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Executives

Anna Sussman – Senior Director, IR

Patrick Mahaffy – President and CEO

Erle Mast – EVP and CFO

Analysts

Ravi Mehrotra – Credit Suisse

Marko Kozul – Leerink Swann

Clovis Oncology, Inc. (CLVS) Q4 2012 Earnings Call February 28, 2013 4:30 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Clovis Oncology Q4 and Full Year 2012 Financial Results Conference Call. My name is Shaun and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of the conference.

(Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would like to turn the call over to Ms. Anna Sussman, Senior Director of Investor Relations. Please proceed.

Anna Sussman

Thank you, Shaun. Good afternoon, everyone, and welcome to the Clovis Oncology fourth quarter and year-end 2012 conference call. You should have received the new release announcing our results. If not, it’s available at www.clovisoncology.com. As a reminder, this call is being recorded and webcast. And remarks may be accessed live on our Web site during the call and will be available on our archive for the next several weeks.

The agenda for today’s call is as follows. Patrick Mahaffy, our President and CEO, will discuss the highlights of 2012 and our strategic objectives for 2013. Then Erle Mast, our Chief Financial Officer, will cover the financial results for the quarter and year in greater detail, and comment on the company’s outlook for 2013. Pat will make a few closing remarks and then we will open the call for Q&A.

Before we begin, please note that during today’s call, we may make forward-looking statements within the meaning of the federal securities laws, including statements concerning our financial outlook and expected business plans. All of these statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

Please refer to our recent filings with the SEC for a full review of the risks and uncertainties associated with our business. Forward-looking statements speak only as of the date on which they’re made and Clovis undertakes no obligation to update or revise any forward-looking statements.

Now, I’ll turn over the call to Patrick Mahaffy.

Patrick Mahaffy

Thanks, Anna. Welcome, everybody. Thank you for joining us this afternoon. We made very important progress during 2012 despite the disappointing outcome of the LEAP study for CO-101 in pancreatic cancer.

This afternoon, I’d like to take the opportunity to highlight our clinical development programs CO-1686 and rucaparib in the context of 2012 accomplishments and anticipated 2013 milestones.

First to CO-1686, which is our oral small molecule covalent inhibitor of the mutant forms of epidermal growth factor receptor or EGFR for the treatment of non-small cell lung cancer. 1686 targets both the initial activating EGFR mutations, as well as the primary resistance mutation, T790M, and it has the potential to treat non-small cell lung cancer patients with EGFR mutations both as a first-line and a second-line treatment.

The CO-1686 spares wild-type or normal EGFR, it has the potential to cause a lower incidence of toxicity, particularly the skin rash and diarrhea normally associated with other EGFR inhibitors.

In March 2012, we initiated our first human clinical study in 1686. We initiated the Phase I/II study at a dose of 115 mgs per day given once daily and we recently initiated a dosing cohort at a dose of 900 milligrams two times daily.

Based on animal models and PK data, we believe that the cohorts that commenced dosing in late 2012 are now approaching the therapeutic window for 1686 to begin to show clinical benefit. In particular, we’re seeing trough plasma levels above the therapeutic threshold for a reasonable period of time, especially when the drug is given twice daily.

While we have not yet achieved the partial responses defined by RECIST criteria, which requires a 30% shrinkage or greater tumor reduction, we are seeing tumor shrinkage for CO-1686 and T790M positive patients as we get to higher dosing.

As the study has evolved, we’re seeing progressively better patient outcomes as one would expect with dose escalation. Initially, patients stated that they felt better. And as doses got higher we did then begin to see signs of symptomatic relief such as reduced coughs and fatigue. We are now seeing signs of clinical benefit, including reductions in pleural effusions and objective evidence of tumor reduction. Hopefully, this progress will continue as we continue to dose escalate.

We are seeing some reservable grade 1 and 2 toxicities. So we’ve not yet seen rash or diarrhea in the cohorts completed to date as is common with TKI treatment. In fact, at this point, there is no single toxicity that we are seeing that begins to emerge as a dose limiting toxicity, and therefore, we cannot yet predict what a dose limiting toxicity may be. We look forward to sharing preliminary Phase I data from this study at ASCO in early June.

Once we’ve established the optimal dose for 1686, we intend to initiate an expansion cohort of approximately 40 non-small cell lung cancer patients, who have progressed well on treatment with EGFR-directed therapy such as Tarceva or Iressa and have developed the T790M resistance mutation.

