Loxo Oncology Announces Publication of Larotrectinib Clinical Data in The New England Journal of Medicine

On February 21, 2018 Loxo Oncology, Inc. (Nasdaq:LOXO), a biopharmaceutical company innovating the development of highly selective medicines for patients with genetically defined cancers, and Bayer AG, Germany, reported a publication in the February 22nd issue of the New England Journal of Medicine (NEJM) for larotrectinib in the treatment of pediatric and adult patients whose tumors harbor tropomyosin receptor kinase (TRK) gene fusions (Press release, Loxo Oncology, FEB 21, 2018, View Source [SID1234524101]).

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The NEJM publication provides additional clinical details and patient follow-up from the 2017 American Society of Clinical Oncology (ASCO) (Free ASCO Whitepaper) Annual Meeting presentation. It includes the first 55 consecutively enrolled adult and pediatric patients with TRK fusion cancers treated across Loxo Oncology’s Phase 1 adult trial, Phase 2 trial (NAVIGATE), and Phase 1/2 pediatric trial (SCOUT) and uses a July 17, 2017 data cutoff.

"Ongoing treatment with larotrectinib continues to demonstrate striking and durable efficacy coupled with minimal side effects, across a diverse patient population," said David Hyman, M.D., the NAVIGATE global principal investigator, chief of the Early Drug Development service at Memorial Sloan Kettering Cancer Center and senior author of the NEJM paper. "The efficacy of larotrectinib warrants screening for TRK fusions alongside other actionable targets in patients of all ages with advanced solid tumors."

In December, Loxo Oncology initiated submission of a rolling New Drug Application (NDA) to the U.S. Food and Drug Administration (FDA) for larotrectinib, utilizing the same patient population and data cutoff as outlined in the NEJM paper. The rolling NDA submission is expected to be complete in early 2018 and a Marketing Authorisation Application (MAA) submission by Bayer in the European Union is expected in 2018. The larotrectinib program has continued to enroll and treat newly identified patients with TRK fusion cancers, beyond the 55 patients described in the publication. The anti-tumor activity and safety of larotrectinib in these additional patients are consistent with the data reported in the publication, and will be included for supportive analyses in the NDA and MAA submissions. Loxo Oncology expects to present these additional data in the second half of 2018.

"It is exciting to see the NEJM share the larotrectinib experience in TRK fusion cancers with the broader clinical and research communities," said Josh Bilenker, M.D., chief executive officer of Loxo Oncology. "The class-leading data reported for larotrectinib are a testament to the importance of building selective medicines against all of the actionable targets comprehensive profiling can identify. We hope to build on the success of larotrectinib as our pipeline matures in 2018 and beyond."

Overview of Data Published in NEJM

The published data were based on the intent to treat (ITT) principle, using the first 55 TRK fusion patients with RECIST-evaluable disease enrolled to the three clinical trials, regardless of prior therapy or tumor tissue diagnostic method. The analysis included both adult and pediatric patients, ranging in age from four months to 76 years, who carried 17 unique TRK fusion-positive tumor diagnoses. Tumor types included salivary gland, infantile fibrosarcoma, thyroid, colon, lung, melanoma, gastrointestinal stromal tumor (GIST), and other cancers.

The primary endpoint for the analysis was overall response rate (ORR). Secondary endpoints included duration of response, progression-free survival, and safety. As shown below, as previously reported, the ORR was 75% by central assessment and 80% by investigator assessment.

Central Assessment (%)
(n=55) Investigator Assessment (%)
(n=55)
Overall response rate (95% CI)
(ORR=PR+CR) 75% (61–85%) 80% (67–90%)
Partial response 62 % 64 %*
Complete response 13 % 16 %
Stable disease 13 % 9 %
Progressive disease 9 % 11 %
Could not be evaluated 4 % 0
* Data include one patient who had a partial response that was pending confirmation at the time of the July 17, 2017 data cut-off. The response was subsequently confirmed, and the patient’s treatment and response were ongoing as of the data cut-off date.

Median duration of response (DOR) and median progression-free survival (PFS) had not been reached after median follow-up durations of 8.3 months and 9.9, respectively. At 1 year, 71% of responses were ongoing. As of the July 17, 2017 data cutoff, 86% of responding patients remained on treatment or had undergone surgery with curative intent. The first patient treated with a TRK fusion tumor remained in response and on therapy at 27 months.

