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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2018.
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to .
Commission file number: 001-35347
Clovis Oncology, Inc.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
5500 Flatiron Parkway, Suite 100
Boulder, Colorado
(Address of principal executive offices)
90-0475355
(I.R.S. Employer
Identification No.)
80301
(Zip Code)
(303) 625-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock par value $0.001 per share
Name of each exchange on which registered
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405) of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company, and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
☐
Accelerated filer
Smaller reporting company ☐
☒
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock, par value $0.001 per share, held by non-affiliates of the registrant on June 30, 2018, the last
business day of the registrant’s most recently completed second quarter, was $2,243,897,802 based on the closing price of the registrant’s common stock on the
NASDAQ Global Market on that date of $45.47 per share.
The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of February 22, 2019 was 52,868,576.
DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A in connection with the registrant’s 2019 Annual Meeting of Stockholders, which is to be filed within 120 days after the
end of the registrant’s fiscal year ended December 31, 2018, are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent stated
therein.
Table of Contents
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
ITEM 6.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
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PART I
This
Annual
Report
filed
on
Form
10-K
and
the
information
incorporated
herein
by
reference
includes
statements
that
are,
or
may
be
deemed,
“forward-looking
statements.”
In
some
cases,
these
forward-looking
statements
can
be
identified
by
the
use
of
forward-looking
terminology,
including
the
terms
“believes,”
“estimates,”
“anticipates,”
“expects,”
“plans,”
“intends,”
“may,”
“could,”
“might,”
“will,”
“should,”
“approximately”
or,
in
each
case,
their
negative
or
other
variations
thereon
or
comparable
terminology,
although
not
all
forward-looking
statements
contain
these
words.
They
appear
in
a
number
of
places
throughout
this
Annual
Report
on
Form
10-K
and
include
statements
regarding
our
intentions,
beliefs,
projections,
outlook,
analyses
or
current
expectations
concerning,
among
other
things,
the
market
acceptance
and
commercial
viability
of
our
approved
product,
the
development
of
our
sales
and
marketing
capabilities,
the
performance
of
our
clinical
trial
partners,
third
party
manufacturers
and
our
diagnostic
partners,
our
ongoing
and
planned
non-clinical
studies
and
clinical
trials,
the
timing
of
and
our
ability
to
make
regulatory
filings
and
obtain
and
maintain
regulatory
approvals
for
our
product
candidates,
including
our
ability
to
confirm
the
clinical
benefit
of
our
approved
product
through
confirmatory
trials
and
other
post-marketing
requirements,
the
degree
of
clinical
utility
of
our
products,
particularly
in
specific
patient
populations,
expectations
regarding
clinical
trial
data,
expectations
regarding
sales
of
our
products,
our
results
of
operations,
financial
condition,
liquidity,
prospects,
growth
and
strategies,
the
industry
in
which
we
operate,
including
our
competition,
and
the
trends
that
may
affect
the
industry
or
us.
By
their
nature,
forward-looking
statements
involve
risks
and
uncertainties
because
they
relate
to
events,
competitive
dynamics
and
industry
change
and
depend
on
the
economic
circumstances
that
may
or
may
not
occur
in
the
future
or
may
occur
on
longer
or
shorter
timelines
than
anticipated.
We
caution
you
that
forward-looking
statements
are
not
guarantees
of
future
performance
and
that
our
actual
results
of
operations,
financial
condition
and
liquidity
and
the
development
of
the
industry
in
which
we
operate
may
differ
materially
from
the
forward-looking
statements
contained
herein.
Any
forward-looking
statements
that
we
make
in
this
Annual
Report
on
Form
10-K
speak
only
as
of
the
date
of
such
statement,
and
we
undertake
no
obligation
to
update
such
statements
to
reflect
events
or
circumstances
after
the
date
of
this
Annual
Report
on
Form
10-K
or
to
reflect
the
occurrence
of
unanticipated
events.
You
should
also
read
carefully
the
factors
described
in
the
“Risk
Factors”
section
of
this
Annual
Report
on
Form
10-K
to
better
understand
the
risks
and
uncertainties
inherent
in
our
business
and
underlying
any
forward-looking
statements.
You
are
advised,
however,
to
consult
any
further
disclosures
we
make
on
related
subjects
in
our
Quarterly
Reports
on
Form
10-Q,
Current
Reports
on
Form
8-K
and
our
website.
Clovis
Oncology
®
,
the
Clovis
logo
and
Rubraca®
are
trademarks
of
Clovis
Oncology,
Inc.
in
the
United
States
and
in
other
selected
countries.
All
other
brand
names
or
trademarks
appearing
in
this
report
are
the
property
of
their
respective
holders.
Unless
the
context
requires
otherwise,
references
in
this
report
to
“Clovis,”
the
“Company,”
“we,”
“us”
and
“our”
refer
to
Clovis
Oncology,
Inc.,
together
with
its
consolidated
subsidiaries.
ITEM 1. BUSINESS
Overview
We are a biopharmaceutical company focused on acquiring, developing and commercializing innovative anti-cancer agents in
the United States, the EU and additional international markets. We target our development programs for the treatment of specific
subsets of cancer populations, and simultaneously develop, with partners, for those indications that require them, diagnostic tools
intended to direct a compound in development to the population that is most likely to benefit from its use.
Our product Rubraca® (rucaparib), an oral small molecule inhibitor of poly ADP-ribose polymerase (“PARP”), is marketed in
the United States for two indications specific to recurrent epithelial ovarian, fallopian tube or primary peritoneal cancer. The
initial indication received approval from the United States Food and Drug Administration (“FDA”) in December 2016 and covers
the treatment of adult patients with deleterious BRCA (human genes associated with the repair of damaged DNA) mutation
(germline and/or somatic)-associated epithelial ovarian, fallopian tube, or primary peritoneal cancer who have been treated with
two or more chemotherapies and selected for therapy based on an FDA-approved companion diagnostic for Rubraca. In April
2018, the FDA also approved Rubraca for the maintenance
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treatment of adult patients with recurrent epithelial ovarian, fallopian tube, or primary peritoneal cancer who are in a complete or
partial response to platinum-based chemotherapy. The approval in this second, broader and earlier-line indication on a priority
review timeline was based on positive data from the phase 3 ARIEL3 clinical trial. Diagnostic testing is not required for patients
to be prescribed Rubraca in this maintenance treatment indication. We hold worldwide rights to Rubraca.
In May 2018, the European Commission granted a conditional marketing authorization for Rubraca as monotherapy treatment
of adult patients with platinum-sensitive, relapsed or progressive, BRCA mutated (germline and/or somatic), high-grade epithelial
ovarian, fallopian tube, or primary peritoneal cancer, who have been treated with two or more prior lines of platinum-based
chemotherapy, and who are unable to tolerate further platinum-based chemotherapy. As this is a conditional approval, it will be
necessary to complete certain confirmatory post marketing commitments. In January 2019, the European Commission granted a
variation to the marketing authorization to include the maintenance treatment of adult patients with recurrent epithelial ovarian,
fallopian tube, or primary peritoneal cancer who are in a complete or partial response to platinum-based chemotherapy. With this
approval, Rubraca is now authorized in the European Union (“EU”) for certain patients in the recurrent ovarian cancer
maintenance setting regardless of their BRCA mutation status. Rubraca was the first PARP inhibitor licensed for an ovarian
cancer treatment indication in the EU and is now the first to be authorized for both treatment and maintenance treatment among
eligible patients. We are planning our initial launch of Rubraca as maintenance therapy in Germany during the first quarter of
2019, with other EU countries to follow through 2019 and 2020.
Additional 2018 Rubraca key regulatory and clinical developments include the following:
During the first quarter of 2018, we initiated an open-label monotherapy study of Rubraca in recurrent, metastatic
bladder cancer titled ATLAS: A Study of Rucaparib in Patients with Locally Advanced or Metastatic Bladder Cancer.
In August 2018, the first patient was randomized into our ATHENA Phase 3 study evaluating the combination of
Rubraca and OPDIVO® (nivolumab) for the treatment of advanced ovarian cancer in the first line maintenance
setting. ATHENA is a Clovis-sponsored study which is part of our ongoing clinical collaboration with Bristol-Myers
Squibb to evaluate its immunotherapy OPDIVO® (nivolumab) in combination with Rubraca in a variety of tumor types.
In October 2018, the FDA granted Breakthrough Therapy designation (“BTD”) for the development of Rubraca as a
monotherapy treatment of adult patients with BRCA1/2-mutated metastatic castration resistant prostate cancer
(“mCRPC”) who have received at least one prior androgen receptor (“AR”)-directed therapy and taxane-based
chemotherapy. BTD was granted based on initial efficacy and safety results from the ongoing TRITON2 phase 2 study
of Rubraca in patients with advanced mCRPC with BRCA 1/2 mutations (germline or somatic) and deleterious
mutations of other homologous recombination (“HR”) repair genes presented at ESMO.
In October 2018, we announced initial data from the ongoing TRITON studies of Rubraca in advanced prostate cancer at
the European Society for Medical Oncology (ESMO) 2018 Congress. The initial TRITON2 data showed a 44 percent
confirmed objective response (ORR) by investigator-assessment in 25 RECIST/PCWG3 (RECIST as modified by the
Prostate Cancer Working Group for mCRPC trials) response-evaluable patients with a BRCA1/2 alteration, and results
by independent assessment were consistent. The median duration of response in these patients had not yet been
reached. In addition, a 51 percent confirmed prostate specific antigen (PSA) response rate was observed in 45 PSA
response-evaluable patients with a BRCA1/2 alteration. Preliminary safety data for Rubraca in men with mCRPC were
consistent with those observed in patients with ovarian cancer and other solid tumors.
We also have a robust clinical development program underway to further evaluate Rubraca in a variety of other solid tumor
types, either as monotherapy or in combination with other agents, including several studies as part of our ongoing clinical
collaboration with Bristol-Myers Squibb Company to evaluate its immunotherapy OPDIVO® (nivolumab) in combination with
Rubraca.
In addition, we have one other product candidate.
Lucitanib is an oral, potent inhibitor of the tyrosine kinase activity of vascular endothelial growth factor receptors 1 through 3
(“VEGFR1-3”), platelet-derived growth factor receptors alpha and beta (“PDGFR α/β”) and fibroblast growth factor receptors 1
through 3 (“FGFR1-3”). We believe that recent data for a drug similar to lucitanib that inhibits these
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same pathways – when combined with a PD-1 inhibitor – provide support for development of lucitanib in combination with a PD-
1 inhibitor and a Clovis-sponsored study of lucitanib in combination with nivolumab is planned in gynecologic cancers. In
addition, we intend to initiate a study of lucitanib in combination with Rubraca in ovarian cancer, based on encouraging data of
VEGF and PARP inhibitors in combination. We intend to initiate each of these Phase 1b/2 combination studies during the first
half of 2019.
Lucitanib was previously partnered with Servier outside the U.S. and Japan (also excluding China); Servier returned its rights
to lucitanib in late 2018. We now hold the global development and commercialization rights (except for China) for lucitanib.
In early 2019, we provided notice to Celgene Corporation exercising the right to terminate our license to rociletinib, an oral
mutant-selective inhibitor of epidermal growth factor receptor (“EGFR”). That termination will become effective in the second
quarter of 2019.
Clovis was founded in 2009. We have built our organization to support innovative oncology drug development for the
treatment of specific subsets of cancer populations. To implement our strategy, we have assembled an experienced team with core
competencies in global clinical and non-clinical development, regulatory operations and commercialization in oncology, as well
as conducting collaborative relationships with companies specializing in companion diagnostic development.
Clinical Development Pipeline
We are developing Rubraca for selected patient populations and collaborating with partners for companion diagnostic
development. We have focused our development strategy for Rubraca on indications where we believe patient populations exhibit
higher frequencies of mutant BRCA tumors or HRD, where PARP inhibitors have demonstrated clinical or pre-clinical activity in
tumors. We are also developing lucitanib in combinations, including with Rubraca, based on encouraging data in clinical studies
of other similar oncology compounds. The following table summarizes the ongoing or planned Clovis- or partner-sponsored
studies:
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In certain of these trials, we or our partners may have access to interim data on a periodic or continuing basis that will not be
made available publicly on the same timeframe as such data becomes available to us, or at all.
Rubraca – a PARP Inhibitor
Overview
Rubraca (rucaparib) is an oral, small molecule inhibitor of PARP1, PARP2 and PARP3. We in-licensed Rubraca from Pfizer
Inc. in June 2011 and hold exclusive worldwide rights. Rubraca has received regulatory approvals in the United States and the
European Union for patients with recurrent epithelial ovarian, fallopian tube or primary peritoneal cancer.
In the United States, Rubraca is approved by the FDA for the treatment of adult patients with deleterious BRCA mutation
(germline and/or somatic)-associated epithelial ovarian, fallopian tube, or primary peritoneal cancer who have been treated with
two or more chemotherapies and selected for therapy based on an FDA-approved companion diagnostic for Rubraca. BRCA
mutations are believed to occur in approximately 25 percent of women with ovarian cancer. In April 2018, the FDA granted a
second approval for Rubraca for the maintenance treatment of adult patients with recurrent epithelial ovarian, fallopian tube, or
primary peritoneal cancer who are in a complete or partial response to platinum-based chemotherapy, a broader and earlier-line
indication. Diagnostic testing is not required for patients to be prescribed Rubraca in this maintenance treatment indication.
In the EU, the EMA granted a conditional marketing authorization for Rubraca in May 2018 as monotherapy treatment of adult
patients with platinum-sensitive, relapsed or progressive, BRCA mutated (germline and/or somatic), high-grade epithelial
ovarian, fallopian tube, or primary peritoneal cancer, who have been treated with two or more prior lines of platinum-based
chemotherapy, and who are unable to tolerate further platinum-based chemotherapy. As this initial treatment indication was
granted as a conditional approval, it will be necessary to complete confirmatory post marketing commitments to support the
indication, including ensuring that sufficient partially platinum-sensitive patients are enrolled in our ongoing ARIEL4
confirmatory trial. In January 2019, the European Commission granted a variation to the marketing authorization to include a
second indication for the maintenance treatment of adult patients with recurrent epithelial ovarian, fallopian tube, or primary
peritoneal cancer who are in a complete or partial response to platinum-based chemotherapy. With this approval, Rubraca is now
authorized in the EU for patients in the recurrent ovarian cancer maintenance setting regardless of their BRCA mutation status.
Rubraca was the first PARP inhibitor licensed for an ovarian cancer treatment indication in the EU and is now the first to be
authorized for both treatment and maintenance treatment among eligible patients. Rubraca was designated as an orphan medicinal
product on October 10, 2012 for the treatment of ovarian cancer. Rubraca was voluntarily withdrawn from the Community
register of orphan medicinal products in November 2018 during the review of the maintenance treatment indication variation thus
allowing future non-orphan indications to be added to the current marketing authorization in due course.
We have established our commercial and medical affairs infrastructure in the EU, as well as the field sales personnel in
Germany, where the initial launch of Rubraca is planned in the first quarter of 2019. We anticipate the hiring of field sales
personnel to support additional EU country launches to coincide with reimbursement approvals in individual countries in the EU
over the remainder of 2019 and 2020.
The
Role
of
PARP
Inhibition
in
Cancer
Therapy
Cells in the human body are under constant attack from agents that can cause damage to DNA, including sunlight and other
forms of radiation, as well as DNA-binding chemicals that can cause changes in the composition of DNA. Cells have evolved
multiple mechanisms to enable such DNA repair, and these mechanisms are complementary to each other, each driving repair of
specific types of DNA damage. If a cell’s DNA damage repair system is overwhelmed, then the cell will die undergoing a form of
suicide termed apoptosis. A fundamental principle of cancer therapy is to damage cells profoundly with radiation or DNA-binding
drugs, such as alkylating agents or platinums, to induce apoptosis and, subsequently, cancer cell death. Multiple DNA repair
mechanisms active in the cell may reduce the activity of these anti-cancer therapies.
The PARP family comprises 17 structurally related proteins that have been identified on the basis of sequence similarity.
PARP1, PARP2, and PARP3 play a central role in DNA repair. They are rapidly recruited to the sites of DNA damage and
catalyze the recruitment of additional proteins that initiate the repair of damaged DNA. The breast cancer 1 (BRCA1) and breast
cancer 2 (BRCA2) genes also have important roles in DNA repair pathways such as homologous
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recombination. According to the National Cancer Institute, BRCA1 and BRCA2 mutations are associated with an increased risk
of ovarian, breast, prostate, and pancreatic cancers.
Rubraca is an inhibitor of PARP enzymes, including PARP1, PARP2, and PARP3. PARP inhibitors have shown activity in
BRCA1/2 mutant and homologous recombination (“HR”) repair deficient cancer cell lines through a mechanism known as
synthetic lethality in which the loss of two genes/pathways is required for cell death. The inhibition/inactivation of repair
pathways by administration of a PARP inhibitor in the context of an underlying genetic defect such as a BRCA mutation results in
tumor cell death through accumulation of unrepaired DNA damage.
Alterations in DNA repair genes other than BRCA1/2 have been observed in, and contribute to the hereditary risk of, ovarian,
breast, prostate and pancreatic cancers. PARP inhibitors have shown evidence of nonclinical and clinical activity in tumors with
alterations in non-BRCA HR genes. DNA repair deficiencies resulting from genetic and epigenetic alterations can result in a
“BRCA-like” phenotype that may also render tumor cells sensitive to PARP inhibitors. One approach to identify patients with
DNA repair deficiencies due to mechanisms other than a mutation in BRCA or other non-BRCA HR genes is to assess loss of
heterozygosity (“LOH”), or the loss of one normal copy of a gene, which arises from error-prone DNA repair pathways when HR
is compromised.
On the basis of these scientific observations, we initially developed Rubraca in ovarian cancer patients with tumors having
BRCA mutations or other homologous recombination deficiencies (“HRD”). These molecular markers also may be used to select
patients with other tumors for treatment with Rubraca. Thus, in addition to ovarian trials, studies open for enrollment or under
consideration to further evaluate Rubraca, either alone or in combination with other agents, include prostate, breast, pancreatic,
bladder, gastroesophageal and lung cancers.
Ovarian
cancer
Rubraca’s approvals in the U.S. and the EU in the recurrent BRCA mutant ovarian cancer treatment setting were based on data
from two multicenter, single-arm, open-label clinical trials, Study 10 (NCT01482715) and ARIEL2 (NCT01891344), in women
with advanced BRCA-mutant ovarian cancer who had progressed after two or more prior chemotherapies. All patients received
Rubraca orally 600 mg twice daily as monotherapy. Treatment continued until disease progression or unacceptable toxicity. The
primary efficacy outcome measure of both studies was objective response rate (ORR) as assessed by the investigator according to
Response Evaluation Criteria in Solid Tumors (RECIST) version 1.1. Results from a blinded independent radiology review
(“BICR”) were consistent.
The efficacy of Rubraca in the ovarian cancer maintenance treatment setting was investigated in ARIEL3 (NCT01968213), a
double-blind, multicenter clinical trial in which 564 patients with recurrent epithelial ovarian, fallopian tube, or primary
peritoneal cancer who were in response to platinum-based chemotherapy were randomized (2:1) to receive Rubraca tablets 600
mg orally twice daily (n=375) or placebo (n=189). Treatment was continued until disease progression or unacceptable toxicity.
All patients had achieved a response (complete or partial) to their most recent platinum-based chemotherapy. Randomization was
stratified by best response to last platinum (complete or partial), time to progression following the penultimate platinum therapy
(6 to < 12 months and ≥ 12 months), and tumor biomarker status. The major efficacy outcome was investigator-assessed
progression-free survival (“PFS”) evaluated according to RECISTv1.1.
The primary efficacy analysis evaluated three prospectively defined molecular sub-groups in a step-down manner: 1) tumor
BRCA mutant (“tBRCAmut”) patients, inclusive of germline and somatic BRCA mutations (n=196); 2) HRD patients, including
tBRCAmut patients and BRCA wild-type with high LOH (n=354), and, finally, 3) the intent-to-treat population, or all patients
treated in ARIEL3 (n=564). ARIEL3 demonstrated a statistically significant improvement in PFS for patients randomized to
Rubraca as compared with placebo in all patients, and in the HRD and tBRCAmut subgroups. Median PFS in the tBRCAmut
patients was 16.6 months (95% CI: 13.4–22.9) in the Rubraca group (n=130) versus 5.4 months (95% CI: 3.4–6.7) in the placebo
group (n=66) (Hazard Ratio, or HR: 0.23 [95% CI: 0.16–0.34]; p<0.0001). Median PFS in the HRD patients was 13.6 months
(95% CI: 10.9–16.2) in the Rubraca group (n=236) versus 5.4 months (95% CI: 5.1–5.6) in the placebo group (n=118) (HR: 0.32
[95% CI: 0.24–0.42]; p<0·0001). Median PFS in the intent-to-treat population was 10.8 months (95% CI: 8.3–11.4) in the
Rubraca group (n=375) versus 5.4 months (95% CI: 5.3–5.5) in the placebo group (n=189) (HR: 0.36 [95% CI: 0.30–0.45];
p<0·0001).
BICR results were consistent. In a pre-specified analysis of the key stand-alone secondary endpoint of progression-free
survival assessed by BICR, PFS was also improved in the Rubraca group compared with placebo in all three
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populations. Median PFS in the tBRCAmut patients was 26.8 months (95% CI: 19.2 to not reached) in the Rubraca group versus
5.4 months (95% CI: 4.9–8.1) in the placebo group (HR: 0.20 [95% CI: 0.13–0.32]; p<0.0001). Median PFS in the HRD patients
was 22.9 months (95% CI: 16.2 to not reported) in the Rubraca group versus 5.5 months (95% CI: 5.1–7.4) in the placebo group
(HR: 0.34 [95% CI: 0.24–0.47]; p<0.0001). Median PFS in the intent-to-treat population was 13.7 months (95% CI: 11.0–19.1)
versus 5.4 months (95% CI: 5.1–5.5) in the placebo group (HR: 0.35 [0.28–0.45]; p<0.0001).
Enrollment in ARIEL3 included one-third of patients who had achieved a complete response to their prior platinum-based
therapy, and two-thirds of patients who had achieved a partial response to their prior platinum-based therapy. Of those with a
partial response, 37% had measurable disease at the time of enrollment and were therefore evaluable for response. The confirmed
overall response rate by investigator-assessed RECISTv1.1 in the tBRCAmut group treated with Rubraca was 37.5% (15/40), of
these, 17.5% (7/40) were complete responses. This compared with 9% (2/23) in the placebo group (p=0.0055). No complete
responses were seen in the tBRCAmut placebo group. RECIST responses were also observed in BRCA wild-type HRD-positive
and BRCA wild-type HRD-negative subgroups. In a subsequent post hoc exploratory analysis of ARIEL3 data, a higher response
rate was also seen in patients without measurable disease in both the tBRCAmut group and the intent to treat population
(inclusive of BRCAmut patients) as compared to placebo. RECIST responses were not assessed by independent blinded review.
Safety data from ARIEL3 demonstrated consistency with prior Rubraca studies. Treatment emergent adverse events
(“TEAEs”) in the ARIEL3 Rubraca group were generally managed with dose modifications and not associated with increased
mortality or morbidity compared with the placebo group. The most common (occurring in ≥5% of patients) TEAEs of grade ≥3
reported in patients treated with Rubraca in the ARIEL3 study were anemia/decreased hemoglobin (21%), increase in ALT/AST
(10%), neutropenia (7%), asthenia/fatigue (7%) and thrombocytopenia (5%). The discontinuation rate for TEAEs (excluding
disease progression) was 15% for Rubraca-treated patients and 2% for the placebo arm. In ARIEL3, the rate of treatment-
emergent myelodysplastic syndrome (“MDS”)/acute myeloid leukemia (“AML”) in the Rubraca arm was <1% (3/372), and no
patients on the placebo arm experienced treatment-emergent MDS/AML. In approximately 1,100 patients treated with Rubraca,
MDS/AML occurred in 10 patients (0.9%), including those in long term follow-up. Of these, 5 occurred during treatment or
during the 28-day safety follow-up (0.5%). The duration of Rubraca treatment prior to the diagnosis of MDS/AML ranged from 1
month to approximately 28 months. The cases were typical of secondary MDS/cancer therapy-related AML; in all cases, patients
had received previous platinum containing chemotherapy regimens and/or other DNA damaging agents.
At the time of the analysis of PFS, overall survival (OS) data were not mature (with 22% of events). The comprehensive
dataset for ARIEL3 was presented at the 2017 European Society of Medical Oncology (“ESMO”) Congress in early September
2017 and subsequently published in The
Lancet
. The ARIEL3 dataset formed the basis for the supplemental NDA (“sNDA”)
filed with the FDA as well as the marketing authorization variation filed with the EMA supporting the approval of Rubraca in the
US in April 2018 and the EU in January 2019 respectively, as maintenance treatment in adult patients with recurrent epithelial
ovarian, fallopian tube, or primary peritoneal cancer who are in a complete or partial response to platinum-based chemotherapy.
The ARIEL4 confirmatory study (NCT 02855944) is a Phase 3 multicenter, randomized study of Rubraca versus
chemotherapy enrolling relapsed ovarian cancer patients with BRCA mutations (inclusive of germline and/or somatic) who have
failed two prior lines of therapy. The primary endpoint of the study is PFS. This study represents a post marketing commitment to
support the conditional approval granted for the treatment indication in the EU, including ensuring that sufficient partially
platinum-sensitive patients are enrolled in the trial. This may require enrollment of additional patients into the study, increasing
its overall size and extending the time for enrollment.
The Phase 1 RUCA-J study has identified the recommended 600 mg BID dose of rucaparib in Japanese patients, which will
enable development of a bridging strategy and potential inclusion of Japanese sites in planned or ongoing global studies. This
study continues to enroll patients.
Prostate
cancer
The American Cancer Society estimates that more than 164,000 men in the United States will be diagnosed with prostate
cancer in 2018, and the GLOBOCAN Cancer Fact Sheets estimated that approximately 345,000 men in Europe were diagnosed
with prostate cancer in 2012. Castration resistant prostate cancer has a high likelihood of developing metastases. Metastatic
castration resistant prostate cancer, or mCRPC, is an incurable disease, usually associated with
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poor prognosis. According to the American Cancer Society, the five-year survival rate for mCRPC is approximately 29%.
Germline or somatic mutations in BRCA, ATM and other DNA repair genes are believed to be present at frequencies of 20
percent or higher in mCRPC, according to an article published in JCO
Precision
Oncology
in 2017, and we estimate that
approximately 12% of mCRPC patients have a deleterious mutation in BRCA1 or BRCA2. These molecular markers may be
used to select patients for treatment with a PARP inhibitor. Additionally, preclinical studies of rucaparib have demonstrated
activity in prostate cell cancer lines deficient in BRCA or ATM.
The TRITON ( T rial of R ucapar i b in Pros t ate Indicati on s) program in prostate cancer initiated in the second half of 2016,
and currently includes two Clovis-sponsored potential registration studies currently open for enrollment.
The TRITON2 study (NCT02952534) is a Phase 2 single-arm study of Rubraca in men with mCRPC enrolling patients with
BRCA mutations and ataxia-telangiectasia mutations, or ATM, (both inclusive of germline and/or somatic) or other deleterious
mutations in other homologous recombination repair genes. Patients enrolling in the TRITON2 study will have received prior
treatment with at least one androgen receptor (AR)-directed therapy and taxane-based chemotherapy and were screened for a
deleterious germline or somatic alteration in BRCA1, BRCA2 or one of 13 other pre-specified homologous recombination (“HR”)
genes. Study participants are allocated into three cohorts based on the type of gene alteration and disease status, which is
determined by genomic sequencing and RECIST criteria, respectively. Each cohort receives 600 mg Rubraca twice daily and are
grouped based on the following criteria: A) alteration in either BRCA1, BRCA2 or ATM genes, with tumors that can be measured
with visceral and/or nodal disease; B) alteration in either BRCA1, BRCA2 or ATM genes, with tumors that cannot be measured
with visceral and/or nodal disease, or C) alteration in another HR gene associated with sensitivity to PARP inhibition, with or
without measurable disease. The primary study endpoints include confirmed ORR per RECIST/PCWG3 in patients with
measurable disease at baseline and PSA response in patients with no measurable disease at baseline. Secondary endpoints include
overall survival (“OS”), clinical benefit rate, and safety and tolerability.
TRITON2 initiated during the fourth quarter of 2016, and interim data were presented at the European Society for Medical
Oncology (“ESMO”) Congress in October 2018 based on a June 29, 2018 data cut. The TRITON2 trial is ongoing and the next
public update of TRITON2 data is expected at a medical meeting in the Fall of 2019, likely ESMO 2019.
The initial TRITON2 data demonstrated a 44% confirmed objective response rate by investigator assessment in 25
RECIST/PCWG3 response-evaluable patients with a BRCA1/2 alteration. The median duration of response in these patients had
not yet been reached at time of presentation. In addition, a 51% confirmed prostate-specific antigen (“PSA”) response rate was
observed in 45 PSA response-evaluable patients with a BRCA1/2 alteration. Also, a TRITON screening poster presented at
ESMO provided initial genomic profiling data from the TRITON clinical program. Plasma samples identified alterations in
BRCA1 or BRCA2 in approximately 12% of mCRPC patients screened for the TRITON2 study, and data demonstrated that
plasma cell-free circulating tumor DNA (cfDNA) samples were highly consistent with tumor tissue in identifying BRCA1 or
BRCA2 alterations.
As of the visit cut-off date of June 29, 2018, 85 patients were treated with Rubraca; the overall median treatment duration was
3.7 (range, 0.5–12.9) months and median follow up was 5.7 (range, 2.6–16.4) months. The median treatment duration in patients
with a BRCA1/2 alteration was 4.4 months (range, 0.5-12.0 months). Forty-six patients (54.1%) were evaluable for
RECIST/PCWG3 response, including 25 patients with a BRCA1/2 alteration. By investigator-assessed RECIST/PCWG3, the
confirmed ORR in patients with a BRCA1/2 alteration treated with Rubraca was 44.0% (11/25). Among the 45 evaluable patients
with a BRCA1/2 alteration, 51.1% (23/45) had a confirmed PSA response (95% CI, 35.8–66.3).
Overall, the most common treatment-emergent adverse events (“TEAEs”) of any grade (CTCAE Grade 1-4) in all patients
regardless of causality included asthenia/fatigue (44.7%, or 38/85), nausea (42.4%, or 36/85), anemia/decreased hemoglobin
(22.4%, or 19/85) and constipation (28.2%, or 24/85). Five patients (5.9%) discontinued therapy due to a non-progression TEAE.
One patient died due to disease progression.
The TRITON2 results were the basis for Breakthrough Therapy designation (“BTD”) for the development of Rubraca as a
monotherapy treatment of adult patients with BRCA1/2-mutated mCRPC who have received at least one prior androgen receptor
(AR)-directed therapy and taxane-based chemotherapy, which was granted on October 1, 2018 by the U.S. FDA.
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Sufficient positive data from TRITON2 could potentially serve as the basis for an accelerated approval in the U.S. in later line
BRCA1/2-mutated mCRPC. We are targeting late 2019 for the supplemental NDA filing based on data from 100 RECIST-
evaluable patients with BRCA-mutant advanced prostate cancer, pending data maturity.
The TRITON3 study (NCT02975934), a Phase 3 comparative study in men with mCRPC enrolling BRCA mutant and ATM
(both inclusive of germline and/or somatic) patients who have progressed on AR-targeted therapy and who have not yet received
chemotherapy in the castration resistant setting. TRITON3 will compare Rubraca to physician’s choice of AR-targeted therapy or
chemotherapy in these patients. The planned primary endpoint of the study is radiologic PFS. TRITON3 initiated during the first
quarter of 2017, and this earlier-line comparative study could potentially serve as a confirmatory study in the advanced prostate
setting.
Bladder
cancer
According to GLOBOCAN Cancer Fact Sheets, bladder cancer was one of the top six most common cancers in the United
States as of 2012, with an estimated 79,000 new cases of bladder cancer diagnosed in the United States in 2017, according to the
National Cancer Institute. Approximately 20% to 30% of newly diagnosed bladder cancer patients have disease that has invaded
the muscle, according to the National Cancer Institute. Muscle-invasive bladder cancer is a disease with poor prognosis. Overall
survival of these patients after initial cisplatin-containing chemotherapy is 13-15 months, with most patients experiencing relapse
of disease in 9 months, according to an article published in the European
Journal
of
Cancer
in 2006. After the first one or two
lines of anti-cancer treatments, options for these patients are limited, with platinum therapy as the current standard of care. Based
an analysis of The Cancer Genome Atlas (“TCGA”), bladder cancer data set, we believe approximately 60% of bladder cancer
tumors have alterations in homologous recombination repair genes or other genomic features associated with HRD.
We initiated a potential registration study in bladder cancer during the first quarter of 2018, called ATLAS (A Study of
Rucaparib in Patients with Locally Advanced or Metastatic Urothelial Carcinoma). ATLAS (NCT03397394) is a phase 2 single-
arm study enrolling patients with relapsed metastatic urothelial carcinoma following one or two prior standard of care regimens,
with measurable disease, and no prior PARP treatment. The planned primary endpoint is overall response rate, and the study is
enrolling all comers, with no selection based on HRD status. The primary efficacy analysis will evaluate two prospectively
defined molecular sub-groups: 1) HRD/high LOH patients and 2) the intent-to-treat population, or all patients treated in ATLAS.
We expect to complete enrollment in this trial in the third quarter of 2019 and expect to make an initial data presentation from
ATLAS at a Fall 2019 medical congress. Pending positive data, we believe this trial design could potentially support an sNDA
in an all comers population, without regard to biomarker status.
Combination
trials
Our ongoing collaboration with Bristol-Myers Squibb Company (“BMS”) involves the evaluation of the combination of
Rubraca with BMS’s immunotherapy Opdivo® (nivolumab) in multiple tumor types, with studies in additional tumor types under
consideration.
We believe that a preclinical rationale supports the conduct of clinical trials of the combination of our PARP inhibitor Rubraca
with immune checkpoint inhibitors such as the PD-1 inhibitor Opdivo. BRCA1 and BRCA2 and other HRD mutations are
associated with increased tumor mutational burden, which may create additional tumor-specific antigens or “neoepitopes.”
Increased tumor mutation burden has been shown to correlate with increased benefit from immune checkpoint blockade. In
addition, cell death that is induced by a PARP inhibitor is considered immunogenic and stimulates a “STING-like” pathway due
to fragmented DNA release into cytosol. In mice studies, rucaparib and an anti-PD-1 antibody demonstrated anti-tumor activity in
BRCA1 mutant ovarian tumors. The combination of rucaparib and either an anti-PD-L1 or anti-CTLA-4 antibody were equally
compelling in preclinical studies.
Although a combination study of Rubraca and Opdivo in patients with advanced TNBC was initially contemplated under the
collaboration, we have agreed with BMS to discontinue plans for such a study due to competitive considerations. Three other
combination trials are underway in combination with BMS, and in February 2019, lucitanib was added to the clinical
collaboration in a combination with Opdivo and discussions of additional combination studies of Rubraca and Opdivo in other
tumor types are ongoing.
ATHENA is a four-arm first-line maintenance treatment study to evaluate Rubraca and Opdivo, Rubraca, Opdivo and placebo
in an estimated 1,000 newly diagnosed patients with stage III/IV high-grade ovarian, fallopian tube, or primary
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peritoneal cancer who have completed platinum-based chemotherapy. The primary objectives are to determine if the combination
of Rubraca and Opdivo meaningfully extends PFS versus Rubraca monotherapy, or versus placebo, and to determine if Rubraca
extends PFS versus placebo. The analysis of the study results will evaluate, in a step-down manner, the tBRCA/HRD and intent-
to-treat subpopulations. We are the sponsor, and are also conducting and funding the ATHENA study, which initiated in 2018.
BMS is sponsoring, conducting and funding a 300-patient study in mCRPC, a three-arm study evaluating Opdivo + Rubraca,
Opdivo + docetaxel + prednisone, and Opdivo + enzalutamide, with the objective of determining how the combination affects
objective response rate and PSA response. The study is enrolling patients with biomarker negative or positive disease, and tumor
tissue samples are being used to determine biomarker status. BMS initiated the study in the fourth quarter of 2017.
The ARIES study, a phase 2 study evaluating Rubraca and Opdivo in second or third-line platinum-sensitive ovarian cancer
and locally-advanced metastatic bladder cancer, is being sponsored and funded by us. This study is expected to begin enrolling
patients in the first half of 2019.
In June 2018 we announced a planned clinical collaboration to study combination therapies in metastatic triple-negative breast
(“mTNBC”) and urothelial cancers (“mUC”) with Immunomedics, combining Rubraca with their lead antibody-drug conjugate
product candidate, sacituzumab govitecan. The planned phase 1/2 study will include an initial safety cohort followed by
expansion cohorts in each of mTNBC and mUC and platinum resistant ovarian cancer. The Clovis-sponsored study is expected to
begin enrolling patients in 2019.
A Phase 1b study (WO39409; NCT NCT03101280) sponsored by Hoffman-La Roche (Genentech) is underway evaluating the
combination of cancer immunotherapy Tecentriq® (atezolizumab; anti-PDL1) and Rubraca for the treatment of advanced
gynecological cancers and TNBC in patients with a tumor BRCA or HRD mutation. This study began enrolling patients in the
first half of 2017.
In addition, there are over 30 investigator-sponsored monotherapy or combination therapy studies approved or underway in a
variety of tumor types.
Companion
Diagnostics
We partnered with Foundation Medicine, Inc. (“Foundation”) to co-develop a companion diagnostic test to select ovarian
cancer patients with deleterious BRCA1/2 mutations for treatment with Rubraca. This test uses next-generation sequencing
(“NGS”) for the detection of BRCA1/2 sequence alterations from ovarian tumor tissue. The assay was designated
FoundationFocus™ CDx BRCA and was approved by the FDA on December 19, 2016. On April 6, 2018, the FDA approved a
supplemental premarket approval (“sPMA”) application which extended the label claim to include assessment of genomic LOH.
The modified test is called FoundationFocus™ CDx BRCA LOH.
On November 30, 2017, Foundation announced FDA approval of its comprehensive companion diagnostic test for solid
tumors, FoundationOne™ CDx, an NGS-based in vitro diagnostic device for detection of substitutions, insertion and deletion
alterations, copy number alterations in 324 genes (including BRCA1/2), select gene rearrangements, microsatellite instability, and
tumor mutational burden. FoundationOne CDx is also approved as a companion diagnostic to select ovarian cancer patients with
BRCA1/2 mutations for treatment with Rubraca. Foundation has a pending sPMA application that, if approved, will extend the
label claim of this assay to include LOH.
We also collaborated with Myriad Genetics, Inc. (“Myriad”) to support a post-marketing regulatory commitment related to
Rubraca’s initial US approval in the ovarian cancer treatment setting. On Oct 16, 2018, FDA extended the label for
BRACAnalysis CDx, a blood-based assay for the qualitative detection and classification of germline mutations in BRCA1/2
genes, to include Rubraca.
Lucitanib
–
a
VEGFR,
PDGFR
and
FGFR
Inhibitor
Lucitanib is an oral, potent inhibitor of the tyrosine kinase activity of vascular endothelial growth factor receptors 1 through 3
(VEGFR1-3), platelet-derived growth factor receptors alpha and beta (PDGFR α/β) and fibroblast growth factor receptors 1
through 3 (FGFR1-3). We believe that recent data for a drug similar to lucitanib that inhibits these same pathways – when
combined with a PD-1 inhibitor – provide a validated and compelling hypothesis for development of lucitanib in combination
with a PD-1 inhibitor and a Clovis-sponsored study of lucitanib in combination with nivolumab is planned in gynecologic
cancers. Based on encouraging data of VEGF and PARP inhibitors in
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combination, we also plan to initiate a study of lucitanib in combination with Rubraca in ovarian cancer. We intend to initiate
both of these combination studies during the first half of 2019. Following the return of the rights from Servier, we have global
development and commercialization rights (except for China) for lucitanib.
Competition
The development and commercialization of new drugs is intensely competitive, and we face competition from major
pharmaceutical companies, biotechnology companies, universities and other research institutions worldwide. Our competitors
may develop or market products or other novel technologies that are more effective, safer or less costly than any that have been or
will be commercialized by us, or may obtain regulatory approval for their products more rapidly than we may obtain approval for
ours.
The acquisition or licensing of pharmaceutical products is also very competitive. More established companies, which have
acknowledged strategies to license or acquire products, may have competitive advantages over us, as may other emerging
companies that take similar or different approaches to product acquisitions. Many of our competitors have substantially greater
financial, technical and human resources than we have. Our competitors also compete with us in recruiting and retaining qualified
scientific, management and commercial personnel as well as in establishing clinical trial sites and patient enrollment for clinical
trials.
Additional mergers and acquisitions in the pharmaceutical industry may result in even more resources being concentrated in
our competitors. Competition may increase further because of advances made in the commercial applicability of technologies and
greater availability of capital for investment in these fields. Our success will be based in part on our ability to build and actively
manage a portfolio of drugs that addresses unmet medical needs and creates value in patient therapy.
Rubraca
Competition
Lynparza®/olaparib (AstraZeneca UK Limited) was the first PARP inhibitor to market and has been approved in the US in the
following indications:
for the maintenance treatment of adult patients with deleterious or suspected deleterious germline or somatic BRCA-
mutated (“gBRCAm” or “sBRCAm”) advanced epithelial ovarian, fallopian tube, or primary peritoneal cancer who are
in complete or partial response to first-line platinum-based chemotherapy;
for the treatment of adult patients who have deleterious or suspected deleterious gBRCAm advanced ovarian cancer who
have been treated with three or more prior lines of chemotherapy;
for the maintenance treatment of adult patients with recurrent epithelial, fallopian tube or primary peritoneal cancer, who
are in a complete or partial response to platinum-based chemotherapy; and
in patients with deleterious or suspected deleterious gBRCAm, human epidermal growth factor receptor 2 (HER2)-
negative metastatic breast cancer who have been treated with chemotherapy in the neoadjuvant, adjuvant, or metastatic
setting.
Lynparza is approved in the EU as monotherapy for the maintenance treatment of adult patients with platinum-sensitive
relapsed high grade serous epithelial ovarian, fallopian tube, or primary peritoneal cancer who are in response (complete or
partial) to platinum-based chemotherapy.
AstraZeneca and Merck & Co., Inc. have a global strategic oncology collaboration to co-develop and co-commercialize
Lynparza for multiple cancer types. Lynparza is being investigated, alone and in combination with other agents, in multiple
indications across several tumor types, including breast, prostate, and pancreatic cancers.
Zejula®/niraparib (GlaxoSmithKline plc) is approved in the United States as monotherapy for the maintenance treatment of
adult patients with recurrent epithelial ovarian, fallopian tube, or primary peritoneal cancer who are in a complete or partial
response to platinum-based chemotherapy. Additionally, Zejula is approved in the EU as monotherapy for the maintenance
treatment of adult patients with platinum-sensitive relapsed high grade serous epithelial ovarian, fallopian tube, or primary
peritoneal cancer who are in response (complete or partial) to platinum-based chemotherapy.
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Additional clinical investigations of Zejula in ovarian, breast and lung cancers are ongoing or planned. Janssen
Pharmaceuticals has licensed rights to develop and commercialize niraparib specifically for patients with prostate cancer
worldwide, except in Japan. Preliminary results announced in February 2019 for Janssen’s phase 2 GALAHAD study evaluating
niraparib in patients with mCRPC and DNA-repair pathway defects showed that approximately 40 percent of patients with a
BRCA1/2 mutation demonstrated a RECIST response.
TALZENNA™/talazoparib (Pfizer Inc.) is approved in the US for the treatment of adult patients with deleterious or suspected
deleterious germline BRCA-mutated (gBRCAm) HER2-negative locally advanced or metastatic breast cancer.
There are several PARP inhibitors in clinical development including AbbVie Inc.’s veliparib and ABT-767, BeiGene, Ltd.’s
BGB-290, Checkpoint Therapeutics Inc.’s CK-102, and Oncology Venture A/S’s 2X-121. While most PARP inhibitor
development focuses on ovarian, breast and prostate cancers, additional efforts are aimed toward bladder, lung, and pancreatic
cancers as well.
In addition, combination approaches that include PARP inhibitors, including Lynparza and Zejula, with other anticancer agents
are in various phases of clinical development across a variety of oncology indications. These combination therapies may result in
future competitive pressure on Rubraca.
Outside of the PARP class, Avastin®/bevacizumab is approved in the US in ovarian cancer for the following indications:
epithelial ovarian, fallopian tube, or primary peritoneal cancer in combination with carboplatin and paclitaxel, followed
by Avastin as a single agent, for Stage III or IV disease following initial surgical resection;
epithelial ovarian, fallopian tube, or primary peritoneal cancer in combination with paclitaxel, pegylated liposomal
doxorubicin, or topotecan for platinum-resistant recurrent disease who received no more than 2 prior chemotherapy
regimens; and
epithelial ovarian, fallopian tube, or primary peritoneal cancer in combination with carboplatin and paclitaxel or
carboplatin and gemcitabine, followed by Avastin as a single agent, for platinum-sensitive recurrent disease.
Additionally, Avastin®/bevacizumab is approved in the EU in ovarian cancer for the following indications:
in combination with carboplatin and paclitaxel for the front-line treatment of adult patients with advanced (International
Federation of Gynecology and Obstetrics (FIGO) stages III B, III C and IV) epithelial ovarian, fallopian tube, or primary
peritoneal cancer;
in combination with carboplatin and gemcitabine or in combination with carboplatin and paclitaxel, for treatment of
adult patients with first recurrence of platinum-sensitive epithelial ovarian, fallopian tube or primary peritoneal cancer
who have not received prior therapy with bevacizumab or other VEGF inhibitors or VEGF receptor–targeted agents; and
in combination with paclitaxel, topotecan, or pegylated liposomal doxorubicin is indicated for the treatment of adult
patients with platinum-resistant recurrent epithelial ovarian, fallopian tube, or primary peritoneal cancer who received no
more than two prior chemotherapy regimens and who have not received prior therapy with bevacizumab or other VEGF
inhibitors or VEGF receptor–targeted agents.
Other out-of-class agents approved for use in advanced ovarian cancer include chemotherapeutic agents (e.g. platinum-based
doublets, platinum monotherapy, non-platinum chemotherapy, etc.), Doxil® (Janssen Biotech, Inc.), and Hycamtin® (Novartis
Pharmaceuticals Corporation). There are additional out-of-class agents in clinical development that may pose a future competitive
threat to Rubraca.
License Agreements
Pfizer
Inc.
In June 2011, we entered into a license agreement with Pfizer Inc. (“Pfizer”) to obtain the exclusive global rights to develop
and commercialize Rubraca. The exclusive rights are exclusive even as to Pfizer and include the right to grant sublicenses.
Pursuant to the terms of the license agreement, we made a $7.0 million upfront payment to Pfizer and are required to make
additional payments to Pfizer for the achievement of certain development and regulatory and sales
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milestones and royalties on sales as required by the license agreement. Prior to the FDA approval of Rubraca, we made milestone
payments of $1.4 million, which were recognized as acquired in-process research and development expense.
On August 30, 2016, we entered into a first amendment to the worldwide license agreement with Pfizer, which amends the
June 2011 existing worldwide license agreement to permit us to defer payment of the milestone payments payable upon (i) FDA
approval of an NDA for 1st Indication in US and (ii) EMA approval of an MAA for 1st Indication in the EU, to a date that is 18
months after the date of achievement of such milestones.
On December 19, 2016, Rubraca received its initial FDA approval. This approval resulted in a $0.75 million milestone
payment to Pfizer as required by the license agreement, which was paid in the first quarter of 2017. This FDA approval also
resulted in an obligation to pay a $20.0 million milestone payment, for which we exercised the option to defer payment by
agreeing to pay $23.0 million within 18 months after the date of the FDA approval. We paid the $23.0 million milestone payment
in June 2018.
On April 6, 2018, Rubraca received a second FDA approval. This approval resulted in an obligation to pay a $15.0 million
milestone payment, which we paid in April 2018.
In May 2018, Rubraca received its initial European Commission marketing authorization. This approval resulted in an
obligation to pay a $20.0 million milestone payment, which we paid in June 2018.
In January 2019, Rubraca received a second European Commission approval. This approval resulted in an obligation to pay a
$15.0 million milestone payment, which we paid in February 2019.
These milestone payments were recognized as intangible assets and amortized over the estimated remaining useful life of
Rubraca.
We are obligated under the license agreement to use commercially reasonable efforts to develop and commercialize Rubraca
and we are responsible for all ongoing development and commercialization costs for Rubraca. We are required to make regulatory
milestone payments to Pfizer of up to an additional $16.75 million in aggregate if specified clinical study objectives and
regulatory filings, acceptances and approvals are achieved. In addition, we are obligated to make sales milestone payments to
Pfizer if specified annual sales targets for Rubraca are met, which relate to annual sales targets of $250.0 million and above,
which, in the aggregate, could amount to total milestone payments of $170.0 million, and tiered royalty payments at a mid-teen
percentage rate on our net sales, with standard provisions for royalty offsets to the extent we need to obtain any rights from third
parties to commercialize Rubraca.
The license agreement with Pfizer will remain in effect until the expiration of all of our royalty and sublicense revenue
obligations to Pfizer, determined on a product-by-product and country-by-country basis, unless we elect to terminate the license
agreement earlier. If we fail to meet our obligations under the agreement and are unable to cure such failure within specified time
periods, Pfizer can terminate the agreement, resulting in a loss of our rights to Rubraca and an obligation to assign or license to
Pfizer any intellectual property rights or other rights we may have in Rubraca, including our regulatory filings, regulatory
approvals, patents and trademarks for Rubraca.
AstraZeneca
UK
Limited
In April 2012, we entered into a license agreement with AstraZeneca UK Limited (“AstraZeneca”) to acquire exclusive rights
associated with Rubraca under a family of patents and patent applications that claim methods of treating patients with PARP
inhibitors in certain indications. The license enables the development and commercialization of Rubraca for the uses claimed by
these patents. Pursuant to the terms of the license agreement, we made an upfront payment of $0.25 million upon execution of the
agreement. During the second quarter of 2016, we made a milestone payment of $0.3 million to AstraZeneca upon the NDA
submission for Rubraca. These payments were recognized as acquired in-process research and development expense. The FDA
approval of Rubraca on December 19, 2016 resulted in a final $0.35 million milestone payment to AstraZeneca as required by the
license agreement. This payment was recognized as intangible assets and amortized over the estimated remaining useful life of
Rubraca. AstraZeneca also receives royalties on net sales of Rubraca.
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Advenchen
Laboratories
LLC
In October 2008, Ethical Oncology Science, S.p.A. (“EOS”) (now known as Clovis Oncology Italy S.r.l.) entered into an
exclusive license agreement with Advenchen Laboratories LLC (“Advenchen”) to develop and commercialize lucitanib on a
global basis, excluding China. We are obligated to pay Advenchen tiered royalties at percentage rates in the mid-single digits on
net sales of lucitanib, based on the volume of annual net sales achieved. In addition, after giving effect to the first and second
amendments to the license agreement, we are required to pay to Advenchen 25% of any consideration, excluding royalties, we
receive from sublicensees, in lieu of the milestone obligations set forth in the agreement. We are obligated under the agreement to
use commercially reasonable efforts to develop and commercialize at least one product containing lucitanib, and we are also
responsible for all remaining development and commercialization costs for lucitanib.
The license agreement with Advenchen will remain in effect until the expiration of all of our royalty obligations to Advenchen,
determined on a product-by-product and country-by-country basis, unless we elect to terminate the agreement earlier. If we fail to
meet our obligations under the agreement and are unable to cure such failure within specified time periods, Advenchen can
terminate the agreement, resulting in a loss of our rights to lucitanib.
Les
Laboratoires
Servier
In September 2012, EOS entered into a collaboration and license agreement with Les Laboratoires Servier and Institut de
Recherches Internationales Servier (collectively, “Servier”), whereby EOS sublicensed to Servier exclusive rights to develop and
commercialize lucitanib in all countries outside of the U.S., Japan and China. Following our acquisition of EOS, we and Servier
were developing lucitanib pursuant to a development plan agreed to between the parties. During the second quarter of 2016, we
and Servier agreed to discontinue the development of lucitanib for breast cancer. In the second quarter of 2018, we received
notice from Servier of its election to terminate the license agreement and return its rights to lucitanib to us. Such termination
became effective in the fourth quarter of 2018.
Celgene
Corporation
In May 2010, we entered into an exclusive worldwide license agreement with Avila Therapeutics, Inc. (now Celgene
Avilomics Research Inc., part of Celgene Corporation (“Celgene”)) to discover, develop and commercialize a covalent inhibitor
of mutant forms of the epidermal growth factor receptor (“EGFR”) gene product. Rociletinib, an oral mutant-selective inhibitor of
EGFR, was identified as the lead inhibitor candidate under the license agreement. Following the termination of enrollment in all
sponsored clinical studies of rociletinib, we provided notice of termination to Celgene of our license rights to rociletinib, an oral
mutant-selective inhibitor of epidermal growth factor receptor (“EGFR”), and that termination will become effective in the
second quarter of 2019.
Government Regulation
Government authorities in the United States (including federal, state and local authorities) and in other countries, extensively
regulate, among other things, the manufacturing, research and clinical development, marketing, labeling and packaging, storage,
distribution, post-approval monitoring and reporting, advertising and promotion, pricing and export and import of pharmaceutical
products. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and
foreign statutes and regulations require the expenditure of substantial time and financial resources. Moreover, failure to comply
with applicable regulatory requirements may result in, among other things, warning letters, clinical holds, civil or criminal
penalties, recall or seizure of products, injunction, disbarment, partial or total suspension of production or withdrawal of the
product from the market.
U.S.
Government
Regulation
In the United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act (“FDCA”) and its implementing
regulations. Drugs are also subject to other federal, state and local statutes and regulations. The process required by the FDA
before product candidates may be marketed in the United States generally involves the following:
completion of extensive non-clinical laboratory tests and non-clinical animal studies, all performed in accordance with
the FDA’s Good Laboratory Practice regulations;
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submission to the FDA of an IND which must become effective before human clinical trials may begin and must be
updated at least annually;
performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product
candidate for each proposed indication;
submission to the FDA of a marketing authorization application in the form of an NDA for the initial commercial sale of
a product, or of a sNDA, for approval of a new indication if the product is already approved for another indication;
satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities at which the active
pharmaceutical ingredient (“API”) and finished drug product are produced and tested to assess compliance with Current
Good Manufacturing Practices (“cGMP”) and/or sites involved in clinical studies to assess compliance with Good
Clinical Practices (“GCP”);
if FDA convenes an advisory committee, satisfactory completion of the advisory committee review; and
FDA review and approval of the marketing authorization application and product prescribing information prior to any
commercial marketing or sale of the drug for the intended use.
An IND is a request for authorization from the FDA to administer a product candidate to humans. The central focus of an IND
submission is on the general investigational plan and the protocol(s) for human studies. The IND also includes results of animal
studies or other human studies, as appropriate, as well as manufacturing information, analytical data and any available clinical
data or literature to support the use of the product candidate. An IND must become effective before human clinical trials may
begin. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises
concerns or questions related to the proposed clinical trials, including concerns that human research subjects will be exposed to
unreasonable health risks. In such a case, the IND may be placed on clinical hold requiring delay of a proposed clinical
investigation, and the IND sponsor and the FDA must resolve any outstanding concerns or questions before clinical trials can
begin. Accordingly, submission of an IND may or may not result in the FDA allowing clinical trials to commence.
Clinical trials involve the administration of the drug candidate to human subjects under the supervision of qualified
investigators in accordance with GCP, which include the requirement that all research subjects provide their informed consent for
their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives
of the study, the parameters to be used in monitoring safety and the efficacy criteria to be evaluated. A protocol for each clinical
trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. Additionally, approval must also
be obtained from an Institutional Review Board (“IRB”) for each medical center proposing to conduct the clinical trial before the
trials may be initiated, and the IRB must monitor the study until completed. Clinical trials are subject to central registration and
results reporting requirements, such as on www.clinicaltrials.gov.
The clinical investigation of a drug is generally divided into three phases. Although the phases are usually conducted
sequentially, they may overlap or be combined. The three phases of an investigation are as follows:
Phase 1. Phase 1 includes the initial introduction of the product candidate into humans. Phase 1 clinical trials are
typically closely monitored and may be conducted in patients with the target disease or condition or in healthy
volunteers. These studies are designed to evaluate the safety, dosage tolerance, metabolism and pharmacologic actions of
product candidate in humans, the side effects associated with increasing doses, and if possible, to gain early evidence on
effectiveness. During Phase 1 clinical trials, sufficient information about the product candidate’s pharmacokinetics and
pharmacological effects may be obtained to permit the design of well-controlled and scientifically valid Phase 2 clinical
trials. The total number of participants included in Phase 1 clinical trials varies but is generally in the range of 20 to 80.
Phase 2. Phase 2 includes controlled clinical trials conducted to preliminarily or further evaluate the effectiveness of the
product candidate for a particular indication(s) in patients with the disease or condition under study, to determine dosage
tolerance and optimal dosage, and to identify possible adverse side effects and safety risks associated with the drug.
Phase 2 clinical trials are typically well-controlled, closely monitored, and conducted in a limited patient population,
usually involving no more than several hundred participants.
Phase 3. Phase 3 clinical trials are generally controlled clinical trials conducted in an expanded patient population
generally at geographically dispersed clinical trial sites. They are performed after preliminary
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evidence suggesting effectiveness of the drug has been obtained and are intended to further evaluate dosage, clinical
effectiveness and safety, to establish the overall benefit-risk relationship of the investigational drug product and to
provide an adequate basis for product approval. Phase 3 clinical trials usually involve several hundred to several
thousand participants.
A pivotal study is a clinical study which adequately meets regulatory agency requirements for the evaluation of a drug
candidate’s efficacy and safety such that it can be used to justify the approval of the product. Generally, pivotal studies are also
Phase 3 studies but may be Phase 2 studies if the trial design provides a well-controlled and reliable assessment of clinical benefit,
particularly in situations where there is an unmet medical need.
The FDA, an IRB or the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds,
including a finding that the research subjects are being exposed to an unacceptable health risk. Additionally, some clinical trials
are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as an Independent Data
Monitoring Committee (“IDMC”). The IDMC receives special access to un-blinded data during the clinical trial and may halt the
clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of
efficacy. We may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate.
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, detailed
product development information is submitted to the FDA in the form of an NDA or sNDA requesting approval to market the
product for one or more indications.
The application includes all relevant data available from pertinent non-clinical and clinical trials, including negative or
ambiguous results, as well as positive findings, together with detailed information relating to the product’s chemistry,
manufacturing, controls and proposed labeling, among other things. Data can come from company-sponsored clinical trials
intended to test the safety and effectiveness of a use of a product, or from a number of alternative sources, including studies
initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish
the safety and effectiveness of the product candidate to the satisfaction of the FDA.
Once the marketing application submission has been accepted for filing, the FDA’s goal is to review applications within 10
months of acceptance for filing or, if the sponsor has been granted priority review designation, on the basis of an improvement in
the treatments of a serious condition, six months from acceptance for filing. The review process is often significantly extended by
FDA requests for additional information or clarification. The FDA may refer the application to an advisory committee for review,
evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation
of an advisory committee, but it typically follows such recommendations.
After the FDA evaluates the NDA or sNDA and conducts inspections of clinical research facilities and/or manufacturing
facilities where the drug product and/or its API will be produced, it may issue an approval letter or a Complete Response Letter.
An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A
Complete Response Letter indicates that the review cycle of the application is complete, and the application is not ready for
approval. A Complete Response Letter may require additional clinical data and/or an additional pivotal Phase 3 clinical trial(s),
and/or other significant, expensive and time-consuming requirements related to clinical trials, non-clinical studies or
manufacturing. Even if such additional information is submitted, the FDA may ultimately decide that the application does not
satisfy the criteria for approval. The FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategies plan to
mitigate risks, which could include medication guides, physician communication plans or elements to assure safe use, such as
restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on,
among other things, changes to proposed labeling, development of adequate controls and specifications or a commitment to
conduct one or more post-market studies or clinical trials. Such post-market testing may include Phase IV clinical trials and
surveillance to further assess and monitor the product’s safety and effectiveness after commercialization. Regulatory approval of
oncology products often requires that patients in clinical trials be followed for long periods to determine the overall survival
benefit of the drug.
Products manufactured or distributed pursuant to FDA approvals are subject to continuing regulation by the FDA, including
recordkeeping requirements and reporting of adverse experiences with the drug. Adverse event experience with the product must
be reported to the FDA in a timely fashion and pharmacovigilance programs to proactively look
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for these adverse events are mandated by the FDA. Newly discovered or developed safety or effectiveness data may require
changes to a product’s approved labeling, including the addition of new warnings and contraindications and also may require the
implementation of other risk management measures.
Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state
agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for quality and compliance,
which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Following such
inspections, the FDA may issue notices on Form FDA 483 and Warning Letters that could cause us to modify certain activities. A
Form FDA 483 notice, if issued at the conclusion of an FDA inspection, can list conditions the FDA investigators believe may
have violated cGMP or other FDA regulations or guidance. Failure to adequately and promptly correct the observations(s) can
result in further regulatory enforcement action. In addition to Form FDA 483 notices and Warning Letters, failure to comply with
the statutory and regulatory requirements can subject a manufacturer to possible legal or regulatory action, such as suspension of
manufacturing, seizure of product, injunctive action or possible civil penalties. In addition, changes to the manufacturing process
are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being
implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and
documentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers
must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP
and other aspects of regulatory compliance.
Government
Regulation
Outside
of
the
United
States
In addition to regulations in the United States, we are subject to a variety of regulations in other jurisdictions governing,
among other things, clinical trials and any commercial sales and distribution of our products. The approval process and
requirements governing the conduct of clinical trials, product licensing, pricing, and reimbursement vary greatly from country to
country, and the time may be longer or shorter than that required for FDA approval.
Regardless of whether we hold FDA approval for a product, we must obtain the requisite approvals from regulatory authorities
in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries
outside of the United States have a similar process that requires the submission of a clinical trial application much like the IND
prior to the commencement of human clinical trials. In Europe, for example, a clinical trial application, (“CTA”) must be
submitted to each country’s national health authority and an independent ethics committee, much like the FDA and IRB,
respectively. Once the CTA is approved in accordance with a country’s requirements, clinical trial development may proceed.
