Exhibit 99.2
APPX - Q1 2004 American Pharmaceutical Partners, Inc. Earnings Conference Call
Event Date/Time: Apr. 21. 2004 / 11:30AM ET
CORPORATE PARTICIPANTS
Patrick Soon-Shiong
American Pharmaceutical Partners Inc. - Chairman, President, CEO
Nicole Williams
American Pharmaceutical Partners Inc. - CFO
Derek Brown
American Pharmaceutical Partners Inc. - Co-COO
Jeffrey Yordon
American Pharmaceutical Partners Inc. - Co-COO
CONFERENCE CALL PARTICIPANTS
Robert Jaffe
PondelWilkinson Inc
Elliot Wilbur
• Analyst
Greg Gilbert
• Analyst
PRESENTATION
Operator
Good morning. My name is Casey (ph.). We apologize for the delay due to
participants signing in late. At this time, I would like to welcome everyone to
the American Pharmaceutical Partners 2004 First Quarter Conference Call. All
lines have been placed on mute to prevent any background noise. After the
speakers' remarks there will be a question-and-answer period. If you would like
to ask a question during this time simply press "*" then the number "1" on your
telephone keypad. If you would like to withdraw your question press the "*" then
the number "2" on your telephone keypad. Thank you. Mr. Jaffe, you may begin
your conference.
Robert Jaffe - PondelWilkinson Inc
Thank you operator. Good morning, everyone and thank you for joining us today to
discuss American Pharmaceutical Partners 2004 first quarter financial results.
On the call today are Patrick Soon-Shiong, APP's Chairman, President, and
C.E.O.; Nicole Williams, the Company's Chief Financial Officer; and Derek Brown
and Jeffrey Yordon, Co-Chief Operating Officers of the Company.
First, in-housekeeping issues before we start. If you would like to be added to
APP's fax and e-mail list to receive company information or if you would like to
change your contact information, please contact Gladys Perez (ph.),
PondelWilkinson at 323-866-6081.
In addition, we advice that this conference call is being broadcast live on the
Internet at www.appdrugs.com as well as www.fulldisclosure.com. A playback of
this call will be available for one year and may be accessed on the Internet of
both website. Finally, note that all the information discussed on the call today
is covered under the Safe Harbor provisions of the Litigation Reform act. The
Company's discussion today will include forward-looking information reflecting
management's current forecast of certain aspects of the Company's future. Actual
results could differ materially from those stated or implied by our
forward-looking statements due to risk and uncertainties associated with the
Company's business. Risk factors associated with our business are set forth in
our 10-K which has already been filed. And we suggest that you read this and all
of our future filings with the SEC. The Company disclaims any intent or
obligation to update these forward-looking statements.
With that said let me turn the call over to Nicole Williams.
Nicole Williams - American Pharmaceutical Partners Inc. - CFO
Thank you Robert and good morning everyone. APP's first quarter 2004 net sales
increased 10% to $89.2 million which was inline with consensus estimate. During
the quarter, the Company incurred pre-launch of Abraxane expenses totaling $7.1
million or 6 cents per diluted share that resulted in a first quarter net income
being $11.8 million or 16 cents for fully diluted share.
Looking at the key elements of the first quarter, net sales growth was fueled
primarily by continued strong demand for most recently launched product as well
as increased demand for certain anti-infective during the quarter. The sales
growth was offset by continuing price erosion on certain products, which
contributed to an approximate $10 million increase in our chargeback reserve
over year-end 2004 level. In this quarter, our plant shutdown was longer than
typical for our Chicago manufacturing facility in which we did significant
improvements and upgrade. These upgrades will strengthen our manufacturing
capabilities for the base business and ensure an even more robust production
capability for Abraxane. Gross margin as a percent of net sales was 49.8% versus
56.7% for the comparable period last year. This decline reflects the impact of
the extended plant shutdown at the beginning of the quarter as well as certain
anticipated price declines on products launched in the last couple of years.
