Abraxis BioScience, Inc. (ABII) Q4 2008 Earnings Call March 3, 2009 11:30 AM ET
Maili Bergman - Director, IR and Corporate Communications
Patrick Soon-Shiong - Chairman and CEO
David O'Toole - EVP and CFO
Ed Geehr - EVP Operations
Claude Camire - Paradigm Capital
Good day, ladies and gentlemen, and welcome to the 2008 Fourth Quarter and Full-Year Financial Abraxis BioScience's, Inc. Earnings Conference Call. My name is Becky, and I will be your coordinator for today.
At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions).
I would now like to turn the presentation over to your host for today's call, Maili Bergman, Director of Investor Relations. Please proceed.
Thank you. Good morning, everyone, and thank you for joining us today to discuss Abraxis BioScience's 2008 fourth quarter and full-year financial results. On the call today are Dr. Patrick Soon-Shiong, Chairman and CEO, and David O'Toole, our Chief Financial Officer. Please be advised that this conference call is being broadcast live on the Internet at www.abraxisbio.com, as well as www.earnings.com.
Before we begin, I would like to remind everyone that the information discussed on the call today is covered under the Safe Harbor provisions of the Litigation Reform Act. The company's discussion today may include forward-looking information reflecting the management's current forecast of certain aspects of the company's future, and our actual results could differ materially from those stated or implied.
This morning, Dr. Soon-Shiong will review the company's commercialization platform for ABRAXANE, then David will discuss the financial results for the quarter and full year, and Patrick will review our clinical and research and development activities. Then we will open the call for questions.
With that said, let me turn the call over to Dr. Soon-Shiong. Patrick?
Thanks, Maili. Good morning everybody. Thank you for joining us today. I would like to open this call with review of our expanding global commercial operations to support our ABRAXANE franchise.
As you will note from our release this morning for the 2008 fourth quarter, ABRAXANE revenues were $90 million compared with $89 million in the same period last year. And for the full year, ABRAXANE revenues increased 3% to $336 million from $325 million last year.
When we began 2008, we were commercializing ABRAXANE in the United States and Canada and approval to do so in India. By the end of the year, we had commercialization approval in 36 countries.
In January 2008, we gained marked improvement in the European Union and began our efforts in the earnest to establish an infrastructure in that region. We booked a solid group of seasoned marketing professionals to guide the rollout including the Jean-Francois Gimonet, our VP of European Operations, the VP of Regulatory Affairs for Europe, a Director of European Pricing and Investment, Finance Director and European Sales Director.
We have also signed agreements with several organizations to further boost our European operations. And this year we received favorable price approvals in, both UK and Germany.
In December, we launched ABRAXANE in the United Kingdom with the support of Innovex, who is providing sales force and commercial services for ABRAXANE in the UK. Innovex is a unit of Quintiles, the leading global commercialized solutions provider to the pharmaceutical industry.
We intend to continue this rollout to additional nations in Europe on a country-by-country basis. In fact, we have just submitted the pricing and reimbursing dossier for Spain and expect to be submitting the pricing and reimbursing dossier for Italy in the next month or so.
Currently these are the next two European countries slated for product launch. With respect to Europe, we have also determined to make strategic sense to establish a department to assist in the commercialization infrastructure and the intent to initiate discussions with various potential partners shortly.
With regard to the rest of the world, along with our partner Biocon Ltd, ABRAXANE has hit the market in India in July. Additionally ABRAXANE was launched in the United Arab Emirates, and finally we have launched ABRAXANE in Australia in collaboration with Specialised Therapeutics, Australia, which is based in Melbourne. Two other regions for the near-term launch of ABRAXANE in 2009 include Korea and China which was just received, again a favorable pricing approval.
In Korea, we will be working with Korean, Green Cross who tends to employ an exclusive sales force, following regulatory and pricing approval. And in China, we have signed distribution agreements with two top-tier distributors. We have hired a former Novartis executive to lead our commercial operation. And have added a National Sales Manager, a National Commercial Manager, a Marketing Manager and Government Affairs Manager. Currently, we are in the process of hiring a finance director as well as more than 30 medical representatives, who will inform the Chinese doctors and hospitals of the benefits of ABRAXANE.
