英賽德 (INCY) 2002 Q2 法說會逐字稿

Good evening, ladies and gentlemen, and welcome to the Incyte Genomics second quarter fiscal year 2002 earnings conference call. At this time all participants have been placed on a listen-only mode and the floor will be open for your questions and comments following this presentation.

I would now like to turn the floor over to your host Paul Cherico (ph), Sir the floor is yours.

Paul Cherico (ph): Welcome to the second quarter fiscal year 2002 earnings conference call for Incyte Genomics. I'm joined today by Paul Friedman, Incyte's Chief Executive Officer, Robert Stein, Incyte's President and Chief Scientific Officer and John Vuko, Incyte's Chief Financial Officer.

Let me first remind everyone, the statements of management that will be made during this conference call and in response to investor questions will contain predictions, estimates, and other forward-looking statements including without-limitations statements as to the development and implementation of Incyte's new products and product line enhancements, the progress of Incyte's therapeutic discovery and development efforts, and Incyte's licensing activities and opportunities. These forward-looking statements and all other statements that may be made on this call and that do not state historical facts are subject to a number of risks and uncertainties that may cause actual results to differ materially. Please see Incyte's 10-Q for the quarter-ended March 31, 2001 - excuse me 2002, the press release issued by Incyte earlier today and Incyte's other filings with the Securities and Exchange Commission for details on these risks and other risk details from time to time therein.

A replay of this conference call in its entirety will be available through 12 midnight Pacific time, August 1st, 2002.The replay dial-in number for both US and international callers will be 973-341-3080 and the pin number access code will be 337-9535. An opportunity for questions will immediately follow our presentation and the operator will repeat the instructions for asking questions. I will now turn the call over to John Vuko, who will comment on Incyte's second quarter fiscal year 2002 financial performance. John will then turn the call over to Paul Friedman, who will discuss Incyte's 2002 business accomplishments to date and implementation of its associative business strategy. With that I'd like to turn the call over to John Vuko.

Thank you Paul. We had a good second quarter. Total revenues were 29.1 million, which were in line with the first quarter of this year, and as anticipated were lower than the 56.1 million in the second quarter of last year. Revenues from the information product line were 27.9 million or approximately 1 million higher than the first quarter and also as anticipated, were down from the 43.2 million last year. The decrease in total revenues primarily relates to our exiting the custom Genomics product line that we announced last year and strategically using the information product line in a manner that also helps drive our therapeutic discovery and development efforts.

The net loss for the second quarter was 17.4 million or 26 cents per share compared to 9.9 million or 15 cents per share in the second quarter of last year. Included in the second quarter's results is a 1.4 million dollar charge for non-recurring restructure costs, which relates to additional expenses tied to our exiting the custom Genomics product line. 1.9 million of gain from repurchasing 6.7 million par value of our convertible notes and 600,000 of expense related to SFAS 133 for the declines and the value of warrants that we hold in another company.

Operating expenses for the second quarter totaled 51.8 million, a 21.9 million reduction from the second quarter of last year. Research and development expenses totaled 37.6 million, the decrease of 14.6 million from the prior year is primarily attributable to the elimination of expenses tied to the custom Genomic product line that we have exited, reduced infrastructure costs and lower software development costs, all of which were partially offset by increased expenses for the build up of our East Coast small molecule effort. Selling, general and administrative expenses totaled 12.7 million for the second quarter, a 31 percent or 5.8 million dollar reduction from the prior year. This reduction reflects the exiting of the custom Genomic product line and the associated expenses plus lower infrastructure and legal costs.

Interest and other income of 6.7 million was two million lower than the prior year, primarily as a result of the decrease in cash invested and lower interest rates. Operating expenses in the second quarter of 2002 related to our therapeutic discovery and development efforts were $19.4 million dollars. Our cash position remains strong as we ended the quarter with 476 million in cash, cash equivalents, and marketable securities. During the second quarter, we consumed less than 11 million of cash excluding the 4.7 million used for the repurchase of the 6.7 million par value of our notes. I will now turn the call over to Paul Friedman.

Thanks John. The second quarter can be characterized as one of implementations for Incyte. So today, I will be covering several topics relating to the implementation. First, I will briefly recap our overall strategy, which I first presented at the recent Deutsche Bank Health Care Conference, second I will address the progress we are making in building our therapeutic discovery and development capabilities and finally, I am going to comment on our licensing activities for the second quarter and as we go forward. On the first point, as John remarked, the information product line was cash flow positive on revenues of 28 million dollars. The performance was within our range of expectations. Our plan to drive the information business to a cash flow positive position and help fund to build up of our small molecular capabilities is sound.

