Repligen Corp (RGEN) 2005 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the 2005 second quarter Repligen earnings conference call. My name is Mia 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 his conference. If at any time during the call you require assistance press star followed by zero and a coordinator will be happy to assist you. I would now like to turn the presentation over to your host for today's call, Mr. Walter Herlihy, President and CEO. Please proceed.

Thank you and good morning. At the outset I would like to state that this discussion will contain certain forward-looking statements which are not guarantees of future performance such as our projections of future revenues, loss and financial stability, opportunities for collaboration on licensing, our intelectual property portfolio, our plans for clinical trials and the likelihood of of success in litigation. 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 of our products, unexpected preclinical and clinical results or delays, the need for additional research and testing, delays in manufacturing by us or our partners, failure to receive adequate supply of product and clinical materials from our partners, timing of product orders, delays in the failure regulatory approvals, access to capital, adverse changes in commercial relationships and the risks that results of earlier clinical trials are not necessarily predictive of the the safety and efficacy results in larger clinical trials, and a variety of other risks set forth in time to time with our filings with the SEC, including but not limited to our annual report on Form 10-K. Except in circumstances 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 occurrence of anticipated events.

Prior to providing update on our programs and patent assets I will briefly review our results for the second quarter and the first half of fiscal year 2005 ending on September 30, 2004. For the recorder we recorded product sales of 1.3 million. Sales were impacted by the accelerated delivery in the prior quarter of several significant Protein A orders originally scheduled for delivery in the second quarter. Thus for the first half of fiscal year 2005 sales 4.1 million our best six-months results to date. Our net loss was 1.7 million for the quarter and 2.4 million for the first half. On September 30 we had, approximately, 24 million of cash and investments.

Based on these results and strong order flow in the current quarter, we are increasing our project for sales in the current fiscal year from 6 to 7 million to 7 to 8 million. We also expect to receive a payment of $750,000 from the University to California and Pronora (ph) on this quarter in connection with the previously disclosed settlement of litigation regarding certain patents pertaining to our uridine program. This payment and our increased sales allows us to reduce our previous estimate of net loss for fiscal year 2005 from 7 million to between 5 and 6 million. We expect cash and equivalents on March 31, 2005 of between 21 and 22 million.

Last February, I discussed an internal initiative to improve our Protein A business. We are making steady progress and I hope to be able to share the specifics with you in the next 90-days. We believe there is significant opportunity for growth of the Protein A business with the anticipated launch of biogen idex antigren for multiple sclerosis and Bristol CTLA4-IG for arthritis in 2005, both of which are purified on Protein A. As well as the longer term investments we have seen this year by virtually every pharmaceutical company and antibody based products, the vast majority of which produced with Protein A. We believe our new initiative will enable us to more fully participate in the growth of this class of drug over the next several years. Before updating our product development programs I will first review the status of our CTLA4 and our bio processing intelectual property.

As previously reported the results of two successful Phase 3 trials of Bristol-Myers Squibb CTLA4-IG were presented at the annual meeting of the American College of Rheumatology last month. Bristol's form of CTLA4-IG improved patients symptoms in a study of patients who were refractory to methotrexate (ph), a commonly used drug, and separately in a study of patients who were refractory to the antibody products which block the inflammatory mediator TNF. The TNF blockers such as Amgen's Enbril and J&Js Remicade are expected to record revenues of approximately $3 billion in arthritis this year. Despite the fact that 25 to 40% of patients do not achieve adequate symptom relief.

Bristol has previously announced that they intend to file a new drug application with the FDA by year's end, a plan that I expect they will confirm at the annual R&D meeting next week. It appears from the excitement generated at the rheumatology meeting that CTLA4-IG represents the next major innovation in the treatment of rheumatoid arthritis. We belive that without a license the commercialization by Bristol of CTLA4-IG will infringe our issued patent in the U.S. and Europe.

In our Phase 1, single-dose trial of CTLA4-IG in multiple sclerosis patients, 15 of the anticipated 16 patients have been dosed and we expect the final patient to be dosed in December. We plan to submit a request to the FDA to enable the protocol to be extended to an additional four patients who will each receive four doses in early 2005.

As previously disclosed Repligen and MIT filed suit against Inclone in May alleging that Inclone had infringed one of our US patents in its production of erbatux, its drug for colon cancer. Our patent covers certain genetic technologies, called DNA enhancers, which increase the productivity of a cell line used to produce an antibody or other protein. At a hearing on August 9, the judge denied Inclone's request for a separate time consuming hearing to analyze the language of the claims identified in the patent. Ruling instead that the language was clear as written. He has set an aggressive schedule for the completion of document exchange and witness depositions by mid-2005. We expect to depose the first Inclone witness within two weeks. Properly, Inclone reported $86 million of erbatux sales in Q3 a robust level for the second full quarter of sales and generally in line with analyst estimates.