We also intend to study 1686 in an expansion cohort of newly diagnosed patients, who express the activating mutations of EGFR. But by inhibiting both the activating mutations of EGFR as well as its primary resistance mechanism, we’re able to demonstrate a meaningful progression-free survival benefit compared to what has been seen to date for Tarceva and other TKI therapies. We will be in a position to move 1686 into a frontline development program.

Pending data from the second line T790M positive cohort, our goal is to commence a registration study in the first half of 2014 in this T790M positive, TKI failure population.

As we previously discussed, we’re developing an improved formulation of 1686. Today, we are using a free base capsule, which is simply active ingredient in a capsule form. The commercial formulation, which we expect to use in the registration study, is the hydrobromide salt tablet. In animal models, this formulation had demonstrated exposure levels between three times and ten times higher than the current free base formulation. So we anticipate that the ultimate human dose will also be lower than that which we’re currently exploring with the free base formulation. We intend to transition this formulation in the patients during the third quarter of this year. Once this new formulation is available and we have determined an appropriate dose, we also plan to initiate a Phase I study in Japan.

Finally, as to 1686, in late January, we entered into an exclusive sub-license to certain patent applications owned by Dana-Farber Cancer Institute (inaudible) inhibitors of the EGFR JT permutation or T790M – already strong position of our CO-1686 patent estate. These patent applications are also known as the gate keeper patent applications.

Turning now to rucaparib. Rucaparib is our orally available, small molecule inhibitor of PARP-1 and PARP-2, which we are exploring as both a monotherapy and in combination with chemotherapy in patients who are predisposed to PARP inhibitor sensitivity. We’ve been pleased with the progress in both our ongoing sponsored monotherapy in combination with chemotherapy Phase I/II studies as well as our investigator-sponsored monotherapy in combination chemotherapy trials.

Our Phase I/II monotherapy study continues to advance and we anticipate indentifying the optimal dose within the next several cohorts. To remind you, we are currently dosing at 300 milligrams twice-daily.

We have encouraging evidence of activity, including some firm PRs in the BRCA mutant patient population. Once we’ve achieved the dose, we will then expand into the Phase II portion of the study to assess the efficacy of rucaparib in patients with ovarian cancer, associated with germ-line mutations in the BRCA genes.

We expect to provide an update from the Phase I portion of this Phase I/II monotherapy study at ASCO in June. And in the second half of 2013, we plan to initiate two additional studies through rucaparib. The first is a biomarker validation study in women with relapsed, platinum-sensitive, high-grade serous ovarian cancer to inform the definition of Homologous Recombination Defects or HRD for the pivotal study.

And the second is a global registration study in platinum-sensitive ovarian cancer patients with efficacy analyses pre-specified in populations defined by deficiencies in BRCA and in other DNA repair genes.

Last August, we announced an agreement with Foundation Medicine to identify the additional genetic mutations beyond those in germ-line BRCA that are associated with effective DNA repair and may be useful in identifying those additional patients who could benefit from rucaparib.

The high-grade serous ovarian cancer, for example, this has the potential to increase the percentage of ovarian cancer patients potentially eligible for rucaparib therapy from the 15% typically found to have germ-line mutations of BRCA to an estimated 40% to 50% of patients who have DNA repair deficiencies caused by mutations in BRCA as well as a number of other genes.

Also during 2012, we learned that the European Commission granted rucaparib orphan medicinal product designation for the treatment of ovarian cancer. In mid 2012, we announced an agreement with Array BioPharma to discover a novel KIT inhibitor targeting resistance mutations for the treatment of gastrointestinal stromal tumors also known as GIST.

This program is complementary to our current programs in development and dovetails nicely with our pipeline. We anticipate having a candidate compound by the end of 2013 or early 2014 from this collaboration.

Now, I would like to turn the call over to Erle to discuss fourth quarter 2012 financial results and guidance for the year.

Erle Mast

Thanks, Pat. Good afternoon, everyone. Our full financial results are included in this afternoon’s press release. So I’ll direct my comments to highlights for the fourth quarter and for full year 2012 as well as provide some additional analysis and commentary.

We reported a net loss of $21.1 million or $0.81 per share for the fourth quarter of 2012 and $74 million or $2.97 per share for the full year 2012. Research and development expenses totaled $18.3 million for the fourth quarter and $58.9 million for the full year of 2012.

Both our net loss and research and development expenses for the fourth quarter increased by $2.8 million as compared to the third quarter of 2012. These increases are due primarily to increased costs we incurred in the fourth quarter for the wind down of the CO-101 program.

General and administrative expenses totaled $2.8 million for the fourth quarter and $10.6 million for the full year. These amounts increased significantly from the comparable period – prior-year periods as we expanded our administrative function to support becoming a public company in late 2011 as well as our growing development activities for each of our programs.

