Exelixis Inc (EXEL) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Exelixis Second Quarter 2018 Financial Results Conference Call. My name is Andrew, and I'll be your operator for today. As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to your host for today, Ms. Susan Hubbard, Executive Vice President of Public Affairs and Investor Relations. Please proceed.

Thank you, Andrew, and thank you all for joining us for the Exelixis' second quarter 2018 financial results conference call. Joining me on today's call are Mike Morrissey, our President and CEO; Chris Senner, our Chief Financial Officer; P.J. Haley, our Senior Vice President of Commercial; and Gisela Schwab, our Chief Medical Officer, who together will review our corporate, financial, commercial and development progress for the second quarter ended June 30, 2018, as well as recent key development and corporate events.

Peter Lamb, our Chief Scientific Officer, is also here with us and will join us for the Q&A session following our prepared remarks.

As a reminder, we are reporting our financial results on a GAAP basis only. And as usual, the complete press release with our results can be accessed through our website at exelixis.com.

During the course of this presentation, we will be making forward-looking statements regarding future events and the future performance of the company. This includes statements about possible developments regarding clinical, regulatory, commercial, financial and strategic matters.

Actual events or results could, of course, differ materially. We refer you to the documents we file from time-to-time with the SEC, which, under the heading Risk Factors, identify important factors that could cause actual results to differ materially from those expressed by the company verbally and in writing today, including without limitation, risks and uncertainties related to product commercial success; market competition; regulatory review and approval processes; conducting clinical trials; compliance with applicable regulatory requirements; our dependence on our collaboration partners; and the level of costs associated with the commercialization, research and development, business development and other activities.

Now with that, I will turn the call over to Mike.

All right. Thank you, Susan, and thanks to everyone for joining us on the call today.

Exelixis maintained strong commercial and financial performance in the second quarter of 2018 and continues to execute across all components of our business. Importantly, we see healthy growth in the CABOMETYX RCC business, especially in the context of increased competition and look to broadly advance cabozantinib into potential new indications as either a single agent or in combination with immune checkpoint inhibitors.

I'll begin today by providing a brief summary of our key second quarter milestones and then turn the call over to Chris, P.J. and Gisela for additional details on our Q2 financials, the commercial performance for CABOMETYX and our cabozantinib development activities.

Key highlights for Q2 2018 include: First, the significant growth in revenue based primarily on the strong commercial performance for CABOMETYX and advanced RCC. Q2 net cabozantinib franchise revenues were approximately $146 million. Achievement of key commercial milestones for cabozantinib in the EU provided additional milestone revenue and resulted in our royalty advancing to the tiered rate of 22% to 26% for sales in the Ipsen territories.

Total revenues for the quarter were $186 million, leading to net income of $87.5 million and diluted earnings of $0.28 per share.

Second, we continued to advance cabozantinib regulatory and development activities. The sNDA filing, based on the success of the CELESTIAL trial for second-line HCC, was expected in May with the PDUFA date in January 2019. With solid emerging data for both single-agent cabozantinib and immune checkpoint inhibitor combinations, we are in the startup phase for the second wave of cabozantinib late-stage trials indications across a wide range of histologies and potential lines of therapy.

Third, we look to complement our cabozantinib development activities with additional assets from internal discovery and externally-focused business developments. Both internal and external discovery efforts are gaining traction and advancing preclinical compounds. We hope to sign additional collaborations with early-stage biotechs in 2018 and beyond in a low-risk financial manner through small up fronts and modest success-based milestones, allowing us to advance new assets aggressively, while discharging scientific and downstream clinical risk.

Our continued momentum in the first half of 2018 reflects the strong performance across all components of our business. Our efforts to grow revenues from product sales, collaboration milestones and royalties, while managing our expenses in a rigorous fashion, allows us to generate free cash to sustainably reinvest in our business.

Since early 2016, we have generated approximately $1.2 billion in cabozantinib-related cash from U.S. product sales as well as upfront milestone and royalty payments from our partners. Globally, cabozantinib is well on its way to becoming $1 billion per year brand. Our financial strategy was highlighted by the recent inclusion of Exelixis in the S&P MidCap 400 Index, which requires that a company have four consecutive profitable quarters, including the most recent quarter. Exelixis is one of only two biotechs currently in the index, which recognizes companies that have passed many of the early-stage challenges are still having robust growth potential.

