Spectrum Pharmaceuticals Inc (SPPI) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Spectrum Pharmaceuticals 2006 third quarter earnings conference call.

My name is Latisha and I will be your coordinator for today.

At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of this conference.

[OPERATOR INSTRUCTIONS]

At this time, will now turn the presentation over to William Pedranti, Vice President and General Counsel. Please proceed, sir.

Thank you. Good afternoon and welcome to our financial update and pipeline review for the third quarter of 2006.

I am Will Pedranti, Vice President and General Counsel of Spectrum Pharmaceuticals.

Today's call is being hosted by Dr. Raj Shrotriya, our Chairman, President, and Chief Executive Officer. Others attending the call are Mr. Shyam Kumaria, Vice President of Finance, Dr. Gino Lenaz, our Chief Science Officer who is out of the country but is going to try to dial-in and join us. Dr. Daniel Pertschuk, our Vice President of Medical Affairs and Mr. Russell Skibsted, our Senior Vice President and Chief Business Officer.

Before we begin today's call, I would 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 Securities and Exchange Commission. 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 would disseminate the updates to the investing public.

We filed our 10-Q and issued our earnings press release earlier this morning. For the 10-Q earnings press release and corresponding 8-K as well as any additional information including other SEC filings, please visit our web site at www.spectrumpharm.com.

I would now like to hand the call over to Dr. Shrotriya.

Thank you, Will.

Good afternoon and thank you for joining us today.

This quarter was pivotal for our Company, as our risk reduced business model has been validated. This quarter we have moved closer to generating significant revenues from several of our drugs that are in the final stretch of being on the market as early as next year.

Our 4 leading drugs have made significant progress. I will have more to say in a few minutes about our near-term milestones and long-term strategy for the success of our Company.

But first let me turn the call over to Mr. Kumaria, our Head of Finance, to review the financials of the third quarter for 2006. Shyam?

Thank you, Raj. Good afternoon, everyone.

As we highlighted in our earnings release this morning, we closed the third quarter with $50 million in cash, cash equivalents, and marketable securities. The net cash used in operations during the third quarter was approximately $4.4 million.

Research and development expenses were approximately $5.8 million, which represented an increase from the prior quarter due to the expanded scope of our clinical trial activities and including an accrual of $1.3 million for a milestone payment we may be required to make in connection with 1 of our drug products, ozarelix.

General and administrative expenses were $1.5 million in the quarter, about the same number as the prior quarter.

Even as we grow as a Company, we continue to work hard to operate as efficiently as possible.

While the net cash used in operations was less than $5 million in the third quarter, we expect this to increase as we continue to expand our clinical activities including the initiation of 2 Phase III trials in 2007.

However, given our current cash position and the strong likelihood of potential near-term revenues from licensing activities and from our agreement with Par Pharmaceuticals, we believe that we are in a good position to continue to execute on our strategy.

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

Thank you, Shyam.

We have laid a strong foundation and are on our way to building a great Company. This foundation is based on five pillars. They being one, acquisition and development of later stage drugs; two, building a diversified portfolio, though the Company is not dependent on any one drug or one technology; 3, oncology focus since cancer still remains a deadly disease and the cure is still far from being achieved; number four, securing non-dilutive sources of funding through alliances, partnerships, and alternative revenue sources until we become profitable; and building a team of experienced and dedicated employees, Board members, and a group of financial advisors who have relevant backgrounds and who have the commitment to make Spectrum a successful Company.

Because of time constraints today, I will limit my remarks to near-term value drivers in the Company, which in my judgment will add significant value to Spectrum over the near-term that is in next 12 to 18 months.

Although we have some 10 drugs under development, today I will speak mainly about our four leading drugs. They are satraplatin, ozarelix, EOquin, and LFA.

About five weeks ago on September 25, we announced that our near-term revenue generator, satraplatin, had shown robust efficacy in a registrational pivotal Phase III study. The trial evaluated satraplatin plus prednisone versus placebo plus prednisone as a second line treatment in 950 patients with hormone refractory prostate cancer.

