On July 25, 2017 Seattle Genetics, Inc. (Nasdaq: SGEN) reported that Health Canada has issued a non-conditional marketing authorization for use of ADCETRIS as post-autologous stem cell transplant (ASCT) consolidation treatment of patients with Hodgkin lymphoma (HL) at increased risk of relapse or progression (Press release, Seattle Genetics, JUL 25, 2017, View Source [SID1234519873]). The indication was based on positive results from the phase 3 AETHERA clinical trial. ADCETRIS previously received approval with conditions in Canada for two lymphoma indications: HL patients who relapse after ASCT or relapse after at least two multi-agent chemotherapy regimens in patients who are not ASCT candidates; and for systemic anaplastic large cell lymphoma (sALCL) patients who relapse after at least one multi-agent chemotherapy regimen.

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"With this expanded ADCETRIS label, physicians and eligible patients in Canada will have further access to this important therapeutic option for treating Hodgkin lymphoma," said Clay Siegall, Ph.D., President and Chief Executive Officer of Seattle Genetics. "This is one of several ADCETRIS regulatory milestones during 2017 towards our goal of expanding its availabilty globally to patients in need. We recently submitted a supplemental Biologics License Application (BLA) to the U.S. Food and Drug Administration (FDA) for ADCETRIS approval in cutaneous T-cell lymphoma based primarily on our phase 3 ALCANZA clinical trial, and we plan to submit a supplemental BLA to the FDA for ADCETRIS in frontline Hodgkin lymphoma based on the positive phase 3 ECHELON-1 clinical trial. We plan to follow up with submissions to Health Canada for indications in these settings."

ADCETRIS is not currently approved for use in CTCL or frontline Hodgkin lymphoma.

About Hodgkin Lymphoma
Lymphoma is a general term for a group of cancers that originate in the lymphatic system. There are two major categories of lymphoma: Hodgkin lymphoma and non-Hodgkin lymphoma. Hodgkin lymphoma is distinguished from other types of lymphoma by the presence of one characteristic type of cell, known as the Reed-Sternberg cell. The Reed-Sternberg cell expresses CD30.

About ADCETRIS
ADCETRIS is being evaluated broadly in more than 70 ongoing clinical trials, including four phase 3 studies: the ECHELON-1 trial in frontline classical Hodgkin lymphoma from which positive top-line results were recently reported, the ongoing ECHELON-2 trial in frontline mature T-cell lymphomas, the completed ALCANZA trial in cutaneous T-cell lymphoma that supported a recent supplemental BLA to the FDA, and the recently initiated trial of ADCETRIS in combination with Opdivo (nivolumab) for relapsed/refractory Hodgkin lymphoma.

ADCETRIS is an ADC comprising an anti-CD30 monoclonal antibody attached by a protease-cleavable linker to a microtubule disrupting agent, monomethyl auristatin E (MMAE), utilizing Seattle Genetics’ proprietary technology. The ADC employs a linker system that is designed to be stable in the bloodstream but to release MMAE upon internalization into CD30-positive tumor cells.

ADCETRIS for intravenous injection has received approval from the FDA for three indications: (1) regular approval for the treatment of patients with classical Hodgkin lymphoma after failure of autologous hematopoietic stem cell transplantation (auto-HSCT) or after failure of at least two prior multi-agent chemotherapy regimens in patients who are not auto-HSCT candidates, (2) regular approval for the treatment of classical Hodgkin lymphoma patients at high risk of relapse or progression as post-auto-HSCT consolidation, and (3) accelerated approval for the treatment of patients with systemic anaplastic large cell lymphoma (sALCL) after failure of at least one prior multi-agent chemotherapy regimen. The sALCL indication is approved under accelerated approval based on overall response rate. Continued approval for the sALCL indication may be contingent upon verification and description of clinical benefit in confirmatory trials.

Health Canada granted ADCETRIS approval with conditions for relapsed or refractory Hodgkin lymphoma and sALCL in 2013, and non-conditional approval for post-ASCT consolidation treatment of Hodgkin lymphoma patients at increased risk of relapse or progression.

ADCETRIS was granted conditional marketing authorization by the European Commission in October 2012 for two indications: (1) for the treatment of adult patients with relapsed or refractory CD30-positive Hodgkin lymphoma following autologous stem cell transplant (ASCT), or following at least two prior therapies when ASCT or multi-agent chemotherapy is not a treatment option, and (2) the treatment of adult patients with relapsed or refractory sALCL. The European Commission extended the current conditional marketing authorization of ADCETRIS and approved ADCETRIS for the treatment of adult patients with CD30-positive Hodgkin lymphoma at increased risk of relapse or progression following ASCT.

ADCETRIS has received marketing authorization by regulatory authorities in 67 countries for relapsed or refractory
Hodgkin lymphoma and sALCL. See important safety information below.

Seattle Genetics and Takeda are jointly developing ADCETRIS. Under the terms of the collaboration agreement, Seattle Genetics has U.S. and Canadian commercialization rights and Takeda has rights to commercialize ADCETRIS in the rest of the world. Seattle Genetics and Takeda are funding joint development costs for ADCETRIS on a 50:50 basis, except in Japan where Takeda is solely responsible for development costs.

ADCETRIS (brentuximab vedotin) U.S. Important Safety Information

BOXED WARNING
Progressive multifocal leukoencephalopathy (PML): JC virus infection resulting in PML and death can occur in patients receiving ADCETRIS.

Contraindication
ADCETRIS is contraindicated with concomitant bleomycin due to pulmonary toxicity (e.g., interstitial infiltration and/or inflammation).