So with that, I will turn the call over to Chris, who will provide more details on our Q2 financials.

Thanks, Mike. Total revenues for the second quarter of 2018 were $186.1 million, with $87.5 million of net income and diluted GAAP earnings per share of $0.28 compared to total revenues of $99 million, net income of $17.7 million and diluted GAAP earnings per share of $0.06 for the same period last year.

Total revenues include net product revenues of $145.8 million for the quarter ended June 30, 2018, compared to $88 million for the comparable period in 2017, which is a 66% increase over the same period last year. The increase in net product revenues reflects the continued growth of CABOMETYX for the treatment of advanced RCC. On a quarter-over-quarter sequential basis, our net product revenues increased by approximately $12 million or 9%. This was the result of an approximate 16% increase in CABOMETYX's patient demand, offset by a decrease in trade inventory of approximately $3 million, primarily driven by a decrease in trade inventory weeks on hand.

Our deduction from gross sales in the second quarter of 2018 decreased slightly to 15.5%, when compared to the first quarter of 2018, due primarily to lower Medicare claims as fewer patients entered the donut hole in the quarter.

Total revenues also include collaboration revenues of $40.3 million for the quarter ended June 30, 2018, compared to $11 million for the comparable period in 2017. The increase in collaboration revenues was primarily the result of recording a $25 million commercial milestone from Ipsen that we earned in the second quarter of 2018 upon Ipsen's reaching $100 million of net sales cumulatively over four consecutive quarters. Additionally, during the second quarter, Ipsen surpassed $150 million in cumulative cabozantinib net sales during the initial royalty period. And we will now be earning tiered royalties of between 22% and 26% based on certain annual net sales tiers.

During the quarter, we recorded approximately $2.7 million of collaboration revenue related to our U.S. COTELLIC profit share, which is Genentech-Roche. In prior quarters, we recorded the impact of the COTELLIC business in SG&A. During the second quarter, we received a revised forecast that projects profit for 2018, and therefore, we now record these amounts as collaboration revenues.

Our total costs and expenses for the second quarter of 2018 were $100.3 million compared to $97.4 million in the first quarter of 2018. This increase in total costs and expenses is primarily a result of increases in personnel, marketing and consulting expenses and payments to Invenra and were in line with our expectations.

Cash and cash equivalents, short- and long-term investments and short- and long-term restricted cash and investments totaled $595.9 million at June 30, 2018, as compared to $457.2 million at December 31, 2017. And finally, the company is maintaining its guidance that total costs and operating expenses for the full year will be between $430 million and $460 million. This guidance includes approximately $50 million of noncash costs and expenses related primarily to stock-based compensation expense.

I will now turn the call over to P.J.

Thank you, Chris. We are pleased with the strong performance of CABOMETYX in the second quarter, highlighted by end-customer demand growth of 16% sequentially relative to Q1. As you know, CABOMETYX received an expanded indication late last year and is indicated in the U.S. for all advanced RCC patients regardless of line of therapy or clinical risk category.

This broad label provides the strong foundation to make CABOMETYX the TKI of choice in kidney cancer.

Based on customer feedback, prescribers are motivated to use CABOMETYX due to the totality of the strong clinical data from the METEOR and CABOSUN trials, which demonstrated the superiority of CABOMETYX to Afinitor and to Sutent respectively, a long-time standard of care in first-line RCC.

As we've previously stated, the first-line approval enables us to continue our growth, both in terms of increasing the eligible patient pool and increasing prescriber adoption as more community oncologists treat patients with first-line disease.

Consistent with this thinking, the growth of the CABOMETYX prescriber base continued in Q2, increasing by 14% relative to Q1. CABOMETYX growth was driven by both academic and community physicians, and we continue to see broad utilization across lines of therapy in clinical risk categories.

The RCC market is very competitive, highlighted by the FDA approval of the ipilimumab and nivolumab combination in April. Despite the launch of a new treatment option in RCC, cabo demand grew by 16% and we made significant progress towards our goal of becoming the TKI of choice in kidney cancer.

