Repligen Corp (RGEN) 2007 Q1 法說會逐字稿

Good day and welcome to the First Quarter 2007 Repligen Corporation Earnings conference call. My name is Angela and I will be your coordinator for today. [OPERATOR INSTRUCTIONS]. As a reminder, this conference is being recorded. And now I would like to turn the call over to Mr. Daniel Muehl, Chief Financial Officer. Please proceed sir.

Welcome, thank you, and good morning. Joining me today on our call is Walter Herlihy, our CEO. 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, profits, losses, and financial stability, opportunities 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 of our products, unexpected pre-clinical, 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 products and clinical materials from our partners, timing of product orders, delays in or failure of a regulatory approvals, access to capital, adverse changes in commercial relationships, the risk that results of earlier clinical trials are not necessarily predicted, of the safety and efficacy results in larger clinical trials and a variety of other risks set forth 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, 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 first quarter of fiscal year 2007, which ended on June 30, 2006.

For the quarter, we recorded total revenue of $3.6 million including product sales of $3.4 million. Our gross margin was 70% for a total gross profit of $2.6 million. Our GAAP net profit for the quarter was $101,000, which included a charge of $249,000 for option expenses, which were not included in last year's results.

While our product sales were somewhat lower than in Q1 of last year, we reported our second best quarter to date and we remain confident in the long-term growth potential of our core protein A business.

Our cash and investments on June 30 were $22.5 million or $891,000 less than March 31. We are on track to meet our revenue expectations of between $13.5 and $14.5 million and can affirm our expectation of a net loss for the year to be between $2 and $3 million excluding a non-cash charge of approximately $800,000 for expensing of stock options, which we began as of April 1, 2006.

This will result in a GAAP net loss of between $2.8 and $3.8 million. Cash at March 31, 2007 is expected to be between $20 and $21 million, consistent with our previous expectations.

Those of you who follow the company are aware that while there are significant quarter-to-quarter variations in demand for protein A over the past five years, our business has followed the overall demand for monoclonal antibodies, a trend we expect to continue. Now for an update on the company, I will turn it over to Walt.

Thank you Dan. In addition to the ongoing sales efforts, we are pursuing three additional activities this year to strengthen our protein A business, the benefits of which will potentially be realized in 2007.

First this quarter, GE Healthcare completed the manufacturing validation of a new proprietary form of protein A called protein Zusing the first commercial lots, which we had manufactured for them in the previous quarter. GE Healthcare believes that protein Zwill offer its customers several performance advantages over existing protein A products. Significant sales are not expected until 2007.

Second we have completed the construction of a new large-scale fermentation facility, which we expect to be fully operational in the third quarter. This completes our facility expansion and will enable us to meet the demands of protein A market for the next several years without significant additional capital expenditures.

Third, we have an ongoing initiative with the only significant consumer of protein A, which is currently not a customer. If this company takes the option to commercialize a product based on recombinant protein A, Repligen has the first right to manufacture the protein A [lyget]. We believe that these other initiatives allow us to fully participate in the growth of the monoclonal market for years to come.

Now let me turn to our intellectual property assets, our patent infringement lawsuit with MIT against ImClone and our Erbitux product for cancer has progressed through the state of summary judgment. As reported in our press release last week, ImClone's motion to have the case dismissed on summary judgment was denied by the court.

Their motion was based on a theory that when the cell line expressing Erbitux was transferred to the National Cancer Institute, the rights of MIT and Repligen were exhausted. Furthermore, the court granted our cross motion for summary judgment, rejecting ImClone's defense of exhaustion of patent rights as a matter of law.

The transfer of our cell line to the National Cancer Institute was restricted in its use to research and development. The consequence of this ruling is that ImClone cannot assert this defense at trial. Prior to proceeding to a jury trial, there is at least one additional issue to be heard by the court.

In March, MIT and Repligen filed a motion seeking sanctions against ImClone based on conduct that in our view constituted intimidation of a central witness in the case. In May, the court heard oral arguments on the motion.

Recently the court has ordered that an evidentiary hearing take place on this motion on September 26 in order for ImClone and its attorneys to show cause why sanctions should not issue for this alleged conduct. We will await a resolution of this issue by the court before making any further comments.

Our objective is to seek a settlement or a judgment against ImClone, which reflects the fair value of our patented technology, which was used by ImClone to manufacture approximately $1 billion worth of Erbitux. It is our view that any settlement or judgment in this matter must provide Repligen and MIT with adequate compensation for ImClone's use of the patent technology, which takes in to account the critical nature of the patented technology to the success of ImClone's highly profitable Erbitux product.

