Infinity Pharmaceuticals Inc (INFI) 2002 Q3 法說會逐字稿

Good morning and welcome ladies and gentlemen to the Discovery Partners International third quarter 2002 financial results conference call. At this time I would like to inform you that this call is being recorded and that all participants are on a listen only mode. At the request of the company we will open the conference up for questions and answers after the presentation. I will now turn the conference over to Mr. Riccardo Pigliucci Chairman and CEO of Discovery Partners International. Please go ahead sir.

I thank you and good morning. Chairman and Chief Executive Officer of Discovery Partner International and I would like to welcome you to Discovery Partners third quarter 2002 financial result conference call.

With me today are Craig Kussman Chief Financial Officer and Taylor Crouch the newly appointed President and Chief Operating Officer of Discovery Partners. During this call we plan to review the results of the quarter and the nine months end of September 30 2002 and the guidance for the remainder of this year as well as a first look to 2003.

As you know I'm obliged to remind you to consider the following safe harbor statement regarding forward-looking statements. Statements in this conference call that are not strictly are forward looking statements within the meaning of private security litigation reform act for 1995 and involve a high degree of risk and uncertainty.

The company's actual results may differ materially from those projected in the forward looking statements due to risk and uncertainty that exists in the company operations, development efforts and the business environment including integration of acquired businesses the trend to work consolidation of the pharmaceutical industry, work of the sales viability, technological advances by competitors and other risks and uncertainty more fully described in the company annual report of 110K for the year ending September 31st 2001 expired with a security and exchange commission and other SEC filing.

In addition this conference call is publicly available via by a life web cast on Discovery Partners International web site at www.discoverypartners.com. This call is the property of Discovery Partner and the re-distribution or broadcast of this call in any form without expressed written consent of Discovery Partners is strictly prohibited.

Now I will turn the call over to Craig Kussman Discovery Partners CFO to discuss our financial performance.

Thanks Riccardo and good morning. Revenues for the third quarter ending September 30 2002 were $10.5 million. Nine percent above the third quarter of 2001 and 26 percent above the second quarter 2002 due to the continued ramp up of our chemistry and collaborations with .

Gross margin as a percentage of revenues for the third quarter of 2002 was 33.8 percent compared to a reported 2.8 percent in the third quarter of 2001. Excluding the 4.4 million provision for obsolete inventory during the third quarter of 2001 the gross margin percent for that period was 48.4 percent.

Year over year decline in the adjusted gross margin percent is due to the expected transfer of R&B expenses, the cost of revenues for funded collaboration. Sequentially the 33.8 percent gross margin percent in the third quarter was above the second quarters 25.4 percent gross margin adjusted to exclude $5.8 million provision for discontinued products and 1.5 million for anticipated contract loss due to increased chemistry license revenue.

Expenditures for research and development in the third quarter of 2002 were $1.3 million 58 percent below the third quarter of 2001 due to the movement of R&B expenses in the cost of sales and 32 percent below the second quarter of 2002 due to decrease in development activities associated with the exit of our non exclusive compound supply business.

Selling general and administrative expenses for the third quarter of 2002 were $3.5 million up 32 percent over the third quarter of 2001 and up 16 percent over the second quarter of 2002 due to additions to staff and re-location costs associated with the recent appointment of the Chief Operating Officer and myself.

Goodwill amortization in the third quarter of 2002 was zero, compared to $1.5 million in the third quarter of 2001. During the second quarter, we completed our goodwill impairment testing, in connection with the adoption of , effective January 1, 2002, and determined that the company's goodwill was not impaired as of year-end 2001.

However the company's current market capitalization is significantly below net book value, which is an indicator of potential impairment under . The company will perform it's annual goodwill impairment review in accordance with during the fourth quarter, and it is possible that an impairment charge will be required.

Net loss for the third quarter ended September 30, 2002, was 0.8 million or three cents per share, compared to a net loss of 6.4 million or 27 cents per share including a $4.4 million provision for obsolete inventory in the third quarter of 2001.

Cash and short-term investments of September 30, 2002, were $69.9 million, down 4.2 million from our cash balance of June 30, 2002, primarily due to an increase in accounts receivable resulting from higher revenues, an increase in undelivered chemical compound work in process, the net loss, and a reduction in obligations under capital leases.

Now let me ask Riccardo to review the operations for Q3, and the key milestones for the remainder of the year.

Thank you Craig.

Achieving a 26 percent quarter to quarter growth, and meeting analysts expectations for is certainly the financial highlight for the quarter. With a revenue level of 10.5 million represents one of the highest quarters in the company history, we had hoped to be in a position to recognize even higher levels on some of our largest collaborations.

Our and collaboration, has targeting unparalleled levels of , and scale of extremely novel chemistry.

Indeed in the quarter, our chemists succeeded in synthesizing over chemical compounds, which they are now in the process of analyzing and purifying. It is that towards future revenues and a significant contributor to this quarter growth.

This achievement clearly places Discovery Partners among the largest and most capable providers of drug compound in the world. We have also continued to enter into new drug discovery collaborations and expanded existing collaborations.

Most recent highlights include new or an extended collaboration agreement with and , in addition to the already announced collaboration with for the optimization of lead cardiovascular compound in the program.

Unfortunately in the quarter we experienced order delays in our screening laboratory in Europe resulting in under-utilization of capacity. Overall in the market, we are seeing continued demand in each of our core areas, but the is still a lengthy process, even for existing clients.

I am pleased to report continued progress on our platform. During the third quarter, we presented two scientific papers at a Drug Discovery Symposium held in Boston in August, documenting the capabilities of our technology. We have had discussions with several large pharmaceutical companies, and some of them are evaluating financial terms for possible technology transfers and collaboration.

Our new COO, Taylor Crouch, joined us at the beginning of the quarter and has already been invaluable in identifying the key areas of the target of potential improvement as we continue to slaughter our self with profitable growth. Let me now address some guidance for the next quarter and the next year.

For the fourth quarter the company expects revenue in access of another million. As much as I would like to be more specific on both revenues and the result in EPS, the final out come is highly dependent on the ultimate production and purification yield for our two major things to collaborations.

Both of which represent a state of our demand on our outstanding group of good scientists. We have the back log and the working process inventory, but we have only limited historical data to accurately estimate the time effort and cost as we run after study state deliveries during the fourth quarter.

This contrast are fundamental to the future of Discovery Partners and we do not intend to compromise the quality of our deliverables or the relationship with our customers who achieve short term financial goals.

We are still vigorously aiming at positive EPS and we want to keep you informed of the scientific challenges in front of us for the quarter. Gross margin a percentage of revenues will unlikely be above the third quarter level into the currently forecasted absence of new chemistry licenses of revenue as well as the initial margin expected for the delivery of chemical compounds.

And in the expenditure are expected to do reviews two of below 10 percent of revenues and SGNA is expected to continue to decline as percentage of sale. We expect to be test for neutral expect what changes in working capital. MNA activity in share repurchases if any.

Over the past several weeks we have reviewed the environment in the pharmaceutical and Bayer Technology industry. The prevailing out look that has emerged is one of very difficult financing for the buyer sect sector and our slower growth will last pharmaceutical complex.

Several of our customer at minimal revenues can depend on their cash balance on equity financing to advance the adverse Discovery efforts. It is therefore very likely if all produce would be carefully scrutinized and prioritizes to minimize burn rates.

Although the situation is expected to start improving towards the end of 2003 it would be imprudent to ignore this potential impact on our plan. We strongly believe that in the current business environment achievement of solid earnings and positive cash flow is far more desirable then a high organic probe objective.

As a result Discovery Partners aims to be EPS positive for 2003 on modest revenue growth over 2002. We are currently reviewing each operations with this free mind and we will issue a more detailed specific guidance as soon as we completed a positive process.

As our stock price continue to perform at disappointing levels on minimal trading volumes, the company has reconfirmed the authorization from the Board of Directors to execute it's stock repurchase program under which Discovery Partners may acquire up two million shares of which common stock in the open market or other wise.

This concludes the first part of our conference call. I am available to answer questions at this time and we urge investor and analysis to ask any and all questions as we will not be responding to individual calls and questions regarding acquisitions financial results or financial guidance following the conclusion of this conference call. Operator?

Thank you. The question and answer session will begin at this time. If you're using a speakerphone, please pick up the handset before pressing any numbers.

Should you have a question please press one and four on your push button telephone. If you wish to withdraw your question, please press one three.

Your question will be taken in the order that it's received. Please stand by for our first question.

Our first question comes from . Please state your question.

Good morning. I have a couple of questions. Number one could you gives us a little bit of an idea about the contribution to third quarter revenues from the contract. And what your expectations again are for the ramp ups for next year.

Secondly are we still on track for potential conversationally station at the system next year and how is that going to impact the margins at that time.

And thirdly could you address the expectations for the remainder of the year and potentially for 03.

Ok. Let me start from the first one . The contribution of the on the third quarter it's about 30 percent of revenues.

Ok.

And that's so if obviously been we expect this to be larger in a few form and then be a pretty much a steady over the next year once we get good steady space lever for fort merchandising.

Regarding yes we are on track. These things unfortunately take time. People are evaluating the product as I mentioned before. We are looking at in terms of utilizing the products internally that are what'll be the sort of one way to look at the margins.

The we is starting to using it now and that should improve our screening margins in Brazil once we start using the technology.

Regarding I don't see anything exceptional and certainly I would expect to be below the depreciation we'll be using now.

Thank you.

Thank you once again should you have a question please press 14 on your push button phone at this time.

If there are no further questions I will now turn the conference back to Mr. Riccardo Pigliucci to conclude.

Oh, must have been clearer than I expected to be. Well I'd like to thank all of you for participating for this conference call and I look forward to talk to you again soon. Thank you very much.

Ladies and gentlemen this concludes the conference for today. Thank you all for participating and have a wonderful time. All parties may now disconnect.

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