Daniel Saks - VP of IR & Corporate Communications
Patrick Soon-Shiong - Chairman and CEO
David O'Toole - CFO
Abraxis Biosciences, Inc. (ABII) Q2 2008 Earnings Call Transcript August 13, 2008 11:30 AM ET
Good day, ladies and gentlemen, and welcome to the Q2 2008 Abraxis BioScience's earnings conference call. My name is Lakisha and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of this call. (Operator Instructions).
I would now like to turn the presentation over to your host for today's call, Daniel Saks, Vice President Investor Relations and Corporate Communications. Please proceed.
Thank you and good morning, everyone, and thank you for joining us today to discuss Abraxis BioSciences' 2008 second quarter results. On the call today are Dr. Patrick Soon-Shiong, Chairman and CEO, and David O'Toole, Chief Financial Officer.
Please be advised that this conference call is being broadcast live on the Internet at www.abraxisbio.com, as well as www.earnings.com. Before we begin, I'd like to remind everyone that the information discussed on the call today is covered under the Safe Harbor provisions of the Litigation Reform Act.
The company's discussion today may including forward-looking information reflecting management's current forecast of certain aspects of the company's future, and our actual results could differ materially from those stated or implied.
This morning Patrick will review the company's business highlights, David will discuss the financial results for the quarter and Patrick will discuss research and development activities and then we'll open the call for your questions.
And with that said, let me turn the call over to Dr. Soon-Shiong. Patrick?
Thanks, Daniel. Good morning, everybody, and thank you all for joining us today. First, let me begin by welcoming David as our new Chief Financial Officer. David comes to us with more than 24 years of experience providing financial consulting and international tax services to global companies, with particular expertise in the life sciences industry.
David was with Deloitte & Touche for the past 16 years, last serving as Partner of the Strategic Client Group where he was responsible for providing solutions to issues facing the life science industry for several biotechnology clients, including Amgen. So, we're delighted to have him as part of the Abraxis team.
Now, let me turn to a brief overview of our accomplishments this quarter with a discussion about our commercial progress with regard to Abraxane in the United States and globally.
Revenue from sales of Abraxane in the United States and Canada was $73.8 million, down from $78.7 million in the comparable quarter last year. And sales of Abraxane through the first half of 2008 were $154 million versus $150 million in the first quarter of 2007. We believe the lower sales in the second quarter of 2008 were due primarily to the delay of product orders that were anticipated in the quarter.
According to IMS data, Abraxane continues to be the fastest growing Taxane, now with a 13.9% growth rate from January 2007 to June 2008 versus the same period last year. On a rolling quarter basis, according to IMS data, Abraxane has grown 8% from June 2007 to June 2008.
When we look at the period over the past two years, Abraxane has now gained 13% in market share of the metastatic breast cancer market along all lines of therapy and now represents approximately 33% of the overall Taxane market.
According to IntrinsiQ patient level data, Abraxane use in the second-line plus setting of metastatic breast cancer represented over 45% of the Taxane market in June 2008. And over the past two years Abraxane growth was higher than any other Taxane in the market.
According to recent IntrinsiQ data regarding total Abraxane usage in June 2008, Abraxane reached an all-time high of 54% of monthly usage by first and second-line patients. So, the usage of Abraxane has really moved forward into an earlier use, and this is now increased by 23% from a 31% of usage in this first and second-line setting in January 2006.
Let's review what's happening with regard to Abraxane in its combination use. Use of Abraxane in combination with Avastin or Herceptin currently are the most common Abraxane regimens in all lines of metastatic breast cancer.
In combination with Avastin, Abraxane represents 39% of all Abraxane usages in June 2008, and this now approaching Abraxane monotherapy share of 43%.
In the first-line setting, Abraxane and Avastin combination represents 45% of Abraxane usage and in the second-line setting 51%. With regard to the Abraxane combination with Avastin, with regard to second-line, it represents 18% of the total second-line Taxane market and is the number one regimen used and has the greatest share in second-line in any monotherapy.
Let me review with you a blinded market research study we sponsored and that was conducted with 100 medical oncologists nationwide with a purpose of obtaining physicians' perceptions and usage of Abraxane versus its competitors. Now that we have had several years of clinical use, this study was informative.
According to the study, the total percentage of physicians surveyed that have every used Abraxane continues to increase from 92% in third quarter of '07 to an all-time high of 96% in Q2 '08. Similarly, the percentage of physicians that used Abraxane in the past three months also increased from 87% in Q3 '07 to now 93% in Q2 '08.