Warnings and Precautions

· Peripheral neuropathy (PN): ADCETRIS treatment causes a PN that is predominantly sensory. Cases of motor PN have also been reported. ADCETRIS-induced PN is cumulative. Monitor patients for symptoms of neuropathy, such as hypoesthesia, hyperesthesia, paresthesia, discomfort, a burning sensation, neuropathic pain or weakness and institute dose modifications accordingly.

· Anaphylaxis and infusion reactions: Infusion-related reactions, including anaphylaxis, have occurred with ADCETRIS. Monitor patients during infusion. If an infusion-related reaction occurs, interrupt the infusion and institute appropriate medical management. If anaphylaxis occurs, immediately and permanently discontinue the infusion and administer appropriate medical therapy. Patients who experienced a prior infusion-related reaction should be premedicated for subsequent infusions. Premedication may include acetaminophen, an antihistamine, and a corticosteroid.

· Hematologic toxicities: Prolonged (≥1 week) severe neutropenia and Grade 3 or 4 thrombocytopenia or anemia can occur with ADCETRIS. Febrile neutropenia has been reported with ADCETRIS. Monitor complete blood counts prior to each dose of ADCETRIS and consider more frequent monitoring for patients with Grade 3 or 4 neutropenia. Monitor patients for fever. If Grade 3 or 4 neutropenia develops, consider dose delays, reductions, discontinuation, or G-CSF prophylaxis with subsequent doses.

· Serious infections and opportunistic infections: Infections such as pneumonia, bacteremia, and sepsis or septic shock (including fatal outcomes) have been reported in patients treated with ADCETRIS. Closely monitor patients during treatment for the emergence of possible bacterial, fungal or viral infections.

· Tumor lysis syndrome: Closely monitor patients with rapidly proliferating tumor and high tumor burden.

· Increased toxicity in the presence of severe renal impairment: The frequency of ≥Grade 3 adverse reactions and deaths was greater in patients with severe renal impairment compared to patients with normal renal function. Avoid the use of ADCETRIS in patients with severe renal impairment.

· Increased toxicity in the presence of moderate or severe hepatic impairment: The frequency of ≥Grade 3 adverse reactions and deaths was greater in patients with moderate or severe hepatic impairment compared to patients with normal hepatic function. Avoid the use of ADCETRIS in patients with moderate or severe hepatic impairment.

· Hepatotoxicity: Serious cases of hepatotoxicity, including fatal outcomes, have occurred with ADCETRIS. Cases were consistent with hepatocellular injury, including elevations of transaminases and/or bilirubin, and occurred after the first dose of ADCETRIS or rechallenge. Preexisting liver disease, elevated baseline liver enzymes, and concomitant medications may also increase the risk.

· Monitor liver enzymes and bilirubin. Patients experiencing new, worsening, or recurrent hepatotoxicity may require a delay, change in dose, or discontinuation of ADCETRIS.

· Progressive multifocal leukoencephalopathy (PML): JC virus infection resulting in PML and death has been reported in ADCETRIS-treated patients. First onset of symptoms occurred at various times from initiation of ADCETRIS therapy, with some cases occurring within 3 months of initial exposure. In addition to ADCETRIS therapy, other possible contributory factors include prior therapies and underlying disease that may cause immunosuppression. Consider the diagnosis of PML in any patient presenting with new-onset signs and symptoms of central nervous system abnormalities. Hold ADCETRIS if PML is suspected and discontinue ADCETRIS if PML is confirmed.

· Pulmonary toxicity: Events of noninfectious pulmonary toxicity including pneumonitis, interstitial lung disease, and acute respiratory distress syndrome, some with fatal outcomes, have been reported. Monitor patients for signs and symptoms of pulmonary toxicity, including cough and dyspnea. In the event of new or worsening pulmonary symptoms, hold ADCETRIS dosing during evaluation and until symptomatic improvement.

· Serious dermatologic reactions: Stevens-Johnson syndrome (SJS) and toxic epidermal necrolysis (TEN), including fatal outcomes, have been reported with ADCETRIS. If SJS or TEN occurs, discontinue ADCETRIS and administer appropriate medical therapy.

· Gastrointestinal (GI) complications: Fatal and serious GI complications, including perforation, hemorrhage, erosion, ulcer, intestinal obstruction, enterocolitis, neutropenic colitis, and ileus have been reported in ADCETRIS-treated patients. Lymphoma with preexisting GI involvement may increase the risk of perforation. In the event of new or worsening GI symptoms, perform a prompt diagnostic evaluation and treat appropriately.

· Embryo-fetal toxicity: Based on the mechanism of action and findings in animals, ADCETRIS can cause fetal harm when administered to a pregnant woman. Females of reproductive potential should avoid pregnancy during ADCETRIS treatment and for at least 6 months after the final dose of ADCETRIS.

Adverse Reactions
In two uncontrolled single-arm trials of ADCETRIS as monotherapy in 160 patients with relapsed classical HL and sALCL, the most common adverse reactions (≥20%), regardless of causality, were: neutropenia, peripheral sensory neuropathy, fatigue, nausea, anemia, upper respiratory tract infection, diarrhea, pyrexia, rash, thrombocytopenia, cough and vomiting.

In a placebo-controlled trial of ADCETRIS in 329 patients with classical HL at high risk of relapse or progression post-auto-HSCT, the most common adverse reactions (≥20%) in the ADCETRIS-treatment arm (167 patients), regardless of causality, were: neutropenia, peripheral sensory neuropathy, thrombocytopenia, anemia, upper respiratory tract infection, fatigue, peripheral motor neuropathy, nausea, cough, and diarrhea.

Drug Interactions
Concomitant use of strong CYP3A4 inhibitors or inducers, or P-gp inhibitors, has the potential to affect the exposure to monomethyl auristatin E (MMAE).

