Repligen Corp (RGEN) 2011 Q2 法說會逐字稿

Good day, Ladies and Gentlemen, and welcome to the 2011 Repligen Corporation Earnings Conference Call. My name is Marisa, and I will be your Operator for today. (Operator Instructions) I'd now like to turn the conference over to your host for today's call, Mr. Bill 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 the second quarter of fiscal year 2011, update our financial projections for fiscal year 2011, and 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 may contain forward-looking statements. These statements are subject to factors which may cause our plans to change or results to vary. Additional information concerning these factors is discussed in our annual report on Form 10-K and other filings we make with the Securities and Exchange Commission. We assume no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.

This morning we released our financial results for the second quarter of fiscal year 2011 which ended on September 30, 2010. For the quarter, we recorded total revenue of $7.3 million including product revenue of $4.4 million and royalty and other revenue of $2.9 million. Product revenue increased $1.7 million or 61% compared to Q2 fiscal year 2010. Most of our products are used by companies for the purification of monoclonal antibodies. This is a well established class of drugs for which we continue to see new products being launched.

Continuing the trend noted in Q1 fiscal year 2011, our customers again have returned to higher purchasing levels after a period of lower activity that was brought on in part by the global economic environment of the past couple years. Operating expenses increased $0.2 million compared to the prior year due primarily to increased cost of product revenue attributed to the significant growth in product revenue offset by decreased R&D spending in the current quarter compared to the prior year. The reduction in R&D spending was due to the completion of our Phase 3 program for RG1068 in the prior year, completion of enrollment in our Phase 2b RG2417 program this quarter, and higher activity in the prior year leading up to our IND submission for RG2833.

We are pleased to report that we've completed the quarter with over $600,000 in positive net income and our cash and investments as of September 30, 2010, were $59.7 million, an increase of over $500,000 since March 31, 2010. We are also pleased to announce that on October 29, 2010, we received notification that Repligen was awarded over $733,000 in grants under the qualifying Therapeutic Discovery Project program, which was created in March 2010 as part of the Patient Protection and Affordability Care Act.

This program was open to companies with fewer than 250 employees and whose research projects show reasonable potential, among other things, to result in new therapies to treat areas of unmet medical need, prevent, detect, or treat chronic or acute diseases and conditions, or reduce long term healthcare costs in the United States. We expect to record this grant in royalty and other revenue in our third quarter of fiscal year 2011, which ends December 31, 2010.

Today, we are updating our financial expectations for fiscal year 2011, which ends on March 31, 2011. For fiscal year 2011, we have increased our total revenue projection to between $25 million and $27 million up from our prior estimate of between $24 million and $26 million. This revised revenue projection includes approximately $14 million in product revenue which represents an increase of approximately 36% over prior year.

We also expect royalty and other revenue which is comprised primarily of royalties from Orencia, the Qualifying Therapeutic Discovery Project and other research grants to increase to approximately $12 million. R&D spending for the year is projected to be between $12 million and $14 million and SG&A spending is projected to be about $8.5 million. As a result, we expect our net loss to be less than $2 million compared to our previous guidance of less than $3 million.

We project our cash burn to be zero to $1 million compared to previous guidance of less than $2 million. Cash and investments on March 31, 2011 are projected to be approximately $58 million to $59 million, about $1 million higher than previous guidance. 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 transactions. At this point, I would like to turn the call over to Walter Herlihy for an update on our therapeutic pipeline.

Thank you, Bill. Last year, we completed data collection in the Phase 3 clinical trial evaluating RG1068, human synthetics secretin, for the ability to improve the visualization of structural abnormalities of the pancreas. As previously reported, the analysis of the images by our contract radiology lab was flawed and based on numerous deficiencies the FDA and EMA both agreed to a re-analysis of the data. Over the past several months we have received additional detailed feedback from the FDA on the re-analysis protocol. We are currently implementing the FDA's guidance and we expect to report the top-line results in the first quarter of 2011.

Each patient in the Phase 3 trial received an MRI and subsequently the standard endoscopic procedure known as ERCP. This clinical trial design allowed us to directly compare the safety of RG1068 enhanced MRI with the ERCP. It is well established that ERCP results in significant adverse events in some patients. In our study, adverse events from ERCP resulted in 236 days of unscheduled hospitalization or an average of one day of extra hospitalization per patient. This compares to no extra days of hospitalization for any patient receiving RG1068.

