On May 5, 2016 Spectrum Pharmaceuticals, Inc. (NasdaqGS: SPPI), a biotechnology company with fully integrated commercial and drug development operations with a primary focus in Hematology and Oncology, reported financial results for the three-month period ended March 31, 2016 (Press release, Spectrum Pharmaceuticals, MAY 5, 2016, View Source [SID:1234512018]).

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"We are pleased to report strong revenues in the first quarter and solid progress in our product pipeline," said Rajesh C. Shrotriya, MD, Chairman and Chief Executive Officer of Spectrum Pharmaceuticals. "Spectrum now has six FDA approved drugs on the market, revenues from which continues to help fuel our pipeline. We initiated a Phase 3 trial for our lead pipeline drug SPI-2012 and now have approximately 60 U.S. sites open for enrollment. SPI-2012 has shown strong clinical data in Phase 2 studies and targets a multi-billion dollar market. We also initiated a Phase 2 trial for our breast cancer drug poziotinib, which we believe has the potential to be best in-class among small molecule HER2-directed therapies. Additionally, we expect a response from the FDA on the NDA for apaziquone later this year. We remain focused on these three programs, each of which we believe has the potential to transform the Company."

Pipeline Update:

SPI-2012, a novel long-acting GCSF: A pivotal Phase 3 study was initiated in Q1 2016 to evaluate SPI-2012 as a treatment for chemotherapy-induced neutropenia in approximately 580 patients with breast cancer. Neutropenia, a possible side effect of chemotherapy, is a condition where the number of neutrophils or white blood cells are too low, and can lead to infection, hospitalization, and even death. The Phase 2 data demonstrated that SPI-2012 was non-inferior to pegfilgrastim at the middle dose tested, and statistically superior in terms of duration of severe neutropenia at the highest dose tested. SPI-2012 was also shown to have an acceptable safety profile with no significant dose-related or unexpected toxicities.
Poziotinib, a potential best-in-class, novel, pan-HER inhibitor: Spectrum initiated a Phase 2 breast cancer program in the U.S., based on promising Phase 1 efficacy data in breast cancer patients who had failed multiple other HER2-directed therapies. In addition, multiple Phase 2 studies are being conducted by Hanmi Pharmaceuticals and National OncoVenture in South Korea.
Apaziquone, a potent tumor-activated drug being investigated for non-muscle invasive bladder cancer: The FDA accepted the NDA and has given Spectrum a PDUFA date of December 11, 2016. The FDA also indicated that it plans to hold an advisory committee meeting regarding the NDA. The Company is actively enrolling an additional randomized, placebo-controlled Phase 3 trial under an SPA agreement. The Phase 3 study has been specifically designed to build on learnings from the previous studies, as well as recommendations from the FDA.
EVOMELA, a propylene-glycol free melphalan formulation: The FDA approved EVOMELA on March 10, 2016, two months ahead of the PDUFA date. Soon after, Spectrum launched EVOMELA with its existing sales force in a market estimated at approximately $100 million.
Three-Month Period Ended March 31, 2016 (All numbers are approximate)

GAAP Results

Total product sales were $35.2 million in the first quarter of 2016. Total product sales decreased 8.3% from $38.4 million in the first quarter of 2015.

Product sales in the first quarter included: FUSILEV (levoleucovorin) net sales of $15.2 million, FOLOTYN (pralatrexate injection) net sales of $13.3 million, ZEVALIN (ibritumomab tiuxetan) net sales of $2.8 million, MARQIBO (vinCRIStine sulfate LIPOSOME injection) net sales of $0.9 million and BELEODAQ (belinostat for injection) net sales of $3.0 million.

Spectrum recorded net loss of $9.3 million, or $(0.14) per basic and diluted share in the three-month period ended March 31, 2016, compared to net loss of $25.6 million, or $(0.39) per basic and diluted share in the comparable period in 2015. Total research and development expenses were $15.5 million in the quarter, as compared to $15.9 million in the same period in 2015. Selling, general and administrative expenses were $22.0 million in the quarter, compared to $23.3 million in the same period in 2015.