Over the course of the first half of this year, we have conducted extensive market research, which indicates that the RCC market will continue to be driven largely by the sequencing of therapeutic options.

The majority of patients will have the opportunity to receive CABOMETYX, followed by IO therapy or IO followed by cabo in sequence.

The large majority of patients, who receive an IO combo up front will progress. And importantly, market research and KOL feedback indicate that cabo will be chosen for many of these patients upon progression as they enter the second-line treatment setting.

We began to see this dynamic play out in the cabo utilization data at the end of the second quarter.

Looking at the IMS data for the market basket of CABOMETYX, Sutent, Votrient and INLYTA, CABOMETYX grew 3 share points going from 25% to 28% in Q2 relative to Q1 and CABOMETYX TRX volume increased by 13%.

While we are pleased with our Q2 progress, we are not satisfied with it and remain focused on continuing to grow our position in the RCC market moving forward.

In addition to the continued growth of CABOMETYX to the expanded RCC indication, we look forward to the opportunity to drive growth through a potential label expansion in HCC, which would represent a third tumor type and fourth indication for the cabozantinib franchise.

Liver cancer is the significant unmet medical need, accounting for nearly 800,000 deaths globally on an annual basis.

In the U.S., over 40,000 patients are diagnosed with liver cancer and there are approximately 29,000 deaths each year. Hepatocellular carcinoma is the most common form of primary liver cancer, and the number of deaths in the U.S. attributed to HCC has doubled since 1999. A recent article in The New York Times highlighted the increasing mortality in the U.S. from HCC over the last decade as this health problem is getting worse.

This market has long been underserved as until recently there was only one approved systemic therapy. The HCC market will have the potential to grow significantly in coming years as new therapies are introduced.

And Exelixis intends to play a key role in the advancement of therapeutic options for these patients with potentially both single-agent cabo and cabo IO combination approaches. This year, in addition to RCC and HCC, data have been presented on cabozantinib's activity in differentiated thyroid cancer as well as other histologies. As you will hear from Gisela, these potential new opportunities are at the forefront of our near-term development plans and we view them as potential markets for future commercial growth assuming clinical and regulatory requirements are satisfied.

We're excited about the future where indications like RCC, HCC, differentiated thyroid cancer and combinations of cabo with checkpoint inhibitors and other tumors would offer potential long-term opportunities for the franchise.

Finally, cabozantinib continues to be the leading anti-angiogenic TKI in The United States with Q2 2018 franchise net revenue of $145.8 million. It is well differentiated based on its robust clinical data and unique mechanism of action. We're pleased with the results of Q2, but believe that many more RCC patients could benefit from CABOMETYX. Our team is focused and motivated to compete every day to bring the benefit of CABOMETYX to every eligible patient as we continue to build on the positive momentum of the franchise.

With that, I will turn the call over to Gisela.

Thank you, P.J. I'm pleased to provide an update on the progress of the cabozantinib development program in the quarter.

I will start with a brief regulatory update on HCC and first-line RCC as the second quarter was marked by important milestones. First, in May 2018, The European Commission approved cabozantinib for the treatment of patients with previously untreated intermediate- or poor-risk RCC, further expanding the labeled indication. Also, in mid-March, we filed the supplemental NDA and our partner Ipsen filed the EU labeled variation applications for the treatment of previously treated HCC patients.

The EMA validated Ipsen's filing in late March and the FDA accepted our sNDA filing for review, granting a PDUFA date of January 14, 2019.

These filings in the U.S. and EU were based on the positive outcome of CELESTIAL, our Phase 3 trial of cabozantinib versus placebo in previously treated HCC patients. These results were recently published on July 4, 2018, in The New England Journal of Medicine.

With these important milestones achieved, we are fully focused on the broader development and lifecycle management plan for cabozantinib, including combinations with immune checkpoint inhibitors through our collaborations with BMS and Genentech-Roche. We are very pleased with the progress of our clinical collaboration with BMS combining cabozantinib with nivolumab alone or both nivolumab and ipilimumab. The Phase 2 HCC trial evaluating safety and preliminary activity of the cabozantinib/nivolumab and the cabozantinib/nivolumab and ipilimumab combination in advanced HCC completed enrollment earlier this year. And the Phase 3 CheckMate 9ER study in treatment-naïve RCC patients evaluating cabozantinib in combination with nivolumab versus sunitinib is making progress in enrolling patients globally.

