Repligen Corp (RGEN) 2008 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the fourth quarter 2008 Repligen Corporation earnings conference call. My name is Dan and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. (OPERATOR INSTRUCTIONS). I would now like to turn the call over to your host for today's call, Mr. Bill Kelly, Vice President of Finance and Administration. Please proceed, sir.

Thank you and good morning. The purpose of today's call is to briefly review our financial results for fiscal year 2008, update our financial projections for fiscal year 2009, and to provide additional information on our program in bipolar disorder. Joining me today is Walter Herlihy, our President and CEO, and also on the line is Dr. Gary Sachs from the Massachusetts General Hospital. At the outset, I would like to say that this discussion will contain forward-looking statements which are not guarantee of future performance, such as our financial projections and projections for the U.S. sales of Orencia, opportunities for licensing our intellectual property portfolio and our plans and projections for clinical trials. 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 result or delays, delays in manufacturing by us or our partners, failure to receive adequate supply of clinical materials from our partners, timing of product orders, delays in or failure of regulatory approval, adverse changes in commercial relationships, 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 forward-looking statements.

This morning we released our financial results for fiscal year 2008 which ended on March 31st, 2008. For the year, we recorded total revenue of $19.3 million, including product sales of $18.6 million, up 37% from the prior year and our best year to date. Our net profit for the year was $37.1 million, which includes a one time net gain of $40 million as a result of the ImClone settlement in September. Our cash and investments on March 31st were $60.6 million, or $38 million more than the prior year. Today we are updating our financial expectations for FY 2009 which ends on March 31st, 2009. We expect total revenue of between 28 and $30 million, including 15 to $16 million in product sales, 12.5 to $13.5 million in royalty income and other revenue of between $500,000 and $1 million. Our product sales consists primarily of our Protein A product where we expect a modest decrease this year due to high levels of inventory currently held by our principal customers. The growth rate of the Protein A business is tied to the growth rate of the monoclonal antibody segment which is approximately 31% last year, compared to our growth of 47% in fiscal year 2008.

Long term, we see continued growth opportunity for the monoclonal antibody business and as a result, the Protein A business. For our FY 2009 we expect a GAAP profit of between 4 to $5 million and we expect to end next year, March 31st, with $62 million in cash and investments. At this point, I'd like to turn the call over to Walter Herlihy for an update on our pipeline.

Thank you Bill. While our focus today is on our uridine program, I would like to mention one highlight from our secretin program, which is a recent grant by the FDA of fast-track designation for our RG 1068 product for MRI imaging of the pancreas. Fast track designation indicates that the FDA recognizes the clinical need for a safe, noninvasive alternative to endoscopy, which itself has significant morbidity and even mortality. We expect that this designation will expedite the review of our NDA, assuming our ongoing Phase 3 trial is successful.

Today I'm pleased that we are joined by Dr. Gary Sachs who is Director of the Bipolar Clinic and Research Program at the Massachusetts General Hospital. Dr. Sachs is a recognized expert on bipolar disorder, with a specific interest in the clinical development of new treatments. Before turning the call over to Dr. Sachs, I would like to update you on our continued analysis of the data from our Phase 2-A trial of uridine for the treatment of depression in patients with bipolar disorder. This trial involved 82 patients who received daily oral doses of RG 2417 or a placebo for six weeks. Patients were evaluated weekly on a number of standardized tests, including Montgomery Asbury Depression Rating Scale, or MADRS. Over the six week treatment period, there was statistically significant improvement in the symptom of depression in the uridine-treated group compared to placebo, with a repeat measure C value of 0.01. These patients had an average improvement in MADRS score in weeks two through six of studies of three points and there was also a three point improvement in the uridine treated group over placebo at the end of the study.

Our trial recruited patients at six academic research centers and five community-based clinics. Analysis to date indicates that the community based clinics recruited patients whose history of disease symptom was significantly lower than patients treated at the academic center. In fact, the minimal disease history for a few of the patients recruited at community centers leads us to conclude that the ascertainment of these patients as bipolar is uncertain. Several analyses of the data shows by eliminating the patient with minimal history of bipolar symptoms from the analysis result in a significantly enhanced effect of treatment with uridine. For example, there were 50 patients, or 61% of the total who reported more than five depressive episodes over their lifetime. These patients had a significantly greater response to uridine therapy with an average improvement on MADRS in weeks two through six of 5.5 points over placebo, which has a P value of less than 0.001.

