CLOVIS ONCOLOGY, INC. Forward-Looking Information
This Quarterly Report on Form 10-Q and the information incorporated herein by reference includes statements that are, or may be deemed, "forward-looking statements." In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes," "estimates," "anticipates," "expects," "plans," "intends," "may," "could," "might," "will," "should," "approximately" or, in each case, their negative or other variations thereon or comparable terminology, although not all forward-looking statements contain these words. They appear in a number of places throughout this Quarterly Report on Form 10-Q and include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things, the market acceptance and commercial viability of our approved product, the development and performance of our sales and marketing capabilities, the performance of our clinical trial partners, third party manufacturers and our diagnostic partners, our ongoing and planned non-clinical studies and clinical trials, the timing of and our ability to make regulatory filings and obtain and maintain regulatory approvals for our product candidates, including our ability to confirm clinical benefit and safety of our approved product through confirmatory trials and other post-marketing requirements, the degree of clinical utility of our products, particularly in specific patient populations, expectations regarding clinical trial data, expectations regarding sales of our products, our results of operations, financial condition, liquidity, prospects, growth and strategies, the industry in which we operate, including our competition and the trends that may affect the industry or us.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics and industry change and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industry in which we operate may differ materially from the forward-looking statements contained herein. Any forward-looking statements that we make in this Quarterly Report on Form 10-Q speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.
You should also read carefully the factors described in the "Risk Factors" in Part I, Item 1A in our most recent Annual Report on Form 10-K filed with theU.S. Securities and Exchange Commission ("SEC") as supplemented by the risk factors set forth herein, as updated from time to time in our subsequentSEC filings, to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. You are advised, however, to consult any further disclosures we make on related subjects in our Quarterly Reports on From 10-Q, Current Reports on Form 8-K and our website. Clovis Oncology®, the Clovis logo and Rubraca® are trademarks ofClovis Oncology, Inc. inthe United States and in other selected countries. All other brand names or trademarks appearing in this report are the property of their respective holders. Unless the context requires otherwise, references in this report to "Clovis," the "Company," "we," "us" and "our" refer toClovis Oncology, Inc. , together with its consolidated subsidiaries. Overview We are a biopharmaceutical company focused on acquiring, developing and commercializing innovative anti-cancer agents inthe United States ,Europe and additional international markets. We target our development programs for the treatment of specific subsets of cancer populations, and simultaneously develop, with partners, for those indications 28
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that require them, diagnostic tools intended to direct a compound in development to the population that is most likely to benefit from its use.
Our marketed product Rubraca, an oral small molecule inhibitor of poly
ADP-ribose polymerase ("PARP"), is marketed in the United States for two
indications specific to recurrent epithelial ovarian, fallopian tube or primary
peritoneal cancer and also an indication specific to metastatic
castration-resistant prostate cancer ("mCRPC"). The initial indication received
approval from the FDA in December 2016 and covers the treatment of adult
patients with deleterious BRCA (human genes associated with the repair of
damaged DNA) mutation (germline and/or somatic)-associated epithelial ovarian,
fallopian tube, or primary peritoneal cancer who have been treated with two or
more chemotherapies and selected for therapy based on an FDA-approved companion
diagnostic for Rubraca. In April 2018 , the FDA also approved Rubraca for the
maintenance treatment of adult patients with recurrent epithelial ovarian,
fallopian tube, or primary peritoneal cancer who are in a complete or partial
response to platinum-based chemotherapy. The approval in this second, broader
and earlier-line indication on a priority review timeline was based on positive
data from the phase 3 ARIEL3 clinical trial. Diagnostic testing is not required
for patients to be prescribed Rubraca in this maintenance treatment indication.
In May 2018 , the European Commission granted a conditional marketing
authorization for Rubraca as monotherapy treatment of adult patients with
platinum-sensitive, relapsed or progressive, BRCA mutated (germline and/or
somatic), high-grade epithelial ovarian, fallopian tube, or primary peritoneal
cancer, who have been treated with two or more prior lines of platinum-based
chemotherapy, and who are unable to tolerate further platinum-based
chemotherapy. In January 2019 , the European Commission granted a variation to
the marketing authorization to include the maintenance treatment of adult
patients with recurrent epithelial ovarian, fallopian tube, or primary
peritoneal cancer who are in a complete or partial response to platinum-based
chemotherapy. With this approval, Rubraca is now authorized in the EU for
certain patients in the recurrent ovarian cancer maintenance setting regardless
of their BRCA mutation status. Following successful reimbursement negotiations,
we have launched Rubraca in each of Germany , United Kingdom , Italy , France andSpain . InMay 2020 , the FDA approved Rubraca tablets for the treatment of adult patients with a deleterious BRCA mutation (germline and/or somatic)-associated mCRPC who have been treated with androgen receptor-directed therapy and a taxane-based chemotherapy. The FDA approved this indication under accelerated approval based on objective response rate and duration of response data from the multi-center, single arm TRITON2 clinical trial. We have launched Rubraca for prostate cancer in theU.S. Continued approval for this indication may be contingent upon verification and description of clinical benefit in confirmatory trials. The TRITON3 clinical trial is expected to serve as the confirmatory study for the Rubraca accelerated approval in mCRPC. Beyond our labeled indications, we have a clinical development program underway to further evaluate Rubraca in a variety of solid tumor types, either as monotherapy or in combination with other agents, including several studies as part of our ongoing clinical collaboration with Bristol-Myers Squibb Company ("BMS") to evaluate its immunotherapy OPDIVO® (nivolumab) in combination with Rubraca. We initiated the Phase 2 LODESTAR study inDecember 2019 to evaluate Rubraca in homologous recombination repair genes across tumor types. The study is evaluating rucaparib as monotherapy treatment in patients with recurrent solid tumors associated with a deleterious mutation in homologous recombination repair genes. Based on our interactions with the FDA, we believe that this study may be registration-enabling for a targeted gene- and tumor-agnostic label, if data from the trial support the potential for an accelerated approval. Assuming enrollment in this study continues as planned, we may potentially file a supplemental New Drug Application with the FDA for this indication in 2021. We hold worldwide rights to Rubraca. In addition to Rubraca, we have a second product candidate currently in clinical development. Lucitanib is an investigational, oral, potent inhibitor of the tyrosine kinase activity of vascular endothelial growth factor receptors 1 through 3 ("VEGFR1-3"), platelet-derived growth factor receptors alpha and beta ("PDGFR ?