Repligen Corp (RGEN) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Q1 2008 Repligen Corporation earnings conference call. Throughout this conference, all lines will be on listen-only. (OPERATOR INSTRUCTIONS).

At this time, I would like to turn the call over to your host, Mr. Walter Herlihy.

Thank you and good morning. The purpose of today's call is to review our results for the first quarter of fiscal year 2008, to update on fiscal year 2008 financial expectations and to provide an update on corporate development.

At the outset, I would like to state 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, 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 preclinical or clinical results or delays, the need for additional research and testing, delays in manufacturing by us for our partners, failure to receive adequate supply of product and clinical materials from our partners, the timing of product orders, delays in or failure of regulatory approvals, access to capital, adverse changes in commercial relationships and the risk that the 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 first quarter of fiscal year 2008, which ended on June 30, 2007. For the quarter, we recorded total revenue of approximately $6 million, including product sales of $5.7 million, our highest level to date. Our gross margin was 70%, for a total gross profit of approximately $4 million. Our GAAP net profit for the quarter was $240,000, which included a charge of $186,000 for stock-based compensation expense and a charge of $600,000 for our acquisition of the Scripps technology for Friedreich's ataxia in April.

Our cash and investments on June 30th were $21.8 million. Our product sales were primarily our Protein A products, and reflect the continued strength of the monoclonal antibody sector. We remain confident in the long-term growth potential of our Protein A business.

Today, we are raising our fiscal year 2008 revenue expectations from $16.5 million to $17.5 million to $17.5 million to $18.5 million, including product sales of between $16.5 million and $17.5 million, an increase of approximately 30% over prior year. We now expect a reduced GAAP net loss for the year of approximately $2.5 million to $3.5 million, and we expect our cash at March 31, 2008 to be approximately $19 million. We are pleased that our Protein A business continues to provide a growing stream of revenue and profits which allows us to invest in our intellectual property and our pipeline, without the financial risks normally associated with a clinical stage biotechnology company.

In June, we signed a four-year Protein A supply agreement with Applied Biosystems, an existing customer. Recently, we signed an additional long-term supply agreement with a new customer, the details of which remain confidential for now.

Now let me turn to our intellectual property assets. Repligen and MIT are suing ImClone Systems for the infringement of a US patent which covers certain genetic elements that increase protein production in a mammalian cell. The patent is assigned to MIT and exclusively licensed to Repligen.

During the past quarter, the Court found that one of ImClone's in-house counsel and one of ImClone's outside counsel took actions intended to block the cooperation of a key witness, and that these actions prejudiced Repligen and MIT from fully prosecuting their case. As a remedy, the Court granted Repligen and MIT permission to introduce evidence of this improper conduct at trial to lay the foundation for the jury to infer that ImClone itself believed that the witness's testimony supported Repligen's and MIT's claims in the litigation. The case is scheduled for a jury trial on September 10th in Boston.

We also own intellectual property on the use of CTLA4-Ig for the treatment of rheumatoid arthritis, multiple sclerosis and lupus, which is the subject of litigation with Bristol-Myers, who markets the CTLA4 product for the treatment of rheumatoid arthritis under the brand name of Orencia. Last year, Repligen and the University of Michigan jointly filed suit against Bristol for patent infringement in the US District Court for the Eastern District of Texas. This case is proceeding through discovery according to a well-defined schedule set by the Court, and unless there is a settlement, we expect a trial in Texas in April of 2008.

Turning now to our product pipeline, we are developing 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. In May, we reported top-line results of the Phase II clinical trial, which demonstrated that the use of secretin increased the sensitivity of identification of abnormal structures by approximately 20% and provided highly statistically significant improvements in the confidence of diagnosis, the ability to visualize pancreatic ducts and the quality of the images. We believe these are clinically relevant findings which may allow physicians to make a definitive assessment without the need for additional testing.

We have now compiled a statistical report for review by the FDA and have an end of Phase II meeting scheduled in September. At that time, we will discuss with the agency our proposed Phase III trial design and the requirements for approval of our product candidate. We believe that there are more than 100,000 MRI procedures in the US each year, which would benefit from a secretin image enhancement, which would imply a US market opportunity of more than $30 million.

We are also enrolling patients in a separate trial to evaluate the use of secretin to assess the function of the pancreas with a non-invasive MRI procedure. This Phase I/II study will seek to confirm prior results 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 expect results from this trial in the fall.

Our second product candidate is an oral formulation of uridine, a naturally occurring nucleoside which we are developing for the depression associated with bipolar disorder. Our Phase II placebo-controlled proof-of-concept study is now fully enrolled, and we expect to lock the database at the end of September and have the results shortly thereafter. The primary endpoint for this trial is the MADRS depression scale and a second scale which measures mania, a well-known side effect of most approved anti-depressants.

In April, we announced an agreement with the Scripps Research Institute for an exclusive license to a patent application covering a class of compounds with potential use in Friedreich's ataxia and potentially other related diseases. These compounds have been shown to increase the level of frataxin, the protein which is deficient in Friedreich's patients, in both patient tissue and animal model of the disease. We have selected several compounds for a more detailed characterization of their pharmacology and toxicology, to determine if any may be a clinical candidate.

Separately, we are evaluating our lead compounds in animal models of Huntington's disease, spinal muscular atrophy and myotonic dystrophy. We expect to have results from both of these initiative by year's end.

