Repligen Corp (RGEN) 2009 Q1 法說會逐字稿

Good day, and welcome to the first quarter Repligen Corporation earnings conference call. My name is Brandi, and I'll be your operator for today. (Operator Instructions).

I would like to turn the call over to 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 Q1 FY 2009, affirm our financial projections for FY 2009, and to provide additional information on our development programs. Joining me today is Walter Herlihy, our President and 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 financial projections and projections for US 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 the results to materially vary from those expected, including - market acceptance of our products, unexpected preclinical or clinical results 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 of these forward-looking statements.

This morning, we released our financial results for the first quarter of FY 2009, which ended on June 30, 2008.

For the quarter, we recorded total revenue of $13.7 million, including product sales of $5.7 million and royalty income of $8 million. Our royalty income includes $6.3 million of Orencia royalties based on the US sales of Orencia prior to the signing of the license agreement in April and $1.6 million in royalties for the current quarter. Our net profit for the quarter was $8.3 million, which includes a provision for income taxes of $210,000. Our cash and investments on June 30 were $66.1 million, or $5.5 million more than on March 31.

For fiscal year 2009, which ends on March 31, 2009, we expect total revenue of between $28 million and $30 million, including product sales of $14.5 million to $15.5 million, royalty income of $13 million to $14 million, and other revenue of approximately $500,000. For fiscal year 2009, we expect a GAAP net profit of between $4 million and $5 million, and we expect to end the year next March 31 with $62 million in cash and investments before allowance for any stock repurchases.

Revenue in the current quarter was aided significantly by Orencia royalties. Over the last four quarters, US net sales of Orencia have increased from $53 million to $87 million for a compound quarterly growth rate of 13.2%.

For fiscal year 2009, we expect to have an effective tax rate of approximately 2.5%. The Company currently has $63.5 million of federal net operating loss carry-forwards and additional federal and state tax credits available to reduce, although not fully offset, future federal and state income taxes. While these lost carry-forwards and tax credits are always subject to expiration, less than 30% of them will expire within the next five years, and thus we expect to maintain our relatively low effective tax rate for the next several years.

As we announced on June 18, our board has authorized the repurchase of 1.25 million shares. No shares were repurchased during the quarter pursuant to our own corporate governance obligation to avoid transactions in Company stock while in possession of material, non-public information such as contained in today's press release.

At this point, I would like to turn the call over to Walter Herlihy for an update on our programs.

Thank you, Bill. Before providing an update on our internal pipeline, I would like to note that the increasing Orencia sales momentum is being supported by the continued release of new data. At the June meeting of the European League against Rheumatism, or EULAR, there were three new reports supportive of Orencia. And one Phase 2 trial demonstrated that Orencia was superior to placebo in preventing patients from progressing to rheumatoid arthritis from a precursor condition known as undifferentiated inflammatory arthritis. In a second report, Orencia was shown to provide increasing inhibition of structural-damaged joints over a three-year treatment period. Finally, a head-to-head comparison of Orencia with J&J's Remicade showed improved durability of response in patients treated with Orencia. We believe that these and other data will continue to drive Bristol's sales of this product.

Let's turn now to our internal pipeline. Our Phase 3 trial of secretin in MRI imaging is currently recruiting patients at 18 sites in the United States. And there are approximately 50 patients in various stages of the trial. We expect to have top line data from this study in the first quarter of 2009. If the trial is successful, our plan is to file an NDA in 2009, which will be reviewed under the FDA's fast-track program, which may allow us to launch this product in 2010. We have also initiated discussions with the European regulatory authorities regarding the requirements for approval in the EU. It appears that we will be able to use the data from our trial to support the registration of our product for MRI use in Europe.

In our bipolar program, we have finalized a critical protocol for the Phase 2b trial of uridine for depression in bipolar patients. We plan to recruit approximately 150 patients at 20 to 25 sites. The eight-week dosing period and the endpoints used to assess symptom improvements in this trial are consistent with those used in pivotal studies for other drugs approved for bipolar disorder. We are pleased that, of the six academic sites who participated in the Phase 2a study, five have elected to continue into the Phase 2b trial. We have begun IRB submissions for these sites, and we expect to open patient enrollment in several months.

In our Friedreich's ataxia program, we have identified several advanced lead compounds which meet our in vitro criteria for potency and specificity. Over the next several months, they will be thoroughly evaluated with in vivo models for their pharmacology and toxicity. If successful, this would allow us to designate a product candidate by year's end. Literature reports document that non-specific HDAC inhibitors are active in animal models of Huntington's disease and spinal muscular atrophy, a neurodegenerative disease. We are evaluating our more specific HDAC inhibitors in the animal models of these diseases and expect to report initial results later this year.

We intend to use our increasing financial resources to expand our pipeline in two ways. First, we are seeking additional indications for our existing product candidates, such as other imaging modalities in which our secretin product could be used, other CNS and non-CNS applications of our uridine product, and the other potential uses for our HDAC inhibitors that I referenced earlier.

In addition, the current financial market has increased the number of private companies who are interested in partnering or selling their early-stage programs. We are currently reviewing data on more than ten such opportunities and expect this process to continue for the foreseeable future. We are seeking opportunities primarily in CNS, for which there is good patent protection, a defined mechanism action, a defensible commercial niche, and the ability to run a proof of concept clinical trial in fewer than 200 patients.

We look forward to updating you on these dual initiatives over the coming year.

Operator, at this time, I'd like to open the call to questions.

(Operator Instructions). And your first question comes from Ram Selvaraju of Rodman & Renshaw. Please proceed.

I had one question with respect to the secretin clinical development pathway. It's my understanding that there would not be a possibility for you to obtain priority review from the FDA for this candidate, given that it's a diagnostic agent. Is that correct?

