Repligen Corp (RGEN) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by and welcome to the Repligen Corporation’s Q2 2006 Earnings Conference Call. [Operator Instructions]

I would now like to turn the presentation over to your host for today’s conference, Walter Herlihy, President and CEO. Please proceed, sir.

Thank you and good morning. Joining me today on our call is Laura Whitehouse, our VP for Market Development. And Dr. Janice Reichert from the Tufts University Center for the Study of Drug Development, who will participate in the second half of today’s presentation to provide us some perspective on the current and developing markets for monoclonal antibodies, many of which are manufactured on our Protein A product.

If you are currently online, I would invite you to go to the home page of our website at www.repligen.com and download a PDF containing three graphs supplied by Dr. Reichert. Although the presentation today will be clear, even if you’re unable to view the graphics, you’ll find this PDF at the bottom of the “Highlights” box on our home page.

At the outset, I’d 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, profits, losses and financial stability, opportunities for collaboration, end 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 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, delays in the supply of product; delays and failure of regulatory approvals; access to capital; adverse changes in commercial relationships; the risk as a result of earlier clinical trials that are not necessarily predictive of the safety and efficacy results in the larger clinical trials and a variety of other risks set forth in our filings with the SEC, 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, we do 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.

This morning we released our financial results for the second quarter of our FY06, which ended on September 30th.

For the quarter, we recorded product sales of $2.7 million, up 110% from Q2 of the prior year. In the past, we have observed that product shipments are often reduced in July and August, but this summer we did not observe the level of decrease as in prior years.

Our gross profit margin was 68%, compared to 46% in the second quarter of last year. Our cash and investments on September 30th were $24.9 million, essentially unchanged from last quarter.

Based on these results, we are revising our financial expectations for FY06 ending March 30, 2006. We are increasing our product sales expectation for the current year to between $12.5 and $13 million, which represents a 34% to 39% increase over prior year, and increasing our expectation for gross profits for the year to between $8.5 and $9.0 million, or approximately 61% above prior year.

We are reducing our expectation for the net loss for the year from $2.0 million to $1.0 million and affirming our expectation of a cash burn for the year of approximately $2.0 million, resulting in an estimated cash balance of approximately $22 million on March 31, 2006.

We expect to make approximately $1.0 million of capital investment this year, primarily to add additional purification and fermentation capacity in our Protein A manufacturing facility. We expect this investment will double our manufacturing capacity and positively impact our Protein A profit margins in 2006.

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 nearly complete and all expert reports and summary judgment motions must be submitted by November 30th. Unless there is a settlement or a summary judgment ruling in ImClone’s favor, we would expect this case to be tried in 2006.

We also own intellectual property on the use of CTLA4-Ig for the treatment of rheumatoid arthritis, MS, and lupus. In September, an independent FDA advisory committee recommended that the FDA approve Bristol-Myers Squibb’s license application for Orencia, their form of CTLA4-Ig and Bristol has publicly disclosed that the FDA has set a PDUFA or action date of December 31st. If Bristol’s FDA application is approved, we will seek to license them our patent.

Turning now to our product pipeline, in September we announced the initiation of a follow-on study to our previously reported Phase II study of Secretin in schizophrenia to determine if Secretin has the potential to improve certain cognitive deficits in patients with moderate-to-severe schizophrenia. We expect to complete this 20-patient, placebo-controlled study in approximately six months.

We are also conducting a Phase I clinical study of Secretin in a chronic 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. Approximately 75% of the patients are enrolled and we expect to report the results of this study early next year.

Our second product candidate for neuropsychiatric disease is Uridine, a naturally occurring nucleoside, which we are initially developing for bipolar depression. We recently announced that our partner, the Stanley Medical Research Institute, agreed to substantially fund a Phase II or proof of concept clinical study. We expect to submit a protocol for this study to the FDA by year’s-end and begin enrollment in early 2006.

