Loxo Oncology Inc and Bayer to Co-Promote in U.S. with a 50/50 Profit Share Conference Call
Nov 14, 2017 AM EST
BAYN.DE - Bayer AG
Loxo Oncology Inc and Bayer to Co-Promote in U.S. with a 50/50 Profit Share Conference Call
Nov 14, 2017 / 01:00PM GMT
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Corporate Participants
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* Jacob S. Van Naarden
Loxo Oncology, Inc. - Chief Business Officer
* Joshua H. Bilenker
Loxo Oncology, Inc. - Founder, CEO, President and Director
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Conference Call Participants
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* Dane Vincent Leone
BTIG, LLC, Research Division - Director and Diagnostics and Life Sciences Analyst
* Eric Thomas Schmidt
Cowen and Company, LLC, Research Division - MD and Senior Research Analyst
* Michael George King
JMP Securities LLC, Research Division - MD and Senior Research Analyst
* Cyrus Amoozegar
Morgan Stanley - Analyst
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Presentation
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Operator [1]
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Good day, ladies and gentlemen, and welcome to the Loxo Oncology Incorporated Corporate Update Call. (Operator Instructions) As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Jacob Van Naarden. Sir, you may begin.
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Jacob S. Van Naarden, Loxo Oncology, Inc. - Chief Business Officer [2]
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Thank you, and thank you, all for joining us today. Before we get started, I'd like to remind you that during this conference call, Loxo Oncology will make certain statements that are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including our business plans and objectives, achievement of milestone payments and timing and success of our commercialization efforts and clinical trials.
Such forward-looking statements are not guarantees of future performance and therefore, you should not put undue reliance upon them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. I refer you to our SEC filings for a discussion of risk factors that could cause our actual results to differ materially from those discussed today. With that we will turn the call over to over to CEO, Dr. Josh Bilenker.
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Joshua H. Bilenker, Loxo Oncology, Inc. - Founder, CEO, President and Director [3]
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Good morning all, and thank you for joining on short notice. About an hour ago, we announced that we entered into a global development and commercialization partnership with Bayer for larotrectinib and LOXO-195. In a moment, Jake will walk you through the key elements of the agreement.
But first, I thought I'd share a few words about how this collaboration came to be and why we believe that it represents a great opportunity for patients with TRK-fusion cancers and for the company. As many know, we were preparing and are preparing for the anticipated launch of larotrectinib in 2018. Following the ASCO data presentation, we were approached by several larger companies who recognized (technical difficulty) was highly likely to become an approved therapy for TRK-fusion cancer patients.
They also understood that together with LOXO-195, which had early clinical validation, there was a unique opportunity to launch a potentially first-in-class and best-in-class franchise with an uncommon efficacy and durability proposition.
The parties we engaged with were variably interested in different partnering models. We evaluated all of these models relative to our existing go-it-alone plan, considering both strategic and financial elements. Throughout these conversations we considered 2 sets of stakeholders, patients and shareholders. We also wanted to ensure that we could add to the value of our learned experience from our own team.
Over the course of our conversations with Bayer, and through the stated deal terms, we became convinced that larotrectinib and ultimately 195 could reach more patients more quickly by pursuing this partnership and additionally, deliver more value to shareholders in the near term and long term. Let me hand things over now to Jake, who will walk through some of the mechanics of how the 2 companies will work together and how the deal teams -- and how the deal terms work.
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Jacob S. Van Naarden, Loxo Oncology, Inc. - Chief Business Officer [4]
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Thanks, Josh. As Josh said this is an exciting and important day for Loxo Oncology and for the TRK franchise. We expect Bayer to be a great development and commercialization partner, one where the TRK franchise will be prioritized.
Bayer has a history of successful partnerships with emerging biopharmaceutical companies, the Onyx, Nexavar and Algeta Xofigo deals are compelling examples. Bayer runs a global pharmaceutical business with a presence around the world. In oncology, specifically they recently created a U.S.-based standalone business unit that already represents oncology products targeting patients with GIST, thyroid and colon cancer, populations where TRK fusions can be found.
