Spectrum Pharmaceuticals Inc (SPPI) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the 2009 corporate update conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Paul Arndt, Senior Manager, Investor Relations.

Thank you, Jovan. Good morning, everyone, and welcome to Spectrum Pharmaceuticals' fourth-quarter and fiscal year-end 2009 conference call. I am Paul Arndt, Senior Manager of Investor Relations for Spectrum Pharmaceuticals.

Here is an outline for today's call. First Shyam Kumaria, our Vice President of Finance, will provide a summary of fourth-quarter and fiscal-year 2009 financial performance; followed by Dr. Raj Shrotriya, our Chairman and CEO, who will highlight our 2009 accomplishments and provide an outlook for 2010 and beyond before we open up the call to your questions.

Before I hand the call over to Shyam, 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 product sales, profits and losses, and the safety, efficacy, development timelines, and clinical results of our drug products 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 today's conference call, Tuesday, April 6, 2010; 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.

For copies of yesterday's press release, historical press releases, 10-Ks, Qs, 8-Ks, SEC filings, and other important information, please visit our website at www.SPPIRx.com.

I would now like to hand the call over to Shyam Kumaria. Shyam?

Thank you, Paul. Good morning to everybody on the call. At the outset I would like to explain that the two-day delay in the submission of our Form 10-K was related to an accounting restatement to reclassify certain common stock warrants from equity to liability. The accounting for such derivative financial instruments is a highly complex and evolving area of accounting under US GAAP and is subject to interpretation.

In view of an interpretation that these common stock warrants could, under highly remote theoretical circumstances, require net cash settlement, we made accounting adjustments restating previously issued financial statements. The net effect of this accounting entry is to initially establish a book liability for the warrants under this assumption -- that we have to pay cash to buy out those warrants at some point in the future.

When the warrants in fact expire, the liability is reversed and recorded as income. In the interim, this accounting leads to volatility in reported quarterly earnings as the warrant liability is marked to market at each balance sheet reporting period.

I would like to emphasize that the accounting restatement that we made has absolutely no effect on performance of our core business operations. They resulted in book accounting entries only and had no impact on amounts previously reported for Spectrum's cash balances, assets, product or other operating revenues, operating costs and expenses, or on net cash flows.

Now I would like to review the financial highlights of fiscal-year 2009. Fiscal 2009 consolidated revenue was $38 million and included product sales of $28.2 million, compared to $8 million for the same period in 2008. Zevalin sales comprised $15.7 million of this; and we recorded $5.1 million of Zevalin in the fourth quarter. Fusilev sale were $12.5 million for the year. Non-product revenues consisted of $1.5 million milestone payment from Allergan upon full enrollment of the apaziquone Phase 3 trials.

Selling and general and administrative expenses in 2009 were $33.6 million compared to $15.2 million in 2008. The increase is attributable to the direct cost of commercialization activities related to Zevalin and Fusilev, and the related payroll costs.

R&D expenses were $21.1 million or an increase of $5.6 million -- sorry, correction, $5.6 million lower than 2008 mainly due to sharing by a partner, Allergan, of EOquin-related development costs and also a reduction in development costs related to other pipeline products.

After the recording of an $8.1 million income resulting from the reclassification of common stock warrants from equity to liability, the Company recorded a net loss of $19 million in 2009. However, in the fourth quarter of 2009 we recorded a net profit of $10.2 million, compared to a net loss of $8.9 million in the fourth quarter of 2008.

It should be noted that the fourth-quarter 2009 included a $19.8 million income resulting from the reclassification of common stock warrants from equity to liability. This is an example of the volatility I mentioned earlier.

At the end of 2009, net cash was -- sorry. Net cash use in 2009 was $17.6 million. At the end of 2009, we had cash and total investments of $125 million compared to $78 million as of December 2008. Currently, there are approximately 49 million shares of common stock outstanding.

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

Thank you, Shyam. Good morning. Also along with me today are members of the management team who will be here to answer any questions if necessary.

In 2009, it was a year of notable accomplishments and continued transformation from a development stage company to a fully integrated commercial stage biotechnology company with two marketed oncology products. I will start with our lead product, Zevalin, which we acquired early last year and was relaunched in the last quarter of 2009 after receiving first-line approval from the FDA.

