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Cell Therapeutics (NASDAQ:CTIC)

Q2 2013 Earnings Call

July 31, 2013 4:30 pm ET

Executives

Monique M. Greer - Senior Vice President of Corporate Communications and Investor Relations

James A. Bianco - Principal Founder, Chief Executive Officer, President and Executive Director

Analysts

Robert Cummins Hazlett - Roth Capital Partners, LLC, Research Division

Operator

Good afternoon, good evening, ladies and gentlemen. Thank you for standing by. Welcome to the Cell Therapeutics Second Quarter Financial Results Conference Call. [Operator Instructions] This conference is being recorded today, July 31, 2013. I would now like to turn the conference over to our host, Ms. Monique Greer, Senior Vice President Corporate Communications Investor Relations. Please go ahead, ma'am.

Monique M. Greer

Thank you, operator. Good afternoon, everyone, and thank you for joining us today for our second quarter 2013 financial results conference call. Following formal remarks by management, the conference call will be open for questions.

With me today are Jim Bianco, President and Chief Executive Officer; Matt Plunkett, Executive Vice President of Corporate Development; and Lou Bianco, Executive Vice President of Finance and Administration. Our press release was issued after market close today, a copy of which can be found on the Homepage and in the Investor section of our website at celltherapeutics.com.

Before we begin, please note that during the course of this call, we will be making forward-looking statements based on current expectations. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ materially from those anticipated by the forward-looking statements.

Additional information concerning these risks and uncertainties is contained in the Risk Factor section of our quarterly report on Form 10-Q for the quarter ended June 30, 2013, and in the company's other periodic reports and filings with the Securities and Exchange Commission.

I will now turn the call over to Jim.

James A. Bianco

Thank you, Monique, and good afternoon, everyone.

The second quarter 2013 was marked by continued overall progress on 3 value drivers for CTI that we outlined for you last quarter, and they are: to increase the use and adoption of PIXUVRI in countries in the European Union, where we have market access pending the completion of reimbursement process; build value through development of our late-stage product pipeline, with emphasis on pacritinib; and secure additional operating capital through strategic partnerships while managing our expenses.

Our commercial product, PIXUVRI, is the first approved therapy in the European Union for the treatment of patients with multiply relapsed or refractory aggressive B-cell non-Hodgkin lymphoma. Prior to PIXUVRI, patients with aggressive B-cell NHL who have failed 2 or more prior lines of therapy had no approved treatment options.

As we mentioned during our first quarter call, we are in the early phase of our commercial experience selling PIXUVRI in the EU. We currently have a sales presence in 8 countries including the Nordic countries, the Netherlands, Austria, Germany and the U.K. Reimbursement decisions by governmental authorities have an impact on our ability to sell PIXUVRI and, ultimately, on the price and market acceptance of PIXUVRI. Many of those who might purchase PIXUVRI often await the official outcome of the reimbursement process before they really begin to utilize the drug more widely in their practice.

During the second quarter, we made very meaningful progress on PIXUVRI pricing and reimbursement in Europe. Let me start with the U.K., which is not only an important market for us but the reimbursement decisions underway by the National Health Service can influence other countries around the world. At the end of June 2013, NICE issued a draft final appraisal determination document which did not recommend funding of PIXUVRI by the U.K.'s National Health Service. The company, in parallel to the NICE appraisal process, completed negotiations with the U.K. Department of Health for a patient access scheme for PIXUVRI. A patient access scheme is a plan that involves innovative pricing agreements designed to improve cost-effectiveness and facilitate patient access to specific drugs or other technologies. As a result of the approval of the patient access scheme, an independent appraisal committee of NICE, which makes pricing recommendations for the U.K.'s National Health Service, is scheduled to consider the new evidence on the cost-effectiveness of PIXUVRI at its meeting in September 2013. We're pleased with the status of reimbursement discussions for PIXUVRI in the U.K. and look forward to concluding our reimbursement discussions in the fall.

With regards to France, it is the EU's second-largest pharmaceutical market. Registered pharmaceuticals are subject to evaluation of therapeutic benefit through what is known as an AFMR score by the Transparency Commission based on the expert judgment of the Transparency Commission on the pharmaceutical agency. Subsequently, a reimbursement price negotiated with the Comité Économique du Médicament or CEM, which becomes the price at which the drug is sold throughout the country, even for private prescriptions. We had a successful hearing with our French lymphoma experts, convincing the French agency on the unmet medical need and the benefit for lymphoma patients that PIXUVRI represents. As such, we are currently in the process of an AFMR classification and pricing discussion.

