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Commencement of Phase 1 Trial for the Mutant IDH1 Inhibitor (DS-1001) Targeting Malignant Brain Tumors

On March 1, 2017 The National Cancer Center of Japan and Daiichi Sankyo Company, Limited (hereafter, Daiichi Sankyo) reported a collaboration to develop an inhibitor for mutant isocitrate dehydrogenase IDH1 (DS-1001) as a new molecular targeting drug for malignant brain tumors (gliomas)*1 and the commencement of a first-in-human phase 1 clinical trial*2 (Press release, Daiichi Sankyo, FEB 28, 2017, View Source [SID1234517902]).

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Mutations in the IDH1 and IDH2 genes are frequently observed in patients with malignant tumors, such as gliomas, acute myeloid leukemia (AML), cholangiocarcinoma, and chondrosarcoma. The National Cancer Center Research Institute, Division of Hematological Malignancy research group led by Issay Kitabayashi discovered that inhibitions of mutant IDH1/2 were able to eliminate AML cancer stem cells*3. In addition, preclinical studies using patient-derived xenograft (PDX) models*4 showed that DS-1001, which has high blood-brain barrier permeability, was effective in suppressing the proliferation of malignant gliomas, AML, and chondrosarcoma.

Most molecular targeted drugs developed to date target molecules that are active or highly expressed in tumors. However, these drugs may have problematic side effects because the targeted molecules are to some extent also active in normal, healthy cells. DS-1001 selectively inhibits the mutant form of IDH1, which is expressed only in cancer cells, and has minimum effect against wild-type IDH1, which is expressed in normal cells.

Mutations in the IDH1 genes are observed in more than 70% of patients who are diagnosed as grade 2 or 3 gliomas (astrocytomas or oligodendrogliomas) *5. These types of glioma with IDH1 mutation are most frequently observed in 30 to 50 years old population, with multiple relapse and long term treatment course*6. DS-1001 may be effective in such a patient population.

This multicenter phase I clinical trial is planned to enroll patients with recurrent IDH1 mutant gliomas who have no standard treatment at the National Cancer Center Hospital (Chuo-ku, Tokyo) and other facilities in Japan.

TRACON Pharmaceuticals Reports Fourth Quarter and Year-End 2016 Financial Results and Provides Corporate Update

On February 28, 2017 TRACON Pharmaceuticals (NASDAQ:TCON), a clinical stage biopharmaceutical company focused on the development and commercialization of novel targeted therapeutics for cancer, wet age‐related macular degeneration and fibrotic diseases, reported financial results for the fourth quarter and year ended December 31, 2016 (Press release, Tracon Pharmaceuticals, FEB 28, 2017, View Source [SID1234517901]).

"During the fourth quarter of 2016 and beginning of this year, we made significant progress toward several important corporate objectives, and anticipate a number of additional potentially value-creating milestones over the remainder of 2017," said Charles Theuer, M.D., Ph.D., President and CEO of TRACON. "We have recently initiated dosing in the first pivotal study of TRC105 in patients with angiosarcoma in both the U.S. and Europe following beneficial discussions with regulators in both regions. In addition, we intend to initiate the first-in-human clinical trial of TRC253, one of the two compounds in-licensed from Janssen last year, in patients with prostate cancer in the first half of 2017. Finally, we expect our partner, Santen, to initiate Phase 2 development of DE-122, the ophthalmic formulation of TRC105, in wet AMD later this year. Importantly, we are leveraging our unique and differentiated product development platform to complete all of our development activities, and look forward to continued progress throughout the course of the year."