Medicines can be authorized in the European Union by using either the centralized authorization procedure or national
authorization procedures. Under the centralized procedure, marketing authorization applications are submitted to the EMA whose
CHMP reviews the application and issues an opinion on it. The opinion is considered by the European Commission (“EC”) which
is responsible for deciding applications. If the application is approved, the EC grants a single marketing authorization that is valid
for all European Union member states as well as Iceland, Liechtenstein and Norway. The centralized procedure is compulsory for
human medicines that contain a new active substance indicated for the treatment of certain diseases, including cancer.
The national authorization procedures, the decentralized and mutual recognition procedures, are available for products for
which the centralized procedure is not compulsory. Using the decentralized procedure, an applicant may apply for simultaneous
authorization in more than one European Union country of medicinal products that have not yet been authorized in any European
Union country and that do not fall within the mandatory scope of the centralized procedure. Under the mutual recognition
procedure, a medicine is first authorized in one European Union Member State, in accordance with the national procedures of that
country. Following this, further marketing authorizations can be sought from other European Union countries in a procedure
whereby the countries concerned agree to recognize the validity of the original, national marketing authorization
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Available
Special
Regulatory
Procedures
Formal
Meetings
We are encouraged to engage and seek guidance from health authorities relating to the development and review of
investigational drugs, as well as marketing applications. In the United States, there are different types of official meetings that
may occur between us and the FDA. Each meeting type is subject to different procedures. Conclusions and agreements from each
of these meetings are captured in the official final meeting minutes issued by the FDA.
The EMA also provides the opportunity for dialogue with us. This is usually done in the form of Scientific Advice, which is
given by the Scientific Advice Working Party of CHMP. A fee is incurred with each Scientific Advice meeting.
Advice from either the FDA or EMA is typically provided based on questions concerning, for example, quality (chemistry,
manufacturing and controls testing), nonclinical testing and clinical studies and pharmacovigilance plans and risk-management
programs. Such advice is not legally binding on the sponsor. To obtain binding commitments from the FDA in the United States,
Special Protocol Assessment (“SPA”) procedures are available. A SPA is an evaluation by the FDA of a protocol with the goal of
reaching an agreement with the sponsor that the protocol design, clinical endpoints and statistical analyses are acceptable to
support regulatory approval of the product candidate with respect to effectiveness in the indication studied. The FDA’s agreement
to a SPA is binding upon the FDA except in limited circumstances, such as if the FDA identifies a substantial scientific issue
essential to determining the safety or effectiveness of the product after clinical studies begin, or if the study sponsor fails to follow
the protocol that was agreed upon with the FDA. There is no guarantee that a study will ultimately be adequate to support an
approval even if the study is subject to a SPA.
Orphan
Drug
Designation
The FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than
200,000 individuals in the United States, or if it affects more than 200,000 individuals in the United States and there is no
reasonable expectation that the cost of developing and making the drug for this type of disease or condition will be recovered
from sales in the United States. In the European Union, the EMA’s Committee for Orphan Medicinal Products grants orphan drug
designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening
or chronically debilitating conditions affecting not more than five in 10,000 persons in the European Union Community.
Additionally, designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening,
seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the
European Union would be sufficient to justify the necessary investment in developing the drug or biological product.
In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding
towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product receives the first FDA approval for the
indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not
approve any other application to market the same drug for the same indication for a period of seven years, except in limited
circumstances, such as a showing of clinical superiority over the product with orphan exclusivity.
In the European Union, orphan drug designation also entitles a party to financial incentives such as reduction of fees or fee
waivers and 10 years of market exclusivity is granted following drug or biological product approval. This period may be reduced
to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently
profitable not to justify maintenance of market exclusivity.
Orphan drug designation must be requested before submitting an application for marketing approval. Orphan drug designation
does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
Pediatric
Development
In the United States, the FDCA provides for an additional six months of marketing exclusivity for a drug if reports are filed of
investigations studying the use of the drug product in a pediatric population in response to a written request from the FDA.
Separate from this potential exclusivity benefit, NDAs must contain data (or a proposal for post-marketing
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activity) to assess the safety and effectiveness of an investigational drug product for the claimed indications in all relevant
pediatric populations in order to support dosing and administration for each pediatric subpopulation for which the drug is safe and
effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all
pediatric data until after approval of the product for use in adults or full or partial waivers if certain criteria are met. Discussions
about pediatric development plans can be discussed with the FDA at any time, but usually occur any time between the end-of-
Phase II meeting and submission of the NDA.
For the EMA, a Pediatric Investigation Plan, and/or a request for waiver or deferral, has to be agreed prior to submitting an
initial marketing authorization application and prior to submitting a variation to an existing Marketing Authorization to add an
additional indication.
Breakthrough
Therapy
Designation
in
the
United
States
The U.S. Congress created the Breakthrough Therapy designation program as a result of the passage of the Food and Drug
Administration Safety and Innovation Act of 2012. FDA may grant Breakthrough Therapy status to a drug intended for the
treatment of a serious condition when preliminary clinical evidence indicates that the drug may demonstrate substantial
improvement over existing therapies on one or more clinically significant endpoints. The Breakthrough Therapy designation,
which may be requested by a sponsor when filing or amending an IND, is intended to facilitate and expedite the development and
FDA review of a product candidate. Specifically, the Breakthrough Therapy designation may entitle the sponsor to more frequent
meetings with the FDA during drug development, intensive guidance on clinical trial design and expedited FDA review by a
cross-disciplinary team comprised of senior managers. The designation does not guarantee a faster development or review time as
compared to other drugs, however, nor does it assure that the drug will obtain ultimate marketing approval by the FDA. Once
granted, the FDA may withdraw this designation at any time.
Expedited
Review
and
Approval
in
the
United
States
The FDA has various programs, including Fast Track, priority review and accelerated approval, which are intended to expedite
or simplify the process for reviewing drugs and biologics, and/or provide for the approval of a drug or biologic on the basis of a
surrogate endpoint. Even if a drug qualifies for one or more of these programs, the FDA may later decide that the drug no longer
meets the conditions for qualification or that the time period for FDA review or approval will be shortened. Generally, drugs that
are eligible for these programs are those for serious or life-threatening conditions, those with the potential to address unmet
medical needs and those that offer meaningful benefits over existing treatments. For example, based on results of the Phase 3
clinical trial(s) submitted in an NDA, upon the request of an applicant, the FDA may grant the NDA a priority review designation,
which sets the target date for FDA action on the application at six months from the 60-day filing date, if the drug is a new
molecular entity, rather than to the standard FDA review period of 10 months. Priority review is granted where preliminary
estimates indicate that a product, if approved, has the potential to provide a safe and effective therapy where no satisfactory
alternative therapy exists, or a significant improvement compared to marketed products is possible. Priority review designation
does not change the scientific/medical standard for approval or the quality of evidence necessary to support approval.
Fast Track is a designation which is more similar to the Breakthrough Therapy designation, but is granted based on
preliminary data including non-clinical or mechanistic data, and allows more frequent communication with FDA to expedite drug
development
Accelerated approval provides for an earlier approval for a new drug that is intended to treat a serious or life-threatening
disease or condition upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict
clinical benefit and is better than available therapy. A surrogate endpoint is a laboratory measurement or physical sign used as an
indirect or substitute measurement representing a clinically meaningful outcome. The FDA will also take into account the
severity, rarity or prevalence of the condition. As a condition of approval for drugs granted accelerated approval, one or more
post-marketing confirmatory studies are required to confirm as predicted by the surrogate marker trial an effect on clinical
benefit, which is defined as having a positive effect on how a patient feels, functions or survives.
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Accelerated
Review
in
the
European
Union
Under the Centralized Procedure in the European Union, the maximum timeframe for the evaluation of a marketing
authorization application is 210 days (excluding clock stops, when additional written or oral information is to be provided by the
applicant in response to questions asked by the CHMP). Accelerated evaluation might be granted by the CHMP in exceptional
cases, when a medicinal product is expected to be of a major public health interest, defined by three cumulative criteria: the
seriousness of the disease (e.g. heavy disabling or life-threatening diseases) to be treated; the absence or insufficiency of an
appropriate alternative therapeutic approach; and anticipation of high therapeutic benefit. In this circumstance, EMA ensures that
the opinion of the CHMP is given within 150 days of submission of the MAA, excluding clock stops.
Pharmaceutical
Coverage,
Pricing
and
Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any drug products for which we obtain regulatory
approval. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for
commercial sale depend in part on the availability of reimbursement from third-party payors. Third-party payors include
government health administrative authorities, managed care providers, private health insurers and other organizations. The
process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the
price or reimbursement rate that the payor will pay for the drug product. Third-party payors may limit coverage to specific drug
products on an approved list, or formulary, which might not include all of the FDA-approved drugs for a particular indication.
Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical
products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in
order to demonstrate the medical necessity and cost effectiveness of our products, in addition to the costs required to obtain FDA
approvals. The development of a product dossier and a Budget Impact Model may be helpful in assisting the payors in evaluating
cost effectiveness. Our approved products may not be considered medically necessary or cost-effective. A payor’s decision to
provide coverage for a drug product does not imply that an adequate reimbursement rate will be established. Adequate third-party
reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our
investment in product development. Third-party payors may also impose price protection in their contracts with manufacturers to
limit the manufacturer’s ability to increase price in exchange of providing equal access to the drug product vs. other competing
drugs.
There have been a number of federal and state proposals in recent years regarding the pricing of pharmaceutical products,
government control and other changes to the healthcare system of the United States. The U.S. government enacted legislation
providing a partial prescription drug benefit for Medicare beneficiaries. Government payment for some of the costs of
prescription drugs may increase demand for any products for which we receive marketing approval; however, to obtain payments
under this program, we are required to sell products to Medicare recipients through prescription drug plans operating pursuant to
this legislation. These plans will likely negotiate discounted prices for our products. Additionally, the Patient Protection and
Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “Affordable Care Act”)
was enacted in 2010 with a goal of reducing the cost of healthcare and substantially changing the way healthcare is financed by
both government and private insurers. Among other cost containment measures, the Affordable Care Act established:
An annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic
agents;
A Medicare Part D coverage gap discount program, in which pharmaceutical manufacturers who wish to have their drugs
covered under Part D must offer discounts to eligible beneficiaries during their coverage gap period (the “donut hole”);
and
A formula that increases the rebates a manufacturer must pay under the Medicaid Drug Rebate Program.
Since its enactment, there have been judicial and Congressional challenges to certain aspects of the Affordable Care Act. We
expect that the current presidential administration and U.S. Congress will likely continue to seek to modify, repeal, or otherwise
invalidate all, or certain provisions of, the Affordable Care Act. Most recently, the Tax Cuts and Jobs Act was enacted, which,
among other things, removes penalties for not complying with Affordable Care Act’s individual mandate to carry health
insurance. There is still uncertainty with respect to the impact President Trump’s administration and the U.S. Congress may have,
if any, and any changes will likely take time to unfold, and could have
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an impact on coverage and reimbursement for healthcare items and services covered by plans that were authorized by the
Affordable Care Act.
Recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their
marketed products, which has resulted in several Congressional inquiries and proposed bills designed to, among other things,
reform government program reimbursement methodologies. Individual states in the United States have also become increasingly
active in implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement
constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in
some cases, designed to encourage importation from other countries and bulk purchasing. We expect that federal, state and local
governments in the United States will continue to consider legislation to limit the growth of healthcare costs, including the cost of
prescription drugs. Future legislation could limit payments for pharmaceuticals such as our products.
Moreover, payment methodologies, including payment for companion diagnostics, have been subject to changes due to
healthcare legislation and regulatory initiatives. For example, the Centers for Medicare and Medicaid Services(“CMS”) began
bundling the Medicare payments for certain laboratory tests ordered while a patient received services in a hospital outpatient
setting. Additionally, on April 1, 2014, the Protecting Access to Medicare Act of 2014, or PAMA, was signed into law, which,
among other things, significantly alters the current payment methodology under the Clinical Laboratory Fee Schedule. Beginning
on January 1, 2018, the Medicare payment rate for each clinical diagnostic lab test, with some exceptions, is equal to the weighted
median private payer payment for the test, as calculated using data collected by applicable laboratories during the data collection
period and reported to CMS during a specified data reporting period. Also under PAMA, CMS is required to adopt temporary
billing codes to identify new clinical diagnostic laboratory tests and advanced diagnostic laboratory tests that do not already have
unique diagnostic codes, and that have been cleared or approved by the FDA.
Different pricing and reimbursement schemes exist in other countries and vary widely from country to country. In the
European Community, governments influence the price of pharmaceutical products through their pricing and reimbursement rules
and control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions
operate positive and negative list systems under which products may only be marketed once a reimbursement price has been
agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that
compare the cost-effectiveness of a particular product candidate to currently available therapies. Other member states allow
companies to fix their own prices for medicines but monitor and control company profits. The downward pressure on health care
costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected
to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial
pressure on pricing within a country. There can be no assurance that any country that has price controls or reimbursement
limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products.
Historically, products launched in the European Union do not follow price structures of the United States and generally prices
tend to be significantly lower.
The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government
and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on reducing the rate of
healthcare spending in the United States has increased, and we expect will continue to increase the pressure on pharmaceutical
pricing. There has been particular and increasing legislative interest in the United States with respect to drug pricing practices,
particularly with respect to drugs that have been subject to relatively large price increases over relatively short time periods.
Certain independent charitable foundations operate programs that provide grants to defray medical expenses (including cost-
sharing obligations for drug treatments and health insurance premiums) for patients who meet certain financial need criteria and
suffer from specific chronic illnesses or rare disorders. There has been recent enforcement interest regarding donations by
pharmaceutical manufacturers to such foundations on the bases that such donations were used in part to guide patients to those
donors’ products or that the donors obtained data on how the donations were used, including how often donations correlate to the
frequency of referrals to donors’ products. There have been several U.S. Congressional inquiries and proposed bills designed to,
among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient
programs, and reform government program reimbursement methodologies for drugs. Coverage policies and third-party
reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more
products for which we receive regulatory approval, less favorable coverage policies and reimbursement
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rates may be implemented in the future. The implementation of cost containment measures or other healthcare reforms may
prevent us from being able to generate revenue, attain profitability or commercialize our products.
Advertising
and
Promotion
The FDA and other U.S. federal regulatory agencies closely regulate the marketing and promotion of drugs through, among
other things, the FDCA and the FDA’s implementing regulations and standards. The FDA’s review of marketing and promotional
activities encompasses, but is not limited to, direct-to-consumer advertising, healthcare provider-directed advertising and
promotion, sales representative communications to healthcare professionals, communications regarding unapproved or “off-label”
uses, industry-sponsored scientific and educational activities and promotional activities involving the internet. A product cannot
be commercially promoted before it is approved. After approval, product promotion can include only those claims relating to
safety and effectiveness that are consistent with the labeling approved by the FDA. FDA regulations impose stringent restrictions
on manufacturers’ communications regarding off-label uses. Failure to comply with applicable FDA requirements and restrictions
regarding unapproved uses of a drug or for other violations of its advertising and labeling laws and regulations, may result in
adverse publicity and enforcement action by the FDA, the Department of Justice or the Office of the Inspector General of the
Department of Health and Human Services, as well as state authorities. A range of penalties are possible that could have
significant commercial consequences, including product seizures, injunctions, administrative remedies, civil and/or criminal fines,
agreements that materially restrict the manner in which a company promotes or distributes its products, or regulatory
enforcement letters which may require corrective advertising or other corrective communications to healthcare professionals.
Other
Healthcare
Laws
and
Compliance
Requirements
We are subject to various laws targeting fraud and abuse in the healthcare industry, including anti-kickback laws and false
claims laws. For example, in the United States, there are federal and state anti-kickback laws that prohibit the payment or receipt
of kickbacks, bribes or other remuneration intended to induce the purchase or recommendation of healthcare products and
services or reward past purchases or recommendations. Violations of these laws can lead to civil and criminal penalties, including
fines, imprisonment and administrative remedies such as exclusion from participation in federal healthcare programs.
The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, receiving, offering or paying
remuneration, directly or indirectly, to induce either the referral of an individual, or the furnishing, recommending, or arranging
for a good or service, for which payment may be made under a federal healthcare program, such as the Medicare and Medicaid
programs. The reach of the Anti-Kickback Statute was broadened by the Affordable Care Act, which, among other things,
amended the intent requirement of the federal Anti-Kickback Statute and the applicable criminal healthcare fraud statutes
contained within 42 U.S.C. § 1320a-7b. Pursuant to the statutory amendment, a person or entity no longer needs to have actual
knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the Affordable Care
Act provides that the government may assert that a claim including items or services resulting from a violation of the federal
Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act (discussed below) or the
civil monetary penalties statute. Many states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply
to the referral of patients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid
programs.
The federal False Claims Act imposes liability on any person who, among other things, knowingly presents, or causes to be
presented, a false or fraudulent claim for payment by a federal program, including federal healthcare programs. The “qui tam”
provisions of the False Claims Act allow a private individual to bring civil actions on behalf of the federal government alleging
that the defendant has submitted a false claim to the federal government, and to share in any monetary recovery. In addition,
various states have enacted false claims laws analogous to the False Claims Act. Many of these state laws apply where a claim is
submitted to any third-party payor and not merely a federal healthcare program. When an entity is determined to have violated the
False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil fines and
penalties.
In addition, a person who offers or transfers to a Medicare or Medicaid beneficiary any remuneration, including waivers of co-
payments and deductible amounts (or any part thereof), that the person knows or should know is likely to influence the
beneficiary’s selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services may be
liable for civil monetary penalties of up to $20,000 for each wrongful act. Moreover, in certain cases, providers who routinely
waive copayments and deductibles for Medicare and Medicaid beneficiaries can also be
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held liable under the Anti-kickback Statute and civil False Claims Act, which can impose additional penalties associated with the
wrongful act. One of the statutory exceptions to the prohibition is non-routine, unadvertised waivers of copayments or deductible
amounts based on individualized determinations of financial need or exhaustion of reasonable collection efforts. The Office of
Inspector General of the Department of Health and Human Services emphasizes, however, that this exception should only be used
occasionally to address special financial needs of a particular patient. Although this prohibition applies only to federal healthcare
program beneficiaries, the routine waivers of copayments and deductibles offered to patients covered by commercial payers may
implicate applicable state laws related to, among other things, unlawful schemes to defraud, excessive fees for services, tortious
interference with patient contracts and statutory or common law fraud. To the extent our patient assistance programs are found to
be inconsistent with applicable laws, we may be required to restructure or discontinue such programs or be subject to other
significant penalties.
In addition to the laws described above, the Affordable Care Act also imposed new reporting requirements on drug
manufacturers for payments made to physicians and teaching hospitals, as well as ownership and investment interests held by
physicians and their immediate family members. Failure to submit required information may result in civil monetary penalties of
up to an aggregate of $169,170 per year (or up to an aggregate of $1.128 million per year for “knowing failures”), for all
payments, transfers of value or ownership or investment interests that are not timely, accurately and completely reported in an
annual submission. Applicable drug manufacturers are required to collect data for each calendar year and submit reports to CMS
by March 31st of each subsequent calendar year. In addition, there are also an increasing number of state laws that require
manufacturers to make reports to states on pricing and marketing information. These laws may affect our sales, marketing, and
other promotional activities by imposing administrative and compliance burdens on us.
For those marketed products which are covered in the United States by the Medicaid program, we have various obligations,
including government price calculation and reporting and rebate requirements, which generally require products be offered at
substantial rebates/discounts to Medicaid and certain purchasers (including “covered entities” purchasing under the 340B Drug
Discount Program). We are also required to discount such products to authorized users of the Federal Supply Schedule of the
General Services Administration, under which additional laws and requirements apply. These programs require submission of
pricing data and calculation of discounts and rebates pursuant to complex statutory formulas, as well as the execution of
government procurement contracts governed by the Federal Acquisition Regulations, and the guidance governing such
calculations is not always clear. Compliance with such requirements can require significant investment in personnel, systems and
resources, but failure to properly calculate our prices, or offer required discounts or rebates could subject us to substantial
penalties. One component of the rebate and discount calculations under the Medicaid and 340B programs, respectively, is the
“additional rebate”, a complex calculation which is based, in part, on the rate at which a branded drug price increases over time as
compared to the rate of inflation (based on the CPI-U published by the Department of labor). This comparison is based on the
baseline pricing data for the first full quarter of sales associated with a branded drug’s NDA, and baseline data cannot generally
be reset, even on transfer of the NDA to another manufacturer. This “additional rebate” calculation can, in some cases where
price increases have been relatively high versus the first quarter of sales of the NDA, result in Medicaid rebates up to 100% of a
drug’s “average manufacturer price” and 340B prices of one penny. Separately, subject to the control of Directive 89/105/EEC,
pricing and reimbursement in the EU/EEA (“European Economic Area”) is governed by national rules and policy and may vary
from Member State to Member State.
Also, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) created several new federal crimes,
including health care fraud and false statements relating to health care matters. Most healthcare providers who are expected to
prescribe our products and from whom we obtain patient health information are subject to privacy and security requirements
under HIPAA. Although we are not directly subject to HIPAA, we could be subject to criminal penalties if we knowingly obtain
individually identifiable health information from a HIPAA-covered entity in a manner that is not authorized or permitted by
HIPAA. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or
specific intent to violate it in order to have committed a violation. Other countries also have, or are developing, laws governing
the collection, use and transmission of personal information. For example, the EU Data Privacy Directive (95/46/EC), which was
replaced on May 25, 2018 by the more restrictive General Data Protection Regulation (Regulation (EU) 2016/679) and the Swiss
Federal Data Protection Act and Data Protection Ordinance, regulate the processing of personal data within the European Union
and between countries in the European Union and countries outside of the European Union, including the U.S. Failure to provide
adequate privacy protections and maintain compliance with the EU-U.S. and Swiss-U.S Privacy Shield Frameworks, could
jeopardize
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business transactions across borders and result in significant penalties. These laws could create liability for us or increase our cost
of doing business.
Regulation
of
Diagnostic
Tests
In the United States, the FDCA and its implementing regulations, and other federal and state statutes and regulations govern,
among other things, medical device design and development, non-clinical and clinical testing, premarket clearance or approval,
registration and listing, manufacturing, labeling, storage, advertising and promotion, sales and distribution, export and import, and
post-market surveillance. Diagnostic tests are classified as medical devices under the FDCA. Unless an exemption applies,
diagnostic tests require marketing clearance or approval from the FDA prior to commercial distribution. The two primary types of
FDA marketing authorization applicable to a medical device are premarket notification, also called 510(k) clearance, and
premarket approval, or PMA approval. Because the diagnostic tests being developed by our third-party collaborators are of
substantial importance in preventing impairment of human health, they are subject to the PMA approval process.
PMA applications must be supported by valid scientific evidence, which typically requires extensive data, including technical,
non-clinical, clinical and manufacturing data, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device.
For diagnostic tests, a PMA application typically includes data regarding analytical and clinical validation studies. As part of its
review of the PMA, the FDA will conduct a pre-approval inspection of the manufacturing facility or facilities to ensure
compliance with the Quality System Regulation, or QSR, which requires manufacturers to follow design, testing, control,
documentation and other quality assurance procedures. FDA review of an initial PMA application is required by statute to take
between six to ten months, although the process typically takes longer, and may require several years to complete. If the FDA
evaluations of both the PMA application and the manufacturing facilities are favorable, the FDA will either issue an approval
letter or an approvable letter, which usually contains a number of conditions that must be met in order to secure the final approval
of the PMA. If the FDA’s evaluation of the PMA or manufacturing facilities is not favorable, the FDA will deny approval of the
PMA or issue a not approvable letter. A not approvable letter will outline the deficiencies in the application and, where practical,
will identify what is necessary to make the PMA approvable. The FDA may also determine that additional clinical trials are
necessary, in which case the PMA approval may be delayed for several months or years while the trials are conducted and then
the data submitted in an amendment to the PMA. Once granted, PMA approval may be withdrawn by the FDA if compliance with
post approval requirements, conditions of approval or other regulatory standards is not maintained, or problems are identified
following initial marketing.
We and our third-party collaborators who are developing companion diagnostics work cooperatively to generate the data
required for submission with a PMA application, and remain in close contact with the Center for Devices and Radiological Health
(“CDRH”) at the FDA to ensure that any changes in requirements are incorporated into the development plans. Meetings with the
FDA with regard to our drug product candidates, as well as companion diagnostic product candidates, typically include
representatives from the Center for Drug Evaluation and Research and CDRH when appropriate to ensure that the NDA and PMA
submissions are coordinated to enable FDA to conduct a parallel review of both submissions. The FDA has issued guidance
documents addressing the development and approval process for “In Vitro Companion Diagnostic Devices.” According to these
guidance documents, for novel therapeutic products such as our product candidates, the PMA for a companion diagnostic device
should generally be developed and approved or cleared contemporaneously with the therapeutic.
In the EEA, in vitro medical devices are required to conform to the essential requirements of the E.U. Directive on in vitro
diagnostic medical devices (Directive No 98/79/EC, as amended). To demonstrate compliance with the essential requirements, the
manufacturer must undergo a conformity assessment procedure. The conformity assessment varies according to the type of
medical device and its classification. For low-risk devices, the conformity assessment can be carried out internally, but for higher
risk devices it requires the intervention of an accredited EEA Notified Body. If successful, the conformity assessment concludes
with the drawing up by the manufacturer of an EC Declaration of Conformity entitling the manufacturer to affix the CE mark to
its products and to sell them throughout the EEA. The data generated for the U.S. registration will be sufficient to satisfy the
regulatory requirements for the European Union and other countries.
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Patents and Proprietary Rights
The proprietary nature of, and protection for, our product candidates, processes and know-how are important to our business.
Our success depends in part on our ability to protect the proprietary nature of our product candidates, technology, and know-how,
to operate without infringing on the proprietary rights of others, and to prevent others from infringing our proprietary rights. We
seek patent protection in the United States and internationally for our product candidates and other technology. Our policy is to
patent or in-license the technology, inventions and improvements that we consider important to the development of our business.
We also rely on trade secrets, know-how and continuing innovation to develop and maintain our competitive position. We cannot
be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent
applications filed by us in the future, nor can we be sure that any of our existing patents or any patents granted to us in the future
will be commercially useful in protecting our technology.
In June 2011, we obtained an exclusive, worldwide license from Pfizer to develop and commercialize rucaparib. In April 2012,
we obtained an exclusive license from AstraZeneca under a family of patents and patent applications which permits the
development and commercialization of rucaparib for certain methods of treating patients with PARP inhibitors. U.S. Patent
6,495,541, directed to the rucaparib composition of matter and its equivalent counterparts issued in dozens of countries, expires in
2020 and are potentially eligible for up to five years patent term extension in various jurisdictions. We believe that patent term
extension under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”) could be
available to extend our patent exclusivity for rucaparib to the fourth quarter of 2023 in the United States. Additionally, other
patents and patent applications are directed to methods of making, methods of using, dosing regimens, various salt and
polymorphic forms and formulations and have expiration dates ranging from 2020 through potentially 2035, including the
rucaparib camsylate salt/polymorph patent family licensed from Pfizer, which expires in 2031 and a patent family directed to high
dosage strength rucaparib tablets that expires in 2035. As of 2019, the rucaparib camsylate salt/polymorph patent was issued in 47
countries to date (including US and Europe), with applications pending in 9 countries, the rucaparib composition of matter patent
was issued in 48 countries and the high dosage strength rucaparib tablets patent was issued in the U.S. and pending in Europe in
14 countries. Two oppositions were filed in the granted European counterpart of the rucaparib camsylate salt/polymorph patent on
June 20, 2017. European oppositions are commonly filed against patents related to pharmaceutical products. The European Patent
Office’s Opposition Division held an oral hearing on December 4, 2018, during which it upheld claims, narrowed from the
originally granted patent, to certain crystalline forms of rucaparib camsylate, including, but not limited to, rucaparib S-camsylate
Form A, the crystalline form in Rubraca. On February 4, 2019, the Opposition Division issued a written decision confirming its
decision at the oral hearing. Clovis and/or either opponent have an opportunity to appeal the written decision of the European
Opposition Division. Notices of appeal are due April 14, 2019 and appeal briefs are due June 14, 2019. If appealed, all claims in
the originally granted patent will remain in force until the Technical Board of Appeal issues its decision. The rucaparib camsylate
salt/polymorph patent expires in 2031. We have filed for patent term extension under a supplementary protection certificate for
Rubraca in the European counterpart of the rucaparib camsylate salt/polymorph patent and believe that extension could be
available to 2033. Patents in our high dosage strength rucaparib tablets patent family issued in the United States, with claims that
cover the commercial Rubraca product, including all commercial dosage strengths expire in 2035. Additionally, in Europe,
regulatory exclusivity is available for ten years, plus one year for a new indication, therefore, we have regulatory exclusivity for
Rubraca in Europe until 2028, and if an additional indication is approved, until 2029.
We obtained rights to lucitanib by acquiring EOS in November 2013, along with its license agreements with Advenchen and
Servier. In October 2008, EOS entered into an exclusive license agreement with Advenchen to develop and commercialize
lucitanib on a global basis, excluding China. In September 2012, EOS entered into a collaboration and license agreement with
Servier whereby EOS sublicensed to Servier exclusive rights to develop and commercialize lucitanib in all countries outside of
the U.S., Japan and China. In October 2018, Servier terminated the collaboration and license agreement. Composition of matter
and method of use patent protection for lucitanib and a group of structurally-related compounds is issued in the U.S., Europe and
Japan and is issued or pending in other jurisdictions. In the U.S., the composition of matter patent will expire in 2030, and in other
jurisdictions, it expires in 2028. We believe that patent term extension could be available to extend our composition of matter
patent up to five years beyond the scheduled expiration under the Hatch-Waxman Act. Additionally, patents or patent applications
directed to methods of manufacturing lucitanib are issued or pending in the United States, Europe, Japan, and China.
In addition, we intend to seek patent protection whenever available for any products or product candidates and related
technology we acquire in the future.
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The patent positions of pharmaceutical firms like us are generally uncertain and involve complex legal, scientific and factual
questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued.
Consequently, we do not know whether any of the product candidates we acquire, or license will gain patent protection or, if any
patents are issued, whether they will provide significant proprietary protection or will be challenged, circumvented or invalidated.
Because patent applications in the United States and certain other jurisdictions are maintained in secrecy for 18 months, and since
publication of discoveries in the scientific or patent literature often lags behind actual discoveries, until that time we cannot be
certain that we were the first to file any patent application related to our product candidates. Moreover, we may have to
participate in interference proceedings declared by the United States Patent and Trademark Office (“U.S. PTO”) to determine
priority of invention or in opposition or other third-party proceedings in the U.S. or a foreign patent office, either of which could
result in substantial cost to us, even if the eventual outcome is favorable to us. There can be no assurance that the patents, if
issued, would be held valid by a court of competent jurisdiction. An adverse outcome in a third-party patent dispute could subject
us to significant liabilities to third parties, require disputed rights to be licensed from third parties or require us to cease using
specific compounds or technology.
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most
countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the
United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative
delays by the U.S. PTO in granting a patent or may be shortened if a patent is terminally disclaimed over another patent.
The patent term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits
patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman
Act permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term
extension is related to the length of time the drug is under regulatory review. Patent extension cannot extend the remaining term
of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may
be extended. Similar provisions are available in Europe and other non-U.S. jurisdictions to extend the term of a patent that covers
an approved drug. In the future, if and when our pharmaceutical products receive FDA approval, we expect to apply for patent
term extensions on patents covering those products.
To protect our rights to any of our issued patents and proprietary information, we may need to litigate against infringing third
parties, or avail ourselves of the courts or participate in hearings to determine the scope and validity of those patents or other
proprietary rights. These types of proceedings are often costly and could be very time-consuming to us, and we cannot assure you
that the deciding authorities will rule in our favor. An unfavorable decision could allow third parties to use our technology
without being required to pay us licensing fees or may compel us to license needed technologies to a third-party. Such a decision
could even result in the invalidation or a limitation in the scope of our patents or forfeiture of the rights associated with our
patents or pending patent applications. To the extent prudent, we intend to bring litigation against third parties that we believe are
infringing one or more of our patents.
In addition, we have sought and intend to continue seeking orphan drug status whenever it is available. If a product which has
an orphan drug designation subsequently receives the first regulatory approval for the indication for which it has such
designation, the product is entitled to orphan exclusivity, meaning that the applicable regulatory authority may not approve any
other applications to market the same drug for the same indication, except in certain very limited circumstances, for a period of
seven years in the United States and ten years in the European Union. Orphan drug designation does not prevent competitors from
developing or marketing different drugs for an indication.
We also rely on trade secret protection for our confidential and proprietary information. No assurance can be given that others
will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our
trade secrets or disclose such technology, or that we can meaningfully protect our trade secrets. However, we believe that the
substantial costs and resources required to develop technological innovations will help us to protect the competitive advantage of
our products.
It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors
to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These
agreements provide that all confidential information developed or made known to the individual during the
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course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific
circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual shall be our
exclusive property. There can be no assurance, however, that these agreements will provide meaningful protection or adequate
remedies for our trade secrets in the event of unauthorized use or disclosure of such information.
Manufacturing
We currently contract with third parties for the manufacture of our product candidates for commercial use, or non-clinical
studies and clinical trials and intend to do so in the future. We currently have long-term agreements with third-party contract
manufacturing organizations (“CMOs”) for the production of the active ingredient and final product for Rubraca. We do not own
or operate manufacturing facilities for the production of commercial and clinical quantities of our product candidates. We
currently have no plans to build our own clinical or commercial scale manufacturing capabilities. To meet our projected needs for
commercial manufacturing, we are working with our current third-party suppliers to increase their scale of production and we
engaged additional second source suppliers during 2018. Although we rely on contract manufacturers, we have personnel with
extensive manufacturing experience to oversee the relationships with our contract manufacturers.
We have developed the process for manufacturing Rubraca’s active pharmaceutical ingredient (“API”) to a degree sufficient to
meet clinical demands and, as production capacity is increased as described below under “Lonza Agreement,” projected
commercial requirements. Manufacturing of Rubraca API is being performed at a single CMO. Manufacturing operations for an
advanced intermediate, which is the work-in-process inventory prior to conversion to API, will be expanded to a second Lonza
site during 2019. The Rubraca drug product formulation and manufacturing process to produce that formulation have been
developed to a degree sufficient to meet clinical demands and projected commercial requirements. A single third-party CMO
capable of both formulation development and drug product manufacturing is currently producing the Rubraca drug product. We
expect to expand manufacturing operations for Rubraca drug product to a second site during 2019.
To date, our third-party manufacturers have met our manufacturing requirements and we expect them to meet anticipated full-
scale commercial demands.
Lonza
Agreement
-
Rucaparib
On October 3, 2016, we entered into an agreement with Lonza Ltd (“Lonza”) for the long-term manufacture and supply of the
API for rucaparib.
Under this agreement, Lonza will be a non-exclusive manufacturer of the Rubraca API during the 10-year term of the
agreement. Lonza will construct, in an existing Lonza facility, a production train that will be exclusively dedicated to the
manufacture of the Rubraca API. The dedicated production train will provide manufacturing capacity to meet our currently
anticipated needs for commercial supply of Rubraca API. We are obligated to make scheduled capital program fee payments
towards capital equipment and other costs associated with the construction of the dedicated production train and, once the facility
is operational, to pay a fixed facility fee each quarter for the duration of the term of the agreement. The dedicated production train
was completed during the fourth quarter of 2018 at which time Lonza began producing API under this agreement.
Lonza will manufacture and store an advanced intermediate to be used in the subsequent production of the Rubraca API. We
will pay fixed fees on a per kilogram basis for quantities of the advanced intermediate and the Rubraca API ordered by us, subject
to certain adjustments. Until the dedicated facility was completed and operationally qualified during the fourth quarter of 2018,
Lonza manufactured the Rubraca API in existing Lonza facilities at pricing established in the agreement.
Either party may terminate the agreement due to a material breach of the agreement by the other party, subject to prior written
notice and a cure period. We may terminate the agreement, subject to 90 days’ prior written notice, in the event rucaparib is
withdrawn from the market for certain reasons. In the event of such a termination by us, or termination by Lonza due to material
breach by us, we are obligated to compensate Lonza for any services rendered, or for which costs have been incurred by Lonza in
anticipation of services to be provided to us, and to pay to Lonza the remaining amount of any capital program fees and quarterly
fixed facility fees for the remainder of the term of the agreement. In
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the event we terminate the agreement due to material breach by Lonza, Lonza is obligated to repay all or a portion of the capital
program fees previously paid by us.
Lucitanib
The API for lucitanib is currently being produced by a third-party supplier. To date, the current production process has been
sufficient to satisfy immediate clinical demands. We may undertake additional development work to further optimize the active
pharmaceutical ingredient manufacturing process. The finished drug product for lucitanib is currently being manufactured at a
CMO. The current product and process are sufficiently developed to meet immediate clinical demands. Additional scale-up work
and/or additional production capacity will be necessary to support larger clinical development or commercialization requirements.
Commercial Operations
Our commercial organization in the U.S. is in place and supporting the commercial sale of Rubraca. We believe the U.S.
oncology market for Rubraca in both of its approved indications is addressable with a targeted sales and marketing organization,
with capabilities that include the management of key accounts such as managed care organizations, group-purchasing
organizations, oncology group networks and government accounts. We sell Rubraca through a limited distribution network
consisting of select number of specialty pharmacies and distributors. Healthcare providers prescribe Rubraca to patients and the
specialty pharmacies and distributors dispense Rubraca directly to patients. We intend to continue promoting Rubraca ourselves
in the U.S. for its current indications and any additional indications we may obtain in the future. We retain the rights to Rubraca
in the rest of the world. Rubraca is approved in the EU for both treatment and maintenance treatment indications. We intend to
commercialize Rubraca on our own in the EU and are planning our initial launch of Rubraca as maintenance therapy in Germany
during the first quarter of 2019, with other EU countries to follow through 2019 and 2020. We have established our commercial
and medical affairs infrastructure in the EU, as well as the field sales personnel in Germany. We anticipate the hiring of field
sales personnel to support additional EU country launches to coincide with reimbursement approvals in individual countries in the
EU over the remainder of 2019 and 2020.
Customers
We are currently approved to sell Rubraca in the U.S. and the EU markets. We distribute our product principally through a
limited number of specialty distributor and specialty pharmacy providers, collectively, our customers. Our customers
subsequently sell our products to patients and health care providers, at which time we recognize the associated revenue.
Our U.S. customers, which distribute our product, consist of three specialty distributors and four specialty pharmacy providers.
We will also have distributors who distribute our product internationally by country. Furthermore, we do not believe the loss of
one of these customers would significantly impact the ability to distribute our product as we expect that sales volume would be
absorbed evenly by the remaining customers.
Employees
As of February 15, 2019, we employed 468 full-time employees. None of our employees is represented by labor unions, and a
very small number of international employees are covered by collective bargaining agreements. We consider our relationship with
our employees to be good.
About Clovis
We were incorporated under the laws of the State of Delaware in April 2009 and completed our initial public offering of our
common stock in November 2011. Our common stock is listed on the NASDAQ Global Select Market under the symbol “CLVS.”
Our principal executive offices are located at 5500 Flatiron Parkway, Suite 100, Boulder, Colorado 80301, and our telephone
number is (303) 625-5000. We maintain additional offices in San Francisco, California, Oakland, California, Cambridge, UK,
London, UK, Milan, Italy and in several other locations in the EU. Our website address is www.clovisoncology.com
. Our website
and the information contained on, or that can be accessed through, the website will not be deemed to be incorporated by reference
in, and are not considered part of, this report.
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Available Information
As a public company, we file reports and proxy statements with the Securities and Exchange Commission (“SEC”). These
filings include our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy
statements on Schedule 14A, as well as any amendments to those reports and proxy statements, and are available free of charge
through our website as soon as reasonably practicable after we file them with, or furnish them to, the SEC. Once at
www.clovisoncology.com
, go to Investors & News/SEC Filings to locate copies of such reports. The SEC also maintains a
website at www.sec.gov that contains reports, proxy statements and other information regarding us and other issuers that file
electronically with the SEC.
ITEM 1A. RISK FACTORS
Our
business
faces
significant
risks
and
uncertainties.
Certain
factors
may
have
a
material
adverse
effect
on
our
business
prospects,
financial
condition
and
results
of
operations,
and
you
should
carefully
consider
them.
Accordingly,
in
evaluating
our
business,
we
encourage
you
to
consider
the
following
discussion
of
risk
factors,
in
its
entirety,
in
addition
to
other
information
contained
in
or
incorporated
by
reference
into
this
Annual
Report
on
Form
10-K
and
our
other
public
filings
with
the
SEC.
Other
events
that
we
do
not
currently
anticipate
or
that
we
currently
deem
immaterial
may
also
affect
our
business,
prospects,
financial
condition
and
results
of
operations.
Risks Related to Our Financial Position and Capital Requirements
We
have
incurred
significant
losses
since
our
inception
and
anticipate
that
we
will
continue
to
incur
losses
for
the
foreseeable
future.
We
have
generated
only
modest
historical
revenues,
which
makes
it
difficult
to
assess
our
future
viability.
We are a biopharmaceutical company with a limited operating history. Biopharmaceutical product development is a highly
speculative undertaking and involves a substantial degree of risk. We have focused primarily on in-licensing and developing our
product candidates. We are not profitable and have incurred losses in each year since our inception in April 2009. We have only a
limited operating history upon which you can evaluate our business and prospects. There are many risks and uncertainties
frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical area. Three of our
product candidates, CO-101, CO-1686 (rociletinib) and CO-3810 (lucitanib), encountered development and/or regulatory setbacks
after initial promising data, leading us to discontinue enrollment in then-ongoing clinical trials. We have received regulatory
approval to market Rubraca in the U.S. and in EU, but we do not yet have pricing or reimbursement approval in the EU, and do
not yet know whether Rubraca will be approved in other jurisdictions or whether it will achieve market acceptance and be
commercially successful. We have generated only modest revenues from product sales to date. We continue to incur significant
research and development and other expenses related to our ongoing operations. For the years ended December 31, 2018, 2017
and 2016, we had net losses of $368.0 million, $346.4 million and $349.1 million, respectively. As of December 31, 2018, we
had an accumulated deficit of $1,843.1 million. We expect to continue to incur losses for the foreseeable future. As such, we are
subject to all of the risks incident to the development of new biopharmaceutical products and related companion diagnostics, and
we may encounter unforeseen expenses, difficulties, complications, regulatory scrutiny, delays and other unknown factors that
may adversely affect our business. If any of our product candidates fail in clinical trials or do not gain regulatory approval, or if
Rubraca or any of our product candidates, if approved, fail to achieve market acceptance, we may never become profitable. Even
if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses,
combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and
working capital.
We
will
require
substantial
additional
funding
which
may
not
be
available
to
us
on
acceptable
terms,
or
at
all.
If
we
fail
to
obtain
additional
financing,
we
may
be
unable
to
complete
the
development
and
commercialization
of
our
product
candidates
or
continue
our
development
programs.
Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial
amounts to advance the clinical development of our product candidates and launch and commercialize any product candidates for
which we receive regulatory approval, including building our own commercial organizations to address certain markets.
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Based on current estimates, we believe that our existing cash, cash equivalents and available-for-sale securities will allow us to
fund our operating plan through at least the next 12 months. We do not have any material committed external source of funds or
other support for our development efforts.
Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do in
sufficient amounts, we expect to finance future cash needs through a combination of public or private equity or debt offerings,
collaborations, strategic alliances and other similar licensing arrangements. We cannot be certain that additional funding will be
available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to
us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our
product candidates, or our plans for acquisition or in-license of new product candidates. We may also seek collaborators for one
or more of our current or future product candidates on terms that are less favorable than might otherwise be available. Any of
these events could significantly harm our business, financial condition and prospects.
Servicing
our
long-term
debt
requires
a
significant
amount
of
cash,
and
we
may
not
have
sufficient
cash
flow
from
our
business
to
pay
our
substantial
debt.
In September 2014, we completed a private placement of $287.5 million aggregate principal amount of 2.5% convertible
senior notes due 2021 (the “2021 Notes”), resulting in net proceeds to the Company of $278.3 million after deducting offering
expenses. In April 2018, we completed a public offering of $300.0 million aggregate principal amount of 1.25% convertible
senior notes due 2025 (the “2025 Notes” and together with the 2021 Notes, the “Notes”), resulting in net proceeds to the
Company of $290.9 million after deducting offering expenses. The 2021 Notes are governed by the terms of the indenture
between the Company, as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee. Interest is payable on the
2021 Notes semi-annually, and the 2021 Notes mature on September 15, 2021, unless redeemed, repurchased or converted prior
to that date. In addition, if, as defined by the terms of the indenture, a fundamental change occurs, holders of the 2021 Notes may
require us to repurchase for cash all or any portion of their 2021 Notes at a purchase price equal to 100% of the principal amount
of the 2021 Notes to be repurchased plus accrued and unpaid interest, if any, to, but excluding, the fundamental change
repurchase date. The 2025 Notes are governed by the terms of the indenture between the Company, as issuer, and The Bank of
New York Mellon Trust Company, N.A., as trustee. Interest is payable on the 2025 Notes semi-annually, and the 2025 Notes
mature on May 1, 2025, unless redeemed, repurchased or converted prior to that date. In addition, if, as defined by the terms of
the indenture, a fundamental change occurs, holders of the 2025 Notes may require us to repurchase for cash all or any portion of
their Notes at a purchase price equal to 100% of the principal amount of the Notes to be repurchased plus accrued and unpaid
interest, if any, to, but excluding, the fundamental change repurchase date.
Our ability to make scheduled payments of interest and principal on the Notes, or to pay the repurchase price for the Notes on
a fundamental change, depends on our future performance, which is subject to economic, financial, competitive and other factors
beyond our control. We may not have sufficient cash in the future to service our debt. If we are unable to generate such cash flow
or secure additional sources of funding, we may be required to adopt one or more alternatives, such as restructuring debt or
obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will
depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or
engage in these activities on desirable terms, which could result in a default on our debt obligations.
We
may
not
be
able
to
raise
the
funds
necessary
to
repurchase
the
Notes
upon
a
fundamental
change,
and
our
future
debt
may
contain
limitations
on
our
ability
to
repurchase
the
Notes.
If we undergo a fundamental change, as defined in the indenture, prior to the maturity date of the Notes, holders may require
us to repurchase for cash all or any portion of the Notes at a fundamental change repurchase price equal to 100% of the principal
amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase
date. We may not have or be able to borrow the funds required to repurchase the Notes on the fundamental change repurchase
date. In addition, our ability to repurchase the Notes may otherwise be limited by law, regulatory authority or agreements
governing our future indebtedness. Our failure to repurchase the Notes at a time when the repurchase is required by the indenture
would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a
default under agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated
after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes
when required.
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We
may
incur
substantially
more
debt
or
take
other
actions
which
would
intensify
the
risks
discussed
above;
and
we
may
not
generate
cash
flow
from
operations
in
the
future
sufficient
to
satisfy
our
obligations
under
the
Notes
and
any
future
indebtedness
we
may
incur.
We may incur substantial additional debt in the future, subject to the restrictions contained in any debt instruments that we
enter into in the future, some of which may be secured debt. We are not restricted under the terms of the indenture governing the
Notes from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking a number of other actions
that are not limited by the terms of the indenture governing the Notes that could have the effect of diminishing our ability to make
payments on the Notes when due. Our ability to refinance the Notes or future indebtedness will depend on the capital markets and
our financial condition at such time. In addition, agreements that govern any future indebtedness that we may incur may contain
financial and other restrictive covenants that will limit our ability to engage in activities that may be in our long-term best
interests. Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in
the acceleration of some or all of our debt.
Provisions
in
the
indenture
could
delay
or
prevent
an
otherwise
beneficial
takeover
of
us.
Certain provisions in the Notes and the indentures governing the Notes could make a third-party attempt to acquire us more
difficult or expensive. For example, if a takeover constitutes a fundamental change, then holders will have the right to require us
to repurchase their notes for cash. In addition, if a takeover constitutes a make-whole fundamental change, then we may be
required to temporarily increase the conversion rate. In either case, and in other cases, our obligations under the Notes and the
indentures governing the Notes could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or
removing incumbent management, including in a transaction that holders or holders of our common stock may view as favorable.
We
and
certain
of
our
officers
and
directors
have
been
named
as
defendants
in
several
lawsuits
that
could
result
in
substantial
costs
and
divert
management’s
attention.
We and certain of our officers have been named as defendants in a number of lawsuits that generally allege that we and certain
of our officers violated federal securities laws by making allegedly false and misleading statements regarding the progress toward
FDA approval and the potential for market success of rociletinib. Some of these lawsuits have been settled while others remain
outstanding and others may still be brought. See “Part I, Item 3-Legal Proceedings” in this report.
We intend to engage in a vigorous defense of these lawsuits; however, we are unable to predict the outcome of these matters at
this time. If we are not successful in our defense of these litigation matters, we could be forced to make significant payments to,
or enter into other settlements with, our security holders and their lawyers (and in certain circumstances reimburse costs and
expenses incurred by the underwriters), and such payments or settlement arrangements could have a material adverse effect on
our business, operating results and financial condition. For example, we could suffer a significant adverse impact on our
reputation and divert management’s attention and resources from other priorities, any of which could have a material adverse
effect on our business. In addition, any of these matters could require payments that are not covered by, or exceed the limits of,
our available directors’ and officers’ liability insurance, which could have a material adverse effect on our operating results or
financial condition. We will not receive any further contributions from our insurance carriers for any amounts (including
damages, settlement costs or legal fees) relating to the Company’s regulatory update announcement in November 2015 that the
FDA requested additional clinical data on the efficacy and safety of rociletinib.
Additional lawsuits with similar claims may be filed by other parties against us and our officers and directors. Even if such
claims are not successful, these lawsuits or other future similar actions, or other regulatory inquiries or investigations, may result
in substantial costs and have a significant adverse impact on our reputation and divert management’s attention and resources,
which could have a material adverse effect on our business, operating results or financial condition.
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The
recently
passed
comprehensive
tax
reform
bill
could
have
a
material
adverse
impact
on
our
business,
financial
condition
and
results
of
operations.
The Tax Cuts and Jobs Act could be amended or subject to technical correction, which could change the financial impacts that
were recorded at December 31, 2017 and December 31, 2018, or are expected to be recorded in future periods. Additionally,
further guidance may be forthcoming from the FASB and SEC, as well as regulations, interpretations and rulings from federal and
state tax agencies, which could result in additional impacts, possibly with retroactive effect.
Risks Related to Our Business and Industry
We
are
highly
dependent
on
the
commercial
success
of
Rubraca
in
the
U.S.;
Rubraca
may
not
achieve
market
acceptance
and
may
not
be
commercially
successful
and
we
may
not
attain
profitability
and
positive
cash
flow
from
operations.
Rubraca is commercially available in the U.S. and has received marketing authorization in the EU. The degree of market
acceptance and the commercial success of Rubraca will depend on a number of factors, including:
the effectiveness of our sales and marketing strategy and operations;
maintaining compliance with all regulatory requirements applicable to Rubraca and our commercial activities, including
the post-marketing requirements and post-marketing commitments required by the FDA and the EMA, to verify
Rubraca’s clinical benefit or safety by completing certain confirmatory trials, pharmacology studies and additional
diagnostic development;
the acceptance of Rubraca by patients and the medical community and the availability, perceived advantages and relative
cost, safety and efficacy of alternative and competing products and therapies;
the continued acceptable safety profile of Rubraca and the occurrence of any unexpected side effects, adverse reactions
or misuse, or any unfavorable publicity in these areas;
the ability of our third-party manufacturers to manufacture commercial supplies of Rubraca, to remain in good standing
with regulatory agencies, and to develop, validate and maintain commercially viable manufacturing processes that are, to
the extent required, compliant with current good manufacturing practice (“cGMP”) regulations;
the availability of coverage and adequate reimbursement from managed care plans, private health insurers and other
third-party payors and the willingness and ability of patients to pay for Rubraca;
the development or commercialization of competing products or therapies;
marketing and distribution support for Rubraca, including the degree to which the approved labeling supports
promotional initiatives for commercial success;
the actual market size for Rubraca, which may be different than expected;
our ability to enforce our intellectual property rights in and to Rubraca;
our ability to avoid third party patent interference or patent infringement claims; and
our ability to obtain regulatory approvals, including for pricing and reimbursement, to commercialize Rubraca in
markets outside of the U.S.
As many of these factors are beyond our control, we cannot assure you that we will ever be able to generate meaningful
revenue through the sale of Rubraca. In addition, we may experience significant fluctuations in sales of Rubraca from period to
period. We are currently evaluating Rubraca in other indications, but have only one other product candidate, lucitanib, in
development. Any inability on our part to successfully commercialize Rubraca in the United States, Europe and any other
territories where it may be approved, or any significant delay in such approvals, could have a material adverse impact on our
ability to execute upon our business strategy and, ultimately, to generate sufficient revenues from Rubraca to reach or maintain
profitability or sustain our anticipated levels of operations.
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Table of Contents
Rubraca
may
cause
undesirable
side
effects
or
have
other
properties
that
could
limit
its
commercial
potential.
If we or others identify previously unknown side effects or if known side effects are more frequent or severe than in the past,
then:
sales of Rubraca may decline;
regulatory approvals for Rubraca may be restricted or withdrawn;
we may decide to, or be required to, send product warning letters or field alerts to physicians, pharmacists and hospitals;
additional nonclinical or clinical studies, changes in labeling or changes to manufacturing processes, specifications
and/or facilities may be required;
government investigations or lawsuits, including class action suits, may be brought against us; and
our reputation may suffer.
Any of the above occurrences would harm or prevent sales of Rubraca, increase our expenses and impair our ability to
successfully commercialize Rubraca. As Rubraca is commercially available, it may be used in a wider population and in a less
rigorously controlled environment than in clinical studies. As a result, regulatory authorities, healthcare practitioners, third-party
payors or patients may perceive or conclude that the use of Rubraca is associated with previously unknown serious adverse
effects, undermining our commercialization efforts.
If
our
sales,
marketing
and
distribution
capabilities
for
Rubraca
or
our
product
candidates
for
which
we
obtain
marketing
approval
are
inadequate,
we
may
be
unable
to
generate
revenue
from
sales
of
our
products.
Prior to the launch of Rubraca, we had not commercialized any drug products as a company. To achieve commercial success
for Rubraca and any product candidate that may be approved by the FDA or comparable foreign regulatory authorities, we must
continue to expand our sales, marketing, managerial and other nontechnical capabilities or make arrangements with third parties
to perform these services. We will be competing with companies that currently have extensive, well-funded, and more
experienced sales and marketing operations. We may be unable to compete successfully against these more established
companies.
We have built a field organization and other capabilities for the sales, marketing and distribution of Rubraca in the United
States and have established our commercial and medical affairs infrastructure, and begun to hire field sales personnel in the EU,
and there are significant risks involved with building and managing a sales organization. Factors that may inhibit our efforts to
effectively commercialize Rubraca on our own include:
our inability to recruit, train, retain and incentivize adequate numbers of qualified and effective sales and marketing
personnel;
the inability of sales personnel to generate sufficient sales leads and to obtain access to physicians or persuade adequate
numbers of physicians to use or prescribe Rubraca;
our inability to effectively manage a geographically dispersed sales and marketing team.
If we are unable to maintain effective sales, marketing and distribution capabilities for Rubraca or if we are unable to fully
establish and maintain sales, marketing and distribution capabilities for Rubraca outside of the United States or for any other
product candidate for which we obtain marketing approval, whether independently or with third parties, we may not be able to
generate product revenue or may not become profitable. If the cost of establishing and maintaining a sales and marketing
organization exceeds the cost-effectiveness of doing so, we may not become profitable.
With respect to our product candidates, we may elect to collaborate with third parties that have direct sales forces and
established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force
and distribution systems in certain territories. To the extent that we enter into licensing or co-promotion arrangements for any of
our product candidates, our product revenue may be lower than if we directly marketed or sold our approved products. In
addition, any revenue we receive as a result of such arrangements would depend in whole or in part upon the efforts of such third
parties, which may not be successful and are generally not within our control. If we are unable to enter into such arrangements on
acceptable terms or at all, we may not be able to successfully
34
Table of Contents
commercialize our product candidates that receive regulatory approval. If we are not successful in commercializing our product
candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and
we may incur significant additional losses.
We
cannot
give
any
assurance
that
the
Rubraca
development
program
in
other
lines
of
therapies
and
indications
will
be
successful
or
that
our
other
product
candidates
will
receive
regulatory
approval.
To date, we have invested a significant portion of our efforts and financial resources in the acquisition and development of our
product candidates. Our business depends entirely on the successful development and commercialization of our product
candidates.
Each of our product candidates requires clinical development, management of clinical, non-clinical and manufacturing
activities, regulatory approval in multiple jurisdictions, obtaining manufacturing supply, building of a commercial organization
and significant marketing efforts in order to generate any revenues from product sales. We are not permitted to market or promote
any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities.
To date, we have received regulatory approval from the FDA to market Rubraca in the United States for two indications for
patients with recurrent epithelial ovarian, fallopian tube or primary peritoneal cancer and from the EMA to market Rubraca in the
EU for two indications for patients with recurrent epithelial ovarian, fallopian tube or primary peritoneal cancer. We may not
receive regulatory approvals for Rubraca for broader indications and lines of therapy or other tumor types and we may never
receive regulatory approval for other product candidates. In addition, certain of our product development plans contemplate the
development of companion diagnostics by third-party collaborators. Companion diagnostics are subject to regulation as medical
devices and must themselves be approved for marketing by the FDA or certain other foreign regulatory agencies before our
product candidates may be commercialized.
We cannot be certain that Rubraca will be successfully developed to expand its current label to include other indications or that
any of our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates
may not receive regulatory approval even if they are successful in clinical trials. Three of our product candidates, CO-101,
rociletinib and lucitanib encountered development and regulatory setbacks after initial promising data, leading us to discontinue
enrollment in ongoing clinical trials. Even if we successfully obtain regulatory approvals to market one or more of our product
candidates, our revenues will be dependent, in part, upon our diagnostic collaborators’ ability to obtain regulatory approval of the
companion diagnostics where required to be used with our product candidates, as well as the size of the markets in the territories
for which we gain regulatory approval and have commercial rights. If the markets that we are targeting are not as significant as
we estimate, we may not generate significant revenues from sales of such products, if approved.
We plan to seek regulatory approval to commercialize our product candidates, and for other indications for Rubraca, in the
United States, the European Union and in additional foreign countries. While the scope of regulatory approval is similar in other
countries, obtaining separate regulatory approval in many other countries requires compliance with numerous and varying
regulatory requirements of such countries regarding safety and efficacy and governing, among other things, clinical trials and
commercial sales, pricing and distribution of our product candidates, and we cannot predict success in these jurisdictions.
Clinical
drug
development
involves
a
lengthy
and
expensive
process
with
an
uncertain
outcome,
and
results
of
earlier
studies
and
trials
may
not
be
predictive
of
future
trial
results.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at
any time during the clinical trial process. The results of non-clinical studies and early clinical trials of our product candidates may
not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the
desired safety and efficacy traits despite having progressed through non-clinical studies and initial clinical trials. It is not
uncommon for companies in the biopharmaceutical industry to suffer significant setbacks in advanced clinical trials due to lack of
efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Indeed, based on the negative results of a
pivotal study, we ceased further development of our previous product candidate CO-101, and we decided to discontinue ongoing
development of rociletinib as a result of the issuance of a Complete Response Letter by the FDA. Additionally, our future clinical
trial results may not be successful.
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Although we have clinical trials ongoing, we may experience delays in our ongoing clinical trials, and we do not know
whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at
all. Clinical trials can be delayed for a variety of reasons, including delays related to:
obtaining regulatory approval to commence a trial;
reaching agreement on acceptable terms with prospective contract research organizations (“CROs”) and clinical trial
sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and
trial sites;
obtaining institutional review board (“IRB”) approval at each site;
recruiting suitable patients to participate in a trial;
developing and validating companion diagnostics on a timely basis;
having patients complete a trial or return for post-treatment follow-up;
clinical sites deviating from trial protocol or dropping out of a trial;
adding new clinical trial sites; or
manufacturing sufficient quantities of product candidate for use in clinical trials.
Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature
of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical
trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in
relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.
Furthermore, we rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials, and while we
have agreements governing their committed activities, we have limited influence over their actual performance.
We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such
trials are being conducted, by the Data Safety Monitoring Board for such trial or by the FDA or other regulatory authorities. Such
authorities may impose a suspension or termination due to a number of factors, including failure to conduct the clinical trial in
accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the
FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects,
failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of
adequate funding to continue the clinical trial. If we experience delays in the completion of, or termination of, any clinical trial of
our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product
revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will
increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence
product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects
significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials
may also ultimately lead to the denial of regulatory approval of our product candidates.
The
regulatory
approval
processes
of
the
FDA,
EMA
and
comparable
foreign
authorities
are
lengthy,
time
consuming
and
inherently
unpredictable,
and
if
we
are
ultimately
unable
to
obtain
regulatory
approval
for
rucaparib
in
other
indications
and
lines
of
therapy
or
for
our
other
product
candidates,
our
business
will
be
substantially
harmed.
The time required to obtain approval by the FDA, EMA and comparable foreign authorities is unpredictable, but typically
takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial
discretion of the regulatory authorities. In addition, approval policies, regulations or the type and amount of clinical data
necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among
jurisdictions. We have obtained regulatory approval for Rubraca in the United States and the European Union for two indications
for patients with recurrent epithelial ovarian, fallopian tube or primary peritoneal cancer, and it is possible that Rubraca may not
obtain regulatory approval for broader indications and lines of therapy or other tumor types or that any of our other existing
product candidates or any product candidates we may seek to develop
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in the future will ever obtain regulatory approval. Indeed, with the issuance of a Complete Response Letter by the FDA with
respect to the rociletinib NDA, we decided to discontinue ongoing development of rociletinib.
Our product candidates could fail to receive regulatory approval or approval may be delayed for many reasons, including the
following:
the FDA, EMA or comparable foreign regulatory authorities may disagree with the design or implementation of our
clinical trials;
we may be unable to demonstrate to the satisfaction of the FDA, EMA or comparable foreign regulatory authorities that
a product candidate is safe and effective for its proposed indication;
the results of clinical trials may not meet the level of statistical significance required by the FDA, EMA or comparable
foreign regulatory authorities for approval;
the FDA, EMA or comparable foreign regulatory authorities may disagree with our interpretation of data from non-
clinical studies or clinical trials;
the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an
NDA, MAA or other submission or to obtain regulatory approval in the United States, the European Union or elsewhere;
the FDA, EMA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or
facilities of third-party manufacturers with which we contract for clinical and commercial supplies;
the FDA, EMA or comparable foreign regulatory authorities may fail to approve the companion diagnostics we
contemplate developing with partners; and
the approval policies or regulations of the FDA, EMA or comparable foreign regulatory authorities may significantly
change in a manner rendering our clinical data insufficient for approval.