Larotrectinib was well tolerated with the majority of all adverse events being grade 1 or 2. Few grade 3 or 4 adverse events, regardless of attribution, were observed with the most common being anemia (11%), alanine or aspartate aminotransferase increase (7%), weight increase (7%), and neutrophil count decrease (7%) (all grade 3 events). There were no treatment-related grade 4 or 5 events, and no treatment-related grade 3 adverse events occurred in more than 5% of patients. Eight patients required larotrectinib dose reductions. Adverse events leading to dose reductions included AST/ALT elevation, dizziness, and neutrophil count decrease, all grade 2 or 3 events. In all cases, patients whose doses were reduced maintained their best response at the lower dose and none discontinued larotrectinib due to an adverse event.

Primary resistance was observed in six patients in the study. Of the six, one patient had been previously treated with another TRK inhibitor and tumor sequencing prior to larotrectinib dosing revealed a solvent front mutation, a known resistance mechanism. Tumor tissue was analyzed for three of the five remaining patients. In all three patients, TRK immunohistochemistry failed to demonstrate TRK expression, potentially implicating a false positive initial TRK fusion test result and therefore explaining the lack of response in these patients.

The publication also details mechanisms of acquired resistance to larotrectinib. Ten patients experienced disease progression while on treatment after a documented objective response or stable disease for at least six months, a phenomenon known as acquired resistance. Nine of the ten patients had assessments of post-progression tumor or plasma samples, and NTRK kinase domain mutations were identified in all of those samples tested. In seven of those assessed, investigators identified solvent front mutations as a convergent mechanism of acquired resistance; other NTRK kinase domain mutations were identified in the remaining two patients tested. Of the 10 patients who developed acquired resistance, 80% continued treatment with larotrectinib beyond progression due to ongoing clinical benefit.

Loxo Oncology and Bayer are developing LOXO-195, a next-generation TRK inhibitor, to specifically address acquired resistance mutations, including all mutations characterized in the study. LOXO-195 is currently being evaluated in a phase 1/2 trial in children and adults.

About Larotrectinib (LOXO-101)
Larotrectinib is a potent, oral and selective investigational new drug in clinical development for the treatment of patients with cancers that harbor abnormalities involving the tropomyosin receptor kinases (TRKs). Growing research suggests that the NTRK genes, which encode for TRKs, can become abnormally fused to other genes, resulting in growth signals that can lead to cancer in many sites of the body. In an analysis of 55 RECIST-evaluable TRK fusion adult and pediatric patients, larotrectinib demonstrated a 75 percent independently-reviewed confirmed overall response rate (ORR) and an 80 percent investigator-assessed confirmed ORR, across many different types of solid tumors. Larotrectinib has been granted Breakthrough Therapy Designation Rare Pediatric Disease Designation and Orphan Drug Designation by the U.S. FDA. For additional information about the larotrectinib clinical trials, please refer to www.clinicaltrials.gov. Interested patients and physicians can contact the Loxo Oncology Physician and Patient Clinical Trial Hotline at 1-855-NTRK-123 or visit www.loxooncologytrials.com.

In November 2017, Loxo Oncology and Bayer entered into an exclusive global collaboration for the development and commercialization of larotrectinib and LOXO-195, a next-generation TRK inhibitor. Loxo Oncology leads worldwide development and U.S. regulatory activities. Bayer leads ex-U.S. regulatory activities and worldwide commercial activities. In the U.S., Loxo Oncology and Bayer will co-promote the products.

About TRK Fusion Cancer
TRK fusions are chromosomal abnormalities that occur when one of the NTRK genes (NTRK1, NTRK2, NTRK3) becomes abnormally connected to another, unrelated gene (e.g. ETV6, LMNA, TPM3). This abnormality results in uncontrolled TRK signaling that can lead to cancer. TRK fusions occur rarely but broadly in various adult and pediatric solid tumors, including appendiceal cancer, breast cancer, cholangiocarcinoma, colorectal cancer, GIST, infantile fibrosarcoma, lung cancer, mammary analogue secretory carcinoma of the salivary gland, melanoma, pancreatic cancer, thyroid cancer, and various sarcomas. TRK fusions can be identified through various diagnostic tests, including targeted next-generation sequencing (NGS), immunohistochemistry (IHC), polymerase chain reaction (PCR), and fluorescent in situ hybridization (FISH). For more information, please visit www.TRKtesting.com.

