Spectrum Pharmaceuticals, Inc.
Q3 2015 Earnings Call Transcript

Published: 5 Nov 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the Spectrum Pharmaceuticals, Incorporated Third Quarter 2015 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference maybe recorded. I would now like to turn the conference over to our host for today's call, Mr. Shiv Kapoor, Vice President of Strategic Planning and Investor Relations. You may begin. Shiv Kapoor Thanks. Good afternoon, and thank you everyone for joining us today for Spectrum's third quarter 2015 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 and CEO; Joe Turgeon, President and Chief Operating Officer; Kurt Gustafson, Chief Financial Officer; Dr. Lee Allen, Chief Medical Officer; Tom Riga, Chief Commercial 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 direction and strategy. Kurt will then provide a summary of our third quarter financial performance. Following this, Joe will review the company's operations, and Dr. Allen will review the pipeline. We will then open up the call to questions. Before I pass the call to Dr. Shrotriya, I'd 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, timeline, 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 4, 2015, 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 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 Web site at www.sppirx.com. I'd now like to hand the call over to Dr. Shrotriya. Rajesh Shrotriya Thank you, Shiv, and thank you everyone for joining this afternoon. Spectrum is in a great position to advance our late-stage pipelines. We have two drugs in clinical development with blockbuster potential. One of these is ready to enter Phase 3 development soon. With one other drug, we are ready to file an NDA by this year end. Unlike many of our peers, we have the commercial presence with five approved anti-cancer drugs, and sixth drug is under active review with the FDA. The sales revenue helps us advance our pipeline. Our portfolio of late-stage drugs has never been as rich as it is today. In the next several months, we expect to make meaningful progress [ph] on multiple fronts. As you have seen from our press release this afternoon, I'm very pleased to announce our co-promotion agreement with Eagle Pharmaceuticals. With this deal, Spectrum has strengthened our position with key stakeholders. Joe will go into more detail about how this co-promotion will help build a bridge to achieving our vision to grow the company in the coming year. Now, let's talk about SPI-2012, which is the highest priority at Spectrum. This novel long-acting GCSF or granulocyte colony-stimulating factor targets a blockbuster market and has the potential to change the face of our company. It has shown strong efficacy in Phase 2 studies. We are taking several steps to help ensure the success of this drug in the long-term. To ensure alignment with the FDA, we are pursuing a Special Protocol Assessment or SPA before initiating the Phase 3 trial. Following a very productive meeting with the FDA last week on this subject, we now plan to initiate the pivotal program soon, as soon as the agreement on the SPA is reached with the FDA. Moving on to apaziquone, our drug for non-muscle invasive bladder cancer, we recently gained agreement with the FDA on an additional Phase 3 trial for apaziquone under the SPA. Last week, we announced that we initiated this trial and have treated first patient. We're looking forward to filing the apaziquone NDA before the end of this year, based on previously completed Phase 3 studies. Regarding our novel formulation of melphalan, EVOMELA, we received a complete response letter recently. We asked for a Type A meeting with the FDA, and are pleased with the swift scheduling of the meeting for this Friday, November the 6th. We remain committed and confident to bring EVOMELA to the market for patients, and plan to work closely with the FDA to accomplish that goal. Now on poziotinib, which we believe has the potential to be the best-in-class among pan-HER inhibitors, we expect to file an IND with the FDA later this month, and are set to start the Phase 2 trial assessing poziotinib's potential in breast cancer. In addition, our partner Hanmi is conducting several Phase 2 trials in various indications. We expect to see interim data from our partner's breast cancer study at the San Antonio's Breast Cancer Symposium next month. I am pleased with our continued commitment to fiscal discipline at Spectrum, and we're expecting to end this year with a stronger cash position than our prior expectations. Joe will talk more about our operations, and Kurt will provide you more details about our financials, and Dr. Allen will provide a clinical update. Now, let me hand over the call to our Chief Financial Officer, Mr. Kurt Gustafson. Kurt?

