Spectrum Pharmaceuticals Inc (SPPI) 2005 Q3 法說會逐字稿

Good day, everyone, and welcome to today's Spectrum Pharmaceuticals third quarter 2005 financial and operating results conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Ms. Laurie Little, Senior Director of Investor Relations. Please go ahead, ma'am.

Thanks, Cindy (ph). Good morning, everyone and happy Friday. Thank you for joining us today to discuss Spectrum's third quarter 2005 financial and operating results. Participating on today's call are Dr. Rajesh Shrotriya, Chairman, CEO and President of Spectrum Pharmaceuticals, Shyam Kumaria, Vice President of Finance, and Dr. Luigi Lenaz, our chief scientific officer.

Before we begin, I'd like to say that during this call we will be making forward-looking statements regarding future events and the future performance of Spectrum Pharmaceuticals that involve risks and uncertainties that could cause actual results to differ materially.

These risks are described in further detail in the company's report filed with the Securities and Exchange Commission. These forward-looking statements represent the company's judgment as of the date of the conference call and the company disclaims any intent or obligation to update these forward-looking statements. However, we may choose to update them and if we do so, we will disseminate the updates to the investing public. Our 10-Q was filed today with the SEC and we issued our earnings press release earlier this morning. For the 10-Q earnings press release, over the course finding 8-K and for additional information including all of our SEC filings, please visit our website at www.spectrumpharm.com.

Now that that's completed, I'd like to turn the call over to Dr. Rajesh Shrotriya. Raj?

Thank you, Laurie. Good morning, ladies and gentlemen. Thank you for joining our call today. I would like to begin by sharing with you the underlying principles that represent the foundation of Spectrum's business strategy and the progress we are making in this regard.

We believe that there are at least three essential ingredients for building a successful and sustainable pharmaceutical business. Number one, to have a broad and deep portfolio of diversified late stage drugs. Number two, have a team of people who have done it before, have relevant experience, commitment and passion for developing drugs. And number three, have financial resources to carry out this strategic plan.

Drug development is time consuming and expensive. It takes 16 (ph) plus years to bring a drug from test tube to the market and it can cost in excess of $800 million. Many companies with perfectly fine drugs run out of cash and those drugs never see the light of the day. And some companies go out of the business. We believe that, at Spectrum, we are well on our way to achieving all of the essential ingredients and we are grateful indeed to our shareholders, board of directors and to our employees for this.

Let me discuss each of these points. First, we are proud of our diversified product portfolio. Fundamentally, we are a proprietary drug acquisition and developing company that is focused on oncology. While furthering the development of our current proprietary drugs, we continue to look at new opportunities to expand our portfolio to build a large portfolio of late stage drugs in order to reduce the risk of drug development. In less than three years since gaining (ph) Spectrum Pharmaceuticals on December 9, 2002, we have built a broad and deep guideline of some seven proprietary drugs. Two of these drugs, Satraplatin for prostate cancer and EOquin for superficial bladder cancer, are advancing closer to registration and the market.

Satraplatin, in fact, is in Phase III and EOquin. Ozarelix, Lucanthone and Elsamitrucin all are in Phase II trials, while RenaZorb and SPI-1620 are expected to be in Phase I human trials by next year. And (inaudible) Satraplatin and EOquin are expected to move to the marketplace, drugs such as 1620 and RenaZorb are intended rapidly to advance to a pre-clinical status of development.

While it is possible that Satraplatin, if successful, could generate revenues beginning as early as fourth quarter 2007 or soon thereafter, we have filed several abbreviated new applications with the FDA for generic drugs. And this has been done in an effort to developing an alternative source of near-term revenue. In the regard I would like to point out that we currently have some nine ANDAs with the FDA and we expect several approvals over the next six to 12 months.

I'm especially excited about our ANDAs with Paragraph IV certification sumatriptan succinate injections, the generic form of the GlaxoSmithKline's Imitrex injection. I will discuss this further in a few minutes. Because we need to evaluate other drugs, both proprietary and generics, we have built a generating revenue in the near-term, while continuing to develop promising drug candidates for long-term success.

The revenues from generic drugs, one has to look at something like Saber (ph), Ivexspa (ph) and others. We believe that in order to achieve significant revenue from generic side of the business, which is possible, one must achieve a critical map of products. And we hope to achieve that while 15-20 of our drugs reach the marketplace. Secondly, we believe that we have assembled an experienced team of professionals that have done it before and have the relevant experience, commitment and passion for developing drugs.

