Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Repligen Corporation Earnings Conference Call. My name is Grant, and I will be your coordinator for today. [Operator Instructions] I would now like to turn the call over to Mr. Jonathan Lieber, Chief Financial Officer and Treasurer of Repligen. Please proceed.

Thank you, Grant, and good morning. The purpose of this call is to discuss our Q3 2012 results and our transition to a life sciences company focused on bioprocessing. Joining me on the call today is Walter Herlihy, our President and CEO; and Bill Kelly, our Chief Accounting Officer. At the outset, I'd 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 make 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. Now I'll turn the call over to Walter Herlihy, who will comment on our strategy.

Thank you, Jon. In August, we announced the strategic decision to focus our resources on the growth of our Bioprocessing business, which is based on the development and manufacture of high valuable consumables which are used to manufacture biologic drugs including monoclonal antibodies. Our decision was based on 5 factors: first, the expanding market for biologic drugs; second, our long established expertise in bioprocessing; third, our collaborations and long-term supply agreements with world-class partners; fourth, the low regulatory risk of this business; and finally, several identified new growth opportunities. Our focus on bioprocessing also provides a clear investment thesis for life sciences investors who want exposure to this rapidly growing marketplace without the binary risk inherent in pharmaceutical product development. Subsequently, we have finalized the transition plan for our therapeutic programs consistent with our desire to partner these assets. For RG1068, our imaging agent and our 2 Phase I CNS programs, we have defined short-term objectives which we believe will support partnering discussions. These include obtaining feedback from the FDA on the next steps in the RG1068 development program and patient enrollment into 2 open Phase I clinical trials in Friedreich's Ataxia and Spinal Muscular Atrophy. We expect the bulk of these activities will be completed by year's end and be substantially completed by March of 2013. In the fourth quarter, we expect to take a restructuring charge of approximately $350,000 for severance and other expenses associated with the reduction and the headcount associated with these programs. As we look forward to 2013, we expect these actions to reduce our R&D expenses by approximately 50% compared to 2012, and when combined with improved manufacturing efficiencies and increased revenues, to significantly improve our financial performance as Jon will discuss in a moment. Our progress is consistent with our goal to build a best-in-class life sciences company, which can benefit from the growing market for biologic drugs. Now I'll turn the call back over to Jon, who will review our Q3 results and provide preliminary financial expectations for 2013.

Thanks, Walter. This morning we reported results for the third quarter ending September 30, 2012. For the quarter, we recorded bioprocessing product revenue of $11.1 million, an increase of 94% from the prior year. Our revenue increase was driven by the addition of Repligen Sweden. Total revenue for the quarter, including royalty and research revenue was $15.1 million. Net income for the quarter was $1.8 million or $0.06 per diluted share compared to net income of $605,000 or $0.02 per diluted share for the quarter ended September 30, 2011. Today, we are confirming our financial expectations for 2012, including bioprocessing product revenue of $41 million to $43 million, which includes approximately $10 million in revenue for the holiday shortened fourth quarter. We expect total revenue for the year of $55 million to $57 million and net income of $5 million to $7 million compared to a loss of $3.6 million in 2011. The company currently has over $60 million in net operating loss carryforwards and other tax credits available to reduce future U.S. income taxes, and we expect our tax liability to be approximately $300,000 in 2012 or roughly 5.2% of pretax income. These taxes are primarily the result of profits earned in our Swedish subsidiary for which we cannot utilize those credits. Our expense forecast for 2012, includes $4.4 million of noncash expenses, including depreciation, amortization and stock option expense. Finally, we now expect to end the year with approximately $45 million in cash and cash equivalents which is roughly $9 million ahead of our cash position at the end of last year. Looking forward to 2013, we expect a significant improvement in gross margins to approximately 50%. In addition, we expect a reduction on R&D expenses to approximately $5 million and SG&A expenditures of approximately $12 million. Assuming a 10% increase in product revenue, we project a pretax profit of between $16 million and $18 million for 2013. We currently have plans to expand our Waltham manufacturing facility in 2013 with approximately $5 million to $6 million in capital improvements to prepare for anticipated increases and demand in 2014 and beyond. I will now turn the call back over to Walter for concluding remarks.

