Repligen Corporation F4Q08 (Qtr End 03/31/2008) Earnings Call Transcript

Jun.14.08 | About: Repligen Corporation (RGEN)

Repligen Corporation (NASDAQ:RGEN)

F4Q08 Earnings Call

June 12, 2008 11:00 am ET

Executives

William Kelly - Vice President, Finance and Administration

Walter C. Herlihy, Ph.D. – President and Chief Executive Officer

Gary Sachs, M.D. – Director, Massachusetts General Hospital Bipolar Clinic

Analysts

Raghuram Selvaraju - Rodman & Renshaw

Jeb Besser - Manchester Management

Ron Jay – Private Investor

Robert [Inaudible] - Private Investor

Steven Goldstein – Private Investor

Ron Wilson – Private Investor

Operator

Welcome to the fourth quarter 2008 Repligen Corporation earnings conference call. (Operator Instructions) I would now like the turn the call over to your host for today’s call, Bill Kelly, Vice President of Finance Administration.

William Kelly

The purpose of today’s call is to briefly review our financial results for fiscal year 2008, update our financial projections for fiscal year 2009 and to provide additional information on our program in bipolar disorder. Joining me today is Walter Herlihy, our President and CEO. And also on the line is Dr. Gary Sachs from Massachusetts General Hospital.

At the outset, I would like to say that this discussion will contain forward-looking statements which are not guarantees of future performance such as our financial projections and projections for the U.S. sales of Orencia, opportunities for licensing, our intellectual property portfolio and our plans and projections for clinical trials.

These statements are subject to certain factors which may cause Repligen’s plans to materially differ or result to materially vary from those expected, including market acceptance of our products, unexpected preclinical or clinical results or 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 fiscal year 2008 which ended on March 31, 2008. For the year we recorded total revenue of $19.3 million, including product sales of $18.6 million, up 37% from the prior year and our best year to date. Our net profit for the year was $37.1 million, which includes a one-time net gain of $40 million as a result of the ImClone settlement in September.

Our cash and investments on March 31 were $60.6 million or $38 million more than the prior year. Today we are updating our financial expectations for FY 2009, which ends on March 31, 2009.

We expect total revenue of between $28 and $30 million including $15 to $16 million in product sales, $12.5 to $13.5 million in royalty income and other revenue of between $500,000 and $1 million. Our product sales consist primarily of our Protein A products, where we expect a modest decrease this year due to high levels of inventory currently held by our principle customers.

The growth rate of the Protein A business is tied to the growth rate of the monoclonal antibody segment, which was approximately 31% last year, compared with our growth of 47% in fiscal year 2008. Long term, we see continued growth opportunities for the monoclonal antibody business, and as a result, the Protein A business. For FY 2009, we expect a GAAP profit of between $4 to $5 million and we expect to end next year March 31 with $62 million in cash and investments.

At this point, I’d like to turn the call over to Walter Herlihy for an update on our pipeline.

Walter C. Herlihy, Ph.D.

While our focus today is on our uridine program, I would like to mention one highlight from our secretin program, which is a recent grant by the FDA of Fast Track Designation for RG1068 product for MRI imaging of the pancreas.

Fast Track Designation indicates that the FDA recognizes the clinical need for a safe, non-invasive alternative to endoscopy which itself had significant morbidity and even mortality. We expect that this designation will expedite the review of our NDA, assuming our ongoing Phase 3 trial is successful.

Today, I am pleased that we are joined by Dr. Gary Sachs, who is Director of the Bipolar Clinic and Research Program at the Massachusetts General Hospital. Dr. Sachs is a recognized expert on bipolar disorder with a specific interest in the clinical development of new treatments.

Before turning the call over to Dr. Sachs, I would like to update you on our continued analysis of the data from our Phase 2a trial of uridine for the treatment of depression in patients with bipolar disorder. The trial involved 82 patients who received daily oral doses of RG2417 or a placebo for six weeks.

Patients were evaluated weekly on a number of standardized tests, including the Montgomery-Asberg Depression Rating Scale or MADRS. Over the six-week treatment period there was statistically significant improvement in the symptom of depression in the uridine-treated group compared to placebo with a repeat measures p-value of 0.01.

