Boulder Feb 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Clovis Oncology Inc earnings conference call or presentation Monday, February 24, 2020 at 9:30:00pm GMT

Clovis Oncology, Inc. - VP of IR

* Daniel W. Muehl

Clovis Oncology, Inc. - Executive VP & CFO

* Patrick J. Mahaffy

Clovis Oncology, Inc. - Co-Founder, CEO, President & Executive Director

SVB Leerink LLC, Research Division - MD of Targeted Oncology & Senior Research Analyst

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst

* Kennen B. MacKay

RBC Capital Markets, Research Division - MD & Co-Head of US Biotechnology Research

Ladies and gentlemen, thank you for standing by and welcome to the Clovis Oncology Fourth Quarter and Full Year 2019 Conference Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Anna Sussman, VP of Investor Relations. Thank you. Please go ahead.

Anna Sussman, Clovis Oncology, Inc. - VP of IR [2]

Thank you, Mike. Good afternoon, everyone, and welcome to the Clovis Oncology fourth quarter and fiscal year 2019 conference call. Thank you for joining us. You have likely seen this afternoon's news release. If not, it's 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 archive for the next several weeks.

Today's agenda includes the following: Patrick Mahaffy, our President and CEO, will discuss the key components and highlights of today's corporate update; and Dan Muehl, Clovis' Chief Financial Officer, will cover the quarter and year's financial results in greater detail. Pat will make a few closing remarks, and then we'll open the call for Q&A, during which time Lindsey Rolfe, our Chief Medical Officer, will also be available to answer questions.

Before we begin, please note that during today's conference call, we may make forward-looking statements within the meaning of the federal securities laws, including statements concerning our financial outlook and expected business plans. All these statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Please refer to our recent filings with the SEC for a full review of the risks and uncertainties associated with our business. Forward-looking statements speak only as of the date on which they are made, and Clovis undertakes no obligation to update or revise any forward-looking statements.

Now I'll turn the call over to Pat Mahaffy.

Patrick J. Mahaffy, Clovis Oncology, Inc. - Co-Founder, CEO, President & Executive Director [3]

Thanks, Anna. Welcome, everybody. We appreciate your time today. I'll begin with a commercial update for Rubraca. I'm pleased to report that our global net revenue for the fourth quarter of 2019 was $39.3 million, up 5% sequentially from Q3 2019 and up 30% over Q4 2018. This sequential quarter growth was driven primarily by increased revenue in Germany and launches in England and Italy during the fourth quarter.

For the full year 2019, global net revenue was $143 million, up 50% from 2018. The year-over-year growth for the quarter and the year was driven largely by growth in U.S. sales, including overall growth in total volume and better management of the patient assistance program, offset to some extent by higher gross to net adjustments.

We've seen stepwise growth over the last several quarters, including the 12% increase in U.S. sales from Q2 2019 to Q3 2019 and are pleased that we have maintained this higher level of sales in Q4 2019.

Our key near-term objectives remain the same. Grow U.S. ovarian cancer revenues by increasing market share in, and overall adoption of the maintenance treatment indication in the recurrent ovarian cancer setting; increase European revenues through Rubraca ovarian cancer launches in England, Italy, France and Spain, along with driving continued revenue growth in Germany. I should note that the adoption of maintenance treatment in ovarian cancer in Europe is similar to that of the U.S., and we and our competitors are making considerable efforts to overcome observation or watch and wait as the standard approach to treating recurrent ovarian cancer; and hopefully, on or before our PDUFA date of May 15, begin to grow revenue through with the addition of the potential new indication in the U.S. for the treatment of BRCA1/2 mutant recurrent, metastatic, castrate-resistant prostate cancer or mCRPC. And that brings us to our most near-term development and regulatory program in this setting.

In November 2019, we submitted our planned supplemental new drug application, or sNDA, for Rubraca as a monotherapy treatment of adult patients with BRCA1/2 mutant-recurrent, metastatic CRPC. The filing was based on data from the TRITON2 clinical program in advanced prostate cancer. In January 2020, we announced that the FDA accepted our sNDA for Rubraca and granted priority review status to the application with the PDUFA date of May 15, 2020. We're actively preparing for Rubraca launch in prostate cancer in the U.S., which we will commence upon receipt of FDA approval.

