Repligen Corp (RGEN) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Quarter 1 2004 Repligen Corp. earnings conference call. This is Amanda and I will be your operator 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 his conference.

(OPERATOR INSTRUCTIONS)

At this time I would like to hand the conference ever to Mr. Walter Herlihy, President and CEO. Please proceed, sir.

Thank you and good morning. At the outset I'd like to state that this discussion will contain certain forward-looking statements which are not guarantees of future performance such as our projections on future revenues, loss in financial stability and our plans for clinical trials. These statements are subject of certain factors which may cause Repligen's plans to materially differ or results to materially vary from those expected including market acceptance for products, unexpected preclinical or clinical results or delays, the need for additional research and testing, delays in manufacturing by us or partners, failure to receive adequate supply of product and clinical materials from our partners, our new product orders, delays, and our failure regulatory approvals access to capital, adverse changes commercial relationships and the risks that results of earlier clinical trials are not necessarily predictable with the the safety and efficacy results in larger clinical trials, and a variety of other risks set forth in time to time in Repligen's filings with the Securities and Exchange Commission, including but not limited to Repligen's report on Form 10-K.

In (indiscernible) circumstances in which prior disclosure becomes material and misleading and later subsequent events, Repligen does not intend to update any of these forward looking statements reflective of circumstances after the date hereof. Or reflecting current and unanticipated events.

Prior to providing an update on our programs I would like to briefly review our results for the first quarter fiscal year 2005, ending on June 30th, 2004.

For the quarter we recorded product sales of 2.8 million the highest level to date. Sales were positively impacted by the acceleration of several significant Protein A orders originally scheduled for delivery in the second quarter.

For the quarter we had a net loss of $645,000 which included $300,000 in non-cash charges. On June 30th we had approximately $24.8 million of cash in investments.

For the next several quarters, we expect to record a net operating loss of approximately $2 million as we ramp up the manufacturing of clinical materials for both our uridine and therapeutic Protein A programs. We may also receive a payment of $750,000 from the University of California and Wellstaff Therapeutics in connection with the previously disclosed settlement of litigation regarding certain patents pertaining to our uridine program.

If these agreements are completed our net loss for the corresponding quarter will be approximately 1.3 million.

For the year ending March 31, 2005, we can reaffirm our guidance of 6 to 7 million in revenue, a net loss of 7 million and cash on March 31, 2005 of approximately 19 million.

Before I update our product development programs, I would first like to review the status of our CTLA4 intellectual property and the intellectual property we believe was used to develop Erbitux.

Following oral arguments on the CTLA4 inventorship suit vs. Bristol-Myers on July 9th, (indiscernible) confirmed the decision of the district court on July 12th in favor of Bristol-Myers. While we always recognize that the appeal was an uphill battle, this was nevertheless a disappointing result.

However, this result does not affect the validity or potential enforceability of our recently issued U.S. patent for the use of CTLA4-Ig in arthritis, multiple sclerosis and lupus, which is in force until 2021.

Separately, on August 4th, the European patent office issued us an equivalent patent for the use of CTLA4-Ig for the treatment of organ transplant rejection in autoimmune diseases, including arthritis. This patent is valid until 2013 in the major European markets, including Germany, France, Italy and the UK.

We are pleased that the European patent office has confirmed the judgment of the U.S. patent office on this invention.

As previously disclosed, Repligen and MIT filed suit against ImClone on May 4th, alleging that ImClone has infringed on one of our U.S. patents in its production of Erbitux. Also known as C-225.

Patent covered certain genetic technologies called DMA enhancers which increased the productivity of a sale line used to produce an antibody or other protein. We've received ImClone's response to our complaint on July 1st. ImClone's response confirms that ImClone received our C225 or Erbitux sale line from the National Cancer Institute in 1993. And that ImClone subsequently used our C225 cell line to make C225 or Erbitux.

Following a court hearing in Boston on August 9th, the judge will soon issue a schedule for discovery and depositions.

Turning now to our product pipeline. Since our last report we have seen steady enrollment of patients in our Phase 2 of secretin in adults with schizophrenia. This placebo-controlled Phase 2 trial is divided into four doses of secretin vs. a placebo over two weeks in refractory schizophrenic patients. We have enrolled approximately 30 of the 45 patients in the study which we expect to complete by the end of 2004.

We previously announced our intention to also conduct a clinical trial of secretin in an anxiety disorder called obsessive-compulsive disorder or OCD. Since our last report, we received feedback from the FDA on our proposed Phase I open label study in patients with OCD and we have responded to the FDA's questions. This protocol will evaluate 6 subcutaneous injections of secretin dosed over two weeks in 16 patients.

Based on feedback from the FDA we expect to initiate this study in several months.

