Savient Pharmaceuticals, Inc. Q1 2009 Earnings Call Transcript

Savient Pharmaceuticals, Inc. (SVNT) Q1 2009 Earnings Call Transcript May 7, 2009 10:00 AM ET

Executives

Philip Yachmetz – SVP and General Counsel

Paul Hamelin – President

David Gionco – VP, CFO and Treasurer

Analysts

Eric Schmidt – Cowen & Company

Joseph Schwartz – Leerink Swann

Kim Lee – Wedbush Morgan Securities

John Newman – Oppenheimer & Company

Salveen Kochnover – Collins and Stewart

Operator

Welcome to Savient’s first quarter 2009 earnings call. (Operator instructions) As a reminder this call is being recorded today, May 7, 2009. I would now like to turn the conference over to Philip Yachmetz, Senior Vice President, General Counsel for Savient Pharmaceuticals. Please, go ahead.

Philip Yachmetz

Good morning and welcome to Savient’s Pharmaceuticals first quarter 2009 financial results conference call. Yesterday, we issued a press release providing financial results and highlights for the first quarter of 2009. This press release is available on our website at www.savient.com.

Before we begin, I would like to read our safe harbor statement. Comments made by management during this conference call will contain forward-looking statements that involve risks and uncertainties, regarding the operations and future results of Savient Pharmaceuticals.

In particular, we need to stress that when we discuss information regarding our cash flow forecasts the efficacy and safety of KRYSTEXXA or pegloticase, our BLA filing with the FDA, the priority review process, the arthritis advisory committee, and the possibility of obtaining regulatory approval for KRYSTEXXA in the United States and outside the United States, or preparations for the commercialization of KRYSTEXXA, no inference of the overall success with respect to these matters, nor guarantee of approval, can be implied.

As these matters are subject to independent review, analysis, and approval by regulatory authorities, and are also subject to a number of risks and uncertainties. We encourage you to review the company’s past and future filings with the Securities and Exchange Commission, including without limitation, the company’s quarterly report on Form 10-Q and our annual report on Form 10-K, which identify important factors that may cause actual results or events to differ materially from those described in these forward-looking statements.

Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, May 7, 2009. We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

Joining us on this call this morning are members of our senior management team including Paul Hamelin, President and David Gionco, Group Vice President and Chief Financial Officer. At this time I would turn the call over to Paul Hamelin.

Paul Hamelin

Thank you, Phil. Good morning everyone and thank you for joining us today. The first quarter of 2009 has seen tremendous strategic and operational changes within the company and we believe these changes have positioned Savient for success during the remainder of 2009.

We started the quarter back in January with a great sense of urgency and optimism. We have just undergone significant management changes and received the wonderful news that the FDA had accepted our BLA for our priority review. We began immediately to dedicate ourselves to virtually a 100% focus on the preparations for an advisory committee meeting and the goal of obtaining a US regulatory approval.

We also took firm control of our expenses and secured our near-term financial future. With the expressed goal of preparing for BLA advisory committee and ultimately obtaining an approval for KRYSTEXXA, we rapidly integrated our board level, BLA oversight committee, which was announced late last year, integrated them with our internal, clinical, and regulatory teams along with a panel of world-class medical experts proficient in immunology and cardiovascular disease.

We also connected a number of leading rheumatologists who are recognized as gout specialist along with several former key FDA officials. This large multifunctional team approach resulted in our creation and submission of a number of key amendments for the KRYSTEXXA BLA that we submitted in January 2009 to the FDA.

We believe the submission of these amendments strengthen and clarify the overall application and demonstrates our commitment to securing FDA approval is and remains our Number 1 priority for this company.

The FDA reviewed and accepted the amendments to the BLA and determined that additional information contained in this submission constituted major amendments. The FDA then elected to extend the current review period and revised our PDUFA date to be August 1, 2009.

This was noteworthy because the FDA chose to extend the current review cycle as opposed to starting a new review cycle at the end of the original PDUFA date of April 30. We are pleased to announce this morning that as of 8:45 this morning, the FDA has posted and made public the notice that an advisory committee to review KRYSTEXXA has now been established for June 16, 2009 from 8:30 AM to 4:00 PM.

Over the last several weeks, we've made significant progress with our regulatory sight inspections as well. Other than our API manufacturing facility, we have completed pre-approval sight inspections at our headquarters here and our final product manufacturing location, analytical labs, and clinical sites.

We are pleased to report that there were no major observations or 483s issued for any of those inspections. This demonstrates our partners and our employees’ dedication and commitment to provide quality clinical trial programs and quality product manufacturing.

Our final pre-approval inspection of the BTG API bulk product manufacturing facility has been rescheduled, as we have talked about previously. We have not disclosed the exact date of the inspection, but we can say that the new date is in alignment and precedes our August 1, 2009 PDUFA review date.

We believe it is important for everyone to know that the BTG facility, which is a fully dedicated biologics manufacturing facility has undergone and passed both EMEA and FDA inspections during 2008 for another biologic that they manufacture.

The most recent of which was an FDA inspection in late fourth-quarter 2008. We believe this demonstrates BTG's successful experience with these inspection processes. Our Savient manufacturing, quality and regulatory teams have been and continue to work extensively with BTG to prepare for this final critical pre-approval inspection.

As we close the first quarter, the company remains optimistic that our planning and preparation will lead to future successes in our drive to seek regulatory approval for KRYSTEXXA in the US.

Over the past several weeks, we continue to work closely with our team of multi-functional experts and preparation for this upcoming June 16 advisory panel. We have spent a substantial amount of time developing a comprehensive insight full and coherent briefing book and presentation that illustrates the efficacy and safety of KRYSTEXXA and demonstrates the relative benefit to risk profile of treatment failure patients with KRYSTEXXA.

To date, we have conducted three internal market advisory panels and all of our market advisory panels have been leading medical experts in the field of rheumatology, immunology, cardiology, and many have been former advisory committee members.

These marked panels have put our presentation teams through intensive rehearsals, including exhaustive questioning on the basis and substances of our proposed presentation.

We are very pleased with the progress that we have made and plan to hold additional internal reviews and practice smart panels in the days and weeks ahead and in an effort to be meticulously prepared for this important FDA advisory meeting.

As we have stated previously, we believe that data contained in our BLA has amended demonstrates that KRYSTEXXA if approved as of the potential will be the first effective therapeutic option to not only control uric acid in treatment failure patients, but equally important to achieve unique medically relevant and meaningful clinical outcome including the complete elimination of tophi, reduction in flares, clinically meaningful improvements in physical function, and reductions in pain.

KRYSTEXXA if approved will be a significant advancement in the treatment of this most difficult and seriously burdened work in gout type patient population. We are also pleased to report that in the most recent issue of the Journal of rheumatology, now documents literature describing the unmet medical need in patients with treatment failure gout.

The peer-reviewed published study is titled "Quality of Life and Disability in Patients with Treatment Failure gout. Some of the leading rheumatology gout experts in the United States follow up treatment failure gout patients who by the way had similar underlying disease to the population, which we studied in KRYSTEXXA clinical trials, for up to a year in their practices.

Despite their expert management of these patients, they clearly have documented the extreme loss of function and resulting disability along with a significantly reduced quality of life in these patients.

We believe this demonstrates and validates the treatment failure gout is a devastating sub-segment of the gout population and they are desperate for new therapeutic actions that will reduce or fundamentally change the clinical course of their disease.

The recent acceptance of four abstracts in poster papers along with two additional abstracts, which now are accepted for oral podium presentation at the upcoming UR meeting in June, also continues to remind all of us that the rheumatology community remains interested in KRYSTEXXA and their view of the important clinical benefits to this treatment failure population.

In summary, we continue to believe that the benefit to risk profile KRYSTEXXA’s highly favorable in the treatment failure population were severely crippled by pain and have significant disability.

Therefore, we have always viewed the potential upcoming advisory committee meeting as an exciting and important opportunity for us to effectively present our findings to the public and to the advisory panel experts.

On behalf of the treatment failure gout population our Savient team and external experts look forward to the opportunity to represent them and to demonstrate the new important therapeutic options and not only need it, but now on the doorstep of availability, should be approved in the near future.

Let me now turn the call over to David Gionco, our CFO. David.

