Cardiovascular Systems Inc (CSII) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2006 Replidyne Incorporated Earnings Conference Call. My name is Jackie and I will be your Operator for today's call.

[OPERATOR INSTRUCTIONS]

I would now like to turn the presentation over to your host for today's conference call, Miss [Linda Stelet], Replidyne's Investor Relations Consultant. You may proceed ma'am.

Thank you, Operator. I'd like to welcome everyone to Replidyne's first conference call. We appreciate your participation and interest in Replidyne. The press release announcing our 2006 second quarter results was issued this afternoon. The release is available on our website at www.replidyne.com. To discuss our results today we have Ken Collins, President and CEO, and Mark Smith, Chief Financial Officer. The agenda for today's call will include an operations overview and update from Ken Collins and a financial review from Mark Smith. We will then open the call to your questions.

As I turn the call over to Ken, I would like to remind everyone that during this call we will be making forward-looking statements that involve significant risks and uncertainties, including those discussed on this call and other that can be found in the Risks Factor section of Replidyne's prospectus on Form S-1 dated June 28, 2006.

We encourage you to review all of our SEC filings. No forward-looking statement can be guaranteed and actual results may differ materially from those we project. Information provided during this call represents our current view as of this date. Replidyne does not undertake any obligation to update any forward-looking statements made during the call as a result of new information, future events or otherwise. The Safe Harbor language in today's earnings release regarding forward-looking statements also applies to our comments on this call.

I'll now turn the call over to Ken Collins.

Thank you, Linda. This is the first earnings call for Replidyne since we completed our initial public offering on July 3 and I would like to welcome everyone. Completing our IPO was a major step in our growth as a company. It further strengthened our financial position with additional capital and it also prepares us for the next stage in our corporate development. In a strategic alliance with Forest Laboratories, we have a partner that we believe will make a major commercial success of Faropenem Medoxomil. We have also structured the alliance in a thoughtful manner that will allow Replidyne to build a commercial presence over the near term, specifically in markets aligned to our pipeline including Faropenem and our second product, REP8839. We believe this near-term commercial presence, combined with our product development focus, will generate future business development opportunities and growth for Replidyne.

Since this is our first earnings call since our IPO, let me address our communication philosophy as a public company. We will strive to be as clear and straightforward as possible in all of our communications as a public company. Of course there may be some limitations on communication for reasons of confidentiality, protocol with regulatory agencies and competitive advantage. However we all always seek to communicate our expectations as clearly and concisely as possible.

You may have noticed that we are referring to Faropenem Medoxomil by its generic name in our earnings release today and in this discussion and that is Orapem, which we used in the S-1 and on the IPO Road Show. The FDA recently indicated we will not be able to use Orapem as a brand name since it is too similar to an existing product. We're continuing to work with the FDA and Forest to establish a new brand name but will use the generic name, Faropenem Medoxomil or Faropenem for short, until we receive final approval for a commercial name. This is not a significant change but we did want to clarify the use of the name.

The main focus of our clinical, regulatory and commercial group is to support the NDA submission and to prepare for a successful product launch of Faropenem. This focus includes working very closely with our partner, Forest Laboratories. The day-to-day operations of our partnership with Forest rely on three joint committees, marketing, development and supply. These joint committees oversee all commercial and clinical activities related to Faropenem.

We've been extremely pleased with the working relationship that we've developed with our key counterparts at Forest. We see these collaborations as a key strength that will support the launch of Faropenem, as well as its further development into pediatric and additional adult indications.

We submitted our NDA for Faropenem in December of last year, it was accepted for filing by the FDA in February of this year and their review of our NDA is ongoing. As most of you know, our PDUFA date is October 20, less than three months from now. We are not in a position to comment on the review process prior to receiving communication from the FDA other than to acknowledge it is ongoing. We have responded to a number of follow-up questions from the FDA and there have been routine site visits to our clinical locations and the manufacturing site in Japan.

The inspection in Japan was completed about a month ago with no 483 observation. Also based on the ongoing NDA review process, we do not currently believe that Faropenem will be the subject of an anti-infective advisory panel discussion prior to the October 20th PDUFA date.

With our partner Forest we are planning for a successful launch of Faropenem. We need approval for at least two respiratory indications and products supplied with 18 months of shelf life. These are the contractual conditions for launch in partnership agreement with Forest. Our NDA submission is for four indications, acute bacterial sinusitis, community-acquired pneumonia, acute exacerbation of chronic bronchitis and uncomplicated skin and skin structure infections. Assuming approval by the FDA for two respiratory indications, we anticipate a strong product launch with our partner Forest prior to the respiratory infection season in the fall of 2007. We would like to be out there promoting several months in advance of the start of the respiratory infection season to facilitate a strong launch.