Use in Specific Populations
MMAE exposure and adverse reactions are increased in patients with moderate or severe hepatic impairment or severe renal impairment. Avoid use.

Advise females of reproductive potential to avoid pregnancy during ADCETRIS treatment and for at least 6 months after the final dose of ADCETRIS.

Advise males with female sexual partners of reproductive potential to use effective contraception during ADCETRIS treatment and for at least 6 months after the final dose of ADCETRIS.

Advise patients to report pregnancy immediately and avoid breastfeeding while receiving ADCETRIS.
For additional Important Safety Information, including Boxed WARNING, please see the full Prescribing Information for ADCETRIS at www.seattlegenetics.com or www.ADCETRIS.com.

On July 25, 2017 NantKwest Inc. (Nasdaq:NK), a clinical-stage immunotherapy company focused on harnessing the unique power of the immune system using natural killer (NK) cells to treat cancer, infectious diseases, and inflammatory diseases, reported a paper entitled "ADCC employing an NK cell line (haNK) expressing the high affinity CD16 allele with avelumab, an anti-PD-L1 antibody" published in the International Journal of Cancer (10.1002/ijc.30767) by the National Cancer Institute (NCI) (Press release, NantKwest, JUL 25, 2017, http://ir.nantkwest.com/phoenix.zhtml?c=254059&p=irol-newsArticle&ID=2288495 [SID1234519872]). All the authors are from NCI. The paper reported preclinical data that are associated with the company’s haNK cell therapy platform in combination with avelumab, an anti-PD-L1 checkpoint inhibitor being co-developed by Merck KGaA, Darmstadt, Germany and Pfizer Inc. The preclinical data were generated under a Cooperative Research and Development Agreement (CRADA) between NCI and NantBioScience and a CRADA between NCI and Merck KGaA, Darmstadt, Germany.

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In this study, haNK cells, which are NantKwest’s proprietary NK cells, engineered to express the IL-2 cytokine and the high affinity CD16 allele, have been combined with avelumab, a human IgG1 anti-PD-L1 antibody.

Consistent with previous studies, results demonstrate the enhanced cancer cell killing abilities of haNK cells in combination with avelumab in a range of cancer cell types via the antibody dependent cell-mediated cytotoxicity (ADCC) mechanism.

ADCC is part of the human cell-mediated immune defense system associated with the interaction of natural killer cells with antibodies to directly kill a target cell that has been identified by an antigen-specific antibody. It is one of the key mechanisms that antibodies utilize to target and kill cancer cells.

In addition, engineering haNK cells to express IL-2 enables a "serial killer like" capacity, killing greater levels of target cells by increasing the exposure to target cells and increasing activity while also replenishing the granular stock of NK cells, enhancing the granzyme-mediated lysis of NK cells which exhibit an exhausted phenotype.

Of note, consistent with previous studies with haNK cells, this study demonstrated that activity, cytotoxicity and immune signaling capabilities of haNK cells remained intact post-irradiation.

haNK Cell Therapy Platform
NantKwest’s haNK cell therapy platform, an allogeneic, off-the-shelf therapy, was developed to optimize the key role of natural killer cells in mediating innate immunity, enhancing adaptive immune responses, and, specifically in the case of haNK, improving anti-tumor responses via antibody-dependent cell-mediated cytotoxicity.

To achieve this objective, haNK cells have been engineered to express the IL-2 cytokine and the high-affinity variant of the CD16 receptor (V158 FcγRIIIa). In preclinical studies, the addition of haNK to a variety of therapeutic antibodies has led to increased tumor cell killing when compared to the antibody alone. Human clinical studies are designed to provide the necessary safety data to rapidly transition the haNK Phase I safety study to haNK-antibody combination trials as quickly as possible.

haNK Phase I Study Background
The primary objective of the Phase I study is to determine the safety of haNK cell monotherapy administered intravenously once per week in up to 16 patients with metastatic or locally advanced solid tumors. Secondary objectives include the determination of objective response rate, progression-free survival, overall survival, and any correlations between tumor molecular profiles (based on genomics, transcriptomics, and quantitative proteomics) and patient outcomes.

For additional information, including exclusion and inclusion criteria, contact information and other details, please visit www.clinicaltrials.gov, QUILT trial #3.028.

A second haNK clinical trial, QUILT trial #3.046, NANT Melanoma Vaccine: Combination Immunotherapy in Subjects with Melanoma Who Have Progressed On or After Chemotherapy and PD-1/PD-L1 Therapy, was also recently been posted on clinicaltrials.gov and will be open for participant recruitment in the next few months.

On July 25, 2017 Moleculin Biotech, Inc., (NASDAQ: MBRX) ("Moleculin" or the "Company"), a preclinical 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 it has agreed to provide support to help accelerate the start of a physician-sponsored Investigational New Drug (IND) application to study the Company’s drug candidate WP1066 for the treatment of adult glioblastoma (brain tumors) (Press release, Moleculin, JUL 25, 2017, View Source [SID1234519871]).

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Dr. Robert Shepard, Moleculin’s Chief Medical Officer added: "We have never seen a drug like WP1066 that appears capable in vitro of both stimulating a natural immune response and directly killing tumor cells to block tumor progression. There continues to be a serious unmet need for the treatment of glioblastomas, the most aggressive and lethal form of brain cancer, which is why we are working so hard and are excited to get WP1066 into the clinic."