[Kurt Gustafson:]

Thank you, Raj, and good afternoon to everyone on the call today. I want to just highlight a few items in our financial results. Third quarter product sales were 28.5 million. As expected, sales of FUSILEV continue to be impacted by generic competition. During the quarter, we recognized the $7 million of FUSILEV sales that had previously been deferred in the first quarter. Separately, we recorded $10 million in additional deferred revenue for products shipped in the third quarter that didn't meet our revenue recognition criteria. The deferral is due to the difficulty of estimating rebates that we will be offering to compete with the generic products. We currently estimate that we will be able to recognize those shipments to sales later in the fourth quarter and in the first quarter of 2016. One additional item to note is that our cost of goods sold as a percent of sales is higher than usual for two reasons. First of all, we purchased a strategic supply of ZEVALIN, which required additional stability testing; and second, we recognized the cost of goods sold for the FUSILEV deferred revenue. So, although we had to defer the revenue for a portion of the FUSILEV units that were shipped in the third quarter, we are required to recognize the cost of goods sold, because we've shipped the product to the wholesaler [indiscernible]. Additionally, based on our most recent projections, we are raising our guidance and now expect to exit 2015 with cash of more than 125 million. This is up from our previous guidance of 110 million that we provided last quarter. This guidance excludes any impact from the business development deal, and as a reminder, the Eagle contract has no impact on cash in 2015. Now, let me hand the call over to Joe to provide an operational update.

[Joe Turgeon:]

Thank you, Kurt. Thank you, Dr. Raj, and Shiv, and most of all, thanks for everybody's interest on the call. As we're moving into the last few months of 2015, we remain energized and focused, and we have many key milestones upon us. Let me start with our highest priority in the company, SPI-2012, our long-acting GCSF that's novel. There's been additional clarity about this marketplace with the launch of a biosimilar for the short-acting GCSF. Now having further clarity on pricing trends and reimbursement pathways, we feel even more confident that we can successfully compete with a novel agent in a market with revenue that was above $6 billion in 2015. This is an important endeavor for us, and we want to make sure everything goes well. As we shared in the last earnings call, we are currently pursuing a special protocol assessment for our Phase 3 program. It's important to remember that this study, unlike many clinical oncology trials, has a very short-term registrational endpoint, addressed by blood testing of absolute neutrophil counts over the course of a couple of weeks. Our goal is to rapidly enroll this important study, quickly analyze the data, and then expeditiously file the NDA. Moving over to EVOMELA, we were surprised to receive a complete response letter. Though we continue to be confident in our final approval, we were encouraged that the issues were non-clinical in nature. We requested, and have already received a Type A meeting with the FDA this Friday, and we look forward to resolving their issues very rapidly. In addition, the team is currently working on filing the NDA for apaziquone, our potent tumor-activated pro-drug for bladder cancer. We're happy to announce our first patient was enrolled in our Phase 3 trial at the end of October, under an SPA agreement with the FDA. Dr. Allen will provide more details around the trials shortly. The overall cost for treatment of bladder cancer in the U.S. is a staggering $3.4 billion annually, and most of this cost is related to direct treatment of the disease. We're hopeful that we can get this drug to market as soon as possible to meet the significant unmet medical need. Last but certainly not least, we are excited to advance poziotinib in a U.S.-based Phase 2 program in breast cancer. Despite the availability of several HER-2 targeting molecules, breast cancer patients continue to need additional therapeutic options. Based on early data, this asset has the potential to be a best-in-class product, competing in a multi-billion dollar market. As [indiscernible] to the development process, our strategy is to have two potential blockbuster products geared towards solid tumors. We are moving forward, and I love the potential to meet this important unmet medical need. These are exciting times. The development of our potential blockbuster assets are progressing, and their potential benefit to cancer patients are on the horizon. In the near-term, you heard Kurt mention the decline in our product sales mainly driven by the decrease in FUSILEV due to generic competition. While this was an expected reality, we now find ourselves with a talented sales team that has asset [ph] capacity with the loss of FUSILEV. It's for these reasons that the timing of the Eagle co-promotion couldn't be better. The co-promotion agreement will be executed by our 32-person corporate account sales team, plus commercial infrastructure that's currently promoting FUSILEV. The remaining sales people will be focused on our PTCL, ALL, and follicular NHL-focused brands. The co-promotion agreement comes with initial term of 18 months, beginning on January 1, 2016, and includes a $13 million base fee and 9 million in identified milestones over the 18-month period. The