Under the deal, Loxo Oncology will continue to lead global development activities and U.S. regulatory activities. Bayer will lead x-U. S. regulatory activities and worldwide commercial activities. Globally, we will share future development costs with Bayer on a 50/50 basis. In the U.S. where we will co-promote the products, we will share commercial costs and profits with Bayer on a 50/50 basis. We do have the ability to opt out of the U.S. co-promote and if we were to do so, the 50/50 U.S. profit split would revert to a very meaningful royalty on U.S. net sales intended to approximate the value of the 50/50 profit split.
For the U.S. co-promote, the Loxo Oncology team will be primarily focused on the laboratory and pathology audiences while the Bayer team will be primarily focused on the oncologist audience. We believe that this division of labor will allow the 2 teams to complement each other. We will focus on ensuring that the lab community understands the emerging range of diagnostic testing solutions capable of detecting TRK fusions while helping them coordinate with their clinical colleagues.
With this co-promotion arrangement, Loxo Oncology has a unique opportunity to become a leading voice at the interface between oncology diagnostics and precision medicines. Importantly, we look forward to leveraging this co-promotion experience across our pipeline of diagnostics-enabled precision medicines such as LOXO-292, our RET inhibitor and LOXO-305, our BTK inhibitor.
Moving to the terms of the deal. With this agreement, we are eligible to receive up to $1.55 billion in upfront regulatory and commercial milestones in addition to retaining a 50/50 profit share in the United States. Importantly, just over the next few years, we are comfortable forecasting at least $1 billion from this partnership. This total could be realized just from the upfront payments, regulatory milestones and First Commercial sale milestones.
So to be more specific, we will receive a $400 million upfront payment, $250 million of which will be paid within the next 10 days and $150 million of which will be paid in 120 days. We're eligible for another $450 million in milestone payments upon larotrectinib regulatory approvals and First Commercial sale events in certain major markets, and an additional $200 million in milestone payments upon LOXO-195 regulatory approvals and First Commercial sale events in certain major markets. Bayer will pay us a $25 million milestone upon achieving a certain U.S. net sales threshold.
Outside of the United States where Bayer will commercialize, Bayer will pass tiered double-digit royalties on net sales and sales milestone (technical difficulty) $475 million. Bayer will book revenues worldwide. As Josh said, at Loxo Oncology patients and shareholders are our 2 most important stakeholders. We are excited to enter into a partnership that so compellingly benefits both. Operator, we will now open the call to questions.
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Questions and Answers
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Operator [1]
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(Operator Instructions) Our first question comes from Eric Schmidt from Cowen and Company.
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Eric Thomas Schmidt, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [2]
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Jake did you just say you expect to get $1 billion of cash over the next 12 months? Is that what I heard?
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Jacob S. Van Naarden, Loxo Oncology, Inc. - Chief Business Officer [3]
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No, over the next few years.
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Eric Thomas Schmidt, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [4]
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Few years, I'm sorry. Can you give us a little bit better sense of the schedule of the next regulatory milestones and what pertains to 195 and, well I guess, you've broken that out but also what might be the next year or so worth of milestones?
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Jacob S. Van Naarden, Loxo Oncology, Inc. - Chief Business Officer [5]
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Yes sure, I can forecast that a little bit for you. So we expect to receive $250 million of the stack this year, 2017, and then we expect $425 million in 2018.
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Eric Thomas Schmidt, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [6]
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Okay. And x-U. S. royalties, any help you can give us on quantifying those?
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Jacob S. Van Naarden, Loxo Oncology, Inc. - Chief Business Officer [7]
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They are tiered double-digit royalties. I can't give you much more than that, but in line with what you've seen for other x-U. S. royalties for commercial partnerships like this.
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Eric Thomas Schmidt, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [8]
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And I guess, maybe a bit more thoughtful question is just in terms of U.S. rights, we've seen a trend of companies trying to keep essentially 100% or so of the value in the U.S. oncology market given its great global importance. Why does it make sense for Loxo to go 50/50 with Bayer? What specifically do they bring that makes this a larger pie in your minds?