Absent the extended shutdown, however, which
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APPX - Q1 2004 American Pharmaceutical Partners, Inc. Earnings Conference Call
resulted in an increased manufacturing variance of 1.3 million over last year's
first quarter; the gross margins for the quarter would have been in excess of
51% for the quarter.
First quarter research and development expense totaled $7.1 million of which $2
million was related to Abraxane pre-launch production activity. SG&A expenses
during the first quarter grew $6.3 million again with 5 million of that increase
relating to the ramp up of the Abraxane sales and marketing program. Excluding
the Abraxane ramp up, SG&A was 15.1% of sales in the first quarter this year
versus 13.9% of sales in last year's first quarter reflecting increased
headcount and infrastructures in the base business. Cash flow from operations
was basically neutral in the quarter reflecting the funding of the 7.1 million
in Abraxane pre-launch expenses and the acquisition of over 6 million in raw
material inventory.
Capital expenditures for the quarter totaled 5.5 million. We should note that
raw material inventories at quarter-end include approximately 30 million of
paclitaxel raw material. We believe there are current cash on hand of
approximately 54 million and future operating cash flow combined with the 50
million available under our credit agreement should provide sufficient liquidity
over the foreseeable future.
Now, I would like to spend a few minutes reiterating our expectation for 2004.
APP continues to expect that 2004 base product sales will grow in the excess of
20% over 2003 level with the growth substantially driven by anticipated product
launches in the third and fourth quarters including the launch of two products
towards the Company as it obtains tentative approval with Fluconazole and
Carboplatin, which are pending only the expiration of the original and possible
pediatric extension innovative test. Gross margins of the base business this
year is anticipated to be in the low-to-mid 50% range of net sales for 2004 as
previously noted. And APP continues to prepare for the potential approval of
Abraxane's NDA and we are currently assuming [early] fourth quarter product
launch. We anticipate that Abraxane related direct expenses will be
approximately $40 million for all of 2004. In addition, APP expects to pay an
expense of the $10 million milestone payment upon FDA acceptance of Abraxane NDA
filing in the 2004 second quarter, and to pay the 15 million milestone payment
upon FDA approval of the NDA for Abraxane. The FDA approval milestone payment
would be capitalized and amortized over the estimated life of the product. With
those comments, I would like to turn the call over to Patrick Soon-Shiong
Patrick.
Patrick Soon-Shiong - American Pharmaceutical Partners Inc. - Chairman,
President, CEO
Thanks Nicole. We are really pleased with the ongoing strength in the base
business during this quarter, and we believe with the 20 ANDA's content filed
with the FDA the Company is well positioned for strong growth this year,
particularly in the second half of 2004. That may be reflected in some of the
events happening during this quarter, and during the first quarter we launched
Steri-Tamp, which is a unique tamper resistant seal that could reduce dispensing
hours and improve hospital patient safety. In addition, Piperacillin, a narrow
spectrum antibiotic for pseudomonas, which is an infection typically acquired
from hospital [phase] was launched.
In late launch, we signed a multi-year primary vendor contract with one of the
country's largest oncology GPOs, which should further strengthen our ability to
grow our oncology market share. As Nicole mentioned, the shutdown that occurred
during this quarter was longer than typical. This investment in time, however,
we believe is well worth it in terms of strengthening our manufacturing
capabilities through the base business and ensuring even more robust production
capability for Abraxane.
With that let me now provide a brief update on the status of Abraxane. And as we
previously announced, the NDA submission for Abraxane was filed in March 8th.
After 60 days from this date of filing that the FDA will notify us if the NDA
has accepted the filing. We continue to plan on expected launch for Abraxane in
the fourth quarter of this year and then [inaudible] with both our initial
complement of our senior sales and marketing professionals including
approximately 80 sales representatives the majority of whom have over 10 years
of major pharmaceutical oncology experience. In addition, in this quarter we
were successful to recruit one of the country's top national accounts sales
manager. Abraxane as we have always previous reported is also being studied for
a number of cancers and trials that have initiated for lung and melanoma in this
country. So looking ahead we are also pleased to announce that three abstracts
have now been accepted for presentation at the upcoming ASCO Annual Meeting in
June, which would be a pretty exciting meeting for us, and we look forward to
seeing some of you there.
