Athersys, Inc.
Q1 2017 Earnings Call Transcript

Published: 10 May 2017

[Operator:]

Good afternoon. My name is Maria, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Athersys’ First Quarter 2017 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Laura Campbell, You may begin your conference.

[Laura Campbell:]

Thank you and good afternoon everyone. I’m Laura Campbell, Senior Vice President of Finance for Athersys. Thank you for joining today’s call. If you do not have a copy of the press release issued at the close of market, it is available on the Athersys’ website at athersys.com, or you may call Matt Celesnik at 216-431-9900 to receive it via email. Dr. Gil Van Bokkelen, Chairman and Chief Executive Officer; and BJ Lehmann, President and Chief Operating Officer will host today’s call. The call is expected to last approximately 30 minutes, and it may also be accessed at athersys.com. A replay will be available two hours after the call’s conclusion and access information for the replay is in today’s press release. Any remarks that we may make about future expectations, plans, and prospects constitute forward-looking statements for purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by the forward-looking statements as a result of various important factors, including those discussed in our Forms 10-Q, 10-K and other public SEC filings. We anticipate that subsequent events and developments may cause our outlook to change. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. For the benefit of those who may be listening to the replay, this call was held and recorded on May 9th of 2017. Since then, we may have made announcements related to the topics discussed, so please reference our most recent press releases and SEC filings. With that, I'd like to turn the call over to BJ Lehmann. BJ?

[BJ Lehmann:]

Thank you, Laura. Good afternoon and welcome everyone. I'm BJ Lehmann, President and Chief Operating Officer at Athersys. I'll briefly review our first quarter 2017 financial results and then turn the call over to Gil for a corporate update, followed by a question-and-answer period. During the first quarter of 2017, we reported revenues of $1.5 million compared to $15.5 million during the first quarter of 2016, but the majority of our revenues being derived from collaborative arrangements. In the first quarter of 2017, our contract revenues were of $1.3 million related primarily to our collaboration with RTI Surgical in orthopedic allograft area included a $1 million commercial milestone from RTI. In the prior year first quarter, we recognized $15.1 million in contract revenues, reflecting the $15 million license fees of our Japanese stroke collaboration with Healios. We expect our future contract revenues to be comprised of revenues from our Healios and RTI collaborations and other business collaborations that we missed out. Our grant revenue decreased to somewhat $210,000 in the first quarter of 2017 from $334,000 in the first quarter of 2016. Grant revenues relate to clinical and non-clinical research activities and vary based on the award new grants and completion grant-funded projects and the timing grant reimbursable expenditures. Research and development expenses decreased to $5.6 million in the first quarter of 2017 compared to $6.7 million in the prior year three month period, reflecting decreases in clinical and preclinical development cost such as manufacturing and contract research orientation cost as well as the decreases in research supplies, license fees and travel cost. General and administrative expenses were relatively consistent at $2.1 million for the three months ended March 31, 2017 and $2 million for the same period in 2016. We incurred a net loss for the three months ended March 31, 2017, up $5.6 million compared to net income of $4.8 million for the same period of 2016. This $10.4 million difference reflects the collaborative revenue from Healios in 2016 and RTI in 2017. The decrease in research and development expenses, a slight increase in general and administrative expenses and increased non-cash income from the change in the fair value of our warrant liabilities. We had a net loss $0.06 per share in the 2017 first quarter compared to net income of $0.06 per share in the first quarter of 2016. During the three months ended March 31, 2017, we used $5.4 million of cash in operating activities compared to $7.3 million of cash being provided by operating activities in the first quarter of 2016, reflecting primarily the impact of the U.S. license fee during the 2016 first quarter. As of March 31, 2017, we had $31.9 million in cash and cash equivalence which included net proceeds of $20.9 million from common stock offerings past February. By comparison, our cash and cash equivalence at December 31, 2016, is $14.8 million. With that, I’d like to turn the call over to Gil for corporate update. Gil?