Now Italy was a pleasant surprise. In July, we were granted market access by the Italian Medicines Agency or AIFA for PIXUVRI. PIXUVRI has been classified by AIFA for use in hospitals and the announcement was published in the Official Gazette. We believe this is great news for patients and physicians who treat them. We've begun identifying key accounts to target which will help us determine the regions for sales force deployment later in the fourth quarter.

Lastly, Germany. In May 2013, the Federal Joint Committee or G-BA reported that additional benefit could not be determined for PIXUVRI versus the comparative therapies assigned by the G-BA under Germany's AMNOG law. The determination reflected the absence of a comparator under the law, specifically for this stage aggressive NHL. Because prior to the approval of PIXUVRI in the European Union, there was no therapy specifically approved for this stage of aggressive NHL. The G-BA also decided that the prescribability for PIXUVRI should be limited to hematologists and oncologists. We were subsequently referred to the GKV-SV, the Federal Association of Statutory Health Insurance Funds, and are currently negotiating price of PIXUVRI. These negotiations are expected to be concluded in the fourth quarter of this year.

In summary, we expect to conclude pricing and reimbursements in the U.K., France and Germany before the end of the year. The interest and receptivity of PIXUVRI by health care providers and key lymphoma opinion leaders have greatly contributed to our ability to navigate the reimbursement process in each country. This level of support is a testament to the unmet medical need and the value that it place on PIXUVRI as an important therapy for treating patients with aggressive lymphoma.

As we concluded the reimbursement process in each country, we're focused on educating physicians on the unmet need and building brand awareness for PIXUVRI as a third and fourth line treatment option amongst physicians in countries where it's currently available. A key component of this effort is our focus on seeking to minimize infrastructure and cost and to increase potential demand until final reimbursement discussions are completed. Through our medical education programs and field activities with our medical science liaisons and sales force, we are able to highlight the unmet medical need that PIXUVRI may potentially fulfill, while sharing the results of the EXTEND study with health care providers. Our medical affairs organization continues to engage and build relationships with key hematology and lymphoma opinion leaders through one-on-one meetings, scientific advisory boards, medical symposia, investigative slots and studies and publications.

Now I'd like to turn to our development programs evaluating pacritinib. For those of you not familiar with this product candidate, pacritinib is an oral JAK2/FLT3 inhibitor that inhibits 2 important activating mutations, JAK2 and FLT3. The JAK pathway is important in many biological processes, including the regulation of immune function in the formation and development of blood cells. JAK2 has been implicated in a spectrum of blood-related cancers such as myeloproliferative neoplasms, or MPN, and leukemia. FLT3 is a commonly mutated genes found in patients with acute myeloid leukemia, or AML, with JAK2 inhibitors have been shown to be effective in treating myelofibrosis and have an established regulatory approval pathway, which obviously lowers the risk of development.

In myelofibrosis, myelosuppression, particularly thrombocytopenia, which is a relative decrease in platelets in the blood, in both the consequence of the disease and has now emerged as the limiting treatment-related side effect of some JAK1, JAK2 inhibitors. While normal platelet count in adults range from 150,000 to 450,000 platelets per microliter of blood, thrombocytopenia refers to platelet count lower than 150,000. As myelofibrosis progresses, platelet production decreases and thrombocytopenia develops, thereby resulting in a higher risk population than patients with myelofibrosis who have normal platelet counts.

Of the estimated 30,000 people living with myelofibrosis in the U.S. based on peer-reviewed publications, between 25% to 37% of these patients with thrombocytopenic with platelet counts below 150,000.

Although pacritinib has the potential to benefit all patients with myelofibrosis, we believe the benefit will also clearly be demonstrated in those patients with low platelet counts, a patient population that was intentionally not studied by other JAK2 inhibitors.

In June, at the European Hematology Association Congress, an integrated safety analysis of the 4 completed Phase I and Phase II studies was presented at a poster session. Totaling a 191 patients who were treated with pacritinib for myeloid, primarily myelofibrosis, or lymphoid malignancies to quantify clinical toxicities with a focus on hematologic effects. Other JAK2 inhibitors have generally been associated with treatment-related anemia and thrombocytopenia. This was not observed with pacritinib. The integrated safety data analysis suggested that regardless of initial platelet count, pacritinib does not cause further marrow suppression. Even patients with initial platelet counts of less than 50,000, a high-risk population, tolerated therapy, maintained stable blood and platelet count that did not require dose reductions for thrombocytopenia -- create 1 or 2 gastrointestinal events, particularly diarrhea, were the most common adverse events and may be controlled by early administration of standard antidiarrheal agents. We believe pacritinib could effectively address an unmet medical need, particularly for patients living with myelofibrosis who treat -- who face treatment-emergent thrombocytopenia and anemia, a serious consequence of certain therapies. And of that, of the disease itself. We believe pacritinib may offer patients an effective therapy with a safety profile that allow for longer-term management of their disease than with currently approved agents or agents under development.

