Cardiovascular Systems Inc (CSII) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2008 Replidyne earnings conference call. My name is Fab and I'll be your coordinator for today. (OPERATOR INSTRUCTIONS.) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Sabrina Oei. Please proceed.

Thank you, Fab. 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 first quarter ending March 31, 2008.

We appreciate your participation and interest in Replidyne. The press release announcing our earnings was issued at close of business today and 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, our CFO. It will be followed by a corporate update given by Kenneth Collins, our President and CEO. 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-K dated March 14, 2008. 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 Smith.

Thank you, Sabrina. In this afternoon's earnings release, we reported a net loss of $9 million for the first quarter ended March 31, 2008, compared to a net loss of $8.6 million for the first quarter ended March 31, 2007. The year-on-year increase in reported net loss primarily reflects net revenue reported in the first quarter of 2007 of $2.9 million related to our former agreement with Forest Laboratories, to which there is no comparative amount in 2008, and higher investment income in the 2007 quarter of approximately $900,000 compared to 2008.

Overall, operating expenses of $9.6 million were approximately $3.4 million in the first quarter of 2008 compared to the first quarter of 2007. This trend was consistent with the trend from our most recent quarters, with operating expenses being approximately $7 million lower in the first quarter of 2008 compared to the fourth quarter of 2007, after adjusting for restructuring charges of $1.4 million taken in that quarter, and approximately $4 million lower than the third quarter of 2007.

Research and development expenses in the first quarter were $7.6 million compared to $9.4 million in the corresponding quarter of 2007. Faropenem-related expense represented approximately 47% of total research and development expense, primarily for costs to support the Phase III study testing Faropenem in patients with AECB.

In a decision we announced on April 23rd, we have discontinued enrollment in this trial. Notwithstanding this decision, we will incur additional expense to complete required patient monitoring and database analysis, including safety reporting.

This decision was taken to conserve cash and not for safety related reasons. It is consistent with our guidance that ongoing funding of Faropenem clinical trials was dependent on our completing partnering discussions.

The balance of our research and development spending included costs for preclinical activities associated with the C. difficile and DNA replication inhibition programs.

Selling, general and administrative expenses for the first quarter were $2 million compared to $3.5 million in the first quarter of 2007, primarily reflecting lower compensation expense following a restructuring implemented in December, 2007, and reduced market monitoring expenses in the 2008 quarter.

Investment income and other for the first quarter of 2008 was $0.6 million compared to $1.5 million for the first quarter of 2007, primarily reflecting lower cash balances available for investment in the 2008 period. Most importantly, we ended the quarter with cash, cash equivalents, and short-term investments totaling $78.1 million.

As previously mentioned, on April 23rd we announced that we had discontinued enrollment in our placebo-controlled Phase III clinical testing -- clinical trial testing Faropenem in patients with AECB, and further restructured our operations. We took these actions to conserve cash assets and align our operations more closely with our ongoing efforts directed towards strategic initiatives.

As a result of the restructuring actions, we will incur approximately $1.8 million of expense in the second quarter, including $1.4 million for future employee severance related expenses, and close our office in Connecticut.

Moving to our financial expectations for 2008. Our medium and long-term planning is dependent on the outcome of our partnerships discussions which remain open, and our other strategic initiatives. Without consideration for the potential impact from these activities, we foresee a full-year cash -- a full-year operations cash burn of approximately $35 million to $40 million in 2008, supporting moving our C. difficile program toward Phase I clinical testing, seeking to identify an IND candidate from the lead series of our DNA replication inhibition program, and supporting strategic initiatives.

In assessing our forecasted future cash use, it should be noted that we entered 2008 with a current liabilities balance of $12 million, that was increased from the prior year as a result of our fourth quarter Faropenem clinical trial preparations and restructuring obligations. Based on the expected reduction in these liabilities in 2008, and restructuring actions already announced, we expect a full year cash use of approximately $40 million to $45 million.

