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McKesson Reports Fiscal 2020 Third Quarter Results

On February 4, 2020 McKesson Corporation (NYSE:MCK) reported results for the third quarter ended December 31, 2019 (Press release, McKesson, FEB 4, 2020, View Source [SID1234553845]).

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Fiscal 2020 Third-Quarter and Year-to-Date Result Summary

1Reflects continuing operations attributable to McKesson, net of tax

2Represents a non-GAAP financial measure; refer to the reconciliations of non-GAAP financial measures included in accompanying schedules

"We delivered solid operating performance and we are pleased to report third-quarter adjusted earnings results ahead of our expectations," said Brian Tyler, chief executive officer. "McKesson’s unwavering focus on strategic and operational execution is demonstrated in the adjusted operating profit growth we reported in the third quarter across our core operating segments. Additionally, we have deployed meaningful capital toward share repurchases year-to-date, delivering further value to our shareholders. Our outlook for fiscal 2020 Adjusted EPS remains unchanged from the prior guidance we provided on January 13th, 2020."

Third-quarter revenues were $59.2 billion, up 5% from a year ago. On an FX-adjusted basis, revenues grew 6%, primarily driven by growth in the U.S. Pharmaceutical and Specialty Solutions segment, largely due to branded pharmaceutical price increases and higher volumes from retail national account customers.

Third-quarter earnings per diluted share of $1.06 included a pre- and post-tax charge of $282 million within our European Pharmaceutical Solutions segment for the remeasurement to fair value of assets and liabilities held for sale related to the expected formation of a new German wholesale joint venture with Walgreens Boots Alliance.

Third-quarter Adjusted Earnings per diluted share was $3.81 compared to $3.40 a year ago, an increase of 12%, primarily driven by growth in the U.S. Pharmaceutical and Specialty Solutions, Medical Surgical and European segments and a lower share count, partially offset by the previously anticipated increase in corporate expenses and a higher tax rate. Prior year third-quarter results included a pre-tax charge of $60 million related to a customer bankruptcy, partially offset by a $17 million pre-tax reversal of an accrued estimated liability related to the New York State Opioid Stewardship Act. Excluding the impact of these prior year items from Adjusted Earnings, third-quarter adjusted results per diluted share increased approximately 7% year-over-year.

For the first nine months of the fiscal year, McKesson returned $2.2 billion of cash to shareholders via $1.9 billion of common stock repurchases and $222 million of dividend payments. During the first nine months of the fiscal year, McKesson used cash from operations of $280 million, and invested $338 million internally, resulting in negative free cash flow of $618 million.

U.S. Pharmaceutical and Specialty Solutions Segment

Third-quarter revenues were $46.9 billion, up 6%, driven primarily by branded pharmaceutical price increases and higher volumes from retail national account customers, partially offset by branded to generic conversions.
Third-quarter operating profit was $687 million and operating margin was 1.46%. Adjusted operating profit was $658 million, up 11% from a year ago. Prior year third-quarter results included a $60 million pre-tax charge related to a customer bankruptcy, partially offset by a $17 million pre-tax reversal of an accrued estimated liability related to the New York State Opioid Stewardship Act. Excluding the net $43 million impact of these prior year items, adjusted operating profit increased approximately 3%, driven by continued growth in the specialty businesses. Adjusted operating margin was 1.40%, up 6 basis points.
European Pharmaceutical Solutions Segment

Third-quarter revenues were $6.9 billion, flat on a reported basis and up 3% on an FX-adjusted basis, driven primarily by growth in the pharmaceutical distribution business.
Third-quarter operating loss was ($303 million) and operating margin was (4.37)%, primarily driven by a pre- and post-tax charge of $282 million for the remeasurement to fair value of assets and liabilities held for sale related to the expected formation of a new German wholesale joint venture with Walgreens Boots Alliance. Adjusted operating profit was $80 million, up 16%, and adjusted operating margin was 1.15%. On an FX-adjusted basis, adjusted operating profit was $82 million, up 19%, and adjusted operating margin was 1.16%, up 16 basis points, driven in part by expense rationalization.
Medical-Surgical Solutions Segment

