On October 24, 2017 Eli Lilly and Company (NYSE: LLY) reported financial results for the third quarter of 2017 (Press release, Eli Lilly, OCT 24, 2017, View Source [SID1234521114]).

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$ in millions, except
per share data
Third Quarter
%

2017

2016
Change
Revenue
$
5,658.0

$
5,191.7

9%
Net Income – Reported
555.6

778.0

(29)%
EPS – Reported
0.53

0.73

(27)%

Net Income – Non-GAAP
1,106.7

931.0

19%
EPS – Non-GAAP
1.05

0.88

19%
Certain financial information for 2017 and 2016 is presented on both a reported and a non-GAAP basis. Some numbers in this press release may not add due to rounding. Reported results were prepared in accordance with generally accepted accounting principles (GAAP) and include all revenue and expenses recognized during the periods. Non-GAAP measures exclude the items described in the reconciliation tables later in the release. The company’s 2017 financial guidance is also being provided on both a reported and a non-GAAP basis. The non-GAAP measures are presented to provide additional insights into the underlying trends in the company’s business.

“Lilly’s focus on our key priorities led to strong performance in the third quarter, highlighted by revenue growth from our new pharmaceutical products. In addition, worldwide revenue from our diabetes products collectively grew 39 percent, and we continued to make improvements in our operating margins,” said David A. Ricks, Lilly’s chairman and CEO. “Our pipeline also continues to deliver. Including Verzenio, we’ve now launched nine medicines since 2014, and we are on a path to launch eleven more by 2023.”

Ricks continued, “Today, we are also announcing a strategic review of our Elanco Animal Health business. Elanco has developed into a premier animal health company, and has been an important growth driver and source of revenue diversification for Lilly. Through acquisitions and organic growth, we’ve grown Elanco to a size and scale that now allows us to consider a variety of options to maximize future value.”

Key Events Over the Last Three Months

Commercial

The company launched Olumiant (baricitinib) in Japan for the treatment of rheumatoid arthritis (including the prevention of structural injury of joints) in patients with inadequate response to standard-of-care therapies. Olumiant is part of a collaboration with Incyte.
Regulatory

With respect to Verzenio (abemaciclib), a cyclin-dependent kinase (CDK) 4 & 6 inhibitor, the U.S. Food and Drug Administration (FDA):
Approved and the company launched Verzenio in combination with fulvestrant for the treatment of women with hormone receptor (HR)-positive, human epidermal growth factor receptor 2 (HER2)-negative advanced or metastatic breast cancer with disease progression following endocrine therapy, and as monotherapy for the treatment of adult patients with HR-positive, HER2-negative advanced or metastatic breast cancer with disease progression following endocrine therapy and prior chemotherapy in the metastatic setting.
Granted Priority Review designation for the New Drug Application based upon the positive interim results from a study of abemaciclib in combination with an aromatase inhibitor as initial endocrine-based therapy for the treatment of women with hormone receptor (HR)-positive, human epidermal growth factor receptor 2 (HER2)-negative advanced or metastatic breast cancer.
After discussions with the FDA in late August, Lilly will resubmit the New Drug Application for baricitinib before the end of January 2018. The resubmission package will include new safety and efficacy data. Baricitinib, which is part of a collaboration between Lilly and Incyte, is a once-daily oral investigational medication for the treatment of patients with moderate-to-severe rheumatoid arthritis (RA). The companies anticipate the FDA will classify the application as a Class II resubmission, which will start a new six-month review cycle.
Jardiance (empagliflozin) was approved in China as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes. The Jardiance label includes data on the reduction of risk of cardiovascular death in patients with type 2 diabetes and established cardiovascular disease. Jardiance is part of the company’s alliance with Boehringer Ingelheim.
Clinical

