Spectrum Pharmaceuticals Inc (SPPI) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2007 Spectrum Pharmaceutical Incorporated earnings conference call. My name is Shaquana, and I will be your coordinator for today. At this time, all participants under a listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS)

I would now like to turn the presentation over to your host for today's call, Mr. Paul Arendt, Manager of Investor Relations. Please proceed, sir.

Thank you, Shaquana. Good morning, everyone, and welcome to Spectrum Pharmaceutical's mid-year corporate update and pipeline review conference call. I'm Paul Arendt, the Manager of Investor Relations for Spectrum Pharmaceuticals With me today are Dr. Rajesh Shrotriya, chairman, president and CEO, Dr. Gino Lenaz, Chief Scientific Officer, and Dr. -- and Shyam Kumaria, Vice President of Finance. Let me provide you with an agenda for today's call. First Shyam will provide you with a update on our second quarter financial results, then Dr. Shrotriya will provide you with a pipeline update and review before opening up the call to your questions. Before I hand the call over to Dr. Shrotriya, I would like to remind everyone that during this call we will be making forward-looking statements regarding future events and 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, Thursday, August 9th, 2007, 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 10Q and issued our earnings press release earlier this morning. So for the 10K, the 10Q, earnings press releases corresponding 8K and additional information including the other SEC filings, please visit our website at spectrumpharm.com. I would now like to turn the call over to Dr. Raj Shrotriya. Raj?

Thank you, Paul. Good morning, everyone, and thank you for joining us today. I'm pleased to have the opportunity to share with you the progress we have made in advancing our diversified pipeline. I would also address an attempt to add my perspective to the recent ODAC recommendation. Before I do so, I would now like to hand the call over to Shyam Kumaria, our VP of Finance for a quick update and commentary on our second quarter financial review. Shyam?

Thank you, Raj. Good morning, everyone. As highlighted in our press release this morning, we closed the second quarter of 2007 with approximately $71 million in cash and equivalents, which was approximately $20 million more than at the end of 2006. The principal reason for the increase was the approximately $30 million in cash raised from the issuance of common stock at $6.25 a share earlier this year. Also during the six-month period ended June 30th, we received over $4 million in licensing and milestone revenues, our R&D expenditures were approximately $12.2 million, and we spent approximately $5.4 million for general and administrative expenses, including litigation costs related to our arbitration against GPC Biotech.

Net cash used in operations during the first half of the year was approximately $10.3 million. For the full year 2007, we expect that our net cash of use -- net use of cash, sorry, for operations excluding the cost of end licensing additional drugs is expected to approximate $30 million. This estimate is subject to considerable uncertainty and depends on the following key factors. First, continued positive results from our pre-clinical and clinical studies. Secondly, the outcome of discussions with the FDA regarding our planned clinical trials. And third, the initiation of clinical trials and patient enrollment as anticipated. Further, while we do not receive any funding from third parties for R&D that we conduct, our estimated cost could be mitigated should we enter into co-development agreements for any of our drug product candidates. I will now hand the call back to Dr. Raj Shrotriya. Raj?

Thank you, Shyam. The 10Q that we filed and the press release that we issued this morning discussed what we have accomplished recently. And therefore, I want to focus my comments this morning on my thoughts on the value drivers for Spectrum Pharmaceuticals over the next several months or in the near term. Our current stock price completely ignores the fact that our company has never been in a better financial position or had a deeper and more mature pipeline of drugs than we do right now. As I've always said, Spectrum is more than just Satraplatin. Having said that however, we're not about to write off Satraplatin. We feel the investment community may have written off Satraplatin prematurely based on last month's ODACs meeting. Although the ODAC decision was not what we were expecting, we continue to receive licensing and milestone payments of Satraplatin. We will receive over $7 million this year for Satraplatin-related payments. Indeed, we have already received payments of approximately $4.4 million this year, and we will receive soon additional milestone payments that were already triggered and are due by the recent filings and acceptance of a registration dossier in Europe. We will receive bigger milestone payments if Satraplatin is approved by the FDA and the EMEA as royalties of future worldwide sales.

While we are disappointed with the outcome of the ODAC, we continue to believe that Satraplatin has demonstrated clinically meaningful activity and that the drug fills a clear unmet medical need. While we cannot be certain of the ultimate outcome of the survival analysis until sometime next year, we encouraged by the data to date, and remain cautiously optimistic that Satraplatin will ultimately be approved by both the FDA and the European authorities. And just don't forget that Spectrum is not spending any money on its development. The entire development costs are being born by our partners. Money for Satraplatin rights have also been invested by Pharmion to the tune of $17 million to $18 million already. I would like to make it clear that Satraplatin did not fail. ODAC simply recommended against (inaudible-highly accented language) approval based on progression free survival, and that the FDA should withhold a decision until a final overall survival analysis is completed. And that end point could be reached after 700 deaths have occurred and GPC Biotech announced in their conference call yesterday that it currently expects that occur -- that that could occur within the next six months. As soon as the analysis is complete, a new NDA application will be filed with the FDA.

