Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

SciClone Pharmaceuticals (NASDAQ:SCLN)

Q2 2012 Earnings Call

August 08, 2012 4:30 pm ET

Executives

Jane Green

Friedhelm Blobel - Chief Executive Officer, President and Director

Gary S. Titus - Chief Financial Officer, Principal Accounting Officer and Senior Vice President of Finance

Mark Lotter - Chief Executive Officer of China Operations and Director

Analysts

Katherine Lu - Cowen and Company, LLC, Research Division

Hamed Khorsand - BWS Financial Inc.

Yi Chen

Operator

Welcome to the SciClone Pharmaceuticals Incorporated Second Quarter 2012 Earnings Conference Call. My name is Pam, and I'll be your operator for today. [Operator Instructions]

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Ms. Jane Green in Investor Relations.

Please proceed.

Jane Green

Good afternoon. SciClone would like to thank you for joining the call today. The company would also like to remind you that today's call is being recorded. Speaking on today's call are Dr. Friedhelm Blobel, President and Chief Executive Officer; and Gary Titus, Senior Vice President and Chief Financial Officer. Mark Lotter, Chief Executive Officer, China Operations, will also participate in the question-and-answer portion of the call.

It is SciClone's intention that forward-looking statements regarding financial guidance and commercial and development activity made during today's call be protected under the Private Securities and Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties. Actual events or results may differ materially from those projected or discussed. All forward-looking statements are based upon current information available and SciClone assumes no obligation to update these statements. To better understand these risk factors, please refer to the documents that SciClone files with the Securities and Exchange Commission, including forms 10-Q and 10-K.

I'll now turn the call over to Friedhelm Blobel.

Friedhelm Blobel

Good afternoon, and welcome to SciClone's second quarter 2012 financial results and conference call. We are very pleased with our company's strong performance in the second quarter and the for first half of this year, and have confidence in our ability to continue to grow our commercial business at a rate in line with, or potentially exceeding, the China market pharmaceutical growth rate, consistent with our 2012 guidance.

During our call, we will review our financial results for the second quarter of 2012 and year-to-date, and discuss the many opportunities that lie ahead to continue our success in the high-growth China pharmaceuticals market. We'll comment on the growing sales of our flagship product, ZADAXIN, and on the gathering momentum of other key marketed products: Depakine, Aggrastat and Stilnox. We look forward to taking your questions following our prepared remarks.

I'll begin with some perspective on the China pharmaceuticals market and the characteristics of this market that we believe represents excellent opportunities for SciClone's continued success. As in numerous commentaries of late about the potential impact of China's growing GDP growth rate from its previous high of 10%, to a projected 8% this year. While world economies spelled out what this trend may or may not mean for the global economy, it is important to note that the China pharmaceuticals market tells a very different story, one of continued strong growth, expansion and demand.

The China pharmaceuticals market is predicted to continue to grow at a healthy 15% to 20% this year, compared to essentially flat or low single-digit growth rates predicted for the pharmaceutical market in the U.S., Europe and Japan. It is estimated that by the end of this decade, China will supplant Japan as the second largest pharmaceutical market in the world, representing a potential $100-billion opportunity in the next few years.

This extraordinary market growth in China is being driven by the strong overall economic growth in the country, [indiscernible] government health care reform policies that are expanding access and creating huge demand for more and better health care products and services throughout the population in both rural and urban environments. It is also being driven by demographic and socioeconomic shifts which are driving upward the amount that China spends in health care as a percentage of GDP.

Today, more than 95% of the population has some form of health coverage to help with basic health care services, and the China government's goal is now shifting to increase the minimum level of funding for insured persons. There is also a fast-growing private insurance market, although it's still small. The elderly population is growing, resulting in increased health care utilization. Most importantly, both the wealthy and middle-class are large and growing. These groups are expected to double in the next 5 to 7 years, which will have the effect of essentially doubling the market. These groups have significantly increased in purchasing power and a growing desire for access to safe, effective and high quality health care products and medicines.

