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, our ability to raise capital, 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 theUS 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 Form 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 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® (rucaparib), an oral small molecule inhibitor of poly ADP-ribose polymerase ("PARP"), is marketed inthe United States for an indication specific to recurrent epithelial ovarian, fallopian tube or primary peritoneal cancer and also an indication specific to metastatic castration-resistant prostate cancer ("mCRPC"). Rubraca received an approval from theUnited States Food and Drug Administration ("FDA") inApril 2018 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. Diagnostic testing is not required
for
patients
30
Table of Contents
to be prescribed Rubraca in this maintenance treatment indication. InJune 2022 , we voluntarily withdrew the initial indication for Rubraca covering 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, for which approval was received from the FDA inDecember 2016 . InMay 2020 , the FDA approved Rubraca for the treatment of adult patients with mCRPC associated with a deleterious BRCA mutation (germline and/or somatic) who have been treated previously with androgen receptor-directed therapy and a taxane-based chemotherapy and selected for therapy based on an FDA-approved companion diagnostic for Rubraca. The FDA approved this indication under accelerated approval based on objective response rate and duration of response data from the TRITON2 clinical trial. As an accelerated approval, 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 Rubraca's approval in mCRPC and could serve as the basis for a potential second-line label expansion. TRITON3 is a Phase 3 randomized trial of Rubraca in patients with chemotherapy-naïve mCRPC. The study enrolled 405 patients with a mutation in BRCA or ATM who were randomized to Rubraca or the control group, which consisted of physician's choice of docetaxel, abiraterone acetate, or enzalutamide. The primary endpoint was rPFS by IRR. The primary efficacy analysis evaluated two prospectively defined molecular sub-groups in a step-down manner: 1) the BRCA subgroup and 2) all patients randomized (ITT) in TRITON3, inclusive of those with BRCA or ATM mutations. TRITON3 met its primary endpoint of PFS in the BRCA mutant and ITT populations. We released the initial data readout from TRITON3 early inOctober 2022 . In the BRCA subgroup, the Rubraca arm (n=201) achieved statistical significance over the control arm (n=101) for the primary endpoint of rPFS with a hazard ratio of 0.50 (95% CI: 0.36-0.69). The median PFS for the population of patients with BRCA mutations treated with Rubraca was 11.2 months vs 6.4 months among those who received physician's choice (p<0.0001). In the ITT population the Rubraca arm (n=270) achieved statistical significance over the control arm (n=135) for the primary endpoint of rPFS with a hazard ratio of 0.61 (95% CI: 0.47-0.80). The median PFS for all patients enrolled in TRITON3 and treated with Rubraca was 10.2 months vs 6.4 months among those who received physician's choice (p=0.0003). In the exploratory subgroup of men with tumor ATM mutations (n=103), the hazard ratio for rPFS was 0.97 (95% CI: 0.59-1.52). Median rPFS in the Rubraca arm (n=69) was 8.1 months vs 6.8 months in the control arm (n=34) with a nominal p-value (p=0.8421). The hazard ratio for the interim analysis of the secondary endpoint of overall survival (OS) in the BRCA subgroup and ITT population, which are not yet mature, favored Rubraca. The hazard ratio for OS in the exploratory subgroup of ATM, which is mature, favored the control arm. The 95% confidence intervals for these OS analyses included less than one for the exploratory endpoint ATM, signifying no statistical difference in outcomes between Rubraca and control. The safety profile of Rubraca observed in TRITON3 was consistent with Rubraca labelling. We intend to discuss with the FDA submitting for the broader ITT population. Depending on the outcome of the FDA discussion and available financial and personnel resources, we will evaluate if or when an sNDA filing may occur. InEurope , theEuropean Commission granted a conditional marketing authorization inMay 2018 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. InApril 2022 , we submitted to the EMA the top-line final OS data from the Phase 3 ARIEL4 study of Rubraca versus chemotherapy in relapsed ovarian cancer patients with BRCA mutations (inclusive of germline and/or somatic) who had received two or more prior lines of chemotherapy. We voluntarily requested this treatment indication be withdrawn inEurope after the EMA initiated a non-Pharmacovigilance Article 20 referral procedure to review the ARIEL4 dataset, specifically to evaluate the risk: benefit of Rubraca in the third-line and later treatment indication. OnJuly 22, 2022 , the EMA recommended that Rubraca should no longer be authorized in the third-line and later treatment indication, and theEuropean Commission issued a final legally binding decision applicable in all EU Member States inSeptember 2022 , which concluded the Article 20 referral. InJanuary 2019 , theEuropean 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. The approval for this indication is not affected by the voluntarily withdrawal of the later-line treatment indication, and Rubraca is authorized inEurope for certain patients in the recurrent ovarian cancer maintenance setting regardless of their BRCA mutation status. Following successful reimbursement negotiations, Rubraca is marketed in each ofGermany ,United Kingdom ,Italy ,France ,Spain ,the Netherlands , andSwitzerland . 31
Table of Contents
InSeptember 2022 we submitted the final OS data from our ARIEL3 study to FDA and EMA. In the nested primary analysis populations, HR were 0.832 (95% CI 0.581-1.192), 1.005 (95% CI 0.766-1.320), 0.995 (95% CI 0.809-1.223) in the BRCA, HRD and ITT populations, respectively. In non-nested exploratory subgroups related to tumor molecular characteristics, HR were 1.280 (95% CI 0.841-1.948), 1.153 (95% CI 0.784-1.695), 0.673 (95% CI 0.305-1.483) in the BRCA wild type HRD positive, BRCA wild type HRD negative and BRCA wild type HRD unknown subgroups, respectively. In all cases, the confidence interval crossed 1, indicating no difference between the treatment arms. Beyond our labeled indications, we continue to evaluate Rubraca in the ATHENA Phase 3 study under a clinical collaboration with Bristol Myers Squibb to evaluate its immunotherapy OPDIVO® (nivolumab) in combination with Rubraca in front-line ovarian cancer maintenance treatment. OnMarch 31, 2022 , we announced positive top-line data from the monotherapy portion of the ATHENA (GOG 3020/ENGOT-ov45) trial (ATHENA-MONO) demonstrating that Rubraca as maintenance treatment successfully achieved the primary endpoint of significantly improved investigator-assessed PFS compared with placebo. Benefit was observed in both primary efficacy analyses of newly-diagnosed patients with advanced ovarian cancer following successful treatment with platinum-based chemotherapy: those who had homologous recombination deficiency (HRD-positive), including deleterious BRCA mutations, as well as all patients randomized in the trial (overall intent-to-treat population ("ITT")). Benefit in PFS was also seen in the exploratory subgroups of patients with BRCA mutant (BRCAm) tumors, BRCA wild type HRD-negative and BRCA wild type HRD-positive and in patients with unknown biomarker status. The safety of Rubraca observed in the ATHENA-MONO study was consistent with both the US and European labels. The portion of the ATHENA trial evaluating the combination of OPDIVO and Rubraca (ATHENA-COMBO) is ongoing. Based on the results of ATHENA-MONO, we submitted an sNDA to the FDA and a Type II variation to the EMA for a first-line maintenance treatment indication for women with advanced ovarian cancer who have responded to first-line platinum-based chemotherapy inAugust 2022 . In earlyMay 2022 , the FDA recommended that we should not submit the first line maintenance sNDA until OS data from the ATHENA-MONO trial are as much as 50% mature, and if we do choose to submit prior to that, we should expect the FDA to require a discussion at an ODAC meeting in connection with its review of such sNDA submission. In addition, the FDA will consider OS data from other rucaparib clinical trials when it reviews the ATHENA-MONO dataset. OnNovember 4, 2022 , we received from the FDA the Day-74 letter, which notifies an applicant of issues identified during the filing review phase. The letter confirmed that the sNDA has been accepted for a standard review with a PDUFA date ofJune 25, 2023 . The FDA reiterated that the current OS data from the ATHENA-MONO trial are immature and expressed the view that the current trends of certain OS HR estimates indicate that there may be potential harm for patients in certain sub-groups. The OS data submitted in the sNDA application were immature at 15.8% (HRD) and 24.7% (ITT) with no statistically significant differences between rucaparib and control. Our initial estimates suggest that we would reach 50% maturity in approximately 1.5 years. The FDA further indicated that PFS improvement alone may not be sufficient to support an overall positive benefit-risk assessment in a maintenance treatment setting, as, in theFDA's opinion, Rubraca is adding toxicity during a time when patients would otherwise not be on any treatment. While the letter did not refer to an ODAC, there can be no assurances regarding whether an ODAC will be scheduled, or the timing or outcome of the FDA review of the sNDA submission and the timing or outcome of the EMA review of the Type II variation submission.
ATHENA is a double-blind, placebo-controlled, Phase 3 trial of rucaparib in first-line ovarian cancer maintenance treatment. It has two parts which are statistically independent. The top-line results reported were from the ATHENA-MONO part (rucaparib vs. placebo), with results from the ATHENA-COMBO part (rucaparib+nivolumab vs. rucaparib) expected in the fourth quarter of 2023.
ATHENA-MONO enrolled 538 women with high-grade ovarian, fallopian tube, or primary peritoneal cancer. The primary efficacy analysis evaluated two prospectively defined molecular sub-groups in a step-down manner: 1) HRD-positive (inclusive of BRCAm tumors), and 2) all patients randomized (ITT) in ATHENA-MONO.
Following is a summary of the primary efficacy analyses by investigator review, the primary analysis of ATHENA-MONO.
Significant Improvement in PFS in the HRD-positive Patient Population
32
Table of Contents
The rucaparib arm (n=185) successfully achieved statistical significance over the placebo arm (n=49) for the primary endpoint of PFS with a hazard ratio of 0.47 (95% CI: 0.31-0.72). The median PFS for the HRD-positive patient population treated with rucaparib was 28.7 months vs. 11.3 months among those who received placebo (p=0.0004). Significant Improvement in PFS in All Patients Studied (ITT or all comers) Rucaparib also showed statistical significance in all 538 patients randomized in the ATHENA-MONO comparison. The rucaparib arm (n=427) successfully achieved statistical significance over the placebo arm (n=111) for the primary endpoint of PFS with a hazard ratio of 0.52 (95% CI: 0.40-0.68). The median PFS for all patients enrolled in ATHENA-MONO and treated with rucaparib was 20.2 months vs. 9.2 months among those who received placebo (p<0.0001). Benefit in PFS was also observed in the exploratory subgroups of patients with BRCAm tumors, those with BRCA wild-type, HRD-positive and HRD-negative tumors, and those whose biomarker status could not be determined.
Treatment Benefit in PFS Endpoint for Exploratory BRCA wild type HRD-negative Subgroup
The PFS endpoint in the exploratory subgroup of HRD-negative demonstrated a hazard ratio of 0.65 (95% CI: 0.45-0.95). The median PFS for these patients treated with rucaparib (n=189) was 12.1 months vs. 9.1 months for those who received placebo (n=49) (p=0.0284).
Treatment Benefit in PFS Endpoint for Exploratory BRCA wild type HRD-positive Subgroup
The PFS endpoint in the exploratory subgroup of HRD-positive demonstrated a hazard ratio of 0.58 (95% CI: 0.33-1.01). The median PFS for these patients treated with rucaparib (n=94) was 20.3 months vs. 9.2 months for those who received placebo (n=25) (p=0.0584).
Treatment Benefit in PFS Endpoint for Exploratory BRCAm Subgroup
The PFS endpoint in the exploratory subgroup of BRCAm demonstrated a hazard ratio of 0.40 (95% CI: 0.21-0.75). The median PFS for these patients treated with rucaparib (n=91) was Not Reached vs 14.7 months for those who received placebo (n=24) (p=0.0041). Results were consistent for the germline BRCA (n=68) and somatic BRCA (n=33) and unknown (n=14) populations.
Treatment Benefit in PFS Endpoint for Exploratory Biomarker Status Unknown Subgroup
The PFS endpoint in the exploratory subgroup of patients whose biomarker status could not be determined demonstrated a hazard ratio of 0.39 (95% CI: 0.20-0.78). The median PFS for these patients treated with rucaparib (n=53) was 17.5 months vs. 8.9 months for those who received placebo (n=13) (p=0.0068).
Summary of Interim Overall Survival Data
Data for OS were immature and thus heavily censored at the time of the visit cutoff for the primary endpoint analysis. The number of deaths in the rucaparib and placebo groups in the HRD and ITT Populations was small (HRD, 37/234 [15.8%]; ITT, 133/538 [24.7%]). Interim OS results showed HR 0.97 [95% CI, 0.43-2.19] and HR 0.96 [95% CI, 0.63-1.47] for the nested HRD and ITT populations, respectively. In exploratory subgroups based on tumor molecular characteristics interim OS results showed HR 2.24 [95% CI, 0.39-12.99], HR 0.64 [95% CI, 0.25-1.59], HR 0.92 [95% CI, 0.54-1.57, HR 1.04 [95% CI, 0.31-3.50 in the BRCA, BRCA wild type LOH high, BRCA wild type LOH low and BRCA wild type LOH unknown subgroups, respectively. All the confidence intervals crossed one, indicating no difference between OS in the rucaparib and placebo arms.
Summary of ATHENA-MONO Safety Data
The safety of Rubraca observed in ATHENA-MONO was consistent with both the
current US and European labels. The most common (?5%) treatment-emergent grade
3/4 adverse events ("TEAEs") among all patients treated with rucaparib in the
monotherapy portion of the ATHENA study were anemia/decreased hemoglobin
(28.7%), neutropenia (14.6%), ALT/AST increase (10.6%), and thrombocytopenia
(7.1%). The discontinuation rate for TEAEs
33
Table of Contents
was 11.8% for rucaparib-treated patients and 5.5% for the placebo arm. The rate of treatment-emergent myelodysplastic syndrome (MDS)/acute myeloid leukemia (AML) in the rucaparib arm was 0.2%, and no patients on the placebo arm experienced treatment-emergent MDS/AML.
