Q2 2004 Flamel Technologies Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good morning. Welcome to Flamel Technology's Second Quarter 2004 Earnings Conference Call. Joining us today are Dr. Gerard Soula, Founder, President and CEO; and Steve Willard, Executive Vice-President and CFO of Flamel Technologies.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad, and questions will be taken in the order they are received. If you would like to withdraw your question, you may do so by pressing the pound key. As a reminder, if you are on a speakerphone, please pick up your handset before presenting your question.

I would now like to turn the call over to our host, Dr. Gerard Soula, President and CEO. Dr. Soula, you may begin your conference.

DR. GERARD SOULA, PRESIDENT, CEO AND HEAD OF R&D, FLAMEL TECHNOLOGIES: Gerard Soula speaking. Good morning, ladies and gentlemen. Thank you for joining us for this teleconference for the presentation of our quarterly earning, and also for the data of our company.

First of all, I will not say that it is a good quarter or a bad quarter. As I used to say, we cannot judge Flamel based quarter by quarter. What we have to understand is this company is making progress in which direction and how. Nevertheless, we'd like to say that, for us, this quarter has great achievement. The financial results are-- fall in line with our expectation, and Steve will comment on the data after my general comments.

But, more precisely, we'd like to say that we are extremely pleased with our Glaxo decision to take our technology, Micro-Pump, for one of their major products, and that is a result of more than two years of work from feasibility and different steps, and with more than five clinical studies, which confirms the value of the Micro-Pump in terms of performance.

But, the Glaxo decision is more than that. The Glaxo decision is a proof that we, Flamel, we are able to manage a complex process of development of drug for worldwide market. And these have proved that the [inaudible] was able to achieve on time, deliver the right quality and quantity of product requested by Glaxo. I think is a strong, sure case, and not only these products is, of course, a great chance for Flamel to receive in the future royalties and other milestone payment, but also is a forecast for all the pharmaceutical industry because we are proving that we are not a boutique. We are a full integrated company able to go from the lab to the commercial scale.

Let me tell you what exactly now big pharma are expecting from a company like us as drug-delivery company. They are expecting that we provide unique technology with a strong patent protection, and because before spending a lot of dollars on the product, they want to be sure that the product will not be copied or [inaudible] by competition. That is not enough. You have to prove that you can scale up the technology at the right cost, and also with a robust process. But also, we have to prove that the product is stable, because one day you have to sell the product and the requirement is to have two-year stability. And all of that has been provided by Flamel. All of that has been covered totally, giving confidence in Glaxo about the value of the thing-- but so, as I said, about the company itself or together.

I think that is very important to understand because, also, it concerns the business model of Flamel, which is, first, work with companies, try to convince them that the technology is workable, ask for payment for that, and you know that sometimes people are thinking that, of course, it would be better to develop by ourselves alone and maybe up to the end, which is one strategy. But this strategy, as you know, has a price. The price is the money and who is giving the money, the money is given by the partner or the money is given by the market and definitely, we have chosen to work with the industry and to ask the industry to pay for aiding our technology.

And I think that is a milestone in our business model, and it is another proof after BMS, that people are ready to pay and to trust and to engage themselves in the different lines of product based on Flamel's technology. I think that is-- again, I'm very, very excited and proud of that. It's amazing because I'm not sure that the market has well understood what was going on because, when we announced, of course, our expectation is to have some positive reaction, and suddenly, investors call me to congratulate us, and I was very appreciative about that. And even the market for the first few days react positively, and then we drop.

I'd like to-- again, to repeat that this project by itself is a key piece of our business today, and as usual-- usually, I'm saying these are-- we don't need to have 20 success like that to be over a billion-dollar company. You know, I am pleased to have opportunity to emphasize what does it mean to have a deal like that with a company like Glaxo. And again, I hope that we can continue on this trend, and as you are saying, and before someone is asking the question, you see our goals, even without any guarantee it is still our goal to have two other deals before year-end on Micro-pump and one on Medusa. Again, no guarantee because, to sign the deal, we have to be, too, and, unfortunately, I cannot sign just for the two [inaudible].

The consequence of that is, to achieve this type of goal, we need to have the people, the space and the investments. If you look at our numbers-- and again, Steve can explain more details later-- you will see that, compared with last year's same period, or for the last six months-- because it's not relevant to take six months then three months-- we have increased our licensed and research revenue, but mostly through our revenue? Why? Because, of course, we are partnership like that that we can speak about, but also, we have [inaudible] in place, which are creating some revenue. And, of course, to do this type of work, we need to have the people, because it's these full-time employee, to achieve the project.

And to have a rough number compared with last year, we have to get more than 50-- sorry, more than 40, 4-0, evolving project with partner compared to last year, which is the proof that we have quite a strong attraction for the industry, and the trend is a very positive for Flamel. Of course, if we are involving more people in the partnership, in order to maintain our strategy, which is to develop internally our own project, we had to attract more people. That is what we did. During the first semester, the first half-life, we have attracted 40, 50 people in order to maintain our momentum on our internal project, such as long-acting alpha interferon, long-acting interleukin tool, long-acting human growth hormone and even EPO [inaudible] that is not the most advanced project.

That is the strategy of Flamel, and we intend to continue on that, but for that, of course, now we are to invest more in people and in equipment and space because we're wanting to have the people since-- how we can work. It is why we are starting to develop other pilot plant facility for Micro-pump and for Medusa, because we have understood that the key element to satisfy the requirement of our partner and to offer to them, as I said, the full services, the full help they need to develop the project.

And today, Flamel is in a situation to work at the lab level on two fronts in Venissieux, close to Lyon. Then, to go to Pessac, close to Bordeaux, where we have a J&P facility, where we can do the final product in our [inaudible] condition, when we can just scale up and we can produce the clinical batches, and even to go-- to produce the product at one-tenth of the conventional scale, which is crucial for the FDA approval of the chip. And that we can do right away, and the …