A recent Facebook post by MD Anderson Brain and Spine expanded: "The drug, known as WP1066, is modeled after a natural compound that has certain tumor-fighting properties. WP1066 amplifies these properties to potent levels, and it can cross the blood-brain barrier. WP1066 belongs to a class of drugs known as STAT3 inhibitors; they prevent tumors from using the STAT3 pathway to evade the immune system. WP1066 can also induce tumor cell death. It’s effective against human glioblastoma in preclinical models. The next step is to see if this unique drug is effective when given to glioblastoma patients." (link to post: www.facebook.com/MDAndersonBrainandSpine/photos/a.293040624101698.69475.221408934598201/1603466399725774/)

An IND application sponsored by an MD Anderson physician is currently on clinical hold because FDA has requested additional chemistry, manufacturing and control (CMC) data, among other things. The Company also announced on June 26, 2017 its agreement to support research at the Mayo Clinic on the potential for WP1066 to treat pediatric brain tumors.

"By providing additional guidance and data, we think we can help accelerate the ability of the physician investigator to respond to FDA’s requests in a way that will allow the study to begin," commented Walter Klemp, CEO of Moleculin, "which we believe could position WP1066 for a brain tumor trial this year."

On July 25, 2017 Verastem, Inc. (NASDAQ:VSTM), focused on discovering and developing drugs to improve the survival and quality of life of cancer patients, reported scientific findings from studies evaluating focal adhesion kinase (FAK) inhibition in preclinical models of pancreatic and breast cancer with the publication of two papers in the peer-reviewed journals, PLoS One and Oncotarget (Press release, Verastem, JUL 25, 2017, View Source [SID1234519867]). The two published articles continue to validate the underlying thesis for ongoing clinical collaborations evaluating Verastem’s lead FAK inhibitor defactinib in combination with chemotherapeutic and leading immunotherapeutic agents in several difficult to treat types of cancer.

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Jonathan Pachter, Ph.D., Chief Scientific Officer of Verastem, stated, "The data published in PLoS One illustrate the impact of combining a FAK inhibitor with standard chemotherapy, demonstrating inhibited tumor growth, along with limited metastatic dissemination in pancreatic ductal adenocarcinoma (PDAC), one of the deadliest types of cancer. Importantly, these data also provide additional rationale for the ongoing clinical studies evaluating defactinib in combination with Merck’s pembrolizumab for the treatment of patients with pancreatic cancer. Our data in the Oncotarget paper further delineate the anti-tumor mechanisms of our FAK inhibitors, and demonstrate the benefit of adding a FAK inhibitor to overcome key restrictive features of the tumor microenvironment (TME) to enable longer survival and reduced metastatic outgrowth."

PLoS ONE Publication Highlights Potential Role of FAK Inhibition in Pancreatic Cancer
In a paper titled "The Extracellular Matrix and Focal Adhesion Kinase Signaling Regulate Cancer Stem Cell Function in Pancreatic Ductal Adenocarcinoma," Verastem researchers, along with scientific collaborators led by William Matsui at Johns Hopkins University School of Medicine, describe findings demonstrating that FAK inhibition extended the anti-tumor response to gemcitabine and nab-paclitaxel (Gem-Pac) in preclinical models of PDAC. Prior research has demonstrated that the desmoplastic TME of PDAC plays a role in therapeutic resistance, and this study demonstrates that intra-tumoral fibrosis enhances tumor-initiating and self-renewal potential.

The researchers show that the TME in PDAC is dramatically altered by several ECM proteins, including type I collagen. Type I collagen increases PDAC tumor-initiating potential, self-renewal and the frequency of cancer stem cells (CSCs) through the activation of FAK. While FAK overexpression increased tumor initiation, it was demonstrated that FAK inhibition reduced PDAC growth in vitro and in vivo. In an in vivo murine PDAC model, FAK inhibitor-treated tumors grew significantly slower than tumors in vehicle-treated control animals. In addition, tumor regression was enhanced by the addition of a FAK inhibitor to Gem-Pac and tumor regrowth was also significantly delayed in animals treated with the combination of a FAK inhibitor with Gem-Pac, as compared to Gem-Pac alone.

Oncotarget Publication Describing the Preferential Targeting of Cancer Stem Cells by FAK Inhibition in Breast Cancer Models

In a paper by Vihren Kolev et al., titled "Inhibition of FAK Kinase Activity Preferentially Targets Cancer Stem Cells," Verastem researchers demonstrated that FAK inhibition significantly reduced the proportion of CSCs in mice bearing xenograft models of triple-negative breast cancer (TNBC), as evidenced by a reduced tumor-initiating capability upon re-implantation. In contrast, the cytotoxic chemotherapeutic agents, paclitaxel and carboplatin, enriched the number of CSCs. Importantly, FAK inhibition weakened the chemotherapy-induced enrichment of CSCs in vitro and delayed tumor regrowth following cessation of chemotherapy. In addition, an active mutant form of β-catenin reversed the preferential targeting of CSCs by FAK inhibition, suggesting that this targeting is mediated, at least in part, through attenuating β-catenin activation. The preferential targeting of CSCs by FAK inhibitors provides a rationale for the clinical development of FAK inhibitors aimed to increase durable responses for cancer patients.

About the Tumor Microenvironment
The TME encompasses multiple tumor and non-tumor cell populations and an extracellular matrix that support cancer cell survival. This includes immunosuppressive regulatory T-cells, myeloid-derived suppressor cells, tumor-associated macrophages, cancer-associated fibroblasts, and extracellular matrix proteins that can hamper the entry and therapeutic benefit of cytotoxic T-cells and anti-cancer drugs. In addition to targeting the proliferative and survival signaling of cancer cells, Verastem’s product candidates, including duvelisib and defactinib, also target the TME to potentially improve response to therapy.

