On October 29, 2019 Amgen (NASDAQ:AMGN) reported financial results for the third quarter of 2019 (Press release, Amgen, OCT 29, 2019, View Source [SID1234549961]). Key results include:

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Total revenues decreased 3% to $5.7 billion in comparison to the third quarter of 2018, reflecting the impact of biosimilar and generic competition against key products.

Although product sales declined 1% globally, units grew double digits or better for Prolia (denosumab), Repatha (evolocumab), Aimovig (erenumab-aooe), Parsabiv (etelcalcetide), KYPROLIS (carfilzomib) and BLINCYTO (blinatumomab).

GAAP earnings per share (EPS) increased 14% to $3.27 benefited by lower weighted-average shares outstanding and higher operating income.

GAAP operating income increased 7% to $2.5 billion and GAAP operating margin increased 3.1 percentage points to 45.3%.

Non-GAAP EPS decreased 1% to $3.66 as a result of lower revenue, offset partially by lower weighted-average shares outstanding.

Non-GAAP operating income decreased 6% to $2.8 billion and non-GAAP operating margin decreased 2.8 percentage points to 51.1%.

The Company generated $3.2 billion of free cash flow in the third quarter of 2019 versus $3.1 billion in the third quarter of 2018.

2019 total revenues guidance revised to $22.8-$23.0 billion; EPS guidance to $12.50-$12.80 on a GAAP basis and $14.20-$14.45 on a non-GAAP basis. This guidance excludes the impact of the Otezla (apremilast) acquisition.

The Company expects the Otezla acquisition to close before the end of the fourth quarter.

Product Sales Performance

Total product sales decreased 1% for the third quarter of 2019 versus the third quarter of 2018.

Prolia sales increased 18% driven by higher unit demand.

EVENITY (romosozumab-aqqg) was launched in the first half of this year and generated $59 million of sales in the third quarter of 2019.

Repatha sales increased 40% driven by higher unit demand, offset partially by lower net selling price.

Aimovig generated $66 million in sales in the third quarter of 2019.

Parsabiv sales increased 54% driven by higher unit demand, offset partially by lower net selling price.

KYPROLIS sales increased 15% driven primarily by higher unit demand.

XGEVA (denosumab) sales increased 10% driven primarily by higher unit demand.

Vectibix (panitumumab) sales increased 8% driven primarily by higher unit demand.

Nplate (romiplostim) sales increased 10% driven primarily by higher unit demand.

BLINCYTO sales increased 47% driven by higher unit demand.

Biosimilar sales generated $173 million in the third quarter of 2019.

Enbrel (etanercept) sales increased 6% driven by higher net selling price and favorable changes in accounting estimates, offset partially by lower unit demand.

Neulasta (pegfilgrastim) sales decreased 32% driven by the impact of biosimilar competition on unit demand and lower net selling price.

NEUPOGEN (filgrastim) sales decreased 36% driven primarily by lower net selling price, unfavorable changes in accounting estimates and the impact of biosimilar competition on unit demand.

EPOGEN (epoetin alfa) sales decreased 15% driven primarily by lower net selling price.

Aranesp (darbepoetin alfa) sales decreased 5% driven primarily by the impact of competition on unit demand.

Sensipar/Mimpara (cinacalcet) sales decreased 73% driven by the impact of generic competition on unit demand.

Operating Expense, Operating Margin and Tax Rate Analysis
On a GAAP basis:

Total Operating Expenses decreased 9%. Cost of Sales margin increased 0.2 percentage points due primarily to unfavorable product mix, offset partially by lower manufacturing costs. Research & Development (R&D) expenses increased 8% driven primarily by increased spending in research and early pipeline in support of our oncology programs, offset partially by decreased spending in support of marketed products. Selling, General & Administrative (SG&A) expenses decreased 5% driven primarily by lower general and administrative expenses as well as the end of certain amortization of intangible assets in 2018. Other operating expenses decreased due primarily to an impairment charge in the prior period associated with a nonkey intangible asset acquired in a business combination.

Operating Margin increased 3.1 percentage points to 45.3%.

Tax Rate increased 2.4 percentage points due primarily to a prior-year tax benefit associated with intercompany sales under U.S. corporate tax reform.

AMGEN REPORTS THIRD QUARTER 2019 FINANCIAL RESULTS
Page 5

On a non-GAAP basis:

Total Operating Expenses were flat. Cost of Sales margin increased 0.1 percentage points due primarily to unfavorable product mix, offset partially by lower manufacturing costs. R&D expenses increased 8% driven primarily by increased spending in research and early pipeline in support of our oncology programs, offset partially by decreased spending in support of marketed products. SG&A expenses decreased 5% driven primarily by lower general and administrative expenses.