And a final note before we open-up for questions. Next week we will be
presenting at the CIBC Annual Biotechnology and Specialty Pharmaceutical
conference in New York, and Nicole and Jeff will be in attendance at that
meeting. With that said and for the time available Nicole, Jeff, Derek, Jeff and
I would be happy to address any questions you may have Operator.
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APPX - Q1 2004 American Pharmaceutical Partners, Inc. Earnings Conference Call
QUESTIONS AND ANSWERS
Operator
At this time I would like to remind every one if you would like to ask a
question press "*" then the number "1" on your telephone keypad. We will pause
for just a moment to compile the Q&A roster.
Your first question comes from Elliot Wilbur.
Elliot Wilbur - Analyst
Good morning Thanks for taking the question. I have a couple of lines question
with respect to Abraxane for Patrick, you mentioned that three abstracts have
been accepted from presentation at ASCO, can you disclose the subject matter of
the abstracts and is there a possibility that some of these will be presented at
you know, some sort of oral form?
Patrick Soon-Shiong - American Pharmaceutical Partners Inc. - Chairman,
President, CEO
Yeah, we have and without going to obviously the details of the abstracts. The
three abstracts all obviously related to Abraxane. Two of them relate to a
weekly dosing strategy. One of the two relates to the results now in patients
who have availed Taxol and Taxotere and they are pretty exciting results from
that the perspective. And the third one relates to the pharma-economic study
which was completed of looking at the cost savings of Abraxane vis-a-vis the
other Taxane, including Taxol and Taxotere. With regards to an oral presentation
we believe these abstracts we have posted in the oral presentation there is - I
do know of a forum at ASCO which is a rather new forum called Best of ASCO in
which presentations are refused and made other times of the meetings that may be
accepted and the San Antonio presentation in which we presented orally the Phase
III data, - I am not sure whether that either will be a kind of this or will be
accepted as Best of ASCO, but that may be indeed a possibility that I can't
guide to because I have no idea about that.
Elliot Wilbur - Analyst
Okay that's something within the ASCO committee members control then?
Patrick Soon-Shiong - American Pharmaceutical Partners Inc. -Chairman,
President, CEO
Yes.
Elliot Wilbur - Analyst
Okay just a follow up question on the taxane refractory study then, is that
going to - will we see data from all I believe 150 patients?
Patrick Soon-Shiong - American Pharmaceutical Partners Inc. - Chairman,
President, CEO
Yes I think so I - again I don't want to get into the details of the abstract
but the - as you may recall I think couple of ASCOs ago we presented the initial
results of the weekly dose to the 100 milligrams/m2 and then we have [inaudible]
then because we saw very little toxicity, it went up to a 125 milligrams/m2 and
I think what you will be seeing now is the data from both doses and at a number
of occasions in excess of 100.
Elliot Wilbur - Analyst
Okay, I think you partially answered my second question here but, you know,
obviously the plant shutdown had something to do with, you know, adding or
upgrading capacity to prepare for Abraxane production, I am not sure if there is
any clues in there with respect to you know pre-approval inspection or not, but
Patrick if there's any thing you can share with us in terms of additional
communications from FDA or progress on establishing pre approved inspection
date?
Patrick Soon-Shiong - American Pharmaceutical Partners Inc. -Chairman,
President, CEO
Yeah, well as I said in our comments and as well as in the press release. We've
made a commitment to supporting both the base business and Abraxane and the
[inaudible] capacity, which we've as you know have enhanced over time in this
particular plant. And longer than typical but I think a good investment in time
and asset for the long-term strength and fundamentals of the company was to do
this and we did this in this quarter. Obviously it all came in anticipation of
making available the production capabilities for Abraxane and also in
anticipation obviously of the pre-approval inspection. I am over resistance to
give you any guidance other than to say with regard to the pre-approval date
other than say that we are very comfortable
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APPX - Q1 2004 American Pharmaceutical Partners, Inc. Earnings Conference Call
with our interactions with the FDA thus far and to actually FDA is on going.