As it relates to the depth of use of Abraxane, about 54% of the physicians mentioned that they use Abraxane in greater than six cancer patients in their practice. This is an increase from 44% of physicians stating that in Q3 '07.
Across all lines of breast cancer therapy, efficacy is the most common prime reason physicians expect the use of Abraxane to increase over the next three months. So, we believe that Abraxane is now well poised for the future. Its increased use of the agent will likely change the proven standard of care paradigm.
Let me review now the commercialization strategy and where we are in the status of that. From the commercialization standpoint, the global rollout of Abraxane is progressing as planned. Thus far this year, we have secured marketing approval for Abraxane in 32 countries, which include all of Europe, China and Korea.
Including the United States, Canada and India, we now have approval to market Abraxane in a total of 35 countries. We're excited to have commenced the launch of Abraxane in India in mid July, along with our partner Biocon, one of India's leading biotechnology operations. Thus far the launch is proceeding as planned.
In Korea our commercialization partner, Green Cross Corporation, is working towards a potential launch of Abraxane in the first quarter of 2009. Green Cross plans to establish a dedicated sales force for Abraxane and implement various marketing campaigns to support a successful launch.
The oncology market in Korea was estimated to be approximately $530 million in 2007, of which the chemotherapy market was about $400 million and the Taxane market was about $77 million, according to IMS.
In early July, we received marketing approval in China, which we believe is a large market opportunity given the country's population. In fact, recent reports have indicated that breast cancer rates are on the rise in China, having increased 25% from 2000 to 2005. And according to IMS data, Paclitaxel sales in China in 2007 represented a market size of about $83 million, which is a 30% increase over sales in the previous year.
The total Taxane market in China in 2007 was approximately $167 million. In light of this large market size and the tremendous opportunity in China, we anticipate, as an organization, to establish an Abraxis-based organization within China ourselves directly.
In other activity in the Asia-Pacific region the JNDA, or the Japanese form of the NDA for Abraxane, is under review in Japan by the Ministry of Health. This was accomplished in collaboration with our partner Taiho Pharmaceuticals Company, who is a subsidiary of Otsuka Pharmaceuticals.
Collectively we're also looking to develop Abraxane in Japan for the treatment of breast, lung and gastric cancer as well as other solid tumors. And chemotherapy agents in Japan represent a large market opportunity, most recently established to be approximately $2.6 billion in 2007.
Finally, Abraxane is also under review for the treatment of breast cancer by the Therapeutics Goods Administration of Australia and the Federal Authority for Healthcare and Social Development Regulation in Russia.
Turning to Europe now, we are in the early stages of our European expansion. We are establishing our European footprint and have begun building a senior strategic team that forms the foundation for a long and prosperous future within the European market.
Dr. Jean-Francois Gimonet is our Vice President European Operations and he was previously with Baxter where he held the position of Global Director of Oncology. Maggie Massam is Senior Vice President of Global Marketing where she has responsibility for global commercialization initiatives and ongoing marketing efforts for Abraxane, including supporting licensees and business partners.
And Mike McConnell has just joined Abraxis as Director of Regulatory Affairs to create a Pan-European regulatory function that will allow the submission approvals in commercialization of Abraxane and other Abraxis developments across Europe. We are in the process of finalizing our packaging and labeling and continue to expect to launch Abraxane in Europe by year end or soon thereafter.
Finally, the integration of our acquisitions of Shimoda Biotech and Platco Technologies is going well. Some of you may recall these were strategic additions that provided a pipeline of novel Cyclodextrin-based products and next-generation platinum-based oncology compounds.
Shimoda also provides a revenue stream through Shimoda's Dyloject product, which is an injectable pain killer for the treatment of post-surgical pain and which just recently received approval.
Dyloject was launched last December in the United Kingdom by Javelin Pharmaceuticals under an exclusive worldwide license from Shimoda.
So, with that overview, it's my pleasure to turn the call over to David for a review of our financial results for the quarter. David?
Thank you, Patrick, for your warm welcome and good morning. As this is my first earnings call for Abraxis, I'd like to say that I'm excited about being part of this dynamic company, as we look to expand our business in the U.S. and the rest of the world. I look forward to reporting to you all on the company's progress, as we continue to perform against our strategic plans.
Regarding the financial results for the 2008 second quarter, net revenue was $78 million compared with $83 million in the second quarter of 2007. Abraxane revenue was $74 million compared with $79 million in the same quarter of last year.