Operating Margin decreased 2.8 percentage points to 51.1%.

Tax Rate increased 2.2 percentage points due primarily to a prior-year tax benefit associated with intercompany sales under U.S. corporate tax reform.

Cash Flow and Balance Sheet

The Company generated $3.2 billion of free cash flow in the third quarter of 2019 versus $3.1 billion in the third quarter of 2018 driven primarily by favorable changes in working capital.

The Company’s third quarter 2019 dividend of $1.45 per share was declared on Aug. 2, 2019, and was paid on Sept. 6, 2019, to all stockholders of record as of Aug. 15, 2019, representing a 10% increase from 2018.

During the third quarter of 2019, the Company repurchased 6.2 million shares of common stock at a total cost of $1.2 billion. At the end of the third quarter, the Company had $3.6 billion remaining under its stock repurchase authorization.

2019 Guidance
For the full year 2019, the Company now expects:

Total revenues in the range of $22.8 billion to $23.0 billion.

Previously, the Company expected total revenues in the range of $22.4 billion to $22.9 billion.

On a GAAP basis, EPS in the range of $12.50 to $12.80 and a tax rate in the range of 13% to 14%.

Previously, the Company expected GAAP EPS in the range of $12.10 to $12.71 and a tax rate in the range of 13% to 14%.

On a non-GAAP basis, EPS in the range of $14.20 to $14.45 and a tax rate in the range of 14% to 15%.

Previously, the Company expected non-GAAP EPS in the range of $13.75 to $14.30 and a tax rate in the range of 14% to 15%.

Capital expenditures to be approximately $650 million.

2019 Guidance does not include the Otezla acquisition which is expected to close by the end of the fourth quarter.

AMGEN REPORTS THIRD QUARTER 2019 FINANCIAL RESULTS
Page 7

Third Quarter Product and Pipeline Update
The Company provided the following updates on selected product and pipeline programs:
Research

In September, the Company announced that it joined a consortium to perform the whole genome sequencing of approximately 500,000 participants in the UK Biobank. deCODE Genetics, a wholly-owned subsidiary of Amgen, will provide the whole genome sequencing for the project, along with the Wellcome Sanger Institute.

Tezepelumab

A Phase 3 Study evaluating the efficacy and safety of tezepelumab in adults and adolescents with severe uncontrolled asthma has completed enrollment, with the primary analysis expected in late 2020.

A Phase 2 study evaluating the efficacy and safety of tezepelumab in adults with moderate to very severe chronic obstructive pulmonary disease is enrolling patients.

AMG 570

A Phase 2 study of AMG 570, a bispecific inhibitor of ICOSL and BAFF, is enrolling patients with systemic lupus erythematosus.

EVENITY

In October, the Committee for Medicinal Products for Human Use of the European Medicines Agency adopted a positive opinion recommending Marketing Authorization for EVENITY for the treatment of severe osteoporosis in postmenopausal women at high risk of fracture, with a contraindication for patients with a history of myocardial infarction or stroke.

KYPROLIS

In September, the Phase 3 CANDOR study evaluating KYPROLIS in combination with dexamethasone and DARZALEX (daratumumab) (KdD) compared to KYPROLIS and dexamethasone alone (Kd) met its primary endpoint of progression-free survival (PFS), demonstrating a 37% reduction in the risk of disease progression or death in patients with relapsed or refractory multiple myeloma treated with KdD. The median PFS for patients treated with Kd alone was 15.8 months, while the median PFS for patients treated with KdD had not been reached by the cut-off date.

BLINCYTO

In September, an open-label, randomized, controlled global multicenter Phase 3 trial evaluating BLINCYTO compared to conventional consolidation chemotherapy in pediatric patients with high-risk, B-cell acute lymphoblastic leukemia (ALL) at first relapse met its primary endpoint of event-free survival at a prespecified interim analysis.

In September, an open-label, randomized, controlled multicenter Phase 3 trial in Australia, Canada, New Zealand and the U.S. conducted by the Children’s Oncology Group (COG) in pediatric B-cell ALL patients at first relapse closed to accrual for the high-risk and intermediate risk-arm based on the recommendation of the COG Data Monitoring Committee. The closure decision was based on a strong trend towards improved disease-free survival and improved overall survival, markedly lower toxicity and better minimal residual disease clearance for BLINCYTO compared to chemotherapy.

