Repligen Corp (RGEN) 2004 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Third Quarter 2004 Repligen Corporation Earnings Conference Call. My name is Brian and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of this conference today. If at any time during the call you require assistance, please press star followed by zero and a coordinator will be happy to assist you. I would like to now turn the presentation over to your host for today's call, Mr. Walter Herlihy. Please proceed sir.

Thank you and good morning. At the outset, I would like to state that this discussion will contain forward-looking statements which are not guarantees of future performance and they are subject to certain factors which may cause Repligen plans to materially differ. The results may materially vary from those expected including market acceptance of our products, unexpected pre-clinical or clinical results or delays, the need to further research and testing, laser manufacturing by us or our partners, timing of product orders, delays in or failure of regulatory approvals, access to capital funding, adverse changes in commercial relationships, the risks that result to earlier clinical trials are not necessarily predictive of the safety and efficiency results in larger clinical trials and a variety of other risks set forth from time to time in Repligen's filings with the Securities and Exchange Commission, including but not limited to Repligen's annual report on Form 10-K for the year end of 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 here or reflective occurrence of unanticipated events.

Prior to providing an update on our product development program, I will briefly review our results for the third quarter of fiscal year 2004 ending on December 31, 2003 and our predictions for the year. For the third quarter, we recorded revenue of $1.3m and a net loss of $2.1m. On December 31, we had approximately $25.7m of cash and investments. For the current quarter, we project that product sales will increase to approximately $1.8m and then our net loss will decrease to approximately $1.5m. Thus for fiscal year 2004 ending on March 31, 2004, we expect to report revenues of approximately $6.6m with a net loss of approximately $7.8m. On January 5, we announced that our Phase III clinical trials Secretin for autism failed to meet its primary endpoint. Since that time, we have reviewed all of our programs and expenditures and today I would like to review our plans for the next year. We expect to begin our fiscal year 2005 on April 1, with approximately $24.5m in cash and equivalents. Our goal for fiscal year 2005 is to reduce our net loss to $6m and our cash burn to $5m or less. This will be accomplished by reduced clinical and manufacturing expenses in our Secretin program. Restraint on hiring, reduce administrative and legal expenses combined with a continued profitability of our specialty pharmaceutical business. We intend to give a more detailed financial guidance for fiscal year 2005 on our next conference call. Our financial plan will enable Repligen to advance our product candidates and initiate a new therapeutic program, which I will briefly describe today. But first I would like to update you on several developments in our specialty pharmaceutical business.

Since fiscal year 2001, our product sales have grown from $2.1m to the current level of $6.6m and gross profits have increased from $850,000 to $3.5m. However the past year has been challenging as a key Protein A customer experienced difficulties in manufacturing and reduced sales to end-users. We believe that one path to expanding this business is to develop higher value-added products for antibody production based on Protein A. We are currently developing a new Protein A prototype product for this market which we hope to sample to customers later this year. If successful, this product will address the total market opportunity of approximately $25m.

Turning now to SecreFlo, our diagnostics secretin, we've always felt that the best way to increase sales was to expand its use through additional FDA-approved indications. Last May, we announced a large clinical trial of SecreFlo significantly reduce the incidence of pancreatitis, following a GI diagnostic procedure called ERCP. Since there are more than 100,000 ERCP procedures carried out each year in the United States, this would represent a much larger potential application of SecreFlo in the currently-approved users. However, our partner ChiRhoClin has failed to meet its contractual obligations that use best efforts to pursue FDA approval for this indication. Therefore we recently terminated our licensing agreement with ChiRhiClin, which covers diagnostic secretin including SecreFlo. We will continue to sell SecreFlo until we have recovered certain payments previously made to ChiRhoClin, totaling approximately $5m, after which both parties will be free to develop any application of secretin.

