Good day, ladies and gentlemen, and welcome to Spectrum Pharmaceuticals First Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded. I'd now like to turn the call over to Shiv Kapoor, Vice President of Strategic Planning and Investor Relations. You may begin..

Thanks. Good afternoon, and thank you for joining us today for Spectrum's first 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.

This will be followed by a financial update by our CFO, Kurt Gustafson, and the discussion of our operations, by our COO, Tom Riga. 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..

Thank you, Shiv. Hello, everybody and thank you for joining us today. I really appreciate your interest in Spectrum. And we've had a very productive quarter. It's been just over four months since I’ve taken over the role of CEO. In this time, I’ve had a chance to identify critical gaps, sharpen the company focus and evaluate the business.

Armed with this information, we've taken swift and appropriate action to transform and move Spectrum forward. As I said in the last quarter, we will drive this organization with focus, discipline and the accountability needed to take Spectrum to the next level of growth. Let me walk you through the three main areas of focus and actions to date.

First was to maximize the potential and de-risk our late stage assets. In the past four months, we have sharpened our focus on poziotinib, with some of the most exciting developments in our company's history. We were proud to have poziotinib data appear in two important areas, including Nature Medicine and a poster presentation at AACR.

We also announced our strength in IP with MD Anderson. We have further refined our strategy for poziotinib as a targeted therapy in lung cancer and other solid tumors where exon 20 insertion mutations are present.

The ROLONTIS program has had equally important milestones, including the announcements that have met its primary endpoint in our ADVANCE study and that we completed our enrolment in the RECOVER study.

I'm excited to share that we'll have a Phase 3 data abstract published online by ASCO and an oral presentation at the Multi National Association of Supportive Care in Cancer or MASCC in June. For background, the major focus of MASCC conference is supportive care and we're excited to have an oral presentation there.

We're working towards a pre-BLA with the FDA to ensure alignment as we plan for a Q4 BLA submission. On a personal note, I've been involved in the GCSF market for more than 30 years and I'm excited about the potential of ROLONTIS to serve these patients.

Second was revamping the corporate governance and board of directors in direct response to shareholder feedback and align the company with industry best practices. A few weeks ago, the board approved three amendments to Spectrum bylaws and shareholder rights plan. I’ll remind you what those were. First, we eliminated the poison pill.

Secondly, we enabled proxy access and thirdly, we implemented majority voting. We were also making changes to the Board of Directors to align the experience of the board with a new director of the company and we have three new board members.

Finally, we needed to ensure that we had the right team in place both externally and internally with the talent and experience to get the job done. Internally, we've restructured departments, added new talent and moved talent to the areas that made sense for the company.

I'm happy to say that we’re in a much better place than a few months ago and I have full confidence in the teams that we have in place. Currently, my top priority is to hire a CMO when you're talking talent. What a great opportunity for a medical leader to have a substantial impact on our company and in patient care.

We've retained one of the nation's top search firms to recruit the most qualified person and we've already seen great candidates. Externally, we've also maximized our relationship with partners including solidifying our partnership with MD Anderson and strengthening our poziotinib IP licensing agreement.

We've also entered an agreement with Thermo Fisher for companion diagnostic. This partnership puts us in a solid position to commercialize poziotinib for the next generation sequencing. In a few months, we will have ensured that our relationships with third parties are solid and they help serve the goals of our company.

Let me tell you I'm focused on building a great company and I'm very proud of the progress we've made in the last four months. We are quickly moving from a small niche specialty pharma company into a growing biopharmaceutical company, developing targeted and novel therapies to serve patients in oncology.

I couldn’t be more exciting and passionate about where we're going. Now, I'm going to turn the call over to Kurt to go over the financials..

Thank you, Joe and good afternoon to everyone on the call today. Total revenues for the first quarter were 30.5 million, which included product sales of 28.1 million and a $2 million sales milestones from our licensee’s achievement.

Turning to cost of sales, we are beginning to realize the savings from our ongoing manufacturing initiatives for EVOMELA. These savings in combination with our product sales mix has led to improved gross margins that I referenced last quarter.