We now have almost 40 employees and consultants whose commitment is responsible for the rapid progress we have achieved. A team of professionals in Spectrum Pharmaceuticals includes now six MDs and several PhDs. These members of the development team have proven track record in drug development, new drug application filings, approvals and product commercialization.

In addition, it has - their commitment and passion that is a factor for drug development, that makes the ultimate difference. Recently, one of our independent directors, Dr. Philip Merta was appointed as a lead director and Mr. Richard Fulmer was appointed as a new director. We now have six directors on the board at Spectrum and five of them are independent.

Mr. Fulmer is a marketing and business development executive whose career spans over 30 years with 24 years spent at Pfizer in a number of highly level marketing and business development positions, including over five years as vice president, licensing and business development. While at Pfizer, he was a key part of the commercialized launch of the leading antifungal drug, Diflucan, Voriconazole, Zoloft, the number one selling antidepressant, and the model alpha-blocker, Cardura, used for benign prostrate hypertrophy.

Mr. Fulmer was also responsible for the formation of a strategic alliance with Alizai (ph), a Japanese company related to the commercial development of (inaudible) programs disease. The creation of co-development and co-commission agreement and targeted is for Lipitor and the licensing and marketing agreement pharmacia, but it talks to the inhibitor study break. Addition is particular timely as effect on begin the transition from purely a drug acquisition and development company to a commercialization company as well.

As Spectrum, that's advancing and our lead drug, Satraplatin and EOquin, are moving closer to registration and marketing. We believe that Mr. Fulmer's experience in launching significant new drugs and (inaudible) the strategically important licensing deals, listening a valuable member of our already highly experienced and qualified board of directors. I'm also pleased to report that Spectrum has expanded the advisory board with COD words leading experts in Candilitas (ph). Rejoining the effect on the scientific advisory board are Dr. Andy Mitch (ph), Dr. Herbert Filalo (ph) and Dr. Hibab Antasian (ph). Dr. Antasian has been at the Anderson hospital and Dr. Philip Leis from Netherlands.

Joining your distinguished colleagues for the first time out of (inaudible), both Anthony Tolger (ph) and Dr. Dan Van Hoef (ph). The interest case either the establishing Spectrum through drug acquisition and development activities are best created by those who have the validated experience and knowledge and are (inaudible) leaders in the field. Each member of our scientific advisory board has decades of relevant experience in the field of painful (ph) oncology and has the research. Their advice and counsel will be invaluable to us as we move our drugs closer to regulatory and marketing approval.

Up third on the mantel (ph) for building a sustainable business is that we believe that vanishing strength is essential for getting out our business plan. In this regard, I'm pleased to report that we ended the third quarter with approximately $69 million in cash. The final thing completed in September and hence our partial (ph) strength and provided sufficient cash to fund of (inaudible) operations and gain the development initiatives that are due to enabling shareholder value. The investment make by these investors illustrates the confidence they have in our strategy and in our management team's ability to build value over the long-term.

Further, as the company gets closer to generating potentially significant revenues, the need for additional financing in the future is likely to be reduced. If you're for a development of participating in the Spectrum's second annual analyst and investors day held about three weeks ago, then you know that we are continuing to achieve our milestones and have made much progress this year. And over the last quarter in particular. However, one of the questions that we are always asked is what to expect in the next six, 12 and 18 months.

But let me share with you our goals for the remainder of 2005 and beyond. Significant progress is being made by our partner, GPC Biotech in moving the Satraplatin safety program forward. As of October 26, 2005, more than 45 patients had been enrolled in this Phase III clinical trial. And we are on track to complete enrollment of 912 growth (ph) patients by the end of this year. We anticipate completing and announcing the results of the inter analysis of this trial in less than six months and most likely by the end of first quarter of 2006.

We also expect to submit a rolling NDA before the end of this year. If approved by the FDA, this drug has the potential to generate revenues as early as fourth quarter of 2007 or soon thereafter. EOquin is consequently (ph) one of our highest priorities at the Spectrum and it continues to show great promise in treatment of regular (ph) superficial dedicator. Its complete responses that range in 67-71% that are also doable, meaning that patients remain cancer free a longer period of time.