It is important to note that relaunching a drug is never easy. We must be cautious in our expectations as to how rapidly sales can grow, despite new indication approval expanding its use. Since our acquisition of Zevalin, we have been successful in stabilizing the brand, which was our stated goal for 2009.

Specifically in September 2009, we expanded the market opportunity for Zevalin to nearly 46,000 patients by securing FDA approval in first-line setting for non-Hodgkin's lymphoma, whereas it was previously only approved for relapsed-refractory patients and was used mostly as a salvage therapy in less than 1,000 patients annually.

We also successfully implemented two initiatives to address reimbursement-related issues. First, we received approval for average sales price reimbursement, or ASP methodology, in the hospital setting, which went into effect about three months ago on January 1, 2010. We expect this important simplification of reimbursement to have a positive impact on its commercial uptake, though such changes can take time to implement. In particular, many hospitals need additional time to adapt to these standards for reimbursement.

In addition, based on the results of the FIT study, Zevalin received a Category 1 classification supporting its use in non-Hodgkin's lymphoma in the NCCN guidelines which is used by the CMS, or Center for Medicare and Medicaid Services, as a source of information to determine which drugs may be covered under Medicare Part B. It is important to note that Category 1 is the highest recommendation available, which means that reimbursement cannot be denied and that the data is unequivocal for its use in the first-line setting.

We have established a 70-member commercial organization which includes 48 field force personnel that have an average of more than 10 years of experience selling complex anticancer drugs. Keep in mind much of our hiring has been towards the end of 2009, only after we received approval for first-line therapy. We have created training programs to bring them up to speed on Zevalin quickly.

Although we have achieved important milestones with Zevalin, we are continuing to pursue some important goals such as community-based reimbursement and removal of bioscan where progress is being made. Removal of bioscan would reduce the time required for administration to no more than a couple of hours, as compared to our seven to 10 days today, thus simplifying the treatment process for both the physician and the patient.

We expect to provide guidance for Zevalin's sales when we announce our second-quarter results, when we will have at least six months' worth of sales performance.

For our second marketed product, Fusilev, we expect to submit by the end of Q3 additional data requested by the FDA, which is already being generated. We expect the FDA to review the application in 2011; and we continue to view the opportunity in colorectal cancer as the next potential growth driver for Fusilev sales, a market that is substantially larger than its current approved indications. Outside of the US, greater than 95% of sales of Fusilev are in metastatic colorectal cancer.

Currently, the focus of our sales team is on Zevalin and we do not actively promote Fusilev.

EOquin remains a key focal point of our development program. We have completed ahead of schedule the enrollment of more than 1,600 patients in two pivotal Phase 3 trials. We also received fast-track designation from the FDA. And we signed two alliances for the Asian rights for EOquin, one with Nippon Kayaku and the other with Handok. The total deal value of these alliances was more than $170 million.

As for our expectations for the EOquin program in 2010 and beyond, we currently plan to initiate a multiple installation trial of EOquin before the end of this year, pending regulatory decisions. In addition, we expect to see topline results from the two fully enrolled registrational trials in early 2012.

Finally, we are pleased with the most recent addition to our late-stage pipeline, belinostat. Belinostat is currently in a registrational trial for PTCL under a special protocol assessment. This has been granted orphan drug designation and fast-track designation by the FDA.

It is important to note that this registrational pivotal trial is a relatively small trial, requiring data in only 100 evaluable patients. Patient accrual into the trial is going well, and we expect to file a New Drug Application, or NDA, next year.

We believe that belinostat offers a differentiated risk-benefit profile as compared to other HDAC inhibitors due to its relatively favorable safety profile, with little or no bone marrow toxicity or mucositis. To date, more than 700 patients have already been treated with belinostat in multiple indications and multiple regimens.

However, most of this data collectively has not yet been published. Working with our partner, we are planning a publication strategy to fully exploit these data.

Experience to date suggests that full-dose belinostat can be added to full-dose chemotherapy regimens such as carboplatin and paclitaxel without their dose reductions and help achieve optimal efficacy in the absence of dose-limiting bone marrow toxicity or mucositis with the combination regimen.

One of the reasons we acquired belinostat is to achieve efficiency in our sales force. The prescribers of Zevalin also see patients with PTCL.