Finally, operating expenses for the fourth quarter and for the full year of 2012 included $1.3 million and $4.9 million of stock compensation expense respectively.

Our cash burn for 2012 totaled $66 million, and that included $4.3 million for development milestones associated with our product licensing agreements. We ended 2012 with cash totaling $144.1 million with no outstanding debt and 26.2 million shares of common stock outstanding.

Now, I’d like to reiterate our financial guidance for 2013. As we’ve previously stated, we expect cash burn of $53 million to $57 million for 2013, ending the year with approximately $90 million in cash.

Now I’ll turn the call back to Pat for some closing remarks and then we’ll open up for Q&A.

Patrick Mahaffy

Thanks, Erle. Now, as to our anticipated milestones for 2013. For 1686, we plan on completing the dose escalation portion of the ongoing Phase I/II trial to establish the optimal dosing schedule and to initiate the Phase II expansion cohorts to assess efficacy in second line T790M positive non-small cell lung cancer patients and in first line EGFR positive non-small cell lung cancer patients.

We intend to complete development of a new tablet formulation of 1686, and overall, advance the clinical development program in order to initiate a registration study in second line T790M positive patients during the first half of 2014.

Now, to rucaparib, we also plan to complete the dose escalation portion of the ongoing Phase I/II study to establish the monotherapy dosing schedule; to initiate the Phase II expansion cohort to assess efficacy in selected ovarian cancer patients; to advance the development of a companion diagnostic to identify the patients most likely to benefit from rucaparib, and to initiate the biomarker validation study and a pivotal study in platinum-sensitive ovarian cancer patients in the second half of 2013.

Finally, for our Mutant cKIT Inhibitor program, we hope to identify a product candidate by the end of this year or during the first part of 2014.

In summary, we’ve got a strong foundation in place. We are well financed, and we look forward to completing our 2013 milestones and moving our development programs forward.

With that, thank you joining us today, and we’ll now open the call to any Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Ravi Mehrotra of Credit Suisse. Please proceed.

Ravi Mehrotra – Credit Suisse

Hi. Good afternoon. Thanks for taking my question. Pat, could you just give us a little bit more granularity on the transition to the new formulation of 1686? And specifically, are you just going to use the same dose that you find in the Phase I/II, but in the new formulation, can you step it up in any way, shape or form? And also, on 1686, can you just give some color on grade 1 and grade 2 toxicities you did see specifically so far? Thank you.

Patrick Mahaffy

Sure. As to the transition, we have three formulations of this hydrobromide salt that we’re evaluating in a number of animal models. We would choose one of those in the sort of May/June timeframe, manufacture it and transition it into the second line study initially in the expansion cohort for T790M positive Tarceva failures around about August.

We will determine a dose based on relative exposure, so we’ll determine the exposure quickly in a small number of patients and see how that compares to the current formulation, the free base, and we will then select a dose at that exposure that is equivalent and possibly continue to dose escalate depending on what we see with that formulation.

One of the unusual features of this program is we don’t know and we may, obviously, run into a DLT and that will define an MTD and that will define the dose of the program. It’s possible that we will begin an expansion cohort before we get to that dose, continue to dose escalate, and that could continue only with the free base or it could continue with the hydrobromide salt as well. In any event, that bridging will begin in August and we don’t regard that as highly complex or complicated given the nature of the program.

As to the toxicities, they are not rash or diarrhea. They are some joint pain that sometimes occurs in patients and then a series of kind of one-offs that may or may not be drug related. As you know, determining the full responsibility for side effect in what is a very, very advanced patient, who may be developing any number of symptoms or pains related to or unrelated to the drug, is a little bit difficult. What we aren’t seeing is any specific signal or emergent toxicity that feels like, yeah, we’re seeing this so consistently and with greater amounts at greater levels that we feel like that’s going to be our DLT. They appear to be a relatively haphazard population of side effects.

Ravi Mehrotra – Credit Suisse

Okay. If I can just squeeze a quick follow-on, are there any preclinical models that you can test the rash and GI issues in? And if so, have you done that with 1686 and what have you seen?

Patrick Mahaffy

There are; we have and they’ve been published in posters that have been presented at both AACR and at the triple meeting. So we have done that work. And in addition to that, which is a specific test of wild-type inhibition in these animal models, I’ll remind you that in our efficacy studies where we treated the drugs – and treated with drug and demonstrated in mouse models in a variety of tumor models, tumor regression in a very active drug, the mice actually gained weight. So a proxy for an unhappy mouse is weight loss, and it’s quite common in any oncology development program to see mice lose weight during the course of treatment. It was true in our control arms, which were afatinib and Tarceva. It does not occur when treated with 1686. So the mice don’t also show any proxy for rash or diarrhea. They continue to thrive.