Although the efficacy data for acute exacerbation of chronic bronchitis and uncomplicated skin and skin structure infections are strong, we expect that the FDA will likely require additional clinical trials, including a placebo-controlled trial in the case of acute exacerbation of chronic bronchitis, before it will approve these indications. As you know, we have a Phase III placebo-controlled bronchitis study currently underway.

Faropenem remains our most important product and our immediate priority. Notwithstanding that, we continue to make major strides in our other research and development activities as well. We strongly believe that a biotech company like Replidyne should maintain an appropriately sized research and development capability to develop product opportunities in which we control the majority of the economic return.

This month we announced that our second product, REP8839, entered the clinic with initiation of Phase I testing. Our IND was submitted in May and Phase I trials commenced in July. REP8839 is being developed in combination with mupirocin as a topical antibiotic for skin and wound infections and the initial Phase I studies focus on these indications. The results are being developed for the prevention of staph aureus infections including resistant staph infections in hospital settings. This is a significant step in the development of this important product and we look forward to updating you on its clinical process -- progress in future calls.

At this time I'm going to turn the mike over to Mark Smith, our Chief Financial Officer, to briefly discuss our reported financial results and to comment on expectations. Mark?

Thank you, Ken. The details of our financial results are contained our press release. I would like to focus my remarks on some of the more notable items that impact on our financial reporting of our initial public offering that closed on July 3rd and briefly touch on some future expectations.

Before accounting for the proceeds of the IPO that were received after quarter end, we had cash and short-term investments of $95.4 million on hand at June 30. With the closing of the [Green Shoe] for 506,000 shares by our underwriters on July 28, we expect to receive total proceeds of $46.6 million from our IPO, further strengthening our financial position.

The IPO being effective on June 28 and closing on July 3 complicates the presentation of our second quarter operating results. Significantly, as a result of this timing, our preferred shares and the related accumulated dividends were outstanding at June 30, whereas these were converted to common shares concurrent with closing the IPO on July 3. This accounting treatment impacts our presentation of operating results, equity position and our balance sheet.

Our net loss for the second quarter was $6.1 million or $0.29 per share on a pro forma basis, giving effect to the conversion of preferred shares into common. Including accrued dividends of $2.7 million for the quarter, our net loss attributable to common shareholders was $8.8 million. After July 3 we will not be required to accrue dividends on preferred shares.

Revenue for the second quarter was $4 million. Our partnership agreement with Forest is important to our operating results in 2006. We received $60 million in up front and milestone payments in Q1. These amounts are being recognized as revenue for accounting purposes over 13.5 years, representing $1.1 million current quarter revenue. In addition, Forest funds a significant share of our Faropenem research and development and marketing and sales activities. This funding further represented $2.9 million in contract revenue in the second quarter. Year-to-date we have recognized $6.9 million in revenue related to the Forest agreement.

Overall our research and development expense increased to $9.1 million this quarter from $6.1 million. This increase was expected due to ongoing clinical trials for Faropenem, advances in the REP8839 program culminating in our filing and IND and making a final payment of $1.5 million to GSK under our program purchase agreement, as well as advancing our other programs. SG&A increased to $2.9 million from $1.2 million as we hired staff to support our growth and to prepare for the future launch of Faropenem, as well as the increased use of outside services.

For the balance of 2006 we expect our operating expenses for research and development and SG&A to increase. These increases will be in line with the advances in our clinical and development programs, costs associated with being a public versus private company and our commercialization preparations. Importantly, costs incurred by us to directly support Faropenem will be substantially funded under our partnership agreement with Forest.

As I commented earlier, we ended the quarter with 495.4 million in cash on hand, and including the exercise of the shoe, we will receive an additional $46.6 million from our IPO. Additionally we have access to future milestone payments under our partnership agreement with Forest, as well as funding for ongoing Faropenem research and development and certain Faropenem sales and marketing expenses. While we expect to report net losses in 2006, we believe we have generated a strong financial position that supports our ongoing business strategy and our operations.

I would now like to turn the call back to Ken.

Mark, thank you very much. Roger Echols, our Chief Medical Officer, is now joining us for the Q&A portion of the call. Operator, can you please open the lines for questions?

[OPERATOR INSTRUCTIONS]

And at this time, sir, you have no questions.

Thank you very much for your time today and your interest in Replidyne. We look forward to updating you on our progress at our next conference call.

A replay of this webcast and teleconference will be available on the company's website in the IR section or by dialing 1-(888) 286-8010 if call from within the U.S., or 1-617-801-6888 if dialing from outside the U.S. The audio pass code is 51377412 and the call will remain available through Friday, August 11, 2006. Thanks again for your time.

Ladies and gentlemen, thank you for your participation. We will be disconnecting all lines, you may have a wonderful day.