Spectrum Pharmaceuticals Inc (SPPI) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. And welcome to the third-quarter 2013 financial results conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to turn the conference to our host, Mr. Shiv Kapoor. Sir, you may begin.

Thanks. Good afternoon, and thank you for joining us today for Spectrum's third-quarter 2013 financial results conference call.

I am 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; Kurt Gustafson, Chief Financial Officer; and other senior members of Spectrum's management team.

Here's an outline of today's call. First, Dr. Shrotriya will provide you with the highlights of the third quarter, and discuss our overall strategy and direction. Kurt will then provide a summary of our third-quarter financial performance. Following this, Ken will review the pipeline and commercial 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, November 12, 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 information, please visit our website at www.sppirx.com.

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

Thank you, Shiv. And thank you, everyone, for joining us this afternoon. I appreciate the opportunity to review the progress we have made during the third quarter.

The Spectrums operations are firing on all cylinders. We are making significant progress in developing and advancing our [recent] pipeline, executing on our commercial plan and implementing our long-term strategy.

Let me first talk about our next new drug application filing with the FDA. We expect to file the Belinostat NDA in the coming weeks, and are excited about the potential launch next year. Belinostat is our HDAC inhibitor currently being developed for the treatment of PTCL and special disease. Belinostat has a totally different method of action as compared to FOLOTYN. If approved, Belinostat would be used in the same patient population. However, because these patients fail multiple treatments in the course of their therapy, we expect PTCL patients who have cycled through Belinostat as well as FOLOTYN, our currently approved PTCL drugs.

Our second new drug application on Melphalan is planned for filing in mid-next year. We recently completed enrollment of the pivotal trial for this drug. We expect top line data from this trial in the second quarter of 2014, and file for new drug applications soon thereafter.

The apaziquone program is also progressing well. We have constructive feedback from the FDA on the design of the next Phase III trial. We intend to initiate the trial, and file the approval of the drug with the FDA next year. As you may know, no new drugs have been approved by the FDA for non-muscle and basic bladder cancer in more than two decades.

We continue to build our pipeline by expanding the number of marketed products, and broadening the indications to strongly in ensure long-term growth. We are especially focused on three potential growth drivers -- SPI-2012 for the treatment of neutropenia; Marqibo for the treatment of non-Hodgkin's lymphoma; and ZEVALIN for the treatment of large B-cell lymphoma. Three clinical trials to progress these programs are underway. Just to provide you some context on these, if we are successful in bringing any of these three assets to market, our revenues have the potential to grow multifold from current levels. And at Spectrum, our strategy is to help fund our recent development activities with the revenues we generate from our core business.

Results from this quarter show that our base business provides a strong foundation. In line with our prior expectations, we anticipate sales from FUSILEV in the second half of the year to be significantly higher compared to the first half of the year. And we continue to expect second-half sales to more closely approximate end-user demand.

I am particularly excited about the recent launch of our newest drug, Marqibo, for the treatment of relapsed/refractory Philadelphia negative ALL. These are some early promising indications that Marqibo is being well-received by care providers. Our commercial team is launching this product with focus and vigor. And early indications are exceeding our expectations.

We are also encouraged with the Phase II data from Marqibo in aggressive non-Hodgkin's lymphoma, which could potentially lead to a significant label expansion if confirmed, in an ongoing Phase III trial. Just as we have done historically, we continue to manage our portfolio products to bring value in the best interest of our shareholders, and continue to look at in-licensing and out-licensing opportunities.

I am very proud of the team we are building. And I am confident that we will deliver shareholder value in the future. In the past 15 months, we have acquired two publicly traded companies and one drug asset. Allos Therapeutics on September 6, 2012. Captisol-enabled Melphalan from Ligand Pharmaceuticals in March of this year. And just recently, Talon Therapeutics on July 17, 2013.

Today I am very proud to say that we have a diversified revenue stream from multiple oncology drug assets, and are well-positioned for future growth.

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

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

Our press release covers all of the important figures, so I won't read them off. But I would like to point out a few highlights of the quarter that I believe are particularly important.

First on revenue. We had $42 million in total revenue in the third quarter. This compared to $33 million in the previous quarter. The primary driver of the increase was FUSILEV. FUSILEV sales were $23 million for the quarter, versus $12 million in the first quarter of this year, and $13 million in the second quarter. FUSILEV sales were higher this quarter, and sales more closely reflected underlying demand. And we achieved a higher net price.

As you know, we recognize sales based on shipments to wholesalers. And in the first two quarters, shipments to wholesalers were down, as they work off inventory that they had built up in previous quarters. End-user demand for FUSILEV over the last few months has been relatively stable. And as we stated previously, if we take this current level of demand and multiply by our expected net price, it would translate into sales of approximately $20 million to $25 million per quarter. However, we cannot project what level of inventory our wholesalers will keep, unless our actual reported sales may fluctuate off of this figure.

FOLOTYN's net sales were $10.5 million. FOLOTYN sales were lower compared to the second quarter of this year, but the second quarter contained a large clinical trial purchase. So ignoring this, FOLOTYN is staying fairly consistent over the first three quarters of the year. ZEVALIN net sales were $7.8 million. And ZEVALIN is showing signs of small incremental growth, versus previous quarters. Marqibo is off to a nice start. Now, given that is was launched at the end of the quarter, you do not necessarily see that reflected in the sale figures. But we like the trend that we have seen thus far going into the fourth quarter.

Moving on to operating expenses. The third-quarter operating expenses were up versus the previous quarters, as a result of the Talon acquisition. We had approximately $6 million in one-time costs, or costs that we would not expect to continue into the fourth quarter for items such as severance, banker and legal fees. The remainder of that cost increase is associated with the launch of Marqibo, along with picking up the funding for the two Phase III trials. As far as adjusted net income is concerned, we earned $1.6 million in the third quarter of 2013 on an adjusted basis, versus our GAAP figures, which showed a $7.8 million loss. This translated into earnings-per-share of $0.02 on an adjusted basis, versus a $0.13 loss on a GAAP basis.

So a few final items. We have made a correction in our financial accounting, which will lead to some changes that you will soon see in our SEC filings. The change involves earlier amortization of the FOLOTYN assets, which will be approximately $2.1 million per quarter. The other item is the correction of an overstatement in our current liabilities. Both of these changes are not meaningful to our business if they are non cash and do not impact the top line. However, to help you understand our filings in the next couple of weeks, let me just describe to you in a little bit more detail.

First, the Company will be correcting our accounting associated with the amortization of the FOLOTYN asset. The Company had originally classified this asset as in-process research and development, and was waiting for the completion of the Phase III studies before beginning this amortization. After our further review, we believe the more appropriate accounting would have been to begin its amortization at the time of purchase to better match this expense with the FOLOTYN revenue.

This retroactive change adds approximately $2.1 million of additional amortization expense to each quarter. This is a non-cash item. It's an adjustment to the amortization schedule of this intangible asset, and we will be amending our first- and second-quarter 2013 Form 10-Q filings to correct these amounts. We plan to file for the five-day extension for our third-quarter 10-Q to allow us and our auditors additional time to finalize these documents. We expect to file the third-quarter 10-Q by next Monday, November 18, or possibly sooner.

Second, as we prepared our September 2013 financial statements, we discovered that our balance sheet overstated our current liabilities. These excess liabilities built up over several years, and primarily correspond to over-accruals related to purchase orders. The over-accrual in 2013 was approximately $500,000. And in aggregate, the amount accumulated to $7.7 million dating back to 2007, which averages to about $1 million per year. To be clear, this was an over-accrual of expenses, which means we underreported income in each of these periods. These changes will be described in our upcoming 10-Q filing.

In summary, we do not believe these changes are meaningful to our business. They are non-cash items. They do not impact the top line or how we run our business. This was a strong financial quarter for the Company, which reflects the ongoing health of the base business. The Company's four marketed products continue to provide a nice revenue stream to support our development programs. And I believe the Company is poised to continue to perform well.

With that, let me hand the call over to Ken, who will provide an operational update.

Thank you, Kurt.

I will begin my comments with an update on Belinostat. Our team is working diligently on filing the new drug application for this novel HDAC inhibitor. We are on track, and we expect to file in the coming weeks. As a reminder, we completed the pivotal study for Belinostat in relapsed or refractory peripheral t-cell lymphoma, and previously announced the outcome met the special protocol assessment pre-specified end points.

The second priority for year-end was to reach full enrollment of the Captisol-enabled Melphalan trial. We recently announced that we successfully met this milestone. Captisol-enabled Melphalan is designed to overcome the limitations of the existing Melphalan formulations. Current formulations contain propylene glycol, which has been associated with renal and cardiac side effects, as well as poor solubility and a short stability profile of only 30 minutes.

The Captisol technology eliminates propylene glycol from the formulation, and provides for a stability profile of 12 hours post-mixing. This will now allow physicians to administer Captisol-enabled Melphalan for longer durations and at slower infusion rates, potentially enabling higher intensity for pre-transplant chemotherapy. Final data will be available in 100 days. And we intend to file for approval mid-year 2014. If successful, Captisol-enabled Melphalan would be the only drug approved as a conditioning agent for stem cell transplant and multiple myeloma. We estimate the market size to be approximately $130 million.

Regarding our other advanced age drug, apaziquone. As previously reported, we have completed two Phase III trials. While each of these two pivotal trials individually did not achieve statistical significance, when the data from the two studies were combined, the results were statistically significant and appeared to be clinically meaningful. We plan to start another Phase III study and file a new drug application in 2014.

At the upcoming American Society of Hematology meeting in December, we know of 10 abstracts and presentations on our drugs. There are two reports I will now highlight that we believe are noteworthy.

Number one, an abstract from Dr. Hagemeister of MD Anderson Cancer Center that provides the long-term results of Marqibo substituted for non-liposomal vinCRIStine in the treatment regimen R-CHOP in patients with untreated diffused large B-cell lymphoma. This abstract reports an overall response rate of 95%, including complete responses seen in 90% of patients, and overall survival at 10 years of 87%. Importantly, there was only 3% Grade 3, and there were no reports of Grade 4 peripheral neuropathy.

We believe the data is exciting and the authors agree. They state in the abstract conclusion, and I quote -- elderly diffused large B-cell patients with unfavorable prognosis experience remarkable progression-free survival and overall survival in this study. This report supports our development plans and provides us with even more enthusiasm for completing our ongoing Phase III optimal study in the same population.

A second abstract I would like to highlight for you explores the usage of FOLOTYN as front-line therapy in peripheral t-cell lymphoma. FOLOTYN is currently approved for the treatment of relapsed or refractory peripheral t-cell lymphoma patients. Dr. Vose from the University of Nebraska and the study's lead investigator, reports that the overall response rate in the first-line setting was 70%. And 45% of patients achieved a complete response. This data is impressive, and provides evidence of benefits of FOLOTYN in earlier stages of disease, a setting we are currently exploring in a large Phase III study. We look forward to seeing updated data from this trial at ASH.

I will now provide a commercial update. We acquired Talon Therapeutics on July 17 of this year. And our team quickly developed a large plan addressing supply, reimbursement, promotional and regulatory must-haves for the launch. We launched Marqibo on September 3 using our existing sales force. The target positions for Marqibo are the same positions that our teams have been working with every day with ZEVALIN and FOLOTYN. Today our team is focused on educating and building awareness of Marqibo at approximately 100 key academic and major medical centers across the United States, and 300 key physicians.

The early feedback from these physicians is encouraging. Physicians are telling us that they view standard vinCRIStine as an important, highly active drug. And they see Marqibo with its liposomal formulation as a way to extend these benefits by increasing the therapeutic window, increasing the circulating time and delivering more vinCRIStine to the site of the tumor. The target population is approximately 1,600 patients a year in the United States.

We believe the launch of Marqibo in this first indication is just the beginning of the story. There is far larger opportunities for this drug that we are currently exploring in two ongoing Phase III studies that, if positive, can lead to the expansion of Marqibo's labeled indications. First we have the HALLMARQ study, which is a global clinical program studying Marqibo as a treatment for patients 60 years or older with newly diagnosed ALL.

The second Phase III trial is called the OPTIMAL study, which is being conducted by the German High-Grade Lymphoma Group in untreated adults with aggressive non-Hodgkin's lymphoma. The size of these populations is many fold larger than the current indication.

Before handing the call back over to Dr. Raj, I'm going to share with you the goals that we have set for our organization. We expect 2014 to be a busy, productive year marked by a number of value-creating milestones. Number one, we will file the Belinostat NDA this year. We look forward to working with the FDA through the review process next year to bring this drug successfully to approval.

Number two, final pivotal data for Captisol-enabled Melphalan will be available in quarter two, and we plan to file for approval mid-year.

Number three, we plan to fully enroll the Phase II study of SPI-2012, our novel, long-acting granulocyte site colony stimulating factor, and prepare for the start of the Phase III program.

Number four, our plan is to file the new drug application for apaziquone and start another Phase III study based on the learnings from the previous studies.

And Number five, we will continue to enroll patients into three Phase III programs -- the optimal trial of Marqibo and aggressive lymphoma; the HALLMARQ trial of Marqibo in the front line ALL setting; and the Phase III ZEST study evaluating ZEVALIN and [diffuse] large b-cell lymphoma. All three of these studies focus on areas of great unmet need in large patient populations.

I will now turn the call back to Dr. Raj.

Thank you, Ken. We are excited as we look ahead to our new and long-term growth-drivers in 2014. Our team remains energized, focused and on target to deliver on our future timelines. Our passion is to deliver better options for patients suffering from cancer. We continue to add value-driven assets to our portfolio and build value for our shareholders.

We would now like to open the call up for questions. Thank you.

Operator?

(Operator Instructions)

Ren Benjamin, AP Wainwright.

Congratulations on a great quarter. Just a couple of questions. Can we talk -- I guess just start off with FUSILEV. Can we start off maybe trying to get a better understanding of the underlying demand?

How many are coming from clinics? Has that mix been changing quite a bit? And can you give us any color regarding what new metrics you have in place to help measure inventory levels, and how much variance there could be from quarter to quarter, compared to end-user demand?

Ken?

Sure. So a couple of aspects to that. Number one is, when we look at our sales right now, the sales are very consistent with what we see in underlying demand. That's the first point.

The second question in your -- that you asked is, has the mix changed? And when we look at our business today, the overwhelming majority of our demand comes from clinics. The business that was there last year in the hospital segment, that business has, for the most part, evaporated. So over 90% of our businesses in the clinic segment today. So I hope that answers your question.

Yes. And just as a follow-up.

Is there a way to really monitor wholesaler inventory levels to a better degree, so that we are not caught in that same position as we were earlier in the year, where there was just too much stocking going on?

Right. Thanks for the question. In fact, there is. What we have done now -- our goal back two quarters ago was to work with the wholesalers to establish contracts with the wholesalers that would actually put in guard rails, in terms of how much they order, versus how much is in their inventory.

I am happy to say that in all of our wholesalers, we now have contracts where the guard rails are in place. And so right now, they cannot order a disproportionate amount of product, either above or below what that underlying demand is. And that will help us greatly in the future.

Okay. And just one final question regarding FUSILEV. The underlying scripts going into the fourth quarter, how is that panning out? Is that looking in line with the third quarter? Or how should we be looking at that?

So when we look at underlying demand, we look at IMS DDD data. We see that our script data, our -- script data is not the right word. But our underlying demand has been very consistent looking back throughout the entire third quarter, and even going back into the second quarter.

So it is been very consistent for now a long period of time. And that gives us confidence for what will happen next.

Okay. Just switching gears real quick to FOLOTYN. Can you give us some color on -- I know that sales can come back down, and this is largely due to a large second-quarter order for clinical trials.

But can you give us some color as to how we should be expecting the growth of FOLOTYN going forward? Is it -- should it just roughly be in this range? Or are there incentives that are being placed that have dramatically increased sales?

So our focus with FOLOTYN is to continue to be the market leader in the second line setting, which we are today. It is a small population of patients, [relux or refractor] for front t-cell lymphoma.

There's two ways that can actually increase our business that we are focused on. One is obviously to get more patients. But the second part of that is, once we have a patient on FOLOTYN and they are responding, we are working with our nursing team -- which we invested in, in the first half of the year -- to really help the practices monitor and be proactive in managing the mucositis.

The worst thing that can happen is you have a patient that is responding to FOLOTYN, and they have to be taken off of the drug because of that toxicity. And so with preemptive measures, we can keep people on it longer. And so that is what we are doing.

FOLOTYN will always bounce up and down, based on clinical trials and based on these small numbers. But what we have seen this quarter is something that is very consistent with what we have seen in the past.

Okay. Is there an update on the ongoing Phase 3 trial that you might be able to provide?

The Phase 3 study is ongoing. We increased the number of sites greatly this year. We are accruing patients. That will not read out, though, for a number of years.

Okay. And then just one last question regarding Marqibo. Can you give us any -- I know it's still early -- but any sort of color regarding the trends that you are seeing here, and the potential for maybe off-label use in bigger indications?

Well, it is a small population. There are 6,000 cases of AOL a year. When you look at relapsed refractory patients, it's about 1,600 patients a year. And many of these patients -- in fact, most of these patients are treated in academic centers.

So that is where our focus is right now. And it's been really encouraging, not just the number of places that are placing orders. But I think the best early indicator that I can give you is the academic centers that are asking for meetings from our medical science liaison team. They are asking for more education, that are interested in basically ISS's investigative sponsor studies.