Thank you, Jon. Before we close, I would like to share with you some exciting data that was presented at the annual meeting of American Heart Association this week by Amgen. They report the results of 2 clinical studies of investigational monoclonal antibody called AMG 145 in patients with uncontrolled LDL or bad cholesterol. In one study, patients who are intolerant to statins showed a dramatic reduction of 40% to 50% in their LDL cholesterol over the 12-week study compared to only a 15% reduction with the currently marketed product from Merck. In the second study, similarly dramatic results were obtained in a group of patients with a genetic abnormality that results in very high, uncontrollable levels of cholesterol. Amgen's data are consistent with results from Sanofi, which is developing a competitive antibody with the same target, which were published earlier this year in the New England Journal of Medicine. Sanofi announced this week the initiation of a large Phase III study. The market for these antibodies is substantial with an estimated 10 million people in the U.S. alone with poorly controlled cholesterol despite treatment with statins. This emerging product class has the potential to be the largest single use of monoclonal antibodies and supports our belief that monoclonals will increasingly be employed in new clinical applications, greatly expanding their market potential. If you would like to follow news about this and other monoclonal antibody developments, please subscribe to our Twitter feed, you can link to it from the homepage of our website, www.repligen.com, under the section titled Industry Developments. In summary, we are committed to building the best in class life sciences company focused on the development, manufacturing and sale of high-value consumables for the growing biomanufacturing market. We believe we have the expertise, facilities, partners and strategy to fully participate in expanding market for Biologics. 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] Our first question comes from the line of Scott Gleason from Stephens.

I guess just to start off, when we look at the guidance range in the product guidance, I know you guys have kind of $10 million in bioprocessing revenue in the fourth quarter. It seems a little conservative in light of kind of where you guys have come in the last 2 quarters. Is there anything else going on from kind of the order timing issue or anything else when we kind of look at that number?

Yes, good question, Scott. We typically see a somewhat erratic behavior from customers in the fourth quarter. Occasionally, they'll be scrambling to fill the pipeline and get things out the door and we'll be shipping on December 23. Most likely, as was the case last year at this time, you see a hiatus where companies really don't want to take in significant shipments after the 10th or 15th of December because they can't turn them into product and get them out the door themselves. So you see a little bit of inventory bleed down. I think we anticipate that the first quarter of 2013 will see a rebound and be a particularly strong quarter as result of that shift, end of year shifting.

Okay, great. And thanks for all the details you guys provided on the cost front. I think that's really helpful in terms of forecasting out. I guess, Walt and Jon, when we look at 2014, I guess, how do we kind of think about operating expense growth, R&D and SG&A, 1 year beyond that? A lot of people are starting to kind of think about 2014 numbers in terms of value in the stock.

Right, I think as we obviously don't have any explicit projections for 2014 at this stage, but philosophically, we would seek to achieve certain metrics of R&D, for example, as a percent of sales and we would expect that R&D would grow at the rate of sales. Perhaps a little bit, in particular if an opportunity came along, might grow a little bit faster but basically being check at the rate of top line growth. And similarly, SG&A, we would expect to grow somewhat lower than top line growth as we expect to get some leverage off of our fixed SG&A base.

And Walt, the projections that you guys provided account for all of the funded R&D programs that you guys have with your partners, your commercial partners?

Yes, it's all in the number.

Okay, great. And then just one last question, I guess when we look at the pharma pipeline, is there anything you guys kind of give us in terms of any indications of interest from potential commercial partners there, any progress that you've made on that front?

We certainly have a number of discussions. Some are more advanced, some are earlier stage; it's very difficult to calibrate whether and when any of those will come to conclusion. But we're active in numerous discussions on each program.

Our next question comes from the line of Michael Wood from LSA.

A couple of questions. First of all, I noticed the departure of your Chief Commercial Officer, Bob Spurr in the last couple of weeks. Can you comment on the circumstances of him leaving the company?

Sure. That was something we announced about a week ago. Bob was recruited here about 1.5 years ago to lead the launch in United States of RG1068, the pancreatic imaging. He had previously worked at another imaging company here in Massachusetts called Lantheus, and was ideally suited for that. Obviously, with a change in direction of the company and the focus on the bioprocessing segment, that opportunity wasn't available anymore and Bob has made a decision that he was going to return to a Big Pharma and continue to pursue his career in therapeutic drug marketing. We certainly wish him all the best of luck in that. He made a lot of contributions when he was here. But I think personally, it makes a lot of sense for him to continue in the pharmaceutical space.

