Spectrum Pharmaceuticals Inc (SPPI) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter financial and pipeline update conference call.

[OPERATOR INSTRUCTIONS]

At this time I would now like to turn the call over to Mr. Russell Skibsted, chief business officer. Please proceed, sir.

Good afternoon and welcome to our convergence call for the second quarter 2006. With me today on the call are Dr. Raj Shrotriya, chairman, CEO and president of Spectrum Pharmaceuticals, Mr. Shyam Kumaria, vice president of finance, and Dr. Luigi Lenaz, chief scientific officer.

Before we being today's call, I'd like to state 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 reports filed with the SEC. These forward-looking statements represent the company's judgment as of the date of this 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.

We filed our 10-Q and issued our earnings press release earlier today. For the 10-Q, earnings press release, corresponding 8-K and additional information, including other SEC filings, please visit our website at www.spectrumpharm.com.

Now I'd like to turn the call over to Dr. Raj Shrotriya. Raj?

Thank you, Russell. Good afternoon and welcome to our conference call. Thank you for joining us today.

During our call, Mr. Kumaria will review Spectrum's financial highlights for the second quarter and then I will give you an update on our portfolio and discuss our upcoming exciting milestones for 2006 and beyond. Here is Mr. Kumaria. Shyam?

Thank you, Raj. Good afternoon, everyone.

As highlighted in our earnings release today, for the second quarter of 2006 we recorded a net loss of approximately $9 million, or $0.37 per share. That included a non-cash stock-based charge of approximately 4.2 million. More on that in a second. That compares to a loss of approximately 4.6 million, or $0.30 per share, in the same period last year.

The net cash used in operations for the second quarter of 2006 was approximately 5.3 million compared to approximately 4.2 million for the second quarter of 2005. At the end of the quarter the company had cash, cash equivalents and marketable securities of approximately $55 million and we had approximately 24.5 million shares of common stock outstanding as of August 4, 2006.

Substantially all of the approximately 4.4 million increase in net loss was due to the following non-cash charges; 2.7 million in connection with the acquisition of the oncology assets of Targent Incorporated, 700,000 due to the expensing of stock options resulting from the adoption of SFAS123R effective on January 1, 2006, and finally, 600,000 in connection with a payment to Altair Nanotechnologies, which is the licensor of RenaZorb, of a milestone pursuant to our license agreement and additional amounts for transfer of technology related to formulation improvements to RenaZorb.

During the quarter ended June 30, 2006, Spectrum recorded no revenues. That compares with 240,000 of revenues in the quarter ended June 30, 2005. R&D expenses were approximately $4 million in the second quarter of '06 compared to 3.4 million in the same period of 2005. The increase of R&D expenses is due to the expanded scope of the company's R&D activities, including an increase in the number of personnel in preparation for a Phase 3 trial in late 2006 for EOquin.

General and administrative expenses for the second quarter of 2006 were approximately 1.5 million compared to approximately 1.4 million in the second quarter of 2005. The slight increase in G&A is primarily due to a small increase in payroll, again commensurate with the expanded scope of our corporate activities. Other income in the quarter increased by approximately 400,000, attributable to significantly higher interest rates and balances on [inaudible] funds.

Now, I'd like to turn the call back to Dr. Shrotriya.

Thank you, Shyam.

As you know, our business model is unique and is one of [risk reducer] strategy. Without any basic drug discovery research inside the company, we have built an impressive portfolio of some 10 drugs in less than four years. Our portfolio includes three late stage drugs that in fact could be on the market before the end of next year; that is in less than 18 months. And we have done all this on a shoestring budget by creatively making strategic alliances.

We could get some 20-plus million in 2007 in milestone payments from various partnerships.

Our expertise lies in identifying undervalued drugs with demonstrated safety and efficacy in adding value through further clinical development and the selection of most viable drugs. Today I would like to provide you an update and discuss the progress we have made in advancing these drugs over the last quarter. Then I will discuss upcoming milestones for each of our four later stage drugs.

First, I would like to discuss our nearest term revenue generator satraplatin, a member of the platinum family of compounds, which we are developing with our partner [GPC Biotech]. As many of you know, platinum-based drugs have become a critical part of modern chemotherapy and are used to treat a wide variety of cancers, currently generating sales over $2 billion a year.

Unlike the platinum drugs currently on the market, which all require intravenous administration, satraplatin is the first oral platinum drug. This not only reduces the cost of care, but is more convenient for the patients because it can be taken daily at home versus daily trips to the hospital. Satraplatin is currently in pivotal Phase 3 trials for second-line chemotherapy for hormone-refractory prostate cancer.