/?") and fibroblast growth factor receptors 1 through 3 ("FGFR1-3"). We believe that data for a drug similar to lucitanib that inhibits these same pathways - when combined with a PD-1 inhibitor - represent a scientific rationale for development of lucitanib in combination with a PD-1 inhibitor, and inFebruary 2019 , lucitanib was added to our clinical collaboration with BMS. Encouraging data of VEGF and PARP inhibitors in combination also supports the evaluation of lucitanib combined with Rubraca. Thus, we are currently enrolling Phase 1b/2 combination studies involving lucitanib consist of the Clovis-sponsored LIO-1 study of lucitanib in combination with nivolumab in advanced solid tumors and gynecologic cancers and an arm of the Clovis-sponsored SEASTAR study evaluating lucitanib in combination with Rubraca in advanced solid tumors and ovarian cancer. We hold the global (excludingChina ) development and commercialization rights for lucitanib. 29
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Following completion of preclinical work to support an IND application for the lead candidate under our license and collaboration agreement, designated internally as FAP-2286, we plan to conduct global clinical trials. We anticipate submitting two INDs for FAP-2286 for use as imaging and treatment agents, respectively, in Q4 2020 to support an initial Phase 1 study to determine the dose and tolerability of FAP-2286 as a therapeutic agent with expansion cohorts planned in multiple tumor types as part of a global development program. We holdU.S. and global rights to FAP-2286, excludingEurope (defined to includeRussia ,Turkey andIsrael ), where 3BP retains rights. We also have agreed with 3BP to collaborate on a discovery program directed to up to three additional, undisclosed targets for peptide-targeted radionuclide therapy, to which we would obtain global rights for any resulting product candidates. InSeptember 2019 , we entered into a license and collaboration agreement with 3BP to develop a peptide-targeted radionuclide therapy ("PTRT") and imaging agent targeting fibroblast-activating protein alpha ("FAP"). FAP is highly expressed by cancer-associated fibroblasts found in a majority of tumor types, potentially making it a suitable target across a wide array of solid tumors. PTRT is an emerging class of drugs and it involves the injection of a small amount of radioactive material - a radionuclide - that is combined with a cancer-targeting peptide for use as a targeted radiopharmaceutical. The targeting peptide is able to recognize and bind to specific receptors on the cancer cell, such as antigens and cell receptors. When used in a targeted radiopharmaceutical, the peptide is designed to attach to cancer cells, and the intended result is to deliver a high dose of radiation to the tumor while sparing normal tissue because of its rapid systemic clearance. In order for the targeted radiopharmaceutical to be safe and efficacious, it must rapidly attach to cancer cells or in close vicinity to the cancer cells, be retained in or at the tumor site for a sufficient period of time that the radionuclide can have activity on the cancer cells, have minimal attachment to non-cancer cells and then be rapidly cleared from the body. We commenced operations inApril 2009 . To date, we have devoted substantially all of our resources to identifying and in-licensing product candidates, performing development activities with respect to those product candidates and the general and administrative support of these operations. For the six months endedJune 30, 2020 and 2019, we have generated$82.5 million and$66.1 million , respectively, in product revenue related to sales of Rubraca. We have never been profitable and, as ofJune 30, 2020 , we had an accumulated deficit of$2,435.1 million . We incurred net losses of$191.6 million and$206.9 million for the six months endedJune 30, 2020 and 2019, respectively. We had cash and cash equivalents totaling$261.4 million atJune 30, 2020 . We have principally funded our operations using the net proceeds from the sale of convertible preferred stock, the issuance of convertible promissory notes, public offerings of our common stock, convertible senior notes offerings and our financing agreement related to our ATHENA trial. We expect to incur significant losses for the foreseeable future, as we incur costs related to commercial activities associated with Rubraca. Based on our current estimates, we believe that our cash, cash equivalents and available-for-sale securities will allow us to fund activities through at least the next 12 months. Until we can generate a sufficient amount of revenue from Rubraca, we expect to finance our operations in part through additional public or private equity or debt offerings and may seek additional capital through arrangements with strategic partners or from other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenues to achieve profitability, and we may never do so. License Agreements Rucaparib
InJune 2011 , we entered into a license agreement with Pfizer to obtain the exclusive global rights to develop and commercialize Rubraca. The exclusive rights are exclusive even as to Pfizer and include the right to grant sublicenses. Pursuant to the terms of the license agreement, we made a$7.0 million upfront payment to Pfizer and are required to make additional payments to Pfizer for the achievement of certain development and regulatory and sales milestones and royalties on sales as required by the license agreement. Prior to the FDA approval of Rubraca, we made milestone payments of$1.4 million , which were recognized as acquired in-process research and development expense. OnAugust 30, 2016 , we entered into a first amendment to the worldwide license agreement with Pfizer, which amends theJune 2011 existing worldwide license agreement to permit us to defer payment of the milestone payments payable upon (i) FDA approval of an NDA for 1st Indication in US and (ii) EMA approval of an MAA for 1st Indication in the EU, to a date that is 18 months after the date of achievement of such milestones. 30 Table of Contents OnDecember 19, 2016 , Rubraca received its initial FDA approval. This approval resulted in a$0.75 million milestone payment to Pfizer as required by the license agreement, which was paid in the first quarter of 2017. This FDA approval also resulted in an obligation to pay a$20.0 million milestone payment, for which we exercised the option to defer payment by agreeing to pay$23.0 million within 18 months after the date of the FDA approval. We paid the$23.0 million milestone payment inJune 2018 . InApril 2018 , Rubraca received a second FDA approval. This approval resulted in an obligation to pay a$15.0 million milestone payment, which we paid inApril 2018 .
