OnJuly 27, 2017 AstraZeneca and Merck & Co., Inc., (Merck; known as MSD outside of the US and Canada) reported that they have entered a global strategic oncology collaboration to co-develop and co-commercialise AstraZeneca’s Lynparza (olaparib) for multiple cancer types. Lynparza is an innovative, first-in-class oral poly ADP ribose polymerase (PARP) inhibitor currently approved for BRCA-mutated ovarian cancer in multiple lines of treatment (Press release, AstraZeneca, JUL 27, 2017, View Source [SID1234519892]).

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Lynparza’s pipeline has grown significantly in the last few years, with 14 indications currently being developed across several tumour types, including breast, prostate and pancreatic cancers. The strategic collaboration is expected to further increase the number of treatment options available to patients.

The companies will develop and commercialise Lynparza jointly, both as monotherapy and in combination with other potential medicines. Independently, the companies will develop and commercialise Lynparza in combination with their respective PD-L1 and PD-1 medicines, Imfinzi (durvalumab) and Keytruda (pembrolizumab).

The companies will also jointly develop and commercialise AstraZeneca’s selumetinib, an oral, potent, selective inhibitor of MEK, part of the mitogen-activated protein kinase (MAPK) pathway, currently being developed for multiple indications including thyroid cancer.

Pascal Soriot, Chief Executive Officer of AstraZeneca, said: "Our strategic collaboration builds on scientific evidence that PARP and MEK inhibitors can be combined with PD-L1/PD-1 inhibitors for a range of tumours. By bringing together the expertise of two leading oncology innovators, we will accelerate Lynparza’s potential to become the preferred backbone of many immuno-oncology combination therapies as the world’s first and leading PARP inhibitor. This is a truly exciting step and we are pleased to work with Merck, a company that shares our passion for science to deliver new medicines for cancer patients."

Kenneth C. Frazier, Chief Executive Officer of Merck, said: "This global collaboration between AstraZeneca and Merck, two oncology leaders, will increase the possibilities for patients to have more treatment options for more cancers. Merck continues to build its leadership in immuno-oncology with Keytruda as foundational in monotherapy and combination therapy, and this collaboration expands our oncology leadership into the growing targeted therapies of PARP and MEK inhibitors. We look forward to working with AstraZeneca to create greater value for patients and shareholders than if both companies worked independently."

Financial considerations
Under the terms of the agreement, AstraZeneca and Merck will share the development and commercialisation costs for Lynparza and selumetinib monotherapy and non-PD-L1/PD-1 combination therapy opportunities. Gross profits from Lynparza and selumetinib Product Sales generated through monotherapies or combination therapies will be shared equally.

Merck will fund all development and commercialisation costs of Keytruda in combination with Lynparza or selumetinib. AstraZeneca will fund all development and commercialisation costs of Imfinzi in combination with Lynparza or selumetinib.

AstraZeneca will continue to manufacture Lynparza and selumetinib.

As part of the agreement, Merck will pay AstraZeneca up to $8.5 billion in total consideration, including $1.6 billion upfront, $750 million for certain license options and up to $6.15 billion contingent upon successful achievement of future regulatory and sales milestones. Under the terms of the agreement, AstraZeneca anticipates approximately $1 billion to be recorded under Externalisation Revenue in 2017.

AstraZeneca will book all Product Sales of Lynparza and selumetinib; gross profits due to Merck under the collaboration will be recorded under Cost of Sales. The initial, regulatory and commercial milestone payments will be recorded under Externalisation Revenue. The transaction does not impact AstraZeneca’s 2017 financial guidance. AstraZeneca continues to anticipate that the sum of Externalisation Revenue and Other Operating Income in FY 2017 will be ahead of that in FY 2016.

The collaboration agreement was completed upon signing on 26 July 2017.