To date, we have not seen some of the toxicities which have been typically associated with other platinum drugs such as nefrotoxicity and neurotoxicity. We expect data from this pivotal Phase 3 trial in the fall. If approved, satraplatin will be the first standard of care in second-line treatment for this important indication.

Following the [inaudible - highly accented language] special protocol assessment, the FDA granted satraplatin a fast-track status. [Three parts] of the [inaudible] new drug application, or NDA, for satraplatin have already been filed and data from the Phase 3 trial is expected in the fall of this year. If the data are positive, we expect to complete the filing of the NDA for satraplatin before the end of this year, with potential approval from the FDA as early as 2007.

Pharmion was granted exclusive commercialization rights to satraplatin for Europe and certain other territories outside the United States. If satraplatin is successful, Spectrum will receive milestone payments totaling up to $58 million, approximately $20 million of which could come in 2007. We will also receive royalties on worldwide sales of satraplatin.

Satraplatin is also being evaluated in combination with other drugs in a number of other trials, including a Phase 1 trial in combination with [Zeloda]. In addition, last week we announced the initiation of a Phase 2 trial evaluating satraplatin in combination with [Tarceva] in patients with non-small cell lung cancer. Spectrum is entitled to milestone payments and royalties upon sale of satraplatin in these or any other indications.

We look forward to providing you with an update on satraplatin and the data from the pivotal Phase 3 trial in the fall.

The second later stage drug with potential to generate revenue within the next 18 months is our LFA, or levofolinic acid. LFA is the pure active isomer of calcium Leucovorin, a component of a standard of care 5-fluoruracil containing regimens for treatment of colorectal cancer. Two NDAs, one for oral formulation and one for injectable formulation, have been submitted to the FDA. The Oncology Drug Advisory Committee of the FDA has reviewed LFA and recommended approval for LFA at a vote of eight to zero.

The chemistry, manufacturing and control portion of the submission, also called CMC, generated additional questions, mostly in regard to manufacturing, and asked us to conduct a stability test. Spectrum has signed an agreement with Merck Eprova to manufacture the active ingredient in LFA and we are currently manufacturing three commercial [lots]. We expect to file a response to CMC in the first quarter of 2007 and upon approval we begin marketing in the United States in late 2007.

We are also in the process of evaluating the most efficient method of marketing and commercialization for LFA and will provide you with an update on our exact plans when they become available.

EOquin is another one of our proprietary anticancer drugs with significant near term potential and currently it represents the highest priority in the company. EOquin is being studied for the treatment of superficial bladder cancer. Bladder cancer is the fifth most common cancer in the United States and there has not been a new drug approved and marketed for bladder cancer in over 20 years, neither in United States nor in Europe.

In April we presented data at the 21st Annual Meeting of the European Association of Urology in Paris. The results of the Phase 2 superficial bladder cancer marker lesion study showed 67% of the subjects received a complete response. This is in comparison to 30 to 40% response rate that is common for most other drugs.

All studies of EOquin completed to date have been conducted in Europe. In January this year we met with the FDA and then filed an IND for EOquin to initiate a Phase 3 trial in the U.S. to evaluate EOquin's effectiveness in treating superficial bladder cancer. We are currently conducting a small pilot study in 20 patients and we are simultaneously working with the FDA to obtain a Special Protocol Assessment, or SPA. We anticipate completing enrollment of this 20-patient pilot study in the fall.

It is important to note that the FDA does not require the pilot study to be completed prior to allowing us to commence the Phase 3 trial in the United States. However, we are in constant dialog with the FDA regarding this trial and will continue to keep the agency informed on the number of patients dosed and responses received. Once we receive our SPA from the FDA, we will provide you with an update on the protocol for our Phase 3 registrational trial, which we hope to initiate by the end of 2006.

As I mentioned earlier, EOquin is one of our proprietary anticancer drugs and we own 100% of the global rights to the EOquin. We plan to maintain North American rights and are actively seeking a partner outside of North America, especially from Japan and Europe.

As you may have seen in the press release we issued last week, we released data from a Phase 2 trial [inaudible] one of our later stage compounds Ozarelix in hormone-dependent prostate cancer. We were encouraged by the results and expect to present detailed results from the completed Phase 2 study at the upcoming [Society International Urology SIU] meeting to be held in Cape Town, South Africa between November 12 to 16, 2006.

