Susan Hubbard - EVP, Public Affairs & IR Michael Morrissey - CEO and President Christopher Senner - CFO Patrick Haley - SVP, Commercial Gisela Schwab - Chief Medical Officer.

Andy Hsieh - William Blair Kennen MacKay - RBC Capital Markets Peter Lawson - SunTrust Stephen Willey - Stifel Boris Peaker - Cowen Umer Raffat - Evercore.

Good day, ladies and gentlemen, and welcome to the Exelixis' Second Quarter 2018 Financial Results Conference Call. My name is Andrew, and I'll be your operator for today. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to your host for today, Ms.

Susan Hubbard, Executive Vice President of Public Affairs and Investor Relations. Please proceed..

Thank you, Andrew, and thank you all for joining us for the Exelixis second quarter 2018 financial results conference call. Joining me on today's call are, Mike Morrissey, our President and CEO; Chris Senner, our Chief Financial Officer; P.J.

Haley, our Senior Vice President of Commercial; and Gisela Schwab, our Chief Medical Officer, who together will review our corporate, financial, commercial and development progress for the second quarter ended June 30, 2018, as well as recent key development and corporate events.

Peter Lamb, our Chief Scientific Officer, is also here with us and will join us for the Q&A session following our prepared remarks. As a reminder, we are reporting our financial results on a GAAP basis only. And as usual, the complete press release with our results can be accessed through our website at exelixis.com.

During the course of this presentation, we will be making forward-looking statements regarding future events and the future performance of the company. This includes statements about possible developments regarding clinical, regulatory, commercial, financial and strategic matters. Actual events or results could, of course, differ materially.

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

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

All right. Thank you, Susan, and thanks to everyone for joining us on the call today. Exelixis maintained strong commercial and financial performance in the second quarter of 2018 and continues to execute across all components of our business.

Importantly, we see healthy growth in the CABOMETYX RCC business especially in the context of increased competition and look to broadly advance, cabozantinib into potential new indications as either a single agent or in combination with immune checkpoint inhibitors.

I'll begin today by providing a brief summary of our key second quarter milestones and then turn the call over to Chris P.J. and Gisela for additional details on our Q2 financials, the commercial performance for CABOMETYX and our cabozantinib development activities.

Key highlights for Q2 2018 include, first, the significant growth in revenue based primarily on the strong commercial performance for CABOMETYX in advanced RCC. Q2 net cabozantinib franchise revenues were approximately $146 million.

Achievement of key commercial milestone for cabozantinib in the EU provided additional milestone revenue and resulted in our royalty advancing to the tiered rate of 22% to 26% for sales in the Ipsen territories. Total revenues for the quarter were $186 million leading to net income of $87.5 million and diluted earnings of $0.28 per share.

Second, we continue to advance cabozantinib regulatory and development activities. The sNDA filing based on the success of the CELESTIAL trial for second line HCC was expected at May with a PDUFA date in January 2019.

With solid emerging data for both single-agent cabozantinib and immune checkpoint inhibitor combinations, we're in the start-up phase for the second wave of cabozantinib late-stage trials and indications across a wide range of histologies and potential lines of therapy.

Third, we look to complement our cabozantinib development activities with additional assets from internal discovery and externally focused business developments both internal and external discovery efforts are gaining tractions and advancing preclinical compounds.

We help to sign additional collaborations with early-stage biotech in 2018 and beyond in a low-risk financial manner two small upfronts and modest success-based milestones allowing us to advance new assets aggressively of discharging scientific and downstream clinical risk.

Our continued momentum in the first half of 2018 reflects the strong performance across all components of our business. Our efforts to grow revenues from product sales, collaboration milestones and royalties on managing our expenses in a rigorous fashion allows us to generate free cash to sustainably reinvest in our business.

Since early 2016, we have generated approximately $1.2 billion in cabozantinib related cash from U.S. product sales as well as upfront, milestone and royalty payments from our partners. Globally cabozantinib is well on its way to becoming $1 billion per year brand.

Our financial strategy was highlighted by the recent inclusion of Exelixis in the S&P MidCap 400 Index which requires that our company have four consecutive profitable quarters including the most recent quarter.