Now, I'd like to update our therapeutic product development programs. In our Secretin for Autsim program, we are currently preparing a [Inaudible] report for submission to the FDA, and expect a schedule of discussion with them by the end of the quarter. Since both the investigators and parents are still blinded as to which patient receives secretin or placebo, we are retrospectively collecting a clinical global impression for each patient from the physicians and professional staff at each site. This may help us better understand the pattern of response to secretin without the high placebal effect we observed in the parental clinical global impression. Our analysis indicates that in order for this program to be moved forward, we need to gain additional insider information on one or more of the following three areas. First, the potential impact of more frequent dozing of secretin on the response rate. Second, more objective tools for assessing the response of the treatment, and finally the characteristics of the children who are most likely to respond. We are attempting to gain additional information for each of these elements. The challenges faced in the development of a naval therapy for Autism do not diminish importance, and if there is a path forward, I am confident we will find it through our demonstrated ability to conduct excellent basic signs in clinical research. I'd like to thank all of you who have contacted us in the past five weeks with your observations and support, and while we can't respond to each of you individually we appreciate your interest.

Intense focus on our Autism program during the past year has partially explored the progress we are making in developing other applications for secretin, and our other product candidates. Today, I will provide a broad overview of this program and discuss a new therapeutic initiative with [Inaudible] . Some of this information is also contained in the yesterday's press release.

During the past quarter, we initiated our Phase II study of secretin in adults with schizophrenia. This trial is based on the activity of secretin in the animal model of schizophrenia, which we reported last November and the published Pilot study conducted in 22 patients in the University of North Carolina. This placebo-controlled Phase II trial will evaluate four dozes of secretin versus the placebo over two weeks. It is worth noting the significant differences in this study and our Autism Phase III trial. First, the dozing in this study is six times more frequent than in the Autism Phase III, twice a week versus once every three weeks. Second, the patients with schizophrenia are expected to have IQs in a normal range compared with a substantial fraction of patients in the Autism trial with severe cognitive impairments. Third, the rating for potential improvements in the schizophrenia patients will be carried out by physicians and psychologists. There are no ratings carried out by family members, which may reduce the placebo effect. And finally, schizophrenia is a well studied disorder and there are established tools for assessing symptoms which are accepted by the FDA. We expect to complete this study by the end of 2004. We've previously announced our intention to also conduct a clinical trial on secretin in an anxiety disorder, based on a positive response in an accepted animal model and the effect of secretin on the amygdala, the brain region which regulates the anxiety response. We have selected obsessive-compulsive disorder or OCD as the first anxiety disorder to evaluate, because it is a chronic disabling disease, which does not respond well to the only approved therapies which are SSRI such as Prozac or Zoloft. In addition, other studies have shown that there is a relatively low placebo effect in OCD trials in a motivated patient population. The National Institute of Health estimates there are approximately 3.3m patients with OCD in the United States. As discussed, the OCD patients will receive several injections per week. The potential use of frequent dosing in these chronic diseases has led us to evaluate subcutaneous or under the skin administration of secretin to replace the current intravenous infusions. Last quarter, we completed a trial of subcutaneous dosing in healthy volunteers to assess its safety and bioavailability. This trial showed that subcutaneous dosing was safe and established a dose level, which will product levels of secretin in the blood equivalent to what we now achieve with intravenous injection. Pending FDA approval, we intend to use subcutaneous dosing in the OCD study, which we plan to begin in the second half of 2004.

