Spectrum Pharmaceuticals Inc (SPPI) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the quarter three 2007 Spectrum Pharmaceuticals earnings conference call.

(OPERATOR INSTRUCTIONS)

And I would now like to turn the presentation over to your host for today's call, Mr. Paul Arndt, manager of investor relations. Please proceed, sir.

Thank you, Michelle. Good morning and welcome to Spectrum Pharmaceuticals third quarter corporate update and pipeline review conference call. I am Paul Arndt, Manager of Investor Relations for Spectrum Pharmaceuticals. With me today are Dr. Raj Shrotriya, President, Chairman, CEO, Dr. Gino Lenaz, Chief Scientific Officer, and Russell Skibsted, our Senior Vice President and Chief Business Officer.

Let me provide you with an agenda for today's call. First, Russell will provide you with an update on our third 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 Russell, I would like to remind everyone that during this call we will be making forward-looking statements regarding future events of Spectrum Pharmaceuticals, including statements about the safety, efficacy, development timelines and clinical results of our drug product candidates 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 will disseminate the updates to the investing public. We filed our 10-Q and issued our earnings press release earlier this morning. For the 10-K, 10-Q, earnings press release, corresponding 8-K and additional information, including other SEC filings, please visit our website at www.spectrumpharm.com.

I would now like to call -- hand the call over to Russell Skibsted.

Thank you, Paul. Good morning, everyone.

We closed the third quarter ended September 30, 2007 with approximately $66 million in cash and equivalents. During the nine-month period ended September 30, 2007 we earned over $7.6 million in licensing and milestone revenues. Excluding stock-based charges, our R&D expenditures were approximately $19 million and we spent approximately $7.8 million for general and administrative expenses including legal costs. Net cash used in operations during the nine-month period ended September 30, 2007 was approximately $15.4 million.

I will now hand the call over to Dr. Raj Shrotriya. Raj?

Thank you, Russell. Good morning, everyone, and thank you for joining us today. Let me just say that our VP of Finance, Shyam Kumaria, could not be available this morning as he lost his mother last evening and therefore we had to make this announcement that we had to replace Russell to read the financial statements that Shyam otherwise would have done.

Let me first share with you what we believe are our near term value drivers. Our most advanced drug is ISO-Vorin, or LFA. We are excited about ISO-Vorin for a number of reasons. First, the FDA has set January 11 as the action date. If the FDA grants marketing approval, we could have our first proprietary anticancer product on the market in just a few short months from today.

As you may know, ISO-Vorin is already marketed in two major markets, Europe and Japan, by at least two major companies like Wyeth and Sanofi Aventis. IMS data shows that it generates nearly $200 million in annual sales, in spite of the availability of generic forms of racemic leucovorin in both of those countries. So for us, a test marketing of ISO-Vorin has already been done by major companies and in major markets, a rare opportunity indeed.

Third, we believe ISO-Vorin should be well received in the United States, Canada and Mexico because of the scientific basis for its superiority over generic LEUCOVORIN. There still seems to be some confusion as to how does ISO-Vorin differ from generic leucovorin and what are its advantages. Generic leucovorin is a 50/50 mixture of the active levo-isomer and the inactive dextro-isomer.

Experimental studies have shown that the inactive dextro-isomer competes with the active levo-isomer for transporting to the cells, leading to more variability and less predictable biological effects. We believe patients will benefit by receiving only the pure active form just as the [older] members must have felt when they recommended ISO-Vorin for its approval.

There is some evidence in literature that points to its superiority over ISO-Vorin as well. Two randomized studies have shown that 5FU plus ISO-Vorin demonstrates not only equal efficacy to 5FU plus leucovorin in the treatment of colorectal cancer, but the 5FU plus ISO-Vorin group was shown to demonstrate less severe bone marrow toxicity. Once we receive approval, we do plan to file a Supplemental New Drug Application for this colorectal cancer indication shortly thereafter.

In addition, unlike leucovorin, there is some evidence that it may be possible to mix 5FU and ISO-Vorin in a single bag, thus removing the need to infuse the products separately, which would simplify administration by the physician. As you know, the generic leucovorin must be given separately. We are planning for success and are currently evaluating launch plans. Our recently hired VP of Marketing and Sales, George Uy, is evaluating various proposals from companies that have expressed interest in marketing and distributing ISO-Vorin for us. We will have more to say about this when the drug is indeed approved.