Ravi Mehrotra – Credit Suisse

Right. Thank you very much for taking my questions.

Patrick Mahaffy

You bet.

Operator

Thank you. The next question comes from the line of Marko Kozul of Leerink Swann. Please proceed.

Marko Kozul – Leerink Swann

Hey, Pat. Good afternoon. Thanks for the updates. Just a quick one, can you repeat what you said you’re currently observing in terms of efficacy with 1686, specifically in T790M patients?

Patrick Mahaffy

Yeah. What we’re seeing is, as we would have and have, I guess, predicted, that as we’re getting to trough levels, where we stay above a given trough concentration in the plasma, we are seeing patients move from not just having stable disease and symptomatic relief, but we are beginning to see evidence of clinical benefit that includes tumor regression that is occurring, but not yet to the amount required to be defined as a TR, so that threshold – so you know it is 30% – so we haven’t seen 30% tumor regression yet, but we’ve seen encouraging tumor regression. And we also see things like pleural effusions going away. So our view is that if we’re getting to higher doses, we’ve seen what is almost a dose response in reaction to these higher levels as the patients have gone from stable disease and symptomatic relief to something that continues with that, but also has additional clinical benefit.

Marko Kozul – Leerink Swann

All right, terrific. And can you remind us what the base line expectation should be for T790M patients in terms of response or survival in the setting?

Patrick Mahaffy

Well, no one ever, with any drug, has shown tumor regression with monotherapy in a T790M positive patient. So we don’t have a whole lot of baseline to compare it to. And one of the reasons for the great amount of interest and enthusiasm on the part of investigators for this program is that the animal data at least predict that maybe for the first time we’ll able to show that in human studies.

Marko Kozul – Leerink Swann

All right, really helpful. And then just one more, and then I’ll jump back in queue. There’s a lot of interest for 1686 amongst KOLs we speak with and also the ARIAD ‘113 drug, can you briefly compare and contrast these for us, possibly with a focus on differentiation and also where the development programs may be taking them?

Patrick Mahaffy

Well, our drug is not an ALK inhibitor, and I think ‘113 is a very good ALK inhibitor. We don’t have a lot more to say. The reality is there are chemical differences. Ours is a covalent inhibitor; theirs is not. Theirs was designed specifically to be an inhibitor of mutants with ALK, and they have certain other attributes because, as you’re probably aware, it inhibits a number of kinases at 100 nanomolar or lower. And so, it is a drug that is active against a large number of kinases.

Our drug is not. Our drug was designed specifically to affect the mutant forms of EGFR, including T790M and activating mutations, and not hit wild-type. It does not. Whether that translates in the same way into humans as it has in animals in other studies, time will tell. But we’re pleased with what we’ve seen so far. And the enthusiasm of our investigators increases, and I think they’re very excited about what they’re seeing with the drug.

Marko Kozul – Leerink Swann

Great. I’ll jump back in queue. Thanks for taking the questions.

Operator

Thank you. (Operator Instructions) Okay. And the next question comes from Marko Kozul of Leerink Swann.

Marko Kozul – Leerink Swann

All right, terrific. I’m back. So, Pat, I have a question about your companion diagnostics for 1686. While it appears that currently you’re focused only on using biopsies for prognostic value, how would you incorporate potentially serum samples into the companion diagnostic development program? And how important might this be for treatment-naive patients? Thanks.

Patrick Mahaffy

That is a really important question. And what we have done is some exploratory work looking at not circulating tumor cells, but free DNA in plasma, and we’ve been pleased with what we’ve seen so far. And we know of many companies with different – not many, but several companies with different technological approaches that are absolutely trying to develop a blood-based assay for circulating DNA that would be from a tumor, and so we watch with great interest the effort. It may well be that we will participate to some extent in the development of a blood-based diagnostic. One of the great things that we can bring to the party is, of course, blood from T790M positive patients being tested in the clinical study.

So an asset that we have or will have over the course of this development program will, in fact, be those plasma samples or blood samples from T790M positive patients, and so we will evaluate the best means to push forward in the short-term and probably for our full initial clinical development program. We are focused on a tissue-based assay with Roche Molecular. It is a PCR-based assay that is effectively the same one that they filed for approval for the activating patients to run on their cobas System for their Tarceva supplemental NDA.