AMGEN REPORTS THIRD QUARTER 2019 FINANCIAL RESULTS
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Nplate

In October, the U.S. Food and Drug Administration approved a Supplemental Biologics License Application for Nplate to include new data in its U.S. prescribing information showing sustained platelet responses in adults with immune thrombocytopenia. The updated indication expands treatment to newly diagnosed and persistent adult ITP patients who have had an insufficient response to corticosteroids, immunoglobulins or splenectomy.

A Phase 3 trial evaluating Nplate for the treatment of chemotherapy-induced thrombocytopenia in patients receiving chemotherapy for the treatment of non-small cell lung cancer, ovarian cancer or breast cancer is enrolling patients.

AMG 510

The Company discussed clinical data from the first-in-human study that was presented at medical conferences in Q3.

The Phase 2 non-small cell lung cancer monotherapy study continues to enroll patients.

Initial cohort of colorectal cancer patients has been enrolled at the target dose in a Phase 2 monotherapy study, and as the data mature, the Company will determine the development path for colorectal cancer.

The next clinical data update for AMG 510 is expected in 2020.

ABP 798 (biosimilar rituximab)

In August, a Phase 3 study in patients with CD20-positive B-cell non-Hodgkin’s lymphoma met its primary endpoint. The primary endpoint, as assessment of overall response rate by week 28, was within the prespecified margin for ABP 798 compared to Rituxan (rituximab), showing clinical equivalence.

Submission of a Biologics License Application in the U.S. for ABP 798 is expected in Q1 2020.

Tezepelumab is being developed in collaboration with AstraZeneca PLC
EVENITY is developed in collaboration with UCB globally, as well as our joint venture partner Astellas in Japan
Rituxan is a registered trademark of Genentech

Non-GAAP Financial Measures
In this news release, management has presented its operating results for the third quarters of 2019 and 2018, in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and on a non-GAAP basis. In addition, management has presented its full year 2019 EPS and tax rate guidance in accordance with GAAP and on a non-GAAP basis. These non-GAAP financial measures are computed by excluding certain items related to acquisitions, restructuring and certain other items from the related GAAP financial measures. Reconciliations for these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the news release. Management has also presented Free Cash Flow (FCF), which is a non-GAAP financial measure, for the third quarters of 2019 and 2018. FCF is computed by subtracting capital expenditures from operating cash flow, each as determined in accordance with GAAP.
The Company believes that its presentation of non-GAAP financial measures provides useful supplementary information to and facilitates additional analysis by investors. The Company uses certain non-GAAP financial measures to enhance an investor’s overall understanding of the financial performance and prospects for the future of the Company’s ongoing business activities by facilitating comparisons of results of ongoing business operations among current, past and future periods. The Company believes that FCF provides a further measure of the Company’s liquidity.
The Company uses the non-GAAP financial measures set forth in the news release in connection with its own budgeting and financial planning internally to evaluate the performance of the business, including to allocate resources and to evaluate results relative to incentive compensation targets. The non-GAAP financial measures are in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

On October 29, 2019 Merck (NYSE: MRK), known as MSD outside the United States and Canada, reported financial results for the third quarter of 2019 (Press release, Merck & Co, OCT 29, 2019, View Source [SID1234549977]).

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"We achieved another quarter of strong revenue and earnings growth as we continue to realize the benefits of our sustained investment in research and development and our focus on commercial execution," said Kenneth C. Frazier, chairman and chief executive officer, Merck. "We are confident that the investments we are making now will allow us to convert cutting-edge science into medicines and vaccines of great benefit to patients and value to shareholders."

GAAP (generally accepted accounting principles) earnings per share assuming dilution (EPS) were $0.74 for the third quarter of 2019. Non-GAAP EPS of $1.51 for the third quarter of 2019 excludes a $982 million charge for the acquisition of Peloton Therapeutics, Inc. (Peloton), a $612 million pretax intangible asset impairment charge, other acquisition- and divestiture-related costs, restructuring costs and certain other items. Year-to-date results can be found in the attached tables.

Pipeline Highlights

Oncology

Merck continued to advance the development programs for KEYTRUDA (pembrolizumab), the company’s anti-PD-1 therapy; Lynparza (olaparib), a PARP inhibitor being co-developed and co-commercialized with AstraZeneca; and Lenvima (lenvatinib mesylate), an orally available tyrosine kinase inhibitor being co-developed and co-commercialized with Eisai Co., Ltd. (Eisai).

