Spectrum Pharmaceuticals Inc (SPPI) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Hana Biosciences Inc. third-quarter 2010 results and business 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 hand the call over to your host, Dr. Steven Deitcher, President and CEO.

Thank you. Welcome to today's investor update call. Craig Carlson, Hana's Chief Financial Officer, and I will provide a general corporate and financial update, followed by a question-and-answer session as time permits.

Before we get started, I would like to remind everyone that Craig and I will be making forward-looking statements. Please visit our Company website at www.Hanabiosciences.com in order to review our most recent SEC filings and press releases.

2010 has been transformational for the Company and has been replete with key events related to Hana's lead compound, Marqibo, our cancer therapy skin toxicity mitigating compound, Menadione Topical Lotion, and our financial and organizational health.

Let's begin with Marqibo. Following the completion of our pivotal Phase II RALLY trial Phase II of Marqibo in adults with Philadelphia chromosome negative ALL in second relapse, or whose disease has progressed following two treatment lines of anti-leukemic therapy, we held a pre New Drug Application, also known as a pre NDA, meeting with the Food and Drug Administration. We did this in April.

We consider the meeting to have been a resounding success with three key outcomes. First, we received reaffirmation of our fast-track status for Marqibo in our sought indication. Number two, we had agreements that our NDA can be submitted without objections. Third, agreement with the FDA on NDA content and format.

The agency suggested at the time of that meeting some expanded data collection from our RALLY sites in order to capture the full activity of Marqibo in such a heavily pretreated advanced leukemia population. We received excellent and collaborative guidance and agreed to provide the extra data as requested.

The complete RALLY data on 65 evaluable subjects was presented by the study lead investigator, Dr. Susan O'Brien from the leukemia department at MD Anderson Cancer Center, at the American Society of Clinical Oncology Meeting in June. This oral platform presentation of new analyses was very well received by a packed room of attendees and applauded by Dr. Meir Wetzler from Roswell Park Cancer Institute during the abstract commentary portion of the session.

Coincidence with the morning of this high-profile and exciting data presentation, Hana announced a game-changing financing transaction involving new investors, Warburg Pincus, and existing long-standing investor Deerfield management. Craig will discuss the financing later in this call.

The third quarter has been dominated by efforts related to data collection, data verification, and NDA preparation. Hana's talented, experienced and very motivated clinical, regulatory and manufacturing teams have made tremendous progress with a constant eye towards quality. We successfully locked the RALLY database in October, right on schedule, and as a result of the intense efforts during the third quarter.

For those of you who are not familiar with the NDA preparation and submission process, I will provide a brief description. An NDA consists of five major document portions called modules. Module one contains regulatory details, including disclosures and a draft product label. Module two contains summaries of all of the other modules. Module three contains all of the chemistry, manufacturing and control aspects of the submission. Module four is dedicated to toxicology and pharmacokinetics. Module five contains the clinical data, including the integrated summaries of safety and efficacy.

The Hana NDA for Marqibo will contain multiple module threes, owing to the multiple component nature of the Marqibo kit. Our NDA will contain information pertaining to all legacy studies in all tested populations. The NDA is being crafted by Hana as an original NDA. We expect to complete all of module four and significant portions of modules one and two before the end of 2010.

On November 8 of this week, and a held a pre NDA follow-up meeting with FDA to address technical issues related to the NDA submission, such as data format, and to continue discussions regarding Hana's proposed Phase II adult ALL confirmatory study, which would be completed post-accelerated approval. During the meeting, Hana and the agency agreed that it would be best to submit all NDA modules simultaneously instead of in portions as a rolling submission.

I need to emphasize this change is not expected to alter the timing of submission completion, which remains targeted for the first half of 2011. We also do not expect it to change the timing of NDA review, nor potential approval. We will maintain adherence to our established internal timeline and, as stated already, complete select modules of the NDA before the end of 2010.

Hana will have two abstract presentations at the upcoming American Society of Hematology Annual Meeting and exposition in early December, as well as a scientific booth. The presentations will provide new human pharmacokinetic data from the RALLY study itself and a combined analysis of the VSLI-06 and RALLY studies in adult ALL patients. We look forward to seeing you at ASH.

Last but not least, with regard to Marqibo, Hana has been exploring label expansion opportunities in, number one, pediatric cancers, including ALL, and we're doing this along with the US National Cancer Institute. We also are exploring label expansion opportunities in non-Hodgkin's lymphoma, which is a very large potential market, and front-line ALL as already stated in connection with the confirmatory program.

I will now shift gears and provide a brief update on Menadione Topical Lotion. We have completed two Phase I studies and recently completed an analysis of available data from the Phase I study conducted in actual cancer patients. The study provided typical Phase I types of information. Number one, Menadione Topical Lotion was deemed generally safe and well tolerated. Number two, the dose-limiting toxicity was skin redness and irritation at the 0.2% lotion strength, which was the highest strength tested. Number three, the apparent maximum tolerated lotion strength was 0.1%. Most importantly and critical to further development is the fourth finding, which was that there was no appreciable systemic absorption at even the highest strength tested when applied twice daily.

