Athenex, Inc. (NASDAQ:ATNX) Q2 2022 Earnings Conference Call July 28, 2022 8:00 AM ET
Company Participants
Caileigh Dougherty – Director, Investor Relations
Johnson Lau – Chief Executive Officer
Dan Lang – President, Athenex Cell Therapy
Darrel Cohen – Chief Medical Officer, Cell Therapy
Jeff Yordon – Chief Operating Officer
Joe Annoni – Chief Financial Officer
Conference Call Participants
Faisal Khurshid – SVB Securities
Jon Miller – Evercore
Matt Kaplan – Ladenburg Thalmann
Yale Jen – Laidlaw & Co
Operator
Good day, ladies and gentlemen and welcome to the Second Quarter 2022 Athenex Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Caileigh Dougherty, Director of Investor Relations. You may begin.
Caileigh Dougherty
Good morning and thank you for joining our conference call. Today, we will provide an update on the Athenex’s business as well as a review of financial results for the second quarter of 2022. The news release detailing these results crossed the wire earlier this morning and is available on the company’s website. A replay of this call will also be archived on the company’s website.
During the call, the company will make a projections or forward-looking statements regarding future events, including statements about financial, business and clinical milestones anticipated in the fiscal year 2022 and beyond. We encourage you to review the company’s past and future filings with the SEC, which identify specific factors that may cause the actual results or events to differ materially from those described in the forward-looking statements. You can find our SEC filings in the EDGAR database at www.sec.gov or in the Investor Relations section at our website at www.athenex.com.
Speaking on the call this morning will be Dr. Johnson Lau, Chief Executive Officer; Dr. Dan Lang, President of Athenex Cell Therapy; Dr. Darrel Cohen, Chief Medical Officer of Cell Therapy; Mr. Jeff Yordon, Chief Operating Officer; and Mr. Joe Annoni, Chief Financial Officer.
I will now turn the call over to Johnson for introductory comments.
Johnson Lau
Thank you, Caileigh and thank you everyone joining our conference call this morning. I am extremely proud of our team’s accomplishments in the first half of 2022. We have now raised approximately $125 million through the rapid execution of three complex deals, which include the sale of our Dunkirk manufacturing facility to ImmunityBio for $40 million, the sale of our tirabanibulin U.S. revenues and EU royalties and milestones to Sagard and Oaktree for $85 million. We also announced another agreement to sell our China API business to TiHe Capital, which will add an additional $19 million for a total of $144 million. We remain focused on prudent capital allocation and have deployed the combined deal process to reduce debt from $150 million to $57.5 million.
As we discussed in first quarter, we are also continually reduced headcount as part of our restructuring efforts and generated additional cost efficiencies. We continue to target a 50% reduction in operating expenses by year end. In summary, we remain on track with our internal targets and our financial priorities remain unchanged. And we expect to continue to transform and strengthen the company’s partnership through a series of asset divestitures as well as more substantial and persistent cost reduction, which is related to the pivot of the company. So far this year, we have delevered the company and advanced our pipeline. We are not yet finished with the efforts to secure additional cash runway and are continually working on the other opportunities to leverage other attractive assets within the organization and are actively working on these initiatives, which we expect to be announced in deal course.
At the same time, we have made tremendous progress, shifting the business towards advancing our novel NKT cell therapy platform with potential to become an industry-leading franchise. We are confident that our innovative NKT cell therapy approach has promised to be disruptive to both the current and emerging cell therapy landscape. We continue to advance our clinical programs in both solid tumors and hematological malignancies. The potential differentiation in safety, efficacy and cost over currently approved CAR-T cell therapy approaches.
Our two lead clinical programs, KUR-501 and autologous GD2 targeted NKT cell product for the investigational treatment of patients with relapsed or refractory high-risk neuroblastoma and KUR-502, an allogeneic CD19 targeted NKT cell product for the investigational treatment of patients with PBC treated hematological B-cell malignancies are demonstrating very encouraging dose response and favorable safety and pharmacokinetics in Phase 1 dose escalation studies. Dr. Dan Lang and Darrel Cohen, our new CMO of cell therapy will provide a more detailed update on our CAR-NKT cell therapy pipeline shortly.
