On October 24, 2019 eHealth, Inc. reported Third Quarter 2019 Results (Press release, eHealthInsurance, OCT 24, 2019, View Source [SID1234542510]).

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Third Quarter 2019 Overview

Revenue for the third quarter of 2019 was $69.9 million, a 72% increase compared to $40.8 million for the third quarter of 2018.
GAAP net loss for the third quarter of 2019 was $11.0 million compared to net loss of $9.0 million for the third quarter of 2018.
Adjusted EBITDA was $(18.8) million for the third quarter of 2019 compared to $(6.9) million for the third quarter of 2018.
Net cash used in operating activities for the third quarter of 2019 was $15.9 million compared to $4.9 million for the third quarter of 2018.
eHealth, Inc. (NASDAQ: EHTH), a leading private online health insurance exchange, announces today its financial results for the third quarter ended September 30, 2019.

Scott Flanders, chief executive officer of eHealth stated, "Strong momentum in our business continued with another quarter of meaningful outperformance against our expectations. Our third quarter results reflect strong revenue and enrollment growth in our Medicare and Individual & Family Plan businesses and a significant investment in our telesales capacity ahead of the Medicare Annual Enrollment Period (AEP). We have entered this AEP from a position of strength, allowing us to recently guide up to the high end of our 2019 revenue and adjusted EBITDA forecast based on the quality and scale of call center resources in place, the acceleration of our online enrollments and strength of consumer demand."

GAAP — Third Quarter of 2019 Results

Revenue — Revenue for the third quarter of 2019 totaled $69.9 million, a 72% increase compared to $40.8 million for the third quarter of 2018. Commission revenue for the third quarter of 2019 totaled $59.8 million, a 78% increase compared to $33.6 million for the third quarter of 2018. Other revenue for the third quarter of 2019 was $10.2 million, a 42% increase compared to $7.1 million for the third quarter of 2018.

Revenue from our Medicare segment was $57.2 million for the third quarter of 2019, a 75% increase compared to $32.7 million for the third quarter of 2018. Revenue from our Individual, Family and Small Business segment was $12.7 million for the third quarter of 2019, a 59% increase compared to $8.0 million for the third quarter of 2018.

Loss from Operations — Loss from operations for the third quarter of 2019 was $20.2 million compared to loss from operations of $15.5 million for the third quarter of 2018. Operating margin was (29)% for the third quarter of 2019 compared to (38)% for the third quarter of 2018.

Pre-tax Loss — Pre-tax loss for the third quarter of 2019 was $19.7 million compared to pre-tax loss of $15.2 million for the third quarter of 2018.

Benefit from Income Taxes — Benefit from income taxes for the third quarter of 2019 was $8.6 million compared to benefit from income taxes of $6.2 million for the third quarter of 2018.

Net Loss — Net loss for the third quarter of 2019 was $11.0 million, or $0.47 net loss per diluted share, compared to net loss of $9.0 million, or $0.47 net loss per diluted share, for the third quarter of 2018. Net loss for the third quarter of 2019 included a non-cash gain of $5.4 million related to a decrease in fair value of the earnout liability assumed in connection with eHealth’s acquisition of GoMedigap. The decrease was driven primarily by eHealth’s share price decline during the quarter. The share price depreciation has decreased the value of the equity-based portion of the earnout consideration owed to the former holders of GoMedigap equity interests.

Segment Profit (Loss) — Loss from our Medicare segment was $11.0 million for the third quarter of 2019, compared to a profit of $0.5 million for the third quarter of 2018. Profit from our Individual, Family and Small Business segment was $3.8 million for the third quarter of 2019, compared to a loss of $0.6 million for the third quarter of 2018.

Non-GAAP — Third Quarter of 2019 Results

Non-GAAP Operating Loss & Non-GAAP Net Loss — Non-GAAP operating loss for the third quarter of 2019 was $19.6 million, compared to non-GAAP operating loss of $7.6 million for the third quarter of 2018. Non-GAAP operating margin was (28)% for the third quarter of 2019, compared to (19)% for the third quarter of 2018. Non-GAAP net loss for the third quarter of 2019 was $10.1 million, or $0.43 non-GAAP net loss per diluted share, compared to non-GAAP net loss of $4.2 million, or $0.22 non-GAAP net loss per diluted share, for the third quarter of 2018.

Non-GAAP operating loss and non-GAAP operating margin for the third quarter of 2019 are calculated by excluding $5.5 million of stock-based compensation expense, a $5.4 million gain related to the change in fair value of earnout liability related to our acquisition of GoMedigap, and $0.5 million of amortization of intangible assets from GAAP net operating loss and GAAP operating margin. Non-GAAP net loss and non-GAAP net loss per diluted share for the third quarter of 2019 are calculated by excluding $5.5 million of stock-based compensation expense, $5.4 million of gain related to the change in fair value of earnout liability related to our acquisition of GoMedigap, $0.5 million of amortization of intangible assets and $0.3 million of the income tax effect of these non-GAAP adjustments from GAAP net loss and GAAP net loss per diluted share. Non-GAAP operating loss and non-GAAP operating margin for the third quarter of 2018 are calculated by excluding $3.5 million of stock-based compensation expense, $3.8 million expense for change in fair value of earnout liability related to our acquisition of GoMedigap, and $0.5 million of amortization of intangible assets from GAAP net operating loss and GAAP operating margin. Non-GAAP net loss and non-GAAP net loss per diluted share for the third quarter of 2018 are calculated by excluding $3.5 million of stock-based compensation expense, $3.8 million expense for change in fair value of earnout liability related to our acquisition of GoMedigap, $0.5 million of amortization of intangible assets, and $3.1 million of the income tax effect of these non-GAAP adjustments from GAAP net loss and GAAP net loss per diluted share.

Adjusted EBITDA — Adjusted EBITDA was $(18.8) million for the third quarter of 2019 compared to $(6.9) million for the third quarter of 2018. Adjusted EBITDA is calculated by adding stock-based compensation, change in fair value of earnout liability related to our acquisition of GoMedigap, depreciation and amortization expense, acquisition costs, restructuring charges, amortization of intangible assets, other income, net, and benefit from income taxes to GAAP net loss.

Submitted Applications, Approved Members and Estimated Membership

Submitted Applications — The number of submitted applications for all Medicare products, which includes Medicare Advantage, Medicare Supplement and Medicare Part D Prescription Drug Plans, was 56,436 in the third quarter of 2019, a 66% increase compared to 33,902 in the third quarter of 2018. The percentage of applications for Medicare Advantage and Medicare Supplement products submitted online through our platform increased from 9% for the third quarter of 2018 to 21% for the third quarter of 2019. The number of submitted applications for major medical Individual and Family plan products increased by 163% in the third quarter of 2019 to 4,379 compared to 1,662 in the third quarter of 2018.

Approved Members — The number of approved members for all Medicare products, which includes Medicare Advantage, Medicare Supplement and Medicare Part D Prescription Drug Plans, was 51,214 in the third quarter of 2019, a 70% increase compared to 30,160 in the third quarter of 2018. The number of approved members for major medical individual and family plan products increased by 76% in the third quarter of 2019 to 3,187 compared to 1,810 in the third quarter of 2018.