Turning now to CTLA4. In February, the United States Patent Office issued us a patent for the use of CTLA4-Ig for the treatment of rheumatoid arthritis, multiple sclerosis, and lupus, which will remain in effect until the year 2021. We have exclusive rights to this patent from the University of Michigan and the US Navy. This patent is independent of the patents, which are subject to a litigation between RepliGen and Bristol-Myers. During the third quarter, we also continued to prosecute through the appeal in the litigation which seeks to correct the inventorship of certain CTLA4 related patents issued to Bristol. We expect the briefing process to be completed this quarter which will then be followed by oral arguments at the United States Court of Appeals for the Federal Circuit. We also intend to initiate a pilot clinical study of CTLA4-Ig in lupus stations in collaboration with the National Institutes of Health. We will supply the clinical site with CTLA4-Ig drug product and the NIH will provide clinical funding. We expect patient recruitment to begin next quarter. Our focus on the development of our uridine product is on bipolar and major depression. We are currently completing enrollment in a 20-patient open-label dose-escalation trial at McLean Hospital. Today 16 patients have been evaluated and the treating physician and raters believe they are seeing a response in some patients. We intend to report the full data from this trial on our next quarterly conference call as well as describe our future development plans. As you know, RepliGen is the leading manufacturer of recombinant Protein A for use in antibody production. For the past three years, a clinical investigator at UCSD has been studying the effects of our Protein A on the immune system and in particular on B cells which are the cells responsible for the production of antibodies. He has discovered that when Protein A binds to the antibodies on the surface of certain B cells, it causes apoptosis or cell death, without affecting other types of immune cells. We have exclusively licensed from UCFD a patent application on the user Protein A in diseases in which B cells are implicated including autoimmune diseases, such as lupus, arthritis, and ITP, and B-cell lymphomas. We intend to file an IND for Protein A in late 2004, and we will update our specific plans in this program in our next conference call. The potential of an Asian which started B-cells has been well demonstrated by Genentech's Rituxan, an antibody which is approved for certain B-cell lymphomas for which sales were approximately $1.5b in 2003. As you can see, we have a portfolio of four distinct therapeutic product candidates targeting a variety of neuropsychiatric and immune disorders. I believe our plan for 2004 will enable us to significantly advance this portfolio, while maintaining our financials to build it. That concludes my prepared comments for today, and at this point I would like to open the call for questions.

Ladies and gentlemen, at this time if you would like to ask a question, please key star then one from your touchtone phone. Again, for questions or comments please key star then one. If you question has already been answered, and you wish to remove your name from the list, please key star two. Again, star one for questions. And your first question comes from Elemer Piros of Rodman. Please proceed.

Yes, good morning Walter. My first question is related to the oral arguments and the case or the appeal against Bristol. And is it safe to assume they may take place in the second or third quarter of this year?

Yes, as I mentioned, we expect all the paper work and the briefing process to be completed by sometime in March. And we would expect there would be a delay of some months, and it's hard to predict. So, we would hope that second or third quarter would be the appropriate timing. Just as a footnote to that, the oral arguments are quite brief, and it takes only a single day. Each side has 20 minutes to argue their case. So, to say how long, a long protracted trial like process, as was the case in the district court.

And at that stage then a judge will decide whether the appeal is going?

That's correct. At that stage, there is a three-panel judge. They are all patent attorneys, because of the specialized nature of this litigation. They will render an opinion, and there are three possibilities. They will either rule in our favor, or rule in Bristol's favor, or remand it back to the district court with instructions to reconsider the case under different rules.

So, if they rule in your favor, what does that mean or what could that mean?

Well, it is very unlikely that this case will be appealed to the Supreme Court. So, that if ruling is rendered in our favor, the most likely outcome would be calling (ph) inventorship between our inventors and Bristol's inventors, and both parties would have freedom to practice without obligation to the other in the United States. So, we will have a duopoly instead of the current situation on which both companies block each other in the United States.

Interesting. Just some clarification, a minor thing on the Schizophrenia trial, that is an IV administered?

That's correct, that trial was already underway before we had the data on subcutaneous administration. So, in this proof of principles study which is how we look at it. We're using IV naturally, if we are successful and have to move on with additional studies, we would switch to subcute.

Okay, and it's four doses as you mentioned in the conference call, two doses as it is written in the press release?

It's four doses over two weeks. So, two doses per week for two weeks.

I'm confusing it with two different dose levels.

There are also two different dose levels, we have a placebo group, the dose levels equal to what was some for example, in the autism study, and a dose level of 2.5 times higher than that.

Okay, and just one question on the autism study. For there appears to be hope here that you might find a way to actually optimize the study and continue. At what point would you make this decisions?

Well, I think that the basic assumption that we have is that both from the Phase II and the Phase III study, is there is a subset of patients who do respond, but there are number of problems in getting that through as we found in the Phase III. So, if we are able to come up with a better objective system for measuring response and we are sponsoring studies at Boston University now on high tracking device that might be more objective, or if we come up with a sense that it's these kids versus those that are the subgroup, then we would reconsider. At the moment, we don't have that information. So, we don't have it, we need to move it forward, but I mentioned those three elements that we are still trying to get a better handle on to see what might be done in the future.

So, in 2004, you will make a go/no-go decision there?

Yes.

That's -- okay.

