Cardiovascular Systems Inc (CSII) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2007 Replidyne, Inc. Earnings Conference Call. My name is Akia and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference.

(OPERATOR INSTRUCTIONS)

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

Thanks, Akia. I'm Sabrina Oei, Replidyne's Director of Investor and Public Relations and I'd like to welcome everyone to today's conference call where we will discuss our financial results for the third quarter and cumulative nine months ending September 30th, 2007.

We appreciate your participation on this call. The press release announcing our earnings was issued at the close of business today and 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, our 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, our Chief Commercial Officer, Peter Letendre, and our Chief Scientific Officer, Nebojsa Janjic. After the update, we will open the line 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 risks and uncertainties, including those discussed on this call and others that can be found in the risk factor section of Replidyne's Form 10-Q dated August 9th, 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 views 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'll now turn the call over to Mark Smith.

Thank you, Sabrina. In this afternoon's earnings release we reported a net loss of $12.3 million for the third quarter of 2007. For the nine months ended September 30, 2007, we reported net income of $24.6 million, driven by net revenue of $58.6 million following termination of the Forest partnership agreement.

As we reported in our second quarter conference call, upon formal termination of the prior partnership agreement with Forest on May 7th, all then deferred revenue amounts totaling $55 million were fully recognized as revenue and reflected in our year-to-date results. This accounting treatment had no cash impact and after May 7th we have reported no further revenue under this agreement.

Moving to operating expenses to the third quarter -- research and development expense was $10.7 million this quarter compared to $7.2 million in the corresponding quarter of 2006. Almost two-thirds of the spending was directed to our faropenem program, including preparations for future faropenem studies for sinusitis in pneumonia, the ongoing bronchitis study and manufacturing development. Our objective in allocating resources to these future studies was to be in position to commence these trials capturing this northern hemisphere respiratory infection season.

Research and development expense for the balance of our R&D pipeline included preparations for the upcoming REP8839 clinical trial in pediatric patients with impetigo and pre-clinical work targeted to our C. difficile and inhibition of DNA replication programs.

SG&A expense for the third quarter of 2007 was $3 million compared to $3.9 million in the third quarter of 2006. The decrease was primarily due to lower spend on market analyses and compensation related expenditures primarily related to building our organization to support operations as a public entity.

Third quarter 2007 operating expenses comprising SG&A and R&D includes $700,000 of stock option expense compared to approximately $300,000 in the third quarter of 2006. This increase reflects initial adoption of the accounting standard in Q1 2006, as well as the higher fair value of options granted following our IPO last year. Notwithstanding our reporting a net profit for the nine month year-to-date period, our income tax provision is estimated at zero due to available net operating loss carry-forwards that are expected to fully offset net income in 2007.

At quarter-end we had cash assets totaling $102 million, representing a net cash use of approximately $10 million during the third quarter. Our cash position and operating results through September 2007 are consistent with the cash burn guidance we provided at each of our prior earnings calls this year.

With the extensive clinical trial startup to position us to commence the ABS and CAP trials this northern hemisphere respiratory infection season, we anticipate a cash burn for the full year of approximately $40 million. This guidance does not assume a new partnership for the faropenem program. I'd now like to turn the call over to our President and CEO, Ken Collins.

Thank you, Mark. Replidyne continues to advance a number of important business development, clinical and pre-clinical objectives. Our primary objective has been to identify a partner for faropenem while also preparing to initiate Phase III trials for faropenem in pneumonia and sinusitis this year.

Regarding partnering, we believe that faropenem is a significant and valuable asset and has the potential to play a key role in any future partner's primary care sales efforts. Our goal is to secure a partner by year-end. However, we are realistic and understand that agreements and negotiations sometimes take longer to finalize than we would like.

Our second clinical program is topical antibacterial REP8839. We've previously stated that we plan to begin Phase II trials in 2007. We can confirm that this continues to be our guidance.

At our biotech core we continue to grow and strengthen our pre-clinical pipeline. In September, Replidyne attended the 47th annual Interscience Conference on Antimicrobial Agents in Chemotherapy, commonly referred to as ICAAC. It was held this year in Chicago. For a highly specialized anti-infective company like Replidyne, ICAAC is the most important conference of the year and this year, with 21 posters accepted for presentation, Replidyne was well represented.

Our wealth of posters highlighted Replidyne's three major pipeline programs and showcased previously unpublished data on faropenem, REP8839 and REP3123, our previously undisclosed lead product candidate to treat C. difficile associated disease, or CDAD. These posters are all available on our website and I invite you to review them in detail.

ICAAC was our first occasion to unveil REP3123. We held an investor breakfast that many of you attended, featuring the premier industry expert on C. difficile, Dr. Dale Gerding, and our own CSO, Dr. Nebojsa Janjic. At this breakfast and the previous day at the opening session on new antimicrobial agents, Dr. Janjic highlighted our pre-clinical findings that REP3123 inhibited growth, sporelation and toxin production of C. difficile bacteria.

