Repligen Corp (RGEN) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2013 Repligen Corporation earnings conference call. My name is Clinton and I will be your coordinator for today. There will be a question-and-answer session after the Company's formal remarks. Please note that in order to accommodate all individuals who wish to ask questions, there will be a limit of two questions at the time.

I would now like to turn the call over to your host for today's call, Mr. Jonathan Lieber, Treasurer and Chief Financial Officer for Repligen. Please go ahead.

Thank you, and good morning. The purpose of today's call is to discuss our Q1 2013 results, 2013 financial guidance which remains unchanged and first-quarter business highlights. Joining me today on the call 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 made 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.

This morning, we reported results for the first quarter ending March 31, 2013. Before getting started I wanted to point out that this is the first financial report for which both the current and preceding years periods reflect the acquisition of the December 2011 of Novozymes Biopharma AB, now Repligen Sweden AB.

For the quarter, we reported bioprocessing product revenue of $11.9 million, an increase of 28% from the prior year. Bioprocessing revenue growth from the first quarter was driven by increased demand from individual products in all three of our product areas -- Protein A, growth factors and chromatography products. Total revenue for the quarter including royalty on research revenue was $16.5 million, which also represented an increase of 28% over the prior year period.

Net income for the quarter was $2.3 million or $0.07 per diluted share compared to a net income of $1.2 million or $0.04 per share for the quarter ended March 31, 2011.

Cash and marketable securities totaled $54 million, an increase of $4 million from December 31, 2012.

Our gross margins in the first quarter were approximately 42%. Gross margins in the first quarter were negatively impacted by the sale of higher cost material in our Swedish manufacturing facility that was produced in 2012, development work on the new ligand and in Waltham and normal variations in manufacturing yields. The higher cost inventory resulted in approximately $1.2 million of additional expense and if the same goods were produced today at the same quantities. The majority of this higher cost inventory was sold as of the end of the first quarter with the remainder to be sold in the second and third quarters. As a result we expect gross margins to rise over the remainder of the year as we drop higher volumes through our Swedish facility and benefit from our cost reduction initiatives there.

Research and development expenses in the first quarter were $2.2 million versus $2.8 million in the first quarter of 2012. The decline is due to a reduction in R&D expenditures on our therapeutic programs. We expect to complete the transition of RG3039 to Pfizer in the second quarter and continue to seek licensing agreements for our other therapeutic candidates.

Selling, general and administrative expenses in the first quarter decreased to $3.3 million from $3.4 million in the first quarter of 2012.

Today, we are updating our financial expectations for 2013. We continue to expect total revenues of between $63 million and $65 million, including bioprocessing product revenue of $46 million to $48 million. We continue to forecast gross margins of approximately 50% and operating income of between $20 million and $22 million in 2013 compared to $11.1 million in 2012. We also forecast net income of $18 million to $20 million compared to $14.2 million in 2012 and we expect our year end cash to be approximately $65 million, also consistent with our current guidance.

This guidance is based on expectations for our existing business and does not include the impact on our revenue and expenses of potential milestone payments from Pfizer, additional outlicense agreements for our remaining clinical assets, potential bioprocessing acquisitions, or fluctuations in foreign currency exchange rates.

Now I'll turn the call over to Walt who will discuss first-quarter business highlights.

Thanks, Jon. On our call in March I communicated to you that we are working to expand our sales and marketing reach. To this end, we recently participated in several industry conferences including a podium presentation of our processing conference in February highlighting how our OPUS line of prepacked chromatography columns can improve the speed and economics of biologics manufacturing.

We also initiated our first print advertising campaign to raise awareness of our OPUS prepacked columns. These and other direct sales activities have generated a significant increase in customer interest in this product line, particularly from contract manufacturing organizations and large biopharmaceutical companies for production of clinical trial materials.

I also communicated in March that we were investing in five new products or line extensions. One of these programs is directed towards creating a larger scale OPUS purification columns with two to four times greater capacity. This program is in direct response to customer requests based on the increasing scale of disposable fermentation facilities which then requires larger purification capacity. If our efforts are successful, we have an opportunity to be the first company to offer such a product.

Second, we are also about to launch a new kit for measuring the concentration of our IGF growth factor product in fermentation media. While this is not expected to be a large product itself, it will enable customers to more easily optimize the use of our IGF1 product which is one of the fastest growing products in our portfolio.

Third, we have also made good progress in active collaborations with two large companies for whom we are developing new chromatography products. For both projects, we expect our R&D efforts will be substantially completed this quarter and we expect these products to be launched by our collaborators later this year or early 2014. For both products, we have retained to find long-term manufacturing rights.

We believe our continued investment in new products will enable us to sustain double-digit organic growth, which may then be supplemented by selective technology, product, or company acquisitions.

