Repligen Corp (RGEN) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Repligen Reports 2004 financial results conference call. My name is Rachel and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS). I would now like to turn the presentation over to your host for today's call, Mr. Walter Herlihy, President and CEO of Repligen. Please proceed sir.

Thank you and good morning. Today's discussion will contain certain forward-looking statements which are not guarantees of future performance such as our projections on future revenues, loss and financial stability and our plans for clinical trials. These statements are subject to certain factors which may cause Repligen's plans to materially defer or results to materially vary from those expected including market acceptance of our products, unexpected preclinical or clinical results or delays, delays in manufacturing for us or our partners, failure to receive adequate supply of product or clinical inventories from our partners, timing of product orders, delays in or failure of regulatory approvals, access to capital and funding, adverse changes in commercial relationships, the risk that the results of earlier trials are not necessarily predictive of the results in larger 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.

Except in circumstances in which prior disclosure becomes material and 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 to reflect the occurrence of unanticipated events. Prior to providing an update on our ImClone lawsuit and our product development programs, I will briefly review our results for fiscal year 2004 ending on March 31, 2004, and our expectations for the current year. For the fourth quarter we recorded revenues of 2.1 million and a net loss of 3.3 million. For the year ending March 31, 2004, revenues were 6.9 million and our net loss was 9.6 million. The loss for the fourth quarter and the year includes a onetime non-cash charge of 2.4 million due to the write-off of intangible assets associated with the termination of our SecreFlo license in February.

Without discharge the pro forma net loss was 7.1 million for the year and $844,000 for the fourth quarter. We believe that the pro forma results more accurately reflect our ongoing operations. For a reconciliation of our pro forma net loss to our net loss on a GAAP basis, please see today's press release which can be found on our website. On March 31, we had approximately $24.9 million of cash and investments. For the current quarter, the first quarter of fiscal year 2005, we project that product sales will be approximately 2.5 million and our net loss on a GAAP basis will be approximately one million. However during fiscal year 2005, we expect significant quarterly fluctuations in product sales and losses. For the year, we project $6 million to $7 million in revenue and net loss on a GAAP basis of $7 million, and we expect to end the year on March 31, 2005 with approximately 19 million in cash and investments.

Before turning to the pipeline I would first like to provide some background information on the ImClone lawsuit. Repligen and MIT filed suit against ImClone on May 4, alleging that ImClone has infringed one of our U.S. patents in its production of Erbitux, its recently approved antibody for colon cancer. The patent covers certain genetic technologies known as DNA enhancers which increase the productivity of a cell line used to produce an antibody or a protein. The patent was issued to MIT in 1987 and licensed to Damon Biotech. Damon Biotech was subsequently acquired by Abbott and in 1992 Repligen purchased the assets from Abbott.

Erbitux is derived from a mouse antibody developed by John Mendelsohn at UCSD in the 1980's. In 1989, the National Cancer Institute awarded Damon Biotech a contract to produce a more human-like or chimeric derivative of the antibody and a cell line to produce this chimeric antibody. Damon produced the antibody known as C225 which is now marketed as Erbitux. The C225 cell line contained the patented DNA enhancer and was delivered to the National Cancer Institute in 1991. Subsequently, ImClone came into possession of our cell line through circumstances not known to us. ImClone proceeded to use the cell line for the production of clinical trial and commercial supplies of Erbitux.

In 1996, we received a request from the National Cancer Institute possibly acting on ImClone's behalf, for information about this cell line to support ImClone's FDA filings. In response we reforwarded to ImClone a copy of the patent and subsequently offered them a license. They declined our offer arguing they were not infringing since they were in a precommercial stage. ImClone subsequently licensed the U.S. commercial rights for Erbitux to Bristol-Myers Squibb for which they received an upfront payment of $400 million. Erbitux was approved by the FDA on February 12, 2004 and ImClone received a $250 million milestone payment from Bristol. According to public statements by ImClone, they have manufactured approximately $1 billion of Erbitux commercial product which will be sold over the next several years.

We believe this activity infringed our patent. The complaint has been served on ImClone and we expect their response within 30 days. The patent expired on May 5 and we have applied for a five-year term extension for the patent or until May of 2009. I would now like to begin the pipeline update by reminding you that our objective is to develop new therapies for neuropsychiatric or autoimmune markets. Each of our four product candidates represents a novel approach to therapy in a large poorly served market. At the same time, we seek to maintain our financial stability by generating steady profits from our specialty pharmaceuticals business, and maintaining a low fixed-cost structure which includes outsourcing of manufacturing clinical material. We believe this strategy will enable us to retain ownership of our product candidates through leased proof of principal clinical trials without risking the company's future on any one product or clinical trial.