The trials showed that the results for progression-free survival, the primary endpoint in our trials, were highly statistically significant. P was less than 0.00001. And I might add that I've never, ever worked in my life with a drug, which has P value in 5 digits and 4 of them are zeros.

Based on this positive data, we expect that our partner, who was responsible for funding this trial, will complete the new drug application to the U.S. FDA by the end of this year.

The European filing will follow within six months after the U.S. filing.

Satraplatin has been granted a fast track designation by the U.S. FDA, which means that it may be approved within six months of filing. Satraplatin, therefore, could be approved as early as mid 2007 and be on the market soon thereafter.

We expect to receive milestone payments on acceptance of various regulatory filings in the U.S. and Europe and on approval in each of these countries and in Japan.

In addition we will receive royalties on worldwide sales of satraplatin irrespective of who commercializes it. And that's very important for us.

We also have rights to co-promote satraplatin in the United States. The total milestone payment we receive could be $58 million. More importantly about $20 million of this $58 million is expected in the near-term that is within next six to 18 months.

This $20 million from which we don't have to issue a single share will come into the Company in four installments upon accomplishing 4 near-term events.

And these events are number one, acceptance of the NDA filing in the United States, number two, acceptance of the MAA filing in the Europe, NDA approval in the United States and regulatory approval in Europe.

We believe we will start receiving this non-dilutive cash as early as Q1 of '07.

We are currently in discussion with our partner about a co-promotion agreement; commercialization rights to satraplatin for Europe and certain other territories have been out-licensed to Pharmion. Other countries are still available for license, which may result in additional future milestone payments to Spectrum. We are due a percentage of any payment that result from licensing agreements and on approval of additional indications for satraplatin.

Satraplatin is the first drug in the Spectrum's pipeline to prove that our risk reduced business model of in licensing promising drug candidates for the treatment of cancer works. The funds generated from satraplatin will be used to develop our other proprietary drugs such as EOquin and ozarelix and to acquire other promising compounds.

Satraplatin, in our judgment, has significant potential because it has robust efficacy and a benign safety profile.

Convenience of oral dosing is a big advantage for elderly patients who with satraplatin they will not have to be hooked to intravenous infusions or be hospitalized for treatment. That provides direct benefit to patients; satraplatin is likely to reduce the total cost of patient care, an important aspect to consider in today's rising healthcare costs.

Let me know say a few words about our new drug, ozarelix.

Ozarelix is indicated or is being developed for benign prostate hypertrophy or BPH, which we believe has blockbuster potential.

Unlike cancer, BPH afflicts more than 10 million people in North America alone. Earlier this month we announced highly positive results with ozarelix in BPH. In 144 patients, double-blinded, randomized, placebo-controlled, multi-center, dose response Phase II trial, ozarelix with a dose of 15 milligrams given on day 1 and on day 15 achieved highly statistically significant results.

Once again the P value was less than 0.0001 -- that's 3 zeros before 1 -- in improving clinical symptoms of BPH as measured by the International Prostate Symptom Score or IPSS. IPSS is the standard method of assessing BPH and is the primary endpoint for our study just as the FDA has accepted data from other approved drugs like Avodart, Flomax, Proscar, and Hytrin. Other efficacy endpoints of the study such as urine flow, received urine volume, and quality of life were also met. In addition, the drug had an excellent safety profile with no significant side effects. And this trial was monitored by our partner AEterna Zentaris in Europe.

The results are promising for a number of reasons. First, ozarelix showed an almost 300% improvement in IPSS over Flomax, Avodart, Hytrin, and Proscar as compared to the data in the package insert of these leading marketed drugs.

The onset of effect of ozarelix was rapid, being already evident as early as at 4 weeks. And it was sustained for at least 6 months.

Second, ozarelix rather than being dosed daily like the currently marketed drugs, is dosed just twice during a six-month period. We believe this highly convenient dosing regimen may improve patient compliance.