On second -- our second leading drug is EOquin. Let me share with you the status of our Phase 3 studies, then highlight several reasons why we think EOquin is an important and underappreciated value driver for Spectrum. Both of our registrational Phase 3 studies are enrolling patients at 60-plus sites in the United States. As of date, we have enrolled approximately 175 patients in the two trials. We are planning to add 30-plus sites into Canada as soon as Canadian Clinical Trial Application, or CTA, is approved. We are holding actually an investigators meeting in Toronto on November 17th.

Now let me share with you our thoughts as to why we believe EOquin is such an important drug for Spectrum and for the community at large who treat patients with bladder cancer. First, EOquin addresses an important and really unmet medical need. The current standard of care in noninvasive bladder cancer is surgery. No drug has ever been approved in the United States for the treatment of [low risk] bladder cancer. We expect EOquin will become the first. Among the major markets, over 1.5 million people suffer from this disease. On a lifetime basis, bladder cancer is the most expensive cancer to treat. We believe EOquin offers us a unique opportunity.

Second, unlike BCG, which is the most widely used drug for the intravesical treatment of high risk bladder cancer, EOquin can be used immediately after surgical removal of bladder tumors, regardless of risk or stage. There are over 171,000 surgical procedures per year in the United States alone. In Europe, the number is almost three times higher. We believe EOquin has the potential to be used in every procedure. This is a very important differentiating factor for EOquin.

Third, key urology opinion leaders in the United States and Europe are excited about the prospects of having EOquin as a new treatment option for patients suffering from bladder cancer. The drug is already well known and highly anticipated by bladder cancer experts. As you know, the drug was actually discovered in Europe and Phase 1 and Phase 2 trials were conducted mostly in Netherlands and the United Kingdom and Phase 3 trials are being exclusively held at this time in the United States.

Finally, in the third quarter after starting our second Phase 3 trial, we began to actively evaluate suitable partners for EOquin outside North America in order to maximize the value of EOquin in these markets, while minimizing our downside risk. Bladder cancer, in our opinion, has been overlooked by the pharmaceutical industry at large. Patients with bladder cancer have very limited treatment options at this time and we plan to change that.

Our third leading drug is Ozarelix. About a year ago we announced the results of a European Phase 2 study in benign prostate hypertrophy, or BPH. Rather than rushing into a large and expensive Phase 3 trial based solely on such data, earlier this year we initiated a Phase 2b study in the United States.

We are running this trial at this time for a number of reasons. We wanted to see how the European trial data would translate to a North American patient population. We wanted to determine whether any regional differences in patient's responses needed to be accounted for in the protocol for the registrational study. A valuable experience that was gained by companies like Threshold when they started their trials in BPH in the United States following European development. The European patients in our studies were predominantly treatment naive, whereas in the United States we are the largest consumer prescription drugs.

We wanted to determine what the effect was of prior or concurrent use of alpha blockers or other BPH drugs or erectile dysfunction drugs such as Cialis and Viagra, which are widely used by patients in the United States. And also, BPH and sexual dysfunction actually go hand-in-hand. We plan to use Phase 2b data to help design and power the next registrational trial expected to initiate early next year.

Our fourth drug is Ortataxel. Ortataxel is a third generation taxane that has been studied to date in approximately 350 patients in Phase 1 and Phase 2 clinical trials. We believe that the activity of the drug is promising and we plan to pursue Ortataxel's development in solid tumors. We are planning to initiate Phase 2 studies in non-small cell lung cancer.

One of our plans is to select previously untreated patients that have a genetic profile that makes them likely to be refractory to standard therapy which is currently Taxol plus carboplatin.

Preliminary data with a simple formulation of Ortataxel demonstrated about 35% bioavailability when given orally. We plan to optimize oral bioavailability and then initiate clinical trials as soon as possible. We believe oral availability of a taxane would be a major advantage. Ortataxel has that possibility.

Our fifth and the last drug that I plan to talk this morning is SPI-1620. Over the last several months we have reported preclinical data on SPI-1620 at various cancer symposiums. SPI-1620 increases blood flow to the tumors selectively and transiently. And by doing so, it increases the concentration of anticancer agents where it is needed the most. We found that up to a 400% increase in anticancer drug concentrations in tumors resulted in a significantly improved therapeutic effect in [new] mice experiments when they were implanted with human tumors.

We believe SPI-1620 may have a broad range of applications for use in conjunction with chemotherapy in the treatment of solid tumors. The FDA has already cleared our IND and our Phase 1 protocol. The dose escalating study is ready to enroll patients now as soon as we receive IRB approval, which is expected to occur any day soon.