On January 5 we announced that our Phase III clinical trial of secretin for autism failed to meet its primary endpoints. Since that time we have evaluated the data, conferred with the FDA and concluded that additional clinical studies are not warranted at this time. Further efforts in autism will be dependent on the development of better symptom evaluation tools, more potent dosage forms and a better understanding of the biology of the potential responders. Since our last report we have seen a steady enrollment of patients in our Phase II study of secretin in adults with schizophrenia. This trial is based on the activity of secretin in an (indiscernible) model of schizophrenia which we reported last November, and a published pilot study conducted in 22 patients at the University of North Carolina.

Our Phase II trial will evaluate four doses of secretin versus a placebo over two weeks. We have enrolled approximately one-half of the 45 patients in this study and we expect to complete this study by the end of 2004. We previously announced our intention to also conduct the clinical trial of secretin in an anxiety disorder based on positive data in a well-established animal model of anxiety and the effect of secretin on the amygdala, a 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 highly prevalent chronic disease which does not respond to the only approved therapies, SSRIs such as Prozac or Zoloft. As previously reported, we have developed a subcutaneous dosing form of secretin which was successfully evaluated in healthy volunteers.

Since our last report we have manufactured a lot of this product form, and submitted an IND to the FDA to evaluate this dosage form in a Phase I open label study in patients with OCD. Pending FDA approval we expect to initiate this study in the second half of 2004. Our second product candidate for neuropsychiatric disease is uridine, a naturally occurring nucleoside. As we reported today, we have completed a Phase I study of a prodrug of uridine in patients with either bipolar disorder or major depression. This trial consisted of daily oral administration of escalating doses of uridine over a six-week period. The trial evaluated 12 patients with bipolar disorder and seven with major depression. All patients were refractory treatment with standard antidepressants such as SSRIs which have limited effects in this population.

The results indicate that the drug was well-tolerated and did not induce mania, a potential side effect of treatment with SSRIs. Clinical evaluations of the patients were carried out weekly. Based on these evaluations several patients, including four with bipolar disorder, were judged by the investigators as having significant improvements in symptoms which improve their overall function level. We intend to extend these results in a Phase II study in bipolar patients. For this trial we have developed a new pharmaceutical composition of uridine which is orally active. Data on this formulation and a proposed Phase II clinical plan have been reviewed with the FDA. We have agreed on the outline of a Phase II study. This placebo-controlled trial will recruit approximately 40 bipolar patients who will receive daily oral dosing with uridine or a placebo over a six-week period.

We expect to file an IND for this study by year's end. We're developing two product candidates for autoimmune disease, CTLA4-Ig and Protein A. These products target complementary types of immune cells. CTLA4-Ig blocks the initiation of the immune response by T-cells while Protein A has activity on B-cells, the immune cells which produce anybodies. During the quarter we reported that we're conducting a Phase I study of CTLA4-Ig in patients with multiple sclerosis. This dose escalation study has recruited 12 patients and the investigator has reported no drug-related adverse events and potential signs of activity based on analysis of circulating immune markers. We expect that this trial will complete enrollment in the next quarter and we will report the results later this year. This study is being conducted in collaboration with the Immune Tolerance Network, a research consortium sponsored by NIH.

During the quarter we also continued to prosecute the appeal in the litigation which seeks to correct the inventorship of certain CTLA4 related patents issued to Bristol-Myers. The briefing process is complete and oral arguments have been scheduled at the United States Court of Appeals for the Federal Circuit for July 9. As previously noted, this litigation does not affect our recently issued U.S. patent for the use of CTLA4-Ig in arthritis, MS and Lupus. Our second product candidate for autoimmune disease is a fragment of Protein A. Academic researchers have recently demonstrated that Protein A has effects on B-cells, the cells responsible for the production of antibodies. When Protein A binds the antibodies on the surface of certain classes of B-cells it causes apoptosis or cell death without affecting other types of immune cells. We're currently extending these studies in animal models which assess the ability of Protein A to deplete B-cells in normal animals and in those carrying a B-cell cancer, a lymphoma.