About Focal Adhesion Kinase and Defactinib
Defactinib (VS-6063) is an investigational inhibitor of Focal Adhesion Kinase (FAK), a non-receptor tyrosine kinase encoded by the PTK-2 gene that mediates oncogenic signaling in response to cellular adhesion and growth factors.1 Based on the multi-faceted roles of FAK, defactinib is used to treat cancer through modulation of the tumor microenvironment, enhancement of anti-tumor immunity, and reduction of cancer stem cells.2,3 Defactinib is currently being evaluated in three separate clinical collaborations in combination with immunotherapeutic agents for the treatment of several different cancer types including pancreatic, ovarian, non-small cell lung cancer, and mesothelioma. These studies are combination clinical trials with pembrolizumab and avelumab from Merck & Co. and Pfizer/Merck KGaA, respectively.4,5,6 Information about these and additional clinical trials evaluating the safety and efficacy of defactinib can be found on www.clinicaltrials.gov.

On July 25, 2017 Eli Lilly and Company (NYSE: LLY) reported financial results for the second quarter of 2017 (Press release, Eli Lilly, JUL 25, 2017, View Source [SID1234519864]).

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$ in millions, except per share dataSecond Quarter%

2017
2016Change
Revenue$5,824.3

$5,404.8
8%
Net Income – Reported1,008.0

747.7
35%
EPS – Reported0.95

0.71
34%



Net Income – Non-GAAP1,177.4

908.8
30%
EPS – Non-GAAP1.11

0.86
29%
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 delivered strong revenue growth in the second quarter, building on the momentum of Trulicity, Taltz and the other new products in our portfolio," said David A. Ricks, Lilly’s chairman, president and CEO. "To deliver on our mission and maximize our opportunity, we have four key priorities — launching with excellence, replenishing the pipeline, driving productivity, and building talent and capability in our core areas of focus."
Today the company is providing an update to its oncology research and development strategy. In addition to building upon new oncology products such as Cyramza (ramucirumab), Lartruvo (olaratumab) and abemaciclib, Lilly will pursue new standard-of-care changing therapies that target tumor dependencies in molecularly enriched populations, build rational combinations that overcome resistance, and develop next-generation immunotherapies. Using this framework, Lilly will now focus on seven pipeline assets for priority internal development and three additional assets which are pending data from ongoing trials. The company has or will seek external partners on the other molecules in clinical development as appropriate.
Additional details will be provided in the company’s 2017 second-quarter earnings call.
Key Events Over the Last Three Months
Regulatory
· The U.S. Food and Drug Administration (FDA) granted Priority Review designation for abemaciclib, a cyclin-dependent kinase (CDK) 4 & 6 inhibitor. The company’s submission of abemaciclib includes two indications: abemaciclib monotherapy for patients with hormone-receptor-positive (HR+), human epidermal growth factor receptor 2-negative (HER2-) advanced breast cancer who had prior endocrine therapy and chemotherapy for metastatic disease; and abemaciclib in combination with fulvestrant in women with HR+, HER2- advanced breast cancer who had disease progression following endocrine therapy.
· The FDA granted Fast Track designation for tanezumab for the treatment of chronic pain in patients with osteoarthritis and chronic low back pain. Tanezumab, which is being studied in collaboration with Pfizer, is an investigational humanized monoclonal antibody that selectively targets, binds to and inhibits nerve growth factor.
· The company and Incyte announced that a resubmission to the FDA for the New Drug Application (NDA) for baricitinib, a once-daily oral medication for the treatment of moderate-to-severe rheumatoid arthritis, will be delayed beyond 2017. The companies will be further discussing the path forward with the agency and evaluating options for resubmission, including the potential for an additional clinical study, as requested by the FDA. The length of time to a resubmission for the NDA will depend on which option the companies pursue and further FDA discussions, but is anticipated to be a minimum of 18 months.
· Japan’s Ministry of Health, Labor and Welfare granted marketing approval for Olumiant (baricitinib) 2-mg and 4-mg tablets 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.
Clinical
· The company announced that galcanezumab, an investigational treatment for the prevention of episodic and chronic migraine, met its primary endpoint in three Phase 3 studies demonstrating statistically significant reductions in the number of monthly migraine headache days compared to placebo at both studied doses.
· The company announced that a Phase 3 study of Cyramza met its primary endpoint of progression-free survival, demonstrating a statistically significant improvement. The Phase 3 global, randomized, double-blinded, placebo-controlled trial is evaluating ramucirumab in combination with docetaxel in patients with locally advanced or unresectable or metastatic urothelial carcinoma whose disease progressed on or after platinum-based chemotherapy.
· The company passed an interim analysis in a Phase 3 study of lanabecestat in patients with early Alzheimer’s disease. As a result, Lilly will make a $50 million milestone payment in the third quarter of 2017 as part of the company’s collaboration with AstraZeneca.
Business Development/Other
· The UK Supreme Court has decided in the litigation relating to alternative salt forms of Alimta (pemetrexed disodium) that Actavis’s products directly infringe Lilly’s vitamin regimen patents in the UK, France, Italy and Spain. The UK Supreme Court also affirmed the indirect infringement finding by the UK Court of Appeal.
· The company entered into a settlement agreement with generic companies to resolve pending patent litigation in the U.S. District Court for the Eastern District of Virginia regarding the Cialis (tadalafil) unit dose patent. This patent was set to expire on April 26, 2020. As part of the agreement, Cialis exclusivity is now expected to end at the earliest on September 27, 2018.
· The company and Nektar Therapeutics announced a strategic collaboration to co-develop NKTR-358, a novel immunological therapy discovered by Nektar. NKTR-358, which achieved first human dose in Phase 1 clinical development in March of 2017, has the potential to treat a number of autoimmune and other chronic inflammatory conditions. Subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act and other customary closing conditions, Lilly expects to provide an initial payment of $150 million to Nektar in 2017.
