On November 7, 2016 Emergent BioSolutions Inc. (NYSE:EBS) reported financial results for the quarter and nine months ended September 30, 2016 (Press release, Emergent BioSolutions, NOV 7, 2016, View Source;p=RssLanding&cat=news&id=2220329 [SID1234516384]).

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FINANCIAL HIGHLIGHTS

The following financial highlights reflect Emergent’s financial performance from "Continuing Operations" and exclude the impact of the operations associated with the Company’s former biosciences business which was spun-off into a separate publicly traded company, Aptevo Therapeutics Inc., on August 1, 2016.

Total revenues from continuing operations: Q3 2016 of $142.9 million; nine months 2016 of $337.1 million
GAAP net income from continuing operations: Q3 2016 of $20.4 million, or $0.43 per diluted share; nine months 2016 of $30.2 million, or $0.68 per diluted share
Adjusted net income from continuing operations: Q3 2016 of $28.5 million, or $0.58 per diluted share; nine months 2016 of $44.0 million, or $0.90 per diluted share
EBITDA from continuing operations: Q3 2016 of $45.6 million, or $0.92 per diluted share; nine months 2016 of $82.2 million, or $1.68 per diluted share
Adjusted EBITDA from continuing operations: Q3 2016 of $50.2 million, or $1.02 per diluted share; nine months 2016 of $91.7 million, or $1.88 per diluted share
Note: For a reconciliation of the Company’s Statement of Operations for the Three and Nine Months Ended September 30, 2016 on a continuing operations basis to that on a combined basis, which takes into account the impact of the Aptevo-related discontinued operations, see "Reconciliation of Statement of Operations."

Q3 2016 AND RECENT BUSINESS ACCOMPLISHMENTS

Signed a five-year contract with the Biomedical Advanced Research and Development Authority (BARDA) for advanced development and procurement of NuThrax (Anthrax Vaccine Adsorbed with CPG 7909 Adjuvant), the Company’s next generation anthrax vaccine candidate, valued at up to $1.6 billion
Department of Health and Human Services issued a Sole Source Notification indicating its intention to award the Company a follow-on procurement contract with the Centers for Disease Control and Prevention (CDC) for the purchase of 29.4 million doses of BioThrax (Anthrax Vaccine Adsorbed), the Company’s licensed anthrax vaccine, for delivery into the Strategic National Stockpile (SNS); Company anticipates finalizing the contract in the coming weeks
Completed delivery of the full 44.75 million doses of BioThrax under current 2011 procurement contract as CDC exercised option to purchase all remaining doses
Achieved Food and Drug Administration (FDA) licensure for Building 55, the Company’s large-scale BioThrax manufacturing facility
Completed the spin-off of Aptevo Therapeutics Inc.
2016 FINANCIAL GUIDANCE

The Company continues to postpone its financial guidance for 2016 until the CDC follow-on BioThrax procurement contract has been finalized.

2016 FINANCIAL PERFORMANCE

Note: As a result of the August 1, 2016 spin-off of the Company’s biosciences business into a separate publicly traded company, Aptevo Therapeutics Inc., the financial statements and related explanatory sections for Emergent, exclusive of Aptevo, presented herein have been revised accordingly and are referenced as "continuing operations."

The results of operations and financial position of Aptevo are reflected on one line of the Company’s Statements of Operations for the three and nine months ended September 30, 2016 and 2015 as "Income (loss) from discontinued operations, (net of tax)." Please refer to "Reconciliation of Statement of Operations" for a reconciliation of the Company’s Statement of Operations for the Three and Nine Months Ended September 30, 2016 on a continuing operations basis to that on a combined basis, which takes into account the impact of the Aptevo-related discontinued operations.

(I) Quarter Ended September 30, 2016 (unaudited)

Revenues

Product Sales
For Q3 2016, product sales were $96.7 million, a decrease of 18% as compared to 2015. The decrease in BioThrax sales was primarily due to fewer doses delivered to the SNS. The decrease in other sales was primarily due to the timing of BATTM [Botulism Antitoxin Heptavalent (A,B,C,D,E,F,G)-(Equine)] sales to the SNS.

(in millions) Three Months Ended
September 30,
2016 2015 % Change
Product Sales
BioThrax $ 94.1 $ 109.8 (14 )%
Other $ 2.6 $ 7.7 (67 )%
Total Product Sales $ 96.7 $ 117.5 (18 )%
Contract Manufacturing
For Q3 2016, revenue from the Company’s contract manufacturing operations was $14.7 million, an increase of 30% as compared to 2015. The increase primarily reflects the timing of fill/finish services.

Contracts and Grants
For Q3 2016, contracts and grants revenue was $31.5 million, an increase of 7% as compared to 2015.

Operating Expenses

Cost of Product Sales and Contract Manufacturing
For Q3 2016, cost of product sales and contract manufacturing was $39.6 million, an increase of 12% as compared to 2015. The increase primarily reflects an increase in costs associated with underutilized manufacturing capacity at the Company’s Winnipeg site and an increase in the BioThrax cost per dose sold associated with lower production yield in the period in which the doses sold were produced.

Research and Development
For Q3 2016, gross research and development (R&D) expenses were $27.2 million, a decrease of 20% as compared to 2015. The decrease primarily reflects lower contract service costs.

For Q3 2016, net R&D was fully funded, or a positive $4.3 million, versus an expense of $4.7 million in Q3 2015. Net R&D, which is more representative of the Company’s actual out-of-pocket investment in product development, is calculated as gross research and development expenses less contracts and grants revenue.

(in millions) Three Months Ended
September 30,
2016 2015 % Change
Research and Development Expenses [Gross] $ 27.2 $ 34.2 (20 )%
Adjustments:
– Contracts and grants revenue $ 31.5 $ 29.5 7 %
Net Research and Development Expenses (Income) $ (4.3 ) $ 4.7 –
Selling, General and Administrative
For Q3 2016, selling, general and administrative expenses were $40.7 million, an increase of 58% as compared to 2015. This increase includes costs associated with the Aptevo spin-off, restructuring activities at the Company’s Lansing, Michigan site, along with increased professional services to support the Company’s strategic growth initiatives.

Net Income from Continuing Operations
For Q3 2016, GAAP net income from continuing operations was $20.4 million, or $0.43 per diluted share, versus $42.1 million, or $0.90 per diluted share, in 2015.