The company announced that lasmiditan, an investigational, oral, first-in-class molecule for the acute treatment of migraine, met its primary endpoint in a second Phase 3 study. At two hours following the first dose, a greater percentage of patients treated with lasmiditan were migraine pain-free compared to placebo. Lilly plans to submit a New Drug Application for lasmiditan to the FDA in the second half of 2018.
The company and Incyte announced new safety and efficacy data from a Phase 2 study of baricitinib in people with moderate-to-severe atopic dermatitis (AD). The results showed that baricitinib in combination with a mid-potency topical corticosteroid (TCS) significantly improved the signs and symptoms of AD compared to TCS alone. Baricitinib is part of a collaboration with Incyte.
The company announced that its Phase 3 study evaluating Verzenio as monotherapy in KRAS-mutated, advanced non-small lung cancer did not meet its primary endpoint of overall survival. However, an analysis of the secondary study endpoints of both progression-free survival and overall response rate showed evidence of monotherapy activity in the abemaciclib arm.
Business Development/Other Developments

The company reported that it is reviewing strategic alternatives for its Elanco Animal Health business, including an initial public offering, merger, sale, or retention of the business, and will provide an update no later than the middle of 2018.
The Patent Trial and Appeal Board of the U.S. Patent and Trademark Office has ruled in the company’s favor regarding patentability of the vitamin regimen for Alimta. If the patent is ultimately upheld through all remaining challenges, Alimta would maintain U.S. exclusivity until May 2022, preventing marketing of generic products for as long as the patent remains in force.
The company announced actions to streamline operations to more efficiently focus resources on developing new medicines and to improve its cost structure. Global workforce reductions, including those from a U.S. voluntary early retirement program, are expected to impact approximately 3,500 positions. Annualized savings of approximately $500 million will be about equally split to improve the company’s cost structure and reinvest in the business, including product launches and clinical development for new indications and line extensions. Lilly confirmed these savings would improve upon its previous commitment and now expects to achieve an OPEX-to-revenue ratio of 49 percent or less in 2018.
The company and CureVac AG announced a global immuno-oncology collaboration focused on the development and commercialization of up to five potential cancer vaccine products based on CureVac’s proprietary RNActive technology. This transaction is subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act and other customary closing conditions. Subject to the closing of this transaction and under the terms of the agreement, CureVac will receive an upfront payment of $50 million and an equity investment of €45 million.
Following the impact of Hurricane Maria, the company has accounted for all employees in Puerto Rico, and its manufacturing sites had minimal damage. The company’s inventory strategy for products is designed to protect against this type of event, and Lilly sees no product supply risk or other significant financial impact at this time.
The company announced plans to invest $72 million in an insulin manufacturing project at one of its Indianapolis facilities. The investment will be used to replace an existing insulin vial filling line and allow Lilly to meet growing demand for its insulins — including Humalog (insulin lispro) and Humulin (human insulin) — while upgrading to state-of-the-art technology and preparing for its insulin pipeline. This new project is part of $850 million in anticipated U.S. capital investments the company announced in March of this year.
Third-Quarter Reported Results

In the third quarter of 2017, worldwide revenue was $5.658 billion, an increase of 9 percent compared with the third quarter of 2016. The revenue increase was driven by a 7 percent increase due to volume and a 2 percent increase due to higher realized prices.

Revenue in the U.S. increased 9 percent, to $3.104 billion, due to increased volume for new pharmaceutical products, including Trulicity, Basaglar, Taltz, Jardiance and Lartruvo, as well as increased volume for companion animal products from the acquisition of Boehringer Ingelheim Vetmedica’s U.S. feline, canine and rabies vaccine portfolio, and higher realized prices for several pharmaceutical products, primarily driven by Forteo, Humalog and Cialis. The increase in revenue was partially offset by decreased volume due to loss of exclusivity for Strattera and Effient, as well as decreased demand for Cialis and food animal products. Cymbalta revenue declined by approximately $145 million, as the third quarter of 2016 included an increase in revenue due to a reduction to the return reserve.

Revenue outside the U.S. increased 8 percent, to $2.554 billion, due to increased volume for several new pharmaceutical products, primarily driven by Trulicity and Cyramza.

Gross margin increased 8 percent, to $4.092 billion, in the third quarter of 2017 compared with the third quarter of 2016. Gross margin as a percent of revenue was 72.3 percent, a decrease of 0.7 percentage points compared with the third quarter of 2016. The decrease in gross margin percent was primarily due to the effect of foreign exchange rates on international inventories sold and negative product mix, partially offset by manufacturing efficiencies.

Operating expenses in the third quarter of 2017, defined as the sum of research and development and marketing, selling and administrative expenses, increased 3 percent to $2.875 billion. Research and development expenses increased 7 percent, to $1.319 billion, or 23.3 percent of revenue. This increase is primarily due to a $50 million milestone payment related to lanabecestat as part of the company’s collaboration with AstraZeneca and, to a lesser extent, higher late-stage clinical development costs. Marketing, selling and administrative expenses decreased 1 percent, to $1.556 billion, due to decreased expenses related to late life-cycle products, partially offset by increased expenses related to new pharmaceutical products. Operating expenses were 50.8 percent of revenue in the third quarter of 2017, a reduction of 3.2 percentage points compared with the third quarter of 2016.

In the third quarter of 2017, the company recognized acquired in-process research and development charges of $205.0 million associated with a strategic collaboration with Nektar Therapeutics to co-develop NKTR-358, a novel immunological therapy that has potential to treat a number of autoimmune and other chronic inflammatory conditions, and a new collaboration with KeyBioscience focused on the development of Dual Amylin Calcitonin Receptor Agonists (DACRAs), a potential new class of treatments for metabolic disorders such as type 2 diabetes. There were no acquired in-process research and development charges in the third quarter of 2016.

In the third quarter of 2017, the company recognized asset impairment, restructuring and other special charges of $406.5 million. The charges are partially associated with asset impairments related to lower projected revenue for Posilac (rbST). The company is exploring strategic options for Posilac, including seeking a buyer for the molecule and its Augusta manufacturing site. The charges are also associated with severance costs incurred as a result of actions taken to reduce the company’s cost structure. Charges related to the U.S. voluntary early retirement program will be recognized in the fourth quarter of 2017. In the third quarter of 2016, the company recognized asset impairment, restructuring and other special charges of $45.5 million, primarily related to integration and severance costs for Novartis Animal Health.

Operating income in the third quarter of 2017 was $605.5 million, a decrease of $338.0 million compared with the third quarter of 2016, primarily driven by asset impairment, restructuring and other special charges, and acquired in-process research and development, partially offset by higher gross margin.

Other income (expense) was expense of $13.9 million in the third quarter of 2017, compared with income of $27.2 million in the third quarter of 2016. The increase in other expense was driven by higher net gains on investments in the third quarter of 2016 as compared to 2017.

The effective tax rate was 6.1 percent in the third quarter of 2017, compared with 19.9 percent in the third quarter of 2016. The lower effective tax rate for the third quarter of 2017 is primarily due to the income tax benefit of acquired in-process research and development charges and asset impairment, restructuring, and other special charges.

In the third quarter of 2017, net income decreased 29 percent, to $555.6 million, and earnings per share decreased 27 percent, to $0.53, compared with $778.0 million and $0.73, respectively, in the third quarter of 2016. The decreases in net income and earnings per share were primarily driven by lower operating income.

Third-Quarter Non-GAAP Measures

On a non-GAAP basis, third-quarter 2017 gross margin increased 7 percent, to $4.252 billion. Gross margin as a percent of revenue was 75.1 percent, a decrease of 1.3 percentage points compared with the third quarter of 2016. The decrease in gross margin percent was primarily due to the effect of foreign exchange rates on international inventories sold and negative product mix, partially offset by manufacturing efficiencies.

Operating expenses were 50.8 percent of revenue in the third quarter of 2017, a reduction of 3.1 percentage points compared with the third quarter of 2016.

Operating income increased $211.7 million, or 18 percent, to $1.378 billion in the third quarter of 2017, primarily due to higher gross margin partially offset by increased operating expenses.

The effective tax rate was 18.9 percent in the third quarter of 2017, compared with 22.0 percent in the third quarter of 2016. The lower effective tax rate for the third quarter of 2017 is primarily due to a net discrete tax benefit of approximately $30 million.

In the third quarter of 2017, net income increased 19 percent, to $1.107 billion, and earnings per share increased 19 percent, to $1.05, compared with $931.0 million and $0.88, respectively, in the third quarter of 2016. The increases in net income and earnings per share were primarily driven by higher operating income.

For further detail of non-GAAP measures, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this press release.

On October 24, 2017 Illumina, Inc. (NASDAQ:ILMN) reported its financial results for the third quarter of fiscal year 2017.

Third quarter 2017 results:
•
Revenue of $714 million, an 18% increase compared to $607 million in the third quarter of 2016
•
GAAP net income attributable to Illumina stockholders for the quarter of $163 million, or $1.11 per diluted share, compared to $129 million, or $0.87 per diluted share, for the third quarter of 2016
•
Non-GAAP net income attributable to Illumina stockholders for the quarter of $163 million, or $1.11 per diluted share, compared to $144 million, or $0.97 per diluted share, for the third quarter of 2016 (see the table entitled “Itemized Reconciliation Between GAAP and Non-GAAP Net Income Attributable to Illumina Stockholders” for a reconciliation of these GAAP and non-GAAP financial measures)
•
Cash flow from operations of $235 million compared to $176 million in the third quarter of 2016
•
Free cash flow (cash flow from operations less capital expenditures) of $153 million for the quarter, compared to $119 million in the third quarter of 2016

Gross margin in the third quarter of 2017 was 67.5% compared to 70.2% in the prior year period. Excluding amortization of acquired intangible assets, non-GAAP gross margin was 68.8% for the third quarter of 2017 compared to 72.0% in the prior year period.

Research and development (R&D) expenses for the third quarter of 2017 were $134 million compared to $126 million in the prior year period. R&D expenses as a percentage of revenue were 18.7%, including 0.8% attributable to Helix. This compares to 20.7% in the prior year period, including 2.4% attributable to GRAIL and Helix.

Selling, general and administrative (SG&A) expenses for the third quarter of 2017 were $167 million compared to $139 million in the prior year period. Excluding the amortization of acquired intangible assets, SG&A expenses as a percentage of revenue were 23.2%, including 1.7% attributable to Helix. This compares to 22.6% in the prior year period, including 1.5% attributable to GRAIL and Helix.

Depreciation and amortization expenses were $40 million and capital expenditures for free cash flow purposes were $82 million during the third quarter of 2017. At the close of the quarter, the company held $2.0 billion in cash, cash equivalents and short-term investments, compared to $1.6 billion as of January 1, 2017.

“We delivered strong financial results in the third quarter with revenue growth across both our sequencing and microarray portfolios,” said Francis deSouza, President and CEO. “NovaSeqTM momentum continued to grow in the third quarter, with close to 200 NovaSeq systems now in customers’ hands. Further innovations, including the recently launched S4 flow cell, Xp workflow and Nextera DNA Flex library preparation kit, are expected to fuel incremental NovaSeq demand.”

Updates since our last earnings release:

•
Released the NovaSeq S4 flow cell, reagent kit for the NovaSeq 6000 System, delivering up to 6TB of output in two days
•
Announced the upcoming availability of NovaSeq Xp workflow, enabling users to load libraries directly into individual lanes of the flow cells, further enhancing the flexibility of the NovaSeq 6000 System
•
Launched the Nextera DNA Flex library preparation kit, offering a fast, integrated workflow for a wide variety of applications
•
Announced Verogen, Inc., a newly established independent company focused on accelerating growth of Illumina’s next-generation sequencing technology in the forensic genomics market
•
Repurchased $75 million of common stock in the third quarter under the previously announced share repurchase program

Financial outlook and guidance
The non-GAAP financial guidance discussed below reflects certain pro forma adjustments to assist in analyzing and assessing our core operational performance. Please see our Reconciliation of Non-GAAP Financial Guidance included in this release for a reconciliation of the GAAP and non-GAAP financial measures.

For fiscal 2017, the company now projects approximately 13% revenue growth from fiscal 2016, GAAP earnings per diluted share attributable to Illumina stockholders of $5.56 to $5.61 and non-GAAP earnings per diluted share attributable to Illumina stockholders of $3.73 to $3.78.

Quarterly conference call information
The conference call will begin at 2:00 pm Pacific Time (5:00 pm Eastern Time) on Tuesday, October 24, 2017. Interested parties may access the live teleconference through the Investor Relations section of Illumina’s web site under the “company” tab at www.illumina.com. Alternatively, individuals can access the call by dialing 888-771-4371, or 1-847-585-4405 outside North America, both with passcode 45640029.

A replay of the conference call will be available from 4:30 pm Pacific Time (7:30 pm Eastern Time) on October 24, 2017 through October 31, 2017 by dialing 888-843-7419, or 1-630-652-3042 outside North America, both with passcode 45640029.

Statement regarding use of non-GAAP financial measures
The company reports non-GAAP results for diluted net income per share, net income, gross margins, operating expenses, operating margins, other income, and free cash flow in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The company’s financial measures under GAAP include substantial charges such as amortization of acquired intangible assets, non-cash interest expense associated with the company’s convertible debt instruments that may be settled in cash, and others that are listed in the itemized reconciliations between GAAP and non-GAAP financial measures included in this press release. Management has excluded the effects of these items in non-GAAP measures to assist investors in analyzing and assessing past and future operating performance. Additionally, non-GAAP net income attributable to Illumina stockholders and diluted earnings per share attributable to Illumina stockholders are key components of the financial metrics utilized by the company’s board of directors to measure, in part, management’s performance and determine significant elements of management’s compensation.

The company encourages investors to carefully consider its results under GAAP, as well as its supplemental non-GAAP information and the reconciliation between these presentations, to more fully understand its business. Reconciliations between GAAP and non-GAAP results are presented in the tables of this release.

Use of forward-looking statements
This release contains forward-looking statements that involve risks and uncertainties, such as Illumina’s expectations regarding the launch of new products. Among the important factors that could cause actual results to differ materially from those in any forward-looking statements are (i) our ability to further develop and commercialize our instruments and consumables and to deploy new products, services, and applications, and expand the markets, for our technology platforms; (ii) our ability to manufacture robust instrumentation and consumables; (iii) our ability to successfully identify and integrate acquired technologies, products, or businesses; (iv) our expectations and beliefs regarding future conduct and growth of the business and the markets in which we operate; (v) challenges inherent in developing, manufacturing, and launching new products and services, including the timing of customer orders and impact on existing products and services; and (vi) the application of generally accepted accounting principles, which are highly complex and involve many subjective assumptions, estimates, and judgments, together with other factors detailed in our filings with the Securities and Exchange Commission, including our most recent filings on Forms 10-K and 10-Q, or in information disclosed in public conference calls, the date and time of which are released beforehand. We undertake no obligation, and do not intend, to update

these forward-looking statements, to review or confirm analysts’ expectations, or to provide interim reports or updates on the progress of the current quarter.

On October 24, 2017 Cellectar Biosciences, Inc. (Nasdaq: CLRB), an oncology-focused, clinical stage biotechnology company (the “company”), reported the design of the multiple dose fifth cohort of its Phase I dose escalation safety trial of lead PDC compound, CLR 131, in relapse or refractory multiple myeloma (Press release, Cellectar Biosciences, OCT 24, 2017, View Source [SID1234521126]). Cohort 5 will utilize two 15.625 mCI/m2 doses given one week apart with the total combined dose equaling 31.25 mCi/m2, the same total dose provided to patients that resulted in a partial response in Cohort 4. In previous cohorts, CLR 131 was given in a single infusion.

In September, the trial’s Data Monitoring Committee (DMC) determined that the fourth cohort single dose of 31.25 mCi/m2 was safe and tolerated. In addition, the DMC determined that the use of a split, or repeat dose might be advantageous. Given internal company data and recently announced results of preclinical studies in which 2 doses of CLR 131 demonstrated a statistically significant improvement in survival benefits and reduction of tumor volume in multiple mouse models (April 27, 2017), the company has enhanced the study’s protocol such that subsequent cohorts will include repeat dosing.

“Given the encouraging results we’ve observed to date in previous cohorts, we hope to see similar, or perhaps even improved safety results in this arm of the trial,” said Natalie Callander, M.D., professor of medicine, director, University of Wisconsin Carbone Cancer Center Myeloma Clinical Program, and the study’s lead investigator. “Previous participants have asked us if it was possible to receive additional doses, as this therapy has been so well tolerated.”

Patients participating in the fifth cohort will receive a total of two doses of CLR 131 as 30-minute infusions on their first and seventh days. They will then be evaluated over the course of 85 days to determine the safety and efficacy of the treatment as per the study protocol. During the previous cohort, one of three evaluable patients experienced a partial response to treatment with CLR 131, while the other two achieved stable disease. All Cohort 4 patients had heavily pretreated relapsed or refractory multiple myeloma (greater than five prior lines) and high degree of tumor burden upon entry into the trial, and the company expects to recruit similar trial subjects for Cohort 5. Despite the challenging patient population enrolled to date, 89 percent of all Phase 1 patients achieved a clinical benefit response.

“This fifth cohort represents an important opportunity to better understand the clinical utility of a split dose regimen and to further explore the safety and efficacy of CLR 131. Utilizing two doses provides an opportunity to increase the total amount of drug delivered to the patients which could result in an improvement in efficacy while maintaining similar or better safety profile,” said Jim Caruso, president and CEO of Cellectar Biosciences. “Clinical assessment, along with the improved benefits demonstrated by two doses in preclinical studies, suggest to us that the protocol changes should enhance our chances to see improved patient outcomes in this and future study arms.”

About CLR 131

CLR 131 is an investigational compound under development for a range of hematologic malignancies. It is currently being evaluated as a single-dose treatment in a Phase 1 clinical trial in patients with relapsed or refractory (R/R) multiple myeloma (MM) as well as in a Phase 2 clinical trial for R/R MM and select R/R lymphomas with either a one- or two-dose treatment. CLR 131 represents a novel approach to treating hematological diseases and based upon preclinical and interim Phase 1 study data may provide patients with therapeutic benefits including, overall survival, an improvement in progression-free survival, and overall quality of life. CLR 131 utilizes the company’s patented PDC tumor targeting delivery platform to deliver a cytotoxic radioisotope, iodine-131, directly to tumor cells. The FDA has granted Cellectar an orphan drug designation for CLR 131 in the treatment of multiple myeloma.

About Phospholipid Drug Conjugates (PDCs)

Cellectar’s product candidates are built upon its patented cancer cell-targeting delivery and retention platform of optimized phospholipid ether-drug conjugates (PDCs). The company designed its phospholipid ether (PLE) carrier platform to be coupled with a variety of payloads to facilitate the discovery and development of improved targeted novel therapeutic compounds. The basis for selective tumor targeting of our PDC compounds lies in the differences between the plasma membranes of cancer cells compared to those of normal cells. Cancer cell membranes are highly enriched in lipid rafts, which are glycolipoprotein microdomains of the plasma membrane of cells that contain high concentrations of cholesterol and sphingolipids, and serve to organize cell surface and intracellular signaling molecules. PDCs have been tested in more than 80 different xenograft models of cancer.

On October 24, 2017 Moleculin Biotech, Inc., (NASDAQ: MBRX) (“Moleculin” or the “Company”), a clinical stage pharmaceutical company focused on the development of anti-cancer drug candidates, some of which are based on license agreements with The University of Texas System on behalf of the M.D. Anderson Cancer Center, reported that has submitted its request for Clinical Trial Authorization (“CTA”) in Poland which, if allowed, will enable a clinical trial to study Annamycin for the treatment of relapsed or refractory acute myeloid leukemia (“AML”) in Poland (Press release, Moleculin, OCT 24, 2017, View Source [SID1234521124]). This will be in addition to the previously announced allowance of its Investigative New Drug filing with the Food & Drug Administration in the US.

“Consistent with our prior guidance, we have now taken the final step required to expand our Annamycin clinical trial to Poland,” commented Walter Klemp, Chairman and CEO of Moleculin. “Unlike the US, the process for beginning a clinical trial in Poland requires a hospital contract before a request for CTA can be made. We recently announced the required hospital contract and this announcement now marks the formal request for Polish approval.”
Mr. Klemp continued: “The CTA request process in Poland normally takes 60 days, so we hope to be enrolling patients there near year-end. Increasing the breadth of clinical trial sites beyond the US will give Moleculin access to more potential patients, and, hopefully, speed the Phase IIa portion of the trial.”