Non-GAAP Results

Spectrum recorded non-GAAP net income of $0.3 million, or $0.01 per basic share and less than $0.01 per diluted share in the three-month period ended March 31, 2016, compared to non-GAAP net loss of $4.7 million, or $(0.07) per basic and diluted share in the comparable period in 2015. Non-GAAP research and development expenses were $13.0 million, as compared to $12.4 million in the same period of 2015. Non-GAAP selling, general and administrative expenses were $16.7 million, as compared to $22.9 million in the same period in 2015.

On May 5, 2016 Merck (NYSE:MRK), known as MSD outside the United States and Canada, reported financial results for the first quarter of 2016 (Press release, Merck & Co, MAY 5, 2016, View Source [SID:1234512007]).

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"Our first quarter’s performance sets us on a good course for the year," said Kenneth C. Frazier, chairman and chief executive officer, Merck. "We remain focused on advancing our pipeline and driving the commercial success of our key launches and inline medicines and vaccines."

Financial Summary

First Quarter
$ in millions, except EPS amounts 2016 2015
Sales $9,312 $9,425
GAAP EPS
0.40 0.33
Non-GAAP EPS that excludes items listed below1
0.89 0.85
GAAP net income2
1,125 953
Non-GAAP net income that excludes items listed below1,2
2,492 2,426
Non-GAAP (generally accepted accounting principles) earnings per share (EPS) of $0.89 for the first quarter exclude acquisition- and divestiture-related costs and restructuring costs.

A reconciliation of GAAP to non-GAAP net income and EPS is provided in the tables that follow.


$ in millions, except EPS amounts First Quarter
2016 2015
EPS
GAAP EPS $0.40 $0.33
Difference3
0.49 0.52
Non-GAAP EPS that excludes items listed below1
$0.89 $0.85

Net Income
GAAP net income2 $1,125 $953
Difference 1,367 1,473
Non-GAAP net income that excludes items listed below1,2 $2,492 $2,426

Decrease (Increase) in Net Income Due to Excluded Items:
Acquisition- and divestiture-related costs4
$1,423 $1,526
Restructuring costs 196 225
Net decrease (increase) in income before taxes 1,619 1,751
Estimated income tax (benefit) expense (252) (278)
Decrease (increase) in net income $1,367 $1,473

Additional Executive Commentary

"Business development is a top priority, and we are actively pursuing the best external science through licensing or bolt-on acquisitions to bolster our pipeline and grow our company," said Frazier.

"The Global Human Health business performed well in the first quarter. The JANUVIA franchise demonstrated strong growth, and we remain pleased with the ongoing launch of KEYTRUDA in markets around the world," said Adam Schechter, president, Global Human Health. "Additionally, we are already seeing positive signs in the launch of ZEPATIER in the United States."

"Merck Research Laboratories advanced several clinical development programs in the first quarter of 2016. We continued to accelerate the development of KEYTRUDA with an additional supplemental filing in head and neck cancer, and by securing a fourth Breakthrough Therapy Designation in classical Hodgkin lymphoma," said Dr. Roger M. Perlmutter, president, Merck Research Laboratories.

"We demonstrated strong performance with a leveraged P&L, growing sales and EPS, excluding the impact of foreign exchange. We benefited from the contribution of new product launches, while continuing to sustain growth in our key franchises and driving operational improvements across the company," said Robert Davis, chief financial officer.

Select Business Highlights

Worldwide sales were $9.3 billion for the first quarter of 2016, a decrease of 1 percent compared with the first quarter of 2015, including a 4 percent negative impact from foreign exchange.

The following table reflects sales of the company’s top pharmaceutical products, as well as total sales of Animal Health products.


