Athersys, Inc.
Q2 2017 Earnings Call Transcript

Published: 10 Aug 2017

[Operator:]

Good afternoon. My name is Jesse, and I'll be your conference operator today. At this time, I would like to welcome everyone to Athersys' Second 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, Senior Vice President of Finance, 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 e-mail. 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 August 9 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 would like to turn the call over to BJ Lehmann. BJ?

[William Lehmann:]

Thank you, Laura. Good afternoon and welcome everyone. I'm BJ Lehmann, President, Chief Operating Officer at Athersys. I'll briefly review our second 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 second quarter of 2017, we recorded revenues of $669,000 compared to $595,000 during the second quarter of 2016. In the second quarter of 2017, our contract revenues of $449,000 included royalty revenue from RTI Surgical and some impact from our Healios collaborations as we began to supply product for Healios ischemic stroke study. Our contract revenues for the same period of 2016 were $136,000. We expect our future contract revenues to be comprised of revenues from our Healios and RTI collaborations, and other new partnerships that we may establish. Our grant revenue decreased somewhat to $220,000 in the second quarter of 2017 from $459,000 in the second quarter of 2016. Grant revenues relate primarily to our ongoing clinical trial activities and vary based on the award of new grants, completion of grant-funded projects, the timing of grant reimbursable expenditures. Research and development expenses decreased to $4.6 million in the second quarter of 2017 compared to $5.8 million in the prior year three-month period, reflecting decreases in clinical and preclinical development costs, such as manufacturing and process development cost, as well as decreases in research supplies, and sponsored research costs. General and administrative expenses increased slightly to $2.2 million for the three months ended June 30, 2017 from $2 million for the same period in 2016. We incurred a net loss for the three months ended June 30, 2017 of $6.3 million compared to a net loss of $7 million for the same period of 2016. $700,000 difference reflects the increase in revenue, the decrease in research and development expenses, the increase in general and administrative expenses, and the decrease in non-cash income from the change in fair value of our warrant liabilities. We no longer have any outstanding warrants as a result of expiration and no longer have as of the second quarter the related non-cash income or loss associated with changes to our value. Net loss per share was $0.06 in 2017's second quarter compared to a net loss of $0.08 per share in the second quarter of 2016. During the three months ended June 30, 2017, we used $5.7 million of cash in operating activities, compared to $6.5 million of cash used in operating activities in the second quarter of 2016. As of June 30, 2017, we had $28.6 million of cash and cash equivalents, which included net proceeds of approximately $20.9 million from our common stock offering this past February. With that, I'd like to turn the call over to Gil for corporate update. Gil?

[Gil Van Bokkelen:]

Thanks, BJ. Good afternoon, everyone, and thanks for joining the call today. As noted in the earnings release issued a few minutes ago, the second quarter was another productive one for the company. Our recent operational priorities have focused on several important areas including the following

[Operator:]

[Operator Instructions] Your first question comes from Katherine Xu with William Blair. Your line is open.

[Katherine Xu:]

Hi, good afternoon. I'm just wondering, with the delay of the start of the Japanese study, do you see the data is fully expected by year end 2018? And how many sites are there in Japan?

[Gil Van Bokkelen:]

So to the first part of the question, Healios actually just did their quarterly reporting call a few days ago. And in that call, they had reiterated that their intention is to complete the study sometime in Q4 of next year. They have not changed that outlook. Obviously, they will update and give further guidance as they continue to advance the program and as things continue to progress. But our understanding is that they're still committed on trying to achieve that goal. In terms of the number of clinical sites in Japan, they are planning to include approximately 30 to 35 sites. The initiation of the study is focused on - and this is more of a Japanese kind of a cultural thing or, I guess, it's more of a tradition than anything else, that there is one particular site in Japan that they've been focused on enrolling the first patient in. They announced in their recent earnings call that they have not actually enrolled the first patient yet, but their expectation is and our expectation is, is that that could happen very soon. Once that first investigator and once that first site in Japan has been given the honor if you will of enrolling the first patient in the trial, then I think things will continue to progress from there.

[Katherine Xu:]

Okay. Thanks. And then, were there any differences that you can note between the U.S. and European regulatory guidance on the MASTERS-2 design?

[Gil Van Bokkelen:]

There was really no meaningful differences between. There was actually very broad alignment EMA's perspective and FDA's perspective. And that was what we were hoping for and, actually, we were very gratified to see that. It makes things a lot easier. And if there had been any kind of meaningful differences we - that was one of the things that we kind of baked into the timeline that we thought might take us out towards the end of the summer to be able to kind of resolve those differences or discuss and address those differences. But in fact, we really didn't see any meaningful differences between the two perspectives. So, again, I think it reflects the strong robust alignment between the two agencies and the support that we're getting for both of them.