For Q3 2016 and 2015, GAAP net income from continuing operations per diluted share is computed using the "if-converted" method. This method requires GAAP net income to be adjusted to reflect the impact of interest expense and amortization of debt issuance cost, both net of tax, associated with the Company’s 2.875% Convertible Senior Notes due 2021. As a result, GAAP net income from continuing operations per diluted share for Q3 2016 is adjusted in the amount of $1.1 million, from $20.4 million to $21.5 million, and diluted shares outstanding were 49.4 million. GAAP net income per diluted share for Q3 2015 is adjusted in the amount of $1.0 million, from $42.1 million to $43.1 million, and diluted shares outstanding were 47.8 million.

(II) Nine Months Ended September 30, 2016 (unaudited)

Revenues

Product Sales
For the nine months of 2016, product sales were $208.8 million, an increase of 2% as compared to 2015. The increase in BioThrax sales was primarily due to the timing of deliveries to the SNS. The decrease in other sales was primarily due to the timing of sales of BAT to the SNS and a one-time payment for AnthrasilTM [Anthrax Immune Globulin Intravenous (Human)] that occurred in the prior comparative period.

(in millions) Nine Months Ended
September 30,
2016 2015 % Change
Product Sales
BioThrax $ 193.3 $ 182.0 6 %
Other $ 15.5 $ 22.5 (31 )%
Total Product Sales $ 208.8 $ 204.6 2 %
Contract Manufacturing
For the nine months of 2016, revenue from contract manufacturing operations was $32.5 million, level with that in 2015.

Contracts and Grants
For the nine months of 2016, contracts and grants revenue was $95.9 million, an increase of 4% as compared to 2015.

Operating Expenses

Cost of Product Sales and Contract Manufacturing
For the nine months of 2016, cost of product sales and contract manufacturing was $93.0 million, an increase of 27% as compared to 2015. The increase primarily reflects an increase in the BioThrax cost per dose sold associated with lower production yield in the period in which the doses sold were produced along with increased costs associated with underutilized manufacturing capacity at the Company’s Winnipeg facility.

Research and Development
For the nine months of 2016, gross research and development (R&D) expenses were $81.2 million, a decrease of 13% as compared to 2015. The decrease primarily reflects lower contract service costs.

For the nine months of 2016, net R&D was fully funded, or a positive $14.7 million, versus an expense of $1.3 million in the comparable period in 2015.

(in millions) Nine Months Ended
September 30,
2016 2015 % Change
Research and Development Expenses [Gross] $ 81.2 $ 93.8 (13 )%
Adjustments:
– Contracts and grants revenue $ 95.9 $ 92.5 4 %
Net Research and Development Expenses (Income) $ (14.7 ) $ 1.3 –
Selling, General and Administrative
For the nine months of 2016, selling, general and administrative expenses were $108.3 million, an increase of 25% as compared to 2015. This increase includes costs associated with the Aptevo spin-off, restructuring activities at the Company’s Lansing, Michigan site, along with increased professional services to support the Company’s strategic growth initiatives.

Net Income from Continuing Operations
For the nine months of 2016, GAAP net income from continuing operations was $30.2 million, or $0.68 per diluted share, versus $48.9 million, or $1.11 per diluted share, in 2015.

Pursuant to the "if-converted" method, GAAP net income from continuing operations per diluted share for the nine months of 2016 is adjusted in the amount of $2.8 million, from $30.2 million to $33.0 million, and diluted shares outstanding were 48.8 million. GAAP net income from continuing operations per diluted share for the nine months of 2015 is adjusted in the amount of $3.1 million, from $48.9 million to $52.0 million, and diluted shares outstanding were 47.0 million.

(III) RECONCILIATION OF GAAP NET INCOME TO ADJUSTED NET INCOME, EBITDA AND ADJUSTED EBITDA ALL RELATED TO CONTINUING OPERATIONS

This press release contains three financial measures (Adjusted Net Income, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), and Adjusted EBITDA) that are considered "non-GAAP" financial measures under applicable Securities and Exchange Commission rules and regulations. These non-GAAP financial measures should be considered supplemental to and not a substitute for financial information prepared in accordance with generally accepted accounting principles. The Company’s definition of these non-GAAP measures may differ from similarly titled measures used by others. Adjusted Net Income adjusts for specified items that can be highly variable or difficult to predict, or reflect the non-cash impact of charges resulting from purchase accounting. EBITDA reflects net income excluding the impact of depreciation, amortization, interest expense and provision for income taxes. Adjusted EBITDA also excludes specified items that can be highly variable and the non-cash impact of certain purchase accounting adjustments. The Company views these non-GAAP financial measures as a means to facilitate management’s financial and operational decision-making, including evaluation of the Company’s historical operating results and comparison to competitors’ operating results. These non-GAAP financial measures reflect an additional way of viewing aspects of the Company’s operations that, when viewed with GAAP results and the reconciliations to the corresponding GAAP financial measure, may provide a more complete understanding of factors and trends affecting the Company’s business.

The determination of the amounts that are excluded from these non-GAAP financial measures are a matter of management judgment and depend upon, among other factors, the nature of the underlying expense or income amounts. Because non-GAAP financial measures exclude the effect of items that will increase or decrease the Company’s reported results of operations, management strongly encourages investors to review the Company’s consolidated financial statements and publicly filed reports in their entirety.

Reconciliation of GAAP Net Income to Adjusted Net Income

The following table provides a reconciliation of GAAP Net Income to Adjusted Net Income for the three month periods as indicated.

(in millions, except per share value) Three Months Ended September 30,
2016 2015 Source
GAAP Net Income From Continuing Operations $ 20.4 $ 42.1 NA
Adjustments:
+ Spin-off and acquisition-related costs (transaction & integration) 4.6 1.0 SG&A
+ Non-cash amortization charges 2.0 2.2 COGS, SG&A,
Other Income
+ Exit and disposal costs 7.9 – SG&A
+ Impact of purchase accounting on inventory step-up – 0.3 COGS
Tax effect (6.4 ) (1.1 ) NA
Total Adjustments 8.1 2.5 NA
Adjusted Net Income From Continuing Operations
Adjusted Net Income per Diluted Share $28.5
$0.58
$44.6
$0.93
NA
The following table provides a reconciliation of GAAP Net Income to Adjusted Net Income for the nine month periods as indicated.

