Spectrum Pharmaceuticals, Inc.
Q4 2018 Earnings Call Transcript

Published: 1 Mar 2019

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Spectrum Pharmaceuticals Fourth Quarter 2018 Financial Results 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 will be recorded. I would now like to turn the conference over to Mr. Shiv Kapoor, Vice President of Strategic Planning and Investor Relations. Sir, you may begin.

[Shiv Kapoor:]

Thanks. Good afternoon to everyone on the call today. Thank you for joining us for Spectrum's fourth quarter 2018 financial results conference call. Our press release is available on our website at www.sppirx.com. Joe Turgeon, our CEO and President, will start the call today and provide an overview, followed by a financial update from our CFO Kurt Gustafson and a discussion of our clinical development operations from our CMO, Dr. Francois Lebel. These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. With that, let me hand the call over to Joe.

[Joseph Turgeon:]

Thank you, Shiv. Good afternoon, hello to everybody on the call. I appreciate your interest in Spectrum. 2018 was a very productive year for Spectrum and my first full year as the CEO and as I reflect on the year there are three major developments in 2018 that I'm very proud of and really defines who we are today. The most significant development in 2018 was the advancement of our pipeline assets, poziotinib and ROLONTIS. 2018 was data rich for both poziotinib and ROLONTIS and the data strengthened our confidence in both of these assets. On the poziotinib program, we are investigating the treatment of exon 20 insertion mutations across tumor types with an initial focus in non-small cell lung cancer. These mutations are among the most difficult to treat and currently have no FDA approved targeted therapies. In 2018 data from the MD Anderson's Phase 2 study in non-small cell lung cancer patients with EGFR or HER2 exon 20 mutations demonstrated impressive anti-tumor activity. We are currently well underway with our pivotal trial of poziotinib in previously treated and in first line non-small cell lung cancer patients with both EGFR and HER2 exon 20 insertion mutations. Full enrollment of the previously treated EGFR cohort was announced in early January and we expect that the primary analysis results in the fourth quarter of this year. For ROLONTIS data from two Phase 3 trials demonstrated that it was non-inferior and the standard of care with a similar safety profile. We submitted a BLA with the FDA late in December 2018. Due to the government shutdown the file was officially received on January 28, 2019. So in that sense the government shutdown has delayed the process by about a month. The second major development of 2018 was a change in our business strategy. We knew early in my tenure that it was in shareholders' best interests to move from as spec pharma company to a biopharma company focused on bringing novel targeted treatments to patients in areas of high unmet medical needs. The recent sale of our legacy products was a major strategic shift to ensure laser focus on novel oncology drug development. The proceeds generated by the sale will significantly strengthen our financial position. With the upfront cash payment of $160 million we have significantly accelerated the realization of the cast flow of those legacy products. The cash will primarily be used for the development efforts of poziotinib and the prelaunch activities for ROLONTIS. Additionally, as we streamline the company and focus on our late stage value drivers, we have discontinued the QAPZOLA development program in bladder cancer as it no longer fits our strategic directions. At this point, we're looking to out-license the asset through our business development function. As we look at 2019, poziotinib and ROLONTIS will be our primary focus while we're also exploring opportunities beyond our existing pipeline. The funds provided by the sale of the legacy assets allows us to evaluate additional growth opportunities. And the third and final major development in 2018 was the addition of a Chief Medical Officer and the drastic strengthening of our corporate governance. Dr. Francois Lebel joined our executive team in November and has since played a crucial role in bolstering our team and refining our clinical approach. Regarding corporate governance, we eliminated the poison pill, enabled proxy access and majority voting and added very accomplished board members with the appropriate experience needed as we advanced our business. In all we made tremendous progress in 2018 and are very enthusiastic that 2019 is already off to a great start. Now with that, let me turn it over to Kurt to talk about the financials.

