Repligen Corp (RGEN) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2008 Repligen Corporation Earnings Conference Call. My name is Tawanda and I will be your coordinator for today. (OPERATOR INSTRUCTIONS.) I would now like to turn the call over to Mr. Walter Herlihy, President and CEO. Please proceed, sir.

Thank you, and good morning. The purpose of today's call is to review our results for the second quarter of fiscal year '08, to update our financial expectations, and to provide an update on corporate development. At the outset, I would like to state that 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.

Those 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 delays in clinical--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 second quarter of fiscal year '08, which ended on September 30, 2007. For the quarter, we recorded product sales of approximately 5.2 million, our second best quarter to date, which consisted primarily of Protein A sales. Our gross margin was 73% for total gross profit on product sales of approximately 3.7 million.

Absent the ImClone settlement, our GAAP net profit for the quarter would have been approximately $1 million. In conjunction with the ImClone litigation settlement, we realized a net gain of 40.2 million, which resulted in a pre-tax profit for the quarter of approximately 41 million. Most of this profit is shielded from taxation by our prior net operating losses, although we have an alternative minimum tax liability of $827,000, which results in a GAAP net profit for the quarter of 40.3 million.

It is worth noting that since 2004, we have invested approximately $2 million of our own money into this litigation for a net after-tax gain of 37.3 million. As part of the settlement agreement, ImClone also agreed to continue to purchase Protein A resins that it needs for the production of Erbitux containing a form of Protein A manufactured by Repligen through April of 2015. Thus, if future sales and production of Erbitux increase substantially, we will benefit from increased Protein A sales.

Today, we are increasing our fiscal year 2008 revenue expectations to between 18 and 19 million, including product sales of between 17.5 and 18 million. Our product sales estimate represents an increase of approximately 38% over prior year. We now expect a GAAP net profit for the year of approximately 38 to 39 million and we expect our cash at March 31, 2008 to be approximately 60 million.

We are pleased that Mannitol, one of our intellectual property assets, and that our Protein A business continues to provide a growing stream of revenue and profit. Our financial strength will allow us to vigorously invest in our CTLA4 intellectual property and our pipeline without the financial risks normally associated with a clinical stage biotechnology company.

We own rights to intellectual property covering the use of CTLA4Ig for the treatment of rheumatoid arthritis, multiple sclerosis, and lupus, which is the subject of litigation with Bristol Myers, who markets its CTLA4Ig product for RA 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 for the Eastern District of Texas. In September, the court held a Markman hearing in order to interpret the meaning of the claims and the patent. Bristol argued that the claim should be--should contain a mechanistic limitation for the use of CTLA4 for the treatment of rheumatoid arthritis. The court rejected their proposed language and accepted our straightforward reading of the claim.

We are pleased with this result and we continue to believe that Bristol's sale of Orencia infringes our patent. This case is proceeding through discovery according to a schedule set by the court, and we expect summary judgment briefing to be completed in February and 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 a Phase 2 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 the diagnosis, the ability to visualize the pancreatic ducts, and the quality of the images.

These data were submitted to the FDA and in September we had an end of Phase 2 meeting with the agency to discuss our results and the FDA's requirements for registration. The conclusions from that meeting include the following. First, a single Phase 3 clinical trial, which produces--reproduces the design and the results of our Phase 2 trial, will suffice for product registration. Second, the primary endpoint will be improved sensitivity in the detection of structural abnormalities without a loss of specificity when secretin enhanced images are compared to unenhanced images.

Our [power] analysis indicates that this can be accomplished with a 90% confidence with approximately 250 to 300 patients. Third, no additional toxicology studies are required. And fourth, we have agreed on numerous issues related to product manufacturing. Based on this feedback, we are actively working to submit a final protocol and related documents to the FDA by year's end, and we expect to initiate the Phase 3 trial in the first quarter of 2008. We have invited 12 of our Phase 2 sites to participate in the Phase 3, and all 12 have agreed to join. We expect to recruit another 10 to 15 sites prior to the initiation of the study.

We are also pleased that Dr. Stuart Sherman of Indiana University Medical Center will be the [PI] on the study. Dr. Sherman is an internationally recognized gastroenterologist and a leading authority on pancreatic disease. We believe there are approximately 100,000 MRI procedures in the U.S. each year, which would benefit from secretin image enhancement, which would imply a U.S. market opportunity of more than $30 million.

Separately, we have enrolled approximately 50 patients in a trial to evaluate the use of secretin to assess 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 to secretin can be diagnostic of the health of the pancreas in patients with no or suspected pancreatitis. We expect the data analysis from this study will be complete next month.