No. We do have fast-track designation from the FDA, which would entail a priority review.

So you would be subject to the six-month review process as opposed to the ten-month?

Right.

Okay. With respect to the uridine Phase 2b study, is it your understanding in conversations you've had with the FDA that this Phase 2b trial, given that it's using parameters similar to those used in previous pivotal studies for bipolar disorder, could be considered a registration-quality study?

Well, that's a good point. We don't really label it a Phase 3 study, which would be, of course, the normal nomenclature for a registration study. But we have set this study up in such a way that, if it's successful, it would, at a minimum, be what the FDA calls supportive data so that, if you have one large, well-controlled Phase 3 study and other supportive data, that can sometimes be adequate for registration as opposed to two Phase 3 studies. So that's the thinking.

Okay. And then the last question is with respect to the HDAC inhibitor program. You mentioned that non-specific inhibitors are active in animal models of neurodegenerative disease. How does Repligen's specific inhibitor program differ from these non-specific inhibitors? And could we expect a significantly better safety profile or a better efficacy profile or a combination of the two with respect to these compounds?

Well, the non-specific inhibitors, as the name implies, will inhibit the action of numerous HDACs. And, as such-- And they've been tested, as I mentioned, in a variety of animal models with some significant success. Most of them have not been in humans, but one would certainly expect that that lack of specificity would raise the potential for toxicity in human clinical studies.

So our goal has always been to develop an HDAC-specific inhibitor, and we've made significant progress on that. And, of course, we would expect it to be less toxic, though, again, the studies haven't been done. And the question, then, that remains in consideration is that - Will this particular HDAC target be one that will influence the outcome in these animal models of Huntington's or SMA.

Does that answer your question?

Yes. Thank you very much.

And your next question comes from Elemer Piros of Rodman. Please proceed.

I'd like to reconcile your guidance with our model, if you don't mind. Total revenue you expect $28 million to $30 million. So that doesn't include the $6 million that you recognized this quarter from Bristol. Does it?

It does. Yes.

It does. Okay.

The $6 million was attributed to sales that happened at Bristol prior to this quarter, but we were unable to recognize that revenue until we finalized the agreement.

I see. Okay. So that does include the $6 million. Now, the product revenues. You had an especially strong quarter with over $5 million - $5.6 million, if I remember correctly - yet you are somewhat conservative in forecasting the remainder of the year - $14.5 million to $15.5 million. Would you tell us why?

I think one of the reasons for that, Elemer, is that we are aware that our principal customers, the large companies who buy bulk Protein A and then reformulate it and sell it on to the pharmaceutical customers, will have a slowdown in their order as they use up some existing inventory at the end of this year. And then, after the end of this year, we'd expect a more normal consumption rate that would reflect the actual need in the marketplace. So that's the case there.

Okay. So then, when you look at it year over year, last year was an exceptionally strong year, but we still shouldn't read too much into the sequential decline, if you will.

That's right. The prior year had been about $16.3 million. And we had benefited in the prior year from the approval and launch of Alexion's Soliris. So we had a one-time gain there that was greater than the normal run rate as the manufacturing was brought up to speed. So that's another factor there.

I think there's no doubt that, long term, we have a lot of confidence, as we have had for years, that the business will grow in sync with the monoclonal antibody market and, reasonably, that products that Amgen and others are developing are going to continue the flow of new products to this market.

Yes. Now, the net income would be GAAP net income of about $4 million to $5 million, and currently you have $66 million in the bank that you anticipate to go down to $62 million in the next three quarters. Could you please help me to reconcile this? I think you did this last quarter, where you explained this last quarter by-- You would recognize royalties; however, the cash would come in, in the subsequent quarter. Is this the same explanation that could reconcile the net income of $4 million to $5 million versus the burn of about $4 million cash?

Actually, I think the largest indicator of that is, right now, we've reported a net income of $8.3 million. And, for the balance of the year, we expect to invest in our clinical programs - our secretin and uridine and also our Friedreich's ataxia research. So our overall guidance will take us from $8 million this quarter to net income for the year of $4 million. That's a delta there of $4 million, which will [actually consume cash].

The explanation last quarter was related to the increase in receivables due to the increased revenue. That's now happened. You'll see our receivables have grown as a result of the latest quarter of the Orencia royalties.

Yes. Okay. That explains it perfectly. Thank you very much.

And your next question comes from [Robert Levereaux], Individual Investor. Please proceed.

A very exciting quarter and prospects, and I'm always grateful for the earnest and great work that everybody does there. I'd like to ask a question that may not be too popular. I noticed that Pfizer bought Coley. Earlier in the year, it was trading at $3 per share. Pfizer bought that for $8 per share. Have we--? I know you mentioned that there was ten opportunities for growth that you're looking into, probably for intellectual property. Wouldn't the fastest way to maximize values be available on the open market at a premium? If it was anywhere close to that premium and with all of the huge appetites that pharma have for growth, wouldn't we be a strong candidate? And, thank you very much.

Well, if Pfizer cared to make an offer for Repligen at the kind of markup that they paid for Coley, we would certainly take it very seriously. Our strategy is certainly to try to retain control of all of our clinical programs through, at least, proof of concept. And perhaps that will yield in the future some transaction, whether it's an acquisition of a program or an acquisition of the Company. That's our mission right now is to take the cash we have and build the product portfolio broad and deep. That could be a happy outcome for all of us, if that happens.

(Operator Instructions). At this time, there are no questions in queue. I will turn the call over to Mr. Walter Herlihy for closing remarks.

I want to thank everybody for joining us on our call. And we look forward to updating you in the future. We will be participating in the UBS conference in September, so that will be an opportunity to provide another update on our programs. Thank you again.

Thank you for joining today's conference. This concludes the presentation. You may now disconnect, and have a good day.