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CLVS > SEC Filings for CLVS > Form 10-Q on 7-Nov-2013All Recent SEC Filings

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Quarterly Report


Forward-Looking Information

This Quarterly Report on Form 10-Q and the information incorporated herein by reference includes statements that are, or may be deemed, "forward-looking statements." In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes," "estimates," "anticipates," "expects," "plans," "intends," "may," "could," "might," "will," "should," "approximately" or, in each case, their negative or other variations thereon or comparable terminology, although not all forward-looking statements contain these words. They appear in a number of places throughout this Quarterly Report on Form 10-Q and include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things, our ongoing and planned preclinical studies and clinical trials, the timing of and our ability to make regulatory filings and obtain and maintain regulatory approvals for our product candidates, the degree of clinical utility of our products, particularly in specific patient populations, expectations regarding clinical trial data, our results of operations, financial condition, liquidity, prospects, growth and strategies, the industry in which we operate and the trends that may affect the industry or us.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics, and industry change and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained herein.

Any forward-looking statements that we make in this Quarterly Report on Form 10-Q speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.

You should also read carefully the factors described in the "Risk Factors" section of this Quarterly Report on Form 10-Q to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. You are advised, however, to consult any further disclosures we make on related subjects in our other reports filed with the SEC and on our website.


We are a biopharmaceutical company focused on acquiring, developing and commercializing innovative anti-cancer agents in the United States, Europe and additional international markets. We target our development programs for the treatment of specific subsets of cancer populations, and seek to simultaneously develop, with partners, companion diagnostics that direct our product candidates to the patients that are most likely to benefit from their use. We are currently developing two product candidates for which we hold global marketing rights:
CO-1686, an orally available, small molecule epidermal growth factor receptor, or EGFR, covalent inhibitor that is in Phase I/II clinical development for the treatment of non-small cell lung cancer, or NSCLC, in patients with activating EGFR mutations, including the initial activating mutations, as well as the primary resistance mutation, T790M; and rucaparib, an orally available, small molecule poly (ADP-ribose) polymerase, or PARP, inhibitor being developed for various solid tumors that is currently in Phase I/II clinical trials. We have also entered into a drug discovery agreement for the discovery of a novel cKIT inhibitor targeting resistance mutations for the treatment of GIST, a gastrointestinal cancer. If any clinical candidates are discovered, we would seek to pursue clinical development of such clinical candidates.

We were incorporated in Delaware in April 2009 and commenced operations in May 2009. To date, we have devoted substantially all of our resources to identifying and in-licensing product candidates, performing development activities with respect to those product candidates, and the general and administrative support of these operations. We have generated no revenues and, through September 30, 2013, have principally funded our operations using the $75.5 million of net proceeds from the sale of convertible preferred stock, the issuance of $35.0 million aggregate principal amount of convertible promissory notes, and $458.4 million of net proceeds from public offerings of our common stock completed in November 2011, April 2012 and June 2013. The convertible preferred stock and outstanding principal amount of the convertible promissory notes and all accrued and unpaid interest converted into shares of our common stock immediately prior to the closing of our initial public offering in November 2011.

We have never been profitable and, as of September 30, 2013, we had an accumulated deficit of $239.8 million. We expect to incur significant and increasing losses for the foreseeable future as we advance our product candidates through clinical development to seek regulatory approval and, if approved, commercialize such product candidates. We will need additional financing to support our operating activities. We will seek to fund our operations through public or private equity or debt financings or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We expect that research and development expenses will increase as we continue the development of our product candidates. We will need to generate significant revenues to achieve profitability and we may never do so.

In October 2013, we provided an update on the progress toward the clinical, regulatory, and development objectives for 2013 for each of our programs. Data from the ongoing CO-1686 Phase I dose escalation study was presented at the World Conference on Lung Cancer. These data showed that six RECIST partial responses (PR) had been observed to date in nine evaluable patients dosed at 900mg twice daily (BID) of the free base formulation of CO-1686, for a 67 percent objective response rate. Eight of the nine evaluable patients experienced PRs or tumor shrinkage greater than 10 percent. These patients were heavily pretreated prior to receiving CO-1686. Fifty-six patients have been treated to date across all dosing cohorts in the Phase I study, with no evidence of dose-related wild-type EGFR-driven toxicities.

