Cardiovascular Systems Inc (CSII) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2007 Replidyne Incorporated Earnings Conference Call. My name is Antoine and I'll be your coordinator for today. At this time all participants are in listen-only mode. We will conduct a question and answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS)

I would now like to turn the call over to Sabrina Oei. Please proceed, ma'am.

Thank you, Antoine. 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 full year and fourth quarter ending December 31, 2007.

We appreciate your participation and interest in Replidyne. The press released announcing our earnings was issued at 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 review of Replidyne's 2007 activities and the strategic view for 2008 given by Kenneth Collins, President and Chief Executive Officer.

In addition to Mark and Ken, we are joined by Replidyne's Chief Scientific Officer, Nebojsa Janjic; Chief Medical Officer, Roger Echols; Chief Commercial Officer, Peter Letendre; and, Senior VP of Corporate Development, Don Morrissey.

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 risks and uncertainties, including those discussed on this call, and others that can be found in the Risk Factors section of Replidyne's Form 10-Q dated November 7, 2007. 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 press release regarding forward-looking statements also applies to our comments on this call. I will now turn the call over to Mark Smith.

Thank you, Sabrina. In this afternoon's earnings release, we reported a net loss of $16.9 million for the fourth quarter of 2007. For the full year 2007, we reported net income of $7.7 million, resulting from net revenue of $58.6 million following the termination of our Forest partnership agreement. As previously reported, upon formal termination of the agreement with Forest on May 7 of last year, all then-deferred revenue amounts totaling $55 million were fully recognized as revenue and reflected in our operating results.

Moving to operating expenses for the fourth quarter and full year of 2007. Our fourth quarter results include $1.4 million of restructuring costs following our actions taken and announced in December. The costs are comprised of employee severance and related items that will be paid during 2008. Restructuring costs were reported as $800,000 in research and development expense and $600,000 in selling, general, and administrative expense.

Research and development expenses in the fourth quarter 2007 were $14.9 million, compared to $13 million in the fourth quarter of 2006. Faropenem related expense represented approximately three quarters of total research and development expense in the quarter. As we undertook the steps to plan through site initiation for three Phase III clinical trials of faropenem, one for treatment of acute bacterial sinusitis and two for treatment of community-acquired pneumonia, and supported our ongoing placebo controlled Phase III clinical trial of faropenem for treatment of acute exacerbations of chronic bronchitis.

Our fourth quarter of 2007 results also included $1.7 million for contingent supply agreement costs to our faropenem manufacturing partner. Work on our C. difficile program and DNA replication inhibition programs also increased in the quarter. These increases were partially offset by decreased expense related to the REP8839 program that was suspended in December 2007.

Research and development expense was $43.3 million for the full year 2007 compared to $38.3 million in 2006. This increase reflected the trends observed in the fourth quarter of increased activities related to the faropenem program and advances in our preclinical C. difficile and DNA replication inhibition programs.

Sales, general, and administrative expenses in the fourth quarter of 2007 were $3.2 million, compared to $3.5 million in the fourth quarter of 2006, reflecting lower marketing study expenses in the 2007 quarter. Full year 2007's selling, general, and administrative expenses were $13 million, compared to $12.2 million in 2006 due to increased full year compensation costs, restructuring expense and increased professional fees related to public company compliance.

Significantly, we entered 2008 with a strong balance sheet, including $90 million in cash and investments. Based on our current development plans for C. difficile and our DNA replication inhibition programs, completion of the AECB trial only within the faropenem program, and our restructured operations, this balance represents more than two years funding for our operations. Our medium and long term planning, including cash requirements planning, is dependent upon the outcome of partnership discussions for the faropenem program, which remain open.

Without consideration of the potential impact from partnering faropenem, we foresee a full year cash -- a full year operations cash burn of approximately $40 million in 2008 supporting moving our C. difficile program to Phase I clinical testing, seeking to identify an IND candidate from within the lead series of our DNA replication inhibition program and supporting the faropenem program through partnership discussions.

In assessing our forecasted future cash use, it should be noted that we entered 2008 with a payable balance of $12 million that is increased from the prior year as a result of our fourth quarter obligations for faropenem clinical trial preparations and our restructuring obligations. Based on the expected reduction of these liabilities in 2008, we expect a full year cash, total cash use of approximately $45 million.

Once partnership discussions for the faropenem program are resolved, we anticipate resetting our operating plan. At that time, we anticipate communicating an updated forward prospective of our cash use in 2008 and beyond. I would now like to turn the call over to Ken Collins.

Thank you, Mark. 2007 was a challenging year for Replidyne. Though faced with regulatory challenges, we did achieve some notable accomplishments, including progress with faropenem for both adult and pediatric uses as well as advancing our pipeline program, REP3123 for the treatment of C. difficile-associated disease and our DNA replication inhibition program to develop novel antibiotics for growing health concerns like MRSA.

In March of last year, Replidyne announced two important steps with faropenem. On the pediatric side, we completed a large Phase II trial in acute bacterial otitis media that met its primary objective, showing that faropenem was effective in eradicating pathogens from the middle ear. In the adult program, we reached an agreement with the FDA on the 4 for 3 program, an efficient development plan under which Replidyne can conduct four Phase III clinical trials for an NDA review of faropenem in the three adult respiratory tract infection indications of sinusitis, bronchitis and pneumonia.

