Repligen Corp (RGEN) 2010 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Third Quarter 2010 Repligen Corporation Earnings Conference Call. My name is Shamika and I will be your coordinator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of today's conference. (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Mr. William Kelly, Chief Financial Officer. Please proceed.

Thank you, and good morning. The purpose of today's call is to briefly review our financial results for Q3 of our fiscal year 2010, update our financial projections for the year, and to update the status of 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 certain forward-looking statements which are not guarantees of 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 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 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 2010 which ended on December 31, 2010. For the quarter, we recorded total revenue of $5.6 million including product sales of $2.9 million and royalty and other revenue of $2.7 million. Current year royalty and other revenue benefited from a 20% increase in Orencia sales versus the same quarter last year. Operating expenses have increased $400,000 compared to the prior year as the Company continues to invest in our product pipeline and business development efforts, most notably with the acquisition of our Spinal Muscular Atrophy program announced in October. Our cash and investments on December 31 were $61.4 million.

Today, we are updating our financial expectations for fiscal year 2010 which ends on March 31, 2010 primarily to reflect the status of our secretin program, which we will discuss in a moment, as well as to reflect our expectations on the timing of certain other expenditures in relation to our upcoming fiscal year end. We are confirming today a total revenue projection for fiscal year 2010 between $21 million and $22 million including approximately $10 million in product sales, $10 million in royalty income, and $1 million in other revenue.

R&D spending is projected to be between $14 million and $15 million, and SG&A spending is projected to be about $6 million to $7 million. As a result, we expect our cash burn to be approximately $5 million, and cash and investments on March 31, 2010 are projected to be approximately $58 million to $59 million. While we are actively evaluating additional licensing and asset acquisition opportunities to strengthen our therapeutic and bioprocessing businesses, these projections exclude the impact of any such transactions.

We are also providing preliminary guidance for fiscal year 2011. We currently project double-digit growth in both product and royalty and other revenue. R&D spending should approximate $14 million, and we expect net cash on hand on March 31, 2011 to be approximately $53 million to $54 million. We will provide further details on our fiscal year 2011 guidance next quarter.

At this point, I'd like to turn the call over to Walter Herlihy for an update on our bioprocessing business and our therapeutic pipeline.

Thank you, Bill. Today I would like to describe our plans to revitalize our bioprocessing business. As many of you know, for years Repligen has been selling bulk Protein A primarily to our commercial partners, GE Healthcare, Millipore, and Applied Biosystems. Over the years, this business grew as our commercial partner sold increasing amounts of Protein A base resins to end users who were producing monoclonal antibodies. Over the past year, the recession has markedly reduced demand from the end users, which has negatively impacted our sales.

Last year, we put in place a plan to diversify our business and expand the revenue opportunity. The first step in this plan is to secure future revenues in our bulk Protein A manufacturing business. Last week, we announced an important step in this effort by signing a five year supply agreement with GE Healthcare, one of the world's largest consumers of Protein A. Yesterday, we announced a patent allowance for our next generation Protein A product which is an exact replica of the naturally derived form of Protein A used in the production of many of the world's monoclonal antibodies. This recombinant product is now available in commercial quantities which allows us to compete head-to-head with naturally derived Protein A. This product will also be the basis of future collaborations for our own internal development efforts.

The second step in the diversification and growth plan is to develop a series of products which can be sold directly to end users which would allow us to address a larger market opportunity with potentially higher gross margins. The bulk Protein A market is approximately $20 million of which we have a share of approximately 50%. When our commercial partners attach our Protein A to a resin and resell it to end users, its value increases by 5 to 10 fold. We intend to develop product for this $150 million end user market for Protein A resins. Capturing even a small share of this market has the potential to significantly grow our business.

Finally, we also seek to acquire non-Protein A based products which can be sold to these same end user customer base. This will further increase the opportunity to expand our business. Our vision is to provide a range of high value products to end users for producing not just monocle antibodies, but other types of biological drugs and vaccines. We look forward to updating you on additional developments in 2010 to diversify our business that provide us new growth opportunities.

Turn now to our pipeline. Last quarter we reported the Phase III clinical trial results for RG1068, our imaging agent for MRI of the pancreas. Subsequent analysis of the trial has convinced us that it was carried out at the clinical sites according to the protocol and that the drug performed as expected. There were, however, multiple problems with the analysis of the images which was carried out by our contractor research organization. For this reason, we are requesting feedback from the FDA and the European Medicines Agency on our proposal to reanalyze the images with three new evaluating radiologists. We expect initial feedback from the FDA in March, and from the European Medicines Agency soon thereafter.