David Gionco

Thank you Paul. Let's review the operating results for the first quarter ended March 31, 2009. That we reported in last night's press release. Since I will only be discussing highlights from our financial results, I refer you to our quarterly report on Form 10-Q for more specifics and details. We plan to file our Form 10-Q tomorrow Friday, May 8.

The net loss for the first quarter of 2009 was $21.9 million or $0.41 per share compared with a net loss of $17.6 million or $0.33 per share for the first quarter of 2008. We ended the quarter with $58.1 million in cash and short-term investments, a decrease of $20.5 million for the quarter.

In April 2009, we raised $31 million from a registered direct offering, which yielded $29 million in cash, net of offering, and related expenses. Thus our pro forma cash and short-term investments balance as of March 31, 2009 reflected receipt of the net proceeds from the April registered direct offering to $87.1 million.

The increase in the net loss for Q1 2009 versus Q1 2008 resulted, primarily from $1.8 million in higher manufacturing related expenses, relating to the production of commercial batches of pegloticase API.

Additionally, contributing to the higher net loss was a $1.2 million reduction in investment income, due to lower cash and short-term investment balances coupled with lower yields on those investments. Looking more closely at the detail, total revenues for the first quarter of 2009 were $1.1 million, a reduction of $100,000 from the same period in 2008.

Gross product sales of Oxandrin, our branded drug that promotes weight gain following involuntary weight loss decreased $500,000 for the three months ended March 31, 2009 from $1.4 million for the three months ended March 31, 2008.

The lower product sales were primarily attributable to the continued decrease in overall demand and increased generic competition for Oxandrin. We expect that gross sales will slightly declined or remained flat in future periods for this product.

Net sales of Oxandrin have remained consistent from period-to-period due to higher actual expedience adjustments to our product return reserve in the prior year. Revenues from Oxandrin alone, our Oxandrin authorized generic product have remained consistent from period-to-period both on a gross and net basis.

We expect that revenues of Oxandrin alone will decrease or remain flat in future periods due to increased generic competition and lower overall demand for the product. Research and development expenses were $12.8 million in the first quarter of 2009 up from $11.2 million in the first quarter of 2008, an increase of $1.6 million.

The higher costs were primarily due to $1.8 million of expenses associated with the reduction of commercial batches of pegloticase API by our third-party manufacturer, coupled with an additional severance liability recorded during the current quarter. Partially offsetting these higher costs were lower process validation and technology transfer expenses relating to our secondary source supplier of pegloticase API.

Selling, general and administrative expenses were $9.5 million in the first quarter of 2009, an increase of approximately $200,000 from the first quarter of 2008. The increase was mainly due to higher severance expenses and higher KRYSTEXXA related prelaunch market-research cost and consulting fees relating to establishing our pricing and reimbursement strategy for KRYSTEXXA.

Partially offsetting the higher expenses were lower legal fees relating to Oxandrin related intellectual property litigation during the prior year. We reported net investment expense of $202,000 in the first quarter of 2009 compared with net investment income of $1 million for the first quarter of 2008, a decrease of $1.2 million.

The decrease in net investment income in the current quarter is due to lower investment income resulting from decreases in dividend and interest income driven by lower cash, cash equivalents, and investment balances in addition to lower yields earned on these investments.

Additionally, we incurred realized investment losses of approximately $236,000, resulting from redemptions of our investment in the Bank of America's Columbia strategic cash portfolio.

To summarize, despite growing resource requirements support KRYSTEXXA related activities in order to obtain FDA approval of our BLA, including technology transfer to our secondary source supplier, preparation for an FDA advisory committee meeting and prelaunch marketing activities, we have continued to maintain a stable financial position during the first quarter with no increased burn – cash burn versus quarter four of last year.

To offset growing resource requirements we implemented cost savings initiatives, which contributed to a reduction in total expenses of $3.6 million as compared to the December 2008 quarter.

In conjunction with being financially prudent, we successfully completed an important financing in the face of extraordinary market conditions allowing us to strengthen our cash position as we approach our PDUFA action date of August 1, 2009.

This concludes the financial piece of the conference call and I would like to now turn the call back over to Paul.