(in millions, except per share value) Nine Months Ended September 30,
2016 2015 Source
GAAP Net Income From Continuing Operations $ 30.2 $ 48.9 NA
Adjustments:
+ Spin-off and acquisition-related costs (transaction & integration) 9.5 3.5 SG&A
+ Non-cash amortization charges 6.5 6.7 COGS, SG&A,
Other Income
+ Exit and disposal costs 8.7 – SG&A
+ Impact of purchase accounting on inventory step-up – 0.3 COGS
Tax effect (10.9 ) (3.2 ) NA
Total Adjustments 13.8 7.3 NA
Adjusted Net Income From Continuing Operations
Adjusted Net Income per Diluted Share $44.0
$0.90
$56.2
$1.20
NA
Reconciliation of GAAP Net Income to EBITDA and Adjusted EBITDA

The following table provides a reconciliation of GAAP Net Income to EBITDA and Adjusted EBITDA for the three month periods as indicated.

(in millions, except per share value) Three Months Ended September 30,
2016 2015
GAAP Net Income From Continuing Operations $ 20.4 $ 42.1
Adjustments:
+ Depreciation & Amortization 9.7 7.5
+ Provision For Income Taxes 13.2 20.1
+ Total Interest Expense 2.0 1.6
Total Adjustments 24.9 29.2
EBITDA From Continuing Operations
EBITDA per Diluted Share $45.3
$0.92
$71.3
$1.49

Additional Adjustments:
+ Spin-off and acquisition-related costs (transaction & integration) 4.6 1.0
+ Impact of purchase accounting on inventory step-up – 0.3
Total Additional Adjustments 4.6 1.3
Adjusted EBITDA From Continuing Operations
Adjusted EBITDA per Diluted Share $49.9
$1.01
$72.6
$1.52

The following table provides a reconciliation of GAAP Net Income to EBITDA and Adjusted EBITDA for the nine month periods as indicated.

(in millions, except per share value) Nine Months Ended September 30,
2016 2015
GAAP Net Income From Continuing Operations $ 30.2 $ 48.9
Adjustments:
+ Depreciation & Amortization 27.0 24.7
+ Provision For Income Taxes 19.9 23.6
+ Total Interest Expense 5.1 4.9
Total Adjustments 52.0 53.2
EBITDA From Continuing Operations
EBITDA per Diluted Share $82.2
$1.68
$102.1
$2.17

Additional Adjustments:
+ Spin-off and acquisition-related costs (transaction & integration) 9.5 3.5
+ Impact of purchase accounting on inventory step-up – 0.3
Total Additional Adjustments 9.5 3.8
Adjusted EBITDA From Continuing Operations
Adjusted EBITDA per Diluted Share $91.7
$1.88
$105.9
$2.26

(IV) RECONCILIATION OF STATEMENT OF OPERATIONS

The following table provides a reconciliation of the Company’s Statement of Operations for the Three Months Ended September 30, 2016 on a continuing operations basis to that on a combined basis, which takes into account the impact of the Aptevo-related discontinued operations.

Emergent BioSolutions Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share and per share data)


Three Months Ended September 30, 2016
Continuing Operations Discontinued Operations Combined
Revenues: (Unaudited)
Product sales $ 96.7 $ 3.0 $ 99.7
Contract manufacturing 14.7 - 14.7
Contracts and grants 31.5 0.1 31.6
Total revenues 142.9 3.1 146.0

Operating expenses:
Cost of product sales and contract manufacturing 39.6 0.9 40.5
Research and development 27.2 2.5 29.7
Selling, general and administrative 40.7 7.5 48.2
Income from operations 35.5 (7.8 ) 27.7

Other income (expense):
Interest income 0.4 - 0.4
Interest expense (2.0 ) - (2.0 )
Other income, net (0.2 ) (0.1 ) (0.3 )
Total other expense, net (1.9 ) (0.1 ) (2.0 )

Income (loss) before provision for (benefit) from income taxes 33.6 (7.9 ) 25.6
Provision for (benefit from) income taxes 13.2 (8.9 ) 4.3
Net income $ 20.4 $ 1.0 $ 21.3

The following table provides a reconciliation of the Company’s Statement of Operations for the Nine Months Ended September 30, 2016 on a continuing operations basis to that on a combined basis, which takes into account the impact of the Aptevo-related discontinued operations.

Emergent BioSolutions Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share and per share data)


Nine Months Ended September 30, 2016
Continuing Operations Discontinued Operations Combined
Revenues: (Unaudited)
Product sales $ 208.8 $ 21.2 $ 230.0
Contract manufacturing 32.5 - 32.5
Contracts and grants 95.9 0.2 96.1
Total revenues 337.1 21.4 358.5

Operating expenses:
Cost of product sales and contract manufacturing 93.0 11.6 104.6
Research and development 81.2 18.0 99.2
Selling, general and administrative 108.3 23.8 132.1
Income from operations 54.6 (32.0 ) 22.6

Other income (expense):
Interest income 0.8 - 0.8
Interest expense (5.1 ) - (5.1 )
Other income, net (0.2 ) (0.0 ) (0.2 )
Total other expense, net (4.5 ) (0.0 ) (4.5 )

Income (loss) before provision for (benefit) from income taxes 50.1 (32.0 ) 18.1
Provision for (benefit from) income taxes 19.9 (16.2 ) 3.7
Net income $ 30.2 $ (15.9 ) $ 14.4

On November 7, 2016 Merck (NYSE: MRK), known as MSD outside the United States and Canada, reported that new data investigating the use of KEYTRUDA (pembrolizumab), the company’s anti-PD-1 therapy, in patients with previously treated advanced urothelial cancer will be presented at the Society for Immunotherapy of Cancer (SITC) (Free SITC Whitepaper)’s (SITC) (Free SITC Whitepaper) 31st Annual Meeting, Nov. 9-13 (Press release, Merck & Co, NOV 7, 2016, View Source [SID1234516353]). Data on overall survival (OS) and progression-free survival (PFS) from the phase 3 KEYNOTE-045 study – investigating KEYTRUDA compared to investigator’s choice chemotherapy in patients with metastatic or locally advanced or unresectable urothelial cancer that has recurred or progressed following platinum-based chemotherapy – will be presented for the first time; these data were accepted as a late-breaking abstract. In addition, results from three different studies exploring the utility of various biomarkers for KEYTRUDA will be presented at the meeting.