Exelixis is one of only two biotech's currently in the index which recognizes companies that have passed many of the early stage challenges are still having robust growth potential. So with that, I'll turn the call over to Chris who will provide more details on our Q2 financials..

Thanks Mike. Total revenues for the second quarter 2018 were $186.1 million with $87.5 million of net income and diluted GAAP earnings per share of $0.28 compared to total revenues of $99 million, net income of $17.7 million and diluted GAAP earnings per share of $0.06 for the same period last year.

Total revenues include net product revenues of $145.8 million for the quarter ended June 30, 2018 compared to $88 million for the comparable period in 2017 which is a 66% increase over the same period last year. The increase in net product revenues reflects the continued growth of CABOMETYX for the treatment of advanced RCC.

On a quarter-over-quarter sequential basis, our net product revenues increased by approximately $12 million or 9% this was the result of an approximately 16% increase in CABOMETYX patient demand offset by a decrease in trade inventory of approximately $3 million primarily driven by a decrease in trade inventory weeks on hand.

Our deduction from gross sales in the second quarter 2018 decreased slightly to 15.5% when compared to the first quarter of 2018 due primarily to lower Medicare claims as cured patients enter the doughnut hole in the quarter.

Total revenues also include collaboration revenues of $40.3 million for the quarter ended June 30, 2018 compared to $11 million for the comparable period in 2017.

The increase in collaboration revenues was primarily the result of recording a $25 million commercial milestone from Ipsen that we earned in the second quarter of 2018 upon Ipsen's reaching $100 million of net sales cumulatively over four consecutive quarters.

Additionally, during the second quarter Ipsen surpassed $150 million in cumulative cabozantinib net sales during the initial royalty period and will now be earnings tiered royalties of between 22% and 26% based on certain annual net sales tiers. During the quarter, we recorded approximately $2.7 million of collaboration revenue related to our U.S.

COTELLIC profit share with Genentech Roche. In prior quarters, we recorded the impact of the COTELLIC business in SG&A. During the second quarter, we received a revised forecast that project a profit for 2018 and therefore we now record these amounts as collaboration revenues.

Our total costs and expenses for the second quarter 2018 were $100.3 million compared to $97.4 million in the first quarter of 2018. This increase in total costs and expenses is primarily result of increases in personnel, marketing and consulting expenses and payments to Invenra and were in line with our expectations.

Cash and cash equivalents short and long-term investments and short and long-term restricted cash and investments totaled $595.9 million at June 30, 2018 as compared to $457.2 million at December 31, 2017.

And finally, the company is maintaining its guidance that total cost and operating expenses for the full year will be between $430 million and $460 million. This guidance includes approximately $50 million of non-cash costs and expenses related primarily to stock-based compensation expense. I’ll now turn the call over to P.J..

Thank you, Chris. We are pleased with the strong performance of CABOMETYX in the second quarter highlighted by end customer demand growth of 16% sequentially relative to Q1. As CABOMETYX received an expanded indication late last year and as indicated in the U.S. for all advanced RCC patients regardless of line of therapy or clinical risk category.

This broad label provides the strong foundation to make, CABOMETYX the TKI of choice in kidney cancer.

Based on customer feedback, prescribers are motivated to use CABOMETYX due to the totality of a strong clinical data from the METEOR and CABOSUN trials which demonstrated the superiority of CABOMETYX to a Afinitor and Sutent respectively a long-time standard of care in first-line RCC.

As we have previously stated the first-line approval enables us to continue our growth both in terms of increasing the eligible patient pool and increasing prescriber adoption as more community oncologists treat patients with first-line disease.

Consistent with this thinking, the growth of the CABOMETYX prescriber base continued in Q2 increasing by 14% relative to Q1. CABOMETYX growth was driven by both academic and community physicians and we continue to see broad utilization across lines of therapy in clinical risk categories.

The RCC market is very competitive highlighted by the FDA approval of the ipilimumab/nivolumab combination in April. Despite the launch of a new treatment option RCC, cabo demand grew by 16% and we made significant progress towards our goal of becoming the TKI of choice in kidney cancer.