With regards to operating expenses, our SG&A costs in the first quarter continue to be slightly higher than the previous trend as a result of ongoing legal costs related to the termination of our former CEO We ended the quarter with $184 million in cash and $48 million in marketable securities for a total of 232 million of available liquidity.

Cash burn in the quarter was $45 million, which was impacted by a one-time tax payment of $22 million. And let me provide some more color on this. Our former CEO exercised 5.2 million stock options and concurrently surrendered 3.2 million shares to cover the exercised price and taxes.

To be exchanged for those shares, the company made a $22 million tax payment to cover the taxes due. While this one-time event reduced our cash, it also reduced the dilution impact of his exercise.

The policies around Spectrum’s stock plan have since been revised by the board of directors and no longer allowed to surrender enough shares to pay for taxes. I also want to point out that there was an accounting rule change, effective January 1 that requires us to mark to market all our equity securities through the income statement.

We hold 11.5 million shares of CASI Pharmaceuticals’ stock that were part of the consideration received for an out licensing transaction in 2014. As a result of this new accounting rule, we recognized $10 million in other income in the quarter for these securities.

Also, starting this quarter, we have now classified these CASI shares within marketable securities from other assets, as we believe this is more appropriate presentation of these securities. I wanted to make a couple of comments on guidance.

Given the strong results in the first quarter, we are raising our total revenue guidance to be between $95 million and $115 million, up from $90 million to $110 million. In addition, we believe that our cash and marketable securities balance will be sufficient to fund the operations into 2020. With that, let me hand the call over to Tom..

Thanks, Kurt. I want to provide everybody with a detailed overview of our two late stage assets, but equally as important, I want to capture the energy and enthusiasm of our teams working on these assets. Let me start with poziotinib.

There was a recent publication in Nature Medicine, the Nature Family of Journals is synonymous with major medical breakthroughs and we couldn't be prouder to see our poziotinib featured in the April 2018 edition.

While the key takeaways of that article was that in the first 11 patients, the confirmed objective response rate was 64% and the median PFS had not been reached after a median follow up of 6.6 months. And this compares to less than 2 months of PFS on currently available treatments.

In addition, the adverse event profile was consistent with drugs in the class. But what really has thought leaders excited about that paper, if you go back and read it is it clearly articulates the story of translational medicine.

Seeing the preclinical modeling, transfer to early clinical results has the KOL community wildly excited about what is the potential for poziotinib to treat these patients.

In addition, we then went to AACR in Chicago, having a chance to have interacted with a lot of the traffic on our poster as well as KOLs, there were three main takeaways as I took -- from that poster. First, this was the first time that we had a poster specifically designated to the HER2 exon 20 insertion mutations.

The preclinical modeling of the HER2 exon 20 insertion mutations was presented and is expected to be predictive for the effectiveness of poziotinib in this patient population. Second, the original compassionate use patient was presented. This patient experienced significant clinical and radiographic response after four weeks of treatment.

In addition, KOLs were thrilled to see that circulating DNA in that particular patient with below detectable limits, furthering their confidence that the preclinical modeling has the potential to translate into the clinic. Finally, the initial HER2 exon 20 insertion mutation prevalence data across many solid tumors was presented.

While this is the first cut, it fueled our enthusiasm to explore poziotinib in solid tumors beyond lung cancer where these mutations are present. If I step off the page, in all of my travels with KOLs, this data could impact a larger number of patients beyond lung cancer and we are wildly excited to further this development.

We're currently working to design a basket study with MD Anderson, KOLs from around the world and leading statisticians to quickly assess the opportunity. We expect to have further updates on our progress later this year. Let me update on the two ongoing lung cancer studies, the MD Anderson sponsored study and the Spectrum multi-center study.

First, on the MD Anderson study. To see that the 50-patient cohort in the EGFR exon 20 insertion mutation population is fully enrolled, is an excellent result.

If we think back just a year ago, this cohort began as a 30-patient cohort and due to the demand in the unmet medical need, we quickly increased this cohort to 50 patients and it's now fully enrolled. The HER2 cohort is also approaching 50% enrolment.