We are developing a Phase II protocol based on this analysis. Our strategy is to seek a partner to potentially accelerate and expand future development efforts with this product candidate. Confidential discussions with quality potential partners have taken place and more are scheduled.

I will close this part of the call by mentioning that the Hana Biosciences Board of Directors has four new members following the June financing. This includes three representatives from Warburg Pincus who have joined the Board, as has Dr. Robert Spiegel, the former Chief Medical Officer of Schering-Plough. We have an outstanding and very engaged board that is providing excellent guidance to management.

I will now turn the call over to Craig to discuss the financing and recent Company financial performance.

Hi everyone. Thank you Steven.

Well, it goes without saying that the single most important financial related event for Hana this year was the $40 million convertible preferred financing we closed in June. It's also been the source of the most questions that we receive from our shareholders.

Before I review the third-quarter financials, let me spend a few minutes describing the convertible preferred financing because the elements of this financing populate our balance sheet and income statement. We received our $40 million initial tranche in June, and it is currently accreting at 9% per year compounded quarterly. The preferred -- investors have an optional -- have an option to purchase up to additional $20 million prior to FDA approval decision on Marqibo. There is another optional purchase of up to $40 million preferred shares upon approval of Marqibo. These are optional. They have the right but not the obligation to make these investments.

Now, a key event in September was the shareholder vote, which authorized additional common shares, so we increased at that time from 200 million to 350 million, as well as a reverse stock split at the one-to-four ratio.

In addition, the financing terms of the convertible preferred shares were considerably improved. The conversion price for the $40 million tranche and the optional $20 million tranche increased to essentially $0.74 from what they were before on the initial at $0.51. For the final $40 million optional tranche, the conversion price is essentially $1.10, again up from $0.51.

Also, there was an initial accretion rate prior to the September vote of 12%. That has been reduced down to 9%. We have considerably favorable liquidation terms as well as a result of the shareholder vote in September.

Now, a second key event in the third quarter, from a finance standpoint, was the amendment of the Tekmira licensing agreement for Marqibo. We paid $5.750 million, which resulted in an aggregate reduction of $18 million in potential milestone payments for Marqibo. This clearly displays an optimism and a confidence on the part of the Company and its Board to put money on the table upfront with the assumption that things will be moving forward in a positive manner.

Okay, let's take a look a little bit more closely at the financial statements. The complexity of the convertible preferred financing has manifested in some fairly complicated accounting treatment. I'll point those out. I'm not going to go through every line item on this because everybody can read. I just want to point out the items that are a little bit unusual. But I will say, just to reiterate, that our net loss for Q3 was $7.9 million, and for the nine-month period, the net loss was $19.7 million.

If we look first at the income statement in more detail as it relates to the finance, I want to point out a couple of things that you don't see every day on an income statement. There is a line item called "change in fair value of investors' right to purchase future shares of shares A1 and A2. In Q3, this was booked as non-cash income of $2.8 million. This figure is going to change from quarter to quarter based on our stock price at the end of each period.

Another line item to point out on the income statement is deemed dividends attributable to preferred stock. During the third quarter, it was a $22 million number. This relates to the beneficial conversion feature related to the $40 million preferred share purchase in June.

You can see that our net loss per share applicable to common stock is $1.41. That calculation is done -- is a combination of net loss plus the deemed dividends, so you have a total of roughly $30 million of net loss applicable to common stock.

Let's move over to the balance sheets right now. We have cash, cash equivalents and available for sale securities of $27.7 million. This is sufficient to get us through the end of 2011. We will need additional financing, which would come either from the optional purchases that I referenced earlier, from the convertible preferred investors, or a different financing we might do.

Key balance sheet items to draw your attention to, again as it relates to the financing -- there is a line item called "investors' right to purchase future shares of Series A1 and A2." The amount for Q3 is $6.2 million.

Another item to point out on the balance sheet is called "redeemable convertible preferred stock". This is a figure of $30 million, $30.6 million, in Q3. This is considered mezzanine financing. It's neither an asset nor a liability. It's essentially the fair value of the $40 million convertible preferred shares. Because there are currently some redemption provisions in the preferred shares, it requires this amount to be reflected in the mezzanine section.

Okay. That's really also the only items I specifically wanted to point out on the financial statement. I do want to address over the phone here some of the more common questions that we have been receiving related to the financing. One of the questions that we receive quite often relates to the value of the Company today. Now, the common way to take a look at that is a look at the Yahoo.coms and other things where they just show our market cap. Well, our market cap over the last few months has been floating between $10 million and $12 million. However, for a company like ours, this is not a very accurate way to value the Company because we have so much of our value in preferred shares.