These patients had an average improvement in MADRS score in weeks two through six of the study of three points and there was also a three-point improvement in the uridine-treated group over placebo at the end of the study. Our trial recruited patients at six academic research centers and five community based clinics.

Analysis to date indicates that the community based clinics recruited patients whose history of disease symptoms was significantly lower than patients treated at the academic centers. In fact, the minimal disease history for a few of the patients recruited at community centers leads us to conclude that the ascertainment of these patients as bipolar is uncertain.

Several analyses of the data show that by eliminating the patients with minimal history of bipolar symptoms from the analysis, results in a significantly enhanced effect of treatment with uridine. For example, there were 50 patients, or 61% of the total, who reported more than five depressive episodes over their lifetime.

These patients had a significantly greater response to uridine therapy with an average improvement on MADRS in weeks two through six of 5.5 points over placebo which has a p-value of less than 0.001. Their end of study improvement was 6.5 points better than placebo, compared to the three-point improvement in the entire group.

We have conducted several similar analyses which are consistent in showing a more robust observed response in the patients with a higher lifetime frequency of bipolar symptoms. Based on these data and feedback from the FDA and our clinical experts, we have initiated work on launching a Phase 2b clinical trial which will confirm and extend the encouraging results observed in the Phase 2a study. We expect to initiate this study later this year.

I will now turn the call over to Dr. Sachs, who will provide us some perspective on the treatment of depression in bipolar patients and the potential role of uridine.

Gary Sachs, M.D.

For those of you who may not be familiar with bipolar disorder or what used to be called manic-depressive illness, it may be helpful to start by understanding the bipolar disorder in its various forms affects more than eight million Americans and is the sixth leading cause of disability worldwide.

While the cardinal diagnostic feature of bipolar disorder is the occurrence of abnormal mood elevation, so periods of mania or hypomania, several longitudinal studies have now confirmed that compared to periods of hypomania/mania, depressive episodes are actually much more frequent, of longer duration and account for the majority of the impairment associated with bipolar disorder.

In fact, over a 15-year follow up, an NIMH collaborative study found that bipolar type 1 patients were depressed 31% of the time; bipolar type 2 patients were depressed just over half the time. So, that represents a 3:1 or even a 37:1 ratio, respectively.

Bipolar disorder have also proven notoriously difficult to treat and represents an area of clear unmet clinical need. Standard antidepressants, those treatments with FDA approval for treatment of unipolar depression, continue to be the most commonly used treatment for bipolar depression.

This practice persists, despite the fact that these drugs are not FDA approved for bipolar depression and recent evidence from the STEP-BD study, a large NIMH sponsored double blind placebo controlled bipolar depression trial actually failed to show any benefit from adjunctive treatment with standard antidepressants.

Furthermore, standard antidepressants have been associated in some studies with actually causing mania or accelerating cycling. At present, the FDA has approved only two treatments for bipolar depression. Seroquel, a so-called atypical antipsychotic drug and Symbyax, the combination of ZYPREXA, another atypical antipsychotic; and Prozac.

Both these treatments have succeeded in double blind placebo controlled trials. Response rates, however, indicate about half the patients receiving these treatments don’t respond. And those that do frequently experience substantial side effects that limit the tolerability of these treatments, particularly weight gain and sedation.

In fact, over half of the patients in these studies dropped out over the first six to eight weeks of treatment. One study with ZYPREXA showed that even after three weeks of treatment, 26% of the patients had persistent somnolence, a condition incompatible with driving, let alone returning to work.

It’s also difficult for many bipolar patients to accept treatment with antipsychotic drugs approved for use in schizophrenia. The sensitivity of depressed bipolar patients to such treatments obviously limits their utility and fuels the demand for more tolerable treatments.

The results from the bipolar depression study done with RG2417 are really promising for several reasons. On the efficacy side, the results for subjects receiving active treatment with RG2417 were comparable to what has been seen in controlled studies with Seroquel and Symbyax. The tolerability of RG2417, however, was generally comparable to placebo and much better than that observed for Seroquel or Symbyax. Should these results be replicated, RG2417 will be a very attractive option for the treatment of bipolar depression.