Our analysis of the reasons for this decrease point primarily to a delay in product orders, which had been anticipated for the period based on historical buying patterns. Although, the results for the quarter were not in line with our expectations, we continue to see strong demand through July.
Abraxane revenue for the second quarter of 2008 includes recognized deferred revenue of approximately $10 million related to the co-promotion agreement with AstraZeneca and the license agreements with Taiho and Green Cross.
We had a similar amount of deferred revenue in the second quarter of 2007. Gross profit for this quarter was $68 million or 88% of net revenue versus $76 million or 92% of net revenue in the same quarter of 2007, the difference attributable to lower production volumes.
R&D expense is $22 million compared with $17 million in the comparable period in 2007. The higher R&D expense was primarily due to increased spending for clinical trials and research projects and pre-launch costs related to the company's Phoenix, Arizona plant acquired in the third quarter of 2007. R&D expenses are expected to increase through the remainder of the year as our promising Phase III clinical trials are initiated and progress.
SG&A expenses were $53 million versus $73 million in the comparable period in 2007. The decrease primarily reflected a legal charge taken in the second quarter of 2007, as well as lower shared marketing expenses under the AstraZeneca co-promotion agreement and lower marketing personnel and program expenses.
SG&A expenses are expected to rise throughout the remainder of 2008 due to increased marketing costs in the U.S. and the introduction of Abraxane in global markets.
As has been reported previously, we received $700 million in cash in conjunction with the separation from APP Pharmaceuticals in November of 2007. Hence, our interest income in the second quarter of 2008 was substantially higher when compared to the same period last year, $2.3 million in this quarter versus approximately $43,000 in the prior year.
On an adjusted basis, 2008 second quarter net income was $3.6 million or $0.09 per share versus adjusted net loss of $5.6 million or a loss of $0.14 in the second quarter of 2007. On a GAAP basis the net loss was $84 million or a loss of $2.10 per share compared with a net loss of $14 million or $0.35 per share for the second quarter of 2007.
The company recorded two significant one-time charges in the current quarter. The first was an inquired in-process research and development charge of $13.9 million in connection with the company's acquisition in April of two South African companies, Shimoda Biotech and Platco Technologies.
Second, in regard to the company's lawsuit with Elan, the jury in this case ruled that Abraxis infringed upon one of Elan's patents. Abraxis is confident, as it proceeds with post-trial motions and appeal. We have recorded a charge of $58 million for the litigation, which appears as litigation costs on the income statement.
I'd now like to review the six-month period numbers. Net revenue for the six-month period ended June 30, 2008 was $159.8 million compared with $155.1 million for the prior year period. Revenue from sales of Abraxane increased $4.2 million to $153.8 million for the period compared withy $149.6 million for the same period in 2007.
Net revenue for the six-month period in 2008 included recognized deferred revenue of $20.4 million relating to the co-promotion agreement with AstraZeneca and the license agreements with Taiho and Green Cross, compared with $19.6 million of recognized deferred revenue for the same period last year.
Gross profit for the six months ended June 30, 2008 was $141.2 million or 88.4% of net revenue, compared with $140.6 million or 90.6% of net revenue for the same period in 2007.
Research and development expense for the six-month period increased 30.2% to $42.5 million or 26.6% of net revenue compared with $32.7 million or 21.1% of revenue for the same period in 2007. Again, the increase was primarily due to pre-launch costs related to our Phoenix manufacturing facility and increased spending for clinical trials and research projects.
Selling, general and administrative expenses for the six-month period decreased $24.3 million to $98 million or 61.3% of net revenue, versus $122 million or 78.8% of net revenue for the same period in 2007.
Interest income and other for the 2008 six-month period was approximately $11.7 million compared with interest income and other of approximately $339,000 in the prior year period.
On an adjusted basis, excluding in-process research and development and charges, amortization of acquired intangible assets, litigation costs, pre-launch costs associated with the company's Phoenix manufacturing facility and non-cash stock compensation, net income for the 2008 six-month period was $15.9 million, equal to $0.40 per share, compared with a net loss of $1.4 million or a loss of $0.03 in the comparable period last year.
On a GAAP basis and including the one-time charges related to litigation costs and acquired in-process research and development in the 2008 second quarter, the company reported net loss of $79.8 million or a loss of $2 per share for the six months ended June 30, 2008, compared with a net loss of $19.6 million or a loss of $0.49 per share for the comparable period in 2007.
