Repligen Corp (RGEN) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2011 Repligen Corporation earnings conference call. My name is Anne, and I will be your coordinator for today's call. As reminder, this conference is being recorded. At this time, all participants are in listen-only mode. (Operator instructions). We will be facilitating a question-and-answer session following the presentation.

I would now like to turn the presentation over to Mr. Bill Kelly, Chief Financial Officer. Please proceed, sir.

Thank you and good morning. The purpose of today's call is to briefly review our financial results for the third quarter of FY 2011, update our financial projections for FY 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 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 third quarter of FY 2011, which ended on December 31, 2010. For the quarter, we recorded total revenue of $7.1 million, including product revenue of $3.1 million and royalty and other revenue of $3.9 million. Product revenue increased $0.3 million, or 9%, compared to Q3 FY 2010. Current quarter product revenue was still down compared to the first two quarters of FY 2011, when customers were seeking to replenish inventory levels as the global economic environment was improving.

Royalty and other revenue increased $1.2 million and 43% compared to the prior period, due primarily to the continued growth in Orencia royalties as well as the impact of a number of research grants earned during the quarter, including $0.7 million earned under the Qualifying Therapeutic Discovery Program. Operating expenses decreased $0.2 million compared to the prior year, due primarily to decreased R&D spending, offset by increased SG&A and cost of goods expenditures brought on by our continued business development, sales and marketing efforts, as well as higher overall level of sales compared to the prior period. The reduction in R&D spending was due to the completion of our Phase 3 program for RG1068 in the prior year, completion of patient dosing in our Phase 2b RG2417 program this quarter and higher activity in the prior year leading up to our IND submission for RG2833. We're pleased to report that we completed the quarter with $0.4 million in positive net income, and our cash and investments as of December 31, 2010 were $60.3 million, an increase of over $1.1 million since March 31, 2010.

Today we are updating our financial expectations for fiscal year 2011, which ends on March 31, 2011. For FY 2011, we have increased our total revenue projection to $27 million to $28 million, up from our prior estimate of between $25 million and $27 million. This revised revenue projection includes approximately $14.5 million to $15 million in product revenue, which represents an increase of approximately 42% to 46% over prior year as customers throughout the year were restocking inventory levels that had fallen in the prior year due to the economy.

We also expect royalty and other revenue, which is comprised primarily of royalties from Orencia, to increase to approximately $12 million to $13 million. R&D spending for the year is projected to be between $12 million and $13 million, and SG&A spending is projected to be about $7.5 million to $8.5 million.

As a result, while we had previously projected a $2 million net loss for the year ended March 31, 2011, we now expect to achieve up to $1 million of positive net income for the year. We likewise we project to generate $0.5 million to $1.5 million in cash flow compared to our previous guidance, which had indicated a cash burn of $0 million to $1 million.

Cash and investments on March 31, 2011, are now projected to be approximately $60 million, which is $1 million to $2 million higher than previous guidance.

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 analysis for our Phase 3 clinical trial evaluating RG1068, our human synthetic 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 the EMA both agreed to a reanalysis of the data.

We have made good progress on the reread of the images, and we expect to report the top-line results this quarter. Since the reread is still in progress, we only know the safety results, and they are encouraging. Each patient in the Phase 3 trial received an MRI, and subsequently the standard endoscopic procedure known as ERCP. In the Phase 3 study, there were 236 days of unscheduled hospitalization attributed to the ERCP procedure, or an average of one day of hospitalization for each patient enrolled in the study. No days of unscheduled hospitalization resulted from the RG1068 MRI procedure.

This improved safety profile is the primary reason that FDA has designated RG1068 as a fast-track development program.

A successful outcome for the Phase 3 study is defined by the statistical analysis plan agreed to with the FDA. For success, two of the three independent radiologists must identify significantly more pancreatic abnormalities in the images enhanced with RG1068 compared to the unenhanced images, where significance is defined as a p-value of 0.05 or less. These same two radiologists must also not have a loss of specificity above a predefined limit of 7.5%.