These data were presented at the ASCO Annual Meeting in
About Ovarian Cancer
Ovarian cancer is the eighth leading cause of cancer-related death among women worldwide. In 2020, GLOBOCAN estimated 314,000 women received a new diagnosis of ovarian cancer and approximately 207,200 women died from ovarian cancer. According to theAmerican Cancer Society , an estimated more than 19,000 women will be diagnosed with ovarian cancer inthe United States and there will be an estimated nearly 13,000 deaths from ovarian cancer in 2022. According to GLOBOCAN, an estimated 66,000 women inEurope are diagnosed each year with ovarian cancer, and ovarian cancer is among those cancers with the highest rate of deaths. According to theNIH National Cancer Institute , more than 75% of women are diagnosed with ovarian cancer at an advanced stage. Despite recent advances in the therapeutic landscape of newly diagnosed ovarian cancer, advanced ovarian cancer is still considered incurable for the majority of patients and the optimal treatment strategy has yet to be determined, according to a 2021 report in theInternational Journal of Gynecological Cancer . Although most respond initially to this treatment, 80% of patients with advanced ovarian cancer will have a recurrence and require subsequent therapies, according to a 2012 study published in the Annals of Oncology.
About Prostate Cancer
TheAmerican Cancer Society estimates that approximately 268,000 men in the US will be diagnosed with prostate cancer in 2022, and the GLOBOCAN Cancer Fact Sheets estimated that approximately 473,000 men inEurope were diagnosed with prostate cancer in 2020. Castrate-resistant prostate cancer has a high likelihood of developing metastases. Metastatic castrate-resistant prostate cancer ("mCRPC") is an incurable disease, usually associated with poor prognosis. Approximately 43,000 men in the US were expected to be diagnosed with mCRPC in 2020. According to theNational Cancer Institute , the five-year survival rate for mCRPC is approximately 30%. BRCA or ATM mutations have been detected in approximately 19% of patients with mCRPC according to articles published in JCO Precision Oncology in 2017 and inClinical Cancer Research in 2021. These molecular markers may be used to select patients for treatment with a PARP inhibitor.
About Biomarkers in Ovarian Cancer
In the high-grade epithelial ovarian cancer setting, a patient's tumor can be classified based on the genetic biomarker status: those with homologous recombination deficiencies, or HRD-positive, include those with a mutation of the BRCA gene (BRCAm), inclusive of germline and somatic mutations of BRCA, which represent approximately 25 percent of patients, according to studies published inCancer and Clinical Cancer Research , and those with a range of genetic abnormalities other than BRCAm, which result in other homologous recombination deficiencies that represent an additional estimated 25 percent of patients (HRD-positive, BRCAwt), according to a 2015 study published in Cancer Discovery; in addition, those whose test results show no deficiencies in homologous recombination repair (HRD-negative) represent the remaining approximate 50 percent of patients, according to a 2022 study published in Cancers. HRD-positive may also be referred to as HR-deficient, HRD, HRD+, HRd, or biomarker positive. HRD-negative may also be referred to as HR-proficient, HRD-, HRp, or biomarker negative.
The timing for the Phase 3 data readouts from the ATHENA-COMBO trial is contingent upon the occurrence of the protocol-specified PFS events, currently estimated to occur in the fourth quarter of 2023.
We hold worldwide rights to Rubraca.
FAP-2286
FAP-2286 is our initial product candidate to emerge from our targeted
radionuclide collaboration with 3B
34
Table of Contents
targeting fibroblast activation protein ("FAP"). PTRT uses cancer cell-targeting
peptides to deliver radiation-emitting radionuclides specifically to tumors.
Following the clearance by the FDA of two INDs submitted in December 2020 to
support the use of FAP-2286 as an imaging and treatment agent, we initiated the
Phase 1 portion of the LuMIERE clinical study in June 2021 . LuMIERE is a Phase
1/2 study of FAP-2286 labeled with lutetium-177 (177Lu-FAP-2286) evaluating the
compound in patients with advanced solid tumors to determine the dose, schedule,
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 are
currently enrolling patients in the third dose cohort, and we plan to initiate
Phase 2 expansion cohorts during the first quarter of 2023. FAP-2286 labeled
with gallium-68 (68Ga-FAP-2286) is being utilized to identify tumors that
contain FAP for treatment in this study.
We presented Phase 1 clinical data from LuMIERE at the SNMMI 2022 Annual Meeting
in June and the EANM Congress in October 2022 . Overall, in eleven patients
treated up to the third dose cohort of 7.4 GBq/dose, 177Lu-FAP-2286 demonstrated
a manageable safety profile with some preliminary evidence of anti-tumor
activity, including a confirmed RECIST partial response ("PR") in one patient
and a RECIST best response of stable disease ("SD") in one heavily pretreated
patient.
The Phase 1 portion of the LuMIERE study is evaluating the safety of the investigational therapeutic agent 177Lu-FAP-2286 to identify the recommended Phase 2 dose and schedule. The safety and tumor uptake of the imaging agent 68Ga-FAP-2286 is also being evaluated.
Updated results from the Phase 1 portion of the ongoing Phase 1/2 LuMIERE study found TEAEs were mostly Grade 1 and 2 across cohorts. Data from the 7.4 GBq/dose cohort includes two patients who have completed the first cycle with enrollment ongoing. A dose-limiting toxicity of Grade 4 lymphopenia related to 177Lu-FAP-2286 was reported in one of six patients in the 5.55 GBq cohort; the patient had grade 2 lymphopenia at baseline. Overall, five patients (45.5%) had a Grade ?3 TEAE, including abdominal distension (9.1%), cholangitis (9.1%), hyponatremia (9.1%), increased blood bilirubin (9.1%), and spinal compression fracture (9.1%); none were considered as related to 177Lu-FAP-2286. There was good tumor uptake across a range of tumor types with prolonged tumor retention of 177Lu-FAP-2286 after dosing. Kidney and bone marrow radiation exposure observed appeared comparable to those reported in the literature for other lutetium-177 labeled radionuclide therapies with non-FAP targets. A confirmed RECIST PR was reported in one heavily pre-treated patient in the 3.7 GBq dose cohort with pseudomyxoma peritonei of appendiceal origin, who completed the maximum six administrations of 177Lu-FAP-2286. The patient continues without disease progression or subsequent anti-cancer therapy more than twelve months after first dose. A RECIST best response of SD was reported in one heavily pre-treated patient in the 5.55 GBq dose cohort with gallbladder cancer who completed four administrations of 177Lu-FAP-2286 and remained stable without progressive disease through cycle four of treatment with subsequent progression. In addition to investigating for therapeutic use FAP-2286 labeled with the beta particle-emitting lutetium-177, we are also exploring FAP-2286 labeled with the alpha particle-emitting actinium-225 (Ac-225). We hold US and global rights to FAP-2286, excludingEurope (defined to includeRussia ,Turkey , andIsrael ), where 3BP retains rights. We are also collaborating with 3BP on a discovery program directed to up to three additional, undisclosed targets for targeted radionuclide therapy, to which we would have global rights for any resulting product candidates.