[Kurt Gustafson:]

Thank you, Joe. So starting with the topline, we had a solid quarter with total revenues for the fourth quarter of $29.4 million of which $28 million were product sales. For the year, total revenue was $109.3 million which is at the top end of our most recent guidance of $100 million to $110 million of total revenue. SG&A expenses were $23.3 million for the fourth quarter, up from $19.8 million in the third quarter mostly driven by higher legal costs associated with the divestiture of our commercial assets. SG&A expense for the year were $90.7 million. R&D expenses were $34.5 million for the quarter, up from $21.1 million in the previous quarter. As we've stated in the past, R&D expenses are going to ramp up as we further develop all the assets and prepare for the commercialization of ROLONTIS. The increase in the fourth quarter is driven by two factors related to ROLONTIS. First, we paid $2.7 million to the FDA for the ROLONTIS BLA filing deal. Second, in the fourth quarter we spent $14.9 million to build pre-commercial inventory. Let me give you some context about our accounting practice as it relates to this inventory. Under our generally accepted accounting principles we are required to expense this inventory until the product and facility has been approved by the FDA. When this product is later sold, we will report this inventory as zero cost of goods. Moving to full year R&D expenses, total R&D expenses for the year were $95 million. Of this $95 million in R&D expenditures, $25.7 million was for the purchase of pre-commercial and clinical supply of both ROLONTIS and poziotinib. We ended the year with $157.5 million cash and $46.5 million marketable securities with a total of $204 million of available liquidity. Cash burn in the quarter was $9.1 million and cash burn for the year was $69.8 million. Regarding the divestiture of our commercial assets to Acrotech we have clearance from the SEC and we expect the deal to close in March. As we look ahead to 2019, assuming the deal closes in March, we expect 2019 SG&A costs to decrease by approximately 30% relative to 2018. We expect R&D costs to be normally higher than it was last year as lower spend on the legacy assets is offset by increased spending on pre-commercial supply and tech transfer activities for both ROLONTIS and poziotinib. With the increase of cash from the sale of our commercial assets, we expect that our cash balance will be sufficient to run the operations for at least three years. With that, let me now hand the call over to Francois to cover updates on our clinical program.

[Francois Lebel:]

Thanks Kurt. Hello everyone. Regarding our clinical development program 2018 ended strongly and we start 2019 with great momentum. Joe has already spoken about the BLA filing for ROLONTIS. This is a very important milestone for the future of Spectrum. The close of the otinib [ph] clinical program is aggressively moving forward. In early January we announced that the EGFR previously treated cohort [ph] in our pivotal trial is fully enrolled. The last patient was enrolled in January and if we assume at least eight weeks to confirm responses, and we follow patients for six months to assess durability that takes us to being able to release topline data in Q4 of this year. Let me remind you that this first cohort is very important because it's meant to provide the data required for the poziotinib NDA submission. We also recently announced that the second cohort is expected to be fully enrolled by Q4. Cohort two is evaluating previously treated non-small cell lung cancer patients with HER2 exon 20 insertion mutations. Additionally, we continue to enroll the two cohorts evaluating poziotinib as first line treatment in the same mutation. As a reminder, each cohort in the ZENITH20 trial is considered an independent study with pre-specified statistical hypothesis and power. Beyond previously treated and first line non-small cell lung cancer, we are planning to evaluate poziotinib in two other areas of unmet need. First, the pan-tumor setting with a basket study. This mutation has been reported not only in non-small cell lung cancer, but has been seen in several other solid tumors types. Second, we are also planning combination studies in non small cell with exon 20 insertion mutations. We are looking to start these trials in the second half of the year, so more to come on that. As I reflect on my first few months at Spectrum, I could not be more enthusiastic about our future. We have filed a BLA which gives us the opportunity to bring to the market a novel long-acting GCSM for cancer patients suffering from chemotherapy induced neutropenia and with poziotinib we have an exciting development program in an area of unmet medical need. Poziotinib has show impressive antitumor activity in a hard to treat patient population and I look forward to sharing results from our ongoing pivotal study later this year. Our team is excited and focused on the 2019 clinical development milestones and I will be keeping you updated throughout the year. Now, I'll turn it back to Joe.