Turning now to our product pipeline. We have completed patient enrollment in our Phase 2 study of Secretin in adults with schizophrenia. This Phase 2 trial is evaluating 4 doses of Secretin versus a placebo over two weeks in refractory schizophrenic patients. Despite the six-fold increase in dosing frequency, compared to our previous studies in autism, we have not observed any significant adverse events. We expect to complete the trial by year's end and analyze the data in early 2005.

As previously announced we initiated a Phase 1 clinical study of Secretin in obsessive compulsive disorder in September. This protocol will evaluate six subcutaneous injections of Secretin dosed over two weeks in 16 patients. Based on our Phase 1 trial a subcutaneous dose of Secretin is expected to increase the total exposure of the patient to the drug by 5-fold compared to IV dosing, which we have used in our autism and schizophrenia studies. We are also increasing the dosing frequency at three times a week on OCD trial versus twice a week in the schizophrenia trial.

Our second product candidate for neuropsychiatric disease is Uridine and actually curinucleacide (ph). We intend to extend our Phase 1 observations to the effects of Uridine on bi-polar depression in a placebo controlled Phase 2 trial. Based on feedback from the FDA we are planning a Phase 2 clinical study which clear approximately about 80 bi-polar patients who will receive daily oral dosing of Uridine over a 6-week period. Expect to file an IND for this study in early 2005.

Our third proprietary program is based on a fragment of Protein A for the sublective depletion of D cells, the immune cells responsible for the production of antibodies. Our initial disease target is oncology, primarily non-Hodgkin lymphoma patients. We have reviewed our toxicology and clinical plans with the FDA and we are currently working to understand several unexpected observations in animal studies. Our goal is to file an IND in the first half of 2005.

Our corporate goal is to use the profits from our product sales and patent assets to build a sustainable franchise in neuropsychiatric disease. Through that end we are continuing to evaluate in-licensing opportunities in the CNS field and have completed the evaluation of several products and development programs in the past quarter and are in early stage discussions with several organizations about possible collaboration. I look forward to providing with you additional feedback on this initiative as well as the progress of our internal products and programs at our next quarterly update. That concludes my prepared remarks for today and at this time we'll be happy to answer any questions.

Ladies and Gentlemen if you wish to ask a question press star and followed by one on your touch tone telephone. If your question has been answered or you wish to withdraw your question please press star followed by two. Questions will be takin in order received. Please press star one to begin. Please hold while we coordinate the questions. Your first question comes from Elmer Piros of Rodman. Please proceed.

Good morning, Walter.

Morning.

Thanks for the update. I'd like to get just a couple of housekeeping items out of the way on the expense side. Do you still maintain your projects for R&D close to 7 million, SG&A roughly around 4? For the year, for the fiscal year?

Yeah. I think that the, uh, SG&A will be about 4 1/2 million or so.

Okay.

And 6 1/2 million for R&D for the year, current fiscal year.

Okay. Thank you. And I'd like to focus a little bit on the schizophrenia study. Could you provide some more details in terms of how many patients have been dosed, what's the treatment? What is the observation period? And what sort of measurements would you look at and what would -- what would be your minimal expectation for a successful study?

Okay. Let me talk about the structure of the studies first. There are as if turns out 44 patients who have been dosed and we have closed enrollment and the dosing is on a four times on a two week -- over two weeks, a Monday/Thursday, Monday/Thursday.

Okay.

Patients are evaluated at base line.

Okay base line.

for a variety -- using a variety of standard tools such as the positive/negative symptom scale for schizophrenia as well as a number of tools of psychiatric rating scales covering things like depression, anxiety and some cognitive measurements.

Okay.

And then patients are evaluated between each dose.

Okay.

And then of course after the fourth and final dose, then followed up a month later, primarily for safety antibody production that sorts of things.

So you'll be comparing base line to between the doses and after the final dose?

Correct. Correct on a number of different scales. I think that -- if that answers your first part of your question. I think what we're looking to observe here, is whether or not, in this very refractory patient population and I should say it's an inclusion criteria for this study that patients must be unresponsive to any of the commonly employed anti-psychotic medications in the marketplace, such as Zyprex-O, or Abilify, et cetera. And so what we're trying to replicate is the observation that physicians who conducted the Phase 1 study, the University of North Carolina observed, was that in that study, a fraction of the patients, three of 11, I believe, received the drug showed marked, albeit, transient improvements in that social behavior.