Third-quarter revenues were $2.1 billion, up 6%, driven primarily by growth in the Primary Care business, largely due to higher pharmaceutical volumes and an early start to influenza season.
Third-quarter operating profit was $124 million and operating margin was 5.79%. Adjusted operating profit was $184 million, up 8%, and adjusted operating margin was 8.59%, up 14 basis points. The year-over-year increase primarily reflects organic growth in the Primary Care business.
Other remaining businesses

Third-quarter revenues were $3.2 billion, up 6% on a reported basis and up 5% on an FX-adjusted basis, primarily driven by growth in the Canadian business.
Third-quarter operating profit was $61 million. Adjusted operating profit was $214 million, down 4% on both a reported and FX-adjusted basis, as increased investment spend within the MRxTS business was partially offset by growth in the Canadian business.
Company Updates

On February 4, 2020, McKesson’s wholly-owned subsidiary, PF2 SpinCo, Inc., filed a registration statement with the Securities and Exchange Commission (SEC) relating to a potential exit of the company from its investment in the Change Healthcare joint venture.
McKesson was selected by the Department of Veterans Affairs to continue to serve as the prime pharmaceutical provider when the current contract expires in August 2020.
On December 12, 2019, McKesson and Walgreens Boots Alliance announced an agreement to create a joint venture that is expected to combine their respective pharmaceutical wholesale businesses in Germany.
For the seventh year in a row, McKesson was honored as one of the "Best Places to Work for LGBTQ Equality" by the Human Rights Campaign (HRC) Foundation, achieving 100 percent on the HRC’s 2020 Corporate Equality Index (CEI).
McKesson appointed Nancy Flores as Executive Vice President, Chief Information and Technology Officer effective January 13, 2020, following Kathy McElligott’s announced retirement.
Fiscal 2020 Outlook

McKesson reaffirmed fiscal 2020 Adjusted Earnings per diluted share guidance range of $14.60 to $14.80, which was previously narrowed and raised from $14.00 to $14.60 on January 13, 2020.
Conference Call Details

The company has scheduled a conference call for today, Tuesday, February 4th at 8:00 AM ET to discuss the company’s financial results. A live audio webcast of the conference call will be available on McKesson’s Investor Relations website at View Source The conference call can also be accessed by dialing 786-815-8297. The password is ‘McKesson’. A telephonic replay of this conference call will be available for 14 calendar days. For individuals wishing to listen to the replay, the dial-in number is 404-537-3406 and the pass code is 6206708. An archive of the conference call will also be available on the company’s Investor Relations website at View Source

Non-GAAP Financial Measures

GAAP refers to the U.S. generally accepted accounting principles. This press release includes GAAP financial measures as well as Non-GAAP financial measures, including Adjusted Earnings, FX-Adjusted results and Free Cash Flow which are financial measures not calculated in accordance with GAAP. Refer to the "Supplemental Non-GAAP Financial Information" section of the accompanying financial statement tables for the definitions and usefulness of the Company’s Non-GAAP financial measures and the attached schedules for reconciliations of the differences between the Non-GAAP financial measures and their most directly comparable GAAP financial measures.

The company does not provide forward-looking guidance on a GAAP basis as McKesson is unable to provide a quantitative reconciliation of this forward-looking non-GAAP measure to the most directly comparable forward-looking GAAP measure, without unreasonable effort, because McKesson cannot reliably forecast LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment and related charges, and other adjustments, which are difficult to predict and estimate. These items are inherently uncertain and depend on various factors, many of which are beyond the company’s control, and as such, any associated estimate and its impact on GAAP performance could vary materially.

To Honor World Cancer Day, The WISDOM Study Seeks Support from Women to Modernize Breast Cancer Screening Guidelines

On February 4, 2020 Life Image reported that the WISDOM study, a groundbreaking effort to determine the optimal guidelines for breast cancer screening, is seeking qualifying women across the country that wish to participate in improving breast cancer screening and prevention (Press release, Life Image, FEB 4, 2020, View Source [SID1234553844]).