Once partnership discussions for the Faropenem program and strategic initiatives are resolved we anticipate resetting our operating plan. At that time, we anticipate communicating an updated forward prospective for our cash use in 2008 and beyond.

I would now like to turn the call over to Ken Collins.

Thank you, Mark. To recap from our last earnings update, at the end of 2007 we enacted a restructuring of our operations and entered 2008 with a clear direction, focusing on strategic initiatives and conservation of our cash assets. Through the first quarter of 2008 we continue to make the difficult decisions that keep up aligned with these directives.

As evidenced in the financial results Mark outlined, we are moving ahead with these plans. On April 23rd, in the interest of conserving cash, we announced a discontinuation of enrollment in our placebo-controlled Phase III clinical trial testing Faropenem in patients with acute exacerbations of chronic bronchitis.

Other cost saving actions include implementing changes to the management team and reducing corporate headcount. Both Peter Letendre, previously our Chief Commercial Officer, and Roger Echols, our former Chief Medical Officer, are now consultants to the Company. We have reduced overall headcount to approximately 40 employees.

We discontinued enrollment in the AECB study because, in our agreed four-for-three plan with the agency, the AECB trial is only one in a series of four clinical trials, including two in community-acquired pneumonia and one in acute bacterial sinusitis, recommended for a new drug application submission for Faropenem to treat these three adult community respiratory tract infections.

As Replidyne has not initiated the other three trials, and because the four-for-three program cannot move forward based on one AECB study alone, we decided that it was more important to conserve our strong financial base than to complete enrollment in the trial.

At the time of the discontinuation, approximately 475 patients had been enrolled in the study targeting enrollment of over 600 patients. We decided to halt this trial at this time because the respiratory infection season for the Northern Hemisphere was concluding, and continuing patient enrollment would mean initiating new sites in the Southern Hemisphere, thereby significantly increasing the trial's operating expenses.

Consistent with prior guidance, initiating any new clinical trials for Faropenem will depend on Replidyne securing a partner for the program. No partner has been secured to date and we recognize the importance of conserving our cash and have taken the difficult but necessary step to delay further Faropenem clinical development.

Moving to our other directives, we continue to pursue the priorities defined at the end of 2007, which include securing a partner for Faropenem, exploring possible strategic transactions, and maintaining our promising research program.

Replidyne is currently considering a number of alternative transactions that may make strategic and financial sense for the Company. We continue to assess possible merger and acquisition opportunities, and continue to believe that a significant portion of Replidyne's value is attributed to our cash position, a fact that drives our operating decisions. We believe our recent actions to limit spending give us flexibility and will enable us to act opportunistically.

Additionally, we continue to support our earlier stage research program, REP3123 to treat C. difficile-associated disease and DNA replication inhibition. 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 rate, which typically runs 10% to 25%, mostly attributed to C. difficile bacteria's ability to form spores. Confirming our previous guidance, we are on track with our goal of filing an IND for REP3123 within this year.

Our second innovative program is the DNA replication inhibition program. We're working with the lead series of compounds with the following characteristics. It's a novel mechanism of action that blocks DNA replication. The compounds are orally bioavailable, have activity against all major classes of antibiotic resistant Gram-positive bacteria, including MRSA, VRE, and penicillin-resistant strep pneumo. And the compounds are [sital] as opposed to static.

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.

Replidyne recently participated in the European Congress of Clinical Microbiology and Infectious Diseases, or ECCMID in Barcelona, Spain where we presented 8 posters. These posters are now available on our website and I invite you to look at them at Replidyne.com.

In summary, we entered 2008 with a strong balance sheet and are making decisions aimed at conserving this financial base. We anticipate a challenging year ahead while we pursue strategic initiatives and continue to work on our C. difficile and DNA replication inhibition programs. While these are early stage programs, we believe they have the ability to generate sustainable shareholder value.