Estimated Membership — Total estimated membership as of September 30, 2019 was 991,204, a 12% increase compared to the 887,808 estimated members we reported as of September 30, 2018. Estimated Medicare membership as of September 30, 2019 was 551,068, a 34% increase compared to the 409,888 estimated members we reported as of September 30, 2018. Estimated major medical individual and family plan membership as of September 30, 2019 was 131,058, a 19% decrease compared to the 161,371 estimated members we reported as of September 30, 2018.

Cash — Third Quarter of 2019

Cash Flows — Net cash used in operating activities was $15.9 million for the third quarter of 2019, compared to net cash used in operating activities of $4.9 million for the third quarter of 2018.

GAAP — Year-to-Date Results

Revenue — Revenue for the nine months ended September 30, 2019 totaled $204.5 million, a 76% increase compared to $116.5 million for the nine months ended September 30, 2018. Commission revenue for the nine months ended September 30, 2019 totaled $184.6 million, a 76% increase compared to $105.0 million for the nine months ended September 30, 2018. Other revenue for the nine months ended September 30, 2019 was $19.9 million, a 72% increase compared to $11.5 million for the nine months ended September 30, 2018.

Revenue from our Medicare segment was $164.4 million for the nine months ended September 30, 2019, an 85% increase compared to $89.0 million for the nine months ended September 30, 2018. Revenue from our Individual, Family and Small Business segment was $40.1 million for the nine months ended September 30, 2019, a 46% increase compared to $27.5 million for the nine months ended September 30, 2018.

Loss from Operations — Loss from operations for the nine months ended September 30, 2019 was $41.7 million compared to loss from operations of $39.1 million for the nine months ended September 30, 2018. Operating margin was (20)% for the nine months ended September 30, 2019 compared to (34)% for the nine months ended September 30, 2018.

Pre-tax Loss — Pre-tax loss for the nine months ended September 30, 2019 was $39.9 million compared to pre-tax loss of $38.3 million for the nine months ended September 30, 2018.

Benefit from Income Taxes — Benefit from income taxes for the nine months ended September 30, 2019 was $18.0 million compared to benefit from income taxes of $12.5 million for the nine months ended September 30, 2018.

Net Loss — Net loss for the nine months ended September 30, 2019 was $21.9 million, or $0.96 net loss per diluted share, compared to net loss of $25.8 million, or $1.36 net loss per diluted share, for the nine months ended September 30, 2018. Net loss for the nine months ended September 30, 2019 included a non-cash charge of $15.1 million related to an increase in fair value of the earnout liability assumed in connection with eHealth’s acquisition of GoMedigap. The increase was driven primarily by eHealth’s share price appreciation. The share price appreciation has increased the value of the equity-based portion of the earnout consideration owed to the former holders of GoMedigap equity interests.

Segment Profit — Profit from our Medicare segment was $5.9 million for the nine months ended September 30, 2019, a 172% increase compared to profit of $2.2 million for the nine months ended September 30, 2018. Profit from our Individual, Family and Small Business segment was $15.0 million for the nine months ended September 30, 2019, a 556% increase compared to profit of $2.3 million for the nine months ended September 30, 2018.

Non-GAAP — Year-to-Date Results

Non-GAAP Operating Loss & Non-GAAP Net Loss — Non-GAAP operating loss for the nine months ended September 30, 2019 was $11.6 million compared to non-GAAP operating loss of $20.1 million for the nine months ended September 30, 2018. Non-GAAP operating margin was (6)% for the nine months ended September 30, 2019, compared to (17)% for the nine months ended September 30, 2018. Non-GAAP net loss for the nine months ended September 30, 2019 was $0.6 million, or $0.02 non-GAAP net loss per diluted share, compared to non-GAAP net loss of $13.0 million, or $0.68 non-GAAP net loss per diluted share, for the nine months ended September 30, 2018.

Non-GAAP operating loss and non-GAAP operating margin for the nine months ended September 30, 2019 are calculated by excluding $13.4 million of stock-based compensation expense, $15.1 million of expense for the change in fair value of earnout liability related to our acquisition of GoMedigap, and $1.6 million of amortization of intangible assets from GAAP operating loss and GAAP operating margin. Non-GAAP net loss and non-GAAP net loss per diluted share for the nine months ended September 30, 2019 are calculated by excluding $13.4 million of stock-based compensation expense, $15.1 million of expense for the change in fair value of earnout liability related to our acquisition of GoMedigap, $1.6 million of amortization of intangible assets and $8.8 million of the income tax effect of these non-GAAP adjustments from GAAP net loss and GAAP net loss per share. Non-GAAP operating loss and non-GAAP operating margin for the nine months ended September 30, 2018 are calculated by excluding $9.2 million of stock-based compensation expense, $6.3 million of expense for change in fair value of earnout liability, $1.9 million of restructuring charges, $1.5 million of amortization of intangible assets and $0.1 million of acquisition costs related to our acquisition of GoMedigap from GAAP net operating loss and GAAP operating margin. Non-GAAP net loss and non-GAAP net loss per diluted share for the nine months ended September 30, 2018 are calculated by excluding $9.2 million of stock-based compensation expense, $6.3 million of expense for change in fair value of earnout liability, $1.9 million of restructuring charges, $1.5 million of amortization of intangible assets, $0.1 million of acquisition costs related to our acquisition of GoMedigap, and $6.2 million of the income tax effect of these non-GAAP adjustments from GAAP net loss and GAAP net loss per diluted share.

Adjusted EBITDA — Adjusted EBITDA was $(9.4) million for the nine months ended September 30, 2019 compared to $(18.2) million for the nine months ended September 30, 2018. Adjusted EBITDA is calculated by adding stock-based compensation, change in fair value of earnout liability related to our acquisition of GoMedigap, depreciation and amortization expense, acquisition costs, restructuring charges, amortization of intangible assets, other income, net and benefit from income taxes to GAAP net loss.

Submitted Applications and Approved Members

Submitted Applications — The number of submitted applications for all Medicare products, which includes Medicare Advantage, Medicare Supplement and Medicare Part D Prescription Drug Plans was 176,770 applications in the nine months ended September 30, 2019, a 72% increase compared to 102,687 in the nine months ended September 30, 2018. The percentage of applications for Medicare Advantage and Medicare Supplement products submitted online through our platform increased from 8% for the nine months ended September 30, 2018 to 15% for the nine months ended September 30, 2019. The number of submitted applications for major medical individual and family plan products increased by 12% in the nine months ended September 30, 2019 to 11,877 compared to 10,578 in the nine months ended September 30, 2018.

Approved Members — The number of approved members for all Medicare products, which includes Medicare Advantage, Medicare Supplement and Medicare Part D Prescription Drug Plans, was 161,682 in the nine months ended September 30, 2019, a 72% increase compared to 93,999 in the nine months ended September 30, 2018. The number of approved members for major medical individual and family plan products decreased by 37% in the nine months ended September 30, 2019 to 17,639 compared to 28,198 in the nine months ended September 30, 2018.

