Repligen Corporation Q1 2009 Earnings Call Transcript

Aug. 7.08 | About: Repligen Corporation (RGEN)

Repligen Corporation (NASDAQ:RGEN)

Q1 2009 Earnings Call

August 7, 2008 11:00 am ET

Executives

Bill Kelly - Vice President of Finance and Administration

Walter Herlihy - President and Chief Executive Officer

Analysts

Elemer Piros - Rodman & Renshaw

Operator

Good day and welcome to the First Quarter Repligen Corporation Earnings Conference Call. My name is Bernie and I will be your operator for today. At this time, all attendees are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions).

I would now like to turn the call over to Mr. Bill Kelly, Vice President of Finance Administration. Please proceed, sir.

Bill Kelly - Vice President of Finance and Administration

Thank you and good morning. The purpose of today’s call is to briefly review our financial results for Q1, FY 2009, 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 say 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 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 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 the first quarter of FY 2009, which ended on June 30, 2008. For the quarter we recorded total revenue of 13.7 million, including product sales of 5.7 million, and royalty income of 8 million.

Our royalty income includes $6.3 million of Orencia royalties based on the US sales Orencia prior to the signing of the license agreement in April and $1.6 million in royalties for the current quarter.

Our net profit for the quarter was $8.3 million, which includes the provision for income taxes of $210,000.

Our cash and investments on June 30 were $66.1 million or $5.5 million more than on March 31st. Our fiscal year 2009 which ends on March 31, 2009 we expect total revenue of between $28 million and $30 million including product sales of $14.5 million to $15.5 million. Royalty income of 13 to $14 million and other revenue of approximately $500,000.

In fiscal year 2009, we expect the GAAP net profit of between 4 million and $5 million and we expect to end the year next March 31, with $62 million in cash and investments before allowance for any stock repurchases.

Revenue in the current quarter was added significantly by Orencia royalties. Over the last four quarters US net sales of Orencia have increased from $53 million to $87 million for our compound quarterly growth rate of 13.2%.

For fiscal year 2009 we expect to have an effective tax rate of approximately 2.5%. The company currently has $63.5 million of federal net operating loss carry forwards in addition of federal and stat tax credits available to reduce, although not fully offset future federal and state income taxes. While these mark carry forwards and tax credits are always subject to exploration, less than 30% of them will expire within the next 5 years and thus we expect to maintain our relatively low effective tax rate for the next several years.

As we announced on June 18, our Board has authorized the repurchase of 1.25 million shares. No shares were repurchased during the quarter pursuant to our own corporate governance obligations to avoid transactions in company's stock while in possession of material, non-public information such as contained in today's press release.

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

Walter Herlihy - President and Chief Executive Officer

Thank you, Bill. Before provide an update on our internal pipeline, I would like to note that the increasing Orencia sales momentum is being supported by the continued release of new data. At the June meeting of the European League against Rheumatism or EULAR, there were three new reports supportive of Orencia. And one, Phase II trial demonstrated that Orencia was superior to Placebo in preventing patients from progressing the rheumatoid arthritis from a pre-pressure condition known as undifferentiated inflammatory arthritis. In the second report Orencia was seen to provide increasing inhibition of structural damage to joints over three year treatment period.

Finally, a head comparison of Orencia J&J, as William indicated it showed improved durability of response in patients that treated with Orencia. We believe that these and other data would continue to drive sales of this product.

Turning now to our internal pipeline, our Phase III trial of secretin and MRI imaging is currently recurring patients at 18 sites in United States, and there are approximately 50 patients in various stages of the trial. We expect to have top line data from this study in the first quarter of 2009. If the trial is successful our plan is to file an NDA in 2009 which will be reviewed under the FDAs fast track program which may allow us to launch this product in 2010.

We have also initiated discussion with the European Regulatory Authorities regarding the requirements for approval in EUO. It appears that we will be able to use the data from our trial to support the registration of our product for MRIs in Europe. In our bipolar program we have finalized that clinical protocol for the Phase 2b trial of uridine for depression and bipolar location.