In summary, most small biotech companies end up laying off people when they experience a Phase 3 failure. We suffered such a failure with satraplatin not meeting the primary endpoint. However, we did not fund any part of the very expensive Phase 3 trial of satraplatin. It is reported that almost $100 million was expensed by our partner. We have actually received about $12 million in payments to Spectrum. Approximately $8 million of that payment came just this year in 2007.

Obviously, we are very disappointed with the recent failure. It's a bump in the road. It hurts. But we are not laying off people. In fact, we are adding to the Spectrum project teams because of the progress we are making in rest of our exciting pipeline.

A few words about other drugs in our portfolio. You may not hear a lot about the other drugs, such as RenaZorb, Lucanthone and others on these conference calls or in investors meetings where we make a presentation. But a lot of behind the scene critical activities take place. For example, for Lucanthone we had to optimize formulation and whole new CMC work had to be done. We generated new intellectual property. And we now, we think, we have a superior product ready to launch into clinical trials.

Similarly, RenaZorb, we have been working for almost close to two years on RenaZorb. RenaZorb came to us in acquisition from a license from our partner Altair. There were three compounds, RZB011, RZB012 and RZB014. We wanted to make sure that we select the best compound that will compete head-on with the best available drugs in the marketplace several years from now when this drug comes to the market. We have been very busy with our partner in trying to optimize the drug that will meet all the requirements for a better product years from now. As I've said time and time again, we are not dependent on the success or failure of any one drug. That is the core of our business strategy.

We continue to develop our portfolio of several late and early stage drugs. Let me highlight for you a few of our key milestones that we expect to announce over the next 12 to 15 months. Within a few short months we expect to begin enrolling patients in a Phase 1 trial before the end of this year of 1620. In early 2008, we expect FDA approval on January 11. And if that approval comes within eight weeks or so, we expect that drug will be available and marketed. A registration trial for Ozarelix in BPH is expected to be initiated in early 2008.

In second quarter of 2008, we expect to complete Phase 2b trial and announce top line data. We expect to initiate a Phase 2 trial for Ortataxel in non-small cell lung cancer. And in the second half of 2008, we expect the sumatriptan injection will be launched by our marketing partner Par Pharmaceutical Companies. And we will receive more than 50% of the profit.

Thank you very much for your time this morning. I would now like to open the call for your questions.

Thank you. (OPERATOR INSTRUCTIONS) Your first question comes from the line of Ren Benjamin of Rodman & Renshaw. Please proceed.

Hi. Good afternoon. Thanks for taking the call. Can I just get some additional data regarding -- or some additional information regarding the number one product in your list now? It's moved up to number one. How exactly are you planning on launching this? I know, Raj, you mentioned that you're discussing this but you must have different ideas. Is there any interest from partners and if there is from partners, are you looking at it more kind of like a sumatriptan sort of deal or could it be significantly different?

And then also an update on the Phase 2 trial for Ozarelix, when are we planning on seeing that data?

Ren, thank you for your interest and following up Spectrum and I always appreciate your notes and your thoughtful analysis of Spectrum's portfolio and progress.

ISO-Vorin, we are in discussion, as I said, with a number of partners. We are looking at economics as to where in what form and shape can we get the best economics for the drug. Our eyes are focused on the ex-U.S. market. Ex-U.S. market, these drugs sell for $200 million a year. In fact, in the U.S. we should be able to achieve the same number as our peak sales. And therefore we are trying to make sure that we get a partner that has the wherewithal of marketing ISO-Vorin in the United States and also we get a sizeable upfront and profit sharing of some kind.

It's premature for me to make any comment at this time because we are in discussions and, to me, deed isn't done until it is done, no matter how promising it may look. So I would say that George, you who was responsible for launching, has been responsible for launching many drugs in his life and was associated with the launch of Abraxane more recently, he's completely focused. He's spending 100% of his time on the ISO-Vorin launch at this time. So I would just like to say that I'm very comfortable with the progress we are making and as long as -- as soon as we can make some alliance, you'll be the first one to know.

So, just to follow up on that, the $200 million in sales we've heard quoted before and I guess just to flesh that out a little bit, what are all the indications that it's being used in right now ex-U.S. to generate the $200 million? And by comparison, the approval or the potential approval that we might get here in the U.S. is for, correct me if I'm wrong, osteosarcoma. So how does -- how does one get to that -- to that sort of a revenue stream?