So people see this drug as something that, wherever vinCRIStine is used, this has the potential to actually improve outcomes. We do not know that yet, but that is what doctors are interested in.

So I always look at it as, are doctors calling you up to be educated? The answer is yes. And then the second part of it is, are you hearing from key investigators? Do they want to do investigative sponsor studies to explore the use of that drug in other areas? And the answer is yes. So all signs right now are positive in that regard.

Terrific. Thank you very much. Congratulations.

(Operator Instructions)

Adnan Butt, RBC Capital Markets.

Congrats on a solid quarter. I will get questions on FUSILEV so I will start with questions on FUSILEV.

First question. What demand metrics are you able to track? When you say you can track demand, is that to the wholesaler? Or is that from the wholesaler distributor to the patient?

And then, you mentioned something about guard rails being put in place with wholesalers. Can you also give us the range of what level of volatility it protects you from? I mean, does it mean that sales could be 10% volatile, 50% volatile? Or is the underlying demand fairly stable at this time?

Okay. So this is Ken. I will talk about those and then maybe I will ask Kurt to help me out here.

In terms of underlying demand, what we buy and we track on a weekly basis is something called IMS DDD. It is a third-party source. And what that actually gives us is orders that doctors are placing to wholesalers.

We sell all of our product to wholesalers, not directly to doctors. Hospitals and clinics buy it from wholesalers. So when I say demand, what I mean is, I know the exact orders from Dr. X, Y and Z to the wholesaler. So that is end-user demand. So that is what we track on a regular basis.

And in terms of the guard rails, with all of our wholesalers we have guard rails in place right now. And for competitive reasons, I do not want to give you what those guard rails are. But today we have a very good understanding of where the inventory is in each one of the four major wholesalers.

Okay, thanks. Let me ask a follow-up on Marqibo. You mentioned incoming interests from academic centers. Your medical [fancy] is [logicating].

Do you expect to -- so when do you expect that to convert into orders? Is that -- so right now, the marketing is being done, and it turns into orders the first quarter? Is that what our expectation should be?

Well, we launched it at the end of -- in September, September 3. And so what Kurt reported on the numbers, there were very little orders this quarter. Next quarter there will be more orders.

What we are seeing now is more centers. Every week we get new centers, and we get repeat orders from centers. And so it is all going as we would hope. I do not want to project on what the numbers are. But this week was better than last week.

Okay, last question, and then I will get back in line. The Company has mentioned guidance in the past. Any comments on guidance today, revenue guidance?

You know, we have [give out in the stage company] and we have had swings this year, quarter after quarter. So we are trying to -- we are not going to give any further guidance going forward. But I will have Kurt to say a few words about this.

Yes, I think the thing that I would point you to is that the reported revenue numbers that we have this quarter, I think, gives you a good indication of the health of the business. So I would focus you there for how well we are performing.

I think this base business is going to continue to be able to contribute, to help us to progress the pipeline. But at this point in time, I think what we are focused on is these longer-term assets that are going to drive the value of the Company in the future.

And so what we are trying to change the story about what Spectrum is all about. And as a result, taking a look at where we are in any one given quarter is not where we think we should be focused. It's certainly not where management is focused. And our guidance, and backing away from some of the guidance that we have had, is an indicator of that focus.

Thanks, Kurt. So since I have you, can I just ask the underlying [SG&A] question about $24 million, $25 million [loop] per quarter?

Yes, you know I think -- you said for SG&A?

Yes, SG&A.

Yes, SG&A. What we did was $29 million in the quarter. And I told you about $6 million of that was about one-time items associated with talent. So yes, you are in the ballpark of about where that should be.

Okay. Thanks, everyone. I will get back in line.

And I am showing no further questions. I would like to turn the call back over to Dr. Raj for closing remarks.

Well, as you heard this afternoon, we plan to file three new drug applications with the FDA within next 14 months. As we continue to advance, we have three exciting drugs -- SPI-2012 in neutropenia, Marqebo in non-Hodgkin's lymphoma, and ZEVALIN in [true] cell-B lymphoma.

We have established a solid, sustainable core business consisting of four marketing drugs in hematology and oncology space. We believe these drugs and the team of professionals that we continue to add are the foundation for our future growth.

We would like to thank you again for joining this call today. And stay tuned. Thank you.

Ladies and gentlemen, this does conclude today's conference. Thank you for your attendance. You may now all disconnect. Have a great day.