Repligen Corp (RGEN) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Q2 2007 Repligen Corporation Earnings Conference Call. [Operator Instructions]

At this time, I would like to turn the call over to your host for today, Mr. Dan Muehl, Chief Financial Officer. Please proceed, sir.

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 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 or failure of regulatory approvals; access to capital; adverse changes in commercial relationships; the risk that 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 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 FY07, which ended on September 3, 2006.

For the quarter, we recorded total revenue of $2.9 million, including product sales of $2.7 million. Our gross margin on product sales was 66%, for total gross profit of approximately $1.8 million.

Our GAAP net loss for the quarter was $863,000, which included a charge of $255,000 for option expenses, which were not included in last year's results.

Our product sales were equivalent to last year and enabled us to continue to execute our strategy of prosecuting our intellectual property and product development programs, without excessive financial risk.

Our cash and investments on September 30th were $22 million, or $1.4 million less than March 31st. Since March 31st, we have invested $1.1 million in the final stage of construction of our expanded Protein A manufacturing facility.

We now expect revenue for the year of between $12.5 and $13.5 million and can affirm our expectation of a net loss for the year to be between $2.0 and $3.0 million, excluding a non-cash charge of approximately $1.0 million for the expensing of stock options, which we began as of April 1, 2006. This will result in a GAAP net loss of between $3.0 and $4.0 million.

Cash at March 31, 2007 is expected to be between $20 and $21 million, consistent with our previous expectations.

Now for an update on the Company, I will turn it over to Walt.

Thank you, Dan. In addition to the ongoing sales of Protein A to our two largest customers, GE Healthcare and Applied Biosystems, we are pursuing three additional activities this year to strengthen our Protein A business, the benefits of which will be potentially realized in 2007.

First, as announced several weeks ago, we are currently starting up a new large-scale fermentation facility, which will enable us to meet the demands of the Protein A market for the next several years without significant additional capital expenditures. This facility will also reduce our dependence on external fermentation vendors and potentially improve our gross profit margin.

Second, we have an ongoing initiative with the only significant consumer or Protein A, which is not currently a customer. If this company commercialized a product based on recombinant Protein A, Repligen has the right to manufacturing the Protein A ligate.

And third, we are currently negotiating with a leading medical device company for potential use of our Protein A in a device for treating patients with certain immunologic disorders. We believe that these and other initiatives will allow us to grow our business in 2007 and beyond.

Now let me turn to our intellectual property assets. Our patent infringement lawsuit with MIT against ImClone and their Erbitux product for cancer has progressed to the stage of summary judgment. In July, ImClone's motion to have the case dismissed on summary judgment was denied by the court and the court granted our cross motion for summary judgment, rejecting ImClone's defense of exhaustion of patent rights as a matter of law.

The consequence of this ruling is that ImClone cannot assert this defense at trial, thereby eliminating the primary defense that ImClone has previously relied upon. Prior to proceeding to a jury trial, there will be at least one additional issue to be decided 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 September the court held a second hearing on this motion. This issue is currently pending with the court.

Separately, we also seeking patent term extension for our DNA- enhancer patent for a period of five years or until May of 2009. Following approval of Erbitux in February 2004, both ImClone and Repligen filed competing applications for patent term extensions. By law, the patent office could only grant one patent term extension per drug.

ImClone's application was based on the patent coverage the use of anti-EGF receptor antibodies in combination with standard chemotherapy, which they had licensed from Aventis. In September, the U.S. District Court for the Southern District of New York held that the correct inventors on this patent were not the named Aventis scientists, but rather scientists from the Weizmann Institute in Israel. And the court ordered the U.S. Patent Office to correct the inventorship on the patent accordingly.

As a result, Aventis and thus ImClone lost all rights to this patent and their application for patent term extension is now de facto. Based on this defect, we believe that our patent is now the sole valid application for patent term extension pending at the patent office.

We believe that we have a sound legal basis to gain patent term extension. However, patent term extensions have typically been granted to the company which developed the drug. For us to gain an extension, we will need to convince the patent office that our application does, in fact, meet the statutory requirements.

If we were to be granted patent term extension, the basis for our claim would increase significantly beyond the stockpile of Erbitux manufactured prior to the natural expiration of our patent in May of 2004, all of which has now been sold. Our objective is to seek a settlement or judgment against ImClone which reflects the fair value of the contribution of our patented technology to the success of ImClone's highly profitable Erbitux product.

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

In January, Repligen and the University of Michigan jointly filed suit against Bristol for patent infringement in the U.S. District Court for the Eastern District of Texas. The judge has now set a scheduling conference for November 16th, at which time we expect to receive guidance on the pace at which this litigation will move forward.

Turning now to our product pipeline, 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 pancreatitis. This study is currently recruiting at 16 sites and we expect the patient recruitment will be completed by year's end. We believe that there are more than 100,000 structural assessments of the pancreas carried out by MRI each year in the United States.

