Repligen Corp (RGEN) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Repligen updates product development programs conference call. My name is Carlo and I will be your coordinator for today's presentation. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of today's prepared remarks. (Operator Instructions). It is now my pleasure to turn the presentation over to your host for today's call, Dr. 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 such as our projections of future revenues, loss and financial stability, opportunities for collaboration and licensing, our intellectual property portfolio, our plans for a clinical trial and the likelihood of success of litigation. These statements are subject to certain factors which may cause Repligen's plans to materially differ or results to materially vary from those expected, including market acceptance of our products, unexpected preclinical or clinical results or delays, the 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, delay or failure of regulatory approvals, access to capital, adverse changes in commercial relationships, the risk that the results of earlier clinical trials are not necessarily predictive of the safety and efficacy results in larger clinical trials, and a variety of other risks set forth from time to time in our filings with the Securities and Exchange Commission, including but not limited to our annual report on Form 10-K. Except in circumstances in which prior disclosure becomes materially misleading in light of subsequent events, Repligen does not intend to update any of these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Prior of providing an update on our product development programs, I will briefly review our results for the third quarter and first nine months of fiscal year 2005, ending on December 31st, 2004. For the quarter, we reported product sales of 2.2 million and for the first nine months of fiscal year 2005, product sales were 6.3 million, up 33 percent from last year and our best nine-month results to date.

Gross profits for the nine-month period were 3.5 million, up 45 percent from prior year. We also received a payment of $750,000 from the University of California and Proneuron this quarter in connection with a previously disclosed settlement of litigation regarding certain patents pertaining to our Uridine program. Our net loss was $193,000 for the quarter and 2.6 million for the nine-month period. On December 31st, we had approximately 23.8 million of cash and investments.

Based on these results and strong order flow in the current quarter, we are increasing our projection for sales in the current fiscal year to 8.5 million and reducing our previous estimate of net loss for the fiscal year 2005 to between 3.5 and $4 million. We expect cash and equivalents at March 31st, 2005 to be approximately $22.7 million.

Turning now to our product pipeline, today we reported initial data from our Phase II study of secretin in patients with refractory schizophrenia. The Phase II study was designed to confirm the results of the Phase I trial of secretin in schizophrenia, which was carried out independently by investigators at the University of North Carolina. In that study, 22 patients with refractory schizophrenia received either a single intravenous dose of one or two clinical units per kilogram of secretin or a placebo. Several patients in the secretin group were reported to have had marked but transient improvements in social interaction compared to none in the placebo group. This effect was captured in a physician's assessment called a clinical global impression, or CGI. However, no difference between the groups was observed with a positive and negative syndrome scale or PANSS scale, a commonly used tool which assesses a broad range of symptoms characteristic of schizophrenia.

Given the transient nature of the response in the Phase I trial, our Phase II trial evaluated four intravenous doses of secretin versus a placebo over a two-week period. Patients were assessed at baseline and six times during the treatment period with several psychometric instruments, including the CGI and the PANSS. A total of 44 evaluable patients were divided evenly between placebo, secretin at 2 clinical units per kilogram, or secretin at 5 clinical units per kilogram. We did not observe a significant drug treatment effect on the mean change in either of the two primary assessment tools, the CGI or the PANSS positive and negative symptoms scales.

We also analyzed three other PANSS subscales -- activation aggression, autistic preoccupation, and dysphoric mood, which measures symptoms such as anxiety and tension. There was a trend towards improvement in the secretin versus the placebo in the dysphoric mood scale with a p-value of 0.06.

For the CGI assessment, we defined a responder as a patient who was rated as either much improved or very much improved in at least four of the six assessments. In the placebo group, there were two responders out of 15 patients or 13 percent. In the low-dose secretin group, there were three responders out of 15 patients or 20 percent. And in the high-dose group, there were four responders out of 14 patients for a 29 percent response rate. However, this trend is not statistically significant given the low power of this study.

I would note that the finding of a total of seven CGI responders in 29 secretin treated patients or 24 percent is comparable to the CGI response of 27 percent seen in the UNC study. The difference between the two studies was the finding of two CGI responders in our placebo group, which was not observed at UNC.

