Repligen Corp (RGEN) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen,and welcome to the Q4 2010 Repligen Corporation earnings conference call. At this time all participants are in listen-only mode. (Operator Instructions) I would now like to turn the call over to 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 our fiscal year 2010, update our financial projections for fiscal year 2011, 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 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 fiscal year 2010 which ended on March 31, 2010. For the year, we recorded total revenue of $21 million including product sales of $10.3 million and royalty and other revenue of $10.7 million. Operating expenses increased $1.3 million compared to the prior year as the Company has continued to invest in our product pipeline and business development efforts, most notably with the acquisition of our Spinal Muscular Atrophy Program announced in October and the acquisition of the Opus Chromatography platform in March.

Our cash and investments on March 31 were $59.1 million. Today, we are updating our financial expectations for fiscal year 2011, which ends on March 31, 2011. We are raising our revenue projection for our fiscal year 2011 to between $24 million and $26 million including approximately $12.3 million to $13.3 million in product sales, which is an increase of 20% to 30% over prior year. We also expect Orencia royalty and other revenue to increase to approximately $12 million, which when you exclude the planned conclusion of our CRC royalty in fiscal year 2010, represents a 16% increase over prior year. Overall, we believe our double-digit top line growth is indicative of continued improvement in the biotechnology business environment as customers return to normal purchasing patterns.

R&D spending is projected to be between $12 million and $14 million or $0 to $2 million less than fiscal year 2010. This is due to the conclusion of our Phase 2 and Phase 3 clinical trials for RG2417 and RG1068, respectively, lower R&D expenses associated with RG2833 compared to the prior year as we prepared for our recent IND filing, offset by increased spending in our Spinal Muscular Atrophy Program, which was acquired during fiscal year 2010. SG&A spending is projected to be about $8.5 million, or $1.4 million more than fiscal year 2010, as we anticipate increased marketing expenditures towards the end of fiscal year 2011 pending the successful outcome of the re-read of the data from our RG1068 trial and continued spending to promote our bioprocessing business.

As a result, we expect our cash burn to be approximately $1 million to $2 million, and cash and investments on March 31, 2011 are projected to be approximately $57 million to $58 million. While we are actively evaluating additional licensing and asset acquisition opportunities to strengthen our therapeutics and bioprocessing businesses, these projections exclude the potential impact of any such transaction.

As further support for our renewed optimism of our bioprocessing business, we continue to see increased demand in our first quarter fiscal year 2011 ending June 30, 2010, with an expected increase in product sales of over 50% compared to the same quarter last year. As a result, we anticipate that we will generate positive net income in the first quarter while still continuing to make the key investments in our bioprocessing business and therapeutic pipeline. At this point, I would like to turn the call over to Walter Herlihy for an update on our bioprocessing business and our therapeutic pipeline.

Thank you, Bill. In February, we outlined a plan to diversify our bioprocessing business and expand the revenue opportunity. The first step in this plan was to secure future revenues in our bulk Protein A manufacturing business and we signed a five-year supply agreement with GE Healthcare, our largest customer. Second step in our diversification and growth plan is to acquire or develop a series of products, which can be sold directly to end-users, which will allow us to address a larger market opportunity with potentially higher gross margins. In March, we announced the acquisition of a Chromatography platform from BioFlash, which will enable us to provide end-users with pre-packed, ready to use chromatography columns for the purification of biologic products and vaccines.

The initial Protein A based products from this platform were launched in March and we're pleased with the initial customer response. We intend to introduce a series of additional products throughout the year. Turning now to our therapeutic development business, last December we reported on the Phase 3 clinical trial results for RG1068, our imaging agent for MRI and the pancreas. One of the radiologists who evaluated the images showed it markedly improved ability to identify abnormalities in RG1068 enhanced images. However, the other two radiologists had a much lower ability to detect abnormalities in both pre- and post-RG1068 images.

In February, we reported that we had discovered there were multiple problems with the analysis of the images which were carried out by a contract radiology research organization. These issues have now been documented and fully discussed with the FDA and the European Medicines Agency and both agencies have agreed the problems with the radiology contractor did not allow us to adequately assess the ability of RG1068 to improve pancreatic imaging. As a result, they have both agreed to allow us to re-analyze the images with three new radiologists to establish the potential use of RG1068. If this re-analysis is successful, we believe that these data may serve as the basis for a New Drug Application filing in the US and a Marketing Authorization Application filing in Europe in the first half of 2011.