Fourth Quarter 2016 and Recent Corporate Highlights

In February 2017, the Company initiated dosing in the Phase 3 TAPPAS (a randomized Phase 3 trial of TRC105 And Pazopanib versus Pazopanib alone in patients with advanced AngioSarcoma) trial of TRC105. In January 2017, the Company announced that agreement was reached with the U.S. Food and Drug Administration (FDA) under a Special Protocol Assessment (SPA) for the protocol design, clinical endpoints and statistical analysis approach for the TAPPAS trial. This one-to-one randomized trial of TRC105 in combination with Votrient (pazopanib) versus single agent Votrient features an adaptive enrichment design which allows for greater flexibility and efficiency to identify potential signs of clinical benefit.
In February 2017, the Company announced that the combination of TRC105 and Avastin did not improve median PFS versus single agent Avastin in recurrent GBM patients, although the combination was associated with a non-significant increase in overall survival. Detailed survival data and the correlative analyses are expected to be presented at an oncology conference later this year.
In January 2017, the FDA cleared the IND for TRC253, a small molecule competitive inhibitor of the wild type androgen receptor and androgen receptor mutations that confer resistance to Xtandi (enzalutamide) and other drugs approved to treat prostate cancer. TRC253 was in-licensed as part of the Company’s strategic licensing collaboration with Janssen Pharmaceutica N.V. in September 2016. TRACON expects to initiate dosing in a Phase 1/2 trial of TRC253 in the first half of 2017.
In November 2016, the Company closed an underwritten public offering of a total of 3,018,750 shares of its common stock resulting in total gross proceeds, before deducting underwriting discounts and commissions and other offering expenses, of $17.4 million.
In November 2016, updated data from the ongoing Phase 1b/2 study of TRC105 and Votrient in patients with angiosarcoma were presented at the Connective Tissue Oncology Society (CTOS) annual meeting. The presentation indicated the combination of TRC105 and Votrient continued to demonstrate encouraging signs of activity, including ongoing durable complete responses, and was well-tolerated.
In November 2016, preclinical data from two separate liver fibrosis models were presented in a poster at the American Association for the Study of Liver Diseases (AASLD) Annual Meeting entitled, "Endoglin Antibody Reduces the NAFLD Activity Score in the STAM Model of NASH and Reduces Liver Fibrosis Following Carbon Tetrachloride Treatment." The poster also highlighted a marked reduction in cutaneous neurofibromatosis in a sarcoma patient following dosing with TRC105 and Votrient in a Phase 2 clinical trial, suggesting the potential clinical utility of an endoglin antibody for the treatment of patients with fibrosis.
Additional Expected 2017 Milestones

Initiation of dosing in the Phase 1/2 trial of TRC253 in patients with prostate cancer.
Presentation of data from expanded cohorts in the Phase 1 trial of TRC102 and Temodar (temozolomide) by the National Cancer Institute.
Completion of the Phase 1/2 PAVE study of DE-122 in patients with wet AMD by TRACON’s partner, Santen Pharmaceutical Co., Ltd. (Santen).
Initiation of dosing in Santen’s Phase 2 AVANTE study, a randomized controlled Phase 2 trial of DE-122 and Lucentis (ranibizumab) versus single agent Lucentis in patients with wet AMD.
Announcement of top-line data from the randomized Phase 2 TRAXAR trial of TRC105 in combination with Inlyta (axitinib) in patients with advanced or metastatic renal cell carcinoma.
Completion of dose escalation in the Phase 1/2 clinical trial of TRC253.
Fourth Quarter 2016 Financial Results

Cash, cash equivalents and short-term investments were $44.4 million at December 31, 2016, compared to $35.1 million and $52.2 million at September 30, 2016 and December 31, 2015, respectively.
Collaboration revenue for the fourth quarter of 2016 was $0.6 million, compared to $1.4 million for the fourth quarter of 2015.
Research and development expenses for the fourth quarter of 2016 were $4.8 million, compared to $10.6 million for the fourth quarter of 2015. The decrease in 2016 as compared to 2015 primarily resulted from decreased TRC105 drug manufacturing expenses.
General and administrative expenses for the fourth quarter of 2016 were $1.9 million, compared to $1.7 million for the fourth quarter of 2015.
The net loss for the fourth quarter of 2016 was $6.3 million, compared to a loss of $11.0 million for the fourth quarter of 2015.