In
InJanuary 2019 , Rubraca received a secondEuropean Commission approval. This approval resulted in an obligation to pay a$15.0 million milestone payment, which we paid inFebruary 2019 .
In
InMay 2020 , Rubraca received a third FDA approval for Rubraca as a monotherapy treatment of adult patients with BRCA1/2-mutant recurrent, metastatic castrate-resistant prostate cancer. This approval resulted in an obligation to pay an$8.0 million milestone payment, which we paid inJune 2020 .
These milestone payments were recognized as intangible assets and are amortized over the estimated remaining useful life of Rubraca.
We are obligated under the license agreement to use commercially reasonable efforts to develop and commercialize Rubraca and we are responsible for all ongoing development and commercialization costs for Rubraca. We are required to make regulatory milestone payments to Pfizer of up to an additional$8.0 million in aggregate if specified clinical study objectives and regulatory filings, acceptances and approvals are achieved. In addition, we are obligated to make sales milestone payments to Pfizer if specified annual sales targets for Rubraca are met, which relate to annual sales targets of$250.0 million and above, which, in the aggregate, could amount to total milestone payments of$170.0 million , and tiered royalty payments at a mid-teen percentage rate on net sales, with standard provisions for royalty offsets to the extent we need to obtain any rights from third parties to commercialize Rubraca. The license agreement with Pfizer will remain in effect until the expiration of all of our royalty and sublicense revenue obligations to Pfizer, determined on a product-by-product and country-by-country basis, unless we elect to terminate the license agreement earlier. If we fail to meet our obligations under the agreement and are unable to cure such failure within specified time periods, Pfizer can terminate the agreement, resulting in a loss of our rights to Rubraca and an obligation to assign or license to Pfizer any intellectual property rights or other rights we may have in Rubraca, including our regulatory filings, regulatory approvals, patents and trademarks for Rubraca. InApril 2012 , we entered into a license agreement with AstraZeneca to acquire exclusive rights associated with Rubraca under a family of patents and patent applications that claim methods of treating patients with PARP inhibitors in certain indications. The license enables the development and commercialization of Rubraca for the uses claimed by these patents. AstraZeneca also receives royalties on net sales of Rubraca. Lucitanib
OnNovember 19, 2013 , we acquired all of the issued and outstanding capital stock of EOS pursuant to the terms set forth in that certain Stock Purchase Agreement, dated as ofNovember 19, 2013 (the "Stock Purchase Agreement"), by and among the Company, EOS, its shareholders (the "Sellers") andSofinnova Capital V FCPR, acting in its capacity as the Sellers' representative. Following the acquisition, EOS became a wholly-owned subsidiary of the Company. Under the terms of the Stock Purchase Agreement, in addition to the initial purchase price paid at the time of the closing of the acquisition and other license fees due to Advenchen described below, we will also be obligated to pay to the Sellers a milestone payment of$65.0 million upon obtaining the first NDA approval from the FDA with respect to lucitanib. 31 Table of Contents InOctober 2008 , Ethical Oncology Science, S.p.A. ("EOS") (now known as Clovis Oncology Italy S.r.l.) entered into an exclusive license agreement withAdvenchen Laboratories LLC ("Advenchen") to develop and commercialize lucitanib on a global basis, excludingChina . We are obligated to pay Advenchen tiered royalties at percentage rates in the mid-single digits on net sales of lucitanib, based on the volume of annual net sales achieved. In addition, after giving effect to the first and second amendments to the license agreement, we are required to pay to Advenchen 25% of any consideration, excluding royalties, we receive from sublicensees, in lieu of the milestone obligations set forth in the agreement. We are obligated under the agreement to use commercially reasonable efforts to develop and commercialize at least one product containing lucitanib, and we are also responsible for all remaining development and commercialization costs for lucitanib. The license agreement with Advenchen will remain in effect until the expiration of all of our royalty obligations to Advenchen, determined on a product-by-product and country-by-country basis, unless we elect to terminate the agreement earlier. If we fail to meet our obligations under the agreement and are unable to cure such failure within specified time periods, Advenchen can terminate the agreement, resulting in a loss of our rights to lucitanib. FAP Program InSeptember 2019 , we entered into a global license and collaboration agreement with 3BP to develop and commercialize a PTRT and imaging agent targeting FAP. The lead candidate, designated internally as FAP-2286, is being developed pursuant to a global development plan agreed to by the parties. We are responsible for the costs of all preclinical and clinical development activities described in the plan, including the costs for a limited number of 3BP full-time equivalents and external costs incurred during the preclinical development phase of the collaboration. Upon the signing of the license and collaboration agreement inSeptember 2019 , we made a$9.4 million upfront payment to 3BP, which we recognized as acquired in-process research and development expense. Pursuant to the terms of the FAP agreement, we are required to make additional payments to 3BP for annual technology access fees and upon the achievement of certain development and regulatory milestone events (or on certain dates, whichever occur earlier). We are also obligated to pay 3BP single- to low-double-digit royalties on net sales of the FAP-targeted therapeutic product and imaging agent, based on the volume of annual net sales achieved. In addition, 3BP is entitled to receive 34% of any consideration, excluding royalties on the therapeutic product, pursuant to any sublicenses we may grant. We are obligated under the license and collaboration agreement to use diligent efforts to develop FAP-2286 and commercialize a FAP-targeted therapeutic product and imaging agent, and we are responsible for all commercialization costs in our territory. The agreement with 3BP will remain in effect until the expiration of our royalty obligations to 3BP, determined on a product-by-product and country-by-country basis, unless we elect to terminate the agreement earlier. If we fail to meet our obligations under the agreement and are unable to cure such failure within specified time periods, 3BP can terminate the agreement, resulting in a loss of our rights. 