Exelixis Inc

NASDAQ:EXEL

Earnings Call Transcript 2017-Q4

[Operator]

Good day, ladies and gentlemen, and welcome to the Exelixis’ Fourth Quarter and Full-Year 2017 Financial Results Conference Call. My name is Sabrina, and I'll be your operator for today. As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to your host for today, Ms. Susan Hubbard, Executive Vice President of Public Affairs and Investor Relations. Please proceed.

[Susan Hubbard]

Thank you, Sabrina. And thank you all for joining us for the Exelixis fourth quarter and full-year 2017 financial results conference call. Joining me on today's call are Mike Morrissey, our President and CEO; Gisela Schwab, our Chief Medical Officer; Peter Lamb, our Chief Scientific Officer; Chris Senner, our Chief Financial Officer; and P.J. Haley, our Senior Vice President, Commercial, who will together review our corporate, development, financial, and commercial progress for the fourth quarter ended December 31, 2017 as well as recent key development and corporate events.

As a reminder, we are reporting our financial results on a GAAP basis only. And as usual, the complete press release with our results can be accessed through our website at exelixis.com. During the course of this presentation, we will be making forward-looking statements regarding future events and the future performance of the Company. This includes statements about possible developments regarding clinical, regulatory, commercial, financial, and strategic matters.

Actual events or results could of course differ materially. We refer you to the documents we file from time-to-time with the SEC which under the heading Risk Factors, identify important factors that could cause actual results to differ materially from those expressed by the Company verbally and in writing today, including, without limitation. Risks and uncertainties related to product commercial success, market competition, regulatory review and approval processes, conducting clinical trials, compliance with applicable regulatory requirements, the availability of data at the reference times, our dependence on collaboration partners and the level of costs associated with the commercialization, research and development – business development and other activities.

And with that, I will turn the call over to Mike.

[Michael Morrissey, President and Chief Executive Officer]

Thank you, Susan, and thanks to everyone for joining us on the call today. We had a productive fourth quarter and full-year 2017 with strong operational performance across all components of our business. We continue to achieve important developments, regulatory, commercial and financial milestones, which puts us in the position to start 2018 with significant momentum as we launch CABOMETYX in first-line RCC and move cabozantinib into potential new indications as either a single agent or in combination with checkpoint inhibitors.

I'll begin today by providing a brief summary of our key 2018 priorities and then turn the call over to Gisela, Peter, Chris, and P.J. for updates on our development efforts for cabozantinib and our partnered programs, our Q4 financials, and finally, recent commercial activities for CABOMETYX. 2017 was a critical inflection point in our business as growth in product and milestone revenues from cabozantinib and other Exelixis components allowed us to optimize our balance sheet and generate free cash to further invest in our business.

Specifically 2017 cabozantinib net product revenue of $349 million, total revenue of approximately $453 million, net income of $154 million, and year-end cash of $457 million provide a strong foundation for building on the CABOMETYX launch in advanced RCC, and addressing new potential indications through an expanded development plan with additional pivotal trials.

Key goals for 2018 include, first, our commercial performance for CABOMETYX in advanced RCC where we can now target the entire patient population with this disease based on the updated USPI that came with the first-line approval we received in late December.

Our talented, experienced, and energized commercial team was ready to launch in this indication within hours of receiving the approval letter and has made significant progress over the last two months and building momentum for CABOMETYX in previously untreated RCC patients as well as further reinforcing our leading TKI acquisition for those RCC patients who have received prior therapies.

We are pleased with the encouraging directional trends seen recently in the weekly IMS and Symphony updates, which P.J. will elaborate on shortly. The second key goal is our continued financial performance where we seek to grow our revenues from U.S. product sales as well as milestones and royalties from our partners that will provide a platform for us to reinvest the resulting free cash into extensive development plans for cabozantinib and new assets from internal and partnering activities.

Third, we look to initiate additional late stage trials for new cabozantinib indications. With the success of the CELESTIAL trial for second-line HCC, we now completed the first wave of pivotal trials that began in 2008 and resulted in positive data for MTC, RCC, and HCC. With additional data from both single agent cabozantinib and checkpoint inhibitor combinations as well as improved cash flows, we are now ready to embark on the second wave of cabozantinib late stage trials and indications across a wide range of histologies and potential lines of therapy.

Our fourth key 2018 goal is focused on the completion and data readout of the pivotal trial IMblaze370, investigating the combination of cobimetinib and atezolizumab in third-line CRC, which our partner Genentech has guided to take place in the first half of 2018. This is obviously a crucial readout for the cobimetinib franchise as well as the entire immuno-oncology field that's looking for novel mechanisms to increase the sensitivity of cold tumors to immunotherapies.

Finally, our fifth goal is focused on rebuilding our pipeline to internal discovery and externally focused business development activities. We have several projects moving to discovery that will keep under wraps for the time being and a full plate of external oncology opportunities that cover the range from small molecules [indiscernible] deal to biologics. We expect to complete additional transactions in 2018 and we will provide more details as we announced those deals.

A significant momentum we see in early 2018 as a reflection of achieving important corporate milestones throughout 2017 with strong performance in the financial, commercial, development, and regulatory components of our business. Our efforts since 2015 to right sense our balance sheet, manage our expenses in a rigorous fashion and generate free cash for multiple revenue streams were all part of our tactical plan to sustainably reinvest in our business, which will embark on with significant depth and breadth in 2018.