Let's move on to our clinical trial effort. PERSIST-1 is the first of 2 planned Phase III clinical trials in patients with myelofibrosis. It is a multicenter, randomized, controlled Phase III trial comparing the efficacy and safety of pacritinib with that of best available therapy, excluding JAK inhibitors in patients with myelofibrosis. The primary endpoint will be the percentage of patients achieving a 35% reduction or greater reduction in spleen volume measured by MRI at 24 weeks of treatment. We plan to enroll 270 patients at approximately 90 sites -- clinical sites in Europe, Australia, Russia and the United States. I can tell you that sites continue to be enthusiastic about the trial and are identifying patients. We currently have more than half the sites activated in screening patients and expect the balance of the sites to come online through the summer. Based on current enrollment, we believe we are on track with our plan to fully enroll PERSIST-1 in early 2014.

The second Phase III clinical, PERSIST-2, is currently being planned to evaluate pacritinib compared to best available therapy, but including JAK inhibitors, in patients with myelofibrosis whose platelet counts are less than 100,000. In this study population, patients in the best available treatment arm on a JAK2 inhibitor will consist of primarily 2 patient subpopulations, those developing treatment-related thrombocytopenia requiring subtherapeutic doses or patients with disease-related thrombocytopenia who don't tolerate full therapeutic doses of the currently marketed JAK2 inhibitor. Interest in this study amongst U.S. investigators continues to be very encouraging, and we have received feedback and guidance from the FDA on the primary and secondary endpoints and received similar and consistent guidance from the CHMP of the EMA. And we remain on track to initiate PERSIST-2 in the second half of this year.

Now in addition to myelofibrosis, we have encouraging clinical data in lymphoma and preclinical data in FLT3-resistant AML. From an intellectual property perspective, pacritinib has composition of matter protection through 2026 and orphan designation in both the U.S. and Europe for myelofibrosis.

We recently announced that Dr. Dan Von Hoff, a leading medical oncologist who has been the lead investigator in the development of important oncology therapeutics, will serve as Chairman of CTI's Scientific Advisory Board. The purpose of the SAB will be to assist management in its strategic development of our product portfolio and clinical trial design, work with business development on in-licensing and out-licensing opportunities as they come up and assist in the use of translational and personalized approaches to therapeutic targets.

Our third value driver is focused on the desire to secure a partnership for pacritinib [ph] this year. We anticipate that such a partnership could provide us with additional capital and external validation for the program. We're seeking a partnership agreement that will provide a substantial upfront payment, support a significant portion of the Phase III clinical trial expenses and include regulatory and commercial milestones from royalty on their product sales. We believe we have a unique asset in pacritinib that would be attractive to such potential partners, and we are pleased with the advanced progress we are making and believe that we remain on track for achieving this goal in 2013. At the end of the day, our intent is to evaluate those partnerships and transactions that we believe are in the best interest of our company, our customers and shareholders.

Let me briefly review our financial results for the quarter in 6 months ended June 30, 2013. Net product sales for the quarter and 6 months were $300,000 and $1.4 million, respectively, and was solely attributed to net product sales for PIXUVRI, primarily in Germany. Any future revenues are dependent in part on the reimbursement decisions made by governmental authorities in each country where PIXUVRI is available for sale. We believe that the decrease in PIXUVRI sales in the second quarter compared with first quarter can be largely attributed to some of the ambiguity created by the G-BA determination that we discussed earlier in the call.

Loss from operations for the second quarter of 2013 was $17.9 million, compared to $49.4 million for the same period in 2012. For the first 6 months of 2013, loss from operations was $36.3 million, compared to $67.5 million for the same period in 2012. The amount recorded for 3 and 6 months ended June 30, 2012, included a $29.1 million expense for acquired in-process research and development related to the acquisition of pacritinib from S*BIO. Noncash share-based compensation expense for the second quarter and first 6 months of 2013 was $2 million and $4.4 million, respectively, compared to $3.1 million and $5.1 million for the same period in 2012.