Belinostat is also being studied in solid tumor indications such as lung cancer, ovarian cancer, and carcinoma of unknown primary, or CUP. Before the end of this year, we expect completion of enrollment in CUP Phase 2 trial, which is being conducted and funded by our partner, TopoTarget.

As a summary, here is what we expect to accomplish in 2010 and beyond. For Zevalin, we expect to grow Zevalin's sales and to provide guidance during our second-quarter update. We will work towards removing the bioscan requirement.

For Fusilev we expect to submit to the FDA additional data by the end of third quarter for metastatic colorectal cancer. For EOquin, we expect to initiate a multiple installation trial, subject to regulatory discussions. We also expect to see data from the fully enrolled Phase 3 trials in 2012.

For belinostat, for PTCL indication we expect to file an NDA next year in 2011. We also expect the completion of enrollment in a CUP trial by year-end.

As exciting as 2009 has been for Spectrum, we believe that 2010 will bring further success and accomplishments at Spectrum. We believe that the combination of our novel product portfolio, business developing strategies, and fiscal discipline will allow us to realize the full commercial opportunities for Zevalin, Fusilev, EOquin, and belinostat.

I will now open up the call to questions.

(Operator Instructions) Ren Benjamin, Rodman & Renshaw.

Hi, good morning, everyone and congratulations on 2009. I guess starting off with Zevalin, can you comment or give us any sort of insider clarity as to the organic growth and from where the revenue mix is coming from? Meaning, is it primarily still from the salvage setting? Have you started making inroads into the front-line setting? And how do you expect that mix to evolve going forward in the year?

Ren, thank you for your question. It is too early to comment on that. Keep in mind that the first-line use requires that the patients first be treated during induction therapy, induction regimen; and that may require waiting for five, six, seven months.

So at this time, the dissection to that level is very hard to do. We have not done it, and we are hoping that by the time we announce second-quarter results we would be able to share that information with you.

Okay. Regarding the bioscan and the community setting reimbursement plans, can you give us some more insight as to what exactly is happening there? What is it that you are doing right now to remove the bioscan?

What is it that you are doing to establish ASP reimbursement in the community setting? And what the timing for that could be?

So let me ask Dr. Sandler to talk about the bioscan requirement; and after that George Uy will talk about the community setting reimbursement. Dr. Sandler?

Yes, Ren, at this point right now, we're actually just going through the process to prepare ourselves for a regulatory discussion in the near future. But, quite frankly we are still in the process of looking at the data carefully from what the agency has asked of us, and we still have some work to be done.

So I would assume that by the next time we give additional guidance we will have a much more comprehensive answer to give you.

So, Andy, just to jump in before George starts talking, the bioscan is not required in Europe, if I am correct. So what is the main difference between their thinking about it versus, let's say, the FDA's?

There is really no difference in the sense that when it was approved in Europe it was approved in most countries in Europe, although there are still some countries like Switzerland that require the bioscan use. However, they just had a label without the bioscan in it. And that is the way it was presented at that point.

When the agency approved Zevalin, remember, it was the first radioimmunotherapy to be approved as a therapeutic in oncology, and thus they were being more cautious. So once again there really isn't a difference in the data; there is more just a difference in the presentation of when the regulatory bodies approved it.

When do you think that you might be in front of the regulatory agency to discuss this potential removal?

I think a discussion will certainly be placed in this year; but I can't probably give you any more granular information regarding that.

Okay.

Yes, Ren, this is George. Regarding reimbursement, this is a very complex area and we probably have to discuss this for hours before we really drill down to the details.

But just very broadly, to address your question about what we are doing with addressing the reimbursement issue at the community level, it's a fact that we are in active meetings with people from CMS, from Medicare, to address this issue. And the meetings, suffice it to say, has been very, very positive.

We will provide an update towards the next conference call about what is happening there. But suffice it to say that there has been quite a lot of communications with CMS as far as this issue is concerned, and the meetings have been quite positive.

Okay. Then I guess just going forward can you talk a little bit about the -- any sort of presentations, data presentations, that could be coming up either at AACR, ASCO, or ASH?

Andrew?