This lengthy approval process, as well as the unpredictability of future clinical trial results, may result in our failing to obtain
regulatory approval to market our product candidates, which would significantly harm our business, results of operations and
prospects.
Even
if
we
receive
regulatory
approval
for
our
product
candidates,
we
will
be
subject
to
ongoing
obligations
and
continued
regulatory
review,
which
may
result
in
significant
additional
expense.
Additionally,
our
product
candidates,
if
and
when
approved,
could
be
subject
to
labeling
and
other
restrictions
and
market
withdrawal,
and
we
may
be
subject
to
penalties
if
we
fail
to
comply
with
regulatory
requirements
or
experience
unanticipated
problems
with
our
products.
Any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved
indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially
costly post-marketing testing and clinical trials and surveillance to monitor the safety and efficacy of the product candidate. In
addition, if the FDA , EMA or comparable foreign regulatory authority approves any of our product candidates, the
manufacturing processes, pricing, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and
recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include
submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with
current good manufacturing practices and good clinical practices for any clinical trials that we conduct post-approval. Later
discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or
with our third-party manufacturers or manufacturing processes or failure to comply with regulatory requirements, may result in,
among other things:
restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market or voluntary or
mandatory product recalls;
fines, warning letters or holds on clinical trials;
refusal by the FDA, EMA and comparable foreign authorities to approve pending applications or supplements to
approved applications filed by us, or suspension or revocation of product license approvals;
product seizure or detention, or refusal to permit the import or export of products; and
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injunctions or the imposition of civil or criminal penalties.
All of the foregoing limitations, obligations, and requirements also apply to Rubraca, for which we have received regulatory
approval in the United States and the EU for certain indications.
We may seek approval from U.S. and foreign regulatory authorities for one or more product candidates on a conditional basis
with full approval conditioned upon fulfilling the requirements of regulators. For example, we received accelerated approval from
the FDA for the initial indication for Rubraca and conditional marketing authorization from the EMA for the initial indication for
Rubraca. Each of these approval pathways has certain conditions to approval, some of which may be post-approval, such as the
conduct of a post-approval, or confirmatory, trial using due diligence. For continued authorization by the EC of the initial
indication of Rubraca in the EU, it will be necessary to complete confirmatory post marketing commitments, including ensuring
that sufficient partially platinum-sensitive patients are enrolled in our ARIEL4 confirmatory trial to support the treatment
indication. This may require enrollment of additional patients into the study, increasing its overall size and extending the time for
enrollment. If we are unable to fulfill the requirements of regulators that are conditions of a product’s accelerated or conditional
approval, if the confirmatory trial shows unfavorable results or increased or additional undesirable side effects, or if regulators re-
evaluate the data or risk-benefit profile of our product candidate, the availability of accelerated or conditional approval may be
withdrawn or our conditional approval may not result in full approval or may be revoked or not renewed. Alternatively, we may
be required to change a product candidate’s labeled indications or even withdraw the product, if approved, from the market.
The FDA’s, EMA’s and comparable foreign authorities’ policies may change and additional government regulations may be
enacted that could prevent, limit or delay regulatory approval of our product candidates . We cannot predict the likelihood, nature
or extent of government regulation that may arise from future legislation or administrative action, either in the United States, the
EU or abroad . If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or
policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained,
and we may not achieve or sustain profitability, which would adversely affect our business. Any of the foregoing scenarios could
materially harm the commercial prospects for our product candidates.
Rubraca
and
our
other
product
candidates
may
cause
undesirable
side
effects
or
have
other
properties
that
could
delay
or
prevent
their
regulatory
approval,
limit
the
commercial
profile
of
an
approved
label
or
result
in
significant
negative
consequences
following
marketing
approval,
if
any.
Adverse events (“AEs”) attributable to our product candidates could cause us or regulatory authorities to interrupt, delay or
halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, EMA or
other comparable foreign authorities. Clinical studies conducted to date have generated AEs related to our product candidates,
some of which have been serious. Patients treated with Rubraca have commonly experienced nausea, vomiting, constipation,
dysgeusia, anemia/decreased hemoglobin, decreased appetite, diarrhea, abdominal pain, thrombocytopenia and fatigue/asthenia.
In studies of lucitanib, hypertension, proteinuria and subclinical hypothyroidism requiring supplementation are the most common
AEs observed. As is the case with all oncology drugs, it is possible that there may be other potentially harmful characteristics
associated with their use in future trials, including larger and lengthier Phase III clinical trials. As we evaluate the use of our
product candidates in combination with other active agents, we may encounter safety issues as a result of the combined safety
profiles of each agent, which could pose a substantial challenge to that development strategy.
Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an
event, our trials could be suspended or terminated and the FDA, EMA or comparable foreign regulatory authorities could order us
to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related
AEs could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability
claims. Any of these occurrences may harm our business, financial condition and prospects significantly.
Additionally, if we or others later identify undesirable side effects caused by such products, a number of potentially significant
negative consequences could result, including:
regulatory authorities may withdraw approvals of such product;
regulatory authorities may require additional warnings on the label;
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we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
we could be sued and held liable for harm caused to patients; and
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if
approved, and could significantly harm our business, results of operations and prospects.
Failure
to
successfully
validate,
develop
and
obtain
regulatory
approval
for
companion
diagnostics
could
harm
our
drug
development
strategy.
As one of the key elements of our clinical development strategy, we seek to identify patient subsets within a disease category
who may derive selective and meaningful benefit from the product candidates we are developing. In collaboration with partners,
we may develop companion diagnostics to help us to more accurately identify patients within a particular subset, both during our
clinical trials and in connection with the commercialization of our product candidates. Companion diagnostics are subject to
regulation by the FDA, EMA and comparable foreign regulatory authorities as medical devices and require separate regulatory
approval prior to commercialization. We do not develop companion diagnostics internally and thus we are dependent on the
sustained cooperation and effort of our third-party collaborators in developing and obtaining approval for these companion
diagnostics. We and our collaborators may encounter difficulties in developing and obtaining approval for the companion
diagnostics, including issues relating to selectivity/specificity, analytical validation, reproducibility, or clinical validation. Any
delay or failure by our collaborators to develop or obtain regulatory approval of the companion diagnostics could delay or prevent
approval of our product candidates. In addition, our collaborators may encounter production difficulties that could constrain the
supply of the companion diagnostics, and both they and we may have difficulties gaining acceptance of the use of the companion
diagnostics in the clinical community. If such companion diagnostics fail to gain market acceptance, it would have an adverse
effect on our ability to derive revenues from sales of our products. In addition, the diagnostic company with whom we contract
may decide to discontinue selling or manufacturing the companion diagnostic that we anticipate using in connection with
development and commercialization of our product candidates or our relationship with such diagnostic company may otherwise
terminate. We may not be able to enter into arrangements with another diagnostic company to obtain supplies of an alternative
diagnostic test for use in connection with the development and commercialization of our product candidates or do so on
commercially reasonable terms, which could adversely affect and/or delay the development or commercialization of our product
candidates.
We
rely
on
third
parties
to
conduct
our
non-clinical
studies
and
clinical
trials.
If
these
third
parties
do
not
successfully
carry
out
their
contractual
duties
or
meet
expected
deadlines,
we
may
not
be
able
to
obtain
regulatory
approval
for
or
commercialize
our
product
candidates
and
our
business
could
be
substantially
harmed.
We have relied upon and plan to continue to rely upon third-party CROs to monitor and manage data for our ongoing non-
clinical and clinical programs. We rely on these parties for execution of our non-clinical and clinical studies, and control only
certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in
accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on the CROs does not relieve
us of our regulatory responsibilities. We and our CROs are required to comply with GCP, which are regulations and guidelines
enforced by the FDA, the EMA and comparable foreign regulatory authorities for all of our products in clinical development.
Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If
we or any of our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed
unreliable and the FDA, the EMA or comparable foreign regulatory authorities may require us to perform additional clinical trials
before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such
regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must
be conducted with product produced under current GMP regulations. Our failure to comply with these regulations may require us
to repeat clinical trials, which would delay the regulatory approval process.
Our CROs have the right to terminate their agreements with us in the event of an uncured material breach. In addition, some of
our CROs have an ability to terminate their respective agreements with us if it can be reasonably demonstrated that the safety of
the subjects participating in our clinical trials warrants such termination, if we make a general assignment for the benefit of our
creditors or if we are liquidated.
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If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with
alternative CROs or to do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for
remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and
resources to our on-going clinical and non-clinical programs. If CROs do not successfully carry out their contractual duties or
obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is
compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials
may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize
our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be
harmed, our costs could increase and our ability to generate revenues could be delayed.
Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a
natural transition period when a new CRO commences work. As a result, delays occur, which can materially influence our ability
to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be
no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a
material adverse effect on our business, financial condition and prospects.
We
rely
completely
on
third
parties
to
manufacture
our
clinical
drug
supplies
and
we
intend
to
rely
on
third
parties
to
produce
commercial
supplies
of
any
approved
product
candidate,
and
our
commercialization
of
any
of
our
product
candidates
could
be
stopped,
delayed
or
made
less
profitable
if
those
third
parties
fail
to
obtain
approval
of
the
FDA,
EMA
or
comparable
foreign
regulatory
authorities,
fail
to
provide
us
with
sufficient
quantities
of
drug
product
or
fail
to
do
so
at
acceptable
quality
levels
or
prices.
We do not currently have nor do we plan to acquire the infrastructure or capability internally to manufacture our clinical drug
supplies for use in the conduct of our clinical trials, and we lack the resources and the capability to manufacture any of our
product candidates on a clinical or commercial scale. We do not control the manufacturing operations of, and are completely
dependent on, our contract manufacturing partners for compliance with the GMP regulatory requirements for manufacture of both
active drug substances and finished drug products. If our contract manufacturers cannot successfully manufacture material that
conforms to the strict regulatory requirements of the FDA, EMA or comparable foreign regulatory authorities, they will not be
able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have limited control over the
ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA
or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if
it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly
affect our ability to develop, obtain regulatory approval for or market our product candidates, if approved.
We rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates
for our clinical trials. There are a limited number of suppliers of raw materials that we use to manufacture our drugs and there
may be a need to assess alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to
produce our product candidates for our clinical trials, and if approved, ultimately for commercial sale. We do not have direct
control over the process or timing of the acquisition of these raw materials by our manufacturers. Moreover, we currently do not
have any agreements for the commercial production of these raw materials. Any significant delay in the supply of a product
candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to replace a third-party
manufacturer could considerably delay completion of our clinical trials and potential regulatory approval of our product
candidates. If our manufacturers or we are unable to purchase these raw materials after regulatory approval has been obtained for
our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in
supply, which would impair our ability to generate revenues from the sale of our product candidates.
We are dependent on our third-party manufacturers to conduct process development and scale-up work necessary to support
greater clinical development and commercialization requirements for our product candidates. Carrying out these activities in a
timely manner, and on commercially reasonable terms, is critical to the successful development and commercialization of our
product candidates. We expect that our third-party manufacturers are capable of providing sufficient quantities of our product
candidates to meet anticipated clinical and full-scale commercial demands, however if third parties with whom we currently work
are unable to meet our supply requirements, we will need to secure alternate suppliers. While we believe that there are other
contract manufacturers having the technical capabilities to
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manufacture our product candidates, we cannot be certain that identifying and establishing relationships with such sources would
not result in significant delay or material additional costs.
We expect to continue to depend on third-party contract manufacturers for the foreseeable future. While we have long-term
agreements with Lonza for the manufacture of API for Rubraca and with the manufacturer of the finished drug product, we have
not entered into agreements with any alternate suppliers. We currently obtain our supplies of finished drug product through
individual purchase orders as described in the current supply agreement.
Our
commercial
success
depends
upon
attaining
significant
market
acceptance
of
our
product
candidates,
if
approved,
among
physicians,
patients,
healthcare
payors
and
major
operators
of
cancer
clinics.
Even if we obtain regulatory approval for our other product candidates, the product may not gain market acceptance among
physicians, health care payors, patients and the medical community, which are critical to commercial success. Market acceptance
of any product candidate for which we receive approval depends on a number of factors, including:
the efficacy and safety as demonstrated in clinical trials;
the timing of market introduction of such product candidate as well as competitive products;
the clinical indications for which the drug is approved and the product label approved by regulatory authorities,
including any warnings that may be required on the label;
the approval, availability, market acceptance and reimbursement for the companion diagnostic;
acceptance by physicians, major operators of cancer clinics and patients of the drug as a safe and effective treatment;
the potential and perceived advantages of such product candidate over alternative treatments, especially with respect to
patient subsets that we are targeting with such product candidate;
the safety of such product candidate seen in a broader patient group, including its use outside the approved indications;
the cost, safety and efficacy of the product in relation to alternative treatments;
the availability of adequate reimbursement and pricing by third-party payors and government authorities;
relative convenience and ease of administration;
the prevalence and severity of adverse side effects; and
the effectiveness of our sales and marketing efforts.
If our product candidates are approved but fail to achieve an adequate level of acceptance by physicians, healthcare payors and
patients, we will not be able to generate significant revenues, and we may not become or remain profitable.
We
face
significant
competition
from
other
biotechnology
and
pharmaceutical
companies,
and
our
operating
results
will
suffer
if
we
fail
to
compete
effectively.
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological
change. In addition, the competition in the oncology market is intense. We have competitors both in the United States and
internationally, including major multinational pharmaceutical companies, biotechnology companies and universities and other
research institutions.
Lynparza® (olaparib) is approved in the U.S. as monotherapy in patients with germline BRCA mutated advanced ovarian
cancer who have been treated with three or more prior lines of chemotherapy, as monotherapy for the maintenance treatment of
adult patients with recurrent epithelial, fallopian tube or primary peritoneal cancer, who are in a complete or partial response to
platinum-based chemotherapy and as monotherapy in patients with deleterious or suspected deleterious gBRCAm, human
epidermal growth factor 2 (HER2)-negative metastatic breast cancer who have been treated with chemotherapy in the
neoadjuvant, adjuvant, or metastatic setting. Lynparza is also approved in the US for the maintenance treatment of adult patients
with deleterious or suspected deleterious germline or somatic BRCA-mutated (“gBRCAm” or “sBRCAm”) advanced epithelial
ovarian, fallopian tube, or primary peritoneal cancer who are
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in complete or partial response to first-line platinum-based chemotherapy. Lynparza is also approved in the EU for the
maintenance treatment of platinum-sensitive relapsed serous ovarian cancer. Lynparza has indications for ovarian cancer across
57 countries (as of year-end 2017). In July 2017, AstraZeneca and Merck & Co., Inc. announced a global strategic oncology
collaboration to co-develop and co-commercialize Lynparza for multiple cancer types. Lynparza is being investigated, alone and
in combination with other agents, in multiple indications across several tumor types, including breast, prostate, and pancreatic
cancers.
Zejula®/niraparib was approved in March 2017 in the United States as monotherapy for the maintenance treatment of adult
patients with recurrent epithelial ovarian, fallopian tube, or primary peritoneal cancer who are in a complete or partial response to
platinum-based chemotherapy. Zejula was approved in November 2017 in Europe for the same indication. Additional clinical
investigations of Zejula in ovarian, breast and lung cancers are ongoing or planned. Janssen Biotech has licensed rights to develop
and commercialize niraparib specifically for patients with prostate cancer worldwide, except in Japan.
TALZENNA™/talazoparib (Pfizer Inc.) is approved in the US for the treatment of adult patients with deleterious or suspected
deleterious germline BRCA-mutated (gBRCAm) HER2-negative locally advanced or metastatic breast cancer.
There are a number of other PARP inhibitors in clinical development including AbbVie’s veliparib and ABT-767, BeiGene’s
BGB-290, and Checkpoint Therapeutics’ CK-102. While most PARP inhibitor development focuses on ovarian, breast and
prostate cancers, additional efforts are aimed toward bladder, lung, and pancreatic cancers as well.
In addition, combination approaches that include PARP inhibitors, including Lynparza or Zejula, with other anticancer agents
are in various phases of clinical development across a variety of oncology indications. These combination therapies may result in
future competitive pressure on Rubraca, and multiple data readouts for such studies are anticipated throughout 2019 and beyond.
Many of our competitors have substantially greater financial, technical and other resources, such as larger research and
development staff and experienced marketing and manufacturing organizations. GlaxoSmithKline plc gained rights to Zejula
through its acquisition of Tesaro Inc., which was completed in January 2019. Additional mergers and acquisitions in the
biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. As a
result, these companies may obtain regulatory approval more rapidly than we are able and may be more effective in selling and
marketing their products as well. Smaller or early-stage companies may also prove to be significant competitors, particularly
through collaborative arrangements with large, established companies. Competition may increase further as a result of advances
in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our
competitors may succeed in developing, acquiring or licensing, on an exclusive basis, drug products that are more effective or less
costly than any drug candidate that we are currently developing or that we may develop. If approved, our product candidates will
face competition from commercially available drugs, as well as drugs that are in the development pipelines of our competitors and
later enter the market.
Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to
in-license novel compounds that could make our product candidates less competitive. In addition, any new product that competes
with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to
overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent
protection, receiving FDA, European Commission or other regulatory approval or discovering, developing and commercializing
medicines before we do, which would have a material adverse effect on our business.
Reimbursement
may
be
limited
or
unavailable
in
certain
market
segments
for
our
product
candidates,
which
could
make
it
difficult
for
us
to
sell
our
products
profitably.
There is significant uncertainty related to the third-party coverage and reimbursement of newly approved drugs. We have
received marketing authorization for Rubraca in the United States and the EU for two indications. We intend to seek additional
approvals to market Rubraca and other product candidates in the United States, the EU and other selected foreign jurisdictions.
Market acceptance and sales of our product candidates in both domestic and international markets will depend significantly on the
availability of adequate coverage and reimbursement from third-party payors for any of our product candidates and may be
affected by existing and future healthcare reform measures. Government and other third-party payors are increasingly attempting
to contain healthcare costs by limiting both coverage and the level of
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reimbursement for new drugs and, as a result, they may not cover or provide adequate payment for our product candidates. These
payors may conclude that our product candidates are less safe, less effective or less cost-effective than existing or later introduced
products, and third-party payors may not approve our product candidates for coverage and reimbursement or may cease providing
coverage and reimbursement for these product candidates.
Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time
consuming and costly process that could require us to provide to the payor supporting scientific, clinical and cost-effectiveness
data for the use of our products. We may not be able to provide data sufficient to gain acceptance with respect to coverage and
reimbursement. We cannot be sure that coverage or adequate reimbursement will be available for any of our product candidates.
Even if we obtain coverage for our product candidates, third-party payors may not establish adequate reimbursement amounts,
which may reduce the demand for, or the price of, our products. If reimbursement of our future products is unavailable or limited
in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
In both the United States and certain foreign jurisdictions, there have been and we expect there will continue to be a number of
legislative and regulatory changes to the health care system that could affect our ability to sell our products profitably. The U.S.
government and other governments have shown significant interest in pursuing healthcare reform. In particular, the Medicare
Modernization Act of 2003 revised the payment methodology for many products under the Medicare program in the United
States. This has resulted in lower rates of reimbursement. In 2010, the Patient Protection and Affordable Care Act, as amended by
the Health Care and Education Reconciliation Act (collectively, the “Affordable Care Act”), was enacted. The Affordable Care
Act substantially changed the way healthcare is financed by both governmental and private insurers. Such government-adopted
reform measures may adversely affect the pricing of healthcare products and services in the United States or internationally and
the amount of reimbursement available from governmental agencies or other third-party payors.
Moreover, payment methodologies, including payment for companion diagnostics, may be subject to changes in healthcare
legislation and regulatory initiatives. For example, the CMS has begun bundling the Medicare payments for certain laboratory
tests ordered while a patient received services in a hospital outpatient setting and, in 2018, the CMS began paying for clinical
laboratory services based on a weighted average of reported prices that private payors, Medicare Advantage plans, and Medicaid
Managed Care plans pay for laboratory services.
There have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at
broadening the availability of healthcare and containing or lowering the cost of healthcare. Recently there has also been
heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has
resulted in several Congressional inquiries and proposed bills designed to, among other things, reform government program
reimbursement methodologies. Individual states in the United States have also become increasingly active in implementing
regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts,
restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to
encourage importation from other countries and bulk purchasing. We cannot predict the initiatives that may be adopted in the
future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of
healthcare services to contain or reduce costs of healthcare may adversely affect the demand for any drug products for which we
may obtain regulatory approval, as well as our ability to set satisfactory prices for our products, to generate revenues, and to
achieve and maintain profitability.
In some foreign countries, particularly in the European Union, the pricing of prescription pharmaceuticals is subject to
governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the
receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required
to conduct additional clinical trials that compare the cost-effectiveness of our product candidates to other available therapies. If
reimbursement of our product candidates is unavailable or limited in scope or amount in a particular country, or if pricing is set at
unsatisfactory levels, we may be unable to achieve or sustain profitability of our products in such country.
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If
we
are
not
successful
in
attracting
and
retaining
highly
qualified
personnel,
we
may
not
be
able
to
successfully
implement
our
business
strategy.
Further,
we
will
need
to
grow
our
organization,
and
we
may
experience
difficulties
in
managing
this
growth,
which
could
disrupt
our
operations.
Our industry has experienced a high rate of turnover of management personnel in recent years. Our ability to compete in the
highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified
managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical personnel,
especially Patrick J. Mahaffy, our President and Chief Executive Officer, Lindsey Rolfe, our Executive Vice President of Clinical
and Preclinical Development and Pharmacovigilance and Chief Medical Officer and Gillian C. Ivers-Read, our Executive Vice
President, Technical Operations and Chief Regulatory Officer, whose services are critical to the successful implementation of our
product candidate acquisition, development and regulatory strategies.
Despite our efforts to retain valuable employees, members of our management, scientific, development and commercial teams
may terminate their employment with us on short notice. Pursuant to their employment arrangements, each of our executive
officers may voluntarily terminate their employment at any time by providing as little as thirty days advance notice. Our
employment arrangements with all of our employees provide for at-will employment, which means that any of our employees
could leave our employment at any time, with or, other than our executive officers, without notice. For example, Erle T. Mast, our
former Executive Vice President and Chief Financial Officer, resigned in March 2016. The loss of the services of any of our
executive officers or other key employees and our inability to find suitable replacements could potentially harm our business,
financial condition and prospects. Our success also depends on our ability to continue to attract, retain and motivate highly skilled
junior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical personnel.
As of February 15, 2019, we employed 468 full-time employees. As our development plans and strategies develop, we expect
to expand our employee base for managerial, operational, financial and other resources. Future growth will impose significant
added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate
additional employees. Also, our management may need to divert a disproportionate amount of its attention away from our day-to-
day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively
manage the expansion of our operations which may result in weaknesses in our infrastructure, give rise to operational mistakes,
loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth
could require significant capital expenditures and may divert financial resources from other projects. If our management is unable
to effectively manage our expected growth, our expenses may increase more than expected, our ability to generate revenues could
be reduced and we may not be able to implement our business strategy.
We may not be able to attract or retain qualified management and scientific personnel in the future due to the intense
competition for a limited number of qualified personnel among biopharmaceutical, biotechnology, pharmaceutical and other
businesses. Many of the other pharmaceutical companies that we compete against for qualified personnel have greater financial
and other resources, different risk profiles and a longer history in the industry than we do. They also may provide more diverse
opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high quality
candidates than what we have to offer. In order to induce valuable employees to continue their employment with us, we have
provided stock options that vest over time. The value to employees of stock options that vest over time is significantly affected by
movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers
from other companies. If we are unable to continue to attract and retain high quality personnel, the rate and success at which we
can develop and commercialize product candidates will be limited.
Our
employees
and
independent
contractors,
including
principal
investigators,
CROs,
consultants
and
vendors,
may
engage
in
misconduct
or
other
improper
activities,
including
noncompliance
with
regulatory
standards
and
requirements,
which
could
have
a
material
adverse
effect
on
our
business.
We are exposed to the risk that our employees and independent contractors, including principal investigators, CROs,
consultants and vendors, may engage in misconduct or other illegal activity. Misconduct by those parties could include
intentional, reckless and/or negligent failures to comply with the laws and regulations of the FDA and other similar regulatory
agencies, provide accurate information to such authorities, comply with manufacturing standards we have established, including
cGMP requirements, comply with federal and state data privacy, securities, fraud and abuse and
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other healthcare laws and regulations in the United States and abroad, report financial information or data accurately, or disclose
unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to
extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and
regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer
incentive programs and other business arrangements. Employee or contractor misconduct could also involve the improper use of
information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation.
We have adopted a Code of Business Ethics and other compliance policies, but it is not always possible to identify and deter
misconduct by employees and contractors, and the precautions we take to detect and prevent this activity may not be effective in
controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or
lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us,
and we are not successful in defending ourselves or asserting our rights, those actions could have a significant effect on our
business and results of operations, including the imposition of significant fines or other sanctions.
Our
relationships
with
healthcare
professionals,
investigators,
consultants,
customers
(actual
and
potential)
and
third-party
payors
are
and
will
continue
to
be
subject,
directly
or
indirectly,
to
federal
and
state
healthcare
fraud
and
abuse
laws,
false
claims
laws,
transparency
and
disclosure
(or
“sunshine”)
laws,
government
price
reporting,
and
health
information
privacy
and
security
laws.
If
we
are
unable
to
comply,
or
have
not
fully
complied,
with
such
laws,
we
could
face
substantial
penalties.
Our operations may be directly, or indirectly through our customers, subject to various federal and state fraud and abuse laws,
including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act. These laws may affect, among
other things, our current activities with clinical study investigators and research subjects, as well as proposed and future sales,
marketing, disease awareness, and patient assistance programs. In addition, we may be subject to patient privacy regulation by
both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate
include, but are not limited to:
the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting,
receiving, offering or paying remuneration, including any kickback, bribe, or certain rebate, directly or indirectly, to
induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any good,
facility, item or service for which payment will be made, in whole or in part, under a federal healthcare program, such as
the Medicare and Medicaid programs. A person or entity does not need to have actual knowledge of the federal Anti-
Kickback Statute or special intent to violate the law in order to have committed a violation; in addition, the government
may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute
constitutes a false or fraudulent claim for purposes of the federal False Claims Act;
federal false claims laws, including the False Claims Act, which impose criminal and civil penalties, including through
civil “qui tam” or “whistleblower” actions, against individuals or entities from knowingly presenting, or causing to be
presented, claims for payment or approval from federal programs, such as Medicare and Medicaid, that are false or
fraudulent, or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money
to the federal government;
the Health Insurance Portability and Accountability Act of 1996, or HIPAA which imposes criminal and civil liability
for, among other things, willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit
program and making false statements relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a
person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have
committed a violation;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing
regulations, which also imposes certain requirements on certain covered healthcare providers, health plans, and
healthcare clearinghouses, as well as their respective business associates that perform services for them that involve the
use, or disclosure of, individually identifiable health information, with respect to safeguarding the privacy, security and
transmission of individually identifiable health information;
the federal civil monetary penalties statute, which prohibits, among other things, the offering or giving of remuneration
to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s
election of a particular supplier of items or services reimbursable by a Federal or state governmental program;
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the federal Physician Payment Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and
medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program
(with certain exceptions) to report annually to the Centers for Medicare and Medicaid Services, or CMS, information
related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists,
podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by the
physicians described above and their immediate family members;
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities
that potentially harm consumers;
federal government price reporting laws, which require drug manufacturers to calculate and report complex pricing
metrics to government agencies, including CMS, where such reported prices may be used in the calculation of
reimbursement and/or discounts on marketed products. Participation in these programs and compliance with the
applicable requirements may result in potentially significant discounts on products subject to reimbursement under
federal healthcare programs and increased infrastructure costs, and may potentially limit a drug manufacturer’s ability to
offer certain marketplace discounts; and
analogous state laws and regulations, such as state anti-kickback, false claims, consumer protection and unfair
competition laws which may apply to pharmaceutical business practices, including but not limited to, research,
distribution, sales and marketing arrangements as well as submitting claims involving healthcare items or services
reimbursed by any third-party payer, including commercial insurers; state laws that require pharmaceutical companies to
comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance
promulgated by the federal government that otherwise restricts payments that may be made to healthcare providers and
other potential referral sources; state laws that require drug manufacturers to file reports with states regarding pricing
and marketing information, such as the tracking and reporting of gifts, compensations and other remuneration and items
of value provided to healthcare professionals and entities; and state laws governing the privacy and security of health
information in certain circumstances, many of which differ from each other in significant ways and may not have the
same effect, thus complicating compliance efforts.
In addition, the research and development of our product candidates outside the United States, and any sales of our products or
product candidates once commercialized outside the United States will also likely subject us to foreign equivalents of the
healthcare laws mentioned above, among other foreign laws.
Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs,
including investments in infrastructure and additional resources. Because of the breadth of these laws and the narrowness of the
statutory exceptions and safe harbors available, it is possible that some of our business activities, including our consulting
agreements and other relationships with physicians, could be subject to challenge under one or more of such laws. Governmental
and enforcement authorities may conclude that our business practices do not comply with current or future statutes, regulations or
case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in
violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to, without
limitation, civil, criminal, and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from
participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished
profits and future earnings and curtailment or restructuring of our operations, any of which could adversely affect our ability to
operate our business and our results of operations.
Our
business
activities
may
be
subject
to
the
Foreign
Corrupt
Practices
Act
(FCPA)
and
similar
anti-bribery
and
anti-
corruption
laws.
We are subject to a number of anti-corruption laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”) and the U.K.
Bribery Act. Our failure to comply with anti-corruption laws applicable to us could result in penalties, which could harm our
reputation and harm our business, financial condition, results of operations, cash flows or prospects. The FCPA generally
prohibits companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or
keeping business and/or other benefits. The FCPA also requires public companies to maintain accurate books and records and
devise a system of sufficient internal accounting controls. We regularly review and update our policies and procedures and
internal controls designed to provide reasonable assurance that we, our employees, distributors and other intermediaries comply
with the anti-corruption laws to which we are subject. However,
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there are inherent limitations to the effectiveness of any policies, procedures and internal controls, including the possibility of
human error and the circumvention or overriding of the policies, procedures and internal controls. There can be no assurance that
such policies or procedures or internal controls will work effectively at all times or protect us against liability under these or other
laws for actions taken by our employees, distributors and other intermediaries with respect to our business.
The Securities and Exchange Commission (“SEC”) and the Department of Justice continue to view FCPA enforcement
activities as a high priority. There is no certainty that all of our employees, agents, contractors or collaborators, or those of our
affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws.
Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees,
requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance
programs and prohibitions on the conduct of our business. Any such violations could materially damage our reputation, our brand,
our international operations, our ability to attract and retain employees, and our business, prospects, operating results, and
financial condition.
If
product
liability
lawsuits
are
brought
against
us,
we
may
incur
substantial
liabilities
and
may
be
required
to
limit
commercialization
of
our
product
candidates.
We face an inherent risk of product liability. For example, we may be sued if any product we develop allegedly causes injury
or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims
may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product,
negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we
cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit
commercialization of our product candidates, if approved. Even successful defense would require significant financial and
management resources. Regardless of the merits or eventual outcome, liability claims may result in:
decreased demand for our product candidates or products that we may develop;
injury to our reputation;
withdrawal of clinical trial participants;
initiation of investigations by regulators;
costs to defend the related litigation;
a diversion of management’s time and our resources;
substantial monetary awards to trial participants or patients;
increase in insurance premiums;
product recalls, withdrawals or labeling, marketing or promotional restrictions;
loss of revenues from product sales;
the inability to commercialize our product candidates; and
a decline in our stock price.
Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product
liability claims could prevent or inhibit the commercialization of products we develop. We have a program of product liability
insurance covering our ongoing clinical trials; however, the amount of insurance we maintain may not be adequate to cover all
liabilities that we may incur. Although we maintain such insurance, any claim that may be brought against us could result in a
court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the
limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability
claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that
exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient
capital to pay such amounts.
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Our
internal
computer
systems,
or
those
used
by
our
CROs
or
other
contractors
or
consultants,
may
fail
or
suffer
security
breaches.
We and our business partners maintain sensitive company data on our computer networks, including our intellectual property
and proprietary business information, as well as certain clinical trial information. Cybersecurity attacks are becoming more
commonplace and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other
electronic security breaches that could lead to disruptions in systems, misappropriation of information and corruption of data.
Despite the implementation of security measures, our internal computer systems and those of our CROs and other contractors and
consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and
telecommunication and electrical failures. While we have not experienced any such material system failure, accident or security
breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of
our development programs and business operations. For example, the loss of clinical trial data from completed or ongoing or
planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or
reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or
applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further
development of our product candidates could be delayed.
The
United
Kingdom’s
impending
departure
from
the
European
Union
could
be
costly
and
difficult
to
comply
with
and
could
harm
our
business.
The United Kingdom (“UK”) held a referendum on June 23, 2016 in which a majority of voters approved an exit from the
European Union, commonly referred to as “Brexit.” The formal process for leaving the European Union began in March 2017,
when the UK served notice to the European Council under Article 50 of the Treaty of Lisbon. The UK is scheduled to leave on
March 29, 2019. If the UK and European Union are unable by that date to negotiate the terms of a transition period that allows
time to address issues such as ongoing trade and citizen’s rights, the UK will sever all ties with the European Union with
immediate effect. A so-called “hard” Brexit could significantly disrupt the current free movement of goods, services, and people
between the UK, European Union, and elsewhere.
We have based in the UK a significant portion of our non-U.S. clinical, regulatory affairs, and pharmacovigilance operations,
as well as our European commercial organization. In anticipation of Brexit, we have taken steps to relocate certain activities from
the UK in order to remain in compliance, post-Brexit, with certain laws and regulations in the European Union. While the
regulatory environment in the UK is currently consistent with that of the European Union, Brexit could lead to legal uncertainty
and potentially divergent national laws and regulations as the UK determines which European Union laws to replace or replicate.
As such, we could be required to comply with regulatory requirements in the UK that are in addition to, or inconsistent with, the
regulatory requirements of the European Union, resulting in the duplication of certain costs and new challenges to operate in
Europe. The full effect of Brexit is uncertain, and consequently, we cannot at this time fully predict what the outcome may have
on our business, particularly if our European operations or presence become a more significant part of our business.
Risks Related to Our Intellectual Property
If
our
efforts
to
protect
the
proprietary
nature
of
the
intellectual
property
related
to
our
technologies
are
not
adequate,
we
may
not
be
able
to
compete
effectively
in
our
market.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual
property related to our technologies. Any disclosure to or misappropriation by third parties of our confidential proprietary
information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our
competitive position in our market.
The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can
be uncertain. The patent applications that we own or license may fail to result in issued patents in the United States or in other
foreign countries. Even if the patents do successfully issue, third parties may challenge the validity, enforceability or scope
thereof, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are
unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from
designing around our claims. If the breadth or strength of protection provided by the patent applications we hold or pursue with
respect to our product candidates is threatened, it could
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threaten our ability to commercialize our product candidates. Further, if we encounter delays in our clinical trials, the period of
time during which we could market our product candidates under patent protection would be reduced. Since patent applications in
the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the
first to file any patent application related to our product candidates. Furthermore, an interference proceeding can be provoked by a
third-party or instituted by the United States Patent and Trademark Office (“U.S. PTO”) to determine who was the first to invent
any of the subject matter covered by the patent claims of our applications.
In addition to the protection afforded by patents, we seek to rely on trade secret protection and confidentiality agreements to
protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of
our drug development processes that involve proprietary know-how, information or technology that is not covered by patents.
Although we require all of our employees to assign their inventions to us, and all of our employees, consultants, advisors and any
third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements,
we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors
will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques.
Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws
of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property
both in the United States and abroad. If we are unable to prevent material disclosure of the intellectual property related to our
technologies to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could
materially adversely affect our business, results of operations and financial condition.
Third-party
claims
of
intellectual
property
infringement
may
prevent
or
delay
our
drug
discovery
and
development
efforts.
Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties.
There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and
pharmaceutical industries, including interference, inter parties review and reexamination proceedings before the U.S. PTO or
oppositions and other comparable proceedings in foreign jurisdictions. Numerous United States and foreign issued patents and
pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates.
As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product
candidates may give rise to claims of infringement of the patent rights of others.
Third parties may assert that we are employing their proprietary technology without authorization. There are or may be third-
party patents with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or
manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending
patent applications, which may later result in issued patents that our product candidates may infringe. In addition, third parties
may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents
were held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any
molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to
block our ability to commercialize such product candidate unless we obtain a license under the applicable patents, or until such
patents expire or they are finally determined to be held invalid or unenforceable. Similarly, if any third-party patent were held by
a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including
combination therapy or patient selection methods, the holders of any such patent may be able to block our ability to develop and
commercialize the applicable product candidate unless we obtain a license, limit our uses, or until such patent expires or is finally
determined to be held invalid or unenforceable. In either case, such a license may not be available on commercially reasonable
terms or at all.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to
further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit,
would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the
event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and
attorneys’ fees for willful infringement, obtain one or more licenses from third parties, limit our uses, pay royalties or redesign
our infringing product candidates, which may be impossible or require substantial time and monetary expenditure. We cannot
predict whether any such license would be available at all or whether it would be available on commercially reasonable terms.
Furthermore, even in the absence of litigation, we may
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need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates. We may
fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to
further develop and commercialize one or more of our product candidates, which could harm our business significantly.
The
patent
protection,
patent
prosecution
and
patent
enforcement
for
some
of
our
product
candidates
is
dependent
on
third
parties.
While we normally seek and gain the right to fully prosecute, maintain and enforce the patents relating to our product
candidates, there may be times when platform technology patents that relate to our product candidates are controlled by our
licensors. This is the case with the method of use patents licensed under the AstraZeneca license. If AstraZeneca or any of our
future licensing partners fail to appropriately prosecute, maintain or enforce, as applicable, patent protection for patents covering
any of our product candidates, our ability to develop and commercialize those product candidates may be adversely affected and
we may not be able to prevent competitors from making, using and selling competing products.
We
may
be
involved
in
lawsuits
to
protect
or
enforce
our
patents
or
the
patents
of
our
licensors,
which
could
be
expensive,
time
consuming
and
unsuccessful.
Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be
required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a
court may decide that a patent of ours or our licensors is not valid or is unenforceable, or may refuse to stop the other party from
using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any
litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable or
interpreted narrowly and could put our patent applications at risk of not issuing.
Interference proceedings provoked by third parties or brought by the U.S. PTO may be necessary to determine the priority of
inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to
cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if
the prevailing party does not offer us a license on commercially reasonable terms. Litigation or interference proceedings may fail
and, even if successful, may result in substantial costs and distract our management and other employees.
We may not be able to prevent, alone or with our licensors, misappropriation of our trade secrets or confidential information,
particularly in countries where the laws may not protect those rights as fully as in the United States. Furthermore, because of the
substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our
confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public
announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or
investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.
We
may
not
be
able
to
protect
our
intellectual
property
rights
throughout
the
world.
Filing, prosecuting and defending patents on all of our product candidates throughout the world would be prohibitively
expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their
own products and further, may export otherwise infringing products to territories where we have patent protection, but
enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we
do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to
prevent them from so competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign
jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of
patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult
for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally.
Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention
from other aspects of our business.
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If
we
breach
any
of
the
agreements
under
which
we
license
commercialization
rights
to
our
product
candidates
from
third
parties,
we
could
lose
license
rights
that
are
important
to
our
business.
We license the use, development and commercialization rights for all of our product candidates, and may enter into similar
licenses in the future. Under each of our existing license agreements we are subject to commercialization and development,
diligence obligations, milestone payment obligations, royalty payments and other obligations. If we fail to comply with any of
these obligations or otherwise breach our license agreements, including by failing to use commercially reasonable efforts to
develop or commercialize the product candidate, our licensing partners may have the right to terminate the license in whole or in
part. Generally, the loss of any one of our licenses or other licenses in the future could materially harm our business, prospects,
financial condition and results of operations.
Intellectual
property
rights
do
not
necessarily
address
all
potential
threats
to
our
competitive
advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights
have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following
examples are illustrative:
others may be able to make compounds that are similar to our product candidates but that are not covered by the claims
of the patents that we own or have exclusively licensed;
we or our licensors or strategic partners might not have been the first to make the inventions covered by the issued patent
or pending patent application that we own or have exclusively licensed;
we or our licensors or strategic partners might not have been the first to file patent applications covering certain of our
inventions;
others may independently develop similar or alternative technologies or duplicate any of our technologies without
infringing our intellectual property rights;
it is possible that our pending patent applications will not lead to issued patents;
issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be
held invalid or unenforceable, as a result of legal challenges by our competitors;
our competitors might conduct research and development activities in countries where we do not have patent rights and
then use the information learned from such activities to develop competitive products for sale in our major commercial
markets;
we may not develop additional proprietary technologies that are patentable; and
the patents of others may have an adverse effect on our business.
Should any of these events occur, they could significantly harm our business, results of operations and prospects.
Risks Related to Ownership of our Common Stock and Convertible Senior Notes
There
may
not
be
a
viable
public
market
for
our
common
stock
and
as
a
result
it
may
be
difficult
for
you
to
sell
your
shares
of
our
common
stock.
Our common stock had not been publicly traded prior to our initial public offering in November 2011. An active trading
market for our common stock on the NASDAQ Global Select Market may not be sustained. As a result of these and other factors,
you may be unable to resell your shares at a price that is attractive to you or at all. Further, an inactive market may also impair our
ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or
acquire companies or products by using our shares of common stock as consideration.
The
price
of
our
stock
has
been,
and
may
continue
to
be,
volatile,
and
you
could
lose
all
or
part
of
your
investment.
The trading price of our common stock has been, and may continue to be, volatile and could be subject to wide fluctuations in
response to various factors, some of which are beyond our control. During the 12-month period ended December 31, 2018, the
price of our common stock on the NASDAQ Global Select Market ranged from $11.63 per
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share to $67.72 per share. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this report, these
factors include:
adverse results of regulatory actions or decisions;
our failure to successfully commercialize our product candidates, if approved;
actual or anticipated adverse results or delays in our clinical trials;
unanticipated serious safety concerns related to the use of any of our product candidates;
changes in laws or regulations applicable to our product candidates, including but not limited to clinical trial
requirements for approvals;
disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain
patent protection for our product candidates;
our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;
inability to obtain adequate product supply for any approved drug product or inability to do so at acceptable prices;
our dependence on third parties, including CMOS and CROs, as well as our partners that provide us with companion
diagnostic products;
additions or departures of key scientific or management personnel;
failure to meet or exceed any financial guidance or expectations regarding development milestones that we may provide
to the public;
actual or anticipated variations in quarterly operating results;
failure to meet or exceed the estimates and projections of the investment community;
overall performance of the equity markets and other factors that may be unrelated to our operating performance or the
operating performance of our competitors, including changes in market valuations of similar companies;
conditions or trends in the biotechnology and biopharmaceutical industries;
introduction of new products offered by us or our competitors;
announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our
competitors;
issuances of debt or equity securities;
significant lawsuits, including patent or stockholder litigation;
sales of our common stock by us or our stockholders in the future;
trading volume of our common stock;
publication of research reports about us or our industry or positive or negative recommendations or withdrawal of
research coverage by securities analysts;
ineffectiveness of our internal controls;
general political and economic conditions;
effects of natural or man-made catastrophic events; and
other events or factors, many of which are beyond our control.
In addition, the stock market in general, and the NASDAQ Global Select Market and biotechnology companies in particular,
have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating
performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock,
regardless of our actual operating performance. The realization of any of the above risks or any of
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a broad range of other risks, including those described in these “Risk Factors,” could have a dramatic and material adverse effect
on the market price of our common stock.
Because our outstanding Notes are convertible into shares of our common stock, volatility or depressed prices of our common
stock could have a similar effect on the trading price of our Notes. In addition, the existence of the Notes may encourage short
selling in our common stock by market participants because the conversion of the Notes could depress the price of our common
stock.
The conversion of some or all of the Notes may dilute the ownership interest of existing stockholders. Holders of the
outstanding 2021 Notes are able to convert them at any time prior to the close of business on the business day immediately
preceding September 15, 2021. Holder of the outstanding 2025 Notes are able to convert them at any time prior to the close of
business on the business day immediately preceding May 1, 2025. Upon conversion, holders of the Notes will receive shares of
common stock. Any sales in the public market of shares of common stock issued upon conversion of such Notes could adversely
affect the trading price of our common stock. We cannot predict the size of future issuances or the effect, if any, that they may
have on the market price of our common stock. The issuance and sale of substantial amounts of common stock, or the perception
that such issuances and sales may occur, could adversely affect the market price of our common stock and impair our ability to
raise capital through the sale of additional equity or convertible debt securities.
Following periods of volatility in a company’s stock price, litigation has often been initiated against companies. Following the
decline in our stock price related to the rociletinib regulatory update in November 2015, a number of lawsuits have been filed
against us (see “Part I, Item 3-Legal Proceedings”). These proceedings and other similar litigation, if instituted against us, could
result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our
business and financial condition.
Sales
of
a
substantial
number
of
shares
of
our
common
stock
in
the
public
market
could
cause
our
stock
price
to
fall.
Shares of common stock that are either subject to outstanding options or reserved for future issuance under our equity
incentive plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting
schedules. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the
trading price of our common stock could decline.
Future
sales
and
issuances
of
our
common
stock
or
rights
to
purchase
common
stock,
including
pursuant
to
our
equity
incentive
plans,
could
result
in
additional
dilution
of
the
percentage
ownership
of
our
stockholders
and
could
cause
our
stock
price
to
fall.
We expect that significant additional capital will be needed in the future to continue our planned operations. To raise capital,
we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner
we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one
transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing
stockholders, and new investors could gain rights, preferences and privileges senior to those of holders of our common stock.
Pursuant to our equity incentive plan(s), our compensation committee (or its designee) is authorized to grant equity-based
incentive awards to our employees, directors and consultants. As of December 31, 2018, the number of shares of our common
stock available for future grant under our 2011 Stock Incentive Plan (“2011 Plan”) is 4,131,151. The number of shares of our
common stock reserved for issuance under our 2011 Plan will be increased (i) from time to time by the number of shares of our
common stock forfeited upon the expiration, cancellation, forfeiture, cash settlement or other termination of awards under our
2009 Equity Incentive Plan, and (ii) at the discretion of our board of directors, on the date of each annual meeting of our
stockholders, by up to the lesser of (x) a number of additional shares of our common stock representing 4% of our then-
outstanding shares of common stock on such date and (y) 2,758,621 shares of our common stock. Future option and restricted
stock unit, or RSU, grants and issuances of common stock under our 2011 Plan may have an adverse effect on the market price of
our common stock. In addition, a substantial number of shares of our common stock are reserved for issuance upon conversion of
the Notes.
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Table of Contents
Some
provisions
of
our
charter
documents
and
Delaware
law
may
have
anti-takeover
effects
that
could
discourage
an
acquisition
of
us
by
others,
even
if
an
acquisition
would
be
beneficial
to
our
stockholders
and
may
prevent
attempts
by
our
stockholders
to
replace
or
remove
our
current
management.
Provisions in our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could
make it more difficult for a third-party to acquire us or increase the cost of acquiring us, even if doing so would benefit our
stockholders or remove our current management. These provisions include:
authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which
may be issued without stockholder approval;
limiting the removal of directors by the stockholders;
creating a staggered board of directors;
prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of
our stockholders;
eliminating the ability of stockholders to call a special meeting of stockholders;
permitting our board of directors to accelerate the vesting of outstanding option grants upon certain transactions that
result in a change of control; and
establishing advance notice requirements for nominations for election to the board of directors or for proposing matters
that can be acted upon at stockholder meetings.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by
making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the
members of our management. Because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the
Delaware General Corporation Law, which may discourage, delay or prevent someone from acquiring us or merging with us
whether or not it is desired by or beneficial to our stockholders. Under Delaware law, a corporation may not, in general, engage in
a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or,
among other things, the board of directors has approved the transaction. Any provision of our certificate of incorporation or
bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our
stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are
willing to pay for our common stock. Additionally, certain provisions of our outstanding Notes could make it more difficult or
more expensive for a third party to acquire us. The repurchase price of the Notes must be paid in cash, and this obligation may
have the effect of discouraging, delaying or preventing an acquisition of the Company that would otherwise be beneficial to our
security holders.
If
securities
or
industry
analysts
do
not
publish
research
or
publish
inaccurate
or
unfavorable
research
about
our
business,
our
stock
price
and
trading
volume
could
decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts
publish about us or our business. If one or more of the analysts who cover us downgrades our stock or publishes inaccurate or
unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of
our company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price
and trading volume to decline.
Our
operating
results
are
difficult
to
predict
and
may
fluctuate.
If
our
operating
results
are
below
the
expectations
of
securities
analysts
or
investors,
the
trading
price
of
our
stock
could
decline.
Our operating results are difficult to predict and may fluctuate significantly from quarter to quarter and year to year. As a
result, although we may provide sales guidance for Rubraca from time to time, you should not rely on Rubraca sales results in any
period as being indicative of future performance. In addition, such guidance is based on assumptions that may be incorrect or that
may change from quarter to quarter, and it may be particularly difficult to correctly forecast sales in indications for which we
have recently received marketing approval. Moreover, sales of Rubraca have, on occasion, been below the expectations of
securities analysts and investors and have been below prior period sales, and sales of Rubraca in the future may also be below
prior period sales, our own guidance and/or the expectations of
54
Table of Contents
securities analysts and investors. To the extent that we do not meet any guidance we may give or the expectations of analysts or
investors, our stock price may be adversely impacted, perhaps significantly. We believe that our quarterly and annual results of
operations may be affected by a variety of factors, including:
customer ordering patterns for Rubraca, which may vary significantly from period to period;
the overall level of demand for Rubraca, including the impact of any competitive products and the duration of therapy
for patients receiving Rubraca;
the extent to which coverage and reimbursement for Rubraca is available from government and health administration
authorities, private health insurers, managed care programs and other third-party payors;
our ability to establish or demonstrate to patients and the medical community the safety, efficacy or value of Rubraca
and its perceived advantages compared to existing and future therapies in the recurrent ovarian cancer indications and
other indications for which Rubraca may receive approval in the future;
changes in the amount of deductions from gross sales, including government-mandated rebates, chargebacks and
discounts that can vary because of changes to the government discount percentage, including increases in the
government discount percentage resulting from price increases we have taken or may take in the future, or due to
different levels of utilization by entities entitled to government rebates and discounts and changes in patient
demographics;
increases in the scope of eligibility for customers to purchase Rubraca at the discounted government price or to obtain
government-mandated rebates on purchases of Rubraca;
changes in our cost of sales;
the incidence rate of new patients in Rubraca’s approved indications;
the timing, cost and level of investment in our sales and marketing efforts to support Rubraca sales; and
the timing, cost and level of investment in our research and development and other activities involving Rubraca,
lucitanib and our other product candidates by us or our collaborators.
Further, changes in our operations, such as increased development, manufacturing and clinical trial expenses in connection
with our development programs, or our undertaking of additional programs, or business activities, or entry into strategic
transactions, including potential future acquisitions of products, technologies or businesses may also cause significant fluctuations
in our expenses.
For these and other reasons, it is difficult for us to accurately forecast future sales of Rubraca, operating expenses or future
profits or losses. As a result, our operating results in future periods could be below any guidance we may give or the expectations
of securities analysts or investors, which could cause the trading price of our common stock to decline, perhaps substantially.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Our principal offices are located at five leased facilities, a 29,256 square foot facility in Boulder, Colorado used primarily for
corporate functions, a 24,877 square foot facility in San Francisco, California, a 32,660 square foot facility in Oakland, CA used
for clinical development operations and research laboratory space, a 3,350 square foot facility in Cambridge, United Kingdom
used for our European regulatory and clinical operations and a 416 square foot facility in Milan, Italy used for clinical operations.
These leases expire in January 2023, December 2021, April 2028, May 2019 and March 2019, respectively. We also lease office
space in several locations throughout the EU. We believe that our existing facilities are sufficient for our needs for the
foreseeable future.
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Table of Contents
ITEM 3. LEGAL PROCEEDINGS
Rociletinib-Related
Litigation
Following Clovis’ regulatory announcement in November 2015 of adverse developments in its ongoing clinical trials for
rociletinib, Clovis and certain of its current and former executives were named in various securities lawsuits, the largest of which
was a putative class action lawsuit in the District of Colorado (the “Medina Action”) which was settled on October 26, 2017 (the
“Medina Settlement”). The open actions currently pending against Clovis are discussed below.
On November 10, 2016, Antipodean Domestic Partners (“Antipodean”) filed a complaint (the “Antipodean Complaint”)
against Clovis and certain of its officers, directors and underwriters in New York Supreme Court, County of New York. The
Antipodean Complaint alleges that the defendants violated certain sections of the Securities Act by making allegedly false
statements to Antipodean and in the offering materials for the July 2015 Offering relating to the efficacy of rociletinib, its safety
profile, and its prospects for market success. In addition to the Securities Act claims, the Antipodean Complaint also asserts
Colorado state law claims and common law claims. Both the state law and common law claims are based on allegedly false and
misleading statements regarding rociletinib’s progress toward FDA approval. The Antipodean Complaint seeks compensatory,
recessionary, and punitive damages. On December 15, 2016, the Antipodean Plaintiffs filed an amended complaint (the
“Antipodean Amended Complaint”) asserting substantially the same claims against the same defendants and purporting to correct
certain details in the original Antipodean Complaint.
Following a stay that Justice Masley of the New York Supreme Court, County of New York entered in favor of the Medina
Action and briefing on defendants’ motions to dismiss, the parties participated in a Preliminary Conference on April 17, 2018,
following which the Court entered a preliminary conference order, providing deadlines for document productions, depositions,
and other discovery. The Court has scheduled a status conference for March 12, 2019, following which the Court anticipates
setting an end date for discovery.
On May 2, 2018, the Court issued an order denying the defendants’ motion to dismiss. Defendants filed an answer to the
Antipodean Amended Complaint on June 6, 2018.
The Company intends to vigorously defend against the allegations in the Antipodean Amended Complaint. However, there
can be no assurance that the defense will be successful.
In March 2017, two putative shareholders of the Company, Macalinao and McKenry (the “Derivative Plaintiffs”), filed
shareholder derivative complaints against certain directors and officers of the Company in the Court of Chancery of the State of
Delaware. On May 4, 2017, the Macalinao and McKenry actions were consolidated for all purposes in a single proceeding under
the caption In re Clovis Oncology, Inc. Derivative Litigation, Case No, 2017-0222 (the “Consolidated Derivative Action”).
On May 18, 2017, the Derivative Plaintiffs filed a Consolidated Verified Shareholder Derivative Complaint (the “Consolidated
Derivative Complaint”). The Consolidated Derivative Complaint generally alleged that the defendants breached their fiduciary
duties owed to the Company by allegedly causing or allowing misrepresentations of the Company’s business operations and
prospects, failing to ensure that the TIGER-X clinical trial was being conducted in accordance with applicable rules, regulations
and protocols, and engaging in insider trading. The Consolidated Derivative Complaint purported to rely on documents produced
by the Company in response to prior demands for inspection of the Company’s books and records served on the Company by each
of Macalinao and McKenry under 8 Del. C. § 220. The Consolidated Derivative Complaint sought, among other things, an award
of money damages.
On July 31, 2017, the defendants filed a motion to dismiss the Consolidated Derivative Complaint. Plaintiffs filed an
opposition to the motion to dismiss on August 31, 2017, and the defendants filed a reply in further support of the motion to
dismiss on September 26, 2017. On November 19, 2018, Plaintiffs filed a motion for leave to file a supplemental consolidated
complaint and on November 20, 2018 the Court granted that motion. On November 27, 2018, Plaintiffs filed their supplemental
complaint (the “Supplemental Complaint”), and on January 3, 2019, the Court entered the following briefing schedule: the
defendants’ opening supplemental brief in further support of the motion to dismiss is due on February 6, 2019; Plaintiffs’
answering supplemental brief in opposition is due on February 22, 2019; and the defendants’ reply supplemental brief is due on
March 5, 2019. Oral argument on the defendants’ motion to dismiss the Consolidated Derivative Complaint has been scheduled
for March 14, 2019.
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Table of Contents
The Company intends to vigorously defend against the allegations in the Consolidated Derivative Complaint, but there can be
no assurance that the defense will be successful.
On March 20, 2017, a purported shareholder of the Company, filed a shareholder derivative complaint (the “Guo Complaint”)
against certain officers and directors of the Company in the United States District Court for the District of Colorado. The Guo
Complaint generally alleged that the defendants breached their fiduciary duties owed to the Company by either recklessly or with
gross negligence approving or permitting misrepresentations of the Company’s business operations and prospects. The Guo
Complaint also alleged claims for waste of corporate assets and unjust enrichment. Finally, the Guo Complaint alleged that
certain of the individual defendants violated Section 14(a) of the Securities Exchange Act, by allegedly negligently issuing,
causing to be issued, and participating in the issuance of materially misleading statements to stockholders in the Company’s
Proxy Statement on Schedule DEF 14A in connection with the 2015 Annual Meeting of Stockholders, held on June 11, 2015. The
Guo Complaint sought, among other things, an award of money damages.
On June 19, 2017, the parties filed a joint motion to stay the Guo action pending resolution of the motion to dismiss the
Consolidated Derivative Complaint. On June 20, 2017, the court granted the motion to stay.
The Company intends to vigorously defend against the allegations in the Guo Complaint, but there can be no assurance that the
defense will be successful.
As previously disclosed, the Company has received inquiries and requests for information from governmental agencies,
including the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”), relating to the
Company’s regulatory update announcement in November 2015 that the FDA requested additional clinical data on the efficacy
and safety of rociletinib.
Earlier this year, the Company and Mr. Mahaffy engaged in discussions with the SEC staff to resolve this matter. On
September 18, 2018, the SEC announced it had reached an agreement with the Company to settle this matter on negligence-based
charges. Pursuant to the settlement, without admitting or denying the SEC’s allegations, the Company paid a $20.0 million civil
penalty and stipulated to a standard injunction against future violations of those provisions of the federal securities laws. Also, on
September 18, 2018, the SEC announced that Mr. Mahaffy also reached a settlement with the SEC on similar negligence-based
allegations, to which he neither admits nor denies, and paid a civil penalty and will be similarly enjoined. Mr. Mahaffy will
continue to serve as the Company’s Chief Executive Officer and as a member of the Company’s Board of Directors.
The settlements do not allege that the Company or any of its current or former officers engaged in any intentional fraud or
misconduct. The settlements were approved by the United States District Court for the District of Colorado on September 19,
2018 and resolve the SEC’s nearly three-year investigation into the regulatory approval process of rociletinib.
On November 26, 2018, the DOJ informed the Company that it had closed its investigation regarding possible criminal
violations as it relates to rociletinib.
European
Patent
Opposition
Two oppositions were filed in the granted European counterpart of the rucaparib camsylate salt/polymorph patent on June 20,
2017. The European Patent Office’s Opposition Division held an oral hearing on December 4, 2018, during which it upheld
claims, narrowed from the originally granted patent, to certain crystalline forms of rucaparib camsylate, including, but not limited
to, rucaparib S-camsylate Form A, the crystalline form in Rubraca. On February 4, 2019, the Opposition Division issued a written
decision confirming its decision at the oral hearing. Clovis and/or either opponent have an opportunity to appeal the written
decision of the European Opposition Division. Notices of appeal are due April 14, 2019 and appeal briefs are due June 14, 2019.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
57
Table of Contents
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Holders
Our common stock trades on the NASDAQ Global Select market under the symbol “CLVS”.
On February 22, 2019, there were 23 holders of record of our common stock. The holders of record number does not include a
substantially greater number of holders whose shares are held of record in nominee or street name accounts through banks,
brokers and/or other financial institutions.
Dividends
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and
any future earnings to support our operations and finance the growth and development of our business. We do not intend to pay
cash dividends on our common stock for the foreseeable future. Any future determination related to our dividend policy will be
made at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial
condition, capital requirements, contractual restrictions, business prospects and other factors our board of directors may deem
relevant.
Securities Authorized for Issuance Under Equity Compensation Plans
Equity Compensation Plan Information
As of December 31, 2018
Number of
securities
remaining
available
for issuance
under equity
compensation
plans
(excluding
securities
reflected
in column (a))
(c)
4,131,151
—
4,131,151
Weighted-
Number of securities to
be issued upon exercise exercise price
of outstanding options of outstanding
average
and restricted stock
(a)
7,107,438 $
—
7,107,438 $
options
(b)
46.05
—
46.05
Plan Category
Equity compensation plans approved by security holders (1) (2)
Equity compensation plans not approved by security holders
Total
(1) As of December 31, 2018, 11,693,909 shares were authorized for issuance under our 2011 Stock Incentive Plan (“2011
Plan”), which became effective upon closing of our initial public offering in November 2011, including 192,185 remaining
shares available for future issuance under the 2009 Equity Incentive Plan (“2009 Plan”), which were transferred to the 2011
Plan. The number of shares of our common stock reserved for issuance under the 2011 Plan will be increased (i) from time to
time by the number of shares of our common stock forfeited upon the expiration, cancellation, forfeiture, cash settlement or
other termination of awards under the 2009 Plan and (ii) at the discretion of our board of directors, on the date of each annual
meeting of our stockholders, by up to the lesser of (x) a number of additional shares of our common stock representing 4% of
our then-outstanding shares of common stock on such date and (y) 2,758,621 shares of our common stock.
(2) As of December 31, 2018, 476,050 shares were reserved for issuance under our 2011 Employee Stock Purchase Plan
(“ESPP”), which became effective upon closing of our initial public offering in November 2011. The number of shares of our
common stock reserved for issuance under the ESPP will be increased at the discretion of our board of directors, on the date
of each annual meeting of our stockholders, by up to the lesser of (x) a number of additional shares of our common stock
representing 1% of our then-outstanding shares of common stock on such date and (y) 344,828 shares of our common stock.
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Table of Contents
Performance Graph
(1)
The following graph shows a comparison from December 31, 2013 through December 31, 2018 of the cumulative total return
on an assumed investment of $100 in cash in our common stock, the NASDAQ Composite Index and the NASDAQ
Biotechnology Index. Such returns are based on historical results and are not intended to suggest future performance. Data for the
NASDAQ Composite Index and the NASDAQ Biotechnology Index assume reinvestment of dividends.
