Loxo Oncology's (LOXO) CEO Josh Bilenker on Q3 2017 Results - Earnings Call Transcript

Loxo Oncology (NASDAQ:LOXO) Q3 2017 Earnings Conference Call November 2, 2017 8:00 AM ET

Executives

Jacob Van Naarden - Chief Business Officer

Josh Bilenker - Chief Executive Officer

Jen Burstein - Vice President of Finance

Analysts

Eric Schmidt - Cowen and Company

Ishmael Asante - Morgan Stanley

Yigal Nochomovitz - Citigroup

Philomena Kamya - Stifel

Operator

Good day, ladies and gentlemen, and welcome to the Loxo Oncology Third Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Mr. Jacob Van Naarden. Sir, you may begin.

Jacob Van Naarden

Thank you, and thank you for joining us today. Before we get started, I'd like to remind you that during this conference call, Loxo Oncology will make certain statements that are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including our business plans and objectives and timing and success of our clinical trials.

Such forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance upon them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. I refer you to our SEC filings for a discussion of risk factors that could cause our actual results to differ materially from those discussed today.

Also, please note that we will be discussing certain non-GAAP financial measures on this call. Our GAAP results and GAAP to non-GAAP reconciliations can be found in our earnings press release, which we issued should this morning.

With that, we will turn the call over to our CEO, Dr. Josh Bilenker.

Josh Bilenker

Good morning. We scheduled this brief conference call to begin a new pattern for the company of regular quarterly earnings calls. With the pipeline that now covers four drug candidates and an expectation that we'll soon be a commercial stage company, we hope these calls will help you track our progress. Joining me today are Jake Van Naarden, our Chief Business Officer; and Jen Burstein our VP of Finance.

So, with that, let's jump into the updates. Starting with larotrectinib. Larotrectinib is our highly selective TRK inhibitor, which has shown efficacy across adults and pediatric patients with TRK fusion cancers regardless of tumor type. Earlier this month, we announced that an independent review committee had corroborated the high response rate of 76% we reported at the ASCO Annual Meeting.

As of the July 17 cutoff date used for the central assessment, the overall response rate was 75% by central review, while the response rate by local read had crept up to 80%. The published literature suggested that typically 10 to 15 percentage points are lost when local data are subjected to the rigor of a central review. So, we were expecting a similar dip, but we were, of course, pleased to see our data hold up better than that.

In our case, the tight concordance between the data sets probably reflects the quality of the data our investigators and team captured in the careful prosecution of the clinical studies. We also believe that the depth and durability of the responses laro delivers to patients with TRK fusions also helped as well.

The independent review committee data will anchor an NDA submission in the United States and an MAA submission in the EU. These data, along with an update on durability, are being submitted for publication. We hope such a publication would appear in the first half of 2018.

We are comfortable reiterating our past guidance that a larotrectinib NDA submission is still on track for late this year or early next. An MAA submission is also still planned for 2018. Our EMA, European regulatory path, has paralleled our U.S. process nicely over the last two years. We have provided European regulators with regular updates of our data and have received advice consistent with our FDA advice.

Since both submissions are quickly approaching, we will provide additional updates along the way. I would also point out that there is no single work stream that drives our time lines. Every aspect of the NDA, CMC, toxicology, clinical pharmacology, clinical, they're all coming together along similar time lines.

We've begun planning for a commercial launch in the United States. We've hired a core internal team, which is headquarters-based, to establish the infrastructure we'll need to launch. We do not plan to hire field-based personnel until 2018. We will give more clarity on commercial strategy and implementation as we get closer to a potential launch date.

So, let me close the laro section with a few high-level bullet points on upcoming milestones for the franchise. Number one, as I said earlier, a publication is in preparation that will provide additional details on the pivotal data set, including an updated snapshot of durability since ASCO. Number two, some of our investigators will be presenting new and sarcoma-focused pediatric data at the Connective Tissue Oncology Society or CTOS Annual Meeting in November.

Number three, some of our investigators will also be presenting updated pediatric data at the AACR Special Conference on Pediatric Cancer Research in December. Number four, the American Society of Hematology Meeting in December, there will be at talk about TRK fusion and hematologic malignancies. Details regarding all of the reference medical meetings, I just spoke of, can be found in our press release from today. And number five, of course, there will be an interim regulatory update, as key milestones come into focus or are achieved.

Moving on to LOXO-195. LOXO-195 is also a highly selective and purpose-built TRK inhibitor, though with designed for a very specific purpose, which was to meet a very specific need. It addresses TRK fusion patients who have responded and then progressed on a prior TRK inhibitor. In some cases, but not all, it is possible to understand why a tumor progressed in the presence of an inhibitor that was once working.