We plan to recruit approximately 115 patients at 20 to 25 sites. The 8 week dosing period and the endpoints used to assess symptom improvements in this trial are consistent with those used in pivotal studies for other drugs approved for bipolar disorder. We are pleased that all the six academic sites who participated in the Phase 2a study five have elected to continue into the Phase 2b trial. We have begun IRB submissions for the sites and we expect to open patient enrollment in several months.

And our previous ataxia program we have identified several advanced lead compounds which are in vitro criteria for potency and specificity. Over the next several months they will be early thoroughly evaluated with in vivo models for their pharmacology and toxicity. This successful – this would allow us to designate a candidate by the years end.

We matured reports documents that nonspecific HDAC inhibitors are active in animal models of Hutchinson disease and spinal muscular atrophy in order to generate the position. We are evaluating our most specific HDAC inhibitors in the animal models of these diseases and expect to report initial results later this year.

We intend to use our increasing financial resources to expand our pipeline in two ways. First, we are seeking additional indication for our existing product candidate such as other imaging modality in which our secretin production could be use, other CNS and non CNS application of our uridine product, and the other potential users for our HDAC inhibitors that I referenced earlier.

In addition the current financial market has increased the number of private companies who are interested in partnering or selling their early stage program. We are currently reviewing data on more than 10 such opportunities and expect this process to continue for the foreseeable future. We are seeking opportunities primarily in CNS for which there is good time protection and define mechanism action, a defensible commercial niche and the ability to run a proof-of-concept clinical trial in fewer than 200 patients. We look forward to updating you on this deal initiative over the coming year. Operator, at this time I would like to open the call to questions.

Question and Answer Session

Operator

(Operator Instructions). And your first question comes from (Inaudible) of Rodman & Renshaw.

Unidentified Analyst

Hi, thanks very much for taking my question. I had one question with respect to the secretin clinical devolvement pathway. It’s my understanding that there would not be a possibility for you to obtain priority review form the FDA for this candidate, given that it’s a diagnostic aging, is that correct?

Walter Herlihy

No, we don have fast track designation from the FDA which could entail a priority review.

Unidentified Analyst

So you would be subject to the six months that you have processed as opposed to the 10 month?

Walter Herlihy

Correct.

Unidentified Analyst

Okay. With respect to the uridine Phase 2b study, is it your understanding and conversations you had with the FDA that this Phase 2b trial given that it's using parameters similar to those used in previous pivotal studies for bipolar disorder could be considered a registration quality study?

Walter Herlihy

Well, at this point, we don't really label the Phase III study, which is of course the normal nomenclature for registration of study. But we have set this study up in such a way that if it's successful it would add a minimum FDA calls supportive data.

William Kelly

So then if you have one large well controlled Phase III study and other supportive data that can sometimes be adequate for registration as opposed to two Phase III studies.

Unidentified Analyst

Okay. And then the last question is with respect to the HDAC Inhibitors program, so you mentioned that non-specific inhibitors are active in animal models of neurodegenerative disease. How does Repligen's specific inhibitor program differ from these non-specific inhibitors and could we expect significantly better safety profile or a better efficacy profile or combination of the two with respect to these compounds?

Walter Herlihy

So the non-specific inhibitors, as the name implies, will inhibit the action of numerous HDACs. And as such, and they have been tested as I mentioned in a variety of animal models with some significant success. Most of them have not been in humans, but what we would expect that lack of specificity would raise the potential for toxicity in the clinical studies. So our goal has always been to develop an HDAC specific inhibitor and we have made significant progress on that and of course we would expect it to be less toxic though again and the studies hasn't been done. And the question then that remains in consideration is that will this particular HDAC target be one that will influence the outcome in these animal models of Huntington or SMA. Does that answer your question?

Unidentified Analyst

Yes. Thank you very much.

Operator

Your next question comes from Elemer Piros from Rodman.

Elemer Piros

Hi Walter.

Walter Herlihy

Hi.

Elemer Piros

I have some that I would like to reconcile your guidance with our model if you don't mind. Can you hear me?

Walter Herlihy

Go ahead.

Elemer Piros

So total revenue you expect 28 to $30 million so that doesn't include the 6 million that you recognized this quarter from Bristol. Does it?

Walter Herlihy

It does.

Elemer Piros

It does, okay.