Earlier this week we announced the initiation of a second complimentary trial to evaluate the use of secretin to assess the function of the pancreas with a noninvasive MRI procedure. Our study will seek to confirm prior reports that the magnitude of the response to secretin can be diagnostic of the health of the pancreas in patients with known or suspected pancreatitis. We believe that there are more than 300,000 potential uses of secretin in functional assessment of the pancreas each year in the United States.

Out second product candidate is an oral formulation of uridine, a naturally occurring nucleoside, which we are developing for the depression associated with bipolar disorder. Last quarter we initiated our Phase II placebo-controlled, proof of concept study. Enrollment in this STD is progressing steadily at nine sites and our goal is to enroll approximately 80 patients by the end of the first quarter of next year.

Our corporate strategy is to redeploy the profits from our current product and any revenue we may receive from our patents to build a sustainable franchise in CNS disease. We are conducting to internal research programs to evaluate improved formulations of currently marketed CNS drugs. One project targets epilepsy and the other is a neuroprotectant drug.

We are pleased to report that substantial progress on one of the research projects has been made in the past quarter, which, if sustained, will provide the basis for a pre-IND meeting with the FDA in earl 2007 to discuss a proposed development plan.

The goal of this meeting will be to seek FDA feedback on our proposal to use the 505(b)(2) new drug approval process in which bioequivalents, or levels of the drug in the blood, is the basis for product approval rather than the standard efficacy and safety measurement. In favorable cases, 505(b)(2) drug approval can be obtained with short clinical evaluations of fewer than 100 patients.

We also are continuing to evaluate CNS product licensing opportunities and are currently carrying out evaluations on several Phase I product opportunities.

In summary, we are pleased with the results for the quarter. Which have included progress in expanding both our manufacturing capacity and customer base for Protein A, a potential opportunity to extend the term of one of our key patents, launching of a new clinical study and identification of a new product candidate from our internal R&D efforts.

That concludes our prepared remarks for today and at this time we will be happy to answer any questions concerning either our financial results or our business.

Thank you, sir. [Operator Instructions] Elemer Piros with Rodman & Renshaw.

Yes, good morning, Walter.

Good morning, Elemer.

First of all I just wanted to understand your guidance. Is this total revenue guidance or product sale guidance, please, the $12.5 to $13.5 million?

Okay, let me have Dan address that question, Elemer.

That's total revenue guidance between $12.5 and $13.5 million.

Total revenue?

Yes.

And I don't know what the R&D revenue component is due to. Could you please explain?

That's about just over $1.0 million, about $1.3 million of that, and $1.0 million of that is a grant from the Stanley Research Institute

Oh yes, yes, yes.

That relates to our bipolar trial.

I remember, yes, yes. Thank you and now maybe you could start with the patent term extension. How unprecedented would that be if you are successful in there and number two, does ImClone have an opportunity to also extend their patents, similar patents that they may have?

Well, let me answer your second question first, Elemer, and then I'll address the first. The way the law is structured is that any application for patent term extension must be on file with the Patent Office within 90 days of NDA filing. So, at this point, it's too late to go back and put in a new application for patent term extension [inaudible] have some other patent that we're interesting in extending.

Okay.

Okay? And thus, the only way that ImClone's patent could back into the game here would be for the ruling of the Southern District of New York to be overturned on appeal, which having had a chance to read that ruling, we think is unlikely.

As far as your first question goes, I'm not aware of a patent term extension that was not granted to an NDA holder, because of course most NDA holders have patents and they always apply for patent term extension. And it's clear that, in those cases, the NDA holder does get preferential treatment from the Patent Office versus someone who has enabling technology, as in our case.

But in this particular circumstance, there are no -- because of the facts I just laid out for you, we are now the only patent term extension application that's active and valid at the Patent Office. And our regulatory attorneys have spent a good deal of time scrutinizing the statutory requirements for patent term extension and feel that we have a very legitimate case to argue there.

And how long it might take? Is this the patent term extension is similarly lengthy procedure than an original patent or it's somewhat more curtailed?

It's somewhat more curtailed, but I wouldn't expect any immediate action. It's possible that since the patent term extension is only relevant if we win the trial and prove our infringement claim, that the Patent Office will observe that proceeding over the next year or issues a definitive ruling.

Since there is a changeover in both at the board level and in management as well at ImClone, have you started noticing signs that there is a change in terms of their attitude towards this litigation? I think Carl Icahn was quoted as being very critical of the previous board's and the management's decision of not being more proactive in settling these claims.

Yes. We certainly feel that the change in management at ImClone offers potential opportunities for settlement, but we really don't have anything to comment on at this time.

Okay. Let me get back to the queue, Walter. Thank you.

Thanks, Elemer.

[Operator Instructions] At this time, there are no more questions in queue. I'd now -- okay, go ahead, sir.

Okay. Well, I would like to just wind up by thanking everybody for attending our call today and as always, if you think of questions over the next weeks or months, feel free to contact the Company through Investor Relations.

This concludes today's presentation. You may now disconnect.