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Spectrum Pharmaceuticals Inc  (NASDAQ:SPPI)
Q4 2018 Earnings Conference Call
Feb. 28, 2019, 4:30 p.m. ET

Contents:

Prepared Remarks:

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 the time. (Operator Instructions) As a reminder, this conference call is being 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 -- Vice President of Strategic Planning and Investor Relations

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 the 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 -- President and Chief Executive Officer

Thank you, Shiv. Good afternoon. Hello to everybody on the call. I appreciate your interest in Spectrum. 2018 was a very productive year for us at Spectrum. It was my first full year as a CEO, and as I reflect on the year, there are three major developments in 2018 that I'm very proud of and really define 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 pozi and ROLONTIS, and the data strengthened our confidence in both of these assets.

On the poziotinib program, we're 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 Phase II study in non-small cell lung cancer patients with EGFR or HER2 exon 20 mutations demonstrated impressive antitumor activity. We are currently well under way with our pivotal trials for pozi 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 early January, and we expect the primary analysis results in the fourth quarter of this year.

For ROLONTIS, data from two Phase III trials demonstrated that it was not inferior in the standard of care with a similar safety profile. We submitted the BLA with the FDA late in December 2018. Due to the government shutdown, the file was officially received on January 8 -- 28, 2019, so in essence, the government shutdown has delayed the process by about one month. The second major development in 2018 was our change in our business strategy. We knew early in my tenure that it was in the shareholders' best interest from a spec pharma to a biopharma company focused on bringing novel targeted treatments to patients in areas of high unmet medical need. 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 cash flow of those legacy products. The cash flow 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 direction. At this point, we're looking to outlicense the asset through our business development function. As we look at 2019, poziotinib and ROLONTIS will be our primary focus and we're also exploring opportunities beyond our existing pipeline. The slides 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 our 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 voids unfilled, enabled proxy access and majority voting and added very accomplished board members with the appropriate experience needed as we advance 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, I'd like to turn it over to Kurt to talk about the financials.

Kurt A. Gustafson -- Executive Vice President, Chief Financial Officer, Principal Accounting Officer

Thank you, Joe. So starting with the top line, 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 in 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 expenses 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 poziotinib 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. 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 generally accepted accounting principles, we are required to expense this inventory until the product and facility have been approved by the FDA. When this product is later sold, we will report this inventory at a 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 in cash and $46.5 million in marketable securities for 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 cost to decrease by approximately 30% relative to 2018. We expect R&D cost to be nominally higher to be nominally higher than they were last year as lower spend on the legacy assets is offset by increased spending on pre-commercial supply in tech transfer activities for both ROLONTIS and poziotinib. With the increase in cash from the sale of our commercial assets, we expect that our cash balance will be sufficient to fund operations for at least three years.

With that, let me now hand the call over to Francois Lebel to cover update on our clinical program.

Francois Lebel -- Chief Medical Officer

Thanks, Kurt. Hello, everyone. Regarding our clinical development program, 2018 ended strongly, and we started 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 poziotinib clinical program is aggressively moving forward. In early January, we announced that the EGFR previously treated cohort 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 top line 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 2 is evaluating previously treated non-small cell lung cancer, patients with HER2 exon 20 insertion mutations. Traditionally, 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 prespecified 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 tumor types. Second, we're also planning combination studies in non-small cell, with exon 20 insertion mutation. We are looking to start this trial 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 G-CSF for cancer patients suffering from chemotherapy-induced neutropenia. And with poziotinib, we have an exciting development program in an area of high unmet medical need. Poziotinib has shown 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 -- President and Chief Executive Officer

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

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Alethia Young from Cantor Fitzgerald. Your line is open.

Emma -- Cantor Fitzgerald -- Analyst

Hi. This is Emma on for Alethia. For cohort 1 of ZENITH20, can you help us frame whether that trial is barred based on the prior exon 20 studies? Or is that on the all-comer lung cancer population that the FDA uses as the comparator for the breakthrough decision?

Francois Lebel -- Chief Medical Officer

So a 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 what we need to meet. And we've had discussions with the FDA. There's an agreement, full understanding of what we need to meet. And I think you're referring a little bit back to the breakthrough designation discussion, 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.

Emma -- Cantor Fitzgerald -- Analyst

Okay. And then just on ROLONTIS. Can you give us any color on the specific commercial buildout efforts?

Joseph Turgeon -- President and Chief Executive Officer

Yes. First of all, commercial buildout will -- we 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 inline products, part of the deal we're 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 product 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.

Emma -- Cantor Fitzgerald -- Analyst

Thank you.