[Katherine Xu:]

Right. And then, lastly, can you remind us the cost of the MASTERS-2 study and also what is your financing plan? Is it just focused on partnership efforts at this moment?

[Gil Van Bokkelen:]

I'm sorry. I didn't hear the first part of the question, Kathy.

[William Lehmann:]

Yeah, I think it's the cost of….

[Katherine Xu:]

…of the MASTERS-2 study.

[Gil Van Bokkelen:]

Oh, yeah, we haven't really given any formal guidance on that. Again, we've kind of guided people in the past towards kind of a back of the envelope estimates in terms of what that trial would cost, I think. And we're not giving any formal guidance on it today. But the kind of general parameter that we referred to in the past that for a study of this type, a general ballpark estimate on a per patient basis would be approximately $100,000 per patient. It could be higher or lower depending on the exact nature of the study. So that would basically peg the projected cost of the study somewhere in the neighborhood of about $30 million. And as I mentioned during the course for our conversations, we fully expect that we're going to have a partner that's going to be supporting our clinical trial. And that is our focus and our attention right now.

[Katherine Xu:]

Thank you.

[Operator:]

Your next question comes from Jason Kolbert with Maxim Group. Your line is open.

[Jason Kolbert:]

Hi, Gil. Jason is here, but Gabrielle wants to jump ahead of me. She has a few questions.

[Gabrielle Zhou:]

Hi, Gil. Oh, we are really excited to…

[Gil Van Bokkelen:]

Hey, Gabrielle, how are you?

[Gabrielle Zhou:]

Good, good, we are really excited to see your new focus now is on China. And I really want to add how would you expect the clinical pathway forward in China, given now there is not such a clear clinical guidance - guideline for stem cell therapy trials in China. If you can comment on that, that would be appreciated.

[Gil Van Bokkelen:]

Yeah, so that is a great question. It is one of the things that we're currently looking at. We've been having discussions with qualified CROs in addition to the companies that we've been talking to over in China. And you're right, I mean one of the things that's a little bit different about stem cells and regenerative medicine in China historically is that, a few years ago there were kind of pockets of activity, but then the regulatory authorities what used to be referred to as the SFDA, that now and most people refer to as the CFDA, took a step back and kind of hit the pause button if you will, because there were some - there were some unaccountable activity in things that were going on with unregulated clinics and other things that I think we're making people nervous. So they took steps to, again, kind of hit the pause button. And over the past several years, I think they've given some considerable thought in terms of trying to create a more updated and modern, if you will - modern is probably not the best word for it. But I guess the more contemporaneous regulatory framework that is in line with the thinking from other regulators around the world. There has been some very positive statements and guidance that have come out of CFDA over the past few months in relation to that. It relates to the conduct of international studies or it relates to certain aspects of development of innovative therapies. I mean, China and the health authorities in China like other parts of the world recognize that, that they're facing a big problem, especially in light of this huge demographic transition that they're going through. And then they need to see as much innovation as possible coming into the marketplace in the clinical landscape there to help them address that. So we are encouraged by what we've seen and what we've heard in terms of how innovative therapies like MultiStem might actually have a path forward for development in China. But we don't have all the answers to all of the things, all the questions or all the things that we've been looking at just yet. It is something that we've been actively discussing and exploring with multiple different groups in different areas. But I'm pretty optimistic to be honest. I mean, I'm not saying it's going to be easy. But the reason why I'm optimistic is we've had similar conversations with other leading regulators around the world, including PMDA, including EMA, including FDA and others. And we've consistently gotten very, very positive feedback from each of these groups, and even where the regulatory environment has been actively involving and actively changing. And I think that we have a lot of experience in kind of navigating through that process. And I think that - again, that gives us a sense of optimism about what might be possible and how we might move forward. One just additional thought on this. China has a long history of embracing innovative medical technologies that have been developed outside of China and then ultimately are brought into the china clinical landscape - clinical marketplace. And so, I think that - and that relates to both medical device, pharmaceuticals, other innovative technologies that are now used in China. Regenerative medicine and stem cells is obviously kind of an evolving area, so it's a little bit different than some of the things that have been done historically. But I think it gives us some reason for optimism based on precedence of things that we've seen in the past.

[Jason Kolbert:]

Terrific.