Since our last report, we have developed a robust production cell line for a fragment of Protein A which retains the antibody binding properties but eliminates some unwanted and potentially (indiscernible) structures. We're currently piloting the manufacture of this form of Protein A and we intend to initiate the manufacture of clinical materials in the next 90 days. Our goal is to file an IND by year's end or early 2005. It is worth noting that the only available drug for the selective deletion of B-cells is Genentech's Retuxin, an antibody which is approved for certain B-cells lymphomas for which sales were 1.5 billion in 2003. As you can see, we have a portfolio of four distinct therapeutic product candidates targeting large markets in neuropsychiatric and autoimmune disorders.

Each of our product candidates is based on a novel mechanism of action and thus has the potential to treat refractory patients. We believe that success with any one of these products could be a significant opportunity for the company. Our progress and financial performance since January, indicate that we're on a steady fiscally conservative path to realize this opportunity. That concludes my prepared comments for today, and at this point we will open the call to questions. Thank you.

(OPERATOR INSTRUCTIONS). Elemer Piros of Rodman.

Hello Walter. I have two questions related to intellectual property. One of them is, what forms the basis of your submitted patent extension for the manufacturing process for the C225 cell line?

Well the statutory basis is basically a provision in the law that is specific for pharmaceutical products that allows parties whose recognition of commercial value of their patents has been delayed by FDA clinical trials or FDA review to request a patent term extension which is equal to one-half the years in the clinic and all the time under FDA review and that is the statutory basis, if that answers your question.

Okay. How long do you think it will take for the patent to issue if it does issue, for the extension?

That is an administrative process that is conducted by the PTO with input from the FDA, the PTO being the Patent and Trademark Office, and it typically takes about a year or so. In some cases you will get a temporary one year extension in an earlier action.

Now would it make sense for the party that you are suing to take any action in the absence of the patent being issued or not, or extended, I'm sorry.

Some action will certainly have to be taken. As I was pointing out on the call, I think people, or our position is that the $1 billion worth of materials at ImClone as indicated, they will be selling in 2004, 2005 and presumably 2006, were all made or manufactured in infringement of this patent. So in a way (multiple speakers) talking about a three-year window that is based on previously manufactured goods or a five-year window based on extension. Extension is really for two years de facto.

I see, because they manufactured those goods while the patent was still in force?

Correct. The patent covers a composition of a cell line containing these DNA enhancers for of course the manufacturer of antibodies or proteins.

Is there anyone else who also has protection for that cell line to your knowledge?

Not to our knowledge. Protection for that cell line?

Yes -- or this is an exclusive patent?

This patent was exclusively issued to MIT and then it was licensed exclusively to Damon Biotech. We are currently the exclusive licensee of MIT for this patent.

So ImClone is making Erbitux using a cell line that is, that you have a license to the patent for, for the manufacturing process?

For some technology, that is right, and the composition of the cell line using that technology. That is correct.

That's very interesting. One more question and this would be related for the Bristol-Myers Squibb. The oral arguments are scheduled for July 9, I believe. Once those are done, how much of a time period the court needs to make a decision or what -- how long does it usually take for them to make a decision on the appeal?

Based on our review of cases that have come to the court in the last couple of years, the range is between one and six months.

Thank you very much, Walter.

R.K. Ramakanth of Rodman & Renshaw.

Good morning, Walter. I would like to understand the SecreFlo of license agreement termination. Can you please give us a little bit more information?

In February, we announced that we had terminated our license to SecreFlo for breach, and it was based on failure of our license or partner to develop it for a promising application called ERCP, for which we issued a press release last May. I refer you to that. When we did the license agreement for SecreFlo and subsequent to that we paid certain milestone payments totaling $4.8 million to this third party which were capitalized. And so in conjunction with the termination of the license in February, we have written those milestones we paid in earlier times, we have written those down, so-called impairment charge.

Okay. One other question. What is currently -- I know you just went through the portfolio of products or preclinical products, clinical products. What is the most exciting (indiscernible) that we should be hearing about in the next three to six months?

I don't know what is the most exciting, but I think we will have Phase II data in schizophrenia in the next six months time frame. We will complete the Phase I on CTLA4-Ig and MS in that time frame. In my point of view, the most exciting one will be the one that shows clear-cut signs of safety and efficacy and it's hard to handicap which one of those four products that it's going to be, but that is inherent with our strategy, is not to bet the company on any one particular approach.

Thank you very much, Walter.

(OPERATOR INSTRUCTIONS). Jason Kantor with WR Hambrecht.

Could you give us a little more detail in terms of what the basis for your sales assumptions are for next year in terms of Protein A and SecreFlo?

