Repligen Corp (RGEN) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2008 Repligen Corporation earnings conference call. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS)

I would now like to turn your call over to Mr. Walter Herlihy, President and Chief Executive Officer. Please proceed, sir.

Thank you and good morning. The purpose of today's call is to review our results for the third quarter of fiscal year 2008 and 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 is are not guarantees of future performance, such as our financial projections and opportunities for licensing our intellectual property portfolio, our plans and projections for clinical trials, and the likelihood of success on 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; delays in manufacturing bios for our partners; failure to receive adequate supply of clinical materials from our partners; timing of product orders; delays in or failure of regulatory approvals; access to capital; adverse changes in commercial relationships; and a variety of other risks set fourth in our filings with the Securities and Exchange Commission, including, but not limited 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.

This morning we released our financial results for the third quarter of fiscal year 2008, which ended on December 3 , 2007. For the quarter we recorded total revenue of approximately $4.7 million and a GAAP net loss of $241,000. Our cash and investments on December 31st were $61.3 million. Today we are confirming our fiscal year 2008 revenue expectations of $19 million, including product sales of approximately $18 million. We expect a GAAP net profit for the year of approximately $38 million and we expect our cash at March 31, 2008, to be approximately $60 million. We are pleased our Protein A business continues to provide a growing stream of revenue and profit, and our financial strength enables us to make a significant financial committment to enforcing our CTLA4 intellectual property and to advancing our pipeline without the financial risk normally associated with a clinical stage biotechnology company.

We are currently in the final stages of a lawsuit against Bristol Myers for infringement of our patent covering the use of CTLA4-Ig for the treatment of rheumatoid arthritis, multiple sclerosis and lupus. Bristol markets CTLA4-Ig for treatment of rheumatoid arthritis under the brand name Orencia, for which U.S. sales in 2007 were $216 million. We have prosecuted our lawsuit against Bristol in the U.S. District Court for the Eastern District of Texas. This case is currently in the summary judgment phase, and we expect a briefing to be completed in February. Assuming Bristol is not successful in summary judgment, we are currently scheduled to pick a jury on April 7th. In discovery responses in this case, Bristol has indicated that it will not contest our belief that the sale of Orencia to treat rheumatoid arthritis falls within the scope of certain of the claims in our patent. Thus their primary defense is that the patent is invalid and therefore unenforceable. At trial, Bristol will have the burden of proof to show that the patent is invalid due to, for example, obviousness, anticipation, lack of enablement and specification, et cetera. We believe we have strong arguments to counter Bristol's defenses.

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, identified structural abnormalities to aid in the diagnosis of pancreatitis. Last year, we reported top-line results of a Phase 2 clinical trial, which demonstrated the use of secretin increased the sensitivity of identification of abnormal structures by approximately 20%, and provided highly-significant improvements in the confidence of diagnosis, the ability to visualize pancreatic ducts and quality of the images. These data were reviewed by the FDA and we had an end of Phase 2 meeting with the agency to discuss our results and the FDA's requirements for an NDA filing. Based on this feedback we have now finalized the Phase 3 protocol and we expect to initiate the Phase 3 trial next month. We expect to complete this -- we expect this trial will involve approximately 250 patience at 25 sites in the United States and Canada, and our goal is to enroll all the patients by the end of this year. We believe there are approximately 150,000 MRI procedures in the U.S. each year which would benefit from secretin image enhancements, which would imply a U.S. market opportunity of more than $45 million.

Our second product candidate is an oral formulation of uridine, a naturally-occuring nuclide, which we are developing for bipolar disorder. Last quarter we reported on our Phase 2-A trial in which twice daily dosing of an oral formulation of uridine as monotherapy for six weeks resulted in a significant reduction in both depression and mania. Further evaluation of the safety database shows that the drug was very well tolerated with no differences in the number of adverse events reported in the placebo group compared to patients on drugs. We have requested a meeting with the FDA to discuss our proposal for a larger Phase 2 tri -- 2-B trial in which patients will be allowed to continue on their prescribed mood stabilizer, such as Lithium or Depakote. The Phase 2-B protocol draft anticipates treating more than 200 patients with either a placebo or a fixed daily dose of uridine for eight to 12 weeks. The primary end points we will propose to the FDA are the reduction of depression as to satisfy the MADRS scale and Clinical Global Impression of Change. We hope to have FDA approval to begin this study by mid year and enroll patients in Q3 of this year.

We have an exclusive license from Scripps Research Institute, patent applications, covering a classic compounds with potential use of previous ataxia and potentially other diseases. These compounds have been shown to increase the level of [fertastin], the protein which is deficient in Friedreich's patients, in both patient tissue and the animal model of the disease. We have synthesized more than 100 analogs with the lead compound and tested them in cell culture assays.. Several compounds with improved potency and specificity are being further assessed in animal models for their activity and pharmacology. To date we're encouraged with the results.

We're also evaluating our lead compounds in an animal model of Huntingtons disease and expect to have preliminary results later this year. As part of our efforts we're also seeking a biomarker, which could be useful in accelerating the development of a clinical candidate and we are pleased to announce we have received a grant from Go Far, a European Friedreich's ataxia advocacy group, to support continued work on this project. In summary we are pleased with the results for the third quarter, which have included excellent product sales, the advancement of our CTLA4 litigation and preparations for significant clinical trials of secretin in pancreatic imaging and uridine in bipolar disorder, which represents two largest clinical trials we have carried out to date.