KEYTRUDA

·Merck announced the following regulatory milestones for KEYTRUDA:

Approval in China as monotherapy for the first-line treatment of patients with locally advanced or metastatic non-small cell lung cancer (NSCLC) whose tumors express PD-L1 based on overall survival results from the KEYNOTE-042 trial. KEYTRUDA is now the first anti-PD-1 therapy approved in China as both monotherapy and in combination with chemotherapy for the first-line treatment of NSCLC;

1Net income attributable to Merck & Co., Inc.
2Merck is providing certain 2019 and 2018 non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors’ understanding of the company’s results and permits investors to understand how management assesses performance. Management uses these measures internally for planning and forecasting purposes and to measure the performance of the company along with other metrics. Senior management’s annual compensation is derived in part using non-GAAP income and non-GAAP EPS. This information should be considered in addition to, but not as a substitute for or superior to, information prepared in accordance with GAAP. For a description of the items, see Table 2a attached to this release.

Approval in Europe in combination with axitinib for the first-line treatment of advanced renal cell carcinoma (RCC) across all International Metastatic RCC Database Consortium (IMDC) risk groups based on overall survival results from the KEYNOTE-426 trial;

Approval in the United States by the Food and Drug Administration (FDA) as monotherapy for the treatment of patients with recurrent locally advanced or metastatic squamous cell carcinoma of the esophagus whose tumors express PD-L1 (Combined Positive Score [CPS] > 10) with disease progression after one or more prior lines of therapy based on the results from the KEYNOTE-181 and KEYNOTE-180 trials;

Adoption of a positive opinion by the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) for two regimens of KEYTRUDA, as monotherapy or in combination with platinum and 5-fluorouracil (5-FU) chemotherapy, for the first-line treatment of metastatic or unresectable recurrent head and neck squamous cell carcinoma (HNSCC) in adults whose tumors express PD-L1 with a CPS ≥1 based on data from the KEYNOTE-048 trial; and

Filing acceptance by the FDA for a supplemental Biologics License Application (sBLA) seeking use of KEYTRUDA for the treatment of patients with recurrent and/or metastatic cutaneous squamous cell carcinoma (cSCC) that is not curable by surgery or radiation. The FDA has set a PDUFA date of June 29, 2020.

·Merck presented results from the pivotal neoadjuvant/adjuvant Phase 3 KEYNOTE-522 trial in patients with early-stage triple-negative breast cancer (TNBC), the first randomized trial of an anti-PD-1 therapy in this setting, at the 2019 European Society for Medical Oncology (ESMO) (Free ESMO Whitepaper) Congress. Interim results from the neoadjuvant phase showed the combination of KEYTRUDA plus chemotherapy resulted in a statistically significant increase in pathological complete response versus chemotherapy in patients with early-stage TNBC.

·Merck presented first-time results of a pooled analysis of three randomized KEYNOTE studies (KEYNOTE-189, KEYNOTE-407 and KEYNOTE-021 [Cohort G]) evaluating KEYTRUDA in combination with chemotherapy in advanced NSCLC in which the combination regimen demonstrated an improvement in overall survival among newly diagnosed patients whose tumors do not express PD-L1. The data were presented at the IASLC 2019 World Conference on Lung Cancer.

Lynparza

·Merck and AstraZeneca presented results from the Phase 3 PROfound trial in patients with metastatic castration-resistant prostate cancer (mCRPC) who have a mutation in their homologous recombination repair (HRR) genes and whose disease has progressed on prior treatment with new hormonal agent treatments at the 2019 ESMO (Free ESMO Whitepaper) Congress. In this study, Lynparza improved radiographic progression-free survival versus standard of care in BRCA1/2 or ATM-mutated tumors as well as reduced the risk of disease progression or death in tumors with mutations in other genes associated with HRR.

·Merck and AstraZeneca also presented results from the Phase 3 PAOLA-1 trial at the 2019 ESMO (Free ESMO Whitepaper) Congress, in which Lynparza added to bevacizumab reduced the risk of disease progression or death (41%) in the first-line maintenance setting for patients with advanced ovarian cancer who had a complete or partial response to platinum-based chemotherapy and bevacizumab.

·Merck and AstraZeneca received filing submission acceptances from the FDA and EMA for the use of Lynparza in BRCAm pancreatic cancer based on results from the Phase 3 POLO trial. A decision by the FDA is expected in the fourth quarter of 2019 and from the EMA in the second half of 2020.

Lenvima

Merck and Eisai announced accelerated FDA approval of the combination of KEYTRUDA and Lenvima for patients with certain types of endometrial carcinoma based on data from the KEYNOTE-146/Study 111, marking the first approval of the combination and the first time an anti-PD-1 therapy is approved in combination with a kinase inhibitor for advanced endometrial carcinoma in the United States. Approval was granted under the FDA’s Real-Time Oncology Review pilot program as well as under a new FDA-initiated program in which the FDA partnered with the Australian and Canadian regulatory bodies to review the application, allowing for simultaneous decisions in all three countries.