Lucitanib
Lucitanib, another of our small molecule product candidates, is an
investigational, oral, potent angiogenesis inhibitor which inhibits 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"). Lucitanib inhibits the same three
pathways as Lenvima® (lenvatinib), which has received an FDA approval for use in
certain populations of patients with endometrial cancer in combination with
Keytruda® (pembrolizumab), a PD-1 inhibitor. This, together with preclinical
data for lucitanib in combination with a PD-1 inhibitor that demonstrated
enhanced anti-tumor activity compared to that of single agents, represent a
scientific rationale for development of lucitanib in combination with a PD-1
inhibitor, and in February 2019 , lucitanib was added to our clinical
collaboration
35
Table of Contents
with Bristol Myers Squibb. The Phase 1b/2 LIO-1 study evaluated the combination
of lucitanib and Opdivo in gynecologic cancers. Although interim data from LIO-1
suggested promising activity of the combination, given the competing priorities,
including development of FAP-2286, we have determined that we will not pursue
further development of lucitanib in gynecological cancers at this time.
We hold the global (excluding
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 nine months endedSeptember 30, 2022 and 2021, we have generated$97.1 million and$112.9 million , respectively, in product revenue related to sales of Rubraca.
We have never been profitable and, as of
We have incurred significant net losses since inception, and we expect operating losses and negative cash flows to continue for the foreseeable future.
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. During 2016 through 2020, we paid Pfizer a total of$82.5 million in milestone payments related to the FDA andEuropean Commission approvals received for Rubraca. 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. As discussed in Note 1, we are in discussions with Pfizer to defer certain royalty payments due under our license agreement in respect of sales of Rubraca during the quarter endedSeptember 30, 2022 in the amount of$4.3 million and the quarter endingDecember 31, 2022 untilMarch 31, 2023 , plus interest thereon from the date such payments would otherwise be payable under the license agreement until actually paid. 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 36
Table of Contents
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.
FAP-2286 and the Radionuclide Therapy Development 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. We submitted two INDs for FAP-2286 for use as imaging and treatment agents inDecember 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. InApril 2021 , we made a milestone payment to 3BP under the license and collaboration agreement of$2.2 million as a result of theFDA's acceptance of the IND for the treatment agent. InSeptember 2021 , we made a$3.3 million milestone payment to 3BP under the license and collaboration agreement. InFebruary 2020 , we finalized the terms of a drug discovery collaboration agreement with 3BP to identify up to three additional, undisclosed targets for PTRT, 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 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 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. 37 Table of Contents 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. InOctober 2008 , Ethical Oncology Science, S.p.A. ("EOS") (now known as Clovis Oncology Italy Srl) 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.
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 is 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 nine months endedSeptember 30, 2022 , we recorded product revenue of$30.7 million and$97.1 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 nine months endedSeptember 30, 2022 , the supply of this free drug was approximately 24% of the overall commercial supply or the equivalent of$22.3 million in commercial value. 38 Table of Contents
Our ability to generate product revenue for the quarter endedSeptember 30, 2022 continued to be negatively affected by the COVID-19 pandemic, primarily due to the ongoing effect the pandemic has had on oncology treatment and practice, and in particular, the reduction in ovarian cancer diagnoses and fewer patient starts in the US in previous quarters as a result of COVID has continued to impact second-line maintenance treatment and competition from other products on the market, including the impact on second-line maintenance that may result from an increase in first-line maintenance treatment of ovarian cancer. While it does appear that ovarian cancer diagnoses are reverting to pre-COVID levels, the effect of this increase is almost wholly observed on front-line treatments and will not likely impact the second-line indications for several quarters. In addition, we believe that the adoption of PARP inhibitors in the front-line setting is impacting the use of PARP inhibitors in the second-line setting in the US. As a result of the COVID-19 pandemic, our US and European sales forces have had physical access to hospitals, clinics, doctors, and pharmacies curtailed and/or have been limited. Our European launches occurred in an environment in which our field-based personnel have not been allowed to visit hospitals since as early as lateFebruary 2020 . Similarly, we launched Rubraca for prostate cancer in the US beginning inMay 2020 , but our physical access to hospital, clinics, doctors, and pharmacies has been limited.
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 the FDA approval of Rubraca. Milestone payments are amortized on a straight-line basis over the estimated remaining patent life of Rubraca.
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 and disease education; 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 decreased during the three and nine months endedSeptember 30, 2022 , compared to the same period in the prior year. We expect research and development costs in the full year 2022 to be lower compared to 2021. We did not see material disruption to our clinical trials as a result of the COVID-19 pandemic for the three and nine months endedSeptember 30, 2022 . However, we may see disruption during the remainder of 2022. 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. 39 Table of Contents 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 September 30, Nine months ended September 30, 2022 2021 2022 2021 (in thousands) Rucaparib Expenses Research and development$ 11,587 $ 22,946 $ 44,074 $ 74,423 Rucaparib Total 11,587 22,946 44,074 74,423 FAP Expenses Research and development 1,912 2,471 7,583 7,044 Acquired in-process research and development - 3,272 - 5,477 FAP Total 1,912 5,743 7,583 12,521 Lucitanib Expenses Research and development 1,062 2,498 3,902 7,567 Lucitanib Total 1,062 2,498 3,902 7,567 Rociletinib Expenses Research and development (199) (80) (160) (145) Rociletinib Total (199) (80) (160) (145) Personnel and other expenses 16,425 18,387 54,064 55,897 Total$ 30,787 $ 49,494 $ 109,463 $ 150,263
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 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. The COVID-19 pandemic has accelerated a preference by oncology practices for more digital programming, including digital, peer-to-peer interactions and reduced in-person promotion. In order to meet these changing preferences, we adopted a hybrid commercial strategy combining increased digital promotion activities, greater online resources, and more peer-to-peer interactions with reduced and more targeted in-person promotion. New tools and performance indicators based on this hybrid approach were rolled out during the fourth quarter of 2020. We adopted this strategy in order to better reach customers in the way they want to be reached with the goal of returning to growth, especially as the ongoing impact of COVID-19 is reduced.
We expect selling, general, and administrative expenses in the full year 2022 to be slightly lower compared to 2021.
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 are 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 the US dollar.
Other expense also includes interest expense recognized related to our
convertible senior notes.
40
Table of Contents
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 with US 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 ended
New Accounting Standards
From time to time, the 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. 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.