Just a few review items from the balance sheet, our balance sheet remains strong. Abraxis had $657 million in cash and cash equivalents and no long-term debt. Our cash is currently invested in short-term AAA rated money market funds spread across several banks, staying with our primary objective of safety and preservation of principal. None of our cash is invested in auction rate securities and we do not expect to take any write-downs on any of our investments.
Accounts receivable at June 30 were down nearly $12 million to $32 million compared with the balance sheet at year end. This is due in part to an increase in cash collection and a reduction in days sales outstanding to 39 days at June 30 from 50 days at the end of the previous quarter.
Those are the financial highlights for the quarter. I will now turn the call back over to Patrick.
Thanks, David. So, let me spend a moment talking about our clinical pipeline. In addition to commercializing Abraxane globally, we've advanced an extensive clinical development plan with regard to Abraxane itself. To advance the clinical launch of Abraxane and its commercial potential, approximately 30 company sponsored clinical studies and approximately 90 investigative initiated studies are planned or under way, of which more than 25 have active patient enrollment.
In the second quarter, we presented data from over 25 company and investigative sponsor studies at various Congresses, further building on the large body of data that supports the use of Abraxane in a variety of different oncology settings and stages of disease, as well as in combination with targeted agents and other chemotherapeutic agents.
At the American Association of Cancer Research meeting in San Diego in mid-April, we presented exciting preclinical data demonstrating the effect of Abraxane in combination with Avastin to eradicate large-sized orthotopic breast tumors as well as the lymphatic and systemic metastasis. I think this was the first revelation internally from a scientific perspective that there's a synergistic activity between Abraxane and Avastin.
A second interesting presentation at AACR included interim clinical data from a Phase I trial, showing clinical benefit of Abraxane in combination with Gemcitabine in more than 70% of patients with advanced pancreatic cancer. This very high level of activity is a compelling result and is now leading us to very seriously consider a Phase III trial in this setting.
At ASCO in late May in Chicago we had numerous poster and oral presentations. Several of these highlighted the potential utility of Abraxane in combination with targeted therapies as well as other chemotherapeutic agents, both in breast cancer and in melanoma. With regard to a combination in breast cancer, one presentation included data from an ongoing single-arm study evaluating, again, Abraxane in combination with Bevacizumab for the first-line treatment of metastatic breast cancer.
In the second highlighted study at ASCO results were presented from an ongoing single-arm Phase II clinical trial evaluating Abraxane in combination with Trastuzumab and Carboplatin for first-line treatment of patients with HER2-positive metastatic breast cancer. The results of this study were exciting.
32 patients with HER2 breast cancer patients were treated and the regimen included Abraxane given weekly, three weeks out of four, Carboplatin and Trastuzumab. 30 patients were evaluated for response and eight patients continued to receive treatment.
The preliminary analysis showed that this combination demonstrated a 53% overall response rate and resulted in a median progression-free survival of 15.9 months. In addition, 14 patients had a confirmed partial response and two patients had a complete response and 30% of patients experienced stable disease for more than six weeks.
This study follows prior studies that demonstrated an advantage of adding Carboplatin to Abraxane and Trastuzumab as first-line therapy for patients with HER2-positive metastatic breast cancer. And it also builds upon the findings from other randomized trials that have demonstrated superiority of a weekly schedule of Abraxane over an every three week schedule. So, with these interim results we believe the regimen is best to be further examined in larger clinical trials.
Now, let me talk to the clinical trials or registration clinical trials, which we expect to have under way. They're multiple Phase III trials. Our first Phase III trial of Abraxane in first-line non-small cell lung cancer continues to enroll patients and the study is planned to include 1,050 patients.
For melanoma, we've agreed upon the study design and the endpoints with the FDA and the Phase III trial is expected to begin in the second half of 2008.
And then finally, we're planning activities and actually meeting with the FDA to initiate a randomized Phase III trial for Abraxane for use in first-line pancreatic cancer. All these trials are expected to be superiority trials utilizing a weekly dose of Abraxane.
So, with that I'd like turn the call back to the operator to begin the question-and-answer session. Operator?
Question - and- Answer Session
(Operator Instructions) At this time there are no questions.
Well, thank you all for joining us this morning to discuss our 2008 second quarter results. So, if anybody has any other questions, please feel free to contact our Investor Relations team at Abraxis. And this concludes our call today and thank you for your attention.
Thanks for your participation in today's conference. This concludes the presentation, you may now disconnect.