Over the course of the first half of this year, we have conducted extensive market research which indicates that the RCC market will continue to be driven largely by the sequencing of therapeutic options. The majority of patients will have the opportunity to receive CABOMETYX followed by I/O therapy or I/O followed by cabo in sequence.

The large majority of patients who receive an I/O combo upfront will progress. And importantly market research and KOL feedback indicate that cabo will chosen from many of these patients upon progression, as they enter the second line treatment setting.

We began to see this dynamic play out in the cabo utilization data at the end of the second quarter. Looking at the IMS data, for the market basket of CABOMETYX, Sutent, Votrient and INLYTA. CABOMETYX grew three share points going from 25% to 28% in Q2, relative to Q1. And CABOMETYX TRx volume increased by 13%.

While we are pleased with our Q2 progress, we're not satisfied with it and remain focused on continuing to grow our position in the RCC market moving forward.

In addition to the continued growth of CABOMETYX through the expanded RCC indication, we look forward to the opportunity to drive growth through a potential label expansion in HCC, which would represent a third tumor type and fourth indication for the cabozantinib franchise.

Liver cancer is a significant unmet medical need, accounting for nearly 800,000 deaths globally on an annual basis. In the U.S., over 40,000 patients are diagnosed with liver cancer and there are approximately 29,000 deaths each year. Hepatocellular carcinoma is the most common form of primary liver cancer, and the number of deaths in the U.S.

attributed to HCC is double since 1999. A recent article in the New York Times, highlighted the increase in mortality in the U.S. from HCC over the last decade, as this health problem is getting worse. This market has long been under served as until recently there was only one approved systemic therapy.

The HCC market will have the potential to grow significantly in coming years, as new therapies are introduced. And Exelixis intends to play a key role in the advancement of therapeutic options for these patients with potentially both single-agent cabo and cabo I/O combination approaches.

This year, in addition to RCC and HCC, data have been presented on cabozantinib's activity in differentiated thyroid cancer as well as other histologies.

As you heard from Gisela, these potential new opportunities are at the forefront of our near-term development plans, and we view them as potential markets for future commercial growth, assuming clinical and regulatory requirements are satisfied.

We're excited about the future where indications like RCC, HCC, differentiated thyroid cancer, and combinations of cabo with checkpoint inhibitors and other tumors would offer potential long-term opportunities for the franchise.

Finally, cabozantinib continues to be the leading antiangiogenic TKI in the United States, with Q2 2018, franchise net revenue of $145.8 million. It is well differentiated based on its robust clinical data and unique mechanism of action. We are pleased with the results of Q2, but believe that many more RCC patients could benefit from CABOMETYX.

Our team is focused and motivated to compete every day to bring the benefit of CABOMETYX to every eligible patient, as we continue to build on the positive momentum of the franchise. With that, I will turn the call over to Gisela..

Thank you, P.J. I am pleased to provide an update on the progress of the cabozantinib development program in the quarter. I will start with a brief regulatory update on HCC and first-line RCC, as the second quarter was marked by important milestones.

First, in May, 2018, the European commission approved cabozantinib for the treatment of patients with previously untreated intermediate or poor risk RCC, further expanding the labeled indication. Also in mid-March, we filed the supplemental NDA and our Ipsen filed the EU labeled applications for the treatment of previously treated HCC patients.

The EMA validated Ipsen's filing in late March, and the FDA accepted our sNDA filing for review, granting a PDUFA date of January 14th 2019. These filings in the U.S. and E.U. were based on the positive outcome of CELESTIAL, our Phase III trial of cabozantinib versus placebo in previously treated HCC patients.

These results were recently published on July 4th, 2018 in the New England Journal of Medicine. With these important milestones achieved, we're fully focused on the broader development and lifecycle management plan for cabozantinib. Including combinations with immune checkpoint inhibitors to our collaboration with BMS and Genentech Roche.

We're very pleased with the progress of our clinical collaboration with BMS, combining cabozantinib with nivolumab alone, or both nivolumab and ipilimumab.