Cash — Year-to-Date Results

Cash Flows — Net cash used in operating activities was $14.7 million for the nine months ended September 30, 2019 compared to net cash provided by operating activities of $5.5 million for the nine months ended September 30, 2018.

2019 Guidance

Based on information available as of October 24, 2019, eHealth is reaffirming its guidance for total revenue and adjusted EBITDA for the full year ending December 31, 2019, and updating its guidance for certain GAAP and non-GAAP measures for the full year ending December 31, 2019 due to the third quarter of 2019 reduction in fair value of the earnout liability assumed in connection with eHealth’s acquisition of GoMedigap and a change in income tax rate. These expectations are forward-looking statements and eHealth assumes no obligation to update these statements. Actual results may be materially different and are affected by the risk factors and uncertainties identified in this press release and in eHealth’s annual and quarterly filings with the Securities and Exchange Commission.

The following guidance is for the full year ending December 31, 2019:

Consistent with our prior guidance,

Total revenue is expected to be in the range of $365.0 million to $385.0 million. Revenue from the Medicare segment is expected to be in the range of $318.0 million to $333.0 million. Revenue from the Individual, Family and Small Business segment is expected to be in the range of $47.0 million to $52.0 million.
Adjusted EBITDA(a) is expected to be in the range of $65.0 million to $70.0 million.
2019 Medicare segment profit(b) is expected to be in the range of $96.0 million to $99.0 million, and Individual, Family and Small Business segment profit is expected to be in the range of $10.0 million to $12.0 million.
Corporate(c) shared service expenses, excluding stock-based compensation and depreciation and amortization expense, is expected to be approximately $41.0 million.
Cash used in operations is expected to be in the range of $50.0 million to $55.0 million, and cash used for capital expenditures is expected to be $15.0 million to $17.0 million.
Updated guidance for the full year ending December 31, 2019 due to the third quarter of 2019 reduction in fair value of the earnout liability assumed in connection with our acquisition of GoMedigap during the third quarter of 2019 and a change in income tax rate:

Assuming the impact of the non-cash charge related to the fair value of the earnout liability in connection with our acquisition of GoMedigap remains at $15.1 million, we expect GAAP net income for 2019 to be in the range of $20.9 million to $25.9 million.
Assuming the impact of the non-cash charge related to the fair value of the earnout liability in connection with our acquisition of GoMedigap remains at $0.60 per diluted share, GAAP net income per diluted share for 2019 is expected to be in the range of $0.83 to $1.03 per share.
Assuming the impact of the non-cash charge related to the fair value of the earnout liability in connection with our acquisition of GoMedigap remains at $0.60 per diluted share, non-GAAP net income per diluted share(d) is expected to be in the range of $1.86 to $2.06 per share.

Adjusted EBITDA is calculated by adding stock-based compensation, change in fair value of earnout liability, depreciation and amortization expense, amortization of intangible assets, other income, net, and provision for income taxes to GAAP net income.

Segment profit is calculated as revenue for the applicable segment less Marketing and Advertising, Customer Care and Enrollment, Technology and Content and General and Administrative operating expenses, excluding stock-based compensation, change in fair value of earnout liability, depreciation and amortization expense and amortization of intangible assets, that are directly attributable to the applicable segment and other indirect Marketing and Advertising, Customer Care and Enrollment and Technology and Content operating expenses, excluding stock-based compensation, depreciation and amortization expense and amortization of intangible assets, allocated to the applicable segment based on usage.

Corporate consists of other indirect General and Administrative operating expenses, excluding stock-based compensation and depreciation and amortization expense, which are managed in a corporate shared services environment and, since they are not the responsibility of segment operating management, are not allocated to the reportable segments.

Non-GAAP net income per diluted share is calculated by adding stock-based compensation expense per diluted share, change in fair value of earnout liability per diluted share, intangible asset amortization expense per diluted share and the income tax effect of these non-GAAP adjustments to GAAP net income per diluted share.

Webcast and Conference Call Information

A Webcast and conference call will be held today, Thursday, October 24, 2019 at 5:00 p.m. Eastern / 2:00 p.m. Pacific Time. The Webcast will be available live on the Investor Relations section on eHealth’s website at View Source Individuals interested in listening to the conference call may do so by dialing (877) 930-8066 for domestic callers and (253) 336-8042 for international callers. The participant passcode is 6089464. A telephone replay will be available two hours following the conclusion of the call for a period of seven days and can be accessed by dialing (855) 859-2056 for domestic callers and (404) 537-3406 for international callers. The call ID for the replay is 6089464. The live and archived webcast of the call will also be available on eHealth’s website at View Source under the Investor Relations section.

On October 24, 2019 Universal Health Services, Inc. (NYSE: UHS) reported that its net income attributable to UHS was $97.2 million, or $1.10 per diluted share, during the third quarter of 2019 as compared to $171.7 million, or $1.84 per diluted share, during the comparable quarter of 2018 (Press release, Universal Health Services, OCT 24, 2019, View Source [SID1234542509]). Net revenues increased 6.6% to $2.822 billion during the third quarter of 2019 as compared to $2.649 billion during the third quarter of 2018.

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For the three-month period ended September 30, 2019, our adjusted net income attributable to UHS, as calculated on the attached Schedule of Non-GAAP Supplemental Information ("Supplemental Schedule"), was $176.3 million, or $1.99 per diluted share, as compared to $208.8 million, or $2.23 per diluted share, during the third quarter of 2018.

Included in our reported and our adjusted net income attributable to UHS is a pre-tax unrealized loss of $15.2 million, or $.13 per diluted share after-tax, during the third quarter of 2019, as compared to a pre-tax unrealized gain of $10.5 million, or $.09 per diluted share after-tax, during the third quarter of 2018. These unrealized losses/gains, which are included in "Other (income) expense, net" on the accompanying consolidated statements of income, resulted from decreases/increases in the market value of shares of certain marketable securities held for investment and classified as available for sale.

As reflected on the Supplemental Schedule, included in our reported results during the third quarter of 2019, is an aggregate net unfavorable after-tax impact of $79.1 million, or $.89 per diluted share, resulting from: (i) an unfavorable after-tax impact of $74.6 million, or $.84 per diluted share, resulting from a $97.6 million provision for asset impairment, as discussed below; (ii) an unfavorable after-tax impact of $6.2 million, or $.07 per diluted share, resulting from the net estimated federal and state income taxes due on the portion of the aggregate pre-tax reserve ("DOJ Reserve") established in connection with the previously disclosed agreement in principle with the Department Of Justice, Civil Division ("DOJ"), that is estimated to be non-deductible for income tax purposes, and; (iii) a favorable after-tax impact of $1.7 million, or $.02 per diluted share, resulting from our adoption of ASU 2016-09, "Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09").

As reflected on the Supplemental Schedule, included in our reported results during the third quarter of 2018, is a net aggregate unfavorable after-tax impact of $37.1 million, or $.39 per diluted share, substantially all of which resulted from an unfavorable after-tax impact of $36.6 million, or $.39 per diluted share, resulting from a $48.0 million pre-tax increase in the DOJ Reserve.

