Assertio Holdings, Inc. (ASRT) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Spectrum Pharmaceuticals Second Quarter 2013 Financial Results Conference Call. [Operator Instructions] As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Shiv Kapoor, VP of Strategy, Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, and thank you, all, for joining us today for Spectrum's second 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; Kurt Gustafson, Chief Financial Officer; Dr. Lee Allen, Chief Medical 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 highlights of the second quarter and discuss our overall strategy. Kurt will provide a summary of our second 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, August 7, 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 updates and the progress we have made during the second quarter. I want to share a few exciting developments at Spectrum and our growth trajectory going forward. After having acquired FOLOTYN through the acquisition of Allos Therapeutics less than a year ago, we are excited about adding Marqibo, a fourth FDA-approved anticancer commercial product through the acquisition of Talon Therapeutics. We are pleased to have Marqibo in our portfolio as it aligns with the same physicians that we work with every day with ZEVALIN and FOLOTYN. We are especially excited about Marqibo's future potential in additional indications, including non-Hodgkin's lymphoma. Marqibo has shown promising data in Phase II trial that could potentially lead to a significant label expansion if confirmed in Phase III trials. These Phase II data have been recently published in the British Journal of Haematology showing an overall response rate of 96%, including a complete response of 90% in patients with untreated, aggressive non-Hodgkin's lymphoma. Marqibo is currently in Phase III trials in ALL and NHL. Second, let's talk briefly about belinostat. Our team is working diligently to file the New Drug Application by the end of this year. Following the acquisition of Allos Therapeutics last year, our team has an even better understanding of the PTCL market, and we look forward to bringing this important therapy to patients who have limited options. The last thing I'll briefly comment on this afternoon is Captisol-enabled melphalan. We acquired this product 5 months ago in March and are currently completing a pivotal trial. Pending final data, we expect to file a New Drug Application for this year during 2014. Ken will have more to say on this important drug just in a few minutes. Overall, I'm very proud of the accomplishments of our team and their dedication. We have a robust and mature pipeline, a potential of 3 New Drug Applications filings in the next 18 to 24 months and having 4 approved products that help fund our pipeline and business development activity. I believe we are well positioned to succeed. It is a very exciting time in Spectrum, and the foundation is in place to enable us to launch a number of key growth catalysts and leverage our existing infrastructure. Before I ask Ken to give an overview of our commercial and research operations, I'll ask our newly appointed CFO, Kurt Gustafson, to discuss our financials. Kurt?

Thank you, Raj, and good afternoon to everyone on the call today. Let's review the results for the quarter ended June 30, 2013. All numbers are approximate. For the 3-month period ended June 30, 2013, we had total revenues of $33.2 million compared to $68.7 million in the second quarter of 2012. Product revenues were $32.2 million as compared to $65.6 million in the second quarter of 2012. FUSILEV sales were approximately $12.9 million for the quarter. Relative to the second quarter last year, sales are down as a result of 3 factors: first, we had changes in wholesaler buying patterns; second, we realized a lower net price, primarily due to a change in the customer mix; and third, we saw lower end-user demand. So I want to make a couple of additional comments about FUSILEV. The first is that we do not expect that this lower net price will continue in the second half of the year. In addition, we've been following the trends in the underlying demand using IMS data. And based on these trends, we expect that underlying demand at our expected price would translate into sales of approximately $20 million to $25 million per quarter. In the second quarter, FOLOTYN sales were $12.6 million, and ZEVALIN sales were $6.8 million. In line with prior expectations, European sales of ZEVALIN were also hurt slightly this quarter by a change in our distribution arrangement, which impacted the recognition of revenue in the quarter. As we complete the transition, we do not expect that this new arrangement will materially impact European sales of ZEVALIN going forward. The net loss for the quarter was $10.2 million or $0.17 per basic and per diluted share as compared to net income of $18.1 million or $0.31 per basic and $0.29 per diluted share in the second quarter of 2012. On a non-GAAP basis, net loss was $4.5 million or $0.08 per basic and diluted share as compared to net income of $23.2 million or $0.40 per basic and $0.37 per diluted share for the same period in 2012. Total research and development expenses for the second quarter were $10.5 million as compared to $9.6 million in the same period of 2012. Selling, general and administrative expenses for the second quarter of 2013 were $22.6 million as compared to $23.3 million in the same period of 2012. We closed the quarter with cash, cash equivalents and investments of $127.9 million. With respect to financial guidance, we will no longer be providing product-level guidance. However, we continue to expect total revenues in 2013 to be between $160 million and $180 million. And in addition, even with the cost of the Talon acquisition, we expect to break even in 2013 on a non-GAAP basis. I'll now hand the call over to Ken Keller.

