Bio Rad Laboratories Inc (BIO) 2006 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Ciphergen third quarter financial results conference call. [OPERATOR INSTRUCTIONS]. As a reminder, the conference is being recorded Tuesday, November 7.

Your speakers for today are Sue Carruthers, Gail Page, Debra Young and William Sullivan. I would now like to turn the conference over to Ms. Carruthers. Please go ahead, ma'am.

Thank you. Welcome to Ciphergen Biosystems' third quarter 2006 conference call. Today we issued a press release for our quarterly financial release, which is also on our website, and we encourage you to refer to it for more details.

Some of our commentary and answers to questions may contain forward-looking statements that are based on current expectations and involve risks and uncertainties that could cause actual results and outcomes to be materially different. Certain of these risks and uncertainties may include, but are not limited to, risks relating to Ciphergen's ability to execute on plans for the Company's diagnostics business, relationships with strategic partners, and other factors described in Ciphergen's filings with the Securities and Exchange Commission, including its most recent quarterly report filed in August 2006 and proxy statement filed in September 2006.

At the request of the Company, this call is being recorded. The entire contents of the call, including the presentation and the question and answer session, that will follow are the copyrighted property of Ciphergen Biosystems, Inc., with all rights reserved. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Ciphergen Biosystems, Inc. is strictly prohibited.

Now I'd like to introduce Gail Page, President and CEO of Ciphergen.

Thank you, Sue. With me today are Dr. Simon Shorter, our Vice President of Business Development, and Dr. Eric Fung, our Chief Scientific Officer. Also on the call today is Ms. Debra Young, who joined Ciphergen just last week as the Vice President and CFO. We welcome Debra, who brings a wealth of experience in financial management and operations with healthcare and technology companies.

On October 26, we achieved an important strategic milestone in Ciphergen's history. We received shareholder approval for the sale of our life science research business to Bio-Rad for approximately $20 million in cash. In addition, Bio-Rad will make a $3 million equity investment, which we view as a clear indication of their commitment and belief in Ciphergen's future success. We and Bio-Rad are finalizing the completion of this transaction. With Bio-Rad's commitment to proteomics research, we are confident that the ProteinChip and SELDI technology developed at Ciphergen will have the resources and support to attain wider adoption. Ciphergen will retain exclusive rights to the diagnostics market.

In addition, as we announced on Friday last week, we expect to close an exchange of $27.5 million of our outstanding 4.5% convertible senior notes for new convertible senior notes at $11 million in cash. These transactions are contingent upon the Bio-Rad completion sale. This agreement extends the maturity and eliminates a significant portion of our debt, while still giving us sufficient capital with which to grow the business. Now we can turn the attention of the entire organization to building a specialized diagnostics business.

We have three goals that drive our development and commercialization efforts. First, to develop high value diagnostic tests that help physicians stratify patients according to the risk of developing a particular disease. This can give the physician vital information to better characterize, monitor the progression of, and select appropriate therapies for these diseases. Second, facilitate more efficient clinical trials of new therapeutics by identifying and developing biomarkers that stratify patients according to likelihood of response. And, third, identify biomarkers that can form the basis of molecular imaging targets.

Our lead diagnostics program is in ovarian cancer. Ovarian cancer is known as a silent killer because the signs and symptoms are subtle and similar to those often associated with benign masses. Each year, 23,000 new cases of ovarian cancer are diagnosed, and 14,000 deaths are reported, which makes it one of the deadliest cancers. We anticipate that our first diagnostic test will be used as an adjunct to other diagnostic methods to help physicians in the differential diagnosis of a persistent pelvic mass. Physicians need a diagnostic test that can stratify patients with a pelvic mass and to higher risk for ovarian cancer versus those with benign disease.

Let me take a minute and explain why this test is so critical. Ovarian masses are quite common. About 10% of women develop ovarian tumors each year. The vast majority of these tumors are benign. But the malignant tumors need to be removed as completely and early as possible. Surgeons trained as gynecologic oncologists perform a specific surgery that removes as much cancer as possible and fully evaluates the extent of the disease. Studies have shown that women with ovarian cancer who are operated on by a gynecologic oncologist have a longer median survival of six to nine months and a better chance of being cured. Women with cancer who are initially operated on by a non-specialist often need a second surgery to fully evaluate the extent of the cancer and remove additional cancer. This is where patients could benefit from the information provided by Ciphergen's diagnostic test. Women with a high risk of cancer would be triaged to the gynecologic oncologist for their initial surgery and get the treatment necessary to improve their chances of survival.

Our ovarian cancer diagnostic test has undergone extensive testing and validation. We have analyzed over 2,500 clinical samples from more than 10 sites, the largest proteomic study to our knowledge. In October, at the International Gynecologic Cancer Society meeting, we presented data supporting the use of our protein biomarker panel to discriminate women with ovarian cancer from women with benign pelvic disease. These studies evaluated patients from multiple medical centers, demonstrated the portability of these markers in different populations, a key requirement for the utility of the diagnostic test. In addition, our collaborators presented additional data, showing that a second panel of biomarkers could be used to help predict survival in patients with ovarian cancer.

Let me turn to our commercialization strategy. We are pursuing multiple pathways for our first diagnostic test. We plan to commercialize this test as an FDA-approved test kit. We are undertaking a prospective clinical trial to support the submission to the FDA for approval as an in vitro diagnostic test in the U.S. Our goal is to submit for clearance in the second half of 2007.

In addition, the strategic alliance with Quest Diagnostics is another major conduit for commercialization of our diagnostic technology. Together, we are reviewing the FDA draft guidances, which were released in September, one entitled Commercially Distributed Anolyte-Specific Reagents and the other In Vitro Diagnostic Multi-Variant Index Assays, to ensure that our ovarian cancer program is compliant and reaches physicians in a timely manner.

