Repligen Corp (RGEN) 2009 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Repligen Corporation's Second Quarter 2009 Earnings Conference Call. My name is Michelle and I will be your coordinator for today.

(Operator Instructions)

And I would not like to turn the presentation over to your host for today's call, Mr. Bill Kelly, Vice President of Finance and Administration. Please proceed.

Thank you, and good morning. The purpose of today's call is to briefly review our financial results for Q2 FY2009, affirm our financial projections for FY2009 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 guaranteed to future performance, such as our financial projections and projections for the US sales of Orencia, opportunities for licensing, our intellectual property portfolio and our plans and projections -- and our projections for clinical trials.

These statements are subject to certain factors which may cause Repligen's plans to materially differ or results materially vary from those expected, including market acceptance of our products, unexpected pre-clinical or clinical resulted 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 second quarter of FY2009, which ended on September 30th, 2008. For the quarter, we recorded total revenue of $5.1 million, including product sales of $3 million and royalty income of $2.1 million. Our net profit for the quarter was $142,000 and our cash and investments on September 30th were $65.6 million or $5 million more than March 31st.

Total revenue for the six month period ended September 30th, 2008 was $18.8 million and we expect to record revenue of between $5 million and $6 million per quarter for the next two quarters. This projection would result in total revenues for FY2009, which ends on March 31st, 2009 at the high end of our previous projection of $28 million to $30 million.

For FY2009, we are affirming our previous expectation for a GAAP net profit of between $4 million and $5 million. As previously announced, our Board of Directors has authorized the repurchase of 1,250,000 shares of our stock. To date, we have repurchased more than 350,000 shares at an aggregate cost of approximately $1.4 million.

We view the repurchase program as an important element of our overall strategy to protect shareholder value. Given the current market weakness, we expect to purchase additional shares during the current quarter.

Share repurchases are not recorded on the P&L and therefore will not impact our net profit expectation for the year. It does, however, affect our projected year end cash balance. Excluding the impact of additional share repurchase activity, we expect to end the fiscal year next March 31st with $61 million in cash and investments. At this point, I would like to turn the call over to Walter Herlihy for an update on Orencia and our development programs.

Thank you, Bill. As most of you know, we receive a royalty on Bristol-Myers' US sales of Orencia, they're biologic therapy for rheumatoid arthritis. This quarter, Bristol continued the release of new clinical data supporting Orencia's use. In October, they announced that a ten month study showed that Orencia significantly improved multiple aspects of quality of life in patients with juvenile idiopathic arthritis, which were maintained throughout the study period.

In a second press release, Bristol reported results from a study in adult patients with moderate to severe erosive rheumatoid arthritis who had never received previous methotrexate treatment. This study showed that Orencia, in combination with methotrexate had a 76% greater chance for achieving a remission compared to methotrexate alone and an equivalent safety profile.

This continued news flow and the dozens of new publications on Orencia in 2008 ahs undoubtedly helped support its rapid sales growth. In the last four quarters, US sales have increased from $57 million to $98 million per quarter, for a compound quarterly growth rate of 14.5% or an annualized rate of 71%. We anticipate that these clinical data will continue to drive the growth of this product.

Turning now to our own pipeline, our Phase 3 trial of secretin in MRI imaging is currently recruiting patients at 24 sites in the United States and there are approximately 90 patients in various stages of the trial. At the current enrollment rate, we believe we will complete enrollment in mid 2009.

One of the critical assumptions in powering our trial is the percentage of enrolled patients who actually have a pancreatic structural abnormality. Based on our Phase II study, we assumed that 55% to 60% of enrolled patients would have a structural abnormality. A review of the first 73 patients enrolled in the Phase 3 trial indicates that 68% have an abnormality which suggests that the Phase 3 trial is enrolling the appropriate type of patients for MRI imaging.

If the Phase 3 trial is successful, we plan to file and NDA and request expedited review by the FDA, which may allow us to launch this product in 2010. We have also continued discussions this quarter with the European regulatory authorities regarding their requirements for approval in the EU. While there are differences in the data required for approval, it appears that our US development plan will support the registration of our product in Europe.

This quarter we began to assess potential marketing or distribution partners for our product. Our current plan is to retain either co-promotion or exclusive marketing rights in the United States and commercialized through a partner or distributor in Europe and Japan, which will ensure that we gain the maximum financial return for our investment in this product. We expect to establish these commercial relationships in 2009.