We will also report additional endpoints which assess the ability of RG1068 to enhance visualization of the main pancreatic duct, to improve image quality and to increase the confidence in the findings of the presence or absence of abnormalities. If our trial is successful, the next step will be to schedule a pre-NDA meeting with the FDA to review the data and discuss our plans to file an NDA later this year.

We are also developing RG2417, our oral formulation of Uridine, for acute treatment of depression in patients with bipolar disorder. Our Phase 2b trial enrolled 175 patients at 29 clinical sites, and we expect to report the top-line results by the end of the quarter. As we have previously discussed, the goal of the Phase 2b study is to determine if the improvement in the symptoms of depression seen in the 83 patient Phase 2a study is reproducible and, if so, what the magnitude of the improvement is based on MADRS ratings by both raters and by the patients themselves. In our Phase 2a study, we saw an improvement in rater MADRS scores of 2.5 to 3 points at the end of the study.

However, there was a single site which enrolled nine patients with no meaningful prior history of bipolar disorder, and at this site all five patients treated with placebo were free of clinical symptoms after two weeks of treatment, a highly improbable result. When these nine patients are removed from the analysis, the improvement with RG2417 over placebo was 3.7 points.

In general, significant prior history of symptoms was associated with a lower placebo response and, thus, a higher apparent treatment effect. For example, the subset of patients with at least five prior lifetime episodes of depression showed a 4-point improvement versus placebo.

Based on discussions with physicians, we believe that a drug with that 3-to-4-point improvement over placebo and no toxicity will be a clinically meaningful advance. Our primary endpoint will assess this difference based on MADRS ratings, which will be assessed across the eight-week treatment period. We plan to use a more stringent statistical model than in the Phase 2a trial, which is powered to detect a 3-to-4-point change with a power of 74% to 93%, based on the variance observed in the Phase 2a trial. Note that this percentage range is not the probability of success of the study but, rather, probability that we will see a statistically significant result if the true therapeutic effect of RG2417 is 3 to 4 points better than placebo.

Patients also reported their symptoms via a computer-based interview. In the Phase 2a trial, the patient-reported MADRS score showed a much lower placebo effect, and thus a much higher treatment effect, which averaged 6.9 points over placebo after week one. The Phase 2b study is powered with a 95% power to detect this magnitude of change.

Thirdly, the clinical relevance will be assessed in the Phase 2b study with two well-established end-of-study metrics, a responder analysis and a remission analysis, and we will determine the percentage of patients whose depression scores have decreased by 50% or more from baseline to the end of the study and the number of patients whose depression scores are less than 10 at the end of this study, which means they are in the normal range.

In the Phase 2a study 56% of the RG2417 patients were responders versus 36% of placebo patients, a 20% difference. Similarly, we observed 44% of the RG2417 patients in remission at the end of the Phase 2a study versus 20% of placebo patients, a 24% difference.

Although our trial was not designed for end-of-study assessments, the power to detect a 20% either responder or remission response over placebo is 70% to 80%. Nonetheless, these standard analyses are included as secondary endpoints since they will be important in subsequent partnering discussions. We will also assess the clinical global impression of disease severity, a metric not used in the Phase 2a study.

Finally, we will assess the subgroup of patients whose prior history includes more than five previous episodes of depression, a subgroup comprised of approximately two-thirds of this study population. If our study meets the goals demonstrating that RG2417 produces a 3-to-4-point improvement in rater and/or patient depression scores and positive trends in the responder remission analysis, we believe it has the potential to be the first effective, well-tolerated drug for bipolar depression and provide an excellent opportunity for corporate partnering.

We are also developing HDAC inhibitors for the treatment of Friedrich's ataxia and, as previously reported, the FDA has requested additional toxicity testing of our lead compound, RG2833, prior to initiating clinical studies. We currently have these studies underway and expect results later this quarter. There is, of course, no assurance that these data will satisfy the FDA. Thus, we are working on an alternative plan to initiate Phase 1 studies of RG2833 in Europe. It is possible that this will able us to begin trials in Friedrich's patients instead of healthy volunteers, thereby advancing us more quickly to the goal of assessing frataxin changes in RG2833-treated patients.

