Athersys, Inc.
Q1 2016 Earnings Call Transcript

Published: 7 May 2016

[Operator:]

Good afternoon, ladies and gentlemen. My name is Karen and I will be your conference operator today. At this time, I would like to welcome everyone to the Athersys First Quarter 2016 Earnings Conference 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]. I would now like to turn today’s call over to Mr. BJ Lehmann, President and Chief Operating Officer of Athersys Incorporation. Sir, you may begin.

[BJ Lehmann:]

Thank you, and good afternoon, everyone. As Karen said, I’m BJ Lehmann, President and Chief Operating Officer of 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’ Web site 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 I will host today’s call. The call is expected to last approximately 30 to 45 minutes. 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 5 of 2016. Since then, we may have made announcements related to the topics discussed, so please reference our most recent press releases and SEC filings. I’ll briefly review our first quarter 2016 financial results and then turn the call over to Gil for a corporate update, followed by a question-and-answer period. For the first quarter of 2016, we had 15.5 million in revenues compared to $731,000 in the first quarter of 2015. Contract revenues were $15.1 million compared to $106,000 for the same period of 2015 reflecting the recognition of $15 million in revenue from our collaboration with Healios in the first quarter of 2016. We expect our future contract revenues to be comprised of revenues associated with our Healios collaboration, our RTI Surgical collaboration in the orthopedic allograft area, and other business collaborations that we may establish. Our grant revenue decreased to $334,000 in the first quarter of 2016 from $625,000 in the first quarter of 2015. This difference reflects the completion of non-clinical research grants and the timing of activities and expenditures associated with grant-funded projects. Research and development expenses increased to $6.7 million in the first quarter of 2016 compared to $5.7 million in the previous period. The difference was primarily related to an increased in clinical and preclinical development costs, including manufacturing and process development activities supporting the advancement of our cell manufacturing capabilities. General and administrative expenses were $2 million for the three months ended March 31, 2016 and $1.9 million for the same period in 2015. We recognized net income for the three months ended March 31, 2016 of $4.8 million compared to a net loss of $12.5 million for the same period of 2015. The $17.2 million net variance includes the impact of the $15 million Healios license revenue, the increase in research and development expenses and a $3.4 million non-cash decrease in expense from the change in the fair value of our warrant liabilities, among other things. Net income per share was $0.06 in the first quarter compared to a net loss of $0.16 per share in the first quarter of 2015. During the first quarter of 2016, cash provided by operating activities was $7.3 million compared to $1.1 million in the first quarter of 2015 reflecting the impact of the Healios transaction during the first quarter of this year and the effect of the Chugai transaction in the first quarter of last year. As of March 31, 2016, we had $30.4 million in cash and cash equivalents compared to $23 million at December 31, 2015. With that, I’d like to turn the call over to Gil for the corporate update. Gil?

[Gil Van Bokkelen:]

Thanks, BJ, and good afternoon, everyone. Since we held our last earnings call exactly eight weeks ago, we’ve continued to focus on the activities and themes we described at that time, namely preparing for the upcoming clinical trial in Japan that will be conducted and funded by our partner Healios and preparing for and participating in meetings with the PMDA alongside the Healios regulatory and leadership team, preparing for our upcoming meetings and discussions with the FDA and others regarding our planned international clinical trial for ischemic stroke, further advancing our ongoing clinical trials in treating myocardial infarction patients and patients suffering from acute respiratory distress syndrome or ARDS, and continuing to explore additional partnering opportunities around multiple programs. Since May is National Stroke Awareness Month, I’d like to begin by providing people with some recently updated numbers that illustrate the magnitude of the challenges related to stroke, that also indicate the nature of the opportunity related to the development of a safe, effective, and clinically practical treatment for stroke patients. According to the recently issued American Heart Association 2016 Statistical Update, for the most recent year of available data, there were approximately 33 million strokes worldwide and 16.9 million people who suffered their first stroke. Stroke remains a leading cause of disability in the United States and around the world, and each year approximately 795,000 people have a stroke in the U.S. alone. Put another way, on average, a stroke occurs about every 40 seconds somewhere in the U.S., and on average, someone dies from a stroke about every four minutes. Perhaps the most disturbing from an economic perspective is that the American Heart Association projected over the next 15 years, total cost associated with stroke in the U.S. are projected to nearly double from current levels to approximately $185 billion annually. This increased impact from stroke is predominantly due to three primary drivers, with the most important factor being the rapidly expanding aging segment of the population. This is clearly the most significant risk factor, given the unprecedented demographic shift that is now occurring. In the U.S. alone, over the 20-year period from 2010 to 2030, the number of people over the age of 65 will increase from 40 million people to more than 72 million people, representing an 80% increase in the segment of the population that is most susceptible to stroke. As the American Heart Association analysis shows, age is an important and significant risk factor. However, other factors are also exacerbating this trend, including a continuing escalation in obesity rates for adults and a continuing trend towards reduced activity levels and a more sedentary lifestyle among young and old alike. As recent literature shows, there has already been a steady and somewhat alarming increase in stroke incidence among younger adults, which is believed to be related to the substantial rise in childhood obesity rates over the past several decades and that may amplify stroke risk in the years ahead as these cohorts age. However, the problem is not just in the U.S. In Europe, specifically in the EU-28, the number of individuals over age 65 is projected to grow to more than 125 million people by the year 2030, which not surprisingly, is expected to drive increased stroke incidence. Furthermore, in Japan, which unfortunately has the most daunting demographic challenge of any developed country, the over 65 segment of the population will represent over 30% of Japan’s population by 2030 and the cohort age 80 and over will more than double, representing over 14% of the population there. Currently in Japan, Datamonitor estimates that there are already approximately 339,000 first-time ischemic strokes per year, a number that could increase in a meaningful way given the demographic shift there. In total, the incidence of first-time strokes in North America, the EU and Japan combined is currently more than 2.2 million cases annually, a number that is anticipated to rise in the coming years. And as we have described previously, currently available treatments reach only a small proportion of patients. It’s against this backdrop of mounting clinical, social and economic challenges associated with stroke and the limited treatment options available that we continue to focus on advancing our clinical program in a thoughtful and efficient manner. However, these trends and our position underscore three very important points for our shareholders. First, that the need for safe, effective and clinically practical treatments for stroke remains greater than ever. Second, that stroke remains not only one of the most significant areas of unmet clinical need in medicine today, but also represents one of the greatest commercial opportunities in the history of our industry. And finally, that we at Athersys are in a strong position from a development and competitive perspective. Recently, we and our colleagues at Healios conducted successful meetings with PMDA to discuss our plans to conduct a confirmatory clinical trial under the new regenerative medicine regulatory framework implemented in Japan. During these meetings, we discussed a number of elements related to the trial, including study design, quality measures and a range of other topics. Per PMDA protocol and procedures, in advance of the meetings, we had worked with Healios to prepare and submit relevant materials and background information that laid out our specific plans for the trial and a series of related questions we sought the agency’s perspective on. The meetings with PMDA were highly productive. During the discussions, we reached agreement on key elements of the trial, including the window for intervention, inclusion and exclusion criteria, the proposed primary endpoint for the trial, key secondary endpoints and statistical parameters. As has been the case in our prior meetings with the PMDA, their staff was engaged and very helpful and provided thoughtful advice and perspectives. We anticipated that these would be the last meetings held prior to finalizing and submitting the clinical trial application or J-IND, which is currently in active preparation. As we have successfully addressed each of the core outstanding issues with PMDA during the course of these consultations, Healios anticipate submitting the J-IND in the coming weeks and we are assisting them in that effort. As we’ve discussed previously, under the new regulatory framework in Japan, the demonstration of consistent safety and meaningful, although not necessarily statistically significant, evidence of therapeutic benefit are required to achieve conditional approval. Importantly, although a smaller study design may be utilized to achieve this objective, Healios has committed to conducting a more meaningful and robust study, a decision that we wholeheartedly agree with. The benefit of conducting a larger study is that it increases the effective powering of the trial and as a result, we and Healios believe it improves the likelihood of success. Furthermore, while statistical significance is not a requirement under the new regulatory framework when seeking conditional approval, conducting a more robust study achieved several objectives, including mitigating risk and opening up the additional possibility for four unconditional approval based upon a more meaningful dataset. Furthermore, it provides an additional dataset that we believe could provide complementary evidence for our development efforts outside of Japan, thereby increasing efficiency in our global development strategy and reducing overall development costs. We and Healios are fully aligned with their planned approach for conducting a more robust trial, as well as with their objectives and strategies. Following the meetings with PMDA, we and members of the Healios leadership team traveled to Sapporo for the 2016 Japan Stroke Conference, which was attended by many of the leading stroke specialists in Japan and many other stroke clinicians. One of the key investigators that participated in our completed BO102 study had been invited to give a special symposium on our behalf, detailing the results of the trial, which was very well received, as had been the case with the International Stroke Conference held in February where the one year results were first presented, a few weeks earlier. Investigator enthusiasm remains very high, and we and Healios are both confident that interest and support will translate into an efficiently conducted study. Based on our work together to date, we are very excited about the collaboration with Healios. Their team shares our vision for the future of regenerative medicine and what it can achieve and our ideals regarding development and what makes for a successful collaboration. They also recognize the substantial nature of the clinical and business opportunity, and there is tremendous alignment between the teams. In fact, we are already exploring with Healios how we might expand the scope of collaborative projects that we are partnered in so that we can broaden our shared vision and put ourselves in an even stronger position to clinically validate innovative, safe and effective regenerative medicine therapies and accelerate our ability to commercialize them in Japan. We share a vision with Healios of developing best-in-class regenerative medicine therapies and delivering those medicines on a global scale. In addition to our efforts and activities in Japan, we continue to make meaningful progress related to our preparations for conducting a robust and registration-eligible study in North America and the European Union, and have already scheduled upcoming regulatory meetings with that objective in mind. As we conduct these meetings and gain valuable insights and perspective from the FDA and other regulators that help us refine and finalize our plans, we will provide additional information and perspective. In the meantime, we continue with our effort to design and study that incorporates the valuable lessons we have learned from the prior trial and implement that information in a manner that we believe will put us in the best position to validate our prior results as well as achieve success on behalf of the patients we are committed to serving and our shareholders. We also believe that gaining regulatory clarity on the path ahead will provide important information related to other partnering discussions focused on the stroke program. In addition, we continue to explore partnering opportunities across multiple other areas, and I am optimistic that successful execution on our partnering efforts and our development initiatives can position us for the type of success we have long envisioned for the company and our shareholders, and establish Athersys as a true leader in the biopharmaceutical industry. We continue to make progress in other areas as well, including advancing our ongoing clinical trials in treating patients that have suffered significant damage from acute myocardial infarction and our exploratory study in treating patients suffering from acute respiratory distress syndrome. Just to remind everyone, in both programs, we have been awarded some meaningful grant-funding support to help fund these studies. And while they’ve been progressing more slowly than we have hoped, we’ve made some recent adjustments including increasing engagement with study coordinators at participating sites, making some protocol adjustments that have had a positive impact and adding additional clinical sites. It’s too soon to say what the full impact of these steps will be, but we remain committed to completing both of these studies as quickly and efficiently as possible. So in summary, our primary near-term priorities remain focused on; first, achieving greater clarity on the regulatory path for clinical development and potential product registration for the stroke program both in Japan as well as in North America and the European Union. Second, continuing to focus on core activities related to process development and manufacturing objectives that will provide the necessary strong foundation for successful commercialization upon approval. Third, expanding the scope and impact of partnerships that will help us drive development and successfully commercialize products upon approval. And fourth, continuing to drive clinical development in our other programs. And with that, we’d be happy to take a few questions.

[Operator:]

[Operator Instructions]. Your first question comes from the line of Jason Kolbert of Maxim.

[Jason Kolbert:]

Gil, thank you so much. It’s very exciting and I’d like to understand more about the design of the clinical trial in Japan, particularly the powering assumptions, although you may not be ready to give us those details. But you did mention something that’s very curious to me and you talked about the potential to expand the relationship with Healios. Can you give me some idea about what that might mean in areas that Healios is interested in beyond stroke for Japan? That will be very helpful. Thank you.

[Gil Van Bokkelen:]

Sure. So the first question related to the clinical trial and powering assumptions around that. I’m not going to get into the weeds on that just because Healios is still doing some additional analysis before they finalize things. But what I can say is that we’re talking about a study that’s actually larger than the study that we ran previously, and would be in the range of approximately 150 to 200 patients in total. So it’s going to be a very meaningful size study. I think the other thing that I was very pleased with, in terms of the discussions that we had with PMDA, is that we reached agreement on virtually every aspect of the clinical trial that we discussed with them, most importantly the primary endpoint for this study. We had suggested to them that we thought that excellent outcomes was an appropriate endpoint for the trial and they agreed with that. And I think that’s very important. That was actually one of the strongest indicators that we saw in this study that we completed in the last trial for improvement among patients. And it’s also –frankly, it’s easy to explain to people. The Global Test Statistic or the global statistic parameter that we had talked about previously was a little bit hard for people to wrap their head around because it’s kind of a blended weighted average, if you will, of each of the three clinical assessments that were done, including the NIH Stroke Scale, the modified Rankin Scale and the Barthel Index. And people were finding it a little bit difficult, although it had been used previously in other studies, it was just a bit difficult for some people to kind of interpret. But the clinical relevance of excellent outcome is obvious. It’s basically the degree to which patients are exhibiting recovery in each of those three clinical rating scales and essentially showing complete or essentially complete or near complete recovery in each of the three clinical rating scales. So it’s easy for patients to understand, it’s easy for doctors to understand, it’s easy for hospital administrators and regulators to understand. It’s something that I think provides a lot of clarity on that. So there were a number of different choices that we could have made or that could have been and that were considered actually, but I think the Healios’ decision and commitment to actually running a more robust study is a tangible indicator of their commitment to this trial and the partnership, and also their belief that this is going to be successful and they want to design a study that is really powered and structured for success. And I think that’s exactly what we’re going to do. The second question we had related to my comment about our discussions with Healios about potentially expanding the scope of the partnership. Again, it’s too early for me to get into the specific details on that other than to say the following. There is tremendous alignment between the vision of the leadership team at Healios and what we have been intending to do and have been working towards doing for quite some time. We share the same ideals. We share the same scope of vision for what regenerative medicine can accomplish and more specifically, what our technology can accomplish and working together what we believe we both can accomplishment in Japan. So I will only say that we are – we’ve been having active discussions about a very meaningful expansion of the partnership. I’m not ready to give more details on what that means, but I’m very optimistic based on those discussions and what we’ve already reached conceptual agreement on that the future for this partnership is very bright. And I think it holds a lot of opportunity for both organizations. And frankly, it’s something that our shareholders should be very excited about.

[Jason Kolbert:]

Thank you, Gil. And you also mentioned one curious point where you talked a little bit about learning from the Phase 2 trials entry and exclusion criteria. When you look at the Phase 2 trials, if you could make some changes going forward that would enrich the probabilities of success, can you give me some idea? And I understand we’re not going to hold you to this of what things might change the balance going forward.

[Gil Van Bokkelen:]

Yes, I’ll point to just one thing in particular. The time window for treatment was obviously one of the most important and compelling take home lessons that we learned from the trial. And PMDA agreed that treating patients with an 18 to 36-hour window, which is what we’re going to be focused on, is the right approach. And so we’re incorporating that knowledge as well as some other things. We’d incorporated or allowed for inclusion in this study, for example, patients that received joint treatment with tPA and mechanical reperfusion. I think we’ve learned some lessons there and we made some design modifications accordingly in this study. And that’s all being incorporated into Healios, as planned, in their submission for the clinical trial. But again, we’re in full alignment on these issues and it was gratifying actually to get such a positive and welcoming response from PMDA when we were discussing it with them.

[Jason Kolbert:]

Thanks, Gil. I really appreciate it. Good luck.

[Gil Van Bokkelen:]

Thanks, Jason.

[Operator:]

Your next question comes from the line of Steve Brozak of WBB.

[Stephen Brozak:]

Good afternoon, Gil. I’d like to take the other side of the question that you were just talking about because obviously the clinicians now have data and they’re not watching this in a vacuum. Can you tell us what clinicians are now all of a sudden going to think, hey listen, this is a unique opportunity for us and what kind of feedback are you seeing as far as their approach and what you think you’re going to see on their wanting to use MultiStem given patients they’re presenting? And what kind of a difference you’ll see with that, because they obviously have something to go on now? And I’ve got one follow up after that.

[Gil Van Bokkelen:]

Yes, the short answer is, is that the clinical reception both at the International Stroke Conference and kind of the follow-up discussions that were had based on the presentations in February and then the subsequent presentations in – or actually presentations in Japan at the Stroke Conference there were extremely positive. A lot of really, really positive feedback from clinical experts and KOLs from the U.S., from Europe that attended the conference in Los Angles, for example, and then also in Japan. And quite frankly, I think people are struck by a couple of key points. The first is, is the consistent safety profile. Again, they compare and contrast that mentally with what they’re used to seeing with things like tPA or some of the other thrombolytics that have been used or some of the risks associated, for example, with the surgical approaches or the mechanical reperfusion approaches. And those risks are very worrisome, because when things go wrong, they can go wrong in a really, really bad way. And so I think the consistent safety profile that we’ve observed across our studies, in particular in the stroke study, I think is something that is very reassuring to them. But the other piece of it I think is the consistency of the data, particularly when MultiStem is administered within that 36-hour timeframe that we are seeing across the range of clinical parameters that we looked at. And then when they consider that versus the robustness of the one-year data, which again, it’s processed some interesting conversations where people are focused historically on this 90-day endpoint, which will be the timeframe that we use for this next study. But the reality of it is, is that I think a lot of people really understand and the biomarker data I think also provides a lot of very comforting evidence in this regard that what we are doing when MultiStem is administered to stroke patients is that not only are we halting and mitigating some of the bad things that happen in the wake of the stroke, but we’re really helping turn things towards creating a more hospitable environment that’s conducive for longer term repair. Now that repair doesn’t happen overnight. It takes time for it to really take hold, particularly with respect to some aspects of the damage. But I think that the data speaks for itself and I think people really seen that that there is a very attractive risk-reward profile here where there doesn’t appear to be meaningful clinical risk, but there appears to be a lot of potential benefit from treating patients, particularly if you can treat them within 36 hours. So we’ve had quite a number of investigators that have commented, I would want to give this to virtually every stroke patient that I see. And I think that that’s very reassuring because it speaks to; one, their experience in the area but it also speaks to their interpretation of the data and the results that we’ve been seeing, and their enthusiasm. And I think that’s going to translate into the next clinical trials that we run as well.

[Stephen Brozak:]

And actually that leads me to the follow-up question. Obviously, typically, strokes don’t happen just in a vacuum and then you have all the other issues of comorbidity. When you look at the new trial designs with Healios, you’re going to have a lot of things that will probably be coming up that aren’t expected given the larger size. What other – given comorbidities, given things like infections that follow through, what are we looking at in terms of – you’re going to be monitoring this very, very carefully for the unexpected positive outcomes, right?

[Gil Van Bokkelen:]

Yes. Well, you’re right. And again, we’ve learned a lot from the study that we’ve completed. And I think again, one of the very encouraging things about that study is particularly in patients that had more severe strokes and we talked about this a little bit at the Investor Day event back in February and some of the data was presented as well at the International Stroke Conference that the – particularly among patients that had more severe strokes, we saw a very remarkable and very compelling reduction in the life-threatening adverse events, really serious adverse events in those patients. So if you look at patients that, at the time of their baseline evaluation had a NIHSS score of say 16 or higher, there was a very dramatic difference between the patients who got treated with MultiStem versus the patients that got just normal standard care and placebo. And I think that again, investigators look at that and they see that as a huge positive and that’s independent of the functional recovery in cognitive and motor skills and other things that are happening because investigators realize and appreciate that the things that keep these patients in the hospital for an extended period of time is not just the disability, but it’s all the bad things that happen in the weeks following the stroke or in the days and weeks following the stroke, so the secondary infections or the other severe adverse events that may occur in these types of patients. And the fact that we – clearly, the data indicates that we’re shifting the balance in favor of better outcomes, both in terms of clinical improvement but also in a reduction of the bad things that typically happen in these types of patients is something that they’re very, very comforted by and frankly excited about. So we’ll be tracking those in the context of this next study. And I think that’s something – Healios has looked at all that data imminently and I think they’re just as excited about it as we are.

[Stephen Brozak:]

No. Actually, that’s the thing that I think everyone is keying in on. This is the only time when you see something that has so many different faucets, but again looking forward to success in this and all the faucets that develop. Thank you. Thank you again and good luck.

[Gil Van Bokkelen:]

Thanks, Steve.

[Operator:]

And there are no further questions.

[Gil Van Bokkelen:]

Okay. Well, given that there are no further questions, I’d just like to thank you all again for your time and attention today and we look forward to updating you again on our future calls and upcoming presentations. Thanks very much.

[Operator:]

And this concludes today’s conference call. All participants may now disconnect.