Paul Hamelin

Thanks David. While the remaining financially prudent with our operational expenses, we’ve successfully completed a $31 million financing transaction that has strengthened our cash position and provides additional cash resources to sustain operations into 2010 should there be any unexpected delays as we move through 2009.

Our current operating plans to the approval of this and launch of KRYSTEXXA in the third quarter of 2009, with a ramp-up of expenses and spending in the later part of the second quarter of ‘09 with the hiring of the sales organization, including potentially a 60% sales force, but of course that will not occur until after we received approval.

We would like to take a moment to affirm that we have the appropriate plans in place that aligns our spending on preparations for commercial launch that coincides with the progress that we make with the FDA approval process.

We will continue to evaluate our financial position going forward and we currently have sufficient cash to operate companies through the anticipated approval of KRYSTEXXA this year and its commercial launch with or without a partner here in the United States.

At this time I want to turn the call back over to the operator, so we can open up for a Q&A session.

Question-and-Answer-Session

Operator

(Operator instructions) We will go to Eric Schmidt with Cowen & Company.

Eric Schmidt – Cowen & Company

Well thanks for taking my call. Just on the prelaunch activities, when would you estimate, something you've got to favorable recommendation of the panel and approval on August 1, what would the estimate the time delay before launching KRYSTEXXA?

David Gionco

Eric, with respect to the timing, a lot depends if there are still any label negotiations or any last-minute discussions post that August 1 PDUFA date as to when we would actually begin to begin moving product and begin the selling process. So a lot is contingent on obviously what comes in that letter. If we have a complete response and we've got to agree to labeling on August 1 then I would think, certainly within a matter of a few short months, we will have product out in the market and we should be selling.

Eric Schmidt – Cowen & Company

Okay great and in terms of the panel on the 16th, have you received the briefing materials here from the FDA and if not when do you expect to have those in your hands?

Paul Hamelin

Yes Eric, typically the way the process works is we as a company actually have to submit our briefing book first with the data of the 16th now public, typically we have to submit our briefing book one month or 30 days in advance, so quickly looking at a calendar that would signify that we are going to be submitting our briefing book next week, which is indeed true. From there than the FDA will elect when they want to supply their briefing book to us as a company and to the advisory committee members themselves, but we would anticipate that that's probably going to happen later in May or may be even in early June.

Operator

We will go next to Joseph Schwartz, Leerink Swann.

Joseph Schwartz – Leerink Swann

Hi thanks for taking the question. I was wondering if you had an idea of who would be speaking at the panel from your side as well as the advisory committee.

Paul Hamelin

Good morning Joe. On our side we’ve been working with a number of experts and external and obviously experts that we believe within our company as well. We have not actually finalized the exact rotation and who is presenting each and every different section because we continue to rehearse and we probably will not announce publicly until the advisory committee exactly who's going to be doing the presentations, but it will multiple people on behalf of the sponsor and there will be multiple people responding to questions to that arise through the course of the advisory committee.

Joseph Schwartz – Leerink Swann

Okay. And as a follow-up, obviously the patients in your studies where very sick at entry with quite a diverse a list of primarily cardiovascular co-morbidities or renal issues, how do you in your mock panels and at the actual event propose to mitigate issues in such sick of patients by excluding them from the end indication? What would that imply for the reduction in market opportunity if any?

Paul Hamelin

Yes. I think probably the way this will be handled as through product labeling. If you look at generally how the ages we handle these things in, if you look to the uloric labeling, which this group and division approved few months ago, you'll see that they will put in warnings and precautions, sections and I think that's probably how a lot of this will be handled or at least we hope that it is handled in that fashion. And then obviously we will be responsible as the company is doing the right type of education and risk minimization programs with the clinicians to ensure that they understand the precautions and warnings associated with infusing KRYSTEXXA. So that's how I believe this overall will be reflected as we get closer to the approval.

Operator

We will go next to Kim Lee, Wedbush Morgan Securities.

Kim Lee – Wedbush Morgan Securities

Good morning. Just a quick question on financial guidance here, when do you expect to be able to get the sales force up and ready for a launch and when do you expect to launch the product? Thanks.