In August, we commenced enrollment in the Phase I study using the hydrobromide (HBr) formulation of CO-1686. Pharmacokinetic data from the initial cohort receiving 500 mg BID of the HBr formulation demonstrated substantially increased exposures over those seen in patients dosed with the free base formulation at 900mg BID. There has been no evidence of skin or gastrointestinal toxicity in the 500mg BID cohort, and no dose limiting toxicity. Dose escalation is ongoing with the HBr formulation, currently dosing at 750mg BID, as the maximum tolerated dose has not yet been reached. We expect to establish the Phase 2 dose for CO-1686 by year-end 2013, and to initiate Phase 2 studies to assess efficacy in second line NSCLC patients with the T790M mutation as well as first line NSCLC patients with activating EGFR mutations. In addition, we expect to commence our initial registration study with CO-1686 in the first half of 2014 in second line NSCLC patients with the T790M mutation.

In October 2013, we announced the signing of an agreement with QIAGEN to develop a companion diagnostic test to identify the T790M mutation in patients with EGFR driven NSCLC. The diagnostic will build on QIAGEN's therascreen EGFR RGQ PCR Kit, which was approved by the U.S. Food and Drug Administration in July 2013 as a companion diagnostic used in the treatment of metastatic NSCLC patients whose tumors have certain EGFR mutations. Analytical performance of the therascreen EGFR test has been established for 21 EGFR mutations, including T790M.

During the third quarter of 2013, a dose of 600 BID was selected as the recommended Phase 2/3 dose for rucaparib. Safety data to date shows rucaparib to be well-tolerated, which is important for a drug intended to be used in a maintenance setting. In data presented at recent medical meetings, rucaparib demonstrated durable objective responses in heavily pre-treated patients. To date, eight RECIST responses have been observed during the Phase 1 study. In ovarian cancer patients with a germline BRCA mutation, one RESIST complete response, two PRs, and two biomarker assessed responses have been observed to date. Responses have been observed in both ovarian cancer patients who responded to prior treatment with a platinum-based chemotherapy and patients who did not. Overall, seven of ten ovarian cancer patients with germline BRCA mutations treated with rucaparib at all doses achieved disease control, defined as a complete response, partial response, or stable disease for a period greater than 24 weeks. Responses have also been achieved for rucaparib patients with breast and pancreatic cancers with a germline BRCA mutation.

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Finally, we recently announced the enrollment of the first patient in the global ARIEL (Assessment of Rucaparib in Ovarian Cancer Phase 2 Trial) study. ARIEL2 is a single-arm, open-label, Phase 2 study designed to identify tumor characteristics that predict sensitivity to rucaparib using DNA sequencing to evaluate each patient's tumor. Tumor samples from study participants will be evaluated for BRCA1 and BRCA2 mutations, as well as other genes that are expected to confer sensitivity to PARP inhibitor therapy when mutated. In late 2013, we intend to initiate our pivotal study ARIEL3, a randomized, double-blind, Phase 3 study that will compare the effects of rucaparib against placebo. The study will evaluate whether maintenance rucaparib given to ovarian cancer patients who responded to a platinum based chemotherapy can extend the period of time for which the disease is controlled after successful chemotherapy.

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Product License Agreements


In May 2010, we entered into a worldwide license agreement with Avila (now part of Celgene Corporation) to discover, develop and commercialize a covalent inhibitor of mutant forms of the EGFR gene product. CO-1686 was identified as the lead inhibitor candidate under the license agreement. We are responsible for all preclinical, clinical, regulatory and other activities necessary to develop and commercialize CO-1686. We made an up-front payment of $2.0 million to Avila upon execution of the license agreement and an additional $4.0 million milestone payment in the first quarter of 2012 upon the acceptance by the U.S. Food and Drug Administration, or FDA, of our investigational new drug, or IND, application for CO-1686. We recognized both payments as acquired in-process research and development expense. We are obligated to pay royalties on net sales of CO-1686, based on the volume of annual net sales achieved. Celgene has the option to increase royalty rates by electing to reimburse a portion of our development expenses. This option must be exercised within a limited period of time after Celgene is notified by us of our intent to pursue regulatory approval of CO-1686 in the United States or the European Union as a first-line treatment. We may be required to pay up to an additional aggregate of $115.0 million in additional development and regulatory milestone payments if certain clinical study objectives and regulatory filings, acceptances and approvals are achieved. In addition, we may be required to pay up to an aggregate of $120.0 million in sales milestone payments if certain annual sales targets are achieved.

In January 2013, the Company entered into an exclusive license agreement with Gatekeeper Pharmaceuticals, Inc. ("Gatekeeper") to acquire exclusive rights under patent applications associated with mutant EGFR inhibitors and methods of treatment. Pursuant to the terms of the license agreement, the Company made an up-front payment of $250,000 upon execution of the agreement, which was recognized as acquired in-process research and development expense. If CO-1686 is approved for commercial sale, the Company will pay royalties to Gatekeeper on future net sales.


In June 2011, we entered into a license agreement with Pfizer to acquire exclusive global development and commercialization rights to Pfizer's drug candidate known as rucaparib. This drug candidate is a small molecule PARP inhibitor which we are developing for the treatment of selected solid tumors. Pursuant to the terms of the license agreement, we made an up-front payment by issuing Pfizer $7.0 million principal amount of a 5% convertible promissory note due in 2012, which was subsequently converted to common stock immediately prior to our initial public offering. We are responsible for all development and commercialization costs of rucaparib and, if approved, we will be required to pay Pfizer royalties on sales of the product. In addition, we may be required to pay Pfizer up to an aggregate of $259.0 million in milestone payments if certain development, regulatory and sales milestones are achieved.

In April 2012, the Company entered into a license agreement with AstraZeneca UK Limited to acquire exclusive rights associated with rucaparib under a family of patents and patent applications that claim methods of treating patients with PARP inhibitors in certain indications. The license enables the development and commercialization of rucaparib for the uses claimed by these patents. Pursuant to the terms of the license agreement, the Company made an up-front payment of $250,000 upon execution of the agreement, which was recognized as acquired in-process research and development expense. The Company may be required to pay up to an aggregate of $0.7 million in milestone payments if certain regulatory filings, acceptances and approvals are achieved. If approved, AstraZeneca will also receive royalties on any sales of rucaparib.

Drug Discovery Collaboration Agreement

In July 2012, the Company entered into a drug discovery collaboration agreement with Array BioPharma Inc. for the discovery of a novel cKIT inhibitor targeting resistance mutations for the treatment of GIST, a gastrointestinal cancer. Under the terms of the agreement, the Company is responsible to fund all costs of the discovery program, as well as costs to develop and commercialize any clinical candidates discovered. If any clinical candidates are discovered and the Company seeks to pursue clinical development of such clinical candidates, the Company may be required to pay Array up to an aggregate of $192.0 million in milestone payments if certain development and regulatory objectives and annual net sales targets are achieved.


In November 2009, we entered into a license agreement with Clavis to develop and commercialize CO-101 in North America, Central America, South America and Europe. Under the terms of the license agreement, we made an up-front payment to Clavis in the amount of $15.0 million, which was comprised of $13.1 million for development costs incurred prior to the execution of the agreement, which we recognized as acquired in-process research and development and $1.9 million for the prepayment of preclinical activities to be performed by Clavis. In November 2010, the license agreement was amended to expand the license territory to include Asia and other international markets. We paid Clavis $10.0 million for the territory expansion and recognized that payment as acquired in-process research and development expense. As part of the amendment to the license agreement, Clavis agreed to reimburse up to $3.0 million of our research and development costs for certain CO-101 development activities subject to our incurring such costs.

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On November 12, 2012, the Company reported results from a pivotal study of CO-101 versus gemcitabine in metastatic pancreatic cancer, which failed to demonstrate a difference in overall survival between the two study arms. Based on the results of the study, the Company has ceased development of CO-101 and terminated the license agreement.

Financial Operations Overview


To date, we have not generated any revenues. In the future, we may generate revenue from the sales of product candidates that are currently under development. Based on our current development plans, we do not expect to generate significant revenues for the foreseeable future. If we fail to complete the development of our product candidates and, together with our partners, companion diagnostics or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, will be adversely affected.

Research and Development Expenses

Research and development expenses consist of costs incurred for the development of our product candidates and companion diagnostics, which include:

license fees and milestone payments related to the acquisition of in-licensed products, which are reported on our statements of operations as acquired in-process research and development;

employee-related expenses, including salaries, benefits, travel and share-based compensation expense;

expenses incurred under agreements with CROs and investigative sites that conduct our clinical trials and preclinical studies;

the cost of acquiring, developing and manufacturing clinical trial materials;

costs associated with preclinical activities and regulatory operations; and

activities associated with the development of companion diagnostics for our product candidates.

Research and development costs are expensed as incurred. License fees and milestone payments related to in-licensed products and technology are expensed if it is determined that they have no alternative future use. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials. We plan to increase our research and development expenses for the foreseeable future as we seek to expand our clinical and companion diagnostic development activities for our CO-1686 and rucaparib product candidates and perform drug discovery activities for a cKIT inhibitor targeting resistance mutations for the treatment of GIST.

The following table identifies research and development costs and acquired in-process research and development costs on a program-specific basis for our product candidates in-licensed through September 30, 2013, their companion diagnostics, and the cKIT inhibitor drug discovery program. Personnel-related costs, depreciation and share-based compensation are not allocated to specific programs as they are deployed across multiple projects under development and, as such, are separately classified as personnel and other expenses in the table below.

