McKesson Reports Fiscal 2019 Third-Quarter Results

On January 31, 2019 McKesson Corporation (NYSE:MCK) reported that revenues for the third quarter ended December 31, 2018, were $56.2 billion, up 5% compared to $53.6 billion a year ago, and also up 5% on a constant currency basis (Press release, McKesson, JAN 31, 2019, View Source [SID1234532992]). On the basis of U.S. generally accepted accounting principles ("GAAP"), third-quarter earnings per diluted share from continuing operations was $2.41, compared to earnings per diluted share of $4.32 a year ago. Prior year GAAP earnings per diluted share included a net tax benefit of approximately $1.78 per diluted share driven by the Tax Cuts and Jobs Act of 2017.

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Third-quarter Adjusted Earnings per diluted share was $3.40, flat compared to $3.41 a year ago, primarily driven by a lower share count and growth in our Medical-Surgical business, offset by a higher tax rate and lower profit contribution from our U.S. Pharmaceutical business, which includes a $60 million, or approximately $0.23 cents per diluted share, charge related to a customer bankruptcy and previously announced customer losses.

For the first nine months of the fiscal year, McKesson generated cash from operations of $141 million, and invested $405 million internally, resulting in negative free cash flow of $264 million, which was in line with the company’s expectations. During the first nine months of the fiscal year, McKesson also paid $866 million for acquisitions, repurchased approximately $1.4 billion of its common stock, paid $216 million in dividends and the company ended the quarter with cash and cash equivalents of $1.8 billion.

"Our third-quarter results reflect solid adjusted operating profit performance, particularly in our Medical-Surgical and McKesson Prescription Technology Solutions businesses, and we are pleased with the progress we are seeing in our U.S. Pharmaceutical and Canadian businesses as we work to offset headwinds we discussed when providing our fiscal year outlook in May," said John H. Hammergren, chairman and chief executive officer, McKesson Corporation. "Our year-to-date results provide momentum heading into our fiscal fourth quarter, positioning the company well as Brian Tyler assumes the role of chief executive officer on April 1, 2019."

Segment Results

U.S. Pharmaceutical and Specialty Solutions revenues were $44.3 billion for the quarter, up 6%, driven primarily by market growth and acquisitions, partially offset by previously announced customer losses and branded to generic conversions. Segment GAAP operating profit was $671 million and GAAP operating margin was 1.52%. Segment adjusted operating profit was $593 million and adjusted operating margin was 1.34%.

European Pharmaceutical Solutions revenues were $6.9 billion for the quarter, down 1% on a reported basis and up 2% on a constant currency basis, driven primarily by market growth, partially offset by the previously disclosed reduction in owned retail pharmacies and a challenging operating environment in the U.K. Segment GAAP operating profit was $26 million and GAAP operating margin was 0.38%. Segment adjusted operating profit was $69 million and adjusted operating margin was 1.00%. On a constant currency basis, adjusted operating profit was $71 million and adjusted operating margin was 0.99%.

Medical-Surgical Solutions revenues were $2.0 billion for the quarter, up 19%, driven primarily by an acquisition and market growth. Segment GAAP operating profit was $136 million and GAAP operating margin was 6.76%. Segment adjusted operating profit was $170 million and adjusted operating margin was 8.45%.

Revenues included in Other were $3.0 billion for the quarter, up 1% on a reported basis and up 5% on a constant currency basis, driven primarily by market growth. Other GAAP operating profit was $74 million and adjusted operating profit was $224 million. On a constant currency basis, adjusted operating profit was $226 million.

Fiscal Year 2019 Outlook

McKesson now expects Adjusted Earnings per diluted share of $13.45 to $13.65 for the fiscal year ending March 31, 2019, from the previous range of $13.20 to $13.80 per diluted share.

McKesson does not provide forward-looking guidance on a GAAP basis as the company is unable to provide a quantitative reconciliation of this forward-looking non-GAAP measure to the most directly comparable forward-looking GAAP measure without unreasonable effort, as items are inherently uncertain and depend on various factors, many of which are beyond the company’s control.

Dividend Declaration

The company’s Board of Directors yesterday declared a regular dividend of thirty-nine cents per share of common stock. The dividend will be payable on April 1, 2019, to stockholders of record on March 1, 2019.