As calculated on the attached Supplemental Schedule, our earnings before interest, taxes, depreciation & amortization ("EBITDA net of NCI", NCI is net income attributable to noncontrolling interests), was $297.4 million during the third quarter of 2019 as compared to $377.7 million during the third quarter of 2018. Our adjusted earnings before interest, taxes, depreciation & amortization ("Adjusted EBITDA net of NCI"), which excludes the impacts of other (income) expense, net, as well as the unfavorable impact of the above-mentioned provision for asset impairment and increase in the DOJ Reserve, was $404.4 million during the third quarter of 2019 as compared to $414.3 million during the third quarter of 2018.

Consolidated Results of Operations, As Reported and As Adjusted – Nine-month periods ended September 30, 2019 and 2018:
Reported net income attributable to UHS was $569.7 million, or $6.35 per diluted share, during the nine-month period ended September 30, 2019 as compared to $621.6 million, or $6.60 per diluted share, during the comparable nine-month period of 2018. Net revenues increased 5.8% to $8.482 billion during the first nine months of 2019 as compared to $8.018 billion during the first nine months of 2018.

For the nine-month period ended September 30, 2019, our adjusted net income attributable to UHS, as calculated on the attached Supplemental Schedule, was $646.7 million, or $7.21 per diluted share, as compared to $674.3 million, or $7.16 per diluted share, during the comparable nine-month period of 2018.

Included in our reported and our adjusted net income attributable to UHS is a pre-tax unrealized loss of $12.5 million, or $.11 per diluted share after-tax, during the first nine months of 2019, as compared to a pre-tax unrealized gain of $18.5 million, or $.15 per diluted share after-tax, during the comparable nine-month period of 2018. As discussed above, these unrealized losses/gains resulted from a decreases/increases in the market value of shares of certain marketable securities held for investment and classified as available for sale.

As reflected on the Supplemental Schedule, included in our reported results during the nine-month period ended September 30, 2019, is an aggregate net unfavorable after-tax impact of $77.0 million, or $.86 per diluted share, resulting from: (i) an unfavorable after-tax impact of $74.6 million, or $.84 per diluted share, resulting from a $97.6 million provision for asset impairment, as discussed below; (ii) an unfavorable after-tax impact of $14.6 million, or $.16 per diluted share, resulting from an increase in the DOJ Reserve and the net estimated federal and state income taxes due on the portion of the DOJ Reserve that is estimated to be non-deductible for income tax purposes, and; (iii) a favorable after-tax impact of $12.1 million, or $.14 per diluted share, resulting from our adoption of ASU 2016-09.

As reflected on the Supplemental Schedule, included in our reported results during the nine-month period ended September 30, 2018, is a net aggregate unfavorable after-tax impact of $52.6 million, or $.56 per diluted share, consisting of: (i) an unfavorable after-tax impact of $53.7 million, or $.57 per diluted share, resulting from a $70.4 million pre-tax increase in the DOJ Reserve, partially offset by; (ii) a favorable after-tax impact of $1.1 million, or $.01 per diluted share, resulting from our adoption of ASU 2016-09.

As calculated on the attached Supplemental Schedule, our earnings before interest, taxes, depreciation & amortization ("EBITDA net of NCI"), was $1.222 billion during the nine-month period ended September 30, 2019 as compared to $1.264 billion during the nine-month period ended September 30, 2018. Our adjusted earnings before interest, taxes, depreciation & amortization ("Adjusted EBITDA net of NCI"), which excludes the impacts of other (income) expense, net, as well as the unfavorable impact of the above-mentioned provision for asset impairment and increase in the DOJ Reserve, was $1.336 billion during the nine-month period ended September 30, 2019 as compared to $1.308 billion during the nine-month period ended September 30, 2018.

Acute Care Services – Three and nine-month periods ended September 30, 2019 and 2018:
During the third quarter of 2019, at our acute care hospitals owned during both periods ("same facility basis"), adjusted admissions (adjusted for outpatient activity) increased 7.4% and adjusted patient days increased 7.0%, as compared to the third quarter of 2018. At these facilities, net revenue per adjusted admission increased 1.6% while net revenue per adjusted patient day increased 2.0% during the third quarter of 2019 as compared to the third quarter of 2018. Net revenues from our acute care services on a same facility basis increased 9.3% during the third quarter of 2019 as compared to the third quarter of 2018.

During the nine-month period ended September 30, 2019, at our acute care hospitals on a same facility basis, adjusted admissions increased 5.8% and adjusted patient days increased 5.5%, as compared to the first nine months of 2018. At these facilities, net revenue per adjusted admission increased 1.5% while net revenue per adjusted patient day increased 1.7% during the nine-month period ended September 30, 2019 as compared to the comparable nine-month period of 2018. Net revenues from our acute care services on a same facility basis increased 7.6% during the first nine months of 2019 as compared to the comparable period of 2018.

Behavioral Health Care Services – Three and nine-month periods ended September 30, 2019 and 2018:
During the third quarter of 2019, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 0.5% while adjusted patient days increased 0.4% as compared to the third quarter of 2018. At these facilities, net revenue per adjusted admission increased 2.0% while net revenue per adjusted patient day increased 2.2% during the third quarter of 2019 as compared to the comparable quarter in 2018. On a same facility basis, our behavioral health care services’ net revenues increased 2.1% during the third quarter of 2019 as compared to the third quarter of 2018.

During the nine-month period ended September 30, 2019, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 1.3% while adjusted patient days increased 0.5% as compared to the comparable nine-month period of 2018. At these facilities, net revenue per adjusted admission increased 1.5% while net revenue per adjusted patient day increased 2.3% during the first nine months of 2019 as compared to the comparable nine-month period in 2018. On a same facility basis, our behavioral health care services’ net revenues increased 2.6% during the nine-month period ended September 30, 2019 as compared to the comparable nine-month period of 2018.

Net Cash Provided by Operating Activities and Share Repurchase Program:
For the nine months ended September 30, 2019, our net cash provided by operating activities increased to $1.049 billion as compared to $949 million generated during the comparable nine-month period of 2018. The $100 million net increase was due to: (i) a favorable change of $69 million resulting from an increase in net income plus/minus depreciation and amortization expense, stock-based compensation expense, provision for asset impairment and net gains on sale of assets and businesses; (ii) a favorable change of $37 million in accounts receivable, and; (iii) $6 million of other combined net unfavorable changes.

In conjunction with our January 1, 2019 adoption of ASU 2017-12, "Targeted Improvements to Accounting for Hedging Activities", we have included the net cash inflows/outflows, which were received/paid in connection with foreign exchange contracts that hedge our investment in the U.K., in investing cash flows on the consolidated statements of cash flows. For the nine-month periods ended September 30, 2019 and 2018, we have received $90.3 million and $26.1 million, respectively, of net cash inflows in connection with foreign exchange contracts that hedge our investment in the U.K. Prior to 2019, these net inflows/outflows were included in operating cash flows. Prior period amounts have been reclassified to conform with current year presentation on the consolidated statements of cash flows included herein.