Thank you, Kurt, and good afternoon, everyone. Today, I'll begin my comments on the progress we've made integrating the Talon acquisition and preparing for the launch of Marqibo. Marqibo is a novel liposomal formulation of vinCRIStine, a widely used anticancer drug in both leukemias and lymphoma. The FDA granted Marqibo an approval in August of 2012. The Talon team has done an impressive job developing and preparing for the launch of Marqibo. Things are in place for us to now leverage our existing team here at Spectrum and successfully launch Marqibo in the fourth quarter. Our team is working diligently to prepare promotional training and physician education materials. We have product ready to ship, and we're enthusiastic about Marqibo's short and long-term prospects. On pilot, our sales team will probably talk about Marqibo to both leukemia-treating physicians and institutions. We will focus on approximately 100 key academic and major medical centers across the U.S. and 300 key physicians. We currently call on all of these centers, therefore, we will target these with our existing sales team. While this first syndication is important for patients, we also see large potential from for Marqibo in other settings, which we will aggressively pursue. First, we have the hallmark study, which is a global clinical program starting Marqibo as treatment for patients 60 years or older with newly diagnosed ALL. Then we have the optimal study, which is being conducted by the German High-Grade Lymphoma Group in untreated adults with aggressive non-Hodgkin's lymphoma. As Dr. Raj mentioned, the second key priority for our team is to prepare and submit a New Drug Application for belinostat. Belinostat is our novel HDAC inhibitor. We expect to submit this application later this year. As a reminder, we completed the pivotal study for belinostat in relapsed or refractory peripheral T-Cell lymphoma last year and previously announced the outcome met Special Protocol Assessment prespecified endpoints. Belinostat will offer differentiated profile from other HDAC inhibitors. And if approved, will provide physicians with an attractive new option of treatment of this difficult disease. Based on feedback from our customers, we believe belinostat will be complementary to FOLOTYN. If approved, belinostat would be in the same population, and we expect patients will cycle through FOLOTYN and other drugs, including belinostat, in the course of their therapy. The third top priority is to complete the Captisol-enabled melphalan trial by year end. As a reminder, we acquired this drug in March and received orphan drug status from the FDA and is currently being studied in a pivotal trial as a treatment for multiple myeloma patients before they receive an autologous stem cell transplant. Pending completion of this trial and FDA review process, we believe that Captisol-enabled melphalan would be the only drug approved as a conditioning agent for stem cell transplant in multiple myeloma. In the U.S. alone, the total melphalan market is estimated to be over $100 million. Today, we have 4 approved drugs: FUSILEV, FOLOTYN, ZEVALIN and now Marqibo that will yield the revenue we believe necessary to fund our robust development program. Now turning to our 3 commercialized products in Q2. We remain focused on unlocking the growth potential of each of these through solid execution. As Kurt mentioned in quarter 2, FUSILEV revenues were approximately $13 million. Based on information currently available to the company from the third-party source, IMS, FUSILEV demand outpaced Spectrum sales to wholesalers. As a result, wholesalers' inventories have substantially declined in Q2. FOLOTYN revenues in Q2 were $12.6 million, up from $9.9 million in quarter 1. As the first product approved for the treatment of relapsed 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 extending the number of users and increasing the duration of treatment through physician, nurse and patient education, as well as investing in clinical trials exploring FOLOTYN use in different settings. ZEVALIN revenues in Q2 were $6.8 million. We are focusing our promotional efforts on follicular non-Hodgkin's lymphoma patients with relapsed and refractory disease, and we continue to invest in expanding ZEVALIN's indication to the Phase III ZEST study, which is evaluating ZEVALIN use in patients with diffuse large B-cell lymphoma, an aggressive disease with significant unmet medical need and large market potential. As we enter the second half of this year, we are in stronger position than we were at the beginning of the year. Our business fundamentals are sound, and we believe that FUSILEV revenues are well positioned to improve in quarter 3 and quarter 4. We have added a fourth drug, Marqibo, in the hands of our reps, and we recruited a talented team across our medical, science, sales and marketing organizations. These additions to our portfolio and the team itself will serve as a foundation, a strong platform for our growth over the next few years. Now I'll turn the call back to our Chief Executive Officer, Dr. Raj Shrotriya.