[Joseph Turgeon:]

Thank you, Francois. With that operator, I'd like to open the lines for questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Alethia Young, Cantor Fitzgerald. Your line is open.

[Unidentified Analyst:]

Hi, this is Anna on for Alethia. For cohort 1 and ZENITH20, can you help us frame whether that trial is powered based on the prior exon 20 studies or instead on the all comers lung cancer population that the FDA uses as the comparator for the breakthrough decisions?

[Joseph Turgeon:]

So Alethia, good question. As you know and this is a question we get quite frequently and we would love to share with you some of the statistical parameters that we actually know when we need to meet. We've had discussions with the FDA that was in agreement full understanding of when we need to meet. And I think you're referring a little bit back to the breakthrough designation discussions, but this is totally different for an approval the bar is different. And the only thing I can tell you is we understand it very well and we're on our way to get there, but I unfortunately cannot disclose those parameters today.

[Unidentified Analyst:]

Okay. And then just on ROLONTIS, can you give us any color on the specific commercial rollout efforts?

[Joseph Turgeon:]

Yes. First of all commercial build out will you always do that prior to a launch. So when we get our PDUFA date, well we can start the timing. We will start to expand our sales force at probably a few months before we anticipate a launch. However, I want to stress that we did keep in our, when we sold the in-line products, we part of the deal we were able to keep key leaders and some key personnel with experience in this field. So the core of the team is still here and are already preparing training, et cetera, to launch this effectively and our plan is to hire the right people to expand the sales force to what we need. As we stated, as Kurt stated, we've already started to purchase some commercial products, because the last thing I want to do I'm involved in many, many launches, the last thing you want to do is run short of supply when you launch. So we're excited. We're getting ready and at the right time we'll be ready to launch this product.

[Unidentified Analyst:]

Thank you.

[Joseph Turgeon:]

Thank you.

[Operator:]

Our next question comes from the line of Adnan Butt from Guggenheim Securities. Your line is open.

[Adnan Butt:]

Hey thanks and congrats on strengthening the balance sheet position. Joe, I wanted to ask for the MD Anderson study it seemed that enrollment in the HER2 cohort has progressed since October. Do you expect that data to be updated this year and if so when?

[Joseph Turgeon:]

Yes. Hey Adnan, firstly two things about HER2, what we saw, to remind you, we saw the first 13 patients were lung. Twelve of those were valuable on HER2 side. By the way that was the first human data I'm aware of in HER2, so that was important data and it was at the confirmed ORR [ph] was 42%, so right in line with the EGFR I'll mentioned that. I'm not sure exactly how many patients will be the final number in that cohort, MD Anderson. The reason I say that Adnan is Dr. Heymach has now moved on and he's now at a site for us in our trial. So, the next part of your question, when will you announce, however other patients around the HER2, along with an update on the EGFR that was fully enrolled, I'm not sure when. I do know his plan is to do some kind of publication in a major medical journal. I can't tell you exactly when that will be.

[Adnan Butt:]

Can you say if that's this year?

[Joseph Turgeon:]

I don't know that will be this year. I don't think it'll be at the beginning of the year, but I would have to talk to John about when he is submitting and who he is submitting to. I don't know if you want to add to that Francois?

[Francois Lebel:]

Yes. Not much, but I have met with John recently and he certainly had the intention to summit something as some appropriate scientific venue before the end of the year, but whether or not that will happen obviously John is the one who would be able to tell you.

[Adnan Butt:]

Okay then one on the ZENITH study, you know given the unmet need I would imagine that frontline studies would enroll quickly as well. Are you sort of guiding as to which cohort should enroll first, why the difference in cadence for enrollment?

[Joseph Turgeon:]

Yes, so, well we are guiding you that the cadence will be different. Cohort 1 is fully enrolled and obviously that's not the first line. And the second cohort expected to be enrolled is cohort 2 which we've indicated would be by the end of this year. 3 and 4 it is too early to tell at this point which one would finish first and we don't know and we can't really prognosticate at this point.