(inaudible) with direct at its counterpart in Europe to discuss a fair street (ph) education trial. With the mixed (inaudible) we intend to meet with the FDA to discuss our newest regulatory strategy for approval of this drug. My expectation is that sometime during the second half of next year, we'll initiate a Phase II registration trial, both in the U.S. and in Europe.

Additionally, the Premier Cancer Research Organization in Europe called EORTC has been very proactive in pursuing further development EOquin in Europe. Please understand in about 20 years or so, not a single new drug has been approved and marketed for the treatment of superficial bladder cancer. So, in this regard, it's relatively a virgin field. Also, the number of patients in Europe is much larger than in the United States.

Turning to all the (inaudible), we have completed enrollment in the Phase II hormone defendant (ph) prostate cancer trial in Europe almost four months ahead of schedule. Forty-eight patients have been entered in this trial, patients that currently were in for observation. In the last quarter, we also initiated a second trial in the U.S. In addition, we have a trial in BPH or benign prostate hypertrophy in Europe and we plan to complete the enrollment in this trial soon.

We also plan to initiate a U.S. study in endometriosis sometime next year. The (inaudible) Phase II trial is progressing as planned. Our plan is to complete enrollment by the end of 2005. We're also planning to initiate some additional studies in solid tumors and combination studies for the next several months. There can also development a trend - the Phase II clinical trial of Lucanthone, a drug candidate which we acquired rights in the second quarter of this year.

We also have our two pre-clinical drugs, both of which were acquired this year and they are RenaZorb, a phosphate binder for patients with end stage kidney disease and SPI-1620, an adjuvant to chemotherapy. And we plan to see both of these move into human clinical trials in 2006. I shall be pleased to have the opportunity to further review our goals and accomplishments with you during the Q&A session.

However, before I do that, I would like to have Shyam discuss the financial highlights of the third quarter operations. Shyam?

Thank you, Raj. Good morning, everyone. I will provide a brief overview of the financial results for the third quarter of 2005. As we highlighted in our earnings release this morning, we reported a net loss of approximately 5.2 million compared to a net loss of approximately 4.1 million in the same period last year.

The approximately 1.2 million increase in net loss for the third quarter of 2005 reflects the continued advancement of the company's product portfolio and was primarily due to increases in R&D expense and increased legal expense incurred in connection with the GlaxoSmithKline lawsuit regarding our patent challenge. These costs were offset by a decrease in stock-based charges. Revenues for the third quarter of 2005 were $184,000 and these were from product sales and commissions under our licensing agreement. This compares to low revenues in a comparable period in 2004.

Research and development expenses increased from approximately 2.4 million in the third quarter of '04 to approximately 3.3 million in the third quarter of '05, primarily reflecting the expansion in the number and scope of our clinical trials and other development activity. During the three-month period ended September 30, '04 - that's last year - the principal clinical trial costs related to a Phase II trial on EOquin. This year, in the three-month period ended September 30, '05, we incurred costs related to multiple Phase II clinical trials - EOquin, Elsamitrucin and Ozarelix.

General and administrative expenses increased approximately one million from 1.2 million in the third quarter of '04 to approximately 2.2 million in the third quarter of '05. This increase was primarily due to increased legal expenses in connection with the lawsuit regarding our patent challenge of the GlaxoSmithKline's Imitrex injection. As Raj mentioned earlier, in September '05, the company sold eight million shares of our common stock and raised 42 million. As a result, the company had cash and marketable securities of approximate 68.6 million at the end of the quarter compared to approximately 33 million at the end of the June quarter.

With that, I would like to turn the call back to Dr. Shrotriya.

Raj?

Thank you, Shyam. We are pressing into (ph) asset (ph) filings we discussed in detail the other proprietary products we are developing. I'd be happy to respond to questions and elaborate on the development status of any of our products. However, before we move to the Q&A, let me reiterate for you that our proprietary oncology drugs are the primary focus of our company and represent the fundamental basis for investing in Spectrum over the long-term. However, now I would like to discuss other opportunities that leverage our expertise.

We must define our business, use minimal resources and yet also have the potential to provide near-term revenue with little downside risk. Since we don't incur the fixed cost well enough in manufacturing (inaudible) or the sales force and these are our genetic drugs. And let me also mention here that our goals has been that even if you bring in one dollar worth of revenue from the (inaudible) side of the business, it is that one dollar for which we don't have to issue equity.

To date, we have to see the approval for three products - Citroflosesin (ph) and Sutranicol (ph) tablets in addition to Paloplatin (ph) injection. The Sutranicol approval was achieved (ph) in September 28, 2005. At this time, our sense expectation from our generic portfolio are relatively modest. What we believe that our longer-term outlook, when we will have about 15-20 drugs approved and marketed that remains (inaudible). Over the next six to 12 months, we expect several approvals from the nine ANDAs that are currently under review with the FDA. We are particularly excited about our ANDAs with Paragraph IV certification sumatriptan succinate injections, the generic form of the GSK's Imitrex injection.

Let me say a few words about sumatriptan injection and offer some idea as to why are we do excited about it? Sumatriptan is marketed by GSK as Imitrex and is used for the treatment of migraine (inaudible) headaches. The U.S. market for Imitrex injection is estimated at approximately $200 million annually. We have filed ANDA and the Paragraph IV and have challenged the patent that expires in 2009. If we are successful in our patent challenge, we may have six months of exclusivity in the marketplace before other generic versions are approved. If our patent challenge is successful and our ANDA is approved by the FDA and depending on how the litigation proceeds, we could launch this drug in the second half of 2007. For a company of our size, this is an enormous opportunity and we are quite excited about it.

In summary, let me say that Spectrum is embarking on an exciting times. We are a diversified oncology companies with multiple (inaudible) drugs. We're taking advantages of our strategic alliances, both in India and in the United States to seek market advice for niche generic products. We are excited about our third quarter results and a strong cash position to support future growth of the company and are proud to have added new members to the Spectrum team, to further bolster the solid team that we already had in place.

Looking ahead to 2006 and beyond, we intend to successfully bring several drugs through NRG (ph) approval and market acceptance, while we continue to diversify our portfolio. In short, we have great confidence that we are on the right path to long-term success.

With that, we'll now be happy to take a few questions. Operator?

Thank you.

(Operator instructions)

We'll take our first question from Tony Campbell (ph) at Nark (ph) Partners.

Good morning.

Good morning, Tony.

I'm wondering if you could just give us a sense of what the cash burn could be for '06, please?

Tony, we are actually going through the budgeting process as we speak at this time and we have a meeting in December with our board. So until the - until all the diverted internal audit products have been reviewed, I'm not in a position to give you the burn rate. But I'm hoping that after this exercise, we will be.

Okay. I'll - that's fine.

And (inaudible) this year we are burning about what we expected - about $20 million or so.

Correct. Thanks.

Thank you for your questions, Tony. I'm glad you were on the call.

We'll take our next question from (inaudible) at Rodman & Renshaw.

Hi. Good morning, guys. Congratulations for the ongoing progress. First question is on the Satraplatin. Are you guys - you guys have stated that you guys are on track to possibly announce the internal results by first quarter of next year. Just a housekeeping question. Are you guys going to announce the internal results - what's the primary endpoint right now for this (inaudible)? Is there still going to be in time to the (inaudible) progression or, according to GPCV(ph), will exactly have progression fee survival (ph). Can you comment on that?

Well, yes. Let me try to. Yes, the - we have been talking about time to business progression and, in fact, if you look at the last trial that was published and presented at ASCO (ph), in fact, the endpoint was progressively survival. And if you look it, there's not much difference between the two. In fact, they can be superimposed. So, it seems to me, maybe, Luigi Lenaz, you want to say - you want to say a few words on this?

Yes. This is a small challenge (ph) in point so that, as we were requested (inaudible) it's possible that for them to harmonize a clinical trial endpoints, there will be no quality (inaudible). And in fact, at the start of the study, the endpoint to the (inaudible) was time to progress. And for you (inaudible) of the actually fees (ph) for (inaudible). So now, (inaudible) to do two analysis, we will be left to do only one.

The two endpoints are (inaudible). The only reference is that in the (inaudible), also that that's not related to (inaudible) are counted as answer. These are expected to be very minimal difference in the total number of events and, as Raj mentioned, the two dates would be very critical, very impossible.

