Repligen Corp (RGEN) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Repligen fourth quarter fiscal year 2009 earnings conference call. My name is Louisa and I will be your operator for today. At this time all participants are in a listen-only mode.

We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions)

I would now like to turn the call over to Mr. William Kelly, CFO. Please proceed, sir.

Thank you, and good morning. The purpose of today's call is to briefly review our financial results for fiscal year 2009, provide some financial projections for fiscal year 2010, and to update the status of our development programs. Joining me today is Walter Herlihy, our President and CEO.

At the outset, I'd 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 the U.S. sales of Orencia, opportunities for licensing, our intellectual 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 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 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 fiscal year 2009 which ended on March 31, 2009. For the year, we recorded total revenue of $29.4 million, our highest ever, including product sales of $14.5 million, royalty revenue of $14.2 million, and grant revenue of $700,000.

Although end user consumption of Protein A products was relatively stable in fiscal year 2009, our largest customers reduced their inventory by more than a million dollars over the course of the year in response to the financial crisis resulting in reduced sales particularly in our fourth quarter. Royalty and other revenue increased $14.1 million compared to the prior year, due primarily to $13.4 million of royalties received on Bristol-Myers Squibb's U.S. net sales of Orencia.

The Bristol settlement was announced in April 2008 and our FY 2009 royalties include a $6.3 million one-time gain upon settlement from Bristol sales of Orencia prior to the beginning of our fiscal year 2009. Excluding this one-time gain, recurring Orencia royalty revenue was $7.1 million for the year, and total revenue was $23.1 million.

Orencia royalties reflect the significant growth in Bristol sales. For the four quarters comprising our FY 2009 Bristol's U.S. sales of Orencia increased to $392 million, or 57% higher than in the prior 12-month period. Our net profit for the year was $5.7 million, and our cash and investments on March 31st were $63.9 million or $3.4 million more than the prior year.

Today we are providing our initial financial projections for FY 2010 which ends on March 31, 2010. Dynamic changes in both the Protein A market and the arthritis market in which Orencia operates make projections uncertain. Demand for our Protein A products will be impacted by reduced demand from Protein A end users and a continued inventory reduction by our largest customers, which is not expected to be completed until December. Conversely, we are projecting Orencia sales and thus our recurring royalties to grow between 20% and 25%.

As a result, we are planning on total revenue in fiscal year 2010 between $20 million and $22 million, including $10 million to $11 million in product sales, $9 million to $10 million in royalty income, and between $1 million and $1.5 million in other revenue.

Despite challenging market conditions, with our strong financial position and our belief in the opportunity inherent in our development programs we plan to increase spending to provide the necessary funding to successfully complete our Phase 3 program for RG1068, synthetic human secretin in pancreatic imaging, and to recruit a significant number of patients into our Phase 2b trial for RG2417, our oral formulation of uridine in bipolar depression.

That being said, we also want to effectively manage our cash burn rate to allow us to execute on business opportunities as we believe significant licensing or product acquisition opportunities will continue to arise in this challenging economic climate. For fiscal year 2010, not counting the impact of any acquisition or other significant transaction, we expect a GAAP net loss of approximately $5 million to $6 million, and we expect to end the year next March 31 with approximately $58 million to $59 million in cash and investments.

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

Thank you, Bill. Our Phase 3 clinical trial of RG1068 in MRI imaging of pancreatic abnormalities is currently recruiting patients at approximately 30 sites, and there are approximately 195 patients in various stages of the trial. We believe we will enroll the last patient in about three months.

One of the critical assumptions and powering our trials is the percentage of enrolled patients who actually have a pancreatic structural abnormality. Based on our Phase 2 study, we assume that 55% to 60% of the enrolled patients would have a structural abnormality.

A review of the first 182 patients enrolled in the Phase 3 trial indicates that 64% have a structural abnormality which suggests that the Phase 3 is continuing to enroll the appropriate type of patients for MRI imaging. Looking forward, we expect the last patient data to be collected in October and to lock the database by the end of the year at which point we will have the top line results.

We are assuming our Phase 3 study will be successful and have begun the process of preparing the new drug application for filing in the United States, several sections of which are now nearing completion. We plan to discuss our filing plans with the FDA this fall, and assuming agreement and a successful trial, file our NDA by the end of March.