3BP also has the right to terminate the agreement under certain circumstances in connection with our change of control in which the acquiring party retains a product competitive with the FAP-targeted therapeutic product or, in the event marketing authorization has not yet been obtained, does not agree to the then-current global development plan. InFebruary 2020 , we finalized the terms of a drug discovery collaboration agreement with 3BP to identify up to three additional, undisclosed targets for peptide-targeted radionuclide therapy, to which we will obtain global rights for any resulting product candidates. We are responsible for the costs of all preclinical and clinical development activities conducted under the discovery program, including the costs for a limited number of 3BP full-time equivalents and external costs incurred during the discovery and preclinical development phase for each collaboration target. The discovery collaboration agreement was effectiveDecember 31, 2019 , for which we incurred a$2.1 million technology access fee, which we accrued and recognized as a research and development expense. Pursuant to the terms of the discovery collaboration agreement, we are required to make additional payments to 3BP for annual technology access fees and upon the achievement of certain development and regulatory milestone events (or on certain dates, whichever occur earlier). We are also obligated to pay 3BP a 6% royalty on net sales of License Products (as defined in the agreement), based on the volume of quarterly net sales achieved. We are obligated under the discovery collaboration agreement to use diligent efforts to develop and commercialize the product candidates, if any, that result from the discovery program, and we are responsible for all clinical 32
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development and commercialization costs. The agreement with 3BP will remain in effect until the expiration of our royalty obligations to 3BP, determined on a product-by-product and country-by-country basis, unless we elect to terminate the agreement earlier. If we fail to meet our obligations under the agreement and are unable to cure such failure within specified time periods, 3BP can terminate the agreement, resulting in a loss of our rights.
Pursuant to terms of each of our product license agreements, we will pay royalties to our licensors on sales, if any, of the respective products.
Financial Operations Overview
Revenue Product revenue is derived from sales of our product, Rubraca, inthe United States andEurope . We distribute our product principally through a limited number of specialty distributor and specialty pharmacy providers, collectively, our customers. Our customers subsequently sell our products to patients and healthcare providers. Separately, we have arrangements with certain payors and other third parties that provide for government-mandated and privately-negotiated rebates, chargebacks and other discounts. Revenue is recorded net of estimated rebates, chargebacks, discounts and other deductions as well as estimated product returns (collectively, "variable considerations"). Revenue from product sales are recognized when customers obtain control of our product, which occurs at a point in time, typically upon delivery to the customers. For further discussion of our revenue recognition policy, see Note 2, Summary of Significant Accounting Polices in the Revenue Recognition section. In the three and six months endedJune 30, 2020 , we recorded product revenue of$39.9 million and$82.5 million , respectively, related to sales of Rubraca. Our ability to generate revenue and become profitable depends upon our ability to successfully commercialize products. Any inability on our part to successfully commercialize Rubraca inthe United States ,Europe and any foreign territories where it may be approved, or any significant delay in such approvals, could have a material adverse impact on our ability to execute upon our business strategy and, ultimately, to generate sufficient revenues from Rubraca to reach or maintain profitability or sustain our anticipated levels of operations. We supply commercially labeled Rubraca free of charge to eligible patients who qualify due to financial need through our patient assistance program and the majority of these patients are on Medicare. This product is distributed through a separate vendor who administers the program on our behalf. It is not distributed through our specialty distributor and specialty pharmacy network. This product is neither included in the transaction price nor the variable considerations to arrive at product revenue. Manufacturing costs associated with this free product is included in selling, general and administrative expenses. For the six months endedJune 30, 2020 , the supply of this free drug was approximately 14% of the overall commercial supply or the equivalent of$12.7 million in commercial value. Our ability to generate product revenues for the quarter endedJune 30, 2020 was negatively affected, largely due to fewer new patient starts, as oncology practices and patients adjusted to the impact of the COVID-19 pandemic in theU.S. andEurope . As a result of the COVID-19 pandemic, ourU.S. and European sales forces have had physical access to hospitals, clinics, doctors and pharmacies curtailed and/or have been limited. Our European launches inItaly ,Spain andFrance occurred in an environment in which our field-based personnel in those countries have not been allowed to visit hospitals since as early as late February and into the second quarter; however, physical access inEurope has been gradually granted starting late second quarter. Similarly, we launched Rubraca for prostate cancer in theU.S beginning in May, but our physical access to hospital, clinics, doctors and pharmacies has been limited. An additional factor affecting our prostate cancer launch is that Foundation Medicine has not yet received FDA approval for the companion plasma-based diagnostic for Rubraca. Cost of Sales - Product
Product cost of sales consists primarily of materials, third-party manufacturing costs as well as freight and royalties owed to our licensing partners for Rubraca sales.
Cost of Sales - Intangible Asset Amortization
Cost of sales for intangible asset amortization consists of the amortization of
capitalized milestone payments made to our licensing partners upon FDA approval
of Rubraca. Milestone payments are amortized on a straight-line basis over the
estimated remaining patent life of Rubraca.