[Gil Van Bokkelen:]

Thanks, BJ and good afternoon everyone, and thanks for joining the call today. As we do each quarter including in our most recent earnings calls just a couple of months ago, in addition to the financial update already provided by BJ. During today's call, I’ll provide a brief update, discuss some of our recent accomplishments, important near-term priorities and reiterate some key aspects of our longer-term vision and goals. As BJ mentioned, we recently reported financial objectives in the first quarter including the receipt as a milestone payment from our partner RTI Surgical and the addition of capital to our balance sheet from the common stock offering in February. However, before we get to the other items on the agenda, I’d like to point out that as some of you may already be aware, May is national stroke winner this month. Accordingly, it represents the time to educate and increase public awareness about the risk factors, sign and symptoms of stroke and to urge people that when they or someone they know is suffered a stroke, action needs to be taken right away. Far too often, we hear story of situations where individuals fail to recognize a stroke when it happens or just miss the early symptoms thinking they could never happen to me. These delays and taking action right away can have serious or even tragic consequences. In addition to building greater public awareness about stroke prevention and treatment, this month also serves an opportunity to highlight the importance of our work in progress and to educate others about the potential impact of what we’re doing. Last quarter, I mentioned that we recently started working with the new communications firm that has been helping us achieve greater public and investor awareness related to our stroke program in particular as well as other areas. Recently, we have achieved greater media attention with print, online and television news coverage highlighting some of our programs and activities. Links to some recent stories or media coverage are available on our website. An additional example and information may be found on social media channels including Twitter, Facebook and LinkedIn. Although, we also recognized that there is still a lot more to do, we are pleased with the recent coverage and progress in our communications efforts. Another example of our promoting stroke awareness is through the communication of real life experiences. We are committed to helping educate people about the signs and symptoms of stroke and the need to take action right away. And as part of that effort, we have been privileged to hear stories from people who are willing to share their experience about what is like to have a stroke, and also from the dedication physicians who work on the frontline to care for stroke patients and who recognize and appreciate the limited current treatment options. Compelling stories for people like Tedy Bruschi, the former New England Patriots linebacker that had a stroke at the age of 31 and is now a spoke person for the American Stroke Association or other strokes survivors that have experienced the debilitating stroke and unlike Tedy have the opportunity to participate in our MASTERS-1 clinical trial. These individual have shared their stories and put the experience in human terms that many others can relate to. Their experiences underscore both the need for greater awareness and the need to take action right away and also provide their personal perspective on the importance of the work we are doing. As part of our commitment to inform and educate, expert stroke physicians and researchers like Dr. David Schull, Dr. Wayne Clark and Dr. Sean Savitz shared their perspective on current stroke treatment, its limitations and on MultiStem and the MASTERS-1 clinical trial. We believe that physicians and patients sharing their experience and perspective is critically important because it helps educate others at to the value of stroke research. The development of new investigational therapy is like MultiStem and the need for patients and their families to understand the importance of properly conducted clinical trials, which represents a critical step to seeing safer and more effective medicines developed, validated and openly we made available to patients. All during month of May, patients and clinicians will share their perspectives and stories. In an effort to inform and educate others is part of National Stroke Awareness month. We invite you to be part of that. You can follow their experiences on social media like Twitter, Facebook and other channels and help spread the word. Together, we can create greater national and global awareness about stroke and the work being done here at Athersys. In contrast to the current treatment options, we believe there is a growing recognition of what it might means to develop a safe and effective therapy for treating ischemic stroke in a 36-hour window, a timeframe that extends well beyond the limitations of current standard of care. We hope to see much more of that attention as we continue to advance our clinical and research programs and build the greater awareness. To that end, nothing is more important to us than the continued advancement of our ongoing clinical programs and our efforts to safely and effectively advance standard of care for stroke patients. As we’ve discussed previously regarding our plan Phase 3 stroke trial called MASTERS-2 following the successful authorization of the special protocol assessment for this program by the FDA last fall. We’ve been actively engaged with the EMA and others to solidify regulatory alignment in formal agreement for the trial, so that we are in a position to initiate the study later this year. That process is ongoing and from a regulatory perspective, we expect to achieve our goal sometime this summer. We know however that while achieving regulatory alignment and agreement among FDA and EMA and particular is a critical step that must be accomplished before being able to initiate the study. There are other things to do as well, and they must be done in sequence. Following regulatory alignment, the next task includes submitting the authorized clinical protocol for Institutional Review Board or IRB consideration and approval at each of the clinical sites. Negotiating contracts with each of the qualified sites chosen to participate in the study. Site training and qualification visits, and other activities that are each essential to launching and conducting the study in a proper and efficient manner. We are committed to completing each of these and other essential activities as efficiently as possible. On a separate but related front, we are pleased to announce today that we have been granted another important regulatory designation from the FDA. Specifically, the FDA has granted our request for fast track designation for our stroke program. Under this designation, the program becomes eligible for more frequent meetings and interactions with the FDA to facilitate development. And importantly, eligibility for rolling submission, accelerated approval and priority of our BOA, which facilitates the timely regulatory review, each of these elements are design to help expedite the development process. In conjunction with the FDA and our other activities, we believe fast track designation puts us and whoever we partner with in a strong position to execute this program in an efficient manner, and we thank the FDA for their continued support of our program. Understandably, among the people following the Company including our potential partners, there is a lot of anticipation and excitement around the MASTERS-2 trial, and we believe the fast track designation will further enhance that. There is also a lot of excitement regarding the treasure trial in Japan, being conducted by our partner Healios. Some people have asked why Healios is not yet announced initiation of enrollment for the study, and I’d like to take a moment to provide a brief update on that specific point. We and Healios are both committed to the same high standards regarding the design, conduct and efficient completion of the treasure trial. Recently, we were informed by Lonza the contract manufacturer making the investigational product for the study that events unrelated to our program led to an inspection of Lonza's Maryland facility by FDA staff and precipitated an internal evaluation by Lonza. The FDA identified a number of issues which were ultimately summarized in an FDA letter to Lonza. Since our product is also manufactured in the Maryland facility, we meaning, Athersys and Healios, conducted our own independent evaluation prior to releasing product for the initiation of enrollment to determine whether there was any meaningful impact on the supply and investigational product for the study. We recently completed this evaluation and concluded that the operational issues at Lonza did not impact our product and as an additional measure, we submitted our detail assessment to the FDA for its review. Subsequently, the FDA concur that the product is releasable for the study. These evolutions, activities and communications transpired over the past few weeks. However, prior to today, we were not in a position to comment on the situation. It's only recently that Lonza disclosed and commented publicly on the matter and provided us with necessary information to complete our assessment and then received FDA feedback. Although, this resulted in a bit of a delay with respect to the actual release of the product, the successful completion of the process now enables the study in Japan to proceed as planned. While this type of event is frustrated since it was unexpected and entirely outside of our control, everyone needs to recognize that in the conduct of clinical studies, these types of things can happen. When they do, we promptly take the necessary steps to carefully evaluate the circumstance and proceed cautiously and appropriately as we have done in this case. In any event now that the assessment is complete, both we and Healios are excited to move forward and get the trial in Japan underway. Turning now to partnering activities, a key objective for Athersys this year is to implement one or more new partnerships and we are making good progress on that front. As I mentioned previously, we believe that the fast track designation we have now received for our stroke program will further enhance those efforts. Working with the firm, we have retained to help us manage the partnering process. We currently have ongoing discussions, evaluations and diligence activities with multiple companies, and we are optimistic about the ultimate outcome. We believe that by implementing the right partnerships, we will bring to their complementary capabilities and resources which can improve the odds and magnitude of success, add meaningful capital to the balance sheet and fund our key clinical development programs. This is the top priority for the Company, as we have seen it previously and although the process takes time, we have dedicated the appropriate resources towards these critical initiatives. In addition to our stroke program and partnering activities, we continue to advance our other clinical programs including our ongoing clinical trials evaluating the treatment of patients that have suffered a myocardial infarction and evaluating the treatment of patients that have been diagnosed with acute respiratory distress syndrome. We are committed to completing enrollment in both studies as quickly and efficiently as possible, and announcing the results of the trials as soon as we are in a position to do so. Our fundamental long-term objectives remain unchanged. We are committed to advancing medical care in areas where there is substantial unmet clinical need, establishing ourselves as a leading company; providing safe, practical and effective cell therapy to patients; and delivering substantial value to our shareholders. In the meantime, we continue to execute our development plan and look forward to making further announcements as appropriate. With that, we'd be happy to take a few questions.

[Operator:]

[Operator Instructions] Your first question comes from the line of Katherine Xu from William Blair. Your line is open. Please go ahead.

[Katherine Xu:]

I am just wondering, have you applied for breakthrough therapy designation?

[Gil Van Bokkelen:]

We really are not going to comment on that I mean I think that fast track designation was the more appropriate path for us to go down. We explore a range of different auctions at any given time in our regulatory strategy. Fast track designation was something that we felt was kind of the right fit for us. We applied for it and we were pleased as the FDA agreed and granted us that designation.

[Katherine Xu:]

And then, could you give us a more color on the points of the study design submitted to the EU authorities? How does that differ from the protocol under the FDA, from the FDA? And what are the major points that you're working on?

[Gil Van Bokkelen:]

Yes, so study design has been submitted as identical to what we have already agreed with the FDA. And the process that we are undertaking right now was just a go through that stuff like that process with EMA just to make sure that they are pulling on board and complete alignment with what the FDA is already agreed under the Special Protocol Assessment. And we have talked about it in the past and I know we discussed with you, Katherine, the -- you need to do that prior to the initiation of the study. Because once you initiate the study, there, you can't make any modifications as defined under Special Protocol Assessment. We've had good interactions with regulators in Europe. We fully expect to be successful in terms of achieving the alignment that we want, so that we can conduct the study the way that we have envisioned and the way that we planned, and the way that the FDA has already agreed to. It's just -- you have to do a step at a time, in terms of submitting -- submitting information to the regulators, having them evaluated. They come back to you, if they have any specific questions or anything they want to talk to you about, and then basically go through that process from start to finish and complete it. We expect to complete that process this summer as I said, and then be in the position to move forward from there.

[Katherine Xu:]

Are there any points of distinction that, that are clearly different from the U.S. requirement or it's a basic matter of process?

[Gil Van Bokkelen:]

Yes, it's really more of a matter of process.

[Operator:]

Your next question comes from the line of Jason Kolbert from Maxim. Your line is open. Please go ahead.

[Jason Kolbert:]

Hi, Gil, I just would like focus on two areas. Talk with me a little bit about manufacturing supply for both the U.S. and Japan. You mentioned the long the issue as it the same plant that will be supplying both jurisdictions I guess when I think of the U.S. I think of U.S. and Europe as one and Japan as the other? Or is it two separate facilities? And did you learn something at one facility that will help you with the others? And then I want to come back and talk with you a little bit about financial guidance and kind of how you see R&D evolving over the next two years as both of these trials started off and get underway?

[Gil Van Bokkelen:]

So, we've had a -- with regard to the first question and thanks Jason for joining the call. So with regard to the first question, we've had a longstanding relationship with Lonza and we actually work with them through a couple of different dimensions of the Lonza organization. So, we don’t just work with [Waterstone] (ph), we actually work with some of their European team members as well. And we also have relationships with other groups that we haven’t disclosed publicly. We believe that it's important to have a diversified set of capabilities and a diversified strategy in place to make sure that we are able to meet our goals. The facility in Maryland that we are working with is really focused right now on supporting the Japan study. That’s how we are utilizing that capability in that growth, but we have other things that we are doing and I am not going to go into detail on that today related the supporting our other programs and our other efforts. With regards to the second question, you've kind of raised the general notion, but I don’t think you really asked a specific question. We don’t give specific forward financial guidance. We have it as a general rule. I think our expense levels have been fairly consistent, if you go back and look at what transpired on a quarter by quarter basis. Obviously, we are impacted most significantly by new partnering activity, which is I mentioned during my comments on the call that’s a big priority for us right now. And frankly, I think will be a meaningful needle move for us. I think we have got opportunities across multiple different areas. We are working with outside groups to help us accomplish what we want to do from a partnering perspective. And I think the goal is to make sure that we maintain good solid financial resources as we continue to advance our programs and then ultimately once we have been able to achieve success in a key program stroke for example, we think that’s going to change our situation pretty dramatically. And we will open the whole host of other possibilities. So, the partnering front maintaining healthy balance sheet while we continue to move ahead on the clinical development programs in our development. I mean we are doing much more development now than we really are doing basic research. We have been doing basic research for years related exploring how MultiStem may have relevant across a whole host of different potential therapeutic indications. And we in the large part completed that process across a whole range of different indications that we have been evaluating. We do have some ongoing activity in certain areas, but the reality of it is that we are much more focused on making sure that we are successfully translating our efforts into the clinical phase of things as we have done in multiple areas already. And then using the regulatory mechanisms that are available to us and I think we have done pretty successfully to create a clear and efficient path for the finish line. And I think its noteworthy I mean I didn’t mention it on the call because we talked about it on the last call that we work with Helios to put them in the position to be able to do that as they can which they have done. And we have done it ourselves in terms of our interactions with FDA and our ongoing activities with other regulators. And I think that we are going to -- I know that we are going to continue to do that because we think that from an investment thesis perspective, creating a clear efficient path way to the finishing line is something that a lot of institutions and a lot of investors out there really care about. And I think the fast track designation is just one example of that in terms of the multiple different dimensions and the multiple different ways that it can benefit us.