The Phase 2 HCC trial, evaluating safety and preliminary activity of the cabozantinib nivolumab and the cabozantinib nivolumab and ipilimumab combination in advance HCC completed enrollment earlier this year.

And the Phase 3, CheckMate 9ER study and treatment naive are assisting patients, evaluating cabozantinib in combination with nivolumab versus sunitinib, is making progress, and enrolling patients globally. This trial is cofounded by ourselves and our collaborated Ipsen and Takeda, together with BMS who is conducting the study.

The triplet combination of cabozantinib nivolumab and ipilimumab, continues to be evaluated in the ongoing Phase 1b trial in patients with advanced genitourinary malignancies. It has established the preliminary safety and tolerability and recommended dose for this combination.

And the development of a protocol for a separate Phase III trial, investigating the triplet combination versus nivolumab and ipilimumab, in first-line RCC is making progress. We also continue to make progress in our collaboration with Genentech, evaluating the combination of cabozantinib and atezolizumab.

And then initial dose ranging study with planned cohort expansions in various different tumor settings.

We have identified an active dose of cabozantinib in combination with atezolizumab, with good tolerability for the combination in the dose ranging part of the trial, and the initially planned a expansion cohorts, including various bladder cancer, first-line RCC, and various non-small cell and cancer settings are now actively enrolling patients.

Based on these programs in the second quarter, we announced that we are adding an additional 10 histologies to the ongoing expansion cohorts, investigating a variety of tumor types, including gastrointestinal malignancies, and GYN malignancies, in this important trial.

Further late stage checkpoint inhibitor combination studies and indications including bladder cancer, HCC, and non-small cell lung cancer are under discussion, And our partners, Ipsen and Takeda, will each have the opportunity to participate in future combination trials in accordance with the terms of their respective collaboration agreement.

We are planning to start pivotal trials with cabozantinib and for other tumor types in 2018 and in 2019, and are advancing in our work on specific study designs for such trials at this time. We look forward to sharing details on the next studies at the appropriate time.

In addition to our internal and clinical partner efforts, there are also multiple study concepts advancing through review and preparation at NCI-CTEP and our investigator-sponsored trial program of Phase II trials combining cabozantinib with various immune checkpoint inhibitors.

Such trials are moving forward in several indications, including triple-negative breast cancer, and endometrial cancer, and second-line non-small cell lung cancer.

The randomized Phase 2 trial, combining cabozantinib with nivolumab alone or nivolumab and ipilimumab, that was opened by earlier this year, it's being revised by the investigators to modify the control arm.

This modification takes into account recent changes in the non-small cell lung cancer treatment landscape with checkpoint inhibitor therapy is now being integrated in the standard of care first-line therapy.

And lastly, single agent cabozantinib has shown encouraging activity in a variety of tumor types, including your endocrine tumors, both PNET and carcinoid, and differentiated thyroid cancer indications for which Phase III studies are being initiated by the cooperative group, the alliance and by ourselves.

The PNET and carcinoid Phase 3 study is now open to actively recruit patients. To close, I'll provide a quick preview of our publication plans. At the upcoming ESMO conference in October in Munich, various cabozantinib abstracts has been accepted for presentation.

We will see a first data presentation of the COSMIC-021 combination trial of the cabozantinib and atezolizumab dose escalation experience. Expansion cohort data from this study will be presented when sufficient follow up is available and the data mature.

Additionally at ESMO results from various sub group analysis of interest from our Phase 3 study and advance HCC will be presented. These include analysis based on a future protein levels by disease burden at baseline and analysis by the number of prior local frontier intervention.

Other cabozantinib-related presentations include results from investigator-initiated studies and real-world observational studies of cabozantinib activities following immune checkpoint inhibitor treatment. We look forward to this presentation in October.

So in summary, I am very pleased with the progress made in cabozantinib development program and with the important regulatory milestones reached during this quarter and look forward to updating you in the future. And with that, I will hand the call back to Mike..

All right, thanks Gisela. I’ll close by saying that we made significant progress across the organization in the first half of 2018 and continue to see solid performance in all aspects of our business as we move forward into the second half of the year.