Elliot Wilbur - Analyst
Okay, and then just one last question here on Abraxane, certainly got a lot of
questions regarding the potential pricing strategy for the product, I am not
sure if there is any thing you can share with us at this juncture or not, but
you know any comments you can provide on, your thoughts on the pricing and
product relative to just you know [paclitaxel].
Patrick Soon-Shiong - American Pharmaceutical Partners Inc. - Chairman,
President, CEO
And again we have [inaudible] if you see examining that right now by examining
both you know the pharm-economic benefit of the drug in fact you know the as
said the ASCO abstract will shed some significant light on significant pharm
economic benefits of Abraxane over both Taxol and Taxotere. In that light
together with analysis of the dynamics and we are doing our surveys; it's a
little pre-mature for us to even address this publicly but we are looking at
that very seriously.
Elliot Wilbur - Analyst
Okay and just a final two part question for Nicole, Nicole could you repeat your
comments regarding the $10 million increase in your charge-back reserves?
Nicole Williams - American Pharmaceutical Partners Inc. - CFO
Right, simply as you know we are trying to keep the charge-back reserve current
based on the units that we tracking in the wholesaler inventory pipeline and
current pricing in the marketplace and that reserve will move up and down
depending on volume and pricing in the marketplace. I just want to note that we
had a significant move up in that both because of strong volume growth and also
because of certain recent price declines that were expected in the product.
Elliot Wilbur - Analyst
Okay, so that was a $10 million sequential increase?
Nicole Williams - American Pharmaceutical Partners Inc. - CFO
Right, sequential from fourth quarter 2003, - fourth quarter 2003 we reported in
the 10-K our charge-back reserve at the end of each year. We do not report it
quarterly simply for the reason that it does move up and down quite a bit but
this was significant increase over the 58 million at year-end.
Elliot Wilbur - Analyst
Okay, then could I ask you about the - you mentioned that the plant shutdown
caused roughly $1.3 million negative variance I am just wondering you know how
you come up with that number?
Nicole Williams - American Pharmaceutical Partners Inc. - CFO
It is very simple, we just compare the manufacturing variances in the first
quarter of 2003 and against our manufacturing variances in the first quarter
this year and it was $1.3 million increase and it's attributable to the longer
than typical shutdown of the Chicago facility.
Elliot Wilbur - Analyst
Okay, but that - I mean that wouldn't account for any lost revenue associated
with you know - assuming that plant shutdown?
Nicole Williams - American Pharmaceutical Partners Inc. - CFO
Well indeed in fact it did we didn't comment on that but it did increase our
back orders a bit in the beginning of the first quarter by over 6 million and
that is terrific evidence.
Elliot Wilbur - Analyst
Okay, alright thank you.
Operator
You're next question comes from Greg Gilbert
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APPX - Q1 2004 American Pharmaceutical Partners, Inc. Earnings Conference Call
Greg Gilbert - Analyst
Thanks I have a couple first Patrick do you think there is a chance if Bristol
does not get pediatric exclusivity on Carboplatin and if so would you be ready
to launch?
Patrick Soon-Shiong - American Pharmaceutical Partners Inc. - Chairman,
President, CEO
Obviously I can't predict. As you know Greg, Bristol has filed the pediatric
exclusivity request with the FDA, and I think as I understand the regulation
that the FDA has 90 days of which in to respond. It's hard for me to predict one
way or the other as you know or may know the indication - the company's
indication is for ovarian cancer and whether or not the FDA will believe that
Carboplatin is used for ovarian cancer in pediatrics which is very, very rare,
it is not unheard of. So I don't know I can't predict what's going to happen my
guess would be no, but that's purely a guess. With regard to our ability to
launch if indeed that were to occur the answer is yes.
Greg Gilbert - Analyst
But your 20% or better revenue growth goal is based on then getting a pediatric
extension?
Patrick Soon-Shiong - American Pharmaceutical Partners Inc. - Chairman,
President, CEO
Correct we've conservatively made an assumption that we will get the pediatric
extension so therefore we said you know, both the guidance and anything else
that really the delayed second half of '04 is when we ramp out in October.
Greg Gilbert - Analyst
And I don't doubt your company's ability to gain significant share in that
market but have you been conservative in the event that Bristol reaction, a way
that they did in the Taxol market and that the generics don't make significant
money, I mean, there are what five or so companies involved in this product that
fairly is how much conservatism went into what you are looking for on a pricing
standpoint for that product?
Patrick Soon-Shiong - American Pharmaceutical Partners Inc. - Chairman,
President, CEO
I don't know if we discussed pricing publicly, but, you know, I think, again we
have taken a conservative approach. We feel comfortable of our knowledge of the
marketplace.
Greg Gilbert - Analyst
Thanks.
Patrick Soon-Shiong - American Pharmaceutical Partners Inc. - Chairman,
President, CEO
And although we have taken a conservative approach by taking it in the fourth
quarter and we have also obviously accommodated our knowledge of what's in the
marketplace, Greg.
Greg Gilbert - Analyst
Okay. And then a couple of Abraxane question. One going back to the pivotal,
which you may have addressed before, but I need to be straightened down on it,
there has been some controversy about the Taxol response rate in the pivotal
study. Can you review briefly for us, what you had expected it to be in your
conversations with FDA, and if it was different from that level, is that a risk
to approvability that seems to experience some people have?
Patrick Soon-Shiong - American Pharmaceutical Partners Inc. - Chairman,
President, CEO
Well, I am glad you brought that question up, because, I know it related to
risks, which we have done and hopefully a multiple times. Frankly, if you look
at the or read the transcripts which is available on the [thought] readers
presenting the data that the San Antonio conference. This question was addressed
head on and the simple answer in fact, is there is no difference. So, this
controversy of there being a difference is a non-existent issue. So, it is very
difficult for us to address an issue that doesn't exist, but let's assume that
these should exist we better than.
Greg Gilbert - Analyst
Thanks.
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APPX - Q1 2004 American Pharmaceutical Partners, Inc. Earnings Conference Call
Patrick Soon-Shiong - American Pharmaceutical Partners Inc. - Chairman,
President, CEO
The Taxol response in our Phase III study for all patients is not different at
all. This is all patients in the - which we looked in the constant intervals,
And if you have had a look at the first line patients, meaning patients who have
received no previous other chemotherapy, which is the easiest way to compare -
another, which is by the way in itself non-scientific. Having said that, the
best trial to compare that to is the Eli Lilly trial where they took first line
patients and compared Taxol versus and gemcitabine and Taxol. If you take the
Taxol only on in that first line patients and we take the Taxol only on in our
trial they are exactly the same. So I am not sure how to respond to conspiracy
about the difference that when there is not difference.
Greg Gilbert - Analyst
So your long story showed your confidence that this is not an issue for FDA.
That it is a [rest] to you?
Patrick Soon-Shiong - American Pharmaceutical Partners Inc. - Chairman,
President, CEO
Correct.
Greg Gilbert - Analyst
Okay. And then my last question, Patrick to you is, you know, I wanted to ask
whether you are in discussions with any other company at the current time
regarding either a major M&A transaction or Abraxane partnerships?
Patrick Soon-Shiong- American Pharmaceutical Partners Inc. - Chairman,
President, CEO
We are always in discussions with rather Abraxane with regard to the European
issue but nothing to do with APP on the European issue. Obviously, I can't
comment at this point in time one way or the other regard to that issue for you.
Greg Gilbert - Analyst
The general M&A question or the Abraxane question?
Patrick Soon-Shiong - American Pharmaceutical Partners Inc. - Chairman,
President, CEO
Both.
Greg Gilbert - Analyst
Okay. Thanks a lot guys.
Robert Jaffe - PondelWilkinson Inc
Okay. That's the last question then I really want to thank you for joining us
today and again we look forward to seeing you at the CIBC conference at which
Nicole and Jeffrey will be in attendants and report and reporting our further
progress throughout this year. Thank you.
Operator
Thanks for participating in today's conference. At this time, you may now
disconnect.
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