Our second product candidate for neuropsychiatric disease is uridine -- a naturally occurring nucleus side. We intend to extend our Phase 1 observations on the effects of uridine on bipolar depression and a placebo-controlled Phase 2 trial. Based on feedback from the FDA we are now planning a Phase 2 clinical study which will recruit approximately 80 bipolar patients who will receive daily oral dosing with uridine over a six-week period. We expect to file an IND for this study by year's end.

Our third proprietary program is based on a fragment of Protein A for selected depletion of B-cells. B cells are the (indiscernible) cells responsible for the reduction of antibodies. Since our last update we have moved our production sale line into pilot fermentation and selected an outside vendor for the manufacture of GMT Protein A. We have also decided to initiate the first Phase 1 study in oncology patients, primarily non-Hodgkin's lymphoma patients, and have requested a meeting with the FDA to discuss our proposal clinical protocol and toxicology studies.

Our goal is to file an IND in early 2005 in oncology and a second IND for autoimmune disease in the following quarter. As you can see we made steady progress towards building our pipeline of products, targeting significant market opportunities in neuropsychiatric disease, autoimmunity, and oncology. While we are pleased with the progress in advancing our pipeline we recognize there may be external licensing opportunities which are further advanced in clinical development.

Given our cash reserves, our internal infrastructure, and our low burn rate we have initiated a program to actively seek additional product opportunities. I look forward to providing you additional feedback on this initiative as well as the progress on our internal products and programs at our next quarterly update.

That concludes my prepared remarks for today. I'll be happy to answer any questions.

(OPERATOR INSTRUCTIONS).

Arkay Ramakhan of Rodman and Renshaw.

I have a couple of questions and then I will step back and come back later. My first question is regarding guidance. I know you gave us some guidance regarding revenues (indiscernible). Can you help us with what expenses you were expecting in R&D and SG&A going forward? For the next 3 quarters?

How about I give it to you for the fiscal year en toto? One quarter under our belt which you can see and for the year which ends March 31 we expect R&D expenses to be approximately $6.75 million. With SG&A at about $4.2 million.

Of course there is in addition to cost of goods for the product which is about 3 million.

And then that last 6.7 million and you expect to have a cash of about approximately 19 million?

Correct.

Thank you very much. And the next questions are basically on your clinical programs. Can you help us with an update on the CTLA4 Ig in MS persons involved in the Phase 1 studies there? And also what percentage of enrollment has been completed in the schizophrenia study with secretin?

In the CTLA4 study I believe that's a 16 patient study and 12 have enrolled so far. Not much different than 60 days ago when we last reported. In the schizophrenia study we've enrolled approximately 30 of the targeted 45 patients so we are about two-thirds enrolled in that study.

One last question before I come back later. With the recent termination of a licensing agreement with (indiscernible) how this is going to affect revenues coming from SecreFlo (ph) going forward?

Theoretically, shouldn't affect revenues for SecreFlo for this fiscal year, per the terms of the agreement they have an obligation to supply us with SecreFlo on an ongoing basis, until the arbitration is resolved between us and (indiscernible) which will be some time next year. But we are continuing to sell the product and will do so in the coming quarters.

Jason Cantor of W. R. Hambrecht.

Just wanted some clarification. You said that you'll have completed the schizophrenia trial by year end. Does that mean you'll have the patients in or you'll have data and what will be the likely venue for releasing that data? Is that data by year end?

It's certainly patients by year end, based on what we saw in August. We hope enrollment will pick up a little bit in September and October but I can't be absolutely sure we will have the data by year end but if not, by probably January. As far as the venue for releasing that, I guess I would have to defer a little bit to the investigators and what they would like to do. But we certainly hope to be able to provide top line at least results in very early 2005.

And you -- I was off probably a couple minutes there -- did you happen to mention any update to the ERCP pancreatitis or MRCP or any of these (indiscernible) indications?

Nothing active going on in those indications right now.

(OPERATOR INSTRUCTIONS) David Chan of Genosyn.

I was trying to get a better understanding of some of your intellectual property. And how you monetize the value. On the CTLA side, do you not have freedom to operate now with your own product in the U.S. any more, given that recent loss in appellate court and so -- but you feel you might have a blocking position still? Is that how best to think about that patent?

If the Bristol patents are indeed valid that's correct. We would not have freedom to operate. Our patents in the U.S. are now, in New York, are considered valid. And they would not have freedom to operate in those specific indications I'm not (inaudible).

But then the timeframe if the -- assuming you're not involved licenses patents, the timeframe you'd be able to assert those patents wouldn't be until they actually launch or something like that? Right? That's normally the way it works.

Yes it's a little bit more complicated than that. In Europe there is no Safe Harbor so there are proceedings in Europe that could happen more quickly. In the U.S., there is a Safe Harbor that protects clinical studies but it doesn't protect things like scale up for launch and those sorts of activities.