Our analysis identified a side effect in which a single clinical site disproportionately contributed to the placebo response on the CGI scales. When we remove the site's 12 patients from the analysis, there is a significant treatment effect of secretin over placebo in the remaining 32 patients on the CGI scale with a p-value of 0.037. Anecdotal reports from several sites noted transient changes in the social engagement, verbal interaction, and sense of humor in multiple patients at the time of infusion. We intend to systematically gather additional observations prior to unblinding the study personnel at these sites to better understand if these observations are related to the secretin treatment or whether they are an artifact of the infusion procedure.

In addition, several patients engaged in a quantitative, cognitive testing paradigm within two hours of their first dose to assess the impact of secretin on a cognitive deficit, which is characteristic of schizophrenics. The results clearly suggest that further investigation of the impact of secretin on this symptom is warranted. We are currently discussing the design of a follow-up study to determine if this observation is reproducible and drug-dependent. We expect this study can be completed in approximately six months. We will take the necessary steps to ensure that we have full patent protection for this use prior to discussing this observation in more detail. As many of you know, premature disclosure can render an invention unpatentable.

In summary, this trial provided us a wealth of new information and further indications of efficacy. First, secretin was well-tolerated in this more aggressive dosing regimen in which patients received drug twice a week compared to once every three weeks in our autism study and at dose levels 2.5 times as high. Second, as in the UNC trial, there were clinical observations of transient improvements in social interaction. Third, also as in the UNC trial, the CGI scale was more sensitive to capturing these changes than the PANSS scale. Fourth, anxiety continues to be a target for secretin. And finally, we have identified a new cognitive symptom for further evaluation.

As previously announced, we are also conducting a Phase I clinical study of secretin in an anxiety disorder called Obsessive-Compulsive Disorder, in which we are increasing the dose frequency to three times a week and using a subcutaneous dose form designed to increase the total exposure of the patient from each dose by fivefold compared to I.V. dosing. Our subcutaneous formulation provides a significantly longer exposure to the drug with equal or fewer side effects, which may impact the duration of potential benefits.

Turning now to our CTLA4-Ig program, following the presentation of two successful Phase 3 trials of Bristol-Myers Squibb CTLA4 at the annual meeting of the American College of Rheumatology several months ago, Bristol announced that they have initiated the filing of a new drug application with the FDA. The FDA has given CTLA4-Ig a fast track designation, meaning that the review of the new drug application will be completed within six months of the completed filing.

Separately, we are also developing a form of CTLA4-Ig. In our Phase I single dose trial of multiple sclerosis patients, we have completed the 16-patient dose escalation phase. No serious adverse events were recorded with a single I.V. administration of our product in doses up to 35 milligrams per kilogram. Pending approval by the FDA, the protocol will now be extended to four additional patients who will each receive four sequential doses.

Our second product candidate for neuropsychiatric disease is Uridine, a naturally occurring nucleoside. We intend to initiate a pilot study of our oral formulation of Uridine in this quarter. Assuming adequate bio-availability, we will proceed to a placebo-controlled multi-center trial in bipolar disorder in the second half of 2005.

And our third proprietary program is based on a fragment of protein access selective depletion of B-cells, the immune cells responsible for the production of antibodies. Our initial disease target is oncology, primarily non-Hodgkin's lymphoma. We've established the activity of this Protein A fragment in rodents and are currently extending these studies in larger animals with the goal of making a clinical development decision within six months.

Our corporate goal is to build a sustainable franchise in neuropsychiatric disease. To that end, we are continuing to evaluate in-licensing opportunities in the CNS field. We have evaluated several opportunities in the past quarter and are in early-stage discussions with several organizations about possible collaborations. I look forward to providing you with additional feedback on this initiative as well as the progress of our internal product development programs at our next quarterly update.

That concludes my prepared remarks for today. And at this time, I would be happy to answer any questions.

(Operator Instructions). Elemer Piros with Rodman.

Good morning, Walter. Walter, I'd like to ask you just a very general question. In the Phase II schizophrenia study, what was your original hypothesis?

Well, the original hypothesis was that we could reproduce the results that we were seeing in the study conducted at the University of North Carolina, namely that we could document a change in patients; and we were particularly interested in the social interaction domain.

And in what sense was this confirmed? Was the original study was confirmed, in your view?