NewLink Genetics Provides Operational & Clinical Update, Reports Fourth Quarter, Year-End 2016 Financial Results

On February 28, 2017 NewLink Genetics Corporation (NASDAQ:NLNK), a biopharmaceutical company focused on bringing novel immuno-oncology therapies to patients with cancer, reported consolidated financial results for the fourth quarter and year ended 2016, as well as progress in its clinical development programs (Press release, NewLink Genetics, FEB 28, 2017, View Source [SID1234517892]). NewLink Genetics also outlined key 2017 business priorities related to the clinical development programs for the Company’s immuno-oncology pipeline.

"NewLink Genetics has two separate and distinct IDO pathway inhibitors in clinical development. In 2017, we look forward to advancing clinical validation of IDO as an immuno-oncology target," said Charles J. Link, Jr. MD, Chairman, Chief Executive Officer and Chief Scientific Officer. "Our priorities going into 2017 are clear. For GDC-0919, we anticipate continued progress in the clinic in collaboration with our partner Genentech/Roche. We believe indoximod will emerge as one of the leading IDO pathway inhibitor programs in 2017."

2016 Highlights

The IDO pathway, which helps cancer escape the patient’s immune system, became increasingly validated as an immuno-oncology target, with clinical data coming from NewLink Genetics and others.
Presented early Phase 2 clinical data of indoximod plus gemcitabine/nab-paclitaxel for the treatment of patients with metastatic pancreatic cancer at the 2016 American Society of Clinical Oncology (ASCO) (Free ASCO Whitepaper) Annual Meeting, suggesting evidence of safety and clinical activity.
Presented promising interim Phase 2 clinical data from a cohort of patients with advanced melanoma treated with indoximod plus pembrolizumab at the 2016 ASCO (Free ASCO Whitepaper) Annual Meeting.
Our Ebola vaccine candidate (rVSV∆G-ZEBOV GP), partnered with Merck, received breakthrough therapy designation from the FDA and PRIME status from the European Medicines Agency. In December 2016 the final results of the Guinea trial were published on-line in The Lancet and confirmed efficacy of the vaccine.
Finished 2016 with $131.5 million in cash and equivalents.
Anticipated Highlights in 2017

Our investigators have submitted an abstract to the American Association for Cancer Research (AACR) (Free AACR Whitepaper) on the Phase 2 study cohort of patients with advanced melanoma treated with indoximod in combination with pembrolizumab.
We have been informed by the AACR (Free AACR Whitepaper) committee that our abstract concerning our new chemical entity NLG802, a novel prodrug of indoximod, has been accepted for a poster presentation.
Genentech is expected to update on progress on a Phase 1b study of GDC-0919 in combination with atezolizumab for patients with solid tumors.
We intend to update progress from the Phase1b, dose-escalation study of indoximod and standard of care therapy in patients with Acute Myeloid Leukemia (AML).
We expect to finish the year with approximately $75 million in cash. This excludes potential payments from partners, the proceeds from any offering, and any costs associated with any strategic acquisitions.
"We are excited to be presenting clinical data for indoximod at upcoming scientific meetings in 2017 beginning at AACR (Free AACR Whitepaper) next month," said Nicholas Vahanian, M.D., President and Chief Medical Officer.

Financial Results

Cash Position: NewLink Genetics ended the year on December 31, 2016, with cash, cash equivalents, and certificates of deposit totaling $131.5 million compared to $197.8 million for the year ending December 31, 2015. The Company’s cash position is sufficient to fund current operations in the near and medium term.

R&D Expenses: Research and development expenses were $19.5 million and $93.3 million in the fourth quarter and year ended December 31, 2016 compared to $14.8 million and $71.4 million during the comparable periods in 2015. The increase year-over-year was due primarily to $11.1 million of charges incurred as a result of the restructuring during the second quarter of 2016, including a non-cash charge of $4.0 million related to impaired assets, with the remainder of the increase due to increases in contract manufacturing costs, supplies and equipment and clinical trial expenses.

G&A Expenses: General and administrative expenses in the fourth quarter and year ended December 31, 2016 were $7.2 million and $33.2 million compared to $7.7 million and $30.7 million during the comparable periods in 2015. The increase was due to an increase of $2.9 million in personnel-related expenses due to changes in transiently increased staffing levels, share-based compensation expense and compensation increases, an increase of $500,000 due to charges incurred as a result of the restructuring, offset by a decrease of $930,000 in consulting, legal and licensing fees, and supplies.