The current planned commercial launch date is in the first half of 2009. In other activities worldwide, the Japanese NDA, or JNDA for ABRAXANE, is under review in Japan by the Ministry of Health. ABRAXANE is also under a review for the treatment of breast cancer by the field authorities for healthcare in Russia.
So as you can see, it has been an incredibly hectic year as we have been focusing on our global launch. And this year, with the help of a commercial partner to establish infrastructure, we will be able to redirect some of our focus to both, United States and China.
Let me now turn to a review of the market data for ABRAXANE in the United States. According to the most recent IntrinsiQ data for January 2009, ABRAXANE has captured 34.5% of the Taxane market in metastatic breast cancer. ABRAXANE’s patient share the Taxane market in first line of metastatic breast cancer has increased from 17.2% in November 2008 between 2.4% in January 2009.
In second-line, the ABRAXANE shares decreased to a share of 36.1% as the share in first-line has increased. In the second-line plus, ABRAXANE now continues with its Taxane share market leadership with over 50% of the market.
ABRAXANE-Avastin combinations represent 47% of total ABRAXANE usage throughout all lines of the metastatic breast cancer setting in January 2009. And in metastatic breast cancer, first-line setting as of January 2009, ABRAXANE in combination with Avastin represented 57% of all ABRAXANE usage in this setting. As we can see, ABRAXANE has become a leading treatment option for metastatic breast cancer and believe it is well-positioned for future growth.
Let me spend a few minutes on compendia listing. In June 2008, CMS announced it would recognize the NCCN guidelines as an additional source of information to determine, which drugs may be covered under Medicare Part B to treat patient undergoing chemotherapy.
In October 2008, the NCCN listed ABRAXANE in its Drugs and Biologics Compendium were used in non-small cell lung cancer, as this regimen was added based on recent NCCN, non-small cell lung cancer panel deliberations.
On February the 4th of 2009, DrugDex updated its ABRAXANE monograph to include first-line combination treatment of advance or metastatic non-small cell lung cancer. Additional compendia submissions are expected in 2009, including submissions for pancreatic cancer and melanoma.
Further supporting this strategy, we also expect two publications in peer-reviewed journals in first half of 2009, one on the use of ABRAXANE in ovarian cancer and second in melanoma.
So as you can see, we have devoted significant true sources to building, not just our global infrastructure but to support the ABRAXANE franchise. We are also pleased that the adoption of ABRAXANE continues to grow.
So with that let me now turn the call over to David who will review our financial results for the fourth quarter and full year, after which I will discuss our clinical and product development pipelines. David?
Thank you, Patrick, and good morning everyone. During the fourth quarter, Abraxis continued to perform well in executing our strategic plan. Regarding the financial results for the 2008 fourth quarter, net revenue was $92 million, compared with $91 million in the fourth quarter of 2007.
ABRAXANE revenue was $90 million, compared with $89 million in last year's fourth quarter. ABRAXANE revenue for the fourth quarter of 2008 included recognized deferred revenue of approximately $10 million related to the co-promotion agreement with AstraZeneca and the license agreements with Taiho and Green Cross. This amount is similar to recognized deferred revenue in the fourth quarter of 2007.
Gross profit for this quarter was $83 million, or 90% of net revenue, the same amount as the comparable quarter in 2007. R&D expense increased to $37 million, compared with $27 million in the comparable period in 2007. This increase primarily reflects continued progress in our Phase III clinical trial program and investment in R&D projects.
SG&A expenses increased approximately $65 million, or 70% of net revenue versus $52 million, or 57% of net revenue in the comparable period in 2007. The increase primarily reflected international launch cost for ABRAXANE, additional administrative cost and one-time cost related to the preparation for the spin-off of Abraxis Health.
During the quarter, we agreed to pay $268 million to reacquire the exclusive rights to market ABRAXANE in the US. This amount was netted against $109 million of deferred revenue and recorded on our statement of operations as a $159 million of reacquisition cost. Interest income in the fourth quarter of 2008 was $3 million, compared with approximately $4 million in the prior year period.