It is also possible to design a new drug against this mechanism. This situation is known as acquired resistance. It is unusual for the same company to have both a first-in-class compound and a next generation solution for resisting patients. It is also unusual for the two compounds to be this close together in terms of development time line.

With both compounds in hand, Loxo has the opportunity to enroll patients in a very coordinated way since the patients have already received a molecular diagnosis on a prior trial. In turn, we may be able to compress development time lines for LOXO-195. But most importantly, we hope to provide patients with an end-to-end solution that extends the duration of effective therapy for as long as possible.

Durable disease control is the endgame that doctors and patients value most. We have an ongoing Phase I/II trial for LOXO-195 and will - we continue to open trial sites globally. Our goal is to provide catchment and drug access to patients who eventually relapse on larotrectinib, entrectinib or any other inhibitor that a treating physician has chosen.

We will provide a clinical data update on this program in a scientific forum in 2018. As you can imagine, it is hard to provide firm updates for new data for this program because enrollment is determined by progression on a prior TRK inhibitor. We are rooting for patients everywhere not to need LOXO-195 for as long as possible.

Let's turn now to LOXO-292, our highly selective RET inhibitor. You may remember that the biology thesis here is about RET fusions and lung cancer and other tumors such as papillary thyroid and colon cancer. In addition to these fusion events, we are also interested in patients with certain RET mutations, which have been described in medullary thyroid cancer. Our Phase I dose escalation trial opened in May and is enrolling quickly.

Earlier in the year, we had hoped to be in a position to provide a pharmacokinetic and safety update in 2017 given that our dose escalation was ongoing and we didn't know how quickly we'd reach a biologically relevant dose capable of showing efficacy. But two-weeks ago, our investigators reported some very early clinical response results in just two patients with lung cancer at the World Lung meeting in Japan.

The Japan presentation provided response data from the first two patients with RET fusion lung cancer treated on the program with and without brain metastases. One patient had previously responded and relapsed on RXDX-105 and the other have done the same on alectinib.

The first patient enrolled on the first dose cohort of a Phase I trial received LOXO-292, 20 milligrams daily and demonstrated a RECIST confirmed partial response ongoing in month five of follow-up. The second patient had systematic brain metastases and was thus ineligible for the Phase I trial.

Such an exclusion is pretty standard for a Phase I trial but the brain met patient had progressed on alectinib at a higher dose than the approved dose and we provided drug access through a single patient protocol mechanism since the patient was not eligible for the Phase I trial. The patient received doses ranging from 20 to 100 milligrams daily.

The patient demonstrated a RECIST-confirmed partial response including a response in the brain ongoing in month four of follow-up. For RET fusion lung cancer, brain activity is important because approximately 25% of patients present with brain metastases. The alectinib experienced patient is particularly interesting because alectinib is well known for its excellent brain penetration.

Our takeaway from these patients is that LOXO-292 appears to be playing to thesis. Both patients had progressed on accidental RET inhibitors whose doses were capped by likely off-target toxicities. As a result, they couldn't be dosed that levels that inhibited RET very deeply. In contrast, LOXO-292, even at low doses provided deeper RET target coverage which translated into differentiated clinical activity.

PK data from the presentation in Japan also supported this conclusion. At the most recent dose level of 60 milligrams twice daily, we are already achieving sustained IC90 target coverage with minimal adverse events and no DLTs. That means we're inhibiting RET signaling at 90% or better already with dose escalation still continuing.

It goes without saying that remains very early days for the LOXO-292 program and we still have a lot of work to do and things to learn. Clearly, more patients need to be treated and reported. We will continue to dose escalate and we will declare a Phase II dose either based on the limitations imposed by toxicity or by estimates of target coverage.

Once we declare a Phase II dose, we will move into the dose expansion phase of the trial, where we'll enroll patients in 1 of 5 cohorts targeting genetically [indiscernible] populations. We plan to provide a more comprehensive trial update in a scientific forum in the first half of 2018.

Turning now to LOXO-305. LOXO-305 is a highly selective BTK inhibitor designed to address an acquired resistance thesis in patients with B-cell malignancies progressing at any covalent BTK inhibitor such as ibrutinib or acalabrutinib. As a result, there are some conceptual similarities to the LOXO-195 program.