Ren, that's a very good point. In fact, I'm glad you made that point so I want to clarify that. Osteosarcoma is only -- there are 2,700 patients in the country. It's colorectal cancer where the [beef] is, 145,000 patients, new patients a year. So our plan is that the moment we get approval, and I think this is something you should know, that we don't expect sales to reach its full potential in the year one of its launch because our plan is that as soon as the drug is approved, we plan to file a supplemental NDA for colorectal indication, for which we have already had a discussion with the FDA.

And the plan is let's get the approval first in our hands. As you have seen with so many drugs failing at the FDA these days, one can never be sure about the FDA approval. And if the FDA approval comes in hand, the supplemental NDA becomes a far easier hurdle to cross. So our plan is we have already discussed, we already have data, we've already prepared, we're all ready to file for colorectal indication as soon as we get the approval of this drug.

So you are absolutely right and we are hoping that the FDA would be -- would be fast enough to approving the colorectal indication and we would need colorectal indication approval in order to achieve the full potential of this drug. That's a good point.

And just because we've probably all had our fill of FDA discussions, how would you characterize these discussions? Are they -- you've obviously presented what data you have for colorectal. What's the -- how would you characterize it? Do they want more data? Is it going to be relatively straightforward? And then what do you think the timing of the SNDA would be?

Well, again, good question. I don't have a crystal ball, but I can tell you that I never try to guess what the FDA's next steps should be -- would be. Our discussions, in fact, when we took over this drug from Targent, our partners, at that time Targent has had the discussions with the FDA. And we got on the conference call and made sure that the FDA was onboard that we're not going to start a new clinical in colorectal cancer because that means years and years of expense and resources and then not knowing what kind of data you might get. There was already data that was available at that time and the -- our understanding is that the FDA was comfortable that submission of that data would allow us to have that indication. But there are no guarantees in life, Ren, when it comes to the FDA.

And then just going back to the original question regarding Ozarelix, when is that data due? Or when might we hear about the results?

Well, Ozarelix, there are two moving parts here. One is that we currently have patients who have completed 12 weeks of treatment. We expect the six month follow-up will be completed sometime towards the -- in December. And FDA has asked us to see how long the effect lasts and have asked us to continue the trial for nine months and the last patient would complete treatment in March, I believe, March of 2008.

But at the same time we are preparing a protocol with the hope that we will be able to start the study in early 2008, most likely in first quarter of 2008. In fact, [Dr. Baylor Dennis], who's our urologist onboard who has developed other BPH drugs with Eli Lilly and [Icos], has already -- is selecting investigators as we speak. So our plan is to start a next pivotal trial that will be run in the international trial. We will have some centers in the United States and some centers in Canada and some centers in Europe.

So we are very aggressively pursuing and keeping all the ducks ready in a row so as soon as we have the data we can pull the plug and start the trial. Our plan is that we would have the -- this study will give us an idea as to what the size of the trial should be. And to us that's a very important criteria to decide.

But when will investors be able to take a look at the data? When will you announce it to us?

Well, we have announced the -- we will have top line data in second quarter of 2008 and that a very conservative estimate. We might be able to do it sooner than that, but our current estimate is second quarter of 23008.

Right. Thank you very much.

Thank you, Ren.

Your next question comes from the line of Peter Jones of Paulson Investment. Please proceed.

Hey, Raj. This is Peter Jones at Paulson Investment. How are you?

Good, Peter. How are you? Thanks for your question.

Good, thank you. I guess my question is when last year in April when we were down and we were going over things that you were working on and how excited we were about satraplatin, what gives you the confidence that -- or what's different about this approval than satraplatin? Why should we in the investment community be as excited about this and look toward the prospects of this being approved when we felt so confident that satraplatin was going to be approved.

Well, there are many differences. First of all, ISO-Vorin is not going to be such a big drug as satraplatin was expected to be. Satraplatin was going to be a $500 million to a $1 billion drug. ISO-Vorin is not an anticancer drug by itself. It is an adjuvant. It is given with 5FU to increase its efficacy and reduce its toxicity. ISO-Vorin is a -- satraplatin has never been approved anywhere in the world. ISO-Vorin, in contrast, is selling for last ten years in Europe and Japan. So there's a tremendous safety data that's available to the FDA.

FDA has always believed that they prefer pure isomers over mixture of dextro and [devo] drugs because one of the isomers is completely not only useless, it reduces the efficacy of the active isomer.

So from a experimental point of view from where the National Cancer Institute, with the thought leaders in the United States are, where the FDA is. And keep in mind our drug is being manufactured by Eprova out of Germany, the same people who make the drug for Wyeth and Sanofi. So they have their DMF and that DMF is filed in response to the FDA's question.

