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CytRx Corporation Announces Global Strategic License With NantCell Inc. For Aldoxorubicin, An Albumin Mediated Chemotherapeutic

On July 28, 2017 CytRx Corporation (NASDAQ: CYTR), a biopharmaceutical research and development company specializing in oncology, reported that it has entered into a global strategic license with NantCell, Inc., for the exclusive rights to develop and commercialize aldoxorubicin for all indications (Press release, CytRx, JUL 28, 2017, View Source [SID1234519933]). NantCell, a private subsidiary of NantWorks, LLC, is a clinical stage immuno-oncology company focused on developing novel molecularly targeted therapeutics including antibody, T-cell and NK cell based treatments for patients with cancer.

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"We are excited to forge this new relationship with NantCell. They are committed not just to bringing aldoxorubicin to the market for patients with soft tissue sarcomas, but to expand aldoxorubicin’s potential use in combination with both immuno-oncology and cell based therapies to better serve patients suffering from cancer," said Steven A. Kriegsman, CytRx’s Chairman and Chief Executive Officer. "This license and strategic investment will put aldoxorubicin in the hands of a committed partner who pioneered the development of albumin based chemotherapeutics, and will allow CytRx to continue to create new ultra-high potency drug candidates based on our LADR technology platform. Aldoxorubicin will clearly benefit from the first-hand experience of the NantCell management team led by Dr. Patrick Soon-Shiong, who developed and gained regulatory approval under a 505(b)(2) pathway and commercialized Abraxane, an albumin-mediated cytotoxic agent which currently grosses approximately $1 billion in annual sales."

"Aldoxorubicin’s distinct profile makes it the first anthracycline to allow for continuous dosing without increasing cardiac toxicity which would be beneficial for the 17 indications for which doxorubicin is currently approved and other indications where it could provide benefit," stated Dr. Soon-Shiong, NantCell’s Chairman and Chief Executive Officer. "We aim to rapidly incorporate aldoxorubicin into multiple treatment protocols for major tumor types like breast and brain cancers as well as sarcomas."

Under the terms of the license agreement, NantCell made a strategic investment by purchasing $13 million of CytRx common stock at $1.10 per share, representing approximately a 92% premium to CytRx’s most recent market price. CytRx is entitled to receive up to an additional $343 million in milestone payments related to regulatory approvals and commercial milestones for aldoxorubicin. In addition, CytRx will receive increasing double-digit royalties for sales of aldoxorubicin for soft tissue sarcomas and mid to high single digit royalties for all other indications. NantCell will be responsible for all future development, manufacturing and commercialization expenses. CytRx also issued NantCell a warrant to purchase up to 3 million shares of common stock at $1.10 over the next 18 months.

Aldoxorubicin is a rationally-engineered cytotoxic which combines doxorubicin, a widely used chemotherapeutic agent, with a novel linker molecule that binds directly and specifically to circulating albumin, the most abundant protein in the bloodstream. Protein-hungry tumors concentrate albumin, which facilitates the delivery of the linker molecule with the attached doxorubicin to tumor sites. In the acidic environment of the tumor, but not the neutral environment of healthy tissues, doxorubicin is released. Typically, doxorubicin is delivered systemically and is highly toxic, which limits its dose to a level below its maximum therapeutic benefit. Doxorubicin also is associated with many side effects, especially the potential for damage to heart muscle at cumulative doses greater than 450 mg/m2. Using this acid-sensitive linker technology, aldoxorubicin delivers greater doses of doxorubicin (3 ½ to 4 times). To date, there has been no evidence of clinically significant effects of aldoxorubicin on heart muscle, even at cumulative doses of drug well in excess of 6,500 mg/m2 of doxorubicin equivalents. Aldoxorubicin is the first-ever single agent to show superiority over doxorubicin in a randomized clinical trial in first-line soft tissue sarcomas.

In addition, CytRx has amended its long-term loan facility and will make a payment of $5 million to the lender upon the closing of the exclusive global license and strategic investment for aldoxorubicin.

CytRx was represented by Skadden, Arps, Slate, Meagher & Flom LLP on the global license and strategic investment.

NewLink Genetics Reports Second Quarter 2017 Financial Results and Updates Indoximod Program

On July 28, 2017 NewLink Genetics Corporation (NASDAQ:NLNK) reported consolidated financial results for the second quarter of 2017 and provided updates on its clinical development program for indoximod, NewLink Genetics’ small molecule targeting the IDO pathway with a distinct mechanism of action (Press release, NewLink Genetics, JUL 28, 2017, View Source [SID1234519925]).