With that, I'll turn the call over to Gisela, who will provide an overview of our cabozantinib development efforts.

[Gisela Schwab]

Thank you, Mike. I’m pleased to provide an update on the progress of cabozantinib development program in the quarter. We've made a significant progress with our regulatory and clinical work for first-line RCC and second-line HCC respectively. We remain on tract to file the supplemental NDA for advance HCC later in the first quarter.

I’ll spend my time today on the broader development and lifecycle management plan for cabozantinib, including combination with immune checkpoint inhibitors in collaboration with BMS and Genentech-Roche. We are pleased with the progress of our clinical collaboration with BMS, combining cabozantinib with nivolumab alone, or both nivolumab and ipilimumab.

I'll start the discussion with a Phase II HCC trial, evaluating safety and preliminary activity of the cabozantinib, nivolumab and the cabozantinib, nivolumab and ipilimumab combinations in advance HCC. This trial is run as part of the CheckMate 040 trial and is enrolling patients rapidly.

The primary objective is the evaluation of safety of the combinations and secondary objectives include objective response rate and PFS. This is an important study as we think about further development of cobazantinib in combination with immune checkpoint inhibitors in HCC including the front-line therapy.

Turning now to Genitourinary Cancer indication, at the recent ASCO conference, for Genitourinary Cancers that took place a few years ago in San Francisco start to as follow from the National Cancer Institute presented an update on the Phase Ib trial evaluating cabozantinib and nivolumab or cabozantinib, nivolumab and ipilimumab, and previously treated patients with Genitourinary Cancers.

This trial included the evaluation of a range of doses for both the doublet and triplet combinations and expansion cohorts including previously treated metastatic urothelial cancer patients and RCC patients.

The trial has established the dose of 40 milligrams of cabozantinib, combined with a three milligrams/kilogram nivolumab for the doublet, and those stores with the addition of one millilgram/kilogram ipilimumab for four administrations for the triplet as the recommended doses for the evaluation. 19 patients with metastatic urothelial cancer were valuable for response with the median follow-up on 15.7 months and 13 patients with previously treated RCC for a valuable for response.

For the metastatic urothelial cancer cohorts to the objective response rate was 42%, including two complete responses and six partial response and the disease controlling including our CR, PR and stable disease was 84%. Seven of eight the metastatic urothelial cancer patients are 88% and 8% response and have not progressed at the time of the data cut off.

Median progression-free survival in this patient population was 12.8 months and the overall survival at 12 months was 77%. Among the 13 patients with metastatic RCC who were valuable for respond, the objective response rate with 54% and diseases control rate was 100%.

These encouraging results and importantly inform ongoing and future studies in Genitourinary Cancers including RCC and urothelial cancers. And first-line RCC, a Phase III study called CheckMate 9ER is now evaluating the combination of checkpoint inhibition therapy, combined with a cabozantinib, compared to sunitinib.

The original trial protocol required patients to be randomized one to one to one, to one of three arms cabozantinib and nivolumab, cabozantinib, nivolumab and ipilimumab or sunitinib. However, following the positive results of CheckMate 214 BMS’s Phase III trial evaluating nivolumab combined with atezolizumab versus sunitinib monotherapy and patients with previously untreated metastatic RCC and in an effort to accelerate the development of the cabozantinib and nivolumab combination, the trial protocol was amended to remove the triplet combination.

The modified protocol for the CheckMate 9ER trial aims to involve approximately 580 patients with previously untreated advanced or metastatic RCC of all risk groups. Patients are being randomized one-to-one to receive 40-milligram of cabozantinib daily and 240 milligrams of nivolumab every two weeks or 50 milligrams of sunitinib daily on a four-week on, two-week off schedule. The primary endpoint for the trial, it's progression free survival and the secondary endpoint is overall survival.

The triplet combination continues to be evaluated in the ongoing Phase Ib trial mentioned early in patients with advanced genitourinary malignancies, the test established the safety and tolerability and recommended dose for this combination and a separate Phase III trial investigating the triplet combination versus nivolumab and ipilimumab is under evaluation.

Furthermore, we estimate progress with our collaboration with Genentech/Roche evaluating the combination of cabozantinib and atezolizumab in an initial dose ranging study with planned cohort expansions in various different settings, including patients with previously untreated advanced RCC, patients with previously treated bladder cancer and patients with previously untreated bladder cancer, both cisplatinum-eligible and ineligible patients.

Further tumor cohorts, including checkpoint inhibitor experience bladder cancer and non-small cell lung cancer as well as checkpoint inhibitor naive non-small cell lung cancer and castration-resistant prostate cancer patients have been added to the study. We have now identified the recommended dose in the dose-ranging part of the trial as cabozantinib 40 milligrams per day combined with atezolizumab 1,200 milligrams every three weeks and expansion cohorts will begin enrollment shortly.

Further studies in additional indications are under discussion and both our partners, Ipsen and Takeda, will each have the opportunity to participate in future combination trials in accordance with the terms of their respective collaboration agreements. We are planning to start additional pivotal trials with cabozantinib and atezolizumab in 2018 and 2019 and are working on specific study designs for such trials at this time.

We look forward to sharing details on the next studies at the appropriate time. In addition to our internal and clinical partner efforts, there are also multiple study concepts advancing through review and preparation at NCI-CTEP and our investigator-sponsored trial program of Phase II trials combining cabozantinib with various immune checkpoint inhibitors in several indications, including non-small cell lung cancer, and other tumor types. And Phase II trials in triple-negative breast cancer and endometrial cancer combining cabozantinib with nivolumab are now actively enrolling patients.

And lastly, single agent cabozantinib has shown encouraging activity in a variety of tumor types, including neuroendocrine tumors of both PNET and carcinoid and differentiated thyroid cancer, indications from which Phase III studies are under evaluation. So in summary, I'm very pleased with the progress made in our cabozantinib development program and with the important milestones reached during this quarter. And look forward to updating you in the future.

With that, I will turn the call over to Peter.

[Peter Lamb]

Thanks, Gisela. The cobimetinib development program now includes three ongoing Phase III clinical trials. Most advance, the IMblaze370 trial of cobimetinib in combination with atezolizumab in third-line colorectal carcinoma, which is fully enrolled in the first quarter of last year and is expected to read out in the first half of this year.

The IMspire150 or TRILOGY trial combining cobimetinib with vemurafenib and atezolizumab in previously untreated BRAF mutation-positive locally advanced the metastatic melanoma is now joined by a third Phase III trial, IMspire170 initiated in the fourth quarter of 2017, that is studying the combination of cobimetinib and atezolizumab in previously untreated BRAF wild-type metastatic melanoma. Roche is also sponsoring multiple additional earlier stage clinical trials currently in progress, which includes studies in 13 different tumor types.

With respect to CS-3150 or esaxerenone, the potent selective mineralocorticoid receptor identified during the research collaboration with Daiichi Sankyo from 2006. The Daiichi Sankyo has confirmed that their own track to file an NDA Japan this quarter. As we have previously discussed, the Daiichi Sankyo advanced CS-3150 into a registrational Phase III trial in Japanese patients with essential hypertension in the third quarter of 2016. There is significant need for effective new agents in the treatment of essential hypertension in Japan given that there are approximately 43 million adults who have high blood pressure.

In the third quarter of last year, the Daiichi Sankyo announced positive topline data from this trial. In addition, in the four quarter of last year, they initiated a second Phase III trial in Japanese patients with diabetic nephropathy which builds off the Phase IIb trial previously conducted in this patient population. I’ll finish with the quick update on our internal pipeline rebuilding efforts, which encompass both the reestablishment of our internal small molecule discovery capabilities and an active business development process, aimed at identifying oncology efforts that could feed into our development pipeline.

We now have active chemistry and biology groups advancing some initial discovery program at Exelixis. And these efforts will expand further once we move to our new labs now meet or later this year. On the BD front, we announced our first year in January, the collaboration with StemSynergy to advance the novel class of CK1α Activator compounds that inhibit Wnt pathway signaling.

The Wnt pathway have activated in many tumor types most prominently in colorectal carcinoma, where genetic mutations including loss of APC results in Wnt pathway activation in over 90% of tumors. We believe that this approach to inhibiting the Wnt pathway could have advanced use over previous approaches by focusing Wnt pathway inhibition of tumors while sparing normal tissues.

Finally, we had a busy week at the JPMorgan Conference in January, reviewing multiple opportunities and are currently in the process of further evaluating the one with the best fit our strategy going forward.

I’ll now turn the call over to Chris.

[Christopher Senner]

Thanks Peter. Total revenue for the fourth quarter 2017 was $120.1 million with diluted GAAP earnings per share of $0.12 compared to total revenue of $77.6 million and basic and diluted GAAP earnings per share of $0.12 for the same period last year. The fourth quarter 2016 net income and diluted GAAP earnings per share were positively impacted by $23.1 million or $0.08 per share respectively due to Genentech’s change in cost allocation to the COTELLIC collaboration P&L.

Product revenue for the quarter was $95.7 million, an increase of 84% year-over-year and a decline of 1% sequentially. The year-over-year increase in net product revenue was primarily driven by the continued U.S. commercial uptick with CABOMETYX in the second-line later advanced RCC setting. The quarter-over-quarter sequential decline was a result of an increase of 5% in overall demand offset by the reduction of approximately one-week of wholesaler inventory built in the third quarter of 2017.

Additionally, we experienced an increase in deductions from gross sales related to year ending wholesaler inventory that will be dispensed to Medicare patients, many of whom will enter the doughnut hole in the first quarter of 2018, as well as commercial patients that utilized our co-pay assistance program more frequently during the start of a calendar year.

Total revenue for the quarter also includes $24.4 million of collaboration revenue. This collaboration revenue includes a $10 million milestone earned from BMS related to the IND filings with ROR gamma program. Total revenue also includes $14.4 million and revenue from our collaboration agreements with Ipsen, Takeda, and Genentech.

Now turning to our operating expenses, our operating expenses for the quarter ended December 31, 2017 were $82.6 million compared to $38.7 million for the same period in 2016. The growth in operating expenses was primarily related to an increase in personal expenses, clinical trial costs, consulting and outside services, and marketing activities.

Research and development expenses for the quarter were $32.2 million, an increase of 35% compared to the same period in 2016. The increase in research and development expenses was primarily a result of increases in personal expenses, clinical trial costs, and consulting and outside services.

Selling, general, and administrative expenses for the quarter were $46.2 million compared to $30 million for the comparable period in 2016. The increase in selling, general and administrative expenses for the quarter was primarily a result of increases in personnel expenses, resulting primarily from an increase in general and administrative headcount in support of the broader Exelixis organization. Marketing activities and an increase in losses under the collaboration agreement with Genentech, the increase and losses under the collaboration agreement with Genentech was driven by Genentech change in cost allocation approach at the end of 2016.

Other income and expense net for the quarter reflected $1.5 million of other income compared to a net expense of $3.8 million for the comparable period in 2016. Net income for the quarter was $38.5 million or $0.13 per share basic and $0.12 per share diluted, compared to net income of $35.1 million or $0.12 per share basic and diluted for the comparable period in 2016. The increase in net income was primarily due to the increase in total revenues partially offset by the increase in operating expenses.

Highlights for the full-year 2017 include total revenue for $452.5 million, compared to $191.5 million for the comparable period in 2016. The total revenue increased was primarily driven by net product revenues, which grew $349 million for the year ended December 31, 2017 and increase were approximately 158% over the comparable period in 2016.

Total operating expenses for the full-year 2017 increased to $286.6 million, compared to $219.6 million in the comparable period of 2016. Net income for the year ending December 31, 2017 was $154.2 million compared to the loss of $70.2 million in the comparable period in 2016.

Fully diluted earnings per share for the year ended December 31, 2017 were $0.49 as compared to a loss of $0.28 for the comparable period in 2016. With this strong revenue growth and the continued expense management 2017, we achieved our fiscal year of operating profitability.

Cash, and cash equivalents, short and long-term investments and short and long-term restricted cash and investments totaled $457.2 million at December 31, 2017 as compared to $479.6 million at December 31, 2016.

This year-on-year decline in cash was positively impacted by the full-year net income and the receipt of the upfront payment from Takeda and milestones from existing partnerships which was offset by elimination approximately $200 million in debt.

Now turning to our guidance for 2018, and keeping with our best practice, we will not be providing 2018 revenue guidance at this plan. The Company is providing guidance the total operation expenses for the full-year 2018 will be between $430 million and $460 million.

The projected increase in total operating expenses is due to several factors, including increased investments and cabozantinib clinical trials, our continued investment and discovery, and incremental investments need to launch CABOMETYX in first-line RCC, repair for the second-line HCC launch.

With that, I will now turn the call over to P.J. to provide more color on our commercial performance.

[P.J. Haley, Senior Vice President Commercial]

Thank you, Chris. We are pleased with the commercial performance of CABOMETYX in Q4. The key metrics were encouraging in the quarter and the first-line label expansion on December 19 based on CABOSUN, you'll get a broad level across advanced renal cell carcinoma. Our team was fully prepared on the day of approval and immediately began promoting in the first-line RCC study, which increases the eligible patient population for CABOMETYX in the U.S. by approximately 14,000 patients.

I'll provide more color on the launch momentarily. In the fourth quarter and customer product demand for CABOMETYX grew by approximately 5% relative to Q3. Demand growth was driven by increases in market share, refills for patient already on therapy and continued expansion of the CABOMETYX prescriber base.

Demand growth was evident in both the community and academic segments of the market. New patient market share in the second-line plus setting grew to approximately 42%. As we are now proved in the first-line setting, we will focus on the entire RCC market basket as the best comparison moving forward.

Prescriber base for CABOMETYX grew by over 15% in Q4 relative to Q3, driven predominantly by community adoption. This trend along with demand growth provided strong momentum headed into the first-line launch at the end of December. The first-line approval enables us to continue our growth both in terms of increasing the eligible patient pool and increasing prescriber adoption as more community oncologists treat patients with first-line disease.

We are very pleased with the expanded indication we received as CABOMETYX is now approved in the U.S. for all advanced RCC patients regardless of line of therapy or clinical risk category. This broad label strongly positions us to continue in our efforts to make CABOMETYX, the TKI of choice in kidney cancer.

As I mentioned, our team was fully prepared and ready to begin both personal and non-personal promotion immediately upon receipt of FDA approval on December 19, almost two months in advance of the PDUFA date. I would like to thank the entire team for their tireless efforts to prepare for and launched CABOMETYX in the first-line settings. Many of our sales representatives hit the ground running over the holidays to educate physicians on the expanded indication to ensure every eligible patient has access to CABOMETYX.

Exelixis well prepared to launch efficiently in first-line RCC as we leverage our knowledge of the marketplace and of our customers. There are many synergies that will help to accelerate the launch in first-line RCC. For example, the prescriber base for first-line RCC as a same as second or later lines, a base with which our team already has established relationships. The majority of these RCC prescribers have experienced prescribing CABOMETYX, which should help facilitate adoption in the new first-line setting.

While it is still early in our launch, the initial data, market research, and anecdotal feedback from our customers are encouraging. Prescribers are motivated by the CABOSUN data that shows statistical superiority to Sutent a long-time standard of care in first-line RCC in terms of progression free survival, while demonstrating a similar safety profile.

The timing of the recent ASCO-GU Symposium was beneficial coming within two months of our approval. Exelixis had a strong presence at the meeting across various functions and engaged many of the top KOLs at the conference. We are pleased to hear positive feedback from KOLs on CABOMETYX in the context of the first-line settings both in our one-on-one meetings and more importantly from the podium throughout the meeting.