This trial is co-funded by ourselves and our collaborators, Ipsen and Takeda, together with BMS, who is conducting the study. The triplet combination of cabozantinib, nivolumab and ipilimumab continues to be evaluated in the ongoing Phase 1b trial in patients with advanced genitourinary malignancies that has established as the preliminary safety and tolerability and recommended dose for this combination. And the development of a protocol for a separate Phase 3 trial investigating the triplet combination versus nivolumab and ipilimumab in first-line RCC is making progress. We also continued to make progress in our collaboration with Genentech, evaluating the combination of cabozantinib and atezolizumab in an initial dose ranging study with planned cohort expansions in various different tumor settings. We have identified an active dose of cabozantinib in combination with atezolizumab with good tolerability for the combination and the dose ranging part of the trial and the initially planned eight expansion cohorts, including various bladder cancer, first-line RCCs and various non-small cell lung cancer settings are now actively enrolling patients.

Based on this progress, in the second quarter, we announced that we are adding an additional 10 histologies to the ongoing expansion cohorts, investigating a variety of tumor types, including gastrointestinal malignancies and GYN malignancies in this important trial.

Further late-stage checkpoint inhibitor combination studies and indications, including bladder cancer, HCCs and non-small cell lung cancer are under discussion, and our partners Ipsen and Takeda will each have the opportunity to participate in future combination trials in accordance with the terms of their respective collaboration agreement.

We are planning to start additional pivotal trials with cabozantinib in further tumor types in 2018 and in 2019 and are advancing in our work on specific study designs for such trials at this time.

We look forward to sharing details on the next studies at the appropriate time.

In addition to our internal and clinical partner efforts, there are also multiple study concepts advancing through review and preparation at NCI-CTEP and our investigator-sponsored trial program of Phase 2 trials combining cabozantinib with various immune checkpoint inhibitors. Such trials are moving forward in several indications, including triple negative breast cancer, endometrial cancer and second-line non-small cell lung cancer.

The latter randomized Phase 2 trial combining cabozantinib with nivolumab alone or nivolumab and ipilimumab that was opened by ECOG earlier this year is being revised by the investigator to modify the control arm. This modification takes into account recent changes in the non-small cell lung cancer treatment landscape, where the checkpoint inhibitor therapy is now being integrated in the standard of care first-line therapy.

And lastly, single-agent cabozantinib has shown encouraging activity in a variety of tumor types, including neuroendocrine tumors, both PNET and carcinoids and differentiated thyroid cancer, indications for which Phase 3 studies are being initiated by the cooperative group the Alliance and by ourselves. The PNET and carcinoid Phase 3 study is now open to actively recruit patients.

To close, I will provide a quick preview of our publication plans. At the upcoming ESMO conference in October in Munich, various cabozantinib abstracts has been accepted for presentation. We will see a first data presentation of the COSMIC-021 combination trial of the cabozantinib and atezolizumab dose escalation experience. Expansion cohort data from this study will be presented when sufficient follow-up is available and the data are mature. Additionally, at ESMO, results from various subgroup analyses of interest from our Phase 3 study and advanced HCC CELESTIAL will be presented. These include analyses by patients of the future product chain levels by disease burden at baseline and analyses by the number of prior local transarterial interventions.

Other cabozantinib-related presentations include results from investigator-initiated studies and real-world observational studies of cabozantinib activity following immune checkpoint inhibitors treatment. We look forward to the presentations in October.

So in summary, I'm very pleased with the progress made in our cabozantinib development program and with the important regulatory milestones reached during this quarter, and look forward to updating you in the future.

And with that, I will hand the call back to Mike.

All right. Thanks, Gisela. I'll close by saying that we made significant progress across the organization in the first half of 2018 and continue to see solid performance in all aspects of our business as we move forward into the second half of the year. Our notable commercial and financial success in Q2 provides a strong platform for future cabozantinib trials and important new indications and to explore new opportunities to augment our pipeline through internal and external R&D efforts.