We think that Rubraca represents an important hormone-free and chemotherapy-free option for our targeted population of men in the U.S. who have metastatic CRPC, approximately 12% of whom have a mutation of BRCA. We've been encouraged by our interactions with both the medical community and to a lesser extent, the urology community about the potential of Rubraca to address the unmet medical need in recurrent CRPC. We are actively engaged in launch preparations, including sales force training, and we will be ready to launch on approval, which we expect to occur on or before May 15.

Now I'll briefly discuss the latest updates to our clinical pipeline for Rubraca. During the fourth quarter, we initiated the LODESTAR study, our Phase II pan-tumor study to evaluate Rubraca in homologous recombination repair genes across tumor types. The study will evaluate Rubraca in patients with recurrent solid tumors associated with the deleterious homologous recombination repair or HRR gene mutations. Based on our interactions with FDA, the study may be registration-enabling for a targeted gene and tumor-agnostic label, if data from the trial support an accelerated approval.

Next, I'd like to briefly highlight our combination studies with BMS for both Rubraca and lucitanib, and then I'll discuss our newest compound, FAP-2286. We remain enthusiastic about our ongoing clinical collaboration with Bristol-Myers Squibb. I'll take a moment to review certain of our combination studies for both Rubraca and lucitanib with nivolumab. I'll begin with the Rubraca combination. FRACTION-GC is a BMS-sponsored, multi-arm Phase II study evaluating the combinations of each of Opdivo and Yervoy with Rubraca as well as Opdivo, Yervoy and Rubraca in combination for the treatment of advanced gastric cancer. This is the first sponsored study to explore this triplet combination and it is now enrolling patients into the safety lead-in portion of the study.

The Clovis sponsored Phase III ATHENA trial in first-line maintenance for advanced ovarian cancer continues to enroll well, and we anticipate completing enrollment in this 1,000 patient study in the second quarter of 2020. With ATHENA, we believe we are uniquely positioned to evaluate Rubraca in terms of 2 outcomes: as monotherapy versus placebo in the first-line maintenance setting in the HRD population, inclusive of BRCA and in the all-comers or intent-to-treat population as well as any potential advantage of the combination of Rubraca and Opdivo in the same patient populations. ATHENA is the first frontline switch maintenance study designed to show both PARP monotherapy and PARP/PD-1 combination therapy in one study design.

I'll take a moment to review the analysis plan for ATHENA. First, expected in the second half of 2021, we will see the results of Rubraca monotherapy versus placebo in all study populations and then probably a year or more later, we will see the results of Rubraca plus Opdivo versus Rubraca in all study populations. In each of these analyses, we will first evaluate outcomes in the HRD population, including BRCA, and then step down to the entire intent-to-treat population.

To wrap up Rubraca and move to lucitanib, I'll note that SEASTAR, our Clovis-sponsored Phase Ib/II study that includes multiple single-arm Rubraca combination studies, including the combination of Rubraca with lucitanib in ovarian cancer, is currently enrolling the dose-finding Phase Ib portion of the study. Lucitanib, of course, is our investigational inhibitor tyrosine kinases including vascular endothelial growth factor receptors 1 through 3, platelet-derived growth factor receptors alpha and beta and fibroblast growth factor receptors 1 through 3.

As we have discussed on prior calls, there are very encouraging data in studies of a drug similar to lucitanib, which inhibits the same 3 pathways when combined with the PD-1 inhibitor. This provides us a compelling clinical rationale for the development of lucitanib in combination with the PD-1. We believe the combination of lucitanib with the PD-1 targeting monoclonal antibody represents a large potential opportunity in multiple solid tumor types.

Angiogenesis has been shown to be immunosuppressive within the tumor microenvironment, dampening antitumor immune responses. Preclinical data demonstrates that the anti-tumor activity of the PD-1 inhibitor is enhanced through the inhibition of angiogenesis by lucitanib, which targets 3 relevant proangiogenic pathways as well as simultaneously targeting tumor cell proliferation and anti-VEGFR therapy resistance driven by PDGF and FGF receptors.