The focus of the study is not just in the United States as the MD Anderson study has enrolled patients from around the globe and we are now ramping up for our trial in Europe. The Spectrum sponsored study is off to an excellent start. We just had an energized meeting in Washington DC and the enthusiasm from the investigators was contagious.

We currently have 20 sites up and running, many more on the startup process and we’re currently opening sites in Europe that will improve logistics for patients around the world and will position us well for our filings outside the United States. Consistent with the MD Anderson experience, our enrolment is exceeding our expectations.

This speaks both to the enthusiasm of our assets as well as the clear unmet need for patients. MD Anderson is planning to submit additional data from their study for presentation at the World Lung conference in Toronto in September. Let me stay on poziotinib and focus on some fundamentals, both IP and regulatory strategy.

As it relates to the intellectual property of poziotinib, Spectrum has a strong portfolio of issued patents that cover composition of matter, methods of manufacturing in formulation.

In addition, as you may have seen this morning, we have entered into an exclusive licensing agreement with MD Andersen that includes the rights to file patents related to methods of use to treating cancer patients with EGFR and HER2 exon 20 mutations as well as any unidentified discoveries related to poziotinib that may come from Dr.

John Heymach’s lab and MD Anderson in the future. If granted, these patents would effectively extend pozi’s IP to 2037.

While the specific financial terms have not been disclosed due to confidentiality agreements of multiple parties involved, what I can say is that Spectrum's royalty obligation remains consistent with what has been publicly disclosed with royalties between the low and mid-teens.

If I look at the main point here, to have an IP extension to 2037 in the mutated cancer space if patents granted solidifies our partnership with a leading academic institution of MD Anderson has us thrilled with this agreement. On the regulatory side, we are in regular discussions with the FDA to expedite the regulatory approval for poziotinib.

We’ve conducted a pre-submission meeting with the agency along with Dr. Heymach from MD Anderson. The tone of the meeting was very encouraging and the understanding around the unmet medical need for patients with exon 20 insertion mutations was very clear.

As we evaluate the criteria for breakthrough therapy designation, we believe that pozi meets the criteria if the early data continues. When we look at those criteria, there are two. First, there needs to be a clear unmet medical need and second, the potential for substantial improvement over existing therapies needs to be there.

We think pozi qualifies for both. Based on our discussions, we should know if poziotinib qualifies for breakthrough therapy designation by the end of the year and the MD Anderson data will be the backbone of that decision. We couldn't be more excited about our development program with poziotinib.

You may have also seen this week a press release regarding Thermo Fisher, which ultimately is important for both regulatory submission as a companion diagnostic and our commercial strategy. Thermo Fisher pioneered next generation sequencing as lung cancer when their Oncomine RX target test, which was approved by the FDA in June of 2017.

As promising clinical data continues to emerge with pozi for the treatment with patients with EGFR and HER2 exon 20 insertion mutations, the development of the Oncomine RX target test will aid in faster detection and treatment of patients who are not well served by currently available treatments. Let me transition to Rolontis.

In the first quarter, we announced Rolontis met the primary efficacy endpoint of non-inferiority in duration of severe neutropenia between Rolantis and pegfilgrastim in the advanced stuff. This study also confirmed that the adverse event profile was similar between the two treatment arms.

We also announced the full enrolment of our second Phase 3 study, the RECOVER study. The next two data milestones for Rolontis will be the Phase 3 data abstract released online by ASCO on May 16, followed by an oral presentation at MASCC Indiana between June 28 and 30.

Our team is diligently working to prepare for our pre-BLA meeting with the FDA to make sure that everything is in line for preparation of our planned Q4 BLA submission. If approved, we will have the opportunity to compete in a multi-million dollar market with a novel asset.

In closing, I hope you could see, we have a ton of positive things happening within our operations. The energy of the company is palpable and I couldn't be prouder of the team as they are executing with both precision and excellence. We look forward to providing you with additional updates as the year progresses. With that, I’ll turn it back to Joe..

Thank you, Tom. Thank you, Kurt and thank you, Shiv. And with that, I'd like to open it up for questions. Victor, if you can open the lines up, I’d appreciate it..

[Operator Instructions] And our first question comes from the line of Adnan Butt from Guggenheim..

Joe, in terms of the update that’s expected at World Lung.