Other Pipeline Highlights

Merck announced FDA approval expanding the use of both PIFELTRO (doravirine), in combination with other antiretroviral agents, and DELSTRIGO (doravirine/lamivudine/tenofovir disoproxil fumarate) for the treatment of adult patients with HIV-1 infection who are virologically suppressed (HIV-1 RNA less than 50 copies per mL) on a stable antiretroviral regimen with no history of treatment failure.

Merck announced FDA acceptance of a New Drug Application (NDA) for DIFICID (fidaxomicin) for oral suspension and a supplemental NDA (sNDA) for use of DIFICID tablets and oral suspension for the treatment of Clostridium difficile infections in children aged six months or older. The FDA has set a PDUFA date of Jan. 24, 2020 for both applications.

Merck announced the pivotal Phase 3 RESTORE-IMI 2 trial evaluating RECARBRIO (imipenem, cilastatin and relebactam) for use in adults with hospital-acquired bacterial pneumonia and ventilator-associated bacterial pneumonia (HABP/VABP) met its primary endpoint.

Merck announced that the EMA’s CHMP adopted a positive opinion recommending a conditional marketing authorization for the company’s investigational V920 vaccine, brand name ERVEBO (rVSVΔG-ZEBOV-GP, live), for protection against Ebola Virus Disease caused by Zaire Ebola virus, as well as FDA acceptance and priority review for its Biologics License Application (BLA) for V920. The FDA has set a PDUFA date of March 14, 2020.

Pharmaceutical Revenue

Third-quarter pharmaceutical sales were $11.1 billion, an increase of 15% compared with the third quarter of 2018; excluding the unfavorable effect of foreign exchange, sales grew 16% in the third quarter. The increase was driven primarily by growth in oncology and vaccines, partially offset by the ongoing impacts of the loss of market exclusivity for several products as well as lower sales of JANUVIA (sitagliptin) and JANUMET (sitagliptin and metformin HCI). International pharmaceutical sales represented 54% of total sales in the quarter. Performance in international markets was led by China, which had pharmaceutical sales of $898 million representing growth of 84% compared with the third quarter of 2018, driven by vaccines, primarily GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine, Recombinant] and GARDASIL 9 (Human Papillomavirus 9-valent Vaccine, Recombinant), and oncology. Excluding the unfavorable effect of foreign exchange, pharmaceutical sales in China grew by 90%.

Growth in oncology was largely driven by a $1.2 billion increase in sales for KEYTRUDA to $3.1 billion, reflecting strong momentum from the NSCLC indications as well as continued uptake in other indications, including the recently launched RCC and adjuvant melanoma indications, along with growth from Lynparza and Lenvima.

Growth in vaccines reflects higher sales of GARDASIL and GARDASIL 9, vaccines to prevent certain cancers and other diseases caused by HPV, primarily due to higher demand in Asia Pacific, particularly in China. Also contributing to sales growth was higher demand in Europe, driven primarily by increased vaccination rates for both boys and girls, as well as higher pricing and demand in the United States, partially offset by public sector buying patterns.

In October 2019, the company borrowed doses of GARDASIL 9 from the U.S. Centers for Disease and Control and Prevention’s (CDC) Pediatric Vaccine Stockpile, which will reduce GARDASIL 9 sales in the fourth quarter of 2019 by approximately $120 million. These doses will be allocated to support routine vaccination in the United States and will allow the company to manufacture doses for other parts of the world, including regions where some of the most vulnerable populations live.

Growth in pediatric vaccines was driven by VARIVAX (Varicella Virus Vaccine Live), a vaccine to help prevent chickenpox, and PROQUAD (Measles, Mumps, Rubella and Varicella Virus Vaccine Live), a combination vaccine to help protect against measles, mumps, rubella and varicella, reflecting higher demand and pricing in the United States and higher demand in Europe and Latin America.

Performance in hospital acute care reflects higher demand globally, particularly in the United States, for BRIDION (sugammadex) Injection 100 mg/mL, a medicine for the reversal of neuromuscular blockade induced by rocuronium bromide or vecuronium bromide in adults undergoing surgery; and the ongoing launch of PREVYMIS (letermovir), a medicine for prophylaxis (prevention) of cytomegalovirus (CMV) infection and disease in adult CMV-seropositive recipients of an allogeneic hematopoietic stem cell transplant.