In July, 2019, our Board of Directors authorized a $1.0 billion increase to our stock repurchase program, which increased the aggregate authorization to $2.7 billion from the previous $1.7 billion authorization approved in various increments since 2014. Pursuant to this program, which had an aggregate available repurchase authorization of $937.3 million as of September 30, 2019, shares of our Class B Common Stock may be repurchased, from time to time as conditions allow, on the open market or in negotiated private transactions.

In conjunction with our stock repurchase program, during the third quarter of 2019, we have repurchased 550,564 shares at an aggregate cost of $79.5 million (approximately $144 per share). During the first nine months of 2019, we have repurchased approximately 4.11 million shares at an aggregate cost of $525.0 million (approximately $128 per share). Since inception of the program in 2014 through September 30, 2019, we have repurchased approximately 14.78 million shares at an aggregate cost of approximately $1.76 billion (approximately $119 per share).

Update on Agreement in Principle with DOJ’s Civil Division and DOJ Reserve:
As previously disclosed on July 25, 2019, we have reached an agreement in principle with the DOJ’s Civil Division, and on behalf of various states’ attorneys general offices, to resolve the civil aspect of the government’s investigation of our behavioral health care facilities for $127 million subject to requisite approvals and preparation and execution of definitive settlement and related agreements. At that time, we also disclosed that we were further advised that the previously disclosed investigations being conducted by the DOJ’s Criminal Frauds Section in connection with these matters had been closed.

In connection with the agreement in principle with the DOJ’s Civil Division, during the nine-month period ended September 30, 2019, we recorded a pre-tax increase of approximately $11.0 million in the DOJ Reserve, which includes related fees and costs due to or on behalf of third-parties. The aggregate pre-tax DOJ Reserve amounted to approximately $134 million as of September 30, 2019 and approximately $123 million as of December 31, 2018.

In late August, 2019, we received the initial draft of the settlement agreement from the DOJ’s Civil Division. Negotiations regarding the terms and conditions of the settlement agreement continue. Based upon the terms and provisions included in the draft settlement agreement, and related subsequent discussions, our financial statements for each of the three and nine-month periods ended September 30, 2019 include an unfavorable provision for income taxes of $6.2 million resulting from the net estimated federal and state income taxes due on the portion of the aggregate pre-tax DOJ Reserve that is estimated to be non-deductible for income tax purposes.

Since the agreement in principle with the DOJ’s Civil Division is subject to certain required approvals and negotiation and execution of definitive settlement agreements, as well as finalization and execution of a corporate integrity agreement with the Office of Inspector General for the United States Department of Health and Human Services, we can provide no assurance that definitive agreements will ultimately be finalized. We therefore can provide no assurance that final amounts paid in settlement or otherwise, or associated costs, or the income tax deductibility of such payments, will not differ materially from our established reserve and assumptions related to income tax deductibility. Please see Item 1-Legal Proceedings in our Form 10-Q for the quarterly period ended June 30, 2019 for additional disclosure in connection with this matter.

Provision for Asset Impairment – Foundations Recovery Network
Our financial results for the three and nine-month periods ended September 30, 2019, include an aggregate pre-tax provision for asset impairment of $97.6 million recorded in connection with Foundations Recovery Network, L.L.C. ("Foundations"), which was acquired by us in 2015. This pre-tax provision for asset impairment includes: (i) a $74.9 million impairment provision to write-off the carrying value of the Foundations’ tradename intangible asset, and; (ii) a $22.7 million impairment provision to reduce the carrying value of real property assets of certain Foundations’ facilities.

This provision for asset impairment, which is included in other operating expenses in our consolidated statements of income for the three and nine-month periods ended September 30, 2019, was recorded after evaluation of the estimated fair value of the Foundations’ tradename as well as certain related real property assets. The provision for asset impairment was impacted by the following: (i) recent decisions made by management to cancel the opening of future planned de novo facilities; (ii) reductions in projected future patient volumes, revenues and cash flows based upon the operating trends and financial results experienced by existing facilities, and; (iii) competitive pressures experienced in certain markets.

Revision of 2019 Full Year Earnings Guidance Range:
Based upon the operating trends and financial results experienced during the first nine months of 2019, we are revising our estimated range of adjusted net income attributable to UHS for the year ended December 31, 2019 to $9.60 to $9.90 per diluted share as compared to the previously provided range of $9.70 to $10.40 per diluted share. This revised estimated guidance range decreases the lower end of the previously provided range 1.0% and decreases the upper end of the previously provided range by 4.8%.

Contributing to, and included in, the revised estimated earnings guidance range for the year ended December 31, 2019 is the above-mentioned unrealized loss of $.11 per diluted share ($12.5 million pre-tax), recorded during the first nine months of 2019 resulting from a decrease in the market value of shares of certain marketable securities held for investment and classified as available for sale. For comparative purposes, included in our reported and our adjusted net income attributable to UHS during the first nine months of 2018, was an unrealized gain of $.15 per diluted share ($18.5 million pre-tax), resulting from an increase in the market value of these marketable securities. The revised estimated earnings guidance range for the full year of 2019 assumes no change in the market value of these marketable securities during the fourth quarter of 2019.

This revised estimated earnings guidance range excludes: (i) the unfavorable after-tax impact of $14.6 million, or $.16 per diluted share, representing the current year changes in the DOJ Reserve, and related provision for income taxes, established in connection with the civil aspects of the government’s investigation of our certain of our behavioral health care facilities, as discussed above; (ii) the unfavorable after-tax impact of $74.6 million, or $.84 per diluted share, resulting from a $97.6 million provision for asset impairment, as discussed below, partially offset by; (iii) the favorable impact of $12.1 million, or $.14 per diluted share, on our provision for income taxes and net income attributable to UHS resulting from of our adoption of ASU 2016-09.

In addition, this revised estimated earnings guidance range excludes the impact of future items, if applicable and material, that are nonrecurring or non-operational in nature including items such as, but not limited to, gains/losses on sales of assets and businesses, costs related to extinguishment of debt, reserves for settlements, legal judgments and lawsuits, impairments of long-lived assets, impact of share repurchases and other amounts that may be reflected in our financial statements that relate to prior periods. It is also subject to certain conditions including those as set forth below in General Information, Forward-Looking Statements and Risk Factors and Non-GAAP Financial Measures.

Conference call information:
We will hold a conference call for investors and analysts at 9:00 a.m. eastern time on October 25, 2019. The dial-in number is 1-877-648-7971.

A live broadcast of the conference call will be available on our website at www.uhsinc.com. Also, a replay of the call will be available following the conclusion of the live call and will be available for one full year.

Adoption of ASU 2016-02, "Leases (Topic 842): Amendments to the FASB Accounting Standards Codification":
Effective January 1, 2019, we adopted ASU 2016-02 which requires companies to, among other things, recognize lease assets and lease liabilities on the balance sheet. As a result of our adoption of ASU 2016-02, our consolidated balance sheet as of September 30, 2019 includes right of use assets-operating leases ($329.3 million) and operating lease liabilities ($55.1 million current and $274.2 million noncurrent). Prior period financial statements were not adjusted for the effects of this new standard.