The recent nation-wide expansion of WISDOM offers all women regardless of where they live, where they receive health care, or health insurance type the opportunity to participate in groundbreaking research and receive screening recommendations. The study seeks to enroll 100,000 women of all backgrounds to participate in an online study, and compares two different approaches to breast cancer screening: annual mammography versus a personalized approach based on risk. The results of the study aim to optimize breast cancer screening and improve treatment for millions of women and future generations of women.

Participation in the WISDOM study demonstrates personal commitment and support of World Cancer Day’s "I Am and I Will" campaign, an empowering movement uniting the world to fight against cancer through awareness and education.

The study will follow volunteers over time to determine whether a personalized risk-based approach to breast cancer screening can improve prevention and clinical outcomes for women when compared to the current, one-size-fits-all approach using standard annual mammograms.

Participation in the WISDOM study is free, and open to all women ages 40-74 who HAVE NOT been diagnosed with breast cancer. Participants may opt to be assigned at random to one of the study groups, or choose to be assigned to one of two study groups with different screening protocols:

Annual mammogram screenings – the current gold standard of care.
Personalized screening schedule based on factors including family history, genetics, lifestyle, and breast density.
Patients who are identified as being at high risk will be offered educational support from a genetic counselor, breast health specialist, and guidance for cancer risk reduction and prevention.

Over the course of the study, doctors will compare the two groups and determine if a personalized screening protocol can improve breast health outcomes for all women.

"We are proud to honor World Cancer Day and partner with the WISDOM study to help gather scientific evidence to make breast cancer screening safer and more effective, while empowering women with digital ownership of their own health records," said Matthew A. Michela, CEO of Life Image. "We encourage women in northern New Jersey and beyond to participate. It costs nothing and participation is simple, women are given the tools they need to support this research online throughout the duration of the study."

Participants in New Jersey can have their screenings done at Summit Medical Group, the first health care provider in New Jersey to participate in the study. By supporting the development of better screening guidelines, Summit Medical Group will assist in the creation of better tools to help women avoid unnecessary tests and procedures and lower the total cost of care. More information can be found at View Source

Life Image is the world’s largest medical exchange network specializing in diagnostic images. It is supporting the WISDOM study by offering participants Mammosphere, an electronic personal health app that enables women to securely request, store, and share their breast health history (including mammogram images) with the study or their healthcare providers.

Enrollment is simple and participation is fully online. To learn more about the WISDOM study or sign up, please visit www.wisdomstudy.org.

About The WISDOM Study
WISDOM is a five-year longitudinal study that compares two different approaches to breast cancer screening – annual mammography vs. a personalized, risk-based approach. The goal of the study is to determine whether personalized screening is more effective than annual screening. The personalized screening approach will take multiple risk factors into consideration, including genetic markers, to determine the most effective screening frequency and modality for an individual. Over time, we can learn which risk factors are most important and continue to improve our screening recommendations accordingly

Juvisé Pharmaceuticals Successfully Syndicated Its EUR 213 Million Financing in Less Than One Month

On February 4, 2020 The French specialty pharmaceutical company, Juvisé Pharmaceuticals is reported its successful syndication of its EUR 213 million debt package supporting the acquisition of Arimidex and Casodex from AstraZeneca, with the collaboration of Société Générale and HSBC, acting as Physical Bookrunners and Mandated Lead Arrangers, BNP Paribas, acting as Mandated Lead Arranger and Lazard acting as financial advisor to Juvisé Pharmaceuticals (Press release, Juvise Pharmaceuticals, FEB 4, 2020, View Source [SID1234553843]).

On the back of a strong support from both relationship lenders and institutional investors, syndication was wrapped following a successful and oversubscribed early-bird phase. The covenanted financing is comprised of a EUR 128 million TLB alongside a EUR 85 million TLA. This syndication was made possible through the collaboration with Juvisé Pharmaceuticals financial partners, with whom the company relies on long-term partnership characterized by openness and trust.