Pharmaceutical sales growth for the quarter was partially offset by the ongoing impacts from the loss of market exclusivity for INVANZ (ertapenem sodium), ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin), CUBICIN (daptomycin) and REMICADE (infliximab). In addition, the decline in sales of JANUVIA and JANUMET reflects continued pricing pressure in the United States, which more than offset higher demand globally.

Animal Health Revenue

Animal Health sales totaled $1.1 billion for the third quarter of 2019, an increase of 10% compared with the third quarter of 2018. Excluding the unfavorable effect from foreign exchange, Animal Health sales grew 12%. Growth in the third quarter was primarily driven by livestock, due to products acquired in the Antelliq acquisition, along with growth from companion animal products, driven largely by higher sales of the BRAVECTO (fluralaner) line of products for parasitic control.

Animal Health segment profits were $423 million in the third quarter of 2019, an increase of 4% compared with $409 million in the third quarter of 2018.3

GAAP Expense, EPS and Related Information

Gross margin was 67.8% for the third quarter of 2019 compared to 66.5% for the third quarter of 2018. The increase in gross margin for the third quarter of 2019 reflects the favorable impacts of a charge in 2018 related to the termination of a collaboration agreement with Samsung Bioepis Co., Ltd. and product mix, partially offset by higher acquisition- and divestiture-related costs, including the impact of a 2019 intangible asset impairment charge, higher amortization of unfavorable manufacturing variances, higher amortization of intangible assets related to collaborations, higher restructuring costs, as well as manufacturing facilities startup costs.

3 Animal Health segment profits are comprised of segment sales, less all cost of sales, as well as selling, general and administrative expenses and research and development costs directly incurred by the segment. For internal management reporting, Merck does not allocate general and administrative expenses not directly incurred by the segment, nor the cost of financing these activities. Separate divisions maintain responsibility for monitoring and managing these costs, including depreciation related to fixed assets utilized by these divisions and, therefore, they are not included in segment profits.

4 Includes expenses for the amortization of intangible assets and purchase accounting adjustments to inventories recognized as a result of acquisitions, intangible asset impairment charges, and expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration. Also includes integration, transaction and certain other costs related to business acquisitions and divestitures.

Selling, general and administrative expenses were $2.6 billion in the third quarter of 2019, a 6% increase compared to the third quarter of 2018. The increase primarily reflects higher promotion and administrative costs primarily in support of strategic brands, and higher acquisition- and divestiture-related costs, partially offset by the favorable effects of foreign exchange.

Research and development (R&D) expenses were $3.2 billion in the third quarter of 2019, an increase of 55% compared with the third quarter of 2018. The increase was driven primarily by a $982 million charge recorded in the third quarter of 2019 for the acquisition of Peloton coupled with higher expenses related to clinical development and increased investment in discovery research and early drug development.

Other (income) expense, net, was $35 million of expense in the third quarter of 2019 compared to $172 million of income in the third quarter of 2018 primarily reflecting lower income from investments in equity securities and higher net interest expense.

The effective income tax rate of 18.7% for the third quarter of 2019 includes the unfavorable impact of the charge for the acquisition of Peloton for which no tax benefit was recognized and the favorable impact of product mix.

GAAP EPS was $0.74 for the third quarter of 2019 compared with $0.73 for the third quarter of 2018.

Non-GAAP Expense, EPS and Related Information

The non-GAAP gross margin was 75.9% for the third quarter of 2019 compared to 76.7% for the third quarter of 2018. The decrease in non-GAAP gross margin primarily reflects higher amortization of unfavorable manufacturing variances, higher amortization of intangible assets related to collaborations, as well as manufacturing facilities startup costs.

Non-GAAP selling, general and administrative expenses were $2.6 billion in the third quarter of 2019, a 5% increase compared to the third quarter of 2018. The increase reflects higher promotion and administrative costs primarily in support of strategic brands, partially offset by the favorable effects of foreign exchange.

Non-GAAP R&D expenses were $2.2 billion in the third quarter of 2019, a 7% increase compared to the third quarter of 2018. The increase primarily reflects higher expenses related to clinical development and increased investment in discovery research and early drug development.

Non-GAAP other (income) expense, net, was $29 million of expense in the third quarter of 2019 compared to $162 million of income in the third quarter of 2018 primarily reflecting lower income from investments in equity securities and higher net interest expense.

The non-GAAP effective income tax rate of 15.7% for the third quarter of 2019 reflects the favorable impact of product mix.

Non-GAAP EPS was $1.51 for the third quarter of 2019 compared with $1.19 for the third quarter of 2018.