(1)
This
performance
graph
shall
not
be
deemed
“soliciting
material”
or
to
be
“filed”
with
the
SEC
for
purposes
of
Section
18
of
the
Securities
and
Exchange
Act
of
1934,
as
amended,
or
otherwise
subject
to
the
liabilities
under
that
Section,
and
shall
not
be
deemed
incorporated
by
reference
into
any
filing
of
Clovis
Oncology,
Inc.
under
the
Securities
Act
of
1933,
as
amended.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain of our selected historical financial data at the dates and for the periods indicated. The
selected historical statement of operations data presented below for the years ended December 31, 2018, 2017 and 2016 and the
historical balance sheet data as of December 31, 2018 and 2017 have been derived from our audited financial statements, which
are included elsewhere in this Annual Report on Form 10-K. The historical statement of operations data presented below for the
years ended December 31, 2015 and 2014 and the historical balance sheet data as of December 31, 2016, 2015 and 2014 have
been derived from our audited financial statements that do not appear in this report.
Our historical results are not necessarily indicative of results expected in any future period.
The selected historical financial data presented below should be read in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes thereto, which are
included elsewhere in this Annual Report on Form 10-K. The selected historical financial information in this section is not
intended to replace our financial statements and the related notes thereto.
59
Table of Contents
Statement of Operations Data:
Revenues:
Product revenue
License and milestone revenue
Total revenues
Operating expenses:
2018
Year Ended December 31,
2016
(in thousands, except per share amounts)
2017
2015
2014
$ 95,388 $ 55,511 $
—
95,388
—
55,511
78 $
—
78
— $
—
—
—
13,625
13,625
Cost of sales - product
Cost of sales - intangible asset amortization
Research and development
Selling, general and administrative
Acquired in-process research and development
Impairment of intangible asset
Change in fair value of contingent purchase consideration
Total expenses
Operating loss
Other income (expense):
Interest expense
Foreign currency (loss) gain
Legal settlement loss
SEC settlement costs
Other income (expense)
Other income (expense), net
Loss before income taxes
Income tax (expense) benefit
Net loss
Basic and diluted net loss per common share
Basic and diluted weighted average common shares
outstanding
Balance Sheet Data:
Cash, cash equivalents and available-for-sale securities
Working capital
Total assets
Convertible senior notes
Common stock and additional paid-in capital
Total stockholders’ equity (deficit)
19,444
2,630
231,347
175,781
—
—
—
429,202
(333,814)
10,251
1,486
142,498
138,907
—
—
—
293,142
(237,631)
70
—
251,129
40,731
1,300
104,517
(24,936)
372,811
(372,733)
—
—
269,251
30,524
12,000
89,557
(24,611)
376,721
(376,721)
—
—
137,705
21,457
8,806
3,409
707
172,084
(158,459)
(10,428)
(82)
(105,477)
—
3,643
(112,344)
(349,975)
3,578
(13,183)
(346)
(7,975)
(20,000)
7,917
(33,587)
(367,401)
(608)
(2,604)
3,580
—
—
(240)
736
(157,723)
(2,308)
$(368,009) $(346,397) $(349,137) $(352,861) $(160,031)
(4.72)
$
(8,372)
2,740
—
—
416
(5,216)
(381,937)
29,076
(8,491)
(580)
—
—
633
(8,438)
(381,171)
32,034
(9.07) $
(7.07) $
(7.36) $
(9.79) $
52,066
47,047
38,478
36,026
33,889
2018
2017
2016
2015
2014
As of December 31,
(in thousands)
$ 520,146 $ 563,731 $ 266,183 $ 528,588 $482,677
443,400
786,206
278,680
785,123
331,630
464,125
713,386
279,885
1,130,016
300,650
545,423
735,230
282,406
1,887,249
367,636
213,813
364,557
281,126
1,174,989
(3,634)
446,550
863,560
575,470
2,034,195
146,469
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Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You
should
read
the
following
discussion
and
analysis
of
our
financial
condition
and
results
of
operations
together
with
our
financial
statements
and
related
notes
appearing
at
the
end
of
this
Annual
Report
on
Form
10-K.
Some
of
the
information
contained
in
this
discussion
and
analysis
or
set
forth
elsewhere
in
this
Annual
Report
on
Form
10-K,
including
information
with
respect
to
our
plans
and
strategy
for
our
business
and
related
financing,
includes
forward-looking
statements
that
involve
risks
and
uncertainties.
You
should
read
the
“Risk
Factors”
section
of
this
report
for
a
discussion
of
important
factors
that
could
cause
actual
results
to
differ
materially
from
the
results
described
in
or
implied
by
the
forward-looking
statements
contained
in
the
following
discussion
and
analysis.
Overview
We are a biopharmaceutical company focused on acquiring, developing and commercializing innovative anti-cancer agents in
the United States, the EU and additional international markets. We target our development programs for the treatment of specific
subsets of cancer populations, and simultaneously develop, with partners, for those indications that require them, diagnostic tools
intended to direct a compound in development to the population that is most likely to benefit from its use.
Our product Rubraca® (rucaparib), an oral small molecule inhibitor of poly ADP-ribose polymerase (“PARP”), is marketed in
the United States for two indications specific to recurrent epithelial ovarian, fallopian tube or primary peritoneal cancer. The
initial indication received approval from the United States Food and Drug Administration (“FDA”) in December 2016 and covers
the treatment of adult patients with deleterious BRCA (human genes associated with the repair of damaged DNA) mutation
(germline and/or somatic)-associated epithelial ovarian, fallopian tube, or primary peritoneal cancer who have been treated with
two or more chemotherapies and selected for therapy based on an FDA-approved companion diagnostic for Rubraca. In April
2018, the FDA also approved Rubraca for the maintenance treatment of adult patients with recurrent epithelial ovarian, fallopian
tube, or primary peritoneal cancer who are in a complete or partial response to platinum-based chemotherapy. The approval in
this second, broader and earlier-line indication on a priority review timeline was based on positive data from the phase 3 ARIEL3
clinical trial. Diagnostic testing is not required for patients to be prescribed Rubraca in this maintenance treatment indication. We
hold worldwide rights to Rubraca.
In May 2018, the European Commission granted a conditional marketing authorization for Rubraca as monotherapy treatment
of adult patients with platinum-sensitive, relapsed or progressive, BRCA mutated (germline and/or somatic), high-grade epithelial
ovarian, fallopian tube, or primary peritoneal cancer, who have been treated with two or more prior lines of platinum-based
chemotherapy, and who are unable to tolerate further platinum-based chemotherapy. As this is a conditional approval, it will be
necessary to complete certain confirmatory post marketing commitments. In January 2019, the European Commission granted a
variation to the marketing authorization to include the maintenance treatment of adult patients with recurrent epithelial ovarian,
fallopian tube, or primary peritoneal cancer who are in a complete or partial response to platinum-based chemotherapy. With this
approval, Rubraca is now authorized in the European Union (“EU”) for certain patients in the recurrent ovarian cancer
maintenance setting regardless of their BRCA mutation status. Rubraca was the first PARP inhibitor licensed for an ovarian
cancer treatment indication in the EU and is now the first to be authorized for both treatment and maintenance treatment among
eligible patients. We are planning our initial launch of Rubraca as maintenance therapy in Germany during the first quarter of
2019, with other EU countries to follow through 2019 and 2020.
Additional 2018 Rubraca key regulatory and clinical developments include the following:
During the first quarter of 2018, we initiated an open-label monotherapy study of Rubraca in recurrent, metastatic
bladder cancer titled ATLAS: A Study of Rucaparib in Patients with Locally Advanced or Metastatic Bladder Cancer.
In August 2018, the first patient was randomized into our ATHENA Phase 3 study evaluating the combination of
Rubraca and OPDIVO® (nivolumab) for the treatment of advanced ovarian cancer in the first line maintenance
setting. ATHENA is a Clovis-sponsored study which is part of our ongoing clinical collaboration with Bristol-Myers
Squibb to evaluate its immunotherapy OPDIVO® (nivolumab) in combination with Rubraca in a variety of tumor types.
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In October 2018, the FDA granted Breakthrough Therapy designation (“BTD”) for the development of Rubraca as a
monotherapy treatment of adult patients with BRCA1/2-mutated metastatic castration resistant prostate cancer
(“mCRPC”) who have received at least one prior androgen receptor (“AR”)-directed therapy and taxane-based
chemotherapy. BTD was granted based on initial efficacy and safety results from the ongoing TRITON2 phase 2 study
of Rubraca in patients with advanced mCRPC with BRCA 1/2 mutations (germline or somatic) and deleterious
mutations of other homologous recombination (“HR”) repair genes presented at ESMO.
In October 2018, we announced initial data from the ongoing TRITON studies of Rubraca in advanced prostate cancer at
the European Society for Medical Oncology (ESMO) 2018 Congress. The initial TRITON2 data showed a 44 percent
confirmed objective response (ORR) by investigator-assessment in 25 RECIST/PCWG3 (RECIST as modified by the
Prostate Cancer Working Group for mCRPC trials) response-evaluable patients with a BRCA1/2 alteration, and results
by independent assessment were consistent. The median duration of response in these patients had not yet been
reached. In addition, a 51 percent confirmed prostate specific antigen (PSA) response rate was observed in 45 PSA
response-evaluable patients with a BRCA1/2 alteration. Preliminary safety data for Rubraca in men with mCRPC were
consistent with those observed in patients with ovarian cancer and other solid tumors.
We also have a robust clinical development program underway to further evaluate Rubraca in a variety of other solid tumor
types, either as monotherapy or in combination with other agents, including several studies as part of our ongoing clinical
collaboration with Bristol-Myers Squibb Company to evaluate its immunotherapy OPDIVO® (nivolumab) in combination with
Rubraca.
In addition, we have one other product candidate.
Lucitanib is an oral, potent inhibitor of the tyrosine kinase activity of vascular endothelial growth factor receptors 1 through 3
(“VEGFR1-3”), platelet-derived growth factor receptors alpha and beta (“PDGFR α/β”) and fibroblast growth factor receptors 1
through 3 (“FGFR1-3”). We believe that recent data for a drug similar to lucitanib that inhibits these same pathways – when
combined with a PD-1 inhibitor – provide support for development of lucitanib in combination with a PD-1 inhibitor and a
Clovis-sponsored study of lucitanib in combination with nivolumab is planned in gynecologic cancers. In addition, we intend to
initiate a study of lucitanib in combination with Rubraca in ovarian cancer, based on encouraging data of VEGF and PARP
inhibitors in combination. We intend to initiate each of these Phase 1b/2 combination studies during the first half of 2019.
Lucitanib was previously partnered with Servier outside the U.S. and Japan (also excluding China); Servier returned its rights
to lucitanib in late 2018. We now hold the global development and commercialization rights (except for China) for lucitanib.
In early 2019, we provided notice to Celgene Corporation exercising the right to terminate our license to rociletinib, an oral
mutant-selective inhibitor of epidermal growth factor receptor (“EGFR”). That termination will become effective in the second
quarter of 2019.
We commenced operations in April 2009. To date, we have devoted substantially all of our resources to identifying and in-
licensing product candidates, performing development activities with respect to those product candidates and the general and
administrative support of these operations. For the year ended December 31, 2018, have generated $95.4 million product revenue
related to sales of Rubraca, which we began to commercialize on December 19, 2016. We have principally funded our operations
using the net proceeds from the sale of convertible preferred stock, the issuance of convertible promissory notes, public offerings
of our common stock and our convertible senior notes offering.
We have never been profitable and, as of December 31, 2018, we had an accumulated deficit of $1,843.1 million. We incurred
net losses of $368.0 million, $346.4 million and $349.1 million for the years ended December 31, 2018, 2017 and 2016,
respectively, and had cash, cash equivalents and available-for-sale securities totaling $520.1 million at December 31, 2018.
We expect to incur significant losses for the foreseeable future, as we incur costs related to commercial activities associated
with Rubraca. In April 2018, we sold 1,837,898 shares of our common stock in a public offering at $54.41 per share. The net
proceeds from the offering were $93.9 million, after deducting underwriting discounts and commissions and offering expenses.
Concurrently, we completed the public offering of $300.0 million aggregate principal amount of 1.25% convertible senior notes
due 2025. The net proceeds from this offering were $290.9 million, after deducting
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underwriting discounts and commissions and offering expenses. Based on our current estimates, we believe that our cash, cash
equivalents and available-for-sale securities will allow us to fund activities through at least the next 12 months. Until we can
generate a sufficient amount of revenue from Rubraca, we expect to finance our operations in part through additional public or
private equity or debt offerings and may seek additional capital through arrangements with strategic partners or from other
sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and
when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will
need to generate significant revenues to achieve profitability, and we may never do so.
Product License Agreements
For a discussion of our product license agreements, see Note 13, License
Agreements
, in the Notes to Consolidated Financial
Statements included in Part II, Item 8, Financial
Statements
and
Supplementary
Data
, of this Annual Report on Form 10-K.
Financial Operations Overview
Revenue
During 2018, we recorded $95.4 million in revenue related to sales of Rubraca, which we began to commercialize on
December 19, 2016. For further discussion of our revenue recognition policy, see “Critical Accounting Policies and Significant
Judgments and Estimates” below. Our ability to generate revenue and become profitable depends upon our ability to successfully
commercialize products. Any inability on our part to successfully commercialize Rubraca in the United States, the EU and any
foreign territories where it may be approved, or any significant delay in such approvals, could have a material adverse impact on
our ability to execute upon our business strategy and, ultimately, to generate sufficient revenues from Rubraca to reach or
maintain profitability or sustain our anticipated levels of operations.
We supply commercially labeled Rubraca free of charge to eligible patients who qualify due to financial need through our
patient assistance program and the majority of these patients are on Medicare. This product is distributed through a separate
vendor who administers the program on our behalf. It is not distributed through our specialty distributor and specialty pharmacy
network. This product is neither included in the transaction price nor the variable considerations to arrive at product revenue.
Manufacturing costs associated with this free product is included in selling, general and administrative expenses. For the year
ended December 31, 2018, the supply of this free drug was approximately 26% of the overall commercial supply or the equivalent
of $33.4 million in commercial value.
Effective January 1, 2018, we adopted Accounting Standards Codification (“ASC”), Topic 606, “Revenue from Contracts with
Customers”. Upon adoption, we recognized revenue when our customers, the specialty distributors and specialty pharmacy
providers, take control of our product. This resulted in us recognizing revenue approximately two to four weeks earlier than
before adopting the new standard. We used the modified retrospective method to adopt the new standard. This means that we did
not restate previously issued financial statements, but recorded a one-time adjustment to retained earnings of $2.4 million. This
adjustment represents the sales of our product to our customers prior to January 1, 2018, that had not been sold to patients or
healthcare providers, offset by related gross-to-net adjustments and other direct costs, including royalties and sales incentive
compensation.
During 2017, revenue was recognized for U.S. tax purposes when our product was sold to the specialty distributors and
pharmacies, a method that differs from book treatment. This difference in revenue recognition resulted in the establishment of the
deferred tax asset for the sales value of our product held by our specialty distributor and pharmacy providers at December 31,
2017. The deferred tax asset was offset by a full valuation allowance and has no impact to our statement of operations. With the
adoption of ASC 606 effective January 1, 2018, revenue is recognized when our product is sold to the specialty distributors
pharmacies, which will match the tax treatment resulting in no deferred tax asset.
For a complete discussion of this adoption and the accounting for product revenue, see Note 2, Summary
of
Significant
Accounting
Policies
in the “Recently Issued Accounting Standards”
section and Note 3, Revenue
Recognition
.
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Research
and
Development
Expenses
Research and development expenses consist of costs incurred for the development of our product candidates and companion
diagnostics, which include:
license fees and milestone payments related to the acquisition of in-licensed products, which are reported on our
Consolidated Statements of Operations and Comprehensive Loss as acquired in-process research and development;
employee-related expenses, including salaries, benefits, travel and share-based compensation expense;
expenses incurred under agreements with CROs and investigative sites that conduct our clinical trials;
the cost of acquiring, developing and manufacturing clinical trial materials;
costs associated with non-clinical activities and regulatory operations;
market research, disease education and other commercial product planning activities, including the hiring of a U.S. sales
and marketing and medical affairs organization in preparation for commercial launch of rucaparib; and
activities associated with the development of companion diagnostics for our product candidates.
Research and development costs are expensed as incurred. License fees and milestone payments related to in-licensed products
and technology are expensed if it is determined that they have no alternative future use. Costs for certain development activities,
such as clinical trials and manufacturing of clinical supply, are recognized based on an evaluation of the progress to completion of
specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors. Our
research and development expenses increased for 2018 and will continue to increase in 2019 as our ongoing rucaparib studies
progress.
The following table identifies research and development and acquired in-process research and development costs on a
program-specific basis for our products under development. Personnel-related costs, depreciation and share-based compensation
are not allocated to specific programs, as they are deployed across multiple projects under development and, as such, are
separately classified as personnel and other expenses in the table below.
Rucaparib Expenses
Research and development
Acquired in-process research and development
Rucaparib Total
Lucitanib Expenses
Research and development (a)
Lucitanib Total
Rociletinib Expenses
Research and development
Rociletinib Total
Personnel and other expenses
Total
2018
Year Ended December 31,
2017
(in thousands)
2016
$ 153,083 $
—
153,083
72,901 $ 101,598
1,300
102,898
—
72,901
786
786
(1,187)
(1,187)
(1,337)
(1,337)
2,391
2,391
75,087
43,768
43,768
107,100
$ 231,347 $ 142,498 $ 252,429
7,712
7,712
63,072
(a) This amount reflects actual costs incurred less amounts due from Servier for reimbursable development expenses pursuant
to the collaboration and license agreement described in Note 13, License
Agreements,
to our audited consolidated financial
statements included in this Annual Report on Form 10-K.
For 2018, research and development expenses increased due to higher research and development costs for rucaparib. For 2017,
research and development expenses decreased primarily due to decreased development activities for the rociletinib program.
Selling,
General
and
Administrative
Expenses
Selling, general and administrative expenses consist principally of salaries and related costs for personnel in executive,
commercial, finance, legal, investor relations, human resources and information technology functions. Other
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general and administrative expenses include facilities expenses, communication expenses, information technology costs,
corporate insurance and professional fees for legal, consulting and accounting services. With the FDA approval of Rubraca on
December 19, 2016, all sales and marketing expenses associated with Rubraca are included in selling, general and administrative
expenses. We anticipate that our selling, general and administrative expenses will continue to increase in the future in support of
our commercial activities related to Rubraca in the U.S. and the EU.
Acquired
In-Process
Research
and
Development
Expenses
Acquired in-process research and development expenses consist of upfront payments to acquire a new drug compound, as well
as subsequent milestone payments. Acquired in-process research and development payments are immediately expensed provided
that the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, has no alternative future
use. Once regulatory approval is received, payments to acquire rights, and the related milestone payments, are capitalized and the
amortization of such assets recorded to product cost of sales.
Impairment
of
Intangible
Asset
In connection with the acquisition of EOS in November 2013, we recorded intangible assets to reflect the fair value of
acquired in-process research and development (“IPR&D”) as of the acquisition date. The fair value was established based upon
discounted cash flow models using assumptions related to the timing of development, probability of development and regulatory
success, sales and commercialization factors and estimated product life. During the second quarter of 2016, we recorded a $104.5
million impairment charge due to our and our development partner’s decision to discontinue the development of lucitanib for
breast cancer. At December 31, 2018, the IPR&D intangible asset recorded on the Consolidated Balance Sheets was zero.
Other
Income
and
Expense
Other income and expense are primarily comprised of foreign currency gains and losses resulting from transactions with
CROs, investigational sites and contract manufacturers where payments are made in currencies other than the U.S. dollar. Other
expense also includes interest expense recognized related to our convertible senior notes.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which
have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses and
revenue and related disclosures. On an ongoing basis, we evaluate our estimates and judgments, including those related to
revenue, intangible asset impairment, clinical trial accruals and share-based compensation expense. We base our estimates on
historical experience, known trends and events and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing
elsewhere in this Annual Report on Form 10-K. We believe the following accounting policies to be most critical to the judgments
and estimates used in the preparation of our financial statements.
Revenue
Recognition
We are currently approved to sell Rubraca in the United States and the EU markets. We distribute our product principally
through a limited number of specialty distributor and specialty pharmacy providers, collectively, our customers. Our customers
subsequently sell our products to patients and health care providers. Separately, we have arrangements with certain payors and
other third parties that provide for government-mandated and privately-negotiated rebates, chargebacks and discounts.
Revenue from product sales are recognized when the performance obligation is satisfied, which is when customers obtain
control of our product at a point in time, typically upon delivery. Revenues from product sales are recorded at the net sales price
(transaction price), which includes estimates of variable consideration for which reserves are established
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and which result from price concessions that include rebates, chargebacks, discounts, co-pay assistance, estimated product returns
and other allowances that are offered within contracts between us and our customers, health care providers, payors and other
indirect customers relating to the sales of our product. These reserves are based on the amounts earned or to be claimed on the
related sales and are classified as reductions of accounts receivable (if the amount is payable to the customers) or a current
liability (if the amount is payable to a party other than a customer). Where appropriate, these estimates take into consideration a
range of possible outcomes which are probability-weighted for relevant factors such as our historical experience, current
contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying
and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled
based on the terms of the contract. The amount of variable consideration which is included in the transaction price may be
constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of
the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may
differ from our estimates. If actual results in the future vary from our estimates, we adjust these estimates, which would affect
product revenue and earnings in the period such variances become known.
For the year ended December 31, 2018, we recognized $95.4 million of product revenue.
Accrued
Research
and
Development
Expenses
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process
involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been
performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we
have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in
arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each
balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm
the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued
research and development expenses include:
fees paid to CROs in connection with clinical studies;
fees paid to investigative sites in connection with clinical studies;
fees paid to vendors in connection with non-clinical development activities;
fees paid to vendors associated with the development of companion diagnostics; and
fees paid to vendors related to product manufacturing, development and distribution of clinical supplies.
We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to
contracts with multiple CROs that conduct and manage clinical studies on our behalf. The financial terms of these agreements are
subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which
payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense.
Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of
clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed, enrollment
of patients, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance
of services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly. Although we do not expect
our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services
performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are
too high or too low in any particular period.
Share-Based
Compensation
Determining the amount of share-based compensation to be recorded requires us to develop estimates of the fair value of stock
options as of their grant date. Compensation expense is recognized over the vesting period of the award. Calculating the fair value
of share-based awards requires that we make highly subjective assumptions. We use the Black-Scholes option pricing model to
value our stock option awards. Use of this valuation methodology requires that we make assumptions as to the expected dividend
yield, price volatility of our common stock, the risk-free interest rate for a period that approximates the expected term of our stock
options and the expected term of our stock options. We utilize a dividend yield of zero based on the fact that we have never paid
cash dividends and have no current intention to pay cash dividends.
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The fair value of stock options for the years ended December 31, 2018, 2017 and 2016 was estimated at the grant date using
the following weighted average assumptions for the respective periods:
Year Ended December 31,
Dividend yield
Volatility (a)
Risk-free interest rate (b)
Expected term (years) (c)
2018
—
88 %
2017
—
89 %
2016
—
93 %
2.92 % 2.16 % 1.77 %
5.8
5.9
5.8
(a) Volatility
: The expected volatility was estimated using our historical data.
(b) Risk-free
interest
rate
: The rate is based on the yield on the grant date of a zero-coupon U.S. Treasury bond whose
maturity period approximates the option’s expected term.
(c) Expected
term
: The expected term of the award was estimated using our historical data.
We recognized share-based compensation expense of approximately $49.1 million, $44.7 million and $39.8 million for the
years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, the unrecognized share-based
compensation expense related to unvested options, adjusted for expected forfeitures, was $55.8 million, which is expected to be
recognized over a weighted-average remaining vesting period of 2.3 years. As of December 31, 2018, the unrecognized share-
based compensation expense related to RSUs, adjusted for expected forfeitures, was $29.4 million, which is expected to be
recognized over an estimated weighted-average remaining vesting period of 2.8 years. We expect our share-based compensation
to continue to grow in future periods due to the potential increases in the value of our common stock and headcount.
We estimate the level of forfeitures expected to occur and record compensation expense only for those awards that we
ultimately expect will vest.
Inventory
Inventories are stated at the lower of cost or estimated net realizable value, on a first-in, first-out (“FIFO”) basis. Inventories
include active pharmaceutical ingredient (“API”), contract manufacturing costs and overhead allocations. We began capitalizing
incurred inventory related costs upon the regulatory approval of Rubraca. Prior to the regulatory approval of Rubraca, we incurred
costs for the manufacture of the drug that could potentially be available to support the commercial launch of Rubraca and all such
costs were recognized as research and development expense.
We regularly analyze our inventory levels for excess quantities and obsolescence (expiration), taking into account factors such
as historical and anticipated future sales compared to quantities on hand and the remaining shelf-life of Rubraca. Rubraca
finished goods have a shelf-life of four years from the date of manufacture. We expect to sell the finished goods prior to
expiration. The API currently has a shelf-life of four years from the date of manufacture but can be retested at an immaterial cost
with no expected reduction in potency, thereby extending its shelf-life as needed. We expect to consume substantially all of the
API over a period of approximately eight years based on our long-range sales projections of Rubraca.
We write down inventory that has become obsolete, inventory that has a cost basis in excess of its estimated realizable value
and/or inventory in excess of expected sales requirements. Expired inventory would be disposed of and the related costs would be
written off as cost of product revenue. Inventories that are not expected to be consumed within 12 months following the balance
sheet date are classified as long-term inventories. Long-term inventories primarily consist of API.
API is currently produced by a single supplier. As the API has undergone significant manufacturing specific to its intended
purpose at the point it is purchased by us, we classify the API as work-in-process inventory. In addition, we currently
manufacture Rubraca finished goods with a single third-party manufacturer. The disruption or termination of the supply of API or
the disruption or termination of the manufacturing of our commercial products could have a material adverse effect on our
business, financial position and results of operations.
Inventory used in clinical trials is expensed as research and development expense when it has been identified for such use.
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At December 31, 2018, we had $27.1 million of current inventory and $113.9 million of long-term inventory. In addition, we
had $12.4 million cash deposit on inventory, which consists of API that we expect to be converted to finished goods beyond the
next twelve months.
Intangible
Assets
Definite-lived intangible assets related to capitalized milestones under license agreements are amortized on a straight-line basis
over their remaining useful lives, which are estimated to be the remaining patent life. If our estimate of the product’s useful life is
shorter than the remaining patent life, then a shorter period is used. Amortization expense is recorded as a component of cost of
sales in the Consolidated Statements of Operations and Comprehensive Loss.
Intangible assets are evaluated for impairment at least annually in the fourth quarter or more frequently if impairment
indicators exist. Events that could result in an impairment, or trigger an interim impairment assessment, include the decision to
discontinue the development of a drug, the receipt of additional clinical or nonclinical data regarding our drug candidate or a
potentially competitive drug candidate, changes in the clinical development program for a drug candidate, or new information
regarding potential sales for the drug. In connection with any impairment assessment, the fair value of the intangible assets as of
the date of assessment is compared to the carrying value of the intangible asset. Impairment losses are recognized if the carrying
value of an intangible asset is both not recoverable and exceeds its fair value. During the second quarter of 2016, we recorded a
$104.5 million impairment charge to the IPR&D intangible assets due to our and our development partner’s decision to
discontinue the development of lucitanib for breast cancer, thereby reducing the remaining carrying value to zero.
Results of Operations
Comparison
of
the
Year
Ended
December
31,
2018
to
the
Year
Ended
December
31,
2017
(in
thousands)
Revenues:
Product revenue
Operating expenses:
Cost of sales - product
Cost of sales - intangible asset amortization
Research and development
Selling, general and administrative
Total expenses
Operating loss
Other income (expense):
Interest expense
Foreign currency loss
Legal settlement loss
SEC settlement costs
Other income
Other expense, net
Loss before income taxes
Income tax (expense) benefit
Net loss
Year ended December 31,
2018
2017
Change
Favorable/(Unfavorable)
$
%
$
95,388 $
55,511 $
39,877
19,444
2,630
231,347
175,781
429,202
(333,814)
(13,183)
(346)
(7,975)
(20,000)
7,917
(33,587)
(367,401)
(608)
$ (368,009) $
10,251
1,486
142,498
138,907
293,142
(237,631)
(10,428)
(82)
(105,477)
—
3,643
(112,344)
(349,975)
3,578
(346,397) $
(9,193)
(1,144)
(88,849)
(36,874)
(136,060)
(96,183)
(2,755)
(264)
97,502
(20,000)
4,274
78,757
(17,426)
(4,186)
(21,612)
72 %
(90)%
(77)%
(62)%
(27)%
(46)%
(40)%
(26)%
(322)%
92 %
(100)%
117 %
70 %
(5)%
(117)%
(6)%
Product
Revenue.
Product revenue for the year ended December 31, 2018 increased primarily due to continued growth in
sales of Rubraca, which was approved for sale in the United States markets and we began shipping on December 19, 2016.
Growth in sales is also due to the additional maintenance treatment indication that was approved in the United States in April
2018. Product revenue is recorded net of variable considerations comprised of rebates, chargebacks and other discounts. Variable
considerations represented 10.4% and 8.1% of the transaction price recognized in the year ended December 31, 2018 and 2017,
respectively. This increase primarily relates to an increase in
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older patients on Medicare as well as additional patients filling prescriptions at low-income clinics. Amounts are summarized as
follows:
Year ended
December 31, 2018
Year ended
December 31, 2017
$
(in thousands)
% of Gross
Sales
$
(in thousands)
% of Gross
Sales
$
106,479
100.0% $
60,384
100.0%
Transaction price
Sales deductions:
Government rebates and chargebacks
Discounts and fees
Total sales deductions
Product revenue
$
6,379
4,712
11,091
95,388
6.0%
4.4%
10.4%
89.6% $
2,575
2,298
4,873
55,511
4.3%
3.8%
8.1%
91.9%
Cost
of
Sales
-
Product.
Product cost of sales for the year ended December 31, 2018 increased due to the increase in product
revenue. Product cost of sales primarily relate to manufacturing, freight and royalties costs associated with Rubraca sales in the
period. Manufacturing costs associated with sales in the year ended December 31, 2017 were expensed as incurred based on our
policy to expense costs associated with the manufacture of our products prior to regulatory approval, and therefore, a minimal
amount is included as product cost of sales. These costs increased in the year ended December 31, 2018, as we depleted these
inventories as of the fourth quarter of 2017.
Cost
of
Sales
–
Intangible
Asset
Amortization
. For the year ended December 31, 2018 and 2017, we recognized cost of sales
of $2.6 million and $1.5 million, respectively, associated with the amortization of capitalized milestone payments related to the
approvals of Rubraca by the FDA in December 2016 and April 2018 and by the European Commission in May 2018.
Research
and
Development
Expenses.
Research and development expenses increased during the year ended December 31,
2018 due to higher research and development costs for rucaparib. Clinical trial costs for rucaparib were higher compared to the
same period a year ago due to higher costs from increased enrollment in ARIEL4, our confirmatory ovarian cancer trials, and
increased enrollment in our TRITON2 and TRITON3 studies for prostate cancer. We have increased costs related to our new
ATLAS study for bladder cancer, our ATHENA combination study with Bristol-Myers Squibb Company’s immunotherapy
OPDIVO for ovarian cancer and our RUCA-J study for ovarian cancer in Japan. In addition, personnel costs increased during the
year ended December 31, 2018 due to higher headcount to support increased rucaparib clinical trial activities.
Clinical trial costs for rociletinib were $5.3 million lower than the year ended December 31, 2017 primarily due to patients
discontinuing drug treatment and investigational sites closing for all the TIGER studies in non-small cell lung cancer.
Selling,
General
and
Administrative
Expenses.
Selling, general and administrative expenses increased during the year ended
December 31, 2018 due to increased commercialization activities for Rubraca and the increase of costs associated with building
out the European infrastructure in anticipation of commercialization there, which includes an increase of $2.9 million in facilities
expense and $2.2 million in personnel costs. In addition, there was an increase of $4.3 million in legal expense and $3.4 million in
stock compensation expense.
Interest
Expense.
Interest expense increased during the year ended December 31, 2018 due to the issuance of the 2025 Notes
on April 19, 2018.
Foreign
Currency
Loss.
Foreign currency loss increased during the year ended December 31, 2018 primarily due to the
foreign currency rate utilized to translate our Euro-denominated goodwill into U.S. dollars.
Legal
Settlement
Loss.
During the first quarter of 2018, we recorded a one-time charge of $8.0 million related to an agreement
to resolve a potential litigation claim against us and our officers. During 2017, we recorded a $105.5 million legal settlement
loss, net of insurance receivable, related to a stipulation agreement of settlement whereby we issued the
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plaintiff and participating class members a total consideration comprised of $25.0 million in cash and the issuance of 1.5 million
shares. The cash portion of the consideration was funded by Clovis’ insurance carriers.
SEC
Settlement
Costs.
During the second quarter of 2018, we recorded a one-time charge of $20.0 million related to an
agreement reached with the SEC to resolve its investigation. See Note 14, Commitments
and
Contingencies
for further
information regarding this investigation and other legal proceedings.
Other
Income.
Other income increased during the year ended December 31, 2018 due to interest income earned on our
available-for-sale securities.
Comparison
of
the
Year
Ended
December
31,
2017
to
the
Year
Ended
December
31,
2016
(in
thousands)
Revenues:
Product revenue
Operating expenses:
Cost of sales - product
Cost of sales - intangible asset amortization
Research and development
Selling, general and administrative
Acquired in-process research and development
Impairment of intangible asset
Change in fair value of contingent purchase consideration
Total expenses
Operating loss
Other income (expense):
Interest expense
Foreign currency loss
Legal settlement loss
Other income
Other expense, net
Loss before income taxes
Income tax benefit
Net loss
Year ended December 31,
2017
2016
Change
Favorable/(Unfavorable)
$
%
$
55,511 $
78 $
55,433
71,068 %
10,251
1,486
142,498
138,907
—
—
—
293,142
(237,631)
(10,428)
(82)
(105,477)
3,643
(112,344)
(349,975)
3,578
$ (346,397) $
70
—
251,129
40,731
1,300
104,517
(24,936)
372,811
(372,733)
(10,181)
(1,486)
108,631
(98,176)
1,300
104,517
(24,936)
79,669
135,102
(8,491)
(580)
—
633
(8,438)
(381,171)
32,034
(349,137) $
(1,937)
498
(105,477)
3,010
(103,906)
31,196
(28,456)
2,740
(14,544)%
(100)%
43 %
(241)%
100 %
100 %
100 %
21 %
36 %
(23)%
86 %
(100)%
476 %
(1,231)%
8 %
(89)%
1 %
Product
Revenue.
Product revenue for the year ended December 31, 2017 was due to the recognition of $55.5 million of net
product revenue from the sale of Rubraca, which was approved for sale in the United States markets on December 19, 2016.
Revenue is recorded net of sales deductions comprised of rebates, chargebacks and other discounts. Sales deductions represented
approximately 8.1% of the gross product revenue recognized in the year ended December 31, 2017, as summarized above.
Cost
of
Sales
-
Product.
Product cost of sales for the year ended December 31, 2017 relate to freight and royalties costs
associated with Rubraca sales for the period. Based on our policy to expense costs associated with the manufacture of our
products prior to regulatory approval, certain of the costs of Rubraca units recognized as revenue during the year ended December
31, 2017 were expensed prior to the December 19, 2016 FDA approval, and therefore are not included in costs of sales during the
current period. The majority of product sales were of pre-commercialization inventory in 2017.
Cost
of
Sales
–
Intangible
Asset
Amortization
. For the year ended December 31, 2017, we recognized cost of sales of $1.5
million associated with the amortization of capitalized milestone payments related to the FDA approval of Rubraca.
Research
and
Development
Expenses.
Research and development expenses decreased during the year ended December 31,
2017 compared to 2016 primarily due to lower research and development costs for rucaparib and rociletinib and classification of
commercialization related expenses associated with Rubraca in selling, general and
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administrative expenses rather than research and development expenses. In the year ended December 31, 2017, Rubraca
commercialization costs included in selling, general and administrative expenses were $95.2 million.
Clinical trial costs for rucaparib were $0.3 million lower compared to the same period a year ago due to completed enrollment
in our ARIEL2 and ARIEL 3 studies, partially offset by higher costs from enrollment in ARIEL4, our confirmatory ovarian
cancer trials, and enrollment in our TRITON2 and TRITON3 studies for prostate cancer. Diagnostic development costs were $4.4
million lower compared to the prior year as the prior year included the costs associated with our collaboration with Foundation
Medicine, Inc. to develop a novel companion diagnostic test to identify patients most likely to respond to rucaparib. Finally,
clinical supply and related manufacturing development costs were $15.9 million lower than 2016 due to the capitalization of these
costs subsequent to the FDA approval of rucaparib.
Clinical trial costs for rociletinib were $23.6 million lower than 2016 primarily due to the completion of patient enrollment for
all the TIGER studies in non-small cell lung cancer. Clinical supply and related manufacturing development costs were $6.6
million lower than 2016 driven by timing of production to support our clinical studies.
Selling,
General
and
Administrative
Expenses.
Selling, general and administrative expenses increased during the year ended
December 31, 2017 compared to 2016 primarily due to classification of commercialization related expenses associated with
Rubraca in selling, general and administrative expenses rather than research and development expenses.
Acquired
In-Process
Research
and
Development
Expenses.
During 2016, we made a milestone payment of $0.3 million to
AstraZeneca upon the NDA submission for rucaparib and we made milestone payments totaling $1.0 million to Pfizer upon
acceptance of the NDA and MAA for rucaparib by the FDA and EMA, respectively. No such payments occurred during 2017.
Impairment
of
Intangible
Asset.
During the second quarter of 2016, we recorded a $104.5 million impairment charge to the
IPR&D intangible asset relating to our lucitanib product candidate which reduced the carrying value of the intangible assets
related to the product to zero. This reduction in the estimated fair value of lucitanib was the result of our and our development
partner’s decision to discontinue the development of lucitanib for breast cancer.
Change
in
Fair
Value
of
Contingent
Purchase
Consideration.
The fair value of contingent purchase consideration decreased
$24.9 million for the year ended December 31, 2016, which is due to a $25.5 million reduction in the fair value of the contingent
purchase consideration liability we recorded during the second quarter of 2016 due to our and our development partner’s decision
to discontinue the development of lucitanib for breast cancer.
Legal
Settlement
Loss.
During 2017, we recorded a $105.5 million legal settlement loss, net of insurance receivable, related to
a stipulation agreement of settlement whereby we issued the plaintiff and participating class members a total consideration
comprised of $25.0 million in cash and the issuance of 1.5 million shares. The cash portion of the consideration was funded by
Clovis’ insurance carriers.
Other
Income.
Other income increased for the year ended December 31, 2017 compared to 2016 due to interest income
earned on our available-for-sale securities.
Income
Tax
Benefit.
For the year ended December 31, 2016, we recognized a $28.4 million deferred tax benefit associated
with the impairment of the IPR&D intangible assets recorded in the second quarter of 2016. In addition, during the first quarter
2016, we recognized a $3.6 million deferred tax benefit due to a reduction in the enacted corporate tax rate of a foreign
jurisdiction in which we operate.
Liquidity and Capital Resources
To date, we have funded our operations through the public offering of our common stock and the private placement of
convertible debt securities and preferred stock. In April 2018, we sold 1,837,898 shares of our common stock in a public offering
at $54.41 per share. The net proceeds from the offering were $93.9 million, after deducting underwriting discounts and
commissions and offering expenses. Concurrently, we completed the public offering of $300.0 million aggregate principal
amount of 1.25% convertible senior notes due 2025. The net proceeds from this offering were $290.9 million, after deducting
underwriting discounts and commissions and offering expenses. As of December 31, 2018, we had cash, cash equivalents and
available-for-sale securities totaling $520.1 million.
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The following table sets forth the primary sources and uses of cash for each of the periods set forth below:
Net cash used in operating activities
Net cash (used in) provided by investing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Operating
Activities
2016
2018
Year Ended December 31,
2017
(in thousands)
$(365,997) $(260,904) $(266,680)
199,299
(264,242)
5,176
388,464
(365)
(547)
$(242,322) $ 248,012 $ (62,570)
(54,102)
562,075
943
Net cash used in operating activities was higher during the year ended December 31, 2018 compared to the prior year due to a
higher net loss as adjusted for non-cash items and increases in the operating assets needed to support the commercialization of
Rubraca, most notably related to inventory.
Net cash used in operating activities for the year ended December 31, 2017 decreased by $5.8 million compared to 2016 due to
a decrease in net loss adjusted for non-cash items of $63.3 million, primarily due the recognition of $55.5 million of revenue
during 2017, partially offset by inventory purchases and deposits of $48.0 million and the recognition of $6.2 million in accounts
receivable in 2017.
Investing
Activities
Net cash used in investing activities for the year ended December 31, 2018 included purchases of available-for-sale securities
of $500.0 million offset by cash from sales of available-for-sale securities of $300.0 million and milestone payments of $55.0
million.
Net cash used in investing activities for the year ended December 31, 2017 included $263.5 million in purchases of available-
for-sale securities compared to no purchases in 2016.
Financing
Activities
Net cash provided by financing activities for the year ended December 31, 2018 included $4.0 million received from
employee stock option exercises and stock purchases under the employee stock purchase plan. We completed the sale of $93.9
million of common stock, net of issuance costs, during the year ended December 31, 2018. In addition, we issued $290.9 million
of convertible senior notes, net of issuance costs, during the year ended December 31, 2018.
Net cash provided by financing activities for the year ended December 31, 2017 included $545.8 million in net proceeds
received from our common stock offerings in January and June 2017 and $16.2 million received from employee stock option
exercises and stock purchases under the employee stock purchase plan.
Net cash provided by financing activities for the year ended December 31, 2016 is due to $5.2 million received from employee
stock option exercises and stock purchases under the employee stock purchase plan.
Operating
Capital
Requirements
In the United States, Rubraca is approved by the FDA for two indications for patients with recurrent epithelial ovarian,
fallopian tube or primary peritoneal cancer. In the EU, Rubraca is approved by the EMA for two indications for patients with
recurrent epithelial ovarian, fallopian tube or primary peritoneal cancer. We expect to incur significant losses for the foreseeable
future, as we commercialize Rubraca and expand our selling, general and administrative functions to support the growth in our
commercial organization. Additionally, our operating plan for the next 12 months includes a significant investment in inventory
to meet the projected commercial requirements for Rubraca. We receive the active pharmaceutical ingredient in Rubraca from one
supplier and we experience long lead times associated with its production. Accordingly, we expect to experience a decrease in our
liquidity at the beginning of a production cycle and an increase as the inventory produced is sold.
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As of December 31, 2018, we had cash, cash equivalents and available-for-sale securities totaling $520.1 million and total
current liabilities of $125.7 million. In April 2018, we sold 1,837,898 shares of our common stock in a public offering at $54.41
per share. The net proceeds from the offering were $93.9 million, after deducting underwriting discounts and commissions and
offering expenses. Concurrently, we completed the public offering of $300.0 million aggregate principal amount of 1.25%
convertible senior notes due 2025. The net proceeds from this offering were $290.9 million, after deducting underwriting
discounts and commissions and offering expenses. We intend to use the net proceeds of the offerings for general corporate
purposes, including sales and marketing expenses associated with Rubraca in the United States and the EU, funding of our
development programs, selling, general and administrative expenses, acquisition or licensing of additional product candidates or
businesses and working capital. Based on current estimates, we believe that our existing cash, cash equivalents and available-for-
sale securities will allow us to fund our operating plan through at least the next 12 months.
Because of the numerous risks and uncertainties associated with research, development and commercialization of
pharmaceutical products, we are unable to estimate the exact amounts of our working capital requirements. Our future funding
requirements will depend on many factors, including but not limited to:
the number and characteristics of the product candidates, companion diagnostics and indications we pursue;
the achievement of various development, regulatory and commercial milestones resulting in required payments to
partners pursuant to the terms of our license agreements;
the scope, progress, results and costs of researching and developing our product candidates and related companion
diagnostics and conducting clinical and non-clinical trials;
the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates and companion
diagnostics;
the cost of commercialization activities, including marketing and distribution costs;
the cost of manufacturing any of our product candidates we successfully commercialize;
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including
litigation costs and outcome of such litigation; and
the timing, receipt and amount of sales, if any, of our product candidates.
Contractual
Obligations
and
Commitments
The following table summarizes our contractual obligations at December 31, 2018 (in thousands):
Less
than 1
More
Than 5
Year
1 to 3
Years
3 to 5
Years
Years
Total
Convertible senior notes
Interest on convertible senior notes
Operating lease commitments
Capital lease commitments
Purchase and other commitments (a)
Total
$
— $287,500 $
— $300,000 $587,500
43,227
5,010
7,500
28,500
9,491
4,762
12,152
3,472
3,472
101,623
24,359
24,358
$ 46,228 $344,350 $ 40,092 $342,332 $773,002
19,779
9,241
3,472
24,358
10,938
5,006
1,736
28,548
(a) On October 3, 2016, we entered into a Manufacturing and Services Agreement (the “Agreement”) with a non-exclusive
third-party supplier for the production of the active ingredient for Rubraca. Under the terms of the Agreement, we will
provide the third-party supplier a rolling forecast for the supply of the active ingredient in Rubraca that will be updated by us
on a quarterly basis. We are obligated to order material sufficient to satisfy an initial quantity specified in any forecast. In
addition, the third-party supplier constructed, in its existing facility, a production train that will be exclusively dedicated to
the manufacture of the Rubraca active ingredient. We are obligated to make scheduled capital program fee payments toward
capital equipment and other costs associated with the construction of the dedicated production train. Beginning in the fourth
quarter of 2018, the facility became operational. We are obligated to pay a fixed facility fee each quarter for the duration of
the Agreement, which expires on December 31, 2025, unless extended by mutual consent of the parties.
Royalty
and
License
Fee
Commitments
We have certain obligations under licensing agreements with third parties contingent upon achieving various development,
regulatory and commercial milestones. On August 30, 2016, we entered into a first amendment to the
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worldwide license agreement with Pfizer, which amends the June 2011 existing worldwide license agreement to permit us to
defer payment of the milestone payments payable upon (i) FDA approval of an NDA for 1 Indication in US and (ii) European
Commission approval of an MAA for 1 Indication in the EU, to a date that is 18 months after the date of achievement of such
milestones.
st
st
On December 19, 2016, Rubraca received its initial FDA approval. This approval resulted in a $0.75 million milestone
payment to Pfizer as required by the license agreement, which was paid in the first quarter of 2017. The FDA approval also
resulted in an obligation to pay a $20.0 million milestone payment, for which we exercised the option to defer payment by
agreeing to pay $23.0 million within 18 months after the date of the FDA approval. We paid the $23.0 million milestone payment
in June 2018.
On April 6, 2018, Rubraca received a second FDA approval. This approval resulted in an obligation to pay a $15.0 million
milestone payment, which we paid in April 2018.
In May 2018, Rubraca received its initial European Commission marketing authorization. This approval resulted in an
obligation to pay a $20.0 million milestone payment, which we paid in June 2018.
In January 2019, Rubraca received a second European Commission approval. This approval resulted in an obligation to pay a
$15.0 million milestone payment, which we paid in February 2019.
These milestone payments were recognized as intangible assets and amortized over the estimated remaining useful life of
Rubraca.
We are obligated under the license agreement to use commercially reasonable efforts to develop and commercialize Rubraca
and we are responsible for all ongoing development and commercialization costs for Rubraca. We are required to make regulatory
milestone payments to Pfizer of up to an additional $16.75 million in aggregate if specified clinical study objectives and
regulatory filings, acceptances and approvals are achieved. In addition, we are obligated to make sales milestone payments to
Pfizer if specified annual sales targets for Rubraca are met, which relate to annual sales targets of $250.0 million and above,
which, in the aggregate, could amount to total milestone payments of $170.0 million, and tiered royalty payments at a mid-teen
percentage rate on our net sales, with standard provisions for royalty offsets to the extent we need to obtain any rights from third
parties to commercialize Rubraca.
We are obligated to pay additional consideration to the former EOS shareholders if certain future regulatory and lucitanib-
related sales milestones are achieved. The estimated fair value of these payments was recorded as contingent purchase
consideration on our Consolidated Balance Sheets. The potential contingent milestone payments range from a zero payment,
which assumes lucitanib fails to achieve any of the regulatory milestones, to $196.5 million ($65.0 million and €115.0 million) if
all regulatory and sales milestones are met, utilizing the translation rate at December 31, 2018. The estimated fair value of the
liability was zero at December 31, 2018 due to the uncertainty of achieving any of the lucitanib regulatory milestones, and
therefore the remote likelihood of future milestone payout amounts to the former EOS shareholders. We are also obligated to pay
to Advenchen 25% of any consideration, excluding royalties, received pursuant to any sublicense agreements for lucitanib,
including the agreement with Servier.
Pursuant to our license agreement for the development and commercialization of rociletinib, we may be required to pay up to
an additional aggregate of $98.0 million in regulatory milestone payments if certain clinical study objectives and regulatory
filings, acceptance and approvals are achieved. Further, we may be required to pay up to an aggregate of $120.0 million in sales
milestone payments if certain annual sales targets are met for rociletinib.
Finally, pursuant to terms of each of our product license agreements, we will pay royalties to our licensors on sales, if any, of
the respective products.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined
under the rules promulgated by the U.S. Securities and Exchange Commission.
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Tax Loss Carryforwards
As of December 31, 2018, we have net operating loss (“NOL”) carryforwards of approximately $1.4 billion to offset future
federal income taxes. We also have research and development and orphan drug tax credit carryforwards of $247.8 million to
offset future federal income taxes. The federal net operating loss carryforwards and research and development and orphan drug
tax credit carryforwards expire at various times through 2038.
We believe that a change in ownership as defined under Section 382 of the U.S. Internal Revenue Code occurred as a result of
our public offering of common stock completed in April 2012. Future utilization of the federal net operating losses and tax credit
carryforwards accumulated from inception to the change in ownership date will be subject to annual limitations to offset future
taxable income. It is possible that a change in ownership will occur in the future, which will limit the NOL amounts generated
since the last estimated change in ownership. At December 31, 2018, we recorded a 100% valuation allowance against our net
deferred tax assets in the U.S. of approximately $647.9 million, as we believe it is more likely than not that the tax benefits will
not be fully realized. In the future, if we determine that a portion or all of the tax benefits associated with our tax carryforwards
will be realized, net income would increase in the period of determination.
Recently Adopted and Issued Accounting Standards
For a discussion of recently adopted and issued accounting standards, see Note 2, Summary
of
Significant
Accounting
Policies
, in the Notes to Consolidated Financial Statements included in Part II, Item 8, Financial
Statements
and
Supplementary
Data
, of
this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to changes in interest rates. As of December 31, 2018, we had cash, cash equivalents
and available-for-sale securities of $520.1 million, consisting of bank demand deposits, money market funds and U.S. treasury
securities. The primary objectives of our investment policy are to preserve principal and maintain proper liquidity to meet
operating needs. Our investment policy specifies credit quality standards for our investments and limits the amount of credit
exposure to any single issue, issuer or type of investment. Our primary exposure to market risk is interest rate sensitivity, which is
affected by changes in the general level of U.S. interest rates, particularly because our investments are in short-term securities.
Our available-for-sale securities are subject to interest rate risk and will decline in value if market interest rates increase. Due to
the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 100 basis point
change in interest rates would not have a material effect on the fair value of our portfolio.
We contract with contract research organizations, investigational sites and contract manufacturers globally where payments are
made in currencies other than the U.S. dollar. In addition, on October 3, 2016, we entered into a Manufacturing and Services
Agreement with a Swiss company for the production and supply of the active ingredient for rucaparib. Under the terms of this
agreement, payments for the supply of the active ingredient in rucaparib as well as scheduled capital program fee payment toward
capital equipment and other costs associated with the construction of a dedicated production train will be made in Swiss francs.
Once the production facility is operational, which occurred in October 2018, we are obligated to pay a fixed facility fee each
quarter for the duration of the agreement, which expires on December 31, 2025.
As of December 31, 2018, $101.6 million of purchase commitments exist under the Swiss Manufacturing and Services
Agreement and we are required to remit amounts due in Swiss francs. Due to other variables that may exist, it is difficult to
quantify the impact of a particular change in exchange rates. However, we estimate that if the value of the US dollar was to
strengthen by 10% compared to the value of Swiss franc as of December 31, 2018, it would decrease the total US dollar purchase
commitment under the Swiss Manufacturing and Services Agreement by approximately $11.9 million. Similarly, a 10%
weakening of the US dollar compared to the Swiss franc would increase the total US dollar purchase commitment by
approximately $8.0 million.
While we periodically hold foreign currencies, primarily Euro, Pound Sterling and Swiss Franc, we do not use other financial
instruments to hedge our foreign exchange risk. Transactions denominated in currencies other than the functional currency are
recorded based on exchange rates at the time such transactions arise. As of December 31, 2018,
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and 2017, approximately 6% and 1%, respectively, of our total liabilities were denominated in currencies other than the
functional currency.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item are included in Item 15 of this report and are presented beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or
submit under the Securities Exchange Act of 1934, as amended (“Exchange Act”) is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such
information is accumulated and communicated to our management, including the Chief Executive Officer and the Principal
Financial and Accounting Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective.
As of December 31, 2018, our management, with the participation of our Chief Executive Officer and Principal Financial and
Accounting Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and
procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on this evaluation, our Chief Executive
Officer and Principal Financial and Accounting Officer concluded that, as of December 31, 2018, the design and operation of our
disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting and for the
assessment of the effectiveness of internal control over financial reporting. Internal control over financial reporting is a process
designed by, or under the supervision of, a company’s principal executive officer and principal financial officer and affected by
our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. Our internal control over financial reporting includes those policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated
financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
our assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate.
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As of December 31, 2018, our management, with the participation of our Chief Executive Officer and Principal Financial and
Accounting Officer, assessed the effectiveness of our internal control over financial reporting as defined in Rules 13a-15(f) or
15d-15(f) of the Exchange Act. In making its assessment, management used the criteria established in Internal
Control—
Integrated
Framework
(2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on its assessment, our management determined that, as of December 31, 2018, we maintained effective internal control
over financial reporting based on those criteria.
In addition, the effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by
Ernst & Young, LLP, an independent registered public accounting firm.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2018 that have
materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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The Stockholders and Board of Directors of Clovis Oncology, Inc.
Report of Independent Registered Public Accounting Firm
Opinion on Internal Control over Financial Reporting
We have audited Clovis Oncology, Inc.’s internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, Clovis Oncology, Inc. (the Company) maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company, as of December 31, 2018 and 2017, and the related consolidated
statements of operations and comprehensive loss, stockholders' equity (deficit), and cash flows for each of the three years in the
period ended December 31, 2018, and the related notes and our report dated February 27, 2019 expressed an unqualified opinion
thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Denver, Colorado
February 27, 2019
/s/ Ernst & Young LLP
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ITEM 9B. OTHER INFORMATION
None.
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K and is incorporated herein by
reference from our definitive proxy statement relating to our 2018 annual meeting of stockholders, pursuant to Regulation 14A of
the Securities Exchange Act of 1934, as amended, also referred to in this Form 10-K as our 2019 Proxy Statement, which we
expect to file with the SEC no later than April 30, 2019.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding our directors, including the audit committee and audit committee financial experts, and executive
officers and compliance with Section 16(a) of the Exchange Act will be included in our 2019 Proxy Statement and is incorporated
herein by reference.
We have adopted a Code of Business Ethics for all of our directors, officers and employees as required by NASDAQ
governance rules and as defined by applicable SEC rules. Stockholders may locate a copy of our Code of Business Ethics on our
website at www.clovisoncology.com
or request a copy without charge from:
Clovis Oncology, Inc.
Attention: Investor Relations
5500 Flatiron Parkway, Suite 100
Boulder, CO 80301
We will post to our website any amendments to the Code of Business Ethics and any waivers that are required to be disclosed
by the rules of either the SEC or NASDAQ.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item regarding executive compensation will be included in our 2019 Proxy Statement and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this item regarding security ownership of certain beneficial owners and management will be
included in the 2019 Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item regarding certain relationships and related transactions and director independence will
be included in the 2019 Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item regarding principal accounting fees and services will be included in the 2019 Proxy
Statement and is incorporated herein by reference.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are being filed as part of this report:
(1) Financial Statements.
PART IV
Reference is made to the Index to Financial Statements of Clovis Oncology, Inc. appearing on page F-1 of this report.
(2) Financial Statement Schedules.
All financial statement schedules have been omitted because they are not applicable or not required or because the
information is included elsewhere in the Financial Statements or the Notes thereto.
(3) Exhibits.
Reference is made to the Index to Exhibits filed as a part of this Annual Report on Form 10-K.
80
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Exhibit
Number
3.1(5)
3.2(5)
4.1(3)
4.2(8)
4.3(16)
4.4(16)
INDEX TO EXHIBITS
Exhibit Description
Amended and Restated Certificate of Incorporation of Clovis Oncology, Inc.
Amended and Restated Bylaws of Clovis Oncology, Inc.
Form of Common Stock Certificate of Clovis Oncology, Inc.
Indenture, dated as of September 9, 2014, by and between the Company and The Bank of New York Mellon Trust
Company, N.A.
Indenture dated as of April 19, 2018, by and between Clovis Oncology, Inc. and The Bank of New York Mellon
Trust Company, N.A., as Trustee.
First Supplemental Indenture dated as of April 19, 2018, but and between Clovis Oncology, Inc. and The Bank of
New York Mellon Trust Company, N.A.
10.1*(4)
License Agreement, dated as of June 2, 2011, by and between Clovis Oncology, Inc. and Pfizer Inc.
10.2+(1)
Clovis Oncology, Inc. 2009 Equity Incentive Plan.
10.3+(4)
Clovis Oncology, Inc. 2011 Stock Incentive Plan.
10.4+(1)
Form of Clovis Oncology, Inc. 2009 Equity Incentive Plan Stock Option Agreement.
10.5+(4)
Form of Clovis Oncology, Inc. 2011 Stock Incentive Plan Stock Option Agreement.
10.6+(3)
Employment Agreement, dated as of August 24, 2011, between Clovis Oncology, Inc. and Patrick J. Mahaffy.
10.7+(3)
Employment Agreement, dated as of August 24, 2011, between Clovis Oncology, Inc. and Gillian C. Ivers-Read.
10.8+(1)
Indemnification Agreement, dated as of May 15, 2009, between Clovis Oncology, Inc. and Paul Klingenstein.
10.9+(1)
Indemnification Agreement, dated as of May 15, 2009, between Clovis Oncology, Inc. and James C. Blair.
10.10+(1)
Indemnification Agreement, dated as of May 15, 2009, between Clovis Oncology, Inc. and Edward J. McKinley.
10.11+(1)
Indemnification Agreement, dated as of May 15, 2009, between Clovis Oncology, Inc. and Thorlef Spickschen.
10.12+(1)
Indemnification Agreement, dated as of May 15, 2009, between Clovis Oncology, Inc. and M. James Barrett.
10.13+(1)
Indemnification Agreement, dated as of May 15, 2009, between Clovis Oncology, Inc. and Brian G. Atwood.
10.14+(1)
Indemnification Agreement, dated as of May 12, 2009, between Clovis Oncology, Inc. and Patrick J. Mahaffy.
10.15+(1)
Indemnification Agreement, dated as of May 12, 2009, between Clovis Oncology, Inc. and Erle T. Mast.
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Exhibit
Number
10.16+(1)
Indemnification Agreement, dated as of May 12, 2009, between Clovis Oncology, Inc. and Gillian C. Ivers-Read.
Exhibit Description
10.17+(1)
Indemnification Agreement, dated as of May 12, 2009, between Clovis Oncology, Inc. and Andrew R. Allen.
10.18+(17) Clovis Oncology, Inc. 2011 Employee Stock Purchase Plan, as amended.
10.19+(4)
Clovis Oncology, Inc. 2011 Cash Bonus Plan.
10.20+(6)
Indemnification Agreement, dated as of March 22, 2012, by and between Clovis Oncology, Inc. and Steven L.
Hoerter.
10.21+(2)
Indemnification Agreement, dated as of June 13, 2013, between Clovis Oncology, Inc. and Ginger L. Graham.
10.22+(2)
Indemnification Agreement, dated as of June 13, 2013, between Clovis Oncology, Inc. and Keith Flaherty.
10.23(7)
Stock Purchase Agreement, dated as of November 19, 2013, by and among the Company, EOS, the Sellers listed on
Exhibit A thereto and Sofinnova Capital V FCPR, acting in its capacity as the Sellers’ Representative.
10.24*(7)
Development and Commercialization Agreement, dated as of October 24, 2008, by and between Advenchen
Laboratories LLC and Ethical Oncology Science S.p.A., as amended by the First Amendment, dated as of April 13,
2010 and the Second Amendment, dated as of July 30, 2012.
10.25+(12)
Indemnification Agreement, effective as of August 3, 2015, by and between Clovis Oncology, Inc. and Lindsey
Rolfe.
10.26+
Amended and Restated Employment Agreement, dated as of February 27, 2019, by and between Clovis Oncology,
Inc. and Clovis Oncology UK Limited and Lindsey Rolfe.
10.27+(12)
Indemnification Agreement, effective as of February 1, 2016, by and between Clovis Oncology, Inc. and Dale
Hooks.
10.28+(12) Employment Agreement, effective as of February 1, 2016, by and between Clovis Oncology, Inc. and Dale Hooks.
10.29+(9)
Indemnification Agreement, dated as of February 17, 2016, by and between Clovis Oncology, Inc. and Daniel W.
Muehl.
10.30+(15) Employment Agreement, dated as of July 6, 2017, by and between Clovis Oncology, Inc. and Daniel W. Muehl.
10.31+(10) Salary Waiver Letter, dated as of May 9, 2016, by and between Clovis Oncology, Inc. and Patrick J. Mahaffy.
10.32*(11)
First Amendment to License Agreement, by and between Clovis Oncology, Inc. and Pfizer Inc., dated as of August
30, 2016.
10.33+(13) Form of Clovis Oncology, Inc. 2011 Stock Incentive Plan RSU Agreement.
10.34*(13)
Manufacturing Services Agreement, by and between Clovis Oncology, Inc. and Lonza Ltd, dated as of October 3,
2016.
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Exhibit
Number
10.35*(14)
Exhibit Description
Strata Trial Collaboration Agreement, by and between Clovis Oncology, Inc. and Strata Oncology, Inc., dated as of
January 30, 2017.
10.36+(18)
Indemnification Agreement, dated as of October 11, 2018, by and between Clovis Oncology, Inc. and Robert W.
Azelby.
10.37+(18)
Indemnification Agreement, dated as of October 11, 2018, by and between Clovis Oncology, Inc. and Richard A.
Fair.
