Repligen Corp (RGEN) 2004 Q1 法說會逐字稿

Good morning, and welcome, ladies and gentlemen, to the Repligen Corporation first-quarter 2004 quarterly update. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the Company, we will open the conference up for questions and answers following the presentation. I will now turn the conference over to Dr. Walter Herlihy, President and CEO of Repligen.

Good morning. I am joined today by Barbara Burnim Day, our Vice President of Finance and Administration. At the outset, I would like to state that this discussion will contain certain forward-looking statements. These forward-looking statements are not guarantees of future performance and they are subject to certain factors which may cause Repligen's plans to materially differ or results to materially vary from those expected, including -- market acceptance of our products; unexpected preclinical or clinical results or delays; the needs for additional research and testing; delays in manufacturing or regulatory approvals; access to capital and funding; adverse changes in commercial relationships; the results of earlier clinical trials are not necessarily predictive of the safety and efficacy results in larger trials; and a variety of other risks that (indiscernible) from time to time in Repligen's filings with the SEC, including, but not limited to, Repligen's annual report on form 10-K for the year ended March 31, 2003. Except in circumstances in which prior disclosure becomes materially misleading in light of subsequent events, Repligen does not intend to update any of these forward-looking statements to reflect events or circumstances after the date hereof, or reflect (indiscernible) occurrence of unanticipated events.

The primary purpose of today's call is to provide an update on our development programs, but prior to that, I will ask Barbara to review our results for the first-quarter and update our financial guidance for the year.

Thank you. Yesterday, we announced our operating results for the first quarter of fiscal year 2004, ending on June 30, 2003. For the quarter, we recorded revenues of $2,061,000, expenses of 4,187,000 and a loss of $2,228,000. On June 30, we had approximately $29.4 million in cash and equivalents. During the quarter, our SG&A expenses were higher than normal, due to the impact of legal fees associated with the Pro-Neuron litigation and marketing expenses for SecreFlo at the Annual Digestive Disease Week Conference. Our results do not reflect, either on the P&L or balance sheet, the agreed upon payment of $750,000 from Pro-Neuron and the University of California, which we expect to recognize this quarter, assuming execution of this definitive settlement agreement.

We continued to observe soft demand for our Protein A products. For the current year, we expect Protein A sales growth will be modest, with significant weakness in the current quarter, but potentially stronger results in the latter half of the year. For the current year, we are projecting combined product sales of 8-$9 million. We continue to project an operating loss of $8 million for the year and a cash or equivalents balance of 23 million on March 31, 2004. All of these projections assume that we will not recognize revenue from potential partnerships for either secretin or CTLA4.

Now I would like to update our progress in our program to develop RG1068, our secretin product candidate for autism and schizophrenia. We completed enrollment in our lead Phase III clinical trial in May. At the present time, 77 patients have completed the study, and all patients have completed their fifth clinical visit and begun dosing. To date, there have been no serious adverse events and only 7 dropouts after dosing was initiated. This means that the last patient will have their last clinical visit in early November, and the results will be known approximately 4-6 weeks later. There are currently three centers assigned to the second study, and it continues to enroll patients, albeit at a slower rate. Several of the clinical sites from the first study have expressed an interest in rolling over to the second study, and we plan to initiate this process by the end of the summer.

We previously announced that the FDA had approved an extension to the Phase III protocol, which will enable our clinical investigators to provide RG1068 to their patients soon after they had completed the clinical study. This protocol involves dosing every three weeks for a period of one year, and will enable us to collect valuable long-term safety data. We have now modified this clinical study to collect longer-term efficacy data based on ADOS (ph) and CGI, our two primary (indiscernible), at 9 of the sites, most of whom have completed their IRB submissions.

Finally, we have also begun enrolling normal volunteers in our clinical research collaboration with Boston University's Autism Research Center. In this study, we are evaluating whether recently published observations on the deficits in patients with autism -- such as skin conductants (ph), eye tracking and face recognition -- can serve as the basis for a clinical end point in autism.