Our corporate strategy is to redeploy the growing profits from our current products and any revenue we may receive from our patents to build a sustainable franchise in neuropsychiatric disease. We are currently evaluating several product acquisition candidates; however, the timing of any acquisition or partnership is uncertain.

Now we’d like to switch the discussion to a topic of great interest to Repligen and its shareholders and that is the global market for monoclonal antibodies.

As you know, the robust increase we have seen in our Protein A sales over the past several years is a direct reflection of the increasing prominence of monoclonal antibodies as therapeutic agents. While it is difficult for us to make accurate projections of the growth rate of this business, historically we have observed a growth rate that is similar to the growth rate of the worldwide monoclonal antibody market.

In April of this year, a data monitor market report estimated that the worldwide antibody market is expected to triple over six years from the $10 billion of sales in 2004 to $30 billion in 2010, suggesting that there is significant opportunity for future gains in our Protein A business.

To give us a more in-depth look at the antibody market, we have asked Dr. Janice Reichert to join us today and share some of her research results.

Dr. Reichert is Senior Research Fellow at the Tufts Center for the Study of Drug Development, an independent academic research group whose mission is to develop strategic information to help drug developers, regulators and policy-makers improve the quality and efficiency of pharmaceutical development, review, and utilization.

Her expertise is in the strategic analysis of therapeutic biopharmaceutical products. Dr. Reichert received her Ph.D. in organic chemistry from the University of Pennsylvania and her post-doctoral training at the National Institutes of Health (NIH) and Harvard Medical School. She is an independent scientist who consults for many companies. However, she receives no direct compensation for her work, including her participation in today’s call.

Unfortunately, in the last 24 hours, Dr. Reichert has developed a severe case of laryngitis. However, she has graciously shared with us a written copy of her presentation and I will now ask Laura Whitehouse to present it. Dr. Reichert is on the line and may be available for questions in the second half of this discussion.

Laura?

Thank you, Walter. Good morning, everyone.

This presentation will focus on four main areas. First, background on the improved monoclonal antibodies and the market for these products; second, trends in the number of monoclonal antibodies in clinical development. Third, probabilities of success for the products based on historical performance and finally, the current products in the pipeline.

The material presented is derived from the paper published by the Tufts Center for the Study of Drug Development in the September 2005 issue of Nature Biotechnology .

Development of monoclonal antibodies had a somewhat slow start due to limitations in the early technology. The first commercially sponsored products entered clinical study in the early 1980’s, but many of these were an immunogenic variety derived from mouse cells.

Advances in genetic engineering techniques allowed researchers to produce chimeric humanized and human versions, which were less immunogenic and performed relatively well in clinical studies. However, the time required for clinical evaluation is lengthy, so only two monoclonals were approved in the US prior to 1997.

More than half the therapeutic monoclonal antibodies currently on the United States market were approved between 2000 and 2004. Currently, there are 18 therapeutic monoclonal antibodies approved in the US, though Tysabri was withdrawn from marketing earlier this year. Sales were quite significant for some of them. For example, Remicade and rituxan each have annual global sales over $2.0 billion.

There are more than 150 monoclonal antibody therapeutics currently in clinical trials and the number entering clinical study per year, on average, has increased over time. As shown in Figure 1, approximately 7 antibodies per year entered clinical study in the 1980’s. That number doubled to 14 per year in the 1990’s, which made the total number of antibodies entering clinical study approximately 140 for that decade.

So far in the 2000’s, the number has increased to 24 per year on average. If the pace set so far in the 2000’s continues then the total number of antibodies entering the clinic in this decade will be about 240. As shown in Figure 2, as of mid-2005, there were 63 antibodies in Phase I trials, 74 in Phase II, and 15 in Phase III clinical development.

Based on their historical performance in the clinic, therapeutic monoclonal antibodies entering Phase I have overall FDA approval success rates of approximately 20 to 25%. Overall success rates for monoclonal antibodies are about double that calculated for small molecule new chemical entities, which have a success rate of approximately 11%.