10.38+
Employment Agreement, dated as of July 6, 2017, between Clovis Oncology, Inc. and Paul Gross.
10.39+
Indemnification Agreement, dated as of September 9, 2016, between Clovis Oncology, Inc. and Paul Gross.
21.1(17)
List of Subsidiaries of Clovis Oncology, Inc.
23.1
31.1
31.2
32.1
32.2
Consent of Independent Registered Public Accounting Firm .
Certification of principal executive officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934, as amended.
Certification of principal financial officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934, as amended.
Certification of principal executive officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Certification of principal financial officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
(1) Filed as an exhibit with the Registrant’s Registration Statement on Form S-1 (File No. 333-175080) on June 23, 2011.
(2) Filed as an exhibit with the Registrant’s Current Report on Form 8-K (File No. 001-35347) on June 14, 2013.
(3) Filed as an exhibit with Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-175080) on
(4) Filed as an exhibit with Amendment No. 3 to the Registrant’s Registration Statement on Form S-1 (File No. 333-175080) on
August 31, 2011.
October 31, 2011.
(5) Filed as an exhibit with the Registrant’s Annual Report on Form 10-K on March 15, 2012.
(6) Filed as an exhibit with the Registrant’s Registration Statement on Form S-1 (File No. 333-180293) on March 23, 2012.
(7) Filed as an exhibit with the Registrant’s Current Report on Form 8-K (File No. 001-35347) on November 19, 2013.
(8) Filed as an exhibit with the Registrant’s Current Report on Form 8-K (File No. 001-35347) on September 9, 2014.
(9) Filed as an exhibit with the Registrant’s Current Report on Form 8-K (File No. 001-35347) on April 1, 2016.
(10) Filed as an exhibit with the Registrant’s Quarterly Report on Form 10-Q on May 9, 2016.
(11) Filed as an exhibit with the Registrant’s Quarterly Report on Form 10-Q on November 4, 2016.
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(12) Filed as an exhibit with the Registrant’s Annual Report on Form 10-K on February 29, 2016.
(13) Filed as an exhibit with the Registrant’s Annual Report on Form 10-K on February 23, 2017.
(14) Filed as an exhibit with the Registrant’s Quarterly Report on Form 10-Q on May 4, 2017.
(15) Filed as an exhibit with the Registrant’s Current Report on Form 8-K (File No. 001-35347) on July 7, 2017.
(16) Filed as an exhibit with the Registrant’s Current Report on Form 8-K (File No. 001-35347) on April 19, 2018.
(17) Filed as an exhibit with the Registrant’s Quarterly Report on Form 10-Q on August 2, 2018.
(18) Filed as an exhibit with the Registrant’s Current Report on Form 8-K (File No. 001-35347) on October 12, 2018.
+ Indicates management contract or compensatory plan.
* Confidential treatment has been sought or granted with respect to portions of this exhibit, which portions have been omitted
and filed separately with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 27, 2019
CLOVIS ONCOLOGY, INC.
By: /S/ PATRICK J. MAHAFFY
Patrick J. Mahaffy
President
and
Chief
Executive
Officer;
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates indicated:
Name
Title
/S/ PATRICK J. MAHAFFY
Patrick J. Mahaffy
/S/ DANIEL W. MUEHL
Daniel W. Muehl
/S/ BRIAN G. ATWOOD
Brian G. Atwood
/S/ ROBERT W. AZELBY
Robert W. Azelby
/S/ M. JAMES BARRETT
M. James Barrett
/S/ JAMES C. BLAIR
James C. Blair
/S/ RICHARD A. FAIR
Richard A. Fair
/S/ KEITH FLAHERTY
Keith Flaherty
President and Chief Executive Officer; Director
(Principal
Executive
Officer)
Executive Vice President of Finance
(Principal
Financial
Officer
and
Principal
Accounting
Officer)
Director
Director
Director
Director
Director
Director
84
Date
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
Table of Contents
Name
/S/ GINGER L. GRAHAM
Ginger L. Graham
/S/ PAUL KLINGENSTEIN
Paul Klingenstein
/S/ EDWARD J. MCKINLEY
Edward J. McKinley
/S/ THORLEF SPICKSCHEN
Thorlef Spickschen
Date
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
Title
Director
Director
Director
Director
85
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Balance Sheets
Consolidated Statements of Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-1
F-2
F-3
F-4
F-5
F-6
F-7
Table of Contents
Report of Independent Registered Public Accounting Firm
The Stockholders and Board of Directors of Clovis Oncology, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Clovis Oncology, Inc. (the Company) as of December 31,
2018 and 2017, and the related consolidated statements of operations and comprehensive loss, stockholders' equity (deficit), and
cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the
consolidated “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the consolidated financial position of the Company at December 31, 2018 and 2017, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31, 2018, in conformity of U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated February 27, 2019 expressed an unqualified opinion thereon.
Adoption of ASU No. 2014-09
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for revenue
recognition in the December 31, 2018 consolidated financial statements due to the adoption of ASU No. 2014-09, Revenue
from
Contracts
with
Customers
.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2009.
/s/ Ernst & Young LLP
Denver, Colorado
February 27, 2019
F-2
Table of Contents
CLOVIS ONCOLOGY, INC.
Consolidated Statements of Operations and Comprehensive Loss
Revenues:
Product revenue
Operating expenses:
Cost of sales - product
Cost of sales - intangible asset amortization
Research and development
Selling, general and administrative
Acquired in-process research and development
Impairment of intangible asset
Change in fair value of contingent purchase consideration
Total expenses
Operating loss
Other income (expense):
Interest expense
Foreign currency loss
Legal settlement loss
SEC settlement costs
Other income
Other expense, net
Loss before income taxes
Income tax (expense) benefit
Net loss
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax
Net unrealized gain (loss) on available-for-sale securities, net of tax
Other comprehensive (loss) income:
Comprehensive loss
Loss per basic and diluted common share:
Basic and diluted net loss per common share
Basic and diluted weighted average common shares outstanding
Year ended December 31,
2018
2016
2017
(in thousands, except per share amounts)
$
95,388
$
55,511
$
78
19,444
2,630
231,347
175,781
—
—
—
429,202
(333,814)
(13,183)
(346)
(7,975)
(20,000)
7,917
(33,587)
(367,401)
(608)
(368,009)
(2,543)
82
(2,461)
(370,470)
(7.07)
52,066
10,251
1,486
142,498
138,907
—
—
—
293,142
(237,631)
(10,428)
(82)
(105,477)
—
3,643
(112,344)
(349,975)
3,578
(346,397)
5,517
(110)
5,407
(340,990)
(7.36)
47,047
$
$
$
$
$
$
70
—
251,129
40,731
1,300
104,517
(24,936)
372,811
(372,733)
(8,491)
(580)
—
—
633
(8,438)
(381,171)
32,034
(349,137)
(357)
237
(120)
(349,257)
(9.07)
38,478
See accompanying Notes to Consolidated Financial Statements.
F-3
Table of Contents
CLOVIS ONCOLOGY, INC.
Consolidated Balance Sheets
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories
Available-for-sale securities
Prepaid research and development expenses
Deposit on inventory
Other current assets
Total current assets
Inventories
Deposit on inventory
Property and equipment, net
Intangible assets, net
Goodwill
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued research and development expenses
Milestone liability
Other accrued expenses
Total current liabilities
Convertible senior notes
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 14)
Stockholders' equity:
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized, no shares issued
and outstanding at December 31, 2018 and December 31, 2017
Common stock, $0.001 par value per share, 100,000,000 shares authorized at
December 31, 2018 and December 31, 2017; 52,797,516 and 50,565,119 shares issued and
outstanding at December 31, 2018 and December 31, 2017 respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
December 31,
2018
December 31,
2017
$
$
$
221,876 $
12,889
27,072
298,270
3,579
—
8,613
572,299
113,908
12,350
26,524
51,930
63,074
23,475
863,560 $
28,517 $
29,676
—
67,556
125,749
575,470
15,872
717,091
464,198
6,181
27,508
99,533
1,559
20,461
7,500
626,940
—
—
4,007
19,561
65,217
19,505
735,230
15,147
18,465
22,022
25,883
81,517
282,406
3,671
367,594
—
—
53
2,034,142
(44,634)
(1,843,092)
146,469
863,560 $
51
1,887,198
(42,173)
(1,477,440)
367,636
735,230
$
See accompanying Notes to Consolidated Financial Statements.
F-4
Table of Contents
CLOVIS ONCOLOGY, INC.
Consolidated Statements of Stockholders’ Equity (Deficit)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive Accumulated
Income (Loss)
Deficit
Total
Balance at January 1,2016
Issuance of common stock under employee
stock purchase plan
Exercise of stock options
Issuance of common stock from vesting of
restricted stock units, net of shares withheld
for taxes
Share-based compensation expense
Net unrealized gain on available-for-sale
securities
Foreign currency translation adjustments
Net loss
Balance at December 31, 2016
Issuance of common stock, net of issuance
costs
Issuance of common stock under employee
stock purchase plan
Exercise of stock options
Issuance of common stock from vesting of
restricted stock units, net of shares withheld
for taxes
Share-based compensation expense
Legal settlement
Net unrealized loss on available-for-sale
securities
Foreign currency translation adjustments
Net loss
Balance at December 31, 2017
Issuance of common stock, net of issuance
costs
Issuance of common stock under employee
stock purchase plan
Exercise of stock options
Issuance of common stock from vesting of
restricted stock units, net of shares withheld
for taxes
Share-based compensation expense
Net unrealized loss on available-for-sale
securities
Foreign currency translation adjustments
Adoption of new revenue recognition
standard
Net loss
Balance at December 31, 2018
38,359,454 $
110,508
247,431
6,697
—
—
—
—
38,724,090
9,670,454
51,681
465,658
180,912
—
1,472,324
—
—
—
50,565,119
1,837,898
82,820
72,886
238,793
—
—
—
—
—
52,797,516 $
(in thousands, except for share amounts)
38 $ 1,129,978 $
(47,460) $
(781,906) $
300,650
—
1
—
—
—
—
—
39
10
—
1
—
—
1
—
—
—
51
2
—
—
—
—
—
—
1,965
3,268
(57)
39,796
—
—
—
—
—
—
—
—
—
—
—
1,174,950
237
(357)
—
(47,580)
—
—
(349,137)
(1,131,043)
545,828
2,312
13,924
—
44,707
105,477
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,887,198
(110)
5,517
—
(42,173)
—
—
(346,397)
(1,477,440)
93,888
2,097
1,869
—
49,090
—
—
—
—
—
—
—
82
(2,543)
—
—
—
—
—
—
—
1,965
3,269
(57)
39,796
237
(357)
(349,137)
(3,634)
545,838
2,312
13,925
—
44,707
105,478
(110)
5,517
(346,397)
367,636
93,890
2,097
1,869
—
49,090
82
(2,543)
—
—
53 $ 2,034,142 $
—
—
—
—
2,357
(368,009)
(44,634) $ (1,843,092) $
2,357
(368,009)
146,469
See accompanying Notes to Consolidated Financial Statements.
F-5
Table of Contents
CLOVIS ONCOLOGY, INC.
Consolidated Statements of Cash Flows
Operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense
Depreciation and amortization
Amortization of premiums and discounts on available-for-sale securities
Amortization of debt issuance costs
Legal settlement loss
Impairment of intangible asset
Change in fair value of contingent purchase consideration
Loss on disposal of property and equipment
Deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Prepaid and accrued research and development expenses
Deposit on inventory
Other operating assets
Accounts payable
Other accrued expenses
Net cash used in operating activities
Investing activities
Purchases of property and equipment
Proceeds from sale of property and equipment
Deposits for purchases of property and equipment
Purchases of available-for-sale securities
Sales of available-for-sale securities
Acquired in-process research and development - milestone payment
Net cash used in investing activities
Financing activities
Proceeds from the sale of common stock, net of issuance costs
Proceeds from the issuance of convertible senior notes, net of issuance costs
Proceeds from the exercise of stock options and employee stock purchases
Payments on capital leases
Payments on other long-term liabilities
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Cash paid for interest
Non-cash investing and financing activities:
2018
Year ended December 31,
2017
(in thousands)
2016
$ (368,009) $ (346,397) $ (349,137)
49,090
4,601
1,345
2,178
—
—
—
—
—
(3,371)
(49,936)
9,145
(12,350)
(8,750)
5,770
4,290
(365,997)
(9,242)
—
—
(500,000)
300,000
(55,000)
(264,242)
44,707
2,504
354
1,279
105,477
—
—
—
(3,218)
(6,061)
(27,508)
(17,297)
(20,461)
(6,476)
5,637
6,556
(260,904)
(487)
—
(2,515)
(263,500)
213,500
(1,100)
(54,102)
39,796
1,141
211
1,242
—
104,517
(24,661)
105
(31,771)
(121)
—
(15,364)
—
1,039
(1,544)
7,867
(266,680)
(766)
65
—
—
200,000
—
199,299
—
545,838
93,890
—
—
290,887
5,176
16,237
3,967
—
—
(245)
—
—
(35)
5,176
562,075
388,464
(365)
943
(547)
(62,570)
248,012
(242,322)
464,198
278,756
216,186
$ 221,876 $ 464,198 $ 216,186
$
9,188 $
7,188 $
7,188
Acquired in-process research and development - milestone not paid as of period
end
Vesting of restricted stock units
Equipment acquired under capital lease
$
$
$
— $
10,808 $
9,971 $
— $
12,170 $
— $
21,100
175
—
See accompanying Notes to Consolidated Financial Statements.
F-6
Table of Contents
1. Nature of Business
CLOVIS ONCOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We are a biopharmaceutical company focused on acquiring, developing and commercializing innovative anti-cancer agents in
the United States, the EU and additional international markets. We target our development programs for the treatment of specific
subsets of cancer populations, and simultaneously develop, with partners, for those indications that require them, diagnostic tools
intended to direct a compound in development to the population that is most likely to benefit from its use.
Our product Rubraca® (rucaparib), an oral small molecule inhibitor of poly ADP-ribose polymerase (“PARP”), is marketed in
the United States for two indications specific to recurrent epithelial ovarian, fallopian tube or primary peritoneal cancer. The
initial indication received approval from the FDA in December 2016 and covers the treatment of adult patients with deleterious
BRCA (human genes associated with the repair of damaged DNA) mutation (germline and/or somatic)-associated epithelial
ovarian, fallopian tube, or primary peritoneal cancer who have been treated with two or more chemotherapies and selected for
therapy based on an FDA-approved companion diagnostic for Rubraca. In April 2018, the FDA also approved Rubraca for the
maintenance treatment of adult patients with recurrent epithelial ovarian, fallopian tube, or primary peritoneal cancer who are in a
complete or partial response to platinum-based chemotherapy. The approval in this second, broader and earlier-line indication on
a priority review timeline was based on positive data from the phase 3 ARIEL3 clinical trial. Diagnostic testing is not required for
patients to be prescribed Rubraca in this maintenance treatment indication. We hold worldwide rights to Rubraca.
In May 2018, the European Commission granted a conditional marketing authorization for Rubraca as monotherapy treatment
of adult patients with platinum-sensitive, relapsed or progressive, BRCA mutated (germline and/or somatic), high-grade epithelial
ovarian, fallopian tube, or primary peritoneal cancer, who have been treated with two or more prior lines of platinum-based
chemotherapy, and who are unable to tolerate further platinum-based chemotherapy. As this is a conditional approval, it will be
necessary to complete certain confirmatory post marketing commitments. In January 2019, the European Commission granted a
variation to the marketing authorization to include the maintenance treatment of adult patients with recurrent epithelial ovarian,
fallopian tube, or primary peritoneal cancer who are in a complete or partial response to platinum-based chemotherapy. With this
approval, Rubraca is now authorized in the EU for certain patients in the recurrent ovarian cancer maintenance setting regardless
of their BRCA mutation status. Rubraca was the first PARP inhibitor licensed for an ovarian cancer treatment indication in the
EU and is now the first to be authorized for both treatment and maintenance treatment among eligible patients. We are planning
our initial launch of Rubraca as maintenance therapy in Germany during the first quarter of 2019, with other EU countries to
follow through 2019 and 2020.
Liquidity
We have incurred significant net losses since inception and have relied on our ability to fund our operations through debt and
equity financings. We expect operating losses and negative cash flows to continue for the foreseeable future. As we continue to
incur losses, transition to profitability is dependent upon achieving a level of revenue from Rubraca adequate to support our cost
structure. We may never achieve profitability, and unless and until we do, we will continue to need to raise additional cash.
In April 2018, we sold 1,837,898 shares of our common stock in a public offering at $54.41 per share. The net proceeds from
the offering were $93.9 million, after deducting underwriting discounts and commissions and offering expenses. Concurrently, we
completed the public offering of $300.0 million aggregate principal amount of 1.25% convertible senior notes due 2025. The net
proceeds from this offering were $290.9 million, after deducting underwriting discounts and commissions and offering expenses.
In January 2017, we sold 5,750,000 shares of our common stock in a public offering at $41.00 per share. The net proceeds
from the offering were $221.2 million, after deducting underwriting discounts and commissions and offering expenses. In June
2017, we sold 3,920,454 shares of our common stock in a public offering at $88.00 per share. The net
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proceeds from the offering were $324.6 million, after deducting underwriting discounts and commissions and offering expenses.
We intend to use the net proceeds of the offerings for general corporate purposes, including sales and marketing expenses
associated with Rubraca in the United States and the EU, funding of our development programs, general and administrative
expenses, acquisition or licensing of additional product candidates or businesses and working capital. Based on current estimates,
we believe that our existing cash, cash equivalents and available-for-sale securities will allow us to fund our operating plan
through at least the next 12 months.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles
(“U.S. GAAP”). The consolidated financial statements include our accounts and our wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, expenses and revenue and related disclosures. On an ongoing
basis, we evaluate our estimates, including estimates related to revenue deductions, intangible asset impairment, clinical trial
accruals and share-based compensation expense. We base our estimates on historical experience and other market-specific or
other relevant assumptions that we believe to be reasonable under the circumstances. Actual results may differ from those
estimates or assumptions.
Revenue Recognition
We are currently approved to sell Rubraca in the United States and the EU markets. We distribute our product principally
through a limited number of specialty distributor and specialty pharmacy providers, collectively, our customers. Our customers
subsequently sell our products to patients and health care providers. Separately, we have arrangements with certain payors and
other third-parties that provide for government-mandated and privately-negotiated rebates, chargebacks and discounts. See Note
3, Revenue
Recognition
.
Effective January 1, 2018, we adopted ASC 606, the new revenue recognition standard, using the modified retrospective
method. For a complete discussion of this adoption and the accounting for product revenue, see the Recently
Adopted
Accounting
Standards
.
Cost of Sales – Product
Product cost of sales consists primarily of materials, third-party manufacturing costs as well as freight and royalties owed to
our licensing partners for Rubraca sales.
Cost of Sales – Intangible Asset Amortization
Cost of sales for intangible asset amortization consists of the amortization of capitalized milestone payments made to our
licensing partners upon FDA approval of Rubraca. Milestone payments are amortized on a straight-line basis over the estimated
remaining patent life of Rubraca.
Fair Value of Financial Instruments
Cash, cash equivalents, available-for-sale securities and contingent purchase consideration are carried at fair value. Financial
instruments, including other current assets and accounts payable, are carried at cost, which approximates fair value given their
short-term nature (see Note 5, Fair
Value
Measurements
).
F-8
Table of Contents
Cash, Cash Equivalents and Available-for-Sale Securities
We consider all highly liquid investments with original maturities at the date of purchase of three months or less to be cash
equivalents. Cash and cash equivalents include bank demand deposits and money market funds that invest primarily in certificate
of deposits, commercial paper and U.S. government and U.S. government agency obligations.
Marketable securities are considered to be available-for-sale securities and consist of U.S. treasury securities. Available-for-
sale securities are reported at fair value on the Consolidated Balance Sheets and unrealized gains and losses are included in
accumulated other comprehensive loss on the Consolidated Balance Sheets. Realized gains and losses, amortization of premiums
and discounts and interest and dividends earned are included in other income (expense) on the Consolidated Statements of
Operations and Comprehensive Loss. The cost of investments for purposes of computing realized and unrealized gains and losses
is based on the specific identification method. Investments with maturities beyond one year are classified as short-term based on
our intent to fund current operations with these securities or to make them available for current operations.
A decline in the market value of a security below its cost that is deemed to be other than temporary is charged to earnings and
results in the establishment of a new cost basis for the security. Factors evaluated to determine if an investment is other-than-
temporarily impaired include significant deterioration in earnings performance, credit rating, asset quality or business prospects of
the issuer; adverse changes in the general market conditions in which the issuer operates; and our intent and ability to hold the
security until an anticipated recovery in value occurs.
Accounts Receivable
As of December 31, 2018 and 2017, we had no allowance for doubtful accounts. We provide an allowance for doubtful
accounts based on experience and specifically identified risks. Accounts receivable are carried at fair value and charged off
against the allowance for doubtful accounts when we determine that recovery is unlikely and we cease collection efforts.
Inventory
Inventories are stated at the lower of cost or estimated net realizable value, on a first-in, first-out (“FIFO”) basis. Inventories
include active pharmaceutical ingredient (“API”), contract manufacturing costs and overhead allocations. We began capitalizing
incurred inventory related costs upon the regulatory approval of Rubraca. Prior to the regulatory approval of Rubraca, we incurred
costs for the manufacture of the drug that could potentially be available to support the commercial launch of Rubraca and all such
costs were recognized as research and development expense.
We regularly analyze our inventory levels for excess quantities and obsolescence (expiration), taking into account factors such
as historical and anticipated future sales compared to quantities on hand and the remaining shelf-life of Rubraca. Rubraca finished
goods have a shelf-life of four years from the date of manufacture. We expect to sell the finished goods prior to expiration. The
API currently has a shelf-life of four years from the date of manufacture but can be retested at an immaterial cost with no
expected reduction in potency, thereby extending its shelf-life as needed. We expect to consume substantially all of the API over
a period of approximately eight years based on our long-range sales projections of Rubraca.
We write down inventory that has become obsolete, inventory that has a cost basis in excess of its estimated realizable value
and/or inventory in excess of expected sales requirements. Expired inventory would be disposed of and the related costs would be
written off as cost of product revenue. Inventories that are not expected to be consumed within 12 months following the balance
sheet date are classified as long-term inventories. Long-term inventories primarily consist of API.
API is currently produced by a single supplier. As the API has undergone significant manufacturing specific to its intended
purpose at the point it is purchased by us, we classify the API as work-in-process inventory. In addition, we currently
manufacture Rubraca finished goods with a single third-party manufacturer. The disruption or termination of the supply of API or
the disruption or termination of the manufacturing of our commercial products could have a material adverse effect on our
business, financial position and results of operations.
F-9
Table of Contents
Inventory used in clinical trials is expensed as research and development expense when it has been identified for such use.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Property and equipment are depreciated using the
straight-line method over the estimated useful lives of the assets. Equipment purchased for use in manufacturing and clinical trials
is evaluated to determine whether the equipment is solely beneficial for a drug candidate in the development stage or whether it
has an alternative use. Equipment with an alternative use is capitalized. Leased assets meeting certain capital lease criteria are
capitalized and the present value of the related lease payments is recorded as a liability. Assets under capital lease arrangements
are depreciated using the straight-line method over the estimated useful lives. Leasehold improvements are amortized over the
economic life of the asset or the lease term, whichever is shorter. Maintenance and repairs are expensed as incurred. The
estimated useful lives of our capitalized assets are as follows:
Computer hardware and software
Leasehold improvements
Laboratory, manufacturing and office equipment
Furniture and fixtures
Long-Lived Assets
Estimated
Useful Life
3 to 5 years
6 years
5 to 7 years
10 years
We review long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of the
assets may not be recoverable. Recoverability is measured by comparison of the assets’ book value to future net undiscounted
cash flows that the assets are expected to generate. If the carrying value of the assets exceed their future net undiscounted cash
flows, an impairment charge is recognized for the amount by which the carrying value of the assets exceeds the fair value of the
assets.
Intangible Assets, Net
Definite-lived intangible assets related to capitalized milestones under license agreements are amortized on a straight-line basis
over their remaining useful lives, which are estimated to be the remaining patent life. If our estimate of the product’s useful life is
shorter than the remaining patent life, then a shorter period is used. Amortization expense is recorded as a component of cost of
sales on the Consolidated Statements of Operations and Comprehensive Loss.
Intangible acquired in-process research and development (“IPR&D”) assets were established as part of the acquisition of
Ethical Oncology Science, S.p.A. (“EOS”) in November 2013 and were not amortized.
Intangible assets are evaluated for impairment at least annually in the fourth quarter or more frequently if impairment
indicators exist. Events that could result in an impairment, or trigger an interim impairment assessment, include the decision to
discontinue the development of a drug, the receipt of additional clinical or nonclinical data regarding our drug candidate or a
potentially competitive drug candidate, changes in the clinical development program for a drug candidate, or new information
regarding potential sales for the drug. In connection with any impairment assessment, the fair value of the intangible assets as of
the date of assessment is compared to the carrying value of the intangible asset. Impairment losses are recognized if the carrying
value of an intangible asset is both not recoverable and exceeds its fair value. During the second quarter of 2016, we recorded a
$104.5 million impairment charge to the IPR&D intangible assets, reducing the remaining carrying value to zero (see Note 8,
Intangible
Assets
and
Goodwill
).
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination
accounted for under the acquisition method of accounting and is not amortized, but is subject to impairment testing at least
annually in the fourth quarter or when a triggering event is identified that could indicate a potential impairment. We are organized
as a single reporting unit and perform impairment testing by comparing the carrying value of the reporting unit to the fair value of
the Company. Goodwill was recorded as a result of the EOS acquisition.
F-10
Table of Contents
Other Current Assets
Other current assets are comprised of the following (in thousands):
Prepaid insurance
Prepaid advertising
Prepaid expenses - other
Receivable - other
Other
Total
Other Accrued Expenses
Other accrued expenses are comprised of the following (in thousands):
Accrued personnel costs
Accrued interest payable
Income tax payable
Accrued corporate legal fees and professional services
Accrued royalties
Accrued variable considerations
Payable to third party logistics provider
Current portion of capital lease obligations
Purchase of API received not yet invoiced
Accrued expenses - other
Total
December 31, December 31,
2018
2017
$
$
244 $
1,620
3,519
2,274
956
8,613 $
1,926
—
3,355
2,023
196
7,500
December 31, December 31,
2018
15,265 $
2,721
847
677
4,854
2,183
—
1,031
35,472
4,506
67,556 $
2017
13,889
2,096
—
415
2,984
1,008
2,661
—
—
2,830
25,883
$
$
Valuation of Contingent Consideration Resulting from a Business Combination
Subsequent to the acquisition date, we re-measure contingent consideration arrangements at fair value each reporting period
and record changes in fair value to change in fair value of contingent purchase consideration and foreign currency gains (losses)
for changes in the foreign currency translation rate on the Consolidated Statements of Operations and Comprehensive Loss.
Changes in fair value are primarily attributed to new information about the IPR&D assets, including changes in timeline and
likelihood of success, and the passage of time. In the absence of new information, changes in fair value reflect only the passage of
time. During the second quarter of 2016, we recorded a $25.5 million reduction in the fair value of the contingent purchase
consideration liability due to our and our development partner’s decision to discontinue the development of lucitanib for breast
cancer. At December 31, 2018, the contingent purchase consideration liability recorded on the Consolidated Balance Sheets
remained at zero due to the uncertainty of achieving any of the lucitanib regulatory milestones, and therefore the remote
likelihood of future milestone payouts.
Research and Development Expense
Research and development costs are charged to expense as incurred and include, but are not limited to, salary and benefits,
share-based compensation, clinical trial activities, drug development and manufacturing, companion diagnostic development and
third-party service fees, including contract research organizations and investigative sites.
Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to
completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our
vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which
may differ from the pattern of costs incurred and are reflected on the Consolidated Balance Sheets as prepaid or accrued research
and development expenses.
F-11
Table of Contents
Acquired In-Process Research and Development Expense
We have acquired and expect to continue to acquire the rights to develop and commercialize new drug candidates. The upfront
payments to acquire a new drug compound, as well as subsequent milestone payments, are immediately expensed as acquired in-
process research and development provided that the drug has not achieved regulatory approval for marketing and, absent
obtaining such approval, has no alternative future use. Once regulatory approval is received, payments to acquire rights, and the
related milestone payments, are capitalized and the amortization of such assets recorded to product cost of sales.
Share-Based Compensation Expense
Share-based compensation is recognized as expense for all share-based awards made to employees and directors and is based
on estimated fair values. We determine equity-based compensation at the grant date using the Black-Scholes option pricing
model. The value of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the
requisite service period. Any changes to the estimated forfeiture rates are accounted for prospectively.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk are primarily cash, cash equivalents and
available-for-sale securities. We maintain our cash and cash equivalent balances in the form of money market accounts with
financial institutions that we believe are creditworthy. Available-for-sale securities are invested in accordance with our
investment policy. The investment policy includes guidelines on the quality of the institutions and financial instruments and
defines allowable investments that we believe minimizes the exposure to concentration of credit risk. We have no financial
instruments with off-balance sheet risk of accounting loss.
Foreign Currency
The assets and liabilities of our foreign operations are translated into U.S. dollars at current exchange rates and the results of
operations are translated at the average exchange rates for the reported periods. The resulting translation adjustments are included
in accumulated other comprehensive loss on the Consolidated Balance Sheets. Transactions denominated in currencies other than
the functional currency are recorded based on exchange rates at the time such transactions arise. Transaction gains and losses are
recorded to foreign currency gains (losses) on the Consolidated Statements of Operations and Comprehensive Loss. As of
December 31, 2018 and 2017, approximately 6% and 1%, respectively, of our total liabilities were denominated in currencies
other than the functional currency.
Income Taxes
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to affect
taxable income. Tax benefits are recognized when it is more likely than not that a tax position will be sustained during an audit.
Deferred tax assets are reduced by a valuation allowance if current evidence indicates that it is considered more likely than not
that these benefits will not be realized.
Recently Adopted Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue from Contracts with
Customers”, and has subsequently issued several supplemental and/or clarifying ASUs (collectively, “ASC 606”). ASC 606
prescribes a single common revenue standard that replaces most existing U.S. GAAP revenue recognition guidance. ASC 606 is
intended to provide a more consistent interpretation and application of the principles outlined in the standard across filers in
multiple industries and within the same industries compared to current practices, which should improve comparability. We
adopted the new standard using the modified retrospective method on January 1, 2018 for contracts that are not completed as of
the adoption date.
Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount
that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue
recognition for arrangements that an entity determines are within the scope of ASC 606, the entity
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Table of Contents
performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the
contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and
(v) recognize revenue when (or as) the entity satisfies a performance obligation. ASC 606 also impacts certain other areas, such as
the accounting for costs to obtain or fulfill a contract. The standard also requires disclosure of the nature, amount, timing and
uncertainty of revenue and cash flows arising from contracts with customers.
We examined our revenue recognition policy specific to revenue streams from contracts governing product sales from Rubraca
and have come to conclusions on the impact of the new standard using the 5-step process prescribed by ASC 606. We reviewed
all of our contracts, including our collaboration agreements with Servier and Bristol-Myers Squibb, and determined the potential
impact to our accounting policies, financial controls and operations. Our conclusions include recognizing revenue on product
sales once the product is sold to the specialty distributor and specialty pharmacy providers.
As noted above, we used the modified retrospective method to adopt the new standard. This means that we did not restate
previously issued financial statements, but we recorded a one-time adjustment to retained earnings of $2.4 million. This
adjustment represents the sales of our product to our customers prior to January 1, 2018, that had not been sold to patients or
healthcare providers, offset by related gross-to-net adjustments and other direct costs, including royalties and sales incentive
compensation.
The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of ASC 606 was
as follows (in thousands):
ASSETS
Accounts receivable, net
Inventories
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Other accrued expenses
Accumulated deficit
Total liabilities and stockholders' equity
Balance at
December 31,
2017
Adjustments due
to
Adoption of ASC
606
Balance at
January 1,
2018
$
$
$
6,181 $
27,508
735,230 $
3,336 $
(62) $
3,274 $
9,517
27,446
738,504
25,883 $
$
$(1,477,440)
$
735,230 $
917 $
26,800
2,357 $(1,475,083)
738,504
3,274 $
Previously, we recognized revenue on product sales once the product was sold to the patient or healthcare provider by the
specialty distributor or specialty pharmacy provider, i.e. when product is sold through the channel. Effective January 1, 2018, we
began recognizing revenue when our customers, the specialty distributors and specialty pharmacy providers, take control of our
product or when product is sold into the channel. This will have the impact of us recognizing revenue approximately two to four
weeks earlier than before adopting the new standard and will also increase the significance of estimating variable consideration.
The following financial statement line items for the year ended December 31, 2018 were affected as a result of the adoption.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except for per share amounts)
Year ended December 31, 2018
Product revenue
Cost of sales - product
Selling, general and administrative
Net loss
As reported
$ 95,388 $
$ 19,444 $
$ 175,781 $
$ (368,009) $
93,080 $
18,570 $
175,695 $
(368,176) $
Higher/(Lower)
2,308
(874)
(86)
167
Balances
without
Adoption of
ASC 606
Effect of
Change
Loss per basic and diluted common share:
Basic and diluted net loss per common share
$
(7.07) $
(7.07) $
0.00
F-13
Table of Contents
CONSOLIDATED BALANCE SHEET
(In thousands)
ASSETS
Accounts receivable, net
Inventories
December 31, 2018
Balances
without
Adoption of
ASC 606
Effect of
Change
As reported
Higher/(Lower)
$
$
12,889 $
140,980 $
10,364 $
141,492 $
2,525
(512)
LIABILITIES AND STOCKHOLDERS' EQUITY
Other accrued expenses
Accumulated deficit
$
66,892 $
$(1,843,092) $ (1,843,259) $
67,556 $
664
167
ASC 606 did not have an aggregate impact on our net cash provided by operating activities but resulted in offsetting changes
in certain assets and liabilities presented within net cash used in operating activities in our consolidated statement of cash flows,
as reflected in the above tables.
Recently Issued Accounting Standards
From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB
Accounting Standards Codification (“ASC”) are communicated through issuance of an ASU.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, which requires lessees to recognize assets and
liabilities for the rights and obligations created by most leases on their balance sheet. The guidance is effective for fiscal years
beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2016-02 requires modified
retrospective adoption for all leases existing at, or entered after, the date of initial application, with an option to use certain
transition relief. We adopted ASU 2016-02 as of January 1, 2019 using the modified retrospective method which leaves the
comparative period reporting unchanged. Comparative reporting periods are presented in accordance with Topic 840, while
periods subsequent to the effective date are presented in accordance with Topic 842. We have elected to adopt the practical
expedient to not separate lease and non-lease components. We have also elected to adopt the package practical expedient which
allows us: 1) to not reassess whether any expired or existing contracts are or contain leases, 2) to not reassess the lease
classification for any expired or existing leases and 3) to not reassess initial direct costs for any existing leases. We elected not to
recognize on the balance sheet leases with terms of 12 months or less. For these short-term leases, we will recognize the lease
payments in profit or loss on a straight-line basis over the lease term and the variable lease payments in the period in which the
obligation for those payments is incurred.
We have determined our population of leases. We expect to recognize substantially all our leases on the balance sheet by
recording a right-of-use asset and corresponding lease liability.
In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, which allow a reclassification from
accumulated other comprehensive income (loss) (“AOCI”) to retained earnings for stranded tax effects resulting from the change
in the U.S. federal corporate income tax rate on the gross deferred tax amounts at the date of enactment of the Tax Cuts and Jobs
Act of 2017 (the “2017 Tax Act”). The guidance is effective for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. We adopted ASU 2018-02 as of January 1, 2019. The effects of adoption of ASU 2018-02 and
of the various changes in tax law as a result of the 2017 Tax Act are described in Note 15, Income
Taxes
.
In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to
Nonemployee Share-Based Payment Accounting”, simplifies the accounting for share-based payment granted to nonemployees
for goods and services. Under the standard, most of the guidance on such payments to nonemployees would be aligned with the
requirements for share-based payments granted to employees. The guidance is effective for fiscal years beginning after December
15, 2018, including interim periods within those fiscal years. We adopted ASU 2018-07 as of January 1, 2019. There is no
material impact on our consolidated financial statements and related disclosures.
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In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to
the Disclosure Requirements for Fair Value Measurement”. The guidance is effective for fiscal years beginning after December
15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We will adopt ASU 2018-02 as of
January 1, 2020. We are currently evaluating the impact the standard may have on our consolidated financial statements and
related disclosures.
3. Revenue Recognition
We are currently approved to sell Rubraca in the United States and the EU markets. We distribute our product principally
through a limited number of specialty distributor and specialty pharmacy providers, collectively, our customers. Our customers
subsequently sell our products to patients and health care providers. We do not believe the loss of one of these customers would
significantly impact the ability to distribute our product as we expect that sales volume would be absorbed evenly by the
remaining customers. Separately, we have arrangements with certain payors and other third parties that provide for government-
mandated and privately-negotiated rebates, chargebacks and discounts.
Product
Revenue
Revenue from product sales are recognized when the performance obligation is satisfied, which is when customers obtain
control of our product at a point in time, typically upon delivery. We expense incremental costs of obtaining a contract as and
when incurred if the expected amortization period of the asset that we would have recognized is one year or less.
Reserves
for
Variable
Consideration
Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable
consideration for which reserves are established and which result from price concessions that include rebates, chargebacks,
discounts, co-pay assistance, estimated product returns and other allowances that are offered within contracts between us and our
customers, health care providers, payors and other indirect customers relating to the sales of our product. These reserves are based
on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount
is payable to the customers) or a current liability (if the amount is payable to a party other than a customer). Where appropriate,
these estimates take into consideration a range of possible outcomes which are probability-weighted for relevant factors such as
our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data
and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of
consideration to which we are entitled based on the terms of the contract. The amount of variable consideration which is included
in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a
significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of
consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we adjust
these estimates, which would affect product revenue and earnings in the period such variances become known.
Rebates
. Rebates include mandated discounts under the Medicaid Drug Rebate Program and the Medicare coverage gap
program. Rebates are amounts owed after the final dispensing of products to a benefit plan participant and are based upon
contractual agreements or legal requirements with the public-sector benefit providers. These reserves are recorded in the same
period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability
which is included in accrued expenses on the consolidated balance sheet. We estimate our Medicaid and Medicare rebates based
upon a range of possible outcomes that are probability-weighted for the estimated payor mix. The accrual for rebates is based on
statutory discount rates and known sales to specialty pharmacy patients or expected utilization for specialty distributor sales to
healthcare providers. As we gain more historical experience, the accrual will be based solely on the expected utilization from
historical data we have accumulated since the Rubraca product launch. Rebates are generally invoiced and paid quarterly in
arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity,
plus an accrual balance for known or estimated prior quarters’ unpaid rebates.
F-15
Table of Contents
Chargebacks
. Chargebacks are discounts that occur when contracted customers, which currently consist primarily of group
purchasing organizations, Public Health Service organizations and federal government entities purchasing via the Federal Supply
Schedule, purchase directly from our specialty distributors at a discounted price. The specialty distributor, in turn, charges back
the difference between the price initially paid by the specialty distributor and the discounted price paid to the specialty distributor
by the healthcare provider. These reserves are established in the same period that the related revenue is recognized, resulting in a
reduction of product revenue and accounts receivable. The accrual for specialty distributor chargebacks is estimated based on
known chargeback rates and known sales to specialty distributors adjusted for the estimated utilization by healthcare providers.
Discounts
and
Fees
. Our payment terms are generally 30 days. Specialty distributors and specialty pharmacies are offered
various forms of consideration, including service fees and prompt pay discounts for payment within a specified period. We expect
these customers will earn prompt pay discounts and therefore, we deduct the full amount of these discounts and service fees from
product sales when revenue is recognized.
Co-pay
assistance
. Patients who have commercial insurance and meet certain eligibility requirements may receive co-pay
assistance. The intent of this program is to reduce the patient’s out of pocket costs. Liabilities for co-pay assistance are based on
actual program participation provided by third-party administrators at month end.
Returns
. Consistent with industry practice, we generally offer customers a right of return limited only to product that will
expire in six months or product that is six months beyond the expiration date. To date, we have had minimal product returns and
we currently do not have an accrual for product returns. We will continue to assess our estimate for product returns as we gain
additional historical experience.
For the year ended December 31, 2018 and 2017, we recognized $95.4 million and $55.5 million, respectively, of product
revenue. Based on our policy to expense costs associated with the manufacture of our products prior to regulatory approval,
certain of the costs of Rubraca units recognized as revenue during the year ended December 31, 2017 were expensed prior to the
December 19, 2016 FDA approval, and a minimal amount was included in cost of sales during the year ended December 31,
2017. The majority of product sales were of pre-commercialization inventory in 2017. Cost of sales has increased in 2018 in
relation to product revenue as we depleted these inventories.
Product revenue from each of our customers who individually accounted for 10% or more of total revenues consisted of the
following:
Customer A
Customer B
Customer C
Customer D
4. Property and Equipment
Property and equipment consisted of the following (in thousands):
December 31,
2018
31%
24%
13%
12%
December 31,
2017
35%
27%
12%
10%
December 31,
Laboratory, manufacturing and office equipment
Leasehold improvements
Leased equipment at Lonza
Furniture and fixtures
Computer hardware and software
Total property and equipment
Less: accumulated depreciation
Total property and equipment, net
2018
2,913 $
$
15,204
9,971
2,424
1,329
31,841
(5,317)
$ 26,524 $
F-16
2017
2,853
2,285
—
1,416
1,141
7,695
(3,688)
4,007
Table of Contents
Depreciation expense related to property and equipment, including depreciation of assets acquired through capital leases, was
approximately $2.0 million, $ 1.0 million and $1.1 million for the years ended December 31, 2018, 2017 and 2016, respectively.
5. Fair Value Measurements
Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (at exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. The three levels of inputs that may be used to measure fair value include:
Level 1: Quoted prices in active markets for identical assets or liabilities. Our Level 1 assets consist of money market
investments. We do not have Level 1 liabilities.
Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets or
other inputs that are observable or can be corroborated by observable market data for substantially the full term of
the assets or liabilities. Our Level 2 assets consist of U.S. treasury securities. We do not have Level 2 liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity. We do not have Level 3 assets or liabilities.
The contingent purchase consideration related to the undeveloped lucitanib product rights acquired with the purchase
of EOS in November 2013 is a Level 3 liability. The fair value of this liability is based on unobservable inputs and
includes valuations for which there is little, if any, market activity. During the second quarter of 2016, we recorded a
$25.5 million reduction in the fair value of the contingent purchase consideration liability due to our and our
development partner’s decision to discontinue the development of lucitanib for breast cancer, reducing the remaining
fair value to zero. The fair value and carrying value remained at zero as of December 31, 2018.
The change in the fair value of Level 3 instruments is included in change in fair value of contingent purchase
consideration and foreign currency gains (losses) for changes in the foreign currency translation rate on the
Consolidated Statements of Operations and Comprehensive Loss.
The following table identifies our assets that were measured at fair value on a recurring basis (in thousands):
Balance
Level 1
Level 2
Level 3
December 31, 2018
Assets:
Money market
U.S. treasury securities
Total assets at fair value
December 31, 2017
Assets:
Money market
U.S. treasury securities
Total assets at fair value
$
81,968 $
308,251
$ 390,219 $
— $ —
81,968 $
9,981
—
298,270
91,949 $ 298,270 $ —
$ 433,136 $ 433,136 $
99,533
—
$ 532,669 $ 433,136 $
— $ —
99,533
—
99,533 $ —
There were no liabilities that were measured at fair value on a recurring basis as of December 31, 2018. There were no
transfers between the Level 1 and Level 2 categories or into or out of the Level 3 category during the year ended December 31,
2018.
Financial instruments not recorded at fair value include our convertible senior notes. At December 31, 2018, the carrying
amount of the 2021 Notes was $283.7 million, which represents the aggregate principal amount net of remaining debt issuance
costs, and the fair value was $241.5 million. At December 31, 2018, the carrying amount of the 2025 Notes was $291.8 million,
which represents the aggregate principal amount net of remaining debt issuance costs, and the fair value was $212.3 million. The
fair value was determined using Level 2 inputs based on the indicative pricing published by certain investment banks or trading
levels of the convertible senior notes, which are not listed on any securities exchange or quoted on an inter-dealer automated
quotation system. See Note 9, Convertible
Senior
Notes
for
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discussion of the convertible senior notes. The carrying amounts of accounts payable and accrued expenses approximate their fair
value due to their short-term maturities.
6. Available-for-Sale Securities
As of December 31, 2018, available-for-sale securities consisted of the following (in thousands):
Gross
Gross
Aggregate
U.S. treasury securities
$
Amortized Unrealized Unrealized
Gains
Losses
Cost
298,305 $
— $
(35) $
Fair
Value
298,270
As of December 31, 2018, the fair value and gross unrealized losses of available-for-sale securities that have been in a
continuous unrealized loss position for less than 12 months were as follows (in thousands):
U.S. treasury securities
$
Aggregate
Fair
Value
298,270 $
Gross
Unrealized
Losses
(35)
Our available-for-sale securities have been in a continuous loss position for less than 12 months. We have concluded that
decline in the market value of the available-for-sale securities is temporary. A decline in the market value of a security below its
cost that is deemed to be other than temporary is charged to earnings and results in the establishment of a new cost basis for the
security. Factors evaluated to determine if an investment is other-than-temporarily impaired include significant deterioration in
earnings performance, credit rating, asset quality or business prospects of the issuer; adverse changes in the general market
conditions in which the issuer operates; and our intent and ability to hold the security until an anticipated recovery in value
occurs.
As of December 31, 2018, the amortized cost and fair value of available-for-sale securities by contractual maturity were (in
thousands):
Due in one year or less
Due in one year to two years
Total
7. Inventories
$
Amortized
Cost
298,305 $
—
298,305 $
$
Fair
Value
298,270
—
298,270
The following table presents inventories as of December 31, 2018 and December 31, 2017 (in thousands):
Work-in-process
Finished goods
Total inventories
December 31, December 31,
2018
126,620 $
14,360
140,980 $
2017
24,721
2,787
27,508
$
$
Some of the costs related to our finished goods on-hand as of December 31, 2018 were expensed as incurred prior to the
commercialization of Rubraca on December 19, 2016.
At December 31, 2018, we had $27.1 million of current inventory and $113.9 million of long-term inventory. In addition, we
had $12.4 million long-term deposit on inventory, which consists of API which we expect to be converted to finished goods and
sold beyond the next twelve months.
In addition, we had $0.0 million and $20.5 million of cash deposit on inventory on the Consolidated Balance Sheets at
December 31, 2018 and 2017, respectively, made to a manufacturer for the purchase of inventory which we expect to be
converted to finished goods within the next twelve months.
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Table of Contents
8. Intangible Assets and Goodwill
At December 31, 2018 and 2017, intangible assets related to capitalized milestones under license agreements consisted of the
following (in thousands):
Intangible asset - milestones
Accumulated amortization
Total intangible asset, net
December 31, December 31,
$
$
2018
56,100 $
(4,170)
51,930 $
2017
21,100
(1,539)
19,561
The increase in our intangible asset – milestones since December 31, 2017 is due to a $15.0 million milestone payment to
Pfizer related to the April 6, 2018 FDA approval of our sNDA for Rubraca as maintenance treatment and a $20.0 million
milestone payment to Pfizer related to the European Commission approval of Rubraca in May 2018. See Note 13, License
Agreements
for further discussion of these approvals.
The estimated useful lives of these intangible assets are based on the estimated remaining patent life of Rubraca and extend
through 2031 in Europe and 2035 in the U.S.
We recorded an amortization expense of $2.6 million and $1.5 million related to capitalized milestone payments during the
year ended December 31, 2018 and December 31, 2017, respectively. Amortization expense is included in cost of sales –
intangible asset amortization on the Consolidated Statements of Operations and Comprehensive Loss.
Estimated future amortization expense for intangible assets as of December 31, 2018 is as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
$
3,116
3,116
3,116
3,116
3,116
36,350
$ 51,930
The change in goodwill established as part of the purchase accounting of EOS in November 2013 consisted of the following
(in thousands):
Balance at December 31, 2017
Change in foreign currency gains and losses
Balance at December 31, 2018
$
$
65,217
(2,143)
63,074
Effective October 1, 2018, substantially all assets and activities related to EOS were transferred from our Italian subsidiary to
the U.S. This had the impact of changing the functional currency of goodwill from the Euro to USD. Therefore, the balance of
goodwill will no longer change due to foreign currency gains and losses.
9. Convertible Senior Notes
2021
Notes
On September 9, 2014, we completed a private placement of $287.5 million aggregate principal amount of 2.5% convertible
senior notes due 2021 (the “2021 Notes”) resulting in net proceeds of $278.3 million after deducting offering expenses. In
accordance with the accounting guidance, the conversion feature did not meet the criteria for bifurcation, and the entire principal
amount was recorded as a long-term liability on the Consolidated Balance Sheets.
The 2021 Notes are governed by the terms of the indenture between the Company, as issuer, and The Bank of New York
Mellon Trust Company, N.A., as trustee. The 2021 Notes are senior unsecured obligations and bear interest at a
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Table of Contents
rate of 2.5% per year, payable semi-annually in arrears on March 15 and September 15 of each year. The 2021 Notes will mature
on September 15, 2021, unless earlier converted, redeemed or repurchased.
Holders may convert all or any portion of the 2021 Notes at any time prior to the close of business on the business day
immediately preceding the maturity date. Upon conversion, the holders will receive shares of our common stock at an initial
conversion rate of 16.1616 shares per $1,000 in principal amount of 2021 Notes, equivalent to a conversion price of
approximately $61.88 per share. The conversion rate is subject to adjustment upon the occurrence of certain events described in
the indenture. In addition, following certain corporate events that occur prior to the maturity date or upon our issuance of a notice
of redemption, we will increase the conversion rate for holders who elect to convert the 2021 Notes in connection with such a
corporate event or during the related redemption period in certain circumstances.
On or after September 15, 2018, we may redeem the 2021 Notes, at our option, in whole or in part, if the last reported sale
price of our common stock has been at least 150% of the conversion price then in effect for at least 20 trading days (whether or
not consecutive) during any 30 consecutive trading day period ending not more than two trading days preceding the date on which
we provide written notice of redemption at a redemption price equal to 100% of the principal amount of the 2021 Notes to be
redeemed plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2021
Notes.
If we undergo a fundamental change, as defined in the indenture, prior to the maturity date of the 2021 Notes, holders may
require us to repurchase for cash all or any portion of the 2021 Notes at a fundamental change repurchase price equal to 100% of
the principal amount of the 2021 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental
change repurchase date.
The 2021 Notes rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to
the 2021 Notes; equal in right of payment to all of our liabilities that are not so subordinated; effectively junior in right of
payment to any secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to
all indebtedness and other liabilities (including trade payables) of our subsidiaries.
In connection with the issuance of the 2021 Notes, we incurred $9.2 million of debt issuance costs. The debt issuance costs are
presented as a deduction from the convertible senior notes on the Consolidated Balance Sheets and are amortized as interest
expense over the expected life of the 2021 Notes using the effective interest method. We determined the expected life of the debt
was equal to the seven-year term of the 2021 Notes.
2025
Notes
On April 19, 2018, we completed an underwritten public offering of $300.0 million aggregate principal amount of 1.25%
convertible senior notes due 2025 (the “2025 Notes”) resulting in net proceeds of $290.9 million, after deducting underwriting
discounts and commissions and offering expenses. In accordance with the accounting guidance, the conversion feature did not
meet the criteria for bifurcation, and the entire principal amount was recorded as a long-term liability on the Consolidated Balance
Sheets.
The 2025 Notes are governed by the terms of the indenture between the Company, as issuer, and The Bank of New York
Mellon Trust Company, N.A., as trustee, as supplemented by the terms of that certain first supplemental indenture thereto. The
2025 Notes are senior unsecured obligations and bear interest at a rate of 1.25% per year, payable semi-annually in arrears on
May 1 and November 1 of each year. The 2025 Notes will mature on May 1, 2025, unless earlier converted, redeemed or
repurchased.
Holders may convert all or any portion of the 2025 Notes at any time prior to the close of business on the business day
immediately preceding the maturity date. Upon conversion, the holders will receive shares of our common stock at an initial
conversion rate of 13.1278 shares per $1,000 in principal amount of 2025 Notes, equivalent to a conversion price of
approximately $76.17 per share. The conversion rate is subject to adjustment upon the occurrence of certain events described in
the indenture. In addition, following certain corporate events that occur prior to the maturity date or upon our issuance of a notice
of redemption, we will increase the conversion rate for holders who elect to convert the 2025 Notes in connection with such a
corporate event or during the related redemption period in certain circumstances.
On or after May 2, 2022, we may redeem the 2025 Notes, at our option, in whole or in part, if the last reported sale price of our
common stock has been at least 150% of the conversion price then in effect for at least 20 trading days
F-20
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(whether or not consecutive) during any 30 consecutive trading day period ending not more than two trading days preceding the
date on which we provide written notice of redemption at a redemption price equal to 100% of the principal amount of the 2025
Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the
2025 Notes.
If we undergo a fundamental change, as defined in the indenture, prior to the maturity date of the 2025 Notes, holders may
require us to repurchase for cash all or any portion of the 2025 Notes at a fundamental change repurchase price equal to 100% of
the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental
change repurchase date.
The 2025 Notes rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to
the 2025 Notes; equal in right of payment to all of our liabilities that are not so subordinated, including the 2021 Notes;
effectively junior in right of payment to any secured indebtedness to the extent of the value of the assets securing such
indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries.
In connection with the issuance of the 2025 Notes, we incurred $9.1 million of debt issuance costs. The debt issuance costs are
presented as a deduction from the convertible senior notes on the Consolidated Balance Sheets and are amortized as interest
expense over the expected life of the 2025 Notes using the effective interest method. We determined the expected life of the debt
was equal to the seven-year term of the 2025 Notes.
As of December 31, 2018 and 2017, the balance of unamortized debt issuance costs was $12.0 million and $5.1 million,
respectively.
The following table sets forth total interest expense recognized during the years ended December 31, 2018, 2017 and 2016 (in
thousands):
Contractual interest expense
Accretion of interest on milestone liability
Amortization of debt issuance costs
Interest on capital lease liability
Total interest expense
$
2016
Year ended December 31,
2017
7,188 $ 7,187
62
1,961
1,242
1,279
—
—
$ 13,183 $ 10,428 $ 8,491
2018
9,812 $
977
2,178
216
Future annual principal payments on our convertible senior notes as of December 31, 2018 were as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total
10. Stockholders’ Equity
Common Stock
$
$
Total
—
—
287,500
—
—
300,000
587,500
In January 2017, we sold 5,750,000 shares of our common stock in a public offering at $41.00 per share. The net proceeds
from the offering were $221.2 million, after deducting underwriting discounts and commissions and offering expenses.
In June 2017, we sold 3,920,454 shares of our common stock in a public offering at $88.00 per share. The net proceeds from
the offering were $324.6 million, after deducting underwriting discounts and commissions and offering expenses.
F-21
Table of Contents
In April 2018, we sold 1,837,898 shares of our common stock in a public offering at $54.41 per share. The net proceeds from
the offering were $93.9 million, after deducting underwriting discounts and commissions and offering expenses.
The holders of common stock are entitled to one vote per share on all matters to be voted upon by our stockholders. Subject to
the preferences that may be applicable to any outstanding shares of preferred stock, the holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared by our Board of Directors.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consists of changes in foreign currency translation adjustments, which includes
changes in a subsidiary’s functional currency, and unrealized gains and losses on available-for-sale securities.
The changes in accumulated balances related to each component of other comprehensive income (loss) are summarized as
follows (in thousands):
Balance at December 31, 2016
Other comprehensive income (loss)
Total before tax
Tax effect
Balance at December 31, 2017
Other comprehensive income (loss)
Total before tax
Tax effect
Balance at December 31, 2018
Foreign Currency Unrealized Total Accumulated
Translation
Adjustments
(Losses)
Gains
Other
Comprehensive
Loss
$
$
(47,434) $
8,735
(38,699)
(3,218)
(41,917)
(2,543)
(44,460)
—
(44,460) $
(146) $
(110)
(256)
—
(256)
82
(174)
—
(174) $
(47,580)
8,625
(38,955)
(3,218)
(42,173)
(2,461)
(44,634)
—
(44,634)
The period change in each of the periods was primarily due to the foreign currency translation of the goodwill and deferred
income taxes associated with the acquisition of EOS in November 2013. There were no reclassifications out of accumulated other
comprehensive loss in the years ended December 31, 2018, 2017 and 2016.
Effective October 1, 2018, substantially all assets and activities related to EOS were transferred from our Italian subsidiary to
the U.S. This had the impact of changing the functional currency of goodwill from the Euro to USD. Therefore, the balance of
goodwill will no longer change due to foreign currency gains and losses.
11. Share-Based Compensation
Stock Options
In August 2011, our Board of Directors approved the 2011 Stock Incentive Plan (the “2011 Plan”), which became effective
upon the closing of our initial public offering in November 2011. The 2011 Plan provides for the granting of incentive and
nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other share-
based awards to our employees, directors and consultants. Common shares authorized for issuance under the 2011 Plan were
11,693,909 at December 31, 2018, which represents the initial reserve of 1,250,000 shares of common stock plus 192,185 shares
of common stock remaining for future grant from the 2009 Equity Incentive Plan (the “2009 Plan”), which was terminated upon
the closing of our initial public offering in November 2011, and 10,251,724 new shares authorized by the Board of Directors at
the annual meetings of stockholders. Future forfeitures and cancellations of options previously granted under the 2009 Plan were
transferred to and also available for grant under the 2011 Plan. Stock options granted vest ratably over either a one-year period or
three-year period for Board of Director grants. Employee stock options generally vest over a four-year period with 25% of the
options cliff-vesting after year one and the remaining options vesting ratably over each subsequent month. All stock options
expire 10 years from the date of grant.
F-22
Table of Contents
Share-based compensation expense for the years ended December 31, 2018, 2017 and 2016, respectively, was recognized in
the accompanying Consolidated Statements of Operations and Comprehensive Loss as follows (in thousands):
Research and development
Selling, general and administrative
Total share-based compensation expense
2018
Year ended December 31,
2017
$ 20,489 $ 20,335 $ 27,558
28,601
12,238
24,372
$ 49,090 $ 44,707 $ 39,796
2016
We did not recognize a tax benefit related to share-based compensation expense during the years ended December 31, 2018,
2017 and 2016 as we maintain net operating loss carryforwards and have established a valuation allowance against the entire net
deferred tax asset as of December 31, 2018.
The following table summarizes the activity relating to our options to purchase common stock:
Outstanding at December 31, 2017
Granted
Exercised
Forfeited
Outstanding at December 30, 2018
Vested and expected to vest at December 31, 2018
Vested and exercisable at December 31, 2018
Number of
Options
5,789,735
936,524
(72,761)
(341,891)
6,311,607
6,088,389
4,463,278
Price
$ 46.77
43.56
25.69
55.75
$ 46.05
$ 46.12
$ 45.99
6.3
6.2
5.3
$
$
$
5,223
5,178
5,012
Weighted
Average
Weighted
Average Remaining
Exercise Contractual
Term (Years)
Aggregate
Intrinsic
Value
(Thousands)
The aggregate intrinsic value in the table above represents the pretax intrinsic value, based on our closing stock price of $17.96
as of December 31, 2018, which would have been received by the option holders had all option holders with in-the-money options
exercised their options as of that date.
The following table summarizes information about our stock options as of and for the years ended December 31, 2018, 2017
and 2016:
Year ended December 31,
2017
2016
2018
Weighted-average grant date fair value per share
Intrinsic value of options exercised
Cash received from stock option exercises
32.09 $
$
16.62
$1,714,148 $18,986,726 $3,118,097
$1,869,155 $13,924,174 $3,267,721
48.79 $
As of December 31, 2018, the unrecognized share-based compensation expense related to unvested options, adjusted for
expected forfeitures, was $55.8 million and the estimated weighted-average remaining vesting period was 2.3 years.
The fair value of each share-based award is estimated on the grant date using the Black-Scholes option pricing model based
upon the weighted-average assumptions provided in the following table:
Year ended December 31,
Dividend yield
Volatility (a)
Risk-free interest rate (b)
Expected term (years) (c)
(a) Volatility
: The expected volatility was estimated using our historical data.
F-23
2018
—
88 %
2017
—
89 %
2016
—
93 %
2.92 % 2.16 % 1.77 %
5.8
5.9
5.8
Table of Contents
(b) Risk-free
interest
rate:
The rate is based on the yield on the grant date of a zero-coupon U.S. Treasury bond whose maturity
period approximates the option’s expected term.
Expected
term:
The expected term of the award was estimated using our historical data.
(c)
The total fair value of stock options vested during the years ended December 31, 2018, 2017 and 2016 was $43.3 million, $
36.0 million and $40.8 million, respectively.
Restricted Stock
During 2016, we issued restricted stock units (“RSUs”) to certain employees under the 2011 Stock Incentive Plan. The RSUs
vest either (i) over two years, with 50% vesting one year from the date of grant and the remaining 50% vesting two years from the
date of grant or (ii) over four years, with 25% vesting one year from the date of grant and the remaining 75% vesting ratably each
subsequent quarter over the following three years, as defined in the grant agreement. Vested RSUs are payable in shares of our
common stock at the end of the vesting period. RSUs are measured based on the fair value of the underlying stock on the grant
date. The minimum statutory tax on the value of common stock shares issued to employees upon vesting are paid by us through
the sale of registered shares of our common stock.