Well I think that the original hypothesis was confirmed in that I believe there is an effect that one can see on CGI. But it was not confirmed in an ability to detect it with the negative symptom scale of the PANSS -- positive negative syndrome scale.

And the additional finding of the impact on cognitive function, was this at a level of observation? Or was this an original hypothesis that you had built into the study?

It was a hypothesis that was specific to one of the centers who we were working with in designing a protocol. So it was sort of an add-on study.

Okay.

But, of course, it was based on a review of animal data and other things. It wasn't just done randomly.

Sure, sure, sure. Now I know that you can't disclose much because you're in the process of filing patents here. But when you say several patients, what do you mean by that in the order? A couple, five, eight?

A couple.

Okay. Now, when you examined this particular effect two hours after the first dose, isn't this -- if there is a placebo effect -- isn't this the most vulnerable time for it, where it may be first injection and shortly after the first injection?

It's possible. We just don't know at this point in time. I'm not sure if it's more vulnerable to placebo effect as opposed -- let me back up. In our study, when we look at the placebo effect that we observed on CGI, we actually did -- I didn't mention it, a dummy injection before anybody really entered the protocol. And everybody got placebo just to try and sort out any placebo responders. And then they went -- and we got no CGI responders in that injection.

Then we entered the protocol. The patients were randomized, and they got their placebo or low-dose or high-dose secretin. And again, after the first day after that infusion, there were zero placebo responders.

The placebo response that we observed and I commented on actually came up after the first week of the protocol where the patients were being handled almost every day with either an infusion or an evaluation. It was cumulative.

Okay.

But to go back to your question in more specific terms, the response that we saw, according to the investigator, was one that would not be one one would see spontaneously in schizophrenics. And I think I'm quoting him accurately to say you could run 100 patients through this protocol, you wouldn't see that -- this response.

Interesting. Now that rogue center that observed the two placebo -- "rogues." The two placebo responders, how does it -- do you think that the bias was based on the investigator that have evaluated? It just seems fairly odd that to be able to -- to define a responder, you have to be very much improved or much improved in four out of six evaluations. So how could that happen if you have trained personnel there?

I think it has to do, Elemer -- and we saw this in our autism study -- with the hope that the psychologist has for the patient, or in the previous case, the parent. That as was the case with the autism study, one center scored not just on CGI, but all scales were rated higher across the board. And when you look at some of those results, and you see, well gee, after the washout period of several weeks, the good rating is still there. Then you really have to scratch your head.

Yes.

In a statistical analysis plan, there is a preliminary calculation, where you look for these so-called site effects, using a statistical test. And you don't want to, of course, in a pivotal study, a site to overly bias the results either positively or negatively. It becomes an outlier analysis, which is pretty common, actually.

Yes, yes. Now one would only hope that this optimistic center was not the one that observed the cognitive improvement.

They are two different things. One is a psychologist’s evaluation. The other has to do with electrodes and other sorts of things that are less placebo-related.

Okay, okay. Thank you, Walter. Oh, one quick thing. What was your previous revenue guidance for the year -- now it is at 8.5 million?

Seven to 8.

Seven to 8. Thank you, sir.

Jason Kantor with W.R. Hambrecht.

Thanks. Could you walk us through your -- how exactly you've come to that particular new revenue guidance? And if you could explain the dynamic in the market -- how big do you think specifically Protein A sales could get over the next couple of years?

Okay. Let me back up and tell you that in the current fiscal year, of the 8.5 million, 6.5 million is attributed to Protein A and 2 million is attributed to SecreFlo. So the Protein A number of 6.5 million this current year, ended March 31, compares to 5 million of Protein A sales in the prior year. Meaning there's about a 30 percent growth within Protein A. And that number, compared, is fairly comparable to the growth in the overall aggregate sales of monoclonal antibodies, its growth from 2003, 2004. So it's hard to make predictions, but I think that our sales, not on necessarily a quarter-to-quarter basis or even on a year-to-year basis, but long-term, will track as they have the last four years more or less in sync with the monoclonal antibody business. Does that answer your question, Jason?

That helps. While you're in the mood to break things down, what does it look like in this particular quarter in terms of Protein A versus SecreFlo?