Yes, at ASH it's too early to know. At ASCO we're still getting information on a few abstracts. We do know that there are two belinostat ones that we know of as of today. There may be at least two or three additional outstanding ones that we still don't have the information from ASCO.

And AACR there are two preclinical studies that will be presented on belinostat.

Do we expect to see any more follow-up or long-term follow-up data from the FIT trial? Or is that pretty much concluded?

No, there is additional data that will be coming out. It is hard to give you a timeline because it's out of our control. It is more working with Bayer. But we have been assured that that information will come out some point; and probably by the next time we talk there will probably be additional information on that.

Maybe just as more of a general question regarding the space, Andy, if you can just comment on the use of maintenance Rituxan and how that could influence Zevalin usage in the consolidation setting.

Yes, so it's a good question, Ren, and I think that the best way to answer it is we certainly don't know what the data is yet from what I am assuming you're referring to, the PRIMA data.

Yes.

However, I can say this, that rituximab maintenance and consolidation therapy are two clearly different things. Investigators out in the community, what we hear as we visit, understand that they are two different things.

Remember, consolidation therapy cleans up the disease; maintenance sustains your best response. You want to consolidation to give you the best response.

So my sense is that this is not going to be a Rituxan versus Zevalin issue; it is going to be a -- we want to use Zevalin, should we add RITUXAN or not?

Then lastly one of the things that has not been discussed and probably will come out, my assumption is, at ASCO in some sort of form, is the safety of giving Rituxan maintenance. We certainly know that there are viral reactivations that occur, PML cases, for long-term use with rituximab.

So the investigator or I should say the clinician is going to have to outweigh the risks and benefits of giving a two-year maintenance therapy in which there may be some bad toxicities.

So I think it will be interesting to see what happens when the data is released at ASCO. But I think that it is all part of what we have been doing, both the commercial and medical team, on the education of what consolidation is. And I think that people are understanding that.

Great, guys. Thank you very much and good luck in 2010.

Thanks Ren.

Shiv Kapoor, Morgan Joseph.

Morning, folks, and congratulations on the quarter. I'll start with a question on the leverage that you have. (technical difficulty) Although there was some one-time benefits in this quarter, pretty clear that that is all -- it only takes a small number to get a significant leverage on the bottom line on your Company. So my question is, while you are not giving topline guidance, especially on Zevalin and that is understandable, do you think you have sort of a steady state of operating expenses, and your operating leverage going forward will shine as revenues increase for many of your products?

Shiv, thank you for your question. The answer is yes. We expect our cash burn this year to remain steady between $30 million, $35 million. And we are expecting that as the months pass by, all the effort that we are putting in, into Zevalin, the sales will start ramping up.

So we are expecting 2010 to be a better year than any previous year, 2009 or 2008. So obviously our expectations are that the effort that we are putting in with the new approved indication, and reimbursement strategies, and now removal of bioscan and other things will keep helping our sales on Zevalin.

And then Fusilev we are expecting that, if the approval can come from the FDA in 2011, we will continue the momentum in 2010 and onto 2011. And by then, we are expecting that belinostat could be approved also.

So clearly our plan is that 2010 and 2011 we will continue to see momentum in our increasing sales.

Fantastic. I have a question on Fusilev, and I am not sure this was covered earlier on in the conference call. But are there any updates as to the regulatory status of a label expansion?

So, Shiv, we met with the FDA and they never -- they did not ask us to submit any additional efficacy data. They asked us to submit some data that is currently being generated, and we plan to submit it before the end of third quarter.

So once we submit we expect submission very quickly after that. We expect the FDA will review. And we never like to project as to how long a time FDA will take; but I am hoping that even if they take one year this drug could be available for colorectal cancer in 2011. But I do not like to second-guess FDA.

That makes sense. I have a question on the warrants. Obviously, your new auditors obviously think this can -- the warrants can be classified as liabilities. Can you give us some more color on what the question was with the SEC, if any? And what makes you confident this can be classified as a liability now?

So let me just give you more clarity to this, Shiv. We issued 7 million warrants last year in '09 in relation to financing. The majority of the warrants have already expired. We have about 3.8 million warrants left, less than 4 million warrants left, that will expire in June.