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Research and Development Expenses
Research and development expenses consist of costs incurred for the development of our product candidates and companion diagnostics, which include:
license fees and milestone payments related to the acquisition of in-licensed
? products, which are reported on our Consolidated Statements of Operations and
Comprehensive Loss as acquired in-process research and development;
? employee-related expenses, including salaries, benefits, travel and share-based
compensation expense;
? expenses incurred under agreements with contract research organizations
("CROs") and investigative sites that conduct our clinical trials;
? the cost of acquiring, developing and manufacturing clinical trial materials;
? costs associated with non-clinical activities and regulatory operations;
market research, disease education and other commercial product planning
? activities, including the hiring of a sales and marketing and medical affairs
organization in preparation for commercial launch of Rubraca; and
? activities associated with the development of companion diagnostics for our
product candidates. Research and development costs are expensed as incurred. License fees and milestone payments related to in-licensed products and technology are expensed if it is determined that they have no alternative future use. Costs for certain development activities, such as clinical trials and manufacturing of clinical supply, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors. Our research and development expenses remained relatively flat in the three months endedJune 30, 2020 compared to the same period in the prior year while they increased during the six months endedJune 30, 2020 compared to the same period in the prior year. We expect research and development costs to be lower in the full year 2021 compared to full year 2020. We did not see material disruption to our clinical trials as a result of the COVID-19 pandemic for the three and six months endedJune 30, 2020 as we completed target enrollment of ATHENA, our largest clinical trial, during the second quarter. However, we may see disruption during the remainder of 2020 and into 2021. For example, new patient recruitment in certain clinical studies may be affected and the conduct of clinical trials may vary by geography as some regions are more adversely affected. Additionally, we may slow or delay enrollment in certain trials to manage expenses. The following table identifies research and development costs on a program-specific basis for our products under development. Personnel-related costs, depreciation and share-based compensation are not allocated to specific programs, as they are deployed across multiple projects under development and, as such, are separately classified as personnel and other expenses in the table below (in thousands): Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 (in thousands) Rucaparib Expenses Research and development$ 45,928 $ 47,377 $ 87,658 $ 85,530 Rucaparib Total 45,928 47,377 87,658 85,530 FAP Expenses Research and development$ 1,849 $ -$ 2,844 $ - FAP Total 1,849 - 2,844 - Lucitanib Expenses Research and development 1,335 1,281 2,831 1,601 Lucitanib Total 1,335 1,281 2,831 1,601 Rociletinib Expenses Research and development$ (868) $ 175 (800) 525 Rociletinib Total (868) 175 (800) 525 Personnel and other expenses 21,634 21,913 45,566 45,121 Total$ 69,878 $ 70,746 $ 138,099 $ 132,777
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist principally of salaries and
related costs for personnel in executive, commercial, finance, legal, investor
relations, human resources and information technology functions. Other
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general and administrative expenses include facilities expenses, communication expenses, information technology costs, corporate insurance and professional fees for legal, consulting and accounting services. With the FDA approval of Rubraca onDecember 19, 2016 , all sales and marketing expenses associated with Rubraca are included in selling, general and administrative expenses. As a result of the COVID-19 pandemic, ourU.S. and European sales forces have had physical access to hospitals, clinics, doctors and pharmacies curtailed and/or have been limited, which may decrease sales and marketing expenses during the remainder of 2020 and possibly extending to 2021. In addition, due to increased travel restrictions, quarantines, "work-at-home" and "shelter-in-place" orders and extended shutdown of certain non-essential business inthe United States , and European andAsia-Pacific countries, in-person conferences and meetings requiring travel will decrease resulting in a decrease of our selling, general and administrative expenses.
Acquired in-process research and development expenses consist of upfront payments to acquire a new drug compound, as well as subsequent milestone payments. Acquired in-process research and development payments are immediately expensed provided that the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, has no alternative future use. Once regulatory approval is received, payments to acquire rights, and the related milestone payments, are capitalized and the amortization of such assets recorded to intangible asset amortization cost of sales. Other Income and Expense Other income and expense is primarily comprised of foreign currency gains and losses resulting from transactions with CROs, investigative sites and contract manufacturers where payments are made in currencies other than theU.S. dollar. Other expense also includes interest expense recognized related to our convertible senior notes.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses, revenue and related disclosures. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue, intangible asset impairment, clinical trial accruals and share-based compensation expense. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a description of our critical accounting policies, please see Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 . Other than the adoption of the new credit losses standard discussed in Note 2, Summary of Significant Accounting Policies, there have not been any material changes to our critical accounting policies sinceDecember 31, 2019 . New Accounting Standards From time to time, theFinancial Accounting Standards Board ("FASB") or other standards-setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through the issuance of an Accounting Standards Update. Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our Consolidated Financial Statements upon adoption.
To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note 2, Summary of Significant Accounting Policies, in the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
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Results of Operations
Comparison of Three Months Ended
The following table summarizes the results of our operations for the three
months ended
Change
Three months ended June 30, Favorable/(Unfavorable)
2020 2019 $ %
Revenues:
Product revenue $ 39,887 $ 32,978 $ 6,909 21 %
Operating expenses:
Cost of sales - product 9,120 6,445 (2,675) (42) %
Cost of sales - intangible asset
amortization 1,280 1,217 (63) (5) %
Research and development 69,878 70,746 868 1 %
Selling, general and administrative 41,902 48,029 6,127 13 %
Other operating expenses 355 - (355) (100) %
Total expenses 122,535 126,437 3,902 3 %
Operating loss (82,648) (93,459) 10,811 12 %
Other income (expense):
Interest expense (6,739) (3,817) (2,922) (77) %
Foreign currency gain (loss) 142 (226) 368 163 %
Loss on extinguishment of debt (3,277) - (3,277) (100) %
Legal settlement loss - (25,000) 25,000 100 %
Other income 239 1,899 (1,660) (87) %
Other income (expense), net (9,635) (27,144) 17,509 65 %
Loss before income taxes (92,283) (120,603) 28,320 23 %
Income tax benefit 36 176 (140) (80) %
Net loss $ (92,247) $ (120,427) $ 28,180 23 %
Product Revenue. Product revenue for the three months ended June 30, 2020
increased compared to the same period in the prior year primarily due to
continued growth in sales of Rubraca, which is approved for sale in the United
States and Europe markets. Following successful reimbursement negotiations, we
launched Rubraca in Germany and United Kingdom in March 2019 , Italy in November
2019 , France in February 2020 and Spain in March 2020 . In May 2020 , the FDA
approved Rubraca as a monotherapy treatment of adult patients with
BRCA1/2-mutant recurrent, metastatic castrate-resistant prostate cancer and we
have launched Rubraca for prostate cancer in the U.S. Product revenue is
recorded net of variable considerations comprised of rebates, chargebacks and
other discounts. Product revenue for the three months ended June 30, 2020 was
$36.7 million in the United States and $3.2 million outside of the United
States . Variable considerations represented 19.4% and 14.2% of the transaction
price recognized in the three months ended June 30, 2020 and 2019, respectively.
This increase is primarily due to the European National Health Service rebates
related to our sales in Europe . In addition, beginning in January 2020 , we began
providing payor rebates, which is included in discounts and fees for the three
months June 30, 2020 . Amounts are summarized as follows:
Three months ended Three months ended
June 30, 2020 June 30, 2019
$ % of Gross Sales $ % of Gross Sales
(in thousands) (in thousands)
Transaction price $ 49,497 100.0% $ 38,453 100.0%
Variable considerations:
Government rebates and chargebacks 6,636 13.4% 3,514 9.1% Discounts and fees 2,974 6.0% 1,961 5.1% Total variable considerations 9,610 19.4% 5,475 14.2% Product revenue $ 39,887 80.6% $ 32,978 85.8% Cost of Sales - Product. Product cost of sales for the three months endedJune 30, 2020 increased compared to the same period in the prior year primarily due to the increase in product revenue. Product cost of sales primarily relate to manufacturing, freight and royalties costs associated with Rubraca sales in the period. The increase in product revenue resulted in$1.6 million in royalties. 36 Table of Contents Cost of Sales - Intangible Asset Amortization. In the three months endedJune 30, 2020 and 2019, we recognized cost of sales of$1.3 million and$1.2 million , respectively, associated with the amortization of capitalized milestone payments related to the approvals of Rubraca by the FDA and theEuropean Commission . Research and Development Expenses. Research and development expenses remained relatively flat in the three months endedJune 30, 2020 compared to the same period in the prior year. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased during the three months endedJune 30, 2020 compared to the same period in the prior year primarily due to decreased commercialization activities for Rubraca and the decrease in costs associated with European commercialization. This includes a decrease of$2.9 million in marketing costs. In addition, there was a decrease of$1.6 million in travel due to the COVID-19 pandemic.
Interest Expense. Interest expense increased during the three months endedJune 30, 2020 compared to the same period in the prior year primarily due to theMay 2019 financing agreement related to our ATHENA trial. In addition, our convertible senior notes transactions during the quarter resulted in the write off of$0.8 million of unamortized debt issuance costs, which was recorded
as interest expense.
Loss on Extinguishment of Debt. InApril 2020 , we entered into a privately negotiated exchange agreement with a Holder of our 2021 Notes, pursuant to which we issued to such Holder of the 2021 Notes approximately$36.1 million in Additional 2024 Notes of our currently outstanding 2024 Notes in exchange for approximately$32.8 million in aggregate principal of 2021 Notes held by such Holder, which resulted in a$3.3 million loss on extinguishment of debt.
Legal Settlement Loss. During the second quarter of 2019, we recorded a
one-time charge of
Other Income. Other income decreased during the three months endedJune 30, 2020 compared to the same period in the prior year due to interest income earned on our available-for-sale securities. 37
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Comparison of Six Months Ended
The following table summarizes the results of our operations for the six months
ended
Change
Six months ended June 30, Favorable/(Unfavorable)
2020 2019 $ %
Revenues:
Product revenue $ 82,451 $ 66,096 $ 16,355 25 %
Operating expenses:
Cost of sales - product 18,216 13,851 (4,365) (32) %
Cost of sales - intangible asset
amortization 2,492 2,337 (155) (7) %
Research and development 138,099 132,777 (5,322) (4) %
Selling, general and administrative 84,500 95,791 11,291 12 %
Other operating expenses 3,805 - (3,805) (100) %
Total expenses 247,112 244,756 (2,356) (1) %
Operating loss (164,661) (178,660) 13,999 8 %
Other income (expense):
Interest expense (16,300) (7,407) (8,893) (120) %
Foreign currency loss (735) (419) (316) (75) %
Loss on convertible senior notes
conversion (7,791) - (7,791) (100) %
Loss on extinguishment of debt (3,277) - (3,277) (100) %
Legal settlement loss - (25,000) 25,000 100 %
Other income 1,081 4,300 (3,219) (75) %
Other income (expense), net (27,022) (28,526)
1,504 5 %
Loss before income taxes (191,683) (207,186) 15,503 7 %
Income tax benefit 104 336 (232) 69 %
Net loss $ (191,579) $ (206,850) $ 15,271 7 %
Product Revenue. Product revenue for the six months ended June 30, 2020
increased compared to the same period in the prior year primarily due to
continued growth in sales of Rubraca, which is approved for sale in the United
States and Europe markets. Following successful reimbursement negotiations, we
launched Rubraca in Germany and United Kingdom in March 2019 , Italy in November
2019 , France in February 2020 and Spain in March 2020 . In May 2020 , the FDA
approved Rubraca as a monotherapy treatment of adult patients with
BRCA1/2-mutant recurrent, metastatic castrate-resistant prostate cancer and we
have launched Rubraca for prostate cancer in the U.S. Product revenue is
recorded net of variable considerations comprised of rebates, chargebacks and
other discounts. Product revenue for the six months ended June 30, 2020 was
$76.0 million in the United States and $6.5 million outside of the United
States . Variable considerations represented 21.1% and 14.1% of the transaction
price recognized in the six months ended June 30, 2020 and 2019, respectively.
This increase is primarily due to coverage gap rebates, PHS chargebacks and the
European National Health Service rebates related to our sales in Europe . In
addition, beginning in January 2020 , we began providing payor rebates, which is
included in discounts and fees for the six months June 30, 2020 . Amounts are
summarized as follows:
Six months ended Six months ended
June 30, 2020 June 30, 2019
$ % of Gross Sales $ % of Gross Sales
(in thousands) (in thousands)
Transaction price $ 104,460 100.0% $ 76,983 100.0%
Sales deductions:
Government rebates and chargebacks 15,219 14.6% 6,902 9.0%
Discounts and fees 6,790 6.5% 3,985 5.2%
Total sales deductions 22,009 21.1% 10,887 14.1%
Product revenue $ 82,451 78.9% $ 66,096 85.9%
Cost of Sales - Product. Product cost of sales for the six months ended June 30,
2020 increased compared to the same period in the prior year primarily due to
the increase in product revenue. Product cost of sales primarily relate to
manufacturing, freight and royalties costs associated with Rubraca sales in
the
period.
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Cost of Sales - Intangible Asset Amortization. In the six months endedJune 30, 2020 and 2019, we recognized cost of sales of$2.5 million and$2.3 million , respectively, associated with the amortization of capitalized milestone payments related to the approvals of Rubraca by the FDA and theEuropean Commission . Research and Development Expenses. Research and development expenses increased during the six months endedJune 30, 2020 compared to the same period in the prior year primarily due to higher research and development costs for Rubraca. We have increased costs related to our ATHENA combination study with Bristol-Myers Squibb Company's immunotherapy nivolumab for ovarian cancer. Clinical trial costs for lucitanib were$1.2 million higher than the six months endedJune 30, 2019 primarily due to increased enrollment in our Phase 1b/2 studies. In addition, we incurred$2.8 million for FAP-2286 as we have begun to pursue a clinical development program in multiple tumor types. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased during the six months endedJune 30, 2020 compared to the same period in the prior year primarily due to decreased commercialization activities for Rubraca and the decrease in costs associated with European commercialization. This includes a decrease of$7.7 million in marketing costs. In addition, there was a decrease of$1.8 million in legal costs.
Other Operating Expenses. During the six months ended
Interest Expense. Interest expense increased during the six months endedJune 30, 2020 compared to the same period in the prior year primarily due to theMay 2019 financing agreement related to our ATHENA trial. In addition, our convertible senior notes transactions during the year resulted in the write off of$4.3 million of unamortized debt issuance costs, which was recorded as interest expense. Loss on Convertible Senior Notes Conversion. InJanuary 2020 , we completed a registered direct offering of an aggregate 17,777,679 shares of our common stock at a price of$9.25 per share. We used the proceeds of the share offering to repurchase an aggregate of$123.4 million principal amount of 2024 Notes in privately negotiated transactions. In addition, we paid customary fees and expenses in connection with the transactions. This transaction resulted in a loss of$7.8 million for the six months endedJune 30, 2020 . Loss on Extinguishment of Debt. InApril 2020 , we entered into a privately negotiated exchange agreement with a Holder of our 2021 Notes, pursuant to which we issued to such Holder of the 2021 Notes approximately$36.1 million in Additional 2024 Notes of our currently outstanding 2024 Notes in exchange for approximately$32.8 million in aggregate principal of 2021 Notes held by such Holder, which resulted in a$3.3 million loss on extinguishment of debt.
Legal Settlement Loss. During the second quarter of 2019, we recorded a
one-time charge of
Other Income. Other income decreased during the six months endedJune 30, 2020 compared to the same period in the prior year due to interest income earned on our available-for-sale securities.
Liquidity and Capital Resources
To date, we have principally funded our operations using the net proceeds from the sale of convertible preferred stock, the issuance of convertible promissory notes, public offerings of our common stock, convertible senior notes offering and our financing agreement related to our ATHENA trial. AtJune 30, 2020 , we had cash and cash equivalents totaling$261.4 million . 39
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The following table sets forth the primary sources and uses of cash for the six
months ended
Six months ended June 30,
2020 2019
Net cash used in operating activities $ (142,351) $ (196,488)
Net cash provided by investing activities 126,607 73,832
Net cash provided by financing activities 115,651 9,344
Effect of exchange rate changes on cash and cash equivalents (304) 43
Net increase (decrease) in cash and cash equivalents $ 99,603 $ (113,269)
Operating Activities
Net cash used in operating activities resulted primarily from our net losses
adjusted for non-cash items and changes in components of working capital. Net
cash used in operating activities was lower during the six months ended June 30,
2020 compared to the same period in the prior year primarily due to a lower net
loss, decreased by the non-cash write-off of debt issuance costs related to the
convertible senior notes transactions, loss related to the convertible senior
notes conversion and loss on extinguishment of debt. In addition, there was a
reduction in payments made for inventory during the quarter.
Investing Activities
Net cash provided by investing activities for the six months endedJune 30, 2020 included sales of available-for-sale securities of$144.6 million , partially offset by purchases of available-for-sale securities of$10.0 million and a milestone payment of$8.0 million . Net cash used in investing activities in the same period in the prior year included sales of available-for-sale securities of$296.8 million , offset by purchases of available-for-sale securities of$205.8 million and a milestone payment of$15.8 million . Financing Activities
Net cash provided by financing activities for the six months endedJune 30, 2020 included proceeds of$246.7 million from the issuance of common stock, partially offset by the payment of our 2024 Notes. In addition, we had$33.3 million proceeds from borrowings under our financing agreement.