In addition to positive feedback on the clinical data, we are seeing early encouraging signs in the marketplace. The trend of increasing new prescriber adoption has accelerated since the addition of CABOSUN data. This is a potential early indicator that community oncologists are prescribing first-line CABOMETYX. Also, we are looking at the CABOMETYX prescribing trends of the top Sutent and Votrient prescribers.

Historically, Sutent and Votrient has accounted for approximately 75% of the first-line market. The number of CABOMETYX prescriptions written by these top writers has approximately doubled in the first six weeks of Q1 relative to the first six weeks of Q4. Furthermore, the syndicated prescription data trends for CABOMETYX have shown growth since the first-line approval December 19 in terms of both new prescriptions and refills with a caveat that it is still early days in the launch.

IMS TRx data for the six week period Q1 to-date relative to the same period in Q4 to-date yield some interesting insights. In the market basket of CABOMETYX, Sutent, Votrient and Inlyta, CABOMETYX grew approximately four share points going from 20% to 24% representing an increase of approximately 20% in market share. In this period, CABOMETYX TRx volume grew by 21%. These data suggest a meaningful early impact of the first-line launch.

CABOMETYX has already become one of the leading anti-angiogenic TKIs and is well differentiated based on the clinical data and its unique mechanism of action. That said, we recognized the RCC as a fiercely competitive market and further competition is likely coming in the near-term. We anticipate that Ipi/Nivo [indiscernible] will get approval this year, but believe that the totality of strong RCC clinical data and the broad label position CABOMETYX well for the future.

We look forward to driving the continued growth of CABOMETYX through new indications beginning with the first-line RCC and followed potentially by a label in HCC, which would represent a third tumor type and fourth indication for the cabozantinib franchise pending FDA approval.

I will now turn briefly to liver cancer, which is a significant unmet medical need accounting for nearly 800,000 deaths globally on an annual basis. In the U.S., over 40,000 patients a year are diagnosed with liver cancer and there are approximately 29,000 deaths each year. Hepatocellular carcinoma is the most common form of primary liver cancer accounting for the majority of cases in the U.S. This market has long been under served as until recently there was only one approved systemic therapy. The HCC market will have the potential to grow in coming years as new therapies are introduced.

This year in addition to RCC and HCC, cabozantinib data have been presented in differentiated thyroid cancer and bladder cancer. As you heard from Gisela, these potential new indications are at the forefront of our near-term development plans and we look to them as potential commercial growth opportunities for the brand, assuming clinical and regulatory requirements are satisfied.

We are excited about our future, where indications like differentiated thyroid cancer, bladder cancer, and combinations of cabo with checkpoint inhibitors could offer potential long-term opportunities for the cabozantinib franchise. CABOMETYX has set the standard as the TKI of choice in second-line plus RCC, and our mission is to establish CABOMETYX is the go-to-TKI and potential future settings as well.

Our team is focused and motivated, it can be every day to bring the benefit of CABOMETYX to every eligible patient as we continue to build on the positive momentum of the franchise.

With that, I will turn the call back over to Mike.

[Michael Morrissey, President and Chief Executive Officer]

All right. Thanks P.J. I’ll close by saying that we made significant progress across the organization in Q4 into 2017 and continue to see solid performance in all aspects of our business as we move into 2018. Recent commercial, financial, clinical, and regulatory progress provides a strong foundation for the next wave of cabozantinib trials and important new indications and strengthens our position as we explore opportunities to rebuild our pipeline through internal R&D efforts and in licensing of external assets.

We are on a mission to help patients with cancer, recover stronger and live longer. I’m proud to be part of our team at Exelixis as we work with focus and urgency to deliver new therapies to patients with cancer. Our 2017 was a good year for us. We don't take our success for granted, and remain steadfast in making every day count as we look to fulfill our mission to help patients with cancer.

As we said previously, we have the team, the energy, and the culture to advance both our science and business as we embrace the opportunities that we will face in the future. We look forward to updating you on our progress. Thank you for your continued support and interest in Exelixis.

We’re happy to now open the call for questions.

[Operator]

Thank you. [Operator Instructions] And the first question will come from the line of Eric Schmidt with Cowen & Company. Please proceed.

[Eric Schmidt, Cowen & Company]

Thank you for the updates and taking my question. Maybe for Chris just to get a little bit deeper into the cabo sales trends. Can you quantify the inventory impact in Q4 and on the gross and net decline that you saw, I guess I'm curious as to why that happened in the face of an October price increase, so maybe you could talk about that as well?

[Christopher Senner]

Eric thanks. It’s Chris. Yes. So as I said on my prepared remarks, our demand did grow by about 5% quarter-over-quarter. And we did see the one-week of inventory that came out of the channel during the quarter versus the third quarter.

Now looking at gross to net, we did have higher gross to net particularly at the end of the quarter. As we looked at our inventory and the trade and we evaluated that against the patient flow that comes through. We looked that and recognize the facts that there would be many patients coming through from the Medicare side that would be going to the doughnut hole potentially on CABOMETYX.

On top of that, as we talked about or as I mentioned, we do typically see higher co-pay assistance from the commercial side of the business in the beginning of the year as people’s deductibles reset with their new insurance at the beginning of the calendar year. I think those are the elements that are really driving the change in revenue quarter-over-quarter.