During the study, improvement was 6.5 points better than placebo, compared to the 3 point improvement in the entire group. We have conducted similar analysis, which are consistent in showing a more robust observed response in the patients with a higher lifetime frequency of bipolar symptoms. Based on these data and feedback from the FDA and our clinical experts, we have initiated work on launching a Phase II-b clinical trial, which will confirm and extend the encouraging results observed in the phase II-a study. We expect to initiate this study later this year. I will turn the call over to Dr. Sachs, who will provide some perspective on the treatment of depression in bipolar patients and of the potential role of uridine. Gary?

Sure. For those of you who may not be familiar with bipolar disorder or what used to be called manic depressive illness, it may be helpful to start by understanding that the bipolar disorder in its various forms affects more than 8 million Americans and it's the 6th leading cause of disability worldwide. While the cardinal diagnostic feature of bipolar disorder is the occurrence of abnormal mood elevations so periods of mania or hypomania, several longitudinal studies have now confirmed that compared to periods of hypomania and mania, depressive episodes are much more frequent, of longer duration, and account for the majority of the impairment associated with bipolar disorder. In fact, over 15 year follow up, an NIMH collaborative study found that bipolar type-1 patients were depressed 31% of the time, bipolar type-2 patients were depressed just over half the time. That represents a 3 to 1 or 37 to 1 ratio respectively.

Bipolar disorder has also proven notoriously difficult to treat, and it represents an area of clear unmet clinical need. Standard antidepressants, those treatments with FDA approval for treatment of unipolar depression, continue to the most commonly-used treatments for bipolar depression. This practice persists despite the fact that the drugs are not FDA approved for bipolar depression and recent evidence from the step ED study, a large NIMH-sponsored double-blind placebo controlled bipolar depression trial actually failed to show any benefit from adjunctive treatment with standard antidepressants. Furthermore, standard antidepressants have been associated in some studies with actually causing mania or accelerating cycling. At present, the FDA has approved only two treatments for bipolar depression. Seroquel, a so-called atypical antipsychotic drug and Symbyax, a combination of Zyprexa, another atypical antipsychotic, and Prozac. Both these treatments have succeeded in double-blind placebo-controlled trials, response rates, however, indicate about half the patients receiving these treatments don't respond, and those that do, frequently experience substantial side effects that limit the tolerability of these treatments, particularly weight gain and sedation. In fact, over half of the patients in these studies dropped out over the first six to eight weeks of treatment. One study with Zyprexa showed that even after three weeks of treatment, 26% of the patients had persistent somnolence, a condition incompatible with driving, let alone returning to work. It's also difficult for many bipolar patients to accept treatment with antipsychotic drugs, approved for use in schizophrenia. The sensitivity of depressed bipolar patients to such treatments obviously limits their utility, and fuels the demand for more tolerable treatments.

The results from the bipolar depression studies done with RG 2417 are really promising for several reasons. On the efficacy side, the results for subjects receiving active treatment with RG 2417 were comparable to what has been seen in controlled studies with Seroquel and Symbyax. The tolerability of RG 2417 however, was generally comparable to placebo, and much better than that of Seroquel and Symbyax. Should these results be replicated, RG 2417 will be a very attractive option for the treatment of bipolar depression.

Thank you Gary. The doctor has agreed to answer a few questions and I would like to start the question-and-answer period by asking him to comment on the potential use of RG 2417 should it be approved by the FDA. Would you envision this as a potential first line therapy or being used in combination with other drug treatments?

I think the answer is clearly yes on both counts. For patients presenting with mild to moderate depression, it makes sense to start with the most tolerable treatment. That would be clearly be a place for RG 2417. For patients with more severe illness, current guidelines endorse combination treatment and here the tolerability factor also makes inclusion of RG 2417 an easy decision for clinicians.

Just a follow-up in terms of your comments on tolerability. Does that identify in your mind any specific patient populations that will be particularly receptive to this treatment because of safety concern?

It really does. Since many bipolar patients begin treatment with a considerable burden due to obesity, metabolic syndrome, hypersomnia, subtle cognitive impairment or side effects from their other medications, the clean side effect profile of RG 2417 is really a very attractive thing for those patients as well.

Thank you. Operator, at this point, we would like to open the call for questions.

(OPERATOR INSTRUCTIONS). Please stand by while the question list is being compiled. Your first question comes from the line of Ram Selvaraju from Rodman & Renshaw.

Thanks very much for taking my questions. With respect to the R&D expense that is projected for the coming 12 months, how do you project that to ramp as you initiate the Phase II-b study?