This successful syndication is another important step in Juvisé Pharmaceuticals development. It reasserts the company ability to leverage all debt capital instruments to fulfil its growth ambition, while keeping the flexibility and independence in decision making allowed by its privately held structure.

Frédéric Mascha, Founder and President of Juvisé Pharmaceuticals, declared, "We are very pleased that our acquisition debt package was successfully syndicated in this oversubscribed early-bird phase and we would like to thank our financial partners for the trust they have shown in our project. We are proud to see that our commitment towards physicians, patients, and our Pharma partners convinced renowned financial institutions to support our ambitious development plan."

About Arimidex and Casodex
Arimidex (anastrozole) and Casodex (bicalutamide) are hormone treatments for breast and prostate cancer. The two products are recognized as pillar in those cancer treatments and essential for both patients and physicians.

On 19th December 2019, Juvisé Pharmaceuticals acquired the rights of Arimidex and Casodex in 45 countries in Europe and a number of Middle Eastern and African markets.

Takeda Demonstrates Business Momentum, Accelerated Integration Synergies, and Raises FY2019 Guidance Including Positive Reported Operating Profit

On February 4, 2020 Takeda Pharmaceutical Company Limited reported the (Press release, Takeda, FEB 4, 2020, View Source [SID1234553842]).

Underlying Revenue declined -1.2% vs FY2018 Q3 YTD pro-forma2, expected to recover in Q4 resulting in flat to slightly increasing for the full year

Takeda’s 14 global brands, with reported revenue of 836.4 billion yen in aggregate, posted a strong year- over-year underlying revenue growth of +20%, driven by ENTYVIO (+35.4%), TAKHZYRO (+622.2%), and NINLARO (+28.9%).
Underlying revenue growth year-to-date was solid in the key business areas of GI (+10%), Plasma Derived Therapy (PDT) Immunology (+5%), Oncology (+7%), and Neuroscience (+5%), while Rare Diseases declined (-11%) for the following reasons:
Rare Hematology (-14%) continues to be impacted as expected by intensified competition and increasing price pressure.
Hereditary Angioedema (HAE) (-11%) continues to be negatively affected by stocking in the prior fiscal year, as well as generic entry for FIRAZYR.
Rare Metabolic (-4%) continue to be impacted by NATPARA which was recalled in the U.S. in September 2019.
Please refer to note iii to the table entitled "Reported Results for FY2019 Q3 YTD (April – December)" below for Core Operating Profit definition.
FY2018 Q3 YTD pro-forma baseline represents the sum of Takeda revenue for FY2018 Q3 YTD (Apr-Dec) plus Shire revenue for the same period, where Shire revenue was converted to JPY at the rate of $1 = 111 JPY (average FX rate for FY2018) and converted from US GAAP to IFRS with no material difference; Takeda revenue and Shire revenue was adjusted to remove the revenue from divested assets. Please see the appendix for more details.

Underlying Core Operating Profit Margin of 30.9% for FY2019 Q3 YTD driven by cost synergies and OPEX efficiencies

Reported Operating Profit declined year-over-year -42.9% to 162.5 billion yen, largely impacted by non-cash purchase accounting expenses including the unwinding of inventory step-up and amortization of intangible assets. Reported Operating Profit was also impacted by significant one-time costs related to the Shire integration.
Core Operating Profit increased year-over-year +129.9% to 792.2 billion yen, primarily due to the consolidation of Shire, while also benefitting from the strong performance of Takeda 14 global brands, cost synergies and improved OPEX efficiency.
Underlying Core Operating Profit Margin year-to-date was 30.9% reflecting continued OPEX discipline and cost synergies.
Underlying Core EPS year-to-date was 359 yen.
R&D Engine Delivered Several Important Pipeline Milestones in Q3