Walter C. Herlihy, Ph.D.

Dr. Sachs has agreed to answer a few questions. But I’d like to start the question and answer period by asking him to comment on the potential use of RG2417 should it be approved by the FDA. Gary, would you envision this as a potential first line therapy or being used in combination with other drug treatments?

Gary Sachs, M.D.

I think the answer is clearly yes on both counts. For patients presenting with mild to moderate depression, it makes sense to start with the most tolerable treatment. That would clearly be a place for RG2417. For patients with more severe illness, current guidelines endorse combination treatment and here the tolerability factor also makes inclusion of 2417 an easy decision for clinicians.

Walter C. Herlihy, Ph.D.

And just a follow up in terms of your comments on tolerability, does that identify in your mind any specific patient populations that would be particularly receptive to this treatment because of safety concerns?

Gary Sachs, M.D.

It really does. Since many bipolar patients begin treatment with a considerable burden due to obesity, metabolic syndrome, hypersomnia, sometimes subtle cognitive impairment or side effects from their other medications, the clean side effect profile of RG2417 is a really a very attractive thing for those patients as well.

Walter C. Herlihy, Ph.D.

We would like to open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Raghuram Selvaraju - Rodman & Renshaw.

Raghuram Selvaraju - Rodman & Renshaw

With respect to the R&D expenses projected for the coming 12 months, how do you project that to ramp as you initiate the Phase 2b study?

Walter C. Herlihy, Ph.D.

In the aggregate we see R&D expenses going from about $7 million in FY ‘08 to about $13.9 million in FY ‘09. Did you mean ramp during the year or ramp year-over-year?

Raghuram Selvaraju - Rodman & Renshaw

Yes, year-over-year.

Walter C. Herlihy, Ph.D.

Okay.

Raghuram Selvaraju - Rodman & Renshaw

And what about your SG&A line?

Walter C. Herlihy, Ph.D.

SG&A actually should show a significant decrease. We’ve spent a lot of time and expense on litigation and so this current year we have $10 million in SG&A, and we’re projecting about $5.5 million next year in SG&A, primarily benefiting from about $4 million of legal expenses that we don’t expect to recur. However, in FY ‘09 we will now have the benefit of our previously announced Bristol-Myers settlement showing up as royalty revenue.

Raghuram Selvaraju - Rodman & Renshaw

And what do you expect to be the inventory build again for the coming year?

Walter C. Herlihy, Ph.D.

We’re expecting inventory to remain relatively flat. It’s actually up this year due to the timing of customer orders and so it should remain flat.

Raghuram Selvaraju - Rodman & Renshaw

Those who built inventory, what’s the size of that, what proportion is that?

Walter C. Herlihy, Ph.D.

We think in the first part of the year that we’re going to have results consistent with historical. But then it would appear that we’ve had a couple of quarters where we think it would be a little of a flat spot because they’re going to work down inventory. And then at the backend, fourth quarter of the year, I would assume we’d return to a more normal run rate.

Raghuram Selvaraju - Rodman & Renshaw

With respect to the next milestone for the development to secretin, when do you expect that to come? And what will that consist of?

Walter C. Herlihy, Ph.D.

Well, the completion of enrollment in Phase 3 will be our next milestone.

Raghuram Selvaraju - Rodman & Renshaw

And when?

Walter C. Herlihy, Ph.D.

Probably at the end of this calendar year.

Raghuram Selvaraju - Rodman & Renshaw

And with respect to the Phase 2b study, how soon would you expect data from that? Will there be any interim looks involved?

Walter C. Herlihy, Ph.D.

Current plan doesn’t anticipate an interim look, so it will be in the second half of 2009.

Operator

Your next question comes from Jeb Besser - Manchester Management.

Jeb Besser - Manchester Management

Could you illuminate how much of a clinical improvement the step up in the MADRS scale was or the decrease in the MADRS scale was, just in terms of patient functionality? You said it was comparable to the value of the existing therapies?

Gary Sachs, M.D.

There’s not a direct functional measure here, but the 5.5 points difference that Walt referred to is actually considerably more than seen in the average depression scale. The average depression study scores for most standard antidepressants over placebo tend to be about three points or so. So we’re seeing a very large effect size by that standard.