On a GAAP basis, and including the $159 million reacquisition cost, the company reported a net loss of $182 million, or a loss of $4.54 per share for the fourth quarter of 2008, compared with a net loss of $5 million, or a loss of $0.13 per share for the fourth quarter of 2007.
On an adjusted basis, 2008 fourth quarter net loss was $8 million or a loss of $0.21 per share versus adjusted net income of $9 million, or $0.23 per diluted share in the fourth quarter of 2007.
Adjusted net income for this quarter excludes amortization of acquired intangible assets, reacquisition cost, litigation cost, realized loss on marketable securities and the impact of non-cash stock compensation expense.
Let me now take a few moments to review our results for the full year 2008. Net revenue was $345 million compared with $334 million for the prior year. Revenue from sales of ABRAXANE increased 3% to approximately $336 million, compared with $325 million for 2007.
Net revenue for 2008 included recognized deferred revenue of $40 million relating to the co-promotion agreement and the license agreements with Taiho and Green Cross, compared with $43 million of recognized deferred revenue and a milestone payment received during the same period last year. Gross profit was $306 million or 89% of net revenue compared with $299 million or 90% of net revenue for 2007.
Research and development expense increased to $104 million or 30% of net revenue compared with $89 million or 27% of net revenue in the prior year. The increase was primarily due to costs related to the Phoenix plant acquired in 2007, increased spending for clinical and investigator sponsored studies and investment in R&D projects.
SG&A expenses decreased to $217 million or 63% of net revenue, versus $230 million or 69% of net revenue for 2007. The decrease in SG&A was due primarily to higher legal cost incurred in the second quarter of 2007 and overall lower domestic marketing expenses.
Full year 2008 financial results include approximately $240 million in non-recurring charges. These are $159 million in net expense for reacquisition costs related to the exclusive rights to market ABRAXANE in the US. A litigation charge of $58 million including accrued interest related to litigation in the second quarter, and just to know we have filed various post-trial motions and are appealing the jury ruling.
A $14 million non-reoccurring charge recorded in the second quarter for acquired in-process research and development in connection with the company's acquisition of two South African companies Shimoda Biotech and Platco Technologies. A $9 million impairment charge recorded in the third quarter related to the anticipated sale of certain property plant and equipment.
Interest income and other was approximately $19 million compared with $5 million in the prior year. On a GAAP basis, and including the non-reoccurring charges mentioned earlier, the company reported net loss of $277 million or loss of $6.91 per share for 2008, compared with a net loss of $42 million or a loss of $1.04 per share for 2007.
On an adjusted basis, net income for 2008 was $11 million equal to 28% per diluted share compared with net income of $7 million or $0.17 per share in 2007. Again adjusted net income excludes amortization of acquired intangible assets and in-process R&D charge, the reacquisition cost, litigation cost, and impairment charge, realized loss on marketable securities, and the impact of non-cash stock compensation expense.
Turning to our strong balance sheet. At the end of the year, Abraxis had $607 million in cash and cash equivalents with no long-term debt. Our cash is invested in short term AAA rated money market funds spread across several banks, staying with our primary objective of safety and preservation of principal. None of our cash is invested in auction rate securities.
Accounts receivable at December 31st were down nearly $7 million to $37 million compared with the accounts receivables at the end of last year. This is due in part to an increase in cash collection and reduction in days sales outstanding to 39 days at December 31, 2008 from 48 days at December 31, 2007.
Inventories of $64 million were lower by approximately $10 million due to raw material consumption offset slightly by increased finished goods. Property plant and equipment increased by about $22 million to $167 million at the end of the year largely due to the continued build out of our Phoenix plant with smaller amounts expended on our Melrose Park facility.
Intangible assets decreased by approximately $30 million to $175 million due to amortization of assets associated with the 2006 merger partially offset by an increase in intangibles associated with the Shimoda, Platco acquisition.
Finally, moving to the liability section, the most significant item being $268 million current liability recorded for reacquisition of exclusive rights to market ABRAXANE in the US. This was offset again by the $109 million of deferred revenues that were included in long-term liabilities in 2007.