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 the defect of a single gene, which results in low levels of a protein known as SMF. We are currently completing the toxicology and pharmacology studies on our lead compound, RG3039, to support the filing of an IND. Results will be available this quarter and may lead to an IND filing in the first half of 2011.

Lastly, I would like to welcome Dr. Michael Hall to our management team. Michael was named Chief Medical Officer in January. He previously spent four years at Shire developing orphan drugs and, before that, 14 years at Novartis in a variety of clinical development and medical affairs functions.

In summary, we are pleased with our financial performance and the advancement of our pipeline, and we look forward to reporting the Phase 3 data on RG1068 and the Phase 2b data on RG2417 this quarter.

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

(Operator instructions) Feng Chang private investor.

Hi, Walter, thank you for taking my call and, first of all, congratulations on the profitable quarter which is truly exceptional in the biotech world.

You are correct on that.

And I also would like to thank IR, investor relations, and the Company. I contacted them a few times, both by e-mail and by phone, and I was very impressed by the response that I received. So thanks for that, too.

Yes, they do a great job.

I have a few questions on both 1068 and 2417. Let me know if I'm taking up too much time; I can go back to the queue.

Go ahead. Could you just give us your questions?

First, on 1068, of course I look forward to the results of the re-read. So my question is about the compound, mostly. It's synthetic human secretin. Is it an internal project, or we license it from outside?

This project has been developed internally at Repligen. It was not licensed from another company or academic institution. It's wholly owned by Repligen.

Great. I didn't see patent information on 1068 for MRI, but I did see the (inaudible) if the compound was approved for I think it was seven years US and 10 years in Europe.

That's correct. This is a natural substance, been around and been used for many years, and so our primary barrier to entry in the United States will be that seven years of orphan drug protection. In addition, we will have five years of new chemical entity -- sorry, 10 years of new chemical entity protection in Europe, since there is no human secretin product there.

Great. And maybe I missed it. So there seems to be a lot of product, maybe some different, called ChiRhoStim, I think.

There is a single product in both the US and in Europe, different types of secretin. None are approved for this indication.

Exactly, exactly.

There are some very microscopic orphan indications which, frankly, don't have a lot of traction these days.

Right. You said it's slightly different or maybe quite a bit different? Is it also -- it is also secretin, but it may be manufactured in different ways?

Well, yes. I think some of the performance properties of the molecules are different by the way we've devised our treatment protocol. In Europe it's a porcine, or a pig sequencing.

Ah, okay, actually the sequence is different, so it's a different compound, then?

Correct, and that's why we will have 10 years of new chemical entity exclusivity in Europe.

Okay, great. And of course, that (inaudible) and different product is for -- as in ERCP; it was licensed for ERCP, not for MRI?

Correct.

Great!

(Operator instructions).

Well, operator, so if there are no further questions, perhaps we can wind up?

We do have another question from the line of Feng Chang.

Maybe now I can ask a question about 2417. I am very encouraged about the Phase 2a data reported earlier. Then the question, I think, is about Phase 2a data or, maybe, (inaudible) general data about bipolar depression. Are the two aspects of bipolar depression, namely mania and depression, separated -- phenomenal and treated by separate names or separate medicines?

In general, that is correct. The symptoms of mania and depression can occur at the same time. You could have cycling. But by and large, the patients in our study -- or not by and large -- all the patients in our study were acutely depressed when they entered the study, but they did not have any overt symptoms of mania. So we were simply looking at depression treatment.

In the marketplace, in the commercial marketplace, many patients are treated with combinations of drugs, often things such as lithium, for example, to treat mania and then maybe an antidepressant such as Seroquel or an atypical antipsychotic to treat the depression symptoms. But they are discrete pharmacologic targets.

(Operator instructions). With no further questions at this time, the question-and-answer session is now completed. I would now like to turn the call back to Mr. Walter Herlihy for closing remarks.

Okay. Well, thank you for attending our conference call. And as always, if there are follow-up questions, feel free to contact our stellar investor relations group, and we'll be sure to help inform you of both of our catalytic events in the coming weeks. Thank you.

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