The Medicines Company Reports Fourth-Quarter and Full-Year 2017 Business and Financial Results

On February 21, 2018 The Medicines Company (NASDAQ:MDCO) today reported its financial results for the fourth quarter and full year ended December 31, 2017 (Press release, Medicines Company, FEB 21, 2018, View Source;p=RssLanding&cat=news&id=2333597 [SID1234524083]).

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"We have successfully executed our strategic action plan for 2017 by divesting our non-core assets, restructuring our business to focus on inclisiran, and initiating the inclisiran Phase 3 ORION program – recently completing target enrollment ahead of schedule in both ORION 11 and ORION 9 trials," said Clive Meanwell, M.D., Ph.D., Chief Executive Officer of The Medicines Company.

Dr. Meanwell continued, "We expect momentum to continue throughout 2018, including rapid accrual of clinical safety information on inclisiran and manufacturing development. Based on this accelerated and efficient progress, we believe an NDA and MAA submission will be feasible as soon as the second half of 2019."

Fourth-Quarter 2017 Financial Summary from Continuing Operations

Worldwide net revenue was $8.6 million in the fourth-quarter of 2017 compared to $17.4 million in the fourth-quarter of 2016, primarily from Angiomax, including both royalty revenues derived from the gross profit on authorized generic sales of Angiomax (bivalirudin) by Sandoz, Inc. and worldwide Angiomax/Angiox (bivalirudin) net product sales. The fourth quarter of 2016 also included $0.4 million of sales related to the divested non-core cardiovascular products.

On a GAAP basis, loss from continuing operations in the fourth quarter of 2017 was $159.4 million, or $2.19 per share, compared to $82.8 million, or $1.17 per share, in the fourth quarter of 2016. Included in loss from continuing operations for the fourth quarter of 2017 were charges of approximately $63.0 million for the impairment of the contingent purchase price for Raplixa, $20.0 million milestone for the first dosing in phase III inclisiran study and $15.0 million in connection with an obsolescence inventory reserve for Angiomax. On a non-GAAP basis, adjusted loss(1) from continuing operations in the fourth quarter of 2017 was $44.4 million, or $0.61(1) per share, compared to $54.9 million, or $0.78(1) per share, in the fourth quarter of 2016.

Fourth-Quarter 2017 Financial Summary from Discontinued Operations

In the fourth quarter of 2017 the Company entered into a definitive agreement to sell its infectious disease business unit to Melinta Therapeutics, Inc. for $270 million in upfront consideration and guaranteed payments ($215 million of guaranteed cash and $55 million of Melinta common stock), tiered royalty payments of 5% to 25% on worldwide net sales of Vabomere, Orbactiv and Minocin IV, and the assumption by Melinta of all royalty, milestone and other payment obligations relating to those products.

In the first quarter of 2016, the Company completed the divestiture of its hemostasis products for an upfront payment of $174.1 million, and potential milestone payments of up to an additional $235.0 million, in the aggregate, following the achievement of certain specified net sales milestones.

Net loss from discontinued operations in the fourth quarter of 2017 was $18.8 million compared to $40.1 million in 2016.

Full-Year 2017 Financial Summary from Continuing Operations

Worldwide net revenue was $44.8 million for the full year 2017 compared to $143.2 million in 2016. Included in total net revenue for the full year 2017 and 2016 was $44.6 million and $104.9 million, respectively, of Angiomax revenue, including both royalty revenues derived from the gross profit on authorized generic sales of Angiomax (bivalirudin) by Sandoz, Inc. and worldwide Angiomax/Angiox (bivalirudin) net product sales.

On a GAAP basis, loss from continuing operations for the full year 2017 was $607.7 million, or $8.40 per share, compared to income from continuing operations of $20.5 million, or $0.28 per share, for the full year 2016. Included in net loss from continuing operations for 2017 were net charges of approximately $277.0 million associated with the discontinuation and market withdrawal of Ionsys (fentanyl iontophoretic transdermal system) in the U.S. market, $63.0 million for the impairment of the contingent purchase price of Raplixa, $27.3 million associated with the discontinuation of the clinical development program for MDCO-700, our investigational anesthetic agent, and $20.0 million milestone for the first dosing in the phase III inclisiran study. On a non-GAAP basis, adjusted loss(1) from continuing operations for the full year 2017 was $142.4 million, or $1.97(1) per share, compared to $169.0 million, or $2.42(1) per share, for the full year 2016.