We have also announced that [inaudible] has signed a license agreement for Japan with [Nippon Kayaku]. This is important not only because we will receive 50% of all license fees, milestones and royalties from this deal, but because Nippon Kayaku is a preeminent oncology company in Japan with decades of expertise in developing and marketing oncology drugs. Their agreement to license Ozarelix in Japan confirms our belief that this could become an important drug.

We are currently in the process of evaluating the results of randomized placebo-controlled Phase 2 studies in BPH, or benign prostate hypertrophy, and we expect to report the data before the end of this year. We also plan to initiate a Phase 1 study in female volunteers as a first step to initiate development of Ozarelix in endometriosis.

Finally, I would like to discuss with you our generic business, which strategically we see as serving as a non-dilutive form of financing in the advancement of our proprietary drug candidates. To remain focused on our proprietary compounds we signed a deal with Barr Pharmaceuticals, one of the largest generic drug manufacturers in the United States, in the first quarter of this year for the sale and distribution of Spectrum's generic drugs. Spectrum will receive certain milestone payments on achievement of specified regulatory approvals and the parties shall share the profits from the sale of Spectrum's generic products. We expect to begin realizing revenue from our generic portfolio as early as the second half of this year.

In addition, Barr is responsible for the litigation expenses associated with the ongoing patent litigation with GSK over sumatriptan injection, one of Spectrum's near term generic revenue drivers. The trial for sumatriptan injection is scheduled for November 14th of this year. In addition to sumatriptan injection, Spectrum has several ANDs approved and numerous others are under review by the FDA.

To recap, this is a pivotal transitional year for Spectrum. The first half of the year has been important to us and we believe that the rest of the year will continue to be just as exciting and productive. In the next six months we anticipate that we will be, one, announcing data from the pivotal Phase 3 SPARC trial of satraplatin. Also, if successful, we will be filing NDA, completing the stability study of LFA and preparing for the launch and potential commercialization of LFA.

Third, we'll be completing the pilot study of EOquin and obtaining SPA from FDA and starting Phase 3 trial for EOquin in superficial bladder cancer. Fourth, we'll be reporting complete results from our Phase 2 Ozarelix trial not only in hormone-dependent prostate cancer but also in benign prostate hypertrophy, or BPH trial. We will also be announcing the results of sumatriptan injection patent litigation sometime in November or soon thereafter. We also plan to file the application for regulatory application for satraplatin in Europe by the end of first quarter of 2007.

Thank you all for your attention. I would now like to turn the call over for questions. Operator?

Thank you.

[OPERATOR INSTRUCTIONS]

Your first question comes from the line of Ren Benjamin with Rodman & Renshaw. Please proceed.

Hi. Good afternoon, Raj, and thanks for taking my questions. Can you spell out -- well, I have a couple of questions. The first is can you spell out for us the milestone payments that we should be expecting next year? You said earlier on in the conference call that you expect about $20 million or so in milestone payments. Can you tell us if that's primarily coming from the -- you envision that primarily coming from the satraplatin program and when do you expect those milestones to come in?

Ren, thank you for your question and thank you for attending our conference call. The milestones will primarily come from satraplatin related activities. We plan to file, as you know, NDA both in U.S. by the end of this year. Within 30 days we are -- we will expect a payment, a milestone payment on that activity.

Also, the review clock is six months for satraplatin and therefore it is possible that the drug could be approved within six months after the filing. So sometime by middle of next year or soon thereafter this drug could be approved. So we have two milestones related to satraplatin for U.S. Regulatory filing and approval. Similarly, we have two milestones related to satraplatin for European filing, a European filing and European approval. So four of those milestones we could get next year.

In addition to that, of course, we have additional milestones from Barr alliance that every time we get an ANDA approval, we are likely to get a milestone payment from some of the ANDAs once they get approved from Barr Pharmaceuticals. And many of these things will happen in 2007.

Got it, okay. So the total of both the U.S. and the European filing and approvals will be approximately 20 million?

Well, I would say I'm being very conservative. I'm taking a safer road. In fact, we think it'll be 20 million plus.

Okay. Can you give us some specifics as to the progress you've made in -- with both the LFA program and the EOquin program? So, for example, what specific progress have you made regarding the manufacturing of LFA? I know you mentioned that you're currently making three lots from Merck Eprova, but what specifically was done during this quarter to, say, enhance that package?

And regarding EOquin, you had mentioned the pilot study in the prior conference call. Can you tell us how that's progressing and also why you feel that it will take until the fall of this year for the 20 patients to be enrolled?

Well, let me start talking about LFA first.

Okay.

You know currently the LFA has been on the market in Europe, [ex-U.S.]. The drug is marketed in U.S. and Japan. And Wyeth -- the drug is marketed by Wyeth in Europe and the manufacturer for this drug is Eprova. Eprova is the one who will be manufacturing the drug for us.