This in conjunction with the fact that BPH drug market generates approximately $3 billion in sales each year in major markets makes ozarelix one of the most promising drug candidates at this time in our pipeline. And we are quite excited about it.

We are currently in discussions with our experts regarding registration strategy for ozarelix in BPH. We expect to initiate a Phase III registration trial in the second half of 2007. We will update you once we have finalized our plans and the protocol.

As a reminder, we have rights to commercializing ozarelix in North America and India and have half of the economics in Japan.

I would now like to briefly discuss with you our other two late stage drugs, and they are EOquin and LFA.

We are currently finalizing an SPA with the FDA on EOquin. SPA is a special protocol assessment during which FDA grants you agreement that if you completed those trials and if the results met the endpoint then the new drug application will be approved.

We think with a very small Company like us it's very important to get an agreement or buy-in from the FDA at this stage. However this takes time. We have been in discussions with the FDA for good over six months. While we are awaiting a green light from the FDA, we have been very busy selecting and preparing investigational sites, almost 100 sites throughout the United States and Canada, and are now finalizing the largest stakes of running these trials including Central Labs leading off various outcome measures.

We expect to finalize the special protocol assessment within the next several weeks and start our Phase III trials soon thereafter. Once the SPA has been granted by the FDA we will update you on the trial design and anticipated timing of the trial.

As a reminder, Spectrum owns worldwide rights to EOquin. We plan to keep North American rights for ourselves and seek a partner in rest of the world, especially in Europe and Japan.

Our fourth drug with near-term revenue opportunity is LFA. It is a proprietary drug used in combination with 5-FU for osteogenic sarcoma, colorectal cancer, and other malignancies.

It has the potential to generate revenue within the next 12 months. LFA is the pure active isomer of calcium Leucovorin, a component of the standard of care in 5-FU or 5 fluorouracil based regimens.

Two NDAs or new drug applications, one for the order formulation and one for the injectable formulation, have been submitted to the FDA. Following review of these NDAs, the Oncology Drug Advisory Committee, or ODAC of the FDA, recommended approval for both formulations of LFA.

As part of their review, some questions were raised regarding the chemistry, manufacturing, and control portion of the submission, mostly related to manufacturing.

Based on discussions with the FDA, we believe that addressing their concerns will enable us to meet conditions for approval. We are currently completing stability studies and expect to file a response in the first quarter of 2007.

If LFA is approved, we expect to begin marketing it in the United States in late 2007.

We have commercialization rights to LFA in U.S., Canada, and Mexico. LFA is currently on the market in ex-U.S. and is sold by Wyeth and Sanofi in Europe and Japan.

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

Finally, I would like to give you an update on our paragraph for challenge to GSK's Imitrex injection or sumatriptan injection and other drugs.

Four years ago when we did not have much money to move our acquired proprietary drugs forward, we decided to leverage our know-how of patents in context with genetic companies in India and manufacturing sites in the United States for generating near-term cash. Using that knowledge in our context we filed several ENDAs with the FDA including a paragraph for challenge to GSK's Imitrex injection, which is marketed for migraine and cluster headaches.

All of this activity is not a primary focus for the Company. It serves as a way of generating non-dilutive funding for the advancement of our proprietary drug candidates, especially if we prevail against GSK.

With our partner Par Pharmaceuticals, we are currently in litigation with GSK in which we are challenging a patent related to sumatriptan injection. A court date is scheduled for November 13.

Should we win the patent litigation, Par could begin selling sumatriptan injection here in the United States in the third quarter of '07. We believe that the market for sumatriptan injection is approximately $200 million a year.

It is important to remember that Par is responsible for all costs associated with the litigation and commercialization of sumatriptan. And Spectrum will receive a majority of the profit generated by the sale of sumatriptan injection by Par.

Last quarter was indeed transformational for Spectrum. By acquiring late-stage drugs such as satraplatin, EOquin, ozarelix, and others and now by showing positive clinical data, I believe we have shown that significant value has been created in the Company.