While we had a solid first half of 2018, we don't take this success for granted and remain extremely vigilant in making every day count, as we strive to fulfill our mission to help patients with cancer, recover stronger and live longer. The Exelixis team is thrilled to have completed the move to our new campus in Alameda, where the energy level and enthusiasm are pervasive across the entire organization as we work with even more focus and urgency to deliver new therapies to patients with cancer.

We look forward to updating you on our progress. Thank you for your continued support and interest in Exelixis. And we're happy to now open the call for questions.

(Operator Instructions) And our first question comes from the line of Andy Hsieh with William Blair.

Congratulations on another strong quarter. I hope you guys are settling in in the new Alameda campus.

We sure are.

So on the Q1 call, I believe, Chris mentioned about a $9 million inventory increase and in Q2, if I heard it correctly, there is a $3.5 million drawdown. And so how do you think about the inventory level going forward?

Yes, Andy, this is Chris. Thanks for the question. Yes, so as you said, we did have a $9 million increase in trade inventory, which was generally associated with the increase in our demand -- end-market demand. So as I said back then, our weeks-on-hand was about 3 weeks-on-hand of inventory in Q1 and it was around in Q4. Therefore, it just grew in line with the -- with our demand. Now in in Q2 here, we did see a reduction in inventory of around $3 million. And that was actually or the number of units in trade went down by about $3 million. Our weeks-on-hand has fallen to generally and historically low level, as many of the wholesalers destocked at the end of the quarter. And sometimes they do that as they manage their internal working capital metrics as they approach the quarter end and the year-end and they don't have the ability to take speculation on price. Now looking forward, I mean, we do think our inventory is best suited in that 3 weeks-on-hand time or amount. And so that's kind of the way we think about it going forward.

Great. And as we're looking at the frontline RCC launch, so P.J., I'm curious about what you're seeing in terms of the frequency of PD-L1 testing among the frontline RCC prescribers. Do you see an uptick following the ipi/nivo approval?

Thanks for the question, Andy. I think it's early to see what the change in the testing dynamic is after that approval. That said, we do see about 1/3 of the patients broadly being tested for PD-L1. So certainly it's something we're monitoring. I think what's nice with regards to cabo and kind of the totality of the data and the broad label is that, we're kind of seeing utilization across lines of therapy in the first line, second line, across risk groups, whether it's favorable, intermediate or poor. And importantly, sort of, at the end of the quarter, seeing a bit of a trend, where we are getting some patients coming off of NivoIpi combo therapy. So I think that's a potential opportunity going forward as we look to reinforce our position as the TKI of choice in kidney cancer.

Great. Do you think that the PD-L1 testing is being used to select for patients for ipi/nivo meaning positive ipi/nivo negative cabo?

Yes, I would say it's difficult to say significantly -- at this early point, I would say, limited data indicate that certainly if they're PD-L1 negative they are a bit less likely to receive the combination.

Yes. Okay. That makes sense. And last question from me for Gisela. So obviously '18 ongoing expansion cohorts for the COSMIC-021 trial, how do we think about the timing of the data disclosure? And how should we expect the results for the ESMO conference?

Thanks for the question. I think regarding ESMO, as I mentioned a little bit earlier, we're very pleased that the abstracted and accepted for presentation and that abstract focuses on the dose escalation part of the study. And we will present and publish data on the cohorts as data becomes available and matures for the cohort to be presented. So -- and that is subject to further evaluation and future presentation.

And the next question comes from the line of Kennen MacKay with RBC Capital Markets.

Quick one maybe, again, for P.J. As you've mentioned, there was some evidence that patients were beginning to come off ipi/nivo at the end of the quarter and come on cabo. I was wondering if you could help us understand, sort of, where this comes from? If this is just sort of anecdotal feedback from the sales force on the field? Or if this is from more quantifiable chart review type data? And then, also wondering if these are patients who had progressed on ipi/nivo perhaps because they're not biomarker positive or whether these were patients who were coming to cabo because they had adverse events due to ipi/nivo?