Last quarter, we raised our product sales growth guidance to 20% to 25% and I am pleased to report that our APD and APS business are performing as expected. We are currently working on new product launches, margin improvements and maximizing product stoppage opportunities. Mr. Jeff Yordon will provide more details on these initiatives later. Data from the Phase 2, I-SPY 2 clinical trial of Oral Paclitaxel in combination with dostarlimab plus or minus carboplatin in neoadjuvant locally advanced breast cancer patients are expected in the coming months. We look forward to updating you on this study, which is conducted by Quantum Leap Healthcare collaborative. If the trial is positive and we graduate from the program, this means that there is at least an 85% chance of success in the Phase 3 trial. In that case, we will look to monetize OPE as part of the pivoting process to create value.
We remain on track with our regulatory interactions with MHRA and are submitting responses to questions received regarding use of Oral Paclitaxel in metastic breast cancer in the UK later this quarter. I am extremely proud of our team’s focus in executing on our strategic pivot and I am highly optimistic about Athenex’s ability to transform into a lean and focused business that is competitively positioned in the bottler immunooncology cell therapy sector.
With that, I will turn the call over to Dr. Dan Lang to discuss our CAR-NKT cell therapy platform. Dan, please go ahead.
Dan Lang
Thank you, Johnson and good morning everyone. Our strategic focus remains on advancing our differentiated and versatile CAR-NKT cell therapy platform with potential to overcome limitations of current immune effective cell therapy approaches. The therapeutic value of NKT cells stems from the inherent ability to balance the best of both innate and adaptive immunity to achieve a highly effective off-the-shelf treatment that is much more tolerable and accessible to a broader patient population.
This quarter will further strengthen the core foundation of our CAR-NKT cell therapy pipeline, clinically advancing our lead autologous and allogeneic candidates in both solid tumors and hematological malignancies. For KUR-501, our autologous NKT cell product targeting GD2 in relapsed or refractory high-risk neuroblastoma, we presented an interim update from our Phase 1 dose escalation GINAKIT2 study at the ASGCT conference in May, demonstrating encouraging data from trial children. A dose response supported by a 25% response rate was observed with 2 out of 3 patients achieving responses at dose level 4 that included a durable complete response persisting for at least 12 months. Predictors of response included KUR-501 exposure and CD62L expression, which is a market for NKT cells that have central memory or stem-like attributes.
We are seeing evidence of a dose response. And as we continue to explore higher doses, we expect to see deeper and more durable responses. KUR-502 is our allogeneic CAR-NKT cell therapy product targeting CD19 for the treatment of relapsed or refractory hematological B-cell malignancies. Early results from ANCHOR, a Phase 1 dose escalation study were presented at the 2022 tandem meetings in April and demonstrated encouraging clinical responses in heavily pretreated patients with leukemia and lymphoma at the lowest dose levels of 10 million and 30 million cells per meter square. A 60% response rate with two complete responses persisting at least 6 months was observed in the NHL cohort, including responses in patients who have previously experienced CAR-T cell therapy failure.
Notably, we saw no cases of CRS in a lymphoma cohort. In the ALL cohort, 1 of 2 patients responded, which was a complete response that base of 6 weeks and there was 3 Grade 1 CRS reported in the two patients. We are highly encouraged by the wide therapeutic window, meaning clinical responses are occurring at the lowest dose levels with good tolerability, which offers the potential for deeper, more durable responses through dose escalation. Importantly, we saw KUR-501 and KUR-502 CAR-NKT cells display a favorable pharmacokinetic profile. That included cell expansion in all patients that peaks 2 to 4 weeks post infusion. Both cells were detected at tumor sites, including tumor biopsies for blood and bone marrow.
Data from GINAKIT2 and ANCHOR both support a highly encouraging safety profile without any inclusion reactions, dose-limiting toxicities, neurotoxicity, graft-versus-host disease or Grade 3 or higher side effects related to KUR-501 or KUR-502. So, we now have two Phase 1 clinical trials in which durable objective responses were observed, which is remarkable this early in oncology drug development program for both solid and hematological malignancies.