Also please keep in mind that there are many examples of very successful drugs that were not approved by the FDA at first review. For example, oxaliplatin for colorectal cancer was not approved at first review. Today's annual sales exceed $2 billion. Similar drugs including arbatax, [gacogen], among others were not approved by the FDA at first review. Also most of you already know that we filed a demand for arbitration in December 2006 to address our exclusion from participating in sublicense income receipt by GPC Biotech and to address other mitigating violations of our license agreement with GPC Biotech. And GPC Biotech answered and counterclaimed. The arbitration hearings were conducted between July 6th and July 13th and final arguments are now scheduled to be heard within the next two weeks on August 21. We expect the panel's decision sometime thereafter.

I have always said that you should not invest in Spectrum for any single drug and that an investment in Spectrum is an investment in our team and our strategy featuring a pipeline of now 11 drugs. We do not depend on the successes of any single drug or technology. Let's move forward and look at the near-term value drivers and some of our other drugs. Let me first talk about EOquin. We announced on May 2nd that the first patient in the Phase III EOquin trial had been enrolled, although all the selected investigators have not yet begun enrolling patients, we have already enrolled more than 80 patients in of the first Phase III registration of trial. We anticipate beginning enrollment of patients into our second Phase III trial within the next six weeks.

We continue to expect that each trial will take approximately 18 months to fully enroll. Each trial has a two-year follow-up, and the primary end point, as discussed with the FDA is the rate of reoccurrence at the end of two years. We are currently looking for a partner outside the United States. A partner could help us more quickly in advancing the study and help with the funding of the study and bring us [offering and] milestone revenues. As many of you already know, more than 60,000 new cases of bladder cancer are diagnosed each year in the United States. It is estimated that the prevalence is over 400,000. In Europe, these numbers are almost three times higher, which is why companies are interested in the drug.

Our current leading drug Ozarelix is being studied in BPH or benign prostate hypertrophy. Over eight million men in the United States suffer from BPH and this number is expected to increase as baby boomers continue to grow older. In 2006, worldwide sales drugs to treat BPH was about $4.5 billion. The world's best selling drug for BPH, Flomax, sold over $1 billion in 2006. And according to the stack of inserts, it delivered only a three point improvement in IPSS in its package insert. IPSS [are prostate systems score is a] centralized scoring system that evaluates the seven principal symptoms of BPH. The American Urologic Association guidelines advise that a three-point improvement is the minimum symptom improvement that is noticeable to patients.

In the European Phase III trial, we saw a seven point improvement with Ozarelix. If confirmed, we expect that patients will experience improvement in their symptoms as well as quality of life far superior to what is seen with currently approved medical therapies. The current Phase IIb trial of 78 patients was enrolled rapidly. The last patient was dosed in June. All patients will be followed up for nine months for treatment effect. The trials primary end point is an improvement in IPSS at three months. Although it is a nine month study we expect to have limited top line data in the fourth quarter; however, this study which is expected to end in March 2008 will remain blinded for the full nine month follow-up period. In order to maintain the integrity of the current trial, the full data will not be publicly disclosed, but will be incorporated into the protocol of the Phase III trials. Additionally we looked to the Phase IIb data to verify the previous European [experiments] prior to initiated the trials.

As we are planning for success, we are currently recruiting investigators to participate in our Phase III trials and are pursuing a timetable to initiate these timetables by the end of the year. However, it's important that everyone understand that this timeline is dependent on three significant and important factors. one, that we see good interim Phase IIb data; two, the FDA has to continue to agree that it's okay to okay to proceed with Phase III trials; and three, that the FDA has to continue to be okay with starting the Phase III trials before all data from the Phase IIb trials are available.

Let me talk about the next drug ISO-Vorin for which the FDA -- is currently under review. We plan to file an NDA amendment for order formulation and since the approval of Satraplatin has been delayed, we now plan to actively pursue a partner for marketing ISO-Vorin in the United States. Our next and newest acquisition is a drug called Ortataxel. We recently announced its acquisition and worldwide rights from Indena, our Italian partner. Ortataxel is a third generation taxane that has been studied to date in approximately 355 patients in Phase I and Phase II studies. We believe that the activity of the drug is promising, and we plan to pursue Ortataxel's development in solid tumors with taxanes have shown anti-tumor activity, but have not been FDA approved in those indications, such as uterine cancer or small cell lung cancer. We believe Ortataxel could have broad applications in various cancer indications. We are currently making arrangements to manufacture clinical supplies and we anticipate starting Phase II trials with the injectable formulation in early 2008. The drug had also shown evidence of bioavailability while given by the oral route. We plan to develop our own formulation and initiate clinical trials as soon as this is done.