$ in millions First Quarter Change Change
Ex-Exchange
2016 2015
Total Sales $9,312 $9,425 -1% 3%
Pharmaceutical 8,104 8,266 -2% 2%
JANUVIA / JANUMET 1,412 1,393 1% 4%
ZETIA / VYTORIN 889 887 0% 4%
GARDASIL / GARDASIL 9 378 359 5% 7%
PROQUAD, M-M-R II and VARIVAX
357 348 3% 4%
REMICADE 349 501 -30% -26%
ISENTRESS 340 385 -12% -8%
CUBICIN 292 187* 56%* 57%*
KEYTRUDA 249 83 ** **
SINGULAIR 237 245 -3% -1%
NASONEX 229 289 -21% -19%
Animal Health 829 829 0% 9%
Other Revenues 379 330 15% 23%
*First quarter of 2015 reflects approximately two months of sales following the acquisition of Cubist Pharmaceuticals, Inc. (Cubist) by Merck on Jan. 21, 2015. Percentages reflect comparison to full quarter of sales in 2016.
**≥ 100%

Commercial and Pipeline Highlights

During the first quarter of 2016, the company continued to focus on advancing its pipeline, and achieved regulatory and clinical milestones for multiple products in its portfolio.

Merck advanced its development program for KEYTRUDA (pembrolizumab), an anti-PD-1 therapy for the treatment of metastatic non-small cell lung cancer (NSCLC) in previously treated patients whose tumors express PD-L1, as well as advanced melanoma.
The U.S. Food and Drug Administration (FDA) accepted for review a supplemental Biologics License Application (sBLA) for KEYTRUDA for the treatment of patients with recurrent or metastatic head and neck squamous cell carcinoma with disease progression on or after platinum-containing chemotherapy. The FDA granted Priority Review with a PDUFA action date of Aug. 9, 2016; the sBLA will be reviewed under the FDA’s Accelerated Approval program.
KEYTRUDA received Breakthrough Therapy Designation from the FDA for the treatment of patients with relapsed or refractory classical Hodgkin lymphoma. It is the fourth Breakthrough Therapy Designation granted for KEYTRUDA.
The FDA also accepted for review a sBLA for KEYTRUDA to include data from the pivotal KEYNOTE-010 study in which KEYTRUDA showed superior overall survival compared to chemotherapy in patients with previously treated advanced NSCLC whose tumors express PD-L1. In accordance with the accelerated approval process, the data from KEYNOTE-010 was intended to serve as the confirmatory trial for receiving full approval, establishing the clinical benefit by demonstrating improved survival over standard chemotherapy.
The KEYTRUDA clinical development program includes patients with more than 30 tumor types in more than 250 clinical trials, including more than 100 trials that combine KEYTRUDA with other cancer treatments. Registration-enabling trials of KEYTRUDA are currently enrolling patients with melanoma, NSCLC, head and neck cancer, bladder cancer, gastric cancer, colorectal cancer, esophageal cancer, breast cancer, ovarian cancer, Hodgkin lymphoma, non-Hodgkin lymphoma, multiple myeloma, nasopharyngeal cancer, and other tumors, with further trials in planning for other cancers.
The FDA approved ZEPATIER (elbasvir and grazoprevir), a once-daily, fixed-dose combination tablet for the treatment of adult patients with chronic hepatitis C virus genotype (GT) 1 or GT4 infection, with or without ribavirin.
The FDA accepted for review the Biologics License Application (BLA) for MK-8237, the company’s investigational house dust mite sublingual allergy immunotherapy tablet.
The Antimicrobial Drugs Advisory Committee of the FDA has scheduled a meeting on June 9, 2016 to discuss the BLA for ZINPLAVA (bezlotoxumab), an investigational antitoxin for the prevention of Clostridium difficile (C. difficile) infection recurrence, which was accepted by the FDA for Priority Review with a PDUFA action date of July 23, 2016.
Pharmaceutical Revenue Performance

First-quarter pharmaceutical sales declined 2 percent to $8.1 billion, including a 4 percent negative impact from foreign exchange. Excluding the impact of exchange, growth reflects higher sales in oncology, hospital acute care and diabetes. Growth in oncology was driven by higher sales of KEYTRUDA as the company continues to launch the product with new indications and in new markets. Growth in hospital acute care was driven by sales of the Cubist portfolio and sales growth of certain inline brands. Pharmaceutical sales also reflect an increase in the diabetes franchise of JANUVIA (sitagliptin) and JANUMET (sitagliptin and metformin HCl), medicines that help lower blood sugar in adults with type 2 diabetes, driven by strong growth in the United States and Europe, partially offset by lower sales in emerging markets.