Our second product candidate is an oral formulation of uridine, a naturally occurring nucleoside, which we are developing for the depression associated with bi-polar disorder. Today, we reported the results from our Phase 2A trial of uridine and bi-polar depression. This trial (inaudible) for patients who received either a placebo or an oral formulation of uridine twice a day for six weeks. Patients were evaluated at baseline, and then weekly for depression using the co-primary endpoints of the MADRS scale for depression, and the clinical global impression of change in overall bi-polar symptoms.

At baseline, the placebo in uridine treated groups had virtually identical MADRS depression scores. At week one, the two groups both showed a significant improvement, which was the same in both groups, reflecting a strong placebo effect always observed in depression trials. At weeks two, three, four, five, and six, the uridine treated group showed a numeric improvement in MADRS scores versus the placebo group, which averaged 2.8 points. Although the comparison between the groups was not statistically significant for any single time point, a repeated measures assessment of the six-week treatment period showed a statistically significant improvement in MADRS score in the uridine treated group with a p value of 0.03.

The co-primary endpoint was the clinical global impression of improvement in the patients' overall bi-polar symptoms, which was also assessed weekly by a physician. As with MADRS, there was no difference between the groups at week one, but an improvement in symptoms in the uridine treated groups was evident in weeks two, three, four, five, and six. Again, no single time point showed a statistically significant difference between the groups, but a comparison of the entire treatment period showed a statistical trend in favor of the uridine group with a p value of 0.06. The safety and tolerability of uridine appear to be excellent and although we are still compiling--although we are still compiling these data. There was a single serious adverse event in the uridine treated group, which we do not believe was related to the treatment. And there were more adverse events in the placebo group than in the uridine group.

Since the induction of mania is a well known side effect in treatment with the SSRI class of antidepressants, such as Prozac or Zoloft, we measured mania at baseline and weekly thereafter with Young's Mania Rating Scale. At baseline, the uridine group had a significantly higher level of mania than the placebo group. Subsequently, over the six-week course of treatment, the uridine group had a percent decrease from baseline in mania, which was significant compared to the placebo group with a p value of 0.01.

We expect to complete the analysis of these data in the next several months and we will provide a more complete report on the data at that time, as well as our plans to confirm these results in a larger Phase 2B clinical trial.

In April, we announced an agreement with Scripps Research Institute for an inclusive 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 tissues and an animal model of the disease. We have synthesized more than 100 analogs of the lead compounds and tested them in cell culture assays. Some of these compounds have improved potency and specificity and are being further assessed in animal models for their activity and pharmacology. To date we are very encouraged with the results.

We are also evaluating our lead compounds in an animal model of Huntington's disease. And we expect to have this preliminary result by year's end.

Finally, we are pleased to announce that we have received a $100,000 grant from the Friedreich's Ataxia Research Alliance to help support some of these activities.

Looking forward, we intend to invest in the expansion of our product portfolio in 2008. We will actively seek to license compounds with strong intellectual property and sound biological rationale, which we can develop through proof of concept clinical trials. Initially, we will continue to focus on CNS product candidates. However, we'll opportunistically seek product candidates in other clinical indications.

In summary, we are pleased with the results for the second quarter, which have included excellent product sales, a settlement in ImClone litigation, a successful end of Phase 2 meeting with the FDA for our pancreatic imaging product, a favorable clinical trial of our uridine product candidate, and progress in our product development program in Friedreich's Ataxia.

That concludes my prepared remarks for today, and I'd be happy to answer any questions you may have at this time.

(OPERATOR INSTRUCTIONS.) And your first question comes from the line of Elemer Piros with Rodman & Renshaw. Please proceed.

Good morning, Walter.

Good morning, Elemer.

Congratulations on the nice results.

Thank you.

Are you being fairly conservative when you project up?

--Elemer?

Yes.

Can you repeat your question, please?

Hello, can you hear me now?

You're cutting in and out. I think if I could guess what your question is, it's are you being conservative in your financial projections for the year.

Yes, because if one looks at the second half--.

--Sure. I understand. I understand. I think one of the characteristics we've learned over the years is that we have significant quarter to quarter fluctuations in our Protein A business due to a number of factors, including relatively few end-user customers. The demand can rise and fall quite substantially from quarter to quarter. And so, I think that this year, the front half of the year is certainly going to be stronger than the back half of the year.

Okay.

I think at this point as we are well into the third quarter already, we're fairly confident that we have a good handle on what the numbers are for the year.

Okay.

As you know, over the years though our numbers will track up with the Mannitol business and long term have no doubt that will continue.

Yes. And a similar numbers-related question. I mean, we could back in--back calculate what your R&D assumption would be. But for the year, roughly $8 million, is that a good number that you project? And furthermore, now that you have a bit more in the pipeline development then you have this Phase 3 study coming up, just in a range manner how would that change in calendar 2008?