This desire directly translates into growing demand for imported pharmaceutical brands which are widely favored over locally manufactured generic products, not the least because of expected higher quality. Imported products are often preferred, not only by patients, but by physicians, and can frequently continue to command premium pricing because of their originator status, even despite the government's implementation of periodic price reductions.

Within this changing landscape, SciClone, as a U.S. based, publicly-traded company whose overall corporate strategy is to wholly focus on growing its China business, is optimally positioned to take advantage of growth trends in this market. In many ways, we believe that we may be more advantageously positioned than other multinational companies for which China is in the junket [ph] strategy to its primary U.S. or European businesses.

Our singular focus on growing our business in China enables us to strategically deploy our considerable regulatory, reimbursement and commercial capabilities in highly targeted ways to grow in our reach into high-growth areas. It also helps to build our reputation and increases our attractiveness as a partner of choice for companies seeking to leverage our capabilities and introduce their products into this growing market.

The combination of our strategic focus on China and our strong commercial infrastructure has enabled SciClone to achieve a compounded annual revenue growth rate of 35% for the last few years. Despite this significant achievement, we believe that we have just begun to scratch the surface of the market growth potential in the China market, which is being driven by increasing demand.

SciClone's wider and deeper strategy, which was jump-started following the NovaMed acquisition a little over a year ago, is a concerted effort to go to where the demand growth is directly coming from, across the country, province by province, city by city, hospital by hospital, department by department, and physician by physician. While overall health care policy in China is set on the national level, it is important to remember that health care in China is funded at the provincial level. And in some provinces, the GDP growth rate far exceeds that of the national growth rate.

That is why it has been so critical for us to focus on increasing our penetration at the provincial level, to reach more deeply into Tier 3, as well as Tier 2 cities, and into Class 3 as well as Class 2 hospitals. And to continue to leverage the expertise of our approximately 870-person sales organization to penetrate into more hospital departments, where our products are already formulary listed to increase its integration.

Our strategy is to continue to take advantage of the growth trends within the China pharma market to further build our presence and drive sales. Despite the size and complexity of this market, our commercial, regulatory and reimbursement knowledge and experience are extensive, and we have been able to exercise significant control over our growth, utilize highly sophisticated, analytical and targeting tools to identify where our business comes from, where the growth opportunities are and how to assess them, from the provincial and city levels down to the individual hospital department and physician level, use sophisticated tools, combined with the expertise and establish relationships of our sales force, comprise SciClone's powerful marketing capability.

We know who the high prescribing target physicians are at the department level, and how to reach them. Our strategies of targeting the deployment and penetration has successfully enabled us to continue to increase sales of ZADAXIN at a high rate, as well as our high-valued products, Aggrastat, Depakine and Stilnox, as well as our oncology portfolio.

Our expertise in marketing and commercialization throughout the reimbursement, tendering and hospital listing processes is a valuable corporate asset.

We are adept at managing the hospital formulary process, and we have established a close communications network throughout the China medical and regulatory community, and with our distributors and suppliers to assist where needed with getting our product listed.

These activities, combined with our strategy of expanding the use of ZADAXIN for additional patient groups, has been critical to managing ZADAXIN's growth and provide a strong foundation for continuing to grow ZADAXIN sales at or ahead of the overall pharmaceutical market growth rate.

Today, thymosin drugs are among the top 5 drug classes in China, and thymalfasins are the highest quality products in this class. ZADAXIN is a highly differentiated product, with approximately 12% to 15% of the volume share in this market, and also 40% of the RMB value shares. We are confident that the ZADAXIN market, far from being saturated, has significant elasticity and that we are well-positioned to continue to expand, uptake and drive sales growth.

In addition to our own substantial capabilities, there are several key characteristics of the China market that directly benefit SciClone , and especially ZADAXIN, and that differentiates China from traditional pharmaceutical markets. The first has to do with product lifecycles, in that established products continue to grow despite the loss of [indiscernible], and sometimes they're even faster than the average market growth.

From the market access point of view, a product's time on the market also provides advantages and that those products that have been on the market for some time are reimbursed, are often included on most important provincial tenders and have established the critical mass of hospitals in this [indiscernible] . In the market benefits, all of this applies to SciClone's market and product portfolio, can facilitate continued rapid revenue growth.