[Eric Schmidt, Cowen & Company]

Sounds good, I understand the Q1 Medicare effects, but how does that impact Q4?

[Michael Morrissey, President and Chief Executive Officer]

Well, if you have inventory in the trade, well, obviously that product will be sold to patient that we will have a denumerable effect in – because that inventory is already in the trade. So we have to effects our revenue for that.

[Eric Schmidt, Cowen & Company]

Gotcha. Okay, got it. Thank you.

[Michael Morrissey, President and Chief Executive Officer]

So that [putdenumerable] in the co-pay systems.

[Eric Schmidt, Cowen & Company]

Got it, thanks. And then I mean are you on the price increase you took in general? Do you think that that will flow through over time?

[Michael Morrissey, President and Chief Executive Officer]

Yes, I mean that typically does flow through, I mean the vast majority of it flows through still with the way our pricing is right now from launch. So you can expect most of that to flow through.

[Eric Schmidt, Cowen & Company]

Thanks. One last quick one maybe on the expense side, you're looking at a pretty good ramp, should we think of R&D and SG&A both increasing, by the same magnitude such as the ratio in 2018 and similar to 2017 or is one seeing more of the impact on the other?

[Michael Morrissey, President and Chief Executive Officer]

No, as you heard from both Gisela and Peter, I mean we are investing heavily in the – on the cabozantinib, continued indication side and then Pete is continuing to ramp up discovery efforts. So I’d say that the R&D is going to increase faster than the SG&A side. So the majority of the increase that will see the year-over-year will be on the R&D side and then too lesser extent on the SG&A side.

[Eric Schmidt, Cowen & Company]

Thank you.

[Operator]

Thank you. And the next question comes from the line of Andy Hsieh with William Blair. Your line is now open.

[Andy Hsieh, William Blair & Company, L.L.C.]

Hi, thank you for taking my question and congrats on just marvelous here. So with the upcoming Phase III IMblaze trial, I've seen it those being represented as second-line/third-line or third-line? So could you clarify the up diseases setting there?

[Michael Morrissey, President and Chief Executive Officer]

Yes. Peter, go ahead.

[Peter Lamb]

Yes, so patients come on to the trial who we received two trial lines of chemotherapy. But patients are eligible for the trial if they received and given chemotherapy. So then strictly speaking, they would have given one further line of chemotherapy and then technically would be second-line. So that’s why you've seen the difference between okay.

[Andy Hsieh, William Blair & Company, L.L.C.]

Got it. And then one more follow-up if I may. I believe Seattle recently initiated a pivotal study, single arm ORR as a primary endpoint in I-O refractory, urothelial carcinoma. So since the amendment with Roche, how much about we through do you think you can use and talking with the FDA in terms of this is running a similar trial design in the I-O refractory population? Thank you.

[Gisela Schwab]

So as I described earlier include evaluation of cabozantinib plus atezolizumab for instance in the checkpoint inhibitor experience population, both bladder cancer and non-small cell lung cancer – so it’s included the patient population that you describing and the ongoing Phase Ib study and it represents one of the expansion cohorts. So I think it's an interesting question certainly to address that examines whether cabozantinib beverage you have creating a more immune-permissive environment can recent to judge patients to checkpoint inhibitors.

[Andy Hsieh, William Blair & Company, L.L.C.]

Great, thank you.

[Operator]

Thank you. And the next question comes from line of Peter Lawson with SunTrust. Your line is now open.

[Peter Lawson, SunTrust Robinson Humphrey]

Hey, Chris, just going back to the effects on the quarter, just the effects of that – on higher gross to net and the wholesale inventory, is it possible for you to breakdown that on a dollar value and does that higher gross to net kind of remain place for going forward, is that new normal?

[Christopher Senner]

Yes, so thanks. It’s Chris, Peter. So I would answer at this way. We're not going to provide specific guidance on the – what’s the impact of both inventory reduction was and also the higher gross – or you can see the gross of that one from 13.03 to 15.05 Q3 to Q4. So you can do a math on that.

But you can also look at your question about kind of what the future holds? Is this in your normal, I don’t think that gross net will be in 2015, 2016 range as we look to the near feature of 2018.

[Peter Lawson, SunTrust Robinson Humphrey]

Gotcha. Thank you. And then just thoughts around providing guidance of what point you feel you’ve got the confidence or outlook to be able to provide revenue guidance?

[Christopher Senner]

Yes. So I guess from a revenue guidance point of view, there are a lot of variables that are out there, including new therapies and front-line RCC, our potential HCC filing in this quarter and then the review period for that. As we look at those variables, we didn't feel comfortable of providing a range at this time.

But the way we do look at it is, you can always look at the IMS of the symphony data that comes through on a weekly or monthly or quarterly basis and – trend that way, and when we do feel comfortable with that and we will let you know..

[Peter Lawson, SunTrust Robinson Humphrey]

Gotcha. And then just to be impact of – I guess question for Mike, just the impact of IO that you're seeing in the second-line and any impact on market share, and if you could think you regained that as you move – as IO moves front-line?