Thank you, Ken. As you can see, our team is hard at work, and we remain focused on the goals ahead. I would acknowledge our dedicated team at Spectrum in pursuit of excellence as we strive to make a difference in the lives of cancer patients every single day. We believe our company has a solid and sustainable base business, which allows us to develop our pipeline. In addition to 4 FDA-approved anticancer drugs, we also have 3 additional drugs in late-stage development that could be launched in the next 18 to 24 months, provided FDA approves them. We will now open the call to questions.

[Operator Instructions] Our first question comes from Adnan Butt from RBC Capital Markets.

And first, congrats on all the BD that you've done recently. I guess, first question is on guidance. I understand there's no product breakdown, but what do you expect revenue components should be in? And how should we view the distribution in the second half?

So, Adnan, that's a good question. We are trying to -- we are building a diversified company here, and we're trying to get away from each product each quarter. Really, were in a business where quarter-to-quarter, our mix changes, product mix changes, patient demand changes, the way people wholesalers buy changes. So we are going to get away, and we now have a new CFO in place. And maybe I'll have Kurt to comment on this how we're going to do this in the future.

Yes, I think that's right. We're going to get away from product-level guidance and try to give you some total revenue guidance. The one piece that we did try to do to just help you guys out a little bit with FUSILEV is try to walk you back through how we're taking a look at demand for the product. What we can do is take a look at IMS demand, get a good sense of where we think things are going. We sort of know where we are from a price standpoint, so we can project out where we think that business is, which we think is that run rate of about $20 million to $25 million a quarter. What's difficult for us to project is where wholesalers are going to land on their inventory levels, and that's sort of the challenge that we have. So we want to give you a sense of where underlying demand was, give you the top line to help you build your models, but from now on, we're not going to be going down to a product-level guidance.

If I can get a follow-up, in terms of inventory levels, do you see them coming down in the second quarter versus the first quarter?

Yes, indeed we have, but I'll have Ken comment on that.

Yes, the inventory in the second quarter was substantially down from the first quarter. So as I said in my comments, demand exceeded revenue in the second quarter, and so the answer is yes, inventories did go down quite a bit.

And then finally, just to change focus, in terms of the company could be launching multiple products. Is the sales force the right size to do it? And can you say a bit more about Marqibo? How you are preparing for the launch? What the opportunity in patent life are there.

Yes. So I think, Adnan, again keep in mind that we are very focused. We are in hematology space, hematology-oncology space. In fact, we are already in the offices of doctors who prescribe ZEVALIN and FOLOTYN. And now we have another drug -- belinostat will be another drug, and now we'll have melphalan. We are keeping focused on where the business is. I'll ask Ken to comment. Ken or Joe to add some comments to that.

Sure. I'll start off. First of all, in terms of Marqibo, things are shaping up very, very nicely. The team is developing the materials. The team is preparing to be trained very shortly. Since the acquisition, we've talked to a number of key leukemia-treating physicians, and our optimism is undiminished. In fact, everything we hear is very, very positive. There's a need for better treatment is there. Marqibo kind of fits the bill. So in terms of where we are, we're exactly where we hope to be. In terms of who we'll call on, what's nice about this is there's 100 centers that we'll focus on, about 300 physicians. This is for Marqibo. And when you look at ZEVALIN and FOLOTYN, we are in those centers today. So Joe will not have to add any sales people. Marqibo will be the #1 product that they promote out of the gates here once we launch it. And Joe, do you have anything to add to that?

No. Adnan, good question. I think, a good problem will be down the road, as you talk about other acquisitions we'll cross the road -- or the bridge when we get to it. I hope that's a good problem I have in the future to have to add more sales people at the right time. But right now, I like where we're at, and I think we're preparing to launch effectively.

Okay. And just the patent life I had asked.

Sure. So this is Ken. So the patent life for Marqibo, with the extension that we expect, will be December of 2024, and then melphalan, it's 2029.

Our next question comes from Jason Kantor from Credit Suisse. Jason Kantor - Crédit Suisse AG, Research Division: And in the past, you've given a lot of metrics on FOLOTYN -- on FUSILEV rather, and I'm just wondering if you can provide us with any of those. In the past, you've talked about the percent to hospitals and clinics, the demand changes in those 2 segments, the total vial demands and the total vial amounts at the wholesalers. Can you provide us with any visibility on those metrics?