There is nothing on the books to be done in 2004 right now other than trying, become smarter about these various elements of the development.

Okay. Thank you very much.

Your next question is from Jason Kantor of WR Hambrecht. Please proceed, sir.

Hi Walter. Your net loss projections for 2005 were $6m. Is that assuming basically zero growth in revenue over '04?

There is a very, very modest growth, single digit growth in the revenue line.

Okay.

From the prior year.

And why are you submitting this, the autism data to the FDA. I mean what do you hope to get from them if you don't already know what the outcome of the analysis is that you are talking about, are you just not -- you are having information and you're not sharing and want to share with the FDA first?

The submission is primarily based on safety analysis and the decision to be made is what to do with existing patients who are on studies, who are on continuation and extension studies and so, we have to have a discussion about whether those patients would be maintained on those studies or not.

So, the outcome of those discussion would be either patients, whether or not that all patients are being taken off the trial drug or that patients are being allowed to stand on the drug?

That's the primary option. That's right.

Okay.

And your next question is from Bernard Rimland of the Autism Research Institute. Please proceed.

Hi. Good evening, Mr. Walter.

Hello Bernard.

I was most interested in your comment about the need for signing subgroups of kids who can respond in the autism study and the same thing actually would apply to the schizophrenia study as well, I think. Secretin is really unique in a certain way. I had been told that there is only one drug in the PDR, which is non-toxic resistant to antibody and that's mystatin an antifungal drug. Secretin is quite non-toxic as you pointed out in many occasions, something like a 0.25m injections have been given with no significant adverse effects. That puts you in a unique position to do a study in which the kids who respond are identified by just giving them a trial shot or two or whatever infusion of secretin, find the ones that respond and then do a double-blind placebo controlled study on kids who have been identified as responders in that very accurate way rather than by using the chymotrypsin, calprotectin, and other kinds of attempts to identify the cost here which you have not worked out.

I feel more comfortable with that sort of strategy if I had a good tool that I knew was objective and reliable and have a low placebo effect much as I just mentioned a moment ago, we are trying to develop a deal to be able to weed out responders and non-responders.

I am about to send a message to all other several hundred doctors that treat autism now, to identify the ones who can tell us that they have a number of patients in their autistic population to whom they have given secretin, that that they can identify very clearly as responders. If we identify such a group of responders, the positions are quite confident as a result of continued administration of secretin, assuring that these particular kids really do deteriorate after several weeks on the secretin etc., and went on it for sometime. You [Inaudible] that have been on it for several years who just deteriorate terribly if they don't get their shot, they're [Inaudible] really. So, I am trying to identify a group of responders and would you be interested in, will the FDA be willing to consider a study in which the population consists of responders.

We would certainly review the data and evaluate it for sure.

You think the FDA might be willing to get along with ---

Can't really speak for the FDA at that level, so we have a chance to look at the data and see what it might look like. I appreciate your interest.

Okay, I will be pursuing this.

All right thank you.

Ladies and gentlemen, as a reminder, star then one to ask a question, and we do ask that you do keep it to one question if at all possible. Thank you very much. And your next question comes from Clark Taylor, a Private Investor. Please proceed.

Hi, my name is Clark. And I have never been on the phone before with one of these things and we just listened to Bernard Rimland's comments and, to cut a long story short, my grandfather a autistic child, and he does respond to the Secretin that we have from our Pharmacia Peer and we also know of another child that also does respond very well. So, we are really hoping that you folks and wishing you the best of luck pursue the secretin, because from what we get we know it works, there is no question at all. So, actually this is an [Inaudible] call too. You can count on two of us for sure up here.

Okay. I will thank you for your effort.

Yes, of course, and good luck to everything you are doing, it's a good cause.

Thank you.

And your next question comes from Stewart Weisbrod of Merilin BioMed, please proceed.

Hi Walter, it's actualy Jeff. Can you just clarify the new agreement with ChiRhoClin with respect to both pancreatitis and then continued supply agreement for SecreFlo as a diagnostic?

There isn't a new agreement, we have a licensing agreement that we signed in 1999 with ChiRhoClin which license the commercial right to the diagnostic secretin products that they were developing. As far as their agreement they had an obligation to use best efforts to develop an application which we refer to as Post-ERCP pancreatitis. And I think you are familiar with our release of data in our press release of May of 2003 on that. And that is the subject of what I was discussing today and unfortunately ChiRhoClin who have the obligation to pursue this has really not met a contractual obligation to use best efforts to pursue an FDA approval for Post-ERCP pancreatitis. And we believe that that is a significant depential indication and for that reason we have terminated the license agreement. Under the terms of the agreement, post-termination for various specified series of step, one of which is that we will continue to sell SecreFlo into the marketplace until a certain payment previously made to ChiRhoClin has been repaid to RepliGen.

So you'll sell SecreFlo under the current diagnostic indication?

Correct, it is still on the market and anyone can order SecreFlo.

Okay. So, for how long does that agreement go?

Our licensing agreement is originally a ten-year agreement.

Okay.

Of that, right now, the operative provision of the agreement is the amount of time that it would take to reach this financial target.

And for the potential pancreatitis indication, what opportunity remains for you with this now?

Well, I think for -- once we get past this transition phase, either company would be free to develop secretin for any indication that they chose. Of course, there would be patents and Orphan Drugs and other source of potential, and I am talking about from just from this point of view of this contract. Either side would be free to develop indications of their choosing.

Is that something that you think you are going to pursue?

Well, we certainly evaluating it and we certainly want to have an opportunity to do some homework and provide an update on that perhaps in our next conference call.

And in terms of the recombinant human secretin, where does that stand?

Are you talking about the material that we use for in our autism and schizophrenia studies?

Yes, in terms of using that for your CP pancreatitis and moving that forward in this indication?

These molecules are all essentially equivalent in their biological activity.

All right.

But, we have a large investment, of course, in chemistry manufacturing and controls with our existing secretin products.

I guess, I am just trying to figure out if that allows you to move forward independent of the [Inaudible] agreement or not.

Yes, the agreement is terminated.

Right. So --

There are no post agreement termination obligation for blocks other the ones I just enumerated.

Okay. Thanks.

And your next question is from Roger Benson (ph) of Number One Corporation (ph) . Please proceed.

A question on the patent, which was just recently issued to Repligen on CTLA4. Have you had any contact or overtures from Bristol-Myers on that specific issue as opposed to the other stuffs as to litigations.

We have, but I am really not at liberty to go into the substance of those. We have an ongoing dialog and I don't want to either be overly pessimistic or optimistic, but we have an open channel of communication.

Thank you.

And your next question is from Raj Chengrami (ph) of Ronald L. Charles & Company (ph) . Please proceed.

Hi, congratulations on the recent patent assignment.

Thank you.

And my question specifically was towards - I guess I read that the recent patent that got assigned for indications in Rheumatoid Arthritis and multiple sclerosis being the biggest indications. And I would like to get your thoughts on basically the RA market and how do you see Abbott's Humira competing with your technology?

That's a great question. The market for the molecules such as Humira, Enbrel and Remicade was block to metaclosis factor T&L (ph) was about $3b last year.

Okay.

Our understanding from a number of sources is that those molecules do not produce a moderate to very good response in at least 25% of patients. So, from those two facts you would compute that there was about $1b of unserved market need. That really isn't addressed by blocking too many about this factor. And our understanding is that in fact is the first indication that Bristol-Myers Squibb is pursuing with their version of CTLA4-Ig and which is in currently in Phase III studies. So, I think that particular slide through the market is so called live [Inaudible] . And that is what we'd look to. But I'd suspect that at some point there will be head-to-head competition in naive patients between CTLA4-Ig and the TNF Blockers. And again my understanding there is that from other sources that the one thing that people sometimes don't look at very carefully is the difference in safety profiles, which we believe may save our CTLA4-Ig.

All right. And a quick follow-up with that is, as you pointed out and as I've read also is Bristol-Myers is in a constant gridlock as far as CTLA4-Ig, which concern the people. And my follow-up question was in the past year, could you shed some light on how many people have approached Repligen, how many companies have approached Repligen to strike a partnership or a licensing agreement and I don't know if you are at liberty to comment on that, but just to get a flavor of how many people?

We've had discussions with multiple players in the Rheumatoid Arthritics market. I guess I wouldn't want to go much further than that, but significantly more than one.