Jeb Besser - Manchester Management

As far as drug/drug interactions, any early sense as to, you said the side effect profile was very clean. What background therapies were these patients on typically?

Gary Sachs, M.D.

Yes, this was a mono therapy trial. So we don’t have drug/drug interactions from this trial, but I believe Repligen has from their Phase 1 or 2, from Phase 1 studies they probably have some sense of how uridine behaves.

Walter C. Herlihy, Ph.D.

We have a small number of patients and we don’t have any signals of concern. I would just point out, Jeb, on a theoretical basis, lots of time drug/drug interactions come from, for example, the impact of a drug on liver enzyme activity.

And we wouldn’t expect a natural product like uridine to necessarily have that particular mechanistic ground to a drug/drug interaction issue. I think there’s reason, even though we haven’t run a controlled trial, there’s reason to be optimistic that it would be appropriate for use with other current established therapies.

Operator

Your next question comes from the line of Ron Jay - Private Investor.

Ron Jay – Private Investor

On context, this is recent knowledge with respect to the greater incidence of depressive impact versus manic?

Walter C. Herlihy, Ph.D.

Well we used the depressive impact, this is recent analyses we’ve done in the last several months, and we use as an example the lifetime history of depression. You can do the same analysis with lifetime history of bouts of mania and come to the same result. In general, patients with either or both of frequent higher frequency of symptom methology seem to have a more robust response.

Ron Jay – Private Investor

No, I was talking about what Gary had said about learning more about the relationship between depressive and manic episodes?

Gary Sachs, M.D.

It really is relatively recent that we’ve had several data points to look at. The NIMH study that I mentioned, the step study found the same thing. There’s a large Stanley sponsored study from Merck that found the same thing. And this isn’t a huge surprise since from the 19th century the conceptualization of mood disorder really was that it included both the people who only had lows and the people who had lows and highs.

It’s relatively recent that they’ve been separated as unipolar and bipolar. And this data suggests what you would see is a clinical reality if you came to where I’m sitting right now up at Mass General, that the bipolar clinic looks very much the same as the unipolar clinic. The name of the game here, the reason people come for treatment is depression, depression, depression.

Ron Jay – Private Investor

And you were just saying as where you sit at Mass General. What is based on your experience, your enthusiasm for the results achieved to-date, if you can comment on that, if you can, something qualitative?

Gary Sachs, M.D.

Yes I’ll give you a couple of things that occur to me and this may be just because I am a clinical trial junky, but one of the things that’s difficult in the field, if you look at let’s say GSK’s experience developing their drug lamotrigine or LAMICTAL, it’s extremely hard to show the benefit of a drug that doesn’t have much in the way of side effects.

And that’s sometimes for very good reasons, because if you have a sedating drug and it treats insomnia, it makes it look perhaps better in controlling the mood symptoms than it might otherwise. So here we have a drug that looks a lot like placebo. There are no side effects that will unmask the raters consciously or unconsciously. And this drug delivered a magnitude of effect comparable to much messier drugs. So that really does impress me.

The other thing that, because I’m blinded I can never be sure which patients who’ve come here and actually participated in the trials are getting active or placebo. It’s very clear that one of the problems for our patients is the drugs that are sedating or have side effects due to blocking colonergic receptors, worsen the cognitive problems that these patients often have.

And if I could get away from that problem, if I can get away from the tendency to cause weight gain and sedation, I’ve now got a drug that has not just greater attractiveness for people at the start, but the chances that they’ll be able to go back to work are really considerably higher because I won’t be muddying their picture with all of these side effects.

Ron Jay – Private Investor

One more question about something you said about the response of different levels of episodes of depression in terms of the result achieved with uridine. Do you want to comment on that?

Gary Sachs, M.D.

The way Repligen has looked at this shows you that if you have any index that makes this look more like a legitimate case. So remember we do these clinical trials, they’re different than people showing up at the clinic for care. They’re more what we might term symptomatic volunteers. And we do a careful assessment with them, some sites more careful than others do, to be sure that they meet the full criteria for caseness.