So the first question is the R&D spend. I think 8 million is a reasonable guidance, assuming we do not do any significant technology acquisition, which would be a one-time charge to R&D. And as far as '08 is concerned, I would remind you that while it's true that clinical expenses will ramp up in '08, the litigation expenses of ImClone, which are already down to zero, and with Bristol with a trial in April of '08, will be substantially less in the next fiscal year than they are in the current fiscal year. So I would anticipate that pending further refinement of what our plan's going to be with uridine in the Phase 2B, that we would maintain a loss number of less than 5 million--a net loss number of less than 5 million with the current portfolio. Obviously, we would like to expand that portfolio, but that's the current situation.

Okay. And you're referring to fiscal '09 here--?

--Correct--.

--Or calendar '08?

That's right. Fiscal '09 beginning on April 1 we would expect a net loss of less than 5 million and the expenses of litigation are reduced, interest income is increased, and clinical investment is increased.

Right. Just to make sure, what portion of the Phase 2A study was underwritten by the Stanley Foundation, please?

I would say that the way to think about it is the clinical site costs were underwritten by the Stanley Foundation to the tune of about $1 million.

Okay.

Repligen carried its own internal CRAs and other costs associated with the study.

Would you take this data and see if they wanted to further invest in the program?

Well, we certainly have a meeting scheduled with Stanley in a couple of weeks to discuss how they may like to proceed. I think that it's not every day you have a new mechanism of action that works in a fairly refractory patient population and gets no real benefit from the SSRIs. So I hope they share our enthusiasm for this approach.

A data-related question. In the depression score or scale, so when--do I summarize it correctly that on weeks 1, 2, 3, 4, 5, 6, we didn't see a difference between the group comparisons between placebo and treated, but when you integrated the results over the entire period, then you saw whatever you reported, or is it at week 6 at the last observation time when you saw it?

It was integrated over the entire treatment period, so it's sort of an area under the curve analysis.

For both instruments?

That's right, for all instruments - mania, depression, and CGI.

Okay. Now, that the treated group had higher mania scores, in what way would that bias the study in the drug's favor or the opposite direction? I started--I tried to think it through, but I just couldn't come up with a conclusion.

Well, I think in a perfect world you'd like those scores to be mashed at baseline. The statistics are the statistics, however, and the only thing you would want to be concerned with is that a given mania score, if it's higher, there's more of an opportunity for a treatment effect--.

--Right--.

--Before you hit the floor effect.

Right.

That's why I reported the data as the percent change from baseline when we did the statistics.

So do you think that the placebo patients have come close to a floor effect?

No.

No?

No. When you just look at the absolute numbers on the scale, a 10-point scale, the numbers for mania were something like 8 and 6.5 or something like that.

Oh, okay. Okay.

So it wasn't--all patients had to have--meet certain clinical criteria at entry.

I see. I see.

But nonetheless, we'll go back and we'll repeat it. As you may know, we actually weren't really looking for an improvement in mania. We were looking for lack of induction of mania in our study.

Right, right.

So a little bit of a pleasant surprise.

You settled with ImClone with a lump sum. If hypothetically there would be a settlement with Bristol, what would you favor at this time point all else being equal - a participation in the future royalties revenue stream or take a nice check again?

Well, obviously, there's a number on a check that is--that you can't refuse. But we have been on record quite consistently over the last year that we're great believers in the future of CTLA4. And since our patient goes out to 2021, in other words there would be potentially 16 years of royalties--.

--Right--.

--We very much prefer to find a way through settlement or jury adjudication seek a royalty-based license agreement.

Are we dealing with treble damages potentially if there is a jury verdict here?

Yes, it's certainly a topic that we will look at very carefully.

And the last question that would be related here, to your knowledge in Bristol's patent portfolio what is the latest patent that they have that protects CTLA4Ie? How much additional protection would they gain with your patient should they have access to it?

I believe the latest last expiring patent in their portfolio expires in 2016.

So they could gain a good five years.

I believe that's correct. I'd have to--I don't have it in front of me, but I think that's the correct number.

Okay. Well, thank you very much for taking my questions.

Sure.

Your next question comes from the line of Jeb Besser with Manchester Management. Please proceed.

Hi, Walt.

Hi, Jeb.

Congratulations.

Thank you.

This is--I guess my first question would be on uridine. It's been a while since you've talked about the potential size of the bi-polar market if you were to ever get approved in that indication. Can you give us a rough sense of that?