Turning now to our therapeutic assets, in January we announced a worldwide licensing agreement with Pfizer for our spinal muscular atrophy program in alignment with our strategic goal to outlicense our portfolio of therapeutic assets. Under the terms of this agreement, Repligen is entitled to receive from Pfizer up to $65 million in milestones as well as royalties from future sales.

We have now completed the second cohort of an active Phase 1 trial of the lead product candidate RG3039, positioning this program to be fully transitioned to Pfizer by the middle of this year. We also completed patient dosing in a Phase 1 trial of RG2833, our product candidate for Friedreich's ataxia. We are currently collecting biomarker and pharmacology data from this trial which we expect to complete this quarter.

Finally, to support our partnering efforts we have initiated a dialogue with the GI division of the FDA to determine if there is a streamlined path to an initial approval of RG1068 for GI uses, which would complement a potential partner's efforts to conduct a second Phase 3 trial in radiology. We expect additional feedback this quarter.

In summary, we are committed to building a best-in-class life sciences company focused on the development, manufacturing and sale of high value consumables for the growing biomanufacturing market. We believe that our focus on manufacturing efficiencies in our core Protein A business, coupled with the development of new franchises in growth factors and chromatography products will enable us to fully capitalize on the expanding market for biological therapies and to build sustainable shareholder value over the long term.

We look forward to updating you on our progress.

I will now turn the call back over to the operator for our question-and-answer period.

(Operator instructions). Drew Jones, Stephens Inc.

Good morning. Congrats on a great quarter.

Thank you, Drew.

Just thinking about the growth byproduct here, obviously there was some good contribution from growth factor in the quarter. Can you talk a little bit about incremental wins and maybe the pipeline there that is helping drive that strength?

Sure, I think at the end of that for all of our revenues I think we had good -- we had good product growth, we had good revenue growth in selected areas across all three of our major product areas. As we said the year is certainly off to a good start. We are excited about the growth factors. We think there's a lot of opportunity there.

I don't think at this time we are prepared to talk about any specific customer orders, but what I can say is that the existing channels that we were selling through have been very receptive to that product and have driven most of the growth and data. I do think we see an opportunity potentially as the year progresses and in the out years to access some new markets and new distribution channels there. But we will have more to say about that later in the year.

Overall though we are pleased with the growth of that product this year, this quarter.

And as far as chromatography is concerned, you guys again alluded to good contribution in the quarter. Is that something that gets stronger as the year progresses?

I think it's basically -- I don't know if Walt will add to this but I think it is generally driven by, so chromatography has a bunch of different products in it. We see some high-growth opportunities for example like OPUS, which is doing very well which was launched last year in the first quarter of about last -- two Februarys ago now. There are some other products that are also performing well. So I think we see some good opportunity there as well.

Yes. Just to further add to Jon's comments, we launched as you may recall the process scale OPUS chromatography columns at the end of February last year. And it takes about a year typically for a large company to do a technical quality and supply chain evaluation of a product offering. And right on cue in this quarter, we have seen a significant uptick in both orders and customer inquiries which have yet to turn into orders.

So we do believe that that line will benefit in coming quarters from this period of evaluation which has come to a close.

And it seems like growth factor and chromatography, the near-term outlook is so strong and you alluded to this in your prepared comments, but is it right to think that maybe acquisitions are on the back burner for 2013, or --?

I wouldn't say they are on the back burner. I think that we certainly have an active business development effort for acquisitions and they may be Company acquisitions. We are looking potentially at carve out, where we buy a senior product from a company that no longer fits with their strategic portfolio. Or deals that augment the return on investment in our R&D new product development efforts.

We do believe there's a lot of organic growth drivers that can sustain us and that, as we said in our prepared comments, we believe that we can sustain that double-digit growth target and that any acquisitions we might make would just further raise our growth rate.

And then two quick ones. On an absolute dollar basis, R&D did tick up a little bit year over year. Can you tell us what that was tied to?

Actually I don't think it ticked up over a year over year. I actually think so we were down about $700,000 actually year over year. So I think what that reflects though, just to answer your question is we -- it is higher than we expected to be for the remainder of the year. It is lower than it was prior quarter because of course, prior year quarter we have a lot more therapeutic R&D activities taking place than we did this quarter. We did still, as we mentioned in the script, have a couple of trials that we were conducting and finishing up in that first quarter. So I think R&D will decline as the year progresses certainly to meet our stated guidance for the year.

Last one, tax rate expectations for the year and what happened in the quarter?

Yes, so we are still comfortable with our approximately 10% effective rate for the year and although the effective tax rate referenced in the Q is higher, there were some one-time items in the first quarter that added about 30% to the tax provision in that quarter and this quarter. And on a separate note, we may need to revisit a couple of items that can impact the effective rate as the year progresses. That will certainly depend on constant current and expected future profitability, but we would expect perhaps that that could come down, but we are reconfirming our approximately 10% effective rate guidance.