"We continue to focus on indoximod, our leading drug candidate, as it advances into late-stage clinical development," said Charles J. Link, Jr., M.D., Chairman, Chief Executive Officer, and Chief Scientific Officer. "We have made great progress since the end of the first quarter. We have strengthened the IP around this program with the USPTO Notice of Allowances for indoximod salts and prodrug formulations, and NLG802 entered the clinic."

Recent Highlights:

NewLink Genetics recently completed a successful face-to-face meeting with the FDA to review the proposed design for the pivotal trial with indoximod for patients with advanced melanoma.

First patient dosed in the Phase 1 study of NLG802, a novel prodrug of indoximod. NLG802 is a distinct investigational agent targeting the IDO pathway and represents an important step in the Company’s product life-cycle planning.

A Notice of Allowance (NOA) by the US Patent and Trade Office (USPTO) was received in early July for our patent application covering indoximod salts and prodrugs. When issued, this patent will provide exclusivity until 2036 and cover both the formulation of indoximod to be used in the pivotal trial and NLG802.

Phase 2 data from a randomized trial of indoximod in combination with the cancer vaccine, PROVENGE (sipuleucel-T), for patients with metastatic castration resistant prostate cancer (mCRPC) were presented at the American Society of Clinical Oncology (ASCO) (Free ASCO Whitepaper) Annual Meeting on June 5th. These data showed a statistically significant improvement in radiographic progression-free survival (rPFS) of 10.3 months compared to 4.1 months in the placebo arm, with no difference in adverse events between the two arms.

Phase 1b data from a trial of indoximod in combination with standard of care chemotherapy for patients with newly diagnosed Acute Myeloid Leukemia (AML) were presented at the European Hematology Association (EHA) (Free EHA Whitepaper) Annual Congress on June 23rd. These early data showed that after one cycle of induction therapy, 7/7 patients who achieved complete response (CR) were seen to have no evidence of minimal residual disease (MRD-neg), suggesting that the addition of indoximod has the potential to reduce the proportion of patients with evidence of leukemia after initial therapy.
Guidance for remainder of 2017:

First patients dosed with novel salt formulation of indoximod.

Updated data from Phase 2 trial of indoximod plus gemcitabine/nab-paclitaxel for patients with metastatic pancreatic cancer to be presented at an oncology meeting in late 2017 or early 2018.

Initiation of a pivotal trial of indoximod in combination with PD-1 checkpoint blockade for patients with advanced melanoma, with the goal of full enrollment by end of 2018.
Financial Results for the Three-Month Period Ended June 30, 2017

Cash Position: NewLink Genetics ended the second quarter with cash and cash equivalents totaling $107.8 million compared to $131.5 million for the year ending December 31, 2016.

R&D Expenses: Research and development expenses were $18.2 million in the second quarter of 2017 compared to $27.4 million in the second quarter of 2016. The decrease was due primarily to a $1.8 million decline in clinical trial spend, a decrease in supplies and other expense of $6.8 million, a decrease in personnel-related spend of $2.2 million, offset by an increase in manufacturing-related spend of $1.3 million, and an increase in licensing and consulting fees of $300,000.

G&A Expenses: General and administrative expenses in the second quarter of 2017 were $8.9 million compared to $9.1 million in the second quarter of 2016. The decrease was due to a decline of $1.0 million in personnel-related spend, offset by an increase of $261,000 in consulting and legal fees, an increase in stock compensation expense of $64,000, and an increase in supplies and other expense of $387,000.

Net Loss: NewLink Genetics reported a net loss of $16.7 million or ($0.57) per diluted share for the second quarter of 2017 compared to a net loss of $32.4 million or ($1.12) per diluted share for the second quarter of 2016.

NewLink Genetics ended the quarter with 29,281,301 shares outstanding.

Financial Guidance and Upcoming Investor Meetings

We expect to end 2017 with approximately $75 million in cash and equivalents, which excludes any cash that may be received from financing.

We look forward to presenting at the Baird Healthcare Conference and the Cantor Fitzgerald Healthcare Conference in September in New York City.

ImmunoGen Reports Recent Progress and Second Quarter 2017 Operating Results

On July 28, 2017 ImmunoGen, Inc. (Nasdaq: IMGN), a leader in the expanding field of antibody-drug conjugates (ADCs) for the treatment of cancer, reported recent highlights and reported financial results for the quarter ended June 30, 2017 (Press release, ImmunoGen, JUL 28, 2017, View Source [SID1234519924]).

