Spectrum Pharmaceuticals Inc (SPPI) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Spectrum Pharmaceuticals Inc. first-quarter 2013 financial results conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will be given 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, Shiv Kapoor, Vice President of Strategic Planning and Investor Relations. You may begin.

Thank you, Marcie.

Good morning, and thank you for joining us today for Spectrum's first-quarter 2013 financial results conference call. I'm Shiv Kapoor, Vice President of Strategic Planning and Investor Relations for Spectrum Pharmaceuticals. With me today are Dr. Raj Shrotriya, Chairman, CEO, and President; Ken Keller, Chief Operating Officer; Brett, Acting Chief Financial Officer; Dr. Lee Allen, Chief Medical Officer; and other senior members of the Spectrum management team.

Here's an outline of today's call -- first, Dr. Shrotriya will provide you with a highlight in the first quarter, and discuss our overall direction and strategy. Brett will then provide a summary of our first-quarter financial performance. Following this, Ken will review commercial and pipeline progress of the Company. And then we will open up the call to questions.

Before I pass the call over to Dr. Shrotriya, I would like to remind everyone that during this call we will be making forward-looking statements regarding future events of Spectrum Pharmaceuticals, including statements about the product sales profits and losses; the safety efficacy development timelines; and clinical results of our drug products and drug candidates, that involve risks and uncertainties that could cause actual results to differ materially.

These risks are described in further detail in our 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, May 9, 2013. 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 today's press release, historical press releases, 10-Ks 10-Qs, 8-Ks and other SEC filings, and other important documents, please visit our website at www.sppirx.com.

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

Thank you, Shiv. Welcome to our first quarter conference call.

As we announced in mid-March, 2013, there was a change in anticipated orders for FUSILEV, one of the three marketed drugs, which caused us to provide revised revenue projections for this year. Based on this, we took quick, decisive steps to manage our Business in the short-term, and to strengthen our Company for the long-term.

Today our foundation remains strong, with good opportunities for continued growth. Who would have expected five years ago that Spectrum would become a company with three approved oncology drugs, and three end-year submissions by next year? I'm very proud of the accomplishments of our team, and the way they have strategically streamlined our programs.

Because challenges and changes are ever present in our business, we have followed a diversification strategy so that our future growth and success is not dependent on any one product. We made several acquisitions since last year that will help grow our Business going forward. In addition, we have been advancing multiple pivotal trials for our late stage drugs like Belinostat, Apaziquone and Captisol-Enabled Melphalan, advancing them to key decision points. Further, we hired a number of key executives to strengthen our operational and commercial capabilities. As a result of the first of our dedicated and talented staff, we have established a Company that is well-positioned for the future.

Before I hand the call over to Brett, I would like to introduce our new Chief Medical Officer, Dr. Lee Alan, a hematologist oncologist by training. Dr. Alan brings a broad range of expertise and leadership in heading clinical development medical affairs and regulatory affairs. Lee will be intimately involved with the advancement of Belinostat, Melphalan and Apaziquone, as these product candidates near NDA submission. We are excited to have him on board, and look forward to his contributions to the team.

I will now hand over the call to Brett to discuss financials first. Following Brett, Ken will give an overview of our commercial and research operations. Brett?

Thank you, Dr. Raj. And good morning to everyone on the call today.

We closed the quarter with cash, cash equivalents and investments of approximately $163.4 million. Here are the results for the quarter ended March 31, 2013. All numbers are approximate.

For the three-month period ending March 31, 2013, we had total revenues of $38.7 million, compared to $59.9 million in the first quarter of 2012. Product revenues were $29.3 million, as compared to $56.8 million in the first quarter of 2012. FUSILEV sales were $11.8 million, ZEVALIN sales were $7.6 million, and FOLOTYN sales were $9.9 million.