The following table summarizes the activity related to our unvested RSUs:
Unvested at December 31, 2017
Granted
Vested
Forfeited
Unvested as of December 31, 2018
Expected to vest after December 31, 2018
Number of
Units
589,529 $
541,270
(238,886)
(96,082)
795,831 $
687,210 $
Weighted
Average
Grant Date
Fair Value
41.67
51.29
40.44
48.75
47.73
47.88
As of December 31, 2018, the unrecognized share-based compensation expense related to RSUs, adjusted for expected
forfeitures, was $29.4 million and the estimated weighted-average remaining vesting period was 2.8 years
Common Stock Reserved for Issuance
As of December 31, 2018, we reserved shares of common stock for future issuance as follows:
2009 Equity Incentive Plan
2011 Stock Incentive Plan
2011 Employee Stock Purchase Plan
Total
Employee Stock Purchase Plan
Available for
Grant
Total Shares of
Common
Stock
Outstanding
331,213
6,776,225
—
7,107,438
or Future
Issuance
Common Stock
Reserved
—
3,655,101
476,050
4,131,151
331,213
10,431,326
476,050
11,238,589
In August 2011, our Board of Directors approved the Clovis Oncology, Inc. 2011 Employee Stock Purchase Plan (the
“Purchase Plan”). Each year, on the date of our annual meeting of stockholders and at the discretion of our board of directors, the
amount of shares reserved for issuance under the Purchase Plan may be increased by up to the lesser of (1) a number of additional
shares of our common stock representing 1% of our then-outstanding shares of common stock, (2) 344,828 shares of our common
stock and (3) a lesser number of shares as approved by the Board. The Purchase Plan provides for consecutive six-month offering
periods, during which participating employees may elect to have up to 10% of their compensation withheld and applied to the
purchase of common stock at the end of each offering period. The purchase price of the common stock is 85% of the lower of the
fair value of a share of common stock on the first trading date of each offering period or the fair value of a share of common stock
on the last trading day of the offering period. The Purchase Plan will terminate on August 24, 2021, the tenth anniversary of the
date of initial
F-24
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adoption of the Purchase Plan. We sold 82,820 and 51,681 shares to employees in 2018 and 2017, respectively. There were
476,050 shares available for sale under the Purchase Plan as of December 31, 2018. The weighted-average estimated grant date
fair value of purchase awards under the Purchase Plan during the years ended December 31, 2018 and 2017 was $15.93 and
$23.08 per share, respectively. The total share-based compensation expense recorded as a result of the Purchase Plan was
approximately $0.9 million, $ 1.0 million and $0.8 million during the years ended December 31, 2018, 2017 and 2016,
respectively.
The fair value of purchase awards granted to our employees during the years ended December 31, 2018, 2017 and 2016 was
estimated using the Black-Scholes option pricing model based upon the weighted-average assumptions provided in the following
table:
Year ended December 31,
Dividend yield
Volatility (a)
Risk-free interest rate (b)
Expected term (years) (c)
2018
—
51 %
2017
—
79 %
2016
—
92 %
1.90 % 0.90 % 0.40 %
0.5
0.5
0.5
(a) Volatility
: The expected volatility was estimated using our historical data.
(b) Risk-free
interest
rate:
The rate is based on the U.S. Treasury yield in effect at the time of grant with terms similar to the
contractual term of the purchase right.
(c) Expected
term:
The expected life of the award represents the six-month offering period for the Purchase Plan.
12. Commitments and Contingencies
We lease office space in Boulder, Colorado, San Francisco, California, Oakland, California, Cambridge, UK, Milan, Italy and
in several locations throughout the EU under non-cancelable operating lease agreements that expire through 2028. The lease
agreements contain periodic rent increases that result in the recording deferred rent over the terms of certain leases.
Rental expense under these leases was $5.4 million, $2.2 million and $2.2 million for the years ended December 31, 2018,
2017 and 2016, respectively.
We also have a capital lease for certain equipment at the dedicated production train at Lonza, our non-exclusive manufacturer
of the Rubraca API. The long-term portion of this capital lease is included in Other long-term liabilities on the Consolidated
Balance Sheets. See further discussion of this dedicated production train at Lonza in the Manufacture
and
Services
Agreement
Commitments
below.
Future minimum rental commitments at December 31, 2018, by fiscal year and in the aggregate, for our operating and capital
leases are provided below (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total future minimum lease payments
Less: amounts representing interest
Capital lease obligations at December 31, 2018
Less current portion of capital lease obligations
Capital lease obligations, net of current portion
F-25
Operating
Lease
Payments
$
$
5,006
4,577
4,664
2,603
2,159
9,491
28,500
Capital
Lease
Payments
1,736
1,736
1,736
1,736
1,736
3,473
12,153
(2,870)
9,283
(1,031)
8,252
$
$
Table of Contents
Manufacture
and
Services
Agreement
Commitments
On October 3, 2016, we entered into a Manufacturing and Services Agreement (the “Agreement”) with a non-exclusive third-
party supplier for the production of the active ingredient for Rubraca. Under the terms of the Agreement, we will provide the
third-party supplier a rolling forecast for the supply of the active ingredient in Rubraca that will be updated by us on a quarterly
basis. We are obligated to order material sufficient to satisfy an initial quantity specified in a forecast. In addition, the third-party
supplier will construct, in its existing facility, a production train that will be exclusively dedicated to the manufacture of the
Rubraca active ingredient. We are obligated to make scheduled capital program fee payments toward capital equipment and other
costs associated with the construction of the dedicated production train. Further, once the facility is operational, we are obligated
to pay a fixed facility fee each quarter for the duration of the Agreement, which expires on December 31, 2025, unless extended
by mutual consent of the parties. As of December 31, 2018, $101.6 million of purchase commitments exist under the Agreement.
At the time we entered into the Agreement, we evaluated the Agreement as a whole and bifurcated into lease and non-lease
components, which consisted of an operating lease of warehouse space, capital lease of equipment, purchase of leasehold
improvements and manufacturing costs based upon the relative fair values of each of the deliverables. During October 2018, the
production train was placed into service and we recorded the various components of the Agreement.
Legal
Proceedings
We and certain of our officers were named as defendants in several lawsuits, as described below. We cannot reasonably
predict the outcome of these legal proceedings, nor can we estimate the amount of loss or range of loss, if any, that may result. An
adverse outcome in these proceedings could have a material adverse effect on our results of operations, cash flows or financial
condition.
Rociletinib-Related Litigation
Following Clovis’ regulatory announcement in November 2015 of adverse developments in its ongoing clinical trials for
rociletinib, Clovis and certain of its current and former executives were named in various securities lawsuits, the largest of which
was a putative class action lawsuit in the District of Colorado (the “Medina Action”) which was settled on October 26, 2017 (the
“Medina Settlement”). The open actions currently pending against Clovis are discussed below.
On November 10, 2016, Antipodean Domestic Partners (“Antipodean”) filed a complaint (the “Antipodean Complaint”)
against Clovis and certain of its officers, directors and underwriters in New York Supreme Court, County of New York. The
Antipodean Complaint alleges that the defendants violated certain sections of the Securities Act by making allegedly false
statements to Antipodean and in the offering materials for the July 2015 Offering relating to the efficacy of rociletinib, its safety
profile, and its prospects for market success. In addition to the Securities Act claims, the Antipodean Complaint also asserts
Colorado state law claims and common law claims. Both the state law and common law claims are based on allegedly false and
misleading statements regarding rociletinib’s progress toward FDA approval. The Antipodean Complaint seeks compensatory,
recessionary, and punitive damages. On December 15, 2016, the Antipodean Plaintiffs filed an amended complaint (the
“Antipodean Amended Complaint”) asserting substantially the same claims against the same defendants and purporting to correct
certain details in the original Antipodean Complaint.
Following a stay that Justice Masley of the New York Supreme Court, County of New York entered in favor of the Medina
Action and briefing on defendants’ motions to dismiss, the parties participated in a Preliminary Conference on April 17, 2018,
following which the Court entered a preliminary conference order, providing deadlines for document productions, depositions,
and other discovery. The Court has scheduled a status conference for March 12, 2019, following which the Court anticipates
setting an end date for discovery.
On May 2, 2018, the Court issued an order denying the defendants’ motion to dismiss. Defendants filed an answer to the
Antipodean Amended Complaint on June 6, 2018.
The Company intends to vigorously defend against the allegations in the Antipodean Amended Complaint. However, there
can be no assurance that the defense will be successful.
In March 2017, two putative shareholders of the Company, Macalinao and McKenry (the “Derivative Plaintiffs”), filed
shareholder derivative complaints against certain directors and officers of the Company in the Court of Chancery of
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Table of Contents
the State of Delaware. On May 4, 2017, the Macalinao and McKenry actions were consolidated for all purposes in a single
proceeding under the caption In re Clovis Oncology, Inc. Derivative Litigation, Case No, 2017-0222 (the “Consolidated
Derivative Action”).
On May 18, 2017, the Derivative Plaintiffs filed a Consolidated Verified Shareholder Derivative Complaint (the “Consolidated
Derivative Complaint”). The Consolidated Derivative Complaint generally alleged that the defendants breached their fiduciary
duties owed to the Company by allegedly causing or allowing misrepresentations of the Company’s business operations and
prospects, failing to ensure that the TIGER-X clinical trial was being conducted in accordance with applicable rules, regulations
and protocols, and engaging in insider trading. The Consolidated Derivative Complaint purported to rely on documents produced
by the Company in response to prior demands for inspection of the Company’s books and records served on the Company by each
of Macalinao and McKenry under 8 Del. C. § 220. The Consolidated Derivative Complaint sought, among other things, an award
of money damages.
On July 31, 2017, the defendants filed a motion to dismiss the Consolidated Derivative Complaint. Plaintiffs filed an
opposition to the motion to dismiss on August 31, 2017, and the defendants filed a reply in further support of the motion to
dismiss on September 26, 2017. On November 19, 2018, Plaintiffs filed a motion for leave to file a supplemental consolidated
complaint and on November 20, 2018 the Court granted that motion. On November 27, 2018, Plaintiffs filed their supplemental
complaint (the “Supplemental Complaint”), and on January 3, 2019, the Court entered the following briefing schedule: the
defendants’ opening supplemental brief in further support of the motion to dismiss is due on February 6, 2019; Plaintiffs’
answering supplemental brief in opposition is due on February 22, 2019; and the defendants’ reply supplemental brief is due on
March 5, 2019. Oral argument on the defendants’ motion to dismiss the Consolidated Derivative Complaint has been scheduled
for March 14, 2019.
The Company intends to vigorously defend against the allegations in the Consolidated Derivative Complaint, but there can be
no assurance that the defense will be successful.
On March 20, 2017, a purported shareholder of the Company, filed a shareholder derivative complaint (the “Guo Complaint”)
against certain officers and directors of the Company in the United States District Court for the District of Colorado. The Guo
Complaint generally alleged that the defendants breached their fiduciary duties owed to the Company by either recklessly or with
gross negligence approving or permitting misrepresentations of the Company’s business operations and prospects. The Guo
Complaint also alleged claims for waste of corporate assets and unjust enrichment. Finally, the Guo Complaint alleged that
certain of the individual defendants violated Section 14(a) of the Securities Exchange Act, by allegedly negligently issuing,
causing to be issued, and participating in the issuance of materially misleading statements to stockholders in the Company’s
Proxy Statement on Schedule DEF 14A in connection with the 2015 Annual Meeting of Stockholders, held on June 11, 2015. The
Guo Complaint sought, among other things, an award of money damages.
On June 19, 2017, the parties filed a joint motion to stay the Guo action pending resolution of the motion to dismiss the
Consolidated Derivative Complaint. On June 20, 2017, the court granted the motion to stay.
The Company intends to vigorously defend against the allegations in the Guo Complaint, but there can be no assurance that the
defense will be successful.
As previously disclosed, the Company has received inquiries and requests for information from governmental agencies,
including the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”), relating to the
Company’s regulatory update announcement in November 2015 that the FDA requested additional clinical data on the efficacy
and safety of rociletinib.
Earlier this year, the Company and Mr. Mahaffy engaged in discussions with the SEC staff to resolve this matter. On
September 18, 2018, the SEC announced it had reached an agreement with the Company to settle this matter on negligence-based
charges. Pursuant to the settlement, without admitting or denying the SEC’s allegations, the Company paid a $20.0 million civil
penalty and stipulated to a standard injunction against future violations of those provisions of the federal securities laws. Also, on
September 18, 2018, the SEC announced that Mr. Mahaffy also reached a settlement with the SEC on similar negligence-based
allegations, to which he neither admits nor denies, and paid a civil penalty and will be similarly enjoined. Mr. Mahaffy will
continue to serve as the Company’s Chief Executive Officer and as a member of the Company’s Board of Directors.
F-27
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The settlements do not allege that the Company or any of its current or former officers engaged in any intentional fraud or
misconduct. The settlements were approved by the United States District Court for the District of Colorado on September 19,
2018 and resolve the SEC’s nearly three-year investigation into the regulatory approval process of rociletinib.
On November 26, 2018, the DOJ informed the Company that it had closed its investigation regarding possible criminal
violations as it relates to rociletinib.
European Patent Opposition
Two oppositions were filed in the granted European counterpart of the rucaparib camsylate salt/polymorph patent on June 20,
2017. The European Patent Office’s Opposition Division held an oral hearing on December 4, 2018, during which it upheld
claims, narrowed from the originally granted patent, to certain crystalline forms of rucaparib camsylate, including, but not limited
to, rucaparib S-camsylate Form A, the crystalline form in Rubraca. On February 4, 2019, the Opposition Division issued a written
decision confirming its decision at the oral hearing. Clovis and/or either opponent have an opportunity to appeal the written
decision of the European Opposition Division. Notices of appeal are due April 14, 2019 and appeal briefs are due June 14, 2019 .
13. License Agreements
Rucaparib
In June 2011, we entered into a license agreement with Pfizer to obtain the exclusive global rights to develop and
commercialize Rubraca. The exclusive rights are exclusive even as to Pfizer and include the right to grant sublicenses. Pursuant to
the terms of the license agreement, we made a $7.0 million upfront payment to Pfizer and are required to make additional
payments to Pfizer for the achievement of certain development and regulatory and sales milestones and royalties on sales as
required by the license agreement. Prior to the FDA approval of Rubraca, we made milestone payments of $1.4 million, which
were recognized as acquired in-process research and development expense.
On August 30, 2016, we entered into a first amendment to the worldwide license agreement with Pfizer, which amends the
June 2011 existing worldwide license agreement to permit us to defer payment of the milestone payments payable upon (i) FDA
approval of an NDA for 1 Indication in US and (ii) EMA approval of an MAA for 1 Indication in the EU, to a date that is 18
months after the date of achievement of such milestones.
st
st
On December 19, 2016, Rubraca received its initial FDA approval. This approval resulted in a $0.75 million milestone
payment to Pfizer as required by the license agreement, which was paid in the first quarter of 2017. This FDA approval also
resulted in an obligation to pay a $20.0 million milestone payment, for which we exercised the option to defer payment by
agreeing to pay $23.0 million within 18 months after the date of the FDA approval. We paid the $23.0 million milestone payment
in June 2018.
On April 6, 2018, Rubraca received a second FDA approval. This approval resulted in an obligation to pay a $15.0 million
milestone payment, which we paid in April 2018.
In May 2018, Rubraca received its initial European Commission marketing authorization. This approval resulted in an
obligation to pay a $20.0 million milestone payment, which we paid in June 2018.
In January 2019, Rubraca received a second European Commission approval. This approval resulted in an obligation to pay a
$15.0 million milestone payment, which we paid in February 2019.
These milestone payments were recognized as intangible assets and amortized over the estimated remaining useful life of
Rubraca.
We are obligated under the license agreement to use commercially reasonable efforts to develop and commercialize Rubraca
and we are responsible for all ongoing development and commercialization costs for Rubraca. We are required to make regulatory
milestone payments to Pfizer of up to an additional $16.75 million in aggregate if specified clinical study objectives and
regulatory filings, acceptances and approvals are achieved. In addition, we are obligated to make sales milestone payments to
Pfizer if specified annual sales targets for Rubraca are met, which relate to annual sales
F-28
Table of Contents
targets of $250.0 million and above, which, in the aggregate, could amount to total milestone payments of $170.0 million, and
tiered royalty payments at a mid-teen percentage rate on our net sales, with standard provisions for royalty offsets to the extent we
need to obtain any rights from third parties to commercialize Rubraca.
The license agreement with Pfizer will remain in effect until the expiration of all of our royalty and sublicense revenue
obligations to Pfizer, determined on a product-by-product and country-by-country basis, unless we elect to terminate the license
agreement earlier. If we fail to meet our obligations under the agreement and are unable to cure such failure within specified time
periods, Pfizer can terminate the agreement, resulting in a loss of our rights to Rubraca and an obligation to assign or license to
Pfizer any intellectual property rights or other rights we may have in Rubraca, including our regulatory filings, regulatory
approvals, patents and trademarks for Rubraca.
In April 2012, we entered into a license agreement with AstraZeneca to acquire exclusive rights associated with Rubraca under
a family of patents and patent applications that claim methods of treating patients with PARP inhibitors in certain indications. The
license enables the development and commercialization of Rubraca for the uses claimed by these patents. Pursuant to the terms of
the license agreement, we made an upfront payment of $0.25 million upon execution of the agreement. During the second quarter
of 2016, we made a milestone payment of $0.3 million to AstraZeneca upon the NDA submission for Rubraca. These payments
were recognized as acquired in-process research and development expense. The FDA approval of Rubraca on December 19, 2016
resulted in a final $0.35 million milestone payment to AstraZeneca as required by the license agreement. This payment was
recognized as intangible assets and amortized over the estimated remaining useful life of Rubraca. AstraZeneca also receives
royalties on net sales of Rubraca.
Lucitanib
In October 2008, Ethical Oncology Science, S.p.A. (“EOS”) (now known as Clovis Oncology Italy S.r.l.) entered into an
exclusive license agreement with Advenchen Laboratories LLC (“Advenchen”) to develop and commercialize lucitanib on a
global basis, excluding China. We are obligated to pay Advenchen tiered royalties at percentage rates in the mid-single digits on
net sales of lucitanib, based on the volume of annual net sales achieved. In addition, after giving effect to the first and second
amendments to the license agreement, we are required to pay to Advenchen 25% of any consideration, excluding royalties, we
receive from sublicensees, in lieu of the milestone obligations set forth in the agreement. We are obligated under the agreement to
use commercially reasonable efforts to develop and commercialize at least one product containing lucitanib, and we are also
responsible for all remaining development and commercialization costs for lucitanib.
The license agreement with Advenchen will remain in effect until the expiration of all of our royalty obligations to Advenchen,
determined on a product-by-product and country-by-country basis, unless we elect to terminate the agreement earlier. If we fail to
meet our obligations under the agreement and are unable to cure such failure within specified time periods, Advenchen can
terminate the agreement, resulting in a loss of our rights to lucitanib.
In September 2012, EOS entered into a collaboration and license agreement with Les Laboratoires Servier and Institut de
Recherches Internationales Servier (collectively, “Servier”), whereby EOS sublicensed to Servier exclusive rights to develop and
commercialize lucitanib in all countries outside of the U.S., Japan and China. Following our acquisition of EOS, we and Servier
were developing lucitanib pursuant to a development plan agreed to between the parties. During 2017, we completed the
committed on-going development activities related to lucitanib and received full reimbursement of our development costs from
Servier. Reimbursements are recorded as a reduction to research and development expense on the Consolidated Statements of
Operations. In the second quarter of 2018, we received notice from Servier of its election to terminate the license agreement and
return its rights to lucitanib to us. Such termination became effective in the fourth quarter of 2018.
We are obligated to pay additional consideration to the former EOS shareholders if certain future regulatory and lucitanib-
related sales milestones are achieved. The estimated fair value of these payments was recorded as contingent purchase
consideration on our Consolidated Balance Sheets. The potential contingent milestone payments range from a zero payment,
which assumes lucitanib fails to achieve any of the regulatory milestones, to $196.5 million ($65.0 million and €115.0 million) if
all regulatory and sales milestones are met, utilizing the translation rate at December 31, 2018. The estimated fair value of the
liability was zero at December 31, 2018 due to the uncertainty of achieving any of the lucitanib regulatory milestones, and
therefore the remote likelihood of future milestone payout amounts to the former EOS shareholders.
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Table of Contents
Rociletinib
In May 2010, we entered into an exclusive worldwide license agreement with Celgene to discover, develop and commercialize
a covalent inhibitor of mutant forms of the epidermal growth factor receptor (“EGFR”) gene product. Rociletinib, an oral mutant-
selective inhibitor of EGFR, was identified as the lead inhibitor candidate under the license agreement. Following the termination
of enrollment in all sponsored clinical studies of rociletinib, we provided notice of termination to Celgene of our license rights to
rociletinib, an oral mutant-selective inhibitor of epidermal growth factor receptor (“EGFR”), and that termination will become
effective in the second quarter of 2019.
Finally, pursuant to terms of each of our product license agreements, we will pay royalties to our licensors on sales, if any, of
the respective products.
14. Net Loss Per Common Share
Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding
during the period. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common share
equivalents outstanding using the treasury-stock method for the stock options and RSUs and the if-converted method for the 2021
Notes and 2025 Notes. As a result of our net losses for the periods presented, all potentially dilutive common share equivalents
were considered anti-dilutive and were excluded from the computation of diluted net loss per share.
The shares outstanding at the end of the respective periods presented in the table below were excluded from the calculation of
diluted net loss per share due to their anti-dilutive effect (in thousands):
Common shares under option
Convertible senior notes
Total potential dilutive shares
15. Income Taxes
Year ended December 31,
2016
2018 2017
3,398
4,646
8,044
4,260
4,646
8,906
1,319
8,584
9,903
We are subject to U.S. federal, state and foreign income tax. The geographical components of income (loss) before income
taxes consisted of the following (in thousands):
Domestic
Foreign
Total loss before income taxes
2018
Year ended December 31,
2017
$(368,402) $(351,338) $(277,776)
(103,395)
$(367,401) $(349,975) $(381,171)
1,001
1,363
2016
The income tax provision consists of the following current and deferred tax (benefit) expense amounts (in thousands):
Current tax:
U.S. Federal & State
Foreign
Total current expense (benefit)
Deferred tax:
U.S. Federal & State
Foreign
Total deferred (benefit)
Total income tax expense (benefit)
F-30
Year ended December 31,
2016
2017
2018
$
15 $
593
608
— $
(360)
(360)
—
64
64
(3,218)
—
(3,218)
—
—
(32,098)
—
—
(32,098)
608 $ (3,578) $(32,034)
$
Table of Contents
A reconciliation of the U.S. federal statutory income tax rate to our effective tax rate is provided below:
Year ended December 31,
Federal income tax benefit at statutory rate
State income tax benefit, net of federal benefit
Tax credits
Limitation on future foreign tax credits
Change in uncertain tax positions
SEC settlement costs
Other
Tax impact of Tax Cuts and Jobs Act of 2017
Change in valuation allowance
Effective income tax rate
2018
2016
2017
(21.0)% (34.0)% (34.0)%
(3.2)
(3.1)
(1.2)
(1.3)
—
—
0.2
0.1
—
1.1
(1.1)
1.2
46.4
—
(8.1)
23.2
(1.0)%
0.2 %
(3.6)
(10.8)
(5.9)
4.2
—
2.3
—
39.4
(8.4)%
The significant components of our deferred tax assets and liabilities are as follows (in thousands):
Deferred tax assets:
Net operating loss carryforward
Tax credit carryforwards
Intangible assets
Share-based compensation expense
Foreign currency translation
Product acquisition costs
Accrued liabilities and other
Total deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Prepaid expenses and fixed assets
Total deferred tax liabilities
Net deferred tax liability
December 31,
2018
2017
$ 351,730 $ 272,710
222,150
29,900
27,844
3,012
5,881
3,879
565,376
(564,122)
1,254
224,738
25,992
30,044
3,767
4,518
8,848
649,637
(647,891)
1,746
(1,746)
(1,746)
$
— $
(1,254)
(1,254)
—
The Tax Cuts and Jobs Act (the "Act") was enacted in the US on December 22, 2017. In accordance with the Act, we
remeasured certain deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future, by
recording a provisional amount of $162.2 million which was offset by a change in the valuation allowance with no net impact to
tax expense. As of December 22, 2018, our accounting for the remeasurement of deferred tax balances was complete and there
were no material changes to the amount previously recorded.
The Act subjects a U.S. shareholder to tax on the Global Intangible Low-Taxed Income (“GILTI”)earned by certain foreign
subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, “Accounting for Global Intangible Low-Taxed Income”, states that an
entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to
reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period
expense only. We have elected to account for GILTI in the year the tax is incurred.
The realization of deferred tax assets is dependent upon a number of factors including future earnings, the timing and amount
of which is uncertain. A valuation allowance was established for the net deferred tax asset balance due to management’s belief
that the realization of these assets is not likely to occur in the foreseeable future. We recorded a net increase to the valuation
allowance of $83.8 million for the year ended December 31, 2018, primarily due to the growth in net operating losses during the
year. The net decrease of $28.3 million recorded to our valuation allowance during the year ended December 31, 2017 was due
primarily to the revaluation of our net deferred tax assets resulting from the reduction to the corporate federal tax rate to 21%
offset by the growth in net operating loss and tax credit carryforwards.
In addition, the Company recognizes tax benefits if it is more likely than not to be sustained under audit by the relevant taxing
authority based on technical merits. An uncertain tax position will not be recognized if it has less than a
F-31
Table of Contents
50% likelihood of being sustained during audit. If the threshold is met, the tax benefit is measured and recognized at the largest
amount above the greater than 50% likelihood threshold at time of settlement. The balance of unrecognized tax benefits at
December 31, 2018 of $24.8 million, if recognized, would not impact the Company’s effective tax rate as long as they remain
subject to a full valuation allowance. The following table summarizes the gross amounts of unrecognized tax benefits (in
thousands):
Balance at beginning of year
Additions related to prior periods tax positions
Additions related to current period tax positions
Settlements with tax authorities
Expiration of statute of limitations
Balance at end of year
Year ended
December 31,
2017
2018
$ 24,512 $ 24,075
—
(166)
437
429
—
—
—
—
$ 24,775 $ 24,512
As of December 31, 2018, we had approximately $1.4 billion, $1.4 billion and $1.7 million of U.S. federal, state and foreign
net operating loss carryforwards, respectively. The U.S. federal net operating losses, generated prior to the enactment of the Act,
will expire from 2029 to 2037 if not utilized and the U.S state net operating losses will expire from 2024 to 2038 if not
utilized. We have research and development and orphan drug tax credit carryforwards of $247.8 million that will expire from
2029 through 2038 if not utilized.
We believe that a change in ownership as defined under Section 382 of the U.S. Internal Revenue Code occurred as a result of
our public offering of common stock completed in April 2012. Future utilization of the federal net operating losses (“NOL”) and
tax credit carryforwards accumulated from inception to the change in ownership date will be subject to annual limitations to offset
future taxable income. It is possible that a change in ownership will occur in the future, which will limit the NOL amounts
generated since the last estimated change of ownership. We are currently under audit by the Internal Revenue Service for the
2015 tax year. As of the date of this report, no additional taxes have been assessed as the audit has not yet closed. Our federal and
state income taxes for the period from inception to December 31, 2018 remain open to an audit. Our foreign subsidiaries are also
subject to tax audits by tax authorities in the jurisdictions where they operate for the periods from December 31, 2011 to
December 31, 2018.
We may be assessed interest and penalties related to the settlement of tax positions and such amounts will be recognized
within income tax expense when assessed. To date, no interest and penalties have been recognized.
16. Employee Benefit Plans
We maintain a retirement plan, which is qualified under section 401(k) of the Internal Revenue Code for our U.S. employees.
The plan allows eligible employees to defer, at the employee’s discretion, pretax compensation up to the IRS annual limits. We
matched contributions up to 4% of the eligible employee’s compensation or the maximum amount permitted by law. Total
expense for contributions made to U.S. employees was approximately $2.0 million, $1.9 million and $1.6 million for the years
ended December 31, 2018, 2017 and 2016, respectively. Our international employees participate in retirement plans or
postretirement life insurance plans governed by the local laws in effect for the country in which they reside. We made
contributions to the retirement plans or postretirement life insurance plans of international employees of approximately $0.9
million, $0.3 million and $0.2 million for the years ended December 31, 2018, 2017 and 2016 respectively.
F-32
Table of Contents
17. Quarterly Information (Unaudited)
The results of operations on a quarterly basis for the years ended December 31, 2018 and 2017 were as follows (in thousands):
March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31,
2018
2018
2018
2018
2017
2017
2017
2017
Revenues:
Product revenue
Operating expenses:
`
$
Cost of sales - product
Cost of sales - intangible
asset amortization
Research and
development
Selling, general and
administrative
Total expenses
Operating loss
Other income (expense):
Interest expense
Foreign currency (loss)
gain
Legal settlement loss
SEC settlement costs
Other income
Other income (expense), net
Loss before income taxes
Income tax benefit (expense)
Net loss
Basic and diluted net loss per
common share
Basic and diluted weighted
average common shares
outstanding
$
18,523 $ 23,757 $
22,757 $
30,351 $
7,045 $ 14,620 $
16,806 $
17,040
4,006
4,490
4,766
6,182
1,163
2,730
3,026
3,332
372
709
771
778
372
372
372
370
43,543
52,707
63,887
71,210
32,447
33,108
38,924
38,019
39,274
44,864
87,195 102,770
(79,013)
(68,672)
42,495
111,919
(89,162)
49,148
127,318
(96,967)
29,224
63,206
(56,161)
36,149
72,359
(57,739)
35,011
77,333
(60,527)
38,523
80,244
(63,204)
(2,635)
(3,581)
(3,376)
(3,591)
(2,581)
(2,598)
(2,618)
(2,631)
(81)
(7,975)
—
1,409
(9,282)
(104)
—
(20,000)
1,475
(22,210)
(77,954) (101,223)
33
$ (77,694) $ (101,190) $
260
151
—
—
2,536
(689)
(89,851)
(13)
(89,864) $
(159)
(312)
—
—
2,497
(1,406)
(98,373)
(888)
76
— (117,000)
—
—
594
354
(2,386) (118,928)
(58,547) (176,667)
1,281
(99,261) $ (58,464) $ (175,386) $
83
(44)
—
—
1,291
(1,371)
(61,898)
1,234
(60,664) $
45
11,523
—
1,404
10,341
(52,863)
980
(51,883)
(1.54) $
(1.94) $
(1.71) $
(1.88) $
(1.33) $
(3.88) $
(1.24) $
(1.04)
50,602
52,223
52,669
52,724
44,039
45,176
48,917
49,973
F-33
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
Exhibit 10.26
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “ Agreement ”) is
th
made and entered into as of this 27 day of February 2019, by and between Clovis Oncology UK
Limited (the “ Employer ”), Clovis Oncology, Inc. (the “ Parent ”) and Dr. Lindsey Rolfe (the “
Employee ”). For purposes of this Agreement, references to the “ Company ” shall be deemed to
refer to the Employer and to the Parent, collectively, as well as to the Employer or the Parent,
individually, in each case, as context required.
W I T N E S S E T H :
WHEREAS, Employee is currently employed by the Employer and also serves as the
Executive Vice President of Clinical and Preclinical Development and Pharmacovigilance, and Chief
Medical Officer of the Parent; and
WHEREAS, the Employer desires to continue to employ Employee and to enter into this
Agreement embodying the terms of such employment, and Employee desires to enter into this
Agreement and to accept such continued employment, subject to the terms and provisions of this
Agreement.
NOW, THEREFORE, in consideration of the promises and mutual covenants contained
herein and for other good and valuable consideration, the receipt and sufficiency of which are
mutually acknowledged, the Company and Employee hereby agree as follows:
Section 1.
Definitions.
(a ) “ Accrued Obligations ” shall mean (i) all accrued but unpaid Base Salary through the date
of termination of Employee’s employment, (ii) any unpaid or unreimbursed expenses incurred
prior to the date of termination in accordance with Section 7 hereof, and (iii) any benefits
provided under the Employer’s employee benefit plans upon a termination of employment
(excluding any employee benefit plan providing for severance or similar benefits), in
accordance with the terms contained therein.
(b) “ Agreement ” shall have the meaning set forth in the preamble hereto.
(c) “ Annual Bonus ” shall have the meaning set forth in Section 4(b) hereof.
(d) “ Base Salary ” shall mean the salary provided for in Section 4(a) hereof or any increased
salary granted to Employee pursuant to Section 4(a) hereof.
(e) “ Board ” shall mean the Board of Directors of the Employer. However, the Board of
Directors of the Employer may, at its discretion, allow the Board of Directors of the Parent to
make certain decisions in relation to the Employee’s employment. In those circumstances, the
term “ Board ” shall be read to mean the Board of Directors of the Parent.
(f) “ Change in Control ” shall have the meaning ascribed to such term in the Stock Incentive
Plan.
(g) “ Company ” shall have the meaning set forth in the preamble hereto.
(h) “ Company Group ” shall mean the Employer, the Parent, and any direct or indirect
subsidiaries of the Employer and the Parent.
(i) “ Compensation Committee ” shall mean the committee of the Board designated to make
compensation decisions relating to senior executive officers of the Company Group. Prior to
any time that such a committee has been designated, the Board shall be deemed the
Compensation Committee for purposes of this Agreement.
(j) “ Disability ” shall mean any physical or mental disability or infirmity of Employee that
prevents the performance of Employee’s duties for a period of (i) ninety (90) consecutive
days or (ii) one hundred twenty (120) non-consecutive days during any twelve (12) month
period. Any question as to the existence, extent, or potentiality of Employee’s Disability upon
which Employee and the Company cannot agree shall be determined by a qualified,
independent physician selected by the Company and approved by Employee (which approval
shall not be unreasonably withheld). The determination of any such physician shall be final
and conclusive for all purposes of this Agreement.
(k) “ Employee ” shall have the meaning set forth in the preamble hereto.
(l) “ Good Reason ” shall mean, without Employee’s consent, (i) a material diminution in
Employee’s title, duties, or responsibilities as set forth in Section 3 hereof such that Employee
is no longer serving in a senior executive capacity for the Parent, (ii) a material reduction in
Base Salary set forth in Section 4(a) hereof or Annual Bonus opportunity set forth in Section
4(b) hereof (other than pursuant to an across-the-board reduction applicable to all similarly
situated executives), (iii) the relocation of Employee’s principal place of employment (as
provided in Section 3(c) hereof) more than fifty (50) miles from its current location, or (iv)
any other material breach of a provision of this Agreement by the Company (other than a
provision that is covered by clause (i), (ii), or (iii) above). Employee acknowledges and agrees
that her exclusive remedy in the event of any breach of this Agreement shall be to assert Good
Reason pursuant to the terms and conditions of Section 8(e) hereof. Notwithstanding the
foregoing, during the Term, in the event that the Company reasonably believes that Employee
may have engaged in conduct that could constitute Just Cause hereunder, the Company may,
in its sole and absolute discretion, suspend Employee for up to sixty (60) days from
performing her duties hereunder, and in no event shall any such suspension constitute an
event pursuant to which Employee may terminate employment with Good Reason or
otherwise constitute a breach hereunder; provided,
that no such suspension shall alter the
Company’s obligations under this Agreement during such period of suspension.
(m) “ Just Cause ” shall mean that the Company, acting in good faith based upon the
information then known to it, determines that (i) Employee has committed or engaged in
negligent or willful conduct that is likely to be detrimental to the Company or any
member of the Company Group; (ii) Employee has engaged in acts which constitute theft,
fraud, or other illegal or dishonest conduct which are considered to be harmful to the
Company or any member of the Company Group as determined by the majority vote of its
Board; (iii) Employee has willfully disobeyed the reasonable and lawful directives of any
superior officer or the Board; (iv) Employee has refused or is unwilling to perform her job
duties; (v) Employee has failed adequately to perform her job duties; (vi) Employee has
demonstrated habitual absenteeism; (vii) Employee is substantially dependent on alcohol or
any controlled substance or violates any general Company policy with regard to alcohol or
controlled substances; (viii) Employee has engaged in acts which constitute sexual or other
forms of illegal harassment or discrimination; (ix) Employee makes public remarks that
disparage the Company, the Board, or its officers, directors, advisors, employees, affiliates or
subsidiaries; (x) Employee violates her fiduciary duty to the Company, or her duty of loyalty
to the Company; (xi) Employee materially breaches any term of this Agreement or the Non-
Interference Agreement. The parties acknowledge that this definition of “Just Cause” in not
intended and does not apply to any aspect of the relationship between the Company and
Employee beyond determining Employee’s eligibility for severance pay pursuant to Section 8
below.
(n) “ Non-Interference Agreement ” shall mean the Confidentiality, Non-Interference, and
Invention Assignment Agreement by and between then Employee and the Parent, dated even
herewith.
(o) “ Person ” shall mean any individual, corporation, partnership, limited liability company,
joint venture, association, joint-stock company, trust (charitable or non-charitable),
unincorporated organization, or other form of business entity.
(p) “ Release of Claims ” shall mean an agreement in writing between the Company and the
Employee under which the Employee agrees to waive her UK employment claims and any
other relevant claims against the Employer and any member of the Company Group. Such
agreement shall satisfy the requirements of s203(3) of the Employment Rights Act 1996 and
similar provisions in other UK statutes, as well as any other applicable laws or statutes, and
shall be in the form prescribed by the Company.
(q) “ Severance Benefits ” shall have the meaning set forth in Section 8(g) hereof.
(r) “ Severance Term ” shall mean the six (6) month period following Employee’s termination
by the Company without Just Cause (other than by reason of death or Disability) or by
Employee for Good Reason; provided,
that if such termination occurs within twelve
(12) months following a Change in Control, the Severance Term shall be the twelve (12)
month period following such termination.
(s) “ Stock Incentive Plan ” shall mean the Clovis Oncology, Inc. 2011 Stock Incentive
Plan, as
the same may be amended and/or restated from time to time.
(t) “ Target Bonus ” shall have the meaning set forth in Section 4(b) hereof.
(u) “ Term ” shall mean the period specified in Section 2 hereof.
(v) “ UK Confidentiality Agreement ” shall mean the Confidential Information, Invention
Assignment and Non-Solicitation Agreement by and between the Employee and the
Employer, dated May 23, 2017.
Section 2.
Acceptance and Term.
The Employer agrees to employ Employee, and Employee agrees to serve the Company, on the terms
and conditions set forth herein. The Term shall be deemed to have commenced on April 1, 2010 and
shall continue until terminated in accordance with Section 8 hereof.
The Employee warrants that she is eligible to work in the UK without restrictions and has shown the
Company her EU passport.
Section 3. Position, Duties, and Responsibilities; Place of Performance.
(a) Position, Duties, and Responsibilities . During the Term, Employee shall be employed and
serve as the Executive Vice President of Clinical and Preclinical Development and
Pharmacovigilance and Chief Medical Officer of the Parent (together with such other position
or positions consistent with Employee’s title as the Board shall specify from time to time) and
shall have such duties and responsibilities commensurate with such title. Employee also
agrees to serve as an officer and/or director of any other member of the Company Group, in
each case without additional compensation. During the Term, Employee shall report to the
Chief Executive Officer of the Parent.
(b) Performance . Employee shall devote her full business time, attention, skill, and best efforts
to the performance of her duties under this Agreement and shall not engage in any other
business or occupation during the Term, including, without limitation, any activity that
(x) conflicts with the interests of the Company or any other member of the Company Group,
(y) interferes with the proper and efficient performance of Employee’s duties for the
Company, or (z) interferes with Employee’s exercise of judgment in the Company’s best
interests. Notwithstanding the foregoing, nothing herein shall preclude Employee from
(i) serving, with the prior written consent of the Board, as a member of the boards of directors
or advisory boards (or their equivalents in the case of a non-corporate entity) of non-
competing businesses and charitable organizations, (ii) engaging in charitable activities and
community affairs, and (iii) managing her personal investments and affairs; provided,
however,
that the activities set out in clauses (i), (ii), and (iii) shall be limited by Employee so
as not to materially interfere, individually or in the aggregate, with the performance of her
duties and responsibilities hereunder.
(c) Principal Place of Employment . Employee’s principal place of employment shall be in
Sheraton House, Castle Park, Cambridge, CB3 OAX although Employee understands and
agrees that she may be required to travel from time to time for business reasons.
Section 4. Compensation.
During the Term, Employee shall be entitled to the following compensation:
(a) Base Salary. Employee shall be paid an annualized Base Salary equivalent of $435,000 USD
(gross) per year, configured and payable in GBP, by 12 calendar monthly payments in arrears,
net of deductions, by direct transfer. The monthly GBP payment will be determined at the
beginning of each month, to allow for fluctuations in exchange rates. Increases, if any, may be
approved in writing by the Compensation Committee at its sole discretion. There is no
obligation to award an increase.
(b) Annual Bonus . Employee shall be eligible for an annual incentive bonus award determined
by the Compensation Committee in respect of each fiscal year during the Term (the “ Annual
Bonus ”). The target Annual Bonus for each fiscal year shall be 45% of Base Salary (the “
Target Bonus ”), with the actual Annual Bonus payable being based upon the level of
achievement of annual corporate and individual performance objectives for such fiscal year,
as determined by the Compensation Committee in its sole and absolute discretion and
communicated to Employee. The Annual Bonus shall be paid to Employee at the same time as
annual bonuses are generally payable to other senior executives of the Company, provided the
Employee is still employed and not under a period of notice on the payment date.
Section 5. Benefits.
During the Term, Employee shall be entitled to the following benefits:
(a) Pension Scheme .
The Employer will contribute 6% of the Employee’s regular annual salary
towards a pension scheme with no employee contribution required. This
provision will be in place only until such time as the Employer puts a scheme
to meet its automatic enrolment obligations.
Once the automatic enrolment pension scheme is in force, the Employer will
enroll the Employee into a workplace pension scheme (“ Workplace Scheme ”)
and contribute towards the Workplace Scheme. Once the Employee is enrolled
into the Workplace Scheme, the Employer will cease to make a contribution of
6% of the Employee’s regular annual salary per month to a personal pension
scheme; due to the Employer contributions to the Workplace Scheme
superseding this requirement.
Details of the Workplace Scheme, including Employer contributions, will be
discussed and provided to the Employee in writing as necessary.
(b) Other Benefits .
The Employer will pay for health, life, critical illness and income protection
insurance.
(c) Holidays .
i.
ii.
iii.
iv.
v.
vi.
The Employee will be paid for public holidays as
declared and advised by the Employer.
The holiday year runs from 1 January to 31
December. Holiday entitlements cannot usually be
carried over to the following year (see latest version
of the staff handbook for possible exceptions). The
Employee shall be entitled to have any outstanding
and accrued holiday entitlement paid to the
Employee as additional remuneration on the
termination of the Employee’s employment with the
Employer as calculated in accordance with the terms
of this clause.
All holiday dates must be approved by the person to
whom the Employee is responsible. No more than 10
days’ holiday may be taken at any one time unless
prior consent is obtained from the person to whom
the Employee reports.
On engagement the Employee shall be entitled to
twenty-five days in each holiday year in addition to
all statutory and public holidays. This includes up to
3 Employer nominated days used to cover the
Christmas period.
If the Employee’s employment starts or finishes part
way through the holiday year, the Employee’s
holiday entitlement during that year shall be
calculated on a pro-rata basis, for each complete
month of the Employment during that holiday year,
rounded up to the nearest half day.
On termination of the Employment the Employee
shall be required to repay to the Employer any salary
received for holiday taken in excess of their accrued
entitlement, calculated up to the date of termination.
(d) Sickness or Injury.
If the Employee is absent from work due to sickness or injury it is important that the
Employer is notified immediately by email or telephone, and certainly no later than 7:00am
on the day of absence. The Employee is also required to provide, so far as practicable, an
expected date of return to work.
i.
ii.
For periods of absence up to seven days, the Employer may require a “self certificate”
to be completed. From the eighth day, the Employee will require a certificate from the
Employee’s doctor, repeated at weekly intervals if the Employee is still unable to
come to work.
If the Employee is absent from work for more than three days by reason of incapacity
and the Employee satisfies the relevant requirements, the Employee will be entitled to
statutory sick pay. The Employee’s qualifying days for statutory sick pay purposes are
Monday to Friday.
iii.
It is entirely within the Employer’s discretion as to whether to make up the difference
between the Employee’s salary and statutory sick pay or any disability benefit or
allowance received by the Employee during periods of sickness or incapacity; in the
event that it does, the Employer reserves the right, at any time without prior notice, to
suspend or reduce payment of the Employee’s salary at its discretion during any
periods of absence for any reason.
iv. Whilst the Employer will normally be sympathetic to cases of genuine sickness or
accident, prolonged or persistent absence may cause concern about an employee’s
ability to carry out their work. In this case, consideration may be given to the
termination of an employee’s employment.
Nothing contained herein shall be construed to limit the Employer’s ability to
amend, suspend, or terminate any employee benefit plan or policy at any time
without providing Employee notice, and the right to do so is expressly
reserved.
Section 6. Key-Man Insurance.
At any time during the Term, the Company shall have the right to insure the life of Employee for the
sole benefit of the Company, in such amounts, and with such terms, as it may determine. All
premiums payable thereon shall be the obligation of the Company. Employee shall have no interest in
any such policy, but agrees to cooperate with the Company in procuring such insurance by submitting
to physical examinations, supplying all information required by the insurance company, and
executing all necessary documents, provided that no financial obligation is imposed on Employee by
any such documents.
Section 7. Reimbursement of Business Expenses.
During the Term, the Company shall pay (or promptly reimburse Employee) for documented, out-of-
pocket expenses reasonably incurred by Employee in the course of performing her duties and
responsibilities hereunder, which are consistent with the Company’s policies in effect from time to
time with respect to business expenses, subject to the Company’s requirements with respect to
reporting of such expenses.
Section 8. Termination of Employment.
(a) General . The Term shall terminate upon the earliest to occur of (i) Employee’s death, (ii) a
termination by reason of a Disability, (iii) a termination by the Company with or without Just
Cause, and (iv) a termination by Employee with or without Good Reason.
(i) Subject to section 8(a)(ii) below, 90 days’ notice of termination, in writing, is
required by either party.
(ii) The Company shall be entitled to terminate the Employee’s employment summarily
and without notice or payment in lieu of notice in the event that the Employee is found
guilty of having committed an act of gross misconduct under the Employer’s
Disciplinary Procedure.
(iii) The Company may (but shall not be bound to) terminate the Employee’s employment
with immediate effect by paying her a sum equal to her Base Salary for the period of
notice that is still to run (a “ payment in lieu of notice ”).
(iv) The Company reserves the right to require the Employee not to attend work and not
to undertake all or any of her duties during any period of notice (whether given by her
or by the Company) provided always that the Company shall continue to provide the
Employee with her Base Salary and other benefits during the period of her notice (“
Garden Leave ”). During such a period of Garden Leave, the Employee shall owe a
duty of the utmost good faith to the Company and must not work for any other person
or on their own account and shall remain readily contactable and available to work for
the Company.
Upon any termination of Employee’s employment for any reason, except as
may otherwise be requested by the Company in writing and agreed upon in
writing by Employee, Employee shall be deemed to have resigned from any
and all directorships, committee memberships, and any other positions
Employee holds with the Company or any other member of the Company
Group and hereby agrees to execute any documents that the Company (or any
member of the Company Group) determines necessary to effectuate such
resignations.
(b) Termination Due to Death or Disability . Employee’s employment shall
terminate automatically upon her death. The Company may terminate
Employee’s employment upon the occurrence of a Disability, such termination
to be effective upon Employee’s receipt of written notice of such termination.
Upon Employee’s death or in the event that Employee’s employment is
terminated due to her Disability, Employee or her estate or her beneficiaries, as
the case may be, shall be entitled to (in addition to any statutory benefits which
apply):
(i) The Accrued Obligations; and
(ii) Any unpaid Annual Bonus in respect of any completed fiscal year that
has ended prior to the date of such termination, which amount shall be
paid at such time annual bonuses are paid to other senior executives of
the Company, but in no event later than the date that is 2% months
following the last day of the fiscal year in which such termination
occurred.
Following Employee’s death or a termination of Employee’s employment by
reason of a Disability, except as set forth in this Section 8(b), Employee shall
have no further rights to any compensation or any other contractual benefits
under this Agreement.
The Company will take medical advice and consult with the Employee before
terminating her employment on the grounds of Disability. The
Company will also consider whether there are any alternatives to termination
of employment, such as adjustments to her role or a move into an alternative
vacancy, prior to terminating the Employee’s employment on the grounds of
Disability. Being diagnosed with a disability by no means makes dismissal
inevitable. However, it is possible that the Employee’s employment may be
terminated on the grounds of a Disability.
(c) Termination by the Company with Just Cause .
(i) The Company may, subject to the rules of its Disciplinary Procedure and / or any
other relevant procedure, terminate Employee’s employment at any time with Just
Cause, effective upon Employee’s receipt of written notice of such termination;
provided,
however,
that
with respect to any Just Cause termination relying on clause
(iv) or (v) of the definition of Just Cause set forth in Section 1(m) hereof, to the extent
that such act or acts or failure or failures to act are curable., Employee shall be given
not less than ten (10) days’ written notice by the Board of the Company’s intention to
terminate her for Just Cause, such notice to state in detail the particular act or acts or
failure or failures to act that constitute the grounds on which the proposed termination
for Just Cause is based, and such termination shall be effective at the expiration of
such ten (10) day notice period unless Employee has fully cured such act or acts or
failure or failures to act that give rise to Just Cause during such period.
(ii) In the event that the Company terminates Employee’s employment with Just Cause,
she shall be entitled only to the Accrued Obligations and, save where Clause 8(a)(ii)
above applies, a period of notice or a payment in lieu of notice in accordance with
Clause 8(a)(iii). Following such termination of Employee’s employment with Just
Cause, except as set forth in this Section 8(c)(ii), Employee shall have no further
rights to any compensation or any other benefits under this Agreement.
(d) Termination by the Company without Just Cause . The Company may terminate Employee’s
employment at any time without Just Cause, effective upon Employee’s receipt of written
notice of such termination. In the event that Employee’s employment is terminated by the
Company without Just Cause (other than due to death or Disability), Employee shall, in
addition her entitlement to a period of notice or a payment in lieu of notice as set out above,
provided she enters into a Release of Claims under the terms offered to her by the Company,
be entitled to:
(i) The Accrued Obligations;
(ii) Any unpaid Annual Bonus in respect of any completed fiscal year that has ended prior
to the date of such termination, which amount shall be paid at such time annual
bonuses are paid to other senior executives of the Company, but in no event later than
the date that is 2% months following the last day of the fiscal year in which such
termination occurred;
(iii) Continued payment of Base Salary during the Severance Term, payable in accordance
with the Company’s regular payroll practices;
(iv) Subject to Employee’s election of COBRA continuation coverage under the
Company’s group health plan, on the first regularly scheduled payroll date of each
month of the Severance Term, the Company will pay Employee an amount equal to
the “applicable percentage” of the monthly COBRA premium cost (which, for
purposes hereof, shall be the percentage of Employee’s health care premium costs
covered by the Company as of the date of termination); provided,
that
the payments
pursuant to this clause (iv) shall cease earlier than the expiration of the Severance
Term in the event that Employee becomes eligible to receive any health benefits,
including through a spouse’s employer, during the Severance Term; and
(v) In the event that such termination occurs within twelve (12) months following a
Change in Control:
(A) accelerated vesting of all of Employee’s stock options and other equity-based
awards and continued exercisability of Employee’s stock options in accordance
with the terms of the plan document governing such awards; and
(B) an amount equal to the Target Bonus, payable in substantially equal monthly
installments during the Severance Term.
Notwithstanding the foregoing, the payments and benefits described in clauses (ii), (iii), (iv),
and (v) above shall immediately terminate, and the Company shall have no further obligations
to Employee with respect thereto, in the event that Employee breaches any provision of the
Non-Interference Agreement. Following such termination of Employee’s employment by the
Company without just Cause, except as set forth in this Section 8(d), Employee shall have no
further rights to any compensation or any other benefits under this Agreement. For the
avoidance of doubt, Employee’s sole and exclusive remedy upon a termination of
employment by the Company without Just Cause shall be receipt of the Severance Benefits.
(e) Termination by Employee with Good Reason. Employee may terminate her employment
with Good Reason by providing the Company ninety (90) days’ written notice setting forth in
reasonable specificity the event that constitutes Good Reason, which written notice, to be
effective, must be provided to the Company within sixty (60) days of the occurrence of such
event. During the 10 day period following the receipt of such a written notice, the Company
shall have a cure right (if curable), and if not cured within such period, Employee’s
termination will be effective upon the expiration of her notice period, and Employee shall,
provided she enters into a Release of Claims under the terms offered to her by the Company,
be entitled to the same payments and benefits as provided in Section 8(d) hereof for a
termination by the Company without Just Cause, subject to the same conditions on payment
and benefits as described in Section 8(d) hereof. Following such termination of Employee’s
employment by Employee with Good Reason,
except as set forth in this Section 8(e), Employee shall have no further rights to any
compensation or any other benefits under this Agreement. For the avoidance of doubt,
Employee’s sole and exclusive remedy upon a termination of employment with Good Reason
shall be receipt of the Severance Benefits. The decision as to whether the Employee has Good
Reason is at the sole and unfettered discretion of the Company. If the Company deems that
the Employee does not have Good Reason, then her termination will be treated as a
termination by Employee without Good Reason.
(f) Termination by Employee without Good Reason . Employee may terminate her employment
without Good Reason by providing the Company ninety (90) days’ written notice of such
termination. In the event of a termination of employment by Employee under this Section
8(f), Employee shall be entitled only to the Accrued Obligations. Following such termination
of Employee’s employment by Employee without Good Reason, except as set forth in this
Section 8(f), Employee shall have no further rights to any compensation or any other benefits
under this Agreement.
(g) Release of Claims . Notwithstanding any provision herein to the contrary, the payment of
any amount or provision of any benefit pursuant to subsection (b), (d), or (e) of this Section 8
(other than the Accrued Obligations) (collectively, the “ Severance Benefits ”) shall be
conditioned upon Employee’s execution, delivery to the Company, and non-revocation of the
Release of Claims (and the expiration of any applicable revocation period contained in such
Release of Claims) by any execution deadline specified in such Release of Claims. If
Employee fails to execute the Release of Claims in such a timely manner or, to the extent
applicable, if Employee revokes her acceptance of such release, Employee shall not be
entitled to any of the Severance Benefits. Further, to the extent that any of the Severance
Benefits constitutes “nonqualified deferred compensation” for purposes of Section 409A of
the Code, any payment of any amount or provision of any benefit otherwise scheduled to
occur prior to any execution deadline, but for the condition on executing the Release of
Claims as set forth herein, shall not be made until the first regularly scheduled payroll date
following such execution deadline, after which any remaining Severance Benefits shall
thereafter be provided to Employee according to the applicable schedule set forth herein. For
the avoidance of doubt, in the event of a termination due to Employee’s death or Disability,
Employee’s obligations herein to execute and not revoke the Release of Claims may be
satisfied on her behalf by her estate or a person having legal power of attorney over her
affairs.
As above, in order to receive any Severance Benefits. the Employee will also be required to enter into
a Release of Claims under the terms offered to her by the Company.
Section 9. Non-Interference Agreement and UK Confidentiality Agreement.
As a condition of Employee’s employment hereunder, Employee has executed and delivered to the
Company the Non-Interference Agreement and the UK Confidentiality Agreement. The parties
hereto acknowledge and agree that this Agreement, the Non-Interference Agreement and the UK
Confidentiality Agreement shall be considered separate contracts, and the Non-Interference
Agreement and the UK Confidentiality Agreement will survive the termination of this Agreement for
any reason. The Non-Interference Agreement and the UK Confidentiality
Agreement shall be coextensive and the restrictions in each shall apply in addition to, and not in lieu
of, the restrictions in the other and in any similar agreements.
Section 10. Representations and Warranties of Employee.
Employee represents and warrants to the Company that:
(a) Employee is entering into this Agreement voluntarily and that her employment hereunder
and compliance with the terms and conditions hereof will not conflict with or result in the
breach by her of any agreement to which she is a party or by which she may be bound;
(b) Employee has not violated, and in connection with her employment with the Company will
not violate, any non-solicitation, non-competition, or other similar covenant or agreement of a
prior employer by which she is or may be bound; and
(c) in connection with her employment with the Company, Employee will not use any
confidential or proprietary information she may have obtained in connection with
employment with any prior employer.
Section 11. Taxes.
The Company may withhold from any payments made under this Agreement all applicable taxes.
Section 12. Set Off; Mitigation.
The Company’s obligation to pay Employee the amounts provided and to make the arrangements
provided hereunder shall be subject to set-off, counterclaim, or recoupment of amounts owed by
Employee to the Company or its affiliates; provided,
however,
that to the extent any amount so
subject to set-off, counterclaim, or recoupment is payable in installments hereunder, such set-off,
counterclaim, or recoupment shall not modify the
applicable payment date of any installment, and to
the extent an obligation cannot be satisfied by reduction of a single installment payment, any portion
not satisfied shall remain an outstanding obligation of Employee and shall be applied to the next
installment only at such time the installment is otherwise payable pursuant to the specified payment
schedule. Employee shall not be
required to mitigate the amount of any payment provided pursuant to
this Agreement by seeking other employment or otherwise, and except as provided in Section 8(d)(iv)
hereof, the amount of any payment provided for pursuant to this Agreement shall not be reduced by
any compensation earned as a result of Employee’s other employment or otherwise.
Section 13. Successors and Assigns; No Third-Party Beneficiaries.
(a) The Company . This Agreement shall inure to the benefit of the Company and its respective
successors and assigns. Neither this Agreement nor any of the rights, obligations, or interests
arising hereunder may be assigned by the Company to a Person (other than another member
of the Company Group, or its or their respective successors) without Employee’s prior written
consent (which shall not be unreasonably withheld, delayed, or conditioned); provided,
however,
that in the event of a sale of all or substantially all of the assets of the Company or
any direct or indirect division or subsidiary thereof to which the Employee’s employment
primarily relates, the Company may provide that this Agreement will be assigned to, and
assumed by, the acquiror of such assets, it being agreed that in such circumstances,
Employee’s consent will not be required in connection therewith.
(b) Employee . Employee’s rights and obligations under this Agreement shall not be transferable
by Employee by assignment or otherwise, without the prior written consent of the Company;
provided,
however,
that if Employee shall die, all amounts then payable to Employee
hereunder shall be paid in accordance with the terms of this Agreement to Employee’s
devisee, legatee, or other designee, or if there be no such designee, to Employee’s estate.
(c) No Third-Party Beneficiaries . Except as otherwise set forth in Section 8(b) or Section 13(b)
hereof, nothing expressed or referred to in this Agreement will be construed to give any
Person other than the Company, the other members of the Company Group, and Employee
any legal or equitable right, remedy, or claim under or with respect to this Agreement or any
provision of this Agreement. The Contracts (Rights of Third Parties) Act 1999 shall not apply
to this Agreement.
Section 14. Waiver and Amendments.
Any waiver, alteration, amendment, or modification of any of the terms of this Agreement shall be
valid only if made in writing and signed by each of the parties hereto; provided,
however,
that
any
such waiver, alteration, amendment, or modification must be consented to on the Company’s behalf
by the Board. No waiver by either of the parties hereto of their rights hereunder shall be deemed to
constitute a waiver with respect to any subsequent occurrences or transactions hereunder unless such
waiver specifically states that it is to be construed as a continuing waiver.
Section 15. Severability.
If any covenants or such other provisions of this Agreement arc found to be invalid or unenforceable
by a final determination or a court of competent jurisdiction, (a) the remaining terms and provisions
hereof shall be unimpaired, and (b) the invalid or unenforceable term or provision hereof shall be
deemed replaced by a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision hereof.
Section 16. Governing Law and Jurisdiction.
These terms and conditions of employment shall be construed in accordance with the laws of England
and Wales and the parties hereto submit to the jurisdiction of the courts of England and Wales as
regards any claim, dispute or matter arising out of or relating to this agreement and its implication or
effect.
Section 17. Notices.
(a) Place of Delivery . Every notice or other communication relating to this Agreement shall be
in writing, and shall be mailed to or delivered to the party for whom or which it is intended at
such address as may from time to time be designated by it in a notice mailed or delivered to
the other party as herein provided; provided,
that unless and until some other address be so
designated, all notices and communications by Employee to the Company shall be mailed or
delivered to the Company at the principal executive office of each of the Parent and the
Employer, and all notices and communications by the Company to Employee may be given to
Employee personally or may be mailed to Employee at Employee’s last known address, as
reflected in the Company’s records.
(b) Date of Delivery . Any notice so addressed shall be deemed to be given or received (i) if
delivered by hand, on the date of such delivery, (ii) if mailed by courier or by overnight mail,
on the first business day following the date of such mailing, and (iii) if mailed by registered or
certified mail, on the third business day after the date of such mailing.
Section 18. Section Headings.
The headings of the sections and subsections of this Agreement are inserted for convenience only and
shall not be deemed to constitute a part thereof or affect the meaning or interpretation of this
Agreement or of any term or provision hereof.
Section 19. Entire Agreement.
This Agreement, the Non-Interference Agreement and the UK Confidentiality Agreement constitute
the entire understanding and agreement of the parties hereto regarding the employment of Employee,
and such agreement supersede all prior negotiations, discussions, correspondence, communications,
understandings, and agreements between the parties relating to the subject matter thereof.
Section 20. Survival of Operative Sections.
Upon any termination of Employee’s employment, the provisions of Section 8 through Section 25 of
this Agreement (together with any related definitions set forth in Section 1 hereof) shall survive to the
extent necessary to give effect to the provisions thereof.
Section 21. Working Time Regulations 1998.
The Employee agrees, in accordance with the terms of Regulations 4(1) and Regulation 5 of the
Working Time Regulations 1998 (the “ Regulations ”) that the limit in Regulation 4(1) of the
Regulations shall not apply to her employment with the Employer (the “ Opt Out ”). The Employee
may terminate the Opt Out at any time by giving the Employer three months’ written notice to that
effect.
Section 22. Disciplinary and Grievance Procedures.
The Employer’s Disciplinary and Grievance Procedures are available in the UK Employment
Handbook. These procedures do not form part of the Employee’s contract of employment.
Application of any such procedure is at the Employer’s discretion.
If the Employee wishes to appeal against a disciplinary decision she must do so in writing in
accordance with the Employer’s disciplinary procedure.
If the Employee wishes to raise a grievance she must do so in writing in accordance with the
Employer’s grievance procedure.
Section 23. Data Protection.
The Employee consents to the Company processing data relating to her for legal, personnel,
administrative and management purposes and in particular to the processing of any sensitive personal
data (as defined in the Data Protection Act 1998) relating to the Employee, including, as appropriate:
(a) information about the Employee’s physical or mental health or condition in order to monitor
sick leave and take decisions as to her fitness for work;
(b) the Employee’s racial or ethnic origin or religious or similar information in order to monitor
compliance with equal opportunities legislation; and
(c) in order to comply with legal requirements and obligations to third panics. The Company
may make such information available to those who provide products or services to the
Company (such as advisers and payroll administrators), regulatory authorities, potential
purchasers of the Company or the business in which the Employee works, and as may be
required by law.
The Employee consents to the transfer of such information to the Company’s business contacts
outside the European Economic Area in order to further its business interests even where the country
or territory in question does not maintain adequate data protection standards.
Section 24. Collective Agreements.
There are no collective agreements affecting the Employee’s terms and conditions of employment.
Section 25. Counterparts.
This Agreement may be executed in two or more counterparts, each of which shall be deemed to be
an original but all of which together shall constitute one and the same instrument. The execution of
this Agreement may be by actual or facsimile signature.
