Repligen Corp (RGEN) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2007 Repligen Corporation earnings conference call. My name is Nicole, and I'll be your coordinator for today. [OPERATOR INSTRUCTIONS].

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

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 and 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 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 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 third quarter of fiscal year 2007, which ended on December 31, 2006. For the quarter, we recorded total revenue of $3.9 million, including product sales of $3.6 million, our second highest total to date. Our GAAP net loss for the quarter was $20,000, which included a charge of $137,000 for share-based compensation expense, which were not included in last year's results. Profits from our product sales have 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 December 31 were $21.9 million, or $1.5 million less than March 31. Since March 31, we have invested $1.1 million in the final phase of construction of our expanded Protein A manufacturing facility.

We continue to expect revenue for the year of $13.5 million, which is the high end of our prior projections. We expect a GAAP net loss for the year of approximately $3 million, which includes a non-cash charge of approximately $840,000 for stock-based compensation expense, which we began expensing as of April 1, 2006. 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 our Protein A business, we are pursuing three additional activities this year to further increase sales and profits. First, we have initiated manufacturing in our new large scale fermentation facility, which we believe will provide greater efficiencies and potential cost savings. Second, we have an active initiative with a significant consumer of Protein A which is not currently a customer. If successful, our initiative may allow us to compete for the 50% of the world market which we are currently not serving. Third, we are currently negotiating with a leading healthcare company for the potential use of our Protein A in a device for treating patients with certain immunological 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 has progressed to the stage of summary judgment. Last year, ImClone moved to have the case dismissed on summary judgment on the basis of patent exhaustion, which was denied by the court. Instead, the court granted our cross motion for summary judgment, which prevents ImClone from asserting this defense at trial. We are currently waiting for the court to schedule the trial, which we anticipate will occur in mid 2007.

Prior to proceeding to trial, there is at least one additional issue to be decided by the court. MIT and Repligen have filed a motion against ImClone seeking sanctions based on conduct that, in our view, constituted intimidation of a central witness in the case. We expect a ruling on this issue shortly.

Separately, we are also seeking patent term extension for our DNA enhancer patent for a period of five years or until May 2009. We believe 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 term extension, the basis for our claim could increase significantly beyond the $1 billion stockpile of Erbitux manufactured prior to the natural expiration of our patent in May 2004. Independent analysts project total sales of Erbitux from product launch through May of 2009 to be more than $3.5 billion. Our objective is to seek a settlement or a 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, multiple sclerosis and lupus. Bristol-Myers has been selling its CTLA4-Ig product for the treatment of rheumatoid arthritis since last February under the brand name of Orencia. Last year, Repligen and the University of Michigan jointly filed suit against Bristol for patent infringement in the U.S. District Court of the Eastern District of Texas. The judge convened a scheduling conference in November, at which time he established dates for completion of all phases of the trial through jury selection in April of 2008. We are pleased with the speed at which this litigation is expected to proceed based on this schedule.

Turning now to our product pipeline, we're 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. Patient enrollment in our phase 2-3 trial is complete, and we expect to review top line data early next quarter. We are also enrolling patients in a second complementary trial to evaluate the use of secretin to access the function of the pancreas with a non-invasive MRI procedure. This phase 1-2 study will seek to confirm prior reports that the magnitude of the response of secretin can be diagnostic of the health of the pancreas in patients with known or suspected pancreatitis. Enrollment is occurring on schedule, and we expect results in mid 2007.

In November, we announced that the FDA granted us orphan drug status for the use of secretin for MRI imaging of the pancreas, which means that, if we are the first to have an approved, NDA for this indication, we will receive seven years of marketing exclusivity.

Our second product candidate is an oral formulation of uridine, a naturally occurring nucleocide, which we are developing for the depression associated with bipolar disorder. Our phase 2 placebo-controlled, proof of concept study has enrolled approximately two-thirds of the targeted 80 patients. Our goal is to have top line data from this study in mid 2007.

Our corporate strategy is to redeploy the profits from our current products and any revenue we may receive from our patents to build a sustainable franchise in CNS disease. We intend to build our pipeline in two ways. First, we are conducting internal research programs to evaluate improved formulations of currently marketed CNS drugs. One project targets epilepsy, and the other is a neuroprotective drug. We expect these projects will have shorter development times and lower clinical risks than new chemical entities.

We'll be discussing a potential development plan for one of our formulations with the FDA in the current quarter to seek their feedback on our proposal to use the 505(b)(2) new drug approval process, for a 505(b)(2) drug approval can be based on levels of the drug in the blood rather than the standard safety and efficacy measurements. In favorable cases, 505(b)(2) drug approvals can be obtained with short clinical evaluations of fewer than 100 patients.