Joseph Turgeon -- President and Chief Executive Officer

Thank you.

Operator

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

Adnan Butt -- Guggenheim Securities -- Analyst

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 -- President and Chief Executive Officer

Yes. Hey, Adnan, firstly, two things about the HER2. What we saw -- to remind you, we saw the first 13 patients at World Lung. 12 of those were evaluable on the HER2 side. By the way, that was the first human data I'm aware of in HER2. So it was important data. And it was at -- the confirmed ORR was 42%, so right in line with the EGFR. I'll mention that. I'm not sure exactly how many patients will be the final number in that cohort at MD Anderson. The reason I say that, Adnan, is Dr. Heymach is now moved on and he's now a psych 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 at a major medical journal. I can't tell you exactly when that will be.

Adnan Butt -- Guggenheim Securities -- Analyst

But can you say that, that's this year?

Joseph Turgeon -- President and Chief Executive Officer

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

Francois Lebel -- Chief Medical Officer

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

Adnan Butt -- Guggenheim Securities -- Analyst

Okay. Then one on the ZENITH study. Given the unmet need, I'd have imagined that front-line studies would enroll quickly as well. Are you sort of guiding as to which cohort should enroll first? Why the differences in cadence for enrollment?

Joseph Turgeon -- President and Chief Executive Officer

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 to be -- expected to be enrolled is cohort 2, which we've indicated would be by the end of this year. Three and four, it's too early to tell at this point which one would finish first, and we're -- we don't know and we can't really prognosticate at this point.

Adnan Butt -- Guggenheim Securities -- Analyst

Maybe for Kurt. Kurt, the three-year cash guidance, does that incorporate potential approvals and launches of poziotinib and ROLONTIS?

Kurt A. Gustafson -- Executive Vice President, Chief Financial Officer, Principal Accounting Officer

Yes. Great question, Adnan. So I think as we take a look at our forecast, we feel good about the ROLONTIS later and the BLA filing. So our forecast does include a launch of ROLONTIS some time in 2020. So that is indeed included in that guidance.

Operator

(Operator Instructions). Our next question comes from the line of Ed White from HC Wainwright, your line is open.

Ed White -- HC Wainwright & Co. -- Analyst

Hi guys, thanks for taking my question. So I guess I want to go back to Kurt about the cash burn guidance. And does that include the $140 million in milestones -- country milestone payments from the deal?

Kurt A. Gustafson -- Executive Vice President, Chief Financial Officer, Principal Accounting Officer

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 rolled out it -- we rolled out to our forecast and it certainly takes us through the next three years.

Ed White -- HC Wainwright & Co. -- Analyst

Okay. Great. And then we've talked about the time lines going forward for pozi in the US I was just wondering if you can update us, the expected time lines for the EU and Japan. You've mentioned before that the EU has potentially more patients to address than the U.S. and Japan has another 5,000 potential patients to address. So I'm just curious as to any thoughts of a time line for submissions in Europe and Japan.

Francois Lebel -- Chief Medical Officer

Yes. So first of all, we have activities, like you're 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 opened. Cohorts 3 and 4 is in the process of opening. And we are actively engaging with regulators in Japan. I don't -- again, tell you more about it at this time, but I think that gives you an idea of where we're going.

Ed White -- HC Wainwright & Co. -- Analyst

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

Thomas J. Riga -- Executive Vice President , Chief Operating Officer and Chief Commercial Officer

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

Joseph Turgeon -- President and Chief Executive Officer

Yes, Ed, I'll add to that 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 was talking about this in the past, every model we had, we had two, three biosimilars on the market where we launch. So this is nothing that we didn't plan for, didn't anticipate. So I'll just remind you that.

Ed White -- HC Wainwright & Co. -- Analyst

Okay, great. Thanks for taking my questions.

Operator

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

Joseph Turgeon -- President and Chief Executive Officer

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 you we're enthusiastic about our new direction in 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.

Duration: 24 minutes

Call participants:

Shiv Kapoor -- Vice President of Strategic Planning and Investor Relations

Joseph Turgeon -- President and Chief Executive Officer

Kurt A. Gustafson -- Executive Vice President, Chief Financial Officer, Principal Accounting Officer

Francois Lebel -- Chief Medical Officer

Emma -- Cantor Fitzgerald -- Analyst

Adnan Butt -- Guggenheim Securities -- Analyst

Ed White -- HC Wainwright & Co. -- Analyst

Thomas J. Riga -- Executive Vice President , Chief Operating Officer and Chief Commercial Officer

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