Our notable commercial and financial success in Q2 provides a strong platform for future cabozantinib trials and important new indications and to explore new opportunities to augment our pipeline to internal and external R&D efforts.

While we had a solid first half of 2018, we don’t take this success for granted and remain extremely vigilant in making every day count as we strive to fulfill our mission to help patients with cancer, recover strong growth and live longer.

The Exelixis team is thrilled to have completed the move to our new campus in Alameda where the energy level and enthusiasm are pervasive across the entire organization as we work with even more focus and urgency to deliver new therapies to patients with cancer. We look forward to updating you on our progress.

Thank you for your continued support and interest in Exelixis. And we're happy to now open the call for questions..

[Operator Instructions] And our first question comes from the line of Andy Hsieh with William Blair. Your line is now open..

Thanks for taking my question and congratulations on another strong quarter. I hope you guys settling in the new Alameda campus. So on the Q1 call I believe Chris mentioned about a $9 million inventory increase and in Q2 if I heard it correctly there is a $3.5 million drawdown.

So how do you think about the inventory level going forward?.

Andy this is Chris thanks for the question. So as you said we did have a $9 million increase in trade inventory which was generally associated with the increase in our end market demand. So as I said back then our weeks on hand was about three weeks on hand and of inventory. In Q1 and it was around in Q4. Therefore it just grew in line with our demand.

Now in Q2 here, we did see a reduction in inventory of around $3 million and that was actually the number of units in trade went down by about $3 million.

Our weeks on hand has fallen to generally historically low level, as many of the wholesalers destocked during the end of the quarter and sometimes they do as they manage their internal working capital metrics, as they approach the quarter end and the year end and they don’t have the ability to take speculation on price.

Now looking forward, we do think our inventory is best suited in that three weeks - on hand time or amount. And so that's kind of the way we think about it going forward..

Thanks for the additional color. And as we’re looking at the frontline RCC launch so P.J. I am curious about what you're seeing in terms of the frequency of PDL-1 testing among the front-line RCC prescribers.

Do you see an uptick following the ipi/nivo approval?.

Thanks for the question Andy, I think it’s early to see what the change in the testing dynamic is after that approval. That said we do see about a third of the patients broadly being tested for PDL-1.

So certainly something we’re monitoring I think what's nice with regards to cabo and kind of the totality of the data and the broad label was that we’re kind of seeing utilization across lines of therapy in the first-line, second line across risk groups whether it's favorable, intermediate or poor.

Importantly, sort of at the end of the quarter seeing a bit of a trend where we are getting some patients coming off of nivo/ipi combo therapy. So I think that's a potential opportunity going forward as we look to reinforce our position as the TKI of choice in kidney cancer..

Do you think that the PDL-1 testing is being used to select for patients for ipi/nivo meaning positive ipi/nivo negative cabo?.

Yes, I’d say it’s difficult to say significantly at this early point I’d say limited data indicates that certainly if their PDL-1 negative they're a bit less likely to receive the combination..

And last question from me it’s for Gisela, so obviously 18 ongoing expansion cohorts for the COSMIC-021 trial.

How do we think about the timing of the data disclosure and how should we expect the results for ESMO conference?.

I think regarding ESMO as I mentioned a little bit earlier, we are very pleased that the abstract has been accepted for presentation. And that abstract focuses on the dose escalation part of the study and we will present and publish data on the cohorts as data becomes available and matures in ASCO cohort to be presented.

So that is subject to further evaluation and future presentation..

And our next question comes from the line of Kennen MacKay with RBC Capital Markets. Your line is now open..

Thank you for taking the question. Quick one maybe again for P.J. As you've mentioned there is some evidence that patients were beginning to come off ipi/nivo at the end of the quarter and come on cabo.

I was wondering, if you could help us understand sort of where this comes from if this is just sort of anecdotal feedback from the sales force on the field or is this from more quantifiable chart review type data.

And then also wondering if these are patients who had progressed on ipi/nivo perhaps because they are not biomarker positive or whether these were patients who were coming to cabo because they had adverse events due to ipi/nivo?.

Thanks for the question Kennen. I’ll start maybe with the answer well couple of things the data is - actually we have some small data sets at this point that are quantitative from market research et cetera.