This indeed is the cornerstone of our business model in building value for our shareholders. The positive data for our lead drug positions us to have a significant revenue stream in the near-term that will allow us to move our proprietary product candidates forward and potentially in-license other promising drugs thus reducing the need for dilution to our shareholders.

In addition to the success we've already had, we believe that we have a lot of significant milestones coming up in the next several quarters, including announcing the outcome from the sumatriptan injection trial against GSK, which begins on November 13.

Number two, completing the regulatory filing and the sitting approval for satraplatin and the sitting milestone payments of approximately $20 million from our partners within the next six to 18 months, number three, obtaining a special protocol assessment from the FDA for EOquin and initiating the Phase III trial of EOquin with the next six months. Number four, developing the Phase III trial protocol of ozarelix in patients suffering from BPH and initiating pivotal trial within the next six to nine months and last but not the least, completing the filing of NDA response on LFA by first quarter of '07.

Thank you for your attention. And at this time I would now like to turn the call over to the operator for questions. Operator?

[OPERATOR INSTRUCTIONS]

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

Hi, good afternoon and congratulations on an outstanding quarter, especially with the satraplatin results and the ozarelix results.

A couple of questions for you, start up with satraplatin. When will we see the full data? What's the plan? Is it to be released around the prostate cancer, the ASCO prostate cancer symposium? I think it's sometime at the end of January or February. Or is it planned to be released closer to ASCO around the time when the FDA would be coming closer to approving the drug, if that's what they decide to do?

Ren, I'll have to discuss with GBC as to GBC Biotech as to when they are planning to release this data. But I'll tell you my philosophy is that now the FDA is our judge. I don't think at this time it pays us to focus on the attention of presenting this data at any of the meetings. I think the time is to make sure that we make a very good new drug application filing with the FDA before the end of the year.

So the entire team I know is very busy working because within the next seven weeks we want to file the NDA. That's where the focus is right now and not in presenting the data.

So I'm hoping that within the next seven weeks you will hear from us that from GBC and us that the NDA has been filed on time, before the end of this year. And once it goes for review we hope we can get approval within six months, by middle of next year.

So I would say that while we have dozens of trials underway at this time, the focus really is to complete this NDA at this time. And I'm hoping there'll be some more presentations over the next year.

But I need to really get a clear idea from GBC Biotech on this.

Okay, will you need any survival data for the application that you submit at the end of this year? So, at some point you can add in, you can submit additional safety data. Do you think the FDA will require you guys to take a look at the survival data as it's maturing?

Well, let me just give you a short answer.

Survival data is not required for a pool of satraplatin NDA. What is required is progression free survival of PFS, and we have that.

In fact, FDA has changed their position. Dick Padzur has gone on record by saying that survival data may not be necessary in the future oncology trials. And therefore PFS, we believe that we will get approval based on PFS.

Okay, moving on to ozarelix, sorry, EOquin. Can we talk a little bit about the timing?

How long have you been working on the SPA? What else is left in terms of the discussions with the FDA?

Is this something that you could potentially partner off? Because bladder cancer is - I imagine the trials that you are going to run are going to be quite large. And I'd imagine that getting a partner would probably be the best way to go for this. And I know you mentioned that you think that we can start the Phase III trial within the next six months. I wanted to see if I could pin you down a little bit more regarding the timing?

Well, that's a good question actually. Anytime we're dealing with the FDA, I don't like to make projections because we don't have the control.

But I can tell you that we have been in discussion with the FDA for more than six months. In fact, we met in first quarter of this year with the FDA. And we got marching orders to submit for SPA. And very quickly we submitted our protocol with the FDA.

And they were supposed to respond to us within 45 minutes, within 45 days. And they came back in 45 days with some suggestions to the SPA. We accepted. They had like several suggestions. We accepted all but one suggestion. And it went back to the FDA. And they have been again -- and so FDA has since told us that they are going to ahead and consult their own consultants. And the ball is in their court really. I can tell you that our regulatory head calls them if not every day every week or sends an email.