David Gionco

Yes good morning Kim. The way we're approaching this is, we are trying to paste our preparations pre-launch activities, any pre-launch hiring and then post-launch activities and post-launch hiring, we're trying to mirror very closely here the approval process, so prior to a PDUFA action letter, we will try to be very prudent to hire only the resources that are necessary to allow us to be prepared post of PDUFA date to be able to put in the sales force. So, our plan had never been the higher sales force before we know we have marketing authorization from the FDA. So that will be one of our largest cash burn steps, but it will happen only in a post approval situation and so again be have been laying out these plans out for many months and we've been paralleling the review process and really approached it in what we think is very pragmatic way to not accelerate our burn, but manage our burn in an appropriate way with the bulk of the accelerated burn being after we know we have approval.

Kim Lee – Wedbush Morgan Securities

Right. And after you know you have approval, how long would it take to get the sales force trained and out there selling the product?

Paul Hamelin

Yes. We went through a screening process with the number of sales force executive recruiting teams and we chose an organization several months ago that we have been working with, but no matter which organization that we screened and discussed with there are a number of talented people who are available to us out in the marketplace. So, we believe in a matter of probably anywhere from about 30 to 60 days once we pull the trigger, we will be able to bring on board a sales organization. Now, one of the – so inclusive of that is training that would be necessary with that group as well, but there are a lot of very experienced biologics sales talent that is available today. As you know there are a number of biologics being promoted by many different companies. And so recruiting if you will 60 people in this kind of marketplace right now given the consolidation of this going on across the industry, we believe we will be able to do this in a very efficient manner and we get highly talented skilled biologic salespeople who will want to join us and promote KRYSTEXXA.

Operator

We will go next to John Newman, Oppenheimer.

John Newman – Oppenheimer & Company

Hi guys thanks for taking the question. I wonder if you could comment a little bit on the contents of the BLA amendment for immunogenicity, I know that you mentioned it in past calls, but was just curious as to what that contains and how the findings will be any different than any of the deal that you talked about the past, thanks.

David Gionco

Yes John. We did submit a BLA amendment at the end of January in immunogenicity and we reported on it pretty extensively. Actually, Doctor Lee Simon reported on that amendment back in early February. Again, it reiterates that in their program, we’ve not detected any neutralizing antibodies, we've also not detected any spikes in IgG, but we also have reported that we do see inpatient, they do develop IgM and IgG antibodies that result in a some patients in a loss of serum uric acid control and so that correlation has been well known and actually we reported that linkage late last year, actually in September and October timeframe. So, we've been pretty consistent in what we've seen and it underscores in the amendment of the BLA. What we attempted to do in that immunogenicity section of the amendment that we submitted was to make it very clear that what happens in those very ordered fashion in the patients. Patient’s serum uric acid, every patient when they go on their initial infusion, their serum uric acid drops down to very, very low levels. In a number of patients that serum uric acid remains low throughout the course of therapy and even on into the open label extension. However, another portion of patients what we see is their serum uric acid within the first three months begins to move back up towards 6 milligrams per deciliter. Those patients we see a subsequent rise in IgG and IgM, what that's doing is more rapidly clearing the pegloticase, hence their losing serum uric acid control and in those same patients, we do see some of these patients ending up with infused reactions, which again is not unexpected because this is what seemed with a lot of other biologics in line. Biologics in general have infused reactions. So, again we think we can't risk minimize this through product labeling and actually encouraging the physician to monitor routinely serum uric acid in the first few months and if they begin to see rises in the serum uric acid than that is indicative of the patient mounting in immunogenic response IgM and IgG that is clearing the drug and hence those patients probably will have more infused reactions and will get less clinical benefits because their serum uric acid balance is 6 or higher. Whereas, we know that sustained quality clinical benefits are in patients who have a sustained low serum uric acid throughout their treatment interval. Sorry for the long response, but I think those are the key elements.

John Newman – Oppenheimer & Company

That's okay. Thank you.

Operator

We will go next to Salveen Kochnover with Collins and Stewart.

Salveen Kochnover – Collins and Stewart

Good morning thanks for taking my question. Do you have any additional updates surrounding the content of the ramps, focus kind of I mean the immunogenicity in cardiovascular profile of the drug given the experts that are working with the company?

David Gionco

Yes. Good morning Salveen, how have you been?

Salveen Kochnover – Collins and Stewart

Good.

David Gionco

We expect a lot of this to ultimately be reflected in what ever is a final approved label. And so we on the basis of our interactions with our expert groups in the amendments that we filed, we will be encouraging if you will clinical treatment guidelines it will be in the label. Some of the clinical treatment guidelines are, what I was just speaking to a few minutes ago, which is will encourage the rheumatologist to do routine serum uric acid monitoring, particularly in the first three months of drug exposure. And then through that routine serum uric acid monitoring, which all rheumatologist do today, they will be able to identify, which patients are, if you will have persistent low or persistent responder to the drug and those that have a more transient response or whether their response starts to disappear and their serum uric acid rises back to six. So, I think that is one way to very much manage the immunogenicity that emerges in some patients, as it relates to the cardiovascular risk and the overall severe illness that these patients – this treatment failure population has. I think that will be reflected in if you will in the cautions and warning sections of the label. Even in the use and example and in the most recent label that was approved by PDUFA staff, in the warnings and precautions section there is a segment that's labeled cardiovascular events and it was a higher rate of cardiovascular thromboembolic events was observed in patients treated with Urolic than allopurinol in clinical trials monitored for signs and symptoms of MI and stroke. So I think that is indicative of how the agency looks at just to increase the risk in this population and as we all know hyperuricemic and gout patients and certainly treatment failure gout patients all have higher incidences of underlying cardiovascular disease. And so I think through appropriate precautions and warnings and education of the physician population through risk minimization and ramps types of program will go along we ensure that we are treating the right patients and the physicians are monitoring patients in the right fashion and the patients and the physicians understand the risks.

Salveen Kochnover – Collins and Stewart

Great thanks Paul. And then how should we think about pricing of the drug and where you stand in terms of payor work on KRYSTEXXA?

Paul Hamelin

Yes the payer work, we’ve been both predominantly here in the United States, but through our pricing research we have actually had a fair amount of interaction with key government officials through our third parties in Europe. Our peer research we’ve been doing now our, I’m sorry our payor overall research for probably a year and a half now and here in the United States being that we got a often drug indication, it goes a long way to helping us receive an open door if you will at the managed care level. Obviously, depending on what the final label look's like and ultimately our pricing strategy that will on a plan by plan basis here in the United States that will take different prior authorization levels and have different requirements. We have always assumed that there would be prior authorization as is the case with, I think virtually all infused biologics today. So that has never been unexpected and as just a matter of ultimately what be in a final label approved by the FDA and then I think any of those types of recommendations or guidelines that we have in the label will then be reflected in the prior authorization procedures at the private payors. So, I think we have well researched that and I feel that we are in very good shape as it relates to Europe, as I said we have had interactions with government payor officials through our third party, our third party being Simon Kutcher and Partners [ph] who have done our global pricing research study. Those quantitative studies were completed back in February and we released the results of those studies, we are obviously waiting now for reviewing our final labeling from the FDA, because we need to ensure that whenever replaced that we determined ultimately that we want to introduce the product, that the label can support that price.

Operator

This concludes the question-and-answer section. At this time, I would like to turn the conference over to Mr. Hamelin for any additional or closing remarks.

Paul Hamelin

Okay. Thank you very much. Over the last several months, we have been concentrating our efforts and what we believe are the critical activities essential to creating a healthy and successful company with our focus squarely on the regulatory process and we continue to look forward to working cohesively with the FDA in the weeks ahead as we move into the later stages here of the second quarter review process. We continue to believe that the strength of the evidence of our data from our KRYSTEXXA Phase III study has the potential to transform the ways physicians manage and patients view treatment failure gout.

Yesterday's physician’s view is a picture centered almost exclusively on the unsuccessful control of uric acid and the acute symptom release of painful gout flares. For the treatment failure gout patients it is their view of pain, disability, and a continued loss of quality life. We believe that KRYSTEXXA has demonstrated its clinical benefits and has the potential to transform the goals for the physician and managing these crippled patients and for the first time will offer patients real opportunity for a life changing clinical benefits. Thank everybody, have a great day.

Operator

This concludes today's conference. We appreciate your participation.

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