Repligen Corporation F2Q09 (Qtr End 09/30/08) Earnings Call Transcript

Nov.24.08 | About: Repligen Corporation (RGEN)

Repligen Corporation (NASDAQ:RGEN)

F2Q09 (Qtr End 09/30/08) Earnings Call Transcript

November 6, 2008, 10:00 am ET

Executives

Bill Kelly – VP, Finance and Administration

Walter Herlihy – President and CEO

Analysts

Ram Selvaraju – Rodman & Renshaw

Don Chev [ph]

Robert Lazaros [ph]

Operator

Good day, ladies and gentlemen. And welcome to the Repligen Corporation second quarter 2009 earnings conference call. My name is Michelle and I will be your coordinator for today. At this time, all participants are in a listen-only-mode. We will be facilitating the question-and-answer session towards the end of today’s conference. (Operator instructions)

As a reminder, this conference is being recorded for replay purposes. And I would now like to turn the presentation over to your host for today’s call, Mr. Bill Kelly, Vice President of Finance and Administration. Please proceed.

Bill Kelly

Thank you, and good morning. The purpose of today’s call is to briefly review our financial results for Q2 FY 2009, affirm our financial projections for FY 2009, and to provide additional information on 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 US sales of Orencia, opportunities for licensing, our intellectual property portfolio, and our plans and projections – our plans for – our 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 result 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 the second quarter of FY 2009, which ended on September 30th, 2008. For the quarter, we recorded total revenue of $5.1 million, including product sales of $3 million and royalty income of $2.1 million. Our net profit for the quarter was $142,000. And our cash and investments on September 30th were $65.6 million or $5 million more in March 31st. Total revenue for the six-month period ended September 30th, 2008 was $18.8 million. And we expect to record revenue of between $5 million and $6 million per quarter for the next two quarters.

This projection would result in total revenues for FY 2009, which ends on March 31st, 2009, as the high end of our previous projection of $28 million to $30 million. For FY 2009, we are affirming our previous expectation for a GAAP net profit of between $4 million and $5 million.

As previously announced, our Board of Directors has authorized the repurchase of 1,250,000 shares of our stock. To date, we have repurchased more than 350,000 shares at an aggregate cost of approximately $1.4 million. We view the repurchase program as an important element of our overall strategy to protect shareholder value. Given the current market weakness, we expect to purchase additional shares during the current quarter.

Share repurchases are not recorded on the P&L, and therefore, will not impact our net profit expectations for the year. It does, however, affect our projected year-end cash balance. Excluding the impact of additional share repurchase activity, we expect to end the fiscal year, next March 31st, with $61 million in cash and investments.

At this point, I would like to turn the call over to Walter Herlihy for an update on our current year and other development programs.

Walter Herlihy

Thank you, Bill. As most of you know, we received a royalty on Bristol-Myers’ US sales of Orencia, their biologic therapy for rheumatoid arthritis. This quarter, Bristol continued the release of new clinical data supporting Orencia’s use. In October, they announced that a 10-month study showed that Orencia significantly improved multiple aspects of quality of life in patients with juvenile idiopathic arthritis, which were maintained throughout the study period.

In the second press release, Bristol reported results from the study in adult patients with moderate to severe (inaudible) of rheumatoid arthritis who had never received previous methotraxate treatment. This study shows that Orencia in combination with methotrexate had a 76% greater chance for achieving remission, compared to methotrexate alone and an equivalent safety profile.

The continued news flow and the dozens of new publications on Orencia in 2008 had undoubtedly helped support its rapid sales growth. In the last four quarters, US sales have increased from $57 million to $98 million per quarter, for a compound quarterly growth rate of 14.5% or an annualized rate of 71%. We anticipate that these clinical data will continue to drive the growth of this product.

Turning now to our own pipeline, our Phase 3 trial of secretin in MRI imaging is currently recruiting patients to 24 sites in the United States, and there are approximately 90 patients in various stages of the trial. At the current enrollment rate, we believe we will complete enrollment in mid-2009. One of the critical assumptions empowering our trial is the percentage of enrolled patients who actually have a pancreatic structural abnormality. Based on our Phase 2 study, we assumed that 55% to 60% of enrolled patients will have a structural abnormality. A review of the first 73 patients enrolled in the Phase 3 trial indicates that 68% have an abnormality, which suggest that the Phase 3 trial’s enrolling the appropriate type of patients for MRI imaging.

If the Phase 3 trial successfully planned to follow an MDA and request expedited review by the FDA, which may allow us to launch this product in 2010. We have also continued discussion with this quarter with the European Regulatory Authorities regarding the requirements for approval in the EU. While there are differences in the date required for approval, it appears that our US development plan will support the registration of our product in Europe.

This quarter, we began to assess potential marketing or distribution partners for our product. Our current plan is to retain either co-promotion or exclusive marketing rights in the United States. And commercialize to a partner or distributor in Europe and Japan, which will ensure that we gain the maximum financial return of our investment in this product. We expect to establish these commercial relationships in 2009.