KUR-503 is part of our preclinical program and is an allogeneic CAR-NKT cell therapy product targeting glypican-3 or GPC3 in lipoprotein abundantly expressed in hepatocellular carcinoma or HCC. Early preclinical data were presented at ASCO last month, according to enhanced therapeutic persistence and anti-tumor activity with GPC3 CAR-NKT cells expressing the transcription factor BATF3 compared to those expressing IL-15. This work provides the foundation to support further clinical development of KUR-503, our GPC3 CAR-NKT-cell therapy product expressing BATF3 in patients with HCC.
As the fourth leading cost of cancer-related deaths worldwide, HCC represents an area of significant unmet medical need that will help KUR-503 can successfully address. From a biological standpoint, we know that NKT cells are different than other cells being explored for use in cell therapy, namely NK cells and T cells. It is beginning to appear that this could be translating into a more persistent, expansion and better safety in the clinic from NKT cells.
Collectively, our maturing clinical data continue to reinforce the differences between CAR-NKT cells and NK cells and T cells. And we remain highly enthusiastic that our pipeline with first-in-class potential offers the promise of meaningful therapeutic benefits to indications with significant unmet medical need. We are also exploring opportunities for collaborations, where our NKT cell therapy approach has the potential to overcome limitations such as costs, efficacy and access in other therapeutic indications.
Lastly, I am excited to introduce our new Chief Medical Officer for Cell Therapy, Dr. Darrel Cohen, who is taking over leading clinical development, clinical operations and regulatory affairs. Dr. Cohen is a hematologist oncologist with over 25 years of oncology, clinical research and drug development experience in both solid tumors and hematological malignancies. His proven leadership at top tier pharmaceutical companies was accompanied by extensive experience in the clinical development of subsequent filings of PLAs and NDAs and subsequent global regulatory approvals of several new cancer drugs over the past decade. His experience will help position us for success as we advance our investigational NKT cell therapy pipeline in the clinic. We are pleased to welcome Darrel to Athenex and look forward to working with him to bring these much needed products closer to regulatory approval.
With that, I will now turn it over to Darrel to make a few more remarks and discuss the next steps for our clinical trial programs. Darrel?
Darrel Cohen
Thank you, and good morning, everyone. I am truly excited to have joined Athenex at this pivotal time as the company strategically focuses its efforts on becoming a global leader in NKT cell therapy for patients with hematologic malignancies, but also for patients with solid tumors. My interest in Athenex was driven by the novel therapeutic potential of combining the unique intrinsic biology of NKT cells with the tumor antigen targeted approach of chimeric antigen receptors to create a disruptive innovation that could better address the challenges of and enable the transition of immune effector cell therapy to the treatment of patients with advanced solid tumors.
This has already been evidenced in early Phase 1 clinical trials, as Dan just summarized, which is both impressive and predictive of a high probability of technical success for both KUR-501 and KUR-502. Our clinical development program supports the investigation of autologous and allogeneic NKT cell therapy options for both hematologic malignancies and solid tumors. The potent antitumor activity without dose-limiting toxicity of our CAR-NKT cells is occurring at dose levels that are orders of magnitude lower than those needed to achieve clinical efficacy with CAR-NKT or CAR-T cell therapies. This, in turn, enables us to safely dose escalate and even repeat treatment cycles to drive deeper and more durable clinical responses.
Looking ahead, first for KUR-501, enrollment of additional patients into the Phase 1 GINAKIT2 study at the 2 highest dose levels, dose level 5 or 300 million KUR-501 cells per meter squared is ongoing. In dose level 6 or 1 billion KUR-501 cells per meter squared is planned. We hope to make a go-no-go decision soon thereafter about whether to move forward to a pivotal registration-directed study based on the totality of safety, pharmacokinetic, pharmacodynamic and anti-tumor activity results.
As for KUR-502, expansion of the single center Phase 1 ANCHOR study into a multi-center Phase 1 ANCHOR 2 study is ongoing, and it’s on track for activation this fall, carrying the possibility of reporting additional results shortly thereafter. And we continue to evaluate the possibility of investigating higher greater than 100 million KUR-502 cells per meter squared dose levels, as in the GINAKIT2 study as well as a multiple dose regimen within the same lymphodepletion time frame in the hopes of safely enhancing the frequency and durability of clinical responses in this heavily pre-treated B-cell non-Hodgkin lymphoma or acute lymphocytic leukemia patient population.
Lastly, we still plan to file an IND for KUR-503 in 2023 for the investigational treatment of patients with advanced GPC3 expressing hepatocellular carcinoma. As was also called out at this year’s ASTCT and CIBMTR tandem meetings, allogeneic CAR-NKT cells offer the potential to be the Goldilocks of cellular therapies, namely the best of T cells in terms of manufacturing, including proliferation post-activation and cryopreservation as well as memory and persistence, coupled with the best of NK cells in terms of tissue, lymph node tumor tissue homing and avoiding graft-versus-host disease without the need for TCR gene editing. I am particularly enthusiastic by the outpatient off-the-shelf potential of NKT cell-based therapy as well as its potential for improved safety, efficacy and accessibility over other existing immune effector cell treatment options.
I will now turn the call over to Jeff to discuss company operations. Jeff?
Jeff Yordon
Thank you, Darrel, and good morning, everyone. At a high level, our business is now stronger than ever. Last quarter, I discussed the new United States partnership with [indiscernible] and its injectable company [indiscernible]. We have already added the first three products from this collaboration and expect to launch them later in the year. Additionally, we have also identified the next 20 products from this collaboration, which we will be launching in 2023. The majority of these products have markets that currently generate annual sales of approximately $40 million per year, but several have much larger markets with annual sales exceeding $400 million each. We believe that these launches can be a significant growth drive for our business.
Another important update is that we have signed a partnership with Gland Pharma, a company focused on injection. This deal will allow to significantly improve gross margin on our APS business. We have also licensed another significant product from Miller Pharmaceutical, which is expected to launch in Q4 2022. Our team also has its eye on several other meaningful opportunities to launch products currently on the FDA shortage list later in the year, which have historically been a revenue and margin generate for Athenex. ImmunityBio, our new 503B contract manufacturer has its New York State license in place and is actively filing for licenses in the other state.
Now for the quarter. For our APS and APD businesses, sales for the second quarter, 2022 were $25.8 million, up 26% from $20.4 million for the second quarter in 2021. Broadly speaking, we finished the first half ahead of our plan and cash flow positive. Year-to-date, revenues for APD and APS are up 48% versus the first half 2021. We launched pemetrexed and bortezomib upon market formation in May and are capturing revenue on both of these products. These products are expected to contribute significantly to increase revenues and margins of the overall business, though we do anticipate increased competition in the second half of this year as more generics enter the market.
In addition to the products launched in quarter two, we aim to launch an additional eight products in 2022, which include the new products from both [indiscernible]. Athenex Pharmaceutical Division currently markets 31 products with 57 SKUs, and Athenex Pharma Solutions markets six products and 16 SKUs. We continue to take active steps to strengthen our business, improve margins and diversify our product mix and our efforts are paying off. 2023 promises to be an even stronger year based on our pending [indiscernible] launches and expansion into the other states in our APS business.
I will now turn the call over to Joe Annoni to discuss the financials.
Joe Annoni
Thank you, and good morning, everyone. As we continue in our season of breaking down and building back up, I am pleased to report that we are delivering on the plan we outlined on our first quarter call to divest non-core assets and reduce operating expenses. In the second quarter, we sold our royalty streams for $85 million. And along with the first quarter Dunkirk sale for $40 million, we have in total raised $125 million from the sale of assets during the first half of 2022. Continuing on that plan at the start of the third quarter, we announced the agreement to sell our China API business for $19 million, and we will continue to keep you informed as we execute on more strategic transactions during the remaining months of 2022. We have used these proceeds to reduce our debt balance from $150 million at the end of 2021, down to $57.5 million at the end of June 2022, with more reductions to follow.
In parallel, cash burn remains top of mind. So I want to again highlight a figure that you can think of as a proxy for this metric. This figure is our cash flows from operating activities and continuing operations. This number excludes results from the Dunkirk sale, the royalty sale and the planned sale of the China API facility, which on our second quarter results is already reported under discontinued operations.