Okay. And the follow-up question to that is the - will the change from TTD (ph) to PFS (ph) change the possible final statistical power as well as the interim powers, study through powers for this spot (ph) trial.

There will be no defensive, there will be no plans in the (inaudible) level to start it.

Okay. Then, finally, related to this question is the - is the, you guys, you already stated that rationale - changing from TTD to PFS, but have you guys discussed with your PA regarding the rationale to change into PFS? Or is that still classified at FDA?

As I said, official request to (inaudible) FDA to (inaudible) the (inaudible) program are called harmonization (inaudible) agencies in Europe and the U.S. and to try to come up with senior level points to streamline the assessment for the result of (inaudible). And in some meeting between the U.S. and European authorities, they decided that (inaudible) survive, but will serve the better in point and both the agencies will adopt that as a (inaudible) point with a rate (inaudible). So, this (inaudible) of the FDA and, of course, one would ask because we'll be (inaudible) only one (inaudible). So, we (inaudible).

Okay. Good. Thanks. And I have another question for EOquin. Can you guys give us additional colors regarding the design and possible size of this Phase III trial in the U.S. as well as in Europe? And I'm pretty sure that it is too preliminary, but any guidance will be very helpful. Thanks.

Well, let me try to answer that question. We are planning to have a meeting with the FDA.

Right.

And I think that meeting will set the tone. At this time, (inaudible) and I have some ideas along with our experts on some things as to what kind of design we would like to conduct. In fact, we had to go first to the FDA. But until we meet with the FDA and FDA buys in or suggests some changes, I think it would not be wise for us to discuss this with you because it's going to change.

Okay. Okay.

I hope it's just a matter of next two to three months when we will know precisely what we are going to do, what the FDA will (inaudible) try to get a protocol assessment, especially (inaudible) by the FDA.

Okay.

We don't know whether we will get it or not.

All right. Thanks.

Keep in mind, bladder cancer is an area where not a single drug has been approved and marketed lasts more than 20 years. So, this is an area where there's nothing like the (inaudible) two years ago and if you duplicate the same kind of trial you will get approval. It's kind of a virgin territory from that point of view. So, we're keeping up in the (inaudible). We're very excited. We have at least two designs that we have proposed to the FDA. And I'm hoping that one of them will be accepted to the FDA.

All right. Good. Thanks. And last question I have is for the generic franchise you guys have. The first quarter sales were a little bit lighter. I was wondering if you think that is a comment on the futures that patients - for the generic sales going forward. Thanks.

I think that's a good question. This is often asked and I would like to repeat what I have said that generics business is going to be - until we have a (inaudible) of products, until the number of products in proven (ph) marketed, would be very hard to predict sales. Because, as you know, once the product is approved, there are usually, the (inaudible) - 10 or 14, for example, what's happening in the Satraplatin, there were 10 or 15 drugs approved at the same time. And those companies whose drugs are approved on the day the patent runs out, they're aggressively able to get a line of contracts with several companies. Our products - Satraplatin (inaudible) - all of these approvals came several months after the patent had expired and the projects were already signed.

Having said that, I would like to repeat once again, that our strategy is that we don't have many working plans (ph), we don't have a sales force, there's usually not enough (inaudible) equity on generic kinds of business. And so (ph) does that give you an example that if we get picked to exclusively (ph) sumatriptan, it could mean tens of millions of dollars to our bottom line. So, I think the value of the generic side of the business will remain light and unpredictable until we have a crystal map of products, which I expect, about 15-20 drugs. Nine drugs are still pending at the FDA for approval. So, once we have all these drugs approved in the market and even if you get a few hundred thousand dollars from each drug, you could have, in millions of dollars of revenue, coming from the (inaudible) side of the business.

All right. Fantastic. Congratulations again for the ongoing progress. Thanks.

Thank you. Thank you.

And that does conclude today's question-and-answer portion of today's call. I would like to turn the conference back over to Dr. Shrotriya for any additional or closing remarks.

Thank you for all your questions. We believe we at Spectrum are well positioned to create long-term shareholder value. We look forward to speaking with you throughout the next quarter, as we have starting doing investors and analysts conferences now. (inaudible) investors. Thank you, once again, very much for your time this morning and your support as our shareholders. Thank you.

Thank you. That does conclude today's Spectrum conference call. You may disconnect at this time and we do appreciate your attendance today.