Humanized monoclonal antibodies are the largest group to have entered clinical studies so far. As shown in Figure 3, the historical probability of a humanized monoclonal antibody moving from Phase I to Phase II is 80%. The probability for moving from Phase II to Phase III is 51% and the probability for moving from Phase III to US FDA approval is 69%.

If these trends continue, we would expect approximately 10 of the 15 products currently in Phase III clinical trials to approved and 38 of the 74 products in Phase II to transition to Phase III clinical studies. Figure 3 also shows that the phase-transition probabilities are somewhat different when calculated for humanized monoclonal antibodies in specific therapeutic categories such as the cancer or immunological categories.

Most therapeutic antibodies have historically been studied for cancer and immunological indications, so this is now starting to change. The products currently in Phase II and Phase III are being studied in a wide variety of categories. They include both improved versions of existing products, as well as products for new indications.

An example of an improved product is Numax, which is currently in Phase III and is essentially a second-generation version of the approved monoclonal antibody Synagis. An example of a monoclonal antibody in a new therapeutic category is denosumab, also known as AMG-162 from Amgen, which is currently in Phase III trials for post-menopausal osteoporosis and bone metastases from breast cancer.

Another example is Aurograb from Neutec, which is in Phase III for drug resistant Staph aureus infections. The monoclonal antibody products in Phase II clinical studies for new indications include an antiamyloid monoclonal antibody for Alzheimer’s Disease, as well as a number of novel antiinfective products for indications such as HIV, hepatitis C, and pathogenic E.coli infections.

The cost of protein therapeutics to the US healthcare system has raised the question of follow-on or generic biologics. Three factors suggest that generic monoclonal antibodies will not be seen any time soon - one, the complexity of monoclonal antibody production; two, the current [raft] of a regulatory pathway to approval in the US; and three, patent protection coverage all of the recently approved products. Based on our studies, the Tufts Center for the Study of Drug Development has concluded that that therapeutic monoclonal antibody sector is a thriving one, with a great deal of growth potential.

Thank you, Laura and thank you Janice, for supplying us with that information. If you are interested in reading Dr. Reichert’s article in Nature Biotechnology, entitled “Monoclonal Antibody Success in the Clinic”, you can find the link to it on our website home page.

So, in summary, I believe Dr. Reichert’s research supports the thesis that the market for monoclonal antibodies will expand significantly in the next several years, based on the large number of antibodies currently in clinical trials and the relatively high success rates observed with this class of therapeutic agents. We look forward to fully participating in this growth, based on our strong partnerships with GE Healthcare and Applied Biosystems.

So that concludes our prepared remarks for today and at this time, we will be happy to answer any questions concerning either our Q2 results or concerning the monoclonal antibody market. Operator, open the line for questions.

Thank you, sir. [Operator Instructions] [Martin Shkreli] with Intrepid Capital.

Hi Walter.

Hi Martin.

Just curious. The sales growth is pretty robust. I’m wondering if you can talk about sort of what’s happening in the end market. Was it a big Phase III trial or sales from the approved products - just wondering what accounted for the sales growth.

Well, the sales growth robustness we’ve seen over the last year. We understand, from our marketing partner GE Healthcare, it is our largest marketing partner, is actually the result of two things.

One is the fact that there are so many monoclonals entering Phase II and Phase III and therefore, companies are starting to produce antibodies, even though they’re for clinical trials. When you enter Phase III you have to produce them under fairly a standardized manufacturing conditions and that consumes a lot of Protein A resin.

As well as, as you well know, the continued growth of antibodies such as Enbrel, where they’ve recently opened another manufacturing site to support the continued growth and that requires additional Protein A products. And hopefully, as today’s data was able to communicate, we don’t see any slowing up in either of those trends.

And just a follow-up, if you look at all the antibodies entering Phase II and Phase III. Can you talk a little bit about what your share is there versus - we obviously know a little bit about your share in the commercial products - but are sort of the new, next generation antibodies going to standardized in Protein A? Or your competitor -- how will that compare to sort of the market share in the commercial space right now?