Wave 1 pipeline assets achieving important milestones:
Phase 3 study start for TAK-788 in treatment naïve Non-Small-Cell Lung Cancer (NSCLC) with exon 20 insertion mutations, and pevonedistat (TAK-924) in unfit Acute Myeloid Leukemia.
Updated Dengue vaccine candidate TAK-003 results from the phase 3 study were presented at the American Society of Tropical Medicine and Hygiene (ASTMH) Annual Meeting.
Announced partnership with MD Anderson Cancer Center which includes the development of ongoing Phase 1/2a Study of TAK-007, a CD19 CAR-NK.
Global Brands generating additional data in new indications:
Phase 3 trial of NINLARO (TOURMALINE-MM4) as first line maintenance therapy met primary endpoint (PFS) in multiple myeloma patients not treated with stem cell transplantation.
ALUNBRIG ongoing phase 3 data continued to show reduction in disease progression after two years as a first line treatment in adults with advanced anaplastic lymphoma kinase-positive (ALK+) NSCLC who had not received a prior ALK inhibitor.
Continued emphasis on divesting non-core assets and deleveraging to focus the business

Net debt / adjusted EBITDA at 4.1x having paid full-year dividend and tax on XIIDRA proceeds.
Negotiations ongoing for further potential non-core asset divestments.

Costa Saroukos, Chief Financial Officer, commented:
"Takeda’s third quarter results demonstrated a continuation of our solid year-to-date financial and business performance, driven by our 14 global brands, powerful R&D engine, and OPEX improvements that will help to ensure our sustainable growth. We are again increasing our full year guidance to reflect strong business momentum and faster than anticipated realization of synergies.

Now operating as One Takeda, we continue to execute as anticipated on our business priorities to drive long-term value, including the realization of $2 billion in cost synergies by the end of FY 2021, divest $10 billion in non-core assets to optimize our portfolio, and rapidly de-leverage our net debt / adjusted EBITDA towards our goal of 2x within fiscal years ending March 2022 – March 2024. In parallel, our R&D engine continues to advance highly innovative medicines that make a critical difference to patients through both Takeda’s global brands and new molecular entities, with multiple important data readouts on the horizon. Executing on these priorities will maximize value creation for all of our stakeholders and position Takeda for continued success."

Reported Results for FY2019 Q3 YTD (April – December)

Underlying results compares two periods (quarters or years) of financial results under a common basis and is used by management to assess the business. These financial results are calculated on a constant currency basis and excluding the impact of divestitures and other amounts that are unusual, non-recurring items or unrelated to our ongoing operations.
Growth versus FY2018 Q3 YTD pro-forma. FY2018 Q3 YTD pro-forma baseline represents the sum of Takeda revenue for FY2018 Q3 YTD (Apr-Dec) plus Shire revenue for the same period, both adjusted to remove the revenue from divested assets, converted to JPY at the rate of $1 = 111 JPY (average FX rate for FY2018), and converted from US GAAP to IFRS with no material differences. Please see the appendix for more details.
Core Operating Profit represents net profit adjusted to exclude income tax expenses, the share of profit or loss of investments accounted for using the equity method, finance expenses and income, other operating expenses and income, amortization and impairment losses on acquired intangible assets and other items unrelated to Takeda’s core operations, such as purchase accounting effects and transaction related costs.
Attributable to the owners of the company.
FY2019 Management Guidance: Upgrading guidance to reflect positive business momentum

Constant Exchange Rate growth (applying FY2018 full year average foreign exchange rate of 111 JPY/USD) compared to baseline of JPY 3,300 billion (Rounded pro-forma April 2018-March 2019 combined revenue of Legacy Takeda and Legacy Shire, converted at April 2018-March 2019 average exchange rate of 111 JPY/USD; also adjusted to remove the revenue from divested assets such as Techpool, Multilab, and TACHOSIL from Legacy Takeda, and the oncology portfolio and XIIDRA from Legacy Shire) and converted from US GAAP to IFRS, without material differences.