So Jason, you're right. I think we did that for a reason. You know that, that FUSILEV grew very fast from under $10 million revenue, within 2, 3 years, we were selling $200 million in revenue. That was nearly 80%, 90% of our business. So we had to be very careful, and we had to know where the business was coming. And we are very transparent. We provided you as much guidance as we could, as we had. But going forward, certainly we are changing. We are changing direction, and we are changing because we have a very diversified portfolio. We have 4 drugs in the mix, and we are not going to be able to provide those kind of details any further, but I'll have Ken add to what I said.

Sure. So Jason, FUSILEV demand in Q2 did outpace revenue. Inventory was drawn down significantly. Based on the current demand and the expected price, we expect demand in the second half of the year to be between $20 million and $25 million a quarter. In terms of the different segments that you asked, we did see a continued decline in the hospital segment in the second quarter. We saw a small decline in the clinics. So the bulk of the decline was in the hospitals. And today when you look at our overall business, 80% of our business now resides in the clinics. Jason Kantor - Crédit Suisse AG, Research Division: Okay. Just a comment and a follow-up question. I mean, this is -- I know that you're diversified, but you guys are projecting something like 60% to 90% sequential growth in the product in Q3. So these metrics are just as important this quarter as they were last quarter. Can you walk us through how the pricing -- how you have different pricing in Q2 versus Q3, what those prices are, and how we should think about that going forward that seems to be an important part of your forecast.

So, Jason. So in terms of the price, we had a number of onetime events without -- we won't go over on the phone, but we have a contracting plan in place that we just launched in the third quarter, and that contracting plan is what gives us the confidence to say that the net price per vial in the second half of the year will more closely mirror what it did in Q1 rather than Q2. And in terms of what the contract is, things like that, that's details that we won't go over on the phone call. Jason Kantor - Crédit Suisse AG, Research Division: And are you done working through the inventory as of Q3? Is that -- did you get work through all the excess inventory in Q2?

The inventory dropped substantially. So it was reduced substantially. But as Kurt said, not knowing exactly what level the wholesalers will end up at and be comfortable with is difficult for us to project that and therefore, we're not going to project that.

And our next question comes from George Zavoico from MLV & Co. George B. Zavoico - MLV & Co LLC, Research Division: I have a question about one you didn't talk about and that was apaziquone. You were moving towards talking with the FDA about some sort of filing, coming up soon, an NDA filing. Could you elaborate on that, please?

So George, with apaziquone, as you know that we met with the FDA, and the understanding with the FDA was that we can file the NDA with apaziquone. However, they wanted us to submit a protocol, so a subsequent study in which they wanted almost all of the patients entered, almost all of the patients to be entered in the study because their concern was that if they approve a drug, you cannot complete a trial of that kind. So the protocol has been submitted to the FDA, and we are awaiting comments from the FDA at this time, but certainly our plan and our hope is that we'll plan to file the NDA as soon as we can have an understanding with the FDA. George B. Zavoico - MLV & Co LLC, Research Division: Okay. Next question in regard to ZEVALIN. I mean, it's been really hard to get this drug moving beyond sort of the $7 million to $10 million, $11 million sales range and yet it's a drug I talk to physicians, they really like it, they would like to use it at least some of the ones that I talked to do. And there's emerging competition as well with newly engineered CD20 and CD19 antibodies that might be even better than Rituxan at least in some perhaps in relapsed or Rituxan failures. How what's your outlook for ZEVALIN going forward? How do you expect to or plan to grow sales?

So you make a very good point. In fact, with ZEVALIN, what we have seen is that the prescribing physicians in the group practices do not get credit even for prescribing ZEVALIN as compared to some other competing drugs. Our hopes are based on the -- of honest indication for diffuse large B-cell lymphoma. In fact, we're aggressively pursuing the ZEST trial, and we are hoping that the data will be just as strong as robust as we have seen in 5 different Phase II trials. So therefore, we are quite excited about the fact that ZEVALIN is a unique novel monoclonal antibody. That single dose has higher response rates with minimal and predictable side effect profiles. And we are quite excited with drug -- with having ZEVALIN in our portfolio. George B. Zavoico - MLV & Co LLC, Research Division: In a way, you seem to be -- well, the drug you have now seems to have plateaued in terms of their existing indication. FUSILEV, you mentioned is going to level out somewhere between $20 million, $25 million a quarter. ZEVALIN seems to be stuck in that range. FOLOTYN, you're looking perhaps for new indications. Is that how the sales of these drugs are going to grow mostly is through indication expansion?