Results of Operations
Comparison of Three Months EndedSeptember 30, 2022 and 2021 (in thousands): Three months ended September 30, 2022 2021 US ex-US Total US ex-US Total Transaction price$ 29,120 $ 14,293 $ 43,413 $ 35,763 $ 16,174 $ 51,937 Sales deductions: Government rebates and chargebacks (3,419) (6,008) (9,427) (4,093) (6,146) (10,239) Discounts and fees (2,682) (641) (3,323) (2,971) (811) (3,782) Total sales deductions (6,101) (6,649) (12,750) (7,064) (6,957) (14,021) Product revenue 23,019 7,644 30,663 28,699 9,217 37,916 Operating expenses: External cost of sales - product 4,487 2,778 7,265 5,488 3,018 8,506 Cost of sales - intangible asset amortization 620 723 1,343 620 723 1,343
Research and development 29,122 1,665 30,787 44,309 1,913 46,222 Selling, general and administrative 25,872 4,508 30,380 26,685 5,511 32,196 Acquired in-process research and development - - - 3,272 - 3,272 Other operating expenses 5,123 - 5,123 3,841 - 3,841 Total expenses 65,224 9,674 74,898 84,215 11,165 95,380 Operating loss$ (42,205) $ (2,030) (44,235)$ (55,516) $ (1,948) (57,464) Other income (expense): Interest expense (9,863) (8,786) Foreign currency loss (2,073) (1,248) Other income 192 101 Other income (expense), net (11,744) (9,933) Loss before income taxes (55,979) (67,397) Income tax benefit (35)
(13)
Net loss $ (56,014) $ (67,410) Product revenue. Total product revenue for the three months endedSeptember 30, 2022 decreased compared to the same period in the prior year primarily due to fewer diagnoses and fewer patient starts in the US, primarily caused by the ongoing COVID-19 pandemic as there have been fewer patients going to in-person office visits as oncology practices and patients continue to adapt to the impact of the virus and competition from other products on the market, including 41
Table of Contents
the impact on second-line maintenance that may result from an increase in first-line maintenance treatment of ovarian cancer.
US product revenue for the three months endedSeptember 30, 2022 decreased$5.7 million compared to the same period in the prior year and ex-US product revenue for the three months endedSeptember 30, 2022 decreased$1.6 million compared to the same period in the prior year. Product revenue is recorded net of variable considerations comprised of rebates, chargebacks, and other discounts. Product revenue for the three months endedSeptember 30, 2022 was$23.0 million inthe United States and$7.6 million outside ofthe United States . Total variable considerations increased during the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 at 29.4% and 27.0% of the transaction price, respectively.
External cost of sales - product. Product cost of sales for the three months
ended
US product cost of sales for the three months endedSeptember 30, 2022 decreased$1.0 million compared to the same period in the prior year due to the decrease in product revenue.
Ex-US product cost of sales for the three months ended
Cost of sales - intangible asset amortization. In the three months ended
Research and development expenses. Except for activities related to medical research and disease education, research and development expenses are attributable to our US segment. Research and development expenses decreased during the three months endedSeptember 30, 2022 compared to the same period in the prior year primarily due to lower research and development costs for Rubraca. The decrease related to our TRITON studies for prostate cancer and our ARIEL4 and ATHENA studies for ovarian cancer. Selling, general and administrative expenses. Selling, general, and administrative expenses decreased for the three months endedSeptember 30, 2022 compared to the same period in the prior year primarily due to a$1.1 million decrease in share-based compensation expense.
Acquired in-process research and development. In
Other operating expenses. During the three months endedSeptember 30, 2022 and 2021, we recognized other operating expenses related to our production train at Lonza. We expect these expenses to remain consistent during the remainder of 2022 due to our fixed facility fee each quarter since we expect to have sufficient inventory and do not plan to produce inventory at Lonza during the remainder of 2022. For the three months endedSeptember 30, 2022 , we recognized$1.5 million related to an increase in our allowance for excess inventory. We analyzed our current inventory levels for excess quantities and obsolescence (expiration) and considered historical and anticipated future sales compared to quantities on hand and the remaining shelf-life of Rubraca. After considering these factors, we determined that$1.5 million of finished goods is likely to expire before we can sell them.
Interest expense. Interest expense increased during the three months ended
Foreign currency loss. Foreign currency loss increased during the three months endedSeptember 30, 2022 , compared to the same period in the prior year due to transactions with vendors where payments were made in currencies other than
the
US dollar.
42
Table of Contents
Comparison of Nine Months Ended
Nine months ended September 30,
2022 2021
US ex-US Total US ex-US Total
Transaction price $ 89,138 $ 47,349 $ 136,487 $ 111,257 $ 43,413 $ 154,670
Sales deductions:
Government rebates and
chargebacks (11,168) (18,439) (29,607) (13,930) (16,514) (30,444)
Discounts and fees (7,708) (2,120) (9,828) (9,247) (2,190) (11,437)
Total sales deductions (18,876) (20,559) (39,435) (23,177) (18,704) (41,881)
Product revenue 70,262 26,790 97,052 88,080 24,709 112,789
Operating expenses:
Cost of sales - product 13,782 9,425 23,207 17,047 8,021 25,068
Cost of sales - intangible
asset amortization 1,861 2,168 4,029 1,860 2,168 4,028
Research and development 103,996 5,467 109,463 138,913 5,873 144,786
Selling, general and
administrative 76,365 15,818 92,183 77,357 17,698 95,055
Acquired in-process
research and development - - - 5,477 - 5,477
Other operating expenses 22,146 - 22,146 11,431 - 11,431
Total expenses 218,150 32,878 251,028 252,085 33,760 285,845
Operating loss (147,888) (6,088) (153,976) (164,005) (9,051) (173,056)
Other income (expense):
Interest expense (28,637) (25,593)
Foreign currency loss (5,540) (2,001)
Other income 511 392
Other income (expense),
net (33,666) (27,202)
Loss before income taxes (187,642) (200,258)
Income tax benefit 127 125
Net loss $ (187,515) $ (200,133) Product Revenue. Total product revenue for the nine months endedSeptember 30, 2022 decreased compared to the same period in the prior year primarily due to fewer diagnoses and fewer patient starts in the US, primarily caused by the ongoing COVID-19 pandemic as there have been fewer patients going to in-person office visits as oncology practices and patients continue to adapt to the impact of the virus and competition from other products on the market, including the impact on second-line maintenance that may result from an increase in first-line maintenance treatment of ovarian cancer.
US product revenue for the nine months ended
Product revenue is recorded net of variable considerations comprised of rebates, chargebacks, and other discounts. Product revenue for the nine months endedSeptember 30, 2022 was$70.3 million inthe United States and$26.8 million outside ofthe United States . Total variable considerations increased during the nine months endedSeptember 30, 2022 and 2021 at 28.9% and 27.1% of the transaction price, respectively. Cost of Sales - Product. Product cost of sales for the nine months endedSeptember 30, 2022 decreased primarily due to the decrease in product revenue. Product cost of sales primarily relate to manufacturing, freight and royalties costs associated with Rubraca sales in the period. US product cost of sales for the nine months endedSeptember 30, 2022 decreased$3.3 million compared to the same period in the prior year due to the decrease in product revenue.