The net loss was $2.8 million, or a negative $0.05 per basic and diluted share, as compared to net income of $46.5 million, or $0.80 per basic and $0.71 per diluted share, in the first quarter of 2012. On a non-GAAP basis, net loss of $3.4 million, or $0.06 per basic and diluted share, as compared to $27 million, or $0.46 per basic and $0.41 per diluted share, for the same period in 2012.

Total research and development expenses for the first quarter were $12 million, as compared to $8.9 million, in the same period of 2012. On a non-GAAP basis, research and development expenses for the first quarter were $10.2 million, as compared to $7.5 million, for the same period of 2012.

Selling, general, and administrative expenses for the first quarter of 2013 were $22.3 million, as compared to $18.3 million, in the same period of 2012. In summary, our total revenues were $38.7 million, and we ended the quarter with $163.4 million in cash, cash equivalents, and investments.

I will now hand the call over to Ken Keller.

Thank you, Brett, and good morning, everyone.

Today I will focus my comments on the first quarter results, and the progress we've made advancing and expanding our pipeline. In quarter one, FUSILEV revenues was $11.8 million. In Q1, wholesale wholesalers reduced their orders for FUSILEV. Based on information currently available to the Company from the third-party source IMS, utilization of FUSILEV out paced Spectrum's sales to wholesalers. As a result, wholesaler inventories have substantially declined in Q1.

Looking at end-user demand from IMS, 75% of FUSILEV volume now resides in a clinic segment. While demand in the hospital segment has declined significantly, we are encouraged to report the demand in the clinic segment is relatively stable. At this time, wholesalers have not communicated to us what they expect to purchase in future quarters. However, looking at end-user demand as an indicator of anticipated sales to wholesalers, we believe wholesaler ordering should become more closely aligned to end-user demand. Today our team remains focused on expanding number of clinic accounts purchasing FUSILEV, and ensuring physicians understand it's clinical profile and our commitment to providing a reliable supply.

FOLOTYN revenues in Q1 were nearly $10 million. Year-over-year, FOLOTYN revenues grew from $9.7 million in Q1 of 2012, as reported by Allos in their 10-Q. As the first product approved for the treatment of relapse or refractory peripheral T-cell lymphoma, FOLOTYN has established itself as a valuable tool in the treatment of this disease.

Our team continues to focus on expanding the number of users and increasing the duration of treatment for physician, nurse and patient education. Since the acquisition of Allos our team has executed a two smooth transition and realized meaningful cost savings. ZEVALIN sales grew 34.5% year-over-year, with the inclusion of ZEVALIN ex-US sales. As you know, Spectrum acquired the worldwide rights to ZEVALIN in April of 2012. Our promotional efforts for ZEVALIN in rest-of-world were initiated at the beginning of this year, and Q2 will be the first full quarter our global team is operational. In the US, ZEVALIN units increased quarter-over-quarter in Q1.

I will now turn to an update on our development program. We have six growth catalysts to report on. Number one, our team is working diligently on preparing the new drug application for Belinostat. Belinostat is our novel HDAC inhibitor. We expect to submit the application this summer.

As a reminder, we completed the pivotal study of Belinostat in relapsed and refractory peripheral T-cell lymphoma last year, and previously announced the outcome met the special protocol assessment pre-specified endpoints. In January the safety results of this study were shared in the T-cell lymphoma meeting. The efficacy results will be shared at an oral presentation at the upcoming ASCO meeting. We believe Belinostat will offer a differentiated profile from other HDAC inhibitors, and if approved would provide physicians with an attractive new option in the treatment of this difficult disease.

Our second catalyst is our newest product candidate which we acquired in March, Captisol-Enabled Melphalan. It received orphan drug status from the FDA, and is currently enrolling in a pivotal trial as a treatment for Multiple Myeloma patients before they receive an autologous stem cell transplant. The Captisol formulation of Melphalan eliminates the propylene glycol that is in Melphalan today. The inclusion of propylene glycol has been reported to increase risk of kidney and cardiac toxicities. It is expected that our Captisol formulation of Melphalan will allow for longer administration durations and slower infusion rates.

This potentially would enable clinicians to safely achieve a higher dose-intensity of chemotherapy, which may lead to better therapeutic outcomes. This in turn opens up many possibilities, which our clinical team, with the help of investigators, will pursue. Pending completion of the pivotal trial and FDA review process, Captisol-Enabled Melphalan would be the only drug approved as a conditioning agent for stem cell transplant in Multiple Myeloma. This market, based on third-party sources, is approximately $130 million in the US.

The trial design has been approved by the FDA. It is a 60-patient, multi-centered study, and we are pleased to report that accrual is going very well. We expect the pivotal trial to be fully enrolled this year, and we plan on submitting an NDA in 2014.

Catalyst number three. In September we initiated an important study of ZEVALIN, called the ZEST trial, in the treatment of diffuse large B-cell lymphoma. Diffuse large B-cell lymphoma is the largest population within non-Hodgkin's lymphoma. It is a more aggressive disease than follicular lymphoma, and unfortunately approximately 25% to 30% of patients succumb to this disease in the first two to three years.

The standard treatment of diffuse large B-cell lymphoma is combination chemotherapy, plus immunotherapy. The ZEST trial tests the safety and efficacy of ZEVALIN consolidation after standard therapy. The primary endpoint is overall survival at two years. This trial was designed based upon promising results of a number of Phase II trials.

Our fourth catalyst is SPI-2012, our novel long-acting conjugated form of granulocyte colony-stimulating factor protein. It has shown a similar in vitro and PK profile compared to pegfilgrastim, but 3- to 10-fold greater in vivo potency. In April, we opened this study and enrolled the first patient. This Phase II trial is a head-to-head open label dose ranging study. The goal is to determine the best those to move into Phase III pivotal studies.

The worldwide pegfilgrastim marketplace was greater than $5 billion in 2012. Based on its profile, we believe SPI-2012 has the potential to be a highly competitive product in this category.

There is one earlier stage program I want to update you on. This is catalyst number five. It is SPI- 1620, our exciting endothelial B receptor agonist. A Phase I dose escalation study demonstrated encouraging results in heavily pre-treated patients, and in 2013, we plan to start Phase II.

This drug has broad potential across many different tumor types. We think of this as a potentiator for chemotherapy across solid tumors. It has a simple and elegant mechanism of action. The architecture of tumors differs from normal vasculature. Blood vessels in growing parts of tumors are devoid of smooth muscle, and are rich in endothelial cells. SPI-1620 is an endothelial B receptor agonist that appears to selectively dilate tumor blood vessels, and increase blood flow and chemotherapy delivery to the tumor site. This may enhance the efficacy of current chemotherapy and possibly improve its safety. Our Phase II program will attempt to answer these questions.

Now our last catalyst that we want to talk about today, number six, is Apaziquone. As we previously stated, we intend to file a new drug application for Apaziquone in 2014. That will be our third NDA in the next 18 months. Currently, we are waiting input from the FDA on the protocol design for a new supportive study. The final data will be submitted to the FDA following completion of their NDA review.

In summary, our near-term development catalysts are real. They are tangible. They fit well into our existing infrastructure. The potential launches of Belinostat and Melphalan require minimal increase in expenses, and they provide short-term growth opportunities for us.

Our longer-term catalyst especially, SPI-2012, our long-acting granulocyte colony-stimulating factor; SPI-1620, the endothelial B receptor agonist; and the ZEVALIN ZEST trial, if successful, are potentially blockbuster opportunities. We are pleased with the progress we are making, and we look forward to providing you with future updates.

Now I will turn the call back to our Chief Executive Officer, Dr. Raj Shrotriya.

Thank you, Ken.

As you can all see, we have a diversified base of revenue-generating products, and an exciting and promising pipeline. We remain clearly focused, and we continue to develop and look for potential opportunities for growth through a sound and robust business strategy. And at Spectrum, our long-term goal and long-term vision is to continue to foster our business model and strategy alongside our relentless commitment to our patients and pursuit for excellence.

We will now open the call to questions.

(Operator Instructions)

Adnan Butt, RBC Capital Markets.

The first one is on FUSILEV. Could you say a bit more on FUSILEV demand? Anything on units? Any color on what end-user trends look like, and how it trended this year? That would be helpful.

Thank you for the question. So let me get a little bit more granular on FUSILEV. Based on communications with our wholesalers, they've informed us that inventories have declined in the first quarter, 25% to 35%. And so based on their information, we believe right now there's approximately 300,000 vials in inventory. Now, when you look at demand pull-through, and that's the actual utilization of the product, we believe, based on IMS data, that the pull-through demand in the first quarter of the year was approximately 310,000 units. So that's 310,000 units of pull-through and inventories have declined 25% to 35% in the first quarter.

So, Ken, are you essentially saying that there's about four weeks worth of inventory in the channel? And if so, is that the stable level to expect?

Is that four weeks of inventory?

So the inventories right now, what we know from the wholesalers is that 300,000 units are in the channels right now. And in the first quarter, physicians end-users purchased from the wholesalers approximately 310,000 units. So those would be the two numbers you should lock on.

Okay. And --

Adnan, I think the important thing to remember is that the end-user demand continues to be stable. I think that is what is important. Where the hospital sales have declined, but the end-user demand remains stable as indicated by the RMS data.

Sure. So question on -- again, on product demand generally, have you seen any impact from sequestration on any of the sales for your products?

No. It's difficult to say if we've seen any or not. When we look at the segments, we've got the hospital business and the clinic business. The clinic business is relatively stable. If there was going to be any impact, you'd think you'd see it there, and our clinic business Q1 from Q4 did not move much. In fact, it declined, but it declined 2.5%. And so we're not seeing much impact in the clinics at all.

Okay. And then in terms of guidance, the Company had previously given guidance. Any comment on guidance for 2013?

We expect what guidance we have given, we expect that we are going to meet that guidance level. We are not changing the guidance that we have previously provided.

Okay. And then a final question and I'll get back in queue. For 2012, when do you expect Phase II data?

For 2012? So for SPI-2012, the Phase II study has started. We've got our first patients on the study. It's an important one for us, so I won't comment on when we can expect that study to be fully accrued, but it's a top priority for us.

Okay. Let me get back in line. Thanks.

Joe Pantginis, Roth Capital Partners.

Maybe just a little bit of follow-up on FUSILEV, if you don't mind. So with regard to -- you've mentioned, Ken, that the demand is still relatively stable in the clinic setting. So, if I recall correctly, I think you guys were addressing maybe 50% of that market. So when you combine that with the initiatives you were putting in place towards the beginning of the year, what kind of impact have you seen in being able to target physicians that have not yet prescribed a FUSILEV or any of your other initiatives?

Sure. So in the first quarter, we absolutely are gaining new business in some accounts, and some accounts that business goes away. Overall, the clinic is really solid. As I said, the business Q1 to Q4 is relatively unchanged. It declined, according to IMS DDD data, 2.5%. So it's really steady.

Joe Turgeon, the Chief Commercial Officer is with me. And Joe, you might want to give a little color on what you're seeing out in the field.

Yes. I think this -- Joe, good question. We have a very targeted approach now. I do know I have data that shows where the business is and where it isn't. Our reps at the end of January were trained, so we have signed some new businesses, I will tell you, and we're targeting signing more going forward and I feel good about where were going with our strategy.

Okay. Thank you. That's helpful. And then maybe I could just switch gears quickly to ZEVALIN. You did mention, obviously, you're starting to see contribution from the ex-US markets now. First is it possible to break down the amount of revenue, US versus ex-US? And then maybe can you give some feedback from the field, since at least my impression's based on physician feedback is that ZEVALIN is a much more well-known product in Europe. So how you might view the uptake now that you have the rights and are actually marketing the drug?