Finally, we are taking steps necessary to commercialize in countries outside the United States. We expect to be able to offer this test in at least one such country next year.

Turning now to our pipeline of potential diagnostics. I want to touch on two promising areas of interest - peripheral arterial disease, commonly referred to as PAD, and thrombotic thrombocytopenic purpura, or TTP. We are developing a test in collaboration with Stanford University to aid physicians in the diagnosis of PAD, which is a common disorder affecting smokers, diabetics and the elderly. Because no blood test yet exists for this condition, the disease is under-diagnosed and under-treated. Our blood test would identify individuals who are more likely to have the condition and triage them to more sophisticated tests for definitive diagnosis and treatment.

The second area of interest is TTP, a disorder of the blood coagulation system that in most cases arises from the deficiency or inhibition of a specific enzyme. We recently signed a collaboration agreement with the Ohio State University to commercialize a SELDI-based assay for TTP. The test currently used to confirm this diagnosis utilizes western blot, which has poor reproducibility and quantitation. SELDI technology, because it can measure the exact mass of the enzymatic reaction product, is a preferable test platform because of its improved reproducibility and quantitation.

We have a robust pipeline of diagnostics, and we now are structured to bring these products to physicians and their patients. When the Bio-Rad transaction is completed, we expect that our total operating expenses will be substantially reduced and anticipate that our cash use for operations will be approximately $4 to $5 million per quarter. We have sufficient cash resources to fund operations.

Over the next twelve months, we intend to do the following - provide components to Quest to facilitate the introduction of their own laboratory-developed tests to [differentiate] benign versus malignant pelvic mass; complete a prospective clinical trial and submit the results for clearance by the FDA; commercialize the ovarian test in at least one country outside the U.S.; develop and validate two additional diagnostic programs; and continue to work with collaborators to identify and end license biomarkers for future diagnostics.

We have the dedication, technology and resources to advance an exciting business strategy poised for long term growth. With a more focused organization of approximately 50 people, additional financial resources, and a seasoned management team, we believe that Ciphergen is well positioned to drive its pipeline forward and to become a leader in the high value molecular diagnostics market.

Operator, we are now ready for questions.

Thank you, ladies and gentlemen. [OPERATOR INSTRUCTIONS]. Our first question comes from the line of [Greg Bennett].

Gail, I'm under the impression-- I was under the impression that this test that you were going to come out with with Quest-- the goal was to have it completed by the end of this year for introduction some time in early 2007. Am I correct today that what you're saying is that the test now is not going to be introduced until some time in the second half of 2007?

Let me clarify that for you. There's two pathways. There's always been two pathways for us to have the test on the market. One is that when we engaged with Quest, it was to ultimately always have an FDA-approved test. To do that, we have to do our final clinical trials, and that's what we're talking about relative to 2007. That does not in any way prohibit, should we decide with Quest, to launch it earlier as an ASR. So, there's two pathways that are available to us in that arena.

And that hasn't been determined yet?

I'd say that we are very pleased with our alliance with Quest. They continue to apply significant resources and efforts to developing what they term a laboratory-developed test. But, as you know, they do not comment on specific tests that they have in development, and there's a variety of reasons for that. That would be something they would have to comment on.

If you introduce an ASR test, will that be a revenue generator for you all?

Yes, it will. As I think we all know in the marketplace, ASRs-- Part of the reason you do it is not necessarily just to generate revenue, but it's to drive market adoption and to get the test-- to make sure that it has early availability to the market because of the value of the test and the information that it brings to the patients. But, yes, there would be revenue associated with it.

Do you feel that you're ready for that?

For the revenue?

For an ASR test.

We are internally from the standpoint that we're now GMP. We can provide the components. We think the Bio-Rad transaction even puts us in a stronger position because they have excellent manufacturing, and they have the skill sets associated with that.

I guess what I'm thinking, Gail, is that we've been waiting for this test now for probably over a year when you came on board. My impression was the goal was by the end of this year. And in the announcement today, it sounds like it's-- The FDA-approved test, I guess, is for the second half of next year. Correct?

Yes. That's correct.

A home brew or an ASR test-- that we don't-- we still don't know whether that's the goal for the beginning of 2007.

I would say it's certainly our goal. I've not indicated that it is not a goal. But, I'm saying that I'm just not in a position. I say this at every call. An ASR is a test that a laboratory needs to develop on their own. It has to be independently validated, and it's something that Quest has asked us, for a variety of reasons, to let them comment when they're ready to comment. But it certainly is our goal, and that's every effort that we're making to work with them to assure that we reach that goal.

Okay. On the convertible bond deal, was this something that you had to do?

I would say that the main driver behind the note-- by extending the maturity and decreasing the debt-- It was really important to me that we strengthened our balance sheet. It gives us more flexibility to run the business going forward.

It gives you less cash.

It depends on how you look at it.

Pardon me?

It depends on how you look at it.

Well, I'm looking at it that you have less cash and that you have-- and the dilution is greater on the remaining bonds. I guess what I was asking is did the bondholders require you to do this?

No.

This is something that management and the board decided to do. They went to the bondholders and said we want to retire part of the issue.

It was a privately negotiated-- Again, I think-- We extended the maturity. It's not facing us now in 2008. Again, it was all about strengthening the balance sheet as a company and taking some pressure off.

Okay. Thank you.

[OPERATOR INSTRUCTIONS]. Ms. Carruthers, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Thanks, everybody, again, for joining us today. We're very excited to move forward as a leading specialized diagnostics company, and we will be presenting at the Rodman & Renshaw conference tomorrow. We look forward to updating you again soon. Thank you for joining us.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.