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Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI)
Q1 2019 Earnings Call
May 9, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen and welcome to the Spectrum Pharmaceuticals first quarter 2019 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press * then 0 on your touch-tone telephone. As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Shiv Kapoor, Vice President, Strategic Planning and Investor Relations.

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

Thanks. Good afternoon, everyone. Thank you for joining us today for Spectrum's first quarter 2019 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 and provide an overview, followed by a financial update from our CFO, Kurt Gustafson and a discussion of our clinical development operations from our CMO, Dr. Francois Lebel.

Before we get started, I'd like everyone to refer to the notice regarding forward-looking statements included in today's press release. This notice emphasizes the major risks and uncertainties inherent in the forward-looking statements that we will make this afternoon. These statements are not guarantees of future performance and undue reliance should not be placed upon them.

Such forward-looking statements necessarily involve known and unknown risks and uncertainties which may cause actual performance in financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Today's call will also include a discussion of non-GAAP financial measures, which should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP.

With that, let me hand the call over to Joe.

Joseph Turgeon -- President and Chief Executive Officer

Thank you, Shiv and thank you everybody on the call for your interest in Spectrum. Q1 was a strong quarter with significant developments. We've made bold moves to strategically shift the company and jump start our evolution from a spec pharma company into a growing biopharmaceutical company. This includes the sale of our legacy oncology portfolio and just today, we announced the expansion of our oncology pipeline into immuno-oncology. We also continue to advance the development of our late-stage assets, Poziotinib and Rolontis, the cornerstones of our company.

On the Poziotinib front, we made significant progress in our clinical trial, the ZENITH20 trial. Full enrollment of the previously treated EGFR cohort or cohort one was announced in early January and we expect the primary analysis results in the fourth quarter of this year.

Regarding Rolontis, we continue to have productive discussions with the FDA and plan to meet with the agency in the near-term. We are being thorough and deliberate in updating our file and we hope to have it to the FDA as soon as it is ready. We look forward to a successful submission and it's ultimate approval.

Now, let me shift to the deal that we announced today. We closed the deal to purchase the focused interferon therapeutics or FIT platform along with two early stage assets immune gene. We are now on the forefront of developing a novel class of FIT therapies in immuno-oncology. Let me tell you why I like this deal and how it fits into our strategy.

It's consistent with our vision. It's great science, good value, and it's the right fit for our company. When you look at the vision, it's consistent with our commitment to bring innovation products to serve several areas of unmet needs in cancer. The science is validated through collaboration with multiple world-class scientific organizations, which include UCLA, UPMC, and the Leukemia and Lymphoma Society. It's a great value because the deal terms are highly favorable for our shareholders.

Finally, it fits as it complements our late-stage assets. Our team has considerable experience in this area, which will help also. Overall, this is a great deal for the company and I look forward to seeing the results from the initial studies.

Dr. Francois is going to walk you through in more detail on the products and the platform. 2019 is off to a strong start and I'm proud to say there are strategies taking shape. We're now a biopharmaceutical company with a growing oncology pipeline. With that, I'm going to turn it over to Kurt for the financials.

Kurt Gustafson -- Chief Financial Officer

Thanks, Joe. The sale of our commercial product portfolio to Acrotech closed on March 1st. As a result of this sale, our financial statements will look at bit different than what you've seen before. Under GAAP, the financial statements are split between continuing operations and discontinued operations, the discontinued operations representing the portion of the business that was sold to Acrotech. As a result, you'll note that the product sales and cost of sales are missing off the face of our financials, as these items are reported as discontinued operations. Note that GAAP requires that we report all historical periods in the same manner.

With regard to continuing operations, our SG&A expense for the first quarter of 2019 was $16 million and R&D expense was $21.9 million, which includes $9 million in purchases of Rolontis drug substance. As a reminder, our accounting practice is to expense this inventory as R&D until the product and facility have been approved. When that material is later sold, we'll report zero cost of goods sold for this material given it was previously expensed.

We also had an $11.3 million loss in other income expense due to an unrealized loss in the value of our equity interest in Kashiv Pharmaceuticals. Our total loss from continuing operations was $39.8 million. However, on a non-GAAP basis, which primarily backs out certain severance-related costs and stock compensation costs, our non-GAAP loss from continuing operations was $29.3 million.

Post the close of the transaction, our cash position is even stronger. We ended the quarter with $277 million in cash and $33 million in marketable securities for a total of $310 million. Included in this figure is $4 million of cash classified as restricted cash. This represents an amount held in escrow as part of the Acrotech transaction that is due to be released when certain post-closing performance obligations are met.

Regarding guidance, given that the launch of the Rolontis will be delayed relative to our previous expectations, we expect to postpone certain pre-launch expenditures that were planned for 2019. We plan to update guidance once the file has been accepted.

With that, let me hand the call over to Francois to cover updates on the clinical programs.

Francois Lebel -- Chief Medical Officer

Thanks, Kurt. Hello, everyone. I'm going to start by providing an update regarding our late stage asset, Poziotinib. The Pozi development program is focused on investigating the treatment of exon 20 insertion mutations across tumor types. Exon 20 mutations are among the most difficult to treat and currently have no FDA-approved targeted therapies. These patients and their physicians really need new treatment options.

We are well under way with our pivotal multi-centric trial called ZENITH20. As Joe mentioned, we expect the primary analysis results from cohort one in the fourth quarter of this year. Regarding the HER2 previously treated cohort, also called cohort 2, our guidance was that we would be fully enrolled by Q4 and enrollment is well ahead of previous expectation.

Currently, treatment options are very limited and prognosis very grim for these patients. Poziotinib has the potential to fill a clear need for patients with this type of lung cancer. In addition to cohort 1 and 2 in previously treated patients, we are aggressively enrolling in cohorts 3 and 4, which are evaluating Poziotinib as first line therapy in both EGFR and HER2 patients with exon 20 insertion mutation.

Additionally, we're also planning to evaluate Poziotinib in other tumor types and in combination where we have promising free clinical data. As previously guided, we are looking to start this trial in the second half of this year. So, more to come in the future.

Regarding Rolontis, we are refining our BLA file and anticipating meeting with the FDA in the near-term. Additionally, Rolontis data has been accepted to be presented in a poster session at ASCO in Chicago in June. These will be integrated data from our two Phase 3 trials with a total of 643 patients. As previously reported, each one of our Phase 3 studies independently met our primary and secondary endpoints. We look forward to sharing the integrated data at ASCO.

Now, let me shift to today's acquisition of the FIT platform and two early stage assets. This is a welcome addition to our pipeline in a space that I know well. The FIT platform creates a new class of biotherapeutics engineered by fusing interferon alpha with monoclonal antibodies, targeting various validated tumor antigens. Interferons are very potent cytokines that are well-established as the immune form of therapy for cancers.

However, interferons have historically been associated with significant dose-related systemic side effects. We believe that the FIT technology has the potential to maintain the efficacy and minimize toxicity. These novel therapies have potential application as single agent or in combination with other rational therapies, including with checkpoint inhibitors.

The first asset is an antibody interferon fusion molecule directed against CD20. This drug candidate is in Phase 1 development, being studied in relapse refractory non-Hodgkin's lymphoma, including diffuse large B-cell lymphoma, where considerable unmet medical need exists.

In pre-clinical models, this fusion protein has been shown to add significant pro-apoptotic activity and anti-CD20 interferon alpha is essentially a two-pronged attack, whereby both CD20 and interferon receptor signaling pathways can be activated to induce tumor cell apoptosis. Pre-clinical results suggest that anti-CD20 interferon alpha fusion protein has an improved therapeutic index while still exhibiting the ability to eradicate tumor cells.

The second asset is an antibody interferon fusion molecule targeting GRP-94 or heat shock protein. This asset has demonstrated the potential for treating both solid and hematologic malignancies and is in pre-clinical development. Our clinical team looks forward to an ongoing collaboration with UCLA, the discoverer of this platform.

In the near-term, we will complete the dose escalation study of the fusion protein directed at CD20 and bring the anti-GRP-94 to the clinic as soon as possible. We will update you on milestone in the future.

Poziotinib and Rolontis remain the cornerstone of our development portfolio. The new FIT platform, an asset nicely expands the pipeline with early stage but promising candidates. Now, I'd like to turn it back to Joe.

Joseph Turgeon -- President and Chief Executive Officer

Thank you, Dr. Francois. I hope you see it's clear that Spectrum has made some major shifts in the first few months of 2019 and will continue to make bold moves to strengthen the company as we move forward. With that, I'd like to open it up, Operator, to questions.

Questions and Answers:

Operator

Ladies and gentlemen, if you have a question at this time, please press * then the number 1 key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the # key.

First question comes from the line of Alethia Young from Cantor Fitzgerald. Your line is now open.

Emma -- Cantor Fitzgerald -- Analyst

This is Emma on for Alethia. On today's acquisition, I guess I'm just curious -- were you in the market for an IO platform specifically or what was attractive about this opportunity versus others you might have looked at? And then looking at your current pipeline and your cash balance, are you still looking to bring in any additional assets and what would the ideal profile of this be?

Joseph Turgeon -- President and Chief Executive Officer

Yeah. I'll start and I'm going to let Dr. Francois also get involved. I think what we're looking for is it fits our vision. We want to look for unmet medical need in cancer. That's the first thing we look at. We want validated science, obviously, things that are synergistic and fit where we're going, would fit commercially down the road with the drugs we have in oncology and hematology and we have the expertise to move forward as we have in the past. That's basically what we're looking for in oncology. Dr. Francois, I'll let you add form your perspective, if you'd like.

Francois Lebel -- Chief Medical Officer

Right. I think it just made a lot of sense, as Joe has highlighted to you. Immuno-oncology, as you well know, is kind of the way forward for oncology. We happen to have a lot of experience in the company, including myself, where I've worked with a number of cytokines in the past and CAR therapy, for that matter.

This was a unique opportunity where we had a chance to get our hands-on assets that are targeting a validated target at a very attractive price. So, it was a unique opportunity that we could not pass. I think you asked about immuno-oncology. Sure. That's a really interesting area right now but we're glad to be in it.

Emma -- Cantor Fitzgerald -- Analyst

And then as you think about any potential future acquisitions, is that something there is still an appetite for?

Francois Lebel -- Chief Medical Officer

I didn't hear the end of your question. Could you repeat the end? I'm sorry.

Emma -- Cantor Fitzgerald -- Analyst

Sure. Just following this acquisition and looking at your cash balance now, are you still in the market to bring in additional assets beyond what was announced today?

Joseph Turgeon -- President and Chief Executive Officer

Our business model is to acquire new products. This is consistent with the vision and mission that we have here. We are always on the look and hope to continue to build this portfolio.

Emma -- Cantor Fitzgerald -- Analyst

Thanks very much.

Operator

Your next question comes from the line of Ed White from H.C. Wainwright. Your line is now open.

Edward White -- H.C. Wainwright & Co. -- Managing Director

Hi, guys. Thanks for taking my questions. So, first of all, on ASCO, congratulations. It seems like it's a change from previous years when it didn't seem like ASCO was interested in the treatment of chemotherapy-induced neutropenia patients. So, with all the new therapies on the way, obviously behind Rolontis, do you think there is some more excitement in the medical community now in this area again from what you're seeing as you prepare for your launch? And then I'll come back to another Rolontis question after that.

Francois Lebel -- Chief Medical Officer

Yeah. It all started -- Tom can comment too -- I do think there's excitement. For years and years and years -- I was a big part of that, as you know -- there was only one-stop shopping, so to speak. I think that this is changing the game, so to speak, in all these offices for the first time. I think what makes us even more unique is in this, as new products come out, we're the only novel therapeutic that's coming right now since the beginning. The other is a biosimilar. So, that puts us in a very unique position.

We're excited about ASCO too because in the poster, you'll get to see the integration of both trials. It was good that ASCO accepted that. You're right. They get to accept the poster and you get to see the data combined with two trials. Tom, I'll let you comment also.

Thomas Riga -- Chief Operating Officer and Chief Commercial Officer

Hey, Ed. It's Tom. I think competition always breeds interest, especially in really large markets that are important to oncologists and supportive care has had a lot of attention over the past year and will continue into the next several. We're excited to be a part of it, get this file back to the agency and ultimately achieve approval.

Edward White -- H.C. Wainwright & Co. -- Managing Director

Okay. Thanks, Tom. On something that Kurt had said about Rolontis being delayed and postponing the pre-launch expectations in 2019, am I reading too much into this? Are you thinking now that the launch isn't going to occur into 2020 or do you think 2019 is still a possibility?

Joseph Turgeon -- President and Chief Executive Officer

You know, I don't want to comment on the when. We've got an upcoming meeting with the agency. We'll be in a better position to see where we're at. I'll remind you of this. We're working diligently to prepare the CNC module. I'll remind you they told us exactly what they want. They're working with us being very helpful. So, I look forward to the next meeting. I'm really pleased with the progress we're making on that part of the file.

I'll remind you, as you well know, the clinical data was sound. It hit both the primary and secondary endpoints, which you could argue the hardest part of this thing in the near-term, we plan on filing it as soon as it's ready. Again, after the meeting with the agency, we'll know more about when. I hope that answers your question.

Edward White -- H.C. Wainwright & Co. -- Managing Director

It does, Joe. Thanks. Again, on ASCO, I was curious -- they still haven't given an announcement. So, I'm assuming that there are going to be no abstracts or presentations on Pozi there. I'm curious if an abstract was submitted by Spectrum or [inaudible] for Poziotinib.

Joseph Turgeon -- President and Chief Executive Officer

No. Nothing was submitted. Our data will be in the fourth quarter from cohort 1.

Edward White -- H.C. Wainwright & Co. -- Managing Director

Okay. Last question -- I know you didn't really give a timeline for cohorts 3 or 4, but can you tell us how the progress of enrollment is happening there? Is it within expectations? Anything you can give us on that, I would appreciate. Thank you.

Francois Lebel -- Chief Medical Officer

Thank you for the question. Yes. We're on track for the recruitment of those. We have a number of additional sites opening in Europe in the near-term. So, we're on track and we think things will potentially even accelerate. I think even more important is we're guiding today, which even though we said cohort 2 will be Q4, recruitment is particularly going well there. So, stay tuned.

Joseph Turgeon -- President and Chief Executive Officer

I'll just add one thing -- when you look at cohort 1 ahead of schedule, cohort 2 now Dr. Francois tells you ahead of schedule, it certainly demonstrates the unmet need here. There's a need for these patients, no question.

Edward White -- H.C. Wainwright & Co. -- Managing Director

Okay. Great. Thanks, Joe. I misspoke before. I wasn't expecting Rolontis' launch until 2020. I mistakenly said '19, but it seems like once you'll give us an update as things become more clear, after you meet with the FDA or you get some more clarity, will you be conveying that to investors?

Joseph Turgeon -- President and Chief Executive Officer

Well, listen, right now, what I'm going to tell you is we've got the upcoming meeting. We want to get this file in as soon as it's ready. That's what we're going to do.

Edward White -- H.C. Wainwright & Co. -- Managing Director

Good enough. Thanks, Joe.

Joseph Turgeon -- President and Chief Executive Officer

Thank you, Ed.

Operator

Your next question comes from the line of Maury Raycroft from Jefferies. Your lien is now open.

Maury Raycroft -- Jefferies -- Analyst

Hi, everyone. Good afternoon and thanks for taking my questions. The first one is just on Poziotinib on cohort 2. So, it sounds like the enrollment for that is going pretty well. Are you at a point where you think the data may come earlier than expected then?

Joseph Turgeon -- President and Chief Executive Officer

No, we have not changed the guidance officially. It's still Q4 for full enrollment, which is telling you that things are moving along very nicely. We have not changed anything in terms of the data we would have to follow patients following the last patient in to make sure that we have not only response, but durable response. There's no change on that front.

Francois Lebel -- Chief Medical Officer

Maury, the other thing I will remind you is that each of the four cohorts are powered individually and stand alone. So, I'll remind you of that.

Maury Raycroft -- Jefferies -- Analyst

Got it. Thank you. Then the CD20 interferon acquisition is pretty interesting. That Phase 1 trial enrolling right now, can you give a status update on that and how many patients are in and are you at a therapeutically active dose?

Joseph Turgeon -- President and Chief Executive Officer

This was a 3 x 3 dose escalation study. If you go to clintrial.gov, you ought to see the other parameters. There was a number of cohorts. We're not going to announce anything right now in terms of how many cohorts. Obviously, you're looking for maximum tolerated dose. So, we'll do as many cohorts as we need. The only thing I can say right now is that there is good progress in terms of the number of cohorts that have been dosed. But there are still more.

The safety profile is very much in line with what is expected, meaning very likely to be much better than traditional interferon. But we're not going to give today any result as to number of patients or any more detail. Obviously, we will present eventually in an appropriate scientific forum the results.

Maury Raycroft -- Jefferies -- Analyst

Got it. Okay. Then in asking about the molecule, some more details around that, I'm wondering if you can say anything about the CD20 IGG format or even the epitope that it's targeting, if there's something unique about that that you can comment on.

Joseph Turgeon -- President and Chief Executive Officer

So, we believe that we have a proprietary technology through the license that we got from UCLA. I don't think we have disclosed or are planning to disclose any detail as to which epitopes or what modifications were done on the antibody fragment or on the interferon either.

Maury Raycroft -- Jefferies -- Analyst

Okay. And then in the update was a line in there about the FIT antibody delivery platform. I'm just wondering if you can talk more about what that is, exactly.

Francois Lebel -- Chief Medical Officer

It's a very attractive or flexible platform. As I mentioned in my comments there, you have the possibility to deliver double hits here. You get potentially the activity of the interferon that leads to interferon-induced gene expression signature. So, you get that benefit. As you know, in the past, the problem with interferon has not been the activity of an anti-tumor molecule. It was the toxicity, the systemic toxicity.

Let's just say that the pre-clinical data as well as so far the clinical data is very encouraging that there might be truly a way here to get the benefit of interferon without necessarily the toxicity. That's very encouraging. That's only one aspect of it. You want the interferon to be delivered to the tumor microenvironment.

That's where the other part of the molecule, which is targeting tumor antigen, brings a higher quantity of the interferon right to the site of needed action, if you want. So, you get a double-whammy, if you want. You get the interferon benefit, minimal activity in the systemic circulation, and concentrated activity at the site in the tumor micro-environment where you need it.

Maury Raycroft -- Jefferies -- Analyst

Cool. It's pretty interesting. So, basically, you're using much less interferon and you're getting the interferon into the tumor microenvironment.

Francois Lebel -- Chief Medical Officer

Absolutely. Plus, possibly remember that the antibody can be -- in the current one, we're targeting CD20. The following one is GRP-94. But we've been licensed here is the access to other possible targets. Also, as you probably well know, interferons come in various flavor or subtypes. So, we have a lot of flexibility with this platform.

Maury Raycroft -- Jefferies -- Analyst

Got it. Thank you very much.

Operator

I'm showing no further questions at this time. I would now like to turn the conference back to Joe Turgeon.

Joseph Turgeon -- President and Chief Executive Officer

I appreciate everybody's interest. Thank you for joining the call. I look forward to talking to you in the future. Thank you very much, Operator.

Operator

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

Duration: 30 minutes

Call participants:

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

Joseph Turgeon -- President and Chief Executive Officer

Kurt Gustafson -- Chief Financial Officer

Francois Lebel -- Chief Medical Officer

Thomas Riga -- Chief Operating Officer and Chief Commercial Officer

Emma -- Cantor Fitzgerald -- Analyst

Edward White -- H.C. Wainwright & Co. -- Managing Director

Maury Raycroft -- Jefferies -- Analyst

More SPPI analysis

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