In closing, we believe the stock price may reflect an overreaction to the recent ODAC recommendation on Satraplatin. As we believe the data remains compelling and the fundamentals in the company remain sound. In addition, we are excited about the near-term value drivers I discussed above, and look forward to the continued advancement of our pipeline. Thank you all for your attention. I would now like to turn the call over for questions. Operator?

Thank you. (OPERATOR INSTRUCTIONS) And please stand by while we compile a list. And your first question comes from the line of Ren Benjamin with Rodman. Please proceed.

Hey. Good afternoon, Raj. Thanks for taking the question. Can you let me know if I heard this right? I thought Shyam mentioned that the net cash burn for the second half of '07 would be $30 million. Is that right? Or is that for all of 2007.

No. Yes. We expect in 2007, the total year burn rate will be $30 million.

Good. Good. Okay. So then the other question is, based on your dialogue with the FDA, and some of your interactions with them, did you have to get, like a modification to the protocol in order to take a top line look at the Ozarelix data? And, I don't know, just from your feel of how your conversations are going with the FDA, do you think they will require the full nine-month data before allowing to you start the Phase III trial?

Well, that's a very good point. In fact there is a saying that if you get burned by milk, hot milk, you touch even water carefully and cautiously. After recent experience with ODAC, we are being very, very cautious. We have a special protocol assessment in the FDA they talk about this should be an issue. We have become very sensitive to that. So I am unable to comment on this, that the FDA asked to us conduct a study of a nine-month duration. We were initially interested at only three months to see how good the data looks. So this is something I'm not comfortable discussing with you until I have very -- clearance from the FDA.

Okay. And then regarding ISO-Vorin. So it makes sense to seek a partner. Have you already started looking? Has there been any interest and a clear partner that comes to my mind is actually Par Pharmaceuticals, someone who you have had some dealings with already. Is that something that's already moving forward?

Again, Ren, you know me for a long time. I'm very cautious. A deal is not done until it's done. So the only thing that I can say is that, yes, there has been a lot of interest from Par and other companies and we are evaluating this at this time.

Great. Thank you very much.

Your next question comes from the line of Kevin DeGeeter with Oppenheimer. Please proceed.

Hi, guys. One point of clarification here. Does the $30 million burn rate assume receipt of milestones relating to Pharmion and the Japanese partner on Satraplatin? And kind of a related question, how will those be recognized given that I believe both of them may be subject to the ongoing dispute with GPC.

It includes a -- we are expecting about a $3 million to $4 million milestone because of the -- the NDA approval has been pushed into 2008. So what we expect for related -- milestones is already due on European filing and whatnot. So we clearly are not expecting a big chunk of money coming into the company, more than $3 million or $4 million. So we expect that the total burn this year will be about $30 million range and this, of course, anticipated that we will increase our enrollment in Ozarelix and EOquin and other [biplane] drugs.

Okay. And if the kickoff for Ozarelix Phase III gets pushed into '08, in terms of -- does that have a negative impact on burn rate for '07, or does that have a material impact in your assumptions?

Well, again, we are planning for success. So the burn rate that we have given you anticipates starting Phase III trials of Ozarelix in 2007. However, if this is pushed into 2008, clearly it will have a [severe] impact on our cash rate.

And Ortataxel, can you just maybe give us a little more granularity in terms of what the program will look like, the basic program and indication, patient selection, maybe your best thoughts on a timeline for a little more clarity on the oral formulation?

Let me try to address this briefly here, because as you can understand, we have good three to four months now to plan our strategy for further development of this drug. We have some ideas we have been developing for the last six months. And our ideas are as follows: we are going to go after taxane for drugs which are not approved. Taxanes are effective, but they have not approved by the FDA. For example, uterine cancer and a small cell lung cancer. At the same time we have seen data that Ortataxel may be effective in treatment of diseases for which taxanes and second generation taxane like the taxane have failed. So we have a multiple design of Phase II studies, we are planning right now to look into areas that are sensitive to taxanes, as the tumors have become resistant to taxanes. But clearly we are going to design studies where taxanes have been active, but have not yet been approved.

Okay.

And you'll learn more over the next four months from us.

No, that's helpful. And any thoughts on perhaps the challenges and timeline for the oral formulation?

Yes. The studies that have been done so far show Ortataxel given orally bioavailability about 35%. We think our in-house experts feel that we can increase the bioavailability from current 35%. And that's what I meant that we have already started working on the in-house development work on the formulation. We don't know what kind of data we will get but we have 35% as a starting point. And we're trying to improve it with our in-house formulation expertise.