Thanks for the question, Kennen. I'll start maybe with the end, so well, a couple of things. The data is, I'd say we have some small data sets at this point that are quantitative from market research, et cetera. That said, I think this is all confirmatory of kind of the hypothesis that we've had, which comes from market research as I mentioned in the prepared remarks that we've done extensively this year as well as talked to KOLs, that we think a large proportion of patients coming off of the combo would likely go on to cabo on the second line. With regards to the nature of what those patients are, I can't comment on that specifically. Certainly, trends that we're watching carefully. And I think the sequencing dynamic of IO and cabo in the first and second line will continue to, sort of, play out in the coming quarters. And we certainly believe that we're well positioned to be the TKI of choice in that paradigm.

Got it. And then, I guess, as we think about that, in non-biomarker positive patients, I guess, internally, is there any sort of sense you can give us from the ipi/nivo data that's out there maybe from CheckMate 214 as to how long we could expect commercially these patients to stay on ipi/nivo before then coming to a VEGF? And then, again, just wanted to go back to, sort of, new incident patients and let's understand a little bit more where cabo is still the drug of choice in the frontline versus the IO combo?

Sure. Yes. A couple of things there that I'll address. So I mean, I think with regards to the progression, obviously it's going to be a spectrum of data in the 214 dataset. I would point out that PD was the best response in the trial for 27% of those patients. You will see a spectrum there. With regards to first-line, what we see and hear from market research as well as talking to KOLs as well as our data is that there certainly are patients who may be -- who cabo really could be the appropriate choice for those patients could be patients with bone mets or bone disease, symptomatic disease, rapidly progressing disease we're really seeing in research is a driver in cabo and we're really kind of seeing the perceptions of the attributes with cabo really tick up in the recent quarter. So I think there is a place for it in first-line therapy and then -- and certainly as patients progress on IO therapy as I mentioned in the sequence we believe we're well positioned to capture those patients going into the second line.

Got it. And then perhaps just one final question, more on pipeline. Just wondering if you could help us with expectations for potential timing for the frontline CaboNivo readout, potentially when we could be expecting that? And any changes to your internal estimates there?

Sure. So for the 9ER studies of the first-line CaboNivo versus sunitinib study, this study is actively enrolling patients globally at this point. BMS are executing the study and we haven't really spoken to expectations regarding completion of the study or top line data. And so that's something to come as the study matures and progresses.

Got it. And maybe just one quick follow-up. I've been looking at the ESMO conference printer And haven't seen a title for the combo data. I was wondering if that was something that was perhaps going to be a late-breaker?

I'm sorry, what combo data are you talking about? Are you talking about the COSMIC-021 study?

Yes. But perhaps maybe...

That title is published. So we can provide, yes.

I will send you around the gride with all the titles we have it.

And our next question comes from the line of Peter Lawson with SunTrust.

Chris, just on -- just thinking about pricing, how do you think about pricing for the rest of the year?

Thanks, Peter, for the question. Yes, I mean, we continue to evaluate the price. We did take around a 2% price increase at the end of June, and we're going to continue to evaluate as we go forward, but not going to give any specific guidance to the -- what pricing actions we may or may not take.

Got it. And then, maybe a question for P.J. Just on the -- you mentioned about the perception of cabo increasing. Is it a particular dataset? Or is it more so experiences kind of driving that increased perception?

Yes, thanks for the question, Peter. I think experience is certainly a part of it. With regards to what we're seeing though is, I think really been driven by the expanded indication and the CABOSUN data that demonstrated superiority over sunitinib. So when physicians are really thinking about what is there, sort of, go to TKI cross settings and if that data is really strong, particularly when coupled with the METEOR data with the trifecta as we speak to efficacy benefits in terms of response rate, progression-free survival and overall survival. So it's really, I think, the totality of the data and the fact that our team's doing a really great job of promoting that and working out there in the marketplace. We continue to see strong share of voice and execution across the board. So I think, that's really driving those increased perceptions.

Got it. And then, just finally on that kind of first-line cabo versus PD-1. How are you kind of seeing that marketplace migrate or move? Is there a particular patient groups or practices that you kind of think could be potentially more likely to use cabo?

Yes. So I think it's very dynamic market across lines. I think, as we said we're going to sequencing really play out over time. I do think with regards to cabo in the first-line as I kind of mentioned is that preferential patient type, which might be those with bone metastases, symptomatic disease, bulky disease, rapidly progressive disease, who -- they may not want to, for example, wait so to speak for a response or efficacy for immunotherapy, we could be preferential in those patients. I think importantly, from the patient perspective though, the majority of these patients are going to have the opportunity to get both therapies and sequence as the landscape continues to evolve, which is really just beginning. So certainly, look forward to providing more color as that dynamic plays out in the coming quarters.