agreement includes the commercialization of up to six of Eagle's products including current pipeline development assets as well as those that maybe licensed in over time. Our co-promotion with Eagle fills several gaps in the near-term. Most importantly, it enables our team to launch exciting assets into the space that we know so well to allow us to further demonstrate our commercial fortitude while brining important medicines to patients. Next, this agreement will provide an opportunity to cover our expenses while generating revenue and additional cash over the term of the contract. Last, as our development pipeline matures in the near term, this co-promotion agreement with Eagle will engage our people, enhance shareholder value, will help to build a bridge to achieving our vision to grow the company in the coming years. Thanks for your time and interest in Spectrum, and I am now going to turn the call over to Dr. Lee Allen who will provide you more detail information about our development activities. Lee Allen Thanks, Joe. The third quarter was marked by key milestones for our clinical team. And I am happy to report on a continued execution on several or important pipeline programs. I will start with EVOMELA and echo Joe's comments regarding the Complete Response Letter. In the week preceding our PDUFA date, we worked collaboratively with FDA to finalize the EVOMELA label. So this Complete Response Letter was a surprise. The good news is that there are no issues with the clinical safety data or efficacy data. And we believe the non-clinical issues can be expeditiously resolved. We will be discussing re-submission strategies with the FDA on Friday of this week, and are confident in bringing EVOMELA to approval. As you know, SPI-2012 is a new biologic that is more potent than pegfilgrastim and consist of a conjugate of a novel recombinant GCSF linked to part of the immunoglobulin protein, which enhances the half-life of this product. Our Phase 2 data demonstrated the high potency of SPI-2012 in patients which were showing to be non-inferior to pegfilgrastim at the mid-dose tested; is superior at the high-dose tested. SPI-2012 was also shown to have an acceptable safety profile with no significant dose-related or unexpected toxicities and AE incidences that were comparable to that of pegfilgrastim. We believe that potency, long half-life and targeted delivery of SPI-2012 for the bone marrow are potential differentiating features over the PEGylated GCSF formulations currently approved in the U.S. We made good progress in our discussions with FDA this quarter on the SPI-2012 Phase 3 protocol under special protocol assessment and are near having final agreement. We are well-positioned to quickly initiate the study once this agreement is in place. We've already qualified over 80 U.S. study sites and are actively following up with additional interested sites. We plan to drive enrollment in the study aggressively and then expeditiously file the DLA. Poziotinib, our novel pan-HER inhibitor and finished very strong Phase 1 clinical data in breast cancer patients with an overall response rate of 60% in patients who had already failed other HER-2 targeted treatments. This positions poziotinib to be a best-in-class product. Poziotinib has also shown activity in other tumor types. We are strategically focusing our development activity on this very promising activity in breast cancer. We have developed a Phase 2 protocol, which we will submit to FDA along with our INDs this month. After that, we plan to quickly initiate the Phase 2 U.S. breast cancer study. We are focused on a faster market development strategy with poziotinib and believe the robust preliminary clinical data predicts for a high probability of success. I am also pleased to report that the NDA for apaziquone, our tumor our activated pro-drug for treatment of non-muscle invasive bladder cancer, is on track for submission this year using data from the two previously completed Phase 3 studies. As Joe mentioned, we recently started the additional Phase 3 trial that was agreed to with FDA under special protocol assessment. We have now treated the first patient in the study and have several patients currently being screened for enrollment. The lack of new therapies for patients with non-muscle invasive bladder cancer highlights the important unmet medical needs for these patients. As you know, there are two important oncology conferences coming up in December that I want to touch on briefly. First, the upcoming American Society of Hematology meeting in Orlando which will see through at least eight abstracts on our drugs including FOLOTYN, MARQIBO, EVOMELA, and BELEODAQ. We are excited about these data and especially pleased to have on of these abstracts selected for oral presentation at that meeting. Immediately following ASH is the San Antonio Breast Cancer Symposium in Texas, which because of our focus on breast cancer with both SPI-2012 and poziotinib will feature four poster presentations on poziotinib and two on SPI-2012. In addition, we are planning advisory board meetings with key breast cancer thought leaders at this symposium. Looking forward to next year, we're submitting several abstracts on apaziquone this week for the May 2016 American Urologic Association's Annual Meeting. We are very proud of our clinical team's performance and their continued focus and dedication to execute on goals and successfully delivering the value Spectrum's promising pipeline. With that, I will now turn the call back to Dr. Shrotriya.