So I'm hoping that as soon as we have accepted instead of doing one trial, we're accepted to do two trials. And several other things have been accepted. I'm hoping that we are very close to getting approval.

If it happens that we get to the floor within next weeks we are ready to start a trial ASAP. We have all the larger stakes. We have centers identified. We have drug supplies lined up. We have randomization system lined up, a very complex system. We're ready to move as quickly as possible.

We have teams in place. We have Dan Pertschuk, who is the Vice President of the group, head of the group, reporting to Gino Lenaz. He has a whole team of MDs and bio statisticians and clinical associates at different levels, managers of clinical operations. All the I's have been dotted and T's crossed. All we are waiting is for a clear signal from the FDA. So we have been very busy planning for the start of this trial.

Okay. What about, like you mentioned you've agreed to two trials with EOquin. And as we know from past trials these can be fairly big. What are the chances that you actually try to secure a partner beforehand? Is that something that you are hopeful for, considering the cash position right now?

Well, we would not look for a partner at this time. We would wait 'til we start a Phase III trial. Right now if we find a partner we have a Phase II drug to out-license. If we find a partner after we've started, after we have dosed first patient in Phase III drug trial after SPA then we are out-licensing Phase III drug. The economics are vastly in favor of Spectrum.

So at this time we are keeping people warm. There are people interested in the drug. But we are not going to sign any deal at this time. And we have the wherewithal to complete Phase III programs with these drugs.

Do you, can you give us an idea as to how these trials might be designed? For example will they be BCG refractory patients in both trials or one BCG refractory, the other one more frontline?

How are you looking at trying to get approval for this drug?

Ren, I think it would be -- since we are depending on the FDA to give us the blessing for the protocol, I think I would reserve the comment at that time. At this time it would be like talking in the wind because we don't know what the FDA will accept.

Our current plan is to go into patients who are newly diagnosed with prostate, with non-invasive bladder cancer.

Okay.

We are not going to go after the BCG failures or anybody else. That's not the intention.

Okay. A couple of questions just on LFA, what steps have you completed so far? And what steps remain in order to resubmit this application in the first quarter of '07?

With regard to LFA we have completed all the steps. In fact we had to make three manufacturing batches, which we did. The last batch was made on October 16. All these batches have been put on stability, excellent stability. And the work is progressing on DMF. So all the work has been done.

In order to complete a six-month stability it takes six months. So what we are planning to do is we're just waiting for that time to finish. In fact our plan is to go to the FDA with accelerated stability after three months. And therefore we're planning to file the applications sometime before the end of first quarter.

But that would require again a blessing from the FDA that they'll accept a three-month stability. If they don't then we have to -- and our reasoning for that is that except the filing by the time you review we will have six-month data to submit to you. And keep in mind that this is the full NDA. The rest of the portions of the NDA have been approved. The clinical portions, pharmacology, toxicologies have been approved. The only thing they're responding is a deficiency. So typically they will accept an application with deficiency responses. And we can always add six-month data. So we are waiting for the time.

And how do you view this asset? Do you -- is this something that you want to do on your own? Or are people coming by and asking you about the potential to partner this product as well?

That's a good question. And I said in my remarks that we have a number of options. We have hired consultants who are advising us or giving us different scenarios. Should we market ourselves or should we use a company that has an under utilized oncology sales force or third way?

So we are trying to look at what is the most economical and what's the best way for Spectrum to commercialize this drug. We are not there yet. I'm hoping with the next three to six months we will have fine-tuned our strategy and then we will discuss with you.

And then finally do you have any presentations -- do you have any, there are several scientific presentations coming up. Do you guys have any posters or oral presentations that may be coming up?

Well we have some. We are actually presenting two papers at an international urology meeting in Cape Town. In fact that's where Gino is heading, Gino Lenaz because we have two papers representing at this international meeting, one related to EOquin and one related to ozarelix. So that is something that's happening within the month of November. I think between the 11th and 16th of November we have these two presentations.