It's about the same ratio. I don't have those numbers in front of me. But it's about the same sort of ratio.

Okay. And in terms of market share within Protein A?

The total worldwide Protein A market, we think we have about a 55 or 60 percent market share.

Any chance of that changing over time and, if so, in what direction?

I'm hopeful that over time, as new products come onboard, that our market share will grow. And the reason for that is that the other half of the market or the other third of the market, I should say, is served by legacy products, Staphylococcus aureus-derived Protein A. When customers such as Biogen Idec make a decision on a new product, we believe they are choosing in very high preference a recombinant Protein A product versus a legacy source of Protein A. So I think that while there are legacy products -- in particular Rituxan that aren't made on Staph Protein A that will continue chugging along for a lot of years, because more and more antibodies come onto the marketplace, that's where we'll have an opportunity to grow market share through our partners, of course.

And SecreFlo outlook there?

Pretty stable basically. For SecreFlo to grow, we will have to develop other indications -- other diagnostic and expand the label.

Thank you.

Arkay (ph) Ramakanth with Rodman Renshaw.

Good morning, Walter. How are you? I'm just going to ask you some housekeeping questions. You have answered quite a bit. Basically, I was trying to get my numbers straight. Is it anywhere possible to give us guidance for the coming year, 2006? Or is it too early? I know you told us that it's going to -- the revenues probably could grow about 30 percent, at least the Protein A revenues.

Yes, I wouldn't phrase that as guidance for the next year. I think we're going to have a good year in Protein A. But I think the 30 percent number is my sort of long-term both looking back and looking forward.

Our fiscal year doesn't begin until April 1st. I would say that the only guidance that I'd be comfortable giving now based on what we're – as we're working through the budget process -- is that our loss, our net operating loss, will be in the range of $5 million or so. Unless there's some onetime in-licensing transaction or some other onetime event.

Okay. So how was your R&D going -- do you expect R&D to kind of go down? Or what kind of expectations should we have about your R&D?

I think R&D this current year will be about 5.5 million and I would expect it to grow modestly in the range of 6 to 6.5 million next year.

Okay. Thank you.

Ron Chez, a private investor.

Walter, good morning. Walter, this result, just back to the schizophrenia, this result you've described as an extraordinary result by this particular clinician?

You're talking about the cognitive observation?

Yes.

It's an extraordinary result in a very small number of patients. So it's more impressive by the nature of the result than it is by the breadth of the observation. That's why I'm being cautious about it and saying you absolutely have to go back and find out if this is real or not.

Okay. So it says you're currently discussing the design of a follow-up study. What kind of money are we talking about here to do the follow-up work?

Given the effect --

Significant or modest?

Modest. I think it's about $0.5 million or less and about a six-month study. A very focused, small number. Only a small number of patients were required to show that it's real or not.

Okay. So you'll be able to determine this rapidly?

I think I'd say about six months pending, of course, getting through FDA and IRB approvals, that's what it would take.

And you're filing for patent protection here, so don't want to say anymore about it?

Yes, we'll do that over the next month or so.

You'll say more about it?

Once we have patent protection in place, we'll be happy to talk about it.

Okay. And then, if you would comment or if you can about -- you'll comment further about next year at the end of the fourth quarter. But do you want to comment at all about efforts to get to profitability? It's not going to come directly in the foreseeable future -- no the short-term; it's not going to come from Protein A sales immediately. How are you going to get to profitability?

Well, I think for the next year, I would sort of not necessarily phrase the goal in those terms, but rather terms of stability and having the resources to do the programs we're talking about and to still have some capital to do some acquisition work. And I think that the combined product sales -- the 8.5 million -- it's providing us an ability, at least while we are in these early-stage studies, to do that. Clearly, for profitability, it would require corporate partnership that would generate significant revenue or an additional product of Protein A ilk.

And you're working on that internally as well as the prospect of in-licensing?

Yes.

There are internal possibilities to be able to do that?

It's too early to stay what's going to happen. We're working on some internal possibilities. That is an accurate statement.

Okay. Thank you.

Martin Shacrelli (ph) with Intrepid Capital Management.

Good morning, Walter. Congratulations on a good Protein A quarter and promising schizophrenia results. Can you remind me if Protein A is used to purify both Tysabri and becoming AMG162 or is that just Tysabri out of Biogen?