Conference Call Details

The company has scheduled a conference call for today, Thursday, January 31st, at 5:00 PM ET. The dial-in number for individuals wishing to participate on the call is 323-794-2588. Craig Mercer, senior vice president, Investor Relations, is the leader of the call, and the password to join the call is ‘McKesson’. A telephonic replay of this conference call will be available for five calendar days. For individuals wishing to listen to the replay, the dial-in number is 719-457-0820 and the pass code is 9871695. An archive of the conference call will also be available on the company’s Investor Relations website at View Source

Upcoming Investor Events

McKesson management will be participating in the following investor conference:

8th Annual Leerink Partners Global Healthcare Conference, February 28, 2019, New York, NY.
Audio webcasts will be available live and archived on the company’s Investor Relations website at View Source A complete listing of upcoming events for the investment community is available on the company’s Investor Relations website.

Adjusted Earnings

McKesson separately reports financial results on the basis of Adjusted Earnings. Adjusted Earnings is a non-GAAP financial measure defined as GAAP income from continuing operations, excluding amortization of acquisition-related intangible assets, acquisition-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring and asset impairment charges, and other adjustments. A reconciliation of McKesson’s GAAP financial results to Adjusted Earnings is provided in Schedules 2 and 3 of the financial statement tables included with this release.

The company does not provide forward-looking guidance on a GAAP basis prospectively as McKesson is unable to provide a quantitative reconciliation of this forward-looking non-GAAP measure to the most directly comparable forward-looking GAAP measure, without unreasonable effort, because McKesson cannot reliably forecast LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring and asset impairment charges, and other adjustments, which are difficult to predict and estimate. These items are inherently uncertain and depend on various factors, many of which are beyond the company’s control, and as such, any associated estimate and its impact on GAAP performance could vary materially.

Constant Currency

McKesson also presents its financial results on a constant currency basis. The company conducts business worldwide in local currencies, including the Euro, British pound and Canadian dollar. As a result, the comparability of the financial results reported in U.S. dollars can be affected by changes in foreign currency exchange rates. Constant currency information is presented to provide a framework for assessing how the company’s business performed excluding the effect of foreign currency exchange rate fluctuations. The supplemental constant currency information of the company’s GAAP financial results and Adjusted Earnings (Non-GAAP) is provided in Schedule 3 of the financial statement tables included with this release.

Free Cash Flow

McKesson also provides free cash flow, a non-GAAP measure. Free cash flow is defined as net cash provided by operating activities less property acquisitions and capitalized software expenditures, as outlined in the company’s condensed consolidated statements of cash flows.

Risk Factors

Except for historical information contained in this press release, matters discussed may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. These statements may be identified by their use of forward-looking terminology such as "believes", "expects", "anticipates", "may", "will", "should", "seeks", "approximately", "intends", "plans", "estimates" or the negative of these words or other comparable terminology. The discussion of financial trends, strategy, plans or intentions may also include forward-looking statements. It is not possible to predict or identify all such risks and uncertainties; however, the most significant of these risks and uncertainties are described in the company’s Form 10-K, Form 10-Q and Form 8-K reports filed with the Securities and Exchange Commission and include, but are not limited to: changes in the U.S. healthcare industry and regulatory environment; managing foreign expansion, including the related operating, economic, political and regulatory risks; changes in the Canadian healthcare industry and regulatory environment; exposure to European economic conditions, including recent austerity measures taken by certain European governments; changes in the European regulatory environment with respect to privacy and data protection regulations; fluctuations in foreign currency exchange rates; the company’s ability to successfully identify, consummate, finance and integrate acquisitions; the performance of the company’s investment in Change Healthcare; the company’s ability to manage and complete divestitures; material adverse resolution of pending legal proceedings; competition and industry consolidation; substantial defaults in payment or a material reduction in purchases by, or the loss of, a large customer or group purchasing organization; the loss of government contracts as a result of compliance or funding challenges; public health issues in the U.S. or abroad; cyberattack, natural disaster, or malfunction of sophisticated internal computer systems to perform as designed; the adequacy of insurance to cover property loss or liability claims; the company’s proprietary products and services may not be adequately protected, and its products and solutions may be found to infringe on the rights of others; system errors or failure of our technology products or services to conform to specifications; disaster or other event causing interruption of customer access to data residing in our service centers; changes in circumstances that could impair our goodwill or intangible assets; new or revised tax legislation or challenges to our tax positions; general economic conditions, including changes in the financial markets that may affect the availability and cost of credit to the company, its customers or suppliers; changes in accounting principles generally accepted in the United States of America; withdrawal from participation in multiemployer pension plans or if such plans are reported to have underfunded liabilities; inability to realize the expected benefits from the company’s restructuring and business process initiatives; difficulties with outsourcing and similar third party relationships; risks associated with the company’s retail expansion; and the company’s inability to keep existing retail store locations or open new retail locations in desirable places. The reader should not place undue reliance on forward-looking statements, which speak only as of the date they are first made. Except to the extent required by law, the company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

Shareholders are encouraged to review the company’s filings with the Securities and Exchange Commission.

