SCLN

SciClone Pharmaceuticals, Inc. (SCLN)

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SciClone Pharmaceuticals (SCLN)

Q2 2013 Earnings Call

August 07, 2013 8:30 am ET

Executives

Jane Green

Friedhelm Blobel - Chief Executive Officer, President and Executive Director

Hong Zhao - Chief Executive Officer of China Operations

Wilson W. Cheung - Chief Financial Officer and Senior Vice President of Finance

Analysts

Hamed Khorsand - BWS Financial Inc.

Yi Chen - Aegis Capital Corporation, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 SciClone Pharmaceuticals Inc. Earnings Conference Call. My name is Narita, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Ms. Jane Green, Investor Relations. Please proceed, ma'am.

Jane Green

Good morning. SciClone would like to thank you for joining in 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; Wilson Cheung, Senior Vice President and Chief Financial Officer; and Hong Zhao, Chief Executive Officer, China Operations.

It is SciClone's intent that all forward-looking statements, including 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 morning, and welcome to SciClone's financial results conference call and webcast for the 3 and 6-month periods, which ended June 30, 2013. I'm pleased to report today that over the first 2 quarters of 2013, we have continued to make good progress in implementing important strategic, organizational and operational improvements designed to reestablish the foundation for our long-term revenue growth, continue to improve our compliance processes and build our standing in the evolving China marketplace.

We have made additions to our management team in China, who are outstanding, have deep multinational experience and a commitment to excellence. These talented, experienced and accomplished senior managers bring fresh perspectives on our business and on the China market, and believe in SciClone's potential as a growth company. Our management team and employees are aligned in their dedication to leading our company to its next level of performance and success, including maintaining our strong focus on operating and behaving responsibly and complying with all legal, ethical and regulatory standards.

It is a great pleasure for me to be joined on this call by Hong Zhao, our China Operations CEO, and by Wilson Cheung, our newly appointed corporate CFO. Wilson and Hong are excellent additions to our executive team in the U.S. and China.

A bit later in the call, both Hong and Wilson will share with you their thoughts on SciClone's prospects, and both look forward to establishing productive dialogues with investors and other key stakeholders in our company.

I am especially pleased to report that ZADAXIN channel inventory has returned to normal levels, and the buildup that affected our revenue growth in the first half of this year and the fourth quarter of last year has been corrected. We believe that the current levels of ZADAXIN inventory, which today are at approximately 6 months, are appropriate and typical for imported drugs in China. While we don't directly control channel inventory, our primary strategy for correcting this was to work with our importer over the last 3 quarters so that sales to our importer were lower than what we -- sorry, than what the importer and our distributors sold to our hospital customers. This practice, while necessary to reduce the inventory levels, resulted in the anticipated lower ZADAXIN revenues for the first half of 2013, which we announced today. These results were in line with our expectations for first and second quarters.

Now, with the channel inventory at normal levels, we are optimistic that we will be able to reverse the decline in our revenues in the second half of the year. The solid increase in the hospital demand for ZADAXIN during recent quarters, including a double-digit growth of unit demand in the second quarter over the same quarter in the prior year, supports this expectation. And as indicated in the updated 2013 guidance we are providing today, we are forecasting a 50% increase in ZADAXIN revenue in the second half of 2013, compared to the first half of the year, which reflects our confidence in ZADAXIN's continued growth potential. Throughout this period, based on our own internal market data, as well as validated third-party market reports, we were pleased to see that the therapeutic class of thymalfasins continue to grow and ZADAXIN continues to lead in revenue in this class and to command the highest market share by revenue. While strong hospital demand enabled ZADAXIN to grow in absolute dollars over the last 3 quarters, we expected to and did see a modest dip in our market share during this period. With channel inventory now normalized, we believe that we can regain a growth rate that is in line with our prior level, meaning a rate that is on par with the growth of the China pharmaceutical market, which by external accounts, continues to be quite strong.

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