In both cases, we hoped to identify a genetically defined group of patients who have proven their disease as sensitive to a prior inhibitor and, therefore, dependent on that pathway and rescue them at the time of relapse with a new drug with a different binding mode. Drugs like ibrutinib and acalabrutinib have been incredibly helpful to patients with certain B-cell malignancies.

Responses have been durable, but now several years into treatment, patients are starting to relapse with something called a C481S mutation. This is an event that prevents all covalent BTK inhibitors from binding as they once did. Also, some patients have had to come off of these drugs because of toxicities. We believe these patients all will need new treatment options. Preparations for the LOXO-305 IND are proceeding well and we expect the clinical to start in 2018. We plan to provide more precise timing guidance as we get closer to the Phase I start.

With that, let's turn it over to Jen Burstein, our VP of Finance, who'll review the financials.

Jen Burstein

This morning we issued a press release which included our quarterly financials. We will be filing our 10-Q after the close of market today. You will see that we reported non-GAAP numbers for the first time this quarter alongside our GAAP numbers. Because the Redx BTK acquisition was accounted for in our P&L and because fluctuations in our stock price have impacted stock-based compensation expense accounting, we thought it would be helpful for investors to see non-GAAP numbers that may represent a better view of the recurring P&L profile of the company.

We plan on showing non-GAAP numbers in addition to GAAP numbers from now on. For prior quarters not shown in the press release, the only non-GAAP adjustment is stock-based compensation, which we've historically provided in prior earnings releases. So hopefully, it's straightforward for you to arrive at those historical quarterly non-GAAP numbers if you're so inclined.

To briefly summarize the financials. Net loss for the third quarter was $73.3 million on a GAAP basis and $28.1 million on a non-GAAP basis. This difference is primarily driven by the $40 million Redx BTK acquisition, all of which was recognized in this quarter.

On a non-GAAP basis, expenses increased by $3.7 million quarter-over-quarter from 2Q to 3Q, reflecting expanded development activities across the pipeline, commercial preparedness activities and new hiring. As of September 30, 2017, we had $405.3 million in cash, cash equivalents and investments.

Jacob Van Naarden

Thanks, Jen. Operator, we're now ready to open the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Eric Schmidt with Cowen and Company. Your line is now open.

Eric Schmidt

Hi good morning. Thanks for the call and the updates. Josh, I think you lost me a little bit on point number five that you're making under larotrectinib, which I think, was in reference to some interim regulatory updates as key milestones coming to focus or achieved. What does that refer to?

Josh Bilenker

We realize we're coming close to the end of the year at this point. I think we've reiterated that our deadlines are on track and we're going to be announcing achievements as they occur as we get closer to the NDA.

Eric Schmidt

Okay. So, you'll announce the NDA filing when it happens?

Jacob Van Naarden

Yes. That's right.

Eric Schmidt

Okay. And let's see, in terms of European commercial plans, can you just discuss your latest thoughts there on larotrectinib?

Jacob Van Naarden

Sure. This is Jake speaking. Hi Eric. So, we're planning mostly right now on the U.S. launch, which I think, as you know, we have a go-to-loan strategy that we're employing - we have a headquarters-based team and we have plans for field-based team in early 2018. Our European regulatory house is very much in order, as Josh alluded to in the prepared remarks. But it is, call it, 6 to 9 months behind the U.S. plan intentionally.

And so, our plan is to learn from the next few months of commercial preparing for the U.S., as we evaluate other options in Europe. There are go-to-loan strategies in Europe that they were prepared to employ by there may be other ways of effectively launching the product there also.

Eric Schmidt

Great. Thanks again.

Jacob Van Naarden

Thanks.

Operator

Our next question comes from Matthew Harrison with Morgan Stanley. Your line is now open.

Ishmael Asante

This is actually Ishmael on for Matt. So quick questions on TRK, RET and BTK. On TRK, can you provide updates on diagnostics and what kind of work needs to be done to place those diagnostics ahead of the TRK launch? RET, just to be clear on what we sort of expect to see for the first half of 2018, will we be picking a dose by that point and theoretically how next steps will look like for pivotal studies with regards to relapse lung patients being the initial target for those studies? And lastly, for BTK, how quickly should we expect it to move to the clinic? And is it possible to see some initial single patient experiences in IMBRUVICA failures like we've seen with the RET and TRK by the end of 2018?

Jacob Van Naarden

Thanks for the questions. I'll just take them in order. So, the first question about diagnostics, it's a central question to the launch of larotrectinib, no doubt. So, I think you know that we see a world for both immunohistochemistry IHC and next-generation sequencing aiding in the launch of the product and aiding in patient identification ultimately. We have announced public collaboration with Roche Ventana to develop a novel immunohistochemistry test. That's an assay that doesn't yet exist.

In other words, we're creating what with Roche Ventana. It's a singleplex kind of test where you look deliberately for TRK. It's well reimbursed and the reason that we're interested in is because of we've seen how useful it was for the ALK class of inhibitors. But we also see a very important long-term role for next-generation sequencing, where we hold on to our initial vision, frankly, from three or four years ago even that there is a world not long from now where all patients with advanced cancer are tested on a comprehensive panel.

And increasingly, these comprehensive panels are including TRK fusions certainly better than they've been historically. And so, we're working with some of the key large players in those spaces, and you'll see us announce formal collaborations in the near future.

Turning to RET. It's hard to speculate as of yet when we'll declare a dose. I think you saw in the World Lung data that we're clearly at an effective dose both as measured by admittedly only two patients, but more importantly by the pharmacology data what we're seeing sustained IC90 target coverage, but we're going to continue dose escalating. And we made the clear dose based on safety. We made a clear dose simply based on target coverage like we did with larotrectinib, but it's hard to speculate too much on exactly when that'll happen.

We do plan on giving a broader Phase I trial update in the first half of 2018. Whether that includes a declaration of a dose or not is sort of remains to be seen until we have the data in hand. Same goes really for the next steps component of your question. It's hard to speculate without sort of having those updated data presented. And certainly, from a regulatory perspective, we prefer to talk about true pivotal plans once we've actually engaged with regulators.

Lastly on BTK, there are patients, I'm sure you know, who are actively coming off the covalent BTK inhibitors either for progression or for toxicity. Those drugs are very effective drugs. Patients are on them for a very long period of time, but we're getting to a point now in 2017, 2018 where a lot of those initial clinical trial patients are starting to come off.

And so, we do believe there is a certainly an enrollment opportunity for the program in 2018 whether or not we can get the study up and running, enroll enough patients to see a signal depending on where our starting dose is and then get those data out that you guys all by the end of 2018. I don't think we're ready to guide to that just yet. So, it's sort of too early to really comment.

Ishmael Asante

Absolutely. Thanks guys that was helpful.

Jacob Van Naarden

Thanks.

Operator

Our next question comes from Yigal Nochomovitz with Citigroup. Your line is now open.

Yigal Nochomovitz

Hi guys, thanks for taking the questions. Obviously, you have great designation for laro. So, what is your current expectation for how long you think the FDA is going to need to review the application? In other words, what is your current assumption for the launch timing next year?

Jacob Van Naarden

So, with breakthrough therapy designation comes a priority review. So that governs the PDUFA date. I think it's - we shouldn't speculate about how long the FDA review will actually take relative to the PDUFA date. I think it's reasonable to think about the PDUFA date as being a real date. Internally, we're preparing for a mid-2018 approval and launch. But again, that's more from a preparedness perspective not a sort of guidance of when we think the drug will actually get approved.

Yigal Nochomovitz

Okay. Got it. And then for this question, I understand you might be limited in what you can say given competitive dynamics. But nonetheless, can you offer any comments in terms of the data sets so far for laro, the NDA data set that is, in terms of person identified by IHC versus NGS and how you would expect that ratio to evolve commercially?

Jacob Van Naarden

Sure. That we can talk about. It's not that complicated, and as much as the IHC assay. As I mentioned earlier, doesn't get actually exist. So, none of the patients in our clinical trial databases were identified using IHC. We're creating the IHC assay with Roche Ventana. It's not out there being commercially used yet. So, in the clinical trial setting, the vast majority of patients were found using a variety of different next-generation sequencing technologies. A handful were found using FISH.

Yigal Nochomovitz

Okay. And how do you see that - once you launch with Roche Ventana, how do you see that split commercially IHC versus NGS?

Jacob Van Naarden

I think it's hard to say. Ultimately, we're agnostic. It's one of the reasons why we're pursuing multiple different diagnostic strategies very deliberately. So, one of the things we've seen evolve over the past year and certainly in a go-forward way is that, I think, next-generation sequencing is sort of tangibly in view in terms of its true democratization by the sequencing companies themselves, creating these [indiscernible] technologies, as well as some key reimbursement decisions coming into focus.

The first oncology multi-analyte next-generation sequencing test was approved by FDA ever over the summer. This is a product from Thermo Fisher called the Oncomine target test. So that's a pretty important milestone. They're now getting reimbursed for that test at the local lab level. Illumina is employing a very similar strategy. So, we continue to believe in some sort of medium and long-term perspective.