"We made substantial progress during the second quarter towards our strategic priorities, generating compelling data with our lead program, advancing our novel pipeline, and strengthening our balance sheet," said Mark Enyedy, ImmunoGen’s president and chief executive officer. "We reported single-agent and combination therapy data with mirvetuximab soravtansine in over 150 patients at ASCO (Free ASCO Whitepaper), which strengthen our confidence in the potential of mirvetuximab in the FORWARD I patient population and as we move into earlier lines of treatment for ovarian cancer. In addition, we presented encouraging initial clinical results for IMGN779 in AML, demonstrating dose-dependent biological and anti-leukemia activity, and the ability to retreat patients. Lastly, we significantly improved our cash position through transactions with Sanofi and Debiopharm, enabling us to increase our focus on the development of mirvetuximab and our IGN programs. We look forward to continued execution on these programs over the back half of the year, including filing the IND for IMGN632, our novel CD123-targeting ADC for hematological malignancies."

Recent Highlights

Proprietary Portfolio

Presented pooled analyses of three Phase 1 expansion cohorts at the American Society of Clinical Oncology (ASCO) (Free ASCO Whitepaper) Annual Meeting, demonstrating the safety and efficacy profile of mirvetuximab soravtansine in the patient population being enrolled in FORWARD I, the ongoing Phase 3 registration trial in women with folate receptor alpha (FRα)-positive ovarian cancer;
Presented encouraging data from the Phase 1b/2 FORWARD II study at ASCO (Free ASCO Whitepaper), evaluating mirvetuximab soravtansine in combination with Avastin (bevacizumab), carboplatin, Doxil (pegylated liposomal doxorubicin), or Keytruda (pembrolizumab), demonstrating its potential to complement currently available therapies for FRα-positive ovarian cancer in a range of treatment settings, including earlier lines of therapy; and
Presented first-in-human data at the 22nd Congress of the European Hematology Association (EHA) (Free EHA Whitepaper) on IMGN779 in patients with relapsed or refractory adult acute myeloid leukemia (AML), whose tumors express CD33, demonstrating safety and tolerability across seven dose levels, with no dose limiting toxicities, as well as evidence of dose-dependent biological and anti-leukemia activity.
Partner Programs

In exchange for a $30 million payment, ImmunoGen granted sanofi-aventis U.S. LLC (Sanofi) a fully-paid, exclusive license to develop, manufacture, and commercialize the following experimental agents in development: isatuximab (SAR650984), an unconjugated anti-CD38 antibody in Phase 3 development for relapsed and refractory multiple myeloma; SAR566658, an ADC targeting CA6; SAR408701, an anti-CEACAM5 ADC; an additional ADC directed to an undisclosed target; and SAR428926, an ADC targeting LAMP1;
In exchange for a $25 million upfront payment, Debiopharm International, S.A. (Debiopharm) acquired the Company’s IMGN529/DEBIO 1562, a clinical-stage anti-CD37 ADC for the treatment of patients with B-cell malignancies, such as non-Hodgkin lymphoma. ImmunoGen will receive a $5 million milestone payment upon completion of the transfer of technologies related to the asset, which is expected before year end, and is also eligible for a second success-based milestone payment of $25 million upon IMGN529/DEBIO 1562 entering a Phase 3 clinical trial;
CytomX announced the treatment of the first patient in a Phase 1/2 clinical trial evaluating CX-2009, a ProbodyTM drug conjugate, as monotherapy in select advanced solid tumors, resulting in a $1 million milestone payment to ImmunoGen; and
Bayer announced that the Phase 2 trial assessing anetumab ravtansine in patients with recurrent malignant pleural mesothelioma did not meet its primary endpoint of progression-free survival. The safety and tolerability of anetumab ravtansine were consistent with earlier clinical findings and Bayer is continuing development in additional studies, including a Phase 1b multi-indication study in six different types of advanced solid tumors, and a Phase 1b combination-study in patients with recurrent platinum-resistant ovarian cancer.
Additional Upcoming Events

ImmunoGen anticipates filing an investigational new drug (IND) application in the third quarter of 2017 to support clinical testing with IMGN632, a CD123-targeting ADC integrating a more potent DNA-alkylating payload intended to treat a range of hematological malignancies.
The Company expects to present updated clinical data for IMGN779 in patients with relapsed or refractory adult AML at an upcoming medical meeting.
ImmunoGen plans to publish results from the 40 patient Phase 1 mirvetuximab soravtansine expansion cohort evaluating the use of prophylactic steroid eye drops. The findings support the use of eye drops in the Phase 3 FORWARD I trial.
Financial Results

Revenues for the quarter ended June 30, 2017 were $39.0 million, compared to $7.4 million for the quarter ended June 30, 2016. License and milestone fees for the second quarter of 2017 included a $30 million paid-up license fee related to an amendment to the Company’s collaboration and license agreement with Sanofi and a $1 million Phase 1 milestone payment pursuant to the Company’s license agreement with CytomX. Revenues in the second quarter of 2017 included $6.4 million in non-cash royalty revenues, compared with $5.9 million in non-cash royalty revenues for the same quarter in 2016. Revenues for the second quarter of 2017 also included $0.9 million of research and development (R&D) support fees and $0.6 million of clinical materials revenue, compared with $1.3 million and $0.1 million, respectively, for the same quarter in 2016.