So, George, let me give you a philosophy at Spectrum. In order for us to have a blockbuster drug, we believe that we have some blockbuster drug -- drugs with blockbuster potential in our late Phase II trial. Until that time, we have options. We could keep marketing drugs that bring us $40 million, $50 million in revenue or we can keep raising capital by issuing stock. We decided that now with the multiple drugs being marketed by the same sales force, ZEVALIN, FUSILEV FOLOTYN and now Marqibo. In spite of all that happened to our stock price and what we announced in March 12, what happened to ZEVALIN sales, to FUSILEV sales. In March, we acquired a little drug called melphalan. And in July, we closed the acquisition of Talon Therapeutics. So what you have to appreciate is that Spectrum is very committed to philosophy of keeping focus on FDA-approved drugs that can go and help patients, and that's where our focus is. It will take time before our blockbuster potential drugs mature, get FDA approved. And until that time, we are very excited about having $150 million, $200 million in revenue from the drugs that we market today. George B. Zavoico - MLV & Co LLC, Research Division: I don't have any problem with $40 million to $50 million in revenue per drug. I think that's fine. But I appreciate your growth in terms of expanding indications and getting drugs into your portfolio that have a fairly rapid path to market. That seems to me to be -- going along on those 2 parallel paths is -- it seems to me like a good business plan.

Each approved drug that we have, George, we are pursuing additional indication. With ZEVALIN, we have diffused large B-cell lymphoma. With Marqibo and you saw that we have NHL, aggressive non-Hodgkin's lymphoma in which we've see 96% response rate. And so each drug we have in looking to capitalize on its full potential by expanding its indications. So we are pretty happy with where we are.

And our next question comes from Mike King from JMP Securities.

I've a couple of questions -- just maybe wanted to start with belinostat. I forget exactly when you guys top lined it. I seem to recall was late last fall presented at ASCO. Can you just talk about what's happening with the filing? It would seem like that process should be moving along a little quicker than it has. I mean, just wanted to get some color from you about what's been taking place in the interim period.

Mike, it's Ken. Our goal with belinostat is submit a high-quality application based on discussions with the FDA. At the pre-NDA meeting, we decided to perform and provide additional analysis on our existing data set. I think that's important for everyone, so our existing data set. That additional analysis puts the timeline into Q4. So that's exactly where we are, we expect to file it in Q4, and our enthusiasm is unchanged.

And can you clarify what you mean by your existing data set? I thought that's what everybody files an NDA based upon.

Right. Based on discussions with the FDA, we've decided to do additional -- we're doing additional analysis on the PK data, which we'll then submit.

PK data, okay, all right. I also wanted to just clarify on Marqibo with the launch. Did I hear it correctly that, Dr. Raj, you said you'd launch in 4Q of this year? I seem to recall from the conference call announcing the transaction that you said 3Q, but maybe I misunderstood.

So the team is being trained as we speak. The medical science liaisons are being trained. We'll have the reps trained very shortly, and we will launch it very, very early Q4.

Okay. So we're just talking about maybe a couple of weeks delta from the original plan?

Yes.

Okay. And then just on melphalan. Can you talk about looking at the data set here and what will be included, roughly, how many patients, and I don't know if you want to give -- if you can talk to the overall cost of the development of the molecule, but perhaps just tell us what we should expect to see in the application when you file next year.

Mike, as you know, we're going to file this under a 505(B)(2) pathway. It's a single ARM study. It's accrued very, very well for approval to be done this year, and then we'll file next year. Indication will be as an ablative therapy for patients undergoing a bone marrow transplant in the multiple myeloma. There's no drug approved for that today although generic melphalan is used there. So it's a relatively small study. Most of the work's been done right now. So...

Sorry, just as far as the number of patients in that study?

It's 60 patients.

And that's all going to be based on PK/PD data or will it the some efficacy safety data as well?

It will be both -- and this Lee Allen. There will data for both PK studies and safety efficacy data.

Ladies and gentlemen, that is all the time we have for questions for today. I would now like to turn the call back to Dr. Raj for any closing remarks.

We would like to thank you again for joining us on this call. We look forward to the second half of the year as we continue to deliver better treatment options to patients and continue to build value for our shareholders. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.