Additionally, as a result of continual communication with the FDA, in the fall of last year we announced an FDA approved special protocol assessment for faropenem in sinusitis. This SPA was accepted within days of the FDA issuing new draft guidance documents in ABS and the two documents were entirely consistent. We do believe that Replidyne played an important role in helping to shape this FDA draft guidance and ABS.

In September of 2007, Replidyne presented 21 posters at our most important scientific conference of the year, the Annual Interscience Conference on Antimicrobial Agents and Chemotherapy, commonly known as ICAC. It was at this conference that we unveiled REP3123, our lead product candidate to treat C. difficile associated disease, or CDAD. We also held an investor event featuring the premier industry expert on C. difficile, Dr. Dale Gerding out of Chicago, and our Chief Scientific Officer, Dr. Nebojsa Janjic. All of the posters are available on our website and I invite you to review them in detail.

Replidyne's management also recognized the need to realign the company and in December of last year, we announced an organizational restructuring. The restructuring included a reduction in staff of approximately 35% and we re-prioritized our pipeline programs with the goal of meeting our future challenges while also preserving key scientific personnel and maintaining our strong cash position.

Replidyne entered 2008 with a streamlined operation that best positions us to preserve our cash assets and focus on our near term priorities. These priorities include, first, partnering faropenem. We began the partnering initiative in the early fall of 2007 and continue to have active discussions with potential partners. Like our investors, we understand that partnering faropenem is an event that will shape the future strategy of the company.

We are now not in a position to comment on whether we believe we will or will not partner faropenem nor do we think it's prudent to delineate a timeframe for this decision. However, we do think it's important to explain what is likely to happen in both scenarios. Should Replidyne partner faropenem, we will have a development and commercialization partner capable of marketing this much needed antibiotic to primary care physicians throughout the country, maximizing what we believe is a significant and valuable asset.

Should Replidyne be unable to identify a partner for this program, we recognize the importance of preserving our cash, which will likely mean halting development of the faropenem program. We look forward to gaining further clarity on the clinical program for faropenem on April 1 and 2 when the FDA is scheduled to hold an advisory committee meeting to define a non-inferiority margin for community-acquired pneumonia trials.

Our next priority is to advance our most promising pipeline programs. The first of these exciting programs is REP3123 to treat C. difficile-associated disease. CDAD is an increasing public health threat, particularly among the elderly, and is on the rise worldwide, affecting over 250,000 U.S. patients per year and causing over 4,000 deaths annually, according to IMS data.

One of the main problems with CDAD is the high recurrence rates, between 10% and 25%, mostly attributable to C. difficile bacteria's ability to form spores. REP3123 is a methionyl t-RNA synthetase inhibitor that in in vitro studies has shown an ability to inhibit growth of C. difficile bacterium and prevent sporulation without inhibiting the friendly organisms that are essential for normal intestinal functioning.

Pre-clinical studies REP3123 also showed that it may be able to stop the production of destructive intestinal toxins caused by C. difficile bacteria. These results suggest that REP3123 has the potential to reduce CDAD outbreak and relapse rates or possibly even prevent CDAD by inhibiting the growth and production of toxins caused by C. difficile bacteria. Our goal for the program is to file an IND on REP3123 within the year.

Our second priority program is the DNA replication inhibition program. Using high throughput assays that target DNA replication, we are identifying potential product candidates that are highly differentiated. Characteristics of this program are a novel mechanism of action that blocks DNA replication, oral bioavailability, activity against all major classes of antibiotic-resistant Gram-positive bacteria, including MRSA, VRE, and PRSP and [siatol] activity.

We believe that the U.S. Gram-positive antibiotic market needs new therapies that can be both IV and oral. We are currently completing medicinal chemistry optimization and our goal with this program is to identify a lead IND candidate this year.

As a result of prioritizing these important programs that address diseases of high unmet medical need, Replidyne suspended the development of topical antibiotic REP8839. The program is currently on hold and we are considering a number of business development opportunities for this program.

Our next objective is to pursue strategic alternatives that fit the strategy of the company and build shareholder value. As we addressed last December, Replidyne is also considering alternative transactions that make strategic and financial sense for the company. We continue to assess possible merger and acquisition activities. In this context, we recognize that a significant portion of Replidyne's value is attributed to our cash on hand and we intend to preserve our strong cash position. We are prepared to act opportunistically to efficiently consolidate strategic assets.

In summary, we entered 2008 with a strong balance sheet and clear objectives for faropenem, our REP3123 program and our DNA replication inhibition program. We foresee 2008 to be another challenging year, during which we will steadily advance our pipeline programs and enact a long term, sustainable strategy. We appreciate your attention in this call and I will now ask the operator to open the line for questions.

(OPERATOR INSTRUCTIONS). There are no questions at this time.

All right. Thank you for your time today and your interest in Replidyne. A replay of the conference call will be available approximately one hour after the completion of this call through Tuesday, March 11, 2008 at midnight. Callers may access the replay by dialing 888-286-8010 if you're in the U.S. or 617-801-6888 for international participants. The audio replay passcode is 92464480. To access a replay of the webcast, visit the Investor Relations section of our website at www.replidyne.com. Thanks very much.

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect.