Repligen Corp (RGEN) 2006 Q1 法說會逐字稿

Welcome to the First Quarter 2006 Repligen Corporation earnings conference call and corporate update. [OPERATOR INSTRUCTIONS]. At this time, I would like to turn the presentation over to Mr. Walter Herlihy, President and CEO. Please go ahead, sir.

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, profits, losses and financial stability, oportunities for collaboration and licensing, our intellectual property portfolio, our plans for clinical trials, 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 for 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 in the failure of regulatory approval, access to capital, adverse changes in commercial relationships, and the risks that resulted in earlier clinical trials are not necessarily predicted with the safety and efficacy results in larger clinical trials, and a variety of other risks set forth in our filings with the Securities Exchange Commission, including, but not limited to, our annual report on Form 10K. In certain circumstances in which per our disclosure becomes materially misleading in light of subsequent events, we do not intend to update any of these forward-leading statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

This morning we released our financial results for the first quarter of our fiscal year 2006, which ended on June 30th. For the quarter, we recorded revenue of $4.2 million including product sales of $4 million, up 43 percent from Q1 of the prior year, and our best quarter to date. Higher sales and an increase in gross profit margin from 60 percent to 76 percent increased our gross profits on product sales to $3 million for the quarter, up 81 percent from the prior year. For the quarter, we recorded a net profit of $2.2 million, which included an operating profit of $881,000, and a one-time gain on our previously announced settlement with our SecreFlo supplier of $1.2 million. Our cash investments on June 30th was $24.8 million, essentially unchanged from the prior year.

Our performance for the quarter was the result of record orders from our 2 largest customers, GE Healthcare and Applied Biosystems. Based on these results, we are revising our financial guidance for fiscal year 2006. We now estimate sales for the current year to be between $11.7 and $12.3 million, up 25 to 32 percent, which approximates the growth rate of the monoclonal antibody business.

We now expect gross profits for the year of between $8 and $8.3 million, or approximately 50 percent above prior year. We are affirming our guidance on net loss and cash burn for the year of approximately $2 million, resulting in a cash balance of approximately $22 million on March 31, 2006.

Our budget includes approximately $1 million of capital investment, primarily to add another purification suite and to install several thousand liters of fermentation capacity in our Protein A manufacturing facility. We expect this investment to positively impact our Protein A profit margins in 2006.

As we have consistently stated, we believe that our Protein A business will grow at approximately the same rate as the overall monoclonal antibody business which remains strong. For example, last week Amgen reported that the Q2 sales of Enbrel, their monoclonal antibody for arthritis, increased by 45 percent over prior year to $639 million.

In the combined sales for the 3 monoclonals used in arthritis and related indications, which includes J & J’s Remicade and Abbott’s Humera will be at least 33 percent higher in 2005 than in 2004; a clear sign that the use of this class of drug has not peaked.

Now, let me turn to our intellectual property assets. Our patent infringement lawsuit with MIT against ImClone is progressing steadily. The discovery phase of the case is scheduled to conclude in several weeks, expert reports are due in September, and summary judgment motions, if any, by November 30. Nothing we have learned in prosecuting this case has changed our belief that ImClone infringed our patent on DNA enhancers when it produced the first billion dollars worth of its drug Erbitux. Unless there is a settlement or a summary judgment we expect this case to be tried in 2006.

We also have intellectual property on the use of CTLA4-Ig for the treatment of rheumatoid arthritis, MS and lupus. Bristol-Myers has publicly disclosed that it completed the filing of a Biological License Application with the FDA for CTLA4-Ig for the treatment of arthritis in March and that it expects action on the application later this year.

According to the FDA’s website, CTLA4-Ig, also known as abatacept, will be reviewed by the Arthritis Drug Advisory Committee on September 6th. If Bristol’s FDA application is subsequent approved, we will seek to license them our patent.

Turning now to our product pipeline – in February we reported the initial results from our Phase II study of secretin in patients with refractory schizophrenia. The Phase II study produced mixed results with a trend towards improvement in the physicians overall assessment of the patients called a Clinical Global Impression; however, no difference was observed between the groups with a positive and negative syndrome scale, a commonly used scale, which assesses the core symptoms of schizophrenia. As previously reported, several patients engaged in a quantitative cognitive testing paradigm after their first dose to assess the impact of secretin on a cognitive deficit characteristic of schizophrenics, which would not be expected to be captured by the standard symptom scales.

A protocol for a follow up study in this area has now been finalized and is under review by the FDA and the Hospital IRB. Pending their approval, we expect to start recruitment in September.

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 3 times a week and using a subcutaneous dose form. Approximately half of the patients are enrolled and we expect to complete this study within 4 months.

Our second product candidate for neuropsychiatric disease is uridine, a naturally incurring nucleoside. We have now completed a pilot study of our oral formulation, which showed that an oral dose produced a five-fold increase in the blood levels of uridine.

We are now discussing a placebo-controlled multicenter trial in bipolar disorder with our partner, the Stanley Medical Research Institute, which may provide funding for the Phase II study. Assuming agreement, we expect to submit a protocol to the FDA in the fourth quarter of this year.

Our corporate strategy is to redeploy a process from our current products and any revenue we may receive from our patents to bill a sustainable franchise in neuropsychiatric disease. In the past 9 months, we have evaluated more than 10 in-licensing opportunities in the C&S field with an emphasis on epilepsy, Parkinson’s and Alzheimer’s disease with the goal to identify a product licensing opportunity which had completed a Phase I trial. Our experience indicates there is a distinct lack of good post Phase I opportunities in these areas.