We also have intellectual property on the use of CTLA4-Ig of the treatment of rheumatoid arthritis, multiple sclerosis, and lupus. Bristol Meyers has been selling its CTLA4-Ig product for the treatment of rheumatoid arthritis since February under the brand name of Orencia.

In January, Repligen and the University of Michigan jointly filed suit against Bristol for patent infringements in the U.S district court from the eastern district of Texas. Shortly after answering the complaint, Bristol filed a motion seeking to transfer the case out of Texas, which we opposed. In July, the court ruled in our favor, denying Bristol's motion to transfer.

We are pleased with the courts ruling since this district is characterized by a high degree of expertise in patent litigation and relatively rapid prosecution of cases. We are currently awaiting a date for a schedule in conference.

Turning now to our product pipeline, last October we announced the initiation of a follow on study to our previous reported Phase II study of Secretin in schizophrenia to determine if preliminary observations that Secretin had the potential to improve certain cognitive deficits in patients with schizophrenia was reproducible.

The prior observations were made with a conditioned response learning test referred to as the eye-blink test. We have now [unbelighted] the study and can confirm that there was a statistically significant improvement in the Secretin group 24 hours after treatment, however, the difference was not significantly different between the groups two hours after treatment.

In addition, two additional test of cognition did not show a difference between groups at any time point. Based on these conflicting observations, we have decided not to invest additional resources into this clinical application at this time.

We are also evaluating Secretin as an agent to improve MRI images of the structure of the pancreas to, for example, identify structural abnormalities to aid in the diagnosis of pacreatitis.

This study is currently ramping up at 13 sites and we expect that the data collection will be completed by year's end. We are also in the final stages of initiating several pilot studies to evaluate the use of Secretin to assess the function of the pancreas with a non-invasive MRI procedure.

Last week one of our academic collaborators filed an IND for a study to evaluate whether Secretin enhanced MRI can provide functional data, which could assist in the early diagnosis of pancreatitis. We believe there are more than 100,000 structural assessments to pancreas carried out by MRI each year in the United States, which at current pricing implies a market opportunity of $30 million.

Additional market opportunities exist in the United States for functional assessments and internationally for both applications. Our second product candidate is an oral formulation of Uridine, a naturally [inaudible], which we are developing for the depression associated with bipolar disorder. Last quarter we initiated our Phase II placebo controlled proof of concept study.

As noted in our press release, this study is enrolling steadily with six open sites and we expect to add several more sites shortly. Our goal is enroll 80 patients by the end of 2-1 of next year. Our corporate strategy is the re-deploy the profits from our current products and any revenue we may receive from our patents to build a sustainable franchise in CNS disease.

We are initiating two internal research programs to evaluate improved formulations of currently marketed CNS drugs. One project targets epilepsy and the other is a neuro protectant drug. If successful, we believe we can develop additional pipeline candidates with reduced clinical risks and with a lower cost of entry.

Finally, we are also evaluating and licensing a CNS product candidate and are currently carrying out diligence on one focused opportunity. We hope to be able to report progress on this front soon.

In summary, we are pleased with our progress this quarter, including strong product sales, completion of a new manufacturing facility, and the ongoing initiative with potential new customers in our core protein A business.

On the legal front, rulings in our favor in both the ImClone and Bristol litigations have strengthened our position. And finally, our two clinical studies are moving forward and we are continuing to work to cost effectively add to our product development pipeline. That concludes our prepared remarks for today and this time we would be happy to answer any questions concerning either our financial results or our business.

[OPERATOR INSTRUCTIONS]. Gentlemen, your first question will come from the line of Elemer Piros with Rodman, please proceed.

Good morning Walt.

Good morning Elemer.

Numbers related question, just a couple of them please. If we look at your expense guidance, which you didn't explicitly state, but if you look at your net loss projection, there appears that you would incur somewhat of a ramp in R&D spending beginning the next quarter, especially since this particular quarter came in at $1.2 million, which is a historical low. Is that the case or am I miscalculating something here?

No that is the case and actually with the clinical trial expenses that we'll incur this year, that will drive most of that increase.

So somewhere in the neighborhood of $7 million in the R&D line is that a reasonable $6.5 to $7 million?

That's a reasonable place, yes.

Okay the product revenues grew about 13% when you compare it to fiscal year 2006 and you expect them to grow along with the monoclonal antibody marketplace. Is that a good rate of growth to assume for the next fiscal year?

Well I think the assumption that we're comfortable with Elemer is that protein A business over time will grow with the monoclonal antibody market, which is growing 20 plus percent per year.