[Gabrielle Zhou:]

Great, thank you, Gil.

[Jason Kolbert:]

And, Gil, I'd like to migrate a little bit to Lonza and to manufacturing. I noted in the press release that you talked about the product has been shipped to Japan. Can you help me understand where you are? And you started to talk about it a little bit earlier in terms of the ability to provide clinical supply to both the Japanese trial and the U.S. FDA trial. Thanks.

[Gil Van Bokkelen:]

Sure. Well, just qualitatively, without getting into any specifics, I mean, our current focus is really about supplying products to Japan. But one of the things that I will say that we've done is - this is going back to last year when we have been actively planning in anticipation of what we were going to need to do in preparation for the MASTERS-2 study. That we had actually begun outreach, looking at additional CMO relationships that we could establish that would actually help us prepare for that. And since that time, we've been busily engaged with our team here in expanding our network of relationships, if you will, in terms of qualified CMOs so that we can be ready to do what we need to do. And those activities and preparations are continuing. Lonza still continues to have some struggles in certain areas. I know they're actively focused on that. We're trying to support their efforts and their activities as best we can. But in some ways we're kind of dependent on them to make sure that they do everything that they need to do, and they know that they - certainly they regard their relationship with us as a critical priority and they regard this program and what we're doing together as a critical priority because it could set the stage for significantly greater opportunities for everybody down the road. So they're very focused on it. We're very focused on it. But we're not taking anything for granted. We've been evaluating the contract manufacturing relationships in Japan for example as well as groups that we've been having discussions in Europe and other groups around the world, including in groups that have a presence in China.

[Jason Kolbert:]

Perfect, Gil. Thank you so much and just one last question. You talked a little bit, you gave us a little bit of insight into Healios' idea of what the velocity of the trial might look and when it would be fully enrolled. So when the time the first person is enrolled in TREASURE, and I know it's premature to ask that. But in terms of your internal calculations, can you give us some idea, will it be along a similar trajectory to what Healios is doing or how will that vary?

[Gil Van Bokkelen:]

Yes, it's a good question. It's a little bit difficult to predict other than Healios has contracted their model, they have constructed their timetable and they have made enough public statements about what they expect that to be. Their study involves 220 patients that is going to be conducted ultimately at 30 to 35 sites across Japan. Our study is a somewhat larger study, but it's going to be conducted at more sites across North America and Europe. And so in terms of the proportionality of it, I mean, just - I walked through this in the past with you and with others, Jason. But basically, we're looking at a 300 patient study to be conducted at approximately 50 sites. So each of the sites on average, we would expect about six patients per site. But the reality of it is, is that there are some sites that are very high-enrolling sites, there are other sites that aren't quite as active on the enrollment side. And we have a lot more of experience with the sites that we're including in the study here in North America, because we've worked with them previously as well as some of the sites that we've worked with in London. Some of the sites that we're anticipating including in Europe, we don't have any direct hands-on experience with them, but we know that many of the sites that we're working with have been very, very active in prior stroke studies that have been conducted. For example, in some of the medical device programs or some of the other things that have been done. So we're very optimistic that we're going to be able to do this efficiently. But I think it's a little bit premature at this point to kind of compare Japan versus what we're going to be doing in MASTERS-2, because it's - I expect that they could be similar, but I think that there might be some differences as well.

[Jason Kolbert:]

Gil, thanks so much. What an exciting time for Athersys. I appreciate the update.

[Gil Van Bokkelen:]

Yes, thanks, Jason.

[Operator:]

[Operator Instructions] The next question comes from Steve Brozak with WBB. Your line is open.

[Stephen Brozak:]

Hey, good afternoon, Gil. And thanks for taking the question. Gil, I'm looking at a chart right now of Genentech. And obviously, they're a success story, but in the early days - and the reason I mention this, because they were obviously the TPA discoverers, which is obviously what you guys are looking to go up against in terms of potential stroke therapeutics. A lot of detractors, a lot of skeptics were out there early on. And what'd I like know is given where you stand now, the different therapeutic programs that you have had going. What would you say the detractors are looking at, the skeptics are looking at, in terms of where you feel you've got vulnerabilities? And how do you react to that, how you look at it and say, okay. We take this into consideration, but here's where we think we can understand it and here's how we can resolve these questions.