* *
*
[Signatures to appear on the following page.]
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above
written.
CLOVIS ONCOLOGY, INC.
_/s/ Paul Gross ______________________
By Paul Gross
Title: EVP, General Counsel and Chief Compliance Officer
CLOVIS ONCOLOGY UK LIMITED
/s/ Paul Gross ______________________
By Paul Gross
Title: Director
EMPLOYEE
/s/ Lindsey Rolfe __________________
Dr. Lindsey Rolfe
CONFIDENTIALITY, NON-INTERFERENCE, AND INVENTION ASSIGNMENT
AGREEMENT
As a condition of my becoming employed by, or continuing employment with, Clovis
Oncology, Inc., a Delaware corporation (the “ Company ”), and in consideration of my employment
with the Company and my receipt of the compensation now and hereafter paid to me by the
Company, I agree to the following:
Section 1.
Confidential Information .
(a)
Company Group Information . I acknowledge that, during the course
of my employment, I will have access to information about the Company and its direct and indirect
subsidiaries and affiliates (collectively, the “ Company Group ”) and that my employment with the
Company shall bring me into close contact with confidential and proprietary information of the
Company Group. In recognition of the foregoing, I agree, at all times during the term of my
employment with the Company and for the ten (10) year period following my termination of my
employment for any reason, to hold in confidence, and not to use, except for the benefit of the
Company Group, or to disclose to any person, firm, corporation, or other entity without written
authorization of the Company, any Confidential Information that I obtain or create. I further agree
not to make copies of such Confidential Information except as authorized by the Company. I
understand that “ Confidential Information ” means information that the Company Group has
developed, acquired, created, compiled, discovered, or owned or will develop, acquire, create,
compile, discover, or own, that has value in or to the business of the Company Group that is not
generally known and that the Company wishes to maintain as confidential. I understand that
Confidential Information includes, but is not limited to, any and all non-public information that
relates to the actual or anticipated business and/or products, research, or development of the
Company, or to the Company’s technical data, trade secrets, or know-how, including, but not limited
to, research, product plans, or other information regarding the Company’s products or services and
markets, customer lists, and customers (including, but not limited to, customers of the Company on
whom I called or with whom I may become acquainted during the term of my employment),
software, developments, inventions, processes, formulas, technology, designs, drawings, engineering,
hardware configuration information, marketing, finances, and other business information disclosed
by the Company either directly or indirectly in writing, orally, or by drawings or inspection of
premises, parts, equipment, or other Company property. Notwithstanding the foregoing, Confidential
Information shall not include (i) any of the foregoing items that have become publicly and widely
known through no unauthorized disclosure by me or others who were under confidentiality
obligations as to the item or items involved or (ii) any information that I am required to disclose to,
or by, any governmental or judicial authority; provided
, however
, that in such event I will give the
Company prompt written notice thereof so that the Company Group may seek an appropriate
protective order and/or waive in writing compliance with the confidentiality provisions of this
Confidentiality, Non-Interference, and Invention Assignment Agreement (the “ Non-Interference
Agreement ”).
(b)
Former Employer Information . I represent that my performance of all
of the terms of this Non-Interference Agreement as an employee of the Company has not breached
and will not breach any agreement to keep in confidence proprietary information,
knowledge, or data acquired by me in confidence or trust prior or subsequent to the commencement
of my employment with the Company, and I will not disclose to any member of the Company Group,
or induce any member of the Company Group to use, any developments, or confidential or
proprietary information or material I may have obtained in connection with employment with any
prior employer in violation of a confidentiality agreement, nondisclosure agreement, or similar
agreement with such prior employer.
(c) Whistleblower; Defend Trade Secrets Act Disclosure .
(i)
In addition, I understand that nothing in this Agreement shall
be construed to prohibit me from reporting possible violations of law or regulation to any
governmental agency or regulatory body or making other disclosures that are protected under
any law or regulation, or from filing a charge with or participating in any investigation or
proceeding conducted by any governmental agency or regulatory body.
(ii)
I understand that the Defend Trade Secrets Act provides that I
may not be held criminally or civilly liable under any Federal or state trade secret law for the
disclosure of a trade secret that is made in confidence to a Federal, state, or local government
official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting
or investigating a suspected violation of law; or that is made in a complaint or other document
filed in a lawsuit or other proceeding, if such filing is made under seal. In the event that I file
a lawsuit for retaliation by any member of the Company Group for reporting a suspected
violation of law, I may disclose the trade secret to my attorney and use the trade secret
information in the court proceeding, if I file any document containing the trade secret under
seal and do not disclose the trade secret, except pursuant to court order.
Section 2.
Developments .
(a)
Developments Retained and Licensed . I have attached hereto, as
Schedule A , a list describing with particularity all developments, original works of authorship,
developments, improvements, and trade secrets that I can demonstrate were created or owned by me
prior to the commencement of my employment (collectively referred to as “ Prior Developments ”),
which belong solely to me or belong to me jointly with another, that relate in any way to any of the
actual or proposed businesses, products, or research and development of any member of the
Company Group, and that are not assigned to the Company hereunder, or if no such list is attached, I
represent that there are no such Prior Developments. If, during any period during which I perform or
performed services for the Company Group both before or after the date hereof (the “ Assignment
Period ”), whether as an officer, employee, director, independent contractor, consultant, or agent, or
in any other capacity, I incorporate (or have incorporated) into a Company Group product or process
a Prior Development owned by me or in which I have an interest, I hereby grant the Company, and
the Company Group shall have, a non-exclusive, royalty-free, irrevocable, perpetual, transferable
worldwide license (with the right to sublicense) to make, have made, copy, modify, make derivative
works of, use, sell, and otherwise distribute such Prior Development as part of or in connection with
such product or process.
(b)
Assignment of Developments . I agree that I will, without additional
compensation, promptly make full written disclosure to the Company, and will hold in trust for the
sole right and benefit of the Company all developments, original works of authorship, inventions,
concepts, know-how, improvements, trade secrets, and similar proprietary rights, whether or not
patentable or registrable under copyright or similar laws, which I may solely or jointly conceive or
develop or reduce to practice, or have solely or jointly conceived or developed or reduced to practice,
or have caused or may cause to be conceived or developed or reduced to practice, during the
Assignment Period, whether or not during regular working hours, provided they either (i) relate at the
time of conception, development or reduction to practice to the business of any member of the
Company Group, or the actual or anticipated research or development of any member of the
Company Group; (ii) result from or relate to any work performed for any member of the Company
Group; or (iii) are developed through the use of equipment, supplies, or facilities of any member of
the Company Group, or any Confidential Information, or in consultation with personnel of any
member of the Company Group (collectively referred to as “ Developments ”). I further
acknowledge that all Developments made by me (solely or jointly with others) within the scope of
and during the Assignment Period are “works made for hire” (to the greatest extent permitted by
applicable law) for which I am, in part, compensated by my salary, unless regulated otherwise by
law, but that, in the event any such Development is deemed not to be a work made for hire, I hereby
assign to the Company, or its designee, all my right, title, and interest throughout the world in and to
any such Development.
(c)
Maintenance of Records . I agree to keep and maintain adequate and
current written records of all Developments made by me (solely or jointly with others) during the
Assignment Period. The records may be in the form of notes, sketches, drawings, flow charts,
electronic data or recordings, and any other format. The records will be available to and remain the
sole property of the Company Group at all times. I agree not to remove such records from the
Company’s place of business except as expressly permitted by Company Group policy, which may,
from time to time, be revised at the sole election of the Company Group for the purpose of furthering
the business of the Company Group.
(d)
Intellectual Property Rights . I agree to assist the Company, or its
designee, at the Company’s expense, in every way to secure the rights of the Company Group in the
Developments and any copyrights, patents, trademarks, service marks, database rights, domain
names, mask work rights, moral rights, and other intellectual property rights relating thereto in any
and all countries, including the disclosure to the Company of all pertinent information and data with
respect thereto, the execution of all applications, specifications, oaths, assignments, recordations, and
all other instruments that the Company shall deem necessary in order to apply for, obtain, maintain,
and transfer such rights and in order to assign and convey to the Company Group the sole and
exclusive right, title, and interest in and to such Developments, and any intellectual property and
other proprietary rights relating thereto. I further agree that my obligation to execute or cause to be
executed, when it is in my power to do so, any such instrument or papers shall continue after the
Assignment Period until the expiration of the last such intellectual property right to expire in any
country of the world; provided
, however
, the Company shall reimburse me for my reasonable
expenses incurred in connection with carrying out the foregoing obligation. If the Company is
unable because of my mental or physical incapacity or unavailability for any other reason to secure
my signature to apply for or to pursue
any application for any United States or foreign patents or copyright registrations covering
Developments or original works of authorship assigned to the Company as above, then I hereby
irrevocably designate and appoint the Company and its duly authorized officers and agents as my
agent and attorney in fact to act for and in my behalf and stead to execute and file any such
applications or records and to do all other lawfully permitted acts to further the application for,
prosecution, issuance, maintenance, and transfer of letters patent or registrations thereon with the
same legal force and effect as if originally executed by me. I hereby waive and irrevocably quitclaim
to the Company any and all claims, of any nature whatsoever, that I now or hereafter have for past,
present, or future infringement of any and all proprietary rights assigned to the Company.
Section 3.
Returning Company Group Documents .
I agree that, at the time of termination of my employment with the Company for any
reason, I will deliver to the Company (and will not keep in my possession, recreate, or deliver to
anyone else) any and all Confidential Information and all other documents, materials, information,
and property developed by me pursuant to my employment or otherwise belonging to the Company. I
agree further that any property situated on the Company’s premises and owned by the Company (or
any other member of the Company Group), including disks and other storage media, filing cabinets,
and other work areas, is subject to inspection by personnel of any member of the Company Group at
any time with or without notice.
Section 4.
Disclosure of Agreement .
As long as it remains in effect, I will disclose the existence of this Non-Interference
Agreement to any prospective employer, partner, co-venturer, investor, or lender prior to entering
into an employment, partnership, or other business relationship with such person or entity.
Section 5.
Restrictions on Interfering .
(a)
Non-Competition . During the period of my employment with the
Company (the “ Employment Period ”) and the Post-Termination Non-Compete Period, I shall not,
directly or indirectly, individually or on behalf of any person, company, enterprise, or entity, or as a
sole proprietor, partner, stockholder, director, officer, principal, agent, or executive, or in any other
capacity or relationship, engage in any Competitive Activities in any jurisdiction in which the
Company Group is engaged in (or has demonstrable plans to commence) business activities. .
(b)
Non-Interference . During the Employment Period and the Post-
Termination Non-Interference Period, I shall not, directly or indirectly for my own account or for the
account of any other individual or entity, engage in Interfering Activities.
(c)
Definitions . For purposes of this Non-Interference Agreement:
(i)
“ Business Relation ” shall mean any current or prospective
client, customer, licensee, or other business relation of the Company Group, or any such
relation that was a client, customer, licensee, supplier, or other business relation within
the six (6) month period prior to the expiration of the Employment Period, in each case, to
whom I provided services, or with whom I transacted business, or whose identity became
known to me in connection with my relationship with or employment by the Company.
(ii)
“ Competitive Activities ” shall mean any business activity that
is competitive with the then-current or demonstrably planned business activities of the
Company Group.
(iii)
“ Interfering Activities ” shall mean (A) encouraging,
soliciting, or inducing, or in any manner attempting to encourage, solicit, or induce, any
Person employed by, or providing consulting services to, any member of the Company Group
to terminate such Person’s employment or services (or in the case of a consultant, materially
reducing such services) with the Company Group; (B) hiring any individual who was
employed by the Company Group within the six (6) month period prior to the date of such
hiring and with whom I had contact with during the Employment Period within the six (6)
month period prior to the date of such hiring; or (C) encouraging, soliciting, or inducing, or in
any manner attempting to encourage, solicit, or induce, any Business Relation to cease doing
business with or reduce the amount of business conducted with the Company Group, or in any
way interfering with the relationship between any such Business Relation and the Company
Group.
“ Person ” shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint‑stock company, trust (charitable or
non-charitable), unincorporated organization, or other form of business entity.
(iv)
(v)
“ Post-Termination Non-Compete Period ” shall mean the
period commencing on the date of the termination of the Employment Period for any reason
and ending on the six (6) month anniversary of such date of termination.
“ Post-Termination Non-Interference Period ” shall mean the
period commencing on the date of the termination of the Employment Period for any reason
and ending on the twelve (12) month anniversary of such date of termination.
(vi)
(d)
Non-Disparagement . I agree that during the Employment Period, and
at all times thereafter, I will not make any disparaging or defamatory comments regarding any
member of the Company Group or its respective current or former directors, officers, or employees in
any respect or make any comments concerning any aspect of my relationship with any member of the
Company Group or any conduct or events which precipitated any termination of my employment
from any member of the Company Group. However, my obligations under this subparagraph (d)
shall not apply to disclosures required by applicable law, regulation, or order of a court or
governmental agency.
Section 6.
Reasonableness of Restrictions .
I acknowledge and recognize the highly competitive nature of the Company’s
business, that access to Confidential Information renders me special and unique within the
Company’s industry, and that I will have the opportunity to develop substantial relationships with
existing and prospective clients, accounts, customers, consultants, contractors, investors, and strategic
partners of the Company Group during the course of and as a result of my employment with the
Company. In light of the foregoing, I recognize and acknowledge that the restrictions and limitations
set forth in this Non-Interference Agreement are reasonable and valid in geographical and temporal
scope and in all other respects and are essential to protect the value of the business and assets of the
Company Group. I acknowledge further that the restrictions and limitations set forth in this Non-
Interference Agreement will not materially interfere with my ability to earn a living following the
termination of my employment with the Company and that my ability to earn a livelihood without
violating such restrictions is a material condition to my employment with the Company.
Section 7.
Independence; Severability; Blue Pencil .
Each of the rights enumerated in this Non-Interference Agreement shall be
independent of the others and shall be in addition to and not in lieu of any other rights and remedies
available to the Company Group at law or in equity. If any of the provisions of this Non-Interference
Agreement or any part of any of them is hereafter construed or adjudicated to be invalid or
unenforceable, the same shall not affect the remainder of this Non-Interference Agreement, which
shall be given full effect without regard to the invalid portions. If any of the covenants contained
herein are held to be invalid or unenforceable because of the duration of such provisions or the area
or scope covered thereby, I agree that the court making such determination shall have the power to
reduce the duration, scope, and/or area of such provision to the maximum and/or broadest duration,
scope, and/or area permissible by law, and in its reduced form said provision shall then be
enforceable.
Section 8.
Injunctive Relief .
I expressly acknowledge that any breach or threatened breach of any of the terms
and/or conditions set forth in this Non-Interference Agreement may result in substantial, continuing,
and irreparable injury to the members of the Company Group. Therefore, I hereby agree that, in
addition to any other remedy that may be available to the Company, any member of the Company
Group shall be entitled to seek injunctive relief, specific performance, or other equitable relief by a
court of appropriate jurisdiction in the event of any breach or threatened breach of the terms of this
Non-Interference Agreement without the necessity of proving irreparable harm or injury as a result of
such breach or threatened breach. Notwithstanding any other provision to the contrary, I
acknowledge and agree that the Post-Termination Non-Compete Period, or Post-Termination Non-
Interference Period, as applicable, shall be tolled during any period of violation of any of the
covenants in Section 5 hereof and during any other period required for litigation during which the
Company or any other member of the Company Group seeks to enforce such covenants against me if
it is ultimately determined that I was in breach of such covenants.
Section 9.
Cooperation .
I agree that, following any termination of my employment, I will continue to provide
reasonable cooperation to the Company and/or any other member of the Company
Group and its or their respective counsel in connection with any investigation, administrative
proceeding, or litigation relating to any matter that occurred during my employment in which I was
involved or of which I have knowledge. As a condition of such cooperation, the Company shall
reimburse me for reasonable out-of-pocket expenses incurred at the request of the Company with
respect to my compliance with this paragraph. I also agree that, in the event that I am subpoenaed by
any person or entity (including, but not limited to, any government agency) to give testimony or
provide documents (in a deposition, court proceeding, or otherwise) that in any way relates to my
employment by the Company and/or any other member of the Company Group, I will give prompt
notice of such request to the Company and will make no disclosure until the Company and/or the
other member of the Company Group has had a reasonable opportunity to contest the right of the
requesting person or entity to such disclosure.
Section 10. General Provisions .
(a)
Governing Law and Jurisdiction . EXCEPT WHERE PREEMPTED
BY FEDERAL LAW, THE VALIDITY, INTERPRETATION, CONSTRUCTION, AND
PERFORMANCE OF THIS NON-INTERFERENCE AGREEMENT IS GOVERNED BY AND IS
TO BE CONSTRUED UNDER THE LAWS OF THE STATE OF COLORADO APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN THAT STATE, WITHOUT REGARD TO
CONFLICT OF LAWS RULES. FURTHER, I HEREBY WAIVE ANY RIGHT TO TRIAL BY
JURY IN CONNECTION WITH ANY SUIT, ACTION, OR PROCEEDING UNDER OR IN
CONNECTION WITH THIS NON-INTERFERENCE AGREEMENT.
(b)
Entire Agreement . This Non-Interference Agreement sets forth the
entire agreement and understanding between the Company and me relating to the subject matter
herein and merges all prior discussions between us. No modification or amendment to this Non-
Interference Agreement, nor any waiver of any rights under this Non-Interference Agreement, will be
effective unless in writing signed by the party to be charged. Any subsequent change or changes in
my duties, obligations, rights, or compensation will not affect the validity or scope of this Non-
Interference Agreement.
(c)
No Right of Continued Employment . I acknowledge and agree that
nothing contained herein shall be construed as granting me any right to continued employment by the
Company, and the right of the Company to terminate my employment at any time and for any reason,
with or without cause, is specifically reserved.
(d)
Successors and Assigns . This Non-Interference Agreement will be
binding upon my heirs, executors, administrators, and other legal representatives and will be for the
benefit of the Company, its successors, and its assigns. I expressly acknowledge and agree that this
Non-Interference Agreement may be assigned by the Company without my consent to any other
member of the Company Group as well as any purchaser of all or substantially all of the assets or
stock of the Company, whether by purchase, merger, or other similar corporate transaction, provided
that the license granted pursuant to Section 2(a) may be assigned to any third party by the Company
without my consent.
Survival . The provisions of this Non-Interference Agreement shall
survive the termination of my employment with the Company and/or the assignment of this Non-
Interference Agreement by the Company to any successor in interest or other assignee.
(e)
* * *
I, Lindsey Rolfe, have executed this Confidentiality, Non-Interference, and Invention
Assignment Agreement on the respective date set forth below:
Date:February 27, 2019
/s/ Lindsey Rolfe
(Signature)
Dr. Lindsey Rolfe
(Type/Print Name)
SCHEDULE A
LIST OF PRIOR DEVELOPMENTS
AND ORIGINAL WORKS OF AUTHORSHIP
EXCLUDED FROM SECTION 2
Title
Date
Identifying Number or
Brief Description
__X __ No Developments or improvements
_____ Additional Sheets Attached
Signature of Employee: /s/ Lindsey Rolfe_ _________
Print Name of Employee: Dr. Lindsey Rolfe
Date: February 27, 2019
{W0833408 JBG}
CLOVIS ONCOLOGY UK LIMITED
Confidential Information, Invention Assignment and
Non-Solicitation Agreement
This CONFIDENTIAL INFORMATION, INVENTION ASSIGNMENT AND NON-SOLICITATION
AGREEMENT (“ Agreement ”) is made and entered into effective this 23rd day of May, 2017, by and
between Dr. Lindsey Rolfe (“ Employee ”) and CLOVIS ONCOLOGY UK LIMITED. (“ Clovis ” or “
Company ”). This Agreement is intended to supersede and replace all other agreements relating to the
subject matter of this Agreement that may exist between Employee and Clovis. Employee and Clovis may
be collectively referred to in this Agreement as the “ Parties .”
INTRODUCTION
A. Clovis is a biotechnology company focused on acquiring,
developing and commercializing
innovative anti-cancer agents in the United States, Europe and throughout the world. These activities,
together with all other activities that Clovis may conduct in the future during the period that Employee is
employed by the Company, are referred to in this Agreement as the “ Company’s Business .”
B. In developing and carrying out the Company’s Business, Clovis has generated, developed and
acquired a great deal of confidential and proprietary information which is of significant value to the
Company. Clovis has also established and developed valuable relationships with a number of important
customers and vendors throughout the world and has acquired valuable and confidential information relating
to these customers and vendors. In addition, Clovis has recruited and trained a highly skilled work force
and has acquired confidential information regarding the skills, experience, expertise and compensation
levels of its employees and consultants which is of significant value to the Company. Clovis has expended
considerable time, effort, money and other resources in generating, developing and acquiring this valuable
confidential and proprietary information and such information gives the Company competitive advantages
over other entities involved in the research, design, development, testing, marketing and sale of anti-cancer
agents and oncology compounds. The unauthorized disclosure of Clovis’s confidential and proprietary
information to third parties, or the unauthorized use of such information by third parties, could significantly
damage the Company and seriously jeopardize the competitive advantages it now enjoys over its
competitors. It is thus Clovis’s intention and desire to protect and maintain the confidentiality of its
confidential and proprietary information and to make sure that such information is used and disclosed only
to the extent necessary to develop and carry out the Company’s Business.
C. Employee desires to become an employee of Clovis, or, if already an employee, desires to
continue his/her present employment with the Company. By virtue of Employee’s position with Clovis,
Employee has acquired and/or will from time to time in the future acquire knowledge of confidential and
proprietary information relating to the Company’s Business, its customers, vendors, employees and
consultants. Employee understands and acknowledges that this confidential and proprietary information is
of significant value to Clovis and that the Company has expended considerable time, effort, money and
other resources in generating, developing and acquiring this information. Employee further understands and
acknowledges that the unauthorized disclosure or use of Clovis’s confidential and proprietary information
would be susceptible to immediate competitive application by a competitor of Clovis and could significantly
harm the Company.
D. Clovis wishes to employ Employee, or if already employed, wishes to continue the employment
of Employee but only if such employment can be maintained in a manner consistent with the
11
protection of the Company’s confidential and proprietary information. The Parties thus desire to provide for
the protection of Clovis’s confidential and proprietary information and are entering into this Agreement to
accomplish that objective.
AGREEMENT
As part of and as a condition to Employee’s continued employment with Clovis, Employee agrees to
the confidentiality, invention assignment and non-solicitation provisions set forth below:
1. Protection of Trade Secrets and Confidential Information .
techniques,
research results,
manufacturing protocols,
“Confidential Information” means all
a. Definition of “Confidential Information.”
nonpublic information concerning the Company’s Business, including, but not limited to, trade
secrets used, developed, or acquired by Clovis in connection with the Company’s Business. The
Confidential Information includes nonpublic technical information used, developed or acquired by
Clovis including know-how, memoranda, notes, records, designs, specifications, research and
development information,
processes,
materials, apparatus, compilations, programs, formulae, source code information or product
samples; nonpublic information concerning the manner and details of Clovis’s operation,
organization and management; nonpublic financial information including business projections,
corporate strategic plans, financial structure and status, marketing strategy, marketing data, sales
information, sales strategy and pricing data; nonpublic policies, procedures and other printed,
written or computerized material generated or used in connection with the Company’s Business;
nonpublic forms, contracts and other documents used in the Company’s Business; nonpublic
information concerning Clovis’s customers and prospective customers including the identities of
such customers, the identities of the representatives of such customers with whom Clovis deals, the
details of Clovis’s relationship with such customers, the needs and preferences of such customers,
the prices and fees charged to such customers, and the products purchased by such customers;
nonpublic information concerning Clovis’s suppliers and contractors, including the identities of such
suppliers and contractors, the identities of the representatives of the suppliers and contractors with
whom Clovis deals, and the details of Clovis’s relationship with such suppliers and contractors;
nonpublic information concerning Clovis’s employees and consultants, including the identities of
such employees and consultants, the skills and expertise of such employees and consultants, the
positions held and the work performed by such employees and consultants, and the terms and
conditions of Clovis’s employment relationships with such employees and consultants, including the
compensation paid to such employees and consultants; the nature and content of computer software
and hardware used in the Company’s Business, whether proprietary to Clovis or used by Clovis
under license from a third party; and all other nonpublic information concerning Clovis’s concepts,
prospects, customers, suppliers, contractors, employees, consultants, earnings, products, services,
equipment, systems, and/or prospective and executed contracts and other business arrangements.
b. Employee’s Use and Disclosure of Confidential Information. Except in connection
with and in furtherance of Employee’s work on Clovis’s behalf, Employee shall
not
, without
Clovis’s prior written consent, at any time, directly or indirectly, use, disclose or otherwise
communicate any Confidential Information to any person or entity.
c. Records Containing Confidential Information. All documents or other records (in
whatever medium recorded, including computerized and electronic records) containing Confidential
Information (“ Confidential Documents ”) prepared by or provided to the Employee are and shall
remain the sole property of Clovis. Except with Clovis’s prior written consent, Employee shall
not
copy or use any Confidential Document for any purpose not directly relating
12
to Employee’s work on Clovis’s behalf, or use, disclose or sell any Confidential Document to any
person or entity other than Clovis. Upon the termination of Employee’s employment relationship or
association with Clovis or upon Clovis’s request, Employee shall immediately deliver to Clovis or
its designee (and shall not keep in Employee’s possession or deliver to anyone else) all Confidential
Documents (including all copies) and all other property belonging to Clovis. In the event Employee
fails or refuses to return all property belonging to Clovis upon the Company’s request, Employee
authorizes Clovis to withhold from any sums owed to Employee (including unpaid compensation)
the value or replacement cost of any property of Clovis in Employee’s control or possession. This
right to withhold any sums owed to Employee is in addition to all other rights available to Clovis.
d. Confidential Information Belonging to Employee’s Former Employers. Employee
shall
not
, during his/her employment or association with Clovis, improperly use or disclose any
proprietary information or trade secrets belonging to any former employer or any third party to
whom Employee owes a duty of nondisclosure.
2. Inventions .
a. Disclosure. Upon Clovis’s request, Employee shall promptly disclose in writing to the
President of the Company, or his designee, all information, ideas, observations, data and records
arising out of or obtained in the course of Employee’s work with Clovis, and all those discoveries,
inventions, devices, machines, processes, designs, composition of matter and improvements to any
of the foregoing, that Employee learns of, conceives, develops or creates alone or with others during
the term of Employee’s employment (whether or not conceived, developed or created during work
hours) that directly or indirectly arise from or relate to: (i) the Company’s Business; (ii) work
performed for Clovis by the Employee or any other Clovis employee; (iii) the use of Clovis’s
property or time; or (iv) access to Clovis’s Confidential Information and/or Confidential
Documents.
without further consideration,
b. Assignment. Employee assigns to Clovis,
entire right to any concept, idea or invention described in the preceding subparagraph, which shall
be the sole and exclusive property of Clovis whether or not subject to patent, copyright, trademark
or trade secret protection under applicable law (“Assignable Inventions”). Employee also
acknowledges that all original works of authorship which are made by Employee (solely or jointly
with others), within the scope of Employee’s employment, and which are protectable by copyright,
are “works made for hire,” as that term is defined in the United States Copyright Act (17 U.S.C. §
101). To the extent any such works, by operation of law, cannot be “works made for hire,”
Employee assigns to Clovis all right, title, and interest in and to such works and to any related
copyrights.
Employee’s
c. Assistance in Protecting the Assignable Inventions. Employee agrees to assist Clovis,
upon Clovis’s request and at its expense, during or after Employee’s employment, in every
reasonable way, to obtain for Clovis’s own benefit, patents, trademarks, copyrights, mask work
rights or other proprietary rights for the Assignable Inventions in any and all countries. Employee
further agrees to execute such papers and perform such lawful acts as Clovis deems to be necessary
to allow it to exercise all rights, title, and interest in such patents, trademarks, copyrights, and mask
work rights, including executing, acknowledging, and/or delivering to the Company upon request
and at its expense, applications for and assignments of the Assignable Inventions, and patents,
trademarks, copyrights and mask work rights to be issued therefor, in any and all countries, and to
vest title thereto in Clovis or its nominee.
13
d. Prior Inventions. Clovis and Employee understand and agree that all inventions made
by Employee prior to Employee’s employment with Clovis are excluded from the scope of this
Agreement. To eliminate any possibility of uncertainty, Employee has set forth on Schedule A
attached hereto a complete list of all of Employee’s prior inventions which are not the property of a
previous employer, including the identification of all patents and patent applications, copyright,
trademark and mask work registrations,
unregistered
inventions. Employee represents and promises that the list is complete and that, if an item is not on
the list, Employee claims no right in such prior invention. Employee agrees to notify Clovis in
writing before making any disclosure or performing any work on behalf of the Company which uses
or appears to threaten or conflict with proprietary rights that Employee claims in any invention. In
the event Employee fails to give such notice, Employee agrees that Employee will not make any
claim against the Company with respect to any such inventions.
description of
and a brief
all
3. No Competing Employment While Employed By Clovis . During the period of
Employee’s employment with Clovis, Employee shall not engage, directly or indirectly, in any activities that
compete with or conflict with the Company’s Business without Clovis’s prior written consent.
4. Non-Solicitation and Non-Interference . During the period of Employee’s employment with
Clovis and for the 12-month period immediately following the termination of Employee’s employment
relationship with Clovis, Employee shall
not
do any of the following without Clovis’s prior written consent:
a. Directly or indirectly suggest, solicit, assist or encourage any employee, contractor or
consultant of Clovis to terminate their employment, contractor or consulting relationship with the
Company.
b. Directly or indirectly recruit, solicit for employment or attempt to hire any person who
was employed by Clovis at any time during the 12-month period immediately preceding the
termination of Employee’s employment relationship with Clovis to work for any person, firm or
entity of or for which Employee is an officer, director, employee, consultant, independent contractor
or owner of equity or other financial interest.
c. Directly or indirectly assist any other person or entity in employing or soliciting for
employment any employee or consultant of Clovis.
d. Interfere or attempt to interfere with any project, transaction, agreement or business
relationship in which Clovis was involved at any time during the period that Employee was
employed by Clovis.
e. Directly or indirectly request or advise any past or present client, customer, contractor,
vendor or investor of Clovis to withdraw, curtail, cancel, or not undertake a contractual or business
relationship with Clovis.
5. Survival.
Employee’s employment relationship or association with Clovis.
Employee’s obligations under this Agreement shall survive the termination of
6. Remedies . Employee acknowledges that upon a breach of any obligation under this Agreement,
Clovis may suffer immediate and irreparable harm and damage for which money alone cannot fully
compensate Clovis. Employee therefore agrees that upon any breach or threat of imminent breach of any
obligation under this Agreement, Clovis shall be entitled to, in addition to any and all remedies at law
(including monetary damages), the right to a restraining order, injunction, specific performance or other
equitable relief, without posting any bond or other security, to prevent the violation of Employee's
obligations under this Agreement.
14
7. Status of Employment Relationship . Nothing contained in this Agreement shall be construed
as impairing or affecting the “at will” employment relationship between the Parties. This means that unless
Employee enters into a written employment agreement with Clovis that provides otherwise, either Employee
or Clovis may terminate their employment relationship at any time for any lawful reason. Employee
understands and agrees that his/her obligations under this Agreement shall continue whether or not
Employee's employment relationship with Clovis is terminated voluntarily or involuntarily with or without
any reason.
8. Miscellaneous . (a) Heirs and Assigns. This Agreement shall be binding upon Employee’s
heirs, executors, administrators or other legal representatives, shall inure to the benefit of Clovis, its
successors or assigns, and shall be freely assignable by Clovis, but not by Employee. (b) Governing Law.
This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado,
irrespective of the choice of law rules of any jurisdiction. (c) Severability. If any court of competent
jurisdiction declares any provision of this Agreement invalid or unenforceable, that invalidity or
unenforceability shall not affect any other provision or application of this Agreement that can be given
effect without the invalid or unenforceable provision or application. (d) Disputes. Any action arising from
or relating in any way to this Agreement shall be brought in courts located within the State of Colorado and
the Parties hereby consent to the exercise of personal jurisdiction by such courts. (e) Opportunity to
Consult with Legal Counsel. Employee acknowledges that he/she has been encouraged and given the
opportunity by the Company to consult with an attorney of his/her own choice and at his/her own expense
regarding the terms and legal effect of this Agreement.
I Have Read This Agreement Carefully, Understand All of Its Provisions, and Agree to be Fully
Bound by this Agreement.
EMPLOYEE:
Signature: /s/ Lindsey Rolfe_ _________________
Print Name: Dr. Lindsey Rolfe ________________
Date: ____23 May 2017_______________ _
Address: _________________________________
_________________________________
CLOVIS ONCOLOGY UK LIMITED
By: Paul Gross_ _______________________________
Its: Director__ ________________________________
Date: 23 May 2017____________________ ____
15
SCHEDULE
A
List of Prior Inventions and Original Works of Authorship
Excluded from Assignment to Clovis Pursuant to Section 2.d
of Confidential Information Agreement
Title of Invention or Work
Date
Identifying Number or Brief
Description of Invention or Work
_X_ No inventions or improvements
___ Additional Sheets Attached
Signature of Employee/Consultant: /s/ Lindsey Rolfe ________ Date: 23 May 2017
Print Name of Employee/Consultant: Dr. Lindsey Rolfe_ _____
{W0833408 JBG}
EMPLOYMENT AGREEMENT
Exhibit 10.38
This EMPLOYMENT AGREEMENT (this “ Agreement ”) is made and entered into as of
this 6 day of July 2017, by and between Clovis Oncology, Inc., a Delaware corporation (the “ Company
”), and Paul Gross (the “ Employee ”).
th
W I T N E S S E T H :
WHEREAS, Employee is currently employed by the Company as its Senior Vice
President, General Counsel and Chief Compliance Officer; and
WHEREAS, the Company desires to continue to employ Employee and to enter into this
Agreement embodying the terms of such employment, and Employee desires to enter into this Agreement
and to accept such continued employment, subject to the terms and provisions of this Agreement.
NOW, THEREFORE, in consideration of the promises and mutual covenants contained
herein and for other good and valuable consideration, the receipt and sufficiency of which are mutually
acknowledged, the Company and Employee hereby agree as follows:
Section 1. Definitions .
(a) “ Accounting Firm ” shall have the meaning set forth in Section 13(b) hereof.
(b) “ Accrued Obligations ” shall mean (i) all accrued but unpaid Base Salary through
the date of termination of Employee’s employment, (ii) any unpaid or unreimbursed expenses incurred
prior to the date of termination in accordance with Section 7 hereof, and (iii) any benefits provided under
the Company’s employee benefit plans upon a termination of employment (excluding any employee
benefit plan providing for severance or similar benefits), in accordance with the terms contained therein.
(c) “ Agreement ” shall have the meaning set forth in the preamble hereto.
(d) “ Annual Bonus ” shall have the meaning set forth in Section 4(b) hereof.
(e) “ Base Salary ” shall mean the salary provided for in Section 4(a) hereof or any
increased salary granted to Employee pursuant to Section 4(a) hereof.
(f) “ Board ” shall mean the Board of Directors of the Company.
(g) “ Change in Control ” shall have the meaning ascribed to such term in the Stock
Incentive Plan.
(h) “ Code ” shall mean the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
(i) “ Company ” shall have the meaning set forth in the preamble hereto.
(j) “ Company Group ” shall mean the Company together with any direct or indirect
subsidiaries of the Company.
(k) “ Compensation Committee ” shall mean the committee of the Board designated to
make compensation decisions relating to senior executive officers of the Company Group. Prior to any
time that such a committee has been designated, the Board shall be deemed the Compensation Committee
for purposes of this Agreement.
(l) “ Delay Period ” shall have the meaning set forth in Section 13 hereof.
(m) “ Disability ” shall mean any physical or mental disability or infirmity of
Employee that prevents the performance of Employee’s duties for a period of (i) ninety (90) consecutive
days or (ii) one hundred twenty (120) non-consecutive days during any twelve (12) month period. Any
question as to the existence, extent, or potentiality of Employee’s Disability upon which Employee and
the Company cannot agree shall be determined by a qualified, independent physician selected by the
Company and approved by Employee (which approval shall not be unreasonably withheld). The
determination of any such physician shall be final and conclusive for all purposes of this Agreement.
(n) “ Employee ” shall have the meaning set forth in the preamble hereto.
(o) “ Excess Payment ” shall have the meaning ascribed to such term in Section 13(b)
below.
(p) “ Excise Tax ” shall have the meaning set forth in Section 13(b) hereof.
(q) “ Good Reason ” shall mean, without Employee’s consent, (i) a material
diminution in Employee’s title, duties, or responsibilities as set forth in Section 3 hereof such that
Employee is no longer serving in a senior executive capacity for the Company, (ii) a material reduction in
Base Salary set forth in Section 4(a) hereof or Annual Bonus opportunity set forth in Section 4(b) hereof
(other than pursuant to an across-the-board reduction applicable to all similarly situated executives), (iii)
the relocation of Employee’s principal place of employment (as provided in Section 3(c) hereof) more
than fifty (50) miles from its current location, or (iv) any other material breach of a provision of this
Agreement by the Company (other than a provision that is covered by clause (i), (ii), or (iii)
above). Employee acknowledges and agrees that his exclusive remedy in the event of any breach of this
Agreement shall be to assert Good Reason pursuant to the terms and conditions of Section 8(e) hereof.
Notwithstanding the foregoing, during the Term, in the event that the Company reasonably believes that
Employee may have engaged in conduct that could constitute Just Cause hereunder, the Company may, in
its sole and absolute discretion, suspend Employee for up to sixty (60) days from performing his duties
hereunder, and in no event shall any such suspension constitute an event pursuant to which Employee
may terminate employment with Good Reason or otherwise constitute a breach hereunder; provided
, that
no such suspension shall alter the Company’s obligations under this Agreement during such period of
suspension.
-2-
(r) “ Gross-Up Payment ” shall have the meaning ascribed to such term in Section
13(b) below.
(s) “ Just Cause ” shall mean that the Company, acting in good faith based upon the
information then known to it, determines that (i) Employee has committed or engaged in negligent or
willful conduct that is likely to be detrimental to the Company or any member of the Company Group;
(ii) Employee has engaged in acts which constitute theft, fraud, or other illegal or dishonest conduct
which are considered to be harmful to the Company or any member of the Company Group as determined
by the majority vote of its Board; (iii) Employee has willfully disobeyed the reasonable and lawful
directives of any superior officer or the Board; (iv) Employee has refused or is unwilling to perform his
job duties; (v) Employee has failed adequately to perform his job duties; (vi) Employee has demonstrated
habitual absenteeism; (vii) Employee is substantially dependent on alcohol or any controlled substance or
violates any general Company policy with regard to alcohol or controlled substances; (viii) Employee has
engaged in acts which constitute sexual or other forms of illegal harassment or discrimination;
(ix) Employee makes public remarks that disparage the Company, the Board, or its officers, directors,
advisors, employees, affiliates or subsidiaries; (x) Employee violates his fiduciary duty to the Company,
or his duty of loyalty to the Company; (xi) Employee materially breaches any term of this Agreement or
the Non-Interference Agreement. The Parties acknowledge that this definition of “Just Cause” in not
intended and does not apply to any aspect of the relationship between the Company and Employee
beyond determining Employee’s eligibility for severance pay pursuant to Section 8 below.
(t) “ Non-Interference Agreement ” shall mean the Confidentiality, Non-Interference,
and Invention Assignment Agreement attached hereto as Exhibit A .
(u) “ Parachute Payments ” shall have the meaning set forth in Section 13(b) hereof.
(v) “ Parachute Tax ” shall have the meaning ascribed to such term in Section 13(b)
below.
(w) “ Person ” shall mean any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust (charitable or non-charitable),
unincorporated organization, or other form of business entity.
(x) “ Release of Claims ” shall mean the Release of Claims in substantially the same
form attached hereto as Exhibit B (as the same may be revised from time to time by the Company upon
the advice of counsel to reflect changes in law).
(y) “ Severance Benefits ” shall have the meaning set forth in Section 8(g) hereof.
(z) “ Severance Term ” shall mean the six (6) month period following Employee’s
termination by the Company without Just Cause (other than by reason of death or Disability) or by
Employee for Good Reason; provided
, that if such termination occurs within twelve (12) months
following a Change in Control, the Severance Term shall be the twelve (12) month period following such
termination.
-3-
(aa) “ Stock Incentive Plan ” shall mean the Clovis Oncology, Inc. 2011 Stock
Incentive Plan, as the same may be amended and/or restated from time to time.
(bb) “ Target Bonus ” shall have the meaning set forth in Section 4(b) hereof.
(cc) “ Term ” shall mean the period specified in Section 2 hereof.
(dd) “ Underpayment ” shall have the meaning ascribed to such term in Section 13(b)
below.
Section 2. Acceptance and Term .
The Company agrees to employ Employee, and Employee agrees to serve the Company,
on the terms and conditions set forth herein. The Term shall commence on the date hereof and shall
continue until terminated in accordance with Section 8 hereof.
Section 3. Position, Duties, and Responsibilities; Place of Performance.
(a) Position, Duties, and Responsibilities . During the Term, Employee shall be
employed and serve as the Senior Vice President, General Counsel and Chief Compliance Officer of the
Company (together with such other position or positions consistent with Employee’s title as the Board
shall specify from time to time) and shall have such duties and responsibilities commensurate with such
title. Employee also agrees to serve as an officer and/or director of any other member of the Company
Group, in each case without additional compensation. During the Term, Employee shall report to the
Chief Executive Officer.
(b) Performance . Employee shall devote his full business time, attention, skill, and
best efforts to the performance of his duties under this Agreement and shall not engage in any other
business or occupation during the Term, including, without limitation, any activity that (x) conflicts with
the interests of the Company or any other member of the Company Group, (y) interferes with the proper
and efficient performance of Employee’s duties for the Company, or (z) interferes with Employee’s
exercise of judgment in the Company’s best interests. Notwithstanding the foregoing, nothing herein
shall preclude Employee from (i) serving, with the prior written consent of the Board, as a member of the
boards of directors or advisory boards (or their equivalents in the case of a non-corporate entity) of non-
competing businesses and charitable organizations, (ii) engaging in charitable activities and community
affairs, and (iii) managing his personal investments and affairs; provided
, however
, that the activities
set out in clauses (i), (ii), and (iii) shall be limited by Employee so as not to materially interfere,
individually or in the aggregate, with the performance of his duties and responsibilities hereunder.
(c) Principal Place of Employment . Employee’s principal place of employment shall
be in Boulder, Colorado, although Employee understands and agrees that he may be required to travel
from time to time for business reasons.
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Section 4. Compensation .
During the Term, Employee shall be entitled to the following compensation:
(a) Base Salary . Employee shall be paid an annualized Base Salary, payable in
accordance with the regular payroll practices of the Company, of not less than $400,000, with increases,
if any, as may be approved in writing by the Compensation Committee.
(b) Annual Bonus . Employee shall be eligible for an annual incentive bonus award
determined by the Compensation Committee in respect of each fiscal year during the Term (the “ Annual
Bonus ”). The target Annual Bonus for each fiscal year shall be 40% of Base Salary (the “ Target Bonus
”), with the actual Annual Bonus payable being based upon the level of achievement of annual Company
and individual performance objectives for such fiscal year, as determined by the Compensation
Committee and communicated to Employee. The Annual Bonus shall be paid to Employee at the same
time as annual bonuses are generally payable to other senior executives of the Company subject to
Employee’s continuous employment through the payment date.
Section 5. Employee Benefits .
During the Term, Employee shall be entitled to participate in health, insurance, retirement,
and other benefits provided generally to similarly situated employees of the Company. Employee shall
also be entitled to the same number of holidays, vacation days, and sick days, as well as any other
benefits, in each case as are generally allowed to similarly situated employees of the Company in
accordance with the Company policy as in effect from time to time. Nothing contained herein shall be
construed to limit the Company’s ability to amend, suspend, or terminate any employee benefit plan or
policy at any time without providing Employee notice, and the right to do so is expressly reserved.
Section 6. Key-Man Insurance .
At any time during the Term, the Company shall have the right to insure the life of
Employee for the sole benefit of the Company, in such amounts, and with such terms, as it may
determine. All premiums payable thereon shall be the obligation of the Company. Employee shall have
no interest in any such policy, but agrees to cooperate with the Company in procuring such insurance by
submitting to physical examinations, supplying all information required by the insurance company, and
executing all necessary documents, provided that no financial obligation is imposed on Employee by any
such documents.
Section 7. Reimbursement of Business Expenses .
During the Term, the Company shall pay (or promptly reimburse Employee) for
documented, out-of-pocket expenses reasonably incurred by Employee in the course of performing his
duties and responsibilities hereunder, which are consistent with the Company’s policies in effect from
time to time with respect to business expenses, subject to the Company’s requirements with respect to
reporting of such expenses.
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Section 8. Termination of Employment.
(a) General . The Term shall terminate upon the earliest to occur of (i) Employee’s
death, (ii) a termination by reason of a Disability, (iii) a termination by the Company with or without Just
Cause, and (iv) a termination by Employee with or without Good Reason. Upon any termination of
Employee’s employment for any reason, except as may otherwise be requested by the Company in
writing and agreed upon in writing by Employee, Employee shall be deemed to have resigned from any
and all directorships, committee memberships, and any other positions Employee holds with the
Company or any other member of the Company Group and hereby agrees to execute any documents that
the Company (or any member of the Company Group) determines necessary to effectuate such
resignations. Notwithstanding anything herein to the contrary, the payment (or commencement of a
series of payments) hereunder of any nonqualified deferred compensation (within the meaning of
Section 409A of the Code) upon a termination of employment shall be delayed until such time as
Employee has also undergone a “separation from service” as defined in Treas. Reg. 1.409A-1(h), at
which time such nonqualified deferred compensation (calculated as of the date of Employee’s termination
of employment hereunder) shall be paid (or commence to be paid) to Employee on the schedule set forth
in this Section 8 as if Employee had undergone such termination of employment (under the same
circumstances) on the date of his ultimate “separation from service.”
(b) Termination Due to Death or Disability . Employee’s employment shall terminate
automatically upon his death. The Company may terminate Employee’s employment immediately upon
the occurrence of a Disability, such termination to be effective upon Employee’s receipt of written notice
of such termination. Upon Employee’s death or in the event that Employee’s employment is terminated
due to his Disability, Employee or his estate or his beneficiaries, as the case may be, shall be entitled to:
(i) The Accrued Obligations; and
(ii) Any unpaid Annual Bonus in respect of any completed fiscal year that has
ended prior to the date of such termination, which amount shall be paid at such time annual bonuses are
paid to other senior executives of the Company, but in no event later than the date that is 2½ months
following the last day of the fiscal year in which such termination occurred.
Following Employee’s death or a termination of Employee’s employment by reason of a Disability,
except as set forth in this Section 8(b), Employee shall have no further rights to any compensation or any
other benefits under this Agreement.
(c) Termination by the Company with Just Cause .
(i) The Company may terminate Employee’s employment at any time with
Just Cause, effective upon Employee’s receipt of written notice of such termination; provided
, however
, that with respect to any Just Cause termination relying on clause (iv) or (v) of the definition of Just
Cause set forth in Section 1(r) hereof, to the extent that such act or acts or failure or failures to act are
curable, Employee shall be given not less than ten (10) days’ written
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notice by the Board of the Company’s intention to terminate him for Just Cause, such notice to state in
detail the particular act or acts or failure or failures to act that constitute the grounds on which the
proposed termination for Just Cause is based, and such termination shall be effective at the expiration of
such ten (10) day notice period unless Employee has fully cured such act or acts or failure or failures to
act that give rise to Just Cause during such period.
(ii) In the event that the Company terminates Employee’s employment with
Just Cause, he shall be entitled only to the Accrued Obligations. Following such termination of
Employee’s employment with Just Cause, except as set forth in this Section 8(c)(ii), Employee shall have
no further rights to any compensation or any other benefits under this Agreement.
(d) Termination by the Company without Just Cause . The Company may terminate
Employee’s employment at any time without Just Cause, effective upon Employee’s receipt of written
notice of such termination. In the event that Employee’s employment is terminated by the Company
without Just Cause (other than due to death or Disability), Employee shall be entitled to:
(i) The Accrued Obligations;
(ii) Any unpaid Annual Bonus in respect of any completed fiscal year that has
ended prior to the date of such termination, which amount shall be paid at such time annual bonuses are
paid to other senior executives of the Company, but in no event later than the date that is 2½ months
following the last day of the fiscal year in which such termination occurred;
accordance with the Company’s regular payroll practices;
(iii) Continued payment of Base Salary during the Severance Term, payable in
(iv) Subject to Employee’s election of COBRA continuation coverage under
the Company’s group health plan, on the first regularly scheduled payroll date of each month of the
Severance Term, the Company will pay Employee an amount equal to the “applicable percentage” of the
monthly COBRA premium cost (which, for purposes hereof, shall be the percentage of Employee’s
health care premium costs covered by the Company as of the date of termination); provided
, that the
payments pursuant to this clause (iv) shall cease earlier than the expiration of the Severance Term in the
event that Employee becomes eligible to receive any health benefits, including through a spouse’s
employer, during the Severance Term; and
following a Change in Control:
(v) In the event that such termination occurs within twelve (12) months
(A) accelerated vesting of all of Employee’s stock options and other
equity-based awards and continued exercisability of Employee’s stock options in accordance with the
terms of the plan document governing such awards; and
monthly installments during the Severance Term.
(B) an amount equal to the Target Bonus, payable in substantially equal
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Notwithstanding the foregoing, the payments and benefits described in clauses (ii), (iii), (iv), and (v)
above shall immediately terminate, and the Company shall have no further obligations to Employee with
respect thereto, in the event that Employee breaches any provision of the Non-Interference
Agreement. Following such termination of Employee’s employment by the Company without Just
Cause, except as set forth in this Section 8(d), Employee shall have no further rights to any compensation
or any other benefits under this Agreement. For the avoidance of doubt, Employee’s sole and exclusive
remedy upon a termination of employment by the Company without Just Cause shall be receipt of the
Severance Benefits.
(e) Termination by Employee with Good Reason . Employee may terminate his
employment with Good Reason by providing the Company ten (10) days’ written notice setting forth in
reasonable specificity the event that constitutes Good Reason, which written notice, to be effective, must
be provided to the Company within sixty (60) days of the occurrence of such event. During such ten (10)
day notice period, the Company shall have a cure right (if curable), and if not cured within such period,
Employee’s termination will be effective upon the expiration of such cure period, and Employee shall be
entitled to the same payments and benefits as provided in Section 8(d) hereof for a termination by the
Company without Just Cause, subject to the same conditions on payment and benefits as described in
Section 8(d) hereof. Following such termination of Employee’s employment by Employee with Good
Reason, except as set forth in this Section 8(e), Employee shall have no further rights to any
compensation or any other benefits under this Agreement. For the avoidance of doubt, Employee’s sole
and exclusive remedy upon a termination of employment with Good Reason shall be receipt of the
Severance Benefits.
(f) Termination by Employee without Good Reason . Employee may terminate his
employment without Good Reason by providing the Company thirty (30) days’ written notice of such
termination. In the event of a termination of employment by Employee under this Section 8(f), Employee
shall be entitled only to the Accrued Obligations. In the event of termination of Employee’s employment
under this Section 8(f), the Company may, in its sole and absolute discretion, by written notice accelerate
such date of termination without changing the characterization of such termination as a termination by
Employee without Good Reason. Following such termination of Employee’s employment by Employee
without Good Reason, except as set forth in this Section 8(f), Employee shall have no further rights to
any compensation or any other benefits under this Agreement.
(g) Release . Notwithstanding any provision herein to the contrary, the payment of
any amount or provision of any benefit pursuant to subsection (b), (d), or (e) of this Section 8 (other than
the Accrued Obligations) (collectively, the “ Severance Benefits ”) shall be conditioned upon Employee’s
execution, delivery to the Company, and non-revocation of the Release of Claims (and the expiration of
any revocation period contained in such Release of Claims) within sixty (60) days following the date of
Employee’s termination of employment hereunder. If Employee fails to execute the Release of Claims in
such a timely manner so as to permit any revocation period to expire prior to the end of such sixty (60)
day period, or timely revokes his acceptance of such release following its execution, Employee shall not
be entitled to any of the Severance Benefits. Further, to the extent that any of the Severance Benefits
constitutes “nonqualified deferred compensation” for purposes of Section 409A of the Code, any payment
of any amount or provision of any benefit otherwise scheduled to occur prior to the
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th
sixtieth (60 ) day following the date of Employee’s termination of employment hereunder, but for the
condition on executing the Release of Claims as set forth herein, shall not be made until the first regularly
scheduled payroll date following such sixtieth (60 ) day, after which any remaining Severance Benefits
shall thereafter be provided to Employee according to the applicable schedule set forth herein. For the
avoidance of doubt, in the event of a termination due to Employee’s death or Disability, Employee’s
obligations herein to execute and not revoke the Release of Claims may be satisfied on his behalf by his
estate or a person having legal power of attorney over his affairs.
th
Section 9. Non-Interference Agreement .
As a condition of, and prior to commencement of, Employee’s employment with the
Company, Employee shall have executed and delivered to the Company the Non-Interference
Agreement. The parties hereto acknowledge and agree that this Agreement and the Non-Interference
Agreement shall be considered separate contracts, and the Non-Interference Agreement will survive the
termination of this Agreement for any reason.
Section 10. Representations and Warranties of Employee .
Employee represents and warrants to the Company that —
(a) Employee is entering into this Agreement voluntarily and that his employment
hereunder and compliance with the terms and conditions hereof will not conflict with or result in the
breach by him of any agreement to which he is a party or by which he may be bound;
(b) Employee has not violated, and in connection with his employment with the
Company will not violate, any non-solicitation, non-competition, or other similar covenant or agreement
of a prior employer by which he is or may be bound; and
(c) in connection with his employment with the Company, Employee will not use any
confidential or proprietary information he may have obtained in connection with employment with any
prior employer.
Section 11. Taxes .
The Company may withhold from any payments made under this Agreement all applicable
taxes, including but not limited to income, employment, and social insurance taxes, as shall be required
by law. Employee acknowledges and represents that the Company has not provided any tax advice to
him in connection with this Agreement and that he has been advised by the Company to seek tax advice
from his own tax advisors regarding this Agreement and payments that may be made to him pursuant to
this Agreement, including specifically, the application of the provisions of Section 409A of the Code to
such payments.
Section 12. Set Off; Mitigation .
The Company’s obligation to pay Employee the amounts provided and to make the
arrangements provided hereunder shall be subject to set-off, counterclaim, or recoupment of
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amounts owed by Employee to the Company or its affiliates; provided
, however
, that to the extent any
amount so subject to set-off, counterclaim, or recoupment is payable in installments hereunder, such set-
off, counterclaim, or recoupment shall not modify the applicable payment date of any installment, and to
the extent an obligation cannot be satisfied by reduction of a single installment payment, any portion not
satisfied shall remain an outstanding obligation of Employee and shall be applied to the next installment
only at such time the installment is otherwise payable pursuant to the specified payment
schedule. Employee shall not be required to mitigate the amount of any payment provided pursuant to
this Agreement by seeking other employment or otherwise, and except as provided in Section 8(d)(iv)
hereof, the amount of any payment provided for pursuant to this Agreement shall not be reduced by any
compensation earned as a result of Employee’s other employment or otherwise.
Section 13. Additional Tax Provisions .
(a) Section 409A Provisions . Notwithstanding any provision in this Agreement to
the contrary —
(i) Any payment otherwise required to be made hereunder to Employee at any
date as a result of the termination of Employee’s employment shall be delayed for such period of time as
may be necessary to meet the requirements of Section 409A(a)(2)(B)(i) of the Code (the “ Delay Period
”). On the first business day following the expiration of the Delay Period, Employee shall be paid, in a
single cash lump sum, an amount equal to the aggregate amount of all payments delayed pursuant to the
preceding sentence, and any remaining payments not so delayed shall continue to be paid pursuant to the
payment schedule set forth herein.
separate payment for purposes of Section 409A of the Code.
(ii) Each payment in a series of payments hereunder shall be deemed to be a
(iii) To the extent that any right to reimbursement of expenses or payment of
any benefit in-kind under this Agreement constitutes nonqualified deferred compensation (within the
meaning of Section 409A of the Code), (i) any such expense reimbursement shall be made by the
Company no later than the last day of the taxable year following the taxable year in which such expense
was incurred by Employee, (ii) the right to reimbursement or in-kind benefits shall not be subject to
liquidation or exchange for another benefit, and (iii) the amount of expenses eligible for reimbursement
or in-kind benefits provided during any taxable year shall not affect the expenses eligible for
reimbursement or in-kind benefits to be provided in any other taxable year; provided
, that the foregoing
clause shall not be violated with regard to expenses reimbursed under any arrangement covered by
Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the
arrangement is in effect.
(iv) While the payments and benefits provided hereunder are intended to be
structured in a manner to avoid the implication of any penalty taxes under Section 409A of the Code, in
no event whatsoever shall the Company or any of its affiliates be liable for any additional tax, interest, or
penalties that may be imposed on Employee as a result of Section 409A of the Code or any damages for
failing to comply with Section 409A of the Code (other
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than for withholding obligations or other obligations applicable to employers, if any, under Section 409A
of the Code).
(b) Parachute Payment Gross-Up . If any payment, benefit, or distribution of any
type to or for the benefit of Employee, whether paid or payable, provided or to be provided, or distributed
or distributable pursuant to the terms of this Agreement or otherwise (collectively, the “ Parachute
Payments ”) would subject Employee to the excise tax imposed under Section 4999 of the Code (the “
Excise Tax ”), the Company will make an additional payment to Employee in an amount (the “ Gross-Up
Payment ”) such that, after payment all taxes and any interest or penalties imposed with respect to such
taxes (including, without limitation, federal, state, local income, employment, excise and other similar
taxes, but excluding any taxes imposed under Section 409A of the Code) (the “ Parachute Tax ”) on both
the Parachute Payments and the Gross-Up Payment, Employee will be in the same position as if no
Parachute Tax had been imposed; provided
, that in no event may the Gross-Up Payment exceed
$2,000,000. Any Gross-Up Payment shall be timely paid by the Company on Employee’s behalf directly
to the appropriate taxing authorities when due, but in all events no later than the last day of the calendar
year after the calendar year in which the Parachute Tax shall be paid. The determinations with respect to
this Section 13(b) shall be made by an independent accounting firm selected by the Company and
reasonably acceptable to Employee (the “ Accounting Firm ”) paid by the Company.
(i) It is possible that, after the determinations and selections made pursuant to
Section 13(b), Employee will receive Parachute Payments and Gross-Up Payments that are, in the
aggregate, either more or less than the limitations provided in Section 13(b) above (hereafter referred to
as an “ Excess Payment ” or “ Underpayment ”, respectively). If it is established, pursuant to a final
determination of a court or an Internal Revenue Service proceeding that has been finally and conclusively
resolved, that an Excess Payment has been made, then Employee shall refund the Excess Payment to the
Company promptly on demand, together with an additional payment in an amount equal to the product
obtained by multiplying the Excess Payment times the applicable annual federal rate (as determined in
and under Section 1274(d) of the Code) times a fraction whose numerator is the number of days elapsed
from the date of Employee’s receipt of such Excess Payment through the date of such refund and whose
denominator is 365. In the event that it is determined (y) by a court of competent jurisdiction, or (z) by
the Accounting Firm upon request by Employee or the Company, that an Underpayment has occurred, the
Company shall pay an amount equal to the Underpayment to Employee within ten (10) days of such
determination together with an additional payment in an amount equal to the product obtained by
multiplying the Underpayment times the applicable annual federal rate (as determined in and under
Section 1274(d) of the Code) times a fraction whose numerator is the number of days elapsed from the
date of the Underpayment through the date of such payment and whose denominator is 365; provided
,
that in no event shall the sum of (i) the Gross-Up Payment, and (ii) the additional payment pursuant to
this sentence, exceed $2,000,000.
(ii) Any Gross-Up Payment, as determined pursuant to this Section 13(b), shall
be paid by the Company and remitted to the relevant tax authorities when such payment is due, provided
that in no event shall such payment be made later than the end of your taxable year next following
Employee’s taxable year in which the Parachute Tax on a Parachute
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Payment are remitted to the Internal Revenue Service or any other applicable taxing authority or, in the
case of amounts relating to a claim described in Section 13(b)(i) that does not result in the remittance of
any federal, state, local and foreign income, excise, social security and other taxes, the calendar year in
which the claim is finally settled or otherwise resolved.
Section 14. Successors and Assigns; No Third-Party Beneficiaries .
(a) The Company . This Agreement shall inure to the benefit of the Company and its
respective successors and assigns. Neither this Agreement nor any of the rights, obligations, or interests
arising hereunder may be assigned by the Company to a Person (other than another member of the
Company Group, or its or their respective successors) without Employee’s prior written consent (which
shall not be unreasonably withheld, delayed, or conditioned); provided
, however
, that in the event of a
sale of all or substantially all of the assets of the Company or any direct or indirect division or subsidiary
thereof to which the Employee’s employment primarily relates, the Company may provide that this
Agreement will be assigned to, and assumed by, the acquiror of such assets, it being agreed that in such
circumstances, Employee’s consent will not be required in connection therewith.
(b) Employee . Employee’s rights and obligations under this Agreement shall not be
transferable by Employee by assignment or otherwise, without the prior written consent of the Company;
provided
, however
, that if Employee shall die, all amounts then payable to Employee hereunder shall
be paid in accordance with the terms of this Agreement to Employee’s devisee, legatee, or other designee,
or if there be no such designee, to Employee’s estate.
(c) No Third-Party Beneficiaries . Except as otherwise set forth in Section 8(b) or
Section 14(b) hereof, nothing expressed or referred to in this Agreement will be construed to give any
Person other than the Company, the other members of the Company Group, and Employee any legal or
equitable right, remedy, or claim under or with respect to this Agreement or any provision of this
Agreement.
Section 15. Waiver and Amendments .
Any waiver, alteration, amendment, or modification of any of the terms of this Agreement
shall be valid only if made in writing and signed by each of the parties hereto; provided
, however
, that
any such waiver, alteration, amendment, or modification must be consented to on the Company’s behalf
by the Board. No waiver by either of the parties hereto of their rights hereunder shall be deemed to
constitute a waiver with respect to any subsequent occurrences or transactions hereunder unless such
waiver specifically states that it is to be construed as a continuing waiver.
Section 16. Severability.
If any covenants or such other provisions of this Agreement are found to be invalid or
unenforceable by a final determination of a court of competent jurisdiction, (a) the remaining terms and
provisions hereof shall be unimpaired, and (b) the invalid or unenforceable term or provision hereof shall
be deemed replaced by a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision hereof.