And a financial question. I noticed there's an item on the P&L this quarter I haven't seen before, the contingent consideration fair value adjustments, can you explain what that is, please?

Yes, sure. This is Bill Kelly. You'll recall that we did the purchase of Repligen Sweden. We purchased them for about EUR 20 million as well as EUR 4 million in contingent earn out obligations. And so the way the accounting works is we do a probability weighted analysis of the likelihood of those development resulting in eventual payments to Novozymes. And so we look at those every quarter, given the growth in sales, periodically what we'll see is those payments becoming more likely and so it's about a $340,000 increase in the likelihood of making some of those payments.

Our next question comes from the line of Stewart Hen [ph] from Solado Capital [ph]

Can you -- the first is just a housekeeping one, I didn't get to write down all the 2013 expectations. Could you just repeat this?

Well, Jon, just give a quick recap of that.

Sure. So what we said is that we expect a significant improvement in gross margins to approximately 50%, 5-0 percent. We're looking for reduction in R&D expenses to approximately $5 million. We're looking at SG&A expenditures of approximately $12 million. And what we said after that was if you assume a 10% increase in product revenue, that would result in a pretax profit of roughly $16 million to $18 million for 2013 and then the other piece that we gave was we do have a fairly sizable capital expenditure estimate for next year of $5 million to $6 million and that has to do with expansion of our Waltham manufacturing facility for increases in future demand.

Okay. That's helpful. Maybe could you talk about some of the newer product initiatives and progress along those fronts? I know you're working on a number of new initiatives to extend the already strong bioprocessing product line? Do you have any updates on that front?

Nothing is a definitive announcement. We are certainly continuing to push ahead with the Opus Chromatography Pre-packed Column Line. I would say we are getting certainly inbound interest from a number of large life sciences companies which might result in strategic collaborations on development or marketing. I think that's really the primary thing. I talked about in our last conference call that we had completed one collaboration with the pharmaceutical company -- of, gee, healthcare I guess which was for Protein A [ph] and then we had a second active collaboration now with another large life sciences company. So that's an active program that probably will come to market sometime in 2013, if all goes well. So we're pretty much in the same mode we were before and seeing lots of interest from people who want to participate in biochromatography knocking on our door.

So that sounds like on the second act of collaboration, that's incremental progress from last quarter?

Right.

Our next question comes from Ed Ramsey from Friedreich Research Alliance.

Walt, my name is Ed Ramsey with Friedreich's Ataxia Research Alliance. I'm the Chairman of the Board. I'm just curious your interest with Friedreich's Ataxia and you've done a lot of research with the HDAC inhibitor which we're very much interested in seeing moving forward, what are your plans for moving that forward or handling that for the year 2013?

Well, I mentioned in my prepared remarks, we are actively recruiting patients, Friedreich's Ataxia patients in the Phase I clinical study to gather some important pharmacology and biomarker data on the lead compound. And that and other data are the basis of discussions that are ongoing with several parties about potentially partnering and assuming development responsibilities for the HDAC inhibitors and Friedreich's. So while it's difficult to predict exactly when such a partnership might be struck, that's certainly an objective for us going into 2013.

I see. And how are you proceeding with your -- obviously you've got this in Phase I in Italy, how's that come along now?

It's going very well. We're seeing a lot of cooperation from both the clinical and patient communities there. And so we're seeing steady enrollment. We would anticipate that enrollment in that study would be done sometime in early 2013.

And if you start to get any data or when do you expect to have data back from that clinical in Italy?

We would expect to have some data back some time at maybe the end or first quarter or early second quarter of 2013. At the moment that's all preliminary and in motion. So it hasn't really been digested yet.

We have no questions at this time. [Operator Instructions]

Okay, operator, with no further questions, then we would welcome any other inquiries that you have about the company through contacting Investor Relations at the company. And I thank you all for participating in this morning's call.

Thank you for your participation in today's conference, ladies and gentlemen. This concludes your conference call.