SciClone's branded product portfolio spans key high-growth therapeutic areas, including infectious disease, cardiovascular disease, CNS disorders and oncology. Many of these products have been on the market for several years, and physicians are familiar with them. It takes a long time for a new product to gain this kind of traction. An established branded product, such as ZADAXIN, which is highly differentiated from other products in its class, is manufactured in European treatment [ph] facilities, and has a solid foothold in traditional Chinese medicine, has meaningful advantages in this market over newer products and certainly over unbranded, local generic competitors.

We also believe that our ability to take advantage of changes in medical practice and treatment guideline changes that represent new therapeutic opportunities, especially in oncology and infectious disease, will continue to support ZADAXIN's growth. As we have noted before, demand continues to grow for ZADAXIN, based on its excellent reputation as a high quality, premium brand for therapeutic use as a new simulating agent to augment the treatment of patients with severe hepatitis and cancer, as well as other serious diseases.

The inclusion of thymalfasin in the treatment guidelines for hepatocellular carcinoma issued by the China Ministry of Health should help to drive utilization even higher, as China has about 50% of all new worldwide cases of liver cancer, approximately 230,000 every year. In addition, the China government's concern about, and imposed limitations on, overuse of antibiotics provides opportunities to increase usage for this proven new stimulatory agent. We see significant potential for increased adoption and long-term growth of ZADAXIN in the treatment of sepsis, as well as in general surgery. We are looking forward to the publication later this year of a major clinical study involving 300 patients, the key to supporting use of ZADAXIN to augment treatment of sepsis, which would help to promote increased utilization in this indication.

In short, we continue to have confidence in ZADAXIN's potential as a major growth engine for SciClone. As our financial results reported today show, ZADAXIN's excellent performance in the first quarter was matched in the second quarter, where we delivered 19% growth quarter-over-quarter and an impressive year-to-date performance of 27% growth over the prior year.

We were also pleased to report growth in all of our product lines, with a 32% increase in both primary care and oncology products quarter-over-quarter, and 157% growth year-over-year on a GAAP basis. These product lines include the 3 key products that we have exclusively promoted for Sanofi in China: The anti-convulsant Depakine; the ACE inhibitor, Tritace; and the fast-acting hypnotic Stilnox, as well as our cardiovascular product, Aggrastat.

Our recently added, enhanced sales support for our anti-epileptic drug, Depakine, is beginning to be reflecting growing top line sales, especially as we continue to promote usage in the recently approved bipolar indication, as well as for intravenous formulation. Depakine is SciClone's second largest-selling product, after ZADAXIN. On an annual basis, over the last 4 years, since SciClone begun marketing Depakine for Sanofi, sales have increased more than 30%. Clearly indicating that SciClone is well-positioned to develop this product's market potential.

Relative to Aggrastat, we continue to have high expectations for this cardiology intervention product, which we believe will compete well in the fast-growing [indiscernible] infusion or stent markets. Aggrastat is the only imported drug completely in this market, and we believe it has tremendous potential. This array of [indiscernible] and now Integrilin, Aggrastat's competitors in the U.S. and Europe, have even begun the U.S. FDA approval process in China, which means they are at least 5 to 7 years behind Aggrastat, enabling SciClone to have a clear shot at establishing market supremacy.

SciClone has considerable experience and understanding of this market, and our sales force has well-established communications with physicians and deep penetration to key institutions to support growth product uptake. In 10% to 12% establishing Aggrastat toward a provincial tendering process. Today, the top 5 provinces in China, there are only on the Tien Lin basin. We estimated that we have reached about 30 customers out of a potential count of 300 hospitals nationwide, with very significant potential for growth. We anticipate once the China government announces its expected price reviews in the next few weeks, the major provinces will release their expected bidding processes and additional tender processes can begin in the major provinces. Once this is completed, we anticipate significant acceleration in the growth of Aggrastat.

As we have previously noted, we also have an adjusted development pipeline, including several late-stage assets, for which we are pursuing registration. We will look forward to providing updates on these products as they continue to move through the regulatory process.