In February 2019, we announced the expansion of our clinical collaboration with Bristol-Myers Squibb to include planned combinations of Opdivo with lucitanib. The Clovis-sponsored LIO-1 study is a Phase Ib/II study evaluating lucitanib in combination with Opdivo. LIO-1 is now enrolling patients with gynecological and other solid tumors. We hope to have preliminary data from this study as well as the Rubraca/lucitanib combination study at medical meetings in 2020.

In addition, the BMS-sponsored CHECKMATE 79X study is a Phase I/II study evaluating multiple combinations with Opdivo, including an arm in combination with lucitanib in patients with second-line non-small cell lung cancer. This study is expected to initiate in early 2020.

Now let me describe the newest addition to the Clovis pipeline, our peptide-targeted radiopharmaceutical therapy program and our lead compound FAP-2286. In September 2019, we announced a global licensing and collaboration agreement with 3B Pharmaceuticals, with initial focus on the peptide-targeted radionuclide therapy and imaging agent targeting fibroblast activation protein alpha, commonly referred to as FAP. FAP is highly expressed in cancer associated fibroblasts, which are found in the majority of cancer types, potentially making it a suitable target across a wide array of solid tumors. It is highly expressed in many epithelial cancers, including more than 90% of breast, lung, colorectal and pancreatic carcinomas. Clovis will conduct global clinical trials and has obtained U.S. and global rights, excluding Europe where 3BP retains rights. We are planning to submit the IND for FAP-2286 in the second half of this year.

In addition, we and 3BP are collaborating on a discovery program directed at 3 additional targets for radionuclide therapy, to which we have global rights. [We've regarded] this program for many reasons, including, of course, the opportunity to be a leader in the emerging field of targeted radiotherapy for treatment for solid tumors. In this case, we also have the opportunity to be the first to clinically develop an FAP-targeted radionuclide, and we are also enthusiastic about the targets that are the subject of our discovery collaboration.

In addition, while our initial development focus is on monotherapy, there is an evident biological rationale to combine targeted radionuclide therapy with cancer therapies, including anti-PD-1 agents as well as with Rubraca. And we intend to explore these combinations first preclinically and potentially clinically as well.

Now some of you may be familiar with the history of PSMA-targeted radionuclides, in particular, lutetium PSMA-617, which was used extensively under named patient use in Germany and certain other countries prior to the initiation of any formal clinical development programs. While we do not anticipate such extensive named patient use like that, which occurred for lutetium PSMA-617, we have had expressions of interest for named patient use from German physicians.

To this end in December 2019, Professor Dr. Richard Baum presented his initial independent clinical experience with FAP-2286 in the first named patient use of the compound in the imaging and treatment settings at the International Centers for Precision Oncology Foundation Symposium in Germany. Professor Dr. Baum's early results in patients with advanced solid tumors, including breast, pancreatic, colorectal and ovarian cancers, showed the following: images of 10 patients imaged with PET/CT with Gallium 68, FAP-2286 were completely consistent with standard of care FDG-PET/CT scans in the same patients. In patients treated with lutetium FAP-2286, there were encouraging tumor accumulation and retention and a reported lack of significant adverse effects was demonstrated within the first 2 months after the first dose.

As a reminder, named patient programs are not clinical trials and the treating physician independently makes all decisions including dose and assessment of efficacy and safety. We found this reported experience encouraging, and our focus remains on initiating a broad clinical development program for our FAP-targeted compound. We currently plan to submit an IND application for FAP-2286 in the second half of 2020, followed by a Phase I study to determine the dose and tolerability of the FAP-targeting therapeutic agent with expansion cohorts planned in multiple tumor types as part of the global development program.