Sure. So ZEVALIN in Europe -- the team was trained and got up and going really at the beginning of this year, so it's early to really know what impact they're going to have. Incidental stories are great, but we've got to wait to see the true impact. We are happy to say though in the US when you look at Q1 sales, and the number of patients, compared to Q4, that number is up slightly so we're headed in the right direction there.

Great. Thanks, guys.

Ren Benjamin, Burrell and Company.

Just a couple of them, one more housekeeping question, the $9.4 million in licensing revenues was higher than we typically see it. Can you give me some color as to why? Do we expect that going forward?

Yes. Maybe -- Brett can you --

I'd be happy to speak to that. That's a good question. In Q1, we amended our agreement with Allergan. And as a consequence of that amendment, we were able to accelerate the recognition of some license revenue that we have been amortizing, so that we actually recognized an additional approximately $6 million in the quarter of licensing revenue. That was a one-time event.

Okay. So going forward, that amortization that we had originally had for previous quarters, we should not be counting on that going forward?

Yes. It will be substantially reduced.

Got it. Switching gears to FUSILEV really quick, I'm just trying to understand based on what you mentioned before about the 300,000 vials in inventory and the 310,000 pull-through, just roughly, it seems to me that you're already at steady-state. Is that incorrect? Am I not thinking about that correctly? And if not, why not?

We don't want to project what levels of inventory wholesalers will be comfortable holding. So it's difficult. We're not going to make statements on that. I think the key is demand in the clinics, and overall, is relatively stable. And we feel good about that and that's where our focus is. How wholesalers manage their inventories, that's something that they would have to make determinations on. I don't want to guess at that.

Okay. And when do you think the wholesaler -- you may have to guess here too, but you can decline the question -- when do you think the wholesalers' inventory and the script demands maybe aligned? I believe in previous guidance, you mentioned that it could take two quarters. Are you still thinking along those lines, or do you think based on the new data that it could be faster?

Based on what we see right now, I would expect that the purchases match end-user demand sometime in the second half of the year.

Okay. And just a final question regarding one of your newest assets, the Captisol-Enabled Melphalan, can you take us through a bit of the trial design, how many patients are being enrolled? What are the endpoints? Is this under an SPA by chance? When do you expect the data?

Yes. So it is under an SPA. The trial is a 60-patient study agreed upon by the FDA. So it's a very small study. I'm happy to say that we have a significant number of those patients already enrolled. So we feel really good about where we are.

That study we expect to be fully enrolled this year, by the end of this year, and we expect to file the NDA next year. The trial design, I'll get back to you on that. I don't want to misstate exactly what is, but it's going very well. We're very happy with that program.

Perfect. Thanks, guys and good luck.

George Zavoico, MLV and Company.

Dr. Alan, welcome to Spectrum Pharmaceuticals.

Thank you.

A question regarding -- to Ken, specifically regarding what you've implemented. You've alluded to some of the key things that you've implemented. But specifically, could you say what they are to prevent the kind of surprised that you had in March?

Thank you for asking the question. So I'll answer it, and I might hand some stuff over to Joe Turgeon, our Chief Commercial Officer as well. Here's what were doing right now. Joe has built a market research team here that we're very proud of. It's a really strong group, a seasoned group, that work in oncology for many years. They came aboard at the beginning of this year. And they have now purchased IMS data and DDE data, we've got reports, we look at numbers demand every single week. I'm looking at Joe -- probably every single day.

We have a very granular view of exactly what's happening in the clinics and the hospitals across-the-board. So we feel really good about that. And Joe's team is working closely with a wholesaler, so we tie it all together. So that's what we've done so far. And we'll continue to work and upgrade things as we go forward.

What about on the sales side? It's one thing to know where things are going, but you said you did train the sales team. Is that pretty much in place, or are you going to hire some more this year?

I'll turn it over to Joe.