Ex-US product cost of sales for the nine months ended
Cost of Sales - Intangible Asset Amortization. In the nine months ended
43
Table of Contents
Research and Development Expenses. Except for activities related to medical research and disease education, research and development expenses are attributable to our US segment. Research and development expenses decreased during the nine months endedSeptember 30, 2022 compared to the same period in the prior year primarily due to lower research and development costs for Rubraca. The decrease related to our TRITON studies for prostate cancer and our ARIEL4 and ATHENA studies for ovarian cancer. Selling, General and Administrative Expenses. Selling, general, and administrative expenses for the nine months endedSeptember 30, 2022 decreased$2.9 million compared to the same period in the prior year, which primarily related to decreases in personnel and marketing costs, partially offset by an increase in legal fees.$1.0 million decrease related to our US segment while$1.9 million related to our ex-US segment. Acquired in-process research and development. InApril 2021 , we made a milestone payment to 3BP under the license and collaboration agreement of$2.2 million as a result of theFDA's acceptance of the IND for the treatment agent. InSeptember 2021 , we made a$3.3 million milestone payment to 3BP under the license and collaboration agreement. Other Operating Expenses. During the nine months endedSeptember 30, 2022 and 2021, we recognized other operating expenses related to our dedicated production train at Lonza. We expect these expenses to remain consistent during the remainder of 2022 due to our fixed facility fee each quarter since we expect to have sufficient inventory and do not plan to produce inventory at Lonza during the remainder of 2022. For the nine months endedSeptember 30, 2022 , we recognized$11.2 million related to an increase in our allowance for excess inventory. We analyzed our current inventory levels for excess quantities and obsolescence (expiration) and considered historical and anticipated future sales compared to quantities on hand and the remaining shelf-life of Rubraca. After considering these factors, we determined that$11.1 million of finished goods is likely to expire before we can sell them. As discussed in Note 14, Commitments and Contingencies, we amended this agreement inJune 2021 , resulting in the derecognition of the lease components recognized under the original agreement. The derecognition of the lease components, payment of$1.1 million to Lonza and derecognition of fixed assets related to our Lonza production train resulted in a loss of$0.3 million , which is included in other operating expenses. Lonza is guaranteeing a minimum percentage usage of this production train for third parties and Lonza would reduce our fixed facility fee starting in 2023 based on this minimum percentage usage. If Lonza is able to utilize greater than the minimum guaranteed percentage, it will increase the reduction to our fixed facility fee. Interest Expense. Interest expense increased during the nine months endedSeptember 30, 2022 compared to the same period in the prior year due to a$4.8 million increase in interest expense under our financing agreement related to our ATHENA trial partially offset by$1.2 million decrease in interest expenses related to our convertible senior notes. Foreign currency loss. Foreign currency loss increased during the nine months endedSeptember 30, 2022 , compared to the same period in the prior year due to transactions with vendors where payments were made in currencies other than the US dollar.
Liquidity and Capital Resources
Going Concern and Management Plans
We require significant cash resources to execute our business plans. Based on our current cash and cash equivalents, together with current estimates for revenues to be generated by sales of Rubraca, we will not have sufficient liquidity to maintain our operations beyondJanuary 2023 . Given the recent regulatory developments that may have significant impact on current revenues and the commercial potential of Rubraca and the continuing challenges we face in raising additional capital, including as a result of the uncertain market potential of Rubraca, a potential bankruptcy filing in the very near term looks increasingly probable as a way to preserve the value of our business and assets for the benefit of our stakeholders, as further described below, though we continue to evaluate our strategic options and continue to discuss in and out of bankruptcy financing options with our creditors and other parties.
We have incurred significant net losses since inception and have relied, almost entirely, on debt and equity financings to fund our operations. We expect operating losses and negative cash flows to continue for the foreseeable
44
Table of Contents
future even with Rubraca generating revenues. Rubraca revenues have not been consistent in prior quarters and have been trending downward during the past two years, initially as a result of the impact of COVID-19 pandemic on patient visits and diagnoses, but more recently primarily as a result of competition from other products on the market, including the impact on second-line maintenance that may result from an increase in first-line maintenance treatment of ovarian cancer (indications for which competing products are approved). Moreover, over the past few months, a new focus by the FDA and the EMA on mature OS data for drugs previously approved based on achieving PFS as a primary endpoint has led to withdrawals of certain later line indications in ovarian cancer for Rubraca and each of the other PARP inhibitors on the market with a later line treatment indication in ovarian cancer. In addition, FDA had scheduled an ODAC meeting inNovember 2022 to review another PARP-inhibitor, Zejula (niraparib) (GSK), to seek advice on whether its second-line maintenance indication in ovarian cancer should be withdrawn from the labeling on the basis of the final OS data from the trial that supported approval for Zejula in that indication. In lateOctober 2022 , the FDA cancelled that ODAC meeting, indicating that it was no longer necessary. While neither the FDA nor GSK have publicly stated the reason for cancelation of the meeting, if the outcome of discussions between the FDA and GSK is a withdrawal or narrowing of that indication, we cannot assure you that the FDA would not seek to similarly limit our second line maintenance indication in ovarian cancer. As a substantial portion of our Rubraca revenue is attributable to that indication, we would expect that a limiting of our second line maintenance indication could result in a significant impact on our revenue, although the timing and magnitude of such impact is not currently ascertainable. This focus by the FDA on OS data has created uncertainty with respect to the timing, likelihood and scope of an approval for the sNDA we filed with the FDA, and may result in uncertainty with respect to the Type II variation we filed with the EMA, for first-line maintenance treatment indication in ovarian cancer, which we had been planning on to finally level the competitive landscape with our two competitors that have existing and established labels in the first-line maintenance treatment indication setting. This new regulatory framework has created an uncertain commercial landscape for Rubraca (and to a certain extent, other PARP inhibitors) and has impacted the perceived market opportunity and revenue potential for Rubraca (and to a certain extent, other PARP inhibitors). We require significant cash resources to execute our business plans, and our revenues are a significant portion of those cash resources. Based on our current cash and cash equivalents, together with current estimates for revenues to be generated by sales of Rubraca, we must raise additional capital in the near term in order to fund our operating plan and to continue as a going concern beyondJanuary 2023 . It appears increasingly unlikely that additional funding will be available on acceptable terms or at all outside of a Chapter 11 bankruptcy process. Our ability to raise capital is severely limited. We have not been able to access the equity capital markets that we have traditionally relied on in sufficient amount to fund our operating plan given our low stock price over the past six months and the generally unfavorable market conditions, particularly in the biopharma sector. Also, we only have a small number of unissued shares of common stock that we are authorized to issue, and once again this year our stockholders did not approve an amendment to our certificate of incorporation to increase our authorized capital stock. Given our current circumstances, it is highly unlikely that we will be able to access our previously established "at-the-market" offering program ("ATM Program") in the near future. In light of our inability to raise sufficient capital through equity offerings (or offerings of securities convertible into equity securities), we are considering other sources of funding, potentially through incurring further indebtedness or entering into strategic partnerships or licensing arrangements for one or more of our products or product candidates in which we may have to give up certain of our future commercialization or other rights to obtain interim funding. During the past quarter, we advanced our previously announced efforts to explore our strategic options, including identifying potential partners and/or purchasers for our products and development programs. We are in active discussions on a potential sub-licensing arrangement for Rubraca outside the US, but the regulatory uncertainty around our ability to obtain a more competitive label for Rubraca has made it more difficult to reach agreement on financial terms and on timing of a transaction. Additionally, we are also in active discussions for a sale of our license rights to FAP-2286, for which we seek consideration such as an upfront payment and additional payments in the form of milestones and research and development support. However, we expect that a significant portion of the consideration in both transactions would be contingent on future events. No assurances can be made that we will be successful in reaching agreement or entering into such potential transactions, or that if we do enter into a definitive agreement, that the timing and amounts of such payments, including contingent payments, would be sufficient to meet our liquidity needs in the absence of other sources 45
Table of Contents
of funding. These discussions have also been hampered by concerns raised by these potential partners and purchasers about our liquidity position and ability to continue as a going concern.