· The company and KeyBioscience entered into a new collaboration 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. Lilly will provide an initial payment of $55 million to KeyBioscience in the third quarter of 2017.
· The company and Purdue University announced a strategic collaboration to conduct life science research in a five-year agreement, where Lilly will provide up to $52 million.
· The company announced completion of a $90 million expansion of its Biotechnology Center in San Diego, California. Lilly’s new space will help foster and accelerate the discovery of medicines within the company’s core therapeutic areas of immunology, diabetes, oncology and neurodegeneration, as well as the emerging area of pain.
Second-Quarter Reported Results
In the second quarter of 2017, worldwide revenue was $5.824 billion, an increase of 8 percent compared with the second quarter of 2016. The revenue increase was driven by a 5 percent increase due to volume and a 4 percent increase due to realized prices, partially offset by a 1 percent decrease due to the unfavorable impact of foreign exchange rates. The increase in worldwide volume was largely due to 8 percent pharmaceutical growth driven by Trulicity and other new products, including Taltz, Basaglar, Jardiance, Lartruvo and Cyramza. These volume increases were partially offset by decreased volumes for Cialis, Zyprexa, Alimta and Strattera. The increase in realized prices was primarily driven by Cialis and Forteo. Revenue decreased for animal health products, despite the inclusion of $78.3 million in revenue from the acquisition of Boehringer Ingelheim Vetmedica’s U.S. feline, canine and rabies vaccine portfolio.
Revenue in the U.S. increased 15 percent, to $3.324 billion, due to higher realized prices for several pharmaceutical products, primarily driven by Cialis and Forteo, and increased volume for new pharmaceutical products, driven by Trulicity, Taltz, Basaglar, Jardiance and Lartruvo. The increase in revenue was partially offset by decreased volume for several established pharmaceutical products, including Cialis and Strattera, as well as decreased revenue for animal health products.
Revenue outside the U.S. decreased 1 percent, to $2.500 billion, due to the loss of exclusivity of Zyprexa in Japan and Cymbalta in Canada and Europe, as well as increased competition, lower realized prices and loss of exclusivity for Alimta in several countries. The unfavorable impact of foreign exchange rates and decreases for food and companion animal products also contributed to lower revenue. These declines were largely offset by increased volume for several new pharmaceutical products, including Trulicity and Cyramza.
Gross margin increased 8 percent, to $4.273 billion, in the second quarter of 2017 compared with the second quarter of 2016. Gross margin as a percent of revenue was 73.4 percent, an increase of 0.5 percentage points compared with the second quarter of 2016. The increase in gross margin percent was primarily due to higher realized prices and manufacturing efficiencies, partially offset by negative product mix and higher expenses to support new pharmaceutical products.
Operating expenses in the second quarter of 2017, defined as the sum of research and development, and marketing, selling and administrative expenses, remained flat at $2.958 billion. Research and development expenses decreased 6 percent, to $1.251 billion, or 21.5 percent of revenue. This decrease was driven primarily by a $100.0 million charge in the second quarter of 2016, related to a development milestone for lanabecestat, an oral beta secretase cleaving enzyme (BACE) inhibitor currently in development with AstraZeneca as a potential treatment for early Alzheimer’s disease. Marketing, selling and administrative expenses increased 5 percent, to $1.707 billion, due to increased expenses related to new pharmaceutical products, partially offset by decreased expenses related to late life-cycle products. Operating expenses were 50.8 percent of revenue in the second quarter of 2017, a reduction of 3.9 percentage points compared with the second quarter of 2016, as a result of higher revenue and flat operating expenses.
In the second quarter of 2017, the company recognized asset impairment, restructuring and other special charges of $50.0 million. The charges are primarily associated with integration costs and asset impairments related to the acquisition and integration of Novartis Animal Health. In the second quarter of 2016, the company recognized asset impairment, restructuring and other special charges of $58.0 million, composed of integration costs, severance costs and asset impairments related to the acquisition and integration of Novartis Animal Health.
Operating income in the second quarter of 2017 was $1.264 billion, an increase of $341.1 million compared with the second quarter of 2016, primarily driven by higher gross margin.
Other income (expense) was expense of $3.9 million in the second quarter of 2017, compared with income of $21.2 million in the second quarter of 2016.
The effective tax rate was 20.0 percent in the second quarter of 2017, compared with 20.8 percent in the second quarter of 2016.
In the second quarter of 2017, net income increased 35 percent, to $1.008 billion, and earnings per share increased 34 percent, to $0.95, compared with $747.7 million and $0.71, respectively, in the second quarter of 2016. The increases in net income and earnings per share were primarily driven by higher operating income.
Second-Quarter Non-GAAP Measures
On a non-GAAP basis, second-quarter 2017 gross margin increased 9 percent, to $4.465 billion. Gross margin as a percent of revenue was 76.7 percent, an increase of 0.7 percentage points compared with the second quarter of 2016. The increase in gross margin percent was primarily due to higher realized prices and manufacturing efficiencies, partially offset by negative product mix and higher expenses to support new pharmaceutical products.
Operating expenses were 50.8 percent of revenue in the second quarter of 2017, a reduction of 3.9 percentage points compared with the second quarter of 2016, as a result of higher revenue and flat operating expenses.
Operating income increased $358.6 million, or 31 percent, to $1.509 billion in the second quarter of 2017, due to higher gross margin.
The effective tax rate was 21.7 percent in the second quarter of 2017, compared with 22.4 percent in the second quarter of 2016.
In the second quarter of 2017, net income increased 30 percent, to $1.177 billion, and earnings per share increased 29 percent, to $1.11, compared with $908.8 million and $0.86, respectively, in the second quarter of 2016. The increases in net income and earnings per share were 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.