Further analysis of these data indicates that 50% of the patients who experienced a serious adverse event from ERCP had no findings in their diagnostic assessment, suggesting that they suffered a serious adverse event from a procedure, which may not have been warranted. These data illustrate the potential patient benefits as well as the potential savings from replacing ERCP with RG1068 enhanced MRI.

We are also developing RG2417, our oral formulation of Uridine for acute treatment of depression in patients with bipolar disorder. In September, we completed enrollment in our Phase 2b trial with 175 patients enrolled at 29 clinical sites. We expect to complete the patient evaluation phase of the trial by the end of the year and report the top-line results in the first quarter of 2011. To date there have been no serious adverse events attributed to drug treatment which is consistent with the excellent safety profile observed in our Phase 2a study. RG2417 safety profile distinguishes it from current therapies for bipolar depression for which the main stay of treatment are atypical anti-psychotic drugs. These drugs, which were initially developed for schizophrenia can produce a variety of side effects including significant weight gain, sedation and hyperglycemia, none of which were observed with RG2417 in the Phase 2a trial.

The goal of the Phase 2b study is to collect the data required to enable a pharmaceutical partner to design a Phase 3 clinical program. First, the study will determine if the improvement in the symptoms of depression seen in the Phase 2a study is reproducible and if so, what the magnitude of the improvement is at the end of the eight week treatment period. This will determine the number of patients required for the Phase 3 study. Second, the Phase 2b study will determine which patients to study in the Phase 3 trial. In our Phase 2a study there was a lower placebo effect observed in patients who had many prior episodes of depression and mania which resulted in a higher apparent treatment effect in this sub group. The Phase 2b study will determine if this effect is reproducible and thus will define the optimal patient population to recruit in the Phase 3 study.

We are currently having out licensing discussions with several large pharmaceutical companies and we would expect additional partnering discussions to develop if our Phase 2b trial is successful. RG2417 has the potential to be the first effective well-tolerated drug for bipolar depression. In the U.S. alone, there are approximately two million patients with bipolar disorder and assuming a $5,000 annual treatment cost, even a 10% penetration into the U.S. market would represent $1 billion of annual revenue.

We are also developing HDAC inhibitors for the treatment of Friedreich's ataxia. As previously reported, the FDA has requested additional toxicity testing of our lead compound, RG2833, prior to initiating clinical studies. We plan to complete these experiments over the next several months where there can be no assurance that these data will satisfy the FDA. Thus we are considering two alternative plans. One is to evaluate-- initiate evaluation of RG2833 in patients at a European clinical site and the second is to advance a back up compound to an IND. We currently have a novel analog of RG2833 with equivalent potency and improved ability across the blood brain barrier, which may allow for lower effective dosing levels. We expect to choose one of these alternative paths when the additional toxicity data on RG2833 is available at years end.

Last year we licensed 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 SMM. We are currently completing the toxicology studies on the lead compound to support the filing of an IND. Results will be available next month and if positive would lead to an IND filing in the first half of 2011.

In summary we are pleased with our financial performance and the advancement of our pipeline and we look forward to the Phase 3 data on RG1068 and the Phase 2b data on RG2417 next quarter. As these lead products advance, we are actively seeking to in license additional product candidates with a goal to complete a transaction by the end of next quarter. We look forward to updating you on our progress for the rest of this year and early 2011. Operator, at this time we would like to open the call to questions.

Ladies and Gentlemen, (Operator Instructions) You do have the first question from the line of Boris Peaker from the line of Rodman & Renshaw. Please proceed.

Hello, can you hear me? Thanks for taking my question. Congratulations on a strong quarter.

Thank you.

Just wanted to understand this new grant. How would that be accounted? You mentioned it's going to be part of the royalties and the top line?

Exactly, we have a number of grants as you know through muscular dystrophy, NIH and what not. This would be another grant royalty another revenue for us. Based on the filing we had submitted, the expenditures have already been incurred. As you may know the program was oversubscribed and so we pretty much will be recognizing all of this in the third quarter.

And did you include that in your guidance, this grant?

Yes.

I see, so if we look at the guidance I'm just trying to understand it a little bit better here. You anticipate for the product line, you anticipate roughly $14 million for 2011?