During the past quarter, we have also continued to aggressively manage our expenses. We implemented a workforce reduction in the US onNovember 7, 2022 consisting of 115 employees, which we anticipate will yield annual cost savings of approximately$29 million per year (excluding one-time severance costs of$4.0 million related to such terminations), but the full impact of those cost savings will not be realized until 2023. We have also reduced discretionary selling, general, and administrative and research and development expenses. We have engaged financial, restructuring, and legal advisors to assist us in, among other things, analyzing various strategic alternatives to address our liquidity and capital structure. During the quarter, we also engaged in further discussions and negotiations with certain of our existing creditors, lenders and vendors to defer certain of our obligations and/or to loan us additional funds to bridge our cash requirements until we can reach definitive agreements on our partnering and sale of assets transactions and potentially to a further point until we have greater clarity from the FDA and EMA on the potential to receive approval for first-line maintenance treatment for Rubraca in the second quarter of 2023. However, we have not been able to reach agreement on such additional financing on terms that we view as reasonable and preserves the value of our assets and business for the benefit of all our relevant stakeholders. We did however elect to not make the interest payment in the amount of$1.9 million in respect of our 1.25% Convertible Senior Notes due 2025 that was due onNovember 1, 2022 . Under the indenture governing these notes, we have a 30-day grace period from the due date to make this interest payment before such nonpayment constitutes an "event of default" under the indenture with respect to such notes. We have chosen to enter this grace period as we continue our discussions with certain creditors in connection with our evaluation of strategic alternatives. Separately, we are in discussions with Pfizer, Inc. to defer certain royalty payments due under our in-license agreement in respect of sales of Rubraca during the quarter endedSeptember 30, 2022 in the amount of$4.3 million and the quarter endingDecember 31, 2022 untilMarch 31, 2023 , plus interest thereon from the date such payments would otherwise be payable under the license agreement until actually paid. The aforementioned factors, which are largely outside of our control, raise substantial doubt about our ability to continue as a going concern in the near term, and certainly within one year from the date of filing of this quarterly report. Given the concerns about our long term viability raised by our partners and potential purchasers of our assets and the high cost and what we view as unreasonable terms of the additional debt financing that may be available to us, a Chapter 11 bankruptcy filing in the very near term, while we have sufficient cash on hand and/or access to debtor in possession financing to be able to implement an orderly restructuring of our liabilities and/or a sale of our assets through a court supervised process, looks increasingly probable. We also believe, however, that such a path may be the best way to preserve the value of our business and assets for the benefit of our stakeholders. Such a filing would subject us to risks and uncertainties associated with bankruptcy proceedings, and may place holders of our common stock at significant risk of losing all of their investment in our shares. However, together with our financial and restructuring advisors, we continue to evaluate our strategic options and continue to discuss in and out of bankruptcy financing options with our creditors and other parties.
Sources and Uses of Cash
The following table sets forth the primary sources and uses of cash for the nine
months ended
Nine months ended September 30,
2022 2021
Net cash used in operating activities$ (134,232) $ (154,714) Net cash used in investing activities (197) (243) Net cash provided by financing activities 53,179 86,990 Effect of exchange rate changes on cash and cash equivalents (3,858) (313) Net decrease in cash and cash equivalents$ (85,108)
$ (68,280) Operating Activities Net cash used in operating activities was lower during the nine months endedSeptember 30, 2022 compared to the same period in the prior year due to a non-cash item of$11.2 million related to an increase in our allowance for excess inventory. We analyzed our current inventory levels for excess quantities and obsolescence (expiration) and considered 46
Table of Contents
historical and anticipated future sales compared to quantities on hand and the remaining shelf-life of Rubraca. After considering these factors, we determined that$11.2 million of finished goods is likely to expire before we can sell them. There were also changes to components of working capital related to accounts receivable, inventory, prepaid and accrued research and development expenses, other operating assets and liabilities, and accounts payable.
Investing Activities
There were no significant investing activities during the nine months ended
Financing Activities
Net cash provided by financing activities for the nine months endedSeptember 30, 2022 included$28.6 million net proceeds resulting from our "at the market" offerings that occurred during January throughMarch 2022 and$24.2 million proceeds from borrowings under our financing agreement related to our ATHENA trial. Net cash provided by financing activities for the nine months endedSeptember 30, 2021 included$114.0 million net proceeds resulting from our "at the market" offerings that occurred during May, June, August, andSeptember 2021 and$37.7 million proceeds from borrowings under our financing agreement related to our ATHENA trial, partially offset by a$64.4 million payment of our 2.50% convertible senior notes. OnMay 17, 2021 , we entered into a distribution agreement (the "Distribution Agreement") withJ.P. Morgan Securities LLC andBofA Securities, Inc. , as agents (the "Agents"), pursuant to which we may offer and sell, from time to time, through the Agents, shares of our common stock having an aggregate offering price of up to$75.0 million in transactions that are deemed to be "at the market" offerings as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, including sales made by means of ordinary brokers' transactions, including directly on the Nasdaq Global Select Market or into any other existing trading market for the shares, or sales made to or through a market maker, in block transactions or by any other method permitted by law, including negotiated transactions. Sales may be made at market prices prevailing at the time of a sale or at prices related to prevailing market prices or at negotiated prices. During the period betweenMay 18, 2021 andJune 9, 2021 , we sold an aggregate of 13,492,231 shares of our common stock under the Distribution Agreement resulting in gross proceeds of$75.0 million and net proceeds to us of$72.5 million , after deducting commissions and offering expenses, effectively closing out sales we may make pursuant to the Distribution Agreement. The issuance and sale of the shares under the Distribution Agreement were be made pursuant to our effective registration statement on Form S-3 filed with theUS Securities and Exchange Commission (the "SEC") onFebruary 25, 2021 (File No. 333-253485) as amended by pre-effective Amendment No. 1 thereto filed with theSEC onMay 5, 2021 . The offering is described in the Company's prospectus datedMay 7, 2021 , as supplemented by a prospectus supplement datedMay 17, 2021 , as filed with theSEC onMay 17, 2021 . We have used and intend to use the net proceeds of this offering for general corporate purposes, including funding of our development programs, sales and marketing expenses associated with Rubraca, repayment, repurchase or refinance of our debt obligations, payment of milestones pursuant to our license agreements, general and administrative expenses, acquisition or licensing of additional product candidates or businesses and working capital. OnAugust 16, 2021 , we entered into a distribution agreement (the "August Distribution Agreement") with the Agents, pursuant to which we may offer and sell, from time to time, through the Agents, shares of our common stock, having an aggregate offering price of up to$125.0 million in transactions that are deemed to be "at the market" offerings as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, including sales made by means of ordinary brokers' transactions, including directly on the Nasdaq Global Select Market or into any other existing trading market for the shares, or sales made to or through a market maker, in block transactions or by any other method permitted by law, including privately negotiated transactions. Sales may be made at market prices prevailing at the time of a sale or at prices related to prevailing market prices or at negotiated prices. During the period betweenAugust 17, 2021 andSeptember 15, 2021 , we sold an aggregate of 9,379,976 shares of our common stock under the August Distribution Agreement resulting in gross proceeds of$43.0 million and net proceeds to us of$41.5 million , after deducting commissions and offering expenses. During the period betweenNovember 5, 2021 andNovember 16, 2021 , we sold an aggregate of 731,292 shares of our common stock resulting in gross proceeds of$3.1 million and net proceeds to us of$3.0 million , after deducting commissions and offering expenses. During the period betweenJanuary 18, 2022 and 47
Table of Contents
March 3, 2022 , we sold an aggregate of 13,870,410 shares of our common stock resulting in gross proceeds of$29.8 million and net proceeds to us of$28.6 million , after deducting commissions and offering expenses. The issuance and sale of the shares under the August Distribution Agreement will be made pursuant to our effective registration statement on Form S-3 filed with theSEC onFebruary 25, 2021 (File No. 333-253485) as amended by pre-effective Amendment No. 1 thereto filed with theSEC onMay 5, 2021 . The offering is described in the Company's prospectus datedMay 7, 2021 , as supplemented by a prospectus supplement datedAugust 16, 2021 , as filed with theSEC onAugust 16, 2021 . We have used and intend to use the net proceeds of this offering for general corporate purposes, including funding of our development programs, sales and marketing expenses associated with Rubraca, repayment, repurchase or refinance of our debt obligations, payment of milestones pursuant to our license agreements, general and administrative expenses, acquisition or licensing of additional product candidates or businesses and working capital.
Cash Requirements
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, it is difficult to estimate the exact amounts of our working capital requirements. Our future funding requirements will depend on many factors, including but not limited to:
? current regulatory uncertainty regarding our current Rubraca ovarian indication
and the potential for a label expansion into front-line maintenance;
? revenues from the sale of our Rubraca product;
? 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;
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.
For a discussion of our contractual obligations, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 Annual Report on Form 10-K. For further information regarding our contractual obligations and commitments, see Note 14, Commitments and Contingencies to our unaudited consolidated financial statements included elsewhere in this report.
Impact of COVID-19 Pandemic
Our ability to generate product revenue for the quarter endedSeptember 30, 2022 continued to be negatively affected by the COVID-19 pandemic, primarily due to the ongoing effect the pandemic has had on oncology treatment and practice, and in particular, the reduction in ovarian cancer diagnoses and fewer patient starts in the US in previous quarters as a result of COVID has continued to impact second-line maintenance treatment and increasingly, competition from other products on the market, including the impact on second-line maintenance that may result from an increase in first-line maintenance treatment of ovarian cancer. While it does appear that ovarian cancer diagnoses are reverting to pre-COVID levels, the effect of this increase is almost wholly observed on front-line treatments and will not likely impact the second-line indications for several quarters. In addition, we believe that the adoption of PARP inhibitors in the front-line setting is impacting the use of PARP inhibitors in the second-line setting in the US. As recently reported by a competitor, ovarian cancer diagnoses are down approximately 29% from pre-pandemic levels and in
the
fourth quarter
48
Table of Contents
of 2021, new patient starts for PARP inhibitors across all indications were down 19% compared to the first quarter of 2021 and down 26% compared to the first quarter of 2020. As a result of the COVID-19 pandemic, our US and European sales forces have had physical access to hospitals, clinics, doctors, and pharmacies curtailed and/or have been limited. Our European launches occurred in an environment in which our field-based personnel were not allowed to visit hospitals beginning as early as lateFebruary 2020 . Similarly, we launched Rubraca for prostate cancer in the US beginning inMay 2020 , but our physical access to hospital, clinics, doctors, and pharmacies remains limited. It is difficult to discern or predict any trend in new patient starts due to the unpredictability of the COVID-19 situation and the changing competitive landscape. The COVID-19 pandemic has accelerated a preference by oncology practices for more digital programming, including digital, peer-to-peer interactions and reduced in-person promotion. In order to meet these changing preferences, we adopted a hybrid commercial strategy combining increased digital promotion activities, greater online resources, and more peer-to-peer interactions with reduced and more targeted in-person promotion. New tools and performance indicators based on this hybrid approach were rolled out during the fourth quarter of 2020. We adopted this strategy in order to better reach customers in the way they want to be reached with the goal of returning to growth, especially as the ongoing impact of COVID-19 is reduced. We did not see material disruption to our clinical trials as a result of the COVID-19 pandemic for the three and nine months endedSeptember 30, 2022 . However, we may see disruption during the remainder of 2022. 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. We believe that we have sufficient supply of Rubraca and our product candidates to continue our commercial and clinical operations as planned. 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 . OnMarch 11, 2021 ,President Biden signed an additional coronavirus relief package entitled the American Rescue Plan Act of 2021 ("ARPA"), which included, among other things, provisions relating to stimulus payments to some Americans, extension of several CARES Act relief programs, expansion of the child tax credit, funding for vaccinations and other COVID-19 related assistance programs. The CARES Act, FFCR Act, and the ARPA have not had a material impact on the Company; however, we will continue to examine the impacts that these Acts, as well as any future economic relief legislation, may have on our business. 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.
© Edgar Online, source