In the past quarter we continued our market research and believe there's a previously unrecognized significant market opportunity in Asia which is approximately as large as the US opportunity. We now believe there are more than 600,000 MRI procedures worldwide which could benefit from the use of our product. We're also developing RG2417, our oral formulation of uridine for acute treatment of depression in patients with bipolar disorder. Our Phase II-b trial is actively recruiting at 15 sites and we have enrolled approximately 110 of the planned 150 patients. At the current enrollment rate, we expect to be able to report data by the end of the year. To date, the number of serious adverse events is consistent with the excellent safety profile observed in our Phase II-a study. There are at least 5 million patients worldwide with bipolar disorder. A new safe and effective drug for this population has the potential to be a blockbuster.

Also developing inhibitors of HDAC-3 for the treatment of Friedreich's ataxia. We have completed the evaluation of one of our lead compounds in a two species toxicology study which is required by the FDA prior to the initiation of clinical trials. Manufacturing of clinical drug supply is in progress and we expect to file an IND to initiate Phase I clinical trials by mid 2010. These studies are being partially supported by the Muscular Dystrophy Association which provided us with a second research grant in December.

Our clinical goal is to crossover from normal volunteer studies to Friedreich's patients as soon as possible to enable us to get an early read on the potential efficacy of our drug by monitoring changes in the blood levels of frataxin, the protein missing in Friedreich's patients. Recent data suggests that this biomarker is expressed at consistent level in patients which will facilitate the observation of a potential increase in frataxin levels following drug treatment. We believe that there are 15,000 Friedreich's ataxia patients worldwide which represents a market opportunity of more than $300 million even with very modest pricing assumptions.

Last October we licensed certain intellectual property for a potential treatment for Spinal Muscular Atrophy, or SMA from Families for SMA. SMA is a devastating neuromuscular disease caused by a defect in a single gene which results in low levels of a protein known as SMN1. Families for SMA had identified a potential clinical candidate and we are making rapid progress in determining that this lead has a toxicity profile suitable for clinical development. If so we expect to file an IND in the second half of 2010. We believe that there are more than 20,000 SMA patients worldwide which represents a market opportunity of more than $500 million, again, using very modest pricing assumptions.

In summary, despite the outcome of the RG1068 trial, the drug is clearly active and we believe there is a path forward. In addition, we have a rich pipeline of therapeutic product candidates addressing significant market opportunities and a growth plan for our bioprocessing business, as well as the financial resources to develop them. We are looking forward to updating you on our progress in 2010.

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

Thank you. Ladies and gentlemen, (Operator Instructions). You have a question from the line of John Banks of B&G Capital. Please proceed.

Hi guys. We've been a shareholder for about three years for our clients. My question, I always see you guys want to be a buyer. I just don't understand why you guys wouldn't want to hire an investment banker and look to sell the company. It looks to me like you guys would be better off selling for an all stock deal to a midcap biotech, $5.00 or $6.00 would diversify the risk versus being a buyer, and I just want to see where you comment on it with that question.

Well, it's certainly a possibility. Our view is that over the next year, the outcome of the RG2417 trial on bipolar depression will be a significant determination of the value of the therapeutic pipeline, and that any buyer would want to see the results of that prior to being able to really assess what the value of that asset is.

In addition, the two projects I mentioned in Friedreich's ataxia and Spinal Muscular Atrophy, I think certainly a hallmark of value, and a flexion point in value is getting clinically enabled. In other words, having products that are advancing in clinical trials as opposed to being pre-clinical. So we kind of view those two events, the IND filings on the early stage products and the Phase II-b results on the bipolar product to be key determinates and if -- in either way, those will I think really determine how we would proceed then in building value, which selling them all or part of them is certainly a viable alternative.

Okay, thanks, that was main question. Any comment on the stock price being down 50%? I mean, your liquidation value of the company, you can see higher. And I see a couple analysts on the street, they have $9.00, $10.00 target. Just trying to figure out why the stock's been so much under pressure in the last 30 days. Any comment on that?

Well, I think it's the backlash from the setback on the RG1068 trial which reported in December, which didn't meet the primary -- all four of the primary endpoints it set for it, so that's going to result in a delay. If we get this reread approved by FDA or EMA, that'll be about a year setback for that program and people are always looking for those types of events coming up in the short-term to take positions in these small biotech stocks.

Okay, thank you so much, sir.

Yes.

(Operator Instructions). There are no further questions at this time. I would like to turn the call back over to Mr. Walter Herlihy. Please proceed.

Okay, well thank you everyone for your attendance on today's call. And as always, if there are additional questions to come up over the course of the next quarter, please feel free to contact the Company directly through Investor Relations. Thank you.

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