Operating expenses for the second quarter of 2017 were $44.2 million, compared to $48.0 million for the same quarter in 2016. Operating expenses in the second quarter of 2017 include R&D expenses of $35.3 million, compared to $38.7 million for the same quarter in 2016. This change is primarily due to a workforce reduction resulting from the strategic review in September 2016, decreased clinical trial costs driven by the Phase 1 mirvetuximab soravtansine and IMGN529 studies winding down, and lower third party costs. These decreases were partially offset by increased costs related to the FORWARD I Phase 3 clinical trial, as well as an increase in antibody expense driven by mirvetuximab soravtansine commercial-readiness activities. Operating expenses include general and administrative expenses of $8.8 million in the second quarter of 2017 compared to $9.3 million in the same quarter in 2016. This decrease is primarily due to decreased personnel expenses.

ImmunoGen reported a net loss of $8.9 million, or $0.10 per basic and diluted share, for the second quarter of 2017 compared to a net loss of $45.9 million, or $0.53 per basic and diluted share, for the same quarter last year.

ImmunoGen had approximately $150.3 million in cash and cash equivalents as of June 30, 2017, compared with $160.0 million as of December 31, 2016, and had $100.0 million of convertible debt outstanding in each period. Cash used in operations was $8.9 million for the first six months of 2017, compared with $59.0 million for the same period in 2016. The current period benefited from a $30 million paid-up license fee received from Sanofi, which is included in revenue in the current period, and a $25 million upfront payment received from Debiopharm that is included in deferred revenue as of June 30, 2017. Capital expenditures were $0.8 million and $5.2 million for the six months ended June 30, 2017 and 2016, respectively.

Financial Guidance

ImmunoGen has updated its guidance for 2017. Expected revenues are now projected to be between $115 million and $120 million, compared with previous guidance of between $70 million and $75 million; and cash and cash equivalents at December 31, 2017 are expected to be between $90 million and $95 million, compared to previous guidance of $35 million to $40 million. These changes are a result of the Debiopharm and Sanofi agreements executed in the second quarter of 2017. Operating expenses remain unchanged and are expected to be between $175 million and $180 million.

ImmunoGen expects that its current cash plus expected cash revenues from partners and collaborators will enable the Company to fund operations into the second half of 2018.

FDA grants breakthrough therapy designation for Venclexta in acute myeloid leukaemia

On July 28, 2017 Roche (SIX: RO, ROG; OTCQX: RHHBY) reported that the US Food and Drug Administration (FDA) has granted breakthrough therapy designation for Venclexta (venetoclax) in combination with low dose cytarabine (LDAC) for elderly patients with previously untreated AML who are ineligible for intensive chemotherapy (Press release, Hoffmann-La Roche, JUL 28, 2017, View Source [SID1234519919]). FDA breakthrough therapy designation is intended to expedite the development and review of medicines with early evidence of potential clinical benefit in serious or life-threatening diseases and to help ensure that patients receive access to medicines as soon as possible. This is the seventeenth breakthrough therapy designation for Roche’s portfolio of medicines, and the fourth for Venclexta.

Venclexta is being developed by AbbVie and Roche. It is jointly commercialised by AbbVie and Genentech, a member of the Roche Group, in the United States and commercialised by AbbVie outside of the United States.
Breakthrough therapy designation was granted based on data from an ongoing open-label phase Ib study of Venclexta in combination with LDAC in previously untreated elderly patients (over 65 years) with AML, an aggressive form of leukaemia, who are ineligible for intensive chemotherapy. Preliminary data from this study (M14-387) presented at the 22nd European Hematology Association (EHA) (Free EHA Whitepaper) Annual Congress, 22-25 June, in Madrid 2017 (Abstract E911) showed durable efficacy with an acceptable safety profile for Venclexta in combination with LDAC in this patient group.

About AML
AML is an aggressive form of leukaemia that starts in immature forms of blood-forming cells, known as myeloid cells, found in the bone marrow.2 AML is the most common type of aggressive leukaemia in adults.1 It has one of the lowest survival rates of all types of leukaemia3. Even with the best available therapies, older patients aged 65 and over have survival rates comparable to patients with advanced lung cancer, with a five year overall survival rate of <5%.4,5 Approximately 20,000 people in the United States and 18,000 in Europe are diagnosed with AML each year.6,7

About Venclexta
Venclexta is a small molecule designed to selectively bind and inhibit the BCL-2 protein, which plays an important role in a process called apoptosis (programmed cell death). It is believed that blocking BCL-2 may restore the signalling system that tells cells, including cancer cells, to self-destruct.