[Adnan Butt:]

And maybe for Kurt. Kurt, through your cash guidance does that incorporate potential approvals and launches of poziotinib and ROLONTIS?

[Kurt Gustafson:]

Yes, great question Adnan. So I think as we take a look at our forecast we feel great about the ROLONTIS data and the BLA filing. So our forecast does include a launch of ROLONTIS sometime in 2020 and so that that is indeed included in that guidance.

[Adnan Butt:]

Okay, thanks.

[Joseph Turgeon:]

Thanks Adnan.

[Operator:]

[Operator Instructions] Our next question comes from the line of Ed White from HC Wainwright. Your line is open.

[Ed White:]

Hi guys. Thanks for taking my question. So I just want to go back to Kurt about the cash burn guidance and does that include the $140 million in milestone, potential milestone payments from the deal?

[Kurt Gustafson:]

So the way we look at this Ed is, we don't include any sort of new business development activity in that forecast and so, those milestones at this point are uncertain. So they would not be part of that forecast. So I'm just taking the existing cash balance of 157 plus the, cash we expect to receive from Acrotech and based on that we roll out it, we rolled that to our forecast and it certainly takes us through the next three years.

[Ed White:]

Okay great, thanks Kurt. And then we've talked about the timelines going forward for pozi in the U.S. I was just wondering if you can update us on the expected timelines for the EU and Japan. You know you have mentioned before that the EU has more patients to address from the U.S. and Japan has another 5,000 potential patients to address. So I'm just curious as to any thoughts of a timeline for submission in Europe and Japan?

[Kurt Gustafson:]

Yes. So first of all we have activities like you were mentioning on, we have over, globally over 40 sites open and we are working through the various regulatory process in Europe to get to so cohorts 1/2 certainly were open, cohort 3 and 4 is in the process of opening and we are actively engaging with regulators in Japan. I don't, I can tell you more about it at this time, but I think that gives you an idea of where we're going.

[Ed White:]

Okay. And then lastly, just on ROLONTIS, and you are working towards the potential launch there, I'm just wondering if you started talking to payers yet and I'm curious as to how that discussion, if it has started yet, how that discussion is going, especially with the - as you mentioned the biosimilars that should give you had expected biosimilars and actually gives you a leg up on the last. I just wanted to see what the payers are thinking or if you can share anything with us on that?

[Thomas Riga:]

Hey it’s Tom. We have, as we've mentioned in the comments here we've kept a core of our commercial function and we do have a systematic build out throughout the year. So if we go back to Kurt’s guidance on 30% reduction in SG&A that is including the commercial build out throughout 2019. One of the first areas that we'll be engaged is that of the payers just to have a clear line of sight into that dynamic of what looks like with the biosimilars and we're getting our first look of that impact into the market and we're monitoring it very closely. So we are are in the throes of our full execution of our plan and feeling really good about where we sit today.

[Kurt Gustafson:]

Yes Ed, I'll add to that and two things, number one, reminding you and everybody that we are novel which puts us in a unique position. I think that's important to just remind people of. And secondly, that as in all of our modeling and you know, I've talked about this in the past. Every model we had and two to three biosimilars on the market when we launched. So this is nothing that we didn't plan for or didn't anticipate, so I'll just remind you that.

[Ed White:]

Okay great, Kurt. Thanks for taking my questions.

[Joseph Turgeon:]

Thanks, Ed.

[Operator:]

This ends the question-and-answer portion of the call. I would now like to turn the conference back to Joe Turgeon

[Joseph Turgeon:]

Thank you, operator. Thank you everybody for your questions and your participation and interest today. In 2019 we're building a solid foundation for Spectrum's future and poziotinib and ROLONTIS are the cornerstones. I want you to know we're enthusiastic about our new directions and the year ahead. Have a great day everybody. Thank you.

[Operator:]

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.