In May, we announced our plan to initiate a Phase II clinical trial of secretin (inaudible) schizophrenia to confirm and extend observations recently published by investigators at the University of North Carolina, which indicate that secretin may improve the social interaction deficits in schizophrenia. To help us design the Phase II study, we recruited as consultants Dr. Jeffrey Lieberman, the principal investigator for the North Carolina study and a thought leader in schizophrenia, and Dr. Bruce Cohen, the President of McLean Hospital, which is the primary psychiatric teaching hospital of Harvard Medical School.

Through discussions with these consultants and potential clinical sites, we have now concluded that two independent Phase II studies are warranted. In the first, we will attempt to confirm the previous observations with a multidose protocol in patients who are institutionalized or severely ill. This study will be a placebo-controlled trial designed to evaluate approximately 45 patients at 4-6 sites. We plan to submit this protocol to FDA for review in September.

We are now also planning a second Phase II study in patients who are living in the community but for whom the social deficits are still problematic. These less ill patients represent a larger potential population, and one that may be more amenable to treatment. We plan to initiate this study in the first quarter of next year.

We are currently administering secretin through a brief IV fusion which requires a 30 minute visit to a hospital or similar clinical site. In May, we announced plans to evaluate subcutaneous dosing of secretin, based on our animal studies. We have now designed a protocol and identified a clinical site for further study, and we expect to begin enrolling patients in October and to complete the study later this year. If successful, we may incorporate subcutaneous dosing into the second of the Phase II studies for schizophrenia.

Turning now to our CTLA4 program. As you know, Repligen and the University of Michigan are suing Bristol-Myers Squibb Corporation for correction of inventorship on certain patents pertaining to CTLA4. Our complaint seeks to add Dr. Craig Thompson, a scientist from the University, as an inventor on the five use and composition patents issued to Bristol. The testimony phase of the trial was completed on May 5, and the filing of post-trial briefs was completed on July 17. We have asked the court to make several findings, including -- one, that Dr. Thompson is the sole inventor of two of these patents, one a composition patent for CTLA4-Ig, and the second a method of use patent for the use of CTLA4-Ig in immune system diseases; second, that Dr. Thompson is co-inventor of the three additional patents relating to CTLA4; and third, that Bristol engaged in fraudulent conduct in the course of prosecuting some of these patent applications. We are currently awaiting the decision of the court, the timing of which is uncertain. I am pleased by the way our team has prosecuted this litigation, and look forward to the decision of the court.

Separately, Repligen and the University of Michigan or continuing to pursue our own patents covering the use of CTLA4-Ig in autoimmune disorders and for organ transplantation. The autoimmune disease case is the more advanced at the US patent office. In this case, we are prosecuting claims for the use of CTLA4-Ig for the treatment of rheumatoid arthritis, as well as other autoimmune diseases. We are encouraged by our interactions with the patent office, and I expect that we will soon have a definitive determination.

Turning now to our specialty pharmaceuticals business -- in May, investigators from Duke University reported that SecreFlo, our secretin diagnostic product, reduced the incidence of pancreatitis in patients undergoing an invasive diagnostic procedure called ERCP. The benefit was primarily observed in the 31 percent of patients who were undergoing a surgical procedure involving a bile duct. In this study, pancreatitis was defined as an unexplained abdominal pain three days after this procedure. Additional data is currently being gathered from these patients to determine if the diagnostic diagnosis of pancreatitis can be confirmed by standard blood tests to assess the level of pancreatic enzymes. These results will help guide our future regulatory strategy.

To conclude, I would like to make a few comments about our commercial strategy. Our goal is to seek corporate partners to commercialize our products for adult indications while reserving for Repligen the right to codevelop and co-market the products for pediatric applications. During the first quarter, we increased our efforts to engage potential corporate partners for our CTLA4 and secretin programs.