It's our strong belief that it's used to purify Tysabri. I'm not sure about the other product candidates. What is -- can you identify that product candidate for me a little more specifically?

It's in osteoporosis monoclonal out of Amgen.

Yes, I believe that's on recombinant protein, but I can't be certain.

Great. Are there any other upcoming monoclonal antibodies you can point to?

CTLA4-Ig is the next great therapy in arthritis.

Excellent. Thanks very much.

(Operator Instructions). Elemer Piros with Rodman.

Yes, Walter, I wonder if you could give us just a refreshment on where the ImClone litigation stands. We've seen ImClone being fairly aggressive on the settling front over the last several weeks. Have they made any -- has there been any change in their stance towards you?

We haven't had any specific conversations with ImClone. That case right now is in a document review. Each side is reviewing the thousands of pages of documents they received from the other side and preparing for depositions. This is the so-called discovery phase. And I would anticipate that neither side would be really -- will be interested in knowing what cards the other side has so to speak, through this discovery process to understand the strengths or the weaknesses of each side's case. And that would take place between now and the end of May, I believe, or early June, is the cutoff date.

Yes, were you actually surprised that they settled their cases with I think it was Genentech and another party?

Well, I don't know specifics of that case, but I think in general, 95 percent of these cases do settle just because neither side wants to play the high-stakes game of having a judge or a jury decide what your fate is going to be.

Yes. Okay. Thank you, sir.

Jason Kantor with WR Hambrecht.

Thanks. Could you give us a little more information on what the real selling cycle looks like for Protein A in terms of if CTLA4-Ig uses Protein A in their purification, when in the process do they buy it? Is this something they have to continually buy that scales with sales? What does that process look like?

Well, I can give you sort of in the very general answer to that question. Obviously, there's huge variations from company to company. But our understanding is that a large bio manufacturing plant from any of the monoclonal leaders will be running one or more large multi-hundred, 500 liter columns of Protein A in their purification train, which they recycle every few days or weeks. And that all manufacturers will have an equivalent backup column in case something goes wrong. And that these columns tend to be refreshed or replenished on a yearly basis, roughly, which means dependent on duty cycle and a lot of other things. But that's generally how it is. That the purchases of those large commercial scale quantities of Protein A typically would happen as one is preparing launch stock. So for Biogen Idec, that happened sometime, I would guess, as early as a year ago for the Tysabri product. It'd be launched in November.

Thanks.

Ron Chez.

Walter, do you want to comment quantitatively and/or qualitatively if there's anything on CTLA4-Ig on Bristol-Myers, as long as we're asking about patent issues?

There's nothing really to report beyond what I noted in my prepared remarks since there's no drug approved yet for sale. I really haven't got anything incremental beyond what we've covered before.

We have counsel?

Yes, we certainly do, absolutely.

Okay. All right. Thank you.

Martin Shacrelli with Intrepid Capital Management.

Thanks, just a follow-up to Jason's question. I'm curious, you mentioned you're seeing strong order flow for maybe the last quarter or this quarter. Maybe you could give us a little bit more granularity on that and I'm curious if Biogen placed orders a year ago, what are you seeing now?

Okay. When I say strong order flow, what I'm referring to is orders from our value added resellers -- GE Healthcare or Applied Biosystems, or the companies who take our Protein A, attach it to their proprietary beaded matrix and then they resell it onto the end-user whether it's Biogen or Bristol-Myers or whomever. So what we receive is -- our order flow is in bulk Protein A shipments to -- primarily to these several large customers.

Do you have any idea what could be going on in the end market that's driving those sales? Is it new antibodies or is it research purposes? What could it be?

Anecdotally, we understand, for example, that last quarter things went faster than we thought -- we are ahead of where we thought we were going to be because a customer is doing a conversion to a more advanced manufacturing process, expanded process, and needed to get brand-new Protein A columns to accommodate that, booting up that new process. But these things are hard to be more quantitative than that about.

Sure. Thanks again.

And sir, we have no further questions at this time.

Okay. Well thanks for participating in today's call. And if there are further questions, feel free to contact the Company directly at investor relations.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes your presentation and you may now disconnect.