Cardiovascular Systems Inc (CSII) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2007 Replidyne, Incorporated Earnings Conference Call. My name is Eric and I'll be your coordinator for today.

(OPERATOR INSTRUCTIONS)

I would now like to turn the presentation over to our host for today's call, Ms. Sabrina Oei. Please proceed.

Thanks, Eric. I'm Sabrina Oei, Replidyne's Director of Investor and Public Relations and I'd like to welcome everyone to today's conference call to discuss our financial results for the second quarter and cumulative six months ending June 30, 2007.

We appreciate your participation and interest in Replidyne.

The press release announcing our earnings was issued at the close of business today. The release is available on our website, as is the webcast of today's conference call, at www.replidyne.com.

The financial section of today's call will be given by Mark Smith, Chief Financial Officer. It will be followed by a general update given by Ken Collins, President and Chief Executive Officer. In addition to Mark and Ken, we are joined by Replidyne's chief medical officer, Roger Echols.

After the update, we will open the lines to your questions.

As I turn the call over to Mark, I would like to remind everyone that during this call, we will be making forward-looking statements that involve significant risk and uncertainty, including those discussed on this call and others that can be found in the risk factors section of Replidyne's Form 10-Q, dated May 10, 2007.

We encourage you to review all of our SEC filings. No forward-looking statements 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 press release regarding forward-looking statements also applies to our comments on this call.

I will now turn the call over to Mark.

Thank you, Sabrina. In this afternoon's earning release, we reported net income of $45.5 million for the second quarter of 2007, driven by net revenue of $55.7 million following termination of the Forest partnership effective May 7.

For the six-month period ended June 30, 2007, we reported net income of $36.9 million, primarily driven by recognition of deferred revenue.

As we alerted you in our prior conference calls this year, second quarter revenue includes the $55.2 million of previously deferred revenue, representing non-refundable upfront and milestone payments received in February 2006 from Forest under our former partnership.

In accordance with our accounting policy, these payments were being amortized into earnings over 15 years, our expected term of the agreement.

Following formal termination of the agreement on May 7, all deferred amounts totaling the $55.2 million were recognized as revenue. This accounting treatment had no current period cash impact.

Consistent with prior periods, we also reported contract revenue of $400,000 in the second quarter, representing Forest's majority share of defined Faropenem and development costs through May 7. After May 7, we report no further revenue under this agreement.

Moving now to operating expenses for the second quarter.

Research and development expense was $8.4 million this quarter, compared to $9.1 million in the corresponding quarter of 2006.

The majority of spending was directed to our Faropenem program, including the ongoing bronchitis study, preparation for future Faropenem studies, and manufacturing development.

We also incurred costs to replace the contract research organization conducting the bronchitis study. The new contract research organization is expected to oversee all planned Faropenem Phase III registration studies.

Research and development expense for our non-Faropenem programs included preparations for Rep 8839 Phase II clinical trials and pre-clinical activities targeted to our C. difficile and inhibition of DNA replication programs.

In reviewing prior year comparative amounts, note that research and development expense in the second quarter of 2006 included $1.5 million paid to GSK as final payment for the acquisition of Rep 8839 and its related technology.

SG&A expense in the second quarter of 2007 was $3.3 million, compared to $2.9 million in the second quarter of 2006.

The increase was primarily due to approximately $500,000 in professional fees related to compliance, market assessments, and obligations associated with being a public company.

Second quarter 2007 operating expenses, comprising SG&A and R&D expense, include about $900,000 of stock option expense compared to approximately $200,000 in the second quarter of 2006.

This increase reflects the initial adoption of the accounting standard in the first quarter of 2006, as well as higher valuation of options granted following our IPO last year.

Notwithstanding our reporting in net profit this quarter, our income tax provision is recorded at zero due to available net operating loss carry-forwards that are expected to fully offset net income.

At quarter end, we had cash assets totaling $112 million, representing a net cash use of $7 million during the second quarter. Our cash position and operating results through June 2007 are consistent with the cash burn guidance we provided at each of our prior two earnings calls.