We have received fast track designation from the FDA and we will request the six-month expedited review process, which, if approved, may allow us to launch this product by the end of 2010. In addition, we are planning to file a marketing authorization application for Europe in the second quarter of next year.

We've also designed a pilot study to evaluate the potential of secretin in approving the assessment of the pancreas by a second imaging technique, endoscopic ultrasound, which we expect to initiate in the fall. If secretin can enhance ultrasonic images it will have a significantly greater revenue potential as ultrasound is as widely used as MRI.

We also developing RG2417, our oral formulation of uridine for acute treatment of depression in patients with bipolar disorder. Our Phase 2b trial is actively recruiting at 19 sites and we have enrolled more than 50 patients of the planned 150. We plan to open approximately 10 more sites this year at academic centers to enable us to meet our goal of completing enrollment by mid-2010.

Our business goal is to identify a development and marketing partner for this program in 2010 after we have the results from the Phase 2b trial. We've had several informal partnering inquiries and we plan to formally launch this effort later this year.

We are also developing inhibitors of specific HDAC enzymes for Friedreich's ataxia. In the past quarter, we have continued to evaluate the pharmacology and toxicology of our lead compound in animals which has identified the need to further examine certain properties such as blood/brain barrier penetration. We should have these data within two months which will enable us to determine if our lead compound can be advanced to clinical trials.

In conclusion, while the recession is clearly presenting significant challenges for our commercial partners and their customers and for many biotechnology companies we are fortunate to be in a strong financial position with recurrent revenue, significant cash reserves and no debt which will enable us to advance the programs as I have described without undue financial risk.

While the next year may be a challenging time for our industry, we believe that we have a significant opportunity to build our business by executing on these objectives. Success in either or both of our key clinical trials will enable us to create value for patients and for our shareholders.

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

(Operator Instructions) Please stand by while we compile a list of your questions. (Operator Instructions) Your first question comes from the line of Joe Aguilera with BioRevolution Capital. Please proceed.

Yes, congratulations, guys, on a good quarter.

Thank you.

This question is for you, Walter. Basically you have a great cash position, you seem like you are managing the cash really well, better than most companies out there. And on the bipolar disorder, what is the end point that you are looking to achieve before we go onto the next trial in this Phase 2b? What's the end point we need to achieve?

The trial is designed to compare RG2417 to a placebo where eight weeks of treatment in patients who are acutely depressed. So they presented at the beginning of the trial with a certain minimal level of depression, and the end point we are using is a scale called MADRAS, it's a very commonly used scale to assess depression. It's been used in a number of FDA-approved drugs.

And so we will be looking at the change in MADRAS score of patients who are treated over the eight-week period of the clinical study. We, obviously, hope that we will achieve a statistically significant improvement in MADRAS in treated patients versus placebo patients.

And that would qualify, this trial is of such size and scope that it would qualify as what's a so-called proof-of-concept clinical trial.

And would that trial enable us to entice a partner by then? And has there been interest in the compound as, from the Phase 2a data?

I'll answer your second question first. Yes, there has been interest. We've had a half a dozen discussions with potential partners. It's preliminary because we haven't really taken the initiative yet, as I mentioned, to go out and formally conduct a process to seek partners, but we have had a half a dozen conversations.

I think that both from those conversations and the market research we have done with physicians and thought leaders that if the trial is successful there is no doubt that this compound will find a home, a partnership home, assuming, of course, that the trial is successful.

Right. Now what other indications will the drug be used for going forward?

Well, we haven't really disclosed second or third indications. We are maintaining a couple of patients who have congenital defect in their ability to synthesize uridine. And, therefore, they need exogenous supplementation to maintain health and the FDA has enabled us to do that with a couple of patients. But in terms of larger indications we haven't designated what that was going to be yet.

Okay. And right now how big is this market, what percentage could you get if this drug is really, and how big would the Phase 3 trial be, and what would it cost?

Well, again, I'll answer your second question about the Phase 3 first. It's difficult to project. One of the tremendous advantages we have with uridine is that it's an extraordinarily safe compound, as a natural product.

That may favorably impact a number of patients required for registration. Clearly, we haven't had that conversation with the FDA yet, but if you look at other natural compounds and their approval path, such as LOVAZA for high triglycerides, you see a very small number of patients involved. So that's something we hope that either we or our partner will be able to exploit.

As far as the addressable market, the data that we had we think is most reliable indicates that there are about 2 million patients in the United States with bipolar disorder and all of them have issues with acute depressive episodes. So even 10% of that market, 200,000 patients, at, say, 5,000 a year maintenance therapy, represents a very significant economic opportunity.

Are there any side effects that you've seen so far that is --

Clinically meaningful.

That's beautiful. That's great. Congratulations on that. What would the Phase 3 cost, roughly, and how large a study would it be? How many patients?

We don't know. We'd have to sit down with the FDA and have the so-called end of Phase 2 meeting to [get] that. So I would be hesitant to offer a guess. I'd simply note that if the safety profile holds up, the wind should be at our back.

Right. What's the strategy for marketing this, would it be worldwide, U.S., ex-U.S?

Partnership.

Outside the U.S., what's the interest in the patient? In the U.S. we have 2 million patients here that have it, what about outside the U.S., can you maybe talk about the landscape?

Most of the partners that we would anticipate talking to and have talked to so far are interested in worldwide marketing rights. So we would certainly see this as an opportunity to form a commercialization partnership where our partner would take the lead in addressing this broad and deep marketplace.

Let's see, and in terms of your Huntington disease product on the HDAC inhibitors how fast can we get that moving in the clinic? Maybe you can speak about that compound?

Well, as I mentioned in my prepared remarks it really depends on how the molecules behave. We have some molecules that have a lot of favorable properties, and there are a few more, they need to pass the hurdle on including blood/brain barrier penetration. So until we see the data it's a little hard to project. If it looks good then we will be in the clinic within eight months. And if it doesn't look good we'll have to make some tweaks to the chemical structure to improve its properties.

Are you looking for other drugs out there? I admire how you keep your burn rate so low.

Very selectively, yes.

In which particular, in the CNS area or do you want to continue to focus in on that area? What are the different areas that you are looking at?

We are certainly focused on CNS, we have a lot of expertise and -- we're being opportunistic, though, and looking at some things outside the CNS area as well.

Walter, thank you, and we will follow up.

Thank you.

Your next question comes from the line of Ron [Chase], Private Investor. Please proceed.

Good morning.

Good morning, Ron.

I missed what you said, I'm sorry, about the endoscopic ultrasound.

Okay. As you know, we are developing as a primary indication for this drug -- it's used to assist in imaging the pancreas when one uses magnetic resonance imaging, which is a very widely used technique. There are certain instances in which ultrasound is also used in a slightly, somewhat complementary way to look at certain pancreatic problems.

And so what we have decided to do is to see whether our drug, secretin, could be as useful in endoscopic ultrasound where you put a little probe through the abdomen and you put an ultrasonic probe up into the pancreatic duct, whether it can be as useful in that type of -- improving that type of an imaging procedure as it has shown to be in the MRI imaging procedure.

It's too early to really give you any odds of whether it will or will not work. It's certainly a reasonable thing to try, though, based on the biology of secretin.

And you said the market size for that was you thought?

We haven't done any really detailed analysis, but we if assume similar pricing it would probably double the market opportunity.

Were you describing that market opportunity on MRCP, were you not doing that just domestically as a -- go ahead.

We are going to pursue both Europe and the United States in parallel, almost as if it's one market. They're slightly staggered applications. There are about 300,000 current MRIs in those two geographies, so it's roughly $100 million market opportunity.

We have not done as detailed an analysis of the endoscopic ultrasound market. But we certainly know that it's at least as widespread as MRI. So I think that provides a good calibration of what the incremental opportunity might be if we were successful in endoscopic ultrasound.

And the timing on that?

We had planned to start the study once we get IRB approval in the fall. It's a reasonably short study. It will probably take about six months to execute.

And you would start it in the fall?

Yes.

Are you pursuing a European partner on MRCP or are you waiting for data?

No, we have initiated some partnering and some distributor discussions on MRCP. The assumption is the data will be as expected, clearly that will be a gating factor to actually getting a partner. But we are not waiting to have those data at the end of the year. We've already had a number of conversations with companies that are strong and particularly strong in certain countries in the European area.

Okay. I had one more question for you. No, you go ahead, I'm sorry, I don't see the question, thank you.

(Operator Instructions) Please stand by for your next question. At this time, we have no more questions. I would like to turn the call back over to Mr. Walter Herlihy for any closing remarks. Sir?

Okay, well, thank, everyone, for participating in today's call, and as always, if additional thoughts or comments or questions come up, feel free to contact the Company directly at Investor Relations. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.