I appreciate your attention in this call and your ongoing interest in Replidyne. I will now ask the operator to open the line to questions.

(OPERATOR INSTRUCTIONS.) And your first question will come from the line of Jason Kolbert with SIG.

Hi, guys. It's actually Jason and Bryan Skorney and [Yi Gau] here. I just wanted to talk with you about what is going to be -- in terms of FDA guidance and trial design. I mean, things seem very confused there. Can you give us any insights into what your dialogue with the agency looks like these days?

Well, I think that has been cleared up somewhat. As I mentioned in my prepared remarks, we have this four-for-three where we would do two trials in community-acquired pneumonia, one each in sinusitis and bronchitis. The latter two would be placebo-controlled studies.

There was some confusion with regard to community-acquired pneumonia. There was an advisory committee in April. I can't remember the exact date.

One and two.

April 1st and 2nd, at the beginning of April, where there was some clarity that -- now, the FDA hasn't actually issued any guidelines from that, but it appeared pretty clear from that advisory committee meeting that standard non-inferiority studies would likely be continued in community-acquired pneumonia.

So, I think there is some clarity. It has obviously taken longer to get that clarity that one would like, but I think it's finally moving in that direction.

Thank you. That's very clear. Can you just take a minute and help me understand what the next few events are that we should be focusing on for the Company to come back on track?

Well, I think there are a couple of things. We continue to have discussions on partnering Faropenem. Obviously, that has taken longer than we would have liked, but we continue to have that as a high priority.

We do intend to get C. difficile, that compound, REP3123 -- we'll have an IND on file by the end of the year. And that's an indication that we continue to have a high level of interest and excitement. It's a growing public health threat, as I indicated, with a very high relapse rate and a reasonably high mortality rate, primarily affecting the elderly.

We do intend to identify an IND candidate for our DNA replication inhibition.

And as I was clear in my prepared remarks, we are pursuing strategic alternatives. Obviously, we can't comment with any degree of specificity on those, but we are devoting a fair amount of effort and we are seeing some interesting things out there.

Yes. Thank you. That's pretty helpful. Of the 40 people that are remaining at the Company, how do they break up in terms of clinical expertise, scientific expertise, so that we can understand what the platform or technology value is -- remains -- what -- how that value should be calculated in terms of what remains at the Company.

If you look at the -- we haven't broken the numbers down specifically. But if you look at the guidance, you will see that the significant majority of the changes through restructurings have impacted our clinical regulatory group in the Connecticut office, which I mentioned would be closing. Also, in administrative and our commercial operations.

So, the core of our research and development expertise, which is really the drivers behind the C. difficile program, as well as the DNA replication program, have been retained within the Company. So, the majority of the people, of those 40 people, are in those areas of the Company, with still core skill sets in clinical regulatory and business development administration.

Thank you. And one last question. When we think about strategic alternatives, I mean, it seems like the market is ripe for all kinds of deals. I was recently in Europe and I met with a lot of really interesting German biotech companies that are looking for U.S. presence.

Are you thinking about working with one of the other Wall Street firms, an investment banker, to potentially put -- explore those options? Maybe offering yourself up as a shell and finding a right partner to create a stronger platform?

We've -- we have actually appointed an advisor to -- an investment bank to advise us in our efforts for all nature -- all manner of strategic alternatives, both partnering and the more broader context. So, we have enlisted that very large international firm. We haven't named them in a public setting, but they're a large international firm that can bring ideas, concepts and opportunities from not just the United States, but more broadly. Europe, as you mentioned, included in that.

Okay. Thank you very much.

And there are no further questions.

Thank you for your time today and your interest in Replidyne. A replay of this conference call will be available, approximately one hour after the completion of the call, through Wednesday, May 21, 2008 at midnight. Callers may access the replay by dialing 888-286-8010 for the U.S., or 617-801-6888 for international participants. The audio replay passcode is 81984297. 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 the presentation. You may now disconnect. Have a wonderful day.