In conclusion, we continue to be confident about our ability to drive ZADAXIN growth, and support the growth of our up and coming products. Our strength continue unabated. Our standing as a publicly traded U.S.-based, China-focused specialty pharmaceutical company. Our reputation as a provider of therapeutically differentiated, high-quality products to patients. Our commitment to operating those high standards of financial controls and regulatory compliance, and our track record of consistently delivering impressive financial results and meeting our goal of growing in line with, or ahead of the China pharmaceuticals market.

We believe that we are on a trajectory to deliver another year of strong growth and financial performance. We believe that the China market offers extraordinary growth and expansion opportunities, and we have the right management team, commercial tools, development and strategies in place to continue to produce impressive revenue and profitability results, and to build our success as a top-tier pharmaceutical company.

Now I would like to ask Gary to discuss other proper developments and our financial performance for the second quarter. Then we'll move to Q&A.

Gary?

Gary S. Titus

Thanks, Friedhelm. I'll begin with some brief comments on the 2 issues that we continue to monitor closely, namely, the anticipated price reductions for ZADAXIN and Aggrastat, as well as the SEC and DOJ investigations. I'll also comment briefly on our ongoing contract renewal discussions with Sanofi, Pfizer and Baxter.

We believe that the ZADAXIN price reduction will take place this year, and frankly, we are preparing, and even eager, to see this implemented. As we have noted in the past, that reduction, which we estimated to be in the 10% to 15% at the retail level, is factored into our guidance for 2012, which is predicated on continued strong growth in ZADAXIN sales. While we do not yet have visibility on the timing of the conclusion of the SEC and DOJ investigations, historically, many of the situations have come to conclusion within approximately 2 years. As we are now at the 2-year mark, we are hopeful of the resolution within the next couple of months. It's our firm belief that while this process has been challenging for us and for our shareholders, the enhancements we have made in the area of compliance have made us a better company, strengthened our operations and our business, and helped us to solidify our reputation among our -- all stakeholders.

In 2011, we took many important steps as part of our increased compliance initiatives. These included: Adopting a new, more detailed policy regarding compliance with the FCPA and other laws, specifically covering travel and entertainment, honoraria, meals, gifts and other matters; extending training of our employees regarding understanding of the compliance of laws, including the FCPA, and other anti-bribery and anticorruption laws and regulations; and hiring a senior audit and compliance officer in China with FCPA-compliance experience who is a member of the executive management team.

This year, we are pleased to note that we have recently expanded the China executive team with the hiring of an experienced Chief Financial Officer for China Operations, who holds a U.S. CTA degree, and has broad experience in the pharmaceutical industry. We remain absolutely committed to focus on operating our business in compliance with the laws in the territories that we operate, with particular emphasis on the U.S. Foreign Corrupt Practices Act and with Sarbanes-Oxley internal control requirements, including internal audit and compliance training and certifications from our employees, importers and distributors, and maintaining strong oversight and coordination with our U.S. corporate office.

We are confident that these initiatives have strengthened our ability to ensure compliance and will continue to bring important benefits to our company and its shareholders.

Just to briefly comment on our contracts with Sanofi, Pfizer and Baxter, I'll emphasize that we believe we are doing an excellent job of promoting these products for our partners. As Friedhelm noted relative to Depakine, and as reflected in our growing top line, these products have grown significantly since SciClone began promoting them. We continue to enjoy excellent relationships with all 3 companies and expect that the contract renewal process will be completed in the near term.

I will now review selected financial results for the second quarter of 2012. Please see our press release issued today for full details. SciClone reported that revenues increased by 22% for the quarter ended June 30, 2012, to $40.3 million compared to revenues for the same period in the prior year of $33.1 million. Revenues increased by 45% for the 6 months ended June 30, 2012, to $79.5 million, compared with revenues for the same period in the prior year of $54.8 million. The increase in revenues in the second quarter and year-to-date was due to the continued growth of ZADAXIN, primary care and oncology businesses in China and the inclusion of NovaMed Pharmaceuticals, Inc. revenues since the date of the acquisition on April 18, 2011.