(1) Adjusted net loss and adjusted loss per share from continuing operations are non-GAAP financial performance measures with no standardized definitions under U.S. GAAP. For further information and a detailed reconciliation, refer to the "Non-GAAP Financial Performance Measures" and "Reconciliations of GAAP to Adjusted Loss From Continuing Operations and Adjusted Loss per Share" sections of this press release.

Full-Year 2017 Financial Summary from Discontinued Operations

Net loss from discontinued operations for the full year 2017 was $100.7 million or $1.39 per share, compared to $139.7 million, or $1.91 per share in 2016.

At December 31, 2017, the Company had a total of $151.4 million in cash and cash equivalents.

Fourth-Quarter 2017 Conference Call and Webcast Information

The Company will host a conference call and webcast today, February 21, 2018, at 8:30 a.m., Eastern Daylight Time, to discuss its fourth-quarter 2017 financial results and provide clinical and operational updates. The dial-in information to access the call is as follows:

U.S./Canada: (877) 359-9508
International: (224) 357-2393
Conference ID: 3592738

A taped replay of the conference call will be available from 11:30 a.m., Eastern Daylight Time, today until 11:30 a.m., Eastern Daylight Time, on February 28, 2018. The replay may be accessed as follows:

U.S./Canada: (855) 859-2056
International: (404) 537-3406
Conference ID: 3592738

The webcast can be accessed in the Investors section of The Medicines Company website. A replay of the webcast will also be available.

About Inclisiran

Inclisiran (formerly known as PCSK9si and ALN-PCSsc) is an investigational GalNAc-conjugated RNAi therapeutic targeting PCSK9 – a genetically validated protein regulator of LDL receptor metabolism – being developed for the treatment of hypercholesterolemia. In contrast to anti-PCSK9 monoclonal antibodies (MAbs) that bind to PCSK9 in blood, inclisiran is a first-in-class investigational medicine that acts by turning off PCSK9 synthesis in the liver.

The Medicines Company and Alnylam Pharmaceuticals, Inc. are collaborating in the advancement of inclisiran pursuant to their 2013 agreement. Under the terms of the agreement, Alnylam completed certain pre-clinical studies and the Phase I clinical study, with The Medicines Company leading and funding the development of inclisiran from Phase II forward, as well as potential commercialization.

Arix Bioscience and Ipsen sign a strategic agreement to develop and commercialise innovative therapies

On February 21, 2018 Arix Bioscience plc (LSE:ARIX) ("Arix"), a global healthcare and life science company supporting medical innovation, and Ipsen (Euronext: IPN; ADR:IPSEY), a global specialty-driven biopharmaceutical company focused on innovation and specialty care, reported a strategic agreement to develop and commercialise innovative therapies (Press release, Ipsen, FEB 21, 2018, View Source [SID1234650567]).

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Arix will provide Ipsen with access to its unique network of professional and scientific advisors, and the chance to invest in opportunities in Arix’s new and existing businesses. In return, Ipsen will contribute research, development and commercial expertise to the partnership. Arix and Ipsen will collaborate to identify opportunities and jointly create new companies focused primarily on the development and commercialisation of innovative therapies for patients.

Joe Anderson, Chief Executive Officer of Arix Bioscience plc, commented: "This agreement brings together Ipsen’s deep expertise in drug development and commercialization with Arix’s proven capacity to identify new opportunities and build companies to develop innovative new therapies in areas of high unmet medical need. Arix is committed to acquiring interests in, and assisting in the development of, businesses that bring medical innovation and address important areas with limited available treatment options. We look forward to collaborating with Ipsen to identify new opportunities to drive innovation, improve patient outcomes and, ultimately, future value for our shareholders."

David Meek, Chief Executive Officer of Ipsen, added: "We are committed to discovering and developing innovative therapeutic solutions for targeted debilitating diseases and improving the quality of life for patients. By building this relationship with Arix, we can benefit from Arix’s leading networks, advisors and businesses and can support these in turn with our R&D and commercialisation capabilities and expertise. We look forward to working together and supporting the next generation of companies developing life-changing medicines for patients."

Arix made investments into 13 innovative life science companies in 2016 and 2017, with multiple value-creating milestones expected over the next 18 months. Arix expects to continue to build on its already rich pipeline to provide funding and expertise to additional new businesses in 2018.

UNITED THERAPEUTICS CORPORATION REPORTS 2017 FOURTH QUARTER AND ANNUAL FINANCIAL RESULTS

On February 21, 2018 United Therapeutics Corporation (NASDAQ: UTHR) reported its financial results for the fourth quarter and year ended December 31, 2017 (Press release, United Therapeutics, FEB 21, 2018, View Source [SID1234524084]).

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"Our fourth quarter net revenues reached $465 million and our annual net revenues reached $1.7 billion, our highest quarterly and annual net revenues ever," said Martine Rothblatt, Ph.D., United Therapeutics Chairman and Chief Executive Officer. "Orenitram’s fourth quarter net revenues grew by 25%, as compared to the same period in the prior year, representing our third consecutive quarter of greater than 20% net revenue growth for this therapy and confirming our belief in the organic growth opportunity for Orenitram, which is the only true oral prostacyclin analogue therapy for the large and increasing number of pulmonary arterial hypertension (PAH) patients. These financial results strengthen our ability to develop and advance our growing product pipeline, which currently includes seven phase III programs and multiple next-generation treprostinil drug delivery systems as well as investigative regenerative medicine and organ manufacturing programs, which we hope will ultimately provide a cure for PAH and other end-stage organ diseases."

Key financial highlights include (in millions, except per share data):

Three Months Ended
December 31,

Year Ended
December 31,

2017

2016

2017

2016

Revenues

$

464.7

$

409.0

$

1,725.3

$

1,598.8

Net income

$

19.0

$

110.3

$

417.9

$

713.7

Non-GAAP earnings(1)

$

170.2

$

184.3

$

741.3

$

726.0

Net income, per diluted share

$

0.43

$

2.43

$

9.31

$

15.25

Non-GAAP earnings, per diluted share(1)

$

3.89

$

4.06

$

16.51

$

15.51

(1) See definition of non-GAAP earnings, a non-GAAP financial measure, and a reconciliation of net income to non-GAAP earnings below.

Revenues

The table below summarizes the components of total revenues (dollars in millions):

Three Months Ended
December 31,

Percentage

Year Ended
December 31,

Percentage

2017

2016

Change

2017

2016

Change

Net product sales:

Remodulin

$

180.1

$

151.2

19.1

%

$

670.9

$

602.3

11.4

%

Tyvaso

92.4

93.6

(1.3

)%

372.9

404.6

(7.8

)%

Adcirca

119.3

112.7

5.9

%

419.7

372.2

12.8

%

Orenitram

48.0

38.3

25.3

%

185.8

157.2

18.2

%

Unituxin

24.9

13.2

88.6

%

76.0

62.5

21.6

%

Total revenues

$

464.7

$

409.0

13.6

%

$

1,725.3

$

1,598.8

7.9

%

1

Revenues for the quarter ended December 31, 2017 increased by $55.7 million as compared to the same period in 2016. The growth in revenues primarily resulted from: (1) a $28.9 million increase in Remodulin net product sales; (2) an $11.7 million increase in Unituxin net product sales; (3) a $9.7 million increase in Orenitram net product sales; and (4) a $6.6 million increase in Adcirca net product sales, partially offset by a $1.2 million decrease in Tyvaso net product sales.

Revenues for the year ended December 31, 2017 increased by $126.5 million as compared to the same period in 2016. The growth in revenues primarily resulted from the following: (1) a $68.6 million increase in Remodulin net product sales; (2) a $47.5 million increase in Adcirca net product sales; (3) a $28.6 million increase in Orenitram net product sales; and (4) a $13.5 million increase in Unituxin net product sales, partially offset by a $31.7 million decrease in Tyvaso net product sales.

Expenses

Cost of product sales. The table below summarizes cost of product sales by major category (dollars in millions):

Three Months Ended
December 31,

Percentage

Year Ended
December 31,

Percentage

2017

2016

Change

2017

2016

Change

Category:

Cost of product sales

$

46.7

$

19.5

139.5

%

$

103.1

$

72.1

43.0

%

Share-based compensation expense(1)

6.3

8.9

(29.2

)%

2.6

0.6

333.3

%

Total cost of product sales

$

53.0

$

28.4

86.6

%

$

105.7

$

72.7

45.4

%

(1) Refer to Share-based compensation expense below for discussion.