Today, we announced the initiation of a Phase 2b clinical trial of RG2417, our oral formulation of uridine for acute treatment of depression in patients with bipolar disorder. We plan to approve approximately 150 patients at 20-25 sites. The eight week dosing period and the end point used to assess symptom improvement are consistent with those used in pivotal studies for other drugs approved for bipolar disorder. The study of design of the approved of concept clinical trial, which is successful will support partnering in this product candidate prior to Phase 3. We are also assessing additional indications for RG2417 and anticipate selecting a second indication for development early next year.

We had several positive developments in the past quarter in our HDAC inhibitor program. First, we received two grants from foundation to partially support this program. A $1 million grant from the Muscular Dystrophy Association, and a $125,000 grant from the Friedreich's Ataxia Research Alliance and the National Ataxia Foundation. These grants will allow us to expand the scope of our program and speed of development of a product candidate. Our continuing relationships with these foundations may also provide us valuable connections with the clinical and patient community.

Second, scientists from the Scripps Research Institute published the result of a study on one of our proprietary compound in a mouse model of Huntington’s disease. The study showed significant slowing of a loss of muscle function in a strain of mice, which carry a mutated Huntington gene similar to the one found in humans. This is the first demonstration that one of our proprietary HDAC inhibitors can improve a functional outcome in animal model. We also expect to report the results of additional functional assessments in animal models of previous ataxia and spinal muscular atrophy in 2009.

Our current focus is to complete the detailed evaluation of our advance lead compound by years end to determine if one can be designated as a clinical candidate. We are encouraged by the results to date and hopeful that we will be able to enter the clinic in 2009.

The past quarter has obviously been a difficult one for investors. It is clear that for the foreseeable future, the small cap biotechnology company model based on continued access to the equity market is broken. Last week, the Wall Street Journal reported a 38% of 370 small cap biotech companies has less than one year of cash. Making it likely that company failures will accelerate in 2009.

Fortunately, Repligen is well positioned to withstand the current downturn with significant cash reserves, no debt, and a revenue base that allows us to operate in a cash neutral or cash positive position depending on our investment in our pipeline. Thus, we are able to fully pursue our product development objectives during this period.

Additionally, as companies cut back their programs and staff to conserve cash, there maybe opportunity to acquire assets that have significant discount to their fair value. We have already seen an increase in the number of assets per sale. And we intend to increase our capacity to evaluate these assets in 2009.

Finally, we have the luxury of supporting our long term shareholders through continued stock repurchase. That concludes our prepared remarks for today. And at this point, we’ll be happy to take any questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Ram Selvaraju of Rodman & Renshaw. Please proceed.

Ram Selvaraju – Rodman & Renshaw

All right. Thanks. Can you hear?

Walter Herlihy

Yes. We do.

Ram Selvaraju – Rodman & Renshaw

Okay. I just wanted to get some additional clarification on a few line items on the P&O. So with respect to the remainder of fiscal 2009, could you provide some additional color on what you expect R&D and SG&A expenses to look like?

Bill Kelly

For the full year R&D spending, we expect it to be about $14.6 million and SG&A spending about $5.8 million.

Ram Selvaraju – Rodman & Renshaw

Okay. Thank you. Also could you just reiterate when you would expect this safe to your uridine study to mature and yield top line data?

Bill Kelly

It’s hard to say at this early stage on what the enrollment rate is going to be. We would anticipate it would take about 15 months to enroll the patient under normal circumstances. So by the end of 2009, we should have the study largely enrolled.

Ram Selvaraju – Rodman & Renshaw

Okay. And then with respect to your pursuit of addition end licensing opportunities, could you provide some color on what kinds of product candidates you feel would be best suited to bring in to focus on reference pipeline? And what therapeutic indications you might be targeting as you look for potential licensing opportunities?

Walter Herlihy

Sure. We have looked at 30 opportunities since the end of June. I would say approximately 25 of those were in CNS area. An area we know well and an area where we think we can make an informed decision about the value of an asset. And the others were in various areas where they was an opportunistic perhaps entry point.

Generally, the projects that we look at and the once that we favor are once in which there’s a compelling biological story to support the potential utility of a lead compound and the disease indication. And there’s an ability to run a Phase 2 clinical trial with 200 patients or fewer, which will give you a yes-no answer on the compound of interest.

Many of these are earlier stage because that’s where we find the higher qualities on science. And in many ways are similar to the previous ataxia asset in which we licensed in 2007. And which over the last year and a half has moved up to almost the clinical stage.

Ram Selvaraju – Rodman & Renshaw

Okay. And then just a quick read to read. Could you reiterate for me the projected profits for fiscal 2009?

Bill Kelly

We affirmed our previous guidelines of between $4 million and $5 million.