And our next question comes from the line of Steven Willey with Stifel.

I guess, just as we think about the progression of IO to frontline therapy, do you think there is eventually going to be any kind of impact on the number of treatment eligible second-line patients? I think I just asked the question specifically with respect to the higher CR rates that we saw in 214 and then also there is notion that there are some physicians out there who are maybe treating patients to the progression with IO?

Yes. Thanks for the question Steven. This is P.J. I think, again, the dynamic marketplace, but I think largely in the first-line of treatment rates will remain relatively stable. The second line it could go up somewhat. It's certainly something we really see obviously very retrospectively through a lot of data and chart reviews. But I think generally, whether it's this market over the last decade or other markets with new and more therapies, sort of, coming to market to benefit patients you do typically see more lines of therapy and more treatment over time and then treatment rates tend to certainly not decrease, but potentially increase over time. I think that's the type of thing is what we're kind of looking at and dynamic of hepatocellular carcinoma now, in particular that more treatment options coming into that space, we'll see more patients we believe getting treatment in subsequent lines of therapy. So we look forward to that opportunity as well.

Okay. And maybe just a question for, Gisela, I guess, just reading CHMP's opinion regarding Ipi and Nivo as a frontline option in RCC. I guess, they really seem to be emphasizing the combination rule with respect to contribution of benefit or attribution of benefit. And just kind of wondering, if -- how you think about that opinion in the context of both ongoing 9ER trial and also some of the other competitive frontline IO-TKI trials, where there really isn't a single-agent arm to provide that confirmatory attribution of benefit that EMA regulators may be looking for?

Yes. Thanks for the question. And I think as you say, the issue highlighted by CHMP really for the NivoIpi application is a question of contribution of components to the overall outcome of the combination therapy in view of potential added toxicity by the combination partners as compared to single-agent treatment. So that is not a surprising question and not unique to any regulatory agency. So for the cabozantinib program, we are evaluating cabozantinib very broadly as you know, as a single-agent and in combination with other agents. And I think if we are designing and thinking about new trials, future trials and also the ongoing trials, the contribution of components is part of the consideration when they put these designs together. And that contribution, I think, is to be supported either by within trial comparisons or cross trial comparison. And as such, it's, as you know, obviously cabozantinib is approved in the first-line setting and has demonstrated single-agent activity. And so the question of activity in this very setting is not so much of a real question for the 9ER study.

Okay. And then, maybe just one last question for Chris. Can you maybe just speak a little bit to the higher Roche collaborative revenue this quarter? I guess just in the context of what looked to be fairly flat year-over-year in sequential COTELLIC sales?

Yes. So from an ex-U. S. perspective, our royalty was -- in the second quarter was around $1.5 million and it was relatively flat. But from a U.S. perspective, we're now into a profit versus a loss situation where we were last year. And now we're reporting those revenues in this time it was $2.7 million in collaboration revenues related to the U.S. profit share. And that's related to the profit on the U.S. business, which there has been some expense reduction during the year and then -- and forecasted that brings it to a profit for the year. So it's not necessarily completely linear to the U.S. sales, but because of the reduction expenses.

(Operator Instructions) Our next question comes from the line of Boris Peaker with Cowen.

So my first question is on just revenue per patient. Can you compare how or can you comment on how revenue compares for first-line RCC patients second and third line on cabo?

Sure. Boris, this is P.J. I will take that. I think what we typically see is more patients in first-line overall as opposed to second line and then third line. Typically, the first-line patients do tend to be or the earlier you go in the line of therapy, the patients tend to be healthier. And the data from the various trials demonstrate a slightly longer duration of therapy as you move forward in the line of treatment. That said, with the marketplace being so dynamic -- as I mentioned, the sequencing changing, that dynamic could change somewhat over time certainly with the new therapy options, but -- so that's kind of how we think about it.

But on a relative basis, can you comment like if a second-line patients on average, so, let's say, has 80% of the duration of treatment for first-line? Or is it 50% just kind of maybe ballpark figures?