We are now in the final stages of qualifying a new radiology contractor and we expect to begin the re-read next quarter. As was noted in our press release on this topic, the European Medicines Agency has requested that we add an additional secondary endpoint to demonstrate that the use of RG1068, in conjunction with pancreatic MRI, has the potential to reduce the number of patients who would otherwise receive a diagnostic endoscopy, or ERCP, a procedure with significant safety concerns. For example, in our Phase 3 study, 23% of the patients had a significant adverse event following their ERCP. We believe that our data set contains robust evidence that RG1068 can improve the ability to visualize duct segments and associated abnormalities and thus reduce the need for unneeded diagnostic ERCPs. And we have added this highly clinically relevant outcome as a secondary endpoint.

We are 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 15 sites and we've enrolled approximately 150 patients of the planned 170 patients. At the current enrollment rate, we expect to recruit the last patient in the third quarter and to report data by the end of the year or early in 2011. To date, the number of serious adverse events is consistent with the excellent safety profile observed in our Phase 2a study.

If our study is successful, we will seek to license this program to a corporate partner for further development and commercialization. This effort will be aided by the recent allowance of a US patent covering the use of RG2417 and treating the symptoms of bipolar disorder. This patent will remain enforced until 2025 prior to any patent term extension. We have initiated conversations with several potential corporate partners and expect this process will continue throughout 2010. There are at least five million bipolar patients worldwide and thus a new safe and effective drug for this population has the potential to be a blockbuster.

We are also developing inhibitors of HDAC-3 for treatment of Friedreich's ataxia Last month, we filed an IND with the FDA to initiate a Phase 1 clinical trial of our product candidate, RG2833. The FDA has requested additional toxicology data based on findings observed in male animals at the highest dose groups. There were no findings in animal dosed at levels equivalent to the highest dose level proposed to be tested in the Phase 1 study.

We plan to speak with the FDA to clarify what additional data or modification to the Phase 1 study will satisfy their requests. Pending FDA approval, we plan to conduct a single escalating dose study in healthy volunteers. We have identified several biomarkers of RG2833's activity, which we will use to monitor our drug's activity in this first clinical trial. We believe there are more than 15,000 Friedreich's patients worldwide, which represents a market opportunity more than $300 million, even with modest pricing assumptions.

Finally, last October, we licensed the potential treatment for spinal muscular atrophy or SMA for families of 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. Our characterization of the lead compound licensed from FSMA has been encouraging and we have decided to initiate the GLP toxicology study that will be required to file an IND. Results will be available in the fall and if positive, would lead to an IND filing in the first half of 2011. We believe that there are more than 20,000 SMA patients worldwide, which represents a market opportunity of more than $500 million, again using modest pricing assumptions.

As our pipeline advances, we have an objective to in-license additional therapeutic product candidates. In the past several years, we have reviewed more than 100 in-licensing opportunities primarily in the areas of neurology and psychiatry. With the exception of the SMA project, our efforts have been frustrating by the lack of high quality CNS Projects with adequate intellectual property, lack of toxicity issues, et cetera. As a result, we have decided to expand our pipeline search beyond CNS and we are currently seeking projects in the areas of cancer and gastrointestinal disease. As we broaden beyond CNS, we're able to move beyond small molecules and we intend to prioritize biologic product candidates in our search. The development of these products will leverage our well-documented expertise in biologics product development gained in the context of our bioprocessing businesses.

In summary, we're pleased with the projected revenue growth for the fiscal year 2011 and the opportunity to advance our pipeline and acquire additional assets while maintaining a strong balance sheet. We are also pleased with our progress since our February call with the acquisition of a new product line for our bioprocessing business, a favorable regulatory review of our proposal to re-read the RG1068 images from the Phase 3 study of pancreatic imaging, the allowance of an important piece of intellectual property for the use of uridine in the treatment of bipolar disorder, the filing of IND in our Friedreich's product candidate and a designation of a clinical candidate in SMA program. We look forward to updating you our progress in 2010. Operator, at this time, I would like to open the call to questions.

(Operator Instructions) Your first question comes from the line of Ron Chez. Please proceed.

Walter, good morning.

Good morning, Ron.

Can you give us some color, some further context on MRCP and the response of the regulatory agencies and their concern with safety, which you touched on?

I think that the --

And timing if you would.

Sure. I think the main issue that relates to safety of our procedure being, of course, much safer than the use of ERCP has really come from the European Medicines Agency where, throughout the years when we discussed this with them, I think they have been perhaps more acutely aware than even the FDA that patients are being routinely exposed to unnecessary ERCPs. And as an example I cited 20% to 25% of the patients in our studies wind up in the hospital as a result of that ERCP. So I think that the notion that this new endpoint which we're going to include at their request is a logical one because I think it really will allow us to highlight, if we're successful, the safety advantage when we go out to either make -- produce publications from this study or to arm our sales force with material that will help sell the product.