Net Loss: NewLink Genetics reported a net loss of $13.5 million or $0.46 per diluted share for the fourth quarter of 2016 and a net loss of $85.2 million or $2.94 per diluted share for the year ended December 31, 2016, compared to a net loss of $21.6 million or $0.75 per diluted share for the fourth quarter of 2015 and a net loss of $40.4 million or $1.41 per diluted share for the year ended December 31, 2015.

NewLink Genetics ended 2016 with 29,163,673 shares outstanding.

MacroGenics Provides Update on Corporate Progress and 2016 Financial Results

On February 28, 2017 MacroGenics, Inc. (NASDAQ:MGNX), a clinical-stage biopharmaceutical company focused on discovering and developing innovative monoclonal antibody-based therapeutics for the treatment of cancer, as well as autoimmune disorders and infectious diseases, reported a corporate progress update and reported financial results for the year ended December 31, 2016 (Press release, MacroGenics, FEB 28, 2017, View Source [SID1234517890]).

"MacroGenics continues to advance its broad pipeline of clinical compounds, including those in our HER2, B7-H3 and PD-1 franchises as well as the many bispecific product candidates based on our DART platform," said Scott Koenig, M.D., Ph.D., President and CEO of MacroGenics. "Across our portfolio of proprietary antibody and DART-based oncology programs, we now have initial evidence of on-target engagement, manageable safety and anti-tumor activity. In addition, I am very encouraged by the biological activity observed in subjects treated with MacroGenics’ autoimmune DART molecule, MGD010. We will continue to advance our robust pipeline in 2017, including defining future development strategies for multiple programs based on data expected later this year."

Pipeline Updates

Margetuximab. Recent highlights related to the Company’s Fc-optimized monoclonal antibody that targets the human epidermal growth factor receptor 2, or HER2, include:

Phase 3 Metastatic Breast Cancer Study. The pivotal SOPHIA study is evaluating the efficacy of margetuximab plus chemotherapy compared to trastuzumab plus chemotherapy in approximately 530 relapsed/refractory HER2-positive metastatic breast cancer patients. MacroGenics continues to expect to complete enrollment of this study by late 2018. In addition, in consultation with the U.S. Food and Drug Administration (FDA) and the Committee for Medicinal Products for Human Use of the European Medicines Agency, the patient population eligible for participation in SOPHIA has been further expanded to include ado-trastuzumab emtansine-naïve patients.
Phase 2 Gastric Cancer Study. The Company continues to enroll advanced HER2-positive gastric and gastroesophageal junction cancer patients in its combination study of margetuximab with an anti-PD-1 antibody. Preliminary data from the dose escalation portion of the study, including patients with objective response following progression on previous lines of treatment with trastuzumab and chemotherapy, was presented at the Company’s R&D Day in December 2016. MacroGenics expects to complete enrollment of this study in 2017.
B7-H3 Franchise. MacroGenics is developing a portfolio of therapeutics that target B7-H3, a member of the B7 family of molecules involved in immune regulation. The Company is advancing multiple programs that target B7-H3 through complementary mechanisms of action that take advantage of this antigen’s broad expression across multiple solid tumor types. These molecules include:

Enoblituzumab: The Company continues to recruit patients in multiple ongoing studies of enoblituzumab, an Fc-optimized monoclonal antibody that targets B7-H3. These studies include one monotherapy study expanded to include additional bladder and prostate cancer cohorts and two combination studies with either an anti-CTLA-4 mAb (ipilimumab) or anti-PD-1 mAb (pembrolizumab). In addition, two monotherapy Phase 1 studies were recently initiated: a study for children with various solid tumors, including neuroblastoma, and an investigator-sponsored study in men with localized intermediate and high-risk prostate cancer in the neoadjuvant setting.
MGD009: This DART molecule targeting B7-H3 and CD3 is being evaluated in a Phase 1 study across multiple solid tumor types. Adverse events have been manageable to date and initial signs of antitumor activity have been observed, as previously disclosed at the Company’s R&D Day in December 2016. The Company expects to establish the dose and schedule for MGD009 administration as well as initiate dose expansion cohorts in 2017.
MGC018: The Company is conducting Investigational New Drug (IND)-enabling activities to support an IND application for this anti-B7-H3 antibody drug conjugate (ADC) in 2018. The Company will feature a poster presentation on MGC018 at the upcoming American Association for Cancer Research (AACR) (Free AACR Whitepaper) Annual Meeting in April.
PD-1-Directed Immuno-Oncology Franchise. MacroGenics is advancing several PD-1-directed programs, which will enable both a broad set of combination opportunities across the Company’s portfolio and provide further differentiation from existing PD-1-based treatment options. The first of these are:

MGA012. The Company’s Phase 1 clinical study of its proprietary anti-PD-1 monoclonal antibody was initiated in November 2016. With anti-PD-1 therapy becoming a mainstay of cancer treatment across multiple tumor types, MacroGenics believes MGA012 will be the basis for combination therapy with several of the molecules in its pipeline.
MGD013. MacroGenics is developing the DART molecule, MGD013, to provide co-blockade of two immune checkpoint molecules expressed on T cells, PD-1 and LAG-3, for the potential treatment of a range of malignancies. The Company has completed IND-enabling studies and plans to submit an IND for MGD013 in the first half of 2017.
Additional DART Clinical Programs. Additional DART molecules in Phase 1 clinical development include flotetuzumab (CD123 x CD3, also known as MGD006 and S80880); MGD007 (gpA33 x CD3); MGD010 (CD32B x CD79B); duvortuxizumab (CD19 x CD3, also known as MGD011), which is being developed by Janssen; and PF-06671008 (P-cadherin x CD3), which is being developed by Pfizer. At its R&D Day in December 2016, MacroGenics provided an in-depth update on its portfolio of proprietary, clinical DART programs. The Company highlighted the promising features of these DART molecules, including on-target engagement, manageable safety as well as preliminary evidence of biological activity. Updates on three of these programs for which MacroGenics leads development include:

Flotetuzumab. MacroGenics continues to recruit patients with acute myeloid leukemia (AML) or myelodysplastic syndrome (MDS) in the U.S. and Europe in the Phase 1 study of flotetuzumab. The Company expects to establish the dose and schedule as well as initiate dose expansion cohorts for this study in 2017. In late 2016, the FDA granted orphan drug designation to flotetuzumab for the treatment of AML.
MGD007. MacroGenics continues to recruit patients with colorectal cancer in the Phase 1 study of MGD007. The Company expects to establish the dose and schedule for this study in 2017.
MGD010. During the fourth quarter of 2016, MacroGenics completed the Phase 1 study of MGD010 in healthy subjects. This DART molecule is being developed for the potential treatment of autoimmune disorders. The Company plans to report updated clinical pharmacodynamic activity results from this study in 2017.
Corporate Update

New Board Members: In January 2017, MacroGenics announced the expansion of its Board of Directors from six to eight members and the appointments of Karen J. Ferrante, M.D., and Scott Jackson to fill the newly created vacancies. Dr. Ferrante, a hematologist-oncologist, most recently served as Chief Medical Officer and Head of Research and Development at Tokai Pharmaceuticals. Mr. Jackson served as Chief Executive Officer and as a member of the Board of Directors of Celator Pharmaceuticals, Inc. until its acquisition in July 2016.
Commenced Build-out of GMP Manufacturing Suite: In January 2017, the Company began the expansion of its manufacturing capacity by commencing the construction of a GMP suite in its headquarters building in Rockville, MD to support larger-scale clinical and commercial manufacturing.
2016 Financial Results and Cash Runway Guidance

Cash Position: Cash, cash equivalents and marketable securities as of December 31, 2016, were $285.0 million, compared to $339.0 million as of December 31, 2015.
Revenue: Total revenue, consisting primarily of revenue from collaborative agreements, was $91.9 million for the year ended December 31, 2016, compared to $100.9 million for the year ended December 31, 2015. Revenue from collaborative agreements includes the recognition of deferred revenue from payments received in previous periods as well as payments received during the year.
R&D Expenses: Research and development expenses were $122.1 million for the year ended December 31, 2016, compared to $98.3 million for the year ended December 31, 2015. This increase was due primarily to increased activity in the Company’s preclinical immune checkpoint programs, including MGD013 and MGA012, MGD014 (funded by NIAID/NIH) and the initiation of two Phase 1 clinical trials combining enoblituzumab with other compounds. These increases were partially offset by decreased manufacturing costs for margetuximab.
G&A Expenses: General and administrative expenses were $29.8 million for the year ended December 31, 2016, compared to $22.8 million for the year ended December 31, 2015. This increase was primarily due to increased staff, recruiting costs and stock-based (non-cash) compensation expense and patent expense.
Net Loss: Net loss was $58.5 million for the year ended December 31, 2016, compared to net loss of $20.1 million for the year ended December 31, 2015.
Shares Outstanding: Shares outstanding as of December 31, 2016 were 34,870,607.
Cash Runway Guidance: MacroGenics expects that its current cash, cash equivalents and marketable securities, combined with anticipated funding under its current strategic collaborations, should fund the Company’s operations through late 2018.

Jazz Pharmaceuticals Announces Full Year And Fourth Quarter 2016 Financial Results

On February 28, 2017 Jazz Pharmaceuticals plc (Nasdaq: JAZZ) reported financial results for the full year and the fourth quarter of 2016 and provided financial guidance for 2017 (Press release, Jazz Pharmaceuticals, FEB 28, 2017, View Source [SID1234517889]).

"In 2016, we delivered solid growth for two of our key products, Xyrem and Defitelio, completed multiple corporate development transactions, including the Celator acquisition, received NDA approval and launched Defitelio in the U.S., began the rolling NDA submission for Vyxeos, and advanced and expanded our development pipeline, including two new oxybate product candidates that may offer new therapeutic options for narcolepsy patients," said Bruce Cozadd, chairman and chief executive officer of Jazz Pharmaceuticals. "We are looking forward to a busy and productive 2017, building on our investments in internal and acquired R&D programs over the last few years. We believe that 2017 will be an exciting year for Jazz as we remain focused on delivering new and improved therapeutic options for patients and value to shareholders through expansion of our business."

GAAP net income attributable to Jazz Pharmaceuticals plc for 2016 was $396.8 million, or $6.41 per diluted share, compared to $329.5 million, or $5.23 per diluted share, for 2015. GAAP net income attributable to Jazz Pharmaceuticals plc for the fourth quarter of 2016 was $116.7 million, or $1.91 per diluted share, compared to $82.8 million, or $1.32 per diluted share, for the fourth quarter of 2015.

Adjusted net income attributable to Jazz Pharmaceuticals plc for 2016 was $627.2 million, or $10.14 per diluted share, compared to $595.5 million, or $9.45 per diluted share, for 2015. Adjusted net income attributable to Jazz Pharmaceuticals plc for the fourth quarter of 2016 was $165.6 million, or $2.71 per diluted share, compared to $176.5 million, or $2.81 per diluted share, for the fourth quarter of 2015. Reconciliations of applicable GAAP reported to non-GAAP adjusted information are included at the end of this press release.

Financial Highlights

Three Months Ended
December 31,

Year Ended
December 31,

(In thousands, except per share amounts and percentages)
2016

2015

Change

2016

2015

Change
Total revenues
$
396,621

$
340,881

16.4
%

$
1,487,973

$
1,324,803

12.3
%
GAAP net income attributable to Jazz Pharmaceuticals plc1
$
116,689

$
82,761

41.0
%

$
396,831

$
329,535

20.4
%
Adjusted net income attributable to Jazz Pharmaceuticals plc1,2
$
165,637

$
176,516

(6.2)
%

$
627,162

$
595,484

5.3
%
GAAP EPS attributable to Jazz Pharmaceuticals plc1
$
1.91

$
1.32

44.7
%

$
6.41

$
5.23

22.6
%
Adjusted EPS attributable to Jazz Pharmaceuticals plc1,2
$
2.71

$
2.81

(3.6)
%

$
10.14

$
9.45

7.3
%

1.
In the fourth quarter of 2016, the company adopted Accounting Standards Update (ASU) No. 2016-09, "Improvements to Employee Share-Based Payment Accounting" effective as of January 1, 2016. See footnote 1 to the table titled "Reconciliations of GAAP Reported to Non-GAAP Adjusted Information" at the end of this press release.
2.
Commencing with the second quarter of 2016, the company modified the calculation of its non-GAAP income tax provision in connection with the Securities and Exchange Commission’s May 2016 guidance pertaining to non-GAAP financial measures. This modification is reflected in the company’s 2015 and 2016 non-GAAP period results in the table above. See "Non-GAAP Financial Measures" below.

Total Revenues

Three Months Ended
December 31,

Year Ended
December 31,
(In thousands)
2016

2015

2016

2015
Xyrem (sodium oxybate) oral solution
$
291,204

$
251,752

$
1,107,616

$
955,187

Erwinaze / Erwinase (asparaginase Erwinia chrysanthemi)
56,771

50,440

200,678

203,261

Defitelio (defibrotide sodium) / defibrotide
29,672

18,472

108,952

70,731

Prialt (ziconotide) intrathecal infusion
6,055

6,496

29,120

26,440

Psychiatry
2,909

8,760

17,653

37,135

Other
6,003

3,004

13,242

24,065

Product sales, net
392,614

338,924

1,477,261

1,316,819

Royalties and contract revenues
4,007

1,957

10,712

7,984

Total revenues
$
396,621

$
340,881

$
1,487,973

$
1,324,803

Net product sales increased 12% in 2016 and 16% in the fourth quarter of 2016 compared to the same periods in 2015 primarily due to higher net product sales of Xyrem and Defitelio.

Xyrem net product sales increased 16% in both 2016 and in the fourth quarter of 2016 compared to the same periods in 2015.

Erwinaze/Erwinase net product sales decreased 1% in 2016 and increased 13% in the fourth quarter of 2016 compared to the same periods in 2015. In 2016, the company continued to experience supply challenges, which resulted in fluctuations in inventory levels and temporary disruptions to the company’s ability to supply certain markets, including the U.S. The company expects that these temporary supply interruptions will continue in 2017.

Defitelio/defibrotide net product sales increased 54% in 2016 and 61% in the fourth quarter of 2016 compared to the same periods in 2015 primarily due to the U.S. launch of Defitelio in April 2016. Net sales in the U.S. were $26.3 million in 2016 and $9.7 million in the fourth quarter of 2016.

Operating Expenses

Three Months Ended
December 31,

Year Ended
December 31,
(In thousands, except percentages)
2016

2015

2016

2015
GAAP:

Cost of product sales
$
33,656

$
24,030

$
105,386

$
102,526

Gross margin
91.4
%

92.9
%

92.9
%

92.2
%
Selling, general and administrative
$
127,141

$
125,555

$
502,892

$
449,119

% of total revenues
32.1
%

36.8
%

33.8
%

33.9
%
Research and development
$
44,158

$
29,455

$
162,297

$
135,253

% of total revenues
11.1
%

8.6
%

10.9
%

10.2
%
Acquired in-process research and development
$
—

$
—

$
23,750

$
—

Impairment charges
$
—

$
31,523

$
—

$
31,523

Three Months Ended
December 31,

Year Ended
December 31,
(In thousands, except percentages)
2016

2015

2016

2015
Non-GAAP adjusted:

Cost of product sales
$
32,177

$
22,209

$
100,797

$
98,452

Gross margin
91.8
%

93.4
%

93.2
%

92.5
%
Selling, general and administrative
$
108,204

$
87,409

$
404,837

$
355,422

% of total revenues
27.3
%

25.6
%

27.2
%

26.8
%
Research and development
$
39,619

$
26,017

$
146,466

$
96,678

% of total revenues
10.0
%

7.6
%

9.8
%

7.3
%

Operating expenses changed over the prior year periods primarily due to the following:

Selling, general and administrative (SG&A) expenses increased in 2016 and in the fourth quarter of 2016 compared to the same periods in 2015 on a GAAP and on a non-GAAP adjusted basis primarily due to higher headcount and other expenses resulting from the expansion of the company’s business, and included a one-time contract termination fee of $11.6 million to eliminate potential future royalty payments related to VyxeosTM (cytarabine and daunorubicin liposome injection).
Research and development (R&D) expenses increased in 2016 and in the fourth quarter of 2016 compared to the same periods in 2015 on a GAAP and on a non-GAAP adjusted basis primarily due to increased expenses for the development of JZP-110; increased investments in oxybate-related R&D programs; the initiation of a clinical study of defibrotide for the prevention of veno-occlusive disease (VOD); costs related to the rolling new drug application (NDA) submission for Vyxeos; and an increase in headcount required to support these activities. GAAP R&D expenses for 2015 included a $25.0 million milestone in connection with the acceptance for filing by the U.S. Food and Drug Administration (FDA) of the NDA for defibrotide.
Acquired in-process research and development expense in 2016 related to upfront and option payments totaling $15.0 million to Pfenex Inc. under an agreement in which the company was granted worldwide rights to develop and commercialize multiple early-stage hematology product candidates and an upfront payment of $8.8 million that the company made in connection with its acquisition of intellectual property and know-how related to recombinant crisantaspase.
Impairment charges of $31.5 million in 2015 resulted from the termination of the JZP-416 study.
Cash Flow and Balance Sheet

As of December 31, 2016, cash, cash equivalents and investments were $426.0 million, and the outstanding principal balance of the company’s long-term debt was $2.1 billion. Cash, cash equivalents and investments decreased from December 31, 2015 primarily due to the acquisition of Celator for approximately $1.5 billion, repurchases of $278.3 million under the company’s share repurchase program and a $150.0 million milestone payment triggered by FDA approval of Defitelio on March 30, 2016, partially offset by net borrowings of $850.0 million under the company’s revolving credit facility and cash flows from operations of $590.5 million. During 2016, the company repurchased 2.2 million ordinary shares at an average cost of $124.09 per ordinary share.

Recent Developments

In January 2017, the company enrolled the first patient in a Phase 3 clinical study comparing the efficacy and safety of defibrotide versus best supportive care in the prevention of VOD in adult and pediatric patients undergoing hematopoietic stem cell transplant who are at high risk or at very high risk of developing VOD.

In February 2017, the company enrolled the first patient in a Phase 2 clinical study evaluating the safety and efficacy of JZP-110 for the treatment of excessive sleepiness associated with Parkinson’s disease.

2017 Financial Guidance

Jazz Pharmaceuticals’ full year 2017 financial guidance is as follows (in millions, except per share amounts and percentages):

Revenues
$1,625-$1,700
Total net product sales
$1,617-$1,692
-Xyrem net sales
$1,220-$1,250
-Erwinaze/Erwinase net sales
$205-$225
-Defitelio/defibrotide net sales
$130-$150
-Vyxeos (CPX-351) net sales1
$10-$20
GAAP gross margin %
93%
Non-GAAP adjusted gross margin %2,5
93%
GAAP SG&A expenses
$515-$550
Non-GAAP adjusted SG&A expenses3,5
$440-$460
GAAP R&D expenses
$195-$220
Non-GAAP adjusted R&D expenses4,5
$165-$180
GAAP net income per diluted share
$6.55-$7.55
Non-GAAP adjusted net income per diluted share5
$10.70-$11.30

1.
Guidance assumes FDA approval and launch of Vyxeos (CPX-351) in the U.S. in 2017.
2.
Excludes $5 million of share-based compensation expense from estimated GAAP gross margin.
3.
Excludes $75-$90 million of share-based compensation expense from estimated GAAP SG&A expenses.
4.
Excludes $20-$25 million of share-based compensation expense and $10-$15 million of milestone payments from estimated GAAP R&D expenses.
5.
See "Non-GAAP Financial Measures" below. Reconciliations of non-GAAP adjusted guidance measures are included above and in the table titled "Reconciliation of GAAP to Non-GAAP Adjusted 2017 Net Income Guidance" at the end of this press release.