It’s very similar, actually. Of the 150 antibodies that are in clinical development right now, our best estimate is that we have 65 and 70% share, through our partners, of course, in supplying Protein A for those antibodies. And typically, a process development group, once they’ve locked in on a particular product, are loath to change that products as it moves through Phase II and particularly through Phase III clinical studies. So we would think that that share would be maintained over the next three, four, five years.

Great. Thanks a lot.

Diego Sanchez with Geyser Developers.

Yes, good afternoon, I should say good morning.

Good morning.

I heard your product sales and gross profit margin and I don’t know if I missed it, but could you just go over again whether you made a profit this quarter and what that was or was there actually a loss?

Sure, sure. So, I’ll refer to our press release. Our product sales were $2.7 million.

Yes, I got that.

And gross profit --

Gross profit margin I got and I got it was an increase of 110%.

Okay, that’s correct. And then did invest in both research and SG&A expenses. So total operating expenses were about $3.5 million and the loss from operations was $468,000 or $0.02 a share, compared to $0.06 a share last year.

Yes. Okay. Thank you very much.

[Kevin Blake with Flitburn].

Yes, could you clarify, going forward, what your cash burn rate will be over the next year or so, per month?

Sure. Our cash burn for the current 12-month FY period - and of course we’re six months into that - our cash burn will be about $2.0 million and that’s a result of two things. One, our projected operating loss of $1.0 million and about $1.0 million investment in the capital equipment and facilities to expand our manufacturing plant. And we certainly thing that as our product sales increases, in the absence of a significant new product acquisition or a product candidate acquisition I should say, that we’ll be in a fairly cash neutral position going forward.

Thank you.

[Ron Salvarachu] with Rodman & Renshaw.

Yes. Thank you for taking my question.

Good morning.

Good morning. I just have a clarification that I wanted to ask you regarding the clinical trials of Uridine in bipolar depression.

Yes.

What is the endpoint for that trial?

We will use a standardized scale of depression, such as the Hamilton D Scale, the HAM-D scale. So we are looking for patients who are on mood stabilizers such as Lithium and adding on top of that the Uridine to see if it results in improvement in their depression symptoms.

What are the exclusion criteria like for this trial?

The protocol is still in draft phase right now and we expect to submit it to the FDA by the end of this year, so I don’t have specific criteria. But there will, as always, be specific minimum symptoms on the HAM-D scale and a maximum level of symptomatology, so we’ll have moderate-to-severe depressive symptoms in these patients.

All right and concerning the Phase I study of Secretin in OCD?

Yes?

So just to clarify, these are not healthy volunteers you’ll be testing the protein in.

Oh, that’s correct. We are doing a two-week study in patients who have severe and even disabling OCD.

Okay. Thanks very much.

It’s an open-label study of I believe its 16 patients and we should be able to report the results in February.

Okay, thank you.

Elemer Piros with Rodman & Renshaw.

Good morning, Walter.

Good morning.

Just in a general sense, how do you find the market out there for bringing in licensing in product candidates or purchasing products? Has that environment changed over the last six months or so?

I don’t think so, Elemer. I think it’s both, on the one hand, competitive, there’s a lot of buyers and a lot of capital chasing products and many of the opportunity, on the other hand, we see are ones that I guess I’d have to categorize as reasonably uncertain for their prospects.

We have adapted to that market in two ways. One is we have moved further upstream and we are looking at some products that are just about to enter Phase I, as opposed to ones that have some human clinical experience. And secondly, in order to get a risk profile that’s consistent with where we want to take this Company, we are focusing more on neurology products or products that have really well-trod proof of concept studies. So Alzheimer’s, depression, for example, are not areas we’re looking for products.

Okay. Thank you very much.

Yes.

And sir, we have no further questions at this time. Back over to you for any further remarks.

Okay. Well, we’d like to thank everyone for participating in today’s call, including Janice Reichert, and as always, if you have any additional questions after today’s discussion, feel free to direct them to Investor Relations at the Company at any time.

Goodbye.

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

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