                                                                                               Cumulative from
                                    Three Months Ended          Nine Months Ended         April 20, 2009 (Inception)
                                       September 30,              September 30,                to September 30,
                                    2013           2012         2013          2012                   2013
                                                                    (in thousands)
CO-101 Expenses
Acquired in-process R&D           $      -       $     -      $      -      $     -      $                     23,085
Research and development                (20 )       4,774           946       16,119                           61,447

CO-101 Total                            (20 )       4,774           946       16,119                           84,532
CO-1686 Expenses
Acquired in-process R&D                  -             -            250        4,000                            6,250
Research and development              4,133         2,350        11,509        4,678                           27,878

CO-1686 Total                         4,133         2,350        11,759        8,678                           34,128
Rucaparib Expenses
Acquired in-process R&D                  -             -             -           250                            7,250
Research and development              6,441         2,944        13,746        6,531                           25,560

Rucaparib Total                       6,441         2,944        13,746        6,781                           32,810
cKIT Inhibitor Expenses
Acquired in-process R&D                  -             -             -            -                                -
Research and development              1,135           812         3,398          812                            5,495

cKIT Inhibitor Total                  1,135           812         3,398          812                            5,495
Personnel and other expenses          4,374         4,578        14,402       12,470                           47,326

Total                             $  16,063      $ 15,458     $  44,251     $ 44,860     $                    204,291

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General and Administrative Expenses

General and administrative expenses consist principally of salaries and related costs for personnel in executive, finance, business development, legal, investor relations and information technology functions. Other general and administrative expenses include facility costs, communication expenses, corporate insurance, and professional fees for legal, consulting and accounting services.

Other Income and Expense

Other income is comprised of interest income earned on cash, cash equivalents and available for sale securities, gain on the sale of available for sale securities, and a federal grant awarded to us under the Qualifying Therapeutic Discovery Project Program in 2010. Other expense includes interest expense associated with the convertible notes payable outstanding during 2011. In addition, we hold cash balances at financial institutions denominated in currencies other than the U.S. dollar to fund research and development activities performed by various third-party vendors. The translation of these currencies into U.S. dollars results in foreign currency gains or losses, depending on the change in value of these currencies against the U.S. dollar. These gains and losses are included in Other Income and Expense.

Critical Accounting Policies and Significant Judgments and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and share-based compensation. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

For a description of our critical accounting policies, please see Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012. There have not been any material changes to our critical accounting policies since December 31, 2012.

Results of Operations

Comparison of Three Months Ended September 30, 2013 and 2012:

The following table summarizes the results of our operations for the three
months ended September 30, 2013 and 2012:

                                     Three Months Ended
                                       September 30,
                                   2013             2012            Increase (Decrease)         Percent Change
                                                                 (in thousands)
Revenues                         $      -         $      -         $                  -
Operating Expenses:
Research and development            16,063           15,458                          605                    3.9 %
General and administrative           4,312            2,762                        1,550                   56.1 %
Acquired in-process research
and development                         -                -                            -                     0.0 %

Operating loss                     (20,375 )        (18,220 )                      2,155                   11.8 %
Other income (expense), net             55              (48 )                       (103 )               (214.6 %)

Loss before income taxes           (20,320 )        (18,268 )                      2,052                   11.2 %
Income taxes                            -                -                            -                     0.0 %

Net loss                         $ (20,320 )      $ (18,268 )      $               2,052                   11.2 %

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Research and Development Expenses. The increase in research and development expenses for the three months ended September 30, 2013 compared to the three months ended September 30, 2012 was due to development expenses associated with our CO-1686 and rucaparib product candidates, less a reduction of $4.8 million in CO-101 development expenses associated with the termination of this program. Research and development expenses for CO-1686 increased by $1.7 million due primarily to expenses incurred for clinical supply manufacturing activities, as well as increased enrollment in the ongoing Phase I study for CO-1686. Research and development expenses for rucaparib increased by $3.5 million due primarily to clinical supply manufacturing activities, the initiation of two new clinical studies during the second quarter of 2013 and continued enrollment in existing clinical studies. We also initiated a drug discovery program for cKIT inhibitors during the third quarter of 2012, which resulted in an increase of $0.3 million over the third quarter of 2012.

General and Administrative Expenses. The increase in general and administrative expenses for the three months ended September 30, 2013 compared to the three months ended September 30, 2012 was primarily attributable to an increase in share-based compensation expense of $0.8 million. The increase was also due to . . .

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