So your question is good. I wish I can answer you better than this. But we have all the hope that we have taken precaution in thinking that all the other aspects have been taken care of. And mind you, for satraplatin ODAC unanimously voted not to approve it based on PFS. In ISO-Vorin case, ODAC voted eight to zero to approve this drug. Is it of some value? To us it is.

Although there are some examples where the FDA has not listened to the ODAC advice. FDA still has the final authority. But from everything we hear, I think ISO-Vorin has a good chance of being approved in two months from now.

Okay, great. Thanks, Raj.

Thank you.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of Robert Uhl of FBR. Please proceed.

Thank you. Could you just talk about the international usage for ISO-Vorin? Is it primarily used in colorectal?

Well, again, we don't have a breakdown. All I can tell you is [inaudible - highly accented language] it is used by oncologists, it's used in oncology practice and they treat all the patients. I suspect it's whenever 5FU is used, 5FU is used primarily for colorectal, but 5FU is a very good anticancer drug for a lot of other solid tumors. And every time 5FU is used, it is recommended that it should be given with ISO-Vorin. Actually it is used with -- it has to be used -- even if you use generic leucovorin, the racemic mixture, or you use ISO-Vorin. If ISO-Vorin is available, people tend to use ISO-Vorin.

So to answer your question, Robert, the answer is yes. Anytime 5FU is used and 5FU is used in many other tumor types as well, anytime 5FU is used, ISO-Vorin has a place.

Okay. Then with regard to the BPH study that it sounds like you're going to go ahead and start a trial before you have the results of a study that's currently underway. Why wouldn't you wait until you have the data from that so that you could design your study to incorporate whatever you learned from the ongoing trial right now?

Well, trust us. This is what we do for a living for last 37 years. Gino, myself, Bela, Dan, many of us, this is all we do. We have over 400 years of cumulative experience of developing drugs in our Company.

So keep in mind that we were very careful not to jump onto the bandwagon of Phase 3 trial and get the [high petula]. We wanted to make sure that the European data can be confirmed. So the current trial that we have we will have enough evidence of the safety and efficacy of this drug by the time we start the Phase 3 -- the next registration and trials.

Keep in mind, there is more to starting a registrational large trial than meets the eye. It takes us almost six months to select the sites, get the contracts done, get the IRB approval done. And even if we started, it will be -- I think we are gaining some time by starting out the study early in first quarter of 2008.

So it sounds like you're saying a patient might not ever be -- receive drug until June?

That's possible.

Okay. All right, thank you.

Thank you, Robert.

That does conclude the question and answer session. I'll now turn it back to Raj for closing remarks.

Thank you very much. In summary and conclusion, I just want to thank all of our investors who have stood behind us. I feel very sad about it that our stock, which was in high $7 in July, is now trading under $4. However, we see there's tremendous value in the Company.

I'll give you a couple of examples. Look at [Onyx] Company. Onyx Company, when I was at SuperGen, my last company, Onyx share used to be in $3, $4, $5. They didn't know what they were doing and they were at a loss. And then they acquired a drug, they partnered with a company and their stock is now trading yesterday at $58 a share. The market cap is $3 billion based primarily on one drug.

And look at what happened to companies like Dendreon. I just like to imagine that had satraplatin been recommended for approval after PFS and we would have launched this drug, our stock could be in high $20s or $25. So out of the numerous drugs that we have in our pipeline, all we need is one or two drugs to be successful, not all of them. And that's how we have diversified our risk portfolio. And we acquire drugs because of not only the hunch, because of the data we see, because of the chance of success we see, and still we make mistakes. Satraplatin, is it a failure, is it a mistake? I don't think so. I still think that satraplatin still has value, as you heard on our partner's call.

So to answer your question, some of the questions that are in the investors minds, I would like to say that our business model that we have followed the last five years is solid; a diversified portfolio of late stage and some early stage exciting drugs. We have a team of people in the Company that are absolutely committed. We work 24/7 and we have a strategy that we are very interested in not issuing equity for every dollar we get into the Company. As you can see, this year alone we got almost --

So even from satraplatin, a drug that we acquired for less than $200,000, we have gained $12 million we have brought into the Company, $8 million of that just this year. So I want our investors to feel confident that we know what we are doing. We -- two things we promise. One is absolute honesty and truth and second thing is absolute hard work. And I'm hoping that out of this success will come from one of these drugs.

With this, I would like to say once again thank you for your support. Thank you for your continued interest and thank you for being on our call today. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.