Well, it's hard to quantify that on the basis of such a small study as there are many market niches one might want to address. But certainly, this is a very, very large unserved market. There are approximately I believe it's 2 million patients in the United States who are diagnosed with bi-polar disorder. And there's a growing consensus I think amongst clinical experts that the Prozac, Zoloft class of drug, the classic anti-depressants, really don't have activity in this patient population. So I think it provides a real opportunity if you really have a drug that has very, very low toxicity, as we appear to here.

Whether at some point that we would try to target a specific segment of the population initially or not I think remains to be discussed. We have--we've only had this data in our hands for a few days. But I would again remind you that adolescents, for example, have this black box warning against using anti-depressants in adolescents with bi-polar disorder. So maybe that's a low lying fruit that would give us a faster initial entry into the market. But suffice it to say, anytime you're talking about a market with several million people it's a very big, big opportunity for us.

Great, great. And do you have any data or any sense of what products that either have been approved or have failed in the clinic produced at the same stages as uridine?

Well, most of them have failed. The only product that we are aware of that has a robust response is a product made by Eli Lilly, which is a combination of Prozac and Zyprexa, Zyprexa being the anti-psychotic drug that they use for schizophrenia. And it's very difficult to compare published results there from results that we have in front of us, but I think in their trials they had less of a placebo effect by a small amount, and a greater therapeutic effect by a small amount. So I think our results are maybe 60%, if you will, difference between drug and placebo versus this combination therapy. But I would also point out that when you put two hard drugs together, like Prozac and Zyprexa, you get additive toxicity as well. For example, weight gain in a large percentage of patients, and a variety of other things associated with Prozac and Zyprexa combined.

So it may well be that the niche for uridine is in a combination therapy with another neurotransmitter modulating agent, like one of those two.

Okay. And--I mean, I guess that begs the other question as far as the clinical pathway. And I understand you just got the data. Is this another single agent trial with more patients for the--?

--You would absolutely--we absolutely would want to do another trial at least a part of which is a single agent comparison to placebo to confirm these very enticing results. You may also add a third arm on that trial, which would have a combination with another agent or what have you. We just haven't had a chance to analyze that. But you would absolutely want to confirm the single agent efficacy in a larger trial here versus placebo.

Okay. And your thoughts on the timeline of partnering this asset would be at least post the Phase 2B?

I think that typically it would take about a year to initiate and complete partnering discussions. So there is no doubt that we would initiate a Phase 2B study prior to that and perhaps hold those discussions in parallel and they could go along a number of different creative lines, as my earlier comments just suggested in terms of combinations or what have you.

Okay, that's terrific. One--another question on your structural secretin results. Is there--is the same secondary end point going to be present in the trial you'll be initiating in Q1 as far as certainty?

That's right. The trial is a carbon copy in all ways of--all substantial ways of the Phase 2 study. It's actually a little simpler - some certain safety monitoring and things have been eliminated. But all the secondary end points we reported will be recorded once again in the Phase 3 study. I just spoke today on the primary, which were also the same as in the Phase 2.

Okay. But you might be able to get that labeling claim that--?

--Oh, yes. We're going to--oh, I think there is no doubt we're going to aspire for that.

Okay, terrific. And then, your sense of whether or not you would partner that before you completed that Phase 3.

Again, I think it's analogous to the uridine situation. We would expect to complete the Phase 3 sometime at the end of calendar year 2008. At that point, we may be--we hope to be deep in discussions, if not completed a partnering arrangement.

Okay, terrific. And one last question. What was your litigation expense in this past quarter?

We haven't broken that out specifically, but it was probably I would guess between $500,000 and $1 million.

Just in the last quarter.

Yes.

Okay. All right. Thank you very much.

(OPERATOR INSTRUCTIONS.) Your next question comes from the line of Pam Anderson. Please proceed.

Yes. I was wondering if you could give me a timeline as to when your--the clinical trials for the Friedreich's Ataxia compound would begin?

Okay. I think that for us we have as I mentioned a number of compounds that are showing very good performance in cell culture and early animal models. And in order for us to select a clinical candidate, we'll have to be convinced that in all regards - toxicology, pharmacology - the compound is safe and good pharmacology. And we would hope to be able to do that as early as the second quarter of 2008. And then, following that, we would have to do the FDA-mandated formal tox studies - IND enabling formal tox studies - which typically take about six months.

So you're--.

--That would bring us to the end of 2008.

So the clinical trials would not begin until the end of calendar 2008? Is that--?

--That's correct.

Okay. Thank you very much.

You bet.

(OPERATOR INSTRUCTIONS.) At this time there are no additional questions. I would now like to turn the call over to Mr. Walter Herlihy for the closing remarks.

Thank you for participating in today's call. And as always, if you have any additional questions or comments, feel free to contact us directly at the company. Goodbye.

Ladies and gentlemen, that concludes your presentation. You may now disconnect and have a wonderful day.