Walter Herlihy

That revenue of the $6 million was attributable to sales that happened at Bristol prior to this quarter, but we weren't able to recognize that revenue until we finalized the agreement.

Elemer Piros

I see, okay. So that does include the six. Now the product revenues, I mean you did had an especially strong quarter with over 5 million, 5.6 if I remember it correctly yet you are somewhat conservative in forecasting the remainder of the year 14.5 to 15.5. Would you tell us why?

Walter Herlihy

Well, I would say one of the reasons for that Elemer is that we are aware that our principal customers, the large companies who buy bulk protein and then reformulate and sell it on to the pharmaceutical customers will have a slowdown in their order as they up some existing inventory at the end of this year. And then after the end of this year, we would expect a more normal consumption rate that would reflect that actual need in the marketplace.

Elemer Piros

Okay.

Walter Herlihy

So that's why that’s the case there.

Elemer Piros

Okay. So then you look at it year-over-year, last year was an exceptionally strong year but we should still shouldn't read too much into the sequential decline if you will?

Walter Herlihy

That's right. The prior year had been about 16.3 million and we had benefited in the prior year from the approval and launch of (Eulexin) Solaris so we had a one-time gain there that was greater than the normal run rate as to manufacturing this product up to speed.

Elemer Piros

Okay.

Walter Herlihy

So that's another factor there. I think there is no doubt that long term we have a lot of confidence as we have had for years that the business will grow in sync with the monoclonal antibody that there is reasonably the products that Amgen and others are developing are going to continue the flow of new products in this market.

Elemer Piros

Yes, yes. Now the net income would be debt net income of about $4 to $5 million, and currently you have 66 in the bank that you anticipate to go down to 62 in the next three quarters. Could you please help me to reconcile this – I think you did this last quarter where you explain this last quarter by – you would recognize royalties however, the cash would come in, in the subsequent quarter. Is this a same explanation that could reconcile the net income of 4 to 5 million versus the burn of about 4 million cash?

William Kelly

Actually I think the largest indicator of that is right now we’ve reported net income of $8.3 million and for the balance of the year we expect to invest in our clinical program secretin and uridine and also our previous ataxia research. So our overall guidance will take us from 8 million this quarter net income for the year 4 million, that’s a delta there of $4 million which will add..

Elemer Piros

Okay, that makes sense.

William Kelly

Actually can --- the explanation last quarter for the – with relate to the increase in receivables.

Elemer Piros

Right.

William Kelly

Due to the net increased revenue, that’s now happened – you will see our receivables have grown as a result of the latest quarter of the Orencia wellness.

Elemer Piros

Okay, that explains it perfectly. Thank you very much.

Walter Herlihy

Okay, thanks.

Operator

And your next question comes from (Inaudible) Individual Investor. Please proceed.

Unidentified Analyst

A very exciting quarter and prospects and I am always grateful for the earnest and great work that everybody does there. I would like to ask a question that may not be too popular. I notice that Pfizer bought coli earlier in the year was trading at $3 per share Pfizer bought that for $8 per share. Have we – I know you mentioned that there was 10 opportunities for growth that you’re looking into probably for intellectual property. When the fastest way to maximize value, this would be available on the open market at a premium – if it was anywhere close to that premium and with all of the huge appetites that pharma have for growth, wouldn’t we be a strong candidate and thank you very much?

Walter Herlihy

If Pfizer care to make an offer for represent at the kind of markups that you paid for colo certainly take it very seriously. I think – our strategy is certainly to try to retain control of all of our clinical programs to at least proof-of-concept and perhaps that will yield in the future some transaction whether as an acquisition of a program or acquisition of a company, that’s our mission right now to take the cash we had and build a product portfolio broad and deep and like to be a happy outcome for all of us if that happens.

Operator

(Operator Instructions). At this time there are no questions in queue. I will turn the call over to Mr. Walter Herlihy for closing remarks.

Walter Herlihy

Hello. Thank everybody for joining us on our call and we report updating you in the future. We will be participating in the UBS conference in September. So that will be an opportunity to provide another update on our programs. Thank you again.

Operator

Thank you for joining today’s conference. This concludes the presentation. You may now disconnect and have a good day.

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