Schedule your 30 min Free 1stOncology Demo!
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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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KEYTRUDA Data at SITC (Free SITC Whitepaper) 2016

Below is a select listing of the KEYTRUDA abstracts accepted at SITC (Free SITC Whitepaper) 2016; abstracts are available on the meeting website .

Late-Breaking Oral Presentation, Location: Maryland Ballroom

(Abstract #470) KEYNOTE-045: open-label, phase 3 study of pembrolizumab versus investigator’s choice of paclitaxel, docetaxel, or vinflunine for previously treated advanced urothelial cancer.
Session Time: Saturday, Nov. 12, 11:15 a.m. – 12:00 p.m. ET
Presentation Time: 11:45 a.m. – 12:00 p.m. ET
Poster Presentations, Location: Prince George’s Exhibition Hall AB

(Abstract #61) Association between microsatellite instability and clinical response across tumor types in the phase 1b KEYNOTE-012 and KEYNOTE-028 studies of pembrolizumab in PD-L1-expressing advanced solid tumors.
Session Time: Friday, Nov. 11, 12:15 p.m. – 1:30 p.m. ET
(Abstract #72) An immune-related gene expression profile delineates features of the tumor microenvironment required for clinical response to PD-1 blockade.
Session Time: Saturday, Nov. 12, 11:45 a.m. – 1:00 p.m. ET
(Abstract #73) Tumor mutational load and T cell inflamed microenvironment are independent determinants of response to pembrolizumab.
Session Time: Friday, Nov. 11, 12:15 p.m. – 1:30 p.m. ET
The KEYTRUDA (pembrolizumab) clinical development program includes more than 30 tumor types in more than 360 clinical trials, including nearly 200 trials that combine KEYTRUDA with other cancer treatments. For genitourinary cancers, Merck has the largest immuno-oncology clinical development program in bladder cancer, with 27 trials underway involving KEYTRUDA as monotherapy and in combination, including four registration-enabling studies.

About KEYTRUDA (pembrolizumab)

KEYTRUDA is a humanized monoclonal antibody that works by increasing the ability of the body’s immune system to help detect and fight tumor cells. KEYTRUDA blocks the interaction between PD-1 and its ligands, PD-L1 and PD-L2, thereby activating T lymphocytes which may affect both tumor cells and healthy cells.

KEYTRUDA is administered as an intravenous infusion over 30 minutes every three weeks for the approved indications. KEYTRUDA for injection is supplied in a 100 mg single use vial.

KEYTRUDA Indications and Dosing

Melanoma

KEYTRUDA (pembrolizumab) is indicated for the treatment of patients with unresectable or metastatic melanoma at a dose of 2 mg/kg every three weeks until disease progression or unacceptable toxicity.

Lung Cancer

KEYTRUDA is indicated for the first-line treatment of patients with metastatic non-small cell lung cancer (NSCLC) whose tumors have high PD-L1 expression [tumor proportion score (TPS) ≥50%] as determined by an FDA-approved test, with no EGFR or ALK genomic tumor aberrations.

KEYTRUDA is also indicated for the treatment of patients with metastatic NSCLC whose tumors express PD-L1 (TPS ≥1%) as determined by an FDA-approved test, with disease progression on or after platinum-containing chemotherapy. Patients with EGFR or ALK genomic tumor aberrations should have disease progression on FDA-approved therapy for these aberrations prior to receiving KEYTRUDA.

In metastatic NSCLC, KEYTRUDA is administered at a fixed dose of 200 mg every three weeks until disease progression, unacceptable toxicity, or up to 24 months in patients without disease progression.

Head and Neck Cancer

KEYTRUDA is indicated for the treatment of patients with recurrent or metastatic head and neck squamous cell carcinoma (HNSCC) with disease progression on or after platinum-containing chemotherapy. This indication is approved under accelerated approval based on tumor response rate and durability of response. Continued approval for this indication may be contingent upon verification and description of clinical benefit in the confirmatory trials. In HNSCC, KEYTRUDA is administered at a fixed dose of 200 mg every three weeks until disease progression, unacceptable toxicity, or up to 24 months in patients without disease progression.

Selected Important Safety Information for KEYTRUDA (pembrolizumab)

KEYTRUDA can cause immune-mediated pneumonitis, including fatal cases. Pneumonitis occurred in 94 (3.4%) of 2799 patients receiving KEYTRUDA, including Grade 1 (0.8%), 2 (1.3%), 3 (0.9%), 4 (0.3%), and 5 (0.1%) pneumonitis, and occurred more frequently in patients with a history of prior thoracic radiation (6.9%) compared to those without (2.9%). Monitor patients for signs and symptoms of pneumonitis. Evaluate suspected pneumonitis with radiographic imaging. Administer corticosteroids for Grade 2 or greater pneumonitis. Withhold KEYTRUDA (pembrolizumab) for Grade 2; permanently discontinue KEYTRUDA for Grade 3 or 4 or recurrent Grade 2 pneumonitis.

KEYTRUDA can cause immune-mediated colitis. Colitis occurred in 48 (1.7%) of 2799 patients receiving KEYTRUDA, including Grade 2 (0.4%), 3 (1.1%), and 4 (<0.1%) colitis. Monitor patients for signs and symptoms of colitis. Administer corticosteroids for Grade 2 or greater colitis. Withhold KEYTRUDA for Grade 2 or 3; permanently discontinue KEYTRUDA for Grade 4 colitis.

KEYTRUDA can cause immune-mediated hepatitis. Hepatitis occurred in 19 (0.7%) of 2799 patients receiving KEYTRUDA, including Grade 2 (0.1%), 3 (0.4%), and 4 (<0.1%) hepatitis. Monitor patients for changes in liver function. Administer corticosteroids for Grade 2 or greater hepatitis and, based on severity of liver enzyme elevations, withhold or discontinue KEYTRUDA.