Can you tell us what level of detail we should expect? Is it going to be mostly response rate or will you have mature PFS by that time?.

Great question, Adnan. And first, I just – as I always want to just state the obvious that this is MD Anderson’s data, so in the end, they're going to decide which data they choose to present. Now with that saying, what I'm excited about is, we will have a lot more data obviously than we have to date, than we've seen to date.

For example, the -- as we just said, the cohort of the EGFR is fully enrolled. That means that all 50 patients have been enrolled, meaning that that whole -- entire cohort will have much more data on it. We’ll have -- it continues to enroll at MD Anderson on the HER2 side.

So one thing you can see for sure is that much more data on many more patients will be presented. Again, I'm not sure and can tell you that exactly here's the PFS at that time, but we'll have a lot more data that and we'll know so much more at that time..

On related, can you tell us if there is a median PFS for the first 11 patients yet or is it close, is that something you can comment on?.

I can't comment yet. No. MD Anderson will release that when they have it..

Last one on this topic.

Any -- help us understand what the duration of treatment can look like based on what you've seen so far?.

Well, what's been presented has been, as you know, Adnan, it’s the first 11 patients that's been made public and what do we know on that. Well, let's take a step back first, walk down memory lane to make sure we get in the right frame of mind of what we're looking at. Patients, as you know, with this disease have a PFS of 1.81.

So it's a terrible, terrible prognosis. Current therapies only have less than 10%, I think 6% to 8% response rate. So we have huge unmet need, terrible prognosis. What we saw in those first 11 with the ones that were confirmed is we saw 6.6 months, but we didn't get -- we didn't hit the median yet.

So that means it's going to be somewhere north of those patients of 6.6 months. Again, going back to the first meeting we had with the thought leaders, I'll remind you of this. We've talked about this in the past.

I thought I could get an approvable drug just by getting maybe when you look at the prognosis, maybe, we could -- if we could get to four months, maybe we'll have a good shot at this and the response rate may be around 30%. I think that's what was expected.

And I asked those thought leaders exactly this question is it guys, what's a home run, help me understand. What they told us was two things. If you can get four to six months of response and you could get anywhere from 40% to 50%, I'm sorry response and duration, that's a home run. So that's kind of a marker I'm looking at.

I'm feeling pretty good about the early data when you look at that.

How can you not?.

Okay. Last one, what do you want out of the FDA discussions that are ongoing and when will you expand the focus to thinking about approval outside the US? That’s it..

Yeah. I'll comment, Tom, you can comment too if you’d like. First, I’d start with the agency. As we've said in the past, we had a preliminary meeting with the agency. This was talking about breakthrough designation. We know what the requirements are.

We feel we meet the criteria and I think in a not too distant future, we'll go to a second meeting with them and our goal is to establish breakthrough designation. We feel we meet those criteria.

Now, Tom, do you want to speak to the ex-US?.

Yeah. I think, two things. I think the breakthrough therapy designation if achieved will provide an expedited regulatory pathway for approval and with MD Anderson’s data being the backbone of that in our trial ongoing, we have a lot to discuss with the agency if their data expectations are met. So I think that’s on the regulatory side.

We are currently launching our study into Europe, which ultimately will help with ex-US regulatory agencies and our -- we have global rights outside of China and Korea as you know. So that's a key point of focus as well..

And our next question comes from the line of Ed White from H.C. Wainwright..

So just a couple of things. First of all, if you can make a comment on your pozi things to HER2 positive metastatic breast cancer study, just how that's progressing and when we can see data from there..

Okay. Well, first of all, let me let Zane Yang answer that. He's the director of our development here..

Hi. Thank you for the questions. So this is Zane Yang. So I’m the leader for the clinical development and just update for your interest of pozi in HER2 positive for breast cancer. And as you know, this is a single agent, single arm therapy in pre-treated adverse metastatic breast cancer patient.

And in the recent global breast cancer conference in Korea, and we reported the first cohort study result, demonstrate the clinical efficacy and the safety profile. And that the poster is publicly available at this time.