[Jason Kolbert:]

And Gil when you are talking about partnering I get the sense that a lot of your discussion is focused on stroke. But is it possible that we could see partnering completely independent of stroke? And I also want to ask you, are there any events during the enrollment period and kind of maybe even some interim looks that Helios will do that could trigger any milestones back to the Company?

[Gil Van Bokkelen:]

Yes, so with respect to first question regarding partnering another area, yes, we are -- absolutely in fact we -- I made that point repeatedly without getting into the details of it that we are exploring partnering opportunities across multiple different dimensions. And that’s something that we are going to continue to do. I think we actually -- one of the benefits of the strategy that we have undertaken for the past few years is that by sowing seeds in three different areas that ultimately put us in a position to reach the benefit of that. And I think that right now, we are actively exploring opportunities across again several different areas, which I am actually pretty excited about. With respect to what Helios may do or our ability to disclose on specific milestones, we really can't provide specific color on that Jason just because we are not at liberty to do under the nature of the contract and the confidentiality provisions that we have with Helios. I think people are appropriately refocused on the conduct and the completion of that study and that’s where their attention should remain. There are things that obviously we have a very active vibrant partnership with Helios and get extent beyond just what we are doing in the stroke area is to potentially other things as well. But we will inform people at the appropriate time as we do that when we are in a position to make further disclosures and announcement and as Helios in a position maybe that as well, but we like them as a partner. It’s a good solid relationship. I think just latest bit of uncertainty and frustration with the activities at Lonza has in many ways reinforced that and it allowed us to work together to troubleshoot, solve problem, assess or analyze in a pretty efficient way.

[Jason Kolbert:]

And Gil just last question is, how did that you or Helios come up with the acronym TREASURE? What does that mean?

[Gil Van Bokkelen:]

Yes, they came with that and as I recall to the answer of treatment of acute stroke using regenerative developments, if I am not mistaken.

[Operator:]

And now our final call comes from the line of Chad Messer from Needham & Company. Your line is open. Please go ahead.

[Chad Messer:]

Gil, is it possible to quantify what the time impact of this longer issue was and I think more importantly whether past guidance that we could expect data somewhere around second half of '18 if that's being impacted at all?

[Gil Van Bokkelen:]

Yes, so the last few weeks -- so as you know, Chad, and thanks for joining the call by the way. As you know typically when studies are starting, there is kind of progressive on-boarding process where you get the first site or site up and running and then kind of extend out from there and grow it up overtime. So, the beginning part of the process is important, but it's really how you actually get to that majority of those sites up and running and then having no sites actually efficiently delivering on the enrollment objectives and getting that going. I can't really comment specifically on Helios' perspective, but I know that they are committed to completing that study and they've said in the past that they expect to complete that study sometime next year. And they’ve not said anything different in terms of their expectations, their objectives or their goals. And I think I should probably leave at that because I know that Helios want to make sure that they are in the position to actually updating people in terms of the trial, but again our goals and our expectations remain as they have in terms of what we intend to do with them and support them in that effort.

[Operator:]

At this time, I'll turn the call back to Dr. Van Bokkelen.

[Gil Van Bokkelen:]

Well, thank you very much. We appreciate the participation in the call today and we look forward to updating you again soon. We will be at the William Blair Late Stage Clinical Conference tomorrow in New York and not making a formal presentation, we are doing some update meeting with some folks. But again I would like to thank everybody for following the Company and I strongly encourage people to take a look at the social media because there are some really compelling story than I think some excellent examples of people sharing their perspective about their recent experiences and how participating in the clinical trial, they feel change their life. So with that, we will wrap for the day, but thank you very much and we will talk again soon.

[Operator:]

This concludes today's conference call. You may now disconnect.