The second prong of our pipeline strategy is to end-license preclinical or early clinical stage CNS product opportunities. For these programs, our criteria are cutting edge science with the potential to generate significant value by providing patients with substantial disease-modifying benefits. We believe that by accessing these projects early in the development cycle, we can obtain product rights at a reasonable cost. Our goal for this year is to add one reformulated product candidate and one end-license product candidate to our pipeline. We believe that this two-prong strategy will provide us the optimal balance of near term revenue opportunities versus longer term projects with high potential value.

In summary, we are pleased with the results for the quarter, which have included progress on expanding our Protein A business, a clear schedule for our CTLA4 litigation, orphan drug designation for our MRI product and enrollment according to plan in our three clinical trials, all of which was accomplished with a low level of loss.

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

[OPERATOR INSTRUCTIONS]. Your first question comes from the line of Elemer Piros from Rodman. Please proceed.

Very nice quarter in the Protein A business. Do you think that you're observing a sustainable trend here?

I think, certainly, Elemer, in the year 2007-2008 time frame, it is a sustainable trend, though, as you well know, we have significant quarter to quarter fluctuation. But we are confident based on discussions with our customers that the demand for Protein A will continue to grow, along with the monoclonal antibody business.

Yes. I missed your part of the call when you provided guidance, at least for this fiscal year, on the top line basis, please.

We haven't provided guidance. We will do that at our year end call in about three months.

Didn't you repeat what was your previous expectation?

I'm sorry. For the current fiscal year?

For the current fiscal year.

Yes. I'll let Dan just refresh that information.

Yes. It's $13.5 million in total revenue.

$13.5 million. Thank you very much. Dan, if I have you just for one quick moment, SG&A ticked up to about $1.7 million. Is this a new level that you feel comfortable to be steady for the next foreseeable future?

It's actually-- if you look at the change, it's primarily related to some of the clinical trial expenses. So, it really follows that trail, to some extent. So, I wouldn't call it necessarily permanently sustainable, but it does have some quarter to quarter fluctuation.

Okay. You've mentioned that large user of Protein A that you've been talking to. What are the remaining hurdles in terms of finalizing the relationship?

Well, I think we have a broad-based discussion with many different functionalities with our potential customer, and we have to bring all those together at the same time.

Yes. So, do you think that this calendar year maybe would give you sufficient time to finalize?

Certain, I would say, in a broader sense, Elemer, that we're confident that in this calendar year we will execute additional Protein A supply agreements. The timing and specifics of which ones happen when are a little bit harder to predict.

I'll get back into the queue. Thank you very much.

Your next question comes from the line of [Ryan Chez], a private investor. Please proceed.

With regard to pipeline, I missed a little bit of that. Did you say you had confidence that you would execute some additional supply agreements?

You're referring to Protein A?

Yes.

Yes. We have some optimism that over the next period of time we'll execute additional supply agreements in our Protein A business.

So, you're far enough along in those discussions to have some confidence?

As you well know, it's never over until it's over, but we're pursuing a number of initiatives. And I think some of those will be concluded over this next year.

And, then, with regard to pipeline, Walter, could you give some qualitative observations? What kind of dollars, broadly, plus or minus, are we talking about on the opportunities that have the lowest risk in terms of being developed into products that you can sell?

It's hard to say which of the opportunities will emerge from the laboratory and go into product development. But, as a general guide, we would not pursue a product that didn't have the potential-- let's say it's a 505(b)(2) product and it takes two years to get out on the market. If it didn't have the potential to double, triple or quadruple our business-- we're not interested in $5 and $10 million products.

So, would that 505-- would that refer to the reformulated product, for example?

That's right. We have several research projects to reformulate existing, well known CNS drugs. If the FDA would agree to us that 505(b)(2) is an appropriate route, then we'll be back to discuss that with investors and be able to talk a little more specifically about what kind of opportunities. In general, I would say it's in the sort of $25 to $100 million range.

You would then characterize those opportunities as lower risk than these end- license circumstances, which have greater long range potential.

That's right. When you're working with an established drug that's already proven in a given clinical indication, there is certainly some comfort in knowing that your product would be efficacious. I think FDA has to buy [inaudible], or they wouldn't give you the 505(b)(2) designation. By definition, if you get the 505(b)(2) FDA is saying blood levels are enough to convince us that this is a marketable product.

Walter, could you take as an example, if you would, MRCP as an example of what kind of range of revenue potential there is and margins?

In MRCP?

Yes.

That's our secretin product which we're developing now. We think that in the U.S. there's a revenue opportunity of $30 million or more, as we've guided in the past. That number could grow if new indications or new imaging modalities turn out to be augmented by the use of secretin. So, it's certainly an opportunity that's worth looking at.

Would you pursue that internationally as well?

We'd probably seek a partner internationally for that.

Okay. Anything else on pipeline that you'd like to give further color on?

No. I think that's up to date.

Okay. Thank you.

[OPERATOR INSTRUCTIONS]. And there are no further questions at this time. I would like to turn the call back over to management.

Okay. Well, thank you for joining us on this morning's call. As always, if there are additional questions that arise between now and our next call, please feel free to contact the Company investor relations.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.