For the second quarter of 2022, the cash use was $18.3 million. This compares to the cash used in the second quarter of 2021 of $34 million, which represents a year-over-year decrease of 46%. For the first half of 2022, cash use totaled $36.8 million or down 42% from the $63.8 million in the first half of 2021.
Now let’s review the second quarter financials. I would ask that you please refer to our press release that was issued earlier today for a full summary of our results, but I will highlight the following. Total revenues for the second quarter 2022 were $31.5 million compared to $20.7 million for the same period in 2021. Product sales revenue increased by $5.4 million or 26% of our second quarter 2021. R&D expenses totaled $13.1 million for the second quarter, a decrease of $7.6 million or 37% year-over-year, attributed primarily to a reduction in Oral Paclitaxel development costs as well as other operational costs. SG&A expenses totaled $17.2 million for the second quarter, a decrease of $0.5 million or 3% as compared to $17.6 million for the prior year quarter, which was primarily related to decreased Oral Paclitaxel commercialization expenses. Net losses attributable to Athenex for the second quarter 2022 were $32.2 million or $0.28 per diluted share versus $34.3 million or $0.33 per diluted share in the second quarter of 2021. As of June 30th, 2022, Athenex had cash, cash equivalents and restricted cash of $36 million.
Finally, we are reiterating our guidance on our specialty department business to a growth of 20% to 25%, with strong performance in the first half of the year and our attractive pipeline of new launches, including [indiscernible] give us confidence in this range.
I will now turn the call back to Johnson for closing remarks.
Johnson Lau
Thank you, Joe, and thank you, everyone, for joining us today. This year, we’re effectively executing the transformation of Athenex into a streamlined pure-play cell therapy company with an extended cash runway. We continue to explore additional opportunities to monetize non-core assets and reduce operating expenses. We believe that our differentiated cell therapy programs have the potential to become market leaders and are poised to deliver shareholder value, allowing us to further execute on our ultimate mission of bringing innovative treatments to cancer patients.
I will now open the call for questions. Operator?
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from Jonathan Chang of SVB Securities. Please go ahead.
Faisal Khurshid
Hi, everyone. Thank you for taking the question. This is Faisal on for Jonathan. Just wanted to ask, could you provide some additional detail on the status of expanding the ANCHOR study to multiple sites? And could you also provide some insight on what we can expect in the next update from that study? Thank you.
Johnson Lau
Sure. This is cell therapy question. May I refer this to Dan, the President of our Cell Therapy Group?
Dan Lang
Sure. Thanks for the question. So as we have discussed before, we are in the process of expanding our current ANCHOR study into a multi-center study, and our target is to expand it to 8-10 sites. Our current projection is that we are going to have an update on the ANCHOR study either around ASH or our first quarter 2023. John?
Johnson Lau
Thank you for asking the question. And we are very excited with our data from the ANCHOR study.
Operator
Our next question comes from Umer Raffat of Evercore. Please go ahead.
Jon Miller
Hi guys. This is actually Jon Miller. Let’s start with, does the debt balance that you cited in your prepared remarks, like $57 million include proceeds from the China API business, or was that at the end of the second quarter? And sort of relatedly, are you still planning on divesting the Oral Paclitaxel programs? And will you wait for readouts or regulatory process to sell that, or can you give us some sense of what your expectations are for that program?
Johnson Lau
With regard to your first question, yes, Joe?
Joe Annoni
Yes, in regards to the first question, and thank you for the question there. The $57.5 million was at the end of the second quarter, so that does not include the sale or proceeds from the China sale.
Johnson Lau
With regard to your question, we consider right now, we are trying to streamline the company into a pure play in cell therapy. So, therefore, for all non-core assets, will be considered to be non-core. And for Oral Paclitaxel, we have the I-SPY 2 data coming before the end of the year, in the second half of this year, which is in the next few months. We are trying to be opportunistic and try to unlock the value of our Oral Paclitaxel program for our shareholders. But certainly, we are considering the Oral Paclitaxel program to be non-core. So, therefore, we are trying to monetize it as much as we can.