KEYTRUDA can cause hypophysitis. Hypophysitis occurred in 17 (0.6%) of 2799 patients receiving KEYTRUDA, including Grade 2 (0.2%), 3 (0.3%), and 4 (<0.1%) hypophysitis. Monitor patients for signs and symptoms of hypophysitis (including hypopituitarism and adrenal insufficiency). Administer corticosteroids and hormone replacement as clinically indicated. Withhold KEYTRUDA for Grade 2; withhold or discontinue for Grade 3 or 4 hypophysitis.

KEYTRUDA can cause thyroid disorders, including hyperthyroidism, hypothyroidism, and thyroiditis. Hyperthyroidism occurred in 96 (3.4%) of 2799 patients receiving KEYTRUDA, including Grade 2 (0.8%) and 3 (0.1%) hyperthyroidism. Hypothyroidism occurred in 237 (8.5%) of 2799 patients receiving KEYTRUDA, including Grade 2 (6.2%) and 3 (0.1%) hypothyroidism. The incidence of new or worsening hypothyroidism was higher in patients with HNSCC occurring in 28 (15%) of 192 patients with HNSCC, including Grade 3 (0.5%) hypothyroidism. Thyroiditis occurred in 16 (0.6%) of 2799 patients receiving KEYTRUDA, including Grade 2 (0.3%) thyroiditis. Monitor patients for changes in thyroid function (at the start of treatment, periodically during treatment, and as indicated based on clinical evaluation) and for clinical signs and symptoms of thyroid disorders. Administer replacement hormones for hypothyroidism and manage hyperthyroidism with thionamides and beta-blockers as appropriate. Withhold or discontinue KEYTRUDA for Grade 3 or 4 hyperthyroidism.

KEYTRUDA can cause type 1 diabetes mellitus, including diabetic ketoacidosis, which have been reported in 6 (0.2%) of 2799 patients. Monitor patients for hyperglycemia or other signs and symptoms of diabetes. Administer insulin for type 1 diabetes, and withhold KEYTRUDA and administer antihyperglycemics in patients with severe hyperglycemia.

KEYTRUDA (pembrolizumab) can cause immune-mediated nephritis. Nephritis occurred in 9 (0.3%) of 2799 patients receiving KEYTRUDA, including Grade 2 (0.1%), 3 (0.1%), and 4 (<0.1%) nephritis. Monitor patients for changes in renal function. Administer corticosteroids for Grade 2 or greater nephritis. Withhold KEYTRUDA for Grade 2; permanently discontinue KEYTRUDA for Grade 3 or 4 nephritis.

KEYTRUDA can cause other clinically important immune-mediated adverse reactions. For suspected immune-mediated adverse reactions, ensure adequate evaluation to confirm etiology or exclude other causes. Based on the severity of the adverse reaction, withhold KEYTRUDA and administer corticosteroids. Upon improvement to Grade 1 or less, initiate corticosteroid taper and continue to taper over at least 1 month. Based on limited data from clinical studies in patients whose immune-related adverse reactions could not be controlled with corticosteroid use, administration of other systemic immunosuppressants can be considered. Resume KEYTRUDA when the adverse reaction remains at Grade 1 or less following corticosteroid taper. Permanently discontinue KEYTRUDA for any Grade 3 immune-mediated adverse reaction that recurs and for any life-threatening immune-mediated adverse reaction.

The following clinically significant immune-mediated adverse reactions occurred in less than 1% (unless otherwise indicated) of 2799 patients: arthritis (1.5%), exfoliative dermatitis, bullous pemphigoid, rash (1.4%), uveitis, myositis, Guillain-Barré syndrome, myasthenia gravis, vasculitis, pancreatitis, hemolytic anemia, and partial seizures arising in a patient with inflammatory foci in brain parenchyma.

KEYTRUDA can cause severe or life-threatening infusion-related reactions, which have been reported in 6 (0.2%) of 2799 patients. Monitor patients for signs and symptoms of infusion-related reactions, including rigors, chills, wheezing, pruritus, flushing, rash, hypotension, hypoxemia, and fever. For Grade 3 or 4 reactions, stop infusion and permanently discontinue KEYTRUDA.

Based on its mechanism of action, KEYTRUDA can cause fetal harm when administered to a pregnant woman. If used during pregnancy, or if the patient becomes pregnant during treatment, apprise the patient of the potential hazard to a fetus. Advise females of reproductive potential to use highly effective contraception during treatment and for 4 months after the last dose of KEYTRUDA.

In KEYNOTE-006, KEYTRUDA was discontinued due to adverse reactions in 9% of 555 patients with advanced melanoma; adverse reactions leading to discontinuation in more than one patient were colitis (1.4%), autoimmune hepatitis (0.7%), allergic reaction (0.4%), polyneuropathy (0.4%), and cardiac failure (0.4%). Adverse reactions leading to interruption of KEYTRUDA (pembrolizumab) occurred in 21% of patients; the most common (≥1%) was diarrhea (2.5%). The most common adverse reactions with KEYTRUDA vs ipilimumab were fatigue (28% vs 28%), diarrhea (26% with KEYTRUDA), rash (24% vs 23%), and nausea (21% with KEYTRUDA). Corresponding incidence rates are listed for ipilimumab only for those adverse reactions that occurred at the same or lower rate than with KEYTRUDA.

In KEYNOTE-002, KEYTRUDA was discontinued due to adverse reactions in 12% of 357 patients with advanced melanoma; the most common (≥1%) were general physical health deterioration (1%), asthenia (1%), dyspnea (1%), pneumonitis (1%), and generalized edema (1%). Adverse reactions leading to interruption of KEYTRUDA occurred in 14% of patients; the most common (≥1%) were dyspnea (1%), diarrhea (1%), and maculopapular rash (1%). The most common adverse reactions with KEYTRUDA vs chemotherapy were fatigue (43% with KEYTRUDA), pruritus (28% vs 8%), rash (24% vs 8%), constipation (22% vs 20%), nausea (22% with KEYTRUDA), diarrhea (20% vs 20%), and decreased appetite (20% with KEYTRUDA). Corresponding incidence rates are listed for chemotherapy only for those adverse reactions that occurred at the same or lower rate than with KEYTRUDA.