That said, I think this is all confirmatory of kind of hypothesis that we had which comes from market research as I mentioned in the prepared remarks that we've done extensively this year, as well as talk to KOLs that we think a large proportion of patients coming off of the combo would likely go on to cabo in the second line.

With regards to the nature what those patients, sorry I can't comment on that specifically certainly trends that we’re watching carefully. And I think you know this sequencing dynamics of I/O and cabo in the first and second line continue to sort of play out in the coming quarters.

And certainly believe that we’re well positioned to be the TKI of choice in that paradigm..

And then, as we think about that, in non-biomarker positive patients, I guess internally is there any sort of sense you can give us from the Ipi/Nivo data that's out there maybe from checkpoint 214, as to how long we could expect commercially these patients to stay on Ipi/Nivo before, then coming to a VEGF? And then again, just wanted to go back to sort of newly incident patients and I want to understand a little bit more where cabo is still the drug of choice in the front-line versus I/O combo? Thank you very much..

Couple of things there that I'll address. I mean, I think with regards to the progression, it's obviously it's going to be a spectrum of data. In the 214 data set, I would point out that PD was the best response in the trial for 27% of those patients. You'll see a spectrum there.

With regards to first-line, what we see in here from market research, as well as talking to the KOLs as well as our data, is that a certainly patients who maybe - who cabo really could be the appropriate choice for those patients, could be patients with bony mets or bone disease, symptomatic disease rapidly progressing disease are really seeing in research is a driver in cabo and we're really kind of seeing the perceptions of the attributes of cabo really tick-up in the recent quarter.

So, I think there's a place for it in first-line therapy and then certainly as patients progress on I/O therapy as I mentioned in the sequence, we believe we're well positioned to capture those patients going into the second line..

And then perhaps just one final question, more on pipeline. Just wondering if you could help us with expectations for potential timing for the front-line CaboNivo read out. Potentially when we could be expecting that and any changes to your internal estimates there? Thank you very much..

For the 9ER studies of the first-line, CaboNivo versus [indiscernible] study, this study is actively enrolling patients globally at this point. BMS are executing this study and we haven't really spoken to expectations regarding completion of the study or topline data. So, that's something to come as the study matures and progresses..

And maybe just one quick follow up. I've been looking at the ESMO and haven't seen a title for the combo data.

I was wondering if that was something that was perhaps going to be a late breaker?.

I'm sorry.

What combo data are you talking about? Are you talking about the COSMIC-021 study?.

Yes..

That list is published, so we can provide you that..

I will send you the grade list all the titles we have it..

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

Just thinking about pricing, how do you think about pricing for the rest of the year?.

Thanks Peter for the question. I mean we continue to evaluate the price. We did take around 2% price increase at the end of June and we're going to continue to evaluate as we go forward but not going to give any specific guidance to what pricing actions we may or may not take..

And then maybe a question for P.J.

just on the - you mentioned about the perception of cabo increasing, is it particular data set or is it more so experience that's kind of driving that increase perception?.

Yes, thanks for the question Peter. I think experience is certainly a part of it. With regards to - what we're seeing though is, I think really being driven by the expanded indication and the CABOSUN data that demonstrated superiority over sunitinib.

So, when physicians really thinking about what is they sort of go to TKI, across settings and I think that data is really strong particularly when coupled with mid-year data with the trifecta as we speak to efficacy benefits in terms of response rate progression free survival and overall survival.

So it's - it's really I think the totality of data and the fact that our team is doing a really great job of promoting that and working out there in the marketplace. We continue to see strong share voice and execution across the boards, I think that's really driving those increased perceptions..

And then just finally on that kind of first-line cabo versus PD-1, how you're kind of seeing that marketplace migrate or move? Is there particular patient groups or practices that you kind of think could be potentially more likely to use cabo?.

Yes, so, I think - it's very dynamic market across lines. I think, as we said we're going to see sequencing really play out over time.

I do think with regards to cabo in the first-line is I kind of mention is that preferential patient type which might be those with bone metastasis disease, symptomatic disease, bulky disease, rapidly progressive disease and who - they may no want to, for example, wait, so to speak for a response or efficacy from immuno therapy.