Financial Outlook

Merck narrowed and raised its full-year 2019 revenue range to be between $46.5 billion and $47.0 billion, including both the impact of the GARDASIL 9 stockpile borrowing noted above and a negative impact from foreign exchange of approximately 2% at mid-October exchange rates.

Merck reduced its expected full-year GAAP effective tax rate to approximately 16.5% and its expected full-year non-GAAP effective tax rate to approximately 17.5%. These reductions are primarily attributable to favorable product mix.

5 Represents the difference between calculated GAAP EPS and calculated non-GAAP EPS, which may be different than the amount calculated by dividing the impact of the excluded items by the weighted-average shares for the period.

Earnings Conference Call

Investors, journalists and the general public may access a live audio webcast of the call today at 8:00 a.m. EDT on Merck’s website at View Source Institutional investors and analysts can participate in the call by dialing (706) 758-9927 or (877) 381-5782 and using ID code number 5635157. Members of the media are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917 and using ID code number 5635157. Journalists who wish to ask questions are requested to contact a member of Merck’s Media Relations team at the conclusion of the call.

6 Includes the estimated tax impact on the reconciling items. In addition, includes a $360 million net tax benefit related to the settlement of certain federal income tax matters and a $67 million tax charge related to the finalization of treasury regulations for the Tax Cuts and Jobs Act of 2017.

On October 29, 2019 Sesen Bio (Nasdaq: SESN), a late-stage clinical company developing targeted fusion protein therapeutics for the treatment of patients with cancer, reported modifications to its 2017 and 2018 common stock warrants, which enhance the Company’s capital raising optionality by allowing for future at-the-market (ATM) programs (Press release, Eleven Biotherapeutics, OCT 29, 2019, View Source [SID1234549993]).

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"Today we took an important step to enhance our capital structure, giving us the tools to potentially build upon our financial position with a number of upcoming value-inflection points over the next year," said Dr. Thomas Cannell, president and chief executive officer of Sesen Bio. "This was an important strategic decision to position the Company with the greatest optionality as we prepare for upcoming FDA engagements, our planned BLA submission and a potential future approval of Vicinium for patients with non-muscle invasive bladder cancer. The remainder of 2019 will be a critical period for Sesen Bio, and we look forward to continued progress across the organization."

Key Fourth Quarter 2019 Events

FDA meeting on November 4, 2019 to discuss the post-marketing confirmatory trial for Vicinium
FDA meeting on December 4, 2019 to discuss the submission strategy for CMC Module 3
Anticipated initiation of BLA submission under a Rolling Review in December 2019
The Company will provide more information at a Business Update on November 12, 2019 at 8:00 a.m. EST.

To participate in the conference call, please dial (844) 831-3025 (domestic) or (315) 625-6887 (international) and refer to conference ID 1377227. The webcast can be accessed in the Investor Relations section of the Company’s website at www.sesenbio.com. The replay of the webcast will be available in the Investor Relations section of the Company’s website at www.sesenbio.com for 60 days following the call.

On October 29, 2019 ArQule, Inc. (Nasdaq: ARQL), reported new clinical and preclinical data demonstrating the potential of the company’s AKT inhibitor ARQ 751 in treating solid tumors characterized by mutations in the PI3K/AKT/mTOR pathway (Press release, ArQule, OCT 29, 2019, View Source [SID1234549962]). The findings were detailed in two poster presentations at the 2019 AACR (Free AACR Whitepaper)-NCI-EORTC AACR-NCI-EORTC (Free AACR-NCI-EORTC Whitepaper) International Conference on Molecular Targets and Cancer Therapeutics (EORTC-NCI-AACR) (Free ASGCT Whitepaper) (Free EORTC-NCI-AACR Whitepaper).

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Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing

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"Traditional tumor biopsies used to identify tumor mutational status can be burdensome for patients; therefore, using biomarkers such as ctDNA from standard blood sampling would be an improved method of identifying mutations and predicting disease response," said Dr. Brian Schwartz, Chief Medical Officer of ArQule.

