Athersys, Inc.
Q1 2021 Earnings Call Transcript

Published: 9 May 2021

[Operator:]

Good day and thank you for standing by. Welcome to the Athersys’ First Quarter 2021 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised today’s conference is being recorded. I would now like to hand the conference over to Ms. Karen Hunady. Thank you. Please go ahead.

[Karen Hunady:]

Thank you, and good afternoon, everyone. I'm Karen Hunady, Director of Corporate Communications and Investor Relations for Athersys. Thank you for joining today's call.

[B.J. Lehmann:]

Thanks Karen. I am B.J. Lehmann, President, COO, and Interim CEO of Athersys. It's been just six weeks since we had our 2020 year-end earnings call. We remain on track with our priorities and look forward to important progress during the remaining course of the year. In our call today, I will provide a short update on our business operations. I will then hand it off to John Harrington, our Chief Scientific Officer who will share some highlights of our activities associated with developing and preparing for commercial scale manufacturing. And finally, Ivor Macleod, our Chief Financial Officer will share information about the company's financial position. This will be followed by a brief question-and-answer period. To get started, I would like to provide a short reminder of our priorities this year. First, we are focused on advancing our clinical programs with particular attention to our MASTERS-2 study and in supporting Healios, our partner in Japan as it prepares for applications to the PMDA for potential approval of MultiStem therapy for ARDS and stroke assuming successful trial readouts.

[John Harrington:]

Thanks B.J. Good afternoon. I am John Harrington, Chief Scientific Officer here at Athersys. As we near the key principal readouts, first in Japan with our partner Healios and then subsequently in the United States and Europe, we have begun building our commercial capabilities including manufacturing. In particular, over the past several years, we have invested significantly in our process development and manufacturing of Invimestrocel with the objectives of increasing annual production capacity and reducing cost of goods. Historically, we've utilized a two-dimensional manufacturing process in cell factories, which has allowed us to move efficiently into clinical development to establish proof of concept. It has also facilitated discussions with key regulatory agencies including FDA, EMA and PMDA. With this as a foundation we have focused on developing a commercial scale bioreactor process capable of fully supplying Invimestrocel product to meet the commercial needs of Athersys and our partners. To this end, we've carried out thousands of small-scale experiments and scaled down bioreactor models to optimize media formulation, product yield, operating parameters and of course, product quality. This work has led to the development of an intermediate scale bioreactor process that is now been transferred to our manufacturing partner Lonza. And GMP production using this process is currently underway to support ongoing clinical study.

[Ivor Macleod:]

Thank you, John. Good afternoon everybody and thank you once again for joining today's call. I'm Ivor Macleod, Chief Financial Officer of Athersys and it is my pleasure to give you an overview of the financial results for the first quarter of 2021. There were no revenues for the three months ended March 31st, 2021 and March 31st, 2020 respectively. Our collaboration revenues currently fluctuate from period-to-period based on the delivery of goods and services under our arrangement with Healios, our Japanese partner. Research and development expenses increased to $17.5 million for the three months ended March 31st, 2021 from $12.1 million from the comparable period in 2020. The $5.4 million increase is primarily associated with increases in clinical trial and manufacturing process development costs of $4.3 million. Personnel costs of $700,000 and stock compensation costs of $400,000. Our clinical development, clinical manufacturing and manufacturing processes development expenses vary over time based on the timing and stage of clinical trials underway, manufacturing campaigns to clinical trials and manufacturing process development projects. General and administrative expenses increased to $8.8 million for the three months ended March 31st, 2021 compared to $3.5 million in the comparable period in 2020. The $5.3 million increase was primarily due to onetime charges related to the settled litigation between the company and Dr. Kagimoto, CEO of Healios and a Director of the company; and also the resignation of our CEO, Dr. Gil Van Bokkelen including $2.3 million in accelerated stock compensation costs.

[A - B.J. Lehmann:]

Sure. First thank you to all of you who have submitted questions. I'm going to address a few of these here. The first question is, about the timing of data from the Japanese studies in particular the ONE-BRIDGE study for ARDS and the TREASURE study for ischemic stroke? As I noted before Healios has announced the completion of enrollment into ONE-BRIDGE study. With respect to the top line results Healios controls the timing and nature of any public disclosure which will depend on the completion of the analysis of the study data. Typically in such ARDS studies the first 60 days falling treatment represent a core window for patient data collection. So with this in mind we hope that we'll see the top line results available relatively soon. At this point, it's difficult to be very precise about the timing of top line data from the TREASURE study. Based on the disclosed study status and trial design, we hope to see that top line data later in the year though like the ARDS study, Healios controls the timing and the nature of the data availability and the public disclosures. A second question was about the status of the search for a new CEO. We thought we'd address that one here as well. First, the Board has already launched a comprehensive process to identify and attract a leader who can guide the company effectively into commercialization. As we stated in the past our objective overall is to have the best leadership and talent available to lead us forward towards the commercial stage. At this point, we cannot provide any guidance about the timing of the process. We will provide further updates on the search when there's something to report. But in the meantime we do have in place an experienced committed executive and leadership team with the support of the Board to continue to drive our operations forward over the course of the year and achieve our priority initiatives.

[Operator:]

The first question comes from the line of Greg Harrison with Bank of America.

[Olivia Brayer:]

Hey guys, it is Olivia Brayer on for Greg. Thanks for the question. My first one is on the MASTERS-2 trial design. Can you just talk about some of the similarities between your trial and Healios TREASURE trial data that could be a positive indicator of success for your study down the road? And then also whether there was any level of patient enrichment beyond what was done in the Japanese study? And then I have one follow-up afterwards.

[B.J. Lehmann:]

Sure. Let me talk about the design similarities. I think that will give you a pretty good idea. First off, with respect to the patients that are coming into the study the patients are essentially very similar. These are patients that have moderate to modest severe strokes as measured by NIHSS which is one of the standard scales for evaluating neurological function following an event like a stroke and that is between 8 and 20 on that scale at the time of entry into the study. It's got to be a durable stroke. So we evaluate these patients for some period of time to make sure it's not a transient stroke event. That's important for ultimately the data set and the robustness of the data set. These are also patients who are being treated within 18 to 36 hours in both cases. And they also have available to them or to the doctors who are treating them other device and PPA technology that could help with reperfusion. So in all cases we are including patients that could have had reperfusion therapy. So long as that reperfusion therapy doesn't fully address the stroke and they remain within the targeted patient criteria that is mentioned. So those are the similarities with respect to the patient population. Obviously, the Japanese population there. I think with respect to the endpoints again very similar. We are looking at a set of primary and secondary endpoints that are also covered off in the TREASURE study. The primary endpoint for us is something called the mRS shift analysis which is essentially an analysis of the distribution of mRS scale scores in the population comparing placebo to treatment. We have as key secondary endpoints things like excellent outcome evaluating a patient. And essentially the recovery to normal state and we have, as well evaluations at day 90 and day 365 and a series of other secondary endpoints that are similar between the studies. The TREASURE study has the same endpoints. However their primary is the Excellent Outcome measure and a key secondary for them is the mRS shift analysis. It's a smaller study about 220 patients. We do believe, it will be somewhat predictive of our outcome, but it's a different patient population and while there is a good degree of similarity and standard of care there, there are some difference such as a lower rate of the reperfusion therapies and the like. So we do think it's going to be very informative with respect to how we view the potential for MASTERS-2.

[Olivia Brayer:]

Okay. Great. That's helpful. And then in terms of EU partnering strategy, can you just give us some update where now – now that we're getting a little closer to the Japan data for both programs. And whether that's still a latency approach or whether there is more of a near term prioritization there?

[B.J. Lehmann:]

We continue to have discussions with potential partners with respect to rights in Europe and outside of Europe. And it's possible that we could do something before data or after data. At the end of the day, we want to find the right partner, who brings the right capabilities to the table to help us be successful in commercialization And I think the expectation in Europe is to find a potential partner with deep commercialization experience and capabilities, preferably in the indications – the indications we're working so the critical care indications and who's got a demonstrated commitment to the space of cell therapy or gene therapy space. So that's what we're looking for. And the timing is really going to be driven around finding that right deal. We are approaching the data now, certainly that could have some impact on the nature of the deal. So that will be taken into consideration as we’ll continue to have our discussions going forward.

[Olivia Brayer:]

Great. Thanks so much, guys.

[B.J. Lehmann:]

Thank you.

[Operator:]

Your next question comes from the line of Jason Kolbert with Dawson James.

[Jason Kolbert:]

Hi, guys. Good to hear you voice. John, I understood a little bit about what you were talking about, not at first but when I started to connect it to the numbers to what Ivor was talking about in terms of the R&D expense. So my question for you is on an ongoing basis, how should we be thinking about cost of goods. Obviously, right now it's very high because it's in a clinical trial period, but it sounds like you're making a lot of progress towards driving that process to be more efficient i.e. lower COGS. So can you help put your comments and perspective in terms of the cost that's showing up now versus what the cost might be under commercialization.