Venclexta is being co-developed by AbbVie and Roche. Together, the companies are committed to research with Venclexta, which is currently being evaluated in phase III clinical trials for the treatment of relapsed, refractory and previously untreated chronic lymphocytic leukaemia, along with studies in several other cancers including AML. Venclexta is commercialised jointly by AbbVie and Genentech, a member of the Roche Group, in the United States and commercialised by AbbVie outside of the United States.

Merck Announces Second-Quarter 2017 Financial Results

On July 28, 2017 Merck (NYSE:MRK), known as MSD outside the United States and Canada, reported financial results for the second quarter of 2017 (Press release, Merck & Co, JUL 28, 2017, View Source [SID1234519928]).

"We continued to deliver strong results in the second quarter, driven by robust momentum for KEYTRUDA and good progress with other products in our portfolio," said Kenneth C. Frazier, chairman and chief executive officer, Merck. "The company continues to invest in innovative science that addresses the critical needs of population health, which benefits patients while creating long-term value for shareholders."

Financial Summary

Second Quarter
$ in millions, except EPS amounts 2017 2016
Sales $9,930 $9,844
GAAP net income1
1,946 1,205
Non-GAAP net income that excludes items listed below1,2
2,778 2,587
GAAP EPS 0.71 0.43
Non-GAAP EPS that excludes items listed below2
1.01 0.93

Worldwide sales were $9.9 billion for the second quarter of 2017, an increase of 1 percent compared with the second quarter of 2016, including a 1 percent negative impact from foreign exchange.

GAAP (generally accepted accounting principles) earnings per share assuming dilution (EPS) were $0.71 for the second quarter of 2017. Non-GAAP EPS of $1.01 for the second quarter of 2017 excludes acquisition- and divestiture-related costs, restructuring costs and certain other items. Year-to-date results can be found in the attached tables.

Pipeline Highlights

Merck made significant advances in the development program for KEYTRUDA (pembrolizumab), an anti-PD-1 therapy, receiving key regulatory approvals and a supplemental Biologics License Application (sBLA) acceptance.

The U.S. Food and Drug Administration (FDA) approved KEYTRUDA under its Accelerated Approval program:
In combination with pemetrexed and carboplatin for the treatment of patients with metastatic nonsquamous non-small cell lung cancer (NSCLC) regardless of PD-L1 expression. This is the first regulatory approval of KEYTRUDA in combination with another treatment. The National Cancer Care Network (NCCN) also recommended the combination for the treatment of patients with metastatic nonsquamous NSCLC.
For the treatment of previously treated patients with advanced microsatellite instability-high cancers.
For the treatment of certain patients with locally advanced or metastatic urothelial carcinoma, a type of bladder cancer, for first-line use in patients who are ineligible for cisplatin-containing therapy.
The FDA approved KEYTRUDA for the treatment of certain patients with locally advanced or metastatic urothelial carcinoma in the second-line setting for patients who have disease progression during or following platinum-containing chemotherapy.
The European Commission approved KEYTRUDA for the treatment of adult patients with relapsed or refractory classical Hodgkin lymphoma who have failed autologous stem cell transplant and brentuximab vedotin (BV), or who are transplant-ineligible and have failed BV.
The Committee for Medicinal Products for Human Use of the European Medicines Agency (EMA) adopted a positive opinion recommending approval of KEYTRUDA for the treatment of certain patients with locally advanced or metastatic urothelial carcinoma, with a final decision expected in the third quarter of 2017.
The FDA accepted for review the sBLA for KEYTRUDA for the treatment of patients with recurrent or advanced gastric or gastroesophageal junction adenocarcinoma who have already received two or more lines of chemotherapy. The FDA granted Priority Review with a PDUFA action date of Sept. 22, 2017.
The FDA granted Breakthrough Therapy Designation for KEYTRUDA in combination with axitnib as a first-line treatment for patients with advanced or metastatic renal cell carcinoma.
The company previously announced that the pivotal Phase 3 KEYNOTE-040 trial investigating KEYTRUDA in previously treated patients with recurrent or metastatic head and neck squamous cell carcinoma did not meet its primary endpoint of overall survival (HR, 0.82 [95% CI, 0.67-1.01]; one-sided p = 0.03). The safety profile observed in KEYNOTE-040 was consistent with that observed in previously reported studies of KEYTRUDA without new safety signals identified. The final data from KEYNOTE-040 will be presented at an upcoming medical meeting.

