Flamel Technologies S.A. ( FLML)

Q1 2011 Earnings Call

May 9, 2011 8:30 a.m. ET

Executives

Stephen Willard – CEO

Siân Crouzet – Principal Financial Officer

Analysts

Matt Kaplan [Anel] – Ladenburg Thalm

Presentation

Operator

Please standby, we’re about to begin. Good morning, ladies and gentlemen, and welcome to the Flamel Technologies first quarter conference call. After prepared remarks, we will be opening the call to a question-and-answer period. As a reminder, this call is being recorded. At this time it is my pleasure to turn the call over to Mr. Stephen Willard, CEO. Please go ahead, sir.

Stephen Willard

Thank you very much, Nicole, and good morning, ladies and gentlemen. We open, as always, with the forward-looking statement language, which is set out at the conclusion of today’s press release. All statements made on this call are subject to a variety of future events and risk factors, including those set forth in our filings with the SEC, particularly our Form 20-F, which are all publicly available. Please review them, as they are directly applicable to every element of this call.

It has been two months since our last conference call, and I would like to give a brief update of our work over the past two months. As we announced last month, we entered into an agreement with a leading specialty pharmaceutical company to develop controlled-release formulations of two molecules using our Trigger Lock technology platform.

While we have an existing agreement with this company, this is a new collaboration and we are pleased with this expansion of our relationship with them. Pursuant to the agreement, we received an upfront payment of $3 million, and we are also eligible for development-based milestones as well as mid-single digit royalties upon commercialization.

We also concluded another agreement recently with a company that markets a control-release, orally administered drug that is given for a certain central nervous system or CNS indication. The agreement covers the development of a Micropump-enabled formulation of the drug that could substantially improve the product. Flamel received a $500,000 upfront payment and we are eligible to receive mid-single digit royalties upon eventual sales of the product.

Last week, Flamel filed suit against Lupin Pharmaceuticals, alleging patent infringement following receipt of a Paragraph 4 letter from Lupin, relating to Coreg CR. As we have demonstrated in the past, we intend to vigorously defend our intellectual property in Coreg CR.

I would also like to speak about a new initiative that we expect will help Flamel capture greater value from our Medusa deliver technology.

We are beginning to enter joint-development agreements with companies which are developing very promising new molecules. We believe the greater ownership and participation in the process will not only provide significantly higher financial returns for Flamel, but it will also give us greater control of the information flowed to investors.

We are currently seeking deals in which our ownership interest will be higher than the typical range of Medusa licensing programs. As these are new modules, there can be no certainty that they will get to market, but we believe that our portfolio of formulations of currently-marketed molecules together with higher value, less certain new molecules, will create increased potential returns while maintaining our core strength.

We recently signed our first such agreement which our partner, a company called Fair Alpha, is scheduled to announce today. This is potentially a first-in-class molecule, and we are very excited at the strong potential of the approach. We have identified additional opportunities for this enhancement of our business model, and we will keep you informed of developments in the coming quarters.

Now I would like to ask Siân Crouzet, our Principal Financial Officer, to review our first quarter results. Siân?

Siân Crouzet

Thank you, Steve. Good morning everyone. Our revenues in the first quarter were $6.8 million compared to $8.1 million in 2010. The reduction is primarily due to a decline in Coreg CR sales, which has driven a reduction in both our product sales and realty income.

We have continued to furnish Micropump’s [inaudible] to GSK during the first quarter and are in the process of negotiating a new supply agreement.

Our license and research revenues were $3.2 million in the first quarter. A certain number of our feasibility programs have now advanced to the stage where work is being conducted primarily by our partners.

In the coming months we would expect our partners to indicate their assessment of our formulations and their intentions for potential on-going developments. The turnaround from our partners is difficult to predict, and as such can create variability quarter-to-quarter revenue stream.

Cost and expenses during the quarter were $11.7 million compared to 12.1 million in the year-ago period. SG&A declined by over 10% year on year, as we maintain our commitments as strict costs control.

Cost of goods and services sold declined in line with the corresponding revenue stream on the side of Coreg CR, Micropump [inaudible].

Research and development expenses increased to $7.8 million in the first quarter of 2011. This is driven by cost incurred on pre-clinical studies, which we have conducted in a drive to further strengthen intellectual property on both our technology platforms.

Our cash position was $26 million at the end of the first quarter, which does not include the upfront payments of 3.5 million that we are to receive on the recently-signed license agreement. We continue to focus on being self-financing and expect to be cash flow positive in the second quarter.

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