Infinity Pharmaceuticals Inc (INFI) 2004 Q1 法說會逐字稿

Good morning ladies and gentlemen, and welcome to Discovery Partners International First Quarter 2004 Financial Results Conference Call.

At this time, I'd like to inform you that this conference is being recorded, and all participants are in listen only mode.

At the request of the company we will not open the conference up for questions and answers after the presentation.

I would now like to turn the conference over to Mr. Ricardo Pigliucci, Chairman and CEO of Discovery Partners. I'm sorry, Discovery Partners International, please go ahead, sir.

Thank you and good morning. I'm Ricardo Pigliucci, Chairman and Chief Executive Officer of Discovery Partners International, and I would like to welcome you to Discovery Partners First Quarter 2004 Financial Results Conference Call.

With me today is Craig Kussman, Chief Financial Officer of Discovery Partners.

In this call, we plan to review the results of the quarter ended March 31, 2004.

Due to the fact that we are under (ph) registration (ph), we will not provide or reaffirm any previous issued guidance for 2004, nor update any other forward-looking information.

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 historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 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 uncertainties that exist in the company's operation, our development efforts, and our business environment, including the establishment of a offshore chemistry operation, our ability to establish and maintain collaboration, execute more profitable business, and that has operating efficiency.

The integration of acquired businesses and the trend towards consolidation of the pharmaceutical industry.

Quarterly sales availability, technological advances by competitors, and other risks and uncertainties more fully described in the company's annual report on Form 10-K for the year ended December 31, 2003, as filed with the Securities and Exchange Commission, and other SEC filings.

In addition, in response (INAUDIBLE), we will no longer afford in our commentary on past or current results to non-GAAP financial measures, such as EPS or gross margin before restructuring charges or other provisions.

But we only highlighted that mainly due to the charges included in that experience. As those of you who were listening to the web cast now, this conference call is publicly available by live web cast on our website at www.discoverypartners.com. This call is the property of discovery partners.

A copy of the prepared remarks of this call, as well as the earnings press release issued this morning have been filed with the securities and exchange commission on Form 8-K.

Now I will turn the call over to Craig Kussman, Discovery Partner's CFO to discuss our financial performance.

Thanks Ricardo, and good morning. Revenues for the first quarter ended March 31, 2004 were $11.8 million, seven percent below the first quarter of 2003 and 18% below the fourth quarter of 2003.

The decrease in revenues versus the fourth quarter of 2003 was primarily due to lower services revenues resulting from the planned finding of deliverables under the company's chemistry collaboration with Pfizer, and lower screening revenues, which were partially offset by higher instrumentation product revenues.

The decrease in revenues versus the prior year was primarily due to lower chemistry services revenues resulting from the planned timing of deliverables under the company's two major exclusive contracts, and also resulted from higher instrumentation (off mic) from the lack of one time payment resulting from the termination of the non exclusive compound Sophligrinit (ph) in the first quarter of 2003.

The year over year decrease in Chemistry services revenues was partially offset by increased screening services revenues, as well as higher instrumentation product revenues resulting from higher crystal farm shipment.

Pfizer accounted for 51% of our revenues for the quarter, down from 65% in Q4 2003, and 55% in Q1 2003.

Gross margin as a percentage of revenues for the first quarter of 2004 was 45%, up from 28% in the first quarter of 2003, and up from 42% in the fourth quarter of 2003.

The improvement in gross margin percentage versus the fourth quarter of 2003 is due to higher services margins, which resulted from expected one-time benefits resulting from the modification of the Pfizer contract that I will describe later.

These were partially offset by lower screening volumes and by amortization charges related to our decision to begin amortizing the microarc's (ph) asset at the rate of $300,000 per quarter over the next five years, as we are beginning to drive value from the technology.

The increase in gross margin percentage versus Q4 2003 was also due to higher instrumentation product margins, which resulted from higher instrumentation product volumes.

The increase in gross margin as a percentage of revenues versus prior year resulted from the same factors explaining the sequential quarterly improvement, except that screening volumes were higher and thus had a favorable impact on margins for this comparative period, as well as savings and materials costs and other operating efficiencies.

Now let me explain the effect that our modified Pfizer contract had on Q1 2004 results. Under our prior agreement with Pfizer, the company was paid at FTE rate for development, and a per compound rate for production and purification of compound.

Under the new agreement, for compounds delivered under the file enrichment program, we will receive a higher per compound rate which is intended to compensate us for all activities required to develop, produce and purify compounds.