For the second quarter June 30, 2012, ZADAXIN revenues increased 19% to $30.4 million compared to revenues for the same period in the prior year of $25.6 million, and revenues attributable to the primary care and oncology product lines increased 32% to $9.9 million compared with revenues for the same period in the prior year of $7.5 million.

For the 6 months ended June 30, 2012, ZADAXIN revenues increased 27% to $60.2 million compared to revenues for the same period in the prior year of $47.3 million, and revenues attributable to primary care and oncology product lines increased 157% to $19.3 million compared to revenues in the same period in the prior year of $7.5 million. Comparable periods in 2011 referred to in this press release includes the results of NovaMed, only for the period subsequent to our acquisition of NovaMed. Increase in revenues from the period to period are therefore attributable, in part, to the acquisition.

On a pro forma basis, assuming NovaMed had been acquired on January 1, 2011, the revenues for the quarter and 6 months ended June 30, 2012, of $40.3 million and $79.5 million would have been compared to $34.6 million and $62.8 million, an increase of $5.7 million or 16%, and $16.7 million or 27%, respectively.

On a GAAP basis, SciClone's net income for the second quarter of 2012 was $10.6 million compared with $2 million for the same period in the prior year, or $0.19 and $0.18 per share on a basic and diluted basis, respectively. For the 3 months ended June 30, 2012, compared with $0.04 and $0.03 per share on a basic and diluted basis, respectively, for the same period in the prior year.

For the 6 months ended June 30, 2012, SciClone reported net income of $19.3 million compared with $5.8 million for the same period in the prior year, or $0.34 and $0.32 per share on a basic and diluted basis, respectively, compared with $0.11 per share on a both basic and diluted basis for the same period in the prior year.

SciClone's non-GAAP net income for the second quarter of 2012 was $11.4 million, compared with non-GAAP income of $7.5 million for the same periods of last year, or $0.20 per share and $0.19 per share on a basic and diluted basis, respectively, for the 3 months ended June 30, 2012, and $0.13 per share on both a basic and diluted basis for the 3 months ended June 30, 2011.

For the 6 months ended June 30, 2012, SciClone's non-GAAP net income was $21 million compared with non-GAAP income of $12.4 million for the same period of last year, or $0.37 and $0.35 per share on a basic and diluted basis for the 6 months ended June 30, 2012, respectively, compared with $0.24 and $0.23 per share on a basic and diluted basis, respectively, for the same period of last year. SciClone believes this non-GAAP information is useful for investors taken in conjunction with SciClone's GAAP financial statements, because management uses such information internally for its operating, budgeting and planning purposes. Non-GAAP information is not prepared under a comprehensive set of accounting rules, and should only be used to supplement an understanding of SciClone's operating results as reported under GAAP. The non-GAAP calculations and reconciliations are comparable to GAAP measures were derived principally as a result of NovaMed's acquisition or provided in the accompanying table in the press release titled, Reconciliation of GAAP to Non-GAAP Net Income.

Sales and marketing expenses for the second quarter of 2012 were $17.7 million compared with $12.9 million for the same period in the prior year. The increase of $4.8 million was primarily a result of the additional expansion of the company's sales team by approximately 120 sales representatives since last year, which significantly expanded SciClone's sales and marketing capabilities. The company now has a combined sales organization comprised of approximately 870 sales and marketing-focused professionals in China.

Research and development expenses for the second quarter of 2012 totaled $1.5 million compared with $3.1 million for the same period in the prior year. Following the company's announcement on March 2, 2012, regarding the futility of our SCV-07 clinical development program in oral mucositis, the company has taken certain steps to reduce its future U.S.-based clinical development expenses this year and expects further substantial decreases in R&D expenses in 2013. The decrease in R&D for the quarter was primarily related to the discontinuation of the company's SCV-07 program. General and administrative expenses for the second quarter of 2012 were $4.5 million compared with $8.3 million for the same period in the prior year. The decrease in 2012 was primarily due to one-time transaction costs of approximately $3.3 million related to SciClone's acquisition of NovaMed incurred in the 2011 period and the lower professional expenses associated with the company's compliance activities related to the company's Foreign Corrupt Practices Act investigation and tax matters.