[Michael Morrissey, President and Chief Executive Officer]

I think has P.J. talked about in his prepared remarks, we see stable if not little bit of growth in terms of market share in the second-line plus setting. So obviously we're focused on looking to be able to help literally every eligible patient in the RCC space every day now with the level that we've got.

So I guess if you look at it on a much broader holistic level right now based upon where at, now that could change as we talked about previously over time as some of the newer IO combos come out with data and then get approved and we'll certainly be able to pivot as needed in that regard to then focus on where we think we can again compete effectively, so – but right now, literally every eligible patient and the team is extremely motivated. What we think is a totality of great data and we're going to continue to hit it really hard.

[Peter Lawson, SunTrust Robinson Humphrey]

Great. Thank you so much. Thanks for taking the questions.

[Operator]

Thank you. And the next question comes from the line of Kennen MacKay with RBC. Your line is now open.

[Kennen MacKay, RBC Capital Markets]

Hey, thanks for taking my questions. Maybe for P.J., and while the whole team wanted to offer my congrats on the NCC and guideline addition in front-line RCC. And some of the ISM that you presented was pretty impactful with 20% quarter-over-quarter same week sales increases.

Wanted to see if the market share that you’re carving on the front-line, you thought was coming from patients that are – physicians that would ordinarily be prescribing to Sutent and Votrient and given that those are still the preferred agents from NCC and guidelines even with the addition of cabo in the front-line wanted to see – from your perspective what the preferred patient population was for cabo there?

And then additionally wanted to see how you were thinking about cabo competing with Ipi/nivo and again with atezo in front-line RCC when those two – combos do hopefully wind up getting clear point of this year? Thank you.

[P.J. Haley, Senior Vice President Commercial]

Great. Well thanks for the question, Kennen. I'll start with to kind of address that the order that you laid it out. First of all with regards to what we're seeing in the prescription data, as you mentioned it as we spoke to on our prepared remarks on the call, certainly pleased with the growth we're seeing in terms of TRx, 21% quarter-over-quarter in terms of volume and already seeing a 20% increase in market share in the same period quarter-over-quarter relative to the other TKIs in the market.

A couple other points I’ll just reaffirmed that we talked about as we're looking at the top Sutent and Votrient prescribers and we're seeing approximately a doubling of the amount of cabo that they're writing in that time period as well. And we're also seeing an acceleration of our prescriber adoption, prescriber growth metrics.

So it's clear, when I look at all three of those together as well the anecdotal feedback we're hearing, we feel very competent in the launch and that we're taking share from the first-line. We're happy to be in the NCC and guidelines were really thrilled to have a broad label that's being well received by our physicians. And I think it’s very impactful, so we're very pleased with that. With regard to coming competition, as Mike kind of just mentioned and I mentioned in the prepared remarks, we know it's coming, if nivo has certainly good data which will be as a great thing for patients.

That said, all the data is in – there are subgroups that aren’t is compelling as other subgroups, and the feedback that we're getting both from physicians as well as market research is telling us that our data are impactful in the first-line setting always be a place for monotherapy TKI usage in the first-line, so we feel great about that.

And then subsequently further down the road if a patient were to receive checkpoint inhibitor combination therapy in the first-line, what we're hearing from market research is that physicians are very much going to plan on using CABOMETYX in the second-line after that patient. So we feel very good that we have this sort of broad label, great suite of data across RCC, and are competing as such for every eligible patient.

[Kennen MacKay, RBC Capital Markets]

Gotcha. And in the guidelines that you mentioned cabo for an intermediate risk, does that sort of where you see cabo really competing versus sutent and votrient right now?

[Peter Lamb]

Yes. I guess, I’d basically say a similarly with our broad label that covers all the different patients with the totality of the data we have, certainly in the VDR study, including favorable risk patients and showing a statistically significant clinical benefit there. I think we're really competing for all those patients and we're hearing feedback from customers that those messages, that data are compelling and being well received. So we are like I said going after all those patients and we think we're competing extremely formidably in doing that.

[Kennen MacKay, RBC Capital Markets]

Gotcha. Thanks Peter.

[Operator]

Thank you. And the next question will come from the line of Stephen Willey with Stifel. Your line is now open.

[Stephen Willey, Stifel, Nicolaus & Company]

Yes. Good afternoon. Thanks for taking the questions and congrats on a great year. I guess, can you just make any comment around whether or not the first-line uptick you’re seeing just to kind of follow on the prior question. If that's occurring across all patient risk statuses or are you seeing preferential uptick in just the pour in intermediate risk patients?

[P.J. Haley, Senior Vice President Commercial]

Yes. Sure Stephen. This is P.J. I’ll take that. So what I’ll say there, I won’t go to specific numbers on any of that, but we are seeing uptick sort of across the various patient populations. As I mentioned, we're competing for all those patients and there's data sort of in terms of the totality of evidence for CABOMETYX across different clinical risk groups of patients.

So our data is being really well received. If you look at the biological rationale for this type of drug, TKI this is an anti-angiogenic inhibitor plus with MET, AXL. I think customers are really – that resonates with them as they think about their sort of current choices of sutent or votrient and then look at the improved efficacy, the superior efficacy with regards to CABOMETYX relative to sutent and are willing to make that extrapolation in many cases.

[Stephen Willey, Stifel, Nicolaus & Company]

Okay. And then I guess just with respect to the ongoing collaboration with Bristol and bladder cancer. Just kind of curious if we should expect to hear something with respect to that program moving forward in the more advanced studies perhaps before the end of this year?