Now you can tick all those boxes and have what will be indisputably a true clinical case and you can see that because they’ve had multiple episodes and been treated for it before, or you can have people who might have an episode or two, maybe they did or didn’t get much treatment, but they’re not the real McCoy clinically. Any way you look, and the way you just heard based on how many significant episodes you have, the more people look like cases the better they responded to uridine.

Ron Jay – Private Investor

And how significant is that?

Gary Sachs, M.D.

Well if you’re planning a next trial, I think it gives you a lot of guidance about how to select patients that improve the likelihood that your next study will perform better than your previous study.

Ron Jay – Private Investor

But how significant do you think it is that the people with the greater level of incidence respond better?

Gary Sachs, M.D.

Not a surprise in the least, this is the finding that you will see across all depression in bipolar trials that you look at, even schizophrenia trials.

Ron Jay – Private Investor

Do you want to comment on how you strategically plan to further build the pipeline given the level of cash here and not spending it all in one place I hope?

Walter C. Herlihy, Ph.D.

Well I think that there’s going to be two dimensions you are going to see building the pipeline in the next couple of years. The first and most obvious is when you have a lead in a demonstrably safe drug like RG2417 is to seek other indications for that drug so it becomes within itself a pipeline.

And we are looking a couple of other indications right now outside of bipolar depression where we might initiate clinical studies. And of course secondly, the other dimension is that we are actively building critical mass in our business development group, and we would intend to use that to seek out other early stage CNS opportunities for in licensing.

Ron Jay – Private Investor

Are you seeing better opportunities now, less opportunities?

Walter C. Herlihy, Ph.D.

It’s hard to be quantitative about that, but I think a general downturn in the financial markets for biotech has certainly brought a number of opportunities to the surface that might not have existed say a year ago.

Operator

Your next question comes from Robert [Inaudible] - Private Investor.

Robert [Inaudible] - Private Investor

Have we been approached or have there been any discussions over the last three to 12 months on being acquired by another company? And what are the chances of that from a perspective of mergers and acquisitions?

Walter C. Herlihy, Ph.D.

It’s not an active area at the company right now. Of course acquisition is always one route to liquidity, but there is nothing active at the present moment.

Operator

Your next question comes from Steven Goldstein - Private Investor.

Steven Goldstein – Private Investor

Could you speak a bit about the IP in uridine, patent rights and the like?

Walter C. Herlihy, Ph.D.

We have two aspects to barriers for entry in the uridine program. We are exploring a number of avenues to develop and/or acquire relevant IP. It’s just too early for me to really comment on that specifically. I would also point out that if uridine is approved by the FDA and the European regulatory agencies, it will benefit from a new chemical entity designation with five years of exclusivity in the U.S and ten years of exclusivity in Europe, so that will give us an opportunity to pull franchise.

Steven Goldstein – Private Investor

But you said there is IP out there that may control this compound that?

Walter C. Herlihy, Ph.D.

No, we are exploring ways in which we could creatively and entrepreneurly develop intellectual property that could assist us in building a long-term franchise there.

Steven Goldstein – Private Investor

We are not conflicting with any patents that exist now.

Walter C. Herlihy, Ph.D.

That’s correct. We have complete freedom to operate right now. We are not infringing any known patent.

Steven Goldstein – Private Investor

Have you quantified the market size of the bipolar market, do you have a sense of how large that market could be?

Walter C. Herlihy, Ph.D.

Steve, a critical variable there would be pricing and we don’t really have a hand on what pricing might be, but I think that the results being part or larger and more comprehensive studies that clearly opportunities of $100 million.

Operator

Your next question comes from Ronald Wilson – Private Investor.

Ronald Wilson – Private Investor

I want to ask you about you were working on an autism drug about two or three years ago, is there anything on that?

Walter C. Herlihy, Ph.D.

No, we’re not. We don’t have any active research and development activities in the field of autism at the moment.

Operator

There are no further questions in the queue.

Walter C. Herlihy, Ph.D.

Well, thank you very much for participating and I’d like also thank Gary Sachs for his participation today. And, as always, if there are additional questions that come up, please feel free to direct them at any time to the company through our investor relations line. Thank you very much.

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