We reported a net loss of $18 million for the second quarter or $0.17 per share which compares to a net loss of $58.6 million or $1.38 per share for the same period in 2012. For the first 6 months of 2013, our net loss was $37.4 million or $0.35 per share compared to $76 million or $1.83 per share for the same period in 2012.

We are reaffirming our prior net financial guidance that, for 2013, non-GAAP loss from operations, excluding any noncash share-based compensation expense, is expected to be approximately $50 million to $65 million.

Year-to-date for the 6-month period ended June 2013, non-GAAP loss from operations, excluding noncash share-based compensation expense, was $31.9 million or $5.3 million [indiscernible]. A reconciliation of historical non-GAAP loss from operations, excluding noncash share-based compensation expense to loss from operations prepared in accordance with the U.S. GAAP was included in our earnings release for the second quarter of 2013.

Turning to our balance sheet. We ended second quarter with cash and cash equivalents of $28.6 million and currently have 114.8 million common shares outstanding.

So in summary, we are very excited about the prospects for helping patients and building value for shareholders. We believe we are well-positioned to drive trial use and adoption for PIXUVRI in relapsed, aggressive B-cell NHL in the EU once we're able to secure reimbursement in additional markets in the second half of 2013. We're on track to initiate the second Phase III trial of pacritinib in the second half of this year, and complete patients accrual in PERSIST-1, the Phase III trial of pacritinib in early 2014. And finally, we remain opportunistically focused on business development activities, including advancing a partnership for pacritinib.

With that, I will open the call up for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Bert Hazlett with Roth Capital.

Robert Cummins Hazlett - Roth Capital Partners, LLC, Research Division

First, on PIXUVRI. The -- could you -- regarding the United Kingdom reimbursement, could you talk about the potential steps that could occur in September 2013? And then with regard to Italy, I believe you noted you would be launching the product in the fourth quarter officially. Could you talk a little bit more about the effort there? And maybe the traction or whether we should expect some more material sales for the therapy in 2014 rather than in the fourth quarter?

James A. Bianco

Good questions, Bert. So let me start with the NICE appraisal process. What we did, which was a little bit different than what most companies do is, in parallel, while NICE was reviewing the cost effectiveness of the PIXUVRI data, we entered into discussions and subsequently negotiated a patient access scheme with the Ministry of Health. The Ministry of Health then takes that information and usually shares it with NICE. And then NICE, in their appraisal process, now looks at the cost effective ratio differently because it takes into account the patient access scheme information. And so NICE had published their draft final appraisal document but we essentially asked for an exceptional circumstance. We did that through the CEO of NICE and it was granted. And as you saw, they removed the draft -- FAD, as it's called -- from their website and then set up a meeting in September, where they'll now take into consideration the information in the patient access scheme that was agreed to by the Ministry of Health. So in September, they will review that. We think that it will drop our so-called incremental cost-effectiveness ratio to a level that, we hope, certainly within the threshold limits that NICE typically looks for to make it, to essentially deem it cost-effective with that scheme. So we are cautiously optimistic that the next announcement coming from the NICE committee will be that they determine that it is cost-effective. With respect to Italy, and I think we'd want to put this in context for the full year, which is why we have really did not state guidance for where we thought sales would be. Because it is so tied to, first, the reimbursement decisions. And then as I mentioned in the call, NICE is a very -- positive recommendation from NICE will influence our discussions with the GKV, the Statutory Health Funds in Germany, to help us complete those. It will influence what's happening in the Nordics. And we have already worked with the group, hold-on group in the Netherlands. We will be listed in their guidelines, which will also help in terms of central funding. So that's the first thing that we really needed to get behind us and we've made really solid progress in doing that before you can start to see more generalizable up-take. Because even though the drug is available through this "free market access countries", other than Germany, most of the other countries are essentially restricted through their hospital budgets, which have already been set from the prior year, which is the next phase of what we now would do, for example, in Italy and then in France, where you essentially go and negotiate with the hospitals what your price is and they do that through essentially group buying or group purchasing companies, if you will. And we hope to have that completed, as well as to start to build interest and demand in both in Italy and then, early next year, in France. So the effort in Italy would be limited to 2 to 3 "quintile" employees, which are oncology account specialists and medical science liaisons. They would come on likely in September. As you know, we have kind of a homegrown advantage in Italy, which we certainly want to be able to -- I don't want to say exploit -- take advantage of in a positive, in terms of getting the word out that the drug will be available essentially through the hospital systems in the latter part of the year and, certainly, in 2014. So we're really trying to do is tee up, get everything in alignment, so that in 2014, we could start to see some meaningful revenue. By meaningful revenue, we're talking about revenue that could have a net product margin contribution to the overall development organization. Second quarter was a little softer than what we would have anticipated. We did have a good bump in new patient starts in July, which was encouraging. Most of that softness in the second quarter was related to the health funds, when the AMNOG, when the G-BA decision came down in May, the health funds go out to the sites that essentially say, that after the end of the year, it's not going to be paid for anymore. And that spooks people, if you will. So we had a good programmatic effort to get out to the pharmacies and the hospitals and remind them what the law is, that the drug is reimbursable through the end of the year and that we're making progress in not just other major market countries, certainly, with the discussions with the statutory funds, and we're confident that we will come to negotiations with the funds on an equitable price and it will be made available -- continue to be made available in Germany in 2014. So that's kind of where we're at with regards to PIXUVRI. And as you might imagine, and Matt could comment on this, with respect to other partnerships to expand PIXUVRI commercialization outside of the territories that we're interested in, a lot of that tees off, again, off of the pricing and reimbursement decision. The good news is, 2 reference countries, France and Italy, will have essentially, a reference price, which is our go-to-market price. That will be true for the U.K. as well. So that obviously is very important in terms of the rest of the EU when they look at how they reference for reimbursement on pricing.