It will be demonstrated in the first cohort of 33 patients, we have more than 21% of confirmed response rate, which is in line of this pre-heavily treated patient population receive available -- currently available therapy and the safety profile is also within that safety profile in the class of drug..

Ed, I'll add this. I think to get one of that just to your questions, I think the study is enrolling very well..

When do you expect to see full enrolment or have you mentioned that?.

We didn’t comment on that. But it is enrolling well. That I can tell you..

Okay. And then just a clarification on pozi for your study.

You had said 20 sites are open, those are all US sites and now you’re ramping up in Europe, but is there any sites open in Europe yet?.

Ed, it’s Tom. So the 20 sites are US. Those that are in process to open are in the US and we have not opened the first site in Europe, but we're actively working on it..

And as far as MD Anderson goes now and their first cohort of 50 patient has been enrolled, have they -- are they actively enrolling patients into your study yet..

Yeah. What they did, they had patients to the screening. It’s interesting and as soon as they were fully enrolled in each cohort, they will be flipping over to ours as a site for our site. So the answer is yes..

And something we haven’t talked about in the lab, but just wondering if we can an update on capsola?.

Yeah. Great question. We continue to enroll, just to remind you everybody, that we have an STA that’s for non-muscle invasive bladder cancer and we are currently enrolling is what I can tell you in that trial..

There was one more question, just on the announcement out today and you had said on the call that the royalty rate with MD Anderson continues to be in the low to mid-teens with no changes.

So does that mean that with the press release out today and the agreement out today, there is going to be some kind of upward or milestone payments or a one-time payment at the end?.

This is Kurt and let me field that one. So as we said, the financial terms of the agreement are not disclosed, but they're pretty typical for a licensing agreement that a company would enter into with the university.

And while I can't disclose the specific terms due to the confidentiality we have with both of the licensing agreements that we signed, the one with MD Anderson and the one that we signed back in 2015, we can tell you that based on the terms of both of these agreements, our total royalty obligation remains consistent with what we've publicly disclosed, so that’s that low to mid-teens range, but I just can't get into more details on that based on the confidentiality of the agreements..

And our next question comes from the line of Roger Song from Jefferies..

First of all, congrats on all the progress. So my first question is regarding the companion diagnostic.

So can you just provide some color here, why you decided to do this agreement to incorporate companion diagnosis to our poziotinib study? Is that related to kind of the slow – relatively slower enrolment in HER2 EGFR and if you can – can you walk us through how you will plan to incorporate that companion diagnostic to the ongoing study?.

This is Tom. Thanks so much for the question.

That agreement, the significance of it is both regulatory and later commercial, because it is a regulatory requirement to have a companion diagnostic and given the speed and pace and enthusiasm around this particular area of unmet medical need, it was important that we sign a companion diagnostic partner with urgency because you have to file the companion diagnostic in line with your regulatory submission that we will put forth to the agency.

So I think that’s the significance of the agreement being signed now and we selected Thermo Fisher based on their expertise and willingness to deal with and execute against our aggressive timelines.

So as it relates to commercial, once the product becomes commercial, the companion diagnostics will be a part of the approved label, if it were to be approved and then the -- those who are using the product would use a companion diagnostic that ultimately may or may not be that of Thermo Fisher, but it's a regulatory necessity..

So my next question relate to the IP. So if -- without considering the agreement, base agreement with the MD Anderson, what will be the [indiscernible] extension for poziotinib for comp set of matters, and formulation..

Great question. So currently comp of matter is 2028 and our expectation is between two and three years of extension based on the development programs and that's largely going to depend on how we progress with the agency.

So think about it as a 30 to 31 in terms of the composition of matter, which is why having a license agreement with MD Anderson, if those patents are granted in exon 20 insertion mutation specifically for EGFR and HER2 in the treatment of cancer is such a significant announcement for the life cycle of the asset because it could potentially extend to 2037..

So just one more question, my last question.

So with all of clinical, preclinical data update, do you see on any change in the level of interest from strategic partners?.

Appreciate the question. With our worldwide rights, there's -- we have an active business development department and we're always in conversations regarding business development.

We don't make public statements on that, but our business development group is busy, both with our currently available assets as well as bringing other novel and targeted drugs into the organization..

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