For CTLA4, we have had constructive interactions with several potential partners who have significant market interest in autoimmune diseases, such as arthritis and/or organ transplantation. Our objective is to identify a partner who we believe can deliver the best long-term value in the adult marketplace, while enabling Repligen to develop a significant commercial presence in the pediatric market.

For secretin, our goal is to find a corporate partner who can successfully commercialize our product in the large and competitive schizophrenia market, and assist us in promoting secretin in the pediatric autism market. I believe that our ability to create partnerships in which we are able to participate in the commercialization of our products will create the best return for our shareholders.

That concludes our prepared comments for today, and at this point, I would be happy to open the call to questions.

(CALLER INSTRUCTIONS). Jason Cantor.

You said that in terms of this pending patent, that you continue to have good interaction with the US Patent Office, and you are expecting some sort of action soon. Could you clarify what sort of interactions go back and forth on this? What gives you confidence and what potential timing of an action might be, and, I guess, how we would hear about it?

First, let me just say that the nature of the interactions with the patent office is both written and oral communications that go back and forth, in which -- basically, over the years we have tried to eliminate one by one any objections, based on obviousness or other grounds, that the patent office might have to granting the patent that we are seeking. So over the years, we have continually narrowed both the scope and the number of objections that the patent office has, and I guess that is the main benchmark by which we quantify progress, to the extent we are reducing the objections and scope and number -- and that is a significant step forward. I would expect that we would hear from this part of the federal bureaucracy -- which is always unpredictable -- in weeks or months. So I think we are very close to the end here.

Elmer Pirot (ph), from Rodman and Bradshaw (ph).

I have a couple of numbers-related questions. The SG&A number that was up to -- I think it was 1.9 million. Where do you see this number stabilize throughout the remainder of the fiscal year?

I'll ask Barbara to address that question.

We certainly had onetime expenses, or higher than normal expenses, as I said, associated with the litigation and the investment we made in the Digestive Disease Week. So the number that we would anticipate would be in line with --

I think we have been running at about a 5 million a year run rate. We might be a little bit above that, but remember that there was no -- (indiscernible) of expenses in this quarter, but no reflection of revenue which resulted from that settlement of $750,000. If you wash that through, those numbers, I think you'll see that that is more in line with our historical run rate.

A question related to the settlement, actually. In the press release, you state that the uridine trials you would carry on for an additional two years. I didn't know what you meant by that?

As far as the settlement we agreed to complete, basically, that we would complete the ongoing trials in bipolar, and the trial is just about to start in autism. And then we would anticipate completing that within a two-year period. And then after that point, further clinical research and development on that project would be based on an alternative product performance, an alternative way to deliver uridine to the bloodstream.

So then you would have to modify the delivery?

Correct. (indiscernible) uridine compound we're studying now is one form of a (indiscernible) of uridine; there are many others -- including ones we have ourselves -- in animal models, (indiscernible) further commercial development would be on one of those other forms.

So the molecule itself would be slightly different?

The end result would be the same though, so clinical data obtained in theses studies would be directly applicable to any way you delivered uridine to the bloodstream, (multiple speakers) the brain or wherever the site of action is.

Could you please disclose, then, how many patients have been enrolled in the second Phase III trial for secretin?

I don't have that number in front of me, but I think it's about 30 or so.

So 30 patients have already been -- and this is not pre-selected, but they are actually being dosed?

Correct. They have gone through all of those various filters, and are being dosed; that's right. So probably 50 were enrolled actually on visit 1, and I think about 30 have survived the various inclusion criteria.

So by year end, by the time you release the results from the first Phase III, you would have enrollment maybe over 50 percent?

Yes.

This is a somewhat unrelated question, but Chiroclen (ph) arrangement -- what sort of royalty structure do you have in place that you would have to -- that you would owe to them in the autism indication?