We received many questions about the program and especially regarding its development timeline. We are now prepared to project an anticipated investigational new drug application, or IND, in the second half of next year.

I'll conclude by reporting that with almost $102 million in cash at the end of the third quarter, we are in a strong financial position to execute on our objectives. I would also like to remind everyone that we will be presenting next week on Monday, November 5th, at the Acumen BioFin Rodman & Renshaw Healthcare Conference in New York City.

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

(OPERATOR INSTRUCTIONS). And your first question comes from the line of Steve Harr of Morgan Stanley. Please proceed.

Yes, a couple of questions. First off, the FDA put out their guidance on antibiotic development. What did you learn from the guidance document and what's standing in the way of you getting your Phase III trials in the different indications?

Steve, this is Ken. They've actually put out two guidance. They put out general guidance and non-inferiority margins. I guess that was about a week or so ago. And then just yesterday they specifically put out the guidelines for acute bacterial sinusitis and they were -- the draft guidelines, there was a fair amount of detail in the draft guidelines.

It certainly was consistent with everything we've learned in our discussions with the FDA on sinusitis over the past number of months. And I'm going to ask Roger Echols, our Chief Medical Officer, to comment a little further on that.

Sure, Ken. Steve, the two guidances I think really just reinforce what we've been learning from the FDA since our PDUFA action last fall. It's clear now that the public knows that non-inferiority studies are not acceptable for acute bacterial sinusitis, acute exacerbation of chronic bronchitis and I think they also mentioned acute otitis media. But we've been in the planning stages and ready to execute the necessary superiority studies for those indications.

What the general guidelines on non-inferiority studies did not tell us is how to really determine the non-inferiority margins for those indications such as community acquired pneumonia or other indications where placebo controlled trials are not ethical and are not expected. So there's still a lot of unanswered questions regarding how to determine non-inferiority margins for those studies that will still be active controlled comparative trials.

And as Ken mentioned in terms of the sinusitis study, this just confirmed things that we had negotiated or we have been in discussion with the FDA and our planned trial is consistent with the guidelines that were issued yesterday.

And how are the acute -- how's the chronic bronchitis trial enrolling?

It's still slow. The exact number, we're over 250 patients at this point. We're just about to -- we had another investigator meeting for North America where we're adding some 30 additional sites. And we have a meeting in Europe next month where we plan to be adding -- really, we haven't had European participation before so we will have a large number of sites participating in Eastern European countries.

And so is -- I mean is it realistic to think about the data next year still?

Steve, this is Ken again. Our stated goal is to complete the bronchitis study sometime next year. And we think that is realistic.

Okay. And is this something we should take as a sign of the [difficulty] is likely to come in all these placebo controlled trials?

I think the degree of difficulty will not be exactly the same as for AECB. I think the sinusitis studies are less difficult because the patient population is less complex.

One thing to point out, Steve, is I think it is fair to say that the placebo studies are a bit more difficult to enroll and just the actions of the FDA over the past 12 to 15 months make clinical trials a bit more difficult for community antibiotics. I think the flip side of that is there is very little competition out there.

And I'm going to ask Pete Letendre, our chief commercial officer, he's commented on this before, but to just kind of give the landscape of what we see out there in kind of the 2010, 2011 timeframe.

Hi, Steve. We obviously are familiar with the patent landscape of the oral antibiotic class and, again, it continues to be attractive for us and for potential partners just because of the promotional response this market shows and the lack of promotional pressure that should exist when the adult and then the pediatric products hit the market.

So we're still estimating with Ketek essentially not being promoted anymore, that the only branded competition in the adult market that will exist six months after the launch of this drug would be Factive and that would be it. And in the pediatric market in 2011 fourth quarter, there would be no branded and promoted competition. So things still look even more optimistic than they did if we had -- had we launched in 2007.

And as you look at the pediatric indication, and I'm going to take this question and then drop off, what is your -- what are your plans there and what's changed over the last couple of months?

Not a lot has changed. The pediatric indication, as we've indicated before, is we have less clarity from the FDA on pediatrics than we do on the adult. We've made significant and substantial progress with the FDA on both the CAP study and the sinusitis study and previously on the bronchitis study. It's not uncommon to have pediatric antibiotics kind of lag the adult indication by a year or so and that appears to be the case here.

(OPERATOR INSTRUCTIONS). And there are no further questions at this time. I would like to turn the presentation back over to Ms. Sabrina Oei. Please proceed, ma'am.

Thank you for your time today and for your interest in Replidyne. A replay of the conference call will be available approximately one hour after a completion of this call through Tuesday, November 13th, at midnight. Callers may access the replay by dialing 888-286-8010 in the U.S. or 617-801-6888 internationally. The audio replay pass code is 69926595. To access a replay of the webcast, visit our investor relations section of our website at www.replidyne.com. Thanks.

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