Thus far, in radiotherapeutic development, physicians have used an imaging agent, mostly Gallium 68, to identify patients with the appropriate level of tumor target, which in our case would be FAP. We are exploring opportunities to generate imaging data for FAP-2286, potentially even before our IND is submitted. Not only would this information will be useful to gain additional experience with FAP-2286 and better understand the characteristics of FAP expression in multiple tumor types, but further it would allow us to collaborate with academic institutions eager to explore the potential of FAP as an imaging and treatment target.

And with that, I'll turn the call over to Dan to discuss fourth quarter and fiscal year 2019 financial results.

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Daniel W. Muehl, Clovis Oncology, Inc. - Executive VP & CFO [4]

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Thanks, Pat, and hello, everyone. We reported net product revenue for Rubraca of $39.3 million for Q4 2019, which included U.S. net product revenue of $36.1 million and ex U.S. net product revenue of $3.2 million compared to the net product revenue reported in Q4 2018 of $30.4 million all of which was in the U.S. This represents a 5% increase over Q3 2019 and a 30% increase year-over-year. U.S. net product revenues was $36.1 million for the fourth quarter, in line with the $36.5 million reported in Q3 and up 19% from the $30.4 million recorded in Q4 2018.

The supply of free drug distributed to eligible patients in the U.S. through the Rubraca patient assistance program for Q4 2019 was 18% of the overall commercial supply compared to 20% in Q3 2019. This represented $8 million in commercial value for Q4 2019 compared to $9 million in Q3 2019 and $10.4 million in Q4 2018. Ex U.S., net product revenue was $3.2 million for the fourth quarter, which represents a $2.1 million increase from the previous quarter, driven primarily by increased revenue in Germany and launches in England and Italy during the fourth quarter.

Net product revenue for 2019 was $143 million, which included $137.2 million and $5.8 million in U.S. and ex U.S. product revenues, respectively. This compares to $95.4 million in net product revenues in 2018, all from the U.S. This represents an increase of 50% year-over-year.

U.S. net product revenue was $137.2 million in 2019, up 44% from the $95.4 million reported in 2018. This was largely driven by growth in total volume and better management of the patient assistance program, offset to some extent by higher gross to net adjustments. The supply of free drug distributed to eligible patients in the U.S. through the Rubraca patient assistance program in 2019 was 20% of the overall commercial supply compared to 26% in 2018. This represented $34.8 million in commercial value for 2019 compared to $33.4 million in 2018.

Gross to net adjustments totaled 17.4% in Q4 2019 and 15% for the full year 2019 compared to 10.1% in Q4 2018 and 10.4% for the full year 2018. The increase in gross to net adjustments reflects an increase in the U.S. and the impact of growing European sales. We expect gross to net adjustments to be in the mid-teens in 2020, pending the revenue mix between U.S. and Europe.

Turning now to a discussion of cash. As of December 31, we had $296.7 million in cash, cash equivalents and available for sale securities. In August 2019, Clovis repurchased $190.3 million aggregate principal amount of its 2.5% convertible senior notes due 2021. Approximately $97.2 million aggregate principal amount of these notes remain outstanding.

In January 2020, Clovis repurchased $123.4 million aggregate principal amount of its 4.5% convertible senior notes due 2024 that were initially issued in August 2019. This transaction will save $28 million in cash on interest payments under the notes issued in 2019, and approximately $148 million aggregate principal amount of these notes remain outstanding. Additionally, the company has $300 million in aggregate principal amount outstanding of its 1.25% convertible senior notes due 2025.

And as of December 31, we had drawn approximately $35 million under the TPG ATHENA clinical trial financing and had up to $140 million available to draw under the agreement to fund expenses of the ATHENA trial through Q3 2022.

Based on the company's anticipated revenue, spending, available financing sources and existing cash, cash equivalents and available for sale securities, we believe we have sufficient cash, cash equivalents and available-for-sale securities to fund our operating plan into the second half of 2021. This does not include any cash repayment that may be required to pay off unless we refinance, the remaining $97.2 million aggregate principal amount of the 2.5% convertible notes due 2021 at their maturity in September of 2021.

