Here's my summary of the conference call. It's as complete as I could get on one pass. I'm sure there are some things I left out. Some comments on it later.
--Jim
START
[George]
Financial results for first quarter.
Royalties up 22% from last quarter. (Mostly from Roche, lawsuit in
progress Igen thinks that minimum difference is $3.2 million.)
Roche has 5,000 electsys systems placed, 30 different tests. That's 2
years of europe & asia and 1 year of US sales.
About 4,000 revenue generating systems in now. There's a big
difference (50%) in reported sales and what IGEN expects. Impact is
that IGEN only reports what Roche reports, but it won't show up in
IGEN numbers until litigation is settled. There may be an impact in
future quarters.
5,000 systems equate to $250-300 million in annual sales.
No sales of HTS in this quarter. They won't be recognized until the
products shipped. The next few quarters won't change very much until
the HTS systems are shipped.
$19 million cash on the books.
[Sam]
We announced our 5th HTS contract with Zymogenetics today.
This week we won a preliminary injunction against Roche. Court said
they were violating terms of the contract and must immediately stop
selling to physicians offices. This is a significant moment for the
company. WE own the technology and we have the right to license it
how we want. We protect any attack on shareholder value. Obtaining
the preliminary injunction will hasten the settlement of the dispute.
We have high regard for Roche and we feel that they want to settle
this fairly. We feel the courts decision will notify Roche that this
is a serious matter.
I must underline that IGEN has developed a universal technology
platform and when we announce that we have a new marker people don't
understand the significance of that. Now that we have a platform, we
can develop new assays, some of those maybe very big hits. We may
market ourselves or we may work through distributors. We have a
tremendous technology and now it's being complemented with new assays.
I'm going to spend alot of time going around to shareholders US and
worldwide. I realize from the questions that people don't realize the
full story of IGEN. No matter where you are, if you want me to show
up at your door and tell the story let me know.
[Bob]
IGEN has a platform that can address a diverse range of problems.
Human clinical, animal, food and beverage, and pharma drug discovery
We have the hardware and we are developing new tests. We have three
ways of developing new tests:
1. Grant back rights from licensees.
2. Internal team is developing new tests.
3. IGEN will license tests from others.
Cardiovascular tests. They already have some tests developed by Roche
(through the grant back). LIcensing NANP (heart attack marker) We are
moving forward on a number of fronts. NANP can also be used to
diagnose dog heart attacks. Veterinary will be one of the first
markets IGEN sells this to. IGEN will also work with pharma to take
this through clinical trials. They particularly want to see this
implemented in
Food & Drug testing. E. coli test recently announced. IGEN says that
food and drug testing will grow rapidly because 1 Jan there are new
USDA requirements that will result in more testing sites. E. coli
test was developed by USDA. IGEN technology gives much more
sensitivity. (Test will start to be evaluated in September.)
Customers will both be producers of beef and produce and also
restaurants and grocery stores. Stratagy will continue to involve
High throughput screening (HTS). Will ship later this year. We want
to Ship every product we can produce. Get these critical customers
preparing today to use our system. We believe there will be a significant
revenue trail from the sale of reagents.
[Sam]
Bob tell them about the total market opportunity for HTS. It's
not just 50 or so pharmaceutical companies. First customers that we
have identified have bought the unit, but we are going to a Xerox model.
[Bob]
Our initial customers are the 50 or so typical HTS comapnies. There
are 1000's more smaller (lower volume) potential customers. We will
sell them reduced throughput systems (by taking ECL modules out), but
charge them a lot more for reagents.
Two prong strategy. High, medium, and low throughput laboratories.
Xerox approach hasn't been tried in this market, since we have a
proprietary technology, we can do this. (Customers commit large
blocks of tests to us, as opposed to selling the machine and let them
test on their own schedule.) We want to drive the usage commitment
from our customers. This approach has been well recieved fromthe
marketplace.
[Sam]
Let's go to questions.
[Fred Tony, pacific growth]
Have you seen any changes in the way electsys has been sold since
Roche bought BM? Will their be an impact on sales due to the
preliminary injunction?
[Sam]
We tried to talk to Roche during the period of time when they were
getting approvals to buy BM. They said they couldn't talk because it
would interfere with the regulatory process. We understood that. Once
they acquired BM we spoke indirectly (through a common investment
banker). They were listening to the BM people (who have more
diagnostics experience) and they were not questioning the complaints
we had about BM.
As we go through discovery and the court injunction should end the
honeymoon and enforce a realistic view of the situation. We are not
just a small company in Maryland that can be ignored. Because we are
asking to terminate the contract in our lawsuit.
Everyone knows our position. If you have success with a franchise
(our technology in the central laboratory) you want to extend the
franchise. We have tried to talk to BM since the beginning. They did
not want us to get "a second bite of the apple" as they said and would
not pay for us to extend their franchise. They violated the
contract. If Roche wants to build a disease management business using
this technology, we are interested in a straight buy out of the old
contract. We are not going to police their activities every month.
There are things that cannot be undone. BM having cracked the egg
cannot put it back together again. We have high regards for Roche and
believe that they will want to clean up the problem they inherited.
When you have a sales effort it is hard to restrict yourself in these
ways. We'd like to find a mutual solution to out problem.
[George]
We don't have a good assesment of their behavior in the field. We
think they are doing very well based on the most recent numbers. They
are right on their plan.
[Sam]
If they were fully operational with 5,000 units. Each unit does about
$50,000/year. That's $250 million if you take 9% royalties that's $22
million that would go to our bottom line. That's different than what
George reported today. From their side, if they did $250 million and
made 20% they are looking at us as an equal partner. We should be
talking with them.