Ram Selvaraju – Rodman & Renshaw

Okay. Thank you.

Operator

Your next question comes from the line of Don Chev [ph], private investor. Please proceed.

Don Chev

Good morning, Walter.

Walter Herlihy

Good morning.

Don Chev

How far along are you with regard to European or Japanese partnerships with MRCP?

Walter Herlihy

I’d say we’re in the early stages of engaging selected potential partners. And we’re taking a very careful approach to these to make sure that those partners we approach or loan to will think can really deliver in a commercialization of the MRI agent. And it’s too early to comment on the specific discussions we’ve had to date. But we do think that these discussions will mature over the next six to twelve months.

Don Chev

You’ve seen good quality opportunities there?

Walter Herlihy

In partner potential?

Don Chev

Yes.

Walter Herlihy

Yes. We’ve had some discussions with some very high quality organizations.

Don Chev

And your estimate of the market outside of the United States? Europe, Japan, wherever?

Walter Herlihy

It’s probably at least as big as the US market. We think that there’s about 150,000 potential procedures in the United States could benefit from use of this agent and another 150,000 in Europe. We don’t have specific numbers in Japan, but it’s probably a fraction of that again.

Don Chev

And the cost of that was – what was that? $200?

Walter Herlihy

Well I think the current pricing, the wholesale pricing for a single vial for a single procedure is about $400 per procedure.

Don Chev

So what would our selling price be?

Walter Herlihy

Well we haven’t determined that. But if you were to assume it were $400 per procedure times a 150,000 procedures that would give you about $6 million addressable market in the US and an equal market in Europe.

Don Chev

I thought – isn’t that higher than what you have said before? I meant – I certainly don’t object to that?

Walter Herlihy

Don, I think we have painted about $100 million or so in rough numbers.

Don Chev

No. I meant the cost I thought was lower than the $400. But you’re talking $400, right?

Walter Herlihy

Our market research supports that quite clearly.

Don Chev

And on Freidriech’s ataxia, has that met disappointed or exceeded where you had hoped it would be at this time?

Walter Herlihy

I think when you enter these early stage projects, there’s always considerable concern and risk that the miles will be toxic as mechanism won’t pan out. But I would say for me personally, it exceeded my expectation with how quickly it’s come to the point where we’re going to make a clinical decision about the end of this calendar year.

Don Chev

And one more thing you have talked about potential deals or pipeline enhancers? You said that 30 since June. That’s a lot. Do you see pursuant to that Wall Street Journal article, the quality of opportunities improving?

Walter Herlihy

There’s a few quality opportunities. The vast majority of them I think are still too early and too uncertain and the biology’s not up to snap. But we certainly have found in that 30 a couple of opportunities worth taking a deep dive into.

Don Chev

But do you see any improvement in the flow or the quality–?

Walter Herlihy

Yes. The flow is higher. The quality is about the same.

Don Chev

Okay. Thank you.

Walter Herlihy

Okay.

Operator

(Operator instructions) Your next question comes from the line of Robert Lazaros, private investor. Please proceed.

Robert Lazaros

Good morning. I’m wondering if there’s any contact or discussions regarding interest in the acquisition or purchase of our company, Repligen?

Bill Kelly

We have nothing to disclose. And we normally wouldn’t disclose any potential discussions about acquisitions. I think that our focus is really trying to take advantage of the opportunities that present us in our pipeline. And as you look into the call today, I’m sure you’ve heard a number of milestones coming up in 2009, which would ensure our pipeline. Internally, I think the value of the company would be greatly enhanced or would be successful on some of these pipeline products.

Robert Lazaros

The reason I asked that question is there’s seems to be so much press on the voracious appetite of mid and large firm and biotech attempting to acquire assets like ours.

Bill Kelly

Well I think–

Robert Lazaros

So I thought it would be a natural – for discussions purposes anyway.

Bill Kelly

Absolutely. I think there is a voracious appetite of big pharma in particular, the Mid Ice Pharma [ph], the filler pipeline, and our whole business model is geared towards that. And that we are going to retain full commercial rights to our products through at least a proof of concept clinical study. And that’s where I think we can get a very high valuation we all like to get for our investment in some of these product candidates. As opposed to selling them too early before they fully mature and can recognize their value.

Robert Lazaros

Was that a yes or a no? Just out of curiosity. Or a neutral answer?

Bill Kelly

No. I think it’s a yes. There’s an appetite and our whole business strategy is geared towards filling up that appetite of pharmaceutical companies.

Robert Lazaros

Thank you.

Operator

And that does conclude the question-and-answer session. I’ll now turn it back to Walter Herlihy for closing remarks.

Walter Herlihy

Okay. I would thank you for joining us on our call today. And despite the difficult call environment, I think that I’ve said on the concluding of my remarks, we expect to not only survive, but thrive in 2009. And we look forward to continuing our communications to you. Thank you.

Operator

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

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