KEYTRUDA was discontinued due to adverse reactions in 8% of 682 patients with metastatic NSCLC. The most common adverse event resulting in permanent discontinuation of KEYTRUDA was pneumonitis (1.8%). Adverse reactions leading to interruption of KEYTRUDA occurred in 23% of patients; the most common (≥1%) were diarrhea (1%), fatigue (1.3%), pneumonia (1%), liver enzyme elevation (1.2%), decreased appetite (1.3%), and pneumonitis (1%). The most common adverse reactions (occurring in at least 20% of patients and at a higher incidence than with docetaxel) were decreased appetite (25% vs 23%), dyspnea (23% vs 20%), and nausea (20% vs 18%).

KEYTRUDA was discontinued due to adverse reactions in 17% of 192 patients with HNSCC. Serious adverse reactions occurred in 45% of patients. The most frequent serious adverse reactions reported in at least 2% of patients were pneumonia, dyspnea, confusional state, vomiting, pleural effusion, and respiratory failure. The most common adverse reactions (reported in at least 20% of patients) were fatigue, decreased appetite, and dyspnea. Adverse reactions occurring in patients with HNSCC were generally similar to those occurring in patients with melanoma or NSCLC, with the exception of increased incidences of facial edema (10% all Grades; 2.1% Grades 3 or 4) and new or worsening hypothyroidism.

It is not known whether KEYTRUDA (pembrolizumab) is excreted in human milk. Because many drugs are excreted in human milk, instruct women to discontinue nursing during treatment with KEYTRUDA and for 4 months after the final dose.

Safety and effectiveness of KEYTRUDA have not been established in pediatric patients.

Our Focus on Cancer

Our goal is to translate breakthrough science into innovative oncology medicines to help people with cancer worldwide. At Merck, helping people fight cancer is our passion and supporting accessibility to our cancer medicines is our commitment. Our focus is on pursuing research in immuno-oncology and we are accelerating every step in the journey – from lab to clinic – to potentially bring new hope to people with cancer.

As part of our focus on cancer, Merck is committed to exploring the potential of immuno-oncology with one of the fastest-growing development programs in the industry. We are currently executing an expansive research program that includes more than 360 clinical trials evaluating our anti-PD-1 therapy across more than 30 tumor types. We also continue to strengthen our immuno-oncology portfolio through strategic acquisitions and are prioritizing the development of several promising immunotherapeutic candidates with the potential to improve the treatment of advanced cancers.

For more information about our oncology clinical trials, visit www.merck.com/clinicaltrials.

On November 7, 2016 Fate Therapeutics, Inc. (NASDAQ: FATE), a biopharmaceutical company dedicated to the development of programmed cellular immunotherapies for cancer and immune disorders, reported business highlights and financial results for the third quarter ended September 30, 2016 (Filing, Q3, Fate Therapeutics, 2016, NOV 7, 2016, View Source [SID1234516386]).

"During the quarter, we made substantial progress and intensified our commitment towards accelerating the clinical development of ProTmune and bringing innovative natural killer- and T-cell cancer immunotherapies into the clinic," said Scott Wolchko, President and Chief Executive Officer of Fate Therapeutics. "We significantly bolstered our ability to pursue accelerated registration for ProTmune by instituting investigator and patient blinding in our randomized, controlled PROTECT study. We advanced FATE-NK100, a first-in-class adaptive NK cell product candidate with multi-faceted anti-tumor activity, to IND filing and we are now preparing for the initiation of clinical investigation in early 2017. Additionally, we joined forces with Memorial Sloan Kettering Cancer Center to pioneer the development of off-the-shelf T-cell immunotherapies using engineered induced pluripotent cell lines, a breakthrough approach that enables the continuous production of clonal T-cell products at the scale necessary to serve significant numbers of patients."

Recent Highlights & Program Updates

• IND Filed for Adaptive NK Cell Cancer Immunotherapy. Fate Therapeutics, in collaboration with the Masonic Cancer Center, University of Minnesota, plans to initiate clinical testing in 2017 of FATE-NK100, a first-in-class adaptive natural killer (NK) cell product candidate, for the treatment of refractory or relapsed acute myeloid leukemia (AML). FATE-NK100 has demonstrated in preclinical studies enhanced anti-tumor activity, improved persistence and increased immune checkpoint resistance as compared to NK cell therapies that are being clinically-administered today. New preclinical data from the program are scheduled to be presented at an oral session at the 58th American Society of Hematology (ASH) (Free ASH Whitepaper) Annual Meeting and Exposition in December.

•
Bolstered Path for Accelerated Registration of ProTmune PROTECT Study. The Company amended its protocol for its randomized, controlled Phase 1/2 PROTECT clinical trial of ProTmune. The amendment blinds both investigators and subjects in the study, substantially enhancing its potential to support accelerated registration. In addition, the study eligibility criteria were expanded to include subjects with additional hematologic malignancies, including myelodysplastic syndromes, and to include cytomegalovirus (CMV)-seronegative subjects. ProTmune is currently being evaluated for the prevention of life-threatening complications, including acute graft-versus-host disease (GvHD), in adult subjects with hematologic malignancies undergoing allogeneic mobilized peripheral blood hematopoietic cell transplantation (HCT).

•
Granted Broad Orphan Drug Designations by FDA and EMA for ProTmune. In September, the U.S. Food and Drug Administration (FDA) granted Orphan Drug Designation and, in October, the European Medicines Agency (EMA) granted Orphan Medicinal Product Designation, for ProTmune. The designation granted by each agency broadly covers subjects undergoing allogeneic HCT across diseases for which the procedure is performed, including blood cancers and genetic disorders. In June 2016, the FDA granted Fast Track designation for ProTmune for the reduction of incidence and severity of acute GvHD in patients undergoing allogeneic HCT.

•
Launched Off-the-Shelf T-Cell Immunotherapy Partnership with Memorial Sloan Kettering. The multi-year collaboration led by Michel Sadelain, M.D., Ph.D., Director of the Center for Cell Engineering and the Stephen and Barbara Friedman Chair at Memorial Sloan Kettering Cancer Center (MSK), is advancing T-cell product candidates derived from engineered induced pluripotent cells. Like master cell lines used for the manufacture of monoclonal antibodies, pluripotent cell lines can serve as a renewable cell source for the consistent manufacture of clonal populations of effector cells for off-the-shelf treatment of patients. In connection with the partnership, Fate Therapeutics also exclusively licensed from MSK foundational intellectual property covering T cells and NK cells derived from induced pluripotent cells engineered with chimeric antigen receptors.