Correct.

I'm just trying to understand in order to land on $14 million with the -- what you've reported so far for the year which has been already about $8.7 million would suggest a slightly weaker second half for the year. Is there any reason there product delivery schedules or something that make the second half of the year weaker than the first half?

Yes, it's just a timing of customer orders, particularly our key customers. We've had two very strong quarters as noted in the call. So just a leveling off of that.

I see. And, switching to R&D, and looking forward, how do you anticipate R&D for next year to change particularly when some of your studies have concluded?

Overall for the balance of this year we're projecting it to be about $13 million and it will be, we haven't finalized the following year yet in terms of what the total spending will be but it will be in that ballpark, perhaps a little bit less given those events that you noted, but obviously with new initiatives coming.

It would really be dependent on what sort of in licensing timing and magnitude of in licensing transaction would be, since we do have a stated goal to bring a clinical stage pipeline candidate in 2011.

I see. And Walter, for you, just some development questions. For the bipolar indication, do you have a Phase 2b meeting scheduled with the FDA and if so, when would that occur?

The way I would work is we will get the top-line results some time in Q1 of next calendar year and then we would immediately request an end of Phase 2 meeting with the FDA which typically would take about 60 days to schedule and at that time, we would be able to review with them the Phase 2b and 2a results and discuss potential paths forward to Phase 3..

I see, and on the HDAC program, what were the FDA's concerns in terms of approving the IND? And why was it easier to get into studies in Europe?

The FDA has a concern about some tox findings in male dogs, somniferous tubular atrophy and they've asked for us to do some additional follow on studies to clarify the recovery of the lesions over time once the drug dosing has been completed. So that's the subject of a second animal study which is now ongoing. Since we are in these early studies, simply proposing to give patients low single escalating doses, European regulators may have a different view as the relevance of those findings which we have not observed in single dose studies to the proposed clinical trial.

I see.

And may interpret the toxicity differently than the FDA which is taking obviously the most conservative possible position.

And have you spoken to European regulators on that?

Yes, we have had a face to face meeting and they've encouraged us to develop that protocol and continue that discussion.

I see, and the follow-up compound, the HDAC, does it appear to not have those tox issues?

It hasn't been through that level of toxicity but the goal of the follow-up compound was to develop a compound which, more efficiently, crossed the blood brain barrier which is a challenge with the HDAC inhibitors. We've been quite successful in doing that and if you can get a higher brain concentration through that more effective partitioning, you potentially could reach your minimum effective dose in the brain at lower peripheral tissue concentrations, thereby abating toxicity concerns.

I see. Well thank you very much for taking my questions.

Sure.

(Operator Instructions)

Your next question comes from the line of Ron Chez, a Private Investor. Please proceed.

Walter, are there any places where you are exploring partnerships or it's appropriate to do that?

Yes, I think that we've made a commitment to explore partnerships for the RG2417 because the development and marketing of the drug and psychiatry would really benefit from the leverage of a large development commercial organization that a top 10 pharma company would have. So we are, as I noted in our prepared remarks, actively discussing potential partnerships with several very large organizations and if we are successful in the clinical trials, a number of other organizations have indicated they would like to come to the table as well.

Independently of that, we have not made a corporate commitment to find a partner on our HDAC program but we have been approached by numerous companies who see it as a very well positioned orphan drug opportunity. There's a lot of interest in orphan drugs these days even among big pharma companies so we're listening and as I said we haven't made a commitment whether we would proceed with a partnership or not but we're having discussions.

In regard to 2417, nothing can happen there? You don't anticipate anything happening there until there are results next quarter, excuse me first quarter of the calendar year?

I believe that's correct. What's going on now is discussions about other aspects of the program, our patent protection, our pharmacology and toxicology results for Phase 2a clinical results and so these particular partners will be well positioned to understand and act on Phase 2b results when they come.

So characterizing the level of interest would not be of great interest because it's strictly dependent on results. Or is there significant interest?

No, I would say that a number of companies have chosen to move forward even before seeing the results. I think that speaks to the unmet medical need if you have a safe and effective drug for bipolar depression, it will attract very significant attention.

Okay, thank you.

Yes

I show no more questions at this time.

Well thank everyone for participating in our call today and as always if there are any follow on questions or comments feel free to contact us at the Company through Investor Relations. Thank you.

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