Operating Capital Requirements
Inthe United States , Rubraca is approved by the FDA for two indications for patients with recurrent epithelial ovarian, fallopian tube or primary peritoneal cancer. Rubraca is also approved by the FDA for prostate cancer. In the EU, Rubraca is approved by the EMA for two indications for patients with recurrent epithelial ovarian, fallopian tube or primary peritoneal cancer. We expect to incur significant losses for the foreseeable future, as we commercialize Rubraca and expand our selling, general and administrative functions to support the growth in our commercial organization.
As of
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amounts of our working capital requirements. Our future funding requirements will depend on many factors, including but not limited to:
? the number and characteristics of the product candidates, companion diagnostics
and indications we pursue;
the achievement of various development, regulatory and commercial milestones
? resulting in required payments to partners pursuant to the terms of our license
agreements;
the scope, progress, results and costs of researching and developing our
? product candidates and related companion diagnostics and conducting clinical
and non-clinical trials;
? the timing of, and the costs involved in, obtaining regulatory approvals for
our product candidates and companion diagnostics;
? the cost of commercialization activities, including marketing and distribution
costs;
? the cost of manufacturing any of our product candidates we successfully
commercialize;
40
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the costs involved in preparing, filing, prosecuting, maintaining, defending
? and enforcing patent claims, including litigation costs and outcome of such
litigation; and
? the timing, receipt and amount of sales, if any, of our product candidates.
InApril 2020 , we entered into a privately negotiated exchange agreement with a holder ("Holder") of our 2021 Notes, pursuant to which we issued to such Holder of the 2021 Notes approximately$36.1 million in aggregate principal amount (the "Additional 2024 Notes") of our currently outstanding 2024 Notes in exchange for approximately$32.8 million in aggregate principal of 2021 Notes held by such Holder (the "Exchange Transaction"). We did not receive any cash proceeds from the Exchange Transaction. In April andMay 2020 , approximately$24.3 million in principal amount of 2024 Notes were converted into 3,331,870 shares of our common stock at the conversion rate of 137.2213 shares per$1,000 in principal amount of 2024 Notes. InMay 2020 , we sold 11,090,000 shares of our common stock in a public offering at$8.05 per share. The net proceeds from the offering were$82.8 million , after deducting underwriting discounts and commissions and offering expenses. Based on current estimates, we believe that our existing cash, cash equivalents and available-for-sale securities will allow us to fund our operating plan through at least the next 12 months. Impact of COVID-19 Pandemic Our ability to generate product revenues for the quarter endedJune 30, 2020 was negatively affected, largely due to fewer new patient starts, as oncology practices and patients adjusted to the impact of the COVID-19 pandemic in theU.S. andEurope . As a result of the COVID-19 pandemic, ourU.S. and European sales forces have had physical access to hospitals, clinics, doctors and pharmacies curtailed and/or have been limited. Our European launches inItaly ,Spain andFrance occurred in an environment in which our field-based personnel in those countries have not been allowed to visit hospitals since as early as late February and into the second quarter; however, physical access inEurope has been gradually granted starting late second quarter. Similarly, we launched Rubraca for prostate cancer in theU.S. beginning in May, but our physical access to hospitals, clinics, doctors and pharmacies has been limited. We saw no clear trend inU.S. new patient starts throughMay 2020 , but saw a meaningful decline inJune 2020 . InJuly 2020 , we saw a recovery back toward the previous levels, aided byU.S. new patient starts in the newly-approved prostate indication. InJuly 2020 , we also saw improved sales performance in the EU. However, it is too early to discern or predict any trend in new patient starts or EU revenues due to the unpredictability of the COVID-19 situation. This curtailment of and/or limited physical access may also decrease sales and marketing expenses during the remainder of 2020 and possibly extending to 2021. In addition, due to increased travel restrictions, quarantines, "work-at-home" and "shelter-in-place" orders and extended shutdown of certain non-essential business inthe United States , and European andAsia-Pacific countries, in-person conferences and meetings requiring travel will decrease, resulting in a decrease of our selling, general and administrative expenses. We believe that we have sufficient supply of Rubraca and our product candidates to continue our commercial and clinical operations as planned. We did not see material disruption to our clinical trials as a result of the COVID-19 pandemic for the three and six months endedJune 30, 2020 as we completed target enrollment of ATHENA, our largest clinical trial, during the second quarter. However, we may see disruption during the remainder of 2020 and into 2021. For example, new patient recruitment in certain clinical studies may be affected and the conduct of clinical trials may vary by geography as some regions are more adversely affected. Additionally, we may slow or delay enrollment in certain trials to manage expenses. OnMarch 18, 2020 , the Families First Coronavirus Response Act ("FFCR Act"), and onMarch 27, 2020 , the Coronavirus Aid, Relief and Economic Security ("CARES") Act were each enacted in response to the COVID-19 pandemic. The FFCR Act and the CARES Act contain numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses arising in taxable years beginning afterDecember 31, 2017 . We evaluated the impact of this legislation and the income tax provisions did not result in a material cash benefit to us. Future regulatory guidance under the FFCR Act and the CARES Act (as well as under the Tax Cuts and Jobs Act) remains forthcoming, and such guidance could ultimately increase or lessen their impact on our business and financial condition. It is also highly possible thatCongress will enact additional legislation in connection with the COVID-19 pandemic, some of which could impact us. The trading prices for our common stock and of other biopharmaceutical companies have been highly volatile as a result of the coronavirus pandemic. As a result of this volatility and uncertainties regarding future impact of COVID-19 on our business and operations, we may face difficulties raising capital or may only be able to raise capital on unfavorable terms. 41 Table of Contents
Contractual Obligations and Commitments
For a discussion of our contractual obligations, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2019 Annual Report on Form 10-K. For further information regarding our contractual obligations and commitments, see Note 15, Commitments and Contingencies to our unaudited consolidated financial statements included elsewhere in this report.
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