Net cash used in operating activities was $70.1 million for Q4 2019 and $323.6 million for the fiscal year 2019 compared with $82.7 million for Q4 2018 and $366 million for the comparable periods in 2018. In addition, borrowings under the TPG ATHENA financing provided $13.8 million in cash in Q4 2019, reducing net cash utilized in operating activities to $56.3 million during the quarter. Net cash used in operating activities for Q4 2019 included an upfront payment of $9.4 million to 3B Pharmaceuticals related to the in-licensing of FAP-2286.

Net cash used in operating activities was $127.1 million for the second half of 2019 and $196.5 million for the first half of 2019, a reduction of $69.4 million or 35%. In addition, borrowings under the TPG ATHENA financing provided $8.6 million in the first half and $26 million in the second half of 2019, reducing net cash utilized in operating activities by $86.8 million or 46% from the first half to the second half of 2019.

We reported a net loss for Q4 of 2019 of $99.5 million or $1.81 per share and $400.4 million or a net loss of $7.43 per share for fiscal year 2019. In 2018, the net loss for the fourth quarter was $99.3 million or $1.88 per share and $368 million or a net loss of $7.07 per share for the full year. Net loss for Q4 and fiscal year 2019 included share-based compensation expense of $12.6 million and $54.3 million compared to $11.4 million and $49.1 million for the comparable periods in 2018.

Research and development expenses totaled $72.5 million for Q4 2019 and $283.1 million for the full year 2019 compared to $71.2 million and $231.3 million for the comparable periods in 2018. The increase for the full year is primarily due to higher research and development costs for Rubraca clinical trials.

Selling, general and administrative expenses totaled $45.2 million for Q4 2019 and $182.8 million for the full year 2019 compared to $49.1 million and $175.8 million for the comparable periods in 2018. Selling, general and administrative expenses increased for the full year due to commercialization activities for Rubraca including increased costs associated with building out the European commercial infrastructure.

Now I'll turn the call back to Pat.

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Patrick J. Mahaffy, Clovis Oncology, Inc. - Co-Founder, CEO, President & Executive Director [5]

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Thanks, Dan. Happy birthday. We are pleased with our progress in the fourth quarter and in 2019 in total. We demonstrated strong sales growth in 2019 with Rubraca in the second-line ovarian cancer maintenance setting. In the U.S., we remain focused on growing our share of the ovarian cancer PARP inhibitor market as well as expanding second-line maintenance PARP adoption overall. In Europe, Rubraca is now reimbursed in Germany, England, Italy, France and Spain, and during the course of 2019, we launched in Germany, England and Italy. Rubraca launched earlier this month in France and will launch shortly in Spain.

In addition to our sales progress, we also showed a significant reduction in our net cash utilized in operations, which was 60 -- or excuse me, $86.8 million or 46% lower in the second half of 2019 and in the first half of 2019, reflecting reductions in product supply costs, milestone payments, disciplined with head count additions, clinical trial management and the benefits of the TPG ATHENA financing. We submitted the supplemental NDA for Rubraca in BRCA1/2 mutant recurrent metastatic CRPC in mid-November. And we're pleased that the FDA granted priority review designation for the application and a PDUFA date of May 15, 2020. This provides the potential for a U.S. launch in a second tumor type in May of this year.

We remain enthusiastic about the potential for lucitanib with 2 Clovis-sponsored combination studies now open for enrollment: one with Rubraca in advanced ovarian cancer as part of SEASTAR as well as one in combination with Opdivo in advanced gynecological cancers and other solid tumors. We hope to have initial data from these trials at medical meetings in 2020.

And finally, we look forward to submitting the IND for FAP-2286 in the second half of 2020, and we're enthusiastic about the opportunity to develop this compound specifically and potentially up to 3 additional radionuclide therapies in this emerging field. We believe with this program, we have the opportunity to become a leader in the development of this important new treatment modality for multiple solid tumor types.

And with that, I'd be happy to answer any questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Kevin MacKay (sic) [Kennen MacKay] from RBC Capital.

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Kennen B. MacKay, RBC Capital Markets, Research Division - MD & Co-Head of US Biotechnology Research [2]

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Maybe if you could talk a little bit more about some of the Rubraca dynamics in the U.S. market? It seems like maybe there was a slight volume decline after backing up the gross to net and free drug impact, but would love if you could maybe help contextualize that market and again, the dynamics going on there a little bit more.