At the 77th Scientific Sessions of the American Diabetes Association, Merck in partnership with Pfizer presented data from two Phase 3 studies of ertugliflozin, an investigational oral SGLT-2 inhibitor in development to help improve glycemic control in adults with type 2 diabetes, which met their primary endpoints. Three New Drug Applications for medicines containing ertugliflozin are currently under review with the FDA and EMA.

Phase 3 results from the REVEAL (Randomized EValuation of the Effects of Anacetrapib through Lipid modification) outcomes study of anacetrapib met its primary endpoint, significantly reducing major coronary events (defined as the composite of coronary death, myocardial infarction, and coronary revascularization) compared to placebo in patients at risk for cardiac events who are already receiving an effective LDL-C lowering regimen. The safety profile of anacetrapib in the early analysis was generally consistent with that demonstrated in previous studies of the drug, including accumulation of anacetrapib in adipose tissue, as has been previously reported. Merck plans to review the results of the trial with external experts, and will consider whether to file new drug applications with the FDA and other regulatory agencies.

New data from the company’s HIV portfolio and pipeline were presented at the 9th IAS Conference on HIV Science.

Week 96 results from the pivotal Phase 3 ONCEMRK study evaluating the efficacy and safety of ISENTRESS HD, a 1200 mg once-daily dose of the company’s integrase inhibitor, ISENTRESS (raltegravir), met its primary efficacy endpoint of non-inferiority to twice-daily ISENTRESS, with a similar safety and tolerability profile, reaffirming the comparable efficacy and safety of ISENTRESS HD. ISENTRESS HD is now approved in the United States and European Union.
48 week data from DRIVE-AHEAD, the second of two pivotal Phase 3 studies evaluating doravirine (MK-1439), an investigational non-nucleoside reverse transcriptase inhibitor, for the treatment of HIV-1 infection showed that a once-daily single tablet, fixed-dose combination of doravirine, lamivudine and tenofovir disoproxil fumarate met its primary endpoint. Based on these findings the company plans to file regulatory applications in the fourth quarter of 2017.
Results from a Phase 1 study of MK-8591, Merck’s investigational nucleoside reverse transcriptase translocation inhibitor in adult patients with HIV-1 infection.
Merck entered into an exclusive worldwide license agreement with Teijin Pharma for the development, manufacture and commercialization of an investigational preclinical antibody candidate targeting the protein tau. Changes in tau are associated with a number of diseases affecting the nervous system, including Alzheimer’s disease.

Recent Developments

Merck entered a global strategic oncology collaboration with AstraZeneca to co-develop and co-commercialize AstraZeneca’s Lynparza (olaparib), a PARP inhibitor, and investigational medicine selemetinib, a MEK inhibitor, as monotherapy and in combination treatments for multiple cancer types. Merck and AstraZeneca will independently develop and commercialize Lynparza and selumetinib in combinations with the companies’ respective PD-1 and PD-L1 immuno-oncology medicines KEYTRUDA and Imfinzi (durvalumab). The companies will share development and marketing costs equally, as well as gross profits from Lynparza and selumetinib.

Second-Quarter Revenue Performance

The following table reflects sales of the company’s top pharmaceutical products, as well as total sales of Animal Health products.

$ in millions Second Quarter
2017 2016 Change
Change
Ex-Exchange
Total Sales $9,930 $9,844 1% 2%
Pharmaceutical 8,759 8,700 1% 2%
JANUVIA / JANUMET 1,511 1,634 -8% -7%
KEYTRUDA 881 314 180% 183%
ZETIA / VYTORIN 549 994 -45% -44%
ZEPATIER 517 112 * *
GARDASIL / GARDASIL 9 469 393 19% 20%
PROQUAD,
M-M-R II and VARIVAX 399 383 4% 5%
ISENTRESS / ISENTRESS HD 282 338 -17% -15%
REMICADE 208 339 -39% -36%
SINGULAIR 203 229 -11% -10%
Animal Health 955 900 6% 7%
Other Revenues 216 244 -11% -5%
*Growth comparison not meaningful due to ongoing product launch.

Pharmaceutical Revenue

Second-quarter pharmaceutical sales increased 1 percent to $8.8 billion, including a 1 percent negative impact from foreign exchange. The growth was primarily driven by product launches and vaccines, largely offset by the loss of market exclusivity for several products, as well as lower sales in the diabetes franchise.

Growth in oncology was due to higher sales of KEYTRUDA as the company continues to launch the product with new indications globally. Strong momentum from NSCLC, as KEYTRUDA is the only anti-PD-1 approved in the first-line setting, contributed significantly to KEYTRUDA’s overall growth.

Growth in hepatitis C was driven by ZEPATIER (elbasvir and grazoprevir), a medicine for the treatment of chronic hepatitis C virus genotypes 1 or 4 infection, due to ongoing launches globally.