We owe no royalty to Chiroclen for autism indications. The only royalty we owe to Chiroclen are royalties based on the sales of SecreFlo in the (indiscernible) -- which is of course marketed in the diagnostic (multiple speakers) (inaudible). There is no crossover right between the synthetic (indiscernible) product which we sell today for diagnostic (multiple speakers) our human synthetic secretin, which we hope we'll sell some day for autism.

You mentioned 2 categories in which the corporate partnerships would fall into -- the CTLA4 and secretin. Do you believe that we would have to see a settlement or a court ruling versus Bristol before these partnerships could actually materialize -- focusing on CTLA4?

Not necessarily.

The question on a potential secretin partner -- obviously, a partner with a long-term vision for both the schizophrenia and autism indication. If that could be in place before you disclose Phase III data, that would reduce the risk associated with the program. Is that a feasible assumption to make, or a speculation, I should say?

I don't want to speculate or do any odds, but certainly it's feasible. If the right partner steps up and -- I think for us, as I said, the right partner means that they can do two things -- (indiscernible) commercialize this asset in schizophrenia and you are willing to work with Repligen as an equal in the pediatric market. We certainly will not do a partnership, on the other hand, in which we license secretin for autism to a corporate partnership in exchange for simply a royalty. So I think the underlying premise here that all companies that have commercial and valuation breakouts -- ultimately through the selling of products directly to customers.

You characterized the CTLA4 talks as fairly specific. Would you venture on characterizing the secretin talks as well?

I would characterize them as productive, constructive and frequent.

Jeffrey Bennison from Benjamin Partners.

Congratulations on a fine quarter, as far as different milestones that you are hitting. I have a couple of questions. On secretin, I understand the pediatric would be the autism and the adult is schizophrenia, let's say. But on CTLA4, you mentioned also keeping the pediatric area to yourself. For the adult, it would be RA (indiscernible) arthritis and multiple sclerosis -- what would you consider a pediatric indication for CTLA4?

Certainly, the most obvious would be juvenile RA, which there's multiple tens of thousands of patients in the US alone. Autoimmune diabetes, I think, is an intriguing potential indication, which clearly has -- at least at onset in the pediatric space. After that, there are a large number of other diseases which are smaller in (indiscernible ) but in aggregate, I think, represent a significant opportunity. Let me just clarify -- I didn't necessarily specify we would just keep it for ourselves, but often, these deals involve for example co-promotion. So at least you are participating at some significant level (indiscernible) harvesting the fruits of those (indiscernible).

You mentioned that in the trial against Bristol, I guess you're looking to get sole -- for him to become the sole patent holder on a couple of the patents Bristol filed for, as opposed to joint?

Sole inventor, that's correct.

Has this always been part of the plan, or did you determine that during the trial?

I think our legal strategy stretches back several years. We have always had a series of options which we would pursue, based ultimately, of course, on how the evidence came out during the trial.

You are in the uridine -- you're going to be starting a uridine purine autism trial soon. Has your screening process in the secretin autism trial helped you find some people? Like, you tested some kids, let's say, for certain things, and you've found that these kids would be more suitable for the purine autism trial?

We haven't really done that testing, because the sites are different. So we really want to get kids (indiscernible) the study for uridine autism takes place in Philadelphia. We don't have a secretin study in Philadelphia.

Will that also include adults?

There may be some adults in that trial, as well. But I would guess it is going to be predominantly pediatric.

I guess at this point the trial you have against Bristol Myers, you had some -- since the trial is over, people could get access to the transcripts of the trial?

All of that information is in the public domain.

(CALLER INSTRUCTIONS). If there are no further questions, I will now turn the conference back to Dr. Herlihy.

Thank you all for attending our conference call this quarter. We look forward to bringing you additional updates 3 months from now. If you have any questions in the interim, please feel free to contact investor relations at the Company. Thank you.

This concludes our conference for today. Thank you all for participating.

(CONFERENCE CALL CONCLUDED)