At June 30, 2012, cash and investments totaled $81.9 million compared with $67 million at December 31, 2011. The increase in SciClone's cash balance was primarily due to the cash generated by the company's commercial operations, partially offset by $8.9 million used in the 6 months ended June 30, 2012, for repurchases of the company's stock.

And with that, I'll now turn the call back over to Friedhelm.

Friedhelm Blobel

Thank you, Gary. We are pleased with our accomplishments thus far in 2012, planning to stay focused on our strategic initiatives, and look forward to building on our success and continuing to deliver value to our shareholders.

Now I would like to ask the operator to open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Katherine Lu of Cowen and Company.

Katherine Lu - Cowen and Company, LLC, Research Division

My first question is regarding to revenue. This quarter, ZADAXIN again had solid growth of 19%, which was very much in line with the March [ph] pharmaceutical market growth. But if we look at sequentially, a first quarter of ZADAXIN sales growth was very, very strong at 37%. I'm just wondering if you can talk about the market dynamics, would have changed in first quarter and second quarter, and help us to reconcile the difference of the growth. And in your view, at what transfer rate would be more sustainable for ZADAXIN growth?

Friedhelm Blobel

Yes, I think you cite the appropriate figures in regard to ZADAXIN growth, but I would not over-emphasize differences quarter-over-quarter, but really look at the bigger picture. And I think the bigger picture and our expectation is, that also in following quarters and in the future, we will continue to grow ZADAXIN in line with the market growth or above market growth, which represents very much the pattern and the numbers which we have been able to achieve in the last several years.

Katherine Lu - Cowen and Company, LLC, Research Division

Okay. Okay, so okay, maybe next question is regarding to the NovaMed portfolio. So I think Gary said, on a pro forma basis, the $40.3 million should be compared to $34.6 million. It's about 16% year-over-year growth. So I would rough calculate that NovaMed portfolio grow about low teens this quarter. I'm just wondering if you can -- I know some of the NovaMed products had a price reduction last year. So I'm just wondering if you can talk about the volume growth for the portfolio for the NovaMed portfolio versus the ASP trends.

Friedhelm Blobel

Yes. So from big picture, we are very pleased with the development, also of the NovaMed portfolio represented by the 2 business units, primary care and oncology. Both have been growing very nicely this year and also in the second quarter. Maybe for some additional color, Mark, you may be able to give some additional information.

Mark Lotter

Yes. I think, Katherine, as you mentioned, I mean, late last year, we did see both the cardiology, as well as genus [ph] products take a retail price decrease. And so, I think comparing this with the same period last year, the volume growth would clearly be highs index of the revenue growth. I think the other issue that we have to take into consideration is a bit of supply-related issues. For a number of molecules across both primary care and that of oncology, we have had stock out situations. I think overall, in terms of internal expectation and previous guidance given, we pretty much on track with both oncology, as well as primary care business units.

Katherine Lu - Cowen and Company, LLC, Research Division

Okay. Okay, that's great. So maybe looking forward, what kind of a volume growth would you expect for NovaMed product portfolio? I know Aggrastat still need to go through the provincial tender. Just assume Aggrastat goes through a provincial tender later this year, maybe sometime next year as well, maybe looking into 2013, what kind of volume growth should we be looking at for NovaMed portfolio? And also, I think Gary also mentioned about Aggrastat could potentially have price reduction. Could you share some insight on that front as well?

Friedhelm Blobel

Right. Well, maybe let me start the answering -- the one or the other aspect of this part, and then Mark and Gary can answer this. As far as Aggrastat pricing reviews are concerned, we have mentioned since quite some time that we expect it to happen in parallel to the ZADAXIN price review because Aggrastat was listed in the RDL together at the same time with ZADAXIN in November of 2009. And what I sometimes call the Class of 2009, or the L listings, is getting toward the last categories, which will be reviewed. So we are aware that this will include ZADAXIN, and we have talked about it many times. And it will also include Aggrastat. It is correct that we believe that for many discussions with -- involve parties that -- the fact that a number of tenders have been not out and have not been available for bidding for an exceptionally long period of time. We believe that this has to do with the government wanting to get the new price review first completed before these tenders will come out. And we are quite confident that once we go down this path, we will be able to really get into a number of additional key provinces, beside Beijing, where we are already, since quite some time and that this will help substantially for the growth of Aggrastat because we continue to be really bullish about the potential of Aggrastat as one of our top 2, 3 products, besides ZADAXIN and Depakine. So beside that, Mark, feel free to add some of your perspectives.

Mark Lotter

Yes, I mean, I think beyond that, of the past, Katherine, looking at the volume growth, I mean, given that you would have pretty much vested in the past decrease in the latter part of 2011, as indicated by both Gary and Friedhelm, we would expect both the ZADAXIN business units as well as that of PC and oncology to pretty much grow in line with the market, or slightly ahead that of markets. So I don't think you're going to see a major difference between volume and value growth, given that you are moving to the latter part of the adjustment cycle. So pretty much in line with the previous guidance given.

Katherine Lu - Cowen and Company, LLC, Research Division

Okay, I see. Okay, got it. Okay. And so I think for ZADAXIN, we talked many times, the expected reduction from the current price to the newest retail ceiling would be somewhere about 10% to 15%. But I don't recall we talked about the pricing prospect for Aggrastat. Is there any information you can share with us at this moment?

Friedhelm Blobel

Well, I think we expect, on the retail level, to be in a similar range of 10% to 15%. And again, as is typical for all these products, not only of ZADAXIN, part of that reduction will have to be shared through the various parties in the distribution chain. And finally, I would like to emphasize that we have built into our guidance for 2012 not only the ZADAXIN price review in that size, but also one for Aggrastat.

Katherine Lu - Cowen and Company, LLC, Research Division

Okay, that's great. Actually that comes to my last question regarding guidance. Certainly, SciClone had a very strong first half, and then the pricing reduction was sort of postponed, maybe sometime this month, but it was certainly postponed from the original expectation sometime in February or March. So I'm just wondering, is there any particular reason that you're not raising your guidance at this moment?

Friedhelm Blobel

Well, we feel very good with the guidance we have worked out. And we have been seeing delays in terms of the actual price review happening compared to what I believe could have been possible. So don't want to get into this kind of more speculative comments, and we feel that we had a very strong first half. The numbers are trending very strongly in the direction we have given guidance for. And at this point, we feel very comfortable with the guidance and don't see a need to really update it. If we will do this after the Q3 results, we'll have to take a look once those are in.

Mark Lotter

Yes, I mean, I think also, Katherine, that the impact of pricing, that's kind of twofold in the same space. As Friedhelm has indicated, not only for that of Aggrastat, but certainly for other PC products and even for that of ZADAXIN, had the price been released earlier, we would have also had the ability to have possibly had the tender process expedited. So I mean, it's a challenging one to kind of level up. But I think, and then of course, as you have these delays, you have concerns within the supply chain in terms of purchasing patterns as well. So it's a pretty complex environment. And I think as we've approached the, this 3-month period with, one expected the pricing to come through, it's kind of fresh start in terms of where we've given our initial guidance.

Operator

[Operator Instructions] Your next question comes from the line of Hamed Khorsand.

Hamed Khorsand - BWS Financial Inc.

Just a couple of questions for me. First off, why are you so confident in saying that there will be a 10% to 15% decline at the retail levels of ZADAXIN?

Friedhelm Blobel

Well, I mean, we have many levels of discussion. There are many context on very many different levels. We have context, certainly our key import, just like Sinopharm has context, and we aggregate this, these, the various pieces and to try to get to the best picture. And frankly, this best picture, which we have -- hasn't changed in any dramatic way as far as the size of the review is concerned, in the last 2 or 3 years. It has changed, or I mean, we have not been correct as far as the timing is concerned, because we are expecting it for quite some time. But you are never sure before it really happens. And it is -- the timing has been delayed, but we have no indications that our price would be any different than what we have been talking about, and that's really the best level of information which we have at this point.

Mark Lotter

I mean, in addition to that, remembering this is the last batch of reviews. So the company's already been through a series of reviews and adjustments on price. And so based on what has happened, based on the historical review, looking at the SciClone portfolio, which included cardiology and CNS, I mean we pretty much aligned to the logic that was applied on the previous cuts, vis-à-vis other products in the portfolio. So a combination of interactions, feedback and also, quite a lot of experience on history in terms of cuts that have happened in 2011.

Hamed Khorsand - BWS Financial Inc.

Okay. And then also, the contract renewals that you're taking part in with Sanofi, Pfizer and Baxter, could those include new drugs or will that be separate negotiation process?

Friedhelm Blobel

Well, that's certainly, we are talking about on the various topics and it certainly includes also the -- our interest at additional drugs. And I think the track record speaks for itself that it has been very successful for both parties. It's a true win-win, and I think that's a great starting point for the renewals.

Operator

Your next question comes from the line of Yi Chen.

Yi Chen

My first question is, is there any update on Tramadol?

Friedhelm Blobel

Sorry, update on?

Yi Chen

Tramadol.

Friedhelm Blobel

Oh, Tramadol. Yes, I mean, we are in the process of going now, through the various steps of commercialization for Tramadol, and we are making good progress with that. Now in terms of having a sizable impact on the revenue line, I probably will have to disappoint you that also 2013, that will likely not be in the several million U.S. dollar range, but below that. But the potential of the drug is a very attractive one. And we think that in following years, it will substantially contribute. But it's just that even after the SFDA approval, the various steps for the commercialization, from getting a national price to getting on the tenders in the various provinces and large cities, and then doing a hospital by hospital listing, it's just a slow process, and many parts of that are not in our range, like the tenders, they don't go out, we can't beat and we cannot start with the following step, the hospital listing, before we have successfully been included in a tender. But the, it's a very attractive product, and we are quite pleased with the fact that we got approval earlier this year, which just underlines the capability to really navigate the regulatory process in a successful way.

Yi Chen

Okay. But are you still waiting for an arbitrary decision regarding the agreement between NovaMed and the licensor of the Tramadol?

Friedhelm Blobel

Yes, that's correct. This process has been initiated, these legal processes, they are not the fastest moving parts. But this is on its path, and will be discussed. And we expect that it will become next year before it will reach some conclusion. And that's very much what is on the natural and usual timing parts for arbitrations like this.

Yi Chen

My second question is regarding share repurchase, can you update us with the current status, how much amount is still left to be purchased?

Friedhelm Blobel

Sure. Gary, could you take that?

Gary S. Titus

Sure. Happy to. The quarterly release today, I believe, indicated $8.9 million in the quarter, $8.9 million purchased. If you recall, the total available was about $30.5 million. We've essentially used about half of that since this was initiated back in December. So we're about halfway through the existing program as it was put in place by the Board of Directors.

Yi Chen

My final question is the contingent consideration, do you still -- do you expect a declining trend for the rest of the year for the contingent consideration?

Friedhelm Blobel

Gary, I think that's getting into accounting technicalities. Please take that.

Gary S. Titus

Sure. Happy to. The contingent consideration, as we talked about before, Yi Chen, is basically done on a Monte Carlo model that the company uses each quarter to try it to evaluate the probabilities of success for various earn-out components. It is probably a few quarters now that we have seen that coming down, now a little more than $13 million. It has been sometimes related to timing of things, as we get closer to the end of the year. For example, a key earn-out element is the ability to complete the new agreements or replacement agreements for our partners, Sanofi, Baxter -- I'm sorry, actually, I think it's only Sanofi is in this agreement, to get that completed and that enables us to have an element of the earn-out paid. As the year gets closer to the end, the Monte Carlo simulation will naturally cause the probabilities to come down a little bit. So just using that as an example, it's quite possible that the numbers will come down a bit more, but alternatively, they may also go up. So I'm not really going to be able to guide you on that any more than just giving you some anecdotal information.

Operator

At this time, there are no further questions in the queue, and I would like to turn the call back over to management.

Friedhelm Blobel

Thank you. And thank you, everybody, for participating in our quarterly conference call. Please feel free to contact us directly should you have any further questions. We appreciate your attention. Thank you all, and have a good day.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: SciClone Pharmaceuticals Management Discusses Q2 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts