Repligen Corp (RGEN) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first quarter of 2012 Repligen earnings conference call and corporate update. My name is Gary and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer period, participants will be limited to two questions at a time. (Operator Instructions). I would like to turn the call over to your host for today, Mr. Bill Kelly, Chief Financial Officer for Repligen. Mr. Kelly, please proceed.

Thank you and good morning. The purpose of today's call is to discuss today's announcement of our Q1 2012 results and update our financial expectations for 2012 and the status of our product 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 risks and uncertainties, which may cause our plans to change or results to vary. In particular, unforeseen events outside of our control may adversely impact future results.

Additional information concerning these factors is discussed in our Annual Report on Form 10-K, the current reports on Form 8-K we filed today and other filings we make with the Securities and Exchange Commission. Except as required by law, we assume no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. Now I will turn the call over to Walter Herlihy to comment on the status of our RG1068 program.

Thank you, Bill. I will first comment on last week's announcement regarding SecreFlo, or RG1068. Despite the recent FDA action, we continue to believe that RG1068 is safe and effective in improving MRI imaging of pancreatic ducts and that it can meet a significant unmet medical need for a noninvasive way to assess patients with pancreatitis without the use of endoscopy or ERCP.

Thus, we were disappointed in the FDA's decision last week to cancel the advisory committee meeting to review RG1068. We had been vigorously preparing to present our clinical data in support of the approval of RG1068 at the upcoming advisory committee meeting, the venue specifically designed by the agency for that purpose. The FDA's review of RG1068 is ongoing. Typically, the FDA would only provide us with definitive feedback in connection with the PDUFA date of June 21.

We do believe that the FDA recognizes that RG1068 has the potential to address an important unmet patient need based on their prior designation of it as a Fast Track product. It is important to note that we did not observe any serious adverse events attributable to RG1068 in our Phase 3 trial compared to 55 adverse events attributed to ERCP.

In the past week, we have received numerous questions about our plans for the future development of RG1068. We believe that an approval in the United States will require additional clinical data. As we seek further feedback from the FDA, we are working with our clinical and statistical experts to begin to formulate plans for obtaining additional clinical data in anticipation of additional interactions with the agency after we have received their complete response to the NDA in connection with the June 21 PDUFA date. We will evaluate all options for the further development of RG1068 once we have more clarity on the regulatory path forward. At this time, this is all I can say on this issue until we have a better understanding of a potential path forward.

Separately, in March, we filed a Marketing Authorization Application with the European Medicines Agency. This application was subsequently accepted for review and we expect preliminary feedback in June and initial formal feedback in July. In addition, we intend to continue to pursue the pilot study of RG1068 in pancreatic cancer, which is ongoing at Case Western Medical Center. Now I will turn the call back over to Bill Kelly who will discuss our first-quarter results.

Thank you, Walt. This morning, we reported results for the first quarter ended March 31, 2012. For the quarter, we recorded bioprocessing product revenue of $9.3 million, an increase of $6.2 million from prior year. Revenue was driven by strong organic growth of our US-based business and the addition of revenues from the acquisition in December of Novozymes Biopharma AS, now Repligen Sweden AB.

Total revenue for the quarter, including royalty and research revenue, was $12.8 million, an increase of 119%. Net income for the quarter was $1.2 million, or a gain of $0.04 per diluted share, compared to a net loss of $2 million, or $0.07 for the same period during 2012.

For 2012, we expect bioprocessing revenue of between $39 million and $41 million and currently expect total revenue of approximately $52 million to $55 million. For the year, we now expect GAAP net income of $4 million to $6 million. These estimates do not include the potential financial impact of any licensing transactions and these results demonstrate the significant positive impact of our acquisition of Novozymes Biopharma AB has had on our business, which we will expect to continue through 2012. I will now turn the call back over to Walter Herlihy for an update on our bioprocessing business and development programs.

Thank you, Bill. We are pleased with the progress on the integration of Repligen Sweden. During the quarter, we completed an initial analysis of the manufacturing operations in Sweden. We concluded that this site can operate with fewer personnel and as a result, last week, we instituted a headcount reduction of approximately 12 individuals following conclusion of negotiations with the local unions.

This reduction is in addition to three positions previously eliminated due to the consolidation of commercial operations in the United States. We want to thank those individuals who will be leaving us for their many contributions to the development of the Lund operations over the years. Several other significant cost-reduction initiatives are underway, which will be implemented throughout 2012.

Our largest revenue contribution comes from the manufacture of a series of Protein A products used to make media for the production of monoclonal antibodies. Over the past decade, monoclonal antibodies have emerged as the preeminent type of biologic drug and this expansion has driven growth in demand for Protein A products. It is estimated by 2014 six of the top 10 best-selling drugs will be monoclonals.

To date, monoclonals have been used primarily for inflammatory disorders such as arthritis and in specific forms of cancer. We expect that monoclonals will be applied to a much wider variety of diseases. As an example, last month, a publication of a clinical trial in the New England Journal of Medicine reported that a monoclonal antibody demonstrated striking efficacy in reducing LDL, or bad cholesterol, in patients with elevated cholesterol, which represents a very large potential market opportunity. We believe the new uses such as this will enable the antibody market to continue to grow steadily and expand the opportunities for Protein A.

In addition to Protein A, products we also sell a line of chromatography products. In February, we launched an extension to our OPUS line of pre-packed chromatography columns, which are designed for the manufacture of biologic drugs at a scale suitable for clinical trials. We are pleased with the initial feedback and we can report that one large pharmaceutical customer has already used our columns in a GMP manufacturing process.

Surprisingly, we are also receiving inquiries from several large biopharmaceutical companies about the development of two to four times larger columns, which can be used in larger scale manufacturing. As a result, we initiated the development program last month to design these larger scale columns with a goal to develop prototypes by year's end.

This quarter, we also appointed Michael Griffith to our Board. Michael is currently the CEO of Laureate Biopharmaceutical Services, a leading contract manufacturer of biologic drugs. In addition to his experience in biologics manufacturing, Michael has a strong background in investment banking and we look forward to working with him to help develop all aspects of our business.

As previously disclosed, our objective is to find partners to fund next steps of development for our CNS programs. We recognize that the value of these programs will be increased with initial Phase 1 clinical data. To that end, we were pleased to report positive Phase 1 data from our clinical trial of RG3039, our product candidate for spinal muscular atrophy. These data were presented by one of our collaborators in the context of the American Academy of Neurology meetings last week. These clinical data have been useful at progressing discussions with potential partners for this program, several of which are ongoing.

During the quarter, we also initiated a Phase 1 trial of RG2833, our product candidate for Friedreich's ataxia. This study is designed to test the safety and pharmacology of RG2833 in patients and we will also assess its impact on frataxin levels in blood, the protein which is deficient in Friedreich's patients.

In summary, while we were disappointed by the recent FDA decision, we have made considerable progress in this quarter on other aspects of our business. Our acquisition of Repligen Sweden has transformed our bioprocessing business and positioned us to benefit from the long-term growth of biologic drugs, including monoclonal antibodies.

I should note that we continue to have an active business development effort to both out-license our CNS programs and in-license or acquire additional products, which could increase our revenue potential. I would now like to turn the call over to the operator for our question-and-answer period.

(Operator Instructions). Michael Wood, LSA.

Good morning. Can you help us understand a little bit more about how the integration process has been going with Novozymes in Europe? I know you alluded to the headcount reduction, but are there any more details you can provide us on the kind of cost savings you have seen? Are they in line with your expectations and have there been any particular challenges that you have encountered there?

Well, in addition to the personnel cost reductions that I mentioned in the prepared remarks, we have a couple of initiatives underway to improve process yields so that for a given process and a given amount of time investment, we get a greater amount of product yield on two key products. We expect that those types of developments would take place over the next six months and then there would be a customer notification period. So the full impact of that would be seen in early 2013.

In addition to process improvements, we are looking at a number of alternative sources for raw materials, several of which have an opportunity to markedly reduce cost of goods on the particular products they are used in.

Thanks, Walter. Also just looking at your financials, it appeared that gross margins were around 46% for the quarter. Where do you think you can end up here at the end of the year? Can you give us some guidance on that?

Well, I think it is a little early to speculate on a hard number for gross margins. Clearly, that number is a blended number of the gross margins that we have been attaining traditionally in Waltham, high 50%s, low 60% gross margins with the currently lower gross margins that are seen in Sweden. I certainly think though there is an opportunity based on the headcount reduction, raw material costs, process improvements and other initiatives to substantially improve the gross margins in the Swedish operations.

Great, thanks, Walter.

Ron Chez, an investor.

Good morning. Back to SMA and your plan [throughout] this period of time when the FDA doesn't respond, what are you going to do?

With SMA, the project?

I apologize, 1068.

The 1068 project. Well, we are certainly continuing to seek an ongoing dialogue with the FDA to -- in effort to better ascertain what their requirements are for additional studies. And as I mentioned in my prepared remarks, the initiatives here at the Company involve preparing various clinical scenarios, which would help us evaluate ways we could most efficiently obtain additional clinical data. If we do get definitive feedback from the agency on or around June 21, we will be well-prepared to engage them in interactions to try and define a mutually agreeable path forward.

But do you plan prior to June 21 to endeavor to meet with the FDA, get more information right now?

Well, as is typical in these situations, over the past couple of months, we have had multiple interactions with the FDA on a whole variety of topics, including manufacturing, clinical, statistical and those interactions are continuing and yes, we are certainly endeavoring to get additional information from them on all aspects relative to the NDA review.

So will your pursue, depending upon what happens, you said pursue all options, you will pursue all strategic options in parallel with regard to 1068?

Well, certainly the Board is committed to finding ways to maximize the value of 1068 and so we are going to certainly evaluate what alternatives are available to us.

Ron Bartek.

Thank you. Good morning, Walt and everybody. I would like to as the President of the Friedreich's Ataxia Research Alliance just give a brief outline of the perspective of the patient community that around the world is not only relying on but substantially supporting the Repligen R&D effort.

And first, on behalf of the Friedreich's ataxia patients that we represent, we know that they are a leading edge of a significant rare disease market for Repligen consisting of about 15,000 to 20,000 patients around the world who see Repligen's HDAC inhibitor program as the single most promising and profoundly therapeutic agent in development anywhere. They see that drug as potentially a life-changing drug that would potentially arrest and even reverse their disease so that they and subsequent generations of FA patients --.

We certainly agree, Ron. We are enthused to be able to have initiated this clinical study and we would thank your organization and others in Europe for your continued support of this effort. It is an important one and one that frankly could yield a significant economic opportunity for the Company as well.

Absolutely. We have already put about $5 million into this wonderful program and have an active grant, as you know, now, Walt, of about $300,000, to use to develop the follow-on compound. We will continue in the clinical development to save the Company a lot of time and money by providing the clinical infrastructure and recruiting all the patients so that the trials that are needed to get the market approval are done quickly, efficiently and at very low cost. And in sum, we see that the HDAC inhibitor at Repligen as the greatest hope for treatment and a cure and we are confident that we will cross the finish line with you together.

Thank you for your support. We appreciate it, Ron.

Michael Wood, LSA.

Hi, another question on SecreFlo. Walt, you alluded to the pilot study in pancreatic cancer that is planned for this year. What is the exact timing on that? When do you think we might see some data?

The pilot study is ongoing. It is an open-label study right now, so data is coming in patient by patient. And so I think that we are in a position, once we work through some of these other issues that are on our plate with RG1068, to sit down and look at that data by midyear.

Great, thank you.

(Operator Instructions). Ron Chez.

Why is it necessary today to limit questions to two?

Well, I think we have a certain amount of time we are going to allocate to this and we don't really think that -- we can address those issues with a couple of questions. Do you have a question, Ron?

I do. What is the status with regard to licensing opportunities for SMA?

Well, as I mentioned in the prepared remarks, we have now the benefit of some Phase 1 clinical data, which is quite encouraging for the SMA product candidate, RG3039 and we have several active discussions with potential licensors ongoing. And while certainly it is too early or we will not speculate on when and how any licensing transaction might take place, we think that the asset has real value and that has been substantiated in the clinic and it is difficult to determine when that type of licensing event may occur, if it does. Repligen's Board is certainly committed to maximizing the value of both of the CNS assets through a licensing process.

Would you characterize the response, now that you have gotten the clinical Phase 1 clinical data, as being consistent with what you had said before that it should help these discussions?

Well, I think there is no doubt that by obtaining human clinical data, one has reached a threshold that just can't be obtained with animal experiments in terms of understanding how the drug might perform in the human body, what kind of toxicities, albeit in short-term studies, one might see. So I would describe it as supportive of discussions that we have engaged in with several parties.

We have no further questions at this time.

Okay. Well, then, if additional questions arise before our next public conference call, I would encourage you to contact the Company via investor relations and thank everyone for participating in today's call.

Thank you very much. Ladies and gentlemen, this concludes your conference call for today. Thank you very much for your participation. You may now disconnect. Have a great day. Thank you.