Cost of product sales, excluding share-based compensation. The increases in cost of product sales of $27.2 million and $31.0 million, respectively, for the quarter and year ended December 31, 2017 as compared to the same periods in 2016, were primarily attributable to a $21.9 million increase in royalty expense for Adcirca. Our amended license agreement with Eli Lilly and Company resulted in our royalty rate on net product sales of Adcirca increasing from five percent to an effective rate of approximately 42.5 percent beginning December 1, 2017. The remaining increase in cost of product sales was primarily attributable to an increase in sales.

Research and development expense. The table below summarizes research and development expense by major category (dollars in millions):

Three Months Ended
December 31,

Percentage

Year Ended
December 31,

Percentage

2017

2016

Change

2017

2016

Change

Project and non-project:

Research and development expense

$

91.5

$

46.6

96.4

%

$

256.4

$

157.6

62.7

%

Share-based compensation expense (benefit)(1)

22.1

20.3

8.9

%

8.2

(10.0

)

182.0

%

Total research and development expense

$

113.6

$

66.9

69.8

%

$

264.6

$

147.6

79.3

%

(1) Refer to Share-based compensation expense below for discussion.

Research and development expense, excluding share-based compensation. The increases in research and development expense of $44.9 million and $98.8 million, respectively, for the quarter and year ended December 31, 2017 as compared to the same periods in 2016, were driven by the expansion of our pipeline programs to treat cardiopulmonary disease and cancer and to develop organ manufacturing technologies.

2

Selling, general and administrative expense. The table below summarizes selling, general and administrative expense by major category (dollars in millions):

Three Months Ended
December 31,

Percentage

Year Ended
December 31,

Percentage

2017

2016

Change

2017

2016

Change

Category:

General and administrative

$

51.4

$

45.9

12.0

%

$

203.1

$

210.7

(3.6

)%

Sales and marketing

17.6

17.5

0.6

%

64.3

84.6

(24.0

)%

Share-based compensation expense(1)

90.1

76.1

18.4

%

62.7

21.5

191.6

%

Total selling, general and administrative expense

$

159.1

$

139.5

14.1

%

$

330.1

$

316.8

4.2

%

(1) Refer to Share-based compensation expense below for discussion.

General and administrative, excluding share-based compensation. The decrease in general and administrative expenses of $7.6 million for the year ended December 31, 2017, as compared to the same period in 2016, primarily resulted from: (1) a $32.0 million decrease in grants to non-affiliated, non-profit organizations that provide financial assistance to patients with PAH; and (2) a $9.3 million decrease of expenses in connection with the disposition and write down of various properties in 2016. The decrease was partially offset by: (1) a $9.4 million increase in legal fees incurred in connection with intellectual property litigation and the Department of Justice (DOJ) investigation of our support of 501(c)(3) organizations that provide financial assistance to patients; (2) a $9.2 million increase in compensation due to an increase in staffing; and (3) a $6.5 million increase in consulting expenses.

Sales and marketing, excluding share-based compensation. The decrease in sales and marketing expenses of $20.3 million for the year ended December 31, 2017, as compared to the same period in 2016, primarily resulted from a $11.3 million decrease in compensation and related costs associated with the 2016 consolidation of our sales and marketing staff.

Share-based compensation expense. The table below summarizes share-based compensation expense (benefit) by major category (dollars in millions):

Three Months Ended
December 31,

Percentage

Year Ended
December 31,

Percentage

2017

2016

Change

2017

2016

Change

Category:

Stock options

$

13.1

$

3.1

322.6

%

$

43.0

$

24.8

73.4

%

Share tracking awards plan

104.6

101.3

3.3

%

27.1

(15.2

)

278.3

%

Other(1)

0.8

0.9

(11.1

)%

3.4

2.5

36.0

%

Total share-based compensation expense

$

118.5

$

105.3

12.5

%

$

73.5

$

12.1

507.4

%

(1) Includes expense related to restricted stock units and our employee stock purchase plan for the periods ended December 31, 2017 and 2016.

Share-based compensation. The increase in share-based compensation expense of $13.2 million during the quarter ended December 31, 2017, as compared to the same period in 2016, was primarily due to a $10.0 million increase in stock option expense due to additional awards outstanding in 2017.

The increase in share-based compensation expense of $61.4 million during the year ended December 31, 2017, as compared to the same period in 2016, was primarily due to: (1) a $42.3 million increase in share tracking awards expense related to an increase in our stock price during 2017 and the continued vesting of outstanding awards; and (2) an $18.2 million increase in stock option expense due to additional awards granted and outstanding in 2017.

Settlement of Loss Contingency

In December 2017, we entered into a civil Settlement Agreement with the U.S. Government to resolve a DOJ investigation related to our support of 501(c)(3) organizations that provide financial assistance to patients. During the second quarter of 2017, we recorded a $210.0 million accrual relating to this matter, and ultimately paid this amount, plus interest, to the U.S. Government upon settlement. This matter is described in more detail in Note 16—Litigation—Department of Justice Subpoena, to our consolidated financial statements included within our Annual Report on Form 10-K for the year ended December 31, 2017.

Impairment of Cost Method Investment

During the year ended December 31, 2017, we recorded $49.6 million of impairment charges related to our cost method investments in privately-held companies. There were no such impairment charges in the year ended December 31, 2016.

3

Income Taxes

The provision for income taxes was $351.6 million for the year ended December 31, 2017, compared to $346.5 million for the same period in 2016. The change in the provision for income taxes was primarily due to a charge for the revaluation of deferred taxes due to the lower corporate tax rate enacted by The Tax Cuts and Jobs Act ("Tax Reform"), which is effective as of January 1, 2018, and increases in nondeductible items, partially offset by a decrease in income before income taxes. For the years ended December 31, 2017 and 2016, the effective tax rates were approximately 46 percent and 33 percent, respectively.

Non-GAAP Earnings

Non-GAAP earnings is defined as net income, adjusted for: (1) share-based compensation expense (including expenses relating to stock options, restricted stock units, share tracking awards, and our employee stock purchase plan); (2) settlement of loss contingency; (3) impairment charges; (4) impact of Tax Reform; and (5) tax impact on non-GAAP earnings adjustments.

A reconciliation of net income to non-GAAP earnings is presented below (in millions, except per share data):

Three Months Ended
December 31,

Year Ended December 31,

2017

2016 (1)

2017

2016 (1)

Net income, as reported

$

19.0

$

110.3

$

417.9

$

713.7

Adjust for the following charges:

Share-based compensation expense(2)

118.5

105.3

73.5

12.1

Settlement of loss contingency(3)

210.0

Impairment of cost method investments(4)

49.6

Other impairment charges(4)

4.3

4.3

Impact of Tax Reform(5)

71.0

71.0

Tax benefit(2)(3)

(38.3

)

(35.6

)

(80.7

)

(4.1

)

Non-GAAP earnings

$

170.2

$

184.3

$

741.3

$

726.0

Non-GAAP earnings per share:

Basic

$

3.94

$

4.37

$

16.85

$

16.58

Diluted

$

3.89

$

4.06

$

16.51

$

15.51

Weighted average number of common shares outstanding:

Basic

43.2

42.2

44.0

43.8

Diluted

43.8

45.4

44.9

46.8

(1) We changed the presentation of our non-GAAP earnings in the first quarter of 2017 to exclude adjustments for interest expense and depreciation and amortization. Prior year periods have been conformed to match the current year presentation.

(2) We calculated the total tax impact of non-discrete quarterly non-GAAP earnings adjustments based on our annual effective tax rates, before considering discrete items, of approximately 32 percent and approximately 34 percent for each of the quarters and years ended December 31, 2017 and 2016, respectively.

(3) The tax benefit for the year ended December 31, 2017 includes $57.0 million of benefit for the estimated loss contingency recognized during the second quarter of 2017 relating to the DOJ investigation of our support of 501(c)(3) organizations that provide financial assistance to patients.

(4) This non-GAAP earnings adjustment is currently not considered tax deductible.

(5) The impact of Tax Reform is a significant and unusual component of tax expense, therefore in the calculation of non-GAAP earnings, it is presented separately from the tax benefit that is derived from the other non-GAAP adjustments.

4

Conference Call

We will host a half-hour teleconference on Wednesday, February 21, 2018, at 9:00 a.m. Eastern Time. The teleconference is accessible by dialing 1-877-351-5881, with international callers dialing 1-970-315-0533. A rebroadcast of the teleconference will be available for one week by dialing 1-855-859-2056, with international callers dialing 1-404-537-3406 and using access code 2296917.

This teleconference is also being webcast and can be accessed via our website at View Source

February 2018 Investor Presentation

On February 21, 2018 Advaxis presented Investor Presentation (Presentation, Advaxis, FEB 21, 2018, View Source [SID1234524088]).

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