Thanks.

Michael Wood, LSA.

Good morning. Looking at your first quarter bioprocessing revenue of $11.9 million. It looks like this was, I think, 28% higher over the same quarter in 2012. Now the guidance you have given for the year is $46 million to $48 million which is a 10% to 15% increase year over year. How do you think we should be thinking about the remainder of 2013 for revenues?

Thanks, that's a good question. So we are pleased that the year is off to a really, really strong start. As we have said previously -- well, first of all, it is still early in the year so that is one thing. So we have -- while we have a good view of the year, I don't know that we were prepared to certainly raised guidance. And as we have said before, there can be quarterly fluctuations in revenue depending upon if our customers push in -- pull in an order or push out an order. So we are going to be pleased with where we are, but we are sticking with our guidance for the time being and we will reevaluate that as the year progresses, if necessary.

Great. Thanks. One other question. Can you tell us are there any new developments in the monoclonal antibody that would give the Company any new or different views on the growth that is happening in that sector?

That is something that we certainly have had a long-term bullish view on. I think in the last two months since our last call, the one thing I would just note is the FDA has started exercising its ability to designate certain therapies for critical unmet medical needs as so-called breakthrough therapies. And we have seen a couple of breakthrough therapy designations by the FDA for monoclonals, in particular Merck's monoclonal. It's called anti-PD1 which is for solid tumors, received breakthrough designation about a month ago. Today I saw on the Bloomberg that GenMab and Johnson & Johnson antibody they are developing for multiple myeloma which is a blood cell type of cancer also received breakthrough designation, and an analyst commented that that had the potential in his opinion to advance the launch date from 2017 to 2015.

So I think it is very gratifying to see that the FDA has recognized antibodies as a he key class particularly for cancer and is exercising its regulatory discretion to speed these therapies to market, which, I think, is going to be good for the overall antibody market.

Thanks. That is a good observation. Thank you.

Larry Smith, [smithonstocks.com]

I wonder if you could give us the approximate growth rates of Protein A product from the first quarter, other chromatography products and their growth factors year over year?

Thanks for that question. I think right now we are not prepared to necessarily give breakdowns by product for the first quarter. It is something we will consider doing as the year progresses. I think generally we are very comfortable with the guidance we have given for total bioprocessing revenue for the year. But because of the various fluctuations and, candidly, the size of an individual order relative to a product line and the total, we are not quite ready yet to give -- to talk about individual product offerings either for the quarter or for the year. So we do, we -- stay tuned. I think like I said some things may move up and down over quarter to quarter, but we are still very comfortable with our original revenue guidance of the bioprocessing revenue of $46 million to $48 million.

Were there any unusual orders in the quarter that might have influenced the first-quarter results?

Well, I wouldn't say unusual. As I mentioned in the prepared remarks and in response to the previous question, we anticipated it would take about a year of incubation for the OPUS process scale columns to work their way through the normal evaluation process as any pharmaceutical company would do before bringing a new product into their GMP manufacturing suite. And we just hit that one-year point and so that was definitely something that we saw a benefit from in the first quarter. I totally anticipate it but certainly gratifying to see.

And most of us don't have a lot of detailed experience on what the growth factor market is like. Could you give us an idea of the dynamic and as you try to compete or tried to replace insulin as a growth factor, I presume that existing companies are not even going to contemplate making a change and you are competing with -- for business on new product. If that is correct, could you give us an idea of the dynamics of creating orders for your growth factor product?

Sure. So you are correct. Once a product and antibiotic, for example, is in commercial manufacturing, the growth factor that might have been incorporated through that product tends to not change over time. And so we are certainly focusing our sales and marketing efforts on process development laboratories, people who are or processes that are in early stages of Phase 1 or Phase 2 clinical development because that is when there's more flexibility to choose growth factors. And really the landscape is pretty simple in the growth factors area. Insulin is by far the dominant growth factor, it is provided by Novo in Denmark, is the dominant growth factor because it has been available for many decades in pure, stable form from a company that has a long-term track record. And so it was the default choice by many companies.

But we think our product has technical attributes that will allow us to gain share on insulin. It is, as I think we have discussed several hundred times, more potent than insulin and that creates some logistical advantages for the fermentation processes incorporating our growth factor. So that is one element to it.

The second element to the market is, despite the fact that we have only about a 10% market share relative to insulin, there are several large pharma companies that have incorporated our growth factor into products and some of those commercial products are growing robustly, which is causing additional pullthrough for demand for our IGF-I product.

Okay. Thank you.

At this time you have no questions. (Operator Instructions). I would now like to turn the call over to Walt Herlihy for closing remarks.

I would like to thank everyone for participating in today's call and, as always, should you think of additional questions or comments, feel free to communicate directly with us through Investor Relations. Thank you.

Thanks for joining us today's conference. This concludes your presentation. You may now disconnect. Good day.