•
Completed $10.3M Common Stock Private Placement. In August, Fate Therapeutics issued 5.25 million shares of common stock at $1.96 per share pursuant to a securities purchase agreement with certain institutional investors including Franklin Advisers, Inc.

Third Quarter 2016 Financial Results

•
Cash & Short-term Investment Position: Cash, cash equivalents and short-term investments as of September 30, 2016 were $46.6 million compared to $64.8 million as of December 31, 2015. The decrease was primarily driven by the Company’s use of cash to fund operating activities and to service principal and interest obligations under its loan agreement with Silicon Valley Bank. This use was partially offset by $10.2 million in net proceeds received by the Company in August 2016 in connection with its private placement of common stock to certain institutional investors.

•
Total Revenue: Revenue was $1.0 million for the third quarter of 2016 as well as for the comparable period in 2015. All revenue was derived from the Company’s research collaboration and license agreement with Juno Therapeutics.

•
Total Operating Expenses: Total operating expenses were $9.4 million for the third quarter of 2016 compared to $7.4 million for the comparable period in 2015. Operating expenses for the third quarter of 2016 included $0.8 million of stock compensation expense, compared to $0.6 million for the comparable period in 2015.

•
R&D Expenses: Research and development expenses were $6.8 million for the third quarter of 2016 compared to $5.0 million for the comparable period in 2015. The increase in R&D expenses was primarily related to an increase in third-party service provider fees to support the Company’s clinical development of ProTmune and preclinical development of FATE-NK100 in collaboration with the University of Minnesota, and an increase in personnel expenses resulting from the hiring of additional employees to support the conduct of its research activities, including activities under its collaboration with Juno.

•
G&A Expenses: General and administrative expenses were $2.6 million for the third quarter of 2016 compared to $2.4 million for the comparable period in 2015. The increase in G&A expenses was primarily related to an increase in intellectual property-related expenses.

•
Common Shares Outstanding: Common shares outstanding as of September 30, 2016 were 34.1 million compared to 28.7 million as of December 31, 2015. Common shares outstanding increased primarily as a result of the Company’s issuance of 5.25 million shares of common stock in August 2016 in connection with its private placement of common stock to certain institutional investors.

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On November 7, 2016 Kura Oncology, Inc., (Nasdaq:KURA) a clinical stage biopharmaceutical company committed to realizing the promise of precision medicines for the treatment of cancer, reported third quarter 2016 financial results and recent business highlights (Press release, Kura Oncology, NOV 7, 2016, View Source;p=RssLanding&cat=news&id=2220292 [SID1234516570]).

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"During the third quarter, we have continued to advance our tipifarnib development program," said Troy Wilson, Ph.D., J.D., President and CEO of Kura Oncology. "Our Phase 2 HRAS solid tumor trial is progressing and the two patients from stage 1 with partial responses have now been on study for 15 months and 8 months, which is encouraging given the relatively limited clinical benefit these patients observed on prior therapy. We have focused the second stage of the trial on patients with HRAS mutant squamous cell head and neck cancer, and we look forward to additional results in this patient population."

"In addition, our trials in PTCL and lower-risk MDS are ongoing, and we recently initiated our planned Phase 2 trial for tipifarnib in patients with CMML," stated Dr. Wilson. "We believe each of these Phase 2 studies has a strong scientific and clinical rationale, and they provide multiple potential opportunities for registration-enabling studies."

Dr. Wilson continued, "We are preparing to advance our ERK inhibitor, KO-947, into clinical testing and are encouraged by the consistent and compelling activity we have observed in preclinical models of cancers with mutations or dysregulation of the MAPK pathway as well as by our identification of potential biomarkers to guide development. I am very pleased we are on track to submit an IND before year-end."

Upcoming Clinical and Preclinical Activities for Kura Oncology Programs

Submission of the investigational new drug (IND) for KO-947 is anticipated in the fourth quarter of 2016.

Nomination of a development candidate for the menin-MLL program is anticipated in the fourth quarter of 2016.

Presentation of preclinical data for KO-947 and menin-MLL program at EORTC in Munich in November 2016.

Initiation of a Phase 1 study for KO-947 is anticipated in the first half of 2017.

Topline data from the Phase 2 study of tipifarnib in PTCL is anticipated in the first half of 2017.

Additional data from the Phase 2 study of tipifarnib in HRAS mutant tumors is anticipated in the first half of 2017.
Financial Results for the Third Quarter 2016

Cash, cash equivalents and short-term investments totaled $74.6 million as of September 30, 2016, compared with $85.7 million as of December 31, 2015. Management expects that current cash, cash equivalents and short-term investments will be sufficient to fund current operations into 2018.

Research and development expenses for the third quarter of 2016 were $5.3 million, compared to $4.6 million for the third quarter of 2015.

General and administrative expenses for the third quarter of 2016 were $1.7 million, compared to $1.8 million for the third quarter of 2015.

Net loss for the third quarter of 2016 was $6.9 million, or $0.37 per share, compared to a net loss of $6.1 million, or $0.57 per share, for the third quarter of 2015.

On November 7, 2016 MorphoSys AG (FSE: MOR; Prime Standard Segment; TecDAX, OTC: MPSYY) reported its financial results for the first nine months of 2016, and outlined the key events for the third quarter ending September 30, 2016 (Press release, MorphoSys, NOV 6, 2016, View Source [SID1234516664]).

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Financial results for the first nine months of 2016

For first nine months of 2016, group revenues totaled EUR 36.7 million and EBIT amounted to EUR -32.3 million. Previous year’s figures included a non-recurring effect of approximately EUR 59 million (9-months 2015 revenues: EUR 93.9 million; 9-months 2015 EBIT: EUR 34.7 million).
Adjusted for last year’s one-off effect, 9-months group revenues rose by 5% year-on-year.
The Group’s liquidity position on September 30, 2016 amounted to EUR 267.2 million (December 31, 2015: EUR 298.4 million).
The Company confirms its 2016 guidance for revenues in the range of EUR 47 million to EUR 52 million and EBIT between EUR -58 million and EUR -68 million.
Operating highlights of the third quarter of 2016