Second Quarter

2017
2016% Change
Earnings per share (reported)$0.95

$0.71
34%
Amortization of intangible assets.12

.11


Asset impairment, restructuring and other special charges.03

.04


Inventory step up costs associated with the acquisition of Boehringer Ingelheim Vetmedica’s U.S. feline, canine and rabies vaccine portfolio.01

—


Earnings per share (non-GAAP)$1.11

$0.86
29%






Numbers may not add due to rounding.




Year-to-Date Results
For the first six months of 2017, worldwide revenue increased 8 percent, to $11.053 billion, compared with $10.270 billion in the same period in 2016. Reported net income and earnings per share were $897.2 million and $0.85, respectively. Net income and earnings per share, on a non-GAAP basis, were $2.217 billion and $2.10, respectively.
Year-to-Date Non-GAAP Measures
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.

Year-to-Date

2017
2016% Change
Earnings per share (reported)$0.85

$1.12
(24)%
Acquired in-process research and development.81

—


Amortization of intangible assets.23

.22


Asset impairment, restructuring and other special charges.19

.16


Inventory step up costs associated with the acquisition of Boehringer Ingelheim Vetmedica’s U.S. feline, canine and rabies vaccine portfolio.02

—


Venezuela charge—

.19


Earnings per share (non-GAAP)$2.10

$1.69
24%
Numbers may not add due to rounding.





Select Revenue Highlights











(Dollars in millions)Second Quarter
Year-to-Date

Established Pharmaceutical Products2017
2016
% Change
2017
2016
% Change

Humalog$678.4

$701.9

(3)%
$1,386.8

$1,308.2

6%

Cialis627.3

630.5

(0)%
1,160.9

1,207.2

(4)%

Alimta532.9

607.1

(12)%
1,022.8

1,171.3

(13)%

Forteo446.7

367.6

22%
794.2

686.3

16%

Humulin357.8

332.3

8%
672.3

688.7

(2)%

Strattera186.6

224.6

(17)%
382.8

412.7

(7)%

Cymbalta206.6

236.5

(13)%
381.2

435.2

(12)%

Erbitux159.1

180.6

(12)%
313.5

348.6

(10)%

Zyprexa140.8

210.7

(33)%
288.3

423.4

(32)%

Effient142.9

135.1

6%
270.7

266.6

2%















New Pharmaceutical Products












Trulicity480.2

201.3

139%
853.1

344.9

147%

Cyramza186.3

147.0

27%
357.6

278.0

29%

Taltz138.7

19.3

618%
235.4

19.3

1,118%

Jardiance(a)103.2

40.1

157%
177.1

78.3

126%

Basaglar86.6

16.3

432%
132.6

27.2

388%

Lartruvo47.4

—

NM
89.5

—

NM

Olumiant4.8

—

NM
6.6

—

NM

Portrazza2.3

4.0

(43)%
5.9

5.7

3%

Subtotal1,049.5

428.0

145.2%
1,857.8

753.4

146.6%















Animal Health784.8

859.8

(9)%
1,554.2

1,614.4

(4)%















Total Revenue5,824.3

5,404.8

8%
11,052.6

10,269.9

8%















(a) Jardiance includes Glyxambi and Synjardy
NM – not meaningful
Numbers may not add due to rounding
