Of the 6 -- 7 million, we are assuming approximately 5 million of that will be regarded as Protein A products and one million of that will be SecreFlo and possibly more if we are resupplied with SecreFlo.

In the past, you have mentioned sort of plans to revamp the Protein A franchise. Could you give us an update on that?

I didn't talk about the specialty pharmaceutical today, but we have developed a prototype product which is in, I would call it an alpha stage, which we hope to sample to customers this fall which is a high performing and mobilized form of a mobilized Protein A. So far, so good. I think we have been able to match the best that is in the marketplace in terms of characters such as binding capacity and flow rate, etc., etc. and so we are quite pleased with the progress on that. So our goal would be submit it to customers in the fall, have them give us some feedback whether they think it is something that would fit their commercial production needs, and make a commercial decision after that.

Okay. Thanks.

Ron Chez (ph), a private investor.

Walter, good morning. Just to clarify with regard to the ImClone circumstance, the extension of the patent, or the potential extension of the patent has nothing to do with the suit that has been filed on what -- did I understand 1.7 billion in revenue or 1.7 billion that would be covered by the infringement?

That is correct. Those are two separate legal proceedings. One is a administrative proceeding with the patent office for the extension and the other of course is in the court system for the infringement, and so there is no linkage between those two. You are correct.

So the action with regard to the license fees received, milestones received and product manufactured, that would be an existing case irrespective of the patent extension?

That is correct.

And the patent extension would then cover if it was issued product that was manufactured going forward?

Yes. That is exactly right.

On Protein A and B-cells, would you talk a little bit more about the scientific foundation there for that opportunity?

Sure. The scientific foundation is based on the fact that Protein A is made by a bacteria of Staphylococcus aureus that can infect humans and when it does it uses Protein A on surface to subvert the human immune system by selectively knocking out B-cells so that the human immune system can't make antibodies to attack the Staphylococcus aureus microorganisms. So we are simply trying to take off the surface of that bug, the critical parts of the Protein A molecule which are responsible for binding to B-cells and causing B-cell death. If we're successful in that we will have basically a natural or a version, a modified version of a natural B-cell toxin. So it's not something of course that we've invented, it's something that nature invented in the course of the battle between microorganisms and the human immune system.

And the same process is operative in Genentech's product?

Genentech attacks a slightly different target on the surface of B-cells called CD20, and so no, it's not exactly the same. It is simply Genentech's product I think has awakened everyone to the notion that B-cells is a stand-alone target in the immune system as it could be a very fruitful place to go either in autoimmune disease or B-cell cancers.

Even though it is different in operation, the opportunity would be with respect to killing B-cells, right?

Overlapping disease profiles will be the ones that we targeted by Retuxin, Genentech's product and Protein A, should it be successful. I should point out that Genentech's product is a terrific product, but even so the partial and complete responses with Retuxin are only seen in about 40, 45 percent of all patients and this is in the B-cell lymphoma.

Okay. Thank you.

(OPERATOR INSTRUCTIONS). Jason Kantor.

So you mentioned in your discussion of the ImClone suit, a $400 million upfront, the $250 million milestone and a potential billion dollars in product manufactured. You add that up, it is 1.6 billion in dollar value. Is that what you would be going after from them, is some sort of percentage of that? What would you be looking for from ImClone to make this go away?

What we would be looking for, Jason, is a royalty that reflects the value added, and whether you say the royalty is calculated on a base that includes sales and milestones or a higher royalty just based on sales I think is really subject to discussion. What we're looking for, at a minimum, a royalty on that billion dollars of sales and certainly that royalty you could imagine would be at a certain rate based on industry standards if it were resolved in the short-term. If not resolved in the short-term there would certainly be a case and we certainly would allege that there has been willful infringement. The history I just gave you illustrated that we have made a bona fide offer to ImClone and they basically rejected it knowing about the patent. So that will be a much higher royalty rate because it would be subject to treble damages potentially.

So low single digit royalty, three percent on a billion is 30 million, that would make you guys go away?

I wouldn't be quite that definitive at this point, but it's all a matter of timing and when a settlement might be arrived at, if there is a settlement.

Okay.

(OPERATOR INSTRUCTIONS). I'm showing there are no further questions at this time. Mr. Herlihy, I would like to turn the call back to you for any closing remarks.

Okay. Well as always, if people do come up with questions between now and our next report in August, we encourage you to contact Investor Relations. Thank you for participating and goodbye.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude your presentation and you may now disconnect your lines. Thank you and have a great day.