SciClone Pharmaceuticals, Inc. (SCLN)

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SciClone Pharmaceuticals (SCLN)

Q4 2012 Earnings Call

April 01, 2013 4:30 pm ET


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


Hamed Khorsand - BWS Financial Inc.

Timothy P. Lynch - Stonepine Capital Management LLC

Yi Chen - Aegis Capital Corporation, Research Division

Henry Carl Beinstein - Gagnon Securities LLC



Good day, ladies and gentlemen, and welcome to the 2012 SciClone Pharmaceuticals Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Ms. Jane Green of 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 Office; and Gary Titus, Senior Vice President and Chief Financial Officer.

It is SciClone's intent that all forward-looking statements regarding financial guidance and commercial and development activity made during today's call be protected under the Private Securities 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 2012 financial results and 2013 outlook conference call and webcast. A few months ago, we discussed in detail some challenges, which had come to a head in the third quarter and slowed the growth of our business, and which we anticipated would have an effect on subsequent quarters. These challenges included an increase in the channel inventory levels of ZADAXIN, matters relating to our NovaMed acquisition, including the determination that we intend to negotiate more favorable terms in some of our promotion agreements, a material weakness in our internal controls, primarily related to our NovaMed subsidiary and personnel changes in the senior management team in China.

While our overall revenues increased 18% and ZADAXIN sales increased 7% for the full year, the unanticipated channel inventory buildup of ZADAXIN in the third quarter of last year impacted fourth quarter ZADAXIN revenues as we expected.

In the fourth quarter last year, and continuing in the first few months of this year however, I'm pleased to report that we continue to make good progress in implementing important personnel, strategic and operational improvements designed to re-establish the foundation for our revenue and profitability growth.

Key to the turnaround has been strengthening our organization with new senior management and the re-energized workforce committed to achieving our growth and financial goals, while maintaining our commitment to act in compliance with all legal and regulatory requirements. We anticipated back in November that it would take approximately 3 quarters to resolve the ZADAXIN channel inventory buildup and that by the second half of 2013, we could foresee re-establishing our growth trajectory. We believe that those assumptions continue to be reasonable, and that the strategic, operational and organizational improvements we are implementing are yielding clear benefits.

We believe we are emerging from our second half 2012 challenges as a stronger and more execution-focused company. We believe that our internal control process have improved, our business fundamentals remain strong, that our excellent cash position at the end of 2012 is an important asset that provides significant flexibility to accomplish our growth objectives. We have a large and diversified marketed portfolio of in-license and proprietary products that span high-growth markets and a well-stocked development pipeline that we are shepherding through the Chinese regulatory and early commercial processes. And that has the potential to contribute to our long-term growth. Combined with our continued focus on building high-quality SCPA [ph] compliance and improving our internal controls, we believe that our experience and high-caliber management team, our deep experience in the China market and our reputation for marketing high-quality products that comply with the best manufacturing standards, position us well to take advantage of the significant growth potential in the China pharmaceuticals market and continue to build shareholder value.

Our top priorities for 2013 and beyond are to continue to execute on our strategy to reestablish SciClone's growth trajectory, to implement our strategies for long-term growth of ZADAXIN, to expand Depakine sales, to build momentum for potential market leaders, such as Aggrastat, to enhance the quality and performance of our organization, to establish profitability in our product promotion business, to seek new product in-licensing opportunities, to drive long-term growth, to continue our commitment to compliance as an integral part of our culture and business practice and enhance our position within the China pharmaceuticals market.

There are several parts of this development in our ZADAXIN business in the fourth quarter of 2012 that underscore our confidence in ZADAXIN as a continuing growth engine for SciClone. As we noted before, the government-mandated price review resulted in a favorable outcome for our company. This was due to the successful renegotiation of our relationship with Sinopharm, our key industry partner and exclusive ZADAXIN importer in China, who agree to absorb the majority of the 18% reduction in the retail list price. As a result, the actual impact to our future sales of ZADAXIN will be less than a 5% decrease to revenues and margins.

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