From quarter-to-quarter even year-to-year, we may run ahead some years, run behind some years. So last year for example, I think we ran ahead over the monoclonal market. So we're being conservative. We're projecting what we think the revenues are this year based on what our order book looks like.

And we would expect that 2007, if we were successful, if GE is successful with protein Z, we're successful with these new initiatives that, you know, we may in fact run somewhat ahead of the market.

Walter you never sounded so confident about an in-licensing opportunity as you did today. You must be very close to finish up your due diligence. Is this a correct reading?

Well I wouldn't go out on a limb and say that. It's never over until it's over, as you know. And just a little bit of commentary on that, since you and I have talked about this before, the in-licensing market is a difficult one with a lot of capital chasing opportunities.

And we have a R&D groups fully functional here at Repligen and so we decided in fact to initiate these programs that I alluded to in terms of some reformulation opportunities that might give us some opportunity for 505B2 in [inaudible] filings. We see that as a vital alternative to licensing. So it's hard to say which will come through successfully, but we've broadened our scope somewhat in that regard.

Okay. Could you please remind us that when would the method of use patents that protect CPLA4 would expire in both Europe and in the U.S.

Let's see in the United States, they expire in 2021.

2021, okay.

And in Europe it's 2013.

2013, okay and two more items and I'll get back in the queue. When would you estimate both of these cases to go to trial? What is your best guess?

Well starting with the ImClone Erbitux case, following this hearing on September 25, we would be requesting a trial date from the court. I would expect it would be in 2007, whether it would be early in the year or later in the year would depend on the judge's schedule.

Okay and this proceeding, I mean what do you expect to achieve? What is the penalty? What is the maximum penalty that ImClone could incur or is it usually a slap on the wrist or what's a potential positive outcome from your perspective?

Well it's hard for me to speculate. It's totally in the judge's discretion in terms of that Elemer. So I guess we would prefer just to say that this event is coming up and we're just going to defer and wait until the court weighs in on it and decides which of that on that spectrum may be the case.

Okay. And the Bristol case, the case against Bristol, when would you estimate that to go to trial?

We will know a lot more about that after the scheduling conference, which we would guess would happen in September. But typically it takes 18 to 24 months from that point.

Okay. Thank you very much Walter.

[OPERATOR INSTRUCTIONS]. Gentlemen, your next question will come from the line of [Ron Chez], a private investor, please proceed.

Good morning.

Good morning Ron.

Could you give us any further texture on the opportunity with these reformulated products?

Well right now we're not disclosing the molecular entities. I simply would say that it's a [well-trod] path through the FDA to rely on the clinical information of others, in this case the innovator, the company that first introduced the product to the market. That allows one to have a more abbreviated path to an NDA to get an improved formulation of approved for marketing.

And we think we've identified two market niches where an approved formulation could confer significant market advantage, marketing advantage. And so we are, as I say, engaging the first steps to trying to find formulations which meet the market demand. We would hope to have some further visibility on this in our next conference call.

And can you comment at all about the kind of market sizes you're talking about, potential sales if successful?

They range from niche markets, which I would define as sort of in the, $25 million range to mid-size markets $100 million.

Okay. And you'll say something about this in the next conference call?

Yes.

And then do you want to expand at all about these protein A opportunities in the -- is GE the work you're doing, would that expand the market or is that just an extension of what you're doing with GE now?

Well there's two prongs of this. What we're working on with GE called a protein Z project, which was just finished its final commercial validation, is a line extension, premium price line extension.

So in that sense it would modestly expand that dollars, market as measured by dollars. On our other initiative, as we've discussed in the past, we don't currently benefit from antibody sales by Genentech, the largest antibody producing company in the world.

And our other initiative is designed to allow us to try to gain business, which would benefit from Genentech's tremendous success in the antibody market. And in rough terms, if we were to fully capture that business, we might have an opportunity to double our business from the current run rate of $10 plus million.

And what kind of timing to know something there?

Oh I think we'll know something within six months.

That's a significant potential expansion.

We hope.

Within six months?

Yes.

Okay, thank you.

[OPERATOR INSTRUCTIONS]. Gentlemen, at this time I show no further questions within the queue. I would now like to turn the call back over to Mr. Walter Herlihy for the closing remark.

Okay. Well, thank you for your participation in our call today and as always, if additional thoughts, comments, or questions come up, you can reach us directly at investor relations at the company. Thank you again for participating. Bye-bye.

We'd like to thank you for your participation in today's conference. This does conclude the presentation and you may now disconnect. Have a wonderful day.