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Section 17. Governing Law and Jurisdiction.
EXCEPT WHERE PREEMPTED BY FEDERAL LAW, THE VALIDITY,
INTERPRETATION, CONSTRUCTION, AND PERFORMANCE OF THIS AGREEMENT IS
GOVERNED BY AND IS TO BE CONSTRUED UNDER THE LAWS OF THE STATE OF
COLORADO APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN THAT
STATE, WITHOUT REGARD TO CONFLICT OF LAWS RULES. ANY DISPUTE OR CLAIM
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR CLAIM OF BREACH HEREOF
SHALL BE BROUGHT EXCLUSIVELY IN THE UNITED STATES DISTRICT COURT FOR THE 20
JUDICIAL DISTRICT OF COLORADO, TO THE EXTENT FEDERAL JURISDICTION EXISTS,
th
AND IN ANY COURT SITTING IN COLORADO, BUT ONLY IN THE EVENT FEDERAL
JURISDICTION DOES NOT EXIST, AND ANY APPLICABLE APPELLATE COURTS. BY
EXECUTION OF THIS AGREEMENT, THE PARTIES HERETO, AND THEIR RESPECTIVE
AFFILIATES, CONSENT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS, AND WAIVE
ANY RIGHT TO CHALLENGE JURISDICTION OR VENUE IN SUCH COURT WITH REGARD TO
ANY SUIT, ACTION, OR PROCEEDING UNDER OR IN CONNECTION WITH THIS
AGREEMENT. EACH PARTY TO THIS AGREEMENT ALSO HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY IN CONNECTION WITH ANY SUIT, ACTION, OR PROCEEDING UNDER OR
IN CONNECTION WITH THIS AGREEMENT.
Section 18. Notices.
(a) Place of Delivery . Every notice or other communication relating to this
Agreement shall be in writing, and shall be mailed to or delivered to the party for whom or which it is
intended at such address as may from time to time be designated by it in a notice mailed or delivered to
the other party as herein provided; provided
, that unless and until some other address be so designated,
all notices and communications by Employee to the Company shall be mailed or delivered to the
Company at its principal executive office, and all notices and communications by the Company to
Employee may be given to Employee personally or may be mailed to Employee at Employee’s last
known address, as reflected in the Company’s records.
(b) Date of Delivery . Any notice so addressed shall be deemed to be given or
received (i) if delivered by hand, on the date of such delivery, (ii) if mailed by courier or by overnight
mail, on the first business day following the date of such mailing, and (iii) if mailed by registered or
certified mail, on the third business day after the date of such mailing.
Section 19. Section Headings.
The headings of the sections and subsections of this Agreement are inserted for
convenience only and shall not be deemed to constitute a part thereof or affect the meaning or
interpretation of this Agreement or of any term or provision hereof.
Section 20. Entire Agreement.
This Agreement, together with any exhibits attached hereto, constitutes the entire
understanding and agreement of the parties hereto regarding the employment of Employee. This
Agreement supersedes all prior negotiations, discussions, correspondence, communications,
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understandings, and agreements between the parties relating to the subject matter of this Agreement.
Section 21. Survival of Operative Sections.
Upon any termination of Employee’s employment, the provisions of Section 8 through
Section 22 of this Agreement (together with any related definitions set forth in Section 1 hereof) shall
survive to the extent necessary to give effect to the provisions thereof.
Section 22. Counterparts.
This Agreement may be executed in two or more counterparts, each of which shall be
deemed to be an original but all of which together shall constitute one and the same instrument. The
execution of this Agreement may be by actual or facsimile signature.
* * *
[Signatures to appear on the following page.]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first above written.
CLOVIS ONCOLOGY, INC.
/s/ Patrick Mahaffy
By: Patrick Mahaffy
Title: President and Chief Executive Officer
EMPLOYEE
/s/ Paul Gross
Paul Gross
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EXHIBIT A
CONFIDENTIALITY, NON-INTERFERENCE, AND INVENTION ASSIGNMENT
AGREEMENT
As a condition of my becoming employed by, or continuing employment with, Clovis
Oncology, Inc., a Delaware corporation (the “ Company ”), and in consideration of my employment with
the Company and my receipt of the compensation now and hereafter paid to me by the Company, I agree
to the following:
Section 1. Confidential Information .
(a) Company Group Information . I acknowledge that, during the course of my
employment, I will have access to information about the Company and its direct and indirect subsidiaries
and affiliates (collectively, the “ Company Group ”) and that my employment with the Company shall
bring me into close contact with confidential and proprietary information of the Company Group. In
recognition of the foregoing, I agree, at all times during the term of my employment with the Company
and for the ten (10) year period following my termination of my employment for any reason, to hold in
confidence, and not to use, except for the benefit of the Company Group, or to disclose to any person,
firm, corporation, or other entity without written authorization of the Company, any Confidential
Information that I obtain or create. I further agree not to make copies of such Confidential Information
except as authorized by the Company. I understand that “ Confidential Information ” means information
that the Company Group has developed, acquired, created, compiled, discovered, or owned or will
develop, acquire, create, compile, discover, or own, that has value in or to the business of the Company
Group that is not generally known and that the Company wishes to maintain as confidential. I understand
that Confidential Information includes, but is not limited to, any and all non-public information that
relates to the actual or anticipated business and/or products, research, or development of the Company, or
to the Company’s technical data, trade secrets, or know-how, including, but not limited to, research,
product plans, or other information regarding the Company’s products or services and markets, customer
lists, and customers (including, but not limited to, customers of the Company on whom I called or with
whom I may become acquainted during the term of my employment), software, developments,
inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration
information, marketing, finances, and other business information disclosed by the Company either
directly or indirectly in writing, orally, or by drawings or inspection of premises, parts, equipment, or
other Company property. Notwithstanding the foregoing, Confidential Information shall not include (i)
any of the foregoing items that have become publicly and widely known through no unauthorized
disclosure by me or others who were under confidentiality obligations as to the item or items involved or
(ii) any information that I am required to disclose to, or by, any governmental or judicial authority;
provided
, however
, that in such event I will give the Company prompt written notice thereof so that the
Company Group may seek an appropriate protective order and/or waive in writing compliance with the
confidentiality provisions of this Confidentiality, Non-Interference, and Invention Assignment
Agreement (the “ Non-Interference Agreement ”).
(b) Former Employer Information . I represent that my performance of all of the
terms of this Non-Interference Agreement as an employee of the Company has not breached and will not
breach any agreement to keep in confidence proprietary information, knowledge, or data acquired by me
in confidence or trust prior or subsequent to the commencement of my
employment with the Company, and I will not disclose to any member of the Company Group, or induce
any member of the Company Group to use, any developments, or confidential or proprietary information
or material I may have obtained in connection with employment with any prior employer in violation of a
confidentiality agreement, nondisclosure agreement, or similar agreement with such prior employer.
(c) Whistleblower; Defend Trade Secrets Act Disclosure .
(i) In addition, I understand that nothing in this Agreement shall be construed
to prohibit me from reporting possible violations of law or regulation to any governmental agency or
regulatory body or making other disclosures that are protected under any law or regulation, or from filing
a charge with or participating in any investigation or proceeding conducted by any governmental agency
or regulatory body.
(ii) I understand that the Defend Trade Secrets Act provides that I may not be
held criminally or civilly liable under any Federal or state trade secret law for the disclosure of a trade
secret that is made in confidence to a Federal, state, or local government official, either directly or
indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation
of law; or that is made in a complaint or other document filed in a lawsuit or other proceeding, if such
filing is made under seal. In the event that I file a lawsuit for retaliation by any member of the Company
Group for reporting a suspected violation of law, I may disclose the trade secret to my attorney and use
the trade secret information in the court proceeding, if I file any document containing the trade secret
under seal and do not disclose the trade secret, except pursuant to court order.
Section 2. Developments .
(a) Developments Retained and Licensed . I have attached hereto, as Schedule A , a
list describing with particularity all developments, original works of authorship, developments,
improvements, and trade secrets that I can demonstrate were created or owned by me prior to the
commencement of my employment (collectively referred to as “ Prior Developments ”), which belong
solely to me or belong to me jointly with another, that relate in any way to any of the actual or proposed
businesses, products, or research and development of any member of the Company Group, and that are
not assigned to the Company hereunder, or if no such list is attached, I represent that there are no such
Prior Developments. If, during any period during which I perform or performed services for the
Company Group both before or after the date hereof (the “ Assignment Period ”), whether as an officer,
employee, director, independent contractor, consultant, or agent, or in any other capacity, I incorporate
(or have incorporated) into a Company Group product or process a Prior Development owned by me or in
which I have an interest, I hereby grant the Company, and the Company Group shall have, a non-
exclusive, royalty-free, irrevocable, perpetual, transferable worldwide license (with the right to
sublicense) to make, have made, copy, modify, make derivative works of, use, sell, and otherwise
distribute such Prior Development as part of or in connection with such product or process.
(b) Assignment of Developments . I agree that I will, without additional
compensation, promptly make full written disclosure to the Company, and will hold in trust for
the sole right and benefit of the Company all developments, original works of authorship, inventions,
concepts, know-how, improvements, trade secrets, and similar proprietary rights, whether or not
patentable or registrable under copyright or similar laws, which I may solely or jointly conceive or
develop or reduce to practice, or have solely or jointly conceived or developed or reduced to practice, or
have caused or may cause to be conceived or developed or reduced to practice, during the Assignment
Period, whether or not during regular working hours, provided they either (i) relate at the time of
conception, development or reduction to practice to the business of any member of the Company Group,
or the actual or anticipated research or development of any member of the Company Group; (ii) result
from or relate to any work performed for any member of the Company Group; or (iii) are developed
through the use of equipment, supplies, or facilities of any member of the Company Group, or any
Confidential Information, or in consultation with personnel of any member of the Company Group
(collectively referred to as “ Developments ”). I further acknowledge that all Developments made by me
(solely or jointly with others) within the scope of and during the Assignment Period are “works made for
hire” (to the greatest extent permitted by applicable law) for which I am, in part, compensated by my
salary, unless regulated otherwise by law, but that, in the event any such Development is deemed not to
be a work made for hire, I hereby assign to the Company, or its designee, all my right, title, and interest
throughout the world in and to any such Development.
(c) Maintenance of Records . I agree to keep and maintain adequate and current
written records of all Developments made by me (solely or jointly with others) during the Assignment
Period. The records may be in the form of notes, sketches, drawings, flow charts, electronic data or
recordings, and any other format. The records will be available to and remain the sole property of the
Company Group at all times. I agree not to remove such records from the Company’s place of business
except as expressly permitted by Company Group policy, which may, from time to time, be revised at the
sole election of the Company Group for the purpose of furthering the business of the Company Group.
(d) Intellectual Property Rights . I agree to assist the Company, or its designee, at the
Company’s expense, in every way to secure the rights of the Company Group in the Developments and
any copyrights, patents, trademarks, service marks, database rights, domain names, mask work rights,
moral rights, and other intellectual property rights relating thereto in any and all countries, including the
disclosure to the Company of all pertinent information and data with respect thereto, the execution of all
applications, specifications, oaths, assignments, recordations, and all other instruments that the Company
shall deem necessary in order to apply for, obtain, maintain, and transfer such rights and in order to
assign and convey to the Company Group the sole and exclusive right, title, and interest in and to such
Developments, and any intellectual property and other proprietary rights relating thereto. I further agree
that my obligation to execute or cause to be executed, when it is in my power to do so, any such
instrument or papers shall continue after the Assignment Period until the expiration of the last such
intellectual property right to expire in any country of the world; provided
, however
, the Company shall
reimburse me for my reasonable expenses incurred in connection with carrying out the foregoing
obligation. If the Company is unable because of my mental or physical incapacity or unavailability for
any other reason to secure my signature to apply for or to pursue any application for any United States or
foreign patents or copyright registrations covering Developments or original works of authorship
assigned to the Company as above, then I hereby
irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent
and attorney in fact to act for and in my behalf and stead to execute and file any such applications or
records and to do all other lawfully permitted acts to further the application for, prosecution, issuance,
maintenance, and transfer of letters patent or registrations thereon with the same legal force and effect as
if originally executed by me. I hereby waive and irrevocably quitclaim to the Company any and all
claims, of any nature whatsoever, that I now or hereafter have for past, present, or future infringement of
any and all proprietary rights assigned to the Company.
Section 3. Returning Company Group Documents .
I agree that, at the time of termination of my employment with the Company for any
reason, I will deliver to the Company (and will not keep in my possession, recreate, or deliver to anyone
else) any and all Confidential Information and all other documents, materials, information, and property
developed by me pursuant to my employment or otherwise belonging to the Company. I agree further that
any property situated on the Company’s premises and owned by the Company (or any other member of
the Company Group), including disks and other storage media, filing cabinets, and other work areas, is
subject to inspection by personnel of any member of the Company Group at any time with or without
notice.
Section 4. Disclosure of Agreement .
As long as it remains in effect, I will disclose the existence of this Non-Interference
Agreement to any prospective employer, partner, co-venturer, investor, or lender prior to entering into an
employment, partnership, or other business relationship with such person or entity.
Section 5. Restrictions on Interfering .
(a) Non-Competition . During the period of my employment with the Company
(the “ Employment Period ”) and the Post-Termination Non-Compete Period, I shall not, directly or
indirectly, individually or on behalf of any person, company, enterprise, or entity, or as a sole proprietor,
partner, stockholder, director, officer, principal, agent, or executive, or in any other capacity or
relationship, engage in any Competitive Activities in any jurisdiction in which the Company Group is
engaged in (or has demonstrable plans to commence) business activities..
(b) Non-Interference . During the Employment Period and the Post-Termination
Non-Interference Period, I shall not, directly or indirectly for my own account or for the account of any
other individual or entity, engage in Interfering Activities.
(c) Definitions . For purposes of this Non-Interference Agreement :
(i) “ Business Relation ” shall mean any current or prospective client,
customer, licensee, or other business relation of the Company Group, or any such relation that was a
client, customer, licensee, supplier, or other business relation within the six (6) month period prior to the
expiration of the Employment Period, in each case, to whom I provided
services, or with whom I transacted business, or whose identity became known to me in connection with
my relationship with or employment by the Company.
competitive with the then-current or demonstrably planned business activities of the Company Group.
(ii) “ Competitive Activities ” shall mean any business activity that is
(iii) “ Interfering Activities ” shall mean (A) encouraging, soliciting, or
inducing, or in any manner attempting to encourage, solicit, or induce, any Person employed by, or
providing consulting services to, any member of the Company Group to terminate such Person’s
employment or services (or in the case of a consultant, materially reducing such services) with the
Company Group; (B) hiring any individual who was employed by the Company Group within the six (6)
month period prior to the date of such hiring and with whom I had contact with during the Employment
Period within the six (6) month period prior to the date of such hiring; or (C) encouraging, soliciting, or
inducing, or in any manner attempting to encourage, solicit, or induce, any Business Relation to cease
doing business with or reduce the amount of business conducted with the Company Group, or in any way
interfering with the relationship between any such Business Relation and the Company Group.
(iv) “ Person ” shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint‑stock company, trust (charitable or non-charitable),
unincorporated organization, or other form of business entity.
(v) “ Post-Termination Non-Compete Period ” shall mean the period
commencing on the date of the termination of the Employment Period for any reason and ending on the
six (6) month anniversary of such date of termination.
(vi) “ Post-Termination Non-Interference Period ” shall mean the period
commencing on the date of the termination of the Employment Period for any reason and ending on the
twelve (12) month anniversary of such date of termination.
(d) Non-Disparagement . I agree that during the Employment Period, and at all times
thereafter, I will not make any disparaging or defamatory comments regarding any member of the
Company Group or its respective current or former directors, officers, or employees in any respect or
make any comments concerning any aspect of my relationship with any member of the Company Group
or any conduct or events which precipitated any termination of my employment from any member of the
Company Group. However, my obligations under this subparagraph (d) shall not apply to disclosures
required by applicable law, regulation, or order of a court or governmental agency.
Section 6. Reasonableness of Restrictions .
I acknowledge and recognize the highly competitive nature of the Company’s business,
that access to Confidential Information renders me special and unique within the Company’s industry,
and that I will have the opportunity to develop substantial relationships with existing and prospective
clients, accounts, customers, consultants, contractors, investors, and strategic partners of the Company
Group during the course of and as a result of my employment with the Company. In light of the
foregoing, I recognize and acknowledge that the
restrictions and limitations set forth in this Non-Interference Agreement are reasonable and valid in
geographical and temporal scope and in all other respects and are essential to protect the value of the
business and assets of the Company Group. I acknowledge further that the restrictions and limitations set
forth in this Non-Interference Agreement will not materially interfere with my ability to earn a living
following the termination of my employment with the Company and that my ability to earn a livelihood
without violating such restrictions is a material condition to my employment with the Company.
Section 7. Independence; Severability; Blue Pencil .
Each of the rights enumerated in this Non-Interference Agreement shall be independent of
the others and shall be in addition to and not in lieu of any other rights and remedies available to the
Company Group at law or in equity. If any of the provisions of this Non-Interference Agreement or any
part of any of them is hereafter construed or adjudicated to be invalid or unenforceable, the same shall not
affect the remainder of this Non-Interference Agreement, which shall be given full effect without regard
to the invalid portions. If any of the covenants contained herein are held to be invalid or unenforceable
because of the duration of such provisions or the area or scope covered thereby, I agree that the court
making such determination shall have the power to reduce the duration, scope, and/or area of such
provision to the maximum and/or broadest duration, scope, and/or area permissible by law, and in its
reduced form said provision shall then be enforceable.
Section 8. Injunctive Relief .
I expressly acknowledge that any breach or threatened breach of any of the terms and/or
conditions set forth in this Non-Interference Agreement may result in substantial, continuing, and
irreparable injury to the members of the Company Group. Therefore, I hereby agree that, in addition to
any other remedy that may be available to the Company, any member of the Company Group shall be
entitled to seek injunctive relief, specific performance, or other equitable relief by a court of appropriate
jurisdiction in the event of any breach or threatened breach of the terms of this Non-Interference
Agreement without the necessity of proving irreparable harm or injury as a result of such breach or
threatened breach. Notwithstanding any other provision to the contrary, I acknowledge and agree that the
Post-Termination Non-Compete Period, or Post-Termination Non-Interference Period, as applicable, shall
be tolled during any period of violation of any of the covenants in Section 5 hereof and during any other
period required for litigation during which the Company or any other member of the Company Group
seeks to enforce such covenants against me if it is ultimately determined that I was in breach of such
covenants.
Section 9. Cooperation .
I agree that, following any termination of my employment, I will continue to provide
reasonable cooperation to the Company and/or any other member of the Company Group and its or their
respective counsel in connection with any investigation, administrative proceeding, or litigation relating
to any matter that occurred during my employment in which I was involved or of which I have
knowledge. As a condition of such cooperation, the Company shall reimburse me for reasonable out-of-
pocket expenses incurred at the request of the Company
with respect to my compliance with this paragraph. I also agree that, in the event that I am subpoenaed
by any person or entity (including, but not limited to, any government agency) to give testimony or
provide documents (in a deposition, court proceeding, or otherwise) that in any way relates to my
employment by the Company and/or any other member of the Company Group, I will give prompt notice
of such request to the Company and will make no disclosure until the Company and/or the other member
of the Company Group has had a reasonable opportunity to contest the right of the requesting person or
entity to such disclosure.
Section 10. General Provisions .
(a) Governing Law and Jurisdiction . EXCEPT WHERE PREEMPTED BY
FEDERAL LAW, THE VALIDITY, INTERPRETATION, CONSTRUCTION, AND PERFORMANCE
OF THIS NON-INTERFERENCE AGREEMENT IS GOVERNED BY AND IS TO BE CONSTRUED
UNDER THE LAWS OF THE STATE OF COLORADO APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN THAT STATE, WITHOUT REGARD TO CONFLICT OF LAWS
RULES. FURTHER, I HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN CONNECTION
WITH ANY SUIT, ACTION, OR PROCEEDING UNDER OR IN CONNECTION WITH THIS NON-
INTERFERENCE AGREEMENT.
(b) Entire Agreement . This Non-Interference Agreement sets forth the entire
agreement and understanding between the Company and me relating to the subject matter herein and
merges all prior discussions between us. No modification or amendment to this Non-Interference
Agreement, nor any waiver of any rights under this Non-Interference Agreement, will be effective unless
in writing signed by the party to be charged. Any subsequent change or changes in my duties,
obligations, rights, or compensation will not affect the validity or scope of this Non-Interference
Agreement.
(c) No Right of Continued Employment . I acknowledge and agree that nothing
contained herein shall be construed as granting me any right to continued employment by the Company,
and the right of the Company to terminate my employment at any time and for any reason, with or
without cause, is specifically reserved.
(d) Successors and Assigns . This Non-Interference Agreement will be binding upon
my heirs, executors, administrators, and other legal representatives and will be for the benefit of the
Company, its successors, and its assigns. I expressly acknowledge and agree that this Non-Interference
Agreement may be assigned by the Company without my consent to any other member of the Company
Group as well as any purchaser of all or substantially all of the assets or stock of the Company, whether
by purchase, merger, or other similar corporate transaction, provided that the license granted pursuant to
Section 2(a) may be assigned to any third party by the Company without my consent.
(e) Survival . The provisions of this Non-Interference Agreement shall survive the
termination of my employment with the Company and/or the assignment of this Non-Interference
Agreement by the Company to any successor in interest or other assignee.
* * *
I, Paul Gross, have executed this Confidentiality, Non-Interference, and Invention
Assignment Agreement on the respective date set forth below:
Date: July 6, 2017
/s/ Paul Gross
(Signature)
Paul Gross
(Type/Print Name)
SCHEDULE A
LIST OF PRIOR DEVELOPMENTS
AND ORIGINAL WORKS OF AUTHORSHIP
EXCLUDED FROM SECTION 2
Title
Date
Identifying Number or
Brief Description
X __ No Developments or improvements
_____ Additional Sheets Attached
Signature of Employee:
/s/ Paul Gross
Print Name of Employee:
Paul Gross
Date:
July 6, 2017
-1-
EXHIBIT B
RELEASE OF CLAIMS
As used in this Release of Claims (this “ Release ”), the term “claims” will include all
claims, covenants, warranties, promises, undertakings, actions, suits, causes of action, obligations, debts,
accounts, attorneys’ fees, judgments, losses, and liabilities, of whatsoever kind or nature, in law, in
equity, or otherwise.
For and in consideration of the Severance Benefits (as defined in my Employment
Agreement, dated July 6, 2017, with Clovis Oncology, Inc. (my “ Employment Agreement ”)), and other
good and valuable consideration, I, Paul Gross, for and on behalf of myself and my heirs, administrators,
executors, and assigns, effective as of the date on which this release becomes effective pursuant to its
terms, do fully and forever release, remise, and discharge the Company and each of its direct and indirect
subsidiaries and affiliates, and its successors and assigns, together with its officers, directors, partners,
shareholders, employees, and agents (collectively, the “ Group ”), from any and all claims whatsoever up
to the date hereof that I had, may have had, or now have against the Group, whether known or unknown,
for or by reason of any matter, cause, or thing whatsoever, including any claim arising out of or
attributable to my employment or the termination of my employment with the Company, whether for tort,
breach of express or implied employment contract, intentional infliction of emotional distress, wrongful
termination, unjust dismissal, defamation, libel, or slander, or under any federal, state, or local law
dealing with discrimination based on age, race, sex, national origin, handicap, religion, disability, or
sexual orientation. The release of claims in this Release includes, but is not limited to, all claims arising
under the Age Discrimination in Employment Act (“ ADEA ”), Title VII of the Civil Rights Act, the
Americans with Disabilities Act, the Civil Rights Act of 1991, the Family Medical Leave Act, and the
Equal Pay Act, each as may be amended from time to time, and all other federal, state, and local laws, the
common law, and any other purported restriction on an employer’s right to terminate the employment of
employees. The release contained herein is intended to be a general release of any and all claims to the
fullest extent permissible by law.
I acknowledge and agree that as of the date I execute this Release, I have no knowledge of
any facts or circumstances that give rise or could give rise to any claims under any of the laws listed in
the preceding paragraph.
By executing this Release, I specifically release all claims relating to my employment and
its termination under ADEA, a United States federal statute that, among other things, prohibits
discrimination on the basis of age in employment and employee benefit plans.
Notwithstanding any provision of this Release to the contrary, by executing this Release, I
am not releasing (i) any claims relating to my rights under Section 8 of my Employment Agreement, (ii)
any claims that cannot be waived by law, or (iii) my right of indemnification as provided by, and in
accordance with the terms of, the Company’s by-laws or a Company insurance policy providing such
coverage, as any of such may be amended from time to time.
I expressly acknowledge and agree that I –
-2-
Am able to read the language, and understand the meaning and effect, of this
Release;
Have no physical or mental impairment of any kind that has interfered with my
ability to read and understand the meaning of this Release or its terms, and that I am not acting
under the influence of any medication, drug, or chemical of any type in entering into this Release;
Am specifically agreeing to the terms of the release contained in this Release
because the Company has agreed to pay me the Severance Benefits in consideration for my
agreement to accept it in full settlement of all possible claims I might have or ever have had, and
because of my execution of this Release;
Acknowledge that, but for my execution of this Release, I would not be entitled to
the Severance Benefits;
Understand that, by entering into this Release, I do not waive rights or claims
under ADEA that may arise after the date I execute this Release;
Had or could have had [twenty-one (21)][forty-five (45)] days from the date of
1
my termination of employment (the “ Release Expiration Date ”) in which to review and consider
this Release, and that if I execute this Release prior to the Release Expiration Date, I have
voluntarily and knowingly waived the remainder of the review period;
Have not relied upon any representation or statement not set forth in this Release
or my Employment Agreement made by the Company or any of its representatives;
Was advised to consult with my attorney regarding the terms and effect of this
Release; and
Have signed this Release knowingly and voluntarily.
I represent and warrant that I have not previously filed, and to the maximum extent
permitted by law agree that I will not file, a complaint, charge, or lawsuit against any member of the
Group regarding any of the claims released herein. If, notwithstanding this representation and warranty, I
have filed or file such a complaint, charge, or lawsuit, I agree that I shall cause such complaint, charge, or
lawsuit to be dismissed with prejudice and shall pay any and all costs required in obtaining dismissal of
such complaint, charge, or lawsuit, including without limitation the attorneys’ fees of any member of the
Group against whom I have filed such a complaint, charge, or lawsuit. This paragraph shall not apply,
however, to a claim of age
1
To be selected based on whether applicable termination was “in connection with an exit incentive or
other employment termination program” (as such phrase is defined in the Age Discrimination in
Employment Act of 1967).
-3-
discrimination under ADEA or to any non-waivable right to file a charge with the United States Equal
Employment Opportunity Commission (the “ EEOC ”); provided
, however
, that if the EEOC were to
pursue any claims relating to my employment with Company, I agree that I shall not be entitled to
recover any monetary damages or any other remedies or benefits as a result and that this Release and
Section 8 of my Employment Agreement will control as the exclusive remedy and full settlement of all
such claims by me.
I hereby agree to waive any and all claims to re-employment with the Company or any
other member of the Group and affirmatively agree not to seek further employment with the Company or
any other member of the Group.
Notwithstanding anything contained herein to the contrary, this Release will not become
effective or enforceable prior to the expiration of the period of seven (7) calendar days immediately
following the date of its execution by me (the “ Revocation Period ”), during which time I may revoke
my acceptance of this Release by notifying the Company and the Board of Directors of the Company, in
writing, delivered to the Company at its principal executive office, marked for the attention of its Chief
Executive Officer. To be effective, such revocation must be received by the Company no later than
11:59 p.m. on the seventh (7 ) calendar day following the execution of this Release. Provided that the
Release is executed and I do not revoke it during the Revocation Period, the eighth (8 ) calendar day
following the date on which this Release is executed shall be its effective date. I acknowledge and agree
that if I revoke this Release during the Revocation Period, this Release will be null and void and of no
effect, and neither the Company nor any other member of the Group will have any obligations to pay me
the Severance Benefits.
th
th
The provisions of this Release shall be binding upon my heirs, executors, administrators,
legal personal representatives, and assigns. If any provision of this Release shall be held by any court of
competent jurisdiction to be illegal, void, or unenforceable, such provision shall be of no force or
effect. The illegality or unenforceability of such provision, however, shall have no effect upon and shall
not impair the enforceability of any other provision of this Release.
EXCEPT WHERE PREEMPTED BY FEDERAL LAW, THE VALIDITY,
INTERPRETATION, CONSTRUCTION, AND PERFORMANCE OF THIS RELEASE IS
GOVERNED BY AND IS TO BE CONSTRUED UNDER THE LAWS OF THE STATE OF
COLORADO APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN THAT
STATE, WITHOUT REGARD TO CONFLICT OF LAWS RULES. ANY DISPUTE OR CLAIM
ARISING OUT OF OR RELATING TO THIS RELEASE OR CLAIM OF BREACH HEREOF SHALL
BE BROUGHT EXCLUSIVELY IN THE UNITED STATES DISTRICT COURT FOR THE 20
JUDICIAL DISTRICT OF COLORADO, TO THE EXTENT FEDERAL JURISDICTION EXISTS,
AND IN ANY COURT SITTING IN COLORADO, BUT ONLY IN THE EVENT FEDERAL
JURISDICTION DOES NOT EXIST, AND ANY APPLICABLE APPELLATE COURTS. BY
EXECUTION OF THIS RELEASE, I CONSENT TO THE EXCLUSIVE JURISDICTION OF SUCH
COURTS, AND WAIVE ANY RIGHT TO CHALLENGE JURISDICTION OR VENUE IN SUCH
COURT WITH REGARD TO ANY SUIT, ACTION, OR PROCEEDING UNDER OR IN
CONNECTION WITH THIS RELEASE. FURTHER, I HEREBY WAIVE ANY RIGHT TO TRIAL
BY JURY IN
th
-4-
CONNECTION WITH ANY SUIT, ACTION, OR PROCEEDING UNDER OR IN CONNECTION
WITH THIS RELEASE.
Capitalized terms used, but not defined herein, shall have the meanings ascribed to such
terms in my Employment Agreement.
I, __________________, have executed this Release of Claims on the respective date set forth
below:
* * *
Paul Gross
Date:
-5-
CLOVIS ONCOLOGY, INC.
INDEMNIFICATION AGREEMENT
Exhibit 10.39
This Indemnification Agreement (this “ Agreement
”) is dated as of September 9, 2016, and is between
Clovis Oncology, Inc., a Delaware corporation (the “ Company
”), and Paul E. Gross (“ Indemnitee
”).
RECITALS
A. Indemnitee’s service to the Company substantially benefits the Company.
B. Individuals are reluctant to serve as directors or officers of corporations or in certain other
capacities unless they are provided with adequate protection through insurance or indemnification against the
risks of claims and actions against them arising out of such service.
C. Indemnitee does not regard the protection currently provided by applicable law, the Company’s
governing documents and any insurance as adequate under the present circumstances, and Indemnitee may not
be willing to serve as a director or officer without additional protection.
D. In order to induce Indemnitee to continue to provide services to the Company, it is reasonable,
prudent and necessary for the Company to contractually obligate itself to indemnify, and to advance expenses on
behalf of, Indemnitee as permitted by applicable law.
E. This Agreement is a supplement to and in furtherance of the indemnification provided in the
Company’s certificate of incorporation and bylaws, and any resolutions adopted pursuant thereto, and this
Agreement shall not be deemed a substitute therefor, nor shall this Agreement be deemed to limit, diminish or
abrogate any rights of Indemnitee thereunder.
The parties therefore agree as follows:
1. Definitions.
(a) “ Corporate
Status
” describes the status of a person who is or was a director, trustee,
general partner, managing member, officer, employee, agent or fiduciary of the Company or any other
Enterprise.
(b) “ DGCL
” means the General Corporation Law of the State of Delaware.
(c) “ Disinterested
Director
” means a director of the Company who is not and was not a
party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(d) “ Enterprise
” means the Company and any other corporation, partnership, limited
liability company, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was
serving at the request of the Company as a director, trustee, general partner, managing member, officer,
employee, agent or fiduciary.
(e) “ Expenses
” include all reasonable attorneys’ fees, retainers, court costs, transcript
costs, fees and costs of experts, witness fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types
customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to
be a witness in, or otherwise participating in, a Proceeding. Expenses also include (i) Expenses incurred in
connection with any appeal resulting from any Proceeding, including without limitation the premium, security
for, and other costs relating to any cost bond, supersedeas bond or other appeal bond or their equivalent, and
(ii) for purposes of Section 12(b), Expenses incurred by Indemnitee in connection with the interpretation,
enforcement or defense of Indemnitee’s rights under this Agreement or under any directors’ and officers’
liability insurance policies maintained by the Company. Expenses, however, shall not include amounts paid in
settlement by Indemnitee or the amount of judgments, penalties or fines against Indemnitee.
(f) “ Independent
Counsel
” means a law firm, or a partner or member of a law firm, that is
experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to
represent (i) the Company or Indemnitee in any matter material to either such party (other than as Independent
Counsel with respect to matters concerning Indemnitee under this Agreement, or other indemnitees under similar
indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term “ Independent
Counsel
” shall not include any person who,
under the applicable standards of professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this
Agreement.
(g) “ Proceeding
” means any threatened, pending or completed action, suit, arbitration,
mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or proceeding,
whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, including any appeal therefrom and including without limitation any such Proceeding
pending as of the date of this Agreement, in which Indemnitee was, is or will be involved as a party, a potential
party, a non-party witness or otherwise by reason of (i) the fact that Indemnitee is or was a director or officer of
the Company, (ii) any action taken by Indemnitee or any action or inaction on Indemnitee’s part while acting as
a director or officer of the Company, or (iii) the fact that he or she is or was serving at the request of the
Company as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of the
Company or any other Enterprise, in each case whether or not serving in such capacity at the time any liability or
Expense is incurred for which indemnification or advancement of expenses can be provided under this
Agreement.
(h) Reference to “ other
enterprises
” shall include employee benefit plans; references to “
fines
” shall include any excise taxes assessed on a person with respect to any employee benefit plan; references
to “ serving
at
the
request
of
the
Company
” shall include any service as a director, officer, employee or agent
of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with
respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in
a manner he or she reasonably believed to be in the best interests of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner “ not
opposed
to
the
best
interests
of
the
Company
” as referred to in this Agreement.
2. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee in
accordance with the provisions of this Section 2 if, by reason of his or her Corporate Status, Indemnitee is, or is
threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of
the Company to procure a judgment in its favor. Pursuant to this Section 2, Indemnitee shall be indemnified to
the fullest extent permitted by applicable law against all Expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such
Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any
criminal Proceeding, had no reasonable cause to believe that his or her conduct was unlawful.
-2-
3. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify
Indemnitee in accordance with the provisions of this Section 3 if, by reason of his or her Corporate Status,
Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the
Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified to the
fullest extent permitted by applicable law against all Expenses actually and reasonably incurred by Indemnitee
or on Indemnitee’s behalf in connection with such Proceeding or any claim, issue or matter therein, if
Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best
interests of the Company. No indemnification for Expenses shall be made under this Section 3 in respect of any
claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged by a court of
competent jurisdiction to be liable to the Company, unless and only to the extent that the Delaware Court of
Chancery or any court in which the Proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnification for such expenses as the Delaware Court of Chancery or such other court shall deem
proper. Anything in this Agreement to the contrary notwithstanding, if the Indemnitee, by reason of the
Indemnitee’s Corporate Status, is or was, or is or was threatened to be made, a party to any Proceeding by or in
the right of the Company to procure a judgment in its favor, then the Company shall not indemnify the
Indemnitee for any judgment, fines, or amounts paid in settlement to the Company in connection with such
Proceeding.
4. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. To the extent
that Indemnitee, by reason of his or her Corporate Status, is a party to or a participant in and is successful (on the
merits or otherwise) in defense of any Proceeding or any claim, issue or matter therein, the Company shall
indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s
behalf in connection therewith. To the extent permitted by applicable law, if Indemnitee is not wholly successful
in such Proceeding but is successful, on the merits or otherwise, in defense of one or more but less than all
claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses
actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with each successfully
resolved claim, issue or matter. For purposes of this section, the termination of any claim, issue or matter in such
a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim,
issue or matter.
5. Indemnification for Expenses of a Witness. To the extent that Indemnitee is, by reason of his
or her Corporate Status, a witness , or is or was made (or asked) to respond to discovery requests, in any
Proceeding to which Indemnitee is not a party, Indemnitee shall be indemnified to the fullest extent permitted by
applicable law against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in
connection therewith.
6. Additional Indemnification.
(a) Notwithstanding any limitation in Sections 2, 3 or 4, the Company shall indemnify
Indemnitee to the fullest extent permitted by applicable law if Indemnitee, by reason of his or her Corporate
Status, is, or is threatened to be made, a party to or a participant in any Proceeding (including a Proceeding by or
in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection
with the Proceeding or any claim, issue or matter therein.
-3-
(b) For purposes of Section 6(a), the meaning of the phrase “ to
the
fullest
extent
permitted
by
applicable
law
” shall include, but not be limited to:
(i) the fullest extent permitted by the provision of the DGCL that authorizes or
contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or
replacement of the DGCL; and
(ii) the fullest extent authorized or permitted by any amendments to or replacements
of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
7. Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be
obligated under this Agreement to make any indemnity in connection with any Proceeding (or any part of any
Proceeding):
(a) for which payment has actually been made to or on behalf of Indemnitee under any
statute, insurance policy, indemnity provision, vote or otherwise, except with respect to any excess beyond the
amount paid , and except as may otherwise be agreed between the Company, on the one hand, and Indemnitee or
another indemnitor of Indemnitee, on the other ;
(b) for an accounting or disgorgement of profits pursuant to Section 16(b) of the Securities
Exchange Act of 1934, as amended, or similar provisions of federal, state or local statutory law or common law,
if Indemnitee is held liable therefor (including pursuant to any settlement arrangements);
(c) for any reimbursement of the Company by Indemnitee of any bonus or other incentive-
based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the
Company, as required in each case under the Securities Exchange Act of 1934, as amended (including any such
reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the
Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley
Act
”), or the payment to the Company of profits arising
from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act), if
Indemnitee is held liable therefor (including pursuant to any settlement arrangements);
(d) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding)
initiated by Indemnitee against the Company or its directors, officers, employees, agents or other indemnitees,
unless (i) the Company’s board of directors authorized the Proceeding (or the relevant part of the Proceeding)
prior to its initiation, (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers
vested in the Company under applicable law, (iii) otherwise authorized in Section 12(b) or (iv) otherwise
required by applicable law; or
(e) if prohibited by applicable law.
8. Advances of Expenses. The Company shall advance the Expenses incurred by Indemnitee in
connection with any Proceeding in which Indemnitee is, or is threatened to be made, a party to or a participant in
by reason of Indemnitee’s Corporate Status, and such advancement shall be made as soon as reasonably
practicable, but in any event no later than 60 days, after the receipt by the Company of a written statement or
statements from Indemnitee requesting such advances from time to time (which shall include invoices received
by Indemnitee in connection with such Expenses or otherwise reasonably evidence the Expenses incurred by
Indemnitee, but, in the case of invoices in connection with legal services, any references to legal work performed
or to expenditure made that would cause Indemnitee to waive any privilege accorded by applicable law shall not
be included with the invoice). Advances shall be unsecured and interest free and made without regard to
Indemnitee’s ability to repay such advances. Indemnitee hereby undertakes to repay any advance to the extent
that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. This Section 8
shall not apply to the extent advancement is prohibited by law and shall not apply to any Proceeding for which
-4-
indemnity is not permitted under this Agreement, but shall apply to any Proceeding referenced in Section 7(b) or
7(c) prior to a determination that Indemnitee is not entitled to be indemnified by the Company.
9. Procedures for Notification and Defense of Claim.
(a) Indemnitee shall notify the Company in writing upon being served with or otherwise
receiving any summons, citation, subpoena, complaint, indictment or other document relating to any Proceeding
or any matter which may be subject to indemnification covered hereunder with respect to which Indemnitee
intends to seek indemnification or advancement of Expenses as soon as reasonably practicable following the
receipt by Indemnitee thereof. The written notification to the Company shall include, in reasonable detail, a
description of the nature of the Proceeding and the facts underlying the Proceeding. The failure by Indemnitee to
notify the Company will not relieve the Company from any liability which it may have to Indemnitee hereunder
or otherwise than under this Agreement, and any delay in so notifying the Company shall not constitute a waiver
by Indemnitee of any rights, except to the extent that such failure or delay materially prejudices the Company.
(b) If, at the time of the receipt of a notice of a Proceeding pursuant to the terms hereof, the
Company has directors’ and officers’ liability insurance in effect, the Company shall give prompt notice of the
commencement of the Proceeding to the insurers in accordance with the procedures set forth in the applicable
policies. The Company shall thereafter take all reasonably necessary or desirable action to cause such insurers to
pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of
such policies.
(c) In the event the Company may be obligated to make any indemnity in connection with a
Proceeding, the Company shall be entitled to assume the defense of such Proceeding with counsel approved by
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written
notice of its election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to Indemnitee for any fees or
expenses of counsel subsequently incurred by Indemnitee with respect to the same Proceeding. Notwithstanding
the Company’s assumption of the defense of any such Proceeding, the Company shall be obligated to pay the
fees and expenses of Indemnitee’s counsel to the extent (i) the employment of counsel by Indemnitee is
authorized by the Company, (ii) counsel for the Company or Indemnitee shall have reasonably concluded that
there is a conflict of interest between the Company and Indemnitee in the conduct of any such defense such that
Indemnitee needs to be separately represented, (iii) the Company is not financially or legally able to perform its
indemnification obligations or (iv) the Company shall not have retained, or shall not continue to retain, such
counsel to defend such Proceeding. The Company shall have the right to conduct such defense as it sees fit in its
sole discretion. Regardless of any provision in this Agreement, Indemnitee shall have the right to employ
counsel in any Proceeding at Indemnitee’s personal expense. The Company shall not be entitled, without the
consent of Indemnitee, to assume the defense of any claim brought by or in the right of the Company.
(d) Indemnitee shall give the Company such information and cooperation in connection
with the Proceeding as may be reasonably appropriate.
(e) The Company shall not be liable to indemnify Indemnitee for any settlement of any
Proceeding (or any part thereof) without the Company’s prior written consent, which shall not be unreasonably
withheld.
-5-
10. Procedures upon Application for Indemnification.
(a) To obtain indemnification, Indemnitee shall submit to the Company a written request,
including therein or therewith such documentation and information as is reasonably available to Indemnitee and
as is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification
following the final disposition of the Proceeding. The Company shall, promptly after receipt of such a request
for indemnification, advise the board of directors that Indemnitee has requested indemnification. Any delay in
providing the request will not relieve the Company from its obligations under this Agreement, except to the
extent such failure is prejudicial.
(b) Upon written request by Indemnitee for indemnification pursuant to Section 10(a), a
determination with respect to Indemnitee’s entitlement thereto shall be made in the specific case (A) by a
majority vote of the Disinterested Directors, even though less than a quorum of the Company’s board of
directors, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested
Directors, even though less than a quorum of the Company’s board of directors, (C) if there are no such
Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion
to the Company’s board of directors, a copy of which shall be delivered to Indemnitee or (D) if so directed by
the Company’s board of directors, by the stockholders of the Company. If the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to this Section 10(b), the Independent Counsel
shall be selected by the Board of Directors and approved by Indemnitee. Upon failure of the Board of Directors
to so select, or upon the failure of Indemnitee to so approve, such Independent Counsel shall be selected by the
Court of Chancery of the State of Delaware or such other person or body as the Indemnitee and the Company
may agree in writing. If the person making such determination shall determine that Indemnitee is entitled to
indemnification as to part (but not all) of the application for indemnification, such person shall reasonably pro-
rate such part of indemnification among such claims, issues or matters. If it is so determined that Indemnitee is
entitled to indemnification, payment to Indemnitee shall be made within ten days after such determination.
Indemnitee shall cooperate with the person, persons or entity making the determination with respect to
Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information that is not privileged or otherwise protected from
disclosure and that is reasonably available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys’ fees and disbursements) reasonably incurred by Indemnitee in so
cooperating with the person, persons or entity making such determination shall be borne by the Company, to the
fullest extent permitted by applicable law.
11. Presumptions and Effect of Certain Proceedings.
(a) The termination of any Proceeding or of any claim, issue or matter therein, by judgment,
order, settlement or conviction, or upon a plea of nolo
contendere
or its equivalent, shall not (except as
otherwise expressly provided in this Agreement) of itself create a presumption that Indemnitee did not act in
good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of
the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that
his or her conduct was unlawful.
(b) For purposes of any determination of good faith, Indemnitee shall be deemed to have
acted in good faith to the extent Indemnitee relied in good faith on (i) the records or books of account of the
Enterprise, including financial statements, (ii) information supplied to Indemnitee by the officers of the
Enterprise in the course of their duties, (iii) the advice of legal counsel for the Enterprise or its board of directors
or counsel selected by any committee of the board of directors or (iv) information or records given or reports
made to the Enterprise by an independent certified public accountant, an appraiser, investment banker or other
expert selected with reasonable care by the Enterprise or its board of directors or any committee of the board of
-6-
directors. The provisions of this Section 11(b) shall not be deemed to be exclusive or to limit in any way the
other circumstances in which Indemnitee may be deemed to have met the applicable standard of conduct set
forth in this Agreement.
(c) Neither the knowledge, actions nor failure to act of any other director, officer, agent or
employee of the Enterprise shall be imputed to Indemnitee for purposes of determining the right to
indemnification under this Agreement.
(d) Indemnitee shall cooperate with the person, persons or entity making such
determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person,
persons or entity upon reasonable advance request any documentation or information which is not privileged or
otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary
to such determination. Any Independent Counsel or member of the Board of Directors shall act reasonably and
in good faith in making a determination regarding the Indemnitee’s entitlement to indemnification under this
Agreement. Any costs or expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so
cooperating with the person, persons or entity making such determination shall be borne by the Company
(irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
(e) The Company acknowledges that a settlement or other disposition short of final
judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and
uncertainty. In the event that any Proceeding to which Indemnitee is a party is resolved in any manner other
than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or
proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has
been successful on the merits or otherwise in such Proceeding. Anyone seeking to overcome this presumption
shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
12. Remedies of Indemnitee.
(a) Subject to Section 12(d), in the event that (i) a determination is made pursuant to
Section 10 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement,
(ii) advancement of Expenses is not timely made pursuant to Section 8 or 12(b) of this Agreement, (iii) no
determination of entitlement to indemnification shall have been made pursuant to Section 10 of this Agreement
within 90 days after the later of the receipt by the Company of the request for indemnification or the final
disposition of the Proceeding, (iv) payment of indemnification pursuant to this Agreement is not made
(A) within ten days after a determination has been made that Indemnitee is entitled to indemnification or
(B) with respect to indemnification pursuant to Sections 4, 5 and 12(b) of this Agreement, within 30 days after
receipt by the Company of a written request therefor, or (v) the Company or any other person or entity takes or
threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other
action or proceeding designed to deny, or to recover from, Indemnitee the benefits provided or intended to be
provided to Indemnitee hereunder, Indemnitee shall be entitled to an adjudication by a court of competent
jurisdiction of his or her entitlement to such indemnification or advancement of Expenses. Alternatively,
Indemnitee, at his or her option, may seek an award in arbitration with respect to his or her entitlement to such
indemnification or advancement of Expenses, to be conducted by a single arbitrator pursuant to the Commercial
Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking
an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the
right to commence such proceeding pursuant to this Section 12(a); provided,
however,
that the foregoing clause
shall not apply in respect of a proceeding brought by Indemnitee to enforce his or her rights under Section 4 of
this Agreement. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in
arbitration in accordance with this Agreement.
-7-
(b) Neither (i) the failure of the Company, its board of directors, any committee or
subgroup of the board of directors, Independent Counsel or stockholders to have made a determination that
indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable
standard of conduct, nor (ii) an actual determination by the Company, its board of directors, any committee or
subgroup of the board of directors, Independent Counsel or stockholders that Indemnitee has not met the
applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has or
has not met the applicable standard of conduct. In the event that a determination shall have been made pursuant
to Section 10 of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or
arbitration commenced pursuant to this Section 12 shall be conducted in all respects as a de
novo
trial, or
arbitration, on the merits, and Indemnitee shall not be prejudiced by reason of that adverse determination. In
connection with any determination (including a determination by the Court of Chancery of the State of Delaware
(or other court of competent jurisdiction)) with respect to entitlement to indemnification hereunder, the
Company shall, to the fullest extent not prohibited by law, have the burden of proving Indemnitee is not entitled
to indemnification or advancement of Expenses, as the case may be, and any decision that Indemnitee is not
entitled to indemnification or advancement of Expenses must be supported by clear and convincing evidence.
(c) To the fullest extent permissible under applicable law, the Company shall indemnify
Indemnitee against all Expenses that are incurred by Indemnitee in connection with any action for
indemnification or advancement of Expenses from the Company under this Agreement or under any directors’
and officers’ liability insurance policies maintained by the Company to the extent Indemnitee is successful in
such action, and, if requested by Indemnitee, shall (as soon as reasonably practicable, but in any event no later
than 60 days, after receipt by the Company of a written request therefor) advance such Expenses to Indemnitee,
subject to the provisions of Section 8 .
(d) Notwithstanding anything in this Agreement to the contrary, no determination as to
entitlement to indemnification shall be required to be made prior to the final disposition of the Proceeding.
13. Contribution.
(a) To the fullest extent permissible under applicable law, whether or not the
indemnification provided in Sections 2, 3, 4, or 6 hereof is available, in respect of any threatened, pending or
completed Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such
Proceeding), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of
such Proceeding without requiring Indemnitee to contribute to such payment, and the Company hereby waives
and relinquishes any right of contribution it may have against Indemnitee. The Company shall not enter into any
settlement of any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in
such Proceeding) unless such settlement provides for a full and final release of all claims asserted against
Indemnitee.
(b) To the fullest extent permissible under applicable law, without diminishing or impairing
the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect
or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed
Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding ),
the Company shall contribute to the amount of Expenses, judgments, fines, liabilities and amounts paid in
settlement actually incurred and paid or payable by Indemnitee in proportion to the relative benefits received by
the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly
liable with Indemnitee (or would be if joined in such Proceeding ), on the one hand, and Indemnitee, on the other
hand, from the transaction from which such Proceeding arose; provided, however, that the proportion
determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by
reference to the relative fault of the Company and all officers, directors or employees of the Company, other
than
-8-
Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such Proceeding ), on the one hand,
and Indemnitee, on the other hand, in connection with the events that resulted in such expenses, judgments,
fines, liabilities or settlement amounts, as well as any other equitable considerations which the law may require
to be considered. The relative fault of the Company and all officers, directors or employees of the Company,
other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such Proceeding ), on the
one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree
to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their
liability is primary or secondary and the degree to which their conduct is active or passive.
(c) The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any
claim of contribution brought by officers, directors or employees of the Company, other than Indemnitee, who
may be jointly liable with Indemnitee.
(d) To the fullest extent permissible under applicable law, if the indemnification provided
for in this Agreement is unavailable to Indemnitee, the Company, in lieu of indemnifying Indemnitee, shall
contribute to the amounts incurred by Indemnitee, whether for Expenses, judgments, fines or amounts paid or to
be paid in settlement, in connection with any claim relating to an indemnifiable event under this Agreement, in
such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order
to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the events and
transactions giving rise to such Proceeding; and (ii) the relative fault of Indemnitee and the Company (and its
other directors, officers, employees and agents) in connection with such events and transactions.
14. Non-exclusivity. The rights of indemnification and to receive advancement of Expenses as
provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any
time be entitled under applicable law, the Company’s certificate of incorporation or bylaws, any agreement, a
vote of stockholders or a resolution of directors, or otherwise. To the extent that a change in Delaware law,
whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would
be afforded currently under the Company’s certificate of incorporation and bylaws and this Agreement, it is the
intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such
change, subject to the restrictions expressly set forth herein or therein. Except as expressly set forth herein, no
right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right
and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. Except as expressly set forth herein, the assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other right or remedy. Notwithstanding anything in this Agreement to the contrary, the
indemnification and contribution provided for in this Agreement will remain in full force and effect regardless of
any investigation made by or on behalf of Indemnitee or Indemnitee’s agents.
15. Primary Responsibility. The Company acknowledges that Indemnitee may have certain rights
to indemnification and advancement of expenses provided by the fund and/or certain affiliates thereof with
whom Indemnitee may be affiliated (collectively, the “ Secondary
Indemnitors
”). The Company agrees that, as
between the Company and the Secondary Indemnitors, the Company is primarily responsible for amounts
required to be indemnified or advanced under the Company’s certificate of incorporation or bylaws or this
Agreement and any obligation of the Secondary Indemnitors to provide indemnification or advancement for the
same amounts is secondary to those Company obligations. The Company waives any right of contribution or
subrogation against the Secondary Indemnitors with respect to the liabilities for which the Company is primarily
responsible under this Section 15. In the event of any payment by the Secondary Indemnitors of amounts
otherwise required to be indemnified or advanced by the Company under the Company’s certificate of
incorporation or bylaws or this Agreement, the Secondary Indemnitors shall be subrogated to the extent of such
payment to all of the rights of
-9-
recovery of Indemnitee for indemnification or advancement of expenses under the Company’s certificate of
incorporation or bylaws or this Agreement or, to the extent such subrogation is unavailable and contribution is
found to be the applicable remedy, shall have a right of contribution with respect to the amounts paid. The
Secondary Indemnitors are express third-party beneficiaries of the terms of this Section 15.
16. No Duplication of Payments. Subject to the provisions of Section 15 above, the Company
shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder (or
for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually
received payment for such amounts under any insurance policy, contract, agreement or otherwise.
17. Insurance. To the extent that the Company maintains an insurance policy or policies providing
liability insurance for directors, trustees, general partners, managing members, officers, employees, agents or
fiduciaries of the Company or any other Enterprise, Indemnitee shall be covered by such policy or policies to the
same extent as the most favorably-insured persons under such policy or policies in a comparable position.
18. Subrogation. In the event of any payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all
papers required and take all action necessary to secure such rights, including execution of such documents as are
necessary to enable the Company to bring suit to enforce such rights.
19. Services to the Company. Indemnitee agrees to serve as a director or officer of the Company
or, at the request of the Company, as a director, trustee, general partner, managing member, officer, employee,
agent or fiduciary of another Enterprise, for so long as Indemnitee is duly elected or appointed or until
Indemnitee tenders his or her resignation or is removed from such position. Indemnitee may at any time and for
any reason resign from such position (subject to any other contractual obligation or any obligation imposed by
operation of law), in which event the Company shall have no obligation under this Agreement to continue
Indemnitee in such position. This Agreement shall not be deemed an employment contract between the
Company (or any of its subsidiaries or any Enterprise) and Indemnitee. Indemnitee specifically acknowledges
that any employment with the Company (or any of its subsidiaries or any Enterprise) is at will, and Indemnitee
may be discharged at any time for any reason, with or without cause, with or without notice, except as may be
otherwise expressly provided in any executed, written employment contract between Indemnitee and the
Company (or any of its subsidiaries or any Enterprise), any existing formal severance policies adopted by the
Company’s board of directors or, with respect to service as a director or officer of the Company, the Company’s
certificate of incorporation or bylaws or the DGCL. No such document shall be subject to any oral modification
thereof.
20. Duration. This Agreement shall continue until and terminate upon the later of (a) ten years
after the date that Indemnitee shall have ceased to serve as a director or officer of the Company or as a director,
trustee, general partner, managing member, officer, employee, agent or fiduciary of any other Enterprise, as
applicable; or (b) one year after the final termination of any Proceeding, including any appeal, then pending in
respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of
any proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement relating thereto.
21. Successors. This Agreement shall be binding upon the Company and its successors and assigns,
including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially
all of the business or assets of the Company, and shall inure to the benefit of Indemnitee and Indemnitee’s heirs,
executors and administrators.
22. Severability. Nothing in this Agreement is intended to require or shall be construed as requiring
the Company to do or fail to do any act in violation of applicable law. The Company’s inability, pursuant to
court order or other applicable law, to perform its obligations under this Agreement shall not constitute a breach
-10-
of this Agreement. If any provision or provisions of this Agreement shall be held to be invalid, illegal or
unenforceable for any reason whatsoever: (i) the validity, legality and enforceability of the remaining provisions
of this Agreement (including without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by
law; (ii) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable
law and to give the maximum effect to the intent of the parties hereto; and (iii) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, each portion of any section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested thereby.
23. Enforcement. The Company expressly confirms and agrees that it has entered into this
Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director
or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in
serving as a director or officer of the Company.
24. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written
and implied, between the parties hereto with respect to the subject matter hereof; provided
, however
, that this
Agreement is a supplement to and in furtherance of the indemnification provided in the Company’s certificate of
incorporation and bylaws and applicable law.
25. Modification and Waiver. No supplement, modification or amendment to this Agreement shall
be binding unless executed in writing by the parties hereto. No amendment, alteration or repeal of this
Agreement shall adversely affect any right of Indemnitee under this Agreement in respect of any action taken or
omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal. No
waiver of any of the provisions of this Agreement shall constitute or be deemed a waiver of any other provision
of this Agreement nor shall any waiver constitute a continuing waiver.
26. Notices. All notices and other communications required or permitted hereunder shall be in
writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail
or otherwise delivered by hand, messenger or courier service addressed:
(a) if to Indemnitee, to Indemnitee’s address, facsimile number or electronic mail address as
shown on the signature page of this Agreement or in the Company’s records, as may be updated in accordance
with the provisions hereof; or
(b) if to the Company, to the attention of the Chief Executive Officer or Chief Financial
Officer of the Company at c/o Thomas Mark, Willkie Farr & Gallagher LLP, 787 Seventh Ave., New York, NY
10019 or at such other current address as the Company shall have furnished to the Investors.
Each such notice or other communication shall for all purposes of this Agreement be treated as effective
or having been given (i) if delivered by hand, messenger or courier service, when delivered (or if sent via
a
nationally-recognized overnight courier service, freight prepaid, specifying next-business-day delivery, one
business day after deposit with the courier), (ii) if sent via
mail, at the earlier of its receipt or five days after the
same has been deposited in a regularly-maintained receptacle for the deposit of the United States mail, addressed
and mailed as aforesaid, or (iii) if sent via
facsimile, upon confirmation of facsimile transfer or, if sent via
electronic mail, when directed to the relevant electronic mail address, if sent during normal business hours of the
recipient, or if not sent during normal business hours of the recipient, then on the recipient’s next business day.
-11-
27. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among
the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of
Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by
Indemnitee pursuant to Section 12(a) of this Agreement, the Company and Indemnitee hereby irrevocably and
unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall
be brought only in the Delaware Court of Chancery, and not in any other state or federal court in the United
States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the
Delaware Court of Chancery for purposes of any action or proceeding arising out of or in connection with this
Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of
Delaware, The Corporation Trust Company, Wilmington, Delaware as its agent in the State of Delaware as such
party’s agent for acceptance of legal process in connection with any such action or proceeding against such party
with the same legal force and validity as if served upon such party personally within the State of Delaware,
(iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court of
Chancery, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding
brought in the Delaware Court of Chancery has been brought in an improper or inconvenient forum.
28. Counterparts. This Agreement may be executed in one or more counterparts, each of which
shall for all purposes be deemed to be an original but all of which together shall constitute one and the same
Agreement. This Agreement may also be executed and delivered by facsimile signature and in counterparts, each
of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the
same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to
be produced to evidence the existence of this Agreement.
29. Captions. The headings of the paragraphs of this Agreement are inserted for convenience only
and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
( signature
page
follows
)
-12-
The parties are signing this Indemnification Agreement as of the date stated in the introductory sentence.
COMPANY
CLOVIS ONCOLOGY, INC.
/s/ Daniel Muehl
( Signature
)
Daniel Muehl
( Print
name
)
Senior Vice President of Finance
( Title
)
INDEMNITEE
/s/ Paul Gross
( Signature
)
Paul E. Gross
( Print
name
)
( Street
address
)
( City,
State
and
ZIP
)
Exhibit 23.1
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statements (Form S-3 Nos. 333-211947 and 333-215400) of Clovis Oncology, Inc., and
(2) Registration Statements (Form S-8 Nos. 333-219046, 333-211948, 333-178283, 333-182278, 333-190565, 333-198022, 333-
206193, and 333-226523) pertaining to the 2009 Equity Incentive Plan, 2011 Stock Incentive Plan and 2011 Employee
Stock Purchase Plan of Clovis Oncology, Inc.;
of our reports dated February 27, 2019, with respect to the consolidated financial statements of Clovis Oncology, Inc., and the
effectiveness of internal control over financial reporting of Clovis Oncology, Inc., included in this Annual Report (Form 10-K) of
Clovis Oncology, Inc. for the year ended December 31, 2018.
Denver, Colorado
February 27, 2019
/s/ Ernst & Young LLP
Exhibit 31.1
I, Patrick J. Mahaffy, certify that:
Exhibit 31.1
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Clovis Oncology, Inc. for the year ended December 31, 2018;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: February 27, 2019
/s/ PATRICK J. MAHAFFY
Patrick J. Mahaffy
President and Chief Executive Officer
Exhibit 31.2
I, Daniel W. Muehl, certify that:
Exhibit 31.2
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Clovis Oncology, Inc. for the year ended December 31, 2018;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: February 27, 2019
/s/ DANIEL W. MUEHL
Daniel W. Muehl
Executive Vice President of Finance and
Principal Financial and Accounting Officer
Exhibit 32.1
CERTIFICATIONS PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
Exhibit 32.1
In connection with the Annual Report of Clovis Oncology, Inc., a Delaware corporation (the “Company”), on Form 10-K for the
year ended December 31, 2018, as filed with the Securities and Exchange Commission (the “Report”), Patrick J. Mahaffy, as
Chief Executive Officer of the Company, does hereby certify, pursuant to §906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
§1350), that to his knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 27, 2019
/s/ PATRICK J. MAHAFFY
Patrick J. Mahaffy
President and Chief Executive Officer
Exhibit 32.2
CERTIFICATIONS PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
Exhibit 32.2
In connection with the Annual Report of Clovis Oncology, Inc., a Delaware corporation (the “Company”), on Form 10-K for the
year ended December 31, 2018, as filed with the Securities and Exchange Commission (the “Report”), Daniel W. Muehl, as
Senior Vice President of Finance and Principal Financial and Accounting Officer of the Company, does hereby certify, pursuant
to §906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350), that to his knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 27, 2019
/s/ DANIEL W. MUEHL
Daniel W. Muehl
Executive Vice President of Finance and
Principal Financial and Accounting Officer