Additionally, the ongoing launch of BRIDION (sugammadex) Injection 100 mg/mL, a medicine for the reversal of neuromuscular blockade induced by rocuronium bromide or vecuronium bromide in adults undergoing surgery, generated sales of $163 million and also contributed to growth during the second quarter of 2017.

Growth in vaccines was primarily driven by higher sales of GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine, Recombinant] and GARDASIL 9 (Human Papillomavirus 9-valent Vaccine, Recombinant), vaccines to prevent certain cancers and other diseases caused by HPV, reflecting strong demand in Asia Pacific and the timing of sales in Brazil. Growth in vaccines also reflects higher sales of PNEUMOVAX 23 (pneumococcal vaccine polyvalent), a vaccine to help prevent pneumococcal disease, largely driven by volume growth and pricing in the United States. Additionally, vaccines sales growth reflects incremental sales of approximately $70 million, of which approximately $40 million relates to GARDASIL and GARDASIL 9, due to the recording of vaccine sales from 19 European countries that were part of the Sanofi Pasteur MSD (SPMSD) vaccines joint venture, which was terminated on Dec. 31, 2016.

Pharmaceutical sales reflect a decrease in the diabetes franchise of JANUVIA and JANUMET (sitagliptin and metformin HCl), medicines that help lower blood sugar in adults with type 2 diabetes, primarily due to lower sales in the United States, reflecting continued pricing pressure and lower customer inventory levels that were partially offset by continued volume growth. Pharmaceutical sales growth also was offset by the loss of U.S. market exclusivity for ZETIA (ezetimibe) in late 2016 and VYTORIN (ezetimibe/simvastatin) in April 2017, medicines for lowering LDL cholesterol, and the ongoing impacts of generic competition for CUBICIN (daptomycin for injection), an I.V. antibiotic, and biosimilar competition for REMICADE (infliximab), a treatment for inflammatory diseases, in the company’s marketing territories in Europe. In the aggregate, sales of these products declined $830 million during the second quarter of 2017 compared to the second quarter of 2016.

Animal Health Revenue

Animal Health sales totaled $955 million for the second quarter of 2017, an increase of 6 percent compared with the second quarter of 2016, including a 1 percent negative impact from foreign exchange. Growth was primarily due to sales increases in companion animal products, driven by the BRAVECTO (fluralaner) line of products that kill fleas and ticks in dogs and cats for up to 12 weeks, and the NOBIVAC Canine Flu Bivalent vaccine, as well as sales increases in ruminants products, reflecting the positive impact of the Vallée S.A. acquisition.

Second-Quarter Expense, EPS and Related Information

The table below presents selected expense information.

Second-Quarter 2017

GAAP

Acquisition- and
Divestiture-
Related Costs 3

Restructuring
Costs

Non-GAAP 2
Materials and production $3,080 $827 $33 $2,220
Marketing and administrative 2,438 9 2 2,427
Research and development 1,749 7 9 1,733
Restructuring costs 166 – 166
—
Other (income) expense, net 58 39 – 19

Second-Quarter 2016
Materials and production $3,578 $1,120 $66 $2,392
Marketing and administrative 2,458 18 87 2,353
Research and development 2,151 207 64 1,880
Restructuring costs 134 – 134 –
Other (income) expense, net 19 – – 19

GAAP Expense, EPS and Related Information

On a GAAP basis, the gross margin was 69.0 percent for the second quarter of 2017 compared to 63.7 percent for the second quarter of 2016. The increase in gross margin for the second quarter of 2017 was primarily driven by lower acquisition- and divestiture-related costs and restructuring costs, which reduced gross margin by 8.6 percentage points in the second quarter of 2017 compared with 12.0 percentage points in the second quarter of 2016. The increase also reflects the favorable effects of product mix and lower inventory write-offs.

Marketing and administrative expenses were $2.4 billion in the second quarter of 2017, a 1 percent decrease compared to the second quarter of 2016. The decrease primarily reflects lower restructuring costs partially offset by higher administrative costs including costs associated with the company now operating its European vaccines business in the countries that were part of the SPMSD vaccines joint venture, which was terminated on Dec. 31, 2016, and higher promotion expenses related to product launches.

Research and development (R&D) expenses were $1.7 billion in the second quarter of 2017, a 19 percent decrease compared to the second quarter of 2016. The decrease primarily reflects lower intangible asset impairment charges and licensing costs.

GAAP EPS was $0.71 for the second quarter of 2017 compared with $0.43 for the second quarter of 2016.