Today we announced the initiation of a Phase 2b clinical trial of RG2417, our oral formulation uridine for acute treatment of depression in patients with bipolar disorder. We plan to recruit approximately 150 patients at 20 to 25 sites. The eight week dosing period and the endpoints used to assess symptom improvement are consistent with those used in pivotal studies for other drugs approved for bipolar disorder.

This study is designed to be a proof of concept clinical trial which, if successful, will support partnering of this product candidate prior to Phase 3. We are also assessing additional indications for RG2417, and anticipate selecting a second indication for development early next year.

We have had several positive developments in the past quarter in our HDAC Inhibitor program. First, we've received two grants from foundations to partially support this program. A $1 million grant from the Muscular Dystrophy Association and $125,000 grant from the Friedreich's Ataxia Research Alliance and the National Ataxia Foundation.

These grants will allow us to expand the scope of our program and speed the development of a product candidate. Our continuing relationships with these foundations may also provide us valuable connections to the clinical and patient communities.

Second, scientists from the Scripps Research Institute published the results of a study of one of our proprietary compounds in a mouse model of Huntington's disease. The study showed significant slowing of a loss of muscle function in a strain of mice which carry a mutated Huntington gene similar to the one found in humans.

This is the first demonstration that one of our proprietary HDAC inhibitors can improve a functional outcome in an animal model. We also expect to report the results of additional functional assessments in animal models of Friedreich's Ataxia and Spinal Muscular Atrophy in 2009.

Our current focus is to complete the detail evaluation of our advanced lead compounds by year's end to determine if one can be designated as a clinical candidate. We are encouraged by the results to date and hopeful that we will be able to enter the clinic in 2009.

The past quarter has obviously been a difficult one for investors. It is clear that for the foreseeable future, the small cap biotechnology company model based on continued access to the equity markets is broken. Last year the Wall Street Journal reported 38% of 370 small cap biotech companies had less than one year's of cash making it likely that company failures will accelerate in 2009.

Fortunately, Repligen is well-positioned to withstand a current downturn with significant cash reserves, no debt and a revenue base that allows us to operate in a cash neutral or cash positive position depending on our investment and our pipeline. Thus we are able to fully pursue our product development objectives during this period.

Additionally as companies cut back their programs and staff to conserve cash, there may be opportunities to acquire assets of a significant discount to their fair value. We have already seen an increase in the number of assets for sale. And we intend to increase our capacity to evaluate these assets in 2009.

Finally, we have the luxury of supporting our long term shareholders through continued stock repurchase. This concludes our prepared remarks for today. And at this point, I'd be happy to take any questions.

(Operator Instructions) Your first question comes from the line of Ram Selvaraju of Rodman & Renshaw. Please proceed.

Hello, thanks, can you hear me?

Yes, indeed.

Okay, I just wanted to get some additional clarification on a few line items in the P&L. So, with respect to the remainder of fiscal 2009, could you provide some additional color on what you expect R&D and SG&A expenses to look like?

For the full year, R&D spending, we expect to be about $14.6 million, and SG&A spending about $5.8 million.

Okay, thank you. Also could you just reiterate when you would expect this Phase 2b uridine study to mature and yield top line data?

Well, it's hard to say at this early stage, Ram, what the enrolment rate is going to be. We would anticipate it would take about 15 months to enroll all the patients under normal circumstances. So, by the end of 2009, we should have this study largely enrolled.

Okay, and then with respect to your pursuit of additional in licensing opportunities, could you provide some more color on what kinds of product candidates you feel would be best suited to brining in to bolster Repligen's pipeline? And what therapeutic indications you might be targeting as you look for potential licensing opportunity?

Sure, we have looked at 30 opportunities since the end of June. I would say approximately 25 of those were in the CNS area. An area we know well and an area where we think we can make an informed decision about the value of an asset. And the others were in various areas where there was an opportunistic perhaps entry point.

Generally, the products that we look at, and the ones that we favor, are ones in which there's a compelling biological story to support the potential utility of the lead compounds in the disease indication, and there's an ability to run a Phase 2 clinical trial with 200 patients or fewer, which will give you a yes/no answer on the compound of interest.