And what was the treatment observation -- I mean the observation period there?

I believe the observation period was there was immediately after -- a single-dose type and immediately after a dose and 7, 14, 21, and 28 days. There was no effect observed in the 7, 21 -- 7 through 28, rather, day observations.

Okay.

Transient response.

Okay.

And I think it would be given a refractory nature of the patient population and of course our prior experience in autism that we should be a little bit guarded in thinking that a reasonable expectation in this patient population is some sort of pivotal study success, you know B-values on qualified scales. We will be quite pleased to be able to show that this drug is safe at this dosing frequency and that some of the patients seem to have responses that were reminiscent of the ones observed in the Phase 1 study. I mean there's a biological effect that can be replicated.

Okay.

I don't expect that given the observations in the Phase 1, that this will be seen in all or even a majority of the patients.

Okay.

Clearly the path forward here is to continue to think about the appropriate dosing schedule if we can replicate that biological effect and most importantly, now armed with data in refractory patients have the both clinical and ethical rationale to move into a less ill patient.

Yes, yes. Okay. Was this a single center studies?

No. This study, I believe, enrolled patients at five centers over the seven that were qualified.

Okay. Thank you very much, Walter.

Yep.

Your next question comes from Ron Chez, who is a private investor. Please proceed.

Walter, good morning.

Good morning, Ron.

Walter, did I -- I heard that right about raising estimates for sales for the second half. What was that number?

Well, for the full year, we anticipate the sales will be between 7 and 8 million dollars. Product sales. As opposed to the 6-7 we were thinking it might be last quarter.

Based on?

Based on. That's based on acceleration of orders in the current period, actually. And projections of higher than expected orders in Q4.

And based on that increase in the Uridine dollars that was $750,000?

Correct. One-time payment.

One-time payment

One-time settlement payment to -- but it will drop through to net income of course.

Wouldn't that bring the loss even lower than what you said?

Well, I would think right now it's going to be between 5 and 6 million for the year. It was 2.4 million, I believe, for the first half, the net loss. And so that would be in line with an extrapolation but we are -- for the full year but we are gonna accelerate expenses,

Oh okay

have some start-up costs associated with the other programs. The [INAUDIBLE] cancels that out.

One more question back to Bristol-Myers and CTLA4, your strategic overview of the asset potential here and the Repligen has a longer dated patent in this area with regard to method of use, right?

That's right. Our U.S. patent expires in 2021.

And theirs?

There's a variety of expiration dates between, I believe, it's 2012 and 2015. So if I remember correctly.

So your strategic commentary or overview please?

I think that that's just one aspect of the overall situation. I think the development for this quarter, if you track things on a quarter-by-quarter basis, is I always believed CTLA4 was going to be important for us in rheumatoid arthritis and based on our medical director who spent the week down at the ACR meeting talking to both investigators who ran the trial and investigators who were not actually part of the trial. There's a great deal of enthusiasm for what the -- for the data that was recorded. I would say the glass is half-full in terms of the clinical prospects. And I think the potential value of -- this is a drug, just to put this in the context, the drugs in this class, that are successful, some more than $1 billion a year, a drug like Enbril and Remicade, that as that opportunity increases, I think it , for me at least, opens the door for a potential win-win discussion where clearly Repligen doesn't need a double digit royalty to reward shareholders handsomely if this actually does turn out to be a billion dollar or even a $500 million drug. I think that, without going into any specifics of numbers or states of discussion, I just see an opportunity here for us to, as I say, have a win-win solution.

Okay. Well, good luck, thank you.

All right.

Once again, ladies and gentlemen that is star one for questions. Please hold while we coordinate the questions. Your next comes from Joe Ferguson of J.P. Turner. Please proceed.

Hi, Walter, how are you doing?

Hello, Joe.

Just got a question that's good news, obviously, if you think the Bristol-Myers litigation is a win-win situation. Are you as confident with the Inclone erbatux litigation?

Well, just to clarify, I think there's a potential for a win-win in Bristol-Myers and room for a deal to be done if both sides are willing. In the Inclone situation to me the facts of that have case are even more clear and so I suspect that Inclone will try to stretch things out as long as possible. But I'm, you know, that's fine. We have our lawyers are on a contingent fee basis, meaning Repligen's not bearing extraordinary expense to pursue this and I think ultimately we will be successful there. I think there's a very clear-cut case and I hope to be able to in 90 days or so give you update on that, as we start to get through this witness deposition process, which starts in two weeks.