[Gisela Schwab]

Yes. This is Gisela. Bladder cancer is certainly is an interesting indication. And I’m saying that based upon the observations made in the Phase Ib study that [Andrea Apolo wrote in the data] presented and most recently in ASCO-GU, where impressive response rates have been seen in previously treated urothelial cancer patients in 42% response rate, long durable responses and a long progression-free survival. So it is certainly an interesting education that we’re thinking about and we’ll announce progress on various indications as we make it and at the appropriate time.

[Stephen Willey, Stifel, Nicolaus & Company]

Okay. And then just lastly on differentiated thyroid, I think Mike just maybe hearing some of your comments since the initial disclosure kind of sounds like you're contemplating pursuing a second-line strategy.

Just curious I guess what evidence you might have that would suggest that the tumor cells perhaps post [indiscernible] and it would still be responsive to cabo and also I guess is there any contemplation still of perhaps pursuing a front-line strategy whereby you maybe do something like sorafenib as a compare there which would seemingly represent a fairly low hurdle for you guys? Thanks.

[Michael Morrissey, President and Chief Executive Officer]

Yes, sure. So yes, topline data that we've had now in both the first-line and the second-line looks encouraging. I think we have lots of options here and are considering all those options. There pros and cons of going first-line versus second-line obviously in terms of the different metrics for looking at what success could look like. So stay tuned on that.

I think it's certainly one of our higher priorities to engage in this indication this year, along with others and kind of reinforce the idea, really reinforced the idea that we want to expand the opportunity base for cabozantinib across tumor types either as a single agent or in combination with checkpoint inhibitor.

So again as we roll these trials, I will provide more data, certainly all the background biology and pharmacology in terms of inhibiting MET and VEGF and AXL simultaneously could apply to DTC as well as other different kinds of tumors. So we’re excited about the profile certainly of the early data looks encouraging and now it’s coming upon us to put together a plan to moving forward.

[Stephen Willey, Stifel, Nicolaus & Company]

All right, thanks for taking the questions.

[Operator]

Thank you. And the next question will come from the line of Michael Schmidt with Leerink Partners. Your line is now open.

[Michael Schmidt, Leerink Partners LLC]

Hey, guys. Thanks for taking my questions and I may have missed that I joined late. But how should we think about additional new data disclosure from ongoing CABOMETYX studies be it either as single agent therapy or in combination with the PD-1 inhibitors this year?

[Gisela Schwab]

Yes. This is Gisela. Certainly thank you for the question. Since obviously pretty early in the year and there are a lots of ongoing studies, including our internally sponsored combination study of cabozantinib or the trials in collaboration with BMS. But also importantly there are number of investigator-sponsored trials and [CTEP] are advancing and maturing, and as data become available, we will certainly announce that and communicate and update you as we've done just recently for the DTC experience that came out of IST study and that was presented at the recent Head and Neck Cancers conference, so certainly more to come.

[Michael Schmidt, Leerink Partners LLC]

Okay. Great. Thanks and congrats on the progress in 2017.

[Gisela Schwab]

Great. Thank you, Mike.

[Operator]

Thank you. [Operator Instructions] And the next question will come from the line of Andrew Peters with Deutsche Bank. Your line is now open.

[Andrew Peters, Deutsche Bank]

Hi. Thanks for taking my question and congrats on a strong 2017. I guess first one is a follow-up with the last one. As you think about some of the combination therapies with cabo that are ongoing. Is there a specific profile that you and your partners are looking for before you decide to move into later stage studies? And as the data begin to read out, how much data will you need to make those decisions, especially thinking about involvement in the expansion cohorts from the atezo studies?

[Gisela Schwab]

Yes. That’s an important question. Thank you. I think it is obviously dependent upon the strength of data in the overall risk benefit that will be absorbed in the data set that support decisions and so that the benefit is quite strong then need to less data to pull the trigger if you will to go forward into late stage development. But certainly lots of identifier at this point and look forward to updating you in the future.

[Andrew Peters, Deutsche Bank]

Great. And then just a quick follow-up. As you think about the opportunity more broadly in RCC, to what extent right now are you able to track patients on cabo after they receive the checkpoint inhibitor and is there any anecdotal data that you have to understand if the duration of therapy or duration of response or anything like that is different from that smaller subset of patients from the media or study? Thank you.

[Gisela Schwab]

Yes, this additional statistic we will update that has been prevented at first time around it as move it also the reason ASCO-GU conferences that came out of Europe, France and Italy, but also from M.D. Anderson where very similar if not higher response rates in media study has been observed to PSS duration that are in line with what has been seen in media. The aggregate data to support the observation there was made in the media trial and the patient population that was small, but showed quite striking benefit for the CPI pretreated patient.

[Andrew Peters, Deutsche Bank]

Great, thank you and congrats again on the progress.

[Gisela Schwab]

Thank you, Andrew.

End of Q&A

[Operator]

Thank you. At this time, there are no further questions. And so I will turn the call over to todays host Susan Hubbard. Ms. Hubbard.

[Susan Hubbard]

Thank you, Sabrina. And thanks all for joining us today. We certainly welcome your follow-up calls with any additional questions you may have that we learn able to address on today’s call.

[Operator]

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