Jon Miller
Great. That makes perfect sense. Maybe then on the cell therapy, can you talk a little bit bout manufacturing for NKT cells, especially given lower dose that you are expecting to get compared to other cell therapies, which obviously, this has been an issue for the industry in general. Are you going to be able to complete the later stage development with your existing capacity? And can you talk about what your capacity needs are going to be? Would you anticipate those capacity needs to be as you do late-stage development for multiple programs and get towards commercialization?
Johnson Lau
Sure. Dan?
Dan Lang
Thank you for the question, Jonathan. So, as a reminder, our NKT cells in the KUR-502 allogeneic approach. So, we are taking these NKT cells from healthy donors. And we have said and we continue to feel are confident that we can manufacture several hundred doses from one manufacturing run. So, this really allows us to benefit from the economies of scale and have a much lower cost of goods compared to the current autologous CAR-T. To answer your question directly on the capacity of manufacturing, we do not have – we don’t see any constraints right now to get to that several hundred doses. There are certain things that we need to optimize on the manufacturing process, for example, closing some open steps into close manufacturing steps as well as working on automating centers [ph]. But these NKT cells proliferate and expand incredibly well. And they have to provide – they have time, the doubling time actually, I should say, it’s 24 hours, 36 hours. So, we believe that these NKT cells is going to be able to support only the clinical study in the pivotal study, but as well as commercialization. And we will continue to do more work to get to that point in terms of optimizing the process for manufacturing as well as scaling up to several hundred doses. So, that’s work that is ongoing.
Jon Miller
Thanks very much.
Johnson Lau
I also take this opportunity to ask our Chief Medical Officer of Cell Therapy, Darrel to comment on his confidence level with regard to our current source of manufacturing is supporting all the clinical studies. Darrel?
Darrel Cohen
Yes. No. Thanks Jonathan. Yes, we are certainly well aware of the need to align our clinical development and our manufacturing capabilities as we move forward as fast as possible. The good news is that we are in close communications with our manufacturing facilities. They are aware of our clinical development plans and we are aware of their manufacturing plans. And so far, we have not had any delays in either area due to a lack of coordination.
Operator
Our next question comes from Matt Kaplan of Ladenburg Thalmann. Please go ahead.
Matt Kaplan
Hi. Good morning guys. Thanks for taking the questions. Just wanted to stay on the cell therapy programs, with 501, you mentioned continuing to enroll at higher dose levels. When do you expect to have some additional data on the higher dose levels? And then you also mentioned with respect to that program, thinking about registrational study decision. When should we have more visibility to moving into potential registrational studies with 501?
Johnson Lau
Thank you for your question. Darrel?
Darrel Cohen
Yes. Thank you for your question. Keep in mind, this is a single institution study of a very rare disease. So, you might imagine, enrollment is challenging, but it is progressing slowly but surely. With status background, we are hopeful we can at least enroll the next dose level in the coming months and make a go, no-go decision shortly thereafter. The good news is we are learning a lot as we are proceeding, most notably that the CD62L positive NKT cells are the ones that seem to be associated with response. Those as Dan has mentioned previously, are associated with memory and persistence. They tend not to exhaust. And we are also learning that these cells are recruiting the host endogenous NKT cells and immune system. And they are indeed getting into the sites of disease. So, every sign points to a positive forward decision, but we want to make sure we get to a dose that’s going to cover the variety of patients with a variety of disease burdens moving forward. And so again, we hope in the coming months, we should be able to release more data and hopefully get to a go, no-go decision sometime next year.
Matt Kaplan
Okay. That’s helpful. And then with respect to KUR-503, where are you on the IND enabling studies there? And when should we expect that to move into the clinic?
Johnson Lau
Dan?
Dan Lang
Sure. Hi Matt. Thanks for the question. So, for 503, we presented preclinical data on this new construct, which shows that the BATF3 transcription factor has very potent effect on the NKT cells in terms of anti-tumor activity as well as persistence even better than IL-15. So, we are working diligently to take this into an IND filing. We are doing a lot of the IND enabling studies right now. And we are currently targeting and filing the IND first half of 2023 and hopefully, be able to enroll patients shortly thereafter. I also want to comment on your first question a little bit. Just as a reminder, in the GINAKIT2 study, we already have 3 out of 12 patients who have see responses. And one of the response in dose level four is a CR that persists for about 12 months. So, we have now two responses out of three patients at dose level four. And that’s very encouraging because the GD2 antibody that got approved also has about a 30% response rate, but the median duration of about six months. So, we believe that a similar kind of pivotal study where they did 75- patient to 100-patient studies in a single-arm pivotal study could potentially get regulatory approval. So, we are seeing that kind of responses. We just want to make sure that we are optimizing the dose, and we look forward to being able to make a go, no-go decision when we have the data. Thank you, Matt.
Matt Kaplan
Thanks.
Operator
[Operator Instructions] Our next question comes from Yale Jen of Laidlaw & Co. Please go ahead.
Yale Jen
Good morning and thanks for taking the questions. My first question here is that what is the goal towards the end of the year in terms of your debt level reduction?
Johnson Lau
Okay. Joe?
Joe Annoni
Yes. Thank you for that question, Yale. As you can imagine, we look at this on a case-by-case basis. So, we are not targeting any specific goal per se, but let me add to your question more directly. So, as you know, as you have been following us, we have been executing on a number of strategic transactions as those transactions are announced. We will discuss what the expected proceeds are and as they draw to close, we will work with our creditors on reducing the debt levels, but also continuing to fund R&D as we transition into the cell therapy business. So we do look at it on – while we have an overall plan, we do look at it and adjust that plan on a case-by-case basis as these transactions come to fruition.
Yale Jen
Okay, very helpful.
Johnson Lau
To add further into that, is that as you understand that, I mean we certainly would like to reduce the debt level, working closely with our colleagues in Oaktree to achieve this objective. But at the same time, we need to make sure that the operation is smooth and then there is a lot of value to be extracted. The fact that the APD, APS business, they are growing at 20%, 25% and then the first year – first half of the year was performing very well at some color with regard to the fact that there is a lot of intrinsic value. And I would like to answer your question further, by asking Jeff to give a quick comment with regard to the current status with regard to this projection of the second half of the year. Jeff?
Jeff Yordon
Yes. The second half of the year, we are going to launch at least eight additional products. We think some of these products are significant. They are high margin. We are going to be at market formation on half of them. The only reason that we are being just the slightest bit hesitant is that we expect on some of the big products that we just launched that there will be additional generic competition. So, we are anticipating a very good growth in the second half, and we will revisit our projections in terms of guidance at the end of the third quarter.
Johnson Lau
So, we hope that we have answered your question from multiple angles…
Yale Jen
Thank you. No problem. And actually, that was my second question really is that in the second quarter, the margin was roughly 10%, and you anticipate potential margin expansion, and I assume that’s because of the probably new products and maybe with higher margin. Am I correct in general on that regard?
Jeff Yordon
Yes, that’s correct. Yes, correct. It’s products at market formation, products that have bigger barriers to entry are part of it. And we also anticipate some shortage products where the margins are higher. So, thanks for the question, Yale.
Yale Jen
No problem. And maybe the last question here on 501. As you have the dose expansion or escalation, should we anticipate between the doses that you will have a break in terms of assessing the safety and others before you move to the next one or you can do that more continuously?
Johnson Lau
Darrel?
Darrel Cohen
Yes. No, we can certainly do that continuously. I mean the primary dose limiting toxicity observation period is 28 days. Patients are being enrolled in sequential fashion. In general, we can – we are monitoring that in real time is an open-label study in close connection with the investigator. So, we should be able to make go, no-go decisions to the next dose level in real time as we have done previously.
Yale Jen
Okay. Great. That’s very helpful again. I appreciate it and best of luck.
Darrel Cohen
Thank you, Yale.
Operator
This concludes the question-and-answer session. I would like to turn the conference back over to Dr. Johnson Lau for any closing remarks.
Johnson Lau
Thank you, everyone, for joining us today. We will continue executing on our transformation, and we will provide you with another update next quarter. Thank you.
Operator
This concludes today’s presentation. Thank you once again for your participation. You may disconnect.
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