And we’ve made a decision that, at this moment in time, there is enough risk in clinical development including with diagnostic development, but the default for the tissue-based assay is the smart path forward from a clinical development standpoint, but we absolutely anticipate that over the course of the development of the compound, and certainly, assuming success post-commercial, that these blood-based assays for T790M or the activated mutations of EGFR will be an incredibly important means for physicians and patients to diagnose their patients’ EGFR mutant status without acquiring a second biopsy.

So we love it that work is going on. We will participate in one form or another, but right now, our PMA-directed activity is going to be the default to the simpler path which is the tissue-based assay.

Marko Kozul – Leerink Swann

Thanks. And maybe continuing this theme, a question on PARPs. With the growing interest and competition amongst PARPs, if a competing PARP were to achieve approval prior to rucaparib, can you walk us through the benefit that your development program as, say, for example, monotherapy and companion diagnostic, might provide to rucaparib’s commercial potential even if it was approved after? Thanks

Patrick Mahaffy

Yeah. In the end, in this industry, what triumphs most of all is better efficacy. I’m not predicting better efficacy, but I’m saying that, to the extent somebody got approved in a sort of all-comers population, which didn’t have a PMA diagnostic directed selection for those most likely to benefit from a PARP inhibitor, I think that that company, in this case, I think it will be us because we’re committed to it, who develop the drug in a targeted population that is identified with a PMA-directed diagnostic – in our case, likely with Foundation – has the potential to yield better outcomes in that select population and, of course, from a reimbursement and utilization standpoint that our outcomes tend to lead to better utilization. And you’re well aware of this; we live in an era where the idea of kind of the quick label and then off-label use is becoming a thing of the past.

In the end, our trial design is going to inform for our label. Our label is going to inform on a one-to-one basis for how our drug is used and how it is reimbursed. And that’s true for anybody developing a drug in this space.

So without commenting on competitor development plans, some of which haven’t been described fully, we are committed to the use of these – of this companion diagnostic to identify, at a minimum, patients with the mutant forms of BRCA and the somatic mutations of BRCA, as a first instance, where one would predict – based on all the available data, one would see the best outcome for a PARP inhibitor, but also looking in this same trial at this BRCA missed population, that population who have other genes associated with DNA repair deficiency who should also benefit in a very meaningful way from a PARP inhibitor, and I think our label would be limited to those two populations, given the design of our trial. And if we do see superior outcomes as compared to sort of all-comers population, then I think we have a very good chance, if we’re not first, of at least being a meaningful competitive player.

Marko Kozul – Leerink Swann

Terrific. Pat, I’m sorry. Just one more on intellectual property. Can you talk a little bit about the life of the recent IP that you’re referring to in the updates that you provided? Is this IP at all blocking to others in the space? Thanks.

Patrick Mahaffy

We have potential IP on a composition of matter that will go through 2033, and that is derived primarily from the Avila patent estate that we license this from. But you may be aware that this company was formed called Gatekeeper that first published in Nature, in December of 2009, a publication that demonstrated in animal models that their compounds were specific for T790M, did not hit wild-type and showed meaningful tumor regressions.

And it got people excited about the space. It got us excited about the space. We did meet with them. All roads from an IP perspective, at least from our sense, led to Avila as having a dominant IP. But it certainly didn’t say that Avila was going to have the only IP. And given what’s happened with Gatekeeper, and I won’t go through the details of it, but they remain, I believe, in litigation with Novartis about some things that happened now three-plus-years ago.

I think they felt it was in their best interest and we felt it was in ours for us to add to our portfolio these additional patent applications from the Dana-Farber’s and some of which they had filed independently themselves, which gives us – I believe will give us, but pending the claims at issue – not only a very strong estate that protects 1686 for that life I’ve described through 2033, but certainly would be a challenge for a competitor developing a mutant-specific, wild-type sparing covalent inhibitor of EGFR, in terms of avoiding claims that we hope and believe we’ll issue from this now large patent estate that we own.

Marko Kozul – Leerink Swann

All right, terrific. Thanks for taking the questions. I look forward to the future updates. Thanks.

Patrick Mahaffy

You bet. Thanks, Marco.

Operator

Thank you. We have no further questions. I would now like to turn the call over to Anna Sussman for closing remarks.

Anna Sussman

Thank you. Thanks all of you for your interest in Clovis today. If you have any follow-up questions, please call me at 303-625-5022. This call can be accessed via a replay of our webcast at our Web site beginning in about one hour and it will available for 30 days. Again, we appreciate your interest and time. And have a good evening.

Operator

Thank you for joining today’s conference call.

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