Got it. Yes. And then, you know what, when it comes to duration, we sort of have talked about, what we see is similar to what we've seen in the clinical trials, but wouldn't want to speculate or comment on -- beyond that.

Got it. And my last question and in RCC, you saw a very strong signal in bone met certainly in your clinical studies. I'm just curious, are you seeing this effect us driving sales in any way? Is it part of your promotional effort? Is it an opportunity to really differentiate?

Well, I think -- as I mentioned kind of there is certain patient types out there that, particularly in the first-line setting, where that clinical feature can be -- make these patients more likely take CABOMETYX. And I think the KOL is kind of a very much of that mindset and it's something that -- if you look at the subgroup data, you see a solid benefit in our trials so that's something that certainly is out there that is, I think a bit of a differentiator for CABOMETYX and RCC.

Got it. And actually one more question just on the CheckMate 9ER study. I'm just curious, for patients on the Sutent arm, what are their follow-up options? I mean, can they get IO therapy on follow-up?

So on the study, while they are enrolled in this study, they cannot have any additional anticancer agents, but when patients discontinue subsequent therapies are not specified and they can receive available subsequent care.

Got it. And do you have any sense of what fraction of patients maybe getting some kind of IO therapy on follow-up?

We don't have any new view into that at this point. It's an ongoing trial.

Yes. And still enrolling.

And our next question comes from the line of Umer Raffat with Evercore.

My question is, so specifically in CheckMate 214, what is it that you saw that informed the opinion to remove the ipi/nivo, cabo arm? And are you looking to position the nivo/cabo as a low-risk patient offering? Or are you hoping to have a better survival benefit and try to compete with NivoIpi in the market in high-risk setting as well? And I had a follow-up.

So just to the 9ER study and your questions here that motivated -- what motivated the amendment of the study. With the positive outcome of 214 in the survival benefit, we saw that it was prudent to remove the third arm of CaboNivoIpi because really the true comparative for the CaboNivoIpi combination is NivoIpi. When you think about it and we wanted to focus the 9ER study to really address the question of cabo plus nivo versus sunitinib and there was jointly decided by ourselves and BMS, who are executing the study.

Got it. And is the positioning really for -- like what's the ultimate -- from a market perspective, where do you intend to position this regimen? Will it compete head-to-head in immediate to high-risk patients versus ipi/nivo? Or it is really meant for low-risk patients?

The 9ER study includes all risk categories. So -- and it addresses a broader population than the 214 study or the 214 outcome, I should say. The study included favorable risk patients as well, but the outcome was -- is favorable in that subgroup. And so I think it's the -- certainly an available therapy if the study succeeds and it's addressing patients similarly to other TKI and IO combinations. And I think certainly physicians will review the safety profile and the eligibility of patients with various treatment options and make their determination.

Got it. And then my final one was the recent CHMP feedback that Bristol got on ipi/nivo in RCC. And from European side, was that -- they couldn't understand what the incremental contribution of Yervoy was. And I think that perhaps takes back to the trial design. So I guess, my question is how do you think -- how do you view that CHMP decision? And how will that inform -- how would that inform the trial design and a potential regulatory review down the road given the lack of nivo mono arm?

Yes. Sure. As we said, the CHMP remarked in their comments and in their opinion, it was a negative opinion that they were unable to determine the contribution of ipilimumab to the outcome -- to the overall outcome and they had concern about -- in the absence of that information being available potential added toxicity by the combination partner. So that is currently the status as of, I think, the 26th of July. And in terms of the CaboNivo combination, as I said earlier on the call, I think we have obviously cabozantinib first-line data that is supported in approval. And so differently from nivolumab that's very [subjugated sparse] or ipilimumab a single-agent, where such data doesn't exist to my knowledge anyways. It's a quite different situation where we can fall back on the CABOSUN study that has established the activity and safety of the product in first-line RCC.

And at this time, there are no further questions. So with that, I'll turn the call over to today's host, Susan Hubbard. Ms. Hubbard?

Thank you, Andrew, and thank you all for joining us today. We certainly welcome your follow-up calls with any additional questions you may that we didn't address today. Thanks a lot, and have a great rest of your day.

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