Many of these are earlier stage because that's where we find the higher qualities of science. And in many ways are similar to the Friedreich's Ataxia asset, which we licensed in 2007. And, which over the last year and a half, has moved up to almost into clinical stage.

Okay, and then just quickly -- could you reiterate for me the projected profit for 2009, fiscal 2009?

We've affirmed our previous guidance of between $4 million and $5 million.

Okay, thank you.

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

Good morning, Walter.

Good morning.

How far along are you with regard to European or Japanese partnerships with MRCP?

Well, I'd say we're in the early stages of engaging selected potential partners. And we're taking a very careful approach to this to make sure that those partners we approach are ones who we think can really deliver in the commercialization of an MRI agent. And as I say, it's too early to comment on specific discussions we've had to date, but we do think that these discussions will mature over the next six to 12 months.

You've seen good quality opportunities there?

In partner potential?

Yes.

Yes, we've had some discussions with some very high quality organizations.

And your estimate of the market outside of the United States, Europe, Japan, wherever?

It's probably at least as big as the US market. We think that there's about 150,000 potential procedures in the United States could benefit from use of this agent, and another 150,000 in Europe. I don't have specific numbers in Japan, but it's probably a fraction of that again.

And the cost of that was -- what was that, $200?

Well, I think the current pricing, the wholesale pricing for a single vial for a single procedure is about $400 per procedure.

So, what would our selling price be?

Well, we haven't determined that, but if you were to assume it were $400 per procedure times 150,000 procedures, that would give you about a $60 million addressable market in the US and equal market in Europe.

I thought -- isn't that higher than what you had said before? I certainly don't object to that.

Well, I think we had pinged it at about $100 million or so in rough numbers.

No I meant the cost. I thought was lower than the $400 but you're talking $400, right?

Now our market research supports that quite clearly.

And on Friedreich's Ataxia, has that met, disappointed or exceeded where you had hoped it would be at this time?

Well, if when you enter these early stage projects, there's always considerable concern and risk that the [mouse] will be toxic or the mechanism won't pan out. But I would say it, for me personally, it's exceeded my expectations of how quickly we've come to the point where we're going to make a clinical decision by the end of this calendar year.

And one more thing, you had talked about potential deals or pipeline enhancers, what's the -- you said 30 since June. That's a lot. Is the -- do you see pursuant to that Wall Street Journal article, the quality of opportunities improving?

There's a few quality opportunities. The vast majority of them, I think, are still too early and too uncertain or that biology's not up to snuff. But we certainly have found in that 30, a couple of opportunities worth taking a deep dive into.

But do you see any improvement in the flow or of the quality --?

Yes. The flows, the flow is higher, the quality's about the same.

Okay. Thank you.

Yes.

(Operator Instructions) Your next question comes from the line of [Robert Lazaro], private investor. Please proceed.

Good morning, I'm wondering --?

Good morning.

If there's been any contact or discussions regarding interest in the acquisition or purchase of our Company, Repligen?

We have nothing to disclose. And we normally wouldn't disclose any potential discussions about acquisitions. I think that our focus really is still on trying to take advantage of the opportunities that present us in our pipeline.

As you listened to the call today, I'm sure you heard a number of milestones coming up in 2009 which would mature our pipeline. And certainly we think the value of the company would be greatly enhanced, so we'd be successful in some of these pipeline products.

The reason I asked that question is there seems to be so much press on the voracious appetite of mid and large pharma and biotech attempting to acquire assets like ours.

Well, I think --.

So, I thought it would be a natural -- for discussion purposes, anyway.

Absolutely, I think there is a voracious appetite of big pharma, in particular, and mid size pharma to fill their pipelines. And our whole business model is geared towards that, in that we are going to retain full commercial rights to our products through at least a proof of concept clinical study. And that's where, I think, you can get the very high valuations that we'd all like to get for our investment in some of these product candidates. As opposed to selling them too early, before they're really matured and we can recognize that value.

Was that a yes or a no, just out of curiosity, or a neutral answer?

No, I think it's a yes. There's an appetite and our whole business strategy is geared towards filling that appetite of pharmaceutical companies.

Thank you.

And that does conclude the question and answer session. I'll now turn it back to Walter Herlihy for closing remarks.

Okay, well thank you for joining us on our call today. And despite the difficult environment, I think that, as I said at the conclusion of my remarks, we expect to not only survive but thrive in 2009. And we look forward to continuing our communications to you. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.