Certain costs associated with the development of compounds delivered in Q1 2004 were previously expensed in accordance with the terms of the prior agreement and therefore the compounds delivered in Q1 2004 carried an abnormally low cost relative to the new compound price.

Research and development costs for the first quarter of 2004 were $0.9 million, up slightly from $0.7 million in the first quarter of 2003, and $0.6 million in the fourth quarter of 2003.

The slight increase in research and development costs versus the prior year and prior quarter figures resulted from the redeployment of development, scientists and engineers, from direct revenue generating activities of customer funded R&D programs in collaboration, such as excan (ph), to new crystal farm development activities.

SG&A costs for the first quarter of 2004 were $3.6 million, up from $3.1 million in the first quarter of 2003, and down from $4.1 million in the fourth quarter of 2003.

The decrease in SG&A costs versus the fourth quarter resulted from lower and fed up (ph) compensation accruals. The increase in SG&A costs versus prior year resulted from increased business development costs, which offset savings resulting from the closure of our Tucson facility.

The company reported a $0.6 million profit from operations during the first quarter of 2004, compared to a loss from operations of $0.3 million in the first quarter of 2003, and a profit from operations of $1.1 million in the fourth quarter of 2003. The decrease from Q4 2003 was due to lower volume.

The improvement over Q1 2003 is due to the improvement in gross margin percentage, which more than offset the increases in SG&A and R&D costs. This marks the third consecutive quarter of operating profit. Interest income was $0.3 million for the quarter of 2004, unchanged versus Q4 2003, and down $0.2 million from Q1 2003 due primarily to realized losses incurred in the first quarter of 2004, compared to realized gains in the first quarter of 2003, as well as lower U.S. interest rate.

Net income for the first quarter ended March 31, 2004. It was $1 million, or four cents per share, compared to net income of $0.3 million, or one cent per share in the first quarter of 2003, and that income of $1.5 million, or six cents per share in the fourth quarter of 2003.

Cash and short term investments at March 31, 2004, were $72.7 million, up $100,000 from our cash balance at December 31, 2003, primarily due to net cash flow from operations. Now let me ask Ricardo to review the operations and key milestones for 2004.

Thank you, Craig. I'm very pleased to again report that our results have met the top end of our prior guidance and expectations.

As for Q1 2004 operating highlights, Pfizer is such an important part of our business, that the new contract we signed in February is by definition the highlight of the quarter.

We are extremely pleased to have expanded the scope of our operation, and to our firm commitment for the first 18 months of this agreement to deliver to Pfizer a broad range of pharmaceutical development chemical compound for Pfizer's exclusive use.

The agreement also gives Pfizer access to our capability to rapidly prepare and deliver case follow up libraries that are designed using the results of Pfizer's high group of screening. This compound assists and the limitation phase of the discovery process.

During the quarter, we also delivered to GlaxoSmithKline to expand I2 (ph) chemistry system to their facility in (INAUDIBLE) U.K. (ph) and Upper Providence, Pennsylvania. This system we're developing in 2003 represents state of the art for us to make a production of focused their discovery library using solid base chemistry.

It is worth noting that the collaboration with GSK and Pfizer underscored a broad range of partnering alternative we can provide too much from. Both of these important customers have decided to invest to augment their corporate complied libraries of their discovery, but with very different strategies. GSK using our technology in their internal chemistry resources, and Pfizer using our chemists to develop and manufacture the compounds. Only Discovery Partners could provide a solution to both.

During the quarter, we started to see the first fruits of our strategic partnership with Brooker for the crystal farm price increase (INAUDIBLE), incubation and imaging systems, and have started to receive orders from key customers worldwide. Yesterday, we announced the signing of a new discovery, clear discovery chemistry agreement with Vertex Pharmaceuticals Incorporated, to provide rapid focused library synthesis and medicinal chemistry to compliment and assist Vertex in advancing their discovery for one of it's events research program.

Since the company is in a registration period, today, I will not respond to any questions, and you should refer to information already provided in documents filed with the SEC. This includes the text of this teleconference and this morning's press release on Form 8-K, as well as Form 10-K for the year ended December 31, 2003.

At this time, I would also refrain from providing financial guidance for 2004, and for providing updates to any other forward looking statement issued in the past.

I would like to thank all of you for participating in this teleconference, and look forward to talking to you again soon.

This concludes our conference call, thank you.

Ladies and gentlemen, this concludes our conference for today.

Thank you all for participating, and have a nice day.

All parties may now disconnect.