For the purposes of the UK Listing Authority’s Listing Rule LR 10.4.1 R (Notification of class 2 transactions), the book value of gross assets subject to the license and collaboration is approximately $242 million. In view of the development and early growth phase of the medicines, a pre-tax loss of $231 million was attributable to Lynparza and selumetinib in aggregate in the year to 31 December 2016.

NOTES TO EDITORS

About Lynparza
Lynparza (olaparib) is an innovative, first-in-class oral poly ADP-ribose polymerase (PARP) inhibitor that may exploit tumour DDR pathway deficiencies to preferentially kill cancer cells. Lynparza is the foundation of AstraZeneca’s industry-leading portfolio of potential new medicines that target DDR mechanisms in cancer cells. Lynparza is currently approved by regulatory health authorities in the EU for use as monotherapy for the maintenance treatment of adult patients with platinum-sensitive, relapsed BRCA-mutated (germline and/or somatic), high-grade serous epithelial ovarian, fallopian tube or primary peritoneal cancer, who are in response (complete or partial) to platinum-based chemotherapy. It is also approved in the US as a monotherapy for patients with deleterious, or suspected deleterious, germline BRCA-mutated (as detected by a US FDA test) advanced ovarian cancer, who have been treated with three or more lines of chemotherapy.

The Company recently presented positive results for Lynparza from its Phase III OlympiAD trial that showed a statistically-significant and clinically-meaningful improvement in progression-free survival for patients treated with Lynparza tablets (300mg twice daily), compared to treatment with physician’s choice of a standard of care chemotherapy. OlympiAD, a randomised, open label, multi-centre Phase III trial assessing the efficacy and safety of Lynparza in patients with HER2-negative metastatic breast cancer with germline BRCA1 or BRCA2 mutations, which are predicted or suspected to be deleterious, was the first positive Phase III trial to evaluate the efficacy and safety of PARP inhibitor beyond ovarian cancer. Lynparza is currently being investigated in another separate non-metastatic breast cancer Phase III trial called OLYMPIA. This trial is still open and recruiting patients internationally.

Lynparza generated Product Sales in 2016 of $218 million.

About selumetinib
Selumetinib, licensed by AstraZeneca from Array BioPharma Inc. in 2003, inhibits the MEK enzyme in the RAS/RAF/MEK/ERK pathway in cancer cells to prevent the tumour from growing. Selumetinib is in Phase III development for differentiated thyroid cancer, for which it was granted Orphan Drug Designation by the FDA in May 2016.

Selumetinib is also being tested in a separate Phase II trial in patients with paediatric neurofibromatosis type-1, and in a Phase I trial with patients suffering from advanced solid tumours.

About AstraZeneca in Oncology

On July 26, 2017 Gilead Sciences, Inc. (Nasdaq: GILD) reported its results of operations for the second quarter ended June 30, 2017 (Press release, Gilead Sciences, JUL 26, 2017, View Source [SID1234519891]).

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The financial results that follow represent a year-over-year comparison of the second quarter 2017 to the second quarter 2016. Total revenues were $7.1 billion in 2017 compared to $7.8 billion in 2016. Net income was $3.1 billion or $2.33 per diluted share in 2017 compared to $3.5 billion or $2.58 per diluted share in 2016. Non-GAAP net income, which excludes amounts related to acquisition-related, up-front collaboration, stock-based compensation and other expenses, was $3.4 billion or $2.56 per diluted share in 2017 compared to $4.2 billion or $3.08 per diluted share in 2016.

Three Months Ended Six Months Ended
June 30, June 30,
(In millions, except per share amounts) 2017 2016 2017 2016
Product sales $ 7,046 $ 7,651 $ 13,423 $ 15,332
Royalty, contract and other revenues 95 125 223 238
Total revenues $ 7,141 $ 7,776 $ 13,646 $ 15,570

Net income attributable to Gilead $ 3,073 $ 3,497 $ 5,775 $ 7,063
Non-GAAP net income* $ 3,372 $ 4,177 $ 6,321 $ 8,451

Diluted earnings per share $ 2.33 $ 2.58 $ 4.38 $ 5.11
Non-GAAP diluted earnings per share* $ 2.56 $ 3.08 $ 4.79 $ 6.11

* Non-GAAP net income and non-GAAP diluted earnings per share exclude acquisition-related, up-front collaboration, stock-based compensation and other expenses. A reconciliation between GAAP and non-GAAP financial information is provided in the tables on pages 7 and 8.