We could be preferential on those patients. I think importantly from the patient perspective though, the majority of these patients are going to have the opportunity to get both therapies in sequence as the landscape continue to evolve, which is really just beginning so.

So, certainly look forward to providing more color as that dynamic plays out in the coming quarters..

And our next question comes from the line of Stephen Willey with Stifel. Your line is now open..

I guess just as we think about the progression of I/O to front-line therapy.

Do you think there is eventually going to be any kind of impact on the number of treatment eligible second line patients? And I guess I just asked the question specifically with respect to the higher CRA rates that we saw in 214, and then also this notion that there are some physicians out there who maybe treating patients to be progressing with I/O?.

I think - again, dynamic marketplace. But I think largely in the first-line, the treatment rates will remain relatively stable. The second line, they could go up somewhat, it's certainly something we really see obviously very retrospectively through a lot of data and chart reviews.

But I think generally, whether it's this market over the last decade or other markets with new and more therapies, sort of coming to market to benefit patients you do typically see more lines of therapy and more treatment over time and then treatment rates tend to certainly not decrease but potentially increase over time.

I think that type of thing is what we're kind of looking at in dynamic of hepatocellular carcinoma, particular the more treatment options coming into the space, we'll see more patients we believe getting treatment in subsequent lines of therapy. So, look forward to that opportunity as well..

And maybe just a question for Gisela. Just reading CHNPs opinion regarding 2b and nivo as a front-line option in RCC. I guess they really seem to be emphasizing the combination rule with respect to contribution of benefit or attribution of benefit.

And just kind of wondering if how you think about that opinion in the context of both ongoing 9ER trial and also some of the other competitive front-line I/O TKI trials, where there really isn't a single agent arm to provide that pre-confirmatory attribution of benefit that EMA regulators maybe looking for?.

I think, as you say, the issue highlighted by CHNP really for the - nivo application it's a question of contribution of components to the overall outcome of the combination therapy in view of potential added toxicity by the combination partners as compare to single agent treatment.

So as such it’s not a surprising question and not unique to any regulatory agency. So for the cabozantinib program, we are evaluating cabozantinib very broadly and as you know as a single agent and in combination with other agents.

And I think as we are designing and thinking about new trials future trials and also the ongoing trials, the contribution of component this part of the consideration. When we put these designs together and that contribution I think is to be supported either by within trial comparisons or cross trial comparisons.

And as such as you obviously it cabozantinib is approved in the first line setting has demonstrated single agent activity and so the question of activity in this very setting is not so much of a real question for the 9ER study..

And then may be this last one last question for Chris, can you may be just speak a little bit to the higher Roche collaborate revenue this quarter. I guess just in the context of what look to be fairly flat year-over-year and sequential COTELLIC sales? Thanks..

Yes, so from a ex-U.S. perspective our royalty was - in the second quarter was around $1.5 million and was relatively flat, but from a U.S. perspective we’re now into a profit versus a loss situation where we were last year. And now we’re recording those revenues and this time it was $2.7 million in collaboration revenues related to the U.S.

profit share and that's related to the profit on the U.S. business which there has been some expense reduction during the year and forecasted that brings it to a profit for the year. So it’s not necessarily completely linear to the U.S. sales but because of the reduction expense..

[Operator Instructions] Our next question comes from the line of Boris Peaker with Cowen. Your line is now open..

So my first question is on just revenue per patient, can you compare - can you comment on how revenue compares for first-line RCC patients second and third line on cabo?.

Sure, Boris this is P.J. I'll take that. I think what we typically see is more patients in first-line overall as opposed to second line and then third line.

Typically the first-line patients do tend to be the earlier you go on the line of therapy the patients tend to be healthier and all the data from the various trials demonstrate a slightly longer duration of therapy as you move forward in the line of treatment.

That said, with the marketplace being so dynamic as I mentioned in the sequencing changing that dynamic could change somewhat over time certainly with new therapy options but that's kind of how we think about it..