On May the 7th, I gave a presentation at Deutsche Bank Health Care Conference in which I communicated our business plan. I covered four key areas, our vision, Incyte's strength as they existed at that time and today, achieving our vision, and how we would measure and you should measure Incyte's progress. I pointed out that our vision is to become the leader in genomics advantage therapeutic discovery and development. To that end, Incyte brings significant assets to the table.

Firstly, our emphasis on understanding human genes, actually expressed in the body and our extensive patenting of those full-length sequences places Incyte in a uniquely strong position with respective of the human genome and human proteo.

Secondly, we have hired a group of seasoned pharmaceutical veterans in to key managerial. These people have demonstrated pharmaceutical expertise and track records of value creation.

Thirdly, strong synergies exist between our information business activities and our therapeutic discovery and development efforts. For example, while our bioinformatics specialists understand the life-seek product lines better than anybody, implementing new user-friendly features and adding new information content, is best when the customer drives it. Now, with our in-house discovery and development science, is acting as in-house customers. They are helping our information scientist's to better craft new information products and features that will be more readily accepted by the pharmaceutical scientist's markets for which they are targeted. On the other hand is our discovery and development scientists who are building their list of potential therapeutic targets. Our bioinformaticians are invaluable in assisting them and placing the vast amount of genomic information in life seeking practice.

Lastly on this point, Incyte is in an excellent financial position as John put it out, with over 475 million dollars in the bank and in cash flow positive in the information product line. Combining this, with being very cost conscious places us in a better position to control our own destiny. With respect to the second of today's topic, I am very pleased to say that we are all well ahead of our goals in including highly talented pharmaceutically experienced scientists to staff our small molecule operation.

A highly interactive environment exists between this group and the target validation scientists in Palo Alto. Collaboration between the two groups has already resulted in the creation of a list of potential initial targets in the areas of oncology and inflammation. Experiments to further validate these targets are ongoing on both coasts, and as I said at Deutsche Bank conference, we will have full discovery efforts underway on two of these targets by year's end. With respect to the last of today's conference, licensing, we have nothing yet to report on the inlicensing (ph) of development compounds; however, we are in active discussions with a number of companies, deals with whom could significantly and more quickly move our discovery and development efforts forward.

Lastly, as I have previously mentioned, we felt it was necessary to take an appropriate amount of time to analyze our intellectual property position, especially where overlaps with our own discovery and developing programs might exist. We have now completed our review and we began to move forward aggressively. As an example, during the quarter we entered into a nonexclusive license with Affymetrix with some key intellectual property that will facilitate Affymetrix's entry into the global diagnostics field. With that, I would like to thank you for listening and open the call up for questions. Operator, would you please provide the instructions again to the callers on entering questions.

Thank you Mr. Friedman. Ladies and gentlemen, the floor is now open for questions and comments. If you do have a question or comment please press the numbers one followed by four on your key pad. If your question has already been asked and you would like to remove yourself from the queue please press the pound key. Please note questions will be taken in the order in which they are received and we do ask that while you pose your question to please pick up your handset to provide optimum sound quality, please hold while we poll for questions.

Our first question of the evening comes from Alan Aurbach (ph) of Wells Fargo Securities. Your line is live.

Alan Aurbach (ph): Yeah, hi Paul, you had mentioned that you have nothing yet to report on the licensing front, but I am wondering if you can give us a little more color or some visibility and you know, what types of transactions we might se, you know between now and the end of the year?

We have, without obviously naming names. We are far along in negotiations with four companies. One of them is one that I am going to be personally disappointed if we don't close that deal, but I think before the end of the year, we would be announcing deals with several companies, with a high probability, I can't, obviously can't guarantee that, but there are things that are far along in negotiations.

Alan Aurbach (ph): OK, and you know, if you had put a probability of, like you mentioned might be several of these by the end of the year. Those that we looking at, in general terms, what would the structure of those look like and in more collaborative research, would you be, you know, potential getting access to a pipeline drug or what might those look like?

For example, the one that I think has the highest probability is to that is both.

Alan Aurbach (ph): OK.

Thank you Mr. Aurbach. Our next question comes from Alex Hittle (ph) of AG Edwards. Your line is live.

Alex Hittle (ph): Thank you. I have got two questions here. One is the run rate on revenues seem to be such that you would not quite hit the guidance that you gave earlier in the year of 130-150. And I am wondering if there is any change in the outlook there or should we expect to pick up here in the second half? My second question is, on the converts, I'm curious why you are paying down for cash. Is there some kind of put option that the holder has and what is the outlook for that going forward? Thanks.