Product Sales

Total product sales for the second quarter of 2017 were $7.0 billion compared to $7.7 billion for the same period in 2016. Product sales for the second quarter of 2017 were $5.0 billion in the United States, $1.4 billion in Europe and $665 million in other locations. Product sales for the second quarter of 2016 were $4.9 billion in the United States, $1.6 billion in Europe and $1.2 billion in other locations.

Antiviral Product Sales

Antiviral product sales, which include sales of our HIV, chronic hepatitis B (HBV) and chronic hepatitis C (HCV) products, were $6.4 billion for the second quarter of 2017 compared to $7.1 billion for the same period in 2016.

HIV and HBV product sales were $3.6 billion compared to $3.1 billion for the same period in 2016. The increase was primarily due to the continued uptake of our tenofovir alafenamide (TAF) based products, Genvoya (elvitegravir 150 mg/cobicistat 150 mg/emtricitabine 200 mg/tenofovir alafenamide 10 mg), Descovy (emtricitabine 200 mg/tenofovir alafenamide 25 mg) and Odefsey (emtricitabine 200 mg/rilpivirine 25 mg/tenofovir alafenamide 25 mg).
HCV product sales, which consist of Harvoni (ledipasvir 90 mg/sofosbuvir 400 mg), Sovaldi (sofosbuvir 400 mg) and Epclusa (sofosbuvir 400 mg/velpatasvir 100 mg), were $2.9 billion compared to $4.0 billion for the same period in 2016. The decline was due to lower sales of Harvoni and Sovaldi across all major markets, partially offset by sales of Epclusa, which was approved in the United States and Europe in June and July 2016, respectively.
Other Product Sales

Other product sales, which include Letairis (ambrisentan), Ranexa (ranolazine) and AmBisome (amphotericin B liposome for injection), were $607 million for the second quarter of 2017 compared to $525 million for the same period in 2016.

Operating Expenses

Three Months Ended Six Months Ended
June 30, June 30,
(In millions) 2017 2016 2017 2016
Research and development expenses (R&D) $ 864 $ 1,484 $ 1,795 $ 2,749
Non-GAAP R&D expenses* $ 812 $ 1,040 $ 1,701 $ 1,809

Selling, general and administrative expenses (SG&A) $ 897 $ 890 $ 1,747 $ 1,575
Non-GAAP SG&A expenses* $ 827 $ 838 $ 1,634 $ 1,476

* Non-GAAP R&D and SG&A expenses exclude acquisition-related, up-front collaboration, stock-based compensation and other expenses. A reconciliation between GAAP and non-GAAP financial information is provided in the tables on pages 7 and 8.

During the second quarter of 2017, compared to the same period in 2016:

R&D expenses decreased primarily due to the 2016 impact of Gilead’s purchase of Nimbus Apollo, Inc. and a U.S. Food and Drug Administration (FDA) priority review voucher.
Non-GAAP R&D expenses* decreased primarily due to the 2016 impact of Gilead’s purchase of an FDA priority review voucher.
Cash, Cash Equivalents and Marketable Securities

As of June 30, 2017, Gilead had $36.6 billion of cash, cash equivalents and marketable securities compared to $34.0 billion as of March 31, 2017. Cash flow from operating activities was $3.5 billion for the quarter. During the second quarter of 2017, Gilead paid cash dividends of $680 million and utilized $130 million on stock repurchases.

Revised Full Year 2017 Guidance

Gilead revised its full year 2017 guidance, initially provided on February 7, 2017:

(In millions, except percentages and per share amounts) Initially Provided
February 7, 2017
Reiterated
May 2, 2017
Updated
July 26, 2017
Net Product Sales
$22,500 – $24,500
$24,000 – $25,500
Non-HCV Product Sales $15,000 – $15,500
$15,500 – $16,000
HCV Product Sales $7,500 – $9,000 $8,500 – $9,500
Non-GAAP*
Product Gross Margin 86% – 88% 86% – 88%
R&D Expenses
$3,100 – $3,400
$3,200 – $3,400
SG&A Expenses $3,100 – $3,400 $3,200 – $3,400
Effective Tax Rate 25.0% – 28.0% 25.0% – 28.0%
Diluted EPS Impact of Acquisition-related, Up-front Collaboration, Stock-based Compensation and Other Expenses $0.84 – $0.91 $0.86 – $0.93

* Non-GAAP Product Gross Margin, R&D and SG&A expenses and effective tax rate exclude acquisition-related, up-front collaboration, stock-based compensation and other expenses. A reconciliation between GAAP and non-GAAP full year 2017 guidance is provided in the tables on page 9.

Product and Pipeline Updates announced by Gilead during the Second Quarter of 2017 include:

Antiviral and Liver Diseases Programs

Announced that the European Committee for the Medicinal Products for Human Use, the scientific committee of the European Medicines Agency, adopted a positive opinion on the marketing authorization application for VoseviTM, a once-daily, single-tablet regimen of sofosbuvir 400 mg, velpatasvir 100 mg and voxilaprevir 100 mg for the treatment of HCV-infected patients. On July 18, 2017, Vosevi was approved by FDA.
Announced the submission of a new drug application (NDA) to FDA for an investigational, once-daily single-tablet regimen containing bictegravir (50 mg) (BIC), a novel investigational integrase strand transfer inhibitor, and emtricitabine/tenofovir alafenamide (200/25 mg) (FTC/TAF) for the treatment of HIV-1 infection in adults. BIC/FTC/TAF demonstrated high rates of virologic suppression and no treatment-emergent resistance through 48 weeks in Phase 3 clinical trials among treatment-naïve adult patients and among virologically suppressed adult patients who switched regimens. Additionally, Gilead submitted a marketing authorization application for BIC/FTC/TAF in the European Union during the second quarter of 2017.
Presented data at the 52nd Annual Meeting of the European Association for the Study of the Liver: The International Liver Congress 2017 which included the announcement of:
Positive results from an open-label, proof-of-concept study evaluating GS-0976, an investigational inhibitor of acetyl-CoA carboxylase, in patients with nonalcoholic steatohepatitis. The data, from ten patients treated with GS-0976 20 mg taken orally once daily for 12 weeks, indicated that treatment was associated with statistically significant improvements in liver fat content and noninvasive markers of fibrosis, via inhibition of hepatic de novo lipogenesis.
Positive results from two Phase 2 studies evaluating Harvoni tablets in HCV-infected patient populations not previously studied in dedicated clinical trials with direct-acting antiviral therapies. The studies demonstrated HCV cure rates of 99 percent in children aged 6 to 11 years, and 100 percent in adult patients co-infected with HCV and HBV.
Positive 96-week results from two ongoing Phase 3 studies evaluating the safety and efficacy of daily Vemlidy (TAF 25mg) in immune active patients and in patients switching from Gilead’s Viread (tenofovir disoproxil fumarate, TDF 300 mg). Vemlidy is a once-daily treatment approved for adults with HBV infection with compensated liver disease.
Announced that FDA approved supplemental indications for Harvoni tablets and Sovaldi tablets for the treatment of HCV infection in adolescents without cirrhosis or with compensated cirrhosis, 12 years of age and older, or weighing at least 35kg. Harvoni was approved for pediatric patients with genotype 1, 4, 5 or 6 HCV infection. Sovaldi was approved for pediatric patients with genotype 2 or 3 HCV infection, in combination with ribavirin.