Athersys, Inc.
Q3 2017 Earnings Call Transcript

Published: 9 Nov 2017

[Operator:]

Good afternoon. My name is Erica and I will be your conference operator today. At this time, I would like to welcome everyone to the Athersys’ Third Quarter 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions] Thank you. Ms. Laura Campbell, you may begin your conference.

[Laura Campbell:]

Thank you and good afternoon, everyone. I am 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, and Chief Operating Officer will host today’s call. The call is expected to last approximately 30 minutes and 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 November 8, 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?

[BJ Lehmann:]

Thank you, Laura. Good afternoon and welcome everyone. I am BJ Lehmann, President and Chief Operating Officer at Athersys. I will briefly review our third 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 third quarter of 2017, we recorded revenues of $399,000 compared to $311,000 during the third quarter of 2016. Our contract revenues for the 3-month period ended September 30, 2017 were $179,000 consisting primarily of royalties from RTI Surgical as compared to contract revenues of $150,000 for the same period last year. From time-to-time, contract revenues may also include many factoring payments from Healios, our collaborator in Japan that is conducting a clinical trial, ischemic stroke known as the TREASURE study. Our grant revenue increased to $220,000 in the third quarter of 2017 from $161,000 in the third quarter of 2016. Grant revenues relate primarily to awards where our ongoing clinical trials, acute myocardial infarction, acute respiratory distress syndrome. Research and development expenses increased slightly to $5.4 million in the third quarter of 2017 compared to $5.3 million in the comparable prior year period, reflecting increases in clinical and preclinical development cost offset by decreases in research supplies, sponsored research and travel cost. General and administrative expenses increased to $2.1 million for the 3 months ended September 30, 2017 from $1.8 million for the same period of 2016, with the increase primarily due to personnel related cost. We incurred a net loss for the 3 months ended September 30, 2017 of $7.2 million compared to a net loss of $6 million for the same period last year. This $1.2 million difference includes the minor increases in revenues, R&D expenses and G&A expenses in the current period and non-recurring gains in the prior period of $682,000 from insurance proceeds for flood damage and a $191,000 from gains on the fair value of our former warrant liabilities. Net loss per share was $0.06 in 2017 third quarter compared to a net loss of $0.07 per share in the 2016 third quarter. During the first 9 months of 2017, we used $17.9 million of cash in operating activities and we raised approximately $31.7 million from our common stock offering, warrant exercises in equity purchase facility. With $28.2 million in cash and cash equivalents as of September 30, 2017, we remain well-positioned to maintain our current operations and systematically evaluate our business development opportunities, including those involving our stroke program, which Gil will discuss in his update. With that, I would like to turn the call over to Gil for a corporate update. Gil?

[Gil Van Bokkelen:]

Thanks, BJ. Good afternoon, everyone and thanks for joining the call today. During the third quarter, we made additional progress towards the achievement of some key goals. Our major near-term priorities include the following

[Operator:]

[Operator Instructions] And your first question comes from the line of Jason Kolbert with Maxim Group.

[Michael Okunewitch:]

Hi, there. Michael Okunewitch on behalf of Jason Kolbert. So, it seemed like a safe set of manufacturing is now resolved, but I just wanted to know will the Japanese manufacturing be used to support just Healios or the rest of the world as well?

[Gil Van Bokkelen:]

Well, we have the option to use that manufacturing capacity however we want. I mean, basically our longer term objective is to establish redundant and diverse manufacturing capabilities, which are essentially built to common standards, so that we can’t utilize those capabilities. However, we think it’s appropriate. I think Healios was quite interested in establishing the manufacturing capability in Japan and we agree with the reasoning for that. We felt that Nikon would be a very good partner for both of us and that’s why we implemented that capability.

[Michael Okunewitch:]

Yes, it sounds alright. Now, I just want to know if the processes for, let’s say, Lonza and Nikon are comparable to say a Hitachi process?

[Gil Van Bokkelen:]

Well, the process – the manufacturing process is established by us. The capabilities for different manufacturing facilities can be a bit different. There is obviously similarities, but the reality of it is that there are number of contract manufacturing organizations that are out there and we have looked at quite a few of them to determine which ones we think would be the best fit for us. But again, I think it’s important to recognize that the manufacturing process which we have established is proprietary we developed it and that is our primary responsibility.

[Michael Okunewitch:]

Alright, thank you. That answers that. And just on the stroke trial, how many centers are now opened in Japan and around when do you expect full enrollment for those?

[Gil Van Bokkelen:]

Well, I don’t think Healios has disclosed the number of centers that are currently active in Japan. They have disclosed that when all the centers are up and running, they expect to have more than 30 clinical sites actively participating. They have given some guidance on when they are hoping to have enrollment completed, which is around or toward the end of next year, but they are going to periodically update that as things move ahead and as circumstances warrant.

[Michael Okunewitch:]

Alright. Now, what about the U.S. and the European P3 trials as well for stroke?

[Gil Van Bokkelen:]

Well, I guess you have a specific question about that.

[Michael Okunewitch:]

I mean, when you are expecting those to get enrolled and…

[Gil Van Bokkelen:]

Yes. I mean, right now, we are planning on completing the preparations for the initiation of the study. That’s really our main focus right now at the current time. We will give more guidance with respect to the conduct of the study as we move ahead.

[Michael Okunewitch:]

Alright. Now, given there is going to be a bit of a long timeline to the data, what in term looks our plan, so we can get a feel on how those are going throughout the process?

[Gil Van Bokkelen:]

Well, we provide updates quarterly. We provide updates at various events along the way. We usually don’t give specific enrollment updates on trials, but again, we define important milestones whether it relates to clinical activity, partnering activity or other things that we might be involved in and we make announcements as appropriate along the way.

[Michael Okunewitch:]

Alright. Well, thank you very much and congratulations on the progress throughout the quarter.

[Gil Van Bokkelen:]

Thanks.

[Operator:]

And your next question comes from Katherine Xu with William Blair.

[Unidentified Analyst:]

Hi, this is Roland in for Katherine. Thanks for taking my questions.

[Gil Van Bokkelen:]

Sure, Roland.

[Unidentified Analyst:]

Number one, do you still expect to get started by year end 2017 for the MASTERS-2 study and if you need to get a partner to get started with that? Thank you.

[Gil Van Bokkelen:]

So, we are actively preparing for the trial and we are moving forward in the context of some of the ongoing partnering discussions that we have right now. It’s a near-term goal, I am not going to characterize it anymore precisely than that other than to say that it’s obviously at a critically important priority for us and we are making good headway towards achieving all the things we need to.

[BJ Lehmann:]

Yes, I think it’s worth adding, I think it’s important for us to play out the partnership discussions before we kind of finalize initiation etcetera right. So, we need to let this play out a little bit before we can provide specific guidance with respect to time and study etcetera.

[Unidentified Analyst:]

Yes, understood. Are there any ideal factors you are looking for in a partnership?

[Gil Van Bokkelen:]

Well, there is lots of factors that go into selecting the right partner, I mean I am not going to get into the specifics of that, I mean obviously, there is economic consideration, there is making sure that we have alignment on all the key aspects related to development and a whole bunch of other things, it’s both near-term and long-term alignment of vision capabilities, resources and a whole bunch of other things that go into that as I mentioned, so I think we are making very good progress in the areas that we need to and we are optimistic about the outcomes.

[Unidentified Analyst:]

Okay, thank you.

[Gil Van Bokkelen:]

Yes.

[Operator:]

And your next question comes from the line of Chad Messer with Needham & Company.

[Chad Messer:]

Thanks for taking my question. Most of the ones…

[Gil Van Bokkelen:]

Hi, Chad.

[Chad Messer:]

Foremost on my mind is that just making sure, I am up to date on your latest thinking for timing of lot of programs and I think between your prepared remarks and my colleagues earlier questions we probably gotten good of answers that you could provide on that, but I just wanted to clarify one thing I think you said about Healios’ guidance, about 1 year to enroll once they start rolling patients. Did I hear you correctly on that?

[Gil Van Bokkelen:]

No. I think Healios has stated that their objective is to try and complete enrollment of trial next year. And obviously with the recent – with the recent issue related to placebo, things got interrupted for couple of months. But again, I think our goal remains to try and complete the enrollment of that study as quickly as possible and to try and complete enrollment of the trial next year. And again, it’s a 90-day primary aspect of the study.

[Chad Messer:]

Alright, yes. That makes a lot of sense. And then you kept cash constant during the quarter. I wonder if you could just provide more details on the sources of the cash during 3Q, was that mostly through your equity purchase agreement and if so can you tell us how many shares you ended the quarter with?

[BJ Lehmann:]

I can update little bit on that. So over the course the year we have raised capital on a couple of different ways we offer and at the beginning of the year of course we had some warrants that were exercised as well. And then we have made some use of the equity facility in the third quarter and we did a little bit in the second quarter as well. Just to provide a little bit of background on that, we have an equity facility with an institutional investor. They are a long-term investor in the company. They are a long holder in the stock. We have had couple of facilities with them over the years and used the facilities periodically or opportunistically support specific objectives and so forth. And I think, as Gil mentioned one of the key objectives here is to maintain a balance sheet that’s healthy and gives us the strength and flexibility to complete negotiations on the business side effectively and so that’s what we have done here. So, we did largely maintained the cash position through some activity on the purchase agreement, there may have been some potential impact on the working capital side as well, but a large percent of it is through utilization of the equity facility. I think at the end of the quarter, in last quarter, correct me if I am wrong, I think we have approximately 117 million shares outstanding. Is that correct? After the utilization. Okay.

[Chad Messer:]

Yes. Thank you. Very helpful.

[Operator:]

And we have time for one more question, which comes from the line of Steve Brozak with WBB.

[Gil Van Bokkelen:]

Yes, absolutely.

[Steve Brozak:]

Hey, good afternoon gents. Gil, I know that you had basically said, you didn’t really want to talk about potential partners into the future, but in looking back, what makes your ability to look at partners different now considering that you have partnered with a who is who, what are some of the things you have learned about partnering that you have learned about what some of the pitfalls are and that you have learned about what you think you are looking for in terms of partner’s abilities and your ability how you are going to do things differently in terms of future partnering and you can expand on this as much as possible? Thanks.

[Gil Van Bokkelen:]

Yes, it’s a great question actually. I think one of the lessons that we learned from some of the prior relationships that we have been engaged in is that, that we need to establish that there is really good alignment upfront before we enter into the partnership with respect to the clinical development path. Now, one of the things I think a key difference maker here is we have already done that, we have already put in place a very clear development in regulatory path. We have negotiated it with the regulators. It’s codified in the Special Protocol Assessment. It’s supported and validated by the different regulatory designations that have been conferred along the way. So, we have this very well mapped out already. So, one of the things that I think again we learned in the past is sometimes the partner might have different thoughts on how to approach certain types of clinical studies or development activities and they may not be consistent with or in complete alignment with how or what we want to do. In this case, I think we have neutralized that as the consideration, because we have a very clearly defined plan that’s already laid out, but it extends well beyond that, because I think that what you really want to make sure that you have is good alignment on some of the other big items or other big dimensions of how partnership might work and I am not going to get in and provide specific examples on that, but I think that there are number of different things that I think are very, very important to establishing long-term harmony and frankly long-term success of the strategic partnership. This partnership is going to be a critical initiative for us. It’s going to have a very big impact on almost everything we do. And that’s why we are making sure that we are doing this right and we are working very hard at it to make sure that we pick the best partner, do it the right way, have the right relationship parameters in place so that we can meet our goals and deliver the types of shareholder value that we are committed to delivering and achieving kind of development success and commercialization success that we have been aspiring to accomplish for a long, long time.

[Steve Brozak:]

And along those lines I just have one follow-up final question, for the majority of time that we have seen partnerships that’s been usually the large partner that goes out there and handles all the regulatory and everything else and the smaller partner basically is in a position of just being along for the ride. I would imagine given your relationship with FDA, but you probably would have a stronger voice in that prospect given your expertise in the space. Just as much clarity as you can give us on that? Again, thanks and I will hop back into queue.

[Gil Van Bokkelen:]

Yes. Again, it’s a good question and you are absolutely correct, I think we have demonstrated pretty convincingly on many occasions that we have a very solid relationship with regulators. We know what we are doing when it comes to interacting with the FDA, with EMA, with PMDA or with other regulators that we may engage with. And I think that the companies that we have worked with and the companies that we might work with on a going forward basis I think are aware of that and are confident in our capabilities in that regard. And again, we are not willing obviously any partnership relies on the ability of the partners to work together and to achieve things in a clear and efficient manner, but I think there was an entity and this was kind of embedded in your questions in a lot of relationships historically for it to be viewed as the smaller companies just kind of tossing it over or handing it over to the bigger company and then they are taking it from there. That would absolutely not be the case as we are moving forward. And again, we have laid a very strong foundation already for not only defining exactly what needs to be done, but how it’s going to be done and who is going to do it. And I think that type of clarity actually is an important ingredient into allowing us and the partner to establish what we need to do to on the path from where we are right now to actually achieving regulatory success in getting approval. And again, there is other things that need to be defined along the way that relate to a whole range of different areas, but I am confident that we are going to be in alignment with whoever we partner with to achieve that and that’s how you increase value in my estimation.

[Steve Brozak:]

Obviously. Thanks for the color. Thanks, again.

[Gil Van Bokkelen:]

Yes, thanks Steve. Appreciate it.

[Operator:]

We have reached the end of our Q&A session. Dr. Gil Van Bokkelen your closing comments please?

[Gil Van Bokkelen:]

You are close it’s Van Bokkelen, but anyway, thanks very much. I appreciate everybody dialing in and participating in the call today and we look forward to providing another update very soon.

[Operator:]

Thank you. And this does conclude today’s conference call. You may now disconnect.