As indicated previously, the net of these two amounts or $159 million is included on the income statement as reacquisition cost.
With that, I would now like to turn the call back over to Patrick.
Thanks, David. Let me spend some time on the development status of ABRAXANE. And then also spend a little time on our very deep pipeline.
We are currently running an unprecedented number of clinical studies in 2009 and beyond to further validate the science surrounding the nab technology platform. We are planning significant release of data in this year, the bulk of which would be likely in the first half to 2009 at several international conferences.
Let me take a moment first to highlight some of data that will be coming out. At the St. Gallen Oncology Conference next week, two important studies conducted at US Oncology in Dallas will be presented. And both relates to the use of ABRAXANE as adjuvant therapy for women with breast cancer.
At the AACR in April we have ten abstracts that have been accepted, one of which is slated to be an oral presentation. Let me highlight a preclinical study that evaluates the enhancement of anti-tumor activity of a Novel Vascular Disrupting Agent we are developing called ABI-011, when it’s combined with ABRAXANE and Trastuzumab. That is the first evidence now of our scientific data on our pipeline.
With regard to ASCO in June, this will be truly one of the biggest ASCO's for the company. We anticipate having 14 presentations representing studies in variety of tumor types and indications. These include breast, both early stage and metastatic, late stage melanoma, first-line pancreatic cancer, solid tumors and urethral cancer.
Several other presentations indicate excellent results from ABRAXANE and Trastuzumab in late stage melanoma, metastatic breast cancer and early stage breast cancer. Additionally, other studies highlight SPARC, the Secreted Protein Acidic and Rich in Cysteine as a very promising biomarker for late stage melanoma, metastatic pancreatic cancer and early stage breast cancer.
Let me now turn to our clinical program. ABRAXANE’s success in breast cancer has been clearly demonstrated and is validated on nab platform as a new target approach treating this type of tumor infected toxins. We now believe we have an obligation to apply this principle to other tumor types.
The ABRAXANE clinical program consists of four Phase III clinical trials, 65 investigator-initiated Phase II clinical and 16 Phase I studies.
Let me briefly review our late stage clinical trials. We are conducting a Phase III study in late stage of non-small cell lung cancer ABRAXANE versus Taxol plus Carboplatin. Thus far, we have exceeded our expectations in the accrual and have included over 60% of the number of patients we're planning to include in the study.
In late stage melanoma, we have initiated enrollment in our Phase III study versus GGIC. Results from our Phase II clinical study with ABRAXANE and melanoma indicated was well tolerated and resulted in both remissions and stable disease in patients with metastatic melanoma.
These clinical results compared favorably with the current standard therapy for malignant melanoma and formed a strong rational for us to further evaluate ABRAXANE as a single agent in this disease.
Finally, with regard to pancreatic cancer we really present some very exciting data on the use of ABRAXANE in treating pancreatic cancer. And we will initiate the Phase III trial in the first-line setting this quarter. In fact, I understand that our first patient will be dosed within the next couple of weeks. As you may recall, our Phase I/II data that was presented at AACR last year demonstrated that ABRAXANE, in combination with gemcitabine, resulted in clinical favorable results in more than 70% of advanced pancreatic patients.
In this trial, we saw a high level of activity including a rapid decrease in the pancreatic cancer biomarker CA 19-9, and a dramatic decrease in the size of tumors. In fact, based on some PET scan results, there were patients who demonstrated complete responses. This was a very exciting study and particularly notable since this was a Phase I/II safety study.
Additional studies included Phase III with ABRAXANE in first-line ovarian cancer being established and developed in Japan, and a Phase II study of ABRAXANE first-line gastric cancer already again being developed in Japan.
Let me now turn my attention to our pipeline. Beyond our advanced studies with ABRAXANE, other compounds developed using our proprietary nab technology and that also include the following. Nab-docetaxel, this is currently being studied right now in clinical trials Phase I/II for prostrate cancer. And we will explore this in the future for lung and breast cancer. Nab-rapamycin, this is an mTOR inhibitor and it's currently in Phase I studies and it will be explored as we proceed for renal cell carcinoma, guyblastomy, other solid tumors. Nab-17AAG which is a heat shock protein 90 and this again will enter clinical studies and will be explored for HER-2 breast cancer and other solid tumors.
Nab-544 is the vascular disrupting agent, we are very excited about as a novel targeted vascular disrupting agent and this will be explored following Phase I study in solid tumors including the colorectal cancer. We anticipate filing at least two INDs this year, and as I said our nab technology pipeline is extremely full and bodes very well for the company in the next five years.
With regards to SPARC, I think this is very special molecule and we, the leading company, as it's been developing SPARC, as we previously said SPARC appears to be into tumor on target, of our nab technology platform due to its secretion by a variety tumors and affinity of SPARC.
What excites us is that SPARC is over expressed ubiquitously in every cancer with regard to solid tumors. And this over expression appears to enhance tumor progression, angiogenesis and metastatis, and is associated with poor prognosis. We believe we have an answer to this system's biology of SPARC with our nab technology.
At the AACR, we will present two SPARC focused studies and at ASCO we expect to have at least four studies that relate specifically to SPARC. In these trials, SPARC [inaudible] to establish SPARC as a prognostic factor and we are very excited about the results from the studies because for the first time they will be studied that are prospectively looked at SPARC in terms of its efficacy.
So with that then, I think, we have addressed ABRAXANE and nab technology and as you are aware, we have within the organization as well biologic technology which requires both from ProMetic as well as some licenses from Biocon and Green Cross and as these develop, we will provide more information.
So with that, I thank you and we are happy to take questions. If there are any questions, Operator?
(Operator Instructions). And your first question comes from the line of Claude Camire, of Paradigm Capital. Please proceed.
Claude Camire - Paradigm Capital
Hi, good morning. I wanted to find out what would be the expected time in Japan for ABRAXANE?
I think the submission for the registration, and it's anticipated that probably by the first half of 2009, that's the anticipation -- second quarter, maybe beginning of third quarter on the basis of approval.
Claude Camire - Paradigm Capital
Okay. And while we are looking at the footprint of the sales force right now, I guess, with the realignment of the agreement with AstraZeneca, what's going to be the strategy in the US and when is going to be the transition happening?
Well, the decision has happened. AstraZeneca sales force are no longer on the ground, so effective immediately. So, we are very actively now moving to increase our sales force, consolidate the infrastructure in New Jersey. It has taken a large responsibility with regard to that, and I think the, it will take us probably another quarter to really revamp our supplemental sales force we lost through the reacquisition of the product.
So, as you know, AstraZeneca had about 75 sales people --
Claude Camire - Paradigm Capital
So, I think on the short-term basis. Whether this quarter and next quarter, I think it will take us two quarters, but thereafter I think, with the result that comes out of ASCO and on new sales force. I think the second half of 2009 would be a very exciting time for us.
Claude Camire - Paradigm Capital
With all the great progress you made in Europe, overall what would be the footprint in terms of sales people that you have on an equivalent basis. Because I know you are working with third party, you are going to have your own sales people. But if you have to quantify the number of sales people at the end of 2008 that are promoting ABRAXANE, what would be the number of people?
Let me turn that question over to Ed who has really been focused as said, his efforts have been focused to trying to establish the whole European team. Ed?
The Innovex contract sales force currently includes five sales representatives in the UK, eight in Germany and we expect to be adding eight in Italy this year and we also expect to be adding sales force in the Spain. France will not occur until 2010.
Claude Camire - Paradigm Capital
Okay. Well, thank you very much.
(Operator Instructions) And I am showing that there are no further questions at this time. I would now like to turn the presentation back over to you gentlemen for closing remarks.
Well thank you for joining us this morning, I believe 2009 promises to be a very exciting year and the company will look forward to reporting our achievements throughout the year. If any one has any further questions, please do not hesitate to contact our Investor Relations team at Abraxis. And this concludes our call today and we thank you for your attention. Thank you.
Thanks for your participation in today's conference. This concludes the presentation, you may now disconnect. Have a great day.
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