We have several others. I don't have a list of them with me. But we are very aggressively pursuing various presentations.

So the ozarelix is the hormone dependent prostate cancer results? What's the EOquin?

EOquin is an update, no. I don't know. Dan, which is the EOquin paper? Okay.

Okay, we can get back to it afterward. Thank you.

Thanks for your comments, Ren.

And your next question comes from the line of Megan Murphy with Lazard. Please proceed.

Hi. Thanks for taking the questions.

I just had a quick one. Raj, I wanted to just explore a little more LFA. It's an asset that you continue to position that you're very excited about and that there's some real unrecognized value there.

Can you give us a little more detail on kind of the distinguishing it in the marketplace over the generics? And maybe if there's been any additional recent investment on the asset in terms of eliciting some of that differentiation for when you do ultimately launch it. Thanks a lot.

Okay, Megan thank you for your question. Let me try to summarize it. With LFA our excitement is based on the following two facts. Number one it's a pure isomer. Keep in mind that the FDA recommended by a vote of eight to zero. So the experts in the field, the target leaders had no question that the drug like pure isomer of levofolinic acid has a role to play in the treatment of cancer patients. That's number one.

There are very few times that you get approval of this kind where the advisory committee recommends by a vote of eight to zero, number one. Number two excitement is based on the fact that the drug is already marketed in Europe and Japan and sells hundreds of millions of dollars, so to me the second excitement comes that the marketing, test marketing has already been done for us.

So we are excited because unlike companies that have drugs in mice and do Phase I trials and Phase II trials, with quite a long runway, we have a drug that's ready to launch. All we need to do is respond to a query from the FDA. And then the drug could be in the market.

The third thing is the distinguishing from the generic drugs; that's a good question. The pure isomer obviously has an advantage that you're giving just the drug that's required by the body. And keep in mind the way these drugs work 5-FU, 5 fluorouacil, the drug is metabolized. It is the [maturation] in the liver.

And liver folinic acid is required to enhance the efficacy and reduce the toxins to your 5-FU. There is data in fact. There is a study population out of Europe in a 245-pateint study head-to-head comparison. There is some advantage, the reduction in myelosuppression at a P value of less than 0.1%. That's the only study where head-to-head comparison has been made against calcium Leucovorin generic form and LFA.

So I'm thinking that if I have my own father to be dosed with 5-FU and I had a choice to give a generic calcium Leucovorin that has some other impurities or things that the body doesn't need. Or I have a chance of giving half the doses of pure isomer I would choose half a dose of pure isomer.

Admittedly there are some other advantages. And they are formulation related advantages. For example in an office setting when you are giving IV infusion drip, with LFA can be injected into a drip with other drugs. While calcium Leucovorin cannot.

So we are looking at these three reasons why we are excited about. Number one, it is easy or short time to the market. Test marketing has been done. And there's some advantages. And of course, this will be the only drug that will be promoted. Drugs that are generic are not promoted by anybody.

And last but not the least oncologists I'm hoping will have some advantage of using a pure isomer based on the information we're getting from the oncologist and from the FDA themselves.

Okay, thanks very much.

Thank you for your question, Megan.

[OPERATOR INSTRUCTIONS]

And there are no further questions. At this time I will turn the call over to Dr. Rajesh Shrotriya for closing remarks.

Well in closing I would like to say thank you very much for your time this morning, this afternoon, and your interest in Spectrum.

We are committed to bringing novel therapies to patients while building value for our shareholders. I'm grateful to you, our shareholders, for investing in Spectrum, to our analysts' who take time and write on us, dissect our pros and cons of value in the Company, and to our employees who work hard to make it happen and to our Board members for their foresight and guidance.

Once again thank you and have a very nice day.

Thank you for your participation in today's conference. Ladies and gentlemen, this concludes the presentation. You may all disconnect and have a good day.