Spectrum Pharmaceuticals Inc (SPPI) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2008 Spectrum Pharmaceuticals Inc earnings conference call. My name is Emtee and I'll be your coordinator for today. At this time all participants are in listen only mode. We'll facilitate a question and answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS)

I'd now like to turn the presentation over to your host for today's conference, Manager of Investor Relations, Mr. Paul Arndt. Please proceed.

Thank you, Emtee, and good morning everyone. Welcome to Spectrum Pharmaceuticals' second quarter corporate update and pipeline review. I'm Paul Arndt, Manager of Investor Relations with Spectrum. With me today are Dr. Raj Shrotriya, President, Chairman, and CEO; and Shayam Kumaria, Vice President of Finance. Let me provide you with a quick agenda for today's call. First, Shayam will provide you with an update on our second quarter financial results. Then, Dr. Shrotriya provide you with a pipeline update and review before opening up the call to your questions. Before I hand the call over to Shayam, I'd like to remind everyone 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 off this conference call, Tuesday, August 12, 2008, 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 last evening and issued our earnings press release this morning. For the 10-K, 10-Q, earnings press release, corresponding 8-Ks and additional information, including SEC filings, please visit our website at www.spectrumpharm.com. I would now like to hand the call over Shayam.

Thank you. Good morning, everyone. At quarter end we had cash and equivalents of approximately $60 million. Revenue in the second quarter of 2008 was approximately $20.7 million from the sale of our financial interest in our rights to Sumatriptan and certain other injectables. In spite of building a small specialty salesforce for the upcoming launch of Fusilev, and the continued development of our high priority projects, operating expenses were in line with the prior year as a result of tight financial controls. Research and Development expenses were approximately $6.7 million and selling, general, and administrative expenses were approximately $3.2 million for the quarter. This resulted in net income of approximately $10.7 million for the quarter, and we ended the quarter with approximately $60 million in cash, which we believe is sufficient to fund our operations for the foreseeable future. I'll now hand the call over to Dr. Raj.

Thank you Shayam, and good morning everyone and thank you for joining us today. Our company is healthier today than it has ever been. Later this week, we will launch our first new oncology drug approved the FDA this year. We have another drug in Phase III, EOquin, which has the potential to help a large patient population that has not seen a new drug introduced for the disease since the 1970s. We have $60 million in cash and we currently have no need to raise capital.

We are going to talk about two key value drivers today. They being Fusilev and EOquin. We will launch Fusilev this Friday with a small team of experienced specialty sales professionals. What is Fusilev? Fusilev is the only biologically active isomer present in commercially available leucovorin. Fusilev is administered in 50% the dose of leucovorin, which is a 50/50 mixture of the active and inactive isomers. This drug is widely used in the United States. There are more than 500 million milligrams of leucovorin prescribed each year. Market data indicates to us that approximately 400 plus (sic) treatment centers are responsible for roughly 70% of the leucovorin and methotrexate sales in the United States. The small number of oncologists treating osteogenic sarcoma is a scale that a team of 12 highly experienced specialty salespeople can manage to launch Fusilev. Most of our regional business directors have at least 10 years of experience and a track record of success in launching and selling oncology drugs. Our team is lead by George Uy, Vice President of Sales and Marketing, and Lynne Murphy, our Executive Director of Sales, who have more than 40 years of combined experience in launching and pharmaceutical marketing and sales.

Fusilev is currently approved for the following three indications -- number one, after high dose methotrexate therapy in patients with bone cancer or osteosarcoma, which is the most common type of bone cancer. And number two, to diminish the toxicity and counteract the effects of impaired methotrexate elimination. And thirdly to diminish the toxicity of inadvertent overdosage of folic acid antagonist. Methotrexate treatment has applications beyond osteosarcoma. It is an important therapeutic option in the treatment of many solid tumors and hematological malignancies such as non-Hodgkin's lymphoma and autoimmune disease such as rheumatoid arthritis and psoriasis. Leucovorin tablets are currently used to counteract the effects of impaired methotrexate elimination in autoimmune disease.