In the aggregate we see R&D expenses going from about $7 million in FY '08 to about $13.9 million in FY '09. You mean during the year or ramp year?

Yes. Year-over-year. What about your SG&A line.

It shows a significant decrease. As you know, we spent a lot of time and expense on litigation and so this current year we have $10 million in SG&A, and we are projecting about $5.5 million next year in SG&A, primarily benefiting from about $4 million of legal expenses that we don't expect to recur. However in FY '09 we will have the benefit of our previously announced Bristol Myers settlement showing as royalty revenue.

Okay. And what do you expect to be the inventory build again for the coming year?

We are expecting inventory to remain relatively flat. It's actually up this year due to the timing of customer orders and should remain flat.

Those who built inventory, what is the size of that? What proportion is that?

We think in the first part of the year that we are going to have results consistent with historical, but it would appear that we have a couple of quarters where things would be a little bit of a flat spot because they will work down inventory, and at the back end, fourth quarter of the year I would assume we will return to a more normal run rate.

Okay. With respect to the next milestone for the development of Secretin when do you expect that to come and what will that consist of?

The completion of enrollment of Phase 3 will be our next milestone.

And when?

Probably the end of this calendar year.

Okay. And with respect to the Phase 2-B study, how soon would you expect data from that? Will there be any interim looks involved?

Current plan doesn't anticipate an interim look, so it will be in the second half of 2009.

Okay. Thank you.

Sure.

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

I was wondering if you could illuminate how much of a clinical improvement the step up in the MADRS scale was, or the decrease in the MADRS scale was, in terms of patient functionality. You said it was comparable to the existing therapies.

Yeah. There's not a direct functional measure here, but the 5.5 points difference that Walt referred to is actually considerably more than seen in the depression scale. The average depression study scores for most standard anti-depressants over placebo tend to be about three points or so. So we are seeing a very large effect size by that standard.

Okay. And then as far as drug interactions, any early sense as to -- you said the side effect profile was very clean. What kind of background therapies were these patients on typically?

This was a monotherapy trial so we don't have drug-drug interactions from this trial but I believe Repligen has from their Phase I or II -- from Phase II study they probably have some sense of how uridine behaves.

We have a small number of patients and we don't have any signal of concern. I would point out Jeb, that on a theoretical basis, lots of times drug interactions come for example the impact of a drug on liver enzyme activity and we wouldn't expect a natural product like uridine necessarily, have that particular mechanism drug to that drug interaction issue. There is reason even though we haven't done a control trial, reasonable that it would be appropriate for use with the other established therapies.

All right. Terrific.

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

Hello.

Hi Ron.

A question on context that you were talking about. This is recent knowledge with respect to the greater incidents of depressive impact versus manic?

We use depressive impact, this is recent analyses we've done in the last several months, and we use as an example the lifetime history of depression. You can do the same analysis with lifetime history of mania and come to the same results and in general, patients with either or both of frequent higher frequency of symptomatology seem to have a more robust response.

I was talking about what Gary had said about learning more about the relationship between depressive and manic episodes.

It really is relatively recent that we've had several data points to look at. The NIMH study that I mentioned. The step study found the same thing, It's a large sponsored study. They found the same thing. And this isn't a huge surprise since from the 19th century the conceptualization of mood disorder really was that it included both the people who only had lows and the people that had lows and highs. It's relatively recent that they've been separated as unipolar and bipolar, and this data suggests what you would see as a clinical reality if you came to where I'm sitting right now at Mass General, that the bipolar clinic looks very much as the unipolar clinic. The name of the game here, the reason people come for treatment is depression, depression, depression.

And you were just saying where you said that Mass General, what is based on your experience, your enthusiasm for the results achieved to date, if you can comment on that?

Yeah. I'll give you a couple of things that occurred to me and this may be just because I'm a clinical trial junkie, but one of the things that is difficult in the field if you look at GSK experience developing their drugs, it's extremely hard to show the benefit of a drug that doesn't have much in the way of side effects. And that's sometimes for very good reasons, because if you have a sedating drug and it treats insomnia, it makes it look perhaps better in controlling the mood symptoms than it might otherwise. So here we have a drug that looks a lot like placebo. There are no side effects that will unmask the raiders consciously or unconsciously, and this drug delivered a magnitude of effect comparable to much messier drugs. So that really does impress me. The other thing because I'm blinded, I can never be sure which patients who have come here and actually participated in the trials are getting active or placebo, it's very clear that one of the problems for our patients is the drugs that are sedating or have side effects due to blocking cholinergic receptors. Worse in the cognitive problems that these patients often have, and if I can get away from that problem, if I can get away from the tendency to cause weight gain and sedation, I now have a drug that has not just greater attractiveness for people at the start, but the chances that they'll be able to go back to work are really considerably higher because I won't be mudding their picture with all the side effects.