Non-GAAP Expense, EPS and Related Information

The non-GAAP gross margin was 77.6 percent for the second quarter of 2017 compared to 75.7 percent for the second quarter of 2016. The increase in non-GAAP gross margin was largely driven by the favorable effects of product mix and lower inventory write-offs.

Non-GAAP marketing and administrative expenses were $2.4 billion in the second quarter of 2017, an increase of 3 percent compared to the second quarter of 2016. The increase was driven primarily by higher administrative costs, including costs associated with the company now operating its European vaccines business in the countries that were previously part of the SPMSD vaccines joint venture, and higher promotion expenses related to product launches.

Non-GAAP R&D expenses were $1.7 billion in the second quarter of 2017, an 8 percent decrease compared to the second quarter of 2016. The decrease primarily reflects lower licensing costs.

Non-GAAP EPS was $1.01 for the second quarter of 2017 compared with $0.93 for the second quarter of 2016.

A reconciliation of GAAP to non-GAAP net income and EPS is provided in the table that follows.

$ in millions, except EPS amounts Second Quarter
2017 2016
EPS
GAAP EPS $0.71 $0.43
Difference4
0.30 0.50
Non-GAAP EPS that excludes items listed below2
$1.01 $0.93

Net Income
GAAP net income1
$1,946 $1,205
Difference 832 1,382
Non-GAAP net income that excludes items listed below1,2
$2,778 $2,587

Decrease (Increase) in Net Income Due to Excluded Items:
Acquisition- and divestiture-related costs3 $882 $1,345
Restructuring costs 210 351
Net decrease (increase) in income before taxes 1,092 1,696
Income tax (benefit) expense5 (260) (314)
Decrease (increase) in net income $832 $1,382

Financial Outlook

On June 27, 2017, the company experienced a network cyber-attack that led to a disruption of its worldwide operations, including manufacturing, research and sales operations. While the company does not yet know the magnitude of the impact of the disruption, which remains ongoing in certain operations, it continues to work to minimize the effects.

The company is in the process of restoring its manufacturing operations. To date, Merck has largely restored its packaging operations and has partially restored its formulation operations. The company is in the process of restoring its Active Pharmaceutical Ingredient operations but is not yet producing bulk product. The company’s external manufacturing was not impacted. Throughout this time, Merck has continued to fulfill orders and ship product.

The company is confident in the continuous supply of key products such as KEYTRUDA, JANUVIA and ZEPATIER. In addition, Merck does not currently expect a significant impact to sales of its other top products; however, the company anticipates that it will have temporary delays in fulfilling orders for certain other products in certain markets.

The financial outlook below reflects the current state of the company’s manufacturing operations as well as its plans to restore those operations and potential costs associated with the remediation efforts.

Merck has reduced its full-year 2017 GAAP EPS range to be between $1.60 and $1.72. The change in the GAAP EPS range reflects the inclusion of licensing expenses related to the collaboration with AstraZeneca. Merck has maintained its full-year 2017 non-GAAP EPS range to be between $3.76 and $3.88, including an approximately 1 percent negative impact from foreign exchange at mid-July 2017 exchange rates. The non-GAAP range excludes acquisition- and divestiture-related costs, costs related to restructuring programs and certain other items, including licensing expenses related to the collaboration with AstraZeneca as shown in the table below.

Merck has narrowed and raised its full-year 2017 revenue range to be between $39.4 billion and $40.4 billion, including an approximately 1 percent negative impact from foreign exchange at mid-July 2017 exchange rates.

The following table summarizes the company’s 2017 financial guidance.

GAAP
Non-GAAP 2

Revenue $39.4 to $40.4 billion $39.4 to $40.4 billion**
Operating expenses Lower than 2016 Higher than 2016 by a mid-single digit rate
Effective tax rate 32.0% to 33.0% 21.0% to 22.0%
EPS $1.60 to $1.72 $3.76 to $3.88
**The company does not have any non-GAAP adjustments to revenue.

A reconciliation of anticipated 2017 GAAP EPS to non-GAAP EPS and the items excluded from non-GAAP EPS are provided in the table below.

$ in millions, except EPS amounts

Full-Year 2017

GAAP EPS $1.60 to $1.72
Difference4 2.16
Non-GAAP EPS that excludes items listed below1 $3.76 to $3.88

Acquisition- and divestiture-related costs $3,600
Restructuring costs 600
Licensing expense relating to AstraZeneca collaboration 2,350
Net decrease (increase) in income before taxes 6,550
Estimated income tax (benefit) expense (610)
Decrease (increase) in net income $5,940

The expected full-year 2017 GAAP effective tax rate of 32.0 to 33.0 percent reflects an unfavorable impact of approximately 11 percentage points from the above items.

Total Employees

As of June 30, 2017, Merck had approximately 69,000 employees worldwide.