Yes. I think two things I'll mention. Number one, the sales team is in place. That's always a moving target, some people get promoted, move on, things like that. But yes, we have a trained sales force, we have targeting that we've never had in the past where we know exactly where were asking them to go on a daily basis, weekly basis, so we're going where the business is and isn't. We've got 40 reps on the street now working for us, and the six regions are complete. And I want to add, too; I have also hired a world-class marketing lead, somebody who really is good at this and we have a great approach from a marketing standpoint that we are implementing.

I presume that's going to include physician education? That sort of thing -- advertising, perhaps to physicians and perhaps even to patients?

The new marketing lead and I are looking at many things that will be very effective, I think, as we move forward. I'm really pleased with the plan we got moving forward.

If there's one thing I could add, I think it's going to have a real impact later on in the year. Joe actually has built a team of nurse educators on top of the sales folks that he spoke about, and those nurses -- one of their areas of focus is to look at FOLOTYN and really help nurses manage mucositis. And the key to that is, it's a real lost opportunity, and it's a tough thing for patients, when they respond to FOLOTYN and they have to be taken off of therapy because of mucositis. With the right kind of education we can keep patients on that drug responding longer, and that nurse team was really hired in just the first quarter. So I think that will help a lot.

Because of that, would you expect FOLOTYN sales to increase towards the end of the year?

We don't want -- I'm not going to really --

I understand. You don't have to say. Okay. One asset you did mention was RenaZorb. Where is that in your catalyst list?

So, George, RenaZorb -- you know we have completed Phase I trials. We have developed protocol for Phase II trials. We are looking at our other coordinators. There are some companies that are focused in renal disease, especially Japanese partners and some European companies, and we are right now looking at our options with regard to RenaZorb.

Okay. Great. That's all for me. Thank you very much. I'll get back in the queue.

Thank you.

(Operator Instructions)

Michael King, JMP Securities.

This is Carter on for Mike. Two real quick questions. First, on FOLOTYN. Can you give some color on how you've seen the market share and duration of use evolving, particularly since you've taken over the product? And secondly, if you could give some additional color on the SG&A spend and how specifically if this is a good run rate, or maybe how that might move towards the latter half of the year? Thank you.

I'll take the first part, and I'll hand the second part over to Brett. So in terms of FOLOTYN, we actually look at market research at certain times during the year. The challenge with that medicine is it's a niche product. PTCL is a small disease. So I will never have the granularity that I'll have with FOLOTYN and other products. Our focus is to expanding the length of treatment. We haven't seen a big difference right now, but the nurse team which is a big part of it, was just put in place. So hopefully at another call, when that market research is in, I can give you some more granularity there.

Mike, on the SG&A question, as always we do our best here to be fiscally prudent and manage expenses with regards to what's going to happen towards the end of the year and the rest of the year. We haven't given specific guidance, so I don't feel comfortable speaking to that right now.

Okay. One last clarification I need to make -- and this is Ken. Earlier, I said in the affirmative that Melphalan the study was under an SPA. It's not under an SPA. But is a 60-patient study, and the study is agreed upon with the FDA, and we're well on our way to fully accruing it this year.

We have no more questions in queue. I'd like to turn the call over to Dr. Raj Shrotriya for closing remarks.

Thank you. In conclusion, I'm proud to say that today Spectrum has three FDA-approved anti-cancer drugs on the market that help cancer patients daily. In past years, 10,000s of cancer patients have been helped by the drugs that we market. In addition, the revenue we generate from these drugs helps fund the development of drugs of the future. During the next 18 months, we have the possibility of filing three new drug applications with the FDA. If approved, they would add signature candidate to our growth, revenue, and profitability.

In addition, novel drugs like SPI-2012, SPI-1620 currently in Phase II clinical trials, if approved could have blockbuster potential. In the meantime, we are extremely busy laying a solid foundation for future growth of the Company, by recruiting the best talent that we can find, and by acquiring the assets that could further fuel the growth of the Company. I thank you for your interest in Spectrum, and for participating in our conference call today. Thank you.

Ladies and gentlemen, this does conclude today's conference. You may now disconnect. Everyone, have a great day.