And then a follow-up on lucitanib. We saw some very impressive VEGF plus checkpoint data in prostate cancer from the COSMIC trial at ASCO GU. I was wondering if -- how you were thinking about targeting prostate center with lucitanib if there are any plans there with the thinking that maybe it would just be a far and less competitive field than the more validated RCC space?

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Patrick J. Mahaffy, Clovis Oncology, Inc. - Co-Founder, CEO, President & Executive Director [3]

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Yes. So first dynamic in the market, we actually did see a volume increase in Q4, it was modest, but we did see a volume increase. We were affected by the higher gross to net, which reflects some contracting, we, as other companies have done in the space. The thing I'll also point to is that while we don't have a good perfect data set from olaparib. It does appear that sales, for instance, for ZEJULA were also flat to down in Q4 compared to Q3. It could just be a dynamic of the quarter.

I also think it's important to note, as I said in my prepared remarks, we saw a 13% increase in Q3 compared to Q2, and we maintained that increase in Q4. And I think that it's important as you look back at our reported sales that our growth hasn't really occurred on a linear quarterly basis. What we've seen is $32 million and $32 million and then jumped to $36 million, and now we're $36 million, and hopefully, we'll see another jump beginning in some quarter in 2020.

So I think that we had held our own in this market. We still need with our competitors to do everything we can to grow adoption of second-line maintenance, so that we can really not only take more share, but benefit from kind of a rising tide lifting all boats, a better adoption, and so that will remain a focus of ours in 2020.

As to the data for a VEGF inhibitor plus a PD-L1 that were presented at ASCO GU, obviously, we've paid attention to that, too. We think it's worth further exploration for us potentially with the PD-1, potentially if that was of interest to Bristol, but we -- it's early days to figure out what the next step for us would be. But we, like you, were impressed with the data and see an evident opportunity for the combination of the VEGFs for a pan-angiogenesis compound like lucitanib with a PD-1.

One thing you said, Kennen, I just want to address, as you said, rather than go into the very crowded RCC space, that has not been our priority. Our priority have been these kind of [ecological] cancers and some other solid tumor indications where we have precedent data for Keytruda with pembro, but it is not a subject of our study activities now to pursue RCC.

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Operator [4]

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Your next question comes from Michael Schmidt from Guggenheim.

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Michael Werner Schmidt, Guggenheim Securities, LLC, Research Division - Senior Analyst & Senior MD [5]

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I had a couple around prostate cancer. First of all, congrats on the PDUFA date, the acceptance and then the PDUFA date, obviously. Just wondering how you think about the competitive dynamics in BRCA-positive prostate cancer longer term with other companies, obviously, having started additional trials in earlier lines of therapy in mCRPC. And just wondering how you think about maybe the initial market dynamics and longer term the potential for Rubraca in prostate cancer?

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Patrick J. Mahaffy, Clovis Oncology, Inc. - Co-Founder, CEO, President & Executive Director [6]

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Yes. So we think for now and for a reasonable future, the PARP inhibitor approvals will be limited to us and to olaparib. Each of the other competitors running a single-arm study are reasonably behind based on the enrollment rates that they showed mostly recently at ASCO GU, which was only a couple of weeks ago. So that's pretty up-to-date data. So we -- like anybody, we'd love to be alone, but we're confident that we have a good chance of being first or tied for first based on AZ's announcement of their timing, and obviously, ahead of any other competitors. So 2 is better than 3, which is what we base in ovarian right now.

With regard to earlier line opportunities in prostate, the exploration being done by some others has recently started studies combining their PARP inhibitors with, for instance, abiraterone or enzalutamide. We will start a combination study with enzalutamide before the end of this year in collaboration with a number of investigators, we're already effectively signed up for this. So I think that in the event there is an opportunity to combine a PARP inhibitor with an enzalutamide or an abiraterone or one of the next gen products, we will be competitive in that space in a reasonably similar time frame to the other trials that are seeking the same indication.

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