A poster entitled "The use of biomarkers and ctDNA in a phase 1 trial of ARQ 751" detailed the molecular profiling of a subgroup of patients in the phase 1 clinical trial of ARQ 751 in solid tumor indications characterized by AKT, PIK3CA or PTEN mutations. Key findings suggest that ctDNA could be a valuable measure of patient response to ARQ 751. Specific highlights include:

There is a high concordance (76%) between the pre-study mutation and the mutation as measured using ctDNA profiling
Though patient data are limited, analysis of the correlation between ctDNA mutational status and patient response suggest that PIK3CA H1047R has prognostic value
ARQ 751 exposure correlates with glucose and insulin levels and indicates on-target engagement
A poster entitled "In vitro and in vivo combination of ARQ 751 with PARP inhibitors, CDK4/6 inhibitors, Fulvestrant and Paclitaxel" details preclinical findings from studies of ARQ 751 treatment in combination with a variety of therapeutic agents, in experimental breast cancer models. Overall, data show that the addition of any of the evaluated agents enhances the activity of ARQ 751 in vivo and in vitro and support the therapeutic potential of ARQ 751. Specific highlights include:

The combination of ARQ 751 with an ER antagonist (fulvestrant) or a CDK4/6 inhibitor (palbociclib) or with both agents showed enhanced anti-tumor activity in comparison to the single agents and enhanced pathway inhibition in vivo. A combination of ARQ 751 with both agents showed tumor regression in vivo
The combination of ARQ 751 with chemotherapy (paclitaxel) showed enhanced anti-tumor activity in comparison to single agents in vivo
The combination of ARQ 751 with PARP inhibitors (olaparib, talazoparib, rucaparib) showed enhanced anti-proliferative activity in vitro
A phase 1b clinical study of ARQ 751 in a molecularly defined patient population as single agent or in combination with fulvestrant or paclitaxel is ongoing (NCT02761694).

About ARQ 751
ARQ 751 is orally bioavailable, selective small molecule inhibitor of the AKT serine/threonine kinase. The AKT pathway when abnormally activated is implicated in multiple oncogenic processes such as cell proliferation and apoptosis. This pathway has emerged as a target of potential therapeutic relevance for compounds that inhibit its activity, which has been linked to a variety of cancers as well as to select non-oncology indications.

On October 29, 2019 Moleculin Biotech, Inc., (Nasdaq: MBRX) ("Moleculin" or the "Company"), a clinical stage pharmaceutical company with a broad portfolio of drug candidates targeting highly resistant tumors, reported the presentation of a poster at the AACR (Free AACR Whitepaper)-NCI-EORTC Molecular Targets and Cancer Therapeutics Conference today in Boston, MA (Press release, Moleculin, OCT 29, 2019, View Source [SID1234549978]). The poster, entitled "Dose and Schedule-Dependent Efficacy of Liposomal Annamycin in Pre-clinical Models of Acute Myeloid Leukemia," presents data documenting the high activity of Annamycin against AML, including in vitro studies in a panel of human AML cell lines, as well as in vivo studies in both human and murine AML models developed under the Company’s sponsored research agreement with MD Anderson Cancer Center.

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Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing

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Moleculin Biotech, Inc. is a clinical stage pharmaceutical company focused on the development of a broad portfolio of oncology drug candidates for the treatment of highly resistant tumors.

"This study highlights an important new finding," commented Walter Klemp, Moleculin’s Chairman and CEO. "We’ve known for some time that Annamycin is effective in AML animal models and the activity that we believe is coming from our current AML clinical trials seems to correlate with this. But, what’s new here is the observation that Annamycin may also be more effective than other drugs due to its high uptake and effectiveness in eliminating AML cells localized in different organs. Additional important observations made with these studies indicates that the long-term exposure of healthy mice (at least 12 doses so far) to a highly efficacious dose of 4 mg/kg administered weekly is not toxic and that even two weekly doses of 4 mg/kg are producing a significant increase in survival. And, because Annamycin is designed to be non-cardiotoxic, this extended dosing regimen may prove to be feasible and beneficial in humans. This potentially opens the door for expanded and improved dosing regimens in future clinical trials."

Quoting from the accepted abstract: "In vivo studies confirmed anti-tumor efficacy of Annamycin in both human and murine AML models. Based on bioluminescence imaging, the liposomal formulation of the drug significantly delayed AML progression in the human OCL-AML3/NSG model at 4 mg/kg with once weekly dosing. Similarly, significant dose-dependent reduction of peripheral blood AML blasts was observed in the murine AML-Turq2 model, and this reduction was strongly correlated with prolongation of animal survival. The median survival of mice receiving four doses of L-Ann once a week at 4 mg/ml was 37 days while mice receiving vehicle lived only 14 days (p=0.0002). Different doses and administration schedules of [Annamycin] were tested in an effort to maximize survival benefits. In summary [Annamycin] is effective in AML, demonstrating significant activity in both in vitro and in vivo mouse models with a distinct pattern of intracellular uptake and organ distribution using a once a week schedule. This suggests that [Annamycin] with this profile, including a lack of cardiotoxicity and activity against [doxorubicin] resistant tumors, may be an advantageous approach in the treatment of AML."