[John Harrington:]

Very good. Jason, good to hear from you. So as I mentioned in my comment, the initial first generation manufacturing process was a two-dimensional cell factory based process. It's relatively manual. Relatively small batch sizes. It allowed us to move quickly into clinical development and allowed us to work with regulatory agencies to define the key parameters around, ultimately the commercial process that we utilize. Ultimately, cost of goods is driven by a number of inputs, raw materials is the big one, labor is one facility, et cetera. And as you increase that size through for example, a bioreactor process raw materials become a larger component of cost of goods, we optimize the cost of those raw materials through optimization processing – processes et cetera. And we dramatically reduced labor, we've dramatically reduced facility costs. We've dramatically increased batch size, which had associated with it some economies of scale that we can capture as we scale out that bioreactor process. So overall, moving to a bioreactor process has a substantial impact of cost of the goods, namely it will reduce cost of goods significantly and has already. I mentioned that we have an intermediate scale bioreactor process. We're producing GMP product with Lonza and we plan to use that material in clinical trial. And that has already had a meaningful reduction in the cost of good. But the more significant reduction in cost of goods comes from the final large-scale bioreactor process that we've now developed. And we've initiated the process of transferring that final commercial scale bioreactor process to a CMO and we're exploring the possibility of bringing that in-house as well. And the timing of that investment will be likely around the key clinical data readouts et cetera. But overall, there will be a substantial reduction in cost of goods. Cost of goods will be we expect competitive in the biologics space. These are complex products, the living drug. There are a lot of challenges in producing at large-scale a living drug. You've got very short pull times. You've got very processing times, et cetera. And as you increase that size, you have more and more material that needs to be processed in a very finite period of time. This isn't like an antibody or a recombinant protein that can be produced upstream and then processed over day to week. We have hours to process the material, purify it, concentrate it, formulate it and vial it. And then ultimately, as you know, the product is cryopreserved. So we have a short window to do that and that creates challenges. I think we've largely overcome the major challenges and we've developed a process that is at least in the process – in the hands of our process development group quite robust. And so we expect to move that forward into commercial scale production in the coming years. With potentially material available and a shorter time frame than that. But ultimately it's been a major focus of the company. We've made a major investment in terms of people and processes and we're quite happy with where we are in that process. Does that…

[Jason Kolbert:]

Yes. I understand how much is actually in there and it'll take some time to unpack that. But what I hear you saying is on good clinical data, the justification to put money in the ground and potentially bring manufacturing even in-house to realize the economies of scale is a possibility?

[John Harrington:]

Sure, yes. We're going to look at that. That's going to be one of the options that we have going forward, yes.

[Jason Kolbert:]

And B.J. Thank you, John. One of the transitions that I get asked a lot about is Gil's departure and you talked about commercialization and bringing in a CEO of commercial experience. I remember when Josh Boger, the founder of Vertex stepped down everybody was shocked, but it made a lot of sense because they brought somebody in who had commercial experience. So what are the -- what does the resume have to look like for the person you're bringing in? Is it somebody with big pharma and potentially stroke experience to launch this product?

[John Harrington:]

I don't want to comment too much on this. I think we have a strong process in place being led by the Board. But suffice it to say we're going to cast the net broadly because we want to look at a variety of different capabilities that can help us in the commercial stage. And that could be large pharma, it could be smaller biotech. It could be experience in biologics. It might not be. So we want to bring the right set of capabilities into the company. Something that complements the team here a person who's got a set of capabilities beyond just commercialization as well because that's going to be important too over the next couple of years. But other than that I would leave it to our search team at the Board level to drive it forward. I've seen the process outlined and we participated. I think it's a robust process. I think we're going to find some very strong candidates who can really bring value to the company. So let's let that develop and we'll report back.

[Jason Kolbert:]

Okay. Thanks for the update, guys.

[John Harrington:]

Okay. Thank you.

[Operator:]

Thank you. I'll now turn it back over to B.J. Lehmann for closing remarks.

[B.J. Lehmann:]

Thank you. In closing, I'd like to thank you all for participating today. I'd also like to thank our shareholders, especially, our long-term shareholders for your continued investment and interest in Athersys. That's very important to us. We probably don't say thank you enough. But thank you. Everyone have a good night. Bye.

[Operator:]

Thank you. Ladies and gentlemen, that concludes this conference call. You may now disconnect.