But on a relative basis can you comment like if a second line patient in average let’s say has 80% of the duration of treatment for first-line or is it 50% just kind of maybe ballpark figures?.

Yes. When it comes to duration we sort of talked about what we see is similar to what we've seen in the clinical trials, but wouldn't want to speculate or comment on beyond that..

And my last question and in RCC you saw a very strong signal in bone met certainly in your clinical studies.

I’m just curious are you seeing this effect driving sales in any way, is it part of your promotional effort is an opportunity to really differentiate?.

Well, I think as I mentioned kind of there is certain types out there that particularly in the first-line setting where that clinical feature can be - make these patients more likely to CABOMETYX and I think the KOLs kind of very much of that mindset and it's something that that - if you look at the subgroup data, you see a solid benefit in our trial.

So, that's something that certainly is out there that is I think bit of a differentiator for CABOMETYX and RCC..

And actually one more question. Just on the CheckMate 9ER study. I'm just curious, for the patients on the Sutent arm, what are their follow up options.

I mean, can they get I/O therapy on follow up?.

Sure, on the study, whoever are enrolled in this study, they cannot have any additional anticancer agents. But when patients discontinue subsequent therapy are not specified and they can receive available subsequent care..

And do you have any sense of what fraction of patients may be getting some kind of I/O therapy on follow-up?.

We don't have any view into that. At this point it's an ongoing trial..

Yes, and still enrolling..

And our next question comes from the line of Umer Raffat with Evercore. Your line is now open..

My question is, so specifically in CheckMate 214, what is it that you saw that informed the opinion to remove the ipi/nivo cabo arm.

And are you looking to position the nivo cabo as a low-risk patient offering or are you hoping to have a better survival benefit and try to compete with nivo in the market end, high risk setting as well? And I had a follow up..

Sure, just to 9ER study, and your questions here - what motivated the amendment of the study. With the positive outcome of 214 and the survival benefit, we felt that it was prudent to remove that third arm of CaboNivo Ipi because really the true comparative for the CaboNivo Ipi combination is nivo/ipi.

When you think about it and we wanted to focus the 9ER study to really address the question of CaboNivo versus sunitinib, and that was jointly decided by ourselves and [PNET] were executing the study..

And is the positioning really for - like, what's the ultimate from a market perspective, where do you intend to position this regimen, will it compete head-to-head in intermediate to high-risk patients versus ipi/nivo or is it really meant for a low risk patients?.

The 9ER study includes all risk categories. So, addressed with a broader population and 214 study or the 214 outcome, as you said. The study included favorable risk as well but the outcome was not stable in that subgroup.

And so, I think it's the - certainly an available therapy, if the study succeeds and addressing patients similarly to other TKI and I/O combinations, and I think certainly physicians will review the safety profile and the eligibility of patients who have various treatment options and make their determination..

And then my final one was, the recent CHMP feedback that Bristol got on ipi/nivo in RCC and from European side, was that - they couldn't understand what the incremental contribution of euro was. And I think that perhaps speaks back to the trial design.

So I guess my question is, how do you think - how do you view that CHMP decision and how would that inform how - how would that inform the trial design and potential regulatory review down the road given the lack nivo 9ER?.

Yes, so as you said, the CHMP remarked in their comments. And then in their opinion that was a negative opinion that they were unable to determine the contribution of the ipilimumab to the outcome, to the overall outcome.

And they had concern about - the absence of that information being available, potential add to [indiscernible] by the combination partner. So, that is currently the status as of I think the 26th of July. In terms of the CaboNivo combination, as I said earlier on the call.

I think we have obviously cabozantinib first-line data that is supported in approval differently from nivolumab, which is very older - or ipilimumab single-agent [indiscernible] is a quite different situation where we can fall back on the cabozantinib study that has established the activity and safety of the product in first-line RCC..

Thank you. And at this time, there are no further questions. So with that, I'll turn the call over to today's host, Susan Hubbard. Ms.

Hubbard?.

Thank you, Andrew, and thank you all for joining us today. We certainly welcome your follow-up calls with any additional questions you may have that we didn't address today. Thanks a lot and have a great rest of your day..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a wonderful day..