General Information, Forward-Looking Statements and Risk Factors and Non-GAAP Financial Measures:
One of the nation’s largest and most respected providers of hospital and healthcare services, Universal Health Services, Inc. has built an impressive record of achievement and performance. Growing steadily since our inception into an esteemed Fortune 500 corporation, our annual revenues were $10.77 billion during 2018. In 2019, UHS was again recognized as one of the World’s Most Admired Companies by Fortune; ranked #293 on the Fortune 500; and in 2017, listed #275 in Forbes inaugural ranking of America’s Top 500 Public Companies.

Our operating philosophy is as effective today as it was 40 years ago, enabling us to provide compassionate care to our patients and their loved ones. Our strategy includes building or acquiring high quality hospitals in rapidly growing markets, investing in the people and equipment needed to allow each facility to thrive, and becoming the leading healthcare provider in each community we serve.

Headquartered in King of Prussia, PA, UHS has more than 87,000 employees and through its subsidiaries operates 26 acute care hospitals, 327 behavioral health facilities, 40 outpatient facilities and ambulatory care access points, an insurance offering, a physician network and various related services located in 37 U.S. states, Washington, D.C., Puerto Rico and the United Kingdom. It acts as the advisor to Universal Health Realty Income Trust, a real estate investment trust (NYSE:UHT). For additional information on the Company, visit our web site: View Source

On September 24, 2019 Gilead Sciences, Inc. (Nasdaq: GILD) reported its results of operations for the third quarter ended September 30, 2019 (Press release, Gilead Sciences, OCT 24, 2019, View Source [SID1234542508]). The financial results that follow represent a year-over-year comparison of the third quarter of 2019 to the third quarter of 2018. Total revenues were $5.6 billion for the third quarter of 2019 compared to $5.6 billion for the same period in 2018. Net loss for the third quarter of 2019 was $1.2 billion, or $0.92 per diluted share, compared to net income of $2.1 billion or $1.60 per diluted share for the same period in 2018. The net loss for the third quarter of 2019 includes up-front collaboration and licensing expenses of $3.92 billion, or $2.40 per share, related to Gilead’s global research and development collaboration agreement with Galapagos NV (Galapagos). Non-GAAP net income was $2.2 billion or $1.75 per diluted share for the third quarter of 2019 compared to $2.4 billion or $1.84 per diluted share for the same period in 2018.

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Note: Non-GAAP financial information excludes acquisition-related, up-front collaboration and licensing, stock-based compensation and other expenses, fair value adjustments of equity securities and discrete tax charges or benefits associated with changes in tax related laws and guidelines. A reconciliation between GAAP and non-GAAP financial information is provided in the tables on pages 7 through 9.

Product Sales

Total product sales for the third quarter of 2019 were $5.5 billion compared to $5.5 billion for the same period in 2018. For the third quarter of 2019, product sales in the United States, Europe and other locations were $4.2 billion, $804 million and $513 million, respectively. For the third quarter of 2018, product sales in the United States, Europe and other locations were $4.1 billion, $873 million and $451 million, respectively.

HIV product sales were $4.2 billion for the third quarter of 2019 compared to $3.7 billion for the same period in 2018. The increase was primarily driven by higher sales volume as a result of the continued uptake of Biktarvy (bictegravir 50 mg/emtricitabine 200 mg/tenofovir alafenamide 25 mg).
Chronic hepatitis C virus (HCV) product sales were $674 million for the third quarter of 2019 compared to $902 million for the same period in 2018. The decline was primarily due to competitive dynamics.
Yescarta(axicabtagene ciloleucel) generated $118 million in sales during the third quarter of 2019 compared to $75 million for the same period in 2018. The increase was driven by a higher number of therapies provided to patients and the continued expansion in Europe.
Other product sales, which include products from chronic hepatitis B virus (HBV), cardiovascular, oncology and other categories inclusive of Vemlidy (tenofovir alafenamide 25 mg), Viread (tenofovir disoproxil fumarate 300 mg), Letairis (ambrisentan 5 mg and 10 mg), Ranexa (ranolazine 500 mg and 1000 mg), Zydelig (idelalisib 150 mg), AmBisome (amphotericin B liposome for injection 50 mg/vial) and Cayston (aztreonam for inhalation solution 75 mg/vial), were $522 million for the third quarter of 2019 compared to $751 million for the same period in 2018. The decrease was primarily due to the expected declines in Ranexa and Letairis sales after generic entries in 2019.
Operating Expenses

During the third quarter of 2019, compared to the same period in 2018:

R&D expenses increased primarily due to up-front collaboration and licensing expenses of $3.92 billion related to Gilead’s global research and development collaboration agreement with Galapagos. Furthermore, R&D expenses and non-GAAP R&D expenses increased primarily due to increased investment in Gilead’s oncology programs, HIV programs and research projects.
SG&A expenses and non-GAAP SG&A expenses increased primarily due to higher promotional expenses in the United States and expenses associated with the expansion of Gilead’s business in Japan and China.
Cash, Cash Equivalents and Marketable Debt Securities

As of September 30, 2019, Gilead had $25.1 billion of cash, cash equivalents and marketable debt securities, compared to $31.5 billion as of December 31, 2018. During the third quarter of 2019, Gilead generated $2.6 billion in operating cash flow, paid $5.05 billion in connection with the global research and development collaboration agreement and stock purchase agreement with Galapagos, repaid $1.5 billion of debt, paid cash dividends of $804 million and utilized $223 million on stock repurchases. The $5.05 billion paid to Galapagos was classified as cash flows from investing activities and included a $1.1 billion equity investment.

Revised Full Year 2019 Guidance

Gilead revised its full year 2019 guidance, initially provided on February 4, 2019 and revised on July 30, 2019.

Corporate Highlights, Including the Announcement of:

Appointment of Andrew Dickinson as Chief Financial Officer, effective November 1, 2019.
Appointment of Merdad Parsey as Chief Medical Officer, effective November 1, 2019.
Launch of RADIAN Initiative to meaningfully address new HIV infections and deaths from AIDS-related illnesses in Eastern Europe and Central Asia, in collaboration with the Elton John AIDS Foundation.
Closing of the global research and development collaboration agreement with Galapagos announced in July 2019.
Collaboration with Renown Institute for Health Innovation (Renown) to collect and analyze genetic and electronic health data to enhance the understanding of nonalcoholic steatohepatitis (NASH) and potentially inform development of treatment options for the disease.
Product and Pipeline Updates, Including the Announcement of:

Presentation of Week 52 data from the Phase 3 FINCH 1 and FINCH 3 trials of filgotinib, an investigational, oral, selective JAK1 inhibitor, for the treatment of moderately-to-severely active rheumatoid arthritis (RA), which are consistent with and support the efficacy, safety and tolerability profiles demonstrated in the week 12 and 24 analyses presented earlier this year.
Submission of the new drug application for filgotinib for the treatment of adults with RA to the Japanese Ministry of Health, Labor and Welfare (MHLW).
Presentation of data at the IDWeek 2019 conference, which included:
Results from the DISCOVER trial evaluating Descovy (emtricitabine 200 mg/tenofovir alafenamide 25 mg) for HIV pre-exposure prophylaxis (PrEP), which showed significant improvements in key measures of bone and renal safety parameters in a subset of study participants who switched from Truvada for PrEP (emtricitabine 200 mg/tenofovir disoproxil fumarate 300 mg) to Descovy for PrEP.
A release of the latest data demonstrating that major metropolitan areas in the United States with the highest use of PrEP experienced the greatest decreases in new HIV diagnoses.
Approval of a PrEP indication for Descovy by the U.S. Food and Drug Administration (FDA). Descovy for PrEP is indicated to reduce the risk of sexually acquired HIV-1 infection in adults and adolescents weighing at least 35 kg who are HIV-negative and at-risk for sexually acquired HIV, excluding individuals at-risk from receptive vaginal sex.
European Medicines Agency’s (EMA) validation of the marketing authorization application for filgotinib for the treatment of adults with RA; the application is now under evaluation by the agency.
Approval of Biktarvy by the China National Medical Products Administration for the treatment of HIV-1 infection in adults without present or past evidence of viral resistance to the integrase inhibitor class, emtricitabine or tenofovir.
Plans to bolster cell therapy manufacturing capabilities with a new 67,000-square-foot viral vector facility in Oceanside, California. The new site builds on existing state-of-the-art manufacturing capabilities to deliver innovative cell therapies for people with cancer, including Yescarta, and investigational T-cell receptor and tumor neoantigen targeting cell therapies.
Non-GAAP Financial Information

The information presented in this document has been prepared in accordance with U.S. generally accepted accounting principles (GAAP), unless otherwise noted as non-GAAP. Management believes non-GAAP information is useful for investors, when considered in conjunction with Gilead’s GAAP financial information, because management uses such information internally for its operating, budgeting and financial planning purposes. Non-GAAP information is not prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding of Gilead’s operating results as reported under GAAP. Non-GAAP measures may be defined and calculated differently by other companies in the same industry. A reconciliation between GAAP and non-GAAP financial information is provided in the tables on pages 7 through 9.

Conference Call

The live webcast of the call can be accessed at Gilead’s Investors page at View Source Please connect to the website at least 15 minutes prior to the start of the call to allow adequate time for any software download that may be required to listen to the webcast. Alternatively, please call 877-359-9508 (U.S.) or 224-357-2393 (international) and dial the conference ID 6094972 to access the call. Telephone replay will be available approximately two hours after the call through 8:00 p.m. Eastern Time, October 26, 2019. To access the replay, please call 855-859-2056 (U.S.) or 404-537-3406 (international) and dial the conference ID 6094972. The webcast will be archived on www.gilead.com for one year.

On October 24, 2019 Five Prime Therapeutics, Inc. (NASDAQ: FPRX), a clinical-stage biotechnology company focused on developing immune modulators and precision therapies for solid tumor cancers, reported that it will report its third quarter 2019 financial results on Wednesday, November 6, 2019 after the U.S. financial markets close (Press release, Five Prime Therapeutics, OCT 24, 2019, View Source [SID1234542507]). Five Prime will also host a conference call and live audio webcast on Wednesday, November 6, 2019 at 4:30 p.m. (ET) / 1:30 p.m. (PT) to discuss the company’s financial results and provide a general business update.

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The live audio webcast may be accessed through the "Events & Presentations" page in the "Investors" section of the company’s website at www.fiveprime.com. Alternatively, participants may dial (877) 878-2269 (domestic) or (253) 237-1188 (international) and refer to conference ID: 5769473.

The archived conference call will be available on Five Prime’s website beginning approximately two hours after the event and will be archived and available for replay for at least 30 days after the event.

On October 24, 2019 NOXXON Pharma N.V. (Paris:ALNOX) (Euronext Growth Paris: ALNOX), a biotechnology company focused on improving cancer treatments by targeting the tumor microenvironment (TME), released reported its interim 2019 results for the six months ended June 30, 2019 (Press release, Noxxon, OCT 24, 2019, View Source [SID1234542506]).

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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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Aram Mangasarian, Chief Executive Officer of NOXXON, commented: "NOXXON has made significant progress in the clinical development of our lead drug candidate, NOX-A12, obtaining near-final data from the trial testing NOX-A12 with immunotherapy in metastatic micro-satellite stable pancreatic and colorectal cancer patients and initiating the NOX-A12 and radiotherapy combination trial in first-line therapy for brain cancer patients. We continue to develop relationships with potential partners with the goal to set up an agreement to share the financial resources needed to advance our drug candidate for the treatment of cancer."

Business Overview

NOXXON is focused on advancing clinical trials to test its lead drug candidate, NOX-A12, an anti-CXCL12 agent, in two distinct therapeutic combinations: NOX-A12 + radiotherapy and NOX-A12 + immunotherapy (PD1 checkpoint inhibitors). Each combination approach has a different underlying rationale and mechanism of action.

The combination approach of NOX-A12 + radiotherapy is currently being tested as a first line therapy in a Phase 1/2 trial in newly diagnosed patients with aggressive brain cancer (glioblastoma) who would not benefit from standard of care chemotherapy and whose tumor cannot be fully resected by surgery. The anticipated mode of action of NOX-A12 is the inhibition of a process called "vasculogenesis" which allows the tumor’s blood vessels that were destroyed by the radiotherapy to be replaced, which ultimately results in disease recurrence.

The combination of NOX-A12 + immunotherapy has been tested in a Phase 1/2 trial in patients with metastatic pancreatic and colorectal cancer who had failed several lines of standard therapy. Both the NOX-A12 mechanistic data as well as the overall survival figures observed following treatment with the combination of NOX-A12 and anti-PD1 have been highly encouraging for the patient population enrolled in this study. Three patients (15% of the total) with advanced metastatic disease, including metastases in the liver, whose cancer was progressing rapidly at the time of trial entry have survived for more than one year.

Partnering discussions resulted in one of the top-10 global pharmaceutical companies initiating an experimental preclinical evaluation of NOX-A12 in a novel indication. The indication is a serious disease with significant unmet medical need and a market valued at more than one billion euros.

Business Highlights During First Half-Year of 2019

February 2019: Aachen University Hospital researchers published work showing that blocking the recruitment of macrophages in the liver with an anti-CCL2 molecule, such as NOX-E36, is a promising mechanism for the treatment of liver cancer. This is the second solid tumor for which monotherapy activity of NOX-E36 has been demonstrated after pancreas cancer.
February 2019: NOXXON filed the clinical trial application with the Federal Institute for Drugs and Medical Devices (Bundesinstitut für Arzneimittel und Medizinprodukte, BfArM), to start a Phase 1/2 clinical trial combining NOX-A12 with radiotherapy to treat newly diagnosed brain cancer patients who would not benefit from the current standard of care and whose tumor cannot be fully resected by surgery.
April 2019: An update of clinical results from the Phase 1/2 study of NOX-A12 in combination with Keytruda (pembrolizumab) in patients with microsatellite-stable, metastatic pancreatic and colorectal cancer was presented at the American Association for Cancer Research (AACR) (Free AACR Whitepaper) Annual Meeting. The data confirmed that NOX-A12 is safe and well-tolerated in advanced cancer patients both as a monotherapy and in combination with Merck and Co./MSD’s anti-PD1 antibody pembrolizumab. The combination of NOX-A12 and pembrolizumab induced stable disease in 25% of patients and prolonged time on treatment vs. prior therapy for 35% of patients. Overall survival figures were very encouraging for this patient population.
June 2019: A top-10 pharmaceutical company signed an agreement with NOXXON for the purpose of evaluating NOX-A12 in a novel indication. The pharmaceutical company will fund and conduct preclinical studies to assess NOX-A12 in an indication which is a serious disease with significant unmet medical need. The market for this indication has been valued at more than one billion euros. The studies are anticipated to be completed in Q2 2020, after which the parties may enter negotiations for rights to NOX-A12.
Business Highlights After June 30, 2019

July and August 2019: NOXXON raised €1.5 million though two capital increases.
September 2019: NOXXON initiated recruitment of newly diagnosed brain cancer patients in a Phase 1/2 clinical trial combining NOX-A12 with radiotherapy.
September 2019: NOXXON presented more mature top-line data from the NOX-A12 clinical trial in metastatic microsatellite stable pancreatic and colorectal cancer patients at the European Society of Medical Oncology (ESMO) (Free ESMO Whitepaper) Meeting. Three patients (15% of the total) have now survived over one year despite having failed at least three prior lines of therapy. It should also be noted that these patients experienced rapid cancer progression as the best response to their last therapy just prior to entering the NOX-A12 trial. This data provides further support to the concept that the combination of NOX-A12 + anti-PD1 immunotherapy is able to modify the biology of the tumor to the benefit of the patient.
October 2019: NOXXON announced initiation of treatment of the first brain cancer patient in the Phase 1/2 clinical trial combining the CXCL12 inhibitor NOX-A12 with radiotherapy.
First-half 2019 Financial Results (IFRS)

NOXXON Pharma did not generate any revenues in the first half of 2019 (H1 2019). The Group does not expect to generate any revenues from its product candidates in development until the company either signs a licensing agreement or obtains regulatory approval and commercializes its products or enters into collaborative agreements with third parties.

The increase in other operating income to €274 thousand in H1 2019 (vs. €77 thousand in H1 2018) was mainly due to the sale of raw materials and a partial waiver of management and supervisory board members concerning their receivables from remuneration due from the Group in 2019, which generated higher other operating income than the sale of assets held for sale in H1 2018.

NOXXON dedicated its resources to research and development (R&D) and general and administrative (G&A) expenses. R&D expenses slightly decreased to €1,062 thousand in H1 2019 (vs. €1,189 thousand in H1 2018). The decrease was mainly driven by lower personnel expenses, patent costs and consulting services.

The decrease in G&A expenses to €1,238 thousand in H1 2019 (vs. €1,359 thousand in H1 2018) was mainly driven by lower personnel expenses, lower public and investor relation expenses, partly offset by higher legal, consulting and audit fees.

Foreign exchange losses in the amount of €2 thousand remained at par in H1 2019 and in H1 2018 as a result of unchanged volume of purchases denominated in currencies other than euro in H1 2019.

Finance income increased to €75 thousand in H1 2019 (vs. €59 thousand in H1 2018). Finance income in H1 2018 and H1 2019 was due to the fair value adjustments of warrants issued and outstanding and was entirely non-cash related.

No finance cost was reported in H1 2019 (vs. €1,637 thousand in H1 2018). Finance cost in H1 2018 was related to the Yorkville equity line financing and included the consideration incurred in connection with the amendment of the Issuance Agreement with Yorkville, the conversions of outstanding notes in equity as well as the issuance of notes and the recognition of warrants. Finance cost in H1 2018 was entirely non-cash related.

As a result of the above factors, NOXXON’s net loss decreased to €1,954 thousand in H1 2019 (vs. €4,051 thousand in H1 2018). The net cash used in operating activities amounted to €2,687 thousand in H1 2019 and €1,757 thousand in H1 2018, respectively.

Having obtained and published more mature data from the NOX-A12 clinical trial in metastatic microsatellite stable pancreatic and colorectal cancer patients in September 2019, NOXXON believes that further clinical trials in these indications are warranted. The company’s goal is to find industrial partners to provide an anti-PD1 therapy and financial support to conduct a trial. Since finalizing such a partnership is taking more time than anticipated and some of the discussions have not advanced as hoped – in particular with regards to financial support of further trials – the company has broadened the range of potential industrial partners in discussions.

NOXXON initiated the Phase 1/2 combination trial of NOX-A12 with radiotherapy in front-line, inoperable brain cancer (glioblastoma) patients who are shown by biomarker analysis to be resistant to the current standard of care chemotherapy. If the data from this study show positive results, the company will seek advice from competent authorities under the orphan drug designation in the United States and Europe to identify the most efficient manner to complete development in this indication.

The company’s partnering objective for this combination is to identify industrial partners that will finance additional clinical trials in brain cancer and other indications where radiotherapy is core to the standard of care. NOXXON anticipates that at least partial top-line clinical data from this trial will be required to sign a partnership in this area.

NOXXON is encouraged by the support of the neuro-oncology community and the strong pull exerted to test NOX-A12 + radiotherapy in the brain cancer setting. In parallel, US-based university consortia are seeking their own funding to test NOX-A12 combined with radiotherapy in adult and pediatric brain cancers. For the clinical trials to proceed, should the consortia be successful in raising funds, NOXXON would need to consider production and supply of NOX-A12.

The ongoing evaluation by a leading international pharmaceutical company of NOX-A12 in a novel indication has created a potentially significant opportunity for NOXXON. It is anticipated that the preclinical work and analysis of the results will be completed in Q2 2020, after which the parties may enter negotiations for rights to NOX-A12.

NOXXON continues to evaluate other indications and therapeutic combinations in which to test NOX‑A12 and NOX-E36 as well as the relative priority of such indications for the overall corporate strategy.

Based on its present requirements resulting from the Group’s updated business plan focusing on clinical development of its lead product candidate NOX-A12 for the treatment of advanced solid tumors, the Group will require additional cash resources of approximately € 2.5 million, to provide the Group with sufficient working capital for the twelve months following the date of these interim financial statements. The Group will be required to raise these additional funds, alternative means of financial support or conduct a partnering deal for one of its product candidates during February 2020 with a cash inflow be available during the month of February 2020 in order to continue its operations.

Management is pursuing various financing alternatives to meet the Group’s future cash requirements, including seeking additional investors, pursuing industrial partnerships, or obtaining further funding from existing investors through additional funding rounds, pursuing a merger or an acquisition. The management of NOXXON is pursuing all of these avenues in parallel with the assistance of experienced external support. Based on the options available and a past history of timely funding the operations of the Group, management is confident to be able to raise additional capital, preferably in the form of equity or an industrial partnership.