To reiterate that guidance, we anticipate using approximately $35 million for the full year 2007 in support of our operations, which may increase to $40 million if we undertake additional Faropenem clinical trials beyond the ongoing bronchitis trial.

Cash use will increase in the second half of 2007, primarily due to the termination of the Forest agreement and their responsibility to fund the majority of certain Faropenem development costs, and increased clinical activity in support of Faropenem in Rep 8839. This guidance does not assume a new partnership for the Faropenem program.

I would now like to turn the call over to our president and CEO, Ken Collins.

Thank you, Mark. As Mark briefly described, in the first half of this year, Replidyne has made progress on a number of fronts. We would like to review this progress and give you an update on our next steps.

In March, we announced the completion of our Phase II clinical trial using Faropenem in pediatric patients with acute otitis media. Initial analyses of the study results show that it met its primary objective to demonstrate that Faropenem was effective in eradicating pathogens from the middle ear and to permit the dose selection for Phase III trials in otitis media.

We will be presenting a more detailed analysis of these results at ICAAC, which will be held in September, in Chicago, of this year.

Additionally, at ICAAC this year and for the first time in the public forum, we will be unveiling exciting and highly anticipated research on our C. difficile program.

We've continued to actively engage the FDA in discussions to gain regulatory clarity for the future approval of Faropenem in adult respiratory indications.

In March of this year, we announced a preliminary regulatory plan in which the FDA has indicated that a total of four Phase III clinical trials in three adult respiratory indications will be sufficient for a new drug application for Faropenem. These indications are sinusitis, pneumonia and bronchitis.

According to this plan, we would conduct two active controlled non-inferiority studies using Faropenem in patients with pneumonia, as well as one placebo controlled superiority trial each in patients with sinusitis and bronchitis, to submit for approval for these three indications.

We've also agreed with the FDA that future clinical trials of Faropenem will be conducted using a 600 milligram dose administered twice daily. The FDA has further indicated that an acceptable safety database needed for review at this dose is approximately 1,500 patients, assuming no safety signals emerge during the studies.

The proposed four Phase III studies in three adult respiratory indications are expected to provide an adequate number of patients for the database.

We're continuing to work with the FDA to define the specific details that will permit the timely enrollment of patients in these proposed new studies.

We've begun the negotiating process for special protocol assessments of the SBAs in both the sinusitis and pneumonia indications.

While we've developed a good understanding of the clinical trial design requirements for these indications from our ongoing dialogue with the FDA, we believe that the SBAs provide us and the agency a forum to confirm that understanding.

We do not intend to give further feedback on this process while it is under negotiation and will update you again when the process is complete.

In June, we announced the results from three Phase I trials studying Rep 8839, a novel topical antibiotic that has shown potent in vitro activity against major skin pathogens, including methicillin-resistant Stap aureus, or MRSA.

The results of the trial show that topically applied Rep 8839 appears safe, well tolerated and associated with low systemic exposure or drug absorption into the bloodstream, which is desirable for a topical antibiotic treatment.

Based on these results, we plan to initiate Phase II trials in children with impetigo, the most common bacterial skin infection, by the end of this year.

Lastly and most important, we are actively engaged in partnering discussions to identify a new development and commercialization partner for the Faropenem program. In anticipation of a partnership, we are conducting all preparations to allow us to commence further Phase III clinical trials in pneumonia and sinusitis by the end of this year.

We continue to believe that Faropenem will be attractive to potential partners due to its (inaudible) attributes and the absence of significant branded and promoted competitors in the community antibiotic space when Faropenem is ultimately launched.

We appreciate your attention on this call and I'd now like to ask the operator to open the line for questions.

(OPERATOR INSTRUCTIONS)

Ladies and gentlemen, it appears we have no questions at this time.

Thank you, Eric, and thanks, everyone for participating on this call and for your interest in Replidyne.

A replay of this conference call will be available through Tuesday, August 14, 2007 at midnight. Callers may access the replay by dialing 888-286-8010 or, outside the U.S., 617-801-6888. The audio replay pass code is 31540010.

To access a replay of the webcast, visit the investor relations section of our website at www.replidyne.com.

Thank you.

Thank you for your participation in today's conference. This concludes our presentation. You may now disconnect, and have a good day.