[Gil Van Bokkelen:]

Yes. Well, it's actually a great question, and I think there's some historical relevance there, Steve. Because it's interesting, in Genentech's experience with TPA very early on, the TPA was considered a failure, and that because the early clinical data was kind of a mixed bag, there were some encouraging signs. But one of the things that came through, and there was also some significant safety issues, because it's known and in fact this is part of the longstanding 20-plus year experience in terms of administration of TPA to ischemic stroke patients that there is always going to be an associated risk of hemorrhagic event or some sort of cerebral bleeding as a result of administration of a thrombolytic. And that's also true of some of the medical devices that are being used as well. But the early read with - from Genentech with TPA was that it was a bust, because a lot of people looked at the clinical data and saw that they didn't hit their end point in some of the early critical studies. But what clearly came through was that early administration of TPA made all the difference in the world. Well, in a similar kind of way, that's what clinicians have seen with our program and with our data. They see that there is a definite window of effective administration of MultiStem, the difference being that TPA's initial window was measured in minutes or within several hours or as our window is measured within a 36-hour timeframe. So I think, there is an interesting historical and clinical parallel there which, frankly, was not difficult at all for many clinicians in the stroke community to recognize and kind of grasp the significance of that. It's interesting, if you look back in the early history of both of Genentech and Amgen, they both have their moments, their struggles. So you asked the question about what are we up against in terms of the skepticism? Well, in some ways, the skepticism that Genentech faced early on with TPA or that Amgen faced in some of its early efforts in development were similar. I think that from my perspective, if some of the other things that challenges - I guess, obstacle challenges we face is that people are waiting for somebody to succeed with stroke, because it's been a long time since somebody's done that. So there is a lot of skepticism around that. There's skepticism around the fact that we didn't hit our endpoint in our Phase 2 study. But again, on clinical community and a lot of people that have actually looked at the data closely, they recognize that there are some very compelling parallels between our experience and some of the experiences with Genentech in TPA. But there are also some big differences, which I think give us a much bigger window of opportunity. There are also some concerns around the fact that cell therapy regenerative medicine has not yet firmly established itself. But I think if there's more and more data, and more and more evidences have been generated over the past several years that suggested that day is rapidly coming, and we think that we're going to be playing a big part of that. So I think that in some ways, the market has not processed all the relevant information as it relates to us sufficiently or effectively. I think they're discounting certain things, perhaps in an abnormally large way, that is what it is. I think, our goal is to focus on the things that we know we can accomplish, both as it relates to clinical development, as it relates to partnerships and other activities that we are engaging. And the other things that we think are going to be big value enhancers and drivers for us as we continue to move forward. And I'm optimistic we're going to be able to do that.

[Stephen Brozak:]

I'll ask one follow-up. And then I'll hop back in the queue, thanks. You had mentioned in terms of the cell therapy and what - let's just focus on the investors' expectations over the last 12, 24 months, what, if any differences have you seen with the cell therapy investors and/or the healthcare dedicated investors as to their take on cell therapy and what needs to happen next? And with that, I'll just hop back in the queue. Thanks

[Gil Van Bokkelen:]

Yes, thanks, Steve. So one, I think there's been some encouraging progress both reflected in other cell therapy platforms like the CAR T platform and other things that people have been doing. I think there's also an interesting parallel with respect to the historical waxing and waning as it relates to things like gene therapy technologies that for a while were - people were very excited about, then they fell out of favor, because there were some adverse clinical experiences with some things that were never should have happened, but it cast kind of a pall over the entire sector of gene therapy for a bit. But people have evolved beyond that now. Companies and people that have been developing those technologies for the past few years, I think, have gotten beyond some of those historical limitations, and more and more people are beginning to recognize the progress and the promise of those technologies. So I think that we've seen - it's not a seamless continuous advancement in terms of peoples or the market recognition of things moving forward. It kind of comes and stops and starts, if you will. But I think the point is, is that there has been a large body of evidence that has been convincing more and more people over time that cell therapy in a variety of forms is going to have a significant impact. And that's not just reflected in some of the institutional sentiment, although I think that has a long way to go. I think it's also reflected in some of the sentiment among some of the big pharmaceutical companies that have recognized areas of opportunity and they've actively invested on it. So I think that the best times are still ahead of us, but I think that there's a lot of promise and more and more optimism as we continue to advance things.

[Stephen Brozak:]

Great. Thank you.

[Gil Van Bokkelen:]

Thank you.

[Operator:]

Thank you. That's all the time that we have for questions today. With that, I'll turn it back over to Athersys for closing remarks.

[Gil Van Bokkelen:]

Well, again, I'd like to thank everybody for their time and attention today, and we look forward to providing another update soon.

[Operator:]

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