Robert Cummins Hazlett - Roth Capital Partners, LLC, Research Division

So that's usually helpful. So just -- but in terms of the specific timing beyond the meeting, is there a 30-day window that they will respond to you, post the meeting in September? Or what's the specific response and the timetable of it in the U.K.?

James A. Bianco

Good point, Bert. It didn't mention that. It's typically 30 days. The company typically will see their next draft about a week or 10 days before they put it up on their website when they make it public. So we'll know -- again, we'll know by mid-October -- so will you, in terms of what the outcome of that meeting is. It's also important to mention that, while NICE may find you cost-effective, let's say, in October, the statutory -- the health funds in the U.K. have 90 days before they put it on formulary. And they typically will take their time, obviously, because it's cost savings before doing that. So once again, U.K. sales wouldn't be meaningful in 2013. But coming into 2014, we think that they'll be -- they will be meaningful.

Robert Cummins Hazlett - Roth Capital Partners, LLC, Research Division

Got it. And then just shifting to pacritinib. In terms of the PERSIST-2 trial, I want to make sure I understand it, if there's a link or maybe not. If the PERSIST-2 trials start, dependent upon a partnership for either different geographies for pacritinib or, potentially, for PIXUVRI, as you just mentioned? Or is it independent and will start, regardless of the partnership discussions?

James A. Bianco

Right now, we have it pegged to the partnership coming together. And right now -- so I'll give you a little color. For example, the development plan that was submitted for scientific advice to the medicinal products committee of the EMA, they wrote back to us essentially that we didn't need to meet the development plan and the proposals that were made for clinical endpoints, et cetera, were all within acceptance. They actually had some very good feedback. And so we are right on track with 325, we are right on track with what we have conceptually for 326 "on the drawing board." We're waiting for some feedback from the FDA on a little tweak in the 326 program, which we'll get later in about a month. But it's very clear in our partnering discussions that the regulatory risk for the product has essentially been mitigated. Mitigated, meaning that you will have consistent guidance built into the protocol, the fine endpoints, and measurements from both the EMA and from the FDA. And that's an important -- that was obviously an important feature to get behind us because that's an important regulatory box, especially for an ex-U.S.-only type deal. Needless to say, for the one party that's looking at a larger collaboration, having both FDA and EMA in agreement with each other and what we need to do to go forward and win can be very helpful.

Operator

[Operator Instructions] And I am showing no further questions. Please continue.

James A. Bianco

Okay. Thank you, operator. So just in closing, as we said, we're focused on delivering on our commitment to patients through the acquisition, the development, commercialization of less toxic, more effective ways to treat and cure cancer. That's been our mission from the beginning. We're excited about our near-term prospects for helping patients and clearly for building shareholder value. As always, we thank you for your support of our mission and we wish you a good evening.

Operator

Thank you. Ladies and gentlemen, this concludes the Cell Therapeutics Second Quarter Financial Results Conference Call. If you would like to listen to a replay of today's conference call, please dial 1 (800) 406-7325 or (303) 590-3030, and enter access code 4632014, followed by the pound sign. We'd like to thank you for your participation and you may now disconnect.

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