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Jacob S. Van Naarden, Loxo Oncology, Inc. - Chief Business Officer [9]
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A couple things I would say to that, number one is I think as folks know and you know Eric this is a complex product that does require 2 different stakeholders that work together, which are oncology and lab medicine. And in a way, that dynamic caters well to a co-promotion dynamic.
And interestingly, Bayer, in particular, did something like this with Algeta with the radiopharmaceutical Xofigo where they needed to address both the oncologist/urologist as well as the nuclear medicine specialist, which is a detail that is a bit uncommon. And I think the co-promotion relationship that Bayer had with Algeta in that situation was a good example, of how 2 companies, one big, one small, can navigate a complexity like that. So for us, we see it as 1-and-1 is more than 2 in this situation. And we are excited to start working with them.
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Eric Thomas Schmidt, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [10]
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Thanks and congratulations.
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Operator [11]
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Our next question comes from Matthew Harrison from Morgan Stanley.
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Cyrus Amoozegar, Morgan Stanley - Analyst [12]
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This is Cyrus on for Matt. So are there ways that Bayer can help accelerate [these] genetic testing for TRK? And are there any filing timeline changes as a result of this agreement?
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Jacob S. Van Naarden, Loxo Oncology, Inc. - Chief Business Officer [13]
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No filing time line changes. Everything -- all the guidance we've given historically is still intact. As it relates to diagnostics, we have a full plan, as you know, about bringing new diagnostics to market. I think with a larger partner now, there are potentially strategies we can employ that maybe we weren't planning on employing before, but it's a little premature to comment specifically on that.
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Operator [14]
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Our next question comes from Dane Leone from BTIG.
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Dane Vincent Leone, BTIG, LLC, Research Division - Director and Diagnostics and Life Sciences Analyst [15]
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Congratulations on the deal. I would like to just kind of discuss given that larotrectinib was your lead commercialization asset, how you guys think about Loxo Oncology developing your commercial infrastructure over the next couple years and how that strategy obviously changes with Bayer able to do a little bit of the heavy lifting. And then what do you think you want to put in place for the other pipeline assets that you have, like [larotrectinib] and the BTK inhibitor.
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Joshua H. Bilenker, Loxo Oncology, Inc. - Founder, CEO, President and Director [16]
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It is Josh. With the U.S. co-promote, we have the same set of commitments and obligations and desires to move internally with a commercial capability. And I think this deal allows us to do that as we had planned before though, again, with the support of a larger partner certainly x-U. S. and, as Jake said, with an initial lab focus initially.
I think this deal also makes sense a lot given our confidence in our larger pipeline, in that we can continue to develop our pipeline assets, get them ready to hopefully prepare for them for success, while, again, having some initial support with a partner as we build our own commercial infrastructure.
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Dane Vincent Leone, BTIG, LLC, Research Division - Director and Diagnostics and Life Sciences Analyst [17]
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So if I could follow up on that, where do you just see Loxo Oncology's appetite for having maybe your own dedicated salesforce and ramping that salesforce and then kind of the construction of that salesforce with the lead being kind of in a co-promote situation?
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Jacob S. Van Naarden, Loxo Oncology, Inc. - Chief Business Officer [18]
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This is Jake again. So 2 things: Number one, I think it is premature to comment specifically on exactly how our Loxo salesforce will come together, when, how big it is et cetera, but just to take a step back, we make decisions based simply on patients and shareholders.
And so when there are things that we can do as a business to bring our drugs to patients more quickly and more patients and we can do them in ways that are better for shareholders in the near and long term than maybe what our other -- our plans would have otherwise been, we make those decisions.
And so what I mean by that is we don't make a priori decisions around what we want a salesforce to look like or what we want a commercial infrastructure to still look like. That's an effect not a cause. We make decisions based on patients and shareholders and we do what's right by those 2 audiences.