I think it is an issue that's maybe a little bit below the surface and one that needs to be highlighted because ERCP has been around for so long people have almost come to, in some ways, accept that. Certainly, that's one of the highest leverage points we have in our program. As far as timing goes, we expect, as I mentioned, to explore to begin the re-read. We think the total process will take about six months or so, and we're going to, of course, move with all due care to ensure we get a favorable outcome this time.

So approve -- so if the results are positive, then the timing?

Then we would go ahead and compile both the NDA for the US and the MA for Europe and we expect to file both of those documents in the first half of 2011.

And when would you -- what is some color on the response of the agencies here to the failure or to the difficulties with the first effort?

Well, I think they were able to clearly see from the documentation we provided that there was a gross lack of attention to the protocol. And in fact, QC checks that had been inserted properly into the protocol when red lights came on, they just drove right through them and continued to run the protocol despite clear and obvious evidence that two of the readers, at least, had not been properly trained. So it was not -- while we went to great lengths to document that with the agency, at the end of the day I think it was pretty obvious to both the European and American agencies that this was clearly a non-experiment, that it really hadn't been tested adequately yet and hence the re-read.

What do you plan to do if anything with regard to the CRO?

Well, I think our main focus right now is on the -- making sure this program gets back on track and we have a success by the end of the year, and we'll have to circle back and decide what discussions we're going to have with CRO.

And a little more context on first quarter sales and with regard to bioprocessing?

As Bill mentioned in his remarks, our forecast for the year is a growth of 20% to 30% over prior year, so I think it is fair to say that the worst of the recession is behind us. And we're seeing customers begin to take on more sales and/or inventory, and our projections are front-end loaded. So we have much more certainty with projections in the first quarter and second quarters simply because we get better forecasts from our customers than we do in the back half of the year. So I think what that suggests is with a very strong first quarter and as well as second quarter there is an opportunity for potentially further upward revisions in our projections. So, this is clearly a 180-degree turnaround from where we were a year ago.

Sustainable?

I think it is, yes. I think that of course we can always have another financial meltdown as we did a year ago, but in absence of that I think this is a sustainable. And we saw this week at ASCO an antibody that was tested by Bristol Meyers Squibb, looks to be an exciting new treatment for melanoma, and that's likely to reach the market in the foreseeable future. And so the organic demand for protein, I think, and for antibodies in use in medicine will continue to grow.

One more question. Your work on deals, you talked about talking to people about, I believe, Friedreich's ataxia?

I think most of the talk -- we have had some interest in our HDAC program --

I am sorry, about uridine, I'm sorry.

Most of the discussions we've had to date have been about uridine, so our objective is to make sure that those large and sometimes slower moving pharmaceutical companies who might be interested in licensing this are fully apprised of this opportunity prior to -- if they would like to be, prior to the unblinding of the Phase 2b study. So, if we do have a positive result in Phase 2b, we can move more quickly towards our stated goal, which is a corporate partner, and so discussions are ongoing. We've had confidential discussions with a couple of companies already, and we would expect that to continue throughout this year.

Thank you.

(Operator Instructions) Your next question is from Michael Panaro with MDP Associates, Incorporated. Please proceed.

Could you continue with your discussion about HDAC? You -- in a recent publication you mentioned that you were back looking at Huntington's disease and other things. Is there more going on with that?

Yes, good question. While the primary focus of the HDAC program, as you know, is the Friedreich's ataxia project, there's potential for other indications for our product candidate. And in fact, there have been and there was a publication about a year-and-a-half ago, some interesting results recorded in animal models of Huntington's disease. So as a result of those initial results, a research consortium, of which we're part of, has been formed to really explore the potential use of our HDAC inhibitors in Huntington's, potentially leading to clinical studies if these animal results are confirmed.

And secondly, we have established collaborations with a number of groups around the world in different areas. And in particular, we have some early but intriguing data in the area of cognition for which the clinical application we would be interested in would be Alzheimer's disease. And again, while that needs to be further explored, we're encouraged by what we're seeing so far in some of the animal models. So I think HDACs may represent a platform more than simply a rifle shot opportunity at Friedreich's ataxia that could provide us multiple clinical opportunities.

Is the Alzheimer's results direction related to the work published by MIT last year?

No. We're doing our work with a group in California, and we would expect to report the initial results from that at the Society for Neuroscience Meeting which is in October of this year, so we'll have more specificity on those findings once we get to that meeting disclosure point.

Thanks for your time.

(Operator Instructions) There are no further questions at this time. I will now turn the call back over to Mr. Walter Herlihy.

Thank you and thank you for your attendance on today's call. And as always, if there are further questions or comments, please feel free to contact the Company directly through Investor Relations.

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