We filed in June this year an amendment to the New Drug Application for Fusilev tablets. ODAC, the Oncology Drug Advisory Committee, has already voted affirmatively that the tablet form is safe and effective when used in the rescue of high dose methotrexate rate. We expect the FDA to render a decision in mid 2009 for our tablet formulation. We continue to work on the supplemental NDA for use in combination with 5-FU containing regimens in advanced metastatic colorectal cancer. As a result of pre-NDA consultation, FDA has recommended a more comprehensive scope of data analysis and its presentation as the basis for registration in this indication. We now expect to submit a new -- the Supplemental New Drug Application or SNDA by the end of October.

We believe Fusilev will be a successful drug for a number of reasons. First, in its approved indication, Fusilev can be used to replace leucovorin at half the dose and half the volume. Fusilev is the only biologically active isomer present in leucovorin. Second, pre-clinical studies have demonstrated that the inactive dextro-isomer of leucovorin competes with the active levo-isomer for update at the cellular level. With our drug, patients are spared the administration of large quantities of unnecessary inactive isomer with no benefit to patients. Third, there's a wealth of clinical data both in the US and especially in Europe and Japan which support the clinical safety and efficacy of Fusilev. Fusilev under various trade names has been successfully marketed for more than 10 years in Europe and Japan by companies such as Wyeth, Sanofi Aventis, and Takeda. Fourth, leucovorin is currently a standard combination agent with 5-FU in various colorectal cancer treatment regimens such as FOLFOX, [4-FD], et cetera. Approximately 95% of the leucovorin use is in colorectal cancer. There are several peer reviewed publications which report substitution with Fusilev for leucovorin in combination with 5-FU containing regimens for [regimen] in advanced colorectal cancer and in combination with oxyaliplatin and/or Irinotecan for advanced disease. As I previously stated, we plan to file a supplemental New Drug Application in colorectal cancer by the end of October. Finally, Fusilev is currently listed as a replacement for leucovorin in the NCCN, or National Comprehensive Cancer Network clinical practice guidelines in oncology. The NCCN Drugs and Biologics Compendium is an important reference that has been recognized by CMS or the Center for Medicare and Medicaid Services and United Healthcare as a formal guidance for approval of coverage policy.

We believe the market potential of Fusilev could be substantial for our company when all indications are approved. In the US there are more than 500 million milligrams of leucovorin prescribed every year. Our current approval should be considered a foundation on which we are building a specialty sales and marketing infrastructure. Please understand that our sales and our currently approved indications are going to ramp up slowly until such time that we have the full range of indications and formulations approved.

The commercial launch of Fusilev establishes the foundation for growth of Spectrum's oncology franchise. This proven strategy of starting with a medically important oncology indication that will shape the marketing space and form the basis for explanation growth has been demonstrated by success of other companies. For example, my old company, NGA Pharma had struggled for many years before acquiring Salagen for head and neck cancer. Salagen's initial annual sales were disappointing at only $2.7 million. Although the sales of Salagen never quite reached blockbuster level by today's standards, it laid the ground work for NGA Pharma's commercial infrastructure. Over time, NGA added more drugs, which distinguished itself from development stage companies. It was ultimately sold to Eisai for $3.9 billion earlier this year. Similarly, Pharmion, a company with no drug discovery, built its oncology portfolio, established a commercial presence, and within 10 years of its inception was sold for $2.9 billion to Celgene earlier this year. We believe Fusilev will be the transforming event for Spectrum.

Now let me talk about EOquin, the other value driver. EOquin is for the treatment of bladder cancer. EOquin addresses an important unmet medical need. There are more than 0.5 million people in the United States and roughly 1 million people in Europe suffering from bladder cancer. The patients are faced with multiple recurrences, multiple invasive diagnostic procedures, and multiple surgeries. In the United States, there are roughly 300,000 surgical procedures done each year. There have been no new drugs introduced for bladder cancer in more than 30 years.

Please remember that on a lifetime basis, bladder cancer is the most expensive cancer to treat. This is because bladder cancer is treated surgically, by a transurethral resection and is highly recurring disease with approximately 75% of patients recurring within five years. These recurrences are primarily attributed to three factors -- 1) the highly implantable nature of this type of cancer cells that are dispersed during surgery, 2) incomplete tumor resection, 3) tumors present in multiple locations in the bladder which may be missed or too small to visualize at the time of surgery.