[?]
Legally have you seen any respnse to the ruling this week.
[Sam]
We are drawing up what the judge said to do.
[?]
What does that entail?
[Sam]
We draw up what we believe the judge said to do, we send it to
them. Hopefully they agree on it.
It invloves putting the revenues into escrow. Instructing the sales
force to not sell to physician offices. All those mechanical aspects
ot the judges ruling.
We asked that they keep the instruments in place that they have sold
and cease in the future. Judge ordered that they cease and desist.
We have to work something out so that BM forwards all the supplies
(assays and materials) to us, so that we can sell them to the
customers.
My understanding is that BM cannot sell consumables to the physician offices.
[harry from montgomery]
Royalty income from last year, was it restated?
[george?]
We changed the quarters around to conincide with the way BM reports to us.
[harry]
Well there's a big difference and I'm very confused.
[george]
It was getting complicated, so we changed things.
[harry]
What about potential partners?
[Sam]
Today, many companies are talking with us about the technology and how
we can work together. They are excited about the way we package the
technology and how they can incorporate it into their own product lines.
There has been a suprising number of companies contacting us wanting
to work with us. One company requested that we draw up a contract and
are waiting on us. (Long answer basically saying Sam is delaying
things trying to figure out what the near term opportunities are.) I
hope you can read between the lines about what I just said.
[harry]
What about POC? We had a timeframe of the 4th quarter, is that still expected?
[sam]
Yes that's right on schedule. We are the ones holding back.
Patient monitoring/POC. We have an outstanding relationship with a
wonderful company. You couldn't hope for anything better. We are
also looking at another opportunity that could be even larger. We are
also talking to all the leaders in the patient monitoring fields that
are the leaders to see if we can service the entire industry rather
than just portions of it. Some of these deals involve exclusive
portions. We want to optimize non-exclusive portions to make more
money. We are juggling a few balls in the air at this time, but it's
quite pleasurable.
[jeremy coon, white rock capital management]
I came in late and didn't catch the differential between reported and
expected royalties.
[george]
Virtually all of our royalties are from BM. 4,000 systems generating
revenue in June quarter, should be about $50 million/quarter and they
are only reporting 50% of that.
[jeremy]
Sam can you quantify the buyout of the old contract?
[sam]
That's difficult to quantify. It's a very serious business. You
can't talk about very serious and have small numbers with them. If it
were $1.29 they would have already sent the check.
[jeremy]
I just want a rough number.
[Sam]
We have been saying for a long time that there will be few players in
the diagnostics market. Today there's only Roche and Abbott. You
could buy everyone else in the market. This is a tough business with
tremendous constraints. A low growth, low margin business is going to
be sold. Roche should have a sizable piece of the market, or think
about not being in it. I hope they increase market share everyday.
[jeremy]
Would $500 million be out of touch with reality?
[sam]
It's a very serious opportunity for everybody.
[dan katz, apex capital]
What about food and beverage?
[bob]
If you just look at the E. coli test today, before the new rules are
in effect and the 6200 food process plants have to test. It is a
$40-50 million a year. It could at a minimum triple over the next
couple years. Testing sites will go from a couple hundred to in US
alone will have 6200 sites that must test. That doesn't include water
testing.
Market today is maybe salmonella, etc total a couple hundred million.
Not just US dominated. Japan food testing is just as large.
[dan]
If you could be 1000x more sensitive and do it quicker, how much more
could you sell?
[bob]
I can't predict a market share. It's on the cover of TIME magazine.
If we have a test developed by the USDA and it detects dramatically
lower levels of E. coli people will want it.
[sam]
When you have a drug that is 1% better but costs 10x more, it
does much better because people don't want to deal with the liability
of not doing the better test. If we can have a much higher detection
sensitivity, we will capture a large portion of the market.
[macon ho, goldman sachs]
E. coli test. What's the cost and sensitivity of the current test?
[bob]
We haven't stated the cost of our test because we are evaluating
placement strategies. Tests that are sold today are $6 to $9 per test
and take at least 24 hours. IGEN test can detect 10^3 (organisms) in
4 hours 30 minutes. Best on the market is 10^6 a kit by Neogen they
take 10-12 hours.
[macon]
On the electsys machines, can you break it down.
[bob]
Electsys 2010 3,000 sold
Electsys 1010 2,000 sold
We don't have good numbers on location. Vast majority are in europe.
Maybe 500 in the US.
[Sam]
Our feeling is that the combination of Roche putting out a complete
menu and their added marketing capability will increase the US market
share. It's a global business and Roche does better in Europe and
Abbott does better in the US. Although, Abbott is not in the
marketplace with this generation yet, even when they do they have an
inferior technology but they have a bigger presence in the US>
[macon]
What evidence do you have that CHF(?) works?
[Sam]
We have a two inch thick file on clinical trials done. It's a 126
amino acid peptide that can be used in various segments as well as the
entire peptide. The have done trials with different subunits. For
different ones they get different results, different potential
indicatoins for the doctor. We will have a panel for congestive heart
panel..
[macon]
ANP has been around a while, what is new?
[sam]
maybe one of colleagues can answer that.
[kyle kees]
We listened the pro internal ANP. We measure the pro internal ANP.
ANP is difficult to use as a marker because it has a short half life.
long technical answer on why CNP is better than ANP.
[macon]
Have patents been filed worldwide?
[kyle]
Patent rights in US and japan, but not europe.
[macon]
What were deferred revenues?
[bob]
About $2.7 million.
[macon]
Did this include HTS contracts?
[bob]
Yes, all of them. The ones as of June 30th.
THE END. |