So one of the question that the FDA had was that we had to make sure that there was a [DMF] filed in the United States and as the time has passed, there are stringent requirements in terms of the -- how much impurities are allowed in the [API] that is used to make LFA.

All of those issues have been addressed by Eprova. However, Eprova needs to submit that data and file a DMF with the FDA and they're very strict requirements. There's a whole -- all the steps that have -- that Eprova has to take.

Eprova, we have signed an agreement with them. In fact, they are the ones who are the holders of the IP, intellectual property, and we owe them low single digit royalties on this deal, on LFA. And therefore they have vested interest and they have already started work under our supervision and they hope to file the DMF before the end of this year.

[inaudible] with that activity we are required to make three commercial batches and submit six-month stability data on those batches. And keep in mind, this is [inaudible] product and therefore we have to run several batches to make sure the [inaudible] product meets the standards set by the FDA. So over the last six months, in fact even before we signed the agreement with Targent, that was in March, in fact in January we had started work. We started buying the product from Eprova sometime in December and in January we started developing what's called analytical methods.

Every time you have a new drug, it's kind of a changing in manufacturing sites. So we have to have a new manufacturing site where commercial lots are reproduced. So we had to do several steps that we have to follow. One of them was developing analytical methods. So in fact we had to send one of our scientists to Switzerland to learn the steps how to make the -- how to make the analysis, how to test the analysis. And as the drug will be manufactured, in-line testing will be done to ensure the quality of those drugs.

So there's [billion] steps that one has to conform before you can launch a product. All of those things have been done now. In August, in fact, they're producing a commercial batch for LFA and we are hoping that all of this activity will be completed and we'll be able to respond to the FDA to their satisfaction during first quarter or by the end of first quarter of 2007.

Let me talk about EOquin. We have been very, very busy with EOquin. We had our meeting on January 19th with the FDA and since that time we have been busy preparing for the Phase 3 trial and the pilot study. There are several steps that are required.

First of all, we had to line up -- we started lining up investigators. We have a very core group of consultants in the United States and Europe who advise us on the development of EOquin. We have had several meetings with them in order to develop this protocol that we have already submitted to the FDA.

First, we did a pilot study protocol because the FDA asked us that because we wanted SPA for this drug and typically the SPA takes up to six months. And during that time we didn't want to sit there and do nothing. The FDA said all of the trials have been done in Europe so far and the drug, all the studies have been done what they call marker lesion studies. And FDA wanted to see that since the standard of care in the United States is transuretal resection, or TUR, in all patients with superficial bladder cancer, FDA wanted us to do a small pilot study [inaudible] 20 patients where soon after TUR, transuretal resection, EOquin is administered and we collect the safety information. This is not to assess the efficacy of the drug but to assess the safety soon after surgical procedure.

All the [inaudible] that will be participating in the pilot study will also be participating in the Phase 3 trial and we are planning that the Phase 3 trial will be done in at least 50 to 60 centers, could be even more, primarily in the United States but we might consider centers in Canada. So this is a major effort. So we have been selecting sites, we have been checking those sites, we have been checking [CVs] and getting into agreements with various investigators.

This is all very intense activity which we are doing ourselves. We do not. as you know, that we do not employ CROs until we have to. All of this activity is being done by in-house personnel and we are very aggressively pursuing this effort. So on LFA and EOquin, we are very, very pleased with the progress we have made and you will see the results within next six to nine months.

So if we can just follow up on that. You mentioned that a protocol has already been submitted. Was that the protocol for the Phase 3 or the protocol for the pilot 20-patient study?

Both of them. Protocol for Phase 2 -- Phase 2 patients have already been started entering. We already have -- the protocol is approved by FDA, approved by the IRBs and the study s running, pilot study. It is the Phase 3 protocol that we need special approval from the committee of the FDA. That protocol has been submitted to the FDA and FDA has until the -- FDA takes about 45 days before they will initially respond to you.

Okay. And this may be a silly question, but because bladder cancer is such a problem cancer, why do you feel that it'll take some time to enroll 20 patients? You would -- it would seem that with it being the fifth most prevalent cancer that that 20 patients might be something that gets enrolled very quickly.

Absolutely right. What takes time, Ren, is the getting the first patient, first site up and running. The IRBs, even though we might have a central IRB, every hospital, every institution requires institutional review board approvals and they take sometimes months, two months and three months. The time it takes the lawyers that have to review the contracts between the company and the investigators and the hospitals, those things take more time. Once the sites are up and running, you're right, to do 20 patients it should not take much time.

Okay. And then one final question. Can you give us an update on RenaZorb? What's going on there in that program?

Well, RenaZorb is on track. We have had some delays in the beginning because the -- we had to decide -- you know we acquired the right to two drugs, 011 and 012. And we had to make a decision as to which of these two drugs we should be developing. So we ran what's called a preclinical study. First of all, we made the API and then we made the tablets and we wanted to make as small a tablet as possible. So we went through a lot of formulation development work inside the company and using also outside consultants and outside expertise.

So once we made the best tablet that we would like to use for clinical testing, we ran dog studies to see which are the best formulation or the best tablet or the best compound, whether it's 011 or 012, that will bind most phosphate with the least amount of drug. And all of those things have taken about six months time. We've just completed all that work and now we are ready to go.

We are hoping that again -- and also it's a question of priorities. While the work with RenaZorb is going on, our partner in Altair has been developing API and [inaudible] do some special tooling, they had to make some changes because the first drug that they will be making. So we had to go through certain hoops, but now we are ready to move with our program with RenaZorb and I think over the next six months you will see some progress, some important progress being made with regard to RenaZorb.

Another compound is SPI-1620. In fact, I didn't talk much about our other compounds. One of the most exciting compound in our pipeline we like is SPI-1620 and we are planning to file an IND before the end of this year.

Thank you very much.

Thank you.

Your next question comes from the line of [Michael Feldwin] with [Triathlon Capital]. Please proceed.

Yes, hi. One quick question on LFA, just to follow up. Does that -- can you walk me through -- I'm not sure I understand. The three commercial batches are part of the filing that needs to go to the FDA and you need six months stability data on those three batches?

Yes. Michael, yes, thank you for your question. This is the last stage; after we submit, the only thing we expect to receive from the FDA has approved and after that you launch your product. And this is, as I tried to explain in my earlier remarks, that what we are filing for is change of manufacturing site. And any time you change manufacturing site, you're supposed to make commercial batches certain percentage of the commercial launch size. So we are making three batches. Two batches will be of 10,000 vials each and third batch will be about 40,000 vials and these are [inaudible] cycles. So we need to show to the FDA that we can consistently produce these vials of LFA and also scale up and still maintain the stability that is needed. This is an absolute requirement before the product can be allowed to be marketed. So this is just a standard routine...

Right.

Yes.

And just timeline is -- so those --when is that six months mark?

Well, we -- by March of 2007 we should complete and file this with the FDA. Our plan right now is to file this response to the FDA's question by the end of March, first quarter of 2007.

Right, okay. So then it's safe to assume by that time that six-month data is completed.

Either six month data or accelerated three month stability. But keep in mind there are two things here we are talking about. One is that this is -- we are responding to a -- FDA said there are no questions on the clinical portion of the NDA, there are no questions on pharmacology or toxicology of the NDA. All we have to answer is routine CMC questions. So we think this -- after we file the application -- the response to the FDA by the end of March, we should get quickly our approval letter from them.

Right.

[inaudible-microphone inaccessible]

Right. Now...

[inaudible-microphone inaccessible]

Now, if I understand correctly, the drug a few years back, when it initially filed, there was a letter related to the CMC because of some manufacturing issues, which it sounds like now are -- have been fixed. Are you -- what gives you the confidence that those are absolutely fixed, which it sounds like you have?

Well, what gives us confidence, Michael, is the fact that Eprova and Switzerland are the world's biggest manufacturer of levofolinic acid, or LFA. In fact, they have the expertise that they not only make for Wyeth for Europe, they also make for [Adventrix], you know their compound, the cofactor. So these are the people who are the world's experts in -- if anybody knows how to do it, they are the ones who know it.

Right, so they -- so if they meet the standards for your filing that they already are using in the products that they're selling, that they're meeting in the products that they're selling, then you're in good shape.

Exactly.

Got it.

Got it right.

Okay, thank you.

Thank you for your question.

At this time there are no questions in the queue. I would now like to turn the call over to Dr. Shrotriya for closing remarks.

Thank you, Anica.

Well, with this I would just like to thank you for being on our conference call. And I would like to summarize by saying that this next 18 months are very important for our company. I like to call it that this is transitional or transformational months for the company, we are transforming the company from development stage to commercializing stage. Next we will see the fruits of our hard work of our entire team at the company and I'm grateful to our shareholders who have stayed with us, I'm grateful to our employees and our Board of Directors who help and support us. Thank you very much.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Thank you and have a good day.