Okay. Great, thank you.

Yep.

Your next question comes from Ken Luskin of Intrinsic Value Asset Management. Please proceed.

Yeah, hi, Walter. I was just wondering about the sell line that Inclone has infringed. Are there other companies that seem that would have also infringed this same sell line in development of their drugs?

We did license that same technology to another company. And I'm not sure that the products based on that sell line have made it to market yet. I think that's still in the research phase, a diagnostic product, Invivo diagnostic product based on the antibody. So that was the other possible -- possible use of it.

All right. Okay. So there's no other companies that would have developed their drug using that though.

Or using the DNA-enhancer technology not that I'm aware of. Some could come -- one could come to light I guess, I suppose always possible. But not that we're aware of.

And are you in any discussions at all for partnerships? With -- for your own inventory of potential drugs?

We don't have any significant discussions going on. We always have conversations of course with interested parties but we don't have any significant negotiations underway for the -- just to clarify now, Secretin therapeutic use or the Protein A or Uridine programs.

Okay. Thank you.

Our strategy there is to take those programs through a proof of concept clinical study so we have not tried to initiate partnerships. Naturally we get questions from companies and we always respond to them, but we're not driving that at this current time.

Then the Protein A business, you expect that business to continue growing year-over-year for -- I mean, is there any competition there? Or is there any impediments to the growth at that business?

Well, there is competition from Legacy Products that are made on -- with non-recombinant Protein A, but, however, since we're the only producer in the world of recombinant Protein A and we're the low-cost we expect the business to grow from two sources. One is the conversion of Legacy Products to newer generation products based on recombinant Protein A, but more importantly the introduction of new antibody products, I think we're going to see Antigren approved shortly here, this is the biogen idex antibody which is made on Protein A and certainly CTLA4-IG, we know is made on Protein A. So I think that continued momentum in the antibody business doesn't show any signs of letting up. And as goes the antibody business, so will go our Protein A business

And what is the impediments to competitors to enter the business?

Well, we have a U.S. patent composition of matter patent on recombinant Protein A that runs through 2009. As I say we are the low-cost producer as well.

Okay. And is there a potential that you guys might monetize that business to use in your development of other -- or at this point you're just using it --you're growing it --

We think the rate of growth is possible over the next couple of years make it, we might leave money on the table to try to monetize it at this moment in time. But of course you know, make me an offer, I can't refuse and we'll have to consider it. We don't have ongoing plans or discussions in that regard.

Okay.

All right, thanks, Ken.

Thank you.

Your next question comes from Martin Schkrelli of UBS. Please proceed.

Hi, Walter, thanks for taking the call.

Hi Martin

Hi. Could you give us your thoughts on what the potential dosing schedule of the sub q formulation of is Secretin will be?

Well, in the Phase 1 study we did Friday, three time as week.

Okay.

And in fact, the site believes that the ease of the dosing will allow after some initial training injections for the patients to dose themselves at home. Which I guess in the OCD population is something you can accomplish. And I think it's part of a general trend. We're continuing to push the edge of the envelope on both dose level, meaning that sub Q delivers five times more drug than IV does in terms of blood stream concentration as well as frequency and as of yet we haven't seen any reason not to continue to push that envelope because there's always the potential that we've underdosed. Particularly in some of our past studies of Secretin.

Excellent. Thank you very much.

Yep.

Your next question from Alan Ferguson of Saherian (ph) please proceed.

It's Norm Ferguson. What are the expected or hoped for next steps in schizophrenia? You mentioned the possibility of moving into less severe patients. Would you expect that would be a confirmatory over Phase II? And do you expect to move into a possibly conformatory study in more severe patients?

Well, obviously it'll be driven a lot by what we see in terms of the data from the Phase 2A study if we were move into -- if we were to make a decision to move into less severely ill patients I would characterize that as also an early Phase 2 study of similar to sort of design and size as the current study in refractory patients. And if we, then, were to continue in refractory patients we might do a somewhat larger study. But again it would be really driven by data early next year.

Okay. Thank you.

As a reminder, ladies and gentlemen, that is star followed by one for questions. You have no further questions. I will now turn the call back to Mr. Herlihy.

Okay, well thank you all for participating in this morning's call. We look forward to updating you again in early February and if questions arise in the interim please feel free to contact investor relations directly at the company. Thank you.

Thank you for your par participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.