While we will continue this effort, we have now expanded our search to both earlier stage products for which there is more compelling biological rationale, and which could reach the clinic within a year, as well as opportunities to improve the utility of existing drugs through formulation.

We are currently working on several opportunities in epilepsies and Alzheimer’s, although the timing of any potential acquisition or program is uncertain.

Finally, I would like to recognize G. William Miller, who will be retiring from our Board of Directors in September after more than 20 years of distinguished service. Bill’s keen financial insights have been invaluable in guiding our strategy. The Board has nominated Karen Dawes to stand for election. Karen is the past head of Bayer’s US Business Operations and previously held senior marketing positions at Wyeth and Pfizer. Her commercial and marketing expertise will help us in both the development of our existing products and in evaluating the commercial potential of any in-licensing product candidate.

That concludes my prepared remarks for today and at this time I will be happy to answer any questions.

[OPERATOR INSTRUCTIONS]. Your first question comes from the line of Elmer Piros with Rodman. Please go ahead.

I wanted to make sure that I understood your guidance properly. You guided for product revenues of 11.7 to 12.3 for the fiscal year?

That is correct. That is product not research revenue.

Product. And what was the previous guidance?

11.2 to 11.7.

11.2 to 11.7. So after this quarter you think -- I mean this was an exceptional quarter by nice orders by GE and ABI -- we are going back to the $3 million per quarter run rate in terms of -- and growing revenues from the Protein A segment.

Yes, 2.5 to 3 million is the base for the growth for run rates. As I mentioned the last time, we do not try to guess what is going to happen 6 or 9 months from now -- 9 months looking forward -- you simply reflect the rolling 12-month forecast we have from our customers. Typically, as say the first quarter of calendar 2006 comes into view those forecasts get revised, so we update on a quarterly basis [inaudible]. We make a very conservative projection -- we hope we can upgrade it every quarter.

A somewhat related question -- SecreFlo is probably in the $4 to $500,000 range or it is not even that much?

Please say that again. What in the $4 or $500,000 range?

SecreFlo revenues.

SecreFlo is about $0.5 million a quarter.

A $0.5 million a quarter, okay. Gross margin -- I mean if the mix remains as is then 70+ percent is reasonable to assume again, is it not?

Our guidance is a little bit lower than that because we had a very favorable product mix this quarter, so the $8 to $8.3 would be sort of in the high 60s on a revenue base of 11.7 to 12.3.

Thank you. And expenses well, in the net loss guidance, we could probably figure it out but.

R&D it will be about 6.5-7, SG&A 4.5-5, cost of revenue 3.5-4.

The SG&A was 4.5-5?

Correct, is our estimate for the year.

R&D revenue, what is it relating too?

Revenue from the Stanley Medical Research on the [yearly] bipolar program.

I think there was one pipeline question that I had, thanks for the update there. With the Protein A candidate you are still doing some additional preclinical work I assume?

This is for V-cell oblation?

Yes.

Yes. We actually are doing two things there. One is an in vivo tumor model with an appropriately chosen tumor, as well as some primate studies have been contracted for to see whether some of the toxicities that we saw in large animals, dogs and pigs, are reproduced in primates or not. These are toxins that are not seen in rodents so we are really going to sort it out in primates over the next 4-6 months.

Have you noticed any increase in activity in the background from Bristol --between you and Bristol now that their panel date is just about a month and a half away.

I wouldn't want to speculate on any communications between Repligen and Bristol. I think from a legal point of view we have been advised that is probably not a great thing to do.

Thank you very much for the update.

You next question sir comes from the line of Martin [Scrowley] with Intrepid Capital Management.

Great quarter. I am wondering if you or the board have considered selling the Protein A business, which has proved to be very valuable as it may alter you in-licensing opportunities and capabilities.

We have visited that topic over the years from time to time and I think the data at least, our assessment has been, that the upside specifically on the profit side, ability to grow profits, is greater than perhaps you would be able to command in a selling price. We think that the business will grow disproportionately faster than others may have guessed like two years ago or a year ago and so far that has been true. But certainly we are not wed with for life any one technology, or business, or business model, and if an offer came along we would have to consider it.

[OPERATOR INSTRUCTIONS] Your next question comes from the line of Chris Nash with HC Capital.

Quick question on the recent Genentech deal where they bought the Biogen plant does that have any implications as far as potential Protein A demands that you might receive maybe through Genentech or Biogen and are there any additional opportunities there.

There is opportunity there. We have about 70% world market share of Protein A. I don't believe that our Protein A, is used in that manufacturing process per say, obviously we would like to gain 100% world market share since we are the low-cost provider in the world. We constantly have business development activities directed towards that.

Does this transaction make it anymore likely to get any additional business with Genentech?

It is hard to gauge potentially. Whenever there is a shift in manufacturing site and a dramatic increase in demand that creates opportunities in general. We certainly think the prospects are better this year than they were last year.

[OPERATOR INSTRUCTIONS] With no further questions I would like to turn the call back to Mr. Herlihy for closing remarks.

Thank you all for joining us today on our quarterly call and we look forward to talking to you again in 3 months. In the interim if you have any questions of course feel free to contact investor relations directly.

Ladies and gentleman thank you for your participation today. You may now disconnect.

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