PharmaCyte Biotech Will Have All the Protection It Needs for Pancreatic Cancer Treatment Upon Marketing Approval

On February 4, 2020 PharmaCyte Biotech (OTCQB: PMCB) is reported to embark upon a planned U.S. FDA Phase 2b clinical trial to treat locally advanced, inoperable pancreatic cancer (LAPC) at trial sites all over the United States, and with that journey comes the need to keep its signature technology, Cell-in-a-Box, protected should it one day receive marketing approval from drug regulatory agencies in the U.S. and Europe (Press release, PharmaCyte Biotech, FEB 4, 2020, View Source [SID1234553841]). PharmaCyte’s Cell-in-a-Box technology for the treatment of pancreatic cancer is certainly protected well into the future if/when it does receive the coveted marketing approval it’s striving for upon the completion of clinical trials.

Currently, PharmaCyte is revamping its provisional patent application and its strategy related to full patent protection. The idea is to present the United States Patent and Trademark Office (USPTO) with an acceptable provisional patent application that protects its therapy to treat cancerous tumors, including the therapy that will be used in its upcoming clinical trial in LAPC.

Provisional patent applications are a way to establish and protect a "date of invention" or "priority filing date" for one year. The provisional patent application was created to provide inventors with a way to begin protecting their inventions, and an approved provisional patent application will provide PharmaCyte 12 months to prepare a full patent application. This approach will offer the company an opportunity to establish an early effective filing date for a patent.

A provisional patent—and eventually a full patent—would give PharmaCyte a fresh 20 years of patent protection; however, even without it, PharmaCyte has protections in place to protect its technology that are in line with any biotechnology/pharmaceutical company developing treatments after many years. In most cases, the 20-year patent protection that biotechnology/pharmaceutical companies have in place while developing drugs/treatments, have their 20-year time frame cut in half to 10 years by the time the drug hits the marketplace.

Patents are typically awarded within a few years after the patent application submission, but a common misconception is that the patent begins only after the drug hits the market, so with this in mind, PharmaCyte will actually have longer protections in place than most biotechnology/pharmaceutical companies have upon marketing approval after years of development.

How is this possible? Well, actually PharmaCyte has two protections in place that will keep its technology protected—and unlike 20-year patent protection where the clock is ticking throughout development, these protections don’t begin until the therapy is approved. First, PharmaCyte is developing a "biologic" therapy, which offers protections under the Affordable Care Act, and second, PharmaCyte’s therapy for pancreatic cancer was granted Orphan Drug Designation from both the U.S. FDA and in the European Union by the European Medicines Agency (EMA).

PharmaCyte’s pancreatic cancer therapy was designated an orphan drug and listed in the official registry of medicinal products for rare diseases by the U.S. FDA on December 17, 2014. This orphan drug status assures marketing exclusivity for PharmaCyte’s pancreatic cancer therapy in the U.S. for 7 years after market approval by the FDA. Also, PharmaCyte has orphan drug status in the European Union (EU) for its pancreatic cancer therapy. This designation provides 10 years of marketing exclusivity in all countries in the EU following approval by the European Medicines Agency (EMA).

In addition, the Biologics Price Competition and Innovation Act (BPCIA), which was enacted as part of the Affordable Care Act in 2010, establishes a period of 12 years of "data exclusivity" for reference products to preserve incentives for future innovation. Under this framework, data exclusivity protects the data in the innovator’s regulatory application by prohibiting others, for a period of 12 years, from gaining FDA approval based in part on reliance on or reference to the innovator’s data in a biosimilar application. PharmaCyte’s 12-year exclusivity doesn’t begin until the FDA approves the company’s pancreatic cancer therapy.

PharmaCyte’s Chief Executive Officer, Kenneth L. Waggoner, said of the protections for the company’s pancreatic cancer therapy, "If our pancreatic cancer therapy receives FDA approval, the orphan drug designation in the U.S. and the EU, together with the BPCIA data exclusivity, will give us substantial marketing exclusivity for our pancreatic cancer therapy. Any new patent application, while it does include our pancreatic cancer therapy, should really be viewed as an opportunity to dramatically broaden PharmaCyte’s ability to protect our therapy for all malignant tumors for the next 20 years."