So, we believe, in our particular situation, a more accurate way to value the Company is using enterprise value. The enterprise value calculation [has] our market cap, which is roughly $12 million let's say, the value of preferred shares of $40 million, and you add the debt in $27.5 million, and you subtract the cash on hand, which I mentioned earlier was about $27 million. So our figure would be -- our market cap -- I mean our value today would roughly be $52 million using that calculation compared to $10 million or $12 million on the market cap.

The next question we receive quite frequently is regarding dilution. As a result of a reverse stock split, we have 21.2 million shares of common outstanding. On a fully diluted basis, we also have 2 million options and 2.3 million warrants to total up to about 25.5 million. The preferred share amount of today of $41.25 million, if converted to common stock at the conversion price I indicated earlier, would result in roughly 56 million shares today if that were converted into common. So that would have our total, fully diluted shares on that as-converted basis at 81.5 million.

So again, those are the most common questions we seem to receive. I wanted to address them prior to our Q&A, in case those were some questions you might have. I will turn this back to Steven right now to offer up any questions you might have.

Thank you Craig, and especially for going through the complicated details of this most important financing, and providing insight into the current financial health of the Company.

I'll close by just noting that, this past year, as I've already stated, has been transformational. There have been remarkable accomplishments and advancements in the Marqibo program, as well as with Menadione Topical Lotion. The fuel and team and data that we believe is necessary to reach our Marqibo approval goal is present, and we believe that achievement of the Marqibo approval goal will bring benefit to patients, physicians, and deliver value to our shareholders.

At this point in time, I will turn it on over for a brief period of question and answer.

(Operator Instructions). Ren Benjamin, Rodman & Renshaw.

Good morning Steve. Congratulations on the progress. I guess just a question on Menadione. You were nice enough to update us on the safety profile. Clearly, there must be some sort of a sense as to the efficacy of the product. Can you please provide us with some details or some color regarding the potential efficacy of the product?

Thank you for the question. I wanted to highlight the safety aspect of the Phase I program, considering the fact that safety and tolerability are the primary goals and missions of a Phase I development program.

But to address your question, what we have seen is evidence, we will call preliminary evidence, that the 0.1% Menadione Topical Lotion applied for rash prophylaxis was capable of preventing grade 2 or greater EGFR inhibitor-associated rash. We're very encouraged and enthusiastic about this activity demonstration. Then again, all it does is even further motivate us to want to move forward into a high-quality Phase II program where genuine and actual proof of concept will be sought and demonstrated.

When might we see some of these data? Is there a planned presentation at maybe URGC or next year's ASCO, or maybe a publication?

I think both will be and are being seriously considered. I will say that travel abroad and efforts to put together these abstracts and manuscripts, while very important, is secondarily important when considering the work we have to do on our Marqibo NDA. So at this point, only when the Marqibo NDA is 100% completed and submitted will we have some relief on some of my staff schedule to start putting together these abstracts and traveling to present the data. I hope that's not overly disappointing, but I would hope it also signals to everyone on the call that there is nothing more important to the Company than the Marqibo NDA and seeking approval right now.

I probably missed it during your prepared remarks, but when do you think the NDA will be submitted in its entirety?

So our guidance has been and 100% remains that our goal is to have the complete original NDA submitted within the first half of 2011. The change in strategy from a sort of piecemeal submission to the Agency, to submitting it all with -- at one time has in no way impacted the ultimate timeline. We just find that, from an efficiency standpoint and also to listen to and abide by the recommendations of the FDA and do what's most convenient for them, we're going to just finish it. As I've already stated, we are well on the way to accomplishing that goal, and there will be modules that will actually be fully completed before the end of 2010.

Just can you provide a little bit of color as to what the additional data was that the FDA required? Was it -- these are end-stage patients anyway. It seems like, at least from a safety point of view, it would only be just sort of a final -- the final survival numbers, but maybe I have it backwards. Can you give us some more of a flavor as to what it is that they were requiring?

So, we were absolutely thrilled to have the physicians and medical reviewers affiliated with the new division of hematologic drug development really understand what we were trying to accomplish with Marqibo. Their request for additional data were requests that they felt would be strengtheners of our story, things such as transfusion amount and other types of data that would be -- I guess I could call it, Ren, indirect measurements of patient benefit to our work intervention.

As far as we're concerned, if it's important enough for someone at the FDA to ask for, it's important enough for us to seek it, pull it out, and deliver it. We really appreciate that type of engagement and collaboration. I believe that what the Agency was hoping to instill in us was a view towards not repeating mistakes or having omissions that maybe other companies have made in the past with their submissions seeking accelerated approval. So we were happy to oblige.

And so by default, does this application goes through the priority review process, or do you have to apply for that?

There was no default method when we submitted. We will request a priority review at that time.

Thank you very much and good luck.

I'm showing no further questions at this time.

Did you have any concluding remarks?

Again, we would like to thank everyone for their support and for participating in the call this morning. We're extremely excited with the progress that we've made. We see tremendous progress also on the horizon, and we look forward to providing updates in the future.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the conference. You may now disconnect.