One more question about something you said about the response of different levels of episodes of depression in terms of the result achieved with uridine, if you want to comment on that.

Yeah. The way Repligen has looked at this shows you that if you have any index that makes this look more like a legitimate case, remember we do these clinical trials. They are different than people showing up at the clinic for care. They are more what we might term symptomatic volunteers. And we do a careful assessment with them. Some sites more careful than others to be sure that they meet the full criteria for case notes. You can kick all those boxes and have what will be indisputably a true clinical case and you can see that because they have had multiple episodes and been treated for it before, or you can have people who might have an episode or two and didn't get much treatment but they are not the real McCoy clinically. Anyway you look and the way you just heard, based on how many significant episodes you have, the more people look like cases the better they respond to uridine.

And how significant is that?

Well, if you are planning a next trial, I think it gives you a lot of guidance about how to select patients that improve the likelihood that your next study will perform better than your previous study.

But how significant do you think it is that the people with the greater level of incidents respond better?

Not a surprise in the least. This is the kind of finding that you will see across all depression in bipolar trials that you look at, even schizophrenic trials.

All right. Thank you and Walter one question for you please.

Sure.

Do you want to comment on how you strategically plan to further build the pipeline given the level of cash and not spending at all in one place I hope?

I think that there will be two dimensions you are going to see building the pipeline in the next couple of years and the first and most obvious is when you have a lead and a safe drug like RG 2417 is to seek other indications for that drug. So it becomes within itself a pipeline and we are looking at other indications right now outside of bipolar depression, where we might initiate studies. The other active dimension is we are actively building critical mass in our business development group, and we would intend to use that to seek out other early stage CNS opportunities for inlicensing.

Are you seeing better opportunities now, less opportunities?

It's hard to be quantitative about that but the general downturn in the financial markets for biotech has brought a number of opportunities to the surface that might not have existed say a year ago.

Okay. Thank you.

Your next question comes from the line of [Robert Lazaroff], he's a private investor. Please proceed.

Thank you, Walter. Ron just asked the question that I was going to ask and I thought you answered it very well. I would like to ask one other question. Have we been approached or have there been any discussions over the last three to 12 months of being acquired by another company? And what are the chances of that from a perspective of mergers and acquisitions?

It's not an active area of the company right now. Acquisitions is always one route, but there's nothing active at the present moment.

Thank you.

(OPERATOR INSTRUCTIONS). Your next question comes from the line of [Stephen Goldstein], private investor. Please proceed.

Thanks for taking the call. Can you speak about the IP in uridine, patent rights?

We have two aspects barriers for the uridine program. We are exploring a number of avenues to develop and/or acquire relevant IP. It's just too early for me to comment on that specifically. I would also point out that if uridine is approved by the FDA and the European regulatory agencies, it will benefit from a new chemical entity designation with five years of exclusivity in the U.S. And ten years of exclusivity in Europe. So that will give us the opportunity to franchise.

But you said there is IP out there that may control this compound that --

No. In which we could create an early intellectual property that could assist us in building a long-term franchise there.

We are not conflicting with any patents that are existing now?

That is correct. We have complete freedom to operate now. We are not infringing any known patent.

I hate to ask a question about money, but have you quantified the market size of bipolar market? Do you have a sense how large that market could be?

The variable here would be pricing and we don't have a handle of what pricing might be, but I think the results being are more larger and more comprehensive study that clearly the opportunity is $100 million.

Thank you.

Your next question comes from the line of Ronald Wilson. He's a private investor.

Good morning, Dr. Herlihy. You are working on an autism drug about two or three years ago. Is there anything on that?

We don't have any active research and development activity in the field of autism at the moment.

Okay. I've been an investor for about ten years in your stock and I still have it, so keep up the good work.

Okay.

Thank you Dr. Herlihy.

Yeah.

At this time there are no further questions in the queue. I would turn the call back to Walter Herlihy for closing remarks.

Thank you very much for participating and I would like to thank Gary Sachs for his participation today. And as always if there are additional questions that come up, please feel free to direct them at any time to the investor relations line.

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