Despite the progress in strengthening our pipeline in the past quarter, we remain fully engaged in assessing additional product acquisition opportunities in neurology, and remain committed to acquiring additional product candidates.

In summary, we are pleased with the results for the first quarter, which have included record product sales, two new Protein A supply agreements, a scheduled trial in the ImClone litigation, a successful Phase II critical trial in secretin for pancreatic imaging and the acquisition of a new product development program in Friedreich's ataxia.

That concludes our prepared remarks, and we would be happy to answer any questions you may have at this time.

(OPERATOR INSTRUCTIONS). Raghuram Selvaraju, Rodman & Renshaw.

Congratulations on an excellent quarter in terms of revenue. First, a couple of financial items. Could you just repeat for me the revised guidance for fiscal 2008 in product sales?

Sure. The total revenue guidance is now between $17.5 million and $18.5 million for the year, and of that, $16.5 million to $17.5 million is the product sales component.

Also, I just wanted a little more color on the operating expenses for this quarter, which came out, it seems, on the high side. If you could tell me a bit more about precisely where the biggest increases were seen and what they were due to?

Sure. There were three drivers on the expense side. The first was the cost of product revenue, so as you make more product you buy more raw materials. That accounts for the approximately $750,000 you see on the cost of revenue line.

The second was research and development, and the biggest driver there was the approximately $600,000 for the acquisition of the technology from Scripps, so that's a one-time charge. So that's the bulk of the increase in the R&D line.

Then in the SG&A line, the bulk of the increase is due to -- or all of the increase is due to litigation expense, the increased litigation expense as the Bristol-Myers trial gears up and the ImClone trial heads for the September court date.

Approximately how much would you say the increase was there?

The increase there was about $600,000 to $700,000.

Now, I didn't quite catch whether you said that there has been a new supply agreement inked and details were not disclosed. Is that what you said?

Right. Just to clarify and repeat, I said we had inked two new supply agreements in the past quarter -- one with an existing customer, so a continuation of a longtime relationship with Applied Biosystems, and one with a new customer who has chosen to remain anonymous at this time.

Do you envisage making an announcement at some subsequent date on --?

Yes, I would imagine that as time goes along that we will be able to give a little more clarity on that.

Now, does the revised guidance for fiscal 2008 on the revenue side include potential revenues from this new supply agreement, the details of which have not been disclosed?

Not in a material way, no. We suspect that, as is always the case with new customers, there will be a ramp-up, and we would look to potentially see more of a benefit from that agreement in 2008.

Calendar 2008?

Yes, or our fiscal 2009.

Just a couple of quick clarifications on the pipeline. So when was the uridine patient enrollment completed?

I think it was probably about three or four weeks ago.

You would expect that, given locking the database at the end of September, that results would be available in October?

Yes. As you know, it's a placebo-controlled trial, which may actually serve as pivotal evidence of efficacy. So we're not going to touch anything until all the t's are crossed and i's are dotted and the database can be locked down.

You did say that the end of Phase II meeting with the FDA on secretin has been scheduled for September?

That's correct.

Do you still believe that, based on this, you could potentially start Phase III development for this molecule in 2008 or early --?

I guess that depends on how well the meeting goes and how much cooperation we get from the FDA on design and endpoints. I think the good news there is that we have had a long, long discussion with FDA about virtually every aspect of this trial, from operations to design to physical analysis. But as you know, these discussions can take time. So we would hope that we would come out of that meeting and be able to provide some guidance that we would start a trial very late in this calendar year or, probably more realistically, early in calendar 2008.

What are you guiding for the end of fiscal 2008 cash position, currently?

$19 million. At March 31, 2008, $19 million.

[Ron Chose].

Most of my questions were answered. Just two other things -- international opportunity on MRCP? Is there one?

Yes. I think there's one that's every bit as good as the US opportunity. Just to provide a little color on that, our plan would be, once we have some clarification from the FDA on the Phase III trajectory and requirements for registration, that we would start exploring potential partnerships, particularly for commercialization in the international sector.

The opportunity would be in the magnitude of $30 million internationally?

Yes. Again, to qualify that, that's the number for the so-called structural imaging, looking at the damage to the pancreatic ducts that might have been caused by pancreatitis. We think there's an incremental -- there are incremental opportunities, such as this functional study we're doing, that might be additive to that.

You touched on some of this, but in the operating -- if you backed out the Scripps for Friedreich's ataxia, and there was one other -- oh, stock-based compensation. Am I right that you would have net income of approximately $1.6 million, $1.7 million -- I'm backing out (multiple speakers).

Well, the net income would have been just north of $1 million. We backed out the $800,000 of stock-based and (multiple speakers) for the quarter.

I was also backing out some of the litigation. Without the litigation, too, income would have been in the neighborhood of $1.5 million to $1.7 million?

I'll trust your math on that one.

(OPERATOR INSTRUCTIONS). Jeb Besser, Manchester Management.

My questions have been answered. Thank you.

(OPERATOR INSTRUCTIONS). Sir, it looks as if I have no further questions for you at this time.

Okay. Well, thanks to everyone for participating in our call today. If you have any specific questions or comments, feel free to contact the Company, as always, at investor relations. Thank you.

Thank you, sir. Thank you again, ladies and gentlemen. This brings your conference call to a close. Please feel free to disconnect your lines now at any time.