Phyton Biotech Partners with PellePharm to Develop Renewable Supply of Cyclopamine for Investigational Topical Cancer Therapy

On January 31, 2019 Phyton Biotech and PellePharm reported an exclusive partnership to develop a plant cell culture-based process to enable the future renewable production of the raw material for PellePharm’s patidegib, an investigational topical therapy for Gorlin Syndrome and High Frequency Basal Cell Carcinoma (BCC) (Press release, Phyton Biotech, JAN 31, 2019, View Source [SID1234532991]). PellePharm is currently investigating the safety and efficacy of patidegib topical gel for the reduction of surgically-eligible BCCs in Gorlin Syndrome patients in a Phase 3 trial.

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The foundation for this joint initiative is Phyton Biotech’s proprietary Plant Cell Fermentation (PCF) technology, a unique platform that enables renewable, reliable and scalable supply of plant-derived compounds like cyclopamine, the key building block in the synthesis of patidegib. Under its agreement with PellePharm, Phyton Biotech will begin development of the new process immediately.

"We are incredibly excited to partner with PellePharm as pioneers in precision medicine to advance this topical skin cancer treatment to the next level of excellence with our patented PCF technology," said Colin Marr, president of Phyton Biotech. "This application of our ‘green chemistry’ process is just the latest example of how Phyton Biotech is advancing traditional manufacturing approaches for high-value phytochemicals and markedly improving patient care."

Currently, cyclopamine is sourced from the perennial herb Veratrum californicum (corn lily), a member of the Liliaceae plant family found in remote mountainous parts of western North America.

"PellePharm’s partnership with Phyton Biotech underscores our commitment to bring a new therapeutic option to patients with Gorlin Syndrome and other skin cancers," said Sanuj Ravindran, president and chief executive officer of PellePharm. "As we begin our pivotal Phase 3 clinical trial of patidegib topical gel and prepare for commercial-scale production of patidegib if approved, we anticipate the demand for cyclopamine will grow, spurring the need for a supplemental and more scalable source."

Gorlin Syndrome, also known as Basal Cell Carcinoma Nevus Syndrome, is a rare, genetic disease that leads to the chronic formation of multiple basal cell carcinomas, often on the face. With no FDA-approved drugs currently available for Gorlin Syndrome, the standard of care is surgery. People with severe Gorlin Syndrome may have as many as 30 or more surgeries per year, which can be repetitive, scarring and disfiguring.

The partnership with PellePharm follows Phyton Biotech’s successful demonstration of its ability to express cyclopamine directly from Veratrum californicum plant cell cultures via PCF. Further development and full scale-up into commercial-size bioreactors of up to 75 m³ in volume, operated in Phyton Biotech’s facility in Germany, is anticipated to follow the current program.

In addition to this project with PellePharm, Phyton Biotech is working on expanding its patent for the renewable production of alkaloids by Liliaceae cell culture to Europe as it is already granted in the United States and other jurisdictions.

Phyton Biotech’s award-winning green chemistry model focuses on plant cell culture development and offers superior quality, reliability, environmental and cost advantages over other methods of production of complex small molecules, plant-based actives and recombinant proteins.

Invenra and WARF Initiate a Collaboration to Discover and Develop Novel Therapeutics to Fight Neuroblastoma in Children

On January 31, 2019 Invenra and WARF (Wisconsin Alumni Research Foundation) reported they have entered into a collaboration to discover and develop a bispecific antibody therapeutic for the treatment of neuroblastoma, a cancer that is the third most common childhood cancer, after leukemia and brain tumors (Press release, Invenra, JAN 31, 2019, View Source [SID1234532990]). The collaboration will use Invenra’s proprietary SNIPERTM technology to allow for precise targeting of the cancer cells while sparing normal nerve cells, and potentially alleviating unwanted toxicities and pain related side effects. The idea for the therapeutic candidate came out of a collaboration between Invenra and University of Wisconsin, Madison Professor, Dr. Paul Sondel, a pediatric oncologist who treats these children in his practice.