This is Paul Friedman. I will answer the first question and then John will answer the second one. We anticipate and have forecasted a pick-up in revenues in the third and fourth quarter. That would still bring us at year's end revenues within the guidance that we had given when we gave it. You rightfully note that revenues in the first and second quarter are at the lower end of our expectations, but our forecast for the third and fourth quarter are for an uptick (ph), a significant uptick (ph) in those revenues. So at this point, we would not be lowering our guidance.

I think with that as well Paul, we did say that revenues could be a bit lumpy in just the way that they happened.

Alex could you repeat your second question? I am sorry, I did not catch all of it.

Alex Hittle (ph): I am curious about the converts and noted that you brought some and apparently for cash and I am wondering if there is some kind of put option that the holders of those convert have or why is this happening?

The reason for the repurchase is that - and I say that we opportunistically repurchased converts as they become available when we are able to purchase them at a price that we think is quite attractive for the company and we do not have a program where we are trying to buy specific amounts. We look at them again in an opportunistic fashion. As far as the puts, the notes mature in February of '07 and there is a convert feature once it hits a certain price, but at this point in time, we are simply not at that price. So, there are no puts that are in action causing us to buy these.

Alex Hittle (ph): OK, so you are not going to be forced to use cash to retire (ph) these, you are doing it at your will and opportunistically?

Absolutely, this is our decision to do it. It is nothing that we are being forced to do.

Alex Hittle (ph): Thank you.

Thank you Mr. Hittle. Once again ladies and gentlemen, if you have a question or a comment, please press the numbers one followed by four on your keypad.

Our next question comes from Dennis Harp (ph) from Deutsche Bank, your line is live, sir.

Dennis Harp (ph): Thank you, are you able to hear me all right?

Yes, we can hear you.

Dennis Harp (ph): Thanks, the first question, sort of circles back to this uptick in revenue in the second half of the year and given the current environment where many large pharmaceutical companies are cutting back on external collaborations, and we are seeing other companies miss their targets because of the current economic environment. What gives you confidence that you will be able to break out of your current trend of revenue and capture additional revenue above and beyond your current tracking rate?

Well, as you know, we have in the policies (ph) not to come in directly on data-based renewals and to call those out from licensing opportunities, but what we have done in the second quarter -- first of all you are right, this is a very difficult time for providing services to big pharmaceutical companies and biotech (ph), we recognize that. We know that it is a tough atmosphere. Having said that, when we last spoke at the last earnings call, we told you that we were beginning to aggressively push licensing opportunities. These things take a while to close and you don't want to close one of those deals prematurely, but we have quite a bit on the table. We have high probability of closing and it is because of those possibilities and the revenues that they would bring that we feel reasonably confident that our revenues will go up in the third and fourth quarters.

Dennis Harp (ph): Thank you, Paul. I have a question also for John. John, it looks like since the last quarter, there has been a trend in increasing payable. What is attributable to that given that you know, you have downsized the organization? Why are the payables going up?

There is nothing specific to that other than just the normal timing of when payables -- our purchases and our payables come due. Some of it can be tied to capital spending. We did have a bit more capital spending in the second quarter than we did in the first and it is strictly due to the normal timing of when payables are due.

Dennis Harp (ph): Great. Thank you.

Thank you Mr. Harp. Ladies and gentlemen, we only have time for one additional question.

Our final question of the evening comes from Jennifer Davis (ph) of RBC Capital. Your line is live, Jennifer.

Jennifer Davis (ph): Thank you. Just a quick question on the P&L for you. It looks like G&A for the quarter was a down take from the first quarter and I am wondering if with the reduced legal fees, if that is a good base to kind of go from, from the rest of the year. And secondly, I know you don't like to comment on this but can you give us any insight into how you feel about your first I&D? Are we still looking at maybe our next year event for that? Thanks.

I will take the first part and that is on G&A. Again it is a general rule we do not comment specifically to the breakout of G&A and R&D, but I would say that the G&A number that you are looking at, plus or minus a reasonable variable, is somewhat indicative of what it will track, going forward. So, John can you please repeat the I&D question? Does it relate to our internal programs or to?

Yes, to internal programs.

I certainly would not move that time up. That would be an aggressive time line.

Jennifer Davis (ph): OK.

OK. We thank everybody for listening and with that we are going to end the call. Thank you very much.

Thank you sir. Ladies and gentlemen, we thank for your participation in today's audio teleconference. You may disconnect your lines at this time and have a pleasant evening. 5