First-quarter pharmaceutical sales reflect a decrease in REMICADE (infliximab), a treatment for inflammatory diseases, due to the accelerating impact of biosimilar competition in the company’s marketing territories in Europe. Pharmaceutical sales also reflect declines in NASONEX (mometasone furoate monohydrate), an inhaled nasal corticosteroid for the treatment of nasal allergy symptoms, and ZOSTAVAX (zoster vaccine live), a vaccine for the prevention of herpes zoster. Pharmaceutical sales were unfavorably affected in the first quarter of 2016 by the company’s reduced operations in Venezuela.

A generic version of NASONEX became available in the United States in March 2016; as a result, the company anticipates significant losses of future NASONEX sales. Additionally, in June 2016 the company will lose U.S. patent protection for CUBICIN (daptomycin for injection), an I.V. antibiotic, and significant losses of CUBICIN sales are expected to occur thereafter.

Animal Health Revenue Performance

Animal Health sales, which totaled $829 million for the first quarter of 2016, were in line with sales from the first quarter of 2015. Excluding the impact of foreign exchange, Animal Health sales grew 9 percent, primarily driven by BRAVECTO (fluralaner), a chewable tablet that kills fleas and ticks in dogs for up to 12 weeks.

First-Quarter 2016 Expense and Other Information

The tables that follow present selected expense information.


$ in millions Included in expenses for the period
Acquisition-
and
First Quarter Divestiture- Restructuring
2016 GAAP
Related Costs4
Costs
Non-GAAP1
Materials and production $3,572 $1,386 $47 $2,139
Marketing and administrative 2,318 2 3 2,313
Research and development 1,659 35 55 1,569
Restructuring costs 91 – 91 –
First Quarter
2015

Materials and production $3,569 $1,250 $105 $2,214
Marketing and administrative 2,601 227 36 2,338
Research and development 1,737 63 2 1,672
Restructuring costs 82 – 82 –

The gross margin was 61.6 percent for the first quarter of 2016 compared to 62.1 percent for the first quarter of 2015, reflecting 15.4 and 14.4 unfavorable percentage point impacts, respectively, from the acquisition- and divestiture-related costs and restructuring costs noted above.

Research and development (R&D) expenses, on a non-GAAP basis, were $1.6 billion in the first quarter of 2016, a 6 percent decrease compared to the first quarter of 2015, primarily driven by lower licensing expenses.

Financial Outlook

Merck continues to expect its full-year 2016 GAAP EPS to be between $1.96 and $2.23. The company has narrowed and raised its full-year 2016 non-GAAP EPS to be between $3.65 and $3.77, including an approximately 2 percent negative impact from foreign exchange at mid-April exchange rates. The non-GAAP range excludes acquisition- and divestiture-related costs and costs related to restructuring programs. The change in the non-GAAP EPS range reflects recent favorability in foreign exchange rates, partially offset by the earlier than expected entry of a generic version of NASONEX in the United States.

At mid-April exchange rates, Merck now anticipates full-year 2016 revenues to be between $39.0 billion and $40.2 billion, including an approximately 2 percent negative impact from foreign exchange.

In addition, the company continues to expect full-year 2016 non-GAAP marketing and administrative expenses to be below 2015 levels and R&D expenses to be modestly above 2015 levels.

The company continues to anticipate its full-year 2016 non-GAAP tax rate will be in the range of 21.5 to 22.5 percent, including a 2016 R&D tax credit.

A reconciliation of anticipated 2016 EPS, as reported in accordance with GAAP to non-GAAP EPS that excludes certain items, is provided in the table below.


Full Year
$ in millions, except EPS amounts 2016
GAAP EPS $1.96 to $2.23
Difference3 1.69 to 1.54
Non-GAAP EPS that excludes items listed below $3.65 to $3.77

Acquisition- and divestiture-related costs $4,700 to $4,400
Restructuring costs 900 to 700
Net decrease (increase) in income before taxes 5,600 to 5,100
Estimated income tax (benefit) expense (900) to (805)
Decrease (increase) in net income $4,700 to $4,295
Total Employees

As of March 31, 2016, Merck had approximately 68,000 employees worldwide.