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"Invenra’s SNIPERTM technology should enable creation of antibody-based therapies that are specifically able to target tumor cells while not binding to normal tissues. We are excited to be working with Invenra to initiate this approach by directing it towards improving treatment for pediatric neuroblastoma," notes Sondel.

Roland Green, Ph.D., Chief Executive Officer and Co-Founder of Invenra states, "We are very excited about this program and the potential it has for helping these children with neuroblastoma. This program also has the potential to treat patients with a variety of other cancers such as glioblastoma (a form of brain cancer), melanoma and small cell lung cancer (SCLC). This collaboration is a good example of the benefits that can come from partnerships between the UW-Madison and industry."

AVEO Oncology Announces NDA Timing Update

On January 31, 2019 AVEO Oncology (NASDAQ: AVEO) reported that it has accepted the recommendation of the U.S. Food and Drug Administration (FDA) not to submit a New Drug Application (NDA) for tivozanib (FOTIVDA) with the preliminary overall survival (OS) results from the Phase 3 TIVO-3 trial (Press release, AVEO, JAN 31, 2019, View Source [SID1234532989]). The FDA indicated that these preliminary OS results do not allay their concerns about the potential detriment in OS outlined in the complete response letter dated June 6, 2013. The Company now plans to make a NDA filing decision following the availability of more mature OS results.

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As disclosed in November 2018, a preliminary analysis of the secondary endpoint of OS in the TIVO-3 trial showed a hazard ratio (HR) > 1. The Company previously planned to conduct the final OS analysis in August 2019. Due to the longer-than-expected median OS in both arms, and following discussions with the FDA, the Company plans to designate the August 2019 OS analysis as interim. Results of this analysis are expected to be reported in the fourth quarter.

Since initially conducting the preliminary analysis of the OS endpoint in November 2018, the Company has identified the survival status of a group of patients that were previously lost to follow up. With the identification of these OS events, the October 4, 2018 preliminary OS HR was revised from 1.06 to 1.12. The Company has not performed any OS analyses beyond the preliminary October 4, 2018 data cut-off date.

AVEO intends to present detailed results of the TIVO-3 study, the Company’s Phase 3 randomized, controlled, multi-center, open-label study comparing tivozanib to sorafenib in 350 subjects with highly refractory advanced or metastatic Renal Cell Carcinoma (RCC) during an oral session at the 2019 American Society of Clinical Oncology (ASCO) (Free ASCO Whitepaper) Genitourinary Cancers Symposium (ASCO GU) being held February 14-16, 2019 in San Francisco.

"We are hopeful that the positive PFS outcome will translate into an improved hazard ratio when we evaluate a more mature interim OS outcome in the fourth quarter of 2019," said Michael Bailey, president and chief executive officer of AVEO. "We look forward to continuing to work with the FDA to determine tivozanib’s benefit-risk profile as a single agent in RCC patients."

About Tivozanib (FOTIVDA)

Tivozanib (FOTIVDA) is an oral, once-daily, vascular endothelial growth factor (VEGF) tyrosine kinase inhibitor (TKI) discovered by Kyowa Hakko Kirin and approved for the treatment of adult patients with advanced renal cell carcinoma (RCC) in the European Union plus Norway and Iceland. It is a potent, selective and long half-life inhibitor of all three VEGF receptors and is designed to optimize VEGF blockade while minimizing off-target toxicities, potentially resulting in improved efficacy and minimal dose modifications.1,2 Tivozanib has been shown to significantly reduce regulatory T-cell production in preclinical models3, and has demonstrated synergy in combination with nivolumab (anti PD-1) in a Phase 2 study in RCC. Tivozanib has been investigated in several tumors types, including renal cell, hepatocellular, colorectal and breast cancers.

GT Medical Technologies Announces $10 Million Financing to Support Launch of Targeted Therapy for Patients with Recurrent Brain Tumors

On January 31, 2019 GT Medical Technologies, Inc., a company dedicated to improving the lives of patients with brain tumors, reported that it has raised $10 million in a Series A financing led by MedTech Venture Partners with participation from BlueStone Venture Partners (Press release, GT Medical Technologies, JAN 31, 2019, View Source [SID1234532988]). Funds from the round will support the commercialization of GammaTile Therapy, an FDA-cleared, surgically targeted radiation therapy (STaRT) for patients with recurrent intracranial neoplasms (brain tumors). The company recently launched a limited market release of GammaTile Therapy and is making it available at select medical centers in the United States.