(MULTIPLE SPEAKERS) haven't detected any of those yet.

And then on the C225 I guess the patent has basically expired so I'm not quite sure how to think about the value of a patent coming if it is only just on material that might have been produced while the patent was still enforced?

Three levels to think about. There was $1 billion of commercial activity according to ImClone's public statements before the patent expired. (inaudible) value in market so 2004, 5 and most of 2006 depending on what channels or projections you look at.

That happened prior to expiration. Secondly we did assert in the claim that ImClone was unjustly enriched by taking our sell line and going off and commercializing it and part of that Richmond came to their deal with Bristol-Myers so unspecified in our claim damages related to that and thirdly we have applied -- we did apply earlier in the spring for a five-year term extension for that patent -- U.S. patent office based on the fact that of course due to clinical trials and FDA review there's been a delay in commercialization of the product covered by the patent with the common standard patent extension that all companies use.

Again because it's not -- it's that your original sell line was used to develop the ultimate sell line? Is that right? It's not your actual sell line that they are using to produce the -- ?

From our knowledge we haven't done discover yet but from our knowledge as I noted in my prepared remarks the statements that came back to us and ImClone's written response to our complaint, it does appear that our sell line was used (inaudible) directly to make Erbitux.

That's very interesting.

(inaudible)

And you are saying they essentially conceded that in their reply to you?

That was my statement.

Arkay Ramakhan of Rodman and Renshaw.

Again it is a question on the illegal proceedings against ImClone. In your prepared remarks you said I didn't really catch the whole thing -- did you say that there was a hearing on August 9th, or --?

On Monday this past Monday, there was a hearing in federal court here in Boston in front of Judge Stearns (ph) who is going to hear the case and both sides argued for a timeline for a schedule. We argued for rapid prosecution of the case. ImClone tried to drag things out, of course. He rejected most of their motions to drag things out and said he would issue a schedule probably within the week we would guess.

So that is when we know the real proceedings would start -- is that what you're saying?

Correct.

Also 1 more question on the clinical trials with Protein A. Did you mention in your opening remarks, again, that you're planning to start an IND for cancer in the first quarter of 2005?

Correct.

And for autoimmune diseases probably by second quarter?

Second quarter, correct. Two separate INDs, two divisions of the (indiscernible).

Jason Canton of W. R. Hambrecht.

I just wanted to probe this issue of ImClone a little bit farther. You say that in this response they made some sort of concession that they are using the technology. Is it... ?

(inaudible)

Is it their assertion that they are not using your technology? That they are not infringing you in some way or that there are no damages because this is not a valid (indiscernible) anymore?

I have to answer your question on 2 levels, Jason. In a response like this they are not obligated to serve all their defenses, whether it's non infringement invalid patent -- whatever it might be. They can bring those up later. So they simply assert that we don't believe we're infringing without any substance behind that remark. However, their primary affirmative defense called is the exhaustion of right. That somehow by giving the sell line to NCI who has of course through development funded the work a right to practice the invention without any obligation of Repligen, somehow, that cleansed the sell line of any intellectual property medians. In the pass-through (inaudible) away from Repligen ImClone.

1997 studied in great detail and we don't believe that that is a legitimate way to purge a product intellectual property.

Ron Chez (ph), a private investor.

Walter, with regard to product sales and product development, do you want to spend one moment discussing or making whatever you consider to be your strategic direction now?

Okay as I think I noted at the end of the call we are comfortable that we have an interesting early stage pipeline. We have a reasonably stable financial position, especially considering our peer group in this industry. And for that reason we think it's appropriate not to necessarily sit back on our haunches and wait for the pipeline to mature over the next couple of years but to be more aggressive and look for ways to identify product candidates that may have evidence of efficacy or more advanced clinical data. So for all those reasons, we have initiated a program to systematically go look for such product candidates. And we are in the midst of that and there can be no predicting when or how that will come to fruition. But it's clearly a stated strategic goal of the Company.

And how do you think you might make a deal, given the price of the stock now?

I think, obviously, that we would be more interested in using either cash or future profits as part of any transaction and issuing large amounts of stock for this price that is just not very attractive. But...

You've been able to have any indication that that's a valid -- that there's a likelihood of something happening in this area with regard to in licensing?

I really can't talk about likelihood because it's a difficult territory for me to get into. I can tell you we've looked at 100 private companies at a topline for example for private for companies that might have a product that isn't enough to carry a company to an IPO especially in these days and of that 100 we focused on 3 or 4 for further more detailed diligence. Most of them are rejected right away.

So are there any ongoing discussions?

There are.

There are no further questions.

Okay, well, if further questions occur to any of you between now and our next formal update please feel free to contact investor relations at the Company.

Ladies and gentlemen, this does conclude your presentation today. Thank you for participating and you may now disconnect.