The recent American Urology Association guidelines on the treatment of non-invasive bladder cancer recommend a single immediate post-operative installation of chemotherapeutic agent following TUR, or transurethral resection. European Association of Urology Guidelines strongly recommends such use of the chemotherapeutic agent following surgery. However, immediate installation of the chemotherapeutic agent post-TUR is still not a standard clinical practice, even in the United States or in Europe. Perhaps the reason for this is the fact that there are no approved drugs for immediate installation that have been systematically studied. Therefore, EOquin can be the first and only drug approved for this specific indication. If EOquin is ultimately approved, we believe it will change the practice of medicine in the management of bladder cancer and will represent a significant therapeutic advance in this underserved patient population. We believe EOquin will decrease recurrences and improve the quality of life for many patients.

Both of our registration of Phase III studies are enrolling patients. To date more than 500 patients have been enrolled into two clinical trials being conducted at more than 90 sites in the United States and Canada. The current EOquin registration plan calls for two double-blind placebo controlled randomized clinical studies, each with 562 evaluable patients with histologically confirmed low risk non-muscle invasive bladder cancer. Patients are randomized in a one-to-one ratio to EOquin or placebo. The primary end point is a statistically significant difference at a P-value less than 0.05, and the rate of tumor occurrence between the two treatment groups by year 2. Both Phase III clinical trials are currently expected to be fully enrolled by year-end 2009.

Over the last 12 months we have spoken with many potential marketing partners for EOquin. Several have expressed an interest in partnering EOquin. Although at this time we cannot guarantee that a partnership agreement will ever be leased, our goal is to conclude a partnership agreement before the end of 2008. We will comment on an EOquin partnership when appropriate.

In summary, this Saturday marks the sixth anniversary of the Spectrum Pharmaceuticals, which we founded on August 16, 2002. Prior to August 2002, our predecessor company that had a traditional drug discovery operation but only one drug in development had a setback with its only drug candidate. This lead to decimation of share price and a market cap of about $1.3 million, negative working capital, debt and long term liabilities, and NASDAQ delisting notices on multiple counts. Fast forward, today six years later -- while we have no drug discovery inside the company, we have built a diversified portfolio which includes one approved drug by the FDA soon to be marketed, one drug in Phase III registration trials, and eight other drug candidates in development. Furthermore, we have no debt or long term liabilities. We just had our first quarterly profit and we have $60 million cash on hand.

Let me now summarize for you what I believe are the catalysts for the next 12 months. Fusilev revenue ramp up will be one of the important value drivers for the company. We will have a full quarter of sales in the fourth quarter and a full year of sales in 2009. The approval of Fusilev in colorectal cancer will be a large catalyst. As I've stated earlier, approximately 95% of the leucovorin market is in colorectal cancer. A second catalyst would be the signing of a partner for EOquin, and if we are successful in signing a partnership for EOquin, we would start label expansion trials. Finally, we have no intention of raising capital in the near term. This is very important. I repeat, we have no intention of raising capital in the near term. Thank you very much for your time this morning. I would now like to open up the call for your questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Ren Benjamin with Rodman.

Hi, good afternoon and thanks for taking the questions. A couple of them, I guess starting off with Fusilev. You mentioned that regarding the supplemental NDA for colorectal cancer that the FDA requires or would require a greater analysis. And so can you give us some more details as to what exactly, how exactly the meeting went and what exactly they require? Is it -- do you even have to conduct a small trial? What do you mean by a greater analysis of what's out there?

Ren, thank you for asking the question and thank you for listening to our conference call this morning and thank you for your support throughout the year. So let me just give you a little color on this. Whenever we plan to file a major New Drug Application, we always want to make sure that we provide to the FDA the format -- basically the format in which shape and form the data is presented to them. We are not required to conduct any new trials and I repeat that. These are studies actually that were done by Mayo Clinic several years ago. Some of the patients have been followed for six, up to 10 years. So you can imagine when a study is done several years earlier and there are patients that have been followed for very many years, FDA wanted to make sure that we transfer this data into Spectrum's case report forms which made 16,000 pages of transferring data from the source documents. That was number one. So there's more on presentation of the data, the format in which FDA can easily review it rather than any new studies or new analysis.

Okay. And then I guess the timing of an SNDA. I would have thought at an SNDA would require less time for review, yet it seems like it will take about 12 months based on your guidance that that approval would be sometime in the middle of '09 -- is that correct?