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"GT MedTech’s mission is in line with our investment goal of supporting innovative technologies that address unmet needs in vital disease areas," said Radu Cautis, partner and managing director of MedTech Venture Partners. "We are enthusiastic about the potential of GammaTile Therapy to address the shortcomings of current treatments and elevate the standard of care for patients with brain tumors."

Approximately 400,000 Americans are newly diagnosed with some type of brain tumor each year.1 Despite the efforts of the most skilled brain tumor specialists throughout the world, outcomes for patients with brain tumors have improved very little over the past 30 years. Recurrence of brain tumors is common, and about half of all patients treated for brain tumors have their disease recur within a year.

GammaTile Therapy is placed directly at the site of the tumor after excision is complete and immediately begins targeting residual tumor cells before they can replicate. Designed to protect healthy brain tissue and facilitate rapid, accurate placement during the procedure, the therapy features a bioresorbable, conformable, 3D-collagen tile and uniform radiation source. GammaTile Therapy is indicated for the treatment of all types of recurrent brain tumors, including primary (benign or malignant) and metastatic tumors.

Data supporting the efficacy and safety profile of the therapy for patients with recurrent, previously-treated meningiomas were published last month in the Journal of Neurosurgery (JNS), the official journal of the American Association of Neurological Surgeons. Additional clinical data from other types of tumors will be presented at the AANS Annual Scientific Meeting in April.

"GammaTile Therapy was developed by a team of brain tumor specialists who were running out of options for their patients. Their urgency to find a viable solution for these patients led to the creation of GammaTile Therapy, which is designed to be immediate, safe, predictable, and effective," said Matthew Likens, president and CEO of GT MedTech. "With this funding, in addition to adding seasoned industry executives to our team, we look forward to building and expanding our commercialization efforts so that we can offer this new option to patients at brain tumor treatment centers across the United States."

Company Announces Appointments of Seasoned Executives

GT Medical Technologies also announced that Prattipati Laxminarain has joined the company’s Board of Directors, having previously served as the worldwide president of Codman Neuro, a neurosurgical medical device business recently acquired by Integra Life Sciences from Johnson & Johnson for more than $1 billion. Laxminarain had a 30-year career at Johnson & Johnson, spanning international markets. He remains active in the healthcare sector as a board member of the Global Neuro Foundation, Microbot Medical, Oculogica, Stratus Global LLC, and the Brain Aneurysm Foundation.

In addition, Mara Aspinall, co-founder and managing director of BlueStone Venture Partners, has been appointed as an observer to the company’s Board of Directors. Formerly the president and CEO of Ventana Medical Systems, which was acquired by Roche for $3.4 billion, Aspinall brings more than 20 years of industry experience in medical device development, biomedical diagnostics, personalized medicine, and digital health. Aspinall also currently holds various board of director roles, including Blue Cross Blue Shield of Arizona, OraSure Technologies, Allscripts, and others.

"GT MedTech’s innovative technology has the potential to significantly improve the lives of patients with brain tumors and their caregivers," said Aspinall. "By taking part in this funding round and working alongside the Board of Directors, BlueStone Venture Partners hopes to help further advance GT MedTech’s vital technology."

About GammaTile Therapy

GammaTile Therapy is a FDA-cleared, surgically targeted radiation therapy (STaRT) that is placed at the end of brain tumor excision surgery and immediately begins targeting residual tumor cells. GammaTile Therapy features a bioresorbable, conformable, 3D-collagen tile and uniform radiation source. This therapy offers advantages over the most common treatment for patients undergoing surgery for recurrent brain tumors: a course of External Beam Radiation Therapy (EBRT), which requires daily treatments for up to six weeks. Some patients may not be candidates for EBRT, and those patients who are candidates typically have to wait two weeks or more for surgical wound healing before beginning treatment, giving any residual tumor cells a chance to replicate. Patients treated with GammaTile Therapy require no additional trips to the hospital or clinic for radiation therapy. Because the therapy is targeted, patients receive radiation only where it is needed, and may receive a lower overall level of exposure to radiation.

GammaTile Therapy received FDA 510(k) clearance in July 2018 for the treatment of all types of recurrent brain tumors, including primary (benign or malignant) and metastatic tumors, and has an established CMS code for Medicare reimbursement