this point further.

Okay. Thanks.

Thank you. And our next question comes from the line of Tazeen Ahmad with Bank of America.

Hi, good afternoon, thanks for taking my questions. Pat, maybe just one on some early indications of the launch and your label where Rubraca is indicated for use in ovarian cancer patients who have been treated with two or more chemotherapies.

Based on feedback that you have been getting, how many doctors, for example, start off patients right away by giving them a chemo doublet versus separate chemotherapies?

We don't capture as of yet those data, so I am not able to give you a quantifiable number. I do know that the wording of the label has generated questions from clinicians. Our reps, of course, point to the clinical data in section 14 which is in patients who have had more than two prior chemotherapies. We're also aware that physicians, we are aware anecdotally of physicians who have enrolled patients who have two or more prior chemotherapies. It is interesting. We are starting to collect a reasonable amount of data for Lynparza and their performance and use patterns. We are vetting those data now. I will describe them to some extent only as a metaphor, not to predict anything for us. But you see that there has been a pretty promiscuous use of Lynparza in earlier lines of therapy than fourth line. And there has been a reasonable amount of Lynparza use in indications beyond ovarian.

I think what is really emerging is an awareness that a PARP inhibitor with good published data is going to have a great likelihood of success in use in patients beyond those with ovarian cancer as long as they are mutant BRCA. Obviously, all of us are exploring that in clinical trials, but we do see some use already in our own experience and physicians who have had sought to treat and have been allowed to women with indications -- or patients, I should say, with indications beyond ovarian cancer.

Interestingly enough, we are already seeing a reasonable number of patients given this mutation, this is a sad truth, who actually have active disease both having breast cancer and ovarian cancer at the same time.

Okay. Thanks for that color. And then maybe another question about data. Astra is going to be presenting its SOLO-2 results in detail soon, I guess whatever the results are, would you say that those could be interpretable as flow through?

What would be your view of what maintenance results with Lynparza would look like relative to what Rubraca would look like in BRCA and potentially beyond BRCA?

First of all, I take them at their word and I have heard chatter in the community that support it. That data for olaparib in the germline mutant population is extremely encouraging. I am sure that is the case. I'm absolutely not surprised that an active PARP inhibitor is going to do far better than a placebo in the maintenance setting in patients with ovarian cancer. We have seen those data in Study 19. We saw those data in NOVA and we are confident we will see them in SOLO-2, and I'm optimistic that we will see them for rucaparib ARIEL3. I don't know the magnitude of effect either for the SOLO-2 study or for ARIEL3, obviously. What I do think is that the hazard ratios always tell the story far better than the median, and the hazard ratio in Study 19 for olaparib was 0.18. That is awesome.

The hazard ratio for NOVA in the analogous population was 0.27, also awesome. I think what we are learning is that PARP inhibitors, and I believe this will be true, or I hope this will be true for rucaparib, are highly active in the maintenance setting. And over time, physicians who may find it may more difficult to compare the efficacy of these agents will be making decisions beyond just efficacy if they can't see a meaningful difference but to the tolerability and safety of the product. Obviously, I hope out of ARIEL3, we see not just a robust efficacy story, but an equally robust safety and tolerability story.

Okay. Thanks.

Debjit Chattopadhyay with Janney.

Hey, thanks for taking my question. As you move towards the checkpoint inhibition combos, is there a correlation between disease burden and mutational burden, and hence, the likely response in either triple negative or ovarian cancers?

Lindsey, do you want to answer that? I would like you to answer that. (laughter)

Certainly, there appears to be a correlation between mutational burden and HRD. So high HRD patients -- tumors -- tend to have higher mutational burden. You asked whether there is a correlation between disease burden and mutational burden and I'm not aware of that. I don't know.

Great. Thanks for the color, earlier color on the different disease burden and enrollment criteria between the NOVA and the SOLO-2 study. But how do you think you could detail if the absolute numbers are different because the trials are, obviously, enrolling different patients, and do you think the physicians in the community setting will latch onto this, or like you said a few minutes ago, it is all about the hazard ratio?

Well, again, I don't know what data we are going to see, and I don't know what data are ultimately going to end up in the labels for either, based on the SOLO-2 study for AstraZeneca or based on the NOVA study for Tesaro. It is a little bit difficult for me to speculate. I think that we will all interpret our data based on what is in the package insert, and particularly the indication statement and what is in the clinical section, section 14.