Okay. No, that's helpful. And then maybe one final question, if I may. Maybe more of kind of a general question. A major part of the Spectrum model has been aggressive end licensing, and seeking to broaden the pipeline. With 11 programs now up and running, the stock where it is and the cash where it is, you -- should we expect to see the company to remain as aggressive on the end licensing front, or is it sort of time for a pause, perhaps?

That's a good point, Kevin. Let me just say put your mind at rest and at ease. We are opportunistic. We are not always hungry, looking for some more drugs. We are opportunistic. If we come across some drug that's more mature, more ready. You don't hear from us about all the 11 drugs. We talk about four or five drugs at any given time, because we assign our resources based on where we see the quick success. This is like our own real estate. We own all these drugs. And we can spend the money as the need arises and we are also looking for partnerships for some of these drugs to develop. And we have a drug for chronic kidney disease and you don't hear much about it, because at this time we are looking at how we can add value to that drug without spending much of our resources at this time. So to answer your question, we are going to turn our aggressiveness towards finding a partner for drugs like EOquin and ISO-Vorin, rather than go out looking for some new additional drugs into the company.

Thank you very much. That was very helpful.

(OPERATOR INSTRUCTIONS) You have a follow-up question from the line of Ren Benjamin with Rodman. Please proceed.

Hi, thanks for taking the followup. Just a very quick question on Ortataxel. Do you have -- do you know offhand any of the previous clinical data that's been generated with that drug and patients? Then it seems very similar to the Satraplatin story. But do you know why, if I'm remembering this right, Bayer returned the rights to the Italian company?

Let me have Dr. Lenaz comment on this, Ren.

Hi, Ren. There has been stats in Phase II, that are concentrated in the sense two more disease counters to previous treatment with Taxane, in particular in breast and lung cancer. And in both of these tumors, so there have been response rates with major technical responses between 5% and 10%. In addition in a large number of patients obtain a minor response of stable disease. So improving the objective response and the stability of disease, over 50% of the patients with the breast and with the small cell lung cancer had a response. So many of these stable disease, we have a good ratio. So we are giving it a meaningful look. So there is clear activity and it has meaningful activity for the taxane resistant patients. There are indications that in the previous trials the schedule of administration had not be optimized. Most of the physical status had been done on a schedule, given the drug every three weeks. There has been a Phase I study, giving the drug weekly, which showed that the drug could be given at much higher dose intensity, as in the intermediate schedule. And we plan to follow up using this schedule that allows a higher dose to be given safely.

Great. And do you know why Bayer returned the rights?

Bayer was interested in the -- in looking at -- patient with too much refractory to taxane treatment and didn't enter judgement. I assume they didn't get the response rate, that was between 5% and 10% even though the minor responses and they decided that it was not enough to -- to go forward with -- with the drug. We think that those indications of recent activity to show that the drug is a very active drug and -- and we will take a look at it in a different way. As I said, we will focus mainly on -- on tumors where taxane has shown to be effective, but are not currently approved. So this will precipitate registration of [change].

Great. Thank you very much.

You're welcome, Ren. Thank you for your questions.

Your next question comes from the line of [Ram] Patel with Alpha Investments. Please proceed.

Raj, excellent presentation. You really clarified a lot of things that were on my mind. I've just got a couple of comments here. One of which is this recent episode regarding Satraplatin has many lessons in that and one of the lessons that I see is that the FDA's basically hard to deal with. And it's pretty clear to me that GPC Biotech may well have been way out of their league in dealing with the FDA. I base this on comments that came back from the FDA that appear to be really no agreement as to how progression-free survival was to be even determined. My only comment here is going forward, as you're looking for partners for Ozarelix and Ortataxel, perhaps in this country, it might be a good idea for you to focus on partnering with companies that have substantial expedience in dealing with the FDA. I would think that that would be extremely valuable to partner with somebody who is -- who has gone through the hoops a few times, rather than someone like GPC Biotech, who I might -- my own understanding is that this is really the first time they did this. And clearly they have come out really shocked. So that's the comment I wanted to make.

Ram, thank you for your comments, appreciate it.

At this time, there are no further questions. I would now like to turn the call back over to Mr. Paul Arendt for closing remarks.

Thank you. Once again I would like to thank you this morning for your interest in Spectrum. We at Spectrum are committed to bringing novel treatments to patients while building shareholder value. We believe we have some exciting events in the near term to drive our business forward. And I would like to summarize in three points. Number one, we have people with dedication and commitment and experience of having done it before. Number two, we have a rich pipeline of diversified drugs like no other company with market cap of under $200 million. Number three, we believe we have necessary cash and wherewithal to carry out our business plan. Please stay tuned, and don't hesitate to contact us if you have any questions. Thank you once again.

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