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Dane Vincent Leone, BTIG, LLC, Research Division - Director and Diagnostics and Life Sciences Analyst [19]
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So maybe last one on that topic. Could you just -- you mentioned at the beginning of the call, but I just wanted to make sure we are clear. You'd said that Bayer has recently built out some infrastructure in areas that you thought could be helpful with NTRK. Could you -- sorry to make you, I don't want you to repeat yourself but could you just give us a little bit more detail in terms of what they've done there?
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Jacob S. Van Naarden, Loxo Oncology, Inc. - Chief Business Officer [20]
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Oh, I think what we eluded to is they have a standalone U.S. oncology business or I should say global oncology business and they have marketed products that with field forces already calling on physicians treating patients with tumor types that harbor TRK fusions, things like GIST, thyroid cancer, colon cancer, those are 3 tumor types you've seen us treat patients with TRK fusions, TRK fusion thyroid, TRK fusion colon.
So at the end of the day, the TRK story while it is tissue agnostic in that way, the practicing oncology universe out there still treats patients on a tumor type by tumor type basis. And so being able to leverage an existing field force already calling on some of those audiences is useful.
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Operator [21]
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(Operator Instructions) Our next question comes from Mike King from JMP Securities.
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Michael George King, JMP Securities LLC, Research Division - MD and Senior Research Analyst [22]
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Congrats on the agreement. I guess, I'm just trying to get at the same question that everyone's asking about as far as the decision to partner and typically I just remember back to the days of Pharmacyclics and J&J and that agreement was about growing the pie.
So I'm just wondering -- I know you got -- Jake you talked about the call points on just in other tumor types where TRK fusions may already exist. But what about things like x-U. S. and how much of the effort is going to be dedicated to treating or finding TRK fusions in the existing patient populations that are being called upon as opposed to find them in other rare tumor types?
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Jacob S. Van Naarden, Loxo Oncology, Inc. - Chief Business Officer [23]
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It's an and not an or, Mike. And both on a global basis.
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Michael George King, JMP Securities LLC, Research Division - MD and Senior Research Analyst [24]
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Okay. And then, just quickly can you talk about the accounting? I hate to ask such a mechanical question, but just wondering how the upfronts are going to be accounted for and is this going to be a taxable event or are you taking steps to minimize the tax impact of the upfront payments?
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Jacob S. Van Naarden, Loxo Oncology, Inc. - Chief Business Officer [25]
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Yes. We're likely going to be amortizing some of the payments as you can imagine. We've done some preliminary work on the tax front and we expect that over on a net basis over the next few years of what we expect to receive that the tax impact will be fairly immaterial.
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Operator [26]
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And our next question comes from Yigal Nochomovitz from Citi.
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Unidentified Participant [27]
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This is [Jal] on for Yigal. Congratulations for the deal. I have 2 quick questions. The first one is so do you have any guidance of the number of TRK patients worldwide?
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Jacob S. Van Naarden, Loxo Oncology, Inc. - Chief Business Officer [28]
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No. We are not updating any of that kind of guidance today.
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Unidentified Participant [29]
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Okay. That's fine. The second question is about net development cost. So if I understand it correctly, Bayer will share commercial cost, but you will still account for all the development costs in the future.
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Jacob S. Van Naarden, Loxo Oncology, Inc. - Chief Business Officer [30]
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No. That's not right. So on a going-forward basis, starting on January 1, 2018, we split all future development costs globally with them 50/50.
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Unidentified Participant [31]
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Okay, and so commercial cost is only for -- commercial cost sharing is only for U.S.?
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Jacob S. Van Naarden, Loxo Oncology, Inc. - Chief Business Officer [32]
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That's correct.
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Operator [33]
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And I am showing no further questions from our phone lines. I would now like to turn the conference back over to Jacob Van Naarden for any closing remarks.
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Jacob S. Van Naarden, Loxo Oncology, Inc. - Chief Business Officer [34]
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Thank you, everyone, for joining us today on short notice. We look forward to keeping you informed with new data from the TRK program next year as well as additional data from the rest of our pipeline at major medical meetings. Thank you.
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Operator [35]
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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.
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