Okay. Great. Thank you.

Once again ladies and gentlemen as a remainder, if you wish to ask a question, please key star then one from your touch-tone phone. Your next question is a follow-up question from Stewart Weisbrod of Merlin BioMed. Please proceed.

Hi Walter. Thanks you are still here this time. I have a follow-up to Jeff's question. I am still a little confused about Karaclin (ph) can make a lot and now sell the rights to their secretion to someone else, a company that has a GI franchise for instance, and pursue pancreatic highlights on their own.

Once our obligations are met under the exist agreement.

And what does that mean like you can ask.

Well, as I am saying earlier they have an obligation to refund us approximately $5 in payments, which can be met in a number of ways, but it is not necessarily single payment. It would be met through their portion of the royalty stream or the profits from the sale of SecreFlo.

Okay.

Once that is met, then both companies are free to develop the molecules and any indications they choose. So, there wouldn't bee any residual.

Okay. Great.

Okay.

And your next question comes from Sena Mund of [Inaudible] Cathay Financial. Please proceed.

Hi, Walter, good morning. I just wanted to clarify on the schizophrenia trial. I thought the data is going to come around mid of '04, I thought and earlier you said the data might come at the end of '04. Just can you clarify when should see some data faced with?

Well, were rolling patients that I believe four sights right now, and it is little hard for me to say exactly what the pace is going to but certainly by the end of this year we would have the results in presentation form. I would expect we may have them in the third quarter. It is hard for me to say. I would say the fall, September, October, November time frame. That to me is the end of the year, end of 2004.

All right thank you.

Again ladies and gentlemen, for any questions please key star one. And your next question comes from Steve Tobuisky a private investor.

Hello Walter.

Hi Steve.

Hi, how are you doing.

Good.

Could you please clarify a little bit more with respect to the nullification or the abandonment of adding on SecreFlo. For that purpose is the use of SecreFlo in connection with the Aircep, a different application and the costs pancreary tidies or does that also involve the use of SecreFlo for the Aricept test itself.

I am sorry Steve, I don't understand a word, Aricept?

The test -- the pancreas test, the SecreFlo was being used --.

The current approved test?

Yes. Right.

The current improved indication for SecreFlo does not involve the ERCP pancreatitis, it involves stimulation of pancreatic juice flow for aid in diagnosis of pancreatitis, not tension of pancreatitis.

Right. So --

So, it is not approved for ERCP pancreatitis at this time.

Okay. So the agreement that is being abandoned is not applicable for that application?

The product SecreFlo is not approved for that application, there is no approval for the use of SecreFlo in ERCP pancreatitis.

Okay.

So, it's very different indication than the indications that are proved and for SecreFlo is currently sold.

Okay. What effect will the nullification of the agreement have on that at all, if any? No application for that at all, because --

Well, we are not selling SecreFlo for that indication and so that's really immaterial to the ongoing sales and marketing efforts on SecreFlo.

Well, correct me if I am wrong. I thought at one time that SecreFlo was being marketed or that you are making contacts for use of SecreFlo to stimulate the excretion of the pancreatic juices to open up the opening for a --

That's correct. That is the approved indication.

Okay.

That's different than preventing pancreatitis following ERCP.

Okay. And then --

Just to facilitate cannulation of the pancreas.

Right. And that is not what the agreement that you are in now abandoning was applying to?

Well, I don't quite know how to answer that. The agreement we have terminated relates to the ongoing relationship with ChiRhoClin around SecreFlo that has been terminated. Yes.

Okay.

That is -- SecreFlo is not approved however for ERCP pancreatitis. Perhaps, I could explain to you off line Steve.

Okay.

It is a little bit complicated.

Okay.

All right.

Thank you.

At this time Mr. Herlihy there are no more question in the audio queue. I would turn it back over to you for any closing remarks.

All right. Well, I thank each of you for participating in today's call and if you have additional questions or thoughts occur to you, please free to contact Investor Relations for the company or myself directly. Thank you and I look forward to updating you again in about three months.

Ladies and gentlemen this concludes today's third quarter 2004 Repligen Corporation's earnings conference call. You may now disconnect your line and have a great day.