The normal rule in these things is that everybody is going to have an advantage, whether it is in safety or whether it is an hazard ratio, whether it is in a subset or whether it is in data at the median. You and we and everyone is going to try to figure out how to put our best foot and how others will put their best foot forward. So I will tell you I'm confident we'll have a competitive agent with a competitive data set, but I don't know what ours will be yet.

And I certainly don't know what the label for our competitors will be at. It is a little hard to answer that with any degree of specificity.

And then one last follow-up, if I may, so given the influx of data that we are expecting both in the front line maintenance and the second line, as well. Do you think -- how do you think physicians are likely to sequence the PARPs or does first to market become important in this setting? Thanks so much for taking my questions.

Can I make sure I understand your question? Does first to use, or earlier line use make a difference, is that what you mean?

No. Given that there is also SOLO-1 and then there is the data coming out from Tesaro next year both in the front line maintenance settings. So given that these drugs are probably going to get approved in the front line maintenance, as you get approved in second line maintenance, how do you think physicians are likely to sequence the PARPs, if all PARPs look the same in terms of the data?

Again, I don't know that they will all look the same, but that differentiation isn't perfectly evident yet is all I'm saying because we don't have the data sets for ARIEL3 or the labels for the other two. Sequencing of PARP-inhibitors is going to be a really interesting, emerging field and it is going to be critically important to learn more about this with real evidence of activity or lack of activity in the clinical setting because PARP inhibitors are going to become such an important part of cancer therapy in multiple tumor types.

What we don't know for sure is whether it is easy to use a PARP inhibitor immediately after a prior PARP inhibitor. However, the data we have suggests that it is not likely to be uniformly successful. The reason for that is we are continuing to learn from the analysis of our data that a primary cause of failure on a PARP inhibitor is the development of reversion mutations, effectively causing a mutant BRCA patient to become wild type BRCA, and, therefore, no longer as vulnerable to a PARP inhibitor. But the picture is far more interesting than that.

What we don't know is whether the addition of, for instance, if you ultimately progress on monotherapy PARP inhibitor, if the combination of the PARP inhibitor with the PD-1 or PD-L1 would mitigate some of that resistance. We are aware of an emerging data set of another targeted therapy that when added to patients who have failed on their most recent PARP inhibitor restores responsiveness in a large percentage or reasonable percentage of those patients.

So the amount of learning we as a community have to do, and will do, over the course of the next several years, as we think about getting maximum PARP inhibitor effect to patients through multiple lines of therapy is large, but the motivation to do so is high. I think we're going to see over the course of the next couple of years a good conversation emerging about not only when you can sequence a PARP but how best to sequence a PARP inhibitor. So while I don't have an answer, I am actually fairly confident now that while monotherapy-monotherapy might not be the best idea, that our community of investigators and developers will find good positive ways to consider sequencing and maintaining good effective PARP inhibition benefit through multiple lines of therapy.

Thank you so much.

Our next question comes from the line of Peter Lawson with SunTrust Robinson Humphrey.

Just thinking about how rucaparib is being used. When do you think you'll get a better understanding of if it is being used in second line versus third line? It seems like it is too early at the moment to ascertain that?

I think it is a little too early. We don't capture those data perfectly. I have a feeling that the better way for you to capture it is to do market survey work that can give you an independent source of information about how it is being used.

I suspect that you shouldn't do that now just because it is too early, but I think we're all going to have a better sense of how it is being used and whom it is being used over the next couple of quarters.

Got you. Thank you. And then, Dan, is there anything you can tell us about the R&D and SG&A spend in 1Q, and how much of that cost has been reclassified just to help smooth the model out?

For Q4 you mean?

Yes for Q4 or anything you can tell us for Q1. That would be great.

In Q4, the change, the reclass of what went to SG&A versus R&D was in the $3 million range.

Got you. Thank you. Thank you so much. Thanks for taking the questions.

You bet.

Thank you. Steven Breazzano with Piper Jaffray.

Hello. Thanks for taking the question. How long do you think it will take from the data release of ARIEL3 to get on the guidelines and maybe what needs to happen for that to occur? Thanks.

As ever, I don't know. The guidelines require far more than a press release from a sponsor, but an actual publication to be considered for guidelines. If our data are robust, and at the same time that we will be drafting the supplemental NDA, we will be drafting a paper. I note with admiration that the NOVA data were published in the New England Journal at the same time they were presented at ESMO and that was within about four [months-ish] of their release of the data.

I'm not guaranteeing that we will hit that same timeline, but I hope we do. If they are robust, I would imagine we would seek to get NCCN guidelines in a relatively short period after that based on this robust Phase 3 564-person study.

Thanks.

Thank you. And we have time for one more question. It will be from Cory Kasimov with JPMorgan.

Good afternoon, guys. Thanks for squeezing me in. I appreciate all the detail you gave in those prepared remarks.

Pat, along the lines of comparing across PARPs as we all continue to evaluate the evolving profile of this class of drugs, can you talk about some of the -- other potential points of differentiation that you see on a molecular basis, things like bioavailability, brain penetration, things like that? Might that have a difference going forward?

Yes. Obviously, bioavailability is kind of addressed by your dosing, right. So your dosing makes bioavailability sort of irrelevant. We have good bioavailability, I think, for an oral oncolytic. But as to brain penetration, nobody has presented any clinical evidence that they have a better or worse brain penetrant.

That will emerge over the course of treatment, particularly as we get into treatment of tumor types where brain mets are far more common. I would say, for instance, lung cancer or breast cancer are good examples of indications where those data are going to be far more relevant than they are today in either ovarian cancer or in prostate cancer, for example. It doesn't mean that it doesn't occur but it is a real issue in breast and lung cancer, as you are aware.

Those data will emerge, but the only data that matter are clinical data. I think that we should be really careful as a community not to over interpret, or even really try to interpret very imperfect preclinical data at a time when all of us are generating real clinical data. I think we all need to get to the point where every company presents its response rate data in the treatment setting so we can determine if there is a difference. We, obviously, look forward to presenting the ARIEL3 data to determine if there is a difference in all of the populations we are testing. We are all going to go into other tumor types and determine whether in other tumor types differences and efficacy emerge.

Tolerability and safety will be real issues for this type of compound, especially as we all seek in the maintenance setting or in the long-term treatment setting to generate much more, almost chronic use. Those signals will emerge, and they do emerge through experience and through clinical studies.

And highly related to, for instance, safety and tolerability is the ability of each of these agents to combine with very attractive combination partners, most notably an anti-PD-1, PD-L1 and Avastin. So there is a lot to emerge in the clinic, none of which can be predicted from preclinical studies now because they can only be answered in the clinical setting. That is why we are so proud of the treatment indication we have and the label underlying it, of the studies we have run and the data that I hope we generate and show you relatively quickly from ARIEL3 and ultimately, our march into prostate both as monotherapy and in combination.

All of these areas are going to be able to be places where you can compare clinical data, tolerability and safety, combinability and over the course of the next period of years, not months, an agent may emerge as the standard of care and the best-in-class. Nobody here can be Napoleon and crown themselves.

We have to earn it in clinical studies, and we are seeking to earn it in the clinical studies we are running. What we see is a good balance of tolerability and efficacy with our drug that excites our clinical investigators, that excites our combination partners to continue to explore the use of the drug.

Okay. And then lastly, it is good to hear that reimbursement has been smooth so far. But curious, though, if the labels end up being somewhat similar to each other, you are looking across the different PARPs, do you have any anticipation that payers could look to more aggressively try to manage costs here via how they position the formularies given the number of similar drugs in the space?

We really haven't seen this in oncology, but we hear whispers it could happen. Are you at all concerned about it in the PARP space?

Not really. If it was going to happen immediately, it would be happening now in the anti-PD-1, PD-L1 space, and we have seen no evidence of that. We're -- kind of the metrics are a little similar of several competing compounds where it feels so far as if trial design is going to be more relevant to outcomes yet than any proven difference in efficacy for these compounds.

And yet, that hasn't happened, and part of the reason for it is what we talked about earlier. There are going to be safety differences. There are going to be different hazard ratios in comparative studies. They're going to be advantages, I would imagine, in every data set. So I think it is going to be a little bit difficult in the short term for that to occur. I worry about a lot of things, but that is not my number one worry.

Okay. Thanks for taking the questions.

Thanks, Cory.

Thank you. Ladies and gentlemen, that concludes today's question-and-answer session. I would now like to turn the call back to Ms. Breanna Burkart for any closing remarks.

Thank you, everyone, for your interest in Clovis today. If you've any follow-up questions, you may reach me at 303-625-5023. Or you may reach Anna at 303-625-5022. This call will be accessed via a replay of our webcast at clovisoncology.com beginning in about one hour and will be available for 30 days. Thank you again and have a good evening.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect. Everyone, have a great day.