Selected Established Pharmaceutical Products
Humalog
For the second quarter of 2017, worldwide Humalog revenue decreased 3 percent compared with the second quarter of 2016, to $678.4 million. Revenue in the U.S. decreased 7 percent, to $390.4 million, due to lower realized prices and, to a lesser extent, decreased volume. Revenue outside the U.S. increased 2 percent, to $288.0 million, driven by increased volume and, to a lesser extent, higher realized prices, partially offset by the unfavorable impact of foreign exchange rates.
Cialis
For the second quarter of 2017, worldwide Cialis revenue remained flat at $627.3 million. U.S. revenue of Cialis was $381.0 million in the second quarter, a 1 percent decrease compared with the second quarter of 2016, driven by decreased demand offset almost entirely by higher realized prices. Revenue of Cialis outside the U.S. remained flat at $246.3 million, driven by the unfavorable impact of foreign exchange rates and decreased volume, almost entirely offset by higher realized prices.
Alimta
For the second quarter of 2017, Alimta generated worldwide revenue of $532.9 million, which decreased 12 percent compared with the second quarter of 2016. U.S. revenue of Alimta decreased 6 percent, to $274.3 million, driven by decreased demand due to competitive pressure, partially offset by higher realized prices. Revenue outside the U.S. decreased 18 percent, to $258.6 million, driven by increased competition, lower realized prices, loss of exclusivity in several countries and, to a lesser extent, the unfavorable impact of foreign exchange rates.
Forteo
Second-quarter 2017 worldwide revenue for Forteo was $446.7 million, a 22 percent increase compared with the second quarter of 2016. U.S. revenue increased 34 percent, to $249.8 million, driven by higher realized prices and, to a lesser extent, increased volume. Revenue outside the U.S. increased 9 percent, to $196.9 million, driven by increased volume and, to a lesser extent, higher realized prices, partially offset by the unfavorable impact of foreign exchange rates.
Humulin
Worldwide Humulin revenue for the second quarter of 2017 increased 8 percent compared with the second quarter of 2016, to $357.8 million. U.S. revenue increased 11 percent, to $226.5 million, driven by higher realized prices and, to a lesser extent, increased volume. Revenue outside the U.S. increased 3 percent, to $131.3 million, driven by increased volume, partially offset by lower realized prices and, to a lesser extent, the unfavorable impact of foreign exchange rates.
Selected New Pharmaceutical Products
Trulicity
Second-quarter 2017 worldwide Trulicity revenue was $480.2 million. U.S. revenue was $380.9 million, driven by growth in the GLP-1 market and increased share of market for Trulicity. Revenue outside the U.S. was $99.3 million, primarily driven by uptake in Europe and Japan.
Cyramza
For the second quarter of 2017, worldwide Cyramza revenue was $186.3 million, an increase of 27 percent compared with the second quarter of 2016. U.S. revenue was $68.7 million, an increase of 1 percent, driven by higher realized prices, partially offset by decreased demand due to competitive pressure. Revenue outside the U.S. was $117.6 million, an increase of 49 percent, primarily due to strong volume growth in Japan, partially offset by lower realized prices.
Taltz
For the second quarter of 2017, Taltz generated worldwide revenue of $138.7 million. U.S. revenue was $124.4 million, an increase of $36.6 million compared with the first quarter of 2017, reflecting strong launch uptake.
Jardiance
The company’s worldwide Jardiance revenue during the second quarter of 2017 was $103.2 million, an increase of 157 percent compared with the second quarter of 2016. U.S. revenue increased 157 percent, to $66.8 million, driven by increased share of market for Jardiance and growth in the SGLT2 class. Revenue outside the U.S. was $36.3 million. Jardiance is part of the company’s alliance with Boehringer Ingelheim, and Lilly reports as revenue a portion of Jardiance’s gross margin.
Basaglar
For the second quarter of 2017, Basaglar generated worldwide revenue of $86.6 million. U.S. revenue was $59.5 million, an increase of $37.5 million compared with the first quarter of 2017, reflecting strong launch uptake. Basaglar is part of the company’s alliance with Boehringer Ingelheim, and Lilly reports as revenue total sales, with payments made to Boehringer Ingelheim for its portion of the gross margin reported as cost of sales.
Lartruvo
For the second quarter of 2017, Lartruvo, a treatment in combination with doxorubicin for a subset of adult patients with advanced soft tissue sarcoma, generated worldwide revenue of $47.4 million. U.S. revenue was $39.7 million, an increase of $1.7 million compared with the first quarter of 2017.
Olumiant
For the second quarter of 2017, Olumiant, a treatment for moderate-to-severe rheumatoid arthritis, generated worldwide revenue of $4.8 million.
Animal Health
In the second quarter of 2017, worldwide animal health revenue totaled $784.8 million, a decrease of 9 percent compared with the second quarter of 2016. Worldwide food animal revenue decreased 14 percent, to $473.0 million, driven by market access pressure and competitive pressure in cattle and swine. Worldwide companion animal revenue increased 1 percent, to $311.8 million, driven by the inclusion of $78.3 million in revenue from the acquisition of Boehringer Ingelheim Vetmedica’s U.S. feline, canine and rabies vaccine portfolio, largely offset by wholesaler buying patterns in the second quarter of 2016 and worldwide competitive pressure. The company expects these pressures to continue, to a lesser extent, for the balance of 2017.
2017 Financial Guidance
The company has revised certain elements of its 2017 financial guidance on a reported basis and on a non-GAAP basis. Earnings per share for 2017 are being decreased to be in the range of $2.51 to $2.61 on a reported basis. Earnings per share for 2017 are being increased to be in the range of $4.10 to $4.20 on a non-GAAP basis.

2017
Expectations% Change from 2016
Earnings per share (reported)$2.51 to $2.61(3)% to 1%
Acquired in-process research and development charges related to the acquisition of CoLucid Pharmaceuticals and the collaborations with Nektar Therapeutics and KeyBioscience.94

Amortization of intangible assets (1).44

Asset impairment, restructuring and other special charges, including Novartis Animal Health integration costs.19

Inventory step-up costs associated with the acquisition of Boehringer Ingelheim Vetmedica’s U.S. feline, canine and rabies vaccines portfolio (1).03

Earnings per share (non-GAAP)$4.10 to $4.2016% to 19%
(1) Subject to acquisition accounting adjustments


Numbers may not add due to rounding


The company now anticipates 2017 revenue between $22.0 billion and $22.5 billion. Excluding the impact of foreign exchange rates, the company expects revenue growth from new pharmaceutical products including Trulicity, Taltz, Basaglar, Cyramza, Jardiance and Lartruvo, as well as a number of established pharmaceutical products including Trajenta, Forteo and Humalog.
Gross margin percentage is now expected to be approximately 72.5 percent on a reported basis, and approximately 76.0 percent on a non-GAAP basis.
Marketing, selling and administrative expenses are still expected to be in the range of $6.4 billion to $6.6 billion. Research and development expenses are now expected to be in the range of $5.0 billion to $5.2 billion.
The 2017 tax rate is now expected to be approximately 23.5 percent on a reported basis. The 2017 tax rate is still expected to be approximately 22.0 percent on a non-GAAP basis.
The following table summarizes the company’s 2017 financial guidance:

2017 Guidance

Prior
Revised
Revenue$21.8 to $22.3 billion
$22.0 to $22.5 billion





Gross Margin % of Revenue (reported)Approx. 73.5%
Approx. 72.5%
Gross Margin % of Revenue (non-GAAP)Approx. 77.0%
Approx. 76.0%





Marketing, Selling & Administrative$6.4 to $6.6 billion
Unchanged





Research & Development$4.9 to $5.1 billion
$5.0 to $5.2 billion





Other Income/(Expense)$0 to $100 million
Unchanged





Tax Rate (reported)Approx. 24.5%
Approx. 23.5%
Tax Rate (non-GAAP)Approx. 22.0%
Unchanged





Earnings per Share (reported)$2.60 to $2.70
$2.51 to $2.61
Earnings per Share (non-GAAP)$4.05 to $4.15
$4.10 to $4.20





Capital ExpendituresApprox. $1.2 billion
Approx. $1.1 billion





Non-GAAP adjustments are consistent with the earnings per share table above.