Well, I never like to give timelines for the FDA, because the FDA is very busy and you have been reading at the publicly disclosure statements that the FDA has gone on record by saying that even when they give you the PDUFA date, they are not obligated to meet their PDUFA date because it's more important for them. They're working overtime. They have a lot of things on the table and therefore I don't want to make a statement that is out of our control. I will say typically, it can take up to a year to approve such an application. Yes, it could be approved faster or sooner, but that is out of our hands. So I'd like to be conservative when I make these statements.

Okay. What are the chances that you wind up partnering this drug? I mean, clearly you have quite a big pipeline and certain key assets have been strategically placed. What are your -- I know that there's a small salesforce that you put together and you want sales to start coming in, but have you entertained any partnering opportunities for this drug?

Yes, we did, and then we looked at economics and we decided that it's far more important for us to launch it ourselves with a small but highly experienced and highly dedicated salesforce. As I said in my presentation that we have identified where this 500 milligrams of leucovorin is sold, there are about 400,000 centers and bone cancer -- the current indication -- the sarcoma is treated by a small number of oncologists. So we feel confident that with a small but highly experienced salesforce, we can cover the entire market. So it's purely a question of economics and a desire to build our own infrastructure for commercial operations for the reasons I alluded to.

Okay, and I know you don't like to answer, you don't necessarily like it when I ask the question regarding market size, so I'm going to try to ask it in a different way. You have a salesforce that you've put together and clearly some infrastructure costs that have gone into this launch. When do you think that you will reach sales that will then make I guess this division profitable?

Yes, I think I can better answer this question once we have colorectal cancer indications. So Ren, I would suggest you wait for about a year. This is like an investment that we are making and keep in mind, our burn rate guidance hasn't increased from the year ago. You can see that we built our infrastructure sales and marketing in second quarter of this year. Actually started building in first quarter of this year. And yet we are managing our finances extremely well, and the reason is that we have the flexibility in moving our cash from very early projects to where the need is. So you heard today we are focused on two value drivers in the company, Fusilev and EOquin. Everything else we can any time put on the back burner. We want to avoid having to raise cash at these prices and at these times. So we are -- our guidance at this time is that we don't think -- we have decided to put up our $6 million at this time into Fusilev launch and this $6 million we have been able to reassign from some of the early stage projects.

Okay. And I guess just moving on to EOquin, I understand that your goal is to sign a partnership by the end of this year and I think in the past we've talked and what the ideal partner would be in your minds and for Spectrum. And I guess instead of going down that route I'd just like to get a sense or some color as to how the partnership talks are ongoing. Are they advancing? Are there more players expressing interest? The same amount of interest? Can you give us any sort of flavor there?

Yes. Ren, we currently have a short list of potential partners. Being a public company, it would be inappropriate for me to discuss further anything at this time because a deal hasn't been signed yet. But clearly, we have narrowed our list from a large list to about three partners at this time, and we're hoping they can come through one of these by year-end. But there are no guarantees in our life. I tell Shayam, until the check is cleared it doesn't mean anything to me.

Right, and I guess finally, Ozarelix. I know that you can reassign cash so that you're spending it for the appropriate programs. But there was no mention of Ozarelix in the release and you didn't mention it on the Conference Call, but clearly, an asset. What's happening there and what are your thoughts there?

Well, Ren, there's a reason why I didn't talk about Ozarelix. It's not only Ozarelix, we have Lucanthone, we have RenaZorb, we have Ortataxel, we have a whole list of drugs that we are working on. Ozarelix has obviously fallen behind. The last study wasn't what we thought it could be. We had one process study and one drug that wasn't as good, so we are discussing our strategy. We are writing a new protocol and you will hear more and it. It will be all about how we are able to distribute our resources behind Ozarelix. But currently our plan is that we have a protocol in the works and our plan is to start a trial before the end of this year.

Thank you very much.

Thanks for your questions.

You have no further questions at this time. (OPERATOR INSTRUCTIONS)

Well, if there are no further questions, I would like to thank you very much for your time today and your continued support. If you have any additional questions, please do not hesitate to give anyone of us a call at 949-788-6700 or meet with us one on one at one of the several upcoming investor conferences, where we will be presenting between now and the end of the year. Once again, thank you very much.

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