Looking forward, we are in the early stages of preparing a budget for fiscal year 2009, which begins on April 1, 2008. Our initial model for next year includes a 10% increase in Protein A sales and the planned end of our SecreFlo marketing agreement, which will convert to a royalty in mid 2008. We expect a GAAP loss of between $3 million and $ 5 million next year, which includes the one-time expenses associated with the CTLA4 trial this April. Our business development goals in the coming year are to find a marketing partner for our MRI imaging products and to add an additional product candidate to our pipeline. At the same time, we are evaluating other products and services to add to our Protein A business to provide increased opportunities for revenue growth and a more diversified product offering. We are clearly in a unique and enviable position compared to many of our peers, with a profitable product line, as well as cash to invest in our pipeline and to selectively acquire additional product candidates.

That concludes my prepared remarks for today and we will be happy to answer any questions you have at this

(OPERATOR INSTRUCTIONS) Your first question will be from the line of Ram Selvaraju of Rodman & Renshaw.

Thanks very much for taking my question, Walter. I just wanted to ask a few questions if I may.

Sure.

Regarding first of all the financial items, with respect to guidance for the following 12 months in terms of R&D expenses, would you be able to provide some additional color on that for me, please?

Well we haven't really refined those numbers at this point in time, but I expect R&D expenses to be in the $7 million to $8 million range.

For the next 12 months?

Yes, beginning April 1st.

Okay. Also, I wondered if you could perhaps clarify the language used in the press release and that you recently restated on the conference call regarding the nature of summary judgment and that kind of process, and --

Sure.

-- what the potential outcomes of it could be and whether or not any resolution to the ongoing litigation with Bristol might be expected in the month of February?

Okay, well as far as summary judgment goes, Bristol filed summary judgment motions, as did Repligen. Their motions, which are in the public domain, asked for the case to be dismissed based on certain legal arguments, and as you may know, in summary judgment, one can only argue facts of law. You can't argue the facts of the -- in case. We can only argue the application of the law to the agreed-upon facts. We believe that there are a large number of facts that are yet to be decided in the courtroom and therefore, that summary judgment is premature and we've made those arguments in (inaudible) back to the court, and we feel confident that our arguments will prevail in summary judgment and therefore, we will go to trial in April of this year. Does that answer your question?

So just to clarify, a little bit more. So essentially, if motions for summary judgment were accepted from either party, then the case could be resolved in February?

The case could be decided in February, potentially. I think it's unlikely in the context of this case. That would be, of course, subject to appeal as well, but I think it's unlikely in this case.

Okay. And with respect to discussions you have had with Bristol surrounding this ongoing issue, could you perhaps comment on the state of those and Bristol's potential willingness to settle out of court?

I really can't comment on that. We have a policy not to comment on any potential discussions that may or may not be going on on a rolling basis. Suffice it to say, we think we have a very strong position here, and we will not settle early just to get the case out of the way at a discount, so I would suspect that we will go to trial in this case.

Okay. And just to finalize my set of questions on this topic, you are at this point considering more settlement in the way of a royalty or in the way of a lump sum payment. If you could just elaborate on which of those scenarios you think would be most favorable to Repligen at this point?

Well, while there's always a lump sum payment that can get the job done, I think it's highly unlikely that'll be the outcome in any potential settlement here. We are -- I am personally on record as stating that we believe, since our patent goes to 2021 and Orencia is in the early stages of its launch that our shareholders would benefit more from a royalty to any lump sum I could imagine Bristol being willing to offer, but we're committed to pressing for a royalty on this case.

And what range percentage are we talking about and how would the royalty be applied, on net sales potentially?

Yes, net sales in the United States.

Okay. And would it be double digit, single digit? What are we thinking?

I can't comment on that until we've actually seen where the case goes. The case is still in process right now, and I think you can look to other situations potentially if you want some guidance on that, but we won't provide that guidance at this point.

Okay. And then the last question I had was, with respect to the meeting which you would have with the FDA to discuss the bipolar disorder Phase 2-B trial subsequent to your submitting the report of the original study you just completed this quarter, when would you expect that meeting to take place?

In April.

Okay, thank you very much.

Sure.

(OPERATOR INSTRUCTIONS) Your next question will come from the line of James Tong from Rodman & Renshaw.

Hi. Thanks for the briefing. I have a question on the burn for the coming four quarters.

Yes, go ahead.

What is the -- you say the $5 million of net loss, or did I hear right?

Well, as I said, we're in the earlier stages of constructing a model for the year that begins on April 1st.

Okay. And clearly, when we're this early in the process, we don't have good visibility for the back end of that 12-month period in terms of product consumption -- Protein A consumption by our customers. I see.

With that being said, we want to assure investors that even as we are ramping up these two large clinical studies, that we're going to maintain a relatively low burn rate compared to our peers and compared to the amount of capital we have on the balance sheet. So our guidance is for GAAP, which means includes all stock-option related expense, a GAAP net loss of between $3 million and $5 million.

Okay.

That also includes in the SG&A line considerable expenses associated with carrying out a full-blown trial in April, which is in the first month of the fiscal year, in this CTLA4 litigation.

So would you think that have the breakdown with SG&A would be around what ballpark for the -- I know that what you just said it was actually --?

$6 million to $7 million.

$7 million?

$5 million to $7 million is the ballpark number for SG&A.

I see, great. All right, thank you.

Yes.

With no further questions in queue, I would now like to turn the call back over to Mr. Walter Herlihy for closing remarks.

Okay, thank you all for participating in our call today and as alway, if you have additional questions, feel free to contact the Company at any time through investor relations. Bye.

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