The next-generation sequencing-based modalities really are the future since clinicians can get so many answers all at once. The issue to date has been one of technology and one of reimbursement. And as much as the - many of the sequencing-based tests that have been used out there haven't dialed in TRK fusion coverage, that's changing. And number two, they haven't been well reimbursed and so they haven't been well utilized. And again, I alluded to that's changing also.

So as the technology evolves to include TRK fusion sensitivity better, which is happening in real time, and as the reimbursement landscape evolves, we think that NGS utilization with TRK fusion sensitivity is likely to be the future, though we continue to see an adjunct payroll for IHC in the near term, while those issues sort of work themselves out, if that makes sense.

Yigal Nochomovitz

Yes. That does. And then do you have a view or an estimate at the current time in terms of what percent of the community-based hospitals are currently able to test for TRK fusion with an NGS test? And where do you see that number by the time you launch?

Jacob Van Naarden

We're not ready to comment on specific numbers in the way that you're alluding to, but the answer today is few. I mean they have the ability to send tissue to one of the reference labs like Foundation Medicine or Caris or Neogenomics, each of which has their own technology issues and may not or may not actually even detect TRK fusions well. But then a pathologist has to part with the tissue and a patient may be getting balance build for a very expensive test because it's not paid for by insurance. So, there's a lot of issues why a community oncologist may not be widely utilizing these technologies. But that's going to change, of course, as they have the ability to run these tests locally and actually get paid.

Josh Bilenker

I'd also add that a lot of patients with advanced cancer find their way into a tertiary care center at some point in their care is especially if their standard treatment options begin to wane. And tertiary care centers, top cancer centers are probably on the leading edge of this trend before the community.

Jacob Van Naarden

The other anecdote I'll just share which I think is interesting and instructive as it relates to true demand for this kind of testing is there was this program called the NCI mass trial that was a consortium-based approach run by the NCI that we were actually involved in normally. They offered free NGS testing to 1,000 community sites in the United States, and they got so much demand out of the gate for the free testing that they actually essentially ran out of federal funding before they could upgrade their own assay to include more analytes of interest.

So, we were selected to be the TRK fusion arm of the assay and they never even had enough time to upgrade the assay to include TRK fusion sensitivity because there was so much demand just for the sort of nominal free testing. So, I think the lesson there is that the demand exists, but again as a good microcosmic example, there have been more both technical challenges, as well as reimbursement challenges in the space at large. Those were changing and those are evolving and I think in the early days of our launch, we're going to be launching the product, while these things are evolving. But in the medium to long term, I'm not - we're not terribly concerned that these will remain key issues.

Yigal Nochomovitz

Very good. Thank you very much.

Operator

Our next question comes from Stephen Willey with Stifel. Your line is now open.

Philomena Kamya

This is Philomena Kamya in for Stephen Willey. Thanks for taking our questions. Just two quick ones. Do you think you'll be ready to launch in the event of a potentially earlier-than-expected approval? And the next question is how would you sort of characterize the pace of continued patient enrollment in the Phase II studies now that particularly following the various state of disclosures.

Jacob Van Naarden

Sure. So, we have a variety of commercial launch plans, many of which do contemplate an earlier-than-expected approval date. So, we do have plans in place in that event, within reason of course. On the second question, patients continue to be identified. I think the awareness of the target, the awareness of the program have certainly increased since ASCO. And we'll likely present a bigger data update at some point in 2018 inclusive of the patients that have enrolled chronologically beyond the 55 that serve as the primary efficacy database.

Philomena Kamya

And just one quick one if I may, do you have any idea with respect to the projected pace of the commercial buildout following the NDA submission?

Jacob Van Naarden

Can you clarify what you mean by that?

Philomena Kamya

Just in terms of how much personnel you have on board at the moment and just in terms of how much you sequentially - how many people you might add on sequentially following the NDA submission, just some sort of idea with respect to that.

Jacob Van Naarden

Yes. Thanks for the question. So, we're not yet ready to comment exactly on sort of FTE numbers either from a headquarters or a field-based perspective. I think as we get closer to launch, we'd like to give a more comprehensive commercial strategy update to investors inclusive of both tactically how we plan to launch, as well as from an infrastructure perspective.

Philomena Kamya

Understood. Thank you so much.

Jacob Van Naarden

Thanks.

Operator

At this time, I'm showing no further questions. I'd like to turn the call back over to Mr. Jacob Van Naarden for closing remarks.

Jacob Van Naarden

Thanks, operator, and thanks, everyone, for joining us today. We look forward to keeping you apprised of our progress in future forms. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.