In addition to that, the only warrants left after this will be the warrants we issued in 2005, which will expire in 2011. And the number of that warrants is, I think, either 3.8 million or 2.9 million. Shyam, do you remember that?

Yes, the warrants expiring in June is about 2.9 million; and the September warrants is about 3.8 million.

Shiv?

Yes.

So those are the only two warrants left now. Most -- majority of our warrants have already expired.

And the impact of these warrants in first quarter will be that once these warrants expire, as Shyam explained to you, we have to book them as income.

Right.

Is that your question? Shiv, did you get the answer to your question?

I was more interested in what the SEC, if you had any discussions with them, what they have thought about the classification of these warrants as either liability or not?

Well, I think as Shyam said, that this is an area of -- very complex area. There is a complex literature, and there is a lot of judgment call.

So there are many companies who report them as equity; and there are some companies that have decided to report as liability. We have decided to report them as liability.

Okay. That's fair enough. Thanks for answering the questions, and best of luck.

Thank you.

George Zavoico, MLV.

Hi, everyone. Good morning out there. Congratulations on the quarter. I have a couple of fairly quick questions.

One, regarding Zevalin and the bioscan requirement. In Europe, like you say, in most of Europe, the bioscan requirement is just not required. Do you see -- have you done a comparison of the cost savings without the bioscan? The reimbursement without the bioscan? The availability or the capacity of more clinics perhaps that can use Zevalin if the bioscan requirement is not there?

How much more penetration ultimately -- what the question is leading to is, how much more penetration of the market do you see without the bioscan?

George, thank you for your question. I would just like to say that your question is loaded and is very good; and we are looking at this for a number of reasons.

Number one, the FIT data that we submitted to the FDA, which is the basis for first-line approval, majority of the patients did not have bioscan in that study. That is number one.

Number two, clearly the convenience is obvious. If you can give Zevalin within a couple of hours in a doctor's office versus patients have to come back and have to be -- it takes seven to 10 days before you can give Zevalin, clearly convenience will be an important aspect in our judgment for expanding the use of Zevalin more widely. Both convenient to doctors and convenient to patients.

And number third of our cost savings, clearly we are looking into all these metrics and we are hoping that over the next six to nine months we will have a better clarity on this and have an answer for you. At this time, we are very busy trying to put together a data package that will help us remove bioscan.

Can you give us an idea of Zevalin penetration in Europe where there is no bioscan? How long has it been --? I forget when it was approved in Europe.

Well, I am not in a position to give you at this time any guidance on Zevalin in Europe because this is not like IMS; you can't get numbers from them.

Okay, fair enough. With regard to Fusilev, it looks like in 4Q you had about $100,000 in sales versus $12.5 million for the whole year. So basically in 4Q, sales just ground to a halt. Can you comment on that?

Yes, George, as I said in my prepared remarks, that we have decided that the opportunity for Fusilev really is in metastatic colorectal cancer indication. Currently we have decided our sales force to focus on Zevalin and we are not actively promoting Fusilev.

That is by design; and we are going to wait until the approval of Fusilev comes from the FDA for metastatic colorectal cancer sometime in 2011. So right now we're focusing on Zevalin sales and not on Fusilev in terms of active promotion.

Okay, so you attribute the decrease just to cessation of marketing?

Well, no, there is another factor that you perhaps know, that last year -- in fact in late 2008 and early 2009, there was a shortage of leucovorin and at that time --

That's right.

At that time, FDA had asked us to make Fusilev available. And at that time about 5,000 patients we estimate, 4,000 to 5,000 patients of colorectal cancer were treated with Fusilev. That resulted in our sales of nearly $20 million to us as a windfall.

Yes, thank you for reminding me of that. That's right.

Now one quick question about the warrants. You said most of them expired. I notice from the 10-K that the exercise price was basically higher than your stock price has been lately. So these warrants expired without any, I presume, without them being exercised?

That is correct.

Yes, okay. Very well. Thank you very much and I am looking forward to the further results that you mentioned that you expect in this year.

George, thank you.

At this time I would like to turn the call back over to our speakers for any closing remarks.

In summary, I would like to emphasize that Spectrum is a uniquely diversified commercial stage company with four novel anticancer drugs, two on the market and two in late-stage development, which if approved by the FDA could be on the market in the near term. Thank you for your time today.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.