[Rajesh Shrotriya:]

Thank you, Dr. Allen. To conclude, I want to express my enthusiasm about how well-positioned our company is in the strong pipeline with several catalysts in the near-term. In addition, we have a commercial business which has now been fortified by the prospect of near-term product launches through the Eagle deal. With that, let's open the call for questions. Operator?

[Shiv Kapoor:]

Operator, we are ready for questions.

[Operator:]

[Operator Instructions] And our first question comes from Adnan Butt of RBC Capital. Your line is open.

[Adnan Butt:]

Hi, everyone. Thanks for taking the question. Let me ask one on SPI-2012 first please. You've met with the FDA recently, is the goal still to have a superiority endpoint into the study, or is non-inferiority sufficient? Then if it is both, how do you get statistics to work in terms of testing?

[Rajesh Shrotriya:]

So, Ad, thank you for your question, as we have stated before, the goal of our study is non-inferiority. However, the study is powered to show superiority powered at 80% to show superiority and over 90% to show non-inferiority. So, the objective of this study has not changed, and as Dr. Lee stated, we are awaiting final word from the FDA, which we expect to come shortly.

[Adnan Butt:]

Okay. Thank you for that clarification. Then, maybe a follow-up, could you describe peer [ph] dynamics a bit now with the introduction of biosimilars, I mean this is not a biosimilar, so, how would expect a product like this to launch and get used versus strong [indiscernible]?

[Rajesh Shrotriya:]

So, with that question, I would like to ask Joe or Tom to comment on this.

[Joe Turgeon:]

Yes, I will comment. I will have Tom comment too. I am more excited now because we are all speculating, right? We are all been sitting and watching, okay, what's going to happen when biosimilars actually come? What's going to happen to legislation? How is it going to be paid for? And I am excited the way it's done, Adnan, because the way it's done now is the innovative product is why ASP will be developed through their pricing strategy and their decisions. All biosimilars will be tethered to that innovative product, and because of that, for example, when you look at the short-acting drug that's out there today, the new product that came out is about 15% less than the current product -- the innovative product. So, now the innovative product has to think about what kind of price action do I take because the ASP is linked to their, and you're paying less for the other. I hope that makes sense to you. So what I like about our prospects is we are a novel product, and the way things are today in novel products would be, on its own, we wouldn't be tethered to the innovative product, putting us in a position to control our own destiny, make the decisions we have to make, and be very flexible in what we do with our pricing strategy. So I really like that position. Tom, you want to comment?

[Tom Riga:]

I think you said it well, Joe. I think the key is having an innovative product allows you to control your own destiny, assess the landscape with the time is right, and make the right strategic decisions to achieve the result we're looking for.

[Adnan Butt:]

Okay, and then just if I can sneak on in on the Eagle agreement. Is the 18-month term a defined term or is there room for extension in there? A - Rajesh Shrotriya Tom?

[Tom Riga:]

Adnan, thanks for the question. First, I am thrilled for the Eagle co-promotion partnership. I think it leverages our successful corporate accounts team. I think it covers our expenses, and offers us an opportunity for enhanced revenue. And it really helps to sharpen our sword, and demonstrate our fortitude at launching products, and strengthening our customer relationships. So from a strategic standpoint, I'm thrilled with that. The initial term is 18 months, and then there is an option to extend.

[Adnan Butt:]

Okay. Thank you.

[Operator:]

[Operator Instructions] Our next question comes from Chris Howerton of Jefferies. Your line is open.

[Chris Howerton:]

Hi, and thanks for taking the question. The first question I had was on the apaziquone trial. I was curious if you could give us any further information as to the number of sites that you're planning, and how many sites you have activated? And what you see in terms of trajectory for that? A - Rajesh Shrotriya So -- Chris, thank you for your question. We had actually -- as you know, we had completed two times before, and nearly 90 sites were involved in U.S. and Canada, so all of these sites have been working with us. We have -- we are in the process -- we have finalized at least 30 plus sites as we speak, and the first patient, as I said, as Dr. Lee said, has already been started. Several patients is screened, and at least 20 to 30 sites are active as of today. However, we have about 80 to 90 sites that have agreed to participate in the protocol. So as the time progresses more and more sites will be adding patients to the study.

[Chris Howerton:]

Got you. Okay, that's helpful. And I guess just the other question I had was on the data presented at the San Antonio Breast Cancer Symposium. As it relates to 2012, is that going to be different than what we saw at the R&D day, and anymore information you could tell us on what we might expect out of the Symposium, that'd be great. Thanks a lot. A - Rajesh Shrotriya Dr. Lee?

[Lee Allen:]

Yes, so in the data that will be presented are the data from the phase 2 trial with 2012. Again, I think it'll be a little bit more detailed than we presented at the Investor's Day meeting that will be revealed there during the course of that meeting. And then the other information will be around the phase 3 trial as well. For poziotinib, again, the data there, we're all looking forward to is, data coming from the Korean Phase 2 breast cancer study that they have initiated. So I think that'll be exciting data, as we said. The activity of this product in that space is very exciting, and very promising. So we're all looking forward to seeing that data and the phase 2 breast cancer study.

[Chris Howerton:]

Okay great. Thanks for taking the question.

[Operator:]

And I'm showing no further questions at this time. I would now like to turn the conference back over to Dr. Rajesh Shrotriya, CEO.

[Rajesh Shrotriya:]

Thank you. As you can see, we are going to be very, very busy over the next several months. Our plate is full. We have many regulatory, clinical, and commercial milestones in the near term. And we look forward to updating you about these in the near future. Thank you for being on the call with us today. Thank you, goodbye.

[Operator:]

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