In early August, MorphoSys announced the successful completion of the safety run-in of its phase 2 clinical trial of MOR208 in combination with lenalidomide in patients with relapsed or refractory diffuse large B cell lymphoma (DLBCL) (L-MIND trial).
At the beginning of September, MorphoSys disclosed that the first patient had been dosed in the safety run-in of a phase 2/3 combination trial of MOR208 with bendamustine. The B-MIND trial will evaluate the safety and efficacy of MOR208 combined with the chemotherapeutic agent bendamustine in comparison to rituximab plus bendamustine. The study is expected to transition into a pivotal phase 3 part in 2017.
At the end of September, MorphoSys and its Belgian development partner Galapagos NV announced that the first patient with atopic dermatitis was dosed in an ongoing phase 1 trial of MOR106 against IL-17C after the antibody showed favorable safety in healthy volunteers.
In early July, MorphoSys disclosed the receipt of a milestone payment from Novartis, which was recognized in the second quarter of 2016. This payment was triggered by the initiation of a phase 1 clinical study of a novel HuCAL antibody for the prevention of thrombosis.
In September, the Company announced the appointment of four experts to its newly formed Scientific Advisory Board. This international panel of scientific experts was established to advise the Company on the strategic options and future perspectives within its research and development activities.
In September, MorphoSys’s Dutch subsidiary Lanthio Pharma B.V., which specializes in the development of lanthipeptides, announced the appointment of Axel Mescheder, M.D. as its Chief Medical Officer.
In mid-October, the Company announced the receipt of a milestone payment from Novartis, which was booked in the third quarter of 2016. The payment was triggered by the start of a phase 1 clinical trial with a novel HuCAL antibody in the field of cancer.
At the end of the third quarter, MorphoSys’s pipeline comprised an all-time high of 110 therapeutic programs, 28 of which are in clinical development.
Key events after the end of the third quarter of 2016

On October 1, 2016, MorphoSys announced that its licensee Janssen Research & Development, LLC (Janssen) reported positive results from a phase 3 clinical study of guselkumab in 837 patients with moderate to severe plaque psoriasis ("VOYAGE 1" study). Guselkumab is a fully human antibody targeting IL-23 which was selected from MorphoSys’s HuCAL antibody library. According to Janssen, both co-primary endpoints were met. Janssen also reported that all major secondary endpoints achieved statistical significance in comparisons of guselkumab versus adalimumab (Humira). Following the positive study results, Janssen announced plans to apply for regulatory approval in 2016. Guselkumab is expected to be the first HuCAL antibody to reach the market.

In EURO million* 9-Months 2016 9-Months 2015


Group Revenues 36.7 93.9
Total Operating Expenses 69.1 63.6
Other Income/Expenses 0.1 4.5
Earnings Before Interest and Taxes – EBIT (32.3) 34.7
Consolidated Net Profit / (Loss) (31.6) 28.2
Total EPS, diluted, in EURO (1.21) 1.07

* Differences due to rounding

"We are excited about the phase 3 data in moderate-to-severe psoriasis that our partner Janssen has generated with guselkumab. This could become the first product based on our proprietary technology to reach the market," commented Dr. Simon Moroney, Chief Executive Officer of MorphoSys AG. "Our therapeutic pipeline is progressing well, now with 110 programs in development, more than ever before, of which 28 are in clinical studies."

"With the results shown for the first nine months of 2016 we are on track to meet our targets for the full year," stated Jens Holstein, Chief Financial Officer of MorphoSys AG. "Based on our solid financial situation with liquidity of EUR 267.2 million at the end of the third quarter, MorphoSys will continue to invest in our promising development candidates from a position of strength."

Financial Review of the First Nine Months of 2016 (IFRS)

Group revenues in the first nine months of 2016 amounted to EUR 36.7 million, compared to EUR 93.9 million in the first nine months of 2015. The main reason for the decline compared to the previous year period is a non-recurring effect of about EUR 59 million in 2015 in connection with the termination of the collaboration with Celgene for MOR202. Adjusted for last year’s one-off effect, revenues for the first nine months rose by 5%.

The Proprietary Development segment recorded revenues of EUR 0.5 million (9-months 2015: EUR 59.9 million). Revenues in the Partnered Discovery segment reached EUR 36.2 million (9-months 2015: EUR 34.0 million). Success-based payments amounted to about 10% of total revenues, or EUR 3.5 million (9-months 2015: 3% or EUR 2.5 million).

Total operating expenses for the first nine months of 2016 amounted to EUR 69.1 million (9-months 2015: EUR 63.6 million). Total research and development expenses were EUR 58.8 million (9-months 2015: EUR 53.1 million). The increase is mainly due to intensified clinical development activities with MorphoSys’s proprietary antibody candidates, in particular the start of two phase 2 trials with MOR208 in 2016. R&D expenses mainly consisted of costs for external laboratory services and personnel costs. General and administrative expenses decreased slightly to EUR 10.3 million (9-months 2015: EUR 10.6 million).

Earnings before interest and taxes (EBIT) amounted to EUR -32.3 million (9-months 2015: EUR 34.7 million). Adjusted for the one-off effect in 2015 amounting to EUR 59 million, the operating loss (EBIT) for the first nine months rose by 33%, mainly due to the increase in R&D activities.

The Proprietary Development segment reported a segment EBIT of EUR -45.5 million (9-months 2015: EUR 26.5 million), while Partnered Discovery showed a nine months segment EBIT of EUR 22.8 million (9-months 2015: EUR 18.1 million). Proprietary R&D expenses including technology development amounted to EUR 46.2 million, the comparative figure for 9-months 2015 was EUR 39.9 million.

On September 30, 2016, the Group’s liquidity position amounted to EUR 267.2 million compared to EUR 298.4 million on December 31, 2015. The Company’s liquidity is reflected in the balance sheet items "cash and cash equivalents", "available-for-sale financial assets", "bonds, available-for-sale" and current and non-current "financial assets classified as loans and receivables". The decline in liquidity was mainly the result of the use of cash for operations in the first nine months of 2016 and the repurchase of shares for the Group’s long-term incentive program.

Financial guidance for 2016

MorphoSys re-confirmed its guidance for 2016. MorphoSys anticipates total Group revenues in the range of EUR 47 million to EUR 52 million and expects EBIT to be in the range of EUR -58 million to EUR -68 million. Proprietary R&D expenses are expected to rise to EUR 76 million to EUR 83 million. This guidance does not include any potential in-licensing or co-development of additional development candidates.